Summary of our Bondora visit

A couple of weeks ago some Estonian bloggers got invited to Bondora to talk a bit about future plans, to get a chance to ask our questions and discuss overall better communication. I’m going to write down a slightly chaotic list based on the notes I made, please notice that this is what I wrote down and understood, any errors are wholly mine.

realestate

Company restructuring

The business has been seriously reorganized to separate people who work with borrowers and people who work with investors. This is largely due to how little overlap there is with the products, meaning in the long run better service and quality for both sides.

Rework of investor communications

Pärtel was honest in admitting that investor relations have not been working at the level they should have, and complaints have been justified. There is a whole new investor relations team, and I have already had some experience with them, and I’ve seen far more professional answers and contact than from general customer service before.

Rework of business logic and other details

2015 was a year of big change, including both reworking the models for rating clients and reworking a lot of the legal framework. The legal changes mean that now an investor essentially purchases a claim for a piece of a loan, but isn’t directly tied to the loan taker – all loans for a moment go through Bondora’s records, but legally it’s set so that even in case of Bondora’s bankruptcy investors keep their claims. The legal framework has also been set to include institutional investors.

Banking license in the future

Due to practical reasons of trying to enter new markets, a banking license is inevitable due to how much easier it makes accessing new markets. It would also allow Bondora to include more products for people, for example a set interest CD that would be backed by the loan book. Bondora itself investing partially into the loans was also mentioned. It would definitely allow for more flexibility in terms of products and new markets.

But active retail investors?

Retail investors are here, and will remain. Active ones who manage their own portfolio are however a rarity and there just isn’t enough money in their hands to support expansions into new countries (this is already known based off all other big P2P sites). This means that institutional investors will have to come on board to support expansion.

Institutional investors

Pärtel mentioned that the “ballpark” for institutionals is that they’d be able to provide something in the range of 100 million per year to help keep up loan supply. It might seem like much, but expansion plans that are going around are mentioning 8 new countries by 2017. Institutional investors are also more interested in Spanish loans due to higher returns. (Retail investors are always scared that they’re going to lose access to EST loans, but that’s too tiny of a market for any institutional investor.)

Bondora rating

Overall the rating has proven itself. There was a tiny update in December to improve the current model. We were shown a lot of charts & data and overall conclusion is that the rating has failed to predict well for Spanish B, D, C, however those combined are at 2% of the portfolio, and the new model was set to fix it. Risk/recovery are currently on plan.

Recovery

There will be open data in the near future about how the DCA (debt collection agency) have done in recovering, but Pärtel said that the data is better than expected. The reason why they use DCA at start instead of courts is that 1) often people fear DCA’s more, 2) courts take a very long time to act 3) courts are inconsistent in their rulings. Hope to see a blog post by them about this at some point.

Buyback

One of the bloggers, Jaak, raised the topic of a buyback guarantee and allowing investors to accept the loss, if they so desired from defaulted loans. Pärtel stated being very much against it due to the black box that it creates. (I agree on that). An investor can accept the loss when selling on the secondary market though, since now that the loans are legally restructured you can sell defaulted loans as well, though of course the discount has to be rather steep.

Secondary market

Pärtel also briefly introduced plans to work on secondary market pricing, to include a sort of a “fair price”, allowing people to assess sm loans better, and eventually use the autobidder to buy and sell on the sm. This is probably very far in the future – you can still manually price loans, but if they fall outside of the limits of the fair price that Bondora estimates then people need to manually purchase them.

Primary and secondary market

Are not going anywhere, but will also not be receiving any significant upgrades or additions. Currently no plans to phase them out.

Sharing data

One of the topics we discussed was official communication channels. The Bondora forum exists but is rather useless, it’s used by ~100 people, the loudest of whom often no longer investors, meaning that new users get no useful info there, since Bondora doesn’t actively track it. The current official communication channel is the blog that’s been getting a lot more action recently. We also passed along the suggestion for regular Q&A sessions.

API

First third party applications are already available and in use. Looking at other P2P portals, the pricing of the API tends to  come to 0,2-0,5%. They are following the market to see what’s happening. We briefly discussed the issued of API bids being last in line to make a bid and that this might be a bigger problem in the future. The issue is understood, and can be tracked better now that the old PMs are closed, it will create a clearer picture for how well loans fill. Also, in the future it would be possible (once more institutional investors are on board) that a set % of a loan is always set aside for retail investors.

Future fixes

Essentially what we’ve been waiting for forever – more data & charts on the web (I’ve sent them my wishes like 3x I think). There should be a fix for the cash flow page finally as well in addition to overall quality of life fixes. (The first – bid amount per loan for autobidder users is already live.) Looking forward to seeing all the fixes (hopefully in the near future).

Summary

Overall, while I complain a fair bit about some of the decisions and communication blackouts that Bondora has had (and that complaining has been justified) then I have continuously invested into Bondora due to the returns offered.

I am happy that they are finally starting to work on many issues that have been problematic for a long time (years). Of course, as usual – with many things I’ll have to see them to believe them, but even the fact that we were invited to meet shows a level of openness we haven’t seen before.

Overall, hoping for many positive changes in 2016 both in terms of web use comfort, better access to data, better communication and overall growth of the company.