the beginner’s guide to peer-to-peer lendingthe old lending model is slowly beginning to crumble....

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The Beginner’s Guide to Peer-to-Peer Lending

investingintheweb.com

Disclaimer

Peer-to-Peer Lending involves risks, including loss of capital. Always remember: do not invest money into online Peer-to-Peer

Lending that you cannot afford to lose. You should not make any investment decision without first conducting your own

independent research and verification.

All content on this e-book is purely for information purposes and does not constitute investment advice. We make no guarantees

as to the accuracy or completeness of the content – it is subject to change, so please conduct your own due diligence.

We hope that you enjoy this ebook and our website, and that you receive useful information that can help you make better informed

decisions and investments.

The Beginner’s Guide to Peer-to-Peer Lending v1.0.0Copyright © 2020. All rights reserved.

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table of contentsIntroduction ...................................................................................................... 04What is Peer-to-Peer Lending? ..................................................................... 05History of Peer-to-Peer Lending? ................................................................. 06Peer-to-Peer Lending Continues To Grow .................................................. 07Pros and Cons of Peer-to-Peer Lending ...................................................... 09Potential Rate of Return for Peer-to-Peer Lenders .................................. 11The Risks Involved in Peer-to-Peer Lending ............................................. 12Peer-to-Peer Lending VS Crowdfunding .................................................... 13Regulation of Peer-to-Peer Lenders ............................................................ 14How to Select a Peer-to-Peer Lending Platform ....................................... 16Popular Peer-to-Peer Lending Platforms in Europe ................................ 19Investing in a Peer-to-Peer Platform .......................................................... 19The Future of Peer-to-Peer Lending ........................................................ 20Final Word .......................................................................................................... 21


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INTRODUCTION

Over the course of the past two decades, society has witnessed an enormous amount of changes in the way people conduct their daily lives. Technological advances have completely altered the way consumers communicate, work, travel, shop, eat and educate themselves. There have been major disruptions in various industries across the global landscape. Most likely, this is just the tip of the iceberg. This trend will continue for the next 10 to 20 years.

One industry that is in the early phases of being disrupted is the financial services industry, specifically banking and lending. This area is currently undergoing radical changes in the way consumers interact with their banks and lending institutions.

The traditional banking model has been in existence since the Bank of England began is-suing bank notes in 1695. This marked the beginning of traditional banking as we know it today. Traditional banking is a fairly archaic process whereby depositors place their funds in a local bank in exchange for receiving an interest payment from the bank. In return, the bank loansthe depositors’ money to businesses and other borrowers. The bank earns a profit by charging an interest rate to the borrower.

This model is a never ending process of money coming into the bank (through deposits) and money leaving the bank (through loans). The bank simply acts as an intermediary between depositors and borrowers. Traditional banking is a very lucrative business. In fact, if the bank is managed properly, it’s almost impossible for the institution to lose money. This explains why there has been very little change in banking and lending during the past few hundred years. There’s absolutely no incentive for these financial institutions to make any adjust-ments. The banks operate under the old saying of, “If it works, don’t fix it.”

Despite the banking industry’s best efforts to suppress competition in the area of lending, the old banking model is beginning to face major competition from several different angles. For the first time in the history of modern banking, new modifications and advancements are taking place in this space.

The old lending model is slowly beginning to crumble. It is being replaced by a relatively new concept known as peer-to-peer (P2P) lending. What is P2P lending and why is it gaining so much attention in financial circles these days? Let’s examine the details.




what is peer-to-peer lending?

In its basic format, P2P lending enables individuals or businesses to obtain loans directly through online services, matching lenders with borrowers. This type of format eliminates financial institutions as the middlemen. Essentially, P2P lending is an alternative method of financing. This is particularly true for those who are unable to obtain financing from a tradi-tional bank or lending institution.

Engaging in peer-to-peer lending is a fairly straightforward process, which begins when an investor opens an account with a P2P site by depositing money into the account. Next, a loan applicant is added to the mix by posting a detailed financial profile. The financial profile includes such things as the applicant’s income, job security, number of dependents, previous payment history as well as the applicant’s intended use of funds. The financial profile is a particularly important piece of P2P lending because determines the interest rate the appli-cant will pay. Consequently, it’s not uncommon for peer-to-peer lending sites to review over 100 different risk parameters before allowing a borrower to request funds from a lender.

By relying on financial profiles and risk parameters, P2P lenders are able to establish a better relationship with their customers. In fact, P2P lenders are known to have a much better un-derstanding of their loan applicants in comparison to traditional banks. Despite the fact that peer-to-peer lending is 100% automated process, this hasn’t stopped the P2P industry from knowing their customers on a more personal level. These days, traditional banks rely 100% on credit scores in determining loan approvals. This explains why banks no longer have a personal relationship with their customers. P2P lenders offer much better communication and clarity with their customers, even when the lenders deny a loan applicant. Each denied applicant is told specifically what needs to be done in order to increase the chances of being approved if the applicant decides to re-apply for a P2P loan.

In regard to loan approvals, very few P2P loan applications are approved. In fact, it’s not un-common for the loan approval rate to be less than 20%. The industry has a solid track record regarding loan delinquencies and loan defaults. A relatively small percentage of P2P loans are defaulted upon. The default rate is fairly similar to that of traditional banks. The histori-cal default rate for P2P lenders is 4.54%. According to data provided by the European Central Bank (ECB), the default rate for consumer loans is 3.04%.


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history of peer-to-peer lending

Many people believe that peer-to-peer lending was introduced during the 2008 global finan-cial crisis. This is true to a certain extent because the popularity of P2P lending increased dramatically following the financial crisis. However, the true beginning of P2P lending dates back to 2004, when a group of individual investors founded Zopa, a peer-to-peer lending company based in the United Kingdom. The original founders of Zopa included Giles An-drews, James Alexander, Richard Duvall, David Nicholson and Tim Parlett. In 2004, these gentlemen were employed by Egg Banking, which was launched in 1998 as the first internet bank in the UK. Based on their experience with traditional bank lending, Andrews, Alexander, et al. could clearly see that traditional banks were unable to service the borrowing needs of all bank customers. There was an untapped market in consumer lending that was not being serviced by traditional banks. The team from Egg Banking decided to fill the void by launch-ing Zopa. Although Zopa was founded in 2004, the business was not officially launched until March 2005.

Zopa is still in business today. In fact, the company is one of the most popular P2P lending sites in Europe. Based on data provided by P2P Market Data, Zopa has completed £5.27 billion in P2P loans since its inception in 2005. It is the second largest P2P lender in Great Britain, with a market share of 30.4%. On a global basis, Zopa is the fourth largest P2P lender based on total funding since inception.

Thanks to the success of Zopa, Europe quickly became a major financial hub for alternative forms of lending like peer-to-peer lending. Following the 2008 global financial crisis, P2P lending exploded in popularity throughout Europe. Today, Europe is the global leader in P2P lending while the United Kingdom is easily the country with the most P2P activity.

The United States was 11 months behind the United Kingdom in regard to introducing peer-to-peer lending. The first P2P lender was launched on 5 February 2006 in San Francisco, California USA. The name of the company was Prosper Marketplace. Prosper was immedi-ately successful, probably due to the fact that it was initially funded by some of the country’s largest venture capital firms. The list of initial investors included BlackRock, Sequoia Capital and Benchmark Capital. The company is still in business today. As of 31 March 2020, Prosper Marketplace has successfully funded over $16 billion in P2P loans.

Shortly after Prosper Marketplace was successfully underway, another San Francisco-based P2P company was founded. The name of the company was LendingClub. It was founded in 2006 and officially launched in August 2007. The company is still operating today. In fact,




LendingClub is the world’s largest peer-to-peer lender in terms of total loan volume. As of 31 March 2020, total funding was $56.7 billion, easily making it the most successful P2P lender within the alternative lending industry.

China entered P2P lending in January 2013, when WeLab Limited was launched by Simon Loong and Kelly Wong. P2P lending exploded in popularity shortly after WeLab became op-erational. Investors quickly realized that China was the perfect location for alternative forms of lending based on the fact that most small businesses in China were not being properly serviced by China’s state-owned banking system. The vast majority of the jobs in China are created by small-medium sized enterprises (SMEs). There are over 40 million SMEs in China. The state-owned banks were simply unable to provide adequate service to the SMEs. This explains the exponential growth in P2P lending beginning in 2013.

By 2016, there were over 4,000 P2P lenders throughout China. However, the P2P industry in China quickly turned into an unregulated disaster. Several of the Chinese lending companies were committing fraud and other forms of financial abuse. In 2018, Chinese regulators intro-duced a nationwide campaign to clean up the fraud and other violations within the alterna-tive lending industry, particularly peer-to-peer lending. Today, two years after China rolled out its campaign to remove fraudulent activity in the P2P industry, the country is still strug-gling to provide a safe lending environment for SMEs. There exists a great deal of uncertain-ty within the industry.

In addition to Europe, United States and China, several other countries have experienced a rapid growth in peer-to-peer lending. These countries include Australia, New Zealand, India, Sweden, Israel, Canada, Brazil, Indonesia, Korea and Bulgaria.

Although several countries have played an important role in the history of P2P lending, the birth and early history of P2P lending is very much a European story. Historically, Europe has always been a trend setter in terms of financial innovation. Therefore, we should not be sur-prised that Europe is leading the way in P2P lending.

peer-to-peer lending continues to grow

Although several countries have played an important role in the history of P2P lending, the birth and early history of P2P lending is very much a European story. Historically, Europe has always been a trend setter in terms of financial innovation. Therefore, we should not be sur-prised that Europe is leading the way in P2P lending.


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Top 5 P2P Lending Volume By Country In 2019

• China – 58,491 million USD

• United States – 24,068 million USD

• United Kingdom – 1,800 million USD

• France – 229 million USD

• Germany – 233 million USD

P2P Global Loan Volume

• 2017 - 23.017 million

• 2018 – 24.352 million

• 2019 – 26.487 million

• 2020 – 29.394 million (est)

• 2021 – 32.266 million (est)

• 2022 – 34.106 million (est)

• 2023 – 34.928 million (est)

Top 10 P2P Lenders’ Funding Amounts

P2P Lender Total Funding Last 90 Days vs Previous 90 Days

Lending Club 51.512,8m € 2.789,5m € -8,2%

Prosper 15.168,4m € 532,8m € -18,5%

Funding Circle (UK) 6.938,2m € 436,6m € 3,7%

Zopa 5.927,1m € 295,6m € 12,6%

Mintos 5.144,5m € 793,0m € -8,7%

RateSetter 4.400,4m € 175,7m € -12,1%

Funding Circle (US) 2.460,5m € 196,8m € 26,9%




Despite the global pandemic, P2P loan volume continues to grow. Five of the largest P2P lenders increased their loan volume during these challenging times. The Top 10 list is dominated by Europe, United States and the UK. As you can see from the table, Lending Club is by far the largest peer-to-peer lender in the world.

pros and cons of peer-to-peer lending

All investments have advantages and disadvantages, including P2P lending. Is P2P lending a good vehicle for potential investors? What about for the borrower? Should the borrower use a crowdlending platform or seek financing through a traditional bank? The best way to answer these questions is to list the pros and cons of peer-to-peer lending.

p2p lending advantages

• Higher returns to investors relative to other investment types. Nowadays, if you have your money in the bank, it’s most likely losing value, as inflation has beaten interest rates for deposits in Europe in recent years. Many bloggers have been documenting their P2P investments, and showing +20% annual returns on their investments – example here.

• Steady stream of income for investors

• Safety: Crowdlending platforms are meant to provide due diligence on the loans issued, and help investors protect their downside.

• Low barrier to entry: Minimum deposits are low, allowing anyone to start investing towards their goals.

P2P Lender Total Funding Last 90 Days vs Previous 90 Days

Sharestates 2.271,0m € 124,3m € -23,5%

Assetz Capital 1.132,8m € 83,5m € 15,8%

ThinCats 717,7m € 90,9m € 77,8%

Source: P2P Market Data (as of 31 March 2020)


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• Portfolio diversification opportunities: possibility to diversify your risk by chosing loans in different geographies, different types of loans, maturities, in different crowdfunding platforms, etc. It is also a way to diversify from your stock market investments – the first ever P2P platform didn’t suffer during the global financial crisis, returning 4% to its investors.

• More reliable source of funding for borrowers

• Lower interest rate for borrowers versus traditional banks

• Lower origination fees for borrowers compared to traditional banks

• Online application for a P2P loan is fast and convenient

• The entire loan process can be managed from the P2P platform

• Investors can manage the entire P2P process from the platform

p2p lending disadvantages

• Investors are often exposed to borrowers with lower credit scores

• P2P loans have no government protection or insurance protection

• Borrowers are generally required to pay an application fee

• The majority of loan applications are denied

• Investors do not receive an equity ownership in the company

• Earned interest is not tax-free (with the exception of PSA account in the UK)

• Funds in an investor’s account will remain idle until the money is disbursed, unless it offers a secondary market.

• P2P platforms offer a variety of loan programs, which may be confusing for the lender

P2P lending is certainly not designed for everyone. However, these loan programs continue to grow in popularity. Is P2P lending a good fit for you? Of course, only you can answer that question.




potential rate of return for peer-to-peer lenders

The rate of return for peer-to-peer loans varies depending on the amount of risk the lender is willing to assume. Each P2P loan on the platform is given a numerical “credit score” based on several factors. These factors are linked to the borrower’s credit history and overall financial profile. The interest rate is determined based on the loan’s internal score. If the lender is willing to invest in a loan with a low score, she/he will be rewarded with a higher interest rate. Consequently, if the borrower has a “low risk” profile, the P2P platform will assign a relatively low interest rate to the loan. If the lender decides to participate in this type of loan, she/he will receive a smaller rate of rate of return. However, the risk of default is also smaller.

Although interest rates vary across different P2P platforms, the typical rate of return for a “high risk” loan is 15% to 20%. However, it’s not uncommon for a high risk borrower to pay an annual interest rate of 35%. If a loan applicant is considered to be a low risk borrower, the interest rate is typically 6% to 8%. According to data provided by Bank Rate, the average annual percentage rate (APR) for all P2P borrowers in 2019 was 13,9%. The range was 5,9% to 36,0%. Of course, lenders do not receive the full value of the APR. Why? Because the P2P company collects its fees from the APR charged to the borrower. As a general rule, P2P firms reduce the APR by 2% in order to collect the loan origination fee and other charges.

The most commonly asked question by new P2P lenders is, “Should I invest in a high interest rate loan or a low interest rate loan?” Quite honestly, it depends on your tolerance for risk. If you are a risk averse investor, the best course of action is to invest in a low interest rate loan in exchange for the security of knowing that your investment carries a low risk of default. An excellent strategy is to spread your P2P investment across several different loans with different levels of risk. Several P2P platforms will allow lenders to invest as little as 25 Euros in a loan. This is a great way to diversify your investment.

In 2019, Prosper released an internal report outlining the average rate of return for all Prosper lenders.


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As you can see from the table, the annual return increases along with the level of risk. Of course, the risk of default rises in unison with the risk level.

While some traders choose to only make unleveraged trades, others use the maximum allowed leverage, dramatically increasing both the profit potential and the risk.

risks involved in peer-to-peer lending

All investments have risks. P2P lending is no exception. Of course, the biggest risk with P2P lending is that the borrower fails to repay the loan. There are also other risks involved. For example, peer-to-peer lending is not government guaranteed or government insured. Consequently, if a lending firm becomes insolvent, there is no safety net for the lenders. Another risk to consider is the ability of the P2P company to properly review the financial stability of the loan applicant. As a participating lender, you are relying 100% on the firm’s ability to thoroughly scrutinize the borrower’s financial background. If the P2P firm is careless in analyzing each loan applicant, the loan delinquency ratio will definitely increase. Another risk to consider is the overall macro environment of the global economy. If the macro economy is unstable, the risk of default will certainly increase. As a potential P2P lender, you should consider all of the risks before moving forward.

Borrower Risk Level Average Annual Return

AA 4,99%A 5,22%B 5,77%C 7,78%D 11,49%E 13,48%HR (High Risk) 11,74%




peer-to-peer lending vs crowdfunding

There seems to be some confusion between P2P lending and crowdfunding. What is the difference between P2P lending and crowdfunding? First, let’s briefly discuss the main similarity between these two lending platforms. P2P lending and crowdfunding share one common principal: both platforms provide online financing by matching investors with borrowers. This type of lending approach completely bypasses the legacy banking system.

The main difference between P2P lending and crowdfunding is how investors are repaid. P2P lenders receive interest payments from borrowers on a regularly scheduled basis. However, P2P lenders do not receive an equity stake in the borrower’s company. The borrower retains 100% ownership of the company. P2P loans are rather similar to a traditional bank loan. Based on the fact that P2P borrowers are required to make monthly interest payments, P2P loans are better suited for well established businesses. Typically, start-up businesses are cash poor. Consequently, they are unable to make monthly installment payments on a loan or line of credit (LOC). This explains why P2P loans are not a good fit for start-up or early stage businesses.

Crowdfunding is the preferred method for start-up businesses. In exchange for providing financing, lenders receive an equity ownership in the business. If you are an investor who prefers a steady income stream, crowdfunding would not be a good choice. In addition to equity-based crowdfunding, investors can also select rewards-based crowdfunding. In exchange for providing investment capital, the investor receives a finished product. For example, let’s assume that XYZ Music Company needs to obtain financing for manufacturing flutes. Several lenders provide financing. In exchange for much needed capital, XYZ Music Company gives each lender a flute. This is known as rewards-based crowdfunding.

During the past few years, P2P lending is becoming more commonly referred to as crowdlending or marketplace lending. However, the basic concept is still the same. Each platform provides online financing by matching investors with borrowers. This type of lending approach bypasses the legacy banking system.

crowdfunding

• Uses small amounts of capital by individual investors to finance a new business.

• Allows the individual investors to obtain an equity ownership in the company.


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• Investors and entrepreneurs are brought together through a crowdfunding website.

• rovides a forum for anyone wanting to “pitch” an idea to waiting investors.

• Start-up companies can raise money through crowdfunding without giving up control of the company.

peer-to-peer lending

• Peer-to-peer lending (P2P) is a method of debt financing.

• It allows individuals to borrow and lend money without the use of a financial intermediary.

• Essentially, P2P lending removes the middleman from the process.

• P2P lending is also known as crowdlending or marketplace lending.

• P2P loans are neither insured nor guaranteed.

regulation of peer-to-peer lenders

Proper regulation of European P2P lenders has been quite challenging throughout the history of the industry, dating all the way back to the launching of Zopa in 2005. In fact, on more than one occasion, the European Commission has publicly stated that improper regulation has been a hindrance to growth for the entire European P2P lending industry. In an attempt to rectify this issue, the European Commission outlined a proposal to regulate crowdfunding service providers. The proposed regulation was officially released for public consumption on 8 March 2018. Before we discuss the specifics of the regulation, it’s worth noting that the European Commission separates crowdfunding into four main categories:

• Lending-based crowdfunding

• Equity-based crowdfunding

• Reward-based crowdfunding

• Donation-based crowdfunding




The European Commission is focused on lending-based crowdfunding (i.e. P2P lending) and equity-based crowdfunding.

Currently, regulation of P2P lenders throughout Europe is primarily based on national legislation. Consequently, there is no uniform regulation that covers all European P2P platforms. Instead, the regulation is a mixture of fragmented and conflicting regulatory regimes depending on the country of operation. Adding to the confusion is the fact that crowdfunding business models are constantly evolving, thus creating a wider variety of products and services. These new products and services are often subject to different pieces of EU legislation. Of course, this simply creates more regulatory confusion.

The 2018 proposed regulation by the European Commission would create a unified regulatory framework which would cover all European P2P lending companies. Specifically, the two main objectives of the Commission are to:

• Make it easier for crowdfunding platforms to operate across the EU

• Increase investors’ trust by strengthening the integrity of the platforms

On 20 January 2020, the legislative bodies of the EU announced that a political agreement had been reached in regard to a new regulatory framework for crowdfunding. The new crowdfunding legislation is known as the Regulation on European Crowdfunding Service Providers for Business (ECSP). The initial proposed regulation from 2018 called for the European Securities and Markets Authority to supervise all EU Crowdfunding Service Providers. However, the new ECSP legislation states that each EU CSP will be authorized and supervised by national authorities in the member state in which they are established. In an effort to enhance liquidity and provide P2P customers with choices, the new legislation will allow all P2P lenders to passport their services across the entire EU.

To ensure investor protection, each investor will be provided with a key information investment sheet (KIIS) prepared by the project owner. The KIIS will be required for each crowdfunding offer. The information contained in the investment sheet will outline the specific details of the instruments being sold and the risk involved.

The new ECSP regulation is subject to final technical amendments. Upon completion of any amendments, the regulation will be adopted by the European Parliament and the Council of the European Union. The new regulation is expected to be fully adopted in 2020.


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In regard to the UK, P2P lending is regulated by the Financial Conduct Authority (FCA) dating back to 2014. Regulating the P2P industry in the UK has been a much smoother process in comparison to P2P regulation in the European Union. Why? Because it’s much easier to regulate a single country versus several countries in the European Union. The vast majority of industry experts have praised the FCA for its regulation of P2P lenders.

Peer-to-peer lenders in the United States are regulated by the Securities and Exchange Commission (SEC). The regulation began in 2008. According to several academic papers and research reports written by industry experts, the SEC has performed remarkably well at regulating P2P lenders and the entire crowdfunding industry. The working relationship between the SEC and P2P lenders has been quite successful. Quite often, regulators will adopt an anti-business agenda which stifles innovation and reduces growth within the industry. The SEC has taken a “hands off” approach regarding crowdfunding regulation.This probably explains why the United States is the leader in P2P loan volume.

how to select a peer-to-peer lending platform

If you are considering an investment in P2P lending, the most important decision you must make is selecting the right lending platform. Many investors who are new to P2P lending assume that all platforms are basically the same. This is not true. Generally speaking, P2P platforms can be divided based upon classification (or category):

• Business model

• Borrower type

• Loan use

• Type of collateral

business model

P2P platforms operate under four different business models. The list includes: traditional P2P lending, P2P lending with loan originators, bank-funded P2P lending or balance sheet lending. Let’s briefly review each business model.




Traditional P2P lending is very straightforward. Only three parties are involved in each lending transaction: the borrower, the lender and the owner of the platform. The platform serves as the intermediary between the borrower and the lender. The intermediary is responsible for handling all administrative duties. In addition to serving as intermediary, the owner of the platform is also responsible for soliciting new borrowers. In order to remain profitable, it’s absolutely critical for the platform to maintain a steady stream of new borrowers for investors. The traditional model is certainly the most popular model among investors. Based on historical results, it’s also the most profitable model for the P2P owners because the owners are required to perform the majority of the work. Consequently, they do not have to share the fees collected from the borrower.

P2P lending with a loan originator adds an extra layer to the transaction, which can often lead to confusion among the P2P lenders. The loan originator is typically a non-bank financial institution with the sole purpose of providing a steady stream of new borrowers to the P2P platform. Loan originators use marketing strategies to solicit new P2P loans. Of course, platform owners love working with loan originators because they provide new business. In exchange for bringing new customers, originators receive a small slice of the loan origination fee. This arrangement works great as long as the originator supplies the P2P platform with high quality borrowers who will repay the loans. The loan origination model is quite popular among platform owners because the burden of soliciting new borrowers is no longer the responsibility of the P2P owners.

Bank-funded P2P lending involves the use of a traditional bank, where the bank acts as the originator of the loan. Bank-funded P2P lending is similar to traditional P2P lending. Why? Because in both cases, the platform matches borrowers and lenders. Based on the fact that the loan is originated by the bank, the borrower signs a promissory note with the bank. Immediately after the bank has originated the loan, it will sell the loan to the platform. Consequently, the borrower will make payments to the platform. The bank has been removed from the equation.

Balance sheet lending closely resembles traditional bank lending. When a bank originates a loan, the loan is kept on the bank’s balance sheet as an asset.

Customer deposits are classified as liabilities. In the same way, P2P platforms involved with balance sheet lending will both originate the loan and keep it on the balance sheet. Of course, by keeping the loan on its balance sheet, the P2P platform assumes the credit risk. However, in exchange for the credit risk, the platform will profit from both the origination fees and the interest payments accruing on the loan.


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borrower type

All P2P activity involves consumer lending or business lending. Consumer lending would involve anyone legally classified as a natural person. Business lending includes all legal entities. Examples of a legal entity include: corporation, sole proprietor, trust, limited liability company and non-profit organization.

loan use

P2P loans are used for many different purposes. A few examples include: real estate, invoice financing, agriculture, education, automobile purchase, travel, credit card consolidation, home improvement or medical expenses. P2P loans can be used for practically anything.

type of collateral

Peer-to-peer loans can be secured with collateral or unsecured without collateral. If the loan is secured with some type of collateral, the terms of the loan are much more favorable for the borrower. The most popular forms of collateral include: automobile, business inventory, business equipment, real estate, accounts receivable, stocks, precious metals and artwork.

As you can see, there are several different factors to consider when selecting a peer-to-peer platform. The best course of action is to select a platform with a solid reputation within the P2P industry. Check for customer reviews and talk with friends who have invested in P2P lending.

Do your research by reaching out to various platforms and asking questions. Take note of the customer service you receive when you contact each platform. How were you treated? Did the platform answer your questions in a timely manner? This is a great way to “interview” each platform before deciding where to invest your money. Find a platform that makes you feel comfortable.




popular peer-to-peer lending platforms in europe

At Investing in the Web, we’ve reviewed and compared some of the most popularP2P lending platforms in Europe. Full comparison here.

investing in a peer-to-peer platform

If you are new to P2P lending, you might be apprehensive about investing. Many first-time investors are under the impression that opening an account is a very complicated process. This is not true. In fact, opening a P2P account is very similar to opening a bank account. The process is very simple. There are four basic steps to investing with a peer-to-peer lender.

Create a platform account by registering directly on the external platform. In regard to collecting the necessary data, P2P lenders follow the same guidelines as a bank or brokerage firm. You will be asked to provide name, address, phone number, e-mail and photo ID.


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Transfer funds to the platform after the account has been created. The best way to deposit funds is via bank transfer, which typically takes 3 business days.

Arguably, the most difficult part of becoming a P2P investor is selecting a specific investment among all of the available projects on the platform. The majority of platforms offer several different options in terms of various maturity dates, level of risk, minimum investment, buyback guarantee, investment type, platform fees and ROI. The best way to select the appropriate investment is to do research and ask questions.

After you have selected an investment, the next step is to decide how much to invest. Always remember, peer-to-peer loans are not secured by any type of government regulatory agency. Therefore, only invest as much as you can afford to lose.

the future of peer-to-peer lending

Over the course of the past decade, P2P lending has become a legitimate source of financing for thousands of consumers and small businesses. Based on data provided by LearnBonds.com, the alternative loans industry has been growing by 17% per year since its inception in 2006. Global lending is projected to hit USD 312.6 billion by the end of 2020, and USD 390.5 billion by the end of 2023. Although these numbers are very impressive, P2P lending is tiny compared to traditional bank loans. For example, the total amount of current bank loans in the United States is USD 3.36 trillion. In regard to Europe, current bank loans are EUR 10.56 trillion. Based on this data, we can conclude that P2P lending has a tremendous amount of growth potential. Most financial experts agree that the alternative loans industry will continue to capture market share from the traditional banking industry.

Several experts within the P2P industry are concerned that the industry could be growing too fast. For example, in China, peer-to-peer lending increased exponentially beginning in 2007. Over the course of the next nine years, P2P lending exploded in popularity. By 2016, the number of lenders had exploded to 2,680. Unfortunately, the industry attracted a great deal of fraud and illegal activity. Thousands of Chinese investors were defrauded out of their life savings by unknowingly participating in P2P Ponzi schemes. The P2P industry grew so rapidly that Chinese regulators were simply unable to properly regulate the P2P companies.

In 2019, the fraud and corruption had reached such extreme levels, that several Chinese provinces completely shut down the P2P platforms. As a result of the crackdown, many P2P services disappeared.




The number of platforms fell considerably from 2,680 in 2016 to 343 in 2019. The industry collapsed by 87%.

Within the past 12 months, Chinese regulators have imposed strict guidelines on the entire peer-to-peer industry. The most important new regulatory guidance requires companies to meet a minimum registered capital level of 1 billion yuan (€128,85 million). Additionally, P2P lenders will not be able to operate in China unless they are granted an online microlending license. Many of the smaller lenders were unable to meet the new guidelines. This explains why the number of P2P lenders has declined so dramatically.

Although the amount of P2P lending has fallen rather sharply in China during the past few years, the industry is in much better shape from a financial perspective. Going forward, China is destined to become one of the biggest players in peer-to-peer lending. In fact, the entire global P2P industry is slowly becoming a major participant in consumer and business lending.

final word

If you made it this far in the Beginner’s Guide to Peer-to-Peer Lending, there’s only one thing to say: Congratulations! You are now better prepared at tackling the challenges that the market will throw at you than 90% of other people who jump into peer-to-peer lending or crowdlending head first without knowing what to expect.

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- The Investing in the Web Team


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the beginner’s guide to peer-to-peer lendingthe old lending model is slowly beginning to crumble....

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