The maturity of the European markets — an opportunity for Latvia

Published: 24.05.2018.

The European alternative lending market is about to make a breakthrough in its development. The P2P service Robo.cash considers the Latvian platforms contribute significantly to the process.

Continental Europe is in pursuit of Albion

As a pioneer of the marketplace lending, Europe has maintained its significant positions. Following the US and China, Europe is the third largest market in the world. Basically, its high level is maintained thanks to the British platforms. According to KPMG Baltics, their total volume estimated in 2015 to € 4 billion was four times more than the result of the whole continental Europe.

However, the British P2P-fintech has slowed down. As reported by the Cambridge Center for Alternative Finance, local platforms had 73% (€ 5.6 billion) of the European P2P market in 2016 in comparison to 81% the year before. Certainly, this doesn’t diminish the ongoing growth as the National Association of P2PFA already reported £ 8 billion of P2P transactions in 2017. Nevertheless, it is obvious that the sector is increasingly experiencing the side effects associated with the maturing stage. The market continues to consolidate: the four largest players have 2/3 of the mentioned volume. Investors are concerned about lacking high-yield assets. The inflow of private investments is getting limited due to decline in the young British interested in the alternative finance and increase in a number of default (both loans and platforms) and even fraudulent schemes.

Then, Brexit also entails reasonable doubts about the leading place of the UK in the European financial and alternative lending markets. Understanding the need to establish a single regulatory space in Europe and concrete improvements in this direction are taking place without a direct participation of the UK significantly affecting the competitiveness of the local P2P market.

In this context, platforms based in continental Europe appear to be more promising today that is supported by some private opinions and general market studies. In particular, the volume of the alternative lending market in Europe (excluding the UK) is expected to increase by 73% to € 2.8 billion. It is believed to enable mainland Europe to lead the development of the P2P market even on a global scale.

Baltic Fintech makes itself known

Analysts of KPMG Baltics say that the French market is in the forefront of the alternative lending within continental Europe and it is followed closely by Germany. With respect to the consumer P2P lending, both countries are nearly equal, they have distinct market leaders as Younited Credit and Auxmoney and the full-fledged specific national legislation.

However, market growth rates in France and Germany are significantly decreasing. This trend is similar to the British and tied to the process of maturing and connected consequences: consolidation of the market, lacking high investment rates and growing regulatory pressure.

In general, other Western European countries such as the Netherlands, Spain, Italy, Denmark, Sweden etc. are also experiencing growing popularity of P2P-lending, but the trend isn’t outstanding. The Eastern European market with Georgia, Poland and Russia still holds a status of a promising region due to the undeveloped legislation, limited or modest experience of local platforms if compared with neighbours.

Meanwhile, the intermediary position between the existing market leaders and promising countries obviously belongs to the Baltic region with Latvia in the forefront. According to KPMG Baltics, Latvia showed the highest growth dynamics and became the third on the continent with its volumes of the P2P lending market in Q1-Q3 2016. Although, the final results for 2016 provided by the CCAF didn’t correspond with the mentioned figures, but demonstrated another important characteristic of the Baltic P2P market. Despite the smaller recorded results, recalculated per capita they put all three countries to the top ten continental leaders. At the same time, it seems that a significant share of the Baltic fintech remained unaccounted by the University of Cambridge. For example, the Alternative Financial Services Association of Latvia reported € 198 million of investments attracted in P2P lending in 2016 (€ 486 million in 2017), while CCAF provided only € 27.2 million.

Anyway, despite all differences in methodology, there is no doubt that the Baltic region with an emphasis on Latvia is becoming increasingly recognized as a potential center for the European alternative finance. This is supported by:

  • progressive legislation attractive for business;
  • growing number of platforms open for any European investor and implementing best practices in P2P like buyback guarantee;
  • comfortable intermediary position allowing platforms to work efficiently with Eastern Europe (e.g. to attract high-yield investments in short-term loans issued in CIS countries) and Western Europe (e.g. to participate in international projects of the EU and to provide service in the UK);
  • greatly developed and rapidly growing fintech infrastructure in general (Statista reported the expected volume of transactions in Fintech to comprise $ 1.11 billion in 2018 and $ 2.11 billion in 2022).

Taking into account the objective difficulties which are faced by the British P2P market today and partially characteristic for Germany and France, the mentioned points allow predicting that estimations of development of the European alternative lending are likely to shift emphasis to the Baltic countries and Latvia particularly. At the same time, the first signs that this mid-term tendency might become a long-term one are likely to become apparent this year already.

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