Business Lender Funding Circle Shuts Off Retail Platform to New Investments

Funding Circle has permanently barred new investors from its retail platform, the business lender announced Thursday (March 10).

As the Financial Times reported, the decision was announced as the company shared its results, and is an indication of how the peer-to-peer (P2P) lending sector has struggled amid stronger oversight from regulators and the effects of the pandemic.

“There’s been a big shift; the industry has shrunk severely,” chief executive Lisa Jacobs said, adding this had been “quite a difficult decision.”

P2P lending has faced regulatory crackdowns in the U.K. in recent years, with the Financial Conduct Authority (FCA) unveiling tougher rules in 2019.

“We believe that loan-based crowdfunding can play a valuable role in providing finance to small businesses and individuals, but it’s essential that regulation stays up to date as markets develop,” the FCA’s Christopher Woolard said at the time.

The pandemic didn’t help either, with capital markets declining and retail investors withdrawing funds.

Jacobs said Funding Circle’s retail investment declined 80% since it was halted in March 2020 to focus on government loans, and now made up less than 5% of loans under management.

With this move, Funding Circle joins other P2P lenders in exiting the market. Among them is Zopa, considered the first P2P lender, which exited the market last year after getting a banking license in the U.K. in 2020.

Read more: Funding Circle Debuts BNPL FlexiPay Option

Last year, Funding Circle announced the debut of its first payments facility, FlexiPay, a buy now pay later (BNPL) option that lets businesses make installment payments over three months for any U.K. invoice or supplier payment.

FlexiPay uses Funding Circle’s Instant Decision Lending program, which analyzes risk models, shrinks application time to about six minutes and arrives at a loan authorization inside of nine seconds. The company said the technology serves about half its term loan borrowers.