Funding Circle is dropping peer-to-peer lending for retail investors

Commercial lender Funding Circle has permanently closed its retail platform to new investment, joining players such as Zopa and Landbay in shrinking the peer-to-peer sector.

The decision, which was announced as the group released strong annual results on Thursday, reflects the difficulties in peer-to-peer lending following tighter regulatory oversight and the impact of the Covid-19 pandemic.

“There has been a big change; the industry has shrunk dramatically,” said chief executive Lisa Jacobs, who added that it had been “a pretty tough decision.”

Peer-to-peer lending proliferated in the years following the financial crisis, providing access to credit for riskier borrowers as traditional banks faltered, while offering the retail investors who funded them attractive interest rates. . But the sector has been struggling since 2019, when the Financial Conduct Authority issued tougher new rules after a series of high-profile issues.

It was also hit during the pandemic, as capital markets dried up and retail investors sought to withdraw funds.

Jacobs said the group’s retail investments had shrunk 80% since shutting down in March 2020 to focus on government loans, and now accounted for less than 5% of loans under management.

Peer-to-peer pioneer turned bank Zopa exited the market in December, while RateSetter was acquired by Metro Bank in 2020. Two other lenders, Landbay and ThinCats, both closed to retail investors in 2019.

The move came as Funding Circle unveiled its first full-year pre-tax profit of £64.2m, compared to a loss of £106.3m in 2020.

Pre-tax profit in the second half was £28.7m, four times higher than the same period in 2020, while adjusted profit before interest, tax, depreciation and amortization, the preferred measure of profitability for the business, rose 90% to £38.5m. .

Total income for the second half was down 30% to £86.3m due to lower income from the company’s own investments, which Jacobs says was a deliberate strategy to change the way it operates. used his balance sheet.

Funding Circle was listed at a valuation of £1.5bn in 2018, but in 2020 it had a market value of £100m, less than the cash amount on its balance sheet.

Its shares rose 1.8% in afternoon trading, although they are still down 83% since their debut.

The company was the first “market lender” to join Britain’s coronavirus business interruption loan scheme, becoming the third largest lender for the scheme. She was also involved in government loans in the United States.

Jacobs said there were no signs of increased fraud in the CBILS loans the company had made and that Funding Circle only had a small involvement in the controversial bounce-back loan program and provided loans to customers. existing.

It expects group revenue of between £155m and £170m in 2022, rising to $290m by 2025, excluding its new B2B service buy now, pay later, FlexiPay.

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