By Ryan Weeks on 26th September 2014
I recently profiled Spain’s leading peer-to-business lender – LoanBook. The nascent platform – which launched in October 2013 – has from the beginning catered specifically (though not exclusively) to the needs of institutional investors. LoanBook sports a diverse set of products (loans, pagarés and lines of credit), a personal touch approach with prospective borrowers, and a secondary market for selling shares in loan contracts. I pitched the structure of LoanBook as broadly representative of what the next wave of alternative finance platforms are going to look like. The key features? An institutional focus, a holistic approach, an element of face-to-face interaction, and enhanced liquidity.
There are a number of early-stage platforms out there that tick at least a few of these boxes. CrowdShed – the very recently launched crowdfunding platform – has tried to satisfy a more complete range of fundraiser needs than its competitors. Though initially focused on rewards based crowdfunding, the platform will launch equity and debt based products early in 2015. The “Shed” provides platform users with a physical location in which to interact, host events, attend talks and participate in workshops. CrowdShed are looking to capitalize on demand within the alternative finance world for a greater level of personal support – both in the build up to and beyond a fundraise.
CrowdShed is not alone in featuring a physical infrastructure of sorts. Folk2Folk – the fast-growing peer-to-business lender from the South West – is the only known platform to boast a bank-like branch network. Both borrowers and investors can visit Folk2Folk premises in order to talk through any questions or concerns that they may have with the platform.
When I first spoke to Johnathan Ransom, Director at Loanbook, I told him that I’d never come across a platform that provided both a typical loan product and a factoring service. A few hours later that day, I met up-and-coming Estonian peer-to-business lender Investly – which is also offering a blend of invoice finance and lending. On the Funding Circle platform, where investors pick their own loans, lenders are encouraged to strive for diversity by partaking in hundreds of different deals on the platform. But many investors within the alternative finance space also choose to diversify by allocating funds across a number of different platforms – thus getting exposure to numerous product types. Platforms like Investly, Loanbook and soon CrowdShed will allow investors to gain access to multiple products within one, all-encompassing platform.
Investly doesn’t have the same initial institutional focus as LoanBook. The shifting of priority from retail customers to institutional/accredited investors should and probably will massively accelerate the growth of LoanBook. But Investly has a few progressive twists of its own.
Much like the Rocket Internet-backed Lendico, Investly is eyeing international expansion very early on its business lifecycle. Lendico is already active in 6 different international markets. Many of the more established platforms are also beginning to eye up moves overseas, but that’s a more predictable scaling tactic. The early-stage explorers tend to be born in continental Europe, and probably choose to branch out in search of markets that are more engaged with the alternative finance phenomenon.
Investly hopes to set itself apart through its EU digital signature tool. The tool allows for 100% secure signing and identification, which is available due to the e-infrastructure of various progressive EU governments – and should lower the possibility of forgery. My reason for pointing to this is that it represents another common feature among next-gen platforms: a technological edge.
Investly’s “edge” comes from within – a self-developed digital asset. That’s not dissimilar to the USP of Invest & Fund – a UK-based peer-to-business lender that launched in April of this year. Stephen Kenny (the first CTO at Betfair) was instrumental in building the Invest & Fund exchange. The platform’s Dynamic Bidding Exchange, Active Capital Employed and Auto Invest tools are what it relies upon to distinguish itself from the crowded field of business-focused platforms.
Of course, some young platforms will sometimes look outwardly to secure a technological advantage – and that’s caused a number of innovative fintech partnerships within the space. FundFlyer, for instance, recently became the first crowdfunding platform in Japan to deal exclusively in bitcoins. This blending of financial technologies could help the new platform to carve out a valuable niche in the market.
Which brings me onto my next point. A great many next-generation platforms are, by necessity, highly specialized. Let’s look at QuidCycle. This consumer-facing platform couldn’t hope to arrive on the scene and immediately go toe-to-toe with the giant-like figures of Zopa and RateSetter. And nor has it tried to. Instead, QuidCycle’s emphasis is placed firmly on debt-consolidation via peer-to-peer loans. The uniqueness of its approach will allow the platform to draw a specific set of people away from the larger platforms – namely debt-burdened borrowers and lenders looking for more in the way of a social return.
The final facet of a typical forward-thinking platform is the early establishment of a number of lucrative origination channels. The LendInvest platform – though not especially early-stage anymore – has benefited massively from the origination services of its incubator Montello Capital. Now we’re seeing a great many fledgling platforms attempt to forge pre-launch institutional partnerships of this ilk in order to establish a swift rate of deal flow from day one.
So, to summarize, advancements on the typical alternative finance platform model that can often be found in next-gen style new platforms include:
It’s probably fair to say that no one platform as yet embodies every element from this list. But, as can be seen by glancing at the various platforms referenced within this article, incorporating even a few of these features often results in a rapid ascent up the ranks of the alternative finance providers. That doesn't necessarily mean, however, that a platform bearing any of the above elements is destined for sky-high growth rates and unprecedented success. Some "next-gen" platforms will develop only steadily, others will falter and a few will fail. But I would argue that it is the hallmarks identified within this article that generally allow new entrants to flourish against the odds and to establish themselves as a force within the space.