Following the demise of Wonga, Funding Circle’s plans to raise £300 million through a flotation heralds a new era for fintech, says Arun Kakar
Peer-to-peer lender Funding Circle has filed for an IPO that could value it at up to £2 billion, making the firm one of Britain’s leading unicorns and heralding the coming of age of the fintech sector.
Launched in 2010 by three Oxford graduates and hailed by chancellor Philip Hammond as ‘a real success story’, the UK’s biggest peer-to-peer lender matches investors with small business borrowers in the UK, Germany, Holland and the US. It has facilitated around £5 billion in loans to over 50,000 businesses, and is looking to raise £300 million to fuel expansion across Europe and the US.
The firm’s main draw is its remarkable growth: revenue over the six months to July this year was £60 million compared to £40.9 million over the same period in 2017. Overall revenue grew 59 per cent year-on year on 2016 and almost doubled last year; with loans under management standing at £2.5 billion by the end of June. ‘It is a prime example of a new breed of financial services companies, who by making their products more transparent and more convenient, have democratized access to valuable services and increased economic activity,’ said Neil Rimer, a partner at Funding Circle’s largest shareholder Index Ventures.
However roadblocks lie ahead: Funding Circle’s CEO Samir Desai will have one eye peeled across the Atlantic where firms such as US firms LendingClub have struggled to maintain the lofty three-digit growth rates that excited investors when they initially floated. There is also the looming shadow of Wonga, the collapse of which serves as a standing reminder against fintech complacency. Might that dampen prospective investors’ animal spirits? Doubters point out that P2P as a sector is yet to weather a financial downturn, although there’s no reason why this would affect Funding Circle more than others.
As Funding Circle looks to scale, there will also be regulatory changes to contend with. The Financial Conduct Authority in July issued a consultation paper proposing identical restrictions on peer-to-peer platforms to those of ‘high risk’ investments like crowd-funders. Suggestions include the requirement of public disclosure of rates both actual and expected, as well as restrictions on marketing and rules governing the facilitation of investments relating to their advertised risk. Funding Circle has said that the listing would help to ‘engender trust with the regulator, borrowers and investors’ and has said that the firm is ‘not a savings product’.
While Funding Circle doesn’t provide loans to consumers unlike most peer-to-peer lenders, it is confronting an increasingly competitive European market, with plenty of SMEs in need of funding. ‘As they [Funding Circle] grow, they’re not going to have triple digit rates of growth but there’s still such a big market,’ Reece Chowdry, founder and CEO of RLC Ventures, an angel investor, tells Spear’s. ‘With the likes of the German economy for example, the main driver of growth is from SME business. They’ve set such a big target and can receive great gains.’
One thing is certain: with fresh investment into UK fintech reaching a record high and Funding Circle’s ambitions, this is another step forward in UK plc. ‘The UK has cemented itself as the fintech of the world,’ says Chowdry. ‘Funding Circle, Monzo, Revolut and Transferwise are all market leaders in terms of their competing sectors. As a country we have a good combination of access to capital at a very good financial base. To have all of these things in one place is a recipe for success in these industries. People are waking up to the fact that there is a big shift in the fintech world and it is becoming the new norm.’
The year so far has been one of maturity for fintech, Chowdry says. Firms of around the same age as Funding circle are starting to show signs of following through on their rhetoric, waking incumbents up to the disrupters on their doorstep and highlighting their growth potential. Which makes you wonder which of the other fintech names out there may be preparing for their own IPOs, perhaps once they’ve seen how Funding Circle fares.
Not everyone agrees that Funding Circle’s IPO is such a sound idea. Angus Dent, CEO of Archover, a fellow P2P lender, lauds the firm as one of the ‘torch bearers of the “new world” of finance’ but remarks: ‘The idea that a public listing is the best way to win trust in the market is distinctly ‘old world’ – does nothing ever really change?’
Arun Kakar writes for Spear’s
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