Post by mopcku on Jan 25, 2017 11:42:22 GMT
I am active in the p2p lending for couple of months now and want to share some thoughts.
I think I understand the original idea of p2p lending which is based on the idea that via diversification as result of the very small loan part sizes (5 or10 €) also the small investors like us can reduce their risk of extreme losses.
At the moment in continental Europe I see very small number of relevant platforms which are using this original model. Here I see only
FinBee (which belongs to this category only partially because of the their compensation fund)
There are increasingly bigger and bigger numbers of Platforms (and offered loans) which offer the so called buyback guarantees. The biggest of these platforms are
The majority of you like these platforms but my problem is that with these platforms I see completely change of the original of p2p lending idea of diversifying between different borrowers. Buying a loan part from some platform with buyback is like borrowing to the originator company. If I get my money back always independently if the original borrower defaults or not it makes for me no difference how good I am diversified between the loans of the same originator.
Actually I am even asking myself why at all I am getting some lists with loans when it makes no difference for if they default or not? Why just not make a button “give all money to the originator” independently of the distribution between different borrowers? Or is this some way to mask that what we are doing here as investor is company funding for the originator. Why an originator will give us buyback and take the risks of default of the borrower?
The only reason I can see is that we with our 10% or 12% are a cheaper source of his funding then a bank or other provider of liquidity!?
Also I see that with these new platforms we are exposed to their (or the one from the originators) company risks and not anymore to the risk of the original borrowers. Even if we try to diversify between platforms or originators our risks are much more concentrated than in case when we were able to split our money between hundreds or thousands of single borrowers.
What also makes me concerned is the question, why these buyback platforms/originators are coming to us for their liquidity? Is it possible that a bank or other bigger funding provider is refusing to give them the money? Or will give it at higher interest? If yes why is the interest higher? Is it possible that we as individual investor are just not able to assess the risks of these companies and therefore are giving them our money at much lower interest? Or is this a regulation question?
About Finbee there is also a concern of different nature because having their compensation fund there is also socializing the losses and creating somehow wrong incentives to take more risk. When I can assume my losses will be covered by the fund I could ask myself why get less interest for better rated loan when I can get more for a worse graded loan and have so or so compensation in case of losses. Of course the things are not so easy but in all cases not anymore that transparent like the original p2p lending idea.
So guys tell me please your opinion about the above points?
Did you already asked yourself the same things?
What are your answers to the questions?