The AltFi Frontline: The Reflective Phase

It’s been a month of reflection for the alternative finance industry – full of debate over definitions and research into where the sector stands in the minds of the public. We’ve even seen research suggesting that alternative finance could be entering a period of consolidation in terms of the rate of emerging platforms.

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Meanwhile, the incumbent platforms continue their rapid expansion. A report from The Crowd Data Center recently revealed the global crowdfunding sector to be doubling in size every month.

In an effort to stay abreast of all the developments within this exciting space, I’ll be exploring the follow points:

  • Will other continental platforms follow Bondora’s example?

  • A trend emerges among platforms old and new.

  • What makes SMEs turn to alternative finance providers?

  • Where do crowdfunding platforms turn when crowdfunding themselves?

Will European platforms flock to FCA regulation?

The FCA’s regulatory approach in the UK has been the subject of a lot of back and forth within the sector. Opinions vary greatly as to whether the regime is doing too much or too little. Count Christian Faes, Co-Founder of LendInvest, among those who believe that more could be done:

“If the industry wants to be taken seriously, there needs to be requirements for platforms to conduct adequate due diligence on a borrower. As it stands, there is a gaping hole in the regulation and we fear it will not protect the public from loan defaults in the peer-to-peer sector.”

But regardless of how regulation might be improved, the various UK platforms are certainly better off with the FCA rules in place than without them. Bondora – the largest cross-border European peer-to-peer platform, formerly known as isePankur – became the first continental platform to come under the FCA’s remit in early May. Pärtel Tomberg, CEO of Bondora, commented:

“The authorisation and regulation are good news for our customers across Europe.

“We are likely the only peer lender outside of UK who obtained this authorisation and this type of regulation is something that we have been looking forward to for a number of years.”

Bondora had operated previously without a specific license – owing purely to the fact that a suitable regulatory body did not exist. That the FCA regime – so hotly debated in the UK – is being sought after by a platform from far-off Estonia speaks volumes about the value of regulation and the quality of the FCA’s system. Will more continental platforms soon follow the example of Bondora?

That is not to say, however, that there is no room for improvement. The value of a more effective regulatory system was emphasized when the recent survey commissioned by Wellesley & Co. revealed that:

  • 34% of those currently invested in peer-to-peer lending would be more likely to increase that investment if there was clearer regulation of the industry.

  • Clearer regulation (19%) and better interest rates (21%) were key factors in attracting investment from those who don’t currently use peer-to-peer platforms.

The drive for a more holistic approach

Various platforms, both young and established, are making a clear effort to provide a more holistic service.

We’re seeing new entrants such as “Funding Tree” and “Crowd For Angels” attempt to deliver both equity and debt options within one platform. The hope will be that by providing equity and debt offerings these platforms will retain the custom of SMEs throughout multiple phases of their business lifecycles.

Hubbub, which previously provided white-label, rewards-based crowdfunding platforms for UK universities, has partnered with Crowdcube in order to enable equity crowdfunding to take place via its platforms as well.

A broadened focus could perhaps be equated with a stab at differentiation among new entrants into the market, but the major platforms are also diversifying. Funding Circle – the world’s leading peer-to-business lender – moved into the property lending space in early 2014. Zopa – the original peer-to-peer lending platform – recently added SME lending to its traditional consumer-focused product.

It’s easier for the giants of the p2p space to branch out like this because they already have both a strong brand name and a strong base of loyal investors. So long as the platforms don’t overstretch their capabilities, diversity of this fashion will only serve to quicken their already-breakneck rates of expansion. I expect an increasing number of platforms to attempt to branch out their services in the near future.

Why do SMEs turn to Alternative Finance?

It is often believed that SME borrowers find their way to alternative finance providers only after having been rejected for a bank loan. Certainly, this is the pathway that some businesses tread – thus the recent frenzy over a government-enforced referral system whereby the banks redirect unsuitable SMEs to alternative finance providers. And on that front, be sure not to miss the Queen’s Speech on Wednesday 4th June…

However, some businesses in fact choose to go direct to alternative finance platforms without ever venturing near the banks. This, you might suppose, is due to the superior borrowing rates that the peer-to-peer platforms can provide. But after observing an interview between AltFi Director David Stevenson and Tania Ziegler of Knowledge Peers last week, I’m beginning to believe that speed may be the more powerful driver.

After all, the providers themselves rarely miss an opportunity to emphasize the near immediacy with which businesses can secure funding. It’s always been a major selling point – now it seems it could be the major lure. Ziegler, who is Programme Manager at Knowledge Peers, commented:

"A core issue for many ambitious SMEs is that of speed, a two-fold problem that deals with (1) the decision-making process and predicting outcomes, and (2)the actual speed of receiving funds upon approval. Crowdfunding and P2P lending confront this issue head on. Businesses that have taken advantage of an external facility via a platform were able to access their required finance in record time. When time is money, waiting is not an option."

High praise for Crowdcube

It is particularly telling that so many alternative finance platforms turn to Crowdcube when the need for an equity fundraise arises.

Crowdfunder, eMoneyUnion, Property Moose and Launchpad PLC have all now raised money through the platform. Among these four – the sectors represented are: peer-to-peer lending, rewards-based crowdfunding, equity crowdfunding for property and property “crowdfunding and crowdlending”. The people behind these platforms know the alternative finance space well, and have a clear idea as to what makes a good platform – and doubtless those ideas differ greatly depending on the whether you ask Crowdfunder, eMoneyUnion, etc.

The fact that each platform has used Crowdcube for its own fundraising purposes speaks volumes about the user experience and efficiency that the world’s original equity crowdfunding platform has to offer. 

Companies In This Article

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People In This Article

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David Stevenson

Strategic Advisor

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Christian Faes

CEO and Co-Founder


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