By Ryan Weeks on 26th September 2017
Fresh off a landmark fundraise, Younited Credit boss touts the strength of the hybrid platform structure.
Fresh off a landmark fundraise, Younited Credit boss Charles Egly touts the strength of the hybrid platform structure.
Last week, French marketplace lender Younited Credit closed a €40m investment round, with Bpifrance – best described as France’s public investment bank, or sovereign fund – taking the lead. The money will be used to fund the platform's expansion across Europe. As of today, Bpifrance is Europe’s biggest technology investor, investing via both venture capital funds and directly in high growth companies. Younited Credit won itself a direct investment. But why?
It may have something to do with the fact that, over the past two years, the platform has quietly been becoming a bank. Speaking with AltFi, Younited Credit co-founder and CEO Charles Egly (pictured) explained.
“We finance the loans we grant either through our SPVs – part of the platform model – or we finance those loans through term deposits that we raise, a balance sheet approach. We have two ways to raise term deposits, either directly through institutional investors, or we go through Raisin.”
In the latter case, the deposits come from retail savers, primarily based in Germany, but also from those living in Austria and France.
Raisin is another fintech firm, a deposit marketplace that has recently been in the news for acquiring Manchester-based PBF Solutions as its route into the UK market. Raisin has attracted €4.3bn of depositor cash over the past four years. The firm is partnered with 40 banks and financial institutions across Europe, and allocates deposits across those partners' savings products. Younited Credit is one of those 40 partners – the only one that can reasonably be described as a fintech.
Younited Credit is licenced as a European credit institution, meaning it must hold a minimum of €5m in regulatory capital. This licence can be passported to all EU countries, including the UK, subject to the approval of the European Central Bank. Egly claims his firm is the only online lender in either Europe or the US to hold such a licence. Younited Credit is the only French startup to have been granted the licence in 15 years.
Younited Credit began accepting deposits in the Summer of 2015. Part of the rationale for doing so was because of a planned launch in Italy in April 2016, followed shortly thereafter by an expansion into Spain.
“We wanted to grow very fast in our new countries, and if you want to grow fast you have to get rid of the investor constraint,” said Egly, explaining that in a new country, with no track record, it’s hard to find new P2P investors. In the case of Younited Credit, as mentioned above, P2P investment flows via one of a number of SPVs.
Deposits are becoming an increasingly important part of the mix for the platform. 25 per cent of its loans are now funded using depositor cash. Asked whether he sees becoming a bank, or at least becoming bank-like, as the only sustainable method for a fintech lender to fund loans, Egly was somewhat evasive. “To me, what matters is the hybrid approach, through SPVs on one side, and through your balance sheet on the other side,” he said.
Egly, formerly a banker at BNP Paribas, points to the actions of another bank as vindication for the direction his platform is headed in.
“We really believe in the hybrid model,” he said. “I’ve recently seen many papers from Goldman Sachs, and for their retail strategy [Marcus] they are also using term deposits.”
There is no denying that Marcus, Goldman Sachs’ online lending and deposit platform, is a major part of the investment bank’s plans. So much so, in fact, that Goldman expects to hold $28bn of online loans on its balance sheet by 2020, from a standing start in late 2016.
While Egly prefers to emphasise the hybridity of Younited Credit’s approach, its plans for product expansion again seem rather bank-like.
“We’re thinking about mortgages, but maybe not in France, because the interest rates in France are super low. But potentially in Italy. We are also thinking about auto-loans and debt consolidation. Debt consolidation loans will be mostly in Spain or Italy.”
The bulk of the firm’s loans today are used to fund consumer purchases, such as the purchase of equipment for home refurbishment.
Younited Credit has lent a grand total of €560m to date, according to AltFi Data. Its unique ability to pair deposits with advanced lending technology make it a formidable rival for Europe’s online lenders. But the UK’s incumbents can sleep easy, for now at least. Egly says that an expansion to the UK is not currently on the cards, owning chiefly to Brexit risk.
“The UK is by far the biggest country [in Europe] in terms of consumer loans, but the Brexit risk is here, and it could increase the unemployment rate,” he explained. “And an increase in the unemployment rate is the single biggest risk in consumer credit – far more important than the level of unemployment. The outlook for Europe is much more positive. But that’s just our outlook, maybe we’ll be wrong – it’s very hard to predict.”