Although technology has had a major impact on financial services, most developments haven’t really been to the benefit of the end consumer. However this is changing – initially in fairly retail-friendly places such as money transfer, and in investment. New technology has created new markets where startups can challenge traditional models.

Take equity crowdfunding. Investing in young businesses was once the core preserve of established marketplaces, such as the London Stock Exchange’s Alternative Investment Market. But new issuance by genuinely fast growing private businesses has slowed appreciably on the major stock markets. Costs, compliance and trading issues have put off many entrepreneurs. Crowdfunding for equity investors, by contrast, can be quick and relatively cost efficient.

The other component of the alternative finance landscape is peer-to-peer (P2P), or marketplace, lending. This involves replacing banks – deposit takers and lenders combined in one highly-regulated entity – with online lending platforms where lenders (investors with spare cash) can lend money to businesses and consumers.

Of course, with any market dislocation comes considerable risk. Regulators can be too lax, allowing patent frauds, or else too demanding, shutting down real choice. These online platforms might also encourage reckless behavior, either by risky borrowers or by investors chasing exorbitant returns.

Democratization and disruption are only viable if the end user knows what they are doing, and understands both how the platform works and the risk-return tradeoff. The new players must up their game and improve education efforts.

To find out more about how a burgeoning sector communicates with stakeholders, Cognito spoke to David Stevenson, a well-known investment commentator who founded AltFi with Rupert Taylor, a former trader at Nomura.

Altfi.com is now one of the world’s leading alternative finance news outlets. The AltFi team also hosts some of the industry’s leading global events, whilst AltFi Data is pioneering the analysis of underlying loan data on the major lending platforms.

How has the increased adoption of the P2P model changed the global finance sector?

David: Although the P2P platforms are still small when compared to the big banks or asset managers, the changes are increasingly obvious. Banks have started to cooperate with the online platforms and sometimes copy their models, while crowdfunding The Rise of Alternative Finance: The Second Act With the rapid growth of a burgeoning sector comes a greater responsibility for clear and accurate communication. An interview with AltFi’s Founder, David Stevenson. platforms have spurred on more asset managers to take a keener interest in giving retail investors access to early stage high growth businesses.

I’d be cautious about the deep structural changes and their impact on finance so far – transaction levels are still low in comparison – but the disruption could be immense as the exponential growth rates pull in more savers, borrowers and investors.

As P2P matures, how is the ecosystem developing?

We’re seeing a growing diversity of products with platforms accessing more niches. Property, for instance, was initially a small part of the overall mix of products, but in recent months that’s changed with relatively new outfits such as LendInvest and Landbay grabbing headlines with their varying products.

We’ve also seen more attention paid to what lenders want out of borrowing platforms, such as continuous liquidity and a greater range of channels to lend through. Over in the equity space – much smaller than the lending space – we’ve seen more and more established private businesses use online funding channels as well as product innovation, with bonds very popular in recent years.

What do you see as the key differences between the UK, US and APAC markets?

The US is very much dominated by big lending platforms such as Lending Club and Prosper, whereas equity crowdfunding was until very recently almost nonexistent (though that is changing fast).

The UK is also dominated by big lending platforms, but the equity crowdfunding space has seen massive growth in recent years. The APAC market is currently dominated by China, although Australia is showing signs of following its Anglo Saxon peers and is experiencing rapid growth. The Chinese P2P lending scene needs to be seen in a slightly different context as an extension of its existing shadow banking system, with lenders looking for high yielding alternatives to the big banks. The market in China is growing exponentially but is much less rigorously regulated.

How have the platforms evolved their communications strategies as they scale and engage with institutions?

We’ve seen a classic evolution in messaging. At first the big online platforms simply wanted to shout about breathless expansion – telling anyone who’d care to listen that they are here and open for business.

As growth has picked up we’ve seen more caution creep into communications, with an emphasis on protecting investors’ money and making sure credit or due diligence procedures are up to scratch.

We’re now seeing this growing maturity in messaging extend to more detailed discussion about issues such as liquidity and platform processes and structures (especially in the event of failure).

One senses that many communicators are waiting for the inevitable shake out where ‘also rans’ fail and the different sectors start to consolidate. After this inevitable move into the mainstream, expect more bullish messages to start tumbling out.

What do their audiences really care about?

One message dominates. Yield. Get me a better return on my capital as an investor in a low rates environment. As a secondary concern platform protections are important – make sure I still have my capital deployed in a few years’ time.

I’d like to suggest that investors care hugely about transparency and liquidity – they should – but in my experience many investors chase the headline figures. Within equity crowdfunding that inevitably means jumping on board the biggest, hottest new funding launches.