The word “Fintech” was used for the first time only in 2013 with the hope that the sector could be a hotbed for Unicorns. In 2015 Fintech industry made a huge step – it transformed from a hypothetical hotspot to an actual one. There are more than 5000 Fintech startups in the world now and as of the end of 2015, 46 companies are in the «billion-dollar club» (with a total capitalization of US $98.1 billion) and 36 more unicorns “coming soon”. One of the main movers for this success has been new funding platforms, especially marketplaces for attracting external capital for business.
Small businesses are often in need of quick capital that can’t be accessed through traditional sources like bank loans or credit cards. The financial crisis of 2008 left hundreds of thousands of small businesses with restrained demand for working capital to grow their businesses. Banks severely restricted access to capital, disproportionately affecting small and medium-sized businesses: annual loan originations to businesses with $1 million or less in revenue fell dramatically between 2007 and 2013. Only 2.4 million traditional loans were originated to businesses with $1 million or less in revenue in 2013, down 54% from 2007. This created an opportunity for new players.
The number of companies to fill the SMB lending niche keeps growing, startups and payments companies are now offering small businesses various financing opportunities. For users of such platforms, many of them part of the developing world’s ‘unbanked’ population, online lending is a valuable path to access needed funds to build better businesses. For the platforms themselves, the loan amounts are often small and generally prove to be low-risk investments making this a win-win collaboration. But it doesn’t end there – while online marketplace lenders are disrupting traditional banking, many of them are teaming up with banks, selling their loans to large institutional investors or helping to bundle them into securitized bonds.
As the result, P2P loan volume is poised to hit $77 billion in 2015, a 15-fold increase from 2012. Since institutions pour money into P2P, some platforms may relax their credit criteria and welcome riskier borrowers, especially if they can offload risk through securitizations.
The convergence of technology and money has created a land rush of alternative finance players offering loans and cash advances. New technology has fuelled the growth of alternative lenders which offer both higher yields to investors and faster, cheaper loans for borrowers than traditional sources. But lending marketplace is only set to boom further, Morgan Stanley projects that the industry will hit $290 billion by 2020. So private investors are continuing to put hundreds of millions of dollars into alternative-lending startups at valuations of more than $1 billion.
Source: The Secret Of Fintech Unicorn
StartWise is a crowdfunding platform enables individuals to invest in companies they care about in return for a fixed percent of company’s quarterly revenue. The company pays its investors until they have received a multiple return on their investment.