How will the alternative finance market evolve in 2016?

How will the alternative finance market evolve in...The alternative finance market in the UK is expected to evolve significantly over the course of 2016, changing the way that banks and other financial institutions need to manage their risk profile.


Figures published by Nesta and the University of Cambridge for the 2014 Alternative Finance Industry Report show that between 2012 and 2014, Britain’s alternative finance market grew in value from £267 million to £1.74 billion, and this growth is expected to continue in abundance throughout the coming months and years.


But just what does alternative finance involve, and how is the sector forecast to evolve in 2016?

What is alternative finance?

Typically, the term alternative finance refers to the modes of monetary trading that have emerged outside of the lines of the traditional regulated banking system.


For instance, this could be peer-to-peer (P2P) business lending, P2P consumer lending, invoice trading, community shares or equity crowdfunding.


In 2014, the former was the most popular option for those looking for alternative means of finance, generating £749 million in total for investors. However, equity crowdfunding proved the most lucrative choice, raising an average of £199,095 per investor.


These figures are two years old though, so what’s changed for the alternative finance market in that time?

How is the sector expected to progress in 2016?

Writing for sector publication AltFi, Alex Littner predicted that 2016 will be the year during which the alternative finance market officially comes of age and is recognised as an option on an equal footing to traditional banking, rather than a secondary choice.


He drew on statistics from Fiserv that forecast the sector will reach a value of £12.3 billion per year by 2020, meaning significant annual growth will be needed over the next four years for this to become reality.


Yet as alternative finance grows and develops, Mr Littner explained that improved analytics will be required so that market experts can measure the performance of the sector. Any future decisions regarding the market will then be better-informed, allowing finance leaders to take greater control of their business’ risk profile.


What’s more, Mr Littner discussed the fact that alternative finance options are getting ready to take off in poorer, less developed parts of the world, allowing people and businesses that wouldn’t usually be allowed to access finance via traditional banks to trade and gather funding for their ventures – something that could in turn boost the economies of these nations.

Managing risk in the alternative finance market

Risk management can be a complicated matter for traditional banks, let alone for the lesser-understood alternative finance market.


Therefore, it is vital that businesses seeking funding via alternative finance methods are being advised by a risk management or compliance expert when accessing money through P2P lending or crowdfunding to ensure they aren’t unwittingly falling outside of regulations.


Recruiting a specialist in these fields can help firms to make sure they are conducting all their financial matters in the most compliant way possible, and demand for experts with such knowledge is only expected to increase as the alternative finance market takes off even further over the course of 2016.


Our Market Reports combine a review of the prevailing conditions in the risk management recruitment market with the results of a comprehensive compensation survey covering both permanent and contract risk managers.


Image: Thinkstock/iStockADNFCR-1684-ID-801812154-ADNFCR