Technology law expert Tim Roughton of Pinsent Masons, the law firm behind Out-Law.com, said financial technology companies are using new digital technology to disrupt the financial services market but that incumbent businesses in the sector can respond to that threat by collaborating either with those disruptors or with others.
Roughton was commenting after Zopa announced that it had agreed a partnership with challenger bank Metro Bank. Metro Bank will offer lending facilities to users of the Zopa platform. It is the first time a bank has opted to provide loans via a peer-to-peer platform, the companies said.
"Zopa and Metro Bank believe this partnership is a great example of how disruptive financial challengers can collaborate to provide additional value and revolutionise the UK banking sector," the companies said in a statement.
Giles Andrews, chief executive and co-founder of Zopa, said: “This unique partnership is the first of its kind in the retail banking sector and a clear sign that Zopa is a trusted platform not only for consumers but also for institutions to deploy their funds."
Craig Donaldson, chief executive of Metro Bank, said: “We are continually looking to work with partners that can benefit our customers and Zopa are the perfect players in the P2P space to help us lend funds to consumers. The partnership we have with Zopa is a cultural fit that works perfectly with our commitment to providing a convenient and customer-focused banking experience and we look forward to working with them closely.”
In a recent Out-Law seminar series, Roughton explained how collaboration is helping businesses respond to the threat of digital disruption.
"What is interesting about this example is that, to date, collaboration in the peer-to-peer lending sector has been limited to referral-type relationships where established banks such as Santander and Royal Bank of Scotland refer customers to a peer-to-peer platform where those customers do not meet the strict lending requirements of the banks," Roughton said. "Now we have Metro Bank going a step further and lending itself through a peer-to-peer platform."
"Of course, this relationship brings into question the very concept of 'peer-to-peer' lending as Metro Bank cannot be classified as a 'peer'. By competing with individuals to lend money, Metro Bank could be said to be itself disrupting the disruptive peer-to-peer lending market. This should be good news for borrowers as it creates a more competitive and efficient platform to lend money," he said.
Roughton said the Zopa and Metro Bank partnership also highlights the threat of disruptive digital businesses to incumbent businesses in the financial services sector.
"Those existing businesses need to understand and review the threat of disruptive competition and develop and implement a digital strategy to react to that threat," Roughton said. "That strategy is increasingly likely to involve more collaboration with new market entrants, with other businesses or with its supply chain to create new and innovative products and services to meet customer demands."