SURVIVAL OF THE FITTEST
Big P2P lenders face scale-up challenge FLENDER PUSHES BACK UK LAUNCH
Irish platform to focus on home market
New Sancus Finance boss Dan Walker talks to P2PFN >> 30
ISSUE 20 | MAY 2018
Financial services firms need fintechs, says head of Barclays UK Ventures
FINANCIAL services giants cannot deliver the best products and services for their customers without the help of fintech firms, the head of Barclays’ new venture capital unit has said. “Both incumbents and fintechs have their own unique strengths,” Ben Davey, chief executive of Barclays UK Ventures (BUKV), told Peer2Peer Finance News. “As the pace of change of technology continues to grow, large corporates have had to come to the realisation that they cannot continue to deliver the best and most customer-centric products and services on their own.
“Therefore, the companies that succeed in the longterm will be those who start with the customer, and then work with the right partners to deliver the product or service that meets that customer’s needs.” BUKV launched last month to develop new
business lines, promote innovation and drive returns within the bank’s UK business. It will invest in both the fintech and non–financial technology sectors, through a combination of organic build-out, commercial partnerships
and venture investments. BUKV has not disclosed which sectors or product areas it is most interested in, or how much money it is planning to invest. Davey said that BUKV has “a blank piece of paper and an unfettered mandate to identify and incubate new business lines…in a way that Barclays core may not be able to”. The relationship between incumbents and fintech firms has been a subject of great debate, centring around whether they need to collaborate or compete going forward.
For more on this topic, read our feature on page 20.
CrowdProperty names Mike Bristow as chief executive CROWDPROPERTY co-founder Mike Bristow has been appointed as chief executive of the peer-to-peer property lender, taking over the reins from fellow cofounder Simon Zutshi.
Bristow, who was also a non-executive director at CrowdProperty, had been acting as interim chief executive for around two months before taking on the role on a permanent basis,
effective from 1 May. The board recommended him for the position as they felt he could dedicate more time to the firm than Zutshi, who has interests across a number of >> 4
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WeWork, 2 Eastbourne Terrace, Paddington, London, W2 6LG firstname.lastname@example.org EDITORIAL Suzie Neuwirth Editor-in-Chief email@example.com +44 (0) 7966 180299 Kathryn Gaw Contributing Editor firstname.lastname@example.org Marc Shoffman Senior Reporter email@example.com Andrew Saunders Features Writer PRODUCTION Brian Scrivener Art Director Zac Thorne Logo design COMMERCIAL Amy St Louis Director of Sales and Marketing firstname.lastname@example.org SUBSCRIPTIONS AND DISTRIBUTION email@example.com Find our website at www.p2pfinancenews.co.uk
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he flurry of initial public offering (IPO) speculation surrounding the peer-to-peer lending sector of late is true testimony to how far the industry has come. While the as-yet-unconfirmed rumours of a Funding Circle flotation this year are still swirling, a separate report from Sky News emerged of a Zopa fundraising ahead of its own IPO plans. And Landbay chief executive John Goodall recently confirmed the company’s long-term ambitions for a flotation. Of course, this is not the first time that there has been talk of P2P lenders going public, but it feels recently that there is more meat on the bones of this story. Stock market listings will add credibility through increased oversight, corporate governance and transparency, which the industry arguably needs to shrug off (sometimes ill-founded) criticism that it is under-regulated and risky. With these IPOs likely to materialise sooner rather than later, it seems that P2P will not have to wait much longer to take its place SUZIE NEUWIRTH EDITOR-IN-CHIEF
Have you signed up to our e-newsletters yet? You can receive P2P news straight to your inbox five days a week, or sign up for our once-a-week version that comes out on Wednesdays. Go to www.p2pfinancenews.co.uk for more information.
businesses including the Property Investors Network that he founded in 2003. Zutshi has now been appointed as chairman of CrowdProperty. Bristow told Peer2Peer Finance News that it is his combination of experience in property, P2P lending and private equity firms focused on strategic growth that made him suitable for the role. Bristow has been a
property investor since 2002 with a multi-million pound portfolio focused mainly in London, as well as elsewhere in South East England and internationally. He is also a career strategy consultant advising major corporates, private equity buyout funds and global real estate businesses that invest in billiondollar developments. The immediate focus is on expanding the team,
Bristow said, in order to avoid the “growing pains” that some businesses face when scaling up. “We’ve practically doubled the size of the team since I became interim chief executive and have ambitions to double it again by the summer,” he said. “We’re very careful about recruiting. We don’t want to compromise anything by growing too quickly and then not
having the right team to support that growth.” CrowdProperty launched in 2013, connecting investors with property developers and professionals in need of funding. The platform holds first charge on the loans, which range in size between £200,000 and £2m. It launched its Innovative Finance ISA in February, offering target returns of up to eight per cent.
P2P lenders embrace flexible working conditions PEER-TO-PEER lending has helped shake up financial services, but how modern are the industry’s approaches to the workplace? Many P2P lenders are embracing flexible working, which can include part-time hours, the option to work from home and time off for family commitments. A RateSetter spokesperson said the lender always seeks to accommodate flexible working requests from employees, offers shared parental leave and lets employees buy and sell holiday allowance. Similarly, MoneyThing offers part-time hours, flexible hours and working from home. “All our systems are online and our operational people can log in securely anywhere there is an
internet connection,” said Sophie Pearce, managing director of MoneyThing. “Having our own bespoke technology and ability to work from anywhere means we can recruit the best people, wherever they live.” Landbay said it has a handful of part-time employees and many work flexible hours. “We don’t feel P2P is any different to any other business in this sense, obviously the cloud makes sharing information and documentation much easier for remote access,” a Landbay spokesperson said. Some lenders, such as Crowd for Angels, even provide time off for education. “We have a couple of employees who continue their educational endeavours and thus
do take advantage of either part-time or flexible hours,” said Andrew Adcock, chief marketing officer at Crowd for Angels. “As a technology-driven business, we are able to access vital resources on the go via desktop, laptop or even on mobile phones. This ensures wherever a person may be, they can access what they need, when they crucially need it and allows the company to offer greater flexibility. “ However, there is a
recognition that staff are still needed in the office to support clients. “We have built a collaborative culture that allows for a reasonable level of flexibility around personal and family commitments,” said Stuart Lunn, chief executive of LendingCrowd. “However, our clients are our top priority and in order to meet their needs, we believe that we have to appropriately resource each function on a full-time basis by staff that are based largely within the office. “There are exceptions but part of building the can-do approach of a fast-growing business is to have the team bouncing ideas off each other and building relationships within the company both easily and through day-today contact.”
Big P2P lenders struggling to grow at rate of mid-size rivals LARGER peer-to-peer lending platforms are having to “win more business each year just to stand still” as mid-sized lenders chase their tails, BondMason claims. The P2P investor has said that it is becoming harder for bigger P2P brands to grow their loanbooks at the same rate as mid-sized firms. “The bigger platforms have to win more business each year just to stand still so it becomes increasingly hard to grow their loanbooks, relatively to the mid-size platforms that are ramping up their sales and marketing efforts,” said Stephen Findlay, chief executive of BondMason. He predicted an increase
in firms looking to hybrid models to boost their business, as seen by Zopa obtaining a banking license and by lenders such as Funding Circle inviting more institutional investment. “I expect to see larger platforms increase their average loan size,” Findlay said. “But this will see them beginning to compete with the very competitive private debt funds market of £10m-plus loan sizes.” BondMason’s 2018 Direct Lending Report found the ‘big four’ direct lenders – Zopa, Funding Circle,
RateSetter and LendInvest – made up two thirds of £4.5bn of alternative lending last year. But loanbook growth at the biggest lenders was up just six per cent last year, while mid-sized lenders saw their lending grow 50 per cent to £1.6bn, according to the report. Findlay’s warnings were reflected in the latest Peerto-Peer Finance Association data released last month for the first quarter of 2018.
It showed Funding Circle, the UK’s largest P2P lender, had grown its loanbook by 11.4 per cent over the quarter, but this was superseded by lenders with smaller loanbooks. MarketInvoice was up 17.9 per cent, LendingWorks saw an 18.7 per cent rise and Landbay’s lending grew 32.4 per cent. Similarly, MarketInvoice and LendingWorks saw the value of new lending increase by 48.9 per cent and 35.6 per cent respectively during the first quarter. In comparison, new lending at Funding Circle was up 2.3 per cent, while Zopa actually saw a 0.3 per cent decrease over the quarter.
City watchdog mulls extra P2P rules and warns on Funding Circle clone IT’S been a busy month for regulation in the peerto-peer lending sector. The Financial Conduct Authority (FCA) released its business plan for 2018, revealing it would consult on additional rules to address concerns about loan-based crowdfunding. The City watchdog said it is finalising the rules and will publish them for consultation this year. The regulator was also busy in the area of
consumer protection, having issued a warning to consumers about a clone of P2P lender Funding Circle. The clone, Funding Circle Loans, had set up a website purporting to be the P2P platform. Its website, http:// fundingcircle.bravesites. com, has since been suspended. A Funding Circle spokesperson said no customers are believed
to have been affected. The FCA also intervened in the administration of P2P lender Collateral. Wigan-based Refresh Recovery was selected by Collateral when the company shut down in February but it was revealed last month that the City watchdog was looking to appoint a different administrator. “The Collateral companies were required
to obtain the approval of the FCA when appointing an administrator,” the FCA said in a statement. “This is designed to protect investors by ensuring an independent person conducts the administration in the best interests of the investors. This did not happen. “Accordingly, the FCA has intervened to ensure investors are protected as the law requires.”
Ireland’s Flender pushes back UK launch
IRISH peer-to-peer lending platform Flender has pushed back its UK launch to focus on becoming the “dominant platform” in its home country first. Flender gained authorisation from the Financial Conduct Authority (FCA) and ISA manager status to launch an Innovative Finance ISA (IFISA) last year and had planned to launch in the UK and Ireland at the same time. But Kristjan Koik, chief executive of Flender, said once the platform had access to its customer data it decided to grow its brand domestically first and a UK launch will not come before 2019. “We did get IFISA manager status and lot
of our lenders are from the UK,” Koik said. “However, we would like to grow our brand and become a dominant platform in Ireland prior to entering much more competitive a market such as the UK.” It comes as the business lender secured €350,000 (£302,000) of venture capital equity funding from Enterprise Ireland as well as another €450,000 from private investors. The platform has also started a €50m debt round for institutional investors and plans to expand into property lending. Flender, which launched in Ireland in May 2017, has seen its loanbook grow to more than €1.3m in less than a year.
The platform, which lets P2P borrowers automatically share their projects on social media platforms to encourage investment, says it has not seen its customers sharing less since the recent Cambridge Analytica controversy. Koik was unconcerned that users may start turning away from social media as part of the backlash against Facebook after it allowed the data analytics firm to access user data, raising questions of privacy
online and prompting many to quit the service. “We give borrowers an option to run their campaign on the public marketplace or to run privately and share it with just the people who they want,” Koik added. “There are probably 95 per cent of borrowers who choose to be on the live marketplace. “We do give choice to borrowers, but our data says they are not concerned. They get a lot of marketing out of it.”
The best from the web
We round up the biggest stories from www.p2pfinancenews.co.uk over the past month • Zopa set up separate fundraising ahead of a boards for its peerstock market flotation to-peer lending and valuing the company upcoming banking at up to £400m. operations, headed up by former Peer-to-Peer • Betfair founder Mark Finance Association Davies stepped down from chair Christine Farnish the board of RateSetter • and former Barclays and after more than six years. GE Capital banker Peter Davies, who was part of Herbert respectively. It the founding management comes as the lender was team at e-gaming company reportedly in advanced Betfair, joined the board as discussions about a £50m a non-executive director
in November 2011 – just 13 months after the P2P platform’s launch. A spokesperson said he had stepped down “to focus on other things.”
consumer lenders allocating an average amount of £19,339.
• EasyMoney, part of Sir Stelios Haji-Ioannou’s easy family of brands, launched Lending Works passed the a second Innovative £100m lending milestone, Finance ISA (IFISA) doubling its year-on-year offering a 7.28 per cent growth. The consumer return. The ‘balanced’ finance platform had IFISA allows individuals to lent £100,099,590 by invest in a broader range of the start of April, with property-backed loans.
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Property risk? It’s as easy as A, B, C Peer-to-peer property lending risk can be difficult to understand, but Brian Bartaby, founder and chief executive of Proplend, believes he has cracked the code
ISK IS unavoidable in any investment, and most peer-to-peer property platforms have made it their mission to reduce the risk to their investors as much as possible. But Proplend takes a slightly different approach than others. For this platform, commercial property risk is as easy as (tranche) A, B, C. Proplend created a three-step risk structure on behalf of its investors. The platform has split its loans into three loanto-value (LTV) based structures. Tranche A offers loan investments up to 50 per cent of securing property value; tranche B is up to 65 per cent; and tranche C is up to 75 per cent. “Risk is the likelihood of being repaid on an investment you’ve made,” explains Brian Bartaby, founder and chief executive of Proplend. “Where you’re lending money and it’s secured against a property, the higher up the capital structure you sit, the
more you should be rewarded for relatively higher risk you’re taking. “We price risk with the borrower on the whole loan,” he continues. “The interest rate we agree is a reflection of who the borrower is, what the property is, where it is, who the tenants
“Similarly, we have tranche B at 51-65 per cent LTV, and our top tranche C at 66-75 per cent. All tranches would be OK if the property fell by 25 per cent, but if the value fell by more, tranche C investors would take a loss first, before B
We just decided that we were “ going to be open and transparent
about it and use a formula that we were happy to share with everyone
are – the usual metrics. “If we’ve got somebody who’s a pension or ISA investor for instance, with quite a low-risk appetite, they can invest in tranche A of any loan and their investment is limited to 50 per cent of the property value. This value can fall by up to 50 per cent and their investment capital is still OK.
and then A. An equity investor would of course take a loss before any of our debt investors.” So far, Proplend’s system seems to be working out well for their investors. The platform has never listed a loan where the borrower has failed to repay capital in full and they haven’t had any investor losses.
And Bartaby says that Proplend’s investors are comfortable with the system should the first legal charge need to be enforced. “They know exactly what level of risk they’re taking,” he says. “We can explain it very simply to them and they know what value buffer they have.” Explaining risk in simple terms has often eluded P2P platforms but Bartaby is confident that Proplend has cracked the code. “It’s difficult for P2P investors to actually get to the bottom of the risk that they are taking when they lend their money,” he says. “We took a different approach to the other platforms and our investors are very happy with it. “We just decided that we were going to be open and transparent about it and share our formula so that everyone understands. “People value this clarity and transparency.”
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HMRC updates crypto investors on tax confusion CRYPTOCURRENCY investors have been warned by experts that they may face an unexpected tax bill if they sell out of the market at a profit. However, a HMRC representative has told Peer2Peer Finance News that the tax office will deal with cryptocurrencyrelated tax bills “on a case-by-case basis”. The 2017-18 tax year saw huge volatility across the cryptocurrency sector, with Bitcoin reaching a high of £13,840 in mid-December before ending the tax year at approximately £4,750 per coin. This has led to confusion among retail investors regarding their tax liability, particularly if they sold out of the market at a high, then reinvested the profits only to see any gains wiped out. “The treatment of income received from, and charges made in connection with, activities involving cryptocurrencies will be subject to corporation tax, income tax or capital gains tax depending on the activities and the parties involved,” said a HMRC spokesperson. “Whether any profit or gain is chargeable or any loss is allowable will be
looked at on a case-bycase basis taking into account the specific facts. Each case will be considered on the basis of its own individual facts and circumstances. “Where an asset (including Bitcoin) is held as an investment – as opposed to being working capital in a trading activity – the presumption is that any profit or gain on its disposal will be charged to capital gains tax.” The tax office clarified that a calculation is made for each disposal to establish where the disposal gave rise to a gain or a loss. At the end of the tax year, the taxpayer must add together all of their chargeable gains and then subtract any in-year allowable losses. Any gains will be charged at the standard capital gains rate of either 10
per cent or 20 per cent, while any losses can be carried forward to the next tax year to offset any future gains. “The different implications would be on you receiving payment in cryptocurrency as part of a trade,” said Emily Coltman, chief accountant at FreeAgent. “For example, are you selling cryptocurrencies online or being paid in cryptocurrency? Or are you buying and selling cryptocurrencies like you buy and sell shares? These possibly involve different tax implications but if you’re at all unsure then do speak with a tax advisor for further guidance.” Cryptocurrencies have taken the retail investment world by storm and are now expanding into the world of peer-to-peer lending, with a number of
platforms offering digital currencies to finance or secure loans. The most high-profile example is EQUI, launched by entrepreneur Baroness Michelle Mone and her venture capitalist partner Doug Barrowman, which enables retail investors to acquire stakes in or lend to early-stage businesses using EQUItokens. Other crypto-backed P2P platforms include ETHLend, which issues loans in Ethereum, and Lendingblock, which lets individuals lend in a range of digital currencies such as Bitcoin, Ethereum and Ripple. Revolut’s head of mobile Ed Cooper told Peer2Peer Finance News that the digital bank has seen a “huge increase” in the number of retail investors investing in cryptocurrencies. However, he added: “Investors should be aware that cryptocurrencies involve a high degree of risk. People should carefully consider whether trading or holding cryptocurrency is suitable for them in light of their financial condition. We recommend that people seek their own financial advice from an appropriately authorised and independent financial adviser.”
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Building on success
Wellesley is leading the way in property lending. Andrew Turnbull, managing director of Wellesley, tells Peer2Peer Finance News why the property market is all about building relationships
ELLESLEY HAS been synonymous with peer-to-peer investing since it launched back in 2013, although over the last couple of years its strategy has been to diversify its offering into retail bonds as well. The platform is leading the way in property lending, following a repositioning of its lending criteria, to focus on larger residential property development loans. According to Wellesley managing director Andrew Turnbull, the firm is now taking a “very different approach” to its platform, which involves building strong relationships with property developers up and down the country, and minimising the risk to its investors. “We had to reposition ourselves in terms of finding the right type of borrowers,” says Turnbull. “We had to change out some of the members of our team and hire more experienced people. And in terms of the way we underwrite deals, we
have had to completely change the amount of time and the amount of analysis that we spend on deals and we spend a lot of time performing analysis on those deals which just leads to a different process.” Wellesley has always acted as an intermediary between property developers and investors, but over the past few years this strategy has evolved quite considerably. Where once the platform chose smaller developers and a larger number of projects, it now works with larger development firms who have more experience and better capitalisation. Or, as Turnbull puts it: “Our average borrower used to represent the ‘S’ in SME, but now they probably represent the ‘M’.” This shift in the business happened after Wellesley spotted a major gap in the lending market. “We found that
property developers could not get the funding that they wanted from banks – but that didn’t mean that they weren’t bankable,” explains Turnbull. “Property development lending is one of the toughest asset classes for banks to lend upon because of capital requirements. “We felt that there was a big gap in the market to provide a good service to those property developers.” Once Wellesley had spotted this gap in the market, it was just a matter of sourcing reliable developers who could meet the high standards of the platform’s investors. For Turnbull, this meant travelling across England and meeting with potential borrowers, building relationships and – more importantly – building trust. The platform currently works with just “two
that there was a big gap “inWethefeltmarket to provide a good service to those property developers”
handfuls” of developers, says Turnbull, and this highly-vetted group ensures that Wellesley has ongoing access to a series of quality loans. This is what helps Wellesley stand out from the rest of the crowded property development marketplace. “Clearly, we were not the only ones to realise that property lending was underserviced in a number of areas,” says Turnbull. “But what you’ll tend to find with many of these platforms is that many of them tend to specialise in a certain area of property lending. So, some of them focused on buyto-let mortgages, other ones like doing bridging loans and very short-term funding. There are not so many that do property development – we are only really focused on doing residential development. “And what we’ve found with property development lending is that what’s absolutely key is understanding the capability of the person you’re dealing with and what sort of people they are.”
When bricks meet clicks Peer-to-peer property lending combines technological innovation with a tried-and-tested asset class. No wonder it’s growing at such a rapid pace, as Marc Shoffman reports
EER-TO-PEER PROPERTY lending has soared in popularity in recent years, thanks to the alluring combination of a secured asset and attractive returns. P2P property platforms had lent out more than £1.1bn as of the end of 2016, according to the latest data from the Cambridge Centre for Alternative Finance. This makes property finance the third-largest portion of the UK P2P sector, behind business and consumer lending. On paper, P2P property lending looks almost as safe as houses. Lenders
can earn a decent inflation-beating return by funding property development, bridging and buy-to-let loans,
Property lending is often seen as the less risky member of the P2P family, but from stalling house prices
concept everyone “It’s a simple understands” all with the added security of a property asset underlying the investment, while borrowers get an alternative route to finance.
to defaults hitting lender returns, there are plenty of things that borrowers and investors should be aware of. “P2P property lending has traditionally been
very popular because it’s a simple concept everyone understands,” explains Roxana MohammadianMolina, business development manager at Blend Network, which funds secured property development loans. “While the security behind lending to businesses can be quite complex, the hard asset behind property lending is a tangible concept. “Having a hard asset such as a property as the collateral against a loan makes the loan safer. “On the other hand, having a company’s cashflow as the collateral
against a loan is a lot less secure: if the company cannot repay, you have nothing.” The market is also helped by brokers increasingly recognising P2P lenders as a viable source of funding to recommend to clients. “We consider P2P lenders alongside others and if the consultant identifies a P2P lender as offering the best deal for a particular client that is what will be recommended,” says Ray Boulger, senior technical manager at broker John Charcol. “The sector is still maturing but several now have highquality experienced personnel in key areas such as underwriting. Because of their cost of funds, the sector can’t compete for the lowest-risk vanilla loans but provide welcome additional competition for some other loans.” But P2P property lenders aren’t immune to the challenges of the wider sector and there are plenty of headwinds that could limit the demand for development, bridging and buyto-let borrowing. House prices increased by 2.6 per cent in 2017, according to the Nationwide
House Price Index, a slowdown from 4.5 per cent a year before. Slowing price growth, coupled with Brexit, may well put off developers, while buy-to-let mortgage borrowers have been hit with higher stamp duty costs on purchases and the scaling back of tax perks such as
London and the South East, it is predicted that prices will pick up again after March next year, when we are scheduled to leave [the EU],” Narinder Khattoare, chief executive of Kuflink, explains. “Although certain areas have seen declines in prices, many areas have held strong. For
is never a simple “Recoveryprocess ” mortgage interest relief. But bridging and development lender Kuflink says many of the issues are London and South East centric, where growth is thought to have slowed due to Brexit-linked uncertainty, despite strong markets in the rest of the country. “Although there have been recent slumps in property prices in certain areas, notably
example, many regions in the North of the UK have seen dramatic increases in house prices, showing that property in many areas is still a sound investment, and should remain so in the coming years.” In many cases, P2P lenders have stepped in as banks have withdrawn from more specialist areas such as bridging and
development loans or more specialist buy-to-let. Banks tend to focus on bigger funding deals and ignore small- and medium-sized borrowers, which are the bread and butter for P2P. Development and bridging platform Lendy says it has seen demand increase as banks pull away from smaller property lending. “Our origination has grown as banks have pulled back from financing bridging and development loans, and Brexit hasn’t affected structural issues like that,” reveals Paul Riddell, spokesperson for Lendy. “The access to finance and the immediate cashflow means P2P bridging is a perfect tool for a wide range of projects requiring quick turnarounds, like to raise finance to buy a new property whilst the sale of another property is still being completed, but also to help buy a property at auction, property refurbishment, and shortterm capital for business use.” Similarly, John Goodall, chief executive and co-founder of buy-to-let P2P platform Landbay, acknowledges that buy-to-let lending
has slowed overall amid the changing tax regime, but not so much for specialist lenders. “There is a lot more specialist buy-to-let business moving from high street banks which is where we see our market growing,” he says. “Overall the buy-tolet market is not as busy as it was. That is to do more with tax changes, regulation, and stamp duty and is nothing to do with the demand for rental property or the economy. “There is an increased tax burden so it is less affordable. If people are buying an additional property they will take a view on the economy, businesses are still hiring people and employment and demand is still rising.” Whatever the economy, people still need places to live and there is a welldocumented housing shortage in the UK. With plenty of borrowers still looking to fund developments or buyto-lets through a P2P platform, there are plenty of opportunities for investors to choose from. “For so long, investors haven’t had an alternative to either equities or cash,” says Sam Handfield-Jones, head of property buy-to-let lender Octopus Choice. “P2P provides a low volatility yield, in a macro
environment that isn’t very good for [investors]. “For investors to have a way of getting an inflationbeating return backed by a hard asset class, that’s what will drive the market.” The rates on offer are attractive and go up to double digits in some cases. In addition, many P2P property platforms offer the benefit of taxfree earnings through Innovative Finance ISAs. Having a UK property
P2P giant’s assessment of a property development loan after the borrower entered administration more than a year ago with little sign of recovery. Hotels provider Meliden borrowed £1.6m from Funding Circle investors in August 2015 and was due to repay the loan in April 2016, only for the loan to go into default and the company placed in administration in February 2017.
Our origination has grown “ as banks have pulled back from
financing bridging and development loans
as security gives an added level of assurance for investors. However, while the majority of P2P property loans get repaid, recovering funds when a borrower goes into default is not as easy as it sounds. This is a risk of P2P lending, but a number of investors have voiced concerns to Peer2Peer Finance News and on the P2P Independent Forum about the way that some platforms have been recovering losses on defaulted property loans. In one example, Funding Circle investors have raised questions over the
Two years since the loan was due to be repaid, the latest progress report from administrators Begbies Traynor in March suggested it is unlikely the full funds owed to Funding Circle will be recouped. Investors have complained about the amount of information that has been shared about the default process and administration as well as how much Begbies Traynor fees are mounting up the longer it takes. “Over £420m has been lent to small house builders through Funding
Circle, helping to support the building of thousands of homes,” Natasha Jones, spokesperson for the platform, said. “To date, £350m has been repaid. Credit performance has been strong, returns on property loans have outperformed expectations and one development has been defaulted to date – representing less than 0.4 per cent of total property lending by value. “We appreciate some investors’ frustrations but we are not able to discuss ongoing litigation any further than what is outlined in the administrator report. Our priority is to get the best possible result for investors and we do not want to prejudice this.” Funding Circle announced separately in April 2017 that it would stop property development lending to focus on business lending. The announcement at the time said it would stop all property development lending by mid-2018. Funding Circle is by no means the only platform with investors expressing concerns about defaults. Lendy has a default rate of 9.5 per cent, but spokesperson Paul Riddell says investors have to understand that a quick sale of a property may not be in the best interests of lenders. “Recovery is never
a simple process, but it’s something we have invested very heavily in over the last 18 months or so,” he explains. “For most loans that enter recovery, having security and first charge over the property means that investors have a good chance of seeing their capital returned. “We’d all like it to be as quick as possible, but the most important issue is the value recovered, not the time it takes. This is especially true when we undertake legal action to protect lenders. A quickfire sale is unlikely to achieve the best
results. Our overriding objective is to protect our investors’ capital and maximise the return on their investment.” Handfield-Jones says Octopus Choice has not had any defaults so far but there will be an “important education piece” for investors on how platforms approach defaults as the sector scales. “When you have a security the worst thing you can do is force a sale immediately, it is the most value destructive thing you can do,” he says. For now, Neil Faulkner, of P2P analyst 4th Way,
says investors have to be “mentally prepared” that recovering bad debts can take months or years. “Investors should look to lend across a half dozen or more different platforms that have convinced them they really know what they are doing,” he says. “Investors should ensure that for riskier loans they are earning a large premium and that for lower-risk loans they are still earning substantially more than they can get in savings accounts. Investors should also set lines in the sand that they are comfortable with to ensure they get their
money out or reduce their holdings when a platform lowers its standards.” It seems that P2P property lenders have overcome the knowledge barrier with brokers and borrowers, but there is still some way to go in terms of assuring investors if things go wrong. Ultimately, the P2P property sector looks set to grow and grow as it provides much-needed funding for property professionals and one of the most appealing opportunities for investors – as long as they realise that it isn’t quite as safe as houses.
The rising appeal of prime property Prime Central London property is the first to recover after a property crash, and now is the time to invest, says Uma Rajah, chief executive of CapitalRise
ROPERTY IS one of the most scrutinised investment classes in the UK. Everyone remembers the effects of the 2007 property recession, and borrowers and lenders alike are – understandably – wary of making losses. But for income-driven, risk-averse investors, there is one type of property that has a history of defying expectations: Prime Central London (PCL) real estate. “Prime real estate is the most resilient sector of the market,” says Uma Rajah, chief executive of online property finance marketplace CapitalRise. “If you look at every downturn in the last 50 years, you see a very similar pattern, which is that prime falls less in a downturn, typically, and it always recovers significantly faster than other areas of the market.” According to recent research by CapitalRise in conjunction with Savills Research, the PCL sector is set to increase by 20.3 per cent in compound growth by 2022. The Savills research also showed that the property market goes through a series of seven-year cycles of peaks and downturns,
and in each case, PCL recovered the quickest. For CapitalRise, the old adage ‘location, location, location’ rings true. The platform focuses on properties in prime London neighbourhoods such as Knightsbridge, as well as luxury homes in sought-after areas such as Winchester. In fact, the platform has estimated that if you
per cent by carefully choosing secured lending opportunities against luxury properties in prime locations. The typical CapitalRise loan is offered at around 65 per cent loan-to-value, a risk level “that most people feel very, very comfortable with for this calibre of real estate” says Rajah. CapitalRise is thrilled with the demand that it
Prime falls less in a downturn “ and it always recovers significantly faster than other areas of the market
had invested £1,000 in PCL at the start of the 2007 cycle, by the end of that seven-year cycle you would have had £1,194 (+19.4 per cent). By contrast, if you had invested that same £1,000 in general UK property in 2007, you would have ended 2014 with just £969 (-3.1 per cent). CapitalRise offers its investors returns of between eight and 12
has seen, such as its last investment opportunity which fully funded raising £1.4m in only two working days during their private members-only launch. To further protect its customers, CapitalRise lends against a property value that has been provided by an independent, professional valuer which typically offers a conservative estimate on
the anticipated sale value compared to the asking price of the property. Rajah admits that there has been a softening in the market recently but she points out that savvy investors can use this to their advantage. “There has been quite a significant softening already, so we see prices being down essentially 15 per cent to 20 per cent from their peak in 2014, and that’s been caused by Brexit uncertainty and stamp-duty changes,” she explains. “So we actually feel that now is a great time to be investing in prime because our view is that we’re either at the bottom, or near the bottom of the cycle and this sector recovers very fast.” In a way, this timing is ideal. CapitalRise has a number of new loans in the pipeline and Rajah says that she expects the business to “ramp up very fast” in the near future, as more and more investors realise the advantage of investing in PCL.
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BANKS AND P2P
Collaborate or compete? Peer-to-peer lenders are getting increasingly involved with the very incumbents they set out to disrupt. Is this the key to the P2P industry’s future or the path to its demise? By Andrew Saunders
N THE tech-forward 21st century, the answer to the age-old question of whether to collaborate or compete with your commercial rivals is more mutable than ever. It’s increasingly apparent across many sectors that collaboration is on the rise – if the self-driving car poses an existential threat to incumbent auto manufacturers, why has JLR signed a deal to sell 20,000 vehicles to Google spin-off Waymo? And if traditional banks are what so many peer-to-
peer lending platforms were set up to beat, why are they increasingly succumbing to the urge to sign up these old-school incumbents as partners, referrers or investors? On one level the popularity of such deals, such as the tieup between Zopa and Metro Bank, or the referral arrangement between Santander and Funding Circle, reflects the simple desire of the P2P partners to acquire more customers and grow more quickly via the extended marketing reach of the incumbent.
Surely something that every entrepreneur can relate to. But is there a catch? Does the rise of collaboration threaten the founding principle of P2P – the desire to beat the banks at their own game by being better, faster, cheaper and more open lenders providing a vastly improved customer experience? At least one senior industry figure seems to think it might. “We are in direct competition with banks. There is no point being mealy mouthed
about that,” Rhydian Lewis, chief executive and co-founder of RateSetter, said recently. “Collaboration can mean that the landscape doesn’t look that different to the man in the street in a few years’ time. But with competition you might see new brands emerge.” So for Lewis, the clarity of competition is more likely to result in better customer outcomes than the rather more nuanced business of collaboration. A spokesperson for RateSetter confirms it
BANKS AND P2P
has no partnerships with mainstream banks, and no immediate plans to pursue any. It’s an unashamedly purist approach that hasn’t stopped RateSetter from becoming one of the big beasts in the sector, with getting on for £2.5bn in loans under its belt since opening for business in 2010. But as more and more P2P platforms sign up banks as partners – in March, for example, MarketInvoice’s existing funding deals with Banco BNI Europa of Portugal and Germany’s Varengold were boosted by £90m and £45m respectively – it’s an approach which is also increasingly at odds with the prevailing orthodoxy. So which view is right? “Collaboration is inevitable, there is no point fighting it,” says Neil Faulkner, founder of P2P analysis firm 4th Way. “The purist idea of P2P is a nice ideal but there is no law written that says that is what P2P is for.” The advantages, he adds, are simply too great to ignore. “Collaboration helps to keep the deal flow going, and to achieve the scale which is necessary for platform efficiencies to really work. Also most
platforms have backers who want to see growth – that’s what they have been promised. “So, many platforms have no choice but to collaborate if they want to survive, never mind grow.” For Metro Bank, the success of its deal with Zopa is down to having complementary interests. “We’re effectively an institutional investor,” says Kat Robinson, retail products director at Metro Bank. “Metro has a strong deposit base, Zopa was – and is – on a growth
much has been lent as a result, but both seem pretty happy with the way it has panned out. Jonathan Kramer, head of capital markets at Zopa, says that it works because the pair share a similar customer-centric outlook, as well as dovetailing financial and marketing strengths. “Our partnership with Metro brings together two likeminded financial challengers which share a similar ethos of providing an excellent customer experience, albeit through different
is inevitable, there “Collaboration is no point fighting it” trajectory and looking for fresh capital. It’s a natural fit.” Initially Metro was investing a fixed monthly sum but after a year that shifted to a more flexible arrangement. “Now it goes up and down, we meet regularly and have conversations about it,” adds Robinson. “It’s been a really positive experience and we will try and replicate that flexibility in other partnerships too.” Neither party shares any figures on how
channels,” he explains. “The fact that Metro has chosen to lend directly to consumers through our platform, is a strong endorsement of our ability to originate and underwrite high quality loans. Like Metro, all institutions which lend through Zopa put the platform through detailed scrutiny – something both institutional and retail investors should take confidence from.” As well as the obvious benefits of a ready supply of funding to
help smooth out the bumps inherent in matching borrowers with lenders, Robinson says that Metro has learned some more unexpected lessons, too, about the importance of cultural as well as strategic alignment. “Are these people you really want to work with? You are going to be spending a lot of time with them,” he states. “Cultural fit is now higher up the list of things that we look for in a partner than it would have been otherwise.” But even the best collaborations come to an end eventually – will the fact that Zopa is turning itself into a bank bring down the curtain on this lending double act? No, says Robinson. “We have talked to them about it and we don’t think it will affect the relationship. The bank will be sufficiently separate from the platform we work on.” It’s a positive view of collaboration that is borne out by a recent study of the wider fintech community from Capgemini and LinkedIn. The World Fintech Report 2018 found that no fewer than 75 per cent of the fintechs it surveyed cited collaboration with traditional firms as their primary
BANKS AND P2P
“At a policy level, there is a desire for more competition” business objective. That’s a huge proportion. Why is the desire to collaborate so high on the start-up priority list? “When the fintech revolution began, there was a lot of noise about them taking over the financial services sector,” says Chirag Thakral, deputy head of financial services MI strategic analysis group, Capgemini. “But that turned out to be just noise,
because both fintechs and incumbents have strengths and weaknesses that are complementary. They deliver best value by collaborating.” Bank customers want Google-style service, he says, which is where the fintechs excel, but fintechs lack scale, and are less trusted to handle people’s money than incumbent banks. Punters may not like the way the big old brands treat customers,
but the fact remains that they are well established and have a track record of security that slick new start-ups simply cannot match. Collaboration helps a bank learn from the agility of the partner as well as their technical expertise, while the fintech benefits from the brand association, customer reach and process expertise of the bank, adds Thakral. “Today the discussion is not about whether
to collaborate, but how to do it most effectively,” he says. But should such tie-ups come with any caveats around the possible impact on customer choice? Collaboration after all is a word with two very different meanings. A collaboration can be the joint authorship of something positive like a book, a research paper or a new product or service. But it can also refer to something
BANKS AND P2P
much darker – ‘traitorous co-operation with an enemy’. Andy Davis, author of a pair of influential reports on P2P for the Centre for the Study of Financial Innovation, says it is not a binary choice between collaboration and competition, because more of one could actually result in more of the other. “If a bank and a P2P collaborate and in doing so serve a customer in a way they were not served before, that’s increased choice and potentially more competition,” he explains. The question of whether P2P lenders and banks should collaborate or compete depends on your perspective, according to Davis. “At a policy level, there is a desire for more competition,” he says. “But at the level of
the commercial interests of the individual platforms, their agenda is to maximise customer benefits and shareholder returns.” He also points out that there are many different ways to collaborate,
considerations above all. “With lending it’s determined by risk appetite,” he adds. “A bank might like fewer of the risks it looks at, and a P2P platform more, potentially.” This is effectively
you might see “Withnewcompetition brands emerge” from a bank referring an existing secured borrower to a P2P platform for an unsecured loan, to full-on institutional investment such as those aforementioned MarketInvoice deals. So it’s a pragmatic rather than a philosophical decision that should be driven by commercial
the basis of the government’s referral scheme, a kind of mandatory collaboration whereby banks are obliged to refer rejected loan applicants to alternative providers who might be prepared to approve them. It’s performing, says Davis, “roughly as you’d expect”. Collaboration works
because it allows both parties to play to their respective strengths. “A P2P lender can arrange for anyone who wants to, to borrow money,” comments Davis. “We have seen that. A bank, with all its associated costs, might conclude that while the origination of SME loans is expensive, it would still like some of the yield. “A successful fintech has a low-cost origination engine. A bank has a high cost of origination but a low cost of lending.” So while it may suit the purists to stick to their guns, for others a mutually-beneficial collaboration really does look like the proverbial win-win. As the P2P industry grows and evolves, it seems likely that the opportunities to collaborate with the in cumbents will do as well.
Connecting businesses requiring ďŹ nance with investors seeking a secure and favourable return
archover.com ArchOver is authorised and regulated by the Financial Conduct Authority 723755 Capital at risk
Trust: The currency of the future Angus Dent, chief executive of ArchOver, explains how P2P and the banks can co-exist in fruitful competition underpinned by growing lender trust
LTERNATIVE 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 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.
the question of whether banks and P2P platforms should collaborate or compete is an important one. For the time being,
is in P2P’s best interests to “Itwork at maintaining and growing trust” 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 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.
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Top suit trends for 2018 From burgundy and bottle green, to double-breasted suit jackets and pocket squares – Raja Daswani, head of Hong Kong-based bespoke tailor Raja Fashions, reveals the top suit trends to look out for in 2018
HAT DO Tom Hardy, David Beckham and Prince Charles have in common? They are all trend-setters in the world of bespoke suits. According to Raja Daswani, head of Raja Fashions in Hong Kong, the majority of his male clients take their style inspiration from the red carpet, and while Hardy and Beckham are particularly popular among the younger clientele, Prince Charles has a strong fan base of his own. “He still dresses very well,” says Daswani. “His style is very popular with barristers in particular.” It is no coincidence that these three style icons are set to influence some of the biggest suit trends for 2018. Prince Charles’ signature checked suits are already in high demand at Raja Fashions, while Hardy and Beckham have pioneered the taperedleg, fitted blazer combo which is still going strong across the UK. “What is not so popular is the three-button style suit,” says Daswani. “Now people like to have a twobutton style suit, and the
double-breasted suit is coming back in fashion.” This, Daswani adds, is set to be a big trend for 2018. “Most of the top designers around the world are now producing more doublebreasted suits,” he says. As the founder of celebrated tailor Raja Fashions, Daswani is better placed than most to predict the ‘next big thing’ in menswear. And after the super-skinny cuts of 2016 and the bright blues of 2017, he expects 2018 to offer a more muted take on classic suit styles. “In terms of colours, blues, greys and blacks will continue to be popular, but in more muted tones than the petrol blue that was everywhere in
2017,” says Daswani. “We expect to see more navy blues than bright blues. Last year light grey suits were very popular, but this year our clients are choosing darker shades of charcoal and slate.” For special occasions, bottle green and burgundy are becoming more popular, although Daswani emphasises that these colours may not be suitable for day-to-day office wear. “Bottle green is popular, but it is not what we call practical,” he says. “Bottle green and burgundy are only really for people who are buying four or five suits and want something a bit different.” Checks will replace stripes and pinstripes as
the pattern of choice for the discerning gentleman, although an unusual alternative to pinstripes is emerging among Raja’s aristocratic client base. “We are doing a lot of custom-made orders where a name or initial is woven into the cloth,” says Daswani. “That sort of suit would cost you around £8,000, and it is particularly popular with royalty and aristocracy.” Raja Fashions offers tailored garments at highly competitive prices. Bespoke suits start at £350 for lightweight fabrics and £435 for 100 per cent wool. Raja Fashions’ premium suits go up to £2,500, but the same garment could cost £12,000 on Savile Row. Tailors from Raja Fashions are in the UK every six weeks to perform fittings across London, Scotland, Wales and Ireland. For more information, visit Raja Fashions’ website at www.raja-fashions. com or email raja@ raja-fashions.com to book an appointment. Hong Kong main shop: 34-C Cameron Road, G/F, TST, Kln, Hong Kong.
Paul Riddell, head of marketing and communications at Lendy, explains the importance of fresh thinking within the property finance space
N OCTOBER 2017, peer-to-peer property platform Lendy celebrated its fifth birthday. But while most companies spend their first half-decade building a brand, Lendy had already hit several major milestones. In just five years, the platform has built a reputation for constant innovation, customer engagement, and flexibility. And through its high-profile sponsorship of the Cowes Week sailing regatta, it has helped to champion the UK’s P2P sector as a whole. According to the platform’s head of marketing and communications, Paul Riddell, this is just the beginning. “P2P has really moved on from the alternative finance space into the mainstream, as the highstreet banks have cut back on lending,” says Riddell. “I think that’s enabled the sector to introduce lots of fresh thinking and new ideas and innovation into the alternative finance space and to enable lots of property projects
to go ahead, which perhaps wouldn’t have happened without us.” For Lendy, technology has been incredibly important in driving the growth of its platform. The company is very active on social media, and it is constantly asking its investors for
ability of alternative finance platforms to be a lot closer to the customer than some of the larger banks have been able to do.” Lendy offers returns of between seven per cent and 12 per cent to its investors – slightly higher than its rival
have seen very strong growth “inWelending over recent times and I
think that shows the extent to which property finance itself has evolved
feedback on its offerings. Riddell believes that it is this commitment to improvement that has fuelled its success. “With the emergence of eBay and Amazon and those sorts of platforms, people have become a lot more comfortable with technology,” he says. “A lot of P2P players have been deploying intuitive technology and easy-to-use platforms, and I think innovations will come from the
P2P property platforms. And unlike the majority of its competitors, Lendy is profitable. “We’re one of two platforms that actually make money, which means we can invest our own money in growing the business without having to borrow from a different funding stream,” says Riddell. This company investment will be put to good use as Lendy approaches its sixth
birthday. There are now approximately 21,000 users on the platform, and this is set to grow even further in the near future as Lendy heads towards Financial Conduct Authority authorisation and builds further on its investor and borrower base. Riddell also says that the firm will be investing in its underlying technology and making new hires across the board. “We have a heavilydetailed route map from an IT perspective over the next 12 months, so it’s really about making the platform as strong as we can and continue to attract fresh talent as well,” he adds. As for the rest of the P2P property sector, Riddell says that it is a “surprisingly healthy” market at the moment. “I think the P2P property sector is going to go from strength to strength over the next 12 to 18 months, despite the economic challenges,” says Riddell. “I think we’ve got a very strong sector now.”
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Old meets new
Dan Walker took over the helm at Sancus Finance at a pivotal time for the alternative lender. He talks to Andrew Saunders about the new business structure and the benefits of a personal approach
LTERNATIVE LENDER Sancus Finance is not your typical peer-to-peer platform, and neither is its managing director Dan Walker your typical P2P boss. For one thing, Sancus is listed – or at least its parent is, Aim-listed alternative finance vehicle GLI Finance. A pretty grown-up status in a predominantly teenage P2P sector where private ownership with its less rigorous governance requirements is still very much the norm. And for the other, Walker himself is an ex-corporate lawyer who spent 10 very successful years in structured finance at Lloyds. It’s easy to imagine him as a goahead young partner in a top law firm had things panned out differently. Smart yes, but also measured and thoughtful. Not a swashbuckling entrepreneur hell-bent on beating up the banks. The two thus make for a complementary
if somewhat unusual mixture. “I like the combination of old and new that Sancus provides,” says Walker. “It’s doing all the good things that banks do, plus a bit more. But it also has the benefits of an alternative finance house – it’s more flexible and more willing to embrace tech.”
take certain risks but it is about knowing what they are and mitigating them as much as you can.” It also means that he is no stranger to hard work. “If you have spent a few years at a Magic Circle law firm then you have the work ethic and the professionalism that comes with that,” he adds. That kind of commit
like the combination of old and “I new that Sancus provides” As for his legal background, he reckons that has a number of advantages when it comes to running a lending operation like Sancus. “As a lawyer you are probably pretty risk averse, and you are taught to view everything through a risk prism,” he explains. “I think that is no bad thing – obviously in business you have to
ment to the job is likely to come in pretty handy, as Sancus and GLI Finance generally have had a busy time of it recently and there is plenty more work still to do. 2016 was something of an annus horribilis for the group as a whole, whose track record of profitable growth took a nasty hit thanks to a £16.5m loss for the year
– largely due to problems with GLI’s fintech investment portfolio. But bad things can have good outcomes, and the root-and-branch look at the structure and strategy that resulted seems to be working – in its latest accounts the GLI group turned that loss into a modest operating profit of £0.1m. “It’s about simplification of the business, separating the Fintech Ventures from the lending business,” says Walker. “And all the lending is now under one umbrella and branded Sancus.” So the old brands such as Funding Knight and Platform Black are now branded Sancus Funding and Sancus Finance respectively, and owned by the Sancus BMS subsidiary. Sancus BMS itself made an operating profit of £1.6m in the last financial year. Even the simplified structure still seems fairly complicated to this observer, but there is at
least a logic and branding consistency to it. There are now two divisions to the group, says Walker, the investment vehicle Fintech Ventures and Sancus BMS, the lending operation. The ventures portfolio of 11 fintech investments will continue to be supported, but “the real engine room for the business is now on the lending side,” affirms Walker. “There is a desire to get back to paying dividends for the shareholders.” The Sancus BMS lending division itself has three operating businesses. There is Sancus, which provides
short-term asset-backed loans in Jersey, Guernsey, the Isle of Man and Gibraltar. Then there is BMS Finance in London providing secured longer-
provision of working capital in the UK. “We provide shortterm working capital to small businesses and educational
real engine room for “theThebusiness is now on the lending side” term loans to UK SMEs supported by capital from the British Business Bank. And finally there is Sancus Finance, the part of the business that Walker runs, which specialises in the
establishments through our three products – supply chain finance, education finance and invoice discounting,” he explains. For small businesses, Sancus can provide
much-needed working capital to smooth out bumps in cashflow – or even to generate a return. “If they pay a supplier early they can achieve a discount,” says Walker. “So the economics then are shared between us – it becomes a treasury operation.” On the funding side, Sancus offers returns which vary from four per cent with a 100 per cent capital guarantee for the more cautious lender, to a racier 10 per cent with concomitantly more risk to invested capital. Shareholders in the wider GLI group include family offices and high-networth individuals, plus
institutions including Axa and Artemis. Sancus’ borrowers range from businesses turning over a couple of million to FTSE 250s and educational establishments turning over £150m. “The group as a whole [all three Sancus lending operations] has lent in excess of £800m in total,” affirms Walker. “Across that range you’d see an invoice for £5,000 but also a £17m property deal. “That is one thing we are keen to maintain – a broad range of options which most of the alternative finance market doesn’t have. “If there is a borrower we’d like to lend to, then we try to find a way to do so.” That kind of personal approach reflects Sancus’ business model, which is more finance with a dash of tech than tech with a dash of finance. “What we are doing is pretty traditional finance in many ways,” continues Walker. “We have a sales team to originate positions, and they themselves have a broker network up and down the country. “On the credit side we have a bunch of guys with decades of experience who make the decisions. For all those reasons we are quite different from a typical P2P.
“It’s very much a relationship play, that’s what our borrowers value. They even have access to our credit committee – the person actually making the credit decisions will speak to the client. That’s something you very rarely see in a bank.” Of course that personal model bring its own difficulties when it comes to growth, as the usual fintech economies of scale – which rely on automating as much of
i’s and crossing the t’s,” says Walker. On the upside, the Sancus model is harder to replicate and perhaps less readily subject to competition – but there’s no room for complacency. “The key is to make sure we use tech to ensure that we are challenging ourselves to always do those things in the most efficient way,” he adds. Having been in post since January this year, Walker is still relatively
Aim-listed entity comes with “aAncertain level of governance” the process as possible – are less applicable. “The challenge is how do you get to scale?” admits Walker. “We have to deliver a compelling proposition to funders and borrowers, but do so in a way that also delivers value to our shareholders.” That means “never letting your guard down on credit” and also paying real attention to detail around operations. “When I have seen things go wrong in my career, it has almost exclusively not been a failure of big strategic ideas but a failure of implementation – not dotting the
new to the job. What attracted him to it? “I liked the people I met at Sancus, I thought they were ambitious and credible, and I thought the prospects were good. “I think there is definitely a place for alternative finance alongside traditional lenders, I don’t see it as one or the other. I think the better alternative finance providers do take lessons from some of the things that banks have got right.” Walker qualified as a lawyer with Linklaters after a law degree at Oxford, and prior to joining Sancus he was
with German bank Varengold. Its UK investments brought him into to contact with the alternative finance scene. “We went out and found alternative lenders who had a business model we wanted to support,” he says. “We brought the capital and they brought the expertise.” Before that he spent the decade from 2005 to 2015 in structured finance at Lloyds Banking Group. “I thought I’d stay for a couple of years and ended up staying for 10,” he explains. “Our team was at the heart of many of the measures that were taken during the financial crisis – we were charged with discussions with the government around the asset protection scheme, for example. It was an extraordinarily busy and interesting time.” One of the biggest announcements since he joined Sancus came late in January, when GLI Finance announced that it had secured a £50m revolving credit line with Honeycomb Investment Trust. The facility will be used to expand Sancus’ property-backed lending business, with £20m drawn down immediately. “It’s a big endorsement of our business and our credit process,” says Walker, who as well as being managing director of the working capital business in the
UK has also joined the Sancus BMS board. “We have several other ongoing conversations with institutions that we hope will lead to announcements soon.” On the supply chain finance side, one of his biggest hopes for growth is the vendor partner programme. This involves larger companies signing up Sancus as their preferred partner for providing credit to buyers, potentially opening the door to numerous lucrative deals through the same client. So a buyer might want to order more from Sancus’ client company, but that client might not
be happy to take on the associated credit risk. With Sancus on board to provide credit finance, everybody gets what they want – in theory anyway. “We already have a couple of FTSE 250s,” Walker states. “They have incredible customer lists and it can give you access to their whole customer base. It is difficult to pull off because for a company of that size to trust us as a relatively small business with conversations with their customers – that’s a big step. “So getting there is a long process but it’s a real opportunity for growth.” Although Sancus is generally pretty agnostic
about sectors, it does have one specialist working capital product aimed at educational establishments. “We are probably the largest non-bank provider to the sector,” he says. “We have for example a £10m line with one university.” Colleges and universities are particularly in need of working capital, he says, because much of the funding they receive from government is staged and comes in large chunks rather than a steady stream, whereas outgoings tend to be constant. “It’s a good place to be because it’s a sector
which is conservative, in a good way,” he asserts. “There is proper governance and real oversight. It’s appealing to funders too, it feels like a good part of the market to be lending to.” So Sancus is a grownup small business that likes to lend to other relatively grown-up businesses too. “An Aim-listed entity comes with a certain level of governance,” Walker says. “There aren’t many alternative finance providers that come with that kind of governance. As a funder or a borrower, I would take a good deal of comfort in that.”
Millions in minutes: The peace of mind of expertise Mike Bristow, co-founder and newly-appointed chief executive of the specialist property peer-to-peer lender CrowdProperty, looks at why all types of private investors are queuing up to lend to the residential property projects on CrowdProperty’s online platform
F COURSE our eight per cent annual return and 100 per cent payback record are incredibly attractive to an investor in a low interest rate environment but we have focused very hard on what else is important to both existing and new peer-to-peer lenders. We hold firm to the original ethos of P2P by giving retail lenders the autonomy to choose which of the wide range of quality property projects on our platform they want to invest in, free of charge. That means we ensure that they have all the facts they need to make these significant decisions and focus or diversify their investments. As part of that, we run webinars prior to project launches allowing lenders to ask questions directly to the borrower. Many investors greatly value that human connection and coming together as part of a successful team. We also appreciate that many people have a one-
to-two-year outlook for much of their investment funds. This aligns very well with our six-to-18month project terms. And we also provide lenders with a range of ways to invest – through their SIPP or SSAS pension, for instance, and they can receive interest tax-free if they invest through CrowdProperty’s Innovative Finance ISA, which has proved incredibly popular. Investing in property is attractive because it can be secured against a physical asset that is very, very unlikely to ever go to zero, unlike investing in a business, the value of which is based on future cashflow, which is much more vulnerable. As with all P2P lending, capital is at risk, but our lenders tell us that they keep coming back to us for three big reasons: the expertise of our board in only selecting quality projects; the level of security we offer and the recoverability
of our lenders’ funds. Firstly, our background is property investment and development. Compared to many P2P businesses that have no hands-on experience of what they are financing, our founding team shares almost 100 years’ property experience. This provides us with a critical edge; we understand the intricacies of projects and developers, which enables us to complete stronger, quicker and more relevant due diligence. We are also, importantly, a totally independent marketplace. Secondly, we hold the first legal charge on all properties we finance against, which means that we can, just like a mortgage company, take charge of the property if the borrower defaults. Finally, in the unlikely event that a default occurs, we would again leverage our property expertise to manage the project to completion or find the best alternative options
to recover our lenders’ capital and interest. We don’t blindly repossess and fire-sell which other finance companies might do. Fundamentally we build a relationship with our borrowers to spot potential problems before they have an impact. That is the best safeguard for our lenders – we know what we are doing through both application assessment and project duration. Funding millions of pounds of property projects in minutes is a testament to the trusted brand we’ve built. We’re immensely excited about the future of CrowdProperty as we’re delivering meaningful differences to both borrowers and lenders alike. We will shortly be supporting a material proportion of the country’s well-publicised housing need, whilst also realising better, secured returns for our lenders’ money. Together we build.
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