Alternative Finance has come a long way in a short time. It’s just 8 years since Zopa kicked it all off by launching the apparently bizarre concept of people lending money to total strangers for a financial gain. Peer to peer lending has since spread beyond its British birth place at some speed, with rivals to Zopa now established around the globe as well as its home turf of the UK.
Meanwhile, the similar idea of crowdfunding has evolved significantly from its beginnings as a purely donation or rewards based model made famous by Kickstarter in the USA. In the UK at least, crowdfunding represent a major new flow of capital from private individuals to startup businesses and SMEs – both as equity and debt.
Again the UK is leading the way with these investment-oriented models. Last year Seedrs became the first equity crowdfunder and AbundanceGeneration the first debt crowdfunder to gain formal sign off from a financial regulator anywhere in the world and have since both grown rapidly as leaders in their zones.
However, the JOBS Act soon kicks things off in the USA and America is currently spawning ‘soon to launch’ crowdfunders like a belt-fed rabbit, making it easy to see where most of the crowdfunding action will take place in a few years’ time.
When I was brought in by Zopa years back to help get the business taken seriously by the press as a real alternative to the banks – before they caused their own downfall – the PR challenge was huge. Previous experience convincing journalists that it made perfect sense for Richard Branson to launch PEPs, ISAs, pensions and a revolutionary bank account was child’s play in comparison.
But of course, my own efforts were soon rewarded with a little help from a Scottish banker who’d lost the plot, surrounded by an industry of emporers wearing similar clothes. Zopa’s competitors – the banks – were soon on their knees and destined to be despised by a public waiting in vain for some shred of regret and retribution. Now it was Zopa’s turn, as the first real incarnation of Alternative Finance, to enjoy the time I found them on Today, BBC and Channel 4 News and later Newsnight, PM and even Radio 2, The One Show and more. Alternative Finance indeed, but increasingly relevant to the mainstream public and topical as Hell.
Equity and debt crowdfunders have enjoyed similar airtime with a little help from the bankers and their infamous reluctance to lend. These innovative new players would have been a welcome revolution even when banks were lending. But when a country desperate for economic growth is being starved of capital by “a bunch of fat cat bailed out bankers”, media advisers like myself – armed with news of powerful alternatives following in Zopa’s footsteps – have enjoyed remarkable success for our clients.
However, two things now threaten Alternative Finance’s current status as the media darling of money.
Firstly, bankers not in hiding or luxuriating in early retirement are waking up and smelling the coffee. While not in the same league as one of Gordon Brown’s odorous advisers, more than one major banks’ PR people (yes, we’re watching you) are actively briefing the press against the Alt Finance sector. Of course this is a measure of success, as most banks’ reaction to Zopa in the early days was a smug sneer during conference debates. When the negative briefing starts, you know you’ve got them worried.
Secondly, like Oasis about to release ‘Be Here Now’, Alt Finance is a band that’s enjoyed fabulous press as the new saviour of its genre. But boy, it had better maintain its standards, especially in the eyes of a media well-versed in trashing former stars.
The first of these threats is hard to deal with, especially when it is being done behind the backs of the good guys. The only remedy may be to just tell journalists you are aware it is happening and say we’d like a right of reply. The fact banks are doing it might even become the real story.
Dealing with the second threat is in our hands. We must encourage all in the sector to take their responsibilities deadly seriously. The role of the Peer-to-Peer Finance Association and the UK Crowdfunding Association is crucial, especially at this time before P2P is fully regulated and the regulation of crowdfunding is about to evolve. Regulation should be welcomed with open arms and a positive, open and tireless line of communication must be maintained between providers, their trade bodies and the FCA as they get stuck in to sorting the new regimes.
The sector also needs to remain as intolerant of any cowboy new entrants as it can. Dodgy providers cannot be ignored, especially if they get off the ground and lose money for their unwitting customers. The best protection here is ongoing emphasis of the importance to consumers of only using providers signed up to the high standards policed by the two Alternative Finance associations.
There will of course be a PR glitch at some point. Even if no provider slips up, normal business occurrences – like defaults in peer to peer loans, or startups failing in equity crowdfunding – can get spun negatively by a publication determined to stick the knife in, even if only to satisfy one of their briefing banker buddies. We need to ensure all are properly educated about how these new finance models actually work, why these things are part of how they work, and the extent to which our customers know this and are perfectly comfortable with it.
In the meantime, enjoy the great headlines and keep up the good fight in spreading the positive word about the quiet revolution that is Alternative Finance. But please don’t get lazy or complacent, for all our sakes.
Martin Campbell is the UK’s leading media adviser to the Alt Finance community. After helping to build and launch Virgin Direct (now Virgin Money), he left to start Beacon Strategic Communications as PR and lobbying advisers to “the good guys of finance”. He was pivotal in getting Zopa taken seriously and then embraced by the press and broadcast media, before handing over to others earlier this year. Over his 30 years in UK financial services, Martin has played a significant part in the development and uptake of better and more innovative money solutions. Beacon’s client roster includes leading names in peer to peer finance, crowdfunding and other innovative sectors, along with influential bodies including the Pensions Policy Institute and The Fairbanking Foundation.