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Post by Iain - Orca on Apr 18, 2017 8:59:01 GMT
Hello, I've recently conducted a review of the Funding Circle offering and summarised my analysis in a blog, linked below: www.orcamoney.com/blog/funding-circle-reviewIt would be good to receive any comments, suggestions or feedback on the review. I'm interested and value your opinions. Cheers, Iain |
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Post by catalist on Apr 18, 2017 10:01:50 GMT
Iain,
Thanks for the review. Surprisingly, I even found something I had not read in FC website and official press.
Sure this is a quite different subject, but would be interesting if you would make some analysis of FC from its business models perspective. I.e. when do you think they will start making money?
Thanks.
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fasty
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Post by fasty on Apr 18, 2017 11:33:12 GMT
I'm not a financial expert, but it's certainly interesting, thanks.
In particular, the data about default rate vs. geographical location was food for thought.
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blender
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Post by blender on Apr 18, 2017 12:21:18 GMT
I have often posted about the risk in Wales - good to be proved right.
Missing from the report is any mention of the failure to gain FCA approval and to provide the IFISA, announced in early 2016. FC deserve credit for what they have achieved, but it seems a friendly review.
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fasty
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Post by fasty on Apr 18, 2017 12:25:01 GMT
I have often posted about the risk in Wales - good to be proved right.
Missing from the report is any mention of the failure to gain FCA approval and to provide the IFISA, announced in early 2016. FC deserve credit for what they have achieved, but it seems a friendly review. I immediately thought of you, blender, but was too scared to single out any particular region!
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Post by Deleted on Apr 18, 2017 12:49:47 GMT
I think you missed the point that FC is very expensive to do business with.
First you have the annual management fee.
Then if you want to sell any loans you have a massive charge.
Then their poor quality loans hit you in your pocket, not theirs, while the information is often scanty.
Their secondary market is not fully free flowing as the +ve or -ve is limited to 3% either way.
While I am certainly beating their advertised rates I have ceased adding to new loans as the costs just seem too high.
Way too gentle in my opinion.
It is worth reviewing what has happened to the fund-portal markets over the past 25 years or so. Cofunds, Fidelity started off in similar positions with relatively high charges, for HL to spot the market gap and grow a major business despite being late to the market. Now HL is one of the more expensive players but maintains its position by good marketing, while Fidelity and Cofunds software creaks a bit. New players are coming in such as iii and AJ Bell plus many others using simpler software and lower rates.
The other interesting side is that in the States the risk/selection process of FC is, I believe, done partially by AI. While in the UK this is not yet accceptable. It will be interesting to see what lessons that can bring to the industry. If it provides, like google or FB, a partial moat to the company that will be very interesting and I suspect not to our advantage.
Finally, FC happily lends to Institutions, which may distort the market.
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Post by Iain - Orca on Apr 18, 2017 12:52:45 GMT
Thanks for the your comments.
I've tried to make the review as factual as possible. We analysed the financials of Funding Circle which can be reviewed on our dashboard (https://platform.orcamoney.com/sign-up). There is also a larger 20 page report which can be downloaded from platform.
FC won't be in profit until they stop investing so heavily in global operations. In the period ending 31st of Dec 2015, the group reported a loss of (-£36m) with revenues of (-£32m). At the time they had a large cash position of £86m on net assets of £133m. This large cash position is due to significant equity investment ($373m) from VC and institutional investors.
With such a cash position and a continued strong growth in the UK business, the financial security of FC is not a key concern of ours.
IFISA Update
It's disappointing that the big three haven't gained appropriate FCA permissions to offer the IFISA. Only the FCA and the respective platforms know why it's taken so long. For a while the general thought was that there was a backlog, but now, I'm thinking there might be a further reason. It's clear that FC, RS and Zopa are far more complicated than the smaller platforms so possibly something has spoked the FCA. It's unclear what the hold up is.
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slush
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Here to learn. Please be gentle.
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Post by slush on Apr 18, 2017 13:06:02 GMT
... It would be good to receive any comments, suggestions or feedback on the review. Hi Iain In order to read the full review I am required to "Sign Up" which requies that I agree to your Terms of Service, Privacy Policy including Cookie Usetc. "By signing up, you agree to the Terms of Service and Privacy Policy, including Cookie Use ". Wanting to read what I was being asked to agree with, I find that the links just return the same sign up page. 
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blender
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Post by blender on Apr 18, 2017 14:08:59 GMT
Thanks for the your comments. I've tried to make the review as factual as possible. We analysed the financials of Funding Circle which can be reviewed on our dashboard (https://platform.orcamoney.com/sign-up). There is also a larger 20 page report which can be downloaded from platform. FC won't be in profit until they stop investing so heavily in global operations. In the period ending 31st of Dec 2015, the group reported a loss of (-£36m) with revenues of (-£32m). At the time they had a large cash position of £86m on net assets of £133m. This large cash position is due to significant equity investment ($373m) from VC and institutional investors. With such a cash position and a continued strong growth in the UK business, the financial security of FC is not a key concern of ours.
IFISA Update
It's disappointing that the big three haven't gained appropriate FCA permissions to offer the IFISA. Only the FCA and the respective platforms know why it's taken so long. For a while the general thought was that there was a backlog, but now, I'm thinking there might be a further reason. It's clear that FC, RS and Zopa are far more complicated than the smaller platforms so possibly something has spoked the FCA. It's unclear what the hold up is. Hi, Orca,
It's not factual and is friendly in the most significant figure - the return offered by Autobid after fees and losses. You state: Auto-bid Manual
Advertised Rates (annual) 7.10% 4.4%- 9.2%
The first point is that nowhere do FC state what the return from Autobid is, was or will be. I assume that figure of 7.1% is taken from the front page, and that is the projected performance of the past 3000 most recent loans, irrespective of whether they are purchased by institutions, manual bidders or Autobid. It is not an advertised rate. The definition as follows:
"It is calculated by taking the gross interest rate less fees and estimated bad debts that will occur in the future for each of the last 3000 loans accepted on the marketplace. The average return is weighted by loan amount, compounded and before tax" Note compounded - you have to keep fully reinvested - cash in available funds is not counted.
The range you have for manual is presumably taken from the statistics page, which is the past performance only, of both manual and autobid lenders by diversity. Yes autobid lenders are guaranteed diversity and are likely to fall in that range, but the range is what applies to Autobid lenders, not a single figure.
The last question is whether Autobid will get the average performance - a distribution around the 7.1% projected for those 3000 loans. Many think that Autobid gets mostly A+ and A loans, the D and E loans being snapped up before Autobid gets going. Also that 7.1% is weighted by loan value and contains a large number of individual property loans which at 8% minimum give the better rates and boost the A+ band performance. But Autobidders are allowed only one bite of one tranche of each property project, the rest going to manual bidders (me for example) who get the better returns at worse diversity. The removal of property is going to reduce that 7.1% closer to what Autobidders experience. Lastly, manual bidders routinely dispose of what they consider risky loans, which Autobid will pick up. Basic Autobid works with Autosale to provide liquidity on the platform, and consequently basic Autobid will catch any old loan part at par, down to 4% in the old days.
There is a good case to be made that Autobidders do not get the average distribution, but the main point is that FC give no separate figures for Autobid and manual lending, partly because the lenders are not defined as such, and both types experience a distribution.
On the FCA/ISIFA - of course we do not know why it takes so long, but the fact of it is significant.
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Post by df on Apr 19, 2017 1:42:44 GMT
First you have the annual management fee. Then if you want to sell any loans you have a massive charge. These two are clearly outlined from the outset. There is another one not listed in T&C, or it could be that I simply don't understand some obvious. At the start I have bought a number of loan parts on SM, but on my statement the fees appeared to be twice as large as listed premiums. My first thought was - may be they are collecting service fees upfront if you purchase loan parts on SM, but later when repayments started to arrive there were fees attached to each repayment again. I hope I'm wrong and there is some simple explanation for it, but this lack of transparency turned me off from using FC's SM.
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sl125
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Post by sl125 on Apr 19, 2017 6:55:55 GMT
When you buy a loan part on the SM you pay:
1. The price of the loan part's outstanding principal.
2. Any premium that the seller has placed
3. The accrued interest from the date of the last payment. This is because, when you receive the next payment from the borrower you will receive the entire month's interest for that part, so the payment you make at the time of SM purchase prorates the allocation of interest between the two investors that held the loan during the month.
To the poster that says "massive" fee to sell: is 0.25% a massive fee? Judging by the sheer volume of sales going through the SM, most investors don't think it is a large fee to pay for the benefits it brings.
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Post by Deleted on Apr 19, 2017 7:25:30 GMT
0.25% is a massive fee when you realise it is paid on the capital but the interest is somewhere in the region of 6 to 9% before tax. If we take an average of 7.5% and pay tax at 40% just for the fun of it. The actual net income is 4.5% So a charge of 0.25% is actually 5.6% just to sell your income stream. I consider that to be massive since the "price" has no connection to the "cost" which is about SFA.  Management fee is of course 4 times larger or 22.4% of your income stream FC are very carefully taking a massive share of your income. |
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Post by Deleted on Apr 19, 2017 7:26:34 GMT
First you have the annual management fee. Then if you want to sell any loans you have a massive charge. These two are clearly outlined from the outset. There is another one not listed in T&C, or it could be that I simply don't understand some obvious. At the start I have bought a number of loan parts on SM, but on my statement the fees appeared to be twice as large as listed premiums. My first thought was - may be they are collecting service fees upfront if you purchase loan parts on SM, but later when repayments started to arrive there were fees attached to each repayment again. I hope I'm wrong and there is some simple explanation for it, but this lack of transparency turned me off from using FC's SM. Yes the details are in the T&Cs, but Orca fails to point out the costs in his article.
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Post by carpecyprinidae on Apr 19, 2017 9:56:44 GMT
This is the same review I was asked to look over and give feedback on after posting about FundingCircle on the Reddit UKPF forum. not sure my comments were really relevant to what it needed though!
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Post by df on Apr 19, 2017 11:36:32 GMT
When you buy a loan part on the SM you pay: 1. The price of the loan part's outstanding principal. 2. Any premium that the seller has placed 3. The accrued interest from the date of the last payment. This is because, when you receive the next payment from the borrower you will receive the entire month's interest for that part, so the payment you make at the time of SM purchase prorates the allocation of interest between the two investors that held the loan during the month. To the poster that says "massive" fee to sell: is 0.25% a massive fee? Judging by the sheer volume of sales going through the SM, most investors don't think it is a large fee to pay for the benefits it brings. Thank you! That makes sense. I wish they didn't call it 'fee' on the statement.
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