Our Response to Funding Secure Administration 23/10/2019
A particular question that came in today is “What is the longer-term aim, to keep it niche or expand rapidly?” I also believe another platform’s annual reports have said there will only be a few big platforms left and we read regularly of some of the larger platforms talking about ‘smaller platforms’ not having the resources to move further forward.
Firstly, Ablrate is profitable. I know this is a dirty word in the tech space, call me old fashioned but we believe that profitability is important. As the old saying goes ‘Turnover for show, profit for a pro’. We are always looking to manage overheads, increase margins and increase volume but in this space, you have to be nimble. We don’t rely on raising money every five minutes and talking about multi-billion origination in the next few years to get that money in, and then have to reduce margins to attract large volumes.
That is a game for businesses like UBER, Just Eat, WeWork where getting big in a market fast is the game in town, basic domination of the space. That is NOT going to happen in P2P, no matter what you are told.
As an example, starting a social network right now would be pointless, Facebook owns that space. You might come up with a cool idea, Whatsapp and Insta are good examples, but they were swallowed up by Facebook. However, if you created a financial platform giving 15% returns, no defaults, easy to use and highly liquid you would kill multi-billion P2P platforms in a short space of time. This is the nature of the beast; security, yield, liquidity.
I exaggerate to make a point, but growing fast in an attempt to dominate in the financial space is a strategy fraught with trouble.
Any regulatory issues, macroeconomic circumstances and lender sentiment change could reduce revenues and you have to be able to react to that. So while we are looking to scale, we are doing it in a measured way. Here is what we are doing:
1. We absolutely believe in the individual making their own decisions on investments, not just in the P2P lending market. If the financial world can be flattened and disintermediated it will benefit everyone beyond just the P2P world.
Therefore we will not be going down the ‘black box’ route that inevitably the larger platforms will have to do. I believe that this route will take them to be a bank, a bond platform or collective investment i.e a fund for direct lending.
2. We believe that we have a responsibility to build better tech to make 1 happen.
We are building a new platform with more risk management tools, greater data mining capabilities allowing lenders more control of their lending, not less.
3. The industry needs to evolve its risk profiling.
The FCA is concentrating on looking at internal procedures for risk management, onboarding of borrowers and loan monitoring. As part of a strategic review of our business, we have been working on solidifying the procedures manual on these areas. By December we will have completed a comprehensive manual documenting everything we do from onboarding borrowers to dealing with defaults.
This is not a revolution of the business but an evolution of what we already do. Some of the issues in the industry has been incorrect risk pricing, we feel we have always charged interest that rewards lenders for the risks they are taken, we would suggest that in the race for volume, some may not have done that.
4. Liquidity is crucial
The liquidity of a market is critical. A liquid market gives better price discovery and allows lenders to better manage their portfolio alongside their risk parameters and their current sentiment.
Imagine that there was a deep pool of liquidity looking at the Lendy loan book (and now the Funding Secure loan book) that was willing to take a position on risk. This would give lenders much better options.
We are committed to integrating ASMX that will be the most sophisticated secondary market technology in this space. We are committed to working with ASMX to increase the liquidity pool for lenders and assisting the integrations of other platforms because we believe that it will be in the best interest of the industry as a whole.
While platforms can integrate with ASMX as is, we would happily share our Ablrate tech, integrated with ASMX, to existing platforms in order to increase the ecosystem of platforms.
5. Loan management
Loan management is also key, but technology can help here. Things like open banking can really help automate certain loan management functions which will make the process more efficient and accurate. Platforms have gone through cycles on their loans and I am sure that many are looking at how to automate the process.
Ablrate is looking at integrating these features. We are looking at open banking solutions and how we can use this data alongside existing credit data to flag potential issues and better manage a larger loan book. Right now the book is reasonably easy to manage but when we scale up volume we want to make sure that we have the tools to manage that scaling effectively.
Those who say that ‘smaller platforms’ cannot compete with larger platforms might be right in circumstances. However, we are investing in our technology and our vision that would allow platforms to enjoy a large ecosystem that can rival even the biggest platforms.
I have been quoted elsewhere saying that “We can’t all be Funding Circle, but 50 platforms operating together can be Funding Circle”. I chose Funding Circle as it was in the news, but any larger platform should realise that we were born in technology and we will grow in technology. Making an assumption that big companies are the only ones who can deliver that has been proved wrong many, many times.
Bottom line is that we are believers in the P2P space, we think that this is period of consolidation that will see us move into a better space as procedures are solidified and tested, and technology is used to make P2P lending safer, more streamlined and mainstream.
While platform failures are a real problem and the funds lost are to be taking very seriously, these failures are inevitable in a new industry. What we have to do now is evolve procedures bring in more and better tech and learn from the lessons being learned.
Ablrate is committed to this path.