Funding Circle’s German acquisition brings it into competition with banks for SME business

According to Statista’s DMO the newly-merged peer-to-peer (P2P) business, with its presence now in the US, UK, Germany, Spain and the Netherlands, is ready to compete with the leading banks.

Transaction volumes of P2P lending platforms are expected to grow by 76% annually in the next five years.  The market of online peer-to-peer lending platforms in the private/retail customer segment shows enormous potential especially in the UK.

Statista said that user-friendly loans have not been easy to find so far, as taking up bank loans through traditional models usually involves a significant amount of bureaucracy and lengthy processes. The new solution on the market is called Crowdlending or P2P lending platforms, on which investors and credit seekers are connected and individuals as well as companies are offered an easy way of raising capital.

Online brokerage portals such as US-based Lending Club or Kabbage allow individuals or small and medium enterprises (SMEs) to place their financing requests. German based Auxmoney is also a well-known provider.

First, a scoring of the applicant, based on credit request, is created by the operator platform. In the meantime, the designated use and a risk-compliant rate of the credit request are determined and made visible alongside general profile data for potential investors.

Unlike banks or other credit institutions, this form of liquidity offers individuals, as well as SMEs, an easy and flexible possibility to take up loans. The processing time of loan applications usually takes between a few hours and days.

With smaller and medium-sized enterprises in particular, this model has enormous potential.  In 2015 alone, the transaction volume of B2B lending platforms in Germany will be about €16 million. This is a very manageable sum when looking at market leader America. The volume of transactions for business loans in the US will amount to €6.4 billion for the year 2015.

However, the total transaction volume in Europe amounts €2.38 billion for 2015. Constituting the major part of the European transaction sum is clearly the UK, with a stake of €2.19 billion.

Funding Circle is one of the UK’s highest profile financial technology, or FinTech, businesses. Earlier this year it was valued at over $1 billion (£650 million) in a $150 million (£97 million) funding round.

Zencap is Europe’s fastest growing peer-to-peer small business lender but has only been in operation for 20 months. Speigel Online says just 520 loans have been made over the platform, worth €35 million (£25.6 million, $39.6 million). By comparison, Funding Circle is currently lending around $100 million (£65 million) a month over its platform.