The online alternative finance market continues to grow in the US, Canada and Latin America, rising 23 per cent in 2016 to $35.2 billion, finds report by the Cambridge Centre for Alternative Finance at Cambridge Judge Business School, and the University of Chicago.
The alternative finance market continued to grow across the United States, Canada, and Latin America and the Caribbean (LAC) in 2016 to a total market volume of $35.2 billion – a 23 per cent increase from the previous year driven by growth across all regions and most market segments of the Americas.
The 2017 Americas Alternative Financing Industry Report: Hitting Stride, published on Friday 26 May and presented at an event held at Chicago’s CME Group, was produced jointly by the Polsky Center for Entrepreneurship and Innovation and Booth School of Business at the University of Chicago, and the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School. Financial support was received from the CME Group Foundation and the Inter-American Development Bank.
The report finds that the industry has hit a stride, showing continued, steady growth in most segments of the market.
“An array of crowdfunding, marketplace/peer-to-peer (P2P) lending and other online alternative finance platforms have emerged that use technological innovations to change the way people, businesses and institutions access and invest money. Furthermore, more than 200,000 businesses turned to online alternative sources of funding across the Americas last year,” said Randall S. Kroszner, Norman R. Bobins Professor of Economics at the University of Chicago Booth School of Business and Faculty Advisor for the report.
The study found that the United States continues to be one of the world’s top markets for advanced, technology-enabled, online alternative finance channels and instruments. The 2016 US market volume of $34.5 billion marked a 22 per cent year-on-year increase from 2015.
Rapid organic growth led LAC alternative finance markets to grow by 209 per cent to $342.1 million in 2016. LAC, collectively as a regional market, narrowly surpassed Canada’s national market in 2016, led by high volume markets in Mexico, Chile, and Brazil.
Canada’s alternative finance market grew to $334.5 million, a 62 per cent year-on-year increase from 2015, driven by both organic growth and expanded survey coverage.
Among the key findings of the report:
Looking at the US, marketplace/P2P consumer lending continued to account for the largest share of market volume with $21 billion recorded in the US in 2016 (up 17 per cent). Balance sheet business lending became the second largest model in the US in 2016 with six billion dollars originated, surpassing balance sheet consumer lending which had three billion dollars.
For LAC, marketplace/P2P business lending remained the largest alternative finance market segment with $188.5 million registered in 2016, an increase of 239 per cent over 2015.
In Canada, donation-based crowdfunding remained the top alternative finance model with $105.9 million, but balance sheet business lending was a close second, rising at a rate of 282 per cent to $103.3 million in 2016.
Following changes to US regulatory policy in 2016, emerging Reg CF-enabled platforms made a big mark in revenue-sharing/profit-sharing crowdfunding, with $28.5 million in total funding to businesses last year.
Self-reported risk perceptions of the alternative finance industry pointed to concerns about cyber-security breach. 76 percent of platform operators believe there is medium to very high risk of cyber-security breach.
Professor Raghavendra Rau, Director of Research at the Cambridge Centre for Alternative Finance, commented that: “The United States is one of the world’s most advanced markets for technology-enabled online alternative finance channels and instruments. Continued innovation, coupled with growing demand from consumers, businesses and institutional investors, led to a sustained increase in the total US volume to $34.5 billion in 2016, a 22 per cent increase from the previous year. Our subtitle for the report – Hitting Stride – attests to outcomes produced by this innovation.”
E.J. Reedy, Director at the Polsky Center for Entrepreneurship and Innovation at the University of Chicago, spoke on the growing field of FinTech at Chicago Booth and the University, more generally, and the role of the Alternative Finance Survey in this field:
Alternative finance is a critical component of FinTech and Finance, more generally, and given the rapid pace of change that it is undergoing, we are pleased to continue our partnership with the Cambridge Centre for Alternative Finance on the current year’s report.
David M. Wong, Senior Director, Innovation & Acceleration Lab at CME Group, remarked on the role institutional trust plays in the evolving field of alternative finance: “People now view peers as having an equal level of credibility as experts. Whether P2P markets reach or exceed the size of the incumbent market platforms (for example, Uber and Airbnb), or not, they are driving rapid innovation and new dimensions of competition across industries.”
Juan Antonio Ketterer, Division Chief of Capital Markets and Financial Institutions at the Inter-American Development Bank, commented that: “This second edition of The Americas Alternative Finance Industry Report confirms that the alternative finance market is growing strong in LAC, tripling the size estimated for 2015. The study shows how alternative finance is increasing in an uttermost relevant niche: business lending, accounting for 63 per cent of the total origination volume for 2016. These and other useful data and analysis from this study bring out the relevance of these entrants to the financial system in the region and the magnitude of their disruption, attending to previously unbanked and underbanked economic agents.”