Digitally enabled insurgents are placing bank-based lenders under increasing pressure and pose "a significant threat to every part of the commercial lending business" says a survey conducted by Misys.
The research questioned 77 banks across EMEA, APAC and North America about digital disruption in commercial lending, trade and supply chain finance and found that 75% fear losing market share to alternative providers while 84% expect the competition to produce pricing pressure on loan products.
An earlier report conducted by consultant Grant Thornton in 2014 revealed that the majority of mid-market businesses (60%) are using non-bank sources of finance, such as peer-to-peer lenders and new supply chain networks. And while banks continue to feel their lending capacity is restricted by regulation and balance sheet scrutiny, the concern is that the pressure will only intensify, especially for small business lending.
In the UK alone, the P2P lending sector lent more than £1.2 billion in 2014 according to figures published by the Peer-to-Peer Finance Association. The number of P2P lenders is also growing with more than 200 platforms granted interim approval from the UK's Financial Conduct Authority and a further 100 seeking approval.
On a more positive note, the survey also showed that 68% of banks believe partnering with a non-bank player will be the best way to revive their commercial lending businesses.
“The banking sector understands that it must now react to remain at the centre of corporate credit requirements,” said David Hennah, Head of Trade Finance at Misys. “Our survey respondents believe they can leverage emerging supplier networks and the financial technology vendors that can provide digital enablement and connectivity across trade and lending to grow and retain clients."
Some banks have already recognised the potential in the P2P market. Just this week Standard Chartered's private equity arm made an investment in a Chinese online lender. And in October 2014 Royal Bank of Scotland was reported to be entering the P2P lending market with its own platform.