Nick Harding, chief executive and co-founder of Lending Works, explains how he will achieve £1bn of lending while sticking by his principles
IT’S ONLY JUST January and last year’s festive season is barely behind us, but the chief executive and co-founder of Lending Works, Nick Harding, knows what he wants for Christmas 2018 all the same.
“Next year  we’ll write £100m of loans,” he declares. “That’s 100 per cent year-on-year growth which is what we’ve had since launch in 2014. It hasn’t slowed even though the base has got bigger.”
In fact that’s what he’d like every Christmas, an annual doubling which would see Lending Works join the exclusive £1bn lender club by 2022. A pretty ambitious goal for a business that lent a mere £5m in its first 12 months of operation, only four years ago.
“We’re more confident in the 2018 numbers than we ever have been in previous years, and hopefully I’ll be sitting here in 2019 and saying the same thing,” he says.
He’s taking it a year at a time however – Santa might stop being so generous if he suspected he was being taken for granted after all. “The forecast does taper a bit at the end – getting from £500m to £1bn in one year is a big ask. But if we get to £750m we’ll be fairly happy with that.”
Harding intends to get there by providing a matchless customer experience, and being able to prove it to the organisations he partners with.
“I want to become the most recommended investment and loan company in the UK,” he asserts. “Our NPS scores are already off the charts, similar to Apple’s.”
It’s this kind of big thinking that has helped to make Lending Works the UK’s third-largest consumer peer-to-peer lender, albeit a fair way behind the number one and two, Zopa and Ratesetter, which have both broken the £2bn barrier (admittedly with a few more years of lending under their belts).
He has the vision to match his ambitions for scale, too. “I want to pioneer fair financial services,” he says. “Making financial services fair not only means that we can sleep at night and be proud of what we do, it also makes very good business sense.
“Because on the internet everyone has a voice, so those who are mistreating their customers, over-pricing, mis-selling or whatever, get caught out. Fairness will make us a winner.”
Lending Works’ growth, impressive as it may be, has not been without its occasional glitches however – notably last February when it struggled to meet demand for its new Innovative Finance ISA. It broke a self-imposed £1m investment limit within 24 hours of launch having been deluged with investors, and was forced to close the ISA to new money for a week. Hardly the ideal launch for a flagship new product.
It’s a situation that highlights one of the structural problems with P2P lending, that of the perpetual mismatch between investors looking for a return and borrowers wishing to take out a loan. There are always, it seems, too many of one and not enough of the other – and in the case of Lending Works (and many other platforms) there are usually more investors than borrowers.
It’s a problem that Harding is acutely aware of. “We probably put 90 per cent of our time and energy into borrower acquisition, and the other 10 per cent into finding lenders,” he reveals. “That roughly shows you how much of a challenge each of those is.”
Communication with lenders is exclusively through Lending Works’ own website, whereas the search for borrowers spreads far and wide, thanks largely to the growing popularity of Lending Works’ API.
“Borrowers we communicate with about 75 per cent through the API, and that will grow,” he says. “We have a great proposition and we have made it more available through API than many others. We make it easier and easier for partners to sign up – we have about 50 partners hitting the API and that number will grow significantly in 2018.”
Its partners already cover a lot of ground, from fintech darling Revolut at one end to old-school high street retailer Asda at the other. How will Harding and his 35-strong team of hand-picked ‘black belts’ find enough lenders to keep the 2022 target in sight?
“We already operate in the price comparison market, the traditional loan broker market, and the white label market – like our Revolut partnership,” he replies. “But we have another channel coming for 2018, which we will be pouring six-figure sums into. So we will start acquiring partners in another vertical.”
He won’t be drawn on any details of this development but it’s clearly set to be a big step in the quest for new borrowers. Nor will it be the last. “After that there is probably one other channel we will explore over the next two to three years,” he adds. “Then we will have most of the areas of consumer finance covered.”
There are some things that they won’t be doing however – one is following the example of Zopa and applying for a banking licence. “There’s no chance of that, we have no interest in it,” Harding says. “I think the only reason Zopa is doing it is because they want to do revolving credit. We believe there is plenty of opportunity for at least the next five years without revolving credit, so why on earth would we complicate things?”
Another is moving into business lending. “The chances are that we will only lend money to consumers for at least the next five years,” he states. “Not businesses – it’s the race horse with blinkers approach, we know exactly what we want to achieve and we are very focussed on doing that. If you try to do too many things you end up not doing any of them well.”
Computer science graduate Harding began his career at RBS in 2005, where he became a relationship manager tasked with signing up tech firms as the bank’s customers. At RBS he also met Richard Priestman, who is now Lending Works’ chairman. Co-founder Matt Powell is a close friend from university who was previously an accountant for EY.
Talking to all those entrepreneurs when he was at RBS must have rubbed off, because after a stint working at an investment firm he came up with the idea of Lending Works. Inspired by the Fair Trade movement, he wanted to bring the same ethos to financial services.
“I think Fair Trade is brilliant – the idea of a farmer somewhere in the world and a buyer in a London coffee shop, with the money going direct from one to the other with as few people in between getting their sticky fingers on it.”
He was lucky enough, he says, that his success at the investment firm meant he could afford to take a gamble on starting a business. With his banking skills, Powell’s accountancy expertise and Priestman’s long experience of high-level corporate governance, they were a dream team.
“I knew plenty of angel investors – we put the feelers out and people kept saying yes,” he says. “We had to do it.”
Lending Works opened its virtual doors in January 2014. The biggest lesson from those early days, he says, was that finding would-be borrowers wasn’t hard, but finding ones they actually wanted to lend to, was.
“We thought we would stick ourselves on the comparison sites and it would all be fine,” he explains. “Well that didn’t work! We were just saying no all the time.”
Having witnessed the Great Crash while at RBS – surely one of the most spectacular view points from which to see it all happen – you might expect Harding to have something of the zeal of the reformed banker. But he is pragmatic about the relationship between traditional banks and the P2P sector.
“I am not one of those evangelists who harps on about how P2P lending is going to take over banking, because it’s not,” he comments. “P2P and banking were always going to meet in the middle, and that’s what is happening.”
But if banks are not the enemy, he does have some large traditional institutions very firmly in his sights. “My aspiration is to take £1bn of balances from BNP Paribas Personal Finance – which has brands called Creation and LaSer – and Hitachi Finance. I would love to be able to say we are doing that, and the reason is because they are doing a bad job for their customers.”
Between them those two loan providers have around £5bn in loan balances and £500m in net revenues, he says, but provide a poor customer experience and have very little brand resonance. “They have significant presence but if you asked anyone in the street, other than the fact that Hitachi also makes TVs, most people would never have heard of them.”
It’s another audacious goal to add to the pile, but what if things go wrong? The economic climate is looking distinctly chilly at present, due to Brexit, fears over consumer debt levels and worries that the next big recession could be on the way.
Some lenders have pulled back from riskier loans in preparation for stormier times ahead – will Lending Works follow suit? “We have always been prudent and never written loans in areas that are too risky, so we have nothing to pull back from,” he affirms.
“My view on consumer credit is that you can spend five seconds on Google and scare yourself very quickly. I don’t think there is a recession coming tomorrow, but we are writing five-year loans today and there is a good chance that there will be one by [the end of those loan terms]. With the political landscape as it is we would be crazy to be anything other than prudent.”
Prudent decision making combined with audacious goals. It sounds like an oxymoron but could well prove to be the recipe for success – for Lending Works and others – in these uncertain times.
This profile appears in the January issue of Peer2Peer Finance News.