Podcast: Play in new window | Download
New entrants into Fintech need a twist. ArchOver has an innovative (a word oft used but rarely accurate) and very interesting innovation of combining Credit Insurance with Secured SME marketplace lending. Additionally they innovate by not just using single invoices as security (which is common) but by the whole set of invoices (ie “accounts receivable”).
This model they call “secured and insured” – a real belt and braces. In a marketplace which, post Lending Club IPO has been characterised by a dash for asset growth it is very refreshing to see a P2P that is focused on minimising Lender Risk (as subject I have written about a lot this year – see eg my columns for AltFi News).
So I am delighted to be joined on the show by Angus Dent CEO of ArchOver to discuss how “secured and insured” lending works.
It’s certainly a fascinating crossover of insurance, banking and the new digital Fintech worlds.
In this episode we discuss:
– Aston Martin club racing [and whether there is a car racing masonic lodge at the heart of UK P2P [see eg LFP021 where Zopa’s CEO Giles talks about racing Caterham’s inter alia]]
– Aston Martin Club Racing and crowdfunding
– how insurance works in the world of racing Aston Martins
– the comparison between invoice-based finance and ArchOver’s model of using the whole invoice pool as the security
– how invoice discounting works by way of contrast; when it works well and when it doesn’t
– asset-based finance as extended to include these intangible assets [cf property, machinery]
– the role of credit insurance in insuring the value of the payments
– the benefit of the credit insurers processes around operational management of the invoices
– the situations when credit insurers are reluctant to pay out and how to avoid those
– the benefit to the lender in having a belt and braces approach to lowering their risk – both the security of the invoices (with a haircut) as well as being insured
– the benefits to the borrower in lowering the cost of funds and not touching any other assets which they can still use as sources of security for finance
– the benefits to all of two layers of credit checking – ArchOver’s analysis and the credit insurer’s
– credit insurers having a good reputation; their origins in export business; a well-established model
– the reactive nature of companies raise funding and need for speedy turnround
– ArchOver’s average loan being £220,000 (far larger than the average UK P2P loan)
– typical borrower rates are 8.25% , 2yrs period and lender rates 6.75%
– ArchOver as one of the few P2Ps who disclose borrower rates
– ArchOver have a number of lenders lined up to fund loans so that a firm offer can be made to the borrower [cf other platforms which have a more “publish for an auction” process]; why it’s important to provide borrowers with certainty
– credit insurance as a de-risking device compared to internal provision funds in P2P
– “high levels of security” versus “low levels of risk”
– ArchOver’s approach to getting the word out about their innovative approach
And much much more 🙂