Australia is emerging as a regional leader in the $300bn global Alt-Fi market. Alternative finance (or Alt-Fi) is a catch-all phrase used to describe emerging, digital financial services models such as peer-to-peer and marketplace lending (business and consumer finance), crowdfunding and invoice lending.
However, for Australia to stay ahead greater consumer and business awareness is needed as well as policy and regulatory settings that continue to evolve with the development of this nascent sector. Globally this market is expanding quickly, up 100 percent year-on-year, with China the dominant world market (in terms of absolute volume), accounting for 85 percent of the total market. A staggering US$243.28 billion was raised through Alt-Fi platforms in China in 2016.
Australia saw $US610 million in Alt-Fi investment in 2016, a 53 percent increase on the year before, leapfrogging Japan to become the second most active centre for alternative finance in Asia-Pacific (behind China). Companies such as Society One, Prospa, Moula, Spotcap, Direct Money, Ratesetter, Equitise and VentureCrowdto name a few, are part of this wave of fintech disrupters contributing to growth in the sector.
Cultivating Growth: The 2nd Asia Pacific Alternative Finance Industry Report * is the most comprehensive study of the sector.
The report has quantified Alt-Fi, highlighting how the overall composition of the sector varies country by country. For example, China and the United States skew towards marketplace and peer-to-peer lending while the United Kingdom sees business lending as the dominant categories by size
In Australia, balance sheet (business) lending is the leading form of alternative finance by volume, jumping 80 percent to US$217.34m in 2016. Peer-to-peer consumer lending is the fastest growing category, increasing 153 percent in 2016 to US$158.23m, while invoice trading also saw growth – up by 24 percent to US$129.91m in 2016.
Behind these figures is a story of digital disruptors bringing new technologies and methodologies to the financial services market. The innovative digitisation of services these platforms offer can lower transaction costs and enhance the convenience for end users. It also increases access to credit for consumer, capital for start-ups and companies and donations for NGOs and other charitable organisations.
Alt-fi is a small fraction of overall credit outstanding in the Australian financial system, but its growth demonstrates it is meeting a clear need.
Playing a key role in the growth in Australia, compared to our regional neighbours, is the regulatory and policy environment. The Australian Securities and Investments Commission (ASIC) have played a proactive role in working with Australia’s fintech ecosystem. In early 2015 it established an Innovation Hub and appointed a Digital Finance Advisory Committee to enhance collaboration with the sector and advise on regulatory issues.
More specifically, ASIC has conducted industry surveys and provided guidance to marketplace lending platforms which can help inform existing new players to the sector. ost people within the industry would agree that a lot of policy work has taken place, However, given the dynamic nature of the sector, there is more yet to be done.
A case in point for Alt-FI in Australia is the equity crowdfunding sector. In 2015, we saw US$50m of investment in this area. In 2016 this had dropped to US$10 mil. At the same time, the much debated, The Corporations Amendment (Crowd-sourced Funding) 2016 bill was passing through parliament. The correlation between uncertainty in legislation and a massive fall in the sector underscores the vulnerabilities that might impede our Alt-Fi market.
Speaking to some of our leading platforms in different areas of alternative finance, 2017 has seen a step change in the sector, with big growth in the first half of the year. If we want Australia to continue as a regional and indeed global player in this fast-emerging financial services sector, we need to work with government and regulators to continue to refine and recalibrate our regulations.
* Research was conducted by a team from the Cambridge Centre for Alternative Finance, the Tsinghua University Graduate School at Shenzhen and the Australian Centre for Financial Studies at Monash Business School, in collaboration with KPMG and with the support of the CME Group Foundation and HNA Capital.