Fintech Start ups Monzo and Revolut are the stars of digital banking as well as being bitter rivals. But they do have one thing in common in that they are both currently loss making and despite being popular with their newly acquired clients are now trying to focus on how to get to profitability. This article makes the somewhat obvious point that the banking business is largely based on lending and yet both of these banks are missing a properly developed set of lending products. This presents challengers with a conundrum at a time when pricing credit risk correctly is nigh on impossible. It also suggests that some of the employees of these start ups see the digital revolution as some kind of force for good and take a socialistic view of the way the world should work further complicating policy development. At the end of the day the same rules apply to the digital start up as to anyone else. They are selling service and they have to price it correctly or they will fail. The venture capitalists do not just want new customers they wasn’t customers that contribute to profits.
Not surprisingly the second lockdown has spawned a huge surge in loan applications from people and companies that had not even begun to recover from the first iteration. UK lenders have already doled out £ 60 billion under the governments various coronavirus loan schemes and that looks to climb significantly over the months ahead. Of course interest free loans like the hugely popular bounce bank loans which are guaranteed by the treasury are always going to be popular but unfortunately they are also a magnet to chancers and fraudsters who are savvy enough to game the system. The devil will be in the detail of these loans and the due diligence backing them when the lender comes to calling on the guarantor. The banks are of course worried about their reputations and have made their concerns known to the Treasury. They recognise that at some point they are going to have to pursue a whole load of bad debts from businesses that have been destroyed by the governments own policies and don’t want to be seen as the bad boys. At the same time the Financial Conduct Authority is signalling that it will act if borrowers are treated unfairly. Life however is sometimes unfair and it is going to be difficult to square this circle. In the words of the Kaiser Chiefs “ I predict a riot”
London’s Rental Market is in Freefall
Hardly surprising for anyone familiar with London which is shadow of its former self and feels strange with leisure facilities shut up and offices blacked out. Nevertheless a perfect storm has developed during the pandemic of people working from home, tourism vanished etc etc. So it is now a buyers market for the rental sector with prices down 5.2% on the same period last year and even steeper falls in premium areas such as the City of London and Kensington and Chelsea. As far as lenders are concerned this is really quite important as a huge amount of lending is backed by property as security. Rents outside London remained robust rising some 1.7% but this is likely to be a reflection on the rise in prices of residential property outside the capital following the stamp duty holiday announced by the chancellor. Ultimately this is counter intuitive and a sharp fall in property prices seems almost certain but nevertheless it is going to be influenced by local factors which are of course totally subjective. More difficulty for the digital programmers?
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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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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