The press pendulum is swinging
- 12 Jan
A media that once had nothing but good things to say about the alternative finance industry, is getting noticeably more challenging.
In the week just gone, we have had the Mail digging deep into the goings on at Wellesley; the Guardian fishing for ministerial scandal and hinting at nepotism at Crowd2Fund, and The Times questioning the sustainability of the P2P business model. While the specific reference was Zopa, it is clear that readers were being encouraged to put the entire industry under the microscope.
The adage that there is no such thing as bad publicity is surely being sorely tested.
There are a number of recurring themes:
- Profitability. Questions are being asked about how long platforms need to operate before they can be profitable - and indeed, if that day will ever come
- Lending quality. There is a rising belief that standards will be compromised in the search for volume and that alternative finance will always be a second choice for borrowers
- Financial management. Anything from late filing of accounts to the handling of provision funds makes a platform fair game
As the industry grows, it is an inevitable consequence that it will attract scrutiny. An inquisitive and free press is one of the pillars of our democracy and we would be significantly poorer without it. The answer then is not to resist the criticism and cry foul, but to embrace it and treat it as another form of regulation.
Of course, it is possible and advisable to be prepared.
Mistakes are forgivable. This is a young industry and mistakes are part of the evolutionary process: it would be wrong to deny them. When RateSetter came under fire last year for re-investing part of the provision fund, it quickly put its hands up and said 'yep, we made an error of judgement' and reversed the position. The story ended there.
Trading losses are acceptable if there is the depth of capital to absorb them and there is a growth strategy in play. When compared with other tech businesses or traditional FS, the record is not wildly out of kilter for the first five years of operation. Let's remember, Amazon took something like 15 years before it made a profit and lived on the ‘jam tomorrow’ argument for most of that time. After 20 years+ existence, it is now widely making profits and, in the process, has become the world’s largest retailer. The strategy worked.
Bad debts are part of being in a lending business. While excessive losses are, of course, a problem, there is nothing wrong in occasionally backing the wrong horse. 'Lending business suffers a bad debt' is not news, indeed, a business that has zero losses might find itself criticised for not lending enough - a case of damned if you do, damned if you don't. The price of transparency is that everyone gets to see the bad news as well as the good; banks don’t provide such information and we have no idea which, or how many, loans go bad.
Of course, it goes without saying that businesses should be run professionally and corporate obligations to Companies House, HMRC and the Regulator maintained at all times.
Most of all though, the advice is not to allow yourself to be caught on the hop and find yourself giving off-the-cuff comments that you might regret seeing in print later. By the same token, don’t make the mistake of putting juniors in the firing line with journalists. An innocent-looking enquiry can easily turn into an awkward question with corporate significance. Seniors only should handle the press. In all cases, buy yourself a bit of time, be helpful and remember that you could be answering for an industry, not just yourself.