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Funding Circle, Santander, and the Future of Banking

Ever since news broke last week that Funding Circle, the U.K.-based peer-to-peer business lender, was discussing potential partnerships with Santander, a massive global bank, the web has been abuzz with controversy over whether this tie-up might have a negative impact on the burgeoning direct lending space.  This article from the Telegraph has a good synopsis of the arguments.

We at Orchard are not at all pessimistic about these developments, and in fact, we find the partnership and the discussions surrounding it fascinating in terms of two particular implications:

  1. The brands and reputations of global banks are still highly damaged in the wake of the great recession.  In most cases, the prospect of a major company with loads of capital venturing into a new sector would be seen as an indication of legitimacy for that new industry and optimism for its future.  The negative reception Santander has received is evidence that banks still have a long way to go in rehabilitating their perception in the public eye.
  2. Second, even large, established financial services companies are now beginning to see that direct (i.e. P2P) lending is the future.  One element of the Telegraph article referenced above is that Santander might be considering referring to Funding Circle customers to whom Santander couldn’t lend on its own.  The truly game-changing implication of this is that a global corporation with $1.3 Trillion in assets recognizes that a startup founded just a couple years ago may in some cases be a more effective and profitable small business lender.

Only time will tell if partnerships like this prove successful, but one thing seems certain.  The world of finance is changing rapidly, and even the biggest players out there are eager not to miss the boat.