News Briefing - Crowdfunding, SME And Alternative Finance

London's financial district, pulsing with money and technology, photographed from the air

1.UK – P2P Lending 

Aston University's Enterprise Research Centre runs a guest blog by an academic from the University of Birmingham runs a blog post by two academics summarising recent research into the future of P2P lending and SME funding post-Covid.

“Facilitated by increased access to the Internet and other technological innovations, P2P business lending has registered explosive growth: from nil in 2009 to a substantial £2.37bn in 2018 according to the British Business Bank’s estimates. Let’s put this into perspective: it represents more than 4% of gross bank lending flows[i]. Other estimates show that P2P business lending was equivalent to 9.5% of total new loans issued to SMEs by UK banks in 2017 and even up to 29% (upper-bound estimate) if the size of business is taken into account[ii].

Online platforms appeal especially to micro and small businesses: the typical loan is £50k and contracted for 5 years. This is exactly the type of businesses targeted by a new “Bounce Back Loans” scheme announced by the UK Chancellor, Rishi Sunak, on April 27th. The evidence suggests that small businesses turn to online platforms not only as a bridge solution, to finance working capital or asset purchase, but more and more as a means to finance business growth[iii].

Until the beginning of the pandemic, platforms performed quite well. The research finds that pre-screening by platforms was efficient, as risk grades were a good predictor of default on loans[iv]. Higher return on investment attracted individual lenders/investors who were driven mainly by pecuniary motivations. Small businesses feeling that traditional banks were disinterested in them turned to P2P platforms attracted by the speed and ease of the loan application process.

The Covid-19 pandemic brought an unexpected change. It’s not surprising that P2P platforms face serious liquidity problems. They need, on one hand, to reassure and placate investors who (may have) started to withdraw their money (some platforms have already paused money withdrawal from the accounts or informed customers of increasing delays). The quality of the P2P loan portfolios, even if they were solid before the pandemic crisis, is now a concern. It is investors who bear the loan risk, but platforms still need new loans to occur regularly to collect fees to cover their costs. In other words, P2P lending platforms could be facing the worst of the “bank run” scenario: when a sufficient number of investors decides to withdraw money due to their own difficulties or when they lose capital due to firms’ inability to reimburse loans, there will be little investment both to keep the platforms going, and even more importantly to channel resources to SMEs.”

 

2. UK – FinTech/SMEs

AltFi reports:

Countingup, the SME banking and accounting app, has received £4m in funding from leading fintech investors. The round was led by ING Ventures, who has invested in the likes of Kabbage and Funding Options, with participation from Triple Point, CVentures and BiG Start Ventures.

Funding from the round will be used to accelerate the fintech’s product roadmap and help to make Countingups’ processes easier and more efficient.

Tim Fouracre, CEO of Countingup, said: “With government instructions to stay at home, the country is turning to digital solutions for everything from entertainment to shopping. 

“If you want to start a business and open a bank account, you can’t go to your local branch right now. With digital offerings like Countingup you don’t need to.” 

Launched in September 2017, Countingup has over 20,000 SME customers and has processed over £1bn in transactions.”

3. UK – AltFi

UK Tax Research has been platforming post-Covid tax reform proposals for some time. Here’s a snippet of the conversation.

“The reasons why wealth needs to be subject to additional taxation has been discussed in another Tax After Coronavirus (TACs) post, with all links being supplied there and so it will not be repeated here.

What was also discussed in that post was that the necessary short term changes to wealth taxation fall into three groups. They are, firstly, to equalise tax rates on equivalent sources of income or allowances. Second, it is by reconsidering those things that should be taxed that are not but might be if the goal of greater equality is to be achieved, and vice versa. In other words, those parts of available tax bases subject to exemptions and reliefs need to be reviewed. Third, it is about creating a more progressive tax system by changing

Scrapping the personal savings tax allowance

The suggestion made in this post is that the annual savings allowance for UK tax purposes, introduced in 2016, should be removed.”

4. International - FinTech

Bitfinex announced on Wednesday it is now offering Bitcoin Dominance (BTCDOM) Perpetual Swap through its digital asset exchange. Bitfinex claims Bitfinex Derivatives is the first derivatives platform to offer Bitcoin BTCDOM, which enables investors to take a position on the market weighting of the world’s biggest cryptocurrency. Crowdfundinsider has the story.

“According to Bitfinex, the availability of the BTCDOM perpetual swap on Bitfinex Derivative’s platform provides traders with the capacity to obtain exposure to bitcoin without it being fully directional.”

 

5. International – FinTech

Crowdfundinsider reports:

Ray Youssef, CEO and co-founder at Paxful, a leading peer to peer (P2P) Bitcoin (BTC) marketplace, recently shared his views and insights with Crowdfund Insider.

Paxful says it’s on a mission to support “social justice through financial freedom worldwide.” The company offers a platform with more than 300 financial networks that aims to empower merchants and buyers.

Paxful has created various opportunities for people across the globe who may not have access to modern banking services.”