Peer-to-peer lending boom may make banks obsolete

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The Independent Online

The days of the banking middle-men may be numbered as a technological revolution in business lending shakes the dominance of the UK's biggest banks, a senior director of the Bank of England said today.

The rise of peer-to-peer lenders like Zopa and Funding Circle – which match firms in need of cash with investors – and so-called crowdfunding, where small amounts are raised from a large amount of funders, is set to challenge the nation's major financial institutions, according to Andy Haldane, the Bank's director of financial stability.

He told i: "The mono-banking culture is on its way out. Instead, we are seeing a much more diverse eco-system emerging with the growth of new non-bank groups offering peer-to peer lending and crowd-funding."

Mr Haldane also held out hopes that the fledgling revolution could help tackle a crisis in business lending which helped trigger the Bank's Funding for Lending initiative in the summer to kick-start credit markets.

He said: "I see opportunity knocking for finance. Hopefully, the growth of peer-to-peer lenders and those involved in crowd-funding will help solve the problems we have with lending for SMEs... The banking middle-men may in time become the surplus links in the chain." Zopa has lent £250m since being founded in 2005, while Funding Circle has lent £66m. Crowdcube, the crowdfunding website, has lent £4.5m since being set up in 2010. In total it is estimated the P2P industry has already advanced £300m to individuals and small businesses this year.

Mr Haldane said: "Necessity is often the mother of invention. Now that the big banks are retreating from lending after the crash, these new methods of financing could help fill that gap."

The Government is also keen to encourage alternative finance and last week announced that four peer-to-peer lenders will be given a total of £55m in taxpayers' money, an amount to be matched from private sources. The £100m fund is part of the £1.5bn Business Finance Partnership, part of the Government's drive to diversify sources of finance to business.

Peer-to-peer lenders will have lending and borrowing activities overseen by the UK's new regulator, the Financial Conduct Authority, from April 2014.