As previously reported, awareness of alternative finance is still somewhat of a sticking point amongst SMEs. With 42% unaware of the options that are available, and only 9% actually approaching an AltFi platform for funding, it is an ongoing challenge for the sector to try and permeate the mainstream and earn its place on the map.
But what is perhaps most surprising about this story is the fact that banks – i.e. the very institutions that are under the biggest threat from the growth of the sector – are in fact largely blind to the disruption that is taking place right under their noses as well.
In their recent book Bye Bye Banks?: How Retail Banks Are Being Displaced, Diminished and Disintermediated By Tech Startups And What They Can Do To Survive, authors James Haycock and Shane Richmond surveyed over 100 senior executives at top banks across the UK. What they found, as illustrated in the table below, was that the majority of such key players in the banking industry had never even heard of some of the most prominent alternative finance platforms that are active today.
(Image source: thememo.com)
Practically every industry you can think of – from retail to music to field service to taxi cabs – has been disrupted in some way or another over the past decade by advances in technology. The financial system is actually one of the last sectors to feel the heat of the digital revolution – and it’s possible that the banks may (mistakenly) feel as if they are immune to similar threats.
However, alternative finance is expected to gobble up 10% of bank’s business lending to firms and individuals over the next five years, and so perhaps it’s time for them to start sitting up and taking notice of what’s approaching on the horizon.
From the introduction to Bye Bye Banks?:
“Like incumbents in any sector, traditional banks find it difficult to keep pace with change, due to their size and the fact that they still make considerable amounts of money. To explore new business models could cannibalise or compete with their existing one. They also find themselves hamstrung by legacy. Legacy technology, legacy processes and, often, legacy thinking.
“Banking giants face a further challenge, with a very high cost of compliance making it hard to deliver change at the rate of the new, agile entrants. Many in the industry feel that regulation protects them from the tech startups though. That protective cushion might be slipping away, however, as governments act to promote competition by changing regulation to encourage new entrants.
“It’s plain to see that a perfect storm of competition, technology, shifts in customer behaviour and regulation looks set to wreak havoc on the businesses we trust with our money.”