By Craig Cosham, Partner, Financial Services for Scotland, Deloitte

Innovation has been part of the fabric of Scotland’s financial services (FS) scene throughout its long and rich history. With customer expectations changing, possibly more in the last decade than ever before, it’s just as well.

It’s clear that consumers of financial products are showing increasing willingness to experiment with different providers and products. That, in turn, is creating ideal conditions for some of the new technology-focussed businesses in FS to challenge traditional banking models.

It is, perhaps, no surprise then that Edinburgh, in particular, has seen a swathe of financial technology (Fintech) companies set up – evolving out of hubs, such as CodeBase, across the city.

The sector is fast becoming one of the real growth opportunities for the Scottish economy – a fact underlined by Scottish Financial Enterprise’s decision to launch a devoted Fintech Strategy Group. The industry is estimated to take in annual revenues of £20 billion across the UK, employing 135,000 people; a good portion of both is in Edinburgh.

The question of recent times has been whether or not these companies can pose a serious challenge to the established players – can they ever be a real threat to high street banks as lenders, or a source of income for investors?

However, for me, this is the wrong question to ask – for a number of reasons. What we should really consider is the increasingly vital part these Marketplace Lenders (MPLs), or peer-to-peer lenders as they are more commonly known in the UK, are going to play in the future of financial services.

The exact nature of that position within the market is still emerging. But, our analysis suggests several predictions.

Firstly, it’s fair to say that MPLs’ role in innovation has already been keenly felt – and they are likely to drive it further in the future. Their services and processes tend to be speedy and convenient, while they are also exceptionally adept at spreading their message through new digital channels. Many banks will seek to replicate the improved user experience offered by MPLs and their acquisition strategies, which can only be a positive outcome for customers.

Secondly, there are areas of the market that favour these attributes of MPLs services and are willing to pay a premium for them – invoice financing for SMEs and high-risk retail borrowers, for example. As a result, MPLs are likely to find and corner market segments which are currently unsatisfied by existing institutions. They may also offer a low-cost option for certain investors to gain direct exposure to these asset classes.

Finally, the upshot of both these dynamics could create a real opportunity for collaboration between banks and MPLs, where they are not in competition with one another. This is already happening in the US, and we’d anticipate seeing more of it here.

Banks should evaluate the wide range of options presented by the emergence of MPLs and consider how they could be used to enhance their own customer propositions. This could take the form of providing referrals to customers who lie outwith banks’ risk appetite, investing customer deposits through MPLs or assessing white label product options.

The emergence of Scotland’s Fintech scene presents a number of opportunities – not only for consumers, but the established order of financial services too. They would do well to embrace it.

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Craig cosham

Craig Cosham
Partner, Audit

Craig oversees Deloitte’s Financial Services practice across the UK. With over 17 years’ experience, Craig has an extensive knowledge of the banking industry, providing audit and advisory services. Craig also leads Deloitte’s Treasury Consulting practice in Scotland and Northern Ireland. He is a member of the Institute of Chartered Accountants of Scotland.


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