Does the ‘Alternative’ in Alternative Finance help or hinder this rapidly expanding sector?
Could it be growing at an even greater rate if the word ‘Alternative’ was dropped?
These are the questions we explored in our recent poll.
We wanted to find out whether people believe that Alternative Finance is a ‘positive handle’ or a ‘ball and chain’ for the sector.
The idea behind the poll came from a blog post we published on our site in September, which looked at the rapid rise of Alternative Finance and the types of finance that are now being labelled ‘Alternative’.
For example, are products such as invoice finance and asset finance really ‘alternative’? After all, they were around long before the financial crisis of 2008 when the term ‘Alternative’ first began being used in association with peer-to-peer lending and crowdfunding.
As well as understanding whether respondents believe Alternative Finance has positive or negative connotations, we also wanted to establish whether there was a difference in opinion between those in the finance industry and those outside of it.
Finance industry respondents
Outside the Finance Industry
These results clearly show positive sentiments towards the term, both inside and outside of the finance industry. In total, 74% consider Alternative Finance to be a positive handle, against 26%who see it as a ball and chain.
In the poll, we also invited respondents to expand on their feelings. Here’s what some of them had to say:
“Alt Fi has become a recognised brand and, while there is some blurring of the lines between 'traditional' and 'alternative' funders, Alt Fi has become associated with a more dynamic, flexible funding mind-set that reflects many UK SMEs.”
“[The term is used] because it is finance sourced from outside of the regulated banking and capital markets system - however the confusion stems from describing ONLINE channels of finance simply as 'alternative finance': the volume of offline channels of alternative finance (like private placements of debt) dwarf the volume of online channels (like P2P/marketplace lending).”
Of those with reservations, as Toby Lanyon of Trade River (UK) Ltd explains, this isn’t necessarily because it isn’t traditional bank funding in its own right. Toby uses the term "non-bank" to describe his offering to SMEs, highlighting a shift in the way SMEs see traditional lenders.
“We lend to businesses, who are naturally conservative and thus, equally naturally, pause at the word "alternative", so we use "non-bank"”
James Levy, who comments a lot on FinTech matters was unreserved in his opinion that it was harmful. He prefers the term 'marketplace lending'.
“Alternative finance is associated with many dubious products, such as gold mines in Ghana or tree farms in Belize. It is a damaged term due to unscrupulous operators having used this same terminology”
We even had some representatives from overseas platforms contributing to the debate, like Leo Tyndall, CEO of MarketLend in Australia. Leo also voted 'ball and chain' saying:
“Alternative is considered to be finance that doesn't meet the traditional needs of investors or borrowers, when realistically crowdfunding is the oldest way of lending”
While it has its doubters, the support for the term Alternative Finance clearly stems from a desire to be seen as something different to ‘traditional’ lenders, namely banks that, for many, became the antithesis of all that is good in financial services.
Of course, it is not only funding that is undergoing change. Alongside new forms of finance, we have seen the rise of FinTech services, such as ApplePay, which are transforming the way money is stored and transferred. Traditional banking is being unpacked into its constituent parts and businesses and consumers alike are seeing that more convenience, and often better value, is available by distributing their purchases.
The term ‘Alternative’ might diminish as the lines begin to blur in the future, but it has shown no signs of hampering the growth of finance or FinTech so far.
by Neil Edwards, 5 minute read
by Neil Edwards, 4 minute read