Peer-to-peer lending boom could make banks obsolete
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Monday 17 December 2012
The days of the banking middlemen 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 has said.
The rise of peer-to-peer lenders such as Zopa and Funding Circle – which directly match up firms in need of cash with investors – and so-called crowd-funding, where small amounts are raised from a large number of funders, will challenge the nation's major financial institutions, according to Andrew Haldane, the Bank's director of financial stability.
He told The Independent: "The mono-banking culture we have had since the 1990s 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 which are operating directly with a wider public."
Mr Haldane also held out hopes that the fledgling revolution could tackle the crisis in business lending. This 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 small and medium enterprises ... The banking middlemen may in time become surplus links in the chain." The Government is also keen to encourage alternative finance and last week announced four peer-to-peer lenders will be given a total of £55m in taxpayers' money, an amount to be matched from private sources. The £110m fund is part of the £1.5bn Business Finance Partnership, part of the Government's drive to diversify sources of finance to business.
Zopa has lent £250m since being founded in 2005, while Funding Circle has lent £66m. Crowdcube, the crowd-funding website, has lent £4.5m since being set up in 2010 and has 25,000 registered investors. In total it is estimated the peer-to-peer industry has already advanced £300m to individuals and small businesses this year.
The sector will also have lending and borrowing activities overseen by the UK's new market regulator, the Financial Conduct Authority, from April 2014. The industry's trade body, the Peer-to-Peer Finance Association, said regulation will help to bring credibility and stability to the fast-growing industry as there have been concerns that a high-profile failure in an unregulated market would see consumers lose their money and jeopardise growth.
Mr Haldane said the rise of such lenders could bring down the costs of financial intermediation, adding: "IT has changed every other industry like film, music and even football clubs so why not finance? With open access to borrower information – which is held centrally and virtually – there is no reason why end-savers and end-investors cannot connect directly.
"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."
- 1 I've been called an abusive and dangerous parent, when all I did was listen to my transgender child
- 2 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 3 Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
- 4 The most powerful passports in the world
- 5 Chinese student carries disabled friend to school every day for three years
Nepal earthquake: How you can help victims of the Kathmandu disaster
Nepal earthquake in pictures: Photos show devastation caused by 7.8 magnitude earthquake
Royal baby: Live updates as superbug closes ward at St Mary's Hospital in London where Duchess of Cambridge is due to give birth
Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
General Election 2015: The photo of a tree that proves the Tories have an image problem
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...