Digital Lending: The Impact This might Have on Banking Experts
Some may recall the days when there have been banks and their managers around almost every other corner: they'd considerable discretion in lending to small , medium-size businesses . This is in great contrast to the present day when SMEs complain from the inordinate time taken for banks to consider about loan applications. This has led to challenger banks and other lenders offering 'digital services' which provide an alternative choice to traditional bank services, particularly in providing an immediate response. Open banking and digital lending were based on the Banking Competition Remedies organisation when it arranged the injection of lb775 million for challenger banks by Royal Bank of Scotland, included in the EU's penalty for that Government's lb45 billion bailout of the Scottish bank.
Digital Lending brings an entirely different concept to the lending market. It is based on the client disclosing towards the bank its budget on a continuing basis. The lending company thereby provides an accounting function that allows the client time to do what she or he does best: developing and running the business. The ever-present online information base should provide the digital lender much more up-to-date information on their trading performance, allowing much quicker decision-making and availability in regards to loans. Whether a quicker decision will be a good decision is unclear. Quick loan availability for the customer would imply that the loan is unsecured that the customer may not justify.
As a banking expert, an overwhelming quantity of my instructions will be in connection with loan losses, but where lenders claim negligence by professional firms such accountants or solicitors, but mostly by chartered surveyors . Defendants may then raise allegations of contributory negligence. Contributory negligence usually involves the lender's failure to follow its very own agreed policies.
How might a specialist decide whether a digital lender has acted prudently? Prudence might be thought to be a 'fixed position' however this is wrong before digital banking. A traditional lender may lend in a much higher interest rate or at a low percentage of worth of charged property. In the first case, prudence is deliberately compromised in return for the chance of a larger financial reward and, within the latter, prudence is greatly enhanced with a large margin in security. Deciding if the digital lender has acted prudently is determined by if the lender's risk was matched by its intended reward.
Whether digital lending model is prudent or not might become apparent only with time, which can be quite long, because of the economic cycle. In any event, whenever a digital lender has been disappointed by its customer not being able to redeem a loan, it is hard to see who else may be within the lender's sights as regards legal recourse.
It is possible when digital lender brought claims against the ones that helped build its business model, for example accountants and solicitors, this may result in experts being expected to opine around the reasonableness of the model from a risk perspective. This might leave the home valuers from the picture, but then I am not sure that a digital lender would eschew a charge over property if asked for a particularly large loan. I am unable to say for sure.
Litigation might flow in the 'digital customers' themselves if they believe that they've been wronged, for instance, by their information being spread too widely.
In summary, I have faith that digital lending is likely to produce fewer instructions for experts than traditional lending if a borrower defaults, there'd not seem to be anyone else to blame but the digital lender itself.
Robin Bryant Consultancy
Flint House
Cocking
Midhurst
West Sussex
GU29 0HD
Telephone: 01730 813915
bryant@bankexpert.net
www.bankexpert.net
