Christine Farnish started the second day of LendIt Europe with a short presentation about the Peer-to-Peer Finance Association, it’s history and mandate. The institution was set up in 2011 to represent digital platforms that conduct lending business online and Christine serves there as an independent chairman. P2PFA supplements statutory regulation with their own standards of best practice. Online marketplace lending accounts for 92% of the alternative finance market, with aggregate flows on track to top £4bn this year.
Christine’s introduction set the tone for the rest day, as both consumer and small business lending platform companies discussed their operating principles and the importance of regulation in the p2p lending market. Christopher Woodland of the FCA spoke about the responsibility of the regulator to ensure that there is enough competition in the market as well as that the interest of consumers is put first.
The key challenge for the FCA is to strike the balance between the right framework and a reasonable level of prescription. In Chistopher’s view, regulation should be honest, fair and transparent. Recently, Morgan Stanley said the UK is most compelling place for marketplace lending in Europe – the status towards which the FCA have been working very hard. Chistopher thinks that the FCA is about right on the balance at this stage and he is excited for the UK to be one of the most successful in Europe for lending. However, there is no room for complacency, and things can always be improved. The focus now will shift to the post implementation review in 2016.
Peter Wilson of the British Business Bank spoke about the challenges and opportunities a public institution faces in the private market as it attempts to deploy tax payers’ money. The main goals are generating a return comparable to that of private firms as well as stimulating lending in the economy.
The focus then shifted to small business lending and we heard Anil Stocker of MarketInvoice, Kevin Caley of ThinCats and James Meekings of Funding Circle speak to the audience about their companies. Involvement of institutional investors and credit risk assessment were the main themes of the panel discussion. Anil and James spoke about using dig data and new technology to help them assess credit risk, while Kevin said that he still believes in the traditional relationship driven model of underwriting, because most small business can’t assess their needs and chose the right product. In terms of risk, none of the founders see credit risk as the biggest threat to their business. James is worried about hacker attacks, while Anil continues to focus on execution and Kevin ponders how to combine technology with the traditional model of underwriting in an effective way.
Harriett Baldwin MP, the Economic Secretary to Treasury, spoke about the need for the government to inject choice and competition into p2p lending as well as incentivising banks to offer the best level of service to their customers. At the same time, the barriers for new entrants should be kept low, and a single strong competition regulator is an important step towards creating real opportunities for innovative firms to enter the market. She touched upon the importance of the fintech sector in general and mentioned the establishment of the Alan Turing Institute with the goal to ensure the supply of brainpower that is being nurtured in the UK.
Later on, we got to hear from consumer lending platforms. Giles Andrews of Zopa, Nicholas Harding of Lending Works and Rhydian Lewis of RateSetter discussed the reasons for the lag in consumer awareness of the p2p lending sector and the right way to assess credit risk of individuals. On the topic of regulation, participants agreed it is too early to judge regulators’ efforts and a lot will become clearer as they go to interact with the people who are going to review their submissions for full provision.
The morning session concluded with a debate about the future of banking and p2p lending. Cormac Leech of Liberum believes that in ten years’ time, banks will have their “Walmart” moment as they realise that their business has moved away, similar to the way book stores and music publishers lost their business to Amazon and Spotify. Matt Hammerstein of Barclays Bank thinks that it is too early to make such statements until we can see how online marketplace lending platforms perform through the credit cycle. He thinks that this sector will continue to grow, but the rate of growth is uncertain. Furthermore, the business models of the companies will have to evolve over time and the market will see some consolidation.
Moving Beyond the UK
After 2 pm we proceeded into Moving Beyond The UK and P2PFA Summit tracks. The first one was focused on geographical expansion to different regions of the Globe, while the second one was related to regulatory issues, which are among the most important elements of fintech businesses in general.
The Moving Beyond The UK track was composed of a series of four panels highlighting the most important aspects of geographically scaling and bringing together leading platform players from different continents, such as Funding Circle, Prosper Marketplace and Bondora. This was accomplished by The China Perspective session pitched by Henry Yin, Managing Director of CreditEase, a leading p2p player in China.
Opportunities in Continental Europe panelists shared that significant growth potential exists despite the high number of players. Panelists from Up and Coming European Platforms concentrated on investor attraction. Matthias Knecht, of Zencap (actually, of Funding Circle taking in account to the recent joining of these two firms) said that investors are already global; they use a multi-geographical approach to choose portfolios for risk mitigation. Martins Sulte, of Mintos mentioned that they recently moved headquarters to London to be close to UK investors.
Henry Yin, Managing Director of CreditEase described the Chinese p2p lending market at his session. Among others, notifiable factors were huge scale and great growth potential. Henry said that as the market has matured returns to p2p investors have gone down form 21% in April 2014 to 12.6% in September 2015, still remaining the highest among other instruments.
Focusing on southern Europe panelists revealed several trends in this geographical part of the market. Overregulation tendency in Italy was pointed out by Michele Novelli, of Prestiamoci and Maurizio Sella, of Smartika. Toby Triebel, of Spotcap shared his experience of good data availability in Spain.
The final panel on this track was Deep Dive into the US Market. Among other panelists, we saw Albert Periu, of Funding Circle and Aaron Vermut, of Prosper Marketplace. Albert explained that they recently joined forces with Zencap. The acquisition was seamless and mutually beneficial because of similar nature of the borrower bases: ‘hungry’ and entrepreneurial.
The P2PFA Summit @ LendIt
Track 1 of the day ran under the theme of The P2PFA Summit. The afternoon session started off with a panel discussion on the consequences of ISAs, which will be available in April of next year. The panel was moderated by The Financial Time’s Judith Evans and included not only representatives from the marketplace lending industry, Ian Cruickshank (RateSetter), Andrew Lawson (Zopa), but also legal expert Monica Gogna (Ropes & Gray), Ernst & Young Partner in the Financial Services practice, Imran Gulamhuseinwala and Jonathan Lipkin from The Investment Association.
After a short introduction the panelists started the discussion about the ISA introduction which introduces a tax break for peer-to-peer investors.
The firstly mentioned consequence of ISAs was peer to peer lending’s possible recognition as a more mainstream product due to the greater publicity peer to peer lending would enjoy. This would then lead to more awareness and a better understanding of the industry which is of great benefit to future investors. A thorough understanding of the industry and the underlying risks of peer to peer lending will support better decision making.
Another interesting point brought up by several panelists was the consequences the ISAs introduction will have in the supply of cash available for lending. While a ‘wall of cash’ was mentioned several times in the morning sessions, the panelists believe that while the ISAs introduction will result in an increased cash flow, it will be a steadily growing one.
The third major point of discussion were the regulatory consequences and their importance during an upcoming down cycle.
Next up was a discussion with retail investors led by Richard Lloyd of Which?. Five different retail investors shared their story and personal experience of investing with peer to peer lenders.
The panelists were quite diverse ranging from a retiree who invests to top up her pension, to an active investor who sees peer to peer investing as a good alternative to cash and stocks, to a serial peer to peer investor.
Hearing some real life examples of peer to peer success stories brought some flavour into the afternoon. Interestingly, neither of the panelists have ever had losses with any of their investments, probably being reason why each of them have invested on marketplace lending platforms multiple times.
This panel ended with Penelope O’Boyles visionary request for marketplace platforms encouraging investors to diversify their investments, not only throughout different sectors, but also different platforms, stressing the importance of diversification.
Then we looked at the other side of the investment. Christine Farnish (P2PFA), who had been moderating the entire afternoon, discussed with small business owners their success stories owed to peer to peer lending.
The story of David Potter from school furniture producer, Ambic, painted FundingCircle, who repeatedly provided him with operating funds, as the white knight in a moment of need. Despite the success of the business with a high number of orders and sales, the company found itself in need for cash as a consequence of falling land prices during the crisis of 2008. FundingCircle helped the company survive the recession and is still crucial to its operations as a regular provider of operating cash.
The stories of Maria Hopwood, The Stipes Company, an online retailer and Alex Corbett, Pizzarova, demonstrated the importance of marketplace lenders in supporting small businesses growth.
All three panelists are extremely happy with their experience and have thus repeatedly taken loans from marketplace lenders. Contrary to the investors, who look to diversify, they stress the importance of building a relationship with one platform, using it over and over again.
After the tea break we focused on regulations of the peer to peer lending industry. Simon Deane-Johns moderated the Legal and Regulatory Q&A. The discussion started off with a question about reasons for businesses being denied authorisation. Thereafter it moved on to the authorisation process and the implications that come with the lengthiness of it.
The key point brought up in this discussion was probably that regulations should not be seen as a negative, restrictive tool, but as a friendly regulator, helping the industry grow.
The last panel of the conference then dealt with regulations in different countries. The main focus was the UK vs. Germany vs. Europe as a whole. Because of the UK peer to peer market being the furthest developed European peer to peer market with a market share of 70%, the regulations are also developed the furthest.
Germany, on the contrary, has a very undeveloped peer to peer market. Their peer to peer platforms actually fall into the countries banking regulations. Aspiring platforms try to avoid falling under those regulations by cooperating with banks.
The European commission is aware of those differences in the regulations of European countries and are working on addressing this problem. While they found out in a study, which is to be published in Q1 of 2016, that there is already some cross-border activity, they want to increase them by creating a EU-wide applicable authorization framework.
The closing statement of the conference then summed up the discussion about regulations that have been an important aspect of the afternoon by stressing the importance of efficient regulations as a tool for growth in the peer to peer lending industry.
24 other short company presentations were conducted at the theater room in the exhibition hall at first floor totaling the number of presentations for 2 days of LendIt Europe 2015 to 49. All media from LendIt Europe 2015 will be published in the respective section of www.LendIt.co. We thank all participants, speakers, sponsors and volunteers for their great contribution to LendIt Europe 2015! We are looking forward to seeing you at our next event, LendIt USA 2016 in San Francisco on April 11-12.