Your Need-to-Know Summary of the 4th UK Alternative Finance Industry Report 2017

“The UK online alternative finance market grew 43 per cent in 2016 to £4.6 billion, nearly three-quarters of that for start-ups and smaller businesses.”

According to the 4^th UK Alternative Finance Industry Report, the online alternative finance market grew by 43% in 2016. Between 2011 and 2016, “£11 billion worth of market volume has been facilitated through online alternative finance channels in the UK.”

The report, published in December 2017, collated the responses of over 8,300 investors and lenders of online alternative finance. The 69-page report offers an in-depth analysis of market movements sourced over 6 months across 3 phases of research. Key findings included:

Key model development as the alternative finance industry grows

• P2P business lending grew by 36% in 2016 - reaching £1.23 billion - and becoming the biggest market segment.
• P2P property lending experienced an 88% growth rate in 2015-2016.
• Debt-based securities witnessed an accelerated rate of growth, achieving £79 million in 2016, compared to £6.2 million in 2015.
• Donation based crowdfunding experienced a 233% year-on-year growth, reaching £40 million.
• Equity-based crowdfunding grew by 11% whilst volumes in real estate crowdfunding dropped by 18%.

Rising significance of alternative finance as a source of business funding

• Between 2015 and 2016, business funding for SMEs and start-ups grew from £2.2 billion to 3.3 billion (50%).
• 33,000 firms are estimated to have used alternative finance models to acquire business funding - equating to 2.5% of UK employers.
• Data from the annual British Banking Association suggests that P2P business lending platforms now provide 6.56% of “all new loans lent to SMEs, or 15% of all new loans lent to small businesses (i.e. micro-enterprises) by all UK banks.”
• As of 2016, equity-based crowdfunding contributes towards “17.37% of all seed and venture stage equity investment in the UK.”

Continued innovation alongside market consolidation

• The top 5 largest alternative finance platforms dominate 64% of all market volume.
• 2014 witnessed peak levels of new alternative finance platforms entering the space. In 2016, fewer new entrants appeared and 35 have become inactive according to the report, with some merging and others closing all together.
• Just under 60% (59%) of alternative finance platforms declared they had altered their business models in 2016, and just under 70% (67%) reported introducing “significantly new products” or “slightly altered products.”

Increasing levels of institutional funding whilst retail market remains stable

• The persona (i.e. age, gender and income) of retail funders has experienced little change since 2014.
• Funding from an institution, such as “mutual funds, pension funds, asset managers, broker-dealers, family offices and banks,” accounted for 34% of all P2P property lending, 28% of P2P business lending, 32% of P2P consumer lending and 25% equity-based crowdfunding.

Bryan Zhang, Co-Founder and Executive Director of the Cambridge Centre for Alternative Finance explained, “alternative finance has entered the mainstream and is likely here to stay,” with this report marking the “end of the beginning for the UK alternative finance industry.”

You can read the full report here.

Capital at risk