My youngest son told me the last weekend that a mortgage adviser had told him that he needed at least a 30% deposit to fund a new mortgage. I told him that I didn’t think that would last. Lo and behold four days later the UK Chancellor Rishi Sunak announced that the government would step in to the gap between 70% and 95% by guaranteeing the top slice. This is undoubtedly a sensible approach. Several major banks took excessive fright at a potential for crashing house prices by drastically tightening credit criteria. Rishi has ridden to the rescue to prevent a self fulfilling prophecy occurring. Nobody wants a construction slowdown after the pandemic but that was what we were facing.
Just another reminder from our friends in Athens that the banking crisis in Europe has not gone away it is just slumbering away out of the headlines. Europa Bank carried out a similar drip feed exercise last year. Greece is a microcosm for Europe and the Eurozone. Sell off the bad debts because otherwise the balance sheet looks terrible. This problem with bad debts in Europe is not going away anytime soon and it is not just the impoverished ClubMed states that are involved. After all the Greek banks have cleaned up their balance sheets there will still be international creditors totalling nearly 180% of GDP. These debts are never going to get repaid. The whole world is in rollover territory.
This is a great example of Fintech in action integrating its technology with suppliers of goods to get seamless transactions is a win win scenario for everybody. The suppliers provide the clients and Klarna provides the money, what’s not to like? Despite the shiny Fintech image the underlying business has in fact been around for years. Catalogue instalment credit where you paid for something bought from a catalogue over a short period of time was quite popular for a number of year. However it is the technology that has brought about the change by removing all the irritating difficult and expensive parts of retail commerce and generally making life easier and more efficient. The only potential fly in the ointment is regulation. The UK’s FCA have taken a keen interest in Klarna’s activities presumably with view to protecting consumers from themselves. As the valuation shows consumers love it. I see little point in trying to fix something which clearly isn’t broken. It will not be Klarna’s shareholder who pay for regulatory interference it will be it’s customers.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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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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