Bondora Investments Using Decision Trees – Review of Progress – Part 4

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This is part 4 of a series of guest posts by British Bondora p2p lending investor ‘ParisinGOC’. In part 1, part 2 and part 3 published in December 2014 you could read how he used the data to built decision trees to identify lending opportunities. Now you can read how that strategy worked out.

Introduction

In August 2014, I realised my portfolio of P2P loans at Bondora was not performing as I would wish. There was an urgent need to change the way I selected loans in which to invest the money I had at my disposal. My search for a better way of selecting loans lead me to use Decision Trees to analyse the loan data available from Bondora using “RapidMiner” – software available to download for free.

It is now over 6 months since I described my original work to construct the Trees. This follow-up article chronicles what I believe is the success of my efforts to date whilst also describing the multiple factors, both within and beyond my control, that mean that, whilst I feel very comfortable with the progress made to date, others may feel that I have just been lucky!

The journey since I created my first Decision Tree and started to make purchasing decisions based almost totally on their outputs has been one of constant change. Detailing the changes to elements over which I have no control has shown me how they contribute to what I believe is success as much as my own efforts to improve the selection processes. Describing the change in the Decision Trees as well as their use in the dynamic Bondora environment has left me feeling that, without constant monitoring and review of both the process of creating the Trees as well as their use, it may still be very easy to snatch defeat from the jaws of victory.

Key to ensuring the veracity of my protestations of success has been the maintenance of a consistent approach to my selection and lending process. To this end, I will describe those changes to my process that I can control and explain how and why such changes have taken place. In short, I have maintained a restricted buying policy, investing only the minimum amount (5 Euros) at any one time and, latterly, only buying a maximum of 2 loan parts (of 5 Euros each) in any one loan, depending on the outputs from the Decision Trees and my own mood at the moment of purchase.
I realise that this last phrase is not at all scientific, but the fact that my Portfolio of c.12000 Euros was not performing as expected was for me, a non-trivial affair and some emotional response has to be accommodated.

I have already stated that I believe my efforts have been successful. This is based on the fact that the rate of default (Once a loan principal has been overdue for 60+ days, it is labelled as “defaulted” – Bondora FAQ) in my portfolio has returned to historical, pre-2014 levels. Up to this time, even though I had come to realise that I needed to actively manage my portfolio, my selection of loans was done almost entirely using the “Portfolio Manager” – an automated, parameter-driven purchasing function provided by Bondora and supplemented by instinctual analysis of the descriptions of the Loan Applications available to invest in.

Simple Chart - Held Loans and Defaults

 

Looking at the simple chart of Held Parts/Defaults, the number of defaults in held loans rose significantly over the summer of 2014, coinciding with a big increase in both the number and value of investments on my part. Referring to the same chart, it can be seen that, even though the number of investments remains close to summer 2014 levels, my defaults have fallen to the numbers experienced earlier, at much lower volumes.

With my new-found confidence that I have a process for selection and management that appears to be sound, I have started to increase the volume of Loan Parts purchased so that the value is now approaching Summer 2014 levels of investment.

Progress to date

Graphical representation of Progress

I will use a more detailed graph showing the volume of Loan Parts purchased, those subsequently sold, those “Overdue” and those in default (still held by me as well as sold) to hopefully illustrate the performance of my selection and management processes. Continue reading →

Lendico Launches in Brazil

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Lendico logoP2P Lending marketplace Lendico today announced the launch of its marketplace in Brazil.
In May Lendico closed a 20M round to grow the international offering of consumer and SME p2p loans. Now Lendico wants to develop the important Brasilian loan market.and has partnered with Banco BMG.

Lendico CEO Dominik Steinkühler, said: ‘In Brazil we have won Banco BMG as a strong local partner. This allows us an optimal market entry. Time is ripe for a change on the loan markets to enable borrowers access to better products’.

Marcelo Ciampolini, CEO Lendico Brazil added: ‘In the brazilian market banks are demanding enormous interest rates from borrowers. With our lean cost structure – 100% online, no branches and with innovative technology – we can hand over these cost advantages to the borrowers and offer then better terms. We offer a fast, burden free access to the best interest rates in the markets’. Continue reading →

Will Funding Circle Expand Into Europe?

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Note: The following is a synopsis from an Funding Circle investor event in London yesterday. I did not attend, therefore it is based on notes that attending investors have published.* I selected only some aspects from these notes, that I found interesting, so the following probably omits many topics from the meeting and is by no means complete.

Funding Circle confirmed that it has been investing own money (approx. 760K GBP) in loans on the platform. So far none of these loans have been sold on the secondary market.
Property loans were a new area for Funding Circle. To get it started Funding Circle used cash backs to incentivise investors. So far institutional investors have not invested into the property loans but this is likely to change soon.

Funding Circle sees retail and institutional investors as equally important for their lender mix in the future. Cashbacks are expected to be reduced in future as they were more important when new markets were introduced than now.

Funding Circle is working on improvements on the website and in communication to better meet the expectations of investors. The risk model is performing increasingly well over time. They also capture and monitor data about borrowers that they reject, watching for CCJs and other credit events.  This has enabled them to develop a more complete model, and ultimately enabled them to launch the E risk band.  E borrowers are people that they would previously have had to reject, but now they understand them well enough to feel they can accurately model the default risk.
Personal Guarantees are factored in to the risk banding process, and also considered in the manual underwriting stage; they do make an assessment of the “value” of the PG, but it’s aggregated amongst lots of other stats to produce an overall ‘score’.

In collections Funding Circle has  reduced their late rate (percentage of loans making late repayments) from 1.4% to 0.7% since they brought the function in house.
The recovery rate is currently at 20p/£1, but this is skewed by the vast volume of loans being made; Funding Circle expect this would be at c. 43p/£1 if the loan book was frozen.

Funding Circle produced a tool, for MPs, prior to the 2015 election, to show what businesses in what constituencies were borrowing what, from whom (and presumably, by extension, risk bandings etc).  This tool will be made available to investors via the Funding Circle website soon. Continue reading →

Sign Up for Lendit Europe Conference in London in October

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LendIt Europe will be held in London on October 20-21, 2015. LendIt is the major conference for the p2p lending industry with venues in New York, San Francisco, China and London. I attended Lendit London last year and can recommend it to anybody in the p2p lending industry. You can read my Lendit Recap 2014 here.

With the event only 3 months away and registration open you can now grab tickets at earlybird pricing. Earlybird price for the conference is 495 GBP (plus VAT), price will go up to 895 GBP (plus VAT) after July 31st. For my valued blog readers I obtained Lendit discount code wiseclerkvip – enter this voucher code on the payment page and you get a special 15% discount on the ticket price.

LendIt Europe will bring together the leaders and pioneers at the forefront of the p2p and online lending industry in Europe. In addition to the leading lending platforms, LendIt Europe is expected to draw institutional investors, financial analysts, private wealth managers, family offices, individual investors, and media representatives from across the globe.

LendIt Europe 2015 will be a two day event with the second day in partnership with the UK P2P Finance Association (P2PFA). Agenda, speakers, and sponsors will be announced in the coming weeks.

The conference at the Hilton Metropole Hotel will feature keynotes from the CEOs of the leading UK platforms, as well as interactive panel sessions with leaders from across Europe. There will also be a pre-conference cocktail party held the night before at the Landmark Hotel.

I am looking forward to LendIt London and hope to see you all there! For those of you who can’t make it – the event will be broadcasted live on the internet.

Lendit Europe 2015

Funding Empire Sells Majority Stake to Paratus AMC

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Funding Empire LogoFunding Empire, the P2P platform for SME business finance, has sold a majority stake to Paratus AMC, the Bracknell based residential mortgage servicer and lender.

Funding Empire will continue to be headquartered in Cardiff and is currently Wales’ only P2P lending platform.

Commenting on the deal, Parag Patel MD of Funding Empire: ‘We are delighted to welcome Paratus AMC as a partner and majority shareholder. Their team, mature back office functions, strong balance sheet and proven ability in managing secured assets on a large scale presents us with a unique opportunity to create a market leading business in the dynamic P2P lending market. With the backing of Paratus AMC, we are now best placed to accelerate the development of Funding Empire and build on the solid foundation the team has worked relentlessly to create over the past few years. We are currently working on the launch of some new and exciting products without compromising our reputation for taking a very thorough, transparent and customer-centric approach to doing business.’ Continue reading →

Sage Partners with Funding Circle and MarketInvoice

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Sage, the business software and services provider, announced two partnerships that will help SMEs unlock the UK’s growing alternative finance industry, which was worth 1.74 billion GBP in 2014.

Integrating with one of Europe’s peer-to-peer business lenders for short term finance, MarketInvoice, Sage’s flagship small business accounting package – Sage 50 Accounts – now enables small businesses across the UK and Ireland to apply for business-critical funds more quickly and easily than ever before.

Working with Funding Circle, an marketplace for business loans, Sage aims to help even more businesses across the country understand how they can borrow all important growth capital between 5,000 GBP and 1 million GBP (and up to 3 million GBP for property finance) in days not months.

‘Sage has been at the forefront of payment and funding innovation for years, and alternative finance is no exception,’ said Lee Perkins, EVP and UKI Managing Director for Sage Group plc. ‘Sage Pay already provides a key piece of the business growth puzzle, and when it comes to small business accounting, Sage 50 Accounts offers the deepest and broadest hybrid accounting capabilities on the market. By partnering with MarketInvoice and Funding Circle, we’re giving Small & Medium Businesses in the UK the ability to swiftly and easily apply for additional funding to support their business development and growth.”

Lack of finance remains a critical issue for UK companies, with almost 40 per cent stating it holds them back from growing, according to UK Bond Network. Whether they need to invest in stock, new premises, product development, or even cover day-to-day costs, alternative finance can provide faster, more convenient lending than traditional sources. Marketplace lending platforms have provided over 2.1bn GBP  in funds to UK small businesses in recent years.

James Meekings, co-founder of Funding Circle, said: ‘The Funding Circle marketplace is currently the fifth largest net lender to small businesses in the UK, in just under five years. But there’s still a long way to go – many small business owners remain unaware of the choice they now have when looking for finance. Partnering with Sage will allow us to grow awareness and trust, bringing more competition and efficiency to the small business lending market.’ Continue reading →