Good morning, thank you for joining us for the Funding Circle full year 2022 results. I'm going to kick off today with a business overview. I'll then pass to Oliver for the financial results, I'll finish by running you through the progress we're making on our medium term plan. Before I dive in, I wanted to pull out some of the highlights of our 2022 performance. In a difficult economic environment, we've delivered a solid set of results with total income of GBP 148.7 million and Adjusted EBITDA of GBP 6.8 million. We have transitioned back to commercial lending following the pandemic, continue to show robust and attractive loan returns to our institutional investors and made good progress in the first year of our strategic plan.
We are well-positioned for long-term success with momentum in the US and FlexiPay, and have firm foundations for growth. Let's kick off. At Funding Circle, we have an important mission: to build a place where small businesses get the funding they need to win. For our businesses, like Nicholas Florist in Hackney, we deliver an unrivaled customer experience. We have transformed the small business borrowing process from something slow, arcane, and paper-based into something that is quick, easy, and online. We are expanding our product set with FlexiPay to create products that meet more customer needs. This means our SME owners have more time to concentrate on doing what they do best, running their business. When small businesses win, so too do their communities and the economy. That's why Funding Circle delivers a huge impact.
To date, we've extended over GBP 15 billion in credit to over 135,000 businesses. Last year, in the U.K. alone, lending through Funding Circle supported over 100,000 jobs, contributed almost GBP 7 billion to GDP, and generated GBP 1.4 billion in tax receipts, supporting communities up and down the country. I'm really proud of the impact that we have as a business. This wouldn't be possible without our fantastic team of Circlers, and I want to thank them for all their hard work and dedication. Over the last 12 years, we've helped SMEs like Nicholas to win by transforming the way that small businesses borrow. This time last year, I explained that we're evolving our business from one that enables SMEs to borrow for the longer term to one that also enables them to pay and spend, too.
In 2022, we furthered our progress towards a multi-product business. FlexiPay is now available to all UK customer segments, and we've launched FlexiPay Card in beta. We are becoming a more important part of our customers' lives and leveraging our capabilities further. Our SMEs now use Funding Circle for 3 things: borrowing for the longer term through our super prime and near-prime loans, paying bills spread over 3 months through FlexiPay, and making day-to-day spend with FlexiPay Card, which is in beta. At the heart of what we do is our proprietary data and technology. It powers our slick customer experience across loans in FlexiPay, our credit performance for our institutional investors, and enables us to scale. It forms the moat around our business. Our tech platform was built on a data lake of over 2 billion data points.
A combination of Funding Circle proprietary data and publicly available data. We use this data to create our risk models. These are 3 times better at risk discrimination than the bureau scores. This means we deliver robust and attractive loan returns to our institutional investors while supporting more businesses. Our data and technology is not just focused on our risk discrimination, but also on creating a great customer experience. Our application process is quick and easy for SMEs to apply for credit. Our Instant Decision technology means over 70% of loan applicants in the U.K. can apply in 6 minutes, receive a decision in 9 seconds, and have money in their account in 24 hours. This remains a unique and differentiated proposition in small business lending. We maintain high customer satisfaction as evidenced in our NPS of 77 and a high Trustpilot score.
This generates continued borrower demand, ongoing engagements, and gives us a strong base from which to grow over the medium term. Over the last 3 years, the world in which we have been operating has been volatile, to say the least. I think it's worthwhile to pause and reflect on the storms we've weathered during this time, how we've responded, and what this means for our business. COVID brought a unique set of circumstances. SMEs came under significant operating pressure. The government in both the UK and US responded with an unprecedented set of supports in the form of loans which brought forward borrowing. Throughout this period, we have demonstrated resilience in the business model and agility in our response. Loan returns in the UK and US have continued to be robust and attractive.
Thanks to this, we continue to see ongoing demand from institutional investors to fund loans. Our platform delivers a great customer experience to our businesses, leading to continued demand for loans. We've demonstrated the scalability of our platform, and during the COVID peak, we scaled up very quickly in both the U.S. and the U.K. As SMEs have moved online to borrow, we've been able to meet their needs. We've been disciplined in our approach to costs, maintaining a high cash balance, giving us opportunities to invest selectively in growth opportunities. As I look forward, I feel really confident about where we are. This period has made us stronger as a business. We have shown our resilience. Whilst the U.K. economic environment weighs on our U.K. loans business, versus a year ago, we as a group are more diversified and have more confidence in our growth plan.
In the UK loans business, we will continue to maintain prudence in lending in 2023. We believe long-term robust loan returns outweigh short-term origination benefits. As such, we expect our medium-term plan to be pushed out by a year. Oliver will talk later about how we have updated our medium-term guidance to reflect this. We are in a strong position to rebound when the recovery comes. In the U.S. loans business, we are facing a more benign economic environment. I spoke about my optimism for growth last year. We've seen that through the course of 2022. I expect the momentum to continue in 2023. In January, we welcomed our new U.S. managing director, Steve Allocca, who brings a wealth of small business lending experience and is excited to take the U.S. business to the next level.
In FlexiPay, we're seeing strong growth and engagement from our customers. It is still early in our journey, the performance thus far has continued to meet, and in some instances, exceed my expectations. This, combined with our right to play in this new market, is why we've decided to step up our investment behind FlexiPay. Today, we'll share more about the product, its progress, and introduce guidance. I'll now pass over to Oliver to share our financial performance.
Thank you, Lisa. Good morning, everyone. It is my pleasure to be able to share Funding Circle's 2022 financial performance. Before I do that, let me begin by recapping how Funding Circle makes money. We have a fee-based income model, what we call operating income, with some limited investment income. Over the past few years, we have focused on the operating income and reduced the contribution from investment income. Within our operating income, we receive transaction fees and servicing fees, plus we now have FlexiPay as an additional and increasingly material future source of income. Transaction fees are charged to borrowers, are driven by origination volumes, and accounted for 55% of our full year 2022 total income. The typical yield is circa 5%. During the second half of 2022, in both the U.K. and the U.S., we began testing higher levels of origination fees.
Servicing fees are more of an annuity stream charged to institutional investors at 1% per annum and are driven by loans under management. Servicing fees made up 32% of our 2022 total income. Lisa will talk more about our new product, FlexiPay, later, but its economic model is that of a fee charged at each drawdown made against the line of credit and payable in line with a FlexiPay loan over three months. At launch, this fee was 3%. With the rising base rate environment for new borrowers, this is now 4.5%. The FlexiPay contribution in 2022 was GBP 1.5 million of income. This will grow over time as we scale the product. Together, the transaction, servicing, and FlexiPay fee income make up almost 90% of Funding Circle's total income.
Investment income is driven by equity invested where it makes the business stronger. The yield will depend on the nature of the investment and its risk-reward characteristics. As expected, investment income has reduced. Investment income represents 12% of total income in 2022, down from 20% in 2021. Let's now look at the group results and overview. 2022 was a solid year for Funding Circle, with results in line with expectations. Originations were almost GBP 1.5 billion, and loans under management GBP 3.7 billion. Total income was GBP 148.7 million, and adjusted EBITDA was GBP 6.8 million positive. This was down from GBP 206.9 million and GBP 91.8 million in 2021. There are a few key drivers to understanding our results and the comparison to 2021. 2021 was an exceptional comparator.
Firstly, 2021 saw the peak of the government support and lending schemes. The impact of these schemes was to pull ahead borrower demand into the time periods when the schemes were in operation. Secondly, in line with guidance, we've reduced the proportion of income and Adjusted EBITDA coming from investments as we've optimized and simplified the balance sheet. 2021 saw a significant contribution from the writeback of material fair value adjustments. Lastly, we have, and we will continue to take a prudent approach to lending, given the economic outlook. Cash and net assets remain strong. Funding Circle has cash of GBP 177.7 million and a net asset value of GBP 284 million. This puts us in a fully funded position to deliver our medium-term plan. I will now explain these results in more detail.
This slide shows the key value drivers of originations and of loans under management at the group level. Beginning with originations, we can see the momentum in Funding Circle commercial lending as the government schemes were phased out. 2021 saw the peak of the government support and lending schemes with CBILS and then the Recovery Loan Scheme in the U.K. and PPP in the first half of 2021 in the U.S. Commercial lending restarted in H2 2021 in both markets, although in the U.K., this ran alongside the RLS scheme until May 2022. Commercial loan originations increased from GBP 154 million in 2021 to over GBP 1.1 billion in 2022, notwithstanding the prudent approach we adopted to new originations. Loans under management have reduced as the government-supported schemes have paid down.
As expected in the U.K., we saw high levels of prepayments after the expiry of the first subsidized year of the CBILS scheme ended. In the U.S., we saw a continuation of PPP forgiveness by the U.S. government as these loans passed the one-year anniversary, and borrowers proved that the usage had met the appropriate conditions for forgiveness. Commercial loans under management have increased 13% year-over-year. This slide, still at the group level, shows total income, Adjusted EBITDA, and operating loss. To give added insight, the income and Adjusted EBITDA is split between operating and investment contributions. Operating income and operating Adjusted EBITDA follow the origination and LUM trends of the previous slide. The proportion of investment income continues to reduce from GBP 41.4 million in 2021 to GBP 17.3 million in 2022, as we've actively managed and simplified the balance sheet.
This reduction in income is matched by a reduction in Funding Circle equity invested in these vehicles, and the monetization and amortization of these has boosted Funding Circle cash. We fair value the loans on our balance sheet. In 2021, non-recurring fair value write-backs were taken of some of the downward adjustments from the previous year. These write-backs offer further evidence of the quality of our underwriting. We saw a reduction in investment EBITDA from GBP 70 million in 2021 to GBP 22.1 million in 2022. Turning to U.K. loans, to be clear, this excludes FlexiPay. Full year originations were GBP 1.095 billion, down from a record GBP 1.972 billion in 2021. Originations reduced from the peak of government loan support schemes. As a reminder, CBILS operated until June 2021, the Recovery Loan Scheme operated from then until May 2022.
We restarted our commercial lending alongside the Recovery Loan Scheme in June 2021. Given the wider economic outlook, in half two we took a prudent approach to the origination of new loans in the U.K. This is reflected in slightly reduced half two originations. Originations by half can be seen in the table below the chart. We consider this approach to the appropriate action to take and is aligned with the expectations of our institutional investors and is a responsible approach to our borrowers. loans under management reduced from GBP 3.9 billion to GBP 3.3 billion. This was driven by the expected increase in prepayments from CBILS borrowers. For the first 12 months of the CBILS loan, the government paid both the origination fees on behalf of the borrowers together with interest due. No principal repayments were required in the first year.
Thereafter, borrowers are required to pay the interest and principal repayments, and hence a number of customers choose to repay the loans around this time. Total income was GBP 117 million, down from GBP 159.4 million in 2021, reflecting the origination and LUM trends already discussed, together with the year-on-year reduction in investment income, which was down to GBP 9.8 million from GBP 21.7 million the previous year. Adjusted EBITDA was a positive GBP 11.7 million. This is despite the lower operating income and reduction in investment Adjusted EBITDA, which was down to GBP 7.4 million from GBP 32.2 million the previous year. UK Adjusted EBITDA was positive in both half one and half two. This demonstrates both the robustness and the scale of the UK loans business.
The business has a small operating loss of GBP 3.7 million. Turning to the U.S. The U.S. is showing strong momentum in its return to commercial lending. U.S. total originations of $401 million, down slightly on 2021. Half one of 2021 saw the peak of Funding Circle's participation in the U.S. government support and lending with PPP. Since then, the U.S. business has demonstrated momentum in commercial lending, notwithstanding our prudent approach to originations. As can be seen from the table on the slide, U.S. originations doubled half two 2021 going into half one 2022, and then increased a further 14% to $214 million in half two of 2022. We see a very positive trajectory for the U.S. going into 2023. We see a more benign economic environment in the U.S. than we expect in the U.K.
US loans under management were $454 million, down from $574 million in 2021. This reflected the expected forgiveness of PPP loans. These are designed to be forgiven by the government if certain criteria are met, for example, around the use of funds to pay salaries. PPP accounted for $169 million of our LUM at the end of 2021, and this was down to just $34 million by the end of 2022. We earn no servicing income on PPP loans. Excluding PPP, loans under management grew 4% year-on-year. Total income was $35.5 million, down from $61.3 million. This reduction is driven by the drop in PPP originations, which carried a high yield on our typical loans and the reduction in investment income.
PPP loans are, from an accounting view, treated as being on Funding Circle's balance sheet, although no equity is invested, and these are fully funded by the U.S. government. We're required to spread the transaction fee over the expected life of the loans. This expected life is until the forgiveness of the PPP loans. Underlying operating income, in other words, after adjusting for the PPP accounting, grew reflecting the momentum of commercial loan originations. This was $4 million in half two of 2021, up to $7.5 million in half one of 2022, grew to $10.9 million in half two of 2022. The U.S. business recorded a small negative adjusted EBITDA of $4.1 million and an operating loss of $11.5 million. Turning to costs.
Operating expenses have continued to be actively and tightly managed and are broadly in line with 2021. These costs consist mostly of staff costs, marketing costs, and technology costs. Our half 2 costs are up sequentially in half 1. This is due to investment in FlexiPay, including marketing costs, investment in brand in the UK, including the rugby sponsorship, scaling of the U.S. business, continued investment in technology, and impacts from the wider inflationary environment. Marketing costs remain relatively stable during 2022 at 29% of operating income. Half 2 was slightly higher than half 1, reflecting marketing investment in FlexiPay and brand. We expect to see broadly this level of marketing spend continuing. Let's now turn to our loan performance and the returns provided to our platform investors.
For each annual cohort of originations, we show the most recent return expectations, and in the bubble, how the expected loan returns have changed since the last time we discussed them. The UK is on the left and the US on the right. In both the UK and the US, this shows loans either maintaining or improving their returns. Our credit risk management continues to be proven, our borrowers continue to be resilient, and the loan quality continues to be good. The loan returns demonstrate the robustness through the cycle of the asset class that Funding Circle has developed and of the capability that Funding Circle built to originate, underwrite, and manage these loans. This capability and track record underpins the sustainability and resilience of our funding model.
As you can be seen, over the years, despite the unprecedented impact of the pandemic, we've returned an average cohort return of 5-5.5%. 2022 returns show a blended return through the year. As base rate expectations have risen, along with investor return expectations, we've increased borrower pricing. These increases have been broadly in line with market price moves. Funding Circle's funding model has a number of advantages versus both traditional banks and versus non-bank balance sheet lenders. As we have just seen, it is based on a proven track record of delivering attractive and robust returns through the cycle, giving institutional investors access to an attractive asset class and access to that asset class at scale. It is this that enables Funding Circle to enjoy resilient funding.
It has been proven to give access to diverse and sustainable funding sources, as can be seen in the pie chart, has proven agile and responsive to changing market conditions. It enables rapid scaling and operational leverage, as seen by Funding Circle being the third largest originator of SBICs. It limits and manages credit risk exposure with limited Funding Circle equity deployed and underpins a high return on equity, maximizing shareholder returns. The pie chart on the right-hand side of the slide shows that diversification of funding. This illustrates expertise in aggregating the right capital for the right product, along with our adaptability towards sourcing different funding at different times. This set of funding sources shows continued diversification, with asset managers and banks continuing to be our largest investors. Within each of these segments, we further maintain a diversified investor base.
Retail continues to diminish as a proportion, now down to just 2%. Of the GBP 3.7 billion of loans under management, 3% is funded by Funding Circle equity. Our expertise in building relationships with institutional loan investors and our track record in delivering robust loan returns drives resilient funding. This expertise is in developing appropriate funding structures, sourcing a wide range of institutional investors, building deep relationships with those investors. It is coupled with our delivery of robust returns and facilitating access to this asset class, combined with the agility we have shown through major changes these last few years to be able to transition our funding sources in accordance to market conditions. An example of this will be managing the transition in the U.K. from a blended Recovery Loan Scheme and commercial approach to purely commercial lending in 2022.
This expertise in aggregating institutional capital delivers sustainable funding in 2022 and a strong funding flow for 2023. In 2022, we utilized several sources of funding. Institutional funding accounted for 86% of our 2022 loan originations. We have a robust go-forward pipeline. In the UK, we signed 4 forward flow agreements in the year, totaling GBP 2.4 billion, and we have signed an additional material forward flow agreement in January. In the US, we worked with 8 forward flow investors through the year, including our first credit union partner. In January, we signed another additional material forward flow agreement. During 2022, we've adapted to the rising base rate environment and raised investor return expectations through increases to our borrower pricing in line with wider market price movements. Our marketplace accounted for 11% of originations.
This is a diverse set of third-party lenders in both the U.K. and the U.S., to whom we refer applications that sit outside our product set or credit box. Marketplace lending is not included in the loans under management. Three percent of originations were supported by Funding Circle equity. This included investment to support FlexiPay. Our balance sheet remains robust. Net assets of GBP 284 million, including cash of GBP 178 million, and equity invested of GBP 97 million. Unrestricted cash of GBP 166 million has reduced by GBP 33 million in the year. Only GBP 8 million of this has been due to operating outflows, mainly to support the U.S. from FlexiPay. The remaining net outflows of GBP 25 million included winding up 1 U.K. and 1 U.S. securitisation.
The loans in the UK securitisation were substantially sold, and the US securitisation will more than repay in 2023 and 2024. This continues to simplify our balance sheet. Temporary funding of US loans while an institutional investor was onboarded. As you will recall, half two started with a challenging macroeconomic backdrop. As a result of this, some deals took longer to onboard, and some of our funding investors were also prudently waiting to see how the macro context developed. We used our balance sheet to manage through this transition and funded 11% of originations as a short-term measure to smooth this out. In January, we signed a material new forward flow agreement with a new institutional investor, and in February we sold those loans originated in half two on our balance sheet to this new institutional investor.
Funding for FlexiPay loans, which are fully funded by us, Lisa will speak shortly about why we're excited to scale FlexiPay. In each of these three instances, our cash has flowed into equity invested, remaining on our balance sheet. The last key outflow was in enabling the employee benefit trust to purchase their own shares to avoid the dilutive impact of our share reward plans. These outflows were offset by cash inflows from the paydown of some of our previous balance sheet investments. This slide illustrates how we think about using our cash and deploying our capital. I see our balance sheet as a source of competitive advantage. We support our operations. We run various stress tests and ensure we hold enough cash to protect against a combination of these stress scenarios.
We will fund the operating cash flow as necessary for the US and for FlexiPay to scale to become cash generative. We invest where it makes the platform stronger in our UK and US loans businesses. Use cases include limited co-investment for risk alignment with our institutional investors, to smooth funding transition as we onboard new investors, and to support our research and development efforts before the associated products and features become adopted within our core product set. FlexiPay is presently fully funded by Funding Circle. During 2023, as FlexiPay scales and becomes more proven, we intend to leverage that investment. This funding approach is appropriate for the distinct characteristics of the FlexiPay product. Although each individual loan is short, the nature of the customer relationship is long and continuous.
We are comfortable taking it on the balance sheet given its risk dynamics, which is its low ticket size, fast paydown amortization, and our ability to manage this risk together with its attractive economics. We expect to continue to finance in this way, given the different dynamics and attractive economics of this product. We have ample cash to deliver our medium-term plan. In addition, we have cash available for new growth opportunities should these become apparent. We will 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, I am pleased with Funding Circle's financial performance in 2022. The business has adapted well to the return to commercial lending, to a challenging economic environment, and to a rising base rate environment.
Our solid performance and our robust balance sheet sets up the business well to take advantage of future growth. I would now like to hand back to Lisa to take us through the plans for the medium term in both the UK and the US, and also to talk more about FlexiPay.
Thanks, Oliver. Over the last 12 years, we've built strong foundations in our business. We've built a deep proprietary data lake and tech platform for accurately credit assessing SMEs in the U.K. and U.S. We have a set of easy-to-use products that are really valued by our customers, and we have a good track record in delivering robust and attractive returns for our institutional investors at aggregating diverse forms of capital. We know that there is more that we can do to increase our impact and to deepen our reach and engagement with small businesses. This is why our medium-term plan, which we set out a year ago, is focused on growth, enabling more small businesses to win.
We're focused on three pillars of our strategy, expanding and deepening our distribution channels to attract more businesses, saying yes to more businesses, and being number one in new products, offering multiple products to our businesses. Taking a quick step back to remind you how Funding Circle works and therefore how our medium-term plan ties in. We, in the middle of this chart, deliver a great customer experience for our borrowers, powered by our data and technology platform. As Oliver spoke about, we've built a strong capability in aggregating institutional capital. Our platform is at the heart of this, supporting both the loan returns and our superior customer experience. This slide shows where Funding Circle was a year ago.
On the left-hand side, thousands of small businesses coming to us direct or via brokers and partners, and getting the funding they need to win on the right-hand side in the form of a prime term loan or a product from our Marketplace, where we refer businesses that we can't support to other lenders. As I've explained, our growth strategy focuses firstly on attracting more borrowers by deepening and expanding our distribution channels, and that's on the left of this chart. On the right, saying yes to more businesses and offering them more products. Looking at the same slide today, you can see the progress that we've made during 2022 in building stronger foundations and better positioning for long-term success with increased distribution and an expanded product set. In the last year, we've made significant progress against our medium-term plan.
In terms of attracting more businesses, in the U.K. we continue to enjoy strong brand awareness and have launched our first sports sponsorship with Premiership Rugby to increase this further. In both the U.K. and the U.S., we've expanded our partnerships business, adding several new partners during 2022. In the U.S., we launched Lending as a Service, which enables our partners who are financial services businesses to offer term loans to their own small business customers. We've learned a lot about the proposition and have continued to refine it through our first 2 pilot partnerships with Pitney Bowes and DreamSpring. We know it takes time to move from pilot to scale-up, so we continue to focus on growing our pipeline of partners. This is an area Steve, our U.S. MD, is excited to drive forward this year.
In terms of saying yes to more businesses and offering more products to our businesses, we've also made good progress. In line with the phase out of the various COVID support schemes, we completed our transition back to commercial lending. In the U.S., we expanded our product set to include super prime loans and delivered $110 million in originations in the first nine months since launch. In the U.K., we launched shorter term loans for near-prime businesses, which accounted for 15% of the number of loans in the second half of the year. We expect to see migration of these businesses into the prime loan segment as they become more established and credit performance for this segment, as with other segments, continues to be in line with our expectations.
In both the U.K. and the U.S., we continue to strengthen Marketplace, referring businesses that we couldn't support to other lenders. In 2022, this accounted for more than 10% of our origination. We also grew FlexiPay, expanding it beyond beta to further customer segments and launching FlexiPay card in beta, and I'll come back to this in the following slides. In summary, in 2022, we've laid the foundations for our medium term plan by launching and strengthening new distribution channels and expanding our product set. In 2023, we'll build on these foundations to continue to execute against our medium term plan. Our technology and data sits at the heart of our business. We don't stand still, and as we continue to grow, we feed the Funding Circle flywheel. As we attract more customers to our platform, we augment our data lake with more data.
Today in our data lake, we have over 2 billion data points on 29 million businesses, comprising publicly available data and proprietary data on over 1 million business applications and 190,000 loans. This data tells us whether businesses respond to our marketing, whether they're likely to receive a loan offer, and if they do, whether they're likely to accept that offer. It also tells us how businesses behave once they have a loan, whether they pay it on time, are likely to default, or if they prepay. This data means we can build accurate and predictive risk models. These models outperform the traditional bureau scores, but also enable us to be smart about the data we ask our customers for, balancing risk insights with a frictionless customer journey. Our group Net Promoter Score is 77.
It means we can say yes to more businesses and generates operating leverage. These combined, our customers, our technology, and our platform enable us to launch more products. We generate deeper relationships with our existing customers and attract new customers, turning the flywheel once again. This is what forms the moat around our business and supports us in our development of new products such as FlexiPay. We built FlexiPay as part of our growth strategy to offer more products to our customers. There are 3 core reasons that we chose FlexiPay. First, it solves SME's biggest pain point, cash flow management. Over two-thirds of businesses say this is their biggest issue. For SMEs, cash flow management can often be the difference between thriving and simply surviving. This means FlexiPay can serve our customers today, but also a broader audience of SMEs.
Second, it enables us to increase our engagement and deepen our relationship with our customers. Third, I'll come back to this, it opens up a new and underserved market. Our customers today are using FlexiPay for a number of different reasons. Vik at Eight Rocks Deli, featured on this slide, uses it to buy in bulk, unlocking a discount from his suppliers as a result. Others use it to simply manage their month-to-month cash flow. Florists such as Grace and Thorn, who we saw at the beginning, use it to pay up front for their stock and transport before receiving their income from sales. Other businesses use it to spread costly bills into monthly payments. The product is simple and easy to use and is built on our existing Instant Decision lending technology. Businesses apply online and receive an instant decision.
They're approved for a line of credit, which they can then use to FlexiPay their suppliers when they need to. The suppliers are paid immediately and our borrower spreads the payment over three easy installments. Whilst it's still early in our FlexiPay journey, I continue to be very excited about what we've seen in terms of engagement and growth. FlexiPay transactions tripled between H1 and H2, totaling GBP 60 million in cumulative transactions at the end of 2022, and we have over 2,000 active lines of credit. This product is attracting a new set of customers each month, as you can see in the orange bars on the right-hand side. What is particularly encouraging about the progress that we've seen is not just the overall growth, but also the level of engagement we see with existing customers, the purple part of the chart.
We're seeing strong and increasingly predictable repeat usage with significant repeat customer transactions delivering recurring revenue. Last year, SMEs FlexiPaid their payments 20,000 times or 1.4 times a month per active customer. The product economics and risk profile are attractive as credit cycles quickly, but the nature of the customer relationship is long, with frequent usage and recurring fee income. In 2023, we will continue to scale FlexiPay. We are solving a big problem for SMEs and one which will help us to reach new customers, solve new use cases, and also increase our existing engagement. Small businesses might not always need a term loan, but they are constantly making and receiving payments. The market is substantial, with around GBP 1.3 trillion in SME B2B payments in the UK each year. We see a significant opportunity to continue to grow and scale FlexiPay.
We're already seeing strong growth and high customer traction with repeat usage. It builds on our existing strengths of our data and technology platform, our track record in assessing SME credit, and our ability to acquire small businesses, both existing term loan customers and businesses new to Funding Circle. This is why we continue to be really excited about the opportunity that FlexiPay will generate and why in 2023 we'll be stepping up our investment in the product. I'll now hand over to Oliver to talk you through guidance, including how FlexiPay fits into that for the first time.
Thank you, Lisa. Funding Circle continues to be well-positioned for long-term success and is well prepared to deliver despite our expectation of a challenging economic environment, especially in the U.K. in 2023. We see a more benign economic environment in the U.S. Our balance sheet continues to remain strong. For 2023, we see the combined loans businesses of the U.K. and the U.S. targeting moderate income growth, with total income in the range of GBP 150 million-GBP 160 million, seeing continued momentum in the U.S. and the U.K. being broadly flat. Target Adjusted EBITDA for the loans businesses is in the range of GBP 0-GBP 10 million, broadly similar to 2022. We would expect a skew of this towards the second half of the year. For FlexiPay, we are targeting an income contribution of at least GBP 10 million this year.
We will be investing to grow the product and see an Adjusted EBITDA loss in the range of GBP 10 million-GBP 20 million, dependent on the speed we choose to scale. We are updating our medium-term guidance today given the challenging 2023 environment we see in the UK. Effectively, the prior target for the UK in 2025 has now moved back one year. For UK loans in 2025, we are now targeting total income of at least GBP 175 million and EBITDA margins of between 25% and 30%. This is trimmed from the GBP 220 million and 30%-35% range of previous guidance. Our US guidance is unchanged from previous, targeting $70 million of total income and being Adjusted EBITDA positive in 2025.
FlexiPay is still in its early stages with a target for total income in 2025 of over GBP 50 million and for the product to be Adjusted EBITDA positive in that year. Taken together, these targets double our total income in 2025 versus 2022. Lisa.
Thanks, Oliver. In summary, we are better positioned than we have ever been. Our technology and data drives our competitive advantage and is the moat around our business. It drives a superior customer experience through our Instant Decision technology, a platform on which to build new products, and delivers three times better risk discrimination than the bureau scores. Despite the difficult economic environment, we've delivered robust and attractive loan returns. As Oliver explained, we've once again upgraded or maintained our return expectations across all loan cohorts. In 2022, we transitioned our business away from government lending schemes back to commercial lending and made good strategic progress in the first year of our medium-term plan.
We're on a mission to help more small businesses win and are doing so by expanding and deepening our distribution channels and expanding our product set. We're confident in our growth in the US and FlexiPay in 2023, and ready to rebound in the UK loans business as market conditions allow. Thank you for joining us today. We'll now take any questions.
Thank you. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. We'll take our first question from Kim Bergoe from Numis. Please go ahead. Your line is open.
Morning. Thanks for taking my question. just had one question on or a couple of questions actually on the funding side of the business, and how we should be thinking about your capacity, you know, how big is that? Also the market size on that side of it? You know, how big is that? How many investors are out looking for ways to get that direct exposure to SME credit, and how we should be thinking sort of broadly around that? Finally, then current trends on the funding side. We are seeing people being worried about credit quality, you know, not buying into the bank. How are your funding providers seeing that, and then also in terms of the yield requirements and the feedback that you're getting from them?
You mentioned that you raised rates. How does that work? How do you feed that back into your lending? Thanks.
Thank you, Kim. quite a lot in there. I'll start to unpick it, maybe I'll do your last question first then work back. You're right. we have seen increased return expectations from our various institutional investors as the base rates have increased and the yield curve has moved. we've reflected that in meeting those expectations to keep the loans attractive through increasing borrower pricing. we've increased returns and therefore borrower pricing by the end of the year about 400 basis points, which is very much in line with how we've seen the market move. In terms of funding demand, in the U.K., we announced four new funding arrangements in 2022, totaling GBP 2.5 billion.
We've also signed another material one in the UK in January. If you compare that by our originations, of in total at the group level, GBP 1.5 billion in 2022 to give you some sense of capacity and scale. In the US, we've signed a material asset manager, as a funding partner in January. We're comfortable that demand is there, and we're comfortable we've got the capacity to support our growth through 2023. Particularly in the US, we've still got very active pipeline of both asset managers, banks, still looking to work with us.
As I think I may have mentioned in the presentation, an important milestone in funding strategy in the U.S. and that we signed a first credit union partner in 2022, which again gives us access to another class of investor looking to work with us. Hopefully, that answers your various questions, Kim.
It does. Thanks very much. That's very clear. Thank you.
Thank you, Mr. Kim. We'll now move on to our next participant, Edward Firth from KBW. Please go ahead. Your line is open.
Morning, everybody. Yeah, I just had a few small questions, actually. I mean, the first one was going back to the targeted return comment, the previous question. I think you said 4% you'd increased them. How does that square with slide 17? I was just trying to work out. Are those related? I mean, I assume they're related in some way. Should we then see that targeted return or attractive return, should they start to increase quite markedly over 23? Is that the way that works? That was my first question. Shall I keep going with the others? Is that the best thing to do?
It might be easier if we answer them one at a time.
Okay.
On the return. Yes, you're right. It's probably easiest to be seen in the UK on slide 22. I'm sorry, slide 17. When the UK-
Yeah.
-return increases 2022 over 2021. As I think I may have mentioned when I talked to this slide, 2022 is an average of the year, and there were a number of.
Sure.
-incremental, price rises and therefore hikes in the return. Yes, if we look at 2023 or I guess the exit rate of 2022, we would see a further hike, of 22 returns over 21 returns.
Cool. I guess the same will happen in the U.S. also, I assume.
Yeah, yeah. The U.S. is slightly blended. The same thing's happening in the U.S. In 2021, we had quite a high level of return because of credit quality. When we returned to commercial lending, we took a very, very prudent approach. Therefore, actually, our actual returns have exceeded the original target returns because of very, very good credit quality. That sort of masks that dynamic. Net-net, yeah, 22 is higher than 21, and 23 therefore will be higher than 21 because of those increased returns.
Sure. Okay, great. And then I guess I've just 3 other questions which I'll just run through probably just quickly. The 1st one was, if we look at loans under management and origination, I mean, it's all been heavily distorted by all the government support schemes, et cetera. I mean as we stand now at the beginning of 2023, are we at something of a base now? If we look at the sort of total number of loans under management, should we now expect to start to see that grow in a reasonably consistent manner? That, that was 1 question. The 2nd question was, Marketplace. I was quite interested in what you're saying about Marketplace and how that's working.
Could you give us some idea of what are the sort of the financial mechanics of that? I assume you charge a fee, but what sort of fee is that and how does that come through in the numbers? That, that was my second one. Then the final one was, you obviously talked a lot more about FlexiPay than the Lending as a Service. And I guess from me it's interesting, it would be interesting to hear particularly that. I mean, that's how it's obviously great that FlexiPay is going well, so I'm not in any way trying to make it a negative for Lending as a Service. It would just be interesting to get your thoughts as to how the pilot's working in the U.S. You've obviously got a new guy that...
How you would expect us to see that develop going forward.
Okay.
Thanks so much.
Maybe I'll do the first 2, then hand over to Lisa to talk about Lending as a Service.
Yep.
Yeah, in a sense, it's a good phrase. I think the second half of 2022 sort of been our new baseline. From a LUM perspective, the rather exceptional nature of PPP has sort of passed through.
Mm-hmm.
That also clears up some of our income accounting, which I think is helpful. The bulk of the anticipated CBILS prepayments has also flowed through. Yes, we would see that as a new baseline to then build upon. In terms of Marketplace. Marketplace loans, because we do not service them and therefore have no service fee income, we do not count them to LUM.
Mm-hmm.
We do count them under originations. We charge a referral fee, which varies depending on the product and the partner we're referring to. That's blended as part of our 5% we quote, and the average Marketplace referral fee is about 3.8%.
That's just a sort of one-off fee when you refer it or when somebody picks up the opportunity. Is that right?
Yeah. Yeah. Yeah. It's based on the opportunity, for the borrower accepting the offer from the partner.
Great. Thanks very much.
Clearly the economic benefit is we don't market Marketplace as such. These are customers who respond to our marketing, who we then solve their needs by use of a partner. If you like, the marketing marginal cost is zero in that sense. It's an attractive.
Yeah.
enhancement to our commercial proposition.
Yeah.
Hi, Ed. I'll pick up on the.
Thanks.
Lending as a Service. First thing you know, it'd be worth reminding, as I said last year, I don't expect Lending as a Service to be an overnight success and it will take some time. Just a reminder as why we're doing it. In the U.S., as different from the U.K., there are thousands of regional community banks, financial institutions, and very few of those have developed a capability to do small business lending of the type that we do. Quite often they talk about small business lending being $1 million plus, and we're obviously at the smaller end of that market. About a third of small businesses in the U.S. have their primary relationship with a regional community bank, and for our borrowers it's closer to 50%.
We still see that there's this big opportunity there to serve businesses through this new distribution channel, through Lending as a Service. We have seen traction. We know it takes time to move from pilot to scale up and to bring those partners on board. We've learned a lot through the partnerships that we've got today with Pitney Bowes and with DreamSpring, and we're tweaking, refining our proposition accordingly and focusing on continuing to grow the pipeline. We've just recruited Steve Ellerker, as I mentioned, to run the U.S. business, and this is actually an area that he's particularly excited about and one that attracted him to the business. Having come from PayPal and then LendingClub and then a small business lender, BlueVine, he found this a very appealing proposition in the market. We're still excited about it.
It will take some time to come through.
Just to be clear, is your sort of vision, I understand it, you know, you're feeling your way a little bit. Is the vision that in due course you would have, you know, several hundred partners? Or is it that once you've got 3 or 4 partners that can give you the sort of critical mass and distribution, et cetera, that you can go sort of national across the U.S. with a handful of partners?
It's more in the handful than hundreds. You know, these businesses will have sufficient scale to grow the partnership through a smaller set of partners.
Great. Thanks a lot.
Thanks, Ed.
Thank you, Mr. Edward. We'll move on to Mr. Mark James from Investec. Please go ahead. Your line is open.
Morning. Thanks for the presentations. You've talked about the strong momentum in the U.S., and I was interested obviously it's early days, but Steve Ellerker will bring a fresh perspective and differentiated experience. Lisa, you sort of just touched on it. What, what should we expect differently, under his stewardship? Admittedly, it's early days.
I'd say Steve, you know, Steve was attracted to the business because he's a small business specialist. He's very excited about supporting small businesses to grow. He sees that we've developed something that's very differentiated in the market in terms of our ability to serve this prime set of businesses with a term loan in the U.S. What you should expect to see is continued momentum in the U.S. business. You know, we saw that at the end of last year in doubling of the H2 originations versus H2 21. We'll continue to see that growth in the U.S. and execution against the medium-term plan focused on Lending as a Service and saying yes to more businesses in the U.S.
Thank you.
Thank you. We will now take the webcast questions and then come back to those on the phones. Please go ahead.
Thanks very much. We've actually had quite a lot of questions coming through to the webcast. We'll take the first three now before returning to the, to the live questions. The first one is for Oliver, with the latter part being for Lisa. It comes from Rahim Karim of Investec. Can you provide some color on the trajectory of loan originations, given the sequential momentum experienced H2 versus H1, and your comments on the U.K. environment? Does this profile reflect default risks changing or is this a preemptive measure? That part for Oliver. Also, how does it square with your approach of say yes to more businesses and given the alignment with our strategy, I think Lisa might take that one.
Okay. Thank you for the question. For the first part, when we've talked about a prudent approach to originations and the impact that has on originations, this is preemptive. We look at how we think the economy may be developing, clearly as we progressed during 2022 and things got less rosy, therefore we prudently anticipated a potentially toughening stress, and took a prudent approach to origination. It's very much a preemptive thing as opposed to something we're seeing in our back book.
In terms of the sequence of originations, in the U.K., where we see a more challenging economic context than perhaps we do in the U.S., I would probably say, half one originations being broadly in line with half two of 2021, of 2022, and then we see some degree of recovery going into half two of 2023. In the U.S., I see a more linear momentum during 2023. Lisa.
I'll take the second part of the question. You know, we're focused on delivering a long-term sustainable business, and making sure that our loan returns continue to be robust and attractive, and we see that as being more important than short-term originations. That's why, as Oliver said, we've taken a prudent approach. That said, say yes to more businesses is part of our medium-term plan to serve more businesses. We've shown through 2022, there's opportunities to do this even in a difficult economic environment. In the U.S., we launched our super prime loans, and we delivered $110 million in origination through the course of the year.
We also found a pocket of businesses in the UK to which we could offer near prime loans, shorter term loans, and that was about 15% of the loan numbers in the second half of the year. The third thing that we've been focused on is through our marketplace, which is where we refer businesses who sit outside our credit risk appetite or who want a different product to third parties. We've seen that grow over the course of last year, such that it was over 10% of our originations last year. We're continuing to find opportunities to serve more businesses. Going forward in both the US and the UK, we'll continue to do this by improving our proposition to our customers and finding other pockets of growth that we continue to grow.
As we spoke about in the last question, you know, the U.S. continues to see that growth momentum, and we expect that to continue going forward.
Thank you both. The next two questions I think are both for Oliver. The first one is from Elias Gutierrez, from uncertain . Is buying back some shares in your plans? Looking at the discount to net asset value and taking advantage of the volatility in the markets.
The short answer is it's not. We have, as you noted, ample cash to deliver our medium-term plan, and to protect the business through economic downturns. We have, and we will continue to manage share dilution by supporting the employee benefit trust in purchasing employee share awards. We see as, I think, FlexiPay demonstrates, and also the U.S. demonstrates, exciting growth opportunities, and we think long-term value is better created by investing in those and new growth opportunities as they become apparent, as opposed to share buybacks.
Thank you, Oliver. The next one for you as well from Vishal Bhatia of J O Hambro, given the numerous moving parts to unrestricted cash, especially the timing difference, whilst a key U.S. client was onboarded, are you able to provide an approximate unrestricted cash number to end of February, for example, as that U.S. client has come on board, please?
Okay. You're right. There's always numerous moving parts. I'm not gonna start giving February actuals as it were, but I can confirm that as a result of that sale, both total and unrestricted cash in February is higher than it was at December year-end. We have seen the cash come in.
Thank you. We've got plenty more from the webcast. We'll return to the live callers for the next three questions, please.
Yes, sure. We'll move on with Mr. Alexander Bowers from Berenberg. Please go ahead. Your line is open.
Morning, everyone. Just two questions for me, both on FlexiPay. Firstly, could you just unpack a bit more around the investment being made in FlexiPay in 2023? What will be the impact in terms of headcount, potential impact on marketing spend and what other forms of spend could it include? Secondly, how does the customer profile differ for FlexiPay compared to your core lending products? Are there any differences in the underwriting process for customers and the requirements they need to meet? Thanks.
Shall I do the first, Lisa, and you take the second? The investment in FlexiPay, so in terms of the P&L drag, we signaled it would be between GBP 10 million-GBP 20 million of P&L loss. The investment we make from an operating perspective comes in several forms. You're right, we're adding people, you know, very selectively as we scale up the team. We're marketing as increasingly FlexiPay is not only existing customers but also new customers. Marketing for a new product is, by definition, slightly less efficient than when it gets maturer, as we're experimenting with channels, with the hooks, with the messages. We continue to invest into technology to build out the product as we build out new features.
Also worth noting that FlexiPay has a slightly different cost structure to term loans. We are building a expected credit loss credit provision, so part of that P&L drag, and you'll see this in our cost numbers in 2023, is a build-out of that credit provision, as the product begins to scale up. Also as we leverage our equity investment in FlexiPay, we'll also be building up a cost of funds. Less cash to fund FlexiPay, but you're paying the cost of funds for the partner joining there. Hopefully that gives you an idea of the type of investment there.
Hi, Alex. Thanks for the question on FlexiPay. In terms of the customer profile, it's actually relatively similar to the customer profile that we see in the U.K. for our core business. We see a range of different sectors, you know, businesses like the florist that we showed in the presentation, the deli that we showed in the presentation, but also manufacturing businesses. Businesses using this where they have a cash flow need to manage or where they can get better terms from their suppliers. The distribution across the U.K., again, is relatively similar to the core product. In terms of the underwriting, it is built on the same platform, the same instant decision lending. Businesses go through that same underwriting process.
Obviously on an ongoing basis, we can collect more data around the subsequent payments that those businesses go on to make through FlexiPay. We continue to do that on an ongoing basis.
Great. Thank you.
Thank you. We'll now move on to our next participant, Sean Kelly from Panmure Gordon. Please go ahead. Your line is open.
Morning, Lisa. Morning, Oliver. Thanks for your time this morning. A couple of questions from me. First of all, on credit risk appetites between the U.S. and the U.K. Obviously they seem pretty different at the moment. Just wonder if you had any comments on how you expect this to go forwards, if you might move into near prime U.S. or super prime U.K., lending. As in second one, in terms of Funding Circle's equity co-investment, by credit grade, is there any difference in the degree to which you co-invest with, say, super prime loans versus in the U.S. versus U.K. near prime loans? Thank you.
Okay, in reverse order, and good morning, Sean. At the moment, I mean co-investment is a tool we have to work with our various institutional investors. At the moment, we're not actually co-investing with any. It's as I said, you know, something we have done, something we're very prepared to done. It proves risk appetite, but at the moment, not required. In terms of our credit appetite, I mean, what we do is we design the right product for our customers and the right product for our institutional investors. We're always open to moving up or down the risk spectrum as appropriate. No, no immediate plans, one way or the other.
I guess it's worth noting in the U.S., we did launch towards the end of last year, a slightly more near-term product. Again, we would just seek to meet our customer needs.
Sure thing. Thank you, Oliver. If I could ask one follow-up. Is there any difference in when you get your institutional investors on board, are there any differences in the sort of loans that they would prefer? For example, maybe US over UK or vice versa, or by sector at all?
Our agreements are market specific. We work with institutional investors in the U.K. or the U.S. We do a few global relationships, but in a sense, the contracts are market specific. We do match the needs or the requirements of some of those investors with particular product sets. As an example, we were able to offer the super prime loan in the U.S. by working with some bank partners who are looking for low risk but low reward. Given our expertise and because of our deep relationships, we can make some of those products institutional investor specific, if you like.
Cool. Thank you, Oliver.
Thank you. We'll now move on to our next participant, Orson Rout from Barclays. Please go ahead. Your line is open.
Hey. Thanks for taking my questions. 3 from my side. Maybe the first one on interest income.
In 2022, you saw some interest income on the assets held to amortize costs. With interest in rates increasing and the cash balance now around GBP 180 million, one would expect at least mid-single digit million or so of interest income on those cash balances. Was just wondering, is there a possibility that this could be recognized or reflective within the top line? Will interest income on cash balances sit below operating profit? Maybe that as a first, and then two follow-ups.
Okay. At the moment, you're absolutely right. We recognize it below operating profit. It will increase in magnitude as we have the large cash balances and clearly we look to optimize the interest income we receive. At the moment, certainly in the 22 numbers, it is not reflected in the EBITDA number, but it is below operating profit.
That won't change in 2023. There's no possibility to change that around?
Well, I mean, in a sense we're look at the correct presentation in 2023 as we get into 2023, and if we change anything, we communicate that at half year. I mean, clearly the fundamental fact remains of the interest, the income, the cash, and the profit contribution at the ultimate bottom line is still there regardless of how it's presented.
Yeah. Okay, that makes sense. The second and the third are just on costs. The second is on the capitalized development costs, which picked up quite significantly at about 10% of total income in H2 above historical levels. Is this primarily due to the increased investment on the FlexiPay side? Can you also give some color on the extent of costs that are expected to be capitalized in 2023? My final question also on the cost side is just regarding the rugby sponsorship deal. If you could give some color there on sort of the size of this sponsorship and the rationale, that would be helpful. Thank you.
Our capitalized spend is purely capitalized development spend. In total, it's GBP 28 million, which I think is relatively small for a technology business of our size. We've always been conservative in our approach to capitalizing. It has upticks, as you pointed out, and that's primarily due to the FlexiPay investment. We would see probably a small uptick in 2023, but I would emphasize we're conservative in what we capitalize. We amortize over three years, again, a conservative approach to getting it back off the balance sheet. Maybe Lisa, you're best placed to talk more about the rationale for the rugby sponsorship.
Yeah. In the U.K., we enjoy a good brand awareness amongst small business owners, but we wanted to expand that reach. What the Premiership Rugby sponsorship enables us to do is not only to have our brand front and center, but also to gain access to a number of small businesses who work with local premier Premiership Rugby clubs. There are a number of small businesses affiliated, related to those clubs. Therefore, we find it is an effective way to get in front of those small businesses, and we're activating that with a set of competitions with to win seats and to get business grants.
Helpful. Thank you.
Thank you. As a reminder, if you have any further questions, you may lodge your questions online, and we will now take some more questions from the online audience. Please go ahead.
Thank you. Yes, we've got quite a few from the webcast. Taking them in turn, Andrew Renton from Cenkos. Please, can you talk more about the pricing model for FlexiPay and how the 4.5% yield is achieved? Do you have thoughts around what percentage of revenues FlexiPay could eventually make up? I think that one's for Oliver.
In reverse order, we've clearly guided in 2025 to FlexiPay making at least GBP 50 million of total income. That gives you some indication of where we're seeing the medium term, and it's probably fair to say we're excited that FlexiPay would have a positive trajectory into the longer term. The pricing of, on FlexiPay is very straightforward, one of its many benefits to customers, in that that's a 4.5% fee as a customer draws down against the line of credit. It's paid back in 3 equal installments in line with the FlexiPay loan.
Thanks, Oliver. I think the next one is probably more for Lisa, from Vishal Bhatia of Jefferies. Noted the focus on partnerships, including one with Sage. Which one provides, in your opinion, the most potential? In other words, which partnership excites the team the most? Has it already been signed or announced, or is it still part of your potential pipeline?
Thanks, Vishal. We see the most valuable partnerships as those between partners who have a large SME customer base and for whom a loan either contributes to their core revenue driver or it increases dwell time and time spent on their product. In both the U.S. and the U.K., we've brought on a number of partners this year. In the U.S., we've got partnerships with businesses who refer, but we also have our more integrated partnerships of Lending as a Service. I think it's fair to say that we expect additional partnerships to bring on more business there, and we're excited about the pipeline that we have in the U.S.
In the U.K., as you mentioned, we have just announced a partnership with Sage, which we are excited about because it's a partnership not just for our term loan products, but also for FlexiPay. We see as businesses are paying invoices, that there is a natural link there to FlexiPay. We're quite excited about that partnership. You know, these partnerships do take some time to scale up. We expect to continue to bring on more partnerships in both the U.K. and the U.S. over the course of this year.
Thank you, Lisa. The next one I think is for both Oliver in the first part and then maybe Lisa in the second. They come from Nick Anderson of Liberum. His first question: funding pipeline. How has the appetite of banks and asset managers for funding SME loans changed in the last six months, especially in the context of recession concerns? Are existing investors doing more or less? The second question may be more relevant for Lisa. Competition. How has the competitive environment changed in the last six months? Are banks, others less active? Has this had any beneficial impact on pricing or underwriting?
Thank you, Nick. In terms of the funding pipeline, to repeat some of the messages mentioned earlier, our pipeline is resilient and proves resilient because of the expertise and the skills we've built in aggregating the right capital for the right product. We're agile to change with the changing needs and expectations of our institutional investors. In the U.K., we found that as we've moved to commercial lending and with the more challenging economic environment, we're working more with asset managers than banks at this point in time, the 4 forward flow agreements signed in 2022 and the ones signed in January of 2023 were with asset managers. In the U.S., we're finding a more mixed landscape.
We're working with asset managers but we're also working with banks. As I mentioned, we signed our first credit union in 2022. Bit of a mixed bag. I think the key is because of our deep knowledge and skill set in working with a very broad range of institutional investors, we're agile enough to move with different demands at different points in the cycle.
In terms of the question on competition, I'd say still we see that banks continue to be our main competitors in both the UK and the US. We have seen in the last 6 months some exits in both the UK and the US from smaller players in the market, which is obviously to our advantage as we're able to continue to grow into that space. It just is testament really to the fact that we've been able to consistently deliver robust and attractive returns and attract institutional capital behind those loans. In terms of what that means from a underwriting or pricing perspective, we continue to see as Oliver mentioned, that pricing has increased in line with base rate rises and the cost of fund increases. We see that quite consistently across the market.
We from an underwriting perspective, we've kind of continued to see, similar trends, slight worsening of quality, but that's more due to the overall difficult economic environment than the competitive environment itself.
Thank you, Lisa. One more for you, Lisa, I think from Amber Phillips of Numis. How much value do you see in the database as it continues to grow?
Yeah, I mean, we see huge value in the database. This is really the heart of what we do, the competitive advantage that we have, because that set of data is what we build our credit risk models on. It's what we enables us to target most effectively when we're marketing and deliver much better risk discrimination than the bureau scores. We continue to see huge value in that and our ability to continue to scale and grow. That means that we collect more data. We can identify different pockets of businesses to serve more effectively, as we did last year by identifying that there was a group of businesses, who we could offer super prime loans to, who were performing much better than the average.
As we did in the UK, where we identified that there was a group of businesses to whom we could offer near-prime loans. We continue to see the advantage of that and the advantage as it scales, as we collect more data.
Thank you, Lisa. We have a few more on the webcast, but let's return to the live calls, for any more questions on there for the moment.
Thank you. We will now move on with our next participant, Vivek Raja from Shaw Capital. Please go ahead. Your line is open.
Hi. Thank you very much for taking my questions. There's a lot of questions on this line. I wanted just please explore scale. Lisa, you talked about wanting to reach more borrowers by adding distribution channels and the other part of the equation being able to say yes to more borrowers. I wonder, you know, if you could just discuss the relative importance of those two categories and particularly with the latter saying yes to more borrowers, how much of that is about the external environment, and what can you do yourselves, let's say within the algorithm, to be able to say yes to more borrowers and, you know, how could that affect even in the near term as you scale up?
Another question was about, Ending up FlexiPay and, you know, just your, the guardrail that you'd previously provided, Oliver, around your equity investment. Could you just refresh that for us, please? Just as we think about your sort of scaling up of FlexiPay and how much of your own investment you're prepared to make into that. Thanks.
Great. I'll take the first one then and then pass over to Oliver. I think these are both important parts of our growth strategy. I would say that attracting more borrowers, we have a keener focus on that in the U.S., where we're looking at expanding into new distribution channels. In the U.S., we don't enjoy the same brand awareness that we do in the U.K. Hence our push much more into Lending as a Service, where we see the market is much more appropriate for that with these smaller regional and community banks. In the U.S., a lot of our focus is on that. When it comes to say yes to more businesses, you're right. There is an overriding economic environment in which we operate, which determines, you know, determines the quality of businesses.
As we've shown in the last year, there are still pockets of opportunity for us to serve our businesses better through super prime, through near prime. It's also relevant our experience and how can we deliver a great experience to our businesses, so they say yes to us. There is, particularly in the UK, more scope for us within that area alongside FlexiPay to better meet the needs of our customers. I'll pass to Oliver for the second part.
Our guardrail was set back at the end of 2020 before we'd even really developed FlexiPay as a concept. Going forward, as we get into 2023, I think we'll be talking about how we use our equity invested, delineating a bit more between the businesses of UK and US loans and of FlexiPay. A little bit similar onto slide 21, when I talked about how we use our balance sheet and the balance sheet as a source of strategic advantage. That being said, in 2023, I see our equity invested being below the historic guardrail, more will be deployed in support of FlexiPay, and less in terms of the US and UK loans businesses as we simplify deliberately some of the investments there. FlexiPay will be fully funded by Funding Circle in 2023.
Initially, we'll continue to be 100% equity funded. We will look as FlexiPay matures to bring in a senior debt partner to leverage that, as that's just an efficient thing to do.
That's super. Thank you, sir. Just a cheeky follow-up, which is in your FY 25 guidance for FlexiPay, is there anything assumed within the income number there for external funders?
That income number and the profit breakeven are things we continue to be the equity funder but using a senior debt partner. In other words, leveraging the equity.
Understood. Thank you so much.
Thank you. With that, we conclude the phone questions, and I'll hand back for the final webcast questions. Thank you.
Thank you very much. Yeah, we've still got a few more from the webcast. Starting with Nick from Canaccord. This one I think is for Oliver. Clearly there's been significant appetite to fund the core loans you originate. You spoke about leveraging FlexiPay next. What does the institutional demand for funding look like for this product?
That follows on nicely from the previous question to some degree. We intend to fund this with Funding Circle via the equity. We've discussed in fairly advanced discussions with a number of banks around providing senior debt funding, and we've had very, very positive responses. That's in part due to the attractiveness of FlexiPay with its risk dynamics and its economic profile, and in part due to the deep relationships and credibility Funding Circle's built over the years with a wide range of institutional investors and financing partners.
Thanks, Oliver. The next one I think is also for you from Ronan Dunphy of Goodbody. As you grow, how do you expect the requirement from funding partners for co-investment to evolve?
Thanks, Ronan. As I said, perhaps to one of the earlier questions, co-investment is one of the tools in our armory. It's one of the opportunities that a strong balance sheet provides to us, and it's a powerful way of signaling, you know, that we back our loans by having some limited skin in the game. We will revolve depending on, in a sense, opportunities and requirements of funding partners. I, I don't see it necessarily increasing, or decreasing. We'll be open to the circumstances.
Thanks, Oliver. We've got two last questions from Vishal from J O Hambro. First one for Oliver. Is it fair to say your old U.K. guidance included FlexiPay potential, i.e., now that it is separated, has also contributed to the new, more prudent U.K. guidance, please?
That would be a very convenient answer. No, we've always been clear that the UK was just UK loans, FlexiPay had potential. Previous to this set of results, we did not know enough to have confidence in giving guidance. The UK loan guidance going back a year is driven by the economic conditions in 2022 and what we see in 2023.
Finally, also from Vishal, but offering the final word to Lisa. What is the awareness of your FlexiPay proposition across the market and even within the 135,000 businesses who in the past have taken loans from Funding Circle? What is the geographic revenue exposure expected here in your 2025 guidance, please?
Thanks, Vish. Our awareness of FlexiPay is still relatively low, I'd say. You know, we've launched since we launched it in beta at the end of 2021. We expanded that to all our U.K. customer segments last year. We are building that awareness. A number of our existing businesses are actually using this alongside the core term loan because it meets a different customer need, and we're looking to continue to increase that. We actually think as we launch card, you know, we launched in beta at the end of last year, but as we launch that fully, this will help with in terms of that broader awareness as we launch and market that. In terms of 2025 and the split, FlexiPay, what we have in the guidance is very much focused on the U.K.
We do expect over time to bring new products to the U.S. market as well. FlexiPay may well be that product, or we may look to introduce others first.
Thanks, Lisa. That's all the questions from the webcast answered. It just remains for me to say thank you everyone for joining us this morning. Handing back to the operator.
Thank you all.
Thank you.