The Alternative Finance Market in Italy

Overview

According to a recent report by Cambridge University and EY, the alternative finance space is not as developed as in Italy as it is in other European countries. In the three-year period 2012-2014, the volume of alternative finance transactions was in the range of €5-25m, but in 2014 it was only  €8.2m.

Summary of the main platforms

P2P lending platforms

• Smartika is one of the biggest Italian platforms with over 4,009 loans granted to individuals for approximately €21 million, lent by 5,718 lenders. The total loans to be still valued are 517 for a value estimated around €3 million. People might lend from a minimum of €100 to a maximum of €50,000 and their expected gross return would be approximately 6.5% - based on an average of the last 12 months.
• Prestiamoci counts 673 active lenders that can invest in 7 different classes of loans – from A to G - bearing different levels of risk. Expected returns range from 3,77% to 9,10%, depending on the class chosen. Moreover, it is possible to chose from two methods of investing: manual and automatic. The former allow users to manually select each loan, according to their risk/return profiles. With the latter, money is invested automatically, but it is still up to investors to choose the desired expected returns.
• BorsadelCredito is a new P2P lending platform, fully regulated and licensed by the Bank of Italy. Borrowers receive funds in approximately 3 days, if they pass the company’s due diligence process. Lenders might expect to gain returns of around 5%.

Invoice finance platforms

• Workinvoice allows people to trade invoices, valued € 10.000 or more. Users have to pay a one-off fee of €450 to use the platform. The minimum investment amount is €50,000.

Equity crowdfunding platforms

• StarsUp is an equity crowdfunding platform fully regulated and licensed by the CONSOB. Founded in 2014, it has collected €700,000 from approximately 90 investors in its first year of operation.
• Unicaseed is an equity crowdfunding platform powered by an investment company called Unicasim.
• Crowdfundme promotes campaigns that pass an economic and a technical screening.

Regulation

The Italian financial industry is regulated by the Bank of Italy and the CONSOB – a national commission for financial companies. Since the alternative finance platforms are considered investment providers, these two entities also control this space. Whoever intends to provide investment services in Italy requires a written licence from these authorities.

Equity crowdfunding and P2P lending are subject to different legal frameworks.

Equity crowdfunding is regulated by the Law 221/2012 and Italy was the first country in continental Europe to have introduced rules for equity crowdfunding. The Law permits the raising of money online to support the development of "innovative start-up companies", being companies that meet requirements specified under the same Law. Truly innovative is the introduction of the definition of “portal for the collection of capital for innovative start-ups”, intended as an online platform aiming to raise capital for innovative start-ups.

Each platform may raise a maximum of € 5 million per single offer (in a 12-month period) via equity crowdfunding, but there is no limit for traditional capital raising methods, which can be used alongside crowdfunding. €5 million is a remarkably high threshold when compared to the United States ($1 million) or other European countries (e.g. Germany and France, €100,000).

Retail and institutional investors have different limits. Retail investors may invest a maximum of €500 per deal, without exceeding the annual limit of €1000, whereas institutions might invest a maximum of €5,000 per deal, with the annual cap of €10,000.

P2P lending is subject to the Law 11/2010 that incorporates the European Directive 2009/110/CE. According to this Law, websites that offer loans are not dubbed P2P platforms, but are considered payment institutions, therefore subject to strict audits and reporting requirements, and to mandatory daily accounts reconciliation.

Conclusions

Equity crowdfunding and P2P lending are quite new sectors in Italy and it will take time for awareness of these fundraising methods to grow. However, the Italian alternative finance market has a great growth potential. The country is home to 60 million people, but only 60% of the population has access to the Internet. Countries with approximately the same amount of inhabitants – i.e.: France and UK – have 85% and 93% of people connected, respectively. With a higher penetration of the Internet and more awareness around this innovative market, Italy is likely to be able to compete with its European peers in the near future.