Before reading about Iban Wallet platform risks, make sure you are aware of Iban Wallet: Platform Pros and Cons. That is crucial to assess the following information in the proper manner.
What is Iban Wallet?
Iban Wallet is a global online marketplace for investment. Iban Wallet acts as an intermediary to the lending process, providing the necessary technology to allow lenders to invest funds, and loan originators to access capital.
What that means for investors?
What loan originators do is allow for credit rights to be purchased. In short, the returns investors make come from the purchase of credit rights, technically known as “credit receivables”. You, as investor, allocate your money into a “package” of loans already issued by the loan originator and, in fact, purchasing rights on the interest generated by such loans with a price cap of 2.5% up to 6%.
Do you understand now why Iban Wallet is different from the P2P lending model? Let’s make it more clear: loan originators underwrite loans and issue them to borrowers. When you invest through Iban Wallet, the loans have already been issued. The loan originators are already contractually bound to the loans, they are not waiting for enough capital to be raised to fund a specific number of project. In fact, the loan originator aggregated a large number of individual loans into a large loan package that then makes available for Iban Wallet to manage.
While this results on a lower interest rate than what you traditionally find on P2P lending platforms, it also enables the most interesting value proposition and differentiation of Iban Wallet in the market: to offer a higher degree of liquidity to investors, as they are able to request a withdrawal of their funds at any time (keep in mind that an early cancellation fee may apply if funds are withdrawn before their term on particular investment products).
Iban Wallet Ecosystem Incentives
The above description makes transparent the particular interests of all stakeholders involved:
- Investors are willing to sacrifice return for liquidity;
- Loan originators are able to access extra capital to fund their operations at a lower interest rate and leverage their loan portfolio in a significant manner;
- Iban Wallet collects a differential of interest rates between the cost the loan originator pays and the investor receive to cover all operations and marketing costs, as well as their profit margin.
How Iban Wallet Protects Investors?
To date Iban Wallet states an impressive 100% non-default track record. But considering that Iban Wallet accounts offer a (projected) fixed interest rate, regardless of the amount, term and investments made on loans, it makes sense that through diligent financial management is capable of offering multiple protections to its investors. Again, you are exchanging interest for immediate liquidity.
This is not assurance for the future, it only means that the measures in place presented below have ensured that investors have always received their advertised rates. But remember that no investment is risk-free.
The company states that all loan originators that work with Iban Wallet are audited, indicates that non-invested funds are deposited on a segregated EMI (Electronic Money Institution), regulated by the ECB (European Central Bank) and loans are asset-backed by collateral. However, without independent external audits available, all the information presented before is marketing. Take that into consideration before investing.
Iban Wallet Loan Originator Due Diligence
Before accepting a new loan originator, Iban Wallet executes a due diligence procedure to access the following main points:
- Diversification: evaluation of the loan portfolio from multiple diversification perspectives;
- Analysis of financial statements, management quality, underwriting policy, credit scoring, investment portfolio performance, and data accuracy to ensure good practices;
- Iban Wallet continues monitoring the loan portfolio for risks on an ongoing basis.
Segregated Accounts in EMI
When you invest in Iban Wallet, your funds go into an EMI (Electronic Money Institution), regulated by the European Central Bank. In the hypothetical case that Iban Wallet becomes insolvent, you could claim the balance of your non-invested funds from this segregated account. But why non-invested funds are stored with an electronic money institution, instead of a traditional bank with proper insurance schemes? Probably the reason is cost.
Iban Wallet states that all loan investments accepted from loan originators are asset-backed. This means that funds corresponding to a loan entering in default could be recouped via the sale of this collateral.
This publication was updated based on changes in June 2020 that removed the Buyback Guarantee and Safeguard Trust previously available. From now on, in the unfortunate event any loan originator defaults, investor money is only backed by the asset given as collateral to the loan.