The Liberum AltFi Index: Alternative Finance Sector Smashes £1 Billion Barrier

The altfi sector in the UK has finally pushed past the £1 billion milestone!

Exclusive research from The Liberum AltFi Index reveals today that the UK Alternative Finance sector (which includes both P2P lending and crowdfunding as well as invoice lending) has broken the £1 billion barrier for the first time.

Our analysis reveals that the sector hit £1,028,340,769 in total transactions on December 31st 2013. That ten-digit figure entrenches the sector’s deserved status as an increasingly viable alternative to traditional sources of finance.

Cormac Leech, Analyst for Liberum, said of the milestone:

"This exponential growth of UK P2P volumes, albeit at a still modest level of £1bn, demonstrates that the internet-driven disintermediation of traditional banks is well underway. In the near term, UK P2P volumes will accelerate due to FCA regulation from April, likely ISA-ability in 2014, along with the arrival of a wall of yield-starved institutional capital. Banking is essentially about information and legal contracts making it as digitisable as music. Banks need to rapidly re-invent themselves to stay relevant over the next decade."

Rhydian Lewis, Founder and CEO of RateSetter, also commented on the news:

"This is an exciting milestone which proves that peer-to-peer has moved beyond "alternative finance" to become mainstream "modern finance". Platforms like RateSetter are now providing real choice for consumers and competition to retail banks not just via our market leading rates, but by our transparency and commitment to customer service excellence. We expect our sector to triple in size in 2014 with the introduction of a new regulatory framework acting as a major catalyst".

Geoff Miller, CEO of GLI Finance, said:

“It is an indication of the increasing confidence in the sector, from both borrowers and investors, as well as a significant milestone in what we would expect to be a year of exceptional and accelerating growth for the sector.”

Christian Faes, Co-Founder and Director of LendInvest – one of the above-mentioned recent entrants, was thrilled by the news:

“This is fantastic news and testament to the growing popularity of alternative finance with lenders and borrowers alike.

“The UK has the opportunity to become world leaders in alternative finance and peer-to-peer lending is one of the strands of new finance that is likely to have the ability to make the biggest impact on the UK economy.

"We're extremely excited about the future of alternative finance as reputable and experienced lenders, such as LendInvest, start to gain serious traction with the mainstream."

Samir Desai, CEO and Co-Founder of Funding Circle, said:

"This is a significant milestone for the alternative finance industry, and proves that businesses like Funding Circle are helping to redesign the financial services ecosystem to better suit the needs of customers. Peer-to-peer lending to business specifically has grown by 211 per cent in the last year. At Funding Circle we recently sailed past £200m lent to businesses up and down the country, £130m of which was lent in 2013 alone."

Growth Rates Rebound:

Our other key takeaway from this month’s stats is that growth rates have rebounded (in general) from last month. Analysis from December 1st revealed that the industry growth rate had slipped from 8.5% to 6.0%. It has now climbed back to 7.1%.

As we begin to provide more regular statistical updates for the sector, the data of more and more platforms will be factored into our reports. FundingKnight make their debut this month, as do new entrants Wellesley & Co. and LendInvest.

Our take on increased growth rates over the last month:

Obviously it's next to impossible to compare growth rates between disparate platforms - many of the well-established platforms have raised huge sums of money while others are still fast growing. Zopa alone has advanced  £438,826,300 and rightly still dominates the sector, with annualized growth rates that would make most high street banks weep with envy. Fast growing smaller outfits such as Rebuildingsociety by contrast have only lent £3,328,999. It is far easier for these latter "insurgents" to expand than the former based purely on scale, not to mention their significant structural differences.

With that in mind, The Liberum AltFi Index will divide up the platforms into those that have facilitated loans worth £100 million and over, and those which have lent less than £100 million. In the £100 million plus bracket, Ratesetter has the fastest growth rate with 12.5% over the last month. Zopa, by contrast, is the slowest with 3.3%. In the sub-£100 million club, Assetz Capital has expanded a huge 25.4% in December alone – a highly impressive rate. CrowdCube is making the most gradual progress at 2.4%.  

Stuart Law, CEO of Assetz Capital, commented the platform’s remarkable growth:

“Our growth rate for December was 25.4 per cent compared to a sector average of 7.1 per cent, and we intend to increase this rate further in order to lend a total of £100m this year – possibly more depending how the P2P lending environment develops.”

What do we make of these vastly contrasting growth rates? Every platform wants and needs to continue to grow but obviously scale matters hugely. There's also the tricky issue of risk. Assetz Capital and Ratesetter should be rightly lauded for their recent progress but a slow rate of growth might also imply that a platform is taking a more considered approach to who it works with.

Take CrowdCube. This hugely successful crowdfunding platform advanced just £388,270 in the month of December, giving them a sedate 2.4% growth rate. CrowdCube allow backers to invest in start-ups in exchange for equity. Investing in start-ups is an intrinsically risky business, but CrowdCube attempts to minimize that risk with a stringent vetting process. Start-up projects must fulfill a number of criteria if they are to list on the platform. Being highly selective naturally limits growth rate, but CrowdCube understands that it must take its time in order to work with the right start-ups. Managing risk and ensuring that they feature only the highest quality of projects are arguably their top priorities. The brutal truth is that brand reputation - and by implication the management of risk - is probably much more important than headline growth rates.

Of course, the real trick for a platform is to achieve rapid growth whilst bolstering its reputation. Stuart Law believes Assetz Capital have found that magic formula:

“We’ve been able to grow so quickly thanks to two key things: firstly, the tangible security we take on every loan protects our lenders and gives them the confidence they need to invest. Secondly, we have the most experienced lending team in the P2P industry, which means that we’ve been able to source high-quality loans which are well-secured and provide a high rate of return.”