Alt Lending week ended 10th June 2022

 A crash is coming: Rejoice

You might not like what Andrew Orlowski has to say but as he says “ the tech sector is long overdue a correction- Kick back and watch creative destruction do its thing”. Don’t worry. Be happy. But a correction is due and it has already arrived with VC backed projects having lost half their value this year according to Pitchbook which tracks private company valuations. He highlights the BS that surrounds tech raises and valuations when most of the companies are not really disruptors or even tech companies just same old, same old with a jazzy front end. One of the potential big losers here is Swedish outfit Klarna whose founder was predicting a world takeover of the banking systems less than a year ago on the back of a buy now pay later application. Klarna’s value has fallen close to 35% this year already. Others will follow as I have long predicted and the alternatives will not be pretty. Down rounds, Fire sales and bankruptcies. Watch this space.

Bankruptcy Boom:  A storm is coming

The Telegraph is right to point out that as Covid support is withdrawn insolvencies will increase. Hardly surprising as some of the borrowers under Sunak’s give aways were fraudulent accidents waiting to happen. God know how much money he wasted. In any case this points out that the same thing is happening in more or less every advanced economy.  Hopefully this will lead like a good hot vindaloo to a good clear out. In the US, UK and the Eurozone we have been living with Zombie companies for too long being kept alive by next to zero interest rates with the mainstream banks not having either the appetite  or internal expertise to address the problem. A combination of higher interest rates and risk aversion will force lenders hands. About time to but it won’t be pleasant.

Apple enter Buy Now Pay later field.

Along goes the galloping herd in to the latest fad although I don’t see the clear business rationale. As mentioned above Kalrna’s value has dropped sharply over the last half year and now you see the reason why. It really isn’t that difficult to conjure up an app that looks after simple installment credit agreements. There is no barrier to entry so everyone piles in like the proverbial lemmings. We do not know whether Apple will introduce its service in the UK whose regulators are sensibly looking at the social implications of providing yet another way of allowing people who can’t afford it to spend money that they don’t have. In any case there is enough competition here with Revolut, and a few others including the large players also developing products. No one under the age of 60 has worked in a serious inflationary environment. When it comes to either paying your rent or the instalments for those new trainers to some BNPL lender some of that debt may well be uncollectable. Is there enough in the margins to cover the risk. Seems we might soon find out.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior  Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

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