Alternative finance covers various forms of finance outside of the control of traditional financial institutions. For centuries, these established firms have made considerable amounts of profits by charging extremely high fees and not suffering from any real competition until now. Over recent years there has been considerable growth of the alternative finance industry offering diverse products and services from peer to peer lending, crowdfunding, money transfers and even digital currencies. This rapid growth has been supported by various factors from capital constraints on banks since the financial crisis restricting the amount of business they can perform, advances in technology allowing a low cost entry into the market for starts ups and a desire from the general population for an alternative that allows them to diversify their investments and save on previously extremely high fees.

If we look in greater detail at the main areas of alternative finance, they each have their own set of factors contributing to their appeal and supporting their rapid growth.

Peer to peer lending
Usually involves an online marketplace allowing individuals and businesses to submit their lending requests to a substantial number of private investors. Bypassing the traditional financial institutions, who previously acted as the intermediary, allows both sides of the transaction to benefit, with the borrower having access to more sources of funding and at a cheaper cost, whilst the lender has the opportunity to invest their funds and obtain a higher rate of return than with a savings account at a bank, a win-win for both parties. This has now evolved beyond lending to individuals and small businesses, and now encompasses property, invoice discounting and even Bitcoin.

Our favourite providers in the Peer to Peer Lending arena include Rebuilding Society, Funding Circle & BitBond who focuses on Peer to Peer Lending with Bitcoin.

Crowdfunding
Another online marketplace, allowing start up entrepreneurs to pitch their new venture ideas to a substantial number of potential investors. By allowing more to people to support a new venture, increases the odds of a start up receiving the necessary funding. Previously a start up would rely on family, friends or angel investors for the necessary capital to begin operations. Now they have access to the world online to seek cash for business. The quality of the original idea of a business is now much more important than the connections a start up may have, levelling out the playing field for all.

Our favourite providers in the Crowdfunding space are SEEDRS, Venture Founders & Investing Zone.

Money transfers
Up until recently this area was dominated by banks and money exchange houses who charged exorbitant fees, with the average bank charging 5% per transaction and the average money exchange house upto 8%. This is now rightfully being challenged by a new set of fintech rivals allowing people to match their transfers with others in various countries reducing fees substantially by upto 95%. Another win-win for all, from tourists going on holiday to migrant workers remitting money home to their families.

Our favourite Money Transfer provider with great experiences is CurrencyFair.

Digital Currencies
A severe lack of faith with traditional fiat (paper based) currencies and banks, a huge desire to transfer money cross-border avoiding huge fees and to maximise the use of current technology has led to the rise of digital/crypto currencies, with the worlds leading currency, Bitcoin. The main advantage of Bitcoin is to allow its users to be outside of the financial system and move money around freely in a currency they trust. With the ongoing money printing devaluing traditional currencies by the world’s major central banks, previously only precious metals such as gold has been a considered an alternative but has several limitations which digital currencies such as Bitcoin can overcome.

As you can see, all corners of the globe are truly benefiting from the rise of alternative finance. If you are interested in finding out more and maximising the many opportunities that the world of alternative finance offers, visit: www.haveninvestor.com