Lenders clash over survival of the fittest in next economic downturn

A panel of commercial lenders from both sides of the market went head-to-head over issues of competitive advantage, market consolidation and which lenders had the right models to ride out another financial crisis.

John Jenkins, partner and chief executive of Amicus Finance, speaking for traditional lenders said there was uncertainty around alternative finance operating models. He said no one knew yet whether many of the alternative finance mechanisms could make a profit.

Chair Adam Tyler, chief executive of the National Association of Commercial Finance Brokers (NACFB), asked the four alternative lenders on the panel, Funding 365, Credit 4, Seneca Partners and Funding Circle, if they had the experience to survive another economic setback.

Michael Strange, managing director, Funding 365, pointing to his counterparts representing traditional lenders, said the more important question for the country was ‘could those guys survive?’

“Let’s roll off RBS, Northern Rock, Bradford & Bingley, those are the guys that are still repairing their capital from the last crisis and being forced to buy loads of government bonds by the regulator, which is probably the next crisis waiting to happen right there. On this side of the table, everyone needs to be wary but by no means are these [traditional] guys the ones where you want to be placing your pension money with if there is another crisis, they ran away [in the previous crisis].”

The alternative lenders argued they knew their clients better than the large and long-established firms which meant they did not need to rely on algorithms to make lending decisions. This was backed up with personal interests by the founders and chief executives of alternative lenders, who in some cases have their own money tied up in the business, giving them the added incentive to keep an eye on the level of risk the lender is exposed to.

Investec Asset Finance head of sales Wesley Harfield, part of the traditional camp joined by Santander and Lloyds, said in today’s ‘incredibly benign’ credit markets lenders ‘would have to work hard to get it wrong’. But he added that some of the arrears being recorded already by some peer-to-peer lenders were at the levels seen when the financial crisis was at its worst.