Tag: fintech

New Ideas, Polar Bears and Praise for the FCA’s Approach to P2P Lending

Author
Angus Dent
Date

Thought provoking piece in CAPX by Jamie Whyte challenging the new “intellectual protectionists” who, unless we are careful will stifle change and growth, make everything cuddly and bankrupt us in the process. If we accept only the perceived wisdom of today and make it an offence to suggest anything else, yes some supposedly clever people really have suggested that we’ll stagnate.

 

Contrast the approach of making denial of climate change a criminal offence, with the active approach taken by the FCA to P2P lending as reported in Business Insider. The ingenuity of a lot of people is being encouraged and a sector carved out of the banking industry, which is and will continue, there’s an awfully long way to go yet, to provide better service to consumers. Of course the real contrast for the FinTech sector is not with the polar bear, but between the US and the UK. The UK has the white heat of the revolution, echoes of Coalbrookdale from an earlier industrial revolution, and with continued acceptance of new ideas by regulators and financiers will keep it.

polar bear

 

I’m not suggesting that everything is perfect, rightly there is concern that lenders (or investors in FCA speak) fully understand the risks they are taking. A recent survey suggests that the message is being heard. As a sector we need to continue to reinforce the message heard by those in the dark blue sectors and work, with the FCA, on the lighter blue. What we need is continued consultation, a continuation of the active approach to regulation and a fuller analysis of the security provided by P2P lenders. A move away from a concentration on the nebulous and usually unquantifiable concept of risk to security provided.

consumer perception p2p photo 

For the record I don’t deny climate change, it is real, although I suspect it and its effects have been overstated. As for Germaine Greer, see the CAPX article, I agree with little she says and she has an absolute right to say it and to be heard. Only by hearing can we be challenged to change and develop and yes this may at times be very uncomfortable and much less than cuddly. C’est la vie.

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.

 

 

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.

 

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.