Peer2Peer Finance News November 2019

ISSUE 38 | NOVEMBER 2019

The P2P Power 50 2019

The most influential people in the UK’s peer-to-peer lending sector

RISING STAR

THE

FIRM OF INFLUENCE P2P Power 50

P2P Power 50

2019

most influential people in P2P 2019

2019

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EDITOR’S LETTER

Published by Royal Crescent Publishing

WeWork, 2 Eastbourne Terrace, Paddington, London, W2 6LG info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@p2pfinancenews.co.uk +44 (0) 7966 180299 Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk Andrew Saunders Features Writer Emily Perryman Features Writer PRODUCTION Tim Parker Art Director COMMERCIAL Alamgir Ahmed Director of Sales and Marketing alamgir@p2pfinancenews.co.uk Tehmeena Khan Sales and Marketing Manager tehmeena@p2pfinancenews.co.uk

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his month’s issue of Peer2Peer Finance News contains the third P2P Power 50 – our annual list of the movers and shakers making the industry into what it is today.

It’s really exciting to see some new names in this year’s list, reflecting the flow of talent coming into the sector. Some of these are completely new entrants, while others are last year’s ‘rising stars’ that have been promoted due to their growing impact on the world of P2P. Congratulations to all Power 50 entrants, rising stars and firms of influence who made it on to this year’s list!

Whether you work in the industry or invest in it, we hope you find our Power 50 list a useful resource.

And for those of you who didn’t quite make the list, better luck next year!

SUZIE NEUWIRTH EDITOR-IN-CHIEF

SUBSCRIPTIONS AND DISTRIBUTION info@p2pfinancenews.co.uk Find our website at www.p2pfinancenews.co.uk Printed by 4-Print Limited ©No part of this publication may be reproduced without written permission from the publishers.

Peer2Peer Finance News has been prepared solely for informational purposes, and is not a solicitation of an offer to buy or sell any peer-to-peer finance product, or any other security, product, service or investment. This publication does not purport to contain all relevant information which you may need to take into account before making a decision on any finance or investment matter. The opinions expressed in this publication do not constitute investment advice and independent advice should be sought where appropriate. Neither the information in this publication, nor any opinion contained in this publication constitutes a solicitation or offer to provide any investment advice or service.

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04

NEWS

Lendy investors blast slow pace of administration process MONEY is beginning to trickle into Lendy’s investor accounts, but the slow pace of the administration process has left many frustrated.

Lendy’s administrator RSM began to verify client accounts in midOctober. Investors had previously been told that account verification was the final step before client money withdrawals could take place.

However, several investors in the collapsed property lender have told Peer2Peer Finance News that they have been

frustrated by the slow progress of the verification process, which requires each account-holder to supply proof of their identification and bank details.

Those investors who fail the verification process have been asked to provide a series of notarised financial documents to the administrator. This request has been met with frustration by the Lendy investor community, as many document verification services are hard to access and charge a fee.

Investors have also expressed concerns about the slow pace of account refunds. At the beginning of October, RSM told investors that £11m of client money would be released by the end of the month. However, a number of investors have complained that less than £10 has been made available for withdrawal from their client account when tens of thousands of pounds had been invested.

This is likely due to the fact that RSM is prioritising the return of ‘available funds’

which had not yet been invested at the time of the platform’s closure.

Peer2Peer Finance News understands that there has been growing pressure on the government from Lendy investors to hold the Financial Conduct Authority (FCA) to account for the platform’s failings.

Many investors cited the FCA’s authorisation of the platform as a motivating factor for their investment.

RSM has been contacted for comment.

John Mould endorses new ThinCats chief as he mulls future plans THINCATS’ former chief executive John Mould (pictured) has given his backing to his replacement and said that he is planning to take a few months off before embarking on his next role.

The peer-to-peer business lending platform announced last month that Mould was leaving after four years at the helm and had been replaced with Amany Attia. Attia recently ran The Northview Group, a UK mortgage lender with more than £10bn in assets.

Mould said that thought Attia was a good choice as his replacement

and heralded ThinCats’ growth in recent years.

“Over the past couple of years, we doubled loan volumes every year and doubled revenues,” he said.

“ThinCats is up and

running.”

With regard to his future career, he said he had no specific plans at the moment but “in a few months I will re-emerge doing something”.

He said he was not sure whether his next role would be in the P2P lending space.

ThinCats reduced its overall losses by 60 per cent last year, according to its 2018 annual results filed with Companies House last month.

The lender saw a 45 per cent rise in gross profits to £2.3m but administrative costs, interest payments and taxes left it with an overall loss of £878,000.

This was a substantial improvement from the £2.1m loss it posted in 2017.

ThinCats hit the £500m lending milestone in August.

NEWS ANALYSIS

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When is it time to dip into the provision fund?

PROVISION FUNDS have been around since the earliest days of peer-to-peer lending.

RateSetter was first to launch a provision fund in 2010. Zopa followed suit around three years later, before winding down the fund in 2017 so that it could offer higher returns to investors. During that same year, Landbay tightened up its provision fund calculations and JustUs closed down its ‘RainyDay’ pot, leading some to speculate that the provision fund concept had outlived its use.

Yet provision funds are as popular as ever, with tens of millions of pounds set aside across the P2P sector to protect investors from defaults. RateSetter’s provision fund was worth more than £39m at the time of writing, while Landbay maintains a ‘reserve fund’ which is valued at 0.6 per cent of its £360m loanbook. Growth Street held £1.39m in its ‘loan loss provision fund’ by October 2019, and Assetz Capital had approximately £6m in its provision fund at the time of writing.

These funds are operated at the platform’s discretion, and there are some key differences in the ways in which they are managed. Landbay says it has never had

any capital claims on its reserve fund. Its fund will only kick in if a borrower defaults and there is a shortfall in the money raised from the sale of the property. According to the platform’s own terms and conditions, “the amount that Landbay holds and how it is applied is at Landbay’s discretion.”

Earlier this year, Assetz Capital hit the headlines when it was revealed that its provision fund had been used to repay investors in its wind turbine loans. The platform’s chief executive Stuart Law told Peer2Peer Finance News that this withdrawal did not reduce the provision fund’s balance below the total cash balance that was published at the

end of March 2019. He added that the decision to use these reserves to refund investors was due to the “slow progress with those recoveries”.

This was not the first time that Assetz had made use of its provision fund.

Law said that the platform has “always had the rights to bring balances from the fund back to the company and [has] done so from time to time as appropriate.

“It has also been used for lender payments in the past for the occasional defaulted loan.”

Similarly, RateSetter’s provision fund steps in if a payment scheduled to be made by the borrower does not arrive on its due date. 90 days after the due date of the first missing payment, RateSetter will declare the loan as

being in default, and its provision fund will fully settle the loan by paying the outstanding capital to the investor.

These varied approaches towards the management of P2P provision funds has raised some questions around investors’ understanding of the safeguard. While some have suggested that provision funds act as de facto ‘FSCS’ protection for P2P investors, in practice, it is down to each individual platform to decide when it might be time to dip into the pot. In some cases, the existence of a provision fund will do absolutely nothing to help investors in troubled times.

Before it went into administration earlier this year, Lendy had approximately £3.4m in its provision fund. But when investors asked administrators RSM what had happened to this cash, they were told that it was “a complex point and is not anticipated to be resolved in the short term.”

This has raised questions around the purpose of a provision fund, and the extent to which investors should have a say in the withdrawal process – if at all. Until then, investors must simply trust their platform to make the right decision on their behalf.

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NEWS

Government and FCA rebuff concerns about industry oversight THE GOVERNMENT and the City regulator have both avoided taking responsibility for protecting peer-to-peer investors, amid mounting scrutiny of their oversight of the industry.

Former City minister Lord Myners has tabled a number of parliamentary questions on the Financial Conduct Authority’s (FCA’s) supervision of P2P lenders Collateral and Lendy prior to their collapse. He has also questioned the government’s oversight of the liquidity of secondary markets.

In response to concerns around secondary market liquidity, the deputy chief whip of the House of Lords, the Earl of Courtown, said that responsibility for secondary market issues lay with the FCA and not the government.

Meanwhile, Chris Woolard, executive director of strategy and competition at the FCA, said in a recent speech that retail investment losses do not indicate failure from the regulator.

James Daley, managing director of

Fairer Finance, said that investors could consider an appeal to the parliamentary ombudsman if they can claim that the government’s support for the P2P sector influenced their decision to invest.

“There was a moment when the government was backing the P2P industry, so it may be worth asking if there is some kind of public liability or the potential for a complaint to the parliamentary ombudsman if you feel that the government was instrumental in the

allocation of your funds,” Daley said.

“I’m not sure there is a clear line to provide much hope for people in that situation but I can see the view that the government did encourage this sector without perhaps understanding the risk; and the regulator should have stepped in sooner.”

The FCA has said that it will be engaging in a public conversation about the current regulatory model over the coming months and will be publishing papers on its principles and the duty of care.

German expansion solves Brexit problem for FutureBricks FUTUREBRICKS is expanding into Germany, as it seeks to Brexit-proof its future growth plans.

The UK-based peerto-peer property lender, which launched last year, hopes to have at least one deal in Germany by the third quarter of 2020. All overseas deals will be accessible by UK investors, allowing them to diversify their loan portfolios beyond the UK market.

“The German market is very similar to the UK in terms of the lack of funding that is available for

property development,” FutureBricks’ founder and managing director Arya Taware told Peer2Peer Finance News.

“We are filling a gap in the market there, just as we have been filling a gap in the UK market.

“Our goal has always focused on becoming

a global company. We believe in diversification for the business, and global expansion is just one part of it.”

FutureBricks has been working with Diaspora, a Berlin-based fund, which has provided equity funding for the platform’s German expansion.

“Diaspora is going to help us launch in Germany by opening up a network and keeping us in the know about the local market,” said Taware. “Berlin has such a flourishing tech scene so it would seem like a natural choice for property

platforms to expand in that portion of Europe.”

Over the next five years, Taware said that she wants to expand FutureBricks into the Netherlands and the Nordic countries, building “a quality loanbook” of more than £100m.

However, the European expansion “really depends on having access to that specific market and what their business plan is - and strategy,” she added. “There’s definitely a chance it can go either way, especially with Brexit looming, so we will see how that pans out.”

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08

NEWS

Rising interest in SIPP-eligible P2P investments EXCITEMENT is growing among the peerto-peer lending industry about the potential impact of Self-Invested Personal Pension (SIPP) wrappers on the sector.

Octopus Choice recently announced that its P2P loans are now accessible within a SIPP, in response to demand from investors and advisers.

Octopus Investments – the investment arm of the Octopus Group – has partnered with specialist pension providers Hartley Pensions and Morgan Lloyd to make its sister company Octopus Choice’s investments available within the taxefficient wrapper.

“For SIPPs to have a big impact on the P2P market, we need the bigger providers to offer it,” Charlie Taylor, head

of Octopus Choice, told Peer2Peer Finance News via email.

“First, they need to see that it’s a viable option for them, and there will be nothing better than the success of innovative first movers such as Morgan Lloyd and Hartley Pensions. Once suitable P2P models are established in the market, and based on the level of interest we get from advisers at Octopus, I think we could easily see a significant growth in demand.”

Taylor added that a lot of financial advisers

view SIPPs as “a crucial option for them to help in their clients’ retirement planning” and said that P2P property loans could help them diversify their clients’ SIPP portfolios.

Meanwhile, a survey of 1,000 investors conducted

by Blend Network found that 25 per cent of respondents were already invested or interested in investing in P2P loans through a SIPP. Yann Murciano, chief executive of Blend Network, said he thought SIPPS could be “a game changer” as they would

bring a lot of money to the P2P sector.

However, Jake Wombwell-Povey, founder of direct lending technology provider and investment manager Goji, was a little more conservative in his predictions.

“The SIPP market is promising but will be more difficult than P2P platforms expect,” he said.

“We will absolutely see some money coming in but expectations need to be measured.”

One issue surrounding SIPP administration is fees, Wombwell-Povey explained, meaning that investors need a sizeable pot to make a SIPP worthwhile.

Goji has its own SIPP and tries to lower costs as much as possible, he added.

Zopa Bank acquires brand and tech assets as part of corporate restructure ZOPA Group has undergone a restructure, giving the new banking arm oversight of the brand, technology and staff.

The latest annual report from Zopa’s peer-to-peer lending division revealed that it sold the Zopa brand and technology assets to Zopa Bank for £3.8m last year and that it expects to transfer “the significant majority” of remaining staff and

technology assets to the bank business in 2019.

It will then receive these services from Zopa Bank as part of an intra-group outsourcing agreement.

An industry analyst said that this restructure was likely for tax or regulatory reasons.

“In 2018, we changed our corporate structure in line with launching the bank,” a Zopa spokesperson told

Peer2Peer Finance News via email.

“Zopa’s bank entity will operate all processes relating to the products that the bank plans to offer, therefore all assets and people that will support these products are also moving to sit under this entity.”

Zopa announced in 2016 that it was launching a digital bank, which would run alongside

its P2P business. It was granted a provisional banking licence last December.

Zopa Group said in its latest annual report that its key priorities for 2019 would be the continued development of its bank and the completion of the capital raise required to enable the regulators to lift the remaining restrictions on its banking licence.

JOINT VENTURE

09

The property experts

Andrew Mitchell, group investment director for the Godwin Group, introduces Godwin Finance

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HE GODWIN GROUP needs no introduction. The property development firm was founded back in 2003, and since then it has expanded into property finance through its new investment platform, Godwin Finance.

Godwin Finance, the group’s investment arm, boasts an enviable staff of venture capital specialists, bankers, property experts and accountants, which fits with its objective to source and fund property development projects across the UK. “Often in the property developer world, property developers tend to specialise and that can be quite risky because they specialise in a particular sub-sector of property market, whereas we work across a whole range,” says Andrew Mitchell, group investment director for the Godwin Group. “The Godwin Group has developed houses for housing associations and large apartment blocks, as well as commercial properties for the likes of Aldi, Lidl and McDonalds, which gives us quite a nice spread of different property subsectors which is important for mitigating risk.”

Godwin Finance seeks to mitigate risk even further by sticking rigidly to a few strict rules. Before any project is undertaken, the firm will have an end user agreement in place.

The recently-launched platform already offers two Innovative Finance ISA products – both over three-year terms and invested into a broad spread of development sites.

“We wanted to provide a choice for investors dependent on what level of risk they want to take,” explains Mitchell. “Our platform is open to the retail market as a whole, although we do tend to attract high-net-worth investors and sophisticated investors.”

This early focus on the background of the management team helped Godwin Finance to secure its Financial Conduct Authority (FCA) approval as an appointed representative under principal firm ShareIn within months. The team and strong compliance support from its principal firm places the company in a great position ahead of imminent changes expected to the industry.

“We like the idea of educating investors on the risks and benefits of investing, because we are very open with our experience and want our investors to be quite cautious about how to invest,” says Mitchell.

As Godwin Finance prepares to make its mark in the alternative lending community, Godwin has some big plans for the future.

The platform will soon start investing in projects which have been brought to it by third-party property developers, as a way of addressing the “significant” shortage of funding out there.

“Our property board is quite extensive with every project going through a rigorous selection process, and if the board don't think it's a good investment we won't be investing,” says Mitchell.

With this expertise at its fingertips and the reputation of the Godwin brand behind it, Godwin Finance is the investment platform newcomer that is here to stay.

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POWER 50

The Peer2Peer Finance News

Power 50 2019

Words by Marc Shoffman

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HE 2019 PEER2PEER Finance News Power 50 highlights the exceptional achievements of the talented individuals spearheading the growth of this thriving multibillion-pound industry.

We have consulted industry stakeholders to help us compile the P2P Power 50, which identifies the big names from the largest and fastest growing platforms but also officials from government, regulators, consultancies and law firms, without whom there would be no rules, innovation or product.

We give particular mention to the top 10 most influential individuals we believe have had the biggest impact on the industry and who will be the biggest drivers in its future.

The 2019 list includes a

big shake-up of the top 10, underlining the flurry of new talent coming into the industry, including a number of women entering more senior positions.

Funding Circle UK managing director Lisa Jacobs and Zopa P2P chief executive Natasha Wear are both new entrants to the list, going straight into the top 10 due to their hugely influential roles at these industry giants.

RateSetter’s chief investments officer Mario Lupori and Octopus Choice head Charlie Taylor are also new entrants in the top 10 as innovation and influence at these platforms grows.

Outside of the top 10, other new entrants include former City minister Lord Myners, who has spent much of this year holding

the Financial Conduct Authority to account for its regulation of collapsed P2P lenders Collateral and Lendy.

Meanwhile, some of last year’s ‘rising stars’ have really sparkled over the past year and been promoted to the full Power 50 list, including Frazer Fearnhead of The House Crowd and Yann Murciano of Blend Network.

Outside of the Power 50 list of individuals, we also note firms of influence, which include the government bodies, trade associations, law firms and academic institutions all supporting the industry’s growth.

There are no rankings, aside from the special mention given to the top 10, so the list is compiled in alphabetical order.

POWER 50

TOP 10

Andrew Bailey, chief executive, Financial Conduct Authority It is under Andrew Bailey’s watch that the regulator will oversee the introduction of marketing restrictions and appropriateness tests, in a year where the chief executive has taken the brunt of criticism for a lack of oversight regarding the regulation of collapsed P2P lenders Collateral and Lendy. Bailey will be keen to avoid more embarrassing questions about regulatory mishaps and missed opportunities. A tougher approach has already been signalled by a ‘Dear CEO’ letter highlighting weaknesses in transparency among some lenders.

TOP 10

Christine Farnish, chair & non-executive director, Zopa Farnish has been synonymous with the P2P sector from its relatively humble beginnings in 2012, having held the role of chair of the Peerto-Peer Finance Association for six years before stepping down in 2018. She is now using her knowledge and experience to lead Zopa’s P2Pdedicated board. Previous roles include chief executive of the National Association of Pension Funds, group managing director of public policy at Barclays and consumer affairs director at the City watchdog.

TOP 10

Samir Desai, co-founder & chief executive, Funding Circle Samir Desai has helped establish Funding Circle as the UK’s largest P2P lender, with a loanbook worth more than £5bn, and a key player in the US and Europe. Where founders at its closest P2P rival Zopa have stepped back, Desai – awarded a CBE in 2015 – remains at the forefront. He has faced challenges in the first year as the chief executive of the only UK-listed P2P lending platform, but he remains a respected and influential figure in the world of P2P.

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TOP 10

Lisa Jacobs, UK managing director, Funding Circle Lisa Jacobs replaced Funding Circle co-founder James Meekings as UK managing director in August of this year. These may be big shoes to fill but Jacobs brings plenty of experience.

She joined Funding Circle in 2012 and was previously chief strategy officer, helping to develop new products and lead its entry into the US and Europe. She was also part of the core team behind Funding Circle’s admission to the London Stock Exchange in 2018. She was named on Innovate Finance’s 2018 Women in Fintech Powerlist.

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POWER 50

TOP 10

Stuart Law, co-founder & chief executive, Assetz Capital Stuart Law has helped transform a traditional property investment business into one of the largest players outside of the ‘big three’ of Funding Circle, Zopa and RateSetter. The platform’s loanbook has swelled to more than £800m in the past six years and Assetz Capital is regularly recognised as one of the fastestgrowing tech firms in the UK. Law remains ambitious and while committed to retail investors, the platform has this year launched its own institutional fund and received backing from high-profile firms such as German private bank Varengold.

TOP 10

Mario Lupori, chief investments officer, RateSetter A new entrant into the top 10, Lupori has become an influential voice in the sector, representing the P2P lending platform in the media, on panels and on lobby group committees such as the Tax Incentivised Savings Association. He oversees the investor side of the RateSetter platform, responsible for product, distribution, marketing and customer management and will be a key player as it looks to grow its £3.5bn loanbook. Lupori has more than a decade of experience working in financial services at NewDay and Barclaycard.

TOP 10

TOP 10

Rhydian Lewis, co-founder & chief executive, RateSetter

Gwyneth Nurse, director of financial services, Treasury

Rhydian Lewis set up RateSetter in 2010 with an innovative business model, enabling investors to set their own rates and pioneering the provision fund. This earned him an OBE for his contribution to financial services in 2017. It has been a year of change in 2019 for the ‘big three’ lender with a rebrand and a move to target rates but the accolades for the platform keep coming and it was given the Queen’s Award for Enterprise in recognition of its “excellence in innovation” in April.

Gwyneth Nurse is the P2P sector’s access point to government, helping guide Treasury policy as director of financial services. She has been ever-present since 2015 among the revolving ministerial doors at the Treasury, witnessing the launch of the Innovative Finance ISA and the expansion of the sector. She previously worked as deputy director of the Treasury’s banking and credit team, after heading up the assets, savings and wealth team. Before joining the Treasury, Nurse worked for HMRC.

POWER 50

TOP 10

Charlie Taylor, head, Octopus Choice Octopus Choice is one of the few P2P lenders that has managed to crack the financial adviser space. Leveraging the track record of its parent company and the attractions of propertybacked lending, Octopus Choice now has a substantial network of advisers recommending its products to investors. Experienced fintech consultant Charlie Taylor was appointed head of Octopus Choice in February and is continuing to spread the word. Most recently, the platform announced that its investments are SIPP eligible, in response to demand from advisers and investors.

TOP 10

Natasha Wear, chief executive, Zopa P2P Another new entrant to the powerlist and straight into the top 10, Wear was parachuted into the chief executive role for Zopa’s P2P business as part of the group’s restructure in February. She brings lots of experience to the role, having previously headed up the platform's investment products, where she oversaw the launch of its Innovative Finance ISA. Prior to the investment role, she was Zopa’s head of business operations. Wear worked as a consultant before joining Zopa and also had a brief period as a special adviser to the Duke of York.

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Giles Andrews Co-founder & board member, Zopa Andrews helped launch Zopa as the world’s first P2P lender in 2005 and has overseen its transformation into one of the largest and bestknown UK platforms. Andrews stepped back from the chief executive role in 2015 but remains on the board and his influence was cemented in 2016 with an OBE for his contribution to financial services.

Amany Attia Chief executive, ThinCats Attia is a new entrant to the powerlist having recently stepped into the shoes of departing chief executive John Mould. She will be tasked with growing its loanbook from its recent £500m milestone and brings experience as the former boss of mortgage lender and servicer The Northview group which manged more than £10bn of assets.

Brian Bartaby Founder & chief executive, Proplend Bartaby has built up his commercial property lending platform into a recognised P2P brand.

The platform has successfully combined auto and manual lending where others have struggled and has attracted high-profile hires this year including the appointment of former Morgan Stanley executive Matt Carson as its first chief operating officer.

Peter Behrens Co-founder & chief lending officer, RateSetter Behren’s role puts him at the forefront of dayto-day operations at RateSetter, which this year hit the £3.5bn lending milestone. He oversees the borrower side of the RateSetter platform, responsible for the all-important borrower origination and strategy. He is also a trained lawyer and worked as a banker at RBS. David Bradley-Ward Chief executive, Ablrate Ablrate started life financing leasing for aircraft transactions, but Bradley-Ward has turned it into a fully-regulated platform offering asset-backed business loans, eligible within its IFISA wrapper.

Meanwhile, his new blockchain-powered secondary market solution ASMX is rapidly being adopted by other platforms.

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POWER 50

Mike Bristow Co-founder & chief executive, CrowdProperty It has been a landmark year for CrowdProperty, rejigging its product range, raising £1.1m in a crowdfunding round and securing backing from institutional investors. The property development finance provider’s loanbook is rapidly approaching £50m and Bristow’s expertise and influence has been recognised with a role on the investment committee of proptech venture capital business Pi Labs.

regional office in Hatfield – it already has a hub in Birmingham – to serve the Hertfordshire and Bedfordshire region.

Neil Faulkner Co-founder & managing director, 4th Way Faulkner started the first analysis firm dedicated to P2P and its tables on rates and risk ratings, as well as his sometimes-controversial blogs and commentary, have played a key role in educating consumers and providing an independent perspective.

Greg Carter Founder & chief executive, Growth Street Carter has developed an innovative product with the GrowthLine credit facility, which works similarly to an overdraft, meaning that business customers can draw down funds and make repayments as often as they like, up to their limit. The platform’s model has been boosted by institutional funding this year, raising £17.5m from backers.

Jonathan Davidson Director of supervision – retail and authorisations, Financial Conduct Authority Davidson is responsible for ensuring authorised firms behave and there are already reports that the regulatory process is getting tougher in the wake of the collapse of Lendy. He will help oversee new rules on marketing restrictions, appropriateness tests and transparency requirements that are set to be introduced in December.

Bruce Davis Co-founder & managing director, Abundance Davis has shown it is possible to make a profit and contribute to society at the same time with the launch of ethical crowd bonds platform Abundance. The platform was one of the first IFISA providers and Davis is a respected lobbyist and representative of the sector, having also helped to launch Zopa and the UK Crowdfunding Association.

Angus Dent Co-founder & chief executive, ArchOver A former accountant, Dent has developed the unique ‘secured and insured’ and ‘secured and assigned’ business lending models on ArchOver. There has been plenty of expansion under Dent’s watch this year, as the London-based platform opened a second

Frazer Fearnhead Chief executive, The House Crowd Fearnhead started his career as a lawyer in the music industry and pioneered one of the first P2P property platforms when he launched The House Crowd in 2012.

He is perhaps best known for a tense pitch on Dragon’s Den that saw him get rejected after arguing with judges about the valuation. Fearnhead remains ambitious and has big plans for retail and institutional fundraisings as well as new products.

John Goodall Co-founder & chief executive, Landbay Goodall has helped grow the Landbay platform into a viable buy-to-let mortgage provider, recognised and respected among brokers and investors alike. It secured £1bn of institutional investment this year as it plans to become a grow its loanbook and move from a niche to a “meaningful buy-to-let lender.”

Julia Groves Partner & head of crowdfunding, Downing Groves previously set up British Airways’ online offering and she has propelled the industry forward by helping to set up the UK Crowdfunding Association and contributing to the development of the IFISA.

POWER 50

Imran Gulamhuseinwala Implementation trustee, Open Banking Awarded an OBE in 2017 for his contribution to the financial services sector, Gulamhuseinwala, a former partner for consultancy EY in the financial services team, is responsible for leading the Open Banking Implementation Entity. He has a mandate to ensure the UK's nine largest banks implement a standard Open Banking API to meet their obligations, which should benefit P2P lenders.

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Andrew Holgate Chief executive, Equitivo Advisory Holgate has extensive experience in the P2P lending industry, having co-founded Assetz Capital. He has now launched his own fintech consultancy to help other firms in the sector launch and expand their own propositions. Equitivo aims to fill a gap in the market by providing specialist advice for new and growing fintechs across strategy, operations and performance.

Chris Hancock Founder & chief executive, Crowd2Fund Hancock’s business lending platform was one of the very first IFISA providers and provides a unique platform for firms to raise funds and build a customer base. It gained Enterprise Investment Scheme approval this year, giving it additional investor appeal ahead of upcoming fundraising campaigns.

Nick Harding Founder & chief executive, Lending Works The former Royal Bank of Scotland banker set up Lending Works in 2012 and it has grown into one of the largest P2P consumer lenders. Recognised as one of the UK’s fastest growing tech companies by research firm Fast Track, the platform has been busy rebranding its product suite this year and is confident of reaching profitability.

Jaidev Janardana Group chief executive, Zopa Janardana has dropped from the top 10 to the top 40, reflecting his broader focus on the whole

RISING STARS We are also giving a special mention to the individuals that are rising through the ranks of the P2P sector. Some of these figures are already established in other industries, while others are growing innovative businesses that are set to have an even greater impact in the years to come.

Louis Alexander Managing director, BridgeCrowd Lee Birkett Founder & chief executive, JustUs Mansour Bouaziz Chief executive, Elfin Market John Butler Chief executive, Lend & Borrow Trust Ali Celiker Chief executive, British Pearl Cormac Leech Chief executive, Axia Funder

Daniel Rajkumar Chief executive, Rebuildingsociety Gillian Roche-Saunders Partner, Adempi Associates Louis Schwartz Chief executive, Loanpad Nadeem Siam Founder & chief executive, Fund Ourselves Daniel Smith Head of relationship management, Basset & Gold

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POWER 50

Zopa group rather than just the P2P lending side.

He brings valuable consumer credit experience, having previously led credit card provider Capital One into profit.

in London to be a successful P2P lender.

Edinburgh-based LendingCrowd was named best P2P business lender at this year’s Growth Finance Awards and has secured institutional funding from the Scottish Investment Bank (SIB) and Dutch entrepreneurial bank NIBC as well as innovative partnerships in the accountancy sector.

Michael Lynn Founder & chief executive, Relendex Chartered accountant Lynn has developed Relendex into a sizeable property lender. It has funded almost £40m of loans and has secured City funding lines, as well as a partnership with online property sales platform Yourkeys.

Filip Karadaghi Co-founder & chief executive, LandlordInvest Karadaghi’s buy-to-let and bridging loan platform LandlordInvest was one of the earliest IFISA providers. It offers some of the highest rates on property-backed P2P loans, with investors earning on average 11.06 per cent.

Narinder Khattoare Chief executive, Kuflink Khattoare has helped Kuflink transition from a bridging loan provider to a venerable P2P platform.

The lender, a sponsor of Ebbsfleet United Football Club, has expanded rapidly with a rebrand and secondary market launch this year. Its loanbook is worth more than £60m.

Andrew Lawson Chief product officer, Zopa Lawson may not be the most high-profile figure at Zopa, but he plays an important role in the day-to-day running of the consumer lender with responsibility for products, customer acquisition and experience, first-line credit risk, pricing yield and data science.

Stuart Lunn Founder & chief executive, LendingCrowd Lunn has proved that you don’t have to be

Yann Murciano Founder & chief executive, Blend Network Blend Network is relatively young in the sector, having only launched in 2017 with grand aims of becoming the “Goldman Sachs of P2P”. It has quickly proved popular under Murciano’s leadership, drawing on his experience as an executive director at Morgan Stanley to provide institutional grade property lending outside London.

Lord Myners Crossbench peer, House of Lords Myners was a City minister under the Gordon Brown Labour government but he hasn’t stopped worrying about financial services. He regularly uses parliamentary questions to hold the FCA and government to account over issues including the collapse of Lendy and Collateral.

Iain Niblock Co-founder & chief executive, Orca Orca was already a respected P2P analysis firm but it has now expanded into P2P investment management, led by Niblock. The platform launched its IFISA this year and Niblock has also become a regular and respected media commentator on the benefits of P2P lending.

Karteek Patel Co-founder & chief executive, Crowdstacker Crowdstacker was one of the first IFISA providers and has raised almost £60m for UK businesses since launching in 2015. Patel, a former fund

POWER 50

manager, has ambitious plans for his company’s growth and this year launched an auto-switching savings service that promised to end the “loyalty penalty” for savers stuck with paltry rates.

Sophie Pearce Managing director, MoneyThing Pearce has more than a decade of experience in marketing and business development, with an MBA from Ashridge Business School, which has helped her to grow MoneyThing into a popular P2P business lender offering some of the highest IFISA-eligible investor rates. She has spent much of this year spearheading a shift in lending to lower risk businesses.

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on prime property, predominantly in London.

CapitalRise secured a £30m institutional funding line earlier this year, validating the business model and strategy. It also raised more than £2m in a crowdfunding round.

Peter Renton Co-founder & chairman, LendIt Fintech A renowned author and expert on P2P, Peter Renton has established a global events brand with LendIt Fintech, regularly bringing alternative lending and fintech professionals together to network and showcase the sector’s talents.

FIRMS OF INFLUENCE It’s not just peer-to-peer lending professionals that are influencing the sector. There are government bodies, trade associations, law firms and research organisations that are also playing an important role in the industry’s growth.

State-backed bodies and trade associations:

• Duff & Phelps

• Fintech Scotland

• Fintech Compliance

• Innovate Finance

Uma Rajah Co-founder & chief executive, CapitalRise Rajah has used her fintech expertise to help develop a popular investment platform focused

• DAC Beachcroft

• British Business Bank • Federation of Small Businessses

Atuksha Poonwassie Managing director, Simple Crowdfunding Poonwassie has a busy to-do list, heading up property investment platform Simple Crowdfunding while also holding the role of director of the UK Crowdfunding Association, where she regularly engages with policymakers and government.

• Bovill

• National Association of Commercial Finance Brokers

• Goodbody • Hogan Lovells • Legal Alternative • Pinsent Masons • Quantuma • RSM

• Peer-to-Peer Finance Association

• ShareIn

• Tax Incentivised

• TLT Solicitors

Savings Association

• Simmons & Simmons • Thistle Initiatives

• UK Finance

Research:

Professional

• Cambridge Centre for

services: • BDO

Alternative Finance • Intelligent Partnership

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POWER 50

Jonathan Segal Partner & head of fintech and alternative finance, Fox Williams A regular on the alternative finance conference circuit, Segal is recognised as a commentator as well as a respected lawyer advising firms across the sector.

Paul Smee Chair, Peer-to-Peer Finance Association The chair of the sector’s self-regulated trade body brings a CV full of key contacts and experience that could help members – and the wider industry – flourish. Prior to joining the P2PFA, he has held the director general role at the Council of Mortgage Lenders and the Association of Independent Financial Advisers, and he has said wooing advisers is a priority.

Andy Whelan Co-founder & chief executive, Sancus Group Whelan has helped turn around the fortunes of the once-struggling Sancus brand, the alternative finance group owned by Aim-listed GLI Finance. Its loanbook, which includes P2P and other forms of lending, has surpassed £1.1bn and while its supply finance platform closed this year, it has expanded into bridging and development finance.

Jake Wombwell-Povey Founder & chief commercial officer, Goji Wombwell-Povey is a well-known and respected figure in the P2P industry. As well as providing IFISA administration services, Goji has its own investment management platform, offering IFISA- and SIPPeligible bonds. Wombwell-Povey is also influential with lobby groups such as the Tax Incentivised Savings Association.

Anil Stocker Co-founder and chief executive of MarketInvoice Stocker has dropped from the top 10, reflecting MarketInvoice’s increasing partnerships with institutional investors and departure from the P2PFA. The platform boasts Barclays as a strategic partner and also has backing from the British Business Bank, Portuguese bank Banco BNI Europa and Germany’s Varengold Bank.

Roy Warren Managing director, Folk2Folk The former head of risk for the platform replaced Giles Cross as managing director earlier this year. It has been a landmark year for the rural-focused platform which saw its loanbook surpass £300m and overhauled its product range, offering increased investor rates and scrapping its IFISA fee.

Graham Wellesley Co-founder & chief executive, Wellesley Wellesley has developed his eponymous property platform into one of the bestknown brands in the sector since launching in 2013. The alternative property lender has now diversified into listed bonds and wound down its P2P business but his experience means he can still provide valuable insight.

Chris Woolard Executive director of strategy & competition, Financial Conduct Authority Woolard is another important official at the City regulator for the P2P industry. He has been influential in the creation of the new rules for the sector, after a lengthy post-implementation review.

JOINT VENTURE

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What is acceptance testing?

What is user acceptance testing and how is it relevant to P2P? Kelsey Farish, a solicitor at DAC Beachcroft, explains…

F

INTECH COMPANIES are no strangers to technological innovation, but when they are creating technological solutions for retail investors, another skill is required – the ability to make their technology as user-friendly as possible.

This is where user acceptance testing (UAT) comes in. It is effectively a ‘try before you buy’ policy where a new piece of technology or software is used by the end client during the final phase of development, before the application or system is moved into the final market or production environment. Once the UAT phase is complete, the end user will either accept the system as delivered, accept the system subject to requested modifications, or reject the system entirely.

It is a way of ensuring that new technology is ready for general release, but there is still a lot of work to be done before it is fully understood and optimised, says Kelsey Farish, a solicitor in DAC Beachcroft’s fintech legal team.

“UAT is about making sure that

“ Practical flexibility needs to be balanced with legal certainty

”

all of the stakeholders have an appreciation for what's going on,” she says. “What you don't want is a situation where you're building a new payment services app with ten or fifteen coders working on it; but then when it reaches the customer they can’t understand how it works.”

This is particularly true in the world of peer-to-peer lending.

More and more P2P brands have begun integrating new software, adding extra features to their existing websites, and even launching their own platforms. In order to maintain their reputation for being user-friendly, UAT should be a priority.

“The democratisation of fintech is huge,” says Farish. “But there are

complex dynamics, particularly in highly regulated industries.

Practical flexibility needs to be balanced with legal certainty.”

While there is usually a good understanding of the inner workings of technology within the fintech industry, Farris has noticed some disconnects between the people actually using the system and the software versus the management.

“I have seen some people trying to work backwards – so they'll have the backend of the product make sense but in order to get to that actual page where they're trying to send customers, it might take a few extra clicks,” says Farish. “When all that’s actually required is an extra button option on the homepage.

“It helps if a final filter is applied before release, with the tech teams taking an objective view as possible and seeing the process through the lens of the end user.

“This could help spread the excitement that the technology creators feel about fintech, which has the power to give the customer fingertip control of their finances.”

In this sense, the end buyer is the ultimate product tester, as they can use the product as they would in their day-to-day jobs, and instantly feed back any usability issues. Legal accuracy is of course critical, and optimal success is always founded on collaboration between the coders and the end users.

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21

Staying safe online

Financial fraud is a very real concern for fintechs and online investors. Rick Duncan, head of marketing at Wellesley, explains how to avoid it

E

RADICATING ONLINE fraud has been a central focus for fintech companies for many years, and Wellesley is no exception. With the launch of its new investment platform and listed bond offerings, the former peer-to-peer lender is speaking out to educate retail investors on how they can manage their money online without becoming a target for fraudsters.

“People shouldn’t be frightened of fraudsters, but they need to be diligent,” says Rick Duncan, head of marketing at Wellesley. “When walking into your bank branch you can be confident that you are speaking to the right person but online you need to be more vigilant and spend a little more time.

“We do everything we possibly can to keep our customers and everyone who searches for us as safe as possible,” adds Duncan.

“At Wellesley, we understand that customers want reassurance and we believe in the education of our customers.”

Unfortunately, fraudsters are always finding new techniques to dupe people out of their money, and while Wellesley has its own fraud prevention measures in place, investors still need to exercise caution to avoid some of the most common online scams.

Email “It’s very easy to copy someone’s email address and to hide links within the message,” Duncan

website that has the company name, but ends in org.com, rather than .com. This is easy to miss unless you are looking carefully.

Duncan adds that users should always be cautious in disclosing bank details, and to never offer your password to any company or person, other than to log into an existing account.

warns. “If you have any doubt about a link in an email, hover over it to view the address.”

Duncan also warns that fraudsters will often create email addresses that are extremely similar to the real thing. “Always double-check the address that appears after the @ symbol,” he adds. “If it claims to be from a financial firm, check their website to find the standard format of their email address and compare it with what you have received.”

Websites When browsing the internet or visiting the website of a financial company for the first time, Duncan urges people to always look for the padlock symbol on their browser. If there is no padlock, then you should not continue.

He also advises users to look carefully at the web address, as some scammers use very similar URLs to trick people into thinking that they are visiting a reputable site. For instance, a fraudster could set up a

Online ads When you see a tempting advert about an investment opportunity, always do your research before clicking, Duncan says.

Check out the company’s website, reviews on Trustpilot and Companies House listings to ensure that it is genuine. Always check that the company is registered with the regulator by searching for them on the Financial Conduct Authority’s (FCA) website.

If you are buying an investment product, check that it is regulated by a recognised financial authority.

All listed bonds have a prospectus which can be read online as part of their stock exchange listing, and if you are searching for a P2P product, make sure it is being offered by an FCA-registered company.

“Generally speaking, if you are contacted about something that seems too good to be true, it probably is,” says Duncan.

“Remember, the higher the returns, the higher the risk. Fraud is still rare and if customers are diligent and take sufficient time, they should stay safe.”

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PROFILE

Property first

Proplend founder and chief executive Brian Bartaby talks to Andrew Saunders about the property market, ISA opportunities and his fears of “another Lendy”…

I

F PRESSED, MOST entrepreneurs will admit that starting up involves the painful discovery that they know less about what they are doing than they thought. By contrast, Brian Bartaby’s start-up experience was finding out that he knew more about the business than he realised when he set up commercial property lending platform Proplend.

“It wasn’t until I got into this that I realised I was already in the property finance industry, and that I understood it pretty well,” he says. “I am not on a crusade and I don’t think that what I am doing is an amazing new asset class – I am just repositioning something that is already well established in property finance.”

That “something” is commercial property loan syndication, and Proplend’s repositioning of it is all about bringing the benefits of structured finance to underserved groups of both borrowers and investors.

Loan syndication – where what the borrower sees as a single loan is actually parcelled up into multiple tranches and spread out across groups of investors – has been a well-understood part of risk management in property finance for many years, he says. “If you have a £1bn loan, you bring in one party for the senior debt, one for the junior and another for the mezzanine. Investors like it because

it provides stable income for their balance sheets with a high level of protection.”

So Proplend’s USP is that it apes that structure by splitting its loans into three tranches – A, B and C – each with progressively lower loan-to-value (LTV) ratios, lower risk – and lower returns to match.

“We’re one of the only platforms that have followed the institutional model – we split loans into three set-in-stone LTV tranches. Higher risk investors in tranche A, lower risk ones in tranche C. We do that to attract as many different types of investor as we can.”

Founded in 2013, Proplend specialises in sub £5m loans secured against commercial property, a market traditionally served by high street banks. The financial crisis and

its aftermath resulted in those banks exiting the market. “I was sitting at the coalface [in 2008] when the world came to an end, watching as the landscape suddenly changed,” Bartaby comments.

And while big investors scrambled to move their money into the relatively safe haven of large commercial real estate debt funds, the smaller end of the market was left high and dry. “The bit that nobody seemed to go towards was sub £5m commercial debt – that had been 95 per cent served by the high street banks. So I did some digging and discovered that around 25 per cent of all outstanding commercial real estate debt is sub £5m loans.”

His other inspiration was the technology used by pioneering P2P consumer lenders such as Zopa to bring debt investment to a much wider audience. “They were saying, ‘Put a few quid each into 100 loans on the platform and nothing will go wrong because you are diversified.’

But each loan was still unsecured – I thought you could put some property behind that and provide a better risk-adjusted rate of return.”

Fast forward to today, and Proplend has funded £78m of loans and paid £6.4m in interest – all with only one loan running into arrears, one default and no losses to investors. Growth is steady and sustainable, which is just how Bartaby likes it. “Over the past

PROFILE

couple of years we’ve been growing at around eight per cent per month compound, and there are still plenty of good opportunities out there,” he explains. “We have no head-on competition from platforms at the moment – competition from the borrower side come from the likes of Shawbrook and Aldermore.

Our headline rates are higher, we can transact quicker and give the borrower a better experience.”

Proplend lends against property assets via an opco/propco model – so if the asset is a hotel, for example, it must be held in a separate company (the propco) from the operating business that runs it (the opco). “We want to lend to the company that owns the asset, then if something goes wrong I am very clear about what I can get my hands on, and I don’t have to deal with staff or trading,” Bartaby says.

Many of Proplend’s borrowers are

“ We have no headon competition from platforms at the moment

”

refinancing existing loans – “there is £45m of outstanding commercial real estate debt in the market that has to be refinanced at some point,” he says – and changes in the oncepopular buy-to-let market have helped Proplend win new investors as well. “When we started out our biggest competitor on the investor side – for those who had say £50,000 to invest – was buy to let,” he says. “Quite a lot of people went down the route of buying cheap flats and leveraging them up on a buyto-let mortgage.”

But a combination of modest

23

returns and low capital growth, the effort of managing tenants and increasingly tighter regulation of buy-to-let lending has seen what he calls “buy-to-let refugees” choosing to fund debt on Proplend instead.

“They were getting a five per cent return on equity with a lot of hassle, but we can give them a five per cent return on debt, from their laptops,” says Bartaby.

“The bit we didn’t see coming was what the government has done with regulation around buy to let. We had no idea about that but it has played unbelievably into our hands.”

Helping both those “refugees” and regular punters make more tax-efficient investments, Proplend’s Innovative Finance ISA (IFISA) has been up and running since mid-2017. Bartaby says that while ISA season does produce a spike in spring, they see steady inflows throughout the

24

PROFILE

year, driven partly by customers transferring from other providers as promotional rates end. “We can always tell when a fixed-term deal is ending with another provider, as we get a wall of money coming in from them,” he reveals.

And although some commentators have expressed disappointment at the take-up of IFISAs more widely, he reckons that a gradual change is preferable to a sudden glut of funds. “The ISA could be incredibly scary – there is £270bn [in cash ISAs] earning one per cent and not covering inflation,” Bartaby states. “But if only two per cent of that were moved overnight into IFISAs, there isn’t enough lending across all the P2P platforms to absorb it. The moment that happened, credit underwriting would go out of the window, so I’d like to see a gradual chipping away rather than a wall of money that could overwhelm the platforms.”

He adds that some customers trying to transfer into Proplend from other IFISAs are experiencing delays due to that well-known P2P bugbear, patchy liquidity. “We have clients trying to transfer ISAs in from Funding Circle and they are having to wait a considerable time, because they have to sell the loans down first,” says Bartaby.

By contrast, Proplend’s secondary market “is ridiculously liquid,” he says. “The average time it takes us to sell a loan is 10 hours. We produce a good product and people like it, but it can work against us – we have had lenders who need money but who can’t sell on Funding Circle, cash out on our platform instead.

But they generally come back to us eventually once the Funding Circle loans have sold.”

Thanks to a relatively high minimum investment requirement

“ I think that the 10

per cent rule is slightly condescending to investors

”

of £1,000, Proplend investors tend to be older – average age is around 54 – and fairly well-heeled in comparison with many other P2P providers. “They are not all high net worth but we do have smaller number of investors with a high average investment,” he adds.

Consequently, he is not overly

concerned that the new investor marketing restrictions coming into effect next month will have a negative impact on Proplend but suggests they may present challenges for the wider P2P sector.

“I have no problem with the appropriateness test, but I do think that the 10 per cent rule is slightly condescending to investors and incredibly difficult for platforms,” he asserts. “Do you have to ask your investors what their net worth is? I don’t think the Financial Conduct Authority has thought it through.”

Proplend currently operates across England, from Newcastle to Dorset, the South East and across to Wales. His plans include building

PROFILE

“ Another platform

going down would have a bigger knock-on effect than the price of property falling

”

a larger network of business development teams in those regions, and ultimately north of the border too. “We want to do Scotland as well, but aside from the different legal documentation, I’d like boots on the ground,” Bartaby comments.

“We meet every borrower and visit every property – that’s important.”

What about the state of the commercial property market – how is Brexit impacting the sector?

“We’ve been late stage for a while – personally I think we’re already in a recession. A decision on Brexit is more important than the way that decision goes – there is a huge amount of overseas money sitting on the sidelines waiting for a

decision on Brexit.”

So even a “bad” Brexit could end up giving the market a boost, he says. “If sterling goes off a bit, that money will come shooting in, because what was costing them, say, a million might only cost £800,000.”

And while he has observed that some “amateur” investors in commercial property – highnet-worth people with a million or so to spend locally – have been frightened off by market conditions, many professional investors believe that now is the time to buy, but wisely. “One client has done over 200 commercial property transactions since the 2016 referendum – they are a long-term

25

professional property investor and they are buying now, because everyone else is sitting and waiting.”

What does worry him? “Another Lendy,” he says, referring of course to the P2P property platform which collapsed into administration in May. “Another platform going down would have a bigger knock-on effect than the price of property falling, because people are used to the ups and downs of the property cycle.”

Bartaby says that Proplend deliberately avoids Lendy-style residential development deals involving staged drawdowns, because they are fundamentally unsuited to P2P. “Drawdowns work if you are a balance sheet lender or a bank, but on a platform you have to fund the day-one sum and then fund each drawdown on the fly. If something goes wrong on the development and there is a delay, the investors get pissed off and they stop funding the drawdowns. Then everyone’s in trouble – it’s horrible.”

Despite these inherent risks, he notes that around 90 per cent of P2P property platforms are focused on the property development space.

“So when someone asks ‘How are you different from Lendy?’ they have to say it’s because they are better, which is a hard thing to justify,” Bartaby adds. “But we can say that we don’t do what Lendy did, and the reason why we don’t is exactly because of what happened to them.”

It’s another example, he says, of how in-depth industry knowledge sets Proplend apart from the crowd. “Not many of them have the property experience that we do – we’re property first, then tech.

We’re not just a bunch of techies who built a platform and decided to do property.”

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27

North of the border

Wrights Recoveries’ client services director Nick Horton and technology manager Chris Jenkins reveal how they cracked the Scottish market

W

RIGHTS RECOVERIES is not a company that does things on impulse.

When it decided to launch VT Validate, its innovative tech-based voluntary termination (VT) tool, it was in response to a clear customer need. Likewise, when Wrights Recoveries began to expand into Scotland, it was a move that was driven by client demand.

“When I would meet with clients face to face – particularly our larger clients – Scotland kept coming up,” says Nick Horton, client services director at Wrights Recoveries. “They told us that they were struggling to find a reliable recoveries service north of the border. So, we took this on board and went to look at Scotland as a separate entity.

“From an operational perspective, there is a large geography involved and when we looked at coverage in certain areas, our competition was often not there.

“Once we had looked at the market, we made the decision that there was sufficient work for us to further expand.”

That was at the beginning of 2016 – today, Wrights has two full-time agents based in Scotland, both of whom have been through Wrights’ rigorous training programme. Each of these agents is equipped with a specialised, modern recovery truck, which allows them to recover vehicles as quickly as possible, without having to

involve a third party.

To date, business has been booming north of the border, which is a testament to Wrights’ famously diligent approach.

“We didn’t exactly take a leap of faith, rather more of an educated guess that we could develop our business up there and offer a dedicated, professional and consistent service, and that’s what happened,” says Chris Jenkins, technology manager at Wrights Recoveries.

There is clearly a lot of business for recoveries agents in Scotland – this, Jenkins says, is due to the large number of lenders north of the border.

“There are a number of companies that lend in Scotland, or they’re nation-wide companies and Scotland is a part of their patch,” says Jenkins. “And then obviously vehicles move up to Scotland.

“The main problem that these lenders were finding was that the existing suppliers had minimal

coverage and the coverage that they did have was managed by sub-contractors or self-employed agents. We don’t use self-employed agents – we only have employed people that work for us.”

Wrights’ strategy has already paid off. In 2018, PSA Finance – Peugeot Citroen’s finance subsidiary – launched a “champion challenge” to discover the top repossession companies in the UK. Wrights Recoveries won by a mile, achieving a first phase recovery rate of 90 per cent over a four-month period. Wrights is now PSA Finance’s major asset recovery supplier.

“While Scotland remains to be an Achilles heel for a number of suppliers, it’s actually become one of our strength areas,” says Jenkins.

By maintaining a measured approach to its business and going where the demand is, Wrights is destined to go from strength to strength as a truly nation-wide recoveries business.

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There for the journey

Angus Dent, chief executive of ArchOver, explains how the platform is lending to the future

A

RCHOVER EXISTS TO be helpful, to provide debt funding to businesses in new and innovative ways.

In the five years we’ve been actively facilitating borrowing our relevance to borrowers, to UK businesses, has evolved as the help we provide has become more relevant. We’ve continued to steer away from providing me too services, instead providing true alternative finance for smalland medium-sized enterprises, funding the gaps left by the banks and other more mainstream funders and many other peerto-peer lenders. We continue searching for funding gaps and working on innovative ways to provide funding for companies suffering in those funding gaps.

We’ve always provided working capital for businesses; a fixed amount, for a fixed term, at a fixed rate of interest. Businesses thrive with certainty; certainty allows businesses to plan with confidence and helps them grow.

We view what we do as forming partnerships between our lenders and borrowers. Credit analysis sits at the core of what we do.

We’re happy to secure loans on alternative assets, but only when we understand those assets and

the business that owns them.

The assets that work for us are those that are designed to convert into cash. Hence, we like sales invoices, contracted recurring revenue, contracted work in progress and monies due from HRMC – particularly research & development tax credits and grants – and we fund against all of these assets. Because this is

“ We are more than a ‘dating agency’ matching lenders and borrowers”

business lending and because we take the time and trouble to understand the businesses we lend to, we don’t see the relevance of personal guarantees.

We believe that as a P2P lender we are more than a ‘dating agency’ matching lenders and borrowers.

We’ve always believed it was for us to monitor the loans made over our platform and to manage recovery of lenders’ money when this proves necessary. The future is uncertain and we’re always lending to the future – ArchOver is there for the journey.

ArchOver’s directors and senior employees all come from business, as opposed to banking. We are the guys that ran the companies that the banks wouldn’t fund. We understand that pain.

ArchOver is a member of the 300-year-old Hampden Group.

This is an established group with a business built on a longstanding exemplary reputation, with around £2bn of money under management in the Lloyd’s insurance market. Given this ownership it’s no surprise that we’ve never been placed under pressure to write suspect business to meet short-term revenue targets. P2P business lending, and lending generally, isn’t about the short term.

As you would expect, ArchOver is authorised and regulated by the Financial Conduct Authority.

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FUTURE OF P2P

Peering into the crystal ball

The peer-to-peer lending sector has evolved considerably in recent years, thanks to new platforms, new innovations and new regulations. What does the future hold for the industry and its customers? Emily Perryman reports

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HE PEER-TO-PEER lending industry has gone from strength to strength since the sector’s first platform, Zopa, launched back in 2005. The past decade-and-a-half has seen a multitude of platforms come into existence, the creation of the Innovative Finance ISA (IFISA) and the UK’s first P2P listing on the London Stock Exchange.

The next decade looks set to bring a whole host of fresh opportunities and challenges for the sector. It is widely expected that another recession is just around the corner, which could see more consumers and businesses turning to the P2P industry for finance. P2P lending surged in popularity during the last recession as traditional bank lending was severely curtailed and

interest rates were slashed.

“There is bound to be a recession fairly soon – not necessarily because of the UK or Brexit specifically, but because the global economy is turning down and there are big challenges ahead,” says Stuart Law, chief executive of secured business and property lender Assetz Capital.

“When the next recession comes, interest rates will drop again to

FUTURE OF P2P

near zero or even go negative and, regardless of the Countercyclical Capital Buffer (CCyB) that banks have been building up, I don’t believe they will lend more than they did in the last recession. The CCyB might help banks lend to very big corporates and microbusinesses, but the mass of smalland medium-sized enterprises will see a complete drying up of bank lending like they did last time.”

Some experts don’t think the next downturn will have quite as big of an impact on the P2P sector as the recession of 2008-09 did. The last recession was accompanied by a huge credit crunch, resulting in a serious shortage of capital for potential borrowers. New lenders were able to step in and fill that gap through an innovative approach to technology and heightened demand from investors and borrowers.

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P2P has the potential to provide liquidity to underserved markets again

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“This time round we have had platform failures and we have larger platforms with live loanbooks.

When the recession hits we will see if the lending they have done is robust enough to still generate a positive net yield,” says Andrew Holgate, chief executive of fintech consultancy Equitivo. “P2P has the potential to provide liquidity to underserved markets again, but only if the platforms remain robust through the cycle.”

Regardless of the extent to which P2P lending replaces traditional

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bank lending in the next recession, it’s likely platforms will increase rates and lend with a lower loan-to-value (LTV) to protect against the risk of security values dropping. When Assetz Capital first launched, it was offering loans with an LTV of 50 per cent and interest rates of around 15 per cent. “That was entirely acceptable to businesses who needed finance because they couldn’t get it anywhere else and it was necessary to protect lenders,” says Law. Another consequence of the next recession could be higher default rates, particularly as the P2P lending industry matures.

Brian Bartaby, founder and chief executive of P2P property lender Proplend, argues that we are already in a recessionary environment and, as a result, he expects to see an increase in

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FUTURE OF P2P

default rates from previous years’ originated loans.

However, he says good platforms should be able to determine where they are in the credit cycle for their specific asset class, and then tailor their credit decisions in order to mitigate defaults. How well platforms are able to do this could be an important factor in attracting new investors.

“The ability to continue to grow investor numbers is linked to the ability to originate creditworthy borrowers and this will vary across different P2P loan asset classes,” says Bartaby. “New investors will be drawn to platforms that have shown they are capable of monitoring where they are in the credit cycle and manage their credit policy appropriately. This should deliver consistent creditworthy borrowers within their loanbook.”

The pace of market growth is expected to be slower than in the past, simply because the industry is considerably larger than when it first started out. Neil Faulkner, founder of P2P ratings and research firm 4th Way, says the industry is more likely to be impacted by economic events and competition. “This means that in terms of ongoing growth we may start to see some interruptions along the way,” he warns.

IFISAs, on the other hand, account for less than 0.5 per cent of all ISA investments, which suggests there is still plenty of room for growth for the P2P industry’s taxfree wrapper.

“I think the market overall is still looking positive,” says Frank Brown, managing consultant at Bovill, a financial services regulatory consultancy. “We’re seeing new entrants into the market and platforms expanding their offerings

and propositions – for example with IFISAs, which as a very new side of the market offer plenty of opportunities.”

The biggest challenge facing the industry in the near term will be incorporating the Financial Conduct Authority’s (FCA) new P2P rules, which come into effect in December. Platforms' marketing will be restricted to high-net-worth and sophisticated investors, those who have received regulated advice and everyday investors who pledge not to channel more than 10 per cent of their portfolio into P2P loans. Platforms will also need to

“ We’re seeing new

entrants into the market and platforms expanding their offerings

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check investors’ knowledge and experience of the asset class, as well as comply with higher regulatory standards and new conduct of business rules.

It is thought the higher standards

FUTURE OF P2P

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Consolidation of the number of P2P platforms is inevitable

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will help to pull some platforms into line, ensuring they make their offering clearer to potential investors. Restricting how much can be invested in the first year will also give people time to get to grips with how P2P lending works before parting with larger sums of money.

“The huge downside is that it sends the wrong message about the industry,” says Faulkner. “Money lending, including P2P lending, contains lower intrinsic risks than share investing, on average. Many retail investors will incorrectly consider the restriction to be a warning that it is higher risk and

so I foresee a sharp drop in new investors at many platforms when the new rules come into force.

Some platforms will choose to offset this with greater focus on sales to institutions and through financial advisers.”

Many experts think the new rules will force some platforms to exit the market, particularly if higher compliance costs come alongside tougher economic conditions. Frank Wessely, partner at advisory firm Quantuma, says platforms on the whole have taken a long time to achieve profitability, which could be a deterrent to smaller firms.

“We’ll probably see more platforms interested in acquiring other platforms’ loanbooks and growing that way,” he suggests.

It’s possible the ‘big three’ – Zopa, RateSetter and Funding Circle – will increase their dominance of the sector as smaller, more niche players struggle to compete.

“Consolidation of the number of P2P platforms – and across fintech more generally – is inevitable,” a spokesperson for RateSetter says.

“In the P2P sector, just like any other, businesses that are not up to scratch simply do not continue for long, while those that are well-run with solid business models grow.

It’s a Darwinian process that will result in a stronger, better P2P sector. Our view is that tighter regulation, by design, will also hasten the exit of sub-standard platforms, ensuring that well-run

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platforms which put the customer at the heart of their model will endure and grow.”

Tougher competition could also fuel greater innovation in the industry, especially once platforms have finished embedding the new FCA regulations. Industry onlookers predict Open Banking will mature and that artificial intelligence will be increasingly used in credit decisions.

There could also be innovations that improve the way retail investors engage with the market.

“The ASMX platform [a new blockchain-backed secondary market for trading private debt] has the potential to revolutionise how retail investors engage with multiple platforms and provide market-wide liquidity,” says Holgate. “I also think the way in which retail investors are exposed to risk will change and there are some exciting ideas being discussed on this.”

Bartaby reckons the future will see more collaboration between “fin” and other forms of “tech”, such as property, insurance and regulatory tech. “There is a very interesting ecosystem of companies evolving that could enable P2P platforms to become more efficient and hopefully write better loans,” he says.

“They could be providing new data sets, helping to make the origination or underwriting of loans become more efficient, or providing data to assist with the monitoring of loans through the life of the loan. New proptech companies are springing up every month and we continue to monitor these to see if they can help us in any way.”

With new technology, regulations and a tougher economic environment on the horizon, the next decade could prove to be just as exciting as the last.

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DIRECTORY

INVESTMENT PLATFORMS

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Quantuma is an independent advisory firm serving the broad needs of mid-market and corporate companies and their stakeholders. It has deep experience in the P2P sector, principally in relation to mitigating risks associated with borrower distress and related areas of regulatory compliance. Quantuma works alongside a wide range of platforms. www.quantuma.com T: 07770 210628 E: frank.wessely@quantuma.com Simple Crowdfunding connects property professionals and the general public through property in the UK, providing access to all. Invest into peerto-peer, IFISA-eligible loans offering on average eight per cent per year, secured on property. Equity investments are also available, with projects ranging from basic planning gain opportunities to multi-unit new builds. www.SimpleCrowdfunding.co.uk T: 0800 612 6114 E: contact@simplecrowdfunding.co.uk ThinCats is dedicated to funding growing and ambitious UK SMEs across all industry sectors using pioneering data, personal relationships and a pragmatic lending process. It aims to simplify the traditional bank-dominated commercial lending model by connecting SMEs directly with institutional and retail investors providing them with attractive potential returns. www.thincats.com T: 01530 444 040 E: admin@thincats.com Wellesley is an established property investment platform that issues bond investments to the UK retail market. Its core objective is to provide investors with higher rates of return than can be accessed through traditional investment routes, whilst simultaneously providing financing to experienced commercial borrowers within the UK residential property market. www.wellesley.co.uk T: 0800 888 6001 E: info@wellesley.co.uk SERVICE PROVIDERS

Fintech and associated specialisms – banktech, insurtech and regtech – are focus areas within international law firm DAC Beachcroft’s expert technology team. DAC Beachcroft has a proven track record in advising financial services businesses and peer-to-peer finance platforms on technology, data, regulation and corporate matters. www.dacbeachcroft.com T: 020 7894 6978 E: p2pfinance@dacbeachcroft.com Fox Williams is a City law firm with a specialist fintech legal team. Fox Williams delivers commercially-focused and up-to-date fintech, legal and regulatory advice on various business models. A key focus area is P2P lending and it acts for several of the largest P2P lending platforms. www.foxwilliams.com T: 020 7628 2000 E: jsegal@foxwilliams.com

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