Global Alternative Lending Market, Statistics and Forecast 2019-2025
Nonbanks and other alternative lending institutions are beginning to rival the traditional banking industry. They’re at the forefront of financial technology, and this allows them to penetrate the market for relatively little money and meet the needs of underserved markets. On the other hand, conventional lenders are actually at a disadvantage when it comes to technology because it can be difficult for them to digitize the traditional mortgage lending process. Let’s look at the state of the alternative lending market today before analyzing industry trends.
The Size of the Alternative Global Lending Market
Alternative lenders are already having a major impact on the mortgage industry. In 2011, the top five big banks issued half of all mortgages. In 2019, it was just over a fifth. Startup Quicken Loans pioneered a mortgage application that took less than ten minutes. This resulted in so much growth that they became the largest residential mortgage originator by volume at the end of 2017.
Non-banks can engage in other typically bank-related services like credit cards and business lending. The total transaction value of the alternative lending sector totaled 267,123.6 million dollars in 2019. Alternative lenders like AdvancedPoint are noted for accepting roughly two-thirds of their applications, while traditional lenders accept twenty percent at most.
Global Alternative Lending Market Forecast for 2025
The alternative lending sector is expected to see a 10 percent annual growth through 2025. The largest niche in this industry is crowd-lending. That segment accounted for 180,790 million dollars in 2019. And one of the fastest-growing regions in this area is China. China is projected to become one of the top five alternative lending markets in the world by 2025.
Yet small businesses in the U.S. are going to keep the United States as one of the biggest markets for alternative lending. This is because the average crowdfunded business loan was just under five thousand dollars in 2019. These loans are too small for big banks to bother with, though small businesses make up nearly all private sector businesses and employ sixty percent of the population. Online lending is expected to provide around 200 billion dollars in funding by 2025. That’s spectacular growth given that they provided around three billion dollars of funding in 2014.
Trends Affecting the Alternative Lending Sector
The alternative lending sector is growing so quickly that established players in this space are receiving loans and investments worth hundreds of millions of dollars. Other financial services providers are simply buying up alternative lending firms. For example, PayPal is seeing 40 percent five-year compound annual growth over the next five years, and that’s aside from the growth of Venmo, the peer to peer lending app company they purchased. Venmo is expected to process a hundred billion dollars’ worth of transactions in 2019. Kabbage received a 200 million dollar line of credit in addition to its 700 million dollar securitization agreement.
The Bright Future of Alternative Lenders
Alternative lenders have a bright future. In one industry survey, forty percent of those surveyed said non-banks provide better assistance. A third of those who had not used a non-bank were open to doing so. The growing adoption of online brokering platforms is expected to drive growth in this area, and technology is helping these platforms offer loans with lower fees and faster approval times than traditional lenders.
Nonbanks are particularly attractive to small and midsized businesses as well. This is because of the five trillion dollar funding gap between what small businesses want to borrow and what traditional financial institutions will loan them.
Alternative lending is exploding because it meets a need not being addressed by most conventional financial institutions. This is generating double-digit growth for alternative lenders for the foreseeable future.