This is the first article in a series of interviews that features prominent leaders within peer-to-peer lending, real estate crowdfunding and startup equity crowdfunding.
In this article, we talk with Ivaylo Ivanov, CEO of Iuvo Group, about his views on the crowdfunding industry, what you can expect as an investor on Iuvo Group, and what the future will bring for the Estonian-based marketplace lender. If you are interested in more info on the platform monthly updated page about Iuvo Group.
Who came up with the of Iuvo Group, and why was it founded?
Iuvo Group was founded in 2016 following my meeting with the shareholders of Management Financial Group (MFG). I’m an experienced financial professional, and I was looking for ways to mix finance and technology in crowdlending and crowdfunding. At the same time, MFG was already exploring ways to expand its fintech ecosystem with P2P lending and give additional momentum and growth to its lending business. MFG is a pan-European non-banking financial holding with several lending business models, digital finance and alternative financial products and services, etc., with over 15 years of successful and sustainable market presence. MFG is the majority shareholder in Iuvo with 94 % ownership. The rest of the shares are divided among key management personnel.
Who financed Iuvo Group in the beginning? Does Iuvo have the same owners today?
Iuvo has an entirely paid-in capital to the amount of 1.7 million euro, and its ownership structure has not changed since its foundation. It’s still financed and managed by the same founding team, part of MFG.
Did you build the platform yourself, or is it made by an external software company?
The platform is the result of both in-house and outsourced IT development, as it consists of several modules.
What type of investing do you offer at Iuvo? How does it work?
We enable retail and institutional investors to invest in a wide array of secured and unsecured loans issued by regulated credit companies (originators) on markets worldwide. After the originator grants the loan, it is uploaded on Iuvo, where the investors can see it and choose to invest in it. The investor makes a profit from the interest payments, and the originators benefit from the extra funds to help them expand their business. In case the borrower stops paying the loan, the buyback guarantee is activated, and the investor gets their remaining principal back. For the past four years, Iuvo has demonstrated stable growth and offers its investors the opportunity for permanent long-term yield. The main advantages are that one does not need financial experience or special skills to start investing, and the yield averages around 9% on an annual basis.
What does the average investor at Iuvo look like?
Our service is for people that want to generate passive income, and most of our investors use the platform as a bank deposit alternative. Also, we service both individuals and companies and already have several institutional investors as well.
Usually, our users are with high financial literacy and are keen on using new technologies. They are open-minded, with a good understanding of how the world economic system works. We characterize them as “the smart money.”
If I choose to place money at Iuvo and I build up a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
The average net annual return of the portfolio on the platform is between 8% and 10%. Of course, it always depends on your investment strategy, but a well-diversified portfolio will surely match this return.
How much can I expect to receive in return in a year with a well-diversified portfolio if there are no losses and the loans are repaid on time?
Since all the loans on the platform come with a buyback guarantee provided by the loan originator, the return with or without delays should be the same. The only case of non-repayment with our business model is when a loan originator goes into insolvency. This has occurred only twice in our history since 2016, so it’s a fairly low probability.
How do you choose which loan originators to cooperate with?
Fortunately, Iuvo is the platform with the strictest due diligence process for accepting lenders on the platform, which became evident during the COVID-19 crisis. The majority of our partners handled the situation well and coped with minimum delays. Liquidity on the platform was good, and there was no delay with client withdrawals whatsoever. The pandemic has also pressed the industry’s need to adopt a more conservative approach to supplying loans. We have recently opened a dialogue with competitors, branch organizations, and institutions to create and adopt “P2P lending best practices and standards” among the top platforms in Europe. The goal is that all significant players decide on an adequate set of requirements for loan originators that will be present on each platform. In this way, we can eliminate the possibility of low-quality companies shopping around platforms to get the easiest deal.
How does the Buyback Guarantee affect the risk faced by investors?
The investments in Iuvo are safe, thanks to the buyback guarantee. If the borrower stops paying off their loan, the originator guarantees that they will restore the invested funds in the defaulted loan to the client’s Iuvo account. The buyback guarantee is activated on the 61-st day since the first unpaid instalment date unless specified otherwise by the originator. As long as the originators are operating and in good condition, the investors need not worry about their funds.
What are the risks investors at Iuvo are facing exactly? What scenarios have to unfold that lead to investors having a low return, end up having money at your company they can’t get back, or ultimately lose all their capital invested?
One possible scenario is if a loan defaults (the borrower stops paying) and the buyback guarantee is triggered. Whether there is interest paid on the repurchased due to the buyback guarantee loan is a decision left to the loan originators. Most originators on our platform start without them; however, some choose to pay interest on defaulted loans and are seeing very good results.
Withdrawal requests on the platform are processed within two working days and afterwards depend on bank transfer terms and conditions. During the first pandemic crisis of spring this year, our platform showed no problems with liquidity whatsoever. I can firmly say we handled the crisis better than a lot of our even bigger competitors.
What is the process if a loan originator doesn’t pay the obligations they have with the Buyback Guarantee? Has it happened?
To protect our investors’ interests is our top priority. We take that responsibility very seriously and take all legal actions in case a problem with the originator occurs. We are currently taking CBC and BBG to court after they failed to meet their obligations towards the platform. With our originator Monify, we signed an annex to the contract and agreed to receive full repayment of their debt in three instalments. The first instalment we received in October.
How do you make sure the risks are minimized and that the loans you offer on Iuvo are safe for investors to buy?
We are the platform with probably the strictest due diligence process. Investors must realize that they should choose platforms not only by the numbers on the site but also to thoroughly understand what risks are represented by the relevant interest rates, due diligence procedures, cooperation structure, choice of markets, etc., that each and every platform adopts in its pursuit of growth and revenues. As I previously stated, soon we will introduce “P2P lending best practices and standards” that we hope the leading platforms in Europe will adopt. We propose personal responsibility of the owners of the P2P lending platforms, a public ledger and a risk mitigation fond; mandatory requirement to cover key financial indicators, portfolio quality assessment, definition of a maximum listing volume on the platform and in the sector as a whole; analysis of the management and the owners and assessment of reputational risks; mandatory visits on site. A lot of these we have already included in our process.
Do you personally invest in loans through Iuvo Group? Why/why not?
Of course I do. I believe our platform to be one of the best on the market of P2P lending. Personally I invest in P2P and a mutual fund on the Bulgarian market as low-risk investments, and have a mid-risk portfolio in shares on the international markets. My most speculative investments are in startups.
Who do you see as Iuvo’s biggest competitors and what sets Iuvo apart from them?
We value competition as value for the customers emerges from them. I believe our biggest assets and advantages come from our strict due diligence process and our excellent customer care. We’ve put a lot of thought into our customer journey, and the most significant focus goes on customer support. We’re aiming to be real-time advisors to users so that they can get the most out of Iuvo. We acknowledge that the product is new and requires education and trust in order to gain momentum. Especially at a time when we’re constantly subjected to chatbots and robo advisors, people will see more and more the benefit of staying in close contact with your money handling tool and speaking to them directly about their needs.
Are there platforms or persons in the peer-to-peer lending industry that inspire you? Why?
We’re looking beyond P2P as our vision for the business. Iuvo strives to become an all-around money handling tool for our users which includes savings, remittances, budgeting and loan options. So inspiration comes more from services such as Revolut, Google (for its finance products), Alipay and others.
Since Iuvo was founded in 2016, what have been the biggest challenges so far?
Attracting the best originators on our platform, setting good practices and standards, gaining the trust of our customers. I believe we have a lot more to invest in educating the general public about P2P lending and investments. Of course, we cannot mention the Covid lockdowns earlier this year which shook all financial markets. This was a truly unique situation which tested the business model tremendously. We’re happy to say that we passed the test and we’re back on track to achieve our vision.
What do you think the future of marketplace lending with external loan providers (loan originators) looks like? Which risks do you see for the industry in the coming years?
2021 will be a year of recovery of the growth of investments to the levels at the beginning of 2020. The clients already saw that our class of assets is resistant to volatility and passed through the crisis with stability and profitability. Additionally, I believe the industry will standardize its credit assessment approach. Up until now, the leading criteria in choosing a platform by the investors was the offered interest rate levels. 2020 showed that each platform has different depths of due diligence, and that’s what made the difference for the real performance of the loans. From now on, investors will pay much more attention to that process.
If we look ten years into the future and Iuvo no longer exists: What went wrong?
The world stopped turning, and the financial system as we know it collapsed. Joke aside, we are here to stay, and I believe that what we offer to our customers is of value to them. We have a lot of new products and services in development that will definitely improve the entire market, not only our investors’ opportunities.
All fintech businesses are utilizing technology to lower the costs of traditional finance services, but margins are also much lower than in other areas. This means we are here for the long term and looking to scale and build a lasting relationship with the clients. It is inherent in our strategy and is well understood by the team and the shareholders.
What is Iuvo’s strategy for the coming years? Do you have a vision for the future?
We’re expecting full recovery from the Covid crisis by the start of 2021. At the same time, we are working on some new exciting products, features and partnerships that will make P2P lending an important part of the fintech ecosystem in Europe. Our users can expect fixed income products, very interesting partnerships which I can’t yet disclose and even non-loan products appearing on the website. I also see the upcoming years as the time of fintech partnerships. The Bulgarian and regional ecosystem develops fast, and soon it will be able to offer all services of traditional banking. We will have a leading role in that.