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7 Nov 2020

Zopa launches app-based travel credit card: is it worth going for?

It offers fee-free spending abroad but has a high representative APR

The UK's first peer-to-peer lender, Zopa, has launched an app-based travel credit card in a bid to rival digital banks.

The credit card offers fee-free spending abroad and innovative features such as allowing customers to put aside a pot of cash for emergency spending. However, the deal comes with a steep 34.9% representative APR.

The launch of Zopa's card is the firm's latest step away from the controversial peer-to-peer investing sector into everyday banking, after gaining its UK banking licence five months ago.

Here, Which? looks at what the credit card offers and if it's worth trying.

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What is Zopa?

Zopa established the first peer-to-peer lending platform in 2005, where people lend money to other individuals or businesses. You - as the lender - are supposed to receive interest and get your money back when the loan is repaid.

However, the peer-to-peer sector has been struggling in recent years, with some of Zopa's biggest rivals falling into administration, leaving thousands of investors at risk of major losses.

Although it already offers savings accounts, personal loans and car finance, Zopa wanted to transition towards a more traditional banking model in a bid to boost profits.

It started recruiting staff to develop its new credit card in 2018. It received a provisional banking licence last year, but still needed to raise extra capital to assure regulators it was stable enough to operate as a full bank.

At the end of last year, it raised £140m from US investor IAG Capital to secure its licence, which was officially granted in June 2020.

What does the Zopa credit card offer?

Zopa offers an initial credit limit of between £200 and £2,000 depending on your circumstances and charges a representative APR of 34.9%. This means it has to offer this interest rate to at least 51% of applicants.

However, Zopa's website states rates can vary from 9.9% to 34.9% depending on your individual circumstances.

The APR is the interest you will pay unless you pay off the balance in full each month. An APR of 34.9% is relatively high compared with other credit cards on the market at the moment. According to Moneyfacts, the average card purchases APR is currently 25.2%.

The card also doesn't charge a foreign usage fee, meaning you can enjoy Visa's standard currency conversion rates - most other credit cards add fees on top of this.

Other features

Zopa's credit card also comes with a range of different digital features (similar to those offered by challenger banks such as Monzo and Starling Bank) that may be appealing for those who want to regularly keep track of their spending. Theseinclude:

'Safety Net' pot

It lets you set aside a pot of cash called Safety Net, which allows you to lock away part of your available credit balance for small, unexpected expenses.

You can set your own personal finance buffer when you initially set up your card and receive an instant notification, which lets you know when you're close to your safety net limit.

You won't be charged any fees if you need to use your safety net fund.

Balance updates

It also gives balance updates after purchases showing how much credit you've got left and instant notifications on purchases. Spend tracking is available on the app so you can see the categories you spend in.

Freeze and unfreeze

You can instantly freeze and unfreeze your card in the app if you notice anything unusual, and report your card as stolen immediately.

Switch spending on/off

You can turn on/off certain types of spending such as gambling andu202fcash withdrawals.

How does Zopa's credit card compare?

Zopa's credit card interest is higher than most others on the market.

The provider may be targeting the 'sub-prime' market - those with limited or damaged credit histories who may not qualify for mainstream cards but want to boost their credit rating.

The table below shows the top 'credit-building' cards on the market right now that don't require you to hold an existing account with the provider.

Card nameMinimum and maximum startling limitsAbroad usage feesRepresentative APR (variable)Which? customer score
Tesco Bank Foundation Clubcard Credit Card£200/£1,5002.75%27.5%76%
Barclaycard Forward Credit Card£50/£1,2002.99%33.9%72%
Capital One Classic Credit Card£200/£1,5002.75%34.9%69%

Source: Which? Money Compare. Data correct as of 5 November 2020.

It's worth noting that the top credit cards for those with bad credit all charge fees for usage abroad. So Zopa's deal could be appealing to those with limited credit files looking for a travel credit card.

However, if you have a decent credit history, you may qualify for a more competitive travel credit card deal that has a lower representative APR.

The table below shows the top travel credit cards that don't require you to hold an existing account with the provider or charge a monthly fee.

Card nameRepresentative APR (variable)Which? Customer Score
NatWest Credit Card9.9%70%
Metro Bank Credit Card*14.9%65%
Santander Zero Credit Card18.9%73%
Halifax Clarity Credit Card19.9%75%
Virgin Money Travel Credit Card21.9%74%

*The Metro Bank Credit Card only allows fee-free spending in Europe. Source: Which? Money Compare. Data correct as of 5 November 2020

How is coronavirus affecting borrowing?

Coronavirus has had a massive impact on people's finances, with many people having to borrow money to pay essential costs, or struggling to repay what they owe.

By July this year, UK Finance found 1.05 million people had been given payment holidays on their credit cards over three months.

What's more, Which? researchshows that the number of households who have missed credit card or loan payments in the past month may have doubled, rocketing from an estimated 410,000 in September to 780,000 in October amid the coronavirus crisis.

The deadline to apply for a payment holiday on credit cards, loans and other credit products passed on 31 October, with banks obliged to instead offer tailored support to customers facing financial issues from 1 November. But with lockdown measures in England from 5 November and the furlough scheme having been extended, the FCA has set out proposals to extend payment holidays on credit products for up to six months.

Since August, Which? has maintained that lenders need robust plans to get struggling borrowers through the winter months, after finding that furloughed workers were three times more likely to have missed bill payments.