One of Britain's top central bankers smells revolution in the air: a technological one that has the power to transform how we lend, borrow and raise new capital.
In an interview with the Independent, Andy Haldane, director of financial stability at the Bank of England said: "The mono-banking culture that has existed since the 1990s is in retreat. We are now seeing a much more diverse eco-system springing up with new non-bank groups offering peer-to peer lending and crowd-funding, a more flexible way for companies to raise equity from angels."
And Mr Haldane, right, known for his outspoken views about the reasons behind the financial crash, is delighted: "I am congenitally pessimistic about most things in life but on this I am really optimistic: it's a time of opportunity knocking for finance. Hopefully, the growth of peer-to-peer lenders, such as Zopa, Funding Circle and Thin Cats, and those involved in crowd-funding, such as Crowdcube, will help solve the problems we have in the UK with lending for SMEs."
The 45-year-old economist who is now part of the Bank's financial policy committee – set up in the wake of the banking crisis to identify and reduce the threat of future meltdowns in the UK's financial system – says online technology has the potential to transform finance and fill the gap left behind by the big high street banks which have little appetite for taking on risk in lending to SMEs.
Although this revolution is still in its infancy, he said, the dramatic changes taking place in the technology-enabled finance could transform the industry beyond recognition.
"These companies are tiny today but so was Google a decade-and-a-half ago. IT has changed every other industry such as 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."
Mr Haldane also forecasts that the cost per unit of financial intermediation – which has stayed the same for more than a century – could eventually be lowered because of new technology. "The banking middle-men may in time become the surplus links in the chain. It's happened in the liberal arts, music and publishing, and there is no reason it shouldn't in finance." Look at Ebay, he said, to see how transparency had solved one of the greatest conundrums in economics – how to sell lemons in a second-hand sales market. "Ebay has shown that with transparency, it can be done. Why can't you have an open market for loans? With an information-based web, the disintermediated model of finance becomes a more realistic possibility."
While the peer-to-peer lending industry is still in its infancy – some £300m of loans were advanced to individuals and small businesses last year – some economists reckon that up to £30bn of "spare" money could be raised from the public for alternative methods of financing such as P2P and crowd-funding, where firms sell equity to a large base of small investors via the internet.
As well as these new online companies, Mr Haldane also anticipates a rise in more specialised business banks like Aldermore, which unlike the high-street banks, now offer the soft services such as advice and due diligence, which the banks gave up: "It's back-to-the-future banking. All these changes are exciting." On regulating these new online companies, Mr Haldane said the authorities should tread quietly: "For now I don't think the regulators should get too heavy-handed but sit back and watch and quietly applaud. Let's see if the market knows best."
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