Yet as the banks have cut rates available, other providers have stepped in, hoping to tempt investors and savers with more attractive potential returns.
Alternative finance is one such niche area that has emerged from nowhere in the last eight years, with pioneer company Zopa leading the way in providing what are called “P2P (peer-to-peer) lending accounts”.
So what are these, how do they work, and should you consider using them?
What P2P can offer adventurous investors
The idea behind Zopa and its big rivals Ratesetter and Funding Circle is very simple. Why have a bank act as an intermediary between savers and borrowers?
Go direct. If you’re an investor, then why not lend your money directly to a lender through a marketplace – the financial equivalent of eBay.
Back when these P2P sites first launched, the idea was truly radical. You set the term (number of years) you’d want to lend over, and the interest rate you required. Then you’d wait for borrowers to accept your terms. The market in effect “set the rate” (that’s the idea behind Ratesetter as a brand).
Times have changed, of course, and now the big two platforms lending to consumers (Zopa and Ratesetter) operate much more like an online fund.
You lend your money into a pot. That pot of money is in turn lent out to borrowers, mostly prime or just below prime borrowers (the most creditworthy). The interest rate you receive depends on how long you want to lend for – and what protection you want in case of lenders defaulting on their payments to you.
The tables below explain the current investment rates on offer for lending on Zopa and Ratesetter.
Ratesetter
Term
Interest Rate
1 month
2.8%
1 year
3.5%
3 years
4.5%
5 years
5.7%
Protection Fund size (see below for more on this): £17.7m, coverage ratio against expected defaults 133%
Total money lent: £1.11bn
Zopa
Product
Interest Rate
Safeguard
Fees
Access
3.5%
Yes
0% withdrawal fee
Classic
4.5%
Yes
1% fee
Plus
6.5%
No
1% fee
Protection Fund size: £12.24m
Total money lent: £1.39bn
Both of these reasonably well-known brands now offer real choice for income-orientated investors – even more so when you consider that both are about to launch Innovative Finance Individual Savings Account (Isa) wrappers.
At a time when the average high streets savings account pays well under 2% a year, the rates above represent a real boost for income seekers. And both of these brands have been working incredibly hard to reassure investors that their money is safe.
Boiling it down, there are four big selling points to using a P2P lender:
You have a choice of products and terms over which you can lend your money. If you are ultra-cautious, you can lend for just one month or a year. The choice of risk is yours.
The biggest underlying risk is that the borrowers don’t pay back their debts. Defaults are however, currently running at very low levels for both Zopa and Ratesetter, as both platforms have a good record of making personal loans to consumers (although Ratesetter in particular is diversifying and now lends substantial amounts to businesses as well).
Most historic data suggests that even in a recession, consumer default defaults remain well below 10% and most of the time stick below 5%. Current default levels are around 1% or less.
Both platforms offer protection funds where a levy on transactions is used to build up a fund, which should be able to compensate investors for losses. The tables above contain details of these funds. Both platforms reckon that even if defaults doubled, they’d still have enough money in reserve to pay for any losses. If defaults went up five fold, there may be some loss of interest.
Each platform has also developed fairly detailed plans to make sure that if they – the online marketplaces – go bust, you’ll still have your loans in your name. In this extreme example, an appointed specialist will wind down the loan book, collect your interest and make sure your loan is repaid.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at ncfacanada.org.
The threat that is alternative lending is no more, according to a new report by Deloitte. The firm published a paper on the marketplace lending industry this week following a rocky month for the sector — the sudden exit of Lending Club’s CEO sent stocks tumbling. Soon after, the U.S. Treasury released its anticipated analysis on the alternative lending space, concluding the industry would benefit from heightened scrutiny and increased regulation.
What was once a disruptive behemoth ready to take on the big banks by filling in funding gaps left in the wake of the 2008 financial crisis has now been diminished, for some, to an industry in way over its head.
“We do not believe that the banking model will be fully disrupted by MPLs,” the report concluded, referencing marketplace lenders. “Based on our market sizing analysis, MPLs will not be significant players in terms of overall volume or market share.”
It’s a harsh prediction but a timely one, as doubts continue to surface about the resilience of the alternative lending space. But that doesn’t mean MPLs don’t have a future in the global economy, the report noted.
Nothing To Fear
For marketplace lenders to be truly disruptive, Deloitte said, they need to provide benefits for borrowers and lenders that cannot be offered by traditional banks. Analysts explored this possibility through a joint study with YouGov, with researchers examining how small businesses and industry players feel about the competitive advantages of MPLs over banks.
“Based on this research, Deloitte draws the conclusion that MPLs do not have a sufficiently material source of competitive advantage to threaten banks’ mainstream retail and commercial lending and deposit-gathering businesses,” the report declared.
Critical to this conclusion is the finding that banks have the resources to underprice their alternative lending competitors should they feel threatened by any loss of market share.
Banks’ cost-of-funds advantages outweigh the operating cost advantages of online lenders, researchers found. Further, while borrowers enjoy the speed and convenience of alternative lending platforms, financial institutions have the resources to eventually provide the kind of lending experience borrowers enjoy with MPLs.
And, in the U.K. at least, without MPL investments being federally insured by the Financial Services Compensation Scheme, investors are broadly aware of the risks, and borrowers will face the residual high cost of finance compared to traditional lenders.
MPLs React
Some marketplace lenders are fighting back against the conclusions drawn within the Deloitte paper.
“Having invented peer-to-peer lending 11 years ago, I have a rather different view of the future of financial services,” said Zopa Founder and Executive Chairman Giles Andrews in an interview with Business Insider. “I think we will increasingly see consumers voting with their feet, or more likely their phones, and seeking out best-in-class products and services based on where they can get the best value and also the best experience. They will look for products that are easy to understand and great technology solutions that make their life easier. I don’t think banks can begin to keep pace with that.”
“Many of the conclusions in the Deloitte report depend on assumptions which do not reflect the development of peer-to-peer lending to date,” stated a spokesperson for industry group Peer-to-Peer Finance Association, which represents firms like Funding Circle and MarketInvoice, in another interview with the outlet.
“Deloitte’s report appears to misunderstand how peer-to-peer lending works when it claims high rates will deter businesses from turning to alternative finance,” said the founder and chairman of MPL ThinCats, Kevin Caley, according to reports in Crowdfund Insider. “Rates of lending and borrowing are dictated by supply and demand, so if businesses are no longer willing to pay them, the market dictates that they will fail. Since its relatively recent inception, peer-to-peer lending has offered an alternative and often more accessible route to much-needed funding, benefiting thousands of small and medium-sized businesses.”
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at ncfacanada.org.
A friend who recently started his own business couldn’t obtain a mortgage from three banks. I suggested he try marketplace lending platforms like SoFi to take advantage of the ongoing innovation in fintech. However, SoFi turned him down, as well, because it abides by the same underwriting rules as traditional banks. Like the banks, SoFi sells their mortgage loans to Fannie Mae.
On the surface this is counter-intuitive to the firm’s “Don’t bank, SoFi” slogan; but in reality, there is already a bank behind every online lending platform. The ability to secure broad funding sources for mortgages originated on these platforms is brilliant and, in fact, essential. I have had tremendous respect for Mike Cagney since we were back at Stanford Business School, and I am not surprised to see that SoFi continues to stay ahead of the curve on this matter.
With recent news from OnDeck and Lending Club, the media naturally starts to question if marketplace lending is approaching its end. Such a conclusion might be premature for a space that has, according to Morgan Stanley doubled every year since 2010 and is expected to grow to $1 trillion by 2025, as indicated by Foundation Capital.
The online originators that can cross the chasm to attract mainstream lenders will be able to participate in the predicted growth. By mainstream, I mean the broad distribution of loans to the $20 trillion wealth management market, where Totum has begun to provide differentiated risk analytics and digital engagement.
For example, Fannie Mae is a mainstream distribution channel. If you hold a total return core fixed income fund in your 401(k), you likely have some exposure to Fannie Mae mortgage-backed securities. Yes, you might be investing in a fraction of your own and your neighbors’ mortgages!
Platforms’ pain point: The cost of doing business
The challenge facing the origination platforms today is not the platforms’ ability to originate loans. In fact, stricter capital requirements and scrutiny over high-risk lending for banks will continue to shift origination activities from banks to non-banks, according to a Goldman Sachs report, “The Future of Finance, Part I: The rise of the new Shadow Bank.”
The issue is the cost of funding.
Even though securities are easier to access than loans, to a mainstream investor, this approach can still appear complex and not transparent.
The profitability metric of a lending business is simple: The net interest margin. It is the interest rate at which it lends, net of defaults and recovery, minus the interest rate for which it borrows.
Banks today are able to lend out money borrowed at close-to-zero percent deposit rates. For a marketplace lending platform, the depositors’ equivalents are hedge funds, as well as institutions that securitize and re-sell the loans. We know that hedge funds don’t charge 2/20 for close-to-zero percent returns.
Opportunity for the platforms: broad demand for income products
Around the world, the demand for income products is actually broad-based and an important secular trend driven by aging demographics. As a point of reference, the global fixed income market is about 100 trillion dollars, of which the United States comprises one-third.
Investors ranging from common retirees, high net worth individuals and family offices to pension and endowment funds are all receptive of investment products that offer a high and steady payout, low volatility, low correlation to equities and limited sensitivity to interest rate movements (i.e. short duration).
Online originated loans possess these very desirable features. To get these benefits, investors bear the credit risk.
Investors’ pain point: The drawbacks of existing investment options
There are mainly three ways to invest in this asset class:
Individual lenders invest directly on the platform. These investors tend to be early adopters who have prior experience investing in credit. They are often taking on non-diversified credit risks of single loans.
Institutions buy an unsecuritized loan pool. Hedge funds apply skilled teams and sophisticated analytical tools like MonJa to pick and trade loans from a pool. We learned from wealth management institutions that allocate the pools into their high net worth accounts that in some cases interest rates have been lower than promised, due to unexpected pick-up in defaults.
If the loan pools are giving even the sophisticated investors a poor experience, then the common retail investors are a galaxy away from feeling comfortable to touch this asset class.
Institutions securitize a pool of loan and re-sell the securities. In theory, this approach is supposed to lower the funding cost of funding by removing the default risk of the originator via a bankruptcy-remote vehicle. It would redistribute the risks to tranches that bear less risk and a lower interest rate, as well as riskier tranches that offer higher returns.
Even though securities are easier to access than loans, to a mainstream investor, this approach can still appear complex and not transparent. The outcome depends on how the securitization prices risk. The securitizations prior to the Global Financial Crisis created too many AAA bonds from subprime underlying.
The platforms today are experiencing the opposite issue. At LendIt, Prosper’s president Ron Suber voiced that Citigroup over-estimated the risk of the loans and hence demanded a higher interest rate spread.
Besides the possible disagreement in the securitization models, the securitization channel is starting to freeze. Citigroup has stopped securitizing the loans from Prosper. Goldman Sachs and Jefferies recently stopped buying loan pools from Lending Club. I hope these are just temporary pauses.
The first two options are not particularly scalable. And if the securitization model stops working, the origination platforms need to broaden their lender base in order to distribute the loan “inventory” that they warehouse on borrowed capital.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at ncfacanada.org.
Study will examine innovation in the Canadian financial services sector
May 19, 2016 — OTTAWA, ON — Competition BureauThe Competition Bureau launched a market study into technology‑led innovation in the Canadian financial services (FinTech) sector today.FinTech companies are using technology to change the way that Canadians consume financial services, such as making payments or transfers, investing and borrowing funds. At the touch of a screen on your tablet or smartphone, FinTech innovation can reduce costs and facilitate direct transactions without the need for intermediaries. These innovations provide more choice by unbundling existing products and services and introducing new ones: they can result in more efficient services, lower fees and greater savings for Canadians.The FinTech sector is evolving rapidly as new products and services are being unveiled and the number of start‑ups entering the industry grows. FinTech has the potential to disrupt the financial services sector, spur innovation and generate benefits for individuals and companies across Canada.The Bureau’s market study will focus on how innovation is affecting the way consumers and businesses use financial products and services. The study will explore the competitive impact that FinTech is having on the industry, barriers to entry faced by companies, and whether there is a need for regulatory reform to promote greater competition while maintaining consumer confidence in the sector.
In 2014, the financial services sector accounted for approximately 10% of Canada’s gross domestic product. The banking sector alone employs over 280,000 Canadians.
The study will examine peer‑to‑peer banking, e‑wallets, mobile wallets, mobile payments, crowdfunding and online‑based financial advisory services.
As part of its mandate, the Bureau participates in a wide range of activities to promote and advocate the benefits of a competitive marketplace.
Greater competition leads to innovation that can result in lower prices and increased choice for consumers.
Lendix, the lending marketplace that recently become number 1 in SME marketplace lending in France, announced that it has acquired crowdlending platform Finsquare. This first instance of consolidation in the French market certainly is not the last. This acquisition illustrates four trends and issues in crowdfunding and alternative finance at large that are of relevance well beyond the French market.
Crowdfunding is Too Crowded on the Offer Side
A consolidation in the French market does not come as a surprise. The French market numbers no less than 74 firms officially registered as “Intermédiaire en Financement Participatif (IFP)”, the legal status of accredited crowdlenders. After favorable regulations were issued in October 2014, many entrepreneurs rushed to join the crowdfunding fray, most of them with the intention to launch a crowdlending platform targeting small and medium enterprises (SME) as borrowers.
Since then, the French crowdlending market has grown at a nice 100+% per annum. But the bulk of the $198 funding raised by crowdlending in 2015 went to P2P lending by Prêt d’Union. The remaining SME crowdlending volume is not sufficient to sustain the influx of new platforms.
Quite a few platforms have given up before becoming active, and around 10 gave up their license. The market remains almost exclusively concentrated on fewer than 10 players: Lendix, Unilend, Lendopolis, (formerly) Finsquare, Lendosphere, Credit.fr, Prexem, Bolden and PretUp. Even for those, building a critical mass of business is far from easy.
French SMEs, especially the performing ones that have a good relationship with their bank, remain largely unaware of or oblivious to the financing opportunities presented by crowdfunding. The crowdfunding market may be crowded on the offer side, but it still is immature on the demand side. Much evangelization is still needed.
We can safely assume that the situation is similar in other Continental European markets such as Germany, Italy and Spain. National and international consolidation looms.
Alternative Finance is Run by Experienced Bankers
The contrast between the management of the acquiring firm Lendix and that of the acquired firm Finsquare also gives much food for thought about the evolution of crowdfunding.
Launched hardly two years ago, Finsquare was a crowdlending platform specialized in short-term loans to SMEs, with a term of under 18 months. The company’s founder and managers Polexandre Joly and Adrien Wiart are two talented executives with solid experience in eCommerce, marketing, sales and strategy, but not originally specialized in finance. Finsquare cultivated a lively style of communication that attracted a small but vibrant community of 3,500 retail investors. Not enough, though, to convince their own investors to further fund the platform’s growth. The platform was running out of cash. The founders decided to give up and refocus on a somewhat more classical, marketing and sales-oriented loan broker business GoCreditPro.
Lendix, by contrast, was founded and is now managed by veterans of the finance world with decades of experience in multiple areas of finance including venture capital and private equity (Olivier Goy, founder and CEO), trading and investment banking (Patrick de Nonneville, COO) and retail banking (Pascal Ouvrard, Bus. Dev.).
This level of financial expertise, when combined with Web and alternative finance knowhow, creates a serious barrier to entry for newcomers. Hopefully, it won’t stifle innovation.
Institutional Investors Dominate Retail Investors
In their announcement of the acquisition, Lendix and Finsquare stressed the complementarity of their firms’ offerings: Lendix focuses on mid-term loans of an average term of 40 months while Finsquare was targeting short-term loans. However, Finsquare retail investors will experience more changes than loan maturity after the acquisition of the platform by Lendix.
Finsquare was geared for the active participation of retail investors who, among other interactions, were collectively determining the interest rate of SME loans through an online bidding process of reverse auction.
Lendix, by contrast, has built its rapid success on designing a marketplace suited to meet the needs of institutional investors, family offices and accredited investors. The crowd plays no role in vetting SME candidates or in setting the loan’s interest rate. Neither the bidding nor the “all or nothing” rule apply. The SMEs selected and scored by Lendix analysts are guaranteed to receive 100% of the loan they requested. Institutional investors (in the loose sense of the phrase, i.e. including family offices and other non-retail investors) will fund the first 51% of every loan vetted, as well as whatever remains to be financed after the project has been funded by retail investors on the platform.
As a result, non-accredited retail investors represent only 13% of the nearly €19 million raised by Lendix to date. Individual accredited investors account for 16%, family offices and institutional investors make up the remainder.
One could argue that there is very little “crowd” in this type of marketplace lending. But one should also bear in mind that the crowd of retail investors often perceives it as an advantage to co-invest with institutional investors, to have direct access to their resources and investment strategies, and this with minimal effort.
The notion of crowdfunding has become quite elastic. But semantic discussions and casuistry that seek to define clear boundaries between was is and is not crowdfunding will struggle to live up to the fast-changing pace in the field. Realities are blurred. Crowdfunding platforms cannot anymore dispense of institutional investor support to thrive. Crowdlenders that reach a sufficient volume of business do meet retail investors’ demands by offering automated allocation features that make them look more like funds.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
HYPER-PERSONALIZED LENDING AND FUTURE PERSONAL FINANCE MANAGEMENT.
CALGARY, Alberta, April 11, 2016 (GLOBE NEWSWIRE) — LendingArch, an emerging Canadian FinTech company, today announced the official launch of its online lending platform – Lendingarch.ca. Developed with proprietary underwriting and behavioral technology, LendingArch.ca provides customized, affordable loan options and financial advancement to Canadians.
Female Founder and CEO Arti Modi is the company’s visionary leader. “We created LendingArch to revolutionize the financial service space and bridge the gap. We are a customer-centric platform that not only provides you with better options than the current financial eco-system, but also one that helps improve your financial health long-term. We are helping people re-imagine their financial future. If you are raising a family, consolidating debt, paying off your credit cards or a millennial looking to plan your future post-college, LendingArch is the solution for you.”
As the world continues to embrace new technology and evolve rapidly, LendingArch will appeal to everyone because its approach humanizes the lending process with behavioral questions and data science that sees you as more than just a credit score. LendingArch is re-inventing the lending wheel by putting the consumer first and by providing financial options to those who need help, but may lack extensive credit history or have experienced life hardships.
At the forefront of this disruptive, game-changing platform are millennials, who continue to grow more dissatisfied with the banks failure to look beyond credit scores and payment history. The lending criteria for millennials could consist of educational level completed, areas of study, academic performance and work history to create a model based on “character” and lending options. For small business owners, prior work history and future plans may account more heavily in the approval process than total assets. What you did yesterday is important, but what you do tomorrow matters even more to LendingArch.
Modi continued, “A modern financial lender like LendingArch sees the customer as more than just a series of numbers – we invest in the person not the loan. As a result, we are taking aim at a half-a-trillion-dollar Canadian consumer debt problem, and evolving an antiquated borrowing system by blending new technology in real-time, with non-traditional data, and creating a hyper-personalized customer service platform that values people’s future potential. This all leads to lower rates, personalized finance products and transparency that especially put our customers’ needs first.”
To find out how LendingArch’s seamless application process can help you with financial advancement, browse our platform www.lendingarch.ca.
About LendingArch
We want people to live in a world where they can thrive. We want people to know banks are not the only ones lending. We are a digital finance platform and we are giving ordinary people like us, the extraordinary opportunity for financial advancement. LendingArch.ca is a marketplace lending platform that rewards financially responsible Canadians with hyper-personalized, affordable loan options. Devised for a genesis of new thinking consumers, LendingArch is humanizing the financial eco-system and creating innovative financial health programmes driven by non-traditional data. LendingArch was founded by an ensemble of global entrepreneurs, investment architects and is spearheaded by a team of expert millennials in the financial technology space. For more intel, please visit www.lendingarch.ca. You can also follow us @lendingarch.
LendingArch products and services are provided or offered by subsidiaries and affiliates of LendingArch under the LendingArch trademark.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Dramatic Increase in Funding as FinTech Companies Target Unmet Demand and Continue to Disrupt the Financial Services Industry
NEW YORK, April 11, 2016 /PRNewswire/ -- The online alternative finance market, including crowdfunding and peer-to-peer lending, is exploding in the U.S., generating more than $36 billion in funding in 2015, up from $11 billion in 2014, according to a new report published by KPMG, the Cambridge Centre for Alternative Finance and the Polsky Center at the Chicago Booth School of Business.
"The emergence of new FinTech companies will continue to transform the financial services sector," said Fiona Grandi, National Leader for FinTech, KPMG LLP. "The pace of disruption is sure to accelerate, forging the need and appetite for collaboration among incumbents and non-bank innovators."
BreakingNew Ground: The Americas Alternative Finance Benchmarking Report analyzed online alternative finance activity across the Americas. Among its key findings is that financial, financial innovations and the technologies that enable them have exploded by 9x in just two years, from a total market size of $4.5 billion in 2013 to $36.5 billion in 2015 – the U.S. makes up 99 percent of that.
When analyzing the various funding models, the report found that marketplace/P2P consumer lending is the largest market segment in the U.S., responsible for more than $25 billion in 2015 and a total of $36 billion from 2013-2015. U.S. Businesses are also increasingly tapping into alternative finance to the tune of $6.8 billion in 2015 alone, which is significant when comparing the total for 2013 and 2014 of $10 billion.
Between 2013 and 2015, U.S. online alternative finance platforms have provided $52 billion in funding to individuals and businesses, according to the report. During that same time, these platforms facilitated roughly $11 billion of capital into 270,000 small and medium sized enterprises. In addition to consumer and business funding, the report also found that real estate models are scaling rapidly, generating nearly $1.3 billion in 2015.
The report points to several game-changing drivers of transformation that are impacting the banking industry, including the following:
Speed: Using algorithmic technology, credit decisions and underwriting takes minutes, not days.
Transparency: Investors and borrowers alike gain visibility into the loan portfolios, including risks and rewards.
Customer-centric: Platforms bring the "brick and mortar" branch into the on-demand and mobile application generation.
4,. Data: Platforms have re-engineered the definition of credit worthiness. FICO may still be a factor, but it's no longer the only factor.
Grandi added: "These changes are permanent benchmarks that banks must now rise up to meet. You may argue whether today's unicorns will be here tomorrow; however, the shift towards the digital bank is indisputable."
Report Highlights via University of Cambridge:
Market size & growth
In 2015, the Americas online alternative finance industry grew to $36.49 billion, a 212 per cent annual increase from the $11.68 billion in 2014. Between 2013 and 2015, alternative finance platforms across the Americas have delivered over $50 billion in funding to individuals and businesses, with the US market contributing 99 per cent of the total funding volume. With $36.17 billion in total transaction volume in 2015, the US is the world's second largest online alternative finance market behind Mainland China. The US has the highest total online alternative finance market volume per capita in the world at $113.43 in 2015 (China's per capita volume is $74.54), far higher than the $5.82 achieved in Canada - the second highest in the Americas region. The Latin American and the Caribbean regional market is small in comparison, but it achieved a 130 per cent average growth rate over the last three years to reach $110.46 million in 2015, with Chile accounting for nearly half of that total.
Prevailing online alternative finance models in 2015
Marketplace/P2P consumer lending is the largest market segment in the Americas, with $25.74 billion accrued in 2015. Balance sheet consumer lending is in second place with $3.09 billion, followed by marketplace/P2P business lending at $2.62 billion in 2015. Reward-based crowdfunding reached $658.37 million in 2015, narrowly beating equity-based crowdfunding which registered $598.05 million in the Americas.
Already developed in the US, real estate alternative financing models (including real estate crowdfunding and marketplace/P2P lending) have generated just over $1.26 billion in the US for 2015. Real estate crowdfunding is also a fast-growing segment of the Latin American and the Caribbean market, generating $14.86 million of transaction volume in 2015 and a total of $19.37 million between 2013 and 2015. Across the Americas, the marketplace/P2P real estate lending model grew at a rate of 471 per cent over the three-year period.
Businesses are Increasingly tapping alternative finance
In the US, between 2013 and 2015, online alternative finance platforms have facilitated over $10.81 billion worth of growth, expansion, working and venture capital to 268,524 small and medium enterprises (SMEs). In 2015 alone, online alternative business funding reached $6.88 billion in the US. In Latin America and the Caribbean, thanks to prevailing models such as marketplace/P2P business lending, over $120 million of business funding was facilitated by online alternative finance platforms over the last three years. In 2015, online alternative business lending reached $5.61 billion, which is equivalent to 1.26 per cent of all business lending from traditional sources in the US.
Entrenched institutionalisation in the US market
Between 2013 and 2015, over 72 per cent of marketplace/P2P business loans and 53 per cent of marketplace/P2P consumer loans were funded by institutional investors via online alternative finance platforms in the US. Furthermore, almost 83 per cent of the invoice trading model and 74 per cent of marketplace/P2P real estate loans were also funded by institutional investors, typically including mutual funds, pension funds, hedge funds, family offices, asset management firms and traditional banks. This level of institutionalisation stands in contrast to the UK market, where funding is primarily provided by retail investors. The dominance of retail investors relative to institutional investors on Latin American and Caribbean platforms, however, is very similar to the UK market.
Women seem to be dominating both the funding and fundraising sides of donation-based and reward-based crowdfunding models, representing approximately 60 per cent of these marketplaces on average. Around 42 per cent of the consumer borrowers and 24 per cent of the SME borrowers on marketplace/ P2P lending platforms are women. In contrast, our data suggests that 20 per cent of the lenders on marketplace/P2P consumer lending platforms and 9 per cent of lenders on marketplace/P2P business lending platforms are women. Women appear to be less engaged in equity-based crowdfunding, given only 12 per cent of the fundraisers and 13 per cent of investors in this segment are women.
No consensus on regulation
According to the survey, 51 per cent of US lending platforms and 43 per cent of equity platforms consider current regulations "adequate and appropriate". However, 34 per cent of equity platforms and 15 per cent of lending platforms see current regulation as too strict or excessive. 40 per cent of lending platforms and 49 per cent of equity platforms in the US, favor the new regulations proposed by the SEC, while around a third of both debt and equity platforms perceive proposed regulations negatively. In Latin America, over three quarters of surveyed platforms perceive there to be no specific regulations in their respective countries.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
A friend who recently started his own business couldn’t obtain a mortgage from three banks. I suggested he try marketplace lending platforms like 
2014. Between 2013 and 2015, alternative finance platforms across the Americas have delivered over $50 billion in funding to individuals and businesses, with the US market contributing 99 per cent of the total funding volume. With $36.17 billion in total transaction volume in 2015, the US is the world's second largest online alternative finance market behind Mainland China. The US has the highest total online alternative finance market volume per capita in the world at $113.43 in 2015 (China's per capita volume is $74.54), far higher than the $5.82 achieved in Canada - the second highest in the Americas region. The Latin American and the Caribbean regional market is small in comparison, but it achieved a 130 per cent average growth rate over the last three years to reach $110.46 million in 2015, with Chile accounting for nearly half of that total.
