RBS strikes peer-to-peer deal with Funding Circle, Assetz Capital

According to the source, the alliance is following government plans to make UK banks help customers find alternative funding. RBS has formed a partnership with UK peer-to-peer finance platform operators Funding Circle and Assetz Capital that will enable it to refer some smaller businesses that the bank is unable to finance on to the platforms.

Digital peer-to-peer (P2P) platforms match lenders to borrowers directly. As a result, borrowers are often charged less than they would be by a bank, but investors can receive interest rates of 6% or more.

After being pioneered in the UK 10 years ago, P2P expanded rapidly after the financial crisis of 2008 as banks had to scale back their lending, thus leaving many smaller UK businesses without any access to finance.

RBS said its aim is to “expand choice” for customers with loan applications that do not meet the bank’s criteria, by signposting them towards the P2P lenders, as well as other alternative sources of finance.

The bank’s scheme launches next week in Scotland and the southwest of England, before being rolled out nationally over the next three months.

Its new P2P partnerships, which do not involve fees being paid to the bank, follow plans from George Osborne, chancellor, to force banks that reject loan applications from small companies to refer them on to alternative sources of funding. In 2014, Santander UK had set up such an arrangement, announcing a tie-up with Funding Circle.

Although peer-to-peer lending only constitutes about 1% of total new lending to small UK business, the value of loans via the platforms is growing at a rate of 200% per year, according to innovation charity Nesta.

Data from the Peer-to-Peer Finance Association show that P2P platforms lent over GBP 900 million up until Q3 2014, and were on track to lend more than GBP 1 billion in total in 2014.