As AltFinance News recently reported, we’ve now passed £1.5bn of loans in the UK - all of this before the impact of ISAs (anticipated to be the end of 2014 at the earliest) institutional money and much larger loans for larger businesses, which will naturally occur as the market gains scale. In the US, the institutional market is well-developed so it’s more than conceivable for the UK market to double in size again by the end of 2014 or the early part of 2015 – a growth curve that demands attention.
rebuildingsociety.com is speaking to innovators from all over the world (the current sales pipeline covers 5 continents!) who are looking to take first-mover advantage in untapped markets. Being a UK platform certainly holds kudos, in a very young market there is a sense of ‘been there and done that’ which appeals to would-be platform operators. The recent FCA regulation also works in our favour by demonstrating that we can incorporate stringent legal requirements – I’m sure others in the market who speak abroad encounter similar sentiments.
Although the strong growth of the market as a whole is a good story, what we’re starting to see as a provider of white-labelled software, is a number of people looking at specific niches in the market, resulting in a land grab there.
There’s probably not much more space in the generic peer-to-peer market in the UK, with the space dominated by a few established players. Competing there is not out of the question for a new entrant, but would take a lot of up-front investment, with the end returns uncertain. We’re certainly past the early adopter advantage stage for broadly positioned platforms, so it’s really now about having the best product, customer service or technology as competition is getting fierce.
At rebuildingsociety, we decided to play to our strengths, as Dan Rajkumar the MD is a technologist, and branch out into white labelled platforms. I would expect other challenger brands in the UK market to differentiate more to appeal to customers.
However, we’re now seeing more hybrid products, platforms that straddle jurisdictions and lending to prime, rather than super-prime, borrowers through the use of guarantor platforms or quasi-payday where short term loans are available at much more affordable rates than the eye-watering APRs of the past few years, thanks largely to new regulations. There’s probably an appetite for personal asset-backed lending (as brands like Borro have proved) among investors and for more flexible products for businesses that can incorporate seasonality or performance-based repayments.
I also believe the social aspect of this market is largely untapped. Again, making the proposition add up for both sides takes careful thought. The platform has costs to pay for too, so no matter how altruistic the intention, costs are costs and shouldn’t outweigh the benefits of being the administrator or a contributor. The Royal Academy is looking at crowdfunding in a big way because it already has a userbase of people with a proven interest in the arts. It could be a more effective way for them to harness the wealth and interest of its patrons, while giving them freedom over their donations.
Making the numbers work
One area of the market that has been generating a lot of interest is the green economy, but I'm not sure anyone has cracked the commercials there yet. Building a green energy platform would be a relatively straightforward project given our experience of launching multiple other platforms, but despite lots of enquiries, we have yet to see someone instigate a launch. Barriers like platform income, the longevity of Government incentives and the length of the investment are proving to be tricky to balance with the cost of developing and marketing a platform.
This is not a margin-rich sector in the main and we feel it will be the determining factor when the market begins to see more attrition, which a recent publication by Knowledge Peers confirmed is already underway.
It’s hardly surprising that there are winners and losers even at this early stage, but there seem certain to be more winners than losers in a market growing and splintering at the rate of the alternative finance space.