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

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.

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.


  • Romford Dave

    OMG banker bashing the red braced pin striped suits is one thing, but those wearing sandals too!

    Whatever happened to ‘in calciamenta confidimus’

  • Greg

    Are you sure Caxton offer such good rates? According to their sign up page they offer an “introductory spread” of 0.5% – over three times worse than Currencyfair!

  • Merryn

    CurrencyFair have been in touch to say that their rates are often better than Caxton’s. I’ve looked again and today that is definitely the case. So if you have a large amount of money to change you should definitely look at them too.

  • Merryn

    Greg, Actually CurrencyFair are right – their rates are better (right now at least). I’m going to change the blog to reflect that.

  • Jonathan

    Currency Fair might be cheap to use but you do have to ask yourself how robust they are and what happens when things go wrong – how good will their customer service be? Self-service is all well and good but when a payment doesn’t end up in the right account how are you going to get a company in Ireland that runs on thin margins to sort it out?  And how do you check their financial resources are strong enough?

  • smlaing

    And these Peer-toPeer lending. Oh dear what a risk. Think it through for one minute. The banks lend money, undewrite the loan and have a vested interest in doing so. Peer-to peer type operations, underwrite the loan on “your” behalf, you then lend… and take all the risk. The PTP company receives a fee, has no risk and alot of incentive to make loans. These no reason for them to be diligent.