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Interview: PSD2 will improve risk decisions (if banks play ball)

Funding Circle Netherlands lead talks PSD2, pension funds’ increased appetite for online loans and the potential for fintechs relocating to Amsterdam.

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Funding Circle Netherlands lead talks PSD2, pension funds’ increased appetite for online loans and the potential for fintechs relocating to Amsterdam.

Brussels regulators spent last week raiding the offices of European banking associations in the Netherlands and Poland, according to reports. Brussels is said to hold concerns that banks and their representative trade bodies have been trying to obstruct fintechs from accessing customer account information when users have given their consent. In other words, certain European banks are trying to frustrate the progress of PSD2, which is due to go live early next year.

In the shadow of this news, Jeroen Broekema (pictured), who heads up marketplace lender Funding Circle’s operations in the Netherlands, has said that PSD2 “is potentially a game-changer”. However, he warned that the success of the regime in the short-term will depend on the willingness of the big banks to engage.

“There is a big difference between what banks say they will be doing and what they’re doing now,” he said. But should access prove smooth, Broekema believes PSD2 could be transformative.

“We still need to see how easy it will be for us to tap into it [transactional data]. Once it is available for us, it’s extraordinarily important for our business. It means we come as close to cash as we’ve ever been.”

He said that banks are sitting on decades of transaction data, which is a key competitive advantage. Alternative lenders such as Funding Circle make use of alternative data sources to level the playing field, but Broekema clearly believes that access to account information could tip the scales in fintech’s favour.

“We’ll be able to make even better risk decisions and will become even tougher competitors to the banks,” he said.

Institutional investment

Funding Circle secured a landmark £160m funding deal with insurance giant Aegon in August. This was significant for an industry that has to date seen the majority of its institutional interest come from hedge funds and boutique asset managers. But Aegon, which Broekema describes as one of the world’s seven “systemic insurers”, is a different breed of investor.

“Especially after the Aegon deal, we’ve seen a lot of traction in the European market,” he said. He added that pension funds in the Netherlands, which are extremely large in terms of assets under management, have been awakening to the appeal of online loans – in large part due to the Aegon deal.

“They are now much more comfortable with the fact that we are actually delivering these yields,” he said, referencing the extensive due diligence that Aegon undertook prior to committing to investing via Funding Circle. He said that consistency was key, because more than anything pension funds are looking for “predictable yields”. But he said that the search for yield and diversification across asset classes are also driving interest.

A post-Brexit fintech hub?

Some commentary has suggested that London will lose its fintech crown in the wake Brexit, with leading sector lights darting for the continent. Broekema is unconvinced.

He said that London is by far and away the hub for European fintech, and would remain that way. He did say that emerging contenders, such as Amsterdam and Paris, offer other benefits to companies, such as quality of living, but that these “are not necessarily to do with fintech”.

He added that there are some very successful fintech firms based in Amsterdam, such as payments firm Adyen, and that he expects to see more emerge – just not at the same rate as in London.

Jeroen Broekema will deliver the opening keynote at the AltFi Global Summit 2017 in Amsterdam, November 7th. Click here for the agenda in full.

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Jeroen Broekema

Managing Director The Netherlands

Funding Circle

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