It’s been a while since my last post and, oh boy, so many things happened!
If you don’t know what I am talking about, then you’re in for a huge, huge surprise.
In the last couple of months, hell went loose in the P2P lending industry and it really feels like the Wild West.
So far Kuetzal and Envestio are clear scams. Grupeer seems to be the next in line, as unbelievable as it may sound, and there are a few others that have big red flags.
More than that, we live unreal pandemic times, as the whole world is paralyzed by a crazy virus with a weird name. Is as worse as it can get. This is literally the ultimate stress test for our P2P lending investments.
So you’ve got it, this post is about the state of the P2P lending industry, how I am affected, and what I will do moving forward.
Table of contents
- But first, my beginnings with P2P lending
- “Introducing…” scams
- Aaaand it’s gone!
- Let’s talk specifics, Kuetzal first
- And then it was Envestio
- Monethera, next in line
- And Grupeer, the cherry on the cake!
- The future of P2P lending in Europe
- Lesson learned – risk management is far more important than returns
- What are my next steps?
- As a conclusion
- Share your opinion
But first, my beginnings with P2P lending
I don’t remember anymore how I stumbled upon P2P lending, but I started investing in September 2017 and I was overly excited.
I loved it! Easy to understand. High returns. I could start with just a few Euros. It was awesome! A great addition to my overall investments portfolio.
The fact that I was able to play the bank role was really appealing to me.
I did a few mistakes at the beginning, with Bondora, but nothing major. With time I got more and more confident.
I was ok with the possibility of a loan to default. Heck, was even ok for loan originators to default (was aware of the Eurocent default).
All because I understood the risks and took the necessary measures to protect my investments. Or so I thought. Fast forward to present, I was clearly wrong.
I failed to seriously take into consideration one major risk.
I knew about all the problems of P2P platforms in China, and also knew that the P2P Baltics industry is not regulated.
But somehow I still did this monumental mistake and kind of unconsciously ignored the possibility of losing all the invested money due to a well organized scam.
I was with the belief that this can’t happen to us.
We live in Europe and things should be on the safe side. Right?
I was clearly blinded by the high returns and while everything ran smoothly was hard to question myself if what I was doing was right or there might be something fishy going on.
Aaaand it’s gone!
In a very ironic way, a scene from a South Park episode, called Margaritaville, keeps coming back in my mind, again and again.
To give some context, the whole episode, which first aired on March 25th, 2009, is a satire on the global recession happening at the time.
They use multiple times the phrase “Aaaand it’s gone!” to explain how banks mysteriously lose the investors money shortly after invested due to the bad shape of economy.
Anyway, you can watch the full scene here.
I promise it’s well worth it. If anything, it will lighten up the mood a bit.
So what’s my point?
Well, in a similar manner, P2P platforms nowadays mysteriously vanish as they turn out to be scams and all the invested money is gone in thin air.
Just like that.
One day it’s all in there and the next day is not.
I can’t help to notice how history repeats itself in slightly different ways and most of the time we fail to learn from it.
Let’s talk specifics, Kuetzal first
This whole mess started last year in December with Kuetzal.
There were quite a few red flags with Kuetzal from the very beginning. They never looked serious to me and that’s why I never had any money with them.
Unfortunately there were many investors who lost a lot of money with them, with very few chances of recovery.
And although legal actions were initiated I am not sure if those will lead to anything.
And then it was Envestio
For me Envestio was always on the edge.
I could never trust them enough, and didn’t felt comfortable to add more money to them. I was mostly trying them.
In the end, I lost 5% of my P2P portfolio, around 700 EUR.
I am not sure if Envestio was a scam from the very beginning. It’s still not clear, but my feeling is that they weren’t. Things went downhill when Envestio changed owner and COO in December last year.
Probably that’s when it transformed from the real deal into a scam.
Was it planned to happen like that from the very beginning?
I guess we will never know for sure.
Monethera, next in line
On March 27, in an email statement Monethera says the following:
Unfortunately, we are forced to inform you about the temporary complete cessation of the work of our platform until the end of the state of emergency all over the EU due to the pandemic of COVID-19.Monethera email statement from March 27, 2020
So they are temporarily shutting down until the pandemic is all over? I highly doubt it will be temporarily. It smells to me like yet another exit scam.
And what’s their answer to what happens to investors money?
At the moment, we can’t offer you any final solution. As we said before there is a state of emergency declared in almost all EU member countries. So it will be necessary to wait until the coronavirus crisis gets to an end. After this, borrower-companies could return to process all pending transactions.Monethera email statement from March 27, 2020
Oh well, another one bites the dust.
And Grupeer, the cherry on the cake!
This is the BIG one. The one that will shake the industry like none of the others could. And is the one that really pissed me off.
By the way the company behaves it’s almost certain that Grupeer is a scam too. But a highly complex and well orchestrated one.
I could have never imagined they will turn out to be so. And to be honest, I don’t think I could have figured out earlier on my own that things were not right.
I am not looking for excuses, but I still don’t know how I could see that Grupeer may conduct some funny business.
I was the dumb money.
Maybe one red flag was that they kept promising things like the secondary market, and not delivering that. But hey, you can’t assume they are scam due to that..
If you look back you realise they were a pretty open company to investors, compared with others. Or at least they tried to make it look so.
You could ask questions and get answers back. You could visit them if you wanted and there were quite a few who actually did that, even recently. And if it turns out to be a scam, the reality was that they did an amazing job fooling us, and we fell for it.
I believe Grupeer would have kept going for a while but the pandemic times made them take action. Probably, and this is just a pure guess, they lost the needed cashflow as new money stop coming in and that made the whole system start failing.
What’s the damage for me?
Grupeer is a big hit. Around half of my P2P portfolio.
I knew all the time this was the #1 weakness of my P2P lending portfolio (a mistake I did in the early days) and was set to resolve it, but in time.
I was withdrawing money (as I got interest back) to reduce exposure, but, in retrospective, I started to do it a little bit too late.
Not having a secondary market definitely made the situation worse.
What we know so far about Grupeer?
- They stopped processing withdrawals. For example I requested on March 23rd a withdrawal of 519,85 EUR and never got the money in my bank account.
- They posted a few times on their blog blaming COVID-19 and emergency state in many European countries for all the problems.
- From LinkedIn it looks like they fired all of their employees. Or at least most of them.
- It seems that some of their loan originators and projects were not real.
The future of P2P lending in Europe
I have all sorts of mixed feelings about the entire P2P lending industry moving forward, given the recent events.
Not even in my worst nightmares I would have believed that we will end up in a situation like this, where things deteriorated badly and pretty fast.
I really love the concept, the whole idea, but it all ended up being too much funny business behind the scenes. The reality is that risks are skewed and not in our favour.
Yes, specifically referring to scams.
And this made me think a lot.
I am starting to not consider anymore P2P lending as an alternative investment class, but rather as play money. You know, at the same level as money that you play at roulette.
For some of you this might sound a little bit too harsh, and I will probably get criticised. That’s okay, and I respect it. But think about it for a while.
Just given the fact that we have to include the risks of a scam, and not just the usual risks of a P2P lending investment, then all of a sudden is not worth it anymore.
We lose any type of control of our money. And we are left to chance. And that’s something unacceptable for something that’s supposed to be an investment.
Maybe in a couple of years, when things will become regulated and the whole market matures enough, it will be safe to consider this area a true alternative investment class.
Until then, is just play money for me.
If I am to draw a conclusion, short term, things will not look good, but I surely hope medium and long term things will improve a lot as European regulations will eventually kick in.
Lesson learned – risk management is far more important than returns
It’s time to face the harsh reality.
I failed badly at number #1 rule in investing: don’t lose money.
I failed at this one simple rule, and although I have only lost a small percent of my entire investment portfolio, those are still money I will probably never recover.
Even when you’re well aware of it, and you say to yourself that you took all the necessary measures to avoid loses that’s probably a big fat lie.
You probably know deep down in your heart that something doesn’t feel right but you still don’t take action. You’re blinded by your own overconfidence. And when you think you’ve got it, that’s a red flag right there!
Take a step back and reevaluate things one more time. Maybe you missed something. Maybe you did some mistakes.
Be humble and accept you don’t know everything.
This is by far the most expensive lesson of my entire life. And I intend to keep it that way!
Risk management is far more important than returns.
I will let that sink in.
Risk management is far more important than returns.
I gained on paper over 2.000 EUR on Grupeer but lost all of them, and the invested money. So risk management is way, way more important!
What are my next steps?
If this wasn’t obvious so far, I am decreasing my stake in P2P lending. I already started to do so and will continue doing it.
Prior to starting this downsizing process I was having around 10% invested in P2P lending. Definitely not a big percent, but due to the high risks I didn’t wanted to have more exposure.
My goal now is to decrease to around 5% of my overall investment portfolio and given the huge loss on Grupeer, I am very close to that, but not there yet.
Some might say why only 5% and not exit completely?
Main reason is that I still want to keep an eye on things and see how the industry evolves moving forward. My hope is that in the next 1-2 years things will become better and I can increase my stake on it once again.
And in case you’re wondering. All these money that I am withdrawing from P2P lending I am investing them in the stock markets, via ETFs.
As a conclusion
Everyone. We live historic times.
The P2P lending industry is in the worst shape possible with many of us losing hundreds or thousands of euros due to scams.
A pandemic is making our lives extremely difficult and most probably the global economy will be hit hard by a major crisis in the coming months.
Instead of feeling depressed of the present and what’s coming, consider this a unique opportunity for introspection time to set us up for a much better future.
First, make sure you stay safe, healthy and positive. Take care of you and your families.
And then, read a lot, meditate, reflect on what went good and what went bad. Think on what’s important and what’s not. Do spring cleaning in your priorities. Understand what are the things you truly care about.
At this point, having a healthy body and mind and taking care of your beloved ones is far more important than anything else.
Once you have that covered, only then start thinking about money and investments, be that P2P lending or any other type.
If history repeats itself, and I think it does, then we are in for some great opportunities ahead of us, on all fronts.
Keep all of that in mind and figure out how to turn things around in your favour in ways you could have never imagined before, and get to the next level of greatness and prosperity.
I know I am!
Share your opinion
I invite you to share your thoughts about the current state of P2P lending.
What have you done so far to protect yourself? What will be your next steps?
What ever you think, feel free to leave a comment in the section below.
Until next time,
Disclaimer: This is a personal blog, containing our opinions and views, and nothing you read here can be used as investment advice or recommendation. You should also know that some of the links in this post may be affiliate links, meaning, at no cost to you, I may earn a commission. Read the full disclaimer here.