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The county of Kent, commonly called the garden of England, is not the most obvious spot to find a fast growing finance company. Bob Jones, who has worked in the sector for almost 50 years and now leads Blue Motor Finance, does not look like a stereotypical fintech executive.
But when Mr Jones is asked how his enterprise — which launched five years ago within an existing licensed business — has grown so quickly, his explanation could be taken right out of the fintech textbook. “The banks provide a fantastic service in the marketplace, we just do it better because they’re not as agile as we are,” he explains in Blue Motor’s headquarters outside Sevenoaks.
Chris Jones, Bob’s son and Blue’s chief operating officer, says that the “£100bn-plus” motor finance market has been “dominated by the banks for a long time”. He adds: “We’ve basically used tech to make the process better, faster and smarter, removing friction from the process . . . you can walk into a dealership and at the fastest level you can walk out with a car 20 minutes later.”
Behind Blue’s dealer-facing app lies sophisticated analytics to make speedy and risk-graded loans. This tech helped drive it to the top of the annual FT 1000 list of Europe’s fastest growing companies, up from 21st last year. Revenues hit £52.3m in 2017, from just £102,000 in 2014.
Tarun Sharma, a partner at Blue’s private equity owner Cabot Square — management also holds a small stake — says the company has performed “significantly better than our expectations” since it invested £37.5m in the venture in 2014. Now, Cabot and Blue are in discussions with investment bankers about a potential sale which could see the business taken over by a larger private equity group or established lender.
A buyer might question the health prospects of such a fast-growing loan book. Blue’s expansion has coincided with a growth period for consumer lending businesses, with low interest rates helping push default levels to historic lows. But the economic outlook has grown more uncertain, with banks expecting a rise in defaults.
Mr Sharma insists Cabot is not looking to cash in before the going gets rough. “[The sale is] driven by Blue’s maturity and available options — they have grown significantly, but they’re just scratching the surface in terms of related or adjacent areas they could be involved in, and for the next leg of growth they need significantly more capital,” he says.
Blue has lent around £1bn since 2014 and expects to increase that figure by 50 per cent this year alone.
Last year, it completed its first securitisation of its motor finance contracts, which analysts at Moody’s cautioned was higher risk than a typical UK auto deal. However, Blue said investor demand was high, which it saw as a “big vote of confidence”.
Car purchases have been a key factor in household debt levels reaching new highs, leading some to question their sustainability. Bob Jones argues the car financing market should be resilient in a downturn, as customers’ reliance on their cars makes them particularly reluctant to risk losing the vehicle by defaulting.
Much of the recent growth in the market has been driven by the personal contract purchase, a form of leasing where drivers rarely take actual ownership of the vehicle but instead finance its depreciation for several years before trading it in. This exposes lenders to risks if cars do not hold their value as well as predicted.
Finance is used for 91 per cent of new car purchases, the bulk of which is now via PCP. Blue has focused instead on traditional loans for used cars and has avoided PCP. “[It’s] the frothy bit of the market. We’ve been under pressure to do it but we’ve always held the line and said we just don’t think it’s a clever idea,” Chris Jones adds.
Blue is looking to expand into lending directly to dealerships to fund their stock purchases. Mr Sharma suggests that a future owner could also use Blue’s technology to grow in areas beyond motor finance.
Despite its revenue and profit growth — with pre-tax profits of £7m in 2017 — Blue has not yet attracted the eye-watering valuations of some fintechs. Bob Jones jokes that he is “in jealous awe” of start-ups such as peer-to-peer lender Funding Circle, which has a market value of £1.4bn despite not turning a profit. Any sale is not expected to value Blue above the $1bn mark to qualify as a “unicorn”.
“What we’ve achieved in terms of the growth so far is itself spectacular — we just don’t see why that would diminish,” says Bob Jones. Having lent its first billion pounds, he thinks Blue could get to that level in annual lending “almost automatically”.
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