Fellow Finance Review
Leading Personal P2P Lending Marketplace in Northern Europe
Fellow Finance is the largest peer-to-peer lender in Northern Europe. The platform is facilitating loans to businesses and consumers based on the auction principle where borrowers set a maximum interest rate and lenders bid on the loan. Operations extend to five different countries in the euro-zone without any external loan originators finding the borrowers, it is all direct lending and borrower acquisition done in-house. As the ownership of Fellow Finance is publicly traded on Nasdaq First North Finland stock market, they are supervised by Financial Supervisory Authority of Finland and is authorized as a Payment Institution.
|Business:||Loan Originator Lending: Consumer Lending & Business Lending|
|Founders:||Harri Tilev, Jouni Hintikka & Teemu Nyholm|
|Ownership:||Public stock (First North GM Finland)|
|Countries:||Finland, Sweden, Germany, Poland & Denmark|
|Reports:||2019 (PDF), 2018 (PDF), 2017 (PDF), 2016 (PDF)|
Office location in Helsinki
Table of Contents
Platform Demo Video from Lendit Europe 2015
Fellow Finance Pros & Cons
Characteristics of Loans
8.5% – 18%
1 – 120 months
Direct Investment Structure
Minimum Investment Business Loans ⇙
Minimum Investment Consumer Loans ⇙
Loans on Fellow Finance
Fellow Finance facilitates capital by lenders from all over the world and acts as an intermediary of consumer and business loans. The consumer loans are lent without collateral but with personal guarantees, while the business loans usually come with both collateral and personal guarantees by the director(s). The lending and borrowing process is auction-based which means all lenders are bidding with an interest rate they are willing to lend at, while the borrowers set a maximum interest rate they are willing to borrow at.
All loans are rated from 1 – 5 stars after the credit assessment and the personal guarantee is evaluated on over 40 different variables in the scoring mechanism. These variables include data such as demographic data, verified income, household size and of course the borrowers’ ultimate ability to pay back: The disposable income.
Fellow Finance operates in Finland, Sweden, Germany, Poland, and Denmark. The five markets offer different products, but the original market, Finland, still provides the broadest selection of loans including both business lending, invoice financing and consumer lending. The platform is in great expansion and the availability of loan types is so far like this:
- Finland (business loans, invoices & consumer loans)
- Sweden (business loans & consumer loans)
- Germany (consumer loans)
- Poland (consumer loans)
- Denmark (consumer loans)
The information provided on consumer loans is fairly simple because of the borrower/investor anonymity, which limits the data available on this loan type. Below is an image of the information provided on a consumer loan on the Fellow Finance platform including geography, amount, loan duration, and the maximum interest rate accepted the borrower. Under the application information, you see the bidding by different investors on the loan.
Business loans at Fellow Finance, on the other hand, offer a completely different quality and the spectre of information as is very high as most of it is publicly available in the countries business registries. This data is divided into two categories: Loan Information and Financial Data. The loan information is very comprehensive and besides the general information – company information, project description and summary of the loan – also includes an external credit rating by a 3rd party credit agency and relevant company documents, such as annual reports, from the latest years.
To provide a quick and simple overview of the financial situation of the company, the platform provides the Financial Data tab just beside the Loan Information. This includes graphs with turnover, results for the financial years and total assets. This data is directly from the annual reports and a summary of usually the last five years can be found just below the graphs, displaying the actual balance sheet with assets, liabilities, and the income statement elaborating the expenses held by the company throughout the years.
Buy-back Guarantee on Fellow Finance
Loans on Fellow Finance do not come with a buyback guarantee, so the interest rates are higher and defaults are expected. This means that diversification into a large number of loans at different demographics, credit ratings and type is very important. Below is an image that gives an idea about the historical situation with defaults on the loans from Finland showing the interest rate in % on the loans, realized credit loss in % after the delinquent loans have been sold to the collection agency, and the credit loss provision paid for the collection service.
When investing in loans that have no buyback and is mainly based on personal guarantees as collateral, diversification is the key to average volatility and normalized annual return. Fellow Finance states on their website that the median portfolio contains roughly 400 loans and varies in size between 10 000€ to 40 000€ on average in invested capital.
What Happens if the Platform Goes Bankrupt or a Borrower Defaults?
P2P lending platforms can structure the investment in two different ways
- The direct structure means you are buying a claim against the borrower directly.
- The indirect structure means you obtain exposure to a loan by investing in a loan issued by a platform company to the loan originator.
Fellow Finance is a traditional peer-to-peer lending platform that acts as an intermediary between borrowers and lenders. With the auction-based system, Fellow Finance is very serious about their role as an intermediary as even setting the interest rate is left to the borrowers and lenders.
This means that if the platform bankrupts, lenders will still have a claim against the borrower because as a lender the counterpart in the transaction is the borrower and no one else. Thus, the platform is merely taking care of the administration of payments and only becomes an active part of the equation if a borrower does not pay according to the terms. Also, Fellow Finance takes care of the interest of the lenders in the case of borrower default.
When a borrower starts missing payments, he/she or the company will be reminded through various channels. After 90 days of payment delay, the contract will be terminated and handed over to a collection agency. For consumer loans in Finland, Poland, Sweden, and Denmark, the remaining capital of the loan will be put on sale to collection agencies and paid back to investors right after being sold. This is done to minimize the waiting of a potential long collection process.
The price for the defaulted remaining capital varies from market to market and can at all times be found on the “Analysis page” under “Markets” when logged into your account on Fellow Finance. As of writing, the collection agencies pays the following percentage of the remaining capital on consumer loans back to the investors:
- Consumer Loans Finland – 53% of defaulted capital repaid
- Consumer Loans Poland – 30% of defaulted capital repaid
- Consumer Loans Sweden – 53% of defaulted capital repaid
- Consumer Loans Denmark – 30% of defaulted capital repaid
For German loans, business loans, and business invoices, the loan claim is transferred to the collection agency and repayment depends on the amount collected minus collection provision.
You definitely get the impression that Fellow Finance takes their lenders seriously – something that was also highligted by Antoni airikkala, director of New Markets, at Lendit Europe where he stated that “investor success, is our success”. This was done while talking about the four key elements of Fellow Finance’s success: easy diversification, efficient secondary market, full transparency, and limited loan loss risk.
Buying loans manually on Fellow Finance is a simple process with two main loan types to choose from: the SME loans and the consumer loans. The filtering options are scarce and the reason might be that 98% of all the loans are funded automatically by investors using “The Loan Allocator”, so developing the manual setup is probably of low priority. Therefore, the most effective way to invest on Fellow Finance is by using The Loan Allocator, which we will describe in the next section.
Fellow Finance Explaining
Automatic lending on Fellow Finance is called The Loan Allocator. The Loan Allocator is in many ways more advanced compared to peers in the industry because of the auction-based system, which allows investors to place bids on interest rates on the loans. This means that lenders can set the minimum interest rate for which they are willing to invest when automatically bidding on specific credit ratings. Besides the interest rate bidding settings, it is possible to set the percentages of investments in different credit ratings, the maximum duration, the maximum loan amount, and the minimum cash balance you wish keep available.
Fellow Finance Explaining
The Loan Allocator
Furthermore, you can allow The Loan Allocator to bid on the secondary market with the same criteria but you also have the option to apply three extra settings to auto investing in the secondary market. Here, you can choose to bid on loans that have paid a certain number of instalments and/or choose loans that are overdue with a certain amount of days. Ultimately, you can also choose how big a discount there must be before you will want to buy them.
The secondary market at Fellow Finance offers investors to sell their loans at a 1% administration fee. This improves the liquidity of the investment and gives a direct opportunity to exit the loans before the duration terms are met by the borrowers if the investor wants to cash out. On the other hand, it is an opportunity to speed up capital deployment to avoid cash drag if the primary market does not meet the terms for your lending operations or you simply look for loans where the borrower’s repayment behavior has already been demonstrated.
Fellow Finance Explaining
The Secondary Market
Compare Your Fellow Finance Return to the Market Return
As an exceptional and unique feature, Fellow Finance provides the “Analysis” page that allows lenders to analyse the performance of their portfolio and compare returns to the overall market on the platform. This feature is part of Fellow Finance’s strategy to provide full transparency and live statistics, allowing investors to, for example, see the distribution of annual returns, interest rate levels, and credit loss rates on the different markets. Having this basic information about the loan market and being able to benchmark the portfolio against the entire market on the platform helps lenders better evaluate their positions and estimate the bidding levels on interest rates.
Watch the short video below (1 minute, 49 seconds) to fully understand the comparison tool and analysis page.
Watch Fellow Finance Explain the Analysis Page
Nice to Know for Investors
Registering at Fellow Finance is very simple and easy. Creating an account as an individual requires your name, address, and email. The platform complies with KYC (Know Your Customer) and you need to provide an identification document to be able to withdraw from the platform. Note that you can create an account without the KYC, but you will have to complete it before investing and withdrawing.
Deposit & Withdrawal Process
Depositing funds to your investor account is done in three steps:
- Transfer money to your Fellow Finance account from your personal account with bank transfer or one of the below-mentioned funding methods.
- Your funds will be available for investment within the day of confirmed arrival (usually 1-3 banking days).
- After the funds are received and added to the account, you will receive an e-mail confirmation.
Withdrawing funds is very simple if you are already KYC validated. You just click the “withdraw funds”, enter the desired amount and wait the 1 to 3 business days. There is no minimum withdrawal restrictions and no additional fees or commission for withdrawing the funds – except maybe from your own bank. Remember, depending on their fee structure, your own bank might charge fees for handling the transaction or exchanging currency.
The Portfolio Overview at Fellow Finance allows you to see not only your current portfolio of active loans but also your history of repaid, sold and realized loans. You will find a complete summary of your active portfolio with outstanding loan capital, number of loans, and average interest rate. As a neat extra feature, Fellow Finance displays your receivable Interest, which is the expected incoming future interest before deducting credit losses based on all your outstanding loans scheduled payment plans. Your total received interest, unsettled loan capital, and paid credit loss provision is also available in the summary. Below is a short video explaining the Portfolio page.
Watch Fellow Finance Explain the Analysis Page
Fellow Finance Tax
International investors are responsible for informing tax authorities of their own country about profits originating from investments through Fellow Finance.
Fellow Finance FAQ: “Do i need to pay taxes for my returns?”
Fellow Finance does not have a direct chat function on the website, but the support is available by phone (+358 203 80101) on weekdays between 9:00 – 17:00 (EET) or on email (firstname.lastname@example.org) where they usually reply within 1 to 5 business days. Fellow Finance is a publicly listed company that is active at conferences and provides a lot of information to the stock market, so you should be able to find answers to any questions you might have.
Fellow Finance's Competitors
Who can invest?
Anyone who has been identified by Fellow Finance and has given sufficient information about his assets and the origin of the funds to be invested. We will collect this information in accordance with the law regarding prevention of money laundering and financing of terrorism. A company can also act as a lender and open an investor account. For more information, please contact our customer service.
Fellow Finance FAQ: “Who can invest through the platform?”
Is Fellow Finance Regulated?
Fellow Finance is regulated as an Authorised Payment Institution by the Financial Supervisory Authority of Finland. As the company owning the platform is a publicly noted stock they also have to live up to the standards of a publicly noted company with reporting and transparency to investors of the company. The platform do for example provide live statistics of their platforms interest rates, funding volumes, amount of investors and borrowers etc.
Fellow Finance Statistics
|Total investments:||€615.68 million|
|Risk-adjusted rate of return (Sharpe-ratio):||10.85%|
|Volatility since launch in July 2014:||0.84%|
|Number of investors:||16040|
|Number of borrowers:||854,347|
|Interest rate on credit rating 1:||19.92%|
|Interest rate on credit rating 5:||13.45%|
|Latest financial report:||2019 (PDF)|
Please note that this overview may contain affiliate links. It means that a commission is earned if you decide to invest after using the link – of course without additional costs to you. The information on this site does not constitute investment advice and is solely to give you a simple and easy overview of the platform. Always conduct your own due diligence and consult your financial advisor before making any investment decisions.