Beyond Peer-to-Peer: The next round of innovation in finance 

Banks' reluctance to lend to business has kick-started massive innovation in business finance. The success of Funding Circle, the biggest peer-to-peer (P2P) lender for businesses, is the direct result of the funding gap left by banks. 

But in one way the success of Funding Circle is misleading - innovation in business finance today has little to do with peer-to-peer lending. 

The P2P sector strived as a result the high costs of funding and the low returns on deposits following the financial crisis. But with falling cost of bank funding, P2P has relied on very keen pricing of risk to remain relevant. This is not a problem in a benign economic environment, but can create problems when things become a bit more strained.

New ways of assessing risk is broadening access to finance

The focus on how these funders have created liquidity (through peers) has actually shifted the focus away from an area of real innovation.

Hundreds of innovative lenders are underwriting businesses by finding new ways of assessing business risk, making it operationally cheaper to underwrite, and finding ways of insuring / sharing risk with third parties.

For example, URICA, one of the lenders on FUNDING XCHANGE's panel, is able to underwrite SME-to-SME invoices anywhere in the world by accessing Euler-Hermes' credit risk information which captures detailed transaction data on 40 million small and medium size businesses around the world. This innovation opens up a new way of underwriting trade flows and making instant decisions on extending credit.

Most businesses are simply not yet aware of the new funding options

These innovative lenders are making it possible for a much broader range of businesses to be funded on terms that are attractive. However, given the level of specialisation of each funder, it has been difficult for businesses to find the right funder offering the best terms for their specific situation.

That's why credit is not yet flowing to businesses. Most businesses are simply not yet aware of the new funding options that are available. Even if they are aware, they do not yet trust this new sector.

Next wave will give businesses greater control over funding

The next wave of innovation has to connect those that are looking for funding with those that are offering funding, while creating trust between the business seeking funding and the innovative lenders seeking to provide funding. Funding Xchange, the business funding marketplace, is at the forefront of this innovation.  Funding Xchange gives businesses control over the funding process, by:
  • Simplifying access to business finance
  • Delivering best available quotes, from the whole of the lending market
  • Promising to always be transparent and unbiased
  • Never charging businesses for using our services