Cultivating growth: The 2nd Asia Pacific Region Alternative Finance Industry Report

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Australia’s US$600 million Alt-Fi market including peer-to-peer lending and crowdfunding has grown 53% over the past 12 months, to be become the second largest market in Asia-Pacific, according to a comprehensive research of the Asia-Pacific online alternative finance market.

The study, titled “Cultivating Growth: The 2nd Asia Pacific Alternative Finance Industry Report”, surveyed over 500 Alt-Fi companies. It was conducted by a research team from the Cambridge Centre for Alternative Finance, the Tsinghua University Graduate School at Shenzhen and the Australian Centre for Financial Studies at Monash Business School, in collaboration with KPMG and with the support of the CME Group Foundation and HNA Capital.

Key findings

  • Australia has overtaken Japan in 2016 to become the second largest Alt-Fi market in Asia-Pacific, with funding of over US$600m.
  • China continued its global domination of the sector with a massive US$243.28 billion raised in 2016, up from US$101.69bn in 2015.
  • Balance Sheet (business) lending in Australia jumped 80% to US$217.34m in 2016, retaining its position as the leading form of alternative finance by volume.
  • Peer-to-peer consumer lending in Australia increased by 240% in 2016 to US$158.23m
  • Invoice trading in Australia was up by 16% to US$129.91m in 2016.
  • Equity-based crowd funding fell from US$56m in 2015 to US$10.51m in 2016

Ian Pollari, Global Co-Lead for KPMG’s Fintech practice “Whilst alternative finance remains a small as a proportion of overall credit outstanding in the financial system of many countries, it is growing rapidly.  Australia is fast becoming a regional leader, behind China – the global leader accounting for as much as 85% of the total worldwide Alt-Fi sector. The strong growth of the Australian sector is tangible evidence of the ability of the financial services industry to innovate and embrace new ways of doing business.”

Australian Alt-Fi strong and growing

Online alternative finance has continued to grow rapidly in Australia. This growth has been substantial when compared with the low base of US$26.69m reported in 2013. In 2016, the largest market volume of alternative lending was through balance sheet business lending, followed by marketplace/peer-to-peer consumer lending. The third largest segment was invoice trading, followed by peer-to-peer property lending, which reported US$36m, and peer-to-peer business lending with US$6.93m.

Professor Edward Buckingham, Executive Director, The Australian Centre for Financial Studies, Monash Business School commented: “The many emergent forms of alternative finance will profoundly shape our economies for decades to come. Fintech-enabled alternative finance has triggered diverse policy and entrepreneurial responses. While the alternative finance market in Australia was slower to take off than in some other global jurisdictions, the 2014 Financial System Inquiry made a number of recommendations directed at increasing innovation in the financial services. The new policy environment is helping to fuel growth in the sector, and played a major role in helping Australia become the largest Alt-fi market in the region, after China.”

The report surveyed alternative-finance industry perceptions of regulation across the region. It found that, in Australia, 65% of platforms believe that existing regulations are adequate and appropriate. Over half of Australian platforms (53%) said that proposed new regulations are also adequate and appropriate.

Ian Pollari added: “The innovative digitisation of financial services by Alt-Fi platforms is lowering transaction costs, enhancing convenience for customers, and increasing access to credit and investments for underserved segments.

Australia has an opportunity to lead the way, but we must proceed mindfully. Regulation can have a profound impact on the development of the sector. For example, the uncertain regulatory environment for equity crowdfunding, ahead of legislation taking affect this year, no doubt contributed to a notable drop in activity in 2016. This underscores the vulnerabilities that might impede future growth which need to be identified, understood and prudently managed for the long-term viability of Australia’s alternative finance industry,” he said.