When it comes to P2P Lending in Europe, the dominant player is the UK, with by far the most platforms, most money invested and the clearest regulatory environment from their Financial Conduct Authority (FCA). While the UK is the biggest market and London the undisputed capital of P2P lending in Europe, the fastest growing region in Europe for alternative finance is in the Baltics.
P2P Activity in the Baltics
Two of the Top 4 consumer peer lending platforms in Europe are based in Latvia, where we are headquartered. Latvia is specifically singled out in this Investment Observer article as a great place to launch an alternative finance business. We definitely agree.
Lithuania issued some new government regulations that now make investment crowdfunding for equity and for debt like P2P lending easier and clearer. Companies there can raise up to 5 million EUR without having to provide a prospectus, saving them expensive compliance related costs as they launch.
Estonia is home to one of the largest P2P lending platforms outside of the UK and one of the largest secured property peer to peer lenders in Europe, EstateGuru. For fintech companies, tech company founders, other entrepreneurs or even digital nomads, Estonia has its very popular e-residency program designed to attract these people to the country specifically and the Baltics in general.
The UK Market
In the UK, Funding Circle UK got some help from their government with a 40 million GBP investment from the state-owned British Business Bank (BBB). What this tells us is that the BBB believes that Funding Circle can screen qualified UK business borrowers and underwrite loans for them better than the BBB itself can. This is a sign of high confidence in what small business P2P lending in England can do.
The FCA in England, who regulates the securities and P2P lending industries there, gave a sign they are going to be tightening certain regulations as a way to control risk for those that invest on the platforms. The FCA is working with the platforms now and expect to publish the changes in regulations by this summer.
The Financial Times wrote a great piece about how UK platforms are morphing into traditional banks. They note that the oldest UK platform and one of the most successful, Zopa, recently applied for a banking license to allow them to offer more savings and credit products to their borrowers and investors. The FT openly asks ‘Is this the long term trend in P2P lending to morph into a bank?’ It’s a great question that also asks is peer to peer lending in Europe and around the world viable as a business model.
Business Insider notes that both the Zopa license and the number of platforms in England make this a critical year where consolidation seems likely. It’s a good article worth a read in a market that is more mature than ours here in Latvia.