Chris, Author at Peer & Social Lending

Conquering the future with passive investing

November 16, 2016 by Chris Leave a Comment

If society can trust technology in self-driving cars, we can trust technology with our finances.

The adoption of technology in the world of money management is a growing trend. More investors are embracing the logic enmeshed in code to create long-term growth. This trust in financial technology, or ‘FinTech,’ fosters a passive environment because investor preferences can be automated without the need for meddlesome oversight.

Furthermore, the passive investing approach is desirable due to its ease and rate of return. In this article, we’ll look at the benefits to a passive investing style and how it applies to the emerging field of peer-to-peer lending platforms like Bondora.

Automation as a Solution to Cognitive Biases

One of the most popular passive investing products today is the robo-advisor, which is a automated service that asks the investor a few questions about their goals and risk tolerance. Next, the interface uses this input to generate investment diversification in a portfolio comprised of asset classes appropriate to the individual. Once the investor sets the parameters, they step back, and their money is poised for gradual growth. This growth is possible because automated investing removes the emotional impulses of the investor whereas active investing burdens the individual with constant well-timed maneuvers to generate returns.

Why is it so important to create a remove from our assets? The field of behavioral economics offers answers by combining cognitive and behavioral psychology to financial markets. The origins of the field belong to researchers Amos Tversky and Daniel Kahneman. In 1979 they authored an article on prospect theory, which endeavors to understand how people misguidedly interpret risk. Their research has lead to a vast body of work revealing numerous cognitive biases that distract us from our goals. A passive investor avoids these pitfalls when the engage in automated investing. Robo-advisors lack these biases.

These flaws in our psychology are often rooted in our tendency to ignore the challenges of analytical, mathematical approaches. This quantitative analysis is where robo-advisors excel. In seconds a program can analyze thousands of data points to synthesize a strategy. With more investment products available than ever before the data is growing and therefore so is the need for efficient analysis.

Passive vs Active Investing

So how has the passive investor performed compared to active investing? Researchers at Morningstar have the answer. In a 2015 publication, they reported the results of their study designed to “measures active managers’ success relative to the actual, net-of-fee performance of passive funds.” The results illustrate that “actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.” Results like this have popularized the hands-off approach.

These findings are echoed in a similar study that reviewed the performance of 24,000 mutual funds and ETFs for a 10-year period ending on December 31, 2012. The results: “Only 24% of active mutual fund managers outperform the market index.”

The benefits of automated investing are amplified when coupled with the growing marketplace for peer-to-peer lending. Modern P2P platform Bondora has leveraged passivity to enable the user to generate returns without the burden of endless analysis. Therefore, more investors at Bondora are opting for their Portfolio Manager tool. This system analyzes volumes of data to construct a portfolio matching the conservative, moderate, or progressive risk tolerance of the user.

The automated investing aspect of Bondora’s P2P lending is important because it strikes a balance between risk and return. The result is an optimized portfolio that accepts the least amount of risk possible while achieving the investor’s goal ROI. How does their framework accomplish this? The answer is investment diversification. By spreading the total funds across various borrowers and credit rankings, Bondora’s investors mitigate risk intelligently.

Managing Big Data

While there are clear benefits to passive investing, those on Bondora’s site that wish to test their investing prowess can do so with the Bondora API system. This tool allows the active investing customer to bid on specific loans based on the nuances of the users goals and risk tolerance. This granular reporting is suited for those who prefer a deeper dive into analytics to achieve a superior return. The world of P2P lending is still developing, and some of those on the ground floor believe they can realize the value of accessible data to beat the market.

Bondora’s Portfolio Manager and API framework are critical to today’s investors because it creates an efficient P2P platform. The result is a more accessible marketplace for lenders and borrowers alike. In under-banked regions more borrowers are turning to peer-to-peer lending. In many cases, borrowers with strong credit are unwilling to withstand the drag and bureaucracy of traditional lending institutions.

Amplifying Returns

On the other side of the transaction investors are turning to P2P lending as an investment product because of a prevailing notion that there will be “more muted returns, if you will, over the next decade” as asserted by Vanguard CEO Bill McNabb. Those wanting to improve this tepid forecast will be attracted to an annualized net return on investment of 16.5% seen on Bondora.

Though the benefits of passive investing are well understood, it is the FinTech industries influence that’s popularizing its adoption in P2P lending. This technological growth emboldens investors to explore the nascent world of marketplace lending. While high investment returns and investment diversification will keep an investor partnered with a company, it’s the ease of investment opportunities that will get them in the door.

Online investing promises greater advances in technology as a primary differentiator among competitors. Ever-increasing efficiencies have driven down many costs. Now, prospective investors are looking to auto investing solutions to carry them to their goals. This automation is the same technological growth that has given rise to the world of marketplace lending. The value of peer to peer lending has always been clear, but technology has made it tangible.

Passive investing has never been more applicable than it is for P2P lending. Auto investments deter cognitive biases which lead us astray, makes unlimited data manageable and minimizing costs. Before painstakingly committing to an active style consider the compounding value of passive investing in the marketplace lending sphere.

Viventor review | Make smart passive income

October 17, 2016 by Chris Leave a Comment

Disclaimer: Viventor provided €50 to start investing and try out the platform. This has not coloured the authors opinion of the platform or influenced this review.

Viventor opened its doors to lenders almost a year ago. Founded by Prestamos Prima CEO Andris Rozenbahs, the Riga-based platform offered loans secured by mortgages, and a buyback guarantee for all investments. Since then, mortgage-backed loans have broadly made way for short-term consumer loans, which now make up a vast majority of listings. These still come with the buyback guarantee and are 100% pre-funded.

Both the buyback guarantee and the pre-funding of loans show Viventor’s safe approach to lending. It runs as an ethos throughout the platform and allays any fears investors might have about investing.

With safety so high on the platform’s list of priorities, it unsurprising that expected returns for investors are slightly lower than on most competing platforms. Mr. Rozenbahs said when the platform launched: “Keeping in mind that these investments generate a fixed annual return of 6% and above - I’d say it is a solid deal.” With cumulative investments breaking through the €6 million mark, and over €45,000 in earned interest, many investors seem to agree.

These numbers now serve as the driving engine of Viventor’s success, along side the low entry-barrier to investing. This stipulates a €50 minimum deposit and €10 minimum investment.

Before we delve into the features, let’s briefly discuss if you are eligible to invest.

You must be at least 18 years of age
You must have a bank account in the SEPA region
You must have a valid passport, utility bill and tax certificate

Viventor review | features

Peer to peer lending platforms define themselves by the quality of their features. Nothing is more frustrating than a laggy AutoInvest, or an illiquid secondary market. On the other hand, a smooth user experience, slick navigation and easy investments are the hallmarks of this verticals top performers.

Viventor offers three main features: the Primary market, the Secondary market and AutoInvest.

1 - The Primary market

The platform boasts an excellent Primary market with over 1,000 loans currently listed. These are primarily from Spain and Sweden and originated by third parties like Twinero. Loan terms range from 1 to 72 months, with shorter loan terms significantly outnumbering longer ones. As a result, investors can enjoy a high liquidity as repayments come flowing back at the beginning of every month.

Understandably, loan amounts vary by loan term, with shorter terms often coming in at under €500, while longer terms go all the way up to €150,000. As with all peer to peer lending platforms, the watchword here is diversification I try to avoid larger single investments anyway.

To help martial and segment the vast number of listings, Viventor has provided a pretty cool filter. This allows you to set your desired interest rate, loan term and loan status. The loan status refers to whether a loan is being paid, late or defaulted. As of today (06/10/2016), there is not a single late or defaulted loan listed on the platform.

On the top right of the screenshot, you can see the option to filter for LTV, which refers to the loan-to-value percentage of the listing. A high LTV means that the loan amount represents a high proportion of the borrowers asset value. Setting the filter high, will provide you with a list of larger loans, mostly backed by a mortgage. Below is a good example.

2 - The Secondary market

Viventor’s secondary market is one of the coolest features on the platform. Essentially, it allows investors to exit an investment before it has reached maturity. This particularly handy should you need your money back to pay for bills, or unforeseen expenses.

You can take advantage of this feature by listing your stake in a loan on the secondary market. Other investors then have the opportunity to purchase your stake in order to grow their portfolio. In order to speed up the sale, you can sell them at a discount or even add a premium. With ~791 stakes listed, investors are sure to pick up some great deals.

3 - AutoInvest

As expected from any major peer to peer lending platform, Viventor brings its own AutoInvest feature to the table. If you’ve never heard of AutoInvest, you should know that it allows you to create an automated investment portfolio based on your chosen criteria. Essentially, it filters the available loans through your predefined filters and automatically invests your desired bid amount. This is fantastic for anyone looking to save time and ensure easy diversification.

What’s great about Viventor’s AutoInvest feature in particular, is its ease-of-use. You can set your preferred parameters and turn on AutoInvest in just a few minutes and straight away your investments are made. This makes a nice contrast to many similar features which take weeks or even months to place bids. Viventor’s advantage here is the ample supply of loans on the primary market.

Additionally, I should mention that using AutoInvest comes at no extra cost to you, and you can still place bids manually should you so choose.

Viventor review | My experiences

No review is complete without personal experience and this Viventor review is no different. As mentioned above, I received €50 to play with on the platform. I quickly set up my account and began to use the AutoInvest feature. I set the parameters to fund high interest, and short term loans, which the tool promptly did. As a result, most of my investments look like this:

I invested €10 each across 5 loans and waited for the due dates to arrive. You can find the borrowers repayment schedule by heading to the listing and clicking on “Payment Schedule”.

While waiting, I came across the Viventor fellows facebook group, which is an excellent place to find fellow investors and ask questions.

This is what I loved

Viventor is doubtlessly one of the best European peer to peer lending platforms. The slick interface and smooth usability make it incredibly easy to earn interest. The buyback guarantee coupled with the high loan quality make Viventor the definitive safe option for European investors. With a minimum deposit of €50 and minimum investment of €10, investors new to peer to peer lending can dip a cautious toe into the water before committing. Additionally, your dashboard is filled with helpful tips and explanations, making the investment process even easier.

For more sophisticated investors, the AutoInvest feature is easy to set up and boasts 7-13% per annum ROI.

This needs work

Every review needs an honest appraisal of potential weak spots, and there are a few things that struck me while getting to know the platform. Perhaps the most important weakness of the platform is how impersonal it is. No doubt many investors will prefer it like this, but I really enjoy investing in people and not just ID numbers. I think Viventor could make investing even more fun by including some information about the borrower and allow for some interaction.

My second bugbear is the slight lack of information in the dashboard.

Above you can see a screenshot from my dashboard as of October 6th. Beside this breakdown I can see a small summary of my activity, including the percentage interest earned and other core kpis. On platforms like Bondora and Mintos users are provided with a more granular breakdown of their portfolio performance as well as an indication of performance in relation to other users. I find these particularly helpful as they help sign-post my success as an investor.

Viventor review | Conclusion

Overall, Viventor is a hugely enjoyable platform to invest on. The user experience is excellent and the buyback guarantee offers peace of mind. It takes no time at all to set up an account, and the Auto Invest feature makes it easy to spread your bids, ensuring diversification and (hopefully) maximizing revenue.

After only a month on the platform, there is still plenty to learn but Im looking forward to the journey ahead. Here is my account balance so far, roughly a month after I started investing on Viventor.

Being such a new platform, there are clearly still aspects worthy of improvement. The relative lack of granular data is perhaps the most glaring in this regard, but it does little to detract from the overall quality and enjoyment of the platform.

Thank you for reading this Viventor review.

Twino Review | BuyBack & Auto Invest

August 25, 2016 by Chris 1 Comment

Twino Review - Mentioning Twino to most European investors induces little more than a shrug of the shoulders and a muffled “never heard of them”. Not an unsurprising response, given the platform only launched in 2015, and has kept a relatively low profile compared to competitors like Bondora, Mintos and Bitbond.

A strong gut feeling suggests however, that Twino will soon emerge from the backwaters of European p2p lending, and take its place among the market leaders. Why do I think so? Let’s take a look!

Twino Review | Covering the Basics

Launched by the Finabay Group in 2015, Twino offers investors from across Europe the chance to earn healthy returns by investing in unsecured p2p loans. These are consumer loans from Poland, Georgia, Latvia, Czech Republic, Russia and Denmark, commanding interest rates between 10-40% per annum. Loan terms vary between 1-24 months, giving investors more flexibility in the short term, but potentially lower returns in the long term.

Returns seem to be healthy however, and investors have reportedly earned €600,000 in interest. Not bad in 11 months.

One of the reasons Twino’s growth has been so rapid, is its accessibility to investors from the Euro-zone AND Great Britain due to a partnership with Swedbank. As a result, investments can be made in euro (EUR) or British Pound (GBP), with the minimum being €/‎£10 .

This was doubtlessly a shrewd move by CEO (and former Bondora CMO) Jevgenijs Kazanins, because it opens the platform up to the more mature British Peer-to-peer lending market.

Another reason the Latvian marketplace lender is doing so well, is its highly popular “BuyBack Guarantee”, which promises to repay the investor principal plus interest, if a borrower is 30 days overdue on a payment. Most loans on Twino come with this guarantee and are sign-posted with ().

(Click)

This feature is proving particularly attractive to German investors who are typically risk-averse and make up a majority of the platforms’ investors.

But how can Twino sustain a BuyBack guarantee like this? Especially in the face of zero fees for investors?

Well, the answer is Twino’s business model, which relies on a large gap between the returns that investors make, and the interest rates borrowers pay. As highlighted by the excellent Money is Your Friend, most loans on Twino are payday loans with likely interest rates of 100% or higher.

Interest rates offered to investors, as already mentioned, only range from 10-40%. The resulting margin is what Twino relies on to keep the BuyBack Guarantee viable and the business afloat.

For investors, this means BuyBack is unlikely to disappear anytime soon, as Twino’s business model depends on it. Additionally, the marketplace lender needs the feature to onboard new investors. With over 15% of all loans “delayed”, the platform would otherwise have a hard time turning a profit for its users.

The feature doubtlessly offers investors a greater level of security, but still depends on the profitability of the originators, which back the loans.

Twino’s Auto Invest Feature

You can easily automate your investments along strict parameters with Twino’s Auto Invest feature. A particularly welcome part of the investing experience, as it allows to easily diversify funds across a large number of loans, spreading risk in the process.

Luckily, Auto Invest is very easy to use and key parameters are:

Total investment
Maximum investment per single loan
Minimum balance
Reinvesting
Interest rates
Loan terms
Countries

The huge number of loans on the platform, ensure that no matter which parameters you pick, the Auto Invest tool will be able to diversify aptly.

Once you have automated your investments, head over to the “My Investments” tab to see it in action.

Although the feature usually does its job well, be sure to log back into your account after a few days to ensure it is working correctly. 😉

Benefits for Investors

Twino simply offers a great experience for investors. The security of the BuyBack Guarantee, coupled with an easy to use AutoInvest feature, and slick interface combine to create a winning experience for anyone looking for easy passive income.

There are hundreds of loan listings to choose from and the low, €10 minimum investment, ensures that everyone can start investing.

Uk investors will also be delighted at the prospect of finding an eastern European marketplace, which allows lending in British Pound. This is sure to give Twino the edge over similar competitors lacking in this department.

With returns averaging around 12% p.a. for most, and almost 15% for some, Twino is proving its worth to investors around Europe.

Negatives for Investors

There are only two aspects of Twino I’m not 100% on board with. The first, is the nature of the loans, and the exorbitant interest rates charged to borrowers. I prefer to invest in working capital loans, with reasonable (max 40% p.a.) interest rates for borrowers. On Twino, we are dealing with Payday loans with interest rates going much higher than that.

The second aspect is the lack of personability on the site. Twino might as well be a bank, rather than a Peer-to-peer marketplace, because investors get little-to-no information about the borrower.

I understand that this is not a problem for most investors, but my personal preference is to feel like I’m helping people, not just making a profit.

Those are my only two bug-bears and they do little to diminish the enjoyment of the platform.

Conclusion | Twino Review

Twino is clearly a platform on the rise. The 30 days BuyBack Guarantee along with the sleek Auto Invest feature, provide a high level of security which is hugely appreciated by investors.

The impersonal style of the listings however, takes some of the humanity out of the platform and makes p2p investing a little less fun than on other platforms.

Thanks for reading.

PS. Have you tried out Twino? Let me know what you think of the Twino review in the comments below!