P2P auto-lending is risking investor ethics and returns

THE MOVE towards auto-lending among some peer-to-peer platforms may limit interest rates and be a stumbling block for investors worried about the type of businesses they lend to, a European automated P2P firm has said.

Despite being automated itself, Latvia-based Robo.cash has claimed lenders may be missing out on higher interest rates with a passive investment strategy.

It claims that as manual lending lets investors choose their own loans and take their own risks, they could effectively get higher rates than auto systems.

Read more: Autobid vs manual: Which is truly P2P?

As an example, Funding Circle recently moved from manual to auto-lending, now offering a conservation option at 4.8 per cent or a balanced approach at 7.5 per cent.

But previously, investors could have earned more manually.

“Judging by responses on forums, experienced investors working with the manual mode [receive] nine to 9.5 per cent per annum on average,” Sergey Sedov, chief executive of Robo.cash, said.

“So auto-bid will actually reduce their income.”

He also added that investors may prefer to be able to choose their loans if they only want to lend to certain companies or to support local businesses.

However, Sedov adds that auto-lending is still beneficial as it means the P2P platform takes on most of the due diligence.

“Companies that allocate funds to automated investments with a buyback guarantee are very attentive to the assessment of borrowers and transparent accounting,” Sedov added.

Read more: How do you invest yours? The P2P platforms offering auto-bid or manual lending