LeWeb London: Peer to Peer lending

Sharing Economy Money Panel
Moderated by: Nina Dos Santos, News Anchor & Correspondent, CNN World Business Today
Samir Desai, Co-Founder & CEO, Funding Circle
Raffael Johnen, Co-Founder & CEO, Auxmoney.com
Renaud Laplanche, CEO, Lending Club
For established industries, the sharing marketplace — with rapidly shifting social, cultural, and technological disruptions — is forcing them to respond too. Never more true than in the financial sector. Does crowd funding threaten traditional funding sources indefinitely? We’ll hear from the $$$ experts about the state of funding and financial models in The Sharing Economy.

Leweb London 2013 - Day2
Photo by: Luca Sartoni – http://www.heisenbergmedia.com/

NDS Crowdsourced funding is growing – twice as big as last year. For Funding Circle it has trebled since last year. About 10m a month,
Rafael, tell me what you do

RJ: we facilitate peer to peer lending. Loans btw 1k and 20k. We started last year at first 2p2, now we are doing secured loads – can pledge car as collateral.

NDS: the collateral is changing, what can be put up as collateral
RJ: it’s an interesting market, removing the bank as the intermediary
RL: Business has trebled…we will faciliate $2b, but total market is 15 trillion.

NDS: are you diversify to offer new products…(out of 2p2)
RL: we often get used for credit card balances, we offer a lower cost way to pay these off, a more predictable way to manage the credit

NDS: if people are investing in debts, they expect to be paid back
RJ: we don’t guarantee it, but we have a good record of predicting return, has been 6-7%. The company goes after the borrower.
SD: we lend to established businesses, trading for 2 years. We have full risk analysis, return is 6-8%. Business lending is political…we now have gov money through lending circle.

NDS?: how big will you get?
SD: I think this will be a huge [art of the market, thinking 10-20%. Our survey found that 77% of borrowers would come to them first. it’s faster, quicker, it’s internet based (no need to go into branch). Half of our loan apps are outside business hours. It’s not an alternative, it’s a better product. We started off to £50k, now up to £1m. We are getting same kind of acceptance rates
RL: there is a transformation in way the industry is received. We don’t get the bank rejects only, we have a better customer experience, we have lower cost and more convenient, has generated positive selectance, get first choice.
RJ: same thing, plus great market for startup people to get a loan. Banks don’t touch them as high risk. If you do risk management right and get the right things in place, then manageable to do. It is a new niche, where too expensive for banks

NDS: in Germany it’s hard, lots of regulations. Will yours get big enough to regulate?

NJ: getting regulation could be good, gives stamp of approval. In Germany, heavily regulated, we comply anyway with a lot of the demands. We are asking for gov support, we are giving gov the tool to provide capital to people or companies

NDS: in UK, companies can’t get access
SD: we do, central gov, regional gov go through us. We have been lobbying for regulation and will be from next year…it helps for our credibility, That we are serious and is here to stay.

NDS: the US doesn’t like regulation either?
RL: we fell into the framework already. But as a matter of public policy we worked hard to be the good guys and the financial services see us as that. We are transparent., great service and people like us. We start with a tight credit policy, with different levels of return. Investors can choose their risk. We get about a 3% loss.
RJ: again 3-4% default rate across the full spectrum
SD: default is about 1.5%, and slightly higher return 6-8%

NDS: how about China, will growth be there?
SD: possble. we are at a generation shift, with finance. We have a shift in public trust in banks. The core business of banks, loads, balance transfers etc, the first real time internet coming to finance. So not just China, but western markets as well
RJ: we though there was a better way to allocate capital. We thought about how we could be more efficient. We were not waiting for right time, we had the idea and went for it
RL: ideation often comes from outside. I though it was nuts to pay the high credit card rate. So that was the business problem, most people it was fine, went to change it We had a slow build up in first few years. Now 6 years, we have investors earning, we have large investors.

NDS: do companies know what companies invest in and can they help them succeed
SD: yes, it’s a market place., you can chose which ones to invest in – ot have them assigned. you can have a relationship, we have restaurants, furniture makers etc. We have a lot doing local investments. It’s not about anonymity, it can be about transparency. YOu can see the data, the loans, the defaults and explore it, Owners seem to like being asked questions – that means someone is interesting.
RJ: we talk to investors and borrowers, learn what they are after, starting early and it helped scale it
RL: transparency is key, it is safer and sounder, people can see what happens, unlike banks that hide things
NDS: but will it be safer
RL: We have better matching, we have investor and lender matching, It’s not pooled. All of us have matching, it’s not leveraging, it’s one to one

NDS: can the banks learn from that?
RJ: we built our tech from the ground up. Banks have a long history, difficult to move away from process

NDS: is the virtual currency the indictment of the financial system? What do you think of bitcoin
RL: you need more stability.. You can’t have that much volatility. and more liquidity, then prices stabilise. Not a buyer or lender of bitcoin

NDS: you are backed by VC
SD: we lend to different types of companies. Mainstream – restaurants, etc. We lose money to get to the scale. A bank won’t lend us money, our VC are supportive

nDS: could you start a similar company through crowdfunding?

SD: there may by the opportunity, Need to to decide if get big quick or slow growth
RJ: it takes time to build the important pillars and only then can you scale up.

NDS: the sharing economy is alive, but you three are competitors.
RJ: it is a local market. We are Germany only.

NDS: where will you be in a year
RL: managing growth of platform, keep doing what doing, keep growing
RJ: it’s all about growth. we know it works
SD: Regulated, and bigger.

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