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European alternative finance market could top €7b in 2015

The European alternative finance market grew 144 per cent last year to €2,957 million.

European alternative finance market could top €7b in 2015
The European online alternative finance market grew by 144 per cent last year to nearly €3 billion and could top €7 billion in 2015, according to the first comprehensive pan-European benchmarking of alternative finance produced by the new Cambridge Centre for Alternative Finance at University of Cambridge Judge Business School and professional services organisation EY.

The report, Moving Mainstream: The European Alternative Finance Benchmarking Report, includes input from 14 key national or regional industry associations, as well as 255 leading platforms in Europe, to capture an estimated 85 per cent 90 per cent of Europe’s online platform-based alternative finance market. While previous studies have charted alternative finance in the UK, this report is the first to cover other European countries in detail.

Seen until recently as a niche activity, online alternative finance, including equity-based crowdfunding and peer-to-peer business lending, has become a vital and increasingly commonplace source of essential funding for SMEs, start-ups and many other businesses throughout Europe, says the report.

Online alternative finance, comprising platform-based financial transactions outside traditional banking, grew across Europe from €1.21 billion in 2013 to €2.96 billion in 2014. The overall European alternative industry is on track to grow beyond €7 billion if the market fundamentals remain sound and growth continues apace.

In 2014, €201 million of early-stage, growth and working capital funding was provided to European SMEs and start-ups by alternative finance platforms. The volume of online alternative business funding has been growing steadily at around 75 per cent year on year, and the estimated number of start-ups and SMEs funded in this way has been growing at an even faster average rate – 133 per cent over the last three years to around 5,801 SMEs or start-ups in 2014.

Robert Wardrop, Executive Director of the Centre for Alternative Finance at Cambridge Judge, and co-author of the new report, says:

These new forms of alternative finance are growing quickly, and this growth is beginning to attract institutional investors. Alternative finance, at least in some European countries, is on the cusp of becoming mainstream.

Andy Baldwin, EY Managing Partner, Europe, Middle East, India and Africa Financial Services, says:

To date there has been little hard data about the extent of the industry across Europe. This report shows that, while it is still considerably smaller than the industry in the UK, alternative finance on the continent cannot be ignored.

“The UK market’s success has in part been driven by investors’ search for yield after the Bank of England’s QE program, so it will be interesting to see if the EU’s recent QE program sparks increased activity in Europe. For me some of the most interesting metrics are the rate of adoption in certain markets and models. For example peer-to-peer business lending grew at more than 270 per cent in mainland Europe this year, and Estonia and Sweden have some of the highest volumes per capita. The whole financial services industry should be watching this space with growing interest and this study will provide a valuable benchmark against which to measure future developments.”

The new report is written by Robert Wardrop, Bryan Zhang, Operations and Policy Director of the Centre for Alternative Finance, Raghavendra Rau, Sir Evelyn de Rothschild Professor of Finance at Cambridge Judge and Research Director of the new Centre, and Mia Gray, Senior Lecturer at the Department of Geography at the University of Cambridge, who has focused on alternative finance and regional economies.

The new Centre provides a disciplined research framework to support the fast-growing structures and activities of alternative finance, in order to address the growing needs of academics, policymakers, regulators and industry. The Centre plans to launch a research programme, host a Global Alternative Finance Data Depository, and organise conferences, networking events and a fellowship programme.

The UK is by far the largest European country for alternative finance, at €2.34 billion (£1.78 billion) in 2014, followed by France at €154 million, Germany at €140 million, Sweden at €107 million, the Netherlands at € 78 million and Spain at €62 million. Alternative finance in Europe excluding the UK grew from €338 million in 2013 to €620 million in 2014, and has averaged growth of 115 per cent over the past three years. Peer-to-peer consumer lending is the largest market segment at €275 million in 2014, followed by reward-based crowdfunding at €120 million, peer-to-peer business lending at €93 million and equity-based crowdfunding at €83 million.

Across Europe, excluding the UK, peer-to-peer business lending grew 272 per cent from 2012 to 2014, followed by reward-based crowdfunding up 127 per cent, equity-based crowdfunding up 116 per cent and peer-to-peer consumer lending up 113 per cent.