It is estimated that peer-to-peer (P2P) lending will soar at least 66 per cent to $5 billion of outstanding loans in the next three years. Customers who lose their jobs will find it difficult to get loans to cover periods of unemployment, said a report from Gartner Inc, an information technology research and advisory company.
Businesses that encounter trouble due to low demand will have a tough time getting credit lines to see them through to recovery. Moreover, banks would be more interested in recapitalising than in lending.
“Growth in P2P lending will be driven by investors seeking higher returns and borrowers shunning (or being shunned by) banks. Financial services providers should investigate how to partner and collaborate in adding P2P to their existing offerings rather than building their own P2P lending networks,” said the report.
As part of its IT predictions for banking and investment services, Gartner said that half of the banks will still lack a formal innovation programme and budget by 2013.
Pressure from governments, regulators and consumers is making some banks risk-averse and creating a culture of introversion and inflexibility, said Richard De Lotto, principal research analyst at Gartner.
The predominant view of IT is that it is only useful for cutting costs so tactical thinking about automation and rationalisation overwhelms longer-term decision and strategic plans and goals.
Non-banking competitors, such as retailers, online companies and telecommunications companies, are making inroads into the banking industry, leading the way with customer-oriented service improvements which customers will seek as economies of access improve. Meanwhile, bank fees could rise to help offset customer attrition.
The report has predicted that 75 per cent of retail banks in North America and Western Europe will have shut down 10 per cent or more of their traditional branches by 2013. Since retail banks are shifting to non-local, franchised, multi-tenanted and virtual branches, the drive to improve efficiency and cost-to-income ratios will be constrained by the high fixed costs locked into large retail branch networks.
Banks, Gartner noted, will consider splitting high and low-value services by keeping their own branches for high-value service but using multi-tenanted services for low-value services. For example, small businesses wishing to deposit cash at the end of the day can do so at a general cash deposit facility that serves multiple banks.
Nearly 5 per cent of banks could lack the means to systematically identify and exploit potentially disruptive technologies in the next three years. “Banks face unprecedented competition from industry outsiders with innovative products and services that are able to capture and expand from market niches long-thought unprofitable. The long-term winners will be those able to innovate faster, better and cheaper than their competitors,” said Gartner.
Creating a systematic methodology for tracking disruptive technologies when they appear, market trends and discontinuities is essential to meet competitive challenges, said Gartner.
Most banks that are undertaking payment, lending and treasury management services hubs (initiatives combining related standalone services on a single platform), according to Gartner, are doing so in an isolated fashion without using common organisational services.
Meanwhile, both vendor offerings and reference models to guide more holistic hub initiatives are immature.
Banking and investment services providers need to make a critical shift to a more outward-facing set of objectives for IT that are risk-aware but still innovative and bold, concluded De Lotto “These institutions must now look beyond the fire-fighting of the current crisis towards planning for the eventual recovery and the new world that comes with it. If they don’t, they will become uncompetitive and fall behind more-forward-thinking rivals”