Tag: altfi

24th Hour Failure (To finish first, first you have to finish)

Author
Angus Dent
Date

This weekend saw a huge disappointment in the ’24 Hours of Le Mans’ race, leaving the Toyota team questioning what happened, to watch success slip away in the last 3 minutes of this gruelling challenge, was heart-breaking for those involved and the most fascinating viewing for the interested spectator and commentator. 

Ultimately, it appears that one vital element led to the subsequent defeat, and handed the victory to the consistently tried and tested model of their competitors in the Porsche team. On what was the most important day in the calendar with glory a single lap away the failure of one part of the package turned the whole effort into embarrassment and widespread press coverage for all the wrong reasons.

Great story – but what does this have to do with the P2P space…..? A lot of common themes and messages can be taken from this story 

Let’s look at the top teams on the starting grid in the race……they all had roughly the same size team behind them, with what at face value appeared to be the same skill set and knowledge. All of the cars looked pretty identical from the outside, bar the different splashes of colours identifying their team allegiance so why would one fail so spectacularly at the critical moment?

The answer lies under the bonnet – look at all the components, the chassis, the aero package, the engines etc.  perhaps at a glance they look the same but they are not. It’s the whole package that must be fit for purpose, if 1% isn’t then abject failure will result. That elusive, in the case of Toyota, 1%, became the difference between success and failure, being lorded in the press or blasted for a simple error of judgement and engineering.

24 hour le mans

The alternative finance sector is seen by most on the outside as one identical group of organisations, all competing under their own branded team colours for the same purpose and all on the starting grid in identical vehicles. Lift the bonnet however and you’ll see huge differences that will optimise an organisation to success, or cause them to crash out of the sector in a blaze of (non) glory.


 Unlike the image of the homogenised group of lenders, grouped together in the media and by less informed bystanders under the title ‘P2P’ there are actually numerous variations of platform, offering, expert teams and niche areas all operating in this field. Each has their own reason to believe they should be first across the line, many will stumble at the first hurdle due to lack of due diligence and not robust enough offerings or platforms. Some will look like they are in it for the win, only to fall foul to that elusive 1% of information, security or expertise and simply roll across the finish line in failure place (there’s no second or third) – to the delight of the watching crowd – who want to be entertained by stories of failure.

 

Please visit www.archover.com to find out more about our winning proposition.

 

The FCA’s tailored regulation of P2P Lenders is for the benefit of everybody

Author
Angus Dent
Date

A theme that has begun to emerge in alternative finance article headlines at the moment is that there is a perceived love-in between the FCA and peer-to-peer lending, with George Osborne an enthusiastic Cupid-like figure matching the two. The regulatory body has come in for criticism from the old guard that believe the old scourge of the banks has gone soft on the new “tech” whizz kids on the block. This isn’t helped by the frequently-cited, well-intentioned-but-slightly-undermining quote by economic secretary to the treasury Harriet Baldwin that government and fintech share a “beautiful friendship”.

George Osborne

 

Yet there are incongruities between news article headlines and article content. Take John Thornhill’s article, published in the Financial Times last week, which began with the suggestion that “a watchdog with the ‘right touch’ sounds ominously like one with a ‘light touch’ “, before proceeding to make some very reasonable points on why the FCA applies slightly different regulatory procedures to start-ups and small cap businesses than it does to centuries-old banking institutions. Throwing the same rule book would crush every start-up under a mountain of excessive regulation and process, and would negate much of the innovation sorely needed to replace the antiquated banking practices. The FCA’s “approach” should be commended as forward-thinking- let’s remember that it really is just an approach at the moment as the majority of the platforms are still in the midst of the lengthy and detailed regulatory process that certainly doesn’t feel light touch.

The revelations coming from the States regarding Lending Club have done nothing to dampen criticisms of the FCA/peer-to-peer perceived cosiness either. Yet it is the willingness for the FCA to work directly with peer-to-peer lending platforms that has, and will, prevent the blatantly reprehensible behaviour that wasn’t detected initially in the States; there, the industry has been regulated under a blend of existing consumer and banking regulation that has proven to be unsuitable. Working to tailor the regulation to the peer-to-peer sector will prevent swathes of old-fashioned banking malpractice carrying over to modern finance. Renaud Laplanche, by acting in his own self-interest, assumed a guise firmly rooted in the past, not endemic to the burgeoning P2P sector that prides itself on transparency and openness.

Every platform will now be keen to highlight the differences between themselves and Lending Club, although there will have been many who, this time last year, would have been perfectly happy to seek comparison with one of the biggest players in the global sector. However, if all must be tarred with the ubiquitous “Fintech” brush then there is one obvious point to make from a UK peer-to-peer lending view. We are very much the “fin” side of the portmanteau as true providers of alternative finance – the “tech” only applies to the platforms used to facilitate loans. Unlike Lending Club- which initially positioned itself as a social networking service and developed an algorithm called LendingMatch to identifying common relationship factors such as geographic location, educational and professional background, and connectedness within a given social network to match lenders with borrowers- UK platforms are not primarily algorithm-driven and rely on due diligence processes at least as thorough as those of the banks to vet borrowers. But the Lending Club debate shouldn’t necessitate these explanations- this is (possible) criminal activity from a senior management team undoubtedly out to furnish their own pockets. The FCA will continue their stringent, tailored regulation of the industry to prevent this happening over here, regardless of the baseless accusations that they’re cutting corners to appease the government.

 

ArchOver’s ‘secured and insured’ proposition represents industry best practice

Author
Alex Taylor
Date

A study produced by independent research house Equity Development has concluded that ArchOver’s ‘secured and insured’ business model represents best practice in the P2P crowdlending sector and “perhaps even represents the future of corporate lending to SMEs worldwide.”

 

Commenting on the safety of the sector as a whole, analyst Paul Hill says that “credit vetting procedures are at least on par with the high street banks” and predicts that “going forward, across the economic cycle, a diversified portfolio of P2P loans should be able to generate ‘relatively predictable’ returns of circa 5% per annum (net of costs and defaults).”

 

Mr Hill also rejects Lord Adair Turner’s recently expressed negative outlook for the P2P sector, predicting instead that “We still think it is possible for risk tolerant investors to generate healthy returns from holding a basket of non-correlated, fixed income P2P loans in today’s low interest rate environment.”

 

The report records that ArchOver has arranged 81 loans collectively worth £15.2m without so far incurring any late payments. It places ArchOver’s loan portfolio in the band between S&P’s lower investment grade (BBB) and upper high yield (BB-) ratings.

 

The study concludes that “The P2P sector appears to have an attractive future ahead of it, involving plenty of years (if not decades) of strong growth. ArchOver’s unique ‘secured and insured’ proposition represents industry best practice and, in our opinion, is a powerful differentiator to attract lenders and creditworthy borrowers alike.”

 

Responding to Equity Development’s findings, ArchOver’s CEO Angus Dent said: “It’s always gratifying when an independent source says positive things not just about your organisation, but also about the sector in which it operates. There are a lot of players in the P2P sector and, in the fullness of time, we will all have to face more difficult times which will result in casualties and some inevitable industry consolidation. However, in the meantime, creditworthy SMEs are gaining access to the funding they require and lenders are earning a decent return on their money.”

 

Institutional Investors are a welcome addition to any Crowd

Author
Angus Dent
Date

Marc Shoffman’s recently published article on ThisisMoney.co.uk last week was a bit of mixed bag, from an Alternative Finance perspective. First and foremost, I salute his noble efforts to raise awareness for his father and others battling with Parkinson’s disease. He is raising finance for speech therapy through a social enterprise reward-based crowdfunding campaign through the Crowdfunder platform. The article itself focuses on the increased presence of institutional money in crowdfunding, with some muddled references to “peer to peer” thrown in. With a fairly mainstream readership, however, I felt that a response could be somewhat beneficial to clear up some of the more glaring errors in the article. As a starting point, any article on alternative finance that fails to clearly differentiate peer-to-peer lending from crowdfunding is counter-productive, especially for an uninitiated reader. The article raises some questions on where the alternative finance industry is heading, but he seems to have misunderstood the true nature of Crowds; his statement that “as the sector becomes more mainstream, it may also become less attractive” is a case in point. It isn’t really about a popularity contest: the wisdom of the crowd comes from a group of people making informed decisions, not a bunch of people throwing caution to the wind in the name of doing something a little bit different.

picture_crowdsourcing

First, let’s dispel some myths and nip some clichés in the bud. To say that “[Alternative Finance] no longer has that jazzy alternative tag which in the long run could hit its popularity” is a belittlement of an industry that is in the process of becoming FCA regulated. The word “alternative” is used here in its purest sense as something that departs from or challenges traditional norms; alternative finance is not some hipster “Jazzy”-ness. In reference to the allusion to the FSCS compensation scheme, it isn’t really relevant to our industry; this article on AltFi will shed some light on a few of the peer to peer lending contingency funds and how platforms strive to protect investors. There is also, of course, the ArchOver “secured and insured” model as an exemplar as well.

It is important to emphasize that the institutions that lend over any platform are valued members of the crowd, and they lend on exactly the same terms as everybody else. That’s the alternative finance ethos, that’s where this movement began. It’s a process of democratisation and we mean that sincerely. The wisdom of the crowd is greatly boosted by the presence of institutions lending money to SMEs, or indeed buying equity. Individual investors can take a hell of a lot of comfort knowing that schools, county councils and family offices lend across the various platforms on the same terms and at the same rates as they get; it benefits all the parties involved. The banks and funds are coming around to accepting that. Those that don’t will sit on the side-lines and that’s fine too. The great thing about democracy is that you have a choice.

The point he makes about larger pledges and shutting out the little guy is a question of balance. Marc uses BrewDog as an example of a business that “value smaller investors”. Yet BrewDog is probably the prime example of how a business has taken advantage of unsuspecting crowdfunders by masquerading as anti-establishment whilst using good old-fashioned bankers’ tactics. Their crowdfunding should be for fans of their beer, not for people to invest their hard earned savings into. This article, again by AltFi, serves as a cautionary tale of what to look out for, using BrewDog as a case in point. On the one hand you want people to think about what they are doing and to take the time to understand what they are doing. On the other you want as many as possible taking part and benefitting. As you know ArchOver set the minimum pledge at £1k per project, which obviously I believe ensures that the balance is met. Of course, this won’t be appropriate for everybody, and that is why small lenders are looked after so well at the likes of RateSetter and Funding Circle.

A bigger, wiser, democratic crowd with the ability to invest over a range of platforms to spread their risk, and soon to enjoy the benefits of the Innovative Finance Isa? Now all of that does sound “jazzy” to me.