The University of Cambridge and Nesta have published their latest report on the growth of the UK’s P2P lending and alternative finance industry, and it makes very happy reading indeed. In 2015:
- The market grew to £3.2 billion;
- 1.09 million people invested, donated or lent via online alternative finance (AF) platforms in the UK;
- 254,721 individuals, projects, not-for-profits and businesses raised finance via online AF platforms;
- Online AF platforms took 12% of the small businesses lending market, and 15.6% of the UK seed and venture-stage equity investments market;
- 45% of AF platforms reported some institutional lending; and
- 32% of P2P consumer loans, and 26% of all P2P business loans, were funded by institutions.
In fact, in 2015:
- 20,000 SMEs borrowed £1.82 billion using AF platforms – the equivalent of 3.4% of gross national bank SME lending in 2014, and 13.9% of new bank lending to small businesses in 2015; and
- Equity based crowdfunding contributed £245 million of venture financing, the equivalent of 15.5% of total UK seed and venture stage equity investment.
The UK’s Financial Conduct Authority (FCA) has been actively regulating equity based crowdfunding since 2014, and it started to regulate P2P lending at the same time. In 2013, many commentators argued that the FCA’s proposed rules were too strict, and would strangle a nascent industry at birth. Today: 91% of P2P lending platforms regard the FCA’s rules as adequate and appropriate; 5.66% think they should be tighter and stricter; and less than 4% regard them as excessive. The equivalent numbers for equity based crowdfunding platforms are 89%, 8% and 3% (respectively). These numbers change materially, if platforms are asked about the FCA’s online and social media financial promotion rules. Here the equivalent numbers are 77% (“adequate and appropriate”), 2% (“should be tighter and stricter”), and 21% (“excessive and too strict”). This is unsurprising, given (what some might regard as) the unexpected effect of the FCA’s social media financial promotions rules.
The UK industry’s thinking on risk is also interesting. The biggest risks to the continued growth of the AF sector are currently thought to be:
- The collapse of one or more well known platforms, as a result of malpractice: 57.3%
- Cyber security / breach: 51.1%;
- Notable increase in default rates / business failure rates: 46.8%;
- Fraud involving a high profile campaign, deal or loan: 45.9%;
- Cancellation or removal of tax incentives: 37.5%; and
- FCA regulatory change: 31.7%.
(Where the relevant figures are the proportion of platform survey respondents, which regard the relevant risks as “high” or “very high”.)
So, overall, very good news for the industry, and some positive and very welcome news for the FCA.