Tag: peer-to-peer

ArchOver launches Innovative Finance ISA to UK investors

Author
Angus Dent
Date

The ArchOver IFISA provides tax-free P2P lending service to increase investor ROI

London, UK – 25 May 2018 – ArchOver, the peer-to-peer (P2P) business lending platform, is helping British investors make the most of their annual tax-free allowance with the launch of its Innovative Finance ISA (IFISA). ArchOver’s IFISA service offers investors premium credit control and security, proven by ArchOver’s no-loss rate. It allows investors to invest directly in successful businesses, earning tax-free interest of up to 10% p.a. – far more than the average return on a cash ISA.

“We are excited to be launching our IFISA, a significant new string to our bow which will help our Lenders to really make the most of the attractive rates we have on offer”, said Ian Anderson, COO of ArchOver. “Our goal is always to work to our lenders’ and borrowers’ needs and provide them with the best service possible. Existing lenders will be able to plug straight into the IFISA without needing to re-register, and new lenders will find the platform simple and easy to use.

“This launch is an important part of the ArchOver story, as we continue to build an industry-leading investment platform that combines the best security with highly competitive interest rates.”

The UK government introduced the IFISA in April 2016. It allows investors to earn interest on peer-to-peer investments without having to pay tax on their earnings. According to recent research by ArchOver, the service is proving popular: over half (54%) of UK investors would put their cash into an IFISA if they had the money available, with nearly two thirds (63%) recognising that it would offer a higher return on their savings.

CEO Angus Dent commented: “There’s a strong market out there for the IFISA, and we’re excited to get stuck in. Potential investors do need to be aware that the IFISA doesn’t work like a cash ISA, – investment capital is always at risk – so it is essential that you work with a trusted and established partner.

“With our proven history of strong credit analysis and managing loans with extremely low default rates, we’re well placed to help people invest wisely and get the yield that they want on their cash.”

The ArchOver IFISA is now available to all existing and new lenders. Users will be able to invest their ISA allowance in all of the projects on the ArchOver platform, earning tax-free interest with a minimum investment of £1,000. Investors can choose from a range of security types depending on their needs, including investment models that provide protection measures like credit insurance, dispute resolution, controlled accounts and all-assets charges with Companies House.

The launch of the ArchOver IFISA comes after a strong twelve months for the company, including the launch of the P2P industry’s first R&D Advance loan for claims greater than £100,000. ArchOver is backed by the Hampden Group, and recently celebrated the milestone of £65 million total funding facilitated. The new service broadens its lender offering, cementing its position as the leading choice for investor security and control.

TURNING TO YOUR PEERS

Author
Angus Dent
Date

Frustrated about the lack of finance available for their own businesses, Angus Dent and his colleagues created ArchOver, a peer-to-peer lending platform that helps innovative companies to borrow money at affordable rates.

IT’S a situation in which so many entrepreneurs will have found themselves – you’ve come up with a great idea to expand your business, offering a new product or service to your customers, or expanding into a fresh sector or location. All you need now is the money. And that’s where you hit a snag. While banks may be lending more cash than they were during the aftermath of the global financial crisis, that borrowing often comes at a high price, with unaffordable interest rates or unrealistic expectations about guarantees linked to the family home or other personal assets.

Step forward Angus Dent and his fellow founders at London-based ArchOver. While they were running their own businesses, they came up against that very same obstacle – so they decided to do something about it. They created ArchOver, a peer-to-peer (P2P) lending platform that allows firms that have been operating for more than two years to borrow money from lenders using its website. Companies borrow a minimum of £250,000, with interest rates starting at 7.7% a year. Since it launched in the autumn of 2014, ArchOver has helped its lenders to inject more than £65m into British businesses, bringing in more than £2.5m in interest at an average return of 7.3%. In an age when bank savings accounts are paying less than 0.5%, it’s easy to see the attraction for investors who understand the risks as well as the rewards.

“There’s no typical lender using our platform,” explains Dent. “We have a diverse group of individuals – the minimum amount that you can lend is £1,000 per project, so we have some people who simply have £1,000 to lend and then we have some other individuals who have each lent £2m in total.

“Between those two extremes, you have some people who put in £1,000 a month or £5,000 a month and some who put in £1,000 a quarter. What all of them have in common is that they’re investing on exactly the same basis – they all get the same information on the company and they all get exactly the same interest rate, which we believe is very important.

“As well as the individual lenders, we also have a small group of family offices, which tend to lend larger amounts to each project. We also have some funds that also use us to invest.

“Some larger small and medium-sized enterprises (SMEs) use us for treasury management. If they have spare cash on their balance sheet that they don’t need in their own business and want to earn a decent return on it then they can invest it with us.”

Dent and co-founders Brian Basham and Ian Anderson developed ArchOver during 2013 and then secured a £3m investment during the spring of 2014 from Hampden Group, which provides financial and business support services and manages insurance assets and underwriting capacity in excess of £2bn. As ArchOver’s parent company, Hampden has not only invested in the business itself but has also injected cash to the platform, putting its money where its mouth is and lending to other businesses.

The platform’s P2P lending has appealed to a wide variety of businesses. Autostop Leather – which has been making seat covers and floor mats for car companies such as Ford, Lexus and Toyota since 1991 – borrowed £300,000 via the platform to help it develop new products for its customers.

Ergowealth, which is based at Marlow in Buckinghamshire, was founded in 2013 by a group of financial planners. It borrowed £200,000 through ArchOver to fund the expansion of its mortgage advisory service by using its contracted revenues as security.

TLM Technologies – which offers electronic point-of-sale (EPOS), back office and head office systems – secured not one but two loans through ArchOver, injecting a combined £1.1m into the technology business. The first allowed it to replace its previous invoice finance facility with a 12-month, £600,000 loan secured against its accounts receivable, while the second 12-month loan for £500,000 was based on its contracted revenues from software licenses and service maintenance contracts.

“We started with what you might call ordinary manufacturing businesses, with factory units that produce a certain amount of goods each month,” Dent says. “We’ve then worked with a wider range of businesses, from suppliers to the construction industry through to professional services firms, such as accountants and lawyers.

“A little over a year ago, we realised that – if you look at the equity side of things – companies that have contracted, recurring revenues always attract a premium valuation because they’re predictable and stable. But there was no equivalent on the lending side of things – we thought that was a bit daft because you’re putting yourself in a position where you can’t lend to some of the most stable, cash-generative businesses.

“At the core of those businesses there is usually a very good idea, which you could say is intellectual property (IP). Those sorts of companies with strong IP tend to rent that IP in various forms, often as software or as services.

“So, we put together a service called ‘Secured & Assigned’, which takes that contracted, recurring revenue and wraps it up and almost makes it into an annuity type revenue and, in an intangible way, pops that revenue onto the balance sheet and allows us to lend against it. That extended our focus into another whole group of businesses, into software businesses, into serviced office businesses, into maintenance businesses, into wealth management firms.”

Between £10m and £12m of ArchOver’s lending in 2017 was based around that service, demonstrating the high demand for its financial products. Now, the platform’s latest step is allowing it to work even more closely with IP rich companies.

“Working in those areas led us down the road of looking at how we could help those companies fund their continuing investment in IP,” says Dent. “HM Revenue & Customs pays a research and development (R&D) tax credit, but it takes time even after the year-end to pull the numbers together, file the CT600 form to make the claim and then wait for the Revenue to cogitate.

“In the past few months, we’ve come up with a new service called ‘Research & Development Advance’, which – as the name implies – advances money against the R&D claim that’s due to the company. Two of the first companies to use it work in the security sector, with one developing facial recognition software and the other making body scanners for airports.”

Trust: The Currency of the Future

Author
Angus Dent
Date

Angus Dent, chief executive of ArchOver, explains how P2P and the banks can co-exist in fruitful competition underpinned by growing lender trust

Alternative finance may appear to be shaking things up for traditional lenders like the high street banks, but in fact it is injecting a greater sense of consumer trust in the financial industry as a whole. As P2P matures, it must carve out a space for itself that grows this trust while delivering attractive returns.

P2P doesn’t have the scale or the intention to pose a major risk to the big boys, but a shake-up of the ways people access finance can only be a good thing for an industry that has remained largely unchanged for the past 400 years. While radical change in too short a period leads to the type of risk that threatens us all, the P2P sector’s considered approach so far, and its core tenets of lender control and transparency, are inspiring trust in both lenders as well as borrowers. And trust, we all know, is fast becoming the currency of the future.

This is just the start for P2P. As it matures, it will be in a great position to work in tandem with the banks to expand their services.

Working alongside the banks

Until significant scale is achieved in P2P lending, with further products on offer for borrowers and a deeper sense of opportunity for lenders, the banking system is unlikely to invest seriously in the sector. In the US, which is a few years ahead of the UK in respect of funding, P2P has already begun to form a part of the smaller banks’ strategies – which suggests the course the UK market will take.

In this scenario, P2P will remain a bothersome, if small, source of competition rather than a partner asset. That competition will help keep the banks honest: that’s a large part of the true value of P2P.

With all this in mind, the question of whether banks and P2P platforms should collaborate or compete is an important one. For the time being, the fact that P2P and the banks do things very differently is leading to more value being created for both.

Taking P2P to the next level

One of the greatest strengths of P2P is that its business model is based on lenders’ own balance sheets and not that of the P2P company. It is therefore in P2P’s best interests to work at maintaining and growing trust among lenders and borrowers. Competition is always healthy but if it gets in the way of stability and thorough processes, both lenders and borrowers will be negatively impacted.

The biggest challenge faced by borrowers is one of trust – a large portion of the businesses ArchOver represents are owner-managed, with a direct relationship between the businesses performance and the financial wellbeing of its owners. For ArchOver to raise funds for that business takes time, effort, a thorough review of their track record and shared values in terms of trust and honesty.

In the long-run, taking the time out to focus on building trust will strengthen a business while also providing security to the lender – keeping P2P and the financial industry as a whole honest, trustworthy and therefore far more stable.

Consolidation and The Plight of Thrifty Consumers

Author
Angus Dent
Date

The storm clouds are gathering for the P2P sector – they have been for about a year now, ever since a few prominent platforms (e.g. Lending Club and Funding Knight) started to get into trouble and the mainline media’s enthusiasm for all things ‘Alternative Finance’ suddenly took a 180 degree about-turn.

We are still enjoying low interest rates, which means that there is currently no shortage of lender appetite, but bank statistics show that SMEs are trying very hard to live within their means and not to borrow. The uncertainty created by Brexit and Trump is not a myth, but a fact.

Despite it all, the giants of the business, Zopa and Funding Circle, have managed to achieve some serious momentum – the former having recently passed the £2bn lending landmark, the latter not too far behind. But both have been losing money and so, it seems reasonable to assume, have most of their smaller rivals. In the meantime, the FCA is sitting on dozens of applications for full authorisation and, accompanied by dark warnings of foreboding from politicians and even the Governor of the Bank of England, it seems that the regulator’s new book of rules (due this summer) will usher in far tougher controls. Many platforms may not be able to survive, while others may simply draw stumps and leave the field.

Is this the beginning of the end for P2P? I think not, but it would be naïve to ignore the warning signs that maybe the honeymoon is over. Far more likely is that we are about to enter a period of consolidation, when the well-conceived, better-financed platforms are either picked off or merge in order to achieve scale and make some cost savings.

In the event of an outright take-over, it would be interesting to see the terms; what realistic value can be placed on a loss-making business operating in a relatively young industry? It might take an entity with very deep pockets and patient shareholders to take such a bold step – a bank, maybe?

The reality is that, if a handful of small platforms got together to form one platform operating under one brand name, the result would probably not amount to a row of beans in a financial sector dominated by giants. But if two of the biggest got together – those writing new loans at a rate of up to, say, £1bn each per annum – then that would be worth doing, particularly if you could halve the marketing costs. The result could be a very profitable company. Would that be allowed under the Monopoly rules? I suspect that someone will have to try it first to find out.

In the meantime, inadvertently or not, the Government is adding to the attractions of the P2P sector by cutting the interest rates available on National Savings & Investments (NS&I) accounts by up to 0.25%. The number of monthly Premium Bond prizewinners is also to be reduced to create the same effect.

In May this year, the return on the NS&I Direct ISA will reduce from 1% to 0.75%. The return on its Direct Saver Account will be adjusted down to 0.7%. As one national newspaper pointed out, that is less than half the expected rate of inflation.

Many private sector products from the banks have been adjusted in line with the NS&I. The average easy access savings and ISA accounts reportedly pay 0.37% and 0.65% respectively. That is one hell of a price to pay for guaranteed returns and the security provided by the FSCS. All of which explains why an increasing number of consumers are prepared to accept an element of risk in return for a yield on 6% on P2P loans. It will be interesting to learn what, if anything, Chancellor Philip Hammond is prepared to do in his Budget early next month to help honest savers.