Fintech entrepreneur Anil Stocker tells Christopher Silvester how technology has quickly emerged as a key player in the City’s future prosperity.
Within a couple of weeks of the EU referendum result, MarketInvoice, Europe’s largest peer-to-peer (P2P) invoice finance platform and one of London’s fintech success stories, announced that it had secured a new round of investment. The bulk of the £7.2 milion investment came from MCI.Tech Ventures Fund, a vehicle of the listed Polish private equity group MCI Capital, and although the deal had been hatched over the previous three months, it represented a clear commitment to London’s fintech dominance.
‘Following the result of the UK referendum, many might perceive investing in fintech as a risk,’ said Sylwester Janik, a senior partner at MCI Capital. ‘With MarketInvoice it’s actually the opposite. We see an economic slowdown and a distracted banking sector as a potential opportunity to fuel growth of the platform.’ Just as it had been when MarketInvoice was founded by a pair of Cambridge economics graduates, Anil Stocker and Ilya Kondrashov, along with Charles Delingpole, in 2010.
The company has a fairly simple business model. Its online platform acts as a marketplace for HNW investors to fund loans to businesses by buying their invoices or accounts receivable at a discount. In the old days this was called invoice factoring or invoice discounting, and the sector was dominated by the clearing banks.
Stocker was born and raised in Zurich. His father is Swiss-German, a development banker who worked for the World Bank and the European Bank for Reconstruction and Development. His mother is of Indian extraction but grew up in Kenya and studied in France. Later, she taught languages and ran a business that helped expats relocate to Switzerland. Stocker attended a German-American school in Zurich until he was twelve, whereupon he moved to London and attended St Paul’s School. He read economics at Trinity College, Cambridge, then worked for Lehman Brothers Private Equity and later for the investment bank Cogent Partners.
‘We were making investments into mid-size companies [at Lehman Brothers Private Equity],’ he recalls, ‘so I ended up spending a lot of time with financial directors looking at cash flow and at how to fund the businesses.’ At the same time he was beginning to read about new online consumer lending companies such as Wonga and Zopa in the UK, and Prosper and Lending Club in the US.
‘Businesses always need working capital. They always complain when I visit them about how hard it is to get it. A lot of them have invoices, which are quite standardisable. Everyone knows what an invoice is. So I thought, why not try to see whether we can build an online model, and not just fund it ourselves but create a marketplace, get investors like HNWs and family offices, who’d never been able to get to this asset class before, and give them a way to invest directly and fund these businesses through their invoices.’
Back in 2010 there was no fintech scene in London. The word wasn’t even in use. Indeed, there wasn’t really a tech scene in London. ‘Our first office was in Old Street,’ says Stocker, ‘and I could count on one hand the number of businesses that were trying to make things happen in general, not just within the financial sector. It really hadn’t evolved a long way. We were of that class of early adopters, like Funding Circle, Go Cardless, and DueDil. We all started together. What we all had in common was that we looked at the banks and saw that they were trying to do everything and not delivering anything very well. Customers have really lost faith in the banks’ ability to innovate, to serve them well, and to give them products they love.’
These new fintech businesses chose specific areas and tried to deliver services in a completely new way. ‘It’s not like we met all the time and exchanged notes,’ says Stocker. ‘We just started at the same time. Fintech was born out of the 2008-09 financial crisis, when people really started to evaluate whether there must be a better way of doing things. In some ways, Brexit is another interesting moment, because it could be an opportunity for fintech companies such as ourselves, because if the banks are retrenching again, we could actually move into the mainstream.’
When Stocker and Kondrashov created MarketInvoice (with £930,000 of start-up finance from angel investors), there were two schools of thought about how to build an online platform, and two different types of people who approached them about how to build such a platform. ‘One approach would have been to spend a million pounds, build some all-singing, all-dancing platform, then officially unveil it, and hope that people would come and use it,’ says Stocker. ‘We quickly decided that that was not the right thing to do, because you don’t even know what to build.’
Instead, they adopted what is today called the lean methodology of development, building the minimum viable platform that they could, then going out to meet potential business borrowers, showing them the beta version of the platform, and processing their feedback. Some said they didn’t want to pay for it, others said they only wanted to pay for it when they used it; some said they wouldn’t want to put all their invoices through it, some wanted greater transparency about fees, and some were reluctant to give personal guarantees in exchange for loans.
‘We built the platform according to the feedback. We did the same thing with the investors. It meant we built the product around the customer. It’s a very different way of delivering a product from what the banks do. They just roll something out and force everyone to use it, even if it’s not useful. We speak to investors and clients all the time to get their feedback so that we can develop the product more.’
MarketInvoice started with a proposition which was very much auction-based, so HNW investors would open an account, fund it, manually log in, and bid for transactions on which to deploy their money. ‘We quickly said we would have two bidding windows each day: one at midday, the other at 5pm. Then we realised there were so many people logging on and trying to bid that all the transactions were filling within seconds. Some of the smarter guys were building these electronic bots that were bidding for them. The investors all said they hated having to log in and deploy. That’s when we started to build Autobid, our tool which lets investors choose how they want to deploy their cash into the different risk bands and then bids automatically for them.’
Stocker welcomes the FCA’s review of the P2P lending sector and its viability for investors. The rapid growth of the sector has meant that P2P platforms are now popping up all over the place. ‘I can understand that at some point you want to take stock and see what all these different models are doing, because there’s a big difference between equity crowdfunding and the secure buying of an invoice, which is an asset of short duration. I think it’s a good thing that the FCA and investors know about the differences and make better choices. The sector has to mature, there have to be rules and regulations, some consolidation. The cream will rise to the top.’
MCI Capital’s investment has enabled MarketInvoice to hire new senior staff, and the innovation continues. ‘We are working on a new funding product, which is still very much around invoices, but is more like a revolving credit line against invoices, for companies that need a more permanent source of cash flow, rather than on demand, invoice by invoice. Again, that is answering questions from our customers seeking a slightly different type of product. We’ve grown our tech team massively over the last year, but also our science team. That’s because we’ve made a big investment in gathering and using data for our risk model. Having good risk management is crucial to this business being able to succeed.’
Obviously, Brexit has engendered uncertainty. However, perhaps especially in times of market turmoil and volatile exchange rates, businesses still need cash to keep paying suppliers, growing, getting orders, delivering on export orders. ‘They still need that oxygen of finance,’ says Stocker. ‘When we looked at the data — cash flow, overdraft usage, invoices — through the cycle over the past 50 years, invoice finance tends to do well in both the good times and the bad times. Businesses need cash because they’re growing, but they also need it to keep the lights on. That gave us quite a lot of comfort. Companies are not taking our funding for speculative reasons. They’re doing it to power their day-to-day operations.’
With interest rates hovering above zero, other asset classes become riskier. ‘Our investors really love the asset class and are sure that it gives a good return through the cycle, so they’re keen to keep on getting their yield. If you’re an HNW who’s stopped working, there are very few places you can get the yield to fund your lifestyle.
‘London is such a great place if you’re a fintech business, because it has deep talent pools,’ he adds. I ask Stocker about the billboard van that drove around London after the referendum urging tech entrepreneurs to decamp to Berlin. ‘It certainly created a lot of buzz on the day. However, while Berlin is right up there as one of the top hubs in Europe, I still believe London will retain its title as the capital of fintech. For starters, take London’s historic financial pedigree, which makes it the perfect intersection for finance and technology to cross, collaborate and challenge the status quo. Here, you have access to experienced professionals who have worked in traditional financial institutions for decades, as well as that younger generation of tech talent that London has always been able to attract. It’s a melting pot of talent from across the globe, and I’m confident the capital will rally to maintain this as we negotiate our exit.
‘Secondly, the regulatory environment we have here is the best in the world. The government and the FCA have worked with platforms from the beginning, thus allowing the sector to grow organically. By taking a proactive approach, London has excelled, and will continue to do so.’