In the next in our series of short Q&A interviews with the movers and shakers of fintech and alternative finance we hear from the boss of one of the UK's largest lending platforms.
Peer-to-peer lending has grown at an incredible rate in the UK in the past five years, amid some criticism from corners of 'traditional' finance but also attracted more than billions of pounds of investors' money.
Originally, this was retail cash from income-starved enthusiasts but increasingly large, sophisticated institutions have courted platforms.
One of the 'big three' UK P2P platforms has eschewed institutional money and focused on the longer-term game of building up trust among the self-directed retail market. In this article, we hear from its founder and CEO on how it all got started and what's coming next.
1. How did you become a fintech founder?
I first had the idea for RateSetter when working as a graduate at Betfair in 2002, wondering whether one could apply the concept of an exchange to lending and borrowing. Fortunately, I didn’t act on it at the time because I’m sure I would have been far too inexperienced and, what’s more, back then the banks were in rude health and the internet was still an untrusted domain. In 2003, I moved to Lazard’s Financial Institutions Group, which advises banks and asset managers, and over the next 6 years I got an invaluable understanding of how the banking sector functions and where perhaps the inefficiencies lie.
I had continued to develop my thinking around a marketplace for money and it was just at that time, in 2009, that trust in traditional finance hit rock-bottom during the financial crisis. This meant that there was a great opportunity to break through with a new model – dispensing with the unnecessarily costly promises at the heart of the banking model and allowing normal investors to access better returns than cash. I was then lucky enough to persuade my co-founder, Peter Behrens, to come on board and we launched RateSetter in October 2010. Achieving disruption is a long journey and involves hard yards, but we have come a long way and built an unrivalled track record of delivery.
2. What's the most exciting thing happening at the moment in your part of 'the industry'?
It is very exciting that P2P is becoming a mainstream investment. More people than ever are using P2P to earn more on their money: for example, in excess of £1bn has now been invested via the Innovative Finance ISA – an impressive milestone – with the RateSetter ISA at the forefront of this.
3. Is the P2P/marketplace lending sector in a 'troubled' period?
Yes, undeniably, but this is temporary. Tighter regulation will quickly clean up our sector, while the track record of the leading platforms continues to extend every day. The largest players in the sector are approaching a scale where inherent efficiencies mean we are starting to stand out when compared with the costs and wastage built into traditional finance.
4. What's the long term plan for RateSetter?
We are focused on becoming profitable and our recently announced annual results show that we are within touching distance. As we grow, the inherent advantages of our differentiated model – delivering consistent returns, risk management and liquidity – are becoming more and more obvious, and we could not be more confident about the future.
5. What is your favourite fintech or alternative finance app/company (not your own!)?
I don’t have a particular favourite, but I look forward to seeing a fintech breakthrough in the insurance sector – we are seeing it happen in banking and asset management and so it feels disruption is overdue.