The Ultimate Peer-to-Peer Invest Checklist

Nowadays, peer-to-peer investing is popular in many industries such as real estate, company financing, and consumer loans. Peer-to-Peer (P2P) investing is a great way to earn a good yield in these days of extremely low (or even negative) interest rates. The risk is appropriately high as well. If you follow the steps in our checklist you can reduce the risk somewhat.

1. Don’t Invest More Than You Can Afford to Loose

Before even considering investing in a high risk investment such as peer-to-peer loans, you first ensure your financial basics are in order. This means you are debt-free and have a buffer to cover at least 3 months of expenses. If you have this covered, you could think of investing a maximum of 10% of your net worth on peer-to-peer platforms.

2. Start With a Small Sum First

Start with a smaller sum of just 100 euro or USD, or even less. With peer-to-peer investing platform like CrowdEstate, you can start with a minimum of 100 euro while with Bulkestate, you can invest as little as €50. Like this you can get comfortable with the way the platform works, and you can also see if you can actually withdraw money without too much trouble.

Financial regulations are constantly evolving and increasing globally and many peer-to-peer platforms are starting to request KYC (know your customer) documentation that not everyone can provide, such as a utility bill in your name on your address. You don’t want to find this out only after transferring 10,000$ to their platform.

3. Use Two-Factor Authentication

2FA or two-factor authentication is becoming the norm with financial sites. And rightly so. Identity theft is on the rise. With 2FA you need more than just a username and a password to log in, and sometimes to withdraw funds. On top of the password, a one-time token is requested, this is usually a 4 to 6 digit number that you get from your mobile phone, ideally through Google Authenticator.

Note here that using phone numbers for two-factor authentication is not a good idea. In 2019 there have been many high profile cases of SIM swapping, and that’s probably just the tip of the iceberg. Kenya, for example, which has the highest number of mobile money users in the world, has been experiencing Sim card swapping that has caused public alarm. Phone numbers are not safe and if a company only supports two-factor authentication through phone numbers you should consider alternative companies that do take the safety of your funds more seriously.

When adding a 2FA to your Google Authenticator app it’s best to do the following:

• Scan the QR code with the Authenticator app
• Write down the backup code
  

  

4. Diversification

Diversification isn’t always important (e.g. index funds are already diversified as they are). Also within your peer-to-peer investments it’s a great idea to diversify:

• Don’t put all your peer-to-peer money with one platform
• Diversify geographically, among platforms and sometimes inside platforms. E.g. with Mintos you can invest in loans in over 40 countries
• Invest in different types of loans, e.g. consumer loans are quite different from business loans and factoring.
• Currency exposure can be interesting if it’s diversifying over strong currencies. So EUR, USD and GBP are potentially good currencies to diversify into, Russian Rubles less so. Of course the interest rates in weaker currencies can be very appetizing but it’s better to leave this until you gain at least 2 years of experience with peer to peer investing.

5. Check the Company Background

• Where is the company located?
• Can you contact the company by phone in a normal way?
• Did you find them? Did they find you (not a good sign)
• Do they have a regulatory license to operate in their country, e.g. FCA in the UK
• Is the website done well? Does it at least have secure https? (technology risk)
• Can you easily find statistics about both past and recent performance?
• What’s the background of the directors? Can you easily find out on the website?
• Is the company somehow linked to companies that have gone bankrupt?
• Correct use of language, or with bad grammar or spelling?
• Are there many quality independent external sources about the company?
• Does it mention “low risk”? If yes, this is not good as peer-to-peer investments are never low risk
• Do they use high pressure sales tactics? Including an urge to sign up and transfer money? Stay away from such platforms.