Member Exclusive, New banks

Banking Briefing — January 24, 2022

  • In this week's briefing, we've got Zopa converting to bankism, Current breaking the challenger bank mold, and banks shutting down branches.
  • The look and feel of banks is changing, but not always in the most predictable way.

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Banking Briefing — January 24, 2022

Tearsheet's Briefings for Outlier members give a deeper and contextual weekly look into banking, payments, blockchain, green finance, and embedded finance. Subscribe to Outlier to get full access to Tearsheet content.

Zopa’s rise into bankhood

On January 19, Zopa announced it had hit £1 billion in deposits since its launch as a bank 18 months ago. 

The news comes about a month after the company said that it’s shutting down its P2P business to focus solely on being a bank. Zopa claimed the reason for this decision has to do with lacking customer trust in P2P investing in the past few years after a number of small businesses’ actions that led to material losses for retail investors. Another reason is the change in regulations, which has made it more costly to run a P2P business. 

It took Zopa around three years to get its banking license, but the results seem to be pretty sweet:

  •  £1 billion in deposits (I know – I mentioned that already)
  • Newly minted Unicorn status in October with a valuation of $1.03 billion, after raising $300 million in its latest funding round 
  • Becoming one of the top 5 credit card issuers in the UK, with over 200,000 credit cards issued since its launch

Zopa was one of the first companies in the P2P lending space. And with 16 years in the industry, its departure into more bank-y vibes is a pretty big deal. 

But what’s the moral of the story for banking buffs? 

Is it that banks are still the lending champions? Or is it that fintechs are gaining more trust from their customer base?

Zopa’s goals as a bank seem to be pretty big this upcoming year. From doubling deposits to going public, this unicorn has definitely shown its P2P game to be a step in its roadmap towards banking.

“Over the next 12 months, we plan to double our savings portfolio again to £2 billion, launch an Easy Access product, and continue to innovate at the intersection of embedded finance and lending. As we have said before, Zopa will be ready for an IPO as early as Q4 2022, by which time we would have shown a consistent track record of profitability. The size of our recent fundraise means we can be more flexible in our timing for an IPO.” – A Zopa spokesperson

Let’s talk about Current 

Challenger bank Current garnered a lot of interest on January 13, when it announced the launch of its high-yield savings, which earns 4.00% APY. 

For now, Current’s features are still considered pretty standard. But what differentiates it is that it has its own core banking infrastructure. That’s given it more flexibility to develop its own features and products without going through a third party provider – like its high-yield savings product.

The thing that makes Current interesting is that it changes the narrative around digital banks. The company isn’t sticking around in the ‘incumbent vs. challenger bank’ storyline. 

Current started out with a focus on teens, developing a teen banking app that would increase its popularity among younger consumers. But it’s since moved on from there. 

Its core banking infrastructure could be a sign that Current has a lot more tricks up its sleeve that go way past just being another challenger bank.

“The real output of owning your own core is being able to very seamlessly integrate additional features into your product. Because at the end of the day, really the product that we sell, in a sense, is a balance. And it’s [about] what you can do with that balance,” said Marshall. “It’s about the movement of the funds on the platform, and that balance is made up of debits and credits, and really getting down to Banking 101. And being able to control the way that those transactions relate to a user’s experience means that we can own the full roadmap for integration.” – Trevor Marshall, CTO at Current

Quote of the week

“There’s no need to have two branches on Main Street,” Gerard Cassidy, head of U.S. bank equity strategy at RBC Capital Markets, to CNBC

Source: S&P Global

Last year, U.S. banks closed 2,927 branches, according to S&P Global Market Intelligence data. Wells Fargo alone shut down 267 retail branches.

The story behind this piece of data is a familiar one – as more people bank online in the wake of Covid, branches continue to become less necessary. 

But the plot twist in this little development is that as banks close their branches, they’re also opening new ones.

Take JPMorgan Chase, for example: the mega bank came in sixth place as the biggest branch closer last year. (And the branch shuttering is continuing, by the way – this month, the New York Post reported the bank to have closed down over thirty branches in NYC in response to Omicron and staff shortages.)

But while JPMorgan is running away from some branch locations, it’s chasing others. The bank came in top place in branch opening in 2021, with 169 new locations.

What we’re reading

Good to know 

  • Under the shadow of rising interest rates, investors turn towards regional banks (Reuters)
  • As talent competition heats up, Wall Street banks are pouring $142 billion into employees’ paychecks (FT)
  • Chime aims for a $40 billion IPO (PYMNTS)
  • The Federal Reserve debates over U.S. central bank digital currency (New York Times)

Food for thought 

  • From embedded finance, to crypto, to BaaS, 9 trends affecting retail banking that people don’t get (The Financial Brand
  • Where open banking will thrive, according to Katja Hunstock, CPO of finleap connect (The Paypers)
  • Five challenger banks predicted to revolutionize banking in Africa (IBS Intelligence)

What we’re writing

  • Deep Dive: Current
  • ‘What fintechs have done right is understanding who their customer is, and building for them’: BlueVine’s Herman Man (podcast)
  • With $1 billion funding round, gears up for Web3
  • What JPMorgan is doing with that $12 billion tech spend

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