The Sound of the Crowd

Alternative finance including P2P lending and crowdfunding (CF) has ably filled the gap left by the banks inability and unwillingness to provide much needed finance post 2008.

Here we consider reasons to be optimistic for the future of social financing and how lending platforms will continue to benefit the market.

In this age of the Internet of Things (IOT) online platforms provide a marketplace for cash lenders and borrowers to trade together rather than be intermediated by a bank. P2P and CF are old phenomena and returned to prominence given the technologically enabled and disruptive Fintech sector.

It is estimated that CF raised in excess of $35BN globally in 2015 and that P2P grew by 92%. In Europe the UK market accounts for 85% of P2P loans showing both the opportunity but also the stranglehold by the banks across the region.

The benefits of participating are numerous for both lenders and borrowers, including:

For Lenders:

  • Greater choice of investment
  • Determination of loan value                            
  • Higher returns

For Borrowers:

  • Faster approved loans
  • Stable funding                                                         
  • Termed financing

P2P global leaders include Zopa, Funding Circle and Lending Club whilst KickStarter and IndieGoGo dominate in CF. Detractors say that success hasn’t materialised as predicted. I don’t buy into that as change is often evolutionary, particularly in financial services.  P2P is estimated to be worth $1TRN by 2025.

The overall market also continues to change. Who would have predicted that Amazon would lend $2BN over the past 12 months? Fast forward 3 years, post PSD2 and Open Banking, things will look very different across the banking landscape.

Ireland provides its own success stories too. Linked Finance has predicted exponential growth for 2017. Orca Money, Grid Finance and new entrant Flender add weight to the local community showing continued confidence.

It will be interesting to watch where this financing market turns to next. The short end of the market remains largely untapped beyond the bank overdraft. I think it offers opportunity, in a similar fashion to how institutions trade repo for both overnight and termed cash.

To summarize both P2P and CF provide viable, affordable and alternative sources of finance. Regulation once introduced will add further credibility and iron out other intricacies, perceptions and concerns.

Stephen Sheehan is a graduate of MIT Future Commerce and Fintech and is an international banking specialist assisting companies understand and navigate Fintech through his company www.digitalstate.ie 

References:

  • Linked Finance
  • Orca Money
  • Wikipedia
  • com
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