Funding Circle’s UK business became profitable in the second half of 2019, and the group expects to break even by the middle of 2020, its chief executive has said.
Speaking exclusively to Peer2Peer Finance News, Samir Desai (pictured), chief executive of Funding Circle, said that the peer-to-peer platform is starting 2020 in a “very strong position”, adding that he is “very confident” that the business will close its loss margin by the middle of this year.
“Our returns are higher in 2019 than they were they were the previous year,” said Desai. “So, what we think we’re proved is that this model does work.”
Funding Circle’s UK business generated £3m of operating profit in the second half of 2019. Loans under management rose by 17 per cent, while originations grew by two per cent across the whole year. In total, the UK delivered revenue growth of 16 per cent in 2019, while the company as a whole increased its year-on-year revenues by 18 per cent.
As Funding Circle’s most mature market, the UK-specific results are seen as a bellwether for the overall group outlook, said Desai.
In its full-year results, which were published this morning (12 March), Funding Circle revealed that its pre-tax losses widened from £50.8m in 2018 to £84.2m in 2019. However, the 2019 figure included a non-cash exceptional write-down of £34.3m which was connected with the company’s German and Dutch operations.
Without this, Funding Circle’s pre-tax losses for the year would have been £49.9m.
Desai pointed out that only £2m of the company’s losses came from its flagship UK business in the first half of last year, and added that the vast majority of the group’s losses came from its businesses in Germany and Holland – termed ‘developing markets’ by the platform.
These markets represent just eight per cent of the group’s overall revenue, but 60 per cent of its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) losses.
As a result, Funding Circle will restructure its European business, moving 25 jobs from Germany and Holland to its London office, and making 125 roles redundant.
“There are 150 people in our German and Dutch offices who will all be affected by this change and we will be moving to a model where we have around 25 people centralised in London, so over the course of the next few months there will be people leaving the business,” said Desai.
“We are very grateful for the work that our colleagues have done in those markets but our developing markets represent just eight per cent of our overall company but 60 per cent of our EBITDA losses so we thought that we needed to move to a more profitable model and that’s why we decided to make the change.”
Funding Circle will also move away from a model where it originates loans on behalf of institutional and retail investors in Germany and Holland and will instead focus on originating loans for other lenders in the market, such as banks and finance companies.
Desai added that 2020 will also see the roll-out of Funding Circle’s new instant decision lending platform to at least 50 per cent of its customers.
“This is something I’m very excited about,” said Desai. “I created Funding Circle many years ago with a vision to really provide funding for businesses to help them expand. If you go to a bank and get a loan it can take 15-20 weeks. We’ve been able to get that down to 24 hours.
“We have aggregated data from over ten years – millions of loan applications, hundreds of thousands of loans – and we’ve been able to build this new platform that means that a borrower can get approved for a loan in an average of six minutes. And that’s pretty game changing on a term loan basis.”