Last night I was on a panel at the WeBank event at Nesta in London. It was a debate on the future of peer-to-peer lending and social finance. The panellists included Giles Andrews CEO of Zopa, and we had a lively debate, me playing the role of antagonist of course. I always seem to get cast in that role, as I was saying to a few people afterwards, the token banker with an innovation job who "doesn't get it".
I always laugh, of course. Being a bank innovator is quite a different thing to being one in a start-up, or even one in a well running company with some years of history such as Zopa. In exchange for our greater access to resources, we are also subject to far more significant constraints. We have to run what I call the "Can we get it up" test: an assessment of whether we have the political capital to actually make something happen or not. The more unusual and unprecedented something is, the more political capital we need.
In a start-up, by contrast, if you want to do something, you just do it.
Anyway, I was at this panel, and both the other P2P companies (the other was as yet un-launched Kubera Money) said something very interesting: they have cordial relationships with the regulators, and expected that to continue. In other words, they were expecting fairly light touch supervision.
Now, don't forget these are outfits running on fee income. They aren't going to have any fat in their operations, and so it is probably just as well they don't have the compliance load a fully supervised bank would have.
The regulator is also very, very busy, of course, particularly now.
But I can't help but wonder what would happen if one of the big four banks here in the UK rang up the FSA to tell them that they were entering peer to peer in a substantial way.
I simply cannot imagine that a light touch supervisory regime would be the result. Perhaps they'd go even further than the U.S has already gone on this topic.
Now this brings me back to the main point I raised on the panel. P2P is either disruptive to banks or it isn't. In order to be so, it needs to serve customers we can't, at a price lower than we can, or else be more convenient or have some other operational advantage which is unattainable for banks. Credit crunch aside, I don't really see how P2P has any of those things, frankly.
As Giles said yesterday at the panel, though, "we are absolutely going after share from the big banks". So these are not new customers going to P2P, then.
So rather than a disruptive, under the radar insinuation into the business which P2P might win, what we have here is a long drawn out competitive battle for share. That's a pity, in my view.
If they grow too big, banks will respond. The response will trigger a regulatory avalanche which banks are already set up to manage, but smaller P2P companies aren't.
And during all of this, they'll be engaged in a ruinous price war with bankers on fees and other charges. Costs going up, but revenue going down.
Not a pretty picture.