By Guglielmo de Stefano on 18th January 2016
In past coverage, AltFi has reported that the Australian Alternative Finance industry is at the very start of its journey, perhaps where the UK and US industries were approximately five years ago. Insiders have big expectations for the future growth of this sector, but they admit that in reality significant growth will take some time to materialise.
According to Glenn Hodgeman, – a local expert on marketplace lending – it’s worth putting into perspective that the four Australian banks enjoy a dominant market share in the lending space. He observes that Australia isn’t like the US where there are 260 million people or Europe where they are many countries to target. Australia is a country of only 23 million people (with approximately just 450,000 high net worth individuals) and market awareness needs to be boosted before P2P products really take off.
P2P lending platforms
The UK peer-to-peer lending industry was born ten years ago with the launch of Zopa – the UK’s largest peer-to-peer lending platform – to fill the credit gap banks left behind them after the Global Financial Crisis. Since then, the sector has boomed globally especially in the US and in the UK.
In Australia, the AltFi revolution seems to have started much later, when Matt Symons and Greg Symons founded SocietyOne, the first fully compliant peer-to-peer lending business in the country, in 2012. In the following three-year period a number of other P2P lenders have launched. The main players include:
Equity Crowdfunding platforms
Regulatory framework: P2P Lending
The Australian Securities and Investment Commission (ASIC) mandates that P2P lending platforms must be set up as managed investment schemes. This means that online lenders must have an Australian Financial Services Licence (AFSL) – a licence given by ASIC that allows people or companies to legally carry on a financial services business, including selling, advising or dealing in financial. In addition, platforms must comply with the Corporations Act when they provide their services.
Regulatory Framework: Crowdfunding
The current regulatory framework for equity crowdfunding is much more complicated than for lending. While a number of markets such as the United States, Italy and New Zealand have welcomed the arrival of crowdfunding by quickly regulating the sector, Australia seems to be lagging behind.
In 2012, the ASIC indicated that equity crowdfunding may fall within the framework contained in chapter 6D of the Corporations Act, which is very restrictive and obliges corporations to present significant amounts of documentation in support of fundraising rounds.
However, small businesses and start up companies might also be able to use the 20/2/12 rule for small-scale fundraisings, which is apparently less restrictive for companies that are willing to raise funds of less than $2 million from less than 20 investors over a 12-month period. In addition, the scope of Australian equity crowdfunding is limited to institutional and sophisticated investors i.e those who earn at least $250,000 a year or have $2.5 million in assets.
Many argue that the current equity crowdfunding regulation in Australia is too restrictive and it is likely to choke the sector’s growth. For a more detailed analysis about the regulation of the Australian equity crowdfunding sector, click here.
According to a report recently published by Equitise, small and medium enterprises employ around seven million Australians, produce more than half a trillion dollars in output and make up almost 100% of innovative businesses with expenditures of almost $6 billion each year on research and development. And yet SMEs are experiencing extreme difficulty in accessing new funds to expand their operations.
Alternative finance platforms represent one way of making a dent in the funding gap. The industry genuinely seems to be at a tipping point, but many observers argue that the government needs to act promptly in order to capitalise on this opportunity before being left behind.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.