The Cambridge Centre for Alternative Finance released a new update on the traditional annual report on the European alternative finance industry.
Gathering data from 269 operating platforms, this year’s follow-up provides us with a picture of the European alternative finance industry in 2017.
Commenting on the study, titled Shifting Paradigm, Dave Dowsett, Global Head of Technology Strategy, Innovation and Planning of Invesco, an investment management company, said: “The paradigm is shifting in a way that favors technology and models to make capital more accessible beyond the borders of traditional finance. As tokenization technology moves into more robust testing phases, we are taking notice of trends in how real estate and equity-based crowdfunding models are maturing in European markets. Compared to other methods of alternative finance, the market shares are still small from an overall percentage standpoint, but we think there are opportunities for even greater disruption with tokenization on the horizon.”
THE GENERAL PICTURE
According to their findings, the United Kingdom is still the largest individual alternative finance market, albeit with a declining market share from 73% in 2016 to 68% in 2017.
Excluding the UK, the European online alternative finance market grew at nearly double the UK’s year-on-year growth rate, 63% in comparison to 35%.
MARKETS AND SEGMENTS
In this context, France (€661.37 million), Germany (€595.41 million) and the Netherlands (€279.93 million) remained the top three national markets for online alternative finance by market volume in Europe followed by Italy (€240.66 million) and Finland (€196.76 million). In terms of contribution to business, this equals €1,660 million to over 24,000 ventures.
P2P Consumer Lending remained the largest market segment for the fourth year in a row (41% of market share) whilst real Estate Crowdfunding reported a 7.7% of market share, Equity-based Crowdfunding 6.3%, Reward 5% and Donation-based, 1%.
Institutionalization across all model types decreased considerably between 2016 and 2017. This includes funding from pension funds, mutual funds, asset management firms and banks.
For example, funding by institutional investors such as venture capital firms, angels, family offices or funds in Equity-based Crowdfunding dropped more than 50% passing from 13% in 2016 to 6% in 2017.
INTERNATIONALIZATION AND BUSINESS MODEL INNOVATION
Internationalization of platforms is on the rise. However, most still indicate low levels of such activities, equalling 30% of their volumes. The most popular internationalization strategy was having a global website and brand. 57% of Equity-based Crowdfunding platforms followed such a strategy.
In terms of business model innovation, 50% or more of platforms from all model types reported that they had made significant changes to their product offerings. Most innovation focused on improving the operational efficiency of platforms through process streamlining and automation, as well as optimizing payment processing and customer verification.
The risk of a “Cyber-security Breach” was perceived as the highest risk for Equity-based Crowdfunding (40% high to very high risk), and Reward-based Crowdfunding (44%).
“Changes to Regulation” was seen by four model types as the second highest risk, particularly Equity-based Crowdfunding (37%), P2P Consumer Lending (30%), Donation-based Crowdfunding (30%) and Reward-based Crowdfunding (26%).
More in general, large percentage of Equity-based Crowdfunding (53%), Reward-based Crowdfunding (43%), and P2P Property Lending (42%) platforms viewed regulation to be excessive and too strict.
WHAT’S IN IT FOR BANKS?
Banks are watching the evolution of the market carefully. Some of them are starting to understand that alternative finance might help their scoring system and select companies who deserve credit, as validated by the crowd.
Find out more here.
Ziegler, T.; Shneor, R.; Wenzlaff, K.; Odorović, A.; Johanson, D.; Hao, R. and Ryll, L. (2019) Shifting Paradigms. The 4th European Benchmarking Report. Available here.