12–02–2015

P2P CONFERENCE PRAGUENOTES ON PRESENTATIONS & DISCUSSION

SymCredit.com

THANKS TO OUR PARTNERS

AMSP – the Association of Small and Medium-sized Enterprises, University of Economics, Prague, xPORT VŠE – business accelerator and Investiční web made this conference possible. Thanks to you all.

KEYNOTE PRESENTATION: MR MICHAEL SONENSHINE, PRESIDENT, EAPPL

Five years ago, this industry was practically unheard of. Today P2P platforms exist all around the world.

The range in terms of platform style is increasingly broad. We can categorise platforms in almost as many ways as there types of loans. An investor selecting a P2P platform today can choose from platforms that originate consumer loans, business loans, real estate development loans and other asset-backed loans. The investor can also choose from a wide range of tenor, start from 30 days and going to five years. We wouldn’t be surprised to see issuance of longer dated loans, mortgage loans and secondary mortgage loans in the coming years.

Aside from the type of loan, investor can select the type of matching process he or she prefers. Manual matching platforms enable clients to review a bulletin board of loan postings, read the loan application and then decide whether or not to invest in the loan. Automated processes make the investment process much less time intensive than a manual process. The investor need only select criteria, such as credit rating, credit metrics, tenor, region, etc. Additionally, there is an increasingly wide range of semi-automatic processes in the market.

We can certainly say the industry has arrived and the growth looks set to continue for the foreseeable future. The evidence from platforms such as ZOPA, Lending Club, Prosper, and Funding Circle demonstrates that investors can be comfortable with the asset class and generate safe steady returns.

What does the future hold?

There are many questions and investors should carefully consider how much money they wish to allocate to this class and where the risks are.

First, we don’t know how default rates will change when economic times worsen. Risk margins generated on the sites may not accurately reflect changes in investor perception generally that would lead to changes in risk margin. If the industry is slow to raise risk margins, many investors will be lulled into a false sense of security. Second, it is difficult for investors to asset the quality of information available over the websites. Platforms with consistently poor credit models will deliver sub-par returns. Investors will feel cheated or at disappointed.

CHALLENGES THE INDUSTRY FACES

UNDERWRITING STANDARDSThe depth and quality of underwriting standards and credit procedures sites use is at best questionable. Some sites have strong, reliable processes. Other sites have poor or non-existent processes. Investors need to ask questions and learn to assess platform credit capability.

TRANSPARENCY There are no set standards for the level of transparency and information platform should disclose.

REGULATORY ENVIRONMENTRegulators are uncertain how to regulate this industry. In some countries there is little or no regulation. In other countries regulation is a barrier to the industry and puts the industry an enormous disadvantage. The industry and the end investor need to engage regulators in a discussion that results in a clearly defined set of rules to foster the growth of the industry.

CUSTOMER CARE STANDARDSThere are not set standard for the way customers, both borrowers and lenders should be protected. Most industries have an ombudsman, for example. The P2P industry has no real way of addressing customer complaints other than though the courts and in some cases through regulators.

CROSSING BORDERSMany platforms have opened up to investors outside their borders and are also lending across borders. Still, many other platforms are hamstrung by a web of complicated taxation and investment regulations.

INSTITUTIONALISATION OF THE INVESTOR BASEThe arrival of institutional investors to the asset class threatens to crowd out the small investor and erode many of the benefits and opportunity set the small investor might otherwise enjoy. How platforms accommodate the inherently different investment needs and risk appetites of these two very different investors is an open question. It is also unclear how the industry will ensure a level playfield as these two groups of investors increasingly compete for assets.

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PANEL 1: P2P MARKET OPPORTUNITIES

Mr Tomáš Krabec, Dep. of Corporate Finance, University of Economics, Prague Mr Daniel Drahotský, Board Member, J & T Bank, PragueMr Maarten van den Belt, Advisory board, Lendahand, AmsterdamMr Jiří Staník, Founder, Helgi Library, PragueMr Igor Müller, Portfolio Manager, ING Investment Management, Prague

Information published by P2P Platforms varies. Banks have to publish because of Central Bank requirements. There is tendency to provide more information by P2P Platforms and will increase with regulation.More transparency will comeHouseholds in the Czech Republic are conservative, keeping a large proportion of their savings in bank deposits. Czech banks are strong and clearly want to keep things like this. Financial institutions wanting to change this will have to works hard.A social aspect of lending is becoming important, particularly for some investors. This aspect is as yet impossible to measure.

PANEL 2: REGULATORY ISSUES

Ms Ewa Chronowska, CEO, SymCredit-PL, Warsaw Mr Zdeněk Husták, Attorney, BBH / University of Economics, PragueMs Sam Ridler, Executive Director, P2PFA, LondonMr Libor Vacek, Attorney, DELTA legal, PragueMs Danica Šebestová, Attorney, Squire Patton Boggs, Prague

Regulatory approaches are different in each country. Banking regulations should not apply as P2P Platforms are not banksDiscussions are taking place in Brussels about an EU approach to P2P business.In the UK, FCA regulations now cover P2P platformsThe P2PFA in the UK and the EAPPL in Continental Europe are representing platforms in discussions about P2P regulation with Governments and the EU. P2P business is often being discussed as a part of Crowd Funding.A key part to any regulation is client asset separation.Transparency is fine but data protection and privacy is important – not every lender and borrower will be happy to be disclosed on the website.

PANEL 3: PRODUCTS 1

Ms Ewa Chronowska, CEO, SymCredit-PL, Warsaw Mr Jevgenijs Kazanins, Chief Marketing Officer, Bondora, TallinnMr Roman Feranec, CEO, Žltý Melón, BratislavaMr Michael Sonenshine, CEO, SymCredit, PragueMs Katarzyna Jereczek, Business Development Manager, Lendico PL, Warsaw

Each panel member presented their platform and then answered questions

Feranec2 years on the marketConservative approachAdding unsecured and guaranteed loans

Jereczek (see presentation)Global footprintInstitutional investors

KazaninsPersonal loans onlyLook at the EU as a single marketUses a homogeneous scoring model

Sonenshine (see presentation)Concentrating on SME market

QUESTIONS

How do we find market opportunities?Kazanins

By uniting EuropeSonenshine

By pursuing SME loans and determining willingness and ability to pay.

How is profitability managed?Sonenshine

Europe is more profitable than the USKazanins

Need to build own scoring modelJereczek

Keep lean and mean and respond to market & do not use own capital for funding

FeranecGood systems, streamlined processes, strong local theme.

How does a platform attract investors?Each country profile is differentBy letting investors choose risk profile

PANEL 4: INVESTORS

Michael Sonenshine, CEO, SymCredit, Prague Mr Kalim Aziz, Research Analyst, Armajaro, LondonMr David Bradley-Ward, CEO, ABLrate, LondonMs Hana Gawlasová, Attorney, Squire Patton Boggs, PragueMr Petr Sefzig, Founder, Findigo, Prague

Banking is now an automated mechanised business lending money to their products which they sell. P2P business is more flexible so has an appeal to the market.P2P Business is a market place. If it is reliable, it should grow enormouslyInvestors need to look into 5 issues:– Safe and secure platform– Terms and conditions of use of the platform: Clear? Hiding

something? Overly long?– Platform ownership, its transparency and the reputation of

owners– Investor treatment: are small and large investors differentiated– Look and feel of platform: is it uncluttered and free of a large

number of advertisingABLRate is a platform to complement institutional investment into aircraft leasingCore to ABLRates business is due diligence and communicationFindigo Prague is to be launched for personal loansFindigo presents investment opportunities to the the small scale investorAny investor is driven by their liquidity, risk appetite and desired returns (their budget also)

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QUESTIONS

Do you invest to P2P platforms yourselves? What is your experience?Aziz

I do not. What is important: history, quality and structure of data, statistical analysis of the loan – what risks they bring. It is important for being rewarded

GawlasovaWould like to but has not found a good one on the Czech market so far; would like to invest through crowd-funding

SonenshineBefore investing client‘s money, invested himself across platforms to verify – ZOPA, Funding circle – easy to invest if you have are a UK seat, good collection process. Prosper and Lending club require high initial investments. Bondora has a higher volatility and a unique mechanical collection process.

PANEL 5: BORROWERS (HELD IN CZECH LANGUAGE)

Mr Karel Havlíček, Board of Directors, AMSP – Association of SME‘s, Prague Mr Libor Coufal, Dep. of Banking and Insurance, University of Economics, PragueMr Petr Očko, Head of Economics and EU Financing, Ministry of Industry and Trade, PragueMr Pavel Kohout, Board Member, Partners Financial Services, Prague

HavlíčekP2P is an interesting tool for SMEs, as an addition to their bank financing.It is aimed at those not accepted by banks or as a tool for seasonal financing.Some Czech entrepreneurs have negative attitude towards banks.

OčkoEU funds for entrepreneurship and innovation for the Czech Republic amount to EUR 4.3 bn. These funds are not subsidies but used for support – loans, guarantees, seed funding.There are different financial support tools provided by EUP2P platforms currently not included but it is an option for the future.

KohoutConsumer loans are relatively expensive in the Czech RepublicAnnual percent interest rate can be up to the hundred.Marketed through TV, based on information asymmetry vs. P2P lending – lower interest rates, but an active approach of investors is required, i.e. more effort to finding the offers through internet.

CoufalSceptical about the option of consumer P2P loans – the interest rates should be around 30% as the risk of default is high. Everyone wants to lend money to a high quality client.

HavlíčekThe experiment with seed funding through the EU funds has not been successful due to administrative reasons. What should we expect from the Ministry of Industry and Trade in the area of financial tools?

OčkoA super-fund will be created in cooperation with one bank (Českomoravská záruční a rozvojová banka) where all the EU funding will be concentrated (for loans, guarantees, risk capital, etc) The super-fund will be split into different sub-funds and professionally managed.

HavlíčekIn which phases of economic cycle will be the P2P lending successful?

KohoutPlatforms have started during recent economic crises and there is not enough empiric evidence to predict further development.Banks in the EU and the US have enough financial resources thanks to central banks support.Therefore the low interest rates will remain.Credit penetration in Western Europe is very high but not in the ČR.

QUESTIONS

There is a shadow economy issue – can P2P lending help in this respect? Coufal

Yes, but only in case of more financially literate audience.Usury and high interest consumer loans for „worse“ segment will remain.

Is there an option to negotiate the interest rate for the borrowers which use the P2P? Kohout

The rate is calculated individually for each loan however there is no option to negotiate with investors.

Is there a difference between crowd financing (as an investment) and P2P lending?Kohout

It is like a difference between a share in the company (riskier, the outcome unclear upfront) and a credit (interest rate set in advance and the condition included in the loan contract). Also, there is another type – „consumer“ for a certain consumer product development or production which the investor then gets as a reward.

PANEL 6: PRODUCTS 2

Mr David Putts, Supervisory Board, Billion, Warsaw Mr Jens Glasø, CEO, Trust Buddy, LondonMr Maurizio Sella, CEO, Smartika Spa, MilanMr Siim Maivel, Founder, Investly, TallinnMr Piotr Strzelecki, Project Leader, Finansowo, Warsaw

GlasøScoring is important

SellaRegulators can destroy a businessSmartika is now full regulated in Italy. It has more controllers than employeesP2P business is a small percent of total in Italy

StrzeleckiPolish P2Market has the following characteristics– P2P Platforms are nto stron on verification– For scoring, internal models are often not used– Credit limits are based on individual data

MaivelInvestly makes business loans and accepts investors from anywhereThe costs are lower than banks so margins are lower.

SellaP2P platforms need to be socially responsible and to change the experience of the borrower

QUESTIONS

What is the current situation in the market place?

CLOSING REMARKS:MR MICHAEL SONENSHINE, PRESIDENT, EAPPL

We hope have gotten everything you’ve wanted from this conference.

Investors should come away smarter, better prepared to understand this asset class and more confident this industry offers a real viable investment alternative to traditional bank deposits and investment funds.

We hope investors will walk away with a better understanding not only of the potential P2P lending offers, but also of the risks they face when they invest in P2P loans. Especially as the industry is changing and developing rapidly, investors should ask questions before they invest and we hope investors who attended this conference will know more about the questions they should ask and the answers they should be looking for.

We hope also investors will have identified some platforms they can actually consider for investment today, now. We strived to ensure our platform panels featured investible opportunities of today as well as those of tomorrow.

Regulators and legal practitioners we hope will have gained a better understanding of what needs to be done to protect consumers while also fostering the growth of this industry that we believe has much to offer.

EAPPL is here! The European Association of Peer to Peer leaders has formed. We hope this means the industry will have a voice that will be heard as policy makers take decisions that affect this industry and the lives of those who choose to invest in the industry, be it through their professional career choices or through their financial decisions.

SymCredit is here! SymCredit opened its platform to borrowers seeing to apply for loans and to investors who wish to learn more about this asset class. We look forward to serving both group.

P2P platforms attending the conference hopefully have engaged each other their potential clients in a meaningful dialogue about what the industry needs to deliver to meet the requirements of borrowers and lenders.

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GlasøWe have to give something back to the people

SellaP2P structures are cheaper than banksP2P needs common regulations and there will be consolidationBanks will be tempted to enter the market but should keep out

StrzeleckiBanks make complicated offers. P2P can simplify this.There is space for much more growthRegulations will change

How long does it take to set up?Strzelecki

Organic growth with a strong focus on costsWe were earning in 6 months.