The 3rd Annual European Alternative Finance Industry Survey by Judge Business School’s Centre for Alternative Finance at Cambridge University shows that the total European online alternative finance market grew by 41% to reach € 7671m in 2016.
Excluding the United Kingdom, which remains the largest individual market, the European online alternative finance industry grew 101% from € 1019m to € 2063m in 2016. This represents a substantial increase in annual growth from 72% in 2015, and is also above the average annual growth of 85% between 2013 and 2016.
Presenting the document, Robert Dropp, Co-Founder and Director of Cambridge Centre for Alternative Finance said:
The number of countries in Europe with meaningful alternative finance activity is growing. Second, the business models and products offered by platforms are evolving and expanding at a rapid pace. Platforms across the region are focusing on solving systemic operational and procedural challenges by prioritizing research and development strategies in process streamlining and automation. Finally, with the forthcoming promise of harmonized regulation, a greater diversity of activities and engagement from national and pan-European regulators may alleviate persistent barriers to cross-border growth and investment.
MARKETS
France, Germany and the Netherlands remain the top three national markets for online alternative finance by market volume in Europe (excluding UK). The French market reached €443.98m followed by Germany (€321.84m), the Netherlands (€194.19m), Finland (€142.23m), Spain (€130.90m), Italy (€127.06m) and Georgia (€102.58m), which experienced a boom in 2016. The United Kingdom maintains its position as the main alternative finance market, albeit with a declining market share from 81 per cent in 2015 to 73 per cent in 2016. For a second year in a row, Estonia ranked first for alternative finance volume per capita with €62.68.
SEGMENTS
The research, which gathered data from 344 crowdfunding, P2P lending and other alternative finance intermediaries across 45 countries in Europe – out of which 267 platforms are operating outside of the United Kingdom – and estimate to capture
90% of the visible alternative finance market, pointed also out that P2P Consumer Lending accounts for the largest market segment of Alternative Finance in Europe (excluding UK) for a third year in a row.
This model accounted for 34 per cent of all volume, and grew by 90 per cent from €366m in 2015 to €697m in 2016. P2P Business Lending (17 per cent of market share), Invoice Trading (12 per cent), Equity-based Crowdfunding (11 per cent) and Reward-based Crowdfunding (9 per cent) rounded out the top-five performing models across the region.
MAIN TRENDS
With regard to the main trends of the industry, according to researchers institutionalization grew considerably from 2015 to 2016, with 45% of P2P consumer lending and 29% of P2P business lending funded by institutions such as pension funds, mutual funds, asset management firms and banks. 13% of the investment in equity-based crowdfunding was also funded by institutional investors such as venture capital firms, angels, family offices or funds.
Regarding cross-border transaction flows, analysts say that still represent only a modest share of platforms’ volumes with 61% of platforms reporting cross-border inflows as representing up to 10% of their volumes, and 50% of platforms reporting crossborder outflows as representing up to 10% of their volumes.
Interestingly, a greater share of platforms reported significant changes to product offerings and business models while innovation focused on improving operational efficiency through process streamlining and automation, as well as releasing bottlenecks associated with payment processing and customer verification.
In terms of risk management, potential collapse of one or more well-known platforms due to malpractice and fraud involving one or more high-profile campaigns/deals/loans are of greatest concerns for platforms.
Finally, the report shows that while overall perceptions of regulation adequacy remain divided, greatest discontent is recorded with respect to laws governing equity-based crowdfunding as almost half of equity-based crowdfunding platforms deem existing regulation as either excessive (43%) or lacking and needed (5%).
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