Not all P2P platforms are created equal

We are in the midst of an almost unprecedented global financial meltdown, and the fallout is being felt by Peer to Peer (P2P) platforms and investors alike.

Almost every week another platform goes out of business, while those managing to stay afloat are already removing loan originators from their listings at an alarming rate.

These times can be confusing for investors, but they also offer plenty of opportunities to secure good, safe returns for those willing to do their research and not act in an overly risky manner.

According to Ivan Sharafiev, Chief Business Officer at Nibble, it is more important than ever for investors to understand exactly where they are placing their funds.

He says: «As an investor, it is vital to understand that there are two types of platforms operating in the P2P loan sector and there are fundamental differences between the two.»

«There are benefits and drawbacks to both types, but at Nibble, we are convinced that platforms who also own and operate their own loan originators are a safer option for investors as they offer better transparency», he added.

Here we take a look at the two types of platform and provide you with some information on the pros and cons of each based on Ivan’s advice. Our aim is to help you make an informed decision when choosing where to invest your money.

P2P Platforms acting as a showcase for external loan originators

This is the most common category of P2P investment platform and also features some of the largest businesses in the industry. Investors usually have access to a large range of loan originators, often in several countries. The platform acts as an intermediary between the investors and the loan originators, and the investors have no direct contact with borrowers.

Pros: Investors receive access to a large range of options for loans to back. This makes diversification easy both in terms of loan types and geographic location. Interest rates are generally also on the high end of the spectrum for this kind of investment as many loan originators supply short-term, personal loans at interest rates substantially higher than banks or traditional financial institutions.

Cons: It can be almost impossible for investors to verify the trustworthiness and financial viability of loan originators. On some of the less reliable platforms, there have even been instances of loan originators being outright embezzlement scams, with no intention of ever repaying investor money. As the marketplace platform has very little control over loan originators’ operations, investors may find themselves exposed to high risk. These platforms generally have a high rate of default

Examples of marketplace platforms: Mintos, Bondora, Viainvest

P2P Platforms with their own holding structure

The difference from the previous platform type is that, in this case, the loan originator forms part of the same business as the P2P platform, so rather than a marketplace the platform is a direct conduit between investors and borrowers, who mostly all apply for loans from a single company.

Pros: The fact that the platform has direct control over the loans it offers supplies investors with a higher degree of security and transparency. It is much easier for an investor to do research on the loans they choose to invest in. If the platform is well-run and financially responsible, default rates should also be significantly lower, and investors carry far less risk of a large part of their portfolio going into default due to mismanagement at a single or even multiple loan originator.

Cons: With lower risk come lower interest rates. While marketplace type platforms often offer up to 20% per annum, those with their own holdings mostly operate in the 12% per annum range. Geographic diversification is also not as easy as with a marketplace platform unless it is a multinational.

Examples of platforms with own holdings: Nibble, Robocash, Twino

Do your research before making a choice

While both of these types of investment platforms have excellent investment opportunities it 1is important for investors to make sure that they research their choice of platform thoroughly.

As the market has grown and new operators have jumped on the bandwagon, many people with no experience in the industry have relied on investor greed to try to take advantage of the situation. As the industry in Europe is also unregulated, this has allowed unscrupulous or simply incompetent business owners to flourish. The current financial crisis is acting as a corrective for this situation, as platforms run poorly or without stringent checks on loan originators are collapsing on what seems like a weekly basis.

You need to ensure that your money is invested on a platform with a solid track record, run by finance professionals and according to practises of transparency and responsible business management.

About us

Nibble, is a P2P crowdfunding platform that belongs to the IT Smart Finance (ITSF) Group — a financial conglomerate with current headquarters in Spain and Russia founded in 2014 with more than 200 employees worldwide and 1.5 million dollars of net income in the last reported year. IT Smart Finance has more than five years of experience in developing innovative products in financial technology, focusing on the analysis of big data aimed at the current digital financial environment. The ITSF team's expertise has been a fundamental part of the creation of Nibble, a simple, fast, and secure platform for investors.