Fellow Finance Review

July 3rd, 2021
7 minutes read
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Publicly traded company with a “classical” direct lending structure and a mix of consumer and business loans

FAST FACTS

Launch Date2013
Total Investment Volume€766m+
Average annual interest3-8%
Minimum Investment€25 consumer, €100 business
Investment Fees1% secondary market fee
Who's eligible to investAll legal and natural entities
Investment TypePersonal & business lending
Secondary MarketYes
Auto Invest FunctionYes
Investor ProtectionPersonal guarantee, collateral 
CurrenciesEUR
Website LanguageEn, Fi, Pl, De, Cs, Da, Sv

PROS & CONS

Pros 

  • Stock-traded company
  • An elaborate auto-invest function
  • Good business loans’ performance

Cons 

  • No investor protection
  • Little diversification possible
  • Relatively low returns

Pros Explained

  • The parent company of Fellow Finance is publicly traded on the Nasdaq Helsinki stock market, which has a twofold positive effect for investors. First, it ensures a high degree of transparency and an additional level of scrutiny from the shareholders. Second, Fellow Finance is regulated as a Payment Institution and supervised by the Financial Supervisory Authority of Finland, offering some degree of protection for your invested funds in case the company gets into trouble.
  • The Loan Allocator – Fellow Finance’s auto-invest function – offers way more advanced features than on most platforms. You can choose how much you want to invest per credit class and loan and set the maximum loan amount and duration, as well as a minimum cash balance to be left in your account. Most notably though, thanks to the sort of auction-based system Fellow Finance uses, you can set a strategy for choosing your preferred interest rate. You can either follow “market rates”, which are calculated based on past loans funded, or bid for loans at your minimum interest rate set for every credit class. Bear in mind that setting a higher interest rate than the market rate might yield you higher returns but investing will be slower as other investors will have better offers for the borrower than you. Accordingly, if you bid lower than the market rate, you will get your capital deployed faster.
  • Loan performance, in general, has been mixed, depending on the loan type and the risk class. Finnish business loans, however, have offered more than decent interest rates (from 8.7% on 5-star to 13.7% on 1-star loans) and virtually zero credit losses.

Cons Explained

  • On Fellow Finance, you invest mostly in unsecured personal loans with no default protection such as a buyback guarantee or even any loss “cushion” such as group insurance or a provision fund. Only some business loans include collateral (mortgage or other company assets) and most are covered just by a personal guarantee. If a borrower defaults, all you can count on is a payback from a debt collector, usually worth 30-50% of the outstanding balance.
  • Given no protection schemes in place, the only way to diversify is to spread your capital across as many loans as possible. Relatively high minimum investment thresholds (€25 for consumer and €100 for business loans) mean that it only makes sense to start investing with relatively high amounts – according to Fellow Finance, the median portfolio contains 400 loans and has an average between €10,000 and €40,000 invested capital. But even if you’re ready to invest €10k+, your diversification options are limited – 96% of all deals come from Finland, and 66% of all loans are Finnish consumer loans.
  • Most investors make between 5 and 7%, which is roughly what most business lending platforms offer. Given the high exposure to unsecured personal loans though, one would expect slightly higher yields – Fellow Finance lags far behind popular platforms such as Mintos or Peerberry, which offer 10% ROI or more.

Who is behind Fellow Finance?

Fellow Finance is run by a strong management team with solid experience in finance and FinTech. The co-founder and CEO Teemu Nyholm has a particularly outstanding CV, having been involved with various digital financial services in Finland and Europe. Taaleri is the largest Fellow Finance shareholder, owning over 25% of all shares. It’s a Nordic investment and asset management company focused on environmentally and socially sustainable investments. Most of the other key shareholders are Nordic venture or asset management firms too. Mildly profitable until 2018, Fellow Finance recorded a net loss in 2019 (roughly -€69,000) and an even bigger loss in 2020 (over -€880,000). The Fellow Finance stock has not performed well either, to put it mildly. Since the IPO, the stock price has gone down over 60%, even though the Finnish Nasdaq index has noted exceptionally high returns over the same period.  Likely facing decreasing profitability, Fellow Finance has lately presented a renewed strategy. It involves expanding their product range with new payment and e-commerce products, including an invoice payment solution, a virtual credit card and a comprehensive mobile application for “managing matters related to money”. It has also altered the market expansion plans, closing operations in Sweden and the Czech Republic and, at the same time, strengthening their position in Denmark and particularly Germany and Poland.  In the late 2020 and the first half of 2021, the stock price has rebounded slightly and exceeded average stock market returns, which might be due to a positive reception of the new strategy. It remains to be seen whether this bull mode will last.

What does Fellow Finance Offer?

Most of the offers constitute unsecured consumer loans in Finland, Denmark, Germany and Poland. The loans can be up to €50,000 and last from one to ten years. You can also invest in Finnish and Polish business and invoice financing loans, which can be up to even €1 million. All investments have a direct structure, which means there are no other intermediaries (loan originators) other than the platform itself.

How much can you earn?

As with similar platforms that offer a high degree of personalisation, your returns will largely depend on your strategy (and a pinch of luck). Most investors earn between 4 and 7%, although some have made losses of even up to -7%, and some have earned as much as 24%. Interest rates vary from over 6% to almost 18% in the current portfolio, depending on the risk score. As the interest rate increases though, so does the credit loss rate – from 0% on the safest 5-star loans to 9.4% on the high-risk end.

Who is Fellow Finance best for?

To make the most of Fellow Finance’s opportunities, you need at least three things:  

  • some knowledge of the market and experience in investing to be able to create a well-balanced portfolio using the auto-invest feature
  • a considerable amount of capital to diversify across as many deals as possible
  • significant exposure to other P2P lending platforms and/or other investment products (I’d see Fellow Finance as a (small) part of a larger wallet much more than a main, let alone, a single investment platform.)

Therefore, Fellow Finance seems more appropriate for more experienced investors with high-value portfolios.

How to invest at Fellow Finance?

Fellow Finance complies with the KYC (Know Your Customer) rules so you’ll need to verify your identity and provide some information such as your financial status and the origin of the funds to be invested. You can then deposit funds and start investing either manually or using the Loan Allocator (much recommended).

Summary

Trusted by the Nordic retail and institutional investors, Fellow Finance has become one of the largest direct peer-to-peer lending websites in continental Europe. Its story sort of reflects all the recent ups and downs of the peer-to-peer lending industry at large. Excellent initial performance and growth, a disappointing IPO, expansion to and then withdrawal from several foreign markets, increasing reliance on institutional investors, and tough times during the COVID crisis, followed by a fresh strategy including a bank-like expansion to offer a more comprehensive product portfolio. And finally – hopefully, a rebound in 2021.

Methodology

At P2PMarketData we are dedicated to providing unbiased reviews of peer-to-peer lending, real estate crowdfunding and crypto lending platforms. Among other, in our mission to bring more transparency to the market we closely monitor and track over 70 platforms funding volumes.

When reviewing an alternative investment platform, we consider a variety of factors such as:

  • Number of investors
  • Minimum investment requirement
  • Historical annual returns
  • Diversification opportunities
  • Reinvestment opportunities
  • Educational and informational offerings
  • Platform fees
  • Total capital invested
  • Features (such as secondary market and automatic investing)
  • General transparency (the difficulty of finding who the owners are, how they make money on the platform (fees), terms & conditions and more)
  • Management team

We also look into the company’s online reputation (for example customer reviews, news, complaints, average monthly searches and social media).