The future of retail investing: ELTIF 2 Funds and innovations in payments and KYC

Investment opportunities for retail investors are evolving rapidly, marked by the emergence of ELTIF 2 Funds (European Long-Term Investment Funds) and technological advances in payment solutions and Know Your Customer (KYC). These developments offer individuals new alternatives to diversify their portfolios and protect their investments. Retail investors now have access to asset classes previously reserved for institutional investors. Like traditional mutual funds, ELTIF 2 Funds focus on investing in unlisted companies - start-ups, medium-sized enterprises or real estate assets - often as part of leveraged buyout (LBO) strategies. 

By relying on payment solutions that comply with regulations (such as PSD2), these funds redefine the boundaries of investment, offering new opportunities to individuals in a secure and innovative framework.

ELTIF 2 Funds: a new era for private investors

Understanding ELTIF 2 Funds

ELTIF Funds are European regulated investment vehicles designed to channel capital into long-term investments in the real economy, thereby contributing to sustainable economic growth.

ELTIF 2 is an evolution of the original directive, designed to meet market needs by making these funds more accessible. The changes include reducing the entry ticket to facilitate retail investors' access. It also simplifies specific regulatory requirements, enabling the cross-border distribution of these funds throughout the European Union.

Benefits for retail investors

Investing in ELTIF 2 Funds allows individuals to diversify their portfolios by accessing unlisted assets. This diversification opens the way to higher returns while contributing to the real economy.

In addition, these funds are structured for long-term investment, which can mitigate the impact of short-term financial market fluctuations. This approach is critical in a volatile economic environment, offering stability and the prospect of long-term growth.

Payment solution innovations: catalysts for modern investment

New challenges for payment solutions

The emergence of ELTIF 2 Funds is revolutionising the practices of investment platforms, which must now adapt their fundraising tools to meet the growing expectations of retail investors. Accustomed to smooth experiences on digital platforms, retail investors demand fast, secure and straightforward transactions.

Faced with this challenge, traditional payment solutions are reaching their limits, especially when processing large volumes of transactions simultaneously and in real-time. Platforms must innovate and integrate modern payment and KYC tools to support investment growth while ensuring a flawless user experience.

Advanced technologies for an optimised experience

Innovations such as ibanisation, wallets and Pay by Bank are revolutionising transactions. 

• Ibanisation generates a unique IBAN for each investment medium, simplifying the traceability of funds and enabling the automatic reconciliation of payment transactions. 

• The issuance of payment accounts in wallets offers greater flexibility, allowing investors to manage their transactions in real-time and funds to initiate transactions between wallets within their ecosystem. 

• Pay by Bank allows investors to make payments directly from their bank account. Using open banking and secure banking APIs, this feature offers instant transactions and reduces the risk of fraud.

In addition, the automation of KYC/AML (Know Your Customer / Anti-Money Laundering) processes ensures regulatory compliance without compromising the user experience by speeding up the customer account opening process. 

Faster Pay-Out speeds up investment liquidity

Faster Pay Out is a key innovation that addresses investors' liquidity needs. By reducing outgoing payment processing times, investors can access their funds faster, improving their ability to respond to market opportunities. By automating payment processes, platforms can offer greater liquidity and enhance the user experience.

Convergence of investment platforms and fintech

Strategic partnerships for a complete offering

Collaboration between investment funds and fintechs has become essential to offer innovative and competitive services. Fintechs bring their technological expertise and capacity for rapid innovation to investment funds as they digitise their platforms. These partnerships benefit from modular payment solutions that can be integrated via APIs, offering flexibility and scalability tailored to the specific needs of each platform.

A shift towards more accessible and inclusive finance

The adoption of innovative technologies and the reduction of barriers to entry are helping to democratise retail investment. Thanks to new regulatory frameworks, secure payment solutions and simplified processes, they can now access opportunities that were previously out of reach. This financial inclusion stimulates the economy by mobilising more diversified capital.

Lemonway: a trusted partner for investment platforms

Lemonway, an ACPR-accredited payment institution, has over 15 years of experience managing payments for investment platforms, including those involved in participative financing (crowdfunding, crowdlending, crowdequity, invoice trading, etc.).

Thanks to this solid expertise, Lemonway offers tailor-made solutions for investment funds, particularly by automating the complex management of commissions with the many intermediaries involved in distribution. As a payment solution adapted to European regulations such as the DSP2 and LCB-FT (Lutte Contre le Blanchiment de capitaux et le Financement du Terrorisme) directives, Lemonway serves more than two hundred alternative finance platforms in 29 European countries and is now using its expertise with private investors to help investment funds seize the opportunity presented by ELTIF 2.

Solutions tailored to the needs of platforms

Lemonway offers a range of services, including:

• Wallet management: Creation and management of secure payment accounts to collect and redeem funds from European investors, individuals and companies.

• Account banking: Generation of a unique IBAN for each investment medium, facilitating the reconciliation of payment transactions and the traceability of funds.

• Automated KYC/AML: Availability of a customer identification and verification process, ensuring compliance without delaying user enrolment.

• Automated reconciliation of funds flows: Simplified transaction management by ensuring that deposits and withdrawals match precisely.

• Split payments: Automatic management of multiple commissions between parties (intermediaries, funds, etc.).

“Faster Pay Out" for faster payments

Lemonway offers "Faster Pay Out", which allows investment platforms to provide their users with faster withdrawals. This feature improves liquidity for investors and increases trust in the platform. By optimising outgoing payment processes, platforms can differentiate themselves in the market by offering excellent customer service.

Benefits for investment funds

By working with Lemonway, investment funds benefit from:

• Support for the digitisation of investment funds, as retail investors, cannot be served traditionally, which would be too costly.

• Regulatory compliance: Comply with European standards for payments and anti-fraud, anti-money laundering and anti-terrorist financing (KYC).

• Enhanced security: Protect sensitive data and financial transactions with advanced security protocols.

• Improved user experience: Simplify and speed up digital processes for investors, increasing their satisfaction and engagement.

• Technological flexibility: easy integration via API, allowing services to be adapted to the specific needs of the platform.

• Innovations: Creation of a secondary market to bring liquidity to retail investors and improve the primary market.

Outlook: towards a sustainable investment transformation

ELTIF 2 funds and innovative payment solutions are shaping a new horizon for individual investment. By combining diversified investment opportunities with advanced payment technologies, individual investors can actively contribute to financing the real economy while optimising their investment returns.

Investment funds that digitise their processes to take advantage of this opportunity and embrace these innovations will be better positioned to meet investor expectations. By working with partners like Lemonway, these players can offer secure, regulatory-compliant payment and KYC services while focusing on their core mission: creating value for their customers.

Find out how Lemonway can support and transform your investment platform: contact us today!