Peer-to-peer lender Zopa is doing record volumes but it's still not making money

Losses at Zopa, the pioneer of peer-to-peer (P2P) lending in the UK, shot up last year despite jumps in revenue and lending, raising big questions about how profitability.

Accounts for 2014 filed with Companies House on Friday show revenue jumped from £5.3 million ($8.17 million) to £11.4 million ($17.5 million) in the year to December 2014.

But losses also jumped from £2.5 million ($3.8 million) to £5.6 million ($8.6 million), as Zopa poured more money into growing its business. 

Zopa lets people lend out their savings directly to consumers, cutting out the banks and thus offering better rates to both lenders and borrowers. The company was founded in 2005 and was one of the first to pioneer peer-to-peer lending in the UK.

Zopa's executive chairman Giles Andrews recently told Business Insider that the company did £265 million ($408 million) worth of loans over its platform in 2014. Cost of sales almost tripled to £6.1 million ($9.4 million) and Zopa made a gross profit of £5.2 million ($8 million), implying a gross profit margin of around 1.9% on loans.

But that gross profit wasn't enough to cover distribution costs more than doubling from £1.9 million ($2.9 million) to £4.1 million ($6.3 million) and administrative expenses jumping from £3.7 million ($5.7 million) to £6.7 million ($10.3 million).

We asked Zopa to explain what these costs actually meant but the company declined to break it out any further.

A spokesperson for Zopa told Business Insider over email: "We are continuing to invest in our growth and part of that investment is increasing our headcount which now stands at 140."

Last year headcount grew from 40 to 62 people, according to accounts.

Peer-to-peer lenders rely on growing loan volumes to grow revenues and this requires big investment in advertising and sales staff. As Zopa deals purely in consumer loans it also tends to have less repeat borrowers than those who offer business loans and will have to work extra hard generating both supply and demand.

Zopa recently promoted COO Jaidev Janardana to CEO and the Financial Times reports he will "focus on using technology to make its service easier to use as the market expands." This could help reduce costs.

Zopa's accounts tell a similar story to those of Funding Circle, a similar British fintech startup that offers peer-to-peer loans to small- and medium-sized businesses.

Funding Circle's recent filings show revenues last year hit £13.1 million ($20.2 million), while losses shot up to £19.4 million ($29.9 million).

Funding Circle's CEO Samir Desai told Business Insider recently that the jump in losses was down to expansion into the US and said: "If you actually look at the core business of doing loans in the UK — strip away the technology investment and all the other extra stuff we're doing — the business is already profitable in the UK and is moving that way in the US as well."

At the end of the year Zopa had £15.5 million ($23.9 million) in the bank, following a £19.9 million ($30.6 million) cash injection from US parent company Zopa Holdings during the year.

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