We often talk about the sharing-economy aspect of peer-to-peer lending on this blog without acknowledging the importance of technological advances to what Zopa does.
Of course, the internet, the rapid, widespread adoption of social media and the smartphone revolution have all been fundamental in the success of practically every sharing service.
An interesting article published by the Guardian last week focused on how a growing number of high-tech businesses – not all of which are based in the sharing economy – are attempting to disrupt the banking sector.
As the piece points out, traditional banks have so far managed to avoid the sort of technological threat faced by the likes of the music industry and high-street retailers, which have changed beyond recognition over the last decade or so thanks to the advent of mp3s and online retailers respectively.
Of course, the success of Zopa and its peers have had a significant impact on the personal investments and personal-loan markets. But many of the other services offered by the big banks have not yet faced a huge amount of competition.
Map of London’s tech firms
In the UK, regulators have tried to encourage smaller providers to battle for current-account business, for example, but they have been confronted with a large degree of inertia on the part of consumers.
A wave of new “fintech” firms are competing in different areas, however. Their approach is more likely to involve trying to undercut a bank service which is fairly straightforward to provide but currently hugely overpriced.
As such, there are several companies which have entered the international money-transfer market – if you’ve ever asked your bank to send cash abroad, you’ll know what a rip-off this can be.
The likes of TransferWise, TransferGo and Moni have worked out that if the big high-street names are charging fees of up to 5% per transfer, there is a big opportunity for new entrants to snatch away a significant chunk of their market while still making a decent profit.
Cash- and card-free payments are another area where the banks face new competition. An Apple and Android app called Droplet, for example, lets users make instant payments in participating retailers using only their smartphones. The advantage over paying by credit card, say, is that neither the customer nor merchant faces any transaction fees; another UK-based start-up called Ringpay is offering a similar service.
Interestingly, there are already some businesses which are being set up to exploit the success of fintech pioneers. Take equity crowdfunding, for example, where new firms can seek funding from private individuals rather than having to go to a bank or venture capitalist, say.
These services are great from the entrepreneur’s point of view but as far as investors are concerned, it can take a while to make any money because the shares aren’t listed on an official exchange and are hard to cash in.
A new company called Asset Match, however, has a solution to this problem: it aims to value holdings in early-stage businesses and help shareholders sell them on to other investors.
Change in the banking sector inevitably takes time, thanks in no small part to the amount of regulation involved as well as consumers’ understandable wariness when it comes to doing new things with their money.
But it is clear that the big banks will have quite a battle on their hands to maintain the status quo.