Tag: finance

Governor of the Bank of England Predicts Revolution

Author
Angus Dent
Date

Catching up on London FinTech PodCast 54 I was pointed to a speech by Mark Carney, Governor of the Bank of England that for horrible reasons, the murder of Jo Cox MP, was not made. It’s a pity the speech wasn’t made as it makes some good points about FinTech, the relationship between FinTech and banking and banking more generally.

Mark Carney

The point is made that it is technology or more specifically the increasingly ubiquitous access to technology that is driving the democratising effect of FinTech. At the end of last year there were circa 2Bn smartphones worldwide. Rather than accepting that this is a process simply to be welcomed Carney goes on to say that FinTech will help in four specific areas;

“For the financial sector, these could offer shorter, speedier transaction chains; greater capital efficiency; and stronger operational resilience. For consumers, they could mean more choice; better-targeted services; and keener pricing. For everyone, FinTech may deliver a more inclusive financial system, domestically and globally; with people better connected, more informed and increasingly empowered.”

Nothing too earth shattering in the above summary, he goes on to predict revolution;

“These benefits spring from FinTech’s potential to deliver a great unbundling of banking into its core functions of settling payments, performing maturity transformation, sharing risk and allocating capital. This would mean revolution, fundamentally re-shaping the financial system.“

Heady stuff from a central banker……and apparently a revolution he wishes to encourage and for the bank of England to be a part of, albeit he expects the effects of the revolution to take many years to work through.

 

 

Was it acceptable in the 80’s?

Author
Angus Dent
Date

So the results are in, we have stood up as a nation to be counted and the surprise result is that rose tinted nostalgia seems to have taken us in a direction none expected – back to the golden era of the 80’s. There’s the funny side of course, big hair, even bigger shoulder pads and at the end of the decade enormous mobile phones. Of course it’s the bleaker side that’s worrisome; British soldiers on the streets of the UK, 3m+ unemployed, a surrogate civil war with the miners……That’s said, the effect that had on asset prices was only beneficial to the humble man on the street  and you could get married, buy a house and an Aston Martin, as a poorly paid Chartered Accountant ( I know I did ). Pity about all that equity that might go to waste and for those who came along later and paid higher prices.

 

brexit flags

 

What we didn’t have in the 1980s, or at anytime until this decade and really only the last couple of years in anything approaching a measurable volume was an AltFi sector. A real alternative provider of finance that may just keep the economy going through this particular period of uncertainty and beyond.

 

Substantially AltFi was born of the last financial crisis; a hunger for yield from those with cash and a need / want to borrow from people and businesses. Some of us saw this opportunity and established businesses that arch over from the lenders to the borrowers. The problem is that the sector while growing very quickly in macro economic terms remains small when compared with the banks. Mind you much micro economic theory, some of it written and tried in the 1980s, suggests that the biggest effect can be had on the margin, deploying relatively small amounts of money.

 

What might this mean; the banks continue to carry the base load in value terms and AltFi provides finance alongside. The banks continue to lend to the larger corporates and AltFi takes more of the personal lending and the lending to small and medium sized enterprises. This of course is what has been happening over the last seven or eight years. I expect that our sector, the AltFi sector has just received a boost. Crisis makes us all more cautious, makes us retreat to where we feel most comfortable. For the banks that’s corporate lending for AltFi its SMEs and personal lending. So we’ll both be playing to our strengths, working in the areas we know like and understand.

 

One other thing makes me more optimistic; increasingly AltFi and the banks are working together. We’ve moved from a position of say three years ago, when we, metaphorically, spat at each other to one today where we’ve realised that we provide different services and should therefore work together. Working together we’ll get the UK economy through this crisis, maybe without it even becoming a crisis, and forge a larger more robust AltFi sector in the process.

 

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.

 

Are Commerzbank about to blaze the P2P Lending trail?

Author
Angus Dent
Date

In the Twittersphere, the word “Fintech” tends to provoke a lot of hot air. Speculation leads to everything from wild estimations and massive valuations to doomsday predictions and floccinaucinihilipilification. You aren’t going to get that word into 140 characters easily, but the exaggerated fervorous lexicon endemic to “#FinTech” dictates that you should try to if you want to fit in. And it isn’t just Twitter; print media and digital news services regularly produce supercharged opinion articles that try so hard to “think the unthinkable” that the “thinkable” (and usually the reasonable) is of seemingly negligible importance. As I’ve said before, that is what happens when you create a portmanteau that attempts to define such far-reaching businesses and sectors. Readers will start to think that Bitcoin price fluctuations become, all of a sudden, of tantamount importance to a Peer to Peer lending platform.

In light of this, Crowdfund Insider’s headline “Germany’s Second Largest Bank, Commerzbank, said to Launch P2P Platform this Year” seems to suggest a familiar speculatory path is being trodden, particularly as it comes from “informed sources” whispering in the ear of the P2P-Banking.com blog. The article claims that German behemoth Commerzbank plans to launch its own P2P Lending marketplace, “Main Funders”, in 2016. Yet what is particularly interesting here is that this would be the first sign of a bank directly implementing an in-house peer-to-peer lending operation. Why is this interesting? Because it makes a lot of sense, and it could herald a huge change in the way people see peer to peer lending. Plenty of banks, both big and small, are showing an increased appetite for lending across platforms in both the UK, US and Europe. Under German law, only banks can fund loans; to bypass this all existing P2P lending companies in Germany partner with a transaction bank which originates the loan and then sells the proceeds (repayments and interest) to the investors: a complex procedure that is hardly widespread. By building its own platform, Commerzbank would circumvent some of the legal hurdles and provide the tailored, modern and agile solution to SME borrowing that the banks in the UK can’t (or won’t) provide, whilst also offering investors and savers an increase on the miserable rates they are all too used to.

Commerzbank has Main Incubator as their fintech accelerator offering venture capital to start ups, so it is an area that they should know well and more importantly have a vested interest in. This may sound like bad news for smaller peer to peer lending platforms who may fear being muscled out. However, it is more likely a case of “imitation is the sincerest form of flattery”: established banks bring the wealth, history and stature that could help Peer to Peer Lending escape from the bubble of hot air that is “Fintech”. However, is this really P2P lending? We have a bank, a highly regulated entity, entering a market that isn’t so highly regulated, certainly in terms of capital requirements. One of the things that has driven the banks away from SME lending is the large amounts of capital they have to put aside for these loans. This is behind the drive towards Invoice Discounting, which requires less capital to be put aside. Commerzbank’s solution could be that their P2P requires less capital than ordinary SME lending. There’s also the question as to whether Commerzbank, and other German banks, have made sufficient provision for the bad lending of the past. Is this a case of smoke and mirrors in the form of moving things around the balance sheet?

What is certain is that banks’ enthusiasm for P2P lending would produce solid, mutually beneficial relationships that can help SMEs and savers alike. Yes, there will inevitably be teething problems as the banks adapt to the fleet-footed world of P2P lending and the P2P lenders adapt their models to fit the strict regulatory processes of the banks. But Commerzbank’s embryonic P2P marketplace could be the trailblazer that sets the way for future banking… if it exists at all.