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Funding Circle exits retail peer-to-peer lending

Paloma Kubiak
Written By:
Paloma Kubiak

Funding Circle has permanently closed its peer-to-peer business to retail investors, two years after it paused lending at the onset of the pandemic.

The SME loans platform paused peer-to-peer (P2P) lending for retail customers in April 2020 to protect investor returns amid the uncertain economic environment.

The secondary market for retail investors was also paused as Funding Circle concentrated on supporting the government’s SME stimulus programme after being accredited to offer the Coronavirus Business Interruption Loan Scheme (CBILS).

However, since the pause, retail investors have continued to receive payments from existing non-CBILS borrowers with funds returned on a monthly basis.

But, Funding Circle’s annual results (to 31 December 2021) confirmed it is permanently closing the retail platform to new investments. This includes buying and selling loans through the secondary market.

It will continue to manage customer loan portfolios on an ongoing basis until all remaining loans have been repaid or recovered. Funds can be withdrawn at any time and Funding Circle added that for any loans which have defaulted, it will “continue to work hard to recover these funds through our Collections, Recoveries and Litigation teams, or by returning funds to you immediately through future sales of debt to third parties”.

Lisa Jacobs, CEO, said retail lending represents only circa 5% of Funding Circle’s total loans under management, with 90,000 customers using it to lend to small businesses since its launch in 2010. Retail investors have earned average net returns (after fees and bad debts) of c.5% annually lending to businesses on the platform.

“This has been a tough decision to make and one that we have taken following careful consideration. Since new lending was paused in April 2020, we focused on supporting small businesses to access finance through new and existing products, including through government schemes which retail investors were unable to participate in.

“During this period, retail investors have on average received 80% of their investments back and currently represent 5% of Funding Circle’s total loans under management. This period also saw some major changes within the industry including key players closing their retail platforms, proposed regulatory changes and broader market dynamics. These factors have led us to today’s announcement as we do not believe we could continue to operate a sustainable product for retail investors. We have informed the FCA of our decision and the considerations set out above”, it added.

It follows moves by other big P2P players which have also recently exited the market. Zopa shut down its P2P business to focus on being a digital bank and Ratesetter closed its loan portfolio after being bought by Metro Bank. Back in 2019, Landbay also pulled out of the retail P2P sector, returning all funds to investors.

See’s Peer-to-peer lending: Should you invest in an Innovative Finance ISA? for more information.

Funding Circle launched in 2010 and since then, it has lent more than £14bn to more than 120,000 businesses globally.

It has £4bn of loans under management in the UK and recorded operating profit of £64.2m in 2021, compared to a loss of £106.3m in 2020.

Total income came in at £206.9m (2020: £222m) with the reduction principally due to the reduced net investment income. Operating income was £165.5m (2020: £155.7m).