Europe’s mobile banking industry is exploding: Forrester (May 2014) predicted that banking on a smartphone will grow from 42 million users in 2013 to 99 million in 2018 and tablet banking will grow from 19 million users in 2013 to 115 million users in 2018. Banks are both driving and reacting to this demand with their own apps, with mixed success. Know Your Mobile reports that 73 per cent of customers would choose the financial service provider with a good app over one with a badly designed app or no app at all, and 42 per cent would even pay slightly higher fees for a better app.

Just as consumers are changing in terms of how they interact with their banking providers, with more than half of the UK now regularly banking online, so too are their investment and borrowing habits, leading to an unprecedented growth in peer-to-peer (P2P) marketplace lending. Inevitably the two trends have collided, and now we are seeing P2P apps emerging for smartphones and tablets - this really is the era of ‘your money your way‘.

P2P undoubtedly offers advantages over traditional lending: often better interest rates because of the cost-efficiency of new technology and a level of flexibility and control, allowing borrowers to customise loans to suit their personal and business needs. But banks, while potentially in a tricky position, shouldn‘t feel threatened by P2P marketplace lending; the two are not mutually exclusive but can  coexist and actually work together. Both are part of the same industry and both are now fully regulated.

Through a software alliance with a reputable P2P lender, a bank can be part of a service that customers would otherwise have sought outside the bank. In addition, they can offer loan refinancing to borrowers at a reduced interest rate to them. Or it can simply be a relationship based on referral, such as that struck by Santander and Funding Circle in June through which they recommend each other’s complementary services.  The Treasury is set to encourage referrals from banks to alternative finance providers by including legislation shortly that will require banks rejecting loan applications from small and medium enterprises, to refer them to other loan providers.

The future of banking is a step on from relationships between traditional banks and P2P marketplace lending organisations: the two must work together.  An opportunity now exists to link software systems to combine such complementary offerings.