Peer-to-peer finance rewards are often not worth the risks

Many of the new 'democratic finance' projects are nice ideas. But for too many of them, the returns aren't high enough to justify the extra risks involved in investing in them.

The wave of peer to peer (P2P)financial businesses is almost overwhelming at the moment.

Abundance Energy has just bought its first wind project back on line after a few cash flow hiccups. You can read my past views on this here, but it seems to me that it doesn't offer anywhere near a high enough return to make it worth the obvious risks. The fees are pretty high too. I've also written in this week's MoneyWeek magazine (subscribe to MoneyWeek magazine) about the Seedrs, a new launch business aiming to democratise investment in startups. Nice idea but, boy, is it ever risky. To say nothing of expensive

However I have just been contacted by the PR people for, an online P2P currency exchange business. I liked the sound of this one, so I've just been having a look at it.

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It is a pretty simple way of changing money from one currency into another. First, you deposit the money into one of CurrencyFair's accounts, so that they can be sure they have the money for the exchange from both parties (you aren't trading with them they are just the middle man). Then you get a quote, confirm the price and make the exchange. Now you have the new currency in your account and can shift it out again as you like.

It isn't free. Commission of 0.15% is built into the trade, and a fee of either €3 or €8 (if you are in a hurry) is applied when you transfer the money out again. But it still comes in pretty cheaply and in most cases offers a better end rate (after all charges and so on) than our usual favourites.

I've been in the habit of suggesting people go to Caxton FX to change money you get an excellent exchange rate but you also get good currency cards which you can load with cash and use abroad as you would a debit or credit card, without the horrible charges.

I'm still pretty keen on them for convenience and for travel money but if you have a large lump sum to change you might want to go and look at CurrencyFair too (you can see all their actual rates online). Trade with them and you'll not only do significantly better than with most but you will also get the chance to be a member of what its PR calls CurrencyFair's "passionate user community" something you may or may not want to be.

We are really pleased with the rise and rise of democratic finance. Who wouldn't love the way they are having a go at disrupting all sorts of previously oligarchic markets? However they are often risky and their prices aren't low enough or their returns high enough to make that ok. CurrencyFair might just be an exception.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.