P2P lending Germany news. In 2015, France, Germany and Sweden were the 3 biggest P2P lending markets in continental Europe, while in the end of 2016, Latvia overtook Sweden with a market volume of 110 Million Euros (KPMG; Alfi Data). The combined market volume of these 3 countries can be estimated as high as 461.5 Million Euros, accounting for ca. 74% of continental Europe’s P2P market.
It is notable, that the British market shows a much higher P2P lending volume comparted to the rest of Europe with ca. 4 times the volume due to the involvement of institutional investors.
With a volume of 450 Million Euros, the Consumer market covers 72% of the capital, while Business loans of 130 Million Euros account for 21% and Invoice trading (ca. 41 Million) for ca. 7 %.
The development of the P2P market in Europe (excluding the United Kingdom), until the third quarter of 2016, shows a constant growth with and average growth rate of 50% in the consumer segment and nearly 300% in the P2P Business part (KPMG,2016). These growth rates suggest that in the future the Business loan segment will play a bigger role in the overall market volume for P2P lending.
Within Europe, the P2P consumer market is split into several lending platforms. With an estimated volume of 135.5 Million Euros in the first 3 quarters of 2016, Younited Credit, a French based Company, is the biggest platform, followed by the German Auxmoney. Auxmoney is associated with a volume of ca 130 Million Euros. The third biggest P2P lending platform is called Mintos from Latvia, which could increase their lending volume from 2015 to the end of 2016 by the factor 5.5 to ca 57 Million Euros.
Within Europe, the lending amounts differ between business sectors. Retail and wholesale businesses account for the biggest share, followed by manufacturing and engineering companies.
Companies in the German market
As one of the first companies piercing the P2P lending market in Germany, in 2015, Auxmoney was the leading platform for this type of loan. In the recent years, a lot of different companies entered the market. Some of the competitors, such has Main Funders and Lendico, have well established mother companies that supply money and resources to them.
Those lending platforms can significantly differ in scope and target group. Main Funders for example aims on medium sized companies (B2B), with a minimum investment of 200.000 Euros and a maximum of up to 10 million euros. The company behind this platform is the Commerzbank, a well-known bank-house with its headquarter in Frankfurt, Germany. Lendico, owned by Rocket Internet, which is mostly known for Zalando, specialized into consumer lending (B2C).
Those different P2P lending variants within the German market normally differ in market volume, average lending volume and average participating funders.
Within continental Europe, the German market was estimated to have a consumer lending volume of ca 136 million Euros in 2015. Considering, that in 2013 this volume was ca. 27% of that and in 2014 ca. 60%, the growth rates in this segment are relatively high in the P2P lending market. With the help of platforms like Auxmoney, it is possible to finance private projects, such as traveling, acquiring a car, refinancing debts or paying tuition fees. The purpose of the loan can be reflected in the called interest rate.
With a volume of 48.7 million Euros, the Business Lending segment is relatively small compared to the consumer lending. Nevertheless, the associated growth rates for this segment of nearly 700% from 2014 to 2015 sound really promising. Business loans are used for divers purposes, such as to create a start-up or invest into non-current assets such as machinery, buildings and much more.
Trust in Banks
In 2016, a study by Ernst and Young showed that the trust in banks is on the decline in Germany. 37% of the interviewed Germans partially lost trust in the banking sector. Nevertheless, with 50% of the people still trusting banks, it is above the Western-European- (36%) and world-average (40%) (Ernst and Young).
The central reason for this trust is the believe that the deposited money is save in banks. Additionally, the security of private and financial data, as well as the protection against fraud are big trust drivers.
The declining trust in banks bares a certain opportunity for P2P-lending platforms. To gain market-share in the German market, the perception regarding P2P-lending needs to be the perception of a highly secure business opportunity. As 8 out of 10 consider the security first before choosing an alternative financial provider, transparency of the business process and clear information could be key to the trust.
The study also showed that highly educated young people tend towards alternative financial institutes. The relevance score of banks was relative low in this customer segment. In combination with online banking being on the rise, be a positive trend for P2P lending can be predicted. 28% of the population mentioned to have used financial online services in the last year that did not involve banks. For a third of the participants the main reason for changing to non-bank institutes is the better online presence, as well as the convenience of creating an account.
Legal Background for interest rates
Until 1967, the interest of savings and loans were limited by law in Germany. After 1967 lenders and borrowers could freely agree on contract terms, with some limitations.
In an attempt to fight usury, §138 cf. BGB (Bürgerliches Gesetzbuch; German civil law) (BRD) defines a framework for the interest rate of a loan. The maximum is not precisely defined but usually if the interest is at least double as high as the normal market interest rate, the interest is acknowledged as usury. The contract can therefore be avoided. §138 should also applied on private P2P lending loans and limits the profitability and costs of this investments.
The German Central Bank provides statistics about the normal market interest rates for new bank loans in Germany since 1967. This monthly average real interest rate varies between 5.62% and 6.06 % p.a. in 2017. The duration of a loan is reflected in the average interest rate. While loans with a duration of 1-5 years have interest rates of 4.15-4.59% p.a, loans that have a longer lifetime show significantly higher interest rates of 6.61-6.97% p.a.
Long- and short-term Interest Rates
Within the recent years, the long-term and short-term interest rates have constantly declined in Germany (OECD). One of the reasons for this decline is the constantly low interest rate of the European Central Bank of 1% since the end of 2011 and of 0% since March 2016(ECB). This means that financial institutes can borrow money for free and have a low incentive to pay high interests on deposits, as well as that loans are relatively cheap for the consumer and companies.
Low or even negative interest rates make saving unattractive for private consumers. Therefore, the low interest rate should boost the investment budget and lead to growth and development.
based on Data from the OECD
International arbitrage opportunities
As P2P lending is mostly online based, it is possible for the German consumer to invest in different nations and currencies, such as the Baltic Region and Eastern Europe. Currently, those regions show much higher interest rates and therefore higher arbitrage opportunities. To make this international investment attractive for German consumers, a high level of transparency and safety must be provided.
Table of References:
’Alternative lending market trend in continental Europe in 2016’(KPMG, November 2016)
Ernst and Young
Expansions of the report based on following links:
https://de.statista.com/outlook/338/137/kreditmarktplatz–p2p-/deutschland#market-transactionValue ← transaction volume Germany P2P