Traditionally, commercial banks have been the sole source of finance for investment. However, over the last five years, banks have been increasingly constrained in their lending capabilities. Forced capital raising and stringent borrower requirements have dried up the supply of funding in Australia. This situation has created a growing demand for alternative finance. Peer-to-peer Crowdfunding is the leading form of alternative finance globally, a concept that is filling the gap left by banks.
Alternative finance is a rapidly growing industry that includes all financial instruments that have emerged externally from the conventional finance structure such as banks and capital markets. The expansion of alternative finance can be considered a positive externality of technological advances.
For instance, crowdfunding is not an entirely new concept; however, the rise of internet usage and e-commerce has enabled crowdfunding to be revolutionised, paving the way for platforms to enable investing via crowdfunding.
CrowdfundUp is Australia's leading platform for Real Estate Crowdfunding. Peer-to-peer marketplaces offer a streamlined process for both investors and sponsors.
As of late, commercial property developers, discontent with the struggle to obtain finance from a bank, have been finding crowdfunding an attractive option to fund projects. Investors also welcome peer-to-peer marketplaces.
Commercial Real Estate has been out of reach for the majority of investors under the traditional finance system. Investors are now able to be a part of lucrative projects by pooling money together through a platform such as CrowdfundUp.
The first and foremost strength of investing in real estate via crowdfunding is the accessibility, both for sponsors accessing exclusive projects and sponsors seeking funds. Other benefits of crowdfunding include:
The Australian market for online alternative finance increased from $24m in 2013 to over $348m in 2015. This represents an average annual rate of return of 281%. In comparison, China's peer-to-peer lending market registered $101.7 billion in transaction volume in 2015.
Alternative finance is a growing industry not just in Australia, but globally. Peer-to-peer lending is the largest model by transaction volume in the alternative finance market.
The disruption caused by FinTech (financial technology) has many benefits to the global economy. The Alternative Finance market should continue to expand and advance both in Australia and globally.
By constantly improving the customer experience and achieving efficiency in the financial sector, FinTechs are increasingly becoming an integral part of the Australian economy.