P2P lending in the time of coronavirus

March has been a crazy month for p2p lending, and not only. The full effects of the current crisis are not yet visible, and there’s a lot more to come.

March has been a crazy month for p2p lending, and not only. The full effects of the current crisis are not yet visible, and there’s a lot more to come.

Not all platforms are created equal, but this month, they all went through the same 3 phases:

  • everything’s fine, even if the Covid-19 crisis is ongoing
  • let’s increase interest rates, to stop investors from withdrawing funds
  • hey, we do have a problem, let’s take some measures

Most of the platforms have already gone through the first 2 phases, while only a few advanced to phase 3.

Irrational exuberance or everything’s fine on our end

The first half of the month can be summed up with Alan Greenspan’s famous phrase – irrational exuberance.

The stock market began to drop. Meanwhile, all the p2p platforms started sending emails to investors saying the situation is under control, everything works under normal conditions, and that so far, they have no problems at all. Since the stock market is down, and p2p lending portfolios are not, it’s a good moment to invest in p2p lending.

This stream of emails continued until mid-March. At this point, I had around 100 emails from all the platforms I’ve ever registered with. I think the only platforms I haven’t yet received an email from saying everything’s fine were Monethera, Wisefund and TFG Crowd. Maybe they were just happy people were concerned with a new crisis and forgot about last month’s panic caused by Envestio and Kuetzal’s disappearance.

The only latecomers to the “everything’s fine” tune were Bondora, Debitum Network, PeerBerry and Viventor. It took them one more week until each of them released a statement saying they don’t have any problems yet and they don’t plan to do anything yet:

Stopping the bleeding, and increasing the interest rates

As the number of coronavirus cases increased and investors started to panic, withdrawing funds from the stock market, bonds market, p2p lending, gold, the p2p platforms started increasing the interest rates, hoping investors would be attracted by them.

  • The average interest rate on Mintos grew from 11% to almost 14%
  • Swaper, Twino, Lendermarket and Robocash increased their interest rates from 12% to 14%
  • Neo Finance increased their interest rates by 1% – 3%, hoping to attract the much-needed new funds.
  • Fast Invest increased their interest rates from 12.5% to 14% and 16%
  • even EstateGuru increased their interest rates from around 10.5% to 12%
  • Investly’s invoices trade now at 13% – 14%, instead of around 11%
  • PeerBerry started issuing loans at 15.5%
  • Flender started to offer a 1% cashback on all investments over 250 EUR

Meanwhile, the Mintos secondary market is flooded with 2 million loans on sale, thousands of them at a 20% discount. People are withdrawing funds like crazy, either to catch the stock market ride or just waiting for better times, with money under the mattress.

For the first time in ages, I can see available loans on Bulkestate’s primary market. The loans are small, around 50k EUR and still, nobody rushes to fund them.

The same for Flender. In the past 6 months, all loans were funded through auto-invest in seconds, and now there are 5 loans available on the primary market, waiting for days to be funded.

Zombie economics, or let’s actually take some measures in case the apocalypse comes

Zombie economics is a book describing the 2008 crisis, but some of its ideas are also valid today.

The coronavirus crisis deepened even more, with EU states taking more strict lockdown decisions, closing bars, restaurants, hotels, malls, international flights, putting the economy almost to a stop. It’s a good thing governments realized human lives are more important than GDP growth, and hopefully, these measures will soon prove useful.

As the different EU countries started to talk about help packages and postponing credit payments and taxes, p2p lending platforms started to wake up and began issuing more sane statements. Everything is not fine, we’re in deep trouble, and these are the measures we’re taking to prevent a complete meltdown.

The latest addition to troubled platforms is Monethera, which announced on March 27th in an email to its investors that they’re closing shop for the time being. Until the Covid-19 crisis is over and borrowers start repaying their loans.

Several factors prompted us to make this decision: pandemic and closed borders, reduced demand for goods and services of our borrower-companies, agreements cancelation. All this means that neither borrower-companies nor Monethera can fulfill our obligations to you.

Monethera, March 27th

The situation is dire, indeed.

Neo Finance issued on March 18th a statement most investors wouldn’t be happy with, but necessary. They’re taking a few good measures to prevent a meltdown:

  • As required by law, they’re arranging a credit leave of 3-6 months for borrowers that can’t pay their loans due to coronavirus
  • Loan applications for refinancing other loans are temporarily suspended, and 20% of the riskier C-rated loans applications will be rejected, to lower the overall risk of their loan book; also, the maximum amount to be borrowed is decreased
  • They’re reducing advertising costs and start reducing their operational costs, so their current funds last longer

They’re all good measures, and I like the way Neo Finance prepares for worst-case scenarios. They’re a good example for all other p2p lending platforms in the Baltics.

Mintos prepared a long blog article with statements from most of their loan originators, saying everything is fine. They’re still in the denial phase, although reality started to hit them with licenses revoked for different loan originators and delayed payments.

Wisefund decided it’s a good moment to expand their operations, and issued a statement saying they’re willing to support businesses affected by coronavirus and provide them with loans.

Grupeer finally decided on March 27th that the situation gets worse and they need to take action. 4 days later, they were saying they had to suspend indefinitely all payments to investors, due to coronavirus crisis.

Crowdestor sent an email to their investors on March 25th saying they can’t file borrowers for insolvency until September 1st, and they decided to postpone the payment on most of their projects until June.

A few UK platforms suspended or delayed withdrawals: Assetz Capital, Ratesetter, Octopus Choice. Linked Finance, from Ireland, applied a 2-month payment break to all tourist-related loans. Ablrate and Crowd2fund said they’ll help businesses to access government support. October, from France, asked investors to vote for a 3-month freeze on any capital repayments.

Meanwhile, most of the Baltics p2p lending platforms still think everything’s fine and reality is slowly hitting them.

The future of money

This is a book I’m planning to read soon, on the future of world currencies, and the title sums up my worries.

A few things I know so far:

  • Part of the payments I’ve been expecting on my consumer loan investments might be delayed for 1,3,6, an undefined number of months
  • If the current coronavirus crisis continues, I’ll feel sorry for all the p2p business loans I’ve been investing in, as most likely many of the businesses I’ve invested in won’t survive
  • The property-based loans I’ve invested in might also prove not so safe when property prices will drop below the loan costs
  • I won’t be adding any new more funds to my p2p lending portfolio, as I’m betting all my new financial resources on the stock market

I’m not panicking, and I’ll take this as a learning opportunity. This is the first financial crisis I’m passing as an investor, and the chances of me making mistakes are high. I might rush too quickly to the stock market, although I’m lucky I don’t have too much cash at hand to do this, so I’ll keep investing small amounts from my paycheck each month. Hopefully, this would be enough to prevent me from making rushed decisions.

I might also move around some of my p2p lending funds to Mintos, take advantage of the new panic and buy as many 20% discounted loans on the secondary market as I can.

Meanwhile, I’m working from home. At the same time, around 20,000 Orthodox priests in Romania are spreading disease by offering the Holy Communion using the same spoon. Spreading disease with a spoon. What a world we live in!