Alternative Finance is, in essence, Finance not provided by banks (and in a Fintech context, finance provided by “Fintechs”). As such it is one of the sexier sectors in terms of being a direct competitor to banks. It is an incredibly key, and an incredibly exciting sector. It’s also complex and the devil definitely lies in the detail.
So I am delighted to have as a guide on this show Rupert Taylor, CEO of AltFi Data. AltFi are perhaps the key player in the Alternative Finance sub-sector of Fintech in terms of news, events, awards, and, via AltFi Data, the creation of indices and metrics of how all the platforms are performing. Rupert is also a great person to give a 3,000 feet overview as he dislikes jargon in all industries as well as having a solid dozen years in Investment Banking under his belt.
In this context, Finance, or Banking, can be seen as a conduit for liquidity/funds/cash to flow from a place of excess to a place of deficit. Or simply put X has money they don’t need right now whilst Y has a need for that money right now.
Traditionally Banking has been the conduit to enable a flow from a place of surplus to a place of deficit (along with it’s unique function of credit expansion/money creation). In the short-term we all recall the 2008 crisis and taxpayers’ consequent dislike of Banking. In the longer term however Rupert quotes statistics that show that banking has not become a more efficient conduit over the past century despite all the advances in technology. Imagine if cars cost what they did a hundred years ago and performed the same…
One of the key points in describing Alternative Finance is that there is not yet complete agreement over terminology in the sector – a fact I can attest to having been at a high-powered Alternative Finance break-out group only yesterday. For purely historical reasons there has been a mixing of tech terms with banking terms. So a prime example is of peer-to-peer. Originally most of us heard of this through Napster – I send you a file, Bob sends you one and a centralised Amazon or the like is nowhere to be seen. However “peer-to-peer” in an Alternative Finance context has happened to come to mean “debt” or “lending” whilst crowdfunding has come to mean equity.
Moving on from jargon confusion we discuss the idea that Alternative Finance splits into debt and non-debt platforms.
Debt, informally, is when I lend you my money, I want it back and in the mean time you pay me a rental for having it. Formally it breaks down into SME lending, Consumer lending and Invoices (trading, factoring, etc).
Non-debt, informally, is when I give you money and I never expect to get that money back. In return you give me “something”. Formally it splits into equity (where you give me a share in your company), reward funding (such as kickstarter et al, where you give me a “goodie bag” as it were) and more complex hybrid instruments.
So that’s the start – we go on to discuss risk, how value might change over time, the sources of liquidity in terms of institutional as well as personal funds, the challenges to individuals in particular assessing the risk in either a loan or an equity instrument, and the value that stock exchange rules have had traditionally in terms of protecting investor rights, ensuring minimum standards of disclosure and more. Rupert talks about the importance of metrics in any sector and how AltFi Data are approaching the challenge.
Anyway net net this is a very podcasty podcast 🙂 plenty of conversation and plenty of content – too much to summarise directly but plenty of interesting food in this weeks buffet!