How to Conduct Due Diligence of a P2P Platform

Whether you
are just thinking to start investing in P2P loans or you are an experienced
investor already – it is for you.

Today we
have very interesting guest in our Blog – P2P Empire, the only P2P lending comparison platform that
conducts in-depth due diligence about European P2P lending sites.

PeerBerry
is delighted to be involved in all the projects and initiatives undertaken by
our investors. We are responsible organization. Basing on our own performance
and values, we strive to be a leading example of transparency and
responsibility for all P2P industry players.

Have an interesting read!

P2P Empire: How
to Conduct Due Diligence of a P2P Platform

Do you know
where you’re investing your money? Have you ever read a P2P lending platform’s
terms and conditions before depositing your money?

When it
comes to real estate purchases or stock trading, investors will usually spend a
great deal of time researching and analyzing before investing their money. But,
this rule doesn’t usually apply to the unregulated investing that is P2P
lending, where it’s arguably even more important!

We want to
change that and put the power back into the hands of the investor.

This article has been brought to you by P2P Empire, the only P2P lending comparison platform that conducts in-depth due diligence about European P2P lending sites. Have a look at their latest PeerBerry review.

In this
article, we show investors how they can assess the risk of a certain P2P
platform before investing on it. And, we’ll be showing you how you can use
facts and figures, rather than subjective opinions, when doing so.

Right, then,
let’s dive straight into it!

1.
Website Check

When you
visit a P2P lending site for the first time, you might be presented with
appealing return rates.

While the
average interest is certainly something you should bear in mind, it’s not the
only thing you should look at when evaluating the safety of a platform.

To get a
better idea of a company’s legitimacy and protection scheme, we suggest looking
at the following factors:

Contact
Information

Does the
website offer you the possibility to get in touch with members of the team?

Why
is this important?

Investing
can be stressful and confusing, especially when using a new and unfamiliar
platform. It’s likely you’ll have various questions when investing, so it’s a
good idea to reach out to platforms’ customer service teams before investing
your money, if only to see how they respond.

What
you should be looking for:

You should
be looking for quick response times and helpful, detailed answers to your
queries.

Company’s
Address

Another
thing to look out for is the address. Is the business registered at a real or
virtual address?

Why
is this important?

Having a
dedicated office allows investors to visit the premises, increasing their trust
in the company. Also, if a company has office space and employees, they’re far
less likely to be able to vanish with investors’ money.

What
you should be looking for:

Check
business registries and cross-reference the data with the information available
on the P2P platform’s website. You can also use Google Maps to get an idea of
where the office is located. You can easily spot a virtual address because when
you search for it, you might find that another 20 or more businesses are
registered under the same address. 

FAQ
Section

Can you
find answers to your questions within the FAQ section or on the company’s blog?

Why
is this important?

If a
company has taken the time to answer FAQs, it’s likely that they’re more
dedicated to helping their customers than others.

What
you should be looking for:

A good FAQ
section should help you understand the risks and securities connected to P2P
lending on a particular platform. The platform should also have FAQs about
their features and new user requirements.

Statistics

Does the
website offer a dedicated statistics page with relevant and accurate data?

Why
is this important?

So many
platforms are not transparent with their data, and when this is the case, it’s
usually bad news! Knowledge of the stats allows investors to gauge a platform’s
reliability, popularity and so much more!

What
you should be looking for:

Check all
P2P lending platforms you’re considering investing on for statistics like the
year the platform was founded, the number of investors using the platform and
the average portfolio size.

Finances

Does the
website report their financial reports, or those of their loan originators?

Why
is this important?

It’s
important to know the financial situation of the platform that deals with your
money because platforms that share their financial reports are considered to be
more transparent than those that don’t.

What
you should be looking for:

Firstly,
look at the platform’s net profit at the end of a fiscal year. Secondly, check
to see if your investments are backed by a buyback guarantee provided by the
loan originator, you should look at the platform’s financial reports. It’s
important to evaluate whether the loan originator’s assets are able to cover
the buyback guarantee during an economic downturn.

It’s worth
noting that many platforms aren’t profitable within the first few years of
operations, as they prioritize growth over profitability. So, don’t panic if
you notice that a young platform’s profits look a little negative.

Protection

Can you
find information about the protection of your investments? How is your money
secured?

Why
is this important?

This one’s
a bit of a no-brainer.

Every
platform has a different protection scheme in place and it’s important to
understand which schemes your chosen platform uses so that you can calculate
the risk and return ratio and gauge whether that platform’s right for you.

What
you should be looking for:

Every
platform should educate their users about the steps they take when completing
their own due diligence. Some platforms gather information from third-parties
and check them internally, others do their due diligence in-house. You should
also look for information about the collateral or loan-to-value that comes with
every investment.

Overall
Website Check

When
assessing a platform by looking at its website, you should be ensuring that the
website is able to answer the basic questions you have.

If you are
in doubt or need any more information, we suggest getting in touch with the
platform and testing their customer support.

At the end
of the day, the platform is dealing with your hard-earned money and so the P2P
platform should be able to address all of your questions.

2.
Team Check

It’s easy
to make a visually-appealing website, and the aesthetics of a website is quite
often an inaccurate representation of its reliability. When avoiding fraudulent
behaviour, make sure you check a company’s management team’s and shareholders’
backgrounds.

About
Us Page

Does the
P2P lending site have a dedicated team page, where at least one member from the
management team is introduced?

Why
is this important?

Would you
give a stranger your hard-earned money if they promised you yearly returns of
over 10%? We hope not!

If you’re
not completing accurate due diligence on a P2P lending sites’ management team,
you’re effectively throwing your money at strangers. You should at least know
the basics about the people who are dealing with your money.

What
you should be looking for:

Look for
the CEO or founder of the company. Does the website introduce the key employees
and their roles within the team?

LinkedIn

Does the
CEO or founder have a LinkedIn profile, where you can access information about
their activity and previous job experiences?

Why
is this important?

It’s
important to see that the CEO has enough experience and a proper education to
lead a P2P lending platform. At the end of the day, they’re making the
decisions that could result in gains or losses to your funds. If they don’t
have a LinkedIn profile at all, this could be a potential red flag.

What
you should be looking for:

Firstly,
look at how long the CEO has been working with the company. Secondly, check
their previous job roles. And thirdly, have a look at the CEO’s activity on
LinkedIn. Do they publish articles or share valuable industry content? Active
CEOs spread the word about the company to build their authority within the
industry, and it’s the CEOs of these platforms that you want to be investing
with.

Business Register

Is the CEO
or founder mentioned in one of the company’s business registers?

Why
is this important?

Having a
look at the business register might give you some additional data that you
won’t find on the website. Ideally, the business register will support all the
claims made on the P2P lending platform.

What
you should be looking for:

Look at
whether you can find out more about the company’s owners. The CEO might run the
company, but they’re not always responsible for all strategic decisions. The
owners might have a big influence over what happens within the platform. Find
out who the legal owner is and complete Google searches on them to see whether
they’re connected with any fraudulent behaviour.

Public
Relations

Does the
management of the company engage with their investors via social media and
other means of communication?

Why
is this important?

A large
number of investors exchange their experiences with the P2P community on
various social media platforms. Spreading misleading information amongst users
is very easy nowadays. Instead of letting self-proclaimed finance experts share
their “gut feelings”, P2P lending platforms should communicate the news on
social media to avoid spreading unconfirmed information.

What
you should be looking for:

Look at
company’s updates on Facebook, Twitter or LinkedIn. Does the company have a
blog, where they communicate their latest news? When searching these mediums,
look for good as well as bad news. Transparent communication between platforms
and their investors helps investors gain trust and authority within the
industry.

Age
of the Company

When did
the founders establish the P2P lending platform?

Why
is this important?

The age of
the platform is important because, if the platform has been around for a number
of years, it has essentially proven the reliability of its business model.
Having a successful track record and a loyal base of investors helps investors
gain more trust within the P2P lending community.

What
you should be looking for:

Look at the
date the platform was established. Check the platform’s statistics. Did the
company manage to attract more investors or fund more loans than its
competition during the same period? Have a look at the overall growth of the
platform and evaluate whether it’s realistic. You can always compare the data
to similar P2P lending platforms.

Change
in Management

Were there
any recent changes in the company’s management?

Why
is this important?

Changes in
management happens for a reason. New management might have different goals and visions,
which can have both positive and negative effects on the company.

What
you should be looking for:

Have a look
at whether you can find reasons for the management change. A quick Google
search will help you gain more information about the new people in charge. Have
a look at their past and evaluate whether they have enough experience to run
the company.

3.
Terms and Conditions Check

Last but
not least, it’s important that investors check a company’s terms and conditions
before accepting them. This is of particular importance during an economic
downturn.

There are
usually many different clauses that have an effect on your investments. There
is, however, one thing all of the P2P lending platforms have in common, and
that’s that none of them hold any responsibility when it comes to investment
losses.

Here are a few clauses that you should pay
attention to:

Do the terms and conditions mention a price
list, which is nowhere to find on the website?

Have a look
at the company’s price list to be fully informed about the fees connected to
P2P investing.

Can the platform amend its terms and conditions
without notifying the user?

A platform
should always inform the user in a timely manner about any changes that might
affect the terms of the website.

Does the platform provide individual loan
agreements?

In most
cases, you as an investor purchase the claim against the borrower. The platform
should provide you with a loan agreement with all the details that you as well
as the borrower agree on.

Is the platform reliable for the accuracy of
information about loan originators and borrowers on their website?

Some
platforms mention that they aren’t liable for the information about the loan
originators as well as the borrowers. This is a little harsh as the platform
should make sure that the information they present is accurate.

It’s also
good practice to cross-reference the information in the T&Cs with the data
presented on the website.

Doing all of this is very time-consuming. Luckily there are P2P lending comparison websites like P2P Empire, which do the heavy lifting for you.

This
website promotes and enables safe investing when monitoring and reviewing P2P
lending sites in order to provide investors like you with the latest and most
accurate data.

The post How to Conduct Due Diligence of a P2P Platform appeared first on Peerberry.

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