4th Way to widen scope to mainland Europe
Peer-to-peer lending analyst 4th Way is set to start reviewing European platforms this year.
Some continental Europe-based P2P lenders will allow UK-based investors to register and have not changed their policies despite Brexit.
Neil Faulkner, head of research for 4th Way, said some Europe-focused platforms offer an excellent risk-reward balance and the analyst is working on understanding regional differences to provide reviews of the best platforms in the region.
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A number of European platforms such as Robo.cash and EstateGuru let UK-based investors lend on their platform.
However, some platforms, such as France’s October and German P2P lender Auxmoney, require all investors to have a euro-denominated bank account.
European platforms tend to offer higher returns than the UK, often in the double digits, but the level of regulation varies, as well as the risks, and there have been instances of alleged fraud at Estonia-based platforms Envestio and Kuetzal.
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“Higher rates aren’t always linked solely to higher risks and can be caused by other factors,” Faulkner said.
“For example, some countries in Europe with smaller populations have banking oligopolies, whereby very few banks offer loans.
“New banks don’t tend to open in these countries because the potential customer volume/ population is too low for major banks.
“This means that borrowers don’t see a lot of providers competing and pushing interest rates down. P2P investors can therefore offer lower rates to borrowers than they usually get, but still earn rates considerably above the risk-reward threshold.”
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He said there is a lot more for investors to understand as they need to know the regulatory and corporate governance situation in the countries where the platforms and borrowers are based.
“They might need to understand a little about conveyancing law and what typically happens after a default,” Faulkner added.
“They will also need to be aware of the substantial risks involved when lending in another currency, and how to mitigate those risks.”
