Crowdlending: Swiss P2P lending is taking off!

With this post, we want to introduce you to an asset class that is still relatively unknown in Switzerland but growing fast: crowdlending, also known as peer-to-peer (P2P) or marketplace lending. In this first article, you will learn what P2P loans are and what the Swiss market looks like. We draw on the current Crowdfunding Monitor Switzerland 2019 by Lucerne University of Applied Sciences and Arts.

By Stefan Huser and Antun Brcina

Published on 19.10.2019

4 Comments

What crowdlending (P2P in Switzerland) is and how it works

Crowdlending is one of five categories of crowdfunding and, at around CHF 262 million, accounts for the largest lending volume (see Figure 1)

Crowdlending covers the financing of companies or private individuals through loans (debt capital). Unlike traditional lending, crowdlending involves no intermediary bank. Instead, loans are arranged online via a platform. For a fee, the operator of such a marketplace usually takes on the risk assessment of the borrower as well as all debt collection, including payment reminders, dunning letters and debt enforcement proceedings.

In return for granting the loan, you as the lender receive interest payments, the amount of which depends essentially on the credit risk, the loan term and the type of loan. Figure 2 below shows, in simplified form, how the various players in the crowdlending system interact.

Besides personal and SME loans, mortgages are also granted to private individuals in Switzerland without an intermediary bank. Loans to private individuals are also referred to as consumer crowdlending, those to companies as business crowdlending. For loans in the form of mortgages, the term real estate crowdlending is also used. However different these variants may be in detail, they all share one crucial and cost-efficient feature: there is no expensive bank acting as intermediary.

Within the crowdlending category, SME loans account for the lion’s share at CHF 134.4 million. They are followed by real estate loans (70.5) and consumer loans to private individuals (57) (see Figure 3). The latter remain marginal at 1.3% (2018) of the overall consumer credit market.

What the Swiss market looks like

The first so-called P2P platform in Switzerland, Cashare, was founded back in 2008. By the end of 2018, the Swiss market had become considerably more diverse, with a total of 15 active platforms (see Figure 4).

The platforms mostly focus on one or two crowdlending segments. In business and consumer crowdlending, there are also providers that offer mortgage-secured loans. Business crowdlending platforms typically target small and medium-sized enterprises (SMEs). Consumer crowdlending platforms are active in the consumer credit market.

Growth in the number of new platforms has slowed considerably. In 2018, only one new crowdlending platform, Funders, entered the Swiss market.

Although it only launched in 2015, CreditGate24 is clearly the largest crowdlending platform by lending volume (as of 2019).

How the platforms make money

Crowdlending fees are usually based on the size of the loan (see Figure 5). Fees are often charged on both the lender and the borrower side. Depending on the platform, they may also be charged both at signing and over time. The ranges are correspondingly wide and the fee models are sometimes hard to compare.

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Switzerland is up among the leaders in international comparison

Looking at crowdfunding volume per capita in international comparison, Switzerland is one of the more relevant markets worldwide. As Figure 6 shows, Switzerland, in 7th place (2017), lags far behind the leaders, the USA and the UK, but is surprisingly far ahead of our neighbours. Note that the figures refer to all crowdfunding categories (see Figure 1), i.e. not just to crowdlending.

Theses on crowdlending

Based on the Crowdfunding Monitor 2019, the following market theses can be derived for crowdlending:

• Continued growth
  In 2018, crowdlending in Switzerland grew by around 40%. Continued double-digit growth is also expected for the next few years.
• Market concentration or consolidation
  The trend towards a market concentrated on three to five providers will become even more pronounced. That’s because there are still too many platforms in Switzerland that are online but have so far financed only very few projects. These will disappear again in the short to medium term. On the other hand, new market entries are likely to become increasingly rare.
• Crowdlending is moving away from its original idea
  In crowdlending, more and more platforms are carrying out transactions between borrowers and lenders without a public call for funding, and many loans are no longer financed by a crowd but by a single professional investor. As a result, private individuals are becoming less important.

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Disclaimer

Disclaimer: Investing involves the risk of loss. You have to decide for yourself whether or not you want to take these risks.

Errors excepted: We have written this article to the best of our knowledge and belief. Our aim is to provide you, as a private investor, with information on finance that is as objective and meaningful as possible. Should we nevertheless have made mistakes, or should important aspects have been forgotten and/or no longer be up to date, we would be grateful if you let us know.