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.
Attitude of the country towards loan-giving-, factoring-, brokerage-, finetrading- and ancillary services
Lending and credit services are in the top three (3) services provided by the major FinTechs in Portugal, which is likely due, among other reasons, to the fact that it is not always easy for the start-ups to benefit from traditional financing, as this usually requires some track record which these companies do not have, besides the fact that these FinTechs offer competitive conditions due to the disintermediation from the traditional banking services.
Obligations and requirements to provide loan-giving-, factoring-, brokerage-, finetrading, and ancillary services described above
Under Portuguese Banking Law, the pursuing of credit operations professionally, including factoring, is deemed a regulated activity that may only be pursued by credit institutions and financial companies duly authorised by the Bank of Portugal. Authorisation proceeding will depend on the nature of the entity as a credit institution, factoring company or other financial company. The minimum share capital applicable to credit institutions is EUR 17,500,000 and for factoring companies EUR 1,000,000. Further prudential requirements apply.
Credit brokering – defined as the activity of presenting or to propose a credit agreement to consumers, assistance to consumers by means of preparatory acts or other pre-contractual management regarding credit agreements not presented or proposed by it and the entering into credit agreements with consumers on behalf of lenders – is deemed as regulated. Authorisation is granted by the Bank of Portugal and depends on the verification of suitability requirements, competence and knowledge, commercial and administrative organisation, and civil liability insurance. The applicable minimum share capital will depend on the type of company chosen (the most common types of companies in Portugal are the company by quotas, for which there is no minimum share capital, and companies by shares, for which the minimum share capital is EUR 50,000).
The mere acquisition of receivables is not regulated under Portuguese Law. Moreover, under Portuguese Banking Law postponements of payments agreed between the parties in agreements for the acquisition of assets or services. However, if these amount to factoring it will be deemed regulated.
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
In January 2021, a new regime for the prevention on non-authorised financial activity and consumer protection (Law 78/2021) entered into force, which in general imposes duties of abstention and whistleblowing regarding unauthorised financial activity, applicable to credit granting, hence care should be given in the qualification of the relevant activity as financial activity and authorisation requirements.
Market size for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services and biggest companies in this business area
Lending in general is a sector that has been increasing within the FinTechs operating in Portugal, representing 17% of the major FinTechs operating in Portugal. The demand for credit shrunk during the pandemic, but is expected to increase again, in particular housing credits.
Additional comments regarding the economic situation for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services or what FinTech’s must be aware of in this business area
There are a lot of credit institutions operating on a cross border basis through the free provision of services (more than 450), which makes the market quite competitive.