How much do you know about Latvia’s license requirements for peer-to-peer platforms? What would your crowdfunding startup need to do to get established? Keep reading, and you’ll learn how to launch in no time.
Why Peer-to-Peer Platforms?
Peer-to-peer (P2P) platforms are highly sought-after for several reasons. They allow clients to invest in many different projects. These include new businesses, real estate, and lending ventures.
P2P platforms tend to result in very high returns. Investors can benefit from an ROI of more than 10% per annum. Standard bank deposits provide nowhere near this amount.
Disadvantages of P2P
Unfortunately, there are also drawbacks to peer-to-peer lending platforms. These sites typically involve significant risk.
The client can lose money if something happens to the service. Shuttered investment platforms led to significant losses for customers in the first few months of the year.
In the case of Envestio, investors forfeited a total of about 31 million Euros. The site is no longer online. Kuetzal is another platform that completely disappeared, along with clients’ money. The consensus in the investment world is that both were probably scams.
Grupeer also announced financial difficulties and didn’t return what customers had contributed. The platform cited the COVID-19 crisis as the reason for its shutdown, saying the business couldn’t continue due to delayed loan repayments in multiple countries. Investors are currently pursuing a joint lawsuit.
Things Are Looking Better
While the beginning of 2020 brought bad news in P2P lending, the scenario is starting to improve. It seems the worst of the financial crisis has passed. Some platforms announced that August was the most productive month of the year.
PeerBerry reported 19% more loans funded in August than in the previous month. While the pandemic hasn’t gone away, individuals and businesses are now less alarmed than before: they’re starting to have the confidence to invest once again.
PeerBerry and Mintos are launching new products. The former introduced more stable long-term loans and is working toward allowing clients to fund several investments at a time.
Mintos is developing new strategies to meet customer needs. It gives clients the choice of diversifying, increasing yields, or sticking with a more conservative portfolio. These new investment products are a clear sign that P2P popularity and innovation potential are back on track.
Peer-to-Peer Platforms in Latvia
Latvia is home to many successful P2P lenders, including Mintos and PeerBerry, mentioned earlier. Twino, Viventor, and VIAINVEST are also based here.
The high concentration of these services in Latvia is no coincidence. Riga, the capital, is a financial hub for P2P platforms, does its best to attract new operators, and is thus a viable option for newcomers. Until recently, there was no specific regulatory framework for peer-to-peer lending, making it effortless for startups to establish themselves.
Latvia’s Investment Brokerage Firm (IBF) License Latvia just introduced the IBF license, which aims to attract P2P platform players. It makes investing more secure for clients.
The new legislation guarantees reimbursement for investments up to 20,000 euros. If something should happen with the P2P lending platform, clients get their money back within three months. This protection is the same that banks offer.
Investors are currently expressing more confidence with the new regulations and will likely fund loans up to the guaranteed amount. Various industry players have started the IBF license application process this year, with Mintos, VIAINVEST, and Twino all confirmed as doing so.
However, no company has received approval yet. Mintos has been waiting since March 30. VIAINVEST announced its entry into the application process in the same month. Twino is hoping to receive validation by the end of 2020.
The Financial and Capital Market Commission (FCMC) in Latvia is working to regulate existing platforms. Among those that have applied, a competitive spirit prevails as each player seeks to secure approval before the rest.
To obtain the new license, Latvia’s FCMC requires the investment firm to list all its services. There are additional capital and reporting requirements.
The platform must also have Anti-Money Laundering (AML) controls related to customer due diligence (CDD). New legislation aims to keep financial crimes from disrupting the stability and safety of client funds.
The law now requires that companies verify customers to prevent money laundering. CDD also helps avoid the use of the financial sector for terrorist financing. The process involves examining client beneficiaries and documents and data legitimacy.
Companies can cross-reference information across credit bureaus and government agencies. In the end, these efforts result in greater security for investors.
The IBF license regulations add a new layer of complexity to IT platform development. Thus, launching a P2P system is now more time-consuming and costly.
BankLaunch is a FinTech company that provides necessary tools for compliance with Latvia’s new guidelines. In addition to the P2P structure, you’ll need an AML platform. Thanks to our flexible design strategy, we already give our customers access to both these modules.
It’s also possible to launch other financial applications from the platform, including credit card payments and SEPA transfers. These features can give you an edge over the competition.
BankLaunch is located in Latvia, too, which helps during the licensing process. Your investors will feel secure knowing their capital is protected. Launch your new crowdfunding platform with us!