Is the alternative finance vs. traditional finance hype now quietening?

31/07/2017
Is the alternative finance vs. traditional finance hype now quietening?

A few years back, alternative finance swept in and turned the finance market on its head. Banks weren’t’ quite sure what had hit, and start-ups couldn’t believe their luck.
Now, things are starting to cool off. Alternative finance has made its mark, traditional finance is adapting to demand, and there’s even talk of the two pairing up.
So, is all the hype surrounding alt-fi and traditional lending now fizzling out? Before we answer the question, let’s take a look at what defines each sector.

Traditional Finance
This term describes traditional lending solutions, usually offered by banks. Most businesses opt for loans, which unlock access to quick cash when it’s needed most.

Though of course, banks do come with a catch. Loans are often laced with high interest rates, as well as crippling overdraft fees that can leave SMEs reeling.

Alternative Finance
Born in the wake of the start-up revolution, alternative finance offers businesses a second option. Short term loans quickly won over SMEs, empowering businesses with fast cash minus the lengthy contracts synonymous with banks.

Selective invoice finance also shook up the market, offering SMEs the flexibility to cash in invoices via a third party, sans a small service fee. This emerged as a savvy way to maintain a healthy cashflow, even in the face of long payment terms.

Then there’s peer-to-peer (P2P) lending, an innovative concept that matches private investors or businesses with borrowers. The result is fast access to cash, without the burden of a bank loan. Crowdfunding is another big contender, with platforms like Crowdcube, Kickstarter and Seedrs opening lucrative doors for SMEs.

Collaboration vs. competition
One of the biggest trends sparked by alt-fi is banks taking an “if you can’t beat them join them” approach. Across the globe, banks have started to collaborate with their fintech counterparts, rather than compete.

This has been particularly prevalent in Asia, where banks were quick to realise that fintech wasn’t just a passing fad. Now, banks are starting to view alt-fi as an enabler, rather than a disruptor. While some have embraced this collaborative approach, others are sceptical that alt-fi is selling out and losing sight of its roots.

The future of alt-fi
While the initial buzz may be quietening down, fintech is by no means losing momentum. In fact, 2017 is shaping up to be an incredibly resilient year for the industry.

Just, look at the latest report from banking firm G.P. Bullhound. Despite political instability in both the US and UK, alt-fi remained buoyant and will continue to do so on a global scale.

Anything but alternative
As for the future of alt-fi? While it may retain its unorthodox name, alternative finance is anything but alternative. On the contrary, it will continue to challenge traditional lending, and serve as a growth friendly alternative for both SMEs.

 

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