Peer2Peer Finance News May 2022 by Alternative Credit Investor

>> 7

THE PERFECT WIND-DOWN

Do you need administrators?

SHOW ME THE MONEY!

>> 12

Raising equity funding

Income’s Kimmo Rytkönen on his European expansion plans >> 16

ISSUE 69 | MAY 2022

P2P chiefs report bumper ISA season PEER-TO-PEER lending bosses have heralded “record” Innovative Finance ISA (IFISA) inflows this ISA season, thanks to volatile stock markets, low-yielding cash ISAs and several large IFISA providers exiting the market. The new tax year is well underway, and many platforms have told Peer2Peer Finance News that they have seen a rise in inflows from lenders looking to make the most of their £20,000 tax-free allowance. Platforms have reported that much of this has come from transfer-ins from stocks and shares ISAs, cash ISAs and IFISA providers that have closed to retail investment, such as Zopa and Funding Circle which both exited the P2P sector this year. Bruce Davis, managing director of Abundance, said the crowd bonds platform had a record run into the ISA yearend, including significant inflows of ISA monies via transfers from P2P

lenders which are exiting the market but also from stocks and shares ISA providers. “We also saw strong inflows of cash deposits into IFISA accounts reflecting the record number of projects available on our platform currently,” he added. Similarly, EasyMoney has seen a “huge inflow of retail money”, which it put down to larger players moving away from

offering IFISAs and the P2P property lending platform growing into a mature scale-up business. “It’s been great, much better than last year, retail money is flowing in massively,” a spokesperson from the platform said. “We’re really happy, we’re just trying to find high-quality loans, the retail money is coming in every day. “It’s been a mixing pot of the closures or

pivoting of Zopa and Funding Circle away from offering the IFISA, so we’ve seen transfers in that respect, and the EasyMoney project is starting to mature. We’re in year four or five and people are coming back and topping up their ISAs and that’s helpful.” Another P2P property platform, Invest & Fund, has seen a 300 per cent year-on-year increase in IFISA inflows and >> 4

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EDITOR’S LETTER

Published by Royal Crescent Publishing

Green Park House, 15 Stratton St, Mayfair, London W1J 8LQ info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@p2pfinancenews.co.uk Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk Michael Lloyd Senior Reporter michael@p2pfinancenews.co.uk PRODUCTION Tim Parker Art Director COMMERCIAL Tehmeena Khan Sales and Marketing Manager tehmeena@p2pfinancenews.co.uk SUBSCRIPTIONS AND DISTRIBUTION tehmeena@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.

he cost of living crisis continues unabated, with inflation hitting a 30-year high of seven per cent last month. Analysts are predicting that growth in the price of goods and services could even hit 10 per cent this year, amid the Ukraine crisis, energy shortages and supply chain issues, meaning an even tougher time for savers. I appreciate that many people who are struggling in these challenging times may not be in a position to consider investing. But for those who have sufficient funds, it is increasingly clear that investing, rather than saving, is essential to avoid the erosion of your pot in real terms. It’s great to hear that so many peer-to-peer lending platforms are seeing increased Innovative Finance ISA inflows this ISA season, suggesting that increasing numbers of savvy individuals are realising the need to invest and are benefitting from stable, inflation-busting returns away from the stock market.

SUZIE NEUWIRTH EDITOR-IN-CHIEF

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.

We hope you’re enjoying the latest edition of Peer2Peer Finance News! We have now moved to a paid-for subscription model. If you would like to continue reading the magazine, please go to www.p2pfinancenews. co.uk/subscribe/ to find out about subscription options.

NEWS

cont. from page 1 expects this to increase further as it has many transfers pending. “We were predicting a strong season, both pre 21/22 season ending and the start of the 22/23 season, this has been the case as the inflows and transfers-in have exceeded our forecasts,” a spokesperson from the platform said. The case for investing your ISA money has never been stronger, as UK inflation hit a 30-year high of seven per cent last month, further fuelling the cost of living crisis. In contrast to inflation, the best rate for a fiveyear fixed cash ISA is currently 2.1 per cent,

according to Moneyfacts data, while the average easy access cash ISA paid 0.38 per cent interest in April, meaning that savings are being eroded in real terms. Unlike volatile stocks and shares ISAs, IFISAs are a fixed-income product with far more stable returns. Exclusive Peer2Peer Finance News research released in March revealed that IFISAs outperformed the FTSE All-Share Index over the four years from 2018 to 2021. Over that period, IFISA investors have been able to enjoy average returns of approximately eight to nine per cent per annum.

“P2P investors can earn a far better return than leaving their money in a typical cash ISA account and without the ups and downs associated with equity investing,” said Ben Shaw, chief executive of HNW Lending. Shaw reported similar IFISA inflows to last year, but noted that this was still “pretty good” given the uncertainty around the Ukraine crisis, the cost of living increase and interest rate rises. Atuksha Poonwassie, managing director of Simple Crowdfunding, also said that her platform continues to see a significant inflow of

ISA transfers-in, which she said was partly due to an increase in the number of property developers keen to offer ‘ISA-friendly’ projects through the platform. “It is also the case that investors are looking for new homes for their ISAs to allow them to make the best use of this tax-efficient wrapper,” she added. New entrants to the market have also reported a positive ISA season. Rishi Zaveri, chief executive of Lendwise, said inflows have been encouraging since the launch of the platform’s educationbacked IFISA in January, and his team continues to monitor them.

Shojin to offer first charge development finance SHOJIN Property Partners is set to expand into first charge development finance within the next few months to become a onestop shop for developers. Chief executive Jatin Ondhia (pictured) said the peer-to-peer property lending platform specialises in providing equity or mezzanine junior finance for midmarket developers but is planning to start providing the senior first charge facility to save developers time and money. He said this would

mean that a developer could go to Shojin Property Partners for senior and junior funding and just pay one set of legal and valuation fees, rather than going to two different lenders and paying separate legal and valuation fees to both. Ondhia said the

platform hopes to launch into senior funding formally over the next two to three months and said this will likely be funded by family offices or institutions but may be opened up to individual lenders too. “We’re looking to add a senior funding line to what we do, it’s not because we want to be a senior lender, it’s not our core market, we like where we are, it’s to improve efficiency,” he said. “If they come to us, their costs would go down, adding to their bottom

line, and it cuts out the hassle of having to work with others. It will be a game changer.” Ondhia also said that he has seen a rising demand for mezzanine finance. “This is always our core market,” he said. “It doesn’t surprise me that other senior lenders move to mezzanine because the risk return profile is just so much better. We’re seeing increased demand due to greater awareness of the different ways of structuring development funding.”

NEWS

Income aims to become European P2P giant INCOME has revealed aspirations to rival major alternative lending marketplaces on the continent such as Mintos. The Estonia-based lending marketplace launched in February 2021 and has attracted more than €2m (£1.54m) of funds from institutions and a successful Seedrs campaign. On Income’s marketplace, both retail and institutional investors alike can invest in loans issued by loan originators globally. Its loanbook currently stands at almost €8m and founder Kimmo Rytkönen

says the long-term goal is to get to €450m. That would give it a loanbook close to Mintos, which has around €450m of funded loans outstanding. “Our mid-term lending target is €50m and then onwards to €100m,” Income’s founder Kimmo Rytkönen told Peer2Peer Finance News in an exclusive interview. “The largest marketplace is running around €450m of loans outstanding, that is the long-term target. “For now, we want to keep growing our investor base.” Mintos has built up a re-

spected alternative lending marketplace where investors fund loans through originators from around the world. Income is setting up something similar but is adding an extra element of safety for investors. “If a fintech on the platform goes bankrupt then we use the loanbook as security for investors,” Rytkönen said. “Currently, you would only have a buyback guarantee on a platform and if the borrower didn’t pay then they would buy the claim for it. “We have that but also

a security structure that protects against the lender defaulting, which nobody else does.” While Mintos has an alternative investment licence in Latvia, Income is still waiting for Estonian regulators to finalise rules so it can be approved and passport across the EU. “We are not regulated today but are looking forward to being regulated,” Rytkönen said. “I know there are a lot of investors waiting for that. It is a stamp of approval.” Go to page 16 to read the full interview with Rytkönen.

Can platforms benefit from the metaverse? VIRTUAL worlds being built in the metaverse could provide a new opportunity for peer-topeer lenders, industry stakeholders have said. Andrew Adcock, chief executive of Crowd for Angels – the only regulated crowdfunding platform that accepts crypto as a payment method – suggested that the metaverse could provide a new way for investors to fund loans. Several online virtual worlds, known as the metaverse, have popped up in recent years such as Decentraland. Many have their own cryptocurrency and

people can buy portions of virtual land worth thousands of pounds. The average cost of digital land is around $5,300 (£4,000), according to Forbes and could rise if there is increased demand. “Whilst the metaverse is still in its infancy, with the majority of activities online taking

the form of gaming or socialising, more and more traditional firms are looking to the metaverse as a way to connect with younger retail clients and cash in,” Adcock said. “In the future, who knows what the metaverse holds for the financial sector but it is not beyond the imagination to have

annual general meetings with investors online, show potential investors 3D designs to walk around and discuss portfolios. All whilst allowing the individual to part with their digital currency to stake in the latest venture. “The P2P world could benefit from this scene by engaging early and creating channels for the investors.” Although it is not P2P, property investment platform Proptee is already trying to gain exposure to this trend and is offering metaverse investment opportunities through its app.

NEWS ANALYSIS

Largest P2P firms now based outside of London THE THREE largest peerto-peer lenders are now based outside the capital but the sector insists there is still fintech life left in London. P2P trade body the 36H Group last month released industry data that revealed the largest UK lenders since the departure of Zopa, Funding Circle and RateSetter from retail lending. All three of those former P2P lending giants were based in London but the new makeup of the sector is different. The UK’s largest P2P lender, Assetz Capital – with a loanbook of £1.4bn – is based in Manchester. The second largest, Folk2Folk – with more than £500m of loans by the end of 2021 is headquartered in Cornwall, followed by

Birmingham-based CrowdProperty, which has a loanbook of almost £180m. Mike Bristow, chief executive of CrowdProperty, says being in the Midlands has geographical advantages as the platform’s staff can travel more easily around the UK as well as into the capital. “One of the biggest challenges a lot of the London-based, early-stage proptech businesses have is attraction and retention of talent,” Bristow said. “Being based in close proximity to similar businesses leads to a lot of competition, increased staffing costs and churn. “In Birmingham, there is a very strong talent pool that continues to grow, albeit crucially with less extreme demand than in London.

“Therefore we attract staff more easily and at a lower cost, and retain them for a lot longer, again pointing to a betterresourced and coherent business.” There are still five P2P lenders in the top 10 that have their headquarters in London. These include Invest & Fund and ArchOver. Charlotte Marsh, managing director of ArchOver, said having headquarters in a city like London benefits platforms by boosting their market presence and attracting talent, even if the office space is only used for part of the working week. A spokesperson for Invest & Fund said while the platform is headquartered in London, it also has a back-office

operation in Hastings and regional teams outside of the capital. “We don't feel any particular requirement for the P2P industry to be purely London centric, although we consider there remains value in having a presence in London as the financial centre of the UK,” the spokesperson said. “Equally, we cater to clients across the country, and our broader business structure reflects that.” Mike Carter, head of platform lending for the 36H Group, said London remains an attractive destination but said these figures show that it does not have to be the first choice for P2P platforms, particularly as the government is encouraging investment across the rest of the UK.

Cumulative loans written up to 31.12.21 £m

Ranking

Platform

Sector

Assetz Capital

SME

1,401

Folk2Folk

Property

502

CrowdProperty

Property

177

Kuflink

Property

156

Invest & Fund

Property

161

Proplend

Property

143

ArchOver

SME

119

HNW Lending

Property

106

Relendex

Property

Lending Crowd

SME

NEWS

Don’t call in administrators, says BondMason chief WIND-DOWN plans have been proven to work out better when platform operators have stayed on board, according to an investment specialist. Stephen Findlay (pictured), chief executive of BondMason, which previously allocated investor funds to property-backed and peer-to-peer loans, said platforms can save costs for investors by not appointing administrators. BondMason now runs a buy-to-let portfolio and Findlay has also been focused on winding down the legacy BondMason Core direct lending service, returning 107 per cent of invested funds since its closure in 2019. Some P2P lenders such as Growth Street have managed to close down with no issues but others

including Lendy and FundingSecure have faced delays and high costs. It comes as the Financial Conduct Authority last month called for regulated firms to improve their winddown plans to ensure they have enough cashflow. “What we have seen in the market ranges from some operators staying until the very end to ensure all positions are

managed out and funds returned,” Findlay told Peer2Peer Finance News. “In other cases, the companies are handed to administrators with operators stepping back, or away altogether. “Unfortunately, where administrators have stepped in, due to a lack of case law and precedent around how their services are paid for and loan collections can be distributed, we have seen significant proportions of underlying loan recoveries go to funding the administrator and legal fees. “Often, lawyers are seeking court direction on how to act, as appropriate, but this discovery is being paid for by clients out of their investments and returns, not by the former

operators or regulator. More central direction for the administrators would be beneficial for all here.” Findlay said managing the BondMason Core wind-down has meant a better outcome for clients. “In a small number of cases, such as BondMason – although not technically a P2P platform – the operators stayed to manage down the wind-down process, and at their own personal cost,” he added. “This has yielded a better outcome for clients than if an administrator was appointed. “There was no requirement to do this, only a mindset of what was ‘the right thing to do’ – something that isn't easily captured in a regulatory business plan or marketing literature.”

Family and friends lending app to launch A CONSUMER finance app that plans to launch later this year has shifted its strategy away from peer-to-peer lending due to the “intense” regulatory environment. Punk Money is now focused on friends and family lending, whereby consumers can borrow money from someone they already know. The investor sets the interest rate, although the

borrower can request a certain rate, and users can opt in to report their data to credit bureaus to improve their credit score. Founder and chief executive Ewan Dickie said he was originally planning to launch Punk Money as a P2P lending platform but decided on a change of direction in the third quarter of last year

because of the stringent regulatory approval process. “We saw P2P regulation was incredibly intense and it would be difficult to progress quickly within that – the Financial Conduct Authority was really stringent on new players which meant a major roadblock to entering,” he told Peer2Peer Finance News. “Friends and family

lending has less competition. It was better for us to focus on building a product that we knew was going to help people.” Dickie said Punk Money closed a £500,000 funding round at the end of 2021, and later this year aims to raise £3m and launch to market. He also revealed that more than 8,000 people have registered to use the app so far.

JOINT VENTURE

Kuflink to launch commercial buy-to-let loans

UFLINK IS PLANNING to launch a new lending product targeting commercial buy-to-let opportunities, as the peer-to-peer property platform continues to expand its offering. The platform is also mulling an entry into the consumer lending market later this year, in response to rising borrower demand. Meanwhile the platform is finessing its borrower experience by adding automation processes to make it quicker and easier to apply for financing. “We are working on a number of different products going forward, one of which is a term loan product which will come out over the course of the next few months,” says Narinder Khattoare, chief executive of Kuflink. “We're looking at three- to five-year products, where the investment is locked in for three to five years. It's more of a commercial buy-to-let type of offering on the platform with a very different type of borrower.” This product will differ from Kulink’s bridging or development loans in several ways. The loan values will be lower, the borrower will be a commercial landlord, as opposed to a developer, and the target rates are likely to be lower than with Kuflink’s development loan products, representing the lower risk and potential for longerterm gains. “We’ve actually done two or three of these loans in-house already,” says Khattoare. “We wanted to test it in-house with some of the loans from people we know that are coming towards maturity of

bridging or development loans that we can refinance into a buyto-let structure. We want to get the understanding right, get the processes right, and then we'll slowly roll it out to market. “The rates are going to be a lot lower than what we're offering on the platform at the moment,” he adds. “This is because you're getting a certain amount of rent cover on the interest payments.” As with all Kuflink products, these buy-to-let loans will be Innovative Finance ISA (IFISA) eligible, allowing investors to shield their earnings from taxation. During the 2021/22 tax year, Khattoare says that Kuflink saw near-record IFISA inflows, with investors targeting returns of up to seven per cent per annum. “We've been probably on par with last year in terms of the IFISAs that

have come our way, which is good,” says Khattoare. “Our doors are very much open to new IFISA money, but we don't really need to go out and make a big announcement about it because we've had flows of monies coming our way over the past 12 months. “There are always opportunities on our platform for people to invest in individual deals and to diversify against a portfolio of deals as well.” To date, Kuflink’s investors have trusted the platform with more than £170m of their money. So far Kuflink has paid back more than £110m and no investor has ever lost any money on the platform. As Kuflink targets new borrowers and investors in the financial year ahead, it is set to pass a number of loanbook milestones while helping more borrowers access the funding that they need.

It has never been more important to keep up to date with the latest peer-to-peer lending news. These are extraordinary times and our team is working hard to keep you informed about how the UK’s P2P sector is responding and what new trends are starting to emerge. If you want to be the first to learn about the latest developments in the world of P2P, please purchase a subscription today. We offer a range of subscription options, starting at just £1.95 a week. Please go to www.p2pfinancenews.co.uk/subscribe to buy a subscription today, so that you can enjoy unlimited digital access to P2PFN, with the option of a monthly print magazine. For more information on subscriptions, including overseas queries, please email tehmeena@p2pfinancenews.co.uk.

PROPERTY

Recovering fair value for investors

A downturn in the property market could mean that secured peer-to-peer lending platforms need to pursue recovery claims against valuers or solicitors, say Sam McCollum and Neil Franklin of law firm TLT

HILE THE PROPERTY market has been buoyant, we anticipate that to change over the next year. We expect that firms that have facilitated secured loans will need to manage shortfalls after appointing receivers and/or realising their security. There are a number of professional negligence claims that property finance firms should consider in order to ensure they recover fair value for investors. There will inevitably be recovery claims against valuers, where they have over valued properties, or solicitors if there were title issues or other issues with the security. For those who experienced the impact of the 2008-2009 financial crisis on lenders, they will be aware of the level of losses caused by the sudden fall in the property market. The crash also uncovered large numbers of property frauds (which can sometimes be masked in a rising market). Property developers were hit especially hard because of the way land sites are valued – based on the residual valuation approach, which relies on the end value of units (minus projected build costs and profit). As a result, land sites’ values can fall at a ratio of three to four times greater than property values, and that could be exacerbated by the spiralling building costs we are seeing. Against this backdrop, it would be wise for firms to assess their processes and options for recoveries against their professionals and put

solicitor’s failure to identify an issue with the title or extent of the property, or the solicitor’s failure to identify a property fraud. 3. Project monitor claims: With development finance, project monitors will often be instructed. If they negligently sign off on drawdown requests, or if their costs advice is negligent, the lender may have a claim against the losses caused by the negligent advice.

contingency plans in place. There are three types of professional negligence claims to consider: 1. Valuer/surveyor claims: For property finance and bridging finance, the value of the security is key. If this is substantially wrong, the lender will recover much less than they expected and the valuer may be liable. Because valuation is an art and not a science, valuers are rightly afforded a ‘margin of error’, which is usually five to 15 per cent, depending on the property type. The valuer’s liability will normally be limited to the extent to which they got the valuation wrong. 2. Solicitor claims: The viability of claims against solicitors (and the scope of the potential recovery) has improved following a Supreme Court decision last year. Lender claims normally relate to the

How long do lenders have to bring claims? Normally six years but it can be shorter or longer depending on the circumstances. Generally, the sooner steps are taken the better. This is because there can be risks related to insolvency or insurance coverage and these risks can increase over time. Whose claim is it to bring? With P2P lending, this can be a complex question and depends on the underlying loan documentation, security and terms of engagement with the professionals – and ultimately what was envisaged when the structure was set up. If firms have, or anticipate, substantial shortfalls, they should take steps to investigate any claims now. It would also be worth revisiting processes to manage future shortfall cases. For those actively lending, it’s worth reviewing the terms on which professionals are engaged so there are no unexpected difficulties further down the line.

EQUITY FUNDRAISING

Raising growth funding

Peer-to-peer lending platforms are entering a growth phase, and there is no shortage of equity funding available. Michael Lloyd reports…

EER-TO-PEER LENDING platforms survived the pandemic, but the global shutdown forced some of them to put their expansion plans on ice. Now, many platforms are embarking on equity fundraising to fund a growth spurt post-Covid. Platforms typically raise funds for key hires, global expansion, compliance, developing new products and building new technology, and will use a variety of channels to access external capital. These include angel investors,

equity crowdfunding platforms, funding rounds attracting institutional backers, and venture capital funding, to name a few. Many P2P firms have raised money on equity crowdfunding platforms Seedrs and Crowdcube over the past few years and several cite them as their most common method for fundraising. Most recently, Assetz Capital, CrowdProperty, Loanpad, Income and EstateGuru have used Seedrs, while Plend and JustUs have raised funds on Crowdcube.

Industry stakeholders have heralded the track record and strong investor appetite for P2P fundraisings on the two platforms. But equity crowdfunding platforms face competition from institutional investors, who are increasingly turning their attention to fintechs and P2P platforms. Augmentum Fintech has consistently backed P2P pioneer Zopa, which left the sector earlier this year to focus on its digital bank, and will continue to invest in fintechs and P2P platforms.

EQUITY FUNDRAISING

The fintech-focused venture capital firm took part in a £20m funding round for Zopa led by Silverstripe in March 2021, and in October it partook in a £220m round led by SoftBank. Ellen Logan, an investor at Augmentum Fintech, says the firm looks for differentiated technology capabilities, ambitious, executionoriented teams, large market opportunities and attractive unit economics which can support strong and sustainable growth. She says the venture capital investor sees opportunities within both consumer and property lending and continues to invest in fintechs, including P2P platforms. “Our view as Augmentum is that the digitisation of the financial services sector represents a huge opportunity, one that remains nascent despite the rapid growth of the fintech sector and record levels of fintech funding seen in 2021,” Logan says.

“As a specialist fintech fund, Augmentum will continue to invest in the sector, within which lending – under a variety of different models including P2P – represents a key vertical. “Key attractions of the lending space exist in its scale, the ability of technology to improve our understanding and management of risk, and in the potential for business model innovation to broaden the reach of credit to underserved groups.” Alison Harwood, vice-head of marketplace banking and head of London branch at Varengold Bank, says that the bank has some equity interests in P2P platforms, as well as offering funding lines. The German bank has been an avid backer of P2P and alternative lending platforms, including Assetz Capital, EstateGuru, MarketFinance and LendInvest. Harwood says the bank is now focussing on equity investments in

existing clients only through participating in venture capital-led rounds. When investing in a new business, Varengold embarks on intensive due diligence, involving a combination of desktop review across the organisation, infrastructure, risk, underwriting, legal, compliance

“ Augmentum will

continue to invest in the sector

”

and sustainability, combined with management interviews. But as investments are only being made to existing clients, the bank has no fixed criteria because these firms have already passed this due diligence. “Investing in fintechs which are already clients of ours gives us a close existing knowledge of their business before taking an equity

EQUITY FUNDRAISING

investment position,” she says. “It also allows us to strengthen close existing relationships and deepen the partnership approach we have to working with our clients.” In February 2022, Peer2Peer Finance News revealed that Germany-based asset manager NordIX AG is actively seeking to make investments in at least 20 UK and European platforms over the next two years. The new allocations will be made via the NordIX European Consumer Credit Fund, with a minimum commitment of €5m (£4.19m) per platform. This all coincides with the trend of rising fintech investment. According to Innovate Finance data, the UK saw a record year in annual fintech investment in 2021, exceeding $11.6bn (£9.68bn), representing a huge 217 per cent rise from 2020. Some new P2P platforms are looking to tap into this. Craig Smith, co-founder and chief executive of new family and friends lending platform JustLend, has recently raised £175,000. He said that £25,000 of this came from winning an award and the other £150,000 came from angel investors who “really believed” in their concept. The platform, which allows borrowers to create their own loan campaigns to raise funds and send these to up to 10 friends and family members, is currently in beta mode and working on launching formally later this year. Smith says that the platform is already in discussions about its next funding round in which it hopes to raise around £1m and has started conversations with a number of venture capital firms and angels. "Enthusiasm for the JustLend business is pleasingly high,” he says.

“ Most platforms will try different avenues to raise funds

”

Rob Pasco, co-founder and chief executive of P2P consumer lending platform Plend, which is currently awaiting final approval from the Financial Conduct Authority before it officially launches, says initially he raised equity from family and friends and has spoken to lots of different investors. “There’s a mix of different

options, from venture capital to family offices, high-net-worths, friends and family and institutional financing,” he says. Bruce Davis, managing director of Abundance, says that for the past 10 years, his platform has relied upon a mix of angel investors and regulated crowdfunding offers to raise finance for the platform's growth. “We wanted investors who are aligned as much with our mission as our financial goals and those investors have proven very effective supporters of both those objectives,” he says. P2P platforms are ultimately

EQUITY FUNDRAISING

Several P2P platforms, including Assetz Capital, JustUs and Crowd2Fund, took part in the government’s future fund, which effectively means that the government is an equity investor in these platforms. The scheme offered convertible loans ranging from £125,000 to £5m from the government, subject to at least equal match funding from private investors. The fund was open to innovative, high-growth businesses that needed support during the pandemic, so P2P platforms were a natural fit.

Davis says that from his experience of raising equity, it requires plenty of work to build your own contact list and generate media stories to attract investors. “There are a lot of companies competing for attention, so you need to find your USP which makes your offer stand out on whichever platform you choose to do the raise,” he says. Davis goes on to say that as platforms mature it can become easier to attract equity funding. “Overall, there is strong interest in platforms within the sector

“ There is strong interest in platforms which have a clear USP”

attracting investment for growth, and there is a wealth of funds available looking for a good home. Last month, Shojin Property Partners closed a £3m funding round and aims to raise another £2m to fund its global expansion plans. The P2P property lending platform said that as it ramps up its global expansion plans, the funding will be used to grow its operations with new hires in deal origination, technology, marketing and risk management. As well as private investment, some platforms are benefitting from public equity funding.

JustUs raised £1.3m under the scheme in March last year and after an orderly debt-to-equity conversion agreement, the British Business Bank became a minority shareholder in the platform on 20 December, in a transaction which valued it at £50m. Despite ongoing investments into the sector, attracting funds can still prove challenging. P2P platform bosses describe how difficult raising equity can be and say in general they have a mix of investors approaching them and going out to pitch. “We have had people come to us but it’s much more common that you go and pitch to people,” says Filip Karadaghi, co-founder of LandlordInvest. “There are many ways to raise equity financing and most platforms will try different avenues to raise funds. There’s nothing set in stone. There are various approaches and challenges to maximise the chances of success.”

which have a clear USP or market niche,” he says. “As platforms scale then it will open up new sources of funding, such as institutions – whether that makes it easier to access capital remains to be seen.” Simple Crowdfunding’s managing director Atuksha Poonwassie agrees and says if a platform is more established, they have been through a number of regulatory changes and understand how the industry works. “I think it has become easier anyway because this marketplace is more widely understood and known than say three years ago,” she adds. “That always helps.” External investment is an arguably essential component for platforms looking to scale and there is plenty of private capital available. It is just a matter of knowing how to pitch and where to look, but now may be the perfect time for platforms to equity fundraise to finance their post-pandemic growth.

PROFILE

Generating Income

Kimmo Rytkönen, founder of peer-to-peer lending marketplace Income, tells Marc Shoffman about his ambitious plans for growth

IMMO RYTKÖNEN IS an active peer-to-peer investor and after 15 years of working in fintech lending, including launching an alternative bank in Indonesia, has started his own lending marketplace called Income. Estonia-based Income only launched last year in the aftermath of the pandemic but has already attracted more than €1.3m (£1.07m) of institutional funding as well as completing a successful €844,019 Seedrs crowdfunding campaign. On Income’s marketplace, both retail and institutional investors alike can invest in loans issued by loan originators globally. Rytkönen explains what his P2P lending marketplace aims to do differently and its plans to take on the big brands in the sector. Marc Shoffman (MS): What got you interested in P2P lending? Kimmo Rytkönen (KR): I have been actively investing on P2P platforms since 2019, and I know lending as I have been working in this sector for most of my working life. Covid hit and I just thought, I know lending and structured finance and something could be done better. I connected with fintechs I knew to see if they would come on board and then I just kept building. MS: What are you doing differently? KR: We have protection against a fintech lender default. If a fintech

on the platform goes bankrupt then we use the loanbook as security for investors. Currently, you would only have a buyback guarantee on a platform and if the borrower didn’t pay then they would buy the claim for it. We have that but we also have a security structure that protects against the lender defaulting, which nobody else does. These are similar methods to those used by institutional investors. Lenders, especially those in emerging markets, have a chronic

need for capital to grow and this is where we can step in. MS: What types of loans are available on Income? KR: It is a spread of different credit products. Today we have car loans from Latvia, consumer loans from Brazil, and shorter-term loans from Indonesia and Mexico. We are also looking at factoring and payroll finance, which we feel is ripe for disruption. MS: How difficult was it to plan a

PROFILE

launch during the pandemic? KR: The main challenge initially was that all the lenders were very busy trying to figure out what was going on so there were delays. We started development during the pandemic in early 2020 and launched in February 2021. The worst was over by that point in terms of the shock of closed economies. Every deal is made at a distance now on Skype or Zoom, whereas in the past we would have been expected to be on site. It is good that we don’t all need to fly to somewhere like Mexico to agree a deal now. MS: What impact has the Ukraine crisis had on Income? KR: We don’t have any lenders on our marketplace that are exposed to Russia and Ukraine. But investors are shaken and it has hit all assets such as the stock market and cryptocurrencies. For the first two weeks we saw a slowdown in new customer onboarding which we can attribute to the Russian attack but we have recovered now. We know other platforms are struggling, that is mainly those with exposure to the region. MS: How is Income regulated? KR: There are now EU-wide crowdfunding regulations. Estonia has implemented the first stage for equity and real estate but our marketplace has been left out so far. The rules are being penned. Our assumption is we can still apply this year but the legislator first needs to write down the requirements. We are not regulated today but are looking forward to being regulated. I know there are a lot of

investors waiting for that. It is a stamp of approval. MS: How do you vet lenders that list loans on your marketplace? KR: Our first layer of due diligence is looking at their loanbook. We analyse the cash value and quality and then give an indicative offer to the company of how much money we can advance for each loan. There is also the normal financial due diligence such as looking at the profit and loss and balance sheet, and we will also seek local experts to understand the regulatory environment and risks in the market where a lender operates. If everything checks out, we do the IT integration and then add the loans to our system and investors can start putting money in. MS: How did it feel to run a successful Seedrs crowdfunding campaign? KR: It felt good to have such interest. The process took longer than we thought to get the project live, mainly because Seedrs vets candidates and verifies statements so closely. It shows how crowdfunding isn’t an easy way to get funding but it is a good way. We saw a whole lot of investors signing up to the platform as a result of the campaign. The publicity isn’t something you get from venture capitalists. The money will help fund small increases to the team size and we are aiming to use it to improve the product and accelerate sales. We are discussing other fundraises with existing investors. It would probably be later this year if we do it and depending how our plans manifest. MS: How do you plan to expand?

KR: We have several partnerships. We recently started working with Finnish fintech ResultElf to onboard its AI credit decisionmaking software. It makes sense to refer our lenders to these sorts of services. It will benefit them and provide an additional revenue stream. We are trying to expand from not just being a platform but a fintech hub. It still remains to be seen whether our regulatory licence will be passportable but we want to service the whole of the EU. MS: Are you interested in the UK market? KR: We would like to enter the UK and we are considering how to approach it. There is a lot of work to be done in mainland Europe first but we definitely want to be active in the UK at some point. MS: Do you have a loanbook target? KR: We have just reached 2,038 approved investors. These are people who have been checked for anti-money laundering and completed the know your customer documents. Those guys have today invested cumulatively around €7.7m. Our mid-term lending target is €50m and then onwards to €100m. The largest marketplace is running around €450m, that is the long-term view to reach. For now, we want to keep growing our investor base. At the moment the pipeline looks pretty good. We have European, Latin American and Southeast Asian companies coming on board. We would like to add a few institutional investors and build a secondary market. It is all in the development plan.

CONSUMER LENDING

Mind the gap Zopa and Lending Works have left a gap in the consumer P2P lending market. Michael Lloyd examines the new generation of consumer lenders which are taking their place

HE PEER-TO-PEER consumer lending sector has changed significantly in recent years, with some of the largest brands exiting the space. But the emergence of new, innovative market entrants suggests that we are entering a brave new world of P2P consumer lending. According to every metric, consumer lending is on the rise. Recent figures from the Finance & Leasing Association showed that its members saw a 39 per cent year-onyear rise in new consumer lending business in February. Meanwhile, the Bank of England’s money and credit statistics showed that consumer borrowing grew by 4.4 per cent annually in the same month, the largest rise since the pandemic, to reach an additional £1.9bn. There is an enormous opportunity for P2P platforms to take more market share. P2P platforms have a long track record of innovation and use technology to evaluate credit applications more efficiently. For example, some platforms use open banking to better assess creditworthiness, and identify which borrowers may not be able to meet repayments. Zopa proved the efficacy of the P2P consumer lending model. It was the world’s first

P2P platform when it launched in 2005, and it grew to become one of the largest P2P lenders in the country, with cumulative lending of £5.66bn. It chose to exit the P2P market to focus on the roll-out of its digital bank. Meanwhile RateSetter – for many years one of Zopa’s key competitors in the consumer lending space – was acquired by Metro Bank in September 2020. Since then, the former P2P lender has grown the bank’s consumer originations from an average of less than £2m per month in 2020 to over £50m a month last year. With big brands out of the picture, newer P2P platforms are able to showcase their own consumer lending products, and there is no shortage of innovation. Elfin Market tapped into the multi-billion-pound credit card market with the launch of the Elfin Purse in 2019. The Elfin Purse, which is funded by lenders, gives borrowers a credit limit of up to £2,000 with a representative APR of 5.8 per cent. This is much lower than the 21.46 per cent average credit card interest rate in the UK, according to NimbleFins. And the innovation does not stop there. In 2019, Lendwise launched as the first P2P lending platform focused on education finance.

It allows lenders to fund education loans, which are primarily used by post-graduate students seeking a fixed rate loan to fund their studies. Students pay a 10 per cent APR, on average, while investors can earn approximately nine per cent per annum. Other P2P consumer lenders are taking full advantage of open banking to maximise their underwriting capabilities. Open banking is a data-sharing initiative that mandates high street banks to share customer information with approved third parties, in order to boost competition in the financial services

CONSUMER LENDING

market for the benefit of consumers. Leap Lending is one such platform. The P2P consumer lender launched in December 2019 and uses open banking to analyse 12 months’ worth of bank transactions from borrowers to determine if they can afford the loans. By using the data-sharing initiative, platforms can better assess the affordability of borrowers and offer loans to those with thin credit files, giving more consumers access to finance, all while providing a quicker application process. Meanwhile, Plend is looking to launch imminently with the USP

“ We’re not in the

market to be Funding Circle or Zopa

”

of a credit model based on using open banking. The platform, which is awaiting final approval from the Financial Conduct Authority before it officially launches, will provide loans of up to £10,000 at 10 to 25 per cent APR, with repayments over one to five years. Investors can earn up to eight per cent per annum.

“For every loan we assign an indicator and score and track it across its journey and if there are any mistakes, we get feedback and adjust it,” says Rob Pasco, co-founder and chief executive of Plend. “You need to have strong underwriting, and that’s why we built our open banking model from the ground up.” This year, more platforms hope to launch into this space. Peer2Peer Finance News understands P2P property lending giant Kuflink is considering expanding into the consumer lending sector, while

CONSUMER LENDING

a slew of new consumer lending brands are poised to enter the market with a new spin on the P2P lending concept. Punk Money is set to launch later this year, enabling friends and family members to lend easily to each other, with the lender setting the interest rate. Users can opt in to report their data to credit bureaus to improve their credit score. Over 8,000 people have already signed up to the waitlist ahead of the launch. And Loop Money is a new friends and family money sharing app created by Paul Pester, the former TSB Bank chief executive, Anthony Thomson, Metro Bank and Atom Bank founder, and former CompareTheMarket chief Matthew Donaldson. Similarly, JustLend, which is in beta mode and hopes to launch formally later this year, focuses on the niche of lending between f amily and friends. The platform allows borrowers to create their own loan campaigns to raise funds. They can set their own repayment terms, including interest rate and term length, and send the campaign to up to 10 family members and friends to invest in. Investors will earn a small interest

and paying more, and works better for finance for personal reasons, such as IVF treatment, which the platform has funded. “We’re not in the market to be Funding Circle or Zopa, it’s not about strangers when it comes to borrowers and investors,” says Craig Smith, co-founder and chief executive of JustLend. “It’s family and friends supporting and lending to each other.” Some platform bosses have

“ Everyone thought Covid would be the

recession, but now we’re seeing a decline in personal loans being approved rate in return. The platform gives risk scores to its borrowers and creates the loan agreement from a pre-populated form that the borrower fills in. Lending to loved ones with your own set interest rate can be more attractive than going to strangers

”

forecast an increasing need for consumer finance as the cost-ofliving crisis takes hold. Nadeem Siam, founder of Fund Ourselves, says his P2P platform provides consumer loans which can help borrowers pay their bills. “With prices going up everywhere

there is definitely a growing need for short-term credit and consumer credit,” he says. Pasco says Plend will not provide loans to pay bills but will allow consumers to consolidate existing debt. He adds that in a market hit by inflation, he is seeing worrying indicators for lenders to be concerned about, such as people likely to default on their loans. “Everyone thought Covid would be the recession, but now we’re seeing a decline in personal loans being approved, more lenders are being conservative, and a correction to lifestyles will have an impact on borrowers’ ability to repay, so will affect defaults,” he says. “We have no existing loans to worry about or consolidate and when we launch we can be more adaptive.” Investors looking to tap into returns from the P2P consumer lending market need to understand how platforms operate, their target borrowers and interest rates. They must also know the difference

CONSUMER LENDING

between unsecured and secured consumer lending. Secured loans require collateral, and thus provide security for investors. They also tend to have longer repayment periods and generally are open to more consumers, including those with less than perfect credit history, and allow people to borrow more. Meanwhile, unsecured personal loans are more flexible for borrowers, requiring no collateral, allowing for earlier repayments and for consumers to choose how long they want to repay. Lending Works originated unsecured personal loans until its wind-down and makes for an interesting case study. The platform struggled during the pandemic, pausing lending from April 2020 until the end of January 2021, and even introduced negative interest rates. Borrowers were given

“ There is definitely

a growing need for short-term credit and consumer credit

”

payment holidays during the crisis, delaying investor repayments. This could be seen to show the risks of unsecured consumer lending during periods of economic uncertainty. However, chief executive Nicholas Harding says that the platform received minimal complaints during the pandemic. While secured consumer lending can seem like the safer option, it brings its own challenges. Pasco says adding security to small consumer loans can prove a lot of “hassle” and too expensive so instead Plend will offer unsecured

consumer lending backed by good underwriting and open banking, to prevent defaults. “People earn income and don’t accumulate assets in the same way as in business, so having to collect a defaulted loan repayment becomes very hard,” he says. “The security is knowing what factors are important in the lifecycle, we don’t incorporate assets in the loan agreement as it’s too expensive. It comes under origination, underpinned by open banking.” With a growing consumer credit market to service, P2P platforms are well placed to thrive and grow this year and beyond. The roll-out of open banking and other innovations will help them set themselves apart from high street banks. With a raft of platforms gearing up to launch, this could be a new era for P2P consumer lending.

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