The peer-to-peer lending industry is readying itself for a new era of bank partnerships and acquisitions, as the sector evolves and consolidates amid the Covid-19 crisis.
Last month, it emerged that Metro Bank is in talks to acquire RateSetter, with the challenger bank showing a particular interest in the ‘big three’ P2P platform’s consumer loanbook.
Goodbody analyst John Cronin said there was “compelling industrial logic” for the acquisition, as it provides a lending platform that Metro Bank can leverage to further boost its average asset yield – which is essential in a profitability context.
“While there may be a fixation on RateSetter’s current numbers in the post-news analysis (including what its loan losses might look like), this avenue for potential growth is the important point in our view,” he added.
“RateSetter is a leading player in the P2P industry and reports much lower average defaults than peers.”
Industry stakeholders have since told Peer2Peer Finance News that they envisage more bank involvement in the P2P sector, whether that be acquisitions or partnerships.
Mike Bristow, chief executive of CrowdProperty, expects to see consolidation because banks have access to capital at a very low cost and P2P lending platforms can be exceptionally efficient originators of lending opportunities.
“Put those two together and there’s a strong synergy between them,” he said. “In theory it makes sense. I think firstly we’ll see a load of platform failures and then see who the good guys are. I think any financial services consolidation at a meaningful scale will happen in good times, not just in the bad.”
David Bradley-Ward, chief executive of Ablrate, said that it would be a logical step for challenger banks to partner with or acquire P2P lending platforms to gain access to different customers and better technology. “Banks have the opportunity to buy technology allowing them to lend better,” he said.
Other industry executives have said that interest from banks in partnering with or acquiring P2P lending platforms is an endorsement of the fact the sector provides a service not offered elsewhere.
“The fact a traditional lender is looking to acquire a lender like that, shows what they can’t do,” said Rishi Zaveri, co-founder and chief executive of Lendwise. “Any interest in the sector is positive.”
Acquisitions could be a natural progression for banks and P2P. There has been an increasing amount of institutional involvement in the P2P industry in recent years, as platforms use larger funding lines to scale up.
However, Stuart Law, chief executive of Assetz Capital, emphasised the difference between partnerships and acquisitions as the P2P firm already counts European banks as institutional investors.
“European banks see P2P investment as a good opportunity already,” said Law. “We intend to remain independent and can deliver the benefits of returns to banks, pension funds and retail investors directly.”
Frank Wessely, partner at advisory firm Quantuma, last month predicted that banks would start to eye P2P firms as potential acquisition targets.
“It eases the capital requirements on the platform if they’ve got a substantial high street bank behind them,” he said.
“It makes them a more stable, safer bet. It gives them ready-made access to prospects and loan originations being fed through.”
However, he noted that banks could be more wary to embark on the acquisition path due to the current uncertain economic climate.
“It depends on how the P2P marketplace resumes after Covid-19,” he added. “All you need is one deal to go ahead successfully and the P2P industry will see that they have something of potential interest to the banking sector. It’s all an unknown at the moment but it could be the start of a small trend.”