Interview: LendingCrowd chief on competition and collaboration with finance giants

Scotland may be a hotbed of fintech activity as new players aim to disrupt a staid, lumbering financial services sector and grab market share by harnessing technology to operate quickly and nimbly. But while Stuart Lunn may sit in the chief executive chair at online peer-to-peer (P2P) lender LendingCrowd, the only firm of its type headquartered north of the border, he is adamant that centuries of banking in the Scottish capital, where the firm is based, are not to be sniffed at. Suitably, the firm’s offices are located on the original site of the Scottish Building Society, the oldest remaining building society in the world that dates back to 1848. And while LendingCrowd is among the fintech firms that are fusing Scotland’s history of innovation and finance, in his view the sector cannot make its approach “from a vacuum”. He states: “You can’t just disregard what’s happened up until now – the good and the bad.” Credit is an area he cites as an example. “Why ditch 300 years of the evolution of analysis and pricing of risk?” The key is to take such knowledge on board and understand how to do things from a banking perspective, but using technology. “How do you improve it and make it more efficient, how do you make the customer service side of things better? That’s all crucial, so I think fintechs have to be careful in this whole world of disruption that they’re not completely ignoring some of the positives of what is actually out there already.” LendingCrowd launched its platform in October 2014, setting out to offer more favourable loan rates to businesses and better returns to investors. It was founded by Lunn and serial entrepreneur Bill Dobbie, the firm’s chairman whose CV includes Glasgow-based web hosting and cloud computing group Iomart, online dating site Cupid and IT and managed services firm CoreTx. And its lending has now broken through the £18 million mark, including a record August when it hit £2.1m, while it has signed up more than 3,000 investors. Lunn lays out his aim for the lender to be the number one alternative finance provider north of the border, with its business eventually split equally between Scotland and the rest of the UK. It is targeting about £4m of lending in Scotland this year as it eyes an overall target of £40m in 2018. Yet while being a relatively new name means LendingCrowd is unencumbered by the legacy issues of larger counterparts, Lunn admits that the flipside is something of an uphill struggle to make potential customers aware of alternative finance providers, with most of the sector in Scotland still served by just a handful of banks. The most recent data on bank support for SMEs from UK Finance, which combines trade associations including the British Bankers’ Association, said borrowing facilities at the end of the second quarter stood at £108.5 billion. However, it also said application volumes for SME bank finance have been falling “for some time”, with just under 30,000 in the three-month period, a year-on-year drop of 14 per cent. Additionally, LendingCrowd was one of the organisations involved in a study published last year, finding that Scottish businesses received more than £27m from crowdfunding over 12 months, with the “crowdlending” or the P2P marketplace the largest contributor at about £20.6m. Part of LendingCrowd’s goal to increase marketshare is bringing in names from the traditional banking sector, such as former Royal Bank of Scotland and Clydesdale Bank director Adrian Innes, to lead its business development activity. He joins a team of about 15, with plans to grow this to 18 by the end of this year and about 25 by mid-2018. Also enhancing the lender’s credibility, according to Lunn, was providing diet food home delivery specialist Diet Chef with £1.5m, a sum far beyond LendingCrowd’s usual range. The agreement was revealed in 2015, and Lunn says: “We were very pleased to have won that against traditional competition because it demonstrates that alternative finance providers can step in, can structure deals – they’ve got the intelligence and the experience there to be able to do so. “But they can also compete on price, and that’s a common misconception in the marketplace.” Other LendingCrowd clients have included Pickering’s Gin producer Summerhall Distillery as it looked to grow capacity and prepare for the festive season. “Supporting businesses like that locally – we’d love to do more,” says Lunn, with the lender looking for companies with at least two years’ trading history, and manufacturing a real area of interest. The focus is on the £100,000 to £250,000 bracket (“that is quite fertile ground for us”), with Lunn highlighting much more competition in Scotland above the £1m threshold. The company also launched its LendingCrowd Growth ISA in February this year, after receiving full FCA authorisation in November, marking the UK’s second P2P platform and the first P2P lender to SMEs to move from interim to full authorisation from the regulator. The FCA said in January that it was looking to tighten regulation of the “booming” P2P lending sector, flagging up fears that “increasingly sophisticated lending platforms are outgrowing the current regulatory regime”. There has also been criticism that such lenders’ underwriting facilities have not faced the challenge of a downturn. Lunn originally “went down the City route”, working as an equities analyst covering the tech sector, having always been “fascinated” by the stock market and companies. He was already reading the FT aged 15. He says he was drawn to analysing and understanding firms, eventually helping them raise funds. “There was suddenly, in my mind, a rationale to what I was doing. But I realised one day that I just found it very frustrating… Why was I on the outside looking in? I wanted to be doing it for myself.” While working as an analyst he had also become involved in high-end male grooming brand Gentlemen’s Tonic, which was founded in 2004 and now has branches around the world. He had wanted “to be on the inside of a business rather than on the outside looking in… I remember stacking shelves at midnight the day before we opened the site in Mayfair”. He was then back at his desk at 7am the next day, but left broking in 2011 and eventually joined the P2P sector, feeling that its business model played to his strengths as an agent finding capital for companies in need. “It doesn’t matter whether you’re in the stock market doing that or whether you’re a [P2P] platform – essentially you’re matching the supply and demand for finance.” A lot of the hard work on LendingCrowd’s infrastructure side is now complete, Lunn adds, with a focus on increasing its acquisition of clients on both the lending and borrowing side. And while he admits he would change some aspects of the firm’s progress to date, he cites various milestones in the past year, such as completing its first external equity raise totalling £1.5m co-ordinated by angel syndicate Equity Gap. “From a corporate perspective the various deals we’ve executed on have put us in a very robust position and the equity raise was one of those… In amongst that time we actually made the agreement with Scottish Enterprise for them to lend money across the platform.” Such landmarks “have set us up and have allowed us to get to this stage and to be in a position where we can scale from here. We’re looking for significant growth”.