P2P Money Blog

Welcome to next post written by Hazel McHugh from FundingKnight, a new peer to business lender who arrange crowdlending for businesses.

Do you micro-manage your money, taking pleasure at every pound saved or interest rate beaten?  Do you like the challenge of making your money work harder… or would you prefer to stick your money (and your head) under the mattress?

Given that you’re reading this blog, the chances are you fall into the former camp.  After all, despite the growth stats, peer to peer lending remains relatively new and fairly niche within the overall family of financial products.

But if you are one of those investors who likes the challenge of playing a new market, what’s motivating you?  Yes, there’s a financial return to be had but the growing numbers of people who are choosing to participate in networks or get involved in collaborative projects suggests that there’s also something bigger afoot.

According to Rachel Botsman, open, collaborative projects appeal to a participants need for individuality and autonomy whilst also providing a sense of belonging to a community.

Those words rang true last week as I started reading How to maximize returns from Funding Circle by Agnes Appleyard (Available in electronic formats from amazon or free to borrow from the Kindle Owners’ Lending Library if you’ve signed up for Amazon Prime).

Appleyard describes her qualification to write such a book like this:

“My background is in Engineering, during my career I have managed many aspects of business and have invested money using various vehicles.  I am now a full-time author and part-time investor.  I like Marmite.”

She goes on to talk about why she started investing in Funding Circle:

“I wanted to help British business and to offer an alternative to the banks.  I also find it fun and interesting, but very early on I realized that there are significant risks to investing using Funding Circle (read any P2P Lender) and that returns were not going to be acceptable to me unless I developed a strategy to maximize my returns.  I am now offering my experience and knowledge to you in this book; I hope that you find it useful and interesting.”

I’m only half way through but it’s certainly an interesting read for me.  Partly because I’m genuinely interested in Appleyard’s strategizing when it comes to maximizing returns from P2P Lending, but also because I think the whole fact that books like this now get written, published… and read, pretty interesting too.

Throughout the book, Appleyard talks about the Funding Circle community - about the way that a quasi game is played involving lenders, borrowers and Funding Circle with each trying to maximize returns for themselves whilst ‘playing fair’ to ensure that the model survives:

“Bear in mind that in order to maximize your return from Funding Circle you are in competition with other players to do that; and for every winner there is a corresponding loser.  Having said that, Funding Circle doesn’t feel as confrontational as the equity markets, indeed there is often a feeling of camaraderie amongst the community.”

She goes on to list the various tensions that exist between:

• Investors vs. Funding Circle
• Investors vs. Borrowers
• Investors vs. Investor
• Investor vs. Time

You might say it’s overanalyzing things, but I think this idea of being both in competition and collusion with other investors is part of the appeal of P2P Lending.  You’ve only got to spend a while on the forums of moneysavingexpert.com to realise how many people get enjoyment from developing - and sharing - strategies, especially when there is money to be made, and especially when that money is made whilst circumventing big banks and corporations.

If you think that sounds like a lot of effort for little financial gain, consider the amount of people that played Farmville on Facebook.  Farmville, for the uninitiated, is a farming simulation social network game in which you get to set up a pretend virtual farm and grow pretend virtual crops.  The basic game is free but players have the option of buying premium content.  It was once the most popular game on Facebook.

In October 2010, there were 90 million active Farmville users, 62 million of which played daily.

Essentially, 1.2 per cent of the world population was taking part for on average 20 to 25 minutes a day which as Rachel Botsman notes in What’s Mine is Yours adds up to a staggering 78 years every month collectively spent growing virtual crops that nobody can eat!

Botsman thinks people are “looking for new outlets to express their individualism, but they possess an equally strong sense of the extraordinary power of doing things together to improve society.”

Which is great, just so long as you’re honest about what’s motivating you and you’re aware of the opportunity cost of the time you spend managing your online P2P portfolios.

As Agnes Appleyard reminds us, “On a typical day there may be two or three auctions ending and if you spend an hour on each auction they you will be spending a large proportion of your time on Funding Circle.  You may enjoy it but could you spend your time more wisely?”

For all but the most seasoned investors, the answer might well be ‘yes’ to some extent, but that doesn’t account for the side benefits of local lending, avoiding the big banks or - let’s face it - the fun of the game.

So, go ahead and have fun.  Read books like Appleyard’s, hone your skills, enjoy being part of a wider financial community and oh yes, make a decent return on your money too.

Hazel McHugh works for FundingKnight, a new peer to business lender who arrange crowdlending for businesses.  It is free to register for peer to business lending at www.fundingknight.com and you can start lending with just £25, fee free for lenders.  More posts from Hazel can be found at blog.fundingknight.com