Income Marketplace Review

Income’s Requirements

To earn interest on your investment on Getincome, you must meet specific requirements.

If you don’t have a bank account in EUR, you can open a free N26 account, use Revolut or get the Wise card. Remember that you can only transfer EUR from an account in your name.

The verification of your identity takes less than 2 minutes. You will get a QR code allowing you to take a quick selfie and a photo of your ID card.

To transfer money to Income, you must deposit funds to the LHV bank account of Income.

Don’t forget to add your reference number so the marketplace can allocate your deposit to your investor account. You can find the reference number in your Getincome account. The transfer should not take more than two business days.

Remember that you must reside within the EU or EEA to invest on the Income P2P Marketplace. The platform doesn't offer investment opportunities for investors from outside of Europe.

Risk & Return

When it comes to P2P lending, you should always be able to evaluate the quality of the protection scheme and the quality of the loans you invest in.

In other words, look at the buyback guarantee, and check the financial information of the loan originators and the performance of their loan book.

Let’s first look at the buyback guarantee.

Buyback Guarantee Explained

A 60-day buyback guarantee on Income backs your investment. This means that the loan originator promises to repurchase your investment and repay the accrued interest if the loan repayments are delayed by 60 days.

Experienced investors understand that the buyback guarantee is only as good as the financials of the lenders and the performance of their loans.

Remember that certain loan originators list their loans on Income via SPV. Non-European lenders typically incorporate an SPV that lists loans on the marketplace. This is the case with ClickCash Brazil as well as Danabijak Indonesia. Let’s briefly review the three loan originators.

Vivus Mexico

Vivus Mexico is a payday lender in North America, financing a portion of the portfolio with P2P investors. A pledge secures the loans. The pledge equals about 33% Junior Share, which should be enough to cover investors if the loan originator defaults.

The lending company is taking on the FX risk as the loans are issued in MXN but financed in EUR. Most loans from Vivus Mexico have a loan term of up to six months. 

Readers of our project who support us financially have access to our exclusive interview with the CEO of Vivus Mexico to learn more about the lending business in Mexico.

Danabijak Indonesia

Danabijak is an Indonesian fintech company providing payday loans to the underbanked middle class in Indonesia.

Danabijak was founded in 2016, and since then, the company has originated €16M in loans. Currently, the loan portfolio accounts for €788,000.

Like ClickCash, Danabijak also uses an SPV to list loans on the Income Marketplace.

Review the security structure below to learn more about the process.

By investing in loans from Danabijak, you are funding loans in EUR that are issued in IDR. This means that the lender is carrying the FX risk.

While Kreston International audits the financial report for 2020, this report isn’t publicly available on the Income Marketplace. From the listed financial information sheet, we have learned that Danabijak lost €601,000 in 2020 due to the impact of the COVID-19 pandemic.

FIN Yritysrahoitus

FIN Yritysrahoitus is a Finnish lender lending money to SMEs (small and medium enterprises). The borrower's APR ranges from 16.2% to 133.8%. The lender was founded in 2015, and since then, the company has originated €6.8M in loans.

The current portfolio accounts for €1.2M. The loans from this Finnish lender are listed through an SPV (Income EST SPV OU).

Here is the security structure:

FIN Yritysrahoitus Oy is audited by Aurinkolahden Tilintarkastus OY. Audited reports are, however, not publicly available on the Income Marketplace.

What you should also be aware of is the fact that the CEO of Income acts as a board advisor to FIN Yritysrahoitus.

IN 2020, FIN Yritysrahoitus was not profitable.

The Income Marketplace is constantly onboarding new loan originators. You can now invest in Danarupiah (Indonesia) or Vivus Mexico loans. The platform recently onboarded Juancho Te Presta, a lender backed by Rapicredit that you may also find on Bondster.

Income's Due Diligence And Onboarding

Let's get into more detail about the onboarding process of lenders on the Income Marketplace.

First, the platform collects data about the lending company. The lender has to provide legal documentation and financial statements and explain how the company originates loans.

In the second step, Income’s risk manager analyses the documentation. The key factors that the platform is considering are the loan book performance and portfolio profitability.

The Head of Onboarding on Income looks at the information from various dimensions and reviews the lender's financial statements.

Sometimes, a group guarantee is required if the lender doesn’t have a good track record. This could be a case where the lending company is a startup operating under a more prominent financial institution.

Next, the marketplace calculates the junior share and submits the results to the management for approval. If the decision is favorable, the lender receives an offer.

As soon as the offer is accepted, the platform conducts a sanity check and reviews the loan agreements, bank statements, and loan documents to see if the loans are backed by collateral.

If all goes well, the lender is onboarded, and API integration with the company is established so that Income can mirror the performance of the listed loans directly from the lender’s loan management system.

Every six months, the platform runs a completeness check and reviews the performance of the entire loan portfolio, which helps determine a new junior share.

Junior Share & Cashflow Buffer Explained

The Income Marketplace brands itself as the “safest” marketplace in Europe. The marketplace introduces additional protection mechanisms such as “junior share” and “cash flow buffer”.

Junior share is the improved version of “Skin in the Game”. “Skin in the Game” represents the percentage of the loan listed on the platform funded directly from the lender’s balance sheet (not investable for investors). The junior share is subordinated to investors' funds.

The Junior Share protects your money if the lending company defaults.

Let's look at the differences between Skin in the Game and Junior Share to understand the unique protection on Income better.

So let’s say that a lender with a €1 million loan portfolio with 10% skin in the game defaults.

In the next step, a collection company starts the recovery process.

Let’s assume that 40% of the portfolio could not be recovered, which means that 60% of the loan book is the final value that will now be distributed proportionally to the lender and the investors.

In this scenario, the lender and the investors are equally likely to recover the debt.

In this case, investors would lose 46% of their investments. 40% is bad debt, and 6% goes to the lender.

That’s basically how skin in the game works.

Now let’s look at the Junior Share.

The lender will list a €1 million portfolio on the platform, from which 35% is reserved as Junior Share. That means that only 65% of the portfolio is investable by the investors.

What’s important to highlight is that Junior Share is subordinated to investors’ funds. Let’s have a look at what it means.

So let’s say the lender goes bust, and the collection agency cannot recover 40% of the loans.

That’s not too bad as investors have invested in only 65% of the loan book. The junior share will be paid first to investors to cover the obligations before paying anything to the lender.

So, in this case, investors get all the recovered funds, which results in only a 5% loss for investors.

That solid protection mechanism significantly reduces your risk of losing money if a lending company defaults.

Junior Share Calculation

Based on the quality of the loan book, the Income Marketplace calculates the appropriate rate of “junior share” for every lender.

Every lender must invest the “junior share” amount from its balance sheet into every loan.

It's like SKIN IN THE GAME ON STEROIDS.

The calculation of the junior share is very straightforward.

First, the platform analyzes the performance of the lender’s portfolio.

The loan performance analysis is a crucial element in any due diligence process as it gives you an idea about the cash value of a portfolio within a specific time.

So let’s assume we expect to receive 120% of the portfolio within three months. This amount also includes the interest and fees that borrowers are paying.

In the lending business, this variable is called the expected repayment coefficient.

To figure this out, the platform must access the loan book performance.

In the next step, Income Marketplace has to figure out how much is the required repayment coefficient to cover obligations to investors.

That includes loan principal, interest rate, and fees for the platform. Let’s assume that it’s 104%.

So now, the platform knows how much is required to recover and how much is expected to be recovered based on the loan book performance.

In the third step, the platform deducts risk margins.

If the lender defaults, there are risks that you won’t be able to recover everything.

A risk factor could be that the borrower decides not to pay, the exchange rate changes, or a global pandemic starts, and borrowers lose their jobs.

The Income Marketplace will calculate every risk margin separately, and it’s never the same for all lenders.

So now, the platform can calculate the investable amount by subtracting the risks from the expected repayment coefficient.

In this case, investors will be allowed to invest 79% into a loan, and they would be fully covered if all the potential risks materialize.

The cash flow buffer is the difference between the investable amount and the expected repayment.

A side note worth mentioning is that Income recalculates the junior share every six months or when the product and its pricing change.

So, the lender has a much larger "Skin in the Game (Junior Share)" if the Income Marketplace determines that the portfolio quality isn't as good or that the risks are too high. It's a similar principle as when evaluating the LTV for real estate properties; just in this case, one evaluates the cash value of the loan book.

In the case of a defaulted lender, Income takes over the collection of loans of the entire portfolio and repays investors before the lender.