Crowdfunding: beyond the hype, why banks should be serious about it

Transcription

1 REPORT Crowdfunding: beyond the hype, why banks should be serious about it January 2016

2 Crowdfunding: beyond the hype, why banks should be serious about it Contents 1. Introduction What challenges can crowdfunding address? What benefits can banks expect from it? Image benefits Commercial benefits What are the challenges to be met? Any possible hindrances? How can banks position themselves? What roles can they play? Using the crowdfunding ecosystem to widen and diversify banking services Offer alternative financing Identify tomorrow s blockbusters through collective intelligence Create a classic crowdfunding platform Guaranteeing contributors Adapt banking expertise to the needs of the crowdfunding ecosystem In conclusion About us

3 Introduction Crowdfunding is no longer brand new, and its collaborative philosophy is now widely familiar. This very old practice has mostly been used in social and solidaritybased economic actions via donation campaigns. In 1884, France was ready to send the Statue of Liberty to the U.S. Yet the American committee had not allocated the funds needed to build the pedestal to support it. Media tycoon Joseph Pulitzer encouraged Americans to make donations by publishing contributors names in his daily newspaper. 100,000 dollars were raised in 5 months, thanks to 120,000 donations. Since then, the local community has been very attached to this symbol for having directly contributed to this achievement. However, crowdfunding has been revolutionized thanks to digital innovations that have fueled the emergence of web platforms dedicated to it. Some champions have emerged, such as Kickstarter, Indiegogo or KissKiss Bank, which have built their success on simplicity, transparency and the ability to put a community of contributors willing to fund a project in contact with project leaders in need of startup or development funds (disintermediation). The success of this phenomenon has also been due to two factors: on one hand, the fact that it draws on people s desire to give meaning to their action and commit to projects which they are connected with; and on the other hand, the moderate risk incurred, particularly in the case of donation campaigns with rewards, since the contributions are generally very small. These players have set the cat among the pigeons and opened the door to new actors, proposing innovative financing methods for project leaders and new investment means for contributors via crowdfunding, through stake acquisition and private loans to companies. According to the last edition of the industry report conducted by Massolution, the crowdfunding ecosystem has grown 164% in 2014 to reach 16.2 billion dollars, compared to 6.1 billion in They anticipate that the industry will double again in 2015, with an estimated 34.4 billion dollars raised before the end of the year. Until 2014, the U.S. and Europe largely dominated the crowdfunding ecosystem. Last year s incredible growth was nonetheless driven by Asia, which has become a new leader of crowdfunding. The region has witnessed a 320 percent increase in 2014, with 3.4 billion dollars raised, and has thus topped Europe, which counts 3.26 billion dollars but remains behind North America with 9.46 billion, up 145 percent versus Crowdfunding presents 3 main advantages for project leaders : first, the possibility of building a strong community of prospects/ambassadors for the project and testing the validity of the project with these groups during the crowdfunding campaign; second, a fast way of raising funds without needing private guarantees; finally, a source of funding that is a credible alternative to traditional financing methods with banks and investment networks. According to Biz2Credit, which focuses on the funding of small businesses, large banks refuse 8 out of 10 loan requests, whereas small banks reject 5 out of 10. 3

4 Crowdfunding: beyond the hype, why banks should be serious about it Governments have understood the importance of reconnecting citizens savings with the real economy, and are trying to encourage the development of crowdfunding by adapting the regulatory framework to this new financing method. For instance, France has opened up a gap in the banking monopoly by opening paid loans to authorized crowdfunding platforms that can present financing below 1 million. However, regulations have not yet been standardized across Europe, which makes it difficult to develop trans-border contributions in loans and stake acquisitions. What does crowdfunding represent for traditional banks? An additional actor and partner in the financing ecosystem, which will cover an aspect of business that banks do not address? A threat that could erode part of banks market shares? 4

5 About us As a global not-for-profit organisation, Efma brings together more than 3,300 retail financial services companies from over 130 countries. With a membership base consisting of almost a third of all large retail banks worldwide, Efma has proven to be a valuable resource for the global industry, offering members exclusive access to a multitude of resources, databases, studies, articles, news feeds and publications. Efma also provides numerous networking opportunities through working groups, webinars and international meetings. True to its vocation, Efma has recently developed an Innovation portal which aims to identify and award the most innovative projects in the retail financial services arena. For more information: Deloitte is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management, tax and related services to select clients. For more information: 15

6 Document report title here Crowdfunding: beyond the hype, why banks should be serious about it January 2016