Rothschild Family Scion Buys Into Peer-To-Peer Lending Trend

Tom Burroughes

11 December 2012

Jacob Rothschild, scion of the famous banking dynasty, has bought a stake in a peer-to-peer lending company at a time when conventional bank lending has been squeezed, the Financial Times reported.

RIT Capital Partners, Lord Rothschild’s London-listed investment trust, bought into UK-based Zopa in the expectation that it will eat into a business traditionally dominated by banks, the newspaper said.

“We are witnessing the growth of the non-banking lending market,” Lord Rothschild told the publication. “Following the 2008 crisis many of the banks remain under capitalised,” he said. “In these circumstances alternative forms of credit will be developed on a significant scale. This is happening.”

Among other similar moves, John Mack, the former chairman and chief executive of Morgan Stanley, joined the board of Lending Club, a US peer-to-peer lending company, in April.

Zopa, meanwhile, has lent £250 million since it was founded in 2005. Lord Rothschild declined to reveal the size of his stake in Zopa, which he acquired through Augmentum Capital, a technology fund whose sole investor is RIT Capital, the FT said.

As reported by WealthBriefing in August, a peer-to-peer lending organisation called Squirrl is promoting its services to hundreds of UK-based independent financial advisors, highlighting how this non-bank funding channel is being driven by the search for alternatives to traditional bank finance.

The peer-to-peer funding model, which removes banks as the middleman, enables savers to invest in secure loans to well-established firms. According to one definition, this form of funding is a “method of debt financing that enables individuals to borrow and lend money - without the use of an official financial institution as an intermediary”. This funding model typically involves more time, effort and risk than more conventional sources of lending.

The development of such financing comes at a time when traditional bank lending to firms has been squeezed by the tougher economic climate; to fill this gap, groups such as angel investors and managers of investment funds of various types have stepped in with a variety of financing structures.