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What is P2P Lending? 馃 Peer-to-Peer Lending Explained - YouTube
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welcome back to another video my name is
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jakub and as you might know we often
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talk with ceos from popular p2p learning
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sites
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to bring more transparency into the
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industry usually we cover advanced
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topics
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and i realize that sometimes it can be
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quite confusing if you don't understand
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the context
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so in this video i will cover some of
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the basics of b2b lending and explain
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various business models so you are fully
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aware how the ecosystem works
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this is particularly important as it
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influences the risk and returns that you
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make with b2b lending
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if you are new to this channel and your
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goal is to become a more educated
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investor
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please consider subscribing and hit the
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like button to see more videos like this
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in the future
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so first of all it's important to
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understand the traditional landing model
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let's say you need a loan to purchase a
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car typically you go to your bank and
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fill up the loan application
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the bank evaluates your credit score and
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if you are worth it the bank lends you
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the money
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in this scenario the bank funds the loan
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with the capital it gets from the
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central bank
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or its customers who deposit their funds
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in order to receive a fraction of an
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interest
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that's at least a simplified version of
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how traditional banking works
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there are however a few challenges that
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banks are facing
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it's not always easy to obtain a loan
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from a bank
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the banking system in certain countries
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is not very innovative which opens doors
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to non-banking lenders which are
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companies that own a lending license
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and take the role of a lender those
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companies typically develop an
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automated lending process which allows
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borrowers to borrow money instantly
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as you remember a bank gets its funds
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from its customers or from the central
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bank
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a lending company doesn't have access to
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this capital which is where p2p learning
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comes in
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in order to be able to give out loans
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and further expand its lending business
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many lenders borrow money from the crowd
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you as an investor
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will invest in loans in exchange for an
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interest the interest is typically much
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higher than what you get
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in a bank if you open a savings account
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because the risk connected to landing
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money through b2b learning platforms is
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also much higher
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the requirements for borrowers who
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borrow money from alternative lenders
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are usually not as strict as from the
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bank so this was a simplified definition
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of how b2b lending works
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there are different business models
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which have an impact on the security and
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returns
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of your investments let's go over them
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so you understand the differences
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and decide for yourself which is the
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best fit for you
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so first let's talk about p2p platforms
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we have already briefly mentioned how
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p2p platform works
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so first a group of investors invest on
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a platform
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which is also the loan originator the
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loan originator is a term you will
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likely come across at some point it's a
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synonym for the lending company
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in the second step the lending company
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lends money to its borrowers
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if it's a personal loan the borrower
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returns the loan with additional
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interest
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to the lending company usually you will
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receive the loan principal and the
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interest
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at the end of every month in the last
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step the lending company deducts a fee
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and transfers the rest of the money
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back to your investor account when using
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p2p platforms
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you invest directly in loans from
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borrowers typically you know more about
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the borrower's financial situation as
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sometimes the platform
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also reveals additional information like
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income age
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gender and the country of the borrower
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the lending company
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does its own credit check of the
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borrowers to make sure the borrower is
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able to repay the loan
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if the borrower isn't able to repay the
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lending company takes charge of the debt
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collection
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so what are the benefits of this
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business model well you know exactly
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where you invest your money into
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it's less risky as landing companies
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have direct access to the borrower
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often the lending company has the right
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to access the borrower's income
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in case the borrower fails to repay the
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loan b2b
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platforms are also typically more
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transparent as they share more
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information about the borrowers
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as let's say p2p marketplaces which we
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will talk about
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in just a minute there are however also
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a few disadvantages
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when investing on a p2p platform there
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aren't always
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enough investment opportunities that
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match your preferences
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as you have access to just one pool of
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loans originated by just one lending
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company
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the diversification of your portfolio is
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limited to only loans
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from one company in one segment in
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markets where the lender is operating
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many b2b platforms fund unsecured
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consumer loans in developing countries
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which means that you should certainly
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not put all your civics in this asset
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class
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so that's how the p2p platform works if
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you are looking for a more modern
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approach
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you might want to invest on a p2p
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marketplace instead
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the p2p marketplace is not a lending
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company itself it's just a middleman
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that lists loans from a variety of
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lending companies and here's how it
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works
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so first you invest your money on a p2p
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marketplace
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the p2p marketplace sends the money to
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the loan originator
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and the loan originator lends the money
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back to the borrower
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the borrower returns the money with
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additional interest to the loan
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originator
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which transfers the funds back to the
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p2p marketplace
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the p2p marketplace then deducts a fee
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and returns the funds back to your
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investor account
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so there are a few things you should
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know about p2p marketplaces you can
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invest in multiple loan origins
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simultaneously
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which are being monitored by the p2p
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marketplace usually the p2p marketplace
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does not share any information about the
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borrower
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because you as an investor have access
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to a bigger pool of loans
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it makes the diversification of your
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portfolio easier
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another benefit offered by the pdp
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marketplaces is that your investment is
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secured by buy-back guarantee which
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means that the loan originator will
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re-purchase your investment if the
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borrower is laid with its payments
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for extended amount of time now let's
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talk about some of the disadvantages
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that you should be aware when investing
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on a p2p marketplace the platform's
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assessment of their lawn originators
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are not always accurate which means that
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in a more turbulent environment
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the lender might default and your money
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is lost b2p marketplaces
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also rely financially on their loan
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originators this means that the more
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funds the marketplace provides
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the higher the commission they get most
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of the loans on p2p marketplaces are
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unsecured consumer loans which adds a
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certain
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risk into your portfolio by now you are
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familiar with some of the most popular
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business models
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as you have noticed both models don't
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provide much securities as you're mostly
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investing in unsecured personal loans
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now the next business model changes
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things a little bit and i will explain
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why
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another type of platforms are
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peer-to-business platforms
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so let's just call them p2b platforms a
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p2b
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platform isn't lending money to
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consumers like a p2p platform
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but businesses those businesses
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typically provide additional securities
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such as a mortgage business collector or
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personal guarantees
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so let's have a look at how this works
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so first you invest on a p2b
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platform which is also the loan
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originator the lending company
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lends money to the business which
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provides collateral for its loan
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then the business returns the loan with
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the additional interest to the p2b
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platform which detects a fee and the
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rest goes
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to your investor account so what else
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should you know about p2b
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loans well in most cases your investment
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is protected by a collateral
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these loans are more suitable for
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experienced investors that tend to
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invest long term
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your investment in businesses typically
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creates some kind of value
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there isn't much value of funding
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consumer loans another quite important
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fact
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is that the interest rates and loan
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principles are often repaid
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after the end of the loan term rather
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than on a monthly basis
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which means that you won't see incoming
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interest on long
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or loan principle right away in your
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investor account
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so what are the benefits of investing on
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a p2p platform
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well your money is often protected by
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mortgage if you fund a real estate loan
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the potential return from your b2b
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investment is also higher
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but this highly depends on the
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securities as well as on the p2p
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platform itself
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while the benefits of p2b platforms are
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quite impressive
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there are also a few disadvantages that
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you should be aware of
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the minimum investment amount on p2b
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platforms
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is also a bit higher usually you can
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start investing from 50 euro
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into one project most investors however
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invest much higher amounts
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the problem with this particular
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business model is also
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that it's popular among scammers who
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like to lure investors into high
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yielding investments
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just so they can manage with investors
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money there are also quite some
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differences between individual p2b
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platforms when it comes to the
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securities and returns
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i highly recommend checking out our
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reviews on p2p empire to be
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fully aware of all the risks since some
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p2b platforms are less transparent than
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others
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and you don't want to invest in a
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platform to lose your money
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moving on to the next business model the
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p2b marketplace
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p2b marketplaces lists loans from lawn
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originators that fund business loans
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only
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the only difference to p2p marketplaces
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is that the borrower isn't a private
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individual but a company
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so here's how it works you invest your
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money on a p2b
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marketplace which sends the money to the
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loan orders union
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the landlord originator then lends the
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money to the business which returns the
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money with
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additional interest back to the lender
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the loan originator transfers the funds
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back to the p2b marketplace which
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redirects a fee and adds the funds back
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to your investor account
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your investment on p2b marketplaces is
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protected by collateral or personal
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guarantees of the business owners
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this investment type is suitable for
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more advanced investors
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diversification and the loan
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availability is typically lower as there
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aren't as many solid loan engineers in
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the business loan sector
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there's currently just one b2b
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marketplace debitum network
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this platform does a really good job in
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monitoring the financial performance of
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the lenders and protecting your money
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b2b marketplaces share a lot of features
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of the p2p marketplace model which we
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have covered earlier
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the return is however slightly lower in
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exchange for higher protection of your
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investment
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the benefits are obviously the higher
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protection as opposed to funding
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unsecured loans
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and the monitoring quality is often
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always better compared to p2p
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marketplaces
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the disadvantages are the lower returns
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and you don't have instant access to
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your money
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as there is no secondary market so far
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let's move on to the last business model
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within the p2p lending sector
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which are rates or buy to light
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properties
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rates or real estate investment trusts
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are real estate companies that own and
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manage properties
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like office spaces apartments or
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warehouses to generate
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regular rental income so how does this
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model work
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you invest money into a property on a
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real estate platform
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after the funding target is reached the
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reit repurchases the property and rents
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it out to tenants
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which then transfer their monthly rent
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to their read the reit
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pays out monthly rent back to your
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investor account if the reit sells their
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property at some point
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in the future for a higher price you
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will also receive higher returns from
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the capital gain
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so what else should you know about reits
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you receive a monthly income
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and reits are also suitable for more
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advanced investors
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with a longer investment term who are
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looking to invest into secured assets
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the disadvantages are typically lower
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monthly returns
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and the total return also depends on how
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the prices in a market fluctuate
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in case where the property is vacant you
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don't get any income
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so if you want to learn more about
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investing in rental properties i highly
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suggest watching our p2p talk with the
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ceo of we invest 24
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where we dive deeper into this topic so
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now you might be asking what is the best
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p2p lending business model for you
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well it comes down to your investment
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goals and how risky an
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investment you are prepared to make if
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you're just starting out with p2p
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learning a p2p marketplace is going to
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be the best fit for you
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if you want to diversify your portfolio
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joining a p2p platform with a long
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lasting track record
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is also a solid approach if you want to
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bring more safety to your p2p portfolio
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you should consider investing in p2b
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loans that are backed by a mortgage
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and if you chase the highest returns and
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don't care about transparency
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you can also invest in business loans
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that aren't protected by a mortgage
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this does however come with a certain
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risk which is often not justified by the
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higher interest
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so that's all i wanted to share with you
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today if you want to learn more about
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individual investment types
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navigate to our p2p learning academy on
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p2p empire and if you want to learn more
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about specific platforms
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head over to our review section where
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you will find all the info you need in
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order to find the best fit for you
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as always if you have any other
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questions ask them in the comments below
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this video
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thanks for watching and i will catch you
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in the next one
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