fundingcircle

Funding Circle Stops to Offer Manual Investment in Self Selected Loans

wiseclerk 1 Comment

Funding Cirlce LogoUK p2p lending Marketplace Funding Circle announced today that from September 18th, there will be an important change to how investors can invest on the marketplace. From that date Funding Circle will withdraw the option to manually choose which businesses to lend to and which loan parts to sell. Instead Funding Circle says it will launch a significantly improved and upgraded version of existing Autobid and Autosell lending tools.

Investors will be able to choose one of two new lending options based on their personal preference. Both options will be available as a Funding Circle ISA, which Funding Circle intends to launch later this tax year.

  • Balanced: you will automatically lend to the full range of creditworthy businesses (A+ to E), aiming to achieve an attractive, stable return. This will allow you to build a balanced portfolio similar to the makeup of small businesses in the UK today. The projected return is estimated to be 7.5% per year after fees and bad debt.
  • Conservative: you will focus on lending to businesses that have been assessed as lower risk (initially A+/A) but with a lower projected return. The projected return is estimated to be 4.8% per year after fees and bad debt.

Funding Circle gives the following reasons for stopping manual lending:

We launched Funding Circle in 2010 with the option for investors to either manually choose which businesses to lend to, or use our Autobid tool to build a portfolio based on their lending preferences. While many investors have enjoyed manually choosing loans, there are some drawbacks to it:

  • Many investors do not currently benefit from lending to all types of businesses: currently some investors can find it difficult to access D and E loans, which are some of the most popular. We want to ensure investors lending through Funding Circle have an equal chance of accessing all loans, and earn the best possible return.
  • It can mean your lending is not spread evenly across lots of businesses: currently many investors who manually choose loans are not fully diversified and are at risk of having a negative lending experience. We want to ensure investors spread their lending across lots of different businesses as this is the best way to earn a stable return.
  • It can be confusing for investors: many investors tell us they prefer a simpler, easy-to-use lending experience: 73% of new investors who join Funding Circle choose Autobid, and 80% of Funding Circle investors* say simplicity of lending is important to them.

* Independently surveyed by Cambridge University

Funding Circle will also make changes to the interest rates effective August 30th. Funding Circle says ‘When reviewing rates we take a number of factors into account, including macroeconomic trends, the expected mix of risk bands of borrowers, expected bad debt rates and wider competition in the market, which continues to be increasingly competitive for lower risk businesses. The new rates will allow you to continue to lend to established, creditworthy small businesses while earning an attractive, stable return.’.

Furthermore Funding Circle has removes sales fees for selling loans, effective today. There will be no more premiums and discounts possible on the secondary market.

Several p2p lending services have made similar moves discontinuing self-selection of loans to invest into and asking investors to use autoinvest options instead usually citing simplicity and ease of use. While this may be true for part of investors it certainly is not true for all of the investors. Especially among most active and vocal investors there are some that like to select loans manually and dislike if that choice is removed (Funding Circle says 73% of new investors use autobid).

Possible as a result of sentiments like that Bondora reintroduced more selection options with their Portfoloio Pro feature, after removing them earlier.

 

Dutch Insurance Aegon Will Fund 160M GBP Loans on Funding Circle UK

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Today Aegon and Funding Circle announced a strategic long term partnership. Aegon will invest in loans to UK small businesses originated through p2p lending marketplace Funding Circle.

The partnership will see Aegon fund 160 million GBP of loans in the first 12 months under a framework agreement, with the intention to extend this step-by-step into a four year funding program. In the first year the investment will help approximately 2,600 UK businesses to access finance.

Aegon joins a wide range of investors lending directly to small businesses through Funding Circle, including 65,000 individuals, local councils, the government-owned British Business Bank, the European Investment Bank and other financial institutions. Funding Circle states, investors in the UK have earned an average 6.6% per year and 135 million GBP  of net interest over the last seven years.

The Economic Secretary to the Treasury, Stephen Barclay, said: ‘Small businesses are the lifeblood of our economy and it’s fantastic news that Aegon are investing through Funding Circle to help them thrive and grow. This partnership with one of the UK’s largest FinTech firms is further proof that the UK remains the global leader in FinTech. Aegon’s venture also shows that there is significant appetite for inward investment into the UK and we hope to see more deals of this scale in the future.’

Mike de Boer, CFO Aegon Bank NV said: ‘Funding Circle allows small businesses to access much needed funding. The strategic partnership we have signed with Funding Circle is another important step in the strategy of Aegon to cooperate with Fintech partners in the direct lending landscape. This partnership gives Aegon access to attractive small business loans over the next four years, which helps to further diversify our investment portfolio. High savings inflow of our successful Fintech Knab banking operation is used to invest in the Funding Circle loans.’

‘This agreement follows an extensive due diligence on the loan origination, compliance and risk-returns of the Funding Circle loans. Funding Circle has shown that their robust process, technology and financial innovation capabilities have a positive impact on the UK economy and small businesses in particular. Funding Circle provides quick and transparent funding to small businesses.’ Continue reading →

Funding Circle Germany Publishes Loanbook Performance Figures

wiseclerk 3 Comments

After months and years of announcements and waiting Funding Circle Germany yesterday published loan book performance figures. Data reported is on all loans since launch on March 30th, 2014 (at that time Zencap) and as of June 30th, 2017. In total there were 920 loans.

Figures:

Total loan origination volume 66,560,800 EUR  100%
Repaid loan volume 26,859,284 EUR 40.35%
Loan volume in default (more than 90 days overdue): 3,988,632 EUR 5.99%
Outstanding principal: 35,712,885 EUR 53.65%
Total interest paid to investors: 4,578,552 EUR

The outstanding principal of 35,712,885 EUR (100%) is further categorized:
Current: 33,293,583 EUR 93.23%
Loans that are less than 30 days overdue: 1,664,005 EUR 4,66%
Loans that are 30 to 60 days overdue: 421,902 EUR 1.18%
Loans that are 60 to 90 days overdue: 333,394 EUR 0.93%

Average weighted interest rate: 8.41%

I would have linked to the source here, but Funding Circle pulled the figures within hours after publication and the page now returns a 404 error (I did save a screen shot before they were pulled). I reached out via email to Funding Circle asking for the reasons, but have not received a reply up to the point of publication of this article.
Update: I received a reply from Funding Circle stating that the figures were not correct and did not match Funding Circle’s global reporting format. An example given was that payments made by defaulted loans were omitted. Funding Circle strives to publish the corrected figures asap.
2nd update July 13th: Funding Circle has now published updated figures in changes format. They are online here.

Phrasing it differently one could say that 9.6% (6,4M/66,6) of all issued loans are currently overdue or in default.

In my view the figures give a very bleak – but correct picture of the state of Funding Circle Germany’s loan book. Overdue and default figures are high. With nearly 6% of the loan amount in default and more than another 6% of the remaining loans overdue, there is a very high probability that many investors will incur (after tax) losses. Usually German investors cannot offset default losses against interest earned.

My portfolio

I invested into 27 loans with 100 EUR each (the minimum bid). I stopped investing already in February 2015, after only 10 month, when it became clear to me that Funding Circle Germany had higher overdue figures than expected. However as there is no secondary market at Funding Circle Germany I was stuck with the loans until maturity.

Of my 27 loans the status today is:
– 22 repaid
– 4 overdue (2 of them for 256 days !)
– 1 default (in collection)

I already received back 2,303 EUR of the principal, so there is only about 15% of my investment amount still outstanding. I might get away with a return around zero, as my defaults + overdues are still lower than the interest paid, but it will be close as I have to pay taxes on the full interest earned regardless of defaults. My dashboard still claims 4.12% yield for my portfolio, which does not reflect reality as I see it. The only chance for that to happen would be full recovery of defaults and overdues, which is an unlikely scenario.


My own portfolio at Funding Circle Germany

Investor sentiment towards Funding Circle Germany seems to have turned mostly negative to sarcastic in the past two years if you look at the massive critic on the Funding Circle forum at P2P-Kredite.com. Funding Circle Germany no longer publishes statistics regularly on new monthly loan volumes.

Funding Circle Raises 100M US$ from Accel and further VCs

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Funding Circle raised 100 million US$ of equity capital in a round led by Accel Partners. The round also included other existing investors Baillie Gifford, DST Global, Index Ventures, Ribbit Capital, Rocket Internet, Sands Capital Ventures, Temasek and Union Square Ventures.

The company will use the funding to continue to consolidate its position, as well as to continue to invest in technology and talent.

Measured by new origination volume during the last months Funding Circle is the largest p2p lending marketplace in the UK. The company is also present in the US and in continental Europe. Last week the British Business Bank committed to lend 40 million GBP to British SMEs through Funding Circle.

Funding Circle has now raised 373 million US$ in equity capital. The previous round was a 150M US$ in 2015 round led by DST Capital.

Marketplaces Step Up Incentives for Investors

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Currently there is an increase of promotions by p2p lending marketplaces in order to acquire and activate retail investors. Cashback offers are more frequent and Funding Circle is giving away iPads to investors that will invest at least 20,000 GBP during the Funding Circle spring promotion. Investors welcome these added benefits, but for marketplaces it is a fine line to walk. They want to grow originations, but risk that investors will expect getting extras and might hold back further investments until the next offer is made.

Funding Circle Spring Promotion
(Image source: Funding Circle)

What does the Funding Circle / Zencap Deal Mean?

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The big news at LendIt conference this week in London was that Funding Circle announced the acquisition of German marketplace Zencap. Zencap launched in March 2014 and facilitated SME loans in Germany, the Netherlands and Spain. Working with local teams, the IT infrastructure is run from the headquarter in Berlin.

Samir Desai announcing the acquisition

Zencap has originated more than 35M EUR loans since launch with a monthly volume of 4-5M in the last months. The vast majority of this volume was generated in German loans.

With the acquisition Zencap will become Funding Circle Central Europe and the founders Matthias Knecht and Christian Grobe will head this division. Knecht confirmed that Funding Circle paid in stock through a stock swap. All existing investors stayed onboard. No details on the valuation were publicly available. Knecht said at Lendit that talks between Funding Circle and Zencap started as early as Lendit 2014.

Allegedly Zencap has been trying to raise a new round since May 2015 but struggeled. A source from the VC scene told me that he thinks, that Rocket Internet – the backer of Zencap – might have concluded, that it is more important to prove that Rocket Internet is able to deliver successful exits rather than close another round which might not meet high expectations of onlookers.

What does the deal mean for Funding Circle?

I feel that Funding Circle essentially invests in the future outlook. The current volumes of Zencap are solid but not spectacular. So essentially the deal enables Funding Circle to jump from serving two markets to five markets (even though NL and ES are very small so far) without starting from scratch. They also get local teams that are familiar with the markets and their circumstances.
For Funding Circle Central Europe it means easy access to a large base of institutional investors that are already familiar with the Funding Circle brand and can now diversify into SME loan markets in continental Europe.

When I look at the platforms in continental Europe, Zencap is the obvious choice as acquisition target. It is the only platform with a SME loan model very similar to Funding Circle that already operated in multiple markets.

Knecht said at Lendit that he is looking at Italy and France as markets that look interesting for a further expansion.

What does the deal mean for retail investors?

Unlike on other marketplaces there will be no cross-border lending for retail investors on Funding Circle. Both Samir and Knecht explain that the mid-term outlook for this is that retail investors will be able to invest into loans in multiple geographies via a coming fund.
The German platform receives some critic from retail investors, which complain that it is less than perfect and reporting and processes need to improve. This got me wondering for a short while whether the British platform would be used to replace the IT for the continental European markets too. However when I asked Knecht at the conference, he said that there are no plans for that, and that Funding Circle would continue to run seperate IT platforms. Continue reading →