Australia’s big banks appear to be faced with an “innovator’s dilemma” of whether to crush, ignore or co-opt the peer-to-peer sector.
SocietyOne chief executive Matt Symons said he was encouraged by a recent Morgan Stanley report that forecast exponential growth in the Australian peer-to-peer sector – but also raised the possibility of retaliatory action by the big four.
“I think they’re no doubt looking at it and they’re considering what to do. I think one of the challenges is that classic sort of innovator’s dilemma,” he told Mortgage Business.
“You’ve got a very profitable back book, you have a small potential threat but that hasn’t actually emerged today, so do you capitalise on your very healthy margins to see off something that may or may not be a problem tomorrow or do you focus on banking the profits today?”
Mr Symons said it would be logical for the banks to focus on maximising their short-term profits while waiting to see how the peer-to-peer market would evolve.
The Morgan Stanley report forecast that the majors would be unlikely to adopt the risk-based pricing model of the peer-to-peer sector given the risk of cannibalising their back-book profitability.
However, the report added that the big four seem intent on matching the service and ease of application provided by the peer-to-peer platforms.
Mr Symons said the majors might make a pragmatic decision to partner with the peer-to-peer sector given that it appears to have found an innovative model that appeals to certain borrowers.
“What I would say about the US is that businesses like Lending Club have partnered very successfully with a wide range of financial institutions and banks,” he said.
“Others are greatly benefitting from their association with Lending Club either as investors or as loan origination partners, so I think there are lots of interesting ways to collaborate.”
According to Morgan Stanley, ASIC looms as a potential threat to the peer-to-peer sector, but Mr Symons said that SocietyOne has found the regulator to be supportive.
“We’ve always had great feedback and clarity and we’re excited about how they’ve approached regulating the category,” he told Mortgage Business.
“We think it’s sensible and considered and we’re very supportive of what they’ve done.”