Alliances between fintechs, large banks and business groups, the implementation of a new European regulation for crowdfunding and the support of public institutions will be fundamental to the evolution of alternative financing in Europe.
The appearance of crowdlending platforms has deeply changed the European credit market, allowing entrepreneurs to diversify their sources of financing and offering investors a new type of asset that was inaccessible to them until then: company loans. Over the years, the sector has evolved to offer greater agility, speed and quality customer experience, and the platforms themselves have adapted to the needs of the market. To know what the future of fintech will look like, let’s have a look to the trends that will mark the path in 2019.
1. Alliances between crowdlending Fintech and large banks: In 2018, October and Liberbank have starred in the first collaboration agreement between a banking entity and a crowdlending fintech in Spain, and it is expected that in 2019 this type of alliances will continue to be carried out. Thus, the financing of SMEs will be strengthened through agile and digital solutions, and fintech will contribute to the innovation in the traditional banking sector, which seeks to provide its customers with a better experience.
These alliances will enable to put into practice the complementarity of banks and fintechs, which mainly benefits SMEs seeking financing. First, because of the agility of the process: the technological development of fintechs facilitates analysing and granting loans to companies in a short time. Then, because of the purpose of the loan: the crowdlending platforms finances all kinds of business growth projects, either there are based on tangible or intangible assets (internationalize the business, invest in marketing, acquire a company, buy equipment, digitalise the company, etc.), and without asking for a collateral. And finally, because of the size of the loan, since the crowdlending platforms can complete a loan offered by a bank.
2. New European regulation for the crowdlending sector: Cross-border operations will be facilitated on the European territory, following the approval by the European Commission of a new common European framework in 2019, which will guarantee a management and protection scheme for investors. One of the new elements integrated in this regulation is the creation of a European crowdlending passport that will boost the Europe of Savings, since more European investors will be able to participate in the financing of EU companies, making business projects viable without border restrictions. This means overcoming the current barriers due to the specific regulations of each member state.
On that matter, October has proposed to improve regulation through three specific recommendations. Our first recommendation would be to extend the 1 million euros anual limit for loans to better meet the needs of SMEs, which usually exceeds that amount. Our second recommendation is about the platform managers participating in projects financing, showing their alignment with investors’ interests and therefore building trust in the community. For that, it would be necessary to modify the article on conflicts of interest and incentives. Finally, we would recommend to see marketing as a tool to increase the visibility of the projects so that investors can study them and invest in them. Communication is key if it is objective and transparent.
3. Public institutions will continue to be strategic allies to consolidate alternative finance: throughout the process of exploring new financial solutions promoted by the European Union, which has led to the creation of crowdlending platforms, some public institutions have shown their support for these new forms of financing. For example, the European Investment Fund (EIF) – part of the European Investment Bank (EIB) -, the KfW Group – the German governmental development bank -, or Bpifrance – the French Public Investment Bank – have participated in the platforms’ investment funds to contribute to the financing of European companies. At October, we believe such initiatives are expected to continue throughout 2019 to strengthen the crowdlending market.
4. Strategic agreements with large business groups: aiming at improving access to fundings for SMEs, the p2p lending platforms will begin to reach strategic agreements with large business groups, as October did with the operation Grow Together. With this initiative, 11 groups (AccorHotels, the Adecco Group, Allianz France, Arkéa, Edenred, ENGIE, Iliad, JCDecaux, SUEZ, Unibail-Rodamco-Westfield and Webhelp) gives their customers and suppliers access to alternative financing, which will represent up to 11 million euros in loans from October. This initiative was first launched in France and will be replicated in the coming year in the other countries where October operates.