KPMG | April 11, 2016

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:

1. Speed: Using algorithmic technology, credit decisions and underwriting takes minutes, not days.
2. Transparency: Investors and borrowers alike gain visibility into the loan portfolios, including risks and rewards.
3. 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.

See: The real fintech threat for the Big Six

Real estate models are scaling rapidly

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.

Check out: 2016 Canadian Crowdfunding Directory (Investment marketplaces, Crowdfunding portals and Providers)

Market participation by women is growing

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.

Download "Breaking New Ground" Report --> Now (80 pages)

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