I am in the process of exiting Twino

While Twino has served my portfolio well, then the time has come to stop investing there for me. Overall I have no issues with the portal or how it’s run, there are just a few reasons why it’s no longer compatible with my portfolio and there’s no reason to keep it.

Lack of short term loan volume

That isn’t to say that there aren’t short term loans, there are just too many investors who want to have those short term loans, meaning the level of cash drag you experience when waiting for your spot in the queue is a bit too much. There is also an actual lack of loan volume, mostly due to the lack Georgian loans.

BBG vs PG loans

Ever since PG (payment guarantee) loans were introduced I’ve struggled to get any BBG (buyback) loans. I’m not fundamentally against PG loans, however they do lock you in for a LONG time. The default rate at least in my portfolio was pretty big, meaning that quite a bit of my money is locked in for a fair bit longer than I’d want. The original reason why I added Twino to my portfolio was the liquidity of the loans, that is something that is no longer true.

Big changes in the business

Seems like Twino is going through some turbulent times. The Georgian changes, different countries they’re pushing into, structural reorganisation. All of those are understandable, however their communication seems to have fallen off a cliff somewhat. I’ve been waiting to read their 2016 financial report, and as of now it’s still not available.

Where is the money going?

Well, a part of the money is going into the down payment fund of my new home, but most of the money will be transferred to Mintos. There’s enough selection of long and short term loans for me to choose from and enough originators to manage portfolio risk.

How quickly will I exit?

Well, I got the money I added + a bit on top within the first week. After a withdrawal request it takes about two days for the deposit to appear in your bank account. So far I’ve managed to get about half the earning, and due to defaulted PG loans I’ll actually manage a full exit by April 2018… Which is a bit annoying, but I’ll live.

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Overall Twino has served me well, with perfectly OK returns. Just since I stopped adding money almost a year ago now due to lack of accessible loans to my taste, there isn’t much point in keeping it about. I’ll see how they are doing and how the loan balances improve and may consider a return at some point.

Mintos and Twino portfolio updates

Mintos and Twino portfolios are both steadily trekking on, and being probably the most passive part of my portfolio still. I kind of refer to them as my latte fund – my investments there are enough for me to afford a latte every day of the year, the worst financial sin in the eyes of some savings gurus :) Of course, I don’t actually drink a latte every day because I’m too lazy to actually go and get one, but the point still stands. Next goal for these two portfolios is to allow me to buy a Starbucks coffee every day. I’ll probably fill that goal before Starbucks actually opens a shop in Estonia!

Portfolio growth

Since I’ve been saving up money for a house downpayment, then I haven’t really been adding all that much money into my portfolio this year, and I’ll be a bit less aggressive with adding money until the house is ready and decorated and all those other million expenses that go with moving. However, both Mintos and Twino portfolios are slowly doing their thing, and I’ve started to add tiny amounts of money to my Mintos portfolio again.

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I’ve stopped adding money to Twino due to the fact that for a couple of months there was a constant cash drag issue, where there weren’t enough new loans with attractive rates to really justify adding any money. If they get their pipeline going better again, I might reconsider, but I currently have 3500 euros floating around there, bringing in about 35 euros/month, so it’s a nice and slow growing portfolio.

Mintos however is really showing impressive growth, both in terms of loan volumes and amount of originators, being well on the path of becoming a P2P market leader in Europe. While I’ve been quite liberal with my autoinvest settings in Mintos, then about 90% of my Mintos portfolio is still mogo loans, which have served me well. Currently I have 4400 euros circling around, bringing in about 45 euros/month, so also a nice passive portfolio.

Returns

Now, returns are however on a different track and instead of climbing upwards they are steadily declining. This is inevitable as more money pours in to P2P, and there is more competition in the field. Currently Twino returns show as 13,42% and Mintos returns show as 13,03%.

As time goes in, I expect both of them to balance down to about 11-12%, which is still impressively good for such a passive investment. I literally just transfer money in whenever, and don’t really even log on to check the results all that often.

The only interesting thing in the past few months has been the fact that since Eurocent is struggling, I’ve checked occasionally how my one Eurocent loan (22€ loan piece) that I’d managed to pick up is doing. I’ve also pushed my Twino portfolio to be abit more towards shorter term loans, bringing the average length down, now that there aren’t much BBG loans anymore.

Twino status:

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Mintos status:

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How many P2P portals to include in your portfolio?

Since there is a significant amount of P2P portals now available compared to a few years ago, the question quickly arises – how many portals should you include in your portfolio? Is it better to focus on just a few portals, or should you attempt to diversify and reduce risk by including a large amount of portals? How does this change when the total sum of your investments gets bigger? Are there downsides to diversifying?

My current P2P portfolio

As time has moved, my P2P portfolio has changed a lot. I started, like many others with 100% Bondora, but have now completely exited it. I also tried Moneyzen, Viventor and Estateguru, which I’ve also not kept in my portfolio. It definitely took me a while to figure out a selection I like, and it’s constantly changing in time. Currently the balance is as follows:

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P2P investments currently make up 47% of my whole investment portfolio. This means, that from my total portfolio the rates are: OR 24%; CE 13%; Twino and Mintos ~5% each. As you can see the exposure to Omaraha is rather big, the exposure to other portals is significantly less.

Liquidity

As with all investments, something to consider is liquidity. With P2P investments liquidity mostly comes from two aspects – firstly the length of the projects/loans (for example Twino’s 1-3 month loans vs Omaraha’s 5 year loans) and secondly the availability of a secondary market (and the speed of trading there).

For me, I’ve decided that for now, liquidity is not a huge priority for me, which means that I’ve allowed my portfolio to move towards longer term locked-in projects. Omaraha does not have a secondary market, and while defaulted loans have a sell-back function, it’s still a rather long term investment. CrowdEstate is also a long-term prospect, since while the projects are generally 1-2 years in length, the portal has a right to extend the projects and there is no secondary market to allow for an exit.

However, a part of my portfolio I’ve still kept rather liquid and this part is carried by Mintos and Twino. With both of these portals, I can easily pull out money from in a matter of days, so if for some reason I need to move money to another investment, or have need for cash, then this portion of my portfolio allows me to do this.

Risk

Now, assessing risk is a tricky thing in the P2P business. While you can look at overall history of the portals, a lot of them are new enough to not have much of a track record. Both Twino and Mintos in theory should be relatively low risk, however since Mintos has at least one loan originator that’s in trouble (and might go bankrupt), it’s clear that things can still go wrong.

The most ‘stable’ part of my P2P portfolio is probably Omaraha, due to the length of experience they have, and the overall stability of the market. However, Omaraha is also prone to all kinds of radical changes (such as the interest cap instated last week), which means that the portal risk itself might influence your long term strategy.

Crowdestate is clearly the most risky part of my P2P portfolio at this point, due to both the type of investments (mostly real estate development projects) and the risk of the real estate market overheating. This means that I will not really allow the volume of investments to increase too much there, I’ve mostly hit the point where I reinvest returned money, and add in less than I used to.

Time expense

With every new P2P portal that you add, there is both an investment of time and money. You need to invest time to figure out how this particular portal works, and how to achieve the best results. Depending on the portal this might require quite a bit of tinkering. For example, Omaraha has been offering great returns, but the time investment in managing interest rates there was also quite a bit of work. In comparison to Mintos or Twino, where you could pretty much just cruise by, using the autobidder function.

Since I invest though my company account, then any new portal also means more bookkeeping, and additional tracking. This means that there isn’t really much point in adding in a portal just to put a couple of hundred of euros into it, it becomes reasonable to add in another portal once the investment is in the thousands already. This means that while I’m currently at 4 portals, it’s not unreasonable to add in a fifth, there just has to be a reason for it – either it offers some different level of liquidity; there is a significantly different risk profile (different sector, country etc.), or an attractive risk-reward ratio.

How have you divided up your investments?

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.

New Latvian and Lithuanian P2P sites

In the recent year, there have been quite a few new P2P sites launching in the Baltics, the majority of them from Latvia and Lithuania, and many of them following the buyback model and Mintos and Twino made popular. However, as it seems investors have quite a bit of money at hand, and getting into loans may not always be super easy, then having the chance to diversify is definitely nice. So, if you’re looking for some new platforms to look into, here are a few that have popped up in recent times.

Swaper (LV), buyback loans, balance sheet lender

SWAPER is the P2P side for Wandoo Finance Finance group, which gives out short term loans in Georgia and Poland, making them a balance sheet lender. The group itself seems to be made up of people who have worked in various other financial sector companies, but have found that P2P buyback is a viable model. Their home page is admittedly very light on information, still.

Viainvest (LV), buyback loans, balance sheet lender

VIAINVEST is a part of VIA SMS group – financial services provider operating across Europe since 2008 and the company currently operates in 5 countries and has grown into one of the leading European short-term lenders. They are a balance sheet lender (listing the loans they themselves have originated). Current total loans the group has originated – 288million euros.

Lenndy (LT), buyback loans, loan marketplace

The Lithuanian P2P portal lists pre-originated loans, making them a close match for Mintos‘ business model. They currently list three partners, but the amount of loans originated remains rather small – I think an issue might be with the regulations of the Lithuanian P2P market, which is very strict?

Bulkestate (LV), real estate crowdfunding

It’s interesting to see real estate portals, but they are of course far more difficult to kick off than loan-based sites. Bulkestate seems to be struggling with attracting people/projects, but it could potentially be a Latvian equivalent to CrowdEstate or Estateguru (but they better move quick before the Estonians manage more projects in Riga!)


 

Overall, it’s nice to see new platforms pop up, but they definitely have it much harder than the ones that came first – they have to prove that they have the knowledge, the volumes and the reliability that investors crave. However, due to higher risk levels, some of these also offer higher return rates, so it’s up to each investor to make up their own mind. I haven’t had a chance to test any of these sites out other than a cursory glance, but I hope that at least some of them do well and help increase P2P volumes in the Baltics.