Crowd finance: what to expect in 2017

January 10, 2017 • By Emily Mackay

Crowdsurfer Founder and CEO Emily Mackay shares her views and predictions for the year ahead.

Crowdsurfer Founder and CEO Emily Mackay shares her views and predictions for the year ahead.

Emily, happy New Year!

And to you!

What is your general outlook for the crowd finance space in 2017?

Following on from a turbulent 2016, the next 12 months promise to be no less exciting, with investment in fintech only going one way: up.

At Crowdsurfer, we feel that crowd finance will feel the positive effects of that increase in investment in fintech. With uncertain macro themes playing out across the world, I have a hunch that traditional offline forms of finance will be further marginalised as finance couples with technology at an even greater pace. The key will be adaptation. Those who do not adapt will fall away.

In fact, Alibaba’s Jack Ma recently coined the phrase “techfin”, emphasising the primacy of technology in granting access to financial products and services for people from all backgrounds.

Sounds positive. Let’s take a look at some specific geographies. First, what’s your outlook for the UK?

Positive. It’s an exciting time for the UK, especially the UK’s more mature debt platforms, which I believe will be looking to make exits, under pressure from big names offering new platforms - Goldman Sachs’ new personal loan platform “Marcus” springs to mind (albeit a US offering at the moment) and Hargreaves Lansdown is set to launch an offer in 2017.

If it's not IPOs, then we can expect acquisitions and consolidation. The UK is still waiting for the IFISA to pick up, because the platforms need their full authorisation to operate, and the limited risk reduction (no FSCS , dampens appetite. If it's going to work then it'll have to happen in 2017.

In equity, crowd finance will be increasingly turned to by established British companies. Ultimately, entrepreneurs and companies – whether startups or later-stage – will follow the money. Crowd finance offers efficient, transparent and global access to capital, so it’s an attractive alternative and complement to traditional fundraising channels. The advantages of community building, feedback loops and PR are now well established.

And the US? Will the inevitable political instability have a negative effect on the American fintech sector?

Actually, I don’t think so. Unless there's substantial regulatory change, but under any administration that would happen slowly.

I think there will be limited effect on the fintech market, which remains hungry for efficiency and fresh opportunities to deploy, direct and access finance. So, I expect continued growth in a geography that, given its global status, is still only scratching the surface of its potential in fintech, especially in the crowd finance space. We’re expecting some big names to step up into the newly regulated equity space. In fact, Indiegogo already got there in 2016.

There's speculation that the incoming Trump administration, in conjunction with a Republican-controlled House of Representatives, could stimulate growth by relaxing legislation, resulting in increased fundraising activities amongst SME. It's speculation, but as we've seen, anything is possible!

One challenge may be for the large debt platforms, especially Lending Club, which is suffering from a steadily declining share price. They have a much to do to overcome a shaky 2016 - building trust and transparency are crucial for them in 2017. These developments have undermined confidence in the online lending sector somewhat, but robust platforms will endure.

In spite of this, and discounting the huge uncertainty that surrounds what will actually happen in the next 12 months in the US, I believe the fintech market generally will steadily increase its activity as crowd finance platforms and investors get ever more familiar and comfortable with regulations.

What about Europe? They’ve lost a key fintech partner in Britain. What’s the outlook there?

In short, Brexit shouldn’t hold Europe back. The interaction between the EU and Britain will continue and strengthen, in spite of the uncertain political outlook.

Ultimately, the UK remains an economic powerhouse and a key nexus for global capital, human resources and financial services. Europe and Britain need each other, and the rewards of continued collaboration are too great to ignore.

The UK will hold its position at the head of the fintech table with strong, steady growth, but both platforms and investors might become slightly more conservative when it comes to deal selection.

The UK regulator, the FCA, increasing its oversight of debt and equity platforms will drive up standards and encourage other markets to continue to follow in its footsteps. Increased and adjusted regulation will lead to increased trust and belief in the system; an early example of this is the prospectus limit reported to be raising to EUR8M, which will fuel prospects for equity capital raising.

Anywhere else in the world you’re excited about? EMEA, for example?

Elsewhere, I just don’t see any outcome but the volume of trade and number of platforms continuing to grow apace, especially in emerging markets such as Asia, Africa and the Middle East. These are the fastest growing regions and sectors in terms of number of platforms and volume. I don’t see that slowing down.

We may see some fragmentation in Asia, as the regional dominance of Singapore and Hong Kong is challenged in the face of increased fintech activity in Jakarta, Kuala Lumpur and Bangkok. It will be interesting to see if these countries decide to collaborate in order to facilitate regional growth and challenge European dominance over the sector, or go it alone. Singapore feels like the winner at the moment though.

China will be fascinating. It also looks to have a good outlook, with the impact of the government’s crackdown on rogue platforms having a positive effect, allowing the possibility of huge volumes to flourish under appropriate rules. China could really play a big role in the next 12 months now they're getting their regulatory framework in order. Watch that space.

So, on the whole, despite political uncertainty, it looks positive around the globe for fintech and crowd finance in 2017.

What other technological advances do you think could have an effect on the prospects for crowd finance in 2017?

The arrival of blockchain in the crowd finance world will affect us all in a substantial way, with money settlement, shareholdings and secondary trading creating new opportunities for debt and equity platforms. Blockchain will offer crowd finance platforms the opportunity to automate and scale in ways not possible before. Very exciting times here!

Anything to look out for? Anything jump out at you today as being something to be aware of in the coming 12 months? Any ‘known unknowns’?

It seems that property platforms might reach a critical mass, with the massive growth in 2016 cooling, as the market gets crowded and the hard work of scaling and sustaining kicks in. So, these players need to be given close attention by investors and regulators alike.

And what about ‘unknown unknowns’?

Well, there’s always the possibility of a seismic ‘blind-side’ shock or two! For example, there’s bound to be one or two unexpected scandals. Fraud can only be avoided in the "post-truth" era with more scrutiny and verification of all stages of the crowd finance process.

Again, like Blockchain, there are plenty of verification technologies waiting in the wings to do this job. They just need to be introduced to the market quickly and correctly.

So, on the whole, positive?

Very! It’s an exciting time for the crowd economy and fintech in general. Fintech is constantly expanding to allow inclusion of new products , services, technologies and business models. Blockchain, machine learning, big data, cybersecurity, insurtech, even regtech! With more and more players entering the sector, funding requirements will increase and so too will the need for better industry data analytics.