Europe prepares for influx of newly licensed P2P and crowdfunding firms
A new market for peer-to-peer lending and equity crowdfunding is about to launch in Europe.
The new European Crowdfunding Service Provider Regulation (ECSPR) has been effective since November 2021, with six crowdfunding platforms already licensed, and a number of applications still pending.
Oliver Gajda, executive director of EuroCrowd, has been on the frontlines of this regulation for the past few years, and he knows better than most how transformative it promises to be. In fact, Gajda has predicted that there will be an influx of newly licensed crowdfunding and P2P lending platforms across Europe, leading to the development of new fintech hubs across the continent.
Read more: Want to launch in the EU? Join the club…
“It’s still early days, and the market is wide open to new entrants and old ones,” says Gajda. “But I believe that within the first six months of 2023, the number of active licences will increase significantly.
“Since ECSPR allows to choose the licensing member state freely, there is also increasing competition amongst European regulators, giving rise to hopes of new fintech capitals across the Union.”
The deadline for all nationally licensed platforms to convert to an ECSPR licence is November 2023. But at a recent networking event organised by EuroCrowd and the law firm Dentons, the European Securities Markets Authority (ESMA) said that it believed that the transition to ECSPR could be finalised well before this date.
The entire authorisation process is believed to take between five and nine months. During this time, the quality of the internal processes, legal business plans and operational systems would be tested in detail. Once licensed, the platform can operate in any EU market.
“Of the first six platforms which have obtained the ECSPR licence, the largest three have shared their expertise with the new licensees,” says Gajda.
“While obtaining it was not as straightforward as they had hoped, once obtained it provided significant benefits.”
UK-based Crowdcube became the first EU licence holder via its Spanish subsidiary Crowdcube Europe. Since obtaining the licence, the company has already expanded into France, the Netherlands, Belgium and Scandinavia, and it has funded more than 20 deals under the new permissions.
Meanwhile, Dutch platform Lendahand Ethex – which funds clean energy projects in Africa – has used its licence to further expand its business model by using a clause in the law allowing it to finance businesses outside of the EU. This is a legal detail which has not gone unnoticed by UK platforms.
“Expansion into the EU can help increase capital inflow into the UK market,” says Gajda. “This is also possible for non-UK platforms, as it will allow European platforms to finance transactions in the UK under the new rules. This will likely not be their first move, as there are more opportunities at present in the European market, but it is likely a question of time.”
Read more: 90pc of European platforms applying for EU-wide licence
At a recent EuroCrowd conference in Brussels, Gajda noted that representatives from the banking sector see the new law as an opportunity for their sector.
“There is a clear interest from European banks to seek deeper engagement with P2P and crowdfunding platforms,” he says. “At the same time, some bankers are looking to this new market as a way to close the gap between early-stage finance and pre-IPO funding, hinting that there might be a ceiling where crowdfunding and stock exchanges will meet in the future.”
The European crowdfunding revolution is already underway and it is just a matter of time before a slew of new entrants win licences of their own. When that happens, the sky is the limit.