Business in focus: Lendable
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Technology, data and service: a winning combination
is the UK’s fastest-growing consumer lending platform. It built technology to automate the lending process, offering a customer-friendly service that also impresses institutional funders. Adrian Watson, Lendable’s chief financial officer, explains how a constant search for platform, process and service improvement is driving future success.
Launched in January 2014, Lendable has issued almost 30,000 loans worth over £100m since it started lending. The marketplace lending platform provides loans to a wider spectrum of borrowers than incumbents. “The prime lenders only address about 20% of the market,” Watson says. “There’s space beyond that which constitutes good credit risk but is underserved by banks and other lenders, with smaller loans in particular featuring unattractive rates. Our automated underwriting is highly efficient, allowing us to make small loans at lower cost than the banks and credit card providers.”
The rates that Lendable offers are competitive – they have to be to attract borrowers. It’s a crowded sector, with many lenders – including Lendable – gaining business through aggregation websites that compare different provider offers. “People go to these sites to find the best deal, so there isn’t much scope to have an offering that’s significantly outside that of competitors,” Watson says. “We compete with banks, peer-to-peer (P2P) lenders and consumer finance companies. We really focus on being efficient, providing loans at fair rates and delivering outstanding customer service.” Lendable’s average customer rating on the Feefo feedback site is 4.9 out of five, based on over 1,100 reviews.
Lendable’s model differs from other P2P lenders in that its funding comes from institutional investors. “We have a slightly different funding model to Zopa, RateSetter or Lending Works in that we don’t accept money from retail investors,” Watson says. “We form close relationships with a smaller base of investors, reducing the complexity of our business and allowing us to run a lean and efficient platform.
With a few years’ track record to prove its viability, Lendable now has no trouble attracting institutions keen to make funds available to borrowers. “At the beginning of 2017 we signed a significant funding deal with a large institution and we continue to have more and more investors approach us to place funds on our platform,” Watson says. “So our growth has been very strong in 2017 and we continue to see good opportunities to grow in 2018 and beyond.”
How is Lendable disrupting the lending market? “It’s around the instant decisioning we provide to people,” Watson says.
"Generally we win business because we provide very fast decisions in most cases – we approve loans within a few seconds. We are also very quick to fund people – generally within two hours and sometimes within minutes. We can offer smaller loans than are typical in the personal loans market because we have a platform that’s very much automated and lower cost. In addition, everything is done online, so we don’t ask you to sign any pieces of paper and post them back to us. It’s entirely digital and data-driven.”
That data is made available through partners such as credit agencies. “They provide us with a lot of different data points,” Watson says. “And all lenders have access to Cifas, which provides fraud prevention data. But whilst all lenders make use of some credit bureau data, we make much more use of the information that’s available. Others may just rely on a credit score.”
Lendable uses more sources and digs a little deeper. “Data science is one of the core competencies of our business,” Watson says. “We have a team of data scientists who use machine learning techniques and a large amount of data to create a credit algorithm that continues to improve every day. We think that allows us to offer loans sometimes to people who may have been declined by lenders who use more traditional or simplified techniques.”
What gives competitive edge?
Technology is clearly a vital factor behind Lendable’s competitive edge. “We have developed our own platform, which is extremely automated and efficient,” Watson says. “We have a team of developers who are working on improving it constantly. We are always finding ways to make processes more efficient and use data intelligently – deploying sophisticated machine learning technology to do so – which also helps us to make better automated decisions.”
On further reflection, Watson actually identifies three key aspects that give the business a competitive edge. He explains: “One is the technology side – the platform development, which captures all of the loan applications, processes all the payment information and provides all the reporting and information to our investors and borrowers. The second core aspect is around the data science and decisioning that takes place. And finally we have our customer service team who make sure that we are actioning our customers’ requirements effectively and keeping everything running well.”
Company size:11-50 employees
A constant search for improvement is also key. “We employ a lot of very bright people whose task is to look for ways to do things better every day – whether that’s improving the customer journey or making better decisions through automated processes,” Watson says. “That’s just our mindset. In a business like ours, if we are able to do that, we are able to grow in a way that doesn’t require a lot of additional manpower. If we have a system in place that’s set up correctly, we can become significantly larger without having to significantly increase the size of the team.”
Fortunately, one of the biggest challenges facing FinTech businesses is now behind Lendable. This is the challenge of proving themselves and their service.
"For a FinTech business that’s a lending business, it takes time to develop a track record and show that your credit decisions are working out well and as expected,” Watson says. “When a lending business starts out, that’s probably one of the biggest challenges one faces. But now that Lendable has several years of data, that opens up a lot of exciting opportunities for us.”
Alongside continuing to build market share, pursuing these opportunities will be a large part of Lendable’s medium-term goals. “We see a lot of potential opportunities to leverage what we have built to date,” Watson says. “There’s the technology, the data science and the customer service capabilities – we see opportunities to leverage each of these going forward. As to what that will specifically entail – it’s a bit early to say exactly – but we are working on a lot of potential ideas and projects.”
Watson doesn’t expect the P2P or FinTech sector to change substantially in 2018/19. “A lot of the technology and product development in the industry is already in place,” he says. “But in financial services, there’s a lot of customer inertia and it takes time for new things to be adopted.” So in a sense, future trends will include the general population catching up with services already on offer.
However, Watson notes that the new app-based banks already seem to be gaining a lot of traction with millennials in particular. “That’s a trend we expect to continue,” he says. “One interesting thing about those businesses is that their plan is generally to link up with other financial services partners such as lenders, rather than do everything from their own balance sheet. They may, for example, offer their customers loans from 10 different lenders and the customers can choose the best deal for them.”
As Watson notes, this is a different approach to the traditional model where a bank will have its own product range and only offer that to customers. “The new approach seems to be doing well particularly among the younger millennials, who like the technology aspect of it as well as the convenience element,” he says. Lendable sees opportunities here. “We think this is an interesting development for consumers and it’s something that Lendable already practices,” Watson says. “So we have already formed some partnerships in this space. Those partners are in different stages of regulatory approval, but we suspect that take-up of these accounts will continue to grow over the next couple of years.”
When considering how the FinTech sector might evolve, and even how financial services as a whole may develop, one unknown factor is the impact of the incoming Payment Services Directive 2 (PSD2). This aims to increase market transparency and openness and becomes effective in the UK from 13 January 2018. “There’s a lot of debate about what the impacts will be,” Watson says. “We think it will be positive for us, because we like data and if we can get more data through that [directive], it can only be helpful. We are a company that is more geared up to making use of that data than one that’s more reliant on third parties to do their analysis. There will also be opportunities around more efficient payments. But to some extent, the impact will really depend on people’s behaviours and how they feel about making available the data that could come out of it [the PSD2].” Under the directive, customers will need to give consent for their account data to be accessed.
"Longer term I think that FinTech businesses like ours will continue to grow overall market share in the UK and other countries. A lot of lending businesses are building a track record and there’s a lot of institutional money looking to earn the returns that FinTech businesses can provide for them. I think that will be a trend that continues.”
Traditional banks and other lenders won’t just sit quietly by while the world around them changes, however. Watson expects traditional banks to invest in technology – such as robotics and automation – in their own operations. “That is likely to reduce their cost base going forwards and I suspect you will see fewer people employed in the banking sector,” he says.
In Watson’s view, the UK is generally a good place to operate a digital business. “The UK is one of the leading places in the world for FinTech,” he says. “The real challenge for companies like Lendable is around recruiting people with the right skills.”
Watson would therefore like the government to raise awareness among young people at university and in school about the opportunities that exist in technology. “There are interesting, highly paid jobs in the technology space and you may not necessarily need to go to university to train up for these jobs,” he says. “So anything the government could do around helping to create a bigger talent pool would be good; then following Brexit, ensuring that if there is a skills shortage, we can continue to attract the best people from outside the UK if necessary. We employ citizens from all over the world, and a lot of Europeans in particular. So that – accessing international talent – is something we are focused on.”
"We asked: Away from Lendable, what disruptive tech has most impressed you…
“It’s the company Amazon itself,” Watson says. “That’s because it affects both our business and our personal lives. They have an incredible web services business, that many businesses like Lendable use and it works very well. When you combine that with the next-day deliveries, streaming and the rest of it, it’s an incredibly impressive operation. The core of Amazon may look like retail logistics, but most of their business is actually built around incredibly sophisticated and advanced technology.”