Reflections of LendIt Europe 2016
There was a distinct change in mood at this year's LendIt Europe conference in London as the industry moves into its next stage of development. Turnover growth is giving way to strategies based on profit, sustainability and long-term vision. Flexibility of platform, data aggregation and analytics were just some of the ways technology was highlighted in playing a crucial role in achieving and maintaining profitable growth in marketplace lending.
From dark days to golden age
Not surprisingly, the challenges faced by the industry in the first part of 2016 have focused attention on the substance of the business model, not the excitement of beating down the walls of traditional finance. This can only be a good thing because the industry will stand up to this scrutiny and, as Samir Desai of Funding Circle said in his opening address at the conference, we're entering a golden age combining the best of financial services and technology.
According to the new Oxera analysis of Peer to Peer Lending in the UK, the major players assessed are able to weather the storm in an economic downturn. Even if borrower defaults double in tougher times, those firms assessed in the Oxera report are expected to still deliver positive interest to their customers.
FCA "Loan-based Crowdfunding" review
Technology is also helping to ensure compliance, enabling Peer to Peer Lending (aka Loan-based Crowdfunding) platforms to satisfy the Financial Conduct Authority and, in the coming months, receive their FCA Full Permission. The FCA's key objective remains consumer protection whilst also encouraging innovation, and choice, within the financial sector. As Chris Woolard of the FCA stressed, their latest review will help them establish there are no "expectation gaps" as the many business models across the industry are changing and developing. Feedback on the review will be published before the end of the year.
IFISA on the horizon
Christine Farnish, chair of the Peer to Peer Finance Association, indicated that, as platforms were nearing the point of achieving FCA Full Permission, Innovative Finance ISAs would begin to emerge. She expected that they would be available for investment around February/March 2017. Christine noted that this was particularly important to retail investors in times of low yield elsewhere.
The Trusts "will come good"
Cormac Leech of Victory Park Capital (who prefers the term "Online Direct Lending" to describe the industry) noted the turmoil in recent IPOs with unrealistic expectations (Lending Club and On Deck) and felt that investors should bear with the Trusts, that they will come good. He still believes that Continental Europe will overtake the UK Peer to Peer Lending market in due course but may take slightly longer that previously forecast because of the recent slowdown.
Credit Crunch spare tyre
Though the industry has an identity crisis (Marketplace Lending, Peer to Peer Lending, Online Direct Lending or Loan-based Crowdfunding?), perhaps the best description came from Lord Adair Turner when he referred to it as a "credit crunch spare tyre". This was in stark contrast to his widely reported comments from earlier in the year where he said that losses from Peer to Peer Lending over the next few years would make bankers look like lending geniuses. It seems he understands Peer to Peer Lending better now and feels that more direct lending could help make the economy more stable, providing funds when banks shut up shop.
Again, Lord Turner recognised the role that new technology was playing in giving Peer to Peer Lenders an advantage over the banks beset with legacy systems. He also noted that "sophisticated credit analysis" in the industry was not radically different from the banks.
With greater understanding of this industry, so comes more converts!
Global Peer to Peer Lending
Many platforms from around the world participated in panels, not least our own client, Laimonas Noreika of FinBee in Lithuania who joined the "Up and coming platforms" panel. Like many others, FinBee has plans to expand beyond their homeland to neighboring countries like the Czech Republic. Good regulation, technology and the personal touch were just some of the elements that were cited by FinBee enabling their growth.
…and much, much more
Thanks to the team at LendIt and the P2PFA for another interesting conference. Videos of all the different speakers and panels at the event are available now on the Lendit site.
For more information on the commercially available Madiston technology platform, visit Madiston.com. End to end software for global Peer to Peer Lending (Marketplace Lending, Online Direct Lending, Loan-based Crowdfunding) for consumer and business lending, multi-currency and multi-lingual.