Christian Faes: “I’ve spent the 12 years telling people: Don’t worry, we’ll never have anything like 2008”

From what we’ve seen so far, it certainly doesn’t look like 2021 is going to be a quiet year.

Already in 2021, we’ve seen billions of dollars raised by fintechs both in the UK and across the pond, deals collapsing and a few fintechs biting the dust. Not to mention fintech going viral courtesy of Reddit.

But, what does this all mean for the wider sector? AltFi caught up with seasoned fintech founder, investor and leader Christian Faes, who is currently in his native Australia, about what might be in store for fintech and LendInvest in 2021 and what lessons the past might offer.  

Starting off with a bang

Despite the 11 hour time difference, Christian Faes, the former CEO, founder and executive chairman of LendInvest, looks bright-eyed and bushy-tailed as we kick off the video call: “We actually have some really exciting news that’s coming out this morning,” he teases.

Faes was, in fact, referring to a massive £500m investment that had been announced earlier that morning from American Banking giant JP Morgan, one of the biggest in LendInvest’s history. 

The executive chairman went on: “To be able to pull something like this off in this era, with Covid-19, it is a big stamp of credibility on the business.”

While some alternative lenders have been feeling the Covid-19 strain, LendInvest seems to be battling off the Covid-19 demons just fine. 

Between April and September 2020, LendInvest’sloan book grew by over a quarter (27 per cent) up to nearly £1.4bn lent and its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) reached £6.2m for the half-year.

“With a lot of lending businesses, it felt like pre-Covid it was coming to the end of a cycle,” Faes told AltFi, “We saw it with the peer-to-peer lenders, fintech lenders and so on.”

“People started questioning how alternative lenders would deal with a crisis and I’ve spent the last 12 years telling people: ‘Don’t worry, we’ll never have anything like 2008!’ and now we’ve had this, which throws all models and scenarios out the window.”

M&A on the horizon 

“We will have to wait and see but I wouldn’t be surprised if there is a lot of M&A activity this year,” Faes said. 

In the past few months, we’ve seen one of the biggest fintech deals of 2020 collapse.

Only a few days into 2021, the $5.3bn Plaid takeover deal by Visa was shelved, nearly a year to the day the deal was first inked.

In October 2020, two of the most prominent crowdfunding platforms, Seedrs and Crowdcube, announced their merger and two Australian digital banks, Xinja and 86 400,exited the market and were acquired respectively—a trend Faes doesn’t think we’ve seen the end of yet.

“I think the neobank space has been super interesting, particularly over the last week or two with a couple of stories coming from specific players.”

“These digital banks have acquired a huge amount of customers, a big following and a lot of hype and momentum, but the reality is that some of them haven’t really built businesses, they only focussed on one side of the equation, which was gathering assets,” he went on. 

Last year we saw the first wobbles form some of the most-prominent fintechs in not just the UK but the world, for instance, early digital bank Monzo saw its valuation plummet by 40 per cent following a Covid-19 beating. 

“Some of these businesses need to develop lending franchises to become profitable. For example, I think the tie-up between Starling Bank and Funding Circle to be super interesting, and it clearly looks like its worked for those two businesses,” Faes said.

“I think we will definitely see some M&A activity, some consolidation and some face-saving transactions, where a sale has occurred but it allowed the business to continue under a different banner. 

An example of a face-saving transaction would be the sale of peer-to-peer lender Ratesetter to Metro Bank for a measly £12m in August 2020 after the alternative lender struggled to finance its loans. 

The Fintech Cycle

We’ve all seen the astronomical rise of the digital banks here in the UK, particularly over the past two years or so as they really started to break into the mainstream, but we’ve also seen other sectors start to come to the fore recently too.

“Fintech seems to go in hype cycles, peer-to-peer lenders and crowdfunding were sort of the first era. There was a huge amount of excitement around them and now, peer-to-peer is largely dead but there are still a lot of fintech lenders still around," Faes said. 

“Then you have the neobanks. There’s a huge amount of hype and excitement around them and I think we’ll have the same, some of them probably just won’t quite make it,” he added.

While we’ve already seen some digital banks falter, like Monzo and Tandem, and have also seen European fintechs exit the UK market entirely, like N26 and Holvi.

“The next thing to look forward to this year is buy-now-pay-later,” Faes told AltFi, “these are rocketship businesses with this huge amount of hype around them and, and they are basically finance businesses pretending they’re not finance businesses.”

Just yesterday, the hotly-anticipated Woolard Review was published, calling on the FCA to implement stricter restrictions on the BNPL sector.

The review, which was commissioned in September 2020, concluded that buy-now-pay-later firms and other unsecured credit businesses had gone unregulated for far too long and new regulation needed to be implemented.

Down for Down Under? 

Australia has been lauded by the UK government as one of the strongest trading partners with the UK post-Brexit, although Faes isn’t too sure that it’s just a bit of a pipe dream.

“Australia is just such a small market,” Faes told AltFi, “There are lots of interesting businesses, and some really big ones too, but you can’t really build a substantial business in Australia alone, where I think the UK is a really big market.”

He went on: “For example, LendInvest will lend £1bn plus a year and yet we are only just scratching the surface of the UK market. The opportunities in a country like the UK are far greater than that in Australia.”

Recently, we’ve also seen several Australian digital banks fail to find their feet in the Australian banking market. 

Just last week, 86 400 was bought by the National Australia Bank for £160m after it decided to opt for an acquisition. Meanwhile, its fellow digital banking peer Xinja exited the world of digital banking entirely back in December after offering high-interest rates throughout most of 2020.

“I think we could potentially see Australian fintechs look to come to the UK, that seems like quite a logical ambition for them, but for a UK fintech to go to Australia-I think there would be a lot of head-scratching,” Faes said.

“There’s just not the same market size and is there really an opportunity there that hasn’t been tapped,” he added.

With the current travel restrictions in place it will be interesting to see if any fintechs take the plunge to launch down under, or vice versa.

And, given the rollercoaster that 2021 has been so far, who knows what might happen further down the line.