How will COVID-19 affect the Peer to Peer Industry?


The emergence of the COVID-19 virus in China in late 2019 has triggered a global health crisis that quickly spilled over into the world economy as governments across the globe introduced quarantine and lockdown measures to contain the spread of the pandemic.

The effects are being felt especially keenly in stock markets, where record-breaking losses triggered by investors panicking and selling shares have completely wiped out eight years of continuous growth. As governments rush to introduce stimulus packages and financial bailouts volatility has increased. Wall Street has had two of the five worst days in its history – which came just a few days apart from the fourth-best day on record. On the worst day of all, 16 March, the Dow crashed by almost 3,000 points, wiping 12.9% off the index.

According to Nibble’s Chief Business Officer, Ivan Sharafiev, the Peer to Peer (P2P) market will also start feeling the pressures soon, but is better equipped to deal with the emergency. 

He says: “The P2P market has been slower to feel the effects, as investments in crowdfunded loans are by their very nature long term, but by the end of March, the first signs of the global crisis were being felt in the industry.”

We asked him what else he predicts for the market over the coming period and what investors should be doing to safeguard themselves and even take advantage of the situation.

Short-term effects of the crisis on the P2P industry

Investor panic

Many platforms are experiencing unprecedented amounts of withdrawal requests, as nervous investors fear that the global crisis will lead to a large increase in defaulted loans, which in turn will see their money stuck in bad loans. Platforms with buy-back guarantees are particularly susceptible to this and many investors are reporting long waits for requests to be honoured. However, the leading platforms are managing this quite well, and investor confidence may be returning already.

Loss of new investors

Understandably, a crisis of this kind will cause caution amongst the general populace. As we are still in the early days of the crisis and no one is quite certain what the future will hold, many people are simply adopting a wait-and-see approach, holding onto their cash until they are more certain of how the world will look once the crisis recedes. This has caused a drop in new investor numbers, but there is an expectation that this will ease off soon.

Increased borrower numbers

The flipside of the coin to the investor nervousness is an increase in borrower numbers as small and medium-sized companies and individuals affected by the crisis seek funds to help them during these turbulent times. This could possibly become a longer-term trend as traditional financial institutions have historically reacted to crises with a tightening of loan and credit conditions.

The long-term outlook

Fewer platforms remaining

The first casualties of the P2P industry have already emerged, as platforms with irresponsible lending practices, no financial reserves, and those who were using investor money to pay for business expenses are unable to service withdrawal requests and honour buy-back guarantees. Oddly enough this will most likely end up being a very good thing for the P2P industry in the long run, as those platforms that manage to make it through the crisis unscathed will have garnered lots of investor trust and will generally be the most responsibly run companies.

Better returns for investors

The increase in borrower numbers will be accompanied by a rise in interest rates, as platforms look to convince investors that P2P remains a better and more secure option than the stock markets. Many investors are also seeing the current situation as an opportunity, buying loans at massive discounts on secondary markets. With governments across the world preparing bail-out packages and declaring debt-holidays, default rates will probably end up being much lower than the doomsayers were predicting early on, and savvy investors who conducted due diligence on their platform choice stand to make huge gains.

An increase in the importance of P2P

There is no doubt that the world will emerge from the crisis having undergone significant changes. P2P platforms are perfectly positioned to service the emerging needs of businesses around the world for access to fast funds. There is a general expectation that governments may turn to these platforms for their expertise at distributing funds to small businesses and individuals. In general, the platforms that survive the crisis in the short term can expect to be some of the main beneficiaries of the new world order. Investors who chose to be patient and keep their money in P2P should also reap significant rewards over the coming months and years.

What we are doing to manage the crisis

At Nibble we are taking a multi-pronged approach to managing the crisis. Unlike some other platforms, we’re not planning to raise our investment rates. European countries like Latvia, have already adopted the Consumer Credit Act Amendment of 03/03/2020 which provides credit deferral or part payment for up to three months (in exceptional cases up to six months) as required by law. This will raise NPL and % of the nonrefundable portfolio (provisioning). But we believe that this is the right decision. We are expecting similar amendments to the law in our loan portfolio companies. We believe that this Government proposal and decision is correct and this amendment to the law provides clarity on what to do with deferred payment when the borrower has been hit by the coronavirus economic crisis. 

In addition, we are changing the risk rating of C-rated loans and from now on we will not let through a portion of C-risk loans, leaving only the less risky portion of the loans (A-risk loans) at an approximate ratio of 80/20. This means rejecting about 20% of riskier C-rated loan applications. 

We are also cutting operational costs significantly and have already switched to remote working without any effect on the service we deliver to investors and borrowers.

Our mission is to protect investors from risk in order to be a sustainable company. Therefore, we first and foremost respect the protection and safety of our investors and do not expose them to risk.

Despite the instability in the financial markets, Nibble operations have been adjusted to the current market situation and we are fully capable of ensuring business continuity.

We are convinced that we will emerge from the crisis stronger than ever.

Our team is ready to answer all your questions and assist you at all times. You can contact us by email at [email protected] or by phone at +3726991410. Also, for your convenience, there is a live chat function on our website. We continue to work with our clients – only remotely – and our support in the chat is open 24/5.

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