New sources of finance such as crowdfunding could challenge the dominance of major banks, according to a Bank of England senior director.
Andrew Haldane said that he believed the rise of peer-to-peer lenders such as Zopa and Funding Circle – which match up companies needing money with investors – and crowdfunding, where small amounts are raised from a number of funders, will challenge major banks.
“The mono-banking culture we have had since the 1990s is on its way out,” Mr Haldane told The Independent.
“Instead, we are seeing a much more diverse ecosystem emerging with the growth of new non-bank groups offering peer-to-peer lending and crowdfunding which are operating directly with a wider public.”
The director for financial stability at the Bank of England indicated that online technology had the potential to offer a more flexible way for companies to raise equity from angels and fill the gap left by high street banks who have little appetite for lending to smaller businesses.
“I see opportunity knocking for finance,” he added. “Hopefully, the growth of peer-to-peer lenders and those involved in crowd-funding will help solve the problems we have with lending for small and medium enterprises … The banking middlemen may in time become surplus links in the chain.”
While stressing that such changes were in their infancy, Mr. Haldane said that dramatic shifts taking place in technology-enabled finance could transform the industry.
“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?” he said.
“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.”
Peer-to-peer lending is still in its early stages, with around £300m of loans handed to individuals and small businesses last year.
Some economists, however, believe that up to £30bn of spare money could be raised from the public for alternative methods of financing such as crowdfunding.
The Government is seeking to encourage alternative finance. Last week, it announced four peer-to-peer lenders would be given a total of £55m, which will be matched from private sources.
Source: Telegraph Media