By Sukhwinder Shoker on Monday 22 February 2016
The growth in UK Alternative Finance, largely fueled by booming Peer to Peer and marketplace lending, continues unabated. The Liberum AltFi Volume Index (UK) registered year on year growth of 75.1% in 2015. Whilst this is still an impressive growth rate, it is down from 142.9% in 2014. AltFi Data predicts percentage growth to fall further in 2016 to 53%. This is understandable – a growth rate of over 100% is unsustainable as the industry matures. In contrast to the UK, origination volume in Continental European, as also tracked by AltFi Data, was up from 97.4% in 2014 to 100.5% in 2015. We predict that 2016 growth will be similar, if not marginally stronger. Early last year, AltFi Data examined growth in marketplace lending in the UK against Continental Europe. At the time we speculated that continental European volumes could be about to take off. We decided to re-visit this analysis.
Figure 1: Cumulative Volume for UK and Continental European Alternative Finance, plotted against elapsed time, since the sector launched (as at April 2015).
Figure 2: Cumulative Volume for UK and Continental European Alternative Finance plotted against elapsed time since the sector launched (as at December 2015).
Both charts show that origination volumes in both the UK and Continental Europe closely track each other in the early years before seeing exponential growth. When we first reviewed the progress of each geography since inception the gap between the two respective markets was widening as the trajectory for Continental Europe appeared to be outstripping the UK industry at the equivalent stage. However that was as good as it got. Since our initial analysis in April last year the rate of growth has stalled as cumulative continental European volumes appear to now be converging with the where the UK industry was at the same point in time.
Since our previous analysis in April 2015, five further platforms have been added to the Liberum AltFi Volume Index (Continental Europe). These are platforms that have either launched within that time or reached the minimum cumulative origination required for index inclusion (currently €1.4m). This further underlines the slowdown in the more established continental European platforms.
The recent Cambridge University-Nesta Alternative Finance report revealed the UK industry’s biggest concern to be risk of the collapse of one or more well-known platforms due to malpractice. Did TrustBuddy’s collapse in the latter half of 2015 have a bigger impact on the less mature continental European market than it did on the UK market? That is one possible explanation for the moderation in Europe's growth trajectory. Alternatively the UK has seen a huge influx of institutional capital that has super-charged volumes. It could be that this capital has not yet explored continental Europe.
Having identified the out-performance of continental European volume’s just as the trend reached its zenith in April perhaps we are the last people who should be invited to speculate. However, we would observe that institutional capital in particular savours transparency and a supportive regulatory back-drop. This could be an equally good explanation for the moderation in growth as arguably Europe needs to catch up on both of these measures.