FinTech Credit Market Structure and Potential
While the FinTech credit market in most jurisdictions currently makes up less than 5% of the countries’ new credit applications, the market has expanded rapidly and considerably over the last few years. Between 2013 and 2015 alone, the credit market more than quadrupled in most European and North American jurisdictions. In China, it expanded by a multiple of nearly twenty. In short, the market potential for legitimate and reliable FinTech credit providers is increasing.
But how is Fintech Credit market structured?
Who is applying for finance through FinTech providers, and what are they using it for?
The research shows that it is mostly consumers who are seeking out these alternatives to traditional bank lending, along with small businesses and entrepreneurs. In the US, for instance, over 80% of FinTech lending was in the consumer sector. In New Zealand, consumer lending represents almost 100%, in India over 90%, and in Korea, France, Germany and most of Central and Eastern Europe, the numbers hover between 70% and 80% of consumer-based lending.
This holds true in almost all jurisdictions, except the UK, Australia, Japan and the Netherlands, where the focus is more strongly business-oriented. The majority of such business lending is invoice financing in these areas, primarily to help existing businesses maintain liquidity and cash flow while waiting for customer invoicing to be settled.
In general, business finance options include business lending as well as invoice financing, while consumer lending includes a wide range of types, including student loans.
FinTech credit markets around the world
The biggest FinTech credit market in the world is China, by a significant measure, topping $100 billion in new credit each year. This finance is a close to equal balance of consumer and business lending. In the meantime, the second-largest FinTech credit market, the US, trails at only around one-third that amount – just under $35 billion in 2015.
The Chinese market’s structure is also by far the largest, with close to 400 platforms. This appears to stem from the restrictive and highly legally controlled traditional banking and financing models that prevail in China today. In an economy that is seeing considerable growth in the entrepreneurial sector, contrasted with stringent financing from traditional financiers, many Chinese entrepreneurs are turning to new methods of finance.
Across the globe, these platforms generally work on either credit or equity models, ranging from peer-to-peer financing, to payday loans, to rewards-based and donation-based models, each with its own unique structure. The number of available platforms are also increasing globally.
For example, in the United Kingdom, during 2016, there were 21 active platforms with full regulatory approval. A further 32 platforms were operating with interim permission, while a staggering 66 new operators were under assessment, which would more than double the current market. Several countries are recognising the growing trends and have introduced financing legislation that specifically deals with FinTech
. In France, FinTech-specific legislation was introduced during 2014, ensuring that these platforms adhere to strict anti-money laundering regulations, among others. Due to this tightened control and improved guidelines, more operators were able to apply for licensing, and the market nearly quadrupled between 2013 and 2015 as a result.
While the existing market in most countries has expanded significantly over the last five years, the market is by no means saturated. As more and more people seek alternative financing options that are not linked to traditional banking models, the market potential shows no sign of slowing down just yet.