I spent a week in France and Germany recently to meet with the marketplace lending leaders there. I found a vibrant market in both countries albeit less developed than in the UK or the US.
The French marketplace lending industry is still in its infancy. Due to a very strict regulatory structure there is only one online consumer lender operating in France, Younited Credit (formerly Pret d’Union) and small business lending platforms have only begun operating in the last 18 months. In late 2014 the French government made it legal to make loans to small businesses without a banking license. This has led to a large number of new platforms, they say the count is around 50, to launch since then.
The French government is also actively involved in the industry through an entity called BPI – setup with similar goals to the British Business Bank. It wants to stimulate lending to small businesses. BPI will take small equity positions in fintech companies, it will invest on platforms and it will make interest free loans to qualifying companies.
In France, as in most of Europe, investors have much lower expectations when it comes to returns. The French are conservative investors and with term deposits earning 0.5% to 1% a 3% or 4% return is considered attractive to investors.
Younited Credit (formerly Pret d’Union)
Younited is the only p2p lender in France focused on consumer loans. This is because you need a banking license to offer loans and this is a very laborious and expensive process. They received their credit institution license in 2011 and issued their first loans in December of that year.
I sat down with Charles Egly, CEO and founder, and Frederic Chaignon, in their Paris office and the first thing I asked them was why they rebranded from Pret d’Union to Younited Credit. The main reason is because they have started their international expansion. While Pret d’Union is a great name for a French business it is difficult for non-French speakers to say and understand.
Younited is still relatively small compared to the US or UK platforms – they are currently issuing around €17 million in new loans every month in France. With 130 employees they are easily the largest platform in France and one of the largest in Continental Europe.
Earlier this year Younited opened an office in Rome in their first international expansion. One of the great benefits of being part of the European Union is that they can “passport” their banking license to other countries which is what they have done in Italy. They have 15 people in their Rome office and are already issuing €1 million a month. They also expect to open an office in Spain at the end of this year.
Younited is focused on prime borrowers in both France and Italy offering competitive interest rates to banks. They offer four funds for investors with historical returns ranging from 2.2% for their lowest risk borrowers up to 5.1% for the highest risk fund.
The first online small business lender to launch in France was Unilend – they issued their first loan in November of 2013 a full year before the regulation changed to allow small business lending. The reason is that their loans are setup differently – as a direct contract between the borrower and the investors. They are actually an IOU instead of an actual loan. This is just a legal technicality, as far as I can tell for practical purposes these are loans.
Unilend has issued €20 million in loans to date and are currently issuing around €1 million a month. Loan terms range from 3 months to 60 months with interest rates of 4% to 10%. They run a Dutch auction, which allows investors to bid down the rates to a minimum set by Unilend. They have a large investor base of over 10,000 active investors with an average return of 5.25%. They average 700 investors per loan.
BPI has invested in Unilend as an equity holder – they do not own loans. Like every small business platform we met with the loans issued by Unilend are unsecured with no personal guarantees in place. The average loan size is €75,000 with the typical small business doing revenue below €2 million.
One of the curious things about France is that many of these loans are done in partnerships with banks. The small business might be seeking €500,000 in funding but the bank will only issue €400,000. So, they will seek the other €100,000 from a platform like Unilend.
Lendix is a relatively new small business platform, having issued their first loan in April 2015 but they are already one of the leading platforms in France. They currently originate €4 million a month, making them the largest small business lender.
They have been able to scale quickly because they have taken a hybrid approach to the investor side of their business. They have a mix of retail p2p investors who choose individual loans and those who invest through a fund. This fund has invested in a large piece of every single loan issued while still leaving plenty of opportunity for retail investors to participate.
The co-founders of Lendix have all invested their own personal money in the fund which has grown to €29 million in size and is currently yielding 6.5%. They are about to launch a second fund which will be in the €50-70 million range.
As for the loans the average size is €200,000 with a maximum amount of €2 million. The loan terms range from 18 months to 5 years although they have just added short term loan options down to 3 months. They currently have zero defaults although there was one case of fraud where they were able to get the money back.
In April Lendix bought Finsquare, another small business lender, primarily because it had an attractive investor base. They are also about to expand internationally looking to open an office in Spain later this year.
Finexkap has taken a completely different approach to financing French small businesses. They are providing working capital via receivables financing. But the regulators do not allow invoice financing outside of banks unless it is done in a securitization.
Founders Cedric Teissier and Arthur de Catheu worked closely with regulators for two years in order to get approval for their financing structure. It is not a typical securitization, in fact Cedric described it as a type of reverse securitization. But in practice it functions like a typical SPV that is investing in loans through an asset manager. This asset manager happens to be owned by Finexkap.
They did €15 million in originations in 2015 and are on track to do €100 million in 2016. Because this is invoice finance the loans are very short in duration. So, even though they have only been issuing loans for a couple of years they have already had 9 turns of their loan book. Of the more than 5,000 transactions they have done they have only had losses on one transaction. So they are developing a solid track record.
They believe strongly in a concept they call Network Lending. This is where you tap into an entire network of partners to build your business. Finexkap have signed many such partnerships including just recently the main CPA trade body in France.
The company with the most memorable domain name is Credit.fr. They are part of the new breed of platforms focused on small business loans. They are growing fast and have just crossed €1 million in loans per month issued.
They are open to individual and institutional investors and they have 5,000 registered investors on their platform today. Like Lendix they are also creating a debt fund that they expect to launch in September and that should help them reach scale much faster. The target return for this fund will be around 5% after fees.
Credit.fr has a solid borrower funnel with leads coming from digital, partnerships with companies like Younited and others and also business brokers. The average loan size is €60,000. They feel that their competitive advantage is their risk management where they have an experienced team in place.
- KissKissBankBank – a donation-based crowdfunding site created in a similar vein to Kickstarter focused on primarily cultural and artistic projects. They have financed 15,000 projects since being founded in 2009.
- Hellomerci.com – based on the Kiva model of microfinance. These are small loans (less than €10,000) at 0% interest rates loaned out to very small companies.
- Lendopolis – launched in 2014 as a more typical p2p small business lender. They have loaned €7 million over 100 loans in their first 18 months.
What makes Lendopolis unique is their focus on community. They encourage communication between investor and borrower even after the loan has been funded. Their investors want to know they are making an impact and are interested in a social return as well as a financial one.
Like many platforms here Lendosphere also launched soon after the regulations came into effect in late 2014. They are the first platform to be 100% focused on sustainable development projects.
To date they have loaned €6.7 million across 33 projects – either wind turbines or solar panels. The loans are typically 2-5 years at interest rates of 4-8%. They have 3,500 registered investors funding these projects. While it is still a young loan book Lendosphere has had zero defaults and delinquencies.
They are purely focused on individual investors today but will add institutional investors likely next year. They also emphasize the social aspect of their business – many borrowers like to create a community with investors around their project.
This was my first trip to France and I came away impressed with the vibrant marketplace lending community. Most platforms are focused on small business where there has been a lot of entrepreneurial activity in the last 18 months. The French government recognizes that small businesses need more choices when it comes to access to capital so they have helped to create a regulatory environment that enables new approaches to this challenge.
Now, the main purpose of my visit to France was to promote our upcoming LendIt Europe event in London. Even before the Brexit vote we had decided to focus more on Continental Europe this year as opposed to just on the UK. There is so much happening in Europe right now with France being one of the leading countries.