Peer loans ‘are threat to banks’

NEW forms of credit such as peer-to-peer lending pose a ‘big threat’ to existing banks, according to a conference of credit experts.

Peer-to-peer lenders – who put small companies or individuals in need of a loan in direct contact with savers looking to invest their money – have become a growing part of small company finance following the credit crunch.

Now a conference of credit experts, mostly involved professionally in assessing credit ratings and the riskiness of borrowers, was overwhelmingly of the view that banks’ dominance of lending was under threat from the new types of alternative finance.

The conference, held at the Edinburgh Business School, was attended by delegates from around the world and a survey of 200 from 40 countries found that almost 75 per cent believed banks were under threat from the new model. One in five described it as ‘a big threat’.

Most, however, also believed the new force of lending would be good news for the market, increasing choice and competition.

A significant minority – 20 per cent – thought that the new lenders could be more open to fraud, while a quarter believed they could be too lax. Jonathan Crook, director of the credit research centre at the Edinburgh Business School, said: ‘The strong growth in alternative lenders over recent years shows no sign of abating.

‘The view of our expert delegation was that traditional banks need to adapt to keep up with this new and nimble market – and they must do so fast.

‘In a market where a small difference to an interest rate can make all the difference, banks that don’t push ahead with technological advancements in the way newer challengers are doing could really begin to suffer.’