Wellesley & Co. is not your average alternative finance firm, taking a stake in every loan on its books. We meet the man behind the firm, and tackle your peer-to-peer questions.
Last week we sat down with Graham Wellesley, founder and CEO of alternative finance firm Wellesley & Co. to get the answers to your big peer-to-peer questions. Here’s what he had to say:
What do you think of Lord Adair Turner’s comments about the peer-to-peer market, that a peer-to-peer crash “will make bankers look like lending geniuses”?
I think he’s right.
If you are going to do something with someone else’s money, you don’t give it to a novice. If you look from our board of directors, through to every person in the firm, they are extremely accomplished, reputable managers of risk and client money.
Whether you like or dislike banks, you have to respect the experience and knowledge of the individuals in terms of what to do and what not to do.
We’ve sought the most reputable, credible people within the market to give us the expertise and knowledge to confidently accept the responsibility to manage our lenders’ money.
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Is there a typical person who lends through Wellesley?
Our typical client is someone in their late 40s to late 60s. You can invest from as little as £10, but an average initial investment is typically £8,000.
If you look at the characters in our TV advert, there’s a nurse, a builder, a shopkeeper, an accountant; those are our lenders.
Our client base is atypical of the industry. Someone like Funding Circle, their clients believe rightly or wrongly that they are capable of assessing risk, making lending decisions. Our clients are more passive, and they have confidence in the company’s ability to manage the investments.
And the fact that we have ‘skin in the game’ [Wellesley takes a stake in all of the loans on its books]. Our financial success is not just linked to the fees if we lend more and more to borrowers. The quality of our lending is paramount to us as well, since if anything were to go wrong we are the first to cover the loss. The better we are at managing risk, the more money we make. We make more money by protecting our client’s money, and they do better out of it too.
Do you think that having ‘skin in the game’ means that people feel more comfortable with how you invest your lenders' money?
We decided to go down that route to provide lenders with more confidence, and to align our interests with theirs. But that’s not a new idea. We believe that thanks to regulation, in time other peer-to-peer sites will begin to look more like us.
Just saying that you believe in your clients isn’t enough. You need to provide something material to demonstrate that you mean what you say.
So we put our money where our mouth is.
What would happen if a project went bust?
There’s no such thing as bust, in asset-backed. That’s an important point. There’s going through a process of recovering one’s capital in the most efficient, fair and cost effective manner.
In a worst case scenario – that means meltdown – we have an elongated process of recovering the capital on behalf of our investors. Unlike the banks, we won’t throw those assets into an auction house within three months. That doesn’t serve our investors’, or our, interests. We take a long-term view.
We have investors in their late teens with £100, and those who are 75 with £1m invested. They will have the same exposure. If we do have a bad debt, every single person will know about it. It’s an even playing field. Our whole business model dictates it.
Find out more about the returns on offer from Wellesley & Co. and how you can earn £100 cashback
What do you have in place to protect lenders, should a project go wrong?
We have an eight figure sum of money set aside, that I pay interest on, that serves no purpose other than to ensure our lenders get the experience they expect, in terms of the interest they receive and the timely repayment of their capital.
Why aren’t you members of industry trade body the Peer-to-Peer Finance Association (the P2PFA)?
We saw the P2PFA as a lobbying organisation and not a regulator. We are regulated by the FCA, who we actively report to. But we saw that the P2PFA was trying to superimpose its own views, that were not necessarily the same or consistent with the FCA.
Additionally, the P2PFA was supposed to be there to represent the wider industry of alternative lenders, and I believe you’ll find that the rejected applicants substantially outweigh those that have been accepted.
What does the Innovative Finance ISA mean for the industry, and for lenders?
The money in ISAs represents a huge pot of money. Something like 54% of households in the UK have a Cash ISA, but the average return is currently 0.7%.
George Osborne has been very clever. The economy needs that money to be lent out. He has moved alternative finance to the FCA, to provide rock solid regulation, and then opened up that sector to that giant pot of ISA money. It will revolutionise the number of borrowers who can be serviced by the peer-to-peer industry. And it will allow peer-to-peer firms to pay a much higher return on that cash than people are getting at the moment. For people relying on income from investments, the last few years have been very difficult. We are committed to playing our part in helping to rectify that.
The Chancellor is providing high quality, credible borrowers access to capital which they had been cut off from as a result of the credit crunch.
But I don’t think the alternative lending market will get the money as quickly as they think they will. That money needs regulation, it needs to ensure the fair and reasonable disclosure of risk that the money will be exposed to. The Treasury under Osborne is accelerating the process to allow us to get that money to work. The economy is in desperate need for it. But at the end of the day, the core point is that money cannot be released until there’s a minimum level of regulatory oversight into the fair management, protection and oversight of those funds.
This is too important to risk getting it wrong.
Find out more about the returns on offer from Wellesley & Co. and how you can earn £100 cashback
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