The UK Industry started in early to mid 2005 whilst the first platform did not open for business elsewhere in Europe until mid 2007 (Auxmoney in Germany). The UK industry has broadly kept this 2.25yr headstart, as can be seen from the graph below.
Volume Calendar Year
Cumulative Volume (£m)
Liberum AltFi Volume Index:UK
Liberum AltFi Volume Index: Europe
In absolute terms, the UK peer to peer lending industry is much further ahead of the rest of Europe with over 5.5 times the volume transacted. Growth in the UK has been more rapid in recent years too – between 2012 and 2014 the UK industry saw a seven fold increase in volume compared to a five fold increase in Europe.
Whilst the volume levels for the rest of Europe have been increasing impressively since 2012, origination in 2014 represented little over 16% of that of the UK. The graph below charts the UK vs European industry growth, plotting origination volume against years since industry inception in the respective geographies. The origination volumes of the UK and the European industries track each other surprisingly closely in the early years with Europe beginning to deviate away from the UK path recently. Perhaps as a result of the larger potential market size within Europe compared to the UK or today's increased awareness of alternative finance globally.
Between years 7 and 9 in the UK industry, it can be seen in the chart below that the industry really began to take off. If the industry in the rest of Europe follows that same pattern, we may be about to see some explosive growth.
The peer to peer lending industry grew rapidly both in the UK and the rest of Europe, with the UK recording higher growth rates consistently since 2012. As discussed below, the UK has seen more innovation and has a more diverse set of platforms. This is one reason why the UK industry has grown faster and continues to do so. Innovation and product diversity is beginning to increase in Europe, however, and it will be interesting to track whether this translates into an increased rate of growth.
Rest of Europe
Technology, regulation and government support are all key ingredients for the success of this a new era of digital finance. Whilst we can assume similar accessibility to technology across peer to peer platform geographies, regulatory and government support has varied. Perhaps this is the reason why the UK has industry has grown faster than the rest of Europe?
A number of UK government initiatives and legislative changes have provided support to the UK Alternative Finance industry. For example, the British Business Bank, a UK government led enterprise, is working with the industry to increase the supply of credit to SMEs as well as providing business advice. Peer to Peer ISA inclusion in the UK is planned and, although exact details have yet to be revealed following a consultation period, the proposal will undoubtedly bring a wall of investor money to the industry. Moreover, George Osborne, Chancellor of the Exchequer, announced in his 2014 autumn statement a new type of tax relief allowing retail investors to offset any losses incurred through bad debt against other P2P income.
Platforms in the UK are also FCA regulated, a boost for consumer confidence in this nascent industry. The enthusiastic state support for the UK’s industry, combined with proactive and supportive regulation, is providing investors and borrowers with the assurance of the longevity of alternative finance, promoting phenomenal growth.
Comparing the sector compositions of the UK industry vs the rest of Europe, its clear that business lending forms a much greater portion of the UK industry. This could be a function of the early stage of the European industry as the UK industry was much heavier weighted towards consumer lending in its early years. However, the US industry which is arguably the most developed in the world, is still made up of majority consumer lending.
AltFi Data tracks market share in both the UK and wider European peer to peer markets. The charts above illustrate the market share of the top 5 platforms in 2014 for both markets. The top 5 UK platforms represent 75% of the market collectively whilst in the rest of Europe this figure is much higher at almost 85%. This indicates a lack of competition in the European industry, particularly when one considers that the majority of platforms only operate in one country.