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The Real Reason Zopa Is Closing Its P2P Arm
Zopa has closed its P2P arm to focus on its bank.
Zopa wrote to its customers:
“Sadly, over the last few years, customer trust in P2P investing has been damaged by a small number of businesses whose approach led to material losses for customers investing in those platforms. Linked to this, the changing regulation in the sector has made it challenging to grow and remain commercially viable.”
The real reason Zopa has closed its P2P lending operation
It's funny, but I was asked just a few days ago by a journalist for my predictions for 2022. I predicted that next year will be the year Zopa closes its P2P arm. And it didn't close for the reasons it states.
It was inevitable that Zopa closed at some point in the near future, because operating a P2P business is in direct competition with running a bank. And the bank has to win that competition or it suffers insurmountable difficulties.
As far as I know, Zopa has always held out that it will keep its P2P arm going. So it has now found plausible sounding excuses to put the blame on something else and not its new bank operation. It doesn't want to annoy many of its P2P lending customers, who probably believed it would keep its P2P lending arm going.
How right is Zopa about the P2P lending industry?
Zopa mentions a few poor P2P lending companies that have led to losses for some lenders. Every type of investment suffers from some bad ones. It would have been more surprising if there had been none after all these years.
What's more important is that the P2P lending industry has seen overall profits, and stable ones, for most investors every year since 2005. That's a record the stock market can't compete with. And that record will ensure that investors stay interested and that more investors gradually convert to this type of investing.
Zopa's certainly right about regulation being more of an issue. Absurdly, the regulator forces providers to describe P2P lending as high risk, even though intrinsically it's less risky on average to lend money than it is to invest in equities. The stock market has seen losses after costs in one-third of the years since P2P lending has been operating, versus 16/16 very clearly winning years in P2P.
But even the regulator will have to recognise over time that this is a high-quality investment. P2P lending is here to stay.
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