As the modern private capital markets emerge globally, terabytes of data must be turned into actionable innovation. This week’s report focuses on an innovative company in the Data and Analytics sector of the ecosystem. Could this company be a R.A.B.B.I.T? Read on and let us know what you think!
Company: 4thWay (www.4thway.co.uk)
Sector: Data & Analytics
Location: United Kingdom
4thWay considers itself the Morningstar of the marketplace lending industry They provide Peer-to-Peer (P2P) lending comparisons and risk ratings by experienced investors, risk modelers and senior debt specialists. The P2P business in in the United Kingdom is estimated to reach $100B by 2025. With over 26 P2P platforms, it can be overwhelming for individual investors today on UK platforms to make selections that fit their risk-adjusted portfolio strategy. Institutional investors are seeking tools for more a more efficient investment process. 4thWay provides 3 things:
- Assistance to institutional investors with platform and loan selection via its P2P lending risk modeling that they claim lowers rates of portfolio defaults.
- Support to platforms in new product/service creation that improves default rates. And
- ‘4thWay Risk Ratings’ that provide better exposure to platforms on its website.
1. What problem is 4thWay® solving?
P2P Investors struggle to find trustworthy information about the risks, returns, costs and unique features of an investment given the sea of options and platforms. 4thway offers investors a robust, independent and time efficient resource to use in their decision regarding which online lenders are right for them. For platforms, 4thWay is a popular place to market their business in an increasingly cluttered marketplace and showcase their loans.
2. Why is this product necessary?
P2P lending in the UK (as well in the rest of the world) is in hyper-growth. Liberum forecasts lending in the UK will reach$100bn by 2025, with continental Europe’s addressable market expanding five times larger. The risks in online lending vary considerably depending on a variety of factors. Investors need to gain a thorough understanding of the risk and opportunity if they are to make appropriate investing decisions. Not all platforms (nor their algorithms/teams) are created equal. Investors need analytical tools to ensure that they can make fact-based decisions in creating appropriate portfolios for their needs. Platforms succeed in the long run with investors that are well educated. As this global market grows, countries with low transparency and without adequate risk modelling may experience higher rates of fraud and default. It seems that services like 4thWay are even more vital in developing/less regulated economies.
3. What is the 4thway business model?
4thWay utilizes over 100 data elements for platform comparison and what they describe as “candid and clear research” from a team of experienced analysts. Because 4thWay’s risk ratings are calculated using global banking (Basel) standards, they believe their ratings can be applied cross borders. Their revenue model is based on users clicking through to lending platform websites and opening accounts. Similar to Morningstar, they provide institutional research. Morningstar earns $92M a year from its institutional research services and 4thWay considers this an additional revenue opportunity. 4thWay, “elects a user panel to monitor their website, make recommendations to it and act as a transparency measure to ensure the platform’s credibility and trustworthiness.”
4. Who are the founders?
4thWay’s founders have over 75 collective years of experience in data analytics and technology. Leigh Baker, senior quantitative risk modeller with 20 years of banking and online lending experience. Neil Faulkner, is a former investment journalist and media spokesperson. Nick Horrocks has over 15 years’ experience as a CTO and is assisted by Mark Faulkner, a Web project manager and finalist for the 2015 Agile Awards which recognizes top Agile talent. Sonia Rehill, financial Public Relations consultant and former global head of The Motley Fool. Melwin Mehta, who brings 15 years of fund management experience to the team.
5. What data exists regarding traction/user experience?
4thWay began compiling data in 2014 that users can drill down into on its 300+ webpages . This data and analysis has made them frequent sources for press, radio and TV to comment on the industry. In February alone, four major papers contacted 4thWay for commentary. They have experienced a “36% month-over-month customer growth over a recent 6-month test phase with almost no marketing,” says Neil Faulkner.. 4thway.co.uk is typically placed between 4th and 7th in Google search out of 45,000 for “P2P lending comparison.”
6. What are the risks?
Can 4thWay maintain their market leadership in UK P2P analytics and algorithms as other teams enter the market? One key risk is a failure to maintain its momentum as ‘the ratings and research agency of choice’ for UK P2P investors. They are currently fundraising which may distract them from running the operations. Post fundraising, how will the company increase inbound marketing to drive revenue? As more loans become available and the data is integrated into the system, site performance must be managed or may be compromised. Also, the use of a user advisory panel as discussed above to monitor the site’s content could be both an asset and a liability. Finally, there will be unknown legal and regulatory challenges as the market matures.
Our perspective on 4thWay
- First mover advantage to market data cross-platform, history of that data and trends raises the barrier to competitors. By expanding into Europe they continue to maintain their first mover advantage.
- Reliability, credibility and brand recognition brings in more users and that puts 4thWay in front of the media and incentivizes more platforms to partner with them.
- With the P2P market expanding rapidly (~6,000 accounts being opened a month, up from under 4,000 just six months ago according to AltFi Data) the pain point for investors to have access to understanding this market grows exponentially.
- Continued high search engine visibility will allow future consumers to find them over other competitors.
- For developing economies without analytics tools, 4thWay may represent a viable product for bringing reliable information to emerging P2P markets.
If you are you an innovative company in the debt or equity crowdfunding space that we don’t know about yet? Let us hear from you right now!