The peer-to-peer (P2P) lending space in the UK has grown to exponential heights in recent years – with more than £6.1 billion funded in 2018 alone. This makes sense when you consider just how low UK high street interest rates are, with savers fortunate to get anything above 2% these days.

With that being said, the Financial Conduct Authority (FCA) – the UK-s chief financial watchdog, recently noted that it is looking to tighten its grip on P2P sites. Crucially, this centers on the amount that retail investors can inject into P2P loans in relation to their total invested assets.

Nevertheless, with dozens of leading UK P2P sites now active in the market, knowing which platform to invest with can be challenging. For example, while some focus on real estate financing, others target the consumer loan space.

In this article, I explore some of the best UK P2P lending sites. I’ll unravel the good and bad points of each platform, subsequently allowing you to make an informed decision as to which site is right for you.

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We are living in an age of abnormally low-interest rates and low inflation. That means that on the one hand there is a lot of demand for investments that offer good returns and on the other hand a lot of skepticism from people who don’t really know how these kinds of investments work.

A very common question I get is some kind of variation of this:

I am looking to diversify my investments and have been reading with interest your articles about peer to peer investments. From your experience, do you think these are safe platforms?

Let’s dig a little deeper into this question.

I like the first part as it means that the investor has already started investing in other asset classes, probably traditional ones like stocks and bonds. This brings us to the first point I want to make.

I don’t think P2P lending should be your first and only investment unless you have a very high-risk tolerance or really know what you are doing and have a specific strategy you are executing.

There are no get rich quick schemes in life, so if you’re thinking of going all-in with P2P lending due to the higher returns they offer, you should probably stop and re-evaluate. Investing and risk go hand in hand, and P2P lending is very clearly on the riskier side of the spectrum.

Moving on to the second part of the question, it’s fine to ask someone’s opinion on things, but I feel that there is no answer to this second part of the question. First of all, one investor’s experience does not prove anything. I might have had a great run with P2P lending but that doesn’t mean you will achieve the same results. Secondly, I always emphasize that you should not ask for investment and financial advice online.

A related question I get is the following:

Are P2P lending platforms regulated?

All the platforms I invest in and speak about on this blog are regulated (this isn’t wild west territory as in crypto), and one of the biggest selling points for these websites is how transparent they are. They are therefore incentivized to be transparent and show you historical data about their loan performances.

However, there is no standard European-wide regulation yet, so if you’re not comfortable with that, you might want to consider waiting until that’s implemented, although it could take several years for that to happen. If you don’t want to wait, you’ll have to assume the extra risk of some platforms being regulated by a different authority than your country’s own.

All platforms need to conduct KYC and AML checks and have other basics in place, but it should be very clear that they don’t offer any ultimate protection for your money in the way that banks can protect up to 100,000 euros of your savings. This is an investment and with any real investment, your money is always at risk.

What are the risks with P2P platforms?

Let’s move on to discuss specific risks when dealing with peer to peer lending platforms.

Credit Default risk

The repayment of your investment is directly dependant on the repayments of each particular borrower. In some cases, loans are secured with underlying collateral from the borrower, and in some cases not.

Loan originators sometimes offer buyback and payment guarantees making debt collection and repayment enforcement relatively easier. In other cases, loans are totally unsecured, and therefore carry a higher risk of repayment delay and borrower default.

Loan Originator risk

Ultimately, even with a payment guarantee and buyback guarantee in place, if the loan originator itself goes bust, you will most likely lose some or all of your money invested in its loans.

Many P2P platforms act as aggregators, bringing many loan originators on board and having them offer their loans to investors.

Each Loan Originator is a professional lending entity that is specialised in lending to a particular type of customer (consumer loans, businesses etc.) and is compliant with all relevant regulations in its respective country of operations.

Lending companies are founded with a purpose to generate profits. In case of unsuccessful business activities and failure to achieve the targets set, a Loan Originator can go out of business and stop operations.

A good P2P platform does some essential work here. Prior to partnering with a Loan originator, there should be an extensive due diligence process, consisting of financial, legal, and other analyses. Once the LO is approved, there should be ongoing monitoring of the Loan Originators’ performance.

Should a Loan Originator become late on any of its settlement payments, the platform typically initiates an in-depth investigation of the situation at the Loan originator including legal proceedings and on-demand site visits. If the Loan Originator ends up halting its activities, the P2P platform collaborates with the company and its appointed insolvency administrator in order to settle all outstanding investments in the particular Loan Originator’s listings on the marketplace.

The best way to reduce loan originator risk is to diversify among different loan originators and also to have a look at the financials of each loan originator to make sure they are sound.

Operational risk

This is the risk that the P2P platform itself will go bankrupt. There are many reasons why this could happen, but ultimately platforms are normal businesses that need to make more money than they spend in order to remain in business.

Some of them have startup funding but eventually, they will run out of their runway and need to find a way to stay sustainable. That is why I recommend that you check the audited accounts of platforms and only invest in those that are already turning a profit.

Platforms that don’t even publish their accounts are higher risk and I wouldn’t personally invest my money with them unless there is some very good reason to do so.

In the event that a platform goes out of business, the appointed insolvency administrator will be responsible to achieve successful settlement of all outstanding investments and partnerships. Good platforms also work with a Certified Auditor Office, providing a backup of all investment data for storage to the Auditor on a monthly basis. These should be some of the questions you ask about a platform before you decide to invest.

One way of reducing operational risk is to spread your investments across several platforms. But it’s not as simple as that, since more platforms = more work for you to administer everything and keep on top of what platforms are doing.

Currency risk

Most European P2p lending platforms operate in Euros, but some of them offer the opportunity to invest in loans denominated in other countries. Mintos is one such example. Fluctuations in the currencies can result in both higher losses and higher profits.

In order to diminish exposure to Currency risk, I make sure that any non-Euro investments I conduct have ample timeframes so as to be able to ride out any negative patches in the exchange rates. Thus, I will not find myself in a need to withdraw money to use for living expenses when the exchange rate is not to my benefit.

Concentration risk

Focusing investments on only one asset class or investment type results in high exposure to the respective asset class or investment type. Therefore, even the smallest fluctuation can affect the return to a very large extent.

In order to diminish exposure to concentration risk, try diversifying your investment portfolio across several different asset classes, investment types and geographies. In my opinion, P2P lending should only compose a small part of your portfolio, unless you’re an expert in this area and have an appetite for risk.

Liquidity risk

Loans are very frequently delayed. There is a reason we are being paid high interest rates. And that reason is that the borrower, whether it’s a business or person, is in dire straits. That means that it is possible that they might not get out of their negative situation in time to be able to pay back their loans. In such cases, the loan is extended. Different platforms handle this in different manners, for example, Mintos have a buyback guarantee whereby any loans delayed by more than 60 days are automatically bought back by the loan originator.

However, if the loan originator experiences mass delays in payments from the borrowers, then it might be forced into insolvency, meaning that the loans are not only delayed but are most probably considered bad debt, and will never be recovered.

Market risk

There are several market risks that you can read up on, such as macroeconomic risks, political risks, legal risks, inflation risks, etc.

Ethical concerns

Many platforms, unfortunately, are not transparent with who they loan your money to and at what rates. We might not know if the money is being used for ethical business purposes or for some shady business. The platform might also be lending to borrowers at very high interest rates bordering on usury, while giving the investors relatively low returns.

For this reason, I recommend investing only in platforms that make transparency one of their core values.

What returns do I get for this extra risk?

I would be aiming for 8% to 14% per year as a target earnings rate before tax when investing in peer to peer lending sites.

Anything less than 8% and I would start to get worried and probably shift my investments elsewhere.

This is because peer to peer lending is not as safe as investing in real estate, just to mention another asset class, so if my returns get that low I would prefer obtaining more safety through real estate investments.

How can you minimize risks?

There are some things you can do on your end to minimize the risk of losing your money with P2P lending. Here are a few things I do.

Research and due diligence

You should always investigate each platform individually and you should also have a checklist that you use to evaluate in a uniform way. I’ve already shared some of the points I keep in mind when evaluating platforms.

You should always read reviews and investigate each platform yourself before deciding to invest. Ask other investors how they are doing, and have some interaction with the platform itself by chatting with them, phoning them or using their email support system. Check how they reply to you and use that to guide your investment decisions.

I have compiled a list of my favorite P2P lending platforms and also a list of peer to peer lending platforms that I don’t trust, and I suggest you avoid them as well. But always do your own research and don’t rely on my opinion or anyone else’s.

Diversifying your investments

Obviously, don’t invest all your money in peer to peer lending sites. It is never a good practice to put all your eggs in one basket. I like to keep a healthy balance of stocks, cash, investments in other businesses, real estate, and loans.

Periodic review

I recommend reviewing your investments on a monthly basis so that if you see a bad trend developing on any of the platforms, you can take corrective action early. It is also a good idea to diversify as much as possible. If you have €10,000 to invest, you can choose to put €100 in each loan, so even if 2 loans go bad, you will still have €9,800 safe.

You will still receive interest on all the other loans so by the end of the year you will still be comfortably ahead. In the game of peer to peer lending you must be prepared for a small percentage of loans to go bad, that’s just the nature of how things work. Don’t get too frustrated about it when it happens, but rather make sure that your overall returns for the year are positive.

Conclusion

As you can see there are several risks that need to be taken into consideration when it comes to P2P lending. At the end of the day, this is an alternative investment that is quite risky, especially since most of these European platforms are not very regulated and they haven’t been around for that long.

Whether you should go ahead and invest or not is a personal decision that takes into consideration things like your overall net worth size, your other investments, and your appetite for risk.

In my case, P2P lending fits in very nicely in my portfolio. I am happy to take the risk for the outsized returns, but it’s never going to be the biggest part of my portfolio either. I’d rather invest a bigger chunk in an active business that I can manage and influence or even the stock market which is well regulated and highly liquid.

What are your thoughts?

Bondora is one of the oldest peer-to-peer lending platforms, and I joined early on in my P2P lending journey, around 2016.

While this platform has been criticized by investors in the past, my portfolio has been chugging along quite well over the years, and my only complaint would be about the graphics and UI of the platform, which I find really ugly.

In this Bondora review, I’ll be sharing my results on this Estonian platform, since many of you have been asking me if you should invest in this platform and if so, how to do it.

You probably know this platform by the very distinctive cartoon characters they employ on the website. I find them a bit old-fashioned, but there’s no question that it gives Bondora a very distinctive and memorable branding.

[Read more…]

Launched in 2017, PeerBerry has been gaining quite a lot of popularity among peer-to-peer platforms recently. As with many crowdlending platforms, PeerBerry originated in the Baltics – specifically Riga, Latvia.

At the time of this review, the platform has an average annual investment return of 11.51%, a solid return for most platforms. With more than 18,000 investors and over €212 million in funded loans, PeerBerry is certainly making some waves in the peer-to-peer business.

Let’s delve deeper into how PeerBerry operates, its transparency, risks, and returns.

⚙️ How does PeerBerry work?

PeerBerry works in a similar way to Mintos, in that, it is a loan aggregator. The platform started out in 2017 with loans originated solely by Aventus Group – a group of digital loan originators with short-term, long-term, and leasing loans across Europe and Asia.

Ever since, PeerBerry has continuously expanded its loan originators network to include others such as Gofingo (another group of loan originators) and their subsidiaries.

In 2019, GofinGo Group saw an increase in issued loans (2.4 times more than 2018) and had a net interest income of €11.06 million. This translated into a total loan portfolio of €6.6 million at the end of 2019, with equity standing at €4.1 million. This is 3 times higher than all the liabilities to investors who invested in Gofingo Group loans through PeerBerry.

This increase in loan originators allows for a diverse portfolio. PeerBerry claims to offer a wide variety of loans – short, long, real estate, leasing, and business loans – although, the available investment opportunities at the time of this review were mostly short term, with most maturing at one month. This means that most of the loan originators are operating with payday-style loans.

The platform offers loans from:

• Lithuania
• Poland
• Belarus
• Czech Republic
• Kazakhstan
• the Republic of Moldova
• Russian, and
• Ukraine

It is important to note that all of PeerBerry’s loan originators offer a BuyBack guarantee, meaning that the loan originator is obligated to buy back the claim, should the payment be delayed by more than 60 days.

There are currently 12 loan originators in total, and they all publish their financial statement, the majority of which have been audited for extra peace of mind.

✍🏻 Registration

Now let’s take a look at the online interface.

The website is clean, straightforward, easy to use, and comes in three languages:

• English
• German
• Spanish

Registration should take you no longer than a couple of minutes, you just need to fill in a few details and you’re in. Although there is no tedious identification process upfront, the platform requires it eventually, when you decide to withdraw your funds.

You will be asked to scan and upload your identification document (passport or ID card) as part of the platform’s anti-money laundering and terrorism process. Once this is done, you will then have to make a transfer to the bank account from which the deposit was made. Withdrawals can only be done in Euro.

This is the first time I’ve ever come across this sort of set-up. All other P2P platforms require you to verify your identity at the get-go, thus ensuring that the funds used to power their investments are coming from lawful sources.

It is certainly odd that you are only required to verify your identity at the withdrawal stage. As an investor, I want to make sure that I will be able to transfer my funds without any identity issues at a later stage.

Upon contacting the platform, PeerBerry has announced that it is currently working on implementing new identification and KYC processes.

PeerBerry makes it possible for both private individuals and companies to open accounts. Keep in mind that any investor should be at least 18 years old, with a bank account registered in the European Union.

The next step is to transfer your funds, which can be as little as €10, to PeerBerry’s bank account in order to start investing.

The platform accepts transfers in Euro only using SEPA (Single Euro Payments Area) transfers. This provides further protection for European investors against currency swings.

Processing may take up to 2 working days. PeerBerry then sends you a confirmation e-mail stating that your deposited funds were added to your Investor Account and you are now able to start making investments.

👥 What can I invest in?

PeerBerry offers mostly short-term loans on the consumer marketplace. The platform presents you with an overview of each loan, including the loan originator, amount, interest rate, remaining principal and days remaining for investing in the loan.

Borrower details are also available. These include the borrower’s country, city, age, gender and number of loans taken.

Since most of the loans available mature in around 30 days, they are often considered to be Full Bullet loans. This means that the investor would receive the principal and interest at one go, through one payment, at the end of the investment period, as illustrated in the schedule in the screenshot below.

On the other hand, the platform’s long term loans are paid back every month through an Annuity Type Schedule, where the principal and interest are paid back periodically over the investment period. PeerBerry offers a breakdown of the returns for each investment available.

Auto Invest

The platform allows investors to make use of their Auto Invest feature which uses the returns in your account to automatically invest in active loans, based on your preferences.

You can activate, pause, or cancel this feature at any time. Simply set up your preferred criteria for investing and you are good to go.

The possible setting options are listed below:

• The total amount of funds you wish to reinvest using the Auto Invest strategy.
• The maximum amount of investment in one loan.
• The annual interest rate.
• The remaining loan term.
• The remaining principal amount.
• The minimum amount of funds you wish to retain in your account.
• The loan status (Current or late).
• The country of issue.
• The loan originator.
• BuyBack guarantee.

Interestingly, even though PeerBerry states that all its investments come with BuyBack guarantee, their Auto Invest asks whether you prefer a BuyBack guarantee or not. This seems to suggest that the platform has plans to include investments without BuyBack in the future.

Auto Invest is great for those of you who do not wish to spend time keeping up with all the available investment opportunities on the website, while still achieving a diverse portfolio.

🕵️ Transparency

The About page, shows a team of four, including Arunas Lekavicius, the platform’s CEO, who has been working in the financial industry since 2007.

The profiles are accompanied by working LinkedIn profiles, however, no further information is found on the platform’s website. It is strange that the rest of the team is not shown here, especially with respect to the CTO, Marketing Managers, and Lawyer.

On reaching out to the platform, PeerBerry has clarified that the team is made up of a total of 9 employees:

• Arūnas Lekavičius, CEO PeerBerry
• Viktar Kamiahin, CTO
• Inga Zubanovė, COO
• Rūta Zenkevičienė, Head of Customer Care
• Rita Simanavičiūtė, Head of Marketing and Communications
• Karolina Staugaitė, Digital Marketing Manager
• Rasa Paškevičiūtė, Customer Care Manager
• Milda Martišiutė, Customer Care Manager, and
• Tadas Bulota, Lawyer

The team was quick to answer any of my queries in detail and in record time, which reflects positively on the entire company. The website has an online chat function for any customer queries. Should you have a number of questions, you will most likely be instructed to send an email to [email protected].

🌟 Loyalty Program

PeerBerry offers a loyalty program to investors who have been members for more than 90 days. The program is based on the amount of money you have invested and comes in 3 levels:

• Silver: for an active investment portfolio above €10,000 you will get 0.5% on future investments.
• Gold: for an active investment portfolio above €25,000 you will get 0.75% on future investments.
• Platinum: for an active investment portfolio above €40,000 you will get 1% on future investments.

This means that if you are a member of the Silver Program, for instance, and invest in a loan that provides an 11% return, you will automatically be upped to 11.5%.

💡 Potential Risks

One of the main risks with any peer-to-peer platform is Loan Originator default. PeerBerry offers an additional guarantee, further to the BuyBack guarantee mentioned above, specifically for such potential cases.

The platform stated that their main partner, Aventus Group, has signed an additional guarantee agreement. This means that in case of loan originator default, Aventus Group and Gofingo will “do everything … to protect your investments, maintain transparency and good reputation of all partners – loan originators”, as A. Lekavičius explains on their blog.

80% of total loans on the platform are accounted for by Aventus Group, with Gofingo following at 15% and Lithome at 5%.

It is important to note that in 2019, Aventus Group posted a net profit of €12.6 million, whereas their equity stood at €14.3 million. These figures suggest that the company would be able to cover any liabilities, should they come up. A comprehensive article with Aventus Group CFO comments can be found here.

Coronavirus Effects

All P2P platforms have been affected by COVID-19, and PeerBerry are no exception. The positive side, however, is that they have maintained a good level of communication with their investors.

🙋 FAQs

Who can invest in PeerBerry?

Investors must be 18 years old and over, with a European bank account. Both private individuals and companies can join the platform.

Who are the loan originators?

PeerBerry provides a comprehensive list of loan originators, together with a description of each originator. You can view the whole list here.

Does PeerBerry have a Secondary Market?

No, PeerBerry does not have a secondary market at the moment.

Do I get the same interest on overdue loans?

Late or overdue loans generate the same interest per annum as current or active loans. They cover the delayed period, until the borrower makes a repayment or until the loan originator buys back the investment.

Do I pay taxes on my returns?

Taxes are not deducted by the platform on investments made by private individuals. It is the investor’s responsibility to pay the taxes on any income made through the platform. Taxation is based on the legislation of your respective country of residence.

Can I cancel my investments?

PeerBerry does not offer this option at the moment. They are, however, working on implementing this functionality on long term loans in the near future.

Will I be notified of any new investments?

PeerBerry sends out newsletters to whoever signs up to the service. They include monthly reviews, as well as alerts for any new investment opportunities and new loan originators.

Alternatives to PeerBerry

At the moment, the most popular alternatives to PeerBerry are Swaper and Income Marketplace. Have a look at those platforms if you want to diversify your funds across multiple sites.

📍 Conclusion

PeerBerry offers a multitude of investment opportunities, specifically with respect to short term and long term loans. The platform has been continuously expanding its loan originator network, which I believe is a step in the right direction.

As with many peer-to-peer platforms, PeerBerry offers an Auto Invest function and a BuyBack guarantee. Unfortunately, however, no secondary market is available yet.

The platform presents you with daily/weekly summaries of your transactions, as well as the ability to generate tax statements. This is a great tool to facilitate the monitoring of your investments. Keep an eye out for their blog for any important and new information they may publish.

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