Peer-to-Peer Lending in NZ: What Happened and What to Do Instead

Peer-to-peer (P2P) lending in New Zealand is effectively finished. The major platforms have closed or pivoted to other business models, and there are no mainstream options left for retail investors wanting to lend directly to individual borrowers. For most New Zealanders searching for this topic, the practical answer is straightforward: the experiment ran for roughly a decade, it produced mixed-to-poor results for investors, and the money is better deployed elsewhere.

In advising clients who held P2P investments, we reviewed several dozen portfolios over the five years to 2020. Net returns after defaults, platform fees, and tax typically landed between 3% and 5%, often below what a diversified PIE-structured fund delivered over the same period. New Zealand's market was too small to absorb the compliance costs, and the structural problems were visible early. What follows is an honest account of what P2P lending was, why it failed here, and where to look instead.

What Peer-to-Peer Lending Was

P2P lending, sometimes called marketplace lending or crowd lending, connected borrowers directly with investors through an online platform. The platform handled credit checks, set risk grades, collected repayments, and chased defaults. In return, it charged fees to both sides. The pitch was simple: borrowers could access cheaper loans than banks offered, and investors could earn higher interest than a term deposit paid.

In practice, most P2P loans in New Zealand were unsecured personal loans for things like car purchases, home renovations, or debt consolidation. Investors chose which loans to fund, typically spreading small amounts across many borrowers to reduce concentration risk.

For borrowers, the appeal was speed and accessibility. Applications were faster and less formal than at a bank, and borrowers whose profiles sat outside mainstream bank criteria could sometimes get approved. Interest rates ranged from roughly 7% for the strongest credit profiles to above 25% for higher-risk borrowers. By comparison, bank personal loan rates during the same period generally sat between roughly 10% and 16%, so P2P was not always cheaper for those who needed it most.

How P2P Was Regulated in New Zealand

The Financial Markets Conduct Act 2013 (FMC Act) created the legal framework for P2P lending platforms in New Zealand, with the regime taking effect from 2014. Platforms could apply to the Financial Markets Authority (FMA) for a licence, which allowed borrowers to raise up to $2 million in any 12-month period without issuing a product disclosure statement. Licensed platforms had to demonstrate fit-and-proper governance, fair dealing policies, and transparent risk disclosure to lenders.

The compliance burden was significant. The FMA's published licensing fee was $6,238.75 including GST, with additional hourly charges of $178.25 for complex applications, plus ongoing annual levies. For a small market like New Zealand's, these fixed costs weighed heavily on platforms that struggled to reach scale.

What Happened to P2P Lending in New Zealand

The timeline tells the story clearly:

• Harmoney, New Zealand's first and largest licensed P2P platform, launched in 2014 to considerable fanfare. By 2020, it had stopped P2P lending entirely and shifted to a direct lending model funded by institutional capital. It later listed on the ASX. It no longer operates any peer-to-peer marketplace.
• Lending Crowd continued operating through the early 2020s but ceased operations in 2023 and wound down its loan book.
• Squirrel Money originally ran a P2P lending platform but has since transitioned to operating as a non-bank home loan provider. Its P2P component is no longer active.
• Zagga offered secured, property-backed P2P lending in a niche segment. As of early 2026, there is no publicly reported new lending activity on the platform.

By 2026, there are essentially no active, mainstream P2P lending platforms in New Zealand matching retail investors with unsecured personal loan borrowers.

Why the Model Failed Here

Several forces worked against P2P lending in New Zealand simultaneously. The country's population (just over five million, per Stats NZ) limited the pool of both borrowers and lenders, making it difficult for platforms to reach the scale needed to cover fixed costs and generate sustainable revenue. FMA licensing fees and annual levies added to the burden.

Institutional investors also changed the equation. As reported in New Zealand media at the time, citing Harmoney's own disclosures, only about 25% of its loan funding came from retail investors, with the balance supplied by institutional sources including a major bank and offshore investment firms. When the supposed peers are hedge funds and banks, the marketplace concept starts to look hollow.

Competition from non-bank lenders offering personal loans through more conventional structures further squeezed the platforms. And the fundamental credit risk of unsecured personal lending proved stubborn: default rates across different risk grades sat in the range of approximately 3% to 8%, based on Harmoney's published historical lending data, enough to erode returns meaningfully.

New Zealand was not alone. Globally, the original P2P model has contracted sharply. LendingClub in the United States abandoned peer-to-peer matching in 2020. Zopa in the United Kingdom became a fully licensed bank the same year. Funding Circle shifted toward institutional funding. Pure retail-to-retail marketplace lending proved commercially unviable almost everywhere.

The Risks Investors Actually Faced

P2P lending carried several risks that were often underappreciated, partly because the platforms' marketing emphasised headline interest rates rather than net outcomes.

Default and capital loss. Loans were overwhelmingly unsecured. When a borrower defaulted, there was no collateral to recover. Spreading across many loans reduced the impact of any single default but could not eliminate the cumulative drag, particularly during economic downturns. Many Kiwis who remember the failure of over 60 New Zealand finance companies between 2006 and 2012, as documented by the Reserve Bank, will see the parallel: high-interest unsecured lending carries a default risk that headline yields do not adequately communicate.

Illiquidity. Investors typically could not withdraw their funds on demand. Money was locked into the loan term (often three to five years), and secondary markets for selling loan parts were either thin or nonexistent in New Zealand.

No deposit protection. New Zealand's Depositor Compensation Scheme (DCS), administered by the Reserve Bank of New Zealand and introduced in 2024, protects eligible bank and non-bank deposit taker deposits up to $100,000 per depositor per institution. P2P lending investments are completely excluded. An investor who lost money through borrower defaults or platform closure had no safety net.

Tax disadvantage. Interest income from P2P lending was taxed at the investor's full marginal income tax rate (up to 39% for income above $180,000, a rate in effect from 1 April 2021 under the Income Tax Act 2007). Platforms deducted Resident Withholding Tax (RWT) at the investor's nominated rate, with any shortfall settled through the tax return. P2P income could not benefit from the 28% capped tax rate available through PIE (Portfolio Investment Entity) structures. For higher earners, this tax gap alone could erode several percentage points of net return compared to a PIE fund investment.

Claiming bad debt deductions when borrowers defaulted was also complex. Inland Revenue requires the debt to be genuinely irrecoverable and the investor to have taken reasonable steps to recover it, a standard that is difficult to meet for small, fragmented P2P loan portions where the platform managed all recovery efforts.

A Worked Example: P2P Returns vs Reality

Consider an investor who placed $10,000 across 100 unsecured personal loans through a P2P platform, at a gross interest rate of 10% per annum.

• Performing loans (95% of principal, or $9,500) generate gross interest: $950
• Defaulted loans (5% of principal, or $500) generate no interest and are lost over a three-year loan term: annualised capital loss of approximately $167
• Platform fee (1.5% of interest received): minus $14
• Assessable interest income: $936
• Tax at 33% marginal rate: minus approximately $309
• After-tax interest income: approximately $627
• Less annualised capital loss from defaults: minus $167
• Net annual return after tax and defaults: roughly $460, or about 4.6%

The default losses are a drag on capital, not a deductible expense in most cases. Claiming a bad debt deduction requires meeting Inland Revenue's "genuinely irrecoverable" test, which is difficult for small P2P loan portions as noted above. In a bad year, defaults could be substantially higher and net returns could turn negative.

Now compare two alternatives using illustrative rates broadly in line with recent market conditions. A term deposit paying 4.50% gross, taxed at 33%, produces a net return of approximately 3.0%, with the investor's capital protected under the DCS up to $100,000. A diversified conservative-to-balanced PIE managed fund returning 6% gross, taxed at the 28% PIE rate, delivers a net return of approximately 4.3%, with daily liquidity, professional management, and genuine diversification across asset classes.

The P2P investor in this example earned a net return only marginally above the PIE fund investor while accepting far greater risk: no capital protection, no liquidity, and direct exposure to borrower defaults. Headline rates flattered an asset class whose net, after-tax, after-default returns were rarely compelling relative to the risk taken.

Lessons Worth Keeping

The P2P lending experience in New Zealand offers several durable investment lessons, even though the asset class itself has faded.

Headline returns are not net returns. P2P platforms advertised gross yields of 10% or more, but after the 3%–8% default range, platform fees, and marginal tax rates, many investors netted returns comparable to or below a PIE fund. Any investment that advertises an attractive gross yield deserves the same scrutiny.

Diversification within a single asset class has limits. Spreading across 100 unsecured personal loans felt like diversification, but every loan shared the same structural risks: the same economic cycle, the same borrower demographics, the same platform. When conditions deteriorated, defaults rose across the board. Genuine diversification means spreading across different asset types, not just more of the same.

Platform risk is real. When a P2P platform closes, your money does not instantly come back. Lending Crowd investors who were on the platform when it ceased operations in 2023 waited months for their loan books to wind down, a form of illiquidity that many did not fully appreciate until they experienced it.

Tax efficiency is a material consideration. The difference between being taxed at a marginal rate of 33% or 39% versus a PIE rate of 28% compounds significantly over time. It should factor into any comparison between investment types, though it should never be the sole driver of a decision. Understanding how different structures are taxed is part of sound financial planning.

Deposit protection exists for good reasons. The DCS does not cover every investment, and it was never designed to. Understanding what is and is not protected helps investors make honest comparisons rather than chasing yield into unprotected territory.

Are Any P2P Options Left in New Zealand?

For mainstream retail investors, effectively none. A handful of niche operators in property-secured lending (closer to managed lending funds than true P2P) may still accept investors, but these are specialist products with their own risk profiles and minimum investment thresholds. They bear little resemblance to the original peer-to-peer concept of everyday people lending to other everyday people.

For borrowers who previously used P2P platforms, alternatives include bank personal loans, non-bank lenders, and credit unions. The non-bank lending market in New Zealand has matured considerably since 2014 and offers a more established path for borrowers whose needs fall outside mainstream bank criteria.

Alternatives for Investors

Investors who were drawn to P2P lending were typically seeking returns above bank deposit rates without venturing into the share market. Several alternatives address that goal with better risk-adjusted characteristics:

• Term deposits now benefit from DCS protection (up to $100,000 per depositor per institution). Returns are lower than P2P headline rates, but capital is secure. Most investors benefit from holding term deposits as one component of a broader portfolio rather than relying on them as their entire portfolio.
• Diversified managed funds and index funds offer genuine diversification across shares, bonds, property, and other assets, typically within PIE structures offering tax efficiency for higher earners. Building a portfolio across multiple asset classes is where professional investment management adds the most value.
• Bonds and fixed-interest funds sit in a similar risk-return space to where P2P aimed, with far better liquidity and regulatory oversight.

The right mix depends on individual circumstances. Two investors with identical savings can reach very different conclusions depending on their time horizon, income, risk tolerance, and tax position. Getting the allocation and structure right across protected and unprotected investments matters more than picking any single product.

Borrowers who previously considered P2P have similar options to explore: bank personal loans, non-bank lenders, and credit unions each serve different needs and credit profiles.

Frequently Asked Questions

Can New Zealand investors access overseas P2P platforms?

Some international platforms accept non-resident investors, but doing so introduces currency risk, foreign tax obligations, and potential FIF (Foreign Investment Fund) tax rules if the total cost of overseas investments exceeds $50,000, a threshold set under section EX 46 of the Income Tax Act 2007. The complexity rarely justifies the return for most NZ investors.

What happens to money still locked in a wound-down P2P platform?

When a platform ceases operations, the existing loan book typically continues to collect repayments until all loans mature or default. Investors receive their share of recovered funds over time, but the process can take years, and there is no guarantee of full recovery.

Can I claim a tax deduction for P2P lending losses?

It depends on whether the loss is on revenue account (interest you were owed but never received) or capital account (principal that was not repaid). Interest that was accrued and included in your assessable income but never collected may be adjustable. Principal losses from borrower default are capital losses and are generally not deductible in New Zealand. In either case, Inland Revenue requires that the debt be genuinely irrecoverable and that you took reasonable steps to recover it. If you have material P2P losses, an accountant or tax advisor can assess your specific position.

Making the Most of What You Have

The major NZ P2P platforms have closed, and the after-tax, after-default reality for most investors fell well short of what was advertised. The asset class is gone, but the lessons are worth keeping.

Joseph Darby, CEO of Become Wealth, notes: "New Zealand's market was too small to sustain the model. What you actually receive after defaults, fees, and tax matters far more than any headline rate."

Mapping how your savings are allocated across protected and unprotected investments, and understanding the net return on each after tax, is one of the most valuable exercises any investor can do. If you are comparing after-tax returns across different structures and the numbers are not clear, that is the kind of conversation we have every day.