Lendermarket is one of the largest Peer-to-Peer lending platforms in Europe in terms of monthly funding volume. The platform offers short-term payday loans from Creditstar Group’s subsidiaries in seven European countries. We chatted with Lendermarket's CEO, Endrik Eller, who has been investing in marketplace lending for years, to hear about the platform's business model and market position.
Endrik Eller's Story
First, could you tell a bit about your own background and how you became interested in marketplace lending?
Alongside an MSc degree in Engineering, I have more than 15 years of experience founding and running businesses in the finance and IT sectors. For ten of those years, I have been an investor in P2P. For the past five years, I have been building modern financial service products for several successful companies. Currently, I am a key member of developing Lendermarket and making passive and long-term investing easy & accessible for everybody.
Marketplace lending caught my attention in its early days. At that time, when Bondora was still “Isepankur”, I enjoyed their initial offering, and that was the first platform I started using back in 2012. Then, we had the first real estate crowdfunding platforms launched in Estonia - Estateguru and Crowdestate. I became an investor there in the early months of their launch. I found it innovative at that time to give retail investors access to these direct investment opportunities and eliminate the entry barriers that had been there so far.
On all of these platforms, you needed just €50 to get started. This represented a low amount that everybody could afford to set aside monthly and get started with investing.
Today the industry offers you an abundance of platforms to choose from, and having part of your portfolio in fixed income instruments from across several platforms has undoubtedly revolutionized the investment landscape over the past decade.
The Story of Lendermarket
Could you tell us a little about when and why Lendermarket was founded? How do you aim to differentiate yourself from other marketplace lending platforms?
It all began with the idea that investing should be easier and more rewarding for investors - regardless of their location or available capital. In keeping with the near-endless possibilities that a digital world offers, the team behind us brought to life the idea of a simple borderless P2P marketplace. A new company was born - Lendermarket!
The Lendermarket platform is not just another asset management channel, but a platform that connects investors with trustworthy borrowers in the new age of digital banking in Europe. We provide fair returns and a risk-controlled investment environment. And no unnecessary fees are charged, of course.
Platforms are available in various forms. We do not directly provide loans to end customers as part of our business model. Therefore, we are one of the platforms financing lending companies against the loans they have already issued. This model has advantages for both parties and eliminates a great deal of friction.
I would also distinguish between a single lender platform and a multi-lender platform. In order to finance their loans, many loan originators have created their own platforms. Up until earlier this year, that was our position.
Our company is a spin-off of Creditstar Group - one of the largest and most reputable consumer finance companies in Eastern Europe. In the past, investors could only invest in Creditstar Group’s loans. However, we have recently become a multi-lender platform, meaning that we have and will continue to onboard lenders globally and not only from CSG. We launched our first new loan originator outside of Creditstar Group in Q2 2022.
We believe that financing lending companies as a multi-lender platform is the most attractive model for investors in the long run. We are enabling diversification inside a platform and gaining access to loan originators that otherwise wouldn’t be able to get listed. Not to mention the inherent buyback guarantee, simple and quick signup process, and an auto-invest feature to make the entire process passive.
Long story short, by investing in Lendermarket, investors will be able to generate high yield income in a passive manner, as we offer some of the highest interest rates on the market. We also offer tools that will help their journey and investment management, enabling us to provide a friendly and intuitive user interface.
Lendermarket Ownership Structure
Who founded Lendermarket, and who are the owners today? Do you have ownership in the platform yourself?
To provide additional liquidity to Creditstar Group's growing lending business, Lendermarket was initially founded by their management team. The company decided within a very short window to become a separate and independent platform that provides fundraising and liquidity services to non-banking lending companies worldwide.
We’ve grown as an organization quite a bit, but our mission remains the same - provide lenders with the best tools and investors with smart investment opportunities, then bring them together.
While I do not own direct shares in the company, I am involved in the share options program. As such, I’m fully committed to the company's long-term growth.
Will you give the readers an introduction to the other members of your management team - who are they, and how are their skills used at Lendermarket?
I believe any financial product requires a certain degree of trust to succeed. A robust product, lovable brand and controlled risk environment are the critical areas that our organization is working on and the skills within our management team strongly support this strategy.
How many employees do you currently have at Lendermarket?
In the last 17 months, our organization has grown from three people to a team of 14. As part of our preparation for the next growth phase, we have been building our team, and now we have both the capabilities and the talent to start developing and assembling all the features our investors want in the platform.
Investing at Lendermarket
Could you briefly explain what type of investments you offer at Lendermarket?
With Lendermarket, you can choose from two types of loans: consumer loans provided by Creditstar's Group subsidiaries in Europe, and business real estate-backed loans provided by Credory, an Estonian SME financing firm.
If I decide to invest money with Lendermarket and build a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
If you can stick with it, you may expect around 10-14% on average from the platform in the long haul. Our historical platform average is currently 13.8%, but adding more collateralized lending companies globally will bring the cross-platform average down slightly in the long run.
Although financing loan originators has historically been profitable and stable, as with other investment opportunities, investors must evaluate the risks against the investment return expectations.
How do you calculate your returns? What method do you use to decide when a loan must be written off and accounted as lost or with minimal chance of recovery? Do you use an objective or subjective way of deciding when to write off loans in the actual returns?
Lendermarket is a resale loan marketplace, which means we don’t directly issue loans to consumers or businesses. Therefore, what we do is evaluate the financial performance of our lending partners and their ability to meet their obligations.
For every lending partner, we monitor a list of financial covenants agreed upon in our partnership contract — for example, the equity ratio, the ratio of NPL, interest coverage ratio, etc. And based on that, we balance the maximum credit offered to the partner.
Do you personally invest in the loans Lendermarket offers to investors for Creditstar Group?
Absolutely! Providing investors with the best service requires knowing your product. Lendermarket has been in my portfolio since it was in its Private Beta phase in 2019 - almost a year before I joined the company!
I maintain a well-diversified portfolio as part of my investment strategy. I have around 25% of my investments allocated in fixed-income instruments, all in P2P loans across three platforms. As far as passive investing goes, Lendermarket is the perfect example.
How do you ensure that the loans listed on Lendermarket are safe for investors to put money into?
Every investment involves risk - that's why you are rewarded with an interest payment. So that’s something you always have to evaluate. Investors must continue to learn; otherwise, they will not be able to achieve financial success in the long run.
When a platform is already established and has a strong portfolio, the risk decreases. That's, of course, when we are talking about financing the lenders and if there is a buyback guarantee or proper collateral in place. Because in that case, you only really need to evaluate the loan originator. And that's where you need to do some homework.
If the originator is profitable, has a decent equity position, or has been around for numerous years, then there is no real reason why the investment should be riskier than anywhere else.
Creditstar has been around for 15 years. They are profitable, possess a strong equity position, have strong management, and operate in eight countries. They serve over 1 million clients across their markets. We are delighted to work with them.
Enabling our investors to access Credistar’s loans has helped us to grow, providing a ‘win-win’ for both parties. We hope this cooperation continues for years to come.
The only downside is that as the company matures, they attract more institutional funding, which lowers returns. Now that KPMG audits them, it's even more challenging for us to be a competitive funding source as their expected capital price keeps decreasing. Until then, I encourage everybody on our platform to use this tremendous high-yielding opportunity.
Credory, our second lending partner, is still a young company backed by an abundance of real estate and business financing knowledge. Credory’s founders come from successful banking and real estate development projects, and their risk tolerance is below the market average.
All Credory loans are backed by a first-rank mortgage on the collateral property, whilst the average loan to value (LTV) is less than 65%. As always, our risk team evaluates all appraisal reports before submitting them to our platform.
If Lendermarket, for some unlikely reason, should go out of business, what will happen to the investors’ money?
Lendermarket Limited is affiliated with Creditstar Group. Creditstar Group’s track record indicates profitable operations ever since being founded in 2006. The fact that Creditstar Group is well capitalized also minimizes the risks for Lendermarket.
To play with the hypothetical situation of Lendermarket going out of business, one may consider whether critical functions will continue to be provided by Lendermarket or if these will be transferred to a third party. It is important to remember that Lendermarket is legally entitled to transfer its functions and appoint a new trustee to handle investors' funds.
To become a regulated crowdfunding service provider, we must develop contingency plans. The impact of various types of disruptions on critical functions has already been examined, meaning a possible response is to transfer functions. As an example, loan originators could also directly make payments to investors.
We have operated from the start with a separate ledger where we account for financial transactions between investors and loan originators — being authorized as a Trust or Company Service Provider is a prerequisite.
Lendermarket Crowdfunding License
Lendermarket is still an unregulated platform. Do you plan to become regulated in future? Why/why not?
At the moment, we are not yet regulated, but we are working hard to change that. We are in discussions with the FSA in Ireland about obtaining authorization as a crowdfunding service provider under the respective EU Regulation, with a deadline set for November 10, 2022.
For the past ten months, our team has worked hard on putting the licensing project together. We hope to submit our application this month, and we are currently waiting for further guidelines about the next steps from the regulator.
The crowdfunding landscape has come a long way since the first platforms emerged more than ten years ago. As with most financial technologies and offerings, most get regulated eventually. It's a sign of maturity and trust to be authorized by the regulator, and this is precisely what we want to be for our investors.
Lendermarket in the Future
What’s next for Lendermarket? Where do you see the platform in 5 years?
We are still a relatively young platform in terms of funding volume and number of investors. However, we have the ambition to grow 10x (and more) over the following years.
The non-banking lending sector is currently valued at around €500 billion in the EU, but the P2P marketplace only accounts for €1.5 billion of this. As P2P has proven to be more flexible for lending companies than traditional bonds, I expect the total P2P market to grow by 10-50x in the coming years.
We plan to increase the range of global lending companies on our platform. We want our investors to be able to diversify across several industries and geographical areas without leaving our platform.
I also believe that we are moving towards more automated and passive investment tools for investors. I think marketplace lending has a massive opportunity to enable more retail investors to connect to investment and savings products that will help to secure their future financially. We aim to take part in this process and deliver this opportunity to the masses.
Endrik Eller's Final Words for now
Thank you for taking the time to make us wiser on marketplace lending and Lendermarket. Is there anything else you think our readers should know about Lendermarket?
Investing is a habit, a skill, a lifestyle and something you need to keep doing to acquire financial wellness in the long run. The quicker you start investing, the quicker you will see results. We believe marketplace investing platforms like Lendermarket are a simple yet enriching opportunity to build your long-term passive income streams.