After the Lending Club IPO the hype surrounding the peer-to-peer sector has risen to an unprecedented level. Some banks are now actively considering methods of getting involved in the space, either by partnering with platforms or by acquiring a platform. However, not all banks are keen to get involved. Two banks have already made it clear that they are not looking to partner the peer-to-peer sector.
Richard Fairbank, the CEO of Capital One, commented:
"The peer-to-peer lending opportunity is not one that is at the top of our list. There are a number of other really clever things that are happening with startups that we're a lot more interested in."
Fairbank said that Capital One was an “eager observer” of the industry but not interested in getting actively involved because of the regulatory risks.
Grayson Hall, CEO of Regions Financial in Birmingham, Ala. added:
"Quite frankly, we have got a number of competitors, [whose] rules of engagement are different than ours. And so you know today in our environment some of that type of lending, I just think we have to stay away from."
Brendan Ross, president of Direct Lending Investments, which has invested $120 million in peer-originated small business loans, also weighed in:
"Bank loans to small businesses are declining, yet they are playing behind closed doors, and they are still active, only, now in a second-risk position, by levering [firms like] me."
Many smaller banks, such as BMC Bancshares, Dallas and Congressional Bank in Bethesda, Md, already have agreements in place to refer customers or purchase whole loans outright issued by the platforms. In the UK Funding Circle has partnered with Santander, which refers customers to the online platform.
Sid Jajodia, LendingClub's head of small business lending, said:
"These banks for a fee can use our platform. We are not trying to wipe them out. We are looking for partners."
The rise of the alternative finance industry has often been compared to other disruptive technology companies. One company that has been in the press recently is Uber, which has disrupted the taxi market. The FT recently commented on the comparisons between the two sectors. However, the difference is that now Cab drivers are installing apps and adapting their business models in a bid to compete with Uber. But for the most part the banks seem to be watching from the sidelines as the alternative finance market continues to grow.
However, peer-to-peer lending is still a very small proportion of the consumer lending market. For example, in the US the market is worth $3.3 trillion and the peer-to-peer sector takes up just a tiny fraction of that. Looking forward to next year it is clear that we will see more innovations and developments in the sector. One of these is likely to be that banks may start to get more heavily involved. We will probably see more platforms having referral partnerships with banks and we may even see the first bank make a play to acquire a platform.
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