Head over to the WIRED Money 2015 hub for more coverage of the thought leaders and innovators speaking at this year's summit. "The internet has not disrupted financial services -- yet it is the biggest market in the world," says Funding Circle CEO and cofounder Samir Desai. "Historically, they have delivered very low value to customers."
Funding Circle, a marketplace for business loans, is one of a growing number of companies working to upturn that trend, and bring an end to the lack of choice beyond the incumbents. The UK firm has leant more than $1.2bn in the past five years to thousands of businesses in UK and US, facilitating $100m of new lending every month. It has achieved this by operating in the same way some of the world's most successful tech companies have. "Rather than selling direct to customers, eBay connected up thousands of people across the world to enable them to transact themselves," says Desai. "It led to better priced goods, and people actually finding what they were looking for." Uber, Etsy and Airbnb have all seen their popularity (and revenue) rocket by following the same model. "The biggest thing is that a lot of these companies don't have specific goods -- Alibaba, the world's biggest retailer, has no inventory; Airbnb doesn't have any hotel rooms; Facebook doesn't create its own content. These markets connect up thousands of citizens but create nothing beyond their network."
As business models, says Desai, they look easy to replicate. But in fact their value is in more and more participants joining, providing more and more liquidity. "You get the same kind of thing with financial marketplaces -- investors lend money to businesses, more investors turn up. It's a virtuous circle."
Funding Circle connects businesses instantly with thousands of investors, and has no capital itself. By contrast, a bank that wants to lend $100bn a year would need $10bn in capital to do this. Since Funding Circle does not need to do this, it "creates incredible amounts of efficiency," says Desai. "We have no balance sheet or risk ourselves, we connect up lenders and borrowers."
It passes that value on to those on its network. While banks historically don't pass on savings to customers, despite their own borrowing rates being at an all time low, those lending on Funding Circle see higher, more stable interest rates, while borrowers can get money as quickly as 24 hours compared to the months a bank application can take. Funding Circle also promises "complete transparency over fees and costs", and publishes full financials "even though we're not required to". "If there's deterioration, it's quick for investors to see."
The lending marketplace is only set to boom further, Desai predicts, pointing to Morgan Stanley projections that see it hitting $290bn by 2020. Using data to continue to accurately price risks on those marketplace will be key. But also their uptake within other disruptive marketplaces. "We are starting, as an industry, to be embraced by others. Lending Circle is working with Alibaba, and Zopa is working with Uber to finance its drivers. The ultimate validation is being embraced by existing marketplaces that are doing very well on the internet."
This article was originally published by WIRED UK
