Is October the safest crowdlending platform in Europe?

 

Background

The platform that's nowadays called October, was founded in France already in 2014, making it a fairly old player in the field. It was originally called Lendix, but they changed their name at some point. From a web search point of view, it's pretty dumb. How do you search for "October reviews" again?

October was founded by Olivier Goy (his LinkedIn profile) and the company has thus far received more than $300M in funding by big names such as Partech, CNP Assurances, Allianz, Idinvest, CIR Group SpA (De Benedetti family), Matmut and Decaux Frères Investissements. 99 people have marked October as their employer on LinkedIn.

What October is set out to do is similar to Crowdestor, but with much less risk (and thus also less return). The low return hasn't scared investors away though and October has already over 22,000 of them

How October works

October is a marketplace that enables small and medium sized companies to seek for funding that is otherwise not available to them, and investors that want to finance them, to meet. The process is run very professionally, which has led to a very low default rate of projects, and thus also very low loss of capital.

Like on Crowdestor, companies apply for financing from the platform, but the difference is that only 1 out of 100 pass. October has a very strict screening process.

Once the project gets approved on the platform, investors are pre-notified of upcoming projects. They can read through the information beforehand and decide whether they want to invest in the upcoming project or not.

An average project on October is valued at around 450,000€ and on a typical month there are about 15 projects an investor can participate in. Typically, the loans are fairly old - 48 months - which means that to you as an investor, the money will be tied for a decent amount of time.

How to sign up to October

Follow these three steps to sign up to October
  1. Head to october.eu and use the registration form to create your account.
  2. Upload documents to the platform to confirm your identity
  3. Transfer money to your account
  4. Pick a loan to invest in and invest
There are two ways to transfer money: by a credit card or by bank transfer. Credit card transfer is instantaneous, while bank transfer might take a while. I still personally prefer the bank transfer, since it doesn't cost anything and since there is never really that big a hurry.

October features

Projects


Under "Projects" you will find upcoming and financed projects. Interest rates vary from 2% to over 9%, most being around 4-7%.

The wealth of information available on upcoming projects is vast. An investor is wise to read through the information - do not just look at the risk rating and interest rate.

State Guaranteed Loans

Recently, October introduced state guaranteed loans, which have a much lower interest rate than others, but are have a significantly higher capital protection.

Here's how the state-covered loans differ from others on October:
  1. 90% of the capital is state-covered, so in case the company defaults, you will be covered almost completely.
  2. There's a short, 12 month curfew period, in which the interest rate is capped at 2%.
  3. Loans can be extended after the first 12 months. Most loans have much longer durations and if the state covered loan is extended over the 12 months, the interest rate jumps - usually to around 4-5%.
  4. The state-covered loans are bullet loans, while most other loans are amortized.

October mobile app


The mobile app is quite handy. It's always logged in and you get notified of new projects immediately. This way, if you wanted to maximize your diversification, you don't need to be at a computer when an attractive project opens.

Portfolio view


The portfolio view has all the basic information needed to understand how well your investments are doing. As you can see, my IRR has been 6.09% on October so far.

The portfolio view has also an important metric of your diversification. Mine is way too low, hence just one star. You can actually invest as little as 20€ per project nowadays, so I should start to improve my diversification soon.

Recovery process of delayed loans

October operates in France, Spain, Italy and Netherlands and there are currently five people working solely on recovering delayed loans. If and when a loan defaults, you as an investor don't need to do anything - Ocotober will handle everything automatically.

There are many stages to recovering a delayed loan, from a bilateral agreement, which can include debt re-scheduling. As a last resort, the debt will be collected through a court order.

What I like about October

Solid track record with little defaults. Annual cost of risk has been on average 1.75%. You always of course need to make your own judgment, but to me, October goes a long way to try and reduce cost of risk and they haven't had a year where the rate of return would've been negative.

On October, only 50% of the loan value is invested by individual lenders such as you or me. The rest 50% is invested by institutional investors. Compared to other platforms that also state to put "skin in the game", the 50% is such a huge investment on any loan that it puts the platform in exactly the same boat as the investor. When some platforms only put in 5% for example, it still lets them make enough revenue through e.g. setup fees etc.

There are also quite a lot of volume on October - as mentioned already, on average 15 per month. Thus, diversifying your portfolio doesn't take a long time.

What I don't like about October

There are two things I don't like about October and the first is interest rates. Net of risk, the internal rate of return has been 4.10%. Part of the loans are very low rate, with government guarantees, so you do need to consider the net IRR in relation to risk - which could really not be much lower, unless you bought government bonds.

So the real question is - would you be willing to leverage investing in October? Leveraging understandably scares many, but let's say you took a bullet loan of 2,000 at 2% interest and invested 2,000 yourself in October. If you'd receive an average historical return, you'd receive 164€ in income (cost of risk already included) and pay 40 in interest, resulting in a net income of 124€. This is a 6.2% return on your 2,000 capital.

☝️ This is how you should consider risk on October. Compared to other platforms that claim similar returns, would you rather leverage investments on October to a similar return. To be clear though, if I were to even consider something like this, I'd ensure I'd have a very diversified portfolio, so to avoid "just bad luck".

The second dislike is the lack of secondary market, which means it's not possible to sell the loan to another investor - or to exit early in any other way. In a way, this should force you to really understand what you are investing in and ensure you don't do so in a whim. I hope this will make you a better investor as well.

October investing risks

I've written more on peer lending risks in a separate post and here is how those materialize on October - in my personal opinion.

Liquidity risk is high on October, since there is no secondary market or early exit options. Especially considering the low return rates and long loans, there is a small risk that inflation will pick up 5 years from now and reduce some of the return.

Credit risk seems quite low, considering the annual cost of risk has been on average only 1.75%. Things can of course change and as an investor, you should always read the information provided. For example, there are seem to be quite a few restaurants looking for government-backed loans to get over COVID, but the interest for the next 12 months is only 2% and the guarantee is only for 90%. Personally, I don't like those odds.

Since there's 50% skin in the game, there are a lot of institutional investors who are on the same boat with individual investors. This further gives me confidence that the projects go through decent screening, but you can probably improve your odds by reading thoroughly what you are getting into.

But risk needs to be measured against returns. With no leverage, the risk seems very small. But leverage is something some people don't want to - or can't - do. With 100% leverage the net returns would have been 6.2% and with 200% leverage already 8.3%. You can use the below calculator to see how your investments could grow over time with various return rates.

Conclusions of investing platform October review

There are a lot of good things to say about October: long successful history, high quality of information, low cost of risk etc. It's not surprising that the return rates are low without leverage as there seems to be very little risk. And as we know, risk and return always go hand-in-hand.

Who is October for?
  • Those who understand the relationship of risk and return
  • Those who are looking for steady performance and low risk
Who is October not for?
  • Those who are looking for high interest rates (without leverage). For those there is Crowdestor.
If you belong to the first group, then for you I'd give four stars ⭐⭐⭐⭐ to October and you should absolutely check out October! If you register through my link and end up investing a minimum of 500€, you'll get an additional 20€ (that's an instant 4% bonus!).

For someone who might want something in between October and Crowdestor, I suggest checking out Estateguru - they also have a flawless performance history but return rates are higher than October - also risk is.

My annual expenses jumped to a crazy 29,814 €!

Lifestyle inflation is a bitch. Last year I reported that my yearly expenses were a measly 26,477€ and I didn't think of updating this post for 2019. I figured it'll be around the same amount.

Imagine my horror when I realized now that actually my expenses have jumped by 10%! And of course my salary didn't, which would mean less money is going into savings and investments.

This of course needs further investigation. Where am I spending more?

How has COVID-19 affected lending and stock market?

Surprisingly little, it would seem. But it's likely only the surface.

Quality platforms have been quick to respond. Some platforms such as Swaper have tightened their risk management protocols. This is necessary for them when they provide a buyback guarantee, as doing otherwise could risk them ending up insolvent.

This year will separate the wheat from the chaff with peer lending platforms

Recently, there's been a lot of grief in the peer lending industry. Kuetzal vanished. Envestio vanished. Looks like Grupeer is following suit. Wisefund cancelled the 'early exit' promise. So did Monethera.

Those who know what these platforms are (or were) can likely see a pattern: they all boast high returns and invest in SMB:s and/or development projects. And they're all located in either Riga or Tallinn.

What other platform has similar characteristics? Crowdestor. However, I agree with explorep2p that Crowdestor still feels like being in a different category, never having promised early exit opportunities or bottomless buyback guarantees.

But at the same time: notice what platforms are completely missing? Consumer loans.

Bear call spreads: trading in a bear market


I'm not an experienced options trader, so what I'm about to tell you reflects my very recent learnings in the domain.

When you're convinced (like I still am) that the coronavirus has not been fully tallied up in especially the american stock prices, you might want to benefit from the situation.

March 2020 update


Please remember that nothing on this blog should be taken as investment advice.

What a start for the year!

First the Kuetzal scam and its ongoing legal actions. Then Envestio following on the same path, with concerning signs on also both Monethera and Wisefund.

Edit 28.3.2020: And now looks like Grupeer might follow the group. At this point, the P2P industry looks very fragile and I'm definitely going to reduce my position drastically.

And now the stock market plummeting because of the coronavirus!

This year is going to be awful in so many ways.

But I'm not panicking. I'm actually very well positioned right now for the future. What will I do?

How coronavirus affects my investing


Stock indices have plummeted in the last couple of weeks due to the coronavirus outbreak. The S&P 500 is down -8% this year. What am I planning to do about the situation?

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