The online lender Zopa plans to take on the £30bn giant Klarna with an expansion into the buy now, pay later sector as it prepares to float in London next year.
The company plans to expand further beyond its heritage as a peer-to-peer lender by helping shoppers to stagger the cost of purchases.
Zopa will target people making expensive purchases such as gadgets, instead of Klarna’s focus on clothing sales which has helped it to become Europe’s most valuable privately held financial technology business.
The buy now, pay later sector has proved controversial in recent years, with some providers facing allegations their customers were unaware they were falling into debt.
Zopa hopes to avoid this by following the recommendations made in the Woolard Review of the sector which was commissioned by the Financial Conduct Authority (FCA).
“Our focus will be on bigger and larger items where we genuinely think taking finance makes sense,” Zopa chief executive Jaidev Janardana said.
The company is also planning to float in London next year or in early 2023 after demonstrating a full year of profitability for its digital banking division.
Mr Janardana dismissed the struggles of recent debuts such as Deliveroo. He said: “We think the London market is a good market, it’s a deep market. We are a UK focused company and so that’s going to be the most likely location.”
Deliveroo’s share price crashed more than 25pc when it floated in London, wiping £2bn off its valuation.
The FCA has paid close attention to peer-to-peer lenders such as Zopa following a series of provider failures and losses for investors. Zopa’s valuation was cut by 47pc in 2019 and it ousted one of its board members months later after he was arrested.
The company launched a digital bank in June last year after receiving a full banking licence. Mr Janardana said the division is ahead of schedule to become profitable by the end of 2021.
The business has focused on lending and savings products instead of current accounts as Monzo, Revolut and Starling Bank have done. It has passed £6bn in unsecured loans, a spokesman said.
“In 2016 we grappled with the idea of should we have current accounts and we stayed away from it,” Mr Janardana said. “We can’t quite convince ourselves that the numbers add up to create a current account franchise.”
“If you look at retail banking, more and more of the new banks are realising lending has to be your primary source of revenue,” he added.