Pushing Boundaries: The 2015 UK Alternative Finance Industry Report
56 Pages Posted: 1 Jul 2020
Date Written: February 3, 2016
In this study by the Cambridge Centre for Alternative Finance and Nesta, in partnership with KPMG and supported by the CME Group Foundation, we show how in 2015, the combined market activity of the UK online alternative finance industry grew to £3.2 billion; an 84% increase in growth compared to the £1.74 billion of 2014. Although the absolute year-on-year growth rate is slowing down (the growth rate between 2013-2014 was 161%) , the alternative finance industry still recorded substantive expansion across almost all models. Looking beyond the total market size, stand-out findings from this study include:
Increased share of the market for business finance: In 2015, approximately 20,000 SMEs raised alternative finance through online channels, receiving £2.2 billion in business funding. Total alternative business lending reached £1.82 billion - 3.43% of gross national banks' lending to SMEs (BoE, 2014). Looking specifically at the small business sector, we estimate peer-to-peer business lending (excluding real estate lending) supplied the equivalent of 13.9% of new bank loans to small businesses in the UK in 2015 (BBA, 2014).
Institutionalization is taking off: 2015 saw increased involvement from institutional investors in the online alternative finance market. This is particularly significant within peer-to-peer lending where we estimate that 32% of loans in peer-to-peer consumer lending, and 26% of peer-to-peer business lending, were funded by institutional investors.
Donation-based crowdfunding is the fastest growing model: Although it started from a relatively small base (£2 million in 2014), donation-based crowdfunding is the fastest growing model in our 2015 study - up by 500% to £12 million.
Real estate is the single most popular sector: It is clear that real estate is the most popular sector for online alternative finance investments and loans, with the combined debt and equity-based funding for real estate amounting to almost £700 million in 2015.
Equity-based crowdfunding is growing fast, and secured its first exits: The second fastest growing sector in 2015 was equity-based crowdfunding, which was up by 295% from £84 million raised in 2014 to £332 million in 2015. Excluding real estate crowdfunding (£87 million), equity-based crowdfunding contributed £245 million worth of venture financing in 2015, which we estimate is equivalent to 15.6% of total UK seed and venture-stage equity investment (Beauhurst, 2015). In addition to this, 2015 saw the equity-based crowdfunding market report its first two exits, although this figure should be understood in the context of over 1,200 successfully funded deals between 2012 and 2015.
The industry is satisfied with current regulation: When asked what they thought of the existing regulation of peer-to-peer lending and equity-based crowdfunding, more than 90% of platforms, for which this was relevant, stated that they thought current regulation was adequate and appropriate.
The biggest risk is platform fraud or malpractice: The study asked platforms what they saw as the biggest risks to the future growth of the market. Ranking highest was the potential of a collapse of one or more of the well-known platforms due to malpractice, which was seen as a high risk to growth by 57% of surveyed platforms. Looking at the market trends in this year's study, it is clear that the online alternative finance industry is pushing boundaries of market growth, business models, public awareness, corporate partnerships, institutional funding, product innovation, international expansion as well as further regulatory support and policy acceptance. The UK online alternative finance market is growing increasingly complex, fluid and dynamic. We hope this study will shed some light on this fast evolving alternative finance landscape.
Keywords: UK, FinTech, Alternative Finance, Crowdfunding, P2P Lending
JEL Classification: G23, G28, G38, F65, F63, G18, O19, O33, O38, O55, Q01, Q28, Q42
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