Crowdfunding marks the fall

Crowdfunding marks the fall, and rise again, of retail banking

Crowdfunded equity and property investment is on the rise. It may still be dwarfed by more traditional methods of lending, but this only illustrates the enormous potential crowdfunding has for UK investors, say experts. And that includes retail banks joining the fray – looking to take advantage of revolutionary changes to the real estate industry.

The Cambridge Centre for Alternative Finance (CCAF) recently published the facts and figures for 2017 in its 5th UK Alternative Finance Industry Report. It included Bank of England estimates that loans from national banks to SMEs came to £57 billion in that year.

Related data compiled by UK Finance estimates just under £7 billion was loaned to businesses with a turnover below £2 million. Another £14.5 billion went to businesses with a turnover below £25 million.

The collective data shows that online alternative business lending has increased its share of the overall total from just 0.3 per cent in 2012 to 9.5 per cent in 2017. This is a clear trend that follows a switch in thinking by investors, reported Forbes.

"The growth in business support from alternative finance comes during a period when lending from traditional banks to small and medium-sized enterprises continues to remain subdued."

Reported the magazine, its article continued:

"In the ongoing low interest rate environment, many banks have little interest in growing their lending books and are not competing to attract savings capital. This appears to have created an opening for alternative finance platforms to exploit."

This represents nothing less than the "Uberization" of banking, says Andrée Simon, President and CEO of FINCA Impact Finance, a US-based network of microfinance institutions and banks that provides financial services to low-income residents of emerging markets.

"People in both emerging and developed markets now have more service providers to choose from."

Wrote Simon in International Banker magazine, in her article she also explained:

"Accordingly, they're less dependent on traditional banks to manage their finances."

Payments and even loan applications can now take place on a mobile app provided by a fintech company rather than by a bank, Simon said:

"This has been a bucket of cold water for traditional financial institutions, but they've gotten the message and are now working to adapt to the new market conditions.

"Those that keep up will be the institutions best able to leverage the power of digital technologies—in large part, by using the data generated by digital financial transactions to develop credit, savings and other products that better meet the needs of their customers.

"In order to stay afloat, financial institutions will need to Uberize."