FinTech is all about finding new ways to do business and make money. Whether it is a smart way to reach investors or a simple, retail buy-now-pay-later solution, everything is oriented towards creating something nobody has ever thought about before. Even money lending has been revolutionised lately. Crowdlending is becoming a global phenomenon as we speak, so don’t be late — find out all about it right now!
Before we proceed to analysing the most popular and attractive crowdlending services, we should first take a brief lesson. P2P lending (or peer-to-peer lending) is a model in which money lenders are connected directly with borrowers, without a bank in the middle. Of course, the whole process is always highly automated by a specifically designed FinTech system. In a way, it is similar to crowdfunding.
The results of such an approach are very attractive for investors who can achieve higher return rates and for borrowers who can borrow at lower interest rates. In the case of crowdlending (a sub-type of P2P lending) specifically, we’re talking about unsecured personal loans in most cases. However, there are exceptions and businesses use this service too. In order to minimise risks, companies undertake very thorough checks on every single borrower, but they also have other tricks up their sleeves, for example spreading the investors’ money across dozens of borrowers. One day we’ll also cover the topic of P2P lending software development.
It seems too simple…
Correct – the basics seem easy to understand, but it’s just the tip of the iceberg. There is a number of models in which P2P lending FinTechs can operate and you should be aware of them, no matter if you’re an investor, borrower or want to build your own platform.
The client segregated model
The client segregated model is common among three-party platforms that connect lenders with borrowers directly. In this case, the platform only serves as an intermediary which charges fees for its help, however it does not keep its clients’ money on its accounts. This is not really crowdlending but a simple P2P solution.
The balance sheet model
In this case, money from investors flows through the platform’s accounts. Usually, investors transfer amounts to the platform which takes care of distributing the money among the borrowers and collecting the interests which are then transferred back to the investors. This is pure crowdlending, because one investment can be distributed among a huge number of borrowers — literally a crowd.
How risky is crowdlending?
Always when lending money to somebody, we need to think about risks. Will they repay us? Will they pay on time? What about the interests? How do we sign a contract? Crowdlending platforms are designed to make it all simpler and safer. As you read a moment ago, the balance sheet model allows for disbursing money from a lender among hundreds of borrowers. Thanks to this smart move, even if ten of them miss their repayments, it may constitute for only a percent of the whole operation. It wouldn’t be possible without FinTech. Moreover, modern credit scoring systems make use of technologies such as AI in order to avoid problems before they happen in quite a precise way.
Thanks to huge databases of potential borrowers and detailed information about them, as well as access to data through open banking, borrowers can be divided into tiers. The better your credit score, the lower interest rates can be offered to you. However, it works both ways. If an investor is ready to risk a bit more, they have a chance for higher returns.
There is also a so-called platform risk. In other words, it’s a possibility that the FinTech system fails or becomes a victim of a cybersecurity breach, or both it and its users fall victim to a fraud.
The least expected is probably regulatory risk. Fortunately, the UK is a relatively stable environment and we should not expect any legal changes that could affect crowdlending anytime soon.
Top crowdlending platforms
The first crowdlending company in the UK (and in the world as well), Zopa, was founded in March 2005. Its aim was to connect investors with individuals seeking loans. Before the great financial crisis of 2007 it grew in a stable manner without any losses and even in 2008 it managed to suffer only a minor dip in returns. After twelve years, Zopa became fully regulated by FCA and is now a mature and respected FinTech. It even offers retail banking services, including deposit accounts and credit cards. A real success story!
Zopa has an interesting investment model. To start, you need at least £1,000. Zopa’s system breaks your investment into small chunks and spreads it across a number of different loans in order to maximise your safety. Then, you get monthly repayments, including interest, albeit diminished by the service fee.
Because of the large scale of Zopa’s operations, no one person can be lent more than 1% of the sum you invest, so you don’t have to worry about trusting the people who borrow your money. Even if someone fails to repay, it will be just a fraction of what you invested.
Currently offered services:
- Personal loans from £1,000 to £25,000
- Investments in personal loans with peer-to-peer lending
- Credit card
- Fixed term savings
- All services available on desktop and mobile
- Stability, transparency and security — an FCA regulated company with a long history, in fact almost a regular bank
- Projected returns between 2.0% – 5.3%
Mintos is a global crowdlending platform based in one of the European FinTech hubs — Latvia. The company is a marketplace where anybody can invest in loans. Mintos was founded a decade after Zopa, in 2015, and it has a slightly different approach to risk management – just as good, though. The most important virtue that Mintos founders believe in is pursuing learning and growth. The stress on knowledge is visible everywhere in the company’s business strategy. The team constantly develops its know-how and shares their findings with the community built around the service (Tech Stash by Mintos). It leads to total transparency and clarity which in turn build trust.
Investing with Mintos can be done using a number of ready-to-use strategies, from the most secure to the riskiest one:
- Diversified (the greatest diversification)
- Conservative (optimal portfolio quality)
- High-yield (the highest interest rates)
For the most ambitious investors, Mintos offers an opportunity to create a customised portfolio, just as a trading platform.
As we could have expected, investing is free of charge on Mintos.
Currently offered services:
- Personal loans
- Business loans
- A number of investment options
- Currency exchange
- High ROI – even up to 11%
- Large scale of the platform
- 60 days buyback guarantee on many loans
- Availability of extremely short, 1-day investments
- International reach (including multi-currency investments)
Like Mintos, Fast Invest is an international platform. Right now it focuses on EU countries and Russia, however you are free to invest from the UK too. It works on similar principal rules as the two systems described above, but it also has some neat, unique features, especially when it comes to security of investors. All loans on Fast Invest have a buy back guarantee. It means that if a borrower defaults to pay after between 3–60 days, the investor receives the principal investment and the interest. 60 days is an industry standard in such cases, however, the “all loans” policy is what makes a difference here. Besides that, all available loans are 100% pre-funded by the loan originators (they need to invest at least 5%-20% initially to make deals accountable). Last of all, Fast Invest offers a money back guarantee which lets the investors sell their investments before the term with no penalties.
The most important pro of the Fast Invest platform is Auto Invest, though. It’s a cutting-edge system built to use complex algorithms to recognise new investments based on the pre-selected criteria. What it literally means is that your money never rests. For example: after you get your monthly interests, the funds don’t have to wait for your decisions. They can be automatically reinvested with no delay to maximise your incomes.
Currently offered services
- Peer-to peer investing
- Auto Invest
- Save and Invest
- ROI exceeding 12%
- Low risk levels and high security standards
- Investments from just €1
- Auto-invest feature
- Exit anytime by selling to Fast Invest
Future of crowdlending is decentralisation of finances
Decentralisation is a super popular word right now. Blockchain is everywhere and more and more people seem to get the concept of platforms that don’t rely on just one point where everything is done. The same applies to loans and investments. With crowdfunding and peer-to-peer lending just anybody can make their money make more money. These concepts also change how money can be obtained by people and small businesses that would otherwise not be able to find investors. Crowdlending keeps the boundary even further by decentralising every single investment. It really is the next big thing.