The online alternative finance market, including crowdfunding and peer-to-peer lending, is exploding in the U.S., generating more than $36 billion in funding in 2015, up from $11 billion in 2014, according to a new report published by KPMG, the Cambridge Centre for Alternative Finance and the Polsky Center at the Chicago Booth School of Business.
«The emergence of new FinTech companies will continue to transform the financial services sector,» said Fiona Grandi, National Leader for FinTech, KPMG. «The pace of disruption is sure to accelerate, forging the need and appetite for collaboration among incumbents and non-bank innovators.»
Breaking New Ground: The Americas Alternative Finance Benchmarking Report analyzed online alternative finance activity across the Americas. Among its key findings is that financial, financial innovations and the technologies that enable them have exploded by 9x in just two years, from a total market size of $4.5 billion in 2013 to $36.5 billion in 2015 – the U.S. makes up 99 percent of that.
When analyzing the various funding models, the report found that marketplace/P2P consumer lending is the largest market segment in the U.S., responsible for more than $25 billion in 2015 and a total of $36 billion from 2013-2015. U.S. Businesses are also increasingly tapping into alternative finance to the tune of $6.8 billion in 2015 alone, which is significant when comparing the total for 2013 and 2014 of $10 billion.
Between 2013 and 2015, U.S. online alternative finance platforms have provided $52 billion in funding to individuals and businesses, according to the report. During that same time, these platforms facilitated roughly $11 billion of capital into 270,000 small and medium sized enterprises. In addition to consumer and business funding, the report also found that real estate models are scaling rapidly, generating nearly $1.3 billion in 2015.
The report points to several game-changing drivers of transformation that are impacting the banking industry, including the following:
- Speed:Using algorithmic technology, credit decisions and underwriting takes minutes, not days.
- Transparency:Investors and borrowers alike gain visibility into the loan portfolios, including risks and rewards.
- Customer-centric:Platforms bring the «brick and mortar» branch into the on-demand and mobile application generation.
- Data:Platforms have re-engineered the definition of credit worthiness. FICO may still be a factor, but it’s no longer the only factor.
Grandi added: «These changes are permanent benchmarks that banks must now rise up to meet. You may argue whether today’s unicorns will be here tomorrow; however, the shift towards the digital bank is indisputable.»