EP54: Banks and alternative lenders - to compete or collaborate

Alternative and peer-to-peer (P2P) lending has matured into a permanent part of the financial ecosystem, with the market projected to exceed $70 billion. Growth has been strongest in SME lending, driven by digital players using advanced analytics, low-cost customer acquisition, simplified processes and AI-driven credit models. Regulatory burdens and compliance costs have further enabled non-banks to gain market share.For banks, the strategic choice is whether to compete, collaborate or co-exist. Collaboration includes partnerships where banks leverage P2P platforms’ data, underwriting and customer acquisition capabilities. Co-existence models involve white-label lending or banks purchasing portfolios of P2P loans to diversify assets. Competition sees banks building or acquiring digital lending platforms and hybrid marketplaces.With consolidation inevitable among alternative lenders, banks must either partner or build capabilities organically or through acquisitions. Adopting multi-channel digital lending, automation, AI-driven credit assessment and agile operating models will be critical. Proactive engagement, rather than resistance, will determine long-term relevance.