Twino BBG vs PG loans

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Twino has made an update in the loan product lineup they offer for investors, adding a new loan type “payment guarantee” to the previously existing “buyback guarantee” loan type. So what is the difference between the two?

As an investor…

For an investor payment guarantee allows for slightly more stable cash flow. Essentially when you used to invest into a loan, and it got delayed then the payment was made late when the BBG triggered. With the payment guarantee the idea is that the interest payments would always be made on time due to Twino taking a role in ensuring the payback. I’m honestly not sure how much of a difference it would be for most investors – the delay for BBG loans isn’t really that long most of the time.

However, this might be something that might encourage investors to lock their money into longer term loans since Twino is ensuring that regular interest payments happen. I’ve been allowing longer length loans into my portfolio for a while, and had no issues (a lot of them get bought back anyways, so there was no reason not to allow them in). Question now being though, which loans will be listed in the future with payback guarantee and which ones with buyback guarantee?

Another issue in addition to the potential loan lengths offered is the interest rates. It’s clear that the interest rates offered by Twino currently are a bit off, in the sense that there isn’t much difference between the short term (1 month) and the long term (24 month) loans. Payment guarantee is a potential tool that might allow them to differentiate between the two loan lengths, which is likely to result in the 1-month and other short term loan interest rates dropping (down to something like 7-8%).

As Twino…

The main benefit I see for Twino is twofold. Firstly, by encouraging investors to lock in their money into longer interest loans, it will allow them to manage incoming cashflow a lot better instead if having to rebalance it every month. I mean, as a CFO it must be much nicer to see steady predictions for the next 12-24 months instead of the next 1-3. Currently P2P investors are rather fickle, and switch between portals rather quickly.

Secondly, as mentioned, the potential interest rate drop. We’ve been seeing some testing on lowered interest rates in the previous weeks already, and clearly this trend is likely to continue. Since it’s obvious that there is enough of a supply of investors on the site (as evidenced by the fact that a lot of investors have cash piling up), then it’s reasonable for them to not overpay but to test what’s the sweet spot where they get enough financing, but don’t stop losing investors.

So the question is…

How long are the payment guarantee loans going to be? If they’re long term loans then it would make sense for them to keep their interest rate.

How high is the interest rate going to be? By providing investors with an extra layer of ‘security’, investors might be more relaxed about lower interest rates.

I haven’t managed to catch any payback guarantee loans on the market yet, but it’s definitely something to keep an eye on as they start appearing on the market since they might show an insight into future interest rates.

Twino and Mintos, 1 year summary

I accidentally discovered that it’s been about a year since I started investing in the two Latvian P2P portals – Mintos and Twino. While in the beginning, I was mostly testing them out as a potential alternative to the Estonian Bondora, then a year later the situation has changed – I’ve fully exited Bondora on both my private and business portfolios and Mintos and Twino are steadily trucking on as the 3rd and 4th biggest P2P positions, providing steady interest returns with very little hassle.

Good sides:

  • Both Twino and Mintos offer impressive volumes (finishing December with 14mil and 18mil of loans originated, respectively), meaning that for most investors it’s not difficult to employ their money – with reasonable conditions it gets fully invested within an hour.
  • Steady communication and development have positioned them both as relative flagships on the Baltic market, inspiring several other followers (I’ve lost count of the amount of buyback based sites that have popped up recently).
  • Geographical diversity for loan originators provides an easy chance for investors to reduce risk by investing into loan markets other than their own (through OR I’m heavily invested into the Estonian consumer loan market already).
  • Easy-to-use and generally understandable interfaces and reporting systems make keeping track of your investments and changing settings relatively easy (unlike some other sites).
  • By far the most liquid part of my P2P investments, making it easy to cash out rather quickly if in need to reinvest somewhere else (so works as a good place to keep your “cash” position).

Reasons to worry:

  • Quick development also means effort of keeping track of changes – Mintos has gone through a lot of legal changes (relationships between Mintos and originators have changed) and Twino has gone through a full structural reform (with Finabay renamed to Twino and the structure flipped around).
  • Hands-off model also means lack of significant info on the risks of originators and potential losses; this being particularly true for the non-buyback loans which both have started to offer.
  • Sometimes problematic unannounced changes, which have got some deserved negative feedback from investors (mostly unannounced and not well communicated interest changes).
  • Influx of investor money means reduced returns long-term, with interest rates having averaged lower already within the year (while still remaining relatively high).

Overall I’d say I’m quite pleased with both these picks. In my portfolio they are the closest to a near-cash position that I have, and while I don’t focus on actively increasing the positions, then I add in 50-150 euros monthly, keeping them on track of hitting a combined 10K value within the not too distant future.

I’d definitely like to see how they manage with increased investor demand (since the longer the history the higher the trust, but the more money available the lower the interest rates), and hoping to start see some solid numbers on non-buyback loans (rather much like gambling to pick them up now without any significant recovery history to speak of).

Twino and Mintos are both making me 1 euro/day

I’m a fan of silly investment goals. Just aiming for the big goals 10K – 100K – 1M or anything of the sort is great in theory, but a bit demotivating at start, because the first big goals take the longest, and the big goals often seem so far off, that they seem impossible to achieve. So, take joy in the little things!

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Since the end of the year is nearing, then I’m starting to write in some final numbers to look over goals and returns for the year and I noticed that both Twino and Mintos portfolios are both earning just over 30 euros per month, which means an euro every day. It might seem small, but I mean – if you found an euro or two on the ground every day to work you’d be pretty happy, no? Also, that’s just enough to  buy a latte every day forever 😉

On a more serious note, both Twino and Mintos have clearly done well this year, finishing at 10M/month, which is finally starting to make the totals for P2P lending in the Baltics look nice. The ease of use, and lack of overall attention you need to pay on the investments is nice for any passive investor, but there are of course changes happening constantly that you should keep an eye out on.

Twino

Twino is by far the most hands off part of my P2P portfolio. Due to overall lack of any detailed info about clients, it’s as much of a set-and-forget as possible in P2P. It does seem like there is an increasingly large amount of investors’ money available because you’re unlikely to see any higher interest loans available listed on the market. I assume without an autobidder it’s near impossible to invest into them.

Overall, I’ve kept to my strategy of mainly 13% interest rate longer-length loans. Largely because I don’t see myself needing the money any time soon, and secondly because a large part of those loans gets bought back due to the buyback guarantee, meaning if I did need to get the money out it would be reasonably easy.

Mintos

Mintos however has been a bit more hands on. Since the interest rates that different loan originators offer change rather often, you must keep an eye out on what’s happening. This means tinkering a bit here and there with the interest rates in the autobidder and due to high demand for loans it’s rather difficult to get into them even with the autobidder set, it seems.

My recent strategy has been picking up loans on the secondary market. There are always people leaving the site and selling their investments, some people even sell things at a discount when they’re delayed (yes, even buyback loans), so there is potential there. It does however take some time, because you have to do the purchases manually.


Overall I can’t say that I have any big complaints about either of the sites. Current plan is to slowly keep increasing both portfolios until they are both bigger than my position in Bondora (which will happen rather soon), making them the 3rd and 4th biggest P2P positions in my portfolio (currently led by Omaraha and Crowdestate). Definitely nice to see good diversification options on the market!

 

Bondora private portfolio exit status

One of the changes that happened in my P2P portfolio this summer was exiting my private portfolio in Bondora. I know that I planned to postpone this due to tax reasons, but the portfolio was not really shrinking quickly enough from just normal paybacks, so I decided to pull the plug and sell off my current loans, and some of the defaulted loans which seemed unlikely to ever start making payments.

Before I get into the numbers of how it went, I’ll make one thing clear – my exit is far from ideal since Bondora is a long term investment, and exiting at the 3 year mark from a portfolio that was still in heavy growth phase is clearly not ideal. I haven’t completely stopped investing into Bondora, I did build up a small portfolio for my business account, so I still have some faith in them, but it was more reasonable to exit my private portfolio since the tax obligation would have been ridiculously big otherwise.

Selling off loans – how did it go?

I was lucky in the sense that I had a lot of very interesting oldschool loans from way back when, when the rating system was flaky at best, therefore I got to sell a significant amount of loans at a reasonable premium. However, overall, I’d say that currently selling loans is not a particularly easy task if you wish to do so at a premium. For most loans the premium ended up being in the 3% range, which is clearly less than was once expected from secondary market liquidity. I did sell off some 60+ defaulted loans as well, which I felt were completely hopeless (and had been marked as write-offs), but that obviously hit the portfolio value hard, and it’s difficult to predict whether any recovery would have happened.

Totals & XIRR

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As it stands, at this point I’ve transferred out 5,6K euros out of the originally added 5k euros, which means I’ve at least gotten my money back. Here is where it gets complicated though – the majority of the theoretical future returns are stuck underneath defaulted loans, that are showing very slow recovery. At best the loans pay a few cents monthly, and even the ones that are paying aren’t really impressing me due to the DCA costs currently linked to recovery.

I recalculated my pre-tax XIRR this morning and it’s clearly nothing too impressive. While recovery will end up pulling up the total returns number, then I am less than optimistic when it comes to reaching two-figure returns. The assumptions I’m using for the XIRR calculation are – -30% discount for delayed loans, 10% yearly recovery for defaulted loans. Unless magic starts happening then Bondora will end up being a learning lesson with little economic upside.

While I will keep Bondora in my business portfolio, I am not adding in more money at the moment, since other P2P portals are offering much better risk adjusted returns with significantly less hassle. If this return were with no time spent on managing my portfolio I’d be OK with it, but expecting to land at somewhere in the 8%-range is too low for the active involvement required now (even discounting the fact that I really did exit at a rather bad time, giving well-performing loans little time to compensate for losses from defaults.) Here’s to hoping the recovery is impressive in the long term!

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Omaraha portfolio, 6 months

Omaraha is a small Estonian P2P lending site, that I added to my company P2P portfolio. Out of all the other portals in my portfolio at the moment, this is the least international and smallest in terms of volume – they focus heavily on Estonian loans and do not have aggressive expansion plans, making it difficult to create a truly large portfolio there. However, they have been a nice addition to my portfolio and I think I’ve gotten into the groove of how things work there in the last 6 months.

Investment logic

By far, Omaraha has the most complicated auto-bidding system of any P2P site that I have used. The borrowers get assigned a credit group between 600-1000 and you can assign individual interest rates to all credit groups if you wish to do so. However, when assigning the interest rates you must take into account that Omaraha has a different profit model than other sites – they take 20% of the interest earned from the loans for themselves, so if you assign a 25% total interest rate, then only 20% is your part of it.

To make it even more complicated, they have two additional quirks added to their bidding system. Firstly there is something called a bonus, which essentially is you voluntarily giving away a bit more of your interest earned into the buyback fund with the purpose of getting ahead in the auto-bidder waiting queue. This means that you can either accept a lower interest rate or set up a higher interest rate, but agree to give a percentage of that away.

The much more problematic part of auto-bidding is the fact that Omaraha functions as a black box when it comes to giving out any information about what the interest rate averages are when it comes to different loan groups. This means that you’re taking a stab in the dark when trying to guess what to set the interest rates at.

Firstly, this means that you need to find someone who has invested there for a while to get some reasonable info about interest rates or you just set up your bidders and then come down one percentage point at a time to see at which point the money starts going out. As there is different amounts of borrower demand throughout the month, then the interest rates may float throughout the month as well by a couple of percentage points.

This means that maximising profits is rather difficult unless you wish to spend a large amount of time trying to fine tune your interest rates. I’ve made peace with not being able to squeeze more out of the system, though I know it is possible from several investors who have told me that they spend more time tinkering with the numbers.

Usability logic

There are two key things you must keep in mind if you want to invest in Omaraha. Due to them being so small and not wanting to develop the portal too much, there is no secondary market. This means that you are unable to make a quick exit through selling your investments. From what has been said from the forums, an exit can be done with you taking out a low interest loan to get your money out, but this still carries interest, meaning you will be taking a loss if you want to exit early. Therefore you should consider this one of the longest term investments in an average P2P portfolio.

Something that makes the investment length a bit shorter is the fact that Omaraha uses a buyback system. Their system works as a partial principal buyback, meaning if a loan defaults then they buy it back at 80% remaining principal value. It’s definitely not as generous as Twino or Mintos with their 100% principal buybacks, but Omaraha also offers a higher interest rate which compensates for that.

The issue for those who invest into P2P via their company, is the lack of proper reports. The screenshot you see below is literally the only reasonable report you can get from the site when it comes to your investments. As for myself, I take a screenshot of the investment status every month, and this is what my accountant uses as the base document for bookkeeping. Not ideal by far, but not seeing any changes there in the future.

Overall, I’d say I like their system, they offer competitive interest rates and the ability to invest into Estonian loans only. There is also a large amount of tinkering you can do, however I feel at this point it’s reasonable to just try to keep the investments going steadily instead of fine tuning it and wasting too much time. The lack of exit options is problematic, but this is also why I am limiting the portion of my investments that I put into Omaraha.

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