In the UK there are plenty of peer to peer lending platforms, certainly 20+. Most offer returns of around 5% but a small handful offer above 10%.

As far as I'm aware, in the US there are only a small handful of main P2P platforms and the returns are not as high or reliable.

Without wanting to make the question too country specific, assume I'm able to diversify across 10+ platforms which are fairly reliable (ie. not clearly on the verge of collapse and have a solid history of returns outpacing the defaults).

I have several years experience using around 6 UK platforms and my returns at those have always been between 5 - 10% even with defaults taken into account.

I'm aware of how to diversify within a platform. To do this I would spread my loans across as many borrowers as I can, and try to spread between companies operating on different sectors of the market if possible.

My question is how to decide how much to allocate to each platform? For now I have taken the simple approach of aiming to have the same amount in each platform to have an even spread, but I'm wondering if it would be better to take into account the returns at each platform and possibly a risk assessment of how trustworthy the platform is.

My main reason for diversifying across multiple platforms is that there is always the risk of platform collapse.

In the past I have allocated more to platforms that I trust more, and less to platforms that seem risky (but have a higher rate of return) or platforms I am new to. Although given that it's not in a platform's best interest to advertise that it's on the brink of collapse, there may only be a limited amount of information that an outsider can gather about the trustworthiness of a platform.

I assume the main factors to take into account when deciding how much to allocate to each platform would be average rate of return at that platform, (percieved) trustworthiness, and possibly ease of withdrawal or liquidity.

A similar question: How to diversify P2P lending accounts? is mainly focused on diversification within one platform, but my question concerns how to diversify across multiple platforms.

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  • Consider evaluating their business in the same way you evaluate the people you loan out money to. – Leon Apr 17 at 10:17
  • Good point but are there any nuances I need to take into account given that the evaluation for a P2P platform may be a slightly different process than evaluation for an individual borrower? For example, the information I'm able to gather about borrowers is slightly different than what I'm able to gather about platforms. – Karl Apr 17 at 10:28

It depends on the kind of protections each company and your country's laws give you in the case of platform collapse.

I've only invested in one P2P platform before, but I did make sure the regulations gave investors protections in the case the company goes under, and the company itself specified they had a contract with another company for continuity should this happen.

If this is a small part of your portfolio, I'd keep things simple and just choose one reputable company that provided similar assurances.

If it's a major component of your portfolio, I'd still wouldn't go above 3. (I'd also question whether P2P lending is a prudent choice for a large portion of your assets, given the risks, but that was not what you asked.)

  • Why would you not recommend going above 3? I generally believe the more diversification, the better. – Karl Apr 18 at 13:30
  • Also, the number 3 seems arbitrarily chosen, or at least without explanation. – Karl yesterday
  • It's subjective, but it's a tradeoff between diversification and the ability to stay on top of the platforms and their financial health. However, if you have so much of your assets in P2P that 3 platforms is not enough diversification, you should probably diversify into other assets. The asset class risk would be more important than the agency risk. – wide.writing.immediately 21 hours ago

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