ISSUE 13 | OCTOBER 2017
The P2P Power 50 The most influential people in the UK’s peer-to-peer lending sector
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 PRODUCTION Karen Whitaker Art Director Zac Thorne Logo design COMMERCIAL Amy St Louis Director of Sales and Marketing amy@p2pfinancenews.co.uk 07399 414 336 SUBSCRIPTIONS AND DISTRIBUTION info@p2pfinancenews.co.uk Find our website at www.p2pfinancenews.co.uk Printed by The Manson Group ©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.
T
his is the 13th print issue of Peer2Peer Finance News and there’s certainly nothing unlucky about it. Hot on the heels of the magazine’s one-year anniversary, we present you with the inaugural annual P2P Power 50 – the list of the 50 most influential people in the UK’s peer-to-peer lending industry. Compiled by our editorial team, with input from independent industry experts, the Power 50 shines a spotlight on the movers and shakers that have helped shape the sector. What stands out to me is the staggering amount of dedication, innovation and energy that these individuals have put into their endeavours. The list really underlines the ideological principles that were behind P2P in the first place – to create a more inclusive, fairer credit market while providing much-needed revenue streams for retail investors. Getting to know the P2P industry better makes me feel really proud to have launched the UK’s first P2P finance magazine just over a year ago. I hope you all enjoy reading the publication and I’m very much looking forward to what year two will bring.
SUZIE NEUWIRTH EDITOR-IN-CHIEF
We hope you’re enjoying reading Peer2Peer Finance News. Please contact us at info@ p2pfinancenews.co.uk to make changes to your subscription preferences.
03
04
NEWS
Cryptocurrency providers eye P2P lending PEER-TO-PEER lending may have revolutionised how individuals save and borrow money, but cryptocurrency fans are now turning their attention to the sector. Crypto or digital currencies such as Bitcoin or Ethereum have gained public attention recently amid the emergence of initial coin offerings (ICOs) — a fundraising that rewards investors with supposedly-tradeable tokens in return for supporting a business using the blockchain technology behind cryptocurrency. Some providers are looking to combine the principle of P2P with cryptocurrencies. All argue that using blockchain technology is faster than traditional banking or P2P and can help those particularly
in developing countries where the credit scoring or financial system may not be as advanced. For example, Sikoba, founded by Luxembourgbased financial consultant and researcher Aleksander Kampa, is offering ERC-20 tokens in return for backing a platform that provides a P2P IOU system, extending lines of credit to users who know each other around the world. Another ICO, ETHLend, founded by Finland-based Stani Kulechov, is offering LEND tokens to fund a P2P lending platform that issues loans in Ethereum. The tokens can be used for discounts on fees for lending and borrowing that cover the registration of the transactions on the central ledger. Kulechov argues that
using cryptocurrencies is advantageous for investors and borrowers as all user details are stored on the central ledger and it is faster, while payments can be pegged to fiat currencies such as pounds or dollars to avoid the volatility associated with digital versions. Regulators such as the UK’s Financial Conduct Authority have warned this area is high risk and unregulated as there is no guarantee of returns or that the ICO will be a success. The risks of cryptocurrencies were highlighted in May when Bitcoin P2P lending platform BTC Jam, backed by Funding Circle supporter Ribbit Capital, announced it was closing after five years. It cited regulatory challenges and the difficulties of
introducing the technology in the poorer developing nations it was trying to help. Analysts are also nervous about combining P2P and cryptocurrencies. “Cryptocurrencies are exceedingly speculative investments, meaning they have little or no intrinsic value,” said Neil Faulkner, chief executive and founder of P2P analysis firm 4th Way. “When it comes to converting back to pounds, speculators buying loans in cryptocurrencies are therefore hoping that the next person will buy them out at a higher price than when they started. “The bottom line is that cryptocurrencies multiply both the potential gains and potential risks to the maximum. “This puts them in a completely different risk category to P2P lending.”
P2PFN celebrates its first birthday PEER2PEER Finance News celebrated its oneyear anniversary on 12 September, with a host of website, social media and video coverage to commemorate the occasion. The magazine has gone from strength to strength and the P2PFN team would like to take another opportunity to thank all our readers for their support.
The past year has been an exciting and pivotal time for the P2P sector and P2PFN has been there to break the most important news stories, highlight trends and conduct indepth interviews every step of the way. P2PFN’s efforts have not gone unnoticed by the industry. Landbay chief John Goodall said
it was “indicative of the strength of both the publication and the sector that a dedicated peer-to-peer title has thrived so much in just a year”, while Folk2Folk’s PR manager Mat Gazeley called the daily e-newsletter “a must read for everyone involved or following the P2P industry.”
It was celebration time at P2PFN towers
JOINT VENTURE
05
Educated Risk Stephen Findlay, chief executive of direct lending specialist BondMason, explains the importance of due diligence and diversification for peer-to-peer investors
“P
EER-TO-PEER lending is not a homogenous asset class, in the same way equities aren’t,” asserts Stephen Findlay, chief executive of direct lending investment manager BondMason. “In the equity world, you could buy shares in Apple or Google or you could buy shares in the next biotech start-up. You have a huge range of opportunities you can expose yourself to and the same thing applies to P2P lending.” With a plethora of P2P platforms covering a wide variety of lending opportunities, investors would be forgiven for feeling unsure about where to allocate their funds. Findlay says the most important thing is understanding the platforms you invest in. “It’s important to know things like how the platforms are incentivised, what their experience is, whether they can originate borrowers sensibly at good rates and what their recovery processes are like,” he explains. “However, this creates a real challenge if you’re
a small retail investor in value terms. You can do some due diligence by using portals like Companies House or LinkedIn, but you’re not going to get the chance to meet with these platforms directly. “In our opinion, the face-to-face conversations we have with all these groups at their offices, which take a few hours each, are invaluable.” This is where BondMason comes in, enabling investors to take advantage of its vetting processes to gain attractive and sensible risk-adjusted returns from P2P lending. The firm works with a carefully curated selection of lending partners, giving its clients an extra layer of due diligence. “We currently work with 27 lending partners, including P2P platforms, having reviewed over 100 to date,” Findlay says. “From those approved partners, we review the loans they originate and approve approximately one in four of the loans that we review. We have around 1,500 loans on our online platform now.”
Findlay counts BondMason’s highly experienced team of financial services professionals and its strong technology offering among its attractions for investors. Furthermore, investors have the ability to diversify their portfolios very quickly. Most clients use an auto-bid system, which means that their funds can be spread across 50 or 100 separate opportunities. “They can do that in a very passive way, so that they don’t have to review each underlying loan and select or bid at a certain time,” Findlay explains. “That passive allocation is particularly attractive to our clients combined with the transparency to see what’s going on at any time through our online platform.” Of course, the proof of the pudding is in the eating and ultimately, investors are looking for yield. “Over the last couple of years, our clients on average have achieved a gross return of eight per cent per year, so there’s a high degree of consistency in the returns they are
achieving with very low volatility,” says Findlay. “Loss ratios are extremely small, coming in at less than 0.4 per cent. So the clients who have been with us for some time appreciate the quality of the returns they achieve.” Going forward, it’s business as usual at BondMason, enhanced with some additional wrappers for investors. An ISA service for clients is set to launch during this tax year and the firm is looking to develop an institutional product focused around fixed-income securitisation vehicles. On an industry-wide level, Findlay expects to see more convergence between P2P platforms and traditional City firms. “If you grow to a certain size and scale in financial services and asset management, you will inherently work with and interact with lots of other groups,” he says. “It’s a multilayered, multi-faceted industry. “That’s really what’s going to happen with P2P lending. The operators will continue to grow, but the boundaries that define P2P lending will be harder to draw.”
06
NEWS
Graham Wellesley hits back at critics GRAHAM Wellesley, chief executive of alternative lender Wellesley & Co, has spoken out after recent criticism of the company’s loan performance. Earlier this year, a series of media reports highlighted a report from auditor BDO which stated that Wellesley & Co was “dependent on raising further capital to continue to operate for 12 months”. However, Graham Wellesley told Peer2Peer
Finance News that these reports were misleading as they referred to the firm’s mini-bonds only, and not its peer-to-peer lending platform. “I think the criticism was very unfair,” said Wellesley. “The negative publicity started in relation to our mini-bonds. “We are not a bank. So a PRA-regulated bank issuing bonds has regulatory capital ratios. But why would you compare a mini-bond in
a non-bank to a bond at a regulated bank? I don’t think it’s a fair comparison. “We have raised the largest mini-bonds in the UK in excess of £50m. That money can be used as operating capital of the business and that’s all fully disclosed before anyone invests. We still operate with a positive NAV.” Other reports criticised a personal investment of £2.4m which was made by Graham
Wellesley to help “absorb impairment losses that would otherwise have been passed on to P2P investors.” Wellesley defended this move, saying that these losses have now been accounted for, and its P2P loan default rate is less than one per cent. Look out for P2PFN’s full interview with Wellesley at www. p2pfinancenews.co.uk in the coming weeks.
Funding Knight under review as lending dries up THE FUNDING Knight brand may soon disappear just a year after it was bought out of administration. Its owner Sancus Finance, part of AIMlisted GLI Finance, is looking at incorporating the peer-to-peer lending platform into the wider Sancus BMS Group of companies and renaming it Sancus Loans. But its latest data shows it has only funded one loan this year to date and that was in January. Funding Knight started lending to businesses in 2012 and has built up a loanbook of more than £30m. “The business has been reviewing the strategic direction of Funding
Knight over recent months and have been working hard to achieve Financial Conduct Authority (FCA) regulation,” a spokesperson said. “More news will follow as we firm up on our new plans for the business.” Funding Knight gained full authorisation from the FCA in July 2017, after a challenging period for the business. In June 2016, the firm went into administration, prompting concerns from investors over what would happen to their funds. But the platform was back in business in the same month after GLI Finance agreed to acquire it from the administrators Smith & Williamson for
£750,000, and committed to a further £1m capital injection to finance ongoing operations. GLI Finance had previously tried to acquire Funding Knight in February 2016 but became
a passive investor instead. The latest move follows a wider strategic review by GLI Finance of its overall business that has also seen it rebrand invoice finance P2P lender Platform Black as Sancus Finance.
SPONSORED CONTENT
07
Power to the people
Stuart Law, chief executive of peer-to-peer lender Assetz Capital, explains why the industry should stay true to its roots
M
any of us know the basics of peer-topeer lending but how is it actually evolving, what should really matter and what does the future hold? P2P started out with people lending to other people and businesses. This was substantially in response to people receiving poor bank interest rates but also a response to demand for credit by people and businesses who just didn’t fit bank criteria. It wasn’t that these borrowers necessarily were poorquality credit but that they didn’t fit the checkboxes imposed by banks in order to be able to deal with the high volume of enquiries and indeed their own capital adequacy requirements. As we entered the recession, the poor interest rate issue became much bigger as interest rates dropped
further and this became a substantial driver in the growth of the industry. So what’s next? As the industry developed and achieved scale, it became easier for institutional investors to ascertain the overall credit quality of the loans originated by a platform and they started to take notice. Institutions have their own views on risk and return and in some ways this has helped drive improvements in processes for platforms funded by institutions. However, we have also seen some platforms move up the risk curve to what institutions hoped would be higher net returns after losses. The jury is still out on whether the current partnerships with institutions have been a good move for platforms to date but it most certainly is a sensible diversification of funding sources for larger platforms if handled well. Working with institutional money can also save a lot of time and effort spent handling direct lender enquiries but we have seen reductions in engagement levels between platforms and their retail investors
as a result. We decided from the very beginning to go in a different direction and to date have funded most of our loans with retail money. This isn’t for lack of interest from institutions but to date we haven’t engaged with one that was able to make a material positive difference to our business and all of our stakeholders as well as achieve all of its own objectives. I’m sure that will change shortly for us but we have no intention
wider society. We believe that the latter is more sustainable in the long term and will produce a better business. We believe that helping to provide much-needed income streams for people is a cause worth defending. It is all well and good the Bank of England signing off a base rate rise to, say, 0.5 per cent in November but this is unlikely to make much of a difference to bank savings rates until the base rate finally exceeds one per cent again. Even then – and we doubt rates will exceed
Helping to provide much-needed “ income streams for people is a cause worth defending”
of switching over to purely institutional funding and abandoning the roots of P2P: the people. I think that one of the reasons for our divergence from many parts of the industry is that we still hold the same fundamental belief that was behind the founding of our company, that there is a difference between making money at all costs and making money as a result of making a positive and constructive difference to
an average of two to three per cent in many people’s lifetime — it is known that only around 50 per cent of those base rate increases will feed through into bank savings rate increases. The people are going to need alternative income investments for a very long time and those who are willing to accept the additional risk may well turn to P2P lending. We intend to support that and we would encourage the industry not to forget its roots.
SPONSORED CONTENT
09
Lendy – The Property Platform: Five years young and counting Paul Riddell, head of marketing and communications at Lendy, explains why investors and borrowers should join the peer-to-peer property lender’s community
O
CTOBER 2017 marks five years in the history of Lendy – The Property Platform, having been founded in 2012 by two entrepreneurs with expertise in the e-commerce and financial worlds, who believed that property investing and borrowing should be easier, more accessible and rewarding. Today, we are one of the fastest growing peer-to-peer property platforms, having lent over £330m via our 17,500 plus community of investors. P2P lending has flourished since its fruition in 2005 and platforms have cumulatively lent out more than £10bn in the UK and almost £107bn worldwide. The industry’s benefits are widereaching. In an era of historically low interest rates, P2P investors can enjoy highly competitive returns. Eligible borrowers who may struggle to obtain finance from high street banks for a variety of reasons can often find the funding they need. And P2P property lenders, such as Lendy, are playing an important part in helping address the housing crisis – arguably one of the most pressing issues affecting our society. The platform specialises in offering bridging and development finance to property professionals, funded by our pool of investors. It is fast and efficient, enabling developers to access finance more quickly than they would with a traditional high street lender. This speeds up the completion of housing
development or building projects, providing much-needed real estate that can be sold or rented. And by cutting out the middle man, borrowers get lower rates of interest on their finance as P2P lenders operate on a basic fee basis. The benefits for investors are obvious. The process is straightforward and speedy, providing annual returns of up to 12 per cent, paid monthly into their bank accounts. It’s no surprise that Lendy’s investor base has almost doubled since 2016. While there is a risk involved with all investments, Lendy’s loans are secured with a legal charge and the amount lent never exceeds 70 per cent of the property’s open market value. This means that in the event of a borrower default, Lendy can typically sell the property and there will be sufficient money recouped to pay back its investors. These are just some of the measures in place to mitigate risk for investors. The platform also offers robust credit checks, and a discretionary provision fund in the event of a defaulted loan. With a milestone birthday celebration month, Lendy is one of the only profitable P2P platforms, thanks to a cautious approach and careful risk management strategy. Our agile methods and low overheads enable us to pass the majority of the interest charged to borrowers back to investors,
providing some of the best risk-toreward ratio returns on the market. The platform’s investors have collectively earned almost £30m in interest as of August 2017, which has helped to build, buy and restore thousands of properties across the UK. Although we are still a relatively young company, Lendy also recognizes the importance of corporate responsibility and is keen to provide support, experience and financial help to a number of organisations. In 2017 this support included the title sponsorship of Lendy Cowes Week for the first time, which brought many benefits to the world-renowned sailing regatta, and gave the company an opportunity to promote the benefits of P2P lending. We have also sponsored two promising British tennis stars, Katy Dunne and Harriet Dart, at The Championships – Wimbledon this year, and are looking into a partnership with one of the UK’s leading homeless charities. Lendy is very confident about the future, seeing UK property as one of the most secure financial assets, and one of the most able to weather the ups and downs of the British economy as we navigate a path through Brexit. So, why not join our fast-growing group of investors and borrowers to help make some of the UK’s biggest and most diverse secured property ventures a reality.
10
POWER 50
The
Peer2Peer Finance News
Power 50
Words by Marc Shoffman
P
EER-TO-PEER LENDING HAS rapidly grown into a multi-billionpound industry, bringing together the best in banking and technology as well as lawyers, regulators, analysts and fund managers. So, who are the key players influencing the UK’s P2P sector? The inaugural Peer2Peer Finance News Power 50 list aims to identify the big names in the industry who have helped it grow into a force to contend with over the past decade and who will play a key role in its future. If P2P were a football
match, albeit one with 50 players, these would be the first names on the teamsheet, the ones the fans print on the back of their shirts and chant from the terraces. The list does not purely focus on the shining stars at the best-known platforms, but also considers the people working at the regulators and associations that help shape the sector, as well as the lawyers and analysts who have become the
go-to source for industry research and comment. Our top 10 list gives particular acknowledgement to the most influential individuals that we believe have helped establish the P2P brand or will be the biggest drivers in its future. This is not to diminish the significance of the remaining 40 individuals. The Power 50 list highlights the brightest talent in P2P, coming from lenders, law firms, accountants, trade bodies,
analysts, investors and the regulatory sphere. Of course, gaining influence takes time and there are plenty of innovative players in this fast-moving industry who have not fully made their mark yet. As such, we have acknowledged the rising stars who are likely to take pride of place in the Power 50 in the coming years. There are no rankings, aside from the special mention given to the top 10 entrants, so all sections are compiled in alphabetical order.
POWER 50
11
Giles Andrews, co-founder & chairman, Zopa Andrews helped launch Zopa as the world’s first peer-to-peer lender in 2005 and has overseen its growth into one of the largest and best-known UK platforms. Andrews stepped back from the chief executive role in 2015 but his influence was cemented in 2016 with an OBE for his contribution to financial services. This year he has also taken up the role of chairman at MarketInvoice.
Andrew Bailey, chief executive, Financial Conduct Authority Bailey’s actions at the helm of the City watchdog dictate the future for P2P platforms, both through the arduous company authorisation process and the postimplementation review of the sector. The full results from the review are set to be released imminently and Bailey has already hinted at the need for tighter regulation, so watch this space.
Mark Carney, governor, Bank of England When Carney sneezes, the rest of the UK financial system catches a cold. The Canadian economist does not explicitly talk about P2P very often, but his comments on consumer credit, interest rates and economic outlook undoubtedly impact the sector. In January, during a speech as chairman of the Financial Stability Board, he said that P2P does not currently pose systemic risks, but warned that regulators may need to address issues as it gets bigger.
Bruce Davis, co-founder, Abundance Davis is at the very heart of the sector. He helped set up Zopa, was a founding director of the UK Crowdfunding Association and is a trustee of the Finance Innovation Lab. He has now shown it is possible to make a profit and contribute to society at the same time with the launch of Abundance. The ethical and renewable energy-focused crowd bond platform was one of the first IFISA providers and has backed various projects including the newly-privatised Green Deal.
12
POWER 50
Samir Desai, co-founder & chief executive, Funding Circle It’s no surprise that Desai was awarded a CBE in 2016, having helped establish Funding Circle as the UK’s biggest business P2P lender and a key player in US and European markets. With Desai still at the helm, the platform has overtaken Zopa to become the UK’s largest P2P platform in terms of cumulative lending and was heralded by Chancellor Philip Hammond as “a real success story for British fintech”.
Christine Farnish, chair, Peer-to-Peer Finance Association The former National Association of Pension Funds chief has spearheaded the introduction of transparency rules and standardised lending practices for members of the self-regulated body and the wider industry. Well connected and an ardent lobbyist, it is unlikely that the regulatory landscape of P2P would look the same without Farnish’s efforts.
Jaidev Janardana, chief executive, Zopa Janardana helped return credit card provider Capital One’s UK business back to profit and growth as chief marketing officer before joining Zopa in 2014. He brings a strong marketing, product and risk pedigree to the P2P platform, while showing that he can build a trusted brand. His ability to revitalise and lead a business into a new phase will be vital as Zopa plans to launch a banking arm, which will be a first for the P2P industry.
Rhydian Lewis, co-founder & chief executive, RateSetter Lewis set up RateSetter in 2010, seeing an opportunity in narrowing the spread between what investors could earn and borrowers could pay. The platform’s distinguishing feature is that it operates a true marketplace, where both parties can specify the rate they’ll accept. Lewis has overseen RateSetter’s loanbook grow to more than £2bn and consistently pushes the frontiers of P2P innovation. He was awarded an OBE for his contribution to financial services earlier this year.
POWER 50
13
I
t is hard to imagine the financial services environment now without peer-to-peer lending but it would never have materialised without many of the innovators and leaders in the top 10 of the Power 50. This includes the staple names behind P2P, those who have been there from the start and helped build major brands. They have seen and in some cases helped the sector grow from a niche, unknown industry to a fully regulated machine. They have worked hard to build respectable brands that are no longer obscure fintechs but able to go toe-to-toe with mainstream lenders offering borrowers and investors competitive rates. There are figures such as Giles Andrews, Samir Desai and Rhydian Lewis, the names behind the big three platforms Zopa, Funding Circle and RateSetter. These are the biggest and best-known P2P brands that have been trailblazers in the sector. Anil Stocker, co-founder of MarketInvoice, is another example of an innovator in our top 10, building up a unique P2P proposition. And UK Crowdfunding Association director Bruce Davis also makes the list, for his influence on the industry across a number of ventures. The top 10 also features those bringing the sector and the wider fintech world together such as LendIt founder Peter Renton, plus those at the centre of major developments, like Jaidev Janardana, chief executive of Zopa, who is at the helm of the P2P lender as it readies to launch a bank. Additionally, there are those setting the allimportant standards, such as Christine Farnish, chair of self-regulatory industry body the Peer-toPeer Finance Association and Andrew Bailey, chief executive of the all-important City watchdog the Financial Conduct Authority, who could make or break the future of P2P platforms depending on the regulatory direction he sets. Bank of England Governor Mark Carney also makes the top 10, although he may not be someone that immediately comes to mind with regard to P2P lending. This sector is not operating in isolation; Carney’s closely-watched outlook on interest rates, the credit market and the wider economy gives him substantial influence.
Peter Renton, co-founder & chairman, LendIt Renton’s global events and conferencing brand LendIt brings alternative lending and P2P advocates together on a regular basis, showcasing the sector’s talents both within the industry and to the wider world. Renton is also a key commentator on the industry and publishes the influential US P2P resource Lend Academy alongside a regular podcast, providing important information on the sector.
Anil Stocker, co-founder & chief executive, MarketInvoice A former private equity analyst, Anil Stocker saw a gap in the P2P market for invoice finance and has built a venerable brand since co-founding MarketInvoice in 2011. The platform has lent more than £1.5bn to businesses so far and counts the state-backed British Business Bank as a lender. Stocker’s influence is strengthened by his seat on the UK Fintech Delivery Panel, which makes policy recommendations on the sector. Stocker is now driving the business into the next stage with new products and partnerships.
POWER 50
15
Kevin Allen, chief risk officer, The Money Platform Allen is probably best known for his tenure at RateSetter, where he became the firm’s first chief risk officer and helped the platform grow its lending from £2m-£3m a month to £60m a month. But for Allen, the joy is in the journey, which is why he joined P2P startup The Money Platform earlier this year. Peter Behrens, co-founder & chief operating officer, RateSetter Behrens’ role puts him at the forefront of day-to-day operations at the platform and it is his name that often appears on investor communications and research. David Blair, principal, Legal Alternative Prior to setting up his own firm, Blair was head of financial regulation at Osborne Clarke. He has extensive experience advising start-ups and more established alternative finance names such as Funding Circle. Louise Brett, head of UK fintech, Deloitte Brett works across the fintech ecosystem, engaging with financial services clients, government bodies, regulators, advisers and the broader fintech community. The former banker also sits on the board of Deloitte’s EMEA fintech accelerator. Alan Brierley, director of investment companies research, Canaccord Genuity Brierley is a respected analyst and heads up Canaccord Genuity’s investment companies team, encompassing P2P funds. Liam Brooke, co-founder, Lendy Brooke is bringing P2P into mainstream financial services after sponsoring Cowes Week and and the firm has been one of the busiest property lenders so far this year. Kevin Caley, co-founder & chairman, ThinCats Caley used his venture capital and business finance experience to establish ThinCats and later expanded into social investments with an ethically-minded P2P platform Community Chest. Simon Champ, chief executive of PSC Eaglewood Europe Champ heads up the investment manager of P2P Global Investments, which launched as the first P2P-focused trust in 2014. This was a trail later followed by others,
The FCA’s Jonathan Davidson providing an example of how institutional funding can help platforms. Mike Cherry, national chairman, the FSB Access to finance is a major blockage to small business growth and as head of the UK’s largest small business lobby group, Cherry can help ensure P2P is seen as an option among those looking for funds. Jonathan Davidson, director of supervision, FCA Davidson is responsible for ensuring authorised firms behave and has already shown his power after warning P2P lenders against wholesale lending earlier this year. Steve Davies, EMEA fintech leader, PWC Davies has headed up PwC’s EMEA fintech practice since 2015, authored many publications and spoken at numerous conferences around the world. He now works with a variety of start-ups, fintechs and incubators.
16
POWER 50
backs loans on alternative lending platforms. John Goodall, co-founder & chief executive, Landbay Goodall has helped grow Landbay into a leader in the P2P buy-to-let mortgage sector and a brand rapidly getting recognised by mainstream brokers as a viable alternative. Julia Groves, head of crowdfunding, Downing Groves already had an impressive CV having launched British Airways online, and now she has helped the P2P sector skyrocket by setting up the UK Crowdfunding Association and contributing to the development of the IFISA.
Downing’s Julia Groves Angus Dent, chief executive, ArchOver A former accountant, Dent has helped develop unique “secured and insured” and “secured and assigned” business lending models on ArchOver, with no defaults, late payments or arrears to date. Jane Dumeresque, ex-chief executive, Folk2Folk Dumeresque has just left Folk2Folk but she leaves a legacy of how to provide an online P2P service while also combining a branch network, something mainstream banks regularly struggle with. Christian Faes, co-founder & chief executive, LendInvest LendInvest may no longer be a P2P lender, but Faes’ influence on the development of P2P property finance is undeniable. He established one of the first platforms that enabled individuals to fund property development and bridging loans directly. Neil Faulkner, founder, 4th Way Faulkner started the first analysis firm dedicated to P2P and its tables on rates and risk ratings play a key role in investment into platforms. Stephen Findlay, chief executive, BondMason Findlay provides investors with a diversified portfolio and an extra layer of due diligence through his direct lending investment manager BondMason, which
Imran Gulamhuseinwala, global fintech leader, EY Gulamhuseinwala was recognised in the 2017 New Year’s Honours list for his services to financial services. He previously set up his own fintech company CommuterClub and is renowned for his work with government bodies on developing a strategy for fintech’s future growth. Nigel Hackett, director, Funding Secure Hackett has developed a unique IFISA-authorised P2P pawnbroking platform that provides loans secured on personal assets that has grown into the third biggest consumer lender in the sector by market share. Chris Hancock, founder & chief executive, Crowd2Fund Hancock’s platform was one of the first off the mark with an IFISA and is constantly expanding its innovative range of products, such as venture debt for early-stage companies. Nick Harding, co-founder & chief executive, Lending Works The former Royal Bank of Scotland banker set up Lending Works in 2012 and it has grown into one of the largest P2P consumer lenders in the UK. It was the first of the Peer-to-Peer Finance Association members to get regulatory approval to launch an IFISA. Nicola Horlick, founder & chief executive, Money&Co City superwoman Nicola Horlick was already a respected fund manager before she entered the P2P space by founding business lender Money&Co in 2013. The platform launched its IFISA in March this year,
POWER 50
offering yield-hungry investors the chance to fund A+ rated loans secured on residential property, for returns of around seven per cent. Matthew Hose, vice president - equity research, Jefferies Hose is tasked with assessing the fortunes of P2P investment trusts at influential brokerage Jefferies. Martin Kissinger, founder & chief executive, Lendable At almost four years old, the personal loans platform started by Kissinger is on a par with the likes of Lending Works. Aimed at institutional and sophisticated
17
investors, Lendable provides instant credit decisions and fully personalised pricing. Stuart Law, founder & chief executive, Assetz Capital Law is a regular commentator on industry issues and has built a significant property and business lending platform, giving investors the choice of automated and manual accounts. Ewan Lovett-Turner, director of investment companies research, Numis Lovett-Turner has the prospects of P2P funds in his sights and regularly provides authoritative comments on investment trusts focused on the sector such as P2PGI and VPC Specialty Lending.
Rising Stars
We also give special mention to the individuals gaining prominence within P2P. Some of these people are already established in other fields but are new to the sector, while others are leading innovative start-ups and scale-ups. Brian Bartaby, founder & chief executive, Proplend It’s been a busy year for Bartaby. His commercial finance property platform launched its IFISA in May and is in the midst of equity fundraising, which Bartaby says will “elevate the business to the next stage”. Definitely one to watch.
finance aggregator, but serial entrepreneur Deak has now built a respected comparison tool across various investment asset classes including P2P. Deak, who has had Dragons’ Den backing for previous ventures, says he plans to make OFF3R the “Moneysupermarket of the investment sector.”
David Bradley-Ward, chief executive, Ablrate Aircraft leasing and P2P are not automatic bedfellows but BradleyWard launched an innovative platform that has also spread its wings to asset-backed transactions in other sectors now. Its recentlylaunched IFISA saw strong demand and the firm has several plans up its sleeve including a new broker portal.
Michael Lynn, founder & chief executive, Relendex A chartered accountant by trade, Lynn has transferred his knowledge of finance and real estate into a platform offering innovative auction loans backing residential and commercial development as well as bridging.
Lex Deak, co-founder & chief executive, Off3R OFF3R started life as an alternative
Paul Manduca, non-executive chairman, RateSetter The City veteran founded Threadneedle Asset Management in 1994 and is currently serving as chairman of insurer giant
Prudential. He joined RateSetter this summer, so it will be interesting to see how his extensive experience helps guide the platform through its next phase of growth. Iain Niblock, co-founder & chief executive and Jordan Stodart, co-founder & chief marketing officer, Orca Niblock and Stodart has turned their passion for P2P into a respectable analysis brand with Orca, offering investors important comparison tools and reports on platforms across the sector. Ed Pearce, managing director, Money Thing Customer service is key for Money Thing, which has quickly built up an enviable reputation among P2P investors. The firm, which launched in 2015, posted a record month of loan originations in May and is readying to launch its IFISA later this year.
18
POWER 50
James Meekings, co-founder & UK managing director, Funding Circle James Meekings helped start Funding Circle back in 2010 and as managing director of the UK operations has been instrumental in using his management consultancy background to help fund more than £2bn of loans to British businesses so far. Penny Miller, partner, Simmons & Simmons Miller specialises in UK and EU financial services regulation and advises some of the UK’s largest P2P platforms on legal matters. She is one of the UK’s leading experts on regulatory issues affecting the fintech sector. Fayyaz Muneer, senior policy adviser, the Treasury The Treasury is probably the most influential government department for P2P, having overseen the introduction of the Innovative Finance ISA as well as the launch of the bank referral scheme. Muneer is the department’s policy lead on P2P, so he has a pivotal role as a link between the industry and the chancellor.
Simmons’ Penny Miller
Firms of Influence
We want to give recognition to a few extra companies whose brand name holds influence. From fund managers providing institutional backing to government lenders, aggregrators and analysts, these are some of the businesses that bring important funds and insight that keep the sector ticking. Institutional investors Artemis Arrowgrass Balderton F&C Northzone Ribbit
State-backed bodies and trade associations British Business Bank Innovate Finance
Business finance aggregators Alternative Business Funding Bizfitech Funding Options Funding Xchange
Securitisation Deutsche Bank
Professional services Fox Williams RSM
Research Cambridge Centre for Alternative Finance
POWER 50
19
Jeffrey Mushens, technical policy director, TISA The financial services trade body plays a key role in getting consumers to understand effective ways of investing and saving so Mushens is an important ally as the P2P sector looks to make IFISAs mainstream. Karteek Patel, co-founder & chief executive, Crowdstacker An experienced fund manager, Patel has successfully turned his skills into developing a platform backing interesting British businesses and was one of the first and biggest IFISA providers. Emily Reid, partner, Hogan Lovells Reid is one of the best-known legal brains when it comes to fintech and peer-to-peer lending in particular. With over 30 years’ experience, she is particularly recognised for her ability to think outside the box and provide innovative ideas. Gillian Roche-Saunders, partner at Bates Wells Braithwaite Roche-Saunders is a well-known regulatory adviser to a range of alternative finance firms and is a regular speaker and attendee on the fintech/altfin conference circuit. Graham Toy, chief executive, National Association of Commercial Finance Brokers Brokers are becoming a key origination channel for P2P platforms so Toy can play a key role in conveying the benefits of P2P to the trade body’s members. Sarah Walker, UK lead of alternative finance, KPMG KPMG has established relationships with P2P firms such as MarketInvoice when trying to help clients access finance and Walker, who has been with KPMG since 2000, has a central role in researching, contributing to and promoting the big four firm’s thought leadership and research on the sector. Richard Wazacz, chief executive, Octopus Labs Through his work at Octopus Labs, Wazacz has spearheaded the creation of the first adviser-focused P2P platform, Octopus Choice. Providing secured property loans, the platform has helped P2P among the advisory community by transferring a brand already well known in the venture capital space.
Crowdstacker’s Karteek Patel Graham Wellesley, founder & chief executive, Wellesley & Co The platform may have paused P2P lending while awaiting full FCA authorisation, but it is certainly one of the better-known brands in the industry, in part thanks to a TV ad campaign that put the firm in the minds of households across the country. The 8th Earl of Cowley has not only put his own name on his company, but created an innovative P2P property platform that was one of the first to invest alongside individuals. Jake Wombwell-Povey, co-founder & chief executive, Goji From industry consultant to IFISA administrator and bond provider, Povey has started a firm that helps much of the sector function. Neil Woodford, founder, Woodford Investment Management Woodford is a heavyweight of the fund industry and provides a boost to the visibility of P2P by incorporating RateSetter and VPC Specialty Lending into the portfolio of his Equity Income fund.
JOINT VENTURE
21
Dressed for success Raja Daswani, the head of Hong Kong bespoke tailor Raja Fashions, explains why a well-tailored suit will never go out of style
E
VEN THE RELAXED fintech professionals of Silicon Roundabout need to smarten up on occasion, whether it be for an important meeting with lawyers or to court City investors. No-one can deny the advantages of a quality, tailor-made suit over an off-the-rack number, but the typically high price tags can be off-putting. This is where Hong Kong-based Raja Fashions comes in, offering designer fabrics and custom tailoring at a mere snip of the price of Savile Row. Raja Daswani, the head of Raja Fashions, travels regularly to the UK to meet with customers requiring bespoke garments. In fact, the UK is Raja Fashions’ biggest market, since the transfer of sovereignty over
Hong Kong from the UK to China in 1997. “Many of the UK expatriates living in Hong Kong had to leave,” says Daswani. “So we decided – if they’re leaving us, we’ll go and visit them. “It’s been really positive. They’ve started recommending their friends and now we visit so many different cities in the UK it’s unbelievable. We started in London but we now travel all over the UK including Scotland, Wales and Ireland in response to growing demand.” With 20,000 fabrics to choose from – including designer textiles from the likes of Holland & Sherry and Ermenegildo Zegna – and a multitude of styles, there’s something for everyone. “It all depends on your profession or what you want your tailor-made garment for,” explains Daswani. “If you’re a solicitor, you may want a dark, tailored suit or dress and jacket that is good for the workplace, whereas someone in a more creative industry may want a brighter-coloured suit that
stands out. “And if you want a party suit or an evening outfit, there are different types of suits you may wear. It all depends on the individual.” A bespoke suit is no longer purely a prerequisite for men. “There’s huge demand for ladies’ tailored garments, which we’re doing more and more of now,” Daswani says. Raja Fashions’ suits are around one third or even one quarter of the prices on Savile Row, Daswani says, using many of the same fabrics.
and “moreMorepeople
are buying bespoke suits
”
Bespoke suits start at £350 for lightweight fabrics and £435 for 100 per cent wool. Raja Fashions’ highend suits go up to £2,500, but the same item could cost £12,000 on Savile Row, the tailor explains. Furthermore, Raja Fashions is currently promoting several special offers. Customers can buy two suits and two shirts from £580, six shirts or blouses from £298 and a bespoke suit with fabric
by Ermenegildo Zegna from £850. “We want to make sure that the price is reasonable, so that people can afford it and get more suits tailored,” says Daswani. “We’re even competitive with the high street.” Daswani’s team travel to the UK every two months, taking over hotel suites across the country so that clients can get suit fittings without having to travel to the Far East. The entire process, from the first appointment to receiving the tailored item, takes four to five weeks. “Our suits never go out of style – on the contrary, more and more people are buying bespoke suits,” says Daswani. “When it comes to off the peg, you may get a branded suit but you don’t get the right fit. This is why more and more people are understanding the benefits of going to a tailor.” Visit Raja Fashion’s website at www.rajafashions.com or email raja@raja-fashions.com to book an appointment. Hong Kong main shop: 34-C Cameron Road, G/F, TST, Kln, Hong Kong.
SPONSORED CONTENT
23
The rules of robo-advice Keith Maner, compliance and technical manager at compliance specialists Thistle Initiatives, sheds light on the regulatory issues surrounding robo-advice
R
obo-advice is the name given to the service provided by online wealth management companies that use automated algorithms to allocate assets into portfolios, based on questionnaires that take into account an individual’s risk appetite, among other things. As robo-advising grows in popularity among users, a number of firms of this type recently launched in the UK that investors and banks should keep an eye on. Nutmeg was the first firm to move to robo-advising in the UK in 2011, although the firm prefers to call itself an ‘online wealth manager’ and has taken the largest market share, recently revealing it had 20,000 customers and £600m in assets under management (AUM). Who are the newest robo-adviser entrants to the UK market? We have identified four recent start-ups that investors should watch out for in the coming years. Wealthify – Launched in April 2016, the firm has 2,000 customers. It invests in a range of assets and ETFs. It recently reached £1m in AUM and is backed by finance from the Welsh government. Scalable Capital – The firm recently reached £100m in AUM by operating in the UK and Germany and has over 2,500 customers. The firm’s model is slightly different from those of other robo-advisers in that it does not divide portfolios into low, medium and high risk. Instead, it asks clients to identify
the percentage that they would be willing to risk in the most adverse financial conditions. It then uses automated algorithms to manage the risk of portfolios on a daily basis so none would dip over the projected risk percentage. MoneyBox - This start-up is aimed at the younger crowd and passive investors, and markets itself as the app that “invests your spare change”. It works by linking to a bank account, rounding up everyday purchases to the nearest pound and investing the change. It has three portfolios to choose from, with tracker funds available through BlackRock, Vanguard and Henderson. Munnypot (an Appointed Representative of our group company, Resolution Compliance) - Clients can look at different scenarios to determine the best investment for them. The service offers five Vanguard trackers. Key Financial Conduct Authority authorisation points to be aware of: Robo-advice is an emerging model across the globe but risks and concerns have been identified by regulators and the industry alike. In particular, concerns exist that the automation of financial advice beyond simple financial planning tools may give rise to new or increased risks compared to the traditional model of human professional advice. Some commentators warn that
consumers may misunderstand the advice or the nature of the service provided to them without the benefit of a professional adviser to support them through an advice process, or may not understand the limitations in using the automated tools when compared against personal human advice, particularly in more complex product areas. Another perceived risk is the potential for limitations or errors in automated tools to the extent that they cannot be as intuitive as a human adviser. For example, many automated advice tools are based on decision trees and are not traditional investment advice in the sense that they do not take into account the customer’s objectives and goals and how their circumstances may change over time. Some see this as having the potential to lead to a risk of automated mis-selling of products and it may take years to identify bad advice provided through these tools. To sum up, we see robo-advice providers as potentially significant players in the UK advice market, especially if banks come calling to snap them up. With that success comes the inevitable regulatory risk, however.
24
ROBO-ADVICE
The robots are coming Robo-advice is a hot topic in the world of DIY investing. So far, it has tended to stay away from P2P, but should the industry be taking notice? Andrew Saunders investigates
T
HERE MAY BE PLENTY of lush growth and jolly flowers in the peer-to-peer financial garden, but until recently the laborious business of sorting the weeds from the winning blooms has been very much a question of rolling your sleeves up and getting stuck in. Regardless of auto-bid functions, there is still a fair bit of responsibility on the investor to choose the right product on the right
platform and the right amount to invest. However, nothing stands still for long, and just as the nation’s gardeners can now let a robot mower cut the grass while they do the more interesting stuff, there are signs in P2P of a movement towards so-called robo-advisers taking the hard work and head scratching out of deciding where to put your P2P money. Seattle-based start-up
LendingRobot was the first P2P adviser to be registered with the US Securities and Exchange Commission back in 2014, and it hit the headlines again earlier this year when it launched its automated P2P investment management platform in the UK. In August it merged with NSR Invest to form what is claimed to be the largest independent alternative finance robo-
adviser around. So are we witnessing the dawn of a new age of algorithmic investment decision making? Such labour-saving technology would certainly add mass market appeal, says John Goodall, co-founder and chief executive of Landbay, a P2P platform in the buy-to-let property market with a whisker under £55m in loans to date. “It would help P2P
ROBO-ADVICE
25
It will add a layer of cost but there “ is a level of convenience that people are prepared to pay for ” attract more mainstream customers, especially when it comes to the ISA,” he says. “The ISA allowances are now quite large and someone using their full allowance in P2P might well want to avoid putting all their eggs in one basket.” A platform which looks across all or most of the market and automates at least part of the process of matching products with investors’ requirements in terms of risk appetite, available funds and term of investment - would require less commitment from existing investors, and make the sector less daunting to new ones. “The ‘typical’ P2P customer currently has five or six accounts with different platforms and logs in regularly,” says Goodall. “Many of them are retired or semi-retired so they have the time.” But as the sector matures and comes to rely on a wider retail customer base more used to having comparison sites and
smartphone apps to ease their financial decision making, the need for convenience and speed will rise accordingly. “More mainstream customers won’t want to spend all that time on it, but they will still want to spread their investment around,” Goodall adds. So, there’s a perceived demand for robo advice, but where is it likely to come from? The big hitters from across the water such as the aforementioned LendingRobot/NSR for starters. But there are also a number of smaller home-grown firms specialising in P2P market data, and at least one of them is considering developing an automated offer. “We already aggregate data about P2P to help retail investors and IFAs learn about the market, and we’re looking at launching into this space,” says Iain Niblock, co-founder and chief executive of one such business, Belfast-based analysis firm Orca.
Although Niblock isn’t keen on the epithet ‘robo’ – “we talk about aggregation”, he is sold on the principle. “P2P has grown significantly in recent years, there are lots of platforms and models,” he comments. “Building and maintaining a balanced portfolio can be an admin burden so we think the sector is ripe for aggregation.” P2P platforms could do it themselves, but at present they are generally in the growth phase and cross-market co-operation isn’t top of their to-do lists. So the opportunity is there for independent third parties to step in. “Yes, it will add a layer of cost but there is a level of convenience that people are prepared to pay for,” says Niblock. “There’s a right level of intermediation, not layers and layers of fees.” There are also technical hurdles to overcome, he adds: “The tech is quite difficult. P2P is not like buying an equity off an
exchange. The contract is quite hard to facilitate.” Of course P2P doesn’t exist in a bubble — it’s part of the wider alternative finance world where robo-advice is already taking hold. According to providers like Nutmeg and Wealthify, their slick algorithmic systems provide low-cost access to the kind of sophisticated portfolio management tools that only a few years ago were the preserve of those lucky enough to have millions of pounds to invest. “Managing costs is the key to long-term returns, and we facilitate investing at low cost,” says Giovanni Dapra, chief executive and cofounder of MoneyFarm, Europe’s second largest robo-adviser with assets of £260m, and 10,000 customers in the UK. “Our customers have between £100,000 and £1m to invest and until now, they would not have been able to access wealth
26
ROBO-ADVICE
For robo to succeed on slim “ margins, it needs to be low cost and that means scale”
management services, or it would have been very expensive for them.” MoneyFarm customers sign up online, answering questions about their funds, attitude to risk and the returns and duration of their planned investments. Its algorithms then generate an investment plan appropriate to each customer’s profile, and it prioritises ease of use. “You manage it via a mobile app – you can invest while you’re on the bus,” he says. Dapra’s background is in P2P – he was involved in Italian social lender Prestiamoci – so what are the prospects for a robo adviser like MoneyFarm including P2P in its portfolio? “We would consider P2P when we are confident that it can provide the long-term returns our customers are looking for,” he replies.
“But it can only comprise so much of a balanced portfolio. How much should you put into P2P as an asset class? At the moment, not that much.” Most robo-advisers – MoneyFarm included – are in reality only partly robo. Depending on the model, human beings are involved to a greater or lesser extent. This is partly down to customer preference – even millennials and digital natives sometimes want to talk to a real person about the fate of their hard-earned money – and partly because of regulatory requirements. If you are providing what the Financial Conduct Authority (FCA) defines as personal financial advice – effectively telling your customers where to put their money rather than merely offering suggestions – the rules
are very strict. “Human advisers have professional indemnity insurance, so you get recourse if something goes wrong,” says Adam Tavener of Bristol-based Clifton Asset Management. Tavener is also the founder of Alternative Business Funding, a platform which matches businesses looking for funding with alternative lenders including P2P. It too is a algo/human hybrid: “We started out all starry eyed that it would be entirely self-drive. But even if people don’t need to talk to someone, they often want to.” Robo provides useful guidance for smaller investors with relatively simple needs, he says, but will never replace human expertise for more complicated issues like investing for grandchildren or complicated tax planning.
“The scope for nuanced advice is limited,” he comments. “You’d be barking to invest £500,000 without any human advice, and I’d be very nervous as a business owner about offering advice with recourse based purely on algorithms.” The take-up of robo advice is also hampered by the fact that many independent financial advisers have proved unwilling to get on board – partly, suggest some critics, out of a sense of self-preservation. But just as there are plenty of P2P investors seeking better returns than they could get from a savings account, there are plenty of moderately-affluent people with £50,000 or so to invest for whom robo looks like a good call. “Human advisors already use quite a lot of tech when it comes to making investment
ROBO-ADVICE
27
“ P2P has a role to play in that democratisation of investment” decisions, and robo-advice takes that further,” says Jason Whyte, executive director at professional services firm EY. “Humans will still have a role to play in many financial decisions, but new technologies will let them focus their time where it is most valuable.” Driven by post-crash distrust of financial institutions, the advice gap triggered by the FCA’s 2014 retail distribution review, and new-found pension freedoms, there are big opportunities for robo-advisers, he says.
“P2P is definitely amenable to roboadvice but today it is not typically considered by [existing robo advisers],” explains Whyte. “As the overall source of investment moves away from pension fund managers and towards individual investors, there will be new demand for different types of assets. P2P has a role to play in that democratisation of investment, as long as investors can buy with confidence.” That role could be
substantial: according to research from Bathbased analysts Altus, by 2020 this new breed of intermediaries will handle between 70 per cent and 80 per cent of funds invested in P2P. So what’s got to happen if those figures – or anything like them - are going to be realised? The key factor is scale, says Landbay’s Goodall. P2P is a low-cost, low margin business, he says – it’s not worth paying for advice currently because it would eat too far into returns. “For robo to
succeed on slim margins, it needs to be low cost and that means scale,” he states. “It needs to be well funded and get serious distribution.” That scale isn’t there yet, he says, but in a sector which is worth £7bn and growing fast, it may be soon. “If the sector reaches £10bn to £15bn it could work. Fundamentally there is a market there, and an opportunity for a good product. The question is, can anyone make any money out of it?”