The University of Chicago and the University of Cambridge are once again partnering to explore the alternative finance industry and offer guidance on its trajectory for the coming year. The University of Chicago’s Polsky Center for Entrepreneurship and Innovation and its Booth School of Business are working with the University of Cambridge’s Cambridge Centre for Alternative Finance at its Judge Business School to collaborate on their second report of the alternative finance landscape, but already, industry experts at these institutions have some idea of how the sector will continue to evolve this year.
With plans to release the second edition of their Americas study, which will explore alternative finance across North, Central and South America, industry experts plan to add new data to the debate over the resilience of alternative finance.
Their last report, “Breaking New Ground: The Americas Alternative Finance Benchmarking Report,” focused on the size and transaction volume of the Americas’ AltFin industries. Researchers found that alternative lenders provided more than $36 billion in 2015 for both SME and consumer financing — a major leap from the $11.4 billion recorded in 2014.
Will 2016 once again present an explosion in alt-lending transaction value? According to Robert Wardrop, executive director of the Cambridge Centre for Alternative Finance, the upcoming report on the issue will look to answer that — though the financial value of alternative lending may not be the right question to answer this year.
“The past year has seen significant changes in regulatory policy, as well as several market and firm-specific events relevant to the online alternative finance industry,” he said in a statement. “Our hope is that this year’s report will shed light on how these developments are impacting the evolution of the industry across the Americas.”
His remarks reflect the fact that success of the alternative lending space cannot be measured solely by transaction volume and value. In an interview with Crowdfund Insider, Tania Ziegler, research program manager at CCAF, said the upcoming report “will probe how the industry is responding to shifts in regulation and how platform operators view and address systemic risks associated with a growing market.”
The debate continues to rage over the future of alternative lending. Proponents of the industry say the space continues to fill the gaps for SME and individual borrowers that are rejected for a loan, but critics argue that a lack of regulation and high fees mean the days for alternative lending are numbered.
But it may be difficult, if not impossible, to accurately predict an industry that is shaped by the varying regulations and market conditions across borders.
“Our global benchmarking research has highlighted how each region is a uniquely ‘area-specific’ way of doing thins, and this has translated into influencing how platforms operate and how models evolve,” Ziegler told the outlet. “Right now, we are seeing a certain amount of model consolidation, reflective of the pre-existing financial structures in their home market.”
That pattern, Ziegler continued, could signal a change in the form alternative finance takes and may begin to resemble traditional lenders as time continues.
“As platform operators streamline their core financial instruments on offer and refine the processes used to facilitate finance (i.e., credit assessment, due diligence, etc.), we do see structures that begin to look a bit traditional,” Ziegler stated. “This is to say, the internal platform mechanics do begin to resemble financial structures that conform to their regions’ standards.”
Some analysts have suggested that the increasing presence of partnerships between alternative lenders and traditional finance players signals a future of mergers for the sector, with alternative finance companies eventually being absorbed into banks. But Ziegler told the outlet that the innovative nature of alternative lenders separates them from the banks.
“Traditional providers are taking their cues from the AltFin sector to see how they can offer products and services in more user-friendly ways,” Ziegler explained, adding that regulation across jurisdictions will have a significant influence on whether alternative finance players will eventually morph into traditional lookalikes. If regulators take a “stretch-to-fit” approach in their oversight of alternative finance players, that means alt-lenders will have to conform to the same rules as traditional banks, which may blur the line between alternative and traditional lender.
The researchers plan to release their latest report on alternative finance across the Americas later this year, reports said. Considering the question of regulation in the space, Ziegler said the topic will be a prominent guide in how the report is shaped.
“As we enter our second year of research in the Americas, we expect our research to continue addressing key regulatory shifts and informing policy and regulation in the region,” Ziegler stated.
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