Peer2Peer Finance News November 2018 by Alternative Credit Investor

ISSUE 26 | NOVEMBER 2018

The P2P Power 50 2018

The most influential people in the UKâ&#x20AC;&#x2122;s peer-to-peer lending sector

RISING STAR

THE

FIRM OF INFLUENCE P2P Power 50

P2P Power 50

2018

most influential people in P2P 2018

2018

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 Reporter emily@p2pfinancenews.co.uk Danielle Levy Reporter PRODUCTION Tim Parker Art Director COMMERCIAL Ashleigh Sadler Director of Sales and Marketing ashleigh@p2pfinancenews.co.uk Amy St Louis Sales and Marketing Consultant amy@p2pfinancenews.co.uk Tehmeena Khan Sales and Marketing Support tehmeena@p2pfinancenews.co.uk SUBSCRIPTIONS AND DISTRIBUTION info@p2pfinancenews.co.uk

’m delighted to unveil our second annual P2P Power 50 list in this issue. It doesn’t quite feel like over a year ago that we first put our heads together and consulted industry stakeholders to compile the inaugural list of the most influential people in P2P. The P2P Power 50 recognises some of the most forward-thinking, innovative and talented individuals who have shaped the industry into what it is today. Of course, this is just the tip of the iceberg; there are many unsung heroes working at platforms and service providers who are also contributing to the sector’s success. While the Power 50 looks at the most influential people in the industry, I think it is important to give a special mention to all the borrowers and investors playing an essential role in the P2P ecosystem. They might not be on any Power 50 lists, but their continued support validates what P2P platforms are setting out to do – improving financial inclusion while providing attractive returns for investors – and deserve to be recognised for that. The Power 50 2018 includes some promotions, some new entrants and some departures from last year’s list, reflecting the evolution of this fast-moving industry. To those of you included in the Power 50, congratulations and thank you for the difference you’ve made over the past year! SUZIE NEUWIRTH EDITOR-IN-CHIEF

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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JOINT VENTURE

Reducing risk

Peer-to-peer lending is not just for adventurous investors, as Loanpad founder and chief executive Louis Schwartz explains

LTERNATIVE finance is – by its very nature – outside of the mainstream. It is a form of lending that comes with a different type of risk and as such it often attracts a different type of investor. But Louis Schwartz, founder and chief executive of peer-to-peer lending platform Loanpad, is on a mission to try to reduce risk to a point where even the more conservative investors are catered for. “Of course, savings and investments are different and shouldn't be compared,” says Schwartz. “So, whilst we don't want to compare our product to savings, we are trying to be the closest thing to a savings product in the alternative space.” Loanpad is doing this by taking an unusual approach to account management and credit risk – an approach that has been two years in the making.

“ We’re very clearly

aimed at the lower end of the risk scale

”

The platform offers two accounts, where users can view a clear transaction history at the touch of a button. Interest is paid daily, and it can be reinvested or withdrawn at any point so that investors can benefit from compound interest as well as a high level of liquidity.

But Loanpad’s real USP is its attitude towards investor risk. In the case of a default, the platform’s structure enables it to shield investors from at least the first 25 per cent of any shortfalls and often 50 per cent or more. “We’ve created a senior structure whereby our investors are only exposed to a certain level of the security, as we have an experienced balance sheet lender retaining a large amount - generally 25 per cent to 50 per cent - on a first-loss basis,” says Schwartz. “There is no one else in the P2P sector creating a structure with this much ‘skin in the game’. Obviously, many companies have provision funds but they generally

represent a very small percentage of the overall loanbook - maybe one or two per cent. “We are enabling investment into loans where there’s at least 25 per cent ‘skin in the game’ from an experienced balance sheet lender.” By prioritising investor security, Schwartz concedes that Loanpad is not going to be the platform that offers the highest rates, but this was never his end goal. “We’re very clearly aimed at the lower end of the risk scale, offering unparalleled security for our investors,” he says. “We aim to be the lowest-risk P2P platform bar none. And we can’t wait to bring a fresh new approach to alternative lending.”

NEWS

RateSetter names first chief investment officer RATESETTER has named Mario Lupori (pictured) as its first chief investment officer, effective from the start of November. Lupori held the position of chief product officer at the peer-topeer lending platform before moving into the newly-created role. He previously worked at credit card specialists New Day and Barclaycard before joining RateSetter as marketing director in 2015. “RateSetter was created to provide access

to this asset class for ordinary investors and it’s important that there is someone whose role is solely to focus on that,”

Lupori told Peer2Peer Finance News. “I want to see it become a household name for investors.”

Lupori said that his key focus will be on continuing to improve the product for customers and on growing RateSetter’s customer base. “I want an active and engaged customer base who are advocates and happy with the service they are getting from us,” he added. “It's a refocusing of my role - before it was more broadly focused, now it is going to be laser focused.” Read the full interview with Lupori on page 26.

Orca targets adviser market in growth push ORCA is targeting independent financial advisers (IFAs) to drive its next stage of growth. The peer-to-peer analysis and investment firm is currently in advanced discussions with several authorised advice firms to offer its model portfolio solution to their clients. Although advisers have traditionally been reticent to recommend P2P, Orca’s co-founder Jordan Stodart believes that P2P can bridge the intermediary market by offering financial advisers “simple, efficient solutions that spread investors’ risk as

broadly as possible”. “At the moment the ‘model portfolio’ is what the IFAs are looking for,” he added. “They want diversification and don’t want to have to drill down into the asset class because comparing different providers is tough. “We remove that hassle and we also provide an aggregated investment solution, so they don’t have to manage individual accounts with P2P providers.” Building relationships with advisers forms part of Orca’s broader growth plan, which accompanied

its recent crowdfunding campaign with Seedrs. The campaign surpassed its £500,000 target after being opened up to the public. Other plans include the expansion of Orca’s research service to cover other alternative lenders, including crowd bond providers, and the integration of more lenders into its investment offering. Stodart said Orca is also considering an EU expansion and the possibility of launching an Innovative Finance ISA (IFISA). “We are very conscious that the ISA could bring

a whole wave of investors who have not had exposure to P2P before, but it has not happened yet,” Stodart said. “What we have found is existing P2P investors are transferring their general investment account into the ISA. “As there is the one IFISA per year rule, it will take a couple of years for experienced P2P investors to build up their IFISA portfolio with different platforms. Our ambition is to have multiple platforms in a single portfolio and to wrap that into an ISA, so they are getting their ISA money spread across different providers.”

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NEWS

Funding Circle IPO will set the tone for future P2P market valuations FUNDING Circle’s stock market debut is predicted to influence the pricing of future peer-to-peer initial public offerings (IPOs). The P2P business lender floated on the main market of the London Stock Exchange on 3 October after closing its £300m IPO at the end of September and entering conditional dealing at 440p per share with a valuation of £1.5bn. But its share price fell to as low as 334p on its first day before rallying closer 385p later in the afternoon and closing at 355p. Other recent IPOs, such as Aston Martin, have had

a similarly shaky start, with analysts suggesting that macro-economic concerns and Brexit jitters have made investors cautious. Funding Circle’s price has slowly climbed during October, but Helal Miah, research analyst for The Share Centre said pricing is key to a successful first day of trading. “Funding Circle was slightly high on the valuation side,” Miah said. “Zopa and RateSetter should be paying attention to this. “If they are planning on listing, they will want their share price to rise on the

first day rather than fall. “If they can have a competitive price then it gives much more confidence in the company.” Fellow ‘big three’ P2P lenders Zopa and RateSetter have both

previously signalled their intentions to go public. Zopa raised £44m in a private fundraising round in August ahead of a rumoured flotation plan, while it was reported in June that RateSetter was in talks about a £30m fundraise ahead of a stock market listing. Last month, Finnish P2P lender Fellow Finance made its stock market debut on the Nasdaq First North Finland marketplace at €7.90 (£6.95) per share, falling to €7.45 during its first day of trading but going above €8 per share later in the month.

Payday lenders could use Open Banking to allay watchdog’s concerns OPEN Banking could help assuage the regulator’s concerns about short-term lenders’ credit assessments, a peer-to-peer finance executive has claimed. Amer Bhatti, chief compliance officer of P2P payday lender Welendus, thinks that the new datasharing initiative could help address the issues outlined in the Financial Conduct Authority’s (FCA’s) ‘Dear CEO’ letter to high-cost short-term credit providers. The City regulator urged this group of lenders – which includes some P2P firms – to check their creditworthiness

assessments, particularly for repeat borrowers, and to assess whether customers are being treated fairly. It also warned that firms must be able to fund any remediation costs from complaints and should inform the FCA if they are unable to fulfil this obligation. Bhatti said Open Banking could help by giving lenders access to objective data in relation to customer spending habits and income. “The pace at which the sector is changing has allowed the status quo to be challenged and has created exciting

opportunities leading to better outcomes for consumers,” Bhatti said. “We are proud at Welendus to have deployed the most advanced technologies which have enabled us to provide a great customer journey and most importantly provide a market-leading product that significantly adds value for the user.” The Open Banking initiative , which mirrors the EU’s Payment Services Directive II, mandates high street banks to share anonymised customer data with approved third parties. The FCA’s letter follows

the collapse of payday lending giant Wonga in August amid a surge of compensation claims. “The fallout of Wonga has reinforced the notion that it is vital for a financial services firm to place the consumer at the heart of their business,” Bhatti added. “Nothing less should be expected as we enter a new age of lending.” Welendus, which offers investors returns ranging between five and 15 per cent to fund short-term consumer loans, raised £993,104 in an oversubscribed crowdfunding campaign in August.

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JOINT VENTURE

A more efficient way

Yann Murciano, chief executive of Blend Network, explains how a passion for efficiency led him to the world of peer-to-peer lending

HERE are a lot of reasons to get involved with the world of peerto-peer finance: the higher interest rates; the innovative technology; the opportunity to help businesses and households. But for Yann Murciano, chief executive of Blend Network, the number one reason was a desire to drive efficiency in the property lending sector. “As an investor, when I looked at the property market I thought something wasn’t right,” he explains. “A lot of people were struggling to access money, and on the other hand a lot of people with cash were looking for yield. There was a clear need for a solution that would make the market more efficient.” The result was Blend Network, a P2P property-secured lending platform that has already exceeded Murciano’s own expectations, less

“ There was a clear need for a solution

”

than a year after its official launch. Murciano says his goal was to exceed £5m in loans within the platform’s first year in business, and just 10 months in, the company is already set to surpass that figure. Since Blend Network arrived on the scene in January 2018, it has won over a multitude of investors, and was recently selected as one of

the UK’s top 10 fintech companies by the Mayor of London’s TechInvest fintech showcase. The platform has not had a single default to date, and lenders have been rewarded with a minimum of 10 per cent in interest (and as much as 15 per cent in some cases). Furthermore, by targeting lower-value properties outside of London, Blend Network has been able to help first- and second-time buyers to find a new home despite a national shortage of affordable housing. “The problem is that once you go outside the main cities like London and Manchester, there are far fewer lenders, if any,” says Murciano. “I wondered why. I looked into it and I don’t think that those markets are any riskier, it’s just that there’s no need to build 200 properties in a small village with a population of 20,000. However, there is a need to build five new houses and 12 apartments. “Most funders have a big amount

of capital – they’re not interested in funding loans for £250,000 or a couple of million only. They won’t get out of bed for less than £10m. “So the only solution that’s worth looking at is alternative lenders like P2P because these investments are more flexible.” Blend Network specialises in properties at the lower end of the pricing scale. Murciano himself invests in every loan listed on the platform, but not until the company’s underwriters have visited the sites and performed an enhanced due diligence process. Blend Network’s developers are “high quality guys,” says Murciano, who just so happen to be in an under-serviced part of the market. “In P2P one can find loans that are offering lower returns with little or no security,” he adds. “We don’t believe the interest rate is a good representation of the risk in P2P. We are focused on getting great risk/reward loans.” Murciano knows that the P2P market in the UK is competitive but also recognises that each platform offers a different product. As a former senior investment banker, he is more than able to select great investments. “I welcome the competition,” he says. As the UK’s P2P property market heats up, Murciano is confident that his commitment to market efficiency will not only benefit Blend Network, but the entire property investment sector at large.

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JOINT VENTURE

Countdown to Brexit

Brexit uncertainty might be troubling the markets, but Wellesley’s head of lending John Davies is still feeling confident

EAL or no deal, Brexit will soon be upon us, wreaking havoc on everything from property prices to interest rates. Luckily, property lender Wellesley has been preparing for the worstcase scenario, even before the referendum was announced. In 2015, Wellesley shifted its focus away from prime London properties and towards affordable housing – that is, homes which have been valued at £300,000 or less. “We were probably a bit ahead of the crowd in that sense,” says Wellesley’s head of lending John Davies. “We were lucky because we didn’t know which way the vote was going to go, but we’d already started diversifying our properties into the regions and away from the high-value

“ We were probably a bit ahead of the crowd

”

properties of central London. “It was a purely commercial decision, as we felt that the market was getting a bit overheated, and sales of those £1m+ properties were slowing down. We didn’t pull out of the market entirely, but we started looking outside of London to areas such as

Manchester, Birmingham, Bristol and Gloucester.” Two years ago, the average unit value of a Wellesley property was around £1m, but today the average value is less than £300,000. Furthermore, the company takes a conservative approach to its loan-to-value (LTV) ratios, which means that the value of the UK’s property market would have to fall to a historic low before investors’ money is at risk. Earlier this year, Bank of England Governor Mark Carney predicted that UK property prices could plunge by as much as a third in the ‘worst case scenario’ Brexit outcome. Davies agrees that the

economic impact of a bad deal – or no deal – could be severe. “If there were to be a severe recession, that would obviously impact on the availability of affordable housing, increased debt, potential inflation because of a devaluation of the pound, and of course higher interest rates,” says Davies. “But in my view a lot of this has been priced in by the markets already. We’ve already seen the heat from inflation and the pound has lost around 20 per cent of its value since the EU referendum.” As a result, Davies says, he expects to see a “minor adjustment” to the UK’s property market, rather than a full-scale catastrophe. But even in the event of a worst-case scenario, Wellesley is prepared. The platform has a history of attracting sophisticated investors who are familiar with the risks inherent in the UK property market, and they trust Wellesley to work with experienced borrowers on highly vetted property developments. This puts Wellesley in the enviable position of being ready for Brexit, whatever that may be. “We are aware of Brexit but we are not particularly concerned about Brexit for our own chosen sector of the market,” says Davies. “The demand is there and is probably not going to go away because of Brexit.”

POWER 50

The Peer2Peer Finance News

Power 50 2018

Words by Marc Shoffman

he 2018 Peer2Peer Finance News Power 50 demonstrates just how much this multi-billionpound industry has achieved over the past year. Our definitive annual list of the 50 most influential people in the UK's P2P sector includes the head of the country's first publicly-listed P2P platform, the leaders of fullyregulated ISA providers and other inspiring innovators who are taking the industry to the next level. We have consulted industry stakeholders to help us compile the P2P Power 50, which identifies the big names from the platforms, government, regulators, accountants, law firms, trade bodies and consultants who have helped the sector flourish. 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. There are plenty of innovative players in this fast-moving industry who have not fully made their mark yet. As such, we have acknowledged the rising stars who are likely to take pride of place in the Power 50 in the coming years, as well as firms exerting a strong influence over the sector. The 2018 list includes some new entrants, underlining the wide array of talent that the industry is attracting. There are a number of promotions as well. The Financial Conduct Authority’s Chris Woolard made this year’s top 10, having played an important role in shaping P2P regulation, while EY’s Imran Gulamhuseinwala

has also grown in influence, due to his leadership of the Open Banking initiative. There are also completely new Power 50 entrants in the top 10, with the Peer-toPeer Finance Association’s new chair Paul Smee making his debut alongside the Treasury’s director of financial services Gwyneth Nurse. Several names that were rising stars last year are now in the Power 50 as their brands have become more established or their insights more sought after, such as Brian Bartaby of property lender Proplend, Iain Niblock of analysis firm Orca and Jonathan Segal of law firm Fox Williams. 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

Samir Desai, co-founder & chief executive, Funding Circle It is under Samir Desai’s leadership that Funding Circle became the first UK P2P platform to publicly list on the stock market this year with a £300m initial public offering (IPO) that valued the firm at £1.5bn. It marked a proud moment for Desai who has led the platform since launch in 2010. Awarded a CBE in 2015, he has helped establish Funding Circle as the UK’s biggest P2P business lender and a key player in the US and Europe.

Imran Gulamhuseinwala, global head of fintech, EY & implementation trustee, Open Banking Promoted into the top 10, there is very little that happens in the world of fintech without Imran Gulamhuseinwala. Awarded an OBE in 2017 for his contribution to the financial services sector, Gulamhuseinwala is a London-based partner for consultancy EY in the financial services team and leads its global fintech practice. He has been seconded to run the official Open Banking programme, to help ensure alternative lenders such as P2P platforms can access customer data from banks.

TOP

TOP Christine Farnish, chair, Zopa’s P2P board & non-executive director, Zopa Group board Farnish is synonymous with the P2P sector, having held the role of chair of the Peer-to-Peer Finance Association for six years. She is now using her knowledge and experience to lead Zopa’s P2P-dedicated board, after it reorganised its corporate governance into separate divisions for P2P and its imminent bank. Consumer-focused regulation is her bread and butter; 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.

Jaidev Janardana, chief executive, Zopa It’s been a busy year for Jaidev Janardana as he prepares to launch Zopa’s digital bank. It is under Janardana’s leadership that Zopa hit the £3bn lending milestone, launched its Innovative Finance ISA and opened a tech hub in Barcelona. Janardana was not part of Zopa when it launched but is very much part of its future and brings valuable consumer credit experience, having previously led credit card provider Capital One into profit.

POWER 50

TOP

Gwyneth Nurse, director of financial services, the Treasury Stuart Law, co-founder & chief executive, Gwyneth Nurse is the P2P sector’s access point to Assetz Capital government, helping guide Treasury policy as director Stuart Law has helped transform a traditional property of financial services. She has previously worked as investment business into the country’s fourth-largest deputy director of the Treasury’s banking and credit P2P lender. The platform’s loanbook has swelled team, after heading up the assets, savings and wealth to more than £600m in the past five years and it is team. Before joining the Treasury, Nurse worked for recognised as one of the fastest-growing tech firms HMRC, where she qualified as a tax inspector before in the UK. Not one to rest on his laurels, Law is now moving on to work in tax policy. launching Assetz Exchange, a property crowdfunding platform that is aiming to help solve the country’s housing crisis.

TOP

Rhydian Lewis, co-founder & chief executive, RateSetter Rhydian Lewis set up RateSetter in 2010 with an innovative business model, enabling investors to set their own rates and pioneering the provision fund. Lewis has maintained RateSetter’s position as one of the ‘big three’ this year, overseeing an IFISA launch and a loanbook approaching £3bn. Lewis has also been awarded an OBE for his contribution to financial services, specifically with regard to P2P and financial inclusion innovation.

Paul Smee, chair, Peer-to-Peer Finance Association Smee is a new entrant straight into our top 10, but the new 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. Steering the helm of the Peer-to-Peer Finance Association (P2PFA) should be a doddle for Smee, who has more than 17 years’ experience governing trade bodies. Prior to joining the P2PFA, he was director general of the Council of Mortgage Lenders, but more significantly he used to be director general at the Association of Independent Financial Advisers, which could come in handy as the sector looks to woo the adviser community.

POWER 50

TOP

Anil Stocker, co-founder & chief executive, MarketInvoice A former private equity analyst, Anil Stocker saw a gap in the P2P market for invoice finance when launching MarketInvoice in 2011 and this year he expanded the company into business loans. The platform’s loanbook is now close to £3bn and it boasts Barclays as a minority shareholder and investor. MarketInvoice has certainly charmed the City – other institutional funders include the British Business Bank, Portuguese bank Banco BNI Europa and Germany’s Varengold Bank. Stocker also sits on the UK government-backed UK Fintech Delivery Panel, which makes policy recommendations on the sector.

TOP

Chris Woolard, executive director of strategy and competition, the Financial Conduct Authority Chris Woolard is the face of regulatory change at the Financial Conduct Authority and P2P policy will be in his sights after the long-awaited release of the post-implementation review of the sector. It is under Woolard’s watch that the regulator is now consulting on whether P2P platforms need to introduce marketing restrictions and more enhanced disclosure requirements.

Kevin Allen, chief risk officer, The Money Platform Regularly found commenting on P2P on social media, Allen is probably best known for his tenure at RateSetter, where he became the firm’s first chief risk officer and helped the platform grow its lending from £2m to £3m a month to £60m. Keen to get his teeth into another P2P start-up, he joined the Money Platform in 2017, which is looking to shake up the payday loan market. Giles Andrews, co-founder & executive chairman, Zopa Giles Andrews helped launch Zopa as the world’s first P2P lender in 2005 and has overseen its transformation into one of the largest and best-known UK platforms. Andrews stepped back from the chief executive role in 2015 but his influence was cemented in 2016 with an OBE for his contribution to financial services and he is still involved with setting the group strategy at board level. Brian Bartaby, founder & chief executive, Proplend Bartaby has been promoted from last year’s Rising Stars, having built up his commercial property lending platform into a recognised P2P brand. A new autolending product this year has helped widen Proplend’s appeal among investors. Peter Behrens, co-founder & chief operating officer, RateSetter Behren’s role puts him at the forefront of day-to-day operations at RateSetter, which this year hit the £2.5bn lending milestone and also launched its Innovative Finance ISA. Richard Boleat, chair, Funding Circle SME Income Fund It is under Boleat’s chairmanship that Funding Circle’s dedicated investment fund has done something that many of the sector’s rival funds have failed to do – maintain a healthy premium. He is an experienced independent director, also holding the chairman role at Phaunos Timber Fund, Yatra Capital and CVC Credit Partners European Opportunities. David Bradley-Ward, chief executive, Ablrate Bradley-Ward is another promotion from last year’s Rising Stars. Ablrate started life financing leasing for

POWER 50

aircraft transactions, but Bradley-Ward has turned it into a fully-regulated platform offering asset-backed business loans, eligible within its IFISA wrapper. He has now developed a blockchain-powered secondary market that will eventually be accessed by multiple P2P platforms and investors across the world. Louise Brett, head of UK fintech, Deloitte Brett works across the fintech ecosystem, engaging with financial services clients, government bodies, regulators, advisers and fintech firms. The former banker also sits on the board of Deloitte’s fintech accelerator.

local lending model, which aims to have a positive impact on the local economy.

Mike Bristow, co-founder & chief executive, CrowdProperty A new entrant into the Power 50, CrowdProperty has come along in leaps and bounds under Mike Bristow’s leadership this year. The property development finance provider has passed the £20m lending milestone, undergone a rebrand and become the ninth member of the Peer-to-Peer Finance Association.

Stuart Cruickshank, chair, P2P Global Investments P2P Global Investments holds the prestigious accolade of being the first investment trust dedicated to the P2P sector. A strategic review last year saw it move towards other areas of asset-backed alternative finance and Cruickshank still has a crucial board role in keeping the fund going and reducing its discount to net asset value.

Liam Brooke, co-founder & chief executive, Lendy Lendy’s headline sponsorship of the Cowes Week sailing regatta has helped to raise the profile of the industry to the wider public. Brooke’s P2P property platform may have attracted some criticism recently but his influence on the industry still remains.

Jonathan Davidson, director of supervision - retail and authorisations, Financial Conduct Authority This is the man P2P lenders need to keep happy. Davidson is responsible for ensuring authorised firms behave, for example when warning P2P lenders against wholesale lending activities last year. He also has the short-term lending market in his sights and will help oversee any regulatory changes that come from the postimplementation review.

Greg Carter, founder & chief executive, Growth Street In the crowded space of P2P business lending, Carter has developed an innovative product. The GrowthLine credit facility 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 firm was a finalist in innovation charity Nesta’s Open Up challenge for its development of uses for Open Banking and its offering is included on Starling Bank’s marketplace. Giles Cross, (pictured), chief executive, Folk2Folk A marketing man turned P2P chief executive, Cross was promoted to the helm of Folk2Folk after the departure of Jane Dumeresque in January 2018. He has continued the rural business lender’s strong growth trajectory while maintaining its

Steve Davies, EMEA fintech leader, PwC Davies has headed up PwC’s EMEA fintech practice since 2015, authored many publications and spoken at numerous conferences. He works with a variety of start-ups, fintechs and incubators and also focuses on blockchain technology. 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, which has also moved into funding housing developments, was one of the first IFISA providers. Davis is entrenched in the sector, having also helped to launch Zopa and the UK Crowdfunding Association.

POWER 50

Stephen Findlay, chief executive, BondMason Findlay runs one of the few investment management firms that operate in the P2P space, targeting annual returns of up to eight per cent. Findlay himself is a well-known industry figure and does not shy away from giving his views on important topics in the sector.

Angus Dent, (pictured), co-founder & chief executive, ArchOver A former accountant, Dent has helped develop the unique ‘secured and insured’ and ‘secured and assigned’ business lending models on ArchOver. There has been plenty of innovation under Dent’s watch this year, with the unveiling of research and development loans, an IFISA launch and a move into auto-lending, as well as expansion in the Midlands. 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 blogs and commentary, have played a key role in the industry’s growth.

John Goodall, co-founder & chief executive, Landbay Goodall has helped grow the Landbay platform into a viable buy-to-let mortgage provider, with increasing recognition among brokers and investors alike. The introduction of institutional investment has helped Landbay scale up its lending and increase its revenues. Goodall is unfazed about the tax and regulatory crackdown in the buy-to-let sector, arguing that it provides opportunities for specialist lenders such as Landbay. Julia Groves, partner & head of crowdfunding, Downing Groves previously set up British Airways’ online offering and she has now propelled the industry forward by helping to set up the UK Crowdfunding Association and contributing to the development of the IFISA. This year she has helped oversee Downing’s entry into the property development space.

RISING STARS We have given special mention to individuals that are starting to make their mark on the P2P sector, through innovative new businesses or fresh perspectives. Some may already be established in other fields but are now bringing a new audience and expertise to P2P, while others are running promising start-ups that are poised for success. Louis Alexander Managing director, BridgeCrowd

Frazer Fearnhead Founder & chief executive, The House Crowd

Tony Alner Chief operating officer, EasyMoney

Yann Murciano Founder & chief executive, Blend Network

Lee Birkett Founder & chief executive, JustUs

Daniel Rajkumar Chief executive, Rebuildingsociety

John Butler Chief executive, Lend & Borrow Trust

Nadeem Siam Founder & chief executive, Welendus

Tony De Nazareth Founder & director, Crowd for Angels

Daniel Smith Head of relationship management, Basset & Gold

POWER 50

Narinder Khattoare, chief executive, Kuflink A new entrant to the list, Khattoare has helped Kuflink transition from a bridging loan provider to a venerable P2P platform. The lender has expanded rapidly since Khattoare was promoted to the top job at the end of last year, with a new office on London’s Silicon Roundabout and a brandenhancing sponsorship deal with Ebbsfleet United Football Club.

Chris Hancock, (pictured), founder & chief executive, Crowd2Fund Hancock’s business lending platform was one of the very first IFISA providers and aims to support the British economy while offering attractive returns to investors. Hancock is ahead of the curve when it comes to technology, so Crowd2Fund is already using artificial intelligence to improve its loan recovery rate.

Andrew Lawson, chief product officer, Zopa Lawson may not be the most high-profile figure at Zopa, but his role in the day-to-day running of the consumer lender should not be overlooked. Lawson’s responsibilities at Zopa include products, customer acquisition and experience, first-line credit risk, pricing yield and data science, making him a key driver of the company’s growth.

Sam Handfield-Jones, chief product officer, Octopus Choice Handfield-Jones heads up a P2P platform that has done the unthinkable and won over the financial adviser community. The property-backed lender, which was spun out of Octopus Investments, was created with advisers in mind and has seen almost £200m invested to date. 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. It was the first of the Peer-to-Peer Finance Association members to gain IFISA approval and has big plans for growth, having secured £2.8m of private equity investment this year, led by Maven Capital Partners. Filip Karadaghi, co-founder & chief executive, LandlordInvest Karadaghi’s buy-to-let and bridging loan platform LandlordInvest was one of the earliest IFISA providers and has lent out £5m in under two years. It offers some of the highest rates on property-backed P2P loans and has ambitious plans for growth, having recently launched a £600,000 crowdfunding campaign.

Stuart Lunn, (pictured), founder & chief executive, LendingCrowd Who says you have to be in London to run a P2P lender? Edinburgh-based Lending Crowd has lent out more than £45m to date to small- and mediumsized businesses, under the leadership of new Power 50 entrant Stuart Lunn. The firm is gearing up to secure venture capital funding in the next 12 months after its lending almost tripled in the first half of 2018. The recent appointment of former Standard Life chief executive Sir Sandy Crombie as chairman was another feather in LendingCrowd’s cap.

POWER 50

Michael Lynn, founder & chief executive, Relendex Chartered accountant Lynn has been promoted from last year’s Rising Stars thanks to his development of Relendex into a sizeable property lender. The property platform last month increased its maximum single loan size from £3m to £5m after securing new funding lines, as it targets £100m of lending in 2019. John Mould, chief executive, ThinCats Mould brings nearly 30 years of financial services and risk management experience to ThinCats, having previously worked at Hermes Fund Managers and New Star Asset Management. Institution-backed ThinCats’ growth appears to be unstoppable, as the platform continues to target undeserved areas of small business finance. 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 and his fellow cofounder Jordan Stodart. The platform’s recent Seedrs crowdfunding campaign exceeded its £500,000 target and the proceeds will be used to support its growth plans, which include partnerships and a possible IFISA launch. Karteek Patel, co-founder & chief executive, Crowdstacker Crowdstacker was one of the first IFISA providers and has raised more than £50m for UK businesses since launching in 2015. Patel, a former fund manager, has ambitious plans for his company’s growth, including the development of a cash ISA and a stocks and shares ISA. The firm recently launched an £800,000 crowdfunding campaign on Seedrs and is aiming to have lent out £300m by 2021. 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 grow MoneyThing into a popular P2P business lender offering some of the highest IFISA-eligible investor rates. The platform’s great customer service is heralded by its loyal investor following.

FIRMS OF INFLUENCE You don’t have to be working for a P2P platform to have an influence on the sector. There are government bodies, trade associations, law firms and academic institutions all supporting the industry’s growth. The sector would run at half the speed without many of these firms of influence. Business finance aggregators Alternative Business Funding Funding Options Funding Xchange State-backed bodies and trade associations British Business Bank European Investment Bank Fintech Scotland Federation of Small Businesses Innovate Finance KFW National Association of Commercial Finance Brokers Tax Incentivised Savings Association Professional services BDO BWB Compliance Clearbank Goodbody Hogan Lovells Legal Alternative Pinsent Masons RSM Simmons & Simmons Thistle Research Cambridge Centre for Alternative Finance Fintech marketplace Bud

POWER 50

Anton Ruddenklau, head of digital and innovation, KPMG Ruddenklau specialises in business, corporate and institutional banking, and provides advice on strategy, growth and client development to global companies, banks, infrastructure providers and more. Throughout his career, he has led or worked on over 150 growth projects across corporates and financial institutions. Jonathan Segal, partner & head of fintech and alternative finance, Fox Williams Fox Williams was named as a Firm of Influence last year, but now Segal has been singled out for the Power 50 list due to increasing recognition of his position as one of the most well-known and respected lawyers in the sector.

Robert Pettigrew, (pictured), director, Peer-to-Peer Finance Association Pettigrew plays a key role in communicating the messages of the Peer-to-Peer Finance Association. He is heavily involved with the influential research and data on member activity produced by the selfregulatory body. Uma Rajah, co-founder & chief executive, CapitalRise Rajah has used her fintech expertise to help develop a popular investment platform focused on prime property, predominantly in London. CapitalRise raised £2m in seed funding earlier this year from the family of an Indian banking entrepreneur, which Rajah said will underpin the firm’s next stage of growth. Peter Renton, co-founder & chairman, LendIt A renowned author and expert on P2P, Peter Renton has established a global events brand with LendIt regularly bringing alternative lending and P2P advocates together and showcasing the sector’s talents both within the industry and to the wider world.

Graham Wellesley, co-founder & chief executive, Wellesley Wellesley has developed his eponymous property platform into one of the best-known brands in the sector since launching in 2013. In recent years, the firm has successfully diversified into retail bonds and repositioned its lending criteria to focus on larger residential property development loans outside of central London. Andy Whelan, co-founder & chief executive, Sancus Whelan should feel pretty proud of himself for turning around the fortunes of Sancus, the alternative finance group owned by Aim-listed GLI Finance. An overhaul of the company’s structure and a rebrand of P2P lenders Platform Black and Funding Knight has paid off: its P2P business reported a 193 per cent rise in net operating profit in the first half of this year, on revenue growth of 42 per cent. Jake Wombwell-Povey, co-founder & chief executive, Goji Wombwell-Povey has his finger on the pulse of the P2P industry. As well as providing IFISA administration services, Goji has its own investment management platform, offering IFISA- and SIPP-eligible bonds. What’s next? Wombwell Povey has set his sights on wooing the financial adviser market.

JOINT VENTURE

Changing the world, block by block Blockchain technology is poised to transform the global P2P market, and Ablrate’s chief executive David Bradley-Ward is at the forefront of the movement

AVID BRADLEY-WARD has a vision. The chief executive of asset-backed lender Ablrate wants to create a global peer-to-peer marketplace where people can buy and sell loans of any size quickly and securely via a brand new blockchain-based platform. And while this may seem like a hugely ambitious goal, Ablrate is working on it. In October, the platform launched a partnership with ASMX – a Gibraltar-based business which was specifically set up to create this marketplace. “This has never been done before, because there have always been issues around settlements,” explains Bradley-Ward. “The average loan on the Ablrate secondary marketplace is £200 and if this became international there are no traditional settlement agents who would take up that sort of value at a cost that would be sustainable. “So that’s when we started to investigate blockchain technology, and to look at how we could settle trades on a very cost-effective basis, very quickly.” ASMX allows P2P platforms and loan originators to integrate with similar platforms across the world, creating a market in which all lenders will be able to access all authorised loans at any given time. It is the brainchild of BradleyWard, who came up with the concept after realising how popular the Ablrate secondary marketplace had become. More than £28m

has been traded since the Ablrate market was launched in 2015 and the number is increasing with over £5m traded in the last month alone. “Our aim is for any P2P platform to be able to integrate with ASMX and instantly have access to, and add to, that liquidity,” explains Bradley-Ward. “For instance, say we have 5,000 lenders, and we join up with a lender in Singapore that has another 2,000 lenders. That creates a marketplace of 7,000 lenders, which increases the potential diversification and liquidity for every single individual lender and creates a larger pool of lenders for borrowers on both platforms.” One of the benefits of blockchain technology is that it stores information in permanent, tamper-proof ‘blocks’. This makes it a perfect fit for loan ledger

storage, as it essentially creates an immutable record of all loan data and transaction details. Furthermore, the ASMX solution takes their existing, KYC approved information and creates a digital ID which means that lenders can trade safely on other integrated platforms without having to share their data. These features make blockchain a natural fit for the P2P market. But that doesn’t mean that launching ASMX will be easy. One of the key challenges of blockchain technology, according to Bradley-Ward, is the builtin latency. Most blockchain protocols allow for mining activity to take place in the background which creates a lag time of up to 10 minutes between making a transaction and seeing that transaction actioned. ASMX uses a low-latency blockchain technology stack, which allows loans to be bought and sold in real time, regardless of the location of the investor. “An efficient market gives lenders confidence to know that that they don’t necessarily have to be in a loan for very long if they don’t want to be,” says Bradley-Ward. “And the price transparency allows for better risk management.” A global marketplace with increased liquidity – Ablrate’s partnership with ASMX’s new venture could represent the first step towards the future of P2P lending.

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P2P: A constant evolution

Angus Dent, chief executive of ArchOver, considers the role of institutional investment in peer-to-peer lending

FUTURE BASED ON two questions: How does it balance institutional and retail money? And is manual investing here to stay or will it be manoeuvred out the more sophisticated its audience becomes? The character and purpose of the sector are at stake – can P2P maintain its original values and purpose without sacrificing profitability? P2P worked to the premise of sourcing money from individuals and lending it to businesses, earning the sector’s keep somewhere in the middle. ArchOver has always been open about the fact that it accepts institutional money as well – but the shift towards institutions in the sector has accelerated in recent years. Rather than having to get tens of thousands of individuals involved at enormous cost, P2P platforms are doing more to facilitate institutional lending, bringing in more investment at a reduced outlay. Because you’re not spending as much marketing dollar, your chances of hitting profitability are much higher. But is that business model still recognisably P2P? The identity of P2P has changed and will continue to change. Some industry players have distanced themselves from the term altogether in favour of a pureplay borrower focus. The same is true of manual, project-by-project investment: it’s still a core component of ArchOver’s platform, but others have done away with it altogether. At the same time, ArchOver recently

launched its Investment Plan, which gives investors an instant portfolio. It’s important to have a balance between manual and automated investments to suit a wider range of investor needs. The introduction of more institutional money and automated investing does matter because, at its heart, P2P is a process of disintermediation. Whenever companies put automated vehicles in place, they reintermediate. Running these vehicles costs money, and that filters down to lenders getting a lower return, because they have to pay for the service and protection. The bottom line is that there’s a fine balance between preserving the original values of P2P and generating enough institutional money to make it profitable. The core market conditions that have always accompanied P2P are unlikely to change. The high street banks could encroach on P2P, but

there’s no appetite in the sector for such a move. Some of the challenger banks are touching on P2P’s market, but still with a traditionalist banking bent and without the agility of smaller players. In contrast, as more institutional money enters the sector, the cost of facilitating lending should go down, making it easier for P2P platforms to make a profit. Furthermore, there are large numbers of savers and investors who still just don’t trust the banks – they’re happy to pay the premium for alternative finance as a form of insurance. ArchOver aims to find the balance between all of these things – between providing a service to individual lenders, borrowers and institutional investors, and balancing regulatory requirements with turning a profit. In three years’ time, we would expect a larger proportion of money lent over the platform to come from institutions, while preserving a place for individual lenders. Manual and automated lending will also be balanced on the platform, so that lenders can get the desired level of control over their investments. P2P has a bright future. Companies like ArchOver have the agility and the entrepreneurial spirit to evolve their business model without losing sight of their core values, to the benefit of lenders and borrowers alike. Institutional money will play a key part in the next stage – but it’s just one part of the picture.

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JOINT VENTURE

The end of the ‘average’ investor

Shifting demographics can create new opportunities for peer-to-peer lenders, says Narinder Khattoare, chief executive of Kuflink

NOW YOUR CUSTOMER – that is the golden rule for any investor-led business. But in a disruptive sector such as peer-topeer lending, it can be hard to keep up with the shifting demographics. “Our first customers were in their 40s and 50s – experienced investors who wanted to get a decent return on their investments,” explains Narinder Khattoare, chief executive of Kuflink. “But now we are also seeing an increase in investors under the age of 30, as well as young families who use our Innovative Finance ISA to save for the future. “This is the great thing about P2P lending – everyone can be an investor.” However, not everyone is aware that they can become a P2P investor. “We need to educate people about the benefits of P2P lending,” says Khattoare. “That’s not easy with some demographics, but it’s certainly not impossible.” Khattoare points towards the rise of contactless payments, which

wants to challenge changing customer behaviour by bringing new propositions to the market and attracting a wider range of investors. “The bigger you get, the more people you're going to reach out to and there are so many frustrated people out there who are waking up to the fact that their savings are underperforming and could be working harder,” says Khattoare. This creates a “huge opportunity”

“ We are seeing an increase in investors under the age of 30 ”

have just overtaken chip and PIN payments in terms of popularity. Yet when the contactless concept was introduced 10 years ago, it was met with widespread scepticism. Like contactless payments, Kuflink is not afraid to be a decade ahead of the curve. The platform

to win over groups of people who have not previously considered alternative lending as an investment option, he adds. Going forward, Khattoare believes that millennials are the future of P2P success, but are yet to be convinced.

“It's a younger group,” he says. “So we have to ask ourselves - do they think long term? I don't think they do because the market's changed so much over the last 10 or fifteen years.” Kuflink plans to use a variety of marketing, digital and social media channels to target a wide range of investors, and the platform has made two senior hires in the digital spectrum to drive further growth in this area. But no matter how many changes affect the P2P sector, there are a few evergreen rules when it comes to attracting new investors. For Kuflink, good old-fashioned word of mouth recommendations still play a huge role in growing the platform’s investor base. And Khattoare always urges caution with any new investor, regardless of their age or investment experience. “I always say to investors to try P2P with a small amount of money, and you’ll quickly see it grow as we pay interest monthly,” he says. “Take your money out and test the system. Your money comes out, you've earned the interest, you try the platform again with another deal. You know the system works. and the word spreads around community members and you see other people jump onboard.” While the idea of the ‘typical’ customer might be changing, the fundamentals of P2P remain the same. And that is ultimately what will lead to the ongoing success of Kuflink and other likeminded platforms.

PROFILE

Consumer champion

RateSetter’s chief product officer turned chief investment officer Mario Lupori is passionate about the platform’s drive to bring P2P to the people. He talks to Andrew Saunders about RateSetter’s unique model, the impact of a downturn and how the Innovative Finance ISA captured his imagination

T LEAST IN COMPARISON with its other ‘big three’ rivals, you could be forgiven for thinking that RateSetter is enjoying a fairly quiet time of it at the moment. It hasn’t just been through a landmark stock market flotation like Funding Circle, and nor it is busy turning itself into a bank, like Zopa. But appearances can be deceptive, says Mario Lupori, who is currently chief product officer at RateSetter but is about to move into the newlycreated role of chief investment officer. Like the proverbial swan, apparent serenity above the waterline can disguise vigorous paddling below it. “We’ve had a record summer for new lending, and that is continuing,” he says. “October might be another record month for us.” So while others may have been distracted by major transitions, RateSetter – which stands out in the P2P sector due to its eponymous rate-setting model, its investor-safeguarding provision fund and its almost total lack of institutional funding – has been able to remain focussed instead on simply doing more and better business. With lending rates hitting over six per cent on the platform’s five-year market – the highest since 2015 –

and cumulative loan originations for July, August and September of £197m, investor demand certainly does appear to be brisk. “We’re really excited about the rates that are currently being offered to investors, they are increasing the value we provide and widening the gap between what we offer and what investors can access elsewhere,” Lupori adds. What’s driving those big numbers? They are partly a reflection of the platform’s growing scale and capability, according to Lupori. “We’ve been continuing to improve our credit capabilities,” he explains. “As we have grown our portfolio and invested in better technology for underwriting as well as expanding the team, we have become more knowledgeable about how to lend prudently.” The platform has lent a total of

Launched in February and initially restricted to existing customers, the platform’s IFISA is now open to all. “It is generating real inflows, and doing so in two ways,” he says. “Firstly, about one third of new customers now open an IFISA – and only an ISA, which suggests that they are people who might not have come to us otherwise. “Secondly, we are seeing existing customers transferring their ISAs from elsewhere.” A significant proportion of transfers come not from stocks and shares ISAs but from cash, he adds, also suggesting that investors who have had a good experience are now prepared to commit more resources to the platform. For Lupori, who worked at credit card specialists New Day and Barclaycard before joining RateSetter as marketing director in

“ It’s more efficient for our rates to be driven by the market ” just over £2.8bn in the eight years it has been active. But growth has also been boosted by the fact that RateSetter’s Innovative Finance ISA (IFISA) is really starting to have an impact.

2015, seeing the IFISA take off has been particularly satisfying. The creation of the tax-free wrapper was a big part of his inspiration to switch from an ‘amateur’ investor to a P2P industry professional.

PROFILE

“I’ve had an interest in P2P for years – I first started investing as a customer in 2007 or 2008,” he reveals. “But when [then-Chancellor] George Osborne announced in 2015 that there was going to be an IFISA, that completely captured my imagination. I believed it would really enable P2P to become more mainstream and I wanted to be part of that – bringing this new asset class to the ordinary investor.” So when the call came a few months after Osborne’s announcement, he was ready to make the move: “I felt that RateSetter had the right product,

and a very strong track record.” The power of the ISA is not solely down to its tax-free appeal, he says. It’s also about familiarity and positioning. “P2P gained a word that was already in the consumer lexicon, a recognised product that is on a shelf with other financial services products,” he comments. “The IFISA allows P2P to be on the same shelf alongside those other products.” And since he joined, he says, he has also learned to appreciate the way in which the platform remains true to its democratising roots whilst still managing impressive growth. “RateSetter’s purpose is to bring

P2P to the people so it has a single-minded focus on the retail investor,” he says. “Whereas you see Funding Circle and Zopa taking slightly different approaches – institutional investment or going down the bank route.” In a world where institutional funding is increasingly being sought by platforms large and small, and where products are increasingly simplified and streamlined to minimise the effort required to understand them, RateSetter can look a little out of place as a result of sticking so firmly to its knitting. But Lupori argues that it is not different simply for the sake of

PROFILE

being different. The things that make it unusual – the retail focus, the rate-setting business model, and of course the provision fund – also make it better. “It has a very strong proposition, and that proposition is based mainly on two things – rate setting and the

are happy to lend – “it’s like setting a floor below which they are not prepared to invest” – he says. It’s perhaps the purest, if not the simplest, P2P business model, says Lupori, because of the way it tackles the intrinsic challenge of matching the supply of capital to the demand

“ We recognise that we are selling something that is new to most people ”

provision fund,” he explains. So unlike most rivals whose returns are determined by internal mechanisms such as pricing committees, the rates offered on RateSetter’s three markets – rolling, one year and five year – are determined by ongoing supply and demand. What’s more, investors are free to set the rate at which they

for loans. “It’s more efficient for our rates to be driven by the market,” he asserts. “If we were to set the rates ourselves, we would have to second guess the point at which investors would be willing to invest.” In combination with the provision fund – a cash buffer paid for by fees levied on borrowers which adds a cushion against bad debts – the

model not only provides enhanced protection for lenders but also greater liquidity, explains Lupori. “Because the provision fund diversifies your investment by default, we can match one borrower with one lender, whereas other platforms spread each investment over several borrowers,” he says. So money put into RateSetter goes to work more quickly at the start, and – under normal circumstances at least – can be taken out more quickly should the need arise. That’s because fewer new investors are needed to replace each one who withdraws their cash. But while the model appeals strongly to experienced customers, he does acknowledge that a simpler set-up might attract more novice investors. “We recognise that we are selling something that is new to most people, so it’s incumbent upon

PROFILE

us to make our offering as simple as possible,” he adds. Balancing the needs of existing customers with the imperative to bring new ones on board can be tricky – as evidenced by the platform’s attempts to simplify its popular rolling market product earlier this year. The vast majority of customers on the rolling market take the floating Lend It Now rate rather than setting their own, but when RateSetter announced an end to rate setting, it was forced into a speedy aboutturn after feedback from a small but vocal group of users. Lessons have been learned, he says, and along with the provision fund, rate setting is here to stay. But that doesn’t mean that efforts to make the three markets work in a more uniform fashion will cease. “You have to innovate in order to appeal to a broader base – initial early adopters are unlikely to be the customers who carry a product to eventual success,” he states. “We are trying to find the optimal balance between keeping our most engaged and loyal customers happy whilst trying to find something that will appeal to a broader population.” It also has big plans to unlock the financial adviser and wealth

manager market, a major opportunity that has been largely denied to P2P platforms so far. Cynics says that is because there is little in the way of fees to be earned by advisers, but concerns have also been expressed over the stability and durability of the P2P sector itself.

Recent investors in the FTSE 100 could have lost nearly eight per cent of their capital in the past few months, he points out, “and we are not even in a downturn.” But how would RateSetter stand up if – or rather when – a downturn does come along? “We are quite

“ We think a downturn could result in people investing more in RateSetter, not less ”

“We think it has taken time for intermediaries to get used to the idea that P2P is here to stay. But we think the time is now,” says Lupori, adding that RateSetter has been approached by several such intermediaries as well as making its own overtures. He thinks that the intermediaries’ interest is partly being driven by their own customers asking about P2P, and partly because the longer the bull market in equities continues, the more urgent it becomes to search for ways to diversify ahead of its inevitable end. “We believe RateSetter is a terrific option to have as part of a diversified portfolio, and that intermediaries should offer it to their customers,” says Lupori.

bullish about our prospects in a downturn,” says Lupori. Whilst not exactly welcoming the idea of hard times, it’s a rite of passage that he believes the platform – indeed the sector as a whole – is ready for. “A bad year in equities is likely to result in people losing capital value from their investments,” he says. “The prospect of losing capital in RateSetter is low.” With the provision fund at its current level, investors’ returns are covered to the tune of 126 per cent of expected losses, whilst those losses would have to be 244 per cent worse than expected before their capital is put at risk. “We think a downturn could result in people investing more in RateSetter, not less,” Lupori comments. So whatever happens, there should be plenty to keep him and his colleagues busy for the foreseeable future. He’s certainly clear about his own goals as he prepares for the chief investment officer job. “RateSetter was created to provide access to this asset class for ordinary investors and it’s important that there is someone whose role is solely to focus on that,” he says. “I want to see it become a household name for investors.”

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Experience is everything

Uma Rajah, chief executive of CapitalRise, explains why expertise is non-negotiable when it comes to property finance

VERY MARKETPLACE lender has its own unique selling point – the one thing that distinguishes them from the competition. At CapitalRise, the key differential is experience. “From its inception in 2016, CapitalRise has focused on utilising its founders’ and team’s years of experience to make intelligent and informed decisions,” says Uma Rajah, chief executive of prime property lender CapitalRise. “Especially when it comes to underwriting investments.” Rajah describes CapitalRise as “property plus fintech”, which is reflective of the founding team. Rajah herself brings a wealth of fintech experience, having spent decades developing and launching online and mobile consumer-facing lending platforms, which has given her a competitive advantage in the world of peer-to-peer lending. Co-founders Alex Michelin and Andrew Dunn bring the prime property and finance expertise. Both have also co-founded the luxury property development firm

London and worldwide with a value in excess of £1.2bn. The other members of the CapitalRise team bring a wealth of experience in banking, technology, marketing and property, which has helped to solidify the reputation of the firm in the increasingly crowded property lending marketplace. This emphasis on expertise has clearly worked. CapitalRise has seen no losses to date, and despite the Brexit-related uncertainty which currently surrounds the London property market,

“ From its inception in 2016, CapitalRise has

focused on utilising its founders’ and team’s years of experience to make intelligent and informed decisions Finchatton and have two decades of prime property developing and investing experience. Over the last 17 years, Finchatton has delivered over 120 projects in prime central

”

CapitalRise is still being inundated with demand from investors. In fact, Rajah says that most of the platform’s investors arrive via word of mouth, through

existing investors and familiarity with the team’s reputation. Since 2016, CapitalRise has lent approximately £15m and currently has a pipeline of more than £20m over the coming months. Having returned more than £3.5m to its investors, delivering a return of 10 per cent per annum, it’s no wonder that the last investment – a sales period loan of £1.5m, launched by CapitalRise in October –was raised in under 48 hours! CapitalRise believes the level of detailed information shared with investors, following their rigorous due diligence, is above industry standard and enables investors to make informed investment decisions. By valuing experience and professionalism above all else, CapitalRise has been able to grow its business despite an uncertain economic climate and are proving its ability to build a strong reputation among both investors and borrowers.

INSURANCE

Added assurance

Why are peer-to-peer lenders split on the attractions of credit insurance? Andrew Saunders investigates

N THE FACE OF IT, peerto-peer lenders and insurance companies make slightly uneasy bedfellows. Rather like the high street banks, traditional insurance companies are seen by many P2P entrepreneurs as part of the financial services establishment – the old order with its outdated methods that P2P is setting out to shake up and disrupt. But just as many P2P platforms are discovering the benefits of hooking up with one former ‘enemy’, partnering with those same banks to service borrowers they might not otherwise be able to reach, could something similar, if lower-key and as yet less widespread, be happening with insurance? This is particularly noticeable within credit insurance, which a number of platforms now provide as an option to borrowers and as an added safeguard – in theory at least – to lenders. One of the first platforms to offer credit insurance was ArchOver, and its original ‘secured and insured’ lending model remains very popular with lenders – despite the fact that the platform offers higher returns on uninsured borrowers, says chief executive Angus Dent. “We have five lending models, but secured and insured [which requires borrowers to take out credit insurance] is the original flagship product,” he explains. “A good proportion of our customers will only lend secured and insured.” ArchOver has made around £85m

in loans to small- and medium-sized enterprises (SMEs) since 2014 – typically between £100,000 and £15m for working capital. Although loans are secured primarily against a property asset, the additional safeguard of credit insurance is well worth having, according to Dent. “If a company has a £2m factory, for example, you can bet that it will be fully insured,” he comments. “But look at the balance sheet of most businesses and their biggest asset is the money that customers owe them. Why wouldn’t you insure that too? “Credit insurance makes the asset that we usually lend against better quality and more secure. As a lender you always look at the quality of the asset – if you can enhance that then you do.” So what exactly is credit insurance, and how does it work?

“ Credit insurance

makes the asset we lend against better quality and more secure

”

“It’s business-to-business insurance that insures against bad debts, insolvency, buyer default and political risks,” says Chris Hoy, managing director of broker CMR and the trade insurance representative for the British Insurance Brokers’ Association. “It’s for any business from a listed

company to a sole trader – anyone who is giving credit terms to anyone else, anywhere around the world.” Credit insurance thus allows a company to insure itself against the risk of one or any of its customers going bust or failing to pay and leaving them in the lurch financially. Insurers assess the risks of both overall sectors and of individual companies, and will set the level of cover they are prepared to offer accordingly. A typical fixed-cost SME policy, says Hoy, might provide a total of £1m of credit cover annually for a premium of around £3,000. For many potential P2P investors who are not themselves in business, the first time they hear about credit insurance might well be media coverage of a struggling firm which has had its credit insurance cover withdrawn – House of Fraser and Debenhams being a couple of recent high-profile examples. This happens, says Hoy, because credit insurers set limits to the amount of cover they are willing to underwrite against specific creditors, based on the financial information provided by those creditors. When a business starts getting into trouble, it becomes a larger credit risk and the insurers start to reduce or withdraw that cover. “Credit insurers can get the blame for bringing a company down,” he says, “But really they are only making decisions on the basis of information supplied by those companies.” While credit insurance is typically taken up by larger companies, the

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benefits of being insured are equally, if not more, applicable to SMEs too. “Credit insurance is important for SMEs because one bad debt could take them out,” explains Hoy. It can also help them grow. “An SME can expand its business through taking out credit insurance. It can enable them to offer credit to some suppliers which they have only been dealing with on cash terms,” he adds. Since 2015, ArchOver has had a deal with French provider Coface – the second-largest provider of credit insurance in the world – to provide a total of £100m cover for its borrowers. It’s an umbrella policy, explains Dent, bought at a wholesale rate and parcelled out by ArchOver as required to individual borrowers. “We get the credit insurance at the rate a big company would,” he says. “We split it down to our SME customers and we don’t charge a mark-up. Borrowers pay 0.14 per cent of annual turnover.” Business finance provider MarketInvoice also has a credit insurance partnership, offering cover to its borrowers through a deal with Euler Hermes. The deal

was established earlier this year as a result of customer interest, says MarketInvoice’s head of risk Sean Alexander. “Initially we didn’t offer credit insurance, the decision was driven by customer demand – it was something they told us they had a need for.” Not only does credit insurance provide MarketInvoice’s lenders with additional peace of mind, it is also of benefit to borrowers. “We want to encourage our customers to protect their revenues, especially if they work in a sector with a high level of defaults, or are particularly reliant on one or two large customers,” explains Alexander. Unlike ArchOver’s offering, it’s a referral deal – the platform does not buy cover wholesale and credit insurance is not a requirement of any MarketInvoice loans. “Some lenders take an umbrella policy and parcel it out,” Alexander says. “We decided to go down the individual referral route. We recommend Euler Hermes but it is the borrower's decision whether to use them. It’s not a compulsory part of our lending at all.”

It also helps to avoid the risk of bank-style mis-selling, he continues. “In the past, some banks have become too reliant on thirdparty providers and that has led to mis-selling. Our customers are perfectly free to get quotes from other providers if they wish.” The advantages of credit insurance don’t only apply in the event of default or bankruptcy. It can also provide the insured with access to valuable market intelligence on the creditworthiness of customers. “None of our borrowers, for example, were caught out by Carillion going down because the credit insurers had been withdrawing their cover aggressively,” says ArchOver’s Dent. “For SMEs who generally do not have the time or resources to conduct ongoing credit assessments on their customers, that kind of information can be crucial.” But by no means is everyone in the sector as sold on of the benefits of credit insurance. One risk, say some sceptics, is that platforms might be tempted to skimp on vital

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underwriting because the insurance will cover them for any mistakes. Narinder Khattoare, founder and chief executive of buy-tolet, development and bridging loan platform Kuflink, remains unconvinced of the need. “Our investors don’t really ask about insurance,” he asserts. “We already provide a good level of security all our loans are secured against property anyway and at a maximum LTV of 70-75 per cent.” As a former insurance executive with both Towergate and the Prudential, he has thought long and hard about how insurance might be able to help protect investors. “When we went in to the market, we looked at what insurance cover we could get,” says Khattoare. “We even talked to Lloyds of London. But it’s difficult, there isn’t much out there.” So instead, Kuflink takes a five per cent stake in every loan it makes, to ensure that the interests of lenders and the platform remain aligned. “Investors are happy with our five per cent skin in the game, and with our ‘first-in-last-out model,” he says. “They like that.”

To maximise security, Kuflink takes out title indemnity insurance on the properties it lends against. This covers them against any problems with property title as well as making for a slick process, according to Khattoare. “Getting a full title report from a solicitor can take weeks, so that speeds up the process,” he explains. The relative novelty of P2P as a sector means that it can be harder for platforms to obtain business insurance of all kinds, not just credit insurance. “The insurers look at P2P and they don’t understand who to cover,” he says. “Is it the lenders, or the borrowers? “Plus all the platforms are very different, there are hardly any two the same.” It all makes the risks hard to quantify – and thus hard to underwrite. As P2P lending becomes increasingly mainstream and well-regulated, the insurance industry will catch up and start offering new products and services, he says, but it is not there yet. So within the P2P sector, the jury remains out on whether, right now, credit insurance is really worth the

candle. But the post-Brexit vote economic fog is driving an upsurge in interest in the SME community more widely, says Hoy. “There is so much uncertainty at the moment,” he comments. “In the last 24 months we have seen a big increase in enquiries, up to 50-70 a month from maybe 20-30. Accountants, brokers and financiers are increasingly recommending credit insurance.” MarketInvoice’s Alexander agrees that changes in the wider climate make the costs and administrative burden of obtaining credit insurance look increasingly worthwhile, both for lenders and borrowers. “There are higher levels of delinquency and more customers seeking to extend their payment terms,” he says. “All of that suggests that it might be a good time to take action. “If the risk of a failure far exceeds the cost of paying for cover, then you have value for money. Unfortunately, it’s only after it starts raining that many SMEs end up wishing they had bought an umbrella.”

BUSINESS INSURANCE BASICS In addition to specialist trading cover such as the credit insurance discussed in the main article, there are also a wide range of more general business insurance policies available either directly or via brokers. Some are legal requirements, but many are not – here is a brief summary of the main types. Employers’ liability insurance This covers compensation claims from employees who are injured or become ill as a result of their work, and also the legal costs of defending any claim. Public liability insurance One of the most common forms of business insurance, this covers you against third parties

being injured in some way by your business, or if you cause damage to someone else’s property as a result of your work. Professional indemnity insurance Provides cover for compensation and legal costs for professionals in the event of a customer losing money as a result of work or advice provided by them. It can also cover some instances of data loss or infringement of privacy. Directors’ and officers’ insurance Covers the directors of a company against personal liabilities arising from business risks such as breach of contract, investigation by regulators, and creditors seeking payment of outstanding debts.

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