Alternative finance market set to double in 2015, study finds

The alternative finance market is set to double in size next year, with the sector as a whole set to reach a value of £4.4bn, according to a new study.

Research published today by innovation charity Nesta in conjunction with the University of Cambridge claimed the UK’s alternative finance market – taking in crowdfunding, peer-to-peer lending, and invoice trading – will reach a value of £1.74bn by the end of the year.

With this set to more than double next year, the study indicates growing levels of confidence in a sector that is relatively new, with the majority of providers having been founded in the last five years.

Nesta’s study found peer-to-peer business and consumer lending continued to dominate the market, with £749m and £547m being lent through the models respectively in 2014 out of a total market size of £1.2bn.

Equity crowdfunding also saw a particular boost, with investments totalling £84m in 2014 so far – a 201% increase on last year.

If the figures prove correct, alternative finance will account for the equivalent of 2.4% of total bank lending to small and medium-sized firms by the end of the year, with this proportion set to increase as bank lending continues to fall.

More than half (58%) of UK consumers surveyed in the report said they had heard of a type of alternative finance, with one in seven saying they had used an alternative finance platform to seek, lend or donate funds.

Liam Collins, co-author of the Nesta report, said: “These findings shed light on a growing movement that is revolutionising banking, investing and giving by using technology to simplify the links between those who want to invest money and those who need it. With bank lending to SMEs down again this quarter, it’s no wonder that alternative finance is fast becoming an important source of funding for individuals, businesses and organisations who struggle to access finance elsewhere.

“The UK is leading the way globally, and with significant potential for the market to expand it won’t be long before we see alternative finance moving into the mainstream.”