Banks are Fighting Back in the SME Funding Space
After the financial crisis and due to capital constraints put on financial players, SME’s were left out, making it harder then ever for them to fill their capital requirements.
The good thing here was that funding seekers found their interests filled in by an explosion in P2P technology platforms, creating a playing field where businesses and retail investors could meet. Investors received a bit more yield for their risk and businesses enjoyed the swift processes and the additional marketing created. A win-win situation.
Traditional Players Fighting Back
The current situation is that traditional players are fighting back with quickly scaled up technology platforms and very competitive rates. While the playing field in P2P finance was still under development over the past years (and clearly far from mature) we are seeing players such ABN Amro, BNP Paribas, and BBVA entering the space.
Take ABN AMRO’s NEW 10 which is offering funding to businesses at 3-4%. Don’t forget that when the crisis had just hit, this was at 10%. Now they can compete and the do it swift.
This month BNP Paribas Asset Management launched their own SME alternative lending platform, completing their first UK loan, fully automated.
Obviously this is happening, as P2P finance is interfering with their playing field and they are taking back what they lost. Banks want to service SME’s and they want their retail clients to keep their funds in their savings account to leverage on.
It is one of the last resorts for banks to gain traction on, as it seems mortgages are the the only real money maker left. But how long will this take? Big tech companies such as Amazon and Google could ramp in to this space withing a couple of months. Good possibilities they will release mortgages at even more competitive rates or even for free, in return for full control of your data.
This mentioned there is still a lot of room to position P2P finance as the tool for both SME’s and retail investors to meet each other as mentioned in the previous win-win situation.
Let the Games Begin
Platforms in the P2P space have to keep on improving and strive to be totally P2P, with no paper work, speed, automation and transparency. The problem is the whole phenomenon of P2P finance is like a startup. The plan is great and older then most believe. It just that if its not quick enough scaled up its in danger, as standards and guarantees stay behind.
Expected is that more competition in platforms will push the risk/yield ratio to a standard, lowering the list of platforms. Also the legislative authority as well as collaborative initiatives such as Eurocrowd have to for example push for ‘up to 100k guarantee’s and tax incentives.
While the bank are fighting back in the SME lending space, we believe P2P can fight them back in the mortgage space. Although this is a different story as 30 year investments are more on the horizon of traditional finance players and too far out for retail investors. Blockchain and new technologies can change this. The future will tell how far and how quick P2P finance can go. Let the games begin.