P2P lending platforms with lower interest rates grow faster
Analysts of the European P2P lending platform Robo.cash found that low and medium interest rates let platforms grow faster and more sustainably. The platforms with high interest rates (more than 12.5%) are more volatile and their growth is inconsistent.
The researchers analysed 13 popular European P2P lending platforms and their growth in 2019. The study only covered last year as it was more stable and therefore, more representative than the pandemic-affected 2020. All platforms were eventually divided into 3 groups depending on the average interest rates they offer. Low returns range from 6.5 to 10.5% per annum, medium - 10.6 to 12.5%, and the interest rate of 12.6% or more is considered high in the study.
The analysts have found an inverse correlation between growth tempo of each P2P platform and their average interest rate. That is, the lower returns a platform offers, the faster it will grow. This can be explained by the fact that European investors are careful and prefer lower risks to bigger profits.
As for stability, platforms with high returns are volatile and demonstrate the biggest oscillations in their funding volumes growth. That is, they experience notable growth and decline in different months. On the contrary, platforms with relatively low or medium returns normally pay more attention to risk mitigation which lets them develop more sustainably and evenly.
“The difference in growth tempo depends on various factors, such as geography, lending conditions, quality and reliability of services and some other. Interest rate reflects all of these factors, hence with better stability and predictability come lower interest rates. If a P2P platform is solid, places loans from countries with healthy market economies and solvent borrowers, provides buyback guarantee and other ways to secure investors’ money, the returns are normally lower than they are in less predictable projects.” - Robo.cash analysts explain.