Bondora – The P2P Credit Marketplace
Is the P2P platform Bondora the right crowdfunding provider for you? Is Bondora the best P2P credit marketplace?
At a financial fair I met Matthew Clannachan, Business Owner of the investor platform at Bondora.
The perfect opportunity to ask questions and take a closer look at the offer.
I especially like the fact that Bondora has been generating corporate profits since the end of 2016 and has enabled investors to make returns varying between 10% and 15% in recent years.
This post will tell you more about how exactly Bondora works and what the new product GO & GROW is capable of.
What Is Peer To Peer Lending?
Matthew, could you give us a quick overview of how peer to peer lending works?
P2P is nothing new as an investment instrument or as a concept. Lending has been around for hundreds of years.
In the traditional sense, individuals provide each other with a loan, or large companies such as Deutsche Bank lend to their customers.
The money required for this purpose is provided mainly through the company's own liquidity or through investors.
In return, the lender is paid interest by the borrower. The interest augments the capital of the bank and more loans can be extended.
About 10 years ago, at the peak of the financial crisis, it became much harder to obtain loans from a bank.
As a result, interest in P2P lending, also known as crowd investing, has grown.
Since then, individuals can act as lenders or as borrowers and be part of this investment vehicle.
Currently, more than 46,000 investors have lent their money to various private borrowers through Bondora.
They receive interest income for the loan. So far, investors have invested more than EUR 178 million on Bondora.
For these investments, they received more than EUR 22 million in interest.
Bondora acts as a link between private lenders and private borrowers, providing the credit platform.
As a middleman, Bondora allows every lender to lend money to other individuals, even without an own license.
What exactly are the advantages for a borrower, for example, compared to taking a conventional loan from a bank?
This is an excellent question. First, interest rates are often lower than with conventional banks. On the other hand, the lending process at Bondora is significantly leaner.
If a borrower wants a loan from a bank, then he or she must make an appointment with the bank on the spot, provide a great deal of documentation and, above all, often wait for several weeks before the bank comes to a decision.
However, usually, the borrower needs the money very quickly.
If the bank rejects the loan, in many cases this results in very unpleasant situations for the interested party.
At Bondora, it works this way: the potential borrower accesses the Bondora website, where they enter their details (for example, full name and address, as well as income).
The decision on whether to accept the prospect as a borrower is taken very quickly and communicated.
In this way, the borrower does not lose unnecessary time and also receives fair interest rates. Thus it is a win2win situation for everyone involved.
Each borrower is also rated – this means he receives a credit score from AA, which stands for „low risks“ up to HR, which stands for „high risks.“
This rating, in turn, is critical to investors at Bondora because investors have the opportunity to choose select risks when lending.
Borrowers who are considered to be high risk on the credit check pay higher interest rates than borrowers who are considered low risk.
Conversely, for lenders, that is, investors, this means that the potential return from interest on investments may be more profitable in high-risk loans than when investing in loans that are classified with an AA rating, provided that all loans are ultimately serviced and repaid.
The Bondora Platform
For lower rated loans, the risk of partial or total default is higher than for AA-rated borrowers.
If I, as an investor, decide to invest on the Bondora platform, where exactly do I have to transfer my money?
Investors transfer their money to Bondora. There the money is kept in so-called segregated accounts.
A segregated account is an account in the name of the investor that is kept separate from the assets of Bondora.
You can do this via a range of different options, including Trustly, SEPA, Transferwise, Trustly and Visa.
What are the typical repayment terms and what is the average amount of credit granted?
We mainly offer lending with maturities between 36 and 48 months, partly with much shorter durations, which is the exception.
Interest rates vary from country to country, and the average loan amount is currently 2200 Euros.
Investors love Go & Grow because they don’t have to worry about the duration of their loans, and as a result, are not forced to hold their investment until the loan matures.
Fast liquidity has proved to be extremely popular across the investor community.
When was Bondora founded and what plans are there for the future?
Bondora was founded in 2007 in Estonia, the first beta version of the platform went online in 2008. The official market launch was in 2009.
So we probably can’t be considered as a start-up anymore (despite still having the culture internally), we’re more of a “Scale-Up” today.
We have no immediate plans to enter any new markets to offer loans, instead we plan to grow significantly where we are already operating.
This will allow us to scale ethically, build trust and serve customers who need us.
Our sole focus is to build a simple service everyone in Europe can use.
To do this, we have created a range of products which allow you to invest in a couple of clicks (Go & Grow) or even build your own program and connect this to our API.
We don’t focus on onboarding institutional investors, because this often diverts your attention from creating and improving services which cater to the majority of your customers.
Bondora Go & Grow
In 2018 Bondora launched the new product „Go & Grow.“ Can you please tell us more about it?
We like to say Go & Grow is for the dreamers. You don’t need a degree in finance or any experience in investing to get started, you don’t have the limitations of liquidity traditionally associated with P2P lending, and you can see your returns added daily.
We offer a target return of 6.75% for all investors using Go & Grow.
There’s no need for investors to select loans or even an investment risk strategy manually, they simply create the account and we do the rest. In the background, the Go & Grow portfolio is made up of over 50,000 loan pieces from all risk ratings and countries where we operate – so investors benefit from diversity without any hassle.
All returns in excess of 6.75% are reinvested into a reserve to ensure we can continue to offer liquidity and the return of 6.75% in the future – and Bondora has no claim on this.
The response from investors since launching in June 2018 has been incredible.
As a result of offering a simple service everyone can use and increased trust from investors, we’ve seen the amount invested each month nearly quadruple compared to 12 months ago.
I’d personally encourage any existing or new investors using Go & Grow reading this to send us feedback on how we could improve it further for you.
Is the return of 6.75% guaranteed?
No, there is no firm guarantee.
However, as our investors have achieved a return of over 10% per year in the past, and since release we’ve delivered on our promise to date – we’re confident we can continue to deliver.
The advantage for the investor is they can passively make money and earn up to 6.75% in return.
In doing so, Bondora ensures that the selected risks in lending correspond to the expected return.
This means that while an active P2P investor can achieve greater performance at Bondora with the Portfolio Manager or Portfolio Pro, with a dynamic selection of the loans to be given, they must also invest time, effort and accept a higher risk profile compared to Go & Grow.
When choosing our new product GO & GROW, the time factor is optimized for the investor, and the expected return is still significantly higher than for savings accounts.
Another advantage of GO & GROW is that there are no minimum terms. Thus, the investor can flexibly transfer his money back to a savings account.
What do your customers particularly appreciate about Bondora?
I can summarize this in three points.
- The range of products
- Our 10+ year track-record
- Simplicity and accessibility.
As previously discussed, Bondora Go & Grow is a perfect way for anyone to get started in the world of investing without any experience.
At the other end of the spectrum, technically-savvy investors are able to write their own program and connect to our API.
You’ll need some technical skills with any common coding language to be able to do this. Plus we have Portfolio Manager and Portfolio Pro in between.
My point is, no matter what your own personal strategy and experience is, you’re able to invest with Bondora.
Our track record and over the past 10 years gives investors’ confidence, because let’s face it, P2P platforms are still relatively new to the market – with the majority of platforms in the industry launching in the past few years or so.
Insolvency is of course always a risk investors should be aware of.
However a track record of operations and interest paid out to investors certainly builds trust.
Building on the simplicity of our platform, we’ve recently launched in 24 European languages.
Despite already having investors from 85 countries around the world, we’ve seen customers join us from all over Europe in the past 12 months.
It’s much easier for people to use something that’s in their own native language, so we partnered with existing Bondora customers and agencies from 24 European countries to help us offer this service.
We’re consistently looking to improve and build a service anyone can benefit from.
This was the interview with Matthew Clannachan, Business Owner of Bondora.
About the Author
Alexander is an investor, trader, and founder of daytradingz.com. After devoting many years to educating himself on powerful day trading techniques and effective investment styles, he started trading and investing more actively. In the past 20 years, he has executed thousands of trades. In 2015, he began writing articles about trading, investing, and personal finance. He is very passionate about sharing his knowledge and strives for success in himself and others. Alexander has been featured on Benzinga, Rockstar Finance, and ESI Money.