WELCOME TO OUR 2015 EUROPE SUMMIT REVIEW
Firstly, a huge thank you to all those who attended and supported the AltFi Europe Summit 2015!
With 350 high quality attendees from every corner of the alternative finance ecosystem, a fascinating collection of speakers and insightful exploration of the industry’s biggest issues - we believe that real progress was made towards establishing solid building blocks for the future development of the industry. Networking was in full flow and there was a tangible sense of the industry coming together, whilst all the while valuable leads were being forged between the old world and the new as a range of established companies (particularly institutional investors) explored opportunities within the space.
The success of the event was thanks in no small part to the liveliness and keen inquisitiveness of the audience, who seized the opportunity for interactive discussion with the many platforms in our ever-busy breakout room. We look forward to seeing you all next year - and in the mean time keep a sharp eye out for details of our Asian, US and Awards events!
Click here to watch the highlights video.
Download the Post Event Pack PDF if you would prefer a printable version of this review.
DISRUPTIVE 101- LOOKING AT LESSONS FROM OTHER DISRUPTIVE SECTORS
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Edmund Truell, Esa Tihila,George King, Rob Moffat
This panel focused on lessons that could be learnt from the disruption of various financial services industries. One of the big themes was that platforms need to be prepared for regulation. As soon as there is a big fraud and investors lose money there will be a shift in regulation. George King said that start-ups go through the phase of excitement and then the phase of execution and the companies that succeed are the ones that that can transition and embrace change, can be disruptors but also embrace the necessary parts of the system. The panel discussed when disruption becomes mainstream and how long this disruptive phase will last for. Edmund Truell speaking from his experience in the e-invoicing space said that it is important not to avoid regulation but to be prepared for when it will be implemented. He also highlighted the importance of getting out at the top of a cycle.
THE FACTORING OPPORTUNITY FOR E-INVOICERS
BREAKOUT
Edmund Truell, Esa Tihila, George King, Rob Moffat
- Online invoicing was obviously the main topic of this discussion and a key figure that Esa Tihilä of Basware pointed was that 80 million of invoices were done online last year.
- Basware growth rate at 30%.
- Tihilä also said that Basware has one of the largest growing networks in the world and that nobody at the moment is growing faster.
- When asked about growth rate Edmund Truell from Tungsten said that the company is currently at 20/20 plus percent and key part of their platform is that they get to know their customers very well. This closeness allows them to flag up any problems in real time and save 1.7% of customer spend.
- Truell added that the emerging markets is a great place to start reaching out to and said that Tungsten is the first group to have full compliance in three states in India and is the first the company to move e-invoicing into China.
Rhydian Lewis’ keynote looked at how quickly the industry has moved on since the inaugural AltFi Summit 2014. He focused on what he sees as the most important building block for this industry – culture. It is the culture of the alternative finance industry and the platforms that sets it apart from the incumbents.
LESSONS FROM THE EARLY MOVERS
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Rhydian Lewis, Giles Andrews, James Meekings, Anil Stocker
The panel of early movers discussed what challenges their platforms face going forwards and what the biggest risks they face are. Giles Andrews identified that the biggest risk for him was the credit risk in the industry as a whole, Rhydian Lewis added that ultimately the risk lies with the lender and Anil Stocker countered by saying that even if the platforms are using sophisticated investors they need to be educated as this is still a very new asset class. James Meekings said that the moment that will change the industry is the introduction of ISA money as it will open the flood gates of retail money coming onto the platforms.
ANALYSING THE KEY DATA TRENDS
BREAKOUT
Ian Cruickshank , Giles Andrews, James Meekings, Anil Stocker
- A huge part of this discussion was whether the platforms treat retail and institutional investors differently. The straight up answer is no!! All four platforms agreed that every investor should be treated the same.
- One question that was asked was ‘how does the alternative finance sector get IFAs on side? Ian Cruickshank from RateSetter informed the audience that a third, P2P specific ISA type would go a long way towards achieving this.
- Ian Cruickshank admitted that mass marketing has been very productive and it is something that they are looking to do again in the future. He also confirmed to the audience that Ratesetter has just come off the back of a record month which could mean even greater borrower demand.
- An interesting comment was made by James Meekings of Funding circle. When discussing regulation, he said ‘peer-to-peer lending is regulated but the actual peer-to-peer loans are not’.
Mark James talked about the rapid technological change and the massive growth prospects that we are seeing for this industry. He predicts that we will see a lot more strategic partnerships and many more institutions coming into this sector. Many platforms at the moment are partnering with companies that can help them boost origination, as most are putting the pedal to the floor in terms of trying to boost origination. He questioned how long it will be until eBay, Amazon and PayPal get involved. He sees this as the year for platforms raising capital as they are riding a wave of enthusiasm post Lending Club IPO, and so we may see many more platforms come to market this year. However, there will be frauds and failures and the industry needs to be prepared for those knocks.
THE BIG DATA: INDUSTRY RETURNS
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Cormac Leech, Mark James, Rupert Taylor
In the panel discussion Rupert Taylor showcased the just-launched Liberum AltFi Returns Index (LARI). This accurately tracks historic marketplace lending returns using complete loan-by-loan cash flows provided by the major platforms. It currently includes the three largest platforms in the UK – Zopa, Funding Circle and RateSetter. Crucially it shows that the industry has nine years of history and it shows that returns have consistently ranged between 4.5% and 6.2% since 2006. Cormac Leech predicted that in a short space of time the rate of return from the index will go up, as there is a lot of low hanging fruit in the near prime space and this becomes available due to the large amounts of institutional capital flowing into the space that is increasing risk appetite. But risk adjusted returns will fall when ISA money comes in. Mark James was not so bullish and predicted that returns would come down to about 5%.
CONSUMER FINANCE: SEGMENTING THE MARKET
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Nick Harding, Rhydian Lewis, Martin Kissinger, Giles Andrews, Paul Aitken
The theme of this panel was that the P2P industry is still overwhelmingly a consumer story – particularly in the UK/EU. It was questioned whether the prime market is already saturated. Rhydian Lewis said there were many prime customers that they haven’t been able to reach yet, whereas Giles Andrews said that platforms can take more risk sensibly by looking at borrowers who use indirect channels but are generally not prime. Paul Aitken, Borro, has a very different business model and he recognised that their customers have very erratic cash flows but they wouldn’t lend to anyone who couldn’t pay them back. Martin Kissinger said that the most interesting products in the next few years will come from platforms building origination channels in new areas, for example in graduate lending. Nick Harding said much may be learnt from traditional finance and the partnerships that it has for distribution.
MANAGING CREDIT RESPONSIBILITY
BREAKOUT
Nick Harding, Rhydian Lewis, Martin Kissinger, Giles Andrews, Paul Aitken
A consistent theme throughout this discussion was trust and how difficult it is to cement.
- Nick Harding of Lending Works admitted that the platform was probably too cautious when starting out.
- When asked about investors, Martin Kissinger of early stage platform Lendable said they are looking for sophisticated investors with experience of investing in other platforms and thus that have a good knowledge of the sector and the risks attached.
- Giles Andrews, founder of Zopa, told the audience that Zopa didn’t break even until 2011, which was six years after the company launched and a few years after their original anticipated break even point. Andrews again cited the trust issue – a problem which is of course compounded when you’re the first mover in a new market.
DAVID SNITKOF
Leveraging tech: Speeding up and Streamlining the Platform Process
KEYNOTE
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David Snitkof, Orchard, focused on the change that technology is bringing to the global market. He highlighted how technology is allowing companies to operate on a global scale but still maintain their personality. He showed the potential technology has by using the example of mobile data in Africa providing farmers with a more transparent and efficient crop market as they could use mobile technology to see prices around the world. Marketplace lending has helped to streamline lending and he is looking for it to become a multi-trillion dollar market.
LEVERAGING TECH: SPEEDING UP AND STREAMLINING THE PLATFORM PROCESS
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David Snitkof, Herbert Leonelli, Stuart Lucas, Stephen Mulholland
The panel started with Stephen Mulholland saying that trust is one of the most important elements for industry success and tech can help with this. Stuart Lucas added that a lot of hand holding is needed for their users as it attracts an older demographic but they are starting to use younger companies, which brings younger users to the platform. Herbet Leonelli described the benefit of platforms buying in tech and systems, and leveraging the skills of people that they may not have in house.
INSTITUTIONAL ACCESS AND APIS
BREAKOUT
David Snitkof, Herbert Leonelli, Stuart Lucas, Stephen Mulholland
- Stuart Lucas spoke to the benefits for a platform (whether debt or equity) of working with Asset Match to access a liquid secondary market for loan-parts and/or private company shareholdings.
- David Snitkof touched on the fact that access APIs are not a purely institutional tool – indeed, he himself uses an Orchard algorithm as a means of investing in number of different platforms at once!
- The Salesforce and Profile representatives (Stephen Mulholland and Herbert Leonelli), who hail from very different software providers, each pointed to the benefits of a platform implementing the necessary software infrastructure from the outset. Although both also acknowledged that this can be too great an overhead for early-stage operators to shoulder.
Geoff Miller started by questioning why institutional investors would be bothered investing in these illiquid assets that have not been tested in a downturn and are sold by platforms who have no skin in the game. He moved on to say that the biggest risk to the sector is a rate rise as that will dampen retail interest in the sector. This is a sector with a lot of potential but it is currently a buy and hold asset, the yield curve reflects the lack of liquidity. He predicts that there will be one or two causalities from platforms this year.
THE IMPORTANCE OF FUND STRUCTURES
BREAKOUT
Geoff Miller, Simon Champ, Etienne Boillot, Peter Renton, Rob Roscoe
- Simon Champ of P2P GI suggested that it’s now time for the sector-dedicated funds to start building partnerships and supporting the platforms in ways other than simply providing capital. Geoff Miller confirmed that, to his mind, it’s the closed end funds that are capable of offering value-added in terms of expertise, technology, etc. that will become the partners of choice in what will doubtless become an increasingly crowded institutional market.
- Mr. Champ believes that a single fund can mix both debt and equity investments (P2P GI has a small equity stake in a number of the platforms that it buys loans from). Etienne Boillot of Shepherd completely disagreed and prefers a focused portfolio.
- In terms of measuring the performance of fund structures, Peter Renton of LendAcademy could see the newly launched Liberum AltFi Returns Index becoming a potential benchmark against which the performance of institutional investors might be gauged.
INSTITUTIONAL INTEREST: OPENING UP THE ASSET CLASS
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Geoff Miller, Simon Champ, Etienne Boillot, Peter Renton, Rob Roscoe
The panel started with a discussion on whether this sector can now be described as an asset class. Simon Champ said of course it’s an asset class; the bank has become a bloated piece of infrastructure between the lender and the borrower. Etienne Boillot made the announcement that today he has teamed up with an institutional credit manager (Eiffel Investment Group), who they will be jointly investing in this space with, which shows the strength of this asset class. However, he said that in the rest of Europe it could not be called an asset class. He also countered Geoff’s point of rate rises as we are currently in a deflationary environment and so he doesn’t see rate rises anytime soon. Much discussion was had over how the asset class should be classified. Peter Renton said this is not a replacement for cash in a portfolio but is mostly considered a fixed income product, although because of its higher yield and risk it could be labelled equity.
OVERSEAS ACTIVITY: EXPLORING THE BEST OF EUROPE AND BEYOND
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Dr Dominik Steinkuehler, Dr Matthias Knecht, Cedric Teissier, Jonathan Ransom, Andrew Graham, Martijn van Schelven
The panel discussed where the industry stood in relation to the banks. Dominik Steinkuehler pointed out that in Germany you need to partner with a bank to grow the platform. Jonathan Ransom said that from a risk perspective they were considered to be similar to the banks. And Cedric Teissier added that in France you need to be a bank if you want to buy invoices. The differences in the legislation covering the sector was debated. Martijn van Schelven mentioned that the success of the sector in Europe will be helped by European wide legislation and Andrew Graham added that in Canada the regulation is very patchy which is why his platform is defined as a marketplace not a P2P platform.
EXPLORING THE EUROPEAN & CANADIAN REGULATORY ENVIRONMENT AND BARRIERS TO GROWTH
BREAKOUT
David Snitkof, Herbert Leonelli, Stuart Lucas, Stephen Mulholland
- This discussion mainly revolved around regulation with Andrew Graham from Canada’s Borrowell saying the UK’s regulatory framework is by far the most complete and if he had to choose one it would be this one.
- It was interesting to find out from Martin Van Scheiven of Geldvoorelkaar, a Dutch platform, that there isn’t currently any regulation in the Netherlands. The platform is lobbying for dedicated regulatory regimes to be instilled across Europe.
- Bad debt collection was a talking point. Zencap and Finexcap indicated that they use credit agencies if borrowers fail to repay money. Zencap, for example, sends them out after 50 days and Finexcap after 45.
TAX WRAPPERS: ISAS, SIPPS AND OTHER PERSONAL PENSIONS PRODUCTS
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Francis Moore, Stephen Cave
This panel discussed the risks of ISA money coming into P2P, especially if the asset class has its own ISA. Francis Moore compared it to an insurance ISA and the problems that arose from that. But individuals should have a choice about how to deploy their money and be educated about how to do it. Stephen Cave continued by saying that most IFAs would not move into this market.
TALKING NUMBERS: HOW BIG IS THE SIPP/ISA OPPORTUNITY
BREAKOUT
Francis Moore, Stephen Cave
- Francis Moore (EPM) and Stephen Cave (Greyfriars) were in agreement that the personal pensions opportunity is potentially far greater than the ISA equivalent.
- Francis Moore said that the Bank of Scotland has reduced its interest rates to zero and that many savers need to start looking at areas with more risk but with also more return and the alternative finance space is fits that bill.
- He continued by saying ‘we are now moving into an era where retirement planning is not a one off event and people should be looking to develop greater returns from their income’.
Gareth Rumsey started by analysing the impact of the recent recession. He showed that SMEs were the worst affected by the recession but micro businesses (with five employees or less) were not really affected at all. He highlighted that we are now in an economy where physical and tangible assets are not needed and so the analysis of businesses will have to change as their most important asset is brain power and banks are not geared to deal with these new businesses. He sees this as a huge opportunity for alternative finance, as the incumbent lenders haven’t seen it yet.
Andrew Holgate identified that the working capital gap is a problem on a huge scale as more cash gets tied up when people look to increase their margins. However, this is where alternative finance has the advantage as it can process credit applications a lot faster than the banks, is more willing to lend, and uses fresh processes, e.g. by looking at alternative ways of giving credit scores. He went on to look at three different case studies of companies that Assetz has lent to.
THE WORKING CAPITAL GAP
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Andrew Holgate, Paul Mildenstein, Angus Dent, Christoph Rieche, Christopher Maule, Dan Rajkumar
The panel started by Andrew Holgate continuing to say that businesses need access to capital that will help them grow. One of main discussions revolved around how to boost origination and bring customers onto the platforms. Angus Dent said that much education about P2P lending was still needed for consumers and that reiterated a point that had been previously made that partnerships with large companies, like Alibaba, will do a great deal to boost origination. Chris Maule said that the most important thing was attracting a core customer base and he believes in the power of word of mouth to spread the potential of P2P.
DO BUSINESSES NEED A ONE-STOP-SHOP?
BREAKOUT
Stuart Law, Paul Mildenstein, Angus Dent, Christoph Rieche, Christopher Maule Dan Rajkumar
- A key issue that came into this discussion was that of platform portals, like www.thefundingcentre.com, and Paul Mildenstein from Liberis said indicated that they will begin to effect a meaningful impact later this year by referring quality borrowers to platforms. Christopher Maule from UK Bond Network agreed with this and can see the bank referral scheme playing a huge part in the future.
- When asked if it is best to have more than one product Christoph Rieche answered ‘not for the moment’. He wants Iwoca to focus on their one product and become the best of that whereas Stuart Law from Assetz believes having a range of products is hugely important.
- Dan Rajkumar of RebuildingSociety believes that the importance of Google, Amazon and Alibaba’s entry into the sector cannot be underestimated.
THE GROWTH CAPITAL GAP
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Goncalo de Vasconcelos, Karen Kerrigan, James Codling, Mark Wignall
The panel focused on equity crowdfunding and the potential it has for early stage businesses. One of the main themes was what kind of investors should be allowed onto the platforms. Karen Kerrigan said that the platforms should be open to retail investors and that many investors are not looking for a high return but just want to invest in businesses they believe in. Mark Wignall disagreed as people are attracted to investing in smaller companies but that can lose its appeal if and when they lose their money. Goncalo de Vasconcelos added that the risk around the investments is easy to understand – you might lose all your money, and that needs to be emphasized. James Codling countered this by saying it should be for sophisticated high net worth investors who can do the appropriate amount of due diligence on the companies.
SEGMENTING THE EQUITY CROWDFUNDING SPACE
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Goncalo de Vasconcelos, Karen Kerrigan, James Codling, Mark Wignall
Crowdfunding is a huge part of the alternative finance sector and Mark Wignall from Mobeus Equity Partners told the audience that we have never been in a better place as a nation for seed/venture capital.
- With the recent trend of more established businesses gravitating towards the sector (some even listed), James Codling of Venture Founders noted that the industry should not and will not deviate away from its bread and butter – seed stage funding.
- Karen Kerrigan backed this up by stating that despite seed stage businesses being the riskiest, they are also the most exciting – both in terms of potential returns and in a narrative sense.
- Karen also said that internal diversification across a single platform is very important – and that conveying opportunities to invest in a range of business types is key to achieving this.
John Goodall talked through the role of real estate in the financial crisis and countered the commonly held view that sub-prime mortgages caused the crisis. He said that actually the default rates in prime mortgages were similarly bad when compared to sub prime. He continued that one of the big risks in P2P comes from the platforms not having any skin in the game, a theme that has been alluded to throughout the conference. He ended by announcing that Landbay are committed to transparency and that they will be sharing all of their data with AltFi Data and will be publishing their loan book online – a highly rare move for such an early stage outfit.
THE REAL ESTATE GAP
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John Goodall, Christian Faes, Duncan Owen, Stuart Law
The panel discussed the sizable opportunity that is available for P2P real estate. A key theme was where the greater investment opportunity lies – in commercial or retail real estate. Duncan Owen said that we are currently in a very interesting place in the real estate cycle and it is hard to predict what will happen from here, but long term the growth of commercial real estate is very stable. Whereas Andrew Holgate said he is anxious about expanding into the commercial space. The other problem is that the housing market in this country faces problems with differences in supply and demand.
THE ORIGINATION CHALLENGE – HOW TO ATTRACT THE CUSTOMERS
BREAKOUT
John Goodall, Christian Faes, Duncan Owen, Stuart Law
- Landbay’s John Goodall said that although there are now a number of property lending platforms, it’s important to remember that they would only amount to one small traditional lender .
- In part for this reason Landbay will be focusing solely on the buy-to-let space for the time being.
- When asked about loan volumes, Christian Faes said that 80% of LendInvest’s dealflow comes from London a key point of emphasis for the fturue is to move countrywide.
- At Assetz Stuart law pointed to a backlog of institutions raring to fund deals via the Assetz platform. Via the chosen fund structures – Stuart anticipates securing close to a billion pounds of lending capital in 2015.
Lord Young, the Enterprise Advisor to the Prime Minister, sees huge potential in the P2P sector. One of the biggest hurdles to growth is getting the level of regulation right. It is vital to have regulation in the sector but don’t want to over regulate it as that could kill growth. However, one caveat is that a platform hasn’t gone wrong yet but one will. He said that this is a golden age for small firms, and there has never been a time when it has been so easy to set up a business and this has resulted in an unprecedented amount of startups. The alternative finance space needs to help these small businesses grow to become the middle tier of the economy.
Brian Basham built on the theme of the power of small businesses. He said that the invention of the internet was the greatest advance of mankind since the invention of the printing press, due to the power it has to democratise access to information. He added that small businesses hold the key to economic prosperity and that alternative finance needs to help make this happen.
NAVIGATING THE REGULATORY FRAMEWORK
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Sam Ridler, Peter Wright, Edward Dartley, Brian Korn, Gillian Roche-Saunders
The panel discussed whether it is easier to do business in the UK compared to America. Gillian Roche-Saunders said that the benefit of the UK regime is that there is clarity surrounding the regulation, but consumer protection needs to be at the core of the entire regime. Peter Wright said that more regulation will be spurred on by complaints and problems and so far there haven’t been many. Whereas Edward Dartley had a slightly different message saying that if an investor loses money it is usually not a platform’s fault but it is because they are not properly diversified and so investors have to take responsibility for their own risks.
STRIPE-EARNING: CRUCIAL DEVELOPMENTS THAT WE NEED TO SEE MORE OF
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Gadi Mazor, Rupert Taylor, Mike Baliman, Goncalo de Vasconcelos
This panel focused on what success is going to look like in the future. Gadi Mazor described OurCrowd’s first big exit, which was ReWalk Robotics’ flotation in the US. He added that one of the big drivers for investors is that they have a fear of missing out on great investment opportunities. Goncalo de Vasconcelos said that for equity crowdfunding to be sustainable it needs to be profitable for investors. Rupert Taylor continued that securitisation would be a very big opportunity for the sector and would allow it to massively increase the investor audience. Mike Baliman weighed in, saying that the biggest worry people have is a platform blowing up and ruining the image of the industry.
IS THERE A REGULATORY BACKLASH COMING?
BREAKOUT
John Goodall, Christian Faes, Duncan Owen, Stuart Law
- Landbay’s John Goodall said that although there are now a number of property lending platforms, it’s important to remember that they would only amount to one small traditional lender when you look at the size of the industry. They have barely scratched the surface.
- In part for this reason Landbay will be focusing solely on the buy-to-let space for the time being.
- When asked about loan volumes, Christian Faes said that 80% of LendInvest’s dealflow comes from London a key point of emphasis for the fturue is to move countrywide.
- Via the chosen fund structures – Stuart Law anticipates securing close to a billion pounds of lending capital in 2015.