Over the last half decade, rates of account takeover have multiplied significantly. According to a PYMNTS.com report, account takeovers jumped 300% in 2017, and have been rising ever since. The trend was particularly pronounced in the lending space. Lenders lost $4 billion from account takeovers last year, according to Javelin Strategy and Research. In order […]
Over the last half decade, rates of account takeover have multiplied significantly. According to a PYMNTS.com report, account takeovers jumped 300% in 2017, and have been rising ever since. The trend was particularly pronounced in the lending space. Lenders lost $4 billion from account takeovers last year, according to Javelin Strategy and Research.
In order to combat this type of fraud with innovative technology, lenders must learn what account takeover entails.
Online Lending Fraud: What Is Account Takeover?
Account takeover is a form of financial identity fraud. It’s when a fraudster uses a victim’s identity and financial accounts to fraudulently secure a loan and then steal the funds. Fraudsters apply for a loan in the victim’s name, transfer the funds into the victim’s account, withdrawal the money, and then disappear.
Account takeover is riskier than other forms of identity fraud, but it comes with several advantages for fraudsters who want instant gratification. The fraudster does not need to build a fake identity or financial infrastructure to commit the fraud. The fraudster is essentially taking over a person’s identity, pre-existing accounts, and credit history to illicitly funnel money into a safe haven.
Account takeover is facilitated like most other kinds of identity fraud. A bad actor obtains sensitive information, such as bank account numbers, usernames and passwords, and other key credentials from personal contacts, malware, phishing, or other violations of a victim’s privacy. The fraudster takes out a loan in the victim’s name, and routes the funds into the victim’s account.
Once the funds are in the victim’s account, the fraudster moves the funds into an intermediary account by circumventing bank security protocols. These circumvention methods include SIM swaps, associating new phone numbers with the bank account, SMS-grabbing malware, cloning phone identifiers, and other methods.
After the money is in the intermediary account, the fraudster cashes out the funds by making ATM withdrawals, purchasing cryptocurrencies, transferring funds to online payment platforms, or buying e-commerce goods, among other methods. The fraudster might try to hide the origin of the money by employing “mules,” or agents who transfer illegally obtained money, either wittingly or unwittingly.
Combating Account Takeover with Technology Solutions
Account takeover poses unique challenges to online lending, but novel technologies can help lenders fight back against this form of fraud.
ThreatMetrix by LexisNexis Risk Solutions provides data that detects suspicious behavior or compromised devices before fraudsters can initiate account takeovers. ThreatMetrix’s Digital Identity Network analyzes millions of transactions across billions of devices for thousands of leading global businesses. This data allows organizations to verify that customers are who they say they are.
RSA Web Threat Protection uses behavioral analytics to separate fraudulent activity from legitimate transactions. The solution tracks a large variety of fraud threats, such as new account fraud, fraudulent money transfers, password guessing, credential harvesting, mobile and web session hijacking, and other behaviors that suggest potential account takeover attempts.
Fraud.net has an award-winning AI-powered suite of enterprise tools to manage risk for clients such as online lenders. Fraud.net’s AI, analytics, and data mining platform can quickly identify common schemes and attack methods, including account takeover. The suite’s ‘early-warning’ monitoring, powered by multi-dimensional risk analytics, helps to uncover account takeover fraud before it happens.
Account Takeover: A Manageable Issue With the Right Technology
Account takeover is one of the most expensive and fastest growing forms of online lending fraud. However, with the right solutions, lenders can combat account takeover and minimize the negative impact it has on profit margins, platform security, public image, and the customer experience.
Kevin Bartley is the content manager at Ocrolus.
Headquartered in NYC, Ocrolus is an intelligent automation platform that analyzes financial documents with over 99% accuracy. By eliminating manual reviews, Ocrolus empowers companies to reinvest human capital and automate processes with industry-leading speed and accuracy. Ocrolus services hundreds of customers in the financial sector and analyzes millions of data points every day. The company has raised over $30 million in venture capital, backed by Oak HC/FT, FinTech Collective, Bullpen Capital, and QED Investors, among others. For more information about Ocrolus, visit www.ocrolus.com.
News Comments Today’s main news: Funding Circle tumbles. SoFi partners with Kukun. Petal raises $34M on launch day. China is losing its grip on P2P lending risks. ID Finance Mexico profitable after 8 months. Today’s main analysis: Wealthfront: Clients who engage with automated financial advisors save more. Today’s thought-provoking articles: The difference between LendingClub’s, Funding Circle’s valuations. Venture capital investment […]
Petal raises $34 million on launch day. This is great right out of the gate. Petal could be a rising star in credit card issuances as they are targeting a hard-to-service market for traditional lenders.
On Tuesday, online lending platform SoFi announced it has formed a new partnership with home improvement platform Kukun to offer advanced new tools to help homeowners gain a greater understanding of how much their home improvement project could cost and how it can affect the resale value of their home.
SoFi reported that the tools will help homeowners estimate costs and returns on investment for over 28 project types that range in price from $10,000 to $300,000, including renovations and expansions. These are notably the first tools SoFi is offering related to its home improvement loans. Financial calculators that are built by Kukun are notably based on highly normalized and granular property condition marketplace data, in addition to normalized construction permit data (fresh and historic), as well as customer intent from the Kukun marketplace
Petal, a startup aims to deliver on what we’ve often called the real promise of fintech: financial inclusion. The company describes itself as “credit with a conscience” and announced a new fundraising round of $34 million on the same day that they officially launched their credit card product to the public. Backing the vision is Jefferies and Silicon Valley Bank.
The funding will aid the roll-out to a waitlist which includes 100,000 people. The card is aimed at the tens of millions of Americans who have no credit score at all or a short credit history.
Today, Wealthfront released the 2018 Savings Report detailing the impact their automated advice engine, Path, has on their clients’ savings patterns. In the last year, the company has observed that consistent engagement with Path correlates with a 28% increase in a client’s savings rate. For a 32-year-old client with a $130,000 income and $100,000 in savings, this could mean an additional $1.25 million dollars at retirement.
Wealthfront’s goal is to fully automate financial decisions to what some people have called, “self-driving money.” Clients will be able to automatically deposit their paycheck into their Wealthfront account and the company will route their money appropriately based on the lifestyle and goals they’ve set. Bills will be automatically paid, emergency funds and 401(k)s will be topped off and Wealthfront will invest the rest in the most tax efficient way. To date the company offers a suite of automated financial planning, investment management and banking related services. To read the full report visit to start saving and investing today download the app on iOS or Android.
“We provide peer-to-peer lending around the world,” says Ngo. “By using the blockchain, we don’t have high overhead costs or errors like traditional financing. That’s why we are able to offer such low interest rates.”
Backed by Popular Bank, the platform is fully operational. With Highly experienced private banking professionals and dedicated office suites in each of its principal New York and Miami markets, the Popular private client program is well-positioned to cater to current and prospective clients.
Small business lending continued its blistering pace in August, according to the latest Strategic Insights Report from PayNet, the leading provider of small business credit data and analysis. The Thomson Reuters / PayNet Small Business Lending Index (SBLI) seasonally adjusted originations increased 7% from 145.1 in July 2018 to 154.7 in August 2018, its second-highest reading ever. Year-over-year, the index is up 16%, marking its 11th consecutive increase over the prior year and the fourth double-digit year-over-year gain in the last five months. The rolling three-month index at 148.3 is relatively flat compared to July 2018 but is up 12% on the year.
The SBLI remained above 140 for the eighth consecutive month. The majority of industries experienced lending growth on an annual basis in August, led by Transportation & Warehousing (+20.4% Y/Y) and Mining (+9.7% Y/Y). Lending in Arts & Entertainment (+4.6% Y/Y) climbed to an all-time high in August, and more than half of industries achieved index readings in the top 25th percentile of all readings since 2005. Construction (+8.0% Y/Y) saw its strongest annual growth since November 2016 (despite weakening residential investment) due to strong investment in commercial and industrial structures. Regionally, lending increased across all ten of the largest states in August, continuing the widespread expansion seen in July. On an annual basis, regional growth was led by Texas (+15.3% Y/Y), Illinois (+12.3% Y/Y), North Carolina (+9.9% Y/Y) and Michigan (+9.4% Y/Y) — each of which saw lending reach record highs in August. Meanwhile, Pennsylvania (+7.9% Y/Y) and New York (+6.2% Y/Y) experienced their fastest year-over-year growth since mid-2015.
A constant drumbeat in banking is that businesses require ever more data analytics to remain informed and competitive. Yet Envestnet|Yodlee acknowledged its data offerings were out of tune with customer expectations.
Its Envestnet Envision IQ platform, launched in May, offered up a variety of information concerning a bank’s customers and products, but it had no focus, according to a top executive at the data aggregator.
Branch managers will be able to create their own “playlist” of questions to be answered daily, he said, and the system will record and categorize questions asked into favorited questions and most-asked questions.
The biggest bank technology providers are revamping their most popular platforms to offer new features and reach more financial service sectors — all in the name of protecting market share from insurgent fintechs and pivoting peers.
Oracle joined the fray last week, announcing it was adding banking as a service to NetSuite, the venerable cloud-based enterprise resource planning platform it acquired for $9.3 billion in 2016.
San Jose – the seat of the Silicon Valley – is by far the best place for boomer entrepreneurs, with a final score of 93.6. In addition to representing high business income, San Jose boasts the largest share of boomer business founders.
San Francisco comes in second with a score of 86.5, thanks to remarkable earnings potential, relative to the other metros on the list, indicating that boomers are sharing in the general prosperity of self-employed entrepreneurs there.
Boston earned the third place on the list, with a score of 74.1.
New Orleans, Miami and Orlando ranked last on the list, with scores of 16.4, 20.5 and 21.1, respectively.
Cost: The Simple Loan costs $12 for every $100 borrowed, which translates into an annual percentage rate of 71%. That’s much cheaper than typical payday loans, where the average rate is 391%, and it’s due after three months, not the two-week cycle that is common of payday loans.
Auto-pay discount: U.S. Bank allows both auto-payments and manual payments. Manual payments cost extra, $15 per $100 borrowed, which is equal to 88% APR.
Payments are reported to the credit bureaus, so your score can increase if you make on-time payments.
RPA: the new tech transforming banking (Kyron Systems email) Rated: A
The number of U.S. banks has almost halved since 2007, from 8,400 to about 5,500 in 2017, and the reason is that it costs more. Rising AML and KYC compliance costs combined with regulatory fines are continuously putting banks out of business, especially small banks; U.S. Fed research indicates that adding just two new employees to a small bank’s compliance team would make a third of these banks unprofitable.
In response, banks are turning to a new field of virtual assistants: RPA, which stands for ‘robotic process automation’ but there are no actual, physical robots, rather virtual bots that run in the background on employee computers, learning what processes the bots can do instead, and then doing exactly that. Although RPA is being implemented in almost every industry, it dovetails particularly well with banking because there are so many repetitive processes that can be automated, everything from risk exposure calculations to compliance reports.
White Oak Healthcare Finance, LLC (“White Oak”), today announced it acted as sole lender and administrative agent on the funding of a $28 million senior credit facility for Granite Investment Group (“Granite”). Secured by three skilled nursing facilities in Texas, the funds refinanced existing debt and provided a dividend for investors. White Oak recently announced it financed a separate portfolio of four skilled nursing facilities in Texas for Granite.
“We are happy to have had another opportunity to work with Granite. This transaction materialized as an opportunity to provide a bridge-to-HUD financing for an under-levered portfolio. As an active lender in the space, we can optimize our offerings to meet each company’s unique business needs,” said Isaac Soleimani, Managing Director and Partner at White Oak.
Granite Investment Group is a privately held, real estate investment firm focused on multi-family, senior housing, and post-acute care.
Volunteer Organization Tackling the Crippling Student Debt Facing Americans (Crazy Good Turns email) Rated: B
A new non-profit, Shared Harvest Fund has created an impactful way to pay down student debt. Shared Harvest Fund has created a program that partners non-profit organizations in need of workers, with students looking to not only pay down their debt, but do something with purpose as well. Once the connection is made, students volunteer a set amount of hours per month, and the non-profit organization in turn sends a check directly to the lender of the student’s choice.
The founders of Shared Harvest Fund; Dr. Briana DeCuir, Dr. Joanne Moreau and Dr. NanaEfua B.A.M, will be featured on the October 17th Crazy Good Turns podcast, a non-profit podcast that shines a light on people and organizations making a positive impact in the world, to share the in’s and out’s of their platform and discuss in detail how students looking to pay down debt—or non-profits looking for volunteers—can be a part of the Shared Harvest Fund community.
Podcast Topics Include:
The founders discuss how and why they created the platform
The negative physical and mental consequences that carrying debt has on borrowers and the positive effects of volunteering to help others.
How unaware most students are about the length of time it takes to pay off student loans.
How corporations can increase their corporate responsibilities goals by supporting the Shared Harvest Fund.
FinTech Sandbox today announced it has entered into a partnership with TransUnion to help early-stage financial technology firms launch in the marketplace. As part of the partnership, TransUnion’s Startup Credit Kit will enable startups to test business model concepts and refine their go-to-market strategies.
Shares in Funding Circle rallied as it made its official market debut on the London Stock Exchange today, in a move likely to quell fears over market uncertainty.
The peer-to-peer lender tumbled as much as 8pc in the company’s first official day of trading, falling well below the 440p per share it had floated at last week, before later jumping back up.
Around 20pc had been wiped off their value during conditional trading, which began last Friday and ran through to Tuesday evening. Shares dropped as low as 340p on Wednesday, before later rising to 390p.
Marcus by Goldman Sachs recently launched in the UK and the biggest high street banks are only beginning to grapple with what the new competitor means for the market. Marcus has seen significant success in the U.S. market and is hoping to bring that to the UK, they currently have a savings rate offer 3 times the traditional powers and have plans to launch more products soon.
The news is not all bad for high street powers as data has shown customers thus far have stayed loyal to their bank and regulations around use of deposits make it a bit trickier for Marcus to repeat their U.S. model.
Keith Horowitz, analyst at Citigroup, tells the FT where the biggest opportunity could exist, “The big key for Goldman ultimately is customer data, that’s the holy grail for banking, creating an open financial marketplace platform that can also utilise their huge balance sheet.”
Online property finance platform, LendInvest, has announced that it has cut rates across its Bridging product range and introduced a new Bridge to Term transition service.
The lender has cut rates on its Residential and Commercial Bridging, Development Exit and Auction Finance products. Monthly interest rates now start from 0.55% for Residential Bridging, Auction and Development Exit and 0.79% for Commercial Bridging.
A new Bridge to Term service has also been introduced that offers borrowers looking to purchase residential property at auction, undertake refurbishment or carry out minor development the opportunity to then switch to one of LendInvest’s Buy-to-Let mortgages.
China’s online peer-to-peer (P2P) lending platforms have been falling like dominos. This has sparked investor panic, exposing deeper risks long hidden in China’s shadow finance sector. It is yet to be seen if Chinese regulators will be able to manage the risks and effectively regulate P2P in the same way they have done in other areas of shadow banking.
Shadow banking from institutions supervised by empowered central regulators is shrinking. One of the best ways to measure shadow credit funded by banks is through their lending to non-bank financial institutions. It rose 80 per cent year-on-year in February 2016, but over the last year has shrunk by 4 per cent.
The number of surviving P2P platforms has been on a gradual decline since November 2015, but regulators were caught off guard when failures suddenly accelerated in mid-June 2018. Investors began to panic and tried to pull their money out, sparking yet more failures. Many protested for government help when they found that their savings had been stolen or sunk into bad loans.
Outstanding loans then plummeted by 300 billion RMB (US$44 billion), from 1.3 trillion RMB (US$190 billion) to just under 1 trillion RMB (US$146 billion). They fell again in August, but the outflows and failures moderated. The storm may have passed, leaving most platforms intact for now.
Kontist, a Berlin-based challenger bank, announced on Tuesday it secured a Series A investment to expand the financial services available to freelancers, small businesses, and entrepreneurs. The round was led by Haufe Group, one of Germany’s providers of digital workplace solutions and services with participation from existing investor Danish company builder, Founders.
As the crypto industry sees a decline in initial coin offerings (ICOs) amid regulatory concerns and major losses across token markets, traditional VC investment is once more on the rise.
In its latest report, blockchain research group Diar reports that blockchain and cryptocurrency-focused startups have raised nearly $3.9 billion through VC investments in the first three quarters of the year – that up 280 percent when compared to the whole of 2017, it says.
Based on data from Pitchbook, the report indicates that number of deals also nearly doubled this year.
Alongside the increase in VC deals, the average size of crypto and blockchain investments has increased by over $1 million in 2018. Ten of the largest blockchain and crypto investments in 2018 saw the recipient companies raise more than $1.3 billion in total venture capital. While one of the firms has a native token (DFINITY), the rest represent equity investment, says Diar.
German app-only bank N26 has launched in the U.K. and is eyeing another expansion to the U.S. in the first quarter of 2019.
The Berlin-based firm, which is backed by Chinese tech giant Tencent, German insurer Allianz and PayPal co-founder Peter Thiel, said on Thursday that its services are now available in Britain, on a limited basis.
Initially, a select number of “early adopters” will be given access to the app in the U.K. More than 50,000 people who have signed up to a waiting list for the U.K. launch will be on-boarded on a phased basis, and a broader launch is planned for next month.
Looks the Indian startup’s ecosystem is smitten by the opportunities fintech industry is benefiting of. No wonder, we have unicorn startup companies such as the Flipkart looking into tap the market.
Market buzz says that Flipkart is in the middle applying for an NBFC license to extend the line of credit to its sellers and customers. With time, it would expand its financial services offerings beyond its e-commerce platform.
The credit problem in India is beyond surreal. For example, the small and medium enterprises sector (SMEs), which contributes between 30-40 per cent in the country’s GDP, suffers majorly because of its unattended financing need and the gap is as big as around USD 650 billion.
Giving an example of the consumer lending space, Gaurav Chopra, Founder & CEO, IndiaLends says this segment is expected to be a USD 1.2 trillion opportunity for the organised lenders, implying a 22 per cent compound annual growth rate over the next three years.
Credit cards can be extremely handy when it comes to making an impulsive high-ticket purchase. All you have to do is to flash the card and walk away with your purchase. Many credit card companies would immediately offer you an option to pay back the money in equated monthly instalments or EMIs.
Compared to credit cards, personal loans can be cheaper. “Credit cards can charge somewhere around 0.1% every day. Making the annual charges go up to 36% in some cases,” says Tanwir Alam, Founder & CEO, Fincart.
P2P loans, unlike the usual bank loans, offer short-term tenures starting 3-36 months and can be looked as an alternative to credit cards, depending on the requirement of the borrower. The interest rates are anywhere between 12 and 28%.
The recent Supreme Court verdict on Aadhaar may bring in tough times for the fintech companies who used to conduct eKYC (electronic Know Your Customer) via Aadhaar. Not mandating Aadhaar for the verification process has sent some fintech players back to the drawing board to work out strategies for physical verification, which is usually a time-consuming and expensive process. Experts and industry representatives with whom THE WEEK spoke to feel that verification of customers will eventually move to a traditional mode of verifying individuals through physical ID proof.
Bhavin Patel, CEO and co-founder of LenDenClub, a P2P digital lending platform, says that a physical KYC check takes around 24 hours or more now in an ideal scenario and this change in processing will result in longer disbursal time and higher cost for the consumer.
Anh spoke at a recent workshop on international experiences in P2P lending held in Ha Noi with the participation of more than 100 representatives, including financial management authorities from China, Singapore, Thailand and Indonesia.
With the rapid proliferation of mobile devices, artificial intelligence and big data, P2P lending—the practice of lending money to individuals or businesses through online services that match lenders with borrowers—has developed rapidly around the world in recent years.
Although P2P can create enormous socio-economic benefits, it also contains potential risks for the relevant parties, he said, adding that it is necessary to strictly monitor this field to mitigate the risks and improve awareness of the relevant parties.
Through this model, lenders can earn higher returns than they can get from banks while borrowers, especially individuals and micro businesses, can get money at lower rates. But the lending is also fertile ground for high-tech crimes. China had to eliminate some 160 online lending companies as they were in fact high-tech criminals working to cheat investors.
News Comments Today’s main news: Lending Club rolls out its next-generation small business credit policy. Elevate’s RISE surpasses $300M in outstanding loans. Upgrade, Corridor collaborate on big data, credit analytics. Assetz Capital completes Seedrs funding round with 1.6M GBP. Alibaba seeks majority stake in SenseTime. Revolut banks on cryptocurrency. Comunitae suspends activities due to fraud. Today’s main analysis: The hidden relationship between […]
Who wants to take out a loan for a pair of jeans? AT: “This illustrates that its all about psychology. Millennials, who have shown an aversion to credit cards, feel better about buying high-dollar fashion items–like designer jeans–on credit when they’d feel guilty for paying cash for the same items. But, really, is POS credit any different than credit card debt, which are often used at the POS to buy the same vanity items. Affirm has designed a smart product targeted at the psychology of a generation that wants to do things differently than their parents. You can’t beat that.”
Elevate Credit, Inc., a leading tech-enabled provider of innovative and responsible online credit solutions for non-prime consumers, today announced its RISE product has surpassed $300 million in total outstandings, with more than 130,000 open accounts.
Lending Club arguably pioneered peer-to-peer lending, which has been one of the most vibrant segments of the credit market. Some analysts, however, have questioned the company’s ability to continue growing without adopting some traditional banking practices, like taking deposits.
Lending Club has failed to manage costs well over the past two years, leading to its inability to net profits. As illustrated in the chart below, the company’s trailing 12-month revenue now stands at about $551 million, but it has managed to reduce the net loss from about $175 million in the first quarter to about $94 million in the third quarter.
Lending Club’s first-half 2017 loan originations figure, however, declined from the prior-year period, dropping to approximately $4.1 billion versus $4.7 billion last year.
Jocelyn Vera Zorn is not eager to talk about the loan she took out to buy the pants. “It’s kind of embarrassing,” she grimaces.
For merchants, Affirm provides exceptional benefits, increasing average order values across the board; perhaps not surprisingly, people will shop more, and more often, when they don’t immediately feel the costs. And for many customers, including Jocelyn, the predictable, convenient payments are worth the higher interest rates.
Affirm claims to be a more transparent and honest, if not cheaper, line of credit for the underserved. Using internal, proprietary data science and artificial intelligence, the company says it approves 126 percent more borrowers than traditional lenders, based on soft credit pullsand an opaque mosaic of consumer information.
While more than two-thirds of Americans own at least one credit card, 20 percent are considered subprime, with a FICO score of 600 or below. Another 10 percent are on the bubble.
Upgrade, Inc. (), a consumer credit platform that combines personal loans with tools that help consumers understand and monitor their credit, today announced a strategic partnership with Corridor Funds (), a new credit analytics and portfolio management platform founded by Manish Gupta. Mr. Gupta was recently EVP, Global Head of Information Management and Advanced Decisioning at American Express and prior to that spent many years as Chief Credit Officer of the Amex US consumer lending business. Under the terms of the partnership, Corridor will provide independent analytical review and validation to investors in Upgrade’s personal loan products, and will collaborate with Upgrade on new product design.
Announced today at CoinDesk’s Consensus: Invest in New York, TechCrunch founder Michael Arringtonrevealed he’s raising $100 million for a hedge fund that will buy and hold crypto assets while making investments in token sales and (some) equities and debt.
Launched under a new entity called Arrington XRP Capital, the fund claims to be the first that will require all limited partners (LPs) to make investments in XRP, the cryptocurrency that powers San Francisco startup Ripple’s RippleNet software.
Five years later, LendUp customers are improving their credit scores, and now I’m proud to say that LendUp Loan customers have saved $150 million versus what they would have spent with traditional small dollar lenders, all while improving their credit score to open up more financial options in the future.
Two-thirds of LendUp Loan customers report having income swings of $100 or more a month. And since our newest customers lack short-term savings — 83% aren’t confident they can cover a $400 emergency — 77% report that they often miss bill payments.
Agile, customer-experience-focused financial technology businesses continue to drive innovation, modernization and access to credit in America’s financial services marketplace when banks and other traditional providers can’t meet consumers’ needs. For example, fintech lenders help consumers and small businesses alike find financial products and services that meet their credit needs, whether it’s a short-term loan for an emergency expense or capital to help grow a small business — even when these applicants have been denied by their banks.
Online small business lender OnDeck today launched a new monthly series spotlighting the achievements of its small business customers and how they are thriving as a result of receiving capital from OnDeck.
For December, the customer success spotlight is on Dana Donofree, the owner of AnaOno, a lingerie and loungewear company for women with a unique mission.
“Applying for a loan can be incredibly stressful but fortunately, OnDeck had quick questions and quick responses. Right away, I could see how much financing I was approved for and what that meant regarding payback. I had the opportunity to review everything before I took the loan.”
The old saying goes, ‘money can’t buy happiness.’ It should also say ‘and debt can make you anxious, keep you up at night and cause problems in relationships.’ That’s according to a new telephone survey of 1,004 U.S. adults conducted by Harris Poll on behalf of the American Institute of CPAs (AICPA). The survey found nearly three-quarters of Americans (73 percent) are living with debt driven by factors such as everyday expenses, a lack of income, mortgage costs and student loans, reflecting the far-reaching potential impact of debt upon society.
Recent data shows outstanding household debt reached a record high of $12.84 trillion, making this survey timely. With U.S. consumer spending growing at its fastest pace since 2009, it appears the frugal habits many Americans adopted directly after the Great Recession are a thing of the past.
More than half of Americans with debt (56 percent) say it has negatively impacted their life.
Of those, one-in-five (21 percent) say debt is causing relationship tension with a spouse or partner and one-in-ten (11 percent) have misled family or friends about their financial situation. Debt is not just impacting life at home, it has found ways to creep into all aspects of the day. Nearly a third (31 percent) admit to worrying about their debt in general while nearly one-in-five (18 percent) say they worry while at work and one-in-four (25 percent) worry at bedtime.
Living with debt has become a financial and mental burden for nearly three-in-ten Americans with debt (28 percent) who stress about everyday financial decisions because of their debt. Nearly one-fifth of Americans with debt (19 percent) have received letters and calls from collection agencies. While the low interest rate environment has the potential to keep payments lower, one-in-four (25 percent) say that they’re worried a rate hike could change that.
Nearly seven-in-ten Millennials with debt (68 percent) admit it has had a negative impact on their everyday life compared with roughly half of Baby Boomers (48 percent) and three-fifths of GenXers (59 percent) with debt. Most concerning, the survey found that of those with debt, Millennials are twice as likely to worry about debt compared to Baby Boomers (M: 43 percent, BB: 19 percent) and more than a third (37 percent) admit that their debt causes them to stress about everyday financial decisions.
The world’s largest bitcoin exchange by trading volume is launching in the U.S.
BitFlyer, based in Tokyo, announced Tuesday it became the fourth digital currency exchange to receive a “BitLicense” to operate in New York. The exchange said it also has licenses to operate in 40 other states.
Curry, who was integral in leading the federal banking regulator’s efforts in advancing financial technology, including through the proposal of a special purpose national bank charter for fintechs, joined Nutter McClennen & Fish this week. He is a partner and will co-lead Nutter’s Banking and Financial Services practice group.
How involved with fintech do you plan to be?
That will be a key area and something I’m excited about working with the other members of the firm on. Fintech is interesting, especially if you’re talking about online lending and marketplace lending.
Do you expect the fintech charter will, in fact, move forward?
From my standpoint, I would not have pursued the charter without being very comfortable with the legal foundation for it.
How will you advise clients in the meantime until any special purpose charter is finalized?
Today institutions, banks as well, need to be making strategic decisions about which direction they’re going in. Well before you decide whether to apply to a fintech charter, you should be thinking through the process, so I think the time is now.
This year’s blockchain craze has pushed a huge amount of new money into cryptocurrencies, private blockchain projects, and companies holding initial coin offerings (ICOs). As of now, the total market capitalization of cryptocurrencies stands at more than $340B — a huge leap from where it started the year at $18B.
But you shouldn’t make the decision to refinance your loans lightly. Refinancing can help some borrowers save money, but what refinancing can do for you depends on a number of factors, including the repayment term and repayment options that you choose for your new loan.
Yours Clothing, a UK independent retailer of plus size ladies clothing, has announced a partnership with Klarna which will allow its customers to use the Pay later and Slice it payment options.
Klarna’s Pay later allows customers to try goods first. When checking out online or on mobile, Yours Clothing customers who use Klarna’s Pay later will receive their products and then have 14 days to pay Klarna back interest-free.
Klarna’s second payment option – Slice it – gives shoppers the ability to spread the cost of any purchases over £60 into equal monthly instalments.
Improve your personal credit. Yes, this has everything to do with money. You see, the higher your credit score, the more likely you’ll be able to score lower interest rates on the money you borrow. This can save you hundreds of thousands of dollars over your lifetime, so it’s definitely a resolution worth making.
The rise of online consumer loans in China has spawned a thriving black market in stolen user data.
Virtually non-existent in the country five years ago, consumer lending through websites and mobile apps has expanded rapidly over the past 18 months amid a proliferation of fintech start-ups that use big data to assess credit risk.
In a chatroom devoted to consumer lending on Tencent’s QQ social-media platform, the Financial Times contacted a person claiming to be an employee of an online lender who was offering user data for sale.
For Rmb4 ($0.61) per user, he offered to provide the full name, national ID number, phone number and loan limit. He added that for some borrowers, the data would also include a credit score from Sesame Credit, the unit of Alibaba’s financial affiliate Ant Financial that sells credit scores to banks and consumer lenders with users’ consent.
Alibaba Group Holding Ltd. is in discussions to invest about 1.5 billion yuan ($227 million) and become the largest backer of Chinese facial recognition startup SenseTime, according to a person familiar with the matter.
SenseTime, which says it’s valued at more than $2 billion, is backed by Qualcomm Inc. and considered one of the more advanced players in machine vision technology.
A number of Chinese peer-to-peer (P2P) lending companies went public in the US this year. Those P2P firms have been growing quickly, with some venturing into high-risk segments such as campus loans and cash advances. As they go public overseas, it creates potential risks that may eventually affect China’s financial stability. Supervision is needed to bring the P2P lending sector in order.
That these companies listed in the US reflects several factors. One main reason is the companies are expanding. Most are underperforming, and some are in the red. US stock exchanges do not have strict requirements for indicators such as net profit and cash flow. Also, the US market attracts investors from all over the world, easily raising more funds.
Policy makers from the People’s Bank of China and the China Banking Regulatory Commission convened in Beijing on Nov. 23 to discuss new measures to crackdown on online consumer loan platforms, including those for payday loans and peer-to-peer lending. On the same day, Alibaba Group affiliate Ant Financial said it will enforce a cap of 24 percent on interest rates charged by lenders on its website, or 12 percentage points lower than current rates.
Although the measures haven’t been made public, our industry checks suggest three notable changes. First, the issuance of new licenses to online micro-loan platforms is being suspended, suggesting that regulators are scrutinizing online lending practices. Second, banks and bank-holding companies are being told not to buy loans underwritten by online platforms because such assets are deemed too risky. Third, turning the loans into securities will be forbidden because regulators believe securitization amplifies risks and gives investors less of an incentive to perform due diligence on the underlying assets.
So-called P2P online lending platforms have mushroomed from fewer than 10 to more than 2,000 in just over seven years, but only a few hundred operate with government-issued permits.
According to a report in El Español, peer to peer lender Comunitae has ceased all operations indefinitely due to fraud detected on the platform this past October. The Comunitae web site is still live but certain portions are not functional.
The Swedish Chamber of Commerce for the Netherlands, The Embassy of Sweden and Business Sweden are very proud to announce the winner of the Swedish Chamber Export Prize 2017; Klarna.The prize aims to strengthen the Swedish-Dutch business relations and has been awarded since 2012 to Swedish related companies in the Netherlands.
Paytm Payments Bank aims to create the world’s largest digital bank with 500 million accounts, envisioning an online financial services provider of everything from wealth management to credit cards and stock market trading.
The bank, backed by the country’s largest digital wallet of the same name, launched formally Tuesday and is targeting people who don’t have access to professional financial services. That aligns with Prime Minister Narendra Modi’s ambition to broaden access for the under-banked in the nation of 1.3 billion people.
Paytm was one of fewer than a dozen entities that secured permits to start payments banks, which can accept deposits and remittances but cannot lend.
It said it will operate a mobile-first bank with zero fees on online transactions and no minimum balance.
A major trend shaping the small-business landscape is the rise in cryptocurrency, which can provide alternative means for a variety of cross-border financial transactions.
Cryptocurrency is ideal for cross-border transactions in several ways. In addition to being secure and permanent, cryptocurrency transactions allow borrowers and lenders to sidestep time spent working through a bank, as well as converting from one currency to another. For many investors, the speed and convenience of cryptocurrency-based transactions presents an opportunity to magnify gains.
Along with crowdfunding and peer-to-peer lending, cryptocurrency can improve access to both payments and credit for SMEs.
Independent asset managers shall maintain relationships not only to custodians. Due to disintermediation and distributed ledger technology they will be able to profit from a much broader range of financial assets.
Brussels-based SWIFT has been urging banks to bolster security of computers used to transfer money since Bangladesh Bank lost $81 million in a February 2016 cyber heist that targeted central bank computers used to move funds.
Taiwan’s Central News Agency last month reported that Far Eastern International Bank (2845.TW) lost $500,000 in a cyber heist. BAE later said that attack was launched by a North Korean hacking group known as Lazarus, which many cyber-security firms believe was behind the Bangladesh case.
Nepal’s NIC Asia Bank lost $580,000 in a cyber heist, two Nepali officials told Reuters earlier this month.
He’s now in Sydney at fintech business Prospa, the nation’s leading online lender to small business, where’s he talking to Business Insider about the sector as well as the 12-month investigation into misconduct by the banks.
The article that someone tweeted about, posts that they liked on Facebook, and a new phone just bought on an e-commerce site—all these events now play a crucial role in determining if an individual is eligible for a loan or not.
Online lending firms have seen rapid growth in the last two years, despite the presence of a wide network of banks and non-banking financial companies (NBFCs) in India. That’s because, till 2015, about 70% of Indians remained under-served by banks and other financial institutions, an opportunitythat these firms are trying to cash in on. Now, even banks and NBFCs are tying up with online lending firms to reach out to more customers.
The 166 million households that make up middle-income India—with annual earnings of between Rs2.2 lakh ($3,414)to Rs3.59 lakh ($5,572)—typically apply for personal loans to buy consumer durables, for weddings, to meet medical expenses, set up a new business, and the likes.
“We have about 80-90 parameters that are used to check a consumer’s credit worthiness. And that’s where technology comes into play to ensure that it can be done swiftly and efficiently,” said Satyam Kumar, co-founder, LoanTap, an online fintech platform that provides retail loans to salaried individuals.
GyanDhan, a Delhi-based start-up working in the space of education loans, emerged winner of a GIST pitch competition for enterprises in the Fintech and Digital Economy, one of the four focus sectors at the Global Entrepreneurship Summit, here on Wednesday.
Lupiya Circle, an online market place created by women in Zambia to financially empower women in the African nation through a branchless banking model was declared the runners-up.
Since 2005, the top 200 funded startups in the MENA region have attracted more than $2 billion in capital, according to a report issued by MAGNiTT, which tracks the development of startups across the region.
To date, the majority of top funded startups in the region were established in the UAE, and the primary financial backers have also tended to be UAE-based.
But a recent uptick in funding from Saudi investment firms points to a developing ecosystem for startups in the Kingdom, according to MAGNiTT founder Philip Bahoshy.
Bahoshy said that startups providing solutions for broader regional challenges such as sticky logistics and cross-border banking frictions stand the best chance of attracting meaningful investment.
Next year will be a good year for Sub-Saharan Africa. After a challenging 2017 for many of its nations, 2018 will see economic growth return across the continent, gas activity boom and fintech innovation pick up in speed.
The research department of the Pan-African bank forecasts three key trends that will take hold across Africa during the next 12 months. GTR takes a closer look at them.
3. Africa’s evolving role in fintech leadership
But 2018, he emphasises, will see African fintech firms increasingly driving this innovation. “There will still be international investors, but the actual leadership of fintech development is going to start coming increasingly from the Africans. It’s not going to be the Europeans and Americans going in, saying, ‘you should do this’.”
Ecobank’s research highlights South Africa, Kenya, Rwanda, Nigeria, Ghana and Côte d’Ivoire as tech hubs that will nurture the next wave of African startups and help connect them with investors.
One fintech that has caught Ecobank’s attention in particular is IroFit, a firm that uses the mobile network to enable real-time financial payments without the need for an internet connection.
Other emerging innovations in Africa include digital tools to build credit profiles for the previously ‘unbankable’ or using blockchain technology for digital identity and KYC solutions.
Automation is the great equalizer when it comes to competing with giant lending companies. Predictive analytics isn’t new. Machine learning isn’t new. However, data science can be complex and not something the average non-scientist online lender can manage easily. That’s changing due to a new autonomous approach to predictive analytics using artificial intelligence as a […]
Automation is the great equalizer when it comes to competing with giant lending companies.
Predictive analytics isn’t new. Machine learning isn’t new. However, data science can be complex and not something the average non-scientist online lender can manage easily. That’s changing due to a new autonomous approach to predictive analytics using artificial intelligence as a core technology allowing lenders to reduce the development of actionable and valuable metrics from months to days.
DMway Analytics provides an autonomous predictive analytics solution powered by machine learning that enables subject matter experts without data science knowledge and experience to build their own predictive models in a fraction of the time it takes traditional models. Here’s how they do it.
Democratizing Predictive Analytics
“We started a couple of decades ago,” said Gil Nizri, CEO of DMway Analytics. “Back then, a lot of algorithms were created for the financial industry. Even then, many data scientists realized that one day we’ll be able to automate algorithms and create algorithms in a couple of clicks.” But it took a while before demand for the technology caught up with the scientific developments that make it possible. “Democratizing predictive analytics took a couple of decades because it’s complicated. Now, what was done by human data scientists can be done by a machine.”
DMway’s mission is to level the playing field for small lending companies by making predictive analysis easy and available to non-scientists who are subject matter experts in their business specialties. One of their verticals is alternative lending. They also serve the financial services, marketing, insurance, telecommunications, and utilities industries.
Some of the questions predictive analytics can answer for online lenders include “who is likely to default on their loan,” “how many people will default this year,” and “who is a good credit risk?”
“Not everyone who works at a lending company has knowledge of predictive analytics, data science, or algorithms,” Nizri said. “Some lending companies simply can’t afford to hire people who can build complicated algorithms and adjust them as needed. That puts smaller lending companies at a disadvantage when competing with larger lenders like CitiBank, Wells Fargo, and other legacy institutions.”
With that in mind, DMway Analytics created a solution that allows small lenders to compete with large lenders in an area that is increasingly more essential to successful lending. By equalizing the playing field, they are democratizing predictive analytics.
Problems Solved By Predictive Analytics
Nizri breaks machine learning for predictive analytics down to three key technological techniques:
Classification – When you want to classify a small population among a larger population. Who will likely pay on time? Who will likely default the loan? Classification involves any use case that fits into that family of problems.
Expected Value – When you want to predict the future, what is the expected value of the thing? For instance, the lifetime value of each customer and what interest rate should be charged for each individual. These can be solved by the DMway algorithm.
How Many Times an Event Occurs – Identify the event you want to count—for instance, loan defaults—and count the number of times it happens within a given time frame.
Once and algorithm is created based on a lending company’s criteria, it becomes automated so that loan application decisions can be made almost immediately, Nizri said. The process can also reduce fraud prevention. If a company can count how many times fraud occurs, and under what circumstances, they can devise a strategy to prevent it. These three predictive models can address 90 percent of the problems lending companies face, according to Nizri.
“By simplifying the creation of predictive models, any loan expert can do this without knowledge of data science complexities,” Nizri said.
DMway Origins and Business Model
DMway officially launched in January 2016 with $1 million in seed money from JVP Media Labs. Prior to that, the company bootstrapped itself from conception to funding. The funding allowed them to go to market with their first product, but there were alpha versions prior to 2015. Since the initial seed round, the Israeli Office of the Chief Scientist (now called Israel Innovation Authority) has invested a couple of hundred million dollars into the startup, as well, giving DMway a huge boost.
The predictive analytic solution is sold as a subscription. Companies pay an annual fee based on the number of users. While lenders are the primary target market, not all customers are lenders. The solution can predict other company data, as well, Nizri said.
Nevertheless, financial services startups were the first companies to adopt DMway’s technology, by design. Because they need to compensate for less manpower, the automated models wrapped up in the solution saves them money and makes them more competitive.
“As a startup you don’t have a lot of capital,” Nizri said. “That’s why fintech companies were the first to adopt.”
After one year, DMway has 10 lending company customers. Most of them are on the higher end of mid-size, Nizri said. Some of them turn over a couple of billion dollars per year. Among the list of clients Nizri mentioned are Direct Finance and Backed Inc. Companies use the platform to predict lending trends, loan default probabilities, and fraud. DMway also provides full underwriting automation and loan approval through its platform.
“When the entire process is done by machine learning algorithm, you can handle a lot more loan applications in a better and more secure way, then you can mitigate risk better than when loans are processed by human underwriters,” Nizri said.
DMway’s co-founders include Nizri, CEO; Professor Jacob Zahavi, chief analytics officer; and Dr. Ronen Meiri, chief technology officer. Zahavi was the first person to ever discuss machine learning algorithms and has been working with them for over twenty years. Nizri is a veteran evangelist of predictive analytics.
How to Be A Competitive Lender
Most predictive analytics tools are developer tools meant to be used by data scientists, but for small lenders who do not employ data scientists, predictive analysis may be out of touch.
“We are removing every barrier of entry for the world of predictive analytics,” Nizri said. “One of those barriers is the need for data science, machine learning, and predictive analytics knowledge. Users of our product do not need any of that knowledge.”
The DMway platform mimics the way a human scientist works and generates a state-of-the-art visual in about three minutes. Nizri said it’s as good as any human-made algorithm. The platform generates out-of-the-box reports and interfaces data science with business users so the non-scientist can better understand the root causes of problems and how to mitigate them. To prove his claims, Nizri benchmarked his company’s algorithm against human-made algorithms and found them to be as good as or better in every controlled situation.
“It’s more than automation,” he said. “It also includes intuitive, heuristic algorithms along with knowledge based on four or five decades of study by a large number of data science veterans. It would take any data scientist 10 or 15 years to reach that level of knowledge and experience. ”
It typically takes a human scientist three to 12 months to create a predictive analytics model and complete a project. By the time a company reaches a conclusion based on the data, it’s no longer relevant. By speeding up the process using machine learning algorithms, DMway levels the playing field and makes predictive analytics more relevant for everyday uses. Nizri believes that once his company has paved the way, other companies will enter the playing field to challenge them.
“If you currently provide loans and your algorithm is bad, it will take your data scientists 3-6 months to improve it, then you are in deep trouble,” he said. “You’ll underwrite bad loans everyday. With DMway, you can have a state-of-the-art algorithm and provide great loans to the marketplace and start profiting within two to three days.”
The Future Belongs to Machine Learning
While machine learning isn’t new, what is new is the rapid pace at which it is forcing innovation in financial services. More and more alternative lenders are implementing machine learning technology into every part of the process, from loan application review to underwriting. As more companies adopt machine learning technology, the more necessary the technology becomes to remain competitive. It is even more important for small lenders because every minute and dollar they can save on the process makes them more level with lending giants and ensures they remain alive in the marketplace.
“Even Lending Club is small compared to the giants,” Nizri said. “The difference they have is the ability to be agile, flexible, and creative. This is what machine learning algorithms give you.”
Nizri sees an effective machine learning algorithm as the difference between alternative lending leaders and run-of-the-mill players. In order to survive, lenders will have to have the best tools available. It’s more important than human talent, which will likely go to the larger companies that can afford to pay their salaries.
For Nizri, augmented analytics is the future, and he is proud to be the head of a company on the forefront of the avant garde. To remain competitive and grow as he sees the company doing, he’d like to see more startup funding and a strategic partner.
“That will help us boost our global sales and offer more value as an industry leader,” he said.
News Comments Today’s main news: Further comments on Elevate’s IPO. Aspire announces new ALD Data and Analytics Module. Funding Circle to stop property development lending. Morningstar assigns MOR RV1 Residential Vendor Ranking to First Associates as Consumer Finance Servicer. Today’s main analysis: Texas real estate market great for RECF. Today’s thought-provoking articles: UK VC investment up, European funding […]
Further comments on Elevate’s IPO. GP:”Some people’s IPO strategy is to pump the IPO prices as much as possible to show how great the company is. Others is to underprice it to get more buyers and for the stock to go up after the IPO. If you compare this with selling a house, would you rather see yourself in a competitive bidding situation by underpricing it at 1st or would you rather overprice and wait for people to make low offers? Both strategies can backfire and fail. Time will tell how Lending Club’s strategy vs Elevate’s compare. ” AT: “Elevate’s stock price was way below what industry experts thought it would be. As a resulty, they sold more than 14 million shares.”
Texas real estate is active for RECF. GP:” I saw first hand tens of houses being flipped in Austin TX.” AT: “This is one platform, but Texas has historically been a great market for real estate, even before RECF. I’d expect it to be a great RECF market, too.”
RECF is riskier than you think. GP:” I hope people remember that real estate is not risk free.” AT: “RECF is risky, to be sure, but REITs are no less so. There are pros and cons to any type of investment. Read this with a grain of salt.”
Top banks are better conversing offline than online. AT: “This is a feeble attempt to bolster the importance of banks. The real story is that millennials don’t trust banks. As older generations die off, younger generations will continue to rely on emerging technologies for everything, including financial services.”
Funding Circle to stop property development lending. GP:” Those loans are probably not performing well or their cost of customer acquisition is too high given the competition from companies dedicated to that market.” AT: “Business models shift. I wouldn’t read too much into this.”
Elevate Credit, Inc. (NYSE:ELVT) (“Elevate” or the “Company”) today announced the closing of its initial public offering of 12,400,000 shares of common stock at a price to the public of $6.50 per share. In connection with the closing, the underwriters fully exercised their option to purchase an additional 1,860,000 shares.
Elevate has now sold a total of 14,260,000 shares of its common stock in connection with its initial public offering for total net proceeds to the Company, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by Elevate, of approximately $81 million.
Elevate will use approximately $15 million of the net proceeds to repay a portion of the outstanding amount under its convertible term notes, approximately $65 million of the net proceeds to repay a portion of the outstanding amount under its financing agreement and the remainder, if any, for general corporate purposes, including to fund a portion of the loans made to its customers.
UBS Securities LLC, Credit Suisse Securities (USA) LLC, and Jefferies LLC acted as joint book-running managers and as representatives of the underwriters for the offering. Stifel, Nicolaus & Company, Incorporated and William Blair & Company L.L.C. also acted as joint book-running managers for the offering.
RealtyShares, a leading online marketplace for real estate investing, has just released data showing the total amount of crowdfunded real estate investments in Texas. To date $28.1 million has been raised for 31 real estate deals, ranking Texas among the most popular states for investors on the RealtyShares platform along with California and Florida.
Nearly half of all deals funded in Texas to date have been for multifamily properties with a trend favoring equity over debt. Investments have been spread throughout the state, with the most investments centered around the Dallas-Fort Worth Metroplex, followed by Austin and Houston.
Aspire Financial Technologies Announces New Asset-Level Disclosure (ALD) Data and Analytics Module (Aspire Email), Rated: AAA
Aspire Financial Technologies Inc. (“Aspire”), announced today the release of a new Asset-Level Disclosure module that will provide free access to market participants looking to access and analyze loan-level characteristic and performance data for asset pools of US public securitizations. On an ongoing basis, issuers publish these files to the SEC’s Edgar website. They currently cover the asset verticals of auto-loans, auto-leases, and CMBS, but will soon expand to RMBS and other debt securities. The module is part of Aspire’s more broadly focused Gateway TM platform, which enables users to seamlessly research, workflow, monitor, and forecast their consumer or SME loan risk exposure, across multiple use cases.
The release of consumer credit ALD data publicly provides for unique opportunities. For the first time, Aspire Gateway ABS ALD module gives participants the ability to stratify and compile performance views both within individual trusts and across trusts with similar asset pools on the same platform. Aspire released the product with an initial focus on auto loan asset pools, and will be expanding coverage to other verticals with filings on the SEC website. Aspire also makes available individual raw CSV files converted directly from the issuer postings on its platform.
Morningstar Credit Ratings, LLC today assigned its MOR RV1 residential vendor ranking to First Associates Loan Servicing, LLC as a consumer finance servicer. Morningstar’s forecast for the ranking is Stable.
First Associates, headquartered in San Diego, provides third-party loan and lease servicing for originators and institutional investors. The company was founded in 1986 as First Associates Mortgage Corporation. The current management team subsequently acquired the company in 2008 and reformed it as First Associates Loan Servicing, LLC.
The Morningstar ranking is based on a variety of factors, including:
First Associates’ pervasive enterprise risk management culture that consists of consumer finance compliance protocols, internal audit, self-risk assessment protocols, quality assurance, call monitoring scoring and feedback, and a robust vendor management oversight program.
The company engages a third-party auditing firm to produce a SOC 1 audit report on an annual basis.
The effectiveness of First Associates’ servicing platform is evidenced by above-average call center metrics, portfolio volume growth, strong client diversity, and minimal client turnover.
First Associates benefits from a solid technology environment that includes a third-party consumer finance servicing system, a well-defined project management process, effective network security protocols, and a disaster recovery and business continuity plan that leverages the company’s cloud-based infrastructure and multiple office locations for geographic data redundancy and processing.
Real estate crowdfunding is increasingly becoming an alternative to REITs (NYSEARCA:VNQ) for individual investors seeking real estate exposure.
The arguments in favor of real estate crowdfunding are typically the following:
Their deals provide higher risk adjusted returns
Crowdfunding assets are uncorrelated with the stock markets and are hence more stable than REITs.
Below I provide my counter arguments to real estate crowdfunding:
1. If you are not a real estate expert, you cannot perform adequate due diligence to evaluate individual properties for investment.
Most crowdfunding websites directly target individual investors who are not experts in commercial real estate investing or finance in general. The issue is that without these specialized skills, how are you then supposed to properly assess a given deal on a real estate crowdfunding website? It is simply impossible.
2. Success in real estate investing is largely a function of the management team
Lastly, you would have the same issue here concerning due diligence. It is very difficult to perform proper due diligence of the management team when investing through crowdfunding platforms.
REITs on the other hand are very large and have great resources. They can attract the best talent and retain the best in class managers of the whole industry.
3. Crowdfunding deals are riskier in many ways compared to REIT investments.
Private market sponsors tend to use substantially more leverage than REITs and often target riskier properties. While REITs utilize today on average about 30% leverage, it is not uncommon for private investors to use up to 80% loan to value.
Real estate crowdfunding is also highly illiquid and it may be difficult to exit your investment when desired; especially if the real estate market went into a down cycle.
4. Private sponsors may charge high fees
Most REITs are today internally managed and have great scale which reduces the impact of the G&A expenses. Crowdfunding deals, on the other hand, will be sponsored by asset management firms or real estate developers that will want to earn their fees to make a profit.
5. REITs have historically outperformed private real estate investments.
Over the last 40 years, REITs have returned more than 13% per year to investors according to NAREIT.
Today, the National Cybersecurity Society (NCSS) entered into a strategic partnership with Kabbage Inc., an online financial technology company that provides funding directly to small businesses through its automated lending platform.
A recent study by FireEye revealed that 77 percent of global cybercrime affects small and medium sized businesses. NCSS is a non-profit organization created to educate and advise small business owners on the complex and changing world of cybersecurity.
NCSS works with victims of cybercrime, government and businesses of all sizes to help fortify cybersecurity on a continual basis to help thwart evolving cyber threats and to mitigate the effects of cyber incidents when they occur.
The Lenders One® Cooperative, a national alliance of independent mortgage bankers, correspondent lenders and suppliers of mortgage products, has issued the results of the second annual Lenders One Mortgage Barometer, a survey of 200 mortgage lending professionals. According to the 2017 Lenders One Mortgage Barometer, a large majority of lenders (94 percent, up from 62 percent last year) expect an increase in mortgage purchase production.
Continued economic improvement should give first-time home buyers the boost they need to enter the market. In fact, about three in five lenders (59 percent) say it is very likely that there will be an increase in first-time home buyers in 2017. The optimism around first-time home buyers aligns with the recent report from the National Association of Realtors® that showed the share of sales to first-time home buyers grew from 2015 to 2016 and was the highest it’s been since 2013. However, many lenders are predicting some challenges to mortgage industry growth with respondents seeing consumer debt as the highest risk factor this year (41 percent).
Lenders Analyze Growth Opportunities
The populations that are most frequently cited as offering robust opportunity in 2017 include Generation X (86 percent) and millennials (85 percent, up from 79 percent last year). Following closely are nontraditional buyers, those who are in the rental and vacation home markets (84 percent, up from 70 percent last year); boomerang buyers, those people who can now qualify for a mortgage after undergoing a short sale, foreclosure or bankruptcy (83 percent, up from 68 percent last year) and baby boomers (82 percent).
Lenders Identify Strong Jumbo Loan Activity
A large majority of lenders (93 percent) report that they already originate non-qualifying mortgage (non-QM) loans. Bolstering one part of the non-QM market is continued home appreciation, especially in higher end markets, which has created demand for jumbo loans. Indeed, 91 percent of lenders project a significant increase in jumbo loan origination volume in 2017 for their organization.
Lenders’ Take on Emerging Trends
Given the growth of the sharing economy and services such as Airbnb, 82 percent of mortgage lending professionals anticipate an increase in people looking to finance larger homes to take advantage of rental incomes.
The ever-shifting landscape of technology has leaked into mortgage originations.
mello™ is loanDepot’s new digital mortgage platform including the customer facing platform. It serves borrowers, sales, operations, and the entire ecosystem of realtors, builders and the title industry on a single platform that allows us to continuously improve and iterate the experience.
What other kind of technologies aren’t being implemented in the mortgage industry that can be brought in? What do think can be implemented to streamline the mortgage application process?
There are numerous foundational technologies that have existed in the mortgage industry and other related industries for a long time that have limited implementation. In the early 2000s, we saw the first digital mortgage. Since then there has been incremental improvements but limited adoption. E-Sign is another example of technology that has existed for the last fifteen years, also with limited adoption. With the regulatory changes brought on by TRID, they are becoming a little bit more main stream. Technical change requires business drivers, effective change management and a platform to enable adoption.
Since launching in November 2008, team Kabbage has grown its global advanced lending infrastructure to enable small businesses to borrow necessary funds through its direct SMB lending product which has been adopted by banks and non-banks worldwide. The FinTech innovator has provided over $3B since its founding and has raised $236M in equity since its formation as well as more than $1 billion of debt.
Kathryn: The Office of the Comptroller’s “FinTech charter” is an exciting proposition for Kabbage. While the details are still being discussed, there is no denying that Fintech is here to stay when the “Big Bank” regulator is talking about bringing our platform into the mainstream of the U.S. financial system. Folks in Washington should think about what the technology actually does instead of how to box it into a rule or regulation.
Kathryn: Every executive hates uncertainty. We currently interact in one way or another with the FDIC, FTC, SEC, CFPB, SBA, Federal Reserve, OCC and other parts of the Treasury and state agencies. I don’t see that as a very efficient or navigable system, and I think the agencies agree because they are always vying with one another for authority. Washington is in a state of (uncertain) transition, and we hope to make our little slice of D.C. a lot more efficient and work to protect customers’ rights instead of checking boxes.
Europe is a different animal altogether. There is plenty of uncertainty in the EU, but I am not planning on a “Frexit” or a “Beljump” this year. We are chugging along with our European partner banks and preparing for GDPR, the EU’s solution to unified data protection for European citizens. Europeans are pragmatic people. They want to share their data with third parties but also know that the process is safe. Safe and open data is squarely with our culture and goals at Kabbage.
Kathryn: I haven’t been shy about my view on brokers—I generally don’t like them. Kabbage avoids the broker model because we want to interact directly with our customers.
As I mentioned, this is the year of the platform model. I expect to see large and medium banks beginning to integrate with third-party Fintech platforms to better serve their customers and expand their product offerings. It makes economic sense—do what you’re good at (working with customers and managing cheap capital) and partner with other specialized firms for technology and innovation. The U.S. market is amazingly under-tapped from both mega-banks to local institutions and we hope to continue to expand here, Europe and elsewhere.
Kathryn: Our strategic, referral and white label partnerships are vital to driving new customers to Kabbage.
Marketplace lending has been a topic of regulatory and industry conversation for the last several years.
Currently, marketplace lending is attempting to fill gaps still left in credit availability after the financial crisis, especially in small dollar small business loans. In this case, small dollar means $250,000 or less. Community banks have generally provided the lion’s share of small business and agriculture loans in the US, but the financial crisis and the response to it both eliminated many community banks and created a credit crunch. Marketplace lenders have stepped up to fill in the resulting gaps for both small business and personal loans. While the first generation of marketplace lenders tended to be distinct, separate entities, many are now partnering with banks. Marketplace lenders are not the only ones: money transmitters are exploring bank partnerships in order to avoid costly and time consuming fifty state licensing solutions.
Treasury received about 100 responses to its RFI and the white paper is generally positive about the potential for online marketplace lending to expand access to credit. Treasury offers its view of the RFI responses and provides some advice and recommendations for moving forward in this space. It found that online marketplace lending has expanded access to credit, especially small businesses, though the majority of the loans originated were for consolidating debt. The expansion of data used for underwriting was one of the more exciting innovations by online lenders and is being adopted by a larger segment of the financial services industry. However, these “data-driven algorithms” do not provide the borrower the opportunity to correct information and they may result in fair lending violations and disparate impacts. It’s really too early to determine the impact, but the expansion of data and modeling are an area on which Treasury will continue to focus. In addition, online marketplace lending has emerged in the low cost of credit environment during the Obama years; these lenders have not been properly tested during a higher cost of capital environment.
The SEC is also getting into the game on fintech. It has established a Distributed Ledger Technology (DLT) Working Group to investigate the new technology and its potential uses and abuses. Further, the SEC is looking at the growing field of crowdfunding, both its Regulation Crowdfunding equity crowdfunding model and others, including debt crowdfunding. In addition, the marketplace lending market, especially securitisation of loans, is of particular interest to the SEC.
In the US, Cook County, Illinois, is currently running a pilot program to use blockchain to transfer and track property titles and other public records. The Cook County Recorder’s Office is the second largest in the US, so the adoption and success of a DLT system there would likely encourage other states and counties to use the technology.
On top of DLT, the advent of “smart contracts” has the ability to change payments drastically.
While the CFPB’s policy is quite friendly, its no-action letters are not binding on other agencies, so that leaves a fintech company vulnerable to the determination, by another regulator, that it is not in compliance with all relevant laws and regulations. This is obviously true of any agency’s no-action letter, but considering most of the federal financial regulators are having trouble deciding what to do with fintech, many companies may decide not to take the chance of relying on the CFPB’s say-so. Again though, regulating by No-Action Letter is much less desirable than actually going through the Administrative Procedure Act-mandated rulemaking process.
The CFPB is likely the most vulnerable agency in a Trump government. Its broad mandate and limited congressional oversight has made it a target of Trump and Congressional Republicans. While it is incredibly unlikely the CFPB would actually be dismantled, its structure and leadership will almost certainly change, likely relatively early in President Trump’s term. The Court of Appeals for the D.C. Circuit’s recent decision in PHH Corporation, et al. v. Consumer Financial Protection Bureau found the current structure of the CFPB is unconstitutional.
States are also involved in regulating fintech and their role may grow if President Trump follows through on his early moves to cut down on federal regulation.
Meet the most financially challenged generation in American history. There are over 111 million Americans aged 50 and older, confronting a financial future with high anxiety, great struggle, and kitchen table economics that are more complex than any generation has ever faced. Financial decisions are numerous and amplified in importance with longevity. Much is at stake.
Although the 50-plus community represents only 35% of the entire U.S. population, they account for $116.8 billion in revenue in 2017 for the traditional banking industry. They are avid users of digital tools, services, and products, and they are increasingly finding that their needs are not met by the bank offerings alone. As a result, they are turning to alternative financial services and products. For 2017, AARP forecasts the 50-plus consumers will spend $15.3 billion in the fast-emerging alternative financial services sector.
To win over this market, innovators need to:
Remove friction from the user experience
Improve customer service
Proactively deliver personalized insight and advice
Transform consumer financial anxiety into digital empowerment
Influence regulatory change and financial policy to encourage healthy digital disruption
In a new, first of its kind analysis of combined online and offline consumer conversations, Engagement Labs released its TotalSocial rankings on the top performing financial services brands (banks, investment companies and credit card companies) in the U.S.
The analysis finds that, of the conversations taking place about financial services brands, the majority of them are happening offline (face-to-face) as opposed online (social media).
One financial institution that stuck out in particular is Citibank. The financial institution has the biggest discrepancy between its online and offline scores. The bank scores significantly better offline than online through all components measured — volume, sentiment, brand sharing and influence. This is what Engagement Labs calls a Social Misfit, brands that perform strongly offline but not online, or vice versa.
Another brand that stands out in the analysis is American Express. This is a brand propelled by particularly strong offline brand sharing, meaning people are talking about their marketing or advertising efforts.
Peer-to-peer (P2P) lending company Goji is launching the UK’s first diversified P2P lending bonds.
The Goji Diversified P2P Lending Bond is a fixed-term product that spreads risk by investing across a range of P2P lending platforms. It is eligible for inclusion in an Innovative Finance ISA. The one-year fixed-term bond has already launched, while the three-year bond is set to launch in April or May, with the five-year bond following soon after.
He said the current fund contains around 600 companies, ‘so there’s loan diversification’. Goji targets a 5% annual yield, and said the current yield after fees (after three months for the one-year bond) is 6.8%.
Phil Young, managing director of support services provider Threesixty, has concerns. ‘Advisers should steer clear of these products,’ he said. ‘It has an impact on PI [professional indemnity] insurance, as these insurers are sceptical of P2P lending.
Numerous advisers have also voiced concerns. ‘I don’t think the market is mature enough,’ said David Bashforth, partner at Derbyshire-based Belmayne Independent. ‘It’s untested in a downturn,’ said Mark Begg, director at London-based Mark Begg Asset Management. ‘We would need at least a three-year track record,’ said Andrew Brady, director of East Sussex-based Prosperity IFA.
New rules aimed at “robo advisers” have been set out by the Treasury and the City watchdog as part of their efforts to make financial advice more widely available.
The guidelines are intended to free online providers from the heavier regulation associated with traditional financial advice, making it easier for them to offer low-cost help for less wealthy investors.
The regulator said it wanted to encourage the growth of “robo-advisers” — websites that suggest investment portfolios to investors based on online questionnaires — as a way to offer investment help to a greater number of people.
An originator participating in independent verification of their data is motivated to continue to source good and well-priced assets, because the track record is there, in a clear and concise format, for all to see.
But there’s little transparent about dumping megabytes of data on investors and thinking you can go to sleep at night with a clear conscience, not in the era with the data aggregation and interpretation capabilities of ours.
This added transparency is especially necessary now that marketplace lending is out of the novelty stage and beginning to scale, Mr. Taylor said. It is no longer enough for platforms to originate assets which were previously hard to access. Investors need to be able to definitively understand what return the assets have delivered historically and to identify originators that have an ongoing motivation to keep originating assets based on quality not quantity.
Equally interesting is that Funding Circle, Zopa, MarketInvoice and RateSetter, the UK platforms that provide this enhanced disclosure, have gained market share relative to the rest of the market. Having represented 65% of UK market origination when they began to offer this disclosure, they now represent 75%.
Fleximize, a London, UK-based revenue-based finance provider, closed a £16.3m financing facility.
Hadrian‘s Wall Secured Investments Limited, a specialised investment fund, provided the financial resources.
The company intends to use the funds to increase its lending capacity, towards its goal of lending over £100m to SMEs by 2019, to further develop and diversify its product offering, and continue to advance its proprietary technology platform with the introduction of dedicated areas for brokers and direct clients.
Christopher Woolard, the FCA’s director of strategy and competition, said in a speech earlier this week that that some regulators are using “sandboxes” to let fintech companies operate with little or no supervision.
Woolard said in a speech at the Innovate Finance Global Summit in London on Monday:
“But in a world where many governments and regulators have begun to show an interest in innovation there are challenges.
“As different jurisdictions begin to set up their own sandboxes, with different models and standards, some believe a ‘Wild West’ version could emerge.”
The Treasury said ahead of the event that the UK’s fintech sector — which includes everything from online lending to applying blockchain to capital markets — is now worth £7 billion to the UK economy and employs 60,000 people.
While UK VC investment may be up, European funding has fallen however. The KPMG Venture Pulse Q1 2017 revealed UK VC investment over the quarter reached $1.02bn, having dropped to under $1bn in Q4.
That was achieved despite a lower number of completed deals, with 196 secured versus 219 the previous quarter. KPMG suggested the “robust levels” of UK VC investment signals optimism and confidence for British business this year despite Brexit.
Imbach pointed to financial services, life sciences and biotech as key sectors where startups are securing UK VC investment and highlighted firms such as Currency Cloud, Funding Circle and Atlas Genetics.
While UK VC investment rose in Q1, there was a fall in VC investment across Europe overall, reaching $3.4bn, which was attributed to fewer angel and seed rounds. Meanwhile, deal volume was at its lowest for five quarters.
China’s Banking Regulatory Commission (CBRC) issued its Guiding Opinions on Risk Prevention and Control in the Banking Sector yesterday, requiring banking institutions to step up risk prevention efforts related to internet finance businesses, focusing on ten types of high-priority risks. The P2P lending risk rectification program will be pushed forward, alongside the clean-up of student and microcredit businesses.
The regulator called for an effective clampdown on illegal student loan operators. Online lending agencies are prohibited from offering loans to people failing to meet the minimum income requirement, or to students aged under 18. They are also banned from engaging in misleading marketing or sales activities, or extending usurious loans.
With microloans, online lending agencies must ensure the legitimacy of funds provided by lenders in compliance with the law, and fraudulent marketing is prohibited. Provisions laid down by the supreme court regarding interest rates on private loans must be rigorously observed to prevent usury and the use of violence in debt collection.
To ward off risks associated with illegal fund-raising schemes, the CBRC required regulators at all levels to ramp up investigation into illegally-established banking organizations, and suppress illegal absorption of public funds and illicit lending businesses carried out under the guise of banking services.
News Comments Today’s main news: Lending Club wins motion to compel arbitration, avoids class action. Orchard: Q3 originations move up. A quiet crash in bank lending? Abundance IFISA attracts nearly 10m GBP investment. Dubai regulates first P2P lender. Today’s main analysis: The Velocity of money. Today’s thought-provoking articles: SFIG Vegas 2017 recap. Legacy banking systems are the risk. Indian FinTechs attracting […]
Lending Club (LC) wins motion to compel arbitration, avoids class action. GP:”While the agreement between Lending Club and the borrower was supposed to compell arbitration, the industry was concerned that a ruling could override that clause of the contract. Had that been the case the cost of disputes would have been much higher, which is great for the attorneys but not that good for anybody else. We are glad the arbitration clause held the scrutiny of the court.” AT: “This is a huge plus for Lending Club, and for all platforms.”
AltFi adds Prosper to AltFi Data Analytics platform. GP:” A good validation point for AltFi Data. We continue to believe that data transparency is a must in order for the industry to succeed. We would like to see more student loan, SMB lending data and Real Estate Crowdfunding Data. I strongly believe that Lending Club’s openness with their data put this industry on the map. And for Prosper having a 3rd party independent company validate and publish their own research on their raw data also should serve as an addition point of confirmation and comfort for anybody doing business with them.”
How the velocity of money affects economic growth. GP:” Inflation is controlled by inventory of money and velocity of money. This piece means that inflation is still nowhere in sight, which should affect decisions on central interest rates. And interest rates are at least a little bit important for our industry. ” AT: “Some interesting points, but it isn’t good news for optimism.”
REITs vs. RECF. AT: “Again, a good read, but not favorable toward RECF. Actually, this piece attacks head on the selling point RECFs use to attract investors over REITs. Investors shouldn’t make decisions based on sales pitches, anyway.”
A quiet crash in bank lending. GP:”Net loans to small businesses by the largest UK banks fell by a hefty £536m from December to January. Gross lending by the banks in question fell further still, nosediving from approximately £5.1bn in December to £4.05bn in January. I continue to say that we should compare Dec 16 vs Dec 17 and Jan 16 vs Jan 17, to take into account seasonality in the lending business. P2P volume of 208m GBP is therefore now roughly 5% of the UK bank lending market. “AT: “An excellent read.”
Lending Club (NYSE:LC) has was a significant court victory regarding its ability to compel arbitration. The case Bethune v. LendingClub Corp. was filed in the Souther District Court of New York in 2016.
The issue pertained to the interest rate a New York resident was being charged (29.5%). The amount was higher than the statutory limit of 16% under New York’s usury laws. The judge presiding on the case sided with the defendant, Lending Club, by granting the motion the motion to compel arbitration on an individual basis and thus stayed the case pending the outcome of the arbitration. The decision also means Lending Club will dodge a class action lawsuit.
AltFi Data Announces the Addition of Prosper Marketplace to the AltFi Data Analytics Platform (AltFi Data Email), Rated: AAA
AltFi Data today announced that it has added the Prosper loan portfolio historic origination data to AltFi Data Analytics USA. The data for loans originated through the Prosper platform can now be presented according to AltFi Data’s established standards. This allows investors to review a track record of net return, together with all supporting metrics, to perform like-for-like analysis against the other marketplace lending platforms that make up AltFi Data Analytics UK – including Zopa, Funding Circle, RateSetter and MarketInvoice.
The availability of standardized data will further facilitate the due diligence that ultimately drives investor adoption of this asset class. The addition of loan data from the Prosper platform also represents the first time that a viable comparison has been made available across geographies.
Prosper Marketplace Net Return to the AltFi Data Marketplace Lending Returns Index methodology
The 12 month trailing net return that investors have achieved through Prosper Marketplace can now be reviewed based on the same standard as the major UK platforms. In addition to analysis of net return, AltFi Data also provides further analytics covering lending rates, bad debt, arrears, term, gross origination, and net lending/change in outstanding principal.
Back in the 1980s and 1990s, politicians could always count on having their debts and spending programs bailed out by economic growth. Politicians are expecting the same thing today. All they talk about is how they will spend money to grow the economy, and the economic growth will wipe out the debt. It’s a fairy tale that used to work at the end of the last century, in a generational Unraveling era, but stopped working about 13 years ago when we entered a generational Crisis era.
What nobody wants to talk about is the velocity of money. This indicates the rate at which people are willing to spend money. You can’t have economic growth if people aren’t willing to spend money, which means that the velocity of money would have to increase. Instead, we have this:
When the real estate bubble burst in 2007, and the financial crisis occurred, millions of people went bankrupt or lost their homes. At that point, people stopped spending money. They used what money they had to pay off their debts and save money. As a result, the velocity of money has continued to fall steadily since then, just as it did during the Great Depression and World War II.
Investors who are pushing the stock market to new parabolic heights are completely oblivious to the fall in the velocity of money, and in fact have the vaguest clue what it means. Similarly, they’re oblivious to the debt ceiling crisis that’s approaching.
Orchard’s platform published their quarterly report a few days back covering Q4 of 2016. According to Orchard, loan volume increased in Q4 reversing a trend that began in Q4 of 2015. While originations ticked up in Q4 versus Q3, they are still nowhere close to where they were back in Q4 of 2015 where they hit an all-time high of more than $3.8 billion.
According to Orchard:
Loan originations totaled $2.045 billion in Q4. In Q3 of 2016, loan originations came in at $1.85 billion
2014 and 2015 vintage charge-offs have increased more steeply than in prior years.
Borrower rates continued their decline in Q4, falling another 42bps from Q3 levels, largely due to a sharply falling share of subprime originations in the second half of 2016.
The SFIG Vegas conference set an attendance record this year, mirroring improved investor sentiment amidst an improving economic backdrop. Several participants drew comparisons to the 2004 environment which also featured a rising rate environment, deregulatory agenda, and conditions leading to an acceleration in ABS volumes.
On the regulatory front, the US District Court of the Southern District of New York issued a decision in Madden v. Midland on remand.
Money360 is experiencing rapid growth in the marketplace lending sector for real estate. Recently Money360 announced it had surpassed $200 million in commercial real estate loans after exceeding $100 million last August. Money360 expects to top $500 million in real estate financing by the end of the year representing a rapid acceleration for the peer to peer lending site. Money360 launched in California in 2010 and expanded across the US two years later.
The company looks to provide financing for real estate loans between $200,000 and $5 million.
When searching for ‘REITs versus Crowdfunding’ on Google, one can quickly find many different Crowdfunding websites trying to sell their product in a very biased manner relative to REITs. The main arguments that they seem to make are always the same: REITs are not real estate, REITs are riskier, and REITs are therefore less attractive than real estate crowdfunding investments. I disagree with all these points and will aim to explain why REITs offer in fact much superior investment characteristics compared to any crowdfunding platform.
MYTH #1: REITs are not real estate
Crowdfunding websites make sure to quickly point out that REITs are traded in the form of stocks to try to scare investors away from these supposedly “highly volatile and risky” investments. On the other hand, crowdfunded real estate investments are independent of the stock market and are hence pure real estate.
While this is true, it is in my opinion very unreasonable to assume that REITs are less of a real estate investment than crowdfunded deals simply because of how they are traded.
MYTH #2: REITs are riskier
REITs offer the opportunity for investors to invest in broad and widely diversified portfolios of properties in a liquid and cost efficient manner. Crowdfunding websites, on the contrary, allow you to invest in a concentrated, illiquid and often cost inefficient manner with potentially higher conflicts of interest between sponsor and investor.
Crowdfunding investors are also able to diversify by investing small sums in multiple deals. But this will never achieve the same scale as investing in REITs, which (often) own thousands of properties across different property types and geographical locations.
MYTH #3: Crowdfunding is superior to REIT investments
You are at the mercy of the deal sponsor and pure luck. Real estate is a local business and if you are not actively involved in the local market, you simply cannot assess an individual property investment. You need to be able to analyze the macro and micro location, the surrounding infrastructure, the growth trends, the demand and supply factors, etc.
This is the beauty of REITs: You do not need to know everything; you have a professional management team taking care of all the operational work.
My conclusion: If you are not a professional real estate investor, forget any form of private real estate investing including crowdfunding. And even if you are a professional investor, you might be better off investing in REITs.
One company looking to help with that advice is Cinch with its on-demand app. We sat down with Cinch’s cofounder and head of company development, Kerri Moriarty, to learn more about how the company is helping guide everyday financial consumers with on-demand finance advice.
KM: Cinch is about making it easy for everyone to have access to unbiased financial advice, specific to their personal situation.
KM: Cinch comes with a free trial and then has a monthly fee for continued use. We think of it like a true client and advisor relationship. To truly remain unbiased, we ask customers to pay a fee.
KM: There are some budgeting and credit card tools like Mint or NerdWallet that we consider competitive that offer on-demand financial recommendations, but hardly any do so in the context of consumers’ entire financial situation. We think there is a big opportunity for Cinch to be one of the first companies in the FinTech space to offer a dedicated and unbiased financial advisor anytime it’s needed.
KM: We’ve definitely learned a lot along the way. I think one of the most important lessons learned, especially when it comes to tech or software, is that it’s important to just get something out in front of users. The longer you wait to test designs or features or even launch your product, the more risk you have of something “better” coming along or the needs of your customers changing.
Net loans to small businesses by the largest UK banks fell by a hefty £536m from December to January, according to the latest statistics from the Bank of England. It’s by far the biggest retrenchment in SME lending in the past two years, which is as far back as the data set stretches.
Gross lending by the banks in question fell further still, nosediving from approximately £5.1bn in December to £4.05bn in January. The figure for January is, again, by some distance the lowest figure for monthly gross lending by the banks to SMEs over the past two years.
Brexit may well lie at the root of the problem. It’s no secret that the banks have been pulling back from certain segments of the small business lending space since the UK’s vote to leave the European Union, but the January drop-off is by far the sharpest we’ve seen.
Funding Circle, the world’s largest marketplace lending firm for small businesses, lent £103m in January (£50m net). Meanwhile the peer-to-peer lending sector as a whole lent £208m during that same period, according to AltFi Data. There are then a raft of balance-sheet based alternative lenders, which are also lending millions of pounds to SMEs each month.
ABUNDANCE has attracted almost £10m of investment into its Innovative Finance ISA (IFISA), the peer-to-peer lending platform’s managing director has revealed.
Davis said £6.5m has now been invested and £3m is being held in a new cash holding account launched last month, which pays two per cent interest, in anticipation of new projects coming onto the platform.
Crowdstacker last month revealed it was attracting £7,000 on average in its IFISA, which is just above the average subscription of £6,338 across cash and stocks and shares ISAs in the 2015-16 tax year.
Bricklane.com offers a property Isa that buys buy-to-lets with cash and provides a return based on rental income and capital appreciation.
Landbay, on the other hand, is a peer-to-peer lender that allows landlords to borrow from private investors so they can purchase buy-to-lets. Returns are generated as the landlord repays the loan with interest.
It’s possible to put some peer-to-peer investments into the new innovative finance Isa, with many of these set to launch in April.
If you do consider investing, make sure that you do your own research, question any suggested returns carefully and weigh up the fees that are charged, which will eat into any money that you make.
Simon Heawood, chief executive of online Property ISA Bricklane.com, replies: People often like the security of investing in real bricks and mortar, and it has historically delivered strong returns – around 9.6 per cent a year through a combination of price growth and rental income.
You should remember though that property prices can rise and fall, and rental income isn’t guaranteed, so as with all investing, you need to do your research and invest sensibly. Any investment platform should clearly explain the risks to you and you need to make the decision that’s right for you.
If you’re looking for a simple way to invest your money in the property market, then you might want to have a look at something like our residential property Isa, which launched last autumn.
It is similar to an investment Isa and offers the same tax benefits as both a cash and stocks and shares Isa.
However, rather than returns being linked to interest rates or stock performance, they come from rental income and property price changes. As an example, whilst the best cash Isas are currently offering returns of between 0.9 per cent and 1.3 per cent, our Bricklane.com property Isa is presently delivering an average return of 3.5 per cent from the rental income alone.
Unlike crowdfunding, it can be included within a £15,240 2016/7 Isa allowance. If you find a property Isa that also uses the Real Estate Investment Trust (REIT) structure, then it will give you even greater benefits, with zero tax to pay on property price increases and rental income.
John Goodall, chief executive of buy-to-let peer-to-peer lender Landbay, adds: Your situation sounds similar to that faced by a growing number of people, keen to reap some of the well-publicised rewards from the UK property market, but without getting directly involved with the demands of owning, renovating or renting yourself.
As you rightly say, investing through a platform that lends to property developers, such as LendInvest is one obvious option – these loans help finance mid to large scale developments and offer returns of around 4 to 8 per cent depending on the risk you’re willing to take on.
Property development is a relatively higher risk investment than buy-to-let, there all manner of complications that could potentially derail a development project, but the returns do typically reward the higher risk.
For those after a more secure route into property-backed peer-to-peer, the buy-to-let sector is another option. A few platforms now allow investors to lend money to a diversified pool of buy-to-let mortgages lent to experienced and professional landlords.
Not only has this proven itself to be statistically the lowest risk sector in the peer-to-peer mix, but the demand for rental property is growing at pace, as the UK’s housing shortage leaves millions of people unable to buy a property outright.
Landbay for example lends solely to experienced and credit-worthy landlords and as such is positioned at the conservative end of the market, offering interest of up to 4 per cent, with many layers of protection for investors’ money.
With four adult Isas now available, you could be confused as to which one is right for you.
The total amount of money you can invest in one or more Isas is capped at £15,240 for the 2016/17 tax year. However, this limit will rise to £20,000 for the new tax year, which starts on 6 April.
You can save all or part of your annual Isa allowance into a cash Isa.
These accounts are available from banks, building societies and credit unions and can take the form of an easy access account, notice account or a fixed-rate bond.
Right now the top rate on an easy access account is 1.05% from Paragon Bank which you can open with £1.
Suitable for: Anyone uncomfortable with risk and willing to accept a lower rate in return for security.
Stocks & shares Isas
Alternatively you can invest all or part of your annual ISA allowance into a stocks and hares Isa.
You should only really invest in a stocks and shares Isa if you are happy to take a risk with your savings as investments can go down as well as up in value.
Suitable for: Long-term investors who are happy taking on an element of risk in order to get a potentially better return.
Innovative Finance Isas
Investors can use an Innovative Finance Isa to get tax-free returns from the money they put into peer-to-peer loans made via platforms like Lending Works and Landbay.
What kind of returns can you get? Annoyingly, most of the biggest peer-to-peer lenders, including Zopa and RateSetter, have yet to launch their Innovative Finance Isas.
However, you can get a rate of 7% at Crowdstacker.
Suitable for: Investors who understand the risks involved with peer-to-peer lending and crowdfunding.
Help to Buy Isas
The Help to Buy Isa was launched to help first-time buyers save a deposit for a home worth up to £450,000 in London or up to £250,000 in the rest of the country.
You can save up to £200 a month into a Help to Buy Isa (or £2,400 a year) and when you first open an account you can deposit a lump sum of £1,200. The money you save will boosted by a government bonus of 25% when you come to buy your first home.
Suitable for: Aspiring first-time buyers trying to build up a deposit. Ideally able to set aside money each month rather than in a lump sum.
Every once in a while the financial community gets itself in a fluster about fintech. Mark Carney, governor of the Bank of England, is the latest person to raise concerns about the technology. Speaking at a G20 conference in Berlin, Carney said fintech presented “systematic risks” to the banking system, hinting that the next financial crisis could be caused by tech. The usual reasons were rolled out: liquidity, risk of cyber attacks, and the ability to subvert anti-money laundering laws.
Many bankers are mortally scared of new technology; of changing their systems or reforming the way things are done.
Secondly, you can’t ‘contain’ the reach of fintech.
The truth is that technology can actually make banks and the financial system safer.
Regtech allows regulatory officers in investment banks to detect suspicious figures submitted by potentially rogue employees; banks to detect hidden signals in their data which might suggest fraudulent activity or money laundering; and regulators to monitor the early warning signs of crises.
New machine learning technology also gives us the power to monitor the financial markets in real-time, looking for telltale warning signs of crises, and alerting regulators and officials when something needs investigating more thoroughly with a human eye.
The irony is that the real risks lie in the legacy core banking systems that many of our banks run on.
RateSetter, the nation’s second-biggest peer-to-peer lender, has wooed former ING Direct chief Vaughn Richtor to accelerate the fintech company’s quest to gain scale and take on the big banks.
The appointment expands RateSetter’s board to five, including co-founder of the British group Peter Behrens, chief of the Australian arm Daniel Foggo, Stratton Finance boss Rob Chaloner and Martin Dalgleish.
When money and technology is gender agnostic, then any space of the business cannot be gender bias towards women, be it fintech. However, the smart phone penetration happening rapidly across the country and fintech has become a vibrant space before and after the demonetization. Now we see more number of women entrepreneurs venturing in fintech space.
There is no more talk of absence of women entrepreneurs instead the focus is on their competencies and equipping them to be more competitive and exploring the potentials.
Indian women are very good money manager, responsible investors and wealth creators in the world. In the fintech space women can be a great leader and rise to the top of the hierarchy with the help of regular mentorship.
In India Inc the participation of women as an entrepreneur and board of director is just 8 percent compared to 33 percent globally.
Credit Suisse has announced, “enhancements” to its digital private banking platform in Asia by partnering with Fintech company Mesitis Pte Ltd to provide its clients the ability to access “Canopy”, an automated account aggregation platform and reporting solution through Credit Suisse’s digital private banking platform.
Dubai-based Beehive said on Sunday it had become the first peer-to-peer lender to become regulated by the Dubai Financial Services Authority (DFSA), the regulator for the Middle East and North Africa’s largest financial centre.
Beehive is one of the few peer-to-peer lenders in the region. Nearly 4,500 investors have provided more than 75 million dirhams in loans via Beehive since the platform launched in November 2014.
The DFSA last month launched a consultation on its proposed framework for regulating loan-based, crowdfunding platforms.