Nigel Morris, of QED Investors, offers a unique vantage point in that his experience spans from “Big Banking” to start ups. Having been through many credit and interest rate cycles, he leverages his experience in lending markets today and embraces the new challenges and opportunities it faces. Morris says QED likes working with “really cool disruptive companies.” One of the main challenges that he helps businesses he invests in is scalability.
During his keynote, Morris discussed the factors which brought about the growth of this sector:
1) A New Banking Climate:
• A lack of trust by customers
• An increase in regulation of lending activities
• A focus on retail costs reduction because of digitalization
• Banks technology debt where banks have older generation technology
• Difficult to hire and hold talent as there is a clear shift to technology companies.
2) Changing environment:
• Increase in mobile acceptance (apps also)
• Splintering value added chain
• Increase in non-bank entrants in financial services (e.g., Amazon, ebay)
• Increasing importance of affiliates
• New data sets and working out how to use
Morris highlighted the growth and the potential longevity of the sector, which has been shown by the fact that several lending platforms are achieving breakout scale and accelerating growth. As an example, Lending club estimated to originate $4B in loans in 2014. And new entrants, such as Funding Circle and Zopa, continue to emerge in the space.
Morris noted the cost advantages of P2P Lending, using Lending Circle as an example which, with no bank branches, has a 220pbs cost advantage. Collection and billing also afforded them a 130bp cost advantage over banks.
Banks are reacting to the growth in this industry by building R&D labs, acquiring and partnering with innovation and leveraging rich deposit franchises to buy loans from innovators succeeding at origination.
“Big Data” plays a significant part in the P2P lending sector.The internet has redefined the “Big” in “Big Bata”. Facebook and LinkedIn have the most data stored on customers, where as banks have comparatively little. Marketing costs are also much cheaper through Facebook and Linked with it costing only $0.25 to reach 1000 customers.
