The head of the British Business Bank (BBB) has said that the small- and medium-sized enterprise (SME) finance market is now realising the benefits of the additional choice of lenders, such peer-to-peer (P2P) and other alternative finance providers.
Keith Morgan, chief executive of the state-backed institution, said the alternative finance industry is “starting to make an impact” but warned that banks would raise their game in response to increasing competition in the sector.
Alternative finance providers are closing the gap in regard to lending. According to figures from the Bank of Englan net loans to small businesses by the largest UK banks fell by a hefty £536 million from December to January. Funding Circle claims that in January it’s net lending to SMEs was higher than the banks and Zopa claims to be not too far behind.
“The centrepiece of the P2P offering is the level of information, convenience and speed, which add up to a compelling customer experience,” said Morgan.
High-street banks are waking up to the competition posed by P2P lenders and are developing their technological processes as a result. Some banks are looking at the wider industry for collaborations and partnerships which will enable them to remain relevant and competitive. Morgan added: “I think P2P is here to stay but I’d certainly expect the banks to react, as any business would react commercially.”
The BBB was set up by former Business Secretary Vince Cable to boost funding to SMEs. In January, it pledged £40 million for lending through P2P platforms, bringing the total lent by the UK government via P2P providers to £100 million.
P2P lending has the potential to radically change the structure of the loan segment of the financial industry and wider awareness of it will lead to a more efficient loan marketplace. According to AltFi Data the cumulative origination volumes for the alternative lending platforms currently stands at £8.7 billion.