Investment protection is crucial for any investor who wants to have a significant raise in his wealth. There I will try to find three signs that investors money is protected in the P2P industry.

Last week there has been the finfellas event. Talking about P2P Lending as mentioned in my news from Thursday, we also talked about security. Security for investors. And what marketplaces and platforms could do, so protect the money of investors.

Not every good looking investment is good

Over the years there are dozens of bad examples where investors lost money. If your overall portfolio is 50.000EUR and you lose 1.000EUR out of it, you wealth decreases by 2%. So it does not matter, whether you are doing 10% or 20% over the rest of the year – those 2% will always make an impact on your wealth.

What is the story line behind that?

Right, we need to think about taking care of our wealth. It is important ot implement some kind of investment protection into our portfolio to avoid “mistakes” like that. In times of P2P scams, shitcoins and a pretty volantile crypto currencry exchange it is pretty hard to protect your money.

When thinking about the topic I came along three important signs, which show the ability of P2P platforms to protect investors money.

P2P lending on the finfellas event

Maybe you have seen it in my latest news that from 26th to 28th of January there has been the finfellas event. This time the participants talked about the topic “P2P lending”. To dig a little bit deeper finfellas decided to present two panels on the discussion how platforms and marketplaces could save their investors from losses.

It was a pretty interesting discussion, as there are several concepts in the P2P industry. In this blogpost I will try to tie them together in a short overview. As soon as they are available I will put the discussions here as a link as they will be published via Youtube.

My good friend Lars held the first discussion with the following marketplaces: Bondster, Income Marketplace, Tribe funding, Debitum Network and Swaper. I was invited to moderate the second panel witn the following platforms Twino, Esketit, Capitalia and Altero.

Let’s get into the details 🙂

#1 The P2P company publishes financial reports

Everyone knews that the P2P industry is pretty “new”. But as the first platforms are turning 10 years and older it is for sure, that this niche has enough power to live longer than a usual trend. Also some of the platform struggled over the last 2-3 years reality showed that those have less problems, who are able to work in a profitable way.

For investors safety and transparancy has always been important. During 2016 to 2019 it was pretty easy to earn money with P2P lending. And platforms, marketplaces and investors did. This always attracts those guys, who are only after your money – no matter what. Kuetzel, envestio and Grupeer are good examples of so called scams. Meaning those platforms somehow embezzled your money and it was gone.

Have there been hints and signs? Probably yes. But only a few were able to see it and as things were running great, even fewer people listened to them. That behaviour is common and usual – we have also seen it on the stock exchange over the last decades with companies. Unexpected companies are going bankrupt and nobody wants to know about any signs of it before.

So, what could help to find out?

Correct, financial reports. Companies should be transparent about how the are earning money. That is legit for Vodafone, Daimler, ThyssenKrupp and whomever – so why not P2P companies?  There is no reason they should not report about it.

The first red flag when searching for the best P2P platform for your should be some kind of financial results. The more the better. And if they are audited by a third party it is a good sign. Without a third party audition it is not a red flag, but maybe a yellow one regarding the investment protection of invvestors money.

#2 There is some kind of regulation or license

The market for P2P lending and Crowdlending grew over the last years massively. More and more money came into the sector which made it risky if something happens. This was the moment when autorities came on the plan. They tried to find rules and requirements P2P companies have to follow.

What was the reaction?

Some platforms dropped out. Others moved their head quarter to somewhere else like Croatia. And a lot of platforms announced to apply for the license. Depending on where the company is from and what they are offering there are different licenses which might be interesting for them.

There is no right or wrong from my point of view. But there will be a two-class-market in the future. It will be out of those platforms who are officially regulated and received a license like the IBF license from the FCMC. And there will be those platforms who will not apply for this kind of regulation – for whatever reason.

In terms of Robocash for example – Robocash moved their headquarter to Croatia long before the discussion about regulations came up. Do they need this kind of regulation? Maybe, I cannot rate it. Also they do not have a license and will not apply for it, they still offer audited financial reports. So it is a green flag with the first sign and probably a yellow one with the second sign.

To rate this second sign you need to always take into consideration what the P2P platform is aiming for. Are they experienced and big like Twino?  Or are they small and maybe from Estonia where it was not possible until now to apply for a license?

Not having a license does not mean necessarily mean to earn a yellow flag. Having one is a green sign for sure. So Debitum, Mintos, Twino and viainvest receive a green sign. For all the other platforms you need to find out, why they have not license – and rate it to your personal risk level. The safest way to invest and assure your investment protection is to invest with a regulated platform.

#3 Buyback, Skin in the Game and more

Buyback Guarantees were “the hottest stuff” which the P2P industry invented some years ago. Meanwhile a lot of investors know, that this guarantee is not a guarantee. you always have to check who is offering the buyback and what the company itself is forcing to do in case of a default loan.

I do not want to rate this kind of investment protection. As long as things are running the buyback is a working tool to protect investors from losses. When times are getting rough this buyback is usually nothing to rely on. In terms are of a buyback please get in touch with the platform and ask them anything you want to know. What does it mean to have this buyback? What will be compensated if there is a defaulted loan? And so on and on.

Meanwhile the market reacted. Due to the regulation from the FCMC those platforms are forced to have a small amount of skin in the game. That means that the platform itself is invested in every loan with a small share. Ask them! Someone did it in my finfellas panel and Anastasija mentioned, that Twino has to be invested with 12% in their loanbook. Valerijs from Esketit named a rough number between 5% and 10% where the platform is skin in the game.

Income Marketplace for example offers a new type of investment protection. Beside their so called “Junior Share” – which is another name to skin in the game from their loan originators they are also offering a so called Cashflowbuffer. That is a fonds where money is hold back to compensate defaulted loans from investors. It seems like Mintos is building something similiar to it.

From my point of view here “bigger is better” is the case. The more the platform does to proctect investors, the better. It will not make P2P lending safe. Investing into P2P lending is still risky, but the less risk you have to take or is covered by the platform, the better.

How to make a personal ranking with those signs

I think it is clear to everyone that safety costs money. Investors looking for the highest interest rate will put their capital at risk. The higher the interest, the more risk investors have to cover. As we are talking about investment protection it is important to find the best P2P lending platforms for you.

Usually P2P lending should not be a big part of your portfolio. A loss like I mentioned it in the beginning of this blogpost will have effects on your whole portfolio. Therefore investors should decide wisely

Setting up a portfolio with the highest possible investment protetion I would diversify among the four regulated platforms from Latvia. Additionally I would chose those  P2P lending platforms who have audited reports and a track record like Bondora, Robocash and some more.

Now mix those platforms up, check their news and ratings from for example Lars or Sneakypeer and make up your decision. There is no right or wrong – it is more like a “what fits best into my portfolio”. Always haveing the investment protection in mind you should be able to find the right P2P platforms.

If you would ask me, I would answer the following way:

• First 25% to Debitum Network to cover business loans
• Second 25% to Twino to cover consumer loans from the Latvia, Russia, Poland and Vietnam
• Third 25% to Bondora Go and Grow to cover consumer loans from Estonia Finland and Spain
• Fourth 25% to Estateguru to cover real estate loans from Europe

How would you set up your P2P portfolio to receive the highest investment protection?