12 Apr

To be, or not to be? A bank

2016 was a difficult year for the alternative finance industry. Lending Club was hit by a series of scandals and Lord Adair Turner publicly questioned the P2P model (albeit in a commentary that he subsequently modified).

But 2017 promises to be a transformational year, with some industry insiders talking about ‘A Golden Age’…

As the scale of online lending expands, so does the ambition. And so the relationship with banks becomes ever more complicated. This was the central theme at the recent AltFi Europe Summit, which saw around 350 fintech leaders gather in London to tackle the future of the industry.

The sector is rethinking its relationships with the financial incumbents. There’s a bigger push on partnerships. But do platforms want to compete with banks, collaborate with them – or become them?

Blurred lines

As Samir Desai, Founder and CEO of Funding Circle, stated ‘the lines between platforms and banks are blurring.’

This is indeed true. P2P founding statesman Zopa has applied for a banking license, whilst Goldman Sachs has announced its intention to offer a new online lending platform.

Zopa’s CEO Jaidev Janardana said that the company is launching a bank to achieve its vision of offering the best home for customer money. As it prepares to offer traditional products, such as cash ISAs, alongside P2P investments, he pointed to Zopa’s customer service record in the 12 years since its birth.

He said that banks’ duty of care primarily covers managing customer money and data – and this is something Zopa has built a reputation for. So has P2P moved full circle and become what it set out to disrupt?

Alternative routes

As to be expected, the industry is fragmenting as it matures, and different platforms will take different routes. An audience poll at the AltFi event revealed that 59% of attendees don’t think that high street bank collaboration is bad news for customers, but the remainder disagreed. So there’s a sizeable minority committed to replacing banks.

This includes Monzo’s Founder Tom Blomfield, who believes that the sector’s collaboration with the incumbents risks simply plugging gaps in a broken banking system.

He called for fintechs to take the lead in ‘marketplace banking’ – rooted in smart software driving open banking in a fertile PSD II environment.

Ultimately, consumers want choice. One way ahead, that we’ll see more of, is co-branding or white labelling of products.

There is room for both banks and platforms, and it will be fascinating to watch how their relationship develops.

17 Dec

Safeguarding London’s FinTech crown

London’s status as the world’s FinTech capital has been the subject of numerous panel debates at industry events.

At the recent FT Banking Summit, the publication’s Financial Editor Patrick Jenkins referenced a conversation that he had with the Eastern European founders of one of London’s hottest FinTech startups. They told him that if they were to found the company again, it would be in Berlin.

On the other side of the coin, at Sibos 2016 Geneva, Kay Swinburne, Conservative MEP for Wales, asserted that the City of London will continue to play a key role.

She said that London is “a global financial centre and will maintain that expertise, investor base and capital base that the rest of Europe will need to tap into.”

The truth is that the full implications of the Brexit vote are unknown. What is clear, though, is that FinTech will continue to be about ‘location, location, location’ – and London has a number of advantages.

For a start, there’s a few hundred years of financial history to consider. The strength and appeal of the City’s financial infrastructure can be traced back to Sir Thomas Gresham in the 1500s, and this advantage won’t simply be eroded overnight.

An unlikely champion

And it’s a core part of this infrastructure that will help London to remain at the forefront of FinTech. The regulator.

Since 2010 the UK government has been looking to encourage new types of finance to offset damage from the financial crisis. The FCA’s regulatory sandbox creates a ‘safe space’ in which businesses can test innovative products, services and business models in a live environment.

While many regulators are known for stepping in to shut down new ventures, entrepreneurs are unequivocal in their praise of the FCA. Along with Singapore’s MAS, it’s seen as one of the most progressive regulators in the world.

A 2016 report by management consultancy Oliver Wyman suggests that if the UK opts for a ‘hard’ Brexit (losing access to the single market), it may actually benefit the London FinTech scene.

This is because UK FinTechs currently have to comply with a raft of EU regulations, not all of which are particularly favourable to UK business. With Brexit, the government could pick and choose which laws benefit its burgeoning companies and implement them on its own terms, easing the regulatory burden.

The report also argues that a hard Brexit could simplify the visa process and make it less expensive for FinTechs to hire the brightest and best from further afield than the EU.

So against a backdrop of uncertainty, one certainty is that both the UK government and the FCA will do their upmost to defend London’s status as a FinTech hub.

Because it’s FinTech which may help to balance any wider economic damage.

04 Jan

2016: The Year of the Unicorns

unicorn global accountantIt was venture capitalist Aileen Lee who first coined the term “unicorn” to describe a private technology firm valued at over US$1 billion. The name was a nod to the rarity of such enterprises, but 2016 will see a shift as unicorns become the norm.

In fact, this year the leading fintech companies will likely begin to surpass this and establish a US$10 billion league. Lending Club in the US, following its hugely successful IPO at the end of 2014, is primed to be an early joiner of this new club.

Banks could easily dismiss the company – (and indeed the wider peer-to-peer (P2P) lending model in general) – back in 2012, when it was only arranging US$60 million of loans per month.

But now, with large institutions recognising the power of this new lending model, hedge funds provide much of the capital loaned out, and it’s predicted that Lending Club will finish 2016 doing well over US$1 billion of credit a month.

Stanley Pignal, Banking Editor at The Economist, has remarked that fintech’s “T-shirt-wearing denizens think of banks as the Kodaks of the 21st century: incumbents whose time is up.” Given the success of fintech companies over the past couple of years, the banks should indeed be worried. And the UK’s leading P2P platforms are ready to replicate Lending Club’s success.

An innovative ISA at last

A major factor behind the continued exponential growth of the UK’s P2P industry will be the launch of the Innovative Finance ISA (IF ISA) on Wednesday 6 April, the start of the new financial year.

Back in April last year, George Osborne’s expansive changes to the pensions industry provided savers aged 55+ with the freedom to better leverage their pension pot. Realising the positive disruptive force of P2P and the increased confidence and appetite of retail savers, the government paved the way for this new type of ISA.

The IF ISA is perhaps the biggest-ever change to the popular ISA format, and is the first time that people will be able to include higher-yielding P2P investments in their tax-free wrapper.

And this change is certainly needed – according to research carried out by P2P giant RateSetter, almost two thirds of cash ISA holders are unhappy with their interest rate, which has been falling for years and presently stands at around 1.38% on average for one year cash ISAs.

Investing through P2P lending means putting capital at risk, but with that risk comes substantially better returns. This is appealing to today’s more financially savvy investor.

Rhydian Lewis, CEO at RateSetter, said:

Savers have been offered terrible rates for years, and this survey shows they are now reaching breaking point

The launch of new IF ISAs in April 2016 is a significant milestone. With the majority of cash ISA holders identifying interest rates as a priority, this will give them the opportunity to increase their returns.

This opportunity will further boost the nascent industry, helping the platforms to establish themselves firmly in the mainstream. The potential of these fintech companies has been strengthened by a wider, more positive profile across the media.

According to Andrew Hagger of Moneycomms.co.uk, a regular contributor to the personal finance pages in the press –

Just because you might not be familiar with the names, it doesn’t mean you should discount them. The P2P sector is now regulated and has established itself as a credible alternative to the big banks – and the rates are much better than you’ll find on the high street.

The pendulum has swung, and all the elements are in place for fintech to change the face of finance. It will be quite a year.

08 May

Aussie rules: a new fintech superpower

Most commentators agree that London has firmly established itself as the world’s premier fintech hub. The UK capital benefits from a supportive government, and a progressive regulator in the form of the FCA. It is the envy of many.

Tech modelsOther markets are fighting hard to catch up. In this competitive environment it looks as though Sydney has now surpassed New York as London’s main challenger for the fintech crown.

Indeed the UK’s leading platforms are already targeting the Australian market.

In April 2014, RateSetter Australia was launched. RateSetter’s founder and CEO Rhydian Lewis explained at the time:

When looking at international markets in which to expand, Australia was the obvious choice as it bears great similarity to the UK before the advent of P2P lending. Its savings and loans industry is ripe for disruption as banks have been offering below-par deals for too long with little true competition

In December, peer-to-peer business lending platform ThinCats followed, founding ThinCats Australia and joining RateSetter and a number of local platforms, such as SocietyOne and Lending Hub, in a burgeoning marketplace.

What are the factors that make Australia so attractive?

Australia undoubtedly has a very robust financial services industry, including a strong and stable banking system. The country’s big four banks have ensured that it is a major financial power on the global stage.

Su-Lin Tan, writing for BRW., highlights how Australia’s banking oligopoly has, by effectively stifling competition, helped to fuel the country’s boom in financial technology. Investors are queueing up to back disruptive entrepreneurs keen to challenge the established order.

So it has a strong financial base, but one that is primed for disruption.

Australia is also well ahead of other nations in terms of deploying advanced payments systems. In the USA, as a comparison, paper cheques are still popular and contactless payment systems are only just taking off.

A local perspective

Start-up advisor Kim Heras points out that Sydney provides easy access to the fast-growing Asian markets, and the Australian government has forged impressive trade agreements with China. This means that Australian financial services organisations get unparalleled access to China.

Heras also believes that Sydney is taking advantage of New York ‘dropping the ball’:

I guess [New York] just always assumed that they would be a financial services capital, and so they haven’t done that much, especially around new forms of currency. On top of that, New York’s got another issue, which is not unlike every other startup hub around the world: They’ve got Silicon Valley envy. So while New York, you would think, would be focused on fintech, media, advertising, the reality is what they’re dying to see out of New York are consumer tech companies that mirror what’s happening in the Bay Area

And, perhaps most importantly, Heras stresses that in financial realms, Australia has scale:

If you look across all other industries, you have a real challenge with scale in Australia, because normally, your audience are people. Australia’s population of 23.8 million just isn’t enough for a startup to scale up as quickly as venture investors might like, but not so with fintech.

In managed funds, we’ve got the fourth-largest pool of capital, so you can get to global scale very quickly in Australia by focusing on fintech. That’s something that makes fintech really attractive for Australian founders

Regulatory support

The Sydney Morning Herald reported that the Australian Securities and Investments Commission (ASIC) is setting up a Digital Finance Advisory Committee, manned by members of the fintech community, as the corporate regulator focuses its attention on the fintech sector.

ASIC chairman Greg Medcraft said that they want to make it easier for start-ups and fintech businesses to navigate the regulatory system.

He believes that the time is “ripe” for digital disruption, as the financial services sector has yet to feel the full impact of modern technology:

The great drawcard of digital disruption is the opportunity it brings. Digital disruption offers new forms of access, greater competition, and greater efficiency

ASIC will now be taking part in fintech initiatives such as Stone & Chalk – a not-for-profit hub established to accelerate the development of fintech start-ups. The group counts giants such as Amazon, American Express and KPMG as partners.

With the inherent advantages in the market and increasing government and regulatory support, Sydney is set to flourish in the fintech arena. One to watch!

20 Feb

Transparency and trust: alternative finance is anchored in traditional values


It has been another difficult month for the banking sector. Swiss prosecutors have raided the offices of the Geneva subsidiary of HSBC to aid an inquiry into alleged money laundering. This happened just a week after allegations that the banking giant may have helped wealthy clients to evade tax. Sky News was amongst those to report that the Financial Conduct Authority (FCA) is now examining the company’s ‘current practices and culture’ in light of the allegations.

These events further undermine consumer confidence and trust in the UK banks, which has already been significantly weakened in light of the financial crisis. Last year, Barclays Chief Executive Antony Jenkins admitted that it could take a decade for the bank to regain public trust. Many commentators applauded his honesty. Many more thought that he was being optimistic.

Beyond the rates

Trust is the most valuable currency in finance.

It is clear that the banks need to implement robust measures to improve transparency and behaviour in order to win back the consumer. It is also clear that there are senior people in the industry, Jenkins prominent amongst them, who are determined to fight hard for this reform.

But I believe that such indiscretions in the traditional banking industry serve to highlight and explain the reasons behind the rise of alternative finance, and in particular peer-to-peer (P2P) lending.

AltFi Data, a fantastic resource which tracks growth in the UK alternative finance industry, shows that the UK P2P market is close to £3bn. The much better rates on offer for both borrowers and lenders in the industry is only part of the story – the growth is being propelled by excellent customer service, transparency and an educational approach that engenders trust.

Allowing informed and intelligent decisions

The major UK platforms work together closely under the banner of the Peer-to-Peer Finance Association to ensure that the ascendant sector grows responsibly, with a notable emphasis on informing their customers.

The UK market leader RateSetter, for example, has produced a useful guide that outlines the key checks people should be making before deciding whether P2P is right for them. I would encourage anyone interested in getting involved to give it a read. This approach is mirrored across the industry with the platforms putting education at the heart of their communications.

Critics of P2P say that it isn’t covered by the Financial Services Compensation Scheme (FSCS). This is true and there is no guarantee in place, but the platforms have created their own robust system of customer protection which is more fit for purpose for modern savers.

RateSetter pioneered the idea of a Provision Fund. Very simply, all borrowers pay a fee into the fund, which is in place to cover any bad debt. It repays lenders should any borrowers miss a payment. To date, this bespoke solution has ensured that not a single lender has lost any capital or interest due to them.

The Provision Fund also covers all of a lender’s money, whereas FSCS currently only covers the first £85,000. This model has now been adopted across the wider industry and is ensuring that P2P offers strong returns at a minimal risk profile.

Rhydian Lewis, Chief Executive of RateSetter, has commented:

By creating bespoke solutions for the industry, we have tried to ensure that are lenders are as protected as possible whilst allowing them to enjoy greater returns

Putting the customer first, at last

Another characteristic of the P2P platforms is excellent customer service. Of course a model that is built on the idea of disintermediation, and giving the consumer value, should indeed offer excellent customer service. But the platforms are going above and beyond to offer the ultimate customer experience. This is evidenced by the amount of awards that they are beginning to pick up. For example, industry leaders Zopa and RateSetter have dominated the Moneywise Customer Service Awards over the last couple of years.

It is this combination of award-winning customer service, transparency and great rates that is feeding the growth of P2P lending. And it is this mix that the banks lack.

People are increasingly noticing these advantages over traditional finance. Respected City commentator Anthony Hilton recently wrote in the Evening Standard:

Peer-to-peer lending and crowd-funding – the process of investors and savers being introduced via the internet to people and companies who need finance – is the phenomenon of our time, the first really useful innovation in finance since the automatic cash machine

If the platforms stick to their values whilst continuing to offer market-leading rates, the scope for further growth is limitless.

22 Jan

Finance ready to evolve in 2015

Lending Club’s successful IPO ensured that 2014 ended on a high note for the peer-to-peer (P2P) lending industry. The largest platform in the US saw its stock shoot up by 56% on the first day of trading, helping the company to achieve a valuation of around $9bn – higher than all but 14 of the country’s many banks.

London City Global AccountantIt shone a bright light on the ascendant sector, and represents a further signal that P2P is moving to the mainstream. It also sets the stage for other alternative lenders.

Nesta’s latest research, which is well worth a read, highlights that the UK alternative finance market has more than doubled in size year-on-year since 2012. It is predicted to hit £4.4bn in 2015, with P2P contributing the majority.

But what exactly are the key factors that will be powering this growth, pushing the industry more firmly into the public view?

Pension freedom at last

From April 2015, Chancellor George Osborne’s well-publicised changes to the pensions industry will give savers aged 55+ the freedom to do as much, or as little, as they want with their pension pot.

They will now have that most important of commodities – choice, rather than simply being herded into buying annuities.

Giving people more choice, and control, over their savings will see more turning to alternative finance as they look for higher returns than those on offer through more traditional products. With cash savings accounts at rock bottom rates, P2P will see a significant increase in new business.

If Pensions Minister Steve Webb gets his way to also extend the freedoms to existing pensioners, then up to another 5 million people may be given the chance to trade in their annuities for cash; cash which many would then look to invest.

The country’s platforms are busy preparing for this influx of new business. UK market leader RateSetter, for example, is very close to launching in the retirement space with four self-invested pension firms. Due diligence has been completed and fee structures agreed, with work now beginning on technological integration.

A green light for ISA inclusion

My last blog focused on how the government was consulting on how P2P will be included in ISAs. Allowing the higher rates of interest that the sector provides to be protected from tax will revolutionise ISAs, which are something of a nation’s favourite – the most popular, trusted and widely used savings product.

The consultation has now closed and the industry expects to hear exactly how things will work shortly, with a policy statement expected before Easter.

The Peer-to-Peer Finance Association (P2PFA) has called for a new ‘Lending’ ISA, which would be preferable to trying to shoe horn P2P into Cash, or Stocks and Shares ISAs.

This idea of a third type of ISA has widespread support. It would give consumers another option to weigh up against high risk Stocks and Shares and low yielding Cash. It would provide a rather fertile middle ground of 6% returns with very minimal risk.

A lifeline for British businesses

The Small Business Enterprise and Employment Bill, which aims to address the issue of high street banks restricting the growth of Britain’s SMEs, includes a series of ground-breaking measures.

It looks to support smaller businesses seeking growth capital by helping them seek out alternative lenders if they are turned down by the banks. Importantly, the banks may be made to actually refer failed loan applications to alternative finance platforms.

Whilst these measures aren’t yet law, the bill is widely expected to be passed before the May general election.

Alternative lenders are already seeing an increase in applications from sole traders, entrepreneurs and small businesses, who are turning to the more affordable and flexible loans on offer from the P2P sector.

This will also help keep that important balance between borrowers and the increasing number of savers bought in by pension reforms and ISA inclusion.

An exciting future

When you consider the factors I have outlined above, it is clear that 2015 will be a huge year for the P2P sector. In fact, I believe that the UK alternative finance market will quite easily surpass the £4.4bn estimated by Nesta.

Commentators agree. Andrew Hagger, a leading personal finance analyst, put it very well when he said:

The growth of P2P and alternative finance over the last couple of years has been impressive; however there is a potential triple whammy on the horizon which could deliver an increase in investment on a much larger scale and prove to be a real ‘game changer’ for the sector in 2015

24 Oct

Savings revolution – government consults on game-changing £15,000 P2P ISA

Money Global AccountantThe government has finally published its much anticipated consultation on how peer-to-peer (P2P) loans will be included within Individual Savings Accounts (ISAs).

It has been estimated that ISA inclusion will see the sector grow from £2bn to £45bn over the next few years. This is a tipping point for the UK P2P market. It highlights the industry’s shift from niche into mainstream.

It is perhaps more significant than July’s increase in the ISA allowance to £15,000. Why? Because it adds a new alternative to the financial landscape. It proposes a new asset class.

David Gauke, the Financial Secretary to the Treasury, said:

We want to support savers at all stages of their life and make sure they have greater flexibility and choice over how they invest and access their savings.

P2P lending is an exciting, innovative new sector and it’s right that investors who want to lend money via P2P platforms should be able to hold these loans in their ISA alongside more traditional investments.

Rhydian Lewis, Founder and CEO, RateSetter said:

RateSetter_RGB_Logo_TM Global AccountantWe are obviously delighted that the Consultation has been launched. The government has stated that it wants to encourage greater competition and choice in financial services and allowing peer-to-peer into ISAs is part of that. The UK is a leader in peer-to-peer lending and inclusion in ISAs will open up the benefits to more British savers and borrowers.

More choice in a market of stagnant rates

The government wants to encourage greater competition in financial services. At RateSetter, we welcome this. We were created with the retail saver in mind to return more value to the customer.

Allowing P2P loans to be held in ISAs also supports the government’s aim to diversify the different sources of finance that are available to borrowers by encouraging the growth of the P2P lending sector.

By allowing the higher rates of interest on offer to be shielded from tax, the inclusion of P2P will breathe new life into ISAs. And the appetite is certainly there: research we carried out with Populus earlier this year revealed that two-thirds of people will consider trying P2P when it is ISA-able.

A “Third ISA”?

Options include P2P loans being held within the existing Stocks & Shares ISA or the exciting idea of a new third type of ISA – a P2P ISA.

We believe that giving savers more choice must be at the heart of this decision. As such, we have led the way in promoting a ‘Third ISA.

It is great news that government is considering a third ISA category to open up a new choice to the polarised options of cash or investments – providing that missing link between low returns and high risk.

This bold new product would be a healthy middle ground, especially in light of the recent volatility in the stock market.

Next steps?

The landmark consultation closes on 12 December 2014. You can read the consultation here. I would encourage anyone interested in getting more from their money to take a look.

Once it has closed, the government will review responses and publish a summary document. Taking all views into account, the necessary legislation will be amended to pave the way for P2P to be included in ISAs.

17 Jun

Barbarians at the gate? Or the making of an industry?

RateSetter1The dam has given way and the large institutions have arrived in UK peer-to-peer (P2P) lending.

Earlier this month – amidst much media fanfare – P2P Global Investments, a London Stock Exchange-listed investment trust, raised £200m from institutional investors to lend through the major platforms.

And this is likely to just be the first wave of institutional money. Now that the major platforms, including RateSetter, are boasting very impressive track records, you can expect to see more interest from institutions seeking income returns.

The influx of institutional money is no doubt a tipping point – it means that P2P is no longer a niche activity.

Rather, it is a serious alternative to the traditional savings and loans industry; to the established order. And the flow of traditional finance professionals into the sector backs this up.

But how will this development impact the everyday savers; the intrepid pioneers who have driven the sector’s exponential growth to date?                                                     

The challenges

There is concern that the community aspect of P2P is threatened by the arrival of the institutions.

It certainly poses some fresh challenges: huge inflows pressuring cautious platforms to compromise their impressive credit standards; powerful institutions demanding favourable terms or simply “re-intermediating the dis-intermediators”, eating into the value that P2P delivers to savers and borrowers.

Savers rightly value the social aspect of P2P. They like its transparency – the open machinery of the market versus the closed doors of the banks.

And the opportunities

But the arrival of institutions – with their procedures, their standards and their ability to aggregate large amounts of money – is a step forward for P2P lending. The scale they bring – the liquidity – allows the platforms to make the significant investments required to maintain a mass-market product.

It is a vote of confidence in the sustainability of the P2P model to become a mainstream way of saving and borrowing – to become the future of finance. Furthermore, many savers will see the credibility of institutional involvement as the green light to try out P2P lending themselves.

Being a new challenger industry, value and service are critical differentiators for success – and so far the industry has delivered on both. The next challenge is to deliver that at scale – and institutional money will aid this process.

Holding the line

Integrating institutional money responsibly and successfully will be a major test for UK platforms – (it is already standard for institutions to lend on the US platforms).

The emphasis is on the P2P players themselves to hit the right balance and ensure that normal savers can compete on even terms with the institutions.

Rhydian Lewis, RateSetter CEO and Founder, said:

Our vision is simple: create an open market and ensure everyone is treated the same.

We offer a market where people decide the fair rate for money – the key is that normal savers can express themselves on the same terms as the institutions. They can both set the rate that suits them.

We fought hard to ensure the everyday saver – whatever their deposit – is able to access the market easily and isn’t forced to go via an intermediary. This has been a hard-won regulatory victory – one that is re-defining the level of control people have over their money.

For me, it is imperative that these open market principles are maintained. We will not allow any moves that disturb the balance of our fair market.

If the platforms bow to all the demands of institutional money, it could be – I believe – the end of P2P as a value proposition.

Get the balance right, however, and the platforms have the potential to cause massive disruption to the traditional ways of lending and borrowing.

So – keep a fair market and “peer-to-peer” can move seamlessly to “many-to-many.”

15 May

Too big to fail? Barclays takes another hit

SmallisBigIn another damaging blow for the “under pressure” banking industry, Barclays recently announced that they will be cutting a total of 19,000 jobs worldwide by 2016, with 7,000 of the lay-offs coming from their investment banking division.

The banking giant has said that the business will be ‘repositioned, simplified and rebalanced‘. CEO Antony Jenkins believes it will make them ‘leaner’ and ‘much better balanced’ in the future. He also mentioned that they will only be focusing on international banking where Barclays has ‘capability, scale and competitive advantage.’ It has subsequently been estimated that about 7,000 of the total will be from bankers based in the City of London – 2,000 of whom will be from the investment arm. High street banks in France, Portugal and Italy are also in the firing line.

The new player in the finance arena

In the wake of the news, many commentators believe that as these jobs are shed, so will be a significant part of British banking tradition.

Charlotte Webster, Campaign Manager for MoveYourMoney, said:

As 19,000 jobs go at Barclays, so too does part of British Banking history. And this is not one we remember with great affection, lets face it. Despite their scale, as one of the five banks often termed ‘too big to fail and too big to jail’ they represent the old school. Meanwhile people are talking with their feet, with 2.4 million people opening accounts with other providers that offer more transparency and don’t combine investment and retail arms. Britain is already moving on to a new financial system, with new jobs as the UK leads the alternative finance revolution. Looking for a fresh, modern approach to finance, peer to peer lending volumes in this country alone are doubling every six months. The world of finance is on the move, driven by people not the banks.

Charlotte looks spot on in highlighting peer-to-peer (P2P) lending as the future of finance in light of recent industry figures. For example, a report published by the Peer‐to‐Peer Finance Association (P2PFA) in April shows that cumulative lending in the UK at the end of the first quarter in 2014 hit £1.2 billion, compared to just £491 million at the same period of 2013. The data also highlighted strong growth in both business and consumer lending with over 5,100 business borrowers and 82,000 consumer borrowers supported by more than 94,000 lenders at the top British platforms, including RateSetter.

Commenting on the figures, Christine Farnish, Chair of the P2PFA, said:

Peer-to-peer lending is becoming mainstream and is a credible alternative to banks for consumer and business finance

RateSetter Global AccountantRateSetter CEO Rhydian Lewis echoes these sentiments, and is quick to point out that, whilst the industry has certainly taken root since the 2008 banking crisis, P2P does not rely solely on bank weaknesses in order to prosper.

It is growing because it is offering better value and service and consumers are choosing to use it. Designed with the customer in mind and unburdened by legacy issues, it is proving to be an efficient means of matching the supply and demand of money.

With the sector now regulated by the Financial Conduct Authority, the onus is on the P2P platforms themselves to build strong businesses and continue to deliver better outcomes for savers and borrowers than has been the case with the traditional banking service.


12 Apr

‘Bricks and mortar’ banks facing increasing competition from ‘booming’ internet finance services

In my last blog, I talked about how peer to peer (P2P) lending is making a real breakthrough in 2014 as an attractive alternative to traditional financial institutions.

It has really taken root since the 2008 banking crisis, but does not rely on bank weaknesses in order to prosper. Free from expensive overheads and legacy systems, it is fast proving an efficient means of matching the supply and demand of money and is growing rapidly.

The scale of growth, on a global scale, is now truly staggering.

The South China Morning Post is the latest respected commentator to pick up on the sense of excitement in the industry. It has reported how internet finance firms in China are filling the sizeable lending gap left by state-backed banks.

Gregory Gibb of Ping An Group subsidiary Shanghai Lujiazui International Financial Asset Exchange, which runs a top P2P lending service, spoke at the Boao Forum on the benefits of P2P.

Discussing how P2P lenders cut out the intermediaries, and therefore the costs and inefficiencies, between savers and investment vehicles, he said:

In China, most loans are not a lot of money, ranging between 30,000 yuan and 50,000 yuan. If you borrow that amount through traditional channels, the operational cost will be high as banks may feel it’s not good business.

But internet finance can offer that at low cost and thus cover a market wider than traditional banks, reaching micro businesses and SMEs.

UK P2P pioneer RateSetter has picked up on the massive opportunity that the sector offers to savers all over the world.

Building on its UK success, in which it helped to create the Peer-to-Peer Finance Association, RateSetter has secured investment of AUS$3m from local and international investors to kick-start its offering from its Sydney offices.

Headed by Daniel Foggo, a former banker with Barclays Capital and NM Rothschild in Sydney and London respectively, the company will be the only Australian P2P company offering market-beating savings rates to individuals who lend funds on its platform and accessible loan rates to everyday borrowers who are tired of banks’ hidden fees and profiteering.

RateSetter will go live in Australia this summer. It will be the first P2P lender in Australia to be fully regulated from the outset, allowing all Australians to participate on its award-winning platform, not just professional investors.

Rhydian Lewis, founder and CEO of RateSetter, said:

RateSetter Global AccountantWhen looking at international markets in which to expand, Australia was the obvious choice as it bears great similarity to the UK before the advent of P2P lending. Its saving and loans industry is ripe for disruption as banks have been offering below-par deals for too long with little true competition.

We have decided to focus on strategic growth markets such as Australia, which is a natural stepping stone to the huge opportunity in Asia. Targets closer to home on mainland Europe will not be overlooked, however, and initiatives there are already in train

The future is bright for P2P – it is one industry to keep a very close eye on!