With Varengold Bank’s 25th anniversary quickly approaching, it’s safe to say that the company has already weathered many storms. Originally founded as a boutique asset management firm, the Hamburg-based bank was granted a full banking licence in 2013 and subsequently shifted its focus to facilitating the growth of European FinTechs and more specifically online lending platforms.
We sat down with Alison Harwood, Head of Varengold’s London Branch, and Marc Morian, Head of Communications, to find out more about the bank and how they help FinTechs tackle current market challenges.
Who Is Varengold Bank?
Alison started our conversation by explaining how Varengold supports Fintech lenders. Varengold works with FinTech firms developing lending solutions for SMEs, consumers, real estate, invoice receivables or other asset types. The firm typically chooses innovative partners that have outgrown early sources of financing but aren’t quite ready to access the capital market and larger institutional money.
With Varengold’s support, these FinTech firms can expand their product capabilities and access the EU financial markets where lending is highly regulated.
Current Market Challenges Facing FinTechs
During Alison’s time at Varengold, she’s developed a deep understanding of the challenges FinTechs face and the type of partnership they need to grow.
When asked about the biggest challenges facing FinTechs during the current situation, Alison explained that many struggle to secure enough cash to grow their portfolio. They get early-stage funding from angel investors, friends or family, but eventually require significant additional funds to generate their portfolio and support their lending solutions.
Most sources of funding for early-stage startups are expensive. Yet, accessing the capital market isn’t possible for companies with portfolios under £100-200 million. This leaves FinTech firms, which typically hover round the £15-100 million mark, with very little support.
Varengold helps FinTech lenders to overcome these challenges and ease the strain on their businesses by creating a better, more cost-effective source of funding. Giving them the liquidity they need to grow their books.
Within the current market, liquidity becomes an even bigger challenge as many lending institutions have shut their doors and many investors are hesitant to enter into new exposures or scale-up into existing markets. “It’s certainly a challenging time for raising debt capital,” said Alison.
How Varengold are Handling the Market Turmoil
When asked about the impact of COVID-19 on Varengold Bank, Alison explained that it’s still too early to fully understand how it’ll change the economic environment in various markets and the knock-on impact on portfolios.
Thankfully, the bank’s teams have handled the disruption with ease and have even seen a positive impact on team collaboration. Alison expects that this will lead to long-term positive changes to the company’s ways of working.
Varengold is still executing new deals, continuing its lending efforts and looking at new opportunities. However, the bank continues to closely monitor the management of existing portfolios and frequently engage with clients to put safeguards in place to minimise risk and encourage open conversations.
Creating Better Collaboration Between Lenders and Equity Partners
Alison took a moment to reflect on the importance of close collaboration between FinTech lenders and their equity partners during this challenging time, saying:
“Transparency is very important to the extent that if lenders are starting to see any strain, they should share this information with their partners. Good equity partners will try to understand the situation and create a plan to achieve the best outcome.”
Likewise, open communication can also reveal interesting opportunities that lenders could take advantage of to achieve a positive outcome. For example, leveraging government schemes or identifying new niche areas for business opportunities could plug any gaps and help FinTech lenders weather the current storm in areas where they’re no longer willing to lend or where demand has dried up.
Alison stressed the importance of FinTech lenders remaining nimble and working quickly with their equity partners to seize new opportunities. She also explained that specialised lenders like Varengold are often in a better position to be nimble and act swiftly than traditional lenders.
Written by Kathryn Strachan, Everly Journalist & Managing Director at Copy House. When Kathryn’s not creating articles for Everly, she runs Edinburgh-based content marketing agency Copy House. Copy House specialises in helping FinTech founders bring their insights to life with SEO optimised websites and thought-leadership content.