Mintos Insight: August 2022

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 Key insights

  • The FinTech sector has already staked its place in the finance industry, but its growth is far from over. 
  • FinTechs continue to pioneer financial inclusion in the global finance industry, providing services to a significant number of women, plus first-time and low-income borrowers.
  • “Green financing” is being relied on to help achieve the world’s sustainable development goals, and the FinTech sector is a key player in making this movement successful. 
  • Open banking is growing worldwide, and although it has many advantages, the seamless sharing of data for loan applications is a significant benefit. 
  • In July, investors on Mintos earned around €2.2 million in interest at an average rate of 11.8%.

Trending in FinTech

Although the FinTech sector has already staked its place in the global finance industry, its growth is far from over. This year, the benefits of FinTechs have continued to evolve, as the sector has been supporting those in need (when traditional finance institutions haven’t) and creating more sustainable finance solutions. 

Digital lenders leading financial inclusion
Economic pressures (the Covid-19 pandemic, inflation, and rising interest rates being just a few) have resulted in challenging times for lenders and borrowers. Traditional lending institutions have tightened the purse strings (even more) to reduce risk, leaving individuals and businesses in tough situations. Digital lenders, on the other hand, have continued to be a source of support.

They are at the forefront of inclusion initiatives worldwide, especially in emerging and developing economies, by providing services to a significant proportion of first-time, low-income, and female borrowers1. During the Covid-19 pandemic in Europe, first-time borrowers accounted for over half of the loan origination values for digital lenders in 2020 alone1. And in the same period, female borrowers accounted for over a third of digital loan origination globally1. Plus, as traditional banks continue to exclude significant chunks of the global population, digital lenders have been instrumental in supporting the unbanked (people with no access to financial services)1.

As a result, the digital lending sector is expected to grow significantly. Globally, the P2P/marketplace consumer lending model remains the largest in the alternative finance sector1. According to Future Market Insights, the P2P/marketplace lending market is forecast to grow by around 15% per year over the next 10 years2. And it’s this model, in particular, that’s responsible for most of the digital lending to first-time, low-income, and female borrowers1. 

FinTech’s emerging role in “green” financing
In a time when sustainability is critical, the United Nations, which is in charge of setting the world’s sustainable development goals, is counting on the finance sector to support its sustainable development priorities. And because of the United Nations’ efforts, the term “green financing” has gained significance. Simply put, green finance represents the flow of funds to businesses and communities that carry out environmentally beneficial activities – such as businesses that create renewable energy. 

Within the finance sector, FinTechs, in particular, are being identified as the catalysts which could mobilize green finance and sustainable development3. Not only do they promote inclusion and wellbeing within society, but they also create efficient automated processes3. Plus, they have a powerful ability to attract new funds and investment opportunities3. 

One example of FinTech efficiency being able to contribute to green finance is the “green bond” market. Green bonds are fixed-income financial instruments, like government or corporate bonds. However, green bonds only fund projects that create positive environmental benefits.

It’s believed that FinTechs can offer a simple and cost-effective way of creating and issuing green bonds, meaning they’ll be able to attract significant interest from not just institutional but also retail investors4. And as a result, fund critical sustainable development projects.

Open banking creating faster, more accurate loan assessments 
Traditionally, banks have been very protective of their customer’s data, making it impossible for third parties to gain real insight into customers’ finances. However, with the introduction of the PSD2, which aims to increase innovation in Europe’s finance sector, the possibility of open banking has become a reality. 

Open banking is when a bank account’s financial information is shared (only with the customer’s consent) directly with trusted third-party service providers. Using regulated systems (APIs), financial information is shared in a secure and standardized way so that the customer remains protected at all times.

Although open banking is considered to have many advantages, one, in particular, is the seamless sharing of financial information for loan applications5. Using open banking, lenders can directly access borrowers’ financial data, which speeds up credit checks, creates more accuracy in the evaluation process, and removes the need for borrowers to fill out endless forms about their financial situation5. This approach can massively reduce the time taken to carry out loan applications and ensures borrowers are being offered appropriate financial solutions. 

In the UK, open banking is gaining momentum, with 6 million+ people already using open banking services6. In continental Europe, over 300 trusted third parties have received regulatory approval to provide open banking services since September 20197, with activity starting to pick up in the Baltics and Germany especially6. With legislation in the EU around open banking to be announced later this year, it’s expected that this sector will experience significant growth in the coming years.

Mintos Activity: July 2022

In July, around 190 000 loans were funded, equivalent to €35 million, and investors on Mintos earned around €2.2 million in interest at an average rate of 11.8%. The top 3 markets for investments in loans were: Latvia, Spain, and Estonia.

“During July, almost all lending companies were transferred to the new regulated investment firm set up offering Notes. Outstanding investments stood at the €330 million mark. The supply and demand interaction for Notes started to normalize, yet the supply still outpaced the demand, leading to an increase of the average interest rate for Notes to 14.5% (in EUR).” – Peteris Mikelsons, Head of Partnerships at Mintos

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This is a marketing communication and in no way should be viewed as investment research, advice, or recommendation to invest. There is no guarantee to get back the invested amount. Past performance of financial instruments does not guarantee future returns. Investing in financial instruments involves risk; before investing, consider your knowledge, experience, financial situation, and investment objectives.


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