Australia could be the next burgeoning market for alternative forms of finance, if regulators keep up with consumer demand.
Speaking to Australian Broker, Luke Deer, a post-doctoral research associate at the University of Sydney, said Australia is ripe for disruption from alternative and innovative forms of finance – namely peer to peer lending and crowdfunding.
“I think there will be rapid growth in alternative finance in Australia in the coming years. I think a lot of the platforms have just been started in a very uncertain regulatory environment and that is something which has probably hampered their development to date,” he said.
“However, as that regulatory situation becomes clearer and is modified to take account of these new types of financing arrangements then I think the use and the scale of it will increase rapidly.”
Peer-to-peer (P2P) lending has already started to gain traction in the Australian finance market, with SocietyOne being the first P2P lender to launch in Australia in 2012 and a number of other platforms following suit.
Although P2P lenders are still yet to break into the residential mortgage market in Australia – instead currently focussing on debt consolidation, personal loans and SME lending – a number of them have already entered the third party channel.
According to Deer, as the regulators recognise the increasing strength of P2P lenders and adapt legislation accordingly, the market is likely to see a number of more new entrants.
“What has happened at the moment is peer-to-peer lenders in Australia have been able to operate under the old legislation, however, that legislation applies to much bigger financial institutions. To the extent there are modifications to those regulations in the future, this will bring more entrants into this market and they will be able to provide financial solutions more efficiently than encumbered players in those markets.”
Deer says the growing demand for alternative forms of finance, such as P2P lending, will be driven by the next generation of financial consumers.
“The other thing is with the uptake of the internet and social media, it is becoming more natural for younger generations in particular to increasingly do their financial transactions online – and why limit that to banking? Why can’t they be able to do that for a whole range of different financial needs?” he told Australian Broker.
“…as far as we can tell from other studies we have done, it will be the millennial generation in particular who will grow up where banking and finance is going to be more widely available and more mobile than it has in the past, which will ultimately lead to new forms of financing.”