Royal Bank of Scotland is set to enter the peer-to-peer (P2P) lending market in the latest sign that alternative finance is gaining traction by moving into the mainstream.
The high street bank is planning to pilot an online peer-to-peer platform before the end of the year in a tie-up with a third party operator – reports the FT.
The move is part of a broader strategy to work with alternative finance providers as a way to support lending to smaller businesses.
The platform is expected to provide funding for SMEs that might have had loan applications rejected by a bank – a situation that escalated following the financial crisis.
People familiar with the situation said RBS has been working on plans to enter the P2P market by collaborating with another platform for the past year.
Ross McEwan, chief executive of RBS, has recently emphasised the bank’s strategy for supporting more businesses and entrepreneurs.
“As the economic conditions improve, we also need to do more to show we are open for business,” he said at a conference in London on Thursday.
“To do this, RBS and NatWest will be launching a network of eight new business accelerator hubs around the country to provide thousands of SMEs with the offer of free workspace, hands-on mentoring and a free programme of advice and support,” he said.
Peer-to-peer providers have recently gained momentum by forming tie-ups with established high street lenders.
The industry has lent £1.89 billion to customers and businesses to date and is on track to hit £1 billion this year alone.
Investors seeking interest rates of around 6% can lend via platforms to companies or individuals, who in turn pay less interest than borrowing through a high street bank.
As online entities, P2P platforms have thinner margins than traditional banks, which have significantly higher operating costs, meaning more attractive returns for lenders.
The move by RBS comes after Santander struck a deal with Funding Circle, announced earlier this year, to form a partnership as another way of lending to smaller businesses.
In return for Santander referring corporate customers to Funding Circle, the platform promotes the bank’s current account and cash management service.
Ana Botín, Santander UK’s chief executive, said at the time that the partnership is “a good example” of how traditional and alternative finance can work together “to help the nation’s SMEs prosper”.
Funding Circle said the platform was in conversation with “all the major banks” and was “hopeful of another tie-up” in the next six months.
In August, George Osborne, chancellor, said banks that reject loan applications from SMEs will be forced under government plans to refer them to other sources of funding.
Around 250,000 businesses a year could be referred to alternative finance providers by banks, based on research by Alternative Business Funding, a site guiding SMEs towards funding sources.