1.UK – P2P
“Fast forward a decade and a half and the landscape has changed considerably. Consumer lending is by no means the only – or the biggest – kid on the P2P block any more.
The latest annual UK Alternative Finance Industry Report, compiled by the Cambridge Centre for Alternative Finance (CCAF), found that business lending made up the largest share of the P2P market as of 2017, followed by consumer lending, with property finance a close third.
Throw in the fact that for many mainstream investors, the razzmatazz surrounding Funding Circle’s initial public offering was their first exposure to a P2P lender, and a model which started out serving consumers now seems to have morphed into one that is becoming better known for its business credentials.
It’s a shift that is at least partly explained by the differing nature of the assets involved, says Jake Wombwell-Povey, chief executive of direct lending investment manager Goji. “Business lending is on the rise because individual investors are drawn to business and property loans,” he comments. “They tend to be asset backed and have more security.”
He argues that security is particularly appealing to retail investors because, in the absence of Financial Services Compensation Scheme guarantees, loans secured against an asset like a warehouse or factory can seem like a better place to put your hard-earned cash. “These are not the kind of investors who want to spend their time analysing credit risk,” he asserts. “But they do understand bricks and mortar.”
Wombwell-Povey thinks that business lenders have taken lessons in how to promote themselves from the consumer lenders that predated them. “There is still growth in consumer lending, but other parts of the market are getting more fluent in marketing what they do to consumers,” he says.
On the other hand, the consumer lenders’ head start in the market means they are now more mature businesses, says Peter Behrens, co-founder of ‘big three’ platform RateSetter, which started life as a P2P consumer lender before diversifying into business and property finance. “We diversified much earlier and more aggressively than some,” says Behrens. “We tried lots of different lending verticals and dabbled in different ways of raising the funding supply too.
“Some were brilliant, some not so much. But it has given us the focus now on how we can relentlessly grow the business. Our instinct is to get the product right, and then once the formula is correct to try and amplify it. That focus is very valuable.”
Although RateSetter has diversified into other types of loans, its original consumer product still accounts for the lion’s share of its loanbook.
In comparison with younger platforms, RateSetter (and the other ‘big three’ platforms Funding Circle and Zopa) have had more time to establish both their individual models and their market positioning relative to one another, he adds. “I think that the three of us are all focussed on something slightly different,” says Behrens. “Funding Circle wants to be the best small business lender in the world. Zopa considers itself to be the best consumer lender in the UK, while we at RateSetter are focussed on being the best retail investment product that can get its hands on these types of assets.”
So the ‘big three’ may not all compete directly for borrowers, but they do compete for investors, and each has a distinct offering. The important point, says Iain Niblock, co-founder and chief executive of P2P investment manager Orca Money, is that investors can and should include both consumer and business lenders in their portfolios rather than trying to make a decision on which is best. “There are good quality assets to be had in consumer, business and property lending and it’s good to have investments split across the three sectors,” he explains.
While much of the attention may be on business lending at the moment, the intrinsic strengths of consumer lending remain. “There is a bigger market of consumers, you just have to offer a better product,” adds Niblock. “The returns in consumer P2P lending are actually growing.
“With consumer lending you get a lot more loans in your portfolio [for a given sum invested] because each loan is smaller, so you get more diversification.”
However, Niblock predicts that P2P consumer lenders will increasingly face rivals from outside the sector. “What’s going to impact P2P is when the challenger banks start lending,” he states. “Take Marcus from Goldman Sachs – they have taken huge deposits, what’s going to happen when they start lending to consumers?”
The challengers may prove tough to beat: P2P platforms have to provide a return to their investors, whereas deeper-pocketed challenger banks can afford to buy market share with loss-leading rates, at least in the short term.
P2P lenders must also manage the perpetual balancing act of matching the demand for loans from borrowers with the supply of funding from investors, an issue that tends to become more rather than less complex as the size of the business increases. Of the ‘big three’, only RateSetter remains fully focussed on retail funding. Zopa’s P2P investment is now approximately two thirds institutional money and one third retail.
Concerns have also been expressed that Brexit-related fears over the economy may hit both consumers’ appetite to borrow and their ability to repay, with negative consequences for origination levels and default rates. Figures released by the Insolvency Service for 2018 showed that personal insolvencies rose 16.2 per cent to reach their highest levels since 2011, with Individual Voluntary Arrangements (IVAs) at the highest annual level ever recorded.
It’s not something that RateSetter has seen any sign of so far, says Behrens. “A decent sized unsecured personal loans book – which is what we now have – is an interesting bellwether for what’s going on in the world. We see no signs of any stress in it at all.”
He’s equally sanguine on Brexit. “I’m an optimist, so despite the ever-increasing sense of woe around Brexit I think that ultimately humans rebuild stuff – solutions will be found,” he adds.
He’s careful to note that there is no cause for complacency, but also points out that if and when it does come, a bit of economic turbulence could actually be a good thing. One of the most often-repeated criticisms of P2P is that it has not yet proven its mettle through a full economic cycle.
“We’ve designed our product to manage the risk of changing economic conditions,” Behrens affirms. “That’s what we have set out to do, but we need to prove it. If we can do that in the course of this financial year it could be a real tipping point, where the growth rate in the business goes up absolutely enormously.”
2. UK – IFISA
3. UK – AltFi
“The City watchdog is seeking to take down the website of a bond firm that has allegedly been carrying out regulated activities without its authorisation.
Asset Life is said to have been selling debentures with interest rates of 8.75 per cent and is linked to London Capital & Finance (LCF), the scandal-hit mini-bond firm that fell into administration at the end of January.
The Financial Conduct Authority told The Times yesterday that it had contacted the internet provider of Asset Life’s website to have it removed.”
4. International – FinTech
“It’s not only the price of Bitcoin that is seeing a rejuvenation in investor interest, but BTC Futures are also seeing some investor love too.
In a tweet by the Chicago Mercantile Exchange (CME) the exchange said that CME Bitcoin futures reached an all-time record high of 33.7K contracts on May 13 (168K equivalent Bitcoin), up nearly 50% from the last record of 22.5K contracts on April.
The price of Bitcoin has gone from under USD $4000.00 in March to topping $8000 in May representing a solid return if you were fortunate enough to purchase BTC during Q1. While there has been plenty of speculation as to the cause of the recent rise in the price of the worlds most popular crypto, some of it has to do with a flight to safety in a world chock full of geopolitical risk. Most worryingly, at least for the moment, is the trade war between the US and China. Crowdfund Insider speculated that Chinese investors were looking to hedge against the decline in the value of the yuan.
But there are plenty of other countries where Bitcoin looks like a safe haven. Troubled spots like Iran and Venezuela currently top the list.”
5. International – FinTech
The new financial revolution is undeniably based on Fintech, entirely. The convenience and flexibility of tech-based financial services rapidly attracted investors in different sectors. This made them contribute to further developments and client base development of these new players, making them some of the most powerful and prolific lenders and banking institutions out there. Major investment banks like JP Morgan Chase put into IT services $9.5 billion, only in 2016. Out of those, $600 million were directed to Fintech initiatives.
The new financial revolution aims to meet the demands and needs of the digitized consumer, in a growing digitized context. More personalized banking products and services emerged, as a result. The business consumer has new loan options to choose from, more competitive products and flexible interfaces to meet their new needs and requirements. Private loan consumers are met with a wide and more competitive offer in terms of loans, mortgages and application protocols.
In 2017, the PWC statistics showed that venture capital investments in the sector reached an impressive $22 billion in the previous year. Most investments were distributed in America and Asia. In Europe, London is still the Fintech capital, in spite of the uncertainties surrounding Brexit.
New European Fintech development hubs have lately emerged in France, Germany, and the Scandinavian countries, but also countries like Israel.
Loans in the Fintech Context
In 2018, the personal loan market reached an all-time high, and the major peak seems to be generated by Fintech. The personal loan market reached in 2018 an impressive amount of almost $140 billion, 17% higher than the previous year. The TransUnion data shows that almost 40% of the total of Fintech loans were taken out from Fintech players.
Business loans also have a new image and status when it comes to financial solutions for SMEs. Traditional banking institutions seem to retreat from financing SMEs, by implementing severe collateral and a guarantee system designed to reduce the ability of new business players to access and enjoy viable banking solutions. Fintech takes over the matter, making it easier for new enterprises to access and use financing products, in their first few years of activity.
What makes Fintech players so popular among businesses is how easy and affordable financial help they can find in new banking solutions is. With online applications and fast application analysis capabilities, Fintechs seem to be the perfect answer for a growing number of businesses in need of fast and reliable banking solutions. Also, these players’ products and services are typically faster to process and more convenient than endless trips to a local bank and an endless supply of papers and documents usually inquired by traditional banks.
What Has 2019 In Store for Fintech?
In 2019, we should expect to see automated technologies in the banking sector used at a new, more ample extent. But we should also account the GDPR data protection protocols and policies, and growing demand for a digitalized user for flexible and streamlined services and products.
Blockchain and cryptocurrencies also bring Fintech under the spotlight pushing it to become more competitive and invest in new, more innovative technologies and processes. The new finance environment seems to become more and more polarized. The forces and players reshaping Fintech and the need for higher sustainability levels in the sector are the main change drivers. Sustainable investing seems to be the next big trend in the banking sector. Consumer needs and preferences change and develop, and new target audiences emerge: young, educated women, millennials of different genders and ages, with different needs, new small enterprises looking into affordable and flexible financing solutions, all these categories seem to bring Fintech and loans on the brim of change.”