European alternative finance market could top €7b in 2015
Cambridge and London, 23 February 2015
The European online alternative finance market grew by 144% last year to nearly €3b and could top €7b in 2015, according to the first comprehensive pan-European benchmarking of alternative finance produced by the new Centre for Alternative Finance at University of Cambridge Judge Business School and professional services organization EY.
- The European alternative finance market grew 144% last year to €2,957m.
- The top markets in mainland Europe by volume of alternative finance are France, Germany, Sweden, the Netherlands and Spain.
- In 2014, €201m of early-stage, growth and working capital funding was provided to European SMEs and start-ups through alternative finance platforms.
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%-90% 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 €1.21b in 2013 to €2.96b in 2014. The overall European alternative industry is on track to grow beyond €7b if the market fundamentals remain sound and growth continues apace.
In 2014, €201m 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% 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% 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% 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 program, host a Global Alternative Finance Data Depository, and organize conferences, networking events and a fellowship program.
The UK is by far the largest European country for alternative finance, at €2.34b (£1.78 b) in 2014, followed by France at €154m, Germany at €140m, Sweden at €107m, the Netherlands at € 78m and Spain at €62m. Alternative finance in Europe excluding the UK grew from €338m in 2013 to €620m in 2014, and has averaged growth of 115% over the past three years. Peer-to-peer consumer lending is the largest market segment at €275m in 2014, followed by reward-based crowdfunding at €120m, peer-to-peer business lending at €93m and equity-based crowdfunding at €83m.
Across Europe, excluding the UK, peer-to-peer business lending grew 272% from 2012 to 2014, followed by reward-based crowdfunding up 127%, equity-based crowdfunding up 116% and peer-to-peer consumer lending up 113%.
Moving Mainstream: The European Alternative Finance Benchmarking Report is available to download for free at www.jbs.cam.ac.uk/ccaf/movingmainstream.
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About the Centre for Alternative Finance at Cambridge Judge
The Cambridge Centre for Alternative Finance is an international interdisciplinary academic research institute dedicated to the study of alternative finance, which includes financial channels and instruments that emerge outside of the traditional financial system. Examples of alternative channels are online “marketplaces” such as equity-based crowdfunding and peer-to-peer lending. Alternative instruments include SME mini-bonds, private placements and other “shadow banking” mechanisms, social impact bonds and alternative currencies such as Bitcoin. The new centre’s website is: http://www.jbs.cam.ac.uk/ccaf.