‘BNPL is no competition for credit cards’: An interview with Zopa CEO Jaidev Janardana

Entering its 18th year Zopa can hardly still be called a fintech startup. That being said its last few years have been some of its most transformational. 

It launched its long-awaited neobank and a credit card, ditched its P2P lending business, became a unicorn thanks to a £220m Softbank-backed funding round and turned a profit.

Zopa’s CEO Jaidev Janardana told AltFi in an interview at the Money 20/20 conference in Amsterdam last week that this period of growth has boosted his aim to increase revenue ten-fold over five years or so.

“In 2022 we've seen more customer adoption of our products and higher than expected growth in revenue,” he said.

Zopa’s 2020 revenues were c.£30m, but Janardana says he expects that full revenue for 2022 to “be more than £150m”, more than doubling revenue from last year.

Customer numbers were up by about 60 per cent last year he says with another 50 per cent rise expected again this year helping to boost its coffers further.

“We've seen very strong customer adoption and more than £1bn of deposits of fixed-term savings, our easy access accounts [launched in late February] now stand at more than £200m,” he said

“Across the board, we are going to see strong growth, We expect to operate the business at or above breakeven from here on,” he said.

BNPL vs credit cards

Zopa is still shipping new products too. Its latest is a take on the ‘buy now, pay later’ trend aimed at taking on the likes of Klarna and Zilch.

Janardana says despite the BNPL launch he still expects credit cards to not only survive the apparent disruption but also continue to dominate consumer lending.

“Buy now pay later is just another form of debt. The reason it is so popular is that it was packaged in a form that meant it didn't seem like that. You presented it to mainly young customers. They did not have access to any other credit or had it but didn't have the experience to fully understand the implications. And of course, zero per cent interest helps, no question,“  Janardana said.

There was probably another element too, he says, which is that customers “like to compartmentalise different purchases in order to pay things down. 

“Those were the drivers. But ultimately, they were in debt.” 

A recent survey from Citizens Advice, a UK charity suggested that 40 per cent of consumers have been using other credit to pay off BNPL instalments.

“When I look at our data I would posit that the percentage is higher,” he added.

Will BNPL eclipse your credit card business over the long term? A categorical “no” says Janardana who used to work for credit card giant Capital One.

“I have never thought of it as competition. Credit cards give you a much different degree of flexibility in that you can pay the whole thing down immediately and not have to pay interest, you can defer it over 12 months, you can make minimum payments for six months, and then suddenly pay it all down once you get your bonus or whatever.  it's a far more flexible product, it is a far more enduring product,” he said.

The reason Zopa launched BNPL, according to its CEO, is something customers like about the point of purchase financing. 

Zopa’s opting for the market for larger purchases (£250-£30,000) and hopes this predictability will appeal for over longer periods than the likes of Klarna.

“If you are buying a big TV or a computer or washing machine, I could see why people might want to say, You know what, I bought this, I want to pay it now in the next six months. 12 months?” 

“We want to help, but I don't see it as a hedge [for Zopa’s credit card business]. I also don't see buy now, pay later overall eclipsing credit cards”

So does Janardana accept that BNPL will take some market share away from ‘traditional’ credit cards? Yes, but he adds that it will likely remain the junior member of the lending family with roughly 10-20 per cent at most as a total of consumer lending in the long term.

What the numbers say

According to UK Finance, there are about 35 million UK credit cards. In February the number of transactions on credit cards was 40.1 per cent higher than in February 2021 but just 2.8 per cent more than February 2020 i.e before the pandemic’s first lockdown, suggesting a relatively flat growth rate since.

There was a total spend of £15.8bn, similarly 43.8 per cent higher than February 2021, and just 0.7 per cent higher than in February 2020.

Outstanding balances on credit card accounts have grown, however, by 6.5 per cent over the twelve months to February.

Interestingly though, contactless payments accounted for 57 per cent of all credit card transactions in the month, the number was 109.4 per cent higher than February 2021 and 23.3 per cent higher than February 2020 suggesting customers are using them for smaller transactions.

Any growth in consumer credit lending is being rapidly outpaced by the BNPL sector, according to a recent report from digital lending marketplace Freedom Finance.

Estimates suggest that BNPL lending is likely to increase by 52 per cent to well over £20bn in 2022 compared to the previous year. The FCA meanwhile estimated the BNPL industry hit £2.7bn in 2020.

Janardana conversely to the mood of the past few years thinks the BNPL market will hit a dip in the coming months.

“In the short term, we will see the BNPL growth stutter, stop or even shrink, as sensible regulation is put in place and a lot of customers just realise that they cannot afford this, or they should not be getting into this, or providers have to make new checks.,” he said.

“Providers will also realise that there is a lot more bad credit last year than they expected which will again slow down supply. So I see both demand and supply actually coming down,” he added. 

In addition, he says that VC cash has helped to bolster the traditional BNPL proposition of offering no interest. He expects that to come to an end soon.

“Why does that zero per cent exist? It exists for two or three reasons either because the merchant is subsidising it or, in most cases it is because there's a lot of VC money that people were spending to acquire customers with the hope that a future ‘super app would mean monetisation can happen” he said. 

Rising interests will soon mean that an era of cheap, near free money will come to an end.

“Capital now has a cost.” 

“That seemingly wasn't there a couple of years ago. I cannot see the zero per cent thing going on infinitely. It might be offered for a short period of time.

"If you have a credit card, you can get zero per cent for six weeks already. It's not that different. I could see that lasting. I can't see the zero per cent for six months or 12 months lasting without meaningful merchants subsidy subsidies."

He says, therefore, credit cards are still the best game in town for lenders.