Banks threatened by alternative lenders, experts say

A survey of 200 delegates from 40 countries at an Edinburgh University conference, conducted by the university’s business school, found that three quarters believe alternative lending poses a credible threat to banks.

A further 19 per cent suggested the new funding platforms are a “big threat” to the existing sector.

A majority (55 per cent) of those surveyed believed the rise of alternative lenders would therefore make the financial sector more competitive, especially as alternative lenders can offer flexibility on interest rates and make faster decisions.

However, 20 per cent of respondents also thought alternative lenders could be more susceptible to fraud, while around a quarter (26 per cent) said alternative lenders were relaxing controls on lending too much.

Professor Jonathan Crook, director of the Credit Research Centre at the University of Edinburgh Business School, said: “The strong growth of alternative lenders over recent years shows no signs of abating, and the view of our expert delegation was that traditional banks need to adapt to keep up with this new, nimble market – and fast.

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

“It’s all good news for consumers and small businesses who may be looking for loans, and is actually positive for the market overall – greater competition will encourage innovation in areas such as personalising interest rates for customers.”