Since the launch of the first crowdfunding platform in Europe the industry has experienced immense changes. The financial crisis along with the new regulations created the need for alternative finance and banking models. These may well include more innovative products and banking proposals, digital media utilisation, big data management and more. The resulting regulatory fines and slowdown of the overall economy added more burden to the banking operations, making financing even more bureaucratic.
In the meantime, while banks were trying to cope with all these changes and struggling to measure and manage liquidity, crowdfunding platforms and providers were perceived as the alternative, thus increasing their share in lending to businesses and establishing the alternative finance sector.
Following over a decade since the first crowdfunding business, market demands lead to a far more “disruptive” business model, strengthened by the recent official announcement in the UK by an established crowdfunding platform provider and an innovative alternative banking organisation.
According to Business Insider in May, in an article about two startups that had recently joined forces, the following was reported: "Zopa and Metro Bank believe this partnership is a great example of how disruptive financial challengers can collaborate to provide additional value and revolutionise the UK banking sector."
Banks are now considered “backers” for well-established P2P lending platforms with the recent example of Kabbage that raised a sum of $135m backed by ING, Santander and Scotiabank among others, proving that this is becoming a trend that creates opportunities for banks and P2P lending platforms for collaboration or even an expansion of the banking sector.
Moreover, as in any other part of the economy, China is also entering this specific area, either as a P2P lending provider or as a funder offering access to capital and to a huge market. This trend is based on both the organisations’ similarities in way of operating, with common metrics (e.g. client satisfaction, new products, regulations and compliance) and the leverage provided by existing “differentiators”, mainly the speed and ease of delivery to the end client and the branchless, web based operations.
In this domain there are a number of other companies that entered with the following options:
- As a front-end tool performing basic online transactions and requests
- A crowdfunding platform that developed its own system to accommodate its needs
- A market-proven software platform that can accommodate current and future needs of expansion
The pros and cons of each option:
- It is fast and easy to use however, it lacks the capability to foster future expansion or growth opportunities. Complex business, as well as regulatory concerns, will need a banking-like platform.
- It has the experience of similar type of processes, however this could be a competitive type of system that it will be depend on similar type firms to develop functionality. In addition, each crowdfunding business is unique, this is actually the competitive offering for the market, so specific requirements and complex connections might not always be accommodated with ease.
- In this category, the crowdfunding business would need to rely on an external provider and invest in a system that is simple and cheap. It will, however, be able to perform complex and regulatory related tasks to meet with business future objectives. For this purpose, entrepreneurs would need to have a solid business plan with a crowdfunding model to develop. The benefits on selecting a tested and flexible software platform ensure ease of use, scalability and compliance that safeguard the business from future changes.
Going back to the changing trends for the banking sector, the third option also ensures better collaboration between banks and crowdfunding platforms, in both a systemic and operational way since the system is developed to provide flexibility, integration with 3rd party, compliance and more.
By Kostas Kotsiopoulos, Global Sales Director at Profile Software.