Peer2Peer Finance News March 2019 by Alternative Credit Investor

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M&A? NO WAY

Funding Options boss does not expect P2P mergers

Read our special report on platform insolvencies supported by

IFISAS 101

A practical guide to IFISA investing

>> 18

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ISSUE 30 | MARCH 2019

Industry readies for bountiful ISA season PEER-TO-PEER lenders are gearing up for their best ISA season yet, with Innovative Finance ISA (IFISA) volumes predicted to soar as investors rush to allocate their tax-free allowance before the end of the fiscal year. IFISA providers have reported increasing inflows from ISA transfers, as investors eschew low-yielding cash ISAs and volatile stocks and shares ISAs. Stuart Law, chief executive of Assetz Capital, said the P2P lender’s tax wrapper is attracting higher levels of subscriptions than ever before, with investors putting £18,000 on average into its IFISA last year. “This is undoubtedly down to investors seeking

out a ‘third way’ that offers respite from the general volatility of the stocks and shares ISA and the lack of returns provided by the cash ISA, with the IFISA quickly becoming the option of choice,” he added. “As more investors come to recognise the advantages of the IFISA, we’re confident of a continued uptick in ISA transfers to the platform

– we have seen several substantial transfers take place already. “The popularity of the IFISA is showing no signs of slowing down, and we’re anticipating even stronger interest this ISA season.” A spokesperson from P2P property lender Kuflink said they expect the IFISA market to “at least double” over the coming year.

“We tend to see more cash ISAs coming in as savers seek an increase in rates, however some stocks have been particularly volatile this year so we are starting to see more uptake from stocks and shares ISA customers in search of more predictable returns,” the spokesperson said. “The IFISA’s main challenge so far has been a general lack of awareness but, thanks to the industry’s efforts this year, numbers seem to be picking up across the board. We have a long way still to go but I think the market will at least double over the coming year.” Sophie Pearce, managing director of MoneyThing, said the P2P business >> 5 lender had seen a

IFISA providers advised to refine marketing approach INNOVATIVE Finance ISA (IFISA) providers have been urged to work on their messaging and marketing techniques in order to improve mainstream awareness of the

tax wrapper. Neil Edwards, chief executive and founder of The Marketing Eye, an alternative finance and fintech-focused marketing agency, has

called for peer-to-peer lenders to focus on more than just yield. “Investors are looking for the optimal combination of three main factors: yield; security and liquid-

ity,” he told Peer2Peer Finance News. “Having an ISA is often seen by platforms as a reason in itself for investors to join, where>> 5 as it is only a small

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EDITOR’S LETTER

Published by Royal Crescent Publishing

WeWork, 2 Eastbourne Terrace, Paddington, London, W2 6LG info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@p2pfinancenews.co.uk +44 (0) 7966 180299 Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk Andrew Saunders Features Writer Danielle Levy Features Writer Hannah Smith Reporter PRODUCTION Tim Parker Art Director COMMERCIAL Ashleigh Sadler Director of Sales and Marketing ashleigh@p2pfinancenews.co.uk Tehmeena Khan Sales and Marketing Support tehmeena@p2pfinancenews.co.uk SUBSCRIPTIONS AND DISTRIBUTION info@p2pfinancenews.co.uk Find our website at www.p2pfinancenews.co.uk

t might seem that we’ve gone a little Innovative Finance ISA (IFISA) crazy this issue – two stories on the front page, coverage from our roundtable event and another special report all focused on this tax wrapper! Maybe we have, but I think it is well justified. As we enter March, we are in the full throes of ISA season and this is a pivotal time for peer-to-peer investors and platforms alike to capitalise on the opportunities presented by the IFISA. The last tax year saw £290m of subscriptions into the IFISA – a 700 per cent increase on the previous year. Can we continue that monumental pace of growth, albeit from a higher (and thus more challenging) base? With the ‘big three’ P2P lenders now established in the IFISA market, industry-wide investment in marketing and an ever-increasing selection of products on offer, I think this is entirely possible. There is plenty of ISA money that could still be channelled into the sector from low-yielding cash ISAs and volatile stocks and shares ISAs – we just need more people to know about P2P! Hopefully P2PFN’s bumper IFISA coverage, both in print and online, will help to boost awareness in the lead-up to the 5 April deadline. Happy reading and for some of you, happy investing! SUZIE NEUWIRTH EDITOR-IN-CHIEF

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

A salve for insolvency

Insolvencies are on the rise across the UK. Dale Hernon, head of client services at Kingston Smith & Partners, explains how lenders can reduce their exposure to bad debt

O PEER-TO-PEER platform wants a client to default on its loan. When a company becomes insolvent, there is little chance of the lender recovering anything more than a fraction of the outstanding loan value. But as the UK’s alternative finance market grows, defaults and insolvencies are set to become more common. In fact, according to the Insolvency Service, one in 242 UK companies have entered liquidation in the past 12 months. Dale Hernon, head of client services at business recovery and insolvency specialists Kingston Smith & Partners, sets the scene: “Three years ago, loan defaults were relatively low within the P2P sector but, as the industry has matured, the demand for P2P loans has exploded. And so too, of course, has bad debt.” Against this backdrop of rising insolvency risk and realising the situation would only get worse, Hernon took action. He set about designing a tool that would enable his alternative lender clients to have a complete overview of impending insolvencies so that they can take precautionary action. “The need for transparency in the marketplace was obvious,” says Hernon. “So we built a system ourselves from scratch, KS Vision, which not only monitors ongoing insolvencies but also alerts P2P lenders to preinsolvency proceedings.

“KS Vision provides specific information regarding petitions and the making of insolvency orders while also removing the administrative burden of creditors having to deal with such matters, including the entire processing of insolvency claims once an order has been made.” KS Vision is a web-based case management system and client portal that is available (along with full training at no cost) to all alternative lenders, and anyone wishing to monitor and pre-empt insolvency situations. This tool enables Kingston Smith & Partners to significantly increase dividend levels for alternative lenders. In a recent voluntary arrangement, after long-running negotiations,

Kingston Smith was able to increase the dividend level from 10p/£ to 100p/£ over five years, with 75p/£ being delivered within 12 months. “We get instructions every day from alternative lenders,” says Hernon, who has been assisting P2P lenders for more than six years, as well as solicitors and debt collection agencies within the industry. “Most P2Ps don’t recognise when an insolvency is approaching, so it comes as a total shock to them.” The key to getting the best result possible? Take action early and get expert advice immediately. KS Vision’s early alerts of bad-debt data is crucial. Not only can the P2P lender manage expectations of the relevant stakeholders, but the early action also ensures that the appointed insolvency professionals have the best chance of minimising the losses. Kingston Smith & Partners is the business recovery and insolvency arm of top 20 accountancy and business advisory firm Kingston Smith. Kingston Smith as a whole group is showing itself to be a serial innovator with prestigious industry awards for combining creativity and technological savvy into practical, effective applications. It boasts Large Firm Innovation of the Year at the British Accountancy Awards 2018 and is finalist for Most Innovative Business Process in the Managing Partners’ Forum Awards 2019.

NEWS

cont. from top of page 1 recent “flurry of activity which we expect to build as we move towards the end of the tax year.” “With some interesting loans on the horizon we are anticipating good take-up of this taxefficient product,” she added. “With cash ISAs offering such unattractive rates, the IFISA compares favourably with the better-known stocks and shares ISA, especially as the P2P market matures.” Interest rates on savings accounts remain at near-historic lows. According to Moneyfacts, the average instant-access cash ISA

paid out an interest rate of 0.94 per cent in January of this year. With inflation still hovering near the two per cent mark, this means that cash ISA savers will see the value of their holdings eroded by rising prices. Meanwhile, the FTSE 100 plummeted by 12.5 per cent last year – its worst decline in a decade. This equated to more than £240bn being wiped off its constituent companies, amid ongoing fears of a US/China trade war and Brexit-linked uncertainty. “The IFISA represents an excellent middle ground for investors put

off by the increasingly turbulent equity markets or disappointed by the pitiful returns offered by cash ISAs,” said Andrew Lawson, chief product officer at Zopa. “This year, as the IFISA and P2P lending continue to enter the mainstream, we’re seeing more and more people quite rightly demanding fairer, simpler, and more intuitive products which do away with hidden fees or introductory rates that swiftly disappear.” The ‘big three’ P2P lenders – Zopa, RateSetter and Funding Circle – all have IFISAs now, which

is expected to help boost the market this year due to their greater brand awareness and larger customer bases. “Regulatory delays meant the launch of IFISAs by P2P platforms spanned across the 30 months following the April 2016 IFISA launch date,” said Iain Niblock, chief executive and cofounder of P2P analysis and investment platform Orca Money. “With these three players now offering IFISAs we expect to see significantly more volumes in this ISA season.”

tive way of reaching an audience that is actively looking for a home for this year’s allowance,” said Edwards. “Lower-cost display advertising and retargeting on both the internet and the major social media platforms will also help.” Advertising aside, platforms should also use referral incentives

to leverage the loyalty of their existing investors, he added. The IFISA attracted £290m in subscriptions in the 2017/2018 tax year across 31,000 accounts – a mammoth increase on £36m of subscriptions across 5,000 accounts in the previous tax year. However, this is still a relatively diminutive piece of the ISA pie, compared to the £39.5bn that was sheltered in cash ISAs and £28.7bn which was invested in stocks and shares ISAs in the last tax year. For more on the IFISA, read our special report on page 18.

cont. from bottom of page 1 part of the equation for most investors. “The IFISA makes yield more attractive, but platforms need to also play up the messaging on security, risk of loss and liquidity, particularly in an uncertain economic climate.” Edwards added that a good underwriting record, security and a degree of liquidity would also provide reassurance to investors. In the lead-up to the end of the tax year, there tends to be a spike in search traffic for ISA investments that P2P lenders should capitalise on, Edwards explained.

The Marketing Eye’s research has found that the IFISA is the least-searched-for ISA product on Google’s search engine, with Help-to-Buy and cash ISAs most popular. “Advertising to attract [ISA search traffic] will be expensive, but it is difficult to think of a more targeted and cost-effec-

NEWS

FundingSecure toughens stance on defaults FUNDINGSECURE has announced that it is taking a tougher stance on borrowers as it targets a default rate of zero per cent and expands its product range. The peer-to-peer lending platform told Peer2Peer Finance News that it is planning to strengthen its underwriting processes, accept fewer loans and hire more staff to work with borrowers from the start to anticipate and avoid any issues. “We are looking at zero defaults going forward,” said

FundingSecure’s director Nigel Hackett. “There’s increased due diligence at all levels. The markets are maturing, and we’re trying to change with it. “We’ve always tried to be fair towards both our investors and our borrowers. In a few cases we’ve had to put some loans into receivership because that was the best solution to bring the maximum return. Going forward the intent is to avoid that, so currently we’re taking a tough stance.” The platform currently has a default rate of 0.6

per cent on its loanbook. Raj Kumar, executive director of FundingSecure, revealed that the platform is increasing the term of its loans to a maximum duration of 18 months, up from six months previously. “We are also starting to include underwriters,” he said. “So when we put up a loan on the platform we will already have investors in place to take up any shortfall.” This underwriting will take the form of institutional cash which will sit underneath each deal before the investors

come on board. “The business is being further capitalised which will allow us to prepare for the growth of the future,” added Kumar. “We are upgrading our systems, and we are recruiting additional staff so that we can have better communication with borrowers, and we can pass that on to the lenders.” Kumar said that he expects the new funding to come from a combination of family offices, institutional investors and high-networth investors.

Funding Options chief eschews M&A predictions THE PEER-TO-PEER lending sector is unlikely to see any consolidation, according to the founder and chief executive of business finance aggregator Funding Options. Conrad Ford (pictured), whose platform provides small businesses with a variety of finance options including P2P loans, said he cannot see the value in mergers for the sector. “I have read repeatedly that there is going to be lots of consolidation,” he

told Peer2Peer Finance News. “I don’t believe that story, and I say that unequivocally. If you’re a big [P2P] player doing £100m in originations a month, why on earth

go through all the pain of a merger for a book of £50m? “I’ve done a few mergers and they usually go wrong. It would be much easier for them to get that £50m through normal customer acquisition.” However, the former Barclays strategist expects to see more substantial collaboration between banks and fintechs this year. “I think 2019 will be the end of the incubator and accelerator era; there will be

proper commercial relationships with banks, not just PR partnerships,” he said. Despite years of speculation, there has been little M&A activity in the P2P sector to date. However, there have been a number of strategic partnerships, such as last year’s tie-ups between banking giant Barclays and alternative business finance provider MarketInvoice, and P2P lenders Ablrate and Huddle. Read the full interview with Ford on page 34.

JOINT VENTURE

It pays to be different

P2P platforms should champion their differences, says Tim Ryan, partner and national head of technology at DAC Beachcroft

T CAN BE DIFFICULT FOR peer-to-peer lending platforms to find service providers who understand the unique challenges and opportunities that alternative finance presents. But this is where DAC Beachcroft is different. The international law firm has a team of specialists who understand better than most how to work with innovators. What’s more, they know the importance of differentiation. DAC Beachcroft partner and national head of technology Tim Ryan is based in the firm’s London office. His team has deep experience of working with fintechs, alternative lenders and P2P platforms, providing specialist commercial and regulatory legal advice. “Our role is to advise on whatever the client needs from a legal perspective,” says Ryan. “But where P2P lenders are involved, we’re experienced in advising on their technology platforms – the software which connects their intermediaries and enables them to do business.

“ We are not just the lawyers in the room”

We work to protect their interests from a legal perspective, and we do this by drawing on our broad experience in commercial fields. “I’m fortunate enough to have a large team of colleagues with diverse and highly technical skillsets. But

we are not just the lawyers in the room – we also bring to bear the ability to leverage our commercial knowledge and the network that we have within the sector.” This role has given DAC Beachcroft a strong insight into the emerging trends and challenges of UK-based P2P lending. Growth has been a challenge, he says, although there is no shortage of innovation within the sector, and this is where P2P platforms can truly excel. “I think there are several core areas in which alternative finance differs from mainstream finance,” he adds. “One is to ensure that they have a differentiating factor. So, in the example of P2P lending, this means sticking to the DNA of what P2P means and delivers. “It is also vital that they

differentiate from traditional businesses so that they are not providing an offering that can be easily absorbed into a large established financial institution, unless that is the ultimate goal, of course. One of the ways that they can do this is by being quite agile and quick to move. “And a third differentiating factor is that these firms can use very clever technology to carve out their place in the market, so they have a real competitive advantage.” In fact, unlike many P2P service providers, Ryan does not believe that the highest value of a P2P business is always its potential as an M&A offering. Instead, he believes that P2P and traditional banking should be viewed as complementary elements of the financial ecosystem. “I think the initial view among some industry onlookers was that alternative finance and other fintech companies were there to attack the banks,” he says. “But that perception has changed somewhat, and they are now seen as more of a complementary offering. “There is plenty of market space and plenty of commerce to go around.” As the P2P market heats up and new opportunities emerge, DAC Beachcroft is the sort of firm that every lender wants to have in their corner. If you would like more information about DAC Beachcroft's services, please email p2pfinance@ dacbeachcroft.com.

JOINT VENTURE

Protecting investors

Louis Schwartz, chief executive of Loanpad, explains why the provision fund model isn’t always the most effective way to protect retail investors

EFAULT RATES ARE beginning to loom large for the peer-to-peer lending community, as platforms start to see large tranches of loans reach maturity. As a result, the ways that platforms protect their investors from capital losses have been under scrutiny, with two methods proving to be the most popular: provision funds or ‘skin in the game’. For Louis Schwartz, chief executive of recently-launched P2P platform Loanpad, ‘skin in the game’ could be a more viable option. “Provision funds can provide a somewhat false sense of security, or at least an unknowable level of security,” he says. “They are often funded by reducing lender returns, so basically these funds are built with money that may otherwise have been paid to investors, and the overall value of the provision fund represents a very nominal amount when compared to the total size of the loanbook – often just one or two per cent. “If the rate of defaults is higher than that, the provision fund would essentially get wiped out. And then you have to make the decision, what investors are going to be covered, and at what point in time are they going to be covered? And can the platform even continue without the provision fund?” Schwartz, unsurprisingly, is an advocate for the ‘skin in the game’ model, and Loanpad has devised a system whereby all of its retail investors will see a

sizable part of any loan being funded by lending partners. These carefully-selected lending partners invest at least 25 per cent alongside retail lenders on every single loan on the Loanpad platform on a first-loss basis. Schwartz says that this 25 per cent acts like a provision on each specific loan, as opposed to a provision fund that is aggregated across all loans. “Provision funds can hide the

Provision funds can “ provide a false sense of security”

level of risk when everything's good and everyone's getting their returns as expected, until a time when the provision fund may no longer be able to keep up,” says Schwartz. “At that point, the underlying loans and their risk profile would become more noticeable and relevant to investors, as will the duration of the underlying loans

and thereby liquidity. “We feel that the ‘skin in the game’ model provides a more sustainable and transparent approach to risk management.” The other undeniable benefit of the ‘skin in the game’ model is that retail investors have the peace of mind that comes with investing alongside established large-scale investors who have already done in-depth due diligence on each loan. This adds another layer of quality control, says Schwartz, and should help reassure retail investors. However, communicating this message presents a challenge. Schwartz believes that more needs to be done to educate investors, as there is a huge difference between the two methods of mitigating risk. He adds: “In the current environment and with Brexit uncertainty, investors should assess what they are investing in carefully, to ensure they fully understand the features, risks and benefits of each platform and its risk management methods.”

NEWS

How worried should investors be in 2019? INSOLVENCIES, credit crises, economic lag and – of course – Brexit. There are many reasons for peer-to-peer investors to worry this year. Over the past few years, P2P platforms have worked hard to win over investor confidence and the results speak for themselves. Both Funding Circle and Zopa have now passed their £4bn lending milestones, while Innovative Finance ISA (IFISA) investments across the industry were worth £290m in 2017/18 – a 700 per cent year-onyear increase. But a raft of macroeconomic issues now threatens to spook investors, just as P2P lending is starting to enter the mainstream. At the time of writing, the terms of the UK’s withdrawal from the EU were still unclear. What we do know is that in the 33-odd months since the

referendum, the value of the pound has fallen, the UK economy has slowed, and the stock market has recorded some of its biggest post-crisis losses. In 2018, unsecured consumer lending fell at its fastest rate in five years, as Brits scaled back their spending amid Brexit uncertainty. And the Insolvency Service recently revealed that personal insolvencies rose by 16.2 per cent last

year, while Individual Voluntary Arrangements were at the highest annual level ever recorded. This raises the spectre of higher defaults among borrowers, which would rapidly undermine the hard-won reputation of the P2P sector among retail investors. According to Neil Faulkner, co-founder and managing director of ratings and analysis firm 4thWay, a ‘worst case

CREDIT CONDITIONS AT A GLANCE •7 1,034 IVAs in 2018, a 19.9 per cent year-on-year increase (Source: Insolvency Service) •£ 8,854 is the average Brit’s idea of an “unmanageable” amount of debt (Source: TDX Group) • 1 .99 per cent was the average default rate of the eight members of the Peer-to-Peer Finance Association (P2PFA) in 2018 (Source: P2PFA) •5 2 per cent of small businesses were aware of P2P lending in 2018 (Source: British Business Bank) •4 5 per cent of small businesses are worried about their cashflow in a ‘nodeal’ Brexit (Source: Premium Credit)

scenario’ Brexit could triple the default rate on some P2P platforms, and this in turn may lead to cut-price sales of borrowers’ assets. However, there is a possible silver lining. If the economy worsens, traditional lenders are likely to take a more conservative ‘wait and see’ approach to their lending businesses. In the 10 years since the global financial crisis, we have seen this in action as banks tighten up their lending requirements and scale back SME funding. At the same time low interest rates have left many savers struggling to match the rate of inflation. This could create an opportunity for alternative lenders to step in and offer funding to UK businesses, while also allowing frustrated savers to make inflationbusting returns. Furthermore, the P2P sector has been working hard to manage default risks by using extensive credit checks, provision funds, pooled loans and ‘skin in the game’ lending models. If anyone can make the most of a bad macro-economic situation, it’s alternative lenders. Their challenge will be to convince worried investors that they are up to the task.

IFISA ROUNDTABLE IN ASSOCIATION WITH KUFLINK

Poised for growth

THE EMERGENCE of the Innovative Finance ISA (IFISA) has helped peer-to-peer lenders boost their inflation-beating products with a wrapper that lets investors earn their returns tax-free. The product’s popularity has been growing since its slow start in 2016. It attracted just £36m across 5,000 accounts in the 2016/2017 tax year, which increased to £290m across 31,000 accounts in 2017/2018. As it approaches its third anniversary, what more can be done to boost the IFISA and should it be more closely associated with a cash or stocks and shares wrapper? Is marketing and advertising the key to raising awareness or does the industry need to enhance distribution through intermediaries such as financial advisers? Peer2Peer Finance News, in association with Kuflink, gathered senior P2P lending executives – Atuksha Poonwassie, director of the UK Crowdfunding Association and founder of Simple Crowdfunding, Narinder Khattoare, chief executive of Kuflink, Mario Lupori, chief investments officer at RateSetter and Iain Niblock, chief executive of Orca – for a roundtable chaired by P2PFN editor-in-chief Suzie Neuwirth to discuss the challenges and opportunities presented by the IFISA.

IFISA ROUNDTABLE IN ASSOCIATION WITH KUFLINK

It’s coming up to the IFISA’s threeyear anniversary. Are you happy with the progress it’s made? Narinder Khattoare: Take-up has been pretty good. What it does need is more exposure in the wider market. You’ve got people who have got cash in stocks and shares ISAs and are comfortable sticking with the high-street banks because that’s a safe haven. They need to come out of their comfort zone. Iain Niblock: When the IFISA started people were feeling it was a bit of a damp squib. At the time it was just platforms like Crowdstacker, Crowd2Fund and Abundance who had ISAs. It was only really recently that the likes of Zopa and Funding Circle joined and we’ve not seen a whole year of statistics with the big lenders. They are occupying 80 per cent of the market so we’re going to see quite a

Narinder Khattoare Narinder Khattoare joined the Kuflink Group in 2013 and became chief executive of the peer-to-peer property lending platform Kuflink in 2017, where he has been instrumental in the launch of its IFISA. He previously held roles at Borro, Towergate and Prudential.

“

There’s a huge education piece to be done

”

dramatic growth in the next HMRC figures purely because the big lenders and all major peer-to-peer platforms are now offering IFISAs. What are the main differences among the ISAs on the market? Atuksha Poonwassie: There’s a huge education piece to be done. There are so many variances, such as the term, the product itself, what an investor’s exits are going to be, do they choose it themselves versus going into some form of auto-lending? We’re getting requests from people not understanding things clearly and

Mario Lupori Mario Lupori is chief investments officer at RateSetter, responsible for product, distribution, marketing and customer management. He joined RateSetter in 2015 as marketing director, prior to which he worked at credit card specialists NewDay and Barclaycard.

asking for some standardisation in the market so at least they can compare a little bit better. Who should take responsibility for this education? Mario Lupori: A lot of that education comes down to the press. One of the reasons why P2P grew as it did was word of mouth. People tried it, they liked it, they recommended it. The spreading of the news came from the news itself. I would say in the past couple of years, we’ve lost column inches as a category to other things, crypto being one of them. Also, there has been a lack of confidence in continuing to talk about P2P. Poonwassie: It’s everybody. Platforms, absolutely, because they’re presenting products hoping for investment. There should be clearer guidance from government

Iain Niblock A former Centrica economist, Iain Niblock is chief executive of P2P analysis and investment platform Orca, which he cofounded in 2015. He previously was a director at Muirfield Investments, which offered a listed retail bond to fund property developments.

Atuksha Poonwassie Atuksha Poonwassie is director of the UK Crowdfunding Association and founder of P2P property lender Simple Crowdfunding. Her background is in customer relationship management and she also advises start-ups through her Focus 2020 consulting business.

IFISA ROUNDTABLE IN ASSOCIATION WITH KUFLINK

and other sources. There is this perception of the market that P2P may be a bit more risky and actually, that needs to change because they are all investments. All investments carry risk and it’s good for people to start understanding this and start putting their money to use because otherwise they’re going to end up losing it to inflation. Are you comfortable with people putting cash ISAs into IFISAs or would you like more money to be coming from stocks and shares? Poonwassie: It needs to be both. There’s a huge opportunity for people who have all this money tied up in cash ISAs to do something different with it and we do see a transfer helping them. Lupori: The majority of money coming into a RateSetter ISA when transferred is coming from a cash ISA. That is not a surprise. One of the things holding P2P back is it’s being held to a standard of cash. People almost don’t question risk in equities, as that’s a known risk. However, people are concerned about new risks, so they perceive P2P as risky. That has held us back as an industry because we’re being held to too high a standard. We have seen a significant increase in the ISA transfers that are coming from stocks and shares ISAs, and that too is not a surprise because there has been a significant deterioration in the performance of equities. What are customers mainly looking for? Khattoare: Rate is key, but I’ve spoken to investors and it's down to the individual to do their due diligence. It’s all very well giving a return of eight, nine, 10 per cent, but what does that business stand for?

“

The IFAs are challenging but we need to crack that market to grow together

”

Lupori: Rate is important, but within a certain bracket it becomes less so, then it’s about track record and trust. Poonwassie: Rate attracts people

the first time. After that, it is about access and whether or not they like the product. What are the main challenges in marketing the IFISA? Lupori: One of the challenges is reaching the mainstream. We’re not there yet. Creating a category is exceptionally expensive. This is not about brand within an established category, that is an easier thing to do. We are going to continue marketing, however, it will be in

IFISA ROUNDTABLE IN ASSOCIATION WITH KUFLINK

targeted spaces and we’re looking to increase distribution such as working with independent financial advisers (IFAs) or executiononly platforms and discretionary wealth managers. There’s a massive industry of people that are aware of P2P and are increasingly being asked about it. Khattoare: We’ve evolved from that marketplace so we deal with IFAs and intermediaries. I think that’s a challenge in itself because IFAs don’t understand the market. They’re very

reluctant to refer anybody in, which is why we go direct. We’ve never even bothered tapping into that IFA market, because we get a great influx coming to us direct. Lupori: There is evidence that IFAs are interested and we look at those that have decided to focus on working with IFAs such as Octopus Choice. IFAs are just one part of the broader intermediated space. We’ve been speaking to a number of parties recently that are major platforms whose customers are

“ People are concerned about new risks”

interested in P2P and from their perspective, they see working with RateSetter as very important for their clients. Niblock: The IFAs are challenging but we need to crack that market to grow together. There’s a key problem around suitability. A lot of IFAs do a risk scoring on the client. If P2P lending’s not on the same scoring system, it’s immediately off the chart. Poonwassie: It is a slower burn. It takes much longer to get IFAs on board, to understand. We’ve spoken to IFAs as well and to help them understand is a huge piece of work. What are your views on the current regulatory climate for IFISAs and the Financial Conduct Authority’s marketing restriction proposals? Poonwassie: It’s a huge challenge to increase the regulations so much so as to exclude certain groups. The beauty of P2P is it allows everyone to get involved and to learn while they’re investing to spread their risk. Just because you’re a highnet-worth investor, that doesn’t mean you know what you’re doing. It’s a huge assumption to say retail people don’t know what they’re doing. Everyone still has to learn and go through the information. Lupori: The regulator should regulate the risk, not the customer. Marketing restrictions are regulating the customer, which we don’t think is appropriate. Niblock: Maybe what they’re trying to protect is incorrect. If you think about stocks and shares ISAs, marketing restrictions don’t

IFISA ROUNDTABLE IN ASSOCIATION WITH KUFLINK

exist. We should be trying to get this product in front of a larger audience because it’s actually delivering superior value to users who’ve got significant sums sitting in cash or they’re petrified of looking at their equities going up and down. Lupori: Regulators are underestimating people’s intelligence in terms of their understanding of risk. A lot of money in ISAs is in cash, so people already are saying if there’s a risk label attached to it, I’m 90 per cent more likely to put my money in cash and we have a risk label attached to P2P. It’s already there. How much does the name Innovative Finance ISA affect the take-up? Khattoare: The Innovative Finance component is superfluous and the ISA is the part that’s important. We don’t tend to refer to the Innovative Finance part of the name very much. Lupori: You’re in a marketplace where people don’t understand what P2P lending is and then you’re selling an IFISA. You’re confusing the life out of everybody and that’s a challenge. The industry needs to work on awareness and education. I don’t think it’s the name or the wrapper that’s holding people back. When I think about the amount of money the government has put behind the current account switch service, yet banks are still having to bribe customers with £200 to switch current accounts. If that’s not enough to get someone to switch their current account, you understand the barriers to getting someone to try something completely different with their money with P2P. The best we can do is to improve brand awareness and rely on word of mouth.

What does the future look like for the IFISA and the P2P market? Khattoare: It’s definitely going to grow. The key thing is word of mouth. We’ve had discussions with various celebrities to get them on board but negative publicity around the likes of Collateral hasn’t done anybody any favours. You could be pumping all this money out in marketing, but have you got the right people behind the scenes? We speak to a number of investors who are frustrated with some of the other providers and are moving funds across, because they feel they are being neglected. That’s a key thing as well. It’s all very well

investing money in marketing but you’ve got to think about your overall organisation and the infrastructure you put in place. Poonwassie: In terms of where it is in the ISA scale, the IFISA has huge scope to grow. I would love to see more balanced stories on the creativity and opportunity that P2P brings. Sometimes that’s lost because it doesn’t make good news. If that happens, I think it will fly. Lupori: I’m hoping that the next figures that are released on IFISAs can be rounded at a digit that ends with billion. If we can do that, that’s a figure people can rally around and get excited about.

JOINT VENTURE

Stable growth: It’s a process Raj Kumar, executive director and Carl Davies (pictured), chief operating officer of FundingSecure, explain what it takes to achieve stable platform growth

CALING UP CAN BE A challenge for any business, but when your business model involves hundreds of millions of pounds changing hands via complex algorithms and internal systems, it can be harder still. But peer-to-peer lending platform FundingSecure is bucking the trend. Stable, incremental growth is at the core of the company’s positively evolving business plan. Since it began operations in 2014, FundingSecure has lent more than £300m, which has provided challenges along the way. The aim for the next two years is to lend a further £300m whilst continuing to deliver above-average returns for its investors and offering flexible loans to borrowers. Last year, the platform appointed investment professionals Carl Davies and Raj Kumar as chief operating officer and executive

“ Our popularity has grown”

director respectively – part of its plans to accelerate growth over the next two years. “Early growth happened organically through word of mouth,” says Kumar. “This is a very simple, easy-to-use platform which offers higher rates of return than the industry norm, so that's been a major attraction to investors. “Our popularity has grown, we are

investing a lot of time and money in developing our internal systems and processes to allow us to scale up with minimal disruption.” In order to increase the intelligence around each prospective loan, FundingSecure has added a higher level of governance, ensuring in-depth due diligence which includes interrogation of the business strategy plus wider market trends and postcode analysis. The experienced and expanding team will examine how each loan is underwritten whilst new technology systems are being continually implemented to improve the speed and performance of the site and back office procedures. Artificial intelligence and machine learning have a big role to play in FundingSecure’s platform

growth, but both Kumar and Davies have warned that there is a time and a place for this. They have emphasised that the company’s underwriting will always involve human intervention. “Technology solutions and guidance aside, the decision to actually invest always resides with the investor themselves,” says Davies. Furthermore, the executives are aware that growth may have to slow down slightly to accommodate the new systems that are coming in. “A number of businesses have been caught out with the speed of growth and the fact that they have not had the processes and procedures in place to manage the resulting complexity,” says Davies. “We will have these in place to take the business to £600m. Unless you've done it before it's very challenging.” Luckily, both Kumar and Davies are specialists at this kind of work. They are both highly regarded in the property lending space and have been involved in the scaling up of more than a dozen different businesses. It is no wonder then, that FundingSecure is getting back on track and meeting its commercial and organisational goals, just a few months after Kumar and Davies were appointed. By pairing manageable goals with ambitious growth plans and using machine learning alongside real-life experience, FundingSecure’s future looks bright.

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Innovative Finance ISA

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JOINT VENTURE

Innovative, flexible ISAs

By offering a flexible, auto-lend IFISA, Brian Bartaby, founder and chief executive of Proplend, has created one of the most user-friendly products in finance

ITH ISA SEASON NOW upon us, competition for the burgeoning Innovative Finance ISA (IFISA) market has never been higher. There are now numerous registered IFISA providers, offering a range of products from property loans to business finance to consumer credit. In such a crowded marketplace, it can be hard to make your product stand out, but commercial property lending platform Proplend has established its own niche with its low loan-tovalue (LTV), flexible IFISA. The Richmond-based firm offers an IFISA that is both flexible and auto-lend enabled. Investors can self-select their investments or have their funds auto-allocated to Proplend’s lowest risk ‘Tranche A’ loans – exposed to a maximum of 50 per cent of the property’s value. “We decided to be flexible with our ISA from day one and consistent with our industry reputation, we have since launched a low-risk, auto-lend facility,” says

“ We decided to be

flexible with our ISA from day one

”

Brian Bartaby, founder and chief executive of Proplend. “People have worked hard to fund their ISAs and Proplend looks to offer attractive returns

in combination with limited risk exposure. This high level of capital protection is particularly important where individuals are funding their IFISAs with transfers of existing ISAs, often from cash. “If lenders combine our flexible ISA with our auto-lend facility, they get a low risk, hassle-free product that targets tax-free returns of five per cent after fees. They can now also choose which of our markets (primary or secondary) they want their funds to be allocated to. If the auto-lend returns are higher than the target rate, like the 6.4 per cent per annum it’s currently delivering, this all gets passed on to the lender.” Since the Proplend IFISA was launched in May 2017, Bartaby has noticed an influx of ISA transfers, around 50 per cent of which are coming from under-performing cash

ISAs that aren’t achieving real returns. Interestingly, a growing proportion of transfers are coming in from other IFISA accounts, which demonstrates the investor appetite for flexibility in their ISA investments. “There is always a spike in interest around March and April,” says Bartaby. “This is because some people are rushing to get their money in before the end of the tax year, and very efficient individuals are putting money in right at the beginning of the tax year. “Because we offer a flexible IFISA, they can put £20,000 in at the start of the new tax year, and they've still got the opportunity to withdraw some of that throughout the tax year and put it back without losing their £20,000 subscription.” Like most IFISA providers, Bartaby keeps a close eye on the HMRC ISA statistics when they are released each August. In 2016/2017, just £36m was invested in IFISAs, but by 2017/2018 this figure had risen dramatically to £290m. “I would like to see three or four years of slow increased growth,” says Bartaby. “When you consider that there is a cumulative total of £270bn in cash ISAs and £334bn sitting in stocks and shares ISAs, we're still very much a needle in a haystack but I think that it will grow over time and become a more significant and mainstream product. “It’s still a hugely educational process for both the public and financial advisers alike.”

IFISA

The ultimate IFISA guide

Unsure about about transfers, tax and how many IFISAs you can have? Fear not, Marc Shoffman presents our comprehensive guide to IFISA investing

EER-TO-PEER LENDING is already well known for helping investors beat paltry savings rates and now it even has its own tax wrapper in the form of the Innovative Finance ISA (IFISA). Most people understand how cash and stocks and shares ISAs work but as the IFISA is relatively new there is still some confusion

over how the product works and how to attract customers. So how does the IFISA work in practice and what do platforms and investors have to look out for? Like other types of ISAs, the IFISA allows individuals to earn up to ÂŁ20,000 tax free. Most P2P lenders offer IFISAs alongside their mainstream

product range but there are also providers such as Goji, and soon Orca, which let investors back loans from a range of platforms within one tax wrapper. The IFISA is one the P2P sectorâ&#x20AC;&#x2122;s biggest marketing tools as it can leverage mainstream awareness of the ISA family to highlight the inflation-beating returns on offer,

IFISA

now with the added benefit of taxfree earnings. “The IFISA market is changing, potentially giving investors a great deal of flexibility,” says Ansar Mahmood, founder of IFISA provider Fluid Bond. “Two of the most common factors for investors choosing a new product are return on investment, and the confidence they have in the underlying investment and IFISA provider.” Jonathan Segal, head of fintech at law firm Fox Williams, says due diligence is important to understand what the underlying asset is and the team behind it. “The IFISA doesn’t actually do anything special, it is just a wrapper that shields the money from tax,” says Segal. “It doesn’t add anything to the product underneath.” Marketing experts explain that investors want more than just a return from their IFISA.

“ Liquidity will

be more important than ever

”

Neil Edwards, founder of the Marketing Eye, which has helped P2P lenders such as ArchOver launch their products, said investors are looking for the optimal combination of three main factors: yield, security and liquidity. “Having an ISA is often seen by platforms as a reason in itself for investors to join, whereas it is only a small part of the equation for most investors,” he explains. “The IFISA makes yield more attractive, but platforms need to also play up the messaging on

security, risk of loss and liquidity, particularly in an uncertain economic climate. “Underwriting record and tangible security will provide reassurance to investors on risk. “Liquidity will be more important than ever before as the threat of a chaotic Brexit lingers. Short-term investments, active secondary markets and early exit options will all help.” ISA transfers Some P2P platforms now accept ISA transfers, meaning that investors can transfer old cash or stocks and share ISAs into an IFISA. ISA money can be moved from old accounts from previous tax years without having to transfer the whole amount, but if you are moving funds invested in the current tax year you will have to transfer everything. There may also be charges for exiting accounts such as a fixedterm cash ISA early. Users need to complete an ISA transfer form with the new provider that will give details of the amount getting transferred, as well as their personal details and national insurance number. In some cases, investors may need to print, sign and post the form back, which can delay things, but some providers such as Goji are working on ways to do this electronically. P2P property lender Kuflink recognises that the perceived hassle of transferring funds dissuades some investors from moving old ISA money into an IFISA, so it aims to make the process as easy as possible. "Lenders simply create a Kuflink account, fill out a transfer form online and we’ll organise it with

their current provider," a Kuflink spokesperson said. "We do still need a physical signature from customers, but the rest of the process is entirely hands-off for investors." Generally speaking, cash ISA transfers should take up to 15 days and stocks and shares up to 30 days. “It’s also important to make sure you transfer your ISA holdings directly, rather than withdraw your funds and then try to transfer them, as this could lose your tax allowances,” Stuart Law, chief executive of Assetz Capital, warns. How to hold an IFISA Investors can only hold one active IFISA during a single tax year. However, they can open IFISAs with other P2P platforms just to transfer old ISA money from previous years. An investor would not be able to put any non-ISA money into these accounts though. P2P industry commentator Theresa Burton warns this framework prevents investors from diversifying to mitigate risk. “If the individual invests in small business lending on one platform they will not be able to invest in consumer or property loans, or even via other small business lending platforms,” she says. “Ideally, HMRC would allow investors to diversify within the tax year. “As it is structured now, the IFISA is encouraging single platform risk concentration which is against the general advice to diversify and for platforms with smaller volumes and narrow segmentation I am concerned about the increased risk

IFISA

exposure as diversifying within the platform's portfolio will be challenging.” She said it would be good to see more IFISA providers that let you pick and choose which platforms’ investment offerings you put into your IFISA portfolio. There are already firms such as Goji that build portfolios that include P2P loans from different providers, selected on behalf of investors. Orca launched a comparable offering last year and is set to launch an IFISA before the end of the tax year. “Currently P2P platforms or investment providers offering debtbased securities offer IFISAs,” says Iain Niblock, co-founder of Orca.

Orca’s IFISA will allow individuals to invest across multiple P2P lenders within a single product. Existing P2P loans Technically, existing P2P loans cannot be transferred into an IFISA. Investors are unable to transfer loan parts directly from one product to another, mainly because ISAs have to be opened with cash. But some platforms have worked out ways to let users move their funds, either by diverting interest repayments or by selling their loans and then reinvesting the proceeds into the tax wrapper. For example, Landbay lets investors with cash balances greater than £5,000 in their Classic P2P

“ Ideally, HMRC would allow investors to diversify within the tax year”

“Investors are therefore restricted to investing in one product provider per tax year with new ISA money. “We see this as a real problem in the industry as it leads to investors being tied to one product provider and results in a poorly diversified portfolio.”

account transfer their money into an IFISA account. All they have to do is request the transfer, provide their national insurance number and sign the required declarations. If their money is already invested in Landbay loans, the investor will have to first sell these loan parts

through the secondary market and then request the transfer. Similarly, Zopa investors can transfer in funds from their Core and Plus products to the Zopa ISA by changing their repayment settings so the money will be reinvested into the ISA product. Alternatively, customers can sell their loans and that money can be transferred from their holding account into their new Zopa ISA account. Funding Circle says investors can sell loans quickly and easily to other investors on the secondary market before withdrawing funds from their bank account and then transferring them to their ISA. RateSetter will also let clients sell loans and then use the cash to open an IFISA. This liquidity depends on there being enough demand for these loans on the secondary market and there may also be withdrawal charges. While the IFISA has seen marked growth over the past year, there is still plenty of untapped potential. Hopefully as investors understand the product more, its popularity will increase and the IFISA will finally emerge as a viable alternative and complement to cash and stocks and shares ISAs.

SME IFISA GUIDE

IFISA Guide: SME loans This month, we provide details on some of the SME-focused IFISAs on the market

Ablrate Ablrate’s IFISA offers returns ranging between 10 and 15 per cent, enabling investors to fund asset-backed loans to UK businesses. It is a flexible tax wrapper, so investors can withdraw and replace money within the same tax year, and there is a minimum investment of £100. ArchOver ArchOver’s IFISA enables investors to fund secured business loans and enjoy tax-free returns of up to 10 per cent per year. Investors can lend to individual businesses or use the auto-invest function, which spreads funds across a range of loans. It is a flexible tax wrapper with a minimum investment of £1,000 for the manual lending option and £250 for the auto-invest product. Assetz Capital Assetz Capital provides loans to small businesses and property developers, all of which can be held within the platform’s IFISA wrapper. Returns vary depending on the account, going from 4.1 per cent to 6.25 per cent on its auto-invest products, and up to 15.5 per cent

with its manual lending option. Investors can transfer in any funds from ISAs from prior years and there is a minimum investment of £1. Crowd2Fund Crowd2Fund was one of the very first platforms to launch its IFISA and its tax wrapper now has an estimated average return of 8.7 per cent. Investors can choose which businesses to lend to, with a minimum amount of £100. MoneyThing MoneyThing’s IFISA is one of the highest-paying tax wrappers that invests in secured business loans, offering annual returns of up to 13 per cent. Investors can pick their own loans and it is a flexible IFISA, with a minimum investment of £1. Funding Circle The best-known of the P2P business lenders, Funding Circle finally opened its IFISA to new investors in April 2018. There are two lending options to choose from: Balanced, which has a projected return of six to seven per cent, lends to the full range

of businesses on the platform and Conservative, which has a projected return of five to 5.5 per cent, lends to businesses that have been assessed as lower risk. The minimum investment in this flexible IFISA is £1,000. LendingCrowd LendingCrowd offers three IFISA products: the Growth ISA, the Income ISA and the Self Select ISA, all of which can be held within the same IFISA wrapper. The Growth and Income ISAs automatically spread investors’ money across a range of loans and have variable target rates of six per cent and 5.6 per cent, respectively. The key difference between the two ISAs is that customers can withdraw their interest with the Income ISA, while the capital repayments will be automatically reinvested. The minimum investment for both products is £1,000. The Self Select ISA lets investors choose which loans they want to invest in. Returns start from 5.95 per cent depending on the credit band of the loan and the minimum investment is £20.

????????????????????????????? JOINT VENTURE

Customer happiness

Customer satisfaction is an often-overlooked part of running a successful P2P platform. LandlordInvest’s chief executive Filip Karadaghi explains why he makes it a priority…

HERE IS NOT ONE typical type of LandlordInvest customer. Thanks to its low investment threshold of just £100, the property-backed peer-to-peer platform attracts both retail investors and sophisticated lenders alike. This means that millionaires and low-income investors could conceivably find themselves investing in the same loans and earning the same amount of interest. And this is exactly the way LandlordInvest likes it. “It doesn’t matter if they are investing £100 or £100,000 – all of our customers are treated the same way,” says LandlordInvest’s chief executive Filip Karadaghi. “We always go the extra mile and our approach is very personal in terms of our customers – both our borrowers and our lenders.”

“ We always go the extra mile ”

By focusing on customer happiness, LandlordInvest has been able to build a business that is about to celebrate its five-year anniversary having funded almost £6.5m in loans, and nearly £2m on its secondary market. At the time of writing, £481,594 had been returned to investors in interest, with the average rate of return clocking in at

an impressive 11.3 per cent. This is the result of Karadaghi’s insistence that customer happiness is prioritised at all times. “We depend on our customers being happy,” he says. “Our customers want to know how the platform works, how certain loans are treated, and what updates are coming along. We welcome questions on any aspect of our operations.” According to Karadaghi, the UK’s P2P sector has a communication problem. Over the years, he has noticed that many platforms leave their customers wanting when it comes to explaining loan structures and offering timely and detailed updates. “There is a lot of room for improvement,” he says. “There are a lot of investors out there who are unsatisfied with the

communication they’re getting from their platforms because they want to discuss service issues with their accounts, roll-up dates on their loans, and the level of risk on their capital investment. They just like to know what’s going on.” By contrast, LandlordInvest is incredibly pro-active in terms of its client communication. Any news or updates are publicised directly on the LandlordInvest platform, and additional information will take the form of a blog post. The firm is also very active on the P2P Independent Forum, where it will post updates and engage directly with investor comments and feedback. While Karadaghi admits that “it will be a challenge” to continue this level of engagement as the platform grows, he is confident that LandlordInvest will rise to the occasion. “We frequently update our Q&A section,” he says. “We will answer any question which comes from our clients, positive or negative. We want our clients to ask questions.” This attitude even extends to criticism, which LandlordInvest prefers to handle head-on. “We have no issues publicising or addressing criticism on the website,” he says. The most common complaint? “A lack of active loans,” says Karadaghi. “It’s a good problem to have but any complaint means that you’re not meeting people’s needs and it’s something you have to address.”

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JOINT VENTURE

Trust in the institution

John Mould, chief executive of ThinCats, explains how an influx of institutional money could lift up all P2P borrowers and lenders

NSTITUTIONAL INVESTING has become more commonplace in the peer-to-peer sector, but business lending platform ThinCats has been well ahead of this trend. Over the past 18 months, the platform has raised more than £700m in institutional capital from the likes of Insight Investment, BAE Systems Pensions, ESO Capital and Waterfall Asset Management and most recently the British Business Bank via its British Business Investments subsidiary. This is in addition to its existing £100m in retail investment. With £800m to fund small- and medium-sized enterprise (SME) loans across the UK, ThinCats is starting off 2019 in an enviable position. And chief executive John Mould believes that this is all down to the platform’s ability to win over investors of all stripes.

“ We look after our

clients’ money like it was our own

”

“The reason why we could secure that funding is because the funders feel that SME-secured loans are a good asset class,” says Mould. “There are reasonable returns available, plus it helps the economy of the UK.” It is the economic benefits that really appeal to institutional investors, adds Mould, “and the

fact that they believe in it makes our job easier.” To this end, ThinCats views itself as an intermediary which can effectively match SMEs with lenders by utilising its unique underlying technology and the vast experience of its staff. “We have quite a few individuals who have been asset managers in various financial services organisations for some time,” says Mould. “So, the institutions look at us and think yes, we trust these people to look after our money. We look after our clients’ money like it was our own.” Trust is the key factor here. ThinCats’ institutional investors do not make individual credit decisions. Instead, they give ThinCats a mandate to invest

based on each institution’s specific investment criteria. This institutional backing has allowed ThinCats to increase its ability to originate loans with higher values. The platform previously offered SME loans up to the value of £3m, but now it has the capacity to lend anything from £250,000 to £10m or higher. For borrowers, interest rates start at around five per cent. And for individual investors, there is another benefit to investing in a platform which is backed by institutional funding. Where retail investors co-invest alongside institutional investors in the same loans, they invest under the same terms. “From a retail investor point of view, this is brilliant because it allows them to get access to loans they otherwise wouldn’t have got,” says Mould. “And they don't have to do any due diligence on us as a platform because these institutions have already done their own rigorous due diligence and they send in auditors for regular monitoring. If it's good enough for the institution, it's good enough for the retail investor.” Mould believes that the rise in institutional investment could “fundamentally change the funding landscape in the UK”. When ThinCats’ own experience with institutional money has allowed it to offer larger loans and higherquality investments to lenders, it is hard to disagree with this view.

INSOLVENCY

Real and present danger

What happens when a peer-to-peer lending platform becomes insolvent? Danielle Levy investigates the impact on the industry and its investors

PEER-TO-PEER LENDER becoming insolvent is surely the worst-case scenario for both the business and its customers. This danger came to the forefront last year when Collateral collapsed, leaving all stakeholders in the dark. However, the silver lining is that it highlighted the importance of having a robust wind-down plan in place. 12 months since Collateral went into administration, the winddown process is still ongoing and investors are waiting to receive their money back. It is worth noting that

Collateral’s wind-down process is unusual and has been littered with problems because the lender had been operating without the requisite regulatory permissions. Nevertheless, wind-down plans are firmly in the sights of the Financial Conduct Authority (FCA), after it “identified inadequacies with the comprehensiveness and effectiveness of some P2P platforms’ wind-down arrangements”. In a number of cases, the regulator said it was unclear whether reasonable steps had been taken to put these

“ Collateral is a great example of how a platform collapse can go badly wrong ”

arrangements in place. With this in mind, the FCA has outlined plans to strengthen rules concerning wind-down arrangements as part of its postimplementation review of the P2P sector, released last July. For example, plans will need to take account of the practical challenges that platforms could face in the event of an insolvency, such as the continued functioning of their complex IT infrastructure. They must also ensure that loans continue to be managed and administered. If a platform is unable to wind down or transfer its business, the FCA is concerned that investors could be forced to retrieve their money directly from the

INSOLVENCY

borrowers. However, since most platforms spread investments across a number of loans, this could prove difficult. In addition, the City watchdog is worried that investors may not be aware of the potential risks associated with a platform closing, so it has proposed that P2P lenders tell investors exactly what will happen to their money in the event of an insolvency. The FCA is expected to publish its final thoughts on wind-down plans over the summer. A smooth process In the meantime, how can investors feel reassured that a P2P platform has the right measures in place in the event of insolvency? A good starting point is to consider the four arrangements that the FCA currently expects platforms to have in place. “These include arranging for another firm to take over the administration of the loans; holding funds in a segregated account to cover the cost of winding down the loanbook; arranging for another firm to act as a guarantor for the P2P agreements; or using income generated from the loanbook to cover the costs of winding down and administering the

remaining contracts,” explains Dena Chadderton, senior adviser at regulatory consultancy BWB Compliance. Frank Wessely, partner at business advisory firm Quantuma, notes that much will come down to the structure and quality of the agreements that are in place between borrowers and investors. However, the quality and nature of these can vary considerably from platform to platform. Likewise, the quality of the data that a platform keeps on both its borrowers and investors will prove vital in the event of an insolvency. For example, some of the hold-ups in Collateral’s wind-down process

stem from the poor data it held on its borrowers. “Collateral is a great example of how a platform collapse can go badly wrong because of the mistakes that were made by the platform when it was up and running,” Wessely explains. He adds that a robust wind-down plan will include practical steps to ensure the closure of the platform does not cause financial distress for any relevant parties. “A platform needs to be aware of its options in a financially distressed scenario,” Wessely adds. “Its priority is to protect the interests of its creditors rather than its shareholders.”

THE RIGHT ADVICE AT THE RIGHT TIME Providing specialist advice to P2P platforms to help mitigate risk www.quantuma.com Frank Wessely, Partner

E: frank.wessely@quantuma.com

T: 07770 210628

INSOLVENCY

Put to the test One of the biggest challenges is that there has not been a practical example of a regulated P2P platform becoming insolvent and putting its wind-down plan into action. Wessely points out that it is impossible to know the true efficacy of a platform’s wind-down plan while the company is still solvent. “They were an essential part of a platform’s governance historically,” he explains. “A wind-down plan was needed but they were only contemplating a structured shutdown of a platform in a state of solvency not insolvency.” He adds that in reality this could mean that some wind-down plans are “not worth the paper they are written on” because this type of event rarely happens; wind-down plans will only truly be tested when a platform becomes insolvent. The FCA’s proposal to introduce a P2P Resolution Pack could prove integral to wind-down plans in the future, according to BWB’s Chadderton. The pack would contain all the information an administrator requires in the event of an insolvency. “It would, amongst other things, signpost critical staff, premises, IT systems, bank accounts and legal documentation,” she says. Combined with the procedures that should be in place as part of a wind-down plan, Chadderton believes these measures would help to ensure a platform’s lenders and borrowers are protected. Consider costs Neil Faulkner, founder of P2P analysis firm 4th Way, expects platforms to have wind-down plans in place that are fully funded, with a minimum of £50,000 set aside in cash to cover the process (in line with FCA rules).

“

Another highprofile insolvency could certainly affect confidence

”

For larger platforms, the amount set aside will be higher and must be appropriate for the size and complexity of the loanbook. “Platforms haven’t really opened up about their wind-down plans yet, so instead when you evaluate them you need to rely on what they do say about their plans, as well as their overall competence in risk planning and technology – and take a view on their trustworthiness as well,” he explains. In Faulkner’s opinion, one of the most important aspects of the winddown plan is to have a reliable and experienced back-up service in place, as transferring the platform to a third-party is likely to be the trickiest

part of the process. He would also hope to see that the platform has taken into account the potential costs associated with this transfer. “Make sure the fee being charged by the back-up provider is reasonable to cover the cost of winding down the loanbook,” Faulkner says. If platforms were obliged to make their wind-down plans public right now, he suspects we would see a “mixed level of preparedness”. “Overall, the level of preparedness does not concern me,” he comments. “The least prepared are likely to be the smaller platforms – but they are much easier to wind down. Some of them only have 100 loans, so the chief executive could probably wind down those loans in his spare time. “The larger ones tend to have more processes in place and you can see that across their businesses.” Funding Options, a business finance aggregator which works with P2P lenders, takes some

INSOLVENCY

comfort from the fact that platforms are regulated by the FCA. “One assumes that the FCA has looked at the platform’s current financial situation, stability but also the wind-down plan in the event that it ceases trading,” says Conrad Ford, chief executive of Funding Options. Given the potential risk of a platform insolvency, where possible Funding Options works with P2P lenders which have significant backing, are well-

capitalised and have a solid track record. Peer2Peer Finance News asked a number of P2P platforms what wind-down plans they had in place and whether they were making any changes to these. However, many declined to comment. RateSetter, which was one of the few to comment, said it has planned for all contingencies. In the event that the platform failed or closed to new business, it believes it has a fully funded plan in place to ensure that investors are repaid according to the schedule. “The funding of the plan comes from a combination of the income RateSetter receives from the loans plus any shareholder capital required,” says a spokesperson. “In the unlikely event that RateSetter goes into administration, the contracts between lender and borrower are still legally valid and will not change. Borrowers will have to make payments to lenders as usual.” Meanwhile, Funding Circle noted that it has a back-up service provider in place which is authorised by HMRC as an ISA manager, and would be able to take over the administration of Funding Circle’s ISA accounts. It added that investors’ funds that

have not been lent to borrowers are ring-fenced in a segregated account with Barclays. Managing contagion Although there have not been many P2P platform closures so far, some fear that tougher economic conditions could spark an increase in insolvencies. If this does happen, it will be incumbent on the industry to manage any contagion and make sure a run on investor funds does not take place. However, this could prove difficult because confidence can be knocked quickly when it comes to P2P investments, particularly as they are not covered by the Financial Services Compensation Scheme. If a wind-down of a platform proved to be orderly, this could help to stem any contagion, according to BWB’s Chadderton. “Another high-profile insolvency could certainly affect confidence, but the circumstances around the insolvency will affect the degree, if any, to which this confidence is dented,” she states. “If customers see signs that the management of a loanbook can continue successfully, even with the insolvency of the original P2P firm, this could improve confidence in the sector.”

THE RIGHT ADVICE AT THE RIGHT TIME Providing specialist advice to P2P platforms to help mitigate risk www.quantuma.com Frank Wessely, Partner

E: frank.wessely@quantuma.com

T: 07770 210628

THE RIGHT ADVICE AT THE RIGHT TIME Providing specialist advice to P2P platforms to help mitigate risk Pre-lend due diligence and borrower reviews Assistance with the design of underwriting policies Guidance on security structures Risk-related technical training for collection and recovery teams

Frank Wessely, Partner T: 07770 210628 E: frank.wessely@quantuma.com

JOINT VENTURE

Proactive vs reactive – the benefits of thinking ahead As insolvency risks grow, Frank Wessely, partner at Quantuma, explains why platforms have to take a proactive approach to their theoretical wind-down processes

OBODY WANTS TO THINK about what would happen if their business failed. Yet every day, multiple UK businesses file for insolvency. This trend has even reached the peer-to-peer lending space, the latest example being the collapse of Collateral last year. Business advisory firm Quantuma has witnessed countless business insolvencies, and partner Frank Wessely has one piece of advice for all firms, no matter how well they may be doing: be proactive. “Platforms generally fall into two camps, the proactive and reactive,” says Wessely. “Proactive processes start with the quality of the credit underwriting and due diligence that platforms undertake when they are considering a new loan application from a borrower, whether that’s an individual or a business. “If the credit underwriting or the due diligence is sloppy, further on down the line the likelihood of financial distress or an insolvency event occurring is much greater.” By contrast, reactive processes can only really begin after the platform has experienced a ‘worstcase scenario’ such as a significant loan becoming distressed, at which point it may be too late to take restorative action. Fortunately, Wessely has noticed a shift in attitudes. Although seeking advice from an insolvency specialist

still carries a degree of stigma in the eyes of some, many P2P lenders are becoming more aware of the benefits of engaging an insolvency practitioner for specific projects, such as building a practical winddown plan (WDP), even if they never need to use it. “I’m starting to see that platforms are engaging more with taking a proactive approach to addressing the regulatory and commercial aspects associated with insolvency issues both in relation to borrower distressed debt and potential platform insolvency,” says Wessely. “There is a continuing evolution and developing professionalism among platforms that I’m seeing. Part of that is driven by the acceptance or willingness to get to grip with formulating practical WDPs.” From a practical point of view, platform wind-downs should be relatively straightforward, at least according to Wessely. Any P2P WDP should include provisions which protect creditors’ interests before shareholders, as well as creating an

administrative system that facilitates the transfer of executive control and can be easily handed over to the insolvency practitioner, with minimal disruption to the platform’s operations. In an insolvency scenario, the sooner this can be done, the easier it will be to manage a wind-down, no matter how chaotic things may become. And there is another reason why P2P platforms should embrace the proactive approach. Late last year, the Financial Conduct Authority (FCA) published a consultation paper which outlined some views on the future regulation of the P2P sector. One of the most widely-discussed points was the suggestion that all P2P platforms should be able to show evidence of a practical WDP. In fact, the review envisages it as a requirement that a platform has obtained advice from an insolvency practitioner in formulating its WDP. “Our skillset is such that there is a natural complement supporting the interests of platforms,” he says. “I’m sure one will see differing degrees of progress among some platforms who might think that insolvency represents the end of their business, but that shouldn’t be the case at all. “The culture at the heart of insolvency specialists is one of business rescue. That’s the primary concern.”

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JOINT VENTURE

Why bonds are back in fashion Listed bonds and mini-bonds are experiencing a surge in popularity. Andrew Turnbull, managing director of Wellesley Group, explains why…

OW INTEREST RATES AND stock market volatility have had a disruptive effect on savings and investments across the UK. Over the past year, it has become increasingly difficult for conservative investors and savers to see inflation-beating returns, and so they have begun to turn to bonds and mini-bonds. “Bonds are an age-old instrument but within the alternative finance space, their popularity has increased,” says Andrew Turnbull, managing director of Wellesley Group. “And we all know why that happened – the banks weren't offering much interest, so the prospect of making a good rate of interest on a deposit was non-existent. “Therefore investors had to take some credit risk to make an inflation-beating return, particularly if they didn't want to go into the stock market.

“ We actually took

our inspiration from John Lewis

”

“What that's done is created popularity for bonds, and we’ve noticed more and more ISA transfers into these types of investments over the past year.” Wellesley Group was one of the first alternative lenders to offer bonds. In fact, its first bond offering was launched more than five years

ago, in its first year of trading. Now, many alternative lenders and P2P platforms are in the bond business, and demand is growing. “One of the reasons why we think popularity in the bonds has increased so much is, frankly, their simplicity,” Turnbull explains. “It’s the fact that someone could start a bond on the first of the month, for example, and their repayment date is on a set date three years later, with interest paid at predetermined intervals. “This regularises the investment experience and that’s what people want.” Wellesley Group has three different bond programmes on its platform at the moment: one listed bond and two mini bonds which are not listed on an exchange. Through these products, Wellesley Group has issued “a multitude” of different bonds, ranging from

one to five years, with each one generally paying out between one and six per cent. “We noticed the potential for mini-bonds well before our competitors did,” says Turnbull. “We actually took our inspiration from John Lewis. At the time, they were the largest issuer of mini bonds and we thought that was such a clever, simple investment. So back in 2014, we created the first ever unsecured, unlisted mini-bond.” A secured mini-bond programme followed, and again Wellesley Group was the first to offer this sort of product on the market. “We wanted to issue a bestin-class investment product,” says Turnbull. “And moving into listed bonds complimented what we did because they are ISA eligible, they have an improved prospective, and they are tradable, which adds liquidity.” Despite the success of these bonds, Turnbull says that his goal is to make mini-bonds “more mainstream”. This may involve offering listed bonds under the Wellesley Group banner, rather than via third-party investment platforms such as The Share Centre, which currently acts as an intermediary for Wellesley Group bonds. Whatever the future brings, Wellesley Group has already cemented its reputation as a trailblazer in the alternative finance bond space, and that may be the very thing that alternative finance investors need right now.

PROFILE

Leading the charge

Funding Options founder Conrad Ford talks to Andrew Saunders about his motivations for setting up the business finance aggregator, the future of peerto-peer lending and his overseas ambitions…

OME ENTREPRENEURS are born, while others have entrepreneurship thrust upon them, as Shakespeare didn’t quite put it. Funding Options founder Conrad Ford freely admits that he is in the latter camp – he didn’t grow up with a burning desire to do his own thing and instead had built a good career in banking before deciding to chuck it all in and take his chances on the fintech rollercoaster. “I would love to have an amazing personal story like so many in our industry,” he says. “But I was never one of those people who always wanted to be an entrepreneur. The reality is that I was doing perfectly well working in a big bank.” So why take the leap in the first place? “I’m only half joking when I say it was my midlife crisis,” says Ford, who was working in the strategy team at Barclays before setting up small- and medium-sized enterprise (SME) loan comparison site Funding Options in 2012. “I had an interesting job but I was fundamentally restless,” he continues. “In a large organisation, if you deliver 10 per cent growth you have hit your numbers but you never really know where you are in the pecking order of capability – whether someone else could have done 50 per cent or 100 per cent. “When you start a small business, the successes and the failures are all yours.” Happily, there have been more

successes than failures in the Funding Options story so far. There are 50 active lenders on the platform ranging from high street and challenger banks to alternative funders such as Iwoca, and the business originated between £100m and £200m in SME funding in the last year – the wide spread in those numbers is down to revolving credit facilities which may or may not be used to their full extent.

Funding Options is now the largest aggregator in its market. But, Ford adds, getting there has meant forgetting much of what he thought he knew. “The interesting but traumatic insight for me coming from a corporate background is that the skillset you learn there is completely useless for starting a business,” he explains. “A large corporate is like a supertanker, it has enormous

PROFILE

momentum and we had huge amounts of data.” By contrast, a start-up has neither momentum nor historic data to call on. “Trying to take an analytical approach to problem solving in that situation is completely wrong,” Ford asserts. “All that matters is getting in front of potential customers, and getting one to buy

acquisition is the great challenge for the online lending industry. The economics are not attractive.” It’s an issue that particularly applies to P2P lenders, he adds. “The general problem for the P2P market is that the vast majority of customers they originate – at great cost – are not suitable for their own lending criteria. They are turning

“ When you start a small business, the successes and the failures are all yours ”

and use your product.” Unlike most of the big names in the market, whether they be SME specialists like Funding Circle and MarketInvoice or consumer providers like Zopa, Funding Options is not a lender but an aggregator. A comparison site where SMEs looking for funding can, in theory at least, find all the options available to them. While setting up as a lender might have been more straightforward, Ford is convinced that in the long run his “Moneysupermarket for business” modus operandi is fundamentally stronger. “Aggregators have an inherent advantage in that they can help more customers,” he says. “I have a deeply held belief that when products move online, aggregators win. I would happily bet on that whether you are selling flights, loans, insurance or anything else.” Why? Because aggregators have access to a wide range of products – not just bank or peer-to-peer loans, but facilities such as hire purchase, equipment leasing, asset finance and credit lines too – they can match more of the customers they originate with a product that suits their needs, he says. “Cost of

away a huge number of customers.” By contrast, he claims, Funding Options makes better use of the customers it originates, leading to a more efficient business. “My cost of acquisition is not lower than theirs, but we convert higher – it is as simple as that,” Ford states. “We originate

well over £100m of debt a year for thousands of small businesses, and we have built that business with only a few million pounds.” He says that customers prefer it too, because it makes it much simpler and faster for them to find the most suitable debt product for their needs. “In the long term it’s vastly superior to, say, an asset finance or invoice finance broker, who basically sees everything as an asset finance or invoice finance problem.” The downside is that being a good aggregator is complicated, he says. Multiple customer journeys are required, depending on the size of borrower and the nature of their requirements, and the balance between what can be automated and what needs input from a human expert is crucial. “It’s a problem of execution,

PROFILE

something that we found really difficult in the early days but now it has become our source of competitive advantage,” Ford reveals. “The key point is that from the moment a customer starts to interact with us, they are being filtered into the right journey for them.” So a typical microbusiness looking for a £5,000 loan gets a very consumer-like algorithmic experience, whilst a larger firm looking to fund a property development project or seeking asset finance will be directed to the relevant team of in-house specialists. The platform is free to use for borrowers but managing the level and consistency of commission that the platform takes from lenders can be a challenge. “A percentage of the loan drawn down is all very well if the product is term lending, but it makes no sense with revolving facilities,” Ford says. Funding Options has recently joined the relatively small band of UK fintechs with an international presence, having set up shop across the North Sea in The Netherlands. It’s the first careful step in Ford’s plans for a much more ambitious European roll-out. “We chose to launch in the Netherlands because it’s the market that is most similar to the UK,” he explains. “If we fail there, we are clearly not ready for a really alien market like Spain or Germany.” It’s still early days but the signs are positive. “Businesses that would be considered prime here [in the UK] are untouched,” he says. “The enormous marketing budgets that have been deployed in the UK haven’t been deployed in the Netherlands. It feels like a fresh piste – it’s very exciting.” Although many businesses have been deterred by the prospects of

“ Aggregators have an inherent advantage in that they can help more customers ”

having to juggle the requirements of different national regulators, Ford reckons that Europe is a juicy and under-appreciated prize. “If you look at our world in the US, there are at least four other companies doing what we do,” he comments. “There’s no way I would go into that market because we would be killed. “But no-one is doing this well on a European basis. The opportunity

is there to build a pan-European business – I guarantee that one of the big things in the next two to three years will be cross-border lending in Europe. Total SME debt origination in continental Europe is €1trn (£878bn) – I can live with one per cent of that.” Closer to home, he thinks the credit cycle in the UK is past its peak and is pondering how to

PROFILE

“ No-one is doing this well on a European basis

”

ensure that Funding Options can continue to meet the changing needs of customers in a downturn. “I don’t know when it will end, but we’re not in the middle of the cycle – maybe that was 2015,” he reflects. “We tend to forget how exceptional the current conditions are – lowestever interest rates and highest-ever employment figures. “What will it mean and what products will boom in a downturn? Asset finance for instance is an amazing business in a downturn, because the banks stop doing it and so the independent lenders

suddenly think it is Christmas.” Downturn or not, he is sceptical of one much-discussed future scenario for the maturing P2P sector. “I have read repeatedly that there is going to be lots of consolidation,” he says. “I don’t believe that story, and I say that unequivocally. If you’re a big [P2P] player doing £100m in originations a month, why on earth go through all the pain of a merger for a book of £50m? “I’ve done a few mergers and they usually go wrong. It would be much easier for them to get

that £50m through normal customer acquisition.” Perhaps unsurprisingly given his former life, he also believes it’s time for those who see banks as the enemy to grow up a bit; the future, he says, is about collaboration rather than conflict. “There are lots of people in my industry who want to go into this natural bank bashing mode, and it’s really dumb frankly,” he asserts. “Beating up banks has zero value in terms of practical outcomes. “We have quite a few bank relationships publicly – TSB in the UK, ING in the Netherlands – and we see banks as the point of sale. It’s where SMEs go, so if you are not thinking constructively about that opportunity then you are on a hiding to nothing.” He also thinks that the nature of those partnerships needs to become more commercial, with no more of what he calls “fluffing about with guys in chinos”; fintech/ bank tie ups should be more about boosting bottom lines than generating headlines. “I think 2019 will be the end of the incubator and accelerator era; there will be proper commercial relationships with banks, not just PR partnerships,” Ford predicts. And Funding Options, he reckons, is ideally placed to lead the charge. So his time as a banker may not have taught him much about life as a start-up entrepreneur, but it’s coming into its own as he faces the challenge of taking Funding Options on the next stage of its journey.

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JOINT VENTURE

How to be a responsible investor

Narinder Khattoare, chief executive of Kuflink, explains how peer-to-peer newcomers can be responsible investors

S PEER-TO-PEER LENDING becomes more mainstream, it is starting to attract a new group of first-time investors. And while this is great news for the myriad platforms which currently exist in the UK, it also poses a certain risk. Without a good understanding of how P2P works, new customers can easily choose the wrong platform, or the wrong loans. The challenge then is how do they become responsible investors? This is a challenge that Narinder Khattoare, chief executive of property lending platform Kuflink, is meeting head on. Over the past eight years, Kuflink has evolved from a short-term lender to a P2P platform which specialises in property lending. Most of the people involved with the business come from a financial services background, and have experience dealing with property. In fact, says Khattoare, many of Kuflink’s staff have weathered the greatest challenge the property sector has ever faced – the 2007/8 crash. “We understand the market,” adds Khattoare. “So we know what to look out for when we're doing a deal with an individual or corporate entity. “When we’re lending money to people, we want to know that they have experience, and that there is

the property is used as collateral in case of a default. This adds an extra layer of protection against the possibility of a default, although Kuflink has not seen any losses to date through its platform. “Knowing that there's a physical asset you can use as security is incredibly important for the investor’s peace of mind,” Khattoare says.

“ The team is the most important thing

”

an exit plan in place. If they don’t have a viable exit plan, then you shouldn’t get involved with that borrower in the first place.” Khattoare also likes to see borrowers putting some of their own money into the loans, and “the more the better,” he says. “Because then we know they've put their hard-earned savings into the deal, which demonstrates their commitment to its success.” Furthermore, Kuflink only offers asset-backed loans where

Peace of mind is an essential part of being a responsible investor, and it all stems from trust – in both the loan itself and the platform behind it. “The team is the most important thing,” says Khattoare. “You can have all these algorithms and artificial intelligence, but you can't go wrong with good old-fashioned underwriting processes. “Ultimately, we do common sense lending here – if it makes sense, we'll lend it. If it doesn’t, we'll refuse.” If new investors simply echo Khattoare’s views on risk, they can never be accused of being irresponsible.

We are helpful, focused and ﬂexible While technology sits at the core of what we do, we are a people business; we believe in building lasting relationships

ArchOver is approaching £100m of funding to UK businesses, having paid over £5m in interest and delivering investor returns of up to 10% p.a.

archover.com ArchOver is authorised and regulated by the Financial Conduct Authority 723755 Capital at risk

JOINT VENTURE

The importance of being a people-focused business Angus Dent, chief executive of ArchOver, explains why his platform has a mission to “be helpful” to both borrowers and lenders

RCHOVER HAS A SIMPLE mission: to be as helpful, focused and flexible as possible. “We like to innovate,” says chief executive Angus Dent. “We are constantly on the look-out for niche opportunities that other providers won’t necessarily pursue – where both our borrowers and our lenders would benefit most. This usually means we can achieve a decent amount of security for our lenders, at a higher rate of return.” It is not easy to find secure loans that offer competitive returns, but ArchOver has a knack for finding under-served markets. One of these niches is Research and Development (R&D) tax credits – a government initiative worth in the region of £20bn per year to smalland medium-sized businesses.

“

We are constantly on the look-out for niche opportunities

”

“It usually takes companies as long as six months to a year to receive these tax credits,” says Dent. “So what we’re doing is bridging that gap. It’s not secure lending in a traditional sense, but it is particularly secure because of who the counterparty is – HMRC. And really, if the government can’t

pay its bills, then we all have much bigger problems!” ArchOver’s lenders receive up to 10 per cent in interest per annum, depending on the type of loan they choose to invest in and its level of security. Dent believes that building trusted relationships with both their lenders and their borrowers is key to ArchOver’s success. To this end, Dent and his team invest time in their borrowers; working closely to achieve a successful outcome whilst at the same time being in a position to anticipate and resolve

potential challenges that may arise during the loan term. Dent is particularly interested in the potential of intellectual property, and how alternative lenders may be able to monetise this. “We do some of that with our Secured & Assigned service,” he says. “And we need to develop that further to keep us relevant, ensuring that we properly reflect what’s going on in the world.” However, he is mindful of the changes that regulation can bring. And while Dent praises the Financial Conduct Authority (FCA) for working with the P2P sector to build a realistic rulebook, he is concerned that too much regulation could stifle innovation. “I’d like the FCA to step back a little and go with what they’ve done before, which is listen properly and differentiate rather than trying to find a one-size-fits-all-solution,” he says. “And overall, I’d like to go back to that very English thing of valuing the substance of the regulation and not just a boxticking exercise of strict legal form. All that box-ticking leads to is brighter people finding a way around it. Whereas if you look at the substance of the law, you can see if something is wrong.” By promoting its mission of being supportive in every situation, ArchOver will wind up becoming a true champion of the P2P sector.