Banks “no longer fear” marketplace and P2P lenders and robo advice, finds study

The new report from the Economist Intelligence Unit finds bank/fintech collaboration will be key to the survival of both ends of the market.

The new report from the Economist Intelligence Unit finds bank/fintech collaboration will be key to the survival of both ends of the market. 

Only the traditional financial firms that collaborate with fintech disruptors will survive, according to a new study by the Economist Intelligence Unit.

With the EU’s Second Payment Services Directive (PSD2) and open architecture framework set to come into force next year, regulation may well tip the scales between banks and fintechs for customer loyalty.  Concessions must be made on both sides along the way with collaborators the only firms to survive.

While P2P and marketplace lenders as well as robo advice firms are increasing their market share, big banks are less concerned by their technology-enabled competitors than before. The report found PSD2 and open architecture framework is widely seen as a game changer between banks and fintechs.

Renée Friedman, the editor of the report said “banks will increasingly have to adapt their culture and digital strategies to their customers’ needs if they are to compete, not expect their customers to bend to theirs.” 

Acquisition costs are often higher than expected, compliance costs are climbing and margins are already falling in P2P lending and robo advice, Freidman says.

“Banks no longer fear P2P lending as they once did. In fact, they embrace it with open arms,” she said.

“The term P2P is fast becoming a misnomer. “Marketplace lending” is more accurate as public-facing platforms become a negligible source of business,” she added.

One often cited reason for this development is that many banks lack the requisite P2P data analytics skills, especially in lending to small and medium-sized enterprises (SMEs). Instead they are increasingly choosing to partner rather than compete with platforms.

The Economist Intelligence Unit surveyed 200 senior retail banking executives about regulatory, customer, security and technology influences on the industry up to the year 2020. In addition, in-depth interviews were conducted with 36 senior executives from banks of all sizes, start-ups, venture capitalists and mutual fund managers.