Leading the charge
- Andrew Saunders
- On March 22, 2019
Funding Options founder Conrad Ford talks to Andrew Saunders about his motivations for setting up the business finance aggregator, the future of peer-to-peer lending and his overseas ambitions…
SOME ENTREPRENEURS are born, while others have entrepreneurship thrust upon them, as Shakespeare didn’t quite put it. Funding Options founder Conrad Ford freely admits that he is in the latter camp – he didn’t grow up with a burning desire to do his own thing and instead had built a good career in banking before deciding to chuck it all in and take his chances on the fintech rollercoaster.
“I would love to have an amazing personal story like so many in our industry,” he says. “But I was never one of those people who always wanted to be an entrepreneur. The reality is that I was doing perfectly well working in a big bank.”
So why take the leap in the first place? “I’m only half joking when I say it was my midlife crisis,” says Ford, who was working in the strategy team at Barclays before setting up small- and medium-sized enterprise (SME) loan comparison site Funding Options in 2012.
“I had an interesting job but I was fundamentally restless,” he continues. “In a large organisation, if you deliver 10 per cent growth you have hit your numbers but you never really know where you are in the pecking order of capability – whether someone else could have done 50 per cent or 100 per cent.
“When you start a small business, the successes and the failures are all yours.”
Happily, there have been more successes than failures in the Funding Options story so far. There are 50 active lenders on the platform ranging from high street and challenger banks to alternative funders such as Iwoca, and the business originated between £100m and £200m in SME funding in the last year – the wide spread in those numbers is down to revolving credit facilities which may or may not be used to their full extent. Funding Options is now the largest aggregator in its market.
But, Ford adds, getting there has meant forgetting much of what he thought he knew. “The interesting but traumatic insight for me coming from a corporate background is that the skill-set you learn there is completely useless for starting a business,” he explains.
“A large corporate is like a supertanker, it has enormous momentum and we had huge amounts of data.”
By contrast, a start-up has neither momentum nor historic data to call on. “Trying to take an analytical approach to problem solving in that situation is completely wrong,” Ford asserts. “All that matters is getting in front of potential customers, and getting one to buy and use your product.”
Unlike most of the big names in the market, whether they be SME specialists like Funding Circle and MarketInvoice or consumer providers like Zopa, Funding Options is not a lender but an aggregator. A comparison site where SMEs looking for funding can, in theory at least, find all the options available to them.
While setting up as a lender might have been more straightforward, Ford is convinced that in the long run his “Moneysupermarket for business” modus operandi is fundamentally stronger.
“Aggregators have an inherent advantage in that they can help more customers,” he says. “I have a deeply held belief that when products move online, aggregators win. I would happily bet on that whether you are selling flights, loans, insurance or anything else.”
Why? Because aggregators have access to a wide range of products – not just bank or peer-to-peer loans, but facilities such as hire purchase, equipment leasing, asset finance and credit lines too – they can match more of the customers they originate with a product that suits their needs, he says. “Cost of acquisition is the great challenge for the online lending industry. The economics are not attractive.”
It’s an issue that particularly applies to P2P lenders, he adds. “The general problem for the P2P market is that the vast majority of customers they originate – at great cost – are not suitable for their own lending criteria. They are turning away a huge number of customers.”
By contrast, he claims, Funding Options makes better use of the customers it originates, leading to a more efficient business. “My cost of acquisition is not lower than theirs, but we convert higher – it is as simple as that,” Ford states. “We originate well over £100m of debt a year for thousands of small businesses, and we have built that business with only a few million pounds.”
He says that customers prefer it too, because it makes it much simpler and faster for them to find the most suitable debt product for their needs. “In the long term it’s vastly superior to, say, an asset finance or invoice finance broker, who basically sees everything as an asset finance or invoice finance problem.”
The downside is that being a good aggregator is complicated, he says. Multiple customer journeys are required, depending on the size of borrower and the nature of their requirements, and the balance between what can be automated and what needs input from a human expert is crucial.
“It’s a problem of execution, something that we found really difficult in the early days but now it has become our source of competitive advantage,” Ford reveals. “The key point is that from the moment a customer starts to interact with us, they are being filtered into the right journey for them.”
So a typical microbusiness looking for a £5,000 loan gets a very consumer-like algorithmic experience, whilst a larger firm looking to fund a property development project or seeking asset finance will be directed to the relevant team of in-house specialists.
The platform is free to use for borrowers but managing the level and consistency of commission that the platform takes from lenders can be a challenge. “A percentage of the loan drawn down is all very well if the product is term lending, but it makes no sense with revolving facilities,” Ford says.
Funding Options has recently joined the relatively small band of UK fintechs with an international presence, having set up shop across the North Sea in The Netherlands. It’s the first careful step in Ford’s plans for a much more ambitious European roll-out.
“We chose to launch in the Netherlands because it’s the market that is most similar to the UK,” he explains. “If we fail there, we are clearly not ready for a really alien market like Spain or Germany.”
It’s still early days but the signs are positive. “Businesses that would be considered prime here [in the UK] are untouched,” he says. “The enormous marketing budgets that have been deployed in the UK haven’t been deployed in the Netherlands. It feels like a fresh piste – it’s very exciting.”
Although many businesses have been deterred by the prospects of having to juggle the requirements of different national regulators, Ford reckons that Europe is a juicy and under-appreciated prize. “If you look at our world in the US, there are at least four other companies doing what we do,” he comments. “There’s no way I would go into that market because we would be killed.
“But no-one is doing this well on a European basis. The opportunity is there to build a pan-European business – I guarantee that one of the big things in the next two to three years will be cross-border lending in Europe. Total SME debt origination in continental Europe is €1trn (£878bn) – I can live with one per cent of that.”
Closer to home, he thinks the credit cycle in the UK is past its peak and is pondering how to ensure that Funding Options can continue to meet the changing needs of customers in a downturn. “I don’t know when it will end, but we’re not in the middle of the cycle – maybe that was 2015,” he reflects. “We tend to forget how exceptional the current conditions are – lowest-ever interest rates and highest-ever employment figures.
“What will it mean and what products will boom in a downturn? Asset finance for instance is an amazing business in a downturn, because the banks stop doing it and so the independent lenders suddenly think it is Christmas.”
Downturn or not, he is sceptical of one much-discussed future scenario for the maturing P2P sector. “I have read repeatedly that there is going to be lots of consolidation,” he says. “I don’t believe that story, and I say that unequivocally. If you’re a big [P2P] player doing £100m in originations a month, why on earth go through all the pain of a merger for a book of £50m?
“I’ve done a few mergers and they usually go wrong. It would be much easier for them to get that £50m through normal customer acquisition.”
Perhaps unsurprisingly given his former life, he also believes it’s time for those who see banks as the enemy to grow up a bit; the future, he says, is about collaboration rather than conflict.
“There are lots of people in my industry who want to go into this natural bank bashing mode, and it’s really dumb frankly,” he asserts. “Beating up banks has zero value in terms of practical outcomes.
“We have quite a few bank relationships publicly – TSB in the UK, ING in the Netherlands – and we see banks as the point of sale. It’s where SMEs go, so if you are not thinking constructively about that opportunity then you are on a hiding to nothing.”
He also thinks that the nature of those partnerships needs to become more commercial, with no more of what he calls “fluffing about with guys in chinos”; fintech/ bank tie ups should be more about boosting bottom lines than generating headlines. “I think 2019 will be the end of the incubator and accelerator era; there will be proper commercial relationships with banks, not just PR partnerships,” Ford predicts.
And Funding Options, he reckons, is ideally placed to lead the charge. So his time as a banker may not have taught him much about life as a start-up entrepreneur, but it’s coming into its own as he faces the challenge of taking Funding Options on the next stage of its journey.
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