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Peer2Peer Finance News | August 25, 2019

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Lenders slam rise in SME funding aggregators

Lenders slam rise in SME funding aggregators
Emily Perryman

RAPID growth in the number of small- and medium-sized enterprise (SME) funding aggregator platforms has been met with scepticism by peer-to-peer lenders, who argue they are a tiny source of business and add an unnecessary extra layer of fees.

The past 12 months have seen a plethora of new aggregators being launched, enabling SMEs to compare finance solutions from many different lenders. They include Swoop, which is a rebrand of BizFly; the Federation of Small Businesses’ (FSB) Funding Platform; and Capalona, developed by Sorodo.

For most P2P lenders, however, aggregators account for a very small level of business.

Adrian Innes, head of origination at LendingCrowd, said they only get a small proportion of deals from aggregators, primarily because  many of the borrowers presented do not meet its eligibility criteria.

“SMEs often need guidance from lenders or brokers when applying for funding,” he said. “When aggregator platforms simply collect applications and farm these out to lenders, conversion rates can be poor.”

David Bradley-Ward, chief executive of Ablrate, said he does not see the point of aggregator platforms for lenders. Ablrate has a deal with one platform but volumes of business are low.

“What we have found is that if any significant level of business is going to be done, a lender may start on an aggregator and come straight to us to open an account for any large deposit,” he said.

P2P lenders are also concerned about the fees levied by aggregators. The payment structure varies from one platform to another, but typically involves the lender either paying for each lead regardless of whether it converts into a deal, or paying simply to appear on the website.

“Fundamentally I disagree with charging for the layering of services on top of P2P, unless it is a genuine service to lenders,” Bradley-Ward said. “Talk of ‘enhanced due diligence’ tends to be the pitch and I think that is particularly insulting  to platforms.”

In some instances, aggregators simply do not gel with P2P lenders’ business models.

Giles Cross, chief executive of Folk2Folk, the rural business lender, said aggregators do not compare “apples with apples” and so aren’t something Folk2Folk has been very involved in to date, but that the company regularly reviews its position.

“The P2P lending industry is very broad and complex – for example, different platforms have different lending criteria and, in some cases, sliding scales of risk and fees – so it is difficult for  some aggregators to provide a fair comparison,” he added.

Read more: Special feature on P2P business lending

Dave Stallon, the FSB’s commercial director, admitted the large number of aggregator platforms and differences in quality can be confusing and offputting for small business owners. He said the FSB launched its own platform in order to provide credibility and instil trust amongst its users.

The huge growth in the number of aggregators has led to suggestions the market could become saturated.

Conrad Ford, chief executive of the more established aggregator platform Funding Options, said it is unclear why there are still new market entrants, since aggregating any type of market online tends to favour scale.

“We’re not really seeing the impact of other players yet – new or old – but that’s mainly because Funding Options is uniquely large in this category,” he said.

Meanwhile, Katrin Herrling, chief executive and co-founder at Funding Xchange, another more established aggregator, argued the market is at the start of an “exciting journey” as the integration of bank and non-bank finance solutions kicks off.

However, she added that she does expect a “shakeout” in the aggregator market, with those focusing on clear value propositions most likely to succeed.

This article featured in the July edition of Peer2Peer Finance News, now available to read online