David and Goliath
David Bradley-Ward isn’t content with just developing his own P2P platform, he’s now set on transforming the market with new technology. He tells Andrew Saunders about his plans for a global P2P ecosystem…
HAVING spent four years as an RAF engineer in a previous life, David Bradley-Ward is no stranger to the potential of superior technology when it comes to delivering greater firepower. Now as chief executive of Ablrate he is busy developing some superior technological firepower of his own, and he has Big Finance squarely in the crosshairs.
“Finance is a pyramid – the money accumulates at the top even though average guys like you and I are where it all comes from in the first place, from our pension funds and investments,” Bradley-Ward asserts. “All the different layers of finance, they just clip us until we end up making nothing out of it.
“My idea has always been to flatten the landscape, and with the technology we have now with blockchain coming in, and with the regulatory environment, peer-to-peer is just perfect for that,” he says. “Our goal is to put more of the return into the hands of the people whose money it is rather than the people who are in the middle of it all.”
Asset-backed P2P lending platform Ablrate is the medium he is using to achieve that goal, and it’s going pretty well so far – annual turnover is growing at 150 per cent and the business has funded £44m of loans since getting off the ground in 2015.
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That’s not to say that there hasn’t been a bit of turbulence en route however. Having started out with aircraft financing through some of his old contacts in the aviation business, Bradley-Ward quickly broadened the business’s scope to include providing capital equipment and working finance more widely. “We were a little bit overconfident – in the aircraft market you need £1m or £2m per deal at least,” he explains. “We realised that was not going to happen so we quickly pivoted to anything that was asset backed.
“We’ve done anything from removal crates to business jets and waste management factories – generally they are things that are a bit off the beaten track. We’re currently looking at well-known events venue, for example, securing a loan for a million quid against the lease. The sorts of things that you perhaps wouldn’t just walk into a bank and try to explain to them.”
As well as specialising in lending against what you might call nonstandard assets, Ablrate has also made its mark through efforts to tackle one of the P2P business model’s abiding problems – that it’s much easier for investors to get into a loan than it can be for them to get out again in a hurry if they need to.
Put simply, P2P investors can’t trade their loans anything like as readily as equity investors can trade shares on a stock exchange, and the risk of being caught out by this lack of liquidity deters many smaller investors who might otherwise jump at the chance to access P2P returns. Although many of the larger platforms do have secondary markets where existing loans can be bought and sold, activity levels vary considerably. Smaller platforms can struggle with the scale required for secondary markets due to their smaller pools of loans and investors.
Ablrate’s secondary market is exceptionally active especially given the firm’s fairly short history and modest size – no less than £33m of the total lending to date of £44m has been traded on its secondary market so far. “Most platforms don’t have a very good secondary market – they are clunky and often not really a market at all,” Bradley-Ward says. “But ours is hugely liquid, it allows platforms and investors to rebalance their portfolios.”
So when events such as the Brexit vote, for example, result in some investors wanting to exit some of their loans, they can – so long as there are others ready to take them on. “Those who are risk averse have been able to take their money out, while those who are prepared to take a little more risk have come in,” Bradley-Ward adds.
Its success sparked Bradley-Ward’s big idea to take on not only the incumbents of big finance, but also to help smaller P2P platforms cooperate in the face of increasingly asymmetric competition from the big three in the market – Funding Circle, Zopa and RateSetter.
In partnership with tech provider ASMX, Bradley-Ward is developing a blockchain-powered secondary market system aimed at providing platforms with more liquidity, thus widening the appeal of P2P to both smaller investors and institutional money. “If you’re only doing a million a month, you’re not going to get any institutional money simply because you are not doing enough,” he asserts. “We can’t all be Funding Circle, but 50 platforms operating together can be Funding Circle. That’s why we want ASMX to be that central cog.”
Ablrate and its partner business Huddle Capital will be the first to offer the ASMX platform, but his vision in the longer term is to establish an ‘ecosystem’ of partners, operating globally, whose investors can all trade in each other’s loans simply, efficiently and – crucially – at a low enough cost to make it worthwhile.
“We’ve already licensed the tech out to an Australian-regulated firm, the idea being that someone in the UK can buy a loan that was originated in Australia, and vice-versa,” he explains. “Any traditional settlement of that would just be tremendously expensive. But with ASMX the trading friction which traditionally stops people buying and selling in small quantities is going to be massively reduced by the technology.”
It’s a thrifty and collaborative and approach which characterises his approach to business in general. Unlike many platforms, Ablrate, he points out, is a profitable business that in its first four years has generated £4.76 in returns for every pound staked by its initial shareholders – a record that many larger and more established platforms would struggle to match.
He’s also a keen advocate of greater transparency when it comes to the risk/reward equation in P2P – and he has some concerns that the regulatory environment could be about to take a wrong turn over the so-called ‘sophisticated investor’ requirements outlined by the Financial Conduct Authority last year.
The City watchdog has suggested the restriction of platforms’ marketing activities to those who are certified as sophisticated or high-net-worth investors or those that certify that they will not invest more than 10 per cent of their net portfolio in P2P.
Just what is a sophisticated investor, and can people be relied upon to self-certify themselves as one? “I call it the Uncle Bob problem – if I put a button on the website saying ‘Is your Uncle called Bob?’ people will tick it anyway just because they want to open an account,” he says.
Without a stronger definition of what constitutes a sophisticated investor it could be very tricky for platforms if anything did go wrong down the line, he adds. “The requirements are that you take reasonable steps, but what are those reasonable steps? If they [the regulator] didn’t like the cut of your jib they could use that to beat you to death.”
He also fears that any resulting increase in the regulatory burden will stifle competition in P2P by favouring large platforms with deep pockets over smaller but potentially more innovative ones. His preferred solution? An industry standard definition of a sophisticated investor, provided by the credit ratings agencies, that can be easily added to any platform’s existing systems.
“We already have a score that investors have to meet for KYC and AML,” Bradley-Ward comments. “Why not have something on top that becomes a standard for all? Then small platforms wouldn’t have to spend a fortune that they can’t afford.”
As for the likely impact of Brexit over the coming months – if and when it finally happens – on both the sector and on UK business more widely, he believes that those predicting economic doom and disaster are going to be disappointed.
“It’s a bit like the Millennium Bug,” he says, referring to the widespread belief at the turn of the last century that six-digit date fields embedded in old-school global computer systems wouldn’t be able to tell the difference between 1 January 2000 and 1 January 1900. “The world was going to end, hospitals were going to shut down and aeroplanes were going to fall out of the sky,” he says.
But in the end these fears proved entirely wide of the mark. “I woke up on 1 January 2000 with a hangover, and nothing had happened. Something similar will happen with Brexit – there is so much money associated with things basically staying the way that they are now. Ways round it will be found.”
Whatever political changes may or may not arise in 2019, Bradley Ward’s focus remains on piloting Ablrate through the next phase of its growth. “If we can spearhead that ecosystem of 50 platforms working together around the world through ASMX, then I think we can really do something spectacular,” he says.
And everything the business and its partners achieve will continue to be done in the name of the little guy rather than the big guns, he concludes. “I like doing it on that basis, because it will give more power to the individual lenders than trying to create some institutional behemoth ever could.”
This article featured in the May issue of Peer2Peer Finance News, now available to read online.