In the just-ended decade, the world has seen a rapid change on technology. Today, the world has emerged being better than it was before. The fintech industry has become one of the fastest-growing areas in technology. Indeed, in the past five years alone, fintech companies have received more than $120 billion from venture capitalists and there are almost 60 unicorn fintech companies. This article will identify the leading European peer-to-peer lending companies.
- 1 What is Peer to Peer Lending?
- 2 Why Peer-to-Peer Lending is Growing
- 3 How European Peer to Peer Lending Companies Work
- 4 Types of European Peer to Peer Lending Companies
- 5 Who Can Invest in European Peer to Peer Companies?
- 6 What are the Returns of European Peer to Peer Lending Companies?
- 7 Average Annual Returns of Top European Peer to Peer Lending Companies
- 8 What are the Benefits of Investing in European Peer to Peer Companies?
- 9 What are the Risks of Investing in European Peer to Peer Companies?
- 10 Summary
What is Peer to Peer Lending?
The concept of peer-to-peer lending is a simple concept in which people lend directly to other people through a centralized platform. The industry is not new because people have been lending to one another for centuries. The difference between the traditional P2P model is that the centralized platform enables people to lend money to pre-vetted people they don’t know.
Why Peer-to-Peer Lending is Growing
The peer to peer lending industry has seen significant growth in the past decade. Research shows that the industry will continue to grow. A recent report said that the P2P industry will have a CAGR of 50% and reach more than $585 billion in 2025. This is a massive number, for an industry that was virtually non-existent a few years ago.
Low Interest Rates
The industry has grown for three main reasons. First, it has grown because of the low interest rates that were put in place after the financial crisis of 2008/09. Most countries in the developed world lowered interest rates to zero and even below zero. The goal of low interest rates is to spur growth by making funds more available. However, the situation had a negative implication. Banks decided to stop or lower lending to many people, who they considered risky. They then decided to invest money in the better-yielding stock market. As such, many people found it difficult to access credit.
Second, low interest rates had an impact on savers. Many people who save money in the bank expect to generate a return. When interest rates came to zero, the returns became negligible.
Third, technology continued to boom in the past decade. More people bought smart phones and computers. At the same time, companies like Plaid, that was recently bought by Visa, made it easy for people to start their fintech companies.
Therefore, in all this, the peer-to-peer lending industry created a situation that is a win-win for all parties. Borrowers had access to money, while savers generated better yields, and technology companies made a profit.
How European Peer to Peer Lending Companies Work
The basic idea for the peer-to-peer industry is simple. In most cases, it is made up of four main parties. First, there is the lender. This is a person, like you, who wants to lend money and generate a return. Second, there is a borrower. This is a person or a company who wants to access money at friendly rates. Third, there is a company that provides the technology. Finally, there is usually the originator. This is a company that provides the loans to a P2P company. Not all platforms use originators.
Therefore, as a lender, you just create an account with a peer-to-peer lending company, see the loans that are available, and invest in them. You will receive your money plus interest periodically.
Types of European Peer to Peer Lending Companies
Peer-to-peer lending companies come in multiple forms. In this part, let us look at the most common types of peer-to-peer lending companies in the European Union.
Real Estate Peer to Peer Lending Companies in Europe
A common type of European P2P companies is those that are tied to the real estate industry. These companies help anyone to invest in real estate and make returns. Examples of European real estate peer-to-peer lending companies are: BulkEstate, EstateGuru, BitOfProperty, and CrowdEstate among others.
Asset-Backed Peer to Peer Lending Companies in Europe
Another type of peer to peer lending companies in Europe is those that are backed by assets. Most of these P2P platforms provide capital to companies and people with tangible assets. They are often relatively safer. Examples of these companies are Bondster, Envestio, and Monethera among others.
Crypto Backed Peer to Peer Lending in Europe
There are other companies that have made it possible for people to lend and borrow money using crypto. A good example of this is Coinloan.
Direct Peer to Peer Lending Companies in Europe
Another type of peer to peer lending companies in Europe is those that are direct. These are companies that allow people to lend and borrow money directly. These companies don’t use originators. Examples of this type of P2P companies are Finbee, DoFinance, and Kuetzal.
Peer to Peer Lending Wallets
Peer to Peer Lending Companies With Originators
Who Can Invest in European Peer to Peer Companies?
The European Union is the biggest single market union in the world. Indeed, the EU is the second biggest economy in the world after the United States. As a result of this, most peer-to-peer lending companies in Europe allow members from the EU. There are other companies that allow people from around the world to invest. The most basic qualifications that one needs to invest in EU companies are:
- Be 18 years and above.
- Have a European bank account.
- Have a proof of residence that is used for verification.
- Some countries have a limit on who can invest in the industry.
What are the Returns of European Peer to Peer Lending Companies?
Each company has its own average returns. Also, it is difficult to estimate the annual returns that are offered by these companies. However, you can look at the average returns on the companies websites. As always, you should know that companies that pay a lot of money tend to be a bit risky. Here are the average returns of the key European peer to peer lending companies:
Average Annual Returns of Top European Peer to Peer Lending Companies
- Mintos – 11.78%
- Peerberry – 13.7%
- October – 8%
- Swaper – 12%
- Lenndy – 12.26%
- Iban Wallet – 3%
- Bondster – 15%
- Monethera – 18.7%.
What are the Benefits of Investing in European Peer to Peer Companies?
There are several benefits of investing in peer to peer lending companies. Indeed, these are the reasons why more than a million people are putting their money in the industry. These benefits are:
- High returns. As shown above, the returns of investing in P2P companies is above that of other industries.
- Safe investment. The default rate of peer to peer companies is much lower.
- Easy to invest. The process of investing in peer to peer is relatively easy. Indeed, most companies offer an auto invest feature that invests automatically.
- Growing industry. Investing in P2P is taking part in an industry that is growing very fast.
What are the Risks of Investing in European Peer to Peer Companies?
All investments come with their own risks. The same is true with investing in the peer to peer lending industry. Some of the most common risks are:
- Regulatory risks. Recently, the UK placed additional regulations in the industry. Such regulations tend to significant issues in the industry.
- Brexit. Brexit is a major risk for companies that have operations in the United Kingdom. This is because it is not clear what will come after Brexit.
- Default risks. There are risks that borrowers will default.
- Company risks. P2P companies are relatively young. This means that there is a possibility that some of them will default.
- Economic risks. There is a risk that the economy will see some shocks. There are also inflation and interest rates risks.
I have spent a few years reviewing and investing in these peer-to-peer lending companies. If you are just starting out, I recommend that you set aside some money and diversify your investments across multiple companies. Because of the risks mentioned above, you should invest a small portion of your funds in the companies.
Crispus is a finance professional with more than a decade experience in the industry. Over the years, Crispus has written in-depth articles on leading platforms like CCN, Marketwatch, and Seeking Alpha. He also runs a Forex education and managed account company called WestEndFx.