Europe Crowd Lending and Crowd Investing Market - Growth, Trends, Covid-19 Impact, and Forecasts (2023 - 2028)

Europe Crowd Lending and Crowd Investing Market - Growth, Trends, Covid-19 Impact, and Forecasts (2023 - 2028)

The European crowdlending market witnessed a transaction of USD 8,399.82 million in 2020. It is expected to reach USD 10,492.28 million by 2026, registering a CAGR of 2.65%, between 2021 and 2026. In contrast, the European crowdinvesting market witnessed a transaction of USD 2,089.41 million in 2020, and it is expected to reach USD 3,524.14 million by 2026, registering a CAGR of 6.80%, between 2021 and 2026. Vendors operating in the market studied have witnessed a significant slump in revenue during the Q2 and Q3 2020, which was due to the effect of the pandemic-induced lockdown, which forced businesses to close, thereby, resulting in low levels of investment in business expansion and other activities, diminishing the need for loans. According to the data published by marketplace Lender Prosper in May 2021, during the month of April 2021, the average loan size reached USD 13,000, and the average borrower income was at USD 107,000, which is a decrease of 2% month-over-month due to a higher mix of C-HR rated loans. Additionally, according to the data from Prosper, the weighted average borrower rate for April originations decreased by 12 bps over the prior month. Similar trends have impacted the market studied during the pandemic.

• In Europe, small and medium enterprises are the backbone of the economy, a 2019 study by the European Commission highlighted that there were over 25 million SMEs in the region. Furthermore, SMEs across the region represent 99% of the total businesses in the region.
• However, the most significant business segment of the European economy struggles to adequately access financing, which is essential for SMEs to expand in the market studied. According to a 2020 European Commission survey, one in every four European SMEs faces a problem when applying for a loan through banking institutions. The Netherlands was the most challenging country for SMEs to access a loan, with 43% of SMEs reporting difficulties, while United Kingdom and France seemed to be the least problematic with 13% and 14%, respectively. Such factors have been creating growth opportunities for the crowdlending firms to step up and help SMEs.
• The pandemic has also played a significant role in pushing the growth of crowdlending. According to a recent study by Mastercard, 42% of Europeans handle their finances digitally, more frequently than before the pandemic, while 62% have been thinking about switching from traditional banking to digital platforms. The move toward digital platforms gives several new opportunities for bank-independent loans and online marketplaces that offer private loans.
• The term crowdinvesting or equity-based crowdfunding defines various transactions where an unspecified number of investors come together to invest in a well-defined purpose. Crowdinvesting has become a popular investment option for startups and is considered as part of venture capital funding. Some of the well-known platforms in the area include EquityNet, CrowdCube, and Seedrs.
• The equity-based crowdfunding model is best suited for companies (startups or scaleups) with robust business plans. It works by purchasing shares in a business or revenue share by several individuals (investors) in return for their investment. According to the European Commission, the average amounts raised by individual projects through equity crowdfunding range between EUR 100,000 and EUR 600,000.
• Due to the legal framework, Europe has been at the forefront of equity crowdfunding development. However, equity crowdfunding is more complex than other forms of crowdfunding. It requires proper checks and balances to provide a viable channel for financial intermediation in the seed and early seed of the market.

• Vendors in the market studied have been increasingly using smartphones to remotely complete KYC and ensure they acquire new borrowers; digital advertisement spending from these vendors is expected to be centered around smartphones across various major reasons. With the growing number of 5G investments, the global demand for smartphones has been increasing significantly, and technological advancements, such as 5G, are expected to further augment the global smartphone numbers. According to Ericsson, in 2019, the global smartphone subscriptions stood at 5.6 billion, and it is expected to reach 7.4 billion by 2025 or 84% of all subscriptions. ​
• The growth is expected to be driven by 5G deployment, worldwide, and by 2025, the global 5G enabled smartphone subscription is expected to be over 2 billion. Such developments are expected to further influence the demand for mobile applications. ​
• Asia Pacific is expected to command a dominant position in the number of smartphone users. In 2019, China alone held 1,440 million smartphone subscriptions, and it is expected to reach 1,610 million by 2025. Additionally, the smartphone subscriptions in Northeast Asia, Southeast Asia, and Oceania, and the combined subscription base of India, Nepal, and Bhutan in 2019 stood at 1,820, 1,440, 730, and 670 million, respectively. ​
• Moreover, global digital initiatives, such as 5G deployment and developing digital infrastructures, like smart cities and smart homes, have further increased demand. For instance, according to GSA, 63 operators in 35 countries have launched either one or more 3GPP compliant 5G services, including 55 mobile and 34 FWA services. With increased access to high-speed internet, the demand for mobile-based solutions is expected to spearhead over the coming years. ​
• With the proliferation of smartphones and digital initiatives, worldwide, the demand for mobile-based financial services is expected to witness a faster pace over the coming years. ​

• The analysis of CEE countries comprises Bulgaria, Estonia, Lithuania, and Latvia.
• In recent years, crowdfunding has been acclaimed as an untapped and vast new opportunity for entrepreneurs and startups who have challenges in obtaining funding from traditional methods. Moreover, demographic and social changes, coupled with rapid urbanization and shift in global economic power, are contributing to the evolution of the digital lending industry. Such trends have helped crowdfunding attract market players from various industries across the region.
• For instance, in June 2021, Bulgarian electric car manufacturing startup, Kinetik Automotive, launched a crowdfunding campaign targeting to raise some BGN 185,000 to restart operations after a fire destroyed its manufacturing facilities in April. Since the start of the campaign, Kinetik has attracted over BGN 85,000 from 178 contributors.
• Additionally, in February 2021, HeavyFinance, a regulated crowdfunding platform that enables small farmers to easily obtain loans for agricultural machinery, officially became a part of the Bulgarian fintech ecosystem. The first investment project to kickstart the local operations has already been successfully financed, and a few more are coming soon. Since its start in Lithuania in 2020, HeavyFinance had already facilitated over 60 loans of a total value of nearly EUR 3 million.
• Similarly, in November 2020, Fundwise, an Estonian equity-based crowdfunding platform, launched a blockchain-based secondary market in collaboration with the security token issuance and settlement platform, Ignium. Through the partnership, investments in Fundwise are expected to be tokenized through Ignium’s security token issuance and settlement platform. Investors from around the world may then invest in Fundwise’s crowdfunding campaigns by purchasing the tokenized securities.

The European crowdlending and crowdinvesting market is moderately competitive, with few firms enjoying a dominant market share. The firms keep on innovating and entering into strategic partnerships to retain their market share.

• May 2021 - Funding Circle and Atom, a UK-based mobile bank, partnered on lending for UK SMBs. This is a lending partnership worth GBP 300 million, and Atom plans to use Funding Circle’s technology and distribution platform to send out funding to around 4,000 small- to medium-sized businesses (SMBs) in United Kingdom.

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