Metro Bank to acquire RateSetter for up to £12m

Just over a month after talks were first made public, Metro Bank has agreed a deal to acquire peer-to-peer lender RateSetter for a total of up to £12m.

The deal will see RateSetter’s retail investor marketplace of loans closed for new investors, with all future unsecured personal loans funded by Metro Bank’s deposit base.

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.

Metro Bank said RateSetter will now operate as an independent platform with it originating loans under both the RateSetter and Metro Bank brands.

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.

RateSetter’s top team of Lewis, co-founder Peter Behrens and CFO Harry Russell will all join Metro Bank as part of the acquisition, with Lewis joining the bank’s executive committee.

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.