Finbee Expands into Czech Market

finbee logoFinBee, a Lithuania based p2p lending platform, has started to expand internationally by launching in the Czech Republic. By 2020, FinBee plans to begin operations in another two European countries.

FinBee will provide personal lending services for residents of the Czech Republic as well as for investors from across the entire European Union. The company expects that during the first year of operation, 50M CZK (1.94M EUR ) will be distributed via the platform.

The Czech Republic’s business environment, as well as the possibility to launch with experienced local teams, were among the main reasons to launch in this Central European state, CEO of FinBee Laimonas Noreika said. Payday loan companies offering loans with high interest rates play a significant role in the Czech consumer lending market. Noreika emphasized that borrowers are looking for opportunities to refinance expensive loans.

“We are launching in the Czech Republic to provide competitive interest rates for Czech borrowers,” he said. “In other words, by borrowing for less and paying lower monthly instalments, customers will be able to repay expensive payday loans. We see a growth potential here.”

According to Noreika, one of the main challenges in the Czech market will be borrower credit risk evaluation. In the Czech Republic, there is no centralized credit rating agency or government-issued database for credit risk evaluation. Therefore, this needs to be manually extracted from several sources.

“Our historical interest rate of 21 percent, and our NPL rate of 4.9 percent are some of the best among European P2P platforms. We are very committed to maintaining these results. Therefore, solvent borrower selection will be our utmost priority in the Czech Republic.”

FinBee provides services to borrowers and investors in Lithuania and the Czech Republic. The company started operating in Lithuania in 2015.


Chart supplied by Finbee

Finbee Experiences – My Portfolio Review

A year has passed since I last wrote about the portfolio I built on Finbee. For a detailed description of this Lithuanian p2p lending marketplace see my earlier review. As described there, I invested mostly in the highest risk grade loans (‘D’ loans). Currently I have invested 1,027 Euro in 35 loans. 32 are current (965 Euro), 2 are late (23 Euro) and one is in default (38 Euro), but rates for this loan are paid to me by Finbee’s compensation fund. The average interest rate of my loan parts is 31%. Interim I had grown my portfolio to up to 3,000 Euro invested, but interest rates have decreased due to high investor demand that was not met by comparable growth on the borrower side, so I have withdrawn 2,604 Euro meanwhile.

My results so far

My self calculated yield (XIRR) is 31.5%. This is the highest I achieved on any p2p lending marketplace over a longer duration of time. This includes the 110 Euro capital gain caused by sales of loans on the secondary market with premiums (see my article on trading on Finbee’s secondary market). Calculating the result again, this time with assuming a full write-off of the defaulted loan gives a yield of 29.4%.

Finbee Portfolio
Screenshot of my Finbee dashboard – click to enlarge

There are 19,930 Euro (as of March 13th) in the Finbee Compensation Fund. Current estimate is that the fund is paying about 9,000 Euro per month on defaulted loans and has decreased about 2,000 Euro from February to March. To grow the amount in the Compensation Fund Finbee will need to increase the volume of new loan originations. I looked into the list of open loan requests this morning and there are currently only 3 consumer loans and 2 business loans open for funding.

Finbee recently added business loans to SMEs, but I have not invested in any of these.

Finbee Adds Business Loans

finbee logoP2P lending marketplace Finbee has so far offered consumer loans only. Now Finbee is extending the product range to SME loans. Finbee sources the applying companies through a separate website and will focus on small loans up to 15K EUR and a term of 12 months. For most business loans rates will be fixed without an auction (which Finbee uses to set interest rates for consumer loans). Different to consumer loans, investments into business loans will not be covered by the Finbee compensation fund (CSF), if the loan defaults. Each loan application will be individually assessed, by assigning risk grade from A+ to D, where A+ is a low risk loan, D – high risk loan, based on reputation of the management (20% of risk grade), financial sustainability (60% of risk grade), market situation (20% of risk grade).

Audrius Griskevicius, head of SME lending, told P2P-Banking: ‘SMEs in Lithuania have very limited access to financing. As result of this, the government issued a law, allowing p2p lenders to issue loans for small business. Finbee took an active role in development of necessary regulation and we are very proud to be the first one to receive a license of p2p lending to SMEs.’

The first business loan listing is online. Magava wants to borrow 10K EUR working capital for 12 months at 15% interest rate. Investors have to complete a self assessment survey before they can invest into business loans.

Trading Insights on the Finbee Secondary Market

Finbee is a small p2p lending marketplace for consumer loans in Lithuania (see earlier coverage). I have been using it as an investor for a little over a year now. My strategy on Finbee is different than on other marketplaces. I invest loans mainly with the purpose of trading in mind, that means on Finbee I don’t plan to hold the loan parts to maturity

Finbee secondary market basics

  • Loans can be offered at a discount, par or premium
  • Seller pays 1% fee upon successful transaction
  • Only loans with at least one repayment can be offered. This means I cannot sell loans directly after acquiring them on the primary market (no flipping). I have to hold each loan for at least 30 days.
  • Late loans and loans in arrears can be offered. Loans that are 60+ days overdue cannot be listed for sale.
  • Maximum listing duration is 20 days; thereafter seller can relist
  • Buyers can buy instantly at ‘buy now’ price or make a bid, hoping that no other buyer overbids them in the remaining listing duration (or pays buy now price)

Finbee sell form
Finbee parameter UI for selling loan parts on secondary market

How I select loans on the primary market

I mostly invest in ‘D’ loans (that is the most risky rating) with long loan durations (>36 months) and high interest rates. The average interest rate in my portfolio is 32%, the maximum 35%. My reasoning for this choice is that these loans allow high markups and still offer an attractive buyer yield (XIRR value). The longer the remaining loan term is, the lower will be the impact of the markup on the calculated yield for the buyer. I mostly buy 40 Euro loan parts, sometimes multiple in the same loan. I selected this amount because larger parts might not appeal to as many buyers, as some investors only invest small amounts.

Why I select different values for the reserve price and the buy now price

Since the XIRR that is displayed to the buyer depends solely on the buynow markup, it would seem logical to set same markup prices for the reserve price and the buy now price, doesn’t it. If in the example above I would set the price to 8.4% for both than I would get 8.4% markup if the sale takes place. With 8% and 8.4% values, I most likely get only 8% (at these markups there are very rarely multiple bidders competing). So why would I forego 0.4% gain? The reason is simple. With buynow the sale takes place instantly. But if I get the buyer to make a bid, the transaction takes place at the end of the listing duration, and all interest accrued during this duration is mine. Note that the buyer can NOT back out. He is commited and the sale will take place if he made a bid. In the above case the 20 days on a 39 Euro loan part at 32% mean I earn an extra 0,68 Euro (39€*32%/365 days*20 days) interest. So in effect if someone bid 8% on this loan my gain is 8%+1.74% accrued interest = 9.74% gain (which is much better than the 8.4% buy now). Of course I have to deduct the 1% seller fee.

BTW, I wondered how Finbee manages the sales with the accrued interest. When the buyer makes the bid, as said he cannot back out. But it is not clear if he will win (another buyer could overbid him) or how much interest will accrue for I as the seller have the right to accept the bid anytime early (which would only make sense if my cash is zero and I urgently want to bid on a new loan with a much better interest rate). But Finbee can’t wait until the time of sale because at that time, there could possibly be not sufficient cash in the buyer’s account. I couldn’t figure it out, therefore I asked Finbee. The answer is Finbee reserves the maximum possible price (principal+premium+maximum possible accrued interest) at time of the bid in the buyer account. Once the sale takes place, if the actual accrued interest is lower than the reserved maximum accrued interest, part of the amount is freed up. Continue reading

My Finbee P2P Lending Portfolio after 8 Months

In August 2015 the new p2p lending marketplace Finbee launched in Lithuania. Finbee finances small unsecured consumer loans. The CEO told me that they meet all borrowers in person and that these are mostly looking to refinance other debts at higher rates, which they have paid in accordance to schedules punctually over months or years. Typical interest rates for investors are in the range of 20% to 32%. The platform is still very young, but recently loan volume picked up and Finbee crossed the milestone of 1M Euro loans financed since launch.

I started small and deposited only 50 Euro right after launch to test it and gain first hand experiences. Only two months ago I started depositing more and right now my deposited total amount is about 1,550 Euro.

The auction mechanism

Finbee lists all loan request and investors can bid either manually or via autoinvest (autolend). There is an auction period for each loan with investors underbidding each others in an reverse auction, meaning the interest rate will sink once the loan is filled. A pecularity of Finbee is, that each investor with a winning bid gets the individual interest rate he made the bid on, meaning there is no uniform lending rate for investors in the same loan (this is different from the way most other platforms handle reverse auctions, where usually all investors with winning bids get the same rate which is set at the highest winning rate at auction closing).

Finbee Loans
Loan requests at Finbee. The ones with the green button at right are open for bidding. Auction periods are initially set to 14 days but then reduced to 48 hours, once the loan is 100% filled by bids.

This auction mechanism often causes a mad rush in the last 5 minutes. Lots of bids are made right before closing and it is usual that the top closing interest rate drops 3-5% in these last minutes.

This is aided by a mechanism abbreviated ‘ARBU’ (Automated Response to Bumbed-off Underbids). Investors can enable ARBU to make lower bids on their behalf, once their original bid is outbid. The mechanism is quite configurable in selectable settings, but the catch is that it will not make more than 5 lower bids per loan. This led me to do quite a bid of configuring and experimenting with my settings. I also changed my strategy from multiple smaller bids on the same loan (e.g. 5 bids at 20 Euro), to now just 1 or 2 bids per loan at 30 to 35 Euro.

My strategy

In the first months I have just observed what is happening on the Finbee marketplace. Since February I go for the riskiest loans, risk category ‘D’ and sometimes ‘C’ with the highest loan amounts and the highest interest rates. I do all bids manually and have ARBU enabled with my settings, which I tweaked quite a bit. If I have multiple successful bids in one loan I try to sell some of the loan parts on the secondary market at premium in order to reduce the concentration. On the secondary market only current loans, that have made at least one repayment, can be sold. I also try to sell my late loans on the secondary market, but that means I have to wait for them to turn current again before I can sell them. Continue reading

Lithuania Will Regulate P2P Lending Starting February 1st, 2016

Lithuania will regulate p2p consumer lending starting February 1st, 2016.

The main requirements introduced by the new legislation in Lithuania are:

  • 40K Euro of share capital required by the marketplace company,
  • contingency plan in case of failure of the platform,
  • limitation of 500 Euro investment per one loan,
  • limitation of 5,000 Euros investment per platform for ‘inexperienced’ investors,
  • marketplaces will be allowed to gain their revenue only from monthly instalments paid by borrowers. This means that all platforms will not gain revenue if their portfolio is not performing.

Laimonas Noreika, CEO of Lithuanian p2p lending company Finbee told P2P-Banking.com: ‘Once again Lithuania proved itself as a country with strict financial regulation. [The] new law gives more transparency to all – lenders, platform owners and public authorities. FinBee welcomes the regulation and invites international lenders to discover Lithuania as a country open for P2P lending.Continue reading

Interview with Laimonas Noreika, CEO of Finbee

Laimonas Noreika is the CEO of Finbee, a p2p lending service that launched last week and is open to international investors starting today.

What is Finbee about?

FinBee is about borrowing for less and earning more when investing. We also are most user friendly p2p lending platform in Lithuania.

What are the three main advantages for investors?

Firstly, our loans have high interest rate – from 10 to 40 percent. That means, that investor can expect higher return of investment, compared to other p2p lending platforms. Secondly, we have reliable software, that is developed by UK based Madiston. That means, that it is tested and extremely user friendly from day one. And finally, we pay great attention to selection of borrowers, so that the risk for investors is minimized as much as possible. On top of that, we invest 10 percent on total sum into each and every loan, so we share the risk with investors. In the near future we also will introduce compensation fund that in an unlikely case of borrower defaulting on its loan will compensate lenders their investment.

What are the three main advantages for borrowers?

I would say that first and foremost, we offer cheaper loans than most of the players in Lithuanian market, including banks, payday loan companies and credit unions. This is achieved by implementing auction principle when borrowing. That means, that borrower can set interest rate ceiling, for example 15 percent. Lenders then are able to offer lower interest rate, therefore making loan interest rate for the borrower as little as 12 or 13 percent. This is free market at its finest, when the market sets the real interest rate for the benefit of the borrower. Secondly, we are very consumer friendly. We talk, look like and do our business like majority of our clients. We know, what they want and we are doing our best to meet those expectations. Lastly, we have a fair commission policy. That means that if borrower has high credit rating, our commission is lower.

What ROI can investors expect?

Laimonas NoreikaIt‘s all up to investors. Loan interest rate will be between 10 and 40 percent, therefore investors can decide for themselves if they want lower risk and lower potential ROI or higher risk with possibility of higher potential ROI.

How did you start Finbee? Is the company funded with venture capital?

FinBee started little over a year ago, when I quit my position as a CMO in one Lithuanian company and started everything from scratch: examining the market, getting know-how, attracting investors and partners, picking up experienced team members. Big breakthrough moment was when Madiston became our partner and we got a technological edge against our local competitors

Is the technical platform self-developed?

No, software is provided by Madiston, whose Tim Simon is also member of FinBee board. Tim has an extensive experience of delivering successful applications to the Financial Technology marketplace as a founder and CEO of Quotient plc and Mondas plc, listed on the London Stock Exchange and AIM respectively. Continue reading