The peer-to-peer lending industry has a short but staggering history. Barely a teenager, the sector already has a loan-book approaching £10bn in the UK alone*, according to figures from the Peer-to-Peer Finance Association. This underlines the appeal for a service which provides an alternative form of financing for a broad range of businesses while offering attractive returns to its investors, effectively cutting banks out of the equation. Therefore, the news that Zopa – widely accepted as the founding father of the P2P industry – has been granted a banking licence is a very interesting development.
This is the latest proof that the financial services industry is undergoing a revolution as businesses adapt their models to an ever-evolving landscape. While traditional banks are eschewing the high street and encouraging their clients to embrace a more digital relationship with them, Starling, the mobile-only challenger bank is filling the void in the “bank branch deserts” by establishing a physical presence through the Post Office.
Old school wealth managers are turning to robo-advisory services to engage “advice orphans”, those with portfolios too small to be profitable for traditional services. And earlier this year, the Investment Association, the representative body of the asset management industry, launched its Velocity programme to encourage greater collaboration between its members and the fintech sector, aiming to increase productivity and improve client engagement.
All this is good news for the consumer. The financial services industry has for too long had a reputation for being aloof, providing the services it feels as being appropriate for its clients. The implementation of open banking at the beginning of the year seeks to put the individual at the centre of the banking ecosystem. At the same time, the Alternative Remedies Package, carved out from RBS as recompense for its bail-out during the financial crisis, is set to create a new market for SME banking aligned to the needs of a sector that until now has been offered a homogenous service, despite the vast variety this sector represents.
This revolution is not over and those offering financial services, from banking to P2P financing to wealth management, must continue to evolve. Client inertia has in the past offered a disincentive to invest in innovation. This is changing.
Customers have woken up to the fact that there is a new world open to them where they can manage their finances in a way that suits them rather than their providers, whether they are millennials at ease with mobile banking or older investors attracted to the lower fees offered by robo-advisers. And the ease with which consumers can now transfer their business elsewhere means that customer loyalty can no longer be counted on.
The tide of change cannot now be reversed, and continued innovation must be at the heart of the business model of all players within the financial services industry. But rather than a threat, this should be viewed as an opportunity for greater market collaboration, combining forward-thinking fintechs with the longstanding expertise of heritage players.
In doing so, the UK´s financial services can engage with new and existing customers in ways they have been unable to in the past, building closer relationships and restoring confidence in the sector as a whole.
* as of June 2018