Pedro is the Chairman and Chief Executive at one of Europe's most innovative banks, with whom Alterest has been working since 2017. We caught up with Pedro about market trends and his views on the lending industry.
Alternative lending has been gaining speed and becoming more and more diverse (both in terms of types of lending and providers). Could you comment on the general market environment and trends you find interesting? Are there any particular market segments you are watching? The alternative lending market has been growing both in terms of different segments as well as from the geography point of view. These platforms have been able to expand particularly in areas where banks are not capable of offering the right customer experience with a fast decision process. I find the SME segment to have the highest growth potential — it is where platforms can add more value. However, winners will be the platforms that can automate most of the process and have a very robust credit risk analysis.
Banco BNI Europa is known for being innovative and pursuing partnerships with Fintechs, ahead of most other banks. What do you think is holding the industry back? Are there any regulations that are aiding or hindering more bank involvement from your home country or other countries in Europe? I believe this is still a new asset class and banks do not have the right skills to engage with platform lenders and monitor the risks. This is closer to an asset manager’s job than a traditional commercial banking activity. Moreover, large banks prioritize their own direct origination and may not have the appetite start-up banks like us have.
What systems and technology do you think banks need to successfully execute a fintech lending strategy? Banks need to have not only a proper multidisciplinary team but also analytical tools that allow the institution to do proper monitoring of the platforms on a real-time basis. This monitoring is key to measuring performance of each platform and must be done both from operational and risk perspectives. Tools like the ones provided by Alterest are essential to adequate and streamlined monitoring.
Fintech partnerships are an important part of your strategy. What are the characteristics you look for in platform lenders? We look for platform lenders that have a good track record in terms of credit underwriting, strong origination model and good risk/return performance.
In order for alternative lending to continue growing as an asset class, there has to be a continuous flow of institutional capital into the sector. What challenges are the institutional capital providers facing that prevent them from channelling funds into the space? Are the challenges different for banks as opposed to asset managers? I believe the main challenge is to have platforms that can produce volumes necessary to warrant the involvement of institutional capital. Acquisition costs are usually high and platforms need to be well capitalized to grow. Asset managers tend to look for higher returns than banks as they have a different funding model. Banks are more conservative and must allocate regulatory capital to these assets. This means the two types of investors can be complementary.
In the US, securitisation seems to be playing a big part in providing liquidity to platform lenders. What do you think is key to increasing liquidity in the sector in Europe? How do you see new securitisation regulations affecting platform lending this side of the Atlantic? I believe this is a normal evolution in the sector. Once you have the necessary volumes, one alternative is to do a securitization which allows platforms to tap into an investor base that only buys rated securities. There have already been a few securitizations in Europe and, as the market grows, we will see more.
What do you see as the single biggest challenge/threat to the banking industry in the next 5 years? In my view, the single biggest challenge to the banking industry will be the “bigtechs” associated with the “fintechs” disrupting different verticals and capturing clients that traditionally would look for a bank to fund their business.