What are we working on this month? Customisable tax reports, referral program and more

Welcome to another blog post from Bondora. As part of a new monthly series, we will be updating you with what we are currently working on and changes that you will see in the very near future. Take a look below at our November top 5:

1 – Updates to the referral program.

Thousands of investors are currently benefitting from our referral program. Over the past couple of months, we relentlessly gathered feedback from these investors to find out the main things that we should improve and make it even easier for you to refer your friends, family and colleagues to Bondora.

You will now find an improved reporting section helping you to keep track of who you referred, who has registered, who was signed up and your earnings. Also, you will now receive your bonus payment immediately after the 30 day period passes and the calculation has been made.

Bondora-referral-program-steps

2 – Simpler user interface.

We’re working on keeping it simple. More specifically, we are splitting our core functionality (Bondora dashboard, Portfolio Manager, transaction confirmations and Portfolio Pro), to their own pages and updating the look and feel of these to make them easier to understand.

3 – Customisable tax reports.

We have recently released a beta version of the new tax report, configurable through the settings icon on the top right of your reports page. We expect this to be especially useful due to the nature of different tax laws in countries all over the world, so you can now configure which fields are shown on the report relative to the requirements of your local tax office*. For example, you can now create a report which shows the income received from your investments broken down in to separate countries. Watch out for future developments to come on this topic.

custom-tax-report

4 – Weekly and monthly portfolio updates.

Some of our customers told us that they prefer to receive weekly or monthly updates instead of daily ones. We’ll soon make it possible for you to configure the frequency of our newsletter as well as its content, tailored to your preferences.

5 – Cash flow forecasting.

Many investors use our cash flow forecasting tool to better predict their monthly income as well as their portfolio yield to maturity. We are currently working on making this tool more accurate by increasing the precision of the ratios used (currently these are rounded down to the nearest 5% increment, e.g. 63% is rounded down to 60%) and splitting overdue loans from current loans in forecasts, improving the overall efficiency of the forecast.

What’s next?

That’s all for this month, we hope you find the upcoming improvements useful. If there was one thing you could ask us to work on next month, what would it be? Leave us a comment below and let us know.

Does P2P lending respond to geopolitical stress like stocks do?

It has been said that the stock market loves good news and can even handle bad news. It’s uncertainty that makes people panic.

Most investors take their reading of the stock markets’ blood pressure using the CBOE Volatility Index, or “Fear Index.” The figure represents the broad sentiment of equity investors. When the number is high investors are nervous and uncertain about the stock market and its future. When the value is low, investors are complacent and without much fear.

CBOE Volatility Index vs S&P index

If you look at this chart above overlapped with the performance of the market there is a clear correlation. When the market is fearful stocks drop and vice versa. Occasionally these fears are rooted in economic indicators like unemployment rates and interest rate movements. However, sometimes more complex factors can drive pricing shifts. The most recent example has occurred in the U.S. market were renewed concerns about North Korea’s provocative actions have roiled the market.

P2P lending market performance and political volatility

Yet, for the diversified investor with holdings in marketplace lending, do these same rules apply?

Data from the Orchard Index offers clues. The data “tracks the aggregate performance of loans to consumers originated and funded on eligible US-based online lending platforms,” but is also a good general read on the state of P2P lending globally. While marketplace lending is relatively new, the data from Orchard presents a reassuring picture that helps answer the question of sensitivity to geopolitical stress.

Orchard US Consumer Online Lending Index

Across a one-year, two-year, and three-year horizon the performance of the Orchard US Consumer Online Lending Index (image above) has been consistently strong with little interruption despite major upheavals like Brexit, and a contentious U.S. presidential election. This upward movement despite geopolitical uncertainty makes intuitive sense: the movements in stocks are largely influenced by indirect factors. As the economy becomes increasingly global more people are learning that what happens in China happens in the U.S. and what happens in the U.S. happens in Europe. Orchard summarizes this finding best by explaining “while public markets owe their volatility to numerous factors, consumer loan performance is very much a function of the financial health of the American household.” Stocks and P2P investments have separate influencers.

P2P investments and stocks influenced by different factors

Today, the marketplace lending industry remains strong because of considerations more connected to the home, rather than the world of international business. Again, Orchard explains “Households’ financial obligations as a percent of their disposable personal income have decreased significantly since the over-leveraged days of the early-2000s. This means that consumers would conceivably have less trouble making debt service payments, a hypothesis seemingly confirmed by the very low charge-off rates on credit cards.”

P2P lending is not free from influence. However, the important takeaway is that the influencers are different than those driving stocks. The result: investors holding marketplace loans have a deeper diversification in comparison to holding a collection of all equities.

Road to €100 Million invested… and counting

At Bondora we’re proud to announce that we’ve surpassed €100 million in loans funded and we’re just getting started. The milestone is important to us not simply because of the financial aspects. We’re proud that 28,850 investors have placed their trust in our marketplace lending platform. As a result, those loans have generated more than €15 million in interest payments for our investors, that’s value you can measure.

When investors join Bondora they earn more than a return on their money. They earn the satisfaction that comes with an investment that empowers people seeking to improve their life or make a dream come true. This important milestone comes at a time when we’ll soon celebrate 10 years in the world of peer-to-peer lending. We’ve worked with investors and lenders in 85 countries. We’ve reached across the globe because our interface is designed with our users in mind. We offer a level of transparency, ease of use, and engagement that few other P2P platforms do.

Road to €100 million invested on Bondora

10 years of Bondora

At Bondora, milestones have become part of our culture. In 2009, after significant beta testing we became the first lending marketplace in the Nordics. Our early success in the region allowed us to expand our presence. In 2012 we became the world’s first cross-border P2P lender as we opened our doors to investors across Europe.

As we continued the dialogue with our users we developed more ways to make marketplace investing accessible. In 2015, for example, we initiated standardized risk-based pricing which made it easy for investors to compare loans across markets. Additionally, we’ve made it simple for users to leverage granular-level information on each of the loans they’ve funded so they have full comfort in their return.

As a P2P platform, you cannot reach €100 million in investments and more than 28,000 investors without having a system that works and a company that people trust. We’d like to thank our family of users and we look forward to more milestones to come.

Help us find our new Senior .NET developer and earn €1,000

We are also giving away €1,000 in cash to make it worthwhile for you to support us.

Let us know if you have a friend, colleague or a family member that would be perfect for the Senior .NET developer position at Bondora.

  • First take a look at the job description and make sure the person you are thinking of really fits the bill
  • Talk to the person you think would be suitable and see if they are interested
  • When pitching the position, make sure to refer to the job description in our blog
  • If they are interested, forward their contact information along with their CV or link to their LinkedIn account to [email protected] (along with a reference to this offer) and make sure your friend knows we will be contacting them

In case your friend is hired, we will pay you a reference fee of €1,000 four months into the contract.
Share the word and help make Bondora better!

Bondora Group is profitable in 2017

We are proud to announce that we have reached profitability in the first half of 2017 with the net profit of €300 000. The revenue goal for this year is €7 million. This growth is a natural result of our efforts to bolster product offerings. Our strong start to 2017 places us on a small list of profitable fintech companies in Europe. We intend to stay there.

Bondora team 2017

Over the years we have expanded our base to 27,000 investors who have earned more than €14 million in net profits. These gains mean our presence across Estonia, Finland and Spain is growing.

The excitement surrounding P2P lending has encouraged many new businesses to arise in the industry. However, few of these entrants can say that they’ll have the longevity we expect here at Bondora. Next year, we’re celebrating our 10-year anniversary indicating that we are a stable, growing and profitable fintech company.

While this profitability is good news we are particularly pleased that Bondora is a platform where all parties can find value. Sustained success comes when borrowers have access to affordable loans, and investors earn a return all within an ongoing business model.

Our nomination by the European Fintech Awards 2017 for Best Alternative Finance Platform echoes this success. We’re asking our users and followers to help out by voting for us. All you need to do is visit our nomination page and click “Vote Bondora.” It’s that easy!

Myths and misconceptions about P2P lending

The world of marketplace lending, or peer-to-peer (P2P) lending is still relatively young. At just over a decade old, there is still a lot of confusion surrounding how this democratization of finance works. In this post we look at common myths and misconceptions about this newest form of borrowing and lending.

P2P lending is an unregulated “Free for All”

Like the early days of music file sharing, many people believe that marketplace lending is free to operate without the restriction of law. This misconception likely stems from the fact that loans are originated by the people or companies without any actual control, unlike banks which are subject to regulations. The truth, however, is that all marketplace lenders have a partnering bank. This bank is subject to all the same rules and parameters of a conventional banking institution. In fact, we’ve written about how regulation influences marketplace lending previously on the blog.

P2P lending is dangerous because you don’t know who you’re lending to

The anonymity of the web has led many to believe that lenders are handing their money over to a void without ever understanding what’s within. This is untrue. Nearly all marketplace lenders offer accessible analytics (some more than others) that give dimension to the person or people borrowing from any given lender. On Bondora, lenders can research granular-level data concerning the income, work history and debt ratios of borrowers.

Measuring risk adequately in P2P lending is impossible

Some think that a lender can never truly understand risk. However, as P2P lending has matured analytics have improved. All major lenders offer loan rankings that allow investors to quickly assess the risk of a loan. If a user wants to go deeper, they can often pull aggregate data from the site to determine default rates across all lenders. Meanwhile, third party sites like Orchard and dv01 have emerged as resources for providing independent data on rates of return.

P2P lending and traditional banks are at war

While some banking institutions are feeling competitive pressure from P2P firms, the two entities are finding ways to work together. Banks want updated methods for reaching a younger and wider demographic. Marketplace lenders in various forms can help provide this inflow. At the same time, marketplace lenders can benefit from the deeper reserve of capital available at banks that have had a longer history.

How to predict if a borrower will pay you back

Without risk there is no reward.

All investors accept some degree of risk, that’s the cost of entering the game. Understanding this truth, however, is only the beginning. Investors must ask themselves how much risk they’re willing to incur in their reach for a larger return. Marketplace lending has made this question more complex.

Marketplace lending operates off a basic framework of joining borrowers with lenders. The cost of engaging in this form of finance is low due to the ease afforded by technological solutions. While this digital exchange enables speed it simultaneously obscures the understanding of what factors influence borrower behavior, namely repayments.

Lenders can benefit from greater insight into borrower behavior as a means of mitigating risk. If we can more accurately predict what causes borrowers to default we can make more strategic decisions when investing. The problem: P2P lending is a relatively new market and data has been scarce, until now.

Evaluating future behaviour of borrowers

The researchers behind the article Determinants of Default in P2P Lending exhaustively reviewed nearly 25,000 marketplace loans. Their goal was to form a more concrete understanding of what factors signal future borrower behavior. In short, they want to know what borrower characteristics are red flags for lenders.

One of their first findings confirms that the traditional risk/reward relationship is alive and well with marketplace lending. “The higher the interest rate, the higher the default probability is” determined the authors.

However, their deeper dive into the data also offered some unexpected revelations. “Loan purpose is also a factor explaining default: wedding is the less risky loan purpose and small business is the riskiest.” This discovery illustrates the complex nature of risk assessment; even non numerical data can illuminate default risk. Not surprisingly, factors like annual income, current housing, credit history and indebtedness are all powerful variables in predicting default risk.

Meanwhile, loan amount and length of employment had little or no bearing on a borrower’s ability to repay their obligation in their data set. Many investors would be surprised to learn that loan purpose has more predictive capability than employment data. For this reason the researchers warn that many lenders may give imbalanced or disproportional weight to a long list of factors. The result of this “asymmetry” is flawed risk analysis.

To avoid this problem investors can start judging default risk based on a few simple metrics. For example, one study in the Journal of Central Banking Theory and Practice determined that “Longer term loans are more risky than shorter term ones.” This makes intuitive sense given that over a longer time horizon there is a greater probability of life events that could arise and derail a borrower’s plans to repay. Specifically, 60-month loans are statistically more risky than 30-month loans. This same study had its own unique conclusions, finding that in terms of loan purpose, the least risky loans “are those for credit card payoff.” This outcome adds dimension to the above data.

Of course only so much information is available to lenders. To effectively gauge risk a lender must consider all available metrics while focusing more heavily on those that have been proven to predict outcomes.

What is diversification and how does it work?

Would you save one year’s worth of your salary to buy a flower? There was a time when many people would.

During the Dutch Golden Age people were amazed with the ordinary tulip bulb. At the time, the flower was considered a thing of rare beauty. Everyone had to have one. Some reports claim that at the height of the excitement a single tulip bulb cost ten times the average annual salary of a craftsman. Financial markets sprung up around the flower. Futures markets emerged. By 1636 the mania reached a peak. The plague was the only thing that could stop the bubble. Eventually prices crashed and investors were crushed.

What could have avoided these lost fortunes? Diversification.

Diversification is the oldest and most important strategy for investors. When you spread your money across many different investments you are diversifying. The idea is simple: if one investment drops (or crashes) you don’t lose everything.

Investors put this principle into place by investing in different stocks with mutual funds. These funds allow investors to purchase a single share that gives them exposure to hundreds of companies. However, this style often doesn’t offer enough diversification.

Investors often choose to go further and diversify among asset classes. This method means investing not only in various stocks but also different kinds of investments like bonds or even commodities like gold and other precious metals. This method is called asset class allocation. For a long time this approach served investors well. Then, the financial crisis hit.

In those difficult years investors discovered that even asset class allocation could fail. Why? During times of crisis the correlation among these different classes can rise. “During the two significant bear markets of the last 10 years—correlations between many individual investments and even asset classes spiked,” according to BlackRock.

What’s the solution? Alternative investments.

More investors are learning that they need to broaden their exposure to alternative investments to help weather uncertain markets. Examples of alternative investments include currency, short-trading and of course alternative lending.

Investment opportunities offered by P2P lending have lower correlations to traditional assets like stocks and bonds because the influencing factors are different. As a result, investors can continue to seek high returns while diversifying risk across assets that move in different ways. The value of alternative investments is seen in the growth of a hypothetical $10,000 investment from June of 1997 to June of 2012. A portfolio including alternative investments would grow to nearly $60,000 while a portfolio of 60% stocks and 40% bonds would reach only approximately $25,000.

In today’s world economies are more connected than ever. For this reason, investors need to rethink outdated strategies of relying on just stocks and bonds.

Most common online lending marketplace models in Europe

Alternative finance and online lending has become modern investing terms. The phrase represents the democratization of lending and borrowing without the need for traditional financial institutions.

However, some are surprised to learn that within alternative finance there are various models. Here we offer a breakdown of some of the popular models including our own.

Direct Online Lending

Direct lending is probably the closest equivalent to the term peer-to-peer lending. Bondora is a direct lender/P2P lender. Essentially this means we connect borrowers with lenders directly. In fact, ignoring banks is part of the appeal for most investors. Direct lending grew from the rubble of the global financial crisis. This model helps drive down costs by leveraging technology, reducing overhead and relying on superior credit analysis programs.

Marketplace Lending

Here investors can choose to invest in loans designed to serve business in various sectors. The loan originators involved might issue automotive loans, mortgages, business loans, personal loans and even agriculture loans. In marketplace lending model, multiple institutional loan originators offer a more scaled up market for investors. The downside of having multiple loan originators on one platform is that the loans might be issued by different standards, scoring models etc which keeps the decision-making less transparent for investors.

Marketplace lending can also work in conjunction with traditional brick-and-mortar banks. The capital reserves of a conventional bank offer stability for online lending businesses. Meanwhile, banks benefit from the growth, scalability and technological innovation of marketplace lenders. Online lending marketplaces have become so attractive for institutional or big corporate investors, that vast majority of total funds invested are provided by them.

Crowdfunding

With crowdfunding model investors are committing cash to a singular project or venture with a clearly defined cause or end goal. Today this market is worth billions. Here, there are two main types. The first offers a pre-sold service or good to the investor. The second offers shares of a company for the capital committed. The latter of the two represents an investment in the truest sense. You’re making an upfront commitment in the hopes that your equity shares have value in the long-term. Given that the project has a completion date these ventures are not perpetual as some of the other models are. Essentially, the investor either makes some money or no money. Risks are high and a return can take years, but in case of success the returns can later pay big dividends.