The Asia-Pacific Alternative Finance Benchmarking Report

8/19/2019 The Asia-Pacific Alternative Finance Benchmarking Report

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In partnership with with the support of

Harnessing

PotentialT H E A S I A - P A C I F I C A L T E R N A T I V E F I N A N C EB E N C H M A R K I N G R E P O R TBryan Zhang

Luke Deer

Robert Wardrop

Andrew Grant

Kieran Garvey

Susan Thorp

Tania Ziegler

Kong Ying

Zheng Xinwei

Eva HuangJohn Burton

Hung-Yi Chen

Alexis Lui

Yvonne Gray

March 2016


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Research Team

Bryan ZhangBryan Zhang is a Director of the Cambridge Centrefor Alternative Finance and a Research Fellow atthe Cambridge Judge Business School. He has co-

authored six industry reports on alternative finance.

Luke DeerLuke Deer is a Post-doctoral Research Associateat The University of Sydney and a ResearchAssociate with the Cambridge Centre forAlternative Finance, Cambridge Judge BusinessSchool. He researches on alternative finance inChina and the Asia-Pacific.

Robert WardropRobert Wardrop is the Executive Director ofthe Cambridge Centre for Alternative Financeand a Research Fellow at the Cambridge JudgeBusiness School.

Andrew GrantAndrew Grant is a Senior Lecturer in the Discipline ofFinance at The University of Sydney Business School.He researches behavioural finance and decision

making processes by retail and institutional investorsin financial and betting markets.

Kieran GarveyKieran Garvey, Policy Programme Manager,Cambridge Centre for Alternative Finance,Cambridge Judge Business School. His researchinterests include the application of alternativefinance within developing countries, renewableenergy and early stage ventures.

Susan ThorpSusan Thorp is a Professor in the Discipline ofFinance at The University of Sydney BusinessSchool. Susan researches life cycle finance,particularly individual financial decision making,and financial market integration.

Tania ZieglerTania Ziegler is the Research Programme Manager,Cambridge Centre for Alternative Finance,Cambridge Judge Business School. Her research

interests include small business economics and SMEutilization of alternative funding models.


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Harnessing Potential — March 2016

Research Team

Kong YingKong Ying is a Professor and the Dean of SocialSciences and Management at the TsinghuaUniversity Graduate School at Shenzhen.

Zheng XinweiZheng Xinwei is an Assistant Professor at theTsinghua University Graduate School at Shenzhen.

Eva HuangEva Huang is a Lecturer in Business Law atThe University of Sydney Business School. Evaresearches China's taxation policies, laws andInternet finance.

John BurtonJohn Burton is a Research Associate at theCambridge Centre for Alternative Finance. Heachieved his PhD in astronomy and has beenworking in large-scale data analysis and modellingfor over 10 years. He built his own crowdfundingplatform for charitable causes.

Hung-Yi ChenHung-Yi Chen is an Assistant Research Fellow atthe Centre for Internet Finance Law Innovation,Shanghai Jiao Tong University and a PhD Candidate

at the Graduate School of Law, Nagoya University.

Alexis LuiAlexis Lui is a researcher at the CambridgeCentre for Alternative Finance, Cambridge JudgeBusiness School. His research interests includethe efficiencies and advantages of alternativefinance models, particularly the evolution of creditanalytics.

Yvonne GrayYvonne Gray is a Research Assistant at theUniversity of Sydney Business School. She hasworked for university research centres and industrybodies in the finance sector for more than 20 years.


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Forewords

Ian PollariPartner, Global Co-lead of Fintech, KPMG

Alternative finance is one of the fastest-growing sectors of the globalfinancial services industry, with 2015 witnessing an unprecedented level of

funding. Asian fintech start-ups had a record year for investment activity,raising a total of USD$4.5 billion.

As the first comprehensive study of the Asia-Pacific online alternativefinance market, this research contributes to the growing body of datasupporting the region’s potential. The report highlights China’s position asthe world’s largest online alternative finance market and details the broad-based ascent of the sector across the rest of the Asia-Pacific region.

2016 is predicted to be the year where ‘alternative’ financial options finally join the ranks of the mainstream. We foresee continued growth in awarenessamongst Asian consumers and businesses of the viable funding options

alternative finance platforms can provide. We also anticipate greater levelsof collaboration between incumbent financial organisations and alternativefinance platforms, following the trend observed in the US and UK markets.

With five of the world’s top 10 countries based on smartphone ownershipcoming from the region and observing higher rates of female participationin alternative finance markets, Asia has the potential to create world-leadingonline lending and funding platforms. KPMG is proud to partner withthe University of Cambridge, Tsinghua University and The University ofSydney on this important initiative and we look forward to engaging keystakeholders in the Asia-Pacific alternative finance eco-system over thecoming months.


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We would like to thank the following platforms for their contribution

StartupFundingMade Easy

StartupFundingMade Easy


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Platforms


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Platforms


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Executive SummaryOnline alternative finance is developing rapidly in the Asia-Pacific

region. It is characterised by innovative financial instruments and

channels that fall outside the traditional avenues of capital raising

and financial intermediation. From reward-based crowdfunding

to peer-to-peer consumer and business lending (i.e. marketplace

lending), to invoice trading and equity-based crowdfunding, these

online alternative finance activities are directly connecting lenders

to consumer and small business borrowers, raising venture capital

for start-ups, funding the creative industries and creating new ways

for individuals and institutions to choose how and to whom money

is distributed, lent and invested.


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This benchmarking research is the first comprehensivestudy of the Asia-Pacific online alternative financemarket. It has been conducted by an internationalresearch team from the Cambridge Centre forAlternative Finance at Cambridge Judge Business

School, the Tsinghua University Graduate School atShenzhen and The University of Sydney BusinessSchool, in partnership with KPMG and with the supportof the ACCA and CME Group Foundation. Working withover 20 industry research partners, together we havesystematically collected survey data from 503 leadingalternative finance platforms operating in 17 Asia-Pacificcountries and regions, out of which, 376 were frommainland China.

Our definition of online alternative finance focuses onthe provision of finance to individuals and businesses

through alternative channels via online marketplacesoutside of the banking system. It excludes activities suchas peer-to-peer insurance, online money market funds orthird-party payments. The report captures an estimated70% of the visible market, and estimates that the totalAsia-Pacific online alternative finance market grew 323%year-on-year to reach $102.81 billion USD in 2015.

Market Size and Growth

China is the world’s largest online alternative financemarket by transaction volume, registering $101.7 billion(or RMB 638.79 billion) in 2015.1 This constitutes almost

99% of the total volume in the Asia-Pacific region. Incomparison, the total size of the UK online alternativefinance market was $4.5 billion (or £3.2 billion) in 2015.2 The Chinese online alternative finance market grew froma relatively low base of $5.56 billion in 2013 to reach $24.30billion in 2014 and then went on to reach $101.7 billion in2015 – an average growth rate of 328% between 2013 and2015. Marketplace/peer-to-peer consumer lending is thelargest market segment in China with $52.44 billion lent,followed by marketplace/peer-to-peer business lending($39.63 billion) and real estate lending ($5.51 billion).Online invoice trading reached $1.46 billion, equity-based

crowdfunding recorded $948.26m and reward-basedcrowdfunding rose to $829.52m in 2015.

Excluding mainland China, the rest of the Asia-Pacificregion recorded a volume of USD $1.12 billion in 2015with a 313% year-on-year growth rate from the $271.94million raised in 2014. Japan’s online alternative financemarket accrued $360.23m in 2015, followed by $348.37moriginated in Australia, $267.77m in New Zealand,$41.18m in South Korea, $39.91m in India and $39.76min Singapore. However, New Zealand has the highestalternative finance volume on a per capita basis outsideof China with $59.37 per capita, followed by Australia

($14.83), Singapore ($7.27), Japan ($2.83) and Hong Kong($1.28). China’s alternative finance market volume percapita stands at $74.54 in 2015.

In terms of prevailing market segments outside ofChina, marketplace/peer-to-peer business lending wasthe largest with $355.51m, followed by market/peer-to-peer consumer lending ($326.22m), balance sheetbusiness lending ($120.62m), invoice trading ($116.95m),reward-based crowdfunding ($81.22m) and equity-basedcrowdfunding ($64.13m).


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Executive Summary

Alternative Business Financing andInstitutional Funding

Business financing accounted for 44% of total onlinealternative finance activity in China with a total of $45

billion in 2015. Outside of China, the total volume of onlinealternative business funding reached $686 million in theAsia-Pacific region in 2015, growing from $103 million in2013 to $191 million in 2014, with an average growth rate of172% per annum over the period 2013 to 2015.

The level of institutional funding in online alternativefinance is notably higher in the wider Asia-Pacific regionthan it is in mainland China. Institutional investorsfunded 63% of the financing for marketplace/peer-to-peerconsumer lending in the Asia-Pacific region outside ofChina, for example, versus just 10% of the marketplace/

peer-to-peer consumer lending volume in China. Whilethe funding side of the Chinese online alternativefinance market appears to be dominated by individualinvestors, there is a high level of institutional ownership of alternative finance platforms in China. Approximately23% of surveyed Chinese platforms indicated that either atraditional financial institution (i.e. a bank) or other typesof institution investor owned a majority interest in theplatform - a much higher level than the rest of the Asia-Pacific region (6%). A further 15% of surveyed Chineseplatforms stated that a major corporation, such as ane-commerce company, is a majority shareholder.

Funders and Fundraisers

The Asia-Pacific region appears to have relatively highrates of female participation in the online alternativefinance markets. According to our survey responses, inthe Asia-Pacific countries (excluding China), 33% of theborrowers on marketplace/peer-to-peer consumer lendingplatforms are women, and 23% and 13% of fundraisers/entrepreneurs in rewards and equity-based crowdfundingare also women. In China, the female market participationrate is also high, with around 40% of the lenders on

marketplace/peer-to-peer consumer and business lendingplatforms being women. Approximately 19% of theborrowers on marketplace/peer-to-peer business lendingplatforms and over 10% of the fundraisers on equity-basedcrowdfunding platforms are women as well.

Regulation and Industry Perception

The regulatory environment for alternative financeacross the Asia-Pacific is diverse and rapidly changing.Whilst some countries such as Singapore and Thailand

have opted to regulate alternative finance withinpre-existing regulatory frameworks, others, such asMalaysia, New Zealand and recently South Korea, havecreated bespoke regulation to govern equity and debt-based alternative finance activities. In general, thesurveyed platforms in New Zealand and Malaysia felttheir existing and proposed regulation is adequate andappropriate, while platforms operating in Japan andSouth Korea were more concerned that the regulation intheir respective jurisdictions is too strict and excessive.In China, across alternative finance models, more thanhalf of surveyed platforms (with the exception of equity-

based crowdfunding) deemed the existing regulation tobe either inadequate and too relaxed, or recognised theneed for specific regulation to be implemented.

Harnessing Potential

This report has demonstrated that the Asia-Pacific onlinealternative finance market is fluid, diverse, increasinglycomplex and growing at a rapid pace. The opportunitiesfor the world's most populous region to harnessthe potential of alternative finance for innovation,economic growth, market efficiency, and creativity are

abundant. The present challenge is how to best nurturethe alternative finance industry, grow the market in asustainable manner and develop an appropriate andproportionate regulatory regime that strikes the rightbalance between encouraging financial innovation andprotecting the interests of consumers and investors.


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The Need for Research

The rise of new online alternative finance platforms hasgained international attention in developed English-speaking markets - particularly in the United States and

United Kingdom. Though there have been studies of thealternative finance industries in the UK3 , Europe4 andChina, there have been no comprehensive, academically-rigorous studies of alternative finance across the entireAsia-Pacific region.

With a quickly growing Asia-Pacific alternative financeindustry, it is becoming increasingly important tounderstand the growth and development of the sector toinform policy making, business practice, to raise publicawareness and to contribute to academic research inorder to harness the potential of alternative finance. The

Asia-Pacific region includes China’s online alternativefinance market, which makes up the bulk of the region’sactivity. China’s alternative finance market has attractedrecent international attention due to its large size, butalso due to perceived inherent risks in its high rate ofgrowth. While there have been several industry reportspublished by Chinese companies, this is the first study toattempt to benchmark the Chinese market with a set ofcomparable international standards.

The diversity, innovation and intricacy of the variousemerging alternative finance models in the Asia-Pacific region deserve critical examination and closer

scrutiny. There is an urgent policy need to study theAsia-Pacific alternative finance market, given that itis largely unregulated with many countries currentlydeveloping their respective regulatory frameworks. Newand proposed regulations are being debated in manycountries, including Australia, Singapore, South Koreaand China. Given the rapid development of the sector,it is crucial that policies and regulation are informed byup-to-date and rigorous studies to facilitate data-driven,evidence-based approaches in order to best harness thesector’s potential.

An Asia-Pacific Area Study

The Asia-Pacific region is vast, both in terms ofgeography and population, as well as being one ofthe most culturally diverse regions in the world. It

spans mainland China, East Asia, Oceania, SouthEast Asia and South Asia. The region encompassescapital-rich developed markets including Japan,South Korea, Australia, New Zealand, Singaporeand Hong Kong. It also includes many of the mostpopulous and fastest growing developing countriesin the world - including China, India, Indonesia,Malaysia, the Philippines and Thailand. Ourbenchmarking research has gathered validatedsurvey responses from 17 countries in the region.

A Collaborative Research Strategy

The challenge of identifying and conducting a primarysurvey across such a wide range of countries, culturesand languages could only be achieved through acollaborative research approach. In the first instance,this involved a partnership between three mainuniversity research institutions: the Cambridge Centrefor Alternative Finance at the University of CambridgeJudge Business School, The University of SydneyBusiness School and the Tsinghua Graduate School inShenzhen in mainland China. Our core research teamalso expanded to include researchers from Nagoya

University in Japan, Ahmedabad University in Indiaand the University of Amsterdam in the Netherlands.The Shanghai Jiaotong University Centre for InternetFinance Law Innovation in Shanghai also participated inthe research project once the survey was underway.

Over 20 industry research partners also joined theproject. The survey is supported by KPMG, theACCA, CME Group Foundation and 20 leadingalternative finance industry and academic researchpartners across Asia-Pacific and beyond. Theseinclude: Crowdfunding Institute of Australia, LendIt,

Crowdfund China Society, Hong Kong CrowdfundingAssociation, Wangdaizhijia, New Zealand CrowdfundingSociety, Japan Crowdfunding Council, CrowdfundAsia Association, Korean FinTech Forum, ShenzhenCrowdfunding Association, Change Fusion Thailand,

Introduction


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World Crowdfunding Conference, Crowdsourcing Week,Crowdfund Vibe, FinTech Hong Kong, Asian VenturePhilanthropy Network, China UnionPay Smart Big DataCentre, Crowdfund Insider and Thomson Reuters.

Online Questionnaire

To ensure the consistency and validity of thisbenchmarking exercise, the research team soughtto collect aggregate-level market data directly fromalternative finance platforms via a secure web-basedquestionnaire. The survey aimed to capture the size andtype of alternative finance activity across models in theAsia-Pacific region between 2013 and 2015. The surveywas written and distributed in English and translatedand distributed in Chinese (simplified and traditional),

Japanese and Korean. The survey included a platform-model taxonomy which was derived from our previousbenchmarking exercises in the UK and Europe, andthis taxonomy was further refined to reflect modeldevelopments observed in the course of our recentAmericas benchmarking study. A consistent taxonomyallows for comparative global research, which is definedlater in the report. All crowdfunding, marketplace/peer-to-peer lending and other alternative finance platformsoperating in the Asia-Pacific region were invited tocontribute to the survey, which remained open for 3months from November 12th 2015 until February 10th2016. An intensive programme of work was carried

out by a large research team in order to engage withplatforms individually across the 17 countries andregions surveyed.

Survey Responses, Data Verificationand Analysis

A total of 503 platforms based in the Asia-Pacific regioncompleted the primary survey. Of these, 376 came from

mainland China and 127 from the rest of the Asia-Pacificregion. As this study relies primarily upon self-reporteddata, individual survey responses were anonymisedand then aggregated by model to produce the reporteddata. We estimate that for Asia-Pacific countriesexcluding China, we captured approximately 85% of thetotal market volume in the region, with only a handfulof platforms operating at significant scale unable toparticipate in our benchmarking survey.

For mainland China, in addition to the 376 primary surveyresponses, we were able to draw on data from our research

partners Wangdaizhijia and the Shanghai JiaotongCentre for Internet Finance Law Innovation for the top100 leading alternative finance platforms, measuredby market volume in mainland China. The rapidlydeveloping scale, fragmentation and unregulated natureof online alternative finance in China means that thereis no verifiable, publicly available database that detailsthe volume and permeation of online alternative financeactivity in the country. However, we are confident that thedata collected during the course of this study is the mostreliable data set currently available.

We sought to verify the Asia-Pacific region survey data

and the mainland China survey data in two ways. Forplatforms in Asia-Pacific countries outside of China,we checked the primary reported survey data againstthe online reporting by platforms themselves for bothvolume and financing model type. Where there werediscrepancies, or the data had not been broken downby model type, for instance marketplace/peer-to-peerconsumer and business lending, or mixed crowdfundingmodels, we sought to directly verify the data and financingbreakdown with the platforms by phone or email. Formainland China, we conducted online checks of all of theplatforms which had reported mixed financial models,

which accounted for over one third of those surveyed, toverify the specific types of financing models. Our researchpartner Wangdaizhijia also cross-checked the totalreported financing volume for each platform with their


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Introduction

own data where available in 2013, 2014 and 2015. Wherethere were large diff erences in the reported survey volumefor a platform versus Wangdaizhijia’s data, we revised thereported survey data downward to a level more in linewith Wangdaizhijia’s estimates. Wangdaizhijia is an online

data provider which tracks Internet finance in China andwhose data gathering is based upon direct telephonesurveys and online scraping of platforms operating withinmainland China.

One of the challenges of collecting and verifying datain China is accurately classifying the nature of manyInternet finance platforms. Platforms may describethemselves as facilitating marketplace or peer-to-peerlending in China, but in reality are operating wealthmanagement companies and unregulated shadow banks.These companies advertise online products off ering

a certain ‘expected return’, but aside from checkingthe reported volume, we have no way of verifying theirreal financial models and activities. We discuss thesequestions in more detail in our mainland China sectionof the report. With this caveat in mind, we estimate thatour survey captured 70% of the visible online alternativefinance market in China.

Furthermore, in order to obtain the most up-to-datealternative finance volumes available, some platformswere scraped for data to complement the surveysdistributed. This was achieved through the use of pythonscripting and widely-used web-scraping methodologies.

We then verified this data by matching it against platformpublished figures for the past 6 years before adding thisplatform data to the primary data set.

After the data verification stage, all individual alternativefinance platform-specific data was anonymised andanalysed in aggregate, by model, region and country. Forthese reasons, our results can be viewed as a relativelyrobust and cautious measure of the sector.


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The Dynamics of the

Asia-Pacific Online AlternativeFinance Market

Outside of China and ranked by 2015 total volume, thesix largest online alternative finance markets in theAsia-Pacific region are Japan ($360.23m), Australia($348.37m), New Zealand ($267.77m), South Korea($41.18m), India ($39.91m) and Singapore ($39.76m).

However, as the figure below illustrates, if we rankthe Asia-Pacific countries and regions by total onlinealternative finance market volume per capita, the rankingchanges notably with New Zealand coming second to just China with $59.37 USD in market volume per capita,

followed by Australia ($14.83), Singapore ($7.27), Japan($2.83), Hong Kong ($1.28) and South Korea ($0.82).

Mainland China has the highest funding volume percapita of all the countries surveyed in the Asia-Pacific

region at almost $75 US dollars per person13. In contrast,India with a comparable population, registered only$0.03 in online alternative finance volume per capita.Malaysia's volume per capita was more than three timesthat of India at $0.11 USD.

Japan

Australia

New Zealand

Korea

India

Singapore

Taiwan

Hong Kong

Malaysia

Indonesia

Thailand

Mongolia

Philippines

Pakistan

Sri Lanka

Vietnam

$ 360.23m

$ 348.37m

$ 267.77m

$ 41.18m

$ 39.91m

$ 39.76m

$ 13.61m

$ 9.26m

$ 3.36m

$2.26m

$1.04m

$0.40m

$0.19m

$0.11m

$0.04m

$0.03m

$ 74.54

$ 14.38

$ 7.27

$ 2.83

$ 1.28

$ 0.82

$ 0.58

$ 0.14

$ 0.11

$ 0.03

$ 0.02

$ 0.01

China

New Zealand

Australia

Singapore

Japan

Hong Kong

Korea

Taiwan

Mongolia

Malaysia

India

Thailand

Indonesia

$ 59.37

Figure 6

Asia-Pacific Online Alternative Finance VolumesPer Capita by Country ($ USD)

Asia-Pacific Region (excluding China) TotalMarket Volumes by Country 2015 ($ USD)


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This analysis also compared total online alternativefinance market volume with countries' recorded percapita Gross Domestic Product (GDP). As the figureabove demonstrates, there is a very strong correlation

between per capita GDP and the volume of alternativefinance, with China being the notable outlier. Thevertical axis is presented as a logarithmic scale toshow the cluster of countries with very low volumeand GDP per capita14.

Australia and Singapore, shown on the top right handside of the chart, have the highest GDP per capitaand had some of the highest total alternative financevolumes. Pakistan, Vietnam, Philippines and Sri Lanka,being less developed economies in the region, areclustered in the lower left corner of the chart. In general,

it appears that as a country's per capita GDP rises,the alternative finance volume per capita also rises,possibly reflecting growth of both financing needs andhigher disposable income per person for alternative

funding and investment activities. This finding providessome support for growth assumptions used in theWorld Bank’s report into Crowdfunding in DevelopingCountries, which based its estimate for potential funding

volume in the developing world by 2050 on the projectednumber of people with incomes over $10,000 USD perperson as a proxy for disposable income15.

While the funding volume per capita in China isplotted as an outlier, being a vast country with an evenmore varied economic geography, a more appropriateapproach for this kind of analysis would examineChina's regional online alternative finance activities(e.g. by individual provinces) in the context of theireconomic development.

China

MongoliaMalaysia

Taiwan

GDP per Capita

Korea

Japan

Hong Kong

New Zealand

SingaporeAustralia

Vietnam

Pakistan

Philippines

Sri Lanka

Thailand

Indonesia

India

$ 0 $ 10,000 $ 20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 70,000

$100.00

$10.00

$1.00

$0.10

$0.01

$0.00

$0.00

V o l u m

e p e r C a p i t a

Figure 7: Total Alternative Finance Volume per Capita vs GDP per Capita in the Asia-Pacific Region ($ USD)


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The Diversity of the

Asia-Pacific Online AlternativeFinance Market

Online alternative finance can be broken down bythe specific type of funding model. The Asia-PacificBenchmarking Research survey adopted a workingtaxonomy of alternative finance models, which has beendeveloped in the 2013, 2014 and 2015 UK and European

studies by the University of Cambridge and its research

partners16. Broadly speaking, the taxonomy consists ofmarketplace/peer-to-peer lending models, balance sheetlending models and various crowdfunding models asillustrated in Table 1. We did not include alternativepayments, online market funds and conventional

microfinance in this study.

Table 1: A Working Taxonomy of Online Alternative Finance Models

AlternativeFinanceModel Definition

Marketplace PP Consumer Lending

Individualsorinstitutionalfundersprovidealoantoaconsumerborrower.

Balance Sheet

Consumer LendingTheplatformentityprovidesaloandirectlytoabusinessborrower.

Marketplace PP Business Lending

Individualsorinstitutionalfundersprovidealoantoabusinessborrower.

Balance Sheet Business Lending Theplatformentityprovidesaloandirectlytoabusinessborrower.

Marketplace PP Real−estate Lending

Individualsorinstitutionalfundersprovidealoansecuredagainstapropertytoaconsumerorbusinessborrower.

Invoice TradingIndividualsorinstitutionalfunderspurchaseinvoicesorreceivablenotesfroma

business(atadiscount).

Equity−based Crowdfunding Individualsorinstitutionalfunderspurchaseequityissuedbyacompany.

Equity−based Real Estate Crowdfunding

Individualsorinstitutionalfundersprovideequityorsubordinated−debtfinancingforrealestate.

Reward−based CrowdfundingBackersprovidefinancetoindividuals,projectsorcompaniesinexchangefornon−monetaryrewardsorproducts.

Donation−based CrowdfundingDonorsprovidefundingtoindividuals,projectsorcompaniesbasedonphilanthropicorcivicmotivationswithnoexpectationof monetaryormaterial

return.

Revenue Profit− Sharing Crowdfunding

Individualsorinstitutionalfundersprovidealoantoabusiness,whererepaymentisdeterminedbyapercentageof futurerevenuesorprofits.


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The main diff erence in this report from earlier reportsis the inclusion of balance sheet lending as a categoryseparate and distinct from marketplace/peer-to-peerlending. The orthodox alternative finance lendingmodel is commonly referred to as peer-to-peer (P2P)

or marketplace lending, where the platform allowsindividual and institutional lenders to invest directly orindirectly into loan instruments issued by the borrowersraising finance on a platform. In this model, theplatform may manage an investor’s funds based uponthe investor’s credit risk appetite and lending criteria,but the platform does not use its own balance sheet tounderwrite a loan. Balance sheet lending platforms arefundamentally diff erent in that the loan is underwrittendirectly from the platform's own balance sheet anddoes not rely upon a marketplace (of individuals orinstitutions) to provide funds to the borrower.

According to this working taxonomy, and as the figurebelow shows, the largest market segment in the Asia-Pacific region (excluding China) by 2015 volume ismarketplace/peer-to-peer business lending ($355.51m),followed by marketplace/peer-to-peer consumer lending

($326.22m), balance sheet business lending ($120.62m),invoice trading ($116.95m), reward-based crowdfunding($81.22m) and equity-based crowdfunding ($64.13m).

Looking at the development of the Asia-Pacific onlinealternative finance market between 2013 and 2015,it is evident that the burgeoning industry has beendominated by the prevalence of marketplace/peer-to-peer lending models. Over the last three years,the combined marketplace/peer-to-peer consumerand business lending accounted for around 60% ofthe total market volume in the Asia-Pacific region,

excluding China.

$ 0m $ 50m $ 100m $ 150m $ 200m $ 250m $ 300m $ 350m $ 400m

Marketplace/P2P Business Lending

Marketplace/P2P Consumer Lending

Balance Sheet Business Lending

Invoice Trading

Reward-based Crowdfunding

Equity-based Crowdfunding

Donation-based Crowdfunding

Real Estate Crowdfunding

Marketplace/P2P Real Estate Lending

$ 355.51m

$ 326.22m

$ 120.62m

$ 24.62m

$ 116.95m

$ 81.22m

$ 64.13m

$ 18.94m

$ 14.99m

Figure 8: Asia-Pacific Region (excluding China) Market Volumes by Alternative Finance Model 2015 ($ USD)


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The Diversity of the Asia-Pacific Online Alternative Finance Market

Looking at the individual online alternative financemodels more closely:

Marketplace/peer-to-peer business lending was thelargest alternative finance funding segment within

the Asia-Pacific region, excluding China, for threeconsecutive years recording $79.98m in 2013, $111.36min 2014 and facilitated almost $356m worth of loans toSMEs. The lending volume of the sector grew from arelatively high base while maintaining a substantialaverage year-on-year growth rate of 129% between 2013-2015. Over the last three years, marketplace/peer-to-peerbusiness lending accounted for 36% of the total Asia-Pacific online alternative finance market volume.

Marketplace/peer-to-peer consumer lending is themost rapidly growing alternative finance sector in theAsia-Pacific region outside of China, with an averageyear-on-year growth rate of 653% between 2013-2015. Thelending volume for marketplace/peer-to-peer consumer

lending grew from a low base of less than $8m in 2013, to$28.5 million in 2014 and has scaled rapidly to more than$326m in 2015. The rapid scaling of marketplace/peer-to-peer consumer lending in 2015 reflects recent platformdevelopment stemming from growing institutionalinvolvement and an increasing number of individuallenders. This has translated into increased sophisticationof the platform operations and an increase in capacity tofund greater numbers of borrowers.

20142015 2013

$ 0m $ 50m $ 100m $ 150m $ 200m $ 250m $ 300m $ 350m $ 400m





Invoice Trading



Real Estate C rowdfunding


$ 111.36m$ 355.51m

$ 326.22m$ 28.53m

$ 39.59m$ 120.62m

$ 81.22m

$ 116.95m

$ 64.13m

$ 24.62m

$ 18.94m

$ 14.99m

$ 12.06m

$ 13.10m

$ 0.25m

$ 6.30m

$ 7.99m

$ 0m

$ 20.06m$ 6.75m

$ 5.25m$ 0m

$ 41.74m$ 18.38m

$ 7.88m

$ 9.90m

$ 79.98m

Figure 9: Asia-Pacific Region (excluding China) Market Volumes by Alternative Finance Model 2013-2015 ($ USD)


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Balance sheet business lending was the third largestsegment of the online alternative finance market in Asia-Pacific countries outside of China, with almost $121mbeing lent in 2015, up from $40m in 2014, and from $10min 2013. Balance sheet business lenders target small

businesses. It must be noted that all of the balance sheetlenders identified in the survey were based in Australiaand lend to the Australian domestic market with anaverage growth rate of over 252% between 2013 and 2015.

Invoice trading enables businesses to sell theirinvoices or receivables at discount for mostly workingcapital, usually to a pool of primarily high-net worthindividuals or institutional investors. From a negligiblevolume base in 2013, invoice trading volume grew byan average year-on-year growth rate of 1064% between2013 and 2015 to almost $117m in 2015.

Reward-based crowdfunding is the largest non-financialreturn based alternative finance model by volume withinthe Asia-Pacific region, outside of China. Reward-basedcrowdfunding platforms in key countries within theregion are well established to provide finance to creativeindustries - particularly film, music, art and other formsof cultural production – as well as for technology projectsand ventures. Excluding China, the total reward-basedcrowdfunding volume within the Asia-Pacific region in2015 was more than $81m, almost double the $41.7m raisedin 2014 which, in turn, was more than double the 2013volume of $18.4m.

Equity-based crowdfunding raised over $64m in theAsia-Pacific countries in 2015. This model involves thesale of equity (or equity-like) securities, mostly issuedby early stage firms, to 'qualified' individuals (e.g.sophisticated investors or high-net worth individuals)and institutional investors. Where regulation permits,retail investors may also participate in the model. Thevolume of equity-based crowdfunding has been restrictedacross most countries in the Asia-Pacific region becausemost countries have no regulatory framework thatallows for retail investor participation through general

solicitation and advertising. Equity-based crowdfundingin the Asia-Pacific countries, therefore, typically consistsof small online private placements or angel investing forearly stage venture investment.

Donation-based crowdfunding is growing across theAsia-Pacific region, as it allows individuals to givedirectly to community projects, social enterprises andindividual cause-based philanthropic projects. Fromthe platforms surveyed, donation-based crowdfunding

raised almost $25m across Asia-Pacific countries in2015, up from $12m in 2014 and $6.3m in 2013. Thesedonations were reported by locally-based platform inthe Asia-Pacific countries who completed the survey.The actual volume for donation-based crowdfundingbetween 2013 and 2015 is likely to be substantiallyhigher than this as we were unable to capture alldonation-based crowdfunding data for projects fundedby US-based platforms.

Equity-based real estate crowdfunding usuallytakes the form of direct investment into a property by

individuals or institutional investors, usually throughthe sale of an equity instrument issued by a specialpurpose vehicle (SPV) established to facilitate thefinancing for a single project. The total surveyedfunding volume for equity-based real estate investmentin 2015 was almost $19m - over half of which originatedfrom platforms in Singapore.

Marketplace/peer-to-peer real-estate lending takes theform of property-secured lending transactions betweenindividuals or institutions to businesses, most of whichare property developers. The volume of marketplace/peer-to-peer real estate lending reported by surveyed platforms

has risen from negligible volume in 2013 to approximately$15m in 2015.


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Online Alternative Finance Modelsin Mainland China

In mainland China, the online alternative financemodels surveyed in this study are generally referencedwithin the broader category of 'Internet finance'. Broadlyspeaking, Internet finance providers includes bothtraditional financial institutions that have moved onlineand non-traditional financial platforms off ering onlinefinancial products or services. In China, Internet financealso includes online money market funds, online wealthmanagement products, online microfinance platformsand online mobile payments. While these are an

important part of the rapidly evolving Internet financelandscape in mainland China, this benchmarking studyadopted a narrower research scope and focused on thealternative finance models outlined in our taxonomy

above in order to enable cross-regional comparison and

in-depth research at an international level.

The key models captured in mainland China include thoseappearing in the Asia-Pacific taxonomy, with the addition ofbalance-sheet consumer lending and revenue/profit sharingcrowdfunding. While forms of equity-based alternativefinance are growing in China, in 2015 the volume facilitatedthrough lending platforms to either consumers orbusinesses was 25 times the volume of equity, donationand reward-based models combined. The three largestalternative finance models surveyed in mainland China forthis report were marketplace/peer-to-peer lending models

in consumer lending, business lending and real estatelending respectively, as illustrated in Table 2 below.





Invoice Trading





36%

24%

11%

9%

8%

6%

3%

3%

1%

$ 0% 5% 10% 15% 20% 25% 30% 35% 40%

Figure 10: Asia-Pacific Region (excluding China) Alternative Finance Models by Market Share 2013-2015


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Table 2: China Online Alternative Finance Market Size in 2015 by Model ($USD)

AlternativeFinanceModel Volume

Marketplace PP Consumer Lending $2.44 b

Marketplace PP Business Lending $3.3 b

Marketplace PP Real Estate Lending $.1 b

Invoice Trading $1.4 b

Equity−based Crowdfunding $4.2 m

Reward−based Crowdfunding $2.2 m

Balance Sheet Business Lending $.32 m

Donation−based Crowdfunding $141. m

Balance Sheet Consumer Lending $11.0 m

Profit Revenue−Sharing Crowdfunding $3.3 m

Over the last three years, these three debt-based onlinealternative finance models have recorded explosivegrowth in mainland China. Between 2013-2015,marketplace/peer-to-peer consumer lending facilitated$70.59 billion of loans in total with a three-year averagegrowth rate of 269%. Marketplace/peer-to-peer business

lending provided $49.11 billion worth of capital to smalland medium-sized enterprises (SMEs) over the last threeyears, with an average growth rate of 425%. Althoughthe market size of marketplace/peer-to-peer real estatelending is small in relative terms, that segment of

the market still provided $7.23 billion in total financebetween 2013-2015 with a 400% average growth rate.In total, marketplace/peer-to-peer lending platformsfacilitated $129.53 billion worth of loans over the lastthree years. Such rapid growth introduces an array ofrisks and challenges, perhaps made more obstreperous

by the lack of market regulation. With recent high-profile scandals and the collapse of large numbersof marketplace/peer-to-peer lending platforms, theprospects and sustainability of these models in Chinaremains to be seen.


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Marketplace/Peer-to-Peer Consumer Lending is

the largest category of online alternative finance inmainland China. The reported market volume in 2015was $52.44bn, up from $14.3bn in 2014 and $3.85bnin 2013. Marketplace/peer-to-peer consumer lendinghas grown rapidly to service the increasingly diversefinancial needs of individuals and households in China,particularly in urban areas, and encompasses all formsof consumer credit from personal loans to auto andhousing finance to student loan markets. Marketplace/peer-to-peer consumer lending platforms have grownrapidly by off ering a wide variety of unsecured micro-loans and consumer credit on terms more flexible than

traditional banks, which have been slow in respondingto rapidly diversifying consumer financing needs. Whilethe dominant share of this marketplace/peer-to-peerconsumer lending is for consumer finance, individual

and family-scale business operators also draw on

consumer marketplace/peer-to-peer lending platformsfor their short-term working capital needs. The averageannual growth rate for the marketplace/peer-to-peerconsumer lending from 2013 to 2015 was nearly 270%.

Marketplace/Peer-to-Peer Business Lending is thesecond largest category of online alternative financein mainland China with reported market volume of$39.6bn in 2015, up from $8bn in 2014 and $1.44bn in2013. Although the traditional, state-owned commercialbanks have diversified their business lending over thepast decade, the demand from small and medium size

enterprises for loans and for more flexible lending termsremains high in China and new online entrants haveemerged to meet this demand. Marketplace/peer-to-peerbusiness lending has grown even more rapidly than

Figure 11: Market Volumes in Mainland China by Alternative Finance Model (2013-2015) ($ USD)





Invoice Trading




Balance Sheet Consumer Lending

Profit/ Revenue-Sharing Crowdfunding

20142015 2013

$ 52.44bn

$ 39.63bn

$ 14.30bn

$ 8.04bn

$ 1.44bn

$ 5.51bn

$ 950m

$ 1.46bn$ 260.98m

$ 25.59m

$ 829.52m

$ 565.32m

$ 141.69m

$ 117.90m

$ 37.73m

$ 29.98m

$ 137.45m

$ 0m

$ 23.36m

$ 0m

$ 1.41m

$ 1.81m

$ 0m

$ 0m

$ 0m

$ 26.13m$ 0.33m

$ 1.48bn$ 0.23bn

$ 3.85bn


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marketplace/peer-to-peer consumer lending in recentyears, at an average annual growth rate of 425% between2013 and 2015, albeit from a low initial funding base.

Marketplace/Peer-to-Peer Real Estate Lending is

a relative nascent form of online alternative financein China. It is a secured form of lending with loanproceeds used for the construction and financing of realestate projects. The reported volume of marketplace/peer-to-peer real estate lending in our mainland Chinasurvey was over $5.51bn in 2015, up from $1.48bn in2014 and $234.3m in 2013. The total volume increasedby an average annual growth rate of 403% between 2013and 2015.

Invoice Trading platforms in China facilitated $1.46bnin 2015, up from a reported $25.60m in 2013. Over the

three year period, this generated an annual averagegrowth rate of 689%. The prevalence of this modelillustrates the demand for faster and more flexible waysof obtaining working capital from mostly small andmedium-sized enterprises.

As the figure illustrates above, between 2013-2015,various forms of crowdfunding surpassed $2billion markin mainland China. Notably, the total crowdfundingmarket volume in 2013 was just $1.73m.

Equity-based crowdfunding is the largest market segmentwithin crowdfunding with $948.26m raised just in 2015.Although equity-based crowdfunding is not yet legalisedin mainland China, draft rules for the sector were releasedby the State Assets Commission (SAC) in 2015 and severalplatforms have registered with the SAC to conduct equity-based crowdfunding operations17. Most early stage, seedstage funding investment in China currently takes the formof unregulated private placement activity. A number of theplatforms that responded to our survey reported that theirequity-based crowdfunding models were 'private-placementled equity-investment mechanisms' utilising both online

and offl

ine channels. Some surveyed platforms describedtheir activity as 'online angel-investing' or 'clubbedinvesting', whilst other platforms facilitate equity-basedtransactions more akin to the online equity crowdfundingwe have observed in the UK and the US markets.

Figure 12: China's Online Alternative Lending Volume 2013-2015 ($ USD)

$ 0bn $ 20bn $ 40bn $ 60bn $ 80bn $ 0bn

2015

2014

2013

$ 5.56bn

$ 24.24bn

$ 99.73bn


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Reward-based Crowdfunding in mainland China isrelatively well-established, with $829.52m raised in 2015according to our survey data. While the earliest reward-based crowdfunding platform were grass-roots start-ups,a number of China’s largest e-commerce companies

have also started reward-based crowdfunding platformssince 2013. This has allowed these new, corporate-backedreward-based platforms to draw on large pre-existingsupplier and customer bases to scale their off erings andfunding campaigns. From a low base, the average growthrate of reward-based funding in our survey was 2349%between 2013 and 2015. Platforms from outside thecountry raised less than 1% of the total amount of reward-based crowdfunding within China.

Donation-based Crowdfunding in China includes bothgrass-roots platforms and a smaller number of new

platforms from e-commerce companies. $141.69m wasraised according to our survey data for donation-basedcrowdfunding campaigns in China in 2015, the first yearin which significant levels of volume were obtained.

Revenue-based / Profit Sharing Crowdfunding is a formof investment-crowdfunding which pays a share of eitherthe revenue or profit of a small business to the lenderswho have provided it with loan funding. Revenue-based / profit sharing crowdfunding platforms reported raising

$37.73m in 2015 from lenders within mainland China.

Balance Sheet Business Lending is a relatively newmodel in China and recorded just $1.81m in 2013,increasing to $137.45m in 2014 and $565.32m in 2015,corresponding to a 311% year-on-year growth rate.

Balance Sheet Consumer Lending reported lending ofalmost $118m to consumers in 2015, up from $23.36m in2014, a growth rate of 405% over the two years.

Figure 13: China’s Crowdfunding Volume 2013-2015 ($ USD)

$ 0m $ 200m $ 400m $ 600m $ 800m $ 1bn $ 1.2bn $ 1.4bn $ 1.6bn $ 1.8bn $ 2bn

2015

2014

2013

$ 56.12m

$ 1.96bn

$ 1.73m


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43/96

2’000’000

1’500’000

1’000’000

500’000

0

2013 2014 2015

21,622

508,703

46,098

893,222

135,882

1,602,942

Fundraisers Funders

Asia-PacificOnline Alternative Finance

Market Fundamentals

Funders and Fundraisers in theAsia-Pacific Region

The number of market participants providing fundsin the Asia-Pacific region, excluding China, has grown

dramatically from 508,703 in 2013 to more than 1.6million in 2015. The number of entities raising funds hasalso increased markedly, from approximately 21,600 to136,000 between 2013 and 2015. The ratio of funders tosuccessful fundraisers is trending downward, droppingfrom 23.5 in 2013 to 11.8 in 2014, which might suggest anincreasingly competitive market for the available funds.However, we need to be mindful that both funder andfundraiser numbers are likely to involve a large degree ofdouble counting.

Examining the number of funders per successfulfundraise by model type in the Asia-Pacific region,excluding China, paints a somewhat diff erent picture.Reward-based crowdfunding platforms typically have anaverage of 308 funders per campaign, each individually

contributing, on average, $102 towards the averagefundraise size of $31,411. In donation-based crowdfundingplatforms, on average it takes 42 donors to fund onefundraising project. On marketplace/peer-to-peerconsumer lending platforms, it typically takes 43 lendersto finance a consumer loan averaging $17,167.

By way of contrast, the fundraisings on business-focusedplatforms, such as invoice trading and balance sheetbusiness lending, have relatively few funders for eachsuccessful fundraise. Invoice trading platforms have an

Figure 16: Asia-Pacific Region(excluding China) Fundraisersand Funders (Individuals andInstitutions) 2013-2015

43


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Asia-Pacific Online Alternative Finance Market Fundamentals

average of 3 investors financing the purchase of a typical

invoice, with $43,868 being the average deal size. Sincebalance sheet business lending platforms lend their ownfunds there is only 1 investor per deal, with an averageloan size of $24,400. In the case of both models, borrowerstend to enjoy quick draw-down of borrowed funds.

Platforms facilitating funds for larger deals includemarketplace/peer-to-peer business lending, equity-basedcrowdfunding and real estate equity and lending models.The average number of funders per deal range between 26(real estate crowdfunding) and 55 (marketplace/peer-to-peer business lending). Equity-based crowdfunding exhibits

the largest average contribution per funder at $32,891.



Equity Based-Crowdfunding



Marketplace/P2P Lending ( Real Estate)


Invoice Trading

308

55

43

54

42

36

26

3

Figure 17: Asia-Pacific Region (excluding China) Average Number of Funders by Model in 2015


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Equity based-Crowdfunding

Marketplace/P2P Lending (Real Estate)


Invoice Trading

Rewards-based Crowdfunding

Balance Sheet Lending



$ 855,182

$ 778,062

$ 362,399

$ 131,642

$ 43,868

$ 31,411

$ 24,407

$ 17,167

$ 5,765

$ 0 $ 200,000 $ 400,000 $ 600,000 $ 800,000 $ 1m

Figure 18: Asia-Pacific Region (excluding China) Average Amount Raised by Model in 2015 ($ USD)

Figure 19: China Fundraisersand Funders (Individuals andInstitutions) 2013-2015

35m

30m

25m

20m

15m

10m

5m

0m

Fundraisers Funders

2013 2014 2015

348,209 718,199

1,433,973

4,986,122

9,002,096

31,227,281


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Popular Sectors for Donation- andReward-based Crowdfunding

Donation- and reward-based crowdfunding platformsreported funding a diverse range of sectors, with

donation-based models, unsurprisingly, reportingCharity & Philanthropy as the most popular sector forfunding purposes, followed by Health & Social Workand Community & Social Enterprise. Reward-basedcrowdfunding platforms were popularly used to fundArt, Music & Design projects, with Technology andCommunity & Social Enterprise campaigns also featuringprominently. The results of the survey make it apparentthat the reward-based and donation-based platformsoperate in spaces that are distinctly diff erent from themarketplace/peer-to-peer lenders and other financialreturn-based models.

The majority of the business lending was to theManufacturing & Engineering sector, followed byAgriculture, and Business & Professional Services sectors.Balance sheet business lending and invoice trading alsoreport a large proportion of their funding being allocatedto the Manufacturing & Engineering sector. Companiesin the Technology sector are the dominant reward-basedfundraisers in China.

Funders and Fundraisers in China

The rapid growth of online alternative finance in Chinahas primarily been underpinned by strong demand formore flexible credit from individuals and small and

medium size businesses and by an increasing supply offunding from retail investors who are seeking returnswell above China’s prevailing bank deposit rates.

The total number of fundraisers (individuals and entities)reported by platforms to our survey rose from 348,209in 2013, to more than 1.4 million in 2014 and more than9 million in 2015. On the funding side, the number ofreported funders (individuals and entities) rose from over718,199 in 2013, to almost 5 million in 2014 and over 31.2million in 2015. Again, double counting is likely to be asignificant factor as funders may finance multiple loans

or projects on multiple platforms and fundraisers mayfundraise repeatedly within and across models.

The number of funders varies by sector and model.The largest average number of funders per fundraise isin marketplace/peer-to-peer consumer lending, whereaccording to our survey, it takes an average number of670 individuals or entities to finance a typical consumerloan. Marketplace/peer-to-peer business lending had anaverage of 383 lenders per loan, marketplace/peer-to-peer real estate lending had an average of 130 lendersper loan and equity-based crowdfunding and invoicetrading both had an average of 121 investors per deal.


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Invoice Trading

Equity Based-Crowdfunding

670

383

130

121

121

Figure 20: China Average Number of Funders by Model in 2015

$ 0m $ 0.5m $ 1m $ 1.5m $ 2m $ 2.5m

$ 53,982

$ 139,668

$ 263,310

$ 392,805

$ 448,350

$ 1m

$ 2.24mEquity based-Crowdfunding


Invoice Trading





Figure 21: China Average Amount Raised by Model in 2015 ($ USD)


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Invoice Trading


0% 10% 20% 30% 40% 50% 60% 70% 80%

67%

36%

33%

23%

17%

13%

6%

6%

5%

Figure 22: Proportion of Female Fundraisers in the Asia-Pacific Region (excluding China)

Female Participation in the Asia-Pacific Region

Alternative finance platforms were surveyed on theproportion of female funders and fundraisers who areactive on their platforms, with responses weighted by

reported volume within respective models between 2013-2015. In aggregate, female participation was higher on thefunding side than the fundraising side, representing 22%of funds provided and 17% of funds raised respectively.Participation by females varies markedly by alternativefinance models, with donation-based crowdfundingplatforms reporting the highest proportion of both femalefunders and fundraisers, at approximately 75% and 67%

for the region, respectively. Marketplace/peer-to-peerconsumer lending and reward-based crowdfundingregistered the second and third-largest proportion offemale funders, at 43% and 39% respectively, whilst equity-based real estate crowdfunding comprised the second-

largest group of female fundraisers at 36%. A numberof platforms did not identify the gender of participants,especially those with a large reported proportion ofinstitutional funders.


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Figure 23: Proportion of Female Funders in the Asia-Pacific Region (excluding China)

Figure 24: Proportion of Female Fundraisers in China 2015









Invoice Trading

0% 10% 20% 30% 40% 50% 60% 70% 80%

2%

6%

9%

11%

13%

33%

43%

75%

39%

Invoice Trading






Profit Sharing


0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

39%

36%

35%

21%

12%

10%

19%

19%


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Female Participation in China

The general level of female market participation inalternative finance in China is comparably high. Womenmade up of 39% of total fundraisers in invoice trading,36% in balance sheet consumer lending and 35% inbalance sheet business lending. Female borrowers alsoaccounted for between 21% and 19% of all marketplace/peer-to-peer lending borrowers. Women entrepreneursalso constituted 10% of fundraisers on equity-basedcrowdfunding platforms in China.

On the funding side, surveyed platforms also reported

a high level of market participation by women. Femaleborrowers accounted for 40% of both marketplace/peer-to-peer consumer and business lending and over 40%for invoice financing and balance sheet lending. 32% of

investors on equity-based crowdfunding platforms in

China are women.

The figure for female participation in marketplace/peer-to-peer consumer lending in China mirrors thoseseen in the rest of the Asia-Pacific region, which is 43%.However, the proportion of Chinese female borrowers inmarketplace/peer-to-peer business, the largest marketsegment in China, is much higher at 19% than the 9%in the rest of the Asia-Pacific region. Nevertheless, theproportion of female borrowers on marketplace/peer-to-peer consumer lending platforms in China was lower at21% in contrast to the 33% reported in the rest of the Asia-

Pacific region.


Invoice Trading




Profit Sharing



0% 10% 20% 30% 40% 50%

29%

32%

38%

40%

40%

40%

44%

46%

Figure 25: Proportion of Female funders in China 2015


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52

17 %

13 %

4%

6%

6%

6%

13 %

7%

12 %

12 %

17 %

25 %

14 %

16 %

6%

6%

6%

17 %

25 %

25 %

21 %

8%

6%

6%

6%

50 %

50 %

50 %

54 %

64 %

71 %

81 %

82 %

100%









Invoice Trading

0% 20% 40% 60% 80% 100%

No.

No, but the platform has a minority shareholder

that is a traditional financial institution or majorcorporation.

Yes, the platform has a majority shareholder thatis a traditional financial institution (e.g. Banks).

Yes, the platform has a majority shareholder that

is a major corporation (e.g. eCommerce firm).

Yes, the platform has a majority shareholder that is

either a VC (venture capitalist) or a business angel.

Figure 27: Asia-Pacific Region (excluding China) Institutional Ownership Structure by Model

65%

13%

11%

6%

5%

No.

No, but the platform has a minority shareholder that is a

traditional financial institution or major corporation.

Yes, the platform has a majority shareholder that is a

traditional financial institution (e.g. Banks).


either a VC (venture capitalist) or a business angel

Yes, the platform has a majority shareholder that is an

institional investor (e.g. pension or mutual funds).

Figure 28: Asia-Pacific Region (excluding China) Online Alternative Finance Platform Ownership Structures



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Institutional Ownership in the Asia-Pacific

An increasingly pertinent issue in the online alternativefinance industry is the level of institutional ownershipin platforms. The level of institutional ownership of

platforms varies by model type, although at present themodal response was ‘No’ to institutional ownership inthe Asia-Pacific countries outside of China. Traditionalfinancial institutions, however, were more prominent thanother types of institutional owners within marketplace/peer-to-peer lenders (both business and consumerlenders reported a majority shareholder of around 12%of cases), while venture capital or business angels held acontrolling stake in a quarter of marketplace/peer-to-peerreal estate lenders. The donation-based and reward-basedcrowdfunding sectors reported a relatively small levelof institutional ownership (18% of platforms reported at

least some institutional ownership), while equity-based

crowdfunding platforms and real estate crowdfundingplatforms all reported relatively high levels of institutionalownership (between 46% and 50% answering with somelevel of institutional ownership rather than ‘No’).

Institutional Funding in China

Platforms responding to the Chinese survey reportedgenerally low levels of institutional funding, particularlywhen compared with the platforms in the Asia-Pacificregion, or indeed the UK or the US market. Marketplace/peer-to-peer consumer lenders reported a volume-weighted average institutional funding of 10%, far lowerthan the 63% reported in the remainder of the Asia-Pacificregion. The proportion of Marketplace/peer-to-peerbusiness volume funded by institutions was 4%, which is

similar to the 3% in the remainder of the continent.


Invoice Trading

Profit/ Revenue-Sharing Crowdfunding






0% 10% 20% 30% 40% 50%

46%

32%

22%

14%

4%

10%

1%

Figure 29: Proportion of Funding from Institutions in China from 2013-2015


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42 %

13 %

19 %

7%

4%

15 %

No.

No, but the platform has a minority shareholder that is a

traditional financial institution or major corporation.


traditional financial institution (e.g. Banks).


either a VC (venture capitalist) or a business angel

Yes, the platform has a majority shareholder that is an

institional investor (e.g. pension or mutual funds).


major corporation (e.g. eCommerce firm).

No. Yes, the platform has a majority shareholder that is

a major corporation (e.g. eCommerce firm).Yes, the platform has a majority shareholder that iseither a VC (venture capitalist) or a business angel

Yes, the platform has a majority shareholder that is atraditional financial institution (e.g. Banks).

Yes, the platform has a majority shareholder that isan institional investor (e.g. pension or mutual funds).

No, but the platform has a minority shareholder that is atraditional financial institution or major corporation.



Peer-to-Peer (Marketplace) Real Estate Lending

Profit Sharing

Peer-to-Peer (Marketplace) Consumer Lending


Peer-to-Peer (Marketplace) Business Lending

Invoice Trading


Platform shareholder structure (percentages)

20 %

11%

19 %

15%

14%

4%

4%

14 %

8%

6%

50 %

20%

67 %

43 %

22 %

20%

15%

20 %

11 %

9%

18 %

50 %

100%

100%

40 %

33%

29 %

56 %

39 %

42 %

0% 20% 40% 60% 80% 100%

Figure 30: China Online Alternative Finance Institutional Ownership Structure 2015

Figure 31: China Online Alternative Finance Institutional Ownership by Model Type 2015



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Institutional Ownership in China

Institutional ownership of platforms appears to be moreprevalent in the Chinese market than the rest of the Asia-Pacific region. Around 58% of the surveyed platforms

reported at least some level of institutional ownership.Among the marketplace/peer-to-peer consumerplatforms, 46 of the 116 platforms who responded tosurvey questions reported majority ownership by aninstitution, evenly split between financial institutionsand other types of institutions, with the notable absenceof venture capital firms. Marketplace/peer-to-peerbusiness lending platforms reported a similar percentageof institutional ownership to the marketplace/peer-to-peer consumer platforms. Among all surveyedalternative finance platforms in China, 23% reportedhaving a majority ownership by traditional financial

institutions (e.g. banks) or institutional investors (e.g.pension funds). A further of 15% surveyed Chineseplatforms stated that they have a majority ownership bymajor corporations such as e-commerce firms.

Platform Formation

Outside China, across the Asia-Pacific region, platformformation took off from 2009 and peaked in 2014. Before2014, our survey data suggests that incorporation and

trading grew in parallel between 2010 and 2013, whenwe see our first peak in incorporation (2010) and ourfirst drop in trading (2013). Platform formation wasat its highest in 2014 both in terms of incorporationand start of trading. Just over 25 platforms registeredtheir businesses in 2014, and 30 platforms begantrading. Following 2014, the region saw a drop in bothincorporation and trading, which might suggest that theregion is entering a phase of consolidation. However, itis our expectation that the number of new entrants mayagain rise in 2016, due to new regulations in the market,which will enable platforms to engage in new activities.


Pre 2004 2004 2005 2006 2007 2008 2009 2019 2011 2012 2013 2014 2015

35

30

25

20

15

10

5

0

Began TradingIncorporated

Figure 32: Asia-Pacific Region (excluding China) Alternative Finance Platform Incorporation and Trading Dates (pre-2004 to 2015)


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Unlike the rest of the Asia-Pacific region, Chineseplatform formation (in terms of incorporation andtrading) has grown consistently since 2011. Prior to 2011,a limited number of platforms indicated trading activity.Given the growth in both incorporation and trading,this would suggest that new entrants to the Chinesemarket became operational very quickly. This is likely

due to a lack of regulation, which in this context enabledplatforms to begin their alternative finance activitiesfrom day one. Much like the rest of Asia-Pacific, 2014was a watershed year both in terms of new entrants

registering their businesses (94 platforms) and forthose beginning to trade (90 platforms). In 2015, we seeour first deviation of the trend line, with incorporationdropping significantly while trading platforms plateaued.We expect to see this trend carry through in 2016 andwould expect some level of consolidation as proposedregulation may pose barriers to new entrants.

Pre 2004 2004 2005 2006 2007 2008 2009 2019 2011 2012 2013 2014 2015

100

90

80

70

60

50

40

30

20

10

0

Began TradingIncorporated

Figure 33: China Alternative Finance Platform Incorporation and Trading Dates (Pre-2004-2015)


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Funding Inflow / Funding Outflow

Excluding China, cross-border transactions are relativelysmall in the Asia-Pacific region, and vary across thearea. Survey respondents were asked for the percentageof funds that were provided by, and raised for, off shoreparticipants. Around 10% of the overall capital was raisedfrom other countries across the Asia-Pacific region, with

the highest level occurring in South-East Asia (mainlydue to donation-based crowdfunding in developingcountries). Capital outflows were generally smaller,suggesting that entities preferred to raise funds within

their respective national jurisdictions. As the marketconsolidates in the future, it will be vitally important totrack the development of cross-border capital flows.

33% 19% 12% 15% 9% 3% 3% 3%

50% 3% 5% 13% 8% 3% 8% 3% 3% 5% 3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0%

1-5%

6-10%

11-20% 51-60%

61-70%

71-80%

81-90%

91-100%

21-30%

31-40%

41-50%

1%1%

Outflow

Inflow

Figure 34: Asia-Pacific (excluding China) Funding Inflow and Outflow for 2015


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Regulatory Development

and Industry Perceptionsof Regulations

The regulatory landscape across the Asia-Pacific regionis rapidly evolving and the full impact of recentlyimplemented or currently proposed regulation is yet to beseen. However, this study provides a useful insight into theperceptions of the various alternative finance platforms

within each surveyed national jurisdiction. As in Europe,some countries in the Asia-Pacific region have opted toregulate equity and debt-based alternative finance withinexisting regulatory frameworks, as in Hong Kong andSingapore. In other countries, the national regulators havetaken a more proactive stance by formulating bespokeregulation to accommodate alternative finance activity, asin Malaysia and New Zealand.

Although the industry’s perception of alternativefinance regulation is best understood and analysedin the context of national jurisdictions, it is helpful to

compare regulatory perceptions across a number ofcountries within the Asia-Pacific region. The surveydata provided a sample of 127 platforms across 16diff erent countries in order to compare the diff erentregulatory frameworks that either exist or have been

proposed within each jurisdiction.

Industry Perceptions of ExistingNational Regulation

From the surveyed platforms, it seems existingregulation in New Zealand, Malaysia and Australia isdeemed adequate and appropriate by 73%, 56% and48% of surveyed platforms respectively. In both Japanand Thailand, around a fifth of respondents viewed theexisting regulation in their countries favourably.

48.48%

Regulation is adequate and appropriate

Regulation excessive and too strict

Alternative finance (e.g. crowdfunding & P2P

lending) is not currently legal in my country

No Specific Regulation and needed

No Specific Regulation and not needed

Not sure/Not Specified

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

New Zealand

Malaysia

Australia

Japan

Thailand

India

South Korea

Singapore

72.73%

55.56%

20 %

16.67%

14.29%

27.27%

90.91%

18.18% 45.45%

7.14%

33.33%

50 %

27.27%

11.11% 11.11%

3% 9.09%

20 %10 %

16.67% 16.67% 16.67%

21.43%

9.09%

9.09%

57.14%

27.27%

22.22%

12.12%

Figure 35: Asia-Pacific (excluding China) National Industry Perceptions of Existing National Regulation


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Harnessing Potential — March 2016Asia-Pacific Online Alternative Finance Market Fundamentals

With regard to existing national regulation being seenas too strict and excessive, around half of respondentsin Japan viewed national regulation in this light. InSouth Korea, around 27% of respondents also viewedthe existing national regulation as being excessive.

Interestingly, despite a large proportion of respondentsviewing regulation positively in Australia and NewZealand, in both countries over 27% of surveyed platformsviewed regulation as too strict and excessive suggestingquite contrary industry perceptions of existing nationalregulation within these countries. In Malaysia, only 11% ofsurveyed platforms viewed existing national regulationunfavourably while 33% of respondents in Thailand and14% in India also had concerns at the current state ofexisting national regulation.

Singapore was anomalous, with over 90% of surveyrespondents stating that there was no specific existingnational regulation governing the alternative financeindustry but that it was needed. Less than 10% of surveyrespondents in Singapore felt that it was not needed,

despite not having specific existing national regulation.In both India and South Korea, a large proportion ofplatforms responded that there was no specific existingregulation for their national alternative finance industrybut that it was needed with 57% and 45% of respondentsrespectively stating this.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Malaysia

New Zealand

Australia

India

Japan

Singapore

Thailand

South Korea



Alternative finance (including crowdfunding

& P2P lending) is not currently in my country

No Specific Regulation and needed

No Specific Regulation and not needed

Not sure/Not Specified

66.67%

36.36%

33.33%

21.43%

20 %

9.09%

16.67%

36.36%

50 %

27.27%

50 %

45.45%

33.33%

27.27% 27.27%

50 %7.14%

30.30%

9.09%

11.11% 11.11% 11.11%

9.09%

9.09% 9%

9.09%

21.21% 15.15%

14.29%

10% 20%

7.14%

45.45%

Figure 36: Asia-Pacific (excluding China) National Industry Perspectives for Proposed National Regulation


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Regulatory Development and Industry Perceptions of Regulations

National Industry Perspectives forProposed National Regulation

In a number of countries across the Asia-Pacific region,the national regulators are currently preparing their

approach to regulating various alternative financemodels, or are in the process of implementing newlegislation. Regarding industry perceptions for theanticipated regulatory changes being imminentlyimplemented, Malaysia seems to have a very positiveindustry perception, with two thirds of the surveyrespondents deeming the proposed national regulationas being adequate and appropriate. Similarly, in NewZealand and Australia, approximately one third of surveyrespondents see proposed national regulation positivelyas being adequate and appropriate. In both India andJapan, approximately a fifth of respondents also reacted

similarly to the proposed regulation.

In terms of the industry perceptions of proposedregulation being excessive or strict, both Japan andSouth Korea raised these concerns with 50% and 36%of the survey respondents stating this respectively.In Australia, despite a large proportion of industryrespondents viewing proposed regulation positively,approximately 30% view it as being excessive andstrict. Likewise, in Singapore around 27% of surveyedplatforms also view the proposals as too strict. In India(50%), Singapore (45%) and South Korea (27%), largeproportions of surveyed platforms perceive a lack of

proposed national regulation yet see it as being needed.

China’s Industry Perceptions ofAlternative Finance Regulation

China is currently experiencing rapid developmentof various diff erent alternative finance models. With

these developments come substantial challenges forthe national regulators in order to ameliorate againstpotential risks, protect consumers and investorswhile also harnessing the powerful potential of onlinealternative finance.

In order to gauge the industry’s perception of nationalregulation in China, 307 alternative finance platformsresponded to the survey questions relating to theirperceptions of existing national regulation and proposedregulations. Given this sample size, we have been ableto assess the regulatory perceptions for six diff erent

alternative finance models which provides some usefulpoints of comparison. The six models are marketplace/peer-to-peer consumer and business lending,marketplace/peer-to-peer real estate lending, equity-based crowdfunding, invoice trading and balance sheetbusiness lending.


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Industry Perceptions of ExistingRegulation in China

With the exception of equity-based crowdfunding,between 40% to 60% of surveyed platforms from withinmarketplace/peer-to-peer consumer and businesslending, marketplace/P2P real estate lending, balancesheet lending and invoice trading reported that therewas no existing specific regulation in China but that itwas needed.

Of the balance sheet business lenders surveyed, 60%noted that there was no specific regulation governingtheir sector and 40% stated existing regulation wasinadequate and too relaxed. Similarly, for invoice trading,

40% of the surveyed platforms stated that regulationapplicable to their activities was currently non-existent.A fifth of surveyed invoice trading platforms howeverstated that current regulation was appropriate andadequate. For the surveyed marketplace/ P2P businesslenders and the marketplace/ peer-to-peer real estatelenders, around half of respondents stated that specificregulation did not currently exist but was needed. For themarketplace/ P2P consumer lenders, around 43% statedregulation did not exist but was needed.

Interestingly, about one-third of equity-basedcrowdfunding, marketplace/ peer-to-peer consumer andmarketplace/ P2P real state lenders viewed existingregulation as adequate and appropriate.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Marketplace/Peer-to-Peer Consumer Lending

Marketplace/Peer-to-Peer Real Estate Lending

Marketplace/Peer-to-Peer Business Lending

Invoice Trading




Regulation is inadeq

Documents

The Asia-Pacific Alternative Finance Benchmarking Report