Online lending platforms

Some days ago at a Meetup in Karlsruhe, I was asked if ‘all those loan platforms’ on the internet are really attracting any users, not overly immersed into tech. Reason enough for me to share my thoughts on why lending platforms are just super interesting. To spice it up I will add some data we gathered at Pearlscout, a specialized business advisory with focus on FinTech and Customer Loyalty. 

Business Models
Obviously, the numbers of LendingClub in the US, which issued an estimated $5.5 billion in loans last year, or FundingCircle in the UK already prove their product-market fit with the steadily growing volume of loans and their increasing market share. In addition, demand from consumers and SMBs is (still) high since they have the chance to get a loan even if they are refused from their bank.

In Europe, especially in the UK and Germany, many new web platforms are popping up where most of them being platforms where individuals (p2p) or traditional investors give loans to individuals or SMBs by using the online platform. Also, factoring for refinancing invoices, targeting SMBs, is on the rise.

Different scopes of loan platforms
The scope of these loan platforms starts by payday loans (1-30 days) and goes up to five or even seven years. The same applies for the total amount of the loan, starting by 10 pounds up to a few millions. Though, none of these startups is offering the full range. They mostly focus on either small and short loans or bigger and longer loans. In addition, they either target consumers or small and medium businesses (SMB). Recently, some loan platforms are offering loans to both individuals and SMBs. This graphic by Orchard gives a good overview of well-known loan platforms and their different scopes. 

I also like to emphasize that three of the four Rocket Internet FinTech companies are offering loans: 

  • p2p lending platform Lendico with focus on consumers
  • p2p lending platform Zencap with focus on SMBs
  • lending platform Spotcap with focus on SMB and money from institutional investors

Lendico nowadays opened its platform to SMBs. By doing this it now competes with the other Rocket startups – which is an unusual move from Rocket so far and will be interesting to keep an eye on.

Who supports the loan platforms?
Most of the loan platforms, especially those without a p2p approach, need refinancing for the loans they offer and therefore cooperate with traditional banks.

In Germany, Fidor is currently the most active bank in that space by supporting four loan startups (as far as I know) which are: Bankless24, Finmar, iWoca and United Equity. Furthermore, it is important to mention that Fidor is also offering loans itself.

Secondly, Rocket Internet has a strong partnership with Wirecard that supports all of Rocket’s lending startups mentioned earlier. The net-m Privatbank is also stepping into the online loan business by supporting KreditUp and Vexcash.

Here is a quick overview of loan Startups in Germany/UK and their partner bank:

 

Development in the long term
With this high number of startups offering a similar service, a consolidation in the next couple of years where lots of startups will fail and a few use their momentum to become global leaders is highly possible. It will be interesting to see how traditional banks will handle this development. Goldman Sachs for example recently mentioned  that it will also offer loans online. Similarly, it gets interesting whether some of the new pure online banks (e.g. Number26 or Simple) will integrate external lending services into their product or develop their own lending service.

One important development I like to mention is the rise of bitcoin lending platforms. An important player here is Bitbond from Berlin. The key advantage is that by using Bitcoin, Bitbond can initially offer loans from and to individuals all over the world with nearly no costs since Bitcoin is not affected from any remittance fees.

In total, this development is still pretty new and I'm excited to observe the loan market in the future and how it will develop. There is still an enormous potential in this trillion dollar market.