Non-traditional lenders are unlikely to challenge the dominance of traditional banks over the next decade, but could reach £6bn of SME business lending by 2026 under certain conditions, according to a report by Deloitte.
The study revealed that these alternative lenders may only account for about £35.5bn of the borrowing market by 2025.
Deloitte estimates that within ten years marketplace lenders (MPLs) might gain control of up to 6%, or £36bn, across key segments, including personal lending, SME business lending and the retail buy-to-let market in the UK, which overall make up about £600bn of lending.
The estimates are however, built on the assumption that during this period current interest rates are retained and banks make no changes to their digital operations.
The study further said that MPLs could account for just 1% of the market share by 2025 if interest rates normalise and banks adopt innovation.
Deloitte head of UK banking Neil Tomlinson said: "Contrary to a number of commentators, we do not see MPLs as a major threat to banks in the mass market. Borrowers like the benefits of speed and convenience of MPLs, but those willing to pay a material premium to access loans quickly are in the minority.
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"Whilst banks are yet to replicate the benefits of the MPL model, we believe it is only a matter of time before they use their size and scale to overtake and sustainably under-price MPLs."
Deloitte Ian Foottit banking partner added: "While MPLs look unlikely to grow sufficiently to displace banks, banks can benefit from adopting some of their best practices, particularly around customer experience. Unlike banks with legacy systems, MPLs use modern technology, streamlined processes and innovative risk scoring that can make it quicker and easier to get a loan.
Collaborating with or acquiring MPLs, banks can benefit from this enhanced customer experience to deliver faster, more convenient access to credit at a very competitive price point."