TECHNOLOGICAL innovation is a hallmark of the P2P lending sector, and one of the key things that has supported its explosive growth since 2005 when the first P2P lender came to market.
In contrast, the traditional financial services sector has been a little slower to innovate, stifled by years of changing regulation and legacy systems and processes. While digital lenders such as First Direct (part of HSBC) are investing in things like biometric technology, some of the less nimble banks are still stuck in the past of overseas call centres and bank statements by post.
The advent of Open Banking has pushed banks to embrace change and take some big steps forward, but it seems that some are preferring to hedge their bets and piggyback off the innovation in P2P.
As alternative finance providers start to present a real challenge to the incumbents, mainstream banks have stepped up to offer them funding.
Online property lender (formerly a P2P platform) LendInvest this week revealed a £200m funding line from HSBC UK which is will use to push into the residential mortgage market for the first time as it aims to disrupt the space with its marketplace model and proprietary technology.
Barclays has gone further and entered into a strategic partnership with MarketInvoice, giving its SME customers access to the invoice finance platform’s proposition, with plans to fund invoices via MarketInvoice in the future.
Types of innovation
Among the strands of futuristic technology finding applications in P2P lending, artificial intelligence (AI) is one of the most interesting. Lending Works recently joined an artificial intelligence-powered comparison website called Monevo. It was launched by fintech firm Quint Group, which received a £16.5m cash injection from NatWest.
Crowd2Fund also 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.
Zopa has been developing technology on its platform to allow greater diversification of investors’ funds, splitting money into smaller chunks of as little as £1, which it can then channel into a greater number of loans. The change requires Zopa to be able to support up to 300 million of these microloans, more than three times as many as it currently does.
Zopa is also looking at other ways to use Open Banking, alongside its current use for borrower income verification. It says it would like to use the technology to lets its P2P investors access their wider portfolio in one place, connecting other accounts through a single app and giving real time updates on stock prices or financial news.
RateSetter’s head of credit Michael Hoare told Peer2Peer Finance News last December that it is “starting to dabble” with the data-sharing initiative, with a view to using it for application assessments and lending decisions.
“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,” said Neil Faulkner, managing director of P2P analysis and ratings firm 4th Way.
“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 how people complete transactions.”