I’ve been inactive on the blog over the past year. So much has changed, and many of the old reviews are now completely out of date. Rather than updating the old reviews (which may be useful for future reference) I am planning to write a new series of posts called ‘P2P 2021’ which will revisit the P2P platforms I am / was investing in.

What happened to…

Painfully, some of the old P2P platforms and services have gone into administration or shut down. In some cases this meant delays to getting back capital investment rather than a complete write-off. In others a lot of people lost money.

Of those P2P platforms still around, many have stopped new investments or are winding down. Even those which are actively taking on new retail investor money, is it a good idea given the past failures and the risks facing the economy?

What went wrong?

When you look at the reasons some the P2P platforms that went into administration, it was often because of poor management rather than the business model itself. Was there a temptation to go for high lending volume over critical and thorough analysis of potential borrowers? Yes. Was there a desperate scramble on some platforms for investors to buy almost anything that got offered? For a long time, yes. The platform guarantees for ‘provision funds’ and ‘easy access’ were often lacking when the times got tough.

Challenging times for P2P

As we hear every other day, savings and interest rates are at a record low. It is a huge challenge to get a low-risk real return on any capital. Personally, I am nervous to compensate by investing a larger percentage of net worth in equities. I feel like it would just take another unexpected event or twist to upset the delicate balance that policy makers appear to be achieving.

The proposition of P2P lending for me was that ‘we’ would cut out the banks as the middle man: you take the retail investor money that would be sat in a savings account in the bank, you take the borrowers who need cash to invest in their business and you match these at a market rate somewhere in the middle. But, my understanding of this balance is now less clear. The Bank of England’s official bank rate is now at 0.1% and flirting with negative rates. While the BOE is ploughing ahead with more QE, is the Bank replacing ‘us’ at the top end of the P2P lending proposition?

I am going to follow up on this idea in more detail in another post.

Looking ahead

I think that there is still a place for P2P lending for retail investors. To bring it back to basics, and assuming it is via a well managed and trustworthy platform, if we can:

• Choose borrowers who are very likely to repay the loan. Where we can understand why they would borrow from a P2P platform and not another source, and how they will have the means to repay in future.
• Choose loans backed by assets which have a clear market price, a low LTV and are relatively easy to sell.
• Diversify our P2P investment across different platforms and borrowers within those platforms.

Though it is very difficult to work out what is a ‘trustworthy’ platform and which is not. We have seen some of the bigger names change their terms or re-write the rules to their investments when they had to.

At this point in time, do the higher returns for the remaining P2P platforms justify the risk? If not, where is the best place to park your savings?