Hunger for Liquidity – State of P2P Lending in Times of the Coronavirus

Not only the stock markets, but also the p2p lending sector is heavily impacted by the current coronavirus situation. In this article I’ll try to give an overview of what’s currently the situation.

I watched the Mintos* live webinar on the current situation for the past 90 minutes. Some screenshots of the slides shown are at the end of this post. About 800-900 Mintos investors were watching and I think they highly appreciated the time and effort Mintos took to communicate. CEO Martins Sulte spent over 45 minutes answering questions. And there are a lot of questions investors have in times like these.

My take is, that the biggest trend we saw in p2p lending in the past week is the hunger for liquidity. Both on the investor side as on the loan originator side (on those marketplaces that work with loan originators).

105 German investors participated in a poll I ran over the past two days. Of these

  • 11% say they increase their p2p lending investment, to buy and profit from loans that are available at (large) discounts on secondary markets
  • 3% say they are increasing their p2p lending investment for other reasons
  • 30% reinvest as usual
  • 26% are withdrawing money as the want to reallocate it to the stock money
  • 20% are withdrawing money as they think the risk is too high

So even in this small, non-representative poll nearly half the investors are saying they are withdrawing money.

How that impacts the p2p lending marketplaces can be observed exemplarily on Mintos* :

  • loans on offer rose and still rise sharply both on the primary market (900,000 loans) and on the secondary market (1.7 million loans)
  • as many investors scramble to exit, this is only possible for them if they offer extreme discounts on the secondary market (the highest discount for current loans on offer is currently -20.1%, resulting in YTMs of 30% and higher for the buyer)
  • Congruously the Invest&Access product of Mintos got very illiquid. Withdrawals are very delayed and partial.
  • The volume of newly financed loans on the primary market has tanked
  • Interest rates offered on the primary market rise (current maximum 21.1%, Mintos even had to adapt the range the slider in the UI could show), together with cashbacks on offer and there are also measures to tie in capital longer.

In the current situation most investors in the discussion seem to assume that elevated risks come by the potential inability of borrowers to repay the loans, due to economic downturn. That may well be, but would impact the yield mid- or long-term (weeks or months).
In my view there are two very short-term risks that many investors overlook:

  1. The currency risks for many Mintos loan originators: Many have issued loans to borrowers in weak currencies like RUB, KZT or GEL, but need to pay Mintos investors in EUR. The sharp change in exchange rates could pose major problems for the liquidity of the loan originators.
  2. Many loan originators were growing fast and required constant cashflow to finance their lending and operations as they were not yet profitable. Some were even leveraged. External refinancing might be very hard to impossible to obtain in current market conditions (see for example investors reaction on trading of the Mogo Finance bond). And as said the volume financed on Mintos primary market is slowing. Again this could pose liquidity problems to originators.

An industry insider I spoke to said he would expect at least 2-3 loan originators to fail short term. CEO Sulte acknowledged in answering the questions on the webinar that “not all” could be expected to make it in the current situation, pointing to the large number of loan originators active on Mintos.

The two cited short term problems are especially a concern on those p2p lending market places that operate with loan originators. Of course the investors are also withdrawing increased amounts on “classic” p2p lending marketplaces like Assetz Capital, Bondora, Ratesetter and Zopa, but this poses no short-term risks to the stability of these marketplaces in my view.

Other investors share this opinion, pointing to the different levels of discounts on different secondary market (for current loans: Mintos* -20.1%, Viventor* -6%, Iuvo* -5.7%, Finbee* -5%, Savy* -5%, Neofinance* -5%, Bondora* -3%)

The platforms have reacted by four ways: communication, temporarily suspending borrower repayment requirement (especially SME loans, e.g. Linked Finance, October, Neofinance* ), and stepping up marketing and increasing interest rates:

  • Bondora* runs a raffle for investors which can win a BMW, minimum investment 1 EUR required.
  • Lendermarket* has increased interest rates from 12 to 14% and offers 2% cashback for any investment increase
  • Twino* has increased interest rates to 14%
  • Swaper* increased interest rates to 14% (16% for VIP customers, 5K minimum required)
  • Robocash* increased interest rates to 14%
  • Estateguru* interest rates have increased slightly

Below are screenshots of some of the slides shown in the Mintos webinar today:

mintos corona

mintos corona

mintos corona

mintos corona questions

Review: My P2P Lending Portfolio May 2019

I covered my p2p lending portfolio periodically over the past 12 years in this blog. The following report is a snapshot on how it is composed right now (May 2019) and which strategy I will take for the next months. As you can see below I aim for a widespread diversification (over different platforms as well as geographically) of my p2p lending investments.

Mintos

Mintos* is my biggest position. I run a trading strategy on Mintos. Mintos gives my net annual return as 15.1%. Calculating it myself based on the deposits and withdrawals I get a XIRR value of 24.8%. The cause for the huge discrepancy is that Mintos does not account correctly for the cashback of the campaigns. I heavily traded, when Mogo ran a campaign. For example I invested in new Mogo loans that were offered with a 2% cashback on the primary market, nearly instantly sold them with 1.8% discount on the secondary market and pocketed the cashback. Rinse and repeat.

Mintos net annual return

I am satisfied with the current degree of diversification over loan originators in my Mintos portfolio. The bulk of my investments is in loan terms between 3 and 30 months at interest rates ranging from 13% to 15%. The lower interest rate loans are usually only held temporary as part of my trading strategy.

mintos portfolio originators

For the coming month I plan to keep my Mintos* investment at roughly that amount, reinvesting the paid principal and interest.
New investors registering via this link at Mintos, get 1% cashback on amounts invested in the first 90 days. Mintos is currently not accepting UK investors.

Linked Finance

My second largest p2p investment is on Irish SME loan platform Linked Finance.

linked finance portfolio

Diversification achieved is good. The majority of my loans have interest rates between 8% and 11%. Most loan terms are 2 or 3 years.

linked finance portfolio diversification

I “collected” 7 loans in default (double dip on the golf loan). But 5 of these had repaid more than half the principal before they want into the default state so the principal in default sums up to only 270 Euro. My self-calulated XIRR value is 6.4% if I totally write off the amounts in default and 7.1% if I assume that half the amount in default will be recovered. I plan to slightly increase my Linked Finance* portfolio in the next months. Linked Finance is not offering any cashback or bonus rewards for new investors.

Bondora

Bondora is my third largest and oldest (still running) p2p lending portfolio. I started in 2012. My self calculated XIRR value is 16.6%. A yield that high is not achievable nowadays anymore. My portfolio profited heavily from the first years when interest rates were typically 28% to 34%.

bondora portfolio profitability

I am currently investing into Estonian A and B loans using these autoinvest settings. I have used these settings unchanged for 11 months now and it is running totally hands-off with no maintenance required.

bondora portfolio pro autoinvest

On Bondora* I reinvest the bulk of my repayments and occasionaly withdraw some funds. New investors registering on Bondora using this link get a 5 Euro sign-up bonus.

Ratesetter Australia

Ratesetter Australia* is my fourth largest p2p investment and also one of my youngest. I started in August 2018. My XIRR value self calculated in AUD is 9,1% if I include the 75 AUD sign-up bonus and 7.4% if I do not include that.

ratesetter australia account

My money is mostly invested on the Ratesetter 5 year market at an average rate of 9.2% (that is after fees but before withholding tax).

ratesetter australia loans

In the past months the interest rates have dropped considerably therefore I am parking some funds on the 1 month market or invest them on the 3 year market.

ratesetter australia rates

I am reinvesting all repayments at Ratesetter Australia. If rates go up again I plan to do that on the 5 year market, otherwise I’ll settle for the 3 year market. It is a little complicated to register as a non-resident, but I have described how I managed to sign up as a European here. New investors can earn a 75 AUD promotion bonus by investing 2,000 AUD or more in our 3 year Income or 5 year Income lending markets before 31st May 2019. Achieving that requirement in time will not be easy, even if you start directly.

Iuvo Group

The fifth largest position of my p2p portfolio is invested at Iuvo. It is running hands-off and does not require any maintenance.

iuvo group portfolio

I continue to reinvest all repayments. Iuvo pays new investors a very generous cashback of up to 90 EUR. For more details and how to get it see the cashback overview page.

Estateguru

estateguru portfolioAfter I completely exited Lendy in last autumn, baltic Estateguru* is now my largest platform for property secured loans. I don’t use the autoinvest. Instead I periodically login and manually invest into a new Estonian loan secured by a first rank mortgage.

I mostly reinvest all repayments. New investors get 0.5% cashback for all investments in the first 90 days, if they sign up using this link.

Fellow Finance

I used to have a larger portfolio at finnish Fellow Finance but I did not want to go below 12% for 4 star Finnish consumer loans therefore I started withdrawing funds last year. In January the sale price collections paid tor Finnish loans dropped from 70% to 53% which reinforced my decision to exit.

fellow finance portfolio

October

I am running down my portfolio on French SME loan marketplace October. With the low interest rates and rising defaults (6 out of 52 loans) in my portfolio the risk reward ratio is not for my taste anymore.

october loan portfolio

New investors signing up on October using this link* can get 20 EUR bonus (200 Euro minimum investment)

More p2p lending marketplaces

Due to professional interest (want to gain first hand experience) and curiosity I have more p2p lending portfolios at Ablrate* (small, reinvesting), Assetz Capital* (tiny, reinvesting, possibly increasing), Bulkestate* (tiny, testing), Crowdestate* (small, reinvesting), Finbee* (tiny, nearly exited), Investly (small, reinvesting), Lenndy* (tiny, watching), Monestro, (tiny, exiting), Moneything* (small, exiting), Neofinance* (small, testing, probably running down), Reinvest24* (small, testing), Robocash* (small, reinvesting), Zlty Melon* (tiny, exiting next month when terms are up).

Crowdinvesting

Not p2p lending but investing in startups. I am a huge fan of Seedrs*. Investing in startups is of course even higher risk than investing in p2p lending. Nevertheless I went ahead and built a big Seedrs portfolio over the last years. Snapshot:

seedrs portfolio

P2P Conference Riga

I am looking forward to be at the P2P Conference in Riga* which is less than 4 weeks away. The conference is reasonably priced (enter promotional code P2PEARLYBIRD40 for 40% rebate) and Riga can be reached with cheap flights from many European cities. BTW, Riga is an interesting town, if you have not been there yet you could combine the conference with some sightseeing.

Interview with Ivalyo Ivanov, CEO of Iuvo Group

What is Iuvo Group about?

Iuvo is the first South-East European P2P platform that allows its users to buy parts of loans. All loans listed on the platform are issued by originators (registered non-banking financial institutions). We give our users the opportunity to generate an annual return up to 12% on their investments while simultaneously provide our originators with the chance to develop their businesses.

What are the three main advantages for investors?

The most obvious advantages are the high ROI and the buyback guarantee all listed credits have.

Major plus is the reliable originators we have. They go through extensive audits before joining the platform and are required to keep a minimum of 30% of their portfolio – so-called “skin in the game”. Our “skin in the game” requirement is the highest on the P2P market and it is there to better align the interests of the originators with those of our investors.

I might add another serious advantage – we have the biggest and most experienced Bulgarian originator with very clear and refined scoring and lending procedures and more than 10 years experience on the market.

What are the three main advantages for borrowers?

Iuvo is a peer-to-peer marketplace. We don’t lend.

What ROI can investors expect?

The expected annual return depends heavily on the choices our investors make, but the return a well-balanced portfolio should make is on average between 7 and 12%.

Ivaylo Ivanov, CEO Iuvo GroupIs the technical platform self-developed?

Yes, the platform is entirely self-developed and we continue to improve it every day.

How reliable is the credit rating / credit history data available for the Bulgarian loans?

Bulgaria has a very well developed non-banking financial sector and a great deal of experience with consumer loans. The quality of the scoring process is without a doubt on a very high level and there are no reasons to think that would change any time soon. Of course, as I’ve already said, thorough audits are made before we consider any originator joining us.

How is the company financed? Why did you select to start the company in Estonia?

Iuvo is financed through business angels. We chose Estonia as it has been the cradle of P2P lending in the past years and we believe the best way for us to grow and develop is to be where the best platforms are.

What was the greatest challenge so far in the course of launching Iuvo Group?

The greatest challenge we’ve had so far was to educate an audience that has never heard of P2P lending/investing. We’ve worked really hard on gaining awareness and building trust and I’m proud to say we succeeded. The next great challenge we look forward to is providing a user experience that stands out amongst all other platforms.

Which marketing channels do you use to attract investors and borrowers?

We mainly use internet – all the different ad formats and approaches it provides. I find that participating in different forums and events helps tremendously to shorten the distance between us and our investors and I personally believe that the right communication is a mix between technology and personal contact.

Is Iuvo Group open to international investors?

In order to open an account with us individual investors must be at least 18 years old, have a bank account in the European Union (or third countries that are currently considered as having equivalent AML/CFT systems to the EU), and have their identity successfully verified by Iuvo’s back office team.

Where do you see Iuvo Group in 3 years?

I see us as one of the leaders on European P2P lending market. I strongly believe that the potential P2P lending has is yet to be fully achieved and that the industry will surprise us even more with its growth and possibilities. We most definitely will be a part of that.

P2P-Banking.com thanks Ivalyo Ivanov for the interview.