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FinTechs belonging to this category act as a loan creditor (even short and very short-term loans), are broking loans or receivables or conduct factoring of loans, which were given to private or business customers. In this business area you also find "peer-to-peer" (P2P) services, in which FinTechs enable a multitude of users to give loans (and brokered by the FinTech-platform) to other users or companies. Finetrading is hereby a financial service of FinTechs, where they buy due receivables and grant the debtor an extension of payment time. As an ancillary service some FinTechs offer alternative credit assessment services to check the solvency of a borrower.
Introduction
Attitude of the country towards loan-giving-, factoring-, brokerage-, finetrading- and ancillary services
In Germany, loan services provided by FinTechs are used as an alternative to financing models by traditional credit or financial institutions – e.g. in cases the traditional credit or financial institutions are not interested in providing the required loan. These alternatives recently became more and more attractive to a broad audience and this trend is expected to continue over the next couple of years.
Legal affairs
Obligations and requirements to provide loan-giving-, factoring-, brokerage-, finetrading, and ancillary services described above
Loan, loan broking, factoring and finetrading services are governed by in the German Banking Act (Kreditwesengesetz – KWG). Additionally, anti-money laundering and data protection regulations are to be complied with.
A license under KWG is required when providing loan business or factoring business. The financier is deemed to conduct loan business (granting of money loans and acceptance credits) if they grant 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.
License costs depend on the specific business model and result from fixed and time spent costs. Fixed costs typically range from EUR 3,262.00 to EUR 10,114.00 and additional time spent costs depend on the complexity of respective business model.
Among other things, particularly sufficient initial capital consisting of Common Equity Tier 1 capital (CET1) available in Germany is required to obtain a license. The amount of required CET1 is subject to a case-by-case assessment. For institutions offering both lending and deposit business, the required initial capital is EUR 5m.
When offering loan, loan broking, factoring and finetrading services which conduct banking or financial services in the form of deposit business, portfolio management or contract broking, the service providers are to comply with requirements for the initial capital as well as with the funds requirements at all times. According to Art. 92 Regulation (EU) No. 575/2013 (Capital Requirements Regulation – CRR), these are: a CET1 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 have an important impact.
Additional comments regarding the legal situation for loan-giving-, factoring-, brokerage, finetrading-, and ancillary services or what FinTech’s must be aware of in this business area
One (1) of the key markets in Germany is the so called buy now pay later (BNPL) vis-à-vis both consumers as well as SMEs. For the longest time, BNPL products were offered in the online shopping business. Today, BNPL products can be found in almost every business sector – e.g. house improvement or car repair costs, just to name two (2) prominent examples.