The peer-to-peer lending sector arose as a disruptive alternative to the banks, providing a faster and better customer service due to their nimble and high-tech business models.
While traditional financial services firms have been held back on the technology front by legacy IT systems and cumbersome processes, peer-to-peer lenders have been developing their own proprietary systems using the latest tech innovations that offer a far slicker customer service.
One area that peer-to-peer lenders have been tapping into is artificial intelligence (AI). Lending Works recently joined an AI-powered comparison website called Monevo, while Crowd2Fund uses AI to power its automated loan selection tool, and for its due diligence process when deciding which businesses to lend to, and with debt recovery.
Another area of innovation is Open Banking. For example, Zopa uses the data-sharing for borrower income verification and is looking at ways it can enable investors to access their wider portfolio in one place.
Lending Works has partnered with credit reference startup Credit Kudos to provide its Open Banking infrastructure, meaning it can automate the process of applying for credit.
The opportunities posed by Open Banking are vast – a report from accountancy giant PwC last year predicted that the initiative could become a £7.2bn revenue opportunity by 2022.
Meanwhile, blockchain is another development that the sector has been paying attention to. Asset-backed peer-to-peer lender Ablrate has been working with ASMX, a blockchain-enabled secondary market for trading private debt globally.
And Debitum Network launched last year, a peer-to-peer business lending platform that uses blockchain technology to power its internal processes, using an Ethereum-based token.
Of course, the incumbent banks are making efforts to keep up with the pace of technological change and are now investing heavily in upgrading their processes.
There have also been an increasing number of tie-ups between FinTech and financial services firms. For example, City heavyweight Goldman Sachs has acquired a number of innovative start-ups through its online lending platform Marcus.
And Barclays has a strategic stake in online business finance provider MarketInvoice.
“Banks innovate extremely slowly by themselves and so they try to speed this up somewhat with large investments in technology, often with their own innovation funds or incubators,” Neil Faulkner, managing director of P2P analysis and ratings firm 4th Way, recently told Peer2Peer Finance News.
“It seems more likely they will advance in open banking and AI through strategic investments in FinTech businesses, which is their usual route.
“There are an awful lot of FinTech businesses offering useful technologies though, so P2P lending platforms will not be the prime focus.
“Indeed, while they are partnering with P2P lending platforms, I don’t think buying up lots of P2P lending platforms is currently on the menu.
“Banks seem more interested in strategic acquisitions that make their background technology more efficient and help them to catch up in the mobile payments and foreign payments space, more than anything else, so that they do not fall too far behind on how people complete transactions.”
By Suzie Neuwirth, founder and editor-in-chief, Peer2Peer Finance News.
Be part of a discussion and connect with like-minded leaders in your sector at our exclusive event series on banking and RegTech.