British lending platform iwoca Ltd. is aiming to replace household names such as Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC as the U.K.'s top lender for small businesses, CEO Christoph Rieche said.
His comments come as the financial technology company pulled in £150 million of debt and equity funding from a series D investment round led by venture capital firm Augmentum Capital LLP, according to a Feb. 18 company statement. Other investors participating in the round include Dutch-based bank NIBC Holding NV and existing investor Prime Ventures.
Iwoca focuses on small businesses in the U.K., Poland and Germany, and provides loans of £250,000 or less.
Small companies are bearing the brunt of mainstream U.K. banks' pullback from the small and medium-sized business lending market, creating an opportunity for iwoca to grab market share, Rieche told S&P Global Market Intelligence.
Iwoca hopes to win a slice of the £775 million fund that Royal Bank of Scotland is preparing to award to challenger banks and fintechs as part of its plans to boost competition and spin off its Williams & Glyn brand, Rieche said.
"We're watching the process closely. I think it would be unfair if the money ends up being handed out only to companies that already have banking licenses. We are genuinely driving competition," he said.
The company has facilitated £550 million in loans to more than 25,000 businesses since its 2012 launch. Rieche said iwoca hopes to grow the business to 1 million customers, although it has not set a formal deadline to reach this number.
"We want to become a household name," Rieche said.
'P2P' an anachronism
The U.K.'s alternative finance market grew to £6.19 billion in 2017, a 35% rise on the previous year, according to the Cambridge Centre for Alternative Finance, which includes crowdfunding as well as peer-to-peer lending.
Major players in the U.K. P2P lending space include Funding Circle Holdings Ltd., which floated on the London Stock Exchange Group PLC in October 2018, and has facilitated more than £3 billion of lending since its 2010 launch, and consumer-focused P2P platform Zopa Ltd., which has facilitated around £2.9 billion since its 2005 launch.
As well as matching borrowers and lenders, a lot of lending risk is absorbed by iwoca's own capital, Rieche said. The company has also sold some of its exposures on to mainstream commercial banks who are looking to build up their retail lending books — but without having to worry about providing a "customer experience" for borrowers, he said.
In this sense, the term P2P is starting to become an anachronism as the business models of lending platforms such as iwoca evolve, he added.
Construction, clothing ... but not cockroaches
Investment banks including Italy's Intesa Sanpaolo SpA and Germany's Commerzbank AG have participated in previous iwoca funding rounds, each investing an undisclosed amount.
"Intesa are very keen for us to work with them in Italy to help them to meet customer needs with lower costs," Rieche said.
Iwoca, whose name stands for "instant working capital," has lent to companies in a range of sectors, but tends to lean toward "asset-light" companies in the service sector, according to Rieche.
The fintech has worked with small businesses ranging from construction to clothing — but turned down a loan to a small business that bred cockroaches as food for exotic animals, Rieche said.
Fundraising has become more difficult for fintechs in the U.K. in the shadow of Brexit.
"I'm very glad we closed the fundraising round when we did. But the climate has cooled. Investors look at the U.K. and they see a massive mess with Brexit. No one is jumping up and down saying that they want to invest in the U.K. I think U.S. investors are getting more reluctant," Rieche said.