Alternative Finance Market expected to grow by USD 64.3 Billion from 2024-2028, driven by AI's impact and the rise of social media and digital connectivity - Technavio

NEW YORK, Oct. 14, 2024 /PRNewswire/ -- Report with market evolution powered by AI - The Global Alternative Finance Market  size is estimated to grow by USD 64.3 billion from 2024-2028, according to Technavio. The market is estimated to grow at a CAGR of over 7.44%  during the forecast period. Emergence of social media associated with growing digital connectivity is driving market growth, with a trend towards rapid growth in APAC. However, high risk of credit default  poses a challenge - Key market players include Bondora Capital OU, CircleUp Network Inc., ConnectionPoint Systems Inc., Crowdfunder Ltd., Fundable LLC, Funding Circle Holdings plc, Funding Options Ltd., Fundrise LLC, GoFundMe Inc., Indiegogo Inc., Invoice Interchange Pvt. Ltd., Kickstarter PBC, Kriya Finance Ltd., Lending Crowd, LendingClub Corp., OFB Tech Pvt. Ltd., RealCrowd Inc., Sancus Lending Group Ltd, Trade Ledger Pty. Ltd., and Upstart Network Inc..

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Key Market Trends Fueling Growth

In Asia Pacific (APAC), the increasing number of Small and Medium Enterprises (SMEs) is fueling the demand for alternative finance solutions. Alternative finance platforms, such as Peer-to-Peer (P2P) lending, crowdfunding, and invoice trading, are gaining popularity due to their ease of access and flexibility. These platforms provide SMEs with increased access to credit and equity, enabling them to invest in business growth. Moreover, the growing Internet penetration and the widespread use of smartphones in APAC are encouraging individuals to use these platforms. This trend is expected to boost the growth of the global alternative finance market during the forecast period. 

Alternative finance is revolutionizing the way founders access financial services solutions. Conventional big banks are no longer the only game in town. Online lenders, reward-based and equity crowdfunding platforms, invoice trading, and peer-to-peer lending are trending financing options. Debt-based crowdfunding and microfinance institutions provide loans to borrowers. Investors are increasingly turning to alternative finance for diverse financial products. Awareness and standardization are driving industry expansion. Industry professionals forecast significant growth in the lending industry. Economic uncertainty and credit risk are pushing businesses towards alternative finance channels. Regulated banks and alternative lenders coexist in the fintech landscape. Digital currencies like Bitcoin and Ethereum are also part of the alternative finance scene. Estimations suggest alternative finance will benchmark traditional finance system procedures and instruments. IoT, Artificial Intelligence, and Machine Learning are transforming alternative finance. Regulatory environment plays a crucial role in industry growth. 

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Market Challenges

• Alternative finance markets provide funding options for borrowers who don't meet the criteria of traditional financial institutions due to lack of collateral or poor credit ratings. However, the high risk of credit default in this sector discourages many investors. For instance, LendingClub and Prosper Marketplace have default rates of around 10%-14% for loans with a three-year payback period. Funding Circle's long-term loan default rate is lower, ranging between 5%-7%. High-risk lenders like Bondora Capital have higher default rates, up to 25%-30%. This high risk may deter potential investors, potentially impacting the growth of the alternative finance market.
• Alternative finance is disrupting the traditional lending industry with innovative financial products like peer-to-peer lending and debt-based crowdfunding. Industry professionals estimate that this market will continue to grow, surpassing the USD300 billion mark by 2025. However, challenges persist, including economic uncertainty and credit risk. Regulatory environment varies for different platforms, with some like Fundly and Mintos operating in a more permissive space than microfinance institutions. Digital currencies such as Bitcoin and Ethereum have also entered the scene, adding complexity with their volatility and regulatory ambiguity. Benchmarking and estimations are crucial for investors, who can use traditional finance system's regulated banks as a benchmark. Fintech companies leverage IoT, AI, and machine learning to streamline procedures and offer diverse financial instruments. Equity-based crowdfunding, social impact bonds, SME mini-bonds, community shares, private placement, shadow banking, disintermediation, and fintech companies are all part of the alternative finance landscape. Regulatory clarity and risk management are key to ensuring the sustainability of this sector.

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Segment Overview 

This alternative finance market report extensively covers market segmentation by

1. Type 
• 1.1 P2P lending
• 1.2 Crowdfunding
• 1.3 Invoice trading
2. End-user 
• 2.1 Individual
• 2.2 Organization
3. Geography 
• 3.1 North America
• 3.2 APAC
• 3.3 Europe
• 3.4 South America
• 3.5 Middle East and Africa

1.1 P2P lending-  The Alternative Finance Market refers to financing options outside of traditional banks and financial institutions. This includes peer-to-peer lending, crowdfunding, and invoice financing. Businesses turn to alternative finance for faster access to funds, lower fees, and more flexible terms. These platforms use technology to streamline the application process and provide transparency. They cater to various sectors, from start-ups to small and medium-sized enterprises. By offering innovative solutions, alternative finance platforms enhance financial inclusion and support growth.

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Research Analysis

Alternative finance refers to financial channels and instruments that bypass the conventional big banks and provide innovative financial services solutions for founders and businesses. These include online lenders, reward-based and equity crowdfunding, invoice trading, social impact bonds, SME mini-bonds, community shares, private placement, and alternative lenders. The alternative finance market is driven by fintech, IoT, Artificial Intelligence, and Machine Learning, enabling faster, more efficient, and more accessible financing options. Instruments like equity-based crowdfunding, cryptocurrencies, and peer-to-peer lending are disrupting the traditional finance system, leading to disintermediation and new opportunities for entrepreneurs and investors. Alternative finance procedures are often more flexible and agile, making them attractive for businesses that may not fit the criteria of regulated banks. Shadow banking, a significant part of the alternative finance market, provides financing outside the regulatory framework of the traditional banking system.

Market Research Overview

Alternative finance refers to financial services solutions outside of the conventional big banks, empowering founders and borrowers to access various financial products and instruments. Debt financing alternatives include peer-to-peer lending, debt-based crowdfunding, invoice trading, and microfinance institutions. Equity financing options consist of venture capital, reward-based crowdfunding, equity crowdfunding, and private placement. Industry expansion is driven by awareness, standardization, and the regulatory environment. Alternative finance encompasses online lenders, crowdfunding platforms, and fintech companies. Economic uncertainty and credit risk are addressed through benchmarking, estimations, and industry professionals. The lending industry is evolving with fintech innovations like IoT, artificial intelligence, and machine learning. Digital currencies, such as Bitcoin and Ethereum, are also gaining traction. Social impact bonds, SME mini-bonds, community shares, and private placement are additional financial channels. Shadow banking and disintermediation are significant aspects of the alternative finance landscape. Regulated banks and alternative lenders coexist, with fintech companies driving disruption. The alternative finance market continues to grow, offering diverse financial solutions for borrowers and investors alike.

Table of Contents:

1 Executive Summary
2 Market Landscape
3 Market Sizing
4 Historic Market Size
5 Five Forces Analysis
6 Market Segmentation

• Type
• P2P Lending
• Crowdfunding
• Invoice Trading
• End-user
• Individual
• Organization
• Geography
• North America
• APAC
• Europe
• South America
• Middle East And Africa

7 Customer Landscape
8 Geographic Landscape
9 Drivers, Challenges, and Trends
10 Company Landscape
11 Company Analysis
12 Appendix

About Technavio

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SOURCE Technavio