FUNDING Circle revealed in its latest annual results that it is planning to expand its peer-to-peer lending activities into Canada.
The P2P business lender is already well versed in entering new international markets, but will Canada pose its own challenges?
For the past few years, Canada’s P2P market could be summed up in two words: Lending Loop.
As the first P2P platform to win full authorisation across every province in Canada, Lending Loop has dominated the alternative lending market in the country, building up a robust loanbook which currently stands at just over C$41m (£23.3m).
But competition is emerging. When Lending Loop won regulatory approval in 2016, it enjoyed a grace period of several months where it was the only P2P platform in the country. Since then, it has been joined by the likes of Upstart and Borrowell, which have helped raise the profile of alternative lending among Canadian lenders and borrowers alike.
This summer, another major competitor intends to tap into the enormous potential of Canada’s small- and medium-sized enterprise (SME) lending market, which is estimated to be worth around £45bn annually.
“We are really excited to be launching Funding Circle in Canada,” Tom Eilon, managing director of Funding Circle Canada, told Peer2Peer Finance News via email.
“Canada’s stable, growing economy coupled with good access to credit data and progressive regulatory environment made it the obvious choice for expansion.
“The most important factor though was the clear need for alternative funding options for Canadian SMEs. We are looking forward to officially launching later this year and supporting Canadian SMEs to access the finance they need to grow, create new jobs and fuel their local economies”.
Funding Circle has a proven track record of being able to enter new marketplaces. Founded in the UK, it has gone on to launch its brand in the Netherlands, Germany and the US. But Canada could present a different series of problems, even for one of the world’s largest business lenders.
For a start, while there is huge value in Canadian SMEs, most business owners would not necessarily consider the P2P lending route. Canada escaped the worst side effects of the global financial crisis, and as a result, Canadians have a higher measure of trust in banks than their British and American counterparts. This has made alternative lending less of a priority for potential borrowers.
Furthermore, there is still an element of stigma attached to alternative lending. Andrew Graham, chief executive of Borrowell, has likened P2P lending in Canada to online dating 10 years ago.
And then there is the regulatory burden. Lending Loop was founded in 2014, but it did not receive regulatory approval until October 2016. Other P2P platforms, such as CommunityLend, simply gave up waiting for the regulatory green light and folded their business instead.
“We had to navigate some unique regulatory challenges in order to bring this business model to Canada,” said Cato Pastoll, chief executive and co-founder of Lending Loop.
“It can be challenging for new entrants and regulators to adapt novel business models to existing regulations, and we’re extremely proud to be pushing this industry forward.”
Nevertheless, Funding Circle has every chance of success when it launches in Canada in the second half of this year. It already boasts strong brand recognition and a solid track record in multiple different markets. It has been working closely with the Ontario Securities Commission (OSC) ahead of the opening of its Toronto headquarters, and it has teamed up with the OSC LaunchPad and local counsel to ensure that it complies with all the appropriate regulation.
The platform has also done its research. It has estimated that small business loans in Canada as a percentage of total outstanding business lending have fallen to their lowest point in 10 years.
This represents a clear opportunity for an ambitious platform, but success cannot be guaranteed. However, if Funding Circle does manage to bring Canadian P2P lending into the mainstream, it could trigger a wave of new launches across the country, making Canada a target for any globally-minded platform or domestic start-up.