FUNDING Circle co-founder Samir Desai (pictured) has ruled out launching a bank as he outlined the advantages of running a peer-to-peer platform over traditional financial models.
Speaking at the LendIt conference in London, Desai said P2P platforms were better placed to cater for the changing ways customers were dealing with their finances, particularly through apps.
He said banks would find it hard to keep up with emerging technology such as artificial intelligence or machine learning due to the level of regulation.
“To what extent will the regulator let banks use these techniques or will the Financial Conduct Authority be happy to see it in a less risky smaller area,” he said.
“Over the next five years as these techniques and tools develop, P2P platforms have a massive advantage over the banking system.
“How much of an alpha that gives over traditional credit scoring techniques I don’t know, but we have seen massive uplifts in terms of what we could achieve.”
Desai cast doubts on the ability of traditional banks to move into the online small and medium sized (SME) lending lending space, claiming Germany’s Commerzbank had seen loans underperform since entering this area.
He also questioned whether Esme, the recently-launched online SME lender from RBS, was capturing small business customers who can’t access mainstream finance or whether it was just a “corporate fudge” being kept on the sidelines.
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He rejected concerns about the cost of capital when lending and also said balance sheet lending, an approach taken by other P2P lenders, only worked in the first stages of launching a business.
“There are certain periods where balance sheet lending makes sense, the first two years of entering the market,” he said.
“In the early periods of a market you need to subsidise returns, it is fine when we didn’t know how big we would be.”