So the results are in, we have stood up as a nation to be counted and the surprise result is that rose tinted nostalgia seems to have taken us in a direction none expected – back to the golden era of the 80’s. There’s the funny side of course, big hair, even bigger shoulder pads and at the end of the decade enormous mobile phones. Of course it’s the bleaker side that’s worrisome; British soldiers on the streets of the UK, 3m+ unemployed, a surrogate civil war with the miners……That’s said, the effect that had on asset prices was only beneficial to the humble man on the street and you could get married, buy a house and an Aston Martin, as a poorly paid Chartered Accountant ( I know I did ). Pity about all that equity that might go to waste and for those who came along later and paid higher prices.
What we didn’t have in the 1980s, or at anytime until this decade and really only the last couple of years in anything approaching a measurable volume was an AltFi sector. A real alternative provider of finance that may just keep the economy going through this particular period of uncertainty and beyond.
Substantially AltFi was born of the last financial crisis; a hunger for yield from those with cash and a need / want to borrow from people and businesses. Some of us saw this opportunity and established businesses that arch over from the lenders to the borrowers. The problem is that the sector while growing very quickly in macro economic terms remains small when compared with the banks. Mind you much micro economic theory, some of it written and tried in the 1980s, suggests that the biggest effect can be had on the margin, deploying relatively small amounts of money.
What might this mean; the banks continue to carry the base load in value terms and AltFi provides finance alongside. The banks continue to lend to the larger corporates and AltFi takes more of the personal lending and the lending to small and medium sized enterprises. This of course is what has been happening over the last seven or eight years. I expect that our sector, the AltFi sector has just received a boost. Crisis makes us all more cautious, makes us retreat to where we feel most comfortable. For the banks that’s corporate lending for AltFi its SMEs and personal lending. So we’ll both be playing to our strengths, working in the areas we know like and understand.
One other thing makes me more optimistic; increasingly AltFi and the banks are working together. We’ve moved from a position of say three years ago, when we, metaphorically, spat at each other to one today where we’ve realised that we provide different services and should therefore work together. Working together we’ll get the UK economy through this crisis, maybe without it even becoming a crisis, and forge a larger more robust AltFi sector in the process.
