30th Oct, 2017

Fin vs. Tech

Is it the “fin” or the “tech” that is the key to developing the future of online lending?

“FinTech” is one of the biggest buzz words in finance and technology. Online lending platforms are just one of the many different types of companies at the forefront driving the industry. Given the buzz, it’s not surprising that every company with any finance-related technology is attempting to rebrand themselves as a FinTech company, trying to enjoy some of the limelight and investment on offer. With so many companies trying to dress themselves up as FinTech companies, it is difficult to truly understand or identify what a FinTech company really is, and often difficult to distinguish between true FinTech companies, financial services companies that have technology, and technology companies that are dipping their toes into financial services. We wonder: will it be the “fin” or the “tech” that really has the biggest impact on the development of the industry, specifically within the world of online lending?

Open-source

The financial services industry, in the traditional sense, is an industry that has long been able to rest on its laurels. In doing so, they have neglected to truly take into account the changing needs and habits of their consumers. This has created an opportunity for companies that have dared to think differently; leading to the creation of P2P lending, crowdfunding and money transfer platforms. The ability of these companies to understand consumer needs and meet them, using new technology, has seen many of them grow very quickly. Perhaps more importantly, it has also seen consumers think differently about how they manage their finances.

Whilst the creative technological solutions have been key to the creation and initial growth of the FinTech industry, the most significant development of this revolution has been the change in the mindset of consumers, spurred by the advances brought about by technology. Now more than ever, people are openly engaging with one another about the management of their finances; whether it be about who they have a mortgage with, the best and easiest ways of transferring funds to a different currency, or how to make the most out of one’s savings. Not only are consumers now engaging with one another; they are also more actively engaging with their financial services providers. Even more importantly, they are demanding better services and products from them. Consumers are getting excited about finance.

Traditional finance companies may continue to develop new financial products, and deliver and enhance them through new technologies, but if they fail to consider the new engagement of their consumers, these products are unlikely to be successful.

For example, online lending has become a success story, not because of the advent of a new financial product, but rather through making an old, in-demand financial services product more accessible to consumers. Of course, these companies would not long survive if the “fin” part of the product was neglected. If a company failed to observe good credit risk decisioning processes and poor lending practices, for example, these products – and with it the companies – would fail.

One could argue that whilst “tech” may be driving the FinTech industry, it could not operate without experience of the “fin.” It is likely that the biggest driver of the future of FinTech, specifically within the online lending market, will be, for the first time, the consumer, as they have become both the lenders and the borrowers.

Many online lending platforms may have already come and gone, but online lending is still arguably in its infancy. The products on offer and the types of loans available through these platforms still very closely resemble the more traditional loan types, with the online accessibility and speed of access being the main differentiators. Only over the last two years has the UK seen newer products such as the Innovative Finance ISA come to the market; yet even these mirror older financial concepts.

The fact that consumers hold the power to more significantly influence the financial products available to them, along with the ever-evolving way in which they are delivered, will surely lead to an extremely interesting period of financial services development. Changes in dynamic will lead to other changes, which will not only pose new challenges for FinTech companies and the financial sector as a whole, but will also likely raise some very interesting questions and challenges for the regulators of these markets around the world.


25th Oct, 2017

CrowdConference 2017

Given our experience in the FinTech sector; not only in operating a P2B lending platform, but also building and maintaining client crowdfunding platforms; we and our sister company, White Label Crowdfunding, were invited to the third CrowdConference in Minsk. Daniel Rajkumar, founder and CEO of the two companies, represented the companies at the event, accompanied by Kylie Greeff, our Legal and Compliance Manager.

It was a dynamic, well-attended event, attended by a broad range of international entrepreneurs, government delegates, academics and traditional financiers. Day one of the conference focused on the current hot topics of AI, Big Data and Blockchain in FinTech, whilst day two concentrated on The Crowd Economy. Attendees enjoyed talks from of Mariya Dokshina, founder of Russian crowdfunding firm, Boomstarter; Andrey Golub, CEO of virtual reality company, ELSE Corp; and Dariusz Jemielniak, a member of the board of trustees of Wikimedia Foundation.

Crowdfunding in Belarus is growing fast, but is arguably a few years behind that of the more mature European market members. Currently, crowdfunding in Belarus is largely limited to reward-based crowdfunding, and its development appears to be closely linked to the development of the same market in Russia.

The enthusiasm and engagement of the delegates and speakers at the CrowdConference bodes well for the future of the Belarussian crowdfunding and Fintech industry. Daniel commented: “I am looking forward to working closely with a number of the contacts we made at the event. We hope to further grow our network of platforms and international partners, and develop new features that will continue to give our clients a leading edge when setting up their own platform.”


25th Oct, 2017

The Pace of Change in Financial Services

Last week, rebuildingsociety’s founder and CEO, Daniel Rajkumar, and Legal and Compliance Manager, Kylie Greeff, attended the 6th ECN Crowdfunding Convention in Vilnius, Lithuania.

The conference centred on the rise of new technologies for accessing finance, and featured presentations and panels from members of the international financial community.

Daniel was invited to take part in a panel on the topic: How are the banks and traditional financial actors reacting to a new paradigm of online access to finance? On the panel alongside Daniel were Jekaterina Govina, Counsellor to the Board of the Bank of Lithuania; Lasse Maekela, CEO of Invesdor; Mantas Zalatorius, Chairman of the Lithuanian Banks Association; and Yoann Nesme of PPL, a Portuguese rewards-based crowdfunding platform.

The panel, split between those associated with “old finance,” or traditional financial institutions, and those associated with “new finance,” enjoyed a very animated and direct discussion which was very well received by the audience.

It is evident within the finance sector that there is an increasing merge of old finance and new; many peer-to-peer platforms rely significantly on the engagement of old finance, for example, through the investment of institutional investors. Likewise, some old finance institutions are starting to consider new and innovative ways to improve their products and services for their existing clientele. As such, the main lines of discussion and debate at the event focused on whether traditional financial institutions are truly committed to, and open-minded about, working with and developing relationships with FinTech companies.

Daniel explained that banks in the UK have been obliged to collaborate with P2P platforms through the Business Referral Scheme. He commented that this program is widely considered to be ineffective, not only in terms of helping businesses find the right type of finance when rejected by the banks; but also in that the platforms by and large do not get access to the cream of the crop. The sentiment exists that the banks want to be seen to be new and customer friendly, but have not actually moved very far beyond a degree of marketing and PR spin.

Jekaterina said that she felt that the banks are moving towards closer collaboration with FinTechs, but that it almost seems like they are going through a cycle similar to the five stages of grief. “A few years ago, the banks were definitely in a state of denial about the potential of FinTech companies – particularly crowdfunding companies,” she explained. This was followed by a short period of anger and retort against such newcomers, and they are now, slowly, moving towards a state of acceptance.

Mantas, who has been brought in to his current position to accelerate the banks through the five-stage cycle, agrees that change within the banking industry across Europe is needed. He stated that recently, FinTech has been the only thing in financial services to drive the change; that the increasing integration and use of sophisticated software within traditional finance products has made the industry “flatter and more even”. He said that the industry desperately needs the “cooperation of the old guys and the creativity of the new guys,” and believes that the banks are making significant steps towards adopting the change.

Daniel disagreed with Mantas; he believes that the banks don’t really want to change, and that they aren’t “willing to self-sacrifice, like Amazon did with book sales for the Kindle.” He predicted that “we’ll see internet and tech companies becoming the new banks, just like we saw tech companies become the new music and film producers,” going on to highlight that if the banks need an example of what their future might look like, they only need to look to China and Alibaba’s Alipay and Yu’E Bao. “The future might be nearer than expected for the banks, with the release of the Payment Services Directive (PSD2) Regulations in early 2018,” Dan observed.

ECN 2017 2

Mantas agreed, saying: “PSD2 is something that the banks will have to get used to, and get used to quickly – which will be hard due to the slow nature of the banks.” However, he did go on to add a word of warning, explaining that while there is no doubt that PSD2 will bring a very high level of change and innovation, such a significant level of change in an industry that is slow to react, such as the finance industry, could risk breaking the current system completely, which would be a disaster not only for the banks but also many of the FinTech companies trying to make it in such a new sector.

“PSD2 will take away the advantage that the banks have had over FinTechs for so long,” commented Dan. “The live data will help more crowdfunding companies apply more intricate risk analysis models and implement better risk monitoring, and also allow these platforms and the consumers lending through them to better price the risk.”

It is clear to anyone familiar with the financial services market that there is a huge amount of change taking place, and that a large factor driving this change is an increased awareness and understanding of financial products – and their rights – on behalf of the consumer. More and more consumers do not want to have to visit a bank branch, instead expecting to be able to manage their finances from their smartphone while on the go.

Given the amount of data that consumers are willing to give away about themselves, knowingly or unknowingly, it is certain that data will drive innovation and change in the FinTech and crowdfunding sector for the foreseeable future. As such, the firms that survive will be those that are willing to change and adapt. For the first time in decades, it seems that the crowd and consumers are driving the changes of the financial institutions, but one must ask – in which direction? The thought of a company like Facebook entering the financial sector is no longer unrealistic. It may not be something that we would readily encourage or relish; but that doesn’t mean it won’t happen…


24th Oct, 2017

Platform vs Lender Responsibilities

Search-Engine-Optimization-Analyst-Roles-Responsibilities-Companies-and-Salaries (1)If you’re new to peer-to-peer lending, you’ll be getting used to a whole new world of finance, one which turns traditional finance methods on its head. Peer-to-peer lending brings a new level of transparency and practicality to managing your funds.

If you’re a peer-to-peer early adopter, you’ll no doubt be used to this new way of thinking and lending, but may be uncertain on a number of the intricacies of each platform or have doubts as to where responsibility lies on certain matters. Here, we take a look at platform vs lender responsibilities.
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11th Oct, 2017

Loan Profile – Key Risks

We’ve recently updated the layout and information displayed to lenders on each of the loan listing profiles. These changes have been made to make the information about each of the lending opportunities easier for you to digest and for you to make a more informed lending decision each time you choose to lend to a business.

The listing overview page will now be divided into four key sections, all visible on one page. These sections are ‘About the Business’, ‘About the Loan’, About the Risks’ and ‘About the Security’.

The most significant changes to the loan listing profile is the ‘About the Risks’ section. This is a brand-new addition to each listing. This section will not only show you the risk rating of the particular loan, by hovering over the risk rating you will be presented with the historic performance of other loans funded on the platform of the same rating. The historic performance will show the default rate as well as the bad debt rate of all loans of the same rating.

About the risk - Default

Why is this information important to you?

As a lender, you need to make a decision on when to lend and which businesses you want to lend to. In order to make a more informed decision, you need to understand that regardless of the business or the rating assigned to it, there is a chance that the loan will fail. The Default and Bad debt rate indicate the past performance of similar loans, which you can take into account when lending.

About the risk - indicators

The second major change to the listing profile is the new addition of ‘Key Risk Indicators’. This section will highlight some of the key risks that we may have identified during our initial underwriting and screening process.

You can view a general description about each of the indicators by hovering over the indicator with your mouse. These indicators are made visible to help you in your lending decision by a) making you aware of risks you may have missed b) allowing you to investigate further and ask relevant questions. The key risks displayed are not necessarily the only risks associated with the business, simply those that we have identified.

Key Risk - Indicators - Hover

What should you do with the information?

Where key risks have been highlighted on a loan, this does not necessarily mean that you should not lend to the business, all lending carries risks.

You should use this information to help further your own analysis of the business, use it to ask your own questions of the business or use it to rule out the business as a loan for you. All loans that are listed on the platform have been through an initial assessment by ourselves and have met our standard lending criteria and have been deemed good enough to list on the platform for your further consideration. We provide lenders with a variety of lending opportunities to suite the breadth of different lenders on the platform, a loan listed on the marketplace is not an indication of a ‘safe loan’, it represents an opportunity for you to consider.

Secondary Market

 

All new loans listed on the primary market have been updated to include the new risks. We’re currently going through the secondary market and updating each loan profile, so that the key risk indicators will be visible on all loans that have already been funded, helping you make better secondary market purchases.


09th Oct, 2017

A Cashflow Plan for the Festive Season

santa-clausThere are just 11 weeks left until Christmas! Most shops are now stocking Christmas decorations, coffee shops are offering their delicious, calorific lattes and parents can be heard using the threat of “Santa won’t bring you any gifts” to control their children’s behaviour.

For many, it marks the start of a fun and carefree season; but for many business owners, the festive season can bring many a headache and with it, cashflow difficulties. With a little planning you, as business owner, can make sure that mince pies and mulled wine – rather than your business finances – are at the forefront of your mind.

Read our festive season action plan and make this festive season one to remember, not dread.
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09th Oct, 2017

How to Keep Family and Friends Loans Strictly Business – Private Peer Loans

You may have shunned the bank by borrowing from family or friends, but you should still treat the loan as formal business. After all, borrowing money is not the same as borrowing the car.

To be sure you and your family and friends have a clear idea of what financial obligations are being created, you have a mutual responsibility to make sure everyone is informed about the process and decide together how best to proceed.

Drawing up a legal agreement can take some effort, and involves stating the particulars of the loan like amount, term, interest rate. It does, however, help to protect your relationship. You will also need to create a loan repayment schedule and to specify whether the loan is secured (that is, whether the lender holds title to part of your property or business) or unsecured; what the repayments will be; when they’re due; and what the interest amount is.

Too frequently, business owners fail to take the time to formalise the paperwork when they borrow from family or friends. Often owner-managers put more thought into figuring out what to buy than how to structure this type of lending arrangement. Unfortunately, once you’ve made a mistake, it’s difficult to fix.

It’s precisely for this reason that we have created Private Peer Loans; to give small business owners the opportunity to create their loan agreement, on terms that suit them, and to invite whoever they want. Loan agreements with rebuildingsociety.com are a regulated financial instrument, known as a 36H peer-to-peer loan agreement. These are eligible to be traded on a secondary market, which allows the inception lenders to sell their future repayments to new lenders, and also come with some tax benefits, such as bad debt relief and the option of inclusion in an ISA wrapper.

Formalising the loan agreement protects both you and your lender from HMRC. Relying on informal and verbal agreements results in tax quagmires. With a formal loan agreement, you have a burden of proof to demonstrate to HMRC that the money was not a gift.

If HMRC views it as a gift because there was no intention to repay it, then the lender becomes subject to the gift tax rules and may have to pay taxes on the money. Read more.

Any interest paid needs to be declared as income on a self-assessment. If the person lending the money is a higher rate tax payer, 40% is taxable. However, rebuildingsociety members may open an Innovative Finance ISA account to utilise their £20,000 annual allowance. Any interest earned from funds loaned via an ISA account are free of tax!

Once your agreement is in place, your responsibilities begin… Don’t make assumptions or take people for granted just because they are friends or family members. Communication is key. To make things easy for you, each rebuildingsociety.com loan comes with a forum which allows you to have one place to communicate with your investors.

If your relative or friend is not actively involved in the business, make sure you contact them once every month to explain how the business is going. When people invest in small businesses, it often becomes a passion, so it’s important to take the time to keep lenders informed.

And, of course, there are the repayments. Though friends or relatives may understand your business and the risks involved, you must never take the loan for granted. Don’t be cavalier about paying back your lenders. That kind of attitude will abruptly ruin your relationships.

It helps to have an intermediary in place when times are tough. Having an agreement that allows you to make occasional interest-only repayments can really help with cashflow issues, especially since there are normally two months in any year when business performance is affected.

If the loan needs to be refactored to adjust the repayment amounts, or if a repayment holiday needs to be arranged, that can be quickly and easily facilitated online to change the repayment schedule.

Also, as your business grows, if the firm needs to borrow more than the family wants to lend, with a good repayment history you can promote your loan listing to a public community of investors to consider. Though you may face some tough questions.

Read more about the rebuildingsociety.com Private Peer Loans here.


02nd Oct, 2017

Presenting Platforms in Minsk

Following his visit to Lithuania and appearance at the 6th ECN Crowdfunding Conference, our founder and Managing Director, Daniel Rajkumar, will be speaking at the CrowdConference in Minsk.

Scheduled to take place on the 20th and 21st of this month in the Belarusian capital, the event is the third international conference of its kind. The aim of the two-day conference is to hold presentations and discussions related to various fields of financial technology, in order to identify and strengthen the potential of Belarus.

Daniel will be in the company of other speakers from around the world, including a Darden Graduate School of Business professor from the USA, the Application Director of Germany-based company BigChainDB, a member of the Department of Strategic Technologies Microsoft from Russia, and adopted Italian co-founder of revolutionary startup, ELSE Corp.

Daniel’s 30-minute presentation will offer advice on launching a P2P lending platform on a budget. He will offer advice regarding how to understand what you need, how to prepare for launch, and how to coordinate the launch of the company itself.

If you speak Russian and would like to find out more, please visit the CrowdConference website.


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