Last month it was the Lending Club debacle, this month it’s Brexit. There is a lot of interest in industry origination volume at the moment. In the month of June, the UK alternative finance industry originated £286.7m of financing, the third largest monthly move in the Liberum AltFi Volume Index on record (just). Compared to the same period last year, there was 32.4% growth, up from 20.1% yoy growth in May. June saw out the second quarter of 2016; the first quarter ever not to be bigger than the last. £840m of financing was originated compared to £911m in the first quarter 2016.

As can be seen from the chart in figure 1, there has been a noticeable slowdown in the growth trajectory of the industry in the past three months. With only seven days between the Brexit vote and the end of the month it is highly likely that little or no impact from the Brexit vote would have fed through into origination volume – indeed, in the last week of June there was no uncharacteristic drop in origination.

Figure 1: UK monthly alternative finance origination volume

We discussed possible reasons for this slowdown in our volume roundup last month:

• The permanent capital vehicles are all but fully deployed and have not raised new capital for 11 months with their share prices at significant discounts to NAV. Therefore, they are no longer turbo charging the sector’s origination growth.
• Wider credit markets are offering better returns than they did 12 months ago, reducing the appeal of marketplace lending to new institutional investors.
• The securitisation market has proven to be much tougher to crack than hoped with just one UK marketplace securitisation deal done to date.
• The Innovative Finance ISA, touted as a means of bringing a new wave of retail money into the sector, has yet to come on stream with platforms having to wait for full FCA authorisation before being able to offer the tax efficient wrapper to investors.
• Potential investor aversion post Lending Club debacle.

We may now need to add Brexit to this list of headwinds for the UK alternative finance industry. Will investors continue to deploy their capital? Will borrowers still be looking to borrow? If an SME was formulating expansion plans that required additional funding 2 weeks ago, might they be reassessing their projections and the business’ ability to repay those funds now? If a consumer was planning to borrow money to buy a new car, might they have a rethink after the Brexit vote? It remains to be seen what impact, if any, Brexit will have on the supply and demand side of the alternative finance equation.

In terms of individual platform performance, two platforms, both business lenders, posted record months: ThinCats (£8.8m) and MoneyThing (£2.8m). Conversely Funding Circle, the UK’s largest marketplace lender for businesses, recorded its worst month in terms of origination volume since May 2015. We talked to Funding Circle to find out what was behind the slow down. Samir Desai, Co-Founder and CEO explained:

“We are constantly looking at ways to improve efficiency on the marketplace and as a result we have been trialing a new pre-acceptance process in June. This allows businesses to access the finance they need to grow even more quickly, and means investors' money works harder, as loans are only listed on the marketplace when the borrower has accepted the rate and agreed to take the loan. The introduction of this new process has delayed a large number of loans completing in June, which we expect to flow through into July.”

So look out for a bumper origination month from Funding Circle in July.

The end of June also marks the end of the first half of the year. It therefore seems like an opportune moment to take a step back and assess how overall industry growth is progressing. For the past three months we have been highlighting slowing growth rates. Monthly year on year growth rates have come down from 50%+ to between 20% and 30%.

At the beginning of the year, we made a series of volume projections.  We forecasted the industry to grow 53% year over year, originating £4.3bn of financing in the process. The slowdown in recent months makes this figure look un-attainable. Based on the current trajectory, we are revising down our growth expectation to 32% year on year growth or £3.7bn of full year origination. The chart in figure 2 below illustrates the change in our projection from the beginning of the year to that of today.

Figure 2: Cumulative UK origination volume with projections made to year end 2016. The grey line is the forecast made in January and the blue dashed line is the forecast as at today.

In January we also broke down our 2016 origination volume projections by individual platform. In the table in figure 3 below we take a look at how those platforms are doing vs our predictions. We performed a similar analysis in June 2015. The platforms in the table are ordered by their H1 origination volume as a percentage of our full year prediction. Those platforms that are at the top of the table have seen their growth trajectory increase in the past 6 months, whilst those platforms that are towards the bottom of the table have seen a slow down in growth.

The dispersion this year is markedly larger with some platforms, such as Lendable, Assetz Capital and FundingSecure having already exceeded our full year predicted volume in the first half. At the other end of the table there are a couple of platforms that are yet to get off the mark. Volumes appear to be behaving less predictably than last year – no surprise given the industry and economic gyrations. The majority of larger platforms, however, are bunched around the index which has achieved 41% of its predicted full year origination so far this year.

Figure 3: A platform breakdown of first half performance vs predicted performance. Volumes are rounded to the nearest million.

For an industry that derives around three quarters of its income from origination fees, origination growth is a vital ingredient for platform viability.  Anaemic origination growth in Q2 2016 is a major cause for concern for the platforms at the bottom of this list.