Friday June 23 2017, Daily News Digest

fintech Australia

News Comments Today’s main news: KBRA assigns preliminary ratings to SoFi Consumer Loan Program 2017-4. Lending Club closes $279.4M self-sponsored securitization. Wellesley directors paid over 900K GBP last year. Renren’s Q1 results. Harmoney hits $500M. Vindi, Smartbill merge. Today’s main analysis: Recent Fed credit survey exposes clear small business financing opportunities Today’s thought-provoking articles: How the P2P sector has fared […]

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United Kingdom

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News Summary

United States

Kroll Bond Rating Agency Assigns Preliminary Ratings to SoFi Consumer Loan Program 2017-4 (BusinessWire), Rated: AAA

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to two class of notes issued by SoFi Consumer Loan Program 2017-4 LLC (“SCLP 2017-4”). This is a $499.5 million consumer loan ABS transaction that is closing on July 5th, 2017.

Initial credit enhancement levels are 22.69% for the Class A Notes and 12.77% for the Class B Notes. Credit enhancement consists of overcollateralization, subordination (in the case of the Class A Notes), excess spread and a reserve account funded at closing.

Preliminary Ratings Assigned: SoFi Consumer Loans Program 2017-4

Class Preliminary Ratings Principal Balance
A AA (sf) $443,000,000
B A (sf) $56,500,000

LendingClub Closes $ 279.4 Million Self Sponsored Securitization (Crowdfund Insider), Rated: AAA

LendingClub (NYSE:LC) has announced its first first self sponsored securitization deal had closed. Announced after the market closed, Lending Club issued $279.4 million in notes backed by consumer loans originated on the LendingClub platform. The Consumer Loan Underlying Bond (CLUB) NP Credit Trust 2017-NP1 (CLUB 2017-NP1) was described as marking the start of LendingClub’s securitization program as Sponsor, Servicer and Administrator.

Kroll rated the securities that included $162.4 million of Class A notes rated “A- (sf)”, $41.2 million of Class B notes rated “BBB (sf)” and $75.7 million of Class C notes rated “BB (sf)” backed by approximately $337 million of collateral.

In a separate note, LendingClub also announced that Brad Coleman, Principal Accounting Officer and Corporate Controller, will be resigning from his position as Principal Accounting Officer to pursue other opportunities, effective on August 10.

There’s A New Way To Pay For IVF, But No Guarantee It’ll Pay Off (BuzzFeed), Rated: AAA

Future Family, which officially launches on Thursday, aims to make the complicated, expensive, and emotionally fraught world of fertility treatments “accessible and affordable,” in the words of CEO Claire Tomkins, a former SolarCity executive. “We think of it as modern insurance for a woman,” she told BuzzFeed News.

Because most insurance plans don’t cover these services, fertility patients tend to have high incomes to begin with. In one survey by FertilityIQ, an online advice resource for patients, 42% reported yearly earnings between $100,000 and $199,999. But not everyone has necessarily saved enough to comfortably afford IVF, which costs around $20,000 on average, according to FertilityIQ. In a 2015 Prosper-commissioned survey of 213 US women, 84% said they had financial concerns about their treatments, and nearly half said that those concerns affected how much treatment they pursued.

Future Family’s standard IVF plan, which covers one cycle, is $250 a month, with no down payment. Customers can sign up for a minimum of 5 years and a maximum of 10 years, making the total cost at least $15,000. That would be cheaper than the national average cost of $20,000. The top-tier plan, which covers one cycle as well as egg storage, costs as much as $33,000 ($275 a month for up to 10 years).

Meanwhile, Future Family’s top-tier egg-freezing plan costs as much as $21,000, at $175 a month for up to 10 years of storage. FertilityIQ’s Anderson-Bialis estimates that, nationwide, egg retrieval and freezing costs average $16,000, while storage costs about $3,700 for five years.

Two years ago, Prosper, a peer-to-peer lending service, purchased, for $21 million, a lender with loans for fertility and other non–insurance-covered medical procedures. And in 2014, LendingClub spent $140 million on a similar acquisition. Its fertility loans range from $2,000 to $50,000, while Prosper’s go as high as $100,000.

One year in: How JPMorgan is transforming small-business lending (Tearsheet), Rated: A

For JPMorgan Chase, small business is big. The bank is among the third top lender of Small Business Administration loans by unit in the U.S.

As of May, Chase approved 2,375 loans in 2017 for a total $679 million. But beyond SBA loans, the bank also extended more than $24 billion in credit to 4 million small business customers in 2016 through its business banking, Ink from Chase credit card and commercial term lending. In each of the last four years, it’s extended more than $19 billion in new small business loans.

After the recession, the largest U.S. banks, Chase itself included, halted most of their small business lending, later creating the opportunity for online lenders to enter the market — like Bond Street or OnDeck. Last year, JPMorgan began using OnDeck’s technology for its Chase Business Quick Capital product, a  short-term, quickly funded small business loan. It was one of the first banks to embrace a partnership-type relationship with a fintech startup, at a time when the industry narrative still focused on startups’ potential to displace banks.

Lending Club Decision Provides Guidance For Bringing Section 11 Claims Based on Weaknesses in Internal Controls (National Law Review), Rated: A

We have been following defendants’ motions to dismiss in the In re Lending Club Securities Litigation class action, No 3:16-cv-02627-WHA, in the United States District Court for the Northern District of California (“the Lending Club Litigation”).

As the Supreme Court noted in Omnicare, generally a plaintiff pursuing a claim under Section 11 “need not prove . . . that the defendant acted with any intent to deceive or defraud.”  However, defendants in the Lending Club Litigation argued that plaintiffs’ claims under Section 11 sounded in fraud because they employed the same factual allegations to allege fraudulent conduct under Section 10(b), and therefore needed to satisfy the heightened pleading standard of Rule 9(b), which requires plaintiffs alleging fraud to state with particularity the circumstances constituting fraud.

Plaintiffs argued that their Section 11 claims were not grounded in fraud and therefore did not need to satisfy the heightened pleading standard of Rule 9(b).

Despite this holding, the Court found that lead plaintiff had “met that heightened pleading standard with respect to three of its Section 11 claims.”  Id.  In particular the court held that lead plaintiff adequately pleaded its Section 11 claims relating to representations at the IPO regarding (1) the strength of Lending Club’s internal controls and financial reporting, (2) its relationship with Cirrix, and (3) its data integrity and security.[1]

Henry W. Ramsey Acquires 9,500 Shares of Elevate Credit Inc (ELVT) Stock (Transcript Daily), Rated: A

Elevate Credit Inc (NASDAQ:ELVT) insider Henry W. Ramsey purchased 9,500 shares of the stock in a transaction on Friday, June 2nd. The stock was acquired at an average cost of $7.17 per share, for a total transaction of $68,115.00. Following the completion of the acquisition, the insider now owns 9,500 shares of the company’s stock, valued at approximately $68,115.

Banks Going Digital – Transforming Branches, Apps and a Focus on Customer Experience (Lend Academy), Rated: A

The big banks have all started to understand that the traditional way of banking is a thing of the past. Keynote speaker Yolande Piazza, CEO, Citi Fintech talked about disrupting from within, changing how they operate to enable the customer and move to a mobile first approach. She explained how this approach is radical for a bank and the layers of compliance did not make the transition smooth. They have completely rethought how they hire, 50 percent of their fintech talent is from outside the company.

Other interesting areas to note while at the event were BioCatch’s innovations in cyber security with keystroke and mouse analysis along with behavioral biometrics. New payments provider Zelle launched with 40 partners, including 34 top level banks, to allow consumers to send and receive money in minutes. Banks are starting to become innovation hubs and fintech companies, once seen as competitors in the past, are helping the banks make this transformation.

Leading fintech companies like SoFi, Lending Club and OnDeck provide a template for a better customer experience and banks are taking notice.

Recent Fed Credit Survey Exposes Clear Small Business Financing Opportunities (Forbes), Rated: A

The Federal Reserve just published its 2016 Small Business Credit Survey examining the current small business conditions and credit environment. The Fed found that although big banks are still the major lenders, small business owners are having trouble accessing credit and are therefore looking elsewhere. However, while many small businesses are turning towards online lenders, SBA loans are largely underutilized.

Overall, 10,000 surveys were completed by employer firms across all 50 states. Of those surveyed, roughly half were profitable and almost two-thirds expected their revenues to grow over the coming year. Even job growth looked good, with 39% of small businesses expecting to add jobs within the next year.

PayPal has jumped into the alternative lending game and now finances as much as $3 billion in total small business capital. What’s more, PayPal recently increased its maximum financing limit to $125k, meaning that a majority of small businesses who applied for credit in 2016 could fulfill their financing needs with PayPal.

Online lenders like SmartBiz have a 62% approval rate, on average.

The Fed’s survey found that CDFIs had a 77% approval rate and small banks had a 67% approval rate. Both of these rates higher than many online lenders that are known to typically have some of the easier qualifications.

By comparison, the overall approval rate among larger banks is 54% and 46% among credit unions.

Banks should avoid replicating their millennial strategy for Gen Z (American Banker), Rated: A

Facebook chatbots (kids love messaging apps!), smartphone-enabled ATMs (they spend so much time on their smartphones!) and an on-demand ATM on wheels that will come to you (Uber is the only way to get around!). Not only are these investments failing to resonate with millennials, but the money spent is also failing to plan ahead for the next generation: Generation Z.

Born between 1995 and 2010, Gen Z consumers are looking for something more than simple digital updates: They are looking for a partner that offers them solutions for all pieces of their financial life, including their pressing concern over mounting college debt. In fact, offering “digital” solutions to traditional banking products will not be enough to impress Gen Z, as they are the first to grow up in the post-digital era, giving them high standards for technological capabilities.

Gen Z is also a highly skeptical generation with little brand loyalty; if they see a well-researched, proven option available to them, they will have no hesitation jumping ship or avoiding traditional providers altogether. Whereas 45% of millennials favor loyalty programs, only 30% of Gen Z consumers do. In fact, 41% of Gen Z say they would consider banking services from digital power players like Google, Amazon, Apple or Facebook because they are brands that they interact with daily and trust.

Acting comptroller’s wish list echoes long-held demands by banks (American Banker), Rated: A

In his first testimony to Congress, acting Comptroller of the Currency Keith Noreika is set to submit a laundry list of detailed proposals to loosen regulatory restrictions on financial institutions of all sizes — recommendations that appear to jibe with those made by the Treasury Department this month.

Noreika is offering 17 specific legislative proposals that echo the banking industry’s wish list for regulatory reform.

LendingTree Subsidiary Purchases MagnifyMoney (Crowdfund Insider), Rated: A

LendingTree, Inc. (NASDAQ: TREE) announced on Tuesday its subsidiary, LendingTree, LLC, has acquired the company behind consumer-facing media property platform, MagnifyMoney. This news comes just days after LendingTree announced it acquired DepositAccounts.com.

According to LendingTree, the acquisition purchase has a possible total consideration of $29.5 million, which consists of 29.5 million in cash at closing, and contingent consideration payments of up to $10 million.

A former cohead of tech at Goldman Sachs has joined a startup that wants to be the iOS of Wall Street (Business Insider), Rated: A

Paul Walker, the former cohead of technology at Goldman Sachs, has joined the board at OpenFin, a startup that helps electronic-trading firms build their desktop applications.

Bain Capital Ventures, Pivot Investment Partners, and Nyca Partners have already invested in OpenFin, as have the likes of Cris Conde, former CEO of SunGard, and Tom Glocer, former CEO of Thomson Reuters.

Walker retired from Goldman in 2016 after 15 years with the Wall Street titan. Walker joined the firm in 2001 as a vice president in FICC strategies. He made partner at the firm in 2008.

OpenFin is looking to become Wall Street’s version of what the iOS and Android platforms are to the mobile application space.

Orchard Platform Pivot? Not So Fast. (Crowdfund Insider), Rated: A

Earlier this week there was note circulating the Orchard was in the midst of a pivot.  Specifically, the report said Orchard was pivoting from a data/analytics platform to a loan trading platform. This was interesting as the secondary transaction platform for securities based on online loans has been in the works for quite some time.

“We have wanted to have a trading platform for years now,” said Matt Burton, CEO and co-founder of Orchard. “I am not certain where that came from. We have always wanted to facilitate [secondary] transactions. We still have the same vision.”

LENDonate Changes The Game of Nonprofit Financing by Creating Swift Access to High Quality Loans (PR.com), Rated: A

LENDonate, a fintech company, today announced the launch of its distinct hybrid, online lending platform for 501(c)(3) nonprofits. The first-of-a-kind, hybrid platform uses an innovative process that lets nonprofits source loans and donations simultaneously. LENDonate unites nonprofits with lenders, including financial institutions, philanthropic organizations, and accredited investors for quick funding of high-quality, low cost loans. LENDonate is the only marketplace lending platform that enables nonprofits to effortlessly expand their donor base while financing major projects or smoothing out uneven cash flow.

LENDonate was founded by Vivienne Hsu, CEO, a seasoned investment professional and nonprofit fundraiser. She was motivated by a desire to improve nonprofits’ access to the low-cost funding, while providing high-quality, socially impactful investment opportunities for banks and philanthropists.

Which Loans Can Help You Expand Your Small Business? (NASDAQ), Rated: A

Below is an exhaustive list of documents that your lender may request. Online lenders are less stringent and may ask for less, while traditional banks will want the entire suite. Also expect lenders to pull your personal credit score and your business credit score as part of the approval process.

  • Personal financial statement: This SBA form requires you to list your personal assets (cash, investments, real estate and cars) and liabilities (mortgages, other debts and unpaid taxes). Private lenders may ask for a similar statement.
  • Business certificate/license
  • Business plan
  • Loan application history
  • Income tax returns
  • Resumes
  • Business lease

The Small Business Administration (SBA)—which guarantees a percentage of the loan amount to banks rather funding directly—is particularly helpful for expansion loan options. The SBA will guarantee up to 85 percent of loans for as much as $150,000 and up to 75 percent of loans over $150,000. A small SBA loan of $25,000 or less can get an 8% interest rate with a payment term of fewer than seven years. The rate on a loan over $50,000 can drop to as low as 6.5% with the same payment terms. Some banks may offer private loans, but their requirements are even stricter than those of the SBA.

Online lenders offer loans with higher rates. But the online lenders often have a faster approval process than banks originating SBA loans.

Another borrowing source on the rise is peer-to-peer lending, or marketplace lending, for businesses.

OCC, CSBS Exchange Views on OCC’s Special-Purpose Charter (Banking Journal), Rated: A

The OCC’s proposed limited-purpose charter for fintech companies was the subject of a lively discussion at the American Bankers Association’s Payments Forum today, as regulators from the OCC and Conference of State Bank Supervisors exchanged at-times opposing views.

Margaret Liu, SVP and deputy general counsel at CSBS reiterated her organization’s view that in moving forward with the limited-purpose charter, the OCC overstepped its authority under the National Bank Act (the CSBS previously filed a lawsuit against the OCC on those grounds).

Kathy Oldenborg, director of payments systems policy at the OCC, emphasized that under the limited-purpose charter, fintech companies would be held the same high regulatory standards as banks, based on the products and services they provide to consumers. She added that while much of the focus around the OCC’s work on innovation has centered on the charter proposal, “the broader initiative was… the ability to signal to banks that it’s okay to innovate. You can work with fintech companies, you can partner with fintech companies, you can buy one if you want. There’s nothing that says you can’t work with fintech companies outside this whole chartering discussion.”

Home Point Financial Establishes Institutions Group (Marketwired), Rated: B

Home Point Financial Corporation (“Home Point”) a national multi-channel mortgage originator and servicer, today announced the formation of its new Institutions Group. This group will include Correspondent Lending, Capital Markets and Home Point’s wholly-owned warehouse lending subsidiary, NattyMac. Led by Maria Fregosi, Chief Capital Markets Officer, the Institutions Group will be able to efficiently and effectively serve correspondent clients with services and products that capitalize on the financial resources, technology and expertise of Home Point Financial.

Cross River on OCC Comptroller’s testimony calling on clarification of the applicability of the “Valid when Made” doctrine (Cross River Bank Email), Rated: B

Cross River Bank, a marketplace leading originator and pioneer in the banking financial technology space, released the following statement on the recommendation by acting OCC Comptroller of the Currency Keith Noreika to clarify the applicability of the “Valid when Made” doctrine.

It is of the utmost importance to deliver regulatory certainty and foster innovation while providing access to credit to all consumers in a compliant, safe, and sound environment. We commend Comptroller Noreika for his testimony this morning recommending clarification of the applicability of the “Valid when Made” doctrine. Cross River remains a steadfast supporter of the Comptroller’s, and the entire regulatory agency community’s, efforts to bring clarity to the regulatory framework and advance the interests of the consumers while ensuring their protection.

Aspire Retains SenaHill (Aspire Email), Rated: B

“Aspire Financial Technologies Inc. (“Aspire”) is announcing today that it has retained SenaHill Advisors LLC (

Crowdfunding Becoming Viable Way to Fund Real Estate (Realty Biz News), Rated: B

It’s estimated that by 2025 the crowdfunding real estate industry will be worth more than $300 billion. One of the reasons for this prediction is that it provides individual investors the opportunity to participate in large real estate deals even if they only have a small amount of capital to invest. Just a few years ago things were very different as crowdfunding had yet to gain traction. In 2010 the crowdfunding industry was worth $880 million but is now worth $34.4 billion which is an incredible rate of growth.

CFPB details complaint process at Comply2017 Conference (JD Supra), Rated: B

At the Comply2017 conference held earlier this week in New York City, Scott Steckel, a member of the CFPB’s Office of Consumer Response, gave a presentation in which he detailed the CFPB’s complaint process and how the CFPB shares complaint data through its complaint database.

United Kingdom

Wellesley directors were paid more than £900,000 last year (P2P Finance News), Rated: AAA

WELLESLEY & Co’s directors collectively pocketed £923,000 last year, while the property lender reported a full-year loss of £210,288.

Chief executive and founder Graham Wellesley was awarded the highest salary of £342,000, while co-founder Andrew Turnbull took home £244,000, according to the latest annual report filed with Companies House earlier this month.

Former Lloyds Banking Group chief executive Eric Daniels, who stepped down as non-executive chairman at the end of May 2016, received £50,000. Daniels has now joined the board of Funding Circle.

How has the P2P sector fared in the year since the Brexit vote? (P2P Finance News), Rated: AAA

Funding Circle, which received full FCA authorisation last month, has seen new lending grow each quarter since the referendum, from £151,803 lent in the second quarter of 2016 to £182,854 in the third and £305,970 in the fourth. It lent £328,059 in the first three months of this year.

Similarly, Zopa, also now fully authorised, has seen lending increase each quarter, from £154m in the second quarter of 2016, to £175m in the third. There was £194.3m of lending in the fourth quarter and £246.4m at the start of the year.

RateSetter, the last of the big three still awaiting full FCA approval, has seen both consumer and business lending increase.

New business lending was at £59.8m in the second quarter of 2016, rising to £73.8m in the following three months before dropping to £60.5m at the end of the year. It bounced back to £72.5m at the start of 2017.

Landbay has been more mixed, with new lending dropping from £5m in the second quarter to £282,820 in the third and £193,800 in the final three months of the year. New lending was back up to £833,300 at the start of the year.

RateSetter has seen the biggest increase, taking on 9,573 up to the first quarter of 2017 to 44,402.

Funding Circle was a close second, taking on 8,604 to 59,740, while Zopa took on 6,091, taking the total number of lenders to 60,755.

Only MarketInvoice saw a drop by 47 to 220.

Zopa has taken on the most new borrowers at 41,310 since the referendum to 171,607 while RateSetter has taken 30,286 to 203,994.

Landbay and Thincats have taken on the least, at four and 34 respectively.

The FCA received 77 submissions for the second phase of the regulatory sandbox, more than applied for cohort one. 31 applications met the sandbox eligibility criteria and were accepted to develop towards testing. The current cohort consists of the 24 firms that are ready to begin testing shortly.

AssetVault

AssetVault enables consumers to catalogue all of their assets in a secure online register and better understand their total value. AssetVault then works with insurance providers to protect the consumer and their assets with appropriate insurance products.

Beekin

Leverages artificial intelligence and data sharing to build transparency and liquidity in alternative assets (real estate, angel investments), and offers risk management and analytics services to small investors.

Experian

A mortgage eligibility tool that can be used to help consumers who are in the research phase of buying a home by increasing awareness of their eligibility, based on the lender’s affordability criteria.

FloodFlash

FloodFlash provides event-based flood insurance, even in high-risk areas.

Insure A Thing

An alternative insurance business model where the consumer makes payments at the end of the month, based on the exact cost of claims settled during that period.

Nimbla

Nimbla provides flexible trade credit insurance and credit and invoice management tools to UK SMEs, via an online platform

Paylinko A DLT-based payments solution enabling users to send and receive payments using a link.

We are now accepting applications from firms to be part of our third sandbox phase. Firms have until 31 July 2017 to submit their applications.

Departing Bank of England rate-setter takes swipe at Mark Carney in final speech (Belfast Telegraph), Rated: A

A departing rate-setter at the Bank of England has taken a final swipe at dovish Governor Mark Carney, saying record-low interest rates are no longer justified.

In her final speech as an external member of the Monetary Policy Committee (MPC), Kristin Forbes questioned the continued need for “emergency” level interest rates, as well as the “substantial amount of stimulus” rolled out in the wake of the Brexit vote, stressing that forecasts for a recession and higher unemployment after the referendum have failed to materialise.

No sign of decreasing P2P appetite, claims lender (Bridging & Commercial), Rated: A

There has been no sign of a decrease in demand for peer-to-peer finance, online platform RateSetter has told Bridging & Commercial.

“…We’ve seen steadily increasing demand from advisers, and the value of IFA-administered accounts on our platform has doubled over the last year.

“Although there are clearly hurdles – for example, direct investments in peer-to-peer lending are not currently available through investment platforms commonly used by IFAs to buy products on their clients behalf – we see no signs of decreasing appetite.”

Jane Dumeresque, CEO at Folk2Folk, explained that the FCA process was extremely tough and was not too surprised that some had withdrawn.

Peter McDermid: help to build (The Scotsman), Rated: A

Today marks the Scottish launch of the LendInvest Property Development Academy, an adult education course that puts development skills at the fingertips of aspiring house builders.

The first London course was ten times oversubscribed and to date more than 120 “students” have completed our courses. Now we’ve rolled out countrywide to satisfy demand.

Sessions are led by experienced and, as importantly, local advisers who know what it takes to get small-scale property developments delivered on time and on budget.

Development issues

Access to finance continues to be the biggest hurdle. A severe lack of lenders in Scotland is problematic.

Any experienced developer knows that applying for and awaiting planning permission can be a long, exhausting and expensive process. This is where it pays to do your research.

Structuring a professional team is one of the most important aspects of planning for a development, and a task that can be more complex than it first appears. There are various questions that a developer needs to ask: what are the key development costs? How long will a project take?What consultants are involved in a development project and how should they all work with one another? How do developers insure their teams against delays and accidents?

Sales and marketing are commonly regarded as an afterthought, something to worry about “later”, when in fact marketing needs to be in the forefront of a developer’s mind from the very beginning.

Three out of four investors refuse to pay for financial advice (Money Observer), Rated: A

A survey conducted by investment management company Legg Mason has found that only 24 per cent of investors would be prepared to pay the typical hourly fee for financial advice – which works out on average at £150 per hour, according to unbiased.co.uk.

Just 10 per cent of those who answered said they would be willing to pay £150 or more, while an additional 11 per cent agreed that they would pay between £50 and £149.

Over a third of respondents (36 per cent) said they would refuse to pay for financial advice outright, while 15 per cent said they were unsure what they would be happy to pay.

Why Financial Advisers Won’t Succumb To The Robots Any Time Soon (Huffington Post), Rated: B

Add to this, low levels of financial education, low levels of trust in financial services generally and overwhelming product choice (e.g. 2,000+ investments) and engaging customers without a human adviser is tough. That’s why, according to the industry’s regulator the FCA, of the £208 billion invested by consumers last year 78% was through advisers.

The vast majority of investment advice consumers now get from advisers is supported by online, model driven, financial technology (FinTech) which helps advisers more scientifically assess their risk profile and develop probability based investment strategies which give them a higher chance of meeting their goals at an acceptable risk level.

There are four developments now emerging, which will almost certainly change the game:

  1. Simple, automated advice
  2. Account aggregation
  3. Social networks
  4. Artificial intelligence
China

Renren Announces Unaudited First Quarter 2017 Financial Results (PR Newswire), Rated: AAA

  • Total net revenues were US$20.9 million, a 94.3% increase from the corresponding period in 2016.

    • Advertising and IVAS net revenues were US$11.6 million, a 90.2% increase from the corresponding period in 2016.
    • Financing income was US$9.3 million, a 99.7% increase from the corresponding period of 2016.
  • Gross profit was US$6.4 million, a 172.6% increase from the corresponding period in 2016.
  • Operating loss was US$17.6 million, compared to an operating loss of US$19.2 million in the corresponding period in 2016.
  • Net loss attributable to the Company was US$16.2 million, compared to a net loss of US$23.2 million in the corresponding period in 2016.
  • Adjusted net loss(1) (non-GAAP) was US$11.0 million, compared to an adjusted net loss of US$15.9 million in the corresponding period in 2016.

P2P Industry News (Xing Ping She Email), Rated: AAA

Internet Finance Giants Ant Financial, Baidu etc., working with bank for new opportunities on fintech. 

It seems a trend that internet financial giants working with traditional banks in China. Recently, Baidu built a strategic partnership with Agricultural Bank of China (ABC). The cooperation focuses on fintech areas, including co-building of financial brains and portraits of clients , precise marketing, customer credit evaluating, risk monitoring, robo-advising, etc.

Previously, both Jingdong Finance and Ant Financial Services Group have announced partnerships with banks. On 16th June, Jingdong signed a framework agreement on financial business cooperation with ICBC, planning to conduct cooperation in fintech, retail banking, enterprise credit, etc. While in the late of March, the CCB has signed a tripartite cooperation agreement with Alibaba and Ant Financial. According to the agreement, Ant financial would help CCB to boost the online credit card business. They are going to strength cooperation in offline & online channel and electronic payment business, so as to open up the credit system.

Bank of China Set Up the Inclusive Finance Division

On 20th June, the Inclusive Financial Division of BOC was founded officially. The new division aim at providing financial services in comprehensive coverage of rural and urban. According to reports, China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC) and Agricultural Bank of China (ABC) have all set up their Inclusive Financial Division at the general bank level.

Baidu and the Agricultural Bank reached a strategic cooperation in the layout of intelligent finance (Sina), Rated: A

In accordance with the strategic cooperation agreement, the cooperation mainly focused on the field of financial technology, including the construction of financial brain and customer portrait, precision marketing, customer credit evaluation, risk monitoring, intelligent investment, intelligent customer service and other specific applications, Around the financial products and channel users and other areas to start a comprehensive cooperation.

Bank of China Begin Fintech Move (AI Topics), Rated: B

Bank of China (BOC) and Tencent have established a joint financial technology laboratory, the lender said in a statement this week. The lab will work on cloud computing, big data, blockchain and artificial intelligence to promote financial innovations.

European Union

IDA ‘confident’ of Brexit investments pipeline, banking event told (Irish Times), Rated: A

IDA Ireland’s head of international financial services, Kieran Donoghue, has said he is “confident” that the Republic will secure a number of wins as his organisation “aggressively” pursues the opportunity to lure financial activity from London following Brexit.

Luxembourg’s politicians pin economic hopes on fintech drive (Financial Times), Rated: A

Britain’s planned departure from the EU has provided policymakers with an incentive to build a fintech hub in Luxembourg that could attract UK technology companies looking to maintain a foothold in the EU.

Prime minister Xavier Bettel has made the country’s digital transformation a priority since succeeding the long-serving Jean-Claude Juncker in December 2013. Mr Bettel launched the Digital Lëtzebuerg [Luxembourg] initiative the following year as a platform for encouraging new technology in the financial industry as well as society as a whole.

The flagship project to encourage fintech is the Luxembourg House of Financial Technology, opened with much fanfare in April with backing from the government and business groups.

Its focus is on insurance, banking and fund technology in areas such as digital investment and portfolio management, blockchain applications, payment platforms, data analytics, artificial intelligence, security and authentication.

International

How Fintech is Disrupting Banking for Businesses Around the Globe (Due), Rated: A

Same day bank transfers were rolled out in the United Kingdom almost a decade ago. NACHA, the regulatory organization responsible for the ACH system, announced efforts for faster transfers two years ago. However, very few banks are actually implementing faster transfers.

Digital wallets are a key concept in bringing financial services to the unbanked and underbanked.

Multiple large banks have added bot features to their customer service toolset, and there is no limit to how far it can go. Just a few months ago at LendIt I captured a video of someone asking a computer for help picking a credit card.

Over $36 billion were poured into FinTech ventures in 2016 alone, and about a quarter of that went to banking related ventures. Payments, investments, and wealth management were other major categories for 2016 FinTech investment.

Australia/New Zealand

Harmoney’s Marketplace Hits $ 500,000,000 (Scoop), Rated: AAA

Peer-to-peer lending marketplace Harmoney announced today that $500,000,000 in lending has been transacted through the platform in just under three years of operation. 30,000 Kiwis have made the choice to join the Harmoney community with additional support from two challenger NZ owned banks TSB and Heartland.

Kiwis have borrowed for all sorts of reasons;

  • 12,000 to pay off debt, mainly expensive Credit Card debt
  • 4,000 have completed home improvements and renovations
  • 3,000 have taken a special trip or holiday
  • Almost 2,000 have upgraded their car and;
  • 10,000 have borrowed for a vast array of other reasons, from dream weddings, book publishing to achieving their dreams at the Paralympics.

Consultation on personalised robo-advice (JD Supra), Rated: AAA

There is a clear demand, from both industry and the regulator, to allow personalised robo-advice to be provided ahead of the FAA reforms. As a result, the FMA is consulting on an exemption to allow this to happen – the exemption consultation can be found here.

The exemption will be subject to conditions but these are very similar to those that regulators have imposed in other jurisdictions (such as Australia) where our offices have been advising on for some time. We don’t expect there to be too much objection to these.

Limits:

  • Service: The exemption will be limited to financial advice or investment planning services and won’t cover the provision of DIMS under the FAA or the FMCA.
  • Product type: The robo-adviser will be limited to advice on financial products that are highly liquid or easily transferable. The FMA’s over-riding concern here is that consumers should be able to easily unwind their holdings if the robo-advice is poor or unsuitable. The proposed product list for robo-advice will be:
  • KiwiSaver and managed funds that are continuously offered and redeemed at a price based on the value of the scheme property
  • Listed equities and listed debt
  • Government bonds
  • General insurance products (home, contents and vehicle) and
  • Savings products and credit contracts (other than mortgages).

Conditions: 

  • Pre-notification procedure: A robo-adviser will need to give prior notice to the FMA setting out ‘good character’ declarations in relation to senior managers and directors and giving details of any criminal convictions in New Zealand or overseas. The FMA will need to issue a no objection confirmation in relation to the good character declarations before the robo-adviser starts business.
  • Status disclosure: The robo-adviser will need to clearly disclose that it is relying on the exemption and that the FMA has not in any way endorsed, approved or reviewed the service.
  • Disclosure: Before giving advice to a client, the robo-adviser will need to give the client sufficient information to make an informed decision, including:
  • The nature and scope of the service and whether the service is limited to a particular range of products. This will need to include:
  • Clarification of the extent of human involvement
  • Clarification that the advice provided will depend solely on the information provided by the client
  • An explanation of any limits on the advice or portfolios generated by the algorithm
  • A concise explanation of the benefits and risks of the service.
  • An explanation of the fees that must be paid.
  • Details of how the robo-adviser is paid and disclosing any actual or potential conflicts of interest that may influence the services provided.
  • An explanation of how complaints can be made.

Regulator seeks feedback on robo-advice exemption (NZ Adviser), Rated: A

The Financial Markets Authority (FMA) is seeking feedback on its proposals that would enable entities to provide robo-advice.

The current law, passed in 2008, did not contemplate digital advice, meaning that personalised advice, or advice that takes into account an individual’s financial situation or goals, can only be given by “a natural person”.

The purposes of the Financial Advisers Act (‘FA Act’) are aligned with the Financial Markets Conduct Act, which include “promoting innovation and flexibility in financial markets.”

Global Credit Investments gives OnDeck Australia A$ 22.5m financing (AltFi), Rated: A

Asset manager Global Credit Investments has hit up its network of rich Australian families and raised A$22.5 million to refinance OnDeck Australia’s small business loan book.

A press release issued by both companies said the capital raise was “significantly oversubscribed”, with wealthy Australians attracted to the returns offered by OnDeck‘s loans, typically in the high-single-digits.

FinTech Australia releases fintech ecosystem map (Fintech Australia), Rated: A

Australia’s fintech industry body today released its first member ecosystem map, which helps build domestic and international understanding of the nation’s fintech strengths and diversity, particularly in wealth generation and lending.

The ecosystem map shows that wealth and investment, and consumer and business lending, are Australia’s two largest fintech sub-sectors – an outcome that is consistent with findings from last year’s.

Online Lender Prospa Appoints Damon Pezaro as Chief Product Officer (Crowdfund Insider), Rated: B

Prospa, an Australian online lender for small businesses, has appointed Damon Pezaro as its first Chief Product Officer.

Pezaro joins Prospa from Domain, where as CPO he led major transformation across the business and, apparently, a dramatic period of growth.

Asia

Asian Fintech Scene ‘Leapfrogging’ Over US In Innovation (Benzinga), Rated: A

While fintech companies proliferate in the United States, driving the expansion of a well-established financial sector with flourishing credit card and personal banking industries, Orchard Platform CEO Matt Burton is turning an eye to the east.

“In a lot of Asia, that doesn’t exist whatsoever,” Burton said at Benzinga’s 2017 Fintech Awards. “The population there are getting loans for the first time ever. There’s no credit bureaus there, so any data set that you’re able to acquire is completely proprietary.”

Matt Burton, CEO of Orchard Platform, at the 2017 Benzinga Global FinTech Awards

Africa

End of the road for mobile money loan defaulters (Standard Media), Rated: AAA

Credit reporting firm TransUnion yesterday said it had introduced into the Kenyan market a mobile score card that profiles borrowers using mobile lending platforms, which it will be sharing with banks and other lenders.

TransUnion Kenya Chief Executive Billy Owino said the Mobile Score Card would enable lenders access predictive and customised risk views while offering consumers alternative access to credit and an opportunity to build a positive credit score.

This wil be made possible by making use of mobile lending platforms. He added that the mobile money ecosystem has outgrown necessity-based transactions and peer-to-peer lending and is now transiting into mobile credit and loans.

Latin America

Two Brazilian Companies Merged to Create a Super Fintech (Crossroads Today), Rated: AAA

Vindi, a Sao Paulo, Brazil-based provider of subscription/recurring billing and payment solutions, merged with Smartbill, a Sao Paulo, Brazil-based provider of a subscription management system.

The financial terms of the deal were not disclosed, but the merger of the two companies aims to consolidate the market of payments focused on the service sector in Latin America.

Companies like Thomson Reuters, Movile, B2W, Empiricus, Serasa Experian, Buscape, Smartfit, Editora Abril and the most important subscription businesses are using Vindi and Smartbill solutions.

Authors:

George Popescu
Allen Taylor

Extracting Insights from Asset Level Disclosure Data

ALD growing data

Introduction Over the past four months, we’ve had extensive conversations with ABS market participants to discuss the new Asset Level Disclosure (ALD) requirements for public US securitizations. We discovered that many market participants have been overwhelmed with the volume of loan-level data and are at a loss on how they can readily derive value from […]

ALD growing data

Introduction

Over the past four months, we’ve had extensive conversations with ABS market participants to discuss the new Asset Level Disclosure (ALD) requirements for public US securitizations. We discovered that many market participants have been overwhelmed with the volume of loan-level data and are at a loss on how they can readily derive value from it. In the following research piece, we answer commonly asked questions and provide guidance for incorporating ALD data into the investment process.

Specifically, we highlight the need for participants to (1) access standardized ALD data on-demand in an easily digestible and consistent manner, (2) unlock complex relationships and insights within and across securitization trusts, and (3) develop benchmarks for performance.

What is the scale of the data and how does one access it? By December 2017, we project there will be ~100 securitization trusts with over 34GB of data for just the auto-loan, auto-lease, and CMBS verticals. Given the data size and update frequency, we believe the market needs a centralized hub so users can access it easily in a consistent, clean format that has cash flow-specific fields.

What uses are there for this data? Once the data is cleaned and enhanced the opportunities for insights expand dramatically. Performing stratifications across trusts to compare asset pools and calculating performance curves are required at a minimum, but thereafter there are many opportunities to gain greater insight beyond what is possible using pool or rep-line data, including heat maps, dispersion analysis, and sector wide benchmarks.

Where Does Aspire fit in? Aspire has built an end-to-end data and analytics solution for auto-loan trust data, that is expanding to cover all the asset verticals with ALD requirements. The ALD Explorer is available on an open access basis with limited content and functionality, however once registered, users can access all content and functionality on a free-trial basis. Interested participants can access the ALD Explorer here.

Every institution should to be as informed as their most sophisticated contemporaries, which means they need a solution that encompasses everything from hosting and maintaining the ALD data to providing tools to gain insights from it. Going forward, fulfilling these business requirements will be critical because it will be part of the baseline needed for firms to participate in ABS markets intelligently.

Background

Why are issuers publishing this data?
As a result of Regulation A/B II from the Dodd-Frank Wall Street Reform and Consumer Protection Act, securitization issuers, starting in 2017, must post Asset Level Disclosure (loan-level characteristic and performance data) for loans in public securitization trusts on an ongoing monthly basis. These postings are made on the SEC EDGAR website. Asset classes covered by this requirement currently include auto-loans, auto-leases, and CMBS, but eventually will include other asset classes, including RMBS and potentially student loans.

What is the scale of this data? How quickly is it growing?
Going forward, we expect the volume of loan level data to grow quickly. As of April 2017, there have been 58 issuers and depositors posting up to 4 months of loan-level performance and characteristic data, containing information on over 1.4 million loans in aggregate. On average, each individual auto-loan posting is 220MB and typically contains over 70 mixed type fields for over 50,000 payment records on average. By December 2017 (Exhibit 1), we project there will be ~100 securitization trusts (over the verticals of auto-loans, leases and CMBS) with over 34GB of data of which the majority will be from auto-loan securitizations. These estimates do not account for new asset verticals.

Making Data Useful

Why is this ALD data important?
The size and difficulty in managing the loan-level data has caught many market participants by surprise. We urge them to embrace the new opportunities it enables. There is significant value in examining loan characteristics and performance both within and across trusts. For investors in the publicly issued securitization bonds, the value is obvious. They can analyze asset pool characteristics and performance and improve their asset (and liability note) valuation methodology. Beyond this, there are many tangible benefits for issuers and investors in similar markets and assets since they now have access to a broad sample of loans across trusts. To enable and realize the potential of this new data, participants require a partner with a specific skill-set that combines classical fixed income credit expertise with modern machine learning techniques and technology.

How does one access the data?
Given the data size and update frequency, Aspire believes the market needs a centralized hub so users can access it easily in a consistent format. The data is currently being posted on the SEC EDGAR site as ABS-EE files in XML format with only certain fields specified. Aspire provides a free service to all interested participants by converting these files to a CSV format and posting them on the ALD Explorer site. However, most participants need more than this because opening multiple files as spreadsheets or in a programming environment becomes untenable quickly because of their size. Also, the raw data does not include cash flow-specific fields like the month’s due amount, prepayment amount, or loan-to-value ratio, which need to be calculated the same way across trusts. Furthermore, there are discrepancies in the way certain field values are reported that need to be made consistent so that market participants can make apples-to-apples comparisons. For these reasons, a central database repository containing cleaned, enhanced, and standardized data becomes an ideal solution.

How does one ensure the data is consistent across trusts?
We emphasize that the market will need solutions to aggregate this ever-expanding dataset. The aggregator will need to demonstrate a mastery of the data by offering a raw data summary, the rules used to clean and enhance it, and additional field value verifications done in partnership with issuers to ensure consistency. On the last point, we think there may be a role for industry trade organizations to play in getting issuers to report values using a consistent methodology and additional useful fields to investors. We know that SFIG has already been active in this discussion.

Analytics for the Future

What tools are available to help one make use of ALD?
Once the data is cleaned and enhanced, the opportunities for insights expand dramatically.
Performing stratifications across trusts to compare asset pools and calculating performance curves are required at a minimum and thereafter there are many opportunities to gain greater insight beyond what is possible using pool or rep-line data. For example, one could employ modeling techniques not to predict outcomes, but rather to identify the characteristics that most highly correlate with probability of default, prepayment, or delinquency. Using this method, investors could determine if defaults were over-represented in any cross section of characteristics (such as a geographic location, auto type, or credit score band). This can be done for any intra or inter-trust stratification and any loan status. For example, some cursory modeling on one auto-loan trust suggests that a loan’s age and loan-to-value ratio are highly coincident with statuses of delinquency (30-90 days). One could then display the delinquency percentage (represented by color intensity) against buckets of age and LTV on a heat map (Exhibit 2).

Are there any sector wide applications?
Eventually the industry may require data indices that display metrics (e.g. defaults, prepayments, roll-rates) for inter-trust segments overtime (e.g. an auto-loan subprime default index). These indices may be segmented into custom benchmarks and used to gauge asset pool performance, cohort performance (such as that trust’s underwriting standards across trusts (percentage of subprime borrowers for similar issuers). Currently, the time series of data for each trust is too shallow for the aggregation to be meaningful, but that will change as more deals’ data are added and current deals’ data expand. Below we show roll rates for prime borrowers across trusts versus the loan’s age as an example.

What other uses are there?

There are a multitude of potential uses once a longer data time series is published. For example, potential purchasers of a comparable private auto-loan pool can develop valuation scenarios (e.g. default, prepayment, and severity curves) from sampling similar loans derived from the ALD data set. Sophisticated players can create valuation models using cross-trust data that could be used broadly. Consider the advantages of a near-prime credit valuation process that could be applied irrespective of issuer. The data could also be used by equity investors to evaluate issuer underwriting quality in their due diligence process.

Where does Aspire fit in?
Aspire’s ALD Explorer product is uniquely positioned to fulfill the market need to leverage this data. We have built out the capability to clean and enhance raw data, provide data access readily, display stratifications and performance curves for multiple asset pools, and heat maps like the one described above.

We leverage our experience from the marketplace lending sector, which has many similar data issues, including the requirement to access loan level data. In that market, institutional buyers needed a centralized hub to aggregate and transform fragmented originator data and then create a robust reporting and analytics layer on top. Here, the datasets will become much larger over time.

Where can I learn more?
Aspire has built an end-to-end data and analytics solution for auto-loan trust data, that will be expanding to cover all the asset verticals with ALD requirements. The ALD Explorer is available on an open access basis with limited content and functionality. Once registered, users can access all content and functionality on a free-trial basis. Interested participants can access the ALD Explorer here.

Disclaimer

This material is provided for informational educational purposes solely in connection with a discussion of marketplace lending and a number of potential investment entities, structures and strategies relating to marketplace lending activities, and it should not be construed as investment advice or a recommendation to buy, hold or sell any security or purchase any other investment product or service. Aspire is not registered or licensed, nor are we relying on an exemption from registration in any jurisdiction. This presentation is only being provided to recipients who are “accredited investors” as defined under the Securities Act of 1933 or under applicable Canadian securities legislation.

THIS PRESENTATION AND THE INCLUDED MATERIALS IN NO EVENT CONSTITUTES AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. UNDER NO CIRCUMSTANCES SHOULD THIS DOCUMENT BE CONSTRUED AS AN OFFERING MEMORANDUM. NO SECURITIES COMMISSION OR SIMILAR AUTHORITY HAS REVIEWED THIS MATERIAL OR HAS IN ANY WAY PASSED UPON THE MERITS OF ANY SECURITIES REFERENCED IN THIS MATERIAL AND ANY REPRESENTATION TO THE CONTRARY IS AN OFFENCE.

Although certain information contained in this presentation has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness of the information. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.

References to any indices, the market environment, benchmarks, historical data, or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that any portfolio or investment will achieve similar results. Forward-looking statements contained in this presentation regarding past or current trends or activities should not be taken as a representation that such trends or activities will continue in the future. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements or opinions, which speak only as of the date of this presentation.

We do not provide legal, tax or accounting advice and therefore expresses no view as to the legal, tax or accounting treatment of the information described herein. You should inform yourself as to any applicable legal and tax regulations that may be applicable to you.

No representation regarding the suitability of these instruments and strategies for a particular investor is made.

No part of this presentation may, without our prior written consent, be reproduced, redistributed, copied, published or transferred to any other person. This presentation contains information constituting proprietary commercial and financial information, and any unauthorized disclosure of such information could cause substantial competitive and financial harm to us.

Authors:

Written by Peter Mallik, head of quantitative strategies, and David Fry, CFA, co-Founder & CEO of Aspire Financial Technologies.

Wednesday April 12 2017, Daily News Digest

REITs vs. RECF

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 […]

REITs vs. RECF

News Comments

United States

United Kingdom

European Union

China

News Summary

United States

Elevate Announces Closing of Initial Public Offering (BusinessWire), Rated: AAA

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.

Texas Real Estate Market Active for Real Estate Crowdfunding (Yahoo! Finance), Rated: AAA

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.

The average investment in Texas since inception is $907,000, with the largest being a $3.25 million Class A multifamily property in Grand Prairie sponsored by Ventures Development Group.

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 Assigns MOR RV1 Residential Vendor Ranking to First Associates Loan Servicing as a Consumer Finance Servicer (PR Newswire), Rated: AAA

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 Riskier Than You Think (Seeking Alpha), Rated: A

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.

 

NCSS Partners with Kabbage, Inc. to Help Small Businesses (PR Newswire), Rated: A

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.

Mortgage Lenders Maintain Positive Sentiment for 2017 (Marketwired), Rated: A

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.

FinTech’s Shifting Landscape (The M Report), Rated: A

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.

Kabbage Co-Founder & Head Fintecher Kathryn Petralia: Power Lending, Predictions & Progress (Crowdfund Insider), Rated: A

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.

US fintech regulation: a divided picture at the federal level (Banking Tech), Rated: A

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.

Over 50? Welcome to the New Frontier of Fintech! (Finovate), Rated: A

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

Regions recruits CIO from marketplace lender Kabbage (American Banker), Rated: B

Regions Bank in Birmingham, Ala., has plucked its new chief information officer from the fintech world.

Amala Duggirala, formerly the chief technology officer at the small-business lender Kabbage, is set to become CIO on April 17.

At Kabbage, Duggirala led the technology team’s efforts in advancing the scalability of the lending platform. Her tenure at Kabbage was brief — she joined the firm in November 2016.

Fidelity Investments, American Express and Bank of America Are the Top Scoring TotalSocial(TM) Brands (Yahoo! Finance), Rated: B

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.

United Kingdom

Funding Circle to stop property development lending (Bridging and Commercial), Rated: AAA

Peer-to-peer lending platform Funding Circle has announced plans to stop all property development lending by mid-2018.
The decision will allow the company to focus resources on its core small business lending product in the UK, US, Germany and the Netherlands.
Funding Circle will continue to service existing property loans and meet facilities to which it has already committed over the next 12 to 18 months.
Funding Circle stated its property loans continue to outperform expectations from a credit risk perspective, generating a 7% return each year and £22m of earnings for investors since 2014.

Advisers urged to be cautious on ‘esoteric’ P2P investments (New Model Adviser), Rated: A

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.

FCA prepares for the march of ‘robo advisers’ (Financial Times), Rated: A

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.

AltFi Data brings needed industry transparency (Bankless Times), Rated: A

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%.

Revenue-Based Finance Provider Fleximize Closes £16.3M Financing Facility (Finsmes), Rated: A

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.

Britain’s finance watchdog is worried about ‘wild west’ fintech in some parts of the world (Business Insider), Rated: A

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.”

Fintech is now worth £7 billion to Britain’s economy and employs 60,000 people (Business Insider), Rated: B

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.

Growth Street announces two senior hires (P2P Finance News), Rated: B

GROWTH Street has unveiled two new senior appointments that it hopes will aid the peer-to-peer lender’s expansion plans this year.

The platform, which was purely a business-to-business lender until it receivedregulatory permission to accept retail investors last December, has hired April Nardulli (pictured) as general counsel and Chris Weller as commercial director.

European Union

UK VC investment up in Q1 2017, but funding across Europe is down (Real Business), Rated: AAA

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.

Lend Closes CHF3.5M Series A Funding (Finsemes), Rated: A

Lend, a Zürich, Switzerland-based fintech startup, closed a CHF3.5m Series A funding.

Backers included angel investors and Polytech Ecosystem Ventures.

The company will use the funds to further develop its platform and market its brands, LEND and splendit, enhancing automation, customer usability and increasing marketing efforts within Switzerland.

China

China’s Banking Regulator Clamps Down on Illegal P2P Lending (YiCai Global), Rate: AAA

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.

Authors:

George Popescu
Allen Taylor

Digital Lending’s Impact on Home Improvement Financing

Digital Lending’s Impact on Home Improvement Financing

When compared to traditional consumer credit products, home improvement purpose consumer loan performance is declining. We think increased competition from emerging point-of-sale lenders may be contributing to this trend and is indicative of an expansionary phase in the consumer credit cycle. Home improvement borrowers are migrating to digital lending: One survey indicated that roughly the […]

Digital Lending’s Impact on Home Improvement Financing

When compared to traditional consumer credit products, home improvement purpose consumer loan performance is declining. We think increased competition from emerging point-of-sale lenders may be contributing to this trend and is indicative of an expansionary phase in the consumer credit cycle.

Home improvement borrowers are migrating to digital lending: One survey indicated that roughly the same percentage of respondents would consider an unsecured consumer loan and HELOC / HEL to help pay for a home improvement project.

Purpose-focused originators are lending to these borrowers because they are relatively good credit risks: Lending Club (LC) home improvement purpose loans tend to prepay faster, are smaller in size, and attract borrowers with a slightly better credit profile than a comparative cohort, although they tend to charge-off at a slightly higher rate.

LC unsecured home improvement loan performance has diverged from that of traditional secured loans: In 2011-2012, the monthly charge-off rates for consumer loans was roughly equivalent to the deep delinquency rates of auto loans and HELOC’s and the default rate of bankcards. Since then, digitally-originated loan charge-off rates have increased while risk indicators for comparative products have trended down.

The lender specialization trend augurs well for credit markets. Differentiation in asset performance is a hallmark of the expansion phase of the credit cycle and may indicate a further market normalization as unsecured credit warrants a larger risk premium.

Introduction

It is no secret that digital lenders have made major inroads into lending markets in the last decade. In the next decade, we expect their reach to grow further into niche verticals including real estate-related products like home improvement loans. So here, we shine a light on the products consumers use to finance home improvement and pay special attention to digitally-originated consumer loans used for home improvement purposes. In this piece, we (1) recount the evolution of home improvement products, (2) describe the features and claim on assets of traditional and new products used for home improvement, (3) provide a performance comparison of Lending Club home improvement purpose loans to a consumer loan control set, and (4) discuss the LC loan set’s relative risk to more traditional products using Federal Reserve and S&P / Experian data.

When compared to traditional consumer credit products, home improvement purpose consumer loan performance is declining. In the past, these loans had a similar risk profile to HELOC’s and auto loans, but recently their charge-offs have risen on a relative basis. We think increased competition from emerging point-of-sale lenders, who can offer cheaper financing, due in part to a secured claim on property, may be contributing to this trend. Consumers already consider digital lenders and HELOC’s / HEL’s similarly when looking at financing options for home improvement[1]. And home improvement is the third most popular loan purpose for LC loans originated in 2016. With the cost of customer acquisition rising, it only makes sense that digital lenders partner with service providers to offer their products and satisfy consumer needs.

Going forward, the trend towards point of sale lenders may accelerate as further originator specialization occurs and new platforms pick-off desirable customers, like home improvement purpose borrowers. In fact, our analysis indicates that LC home improvement purpose loans tend to prepay faster, are smaller in size, and attract borrowers with a slightly better credit profile than

a comparative cohort, although they tend to charge-off at a slightly higher rate. For purpose-agnostic lenders like Lending Club, the specialization trend may be a net negative, but it augurs well for credit markets. Differentiation in asset performance is a hallmark of the expansion phase of the credit cycle and may indicate a further market normalization as unsecured credit warrants a larger risk premium.

A Look Back

After the 2008 financial crisis, heightened regulatory burdens and cost imbalances contributed to traditional lenders curtailing consumer lending activity. This was especially true for home equity lending products as issuers reeling from write-downs due to home value declines cut issuance. Home equity revolving balances outstanding fell from their peak of $714Bn in Q1 2009 to $472Bn in Q3 2016.

Sensing opportunity, digital lenders filled the consumer credit void and are now projected to generate over $10Bn of ABS issuance in 2017[2]. Digital lenders have proven that issuing consumer, small business, and student credit online is a desired service and a viable business model. Now, we see digital lending pushing into other complex, fragmented, or underserved credit markets, including real estate-related lending. In fact, digital lenders that specialize in underwriting mortgages (e.g. LendInvest), real estate-related lines of credit or financing (e.g. Patch of Land), and point-of-sale appliance (like HVAC units) purchase and installation loans (e.g. Financeit in Canada) have already emerged, and are growing rapidly.

Consumers Have Options

The home improvement financing products consumers use have changed before and after the financial crisis. Pre-crisis, borrowers used HELOC’s, home equity loans, and home improvement loans. Whereas post-crisis, those products were harder to obtain, so some homeowners used digitally-originated consumer loans instead. In fact, one survey indicated that roughly the same percentage of respondents would consider an unsecured consumer loan and HELOC / HEL to help pay for a home improvement project. Below we compare these products by first describing their structure.

 

Home Equity Line of Credit (HELOC’s): HELOC’s allow for a great deal of flexibility in structure. They are typically lines of credit, but can be structured as amortizing loans (with fixed rates, terms, and payments), or loans that require balloon payments at the end of a draw period. They are long-dated, with terms of 5 to 20 years and their size is dependent upon the home value and borrower equity. They are typically variable rate instruments and payments can be designed to be interest-only upfront. HELOC’s are secured by real property claims, even though they are typically non-recourse with respect to a borrower’s personal finances. They are generally subordinate to a mortgage in a bankruptcy and liquidation process. The interest paid on these loans are typically tax deductible for the borrower.

Home Equity loans (HEL’s): Home equity loans are less configurable than HELOC’s although they share many characteristics. Like HELOC’s, these loans are secured by a borrower’s home equity. Therefore, their size depends on the home value and equity amount. They are variable or fixed rate, typically 10-15 years in maturity, and subordinated to the primary mortgage holders claim. The interest paid is typically tax deductible. Unlike HELOC’s, these are typically amortizing installment loans, where borrowers make pre-determined monthly coupon payments.

Consumer installment loans used for home improvement: These loan’s structures are incrementally more rigid than HELOC’s and HEL’s. They have fixed interest rates, terms, and payments. They are generally short-dated (3-5 years in term). Unlike HELOC’s and HEL’s, consumer loans are typically unsecured. These loans are increasingly digitally originated.

Since the crisis, some digital issuers have carved out a niche in this product. For example, One Main Financial, Financeit, and Lightstream issue home improvement loans online, as well as point-of-sale channels.

Home improvement loans: Home improvement loans may have the least flexible structures of the bunch. These loans are issued for the express purpose of financing home improvement projects. The originator may require contractor estimates and home appraisals as inputs to the underwriting process. The originator may also hold back a portion of the loan disbursement until the project is completed or project milestones are reached. The loans typically are less than 7 years in term. Sometimes the loans are secured by liens on property, which are subordinate to the mortgage.

Further Discussion on Claims on Assets

A key difference between HELOC’s / HEL’s / home improvement loans and consumer installment loans used for home improvement is the relative claim on real property. As mentioned in the last section, HELOC’s and HEL’s are secured by the property value, while home improvement loans may be issued with a secondary property lien, which is a weaker claim.

On the other hand, consumer installment loans are effectively unsecured, although there are methods for recovery. Consumer loan originators have the option of filing a judicial lien on the borrower’s property. However, these liens are tenuous and can take years to litigate. Furthermore, they may be beneath other liens emanating from the same project. For example, if a homeowner stops paying his bills, and both a lender and contractor file liens on the property, then the lender’s claim may be subordinated to the contractor’s lien on the home improvement value.

In Canada, some loans used for home improvement purposes are on slightly firmer ground. The Personal Property Securities Act (PPSA) passed in 2012 defines the claims lenders can enforce on debtors.

To paraphrase, lenders can repossess fixtures used in the project, while other building materials embedded within the property can only be recovered through a mechanics lien registration and litigation[3]. For example, a lender can repossess lighting used in a project relatively quickly, whereas a loan used for structural support may require a forced sale to generate recoveries.

Home Improvement Loan Borrowers Are Desirable Customers

Based on our comparison, Lending Club home improvement purpose loans tend to have a higher credit quality and perform marginally better. Before delving into the conclusion further, we describe the data sets used. Both our home improvement and control sets contain loans where the borrowers are homeowners or mortgagers. The loan subset with home improvement as the purpose (HI loan sample) had over 56,000 loans or over $800MM in issuance. Conversely, the control set (non-HI loan sample) did not have a home improvement purpose and contained over half a million loans and over $8Bn in issuance. These two sets have a similar distribution of grades and annual vintages.

On average, LC loans with a home improvement purpose have marginally higher credit quality. Before 2014, LC home improvement borrowers had a median FICO score that was 8 and 15 points higher than the non-home improvement control set and auto-loan borrower scores. However, that difference has fallen for more recently issued loans. Meanwhile, the average LC home improvement loan borrower has a lower DTI over the entire sample set (roughly 3 points). In addition, LC loans used for home improvement are smaller in size (by ~$1,300) and carried lower interest costs for loans originated before 2014. Since then, the average interest cost difference has shrunk substantially, but both are generally cheaper than interest charged for loans on used cars.

Performance-wise, LC loans used for home improvement tend to prepay faster, while maintaining a similar or slightly higher level of defaults. High grade (A thru D) home improvement loans prepay at a quicker pace and charge-off at slightly higher to similar charge-off levels. Meanwhile, lower quality (E thru G) three-year loans tend to prepay slower, but charge-off less than their non-home improvement cohort. Lower grade five-year home improvement loans tend to prepay faster and default at lower levels, but the sample size is small.

When segmenting by vintage, the story is similar. Across vintages the home improvement loans prepay faster, but charge-off slightly more. The only outlier is five-year term, 2013-originated loans, which appear to charge-off at a lower rate after one-year of age.

More Originator Specialization and Fiercer Competition Ahead

LC home improvement loans have become riskier than comparative products with a secured claim on assets. However, this was not the case in 2011-2012, when the monthly charge-off rates for consumer loans was roughly equivalent to the deep (90+ days) delinquency rates of auto loans and HELOC’s and the default rate of bankcards. Since then digitally-originated loan charge-off rates have increased while risk indicators for comparative products have trended down.

Why this divergence in performance? We think an increased competition for desirable prime borrowers may be contributing to the change. Since Lending Club proved the marketplace business model, new platforms have created competition for desirable prime borrowers by reducing interest costs and mitigating losses through securing their claims on property and reducing customer acquisition costs by partnering with contractors at the point of sale. For example, Financeit allows contractors to refer customers to its loan program for minimal cost after project estimates. While some of the decline in the LC home improvement purpose loan borrower’s FICO score may be due to a secular trend lower as consumers levered up their balance sheets, much of it may be due to fiercer competition.


More broadly speaking, unsecured consumer loans underperforming secured loans is a healthy sign for credit markets, but a potential net negative for purpose-agnostic lenders. The fact that defaults were similar previously, may have been an anomaly and indicative of a repair phase in the credit cycle. The fanning out of performance may indicate that credit markets have healed and matured, and that new credit suppliers may be joining the fray. This may be good news for investors, who may anticipate a greater stratification of credit risk going forward, and borrowers, who may enjoy lower costs and more customized products.

Author

Aspire Fintech. Aspire enables Originators and Investors to better access, unlock and empower lending data. Aspire counts Marlette Funding, Progressa and Prosper among its data partners.

Contact Information

Aspire Financial Technologies Inc. 250 University Ave, Suite 231 Toronto, Ontario M3H 3E5
+1 647 317 7180
www.aspirefintech.com

Disclaimer

This material is provided for informational educational purposes solely in connection with a discussion of marketplace lending and a number of potential investment entities, structures and strategies relating to marketplace lending activities, and it should not be construed as investment advice or a recommendation to buy, hold or sell any security or purchase any other investment product or service. Aspire is not registered or licensed, nor are we relying on an exemption from registration in any jurisdiction. This presentation is only being provided to recipients who are “accredited investors” as defined under the Securities Act of 1933 or under applicable Canadian securities legislation.

THIS PRESENTATION AND THE INCLUDED MATERIALS IN NO EVENT CONSTITUTES AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. UNDER NO CIRCUMSTANCES SHOULD THIS DOCUMENT BE CONSTRUED AS AN OFFERING MEMORANDUM. NO SECURITIES COMMISSION OR SIMILAR AUTHORITY HAS REVIEWED THIS MATERIAL OR HAS IN ANY WAY PASSED UPON THE MERITS OF ANY SECURITIES REFERENCED IN THIS MATERIAL AND ANY REPRESENTATION TO THE CONTRARY IS AN OFFENCE.

Although certain information contained in this presentation has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness of the information. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.

References to any indices, the market environment, benchmarks, historical data, or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that any portfolio or investment will achieve similar results. Forward-looking statements contained in this presentation regarding past or current trends or activities should not be taken as a representation that such trends or activities will continue in the future. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements or opinions, which speak only as of the date of this presentation.

We do not provide legal, tax or accounting advice and therefore expresses no view as to the legal, tax or accounting treatment of the information described herein. You should inform yourself as to any applicable legal and tax regulations that may be applicable to you.

No representation regarding the suitability of these instruments and strategies for a particular investor is made.

No part of this presentation may, without our prior written consent, be reproduced, redistributed, copied, published or transferred to any other person. This presentation contains information constituting proprietary commercial and financial information, and any unauthorized disclosure of such information could cause substantial competitive and financial harm to us.

Thursday September 7th 2016, Daily News Digest

Thursday September 7th 2016, Daily News Digest

News Comments Today’s interesting articles: for entrepreneurs the reasons not to become a unicorn before you are self-sufficient; and 2 articles on emerging bank’s user strategy vs established bank’s user strategy. And for analysis: a great article on Europe’s Fintech data and trends, a must read to understand the ongoing results of all the local various […]

Thursday September 7th 2016, Daily News Digest

News Comments

United States

United Kingdom

European Union

 

United States

Why Fintech Startups Might Not Want to Become Unicorns, (Bloomberg), Rated: AAA

Striving to achieve a valuation of $1 billion or more may no longer be in a start-up’s best interest, according to recent valuation trends and the venture capitalists who invest in the space.

“What you don’t want to do is get into sort of this half pregnant phase when you’re past where you’re digestible but not clearly on the trajectory for long term, self sufficiency,” said Sean Park, co-founder of venture capital firm Anthemis Group.

CB Insights showing second-quarter funding to venture capital-backed finch companies dropping 49 percent on a quarterly basis.

To date, CB Insights’ data also shows that the biggest acquisitions in the space have been Monsanto Co.’s 2013 purchase of agricultural insurance startup The Climate Corp. for $1.1 billion, Singapore Telecommunications’ 2015 acquisition of payment security startup Trustwave and EBay Inc.’s deal to buy global payments platform Braintree for $800 million in 2013.

Another such deal was Northwestern Mutual’s 2015 acquisition of LearnVest, an online financial planner, for what sources say was over $250 million but less than the $1 billion unicorn mark.

Online lending platforms Social Finance Inc. and Lu.com now have valuations topping $4 billion and $18 billion, respectively, and JD.com’s finance subsidiary has a $7.1 billion valuation.

Robo advisors Betterment LLC and Wealthfront Inc. are each sitting at $700 million, and online money transfer startup WorldRemit has a valuation of $500 million.

That may leave the unattractive option of being sold for a lower valuation, which has happened in a number of other industries. Gilt Groupe Holdings Inc., for instance, was once valued at about $1 billion, but later agreed to be acquired by Hudson’s Bay Co.for $250 million.

Going public also isn’t as attractive as it used to be. Of three prominent IPOs in the space, only one is trading above its initial offering price. LendingClub and On Deck Capital Inc. are both significantly below where they debuted, while shares of Square Inc. are now above that price despite a volatile few months.

Nauiokas of Anthemis said that while a number of startups may already be in that “half pregnant” phase, they might be fine with staying in . “I think for a lot of these companies that are in that in-between phase, there’s a lot of runway to go it alone.”

Ruling Boosts CFPB, Raises Marketplace Lending Questions, (BNA), Rated: A

Commentary: Lending Times covered these news on Sept 4th, however many readers being on vacation may have missed this important piece of news.

In an Aug. 31 decision, Judge John F. Walter of the U.S. District Court for the Central District of California said Orange, Calif.-based CashCall Inc. and others engaged in deceptive practices by servicing and seeking full payment on loans rendered uncollectible or partially void by state usury and licensing laws.

He also said CashCall was the “true lender” on loans issued and sold to CashCall by Western Sky Financial, a South Dakota limited liability company licensed to do business by the Cheyenne River Sioux Tribe (CRST) in South Dakota.

According to Walter, “true lender” status depends on the substance of a transaction, not its form.

Using the “totality of the circumstances” test to determine which transaction party has the “predominant economic interest” in a transaction might also affect marketplace lenders that rely on loans made and funded by bank partners, they said.

(Kroll Bond Rating Agency), Rated: A

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of SpringCastle Funding Asset-Backed Notes 2016-A (“SCFT 2016-A”), a personal loan asset-backed securities transaction.

The collateral in the SCFT 2016-A deal includes approximately $1,744.5 million of loans, as of July 31, 2016. The preliminary ratings reflect the initial credit enhancement levels of 19.55% for the Class A, 7.20% for the Class B notes, and 0.50% for the Class C notes, as well as the target enhancement levels of 20.55%, 8.20%, and 1.50% for the Class A notes, Class B notes, and Class C notes, respectively. Credit enhancement is comprised of over collateralization, subordination of junior note classes, a cash reserve account, and excess spread.

Aspire Financial Technologies Announces Four Initial Data Partnerships for the Aspire Gateway Platform, (Newswire), Rated: A

MaRS FinTech venture Aspire Financial Technologies (“Aspire”), announced today that it has formed new Data Partnerships with US-based marketplace lenders Marlette Funding, Pave, and Prosper Marketplace, along with Canadian Alternative Lending Originator, Progressa.

Aspire’s inaugural product, the Gateway platform, is designed to provide better data, analytics and communications infrastructure to Alternative and Online Lending Originators and Institutional Investors.  The platform uses proprietary software developed by the Aspire team providing a workflow, data, analytics, funding and reporting infrastructure solution for these two distinct user groups.

Kabbage Launches “Elevator Pitch,” a Nationwide Campaign with Lori Greiner, (Benzinga), Rated: A

Kabbage, today announced a nationwide campaign for small business owners. In early October, five finalists will have the opportunity to deliver an “Elevator Pitch” directly to entrepreneur and investor Lori Greiner. One finalist will win $10, 000 and a private, one-hour business consultation with Ms. Greiner. Contestsubmissions are open beginning today until midnight on September 20, 2016.
Since launching in 2011, Kabbage has served more than 80,000 small businesses across the U.S. with over two billion dollars in capital.

Business owners must create a short video of their best business growth idea. After contestants upload the video to Kabbage’s Facebook page, a panel of judges will select the qualifying finalists to deliver their best “Elevator Pitch” in person to Lori Greiner. Limit one entry per small business.

How emerging banks are changing the banking experience, (Banking Technology), Rated: A

Modelling products around user experience

Monzo has taken this to a whole different level. The business has identified UX as not only one of the most important drivers towards success, but as THE most important driver. This is why it has not only created its mobile app with the user at the forefront of its design, but is allowing early adopters to use features within the app already.

Customers using these features can offer feedback on their experiences and any UX improvements they feel would be beneficial. This directly influences the development team’s decision making, as offering the highest quality, most innovative UX on the market is the main driving force behind the project.

Modelling user experience around products

Atom Bank is arguably the highest profile business using this approach. All products will be built on Unity, a game-design platform which offers the type of view on development traditional banks wouldn’t even consider.

Both of these approaches are viable and clearly working in the digital age – there is enough buzz around emerging banks that it’s clear people are disillusioned with traditional banks and looking for an alternative.

To retain customers, banks are empowering them, (Tradestreaming), Rated:AAA

Only 55.1 percent of bank clients said they are likely to stay with their bank in the next 6 weeks, according to the 2016 retail banking survey. Less than 40 percent said they will refer a friend to their bank.

In North America, 68 percent of customers aged 18-34 say they would welcome receiving Personal Finance Management offerings like a “safe-to-spend” analysis from their bank, according to Accenture.

Deutsche Bank, for example, launched its PFM FinanzPlaner, developed by financial software company Strands.

ING recently launched a slew of digital money management products. The bank added a forecasting feature to its mobile banking app in the Netherlands. ING in Spain launched a digital financial advisor called My Money Coach and a similar one was launched in France.

Barclays’ PFM solution is open even to non-customers, highlighting the importance of such an offering for customer retention and acquisition.

4 best ads for loans during the Summer of 2016, (Tradestreaming), Rated: A

Australian home lender and mortgage broker Aussie’s September 2016 ad has a family applying for a loan in an airy, bright room, among dozens of service providers eager to assist and a jovial boss helping Mom and Dad choose the very best home loan option for them.

State Farm’s June 2016 car loan/insurance commercial cleverly parallels a young woman getting a car and an older businessman discovering that his car has been jacked. Though they each say the exact same sentences, “I cannot believe this” and“what a day”, they each benefit from a different financial service from the insurance provider.

Rocket Mortgage’s $5 million Super Bowl ad riled consumers, who believed that Rocket Mortgage spelled the housing apocalypse 2.0. The firm’s 2016 summer ads have avoided any major controversy so far, and tap into the renewed Star Trek franchise, with Vulcans discussing and explaining how Rocket Mortgage works.

Ok, so this video from Sainsbury’s Bank was actually posted back in May, before summer kicked off, but it snuck onto the list thanks to its really funky cinematography, which intersperses the loan applicants’ narrative with wacky short clips that enact what the family is talking about. The bank has a number of 2016 YouTube shorts that follow the same template, advertising other products, like travel money and credit cards.

 

United Kingdom

P2P Global Investments and VPC Speciality Lending among hardest hits trusts since Brexit, (Alt Fi Credit), Rating: A

The two largest p2p and marketplace lending focused closed-ended funds are among the worst performers of all investment trusts listed on the London markets since market fallout from the Brexit vote, according to research by Numis Securities.

The best performing funds have been in Asia/EM, benefitting from both strong local markets (the MSCI Asia ex Japan is up 10% since 23 June in local currency terms) and the weakness of Sterling, down 10 per cent versus the US dollar. Technology and biotech has also rallied after a weak start to the year.

“Concerns have been expressed about the quality of loan books, the effectiveness of credit analysis, growing delinquencies, slowing growth, funding shortfalls and the prospect of greater regulatory scrutiny, while the Lending Club debacle has cast a long shadow. Against this challenging backdrop, full disclosure and transparency are critical to address growing investor concerns. “

Alan Brierley, director of investment company research at Canaccord Genuity says for P2P Global Investments – the largest fund in the space – a significant hit was from an impairment charge of £7.7m.

The £414m BlackRock Income Strategies Trust also makes it into the list of worst performers. It also is a big investor in P2P, holding one of the largest stakes in the Funding Circle SME Income fund, another listed vehicle, albeit a stronger performer since Brexit.

Pariti taps into Zopa API to help millennials pay off card debt, (Finextra), Rated: A

UK money management app Pariti has formed a referral partnership with P2P financing outfit Zopa to help users swap out their credit card debt for a consolidation loan.

The startup, which claims 70,000 users, says the agreement with Zopa is the first of a number of bundled relationships aimed at creating a ‘marketplace bank’ for millennial consumers.

Pariti is using Zopa’s recently-released loan application service API to draw down rates from the peer-to-peer funder.

European Union

European Alternative Finance Jumps to €5.4 billion in 2015, (Crowdfund Insider), Rated: AAA

The report can be found here.

The Cambridge Centre for Alternative Finance (CCAF) has published its 2nd report on the rapid growth of alternative finance across Europe. Entitled “Sustaining Momentum“, the CCAF research has quickly become the definitive report quantifying the growth and documenting the evolution of alternative finance around the world. CCAF has previously published research on new forms of finance covering both the Americas and Asia Pacific.

According to CCAF, as one would expect, the UK continues to dominate the continent at €4.4 billion in aggregate funding. France and Germany are second and third with €319 million and €249 million. The Netherlands had a solid showing at  €111 million. If you remove the UK, European alternative finance increased by 72% year over year going from €594 million in 2014 to €1.019 billion in 2015. While the overall rate of growth slowed, the industry is sustaining momentum as new regulations kick in and platforms mature.

Other interesting facts highlighted in the research:

  • Estonia is 1st in Europe in alternative finance volume per capita at €24, followed by Finland at €12 and Monaco at €10 (outside of the UK).
  • UK per capita volume stood at over €65
  • Balance Sheet lending was very small at just € 2 million, excluding the UK
  • About 38% of surveyed platforms felt their national regulations for crowdfunding and peer-to-peer lending were adequate and appropriate, 28% perceived their national regulations to be excessive, and a further 10% said current regulations were too relaxed.
  • The biggest risks cited were increasing loan defaults or business failure rates, fraudulent activities or the collapse of platforms due to malpractice.
  • The UK had the most platforms (94) followed by France (49), Germany (35) & Italy (30)
  • Just shy of 50% of firms indicated no in flow of funding from outside their country, while 72% of platforms indicated no out flow of funds to other countries

Finnovista: Spanish Fintech Sector Has Quadrupled in Three Years, (Crowdfund Insider), Rated: A

When Finnovista first covered Spanish fintech in 2013, the site recorded only 50 startups in the sector; now, three years later, in its first edition of Fintech Radar Spain, the site identified 207 Spanish fintech startups, indicating the sector had quadrupled in three years, stats largely in line with fintech’s global trend.

Finnovista predicts that over the next five years fintech startups will compete to overtake 20% the traditional Spanish banking market creating a more significant presence in all categories of financial services including Payments, Loans, Management Corporate Finance and Personal, Insurance, Investment Management, Trading, and Savings.

In addition, Finnovista cited that Spain’s 207 fintech startups make Spain the largest market for innovation compared to Latin America, ranking significantly above Brazil’s 130 startups, Mexico’s 128 startups, Colombia’s 77 startups and and Chile’s 56 startups. Not surprisingly given these statistics, Spanish Fintech leads in number of startups in 12 of the 13 categories that Finnovista monitors through its initiative Fintech Radar for Latin American countries.

Author:

George Popescu