Zopa’s decision to quit its peer-to-peer (P2P) lending business to focus on banking last month prompted headlines asking whether this heralded the death of the sector it had pioneered and created. A finance system built around the idea that stability comes from centralised power and institutions, rather than by encouraging more diverse and diversified networks, can often find itself in conflict with citizens who want greater agency and control of their money, and what their money does. Zopa used technology and innovations to make P2P lending “bigger and better” and provide a real alternative to the conventional model of bank lending. However, in the end it was increasingly difficult to scale the business profitably. A full banking licence acquired in 2020 offered new routes to profitability and, ultimately, returns for its shareholders. Zopa has explained that increasing regulatory pressures and uncertainty contributed to the decision, as well as the effect of high-profile failures of both P2P lenders and unregulated investments. The exit of this and other big players from the sector raises questions for the Financial Conduct Authority (FCA) as to whether the response to the high-profile but individual failures of platforms has been proportionate, and what that means for the regulator’s other statutory objective to promote competition in financial markets. The pace of innovation in the sector has slowed markedly in recent years, with more than 16% of authorisations being withdrawn or rejected and an almost constantly moving set of rules and guidance, which undermines fintech investor confidence due to regulatory risk. Perhaps these applications were not up to scratch, but the cost in time, effort and money required to achieve authorisation has grown significantly, as the regulator has reacted to scandals both within and beyond its “regulatory perimeter”. The exit of Zopa from P2P lending raises very real questions about whether the financial regulator is doing enough to encourage innovation that makes money useful to society as opposed to sitting in bank deposits as cash.

Is the regulator’s continuous push for new rules discouraging innovative businesses? Away from more democratic and equitable models of lending and borrowing – turning the clock back to when banks dominated the financial high street? For the sake of our democracy, let’s hope not.

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