Integrated finance and open banking boost alternative lending across Europe

FeaturesAlternative loans

Two trends are helping to drive the still nascent alternative lending in many markets.

Image source: Alex Vasey/Unsplash.

This is an excerpt from AltFi’s 2022 State of the Alternative Lending Market Report, which is available for free here.

Coming out of Covid, the omens looked good for the alternative lending industry across Europe in 2022. Fintechs had boosted their reputation in European markets during the pandemic, providing vital support to thousands of businesses, as incumbent banks were struggling to cope with the vast swaths of SMEs in need of urgent financing.

Moreover, the outlook for the EU economy appeared to be conducive to a strong expansion phase, aided by an improving labor market and favorable financial conditions.

Major alternative lending markets like the UK and France are expected to grow significantly this year, while alternative lenders continue to be a driving force in the Baltics.

While Russia’s invasion of Ukraine may have dampened that optimism, causing supply chain disruption, the situation still looks broadly positive, helped by customer fatigue with banks and fintechs in place that embrace new technologies such as open banking and integrated finance.

“We believe integrated finance is the future of SME lending across Europe,” said Colin Goldstein, business growth director at Iwoca.

“Data and technology now make it possible to deliver finance to SMEs quickly and seamlessly within the services and platforms they use to run their day-to-day business, whether it’s their accounting software , their e-commerce platform or digital bank account. Over time, SMBs will increasingly expect and demand this ease and speed of access. Embedded finance is poised to completely transform the way SME loans are distributed. »

Traditional lenders still dominate in Germany

Europe is a patchwork of countries, varying in financial landscape and cultural customs. In some markets, incumbent banks dominate alternative lending while in other markets there is a thirst for pure digital lending.

Germany, for example, could be home to high profile fintechs N26 and Raisin, but according to Martins Sulte, CEO of Europe’s largest marketplace, Mintos, there is “inherently less need for fintech solutions when it comes to loan because most loans are already resolved by the banks”.

Latest annual figures from Germany Trade & Investment show that other fintech sectors are attracting investment, with payments (102 rounds of investment) and insurtech (70 rounds of investment) leading lending alternatives (only 20 rounds of investment).

Despite this, the alternative lending industry in Germany is expected to reach $303.50 million in 2022 and grow to $325 million by 2026, according to industry figures. Daniel Drummer, CFO of German peer-to-peer digital lending platform Auxmoney, says change is afoot, not just in Germany but across Europe.

He said: “We are seeing tremendous momentum for digital loans in the market. Covid-19 has sustainably accelerated the digital transformation of the financial sector in favor of fintechs as technological leaders. As bank loyalty continues to decline, consumers increasingly prefer truly digital lending. So, we are seeing strong demand from borrowers across the credit spectrum. »

“As an asset class, digital lending has continued to gain in maturity and confidence. The strong performance of our lending, also during the pandemic years, has prompted institutional investors to invest significantly in our lending and contributed to the success of the social bond issue.”

The Nordic and Baltic countries

As rapid inflation takes hold in some European markets – with Sweden, for example, experiencing its highest inflation levels in 30 years in April – alternative loans can provide fast, bureaucratic, which could be an attraction for some companies.

Sweden is home to over 70 alternative lenders, with flagships like Klarna, Northmill and Lunar for the alternative lending scene.

Last year, Klarna partnered with integrated finance company Liberis to offer merchants revenue-based loans. Like Klarna, Northmill and Lunar want to become one-stop-shops for financial services. In the Baltics, meanwhile, alternative lending is booming, helped by progressive financial policy and a positive investment environment. Estonia, Lithuania and Latvia have long been known as fintech hotbeds, with lending playing a key role.

According to Rolands Mesters, CEO of open banking provider Nordigen, “The Baltic countries have also seen a huge increase in alternative lending since 2015, with crowdfunding and P2P lending in particular seeing substantial growth…”

Do you want to continue? Read the full feature in AltFi’s 2022 State of the Alternative Lending Market Report, available now!

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Michael J. Birnbaum