Julian Cork, Landbay COO, recently spoke at the Informed Funding Fair to discuss what will influence traditional and alternative finance to work together.
Firstly, traditional and alternative finance working are already together. The distinction between the two is merging. I see three factors that will continue to accelerate this:
First is the evolution of the universal banking model. The days of a bank obtaining someone’s current account and subsequently all other retail business for the customer are over. Banking loyalty is no longer a given. Alternative finance is picking off products and services, and customers are becoming more sophisticated and willing to diversify how they manage their financial needs. In my view, this is a good trade for all parties, as traditional finance does not run loss leaders in its portfolio. Meanwhile, alternative finance can capitalise on its efficiencies, to provide products that ensure customers get a wider choice and can choose the best products for their needs.
Secondly, confidence in alternative finance is continuing to increase from both a retail and an institutional perspective. Alternative finance’s lending credibility is growing, platforms now have proven scale, robust underwriting procedures, clear process and origination capability. As a result, the underlying assets created are on a par with those in traditional finance.
Alternative finance platforms have also been able to demonstrate performance of their loan books and stress test them, although to date only Landbay and Funding Circle have published the results of these tests [read about our independent Stress Test here].
Regulation is also playing a big part in enforcing the quality and controls of new entrants to the market which is building confidence. Clear brands are also emerging and being embraced both by consumers and the industry. Products such as the Innovative Finance ISA, launching next year, are also helping to re-enforce confidence.
Finally, access to alternative finance for both retail investors and institutions is becoming easier. On the retail side, complexity to invest in peer-to-peer is decreasing with simple online products that return a % rate and do not need active management. We are also seeing an emergence of funds providing diversified peer-to-peer returns for consumers. Further, institutions wanting exposure to new markets can pinpoint allocation of capital within alternative finance to gain footprint without the expense of implementing a full banking model.
So, in summary, I see three key influencers for alternative finance working closely with traditional finance: the evolution of the universal banking model, continued growth of confidence in alternative finance execution in both retail and institutional; and an increase in market accessibility.
The information contained in this article should not be used by consumers to make financial decisions. Consumers have a range of different financial needs and requirements and as such should always seek independent professional financial advice before making an investment decision.