Uber, the Dragon and the Banking Sector
Posted On June 30, 2023
Banks lend money. Taxis transport people from one rhythm to another. You may not think that there is much similarity between the two. But both are based on a fairly simple premise. Both have managed to build an indisputable and trustworthy status quo. Both also face a challenge to their dominance and both resist or (at best) slowly adapt to changing times.
As Albert Einstein said, ‘Everything should be made as simple as possible, but not simpler.’ But what is simple in the 21st century? In the world of people transportation, Uber has found an answer. He has tapped into the modern world and understood the psyche of the modern person and in the process shaken up the status quo. But what about the banking sector and specifically bank loans? Over several hundred years of trading, surely banks have had time to develop a product that is as simple as possible. But is the 21st century simple, and if not, where does this leave traditional banking and lending?
Everyone is familiar with the likes of Barclays, HSBC, Lloyds or Santander and this is because they are banking giants, a true banking cartel, which by the size of their market share dominate the credit landscape. They don’t have to innovate nor do they have to be overly accommodating or flexible. They have set criteria and fixed requirements – boxes that your customers must check before considering lending.
By virtue of their size, they are volume businesses based on basic deal types that are underpinned by a transactional, methodological approach that has served them well for decades. The result of this approach is that they manage their risk well and are therefore able to lend at very attractive rates.
But the risks are changing as the business world of the 21st century develops. It is a rate of change that the risk appetite of traditional banks does not necessarily follow. Sometimes all the risk models and financial sensitivity analyzes in the world can’t answer the question; How do I buy this person, her business and her plan?
The question of whether I buy this person, his business and his plan is more relevant than ever.
We are now entering the world of the dragon and it is in his lair that businesses now find their finances. In the recent past, this was a niche market that was inaccessible to most companies. But now it is evolving and entering the mainstream under the guise of peer-to-peer lending.
With low interest rates and lower yields, many private investors and hedge funds are beginning to pour billions into peer-to-peer and independent lenders. You and I can sit in that comfortable leather chair, see the metaphorical whites of a person’s eyes, and make an instinctive decision about them and thus decide the fate of their dream: It’s a power usually reserved for the super-rich… or television. personal allusions.
But the allure of being an armchair dragon, the potential for higher returns for the investor, and faster, more convenient lending for borrowers mean this sector is poised to grow and, in the process, begin to shape the credit landscape.
But let’s put a little context to things. In today’s market, peer-to-peer loans to SMEs still represent less than 1% of total loans. However, the number of new market entrants is increasing and the amount of slow money is growing rapidly. It has captured the imagination of all would-be dragons. But more importantly, it has also attracted the attention of big funds with huge amounts of money to invest – enough money to ensure that the investment is not speculative and that failure is not an option.
Peer to peer and Uber are here to stay – hop aboard or ride the ultimate vintage black cab dating back to the last century.