The UK’s online alternative finance sector grew 84 per cent in 2015, facilitating £3.2 billion in investments, loans and donations.

That’s according to a joint report published today by the Cambridge Judge Business School (CJBS) and UK innovation foundation Nesta. But it found that while there was a significant increase in market volume, the rate of growth in the sector was actually slowing down – with acceleration in 2014/15 nearly half the 161 per cent rise recorded in 2013/14.

The report also highlighted the rapid expansion of donations-based crowdfunding, the perceived risk of fraud and malpractice by the industry, and increasing institutionalisation – as around a quarter of peer-to-peer (P2P) loans were now funded by institutional investors, including traditional banks and government through organisations such as the British Business Bank.

The latest report by CJBS’s Cambridge Centre for Alternative Finance and Nesta, entitled Pushing Boundaries – 2015 UK Alternative Finance, has been published in partnership with KPMG and with support from the CME Group Foundation.

Drawing on a survey of 94 crowdfunding and P2P lending platforms, it found that alternative finance outfits provided the equivalent of over 3 per cent of all lending to SMEs in the UK last year. Some 32 per cent of loans in P2P consumer lending and 26 per cent in P2P business lending were funded by institutional investors, while donation-based crowdfunding was the fastest growing model, up by 500 per cent from £2 million in 2013/14 to £12 million in 2014/15.

The research also revealed that the equity market was growing fast, up by 295 per cent from £84 million to £332 million. Excluding real estate crowdfunding (which was last year’s single most popular sector), the equity-based crowdfunding sector contributed to £245 million worth of venture financing in 2015 – equivalent to over 15 per cent of total UK seed and venture equity investment.

Nine in ten of the companies canvassed felt that the current level of regulation in the alternative finance sector was appropriate, but when asked what they saw as the biggest risk to the future growth of the market, 57 per cent cited the potential collapse of one or more of the well-known industry players due to fraud or malpractice.

Commenting on the overall findings, Stian Westlake, Nesta’s executive director of policy and research, said: “2015 has seen another year of remarkable growth for alternative finance in the UK. Little more than a collection of plucky startups just six years ago, the sector now does £3.2 billion of business a year. 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. But, as Nesta’s continuing research into the industry has found, the ability of platforms to harness the power of the crowd to connect savers, borrowers and businesses has been powerful. We look forward to seeing how the sector advances and changes again in the year ahead.”

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