Peer-to-peer lending is now ten years old, with the first ever peer-to-peer finance platform Zopa, celebrating a decade in business this month. That decade has seen a dramatic change in the banking landscape.
While net lending via traditional high street banks has fallen, the UK market for alternative finance has more than doubled year-on-year. This emerging market, including peer-to-peer and crowdfunding, has gone from being worth £267m in 2012, then £666m in 2013, to £1.74bn in 2014- for the banks, what was once a drop in the ocean is fast becoming a significant threat.
Two important factors have had an impact- the increasing prevalence of technology and the internet (the rise of 'FinTech'), and the widespread loss of trust in banks after the crash of 2008. A 'perfect storm'.
Even before 2008, the public - both savers and borrowers - saw the traditional banks as slow, inefficient and expensive. Quite simply, the poor customer experience on offer gave new entrants to the market an easy way to differentiate, using technology to create better, smoother, more accessible products.
Think of the music industry. Where 15 years ago you would have walked into a shop and browsed the CDs on the rack, technology has now transformed the way people buy music to make it faster, cheaper and more convenient- you'd now log into iTunes or Spotify to listen to a track.
Similarly, while 20 years ago everyone booked holidays through their local travel agent, consumers now go online to Expedia or Skyscanner.
The banking industry is being disrupted in the same way. We're going through an exciting period of change, and products that put the customer front-and-centre are likely to be the ones that conquer the market in future.
The UK in particular is in a great position to capitalise on these changes, with a tech savvy population and a relatively supportive government. Vince Cable's British Business Bank initiative has invested over £100m through alternative finance platforms, support which has bolstered the industry's reputation. The FCA has also worked hard, introducing regulation in 2014 that aims to support these innovations, not hamper them.
FinTech is evolving, and with it the new world of crowd-led banking. New approaches to open data, advances in online security, smoother UX and UI- all of these innovations will help to shape the banking products of the future. Who says that we'll need bank branches? Why shouldn't different financial products from different providers work seamlessly together via APIs?