Is there a Paradigm change in finance?

The financial sector is changing. Up until now, fast growth in this sector was possible only through external growth. The advance of technology and innovation are changing the scene, enabling the pioneers who easily adapt to change, to quickly acquire relevant positions, as shown by the example of Transferwise in the field of international P2P Transfer.

This underlying trend is reflected in an article by Dave Michaels published in Bloomberg. It refers to the US Securities and Exchange Commission (SEC) revision of the possibility to allow stock exchanges to launch less regulated markets in order to enable small businesses to obtain liquidity. When authorities of this kind start considering such changes, it shows that the trend is coming to the turning point for the whole financial sector.

“The US Securities and Exchange Commission revision of the possibility to allow stock exchanges to launch less regulated markets in order to enable small businesses to obtain liquidity.”

Analyzing this trend in more detail, we come across the first detailed study about the Crowdfunding situation in Europe. The University of Cambridge (Cambridge Judge Business School), has managed to gather the information needed to show, in this report, some extremely revealing (recent) statistical and historic data.

This publication explains that since the global financial crisis (in September, it will have been seven years since it happened), alternative funding has considerably increased in the US and Europe. In particular, it refers to: equity crowd funding platforms, peer-to-peer lending, reward based crowd funding, donation based crowd funding, etc., all of which offer investors several ways to invest, encourage innovation, create jobs and/or finance social causes.

“since the global financial crisis, alternative funding has considerably increased in the US and Europe.”

Some of the data reflected in this study, about Crowdfunding in Europe is:

  • A 144% growth in Europe in 2014 (in comparison to 2013).
  • A total amount of transactions in 2014 of € 2,957M.
  • A specific weight of the United Kingdom with a total of transactions of € 2,337M, and a yearly growth of 159%.
  • The top down ranking of countries with the highest number of online platforms is: the United Kingdom, Spain, France, Germany and the Netherlands.
  • 9,743 SMEs have been financed in continental Europe between 2012 and 2014.

This transaction volume is still to be put into perspective as it only represents 0,4 per 1,000 so of traditional funding according to EBAN figures (European Business Angels Network). That is what traditional banks and supervisory authorities still think. However, given the crowd funding exponential growth, one can hope that SMEs, the greatest engine of our global economy, will get from it the financing needed to keep growing, to innovate and to create jobs.

“given the crowd funding exponential growth, one can hope that SMEs, the greatest engine of our global economy, will get from it the financing needed to keep growing, to innovate and to create jobs.”

This hope is very important for Europe given the drastic reduction in traditional financing for this type of businesses, which is due to the current trend to overregulate banks, in order to try to eliminate the risk from their activity.

For this reason, this way of creating closer and less restrictive collaborations is attracting companies and investors. Will crowd funding consolidate and, in such a case, how will traditional banks adapt to this new emerging paradigm?

Guillem Comi and Carmen Zamudio.

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1 Comment

  1. François-Eric Perquel

    7 May, 2015 at 10:40 am

    This paradigm change is similar on both side of the Atlantic:

    While the US Securities and Exchange Commission analyses the possible launch of less regulated markets in order to enable small businesses to obtain liquidity as mentioned in your post, the German Stock Exchange announces that it will have the Deutsche Börse Venture Network to improve young companies financing.

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