Speaking at the LendIt Europe conference this morning, Zopa CEO Jaidev Janardana (pictured) issued a stinging critique of the traditional banking model, which he says is set up to “take advantage of customer inertia”. He went further, describing old school banking as a zero-sum game, in which wins for the bank will always be to the detriment of customers, and vice versa.
But Janardana is trying to lead Zopa towards a more mutually beneficial future. Zopa, the UK’s original peer-to-peer lending company, announced that it would be pursuing a banking licence late in 2016. Janardana says the firm is now about “half way” through the application process.
The Zopa chief is attempting to build a fairer bank, which for him centres on an alignment between the incentives of the bank and the customer. Zopa's bank will offer unsecured personal loans (via the P2P platform), credit cards, savings and investments, and auto loans.
In product areas where it will be competing with high street incumbents, Zopa hopes for an edge based on a firm commitment to fairness and transparency. Its credit cards, for example, will not advertise zero per cent interest periods, instead opting for a low, flat rate from the outset. In terms of savings rates, there will be no pricing differentiation between its front book and back book.
These principles are core to Janardana’s vision. His presentation highlighted that, according to a recent survey, 10 per cent of consumers expect to pay interest on zero per cent credit cards, when in reality close to 50 per cent end up doing so. Similarly, savers with mainstream banks often have very high levels of satisfaction in the short-term, while a far lower proportion are satisfied after 5 years.
It is these issues that Zopa’s bank will attempt to solve. It is also these issues that have contributed to an erosion of trust in banks among consumers, which Janardana says also impedes those banks from modernising. Customers, he says, are less likely to feel comfortable adopting the latest in biometric identification technology, if they’ve become accustomed to being fleeced by their bank at every opportunity.
The Zopa boss ended his presentation with what he described as “sobering realities”: 42 per cent of UK citizens suffer from stress or anxiety due to financial difficulties, while at the same time only 20 per cent of customers feel they can go to their bank for unbiased advice. Janardana says that “we”, the financial services industry, are responsible, for having historically chosen to exploit customers, rather than to educate them. He hopes to set Zopa’s bank on a different path.