Many of the platforms also expanded in terms of their product sets – aka. the number of asset classes to which they’re able to offer investors exposure. This phenomenon gripped the platforms at various different points on the maturity spectrum, and it took hold in lots of different sub-sectors within the alternative finance melting pot. Crowdfunders and peer-to-peer lenders alike conjured up new products. Let’s revisit some examples.
Almost every big name in the alternative finance space unveiled some manner of fresh investment opportunity.
In the equity crowdfunding space, Crowdcube rolled out a series of mini-bonds. Seedrs delivered the first equity crowdfunding convertible.SyndicateRoom effectively pre or co-hosted the IPO of Mill Residential REIT on the AIM.
In the peer-to-peer space, towards the end of the year in particular there’s been a lot of buzz about personal pension investing via P2P outfits. ThinCats, Proplend and now rebuildingsociety loans are all investible via SIPPs. Zopa is busily building an alternative, more flexible substitute for the cumbersome annuity. It was in the latter half of 2013 that the platform first began offering small business loans in addition to its bread and butter consumer lending. RateSetterrecently revealed that it has been making loans to a mixture of consumers and businesses and against property.
In the States, Realty Mogul affords investors the chance to invest in property transactions through loans or via equity securities. Lending Club, as we know, kicked off its small business loan offering in March of last year.
And it’s not just the established brands that are at it. The majority of alternative finance newcomers arrive with a niche product of some variety in tow. But 2014 also saw a flurry of very early stage providers hit the scene with a mixture of different investment structures on display.
Take LoanBook, for instance. The Spanish peer-to-business lender which also offers pagarés and lines of credit to the country’s SMEs. Or Investly, from Estonia, which combines both business loan and invoice finance functionalities. Funding Treelaunched in August on a mission to showcase both equity and debt opportunities from a single platform. CrowdShed went live in September with a range of rewards and donations-based projects to fund, but plans are in place for a venture into the debt and equity arenas early on in 2015.
What’s conspicuously lacking is an example from the realm of invoice finance – for now at least. A recent AltFi TV interview with Paul Crayston of MarketInvoice hinted that an example might be forthcoming. When asked if trade finance is on the platform’s radar, he replied:
“Yes it is and, more generally speaking, broadening our product set is very much on the radar. So far we’ve offered essentially one product to businesses and there’s an obvious opportunity to offer more to some of those businesses as they grow and develop.”
Paul hits here on the key driving force behind all this diversity. Platform’s with a single product will often see their customers – whether they be businesses or individuals – quickly outgrowing their need for that product. How do you then retain such customers? One answer might be to assemble an array of financial products capable of catering to a variety of different situations.
Obviously, execution is key – it would not be at all helpful to flaunt every product under the sun if those products were way below par in terms of performance. But if the right infrastructure is in place to back up a healthy range of different services – the attraction from the customer’s point of view is that the platform becomes (and I use this most overcooked of phrases somewhat begrudgingly) a one-stop-shop.
And I return once more to Tonic Capital’s December trade finance round table event. Tonic Capital itself exists in order to help existing providers to implement a fresh facet in the form of a trade finance product. At the event, Paul Mitchell of Evacusafe UK – the single prospective product user amongst a host of providers – indicated that a he’d far prefer a sufficiently hybridized and flexible singular funding portal than having to deal with a number of different niche operators.
Something I wondered in the course of writing this article is how increasingly hybridized platforms might impact upon the efforts of the various aggregation hubs. One of the most fundamental goals for the typical aggregator is to showcase a multitude of platform-sourced products to both investors and borrowers in one, hyper-convenient location. If the individual platforms themselves incorporate a multitude of products – does the aggregator lose its value?
Perhaps a little, but by no means entirely. I believe diversification from the platforms will require increasingly sophisticated aggregation. The more intuitive hubs will continue to serve a purpose. Even if many platforms start to offer many products, those individual products will each be very different in terms of rates, terms, security and so on. The more durable aggregators will be able to rifle through that sort of information at a moment’s notice – conveying it in a simple, and crucially comparable, style.
Multiple product sets are of course also designed to offer investors intra-platform diversification opportunities. There’s no sense in offering, for instance, consumer and business loans from the same site unless you can be confident that investor appetite will meet with borrower demand. Many alternative finance platforms advise investors to spread their funds across many different opportunities as a form of risk management. New types of product allow for a more sophisticated portfolio to be structured – one with a more sweeping mixture of risk, returns, terms, types of borrower, security, and so on.
We’re just 9 days into 2015, but I suspect that the year ahead will contribute to a steady erosion of narrower terms like “peer-to-business lender” and “equity crowdfunder” – as the providers become increasingly all-encompassing.