Metro Bank Acquires P2P Lender RateSetter, Metro Bank to Use its Deposit Base to Fund New Loans

RateSetter, a leading UK based peer to peer lender, has been acquired by Metro Bank. The purchase of RateSetter has long been anticipated as the P2P lender messaged earlier that it was exploring “strategic options” – a euphemism for a sale. In June, there were reports specifically mentioning an acquisition by Metro Bank.

The news of the acquisition was shared in a blog post by RateSetter:

“Both RateSetter and Metro Bank are innovative businesses with a shared focus on delivering something better for customers, making this a natural pairing.  Metro Bank plans to significantly grow RateSetter’s lending through the RateSetter platform, using the lending and credit management capability RateSetter has built over the last decade. Over 750,000 people have invested or borrowed through RateSetter and we are enormously grateful for the trust they have placed in RateSetter.  £4 billion has been lent, providing valuable finance to UK consumers and businesses and generating over £175 million of interest for investors.”

Metro Bank said that it has agreed to acquire RateSetter for initial consideration of £2.5 million, with additional consideration of up to £0.5 million payable 12 months after completion subject to certain criteria and further consideration of up to £9 million payable on the third anniversary of the completion of the transaction. The transaction must receive the blessing of the UK Financial Conduct Authority.

The acquisition does not include RateSetter’s holding in RateSetter Australia which is being retained by RateSetter shareholders. RateSetter’s holding in RateSetter Australia, which had a book value at 30 June 2020 of £13.7 million, will be distributed on a pro-rata basis to the existing RateSetter shareholders by means of a reduction in capital at or around the completion of Metro Bank’s acquisition of RateSetter.

The transaction will be funded from existing cash and is anticipated to reduce the Metro Bank’s CET1 ratio by circa 0.3% at 30 June 2020 on a pro forma basis.

An important aspect of the deal is the fact that Metro Bank will use its deposit base to fund all new unsecured personal loans originated via the RateSetter platform and held on Metro Bank’s balance sheet. RateSetter will continue to manage the existing RateSetter loan portfolio and Provision Fund on behalf of its existing peer-to-peer investors, with Metro Bank assuming no credit risk for these existing loans

Metro Bank said it will operate RateSetter as an independent platform and originate loans under both the RateSetter and Metro Bank brands. Co-founders Rhydian Lewis and Peter Behrens and CFO Harry Russell will remain with the company. Lewis will join Metro Bank’s Executive Committee and report directly to Metro Bank’s CEO, Daniel Frumkin.

Frumkin issued the following comment on the purchase:

“The ability to enhance our offer of unsecured lending to our customers is an important strategic ambition as we continue to evolve the Bank and increase our returns. RateSetter is an established business with a strong technology platform and a talented team who have deep experience in the consumer unsecured lending market. This acquisition therefore accelerates our plans, helps us to better meet the needs of our customers and further strengthens our position as the UK’s best community bank.”

Lewis stated:

“I am excited at the prospects of this combination. RateSetter and Metro Bank share a focus on delivering something better for the customer and the strategic logic of pairing Metro Bank’s strong deposit base with our lending capability is compelling. Metro Bank is admired for its fresh approach to banking and I am looking forward to helping the bank expand its offering and meet more customer needs.”

Over the years, RateSetter has experienced several setbacks regarding loan losses. Most recently, COVID-19 has challenged the online lending platform – just like it has impacted all businesses and Fintechs.

In May, RateSetter announced that investors would receive only 50% of their interest with the other 50% going to the Provision Fund as a concerned rose regarding defaults.

Earlier this month, Lewis expressed the fact that RateSetter continued to perform well in a difficult environment when compared to other low-risk investments.

“Our priority at RateSetter has been to maintain stability, preserve investors’ capital and keep money earning through this downturn,” said Lewis.

Overall, the P2P lending industry continues to iterate and evolve. Earlier this year, 36H Group was launched as a replacement association to the UK Peer to Peer Finance Association (P2PFA) – once a top advocate for the P2P sector. 36H is described as a “united voice for lending platforms that accept retail investments.” P2P lending was said to be “one of the fastest-growing areas in the UK’s Fintech ecosystem.” RateSetter was a founding member of the group.

Updated rules have, in certain respects, made it more difficult for the industry to compete. One competitor, Zopa, has decided to become a digital bank and thus provide a broader portfolio of financial services – an emerging popular path for established online lenders.

RateSetter said that Metro Bank’s goal is to be the UK’s best community bank and RateSetter is proud to be part of this mission.

 

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