What has been the impact of the pandemic on the P2P crowdfunding industry, the part of alternative fundraising funded exclusively by individual contributors and individual investors? To answer this question, the French association of crowdfunding, Financement Participatif France (FPF) in collaboration with the state bank, Banque des Territoires, commissioned a study.
Individual investors and project leaders remain confident
Florence de Maupeou, The Director General of FPF presented the study. Research agency Kantar surveyed P2P crowdfunding funders, project owners, platform owners, and institutional investors about their post-COVID sentiment towards crowdfunding. These interviews, combined with the results of the platform recorded by the FPF and the independent post-COVID surveys conducted by Kantar, show that the pandemic has not broken the confidence that P2P donors and project leaders place in crowdfunding. .
Despite a deteriorated economic situation, the volumes collected by P2P financing in France in the first half of 2020 continued to increase at a rate of 34% compared to the first half of 2019.
- Crowdgiving was boosted by an influx of donations to support victims of COVID-19, as well as hospitals, health workers and medical research.
- Real estate crowdfunding continued to drive the overall growth of the sector. It now represents 60% of the total volumes of funds collected.
- Crowdfunding for the energy transition has also experienced strong demand with the intensification of the French public’s concern for the environment.
- Crowdlending SMEs stopped during the lockdown but has since resumed growth. Many retail investors have agreed to delay repayments of principal and interest. So far, there has been no significant increase in default rates. Crowdlending platforms now benefit from the possibility of participating in the Recovery Plan loan program, which offers a state guarantee of 90% of the loan capital.
Contribute to economic recovery
Two main factors make P2P crowdfunding more relevant than ever as France implements its economic recovery plan: the capacity of crowdfunding to engage consumers in favor of their community and the increased maturity of the sector.
Post-Covid-19 consumers are looking for meaningful financial solutions, solutions they can relate to. Patriotism is on the rise. According to the Kantar Covid-19 study of April 2020, 57% of French people say they favor brands that have participated in supporting people and businesses during the crisis, and 83% want to focus on French brands to support the French economy . Crowdfunding gives the French the means to support their community. FPF hopes that the sector will capture part of the 85 billion euros saved by French consumers in recent months.
A retail investor said: “I’m looking at how I can take ownership of the project, how we [retail investors] will be involved and how the money will be put to good use. “
The P2P crowdfunding industry now has the maturity to step in. It is well regulated. The main platforms have reached critical mass thanks to organic growth and consolidation. They clarified their positioning as specialized offers that complement, rather than replace, those of traditional banks and private equity markets. For donors, crowdfunding means diversification and higher expected returns. For borrowers and finance companies, this means more opportunity and convenience.
A retail investor testified:
“I think that in 5 years, the distribution of my investments will be 50/50 between the stock market and crowdfunding, against 95/5 today.”
Jeremiah Benmoussa, president of the FPF and co-founder of the real estate platform We melted expects the P2P crowdfunding industry, which currently accounts for around 45% of the alternative finance industry in France, to reach between 800 and 900 million euros in 2020. He said:
“This study highlights the usefulness of crowdfunding to complement other forms of funding. When traditional channels are congested, as in the current crisis context, platforms can react quickly while remaining reliable and professional. “
Remain competitive in an increasingly international market
Damien Guermonprez, member of the board of directors of the FPF and executive chairman of Lemongrass, a European payment service provider that processes payments for crowdfunding platforms, noted that the positive trend towards crowdfunding is a general trend across Europe.
Open banking and newly approved harmonized European statute for crowdfunding platforms are among the factors that will continue to drive the growth of crowdfunding in Europe.
In this increasingly competitive market, French P2P crowdfunding faces many obstacles.
A specific obstacle is the relatively low level of financial literacy of the French public. Numerous surveys, such as S & P’s Global Financial Literacy project, have shown that French consumers are much less financially literate than German or UK citizens. For FPF, crowdfunding must continue to be explained to consumers. It can help solve the problem of financial literacy.
The 1.5 million French consumers who have already used some form of crowdfunding, mainly based on rewards or donations, are not aware of the current range and diversity of offers. FPF relies on collaboration within the fintech ecosystem and with traditional financial channels to increase the visibility of the sector. A syndicated guarantee fund could help win over risk-averse retail investors. The association also hopes that the French government will increase or at least maintain the current tax incentives for crowdfunding.
Many French P2P platforms will be faced with the dilemma of relying primarily on retail investors and growing slowly or opening up to institutional investors and losing some of their soul.
Even with the help of institutional investors, it will be an uphill battle for many platforms to survive in the increasingly international alternative finance market. Open banking and the future status of a European crowdfunding service provider will not only stimulate the growth of crowdfunding, it will also level the international playing field.
Marque Theresa, Ph.D. is a Senior Contributing Writer at Insider Crowdfund. She is an entrepreneur and consultant in eFinance and eCommerce based in Paris. It has covered crowdfunding and P2P lending since the early days of Zopa’s inception in the UK. She was Director of Research and Consulting at Gartner Group Europe, Senior VP at Forrester Research and Content VP at Twenga. She publishes a French blog on personal finance, Le Blog Finance Pratique. Torris is also a graduate of INSEAD.