Sunday, 14 April 2019 21:25

Growth in demand for alternative funding sources for fintech business: survey

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Growth in demand for alternative funding sources for fintech business: survey Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Fintech businesses are continuing to see growth in demand for alternative funding sources, with marketplace lending offering an alternate source of funding for investors and borrowers, and crowd-sourced funding also offering a different form of capital raising for new and smaller companies.

That’s the prediction of the corporate watchdog the Australian Securities and Investments Commissionfrom its third survey of the marketplace lending industry and its first survey of Australia’s crowd-sourced funding (CSF) sector both designed to track the growth and development of both sectors.

Marketplace lending involves the use of electronic platforms to match investing lenders with borrowers, and the Report 617 — Survey of marketplace lending providers:2017-18 — summarises ASIC's findings from the 2017-18 marketplace lending industry survey, which was conducted between July and October 2018.

The survey covers marketplace lending activities that are regulated by ASIC as managed investment schemes and looks at providers offering financial products or services through a 'scheme of arrangement' that matches loan requests against offers to invest. The findings are based on responses from 10 trustees in relation to 13 platforms. These platforms are managed by 10 operators that are separate entities to the trustees.

During the 2017-18 financial year, marketplace lending investment and borrowing continued to grow, with new borrowing increasing 45% to $433 million, and outstanding loans up 59% to $518 million.

And respondents reported a total of 13,446 investors and 31,421 borrowers as at 30 June 2018.

ASIC says that although these numbers have increased significantly since 2016-17, they still represent a slowing down in the rate of investor and borrower growth. In 2017-18, a total of $352 million was invested in the platforms surveyed.

Two platforms control close to 80% of sector funds under management, with this level of concentration slightly down from 2016-17.

Rates of default have increased moderately to 2.9% of total loan value from 2.3% of total loan value in 2016-17.

CSF is a financial service where start-ups and small businesses raise funds, generally from a large number of investors that each invest small amounts of money, without the regulatory burden of traditional fundraising.

The findings of ASIC’s first report on Australia’s CSF sector are summarised in Report 616 -Survey of crowd-sourced funding intermediaries: 2017-18  - and covers the first six months of CSF activity in Australia, from 11 January to 30 June 2018.

During the survey period, there were 14 CSF offers, half of which were successful or 'complete' and half of which were 'incomplete'.

The survey found that, complete CSF offers raised a net total of approximately $7.04 million during the survey period.

For complete offers, the majority of funds (77.5%) raised were from retail investors. Of the 17,457 investors in complete offers, nearly all (99.4%) were retail investors.

There were 439 investors in incomplete offers. Incomplete offers raised a net total of approximately $872,000 and the amounts raised were returned to investors when the offer failed to complete.

ASIC conducted its first survey of the CSF sector by collecting data from CSF intermediaries in respect of the 2017-18 financial year. During this period, fundraising through CSF was only available to some public companies.

ASIC says the scope of CSF fundraising increased to include proprietary companies following amendments to the Corporations Act 2001, which took effect on 19 October 2018.

And on 30 June 2018, at the end of the survey period, there were eight licensed CSF intermediaries, and ASIC says this figure has since grown to 16 licensed CSF intermediaries.

ASIC commissioner Danielle Press said, "The surveys help ASIC better understand the make-up of these developing sectors and how ASIC can facilitate their growth while at the same time, managing any regulatory risks they pose compared with more traditional lending and fundraising approaches.

“Marketplace lending is more established in the Australian market than crowd-sourced funding. While our most recent survey results show ongoing growth in both borrowing and lending activity in the marketplace lending sector, there are some indications that this growth may be moderating.

“Conversely, the crowd-sourced funding industry is in its early stages and is expected to grow further with the recent expansion of the crowd-sourced funding regime to proprietary companies.

“These ‘snapshot’ surveys also help ASIC assess whether advancements in technology are delivering benefits to consumers and also whether they are creating new risks in lending and fundraising.

“ASIC will continue to monitor developments in the marketplace lending and crowd-sourced funding sectors. We are committed to facilitating innovation while ensuring investor trust and confidence is maintained, and "disruptors" to the market are held to the same standards as more traditional players.”

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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