• UK alternative finance market to reach £1.74bn by end of the year
• Market predicted to reach £4.4bn in 2015
• Largest alternative finance study, published by Nesta and the University of Cambridge

£1.74bn will have been raised through alternative finance intermediaries – including crowdfunding, peer-to-peer lending and invoice trading – by the end of 2014, shows new research1 published today by Nesta, the UK’s innovation foundation, and the University of Cambridge, with support from PwC and ACCA.

Alternative finance covers a variety of new financing models which connect people seeking funds directly with funders, often via online platforms.  The majority of providers have been founded in the last five years.  Regulation of parts of the industry was introduced by the Financial Conduct Authority (FCA) in April this year, and in October the Treasury launched a consultation on a proposal for an ISA for peer-to-peer lending2.

In the first three quarters of 2014, alternative finance platforms facilitated loans, investments and donations worth £1.2bn, with the amount predicted to reach £1.74bn by the end of the year. The researchers predict the amount will reach £4.4bn in 2015.   

The report shows:

• Peer-to-peer business and consumer lending continued to dominate the market with £749m and £547m being lent through the models respectively in 2014.
• Equity-based crowdfunding reached £84m, up 201 per cent year on year.
• The alternative finance market has more than doubled in size year on year from £267 million in 2012 and £666 million in 2013, to £1.74bn in 20143.

By the end of the year it is expected that the UK alternative finance market will have provided more than £1bn in business finance to over 7,000 small and medium enterprises in the UK, the equivalent to 2.4 per cent of all bank lending to SMEs4. In the last quarter, bank lending to small and medium-sized enterprises was down by £400m, according to the Bank of England’s latest Trends in Lending report5.

44 per cent of SMEs surveyed were familiar with at least one type of alternative finance, but just nine per cent had approached an alternative platform for finance.

Over half (58 per cent) of UK consumers surveyed were aware of a type of alternative finance, with more than 1 in 7 (14 per cent) saying they had used an alternative finance platform to seek, lend or donate funds.

Liam Collins, co-author on the 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.”   

Bryan Zhang, co-author on the report, added:  “2014 has been a phenomenal year for the industry and this record-breaking growth is set to continue into the next year and beyond. By connecting people directly and offering more efficient, diverse and transparent ways to invest or raise funds, alternative finance is increasingly becoming a viable source of capital for individuals and businesses alike. Although there are challenges ahead, the future looks very promising for alternative finance”  

The report Understanding Alternative Finance is available to download for free at www.nesta.org.uk/alternative-finance. It is a collaboration between Nesta and the University of Cambridge, with support from PwC and ACCA.

Notes to editors

For media enquiries please contact Natalie Hodgson on 020 7438 2614 / 07929800765 or [email protected]

• The alternative finance market includes: peer-to-peer consumer lending, peer-to-peer business lending, invoice trading, equity-based crowdfunding, reward-based crowdfunding, donation-based crowdfunding, debt-securities, community shares and pension-led funding.
• 1Actual transactional volume for Q1-Q3, and predictions for Q4 were collected via a UK-wide industry tracking survey. In a few cases where Q4 predictions were above a threshold relative to the platform’s past funding, they were capped at the sum of the previous two quarters. In a minority of instances where a platform did not fill out the tracking survey, volumes were sourced by extracting publically available information from their sites. 
• 2http://www.ft.com/cms/s/0/3ae23438-55d6-11e4-93b3-00144feab7de.html#axzz3Gt5ZCOBg
• 3The 2012 and 2013 figures have been adjusted from those published in the Rise of Future Finance (Nesta, 2013). This is due to the evolution of the definition used and funding types included in the calculation. The difference is primarily due to the exclusion of personal online fundraising such as people raising money when running marathons and focused more on those finance models that refer to themselves as being in the alternative finance sector.
• 4according to Bank of England’s Trends to Lending (October, 2013) baseline figures http://www.bankofengland.co.uk/publications/Documents/other/monetary/trendsoctober14.pdf
• 5http://www.bankofengland.co.uk/publications/Documents/other/monetary/trendsoctober14.pdf

About the research partners:

• Nesta: Nesta is the UK’s innovation foundation. www.nesta.org.uk
• University of Cambridge: The mission of the University of Cambridge is to contribute to society through the pursuit of education, learning and research at the highest international levels of excellence. www.cam.ac.uk  
• PwC: PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. Find out more at www.pwc.com . PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure or further details.
• ACCA: ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants with 170,000 members and 436,000 students in 180 countries worldwide. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.  We work through a network of over 91 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development.  www.accaglobal.com