I started investing in FellowFinance two years ago and I thought this should be a good time to write a report about my experience so far, even if I still have more questions than answers. So, if anyone of you is also using it, please share with me your experience.
FF is the fifth platform in Europe+UK in terms of monthly new loans origination but despite this fact I do not see a lot of investor talking about it.
The main reason I decided to test FF is that it offers exposure to new markets and sectors that I was not capable to invest in with other sites. Business and invoice financing in Finland represent two great diversification opportunities: the risk profile is lower than consumer financing but prospected returns are still high, especially if you compare it with what you can achieve outside the p2p world.
Invoice funding is best described as a short term business loan in which a company receives funding against its trade receivable; the advantage for the company is that it receive proceeds for the goods/services provided earlier (at a discounted price) while the lender is protected by personal guarantees and collateral. The investment period is low, averaging one month, and returns are above 6%.
Business loans have longer maturities, up to seven years, and include at least entrepreneur’s own personal guarantee and often also real security such as a mortgage or other company assets pledged as security for the loan. Average return is c10%.
FF gives you access to five different consumer loans markets: Finland, Germany, Poland, Sweden and Denmark. Excluding Poland, the others markets are mature and should therefore offer a lower risk profile. Consumer loans does not offer any buyback guarantee, once a loan is 90 days late FF sells it to a collection agency which pays between 53% and 30% of the loan face value.
FF returns are therefore lower than other platforms that guarantee loan buybacks and only time will tell which business model would be really viable after a recession.
Market diversification comes with a cost: you have to allocate capital to each market and if one market is not fully invested, FF does not automatically move the uninvested funds to other markets; cash drag can be a serious headache, exacerbated by the fact that minimum loan sizes are high, €25 for business/consumer loans and €100 for invoice funding.
FF suggests that a good level of diversification is at least 100 loans per market and I agree.
If you take these two elements into account, the amount you should invest in the platform is significant compared to the ‘minimum suggested’ for other p2p sites. FF has statistics for each market and if you invest less than their suggested amount your investment results can differ quite substantially from their projections.
You can personalise each allocator, setting for example minimum returns or excluding certain ratings. The function looks quite intuitive but due to, I guess, the imbalance between offer and demand your investment portfolio can result in having non-intended weightings.
FF takes a different approach when showing your portfolio return in the summary page compared to Bondora, for example: they take into account the credit loss reservation as if it is a loss, so the return shown is more like a worst case scenario return.
Overall I think the level of transparency of the platform is good, they provide useful graphs and a satisfactory level of statistics. I would like to see the amount of loans issued for each market and for each rating, to better understand which categories are more liquid.
Personally, the jury is still out for FF: I like the access to multiple markets from the same platform but the investment level demanded to achieve a sufficient diversification without a substantial cash drag is too high.
For new investor interested in the platform, there is a pretty convoluted way to get €50 if your initial investment is more than €300: I have to send you an email/SMS and if you open an account with the same email/phone number you will get the bonus. Let me know in the comments if you are interested.
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