No monkey business: What the finance industry can learn by going back to basics

 
Katherine Denham
A monkey drinks a juice in front of an a
Source: Getty

There's a lot we can learn from our closest relatives. And no, I’m not talking about human relatives. I’m talking about those in the animal kingdom: monkeys.

One thing monkeys can teach us about humankind is our predisposition to gamble. You’re probably wondering when you last saw a monkey in Paddy Power. And since when did monkeys “give a monkey” about money?

It turns out that monkeys are quite partial to orange juice, according to Greg Carter, who heads up newly launched peer-to-peer (P2P) platform Growth Street.

The idea harks back to Carter’s university days when he studied risk-taking behaviour as part of his neuroscience degree.

When given a choice between a variable amount of juice as a reward, and a fixed amount of juice, monkeys would choose the variable option – even though the amount of juice they get would be lower on average.

This gambling trait is not dissimilar to human beings. Just think of the Grand National: on average, you will lose money, but people still place bets because they love the reward of winning.

“This behaviour is fundamental to what we do as human beings, and it’s fundamental to the evolution of our species – to take risks and go beyond the next hill,” says Carter.

The bigger picture

You probably wouldn’t expect a neuroscientist to be running a P2P platform, but understanding the inner workings of the human mind has been instrumental in Growth Street’s proposition.

“From a behavioural economics sort of view, it’s made me very conscious of how people make decisions in relation to finance, and the need for simplicity above all things,” Carter tells me.

That’s quite an interesting dynamic within the alternative finance industry, because there is – quite rightly – a big push towards transparency.

Yet he suggests that transparency can actually create more complexity. “We are very strong advocates of clarity rather than transparency. Releasing your entire loan book doesn’t actually help people understand the real risk.

“Of course, we provide lots of transparency on the data, but you will see a narrative approach to describe how the investment works and how we manage risk.”

Simple on the surface

Given that we lead increasingly busy lives, there’s a lot to be said for making things easier to digest.

And that’s exactly what Carter set out to do by launching the GrowthLine offering. On the surface, GrowthLine seems pretty straightforward, but Carter admits that building the infrastructure was tricky because of the high degree of flexibility it offers businesses.

It’s basically a revolving line of credit – you can borrow up to £1m, and repay in whatever increments you like, whenever you like.

This tool helps young businesses manage their working capital and grow, ensuring they don’t end up over-borrowing.

This differs to many P2P lending platforms, which simply set up traditional term loan products where you give businesses a slug of money and they pay it off over time.

In short, Growth Street offers a cash management facility through a P2P lending model.

“Unlike many alternative lenders, we are handling a very high velocity of cash flows,” Carter says. “It’s the access to cash which is the fundamental problem we are trying to solve for business owners.”

Leaps and bounds

Since it launched in 2015, the group has matched £100m of investors’ money with growing scaleup businesses in the UK.

For investors, it’s a no brainer – you simply select the price at which you want to lend.

If the borrower defaults, Growth Street has a provision which buys the bad loan and repays you back the full amount plus accrued interest immediately.

It’s then up to Growth Street to negotiate the terms of repayment with the borrower.

Despite the Bank of England cutting the cost of borrowing for the real economy, it’s interesting that businesses have actually been borrowing less. Carter reckons that this is because companies have struggled to find products that have the versatility they need.

“Business owners are naturally more confident people, but that’s not to say they don’t worry. They should be worrying about how to innovate and grow, not whether a customer is on payroll.

"I think we can take away what should not be a worry, such as payments or your cash position. So it’s really about understanding the pain these companies are going through and designing a solution for them.”

The power imbalance

Growth Street is aimed at scaleups that are at least three years old – essentially early-stage firms with plenty of high growth potential.

But these companies are often faced with a yawning gap when it comes to their cash position, as their corporate partners are often slow to pay on time.

“The nature of the SME supplier to the big corporate buyer is one driven by an economic imbalance in power,” says Carter. “If corporations are dealing with a thousand different suppliers, they have all the knowledge and the power.

“Regulation might help to address a market failure, but we need to address that power imbalance. This is partly through alternative finance tools, which give SMEs the power to negotiate.”

There’s a lot to be said for going back to basics, and I get the impression that this science-minded chief executive is really focused on solving the problems at hand. Taking risks is all good and well, but business owners and investors alike need to feel like a reward is well within their grasp in order to make the risk worthwhile.

A lot more can be done to help businesses reach their full potential. If we are prepared to take risks and evolve, the rewards are much greater than orange juice.

Related articles