Crowdfunding platforms beware: The banks – and others – are eating your lunch
European crowdfunding platforms could be left fighting for their piece of the pie. Incumbent financial players, including asset managers and banks, not-for-profit organisations, and non-financial firms are entering the crowdfunding business in increasing numbers.
Recent research that I conducted with Politecnico di Milano’s Massimiliano Guerini, Evila Piva and Cristina Rossi-Lamastrais analysed the proliferation of crowdfunding across Europe.
Our research points to a number of established organisations entering this market and operating crowdfunding platforms. Over a fifth of crowdfunding platforms across Europe are run by businesses that operate in other areas too, and this number is set to grow.
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While the crowdfunding industry is still very much in its infancy, an increasing number of firms are starting to view it as a valuable business opportunity, a way of raising money in-house, or as a means of diversifying their business.
Of all these non-traditional crowdfunding platform operators across Europe, our research finds that 24 per cent are traditional financial institutions, 30 per cent are not-for-profits and 46 per cent are firms in non-financial sectors.
Platforms will, therefore, not only need to monitor competition from existing crowdfunding operators, but also from organisations like large banks entering the business.
That group finds it much easier to enter the market and navigate the regulatory minefield involved in building a crowdfunding platform.
They have accumulated resources, such as legal expertise, making them much more likely to stay the course than smaller startups that don’t always have these skills readily available.
Larger incumbents also find it easier to scale up. Again this is down to resources and capital. If more enter the crowdfunding market in the coming years, which is very likely, platforms could eventually find themselves being outnumbered. They will have a tough fight on their hands to keep market share.
Countries with the most developed industries – Germany, France, the Netherlands and the UK – will start to feel the squeeze first. Interestingly, Portuguese platforms face the greatest competition, with 43 per cent of platforms owned by incumbents.
But it’s important to remember that crowdfunding is still very much in its infancy: there is space for both startups and incumbents in the market. What matters is whether these organisations can find their place in this exciting market.