p2p lender Mintos adds foreign currency p2p loans in CZK, PLN, DKK, GEL, RON, GBP

In a brilliant move p2p lending platform Mintos has added the possibility to invest in foreign currency p2p loans across Europe. This means that from now on you can invest in high-netting loans in Czech Koruna, Polish Zloty, Danish Krones, Georgian Laris, Romanian Lei, British Pounds.

In practise this means that you can diversify your p2p investment portfolio not only across different loan types (personal loans, invoice financing, secured car loans, business loans, mortgage loans, …etc) but also across different currencies. And you can do this extremely easily as Mintos has added an instant currency exchange (forex) tool on its website. For very low fees (around 1%) you can instantly exchange your native currency (which is Euro for me) into any of the other currencies on the platform.

In the Mintos loan listing view as seen below you can easily filter the foreign currency p2p loans offered per currency.

p2p lending platform Mintos foreign curreny p2p loans listed

My personal foreign currency p2p loans in Georgian Lari (GEL)

Ever since they started offering these foreign currency p2p loans I have started investing in Georgian, Lari denominated loans. As per the end of March 2017 my Lari p2p investment portfolio consists of 961.71 (Georgian Lari) with a Net Annualised Return expectation of 16.16% something I am really happy about as it is quite a bit higher than the 11.68% return rate my Euro denominated p2p loans investments are netting.

My Georgian Lari foreign currency p2p loans investments portfolio March 2017

I really consider this option to invest in p2p loans across different currencies as a great addition to the great p2p investment platform that Mintos really is.

In the next few months I will keep you posted about the return rate developments with my Georgian lari p2p loan investments.

P2P lending’s high return rates explained: Alternative Lending Landscapes

Anyone who first hears about peer to peer lending and its amazing high-netting return potential is incredulous about all of its claims…I was…you were….everyone was! It just sounds like a scam.
After my initial skepticism was overcome (through thorough research and a bit of trial and error) I got hooked but still found it hard to explain to others how it all works: P2P lending’s high return rates explained.

On this website I have previously explained the basics of how p2p lending works but I kept on struggling finding a proper explanation for how and why peer-to-peer lending platforms are capable of generating annual return rates between 10% and 30%….those numbers just sound too crazy to be true….
By now I know they aren’t fantasy as I managed to make a 20.92% return on one platform and 15.59% on some other….
With this post I will explain how exactly p2p lending platforms are capable of generating such high ROI for its lenders…

Alternative lending landscape: Payday, Micro, Online & P2P Loans compared

The rise of the internet and deregulation of traditional banking and lending were the enablers of a new alternative lending landscape that emerged at the turn of the century.
Basically there are different types of loan offerings for different type of needs. And we have to look at the different type of loan offerings to understand the high interest return rates being offered by p2p lending platforms.

Payday loans

Payday loans (see infographic below) are small cash advances at a very high interest rates to be paid back when the borrower receives his next paycheck. Common interest annual percentage rates (APR) are in the 391-521% range!!!!!!

Most borrowers using payday loans have bad credit and low incomes and therefore may not have access to credit cards and are forced to use the service of a payday loan company. Payday loan providers therefore can charge exorbitant high interest rates which are calculated on a daily or weekly base e.g. $17.50 interest fee per $100 borrowed for seven days. Most loans are for 30 days or less with loan amounts usually between $100 to $1,500.

The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash. The lender holds onto the check and cashes it on the agreed upon date, usually the borrower’s next payday. These loans are also called cash advance loans or check advance loans.

In the USA alone 12 million people use payday loans with a total borrowed amount of $7 billion.

Micro loans

Micro loans are a mission-driven form of finance aimed at small business owners who want to borrow $50,000 or less. The interest APR is commonly in the 8-22% range.

According to the Small Business Administration, its microloan program provides micro loans in order for businesses used “for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment.”

In banking terms, a microloan is a very small loan ranging from $500 to $100,000. Historically, banks in the United States haven’t particularly liked dealing with microloans because they have not been profitable financial products for them to market. Other financing companies and institutions have filled this void.

Online loans

Typical loans are for small business owners who want/need quick money and don’t mind paying a hefty fee in exchange for speed. Typical annual percentage rates range from 30-120%.

In its broadest sense, online lending is any kind of loan that’s not directly from a traditional bank and often online lenders are technology companies that use different methods to communicate with clients, base rates and approval on metrics other than your FICO credit score and similar traditional measurements and apply a different (frequently streamlined or automated) approval process compared to traditional lenders. This enables them to provide loans super quickly when needed by a borrower.

 

alternative lending landscapes: p2p lending's high return rates explained through payday, micro, online loans
Alternative lending landscapes: payday, micro, online & peer-to-peer loans compared

P2P lending’s high return rates explained

p2p lending marketplaces arose in 2005 by combining the alternative finance services as described above with crowdfunding. Basically p2p platforms cut out the middleman aka the payday/micro/online loan provider by bringing borrowers and lenders directly together through their platform/marketplace. By doing this p2p lenders don’t need to have cash at hand themselves which greatly reduces their costs. Their core competence is the platform technology and loan approval automation. By charging small fees (typically around 1%) they can create a highly profitable business that is beneficial for them, the borrower and lender. The borrower can find loans with lower APR’s and the lender can get higher ROI on his investments in this new p2p lending model. Win-win-win for all three parties.

The high return rates investors can make on p2p lending platforms are understandable if you look at the loan services they compete with. Payday loans, micro loans, online loans all charge super high annual percentage rates to their borrowers. p2p lendng platforms offer these loans too but at much lower percentages due to their low cost structure. In that light a payday borrower loaning at say 30% interest on a p2p platform is not strange at all as he would pay a multitude of that through a traditional (payday) loan institution. And an accompanying ROI of 20%+ for lenders/investors is a logical consequence thereof. Just very sound business principles at work here.

Hope this post was useful in understanding better how p2p lending platforms are capable of generating high return rates for lenders. And it definitely helps explaining how I was capable of making a 20.92% return on my investments through one of my favourite p2p lending platforms here.

Question? post them below in the comments…

 

What is peer-to-peer lending? – a visual explanation in infographics

p2p lending is a very new market and finance instrument that emerged in 2005 through the creation of the world’s first p2p lending marketplace Zopa. Ever since then the field has been developing and growing at an exponential rate and more and more people have heard about it. But what is peer-to-peer lending exactly?
Not many people have crystal clear view of the working of p2p lending. And logically so as each p2p lending platform and marketplace works a bit different than the other one.
Today we will explain you the workings of p2p lending through a bunch of the best infographics and visual illustrations available around the web.

What is peer-to-peer lending?

In its simplest form Peer-to-peer lending, as the name implies, means lending money to individuals, or “peers”, without going through a traditional financial intermediary such as a bank or other financial institution. Instead online p2p lending platforms and marketplaces such as Bondora, Mintos, Crosslend, Zopa, LendingClub,..  work by matching individual lenders and borrowers online. In this way it leads to great rates for both borrowers and lenders because it’s more efficient.

Wikipedia defines peer to peer lending as follows:

Peer-to-peer lending, sometimes abbreviated P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. Since the peer-to-peer lending companies offering these services operate entirely online, they can run with lower overhead and provide the service more cheaply than traditional financial institutions. As a result, lenders often earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates, even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower.

p2p lending explained in infographics

A picture is worth a thousand words!

This idiom still holds a great deal of truth and hence we bring you a couple of visual explanations of what p2p lending exactly is through some great infographics.

What is peer-to-peer lending? an explanation infographic

How peer-to-peer lending works, infographic

We hope these explanations have given you a better idea of what p2p lending is. If you have anymore questions please add them in the comments below and we will answer them swiftly.

Happy p2p lending.

For a detailed look at my personal experiences investing in p2p lending platforms for the first time have a look here. 

How p2p lender Bondora is outperforming the S&P 500 stock index since 2009

Pan-european p2p lending platform Bondora was founded in 2009 and ever since its inception it has been making stellar returns for its investors. And to many investors’ surprise the popular p2p lender has been outperforming the stock market and even the S&P 500, one of the world’s most important stock market indices. This is how it went…

Data transparent p2p lender Bondora

The beauty of Bondora is that it is the most transparent p2p lending platform around and it has made its loan data publicly available. This makes it possible to compare its lifetime return rates with other investment vehicles – like stock and bond investing – to find out (in hindsight) what indeed would have been the most profitable investment.

To do exactly that we decided to compare Bondora’s return rates with those of the S&P 500 index, one of the world’s most well-known stock market gauges.

And surprisingly Bondora outperformed the S&P 500 big time in the seven years the p2p lender has been around….

The S&P 500 stock market index

The Standard & Poor’s 500, often abbreviated as the S&P 500, or just “the S&P” is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. It is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. (and hence world) economy.
The “Composite Index”, as the S&P 500 was first called when it was introduced in 1923, began by tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500.

To compare the Bondora and S&P return rates we start our comparison in the year 2009, the year Bondora was founded.

S&P 500 Annual Return rates 2009-2015

The S&P 500 annual return rates between 2009 and 2015 are displayed below.

S&P 500 stock index annual return rates 2009-2015

Firstly, do note that there are return rates excluding and including dividend payouts.

For our considerations – comparing the performance of the S&P 500 with p2p lending performance – we will only look at the higher numbers that include dividends.

You can see that this annual return rate including dividends has fluctuated widely over the seven year window that we are considering. The lowest S&P 500 return rate was 1.30% (in 2015) and the highest 32.43% (in 2013).

The S&P 500 arithmetic average growth rate (AAGR) for 2009-2015 is 15.35% and the compound average growth rate (CAGR) for that same period came to 14.86%

Bondora Annual Return 2009-2015

Bondora started in 2009 as a p2p lender offering only loans in Estonia (EE). Then in 2013 it expanded its operations to offer loans in Spain (ES), Finland (FI) and a year later Slovakia (SK).

Bondora’s annual return rates across all these markets from 2009 to 2015 are displayed below in the bottom row (ALL). This total return rate per year is calculated as a weighted average across the different countries.

p2p lender Bondora's annual return rates 2009-2015. are they outperforming the S&P 500 ?

Though some countries experienced slight declines in returns in 2013 and 2014 the totals still represent double digit gains for every one of the last seven years.

Bondora’s annual average growth rate (AAGR) is 20.37%  compound average growth rate (CAGR) for 2009-2015 is 19.87%.

Outperforming the S&P 500

Now lets compare both of these investment options and see which one would have netted you a higher return since 2009. Find the comparison below.

p2p lending platform Bondora is clearly outperfomring the S&P 500 during 2009-2015

It is clear that in some years the S&P 500 index performed better and in some other years p2p lender Bondora would have given you greater returns.

In the bottom half of the table you can see that on average however Bondora would have given you a 5% higher return rate every year over the 2009-2015 period (5.02% or 5.03% depending on if you use the AAGR or CAGR) clearly outperforming the S&P 500.

What this concretely means for investments made in both products becomes clear from the last columns in the table. If you would have invested $10,000 in 2009 in both Bondora and the S&P 500 your money would have grown to $35,561 at Bondora and $26,374 at the S&P 500.
An investment at p2p lender Bondora therefore would have made you a higher absolute gain of $9,187 or a higher relative gain of (9,187/26,374)*100 = 34.83% over the entire 2009-2015 period.

That’s both a surprising and substantial difference where Bondora is clearly outperforming the S&P 500 over the period 2009-2015.

Conclusion: p2p lender Bondora vs. S&P 500 

 Logically these results are by no means a guarantee for the future. They do indicate however that p2p lender Bondora offers great returns that are capable of beating the S&P 500 returns. Investing in p2p loans therefore could make for a great addition to anyone’s investment portfolio. It increases ones diversification and could potentially even raise your total investment portfolio’s performance.

For more info on Bondora have a look here. 

My p2p Lending Experience: Crosslend 15.59% Return after 8 Months

While researching the p2p lending market I stumbled upon the German based Crosslend platform. They offer p2p loans to borrowers in Spain, the UK, Netherlands and Germany and appear to be a highly ambitious platform with founders that have an extensive background in FinTech.

As they were a relatively new and small p2p lender in the beginning of 2016, that wanted to grow fast, they were offering a 10% bonus for every euro invested up to the 31st of March 2016. This sounded like a great deal to me and so I decided to try it out….

Crosslend p2p lending marketplace team

Europe cross-border lending

Like Mintos and Bondora, Crosslend is a pan-european p2p lending platform that uses market inefficiencies across european countries to create a win-win situation for both borrowers and lenders. As they state on their website:

“It’s our vision to reduce the gap between supply and demand within traditional lending in the European market by connecting borrowers from high-interest-rate countries with investors from low-interest-rate countries through our unique cross-border marketplace lending platform. We’re bridging Europe’s credit divide to create fresh opportunities for people on both sides of the coin.”

This form of interest inequality and arbitrage is one of the reasons p2p lending in Europe has such high potential as opposed to single country p2p lenders in for example the USA or the UK.

Crosslend's current p2p lending markets
Crosslend’s current p2p lending markets

Opening an account with Crosslend (March 2016)

In March 2016 I opened an account by registering on the Crosslend website which was quick and easy.

Crosslend works a little bit different than for example Mintos or Bondora as they have a short video verification process to check your identity. After this is done Crosslend will open an investor account for you with their partner bank, the German biw Bank. This is a real bank account through which you will make all your investments and receive your payouts. It takes a couple of days to get it all set up as the bank needs to send you your account details and login credentials and codes by ordinary post. For me it took about a week to get it all up and running.

Once that was done I could start making my first investments in the loans offered on the Crosslend platform.

How Crosslend borrowing & lending works

On the Crosslend platform potential borrowers can apply for loans from 1,500 to 30,000 Euro for loan terms ranging from 6 to 60 months.

When a loan is granted to a borrower on the Crosslend platform it is purchased and acquired by Luxembourg based Crosslend Securities SA and securitized by a series of ‘notes’. Notes are debt securities which can be purchased by investors each with a denomination of €25 which is the minimum investment per note/loan. When a borrower makes their loan repayments, CrossLend Securities SA makes the corresponding payments of interest and principal pro rata to the holders of the notes and this money is deposited on your biw Bank account.

The Crosslend process matching borrowers and investors to finance loans
The Crosslend process matching borrowers and investors to finance loans

Crosslend’s loans are graded in risk classes A to G, HR.
A graded loans have the lowest risk and lowest interst rates (around 4%) while HR are on the complete opposite end of the spectrum with high risk and high potential interest payouts (around 17%) Crosslend checks submitted proofs of income for all borrowers.

Making my first Crosslend investments

After having finished the registration and verification checks of Crosslend I deposited my first sum of €900 on my account by wiring the money from my Dutch bank account to my Crosslend linked biw Bank acount with a free SEPA bank transfer. It took one day before my money arrived.

Subsequently I started hand-picking loans (or notes as Crosslend calls them) on the website as Crosslend does not have any auto-investment tools. I used the following criteria for my loan choices:

  • Loans from a variety of countries (Spain, UK, Germany, Netherlands) for diversification purposes
  • interest rate above 10%
  • Maximum loan duration of 36 months
    I don’t want to tie up my money for too long hence my aversion for loans of 60 months.
  • Loans among all risk categories from A to HR rated but slanted towards more E, F and HR loan investments

With a €25 minimum investment per loan and a 1% fee charged by Crosslend on origination it means that the minimum cots per loan is €25.25.
My original deposit of €900 allowed me therefore to invest in 39 loans. It took me a couple of weeks to find 39 loans as the amount of loans available was with 48 pieces pretty low. However after logging in multiple times in March each time I found new loans had been added to the platform. After a couple of weeks I managed to find 35 loans that fulfilled my criteria.

Crosslend investment results after 8 months

Now after 8 months my Crosslend dashboard shows the following results:

My Crosslend dashboard account overview (November 2016)
My Crosslend dashboard account overview (November 2016)

As you can see the projected annual return rate of my loans is 15.59% and my initial €900 has grown to €1162.67. It has to be noted that part of my total revenue is the 10% bonus Crosslend awared on investments made in March.

All in all I am happy with the returns so far…let’s hope it keeps on going like this. Will keep you posted!

World’s first P2P lender Zopa to lauch online Bank

Zopa – the world’s first peer-to-peer lending platform launched in 2005 – has announced plans to become an online bank in order to challenge the traditional banking industry.

Zopa to launch online bank

Zopa, Britain’s biggest p2p lending marketplace has applied for a banking licence to launch a “next generation bank”. This planned bank will operate in parallel to its existing lending/borrowing business.

Zopa to launch online bank …it sounds crazy that a p2p lender is really aiming for it…but it makes sense.

By applying for a banking licence Zopa can offer its customers protection through the Financial Services Compensation Scheme, just like normal banks do on its customers current and savings accounts.
Zopa expects the licence approval to take up to two years.

When launched, the platform says it will offer term-deposit accounts for savers and revolving lines of credit for borrowers, although a spokesman admitted that they are still working out the full details of it.

world first p2p lending platform Zopa to launch bank
Zopa is planning to lauch an online bank

By offering deposit accounts and overdrafts to its customers Zopa wants to use its extensive online lending experience to create a ‘next-generation’ bank that will challenge the current players in the financial markets.

P2P lending as the future of finance

Zopa CEO Jaidev Jardana announced:

“We launched in 2005 to create a richer life for everyone by making money simple and fair. We have lent over 1.8 billion GBP and inspired a 100 billion GBP global industry. We have built a profitable, scalable and viable business. Yet we’ve only just begun. We want to launch a next generation bank to drive greater choice for borrowers, savers and investors, which is good for consumers and good for the economy. We are uniquely placed to re-define customer expectations of what a bank should deliver in the 21st century. Over the last 11 years we have delivered great value to borrowers and investors whilst prudently managing credit risk. Combining our pioneering data and tech-led culture with an obsession with fairness and customer experience, we are best placed to shape the future of personal finance in the UK.”

zopa-ceo-jaidev-janardana-and-giles-andrews-zopa-co-founder
Zopa CEO Jaidev Janardana (left) with co-founder Giles Andrews

New technology freeing the way to a banking license

New technology and freedom from banking regulation has meant that peer-to-peer lenders aim to offer better rates of interest to both savers and borrowers than conventional bank accounts.
The platforms (like Zopa, Mintos or Bondora to name a few) pair up savers, who want to lend their money, with small businesses or individuals who need a loans using modern web technology and match algorithms to beat the banks. The high interest rates an investor/lender can make goes hand in hand with a higher risk as the peer-to-peer lending market does not offer the protections of a bank, leaving customers exposed to potential losses. With a banking license Zopa aims to cover these risks by means of the Financial Services Compensation Scheme (FSCS).

Current low interest rates have pushed more savers to look at peer-to-peer as a way to generate returns on their savings. And with many platforms offering 10+% interest rates this makes loads of sense.

Lets hope Zopa manages to get their license so they can keep revolutionizing the financial system for the good of borrowers, lenders and the ordinary man.

Goodluck Zopa!

 

Real-life p2p lending & investment experiences on a broad variety P2P Lending Marketplaces