BY Fraser Tennant
The US online alternative finance market generated more than $36bn in funding in 2015 - an increase of more than 200 percent - according to a report published this week by KPMG, the Cambridge Centre for Alternative Finance and the Polsky Center at the Chicago Booth School of Business.
In ‘Breaking New Ground: The Americas Alternative Finance Benchmarking Report’, researchers have analysed online alternative finance activity across the Americas, exploring the impact of online alternative finance activity on the marketplace lending space and how online unsecured lending has rattled the banking world.
Among the report’s key findings is that financial technology (FinTech) has exploded in just two years, from a total market size of $4.5bn in 2013 to $36.5bn in 2015 – with the US making up 99 percent of this total. US businesses are also increasingly getting involved in alternative finance, to the extent of $6.8bn in 2015 alone, as compared to the 2013/2014 total of $10bn.
Furthermore, this level of growth is only expected to accelerate as disruptive new FinTech companies emerge to transform the landscape of the banking industry.
"The emergence of new FinTech companies will continue to transform the financial services sector," said Fiona Grandi, national leader for FinTech at KPMG LLP. "The pace of disruption is sure to accelerate, forging the need and appetite for collaboration among incumbents and non-bank innovators."
The report also points to several game-changing drivers of transformation that are impacting the banking industry, including: (i) speed: the use of algorithmic technology, credit decisions and underwriting now takes minutes, not days; (ii) transparency: investors and borrowers alike gain visibility into the loan portfolios, including risks and rewards; (iii) customer-centric: platforms bring the ‘brick and mortar’ branch into the on-demand and mobile application generation; and (iv) data: platforms have re-engineered the definition of credit worthiness, with FICO still being a factor, but no longer the only factor.
“These changes are permanent benchmarks that banks must now rise up to meet,” added Ms Grandi. “You may argue whether today’s unicorns will be here tomorrow; however, the shift towards the digital bank is indisputable.”