Tag: Brexit

PWC’s report on Marketplace Lending is a reminder of the sector’s Virtues for Investors

Author
Angus Dent
Date

The buffeting that the alternative finance sector received from Adair Turner on the BBC earlier this year has been proceeded by a relatively quiet three months for the industry, in the press at least. In a sense, the furor surrounding a potential Brexit that will reach a peak in the next month or so has come at a good time – it has allowed peer-to-peer lending platforms to knuckle down and continue the sustainable growth of 2015 into 1H16. The unwelcome comments of the uninitiated are otherwise caught up clamouring “in” or “out”. However the sector has been affected by the unsettling of potential lenders who are nervously waiting to see what will happen before deploying more capital or their first capital in the sector.

Uncertainty is always bad for business at any rate, so the excellent “Roadmap for Marketplace Lenders” report published by PWC recently reminds us. The Roadmap should be seen as a welcome reminder to existing lenders who are starting to let their doubts creep in that the foundations in the sector are solid. The report can be found here– it gives a detailed guide as to how marketplace lending platforms have evolved, and the future for new entrants into the space. PWC attribute the success of any marketplace lender to four main pillars:

  • Build the foundation
  • Refine the core lending business
  • Expand and innovate
  • Look beyond core lending

The report is specifically aimed at aspiring smaller marketplace lenders, however it contains industry insight that serves to highlight the benefits to anyone looking to start investing or lending over marketplace platforms as well. The key to the innovation in modern finance as a result of marketplace lending has been the ability of platforms to identify very specific niches as a focus, rather than act as what PWC calls a “single homogenous force” aiming to disrupt anything and everything. It is crucial that investors and lenders buy into the ethos that working with and alongside traditional forms of finance in a democratic fashion is exactly what “Fintech” is all about- the PWC report aptly emphasises this at length. It isn’t, as Turner would have you believe, a razzle-dazzle load of unregulated cowboys looking to make a quick buck by gazzundering the banks and taking advantage of naïve retail investors by lending to un-creditworthy borrowers.

A lot has changed since the early days of simple “peer-to-peer lending” that was pioneered by Zopa ten years ago. The name is still the moniker that platforms such as ArchOver are happy enough to abide by, alongside many others of course. Regretfully the terminology and nomenclature in the alternative finance industry can be confusing and worse still completely misleading. Partnering with institutional investors, and indeed the banks, on the same terms as the rest of the crowd is the true innovation. It has allowed everyday savers to avoid the complicated and risky world of stocks, shares and expensive wealth managers and give them the chance to take control of their savings and lend money alongside savvy funds, corporate and institutional investors at competitive interest rates. The PWC report may seem like it is stating the obvious, and to a certain extent so does this blog post- but in times of uncertainty it is the simple facts that need to be accentuated to reassure lenders and investors that alternative finance remains an attractive propositions.

Are the economic benefits of “Brexit” worth the potential disintegration of political and financial order?

Author
Angus Dent
Date

With a decision on the timing of the “Brexit” vote looming, David Cameron is starting to ramp up the pro-EU rhetoric to convince the public to ignore the Eurosceptics and vote to maintain the status quo. The decision has very much been Cameron’s Sword of Damocles moment, hovering over his current tenure and threatening to create an unwanted Prime Ministerial legacy akin to Eden’s Suez Canal Crisis.

Yet there is an overwhelming feeling that whatever Cameron says will pale into insignificance should a “defining incident” take place that pushes those sitting on the fence to unite against staying in the EU. Marine Le Pen’s initial success in the regional elections in the aftermath of the Paris attacks shows just how quickly people can make a potentially rash decision on the basis of fear and loathing. Le Front National might have mellowed since Le Pen ousted her right-wing firebrand father, but any electoral gains for the party would have represented an alarming move towards the ugly end of right-wing conservatism. Fortunately a wave of sentiment against the Front National and some tactical voting saw the party end up without control of a region, despite support from at least 6.6 million voters.

There is still a feeling that leaving the EU is a proposition that is just too scary for the general public to plump for- the “British” thing to do would be to knuckle down and get on with it in order to avoid such a huge political and social catharsis. Yet a Daily Telegraph poll on Friday last week saw over 80% of the 22,000 voters said Britain should leave the EU. Despite the obvious bias of Telegraph readers, this is still an alarmingly high figure for Cameron to stomach. After all, these are the people that, more likely than not, are the staunchest supporters of his party.

From a financial point of view, the UK’s global financial clout wouldn’t be affected too much by a decision to leave the EU. It is unlikely there would be a banker exodus and freedom from stifling and constantly changing EU regulation will be welcomed by financial institutions. Yet the UK economy would undoubtedly take a beating: world-leading economists unanimously agree on that- have a look at this FT article for more proof: http://on.ft.com/1Q8XeSw.

Cameron needs to emphasize the enormous practical issues that hinder the UK from leaving the EU. The significant upheaval of the EU regulatory framework would be a minefield that would make or break businesses in industries such as the food and drinks sector. As it stands, companies have to abide by EU food regulations if they want to export to the EU but have no say over those regulations. Something as innocuous as a change in the wording of a law can mean the difference between a product being allowed to make a health claim or it failing to meet the requirements. It is worth considering just how crucial altering such stringently inflexible regulation is to UK SME’s who are most the perilously placed.

Moreover, Britain would need to renegotiate its trade rules with the EU in order to preserve its favourable status. Under World Trade Organisation rules, the UK would have no more access to the single market than would China. Any negotiation would come at huge financial and political loss: just look at the amount of financial support Norway gives to the EU each year to curry favour. Britain would then need to renegotiate its trading relationships with the rest of the world; EU partakes in 35% of all world trade so “Brexit” would deny the UK to an extraordinary range of privileges afforded to EU competitors.

The cost of leaving, combined with the converse cost of “staying in”, would be felt for years to come. Yet it looks unlikely to get to that point; the Lisbon Treaty only allows for two years of negotiations for a country to leave the EU, unless all 27 nations unanimously vote to extend the period. Negotiation is done with whole EU rather than country by country, presenting major obstacles. It seems hard to fathom that Britain wouldn’t have the option to cordially extend the negotiations, yet all of the individual nations will certainly seek to negotiate the best deal for themselves, particularly concerning immigration, given the tensions regarding economic migrants and asylum seekers from the Middle East. The rancorous callers for tighter immigration need to recognise how difficult it is for Britain to tighten its control on non-Brits arriving to live in` the country, when the negotiations could force Britain to accept an even greater migratory burden. The British public should also take into account the effect it will have on Britons currently living abroad (c. 2 million) in other EU countries who would lose their EU citizenship. The same notion extends to those with businesses or business interests abroad. It hardly seems aspirational to any business owners to reject the ease at which the EU allows business expansion across borders. Likewise, it is no wonder that Cameron wants to extend the vote to 16 year olds, for whom the Schengen Area presents a chance to escape the clutches of their parents if anything else.

Yet despite the dense complexities of Britain leaving the EU the decision makers will have to take into account, we are still faced with a referendum that will only ask us “‘should the United Kingdom remain a member of the European Union or leave the European Union?”. In age where, for better or worse, the public needs politics to be made more understandable and politicians more approachable, this is a vote that should not be put to the public in such stark wording that belies the delicate, yet far-reaching, intricacies of the result.

Why We Should All Vote Against Brexit

Author
Angus Dent
Date

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This post is made largely in response to an article written by Nicolas Stone for Economics21 and reproduced in CapX, see http://www.capx.co/external/americans-should-urge-brits-to-vote-for-brexit/.

I would summarise the argument put as:

  1. The EU is an undemocratic mess that restricts trade and therefore prosperity.
  2. The UK’s trade with the EU is in terminal decline, whereas its trade with the rest of the world is increasing.
  3. The UK should therefore get out before the EU drags it down in to the mire of economic stagnation that currently afflicts the remainder of the member nations.

I agree that the EU is an undemocratic mess that over-regulates and thereby probably restricts trade. The UK joined the then European Economic Community on 1st January 1973. That’s more than 42 (yes, forty two) years ago. The problems occurred on our watch! This was not something that was forced upon the UK last week. This is something that the UK allowed to happen to itself while it was disengaged.

I do not agree, however, that the EU’s economy is in terminal decline… and maybe the stats don’t really say that either. There’s always a risk of fighting the last war when using statistics, which focus retrospectively. While the 2Q15 GDP growth figures for German and France are lacklustre, those for Spain appear to be better. Even as I write now from South-West France I see signs of a recovery, with homeowners beginning to work on their properties once more.

Source: http://www.cer.org.uk/sites/default/files/imagecache/spotlight_pages/images/spotlight/in_the_press/2014/commission_smarket_sm_sl-1402405845.jpg
Source: http://bit.ly/1HVvcCD

Our nation’s attitude to the EU has always been to reap the benefits of free trade and avoid the harder stuff, leaving that to the Brussels-based bureaucrats and in the process turning those bureaucrats into bogeyman figures. This is a ridiculous attitude to take. These are our neighbours who have organised a club that we voted in favour of joining. We should have spent the last 42 years helping them, putting our energies into a better EU for all members rather than some form of super membership for the UK. Increased democracy within the EU would strengthen members’ economies by homogenizing trade rules for all.

The notion that the UK can easily replace EU trade partners with members of the Commonwealth is fanciful. That Britain’s international trade has increased in recent years is good news. Britain should therefore, as a member of the EU, push to lower the EU’s trade barriers with the rest of the world. Free trade across the globe is the bedrock of economic prosperity, not free trade for the (British) Commonwealth (Empire). I thought that lesson had been learnt many years ago.

The alternative of negotiating a Swiss type deal with the EU, thereby keeping the vast majority of British EU trade, simply doesn’t ring true with me. I doubt if we take our ball home that former partners would feel goodwill towards us and agree a treaty that is principally for the UK’s benefit. One must also consider that “Brexit” would be a costly, drawn out affair full of legal quagmire and political gridlock. Indeed we can be certain there would be no rush from the EU side, after 42 years of wasting time as a disingenuous member of their club.

The UK is not the only state within the EU that has tried to use the system for its own benefit, to the detriment of others. The two largest economies within the Eurozone are also guilty of this. Germany has imposed on Greece a bailout that is punitive, unworkable and against the diplomatic bonhomie that was intended from its inception, whilst its manufacturers continue to ram under-priced goods down the throats of poorer EU members. France, meanwhile, has always pandered to its farmers and supported the unworkable and unaffordable Common Agricultural Policy.

Yet the opportunity to make the EU more democratic, dramatically lower the hidden trade barriers and form a global hub of economic prosperity still exists. Unfortunately I am not sure that the political will remains. And Britain has wasted its political capital for the last 42 years. However, I would argue that there is still time and that the potential benefits far outweigh the risks.

 

Are SMEs better off in or out of the European Union?

Author
Angus Dent
Date

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Three days after being appointed the new Conservative Business Secretary, Sajid Javid is already weathering a storm of media attention. Commentators have been pushing him hard in an attempt to tease out his plans for the next five years, and a key talking point to emerge from this scrutiny surrounds the tentative response he gave when questioned on Britain’s future within the EU. Mr Javid justified his evasiveness by saying he could give no firm answer on the issue of the UK’s membership until “we know the outcome of the renegotiation process.”

So the Business Secretary is holding his cards close to his chest on Europe for now. But even if the renegotiation process were to fail, would leaving the EU be a good deal for Britain and for business? The four million votes garnered by UKIP and their pint-swilling leader would seem to suggest many think so. They cite, amongst other things, the ability the UK would gain to regulate immigration from the European Union, make trade deals of its own volition, and disentangle the EU’s mass of bureaucratic processes as reasons to break with the organization.

CAM EU

These arguments are are specious. EU immigration has been shown to make a net economic contribution to the UK, any ability to broker our own trade deals would be offset by the loss of huge EU-led trade deals such as the Transatlantic Trade and Investment Partnership (TTIP), and striking deals with EU members from outside may well require regulation to be put back in place.

Furthermore, it is clear that powers abroad do not wish to see a “Brexit”. A guest column in The Telegraph written by a Norwegian minister warned of the angst caused by “not being at the table when policies… critical to our own security are determined.” And worrying noises have also emerged from the US and Japan, both of whom have stated that many of their companies based themselves in the UK primarily to be able to gain access to Europe.

UK-EU_Fotor

Despite this noise from abroad, though, there has been an increase in the number of small businesses considering leaving the EU. In 2014 the Quoted Companies alliance found 4% favoured withdrawing; a poll this month by Zurich has found that that number has risen to a third. With almost 90% of SMEs that sell to foreign markets trading with EU members, this rise would seem inexplicable – exports would not vanish in case of an exit, but tariffs and duties might well be levied. Indeed, a recent report from the LSE has modelled the effects of a Brexit and found negative economic welfare results in both optimistic and pessimistic scenarios. “Reduced integration with EU countries is likely to cost the UK economy far more than is gained from lower contributions to the EU budget,” they concluded.

With David Cameron now likely to bring the referendum forward to 2016, we must hope that clearer heads will prevail.