We hosted a few great events this month – linking angels to tech start ups; a great CEO dinner and a large big data event.
Another great Fintech Monthly vid: Barclays signs bitcoin deal, Innovate Finance and I look at InsuranceTech: http://bit.ly/1eIwc6w
And finally… I also wrote an article on P2P lending (which appeared in the July issue of Tech City News):
The global FinTech ecosystem has reached a tipping point. Disruptive FinTech companies are attracting historic levels of investment and consumers and businesses are opening their minds to alternative sources of funding through Peer to Peer (“P2P”) lending and crowdfunding. Funding from these new sources is likely to drive the largest shift in the worlds of both personal and corporate finance that I am likely to see in my career.
P2P lending and equity crowdfunding are in some ways similar – rather than turning to traditional sources of finance, a variety of online platforms enable you to get a loan or equity capital from the “crowd”.
Who is this mysterious crowd?
It’s anyone really, although the mix of investors is different. Increasingly, institutional investors (such as hedge funds and other asset managers) are lending money out via P2P platforms with the rest of the investors generally being individuals looking to make an investment for a return.
Equity crowdfunding potentially offers much higher returns that P2P lending (with much greater risks of losing all of the capital) and almost all of the crowd here are individuals. Equity crowdfunding is a big topic in it’s own right and one that I will look at in my next Tech City News column.
P2P for me
There are lots of new entrants to this market and it is very fragmented. Some lend to people, some lend to businesses and some lend for quite specific purposes (such as short term mortgages – LendInvest).
And this is a global phenomenon; here are some of the larger P2P platforms around the World (other than the ones mentioned elsewhere in this article):
P2P Platform HQ Country
We Lend China
Prosper Marketplace US
In April 2015, Funding Circle (which enables the crowd to lend to small businesses), raised a huge $150m round of venture funding which valued the business at $1 billion. The service is available in the US and in the UK and around $1 billion in loans have been made so far since it’s creation in 2010.
LendingClub went public in in the US in December 2014 and raised $870 million, making it the largest US tech IPO that year.
P2P for you
But why? And why now? A perfect storm created by banks not lending and interest rates being low has created an environment where lenders and borrowers really want to find each other. Online platforms and an increasingly large group of digital natives are facilitating that connection. Tinder for finance…
Overall, investors in Funding Circle are seeing returns of 7% on their investments in the UK (10% in the US); interest rates are not very different from what a customer might see from a bank loan but the key difference is simply that the business may get the money using Funding Circle, when it might not be so lucky with a bank.
Some estimates indicate that global P2P lending will increase from $8 billion in 2014 to around $1 trillion in ten years’ time. This activity will increase as the market grows and P2P lenders look to disrupt traditional lenders’ business models further.
I suspect that we will see a lot more partnering between banks and P2P platforms – there is already early evidence this is happening with Union Bank forming a strategic alliance with LendingClub and Santander and Royal Bank of Scotland announcing partnerships with Funding Circle.
Viva la democracy!