I dabble in p2p lending, but with amounts so small that in terms of asset allocation it rounds up to 0.1%. I’m really only doing it so I can get a feel for it.
The concept is very immature in Australia, only RateSetter is available to plebs. I don’t know if that is a result of over regulation or the fact the Australian market isn’t big enough for international companies to set up here.
When I first heard about the concept many years ago, mainly from what was offered in the UK, it seemed far more in the spirit of the broader ‘sharing economy’. You knew the name of the person borrowing, you could ask them questions before committing to loan, you knew what the loan was for and there was more detail on their credit history. Lenders would bid for a loan, and the rate worked out by all the lowest bidders that filled the required principal by a certain deadline. Then, and this really appealed to me, there was a secondary market, where you could on-sell a loan, a bit like a bond, which provided some liquidity.
I don’ t know if this is still the way it works overseas, maybe some of the features weren’t popular. But, the version we have in Australia, to me, seems more like a novel marketing trick for the company to transfer risk onto their creditors, and therefore reduce costs. While they claim the ‘market’ sets the rate, in reality it only fluctuates by a few permille points. There is no transparency on the difference between one loan and another, we’re expected to trust them that they have done the due diligence. Basically, there isn’t nearly as many features as I would like to see, but this may be a result of Australian regulation.
While currently the interest rates are good, and from all the information I can gather, the Provision Fund should cover any defaults in the foreseeable future, it hasn’t been tested in a proper economic downturn. There is the real potential for lots of people to lose lots of money.