Intermediary Partners

In this week's blog, we examine the health of the financial intermediary sector with a focus on the alternative lending sectors. The NACFB is currently in open dialogue with the Financial Conduct Authority (FCA) to explore critical issues affecting the intermediary SME lending sector, and one of those issues is the experiences of its broker membership. As we share relationships with many of these fantastic businesses, we wanted to look more closely at their market, unpack the role intermediaries play beyond the obvious, and then maybe make a contrarian argument against the popular thesis that the success model in 21st-century financial systems is capital efficiency through ruthless, lean, algorithmic, interconnected systems bereft of human decisions and emotions. In stark contrast to this popular thinking, maybe, to unlock the market for borrowers, a more significant, weightier intermediary market is needed, with more choices, contrasting opinions, more voices, and more people.

The overriding narrative of Fintech is that it starts and ends with disintermediation; you are essentially looking to disrupt or remove a component of traditional industry; in finance, for instance, it's taking varying sectors of what used to be dominated by banking, payments, borrowing, investing, and hanging the concept around a new model, lighter on costs, lighter on infrastructure, and lighter on time. The result is taking capital created by removing inefficiency and passing it back to consumers, typically in services, features, and savings.

This thinking is fantastic when it comes to processes in lending; however, without a substructure of intermediaries between the consumer and the market, the system becomes overly efficient, it becomes monopolistic, the choice would essentially become an illusion, and the business with the most advanced technology system in place would always win. In the same way, as the smartphone market is almost a duopoly between Apple and Samsung, in a world without advice or nuance, or a human element, a conflict of interest, all lending business would flow from one or two sizable actors regardless of the client's needs. What ultimately protects consumers from that narrow outcome is a healthy layer of intermediaries with a regulatory incentive to consider all options across the market for their clients. Advised or non-advised, these multi-layered markets naturally disintermediate the system because they drive consumers to the outliers in search of the best deals. The intermediary market for complex lending and commercial transactions is infinitely complex and challenging to automate; we have yet to see anyone who can offer that; the missing component is always the educational piece, the guide essentially for the client to get through the process unscathed, and that's the vast value add our intermediary partners bring.

Trying to look again beyond the obvious, one of the other benefits of the symbiosis between the financial intermediary market and lending markets is the acceleration of competition around price. Now, one could argue that many factors dictate price; the cost of money itself, as we have all been following on the news lately, is dictated by the broader economy; however, one phenomenon of a healthy intermediary market is it forces the lending market to compete for business in an accountable way, in a way that forces commercial decision making as well as driving innovation, for the value, it takes out in remuneration, it adds in benefits less tangible, it diversifies the market in favour of the consumer.

Finally, to focus closely on our market, and to perhaps offer the most straightforward of these arguments, to grow the housing market successfully, and to bring up a theme we have talked about repeatedly in these blogs is the requirement to increase the number of SME Homebuilders in the UK, at least back to the levels had in the late 1980s which would require a five-fold increase from today's numbers. To achieve that, the human relationship element at the core of the intermediary lending market will be crucial; the people in local communities who have that local knowledge, who understand their clients and regional areas, this element can't be replicated or synthesised with a technological component, quite the opposite, because the net needs to be cast even wider. We will need an army of businesses and individuals in the broader infrastructure of lending to bring these new developers to the table, to offer the educational component that the modern system is so behind on, and to work with specialists in the lending market, such as us to achieve their goals and subsequently the governments.

Invest & Fund has returned over £200 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.

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