Major financial institutions are starting to pay attention to peer-to-peer lending (P2PL) as the P2PL platforms take an increasing share of the small to medium sized enterprise (SME) lending market.
Crowdlending funds emerge
Insurance companies have backed a new investment fund from Eiffel Investment Group. The €100m Prêtons Ensemble fund will receive €50m from Aviva and a further €20m from AG2R. Prêtons Ensemble is the first major crowdlending fund in France. It will invest exclusively in crowdlending platforms that provide SME loans in Europe. Aegon has also committed €150m on the German consumer platform Auxmoney.
This is a strong indication that traditional financial institutions are beginning to support P2PL.
Peer-to-peer financing has been hugely successful in the US, and in the UK, and markets in Spain and France are moving in the same direction, with more and more platforms emerging. The University of Cambridge-EY 2015 European Alternative Finance Benchmarking Report, titled Moving Mainstream, found that the UK had 65 alternative finance platforms, Spain had 34, followed by France with 33. It showed the alternative finance market for Europe, excluding the UK, had an average growth rate of 115% in three years, reaching €620m in 2014. In particular, peer-to-peer business lending grew by 272% to €93.1m – the highest average growth rate among alternative financing models.
While only a few years old, P2PL platforms have continued to grow, in both size and number, and are revolutionizing the way SMEs raise funds. This is because they offer more agile lending processes, enabling companies to quickly and easily secure the capital they need to grow their businesses.
Since MytripleA launched, in 2015, it has experienced significant growth in the number of loan applications. It is attractive to SMEs because it offers much faster access to finance, at better terms than traditional routes. MytripleA also has a rapidly growing pool of lenders because it offers attractive risk- adjusted returns..
Traditional investors are beginning to recognize this success. They want to be a part of the transformation in financial services and are being drawn to alternative finance platforms. By becoming investors in funds, such as Prêtons Ensemble, they can dip their toes in the market with relatively little risk and learn about these platforms, without having to build their own.
These investors want to be seen to be helping SMEs, who have had a hard time raising finance via traditional routes, since the financial crisis. With only a small amount of capital, in comparison to their large balance sheets, they can invest in P2PL funds and support thousands of SMEs, without abandoning their traditional lending models.
Interest from financial institutions is a huge endorsement of the financial technology used by P2PL platforms – these largely automated lending platforms provide a better user experience through efficient online channels.
I believe the market will see a rise in acquisitions and partnerships, as larger P2PL players and new entrants, along with banks and insurers, snap up platforms in order to take advantage of their technology and grow market share. There is a massive opportunity for P2PL to take a significant chunk of the SME lending market and to transform the industry. P2PL platforms are driving innovation with benefits for both borrowers and investors.
With growing support from traditional investors the speed of change is going to accelerate. Platforms that can attract major financial institutions will benefit from access to capital and will be able to focus on originating loans. They will quickly grow to become the market leaders.
By Sergio Anton, Founder MytripleA