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Global alternative finance

Benchmarking study by Cambridge Centre for Alternative Finance provides worldwide perspective on the $300 billion-plus market.

The Cambridge Centre for Alternative Finance (CCAF) published the first benchmarking study (16 April) to provide a global perspective on the development of the alternative finance market, which in 2018 facilitated $304.5 billion in transaction volumes.

Including submissions from 1,227 unique firms, and providing 2,322 firm-level observations globally, the report represents the largest data set ever collected and analysed for alternative finance benchmarking research by the CCAF, which is based at Cambridge Judge Business School, University of Cambridge. The research highlighted a notable increase in the number of firms operating in multiple jurisdictions, with an increasing amount of cross-border activities across most regions in almost all business models – especially P2P consumer lending, balance sheet business lending, debt-based securities, invoice trading and equity crowdfunding.

The report’s key findings show that whilst the global transaction volumes of online alternative finance have contracted (from $419bn in 2017 to £304.5bn in 2018), volumes for markets excluding China grew by 48 per cent year-on-year to $89 billion in 2018. Despite the market turmoil, China still had the largest alternative finance volume by country and generated a total of $215.37 billion in transaction in 2018, predominantly from debt-based alternative finance models. The next largest volumes were the United States ($61bn) and the UK ($10.4bn). 

Additionally, the report details that four additional countries surpassed the $1bn threshold of alternative finance market volume in 2018 – the Netherlands ($1.8bn Indonesia ($1.45bn), Germany ($1.27bn), Australia ($1.16bn) and Japan ($1.07bn). For the first time, Latin America and the Caribbean also surpassed this threshold, as a region ($1.81bn). 

“This global report sheds light on the evolving landscape and market dynamics of the online alternative finance industry which are now providing substantial sources of funding for consumers, start-ups, small and medium sized enterprises, and industrial verticals ranging from the manufacturing sector to creative industries,” says Dr Robert Wardrop, Co-founder and Director of the CCAF. “The number of participating firms and their geographical spread means that this benchmarking research provides the most robust and globally comparative database currently available.” 

The report, which was supported by Invesco, the Inter-American Development Bank, IDB Invest (the private sector institution of the IDB Group) and CME Group, also highlighted how countries with smaller online alternative finance volumes may have much greater market penetration, higher adoption and higher usage of these finance models. Latvia and Estonia, for example, ranked third and fourth respectively in terms of per capita penetration but were 24th and 29th in terms of total volumes. 

“As investor demographics change in terms of age and client expectations related to digital interfaces and access to capital, it is important to keep a pulse on how financial services are changing, and the ways that alternative finance is being adopted and evolved worldwide” says Dave Dowsett, Global Head of Technology Strategy, Emerging Technology & Intentional Innovation, at Invesco. ”This report and the research efforts of the Cambridge Centre for Alternative Finance helps to support the evolution and measurement of financial models around the globe.” 

“This First Global Alternative Finance Market Benchmarking Report puts Latin America and the Caribbean (LAC) Fintech Ecosystem in a worldwide context,” says Mr Juan Antonio Ketterer, Connectivity, Markets, and Finance Division Chief at the Inter-American Development Bank. “We are excited to see how, for 2018, the region’s origination passed the $1 billion mark, with a total volume of $1.81 billion and the largest year-to-year growth rate for any region: 173 per cent. The Fintech LAC ecosystem is key for financial inclusion and financing our Micro, Small, and Medium Enterprises, as the study shows.” 

Lead author and Head of Global Benchmarking at the CCAF, Tania Ziegler, says: “Overall, our findings suggest that higher alternative finance volumes per capita are associated with higher economic development, higher levels of perceived regulation adequacy, as well as higher levels of social trust in the society. This also indicates that, for the time being, alternative finance remains a rich-country phenomenon and hence not yet fulfilling its expected role in improving access to finance and closing funding gaps in developing countries.” 

Commenting further, Dr Rotem Shneor, Associate Professor at the University of Agder’s School of Business and Law and report co-author, says: “Excluding the Chinese outlier, we find that while the alternative finance industry maintains healthy growth in almost all markets, and takes an ever more international scope of operations, it is not yet fulfilling its promise of democratizing access to finance.

“Its substantial dependency on traditional institutional support, concentration in developed economies, and operations under tight margins imply that the industry is at a critical stage of its development. It is studies like this that help us to record the achievements of this emerging industry, as well as monitor its development trajectories.”