Santander is trying to enter the rapidly growing lend to save market and team up with one of its biggest players, Funding Circle, some reports have claimed.
The UK arm of the Spanish bank is in discussions with Funding Circle – which lends money from private investors direct to to small and medium-sized businesses – in a move which could undermine the sector’s position as an alternative to the big banks.
According to the Financial Times, Funding Circle’s ability to tap into the balance sheet of one the UK’s biggest banks will offer it a fast-track boost to its growth.
Funding Circle said it has been in talks with Santander – but the talks are at an extremely early stage, while a Santander spokesman said the FT report is based on ‘speculation.’
Funding Circle is one of the biggest UK based lend to save platforms – also known as peer to peer lenders – and is solely aimed at SME Businesses.
The lend to save model has proved a massive success, both for investors looking for an alternative to poor savings rates and small businesses increasingly turned down by high street banks.
Funding Circle tends to offer a better deal than traditional banks by linking depositors directly with individuals or businesses looking to borrow.
According to a recent note sent out by Samir Desai, the group’s co-founder, lending remained negative across high street banks in the second quarter, while Funding Circle helped lend £28.4million to businesses.
This is three times the amount lent in the same period of 2012 and 32 per cent higher than the first three months of this year, showing how popularity for lend-to-save is soaring.
More than 17,000 investors now use the site daily and have helped lend more than £130million to more than 2,000 businesses across Britain in three years.
Interestingly, he points out a recent piece of independent research by Nesta which found 77 per cent of businesses said they would come to Funding Circle for a loan first rather than go to their bank.
According to a report by the Open Data Institute, the industry will be worth £1billion by 2016.
But this impressive growth has made it harder to attract sufficient depositors to meet the requirements of businesses looking to borrow, says the FT.
A potential tie-up between Funding Circle and Santander would let the bank lend alongside the lend-to-save platform’s depositors on larger loans which it might not otherwise be able to help finance.
The arrangement could be launched at the end of the year and will give Santander an alternative route into the small business lending market.
The Government has taken an interest in lend-to-save in recent months and recently invested £20million to lend through Funding Circle alongside private investors, as part of its Business Finance Partnership scheme.
Some in the industry are critical of a potential deal. Stuart Law, founder of lend-to-save platform Assetz Capital, said: ‘The banks are beginning to get concerned as they now know peer-to-peer lending is here to stay – it is no flash in the pan as some initially thought.
However, many say that the proposed relationship endangers the whole market which has worked tirelessly to build trust amongst disillusioned investors and borrowers across the UK by creating a new future for finance that doesn’t involve banks.
I for one agree that for the time being Funding Circle should embrace its independence and continue the good work.
Leave a Reply