What is alternative finance?

Alternative financial services (AFS) are financial services provided outside traditional banking institutions, these include peer to peer lending, and crowd-funding.



Peer-to-peer lending means lending money to individuals, or "peers", without going through a traditional financial intermediary such as a bank or other financial institution. Also known as crowd-lending, these companies work by matching individual lenders and borrowers. Most companies offer unservure personal loans although some offer business loans.

As the banking middle-man is cut out, borrowers often get slightly lower rates, while savers get far improved headline rates, with the sites themselves profiting via a fee.

Consumers using peer-to-peer sites are now better protected after the industry became regulated by the Financial Conduct Authority from 1 April 2014.The new rules state that peer-to-peer firms must present information clearly, be honest about risks and have plans ready in case things go wrong. All peer-to-peer firms must meet these rules or face sanctions, which can include large fines. By April 2017 firms will have to have at least £50,000 worth of capital (or more for bigger firm), in reserves to act as a buffer to ensure they can withstand financial shocks or difficulty.