UK alternative finance market slips into mainstream as institutional investors pile in
18 February 2016 | 6904 views | 2
The UK's alternative finance market experienced its first year-on-year slowdown in growth in 2015, despite increased involvement by large institutional investors, according to figures published by Cambrdige University.
The headline stats produced by the Cambridge Centre for Alternative Finance show an 84% y-o-y increase, with the market generating £3.2 billion in investments, loans and donations through 2015.
The report estimates that online alternative finance platforms provided the equivalent of over three per cent 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.
The data marks a significant increase in volume, but growth of the online alternative finance market is slowing down, with the 84% figure paling in comparison to the 161% surge recorded in 2014.
“Although the absolute year-on-year growth rate is slowing down,” the report says, “the alternative finance industry still recorded substantive expansion across almost all models.”
While donation-based crowdfunding emerged as the fastest growing model, the report also highlights increasing institutional involvement in the market - with a quarter of P2P (peer-to-peer) loans now funded by big ticket investors, including traditional banks and government through organisations such as the British Business Bank. In 2015, 32% of loans in P2P consumer lending and 26% of P2P business lending were funded by institutional investors.
Warren Mead, global co-lead at KPMG says the institutionalisation of the market and its movement to the financial mainstream may presage troubles ahead.
"While this evolution gives the industry the platform to grow, it also brings its own set of challenges," he says. "Being part of the financial establishment doesn’t sit well with its original social purpose. Incumbents are also playing catch up with their own digital investment, and are closing in on the disrupters’ lead. Meanwhile, platform failures within these growing networks are inevitable. So the question is, will the hard won enthusiasm for these platforms start to wane?”