'Alternative Finance' - positive handle or ball and chain?
- 05 Sep
A post by Neil Edwards, Managing Director and Nick Davis, Creative Director
The latest data from the Bank of England shows total lending to SMEs standing at £163bn, a weighty figure by any measure, notwithstanding it is £5.5bn down on 12 months ago.
A further breakdown of the data shows bank loans and overdrafts account for £87bn of the total, the rest (46%) coming from so called 'alternative' sources. Some have jumped on this as evidence of the continued drift away from mainstream banking and into alternative finance.
That's good news for the champions of alternative finance, but let's put the race for hegemony to one side and consider the brand implications of dividing the data in this way.
Two issues arise: first, is it right to label all non-bank lending as 'alternative finance' and second: is 'alternative finance' a helpful moniker in any case?
The first point is easier to address than the second. A significant proportion of the non-bank finance is made up of asset finance (£27.1bn) and invoice finance (£18.9bn), services that have been around for years and much of which is provided by the banks and their subsidiaries. They provide huge value to the business finance landscape and to the economy, but few people would consider them 'alternative' in the accepted sense of the word.
The second is more complex.
Most of us would accept that Alternative Finance is more than peer-to-peer lending and more than crowd-funding, but should it remain less than everything that isn't delivered by the High St banks?
Many players in the alternative finance industry dislike the label 'alternative'. They fear it prevents their businesses from entering the mainstream and even condemns them to be treated with caution in much the same way as alternative medicine struggles for equality with traditional medicine.
They might be right, but does it mean that new providers should rush to bracket themselves with the invoice finance and leasing industries?
Alternative Finance has become a brand. The best brands stand for something: a big idea, a strategic position, a defined set of values, a voice that stands apart. The label helps the target audience with quick search and association. A well chosen name is, therefore, an essential brand asset that is transmitted 24/7.
The alternative finance industry stands for innovation, speed of decision making, accessibility and a fresh approach to meeting customer needs. These businesses are challengers to the old guard, disrupters and breathers of fresh air. Like it or not, 'alternative finance' is the name that has captured the imagination and connected with an audience looking for a new way of thinking and broader choice in the marketplace.
But it's a subjective view. One person's 'innovative' could be another's 'unorthodox' and therefore a perceived risk. Possibly not what everyone is looking for in the financial services sector.
So, is it holding the industry back?
For the time being, we think not. The advantages of being part of a recognised movement outweigh the disadvantages of a name that might be deemed as slightly imperfect.
This, of course, will change over time. Just as the sector has emerged, it will grow, diversify and shape itself into something substantial and permanent. The challenger brands will extend the values of Alternative Finance independently within the broader marketplace and, in due course, customers will no longer see it as a choice between one sub-sector or another, they will just see it as a choice between two brands.
We are reminded of when digital marketing was in its infancy. A new sector emerged and we called it 'new media'. That was helpful as it helped customers compartmentalise the tactics we were talking about, As the sector matured, that moniker was lost and it became known as 'digital marketing'. Soon it will merge with all forms of media and just become 'marketing' - it will be interesting to see if Alternative Finance goes the same way.
For now though, we say hold on to the label, hold on to the values, hold on to the brand. Your customers depend on it.
But what do you think? Contribute to our poll.