ZOPA has highlighted the difference between peer-to-peer loans and mini-bonds, deeming the latter “riskier than P2P”.
Natasha Wear (pictured), chief executive of Zopa’s P2P business, explained the ways that the consumer lender mitigates risk for its investors and said that mini-bonds “should not be confused” with P2P loans.
“At Zopa, we only lend to low risk ‘prime’ people, never companies,” she said in a blog post on Zopa’s website.
“We also like prime consumer loans, because (whilst not immune) they tend to be a bit more stable through economic upswings and downturns than some other investments.
“In addition to all this, we manage our customers’ risk by ensuring that their money is spread across many loans. This diversification of investor money across a large number of different loans is an excellent way to reduce the risk.”
Wear said that there are “big differences in the risk associated” with mini-bonds compared to P2P loans.
“Mini-bonds tend to be viewed as riskier than P2P,” she said. “One reason for this is that they normally involve investing in one company, so if that firm goes bust the whole investment could be jeopardised.”
She also noted that mini-bonds are largely unregulated, unlike P2P, and that mini-bonds usually have fixed terms meaning less liquidity for investors.
“Mini-bonds are a relatively new product,” Wear added. “As with anything that’s less tried and tested, there is more chance that unforeseen circumstances could arise.
“Many P2P platforms, including Zopa, have a strong track record of managing risk. We’ve delivered positive returns on our platform in each of our 14 years of lending.”
Mini-bonds hit the headlines recently due to the collapse of mini-bond provider London Capital & Finance.
Some P2P industry commentators suggested that a recent Financial Conduct Authority warning about “high risk” Innovative Finance ISAs was actually a knee-jerk reaction to the London Capital & Finance scandal.
Orca Money’s chief executive Iain Niblock has argued that the collapse of London Capital & Finance actually highlights the relative stability of P2P lending.