Why is Neo Finance different from other peer to peer lending websites?
I have always had a good opinion of Neo Finance, so I wanted to get to know it better because it is about to become my next P2P tool (a Neo Finance review is coming).
Neo Finance is known to be on the “list of favourites” of some advanced investors, and I believe that proper setup is essential to get the most out of this powerful tool.
So I decided to ask their in-house investment specialist, Paulius MEDZIUKEVIČIUS what is the correct way to approach this tool and why choose it over other P2P websites.
I also took advantage of their investor specialist to ask some specific questions, the kind of things that make me understand what approach they will take with my money invested one day.
The specialist Paulius proved to be convincing especially on the security and guarantees aspect.
Feel free to add your thoughts after reading in the comments below.
Before we dive into the answers, let’s find out what the pros and cons of Neo Finance P2P are in my opinion.See NeoFinance with your eyes
↗️ Neo Finance Benefits
What do I like about Neo Finance?
- It is an EMI, licensed money institution (not only a P2P)
- They are among the most transparent P2P website around
- They are “old” since they’ve been around since 2015
- They are based in a financially reliable country (EU state)
- The only P2P platform that is known to perform “stress tests” since 2015
- The finest auto-invest ever
- Optional buyback
- Real provision fund (not fake like Envestio)
- Very regulated platform (Bank of Lithuania)
- Not based in Latvia/Estonia (offers geographical diversification)
- The team is extremely proactive (also because they are eager to grow)
- Secondary market available (1%)
- Real address and real people
- Team background is related to the P2P and banking business
- The best “About Us” page ever
↘️ Neo Finance Drawbacks
- A basic and efficient setup is achievable but to take advantage of all the filters available it may be time-consuming. Simply investing in a single “rating” will include a fair share of sensitive settings. Extreme fine-tuning after all, is optional.
- Neo Finance is still small in number of investors but it is quite big in terms of loan mass (50 M€). In 2020 there are 10857 active investors with average 2715 € investment portfolio (higher than average).
- Provision fund fee may be expensive if not used properly.
- The platform is not profitable yet (in May 2020 they will present the numbers).
- One-click auto-invest is missing (at least I’d like to be able to create an ultra-basic portfolio made of A-rated loans only, etc.).
Here are my question answered by Paulius MedziukeviCius
When was the hardest day for you at NEO Finance? Why it cannot happen again?
The hardest thing to educate investors about investment. The most important thing is not to lose capital and then seek opportunities to raise it.
Since NEO Finance is regulated when having a lot of barriers to compete in the market with a major unregulated platforms giants. But in this crises is our time to shine.
We never did promises on the bull market which we could not fulfil in the economic downturn.
Why did you start NEO Finance in Lithuania?
Because Lithuania is bet country to start this business due:
- There are only few competitions in the banking sector who leads hight interest rates.
- Best laws to recover defaulted loans.
- One database to check all borrowers liabilities.
What are your plans to face a recession at NEO Finance?
Since our team have experienced financial crises in 2008-09.
So we made the business model perform good in for all three sides: Shareholders, borrowers and investors.
We do have a Business continuity plan where every aspect explained in detailed.
What do you do to prevent security/credit/whatever issues?
NEO Finances is EMI.
SO that means the investors remaining balance is stored separated from the NEO Finance accounts in Lithuanians Central Bank.
All additions risk are explained in a Business continuity plan.
Why should one choose NEO Finance over Mintos or any other P2P?
- P2P business is regulated by the central bank of Lithuania in Lithuania.
- Supervised by BoL as EMI, P2P platform operator, consumer credit provider, PIS provider
- Money is safe because of EMI.
- Huge financial cushion > 6 mln EUR, expenses are ~ 100K. Shareholders’ investment into capital exceeds 4,2 mln EUR.
- Professional and experienced team, most experienced in Baltics for FinTech.
- We are loan originator, much less risk than in marketplaces
- Listed at Nasdaq First North Vilnius stock exchange
- Audited financial reports
- Diversified revenue stream: PIS service
- High returns in most cases above 10% and can still stand at the same level
- Smooth debt collection process and can be seen to everybody
- Recovery of new laid-off employees can be very fast and effective
- Credit leave law – to jump over this pandemic period
- Government aid more than 5% of GDP, can reach 10%, borrowers are most secured to have income and job
- AI credit scoring. You choose the credit risk, can only invest in low-risk credits
- Possibility to invest with Provision Fund – minimize your risks
- Possibility to sell back defaulted loans at the price 50-80% to NEO Finance
- Our team had the experience to handle the 2008-2009 financial crisis, and the only profitable loan product in major banks was – consumer loans. Zopa case.
- People are the last layer of the economical pyramid, you invest into people able to generate family income
- P2P platform is developed by our investor’s needs, features are programmed by the demands of our investors
- NEO Finance performing the stress tests.
How do you manage to have a low default rate?
Creditworthiness rating is generated by interfacial intelligent.
Also By useful debt recovery rate. Page 13th https://www.paskoluklubas.lt/uploads/marketing/Sales%20report%202019Q4%20EN.pdf
What are you doing to avoid more defaults to happen?
- Temporarily, until further notice, we suspend loan applications for refinancing loans where the borrower’s DTI is greater than 40 percentage
- We are changing the risk rating of C-rated loans
- Reduction of the maximum loan amount according to the ratings
What strategy have you got in place to avoid NEO Finance to be affected by a global economic downturn?
Invests and wait for the successful debt recovery process. Also, there are many good opportunities in the secondary market due to the huge amount investors are going to speculate in the stock market.
How do you prevent past issues to repeat at NEO Finance?
There were no huge issues in the past.
In case of default or any of your developers, how long will it take for an investor to recover their investment?
There will be only a minor influence of developers failure due to license and regulations and requirements on regulated and stock listed company.
Do you plan to give more assistance/indications to investors on how to pay tax on p2p in their respective countries?
Yes, the tax question is very important. Because tax has a huge impact when investors considering the risk-reward ratio.
We’re are seeking to improve tax-related questions every day. https://www.neofinance.com/en/page/13/non-residents-of-lithuania
Is a new p2p regulation needed? What do you know about it and how will investors be affected?
Yes, for all the people: investors, borrowers even shareholders are humans. And do have human instincts. So regulations to help benefit all-sided and avoid greed, unfairness, and fraud
European P2P market is doing very badly. Will NEO Finance lower the interest rates paid to investors?
Interest rates have risen to compensate potential increases of defaults.
But to help borrowers we’re following government guidelines and law to implement “credit leave” In accordance with the Consumer Credit Act Amendment of 03/03/2020, we are immediately arranging for borrowers to take a “credit leave” by providing credit deferral part payment up to 3 months (in exceptional cases up to 6 months) as required by law.
It is currently possible to postpone your credit deposit date by up to 1 month, so we’ll be programming this functionality.
Government proposal and decision is correct and this amendment to the law provides clarity on what to do with deferred payment when the borrower has been hit by the coronavirus economic crisis.
This solution will allow the borrower to temporarily pay lower premiums until the circumstances leading to a temporary loss of income or additional costs change and will allow investors to avoid terminating most contracts, even if revenues are temporarily reduced, but the investor will recover all interest due for that period;
Why don’t you provide a simple one-click auto invest for beginners and lazy investors?
This is true, one-click auto-invest is missing on Neo Finance, but I’ll tell you why.
For Bank of Lithuania it is forbidden one-click investment formula. In Bank of Lithuania opinion, investors should take their own financial decision quietly and with all the information available about the risks involved. A simplification like that may misguide investors.
For lazy investors and beginners, creditworthiness rating basically the only most important thing to care about.
How to use the provision fund on Neo Finance?
The Provision Fund is created for investors who want to spend less time on investment because they like to have a “protected investment”. Also, Provision Funds is like insurance, and for insurance, you’re paying a fee. Low risk – low reward.
Neo Finance provision fund is not suitable for investors who are seeking returns above 8%.
But if investors follow the Warren Buffett and believe that “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1” …the Provision Funds is the best option on the market!
Is Neo Finance P2P already profitable?
As you might know, business is all about choosing to be immediately profitable or betting on growth. So NEO Finance have chosen to growth.
Is it a bad thing? And on another hand, if the platform is not profitable yet, but the invested money generate profits…this may be acceptable for now.
NEO Finance business model is also based on the fact that borrowers pay fees. But keep in mind that due to the law of Lithuania, we cannot charge a fee in advance, we have to collect by monthly payments. This way law ensures that NEO Finance is forced to provide only good loans.
This represents a huge extra-guarantee for the investors.
What kind of person are you Paulius? What motivates you?
I’m the person seeking to find my own path, to be a pioneer. This path is not easy, there are many failures, but only failures lead to greater results.
My biggest inspiration and motivation is my hobby – investments. I’m always looking for business partners to work together share experience and move forward. But to achieve remarkable goals you have to surround you ambitious and energetic people.
Who is Paulius @ Neo Finance?
Here is the guy who just answered these questions about Neo Finance.
Here is the LinkedIn account.
📈 Neo Finance statistics
Interest rates are rising lately
Neo Finance has a very complete statistics page and it is possible to understand what may be the outcome of investing without using the optional provision fund.
🎥 Neo Finance video on YouTube
🇩🇪 Neo Finance for German investors
Neo Finnace has a special tax section designed for German investors.
Under German tax law, investors have to pay tax on income from capital assets.
Interest and capital gains of retail investors resident in Germany are subject to withholding tax of 25% plus a 5.5% solidarity surcharge (total 26.375%).
German income tax calculation
The taxable amount is the gross interest income without deduction of income-related expenses. Expenses related to investing on NEO Finance platform are not deductible. A standard annual deduction of EUR 801/1,602 (single/married) is offset against the taxable part of worldwide investment income.
Neo Finance Vs. other Peer to Peer
Neo Finance is not a personal loans marketplace like Mintos or Viventor.
The most similar tool is Bondora because they both offer their own loans, they don’t market loans originated from other loans credit agencies.
▶️ Conclusions and recap
Neo Finance is interesting for several reasons. I like their focus on security and the will to deliver an advanced investing platform.
If one can read the statistics table before investing he may be able to figure out a decent return, especially with the A-B rated loans. I’d not use their provision fund in the first phase. I believe it is absolutely normal that some loans go late and I know that, is the stats are real, I’d be able to get a positive outcome. Moreover, they claim to be very good at getting back money from delinquent loans. So if I am a long term investor, I may be able to enjoy also the recover some money coming from the recovered loans.
I belve it is pointless to invest in P2P loans for the short term, so I think Neo Finance can deliver good returns on the long term.
Why should one choose Neo Finance?
I believe one of the main reasons can be to be invested in loans out of the biggest countries famous for loans that are Estonia and Latvia.
I believe Lithuania is a good alternative country to invest in personal loans at the moment, especially if I have already many Mintos-Peerberry-Bondora loans.
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