By Daniel Lanyon on Friday 18 December 2020
Looking ahead over the next 12 months, the AltFi editorial team predict what could be in store for alternative lenders.
This time last year, the original fintech disruptors alternative lenders were facing a crisis in the UK in the form of tougher marketing restrictions to retail investors. Peer-to-peer lending was existentially threatened, as some commentators saw it. Then along came...you know what.
Non-bank lenders, to add to the litany of names this sector has collected, are clearly good at adapting in the face of change. That is the sector's origins, after all, stepping in to provide help to consumers and SMEs whose demand was not being met by banks.
In this article, we take a look at what we - the AltFi editorial team - think might be in store in 2021 for alternative lenders.
Daniel Lanyon: Editor-in-Chief: Open Banking will power a lending boom
Best case scenario we will see a partial recovery in the second half of 2021 in consumer and SME confidence. Deflation in the short term, unwieldy inflation in the long term seems likely also but broadly speaking - if these vaccines do the trick- then things will start to improve from an economic perspective in 2021.
Lenders are primed for this as credit will be very, very important to get the global economy back to growth and now that governments around the world have shown their willingness to back loans to the hilt exciting times could be ahead for nimble alternative lenders. One thing, I think, that will power this new boom will be open banking functionality.
Open banking has been a fintech buzzword for the past three years but is now really starting to become meaningful. Admiral is the latest financial services giant to move on open banking to improve its lending following on from Credit Suisse.
Speed is of the essence in today’s economy and this will be particularly true when it comes to liquidity both for consumers and SMEs. Lenders have proven their worth in delivering government-backed cash to SMEs and I wager that they can also be further empowered by adopting open banking functionality in 2021. Dozens are already doing so. This can help on several fronts.
One. More competition to fund loans. Two. Better credit scoring in the new paradigm of the coronavirus economy. Three. Faster payments to fund lending requests. Four. Less friction when it comes to customer onboarding. Five. Smarter use of data to help entrepreneurs.
Of course, there is no magic bullet in a pandemic. The road to recovery is long but open banking is one tool for alternative lenders to prove their innovative DNA as the pandemic ebbs away. Fingers crossed.
Aisling Finn, Reporter: Buy-Now, Pay-Later dominates consumer credit
2020 has been the year of the alternative lender, but with so many different shapes that alternative lending can take, it’s easy to miss some of the fastest-growing.
Buy-now-pay-later is one of the most widely used forms of alternative lending, not just here in the UK but on an international scale too.
This year we saw Klarna become Europe’s most highly valued fintech—for the second time—after the fintech first received the title back in August 2019.
Now valued at $10.65bn, the buy-now-pay-later fintech is nearly double the value of the next two behind it on the list, Revolut and Checkout.com.
With that in mind, my prediction for the year ahead is that we will see digital banks shift away from more traditional credit options, like loans and overdrafts, and start to bring out their own ‘pay later’ products.
We’ve already seen fintechs position themselves within the consumer credit space in 2020.
For instance, Curve, which already has a ‘Go Back in Time’ function that allows customers to swap their payment card on a transaction up to 90 days old, is beginning to test the waters with its Curve Credit proposition.
Curve Credit will allow users to split the cost of transactions across different payment cards linked to a curve account and doesn't need the merchant in question to support it as a payment method, unlike Klarna.
Just a few days ago, Danish challenger bank Lunar launched its own ‘pay later’ product for its customers, allowing them to split transactions into four instalments or delay a payment for up to 30 days.
In my view, we will see a lot more of this as BNPL grows in popularity, particularly with people under the age of 35 who tend to be the target market for most digital banks.
Oliver Smith, Managing Editor: The ‘death’ of retail funding
It’s been a long time coming, but I predict 2021 will be the year we finally stop talking about retail funding in the world of peer-to-peer and alternative lending.
The move towards institutional funding has been a long time coming, with a steady drumbeat of platforms shifting their focus, if not shifting entirely, away from the sector’s former obsession with appealing to the investor masses.
LendingClub, Growth Street, Landbay and ThinCats are among those who’ve closed their doors entirely to retail, while many more platforms have kept the doors open despite changing their funding focus.
Indeed, the early months of 2020 demonstrated exactly the risk of any remaining overreliance on individual investor funding, as dozens of platforms were forced to delay or decline a rush of withdrawal requests from retail investors as the Covid-19 panic set in.
Now, none of this is to say retail funding will disappear entirely. Not at all.
As many have pointed out, there’ll always be a place for retail funding and indeed, the rise of institutional capital in the sector has only improved the offering for those individual investors, with more scrutiny and stability for the platforms they’re using.
But I predict next year the debate over whether ‘retail investors still have a place in P2P’ will be answered. Not with a bang, but with a whimper.
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