The 4th UK Alternative Finance Industry Report
Bryan Zhang, Tania Ziegler, Kieran Garvey, Samantha Ridler, Nikos Yerolemou and Rui Hao.
Cambridge Centre for Alternative Finance releases the 4th UK Alternative Finance Industry Report supported by CME Group Foundation. The report finds that the UK online alternative finance market grew 43 per cent in 2016 to reach £4.6 billion in 2016.
Highlights of the report
- Sustained industry growth alongside continued diversification and development of key models
Peer-to-peer business lending became the largest market segment, growing by 36 per cent to reach £1.23 billion in 2016. Peer-to-peer consumer lending contributed £1.17 billion with a 47 per cent year-on-year growth rate, whilst peer-to-peer property lending recorded £1.15 billion with an 88 per cent growth rate between 2015-2016. Invoice trading accrued a total of £452m in 2016 with a 39 per cent annual growth. Equity-based crowdfunding reached £272m in 2016 with an 11 per cent annual increase whilst the real estate crowdfunding dropped by 18 per cent to £71 million 2016 from the £87m in 2015. Reward-based crowdfunding accounted for £48m in 2016, a 14 per cent annual increase from 2015. Donation-based crowdfunding reached £40m with a 233 per cent year-on-year growth. Community shares model recorded £35m in 2016 whilst debt-based securities registered considerable year-on-year growth rate to achieve £79m in 2016, in comparison to the £6.2m in 2015.
- Increasingly important source of alternative business funding
In 2016, business funding transacted for start-ups and SMEs grew by 50 per cent, from £2.2 billion to £3.3 billion. to £3.3 billion. In total, it is estimated that 33,000 firms utilised various debt, equity or non-investment based (e.g. reward-based crowdfunding) alternative finance channels and instruments to raise funding, which represents around 2.5 per cent of the UK’s 1.3 million employers. The annual British Banking Association data implies that peer-to-peer business lending platforms are now facilitating the equivalent of 6.56 per cent of all new loans lent to SMEs, or 15 per cent of all new loans lent to small businesses by all UK banks. Similarly, in 2016, equity-based crowdfunding now accounts for 17.37 per cent of all seed and venture stage equity investment in the UK in line with Beauhurst data.
- Market consolidation and continued innovation
The UK market continued to consolidate in 2016, with the top five largest alternative finance platforms accounting for 64 per cent of total market volume. Compared to 2014, when new entries to the market were their peak, there are considerably fewer new entrants into the market. By our account, more than 35 UK online alternative finance platforms have become become inactive in 2016. Some platforms have merged, whilst others have either suspended their operations or closed all together. Despite market consolidation, those platforms which remain have maintained, or in many cases accelerated, the growth rate of their business by innovating both their business model and the financial products on offer. Over 59 per cent of surveyed platforms reported that they either significantly or slightly altered their business models in 2016, whilst 67 per cent stated that they either have ‘introduced significantly new products’ or ‘slightly altered products’.
- Retail market stable whilst institutional funding persists
When comparing survey-based data of individual lenders and investors from 2014 and 2016, the demographics and profiles of the average retail funder remains broadly similar. The age, gender, income, education and geographical composition of retail funders in the UK have remained markedly similar over the last two years.
The institutionalisation of funding during 2016 continued to grow, with funding from an institution accounting for 34 per cent of peer-to-peer property lending, 28 per cent of peer-to-peer business lending, 32 per cent of peer-to-peer consumer lending and 25 per cent of equity-based crowdfunding being provided by institutional investors such as mutual funds, pension funds, asset managers, broker-dealers, family offices and banks.