Peer-to-Peer Lending Development in Latvia, Risks and Opportunities

Abstract

Investment opportunities have become limited due to low interest rates; therefore, investors are searching for alternative investment sources. Peer-to-peer (P2P) platforms act as mediators between investors and borrowers and provide an opportunity for mutually beneficial interaction. The aim of the research is to study the P2P lending process and to identify risks and opportunities related to this area. The research is focused on the investors’ side due to the specifics of Latvian P2P lending platforms, i.e., they do not grant loans directly but use loan originators. Mixed research methods were performed as follows: a field experiment (trial investments through P2P lending platforms), a survey, structured interviews, and a focus group discussion. The study shows that rapid development of P2P lending in Latvia is driven by providing relatively lower risks to investors. The main investors’ risk mitigation tools are critical originator selection, when a due diligence procedure is executed for each prospective loan originator, buyback guarantees, and payment guarantees, when marketplaces compensate the invested principal and earned interest if the borrower is late with the repayment. Most Latvian marketplaces offer to diversify investors’ risk by investing in fractions of loans across different borrowers, originators, loan types, and geographies. Some marketplaces offer loan ratings based on the internal evaluation of the risks. Secondary loan market provides liquidity to investors. However, some specific risks still exist such as the P2P lending operating model’s sensitivity to adverse economic development scenarios.

Appendix 1: Latvia-Based P2P Lending Platforms

	Platform	Platform launch period	Legal entity	Platform web location
1	MINTOS	January 2015	AS “Mintos marketplace” Reg.No.40103903643	https://www.mintos.com/en/
2	TWINO	May 2015	SIA “TWINO” Reg.No.40103919184	https://www.twino.eu/en/
3	VIVENTOR	October 2015	SIA “Viventor” Reg.No.40103920304	https://www.viventor.com/
4	SWAPER	October 2016	SIA “Swaper” Reg.No.40203005445	https://www.swaper.com/
5	VIAINVEST	December 2016	SIA “Viainvest” Reg.No.40203015744	https://viainvest.com/
6	BULKESTATE	December 2016 July 2017—platform operation transferred to Estoniaa	SIA “LP private property” Reg.No.40103891306	https://www.bulkestate.com/en/
7	GRUPEER	February 2017	SIA “Grupeer” Reg.No.40203023192	https://www.grupeer.com/
8	ROBOCASH	February 2017	SIA “ROBOCASH” Reg.No.40203022676	https://robo.cash/
9	DOFINANCE	April 2017	SIA “Dofinance” Reg.No.40203016025	https://www.dofinance.eu/
10	LENNDY	September 2016—in Lithuania; May 2017—platform operation transferred to Latviab	SIA “Lenndy” Reg.No.40203066717	https://system.lenndy.com/
11	PEER BERRY	June 2017	SIA “AV marketplace” Reg.No.40203073653	https://peerberry.com/
12	DEBITUM NETWORK	September 2018	SIA “Prosperitu” Reg.No.40103288584	https://debitum.network/

1. Source: Table created by the authors based on Lursoft database data (https://www.lursoft.lv/) and other official public resource information
2. ^aBased on information from the Estonian register of economic activities Majandustegevuse Register (Republic of Estonia Ministry of Economic Affairs and Communications 2017)
3. ^bAccording to an official Lenndy press release (Stukalo 2017)