The challenger bank said it has entered a period of exclusive discussions, but these are at a relatively early stage.
“RateSetter is a UK focused peer-to-peer lender whose distribution platform could accelerate the company's stated strategy to grow its unsecured consumer lending book,” the group said in a statement.
Ratesetter has seen a sharp slowdown in activity since the coronavirus outbreak and began talks with its banks in March over a possible sale or merger, according to SkyNews.
Metro Bank, meanwhile, has had its own problems and has been trying to regroup under new chief executive Dan Frumkin.
The bank is the subject of a number of regulatory probes following a financial reporting scandal that required a rescue bail-out from shareholders.
P2P platforms have been under pressure recently as small businesses struggle to cope with the lockdown loss of trade and customers pull out cash.
Ratesetter told Sky News that none of its investors had lost money, but its source added that if a deal is done it would be at a ‘knockdown valuation’.
At end-April, the Ratesetter loan book was worth around £800mln, according to the reports.