Can crowdlending regain trust in business finance?

trust

2012 ended with a flurry of news about crowdlending and peer to peer lending and it seems that January has continued the trend with plenty more articles cropping up to discuss how alternative finance can help restore faith in a beleagured financial system and  provide the business funding that our economy needs to grow.

Since the whole concept of peer to peer is about sharing, we thought it would be good to share one of our favourites, a post from David Pitcher published over at SunZu (previously ecademy).  David’s post asks whether peer to peer lending can restore trust in finance for business and has sparked some interesting comments.

Recently I saw a T-shirt on which was printed:

‘Give a man a gun and he can rob a bank.
Give a man a bank and he can rob the world.’

Some businesses are still feeling betrayed by banks because they have not been lent the finance they need to develop or continue trading.
It seems to me that a key issue about banks is about their trustworthiness . After all, a run on a bank is only the loss of trust that the bank can keep our deposits safe even if they are actually safe.

Trust

Trust is the basis of all business and personal dealings. No amount of legislation can actually replace that personal and corporate trustworthiness, established, tested and proved over many years. Sadly and foolishly some unscrupulous businessmen including some bankers have done the unthinkable – for personal gain they have ‘at a stroke’ betrayed and squandered that ancient trust.
The response from a friend who is a retired senior banker was one of anger and disbelief and he simply asks ‘Whatever happened to ‘my word is my bond’?’

To read the rest of David’s article visit the SunZu website

The State of Innovation in UK Insurance

Bought by Many

Today, we’re delighted to welcome Steven Mendel, Co-Founder & CEO of Bought By Many to the FundingKnight blog.  Here’s his guest post taking a look at the state of innovation within the UK insurance industry.

You might think the competitive insurance industry would embrace innovative insurance products such as peer to peer insurance to demonstrate its commitment to financial innovation.  However, evidence suggests that the sector is resting on its laurels.  It has mainly demonstrated a slow response to the evolving needs of customers, despite technology offering new ways to service customers and access data to provide more sophisticated and personalised premium options.  Marketing on the basis of price sensitivity is no longer enough.  Consumers are increasingly looking for excellent customer service and convenience.

PWC’s recent Future of Insurance report supports this view.  Customers are demanding ease of interaction through technology and greater flexibility from the insurance sector.  It suggests that data trawling of social networking sites can give the industry new knowledge on the behaviour, desires and buying power of existing and potential customers.  In fact, the report even goes so far as to say that sensor technology could help to evaluate the health of policyholders and identify problems earlier, leading to reduced liabilities and lower premiums.  So where is the big debate on these potential developments within the insurance industry?

As insurance companies are essentially in the business of using data to calculate quotes, it is easy to conclude that social networks would offer a tantalising opportunity for them to drive a personalised marketing strategy.  Many other businesses have already harnessed the power of Facebook.  The question is: why has the insurance industry largely ignored its potential?  The travel industry has already embraced booking apps, online day itinerary services and social media integration to encourage consumer demand in an economically challenging market.

Friendsurance, a small company in Germany, is innovating in the area of shared insurance, where small policies can be shared among a circle of friends, thus reducing the cost.  Granted, Germans are renowned for the level of insurance that they have but this represents a novel way of groups of, say, students or neighbours, getting better value on parts of their insurance.  However, there is no sign of the insurance industry embracing this idea in a cash poor consumer market or taking advantage of shared networks across the internet. This is where Bought By Many comes in, through linking collaborative consumption with social media, to try and update the insurance world – which should benefit insurers, through the creation of grouped risk, and consumers, with better value offerings. Their intention is to make insurance social, no small task.

Another route for innovating in the insurance world is through smart phones.  Given their pace of evolution in every day working lives, it is inevitable that customers will want to start the claims process for scenarios such as car accidents or minor home contents damage on their mobile phones.  There is some sign of a shift in this direction, although not across the board.  It looks as if the US insurance industry is pushing the boundaries of technology more, with the likes of State Farm’s Pocket Agent and American Family Insurance’s My AmFam.

In the UK, Aviva offers an app for the iPhone that allows car insurance customers to start their claim on their phones but another huge player, Axa, currently only gives customers one option – an 0844 phone number.  More insurance companies need to adapt apps such as MotorMate, devised by Confused.com to deliver data on a driver’s behaviour, for the purposes of offering personalised car insurance quotes.  Given that the newspaper and music industries – not exactly known for their embrace of the digital era – have transformed the way they deliver their products to the smart phone audience, the insurance industry seems to be lagging behind.

Price comparison websites have brought the issue of transparency to the fore in the insurance sector but companies themselves are coy when it comes to comparing their prices with competitors.  Perhaps some of the larger insurers should learn from a feature on the Esurance website, another US based company, that provides a quote and compares it against rates from other insurers.

The industry’s constant focus on physical damage and loss situations is frequently criticised.  As the commercial world becomes increasingly dependent upon the value of information and knowledge, it is time for the insurance sector to adapt and provide new emphasis on financial and information risk management.  New ways of thinking are needed if the insurance industry is to be able to call itself innovative.

If the insurance industry fails to adapt, the development of new technology could open up opportunities for small, niche companies to offer products to consumers.  Think about how the publishing world is being cracked open by self-published authors who need little more than their talent and access to Amazon’s Kindle store to build their name and income.  The same thing could happen, albeit it to a lesser extent, in the insurance industry.  The industry is famous for its risk-averse nature so, while it has become more efficient within its existing markets, it has failed to develop new ways of doing business.

Although the prospects appeared to be mixed, I am optimistic for the future of the industry.  A survey by Gartner in late 2010 on IT development in the global insurance industry revealed that investment is low but that senior managers are expecting huge changes in IT over the next five years to create that all-important competitive edge.  There is a sense, however, that insurance companies have been driven into these changes rather than because of a desire to offer a different experience to their customers.  The time has come for the sector to look at the travel and leisure industries, then, to see what their future could look like.

Steven Mendel is Co-Founder & CEO of Bought By Many, a start-up enabling communities to club together to buy insurance. Twitter: @stevenmendel

Rothschild backs peer to peer lending as new meets old

old leaf on new grass

Following Friday’s news that peer to peer lending, including peer to business lending  is set to be regulated by the FCA (the regulator about to replace the FSA), the industry has received a further boost with news that RIT Capital Partners, Lord Rothschild’s London-listed investment trust has invested in Zopa, the UK’s first peer to peer lender who started the alternative finance wheels in motion back in 2005.

It’s a move which will inevitably prompt a whole host of “old meets new” clichés as one of the most famous bastion’s of banking joins forces with a disruptive player on the alternative finance circuit.

Speaking to the Financial Times, Lord Rothschild said,

“We are witnessing the growth of the non-banking lending market.  Following the 2008 crisis many of the banks remain under capitalised.  In these circumstances alternative forms of credit will be developed on a significant scale.  This is happening.”

UK peer to peer lending enthusiasts will no doubt watch to see whether the involvement of such an internationally renowned name does for Zopa what the arrival of John Mack did for Lending Club.

Lending Club have now processed over $1bn of loans in the US and their success has often be credited, in part, to the fact that they managed to engage the support of a recognised industry chief who could bring Lending Club the gravitas it needed to go mainstream.

Although Lord Rothschild left his family bank three decades ago, his name remains synonymous with what was once the globe’s most impressive banking group.  The decision of RIT Capital Partners to invest in Zopa will surely be seen as a rubberstamp for an industry which is rapidly growing from a small stream of niche financing into a genuine alternative to mainstream banking.

FSA to regulate peer to peer lending: Crowdlending gets a boost

FSA

...and we were already talking to the FSA 

The government has announced that it plans to regulate peer to peer (P2P) Lending.

The P2P Finance Association welcomed the news, saying:

“The Peer-to-Peer Finance Association has provided clarity and protection for consumers and businesses, but we have always strongly believed that introducing proportionate regulation was necessary to enable the sector to continue to flourish. “

Well, we’ve always been convinced of that here at FundingKnight, too.

That’s why our CEO, Graeme Marshall, explained months ago why peer to peer lending is an industry that wants to be regulated, but we also took some more concrete action…

 

FundingKnight has been talking to the FSA for several months and is well advanced with its application to become FSA regulated for those parts of its activity that fall within the FSA’s regime.

Rather than simply campaign for regulation, FundingKnight took the view that some of P2Ps current processes already fell within the regulatory regime and applied on that basis.  We hope to be the first regulated P2P Lender

FundingKnight CEO, Graeme Marshall, commented:

“FundingKnight welcomes the prospect of regulation of crowdlending / peer to business lending.  It may be that the news this week relates more to pure peer to peer lending and the extraordinary rates that are being charged to some individual borrowers but, regardless, some clarification and rules would be welcome.

Whereas FundingKnight believes that although matching lenders with business borrowers does not in itself fall to be regulated under the current rules, there are many peripheral activities that are less clear and so Government clarification and regulation would be welcomed.  This will also assist with the setting of standards for this new and exciting activity.  FundingKnight is seeking authorization for those of its activities that are covered by the Financial Services Authority.

FundingKnight has a team well experienced in financial markets who collectively believe that regulation of this industry will help crowdlending to become recognized as a new model for lenders and borrowers to be matched, using the power of an online marketplace.  We look forward to participating fully in discussions with the FSA and Treasury concerning forthcoming regulation.”

Whilst we’re not claiming that our discussions with the FSA prompted the Treasury’s response, we’re glad to see that the move towards regulation is now gaining momentum.

FundingKnight Likes… The Financial Fairytales

front cover of 'The last gold coin' book

In our recent post, Could a child fund your next business loan? we were pleased to be able to include a comment from Daniel Britton of The Financial Fairytales, a company who hold financial responsibility for children very close to their hearts. We’ve invited Daniel to tell us more about his quest to raise the levels of financial literacy amongst children and hope to welcome him to the FundingKnight blog for a guest blog or two in the new year, but, in the meantime, we thought it was time for The Financial Fairytales to feature in our ongoing series of  ‘FundingKnight Likes’ blogs.

The Financial Fairytales are a company based in the United Kingdom founded by British author and entrepreneur, Daniel Britton. The company produce books for children and schools all around the world in order to educate, empower and inspire their young readers to become financially literate, learn about the key elements of the world of money; spending, saving, borrowing plus, not forgetting the basic principles of what money actually is and why we have it.

As we all know and experience the influence money has on every aspect of our daily lives, it makes complete sense to educate children from a young age and hopefully instilling a conscientious approach to spending. In fact there’s no doubt that there are many adults out there who would benefit similarly from simple educational techniques related to their finance and savings.

Founder Daniel Britton says:

“By teaching your children about money you take charge of their future financial and economic wellbeing.  Recent studies have shown that over 2/3rds of parents believe that children aged 7 or younger should be taught the financial and money principles contained in The Financial Fairy Tales.

Lessons in financial awareness or resources which support financial literacy for kids are sadly lacking from the curriculum in many schools.”

By providing a foundation education in economics for primary school aged children, The Financial Fairytales maintain that it will help prevent cycles of bad habits potentially instilled into children by their parents. Having come through the worst financial crisis of all time in very recent years surely that can only be a good thing?

Others argue that perhaps we should let children be children and leave their childhood to less adult endeavours, but you know when learning about something serious is as fun and easy to digest as Britton’s books, you are onto a good thing.

Find out more about The Financial Fairytales books and recommendations here.

Who does FundingKnight lend to?

As a complete beginner to the world of finance and loans, I am going back to basics again with this post. I want to get right to the very core of what FundingKnight can offer businesses looking for a loan.

Looking at the FundingKnight website, it seems like a very straightforward process but in my mind there must be huge amounts of criteria that you would need to meet before even beginning to think about applying let alone the actual paperwork that organising a business loan must entail.

I am endeavouring to find out more, so I asked FundingKnight a few questions about what their basic principles were behind their lending offer.

FK: We specify the following three points for companies looking to borrow money from us:

  • The business must have at least two years trading history
  • They must be limited companies registered at companies house
  • And finally, they must be UK based businesses with a UK bank account

KK: It all sounds pretty reasonable to me and extremely straightforward, but there must be more things to consider beyond approaching FundingKnight as a legitimate business enterprise? Surely you would want to ensure that you are investing in something that is a sound prospect with a solid financial future? As otherwise couldn’t any old debt ridden business be able to approach yourselves in dire straits?

FK: Yes, that’s completely true, lenders come to FundingKnight to get a good financial return and in our approach, there are three key things we look for and to balance applications against, ensuring we lend to the right companies:

  • Is your business well managed?
  • Are you realistic about risk?
  • Will your business generate enough cash to repay our lenders?

KK: Ah ok, that’s more like it – still, it seems very simple and straightforward and basically clear, common sense which has got to be a good thing.

FK: Yes, we think so and we want to make the process as clear and easy as possible as after all, we want to lend money in the same way that businesses wish to borrow money. It’s a win-win situation!

Many of our lenders also want to give the economy a boost and no doubt as FundingKnight grows many will also use it to lend locally but first and foremost people expect a sound return on their money so it’s important to have some good ground rules governing who can apply.

KK: So you don’t offer loans to start-ups?

FK: No we don’t. That’s not intended to suggest that start-ups aren’t a good investment – some are – it’s just that they typically need a different type of funding and benefit from a different type of investor.

KK: Excellent work. Thanks to FundingKnight for idiot friendly responses and I hope that my ignorance will help other people get involved and take advantage of the clear benefits that FundingKnight offer.

FundingKnight Likes… Brixton Pound

Recently I wrote about the newly launched Bristol Pound and why we at FundingKnight were fans of this community orientated and hyperlocal currency.

The Bristol Pound is one of few other similar projects taking place around the UK so we thought we would write about one of the first and the original urban scheme, the Brixton Pound.

In the same way as other local currencies, the Brixton Pound was designed and implemented to keep investment and spending in the local area.

By exchanging your run of the mill ordinary sterling into Brixton Pounds you can spend your hard earned cash in a plethora of Brixton businesses helping them to increase their profits.

It’s simple, you invest in your community and as a result your local area improves. It not only allows you to help grow home-grown businesses but also, if you use your B£ electronically, you get an additional 10% spend on your British Pound, thus making your money go farther with an added value local bonus.

One recent additional string to the currency’s bow is that if you work for Lambeth Council (where Brixton is located) you can now request to have a percentage of your wages paid in Brixton Pounds. A fabulous idea that really shouts it support to the civic scheme. Plus staff opting for this will receive the additional 10% bonus on their pound, essentially giving staff a pay rise well above the average local government salary increments.

Lambeth Council workers will also have the option to donate their monies directly from their wages to local charities, community groups and social enterprises of their choice.

By starting schemes like the Brixton Pound and others it allows local neighborhoods to take control of their communities and maintain the fantastic vibrancy and creativity that is unique to their area. In turn positivity breeds positivity, improving lives and environments whilst generating a powerful multiplier effect that extends and creates opportunities for more and more people every time a B£ is spent. That alone is more than reason enough to like, if not love, the Brixton Pound. Get involved and find out more here.

Crowdlending and the banks of the future

back to the future dashboard

Photo

When it comes to crowdlending or peer to peer finance, there is lots of talk about alternative finance, or new finance.  For the time being, that’s exactly what peer to business lending is – a new way of lending and borrowing money.  But what does the future hold?  Is it simply a flash in the plan or is crowdlending part of a wider disruption to the financial status quo that will change the face of banking and finance forever?

Brett King certainly thinks that the entire financial sector is ripe for some serious change.  He’s the man behind movenbank, a new entrant in the US who claim not to be “your typical bank” and who are setting out to launch “a banking experience that is fair, fresh, fast and maybe even fun:)”.

Amongst other things, movenbank are promising:

  • No hidden fees – placing transparency centre stage
  • No plastic – they believe that the future of payments lies with mobile phones and mobile wallets, after all, “when was the last time you were able to see your current account balance on your plastic card?”
  • No paper – application forms, statements and recepits will be online.

He’s also the author of Bank 2.0 and now the newly published Bank 3.0.

We’ll be reporting back on Bank 3.0 once our new copy has winged its way to FundingKnight towers but in the meantime, here’s a snippet from Bank 2.0 that explains better than most why technology and innovation are guaranteed to change the way we live… and bank.

How long do you think it took Facebook to attract 50 million users?  The answer’s not long… in the time that’s elapsed since their launch back in 2004, Facebook has amassed more than 500 million users, rather dwarfing the 50 million users that has historically been considered the point at which something ‘goes mass market’.

It used to be the case that new ideas or new products took time to bed in and become popular.  Now, the speed of technological change and development, coupled with the global connectivity of social networks means that things get adopted into daily life far more quickly.

It took over 70 years for aeroplanes to become a mass market commodity, but now innovations such as the iPod or Facebook reach critical mass almost in the blink of an eye.

Why will that change the way we lend and borrow money?

Well, because it can do nothing but change it.

By 2020 all customers will have grown up being “digital natives” well used to social networking and online transactions.  Already customers value mobile capability and online security and already people expect more personalized, more valuable communications from brands than they used to get from large mass advertising campaign on TV or billboards.

Banking has got to change from a one size fits all (unless you are extremely wealthy) model to a state where customers feel like they are genuine participants in their own financial futures and can make well informed, individual decisions rather than being shoehorned into products that don’t’ speak to their personal circumstances.

Mainstream banks used to see online banking as a way to cut costs and move customers to remote channels… now that couldn’t be further from the reality of what online finance means.

Rather than put space between a brand and its customers, online finance makes it easier to communicate and faster to do business.

Rather than hive customers off into remote channels, online finance provides better value for customers and new ways of doing everything from personal banking to foreign exchange.

Rather than keeping customers apart, it has brought them together in one big global network that can share opinions and provoke customer groundswell in an instant.

New finance is already here, in the guise of new high street banks like Metro Bank, in new entrants like The Currency Cloud who offer low cost, cross border payments and in the new wave of peer to business lenders like FuningKnight, Funding Circle or Thin Cats.

Whether or not such innovations have a long term place in finance is pretty much decided, the bigger question that we will have to wait to understand is just how mainstream banks will make the shift to a new financial order.

After all, as Brett King points out, “The future, in may ways, has already begun.  The only question remaining is how you will make the journey?”

Want to read more about new finance or financial innovation?  Try out some more posts from the FundingKnight blog that we’ve picked out below or, to start you own new finance journey why not sign up to become a FundingKnight lender?  There’s no pressure to lend and no fees if you do… so what’s stopping you taking the next step of your own financial journey?

 

Crowdlending, crowdfunding and what will happen to bank lending?

 

Crowdlending: Just one part of a sharing economy

 

Business finance: A load of shylocks or simply a sector dying to change

 

New finance is the future… FundingKnight makes the Huffington Post

Could a child fund your next business loan?

Monopoly board

How news of a new debit card for children has raised fears for the future of pocket money.

OK, I admit that today’s title is slightly provocative.   After all, it’s not very likely that children will be helping to supply business finance any time soon, but – depending on the nature of your business – they might be some of your online customers and now they won’t even need to badger mum or dad for a debit or credit card number to use.

A story in today’s Guardian tells how children as young as eight will now be able to get their hands on their very own Visa debit card.

The card, developed by PKTMNY is aimed at children who want to shop online, buy certain items on the high street or withdraw cash, although without their parents needing to lend money.

Before too many alarm bells start ringing, I should make clear that parents will be able to set controls to restrict usage and that the card won’t be able to be used to buy alcohol or cigarettes or similar ‘adult-only’ items.

In return for giving their child financial freedom, parents will be asked to pay a £5 joining fee and a monthly membership fee of £1 per child, plus 50p for every cash machine withdrawal carried out in the UK.

Speaking to the Guardian, Mark Timbrell, the company’s founder said, “as a parent I know just how difficult it is to teach children about money, especially as the school curriculum focuses on using cash and visiting banks, neither of which reflect how children see money being used.”

Financial education is an honorable objective, after all, most of us would agree that it’s never to early to start learning the value of money and good financial management but is a plastic card the best way to go?

FundingKnight asked Daniel Britton, author of The Financial Fairy Tales series  what he thought about debit cards for children, here’s his response:

“In my experience initiatives which attempt to teach children about money are most successful if they underpin the mechanics with the key principles such as where money comes from and the implications of spending more than you have. It might seem cute to give an 8 year old a cash card but not if it sets them up for a lifetime of credit card debt”

As a parent, I can see the attraction of letting a child feel independent enough to buy something they’ve saved up for, but I’d worry about severing the ties between hard cash and the things it can buy.

In What’s Mine is Yours, Rachel Botsman shares research carried out by Richard Feinberg, a consumer psychology professor, who studies the influence that credit cards can have on financial decision making.

Amongst other things, Feinberg found that:

  • People who paid by credit card left tips 2% higher than those who paid by cash
  • People who had been exposed to credit card branding bid higher amounts in auctions than their peers who had been exposed.
  • Participants who had agreed to pay for an item by credit card placed bids 113% higher than those who had agreed in advance to withdraw cash for payment
  • Of those who paid by credit card, only 35% could recall the amount

Now, I’m not advocating a return to bartering at the village gates.  Credit cards have their uses and they are part of a healthy financial economy.

I also realise that the new children’s card is a debit card rather than something that extends open lines of credit to children…. but, still, I worry a bit about disconnecting a child from the actual act of parting with money.

If there are no real coins saved up and handed over, does it really have the same benefit for financial education?  Or am I just being over-protective or a barrier to change?

What do you think? Leave us a comment below with your opinion.  Or to help kickstart your own child’s financial education head over to www.financialfairytale.com

A simple guide to peer to business lending: Timescales and security…

So I’m beginning to understand the basic processes and some of the jargon behind crowdlending. As a complete beginner to all this, its not actually as complicated as I first thought.

Last time we established it wouldn’t cost me anything to lend money and invest into FundingKnight. In fact by investing, I would hope to see some returns on my investment. There are no fees to become a peer-to-peer lender and I can set my own interest rates for those to borrow against. On the other side of the process, as a borrower, I would expect to pay between 7 – 12 % interest on a loan I take out plus their arrangement fees (check out www.fundingknight.com for full details). So far, so good. Learning is good.

Now what about timescales? If I lend to FundingKnight, how long would I need to invest my money for? Is there a set amount of time? Or can I access my cash whenever I need it? I asked the bigwigs for some answers…

FK: Our loan exchange will let you sell all or part of your investments on to other people.  So that means you get to combine the benefits of making your cash work harder (than it typically would in an easy access savings account) with access to your money – selling your loan can help you get at your cash if you need it.

KK: so I can basically forward my investment onto someone else and get my money back if I need it. What about security? With all the crazy happenings of the past four years, would my money be protected against an unpredictable market?

FK: The Key difference between crowdlending and bank or building society accounts is that there is no safety net so, however successful crowd lending becomes it will never be the same as putting your money in the bank.  What it does do is offer you a chance to invest in businesses you believe in, support values you want to promote or choose to lend locally within your own community.

In all honesty you shouldn’t use peer to peer lending to invest money you can’t afford to lose but, that said, all of our borrowers have to supply all sorts of financial information and are put through external credit checks in addition to our own in-house analysis.  The FK management teams are investing in all early loans themselves so they have an added incentive to get things right.

KK: Ok, fabulous, I can see how crowdlending makes much more sense to me as someone who tries to live ethically, pursues an active interest in their community and local businesses. It ticks many boxes that you wouldn’t find elsewhere, especially not at a run of the mill high street bank. It seems to me that there is a whole world of opportunity out there that I am beginning to learn about. Stay posted.