In Germany loan services provided by FinTechs are made use of in cases the traditional credit or financial institutions are not willing to provide the required loan.
In Germany for loan-, loan broking- , factoring and finetrading services are regulated in the German Banking Act (Kreditwesengesetz – “KWG”), when they qualify as a banking or financial service. Additionally anti money laundering and data protection regulation are also to be complied with.
A license is needed when providing the Credit Business or the factoring business. The financier is deemed to conduct credit business (granting of money loans and acceptance credits) if he or she grants money loans commercially or on a scale which requires commercially organised business operations. Factoring on the other hand is the ongoing purchase of receivables on the basis of standard agreements, with or without recourse.
The costs of a license for a banking or financial service range from EUR 2,000.00 to 20,000.00 depending on the specific business model.
Among other things, the resources needed for business operations, in particular sufficient initial capital consisting of Common Equity Tier 1 capital, are required to be available in Germany. In the case of investment or contract broking or portfolio management, where the service providers, in providing financial services, are not authorized to obtain ownership or possession of funds or securities of customers and who do not trade in financial instruments for their own account: an amount equivalent to at least EUR 50,000.00.
Loan-, loan broking- , factoring and finetrading services which conduct banking or financial services in the form of deposit business, portolio management or contract broking have to fulfill the funds requirements according to Art. 92 and following of Regulation (EU) 575/2013 (CRR) at all times. These are: a Common Equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6% and a total capital ratio of 8%. When calculating the capital ratios, the fixed overheads of the respective asset manager play an important role.
In the year 2015 the segment of financed loans had a volume of about 140 milion Euros.
More then 10 FinTechs are operating in this busieness area.