Incumbent banks acquiring fintechs is nothing new, and amidst the coronavirus crisis, we can likely expect to see that trend continue. The latest such move comes from publicly-listed Metro Bank which today has announced its intention to purchase peer-to-peer lender RateSetter for up to £12 million.
Pending approval by U.K. regulators, Metro Bank is acquiring RateSetter for an initial price of £2.5 million, with “additional consideration” of up to £0.5 million payable 12 months after completion. Upon the satisfaction of various performance criteria, the bank will then pay an additional £9 million on the acquisition’s third anniversary.
That the deal is split into three tranches and conditional isn’t necessarily unusual within M&A activity but it also likely reflects the risky nature of peer-to-peer loan books. Notably, the acquisition does not include RateSetter’s holding in RateSetter Australia which is being retained by RateSetter shareholders.
Founded in 2010, RateSetter says over 750,000 people have invested or borrowed through the platform, which has originated £4 billion of lending. In its financial year ending 31 March 2019, the company reported revenue of £33 million, a pre-tax loss of £8 million and gross assets of £42 million.
Metro Bank’s acquisition of RateSetter is part of its strategy to grow unsecured lending and in turn increase profits. Interestingly, it will continue to operate RateSetter as an independent platform and offer loans under both the RateSetter and Metro Bank brands.
However, there is one significant change to RateSetter: Metro Bank says it will use its deposit base to fund all new unsecured personal loans originated via the RateSetter platform i.e. future RateSetter lending will on appear Metro Bank’s balance sheet. With that said, 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”.