Peer to peer lending expected to alter conventional banking

Banking middlemen may be out in the cold soon thanks to a technological revolution in business lending, which could end the dominance of the UK's biggest banks, according to a senior director of the Bank of England.

With the rise of peer-to-peer lenders such as Zopa and Funding Circle – which directly match up firms in need of cash with investors – and so-called crowd-funding, which raises small amounts from a large number of funders, the pre-eminent status of UK's major financial institutions might come under threat, according to Andrew Haldane, the bank's director of financial stability.

He told The Independent newspaper, the mono-banking culture the UK has had since the 1990s was on its way out and a much more diverse eco-system emerging with the growth of new non-bank groups offering peer-to peer lending and crowd-funding which are operating directly with a wider public replacing it.

He also held out hopes of the fledgling revolution tackling the crisis in business lending, which helped trigger the bank's "funding for lending" initiative in the summer to kick-start credit markets.

He said, he saw opportunity knocking for finance. He added, hopefully, the growth of peer-to-peer lenders and those involved in crowd-funding would help solve the problems banks had with lending for small and medium enterprises. He said the banking middlemen may in time become redundant links in the chain.

However, experts point out that while higher returns for savers and lower costs for borrowers had been available from what had been described as ''the eBay of banking'' for more than seven years, it would need more than talk to go viral.