Technology is set to grow the UK SME finance market by £4.1bn within a decade as tech giants and peer-to-peer lenders move into small business lending.The growth in SME lending is part of a predicted £100bn boost to the UK’s financial services sector by 2030 as disruption ramps up, according to analysis from PwC.
PwC predicts that established tech players and peer-to-peer lenders will carve out a 37pc share of the SME finance market between them by 2030.
Technology, changes in demographics and customer behaviour will continue to impact key areas in financial services, including lending, insurance, savings and investments.
Globally, SMEs’ financial needs are increasingly being met by new players such as the internet giants. In the UK, big tech or smaller digital challengers could dominate the currently under-served micro-SME lending sector, due to the better information they possess and the improved user experience they offer.
PwC sees five key “enablers” weighted in favour of disruptors:
- Technology – new entrants are cloud-based and put customer experience at the hear of their technology design. Some incumbents rely on legacy technology that depend on systems developed in the 1960s.
- Regulation – challengers are able to create new services and attract customers onto their platforms without having to adhere to complex regulations required of tradtional players.
- Switching – regulation is making switching easier and more straightforward.
- Talent – automation is replacing and augmenting traditional financial services roles. The focus on data and analytics is creating intense competition for digital and data-savvy talent, to the advantage of tech giants directly aiming to serve the financial services sector.
- Funding – the relative size and availability of funding.
PwC points out that new players already offer an alternative to traditional sources of funding.
In China, for example, internet giants such as Alibaba and Baidu make rapid credit decisions based on customer data and sales records. They now service around 10pc of the Chinese SME market.
Here in Britain, new entrants such as Tide and Starling both offer SME finance alongside traditional high street banks, while other P2Plending players, such as Funding Circle, provide small businesses with easier access credit and are growing quickly.
Andrew Kail, head of financial services at PwC, said: “Businesses using innovative products want more tailored, more efficient and more secure technology. In order to meet this demand we may also see more joint ventures between the behemoths and the new entrants to combine forces around market share and new product.”