Thursday September 26 2019, Weekly News Digest

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News Comments Today’s main news: SoFi intros crypto trading. Investors locked out of LendingClub in 4 states. Funding Circle asks US regulators to folow UK’s model. Fundbox raises $176M. Klarna surpasses 12M transactions per year. Today’s main analysis: U.S. subprime auto loan ABS recession scenarios (A MUST-READ). Today’s thought-provoking articles: Recession talk cooling. Consumers with […]

The post Thursday September 26 2019, Weekly News Digest appeared first on Lending Times.

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United States

SoFi Introduces Crypto Trading With SoFi Invest (PR Newswire), Rated: AAA

SoFi announced today that it has added crypto trading to its fast-growing SoFi Invest platform, as a response to demand from its over 800,000 members. SoFi Invest is now the first platform to offer automated and active investing with stocks, ETFs, and crypto through a single app.

SoFi Adds Bitcoin, Litecoin, and Ethereum to Invest Platform (Cheddar), Rated: A

SoFi goes live with crypto trading service for its over 800K users (The Block), Rated: B

SoFi users can initially buy and sell three cryptocurrencies – bitcoin (BTC), ether (ETH) and litecoin (LTC). The Block first reported the story last week, saying that the firm is beta testing the service in partnership with Coinbase.

SoFi CEO on what’s next for the company (Yahoo! Finance), Rated: A

Sofi CEO Anthony Noto joins The First Trade to discuss what’s next for the company.

Watch the video here.

Charlie Lee {LTC} praises SoFi as crypto-investing with Litecoin kicks-off (Our Bitcoin News), Rated: A

Litecoin is ranked at #6 underneath Tether, as well as Bitcoin Cash, in the market. The price jumped up at a rate of 0.60% in the course of the past 24-hours. This led to LTC scaling all the way up to $57.03 where it presently rests. The trading volume recorded stands at roughly $2.957 billion, whereas the supply has 63,337,479 LTC coins included as part of circulation. The total market cap of Litecoin amounts to $3.612 billion which depicts a massive decline compared to the value attained a week back.

SoFi CEO: Start investing in your 20s (Yahoo! Finance), Rated: A

SoFi CEO Anthony Noto discusses how his company’s consumers can now buy and sell Bitcoin, Ethereum and Litecoin.

SoFi Refunds Investors Hit By Capital Gains from Proprietary ETFs (ETF Trends), Rated: A

Financial technology company SoFi is offering refunds to investors hit by capital gains taxes following the change of replacing Vanguard funds with their proprietary ETFs in certain portfolios managed by their robo-adviser.

Some Investors Locked Out of Investing in LendingClub Loans (Lend Academy), Rated: AAA

Over the last 24 hours we’ve received several messages from Lend Academy readers alerting us that they have received information that they are no longer able to invest in LendingClub notes. There is is also an active discussion on the Lend Academy forum.

LendingClub state eligibility as of 9/24/2019. Source: Lend Academy

Funding Circle urges US regulators to follow UK model (P2p Financ News), Rated: AAA

FUNDING Circle’s US division is urging the Securities and Exchange Commission (SEC) to amend its restrictions on peer-to-peer retail investment.

The US financial regulator limits annual investment to five per cent of an investor’s annual income if their yearly income or net worth is under $107,000 (£86,075), rising to 10 per cent if the investor earns more than that.

Two Franchise Trends Aspiring Franchisees Should Look Out For (Forbes), Rated: A

Over the past 14 years, I’ve coached more than 1,500 people who were searching for the best franchise for their situation. I recently read the 2019 Small Business Trends 

Fintech Fundbox raises $ 176M to lend to business using AI (Information Management), Rated: AAA

Fintech Fundbox Inc. has raised $176 million in a new funding round from investors including Allianz SE and General Catalyst. The company planned to announce the funding along with a new $150 million credit facility.

A Fundbox spokesman said the new round valued the company at between $500 million and $1 billion, but would not disclose the exact valuation.

U.S. Subprime Auto Loan ABS: Evaluating Recession Scenarios (DBRS), Rated: AAA

Summary Highlights

  • Under the hypothetical Recession Scenarios, DBRS found that credit enhancement (excluding excess spread) coverage of remaining expected losses, as determined by a multiple calculation, decreased at the inception of the hypothetical recession for all of the Sample Transactions. The senior debt tranches experienced a swift deleveraging whereas some of the subordinated debt tranches could be at risk for a potential downgrade during the hypothetical Recession Scenarios.
  • After the initial decline in the multiple calculations at inception of the hypothetical Recession Scenarios, the deleveraging nature of the sequential pay structures of the transactions resulted in the calculated multiples for the analyzed debt tranches to move into the multiple range corresponding to the original rating of the debt tranche over varying lengths of time. The multiples for some of the debt tranches originally rated BB were weaker and moved into the BB range at a slower pace. As a result, those tranches would be more likely to be considered for a potential downgrade as compared to the more senior debt tranches where the structures delevered more quickly and the multiples reached the range corresponding to the original rating over a generally shorter period.
  • Over the life of the Sample Transactions, the credit enhancement multiples for all of the debt tranches analyzed, some on a delayed basis, ultimately moved into the AAA rating multiple range.
  • In each of the Recession Scenarios, the structure of each of the transactions provided sufficient credit enhancement for timely payment of interest and ultimate payment of principal of all debt tranches.
Source: DBRS

Read the full report here.

A Cooling in Recession Talk, Heat Up in Housing (PeerIQ), Rated: AAA

Lower rates, improved credit scores, and tighter housing inventory are improving the outlook for housing. Housing market achieved an 18-month high in housing starts and a record high in FICO scores.

The Citigroup Economic Surprise Index – a measure of actuals vs economist’s expectations – has also registered readings above the neutral baseline suggesting slowdown fears may be exaggerated.

Source: PeerIQ, CitiGroup

Consumers with Significant Liquidity Needs Often Access Alternative and Traditional Credit Markets Concurrently (GlobeNewswire), Rated: AAA

Many lenders believe that consumers who turn to the alternative credit market for liquidity do so because they have no other options. However, a TransUnion study presented today at the Lend360 conference found that these borrowers are frequently applying for and receiving traditional credit at the same time. While traditional subprime installment lenders and alternative lenders are competing over the same consumers, the study finds that the liquidity need is often not fully met in either market.

Source: TransUnion

Risk Levels Higher for Traditional and Alternative Loan Borrowers

Controlling for risk score, 8.5% of the alternative credit-active consumers had a serious delinquency in the first 12 months, vs. just over 2% for the control group. Bankcard performance was also worse. While these borrowers exhibited a preference for unsecured personal loans under $1,500 within 12 months of the alternative credit origination, they also originated auto and bankcard credit during that time.

Read the full report here.

Lendio to Double Sales Force, Expand Loan Product Offerings (Benzinga), Rated: A

Lendio today announced plans to double the sales force at its Lehi, Utah, and Woodbury, New York, offices. The company has hired 80 employees in 2019, and intends to add another 40 sales representatives by the end of the year, with plans to bring on another 40 in the first quarter of 2020. In addition to the expanding workforce, Lendio plans to bolster its selection of loan products for small businesses, with a 10% increase in the number of product offerings in the coming year.

Fintech lenders taking more market share from banks, survey finds (American Banker), Rated: A

Fintechs are continuing to siphon away customers for unsecured personal loans from traditional lenders, according to a study released Wednesday by Experian.

The study found that digital lenders more than doubled their market share in the past four years, with consumers across the credit spectrum increasingly turning to fintechs like Lending Club and Social Finance.

Fintechs now provide 49.4% of unsecured personal loans as of March compared to 22.4% in 2015, according to Experian.

Fintech Lenders Could Hold the Keys to Recession Recovery (Salon), Rated: A

Born out of the last recession, young fintech lenders have not yet been tested by a significant economic storm, and many in the industry are wrapped up in a dialogue of speculation about the industry’s ability to ride out an impending recession. It’s time to turn the conversation instead to focus on how fintech lenders can position themselves to play a critical role in recovery from the next downturn, whenever it may happen.

WeWork should ask SoFi CEO for advice on how to save the company (Yahoo! Finance), Rated: A

The two new guys running the slowly sinking ship known as once hot tech startup WeWork should give SoFi CEO Anthony Noto a holla on his Apple iPhone. Trust me, Noto has some good, timely advice for Artie Minson and Sebastian Gunningham.

Because the former Goldman Sachs banker and Twitter chief financial officer, now SoFi chief clearly gets how to rebuild a promising tech startup after a high-profile challenge or two. And then possibly, take it down the path of a successful initial public offering.

Generation Z’ers want more financial education – and innovative tools to help them learn (PR Newswire), Rated: A

As high school students return to school, they may see the benefits of new state laws across the country that require curriculums to offer a class about personal finance. This is great news for young adults as 76% of recent high school graduates agree it should be required, according to a national survey by Experian.

Many Gen Z’ers surveyed say innovative tools are the way to go when it comes to learning about credit (45%) and almost half (48%) would prefer to use tech-driven tools versus textbooks to learn more.

Survey respondents also say they are currently learning about finances mostly through their friends (28%), YouTube (27%) and some form of social media (24%).

D.C. Court Dismisses Challenge to OCC’s Fintech Charter (Manatt), Rated: A

In the latest battle over the Office of the Comptroller of the Currency’s (OCC’s) plan to issue special purpose national bank (SPNB) charters, a D.C. federal judge has for a second time dismissed a lawsuit brought by the Conference of State Bank Supervisors (CSBS).

The decision creates the potential for circuit split, as a New York federal court reached the opposite conclusion in a nearly identical action filed by the state’s Department of Financial Services (DFS).

9 Ways To Build an Empire Without Lifting a Finger (Yahoo! Finance), Rated: A

Another way to build your real estate empire is through real estate crowdfunding. As with investing in a REIT, real estate crowdfunding allows you to pool your money with other investors to invest in real estate. This could include multifamily units, commercial properties and bundles of single-family homes.

According to U.S. News & World Report, the top real estate crowdfunding platforms are ArborCrowd, RealCrowd, Groundfloor, CrowdStreet, PeerStreet, Small Change and RealtyMogul.

If you can afford the minimum investment — which is usually $25,000 — you can make big returns. Groundfloor boasts 10% returns for individual investors and CrowdStreet’s is even higher with 25.5% total average annual returns across all fully realized deals.

RealCrowd offers a breakdown of average annual income on a $1 million investment based on the property type: $78,000 for a suburban office, $72,000 for a retail space, $59,000 for a downtown office and $58,000 for a multifamily unit.

The Best And Worst MA Towns For Young Families (Patch), Rated: A

The online mortgage broker Lending Tree has tried to take some of the guess work out of that decision by ranking every community in Massachusetts with 5,000 or more residents based on their appeal to families with school-age children.

Hingham, under Lending Tree’s methodology, received a score of 72.5. Last-place Webster’s score was 31.9. Other towns in the top 10 included Winchester, Needham, Milton, Longmeadow, Wellesley, Cochituate, Pinehurst, Lexington and Nantucket.

JPMorgan donates $ 25M to get fintech in hands of underbanked (American Banker), Rated: A

JPMorgan Chase announced Tuesday a $25 million commitment to the Financial Health Network’s Financial Solutions Lab, a program meant to focus on the creation of fintech tools to help consumers better manage their finances.

The Financial Health Network (formerly The Center for Financial Services Innovation) previously received a $30 million philanthropic donation from the bank that spanned the last five years.

Bitcoin and Ethereum dive deep, is Bakkt to blame? (Mashable), Rated: A

“The disappointing BAKKT opening signals to the crypto community that institutions are less ready to invest in BTC at scale than was supposed, which means the price was probably too high and due for a correction. What we’ve just seen is short sellers and momentum traders piling on to make things worse, and now here we are back at support,” Alex Mashinsky, CEO at crypto lending and depository company Celsius Network, told Mashable in an emailed statement.

STRATA Trust Company Reaches $ 2 Billion AUC Milestone (PR Newswire), Rated: A

STRATA Trust Company (“STRATA”), a custodian dedicated to the complexity of holding alternative investments in tax-advantaged, self-directed retirement accounts, announced today that the firm has surpassed $2 billion in assets under custody. STRATA offers access to a range of asset classes that include private equity, private debt, real estate, crowdfunding, structured settlements and more. Since 2008, STRATA has been committed to empowering investors and the investment community with wider diversification and alternative asset custody solutions in retirement portfolios by delivering industry-leading service, education and support.

Online Pawn Lending Goes Back Offline (Business Wire), Rated: A

Prominent online lender Borro Private Finance unexpectedly ceased its collateral-based lending program this summer after nearly ten years of business. The UK-US-based establishment specialized in online pawn loans against valuable assets, including fine art, jewelry, and watches. Borro’s discontinuation of its operations comes nearly two years after the company’s withdrawal from the bridge loan market in July 2017.

Eleventh Circuit Tosses Online Lender’s Forum Selection, Class Waiver Clauses (Lexology), Rated: A

Siding with six consumers who filed suit asserting violations of state usury laws against online lenders, the U.S. Court of Appeals for the Eleventh…

Marqeta Hires Vidya Peters As First Chief Marketing Officer, as Company Continues to Build Out Expansive Global Vision (Business Wire), Rated: B

Marqeta, the first global modern card issuing platform, today announced the addition of Chief Marketing Officer Vidya Peters to its executive team.

White Oak Commercial Finance Acquires Veritas Financial Partners’ Asset-Based Loan Portfolio (ABL Advisor), Rated: A

White Oak Commercial Finance (“White Oak”), an affiliate of White Oak Global Advisors, announced today it has purchased a portfolio of asset-based loans from Veritas Financial Partners, a Boca Raton, FL based specialty finance company.

Alchemy Technology And Equifax Partner To Drive FinTech Innovation (PR Newswire), Rated: B

Alchemy Technology Inc. and  Equifax Inc. (NYSE: EFX) today announced a new partnership to drive FinTech innovation. The relationship is designed to help banks, specialty financing firms and FinTech startups accelerate their time to market with easily deployable white labeled lending solutions. The two companies will make the “tech” in FinTech available to organizations of all sizes with a powerful combination of the Alchemy Lending Operating System and Equifax data analytics, credit, identity and income verification solutions.

Ex-Goldman Sachs Managing Director Joins Lendingblock as Strategic Advisor (Lendingblock), Rated: B

Lendingblock, the regulated, open exchange for institutional borrowing and lending of digital assets, today announces the appointment of John Macpherson as a strategic advisor.

CoreLogic Credco Integrates its Three-Bureau PreQual Solution with eLEND Solutions (CoreLogic), Rated: B

CoreLogic, a global provider of property information, insight, analytics and data-enabled solutions, today announced that CoreLogic Credco integrated its Three-Bureau PreQual credit report and score solution on eLEND Solutions, an automotive technology company specializing in online and in-store credit and finance solutions. The integration of the prequalification solution gives CoreLogic Credco customers who use eLEND instant, single-source access to a consumer’s credit report and FICO score from all three national credit bureaus – Experian, TransUnion or Equifax.

Tavant Named to 2019 IDC FinTech Rankings (Business Wire), Rated: B

Tavant, a Silicon Valley-based provider of AI-powered digital lending technologies, announced today it has been named to the 2019 IDC FinTech Rankings, the most comprehensive vendor ranking within the financial services industry.

United Kingdom

Klarna Surpasses 12M Transactions This Year (PYMNTS), Rated: AAA

FinTech payments disruptor Klarna has announced the start of its “No drama, just Klarna” retail campaign in partnership with 13 brands in the U.K., the company said in a press release on Wednesday (Sept. 25).

Klarna offers “pay later” payment options and attracts 50,000 new users each week. The startup said that in the past year, it has processed 12 million transactions. In August, more than 100,000 U.K. shoppers downloaded the Klarna app.

Klarna reports surge in payments, merchant growth during first half of 2019 (Mobile Payments Today), Rated: A

Klarna, a London based installment financing provider and challenger bank, said it surpassed 3 million active users in the U.K. and 170,000 retail merchants worldwide.

Brits hit financial maturity at 31 (P2P Finance News), Rated: A

THE age at which UK men and women finally feel secure in their finances is 31, according to Zopa.

The survey showed a clear split between age groups, with 21 to 25 year-olds believing 32 would be the age when they finally felt good about their finances, while those age 26 to 30 were less optimistic about the future, saying they would reach money maturity at 38.

OakNorth Bank completes £20m loan to specialist lending fund (London Loves Property), Rated: A

OakNorth Bank, the UK bank powered by OakNorth, has provided a £20m loan to the RAW Mortgage Fund, a specialist fund providing buy-to-let property loans against residential real estate in the UK.

Wonga borrowers have less than a week to submit payday loan reclaims (The Sun), Rated: A

Anyone who believes they have been mis-sold a Wonga loan is allowed to apply for compensation, but its administrators set a deadline of 11.59pm on September 30.

If you miss the deadline, you won’t be able to apply anymore and you won’t get any compensation for mis-selling.

Nexo Now Accepts Tokenized Gold for Instant Credit Lines and Will Offer Interest-Bearing Accounts on Gold (Covington Journal), Rated: A

Nexo is adding the NYDFS-regulated PAX Gold as a collateral option for its signature , bringing gold-backed lending to the blockchain.

With PAX Gold, now offers gold investors instant access to their gold wealth in over 45 fiat currencies via same/next day transfers and across 200+ jurisdictions.

European Union

Kreditech Eyes Expansion After Securing EUR 20 Million in Equity Financing (Yahoo! Finance), Rated: AAA

Kreditech is ready to scale globally in the near-prime customer segment – declares David Chan, Kreditech CEO. The Germany-based online direct lender and Point-of-Sale (POS) financing provider estimates its global target market at ca. EUR 300 bn in consumer credit issuance. It aims to reach EUR 1 bn in revenue by 2025, which will be driven by growth in existing markets where Kreditech is present, as well as expansion into new geographies. Kreditech currently operates in IndiaPolandRussia and Spain, and serves over one million customers. The company has raised EUR 20 million in its latest equity financing round.

You’ve heard of challenger banks, now meet the challenger lenders (sifted), Rated: AAA

For better or worse, it was Wonga that first put “challenger lenders” on the map. The UK payday lender’s meteoric rise saw it become a household name before its collapse last year after a string of irresponsible, inflated loans.

This month alone, large funding rounds were announced by Sweden’s Capcito and Lendify, as well as by UK’s Sonovate, an invoice lender for SMEs with over 750 active clients. Banks are also watching closely, with Goldman Sach’s equity arm being a notable funder in Lendable, recently ranked the UK’s sixth fastest-growing private tech company.

In the UK, the challenger-lender industry grew to £6.1 billion in 2017, according to a study by the Cambridge Centre for Alternative Finance (CCAF). The CCAF also estimated that 29% of all new loans issued to SMEs came from challenger lenders in 2017. PwC predicts that figure will rise to nearly 40% in the next decade.

Source: Financial Times
International

Marketplace Lenders Navigate The Choppy Waters Of Compliance (PYMNTS), Rated: AAA

Regulators the world over are beginning to take a closer look at the alternative and marketplace lending business model.

In June, the U.K.’s Financial Conduct Authority announced plans to impose stricter restrictions on marketplace and peer-to-peer (P2P) lenders beginning this December following the watchdog’s decision to place P2P lending platform Lendy into administration — a result, the FCA said, of the industry’s lenient requirements to disclose governance arrangements and controls.

Also, in China, analysts at Yingcan Group pointed to the government’s P2P and marketplace lending crackdown as being likely to shrink the industry by as much as 70 percent this year.

This Fintech Safari Could Be a Wild Ride (The Washington Post), Rated: AAA

From ATMs to credit cards and PayPal, the West’s dominance of innovation in consumer finance appears to have exhausted itself.

At the top of the emergent new order is the fintech duo from China — Alibaba Group Holding Ltd. and Tencent Holdings Ltd. Next in line are Alphabet Inc. and Walmart Inc., whose highly localized smartphone payment rivalry is playing out between Google Pay and PhonePe in India. In Southeast Asia, two homegrown ride-hailing giants are aspiring to dominate commerce.

The rise of African mobile money is associated with M-Pesa, Kenya’s digital-wallet revolution. Now traditional lenders like Standard Chartered Plc, with a presence on the continent going back more than a century, are discovering that online banking can help them mobilize low-cost current and savings accounts more profitably than acquiring customers via physical branches.

Australia/New Zealand

Harmoney says the P2P lender has been ‘slowly moving to lending our own money’ since 2015 (interest), Rated: AAA

The founder of Harmoney, New Zealand’s biggest licensed peer-to-peer (P2P) lender, says he can’t see a viable P2P lending model in New Zealand which is why Harmoney has started lending its own money.

Neil Roberts and David Stevens of Harmoney (Lend Academy), Rated: A

Harmoney, the first peer to peer lender to be licensed in New Zealand, has originated more than NZ$1 billion in loans since launching five years ago.


Read the PDF transcript here.

India

Kreditech targets India after EUR20m funding boost (Finextra), Rated: AAA

Kreditech, a German-based online lender and POS financing provider focused on “near prime” borrowers, is looking to the Indian market after raising EUR20 million in funding.

The round was co-led by Runa Capital and unnamed German private investors, with participation from existing shareholders HPE Growth and Amadeus Capital Partners.
Southeast Asia

Accumulated P2P lending exceeds W6tr (The Investor), Rated: AAA

Accumulated peer-to-peer loans in South Korea have surpassed 6 trillion won ($5 billion), data showed on Sept. 26.

Outstanding P2P loans extended by 220 companies stood at 6.2 trillion won in June, compared with 4.7 trillion won at the end of last year, according to the data compiled by the Financial Supervisory Service.

Indonesia’s Investree in talks to raise series C funding for regional expansion (Tech in Asia), Rated: A

Indonesia’s fintech peer-to-peer lending startup PT Investree Radhika Jaya is in talks with several investors to raise a series C funding as the firm looks to boost its expansion in Southeast Asia.

The Securities Commission Malaysia Approves EdgeProp as First Property Crowdfunding Platform in Malaysia (Crowdfund Insider), Rated: A

The Securities Commission Malaysia (SC) has registered EdgeProp Sdn Bhd as the first “Recognised Market Operator” to establish and operate a property crowdfunding platform in Malaysia. EdgeProp was granted an approval in principle in September 2019.

FINTECH COMPANIES FACE TALENT SHORTAGE (StaffingIndustry.com), Rated: A

The majority, or 94%, of fintech companies in Singapore, say the country requires fintech talent, according to survey data from Michael Page Singapore.

The number of Singapore consumers adopting fintech products and services has drastically risen in the last two years, tripling from 23% in 2017 to 67% in 2019, according to Michael Page.

Bitcoin Daily (PYMNTS), Rated: B

And Singapore-based exchange Bitrue has announced the launch of a low-interest crypto lending platform, which goes live on September 30.

MENA

Qatar Boosts FinTech Focus (PYMNTS), Rated: A

As reported by Crowdfund Insider, the Qatar Financial Centre (QFC) has expanded the number FinTech-related activities that will be awarded licenses. The additional support will come from the QFC platform.

The seven firms include DecisionLogic, which focuses on advanced bank verification that lets lenders qualify borrowers.

Africa

Proven ways you can make money in real estate (Daily Monitor), Rated: A

You can utilise a variety of methods that includes any of the following:
•Seller financing through lease options
•Trading fixed assets such as cars, jewellery and more
•Taking over someone else’s mortgage payments who might be in a distressed situation
•Bringing in an investment partner with cash
•Borrowing from a bank or getting a hard money loan
•Taking out a home equity line of credit
•Utilising a peer-to-peer lending network

Caribbean

Victoria Mutual acquires shares in Barbados-based FinTech Carilend (Jamaica Observer), Rated: AAA

Victoria Mutual Investment Limited (VMIL) has acquired a 30 per cent stake in Carilend, a Barbados-based financial technologies (FinTech) company, that is said to have revolutionised borrowing and lending in the Caribbean.

Authors:

George Popescu
Allen Taylor

The post Thursday September 26 2019, Weekly News Digest appeared first on Lending Times.

Loyalty and Fluidity in Alternative Financial Services and Traditional Lending

Growth of Funded Loan Volume Online

Non-prime lending has revolutionized the lending sector. In times where people lack a stable credit history, securing a traditional loan is not easy—and non-prime has become a go-to option in such scenarios. In the past few years, alternative financial services have gained momentum in terms of acceptability and volume. There are various companies in the […]

The post Loyalty and Fluidity in Alternative Financial Services and Traditional Lending appeared first on Lending Times.

Growth of Funded Loan Volume Online

Non-prime lending has revolutionized the lending sector. In times where people lack a stable credit history, securing a traditional loan is not easy—and non-prime has become a go-to option in such scenarios. In the past few years, alternative financial services have gained momentum in terms of acceptability and volume. There are various companies in the market that offer instant loans even to the borrowers who have a weak credit history. But how do we infer how many people have migrated to non-prime online borrowing from the traditional borrowing set up, and how many people have migrated back to the traditional set up?

Experian’s Clarity Services, a credit reporting agency specializing in near prime and subprime consumers, offers credit data to alternative financial service (AFS) providers. This helps lenders gain a wider perspective of non-prime applicants and further enables them to make more informed decisions.

The company furnishes the AFS trends report that specifies the prevailing trends and consumer behavior in the market by studying the underlying factors. In the 2019 AFS Lending Trends Report, Clarity studied a sample of 350 million consumer loan applications and more than 25 million loans to evaluate the market trends for the 2014 to 2018 time period. Clarity also leveraged Experian’s national credit bureau data to analyze consumer behavior.

Alternative Financial Services — What Do the Market Trends Say?

Non-prime consumers include people who may have been irresponsible with credit previously, youngsters with inadequate credit history, people who face sudden and unexpected emergencies, recent immigrants in the US or someone in immediate need of cash. The basis for the report includes factors of loan origination (involves the online and storefront channels) and loan types (includes installment payments and single pay).

In order to study the rise of the online lending market from 2014 to 2018, Clarity studied online installment and single pay loans by the number of loans originated and total dollars funded.

Growth of Funded Loan Volume ($) – Online

 

Growth of Funded Loan Volume ($) – Online Single

The graphs illustrate how online installment loans have been steadily growing from 2014 to 2018. The volume of online installment loans in 2018 was 7.4 times higher than the volume in 2014. Whereas, the volume grew up until 2016 in the case of online single pay loans, plummeted in 2017 and held steady in 2018.

As per the report, more than half of online borrowers are new to the alternative credit space. The table below illustrates the consumers who opened an online loan in 2018, tracking their past behavior from 2014 to 2018.

Clarity also tracked the activity of 2017 alternative financial borrowers in 2018 and if they continued with online platforms. The results showed that 41% of online borrowers again availed an alternative loan, while 24% of the borrowers did not show up in 2018. Also, 35% of the borrowers applied for a loan but did not open one.

Further investigations gave another interesting insight. Around 34% of 2017 borrowers who did not have any applications or loans in 2018 had switched to traditional lenders. This implies that 7% of overall 2017 borrowers migrated to traditional lending in 2018.

As per an examination of the credit classification of consumers who obtained and did not obtain loans from traditional lenders in 2018, 23% of borrowers who switched to traditional lending possessed a near prime credit score, and only 8% of the borrowers continuing in the alternative finance space were classified as near prime.

Factors Influencing Migration from Online Platforms to Traditional

While the migration of borrowers from AFS platforms to traditional ones might not be a shocker, borrowers who had a subprime credit score and were ineligible to apply for traditional loans were mostly the ones who moved to online or the AFS space to get the credit they needed. As and when their credit scores improved, they reverted to the traditional space. While AFS is convenient in terms of credit scores and repayments, there are strong factors that influence the borrowers to move back to traditional methods.

Frauds: With the advent of technology, fraud too has evolved. With data breaches, the fraudsters create a synthetic identity that cannot be easily decoded. This is leveraged by fraudsters to open fake and additional accounts.

Generation Bias: Gen X is more comfortable with online borrowing and less likely to be inclined towards storefront options. Another study under the report implies that the Silent and Boomer generations only account for 25% to 30% of all AFS borrowers.

Income Trends: In the past five years, online installment borrowers reported a higher income (while the values have been steady since 2016) and the reported incomes of storefront installment borrowers have been stagnant since 2014.

Conclusion

Due to the recession in 2008, the majority of borrowers had suffered a hit to their credit worthiness. On the other side, traditional lenders folded due to the toxic asset built up in their balance sheets. This created a vacuum for the AFS players to capture. It was a win-win as they were able to tap into a multi-hundred-billion-dollar market unchallenged, and the affected borrowers got a chance to get the credit they needed desperately.

With record economic growth, the 2019 scenario is different. Borrowers are returning to traditional ways of borrowing. The trends report puts light on the activities of the borrowers and how their needs have changed over time. In the given scenario, Clarity’s alternative credit data is a key asset when studying borrower behavior in the market.

Download the complete 2019 Alternative Financial Services Lending Trends report on Clarity’s website.

The post Loyalty and Fluidity in Alternative Financial Services and Traditional Lending appeared first on Lending Times.

What Happened at the Money 20/20 2018 Conference in Las Vegas?

Money 20/20

Its a good thing that everything that happens in Vegas doesn’t stay in Vegas, which is where the Seventh Annual Money20/20 Conference took place on October 19-21, 2018. With the goal to “fearlessly take on the mission of creating a simpler, fairer, faster and more inclusive financial system for individuals, businesses, and society as a whole,” the three-and-a-half […]

Money 20/20

Its a good thing that everything that happens in Vegas doesn’t stay in Vegas, which is where the Seventh Annual Money20/20 Conference took place on October 19-21, 2018. With the goal to “fearlessly take on the mission of creating a simpler, fairer, faster and more inclusive financial system for individuals, businesses, and society as a whole,” the three-and-a-half day event included more than 500 speakers and 15 agenda themes.

Themes included :

  • Payments and Platforms
  • Banking and Personal Finance
  • AI and Deep Learning
  • Cybersecurity and Fraud
  • Alt Lending and Credit
  • Blockchain and Crypto
  • Digital Identity and Biometrics
  • And much more

While this is going to serve as a brief overview of the Conference, some of the notables who spoke, and bigger announcements, there will be special interest on Alternative lending and credit. We’ll also look at the all-important payments race.

A lot of the coverage is available on YouTube where Money20/20 has its own channel, so, if you missed the conference, you still have free access to some of the information.

Day One

Apple Co-founder Steve Wozniak is always a good bet to help you get a financial conference rolling. The business legend’s assurances that the claims that artificial intelligence (AI) and robotics, along with other forms of technology, are going to cut into human productivity are unwarranted helped to establish an ongoing theme that tech is necessary for the broader inclusiveness of our collective financial future.

Jennifer Bailey, VP Internet Services for Apple Pay, detailed some of the expansions of the new iPhone X, which include face ID security.

Other notable speakers from the first day of the conference included John Collison of Stripe, Michael Mebach, CPO of Mastercard (who spoke on how to build a seven-trillion-dollar middle class), Anand Sanwal of CB Insights, and Bill Ready of PayPal.

Day Two

Day Two’s lineup of speakers was headed by none other than Virgin’s own Richard Branson, who told a remarkable story about how he created Virgin by renting a plane and selling seats to the other passengers scheduled to be on the American Airlines flight that was delayed. Sallie Krawcheck, Ellevest’s CEO and co-founder, had some valuable remarks on diversity, and Vanessa Colella, head of Citi Ventures and CIO of CitiGroup, shared some keen insights on partnerships.

Possibly the speaker from the conferences second day who made the biggest impression was Nikolay Storonsky, CEO of Revolut. The way money is moved is changing rapidly, but if Storonsky is correct in his predictions, it may change even faster. He predicts that in 10 years, two or three large fintech players will take 95 percent of banks’ business marking an industry overhaul akin to how Amazon bypassed the retail industry and Uber took on taxis.

Day Three

Patrick Gauthier, VP of Amazon Pay, spoke to Tracey Davies’s central theme when he talked about the use of technology to make things simpler and more natural between the merchant and the consumer. Harley Finkelstein, CEO of Shopify, pointed out that middlemen will not be totally going away in the financial realm of the future, but they will have to “provide a disproportionate amount of value for their profit margin in the future.”

Other notable speakers included Asiff Hijri, president and COO of Coinbase, who framed the crypto world well when he spoke of the two base use cases of the space, the store of value of bitcoin and the ability to build apps on top of Ethereum, while noting that we’re still looking for that breakthrough app. His quote “Fintech before crypto, and the promise of a stablecoin…is like mobile before the iPhone came along” might be one of those “remember when” moments.

NBA legend Shaquille O’Neal also spoke on the third day of the conference. Now an advisor and advocate of Steady, the platform which helps Americans find work, says his partnership with these efforts is driven by recollections of a past where the only investments that paid off were those he embarked on in order to help others.

Day Four

Much of what happened on Day Four is listed below, including the Uber/Barclays and the Grab/Mastercard partnerships, but the day also had some other mentionable happenings.

Marisol Menendez, head of open innovation for BBVA, introduced the overall winner of the 10th annual BBVA Open Talent competition, the reward going to Sedicii; founder Rob Leslie accepted the award. Sedicii provides a service that identifies data between two organizations without exposing the underlying data.

Also, adding some hope for the financial sector in general, Ripple’s Co-Founder and Executive Chairman Chris Larson stated that he thinks digital assets can help guard against another financial crisis by solving some of the key problems of global liquidity. He also predicts that a fluid digital asset (he thinks it will be XRP, of course) will make more fluid the trillions of dollars that are tied up due to the “clunkiness” of current systems.

Focus on Alternative Lending and Credit Cards

As instant payments and expanded remittance options gain more prominence in the world of payments and commerce, an app designed to speed up the remittance process, designed via Visa APIs, took top honors at the conference.

American Express and Amazon announced a partnership, which will produce a no-annual-fee business card. Cardholders (Amazon Prime members) will get to choose if they want to receive five percent rewards on any Amazon purchase (Whole Foods included) or 90-day payment terms, a reward that might benefit small businesses with cash flow issues.

Goldman Sachs’s Marcus Platform announced a new wealth management offering designed to make the financial market more inclusive for average Americans. The offering will focus on online savings accounts and personal lending, the end game being to educate customers on some of the ins and outs of the financial sector.

Grab Financial and M and A Mastercard announced a partnership that will make prepaid cards available to underbanked and underserved customers in Southeast Asia in order to bring them into the financial realm and allow them to conduct business globally.

Gregory Wright, CPO and SVP of Experian, touched on a common theme from the conference, that of businesses going forward by putting consumers first. He reinforced the platform’s focus on putting the consumer at the center of the lending decision by giving the consumer more control over his or her data to allow them to make a more informed lending decision. The goal is for lenders to make better decisions at lower risk while giving more consumers access to credit.

David Richter, global head of business and corporate development for Uber, joined with Curt Hess, CEO of BarclayCard US, to announce the unveiling of the Uber Visa card. A native app specifically designed for the Uber platform, the app will make it more engaging and enjoyable for Uber riders and Uber eaters to experience the platform. The card will also offer real-time notifications of rewards and balances, rather than customers having to wait a month for a statement as credit cards traditionally do.

Other Noteworthy Announcements

  • ViSync took the grand prize in the conference’s hackathon challenge. According to a Visa spokesperson, their entry, an app designed to help send remittance payments overseas, should make it easier for migrant workers to send money back to their home countries.
  • FICO announced an “Ultra” FICO rating. The new device will consider how people manage their checking accounts and will incorporate things like overdraft history to determine credit scores. The goal is to help younger people and others with little or no credit and people who are rebuilding their credit after a couple of setbacks.
  • Tracey Davies, president of Money20/20, also announced the Rise Up! program, the pilot of which took place at this event. Rise Up! seeks to increase inclusion into the financial sector on all levels. This pilot program, which will expand to other demographics in the future, focused on gender (women make up 50 percent of the population, but only 20 percent of leadership roles in the financial sector.). Of the 300 women who applied to the program, only 35 were selected. Those who were selected were privy to special seminars and one-on-one access to various leaders from the financial space.

The Payments Race

Knowing how we build points of sale, I wonder if the organizers of the original event knew just how apropos the payments race would be to the overall message of the Money20/20 events. Whether they did or not, the event serves to draw a good picture of how we use and interact with different forms of currency in our daily lives.

Closely resembling the scavenger hunt of the television series The Amazing Race, five participants were given six days to make it to Las Vegas for the opening day of the convention. They drew to see which host city will host most of their scavenging, and then they all have to make it to their city and then to Vegas. Along the way, they got points for things like the number of states they visited and the different modes of transportation they use.

The catch is this: Each participant was only allowed to use one form of payment; the options were

  • Team Checks
  • Team Cash
  • Team Credit Cards
  • Team Devices (Apple Pay and such)
  • Team Crypto

The episodes—all of which can be seen on YouTube—show the obstacles in trying to perform these tasks with only the given form of payment.

As you can imagine, Team Checks had a hard time of it, and they had to rely on the goodness of many others to navigate their journey. Team Cash didn’t face as many obstacles, but travel required some finagling as they got deeper into the trip. Team Crypto had some transportation issues early on, but also relied on the kindness of others to make the necessary accommodations.

Team Credit seemed to have the most ease traveling—they just rented an RV and drove—and the representative from Team Devices said after it was all over that using only devices proved to be easier than she thought it was going to be; she did have to go to some pretty significant lengths to rent a car.

In all, the little series of videos showed the importance of various forms of payment and that we still haven’t gotten to the point where we can survive conveniently on one single form of payment; still, everything from the conference seems to speak to the reality that we’ll get there.

And how did the race turn out? Well, I haven’t seen an actual crowning, but Team Crypto was the first to get to the Las Vegas sign, which was basically the finish line—I haven’t seen anything that mentioned how each fared at the number of states visited or modes of transportation used. If Team Crypto did prove the winner, it was their second straight title.

The event will return to Vegas next year, the dates being October 27-30, 2019.

Author:

Written by Paul Keenan.

Credit as a Service for the B2B Market

credit as a service

With a host of services from payments, credit, and underwriting, managed services like branded customer support and accounts receivables services along with smart integrations for ERPs, CRMs, etc., MSTS is an all-encompassing platform that helps its clients reach their full B2B sales potential. Laying the Seed for Credit As A Service Multi-Service Technology Solutions (MSTS) […]

credit as a service

With a host of services from payments, credit, and underwriting, managed services like branded customer support and accounts receivables services along with smart integrations for ERPs, CRMs, etc., MSTS is an all-encompassing platform that helps its clients reach their full B2B sales potential.

Laying the Seed for Credit As A Service

Multi-Service Technology Solutions (MSTS) was founded in 1978 by a former trucking company owner who wanted to automate payments for trucking services. It used its expertise in business payments along with other technical ideas to devise a unique turnkey way to provide credit as a service to the B2B community. Over the years, the platform expanded into more technologies, assets, and verticals. However, the brand MSTS has not been able to get the due recognition it deserves because of the fact that the primary focus of the business has been in providing white label solutions. MSTS has now entered new markets, developed its smart technology, and, recently, unveiled the Credit as a Service (CaaS) offering to bring automation in the payment and credit system.

World Fuel Services (NYSE:INT) acquired the company in 2012 for $137 million.

What is MSTS?

MSTS processes $5 billion of volume through its platform. There are about 150,000 businesses that collect money and send invoices through the platform. MSTS operates in 32 countries and with 12 currencies as of now. The company is led by Brandon Spear who has been the president of the company for almost three years. He also has experience at marquee companies like SAP and Ariba.

MSTS introduced Credit as a Service (CaaS) to streamline the payment and credit management systems of its client base. The company is focused on acquiring large clients and serve their entire customer base. MSTS underwrites each customer on an individual basis and helps clients provide their customer base with credit without creating the mess usually associated with lending and overdue payments. The company is also looking to partner with players who can underwrite the portfolio of its customers’ debtors. Currently, the entire work is self-funded and the business has grown organically over time.

MSTS supports customers in growing their B2B relationships while extending credit to their customers. It provides a turnkey solution where it is able to help its clients figure out how to structure its B2B payment network, how to create a framework for credit to customers, collect dues, and manage their processes.

Core Competencies, the MSTS Platform, and Competition

The MSTS platform aims to solve problems in several industries. Spear shares a business case that has grown in retail and is now looking to establish itself in B2B; it won’t be able to hone B2B invoicing and credit collection skills overnight. The idea is to help the company establish a B2B channel to leverage its existing retail infrastructure.

MSTS provides a combination of technology, e-commerce infrastructure, physical point of sale technology, and the ability to have an omni-channel solution; this ensures a seamless experience for all participants in the ecosystem. Though its solutions are not industry-specific, it has deep domain expertise in B2B retail, manufacturing, automotive, and e-commerce sectors.

MSTS charges clients on the basis of the technology stack involved and the level of customization required by the client. So factors like ecommerce integration, physical POS, customer platforms, payment collections, overdues management, etc. decide the overall fee. The company aims to ensure that its fees are less than a credit card company’s; its average fees range around 1.75% of volume.

The Application Programming Interfaces (APIs) of MSTS are cloud-based and proprietary. The core stack of the business is Amazon Web Services, and the core technology used is RedHat Linux apart from other tech integrated for functionality.

The biggest competitors to MSTS are its clients looking to execute the process in-house. Young fintechs are currently not in competition because they only serve a particular segment whereas MSTS provides a single window experience. Banks with credit card departments are also possible competitors in the space. MSTS core competencies include:

  • Credit/Underwriting automation for an improved customer experience
  • Smart Integration with ERPs, e-commerce systems, banks, etc.
  • Business Intelligence to drive sales and provide customer support
  • Expertise at payments, movement of money, and collections
  • Consolidated payments with a guarantee of not exceeding limits & a consistent customer experience

MSTS and Customer Relationships

MSTS constantly endeavors to understand the needs of its customers to provide an end-to-end turnkey solution for them. From arranging for credit/underwriting to capital and a technological stack, MSTS executes it all under one roof. New platforms tend to specialize in only one step of the entire process and have usually no idea about how to solve services or capital needs. MSTS has a deep expertise in the verticals that it operates in and uses business intelligence to drive sales, big data and analytics to identify creditworthy customers, and helps its clients get a bigger share of their wallet. MSTS has packaged a version of Credit as a Service (CaaS) to facilitate credit management for smaller and mid-sized businesses considering the fact that such businesses face bigger challenges in terms of developing the B2B market. MSTS aims at making businesses successful by laying out the back-office stack and therefore fast-tracking processes.

Spear also shares the company’s thought process on the changing trends in the B2B industry. The purchase process in B2C industries has evolved, but the B2B industry has still some way to catch up. He believes that companies need to explore their B2B data as well as to draw insights from it. The company’s philosophy is that customers, whether B2B or B2C, need to have a great customer experience. MSTS is trying to manufacture that experience with its proprietary system for clients.

What Lies Ahead?

MSTS is working on exploiting the global market. It wants to establish itself in another 14 countries in the next two years and delve deeper in the verticals it currently operates in. The platform will continue to build out on the critical competencies in the market. Though it is not very well known, this white label provider is investing in its branding, and is focused on developing more sales channels for smarter penetration.

Author:

Written by Heena Dhir.

Creating the Next-Generation Credit Card

Outstanding credit card loans

“We live in a digital world” is an understatement. The next decade, as Generation Z arrives and millennials move into prime spending years, will have profound effects on all industries. Finance, in general, and credit cards in particular, are no exception. Fintechs that can decipher the coming changes are looking at a trillion dollar industry […]

Outstanding credit card loans

“We live in a digital world” is an understatement. The next decade, as Generation Z arrives and millennials move into prime spending years, will have profound effects on all industries. Finance, in general, and credit cards in particular, are no exception. Fintechs that can decipher the coming changes are looking at a trillion dollar industry currently dominated by traditional banking players.

The latest innovation in alternative lending can have a profound impact on how credit cards are issued, used, and managed in the financial ecosystem. LendIt USA 2018 saw a panel discussion on “Creating the Next Generation Credit Card.” The focus was on how LendUp and Petal, two venture-backed Visa credit cards, have disrupted a stagnant industry with alternate data and fast decisioning. Sasha Orloff, CEO and co-founder of LendUp, and Jason Gross, CEO of Petal, discussed the secret sauce, their insights, and future trends in the industry.

The Journey to the Credit Card Market

Around 40 million Americans do not have any credit score, and around 20 million have a very limited credit file. This results in limited access to the credit market. The disproportionate effect of this is felt by the millennial generation, immigrants, and low- to moderate-income consumers.

The 2008 financial crisis left considerable people under the age of 30 with subprime credit facilities comprising of expensive products. And though they might not have a strong credit score, their strong digital financial footprint can be leveraged to understand and examine their creditworthiness.

Alleviating such deficiencies will help genuine customers gain access to the credit they deserve. They will also be able to receive better pricing with lower interest rates, lower fees, etc. This was the main reason for Gross getting involved with Petal. What differentiates Petal from other companies is the use of pioneering technology to look into the financial “footprints” of consumers and make credit decisions accordingly. Petal can now underwrite on a more inclusive basis and leverage financial data by designing better products for its consumer base.

On the other hand, Orloff evaluated the problems faced by today’s credit card companies who reject almost 85% of consumer applications that come through their websites. This is a massive opportunity loss for all stakeholders.

Also, fintech companies are not directly issuing credit cards; rather, they are partnering with banks. This can lead to a win-win relationship where LendUP can help banks monetize this opportunity by using its proprietary technology. It is a category leader and understands the subprime space. It is currently working with two banks and has recently signed a deal with its third bank. Meanwhile, they are also looking to onboard more banking partners who want to better serve their communities.

Offering the Next-Generation Credit Card

Both companies believe there is a huge opportunity as half of America is underserved or unserved with regard to credit. The exciting part about the original credit card is the piece of plastic in the wallet can be used to build a relationship with customers by understanding their requirements and daily financial habits. With the ability to offer multiple products, credit cards should be a natural cross-selling platform for traditional banks.

When talking about the 60-year-old credit scoring system, Gross discussed how it lacks full financial information and focused only on the liability side of a person’s balance sheet. Petal’s credit scoring system takes a much more holistic view of a person’s finances and focuses on assets and cash flows. Instead of concentrating on any one part, they look at a more complete picture, which helps them assess the borrower granularly on thousands of data points. Its algorithms are powered with machine learning, which assists them in detecting further patterns for enhancing the customer experience.

Orloff cited the results from a study conducted by her company showcasing how supplementary data can be more powerful than using the traditional credit scoring data to evaluate the financial health of a consumer. Talking about the population outside the banking system, he thinks one cannot completely rely on credit scoring. Rather, it is mandatory to use alternative data points to calculate the creditworthiness of the individual.

Credit cards were the first step in understanding banking customers and their paying habits. With smartphones, banks can add a layer of intelligence that will generate insights that were not available earlier. Orloff also discussed how credit cards can now be used to attract consumers and why it is important to customize cards for the individual. LendUp’s card can now optimize according to the financial goals of each single consumer. He laments that the financial industry seems to be the last industry to keep churning out generic products for its clients.

Conclusion

Gross explained that consumer finance and credit scoring is an area with huge opportunities have just scratched the surface till date. Millennials aspire to do business with companies that have their best interests in mind. Companies should focus on re-inventing digital experiences and optimizing for the financial success of the customer. To design this digital experience, there is a need to leverage behavioral science and best practices of product design to make credit intuitive, transparent, and simple.

Author:

Stephanie Vaughan is vice president at  Allen TaylorPosted on Categories Alternative credit, alternative credit scoring, alternative data, alternative lending, Analysis, Banking, Banks, consumer lending, Credit Cards, credit scoring, Featured, lendup, Millennials, Petal, subprime, unbanked, underbanked

Alternative Credit Council Global Summit 2018

alternative credit summit

The Alternative Credit Council (ACC) is hosting its inaugural flagship event for the private credit sector. This will take place on the morning of 22 May 2018 at Farmers’ & Fletchers’ Hall in the City. Date: 22 May 2018 Time: 8:30AM – 2:00PM Location: Farmers & Fletchers 3 Cloth Street London EC1A 7LD Discussions will look […]

alternative credit summit

The Alternative Credit Council (ACC) is hosting its inaugural flagship event for the private credit sector. This will take place on the morning of 22 May 2018 at Farmers’ & Fletchers’ Hall in the City.

Date: 22 May 2018
Time: 8:30AM – 2:00PM
Location: Farmers & Fletchers
3 Cloth Street
London
EC1A 7LD

Discussions will look at a range of themes including:

  • Building an asset class to last: market discipline in private credit
  • Responsible lending, investor protection and access to finance
  • Technology in private credit: enthusiastic adoption or reluctant acceptance
  • Standing out from the crowd

Confirmed speakers include:

  • Deborah Zurkow, Allianz GI
  • Iain Forrester, Aviva Investors
  • Steve Sabatier, Chenavari Credit Partners
  • Stuart Fiertz, Cheyne Capital
  • Chris Fowler, CVC Credit Partners
  • Max Mitchell, ICG
  • Ludo Bammens, KKR
  • Rod Lockhart, Lendinvest
  • Elissa Kluever, OMNI Partners
  • Christian Hinze, Stepstone
  • Maxime Laurent-Bellue, Tikehau Investment Management

Register here.

Financing the $21 Billion Childcare Industry

childcare financing

Infants who receive high-quality child care and early education programs do better in school, have more developed social skills, and display fewer behavioral problems. Childcare can also help mothers get back to their careers, and it helps in the overall financial management of the household. But the issue is that there has been no lender […]

childcare financing

Infants who receive high-quality child care and early education programs do better in school, have more developed social skills, and display fewer behavioral problems. Childcare can also help mothers get back to their careers, and it helps in the overall financial management of the household. But the issue is that there has been no lender targeting childcare expenses. In an era where a TV can be bought on installments, it is amazing that somebody has missed targeting the $21 billion childcare industry. More importantly, the ROI is very easy to calculate for investment in childcare. Analysis shows that a mother dropping out of the workforce for just five years would lose over $1 million in lifetime earnings. For every single dollar invested in childcare, the household benefits by $12. BridgeCare Finance, a Seattle based alternative lender, is focused on solving this massive pain point for millions of young mothers. It is a consumer-lending platform offering childcare financing to reduce monthly childcare payments for professional parents. It provides consumer loans, which function similar to lines of credit for families burdened with high childcare costs.

How BridgeCare Works

BridgeCare provides a new loan product specifically for financing childcare and preschool fees. Their goal is to help parents provide the best quality care to their children by breaking the cost barriers. If parents are unable to afford the whole payment, BridgeCare gives them an option to pay in installments. The company has structured a flexible payment plan where parents can pay the childcare amount over a longer duration. For instance, instead of paying $800 per month for three years of childcare, BridgeCare gives the option of paying $400 per month for an additional five years or paying $480 per month for additional three years. This reduces the immediate cashflow burden and stretches the payment of childcare over a longer tenure.

Applying for a BridgeCare plan is simple and intuitive. To register, the customer visits BridgeCare’s website and completes the application form. Once submitted, it gets approval within 24 hours. After approval, the customer makes a partial payment to BridgeCare, and BridgeCare further makes the full payment to the childcare provider.

The company partners with childcare service providers and kindergarten players, onboarding them as associates. It’s a win-win relationship as the startup gets access to potential borrowers and providers don’t lose out on revenue just because parents couldn’t afford their services. The discussion for a loan option starts between the center and the parent as soon as a prospective child enters the center.

BridgeCare’s Technology

The company presently does not have a technology integration with the service providers, but they are looking to create API’s in the long run. Currently, BridgeCare have direct access to the borrower, which is helpful as it allows them to control the message, positioning, and pricing of the service.

The company is on a manual approval system but will soon transition into an automated system of credit decisioning. Its innovation is in product design and capturing an underserved market. The team is working hard to make sure the technology catches up to the business model.

BridgeCare has created a credit grid for approvals. Based on multiple factors like risk profile, tenure, and terms, the grid helps the company make an offer for minimum payment and other conditions for the loan facility.

The company has divided its target demographics into three tiers.

  1. The Lower Tier includes people in professional jobs (i.e. doctors, lawyers, etc.) who are highly educated and earning around $75,000 to $120,000. As they are in the early stage of their careers, they have competing needs for home savings and childcare.
  2. The Upper Tier comprises people with stable jobs and good earnings (i.e. around $100,000 to $175,000) and has less probability of default.
  3. The Third Tier includes rural areas that usually have borrowers with low income and high childcare costs as a percentage of income. In this category, the risk is comparatively higher than the other two categories.

BridgeCare also has the flexibility to follow the child to another child care provider and make arrangements with the new child care provider for the payment plan.

The founders believe there is no tangible competition in its niche. There are a couple of state government programs which provide subsidized installment loans to low-income families, but that is the extent of the competition.

The Bootstrap

Audra Jung and Jamee Herbert launched BridgeCare Finance in October 2016. Jung has a background in public funding while Herbert’s background is in women’s advocacy. They understand the issues at hand for young working mothers. Jonathan Kirst joined as a cofounder and is the CTO of the company. He was previously CTO at Roostify, a digital lending platform focused on mortgages.

Jung and Herbert were MBA classmates at Presidio Graduation School in Seattle. It was here they got the inspiration and the knowledge about the childcare and the finance industry. They developed the business idea in their MBA entrepreneurship class.

BridgeCare has raised a total of $200,000 from family, friends, and angel investors. The funding was vital for their working capital needs, getting licensed, for building out the product design and to meet legal requirements. They are currently registered to operate in Washington and looking to raise further funding for a national roll out.

Future Goals

BridgeCare is planning to enter into partnerships with early learning and the childcare industry for expansion. It is also looking to onboard associates who can help the company raise cheaper capital and/or expand to different states.

According to ChildCare Aware of America, in 2015, in 24 states, the cost of center-based child care exceeded housing costs for families with a mortgage. In 30 states, a year of center-based infant care was more expensive than a year of public university. BridgeCare has hit on an underserved multi-billion dollar niche. Its ability to expand aggressively would be important for it to capture the childcare financing segment.

Author:

Written by Heena Dhir.

Financing Unexpected Patient Healthcare Expenses

hospital bill financing

Americans spend over $400 billion out of their pockets on hospital expenses each year. The growth in healthcare costs has far outstripped inflation. Understandably, this has led to an increase in insurance premiums. In fact, if premiums were to cover all the benefits that a patient needs, they would be unaffordable for most Americans. As […]

hospital bill financing

Americans spend over $400 billion out of their pockets on hospital expenses each year. The growth in healthcare costs has far outstripped inflation. Understandably, this has led to an increase in insurance premiums. In fact, if premiums were to cover all the benefits that a patient needs, they would be unaffordable for most Americans. As a result, benefits have decreased to make healthcare insurance more affordable. This has led to an increase in health plans with high-deductible expenses within the last five years.

According to Bankrate’s’ latest financial security index survey, 34 percent of American households experienced a major unexpected expense in the last year. Only 39 percent of survey respondents said that they would be able to cover a $1,000 setback using their savings. So an unexpected medical situation can push 60 percent of Americans into instant financial turmoil. Parasail was born out of the founder’s experience with a similar medical emergency.

How Parasail Makes Healthcare More Accessible

Parasail help patients plan, manage, and pay for medical expenses and helps healthcare providers (hospitals) collect more with zero-percent interest payment plans and financing. Patients can focus on treatment instead of payment because Parasail offers a suite of products that make medical bills affordable so that healthcare providers get paid right away. Affordable patient plans and patient financing empowers patients to make the right decisions for their health.

Hospitals collect 15 cents for every dollar spent on healthcare in the U.S. in a nation where the No. 1 reason for personal bankruptcy is hospital bills. Managing patient payments has become a major headache for hospitals. Parasail helps them secure predictable revenue so they can focus on healing and lowering default rates.

They underwrite the individual customer and ask the hospital to give a subsidy to cover the cost of capital. The startup then funds the hospital immediately and collects from the patient through an amortized schedule of payments.

The company uses both traditional and alternative data and machine learning algorithms for loan application processing. They can approve loans in 60 seconds. They have developed an in-house software that integrates with hospital systems and gives staff a dedicated suite of tools to engage better with patients and speed up results. Patients may also apply for financing from their smartphones or computers with no effect on their credit. Parasail sends an email or text invitation to patients to enroll in a payment plan and the patient gets approval for a plan they can afford. The company is also developing a white label solution for hospitals.

Parasail’s integration with billing companies and healthcare providers is the key component of it’s go-to-market strategy. The company integrates its offerings with its partners to offer a payment option to patients outside of the hospital’s system. Parasail ProPatient gives payment plans for the entire repayment period, and patient interest rates remain at zero percent for the entire term. Many alternative lenders offer recourse lending, but if a patient misses a payment or defaults on the loan, then the hospital has to repay what they were advanced. With Parasail, they assume the risk and therefore take the loss.

To date, the company has onboarded over 20 hospitals and has served over 20,000 patients. The product has a very high conversion rate for a consumer-lending product.

 

The Genesis of a Good Idea

Todd Kimmel is the company’s chairman and co-founder and came up with the idea with CEO and co-founder Adam Tibbs. Tibbs’ wife had an accident in 2014 that resulted in more than $11,000 in medical bills. The frustrations involved in paying and dealing with healtchare insurance led Tibbs and Kimmel to a groundbreaking idea. Parasail got off the ground in 2015 when they raised $7 million in seed money from Peter Thiel, Montage Ventures, and Arbor Ventures.

The company created a win-win platform that helps patients plan finances better through zero-interest loans. Parasail is focused on partnering with healthcare providers so they can help them recover a much larger percentage of their invoices.

The Size of the Market and Future Potential

The healthcare industry is a $3 trillion market. Tibbs believes $400 billion of out-of-pocket patient expenses will grow to $1 trillion in the next five years. He also predicts that consumers will ultimately be responsible for the first $5,000 of healthcare as the size of deductibles rise.

Parasail a massive opportunity and continues to scale and partner with hospitals. Its aim is to make healthcare affordable, and they are obsessed with finding a means to work directly with consumers at affordable pricing. They also plan to roll out four other products in the near future. A partnership with Lively, a Health Savings Account (HSA) platform for employers and individuals, helps patients pay off hospital bills with pre-tax dollars. Parasail has strong investors and proof of concept locking in the pole position a very lucrative healthcare financing market.

Author:

Written by Heena Dhir.

Taking Mortgage Lending, Jumbo Loans Where They’ve Never Gone Before

mortgage lending jumbo loans

Alternative lending has created a new benchmark in borrower experience, especially in the consumer lending space. The fintech lending industry seems to be lagging behind in the mortgage industry, and especially jumbo loans (mortgage loan with strong credit quality where the amount exceeds conventional conforming loan limits), due to their nonconformity with set income and […]

mortgage lending jumbo loans

Alternative lending has created a new benchmark in borrower experience, especially in the consumer lending space. The fintech lending industry seems to be lagging behind in the mortgage industry, and especially jumbo loans (mortgage loan with strong credit quality where the amount exceeds conventional conforming loan limits), due to their nonconformity with set income and credit patterns. Neat Capital is a Boulder, Colorado-based alternative mortgage lender that understands the massive market opportunity the above issues represent. It is focused on creating a digital lending platform for mortgages that is fast, reliable, paperless, and value-accretive for borrowers.

Streamlining Mortgage Lending Underwriting

Founded in 2015 by Luke Johnson, Chad Lewkowski, Christin Price, Ryan Brennan, and Steve Herschleb, the company wanted to deliver a modern approach to mortgage lending centered on making it simple, unique, and transparent.

Underwriting and loan documentation is considered a back office process in traditional banking. Neat Capital is trying to bring this core activity online and looking to capture the loan documentation, underwriting, and loan selection process in one single online session for the client. This facilitates a hassle-free experience for the client and better conversion rate for the startup. It has been able to bring down the entire cycle to 13 days as compared to the 30-60 day norm in the jumbo loan industry.

The company has raised a total of $4.2 million in two funding rounds. Its angel round saw an investment of $2 million. But the company had to face a major crisis in December 2016 and was on the brink of shutdown before it could recover. At the same time, Luke Johnson, CEO and founder, faced a personal tragedy with his wife battling brain cancer. But the employees, investors and other stakeholders stuck together and fought hard to become the fastest lender in the U.S. for jumbo loans.

How Neat Capital is Different From Most Mortgage Lenders

The traditional mortgage lending process is recursive in nature. It involves sending information and documents to underwriting, following up with clients for clarifications, and if the underwriter does not like it, it results in rejection or a change in terms. The whole process is susceptible to getting bogged down on a regular basis, which leads to delays and surprises. So the secret sauce for Neat Capital is to break down this unproductive cycle and provide certainty at the outset in a single online session. The company is unique because it can evaluate a loan in real-time according to a very detailed underwriting guideline and with a high degree of accuracy due to its proprietary artificial intelligence algorithms.

Another USP is its ability to handle borrowers with complicated income streams, net worth, and credit who can’t be analyzed on normal mortgage parameters. The company funds from its balance sheet, but it resells loan into the market almost immediately to free its balance sheet for expansion.

Neat Capital is focused on high quality credit with a weighted average FICO (Fair Isaac Credit Organization) score of 766 and weighted average LTV (Loan To Value Ratio) of 72%.

Neat Competitors and Customers

Alternative lending has seen traction with players like Better Mortgage and SoFi targeting the same clientele. But Neat Capital believes there is a huge addressable market, and it is incumbents like Wells Fargo that are its biggest competitors.

Its typical customer usually has an owner-occupied unit in San Francisco. It also has clients looking to buy second homes or investors looking to buy houses as a real estate play. But it is not restricted to any particular category and covers all conventional mortgage options, as well.

The Future of Mortgage Lending

The mortgage industry has gone online and the application process has moved entirely onto digital platforms. The winner of the market will be the player who can execute the entire loan application process in one single session versus the current scenario of requiring multiple sessions for loan application closure. Also, the industry needs to be ready for a smartphone future where the first and only point of contact between the platform and the borrower would be a smartphone. The application engine needs to be smartphone-powered so that the platform is not losing clients to other smartphone-ready peers.

The company’s future plans are to cover the entire spectrum of conventional Fannie Mae loans to jumbo loans. Instead of focusing on yield expansion or going down the credit quality ladder, the company will aim to concentrate its bets in niches where it believes that other lenders have mis-priced the risk.

Neat Capital also needs to grow while educating clients and referral partners, wealth managers, real estate agents, and employers about why they are different and what is their unique selling proposition. Currently, the company operates in nine states, but it is planning to double that number in 2018.

Conclusion

Neat Capital has focused on a market gap in mortgage lending that has been overlooked by the alternative lending industry. The challenges due to non-conforming loans and income streams & net worth not falling under typical lending patterns made it difficult for players to successfully compete with traditional banks. Neat Capital seems to have solved this problem. A 13-day turnaround for an industry that usually sees transactions taking months to close will definitely revolutionize the market.

Author:

Written by Heena Dhir.

Taking Trade Finance to SMEs

trade finance SMEs

The financial crisis of 2008 led to many developments in fintech generally and alternative lending specifically. We’ve heard many of those stories before. One of the problems the crisis revealed is the restriction of capital, particularly among international small- to medium-sized enterprises (SMEs). Another problem was the massive proliferation of mobile coupled with the “digital […]

trade finance SMEs

The financial crisis of 2008 led to many developments in fintech generally and alternative lending specifically. We’ve heard many of those stories before. One of the problems the crisis revealed is the restriction of capital, particularly among international small- to medium-sized enterprises (SMEs). Another problem was the massive proliferation of mobile coupled with the “digital self” that allowed lenders to identify the types of businesses people engaged with. Digital data became a game changer for a lot of companies employing new technologies. One company got the bright idea to solve both of these problems with a single solution aimed at SMEs making their first entrance into the online ecoystem.

Who Are Kountable, And Why Do They Count?

Kountable saw its genesis in 2013 with CEO and Co-founder Chris Hale getting together with co-founders Craig Allen and Kathy Numera.

“We looked at trade finance in a different way,” Hale said, adding that one of his co-founders spent 30 years doing trade financing at the institutional level. Typically being an instrument extended by banks, Kountable puts the emphasis on the finance rather than the trade part of the equation. The financial crisis, Basel III, and other regulations that followed handcuffed banks in their ability to extend capital to SMEs. Kountable stepped in to fill the void.

By using a cloud-based platform for the import and export of goods, Kountable gives SMEs access to trade. By outsourcing third-party logistics and bringing curated transactions so deals get institutional level treatment, the company helps SMEs sidestep problems they would typically have accessing top tier products.

Currency management is one area that requires Kountable’s due diligence. As they buy in one currency and deal in another, there are commercial terms, such as paying suppliers, during negotiations.

The company is successful when it simplifies the translation between big and small. Hale said, in most trade finance deals, you have big-to-big (that is, enterprise-level business trading with enterprise-level business). For example, Cisco might sell a network bridge to a multinational corporation. But when you have a small business involved (Cisco selling to a bank in East Africa, for instance), Kountable ensures that everyone gets the same retail treatment. By bringing users together in a mobile app on a cloud-based system, the company makes it seem institutional to both parties.

“The asset is a trade receivable,” Hale said. For example, an alternative credit fund that extends a $150M line of credit. “We align ourselves with the success of the transaction by pricing our service like a margin-sharing arrangement.” The four-step process includes:

  1. Kountable collects directly from the end customer
  2. The bank buys new servers from Cisco
  3. The reseller negotiates the margin for the procurement process, importation, and installing services
  4. Kountable takes a portion of the margin for the trade services it provides.

The Three Components of the Technology

The technology includes three key components:

  1. Identity management—The small business reseller downloads a mobile app and shares his or her data with Kountable. That includes social media, business registration, and personal info about the owners and shareholders. Kountable builds a “robust profile” on the SME and runs Know Your Customer (KYC) and Anti-Money Laundering (AML) processes for validation. The company also looks at supply, and, if it’s a private business, customs. The company looks at trade as a network. The more transactions they do, the more the network effect creates a safe environment for more transactions.
  2. Cloud-Based Control Management System—This digitally manages assets on the operating side and the financial side of a trade transaction. Hale said it’s tricky because there’s not a lot of financial data inside the transaction. Most of the info is operational. That is, goods are paid for and shipped–in transit, through customs, etc. Traditional financial institutions aren’t set up for this. This system manages the operations and payment of this trade asset. The reason it’s important to have collaboration taking place between the reseller and the in-country partners (who help with the documentation of the banking relationships, clearing customs, and more) through the mobile app with the Kountable team in San Francisco is that they all plug in to make sure transactions go smoothly. These two elements combine to create a financial asset.
  3. Trade Accounting Service—The investor who extended the $150M line of credit (LOC) is consuming trade receivables as collateral. The trade accounting service will be able to report on the synthesis of the financial and operating information in order to report the portfolio value to the investor.

Not being a formal venture fund, Kountable is a “traditional single family office with a portfolio of private companies with double bottom lines.” The company has raised $15M, 85% of which came from the family office with capital added from other investors. These are for-profit companies, of course, but the business focus is on the “larger good.” The concessionary returns the company receives by leaving some of the money on the table to make a significant impact is a part of the reward.

Kountable Key Differentiator and KPIs

“Our committed focus is to the SME,” Hale said. This led the company to build a network of enterprise-level participants and a technology platform to cater to that user. “Most other trade platforms focus on digitization of a two-party trade,” but it’s all “enterprise to enterprise.” Kountable was created to help the global SME population. “That focus on the SME as the user has created an ecosystem unlike any other platform I’m aware of.”

Kountable has about 5,000 SMEs registered and moves $3 million per month in trade transactions. That’s in two countries–Kenya and Rwanda. Interest from 40 other countries has led to building a platform to address the market demand.

“We have a line of sight to profitability just by working within these two markets,” Hale said. “[We’re] building
global expansion to go outside of the family office this year.”

SMEs in Kountable’s two markets buy goods from the U.S. and work with U.S. supplies to sell to customers in East Africa products they wouldn’t have access to otherwise. In the year ahead, Kountable plans to work with U.S. SMEs on similar transactions.

Kountable’s Competition and the Future of Trade Finance

Kountable’s competition consists of large procurement companies, groups like Tradeshift, and financial relationship companies. On the other side, there are e-commerce platforms, like Amazon, that are more consumer focused.

“There really isn’t a competitor that fits together a solution targeting our market specifically,” Hale said. The competition is mostly peripheral.

Hale believes the future is going to see trade financing dramatically influenced by digitization across the board. “The players are focused on enterprise-level digitization, where invoicing becomes an Application Programming Interface (API) and customs brokerage becomes digitized. As that continues, the nature of trade financing will evolve toward a a focus on operations.” He sees this evolution ultimately leading to the incorporation of the blockchain. “The elements of smart contracts and the distributed ledger are very well suited to the network approach to trade facilitation.”

Kountable’s near-term plans are to continue demonstrating the universality of its solution. Hale said they have significant demands in many regions of the world, including the U.S., and the goal is to plant some flags in some specific markets. Along with the U.S., he mentioned Southeast Asia and Latin America as potential growth regions. “There are many elements of our transactions that are replicable across different verticals and different regions,” he said.

Conclusion

The company is looking to internalize its engineering team and build its other respective teams. They have a number of product launches in the next quarter and a half including a redesign of the mobile app. Beyond that, Kountable is focused on growth capital for market expansion, enterprise sales, and putting in place the legal and financial structures needed to move into Southeast Asia markets like Vietnam, Thailand, and Malaysia.

By focusing on the double-bottom line, Kountable not only has a bright future in the spaces of trade and trade financing, but the company is also doing its part to improve the quality of life in areas of the world where goods, services, and technology would be otherwise less accessible. And while it isn’t evident if the company will ultimately succeed, it’s certainly evident that it should.

Authors:

Written with Paul Keenan.

Allen Taylor