Moving Mainstream - Cambridge Judge Business …

1 Moving MainstreamThe European Alternative Finance Benchmarking ReportRobert Wardrop, Bryan Zhang, Raghavendra Rau and Mia GrayFebruary 2015 Copyright informationAll rights reserved. University of Cambridge and EY 2015. Copyright: the contents of this report are protected by copyright by WardourDrury House34-43 Russell StreetLondon WC2B 5 HATel +44 20 7010 opinions expressed in this report do not necessarily reflect the views of the publisher or the editorial image: Dean Pennala/Shutterstock[43] Moving MAINSTREAMA cknowledgementsSupporting organisationsResearch partnersMedia partnerAbout the Cambridge Centre for Alternative FinanceThe Cambridge Centre for Alternative Finance, based at the University of Cambridge Judge Business School, is an international interdisciplinary academic research institute dedicated to the study of alternative finance, which includes financial channels and instruments that emerge outside of the traditional financial system.

2 Examples of alternative finance channels are online marketplaces such as equity- and reward-based crowdfunding, peer-to-peer consumer/ Business lending , and third-party payment platforms. Alternative instruments include SME mini-bonds, private placements and other shadow banking mechanisms, social impact bonds and community shares used by non-profit enterprises, and alternative currencies such as Bitcoin. The Cambridge Centre for Alternative Finance has been established to conduct cutting-edge, multidisciplinary, rigorous and critical research on all aspects of alternative finance. It aims to have high impact not only on academic thought leadership, but also on policy decision-making and Business practice globally.

3 About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

4 For more information about our organization, please visit very recently, crowd and peer-to-peer financing activity was seen by many observers particularly those within incumbent financial institutions as a tiny niche with little prospect of ever impacting the broader financial system. Not any more. Our findings in this European Alternative Finance Benchmarking Report suggest that these new forms of alternative finance are growing quickly, and this growth is beginning to attract institutional investors. Alternative finance, at least in some European countries, is on the cusp of becoming at Cambridge have been studying alternative finance since it emerged as a grass-roots phenomenon following the recent financial crisis, and have authored and co-authored several of the most-cited reports about the industry.

5 We firmly believe that alternative platforms can increase access to finance and thereby improve both social and economic outcomes. We felt it was important to provide a comprehensive picture of online alternative finance across Europe, and draw attention to the dramatic variation in how alternative finance is developing across European economies. Hopefully, our findings will cause industry, governments and academics to debate questions about how and why this is the WardropExecutive Director, Cambridge Centre for Alternative Finance, Cambridge University Judge Business School[3] Moving MAINSTREAMF orewordsAlternative finance is a fast-growing area of the financial services sector, but there is little hard data about the extent of the industry across Europe, so we re delighted to be able to support the work of the University of Cambridge in this of the most noteworthy aspects of the alternative finance sector is that it showcases innovation, in terms of both Business models and technological platforms.

6 A high proportion of the businesses featured in this survey operate solely online, with websites that have been designed from the outset with the needs of the customer in mind. Compare that with traditional financial services firms that are working hard to redesign their products and processes to meet the demands of the internet , it will be interesting to see how Mainstream financial institutions respond to the growth of alternative finance providers. Will they simply regard them as competitors albeit relatively small ones or will they adopt some of the innovations from alternative finance as a way of increasing their own product o!

7 Ering?The taxonomy of alternative finance featured in this report identifies nine broad categories of Business , but within these there are many more sub-sectors. Inevitably, there will be winners and losers as the market with any new sector, alternative finance also brings with it new risks. Investors need to understand the nature of the products, and it s important that appropriate controls are put in place. So we welcome the regulation of the sector which, as this report reveals, is uneven across Europe. While the UK the market leader by some distance has introduced dedicated regulation for alternative finance providers, many other countries haven t, or are applying existing regulations that were not specifically designed to cover this kind of activity.

8 The University of Cambridge has asked some commendably straightforward questions about di!erent countries regulatory frameworks, and the comments from the various industry organisations make for fascinating issues will doubtless be resolved over the coming years, and we re excited about what the alternative finance sector can contribute as part of the broader economy. This study will provide a valuable benchmark against which to measure future BaldwinEMEIA FSO Managing Partner[4]9 Executive summary10 Introduction: research rationale, objectives and methodology13 The size and growth of the European alternative finance market15 The dynamics of the European alternative finance market17 The diversity of the European alternative finance market20 The vitality of alternative finance for SMEs in Europe22 The fundamentals of the European alternative finance market26 France28 Germany30 The Netherlands32 Spain34 The Nordic countries36 United Kingdom40 Conclusion42 Endnotes43 AcknowledgementsContentsAbout the authors1 Robert Wardrop, Executive Director, Cambridge Centre for Alternative Finance, Cambridge Judge Business School.

9 Robert is also a Research Fellow at CJBS with an interest in why alternative finance channels emerge. Robert is non-executive director, advisor and investor in several financial technology, healthcare and telecommunications Zhang, Director (Operations and Policy), Cambridge Centre for Alternative Finance, Cambridge Judge Business School. He has co-authored four industry reports and advised organisations including the Royal Society of Arts, the British Business Bank and the European Commission on alternative Raghavendra Rau, Director (Research), Cambridge Centre for Alternative Finance and Sir Evelyn de Rothschild Professor of Finance at Cambridge Judge Business School.

10 He is the Head of the School s Finance & Accounting subject group and a past president of the European Finance Association. Raghu is Co-Editor of Financial Management and an Associate Editor of the Journal of Banking and Finance, the International Review of Finance and the Quarterly Journal of Mia Gray, Senior Lecturer at the Department of Geography and Senior Research Fellow at Cambridge Centre for Alternative Finance, Cambridge Judge Business School. Mia is an Editor of the Cambridge Journal of Regions, Economy and Society, and was previously Acting Director of the Cambridge Centre for Gender Studies. Mia is a Fellow of Girton College, Cambridge .