Trust: The Currency of the Future

Angus Dent, chief executive of ArchOver, explains how P2P and the banks can co-exist in fruitful competition underpinned by growing lender trust

Alternative finance may appear to be shaking things up for traditional lenders like the high street banks, but in fact it is injecting a greater sense of consumer trust in the financial industry as a whole. As P2P matures, it must carve out a space for itself that grows this trust while delivering attractive returns.

P2P doesn’t have the scale or the intention to pose a major risk to the big boys, but a shake-up of the ways people access finance can only be a good thing for an industry that has remained largely unchanged for the past 400 years. While radical change in too short a period leads to the type of risk that threatens us all, the P2P sector’s considered approach so far, and its core tenets of lender control and transparency, are inspiring trust in both lenders as well as borrowers. And trust, we all know, is fast becoming the currency of the future.

This is just the start for P2P. As it matures, it will be in a great position to work in tandem with the banks to expand their services.

Working alongside the banks

Until significant scale is achieved in P2P lending, with further products on offer for borrowers and a deeper sense of opportunity for lenders, the banking system is unlikely to invest seriously in the sector. In the US, which is a few years ahead of the UK in respect of funding, P2P has already begun to form a part of the smaller banks’ strategies – which suggests the course the UK market will take.

In this scenario, P2P will remain a bothersome, if small, source of competition rather than a partner asset. That competition will help keep the banks honest: that’s a large part of the true value of P2P.

With all this in mind, the question of whether banks and P2P platforms should collaborate or compete is an important one. For the time being, the fact that P2P and the banks do things very differently is leading to more value being created for both.

Taking P2P to the next level

One of the greatest strengths of P2P is that its business model is based on lenders’ own balance sheets and not that of the P2P company. It is therefore in P2P’s best interests to work at maintaining and growing trust among lenders and borrowers. Competition is always healthy but if it gets in the way of stability and thorough processes, both lenders and borrowers will be negatively impacted.

The biggest challenge faced by borrowers is one of trust – a large portion of the businesses ArchOver represents are owner-managed, with a direct relationship between the businesses performance and the financial wellbeing of its owners. For ArchOver to raise funds for that business takes time, effort, a thorough review of their track record and shared values in terms of trust and honesty.

In the long-run, taking the time out to focus on building trust will strengthen a business while also providing security to the lender – keeping P2P and the financial industry as a whole honest, trustworthy and therefore far more stable.

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