This post is also available in: Deutsch (German)
Do we have the p2p or crowdlending risks under control? This question keeps me busy from time to time. These high yields, buyback guarantees, the super easy autoinvests and all the fintech blah blah get me into maybe false security. Because of that I have compiled some problematic cases from the past months. I do not want to take the fun out of p2p, but we should consider not only the return part but the risk part as well. I just want to see this post as a reminder, that there is no free lunch, and double digit yields do not come without risks. The next default of a loan originator or a market place will happen. Maybe not tomorrow, but in the future.
Collateral – an ugly case
Let’s begin where p2p in Europe started, the United Kingdom. Zopa as the first platform in Europe has been operational since 2005, so for more then 13 years now. I figure that after all these years the p2p market has already matured a bit, furthermore as the FCA seemed be willing to help with regulation, rather then ban the whole thing. And exactly there it happens, Collateral defaults and the FCA does not look that good in handling this case. Here you can find a lot of discussions about this case.
Comunitae, a spanish market place stops its operation due to insider fraud . Swiss p2p/Fintech has to deal with a massive fraud (sorry, only available in German) . And China with its shadow financial system hashas to deal with a gigantic fraud scheme. Let us add the default of Eurocent with Mintos, and it becomes clear, that high risks are involved within p2p and crowdfunding.
It comes a litte surprisingly that until now no Baltic market place has defaulted. Firstly, this because there are lots of young platforms and secondly, they operate in a not quite regulated environment. I can envision that the money laundering scandal of Danske Bank in Estonia could lead to a crack down of p2p lending, or at least will be observed. I am sure that the Baltics will be closely monitored by the EU now. Although this Dankse case is not related to p2p, it will have an impact on regulation.
As I said earlier, it is not my intention to present p2p in a bad light, but for me these cases clearly show that there are not to underestimating risks. I have no problem, ok I can deal better with, when a loan originator defaults because they were bad in business. This happens, it sucks, but it is something we have to deal with while investing. So the golden rule for investing is: never invest anything, which you cannot afford to lose. With fraud cases I have my problems, there was a crime commited and in most cases there where too few controls, if any. I am still a believer in the p2p story, but we have to be cautious as lenders.