By Hari Ramamurthy (pictured), CTO, Kuflink
Most people, and by that I mean those outside the industry, don’t realise that there is a revolution happening within peer-to-peer lending. New and exciting opportunities are emerging, with these platforms changing how they work and bringing a greater level of sophistication to investors’ portfolios.
Unfortunately, P2P still suffers from misconceptions and negative headlines that continue to haunt the space. It’s time to break away from these, draw a line under them and present to newcomers the reality of engaging with P2P investments.
Once upon a time…
I’ve worked in the P2P space since its early days and I’ve witnessed its transformation, first-hand. This has included what I and many others call the ‘Wild West Days’ when P2P platforms operated without real regulatory oversight of any real kind.
Free from regulation, P2P offered something new and fresh, and was a departure from staid traditional lenders, many of which were forced to rein in their lending due to the global financial crisis. This allowed P2P platforms to offer some punchy rates of return and attract a new generation of investors.
Read more: How P2P fits into your investment portfolio
This lack of regulation led to some scandals which were high profile enough to put a stain on the industry, with some lumping P2P in general with these bad actors. The buzz around P2P also led to some newcomers getting involved without the required understanding about how it worked and if it was right for them.
Doing P2P right
I’m glad to say that P2P has changed in that time with the industry maturing and benefitting from greater regulatory oversight. Yes, some unregulated platforms remain but standards have been raised overall with clearer rules in place for how these products are marketed. Having risk warnings, as well as appropriateness tests to ensure potential users are fit for the product, is making a massive difference.
Combined with this is the education piece. With time, people have become more familiar and comfortable with P2P and how it works. Lending is a sophisticated product and not as simple as it first seems. Factors, other than interest rates, need to be taken into account. Fortunately, I’ve seen users’ knowledge of P2P maturing and becoming more sophisticated along with the industry. Stronger understanding of P2P is allowing users to navigate the space and carry out better due diligence. Users are making greater efforts to familiarise themselves with P2P firms before investing, understanding these platforms’ processes, their underlying risk exposure and how they have fared during recent mark challenges like Covid.
Read more: Kuflink: Proven IFISA performance
It is crucial to battle P2P’s misconceptions. Negative media attention has haunted the asset class, but newcomers should form their own conclusions. For example, P2P is often lumped together with crypto but this isn’t accurate and at Kuflink all our loans are backed by UK real estate which is real and tangible.
P2P isn’t for everyone, but as the space grows and matures it is certainly emerging as a viable investment option for a growing community of investors.
Read more: Navigating the lending landscape and how Kuflink stands out in a crowded market
