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An interdisciplinary research agenda in alternative finance

What is alternative finance?

Traditional financial intermediaries earn revenues in two different ways – they match borrowers and lenders and they transform maturities from short-term deposits to long-term loans. During the maturity transformation process, they provide liquidity to investors and assess credit risks of borrowers. Because they control the information flow between borrowers and lenders, they earn significant economic rents in the process. For example, investment banks control access to star analysts, mutual funds control access to star fund managers, universal banks use information from mortgage applicants to price insurance policies, and so on. Because of this control of information, Phillipon (2015) shows the revenues to the finance industry as a percentage of US GDP have grown from around per per cent in the 1880s to around eight per cent of GDP today. In spite of this massive increase in lucrative revenues however, financial intermediaries have not become more efficient. In the same paper, Philippon documents that the unit cost of financial intermediation (the ratio of finance income to intermediated assets) has stayed relatively constant over the last 130 years at around two per cent. Part of the reason is that over the past century, information gathering and processing have typically not been subject to economies of scale. Information has been largely hand-gathered.

Over the past decade however, there has been a wave of technological innovations that have had the potential to exponentially increase the magnitude of economies of scale and decrease transaction costs, especially in the gathering and processing of information. Friedman (2016) documents some of these innovations including increases in sensor coverage, increases in processing power and storage capacity. These innovations have the potential to disrupt the traditional financial industry as well. Examples of these financing systems include crowdfunding, peer-to-peer funding platforms, blockchain technology, crypto-currencies, and payment systems.

These innovations are sometimes referred to as FinTech. We define alternative finance as broader than just the application of technology to finance. For example, direct issues of bonds by companies to its consumers are not traditionally how bonds are issued but they have been observed in several countries including Germany and the UK. These forms of financing do not depend much on technology but they would still be a part of alternative finance. Neither is alternative finance the same as shadow banking. Alternatives to the formal financial intermediaries have always existed in informal shadow banking systems. The latter still depend on personal contacts and networks and are hence unable to take advantage of economies of scale. These alternatives have become more formalised since the incorporation of technology and typically do not need personal contacts to operate. For example, an ancient money transfer system, the hawala system, is an informal money transfer system that has existed since the eighth century AD. It operates based on the personal networks of a number of hawala brokers. A modern equivalent such as Transferwise uses pooled sums of money in different countries to move money across borders by concurrent flows of money within borders.

The Cambridge Centre for Alternative Finance was established to study the evolution of these new financing methods that have arisen outside the formal regulated financial intermediary system. We have four major research themes:

Alternative financing channels and instruments

The Global Alternative Finance Industry Benchmarking Research programme is the longest-running research activity at the Centre, which documents and analyses the development of crowdfunding, peer-to-peer lending and other online alternative finance markets. Researchers at the Centre led the creation of the first country-level market report for the UK in 2013, which established a working taxonomy in alternative finance. The UK report is now in its fourth year and remains one of the most cited and influential studies on the topic of alternative finance.


Following the success of the UK study, the benchmarking research programme has extended to include data collection and market analysis in Europe, the Asia-Pacific region (including China), North America, Latin America and the Caribbean, the Middle East, and Africa. In any given year, the CCAF is working with more than 100 alternative finance industry partners and 20 academic research partners around the world to conduct our flagship benchmarking studies. This data will be utilised to compile the Cambridge-World Bank Global Alternative Finance Market Volume Rankings which will be launched in 2018 and is the most reliable, comprehensive, and authoritative data source freely accessible for the use of alternative finance industries, governments, regulators, multi-national institutions and corporations, NGOs, business communities, and the media. The Centre has also collected survey data from over 25,000 users of alternative finance and conducted more than 150 qualitative interviews. The crowdfunding platform data is described and analysed in Rau (2018) and will be publicly available through the World Bank in 2018. 

View our survey reports on our publications webpage

Alternative credit and investment analytics using new forms of data

Over the last decade, the availability and sophistication of new forms of data (e.g. social media data) have been growing in leaps and bounds. From sociometric, psychometric, biometric and GIS data to Facebook and Twitter data, these novel forms of data can have predictive power in informing credit and investment decisions. For instance, a peer-to-peer lending platform can leverage insights obtained by analysing a borrower's financial spending patterns and behaviours to achieve a more robust credit risk modelling outcome. 

The Centre is venturing into this research area by first developing a granular transaction database totalling over £10bn, which includes loan and deal level data collected from 15 leading alternative finance platforms in the UK. The loan and deal databases in our depository are linked to corresponding funder/investor databases and fundraiser/borrower databases with over 60 statistical fields. This provides a powerful foundation from which to carry out sophisticated descriptive, analytical, regulatory, and academic analyses. This database has been developed over time in close collaboration with the Financial Conduct Authority (FCA). In the future, the Centre is expected to scale this database model to other countries and jurisdictions by working with local and national industries and regulators.

Alternative payment systems and DLT

The first Global Blockchain Benchmarking Study gathered data from over 200 enterprise DLT start-ups, established corporations, central banks and other public sector institutions, including non-public data obtained through confidential online surveys. It provides an empirical overview of the current state of both enterprise and public sector use of blockchain and DLT. The study details the emergence and evolution of the DLT ecosystem, explores its actors and their business models, and examines the current state of the industry in terms of use cases, network and application deployments, as well as key challenges to broad DLT adoption. It also explains the concept of 'blockchain' and DLT, attempts to clarify terminology, highlights the different DLT architectures, and dives into governance-related issues. 

View the Global Blockchain Benmarking Study 

Alternative regulations and policy

The CCAF's research, data and findings have been widely cited by government, policy and regulatory bodies and international organisations. As an example, the Centre's joint thought leadership programme with the Financial Conduct Authority (FCA) on the UK crowdfunding regulatory review is unprecedented and its research output has been cited extensively by policymakers from the Bank of England, HM Treasury, and the European Commission to the APEC and SEC. 

Find out more on our policy webpage 


Friedman, Thomas, 2016, Thank you for being late, Farrar, Straus & Giroux.

Philippon, Thomas, 2015, "Has the US finance industry become less efficient? On the theory and measurement of financial intermediation", American Economic Review 105, 1408-38.

Rau, P. Raghavendra, 2018, Law, Trust, and the development of crowdfunding, Working paper