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Lessons from a Bank-Free Investment: Peer to Peer Lending, Risks, and Returns

November 7, 2017 • FINANCE & BANKING, Banking Innovation, Global Capital Markets, Personal Finance

By Nicholas Read and Anthony Mahler

Bonus time is approaching for many executives. So what’s the best way to put that money to work for you? The options are myriad, but the rise of peer to peer lending presents an interesting new alternative. After 20 years investing in properties and learning how to use predictive software algorithms to place measured bets on the share market, Australian medical entrepreneur and armchair investor Anthony Mahler started investing in P2P lending platforms in 2016. This is what he learned after the first 12 months.

 

Peer to peer lending (P2P) allows investors to deploy capital in a broad suite of loan structures that previously only banks and large financial institutions could service. Various P2P lending internet platforms match the needs of borrowers and investors by giving them a way to deal directly with each other, thus eliminating the role of a bank. 

My involvement has been principally as an investor although I took the opportunity as a borrower on one occasion to check out how the other side of a platform operates. I experienced a degree of customer satisfaction that I’ve never experienced with a bank.

An interest in P2P lending was sparked when I was looking for an alternative passive investment not strongly correlated to equities or bonds. The idea of enjoying the fruits of a lender with regular interest payments being delivered without much work was very appealing. Until then, most of my wealth was achieved with hard work in running businesses and developing properties. Returns of 15-25% per annum were achievable but with much stress, hard work and risk.

Initially I had reservations. I was concerned about whether there was adequate regulation of the platforms, what level of risk existed for fraudulent losses, and the actual capital risk of the investments. I saw this new type of lending was poorly regulated or completely unchecked in some countries. For example, Ezubao in China allegedly defrauded investors of over $8 billion USD, and I didn’t want to become another statistic for amateur investing gone wrong.

I investigated further. My criteria for investment were: transparency of operations, financial strength of the platforms, website functionality, liquidity of investments, asset backing of loans, loss protections, diversification (loan types, geographic regions and currency) and returns.

 
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About the Author

Nicholas Read is a researcher and bestselling sales author, who was formerly Executive Director of Ernst & Young’s revenue growth advisory practice following a career in sales and management. His sales coaching methods have been deployed to more than 40 countries, helping clients win more than £20B more than forecast.

Anthony Mahler is Co-Founder of Omega Health in Australia, and has been investing in property, shares and alternative trading for 20 years.

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