Published on the 15/11/2016 | Written by Donovan Jackson
Juniper Research said fintech platform revenues to support lending and financing are set to reach US$10.5 billion globally by 2020…
That reflects steep growth – almost double the US$5.2 billion expected this year – and while the numbers don’t surprise, what does is the mechanisms which Juniper believes will drive it.
The analyst claimed that growth would come from a ‘combination of factors including an acceleration in P2P (peer to peer) lending; crowdfunding would become a viable alternative to traditional lending mechanisms; and the deployment of ‘next generation’ analytics platforms would provide the necessary decision support’.
OK so far. The weird bit is that Juniper reckons those next-gen analytics platforms will not only assess the management of the next Facebook, but it will also go to work on social media accounts, particularly in the ‘emerging markets’ (that’s a euphemism for 3rd world countries), as if someone’s witterings on Facebook and Twitter can magically translate into a credit rating. Sound crazy?
Here’s what Juniper said in its presser on its study, Fintech Futures: Market Disruption, Leading Innovators & Emerging Opportunities 2016-2021. It argued that, ‘in the absence of credit checking bureaus in emerging markets, applicants’ social media activity will be a deciding factor for their loan applications, with suppliers developing equivalents to credit scores so that lenders can gauge their risk exposure’.
That raised our eyebrows, to say the least. But elsewhere in the world, the idea is taking hold. Forbes reported in late 2015 that ‘Your social media posts may soon affect your credit score‘, while the Financial Times has a story, ‘Kreditech: A credit check by social media‘. Krazy.
Nevertheless, the research cautioned that the process might meet with greater consumer resistance in developed markets, ‘with many would-be applicants likely to perceive the practice as an unwarranted invasion of privacy’.
Again, up went our eyebrows. Social media activity is, in our view, the very antithesis of ‘privacy’, with most platforms requiring an overt abdication of it to gain access to their ‘free’ services.
Also, while those coarse people in the 3rd world probably don’t care about privacy (our inference of Juniper’s position), the refined social justice warriors of the 1st clearly put a much higher premium on theirs. While, paradoxically, telling the world at large what to think.
Meanwhile, the research claimed that in North America and Europe crowdfunding platforms would increasingly provide opportunities for affluent individuals to obtain a stake in promising start-ups. It argued that with interest rates at record lows across the developed world, crowdfunding and P2P lending platforms offer individuals attractive alternatives to traditional investments.
Locally, the market is plied by several crowdfunding and P2P lenders, including Pledge Me and Snowball Effect, Harmoney (now part of Trade Me), Lending Crowd and Squirrel Money. While ‘social media’ fanatics tend to view ‘new’ ways of getting money, such as P2P lending and crowdfunding, as ready solutions to the age-old problem of raising capital, risk is ever-present and in this nascent market, failures are inevitable. Just recently, crowdfunder LiftOff closed its doors, while the NBR reported that the numbers for crowdfunding are ‘flat’.
Juniper did query whether some the analytics which underpin crowdfunding and P2P lending platforms are sufficiently sophisticated to understand the nuances of distinct corporate operating environments; it said these ‘might not be able to provide full evaluations of their respective management teams’.
In other words, picking winners is still going to be difficult, and since winners often rely on a combination of luck and timing, in addition to the more tangible resources like people and cash, we’re going out on a limb to insist that while the cool new ways of capital raising look impressive, they need to be tempered with a good dose of old fashioned business acumen and due diligence. As has always been the case.
Research author, Michael Larner said in a statement that, “Platform providers need to be transparent about how they assess firms and not just sell the tantalising potential of funding the next Facebook. We are yet to witness a blockbuster exit for investors, but a successful IPO would cement crowdfunding’s foothold in the marketplace.”
The whitepaper, Fintech ~ Liberation or Liability, is available to download.
