P2P Lending | Is Manual Investing a Good Strategy?
In the Peer-to-Peer lending space there is often debate whether or not an auto-investing tool actually promotes healthy ecosystems and investment decisions.
The answer really depends on a lot of circumstances. Peer-to-Peer lending platforms are not made under the same principles or models. The various Peer-to-Peer lending platforms that exist today utilize different features to enable auto-investing tools on their platform.
The auto-invest tool can be found on most peer-to-peer lending platforms. The most famous ones such as Mintos, PeerBerry and EstateGuru both have the option to select loans manually and automatically. There are also many up and coming platforms that aim to be a completely automatic service like Swaper and RoboCash.
There are however, P2P platforms, who hold the position that an auto-invest is detrimental to a P2P's platform long term success. Their criticism further argues that P2P platforms that dedicate more to their auto-invest tool dedicate less to their transparency. These platforms, October and Reinvest24 all come with their strengths and weaknesses and all agree that auto-investing does not encourage the most profitable outcomes.
Market Type
Business Loans
Average Returns
3 - 7%
Minimum Investment
EUR 20
Signup Bonus
EUR 20
Registered users
43,000
Total funds invested
EUR 1 Billion
Default rate
3%
Regulating entity
Self-Regulated/EU Compliant
Buyback guarantee
Secondary market
Payment methods
Bank Card, Bank Transfer, TransferWise
Withdrawal methods
Bank Card, Bank Transfer, TransferWise
October specializes in small risk business loans specifically to SME's in Europe. October has a great track record of fund recoveries, a solid mission and a very strong foundation. October's business and risk strategy is worth the time to read.
Market Type
Mortgage Loans
Average Returns
12 - 17%
Minimum Investment
EUR 100
Signup Bonus
EUR 10
Registered users
25,000
Total funds invested
EUR 40 Million
Default rate
0%
Regulating entity
Self-Regulated/EU Compliant
Buyback guarantee
Secondary market
Payment methods
Bank Transfer, Bank Card, TransferWise
Withdrawal methods
Bank Transfer, Bank Card, TransferWise
Reinvest24 is an equity backed real estate rental P2P lender. Though they are a much smaller P2P lending platform in comparison to the top P2P lenders. They deserve a high place on the list because of their attention to detail and successful execution of business goals.
October
October is a European P2P lending platform that focuses on processing loans for businesses. On October there is no ability to auto-invest and all investors are forced to answer questions and tests to ensure that they understand the process they are agreeing too.
October has a 20 EUR minimum entry deposit and projects yearly returns from 4 - 7 percent. The return rates are some of the lowest in the market. Many platforms offer returns that range from 8 - 15 percent. October, offers half the returns most platforms do. That being said, October has never lost any of its investors' capital.
October is determined to ensure that borrowers are able to pay their debts and that they go through a rigorous credit and risk check to ensure that the borrowers on their platform are legitimate. If you lose money on October, you'll be the first. This also happens to be the rationale behind the lower return.
October is a great platform for the type of an investor to sit on a portfolio for 10 - 20 years and not worry about how much it's growing by as long as it's growing. And that's because while October won't be the most profitable, it will always find a place in being the safest platform for portfolio growth.
ReInvest24
Reinvest24 is a European peer-to-peer lending platform that deals solely with real estate and real estate investment trusts (REIT). Reinvest24 does not believe that auto-investing is a tenable solution to hassle free investing. The platform is not convinced that P2P lending is about allowing a single company or algorithm decide who should and should not be funded.
Reinvest24 has a 100 EUR minimum entry deposit and projects a yearly return 13 - 15 percent. Reinvest24 is unique in that they are a small company that services only a few projects but does so very successfully. The platform's business model aims to maximize profits by selecting only projects that are under market value and works with other businesses to establish profitable and reliable business relationships.
The attractive aspect to consider, as investors, is the security that comes with investing. The first rule of investing is to never lose money, the second rule is to remember the first rule. Mortgage lending comes with the security that every investor should consider a prerequisite before investing. Reinvest24 is another platform that has never lost it's investors' capital however, considering how late they are to the game it is still a test of time.
The Problem with Loan Originators
There are many platforms that issue loans from multiple loan originators regardless of their stability and/or profitability. This is done for two reasons, firstly, the financial misgivings of a loan originator can be covered up by errors in financial statements which is rather common in financial institutions. Secondly, P2P lenders want to provide high risk loans for the sake of diversity in their marketplace. The stability of the platform matters less as long as they can promise their return on the loans that do not default.
Loan originators(LO) are lending companies that find borrowers to give loans too. P2P platforms allow investors to purchase these loans from the LO. Loan originator aggregators, LOAs host a multiplicity of LOs on their platform for investors to select loans from. There are other platforms that choose to only operate with only one loan originator. It can be understood in such a way that the loan originators provide the borrowers and the platforms provide the lenders, together creating an ecosystem of lenders and borrowers.
Other platforms may not work with any loan originator and instead manage both borrowers and lenders on their platform.
Auto-Investing Risks
The auto-investing tool works like a double edged sword. An auto-invest feature does not imply secured profits, the chance of a loan defaulting should be dependent on the risk factor associated with the loan. Every loan originator sets the condition for their loan agreement. If the return is high so is the chance that it will default. The biggest concern here is when an auto-invest feature invests in "safe", "low risk" loans and the borrowers default on their payments.
Auto-investing is a tool for those who are unable or otherwise not interested in being an active part of their portfolio growth. This attitude is what has caused thousands of investors on Mintos to lose money and eventually leave the peer-to-peer platform. You can read more about their story in our guide on Mintos' loan defaults.
Regardless, auto investing or not, all investors should know where their capital is going and what is being done with it. The problem with auto-investing is it is essentially what the banks have been doing for centuries. Its result has been a cyclical economic catastrophe.
Verdict
The entire purpose behind alternative finance was to bring about new instruments into economies that would help alleviate the dependency the modern person has to the bank that issues out his or her credit card. The solution of peer-to-peer finance would also strive to accomplish this task easily.
Auto-investing is a manifestation of this notion of hassle free, easy investing. But as investors you're probably better off trusting your guts and wits. Auto-investing can be a great tool if done right. By choosing parameters that are not high risk, by using platforms that report a low default rate and by regularly checking the status and health of your lending portfolio.
But then again, if it's your hard earned money you're going to invest, wouldn't you rather have control of where your money is going?