The 3rd Americas Alternative Finance Industry Report
Tania Ziegler, Daniel Johanson, Michael King, Bryan Zhang, Leyla Mammadova, Felipe Ferri, Roswitha Trappe, Krishnamurthy Suresh, Rui Hao, Lukas Ryll, and Nikos Yerolemou.
Throughout the Americas, online alternative finance markets have continued to develop at a steady pace. The industry has increasingly offered viable options for consumers and businesses to access finance, and for retail and institutional investors to invest in new asset classes. With expansive growth, this industry has continually garnered the interest of regulators, policymakers and academia across the region to further understand alternative finance business models, their drivers and funding mechanisms, impact and risks.
Against this backdrop, the 3rd Annual Americas Alternative Finance Industry Report aims to provide readers with a snapshot of the rapidly changing alternative finance landscape across the Americas at a macro level as well as on a country-by-country basis. This empirical study provides independent, systematic, and reliable data about the size, growth, and diversity of various online alternative finance markets across the Americas, in turn, informing evidence-based policymaking and regulations.
This year’s Americas Alternative Finance Industry Report has been produced by the Cambridge Centre for Alternative Finance at Cambridge Judge Business School in partnership with Ivey Business School, Western University. This report was generously supported by the Inter-American Development Bank (IDB), IDB Invest and CME Group Foundation.
Highlights from the report
- The online alternative finance market in the Americas grew by 26 per cent to reach US $44.3 billion in 2017. This total volume represents market activities from 35 different countries and territories across North, Central and South America, 21 per cent higher than the number of countries last surveyed.
- The United States accounted for 97 per cent of the Americas market, with $42.81 billion recorded for total market volume in 2017. Having grown by 24 per cent against the previous year, the United States boasts the second largest alternative finance market globally, surpassed only by China (with a 2017 volume of $104 billion). Consumer lending was the key driver of US market volume, with the Balance Sheet Consumer Lending model itself accounting for $15.2 billion (or 35.5 per cent of the US market share) and marketplace/P2P consumer lending accounting for $14.7 billion (or 34.3 per cent of the US market share).
- Canada experienced considerable growth in 2017 with its market volume up 159 per cent from 2016’s $334.5 million to $867.6 million in 2017. It is worth noting that 42 per cent of surveyed firms which reported volumes in Canada were primarily headquartered in the United States, thus reflecting the strong cross-border relationship that exists between FinTech firms in these two countries.
- Responsible for two per cent of the overall Americas regional market volume, alternative finance markets across Latin America and the Caribbean (LAC) have continued to grow rapidly, up by 94 per cent year-on-year. The LAC online alternative finance market grew from the $342 million in 2016 to reach $663 million in 2017. Brazil, Mexico and Chile are the three highest volume markets in LAC, collectively accounting for 78 per cent of the region’s total. In 2017, Brazil leapfrogged both Mexico and Chile, becoming the region’s market leader. This is due largely to a considerable increase in platforms which exited ‘beta’ phases and began trading in 2017.
- In the United States, online alternative finance for businesses accounted for $10.1 billion, or 24 per cent of the overall US market. In stark contrast, 85 per cent of all alternative finance volumes across LAC were channelled to support micro, small and medium enterprises (MSMEs) across the region. This is particularly pronounced in Chile, where its alternative business funding volume accounted for 27 per cent of the overall LAC business funding market. Canadian market volume was also driven primarily by alternative business funding, which accounted for 61 per cent of the total national market share.
- Across the Americas, institutionalisation of the funding is on the rise both in terms of investment realised and partnerships forged. The provision of funding for the US alternative finance market continues to be dominated by institutionalised capital, particularly in the marketplace/P2P lending arenas. This is largely due to persistent challenges and restrictions for platforms to onboard unaccredited investors within the existing regulatory framework. Across the LAC, institutionalisation of the funding has also increased (albeit unevenly across models), alongside a greater degree of collaboration with traditional financial institutions in key markets.
- In LAC, alternative finance platforms have dedicated considerable resources towards innovation, both to revamp their business models and, to a lesser extent, the range of products on offer. In terms of R&D, debt-based models have placed significant emphasis on improving ‘process streamlining & automation’, ‘customer verification’ and ‘payment processing’.
- With respect to industry’s perceptions towards regulation, considerable divisions exist in the United States in particular. Equity-based platforms were firmly divided, with half of the surveyed respondents viewing regulation as appropriate to their activities, and the other half viewing regulation as excessive and too strict. Meanwhile, debt-based models are increasingly satisfied with the existing regulations, with 59 per cent regarding current regulation as adequate in 2017, in contrast with the 42 per cent recorded in 2016.
- Industry perceptions of regulations across LAC are highly varied and depend in large part on the status of Fintech regulation in each country. For instance, the majority of Mexico-based firms viewed regulation positively overall, but when adjusted by model, debt-based firms were slightly more concerned (25 per cent) that regulations might be more excessive or strict with respect to their activities against the previous year (17 per cent).