ONLINE lending platforms may partner with banks to fund and market credit products in the future, even sharing the approval process and compliance, in one scenario outlined by global banking regulators.
The Basel Committee on Banking Supervision (BCBS) looked at how fintech firms could disrupt the incumbent banks in a variety of areas including lending.
It mooted the possibility of a ‘distributed bank’ scenario, whereby banks and fintech companies operate as joint ventures.
“Lending platforms partner and share with banks the marketing of credit products, as well as the approval process, funding and compliance management,” the paper said. “Lending platforms might also acquire licences, allowing them to do business without the need to cooperate with banks.”
A number of peer-to-peer lenders have already partnered with banks on a smaller scale. For example, Metro Bank has lent through Zopa’s platform and Santander has referred borrowers to Funding Circle. However, these tie-ups have not gone as far as the report’s scenario suggests in terms of becoming a joint venture.
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The regulators also suggested a ‘relegated bank’ scenario, where incumbent banks become commoditised service providers and cede the direct customer relationship to fintech firms.
In this instance, online lending platforms would become the public-facing financial service provider, acting as an intermediary between the customer and the bank. The BCBS report suggests that these lending platforms could become aggregators, accepting bids from the banks.
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And in a ‘disintermediated bank’ situation, banks have become displaced by the disrupters. The report said that this scenario “seems far-fetched” but some limited examples are already visible, noting the growth of the P2P lending sector.
“A common theme across the various scenarios is that banks will find it increasingly difficult to maintain their current operating models, given technological change and customer expectations,” said the report. “Industry experts opine that the future of banking will increasingly involve a battle for the customer relationship.
“To what extent incumbent banks or new fintech entrants will own the customer relationship varies across each scenario. However, the current position of incumbent banks will be challenged in almost every scenario.”
However, the report also noted that “despite the hype, the large size of investments and the significant number of financial products and services derived from fintech innovations, volumes are currently still low relative to the size of the global financial services sector”.