Is banking about to be Uberised? November industry news.
Marketplace lending platforms are growing rapidly, and commentators predict banks will suffer similar market share losses as those inflicted on traditional taxi drivers by Uber. Marketplaces make up a relatively small proportion of total lending, but the sector is booming and continues to grow by %100 year on year. And, by creating partnerships with banks, such as our tie-up with Santander, we are able to work together to provide thousands of small British businesses greater access to finance.
CityAm predicts a securitisation of small business marketplace loans will take place sometime in the New Year, which would be great news for small businesses across Europe. This is a way for larger investors such as pension funds and insurance funds to lend across marketplaces, opening up small business lending even further. This follows an ECB paper which highlighted the importance of securitisation as a way of getting more funds to small businesses.
At the Bank of England’s Open Forum, The Chancellor commented that he expects fintech to transform banking, from mobile payments to marketplace lending platforms. The government is fully behind this ambition with more than £100 million already pledged to the sector through the British Business Bank, which includes £60 million through Funding Circle’s marketplace since 2013.
Last week, the Funding Circle SME Income Fund successfully raised its first round of money to lend through the Funding Circle marketplaces, and listed on the London Stock Exchange. In this first round, the SME Income Fund has accessed shareholders including asset managers, pension funds and private wealth managers, giving small businesses the opportunity to borrow from an even wider range of investors through the Funding Circle marketplaces. For more info, please read the blog or visit the website. There was further coverage in the Telegraph, CityAM and AltFi. The shares in the SME Income Fund have not been and will not be registered under the US Securities Act of 1933 and may not be offered or sold into the United States or to US persons.
In an online debate published in the Financial Times, Samir Desai, CEO and co-founder, gives his view on whether the kind of backstop liquidity facilities available to banks should be extended to other institutions. Samir comments: “Companies such as Funding Circle, which connect investors and borrowers directly, do not pose a systemic risk as they do not conduct maturity transformation.” In the rare case that a platform does fail, there are S&P rated back-up servicers that step into service down loan portfolios. He finishes by posing the question of whether central banks will potentially use marketplace lending platforms as a way to stabalise the economy and get money to small businesses in the next economic downturn. Lending through a marketplace such as Funding Circle is an investment, not a deposit, so it’s important to understand the risks involved as your returns can go down as well as up.
And finally, Bank of England figures suggest that small-business overdrafts have fallen from approximately £21 billion in April 2011 to less than £13 billion today. This article in the Evening Standard addresses the small business funding gap and discusses the different options for small businesses to access finance. Statistics published in the Peer to Peer Finance Association (P2PFA) show that cumulative lending, across all platforms, now stands at over £3 billion and is on track to hit £4 billion by the New Year.