Out-Law News 2 min. read

UK clear leader in European alternative finance market


The UK's online alternative finance market, encompassing different types of crowdfunding and peer-to-peer lending, is worth more than 15 times the next largest comparative market in Europe, according to new research.

The alternative finance industry in the UK was valued at €2.34 billion last year, and makes up nearly 75% of the total value of the online alternative finance market in Europe, a study by the University of Cambridge and EY has found.

In total Europe's alternative finance market was valued at €2.96bn in 2014, up from €1.21bn in 2013. The market is set to grow to exceed a valuation of €7bn this year "if the market fundamentals remain sound and growth continues apace", the 'European Alternative Finance Benchmarking Report' (44-page / 3.70MB PDF) said.

"Alternative finance, at least in some European countries, is on the cusp of becoming mainstream," Robert Wardrop, executive director at the Cambridge Centre for Alternative Finance at Cambridge University Judge Business School, said.

Whilst the UK alternative finance market is the dominant one in Europe, the report highlighted sharp growth in comparative markets elsewhere in Europe, including France, Germany, the Netherlands, Spain and the Nordic countries. In France, the online alternative finance market has grown from €23m in 2012 to €154m last year. The market in Germany grew from €31m in 2012 to be worth €140m last year.

Outside of the UK in Europe the largest value model for online alternative finance is peer-to-peer consumer lending, worth €275m last year. The next largest value models were reward-based crowdfunding ($120m), peer-to-peer business lending ($93m) and equity-based crowdfunding ($83m), according to the report.

The online alternative finance market has helped SMEs raise capital in an economic environment where it has become more difficult to obtain loans from banks, the report said. It said nearly 10,000 European businesses had benefited from access to online alternative finance in the past three years.

"This new brand of innovative, decentralised and potentially disruptive alternative finance is supplying credit to consumers, providing early-stage investments to start-ups and growth capital to SMEs, stimulating regional economies and funding worthwhile causes," the report said. "Crowdfunding and peer-to-peer lending are becoming financial as well as cultural buzzwords of today, capturing the public’s imagination and the media’s interest as well as regulator and government attention."

"With institutional investors starting to invest and diversify through those online platforms, corporates are beginning to experiment with various forms of crowdfunding and crowdsourcing, and banks themselves are getting involved with peer-to-peer or ‘marketplace’ lending; alternative finance is creating ripples and moving increasingly into the mainstream," it said.

However, 45% of the 190 online alternative finance platforms surveyed in the study said that existing or proposed legislation in the European country they operate in is "excessive and too strict". Just 18% of platforms said the existing rules governing their business are "adequate and appropriate", although 20% of platforms said there are no specific regulations in the country they operate in for alternative finance platforms. Of that 20%, three quarters said specific regulations are required.

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