Mainland Europe: A New Era
With more than 400 peer-to-peer lending platforms currently active in mainland Europe, the market looks set for consolidation as regulation and investors in the region become more sophisticated. Hannah Gannage-Stewart reports
The Mainland European peer-to-peer lending market has grown substantially in recent years. Unlike the UK, where many platforms launched in response to the 2008 financial crisis, many of the continent’s biggest platforms have launched in the last five to 10 years.
This is likely due to growing tech literacy among investors and a desire to find high-yielding alternative investment opportunities in an increasingly constrained socio-economic market.
Moreover, the introduction of pan-EU regulation has enabled platforms to expand more easily across borders to other EU states, providing the company was established in the EU to begin with.
The European Crowdfunding Service Provider Regulation (ECSPR), which includes P2P lenders, has applied across the EU since November 2021, however firms that offer services only on a national basis are still permitted to operate under their national laws until November 2023.
Crowdfunding projects worth more than €5m (£4.4m) in a 12-month period aren’t caught by the regulation, but those might fall within the scope of other EU regulations instead, such as the markets in financial instruments directive (MiFID) regime, which can impose a lengthy admin process for platforms to offer their products in other European markets.
Read more: Europe prepares for influx of newly licensed P2P and crowdfunding firms
Ultimately, ECSPR should increase the scope of the P2P market in Europe. Recently, European crowdfunding trade bodies, including the UK Crowdfunding Association, met in Paris and discussed plans to form a consortium that would enable them to speak with one voice to the European regulator, the European Markets and Securities Authority.
Read more: European P2P sector could get €400m boost from AI this year
This move towards a more united European market, including input from the UK despite it being outside the EU regulatory regime, hints towards an evolving sector where continuing growth may soon give way to greater sophistication and consolidation.
The European P2P market is extremely diverse and made up of several different models, some of which are less likely to be seen in markets such as the UK or the US, where greater regulatory scrutiny has limited the models available.
Read more: 21 crowdfunding platforms now approved under new EU rules
P2PMarketData.com lists 495 P2P platforms in Europe, 94 of which are in the UK and fall outside the scope of this article. The remaining 401 are concentrated mainly in Italy, France and Germany, where there is a total of 175.
German P2P blogger Lars Wrobbel, who covers the European market at Passives Einkommen Mit P2P, cites the Baltic states as the most active, with the largest platform, Mintos, headquartered in Latvia. Croatia is home to other major players, such as Robo.cash and PeerBerry.
Elsewhere, Estonia claims 30 of Europe’s P2P platforms, Spain and Switzerland have 26 each and there are 19 in the Netherlands. Latvia is home to 10 platforms.
Mintos, which launched in 2015, is one of several platforms known as aggregators, or loan marketplaces, where the loans are provided by originators partnered with the platform, enabling investors to easily manage and diversify their loan portfolios, usually via an auto-invest function.
The aggregator model is popular across Europe. It will take loans from across Europe and generally accept lenders from across the region too, although US and UK investors are not permitted on Mintos’ or many other aggregator’s platforms.
Read more: Opportunities in mainland Europe for UK investors
One of the smaller aggregators is Swedish SaveLend, which does not market to the UK but will accept organic traffic from there. The platform is longstanding by European terms having been founded in 2014 by chief executive Ludwig Pettersson.
SaveLend is targeting 40 per cent revenue growth and a move into profitability this year, as it expands across Europe. The platform received its EU crowdfunding licence at the end of last month.
Pettersson says when he entered the European P2P space almost a decade ago the average retail investors were akin to today’s crypto enthusiasts. Showing little risk aversion, they were tech savvy and seeking high returns.
Now the platform has around SEK1.2bn (£93.8m) invested and more than 19,000 investors targeting returns of around 8.04 per cent. While those early adopters are inevitably still among today’s investors, the demographic has broadened. He says the average investor has around £5,000 invested in around 300 loans spread across different originators.
Pettersson says the market has evolved, with more high-net-worth (HNW) investors coming to the platform (those with more than £1m invested). Where he saw early investors attracted to the aggregator model because the auto-invest product meant they needn’t scrutinise every separate loan, he says now HNWs are attracted to it because they don’t have the time to manage large portfolios with individual platforms.
“They don’t have the exact knowledge to do the same analytics as we do,” he explains. “I mean, we have the whole credit and legal department to do this for them. So, once they trust us, they put in the money and forget about it. We take care of it. So, it’s almost a wealth management product.”
Looking ahead, Pettersson says consolidation seems inevitable very soon.
“I foresee a lot of smaller mergers and acquisitions starting this year, most likely,” he predicts. “Because if you want to borrow money, you also want to go to the platform where you know you will get the money, so I don’t think there will be enough space with 100 players.
“There will be a few for each market, maybe two to three. And from there I think there will be, as we’re seeing in the UK and US, a lot of platforms shifting towards institutional money.” Despite this, SaveLend is committed to retail lenders. Pettersson believes that those who switch to institutional funding will ultimately regret it.
