Alisa Pankki ex-Fellow Pankki ex-Fellow Finance

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Here is CEO Jouni Hintikka’s answer to the question:

In short: The 4-star loan volume in Poland is still in individual pieces, meaning it doesn’t give an accurate picture of the market or loss levels in general. Despite this, we openly show this to investors in our service. Each market is and will continue to be very different in terms of credit risk, such as Poland vs. Sweden. Consumer loans vs. business loans.

In detail: The 4-star loan volume in Poland is still in individual pieces, meaning it doesn’t give an accurate picture of the market or loss levels in general. Despite this, we openly show this to investors in our service. Each market is and will continue to be very different in terms of credit risk, such as Poland vs. Sweden. Consumer loans vs. business loans.

The amount of positive data collected by credit institutions in Poland has grown during the time Polish loan applicants have been able to apply for loans through Fellow Finance. Payment behavior data available from loan applicants has been added to our credit rating model as information has become available from external parties, and the credit rating model has been refined to be more accurate. Looking at the credit loss provisions for loans in recent months, credit losses in Poland are on a downward trend. Thus, the model has continuously become more accurate as the amount of data has increased, compared to when the market was opened.

When opening new markets, the role of Lainaamo (Fellow Finance’s own lending company) naturally becomes more prominent as a financier of the first loans and thus also in collecting payment behavior data. The aim is to increase loan volumes in new markets only when the credit risk model development is at a stage where investors can expect returns, also in light of our historical data. Our other option is to acquire smaller local operators or available loan portfolios that already have existing customer data history to use in modeling.

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I started to go through the company report. I was wondering how FF’s ability to create value largely depends on how their classification process works, i.e., as data accumulates, how they can utilize it in the form of refined credit ratings. A quick glance at Finland looks good – credit loss provisions are decreasing. But is this due to FF’s process improving, or is it due to economic growth, improved employment, etc.? In other words, I’m slightly skeptical about the cause-and-effect relationship. If it’s more about other factors, FF appears riskier because its ability to create increasing added value with its data would then be smaller.

Along the same lines, if, for example, we consider a credit application made by someone in the construction industry, which would have been rated high due to employment prospects, how quickly do FF’s processes change and take into account changes in, for example, employment in the construction sector? That is, how quickly and possibly proactively can they react to real-world environmental changes in the factors underlying the credit rating if something that currently boosts the credit rating were to become something that lowers it?

If I understood correctly, FF, in a way, increases its value not only through its growing revenue streams but also through the data it “owns/collects,” which can be very valuable to another operator. Where FF might acquire a smaller operator in a new market for the data it has already collected, they themselves become more attractive/valuable the more information accumulates about each market through their own operations.

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On online forums, many FF loan investors have reported that Polish loans have resulted in losses. Based on the data, these loans seem to generate profit, but have good payers then repaid the loans early? In that case, the loan investor might not get to enjoy the high interest rates long enough to even cover credit losses. Can FF show data on the realized yield percentages of Polish loan investments?

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Are Inderes analysts allowed to participate in offerings? If so, will they participate in this one? :smiley:

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In an investment like this, I would rather look at macroeconomic factors than company-specific details. Finland is an export-driven economy, and our household and public sector debt is growing. A recession forecast within a couple of years would increase credit losses and turn market interest away from unsecured consumer loans. In addition, public sector indebtedness is likely to lead to a weakening of social security, which would further increase the risk of junk loans. In this industry, more than any other, there is a danger of being a shooting star at the end of a bull market.

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In a recession, one might imagine people patching up their finances with precisely these types of loans. Interest rates would naturally rise due to credit losses, but that doesn’t directly affect FF, as FF doesn’t carry the credit risk per se. The overall impact is admittedly difficult to assess, but a recession might not be as bad as one might initially imagine.

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I participated in the offering :+1: the only thing that worries me is the increasing competition because this is such a new field, and competitors, including big banks, are entering it aggressively. Fellow’s limited resources and open-shirt attitude (lack of cautiousness) towards internationalization might lead to issues… also the fact that this industry hasn’t seen a recession yet, so we don’t know what will happen. In a recession, however, everyone suffers…

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There are always risks, but what matters is the price at which you acquire ownership. I used to think I wouldn’t touch this, but if Inderes’ forecasts for next year are accurate, then it’s not terribly expensive. I might have to register as an investor in FF to potentially get a reasonable number of shares. That is, if I decide to participate in the offering now :smiley:

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The same rules apply to IPOs as to other recommendations, meaning we cannot participate in the offering while the “research” is ongoing. Otherwise, I would participate in the offering, as I fully stand behind the analysis we conducted. If the price is still below our determined fair value at that stage, if and when the company is listed, and the rules allow the purchase of the company’s shares, then I will press the buy button.

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Great transparency, thank you @Atte_Riikola

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How do they know which subscribers are also investor clients? Do they check everyone or is it indicated somehow when subscribing? At least in Nordnet, it’s not asked when subscribing…

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I’m guessing that the bank login during the subscription and the creation of the FF account (TUPAS identification) links the information.

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Nordnet doesn’t use bank logins, and on the other hand, people can have many different bank accounts. It should be based on personal ID… strange, because it’s a lot of work to go through them all… one would think there would have been a checkbox during the subscription “are you a FF customer” and maybe their own reference number. That would have also marketed the allocation advantage to subscribers.

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It would be great to get more insight into how the PSD2 directive practically helps FF in its international strategy. Is this a significant/less significant regulatory change for the business model…? As I understand it, the effects of PSD2 will only start to be seen more concretely during 2019.

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A couple of clicks on the computer and that’s it. Get out of the 50s :smiley:

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@Atte_Riikola Thank you for your reply regarding your purchase intentions :+1::clap::slightly_smiling_face: I got a little encouragement for my hesitation between the two :thinking::slightly_smiling_face:

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I quickly familiarized myself with this as well. If the offering is fully subscribed, FF’s share count will rise to 7,117,625 shares. With Inderes’ earnings forecasts and the offer price of €7.73/share, the P/E ratios would be around 34x and 21x. For example, the veritable growth rocket KONE is valued with a higher earnings multiple in 2019. Well, no, they are certainly not comparable companies in any way, but it’s a fun curiosity. :nerd_face:

I also have personal experiences with Fellow Finance, as I considered making a small investment there in the spring. At that time, the loan allocator was in some incomprehensible backlog, and I couldn’t complete the desired action within a couple of days. Most likely, it was just bad luck, but I still withdrew my money from the service. Such infrastructure issues and investing don’t go together for me, at least. But as I said, it was probably just bad luck, and the service generally works quite well. I might even give the platform another chance at some point.

In several places, since this IPO announcement, I’ve encountered skepticism about the ethics of peer-to-peer lending. Personally, I don’t see any unethical aspects here, even if I took off my capitalist glasses completely. Fellow Finance offers the opportunity to get a loan with a reasonable interest rate priced by the market. Of course, a higher compensation should be required from those for whom the risk of non-payment is significant. What is unethical, however, is the short-term loan business with completely insane interest rates. I honestly don’t understand how people who make a living from that business sleep at night. Sorry if there’s a short-term loan millionaire among us here.

It’s somewhat easy to see how this business could start moving in the right direction, but it’s just as easy to imagine all the obstacles along the way. It’s comforting that with the current scale of business alone, the company is this profitable, and the earnings multiples are not utterly insane. Of course, if internationalization fails, there would be a loss, but in terms of its core business, we’re not talking about a constantly loss-making eternal promise.

I believe in the business idea and in the fact that a traditional bank is not a necessary intermediary for lending money. As for who will conquer Europe or if anyone will – I don’t know, but it’s safe to assume that no one else knows yet either. However, this market will continue to grow very strongly in the future, so the valuation at the offering price is attractive. I haven’t subscribed yet; I’d give it an 80-20 chance that I’ll eventually subscribe.

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Thanks for the tip, but no thanks. Despite the good analysis, this isn’t working for me. (When would be the right time to exit? When it’s cheap, or when it’s expensive?) Too acidic, FF. Even for me, who doesn’t mind, for example, Finnish gaming companies or Swedish pharmaceutical companies in a pinch :slight_smile:

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Come on now, I gave up the overhead projector a couple of years ago already :smiley:

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I don’t know if this is a stupid question, but if borrowers don’t pay back lenders in the service (if they just don’t have the money to pay back), then from what fund (whose pocket) is the loan paid to the lenders? Surely it’s paid somehow? Or do the lenders just accept some loss? Surely not? Because otherwise, that cycle is just crazy, especially if there’s a recession and solvency weakens.