Why we treat anything above 13% as a warning, not an opportunity
High yields are not free money that the market has overlooked. They are a price, and the thing being priced is the chance you do not get your capital back.
There is a rule we apply to our own portfolio: any advertised yield above 13% gets treated as a red flag first and an opportunity second. Not a prohibition — we hold positions above that line — but the burden of proof moves.
Yield is a price, not a gift
When a platform offers 15% and another offers 10% for superficially similar consumer loans, the difference is not generosity. Someone has calculated that the loans in question carry enough expected loss, enough funding difficulty, or enough uncertainty that 15% is what it takes to attract money.
The market is not perfectly efficient in this sector — information is poor and retail capital is unsophisticated — but it is not so inefficient that 5 percentage points of free return are lying around.
What is usually behind the number
In practice, high rates on these platforms come from one or more of:
- Short-term high-cost consumer lending in emerging markets, where nominal rates are high because default rates and currency risk are high.
- A young platform buying growth. Elevated rates and loyalty bonuses are cheaper than advertising, and they stop once the loan book is large enough.
- Funding difficulty. An originator that could borrow from a bank at 8% would do that instead of paying retail investors 14%. Sometimes the reason it cannot is exactly the reason you should not lend to it either.
- Concentration. The rate compensates for the fact that everything you hold traces back to one group.
None of these are automatically disqualifying. All of them are things you should be able to name before you invest.
How we size it
Our working rule is that the higher the yield, the smaller the position and the shorter the commitment. A platform paying 13-14% with a nine-year record, like Swaper, gets a small deliberate allocation. A platform paying the same with a three-year record, like Hive5, gets an amount we would be annoyed but not damaged to lose.
The arithmetic is unforgiving here. A 14% platform that returns nothing in year four has underperformed a 9% platform that keeps paying. Chasing the top of the table is how most people in this sector have lost money — not through a dramatic collapse, but by concentrating in whatever paid the most until it did not.