James Pursaill, chief technology officer and Rob Pasco, chief operating officer at Plend tell Kathryn Gaw about the challenges of building a brand-new peer-to-peer lending platform during a pandemic
There are a lot of reasons why it might be challenging to launch a new peer-to-peer lending platform, but add in a global pandemic and a slew of national lockdowns and it may seem like an impossible task. Yet that’s exactly what 33-year old James Pursaill and 27-year old Rob Pasco (both pictured) have done.
During an unusually tough year, Pursaill and Pasco have built a grassroots P2P offering which uses open banking and a modern credit checking process to connect individuals seeking funding with investors seeking yield.
Plend will officially launch later this year, targeting returns of 10-11 per cent. Chief technology officer Pursaill and chief operating officer Pasco explain how they built a new kind of P2P platform against all odds.
Kathryn Gaw: Why did you decide to set up the platform?
Rob Pasco: When I first came to the UK, I faced many of the same problems other ex-pats do, in which they don’t have a credit history. So because of this thin credit file, the ability to access affordable credit was very difficult. My first credit card was 50 per cent APR, even though I had a career in the City of London and a good salary.
My career progressed, but my credit score never did. It was extremely difficult to access certain parts of life without affordable credit. It’s very much a privilege in this country.
I did some research and realised that the number of people in the same situation was quite significant. That’s where we decided to set up Plend and push towards a solution which doesn’t just provide affordable credit, but allows other people to back those people with affordable credit, so it’s a real social lending aspect.
KG: How did you guys meet, and what led to your decision to go down the P2P lending route?
RP: I started Plend last year. I was always looking at some kind of debt consolidation product, but what that would look like, I wasn’t quite sure.
Jamie and I met through our girlfriends, and from that, we started talking about the injustice of credit scoring. As we talked to more people and built our network and looked for a solution, the social lending element became quite prominent and that’s where the P2P aspect came from, allowing retail investors to get involved. It was also a way in which we could brand ourselves as being an impact-led business, which is what we wanted to do.
James Pursaill: I’ve always been really excited by tech that breaks new ground and has a positive impact at the same time.
When we started talking about changes in the investment scene, we realised that our friends who did have savings didn’t just want to put it into a savings account, they wanted a better rate of return, but they were also looking to make a difference with their investment.
We started talking about how people have this misconception that businesses or projects are somehow less risky than people. If you get the credit scoring right, open banking has opened up a whole new tool kit to score affordability. We were really eager to prove that people are just as reliable, if not more reliable than businesses to lend to. We also realised that when people can actually see a face and a name and a reason behind the loan, there’s a much more tangible one-on-one connection with that.
KG: What were the challenges of launching a company in a pandemic?
RP: Networking has been difficult and that is probably connected to our funding journey. Even though P2P fundraising volumes were very large last year, there weren’t many deals done for first-time companies or first rounds in the UK.
JP: The pandemic has provided a real challenge in terms of interpreting what transaction data means. Certain assumptions that traditional lenders had before the pandemic have now been completely upended and a lot of the economic logic that was driving their decisions doesn’t hold true anymore.
For example, traditional lenders would give a higher APR to teachers or nurses as they saw those as risky professions to lend to. But Covid has split that logic on its head.
It’s changed a lot of the signals we get from transaction data. We had to be quite nimble when we were building our credit scoring and taking into account the new reality of our economy post-Covid.
KG: How difficult has it been to secure funding?
RP: One of the difficulties for us is that our product has quite a high barrier to entry. It’s obviously very regulated, there are funding reserves or cash reserves needed to lend and as part of that, there are restrictions around some products on offer, especially in the short term. Trying to convince investors that a pre-revenue start-up is going to be successful was always going to be difficult, but there are definitely avenues for us, it just takes a little longer to find them because of Covid.
JP: Sometimes you find you’re struggling against a negative perception around the P2P space. There have been some great successes in P2P but there have definitely been some high-profile failures and perhaps some poor management of those companies has given it a mixed reputation. We are trying very hard to show that we are using P2P in a different way and you can make a great success of P2P by treating both sides of your customers, lenders and borrowers, with respect and transparency.
KG: What is Plend’s credit-checking process?
JP: We very much champion open banking. The best results these days are coming from a verification of traditional bureau data and open-banking data.
It’s essentially a two-stage process. We do a straight affordability check where we use both sets of data and make a call as to whether or not you should be allowed to float the loan on the platform in the first place.
Then there is a second part to our affordability scoring where we analyse your transaction history and build a risk profile for our investors to see.
If you’re floated on the platform, you will have a score built up from a number of different indicators – your net disposable income very much being one of them, but not the only one. There are positive weightings around regular bills you are paying, positive behavioural traits and also potentially negative weighting as well, for instance we will flag high gambling spend activity as a potential risk.
Then we score you and hand the risk-profile number to our investors so they can season their appetite for risk on the platform with the right rate of return.
KG: What is Plend doing that’s different to other P2P firms?
JP: We are leaning much harder into the open-banking data to build our affordability scoring and we are reflecting the fact that the economy has changed post-Covid.
This is true P2P, the exposure of individual borrowing opportunities with a name and a photo and a story behind the loan, as well as the risk profile for our lenders to engage with. There’s no one else in the UK who’s doing that right now for personal unsecured lending.
Because no one is exposing individuals directly to lenders, no one is building an individual investment risk scoring guide built from open-banking data. That particular score we are building is unique. No one else is exposing borrowers individually as an investment opportunity in the way we are.