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RBS Poised to Enter P2P Space

Royal Bank of Scotland is reportedly on the verge of a daring move into the peer-to-peer lending space.

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Following on from the Santander-Funding Circle tie up in June, RBS will soon become the second major bank to wade into the UK peer-to-peer lending market. The news was broken by the FT – but was unfortunately somewhat short on detail. What has been confirmed is that RBS will be piloting an online peer-to-peer lending platform before the year’s end, thanks to a partnership with an unnamed third-party operator.

Further whisperings suggest that the platform will be SME facing, with a particular focus on getting funding to businesses that have been initially rejected by a bank. RBS has reportedly been mulling over plans to enter into the P2P space by hooking up with an existing operator for the past year. Ross McEwan, Chief Executive of RBS, recently commented on the need to offer increased support for small businesses:

“As the economic conditions improve, we also need to do more to show we are open for business.”

“To do this, RBS and NatWest will be launching a network of eight new business accelerator hubs around the country to provide thousands of SMEs with the offer of free workspace, hands-on mentoring and a free programme of advice and support.”

A tantalizing development for observers of the alternative finance space – but what we have at the moment are more questions than answers.

Why would RBS want to set up a peer-to-business lending platform? If a business comes along that is worth lending to – why wouldn’t the bank simply write the loan itself? Is a P2P platform simply a method of combatting increased regulatory capital requirements? Maybe this development represents an admission that online marketplaces are the way of the future – with RBS trying to adapt accordingly. The reach of RBS within the SME community is vast; the bank boasts a network of 2,300 high street branches and 50,000+ UK staff.

But would investors still be getting a good deal if they needed to support this expensive and somewhat outdated distribution network? And what will peer-to-peer lenders make of this news? In spite of the long-established brand name – private investors may be forgiven for questioning the business lending strategies, and credit modeling expertise, of a bank that so recently had to seek a £46 billion government bailout due to a series of failed investments – its corporate loan book being one of the problem areas.

Finally, which platform will RBS be looking to partner? It would appear to be a business lender of some kind – and immediately the major players (like Funding Circle) spring to mind. But perhaps RBS will choose to instead take over a lesser-known platform. In such an instance, you’d imagine that the bank would target a platform with all the necessary infrastructure to succeed (superior tech, FCA license, trade body membership) – without actually having lent much up to this point. RBS could then go about making the platform its own. Ultimately the decision boils down to whether the bank is looking to collaborate with or compete against the sector’s established players.

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