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How Important Is Character When Assessing P2P Lending Providers?

Probably the task that we spend the most time on at 4thWay is trying to identify whether what we've just been told by a P2P lending provider is truth or fiction.

All the processes we've built up over the years – from the initial, weeks-long assessment of these providers to the follow-up assessments – are mostly geared around assessing information and data we've been given from as many possible angles as we can for accuracy, truth or deceit.

To that end, we use the latest investigative interviewing techniques of the UK police, a bunch of psychological profiling techniques, database searches where appropriate, cross-referencing of sources, line-by-line analysis of detailed data submitted to us, computer-led analysis of the same data, external professional assistance to analyse company reports or legal contracts where necessary, and a lot of standard checks.

All of this is what people in finance call “due diligence”.

Our published research covers the quality of the loans you're lending in, the effectiveness of both the lending and bad-debt-recovery processes that the providers offer, the skills of the key people to do their core job, the risk of losses, and more.

P2P lending providers have to be determined to deceive us if they want to subject themselves to this gauntlet. Many of them don't attempt it or pull out when they realise what's involved.

Measuring the immeasurable

Yet some of what we assess and learn can't be measured in numbers. In particular, this applies to our assessment of the character of the key people at these P2P lending companies.

What I mean here is correctly identifying personality traits that can potentially increase or decrease risks for lenders.

I'm not talking about professionalism, experience, or their core skills or hard skills.

I'm talking about such things as integrity, empathy, ruthlessness, greed and honesty.

Research usually concludes that we humans invariably overestimate our ability to judge people's personalities properly – at least in some important ways. So the starting point for anyone whose job it is to assess character always has to be to have great scepticism in our own ability to do that well.

In other words, at least until you have a track record in assessing personality, you need to underweight that part of your overall due-diligence checks.

The proof is in the results

Yet nine years of assessing people has repeatedly shown us that our psychological profiling of the key people at the P2P lending providers has proven highly reliable – for some traits and for some types of people.

Our suspicions, when we have been sure enough about them to note them down carefully, have been accurate on whether they're chancers, whether they have high ethical standards, or, simply put, whether they're likely to take good care of lenders or, frankly, piss you off without a huge amount of empathy about your problems.

Our internal assessments of character have therefore been correct in the long run, when we have been able to form an opinion on any specific, relevant traits.

Character will now be slightly more important in some of our public assessments

So we're going to start publicly giving more weight in our published assessments on the character of key people at the online lending platforms.


I don't want to overstate this. It's not a dramatic shift, but small and subtle.

There are still many people that you simply cannot confidently read and understand much of their relevant personality traits accurately without shadowing them at home, in the pub or on holiday. We're not ready to go that far for research purposes!

So providing you a little more information on the characters behind some providers is not going to be Earth changing. Historical results, stress tests of future results, professionalism, correctly assessing the accuracy of the information we receive, and analysis of many other aspects of their businesses will continue to carry a lot more weight.

Character is just one very small cog in the whole process of assessing any investment opportunity.

So, from this month onwards, you might notice our reporting is enhanced with a slight uptick in mentions of personality traits and how we interpret their possible effects.

You can read some of the first output on that in Which P2P Lending Companies Have Good Character?

“Moral hazard”

That doesn't mean we have completely omitted signals on character in our published research in the past, when we've seen that they added up to potential or probable strengths or weaknesses.

The complete picture of character is not just from interviewing the people, but it's built from the entire pool of information and data we get, regardless of the source.

For example, in our reviews we've sometimes used a phrase common in insurance, which is “moral hazard”.

We consider it a moral hazard when a P2P lending company is overwhelmingly going for growth and talking about growth, writing about growth, bragging about raising more funding for its own business, while seemingly neglecting any mention of lending standards and other factors that are more important to lenders.

That gives us potential clues as to the personality of the people and so it's relevant.

In such cases, an insurer would slightly up the insurance premium, much as many car insurers do if you have go-faster stripes painted on your car. In our case, we note moral hazard as an uptick in the chances of a negative event occurring for lenders.

We still won't always get our reviews and candid opinions right

Does this mean we'll never get character wrong, or our assessment of the benefits or consequences of character traits? I'm afraid not.

As usual, we have to accept that 4thWay won't always get our opinions of P2P lending providers or their people right. While we have an exceptional record to date, we will at some point make a major mistake. You simply can't be right all the time when researching investment opportunities.

But, so long as our record is even remotely close to what we have done over the past nine years, it's certainly more than good enough to sustain highly satisfactory results if you're using sensible lending strategies, which includes spreading your risks across 6+ lending accounts.

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Which P2P Lending Companies Have Good Character?

Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.

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