We learnt last week that newly installed CEO Philip Mikal had brought a raft of former colleagues over to the Trustbuddy platform from payment services provider Klarna. Kevin Albrecht became CTO, Chad Mazzola assumed the role of CPO and John Ward is the new COO. The publicly traded Trustbuddy has been in flux over the past year, with major changes made to the platform’s core product offering, its credit decisioning process and its geographical focus. The company’s share price has also experienced a fairly steep decline from 1.40SEK a year ago, to closing at 0.30SEK on Friday. Philip’s tenure as CEO began on September 1st. His arrival, along with the installation of a host of ex-Klarna men in senior management roles, is clearly designed to steady the ship. I tracked down the new Trustbuddy boss towards the end of last week, to gain a better understanding of his plans for the platform.
“What is Klarna?” Seemed a pretty good place to start our discussion. Klarna streamlines the buying experience offered by e-commerce sites. Klarna is a company which focuses on making the online checkout process as painless as possible, requiring a minimal amount of information of the customer. Klarna essentially separates the buying experience from the payment experience. Customers may choose from two options when purchasing product: to receive a post-purchase invoice, to be paid within 14 days, or to finance the transaction using an unsecured credit product. Philip believes that the Klarna experience will prove invaluable in tackling the challenges faced by Trustbuddy, a belief that is reflected in his decision to poach several members of his former colleagues.
Both Philip and the new management team are excited by the opportunity posed by alternative finance – what Philip referred to as “the unbundling of a bank”. He described how consumers are typically content to open a deposit account with a bank in the first instance, and to then stick with that bank for all of their financial services needs. But the individual products that make up the traditional bank offering are rarely “best-in-class”. Philip sees unsecured consumer credit as an area that is especially lacking in quality, and therein lies the opportunity for the Trustbuddy platform.
As the for the Trustbuddy stock slump, Philip believes that the company is now headed “in the right direction”. Recent shifts in the company's share price appear to uphold that notion. Since Philip joined the company on 1st September, Trustbuddy’s share price has climbed from 0.14SEK to 0.30SEK at the last close, according to Bloomberg figures.
Trustbuddy’s status at a public company limited to some extent what Philip and I were able to discuss. But he was able to shed a little light on the platform’s newly minted proprietary credit engine. The facility was fully operational at the end of July, as had been planned. Philip identified Trustbuddy’s rich reserves of customer data as a potent source of fuel for the new credit scoring machine. The platform was launched back in 2009, and possesses more data than most relating to the ability of borrowers to repay loans.
Trustbuddy has recently shifted away from a payday style of lending, and towards long-term consumer credit. The platform also recalibrated its international operations, reigning in activities in Poland and Spain, to focus more heavily on lending in Scandinavia, the Netherlands and Belgium. Trustbuddy is also fresh off of a cost-cutting program which entailed a substantial reduction to the size of the company’s workforce.
On the collective impact of the changes, Philip simply said that it’s been positive, that the platform now boasts greater focus and increased efficiency, and that Trustbuddy is well-positioned to perform to a high level going forward.
Trustbuddy is one of the few alternative platforms in the world to have staged an IPO. The only others that spring to mind are Lending Club, OnDeck and Symbid. Philip suggested that the company’s public position offers both benefits and drawbacks. On the one hand, the more stringent regulatory requirements that are imposed upon listed companies force the platform to strive for a commensurately higher level of discipline. Trustbuddy is also afforded better access to capital. But on the other hand, the company faces a far greater level of scrutiny, and a higher degree of responsibility to both its customers and its shareholders.
What’s clear is that the company occupies a largely unique position within the alternative finance space. Trustbuddy operates in a still-nascent market. Continental Europe lags significantly behind the UK in terms of peer-to-peer lending volumes, with around €1.1bn originated to date. That compares to about £4.3bn in the UK. Trustbuddy ranks as the third largest P2P platform on the Continent, behind Pret D’Union and Auxmoney, according to the Liberum AltFi Volume Index Continental Europe, although the platform's volume figures haven’t been updated since the close of Q1 2015, so it will likely be much larger. Size aside, Trustbuddy’s status as a listed company brings with it a heightened level of curiosity among observers. The stakes are arguably higher, but the rewards might be too.
We’ll be closely following the progress of Mr. Mikal and his management crew. The platform's new CTO, Chad Mazzola, outlined his vision for the future:
“We intend to be a product and technology driven Company. We take the idea that “software is eating the world” seriously, and believe that our long-term success will be determined by the quality of our products.”
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.