Paul Marston, Managing Director for Commercial Finance at RateSetter, speaks to Commercial Reporter about the challenges and opportunities in the peer-to-peer sector and the Government's banking referral system.
You joined RateSetter last year- how has the move from traditional high street banking to P2P lending been?
It’s been refreshing! We’re combining people with experience and proven expertise, which means we can make well-judged credit decisions, with modern technology, which allows us to add in amazing speed. That speed is integral to what we do, and is of considerable importance to our customers. By contrast, while banks have their own strengths, they take too long to make a lending decision (even if the decision is to decline to lend) and too long to deliver finance to a business’s account so that it can actually be put to use. In short, our offer stands out – it is really compelling and is very positive for businesses that are looking to become more productive and grow.
What do you see as the biggest regulatory or industry challenges for your sector?
As far as regulation is concerned, the peer-to-peer lending sector is fully regulated by the FCA, and RateSetter and the other major platforms are working with the regulator to move from interim authorisation to full authorisation as soon as possible.
The biggest challenge we face as an industry is probably still lack of awareness. We’ve made big strides on the retail lending side – although we still have more to do – but awareness among business borrowers is lagging behind.
That’s partly down to wider transparency in the financial sector: if you’re a retail borrower, you can put your details onto a comparison website and go with the cheapest quote, having compared offers across the whole market including banks and peer-to-peer lenders.
In business lending by contrast, there is less online automation, so borrowers either come directly or via a broker, and the onus is more on us to raise awareness of what we offer. We’re heading in the right direction, but there’s always more to do!
Do you believe the Government’s banking referral system, announced at the end of last year, will be a success?
I think that it’s a great idea in principle, but that the scheme’s success hinges on what kind of businesses banks refer on to other providers.
It is absolutely right that businesses are “signposted” to alternative sources of funding when a bank can’t provide finance. Good bank managers should be doing that anyway, but the new process should ensure that this happens consistently.
If a bank has a set lending policy and that prevents it from lending to a fundamentally creditworthy borrower, then it’s right that another lender who might have a different policy should look at it. However, this doesn’t help the businesses that are waiting three months for a loan, only to be told “no” by the bank at the last moment and potentially missing opportunities. The scheme has the potential to be helpful, but ultimately, we want more businesses to consider peer-to-peer finance as their first option.
On a similar note - how do you see the next 12 months unfolding for alternative lenders?
It’s great that there are so many different lenders available – that means more choice, particularly when the lenders are clear about the solution they provide. For example, we specialise in term debt, and not revolving working capital.
Bank re-segmentation will mean that more SME sized businesses will find it difficult to build a relationship with a bank manager, and with more people embracing online services in an increasing number of areas of their lives, they’re likely to become more open to online finance providers who might be able to give their business a better deal.
And lastly - if you could see one headline about P2P lending, what would it be?
P2P finance can help businesses improve their productivity and grow!