Are Funding Circle and Santander about to join forces?

Could Santander be about to partner with Funding Circle and put the entire idea of the peer-to-peer industry at risk?

Peer-to-Peer (P2P) lender Funding Circle could be about to get into bed with Santander, reports have suggested.%VIRTUAL-SkimlinksPromo%
Funding Circle focuses on providing loans to small businesses, and has grown significantly this year alongside its rivals in the P2P sector, such as Zopa and Ratesetter. As P2P sites cut out the middle man – the bank – and allow individuals to work together directly, these sites are cheaper for borrowers and pay out better interest rates for savers.

Funding Circle partnership
The mooted partnership was first reported in the Financial Times last week.

Such a move would dramatically shake up the P2P market and could be seen as a positive move, as it could provide more capital for small businesses to borrow.

However, right now P2P websites aren't covered by the Financial Services Compensation Scheme (FSCS), so it's unclear how Santander would manage the risk. And the partnership could also put off thousands of businesses who have used Funding Circle because they've been turned down by the high street or because they were put off by the big banks' poor reputation.

The truth behind the rumours
When I approached Funding Circle and Santander, both were keen to stress that the reports published so far were based on speculation.

Funding Circle confirmed no agreement or partnership had been made but Samir Desai, the group's co-founder, said in a statement that conversations were at an extremely early stage. He also explained that the company had been in talks with several different businesses since its creation three years ago - some of which were high street banks.

When a business is rejected credit from a bank, some banks will suggest they approach a P2P lender instead. It the two companies did become partners, Desai said this could be made an official policy and the bank would then fund a small proportion of that loan.

What the other lenders say
Shortly after the announcement Stuart Law, founder of Assetz Capital, said the potential collaboration would "thrust a spear" straight through the heart of the P2P community.

"Independence and a clean break from the greedy banks has been a central pillar of the alternative finance market but we're in danger of losing all the work that's been done if Funding Circle begins working hand-in-hand with Santander," he added.

Two other lenders, Rate Setter and Thin Cats, had a more positive slant on the news.

Rhydian Lewis, CEO of RateSetter, said the news demonstrates that P2P lending's dramatic growth is catching the eye of institutions. A collaboration with a mainstream bank would add credibility to the institution, he believes, and this shows how the industry is starting to take shape.

"RateSetter will always fight to ensure direct access for consumers to the beneficial returns of P2P, however the landscape evolves in the coming years, but this is an exciting development for our friends at Funding Circle," he added.

Kevin Caley, spokesperson for ThinCats, said he didn't think the big banks saw P2P lenders as a threat because of the relatively small size of this market. However, when ThinCats has previously approached the banks he said "it was clear they had lost all interest in the small business market."

"There may be other strategic reasons for the two getting together" argues Caley, such as selling the company to one of the smaller banks. He says that as Funding Circle has followed the classic venture capital funded internet start-up path, investors will be looking for an exit at some point and if it was sold, this would provide investors with an eventual exit.

How will customers react?
There are more than 49,000 savers registered with Funding Circle and since its start £129 million has been lent out. A lot of this money has gone to businesses which have been rejected for loans from the high street banks.

Lending to small businesses is at an all-time low at the moment and the Government's Funding for Lending Scheme (FLS) isn't helping the situation.

However, partnering with Santander seems to be a double-edged sword. On one hand it goes against everything P2P lenders stand for and is a sure-fire way to put off loyal customers.

On the other it will provide credibility and extra security to a niche market, which could attract more new customers.

What do you think about the potential partnership? Is it a good thing for P2P lenders of will it destroy them? Let me know in the comment box below.

Beware the small print
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Are Funding Circle and Santander about to join forces?

It is reasonable to assume that if you take out a mobile phone contract at £30 a month for 24 months that's exactly what you'll pay unless you exceed the tariff. Yet mobile phone providers have come under fire for a snag buried in the small print – a clause to allow mid-contract price rises.

Prices are rising by a median of 81p a month and 70% of consumers are completely unaware off this sneaky move, according to Tesco Mobile, so be sure to check any new contracts before you sign the dotted line.

Financial service providers always refer to 'typical APR' in advertising to attract customers with favourable rates of interest.

Yet the typical APR on loans and credit cards is only available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate. For example, under EU rules, credit card providers only have to provide the typical APR advertised to 51% of applicants.

So always consider this when applying for accounts and products, and if approved – look out the actual APR that you will be charged.

The highest paying savings accounts on the market tend to come with a string of strict terms, which if you fall foul of, result in a drop in interest. Common requirements include paying in a set sum each month and not making withdrawals during a set period.

Make sure to fully understand these terms before opening a savings account and if you choose an account with a six or 12 month bonus, remember that this will plummet when the bonus period ends.

Cashback credit cards that pay you a small percentage each time you spend on the card are full of loopholes in the small print. All have a maximum spend, but many have a minimum spend too.

For example, the Sainsbury's Cashback Low Rate card advertises that it offers users 5% cashback for the first three months. However the 5% cashback is capped at £50 a month. A further 5% cashback is subject to you spending £500 a month on the card (£250 of that at Sainsbury's).

Attempt to repay your mortgage early and you may be greeted with a hefty fee in the form of an early repayment charge. These penalties vary from lender to lender and even deal to deal, but are typically be around 10% of the outstanding balance.

Details of any early repayment charges should be clearly outlined in your mortgage contract but it is worth double-checking with your lender before you try to make a payment.

Insurance is an incredibly complex area of personal finance and different forms of cover are riddled with different hitches that make it crucial to read the small print. Failure to do so could lead you to pay for a product you would be never be able to claim upon, or unknowingly do something that invalidates your claim.

Always buy the right level of cover for your needs and pay close attention to any exclusions in the policy wording. For example, many travel insurance policies for winter sports won't pay out for treatment of injuries incurred while under the influence of alcohol.

Think a credit card can't do any damage at home in your drawer? Think again. Some credit and store cards charge a dormancy fee if you don't use them regularly.

For example, all Santander-issued store cards, including Topshop and Laura Ashley cards among others, charge a fee of £10 if you remain in debit for three consecutive months.

Exceed the monthly usage allowance in your broadband deal and you could be hit with a huge fee. Common with the cheapest broadband deals on the market, penalty charges for going over your contracted limit can push your bills up even higher than if you paid for a deal with unlimited usage.

According to Talk Talk, some households are being forced to pay an additional £40 per month for exceeding their usage allowance. BT for example, charges £5 per every 5GB extra used.

Familiarise yourself with the download limit in your package and the penalties for exceeding it, decide whether you are better off with an unlimited deal.

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