A business model tailored to international development
International development is a vector of growth for crowdlending platforms as it is for many other companies. What is more original about crowdlending is that users of these platforms also gain a direct benefit from the internationalisation of the platforms.
For the borrower, the development of cross-border players eases the alignment between countries of the conditions for accessing debt. According to the last report of the European Commission on SMEs’ access to finance inside of the European Union, we can see that the gap remains wide for bank loans. The rejection rates for loan applications is for example 25% in the Netherlands, whereas it is 10% in France in 2016. With the emergence of international crowdlending platforms, we should expect to see a shrinking of spreads.
The internationalisation of platforms allows lenders to diversify their investments across borders, and hence to protect themselves against the risk inherent in some national markets.
A favorable European framework
The idea of an international development for crowdlending seems to be supported by all. However, a favourable framework has yet to be found. On this basis, the European Union is an ideal playground. The set of european regulations and directives appear as tools to ease the development of platforms on the continent. Even if these rules were not created for crowdlending platforms, these platforms put them to good use.
Lendix notably fell back on the accreditation of the European Long-Term Investment Fund (ELTIF) for its French Securitized Mutual Fund that was launched in July 2016. The french platform hence took advantage of the European regulation of April 2016 that allows Alternative Investment Funds approved by the ELTIF to lend directly to companies through the European Union.
Similarly, the new “prospectus” rules adopted by the European Council in May 2017 will certainly be an opportunity for the platforms. This new regulation harmonises at the European level the rules governing the publication of transferable securities prospectuses. Hence, across the European Union, no prospectus will be required for crowdfunding proposals below 1 million euros.
A Crowdlending Europe that has yet to be built
In this respect, platforms manage to provide a user experience that washes away intra-European borders. But this result is only a façade since the platforms must deal with each European country’s specific characteristics behind the scenes.
The regulations and taxes governing crowdfunding platforms remain variable from one European country to another. The Belgian platform Look&Fin was successfully launched on the French market in 2015. Frédéric Lévy Morelle, the head of the company, said:
“After 18 months of interactions with the Belgian regulator to create the company in Belgium, we had to adapt to another regulatory framework for our launch in France.”
“Furthermore, we had to help our community of lenders to understand fiscal rules regarding cross-border investments.”
Beyond tax and regulatory aspects, crowdlending platforms must also tackle the economic and cultural specificities of each country. Funding Circle saw it after the buyout of Zencap in 2015. The acquisition gave Funding Circle a foothold in continental Europe, with a presence in Germany, the Netherlands and Spain.
However, after issuing more than 16 million euros in Spain, the British platform decided to withdraw from this market in June 2016.
Explaining the withdrawal, Ryan Weeks of AltFi.com says:
“AltFi understands that a combination of limited awareness around P2P and a low quality of loan applicant persuaded the firm to curtail its activities in Spain.“
This decision highlights the differences in crowdlending maturity across European countries.
Conclusion
Crowdlending platforms are indeed revolutionising the market for loans to SMEs in Europe. Platforms will need however to control the great legal, fiscal and cultural disparities within the European Union to continue to grow. Some platforms succeed nevertheless in offering a user experience that is harmonised across borders after sterling efforts. To enable a stronger integration of the market for loans to SMEs, crowdlending needs a single legal and tax framework on the European level. This framework will benefit both the investors and the SMEs of the European Union.
