3rd Asia Pacific Region Alternative Finance Industry Report

Tania Ziegler, Daniel Johanson, Bryan Zhang, Ben Shenglin, Wangxin Wang, Leyla Mammadova, Rui Hao, Dan Luo, Zheren Wang, Hungyi Chen, Nafis Alam, Sunghan Ryu, Krishnamurthy Suresh, Pawee Jenweeranon, Nilos Yerolemou, Lukas Ryll, Eva Huang and Xin Hao.

Download the report

This report marks our 3rd year of tracking the growth and development of online alternative finance industry in the Asia Pacific region. Our report last year reflected how this nascent industry has evolved across the region, affecting the way people, businesses and institutions access, raise and invest money. This year’s report illustrates the geographically uneven yet considerable growth of online alternative finance in many countries across the Asia Pacific region. Based on the survey data collected from 340 entries from APAC’s 29 countries and 782 entries from China, the analysis contained in this report will provide a snapshot of the rapidly changing and highly fluid Asia Pacific alternative finance market. 

This report is jointly produced by The Cambridge Centre for Alternative Finance at Cambridge Judge Business School, The Academy of Internet Finance at Zhejiang University and the Asian Development Bank Institute. This report was also generously supported by KPMG Australia, Invesco and CME Group Foundation.

Highlights from the report

  • In 2017, China’s alternative finance industry accounted for 99 per cent of the overall Asia Pacific region market volume. Having grown by approximately 47 per cent year-on-year since 2016, China’s alternative finance market reached US $358 billion in 2017. Though no longer growing at triple-digit rates, this annual growth is reflective of consolidation across the sector amidst an array of regulatory measures to tackle problematic activities within the sector.
  • In contrast, the rest of the Asia Pacific region has experienced rapid growth, having increased year-on-year by 81 per cent from USD$2 billion in 2016, to USD$3.6 billion in 2017. This overall market volume is derived from 29 countries or territories outside of China with data from 10 new countries covered in the survey for the first time. We also observed a 134 per cent increase in the number of platforms participated in the survey outside of China in the Asia-Pacific region.
  • In 2017, both Australia and South Korea recorded total market volumes over USD$1 billion. Australia was the market leader in the Asia-Pacific region for a third year running, up 88 per cent to reach USD $1.15 billion. In addition to having one of the most diverse alternative finance landscapes in terms of business models, Australia’s volume increase was driven largely by the Balance Sheet Business Lending Model in 2017. South Korea grew to $1.13 billion, up nearly 200 per cent against the previous year. This was driven in large part to a booming P2P property lending and real estate crowdfunding market, where a handful of large deals propelled the rapid growth of these two sectors.
  • Across the Asia Pacific region, alternative finance for the purpose of business funding was the ‘growth engine’ for market development in nearly every country surveyed. Business funding across the Asia Pacific region (excluding China) accounted for 61 per cent of all volume, the equivalent to USD $2.23 billion. Not surprisingly, debt-based models were responsible for the lion’s share of this volume (98 per cent). Interestingly, though equity-based models made up only one per cent of this volume, the number of start-ups and SMEs that were utilizing equity models accounted for 17 per cent of all businesses that accessed some form of alternative finance in the Asia-Pacific region in 2017.
  • With respect to key sub-regions, Oceania was responsible for 37 per cent of all business finance, followed by South East Asia (12 per cent). Interestingly, Oceania’s business finance was driven largely by debt-based models, dwarfing equity and non-investment models. Yet, South East Asia was the leader in equity-based models, accounting for 16 per cent of all equity-based business finance.
  • In China, whilst consumer facing models continued to be the largest market segment for the third year, the proportion of business focused funding was still considerable, accounting for USD$111.8billion, having grown by nearly 20 per cent against the previous year. Business focused finance accounted for 31 per cent of the overall Chinese alternative finance market. Business finance in China was driven almost entirely by P2P/marketplace business lending.
  • The trend of institutionalisation of funding continued to grow across the region, although unevenly demonstrated across models. Institutional funding was most significant in balance sheet models (93 per cent), followed by P2P/marketplace consumer lending (43 per cent) and invoice trading (42 per cent) across the Asia-Pacific region. With respect to countries with the most active institutional funders, the Indian market took the lead with 74 per cent of its funding coming from institutional investors, followed by Australia (65 per cent) and Indonesia (61 per cent). The pattern of institutionalisation correlates heavily with markets that have strong balance sheet and P2P/marketplace lending sectors.
  • In 2017, a significant proportion of platforms were pursuing global strategies to increase their presence across the region and beyond. Some 25 per cent of all surveyed firms indicated that they have active operations in a country that was not their original headquartered country. Across every model, more than half of the surveyed firms expressed having a ‘global website and brand’ or a ‘global brand with localized domains’. Not surprisingly, there was considerable cross-border flow across the region in terms of market volumes.
  • Innovation is a driving force for alternative finance market development across the Asia Pacific region, with firms pursuing changes to both their business models and the products on offer. In China, 15 per cent of the company budgets are being committed to research and development departments, with approximately 75 per cent of surveyed firms pursuing R&D into process streamlining and automation. Similarly, firms across the rest of the region have committed nearly a quarter (24 per cent) of their operating budget towards R&D. Payment processing, AI, and process streamlining & automation are amongst the top three priorities for business models across the region.
  • Regulation remains a hot-button topic across the region, with varying degrees of satisfaction from firms depending upon their country and/or business model type. In China, recent regulatory clampdowns has led to a fall in the number of platforms operating in the country. In fact, 79 per cent of firms surveyed viewed the future of regulation as ‘unclear or unstable’ and an estimated 15 per cent of their operating budget are related to costs of regulatory scoping, licensing and ongoing reporting. Meanwhile, in countries like Malaysia, Singapore, Australia, there is a more positive outlook towards regulation.
  • With respect to risk factors, platforms across the Asia Pacific region (excluding China) viewed ‘potential fraud’ as the most significant risk factor to their business, followed by cybersecurity breach (38 per cent) and regulatory changes (37 per cent). Interestingly, platforms also indicated spending approximately 16 per cent of their operating budget on cybersecurity costs, and some 23 per cent on additional IT costs.

Share this