Over the past decade Ronald Kleverlaan has been promoting the potential of crowdfunding in The Netherlands and internationally.
Today he remains hugely active in the field of crowdfunding. He is chairman of Stichting MKB Financiering, the alternative finance association in The Netherlands, director of the European Centre for Alternative Finance (University Utrecht) and a senior advisor on Alternative Finance to the European Commission. Since 2009, he has given many keynotes at conferences worldwide to talk about online fundraising, currently known as crowdfunding.
On 27th of October Ronald will be speaking at our Alternative Lending event. Ahead of this event we met with Ronald to discuss his view on the current alternative finance markets.
1. How have you seen the alternative lending market evolve in the last 10 years?
At the start, the crowdlending market was a pioneer within financial markets. There were only a few crowdfunding platforms that started 8 years ago and at that time the volumes of loans were incredibly low. You had the challenging task of convincing investors and there was no legal framework. People were very excited but hesitant, so growth in the market was slow. The crowdlending market shifted again 4 to 5 years ago when it became clear that national regulations were coming. In France and Germany, national regulators started implementing laws on crowdfunding and peer-2-peer lending. In addition, The UK p2p-lending market started growing into a big industry.
The market has entered a different phase now. Crowdfunding platforms must now apply for a European license in order to adhere to the new regulations and laws.
For crowdfunders, who are used to operating on a light regime, it’s a huge step to apply for a license. They must hire different roles within their companies such as lawyers and risk officers. To cover these costs their platforms, need to have a certain volume to be profitable, forcing them to change their processes completely.
Consequently, platforms are merging, collaborating, or exiting the market. For example, in The Netherlands, we currently have more than 50 different crowdfunding platforms, but we expect to only have 15 licensed platforms soon.
In some cases, businesses are opportunistic and expect to grow significantly in the next years to reach this maturity level. In other cases, businesses are forced to sell or retire their company.
2. We have seen a massive increase in the popularity of alternative lending. Where do you see this popularity going in the coming 5 years?
Some trends will determine the growth of the market. Consolidation for example. This will make it easier for companies to find the right platforms when they are looking for funding. There will be fewer crowdfunding platforms in the future, but the platforms will be larger in volume.
Furthermore, traditional banks are reluctant to lend smaller amounts of money. So, SMEs looking to borrow smaller amounts are pushed towards these alternative lenders. Although traditional banks are still producing the largest amount of funding, market volume is decreasing every year.
In five years, alternative lending will be as big as traditional lending for smaller loans. Large corporates with more than 100 employees will continue to lend from traditional banks, because this is cheaper for them. But in the lending market for companies with less than 50 or even 20 employees, alternative lending will have a market share just as significant as traditional lending.
Internationalization is the last and a significant trend. Dutch platforms are venturing out in Europe and vice versa. The regulations will also encourage further internationalization because regulations are more harmonized all-around Europe.
3. Which roadblocks are a potential threat to the alternative lending market?
Consumer trust is always an issue. If issues occur with one platform, it will hurt the entire industry. That is why it is important that the platforms continue to use advanced technology and high ethical standards to keep trust high. Lenders should treat their clients well, not charging extensive costs or tricking customers into lending more than they should.
4. Do you see traditional banks being affected by alternative lending's popularity?
In a big part of society traditional banks are still seen as the only solution for companies that want a loan, but this is not the reality.
Traditional banks are interested in alternative lending, and some have launched their own platforms in the past. The bank’s biggest problem is that it is not interesting for them to provide smaller loans even if they do it via a fintech or a smaller channel due to strict bank regulations.
For banks it is key to provide customers with an excellent customer journey and to keep them in their own network. Banks can achieve this by either working together or by purchasing an alternative lending platform. This allows banks to refer clients they can’t provide a loan to, to a partner. Once the client is mature enough, they can come back to the bank for a traditional loan.
5. What impact do you expect the regulations to have on the alternative finance market? Do you think the regulations will be detrimental to its future growth?
In the end, regulations will help future growth. For the current industry it is very disturbing. Alternative lenders must invest a lot in lawyers, technology, processes and getting their license. 2022 is an expensive year for crowd funders. However, in the end it will shake out the market and give them a stronger market position. It also gives the alternative lenders credibility towards investors, companies, and institutional funders.
6. Alternative lending is on the rise along with other alternative lending solutions. Is crowdfunding the future of alternative lending, or will other solutions be serving these subprime markets?
Now, there are two different alternative lending solutions in the market that are bigger than crowdfunding. However, the crowdfunding market is not an easy one to move into mainly due to the platform’s complex nature to build. Interestingly, we see the rise of more mixed platforms in the market, where crowdfunding and institutional funding is combined. As a whole, we expect SME lending to grow significantly.