The UK's 'alternative finance' industry is now worth £4.6 billion

Funding CircleFunding Circle’s co-founders, from left, Andrew Mullinger, Samir Desai, and James Meekings.

  • ‘Alternative finance’ sector, made up of peer-to-peer lending and crowdfunding, has grown by 43% over the last year.
  • Business lending is the biggest segment, with 72% of funds going to startups or SMEs.
  • 35 platforms have disappeared over the last year as big players increasingly dominate.

LONDON – The UK’s “alternative finance” industry has grown by 43% over the last year to £4.6 billion, according to a new report from the University of Cambridge.

Alternative finance has grown hugely in the UK over the last decade, spurred by a range of new online platforms such as peer-to-peer lenders Funding Circle and Zopa, and crowdfunding services like Crowdcube and Seedrs. These startups form part of Britain’s booming fintech industry.

The Cambridge Centre for Alternative Finance, which is part of the university’s Judge Business School, released the fourth UK Alternative Finance Industry Report on Friday. It was based on conversations with peer-to-peer lending platforms, crowdfunding platforms, and the investors that use both.

Here’s how the £4.6 billion “altfi” sector breaks down, according to the report:

  • Peer-to-peer business lending: £1.23 billion
  • Peer-to-peer consumer lending: £1.17 billion
  • Peer-to-peer property lending: £1.15 billion
  • Invoice trading: £452 million
  • Equity crowdfunding: £272 million
  • Property crowdfunding: £71 million
  • Reward-based crowdfunding: £48 million.

Almost three quarters of the volume of “alternative finance” raised – £3.3 billion – went to startups and small businesses. The report said that this was a 50% increase on 2015, while 33,000 firms used alternative finance in 2016, compared with 20,000 in 2015.

Bryan Zhang, Executive Director of the Cambridge Centre for Alternative Finance, said in the report: “Online alternative finance has become an ever more established component of the UK financial landscape.

“With equity-based crowdfunding now accounting for 17% of all seed and venture stage equity investment in the UK, and peer-to-peer business lending providing an equivalent of 15% of all new loans lent to small businesses by UK banks, alternative finance has entered the mainstream and is likely here to stay.”

However, despite the growth in volumes, the report found that 35 UK online alternative finance platforms became inactive in 2016 through mergers or closure. The five largest alternative finance platforms accounted for 64% of total market volume.

Chirag Shah, founder and CEO of Nucleus Commercial Finance, told BI a year ago: “there is no room” for the number of platforms in the market. Theresa Burton, the CEO of now-defunct Trillion Fund, said in March: “There are a lot of small peer-to-peer platforms out there like ourselves who I think are going to struggle to get the deal flow needed.”

Zhang said: “As market consolidation accelerates there is greater pressure on alternative finance platforms to distinguish themselves through better services and more innovative products, whilst simultaneously responding to emerging regulatory and supervisory demands.”

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