WASHINGTON, D.C. – The United States alt-fi industry is on the cusp of significant growth, industry researcher Richard Swart told a crowd of policy makers and industry insiders at the Global Regulatory Forum at the Organization of American States in Washington, D.C. today.
Of all sectors, the equity crowdfunding sector is the big laggard, Swart said, though last Friday’s SEC announcement should help.
Overall the rules package was positive, Swart said.
“Most of the rules were forward-thinking.”
Swart explained the crowdfunding industry began 13 years ago in Australia with the creation of the Small Scale Offering Board. Their data, along with additional information generated in Europe and other regions more advanced than America, give the industry an idea of future direction.
By comparison the United States is late to the game, Swart said. One reason for the slow growth is the slow regulatory pace in America.
America’s investment community, after being initially dismissive of the concept, have started to devote more attention to the sector, Swart said. He now gets called virtually every day from hedge funds and private equity firms asking how they can participate.
Some of that increased interest may be generated from the ground up, Swart suggested. Popular caused based crowdfunding platform GoFundMe recently sold for $600 million, less than two years after its unveiling. More than half of Americans (58 percent) said they have at least heard of a GoFundMe.
Swart then cited the student loan refinancing industry, in particular, SoFi, as an example of how fin-tech companies can disrupt an established sector. They took advantage of the requirement that all student loans must be funded equally, whether that be for an MBA at Stanford, which has never had a graduate default, and a less in-demand program offered by a dubious institution.
By introducing risk-based pricing, SoFI has become a unicorn.
The next area to see massive disruption will be the mortgage finance industry, Swart said.
“It will become a multi-billion dollar industry very quickly.”
Despite those impressive numbers, the banking industry is late to the game, Swart explained. He recently addressed a room of 210 bankers. Opinions were almost evenly split into thirds, he added.
The first group treated alt-fi as nothing more than an interesting concept. The next third were actively looking at partnerships in the sector.
“The other third were thinking about what their next job will be,” Swart said.
That group looks at average monthly growth rates of 20 percent and multiple players in each sector and knows things are changing.
“The one prediction I can make is financial services will not look very familiar in one decade from now,” Swart said.
One common action which could hamper growth is the individual corporate tendency to hoard its information. Many think they can sell to hedge funds and other groups. That contributes to a lack of transparency that could curb investment and draw regulatory attention.
Another certainty is china will be a dominant alt-fi player, Swart said. While a smattering of academics is studying the industry stateside, Tsinghua University has 210 faculty devoted to it.
“China’s last 30-year plan focused on innovation and manufacturing,” Swart said. “The next one is devoted to innovation and financials services.”
“Unfortunately academics respond to incentives and those incentives are grants,” he added.
Of the estimated $96 billion global equity crowdfunding market in 2025, China will account for $40 billion of it, Swart predicted.
In his conclusion Swart said he has resigned his faculty position at University of California, Berkeley, Haas School of Business to work for a new company started by a billionaire who is very interested in nurturing the space. He will also be consulting with the Gates Foundation on social crowdfunding models.