In a recent report titled The Changing World of Money, KPMG claimed the UK’s big five banks could lose over 10 per cent of their market share to alternative finance by 2020.
This assumes that new providers (both old and new brands) will utilise new, often web-based technology, to create leaner operations that are both cheaper to operate and customer centric, but importantly very fast. The digital loan. They will also not carry the baggage and associated overheads of a cash based business operating across multi-financial disciplines from high street bricks and mortar edifices. The downside for many new entrants will be the availability and cost of capital. The banks and building societies are the main deposit takers and thus have access to huge capital sums at almost zero cost, based on today’s short term deposit rates. In some cases the big 5 are also lending to the ‘new kids on the block’……………….. cake and eat it, or simply risk averse use of cheap money?
The other thing that should not be overlooked is the cost of customer acquisition; marketing in a nutshell. The big banks, even after the credit crunch of 2008, have strong, if tarnished brand awareness. New entrants especially web based have to find their customers and win trust, and in the case of some products, educate the customer. Not easy and not cheap. So expect to see many new entrants, products or brands that come and go.
So given the big 5 dominance and a historic shift in consumer lending (other than mortgages) will the banks really lose 10% market share to alternative lenders? Well, define alternative lending and it could be much, much greater; in part because the big banks run scared of both risk and reputational damage. And both these things are likely to be much greater with alternative forms of lending.
The other thing to consider is the large and still growing appetite for debt to “consume to today” as evidenced by the large expansion in POS finance, that has and still is creating both a bigger credit demand and normalising large personal debt from sofas to cars…………….. and even cosmetic surgery!
10% may prove to be a very conservative estimate indeed.