Metro Bank has agreed to acquire RateSetter for initial consideration of £2.5 million, with £500,000 payable 12 months after completion subject to the satisfaction of certain criteria and a further £9 million payable on the third anniversary of the transaction.

The acquisition does not include RateSetter Australia, which is being retained by shareholders. Discussions over the deal began back in June.

RateSetter was founded in 2010 and became the UK's most popular peer-to-peer (P2P) lender, with over 750,000 people having invested or borrowed through the platform.

In its financial year ending 31 March 2019, the company reported revenue of £33 million, a pre-tax loss of £8 million and gross assets of £42 million, but the recent wave of Coronavirus-related business defaults have rapidly increased P2P sector risk.

The business primarily originates unsecured personal loans, and also arranges secured auto dealer financing and property financing. As a platform, RateSetter connects investors and borrowers and therefore does not hold deposits or loans on its balance sheet.

As part of its strategy to enhance returns, Metro Bank has previously signalled its ambition to grow unsecured lending. A statement suggested that RateSetter's originating and underwriting capability will enable the bank to rapidly accelerate this ambition via an existing, scalable platform.

The acquisition presents an attractive opportunity for Metro Bank to improve its lending yield, with RateSetter having achieved an average total gross yield of eight per cent for the financial year ending 31 March 2020, and is expected 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. RateSetter chief executive Rhydian Lewis will join the bank's executive committee and report directly to chief executive Daniel Frumkin.

Frumkin said: "RateSetter is an established business with a strong technology platform and a talented team who have deep experience in the consumer unsecured lending market - this acquisition therefore accelerates our plans, helps us to better meet the needs of our customers and further strengthens our position as the UK's best community bank."

Following completion, Metro Bank 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 its existing loan portfolio and Provision Fund on behalf of current P2P investors, with Metro Bank assuming no credit risk for these existing loans.

The transaction will be funded from existing cash resources, whilst the final fair value and goodwill elements will be determined as part of the company's year-end accounting process.

The acquisition is conditional upon approval from the Financial Conduct Authority and shareholders holding at least 60 per cent of RateSetter's shares acceding to the relevant transaction documents and is expected to close by the fourth quarter this year.

Shareholders holding 45.7 per cent of RateSetter's shares have signed the relevant transaction documents at the date of this announcement.

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