PEER-TO-PEER lending poses little threat to the traditional banking business model, new research claims.
A report by the Bank for International Settlements – an international financial institution owned by central banks – looks at ways in which fintech could change how mainstream lenders and regulators operate.
Titled ‘Sound Practices: Implications of fintech developments for banks and bank supervisors’, the document outlines several scenarios that could alter traditional models, listing P2P under the “disintermediated bank.”
The report suggests this scenario, where P2P becomes a primary source of lending, is unlikely to become significant in the short to medium term.
“Large-scale use of public distributed ledgers for processing payments is still impeded by many technological and legal factors,” it said.
“P2P lending platforms also face difficulties in matching lending and borrowing, which underlines the continuing economic need for balance sheet intermediation.”
The document also points out that P2P lending platforms are currently moving to business models where institutional investors such as banks, pension funds or insurance companies progressively replace retail investors in the investor base.
“The key risk in these scenarios would be that financial activities taking place outside regulatory environments would be subject to looser standards and oversight, and as a result be inherently less controlled and secure,” the report said.
“Bank supervisors could potentially find that their ability to monitor systemic areas of risk in the financial industry is eroded.”
The report highlighted digitisation of services such as cloud computing and artificial intelligence, as more significant areas of fintech that could make banks more efficient and more customer-friendly.