By Daniel Hunter
The European alternative investment market could be worth more than €7 billion in 2015, according to economic forecasters EY.
Seen until recently as a niche activity, online alternative finance, including equity-based crowdfunding and peer-to-peer business lending, has become a vital and increasingly commonplace source of essential funding for SMEs, start-ups and many other businesses throughout Europe, says the report.
Online alternative finance, comprising platform-based financial transactions outside traditional banking, grew across Europe from €1.21b in 2013 to €2.96b in 2014.
In 2014, €201m of early-stage, growth and working capital funding was provided to European SMEs and start-ups by alternative finance platforms. The volume of online alternative business funding has been growing steadily at around 75% year on year, and the estimated number of start-ups and SMEs funded in this way has been growing at an even faster average rate – 133% over the last three years to around 5,801 SMEs or start-ups in 2014.
Robert Wardrop, Executive Director of the Centre for Alternative Finance at Cambridge Judge, and co-author of the new report, says:
“These new forms of alternative finance are growing quickly, and this growth is beginning to attract institutional investors. Alternative finance, at least in some European countries, is on the cusp of becoming mainstream.”
Andy Baldwin, EY Managing Partner, Europe, Middle East, India and Africa Financial Services, says:
“To date there has been little hard data about the extent of the industry across Europe. This report shows that, while it is still considerably smaller than the industry in the UK, alternative finance on the continent cannot be ignored.”
“The UK market’s success has in part been driven by investors’ search for yield after the Bank of England’s QE program, so it will be interesting to see if the EU’s recent QE program sparks increased activity in Europe. For me some of the most interesting metrics are the rate of adoption in certain markets and models. For example peer-to-peer business lending grew at more than 270% in mainland Europe this year, and Estonia and Sweden have some of the highest volumes per capita. The whole financial services industry should be watching this space with growing interest and this study will provide a valuable benchmark against which to measure future developments.”