Banks in emerging markets should enter into marriages of conveniences with peer-to-peer lenders, helping their putative rivals navigate tough credit and regulatory environments in exchange for help in winning new clients, according to the group chief innovation officer of Standard Chartered Bank.
Cheered on by governments eager to promote competition and backed by capital market investors pumping in funds, P2P lenders have seen their popularity explode in markets such as The US, UK and China.
However, Standard Chartered's Anju Patwardhan says that in emerging markets P2P lending is not, in the foreseeable future, a threat to banks. This is because these countries have fragmented markets and varying credit infrastructure and regulatory complexities, "making partnerships with established banks a necessity".
While banks can help P2P lenders, they can also use them, helping to shape the industry and attract new clients and stimulate innovation.
"While a profound transformation of banking is inevitable - for the foreseeable future at least incumbent banks and technology disruptors are destined to be in a symbiotic relationship where each benefits from the other, enhancing the overall value proposition for clients," writes Patwardhan in a blog.
Although positive on P2P lending, the Standard Chartered exec also sounds a warning about the industry's move away from its roots. The majority of P2P lenders are no longer peers but institutional investors.
"This dependency on wholesale funding is a fundamental flaw. History has taught us several lessons about finance companies that get all of their funding from the capital markets. The model works well in good times but can quickly hit the wall when institutional funding is tight or prohibitively expensive," warns Patwardhan.
Citing the recent problems with China's economy, she says that P2P lenders are already failing and many more will struggle and go to the wall in the face of liquidity pressures and declining spreads.