Can you please give a short introduction on Bondora*?

Bondora offers a simple way to invest online. We’ve been around for over a decade and have more than 130,000 investors. This year, we announced our third consecutive year of profitability, and are on track for the fourth this year.

What is your background and when and why did you join Bondora?

I worked for two of the largest banks in the UK before joining Bondora. Traditional banking wasn’t for me. Things moved too slow and I wanted to see my work make a change. Around 3.5 years ago, I heard about Bondora by chance and decided to reach out. After speaking with Pärtel and the team, I was 100% sold on the mission. So I made the move to Estonia. I can honestly say it’s the best decision I ever made. Since joining, I’ve worked in a few different roles within Bondora, but my main responsibility is the investor product.

In reaction to the COVID-19 situation Bondora stopped originating new loans in Finland and Spain and also restricted the credit grades that are eligible for loans in Estonia. What was the reasoning for that decision?

We temporarily stopped lending in Spain and Finland as a precautionary measure. As we’re only lending in Estonia, this has significantly decreased our operating costs. Take marketing costs, for example. Marketing in one country to achieve a specific level of originations is much more cost-effective than trying to achieve the same across three countries. In a growth environment, this is not so much of a concern because you’re targeting expansion. But sustainability is our top priority. We will only change our strategy once the data is available to confirm whether we should start expanding again.

You recently capped the maximum amount that can be invested in Go&Grow at 1000 Euro per month. What is the reasoning for this and is this a direct result of the restriction to only lend in Estonia at the moment?
In other interviews stated that Bondora could just increase marketing to allocate more loans in Estonia should investor demand increase. This measure seems to contradict that.

Overall, we made this decision for two reasons: 1) Sustainability of the portfolio 2) So everyone can still invest.

And the previous statement we made remains true. We could quite easily boost the portfolio if we wanted to. The demand is there. However, we are not going to make any shortcuts regarding the quality of the portfolio. With the current global situation, it is better to be cautious and assess the data once it is available rather than target exponential growth. Hence the €1,000 net limit per investor to match our originations. As a business, we do not need to generate enormous growth in our key metrics every year to stay afloat. If we choose to decrease our originations, our operating costs decrease in line with this.

Will you restart lending in Finland and Spain?

We do not have a decision regarding when we will restart activities in Finland or Spain yet.

As a result of the COVID crisis the Go&Grow product could no longer supply instant liquidity earlier this year. Instead partial payouts were enacted for withdrawals. I understand the situation is back to normal with instant payouts again, but can you please share looking back what it meant for your investors and how they reacted to this measure?

This was a necessary measure built into the product from day 1. When partial payouts were active, I read through hundreds of support tickets, social media comments and forums to try and grasp the overall reaction investors had. Most understood why we activated this feature and why it was critical to the sustainability of the product. It’s worth noting that nearly 6 months later, this has not impacted our key metrics (customer satisfaction, investments, withdrawals, referrals). Investors would not continue to use Bondora if they did not trust us and see us as a sustainable company.

A lot of questions from investors are about the buffer Bondora keeps to make Go&Grow more liquid. Bondora* in the past declined to disclose how much money there is in the buffer, can you please describe the mechanism as precise as possible? Where is the money from this buffer kept? Is it sitting in a bank account, meaning the buffer does not generate any interest?
We aim to keep the cash reserve at roughly 15% of the Go & Grow portfolio. Of course, this may change based on daily withdrawals and money received. The money is on a segregated bank account, separated from Bondora’s funds. It’s there so investors can get fast access to their money when they need it.

One point of critic several investors have mentioned is the way Bondora treats late loans for calculating the net return figures in the investor dashboard. Only the amount of the overdue instalment rate is treated as late for this purpose not the whole outstanding loan amount. Critics feel that this leads to overly positive displayed net return figures creating expectations which are later deflated once the portfolio matures and the return calculations are lowered. What is your opinion on that and are there any plans to change the calculation method?

Overall, we have no plans to make any changes to our calculation methods. I think it’s important that we’ve remained consistent in our calculations, so the returns of the portfolio over the years are comparable. Treating the whole outstanding loan amount as late would also have its limitations. It would be overly negative because it disregards the 60% (for example) of the loan that would be recovered.

Bondora* provides a lot of information and statistics. One that seems to puzzle investors frequently is the “cumulative cash on cash return graphs in the public reports sections. Some of the charted lines do not seem to reach 100%. E.g. for 36 months loans from Q3 2014 the displayed value is 91.23%. Does that mean that investors investing at that time incurred losses or how is that graph to be read?

This chart is only reflective of loans that have matured, because it shows the % of the original investment amount which has been paid back. If the loan period has matured and the % is less than 100, this does not necessarily mean that the investor’s portfolio return is negative. Typically, most portfolios are made up of a range of different loan durations from different cohorts. For example, there were very few loans issued in Q3 of 2014 with a 36-month duration – meaning this is not reflective of an investor’s full portfolio composition. We publish this graph simply to give full transparency and visualize information on the data we publish in our public reports.

Looking forward, do you expect default levels to rise on your consumer loans in Spain, Finland and Estonia in the remaining months of 2020 and 2021 as a result of the economic fallout of the COVID-19 crisis?

So far, our portfolio data does not suggest a trend of rising defaults. Again, this is why we made the decision to reduce our originations throughout the crisis period (as a precautionary measure).

How do you see the development of regulation on a European level?

My opinion is that although events this year with other smaller platforms have cast a negative light on the industry, there is a silver lining. Events like this can offer trigger expedited financial regulation due to the need for some form of consumer protection being brought into the public eye. We have always been in favour of pan-European regulation for P2P lending, and continue to work with regulators in support of this.

Is Bondora* as a company profitable?

Yes, we have been profitable for three years. We recently released our financial results for 2019 and announced a net profit of €2.3M.

What plans does Bondora have for the next year?

This year, we’ve already spent a lot of time working on building automation for internal systems and customer facing parts of the product. For example, we just released an instant-answer support site which we’re still improving (this will eventually be localized into 24 languages). We’re continuing to work on automation as a priority this year. Reason being, once the world economy stabilizes and we are ready to target growth again, we’ll be able to scale quite rapidly without any dependencies on manual processes.

Final note – Thank you to all of our investors who have continued to support us over the years. We are looking forward to when the world is back to normal and we can welcome you in our office again. Stop by if you are ever in Tallinn 🙂

P2P-Banking.com thanks Matt Clannachan for the interview.