However, to predict the demise of P2P funding is premature.
What Lendy and others had in common was a lack of proper foundations. With the primary failing being a lack of experience in the management team to assess the quality of projects seeking finance and of the value of the underlying security being offered against the loan.
Start-up scenarios varied, but creating visibility required the touting of expected returns. As competition grew so the advertised potential returns became larger.
In the majority of cases, investors knew that there were no guarantees. But no one foresaw that by investing into individual or multiple opportunities that had been recommended by the platform, in the event of default, not only was income at risk but regaining access to capital was problematic, particularly if the borrower went bust.
In those cases where a P2P platform failed, the underlying factor was the inability or desire to maintain underwriting standards in the wake of investment inflow.
Everything worked as long as interest was being paid and requests for return of capital could be met. Once cracks appeared, confidence was lost and the whole edifice tumbled to the ground – not unlike a Ponzi scheme.
P2P can work
My contention is that P2P can still work for investors.
Larger P2P platforms have successfully switched from private to institutional investment in light of increasing regulation and have the infrastructure in place to place volume investment on their platforms.
P2P platforms like Kuflink, which set up its P2P platform in 2016 for the sole purpose of funding its growing short term bridging business which had been operating since 2011, already have a great deal of property experience and therefore the ability to look at projects thoroughly.
In Kuflink’s case, we have the added incentive that our own money is invested in the platform, with all funding generated from private investors and there are no plans to seek institutional investment as it stands.
Over four years of operation Kuflink has not lost a penny of investor capital. Its success is based on matching manageable investor funds with fully researched property backed projects, based predominantly on private investment.
Peer to peer investment works, provided the investor, whether corporate or private, chooses to work with platforms with a proven track record, a strong management team and a realistic attitude to risk and reward.