BoE Governor Mark Carney warns of Fintech disruption to traditional banking
The Governor of the Bank of England Mark Carney has warned that online lenders may begin to endanger the stability of the financial system, highlighting the ever-increasing influence of fintech on the financial sector.
Speaking at a G20 event in Germany, Carney (seen below) said policymakers need to be aware of the ability of fintech companies to transform banking and the risks surrounding this. He also specifically referenced democratization of finance (as is our goal here at invstr), saying, “The opening up of the customer interface and payment services business could, in time, signal the end of universal banking as we know it”.
Fintech lenders have played an ever more central role in providing finances for businesses, particularly SME’s over the past few years, as well as for regular consumers who have looked elsewhere for personal finance solutions instead of conventional banks. 14% of new lending to small businesses in the UK is done through online peer-to-peer lending (or P2P).
This is not the first time major figures in the industry have spoken about the need for new rules in P2P lending, as fintech continues to cause more disruption.
Many in the financial sector have concerns about alternative finance – the Governor was one of many who have highlighted the threat of cyber attacks on these businesses which could strip customers of digital money, without the conventional protection offered by larger institutions and their regulators. Another concern is whether the credit-worthiness of borrowers is being properly assessed. Elsewhere the UK’s FCA (Financial Conduct Authority) has been keeping a close eye on increasingly popular avenues of what is known as ‘alternative finance’ such as online crowdfunding, which allows individual investors to put in sums to help businesses get off the ground and grow. They’ve found certain aspects of it need to be regulated more closely, similarly to online lenders.
However these worries haven’t stopped consumers looking elsewhere instead of traditional high-street banks to borrow and deposit. Rating’s agency Moody’s said that UK demand for fintech lender loans surged by 85% between 2014 and 2015, as UK consumer lending has increased strongly in recent years with consumers regaining an appetite for credit cards and personal loans. Crowdfunding has also grown massively over recent years.
This shows clearly that consumers tastes are changing – but will the role of banks continue to shrink? In an article with the International Business Times, senior analyst at Moody’s Carlos Suarez Duarte said, “Technology is the new frontier in the fight for consumer loan business, but banks will remain competitive, limiting the impact on their business. Banks have responded to the challenge by revving up their own digital strategies.”
It’s a fact that P2P lending is growing, but why? Very low interest rates for savers and lack of willingness from banks to part with loans for businesses since the financial crisis have made regular banks less appealing to deposit with and borrow from. These factors, as well as new and innovative user-friendly technologies have allowed fintech to disrupt the sector. It’s just one portion of the many ways in which fintech has changed the landscape, what with Bitcoin and Blockchain also leading the charge and becoming the talk of the town when it comes to alternative currencies and e-wallets.
At invstr we are closely following all of these developments as a financial technology business ourselves. We are striving to democratize access to financial information and education. Through our app and content we want to encourage those people who feel disengaged from finance to take charge of their financial futures by learning about the markets and trying their hands at trading in a safe and fun way. We see the new landscape in financial technology as an exciting opportunity, as new technologies continue to even up the financial sector and make it more open to consumers.
One thing is for certain, this will not be the last time that officials in central banks and other financial institutions will warn of the ways in which fintech could disrupt conventional banking.
invstr CEO and Founder Kerim Derhalli recently gave his thoughts to eFinancialCareers about why jobs in banking are set to change too. Read it here
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