The diversity in funding brought by market-based finance, as an alternative to retail banking, means that peer-to-peer lending has potential to provide some consumers and small businesses with affordable credit, when retail banks cannot. At the same time, this implies that borrowers in some segments may be placing increased reliance on this source of funding. How stable this funding will prove through-the-cycle is not yet clear, as the sector’s underwriting standards, and lenders’ tolerance to losses, have not been tested by a downturn. Due to its small scale and business models, the P2P lending sector does not, for now, appear to pose material systemic risks. That said, as a general rule, it always pays to monitor closely fast-growing sources of credit for slippages in underwriting standards and the promotion of excessive borrowing. Moreover, it is not clear the extent to which P2P lending can grow without business models evolving in ways that introduce conventional risks, including maturity transformation, leverage and liquidity mismatch, or through the use of originate and distribute models such as those seen in securitisation in the 2000s. Were these changes to occur, regulators would be expected to address such emerging vulnerabilities. In wholesale banking and markets, robo-advice and risk management algorithms may lead to excess volatility or increase pro-cyclicality as a result of herding, particularly if the underlying algorithms are overly sensitive to price movements or highly correlated.

With hundreds of millions now entering the digital financial system every year, could higher economic growth and a quantum leap in social equity be on the horizon? Or will the range of new financial technologies primarily make existing institutions and markets more efficient and effective? No small prize but hardly a transformation. 1  See Ernst and Young, (2016), “FinTech on the Cutting Edge”: http://www.ey.com/uk/en/industries/financial-services/banking--capitalmarkets/ey-uk-fintech-on-the-cutting-edge 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  Of course, technological innovation has long been twinned with finance. Today’s system is the product of past advances, beginning with the simple ledger in the fifteenth century. Building on this foundation, a range of innovations – from the telegraph in the 1860s to the digitalisation of the ledger a century later – have created the plumbing of modern payments, clearing and settlement infrastructure necessary for global financial institutions and cross-border, wholesale markets. More recently, customer access has been opened up with the introduction of the first automated teller machines of the 1960s, the arrival of online banking and brokerage in the 1980s, and the rapid rise of mobile banking since the millennium. Despite these advances, finance continues to be arranged around a series of hubs like brokers, clearing houses and exchanges; whereas in other domains, people are increasingly forming connections directly, instantaneously and openly, revolutionising how they communicate, work, and live. The extent to which finance could be redrawn depends on superficially arcane, but fundamentally vital, enabling technologies.