In 2015 the UK online alternative finance sector grew 84%, facilitating £3.2 billion in investments, loans and donations, according to a joint report published today by the Cambridge Centre for Alternative Finance at the University of Cambridge and UK innovation foundation Nesta, in partnership with KPMG and with the support of CME Group Foundation.
This is a significant increase in volume, but growth of the online alternative finance market is slowing down, with the annual growth in 2014/2015 being nearly half the 161% growth from 2013/14. “Although the absolute year-on-year growth rate is slowing down,” the report said, “the alternative finance industry still recorded substantive expansion across almost all models.”
The report also highlights the rapid expansion of donations-based crowdfunding, the perceived risk of fraud and malpractice by the industry, and increasing institutionalisation – as around a quarter of P2P (peer-to-peer) loans are now funded by institutional investors, including traditional banks and government through organisations such as the British Business Bank.
Pushing Boundaries – 2015 UK Alternative Finance is the latest in an annual series of reports from the University of Cambridge Judge Business and Nesta, which track the size and development of online alternative finance, such as P2P lending and crowdfunding, in the UK.
Key findings of Pushing Boundaries, a survey of 94 crowdfunding and P2P lending platforms, include:
Increased share of the market for business finance: in 2015 it is estimated that online alternative finance platforms provided the equivalent of over 3% of all lending to SMEs (small and medium-sized enterprises) in the UK. For small businesses – those with a turnover of less than £1 million a year – P2P platforms provided an amount lending equivalent of 13% of all new bank loans.
Institutionalisation is taking off: 2015 saw increased involvement from institutional investors in the online alternative finance market. The report shows that 32% of loans in P2P consumer lending and 26% of P2P business lending were funded by institutional investors.
Donation-based crowdfunding is the fastest growing model: although starting from a relatively small base (£2 million), donation-based crowdfunding is the fastest growing model in the 2015 study, up by 500% to £12 million.
Real estate is the single most popular sector: in 2014/2015 the most popular sector for online alternative finance investments and loans was real estate, with the combined debt and equity-based funding for this sector reaching £700m in 2015.
The equity market is growing fast: the second fastest growing area of the alternative finance market is equity-based crowdfunding, up by 295% – from £84 million raised in 2014, to £332m in 2015. Excluding real estate crowdfunding, in 2014/2015 the equity-based crowdfunding sector contributed to £245 million worth of venture financing in 2015 – equivalent to over 15% of total UK seed and venture equity investment.
The industry is generally satisfied with current regulation: when asked what they thought of existing regulation, more than 90% of P2P lending and equity-based crowdfunding platforms stated that they thought the current level was appropriate.
The biggest risk to market growth is fraud or malpractice: when asked what they saw as the biggest risk to the future growth of the market, 57% of P2P lending and equity-based crowdfunding platforms cited the potential collapse of one or more of the well-known industry player due to fraud or malpractice.