New European Alternative Finance Industry Report – Sustaining Momentum

The European online alternative finance market, including crowdfunding and peer-to-peer lending, grew by 92 per cent in 2015 to €5.431 billion, according to the results of the 2nd Annual European Alternative Finance Industry Survey conducted by the Cambridge Centre for Alternative Finance at University of Cambridge Judge Business School, in partnership with KPMG and supported by CME Group Foundation.

The report released today, titled “Sustaining Momentum”, had the support of 17 major European industry associations and research partners, and was based on data from 367 crowdfunding, peer-to-peer lending and other alternative finance intermediaries from 32 European countries – capturing an estimated 90 per cent of the visible market. P2P-Banking.com is one of the research partners.

The United Kingdom was by far the largest in Europe at €4.4 billion, followed by France at €319 million, Germany at €249 million and the Netherlands, €111 million. Other large European markets include Finland with €64 million, Spain at €50 million, Belgium at €37 million and Italy at €32 million. The Nordic countries collectively accounted for €104 million, while Central and Eastern European countries registered a total of €89 million.

Excluding the UK, the European alternative finance market grew by 72 per cent from €594 million in 2014 to €1.019 billion in 2015.

“Although the absolute year-on-year growth rate slowed by 10 per cent” (from the 82 per cent growth excluding the UK between 2013 and 2014) the industry is still sustaining momentum with substantive expansion in transaction volumes recorded across almost all online alternative finance models,” the report said.

Peer-to-peer consumer lending is the largest market segment of alternative finance, with €366 million in Europe in 2015. Peer-to-peer business lending is the second largest segment with €212 million, with equity-based crowdfunding in third with €159 million and reward-based crowdfunding fourth at €139 million.

Sustaining Momentum Figure 11
Table: Figure 11, page 31 of ‘Sustaining Momentum’, volumes by market segment in Europe 2015 (outside UK)

Among other findings:

  • Estonia ranked first in Europe in alternative finance volume per capita at €24, followed by Finland at €12 and Monaco at €10 outside of the UK.
  • Online alternative business funding increased by 167 per cent year-on-year to €536 million raised for over 9,400 start-ups and SMEs across Europe.
  • Institutionalisation took off in mainland Europe in 2015, with 26 per cent of peer-to-peer consumer lending and 24 per cent of peer-to-peer business lending funded by institutions such as pension funds, mutual funds, asset management firms and banks.
  • Across Europe, perceptions of existing national regulations in alternative finance are divided. About 38 per cent of surveyed platforms felt their national regulations for crowdfunding and peer-to-peer lending were adequate and appropriate, 28 per cent perceived their national regulations to be excessive, and a further 10 per cent said current regulations were too relaxed.
  • The biggest risks perceived by the alternative finance industry are increasing loan defaults or business failure rates, fraudulent activities or the collapse of platforms due to malpractice.

Perceived risks
Chart: Figure 28, page 47 of ‘Sustaining Momentum’, risks to the industry as perceived by the polled platforms

Robert Wardrop, Executive Director of the Cambridge Centre for Alternative Finance, said: “European alternative finance transaction volume increased to more than €5 billion in 2015, with volume outside of the UK market exceeding €1 billion for the first time. The European alternative finance industry is still small, however, and the slowing rate of growth during the year is a reminder of the risks the industry must contend with in order to transition from a start-up to a sustainable funding channel within the European financial services ecosystem.”

Irene Pitter, Global Executive, Banking & Capital Markets and member of the FinTech Leadership Team at KPMG, said: “This report shows that the alternative finance sector is set to continue to grow and mature. 2016 marks a significant year for ‘alternative finance’ in Europe as the market demonstrates clear signs of continued strong growth and increased maturation in the sector as a whole. European activity, excluding the UK, showed solid growth of 72 percent last year and demonstrated client demand for alternative finance solutions even in the smaller EU countries.”

Rumi Morales, Executive Director, CME Ventures, said: “The prominent feature of financial technology is that it is truly borderless. No one country is harnessing alternative financial markets or business models to the exclusion of any other. Rather, from the UK to Estonia and from Finland to Monaco, the entire European continent is experimenting and expanding upon innovations that can provide greater access to capital and financial services to more people than ever before.”

See the full report below. Continue reading

Moving Mainstream – The European Alternative Finance Report

university cambridgeThe new study ‘Moving Mainstream – The European Alternative Finance Report‘ is available now (free download). The study by the University of Cambridge and EY looks at the development of p2p lending, p2p equity, crowdfunding and other alternative finance offers in Europe and compares it to the development in the UK. The very comprehensive study combined survey results from 205 platforms in 27 European countries with 50 survey responses gathered from UK platforms as part of the Nesta Study.

P2P-Banking.com was one of the research partners in this study.

Here are the main findings from the executive summary:

Since the global financial crisis, alternative finance – which includes financial instruments and distributive channels that emerge outside of the traditional financial system – has thrived in the US, the UK and continental Europe. In particular, online alternative finance, from equity-based crowdfunding to peer-to-peer business lending, and from reward-based crowdfunding to debt-based securities, is supplying credit to SMEs, providing venture capital to start-ups, offering more diverse and transparent ways for consumers to invest or borrow money, fostering innovation, generating jobs and funding worthwhile social causes.

Key statistics moving mainstreamAlthough a number of studies, including those carried out by the University of Cambridge and its research partners, have documented the rise of crowdfunding and peer-to-peer lending in the UK, we actually know very little about the size, growth and diversity of various online platform-based alternative finance markets in key European countries. There is no independent, systematic and reliable research to scientifically benchmark the European alternative finance market, nor to inform policy-makers, brief regulators, update the press and educate the public. It is in this context that the University of Cambridge has partnered with EY and 14 leading national/regional industry associations to collect industry data directly from 255 leading platforms in Europe through a web-based questionnaire, capturing an estimated 85-90% of the European online alternative finance market.

The first pan-European study of its kind, this benchmarking research reveals that the European alternative finance market as a whole grew by 144% last year – from €1,211m in 2013 to €2,957m in 2014. Excluding the UK, the alternative finance market for the rest of Europe increased from €137m in 2012 to €338m in 2013 and reached €620m in 2014, with an average growth rate of 115% over the three years. There are a number of ways to measure performance across the various markets. In terms of total volume by individual countries in 2014, France has the second-largest online alternative finance industry with €154m, following the UK, which is an undisputed leader with a sizeable €2,337m (or £1.78bn). Germany has the third-largest online alternative finance market in Europe overall with €140m, followed by Sweden (€107m), the Netherlands (€78m) and Spain (€62m). However, if ranked on volume per capita, Estonia takes second place in Europe after the UK (€36 per capita), with €22m in total and €16 per capita.

In terms of the alternative finance models, excluding the UK, peer-to-peer consumer lending is the largest market segment in Europe, with €274.62m in 2014; reward-based crowdfunding recorded €120.33m, followed by peer-to-peer business lending (€93.1m) and equity-based crowdfunding (€82.56m). The average growth rates are also high across Europe: peer-to-peer business lending grew by 272% between 2012 and 2014, reward-based crowdfunding grew by 127%, equity-based crowdfunding grew by 116% and peer-to-peer consumer lending grew by 113% in the same period.

Collectively, the European alternative finance market, excluding the UK, is estimated to have provided €385m worth of early-stage, growth and working capital financing to nearly 10,000 European start-ups and SMEs during the last three years, of which €201.43m was funded in 2014 alone. Based on the average growth rates between 2012 and 2014, excluding the UK, the European online alternative finance market is likely to exceed €1,300m in 2015. Including the UK, the overall European alternative industry is on track to grow beyond €7,000m in 2015 if the market fundamentals remain sound and growth continues apace.

Continue reading

Review of My P2P Lending Predictions for 2012

In January 2012 I wrote down my predictions for p2p lending developments in 2012. The black text is my original prediction, with the review added in green and yellow.

Deeper integration of mobile (probability <25%)
Can you use a p2p lending service from a Smartphone? Sure. Some even have special apps for that purpose. But that’s not what we are talking about here. We are at the advent of a couple years timespan where several players (compare this infographic) will be fighting over market shares in the developing mobile payment market. If there is a role for p2p lending services, it is yet undiscovered (aside from the use p2p microfinance makes of it in underdeveloped countries). No action so far. Continue reading

P2P Lending Predictions For 2012

I really like this time. The new year lies ahead with crispy, yet unknown innovations. What p2p lending developments might happen in 2012. Here are some personal opinions.
Last year I failed big time with most of my predictions for 2012 not coming true.

Deeper integration of mobile (probability <25%)
Can you use a p2p lending service from a Smartphone? Sure. Some even have special apps for that purpose. But that’s not what we are talking about here. We are at the advent of a couple years timespan where several players (compare this infographic) will be fighting over market shares in the developing mobile payment market. If there is a role for p2p lending services, it is yet undiscovered (aside from the use p2p microfinance makes of it in underdeveloped countries).

Introduction of a p2p financed ‘credit card’ (probability very low)
Carried over from last year – did not happen
I envision a p2p lending service where the borrower does not get a loan in one full amount initially but can access liquidity on demand (within a predefined credit line). From the funding side this would work somewhat like lenders investing in Ratesetter’s rolling monthly loans. On the borrower side the customer could either request an additional payout via a web-interface or more sophisticated the service could issue a branded credit card / debit card for that purpose, enabling the customer to access cash instantly on an ATM.
This concept has very interesting advantages as it allows the p2p lending service to build a durable relationship to the borrowers. And for the borrowers it offers the potential of lower rates on short term debt than the high rates credit cards typically carry.

Continue reading

Review of My P2P Lending Predictions For 2011

In January 2011 I wrote down my predictions for p2p lending trends in 2011. Now let’s see how far I was off. The black text is my original prediction, with the review added in green and yellow.

Advent of whitelabel providers (probability 100%)
Okay let’s start this with a safe bet. In 2011 there will be 1-2 companies offering a solution that can be branded and used by p2p lending services and / or p2p microfinance sites. The interesting question here is how the acceptance by potential customers will be. My guess is that it will be slow selling until the companies have set the first pilot customer live.
While there are now whitelabel providers, their business seems to have been very slow in 2011. It seems that the first areas where we will see some activity is possibly p2p equity. As for conventional p2p lending – the companies supplying solutions have become more sophisticated and at least one as adopted their price model. It is now more a revenue sharing deal rather than a big upfront payment, that most startups could struggle with.

Introduction of a p2p financed ‘credit card’ (probability very low)
I envision a p2p lending service where the borrower does not get a loan in one full amount initially but can access liquidity on demand (within a predefined credit line). From the funding side this would work somewhat like lenders investing in Ratesetter’s rolling monthly loans. On the borrower side the customer could either request an additional payout via a web-interface or more sophisticated the service could issue a branded credit card / debit card for that purpose, enabling the customer to access cash instantly on an ATM.
This concept has very interesting advantages as it allows the p2p lending service to build a durable relationship to the borrowers. And for the borrowers it offers the potential of lower rates on short term debt than the high rates credit cards typically carry.
Like the idea and want to discuss/develop it further? Self-promotion plug: You can hire me as a consultant.
Has not happened.

A bank will acquire an existing p2p lending service (probability <25%)
Carried over from last year – did not happen
2011 might see a bank (or other financial institution) buying a running p2p lending service.
Buying will be much faster, cheaper and risk-less than if the bank tries to build a new service.
Largest Italian private Bank bought at least a part. Continue reading

Recent News from P2P Lending Blogs

Here are some recently published articles on several p2p lending topics:

Sociallending.net: The Best Day to Borrow Money at Lending Club

P2P Lending News: Prosper and Lending Club Compete for Investor Market Share

CreditUnionTimes: Consultant Warns Banks and CUs Risk Becoming Passé

DoughRoller: Lending Club Investment Strategy (Update)

Janari Rahablog: Omaraha.ee laenude vahenduse portaal

GlobalVoices: Brazil: Crowdfunding Potential

Do Your Friends Determine If You Are Creditworthy?

A new US patent filed claims that may be a good idea! The patent application “System and method for assessing credit risk in an on-line lending environment” describes a risk assessment method, where the first level links on a social network would be checked for a borrower. It aims to derive insights from looking at the age and “activity” of these first level contacts.

Does What Your Friends Say About You Determine If You Are Creditworthy?

In a step further the method suggests to “invite linked users to provide a personal endorsement of the borrowing party; sending an endorsement invitation to identified users; and receiving endorsements from the identified users, the endorsement providing a rating of the user trustworthiness based on a numerical scale; determining and aggregate endorsement score from received endorsement which is included in the assessment score

Assessment score to be used as one of several criteria

The patent filed by Canadian company Neobanx Technologies, Inc was previously already filed in Canada. Inventors Ronald N. Ingram, Dylan Littlewood and Aston Lau describe the whole process with assessment score and endorsement score being only 2 of multiple elements that are used to assess the risk.

The potential problems with using data from social networks for the purpose of risk assessment in p2p lending were already described in detail in the article: “For Debate: Can Data from Social Networks be Used to Reduce Risks in P2P Lending“.  I still think that social network data could be used to some degree as additional data for lenders – but not to the degree this patent seems to imply.

It would be most interesting to see this implemented and monitor how it works out.

What is your opinion, dear reader?

P2P Lending Expectations for 2011

I always enjoy speculating what p2p lending developments might happen in the year to come and then look back in in the end to see how I did. I don’t dare call it forecast, because these are just my personal opinions, though in some cases it’s an educated guess based on what I know individual p2p lending services are working on at the moment.
Last year most of my predictions came true to some degree. Maybe they were not speculative enough – this year I’ll insert 1 or 2 developments with higher degree of speculation.

Advent of whitelabel providers (probability 100%)
Okay let’s start this with a safe bet. In 2011 there will be 1-2 companies offering a solution that can be branded and used by p2p lending services and / or p2p microfinance sites. The interesting question here is how the acceptance by potential customers will be. My guess is that it will be slow selling until the companies have set the first pilot customer live.

Introduction of a p2p financed ‘credit card’ (probability very low)
I envision a p2p lending service where the borrower does not get a loan in one full amount initially but can access liquidity on demand (within a predefined credit line). From the funding side this would work somewhat like lenders investing in Ratesetter’s rolling monthly loans. On the borrower side the customer could either request an additional payout via a web-interface or more sophisticated the service could issue a branded credit card / debit card for that purpose, enabling the customer to access cash instantly on an ATM.
This concept has very interesting advantages as it allows the p2p lending service to build a durable relationship to the borrowers. And for the borrowers it offers the potential of lower rates on short term debt than the high rates credit cards typically carry.
Like the idea and want to discuss/develop it further? Self-promotion plug: You can hire me as a consultant. Continue reading

Review of My P2P Lending Predictions For 2010

In January 2010 I wrote down my predictions for p2p lending trends in 2010. Now let’s see how good my crystal ball was. The black text is my original prediction, with the review added in green and yellow.

More competition and entering more national markets (probability 100%)
This is a fairly easy bet. There are many, especially European markets, where no p2p lending service is operating yet. Even accounting for the fact that laws and regulation in some national markets make it hard or impossible to establish a service, there is still plenty of room. Looking at an individual country, it is much harder to tell. I still wonder that there are no competitors to Zopa in the British market (yet).
As expected this was an easy bet to win. Plenty of new p2p lending companies launched. Zopa got 4 new competitors in the UK (Ratesetter, Fundingcircle, Quakle and Yes-Secure). 3 companies launched in Finland. FairPlace started in Brazil.

More products (probability 100%)
Currently nearly all p2p lending platforms only offer one product: unsecured, fixed term loans. The differences are more in the details of loan funding (bidding, no bidding, markets, listings) but not in the offered product. In 2010 we will see additional products (e.g. secured loans).
Ratesetter introduced rolling monthly loans with variable interest rates. (Note: variable interest rates were one of my predictions for 2008 – I was a bit early on that one). Money360 tries p2p mortgages. CommunityLend might be up to something really interesting with FinanceIt. Some smaller enhancements to the existing product were developed too (e.g. cars as collateral).

A bank will acquire an existing p2p lending service (probability <25%)
While last year’s prediction was that there is the first bank experimenting with p2p lending (and there was), 2010 might see a bank (or other financial institution) buying a running p2p lending service.Buying will be much faster, cheaper and risk-less than if the bank tries to build a new service.
Did not happen. An interesting development was the decision of a Korean Savings Bank to act as a lender on MoneyAuction. Continue reading

P2P Lending Year-End Review 2010

As the end of 2010 approaches here is a selection of main peer-to-peer-lending news and developments covered by P2P-Banking.com:

(Photo by paul (dex))