What’s going on in the Polish loan market? Read 5 insights about Digital Lending provided by our expert in this field, Mariusz Pasternak. You can be sure he keeps his ear to the ground - in Nethone he’s responsible for cooperation with DL companies and FinTech area.
Is Polish lending industry facing life-threatening changes from the new legislation ("Ustawa anylichwiarska")?
It is believed that the new legislation will bring major changes to the industry. The media in Poland tend to share a fatal vision of new law creating a fast-developing grey market, but the results will be seen in the nearest months, so I would wait with such assumptions. Personally, I don't think that lending companies will completely disappear from the market, however, it will require a lot of flexibility from them to survive.
The market is waiting for the EU's decision - any signs that would predict the blocking of this law?
The new law may affect the open market (online services) in the EU, therefore the European Commission had to be notified. The government applied for an expedited notification procedure but it was blocked, the deadline for giving an opinion is in September. However, similar laws were applied in several Western countries in the past, so the situation is not clear. The government is proceeding with the legal act despite the notification process which obliges them to suspend the work. It would not be the first time the government is confronting the European Commission in this way.
If the legislation comes into force, how can digital lending companies operate in the new regime (with lower rates)?
As for now, top-performing companies offer products with a total cost at the level of 20% - 22% which is higher than proposed caps. The new law imposes strict limits on the total cost of a loan, so it will be extremely difficult to deliver this, as the cost of capital itself is usually high enough to cover most of the potential profit, and there are additional operational costs, as well as the costs of unpaid loans (approx. 18%).
With lower rates being faced by the lending industry it becomes more and more important to be very precise with the loans DL companies are accepting. One of the most practical solutions would be having access to behavioural and device data about a user applying for a loan. This can provide lending companies the accuracy it needs.
How to optimize the business model to fit the new reality?
Only the best-performing companies can survive. It means they have to identify the "top" tier clients with the least risk. As a result, we should observe a very strict risk policy, changing the thresholds for scoring cards and reaching for prime clients - mostly millennials and younger people who are used to online services.
How will investors react, will they try to unlock new markets?
I’ve been observing some companies expanding their digital lending products in Spain or even Latin America. In my opinion, directions such as Romania, Bulgaria or Ukraine might become very attractive for digital lenders too, but I doubt any movements will be made until the Polish market settles down and the outcomes of the new law become crystal clear.