The State of P2P Lending in Continental Europe

P2P Lending in Europe

Moderated by Claus Lehmann, of, the panel of Charles Egly, of Prêt d’Union; Raffael Johnen, of auxmoney; Heikki Koivu, of Fixura; Michele Novelli, of Prestiamoci; and Cédric Teissier, of Finexkap discussed P2P lending in Europe.

What does the P2P lending market look like in your country?
Novelli (Prestiamoci): In Italy there are €20B in personal loans. The average is €7K, which yields an average APR of 12%. Important to note that there are limits in place which restricts to 19%
Egly (Prêt d’Union): We are a French central bank startup which gives us a very unique advantage. We launched in 2011 and have issued €120M with an average of €10K.
Koivu (Fixura): We’ve provided 34M in loans with an average of 4400 and a max of 10K. There are only 2-3 companies in the Finish P2P space.
Johnen (auxmoney): P2P in Germany is all consumer secure and unsecured loans. Secured loans relate mostly to cars. We’ve handled €120M in total.

What level of support do you have from your respective governments?
• Germany – There is no government support for P2P. There is no dedicated P2P regulation so we fall under broader banking. We work under a partner bank to fall within the law.
• France – subject to a banking monopoly – need a banking license. There are only 14 companies working with 220B in receivables. There are some small licenses available for SME lending but this is very limited.
• Finland – There is no regulation in Finland, we wish there would be. There is some discussion and there probably will be something next year. We manage as if it would be regulated. This is our approach to achieving transparency and allowing people to understand what we are about. In Sweden we have to operate like a regulated company so we might as well do that throughout. We are lobbying for regulation.
• France – It took 2 years to gain our license. Only P2P in France. This was very tough to obtain.
• Italy – No incentive for this. The government wants SME investment, not P2P. Bank of Italy was quite open to finding a solution but they require that credit assurance must be done in professional way. On the lender side, they want 2 things: 1) an account which is separate 2) enough diversification to reduce risk. It takes 2 years to get the license in Italy.

What do you think is the general awareness of P2P lending in your home countries?
• Very low Italy awareness. Very slow in our mentality. Little by little this will change
• In France, the media and consumers don’t like banks. The media likes crowdfunding.
• Finland has low awareness. Nascent market in many ways. Some recent media coverage – picking up on phenomenon. Typical lender is very risk adverse and traditional. It will take time to warm to this new lending form.
• France – recent referendum was a good thing. The anti-bank is very real in the community of borrowers. Being consumer oriented goes a long way. Much harder to find investors. The investment communities are not used to this. Typically France is always late to the game. Had to go overseas to finance the company, couldn’t find it in France.
• Germany – the whole industry wants more awareness and attention.  Attention within the FS community is very active. Many requests for meetings and partnerships.

What can investors expect and what returns are you able to provide?
Johnen (auxmoney): 6 years of performance – 6% return across score classes. Exclude 80% of borrowers. Those 20% are in score classes (ABCD) most are on the risky side. Blended return is still 6%.
Teissier (Finexkap): Finexkap has not launched yet but almost through a 2-year process. We have internalized the selection of receivables to determine the short term solvency of the company. We put together investment strategies and we sell the access to these funds. Investors don’t see receivables. 3 months investment requires 2%. 80% of capital is on the short term investment.
Koivu (Fixura): Users set the terms so it is a true market solution. Can set anything between 6 and 32%.
Egly (Prêt d’Union): The average yield is 4%-7%. Now we just address A and B class borrowers. We are launching a C score solution soon. Caps on rates limit us to selling to near or sub-prime borrowers.
Novelli (Prestiamoci): 6-7% net return.

What will happen next 1-2 years?
• Novelli (Prestiamoci): Business is 3 parts: Lending capital collection, manage integration, how you select borrowers. The last is truly local. The first two can be very European and easier to aggregate. This will create efficiencies and how to beat the banking system. In general you are hearing that we all can offer around  6% return.
Johnen (auxmoney): 6% across EU does not mean the same thing. Country risk is very important. I do agree there are huge synergies with expansion

How do you work with local banks?
Johnen (auxmoney): We broker a deal to the partner bank and they issue the loan. The bank sells to aux and then we break and sell off to investors. The bank holds for basically 1 second.

What % of loans do you accept on your platform?
Egly (Prêt d’Union): Pre-approve 30% of loan appl. Finance between 5-8% of pre-approved loans.
Koivu (Fixura): 20%-30% of loans are funded.
Johnen (auxmoney): 20% approval; most get funded.
• Novelli (Prestiamoci): There is very little approval on our end because we get a lot of sub-prime borrowers. In Italy it is possible to reach 20%-30%.

Do you believe there could ever be a pan-European regulation for P2P lending?
Koivu (Fixura): I don’t see pan-euro regulation happening at all in the next 10 years.
Johnen (auxmoney): I believe the platform would split into those who work with a partner bank and those who don’t.