The alternative finance market in the UK is expected to grow to £1.74 billion of funding provided in 2014. Alternative finance covers a variety of new financing models that have emerged outside of the traditional financial system, that connect fundraisers directly with funders often via online platforms or websites.
As highlighted in this report, the UK market is growing rapidly, and has more than doubled in size year on year from £267 million in 2012 to £666 million in 2013 to £1.74 billion in 2014. In the process, it has given individuals more control over their money as well as new outlets to invest or donate it. At the same time entrepreneurs, SMEs, charities and community organizations are obtaining much–needed finance, which they in many cases, would not otherwise be able to secure. It is evident from our research that the alternative finance market is contributing to the growth and vitality of the UK economy as well as having a positive social impact on philanthropic giving and volunteering.
However, while the market is racing ahead, growing in the number of individuals and ventures funded, the amount of total finance raised, and the number of businesses operating in the alternative finance industry, research has lagged behind. Beyond the size and growth of the market, we actually know very little about alternative finance and the people who are using it to fund or fund raise for projects and ventures. Unanswered questions include:
- What type of people and organizations use the different alternative finance models?
- Why do people and organizations seeking money turn to alternative finance platforms?
- What makes the model attractive to people with money to donate, lend or invest?
- What is the socio–economic impact of alternative finance and how do organizations and
- businesses perform after fundraising on alternative finance platforms?
How do people find out about various alternative finance models and what do they think of them having used them?
There exists lots of anecdotal stories from fundraisers and funders of projects and ventures, and some data from platforms that begins answering some of these questions, but none of them look at alternative finance holistically in the UK or try to systematically analyze trends and examine behavior across multiple alternative financing models.
To address this shortcoming, Nesta and the University of Cambridge, supported by ACCA and PWC, have undertaken this extensive research, which is the largest study of the UK alternative finance industry to date. We hope that this unique study will shed light on the thriving alternative finance industry in the UK. Furthermore we hope that by studying one of the most dynamic, innovative and diverse markets of its kind in the world we can provide insights for individuals, businesses, governments and regulators both in and outside of the UK on the mechanisms, processes and impact of the alternative finance market.
This study uses extensive transaction data collected from alternative finance platforms as well surveys of their users, and we are very grateful to the UK alternative finance industry for their support. The What we did box explains in more detail how we undertook the study.
As noted earlier alternative finance is an umbrella term that covers a range of very different models from people lending money to each other or to businesses, to people donating to community projects and businesses trading their invoices. The distinctions between these models are important as they differ enormously in the types of people and organizations that use them, why they use them and the nature, form and amount of financial transactions that take place.