My Lendit Europe Recap 2017

Lendit Europe time of the year again. My fourth time as a particpant of the London conference. It is now marketed as an ‘Event for Innovation in Financial Services’ and that means a wider scope of topics – and presenting companies – than in earlier years, when it had a single focus on p2p lending / marketplace lending. I truly enjoyed the conference, it had quality sessions and its high level attendants (more than 1100) allow great networking and making interesting contacts.

In writing this recap I find it much harder than in previous years to identify the main trends/topic that were discussed. There has been no single big announcement or issue happening that dominated the talks. So I’ll start with 3 predictions Renaud Laplanche, CEO Upgrade made in his motivating outlook on Online Lending 2.0:

  • Prediction 1: ‘The growth of online lending will accelerate in the next 15 months’
  • Prediction 2: ‘An organized secondary market for online loans will emerge in the next 15 months’
  • Prediction 3: ‘Continued re-bundling will give birth to at least one major consumer product innovation in the next 15 months’

From my viewpoint the first prediction is the one with the highest probability to come true, the second one is mainly important for the US market and it is actually the third one that is most interesting (but also most open).

Laplanche on Rebundling
His slide on rebundling examples

There are connections to another development that goes into the same direction and surfaced in several other sessions: More and more fintechs in this space are cooperating to better serve the customer and integrate multiple products into one user experience.

Furthermore there were several sessions around machine learning, artifical intelligence and automated underwriting with a wide range of opinions to what extend processes will be fully automated or whether human intervention or oversight is stll desireable for some specific decisions.

Looking at the scene from a geograhical perspective, many panelists emphasized that there are still a lot of difference between regions. The Americas, Asia or Europe (or even areas inside Europe) show a lot of differences no matter if the specific panel discussed funding, risk, investor yield, regulation or banking. So while many (especially VCs) would love to see fintech innovations that work globally and (if they are consumer faced) reach billions – that is extremly hard to achieve and therefore probably not going to happen in the near future.

This touches several speakers commenting and speculating whether the big tech giants like Amazon, Facebook, Google or Apple have ambitions and plans to offer financial services as they cater to a global audience, and what impact that would have on banks and fintechs. I found some aspects of this interesting, but mostly those discussions are futile because I feel there is such a lot of speculation involved and no real indicators that any of these companies are making steps in that direction. (sorry if there were any hard facts presented, I might have missed them as I did not see all the sessions).

I enjoyed Pitchit, where 8 startups battled for the vote of the jury and the audience. Swiss Sonect won both by hoping to replace ATMs by a platform approach where merchants can become the point where cash is dispensed (this is actually in collaboration with banks as they want to reduce the costs for maintaing ATM infrastructure and not anti-bank as it might sound on first impression).

All sessions at Lendit were recorded and will be made available over the next days here.

Seems like next year Lendit might come to a different location. The exit survey asked attendees to rate how they would like Frankfurt, Berlin, Barcelona vs London again.

 

Meeting of Government Pension Fund Managers Considers P2P Lending Allocation

This article was published on April, 1st

At an informal meeting of 21 government pensions funds in Geneva, Switzerland, the topic of alternative lending was for the first time on the agenda. The funds discussed the risks and merits of allocating a small percentage of their investments in this asset class in the future. P2P-Banking learned that the managers of the Statens pensjonsfond Utland, the Norwegian Government Pension Fund,  are considering to propose to call for an adaption of their investment rules to allow the investment of up to 0.3% of the funds money in innovative finance. A representative of the Australian Future Fund said, that investing to p2p lending marketplaces might be an interesting strategy in order to reduce the systemic risks that banks pose. However it would be much to all early to take this step now.

Unconfirmed rumours say that even the very conservative management of the German Rentenversicherung is analysing the opportunity due to very low yield of other asset classes. A spokesman of a German opposition party stated ‘This is all fake news. There is no way that pension money will be put in this unstable investment. We will not allow it’.

It would not be possible at the current size of the industry to allocate even a tiny fraction of the funds of these sovereign wealth funds, due to their sheer size.

Demonstrants from the Swiss communist party were protesting loudly outside the conference hotel, claiming this is just a plot of banks to divert attention from their wrongdoings and scams.

My Lendit Europe 2016 Recap

I attended Lendit Europe in London the last days, an industry event of the p2p lending (or marketplace lending) industry. This was my third Lendit and it was not only bigger (904 attendees from about 180 companies) but again better than the previous year.

Samir Desai, CEO of Funding Circle in his opening keynote sees it as the golden age of the industry. And that certainly is the sentiment that much of the British part of the market would agree with. However there is headwind to be countered. The P2PFA, the association of the UK marketplaces that co-hosts the event, comissioned a report on the economics of peer to peer lending. Christine Farnish, the Chair of the P2PFA said that they did this to rebuke assertions by facts and counter comments by the tradional industry about risks.

The new Oxera report is available for free download here. Reinder van Dijk presented the findings of the report which focuses on the eight members of the P2PFA. He showed based on data, that in general the platforms did a good job on assessing risk, as the actual defaults for the years 2013 and 2014 were mostly in line or lower to the predictions the marketplaces made beforehand.

Lord Turner, former head of the UK Financial Services Authority created a media stir earlier this year with a very critical remark on p2p lending. In his keynote speech Turner did a turnaround saying he had not fully understood the p2p lending model in detail at that time and that he thought the interview was over when he made the comment. His final message to the marketplaces is keep it simple and transparent.

Lendit 2016
Impression from Lendit 2016 (own photo)

One major topic for the UK players is when FCA approval and the launch of the IF ISAs will occur. There is a feeling – but no certainty – that it’s getting closer. Farnish says she expects IF ISAs to be available by spring 2017. I also asked several people whether they expect it to be a big bang event, meaning that all the big players get approval at the same time to launch their ISA offer. Again there is no certainty but most respondents said they feel it would be only fair to grant the approval simultaneously because otherwise the first starter would have quite an advantage.

By the way most of the sessions, panels and demos are available here as videos and can be watched free. I recommend Cormac Leech’s keynote as a data rich, not easy to digest, but highly informative appetizer. Then for a second course with some added spice injected by Kadhim Shubber, FT, watch James Meekings of Funding Circle, Giles Andrews of Zopa, Peter Behrens of Ratesetter, Christian Faes of Lendinvest and Anil Stocker of Marketinvoice here. And for a maximum of contradicting opinions during one panel you might finish here, where Cormac Leech suggests that p2p lending marketplaces should monetize by ‘bombarding’ users with cross selling offers, not only for fintech related offers but for example also selling holidays. He think the bombarded users would be receptive if only the marketplace at the same time gives them a better rate. (I might be compressing his argumentation, please watch it in full). This to me is a stretch. I think that p2p lending marketplaces should deliver what the investors expect from them: great returns. Surely there is some opportunity for cross-selling with related financial products. On the other hand I do believe that the challenger bank (Monzo) present in this panel has some merit with it’s plan to analyse data to make fitting offers based on the budget and the spending pattern of the customer. Will that appeal to everybody? Certainly not. But the customers that will sign up with them are looking for a change from their previous banking experience so they might be open to that.

Another argument was on ‘pure’ marketplace lending model versus hybrid versus balance sheet based lending. While there are different opinions and preferences voiced, several speakers thought that there will be players of each type that are succeeding.

I actually missed many of the afternoon sessions of the first day, because one main benefit of Lendit for me is the networking opportunity. I talked to many marketplaces I knew, to keep up with their developments and plans, and made contact with new marketplaces. My view is a bit biased on topics of interest of retail investors from the continent so I am overweighting platforms news that are revelant to these in the following paragraph.

I checked with Saving Stream and they confirmed that they will lower interest rates with the intention to win more borrowers. The one size fits it all rate will be gone which takes away some of the straightforwardness/ease of use. I wasn’t told how much lower rates will go and on my question whether rates will vary depending on the loan risk, the answer was that this is yet undecided. Ed of Moneything said progress to growing loan volumes even further is good. Investly will disclose a new UI for investors soon. Aurora Exchange from Finland says it will not only launch there but will be able to serve all of Europe (not only from the investor side but also on the borrower side).

I had so many conversations, that I missed most of the Pitchit, which I had really looked forward to see. But I was in time to see the pitch by Lendingwell which was very good and as it turned out the next day that was the pitch that won.

I had the pleasure to moderate a panel on up and coming European platforms, this year featuring Creditshelf, Giromatch, Finbee and Viventor. I am looking forward to next year and am curious which great event location Peter Renton and his team will scout next time.

lendit-london-o2-sm

In the Case of Death

‘What happens when I die’ is a concern occasionaly voiced by investors. Investments in p2p lending will be inherited like any other assets. The concern for the investor is how readily their beloved ones will be able to access the funds. I scanned the FAQs of several p2p lending marketplaces but this is not one of the topics addressed. I then reached out to the marketplaces asking for information.

Ratesetter, Assetz Capital and Estateguru pointed out that the procedures are very similar to those applied by other financial institutions.

Assetz Capital, after being notified about a death of an investor by the next of kin or a solicitor acting on behalf of the deceased estate will mark the account as deceased and suspend all marketing emails. The next step is requesting proof of death, most commonly provided in form of a death certificate and grant of probate. In the event that the decision taken is to liquidate the account then all account holdings are put up for sale. Any funds which can be released immediately are sent to the appropriate recipient and a monthly sweep of the account is carried out indefinitely until such time as all funds have been liquidated and released to the appropriate recipient.

Luke O’Mahoney of Ratesetter explained: ‘If an investor dies, we work with the next of kin to establish how they would like the account to be dealt with. Generally they would either use our Sellout function (effectively liquidating their investment) or they would allow the account to run down over time – of course we assist the next of kin or executor with this process’.

Funding Circle CE answered: ‘If the account is transferred the inheritance would need to be proven and the account would be manually transferred. The heir can then decide what to do with the portfolio.’

Martins Sulte, CEO of Mintos indicated that there are numerous different situations as the account is inherited according to the respective laws of the country where the investor resides.

In Estonia all matters of inheritence are usually dealt with by a notary office or a solicitor, says Aleksei Kurov of Estateguru. He describes ‘[the] notary or solicitor sends requests to different registers: Property Register, Companies House including all credit/finance institutions to clarify if the person in question had any obligations or deposit/investments accounts opened and what are obligations or funds are connected to these accounts. … When all heir/heirs are clearly identified and the amount of inheritance is also clarified then Notary Office is making a registry entry to an Inheritance Register. This entry will specify the list of heirs and their share of the inheritance. EstateGuru will have an information about the death and consequent inheritance procedures when we are contacted by Notary or Solicitors office. Then we will check with Inheritance Register (if the investor is from Estonia) or with according local institution to confirm this information. We will also seek independent confirmation from his Bank, which was used to transfer funds to our account. Any monetary pay-out or change the information of the account owner is possible only after we receive an official and apostilled confirmation from notary office, solicitors and/or double check this information with available local Inheritance Registry. If information we received is in local language, we will request that it is translated into English and apostilled. If we are satisfied with the identity confirmation and the legal rights heir/heirs then we will follow instructions from them, to make necessary changes on the account, close it or do the pay-out of available funds.Already invested funds will be repaid at the project maturity.’ Continue reading

Investly Launches Invoice Finance for UK SMEs; Raised 600K from Speedinvest

Tallinn based p2p lending marketplace Investly, which recently launched an invoice finance product in Estonia announced the launch of the service for UK SMEs. The invoice finance option will give UK businesses almost instant access to much needed working capital to aid growth.

The launch comes after a successful European launch of the platform in Estonia 18 months ago, and a subsequent investment of 600,000 Euro from Venture Capital group, SpeedInvest.

Until now, invoice finance options – whether through traditional channels or via other peer-to-peer platforms – have been complex and laden with fees and charges.

Investly says it has simplified the product so that, once credit checks have been cleared, SMEs can sell invoices to investors within two days. And therefore assign the money to aid growth, enabling them to be the best they can possibly be without the cash flow worries. Initially, the invoice finance product will be available to any UK SME who passes the platforms sign-up criteria, which includes credit checks and confirming their identity. Further safeguards are put in place such as directors’ checks and potential guarantee.

Ruth Chamberlain, Investly’s UK Country Manager, said: “Long payment terms are crippling for UK SMEs. They are dependent on cash to sustain and grow their business, but as they invest in products and people, they may not get money on work completed a month or even 120 days after issuing their invoice. This is putting many businesses at risk – especially smaller ones and those that depend on payments from one or two key customers.” Continue reading

Technological Revolutions and Financial Capital

Book Technological RevolutionsAre we headed for the next bubble? The book ‘Technological Revolutions and Financial Capital – The Dynamics of Bubbles and Golden Ages‘ won’t answer that question. But it does a good job analysing technological changes in the past and identifying patterns. The author Carlota Perez develops a model of the repeating interplay between finance and the drivers of technological evolution. Published in 2002 the book’s content seems timeless. I recently read it and can recommend it. Available at Amazon US, Amazon UK and Amazon DE.

Whatthefintech

Yesterday I spent my day at the ‘Whatthefintech 2’ event at Startplatz Cologne. The attendees were an interesting mix from startups, banks, service companies and interested users.

While none of the pitches and startups were focused on p2p lending, it was highlighted several times as one of the use cases. An interesting discussion evolved around the question whether startups have sustainable business models or just fill in a gap that is there for a limit time span. One argument was that too many fintech startups just add an incremental improvement rather than solve a big problem. An example given was that many startups can deliver a much better user experience than banks, so they win users now. But banks are learning and will catch up on the field of presentation and user experience and when the playing field is leveled then the startup has not much to show as the data and backend processes are still owned by the bank.

I think this is an important point but one that is answered by p2p lending marketplaces – they have a business model that adds real value by offering a more efficient process than banks do. While some p2p lending marketplace use and cooperate with banks, they certainly have developed own technologies which are a core for their product and are not a mere sales-frontends as some of the criticized fintech models.

The banks certainly are eager to open up to the developments. Jana Koch of comdirect bank presented the ‘Startup Garage’ program of comdirect bank, which is a essentially co-working space with mentoring from the bank professionals for teams which have just an idea yet and want to bring that to the first development stage. The bank pays the team to enable them to concentrate on the development of their idea, but does not expect equity or ownership of the idea. From the banks viewpoint the program will be kind of an outsourced research and development offering fresh impulses to the thinking of the bank’s executives.

Some other viewpoints out of the banking sector surprised. Two persons from major banks stated that they expect the branch to play a very important role in the next 20 years as a sales channel for banks and only thereafter to become obsolescent. Maybe this is the paradox that Bankstil also commented last week. What banks publicly say is that the branch is essential and used even by their young and technology liking clients. But what they do is that they close branch after branch after branch.

I liked the presentations, especially those by Peter Barkow who talked about the relationship between German fintech and venture capital and  Gernot Overbeck of Fintura, a comparison tools which promises to find the cheapest bank loan for SMEs within 15 minutes and close it within 72 hours.

The pitches of the 3 pitching fintech startups were well crafted (they had 7 minutes each).

As usual the most interesting part for me was the networking.

I am really looking forward to the next conference I’ll attend, which is LendIt in London in 2 weeks. If you register you can still use discount code wiseclerkvip to get 15% off.

 

whatthefintech
Impression from the event. More photos on Twitter.

 

 

P2P Lending – Average nominal interest rates in Q2 2014

After looking on the p2p lending loan volumes, today I present an overview of average nominal interest rates for selected p2p lending services. As nominal interest rates are before fees they are easier to compare and an attempt otherwise would mean to list 2 rates for each marketplace (an APR for borrowers and a lender rate after fees). Of course nominal interest rates are in no way an indication to achievable lender yields as these are dependant – aside from fees -on defaults and recoveries occuring. Also on Wellesley actual lender interest rates are much lower than the quoted nominal rate.

What the chart does allow is to gauge the market segment the individual p2p lending marketplace concentrates on. But again this is only a first glance, for any further comparision any securities (like collateral, assets, or provision funds) have to be considered.

Table: P2P Lending nominal unweighted (*weighted) interest rates up to June 2014. Source: own research
Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart (or similar charts) in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.