How UK Regs Steer Clear Of Alt-Lending


In the U.S., interest for alternative finance startups has waned among investors. Not so abroad, including in the U.K., where invoice financing firm DueCourse recently announced more than $8 million in new funding for its solution.

That doesn’t mean the market pressures that have forced a slump on U.S. alt-lending aren’t present in the U.K., though. Market saturation, the threat of incoming regulation and more could lead investors to pull back from the space just as they’ve done across the pond.

For now, DueCourse told PYMNTS it isn’t yet concerned about these factors. We had a member of the DueCourse team, Dave Peters, explain why.


The UK’s Regulatory Approach

While regulators in the U.S. begin to examine alternative lending players with the likely intention of introducing new rules for these companies, in the U.K., regulators are impacting this space in a different way.

In fact, Peters said, government intervention has actually proven helpful in many ways to DueCourse’s invoice financing business model. The company uses its own technology to asses borrower risk using the data provided by SMEs’ cloud accounting platforms. At present, Peters said, about 10 percent of the 5 million-or-so U.K. SMEs are probably using cloud accounting solutions.

“U.K. policy is trending towards complete online filing of tax returns, amongst other online initiatives, all of which is positive for our business,” he said, adding that the growth in adoption of digital accounting solutions among SMEs is “very strong.”

When it comes to the government’s intervention in late supplier payments, Peters said that regulation has been minimal.

“We’re not seeing regulation take hold yet,” he said. “There are government guidelines that suggest interest rates that can be applied to late payments, but until there are legal ramifications that can be made to stick for those withholding payments, not much may change.”

With legislation yet to resolve the issue of late payments entirely, Peters noted that there remains a significant demand for invoice financing, which can help small businesses access working capital while they wait to get paid.

That doesn’t mean DueCourse is pleased that late payments are a problem, though, despite the issue leading to more business for the company.

“We see late supplier payment as completely unreasonable, given there are no contractual reasons why this should be the case,” he said. “Why should SMEs effectively act as banks for big businesses? They, of all people, are often least well-positioned to do so.”

That’s the reality, he said, and the alternative lending space hasn’t yet seen “a catalyst or the political will to make any legislation a reality,” Peters added.

And that reality is quite different from the regulatory pressures the industry sees in the U.S. It’s difficult for U.K. players to envision what legislation may appear — if any — to restrict their businesses. Peters offered his take: “Given 2008 and the implosion caused by poor lending decisions, as our industry grows, it would be a good thing to ensure that lenders are well-capitalized and take an informed view to their lending activities and spread-of-book as a whole.”

Transparency and clarity of lending terms, too, are an obvious possibility for regulatory targeting.

But with a regulatory touch missing on this space, Peters said the market remains full of opportunity for alternative lending.

“The SME owner in the U.K. is not best served by financial institutions for sources of funding,” Peters stated. “Traditional finance houses tend to see the SME market as too risky, leaving owners looking at alternative funding in the form of credit cards, loans or traditional invoice financing as options.”

“All of these have various limitations for SMEs.”

While invoice financing itself is “ripe for innovation” by using technology and Big Data capabilities to strengthen the business model, Peters said DueCourse won’t be limiting its vision to invoice financing in the future — another example of how players envision a wide-open market for growth, with regulators remaining clear off the path.