Zopa launches first credit card but experts warn against its 'sub prime' 34.9pc interest rate
Zopa has launched its first credit card, marking the firm’s latest step away from its origins in the controversial "peer-to-peer" investing sector, and into everyday banking.
The Zopa credit card's benefits include a “safety net” feature which lets customers set aside a pot of cash for emergency spending. However, experts have warned that the card’s 34.9pc interest rate means it will likely be used by borrowers with poor credit histories rather than mainstream customers.
Zopa established the first peer-to-peer lending platform in 2005, offering customers the chance to cut out the banks by offering lower loan rates to customers and higher returns to savers. However, the sector has been dogged by controversies and several of its rivals have fallen into administration in recent years.
This prompted Zopa to apply for a full banking licence and shift closer to the traditional banking model. It already offers savings accounts, personal loans and car finance, and the credit card is its latest foray into consumer banking.
In addition to the safety net feature, the bank said it offered budgeting tools to ensure customers do not overspend. Research commissioned by Zopa found that a quarter of credit card users breach their spending limits each year.
However Andrew Hagger of MoneyComms, an industry analyst, said that many of these budgeting features were commonplace across the industry and that potential customers should be wary of the high interest rate.
“The new Zopa card has a few nice to have features such as real time balances and the ability to set aside some of your limit,” he said.
“However the elephant in the room is the interest rate. I can't understand why it is charging 34.9pc – a rate usually reserved for subprime and credit builder products. You can dress a card up all you like but savvy borrowers are likely to give it a wide berth as it is way out of kilter with rates in the standard credit card market.”
At the moment borrowers with good credit should expect to pay around 20pc interest on a standard credit card.
Zopa said that its new card was targeting an underserved part of the market. A spokesman said it was aimed at “people looking to continue to build their credit score”, but that some borrowers would be offered a lower rate. It will not apply charges to customers who go over their spending limit.
“We also make sure that customers are able to see their real rate before application, so if their personalised rate is too high for them, they won’t get a mark on their credit file and can continue to look elsewhere for a credit card deal that works for them,” the firm said.
