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BofE chief says loan technology could lead to disintermediation

Bank of England executive director of financial stability Andrew Haldane says increasing use of technology in organising loan finance could see intermediaries become “surplus links in the chain”.

Haldane

In an interview with the Independent, Haldane said improvements and innovation in technology, such as peer-to-peer lending and crowd-funding sectors, could see execution-only become a “a more realistic possibility”.

He said: “The banking middle-men may in time become the surplus links in the chain. It has happened in the liberal arts, music and publishing, and there is no reason it should shouldn’t in finance.

“Ebay has shown that with transparency, it can be done. Why can’t you have an open market for loans? With an information-based web, the disintermediated model of finance becomes a more realistic possibility.”

Haldane also said he is “optimistic” peer-to-peer lending and crowd funding can solve the credit drought to small and medium-sized business and could replace the high street banks.

He said there is a “more diverse eco-system” springing up with new non-bank lenders offering peer-to-peer lending and crowd-funding, offering businesses an avenue to access credit when it might not be available from the mainstream banks.

He says: “I am congenitally pessimistic about most things in life but on this I am really optimistic: it’s a time of opportunity knocking for finance. Hopefully, the growth of peer-to-peer lenders, such as Zopa, Funding Circle and Thin Cats, and those involved in crowd-funding, such as Crowdcube, will help solve the problems we have in the UK with lending for SMEs.”

Crowd-funding is where businesses sell equity to a large group of investors, normally via the internet, whereas peer-to-peer lending is when one individual lends to another at an interest rate agreed up front.

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  • ray loveday 20th December 2012 at 2:44 pm

    @Anonymous | 20 Dec 2012 1:47 pm

    A point well put.

  • Tom Cleary 20th December 2012 at 1:47 pm

    Ray – If you are going to post on the forum of a website that is designed for mortgage brokers, what else would you expect if you post a view that does not support the role of a broker!? That is not to say we are all so blinkered as to not consider your opinion, however, I actually still don’t agree with your position. Mortgages are infinitely more complex than car insurance and people need advice on mortgages now more than ever I would argue.

  • ray loveday 20th December 2012 at 10:19 am

    Gents please, its more of same isnt it? Any view from that does not support the role of brokers is lambasted? I am simply pointing out that technology in all markets gradually drives out middlemen. I am not personally attacking brokers per se for the sake of it.

    am speaking from a position of detailed knowledge of the mortgage market btw.

  • Dazed & Confused 20th December 2012 at 10:08 am

    Gone very quiet Ray??

  • seb clegg 20th December 2012 at 10:00 am

    if we are moving away from non advised and residential mortgage loans are regulated I don’t see how this works.

    it could work for BTL with joint ventures between an investor, property sourcer or developer

  • Stuart Duncan 19th December 2012 at 1:17 pm

    It amazes me when anyone sees mortgages as a transaction that should be execution-only and makes insulting innuendoes against brokers as if we are simply trying to look after our own interest (which we are entitled to do anyway). Many in our industry are client-centred and conscientious, seeking merely to get paid for the valuable work that we do.

    Incidentally, I have come across plenty of people who have screwed up “Simple” execution-only transactions such as home insurance, mortgage protection and car insurance, as well as had clients fail on mortgage credit score because they have been on the net doing insurance quotes and picking up multiple credit checks as they do so. But I am sure that the execution-only fans know that anyway…….???

  • Dazed & Confused 19th December 2012 at 12:54 pm

    Ray…you do seem very bitter and twisted my friend! One has to assume from your seemingly quite ill informed comments that you are probably nothing to do with the Mortgage Industry, just rather curious as to why the outpouring of venom and bile?

    As to asking consumers what they think…well I have been an active Mortgage Broker for 21 years now and have never had a complaint against me and still provide a service to clients I first dealt with when I started out. I for one would have no problem in asking the world at large what they think, and I know several other brokers who would also stand up and be counted…but that is just my, perhaps rose tinted, view of things!

  • ray loveday 19th December 2012 at 11:33 am

    @Anonymous | 18 Dec 2012 1:10 pm

    at least have the guts to name yourself.

    Insulting to consumers? No, Lenders No, Brokers, Why?

    Its the FS industry of vested interests that complicates any kind of finance. Why on Earth does the industry persist in trying to advocate ‘advice. Sure, its handy to have somebody to sort things out when you need it, but frankly i dont mortgages as nay more complicated than car insurance or bank loans.

    How about asking consumers what they think???? No didnt think so.

  • Tom Cleary 18th December 2012 at 1:10 pm

    To compare mortgages with car insurance is making exactly the same mistake as the subject of this article. Not to mention insulting to consumers, lenders and brokers alike.

  • ray loveday 18th December 2012 at 10:10 am

    @ Julian wells, point taken Julian, but i think what Haldane is getting at in a wider context is that the there will be less stages ie intermediaries in the process of lending. Personally i dont see the banks getting a serious run for their money, however it may well be that P2P simply evolves into a funding line for banks rather than a serious contender to taking on the banks in any meaningful way. In any event, the P2P platform is still acting as an intermediary doing some of the tasks banks do.

    However i really cant see a future for brokers in all of this. Look at car insurance for example. Once you needed a broker on the high st. Now you dont. It WILL happen to mortgages.

    In 10 years time it will look completely different, surely any fool can see that.

    PS nice plug for your current project.

  • ray loveday 18th December 2012 at 10:10 am

    @ Julian wells, point taken Julian, but i think what Haldane is getting at in a wider context is that the there will be less stages ie intermediaries in the process of lending. Personally i dont see the banks getting a serious run for their money, however it may well be that P2P simply evolves into a funding line for banks rather than a serious contender to taking on the banks in any meaningful way. In any event, the P2P platform is still acting as an intermediary doing some of the tasks banks do.

    However i really cant see a future for brokers in all of this. Look at car insurance for example. Once you needed a broker on the high st. Now you dont. It WILL happen to mortgages.

    In 10 years time it will look completely different, surely any fool can see that.

    PS nice plug for your current project.

  • Tm Hague 17th December 2012 at 10:31 pm

    It depends what the guy means by loans… if he means simple unsecured credit he is probably right. If he means secured, second charge lending he might be right in the fullness of time. If he means simple, price-led remortgages there’s a slim chance that could take on.

    If he’s talking about emotional, complicated house purchase mortgage loans – search yes, purchase not in my lifetime.

  • Julian Wells 17th December 2012 at 8:43 pm

    I think there’s some confusion here – the term ‘intermediation’ means something different in the banking industry than it does to all of us.

    What Haldane is saying, if i have understood it correctly, is that Peer-to-Peer (P2P) could drive banks out of the market. Who needs them if technology can connect borrowers and lenders directly? That’s very different to taking advisers out of the equation.

    I am currently working with a Peer-to-Business provider (rebuildingsociety.com) and i can assure you that advisers/introducers are fundamental to the business model. I’m confident this is the case with the majority of providers in this fast emerging market. Fee are paid to advisers for introductions of borrowers and lenders, and if you look at websites there is a clear focus on brokers and a desire to deal with them.

    So, although i’m not a broker myself, I’d encourage those of you who are advisers to embrace P2P as it is not only a new form of finance for consumers and businesses but also a source of current and future revenue for professional advisers.

    It’s the banks who need to be worried!!!!

  • Julian Wells 17th December 2012 at 7:40 pm

    Maybe I have misunderstood but I thought he was meaning the removal of banks from the market, not advisers. I read this as being a quote that essentially was saying loans and investments could be facilitated without the need for a financial institution.

    I am currently working with a peer-to-business lender (rebuildingsociety.com) and I can assure you that advisers are an integral part of the business plan. That’s the case with the other P2P providers too. It’s the banks that need to be worried, not advisers!

  • Phil 17th December 2012 at 6:33 pm

    Ray, you may have a point for the order taking broker of the past but in reality nearly half of the business we get have tried to do it themselves online and failed only to be told by a colleague or family member that we can help them which we usually do. I am looking forward to a very prosperous 2013

  • ray loveday 17th December 2012 at 2:24 pm

    Brokers who say this guy is nuts take note! The first intermediated link to go will probably be you. Sorry, but its true.

    you seem to think that everybody needs your advice. Haldane is a smarter man than you i suspect, with his information being from the forefront of the economy. I think yuo should quake in you boots.

  • PARACHA 17th December 2012 at 1:16 pm

    I for one find this extremely interesting and foresighted… with an unlimited access to consumers, borrowers and lenders alike … and a huge canvas to advertise on this type of model can build on itself improving, refining and becoming more cost effective as time goes by… even though online, peer to peer and crowd-funding is not in the mainstream yet… given a few years this might be bigger than most people could imagine now…

    instead of trying to escape the inevitable it might be better to realize how competetive and cost effective the non traditional and upcoming alternate funding avenues will become

  • George Williamson 17th December 2012 at 1:11 pm

    Peer-to-Peer Mortgage Lending would be in breach of FSA rules unless the lender is FSA authorised – I am a bit worried that a BOE employees is not aware of this simple fact!

  • Mary Lockyer 17th December 2012 at 10:54 am

    Income multiples no longer “work” every lender has quirks on criteria and affordability models vary enormously, unless lenders adopt uniform criteria and pre set affordability calculators, Mr Haldane does not realise most borrowers would lose hope by the time the amount of detail needed to get an accurate answer had been input, and this is not a simple transaction, people need advice, and good explaining in terms they understand, often the penny does not drop first time, Get real Mr Haldane,and get better informed !

  • The Cynical Broker 17th December 2012 at 10:52 am

    Mr Haldane is another clasic example of the “Peter Principle”!

    The Peter Principle is a belief that, in an organization where promotion is based on achievement, success, and merit, that organization’s members will eventually be promoted beyond their level of ability

  • Andy 17th December 2012 at 10:25 am

    Thin cats have made 75 loans since January 2011 totalling £12.2m, with lending on this scale, the banks will be quacking in their boots (sic). Very cost effective lending with an average interest earned by lenders: 11.07% NET. Just what we need to solve the credit drought, as a single intermediary, I have arranged more business than that since Jan 2011 and at a much more competitive average interest rate!

  • Stuart Gregory 17th December 2012 at 9:55 am

    Ah…so Mr Haldane has been living under a rock for the past 5 years.

    Borrowers need advice – which comparison sites and lenders rarely give.

    They apply online, get turned down by one, and assume the result will be the same elsewhere.

    Web based information is normally not comprehensive, but I look forward to Mr Haldane’s world where lending policy is listed in full on lenders websites then.

    Won’t hold my breath…