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Christine Farnish of UK’s P2P Finance Association Discusses Strategy For Growth & Regulation

In this blog series, we interview previous LendIt conference speakers to receive an update on their industry perspective and provide a sneak peek of their session at LendIt Europe 2016.

As Chairman of the UK-based Peer-to-Peer Finance Association (P2PFA), Christine Farnish is a leading expert within Britain’s P2P lending industry in all aspects of regulation, education, and advocacy.  We caught up with Christine after her recent China visit, where she offered an enlightening keynote speech at the Lang Di Fintech conference, presented by LendIt.


The online lending industry is expanding quickly, but most of its growth is yet to come. Have you been involved in measuring market penetration?

It is a very exciting time. Our P2PFA (the UK-based Peer-to-Peer Finance Association) members are currently doing somewhere between 2-3% of the total financing for consumer credit, SME lending, and invoice finance here in the UK. Although we’ve been virtually doubling the volume of loans year-on-year, we’re still only experiencing a tiny portion really of what the banks are doing in aggregate.

Obviously, who knows what’s going to happen as the macroeconomic conditions change, but P2P lenders have the advantages of lower costs and nimbler operations. There’s a huge opportunity yet to come.


One of the questions at LendIt Europe last year was whether it’s more effective for a platform to deploy transnationally, versus a strategy involving deep focus within a particular country. Do you see one of these strategies having advantages?

I believe the platforms need to be rooted in the local political culture: to have commentators and opinion influencers who understand what that platform is doing, who understand the benefits and the risks, and can help public awareness and understanding as the sectors grow.

With peer-to-peer lending or marketplace lending, because a lot of people are still so unfamiliar with it, it’s probably a sound strategy to get straight in local markets and then build from there, maybe entering other geographic markets through partnerships with established players like banks.


If we look at the political environment, do you have a sense with Prime Minister May and her cabinet whether they are more or less in tune with the industry than the prior UK political leadership?

It’s very early days, and everybody here is completely preoccupied with the various discussions and negotiations that will have to take place on the Brexit issue.

One thing I do know is that George Osborne, the Chancellor of the Exchequer up until the Brexit referendum, was very keen to see the sector develop. The new Chancellor, Philip Hammond, is more recent to this area of innovation and his level of personal involvement is to be determined. That said, the British economy is still going to need credit, and we are going to need credit that’s well provided, responsibly provided, and efficiently provided, so the benefits that peer-to-peer lending offers aren’t going to go away.


If we turn back to the P2PFA, what is the association’s most urgent objective?

The most urgent objective right now is to work with the FCA on the two-year review, the post implementation review, if you like, of the regulatory regime introduced specifically for peer-to-peer lending and crowdfunding.

We think it’s really important the FCA get this right. There is a delicate balance that needs to be struck between making sure that consumers are appropriately protected but not putting such a burden of regulation on these innovative, fairly small peer-to-peer platforms that mean they can’t reasonably compete.


What are you most proud of in terms of the P2PFA’s accomplishments?

We’re most proud of the rules that we set. We call them the operating principles. Nearly everything we put in those rules has been adopted by the FCA, the statutory regulator.

We require full transparency of platform loan books so that anyone with an interest could actually see, at a fairly granular level, exactly how the platform ran its business, who they were lending to, how much, and on what terms. We also have a standardized methodology for calculating bad debt rates and we insist that all our members publish their loss, loan loss, and loan default data.

These principles are really important to build confidence and trust and to incentivize platforms to actually manage risks and be prudent about the way in which they issue credit. That transparency is an absolute touchstone for how this industry operates, and we are very proud of that.


In the US, we see something of a struggle between growth in the online lending business versus certain cautions. Do you see the same dynamic in the UK, and are there steps you think the industry needs to take to change perceptions?

Certainly, we’ve had the Lending Club story this year, which I know has had quite an impact in the North American market, but there’s also been quite a lot spoken about it in the UK. And there was a Swedish platform, TrustBuddy, where there was fraud and it went out of business and a few people lost money. But, it was completely unregulated. So there is a lot more negative commentary in the public media. Much of it is ill-founded and based on loose assertions and sentiment.

A common mantra in the press is, “Oh well, none of these platforms have been through an economic cycle, so they’ll all fail when a recession hits.” This assumption is a constant issue that we have to manage. There’s so little understanding of how P2P really works that we just can’t do enough by way of awareness raising and education.

We’ve also got to make sure we do an absolutely fantastic job ourselves in terms of making sure we are managing these risks and that we are ready for a downturn. Economic conditions have been relatively favorable over the last five years. We want the resilience and the strength to survive through all kinds of markets. We should do that by expanding gradually and carefully.


With the LendIt Europe Conference coming up October 10 – 11, what should our audience look forward to from the P2PFA?

We’re going to be talking about what’s going on in Europe and the UK. There’s a lot of diversity within the whole of Europe, with different approaches in different parts of Europe, so a compare and-contrast is always valuable.

The UK is by far the biggest market. You will be hearing from the biggest platforms, who are all P2PFA members, and we’ll be focusing on risk management, because it’s not going to go away, the importance of that. We’ll be talking a lot about regulation, which, also, is here to stay.

Go to LendIt Europe 2016 to register, plus a summary of the conference’s two-day agenda.


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