Will 2018 Define Alternative Lending?
In recent years we have seen an explosive growth of alternative lending. Advances and the use of new tech is changing the way consumers and small businesses secure financing. While the number of non-bank lenders have been growing rapidly, the total is still far from approaching that of traditional bank lending. That being said, it is clear that alternative lending is driving change.
So what can we expect in 2018? How will regulation impact development? Can new partnerships propel growth? Will it keep attracting enough funds to lend out? Will it seize being alternative?
What is happening?
There are a few key developments that I believe will materialise in 2018, including: consolidation–good companies, with a strong risk management capabilities will grow faster, and we will see companies that fall short in this area start to struggle and perhaps even fail. At the same time we will see more partnerships in different configurations–alternative lenders and banks, alternative lenders with other alternative lenders; and last but not least more IPOs–rumors are already swirling about one of the largest players, might there be more?
But perhaps the most important development will be a continued emphasis for transparency. Regulators, the FCA included, are strengthening investor protection and improving standards of disclosure. A shake-out will ultimately benefit the industry by raising confidence and trust with both consumers and investors.
What are the trends driving change?
The trends driving these developments are plenty with regulation, including PSDII and new tech at the forefront. The year kicked off with key Open Banking and PSDII deadlines in mid-January, and with GDPR and key reviews from the FCA around the corner, regulation will continue to impact the development of the lending industry both in 2018 and beyond. Of course, it’s important to keep in mind that while these initiatives focus on addressing technical aspects such as privacy, security and transparency, the purpose is really to encourage a shift to a new view of client-relationships. Are you providing a personalised, reliable and secure financial service?
In the end…
If lenders succeed to raise awareness and strengthen trust–both with the general public and strategic partners–they could reinforce the momentum of user-friendly, tech-driven financial services, making alternative lending mainstream. 2018 could be a tipping point. For now, we will have to keep guessing. However the outlook is promising hinting that the time for guessing might almost be over.
Originally published on Fintech Circle Institute on 8 March 2018.
Originally published March 8 2018 , updated February 25 2020