A secular growth trend in the real estate market and a growing US economy is expected to be a strong tailwind for real estate financing companies and should have a commensurable positive effect on asset management companies in the space. AlphaFlow, a California registered investment advisor, is amongst the first and fastest growing automated real […]
A secular growth trend in the real estate market and a growing US economy is expected to be a strong tailwind for real estate financing companies and should have a commensurable positive effect on asset management companies in the space. AlphaFlow, a California registered investment advisor, is amongst the first and fastest growing automated real estate investment services in the US. The company launched operations in 2015. Its first avatar was focused on bringing consolidated reporting, transparency, and insights to real-estate crowdfunding investments on multiple platforms. The company, under Founder and CEO Ray Sturm (formerly founder of RealtyShares), has now graduated to cutting-edge algorithmic investing.
Meet The New AlphaFlow
The company has raised a total of $6.4 million with $4.1 million coming in the latest funding round (September 2017). The round was led by Hedge Fund titan Steven Cohen’s Point72 Ventures while other marquee names likes Social Capital and Y Combinator also joined in the raise. The funds are being deployed to build infrastructure, develop underwriting resources, finance partnerships with leading online lenders & investors, and to update the company’s technology.
AlphaFlow launched the industry’s first fund allowing investors to diversify their portfolios through multiple real estate loans with an option to reinvest earnings automatically. Investors now have a true opportunity to diversify.
In March 2017, AlphaFlow launched an Automated Investment Platform incorporating SMA (Separately Managed Accounts) and artificial intelligence technology offering portfolio optimization and diversification services in a way that each client has his unique asset portfolio at minimal cost. This relieved clients from the hassle of managing their portfolios as the entire administration and monitoring is in the hands of experienced professionals.
The AlphaFlow Working Model
AlphaFlow is working on an asset management model and not a marketplace lending model. The company stands out from the crowd because its investments are spread across 75-100 loans aiming at net returns of 8-10% and targeting lower LTVs.
Loans are purchased/underwritten from lending platforms after performing a detailed due diligence process. Each client’s portfolio is under automatic review on a daily basis to keep it diversified. Loan underwriting is not a fully automated process, however. The algorithm and allocation methodology used are proprietary while loans not fulfilling predefined criteria are rejected. This ensures that the fund is not on an auto-underwriting mode and every loan is analyzed to evaluate suitability for client’s portfolio.
The platform charges a fee of 1% on invested capital and its loans are usually for a tenure of 6-12 months. The minimum investment amount is $10,000 for each investor. AlphaFlow currently has over 280 investors on board.
Normally, loans are repaid earlier than the credit period sanctioned, where AlphaFlow’s automatic system re-balances the entire portfolio. Also, the portfolio of each client is re-balanced with the addition of new loans to the platform.
The Current Scenario
Sturm shares his thoughts on the real estate crowdfunding industry freely. “Most platforms are facing challenges related to managing customer acquisition costs (CAC),” he says, “which have started topping $5,000. Growing competition further fuels the CAC. Though VC funding has been strong in the segment, this has shifted the balance towards institutional investors as compared to originally empowering retail investors. The winner in the space will be the one who can control his CAC and develop an artificial intelligence-powered underwriting technology.”
With sufficient capital in hand, AlphaFlow is now looking for partnerships with online lenders to expand its business reach. Its criteria for selecting partners is to focus on their underwriting technology, reporting infrastructure, and transparency. Another challenge the industry as a whole is facing is that it has become harder to determine which lender is doing better. For an investor, it is fundamental to their job, but transparency has taken a hit in the current ecosystem.
A changing economic environment will lead to shifting trends in the housing market, in terms of job growth, affordability, increased demand, and nominal interest rates. Credit models need to be able to stomach this shift. AlphaFlow is still building out its technology, but the solution developed has helped it lower delinquency rates by more than 80 percent as compared to the rest of the industry. Also, most platforms talk about the need to synthesize information using AI and machine learning, but few have done it well.
Real estate crowdfunding firms will need artificial intelligence to analyze all the data points on scale, and it will soon become uneconomical to hire a massive team to execute all these repetitive tasks. Moreover, profitability is not the function of growth alone. AI-empowered smart underwriting will be the key differentiator, Sturm believes. He shares that it is always easy to grow by underwriting bad deals, but it is suicide in the long run when capital deployed is not able to hit target returns or, even worse, if principal is destroyed during the process.
AlphaFlow became a Registered Investment Advisor to showcase to investors that it is on their side and that it has a fiduciary duty to protect their interests. Serious players in the segment will have to move in this direction to achieve scale in the asset management industry and better serve their customers.
Although AlphaFlow is doing well with its present underwriting model and clients are satisfied with the results, it is always searching for improvements that can be incorporated into the system. It is also considering multiple avenues to get a diversified exposure in the real estate industry. It might go for a combination of debt and equity deals for better exposure. Different duration debt deals may be targeted (2 or 3 years tenure) with a locked interest rate of 5 percent. To be a market-driven company, strategies will need to be reframed accordingly.
Integration of blockchain technology can transform the entire operational aspect of the real estate industry. But Sturm believes it is still a long way from maturing enough for real estate investing. The technology is currently not on his road map, but he might get interested if someone is able to introduce a breakthrough product.
To achieve scale and a strong position in the industry, AlphaFlow will keep investing in data science and engineering. In today’s fintech world, that is the only moat a business can cross.
News Comments Today’s main news: How to build a $100 billion company. Square launches in UK. Century-old Thai bank plans digital revamp. ClaimVantage raises funds to expand into Asia. Today’s main analysis: Tech will lead to new sub-prime crunch. Today’s thought-provoking articles: An unofficial chat with Ron Suber. How technology is changing online credit checks. Legal considerations of running a […]
Tech will lead to new sub-prime crunch. AT: “Sound premise, but it deserves some mulling over. There is definitely a technology paradigm shift underway and that has long-range economic and employment implications, to be sure. But can we narrow this down to one phenomenon?”
The tables below demonstrate cumulative changes in interest rates for Lending Club and Prosper. Although the rate for high-grade loans for Lending Club has slightly increased over time, while dropping a little for Prosper, the tendency for both companies is similar: They are widening the gap between low and high-grade borrowers.
Since 2013, the top 40 percent of earners have accounted for 84 percent of all new income and 34 percent of new debt, which led to a material reduction in aggregate leverage relative to income and provided for consistent growth of retail sales, as this cohort represents 65 percent of total consumption. According to the article, the recession will be a result of a material reduction in consumption from these top earners, who have historically followed the deterioration of lower and middle-income households.
With the penetration of technology, more and more labor-intensive work is shifted to computers or machines. People employed in manual labor, who mostly get an hourly wage, are in less demand on the market, which leads to the number of such jobs decreasing. Most jobs that were previously done manually are being substituted by machines, which, accordingly, increases competition among workers of respective industries.
The statement is easily supported by the last data available: A new study by Forrester forecasts that cognitive technologies such as robots, artificial intelligence, machine learning and automation will replace 7 percent of U.S. jobs by 2025 (with 16 percent of jobs replaced and the equivalent of 9 percent jobs created).
By the end of 2016 there were more than 4.1 million people who drove for a living, with more than 3.5 million doing it full time. The automatization of driving will lead to all of them being forced to change their jobs, and obviously turning to software and tech industries is not an easily affordable option for these people.
Employment in the tech industry is, on the other hand, quickly growing. According to the results of a Cyberstates 2016 report prepared by nonprofit IT trade association CompTIA, employment in tech hit its highest growth rate in more than a decade in 2015, reaching 6.7 million people for companies with formal payroll in place in the U.S., up about 200,000 from the year prior.
Summarizing the above, we can expect that for workers employed in labor-intensive industries, the wages are not going to rise as a result of increased competitiveness for jobs in these sectors. Stagnating wages will lead to credit of such workers suffering (which is, in fact, already happening), as their anticipated increase in income is not realized even when the economy is doing well in general.
Mike Cagney, the CEO of financial services startup SoFi, does not lack for confidence. But then again, confidence is what you need to raise billions of dollars and take on some of the largest and most powerful companies in the world — global financial giants like Chase, Citi, and Bank of America. To get there, Cagney’s got a pretty clever playbook: He’s partnering with those same banks, who buy the loans he originates and profit from SoFi’s unique skill at acquiring new customers.
If you circulate within fintech, pretty much anywhere on the planet, there is a high likelihood you’ve heard of Ron Suber. And in case you haven’t, he’s the president of Prosper Funding, the marketplace lending platform that has now funded over $8B in loans, and recently closed a deal with a group of institutional investors to purchase up to $5 billion worth of loans over the next 24 months.
I asked him how he deals with all the travel, plus the highs ($5B deal-yeah!) and lows (Lending Club-OMG!) of the job, and he jokingly responded “Funny – (with) a unique combination of Yin Yoga and Johnny Walker Black”. He also said he does “intention setting” before he gets out of bed every day, which he has found incredibly helpful.
The full deck for the Lendit 2017 presentation can be downloaded at this link: LendIt.FINAL
The last deck he shared with us from the AltFi Australasia Summit in Sydney. The event was attended primarily by Australians and New Zealanders, with some Asians in attendance as well and also had a slightly different angle.
The speech compared online lending to online trading, showed a 5 point overview of the industry since inception, and included a picture showing traditional banks already involved in marketplace lending.
Tech development is not cheap. Those hoping to raise angel or VC capital for a real estate crowdfunding platform have, in my humble opinion, missed the boat by a couple of years.
That said, if venture funding isn’t available, it doesn’t make sense to spend a lot of money on technology. Many of the RECF platforms out there today would like to command a tech multiple, but in reality, function more so as technology-enabled brokering or origination shops. For the vast majority of RECF platforms, their value is is not in their technology, but their ability to fund or originate deals.
Will this be a personal platform for your own deals, or will the platform raise funds for deals from other parties? If the latter, you may be brokering or dealing, and may need to obtain a license.
Will you be selling equity or debt securities? What type of debt will you be selling? What will it be secured by, if anything? What type of equity will you be selling?
What type of real estate will you be raising funds for? Will the properties be residential properties? Commercial? Rehab? New development? Is there a geographic scope involved? You should have a specific business plan in mind.
It’s great that RECF platforms are hot right now, but remember – you’re still selling a security, and securities laws really aren’t the type of laws one should take lightly.
RealtyShares, a leading online marketplace for real estate investing, today announced that its network of accredited investors has raised $3.5 million in equity capital for the $67.3 million acquisition and renovation of Avesta Biscayne in North Miami, Florida. This is the largest equity investment that RealtyShares has raised to date through its real estate investing marketplace.
Avesta Biscayne is a 402-unit apartment community near the Biscayne Bay shoreline, consisting of six mid-rise buildings and amenities including a clubhouse, two pools and a tennis court. The deal is sponsored by Avesta Communities, a vertically integrated multi-family owner-operator specializing in apartments serving the middle-income renter. Previously, Avesta raised $2.25 million through RealtyShares to recapitalize and renovate Avesta Bridgewater, a 344-unit apartment complex in Orlando, Fla.
In the U.S. mortgage market as a whole, shadow banks held a 38 percent share in 2015, compared with 14 percent in 2007.
In other markets, financial organizations that are not subject to bank regulation have flourished, too. According to the Financial Stability Board, the august body that makes recommendations to the global financial system from Basel, Switzerland, “other financial intermediaries” — the category that includes non-bank lenders but not insurance companies and pension funds — increased their assets to $80 trillion, or 23 percent of total financial assets, in 2014. Their average growth reached 5.6 percent in 2011 through 2014, while the global banking system’s assets stopped growing during that time.
The reason shadow banks have largely escaped public scorn, regulatory scrutiny and high capital requirements is that they often came in the guise of high-tech disruptors. Quicken Loans Inc., the third biggest mortgage lender in the U.S. in 2015, does business online and on the phone, and that somehow makes it less interesting to regulators than a bank that does the same through an old-style branch network. Lending Club and other “peer-to-peer” lending firms quickly became conduits for large investors, not “peers,” yet they avoided regulation as though they were innovative tech platforms.
By 2015, 85 percent of the mortgages they originated was sold to government-sponsored enterprises such as Fannie Mac, Ginnie Mae, Freddie Mac and Farmer Mac. They benefit from implicit and explicit government guarantees originally supplied to banks — without shouldering the same regulatory burden or facing the same stigma. In other words, they profit from regulatory arbitrage.
This report describes KBRA’s rating methodology for U.S. consumer loan asset-backed securities (“Consumer Loan ABS”). This includes transactions secured by collateral originated by traditional consumer loan companies, as well as, through online consumer loan marketplace lending platforms (“MPL Platform”).
Wells Fargo is betting that having access to a live financial advisor will convince clients to put up higher minimums and pay more for its robo-advice platform than for its competitors’ platforms, the Wall Street Journal writes.
The company’s Intuitive Investor automated advice service requires a $10,000 minimum investment and costs 0.5% of assets annually, according to the paper.
By contrast, Merrill Lynch’s Edge Guide Investing platform and Schwab Intelligent Portfolios only require a $5,000 minimum, while Wealthfront requires $500 and Betterment has no minimums, the paper writes. All of these platforms charge fees ranging from 0.25% to 0.45% of assets, except Wealthfront, which only starts charging 0.25% on accounts with more than $10,000, according to the Journal. Vanguard Personal Advisor Services, meanwhile, comes with a hefty $50,000 minimum but charges only 0.3%, the paper writes.
What’s more, Wells Fargo and other full brokerages aren’t necessarily competing with pure robo-advice pioneers such as Betterment and Wealthfront, William Trout, a senior analyst at research firm Celent, tells the Journal. Rather, they’re aiming to tap into their existing client base, he says. Wells Fargo is targeting its retail bank clients who currently don’t receive any form of advice, Lai tells the paper.
So the New York Financial Press, launched in April 2016 by Syosset-based Morey Publishing as an “alternative financial news journal” that would dive deeper than earnings statements and trading indexes (not to be confused with the Wall Street-based media company founded in 2005 by Pierre Alexandre) – is now feeding Mayava Capital Inc., a Syosset startup created to facilitate small-business lending.
The other five sites – each focused on lending in a particular vertical market, such as healthcare or transportation or IT – were created by Morey et al specifically to usher visitors directly into Mayava Capital’s arms.
FUTURE DIGITAL FINANCE AND PERFORMANCE HORIZON RELEASE NEW INDUSTRY BENCHMARKING REPORT (Future Digital Finance Email), Rated: A
Today, Future Digital Finance and Performance Horizon released their findings from their new report titled “Benchmarking Performance Marketing Adoption within Financial Services Strategies”. As the consumer revolution in retail banking continues, the whole financial services vertical has seen dramatic shifts towards electronic interactions across their consumer and business-to-business operations. This new study takes a look at the wider variety of marketing channels firms have begun to leverage, especially ones with clear measurement methodologies that contribute towards revenues.
Key statistics from the survey include:
– Performance marketing, including affiliate marketing, primarily drives customer retention for 21% of financial services companies.
– Almost a third of companies spend at least 20% of their overall media budget on performance-oriented programs, while 21% of companies spend at least 40% of their overall media budget on performance oriented programs.
– Finance companies are looking to grow performance-based marketing programs as 77% of companies prefer to pay new partners based on performance.
– 93% of companies expect mobile website sales will increase, and 92% expect mobile app sales will increase in 2017.
– 86% of companies agree that data and insights from their existing partner marketing programs enable them to make better business decisions.
cloudvirga℠, developer of the automated, cloud-based intelligent Mortgage Platform® (iMP), announced today it has raised $15 million in a series B funding round led by Incenter, a Blackstone Group portfolio company. The new funding will support cloudvirga as it scales its technology and expands its product offerings.
Cloudvirga’s flagship mortgage point-of-sale (POS) system, the iMP empowers consumers to take the helm of a completely re-engineered mortgage workflow that automates the entire initial disclosures process and delivers unmatched transaction speed and efficiency to both borrowers and lenders. Central to cloudvirga’s success is its ability to maintain strict regulatory compliance, reduce time to close and save lenders money by moving many traditional back-office tasks to the front of the loan process.
Within the constraints of its jurisdiction and mission, the OCC is clearly trying to do its part to address the regulatory issues raised by financial service providers in the technology sector. The agency is not simply pursuing a “bank-lite” charter.
The regulation of financial services in the U.S. is highly fragmented, and fintech is challenging every aspect of that structure. Federal and state agencies can stake claim over the regulation of fintech, yet both are ultimately limited by narrow lanes and tightly defined jurisdictional boxes prescribed to them by their respective charters. As a result, even the most well-intentioned efforts are only able to address the trees, but not the forest.
The goal of its proposal is to encourage the entry of fintech firms into federally regulated financial services. But if the actual pool of applicants ends up being extremely small, that’s going to be a real problem.
Random Forest Capital Raises $ 1.75 Million for Strategic Talent Acquisition (Random Forest Email), Rated: B
Random Forest Capital () completed its seed round in January 2017 with $1.75 million led by a very impressive group of angel investors. The money will be used to build out its full stack software and machine learning algorithms and acquire strategic talent for helping institutional investors find the right opportunities in consumer, residential, and commercial credit.
“There are 400+ platforms that originate many types of secured & unsecured debt,” said Kevin Farrelly, chief operating officer, general partner, and co-founder of Random Forest Capital. “We can analyze a massive amount of data from those platforms in seconds whereas a human analyst will take days to weeks.”
Random Forest Capital uses machine learning algorithms and third-party systems with APIs to source investment opportunities from eight platforms (and growing). Their custom algorithms then price the risk and can execute in microseconds.
“Loan originators make money originating loans – so it’s in their best interest to bucket all the loans together. Our goal is to preserve investor capital. These competing interests create a fundamental divide where alpha in marketplace lending is easily found,” said Austin Trombley, chief technology officer and co-founder of Random Forest Capital.
Random Forest Capital recently added two new members to its expert leadership team. Julie Choi, Ph.D. has been named the chief risk officer. Carl Siemon, Ph.D. has been named the principle data scientist for Random Forest Capital. Siemon is a Physics Ph.D. graduate from UT Austin where he was supported by the prestigious National Defense Science and Engineering Fellowship.
MoneyLion Wins Gold at PYMNTS Innovation Project Awards for Best Credit Innovation (MoneyLion Email), Rated: B
MoneyLion, the mobile personal finance platform that puts consumers in control of their financial lives with AI-driven tools and smarter credit products, has won the gold medal for Best Credit Innovation at the PYMNTS 2017 Innovation Project Awards. The award coincides with a major growth milestone for MoneyLion, which now has over a million users.
Mobile payments company Square launched for UK based businesses today. This launch is the fifth market for Square since launching in the US in 2010 and since expanding to Canada, Japan and Australia.
Square Point of Sale has actually been available in the UK, among other markets around the world, for a few years already, however the full features of the product that’s available in Square’s four main markets were not available.
In addition to three more courses for London & Southeast candidates this year, the Academy has expanded to:
Northern England: Manchester, 25 – 26 May
Scotland: Edinburgh, 22 – 23 June
Midlands: Birmingham, 7 – 8 September
Southwest England: Bristol, 9 – 10 November
All courses are carefully tailored to resonate with common issues facing developers in their respective regions. All modules are taught by industry specialists from the local area who will drawn on locally relevant case studies and anecdotal evidence.
Lendy, announced on Tuesday it is integrating its popular investor-facing platform, Saving Stream, under its Lendy brand as part of the platform’s continued growth. According to the company, it is merging Saving Stream, with its borrower-facing brand, Lendy Finance, in order to simplify its branding and to make accessing its loan-based crowdfunding platform easier and more accessible to clients.
Lendy revealed that the total amount loaned to property developers and investors through its peer-to-peer platform has now topped £285 million and its 15,000 registered users have received £20 million of interest from the loans they have written. The company also stated its user base has more than doubled from 5,600 at the start of 2016, with the platform’s popularity among lenders being driven by:
The security provided by property-backed loans
The additional security provided by Loan To Value (LTV) ratios on all Lendy loans being capped strictly at 70%
Returns of up to 12% on loans written through the Lendy service.
It generally takes nothing more than a simple click on the ‘yes’ button to authorise an online peer-to-peer (P2P) lender to go through an applicant’s credit history before approving a loan.
But the assessment may in fact go far beyond the borrower’s imagination.
With vast amounts of data at their disposal, the powerful analytical programs behind the screen are often capable of picking up diverse fragments of an applicant’s life story and piecing together a complete picture. And it all happens in a matter of minutes.
Cloud Atlas, a risk management system developed by Finup, is one such example. After obtaining consumers’ consent to access their mobile contacts book and apps as well as information provided by third-party data agencies, the system is able to carry out a thorough analysis to figure out whether the applicant is eligible for loans on the particular P2P platform.
The pass rate of applicants for loans under the Cloud Atlas system is well below 10 per cent, as the three-year-old company uses strict criteria.
The seemingly relentless proliferation of China’s peer-to-peer (P2P) lending platforms has finally been contained by stringent measures introduced by the government in a bid to tackle a fraud epidemic that tarnished the industry’s reputation.
The sector, which ballooned to host thousands of firms of varying sizes and specialities, will eventually become limited to just a handful of mega participants, according to Zhang Shishi, a co-founder of the Chinese P2P platform Renrendai.
However, the heated competition that emerged as a wave of profit-hungry new players crowded in, all hunting aggressively for investors and money in the markets, led to a rise in illegal activity. Countless cases of P2P lenders promising high returns from non-existent projects and then running off with the proceeds made the headlines.
Siam Commercial Bank Pcl, Thailand’s oldest homegrown lender, plans to reinvent its mobile digital payment platform as a lifestyle app to help fend off competition from upstart financial technology providers.
The lender is working with companies including Accenture Plc, Microsoft Corp. and International Business Machines Corp. on the project, Chief Executive Officer Arthid Nanthawithaya said in an interview. The long-term goal is an app that allows customers to search and pay for entertainment options such as restaurants and cinemas, going beyond just day-to-day banking, he said.
Siam Commercial Bank’s shares gained 0.6 percent at 10:46 a.m. in Bangkok on Wednesday. The stock has climbed about 4 percent in the past three years, less than the 8 percent advance in the Stock Exchange of Thailand’s Banking Index.
IRISH-BASED FINTECH COMPANY ClaimVantage has secured €2 million in funding to bankroll its move into Asia.
The international firm, which has been headquartered in Dublin since it was founded in 2006, develops and provides cloud-based claim management software for some of the top insurance firms in the US and Canada.
The Monetary Authority of Singapore (MAS), Singapore’s central bank and financial authority has signed FinTech cooperation agreements with a pair of French regulators to boost FinTech ties between the two countries.
The cooperation agreement sees Singapore’s central bank partner the Autorité de Contrôle Prudentiel et de Résolution (ACPR), the authority monitoring banks & insurance companies in France and the Autorité des Marchés Financiers (AMF), France’s stock market regulator.
Under the agreement, the three authorities will adhere to a framework that fosters the sharing of information relating to FinTech trends and services. Joint innovation projects and regulatory hurdles will also be discussed between the two countries.
According to the World Bank’s Migration and Remittances Factbook 2016 report, migrants are sending earnings worth more than US$441 billion to families in developing countries, contributing to the 10% of GDP of some 25 developing countries. With KSA, UAE and Kuwait among the top ten high-income countries categorized as main sources of remittances in 2014, six GCC countries accounted for $98 billion in outward remittance flows in 2014. As the region’s expat population transfer money to respective home countries, there’s a prevalent reality that there is a struggle (especially among blue-collar workers) to access bank accounts- and this is what fintech startup NOW Money is trying to solve.
With a tagline of “empowering the unbanked,” founders Katharine Budd and Ian Dillon launched NOW Money to provide expat workers who don’t have access to banking and remittance services with direct access to a current account, debit card and remittance from their proprietary app and service center.
Compared to outbound remittances sent as cash (which is often hard to follow), the startup tracks “payments from salary, to remittance, to collection by overseas. This is an important step change in the progress the UAE is making towards combatting money laundering and criminal funding.” With respect to security and privacy, facial recognition tech is used to enable users to log in to the NOW Money app- a photo cannot be used to fake an entry, since movement is accounted for by this feature: the user has to blink to log in. It also records the way you hold your phone and type, so suspicious behavior will cause an alert notification. Although pin codes and passwords are still present as per the current compliance laws requirement, the team believes such a system is still susceptible to hackers, and thus Budd asserts the advantage of biometrics.
The authors estimate that approximately USD 475 million was made available in Africa and the Middle East via alternative financing methods between 2013 and 2015, with Israel accounting for USD 125 million of this total. The authors conclude that alternative finance as a whole grew more slowly in Africa and the Middle East than in other parts of the world as the development of the market was in its early stages.
As a large percentage of small businesses, online retail sales as a percentage of total retail sales have doubled in the past five years. Ecommerce sales overall in 2006 were just over 107 billion, representing 2.7 percent of total retail sales . There are over 100 million Ebay users in the US today, with an estimated 200 million new listings in 2Q, 2008 alone. There are an estimated 5 million power sellers transacting over 48 billion on Ebay and more than 8 million high-volume sellers representing over 70 billion across all marketplaces.
Rob Frohwein founded Kabbage to get small businesses capital quickly, an area in which banks have long struggled.
Kathryn Petralia has 12 years of experience in the consumer credit and payments space.
Amy Zimmerman has spent 15 years building tech companies by identifying and cultivating talent. Her focus at Kabbage is to foster the company’s inventive culture.
However the alternative method is for a startup to operate on its own steam by meeting the requirements to obtain the requisite licences although this method requires significant capital outlay. As such, FinTech startups that are seeking to exploit the significant market opportunities in Nigeria are bound to run into several regulatory compliance obligations.
The payment and processing segment of the FinTech sector for example — which has shown the most growth and success thus far — is primarily governed by the same general framework as are traditional financial institutions providing offline financial services (e.g. money/payment transfers, clearing, switching, settlement etc), in addition to regulations related specifically to that sub-sector.
Thus, the legal and regulatory framework that is generally applicable to financial institutions — such as the Central Bank of Nigeria (CBN) Act, 2007, the Banking and Other Financial Institutions Act (BOFIA) and all subsidiary instruments stemming from same — are all relevant to any non-bank led startups providing digital equivalents of offline financial services. This framework brings with it mandatory obligations such as KYC and AML requirements that must be strictly adhered to.
Commercial lending activities are regulated in Nigeria and as such require licensing by either the CBN (for banks and other financial institutions) or the Ministry of Home Affairs of the various states (non-financial institution lenders).
The Nigerian Insurance Act provides the overarching framework for operators of all types of insurance business in the country and the National Insurance Commission (NAICOM) is the industry regulator. Under the act, one must be duly registered with NAICOM before engaging in the business of insurance.