Day one at LendIt Europe was off to an energetic start as Peter Renton welcomed attendees to the conference. This year, the conference is split between platforms and investors, which is reflected in the audience, as 39% of those attending belong to platforms, 28% to investors, 25% to service providers and 8% to media. With 45 countries represented, LendIt Europe has the most diverse audience among the three LendIt conferences.
All speakers on day one emphasized tremendous growth of the industry over the last couple of years. This growth is mainly driven by institutional investors and peer-to-peer lending gaining recognition as an asset class. Online marketplace lending platforms’ success comes from having access to alternative data sources that gives them an edge in assessing a borrower’s risk profile. In addition to this, the average loan size in the SMB market is too small to be profitable for big banks, which is why the gap in the market exists. The main challenge for online market lending platforms is to find the right customer-product fit, because many small businesses don’t understand which product best suits their needs. This replication of a process normally done by a financial advisor is further complicated by the fact that “native digital” consumers lead highly fragmented lives and expect financial products of the future to be designed to suit their needs.
According to Samir Desai of Funding Circle, transparency and simplicity are among the principles that make marketplace lending platforms successful. Democracy also plays an important role in that both large and small investors get access to the same deals.
Mariano Belinksy of Santander InnoVentures elaborated on the delicate relation between traditional lending institutions and online market lending platforms. Santander InnoVentures recently joined an equity financing round in Kabbage, a lending platform for small businesses. There are two main arguments in favour of this decision. First, Kabbage has access to alternative data sources that allow them to make a better underwriting decision. Second, the customers that come to Kabbage for a loan mostly need small amounts of money – too small for the branch manager of a traditional bank to pay attention to, because the cost of originating a loan does not vary much between a one million or a five thousand ticket size.
Cormac Leech of Liberum spoke about the big trends in the P2P lending industry. He expects continental Europe to overtake the US during the next five years. In Cormac’s opinion, what is needed to further increase consumer awareness of the segment is a one-stop shop p2p lending platform for retail investors. Those who are looking for higher returns should look at niche lenders. Over the long term. Comrac expects MPL loans to partially disintermediate cash as a source of payment and store of value.
Rupert Taylor of AltFi Data picked up right where Cormac left off, diving into the specific trends that AltFi Data are seeing in the UK market, where institutional investors have become more active and that has brought innovation into the sector. Institutional investors have brought to the table new sources of loan origination. However, the experience they have had so far is quite different from that of individual investors in terms of both risk and return.
In consumer lending, the picture is quite different, as retail continues to dominate, according to Aaron Vermut of Prosper Marketplace. The path to a wider spread adoption of consumer loans lies in publicly traded vehicles that wealth advisors will be able to sell to their customers. Aaron attributes the success of his company to taking a lot of risk early on, changing the underwriting process and improving the efficiency of customer acquisition channels.
The afternoon started with the “Securitisation is coming to the UK” panel session where representatives from three UK platforms, rating agencies and banks discussed about the possible securitisation in UK.
Both Sachin Patel from Funding Circle and Jonathan Kramer from Zopa mentioned that diversified funding and the ability to reach a wider a range of lenders will be the main benefits of securitisation. Roey Eyal from Deutsche Bank said that once he got comfortable with the risks, it is not that different from other traditional products.
The lively discussion was followed by a presentation on cyber security by Partner of PwC, Richard Horne. Richard emphasized that compared to technical resolution, legal and regulation management and business management are more important. The companies need to think about how to manage their relationship with regulatory bodies, customers, vendors and other connected parties because it is all about customer’s confidence rather than the money. When asked about how he would advise a company on cyber risk, Richard answered that it is really important that the company put highest priority over the most valuable asset in their business model and conduct tests repeatedly.
In the next session, representatives from 5 different platforms discussed about what risk means to their companies. It is interesting that when asking about the most urgent risk despite credit risk, many answered that fraud risk is what they have been focusing on. Ilya Kondrashov from MarketInvoice even put it in front of credit risk. Jaidev Janardana from Zopa also mentioned the customer data security. During the session, John Sun from AvantCredit explained the progressive verification system they use to assess customer’s application and AvantCredit is targeting at 90% auto approval rate.
After a short break, the platform track was joined by two recent partnerships: Giffgaff and RateSetter and Metro Bank and Zopa.
Giffgaff firstly approached p2p lending companies to finance the customer’s mobile contract. Since they partnered with Ratesetter, the business has been growing well.
In Metro Bank’s partnership with Zopa, Metro Bank is the fund provider and Zopa sourced quality borrowers for metro bank. Metro Bank could gain access to Zopa’s nation-wide market and Zopa will have a steady capital source.
The last session of today for the platform track focused on innovation where representatives from 5 platforms talked about their innovation in product, process and mobile. Due to different business models and different target markets, platforms have different processes. For example, David Brown from Folk2Folk talked about their more people-oriented way to approach borrowers, as Folk2folk is a community based platform. When asked why no platform has launched a mobile app, all representatives agreed that currently the main traffic comes from their mobile website.
The investor track offered a variety of presentations and panels covering different financing and integration aspects, from historical perspective of p2p evolution to disruptively innovative models presentation.
At the Importance of Permanent Capital session Simon Champ, CEO of Eaglewood Europe stated that although p2p lending revolutionized banking industry and eased access to financing, earlier forms of it, such as direct p2p possessed numerous imperfections for three participants – borrower, platform and lender. Thus p2p itself experienced significant evolution continuing even nowadays to release maximum value for the whole ecosystem.
Angela Ceresnie, CFO and Co-founder of Orchard Platform stressed importance of platform role of bringing less educated investors to highly sophisticated p2p lending market.
Two consecutive property presentations, held by Christian Faes, of LendInvest and John Goodall, of Landbay, followed by property panel discussion. They stressed specifics of mortgage p2p market as a lending opportunity and the very high growth potential of it even on mature and recessive markets, which is originated from displacing high street banks via better rates, flexibility and transparency.
On the invoice finance panel, the issue of credit insurance was elaborated. The current trend is that invoice finance providers offer clients choice between existence and absence of credit insurance compensated by respective adjustment in premium. It is especially important, because in many industries payments overdue is nearly a normal course of business, definitely not insolence. Thus, it is not covered by credit insurance.
An interesting cutting edge panel closed day 1 at investor track. Paul Ebert, of Borro, shared remarkable experience, which target overbanked wealthy individuals providing luxury-collateralized loans at lower rates and longer terms. Ironically, this model directed oppositely to p2p ‘mainstream’, which usually target underbanked subprime segments. Sebastian Diemer, CEO and founder of Kreditech described their ultimately sophisticated behavioral and big data scoring allowing Kreditech successfully approach unbanked segments.
Simultaneously to the described above three tracks, we also organized 25 short presentations from companies to share their product. The 10 minute presentations covered many business models and companies shared their plans to scale. During the whole day the exhibition hall was buzzing with highly motivated representatives from all parts of p2p ecosystem: marketplaces and loan originators, platform and investors, sharing their experience and inspiration.
Tomorrow we continue the conference with three tracks. Main Track: The P2PFA Summit will take place before lunchtime where small business and consumer lending topics will be covered. We introduce pitches on consumer lending by Jaidev Janardana, COO of Zopa and Rhydian Lewis, Founder and CEO of RateSetter. After lunch, the conference will be again divided into two parallel tracks. Moving Beyond The UK Track will be focused on geographical expansion, featuring ‘The China Perspective’ by Henry Yin of CreditEase. The parallel track, P2PFA Summit will be mostly focused on regulation issues.