Reflections of LendIt Europe 2016
The mood had changed markedly at the LendIt Europe 2016 conference in London. Gone was the focus on turnover growth, more evident were the goals set for profit, sustainability and long-term development as the industry moves into its next stage of evolution. Technology was considered key to achieving profit, with flexibility of platform, data aggregation and analytics just some of the ways of achieving and maintaining profitable growth in marketplace lending.
From dark days to golden age
The challenges faced by the industry in the first part of 2016 focused attention on the Peer to Peer Lending business model, rather than the excitement of challenging traditional finance. The industry will stand up to this scrutiny, said Samir Desai of Funding Circle in his opening address at the conference, going further by saying that we’re entering a golden age combining the best of financial services and technology.
The new Oxera analysis of Peer to Peer Lending in the UK, demonstrated that the major players assessed would be able to weather the storm in an economic downturn. Even if there was a doubling of borrower defaults in potentially harder times ahead, those firms assessed in the Oxera report were expected to continue to deliver positive interest to their customers.
FCA “Loan-based Crowdfunding” review
Technology to ensure compliance would also be important to help Peer to Peer Lending (aka Loan-based Crowdfunding) platforms to satisfy the rules of the Financial Conduct Authority and gain their FCA Full Permission. The FCA continues its aim to encourage innovation and choice in the financial sector, whilst maintaining consumer protection. As Chris Woolard of the FCA emphasised, their latest review will help them establish there are no “expectation gaps” as the many business models across the industry are changing and developing. Review feedback is expected before the end of the year.
IFISA on the horizon
Christine Farnish, chair of the Peer to Peer Finance Association, noted that Innovative Finance ISAs would begin to emerge as platforms neared the point of achieving FCA Full Permission, perhaps around February/March 2017. In times of low yield elsewhere, Christine highlighted the importance of this to retail investors.
The Trusts “will come good”
Cormac Leech of Victory Park Capital (who prefers the term “Online Direct Lending” to describe the industry) noted the turmoil in recent IPOs with unrealistic expectations (Lending Club and On Deck) and felt that investors should bear with the Trusts, that they will come good. He still believes that Continental Europe will overtake the UK Peer to Peer Lending market in due course but may take slightly longer that previously forecast because of the recent slowdown.
Credit Crunch spare tyre
Though the industry has an identity crisis (Online Direct Lending, Marketplace Lending, Peer to Peer Lending or Loan-based Crowdfunding), perhaps the best description came from Lord Adair Turner when he referred to it as a “credit crunch spare tyre”. This was in stark contrast to his widely reported comments from earlier in the year where he said that losses from Peer to Peer Lending over the next few years would make bankers look like lending geniuses. It seems he understands Peer to Peer Lending better now and feels that more direct lending could help make the economy more stable, providing funds when banks shut up shop.
Again, Lord Turner recognised the role that new technology was playing in giving Peer to Peer Lenders an advantage over the banks beset with legacy systems. He also noted that “sophisticated credit analysis” in the industry was not radically different from the banks. With greater understanding of this industry, so comes more converts!
Global Peer to Peer Lending
Laimonas Noreika of FinBee in Lithuania, was one of the panellists from around the world who participated debates. FinBee, which uses the Madiston software platform, was invited to join the “Up and coming platforms” panel. Laimonas cited good regulation, technology and the personal touch as some of the elements that had enabled FinBee’s growth and described their plans to expand beyond their borders to neighbouring countries like the Czech Republic.
This panel debate and videos of other speakers and panels are available on the LendIt site. Our thanks to all the team at LendIt and the P2PFA for another interesting conference.