As Switzerland’s investment opportunities stand in a negative yield environment, investors are turning to alternative solutions to gain a profit.
In January 2015, the Swiss National Bank (SNB) decided to pursue a negative interest rate policy combined with increasingly stringent regulations. This has challenged Swiss investor’s ability to achieve target returns on investments and they are now looking at fintech solutions as an alternative as to overcome Switzerland’s investment crisis.
By leveraging mobile, digital platforms and cutting-edge technologies, fintech startups are not only reinventing the way we track, manage and spend our money, but are also looking at transforming the way we invest.
The emergence and growth of robo-advisors are evidence that artificial intelligence and advanced algorithms can help us invest our cash effectively, accordingly to our risk aversion and for a fraction of the cost of a traditional, human wealth manager.
By using technology, fintech innovators are able to significantly reduce the costs of banking and financial services, and thus, enabling the savings to be passed on to consumers. Not only does this allow for the democratization of what has been reserved to a small group of elites, this also means that new business models and innovative solutions can help increase financial inclusion by providing basic financial services to the unbanked and underbanked.
Although the US and the UK remain the hotbeds for peer-to-peer lending with leading players such as Lending Club, Prosper, Zopa and Funding Circle, Switzerland has seen a number of peer-to-peer lending platforms emerge in recent years. These platforms aims at providing SMEs and individuals with an alternative financing method to what’s been offered by the banking sector.
In Switzerland, CreditGate24 is an important player in the Swiss peer-to-peer SME lending scene. Live since March 2015, CreditGate24 provides customers with a highly automated direct-lending platform for personal loans and SME financing segments. CreditGate24 charges between 0.6 to 0.8% p.a. for recipients and 1% for investors for every repayment. Out of 230 credit, they had until now 0 credit defaults.
According to a report by the Institute of Financial Services Zug IFZ and Swisscom, peer-to-peer lending, also qualified as crowdlending, has both financial and non-financial advantages.
One of the main advantages for borrowers can sometimes be better rates than traditional bank rates. The advantages for lenders can be higher returns than a savings account or other investments, but subject to risk of loss.
Additionally, for investors interested in socially conscious investing, peer-to-peer lending offers the possibility to support individuals looking to break free from high-rate debt, assist people engaged in occupations or activities that are deemed moral and positive to the community, and avoid investment in individuals employed in industries deemed immoral or detrimental to community.
For instance, platforms such as Splendit in Switzerland, and CommonBond and Social Finance Inc. (SoFi) in the US, are allowing students to raise money for their educational expenses and scholarships through crowdfunding campaigns.
Real Estate Crowdfunding
Alongside SME lending, real estate crowdfunding as well has become a way for investors to earn profit.
In 2015, the platform Crowdhouse was successfully used to raise funds for the purchase of a property. As of April 2016, two more properties have been financed to the tune of CHF 4 million. Crowdhouse takes a minimum investment of CHF 25,000 and promises an annual yield ranging between 5-6%. The platform takes a 3% cut of the property purchase price.
Another Swiss player is HouseInvest.ch, which promises a similar service. The platform has yet to be launched.
In other parts of the world, platforms such as Fundrise, Prodigy Network, iFunding, Realty Mogul and RealtyShares are currently leading the industry.
SMEs have also started using invoice trading platforms, a concept that has taken the principle of peer-to-peer lending and applied it to invoice finance. These platforms allow businesses to sell individual invoices in order to free up cash to an online community of investors. Notable invoice trading platforms include Swiss Advanon and Singaporean InvoiceInterchange.
Featured image: New green plant shoot growing from money by zimmytws, via Shutterstock.