The bank will pay an initial £2.5m with the remainder dependent on criteria over three years.
Initially Metro Bank has agreed to pay £2.5m, with an additional £0.5m after 12 months, and up to £9m on the third anniversary of the deal subject to performance criteria.
"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,” said Metro Bank CEO Daniel Frumkin.
"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."
RateSetter raised £43m in funding over the past 11 years, with Artemis and Neil Woodford's Woodford Investment Management being among its largest external shareholders.
The deal doesn’t include RateSetter's holding in RateSetter Australia, which is being held on to by shareholders.
These loans are expected to improve Metro Bank’s lending yield with the deal expected to be net interest margin enhancing within its first full financial year.
“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,” said RateSetter CEO Rhydian Lewis.
It’s also an end of an era for RateSetter, once among the ‘big four’ peer-to-peer lending platforms in the UK, and which has originated over £4bn in loans over the past 11 years.
More broadly, the deal today marks the first acquisition between deposit-holding bank and alternative lender, something mulled in the industry for many months.
On paper it makes sense, especially given alternative lenders have struggled to finance their loans at a time when retail and institutional capital has grown harder to access, while Metro Bank boasts access to cheap cash.
Whether it’s a match made in heaven, we’ll have to wait and see.