14 October 2021
If the health crisis has put a strain on many economic actors, the platforms of alternative financing have recorded a record increase in 2020. The barometer from the association Financement Participatif France reports an increase of 62% compared to 2019, which represents a little over a billion euros collected. Thus, crowdfunding platforms have helped support the economy during the crisis. But what will happen in 2021? What are the challenges that crowdfunding platforms must now face? Léo Lemordant, co-founder and president of Enerfip, shares his views on this subject.
Focus on Enerfip
Enerfip is a platform approved by the Autorité des Marchés Financiers (AMF) as a Participatory Investment Advisor, and by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) as a Participatory Financing Intermediary. Its main activity? Financing renewable energy projects. Photovoltaic, wind, biomass, and innovation programs… Enerfip has already raised more than €110 million from 28,000 ordinary savers to support the ecological transition in France.
In April 2020, the State set up the PGE plan or State Guaranteed Loan. This aid scheme aims to financially support companies in difficulty during the health crisis. 300 billion euros in loans have been granted, in the form of exceptional credit offers. Within the framework of this EMP, crowdfunding platforms have opened collections, allowing individuals to lend money to companies. While it was due to end on June 30, the State Guaranteed Loan scheme has been extended until December 31, 2021. Crowdfunding platforms still have a role to play in the economic recovery.
To control the growth of crowdfunding, legislation is frequently changing. Crowdfunding platforms must therefore ensure that they are in full compliance with new regulations. The latest development is the European regulation on participatory financing. ECSP or European Crowdfunding Service Provider. This status allows lending and investment platforms to develop their activity on a European scale. This regulatory harmonization is a major challenge for crowdfunding platforms, which must begin the process of compliance to be ready in 2022. An additional challenge for lending platforms: this new regulation changes the extinctive management of platforms, which becomes business continuity. The term changes, but above all, it implies that platforms adapt their business continuity plan to new requirements.
Read also: Crowdlending, crowd equity: understanding the European regulation on participative financing (ECSP)
The EU regulation lowers the ceiling for amounts raised per project to €5 million. By the end of 2019, the threshold had been raised from €2.5 million to €8 million. According to Léo Lemordant, “this regulatory increase has put the spotlight on participatory finance platforms, bringing a mark of credibility.” Participatory finance platforms are therefore being asked to raise more and more money. “The volumes of funding for which we are consulted are 10 times higher than a year ago. The projects above €2.5 million in which we can now take part would previously have been financed by other players, particularly specialist investment funds. Regulatory constraints meant that we could not address these needs. The change in regulations has allowed us to prove that we are capable of meeting higher financing needs of a different nature,” he says. Therefore, the challenge for the platforms is to meet the financing needs of project owners through a mature and professional service offering.
The rise in the maturity of the crowdfunding market has led to evolution like the platforms. While crowdfunding remains their core business, expertise is also developing around this core business simultaneously. The role of crowdfunding platforms no longer consists solely of putting project owners and investors in touch to raise funds. Today, a different intelligence and approach are developing,” explains Léo Lemordant. Project leaders no longer come to us just to raise funds to supplement their funds such as obtaining a bank loan. They come to us for a more global structuring of their fundraising. We advise them on the most appropriate set-setup their project. Thus, the platforms now tend to position themselves as advisors to project holders.
On the investor side, platforms are also moving towards an advisory approach. As fundraising volumes are more substantial, the challenge is to mobilize various investor types to cover the different investment logics. By mobilizing all types of investors, with adapted approaches, the collection objectives are achieved. Platforms must therefore offer an interesting value proposition to investors, whether they are small individuals or large fortunes.
For investors to entrust their money to fund projects, platforms must ensure a smooth and seamless experience. Also, the experience of investors is paramount in the field of participatory financing. If the platform does not inspire confidence or is complex to use, investors will not dare to make loans. They will then turn to more traditional channels to invest their money. Crowdfunding platforms must therefore be user-friendly, smooth, and secure. This is the only way to win the hearts of investors and avoid any reluctance on their part.
Following the PACTE law, platforms were able to offer investors the opportunity to fund projects with their PEA and PEA-PME passbooks. Léo Lemordant explains: “While the PEA is primarily designed to invest in large, listed companies -but not exclusively-, the PEA-PME was created specifically for non-listed companies and to finance the SME fabric. Our offers are regularly eligible for these accounts. Investors can then ask to pay from their PEA and PEA-PME passbooks and thus exempting the interest from tax. This is a great opportunity, but it raises concerns about structuring and alignment between all the players in the management chain. As we move upmarket with our platforms, we would like to offer this booklet to stimulate investment and increase customer satisfaction. But for this to happen, there is a real challenge of standardization that needs to be addressed. Banks, platforms, and intermediaries must come up, I hope soon, with a standardized process that will facilitate the processing of this type of subscription.” While discussions are currently underway, this alignment issue represents a major challenge for the crowdfunding sector.
Beyond standardization, one of the major challenges for the entire crowdfunding ecosystem is the automation of platforms. “Crowdfunding in 2021 will no longer resemble that of 2012-2013. Today, the professional dimension of the platforms is developing, and crowdfunding is perceived as a really attractive savings product, and no longer as a nice but accessory innovation,” analyses Léo Lemordant. Because they are managing more and more loan volumes, more and more projects, and more and more investors, crowdfunding platforms are starting to professionalize their processes. However, this development requires efficient systems, automated reconciliation, good management of repayments… As such, it can be interesting to automate and delegate a maximum of processes, such as financial operations.
Compliance, maturity, experience improvement or process automation, payment systems cover various important issues for crowdfunding platforms. Aware of their importance, Lemonway supports platforms in managing their payment flows. As a Payment Service Provider, we offer a wide range of services to adapt your platform to the evolving crowdfunding ecosystem. Want to learn more and talk to our experts? Contact us today!
