The UK online alternative finance market volume grew by 35 per cent in 2017, to £6.2 billion (from £4.6 billion in 2016), as peer-to-peer business lending became an increasingly important part of overall financing of smaller British businesses, according to the 5th UK Alternative Finance Industry Report by the Cambridge Centre for Alternative Finance (CCAF) issued today (22 November).
Peer-to-peer (P2P) business lending retained the top spot as the largest market segment in online alternative finance, with £2 billion in transaction volume in 2017 and 65 per cent year-on-year growth. Assuming that the vast majority of P2P business borrowers are small businesses with turnover of less than £2 million, P2P business lending was estimated to be equivalent of 29.2 per cent of all new bank loans to small businesses in 2017 – nearly double the 15.3 per cent figure in 2016.
“P2P business lending is becoming an increasingly important contributor to overall SME financing in the UK,” the report says.
Following P2P business lending at £2 billion, the largest UK alternative finance categories in 2017 were P2P consumer lending at £1.4 billion, followed by P2P property lending at £1.2 billion and invoice trading at £787 million.
The report, conducted with support of the Peer-to-Peer Finance Association and the UK Crowdfunding Association, included responses from 75 platforms with an estimated 95 per cent of the known UK online alternative finance market, plus two additional platform datasets using web scraping methods.
Other findings of the report:
Equity-based crowdfunding grew by 22 per cent year-on-year to reach £333 million, but debt-based securities stagnated at £79 million.
Real estate crowdfunding increased by more than 200 per cent to £211 million, but donation-based crowdfunding only grew by 2.5 per cent to £41 million.
Reward-based crowdfunding decreased by £4 million year-on-year to £44 million in 2017.
The year 2017 also saw further increases in the institutionalisation of funding across alternative finance models: on the debt side, 40 per cent (up from 28 per cent in 2016) of funding for P2P business lending was provided by institutional lenders including mutual funds, pension funds, asset managers, banks, family offices and other financial institutions. This trend of institutionalisation was also seen in equity-based crowdfunding, where 49 per cent of the funding was provided by venture capital funds and professional investors “co-investing” with retail investors.
The CCAF for the first time asked UK online alternative finance platforms to provide an indicative breakdown of their operating costs and budget allocation, finding that on average and across models, they spend about 15 per cent on IT, 14 per cent on research and development, 14 per cent on sales and marketing, and eight per cent on reporting and compliance. Bryan Zhang, the Executive Director of the Cambridge Centre for Alternative Finance said: “This report reflects an industry that is playing an increasingly important role in helping consumers and businesses access finance, whilst growing to become more diversified, sophisticated and institutionalised.”