Many of you have been asking me about my opinions on P2P lending and the immediate future following a horrible start to 2020.
In January and February, we had the closure of two platforms, Envestio and Kuetzal.
It seems that Grupeer is going to be next after information emerged that seems to prove that it was a whole scam that went undetected by everyone including Grupeer’s own employees.
Investor confidence was visibly down after these events, and some even took a big hit to their wallets after losing thousands that they had invested in these platforms.
We are now in full lockdown mode as the Coronavirus pandemic has been taking over the news and our lives, and it has been accompanied by a spectacular crash in the stock market and even in crypto-asset prices.
Many investors are panicking and taking out their money from P2P lending platforms as well, putting additional pressure on the platforms at a bad time as they were still reeling from the shockwaves of the platform closures.
I believe that as investors we have to be as rational as possible, so let’s try to analyze the situation with a cool head.
Kuetzal and Envestio – Did they kill P2P lending as we know it?
My opinion is that the demise of Kuetzal and Envestio does not really affect the general market in the medium to long-term. Yes, there were many people investing irresponsibly and now that they got burned they will be more careful with their money. Likewise, this puts pressure on all the P2P platforms to up their game and prove to investors that they are not a scam. Therefore, I view this event as a net positive.
I think that the market is too saturated with P2P platforms and that there needs to be a shakeout resulting in only a few big players remaining. Those who put the investor first and don’t promise things they cannot deliver will ultimately remain in business and become more popular.
I think mature platforms like Mintos and Bondora are well-positioned in this case. Others that are built on shaky business models are likely to be forced out. More transparency is always welcome, as investors become more demanding and want to know where their money is really going.
The economy will most definitely slow down in the coming months
The bigger problem I foresee is a slowdown in the general market, according to market cycle theory we have been due for a recession for quite some time now. Coronavirus might be the trigger.
Businesses are losing a lot of money due to having had to shut down or operate in a less productive manner during these weeks of emergency status in many countries, meaning that they will struggle to repay loans, hence more possible defaults on the P2P platforms and less investor confidence and appetite.
I, therefore, expect to see higher default rates and lower investor capital on the platforms.
Investors should act cautiously but not panic
As an investor, right now I would focus on buying things like stocks or crypto assets which will be at low points and have a good chance of recovering in the next few years since the intrinsic values of most companies will mostly remain unchanged.
I would be less inclined to continue pumping money into P2P platforms given the conditions.
However, I wouldn’t be withdrawing all my investments indiscriminately.
In fact, I will probably keep all my investments untouched. There are undoubtedly some hard times ahead, however, consumers will still need loans and businesses will also need them. We might see a change in the interest rates to reflect the higher risk, and we will probably see higher rates of defaults too. But in the end, things should balance out.
Now, I am seeing a lot of supposed investors appealing on social media to other investors not to withdraw their money (as in, something that looks like a bank run). They appeal not to do that in order not to kill platforms. I take issue with such proclamations.
First of all, every investor should be looking out for his own interest first and foremost. If he has been laid off or is experiencing a decline in his business income, then who are you to ask him to keep his money invested in P2P? Let everyone do what they want with their money, as you will undoubtedly do too.
Secondly, sound platforms will not have to shut down if investors withdraw their money. Investors can withdraw in two ways:
- Cash in the platform balance
- Sell off loans on the secondary market
If an investor withdraws his cash balance, the platform shouldn’t feel the difference. If everyone starts selling off loans on the secondary market, the obvious result is that there will be no buyers, hence the money will not be withdrawn.
The only way for a “bank run” on P2P platforms to kill them would be if they are bad scammy platforms in the first place. For example, if they are a Ponzi scheme or if they made empty promises like having a fund that will pay investors if any loans are late or default. I have listed some platforms like these here.
Of course, less investor activity means less income for the platform, that is also pretty obvious. However, I would expect the good platforms to be able to adapt. Maybe they will have to take some hard measures like laying off staff, downsizing offices etc. but it’s not a given that they will have to shut down.
Platforms should be transparent and communicative
My suggestion for P2P platforms would be to be as transparent as possible and in that way build trust with the investors. They should recognize that we are passing through a very difficult economic patch and prove that they have a strategy on how to deal with it.
Investors don’t want to see obvious excuses such as those offered by scam platforms (that they’ve been hacked, that it’s the fault of bad publicity, and other ridiculous justifications), instead they want to know that the people behind the platforms are experts in finance and that they have plans in place for continuity and growth even in adverse market conditions.
Wrapping up
Those are some of my initial thoughts on the subjects. In conclusion, rather than taking out existing investments, I think the better strategy would be to keep a close eye on other asset classes that are trading at a discount (crypto and stocks being two of them) while possibly also accumulating a larger cash reserve to alleviate any negative repercussions such as a decrease in business income or job layoffs.
What are your thoughts?
Jean, congratulations for your reviews! I belive that you are doing a great job and helping investors! On the other hand I would like to add a substantial comment on your coronavirus effects analysis. Some P2P platforms may not be affected as much as to become insolvent, but originators are in great trouble in many markets. Highest risk countries are those where legislation may impose repayment holidays. In this case lenders won’t be able to cover their operational expenses and I’m afraid that many of them won’t repay to the investors. I also follow this indicator (clearly visible on Mintos) – share of financing through P2P to total portfolio value. The higher this share, the higher chances that the lender will become insolvent. Two such examples are ID Finance and Sun Finance. From what I see investors try to liquidate their P2P investments at increasing speed so high leverage in P2P can be deadly.
Sorry !
Here Bernard’s video : https://www.youtube.com/watch?v=-oMMt-qLQFg
and the Youtube comments below 🙂
Bernard seems to know his stuff. I will have to watch this in its entirety later but thanks for sharing this. I wish that plant was moved out of the way though, that was the first red flag I identified 😀
Yes, have a look in the calm.
And let us know what your thoughts are 😉
Un saludo !
Dear CENTRINO!
If you find some of Grupeer’s CEO answers in the interview made by Bernhard Hummel confusing, please wait for the last part of the interview, where Alla and our team answer p2p community questions that were asked after the first part of the interview was published. Also, please check all other videos from the trip and you’ll see, for example, Grupeer’s office, team, development projects. Please share your opinion on all of those videos, it will help Grupeer to become more transparent!
Good morning Grupeer,
First of all, I am glad that you did take time and courage to respond to my comment.
Unfortunately the recent researches by experts seem to contradict your transparency.
For example :
1- withdrawals have stopped being processed and 3 LOs have been identified as being fake. Confirmed by Central Bank of Russia they have no license also.
2- some fake real estate projects confirmed.
3- Lion lender, Epic and Primo are fake.
4- even more problematic : read the article on https://kristapsmors.substack.com/p/covid-19-first-p2p-victims-monethera
We all think now the time for you to respond to all these concerns, to really prove your company is serious.
If you don’t respond to all these points, well…, you’ll prove yourselves that Grupeer was a SCAM from the beginning.
Waiting for your anwers !
Regards,
Centrino
Well a few days laters, as expected, Grupeer did not show up to provide any reply.
So I guess everbody now understood how fake Grupeer was / is.
That’s right, they are a huge disappointment and a blow to the reputation of the Baltic P2P lending ecosystem.
Thanks Jean, you write quality content
Just want to call you out on Grupeer. You seem to highly recommend them, almost on par with Mintos (see above). As others have pointed out, however, there’s little to no transparency, too good to be true, the hallmarks of the P word
Aren’t you concerned they’re just one big con?
Regards
Daniel
Hi Daniel, thanks for your feedback.
I do think that Mintos is by far the market leader at the moment, and they undoubtedly have the best platform as well. However, there are several other smaller platforms that I trust and think that they can be big players in the near future. Grupeer is one of them.
I hope to publish an article on how I evaluate platforms soon, but I will say that getting to know the people behind each platform is a very important part of that evaluation. I have been in contact with the management from Grupeer and they have given me the right impression. I trust that they are working hard to build a good platform and don’t have any concerns about them being a scam.
On the other hand, there are other platforms that I am very concerned about.
I have criticised Grupeer in the past on the transparency aspect, but they have promised that 2020 will be the year where they fix that issue, and so far they have kept their word. Take a look at their blog where they have been regularly communicating with investors this year and adding new features. If they continue down this road I think they will end the year in a very good position. On the other hand, if they fail to deliver what they promise, I will be the first one to call them out.
If you have any other concerns do let me know. I will also try to get some feedback from Grupeer themselves on your concerns.
I think Daniel is referring to this video : https://www.youtube.com/watch?v=NyIwzGFDXpg
where Bernhard Hummel (a HUGE P2P investor) interviewed them. But the answers were… well… very vague…
It has nothing to do with the persons / Alla. But more on the process and company transparency.
That’s why more and more people begin to doubt about their business…
Let us know what you think 🙂
I don’t think that’s Bernard’s video. Could you distill what concerns he has about the platform?
Dear Daniel!
We admit that Grupeer previously has not been transparent enough, but now our investors are seeing a lot of changes. This year was announced a year of transparency by Grupeer and we have already: recorded an interview with Grupeer CEO Alla Kisika, held an “Open-day” when we gave full and frank answers to all questions that we got from our investors, showed our team, invited bloggers to visit our development projects in Belarus. We’ll keep sharing all the information about Grupeer to ensure our investors that our professional team does everything in our power to bring our investors profitable and safe offers.
Speaking of “too good to be true”, we are glad that you have this feeling, but we definitely admit that at the moment Grupeer, together with the p2p industry and all world finances, is going through a challenging period. We are sure that it is irresponsible to declare that the situation for us is perfect. We see this turbulence, but we will follow our plan and continue to work harder, stay calm and professional to fulfill all our obligations to investors. If you have any questions regarding Grupeer, feel free to contact us via e-mail [email protected] or our social media.
Thank you Jean.
About your sentence “P2P platforms : I will probably keep all my investments untouched,
do you mean :
– not making new deposits, but keeping investing via auo-invest ? or
– investing manually ? or
– pausing your auto-invest (for a couple of weeks / months), i.e. not making new investments for the moment ?
Thank you for your clarification 🙂
I meant not making any new deposits, since I think there are better opportunities in stocks and crypto right now. As I always say though, what one investor does does not necessarily apply for another investor. Every case is totally different.
I agree.
Stay safe, and Regards