Zopa, the UK neobank, raises $93M more at a $1B+ valuation

After raising $300 million in a round led by SoftBank back in 2021, UK neobank Zopa has closed a deal to put more funding in its coffers. The company — which provides consumers with lending services, credit cards and savings accounts and has some 850,000 customers — has raised £75 million (around $93 million), an all-equity investment that plans to use both to build out new financial products, to bring on more customers, and to make acquisitions.

Interestingly, Zopa is not disclosing a lead investor, but CEO Jaidev Janardana confirmed to us in an interview that it was an inside round from existing investors; that some of those involved included investment firms Uprising and Augmentum; and that SoftBank was not in this round but that it remains an investor and board member. The company also said in a statement that the funding “cements and markedly enhances” its unicorn status — the $300 million round in 2021 was made at a $1 billion valuation — but it’s not providing an actual valuation with this latest round.

There are a few signs that this round took a little time to close. There were rumors of the fundraise in September last year, and at the time it was said that Zopa was looking to raise around $100 million.

Those reports also noted that this could be the last fundraise for the company before going public, although Janardana declined to comment on any timelines, given the current state of the public markets and the fact that Zopa, in his words, has no pressure to do so at this point.

This latest funding injection is coming at a key moment in the U.K. economy.

The IMF earlier this week released a report in which it predicted that the U.K. would be the only major economy to shrink in 2023. But despite that dubious distinction, and amid a persistent threat of recession, challenger banks seem to continue to find traction with consumers and businesses looking for better rates and faster services than those being offered by more traditional banks.

The company says that this month it passed £3 billion in deposits in its savings business, with £2 billion in its loans business (with £8 billion in loans approved overall) and some 400,000 credit cards in circulation. It currently has some 850,000 consumer customers across the different tranches of its business. Revenue figures are not being disclosed, but the company says that these have doubled in the last year. It’s also on track to be profitable for the full year in 2023, the first time since it was first founded 17 years ago.

All the same, market growth for loans and financial services has definitely slowed down, Janardana said, with 2022 decidedly back a “pre-pandemic levels” of activity.

“Demand for credit has fallen… and overall, when I look at demand in the industry for loans, there’s been just 5-10% growth in the last year,” he said, citing a big drop in discretionary spending as one of the key reasons for that. “But this hasn’t impacted us as much as it has some others.” LendingClub, another big lending startup in the country, cut some 14% of staff in January.

“Customers are moving to digital and are looking for more options rather than going to a bank,” he continued. “That more informed consumer behavior [means] our volumes are continuing to grow.”

Acquisitions and new products are going to aim to capitalize on that, he said, while helping the company diversify its business at the same time. Areas that Zopa would like to explore include building products targeting businesses, and it also wants to expand further into payments alongside its credit, loan and savings products.

The current market is definitely seeing a lot of pressure on valuations and the sea of fintech startups that have been funded over the years are also finding it harder to raise more money, giving Zopa (and others) an opportunity to snap up those assets. Janardana noted that the £75 million shouldn’t be seen as the ceiling for those valuations, though, since it is likely to cut deals that will be combinations of cash and shares, and that it has a lot of money in the bank still from previous rounds. He added that investors are also willing to chip in more for the most interesting deals and that so far Zopa has yet to explore raising any debt.