How does P2P lending work and which trends will define the future of this industry? Will crypto-collateralized loans become the dominant new form of P2P lending? You will find the answers to these questions and much more in our exclusive new interview with Tomas Medeckis, CEO of Welltrado.
Tomas, could you please tell our readers a little bit about yourself and your professional background?
I began my career in asset management, but more than 4 years ago, I was drawn to the P2P lending space. I’ve always been skilled at bringing people together and working towards common goals. My experience successfully leading teams and managing the development of new products has led me to Welltrado.
In my current role at Welltrado, the efficiency of the new technology has been a personal focus — especially as it relates to patient outcomes. Last year, I worked with our IT department to implement a data aggregation system through APIs from P2P lending platforms. With our new online data aggregation portal, we help investors to track and manage investments across multiple P2P lending platforms and to stay informed about the ongoing market trends. Outside of the office, I’m an avid reader and I love to hike. On weekends, you might find me at the local bookstore or exploring hiking trails in the area.
Tell us more about Welltrado — what advantages does it offer to its users?
There are currently more than 4000 P2P lending platforms in the world. P2P lending is one of the fastest-growing industries in the world, forecasted to reach $1 trillion market cap in the next 5 years. Most of the P2P investors track their investments on excel files or on paper. We offer a solution that allows connecting P2P platforms you already have already invested in and track all your investments in a single dashboard. Besides data aggregation, our goal is to evaluate the health of the P2P platforms and detect potential players in the market that have a high probability of default.
What do you think about crypto collateral lending? Would it become the dominant model for P2P lending in the future? Or is it just a niche of the broader P2P lending market?
Blockchain innovation has always been rooted in the concepts of creating, storing, and transacting in digital money. While the community continues its search for blockchain’s ‘killer app,’ secured lending has quickly emerged to be one of the largest and fastest-growing crypto use cases. Genesis Capital originated over $1 billion USD in crypto-secured loans in 2018, and MakerDAO, a decentralized credit facility, originated roughly $200 million dollars in Ether-collateralized loans since they launched earlier last year. However, the crypto industry does not see the same rate of growth as in 2017, so the need for crypto collateral lending is way lower now. There is a lot of uncertainty in the crypto industry at the moment, so we currently see it just as a niche of the broader P2P lending market.
Peer-to-peer lending is often defined by information asymmetry when lenders do not have enough information about loan takers. In your opinion, which factors should be taken into account when making an investment decision in this market? What are the “red flags” to watch out for?
P2P lending is still a relatively new concept in its current form. “Microlending” has always existed as friends have lent money to friends in times of need. The Internet has made it possible for an average person to lend or borrow money from another person without the help of a bank. How much money you make from P2P lending depends on how much you invest and the type of loan. Borrowers that are considered less risky qualify for lower interest rates than an applicant with a history of missed payments. Peer-to-peer platforms also grade borrowers based on their credit history, type of loan, and the amount they want to borrow. If you simply want to earn a steady income with minimal risk, you can choose to only invest in “Grade A” borrowers with a solid credit history. If you want a rate of return that will mimic the stock market or beat the market, you can choose to invest in borrowers with an interest rate as high as 27%.
In my opinion, there are several things you have to take into consideration before the investment decision is done. First of all, it’s the historical results of the P2P platform you want to invest in (what is the actual default rate, how many late loans there are, how long do they operate in the market and etc.). Also, don’t forget about regulatory and legal matters and always check whether the P2P platform operates in a regulated market.
Secondly, do not try to get the highest possible interest rates as such loans have a high possibility of default.
Finally, always diversify your investments — try to spread them across multiple P2P platforms and industries. Do not put everything in one P2P platform. Needless to say, Do not put all your savings in P2P lending as your investment strategy should include other investment products as well — for example, bonds, stocks or ETFs.
There have been a number of cases in recent years of P2P platforms going bust because of the accumulation of bad debt (Lendy is a good example). What could be done to prevent these situations in the future?
In many countries, this industry is not yet regulated, so P2P platforms do not have any obligations to report their financials to the regulators. It is still the “Wild West” in most of the countries. As the market grows, more regulations will start to pay attention. Besides this, investors should be educated about the risks associated with P2P lending (possibility to lose a substantial amount of their investments in this industry). In some countries (UK) we already see that retail investors (if they are not accredited investors) are being limited in their exposure to this industry by setting the maximum amount they can invest through P2P lending platforms.
Large tech corporations like Amazon and Alibaba have been showing interest in financial services and lending recently. Do you think that P2P lending platforms could withstand this kind of competition?
The more competition there is in the market, the better it is for P2P investors. New credit scoring models will be implemented, more regulators will come in order to make this industry more safe. On the other hand, I do believe that small platforms will not have a big chance to survive and big players will start to take their investors more aggressively. In the next five years, we will see mergers of P2P platforms as well.
What are the most important current trends in P2P lending that would define the industry’s future?
There are several things that will affect the future of P2P lending. First of all, more regulators will come in order to protect retail P2P investors.
Secondly, a lot of processes will be automated. Investors will look at these products as being similar to saving accounts. It means that they will not be able to pick the loans manually in the most mature P2P platforms.
Thirdly, it will be very hard for small P2P lending platforms to survive the competition. We can expect mergers and acquisitions in the next five years.
Finally, interest rates will start to decrease. We already see this in the most mature markets (USA, UK, Germany and etc).
Thank you for your insights, Tomas!
https://cryptoeye.com/analytics/252/Interview-with-Tomas-Medeckis
