Spanish-owned Santander has become the first of the UK lenders to refer its customers to a peer-to-peer lender when bank funding is not available.
The bank has partnered with Funding Circle, an online platform specialising in lending to SMEs that has already received endorsement and funding from the UK government.
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Ana Botín, Santander UK’s chief executive, said: "Santander’s partnership with Funding Circle is a good example of how traditional and alternative finance can work together to help the nation’s SMEs prosper.
"Peer-to-peer financing is also a useful way to introduce people to the concept of investing in entrepreneurs; an important element in a healthy enterprise economy."
In return for the bank’s endorsement, the lending platform will promote Santander’s current account and cash management services to its customers.
Samir Desai, co-founder and chief executive of Funding Circle, said: "This partnership recognises our role as the only marketplace that caters for, and is dedicated to, small businesses.
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By GlobalData"In Santander we have found a fellow challenger brand that shares our commitment to putting small business customers’ needs first. They have created a blueprint for other banks to follow."
Peer-to-peer lending is part of Britain’s burgeoning alternative finance sector, which has grown from a niche, virtually unknown market before the financial crisis to lend out nearly £1bn ($1.7bn).
Funding Circle says it has lent out nearly £300,000 to over 5,000 businesses to date.
The deal between Santander and Funding Circle is just the latest step in a series of events that have seen alternative finance in the UK moving towards the mainstream:
- The UK government made a £55m contribution to P2P lenders in March 2013, to be split between Funding Circle, Zopa, Boost and Credit Asset Management.
- The government followed this up in February 2014 with an extra £40m contribution to Funding Circle for distribution to UK businesses.
- In March 2014, alternative lenders CrowdCube, Funding Circle, Market Invoice, Platform Black, Seedrs, Zopa and Pensionledfunding.com, together accounting for 85% of the alternative funding sector, set up a shared online portal to direct SMEs to the most appropriate source of non-bank funding. They have since been joined by Liberis.
- In his budget statement on the 19 March, UK Chancellor George Osborne threatened to make it compulsory for banks to direct SMEs to alternative lenders if they rejected their loan applications. This was followed up by a consultation in April and government proposals are expected soon.
- The UK Treasury is also in discussions with alternative lenders about including investments in peer-to-peer platforms in ISAs. According to a survey by Populus, nearly a third of UK savers (31%) nationwide would be more likely to put their savings into a P2P account if they could do so through an ISA, or New ISA (NISA) as they are to be called from July.
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