What Does the Future Hold for Alternative SME Finance?

In the last decade alternative finance has emerged to threaten the traditional banking system and the lending industry. Contemporary players have created new dynamics of competition, regulation and technology.

According to Morgan Stanley the global loan origination market, could be worth almost half a trillion dollars globally by 2020 and most industry professionals agree that this figure is just the tip of the iceberg.

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Now traditional lenders are increasingly partnering with innovative new platforms for fear of being left out of the digital finance evolution.   

Strategic partnerships are now the fastest growing channels for the space, generating a strong source of referrals, and traditional banks are the most likely and most prominent examples.  

In its report Alternative lending – Commoditizing loan applications through technology while paving the way for big data investing, EY points out that consolidation within a fragmented industry is inevitable.

It says there are more than 1,300 alternative lenders competing for 1 per cent market share while there are 6, 500 banks competing for the remaining 99 per cent of the market.

‘Incumbent banks will take increasing notice of the alternative finance players and respond with buyouts and partnerships. Some banks will build capabilities on their own but a lot will take the buy or partnership route. This will reinforce the symbiotic relationship between traditional and alternative lenders.’

The report also examines where alternative SME lending fits into the alternative finance industry spectrum.

Within the alternative lending space there are four main lending segments: SME, consumer, student, auto and mortgages.

The SME alternative finance space is the second-smallest of all the categories, surpassing only alternative auto loans. Industry players have the opportunity to grab a slice of a sector worth about $284 billion today, alternative lenders currently hold just $7.3 billion of that share.

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