Too much information here by far to make any kind of sense of it so I’m not going to try. Suffice to say that we’ll see more of the same, large amounts of money chasing loss making companies with wildly optimistic valuations and a market place that understands technology but which has a very sketchy grasp of lending risk. To emphasise the last point I had a drink last week with a retired regular from my local. He has been a Suffolk resident for ever and had a small business building houses and smaller constructions. He is also connected to various social groups mainly focussing on sports clubs. He regards mainstream banks with contempt and backs this up when all they try and do is sell him life insurance. He went back to the day when the branch managers knew the local businesses, their owners, their capabilities, their standing, their integrity. They also knew local risk parameters, political influence and a lot more besides. Small business banking has always been problematic and yet this is the gateway to an economy’s growth. I’m afraid that apps and the people that design them just don’t know how to get this stuff right.
If you are of a nervous disposition then I would avoid reading this particular piece. Matthew Lynn in the Telegraph points out that the third decade of monetary union is likely to be its most perilous. Inflation is the enemy of monetary associations and he points out that two of the most recent, Bretton Woods which fell apart during the inflation of the 1970 and then the European Monetary System which collapsed in the early 1990’s due also to inflation. The sudden return of Inflation to the political and economic agenda has come as a shock to the system to the ECB which was late to act in the first place and is now out of synch with both the US and the UK both of which are normalising monetary policy. The ECB has no such option as because if it stops the printing presses then it risks the collapse of the whole caboodle. Whilst previous crises on the periphery were containable the problem now has reached the core of the zone in Italy, France and even Germany. The ECB has been buying paper from debtor countries banking systems which are not of the highest quality. It buys Euros. It borrows foreign currencies. What would you think if you were an investor?
Raising this amount in equity to sustain an undoubtedly much higher sum after leverage shows the popularity of this new play on an old trick. However in inflationary times the third later instalments might not be quite so affordable as the earlier ones. Time is money and someone is picking up the tab. We haven’t had inflation rearing its ugly head for quite some years now which means that very few credit managers have had to factor it in to their sums. Hopefully they are already doing so or we will all see the consequences over the next few years. However everyone is piling in including the established banks who are playing defensive catch up games. If this gets too big it will be those who have the security that get paid back and those that don’t will get three parts of SFA. Don’t forget that pay now pay later is essentially a way for punters to pay for things that they can’t actually afford. You can’t repossess a three month old coat or a repaired car that is owned fy a finance company. Oh dear, oh dear. As they say in “where have all the flowers gone” When will they ever learn?
Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.
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