By Charles Tan on Thursday 19 January 2017
If a picture a paints a thousand words, then our friends at Altfi Data must be the modern day equivalent of Shakespeare (if he was into financial data, that is). Just as the Bard’s poems and plays are treasured for their pithy qualities and quotability, the charts below provide a concise and insightful look into the fast growing but poorly understood world of crowdfunding, and alternative finance in general.
Loan Principal Outstanding (£)
Source: AltFi Data
The first chart tracks the loan principal outstanding across the four largest P2P lending platforms in the UK - Funding Circle, RateSetter, Zopa and Market Invoice - which together account for almost three-quarters of the market. The metric is a measure of the size of their “loan books” (although it is important to note here that while we use such banking terms and analogies to help explain things, these lending platforms are fundamentally different from banks).
As the graphic clearly illustrates, the past three years have been a period of very strong growth for the sector, and business has grown six- to seven-fold for market leaders Funding Circle and Zopa in that time.
The cumulative nature of the loan principal metric, however, means that the chart tends to have a more flattering bottom-left-to-top-right tilt. So in order to get a clearer picture of overall momentum within the industry, it is perhaps more useful to refer to the second chart below, which tracks monthly net lending.
As one might expect, net lending (i.e. originations less redemptions), has been positive and gathering pace over time - a clear sign that investors have slowly but surely embraced P2P lending and Crowdfunding as genuine alternatives to conventional forms of finance.
Monthly Net Lending (£)
Source: AltFi Data
However, the blip that should be immediately obvious to everyone is the six-month lull around the EU referendum vote in June 2016. While total net lending remained in positive territory (i.e. the industry was growing overall), volumes halved to an average of c.£40m/mth in the months leading up to and immediately after Brexit (versus c.£80m in the six month period prior).
Nonetheless, as the chart above indicates, volumes have rebounded quickly and strongly, and by November 2016, monthly net lending across the four largest P2P platforms had reached a new record of over £100m. What isn’t obvious from the graphic though, is an interesting and important fact we’ve gleaned from AltFi Data: that while institutional funding was behind much of the growth prior to the Brexit-related blip, retail money is powering the rebound.
This last point, in our opinion, is both encouraging and crucial to the longer term outlook for not just P2P lending but the broader Crowdfunding industry. The increasing involvement of individual investors lends weight to the argument that ours is an industry truly seeking to democratise and disintermediate, rather than being just another instrument of entrenched institutions seeking avenues for regulatory arbitrage.
As these novel forms of alternative finance gain mainstream acceptance and the size of the industry expands exponentially, they will invariably attract greater scrutiny and criticism, and not just from the regulators. The appropriate response, in our opinion, is clear - more transparency, not less - and this is where the work of a company like AltFi Data to provide independent, third-party standardised data/analytics for (and about) the sector is invaluable. For those with nothing to hide, greater transparency is a win-win proposition: giving individuals the tools and information to improve their risk-adjusted returns, and giving platforms such as ours the credibility and accountability to attract serious investment from serious investors.
Even as we look ahead to a 2017 fraught with economic and political uncertainty, the outlook for crowdfunding, to me, is undoubtedly one of growth. And even more exciting is the prospect that in the “Information Age” of today, data will no longer just chronicle the rise of our industry, but be a key driver of it. That is why Property Crowd, and our parent company Global Alternatives, have made data a core part of our business and are working with partners such as AltFi Data to improve standards across the sector.
The King is dead data, long live The King!