UK challenger Metro Bank is buying peer-to-peer lender RateSetter for an initial £2.5m.
Metro Bank will pay an additional consideration of up to £500,000 twelve months after completion. However, that will be subject to performance criteria.
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In addition, Metro Bank will pay a further maximum consideration of up to £9m on the deals third anniversary.
Again, that will be subject to the satisfaction of certain key performance criteria. The acquisition does not include RateSetter’s holding in RateSetter Australia which is being retained by RateSetter shareholders.
RateSetter was founded in 2010 and since then over 750,000 people have invested or borrowed through the platform. In financial year ending March 2019, RateSetter reported revenue of £33m, a pre-tax loss of £8m and gross assets of £42m.
Since inception, the business has originated £4bn of lending. The business primarily originates unsecured personal loans, and also arranges secured auto dealer financing and property financing. As a peer-to-peer platform, RateSetter connects investors and borrowers and therefore does not hold deposits or loans on its balance sheet.
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By GlobalDataRateSetter: deal set to improve Metro lending yield
Metro has previously signalled its ambition to grow unsecured lending. RateSetter’s originating and underwriting capability will enable the bank to accelerate this ambition via an existing, scalable platform. The acquisition presents an attractive opportunity for Metro Bank to improve its lending yield.
RateSetter achieved an average total gross yield of 8% for the financial year ending March 2020. Accordingly, Metro Bank expects the RateSetter deal to be net interest margin enhancing in the first full financial year of ownership.
Metro Bank will operate RateSetter as an independent platform and originate loans under both the RateSetter and Metro Bank brands.
Following completion, Metro will use its deposit base to fund all new unsecured personal loans originated via the RateSetter platform on Metro Bank’s balance sheet. RateSetter will continue to manage the existing RateSetter loan portfolio and Provision Fund on behalf of its existing peer-to-peer investors, with Metro Bank assuming no credit risk for these existing loans.
