Funding Circle Holdings plc (FCH) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Funding Circle Holdings plc Half Year Results Investor Presentation. [Operator Instructions] I'd now like to hand over to Morten Singleton and Oliver White. Good afternoon.

Good afternoon, everybody, and thank you very much for joining. My name is Oliver White. I'm the CFO of Funding Circle. I'm joined by my colleague, Morten Singleton, who's our Director of Investor Relations. Hopefully, we have a great discussion today, keen to introduce you to Funding Circle, update what's been going on and answer any questions. The material we're going through is effectively the analyst presentation from our recent half year results, augmented by a few extra slides to give more context and detail. With that, I'd like to hand over to Morten to kick it off.

Thanks very much, Oliver, and just draw your attention to the usual disclaimer side before going into the main context of the presentation. So first off, I will just introduce a little bit about the business before I will take you through the details of the financials and our strategic progress in the half we just reported. So first for a little bit about our business. Funding Circle is the U.K.'s leading SME as in small business finance platform, and we have a material and growing presence in the United States. To date, we've extended over GBP 16 billion in credit with funds received from over 140 institutional investors, and we've delivered those to over 140,000 small businesses. For our small business customers, we offer a quick and easy way for them to get financed. Our instant lending decision enables them to get back to running their businesses more quickly. We talk about borrowers coming to Funding Circle for financing for 3 things: firstly, to borrow for the long-term with our term loans in the U.K. and the U.S.; secondly, to pay, spreading their bills and invoices over a longer term through our FlexiPay product; and thirdly, to spend, financing their day-to-day transactions with our FlexiPay card. The term loans we issued to small businesses are funded by institutional investors. Some of you may know us from the days when we offer peer-to-peer lending, but we ceased those retail funding activities back in 2021, and now all our funding for our term loans comes from institutional investors. For these institutional investors, we offer access to an alternative asset class through diversified portfolios of small business loans at a scale that is unmatched in the market and we deliver stable and attractive returns. We're a purpose-led business with our mission to build the place where small businesses get the funding they need to win. Sustainability, therefore, sits at the core of what we do with our social agenda of supporting smaller businesses, benefiting local jobs and local communities and, in turn, driving society and national economies. But it's not the only thing we do from a sustainability perspective. This chart effectively summarizes our ESG framework and the many initiatives that we are driving to deliver on emissions, employee diversity, equity and inclusion and our governance and risk management. These are all led at board level with associated objectives and performance measures in place. Why do we exist? Well, for a start, lending to smaller businesses isn't easy. Sure, the banks already do it to a large degree, and these remain our largest competitors, but the market is generally underserved because lending to small businesses is a hard thing to do. Why is it so hard? Well, for one, the small business environment is hugely diversified in terms of the nature of businesses involved and associated with that, their wide ranging and [indiscernible] complex risks. Secondly, because the data availability on SME businesses is usually fast and inconsistent with businesses also having limited access to secure against the -- limited assets to secure against loans, and the ticket sizes concerned are usually being quite small. Accordingly, the underwriting of small business loans is very labor-intensive and a costly exercise, particularly when compared to lending to consumers or to large corporations. And fundamentally, it takes time. So usually weeks and sometimes months in the case of the traditional providers to deliver loans to small businesses. So banks and traditional providers don't generally focus on the subgroup of potential borrowers, and it remains largely underserved. This next chart shows how we've solved this problem by using our proprietary technology and data. Our data lake has over 2 billion data points. We use this data to create models and in combination with our technology, this leads to valuable customer outcomes. Our models are 3x better at discriminating risk than the bureau scores. This leads to higher conversion for the same risk. Our customer experience is also unrivaled. 75% of U.K. loan applications now receive an instant decision and it's actually 100% when it comes to our FlexiPay loan applications. As a result, customer satisfaction levels remain high, with Net Promoter Scores of 76 and the Trustpilot score of 4.6. You are unlikely to find any banks quoting either NPS or Trustpilot scores for their small business lending at a good reason. So that's our business in a nutshell. Now to our recent performance. And for that, I will hand over to Oliver.

Thank you, Morten. This has been a good solid half for funding Circle, and I wanted to share some of the highlights. Despite the tough environment, our originations of -- other [indiscernible] on new lending has grown 14% to GBP 771 million. Our credit performance has remained stable, showing the strength of our risk models. We have priced up in line with the market to continue to deliver attractive returns to investors. And as a result, we've agreed 3 new forward flow agreements. And we'll talk about our funding model in a bit more detail as we go forward. Also, I'm pleased with the performance of our 3 business segments. And it's worth noting, we do think of our business as 3 distinct segments with a different dynamic. The U.K. loans business delivered GBP 1.4 million of PBT. Its the most established business and demonstrates the scalability of the platform even at a low point in the cycle. We continue to make controlled investment in the U.S. business in FlexiPay in order to capture growth over the medium term. In the U.S., growth continued with more than 20% improvement half-on-half. In FlexiPay, transactions doubled half-on-half. So I'm encouraged by the customer engagement as we see stronger recurring revenue trends. Overall, whilst we remain mindful of the economic backdrop of the business has shown its resilience and adaptability. We have a clear strategy. We're optimizing what we do, and we're finding new opportunities in our core business. We're launching new products and continuing to evolve the business. As I go into the financial performance, it was probably worked as beginning with a very important question of how we make money. We're a fee-based business and with 90% of the income coming from fees. For our term loan businesses, some of our established businesses in the U.S. and the U.K., we make money from transaction fees. So these are origination fees charged to the borrower, so therefore, are driven by the level of originations. Our typical yield is around 6%, was 5% after testing price elasticity in both the U.K. and the U.S., we've looked upwards to 6%, and we think that's a sustainable level going forward. We charge our institutional investors, so our funding partners a servicing fee. This is some of the qualities of annuity income stream and it's [indiscernible] for loans under management they have with us, charged at 1% per annum and driven by the loans under management. And we have FlexiPay as our new product with just 3% of total income in the half, but going to grow materially over time. The typical yield value is 4.9% over 3 months. So the way the FlexiPay product works is a borrower takes a loan, pay it back over 3 months. And rather than paying in interest rate pays a fixed fee on that loan. If I then get into some of the financials. So this is the overall group performance. As a headline says, we think it's very resilient in light of very tough economic conditions in both the U.K. and in the U.S. Originations, so new lending, growing each business unit, half 1 '23 compared to half 2 '22. Total originations were GBP 771 million in the half, up 14%. This growth is despite our continued disciplined approach to originations and is testament to strengthen our business even in tougher macroeconomic environments. We continue to prioritize long-term investor return performance over short-term originations. This is aligned of the expectations of the institutional investors and as a responsible approach to our borrowers. Headline loans under management continued to reduce to GBP 3.5 billion, as the government loan schemes continue to amortize down. Commercial lending, loans under management continued to grow up to GBP 1.5 billion, an increase of 9%. Total income was GBP 76.6 million, we broke from each of our business units compared to Half 2 2022. Adjusted EBITDA was GBP 3 million negative and PBT was a loss of GBP 16.6 million. As we have previously guided to the market, we anticipate losses near term as we choose to invest in growth, scaling our U.S. loans and establishing our FlexiPay businesses. Our established U.K. loans business is now profitable at the PBT level as we continue to deliver on effectively managing this business through the changing economic conditions. Cash and net assets remained strong. Funding for cost cash [indiscernible] of GBP 204 million and net asset value of GBP 264 million. This puts us in a fully funded position to deliver on medium-term plan. I will now walk through each business unit in a little bit more detail. The U.K. loans business is well positioned for continued growth. It is a market-leading platform for SME lending, has scale and is PBT profitable. Originations grew sequentially half-on-half despite the impact of the continued [ diffident ] approach to underwriting. Our loans under management reduced as the government support of lending fixed continues to amortize down. Commercial lending continued to increase. Total income was GBP 57.1 million, up from GBP 56.5 million in the prior half, reflecting the origination trends, the increase in origination for year as a higher interest income, offset by the expected reduction in the servicing income and investment income. Adjusted EBITDA was positive GBP 8.8 million, up from GBP 5.7 million in half to '22. This was driven by income growth and cost management in the U.K. loans business driving improved margins. U.K. loans adjusted EBITDA have been positive since half 2 of [ 2022 ], demonstrating the robustness and scale of the U.K. loans business. The business is profitable GBP 1.4 million of profit before tax. Turning to the U.S. loans business. U.S. loans continues to show good top line growth. U.S. total originations increased 21% in half 2 to GBP 259 million. The U.S. has continued to grow originations each half year since commercial lending resumed after government support in lending fixed in May '21. As in the U.K. loans business, we're continuing with a disciplined approach to originations. Loans under management were GBP 502 million, up from GBP 454 million. Total income was $20.7 million, up from GBP 17.4 million. This improvement was driven by the increase in originations and loans under management and the increase in origination yield. Underlying operating income continues to grow strongly. The U.S. loans business recorded a negative adjusted EBITDA of $4.8 million in half 1 and a loss before tax of GBP 11.5 million. We're continuing to make controlled investment in U.S. loans business, driving scale to profitability. Now to FlexiPay, the third and newest of our business segments. FlexiPay key drivers are transactions and end-of-month balances, which are broadly comparable to the originations and loans under management metrics of our loans of businesses. FlexiPay is a story of growth and a story of investment. FlexiPay transactions have more than doubled to GBP 90 million in the half. Period-end balances have also grown to GBP 34 million. This momentum has resulted in strong top line growth with a total income of GBP 2.3 million in half 1 '23, more than double the prior half. Shortly, we'll be showing a video to [indiscernible] life of FlexiPay products in a bit more detail. Adjusted EBITDA was GBP 7.8 million negative as we continue to invest in FlexiPay. We have invested in technology and the FlexiPay team. Additionally, as anticipated marketing spend and the expected credit loss provision build both front-run income. Profitability for FlexiPay come from repeated usage of the product, which will become evident as a customer base becomes more established. We align costs for the strategic needs of the business sectors. So operating expenses continue to be actively and tightly managed. Funding Circle's cost base consists mostly of staff costs, marketing costs and technology costs. Overall costs were GBP 96.2 million in half 1 versus GBP 91 million in half 2. In summary, this is due to investment in the U.S. loans business and FlexiPay, partially offset by tight cost management in the U.K. Loan business. The U.K. Loans business is the most established segment with an increasingly efficient cost base to allow us to benefit from operational leverage as we grow and the economic backdrop we cover. U.K. loans in half 1 '23 demonstrated improved cost efficiency, with costs decreasing to GBP 56.1 million, whilst total income increased by 1%. The U.S. loans business is scaling up, control spend in marketing and other costs have supported volume growth and platform scaling. FlexiPay is demonstrating a strong growth trajectory, and as just discussed, we are investing behind the product. Let's now turn to our term loan and performance and returns provided to our platform investors. So this is the returns we deliver to those who invested money with us on our platform. The overall book remained very stable despite the macroeconomic environment. We have seen pockets of stress versus initial expectations in the 2022 cohort, where we are forecasting small reductions and we expect returns in the U.K. of 40 basis points and the U.S. of 30 basis points. In the half 2 of 2022, we saw leading indicators of stress in the macro environment and took preemptive action. The reduction in return expectations results from originations in the earlier part of the year, we turned post tightening our line of expectation. All other annual cohort returns have even revised upwards remain confident. The 2023 returns illustrates how we have responded to the changing base rate environment, been able to reprice into deeply new curve to maintain returns. These borrowed price increases have been broadly in line with wider market pricing. Clearly, we are dealing with a heightened period of macro uncertainty. We are confident of our credit strategy. We continue to monitor all indicators closely, are very agile and responded quickly when needed. Our credit risk management is proven, our borrowers are resilient and the loan quality is good. The loan returns demonstrate the robustness through the cycle of the asset class that funding surplus developed and of the capability that Funding Circle has built to originate, underwrite and manage these loans. Funding Circle is a diverse, agile and sustainable funding model. The pie chart illustrates the diversification of sort of the funding for our total loans under management and we'll reach [indiscernible] segments who maintain a further diversified investor base. As Morten mentioned at the top of the meeting, the closed retail or peer-to-peer loan book continues to diminish a proportion of loans of the management now down to just 1%. We've continued to deliver sustainable funding and a flow of new investors. In the U.K., as of the end of June, we have up to GBP 1.6 billion of agreed funding, and we signed an additional material forward flow arrangement in January. In the U.S., we have up to GBP 4.4 billion of agreed funding, and we signed both a material asset manager and our second credit union partner. In June, we brought in Citibank as a senior debt provider to leverage Funding Circle equity invested in FlexiPay. This referred to an ensured [ GBP 150 million ] facility, executing this in demanding market conditions is again a testament to the quality of Funding Circle credit risk management and capital market capabilities. In the U.K., in August, we launched our participation in the third iteration of the Recovery Loan Scheme and brought on Allica Bank as a new bank investor. This is another example of Funding Circle continuing to adapt to the changing macroeconomic environment. Participation in the scheme enables us to meet our objective of saying yes to more businesses and further diversifies our investor base. It's worth noting that the third iteration of recovery loan scheme is quite different from the earlier government programs. Whereas to encourage government guaranteed lending displaced a large share of commercial lending, the most recent iteration of RLS is intended to work alongside commercial lending, addressing structural lending gaps. The majority of originations will continue to be commercial lending. Our balance sheet remains robust. Net assets of GBP 264 million, including cash of GBP 204 million and invested capital of GBP 69 million. The decrease in net assets is principally driven by investment choices we've discussed into U.S. loans and into FlexiPay. Moving on, our balance sheet, we see as a source of strategic advantage. This slide illustrates how we think -- how we use our cash and deploy our capital. And firstly, we support our operations. We will -- various stress tests to ensure we have enough cash to protect against a combination of stress scenarios. We will also fund the operating cash flow as necessary for the U.S. and for FlexiPay's scale to become cash generative. We invest where it makes the platform stronger. Use cases include limited co-investment for risk alignment with its institutional investors, for example, in the new iteration of recovery loan scheme or to support research and development efforts. Funding Circle is the equity investor in FlexiPay. As Morten mentioned, towards the end of the half, we successfully leveraged the equity investment. We have enough cash to deliver a medium-term plan. In addition, we are cash available for new growth opportunities,, should these become apparent. And we continue to manage share dilution by supporting the employee benefit trust in purchasing our shares in the market to fulfill our employee share awards. All in all, wearing my CFO hat, I'm pleased with Funding Circle's financial performance in half of '23. We've achieved good results in a volatile macro economic conditions with the U.K. and U.S. base rates looking that they will be higher for longer and the economic recovery pushed out. The business proved to be resilient and adaptable. We've sustained our credit quality and low returns. Institutional investors remain committed to funding an attractive asset class. Funding Circle continued to deliver on its growth strategy, our solid performance on a robust balance sheet steps the business well to drive future growth. We're well positioned for long-term success, and our 2023 and medium-term guidance as shown on this slide is unchanged. So now looking ahead, looking to all some of our exciting strategy. We're in a strong position. We've got good scale in the U.K. Loans business. As Morten discussed at the top of the meeting, the small business loans market across the U.S. large and U.K. is largely underserved with more than [ GBP 3 billion ] of loans outstanding. Our data and technology provides us with a sustainable competitive advantage. Our customer satisfactory remains hard. These give us good foundation on which to grow, and we continue to make good progress against the 3 pillars of our growth plan. We're attracting more businesses for expanded and strengthened distribution channels alongside an expanded product set. We're saying yes to more businesses. This doesn't mean irresponsible lending, but rather expanding to segments and delivering the right product to the right business, where our owners and third-party lenders we work with, and we're building products where we can achieve market-leading positions, with FlexiPay, which we're talking more about. So as mentioned, we've attracted more business through an expanded product set, focused brand investment and continued strengthening our existing channels. Each of our product [indiscernible] increases our relevance to our customers and enables us to go deeper in marketing channels. FlexiPay, in particular, meets a more frequent customer use case, attracting more customers. We've completed our first seasonal sports sponsorship to improve brand metrics with the Rugby Premiership in the U.K., and we continue to strengthen existing channels of new partnerships. We want to say yes to as many businesses as possible by expanding our end-to-end conversion. Last month, as I mentioned, we began our participation in the government's third iteration of Recovery Loan Scheme. Last year, we leveraged our data to find further opportunities and expand to super prime in the U.S. and near prime in the U.K. We've strengthened our marketplace, referring businesses that we cannot support to other lenders. This enables us to leverage and monetize our advantage in distribution and marketing. Our third pillar relates to new products. As a reminder, FlexiPay solves small business' biggest pain point, cash flow management. It enables us to solve more of our customer needs, building a deeper and more engaging relationship and access a sizable new market. We are seeing good growth with the doubling of transactions in the first half. Our total transactions are now more than GBP 150 million. And after a successful beta phase, we are moving to launch phase for FlexiPay card, enabling customers to finance a day-to-day spend. To bring FlexiPay to life, I'm now going to play a short video, fingers crossed, technology work to show you how it works and our customers use it. [Presentation]

That video gives just a little window into the positive feedback and engagement we're seeing from our customers using the FlexiPay and FlexiPay Card. FlexiPay transactions more than doubled in half 1 '23 to around GBP 90 million. And we have over 3,800 active lines of credit. We have high customer engagement with businesses using FlexiPay, 1.3x the average each month. And businesses are now FlexiPaid, if I had to make it a word, more than 40,000 times since we launched. What is particularly exciting for me is the chart on the right-hand side, this shows transactions each half by cohort of joining the FlexiPay, showing in different shades of Purple. You can see the overall growth that doubling in the most recent half and the new customers that are bringing it on over time, but also the level of engagement we see with existing customers. Once the customer use FlexiPay, they continue to do so because a part of the day-to-day way of managing the business, as you look at the cohort analysis, you can see that trend, we're strong and increasingly predictable with peak usage delivering recurring revenue. The product economics and the risk profile are attractive. We take the lots in costs upfront as we acquire customers with the credit cycles quickly and the nature of the customer relationship is long. Customers come back and a product of frequent usage and recurring fee income. That's why we continue to be really excited about the opportunity that FlexiPay will generate and why we are investing in FlexiPay. This is my final slide. I'm quite keen we can spend half the meeting listening to me, but in return, like its half a meeting along with Morten answering any questions you may have. So if I reflect on the half, indeed if I reflect on the business in general. Despite the tough economic environment, we've delivered a good solid set of results in line with expectations. We have once again demonstrated the resilience of the business on an aptitude of responding to the changing economic environment. Our U.K. loans business is profitable. We are seeing good growth in the U.S. loans business in FlexiPay. We continue to execute on our medium-term plan to address the large and underserved market in both the U.S. and the U.K. Our technology and data gives us clear competitive advantage and is a moat around our business. It delivers a superior customer experience through our instant decision lending technology, our platform on which we build new products and a 3x better risk discrimination in the bureau scores. We have delivered robust and attractive loan returns, thanks to our risk approach, which combines our data and analytics through credit expertise and means we continue to see strong investor demand. Looking ahead, we have a strong team, a clear strategy, and we're focused on executing against our plan. We are unwavering our ambition to help more small businesses win, and we continue to do so in spite of the volatile macro alignment. Thank you for your time today. Morten I will be very happy to take any questions. And looking at the questions, there has to be some great ones coming in.

Just let me just give you just a quick moment to review some of those questions, and thank you once again for your presentation. [Operator Instructions] I'd just like to remind you that recording this presentation along with a copy of the slides and the published Q&A can be accessed via your investor meet company dashboard. Oliver and Morten, you have received a number of questions from investors this afternoon. So thank you to everybody for your engagement. If I may, Morten, just hand back to you just to read out those questions and then I'll pick up from you at the end.

Fantastic. Thank you, Mark. Yes, a number of pre-submitted questions onto the platform. So taking them in order. Oliver, can you please discuss whether you can cross-sell FlexiPay to loan clients and the reverse?

Absolutely. So the bulk of the early FlexiPay clients have been existing borrowers. We've clearly got the data on them. We've clearly got good engagement. The beauty though of FlexiPay is it's also a vehicle to acquire new customers. Because of the risk characteristics of the product, we can probably offer it to a wider range. And we certainly see we can bring in new customers into FlexiPay and over time, promote and cross-sell the term loan profits to them.

Excellent. Next question, can you elaborate about your plans for new products in the U.S., either looking into FlexiPay or other? So the first thing we're doing at FlexiPay in the U.S. is scaling the product we've got. It's a great product. It's well received and certainly we look before COVID. We were run rate in probably GBP 80 million originations a month or [ GBP 1 billion ] a year. So [indiscernible] for the U.S. team is to scale the existing product. It should be noted at the beginning of the year in January, we hired a new and very experienced managing director for the U.S. business, a guy called Steve Allocca. He has worked for PayPal and for some other fintech lenders and platform lenders, including Lending Club in the U.S. So we're investing in the management team. We are looking at new products and adjacent products, but [indiscernible] is building the existing loan platform. We did speak about Lending-as-a-Service previously. And this is an exciting opportunity to build upon that core product to work with smaller banks in the U.S., community banks or regional banks and provide effectively a white label experience. We're expert in the U.S. just because of the [indiscernible] fragmentation of the banking market, but we're still excited about that opportunity. Okay. Next pre-submitted question. It was very interesting to see the new pricing on originations as well as on FlexiPay, do you believe the new pricing will impact on volumes, i.e., what level of elasticity are you modeling?

And also I read ahead [indiscernible] question about[indiscernible] core increased servicing fee. So maybe I'll handle those 2 together. So firstly, in the U.K. and the U.S. term loan business, we tested pricing elasticity, and we were confident that we could increase the yield without damaging origination. I see that being sustainable going forward. FlexiPay was slightly different. So we did 2 things on FlexiPay. We originally launched as a 3% fixed fee, and now we moved up to an average of 4.9%. That was less around pricing power and more around 2 things. The first was the base rate via changed. Pricing in the market needed or moved our cost of funds decreased. So partly a response to that. And secondly, as the product developed, as we test and learn, we're able to offer more of a risk-based pricing approach. So therefore, a broader range of pricing depending on the risk characteristics of the borrower. Servicing fee is about 1% in the U.S. and the U.K. It's charged to our institutional investors. So it's charged on loans under management and got to be able to annuity characteristic to that. That's dependent on individual contracts. Certainly, where we've got attractive products, we do look to maximize that servicing fee. But at the moment, it's still around the 1% level.

Next question. It seems that in the U.K., marketing efficiency has backtracked after a period of improvement. Can you please discuss that?

Its a bit harsh to call it backtracked possibly. So the marketing as a percentage of operating income for the loans business. We've guided to about 30% on a normalized level. Last year, it was 28%. This half, about up to 31%. That's primarily driven by -- with a tighter underwriting, a tighter credit box, and we have lower conversion, so less borrowers are expected, and that had a bit of an impact on marketing efficiency. As we continue to find ways to widen the credit box and as the economy rebounds, we would expect conversion to increase and our marketing efficiency to improve.

Thank you. We're now on to the live questions from this morning. So from [ Marcus ], do you have a revenue sharing model for those directed via the marketplace?

Not quite revenue sharing. We're paying a commission or [indiscernible] as opposed to a longer-term relationship. But as mentioned in the presentation, I think, alluded to in [ Marcus' ] question, it's a great way for us to monetize a relatively low incremental marginal cost. Those customers who have come to us, who for reasons of their product fit or their credit -- or the risk profile, we were unable to provide a product to, at the moment.

Thank you, Oliver. Next question is from Simon. What is the planned investment into FlexiPay?

Okay. So how we disclose the full investment, and it's important to note that investment in terms of building the technology and building up the team. And there's also, if you like, a P&L drag with the front loading of some of the costs, marketing costs or expected credit loss provision build. We've guided in 2023, we receive an EBITDA loss in FlexiPay of between GBP 10 million and GBP 20 million. And we've also guided that FlexiPay will be profitable at the EBITDA level by 2025. So it's clearly it's got a J curve, but a relatively short J curve.

Okay. Thank you. Several questions coming through from [ Vishal ]. The first one is building on the last one. So thanks for the presentation. Could you please give some color on the normalized cost base for FlexiPay. In other words, at what point do you think FlexiPay will start benefiting from significant operational gearing and generate cash inflow for the group?

So again, I mean, I would go back to the guidance we've given that we think FlexiPay will be EBITDA profitable or breakeven in 2025.

[ Vishal ] has then asked, please can you discuss how the U.K. government initiatives to improve domestic investments in homegrown businesses could impact the market opportunity for Funding Circle.

I mean that's quite a multifaceted question. I think anything that gives certainty and confidence to small businesses will benefit small businesses and therefore, by default, will benefit Funding Circle. What we are consistently told by our borrowers is the uncertainty that means borrowers are hold off on making investment decisions. So I think anything that can just provide that degree of certainty and that confidence will benefit the small business environment and community and hence, benefit Funding Circle.

And the last one from Vishal, please could you discuss how the market opportunity in the U.S. has been impacted by the financial turmoil seen post SVB, First Republic, Central Bank, et cetera.

Great question, Vishal. This probably plays most into the point I mentioned about lending-as-a-service. So this is working in the U.S. to partner with some of the smaller banks there. We've had great conversations, but I think the SVB fallout has meant it's gone slower than we would have liked. I think smaller banks in the U.S. have had other things on their mind, which probably means now is not the time to pursue a new agreement with a third party in small business lending. Still confident for the long term, but I think the biggest impact has probably delayed the crystallization of some of those agreements.

And the next one is the last question currently on the platform. So a reminder if you want some other question, please do so now. It comes from [ Mark P ]. The U.S. market is deep and liquid. What competitive advantage do we have?

I think very similar to the U.K., and as Morten outlined at the beginning of the meeting. So we've actually been in the U.S. for about 10 years now. So we're experienced. Yes, we have advantages in terms of our technology, our platform, our data or credit risk management, which comes together to enable a very slick and seamless customer experience. It comes together to enable very targeted marketing comes together to enable a distribution strategy that works, credit risk that delivers and returns that we can deliver to institutional investors that make it for both the U.S. and the U.K. an attractive, resilient, scalable investment opportunity.

Thank you. We've had one more question come through from [ Elias Julian ]. Once FlexiPay is mature, how big a business do you see it being?

Well, clearly, it's still nascent, it's quite hard to see into the future. Again, we've guided that by 2025 [indiscernible] of income of over GBP 50 million, but I think that could be just the beginning, particularly seeing FlexiPay as a family of products, meeting working capital and related these small businesses. we definitely see it could be a material part of the Funding Circle business going forward.

That's great, Morten, Oliver. You addressed all those questions from investors. So thank you once again to everybody for your engagement this afternoon. And if any further questions to appear, I'll make those available to you post today's call. Oliver, Morten, I know investor feedback is important to you both. I'll shortly redirect those on the call to give you their thoughts and expectations. But before doing so, I wondered if I may, Oliver, just return to you just for a few closing comments, and then I'll read direct investors for their feedback.

Yes. Well, thank you, everybody, for your time. I guess if I reflect back on the state of the business and our performance in half 1, we've had a very solid set of results despite tough economic environment. All business units are showing growth and in progress in line with the medium-term plan. And we feel confident enough to leave our guidance for both 2023 and medium-term unchanged. I think we've demonstrated our strategic execution and agility of our approach, and we continue to deliver what we say we do against the medium-term plan. And in big picture, we're operating in large underserved markets with [indiscernible] in all the segments. We've got ambitious medium-term targets for income growth and EBITDA profitability across all business lines by 2025. And that's underpinned by deep business strengths and sustainable competitive advantage. We've proven the model. Our knowledge with data delivers strong competitive advantage and superior customer experience. Loan returns are attractive and robust and driving institutional investor demand and our market valuation is below our net asset value, strong balance sheet and cash, which again further enables delivery of and confidence in our medium-term plan. So thank you, everybody.

That's great., Oliver, Morten, thank you once again for updating investors this afternoon. Later on, please do not close the session. We will now automatically redirect you for the opportunity to provide your feedback in all the companies to better understand your views and expectations. This one will take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Funding Circle Holdings plc, we would like to thank you for attending today's presentation. I wish you all a very good afternoon.