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Are we witnessing a tech-lending revolution?

Yes, the British economy is recovering. But the statistics paint a sombre picture for some, with growth evidently skewed towards housing or finance and away from small to medium sized business. Rightmove, a property website, reported a £50,000 average rise in house prices in the capital between September and October. In contrast, the Bank of England’s Trends In Lending publication reported recently that investment in businesses of all sizes contracted by £2.3billion in the three months to August. Funding Circle, the UK’s first P2P lender however, listed a 30% increase in lending to small businesses. Could a wave of tech-lending rebalance the UK economy?

Simon Dixon certainly thinks so. He set up Bank To The Future, which boasts Richard Branson among its supporters. By combining three functions, Crowdfunding, Crowdinvesting and Crowd Lending, one can raise or buy equity, lend or borrow, all for as little as £10. Transparency is clearly an attraction in platforms such as this. Former Fashion Director at TopShop Caren Downie for example cites “democratisation” as one reason for her investment. This should come as no surprise given that so many Crowdfunding platforms pride themselves on not relying on a mere “middle man” financial intermediary to secure assistance. Dixon goes even further by saying that it is the people who now decide who gets funded. His aim is to raise £2m and have the first crowd funded investment bank.

There is good reason to see Crowdfunding as a truly utopian project. The FT recently reported for example, that during the US Government shut down, civic minded members of the public Crowdfunded everything from neighbourhood patrols to highway repairs. Such developments might temp some to suggest that Crowdfunding can revolutionise our economy away from the tried and failed growth models of the past. Middlemen in the form of profligate bankers and bubble inflating politicians may become obsolete. There is reason to be sceptical however. Consider Bank To The Future’s £2 Million December target. To put that in perspective, JP Morgan just paid more than 6000 times that amount in legal costs alone.

It seems unlikely that a revolution in financing can be unleashed when established institutions retain such a stranglehold on money. Furthermore, to say that Crowdfunding has the potential to democratise finance can seem dismissive. The Trussell Trust recently reported that it helped 350,000 people reliant on its food banks, a figure that had tripled in a year. Those that cannot afford to buy toilet paper are unlikely to take a punt on a high risk internet investment with the spare funds they don’t have and coo over the potential of the internet to democratise. Ultimately, Crowdfunding seems as if it will remain a gimmick for the privileged so long as it fails to challenge the financial reserves consolidated on the books of established banking behemoths. If tapped, its circulation would benefit SME’s and the general population alike. Crowd funding may be democratising on some level. But some will be more democratised than others.

This was posted in Bdaily's Members' News section by Jack Armstrong .