The European online alternative finance market grew by 144% last year to nearly €3bn and could top €7bn in 2015, according to the first comprehensive pan-European benchmarking report.
Moving Mainstream: The European Alternative Finance Benchmarking Report
, it was jointly produced by professional services organization EY and the UK’s new Centre for Alternative Finance at University of Cambridge Judge Business School.
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, the report notes.
Online alternative finance, comprising platform-based financial transactions outside traditional banking, grew across Europe from €1.21bn in 2013 to €2.96bn in 2014. The overall European alternative industry is on track to grow beyond €7bn 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 small and medium-sized enterprises (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 (YoY), 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.
“These new forms of alternative finance are growing quickly, and this growth is beginning to attract institutional investors,” said Robert Wardrop, executive director of the Centre for Alternative Finance at Cambridge Judge, and co-author of report. “Alternative finance, at least in some European countries, is on the cusp of becoming mainstream.”
The UK is by far the largest European country for alternative finance, at €2.34bn 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 (P2P) consumer lending is the largest market segment at €275m in 2014, followed by reward-based crowdfunding at €120m, P2P business lending at €93m and equity-based crowdfunding at €83m.
Across Europe, excluding the UK, P2P business lending grew 272% from 2012 to 2014, followed by reward-based crowdfunding up 127%, equity-based crowdfunding up 116% and P2P consumer lending up 113%.
“The UK market’s success has in part been driven by investors’ search for yield after the Bank of England’s (BoE) quantitative easing (QE) programme, so it will be interesting to see if the EU’s recent QE programme sparks increased activity in Europe,” said Andy Baldwin, EY managing partner, Europe, Middle East, India and Africa Financial Services
“For me some of the most interesting metrics are the rate of adoption in certain markets and models. For example P2P 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 report can be accessed for free downloading at www.jbs.cam.ac.uk/ccaf/movingmainstream.
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