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2016 was a difficult year for the alternative finance industry. Lending Club was hit by a series of scandals and Lord Adair Turner publicly questioned the P2P model (albeit in a commentary that he subsequently modified).

But 2017 promises to be a transformational year, with some industry insiders talking about ‘a Golden Age’.

As the scale of online lending expands, so does the ambition. And so the relationship with banks becomes more complicated. This was the central theme at the recent AltFi Europe Summit, which saw around 350 fintech leaders gather in London to discuss the future of the industry.

The sector is rethinking its relationships with the financial incumbents. There’s a bigger push on partnerships. But do platforms want to compete with banks, collaborate with them – or become them?

Blurred lines

As Samir Desai, Founder and CEO of Funding Circle, stated ‘the lines between platforms and banks are blurring.’

This is indeed true. P2P founding statesman Zopa has applied for a banking license, whilst Goldman Sachs has announced its intention to offer a new online lending platform.

Zopa’s CEO Jaidev Janardana said that the company is launching a bank to achieve its vision of offering the best home for customer money. As it prepares to offer traditional products, such as cash ISAs, alongside P2P investments, he pointed to Zopa’s customer service record in the 12 years since its birth.

He said that banks’ duty of care primarily covers managing customer money and data – and this is something Zopa has built a reputation for. So has P2P moved full circle and become what it set out to disrupt?

Alternative routes

As to be expected, the industry is fragmenting as it matures, and different platforms will take different routes. An audience poll at the AltFi event revealed that 59% of attendees don’t think that high street bank collaboration is bad news for customers, but the remainder disagreed. So there’s a sizeable minority committed to replacing banks.

This includes Monzo’s Founder Tom Blomfield, who believes that the sector’s collaboration with the incumbents risks simply plugging gaps in a broken banking system.

He called for fintechs to take the lead in ‘marketplace banking’ – rooted in smart software driving open banking in a fertile PSD II environment.

Ultimately, consumers want choice. One way ahead, that we’ll see more of, is co-branding or white labelling of products.

There is room for both banks and platforms, and it will be fascinating to watch how their relationship develops.