SCOTLAND looks set to become a peer-to-peer lending hotspot despite fears about the potential impact of Brexit and another independence referendum.
This year has seen lenders such as Assetz Capital and The House Crowd expanding their presence in the country, while professional services firms Pinsent Masons and Deloitte have formed partnerships with Fintech Scotland to drive the financial technology sector’s growth. LendingCrowd already has its headquarters in Edinburgh, as does ShareIn, which provides a white label crowdfunding technology solution.
Scotland is regarded as having real potential in the P2P lending sector. Andrew Berry, director of risk advisory at Deloitte, said its greatest strengths include its wide connectivity both inside and outside Scotland, and its ability to link all parts of the P2P ecosystem: potential borrowers, lenders, technology companies, skilled expertise, a supportive public sector and investors.
Scotland also has a demand-supply funding imbalance. According to LendingCrowd chief executive Stuart Lunn, there are over 360,000 small- and medium-sized enterprises (SMEs) operating in Scotland, accounting for more than 99 per cent of the business population, but many have struggled to secure the finance they need to expand.
“Three big banks – Royal Bank of Scotland, Lloyds Banking Group and Clydesdale – control more than 80 per cent of the SME banking market and provide some 90 per cent of Scottish business loans,” he said. “However, the Scottish government’s council of economic advisers last year highlighted the ‘persistent funding gap’ facing SMEs who are seeking loans in the range from £20,000 to £1m.”
Scotland is emerging as a leading fintech hub more generally, housing firms such as ZoneFox, Money Dashboard and the newly Aim-listed Nucleus Financial.
“Scotland is really well placed to be an attractive location for fintech and is in pole position to be the leading centre outside of London,” said Yvonne Dunn, partner at Pinsent Masons.
Dunn said Scotland’s universities have a fantastic pedigree in maths, computer science, engineering and technology, while the country offers a supportive environment for start-ups.
“There is government support for fintech as a high-priority industry and some great incubator/ accelerator options such as CodeBase in Edinburgh and RBS’s Entrepreneur Accelerator as well as Tontine in Glasgow,” she added.
Stuart Law, chief executive of Assetz Capital, said Scotland has great businesses that the lender wants to back. He said these do not necessarily stand out over the rest of the UK, but tend to be overlooked by others because Scotland is “too far away”.
“And you need people on the ground to understand a location well,” he added.
The biggest challenges facing Scotland’s P2P sector are Brexit and the possibility of another independence referendum.
Frazer Fearnhead, chief executive and co-founder of The House Crowd, warned the uncertainty around accessing EU markets is already affecting investment which, in turn, hinders businesses’ ability to grow.
“And then, of course, there’s the potential economic impact of Brexit (whatever that may be), which the fintech industry won’t be immune to,” he said. “A Scottish independence referendum would risk similar uncertainties, although the experience of the 2014 referendum suggests that the Scottish government will produce an outline plan that will at least allow businesses to prepare for either outcome – something that’s sorely lacking in the Brexit process.”
This article featured in the September issue of Peer2Peer Finance News, now available to read online.