Funding Circle exit: Was the writing on the wall?
Two years ago Funding Circle was one of the biggest peer-to-peer lending platforms in the world, one of only a handful of alternative lenders that had taken the business public.
When Covid hit, Funding Circle was one of multiple lending platforms which temporarily paused retail activity. But while other platforms gradually re-opened to retail investors, Funding Circle remained closed.
It started small. At the time, it made sense for the company to shift its focus, amid the start of the pandemic, to provide coronavirus business interruption loans to businesses that needed it the most. Retail investors were not permitted to fund these loans.
Funding Circle became the first P2P lender in April 2020 to be accredited under the coronavirus business interruption loan scheme (CBILS). In May, it took up an offer from the British Business Bank to expand into the bounce back loan scheme (BBLS).
Since then, it has continued to take part in the government-backed schemes, including by becoming the first P2P lending platform to be accredited to the recovery loan scheme (RLS), which replaced the CBILS and BBLS.
As the Funding Circle group moved further into the world of government-backed loans, the fate of the retail platform seemed increasingly uncertain.
After recording a loss of £84.1m in the first half of 2020, Funding Circle unveiled bumper first-half results for 2021, with core earnings of £53.3m.
In an update to Peer2Peer Finance News in September 2021, the firm’s then-chief executive officer Samir Desai said Funding Circle would not consider reopening to retail investors while the RLS was still running.
At the time, Desai said they “need to see how things progress over the coming months…see the economy destress” before revisiting the retail offering.
The RLS was originally set to wind down at the end of 2021. However, in October Chancellor Rishi Sunak announced a six-month extension to the scheme to June 2022. As a result of the announcement, Funding Circle said that it would review its P2P lending business in June.
At the same time the business turned its attention to launching new products and signing partnerships. Its annual report published in March 2021 signalled a focus on partnerships and institutional investments and barely mentioned retail investors in 48-pages.
In September 2021 it launched its first payments facility. In December it rolled out an embedded finance solutions.
Read more: Funding Circle to focus on embedded finance after P2P exit
It also announced partnerships with Tide and credit control app Chaser, the latter just last month.
And finally on 10 March, Funding Circle announced that it will permanently shut down its retail P2P lending platform. All remaining loans are being repaid or recovered and investors will continue to receive repayments of interest and principal into their accounts until loans have been completed.
Read more: Funding Circle permanently shuts down retail P2P business
Lisa Jacobs, chief executive of Funding Circle said at the time of the announcement: “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.
“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.”
Read more: Funding Circle’s P2P exit: The industry reacts
In hindsight, the writing was on the wall once Funding Circle began to focus its attention away from its retail base. The government lending schemes gave the platform the opportunity to try out a new, retail-free business model which did nothing to slow down its profit growth.
Two years is a long time for an ambitious fintech. Since March 2020, P2P giants such as RateSetter and Zopa have both left the retail lending space, and Funding Circle’s exit has been long predicted by many industry insiders.
Funding Circle now plans to focus on its embedded finance offering and other forthcoming products. This is certainly not the last we’ve heard of the pioneering P2P brand.
