A gaggle of business school graduates is among the growing number of start-up entrepreneurs hoping to electrify the fast-growing peer-to-peer lending market.
The P2P industry has risen prominence over the past two years, with more than £500 million being lent to individuals and businesses in the second quarter of this year alone.
Market leaders such as Zopa, which pioneered online direct lending, and which was founded by INSEAD business school graduate Giles Andrews, are jostling with niche platforms focusing on areas such as real estate and invoice financing.
Nearly 300 P2P businesses have sought full or partial permission to operate from the Financial Conduct Authority since the UK regulator began overseeing the sector last year, according to new figures from Bovill, the regulatory consultancy.
Amid the financial technology, or fintech, frenzy MBA graduates are leading innovation in P2P. Business school start-ups in the industry include US based crowdfunding site Indiegogo, founded by Haas School MBA Danae Ringelmann, and cash transfer platform WorldRemit, founded by London Business School graduate Ismail Ahmed.
The P2P industry is coming of age, confirmed by the floatation last year of Lending Club, the Silicon Valley based platform founded by Renaud Laplanche, who studied at HEC Paris, a leading French business school.
The Peer-to-Peer Finance Association, a trade body, forecasts that lending will exceed £2.5 billion in the UK in 2015. The US is by far the biggest market, with P2P lenders there having already raised more than $8 billion for their users.
The largest P2P lenders focus on matching borrowers with investors, such SoFi, a student loan specialist which was set-up by Stanford GSB MBA Michael Cagney. Since its foundation in 2011, the company has raised more than $750 million in venture capital.
In June SoFi said it had hit the $3 billion mark in loans funded through its platform. Chief executive Michael, said the milestone is a testament to the company’s ability to cater to professionals who have been “repeatedly overlooked by traditional financial institutions”.
Other P2P platforms have focused on equity funding, targeting start-up businesses that need seed and growth capital.
Goncalo de Vasconcelos founded SyndicateRoom, an investor-led equity platform, the same year he graduated from the MBA at Cambridge Judge Business School in the UK. The platform has helped raise more than £31 million since its launch in 2012.
Goncalo said SyndicateRoom’s vision is that for every pound invested, everybody makes or loses the same amount of money. “Equity crowdfunding is a beautiful thing — it helps entrepreneurs raise finance in a more efficient way, but it has to work for investors for it to be sustainable,” he said.
Goncalo believes that his MBA has been of benefit to SyndicateRoom, which was named after a study area at Cambridge Judge.
“It gives you that credibility. It opens doors,” he said, while also providing a boost to confidence. Goncalo also values his MBA network. “Everyone wants to chip in with ideas. We had really valuable feedback,” he added.
Ayan Mitra, the founder and chief executive of CrowdBnk, an equity and structured debt crowdfunding platform, said that his MBA network has come in handy. “People back each other,” he said.
An MBA also spurred him to begin his entrepreneurial journey. “It changes your outlook towards life,” he said of the degree he earned at London Business School. Since its launch in 2013, CrowdBnk has helped users raise £17 million in funding.
P2P lenders emerged as challengers to traditional lenders, which are seen as slow moving and lacking in innovation, although many P2P platforms have since partnered with banks.
Ayan said that the P2P market will “disrupt” traditional lenders: “Alternative finance platforms are here to stay.”
Increasingly, industry leaders such as Transferwise, also founded by an INSEAD alumnus, are being joined by specialist online marketplaces. One such venture is We Are Pop Up, a digital marketplace for short-term retail property, founded in 2012 by Nicholas Russell, a graduate of Oxford University’s Saïd Business School.
Styled as an alternative to commercial property agents, the company has signed up “hundreds” of landlords, and has raised $2.7 million in venture capital.
Nicholas, CEO, is riding a “power shift” away from commercial landlords to consumers.
“When we went through our accelerator program two years ago people didn’t even know what proptech was,” he said in reference to the nascent property-tech market. “Where we are [now] is really exciting,” he said.