Peer-to-peer lending can provide a great return for investors using a newly designed framework
Online lending - or peer-to-peer lending - can be a more profitable asset class than stocks, bonds and real estate, according to the latest research by the Gillmore Centre for Financial Technology.
The research revealed that the newly developed framework of general characteristics-based portfolio policies (GCPP) can achieve an average rate of return of 8.86 to 13.08 per cent each year in an extensive data set of online loans collected from peer-to-peer (P2P) platform LendingClub. This significantly outperforms an equal-weight portfolio of loans.
The paper ‘Gaining a Seat at the Table: Enhancing the Attractiveness of Online Lending for Institutional Investors’ recommends that institutional investors “gain a seat at the table” when it comes to online lending, warning that investors may miss the boat due to a lack of awareness and understanding of the asset class.
Ram Gopal, Director of the Gillmore Centre for Financial Technology at Warwick Business School and Professor of Information Systems Management, said: “Online lending is in danger of slipping by and costing institutional investors, in particular, a lot of money. Limited awareness of this emerging asset class and the accompanying lack of understanding in industry, coupled with stringent government regulations, has led to this high potential investment flying under the radar.
“Online lending through a GCPP framework can have a transformative impact on institutional investors and unlock business growth for many organisations. Industry leaders and asset platforms should work together to ensure that businesses and investors collaborate on appealing investment opportunities that provide high pay-offs, underpinned by the research of world-class institutions that can lead innovations in emerging opportunities such as online lending.”
Morris Strub, Associate Professor at the Gillmore Centre for Financial Technology, said: “The absence of effective frameworks for investment in online loans and other new asset classes continues to complicate the investment landscape.
“But the Gillmore Centre’s development of GCPP can help sophisticated investors to harness the potential of new asset classes emerging from financial technology. Our framework can be applied not only for investment on online lending platforms, but also for traditional assets such as stocks or bonds..”
The paper was authored by a quartet of leading university academics. Alongside Professor Gopal and Dr Strub there was Xiao Qiao, of the School of Data Science at the City University of Hong Kong, and Zonghao Yang, PhD student at the City University of Hong Kong.
Ram Gopal is Professor of Information Systems Management and Director of the Gillmore Centre for Financial Technology. He lectures on Digital Transformation on the Executive MBA and Global Online MBA.
Moris Strub is Associate Professor of Information Systems Management and teaches Digital Finance, Blockchain & Cryptocurrencies on the MSc Management of Information Systems & Digital Innovation. He also teaches Text Analysis on MSc Business Analytics.
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