The online alternative finance market almost doubled in 2015 to £3.2bn according to a report from the Cambridge Centre for Alternative Finance and innovation foundation Nesta.
The market's 84 per cent growth slowed from the year before however when it increased a whopping 161 per cent.
“Although the absolute year-on-year growth rate is slowing down,” the report said, “the alternative finance industry still recorded substantive expansion across almost all models.”
A big boost in growth in 2015 came from a rise in institutional investors buying into the market. The report shows that 32 per cent of loans in the peer to peer consumer lending market and 26 per cent of P2P business lending were funded by institutional investors.
Alternative finance platforms have seen a small rise in their share of the market for business finance for the year. It’s estimated that online alternative finance platforms provided the equivalent of over three per cent of all lending to small and medium-sized enterprises in the UK and for companies with a turnover of less than £1m a year, P2P platforms provided an amount lending equivalent of 13 per cent of all new bank loans.
Over the last year the most popular sector for online alternative finance investments and loans was real estate, with the combined debt and equity-based funding for the sector reaching £700m in 2015.
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The latest company to enter the alternative finance real estate market BrickVest today launches its online direct real estate investment platform, teaming up with real estate investment and development firm Thor Equities.
Some are beginning to question the long term sustainability of alternative finance however, partly down to the rapid growth in industry has seen.
“Being part of the financial establishment doesn’t sit well with its original social purpose,” said Warren Mead, global co-lead of fintech at KPMG. “Meanwhile, platform failures within these growing networks are inevitable. So the question is, will the hard won enthusiasm for these platforms start to wane?”
Stian Westlake, Nesta’s Executive Director of Policy & Research said: “As the sector grows and matures it is sure to face challenges - investors will be keen to see returns, and another financial crisis would certainly test the robustness of P2P lending.”