Bondora API: analysis, experience, options

Since the beginning of December Bondora has allowed investors to use third party API applications to invest into loans. In theory this is an amazing opportunity – people who are capable of analysing the dataset to create investment models can use this opportunity to achieve higher returns and manage their risks in a way a passive investor is just not capable of doing. However, the reality at this moment is a bit different.

Lack of available tools

So far the only API client that has been publicly released is the Beeplus client created by Jarmo. Hopes were that there would be multiple clients competing, but this has proven to not be the case. (I tried to contact LendTower who talked about releasing a client, but I didn’t get an answer from them.) I can only guess what the reason for lack of public clients is, but what probably impacts it is:

  • programming a usable client takes time/effort/skill
  • the process of how the API works isn’t final (sandbox issues, documentation issues), so developers are still waiting to work on it
  • people would rather not be responsible for other people’s money (mistakes the application make could be blamed on the developer)
  • there is no chance of monetisation at this moment (either due to people not being willing to pay or lack of usability for API at this point)
  • people are only sharing the clients with close friends

I asked Jarmo, who created Beeplus a few questions, since I know a lot of people are using Beeplus to invest via Bondora.

A bit about yourself (who are you, how long have you been investing?)

I’m an experienced software developer with some spare time in my hands (happens sometimes, rarely). I have also been investing small amounts at Bondora for a few years now.

What motivated you to create Beeplus?

When I saw an article about Bondora creating an API at their blog, I wanted to create something for myself to invest better at Bondora because their Portfolio Manager is very limited. After I started playing with the API in the sandbox environment I saw an opportunity to not just help myself, but also others like me and created the BeePlus. This is how it all got started essentially.

Who is the typical Beeplus user? (Do you have any user stats to share?)

I haven’t conducted any interview processes yet among BeePlus users, but deriving from some communication I’ve had with them, I’d say that currently big part of them are early adopters and more technical users. I haven’t made (almost) any PR to promote BeePlus and all current users have somehow found BeePlus. To be honest, I don’t know how. Currently BeePlus has 50+ active investors (meaning they participate daily bidding on Bondora’s auctions) and from the end of November (time when BeePlus went live) BeePlus has made 5000+ bids on behalf of investors through Bondora’s API.

Is Beeplus a hobby project or will you monetize it at some point?

Currently BeePlus has been a hobby project, but I’ve had some thoughts about making some money with it as well by introducing a freemium model (meaning that core functionality is free, but premium functionality will cost a little bit of money). It’s not going to happen in near-future if ever though.

What is best about using Beeplus? What are you planning to add in the future (or is Beeplus now ‘ready’)?

Best of BeePlus is that it is user-friendly (hopefully), because UX (usability) has been one of the goals since from the beginning. Security and privacy is also very important to me (for example many users ask for functionality, which would require BeePlus to query about investors available balance at Bondora’s account, but I’ve not done these yet due to privacy reasons – it might change in the future though). BeePlus is far from ready – I have a pretty long TODO list for it. I’m going to add some investment limits (monthly and/or daily) to the rules, secondary market support and so on. Functionality list is endless and I’m always hearing out all the ideas users might have as well, but at the same time I want to keep BeePlus simple and easy to use (UX, right?), which means that not everything will be implemented in the end.

Any wishes in terms of usability from Bondora’s side?

Bondora’s API has not been live long and that’s why there might have been many problems among API documentation and bugs in the system. Hopefully it will get better. However, there is a large problem of Bondora having lower priority for all API users compared to their own Portfolio Manager, which they are not planning to change. For now.


As you can see, luckily there is one option on the market written by someone who personally also invests and has been kind enough to share their work on the open market. However, at this point there are a few problems with how the API functionality works overall, that I’d like to address that I hope will get fixed in the future.

Prioritisation of bids

At this moment, the priority for bids is as follows:
1. Investors (likely to be institutionals) who bid via API to fill up whole loan
2. Passive investors using Bondora portfolio manager
3. Investors who bid via API

There are many key issues here. Firstly, at some point when institutional investors come into play, then we will be seeing more and more (or well, not seeing) loans not even hit the primary market. If we talk about a fund that wants to invest 2million/year then they are definitely not going to be investing into small pieces of loans.

At this point we do not have institutional investors on the market yet (as far as I know), but it will be interesting to see how it will play out. At one point, I’d say it might be a good idea to gather up your friends, pile up your investment money and start buying whole loans. Provided that you can pile up about 100K euros with your group of buddies this would probably work reasonably well in terms of diversification.

The second problem is the low priority of API bids, which is actually making the API rather useless at the moment. The whole point of the API being the idea that you can bid on specific loans that fit your investment model – however, since you are currently mostly bidding into loans that portfolio managers do not managed bid full, then trying to implement any strict filters for your loans doesn’t really work since you just don’t have the volume to choose from. This is especially true when we start thinking about a more conservative portfolio which at this point is considered by most to be Estonian loans AA-C.

The easiest way to fix this would be to reserve a certain percentage of loan total value to API bids. The reason why API bids are still getting AA loans at the moment for example is because the portfolio manager bids are mostly small enough that they do not fill up loans with higher values (you can also see fluctuations at points of the month when portfolio managers are “empty”). However, this will not last long since with every 200 loans in a portfolio the bid size increases – meaning in a few months more loans would likely be filled up by the autobidders. When visiting Bondora Pärtel mentioned that they would be looking into this, I hope if the situation does get problematic some sort of a fix would be made to the priority list (especially if other entities enter the bidding priority list). Currently as it stands, you cannot use the API for much other than a glorified country picker unless you have very strong models and are interested into investing into higher risk loans.

My bidding experience

Screen Shot 2016-01-15 at 14.49.30

Ever since the start of December I have invested 95% on my money via an API application, and a few loans I have picked manually. I am using an application that my husband built and as mentioned before, I am sharing it with a few close friends who have asked for it (since I don’t really want to be responsible for errors/support to an extent a public application would need). I am not using any complex model since I haven’t had time to develop anything but I am not ruling it out in the future, provided I have some time to analyse the dataset with the help of some analysis programs (not seeing this happening any time soon).

As it stands, for the whole month of December both my business & private portfolio used the application to bid. For my business account I managed to invest into 100+ Estonian AA-C loans. Mostly of course the result being B&C loans, since they are generally big enough, and there are enough of them to go around for everyone.

Starting January I set my private portfolio to only invest into Estonian AA & A loans, as I am slowly starting to withdraw money but I am still planning to keep a small conservative portfolio running. So far, it seems like I get an AA or A loan every 3-5 days. This is about the pace that I expected and will help me keep the pace of withdrawing all deposits into my private account within two years an reducing the portfolio size steadily.

For my business account, at the moment it seems like there is enough loans to go around if you are not investing at insane rates. Getting into at least 50 EST AA-C loans seems entirely possible, and for most private investors that is a perfectly reasonable level of diversification. As I said before, as the portfolio managers start bidding more or as institutional investors enter the market the situation might change, but if you don’t want to use very complex models you can get the money out. However, using very complicated predictive models at this point is rather impossible, however at least the clients are being built (if only secretly at this point), that in the future they will hopefully be of much more use.

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.

What is Bondora moving towards?

Having invested into Bondora for almost three years now, and having seen many radical changes happen over the course of that time, then yesterday’s announcement about both the primary market and secondary market being phased out to be replaced by either completely passive PMs or a more active chance to build your own API, the question arises – what exactly is Bondora moving towards?

2014octinvest

 

What is alternative finance at heart?

In the recent (I’d say 7+) years information technology has finally reached a level where it’s possible the radically disrupt classical business models via technological solutions. Most know examples of course being AirBnB and Uber, Transferwise, even Google as an overall idea and many others.

Fintech in that sense has been an interesting field to follow since at heart, innovation in the financial industry is mostly limited by how creatively you can find wiggle room between different regulations that try to stifle your growth and business model.

Quite a lot of new innovations have gone with the model of “It’s better to ask for forgiveness than permission”, and Uber is perhaps the best example of this in many ways due to actually being declared illegal in some places due to what amount to essentially cartel agreements that exist in the taxi industry.

For fintech, this has meant that many of the startups have started out being not regulated since they don’t fit into a traditional mould of what a credit institution should be. This is why many fintech start-ups first test their business model with a minimum viable legal work to see if it’s reasonable to pour money into actually working with all the regulations that will start pressing in from all sides once you’re a “real” business.

Bondora is one such example – they started out small enough to not be regulated, and now that they’re big enough certain steps need to be made. The first one was probably being voluntarily regulated by the UK financial inspection, but this was likely only a first step on a long path to the new Bondora business model.

What are the new changes about?

While the information so far has been vague in terms of what will happen (and when), then essentially Bondora will move from a one-time heavily individually (actively) managed investment to a more passive form, closer to a fund than a loan market in terms of how it’s going to work.

Now, where this gets interesting is if you follow what Bondora has been doing recently. Clearly they have done a pretty clear 180 from what they promised several years ago – more transparency and more tools for an investor are nowhere in sight, things that were heavily emphasised a few years ago.

Why the sudden change of heart? Bondora will probably never actually explain anything (since they never do), but it’s likely that this change will pave way for a bigger influx of institutional investors due to how much smoother it will be to use for portfolios that invest significant sums of money. Why institutional investors? – The reason is simple, small scale investors are unable to provide the money for expanding to new markets.

In some ways a more Lending Club-ish method of investing wouldn’t necessarily be bad, I mean it works for LC. Investors don’t really own the loan pieces, LC does, and you essentially buy a “bond” with expected returns. While this will likely drop overall returns, it should in theory also reduce risk. However, the success of their model is still heavily tied to the quality of their clients, so as long as they can guarantee that, then for the investor theoretically there shouldn’t be much difference in how the actual interface works.

Another key thing to keep in mind here, is that Bondora is in the process of getting a banking license. Pärtel mentioned this as well at the Opinion Festival, but it’s a move that makes sense if you want to ease your way into the big players, since the way banks are regulated is in many ways simpler than the (legal) loops that alternative finance needs to jump through. The recent announced changes certainly align with becoming a more “classical” type of business.

*I wanted to write a bit about the api as well, but there isn’t enough information yet. I truly hope they don’t accidentally make a Forex-like system though where you have to pay money to third parties to have the best chance to invest. Especially since most retail investors will never be able to compete with institutional investors.