New report from Cambridge University reveals that online platforms are providing "substantial volumes" of funding
Online financing platforms are showing exponential growth as they aim to take a chunk out of the market share of traditional financial services.
A new study published by the Cambridge Centre for Alternative Finance (CCAF), part of Cambridge University’s Judge Business School, reveals that global transaction volumes facilitated by the alternative finance industry totaled US$304.5 billion in 2018.
Approximately $162 billion of alternative finance volumes directly stem from funding provided by institutional investors such as banks, pension funds, mutual funds, and family offices.
“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, one of the supporters of the research.
Canada’s modest gains
Despite the volume dropping from $419 billion in 2017, many countries posted gains, including Canada where volume increased from $868 million to $908 million (5%) from 2017-2018.
Canada is ranked 2nd in the Americas region, a long way behind the United States ($61 billion) and while the Americas posted a 44% increase in overall market volume year-over-year, Canada’s 5% growth is modest compared to the 173% surge in Latin America and the Caribbean.
The US market share is 96%. In Canada it is 1.5%.
However, the report suggests that some firms may not have reported their activity in Canada in 2018 and that data for 2019 will show a return to stronger growth. The Canadian market is dominated by domestic firms (90%).
The Canadian alternative finance industry is led by Peer-to-Peer (P2P) /Marketplace Consumer Lending, with a 36% share of the overall market volume, followed by Balance Sheet Business Lending (17%) and Balance Sheet Property Lending (13%).
The total SME business funding volume was $561M and the volume derived from institutional investors was $490M (54%).
However, a smaller transaction volume does not always equate to a smaller market share. In fact, the study found the opposite to be true.
For example, Latvia and Estonia ranked third and fourth respectively in terms of per capita penetration but were 24th and 29th in terms of total volumes.
“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,” said lead author and head of global benchmarking at the CCAF, Tania Ziegler. “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.”
Regulation is one area where the growth of alternative finance is concerning for some. A recent report highlighted risk to financial stability posed by shadow banks and services such as P2P lending to businesses.
China leads the world
China leads the world in transaction volume ($215 billion) with the rest of the world totaling $89 billion.
“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 full report is available free at https://issuu.com/cambridgejbs/docs/2020-ccaf-global-alternative-finance-market-benchm/210