Attendees and apologies
- Helen Goulden – Nesta (Chair)
- Ben Bell – Uber
- Jonathan Coburn – Social Value Lab
- Dr Jamie Coleman – Codebase
- Claire Mack – Scottish Council for Development and Industry (SCDI)
- Polly Purvis - ScotlandIS
- Patrick Robinson – Airbnb
- Ewan-MacDonald Russell – Regulatory Review Group (RRG)
- John Schmidt - Shepherd & Wedderburn
- Douglas Shand – Price Waterhouse Cooper (PwC)
- Graeme Smith – Scottish Trades Union Congress (STUC)
- Martin Namor – Scottish Government
- Corey Reilly – Scottish Government
- Jamie Steed – Scottish Government (Secretariat)
- Louise Sutherland – Scottish Government
- Peter Baeck – Nesta
- John Kirkpatrick – Competition and Markets Authority (CMA)
- Rhonda McFarlane – Angus Council
- Sheila Scobie – Competition and Markets Authority
- Andrew Byrne - Uber
- Malcolm Roughead – VisitScotland
- Lorraine King – Scottish Government
Items and actions
There are range of terms to describe collaborative finance, for the purpose of this minute it will be referred to as crowdfunding.
The Chair welcomed everyone to the panel session, thanking them for their attendance and confirmed that the session would be split into two halves. The first half on crowdfunding and the second on balancing competition and regulation. To ensure an open and transparent process, the presentations and submissions will be published online. A number of stakeholders were invited but unable to attend the session, including the Financial Conduct Authority (FCA), Sharein, Kickstarter, Scottish Enterprise Fintech team and Royal Bank of Scotland (RBS).
The Chair updated members that Involve Consultancy has been appointed to deliver the participative engagement consumer sessions which will take place in October and will report in December.
2. Overview of Crowdfunding - Peter Baeck, Nesta
Crowdfunding is described as a way of financing projects, businesses and loans through small contributions from a large number of sources, rather than large amounts from a few. The different models of crowdfunding are;
- reward-based which is where people contribute to projects and receive a non financial reward or product in return;
- donation-based where people donate money towards a project and receive no financial return or product they only see the final product;
- equity-based which enables the crowd to invest for equity, or profit/revenue sharing in businesses or projects, with the hope of a financial return if the business exits; and
- lending-based where people seeking a loan apply through the platform, with members of the crowd taking small chunks of the overall loan and profit is made when loan is repaid with interest.
Nesta have researched the UK growth and trends, regulation and policy as well as future predictions for crowdfunding. Key points included:
- Total UK online crowdfunding has grown from £267m in 2012 to £3.2bn in 2015.
- In 2015 peer to peer lending was the largest finance model in the market (£909m).
- Scotland is the fifth most popular region of the UK for receiving funding.
- Crowdfunding for good causes in communities grew 500% from 2014-2015.
- Financial Conduct Authority (FCA) are reviewing the equity crowdfunding regulation.
- The market is maturing but some high profile risks are being identified including malpractice, fraud and cyber security breaches.
3. Stakeholder evidence sessions – Angus Council
The Funding, Policy and Project team within Angus Council identified that crowdfunding was an exciting and innovative way to access funding especially with constrained budgets. Crowdfund Angus was launched on Crowdfunder UK, in August 2015 with four pilot projects. To date it has supported thirty two projects on the portal and has raised over £142,934 to date. From April 2017 the Angus Council Community Grant scheme has been used as a match fund for Crowdfund Angus bringing a host of benefits to both Angus Council and applicants. This has helped to promote to other councils and partners what crowdfunding can achieve. A range of benefits were noted including increasing the reach of campaigns, tourism and community engagement.
4. Stakeholder evidence sessions – Balancing Competition and Regulation
The Competition and Markets Authority (CMA) presented an overview of their work and interventions in the taxi/private hire market to illustrate wider collaborative economy considerations. They discussed a number of the existing regulations and posed the question of whether they are still relevant in the evolving market place. This led onto a discussion of the merit of rating and accreditation systems and CMA expressed that whilst they don’t solve the problem of how to regulate the collaborative economy they provide a powerful dynamic. It is important that platforms can establish trust and a reputation with consumers. CMA advised it intervenes in three aspects of these systems to ensure consumer trust – fake reviews, suppression of negative reviews and paid endorsements. They noted that the term ‘level playing field’ is used a lot - however, they felt that it is only relevant up to a point as it can prevent improvements/innovation. They advised that they have published competition guidance that asks four simple questions which helps thinking around consequences to any proposed new regulations.
5. Follow-up questions from panel to stakeholders
The Chair invited follow-up questions and observations from panel members. A consistent theme has been that consumers need to be informed and educated about the collaborative economy and this continued when discussing crowdfunding. It was noted that this sector is still expanding which could increase risks when many more business and consumers engage in collaborative finance platforms. However, to help the market grow, the panel noted that increased transparency and scrutiny could assist.
The panel discussed the flexibility, accessibility and quick turnaround of accessing finance has contributed to the rise of crowdfunding. This is particularly relevant to SMEs, which may be unable to access traditional financial institutes during working hours. In addition, banks are becoming more risk adverse, which has contributed towards a power change in the financial sector. Banks, such as Goldsmith and Sachs, have adapted their business models to reflect this. There was discussion around how failure is perceived in reward-based crowdfunding due to investor’s personal investment in the project.
6. Panel debate
The panel noted that crowdfunding presents a rising number of opportunities at a local and community level to access funding for projects and businesses that might otherwise struggle to get off the ground. There was discussion around how rewards based crowdfunding tended to be more than just a financial transaction which creates spin off benefits of community engagement, ownership and empowerment. The panel also discussed briefly whether any exponential rise in local crowdfunding could be used to plug decreasing local budgets; particularly when led by – or matched by – local authorities. Again, the issue of access to straightforward information about risks and transparency of processes and transactions were highlighted as key.
The panel felt that there may be an opportunity to explore consumer redress for crowdfunding, especially within the reward based sector.
7. Final round up and date and time of next meeting
Action - Secretariat to issue meeting request directly before the next panel session to discuss potential for recommendations a consideration paper will be circulated to aide discussion
Action – Members to submit by e-mail a short paragraph of their final thoughts on today’s session.
The Chair thanked everyone for attending and for their contributions and looked forward to seeing them next month at the next evidence session which is focusing on Participation: consumers, providers & businesses and will include consideration of digital skills. It will be held in New Register House in Edinburgh on Wednesday 27 September between 12 – 4pm.
|Action Number||Owner||Agreed action||Status|
|1||Panel||Panel to request data from STAA & Airbnb which can be built on available data sources e.g. Indigo House report||Requests have been issued to Airbnb & Uber|
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