As we enter the second half of 2014, I wanted to share with you my thoughts on recent developments in the peer-to-peer lending space.
Marketplace lending will be a $1 trillion industry by 2025. It is becoming big business, doing big things for small businesses and investors.
We saw more evidence of this last quarter, with the Government announcing a consultation into the mandatory referral of small businesses from banks to alternative finance providers, where the former are not able to lend. A further indication that peer-to-peer lending is marching into the mainstream.
Independent research by the Alternative Business Funding portal estimates that a referral system could help up to 250,000 more small businesses find the finance they need.
Ultimately though, marketplace lenders have bolder ambitions. Rather than simply becoming part of the system, online marketplaces have the potential to change it; to build a better financial world. Step by step, that is beginning to happen. Now more dynamically than ever.
But that doesn’t mean alternative and traditional players cannot co-operate. By working together with traditional lenders, we can forge a financial system which works better for customers.
I believe that signposting to alternatives will greatly help with awareness, which remains fairly low amongst the small business community. Business owners are for the first time faced with a choice when they look for finance, and this choice should be communicated at every possible stage when a traditional lender is not able to help.
Partnership with Santander
That is why we have partnered with Santander, in a landmark agreement that will see Santander proactively refer small business customers looking for a loan to Funding Circle when we are better placed to help. We are specialists in small business lending, and we excel at it, so it makes sense for us to work closely with traditional lenders and help small businesses that otherwise might not have heard of us.
We hope this partnership acts as a blueprint for lenders, and paves the way for further agreements, both with us and other alternative finance providers.
Crucially though, this partnership will be a welcome boost for small businesses who continue to struggle for finance. Small business lending is still falling well short of demand, even at a time when most other areas of the economy are growing. The statistics are sobering. Lending to small businesses has fallen in 10 of the past 12 months. Just 12% of bank lending goes to businesses, and less still to small businesses, which are the heart and soul of a balanced economy.
That is where online marketplaces can help. They are a technological phenomenon with the ability to transform the financial world, bridging the gap between demand for, and supply of, finance.
The next phase in the evolution of marketplace lending
In the next quarter, further developments in the industry will grab even more attention and fuel growth.
The marquee moment will be the IPO of Lending Club, the world’s biggest peer-to-peer consumer lender, which is set for later this year.
It will be symbolic for the industry. A company which was once dismissed as niche has risen to become a mainstream part of the financial system. Lending Club’s success mirrors the success of the wider industry, and underlines the immense potential that online marketplaces have.
We will also continue to see increased interest from institutional players, following the launch of the world’s first listed peer-to-peer lending investment trust by Marshall Wace. Diversity of retail and institutional money on the marketplace will create a sustainable solution for the long term, reducing small businesses' reliance on banks who were previously their sole line of credit.
The next few months will see events that will power the next phase of Funding Circle’s evolution. We want to lead the growth of the industry, which is why we have ambitious growth plans that will forward our vision of building a better financial world for small businesses and investors – not just in the UK and US, but across the globe.
If you would like to meet up to hear more about Funding Circle’s exciting growth plans, and why I believe online marketplaces can build a better financial world, please don’t hesitate to get in touch directly or with my colleagues at firstname.lastname@example.org.
Insurance AI & Analytics USA (June 27-28, Chicago) is the only forum bridging the gap between the analytical and data minds and the business transformation leaders. As carriers rush to meet customer demands and deliver continuous business growth without dramatically increasing costs, deploying innovative technologies such as AI, machine learning and advanced analytics can be the only way to remain competitive. But in order to deliver real value to the organization, these innovations must have a real application in the core business areas and directly improve operational efficiency and deliver a seamless customer experience