10th October 2014
The future of finance - Crowdfunding
The finance world is changing and a wave of positive disruption is taking place led by technological innovation in London and around the UK. Since the collapse of the global financial system there has been a need to re-invent and re-think the way that we do finance. London is leading the way with this movement, supported by the quick and effective implementation of regulation by the Financial Conduct Authority (FCA).
UK businesses are facing a forecast funding gap of £191bn in the coming years1 due in part to regulatory demands being imposed on banks and the need to recapitalise their balance sheets as the world emerges from recession. Crowdfunding is mobilising an estimasted £260bn of private money controlled by individuals which otherwise would be sitting in bank accounts earning negligible or even negative returns when inflation is taken into account. Aside from the opportunity to earn better returns, Crowdfunding gives investors the opportunity to support UK businesses through their investments. The opportunities for growth and investor returns makes it exciting to see crowdfunding being embraced by both institutions and individuals who recognise the need for a new way to do business and manage finances.
The major advantage of crowdfunding platforms is their ability to move money around the economy in a highly efficient way, with significantly lower operational overhead costs in comparison to a bank. As the sector matures and gains momentum we are seeing new areas of finance being disrupted, including asset finance, bonds, and private equity deals which traditionally would only be available to institutional investors. As well as appealing to investors, businesses seeking funding are showing a preference for crowdfunding platforms due to the much lower fees and quicker access to the money they need. A crowdfunding campaign also becomes a unique and very powerful way to engage with new customers. Some businesses may even choose to undergo a crowdfunding campaign in order to benefit from increased PR and marketing opportunities.
This decentralisation of finance has given individuals more choice and control over where they put their money, and generates exciting opportunities for early stage projects, in turn creating jobs and macroeconomic growth. In the 12 months to July 2014, £1bn has been invested in businesses using debt crowdfunding alone2.
Crowdfunding has become an innovative way to re-engage the general public with finance. As different policies are being introduced, including ISA eligibility for peer to peer investments from April 2015, and improvements to the pension system, we expect to see growth accelerate even further. Currently the market has penetration of 0.38%, and it is expected that this will soon lead to a significantly larger share of the overall financial sector.
The UK is pioneering this new area of finance with the support of a regulatory regime which is ahead of the curve and is embracing the opportunities with crowdfunding. The sector is further supported by generous tax incentives such as the Seed Enterprise Investment scheme (SEIS) which gives investors powerful tax credits (worth up to 50% income tax relief on the value of the investment) and shelters any profits from capital gains tax if the shares are held for at least three years and/or are reinvested in another SEIS qualifying business. These regulatory advantages are complemented by an abundance of skills and technology companies to give the UK the perfect landscape for crowdfunding to grow and proliferate.
Finance is becoming much simpler and more transparent for both investors and individuals seeking finance. We think the future is looking positive and very exciting for the UK financial services sector. We see a future financial system which is more automated, efficient, quick and democratised with some brilliantly innovative ideas being proposed which will make significant steps forwards in the way we all manage our pensions, investments and savings.
Crowd2Fund is the only platform available designed to make it easy for you to create and manage a crowdfunding investment portfolio using a range of crowdfunding investment models. We make finance easy for investors and businesses.
1 http://www.bbc.co.uk/news/business-17395081 (BBC News)
2 http://on.ft.com/UFvkFd (Financial Times)
Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.