Top 10 alternative finance trends

Nick Perzhanovskiy
Nick Perzhanovskiy Business Development Manager
6 minutes to read
Top 10 Alternative Finance Trends

The alternative finance industry is experiencing rapid growth as businesses look for new ways to access capital. To help better understand the evolving market, we’ve gathered the top 10 alternative finance trends that are having the most significant impact on businesses of all sizes. From crowdfunding to peer-to-peer lending and beyond, this list will explain the latest alternative finance developments and how they are impacting businesses.

Alternative finance regulations and business impact

Alternative finance regulations have a significant impact on business operations and activities. These regulations are designed to protect consumers, safeguard financial stability, prevent fraud, and ensure the safety and soundness of financial institutions.

For investment businesses, regulations can affect how they operate and can have an economic impact. On one hand, regulations can help protect businesses from fraud and mitigate risk. On the other hand, they can impose limits on how businesses manage their finances, creating additional costs and compliance requirements.

Apart from the standard KYC/AML, GDPR and AIFMD requirements that all financial institutions and businesses have to comply with, here are some of the most recent regulatory updates that are worth monitoring: 

  • ECSPR – European Crowdfunding Service Providers Regime
  • MiCA – Markets in Crypto-assets or “European cryptocurrency law”
  • CSRD – Corporate Sustainability Reporting Directive

Crowdfunding for entrepreneurs

Crowdfunding enables entrepreneurs to access alternative finance options and reach more partners, and for investors, it offers a wider range of investment opportunities. 

Why do entrepreneurs address their funding needs with crowdfunding? For a startup, launching a crowdinvesting campaign means not only the possibility of getting money. It is an opportunity to prove their concept and gain social proof in case more fundraising effort is needed. For investors, a crowdfunding campaign can create a sense of urgency and attract venture capitalists and angel investors at later rounds. 

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Crowdfunding campaigns can serve as a great PR tool. Launching a crowdfunding campaign helps you to create buzz around your business, increase visibility, and attract early users: ambassadors and advocates, those who have a real interest in spreading the word about your business to benefit from their investments. 

At JustCoded, we know firsthand how to build and launch crowdfunding platforms. In fact, we even have an out-of-box crowdfunding platform software — LenderKit. Reach out to learn more about how it works. 

Online payment security

People can use various methods to transfer money online, the most popular of which are remote banking systems, mobile transfers, and electronic wallets. While these ways are comfortable, they also come with some risks. Tackling these risks to enhance online payment security level is one of the priorities. Among the major risks to solve, there are the following:

  • Customers’ and employees’ data leaks
  • Cyber attacks
  • Fake confirmation pages
  • Twins of banking/payment providers sites

To eliminate these issues, it is necessary to use data leakage control systems and conduct regular digital security analysis, and for those working with online payment providers, it is always required to ensure that the companies responsible for online payment processing comply with stringent security measures. 

Blockchain applications

Blockchain was originally used for peer-to-peer transactions, but now, the number of its use cases has expanded. FinTech businesses are constantly looking for innovative methodologies that enable the fast and affordable transfer of funds all around the world.

The old systems of funds management come with fragmented wealth management, lack of transparency, and old-fashioned operation ways. 

That’s why FinTech companies that operate in the alternative finance niche are experimenting with various blockchain-based technologies to enable their investors and customers to benefit from the top user experience and facilitate the investment and fundraising processes.

So, blockchain technology enables platforms to democratize the fundraising and investment processes by enabling all those who want to participate. Distributed Ledger Technology also boosts the transparency of all operations by granting equal access to data.

If you want to hire blockchain app developers in the fintech sector for an asset tokenization platform, fill in our contact form to reach out and discuss your project requirements. 

Impact investment strategies

Impact investment is a type of investment when, along with financial benefit, investors expect to generate a positive environmental and social impact and contribute to more sustainable economic development. 

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Investors can participate in impact investment in several ways:

  • Leverage their influence and impact to encourage businesses to improve their social and environmental performance
  • Fund early-stage companies with truly innovative ideas.
  • Fund startups in developing countries where resources are scarce. 

Impact investing helps backers to assist in bringing positive changes and focus on those areas where their funds can make a positive change by funding companies that have the potential to grow through solving global sustainability issues.

FinTech for social good

Social good is “something that benefits the largest number of people in the largest possible way, such as clean air, water, healthcare, and literacy,” as Investopedia defines. It also means a positive impact on society or individuals. The thing is that many people do not have access to basic human amenities, services, and products. 

Creating solutions to tackle infrastructural limitations and reduce social inequality is a way to work for the greater good. It is about more than just financial inclusion, but rather about advancing humanitarian aid, stimulating economic growth, and providing basic necessities for people everywhere.

Peer-to-Peer lending platforms

FinTech is transforming the lending market by introducing new platform types. Peer-to-peer lending platforms play a special role in this sector. These platforms connect lenders and borrowers directly, bypassing the services of traditional banks and lending institutions. 

FinTech is changing this sector by using big data and artificial intelligence to manage risks and improve lending decisions. It all stimulates the P2P market growth and attracts lenders and borrowers to platforms.

And respectively, the P2P lending sector contributes to the FinTech industry by providing relatively easy ways to raise funds for promising startups and the potential for lucrative returns.

Financial inclusion and FinTech

Financial inclusion is one of the major problems in many countries. So, in Africa only, over 2,5 billion people do not have access to banking services. 

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Deep Knowledge Ventures – Fintech for Social Good

FinTech has a great potential to promote financial inclusion by offering financial services to underserved populations. It is essential to reduce poverty and boost economic growth. Mobile wallets, digital currencies, and mobile banking apps have made financial services accessible to a big part of the previously unbanked population. 

Another way to promote financial inclusion is investing in promising FinTech companies in developing countries. With it, investors provide finance for the country’s economic growth and stimulate the development of the FinTech sector.

Alternative credit scoring models

Credit scoring serves to determine how likely it is that the borrower will repay a loan. Companies use a lot of data about the applicant to perform credit scoring. But if that data is not available, traditional ways of credit scoring don’t work. New generations interact with finance in different ways than older generations do. That’s why old credit scoring ways don’t work with them.

There are alternative models for determining creditworthiness, the main of which are the following:

  • Alternative finance services data
  • Rental payments
  • Ownership of assets
  • Consumer permissioned data
  • Full-file public records.

The main non-traditional data sources are social media profiles, mobile usage, online behavior, etc. By analyzing all this information, it is possible to perform credit scoring more accurately and predict the behavior of the future borrower.

How to address the new challenges with JustCoded

At JustCoded, we help entrepreneurs and businesses build and scale fintech applications of various kinds. Our portfolio has a diverse collection of use cases which we’ve covered, so you can study it and reach out to hire fintech developers.

We also develop alternative finance platforms that comply with all the regulatory requirements and can compete successfully in the market. And for those who prefer to rely on readily-available solutions, we have created our proprietary crowdfunding software LenderKit with an extensive set of out-of-the-box features that can be customized based on the needs of any business.

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