Thursday April 19 2018, Daily News Digest

Personal Loan providers

News Comments Today’s main news: Tala raises $65M for international expansion. The House Crowd hits 1M GBP in one day. Silicon Valley investment into UK hits $1B. 100Credit gets $159M from state-owned fund in China. Mintos adds ID Finance loans issued in Kazakhstan. Today’s main analysis: The 5 best personal loans for good credit. Today’s thought-provoking articles: LendIt Fintech […]

Personal Loan providers

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United States

United Kingdom

China

European Union

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News Summary

United States

Fintech lender raises $ 65M to expand in developing nations (American Banker) Rated: AAA

A U.S.-based lender that targets borrowers in developing nations where credit scores are often hard to come by has raised $50 million in new equity funding.

Tala, based in Santa Monica, Calif., plans to use the latest round of funding to develop new products for its customers in Kenya, Tanzania, the Philippines, India and Mexico.

It also raised $15 million in debt capital that it will use to fund loans.

Wrap-Up of LendIt Fintech USA 2018 (Lend Academy) Rated: AAA

Last week the sixth annual LendIt USA conference took place in San Francisco. Officially known as LendIt Fintech USA 2018 this event was, in my opinion, the best we have ever produced.

The opening keynote, for the second year in a row, was delivered by Scott Sanborn, the CEO of LendingClub. He gave a different kind of presentation this year. He didn’t talk much about LendingClub at all, instead choosing to focus his keynote on financial health and the looming crisis that maybe coming. He gave us all something to consider beyond just disruption, he said we should think about three key areas: financial inclusion, regulatory innovation and customer alignment. He ended with a call to action for the industry. He wanted everyone to focus on what problem you are solving and what you can do to help restore financial health to all Americans.

The 5 Best Personal Loans for Good Credit (Student Loan Hero) Rated: AAA

The average credit score of Americans is 700, based on April 2017 data from Fair Isaac Corp., an analytics company that issues the FICO credit score.

If your score meets or beats that average, it’s enough to put you in the good credit score range, which goes from 670 to 739. As a result, you should have a good chance of getting approved for some of the best personal loans for good credit.

Source: Student Loan Hero

Your Best Options If You Need a Personal Loan With a Cosigner (Student Loan Hero) Rated: A

As you compare, you’ll find LendingClubCitizens Bank, and FreedomPlus— all online lenders that accept cosigners. They all accept FICO scores under 700, with LendingClub accepting FICO scores as low as 600.

Here’s a list of some online lenders that accept cosigners for personal loans:

  • LendingClub
  • Citizens Bank
  • FreedomPlus
  • Backed
  • OneMain Financial
  • LightStream

Avant vs. LendUp: Which Is Right for You? (Student Loan Hero) Rated: A

Not only will Avant consider your application even if you have a low credit score, but working with this lender has other benefits.

  • You can get your money after one business day.
  • There are no prepayment fees.
  • Although the average customer has a credit score between 600 and 700, those with poor credit are also considered.
  • The company has a 95% customer satisfaction rate.
  • The lender offers self-service tools and live support seven days a week.

The biggest benefit of LendUp is the ability to get money fast. In certain states, you could even have your funds in 15 minutes. But there are some other positives as well.

  • There are multiple options if you’re having trouble paying back the loan.
  • Repeat customers can borrow more and at lower rates.
  • There’s an education platform with free videos and articles breaking down complex financial matters. It also teaches you how to make better money decisions.

Wunder Capital Raises $ 112 Million in Financing To Fuel Commercial Solar Growth in the U.S. (Crowdfunder Insider) Rated: A

Wunder Capital, a firm that develops and manages solar investment funds through partnerships, test processes, underwriting framework and its investment portal, announced on Wednesday it secured $112 million in equity and debt financing to accelerate the growth of the company.

9 Ways To Invest In Real Estate Without Buying Property (Forbes) Rated: A

Goldman Sachs Has Big Plans for Marcus and the Future of Retail Banking (Crowdfund Insider) Rated: AAA

Blankfein commented on the other obvious strategic advantage. Their cost of capital is super low.  Unlike many of the early entrants into the online lending sector, Marcus has access to deposits via their acquisition of GE Capital Bank several years back – something no other US based online lender can claim. Even with their industry leading interest rate for current accounts (now 1.6% when most banks pay a fraction of that), Marcus can crush the competition in loan originations.

Goldman Sachs’ hot new business is lending to subprime consumers, and Wall Street’s starting to ask questions (Business Insider) Rated: B

Marcus has originated more than $3bn of loans since inception, recently it has become know that more than 10 percent of the loans were sub prime; they have said this is a natural evolution of the loan business and they are being very selective in approving of applications.

GreenSky Personal Loans Review: Low-Interest Loans for Home Improvement (Student Loan Hero) Rated: A

As an online loan servicer, GreenSky works with borrowers and merchants to provide low-cost personal loans for home improvement, specialty retail, and healthcare expenses. It’s funded more than $10 billion in loans to over 1.3 million customers, according to the lender.

Individual borrowers can apply for home improvement loans, which can be used for flooring, windows, landscaping, or other projects. Home improvement loans come with fixed APRs between 3.99% and 23.99%, as of April 18, 2018. You can choose terms of 42, 66, or 90 months. For the most up-to-date rates, check GreenSky’s website.

Real estate crowdfunding: What you need to know (Bankless Times) Rated: A

Right now, real estate crowdfunding companies are becoming very popular because they allow you to pool your resources in order to buy property or to finance real estate companies who are looking to build properties.

48 Million Detailed Psychometric Records on Individuals Leaked (InfoSecurity Magazine) Rated: B

About 48 million records of detailed personal information on tens of millions of individuals have been leaked, containing Cambridge Analytica–style information gathered and scraped from multiple sources.

The culprit, as is the case all too often, is a misconfigured cloud storage repository, in this case belonging to a company called LocalBlox. LocalBlox bills itself as a personal and business data search service, but it’s bread and butter is data-harvesting and the creation of psychometric profiles of individuals.

Point Initiates Forward Flow Purchase Program with Atalaya: Unlocking Home Equity Wealth (Crowdfund Insider) Rated: B

Point, a fintech platform that allows homeowners to unlock home equity wealth without taking on new debt, has agreed to a forward flow purchase program with investment firm Atalaya Capital Management to purchase up to $150 million of Point’s structured home equity investment instruments.

StreetShares Appoints Mohan A. Rao New Chief Product & Technology Officer (Crowdfund Insider) Rated: B

Financing military veteran-owned small businesses lender StreetShares announced on Wednesday it has appointed Mohan A. Rao as Chief Product and Technology Officer. According to the online lender,  Rao is the former Chief Technology Officer of Hobsons, Inc., and brings more than 25 years of experience with building software products, R&D, and management consulting to the StreetShares team.

Millennium Trust Recognized as “Professional Services Company of the Year” at LendIt Fintech USA 2018 (PR Newswire) Rated: B

Millennium Trust Company, LLC, was honored at LendIt Fintech USA 2018 as the “Professional Services Company of the Year,” which is awarded to the service provider that has demonstrated deep expertise, unique value, strong ROI, commitment to clients, and the fostering of a deeper understanding of fintech. Organizations such as Cloud Lending Solutions, Deloitte, First Associates, Manatt and Salesforce also received nominations for the award.

Capsilon Expands Digital Mortgage Platform, Automating up to 80% of Manual Data Auditing & Processing Across Back Office (Capsilon) Rated: B

Capsilon, an enterprise SaaS digital mortgage solution partner to the mortgage industry, today announced the expansion of its digital mortgage platform through the addition of big data capabilities and a new set of smart tools designed to radically improve back office workflows and accelerate loan production. With this new data audit functionality, Capsilon can reduce manual data entry and speed up data auditing across the loan process, enabling companies to automate up to 80% of manual processing functions.

 

United Kingdom

Crowdfunding platform hits £1 million in a day (Growth Business) Rated: AAA

Property crowdfunding platform The House Crowd have raised just over £1.3 million over a 24-hour period to support housing developments in Greater Manchester. This is the first time the business has broken the £1 million mark in a day.

Most of the money – £1.2 million – was for its Egyptian Mill Development of 42 house and 15 apartments in Lees, just outside of Manchester. Attracted by a typical return of 10 per cent each year over a 15 month investment term, investors have clambered to raise funds and support new build houses and flats as the UK housing crisis continues.

Silicon Valley investment into the UK breaks $ 1BN for the first time (Information Age) Rated: AAA

UK law firm Pennington Manches has today revealed that British companies are enjoying an unprecedented period of investment from West Coast-based US firms, with 74 deals contributing to a total value of £1.08 billion in 2017 – the first time Silicon Valley investment into the UK has broken the billion-dollar mark.

​The new report found that software companies take the lion’s share of this investment, benefiting from £2.2 billion in funds since 2011. The number of deals from Silicon Valley into UK firms has increased by 252% over that period.

P2P lending set to pass £9bn milestone (Peer2Peer Finance) Rated: AAA

LENDING at the UK’s largest peer-to-peer finance platforms is fast approaching £9bn.

Data from the industry’s trade body the Peer-to-Peer Finance Association (P2PFA), released on Thursday, showed its eight members – Crowdstacker, Folk2Folk, Funding Circle, Landbay, LendingWorks, MarketInvoice, ThinCats and Zopa – reached cumulative lending of £8.96bn at the end of the first quarter of 2017.

The figure is up 11.5 per cent on the fourth quarter and 57 per cent higher year on year.

Transferwise becomes first non-bank to join BoE payments system (AltFi News) Rated: A

TransferWise has become the first non-bank payment services provider to hold a settlement account in the Bank of England’s Real Time Gross Settlement (RTGS) system.

The new access should lower costs for Transferwise, one of the UK’s largest fintech start-ups, as TransferWise joins the Faster Payments Scheme (FPS also).

 

Alternative funding for SMEs demystified (Business Matters) Rated: A

However, as Business Matters reported back in December, over 40 per cent of companies say they would have to put their expansion plans on hold if they could not attain funding.

Research shows that most SMEs turn to traditional sources of funding – such as overdrafts, credit cards and bank loans – when they need a cash injection. What’s more, many are unaware of – or are unclear about – the recent expansion in alternative forms of business financing such as crowdfunding or P2P lending. That’s a shame, because many of these new funding options are very well suited to the needs of SMEs and start-ups.

Crowd2Fund prepares to cross fintech bridge to Australia (Finextra) Rated: B

Leading P2P lending platform Crowd2Fund are launching an Australian office by becoming one the first UK-based companies to utilise the new ‘FinTech Bridge’ between the UK and Australia.

Mechanics Cooperative Bank chooses Finastra for core banking system (Real Wire) Rated: B

Mechanics Cooperative Bank has selected the Fusion Phoenix core banking system from Finastra, as well as a full suite of ancillary offerings, to provide its new technology foundation. The solution will bring together a wide-range of proven, specialized software into a single environment that is more easily managed in the back-office, providing greater workflow and interface efficiencies for the bank’s staff, and ultimately customers.

China

CreditEase Wins Major Awards at LendIt Fintech USA 2018 (PR Newswire) Rated: AAA

As the exclusive “Global Leader” partner of LendIt Fintech USA 2018, Yirendai was awarded “Top Consumer Lending Platform” and was the only Chinese enterprise to receive a LendIt Fintech industry award, which demonstrates high recognition of its outstanding contributions to the innovation of the financial services industry. In addition, Ms. Yihan Fang, CEO of Yirendai was nominated for “Executive of the Year” and CEFIF was nominated for “Top Fintech Equity Investor”. Both nominations are strong recognition of the great achievements CreditEase has made in both wealth management and Fintech investment fields.

Fintech Start-up 100Credit Gets $ 159M From State-owned China Reform Fund (China Money Network) Rated: AAA

China Reform Fund Management Co.,Ltd, a private equity firm backed by China Reform Holdings Corporation Ltd and other central state-owned enterprises, has led a RMB1 billion (US$159 million) series C round in 100Credit, a fintech start-up that uses big data to provide credit services.

Existing investor Sequoia Capital China also participated in the round, according to 100Credit’s announcement on its official WeChat account.

Softbank leads $ 25m Modalku round, while 500 Startups backs HelloGold (TechinAsia) Rated: B

Alipay pilots digitized national ID cards (China). The digital payments app run by Alibaba affiliate Ant Financial is testing out integration of the Chinese government’s pilot digital ID card scheme, which could one day replace physical ID cards.

European Union

Orange’s entry into digital banking forces old guard to react (Financial Times) Rated: AAA

Orange Bank has already onboarded more than 100,000 customers since launch, only Revolut and Boursorama, Société Générale’s digital banking arm have made more progress in the same timeframe; this continues the wider trend across Europe as digital banking becomes a bigger part of the financial services ecosystem.

Swedish startup Tink just smashed open the floodgates to 300 banks’ data – and it’s a game-changer for Nordic fintech (Business Insider Nordic) Rated: A

Last year, after raising €14 million in funding from a consortium of traditional and online banks, Tink pivoted to licensing its technology to banks so they can build their own apps and fintech services.

The startup is now doubling down on its B2B business by launching a third-party developer platform. This means that the same technology that Tink has provided to banks like Nordea and SEB, will now be open to any company that wants to gain access to a given consumer’s account data (with the consumer’s permission).

The Crowdfunding Trend – Threat or Opportunity? (Eureka) Rated: A

There are some concerns that the rise of crowdfunding will cause major disruption across industries. According to the world bank, 2016 saw more money raised from crowdfunding than from venture capital.

In Finland, for example, there is no requirement for crowdfunders to have an MiFID licence, which means that companies who have obtained a licence are more strictly regulated than their unlicensed competitors. Other nations have been quicker to adapt – in France and the UK existing legislation has been brought smoothly up to date to be compatible with crowdfunding.

GDPR and financial advice: Special categories of personal data (Professional Adviser) Rated: A

The difference between ‘data’ and ‘sensitive data’ – that is, between Article 6, which we considered in more detail here, and Article 9 – is that the individual must give explicit consent to the processing of each type of special category of data.

If, for example, a firm will be asking someone whether they are a smoker and will also be recording they are a member of a specific trade union, then the firm would to need capture explicit consent from the individual that they are happy for the firm to collect and process this data about their health and their trade union membership.

For financial advisers, this consent will need to be gathered early in the customer engagement process, with it being made clear the data will be processed and what it will be processed for.

International

Mintos Marketplace Adds ID Finance Loans Issued in Kazakhstan (Crowdfund Insider) Rated: AAA

Mintos, an online marketplace that provides individuals with a simplified way to invest in loans originated by a variety of alternative lending companies, announced on Wednesday that fintech firm ID Finance has further diversified investment opportunities on the Mintos marketplace by launching personal loans listed in Euro (EUR) and Kazakhstani tenge (KZT) under its Solva brand in Kazakhstan.

According to the companies, Solva uses a scoring system built around machine learning, advanced risk assessment techniques, multiple search technologies, big data and text mining. The system also evaluates the device on which the loan application is being filled out and the user’s behaviour when filling out the application.

Mo money, mo cash (Financial Times) Rated: AAA

But according to a new report published by G4S, the massive 117-year-old global security firm, we’re actually still moving in the other direction — at least in most countries.

Poor old cheques. And cryptocurrencies don’t fare too well either.

India

US-based fintech firm announces its expansion in India’s lending space (Medianama) Rated: AAA

California-based fintech company Tala said that it is bringing its lending app to India. This expansion was announced along with a new $50 million Series C funding led by Revolution Growth its operations in the country which is already in progress. In addition to Revolution Growth, Tala’s Series C round includes existing investors IVP, Data Collective, Lowercase Capital, Ribbit Capital, and Female Founders Fund. Steve Murray, managing partner at Revolution Growth, will join Tala’s board of directors.

Asia

 

Singapore Fintech Association established Marketplace Lending Committee (Finextra) Rated: AAA

The Singapore Fintech Association (SFA) today announces the launch of the Marketplace Lending committee and website, in response to the rapid growth in the sector.

In 2016, Southeast Asia’s alternative finance market reached a record US$215.94 million, a growth of 362% compared with 2015. Data for 2016 showed that Singapore’s alternative finance market size was valued at US$163.75 million, more than double the entire value from 2013-2015. This upward trend is reflected internationally. The global lending market valued at US$3.5 billion in 2013, expecting to reach US$1 trillion by 2050, according to Statista, a market research company.

Revolut empire-builder seeking to tame “the Asian dragon” (AltFi News) Rated: A

Rishi Stocker, head of partnerships at Revolut, is currently focused on coordinating the banking challenger’s entry into Japan. Speaking to AltFi, Stocker said that the Japanese market, unlike others in Asia, is a tough nut to crack.

He said that regulators are “very keen on local presence and very concerned about international companies entering and then suddenly changing their strategy and leaving”.

To allow Revolut to set up shop in Japan, regulators have insisted that the fintech firm appoint an experienced local Japanese expert as a director of the entity. “That’s quite an interesting nuance of Japan whereas a lot of other markets are a lot more open – so long as there’s a strong compliance team based in our head office in London,” explained Stocker.

Authors:

George Popescu
Allen Taylor

The Broken Promises of Peer to Peer Lending

The Broken Promises of Peer to Peer Lending

About a decade ago, peer to peer lending came on the scene. It was designed as a way for people to borrow money not just from banks or other lending institutions, but from individual investors. Anyone could go onto a platform like Lending Club or Prosper, and fund any of the loans on its platform. […]

The Broken Promises of Peer to Peer Lending

About a decade ago, peer to peer lending came on the scene. It was designed as a way for people to borrow money not just from banks or other lending institutions, but from individual investors. Anyone could go onto a platform like Lending Club or Prosper, and fund any of the loans on its platform. They could fund entire loans, or invest in fractions.

This new technology promised to cut out the middle man and enable the everyday depositor to make a bank’s return on their money instead of it sitting in a savings account generating 1%.

Peer to peer promised new methods of assigning risk by utilizing technology to gain more information on borrowers. New data points gave underserved markets like millennials another chance to access new capital.

By streamlining the process, fewer expenses to originate these loans would result in better margins for originators, smaller barriers to entry, more competition, and ultimately more innovation. With more transparency, individual investors would have all the information they needed to buy loans that would be paid back.

Everybody was supposed to win.

But it didn’t work out that way. What went wrong?

In their zeal to revolutionize lending, the peer to peers fell short. They were unable to execute working solutions to overcome the following challenges:

Too many middlemen.

Online lenders were able to streamline some of the steps and automate others, reducing costs. They still need lawyers. They still need credit rating services. They still need accountants, auditors, brokers, salespeople, and more middlemen to make their platform work.

Even though onboarding and underwriting are now more efficient, there are still huge expenses in acquisition, cost of capital, and servicing. The added value in the new lending model only brought down costs marginally, and not significantly.

Failure to Diversify.

A new breed of lender was hatched when platforms empowered ordinary customers to lend their savings out at 7-20% rather than parking in a standard checking account. This brought a diversity of investors and interests to this new form of lending.
It fizzled out too soon. To raise $100 million, a lending platform would have to encourage 10,000 customers to transfer $10,000 from their personal accounts to their platform. That requires an army of salespeople, all earning commissions. A bank, or large financial institution could fund $100 million in loans with a single order.

Which is exactly what they did.

They began to wield disproportionate power over the lending platforms. Peer to peer was supposed to offer everyone the same opportunity. The banks were able to muscle their way into control by scaling up the platform companies in a way no retail investor could. The banks began to demand to see the loans before everyone else. They were able to cherry pick the most attractive loans, leaving the pits for everyone else.

As lending platforms grew, hedge funds rushed in to provide lending capital. They saw the opportunity while interest rates for low. They could raise money at low rates, while personal loans still demanded higher interest, creating high margins. This created a single flow of capital to the online lenders, thus creating a concentration risk where all the money was coming from one place.

Hedge funds don’t originate personal loans, so they funded online originators to get into this market. This drove peer to peer away from lending to the people, and more towards lending for the hedge funds. The biggest sign was when lending platforms stopped offering fractional loans, which was a great opportunity for smaller investors.

Market Share over Monetization

Most lending platforms started with venture capital funding. The marriage between finance and technology, is complex. The traditional strategy of early stage tech companies is to prioritize gaining market share over profitability. With financial institutions, the bottom line is always, the bottom line: profitability comes first, then scale up.

Peer to peer lenders applied the tech model to a financial industry. As a result, standards for accepting new borrowers were relaxed, loaning money to less qualified people. By the first quarter of 2016, default rates skyrocketed. This resulted in a higher risk premium on everyone. The hedge funds pulled back all at once.

Supply kept on coming in, but they were unable to unload it to enough investors once the hedge funds pulled out. They had to pivot to securitization. The small investor gradually got edge out of the buy side.

Lack of Transparency

In giving retail investors the chance to loan money to people, they were supposed to have access to all the details involved in pricing the loan. As costs to maintain this lending model continued to rise, online lenders were only giving out enough information on potential borrowers to satisfy regulators. Too much uncertainty increased the level of risk for potential lenders within the platform.

Conclusion

Despite the innovations in user experience, underwriting, and measuring risk, online lenders are still struggling to fulfill their vision to revolutionize lending by increasing inclusion and reducing costs. Since mid-2016, the barriers of entry have risen dramatically for originators, as well as smaller investors. With less diversity in the market, liquidity remains a barrier to growth. The inability of both platforms and investors to offload loans from their balance sheet has caused a stagnation in the industry.

The winner takes all momentum has reasserted itself, and the big players have retained their title.

Authors:

Gilad Woltsovitch is the Co-Founder and CEO at Backed Inc., responsible for designing the company’s first-class platform, UX and UI. Before Backed, Gilad co-founded iAlbums, a semantic curation engine for media players in 2010 where he served as the company’s CEO from 2011-2014. In 2013, Gilad also served as the entrepreneur in residence for Cyhawk Ventures and joined the Ethereum project, establishing the Israeli Ethereum meet-up group. Gilad holds a Masters of Art Science and Bachelors in Sonology from the Royal Conservatory of The Netherlands in The Hague, University of Leiden.

 

The Evolution of Credit: From Mesopotamia to Marketplace Lending

Backed credit

Lending is as old as civilization itself. Seven thousand years ago, in the Fertile Crescent known as Mesopotamia, Sargon the farmer had 100 apples. His friend, Hammurabi, had 10 bushels of wheat. They exchanged what they had and now Sargon has wheat and Hammurabi has apples. Everyone bartered to meet their needs. Then Sargon got […]

Backed credit

Lending is as old as civilization itself.

Seven thousand years ago, in the Fertile Crescent known as Mesopotamia, Sargon the farmer had 100 apples. His friend, Hammurabi, had 10 bushels of wheat. They exchanged what they had and now Sargon has wheat and Hammurabi has apples. Everyone bartered to meet their needs.

Then Sargon got a little creative.

He came to Hammurabi with a special offer: 60 apples in return for 10 bushels of wheat with the promise that at a future date, he will deliver another 60 apples to complete the deal. Now, Sargon has the wheat he needs, plus an additional 40 apples. With the extra fruit, he can take the seeds and plant more. In due time, he pays off his friend who is happy to see a 20% rise in income. Everybody benefits.

Thus, began the concept of credit.

It was only a matter of time before some other clever people decided to create a common medium of exchange to scale it up. Currency made it all easier. You could buy apples, wheat, and everything else with silver, gold, and eventually paper.

You could also borrow currency to create leverage. The credit system has underwritten prosperity from Mesopotamia, to the first paper currency minted in ancient China, the deposit and loan banking system which started in ancient Greece, the Renaissance fueled by the Italian Banking system, the first Credit Union in 1852, to the last time 1,000 Smartphones were shipped from Singapore to San Francisco backed by a letter of credit.

From then until now the process hasn’t changed. An individual goes to a lender asking for a loan. He fills out forms, provides information about his assets, income, and current debt levels. The lender reviews the information and makes a decision.

For the most part, lenders are financial institutions who take deposits, which they usually pay very little to depositors to hold, then lend out those deposits to borrowers paying them 10-20%. It has been great for the lenders, who haven’t had any incentive to change or innovate the process.

To pay back the loan plus interest, it’s the borrowers who must take risks. They are the innovators, so they produce. They are the ones forced to sweat.

Credit has propelled man forward from the stone age to the digital age.

The Revolution in Online Lending

The great advancements traditional lending financed came with a downside. The user experience was cumbersome, borrowers were limited to whom the lender decided was a worthwhile risk, and lenders benefited most. A lot of people were left out, and the lenders made huge margins loaning out other people’s money while the people who deposited the money saw very little of those returns.

The peer to peer lending model, launched by Prosper in 2006, introduced the most significant breakthrough in consumer lending. It transformed the lenders into innovators, reinventing the credit system to fix all of these imperfections.

Online lenders are productively disrupting the ancient credit model in 4 ways:

1. Utilize technology to give users a better experience.

An applicant for a loan no longer has to haul himself to a lending institution, wait on line, and fill out paperwork. Everything can be done in the comfort of the user’s home. The user can fill out forms online and submit them to an online lender in one click. The online lender can call information like credit scores and past income histories from its own computer, make a decision, and if approved, wire the loan directly to the borrower’s account.

2. Leverage new methods of gathering data to transform risk algorithms.

With vast amounts of data available at everyone’s fingertips, online lenders can now use new information to underwrite loans. Risk models can now be expanded to include new factors like social media, email histories, even mobile phone usage. Online lenders like Upstart have advanced lending models that go beyond credit scores to evaluate risk based on academic achievements. Cabbage underwrites businesses by looking at the lenders available Amazon information.

Expanding on the traditional credit score and debt to income models, online lenders are discovering a new class of prime lenders.

3. Diversifying sources of capital.

Traditional financial institutions are no longer the only business in town. Peer to peer lending lets individuals lend to other individuals. A borrower can now get money from multiple sources. Every lender is forced to be more competitive. Retail and individual investors can opt to invest in loans rather than put their money in a checking account. They can be just like any financial institution, making double digit returns on money originally designated for their checking account.

4. Increase profits for all stakeholders.

Automating more of the loan process requires less labor costs to service each loan. That creates productivity gains which translates to more profit for all parties involved.

For thousands of years human progress has marched forward under a credit system that benefits one party over the others. The emergence of a new system of credit that rewards all involved will propel the advancement of mankind to heights beyond our wildest imagination.

Sargon would be impressed.

Author:

Gilad Woltsovitch is the Co-Founder and CEO at Backed Inc., responsible for designing the company’s first-class platform, UX and UI. Before Backed, Gilad co-founded iAlbums, a semantic curation engine for media players in 2010 where he served as the company’s CEO from 2011-2014. In 2013, Gilad also served as the entrepreneur in residence for Cyhawk Ventures and joined the Ethereum project, establishing the Israeli Ethereum meet-up group. Gilad holds a Masters of Art Science and Bachelors in Sonology from the Royal Conservatory of The Netherlands in The Hague, University of Leiden.

Rising Up From the Online Lending Crisis of 2016

Backed

A one on one with Gilad Woltsovitch, founder of the online lending platform Backed, Inc. His personal journey navigating the turbulent times of the last two years, how Backed emerged from of the online lending chaos of 2016, and how he discovered a Blockchain-based solution to establish a secondary market for credit assets that can […]

Backed

A one on one with Gilad Woltsovitch, founder of the online lending platform Backed, Inc. His personal journey navigating the turbulent times of the last two years, how Backed emerged from of the online lending chaos of 2016, and how he discovered a Blockchain-based solution to establish a secondary market for credit assets that can add at least another half a trillion dollars to the online lending industry over the next five years.

This interview consists of two parts. Part 1 is below. Part 2 will be published next Tuesday.

Tell us about the opportunity you see with the plateau online lending has hit and the maturity of Blockchain and Ethereum?

Alternative lending reached a point where it is a sizeable enough industry to remain a viable financing source for credit, we think there is a huge market to disrupt using Blockchain technology because right now this industry reached around $182 billion globally in online lending.

But the potential is much bigger.

The immediate addressable market is around $1.5 trillion globally. The only problem is that all of these assets are being generated in silos so every single company issuing borrower notes is doing its own underwriting, risk scoring, reconciliation, and issuance of notes all inside their own ecosystem.

Because there’s no secondary market, the industry has reached the point where it’s difficult to continue to grow because of these liquidity issues. In a short time, this new form of lending captured over 10% of the market. A new catalyst to move it forward is a real game changer.

How did you get interested in blockchain in the first place?

I read about Ethereum in a white paper. I got really interested in the technology and how it could bring disruption to the world of trust. It seemed like general purpose blockchain is the right way forward compared to the others who were trying to build on top of blockchain which wasn’t what blockchain was meant to be. That’s what got me interested in Ethereum. It is a very pragmatic and elegant solution to making a general purpose blockchain.

The ICO for Ethereum happened, I think, half a year later. I participated it in because I was emotionally invested in it already. I believed in the vision.

Vitalik reinforced the seriousness of this.

What role did you envision Ethereum and Blockchain at that point?

It’s interesting because we were just entering the FinTech space, after getting really excited about the revolution bitcoin brought about. At the time, we felt that the whole technology was too premature to go out and confidently raise funds from investors and be accountable for building a product on top of the protocols that were so young and so volatile. We thought it’s not a right time to build a blockchain business. Especially for us at the time because we are not cryptographic developers.

But, I knew from day one, and I told it to every single investor that joined Backed, Inc., that Blockchain technology should be the foundational kind of structure that we build on for our products.

So, in the back of my mind, even though Backed was started up as a very traditional alternative lender, I always knew that once the ecosystem matures enough, we will incorporate it into the business. That’s what led to the birth of Credium.

What was it that got you so interested in Blockchain technology?

The ability to transfer information transparently, and reduce the need for third party trusted intermediaries in between. It’s something that I began to understand when studying music. I studied the theory of electronic music, or, signals in general. There is a concept called the signal and system theory. When I look into a lot of networks in general, I always look at it from this kind of paradigm, thinking how is the correlation between the signal, as you transfer it throughout your network with minimal amount of loss. If you have signals floating through air, which is in music, you have minimal loss of information because the medium itself is just transferring the data. But once you need to digitize it, and start processing it, and reconciliating between two end points not necessarily speaking the same language, reducing it all to a failed information transference.

The bank hosts information about deposits. How many deposits does it have? How do those deposits behave usually? It needs to analyze through its systems how this information will help loan officers make decisions of how much leverage can it take, who can take the risk, and how does their profile look?

In a centralized system, you need a lot of intermediaries. They stamp the validation, the correctness, the kyc, the credit history, the amount of available funds, the risk model itself. Everything has to be vetted and audited, and when it’s transferred between entities within the same system, or even more complicated, between systems, you have more and more points of failure. Intermediaries cost money. In the end, the borrower pays more.

You see a problem when information has to go through too many hands, and the borrower pays for it?

Exactly. At the end of the day, everybody in the middle needs to get their piece of the pie. In the system of credit, the borrower is always in the lower position to incur all the markups and costs.

Do you see this as the problem that you set out to solve?

This is what drew me into the idea of blockchain. How can we share information that will help us transact transparently without the need of intermediaries? We wanted to start our own business that will help borrowers access credit. It was too early to take a head dive into blockchain back in 2014. The whole world of peer to peer lending was just emerging. We saw that as a great opportunity to focus on a niche market that wasn’t getting served by the big players who dominated the space.

What niche market?

We noticed that the whole experience of people who didn’t accumulate enough credit history in order to be scored sufficiently. The models that the growing industry has been using is taking the minimum risk possible by only rewarding the customers they can find. You were being penalized by the old models for not having enough debt, and then you are paying more for the debt that you do take, which makes it more difficult to pay off, or pay off on time, which makes it harder to get more debt, or pay it off at a reasonable cost.

I saw proliferation of many companies who tried to attack and bring novelty to the risk underwriting mechanism. Upstart is a notable example. It started looking into underwriting people based on their education.

You saw that there were populations that were being underserved, and that the models were not getting enough information, charging more money because they just weren’t assessing the risks efficiently?

The industry as a whole noticed that these arcane models needed to be updated. Every platform took their own approach on how to resolve this within the regulatory boundaries of risk scoring.

Backed was one of those novelty companies that was part of the Lending 3.0 revolution. Backed was the cosigning flow of the solution.

What niche did you see the most opportunity in during the online lending revolution of 2013?

I noticed that “thin filed millennials,” as I call them, were branded by the Consumer Financial Protection Bureau as “credit invisibles.” This population is basically mainly millennials or immigrants that do not necessarily have enough history in the system to get a sufficient score.

What opportunity did you see to serve their needs?

We looked into how they get through college, to their first job, and their first apartment. We noticed that they rely on their families much more than you would think traditionally.

After 2008, more and more millennials had to rely on their parents to either continue to subsidize their rent, or let them use their parents credit cards because their parents have a good credit score.

How did this fare?

We built up the system in 2015. We launched the pilot program, Backed, Inc, in 2016. We gave our first loans with capital from our equity investors. Our business is growing better than we anticipated.

Around 40% of the portfolio is backed by cosigners. Every borrower with us has seen his credit score increase by at least 10 points.

We reduce a lot of the risk for the cosigners themselves. We really believe in the model.

Has it ever happened that a cosigner had to make a payment to keep the loan from going bad?

We had a few incidents where a payment was missed, but it was paid back by the borrower – at the cosigner’s insistence. The leverage of the relationship between the borrower and cosigner was enough to keep the loan in good standing.

It sounds like this is a successful model. Did you get funded?

We scored a deal with one of the biggest hedge funds in New York. We had a signed term sheet for $20 million investment in our company.

So, the champagne was on the table and the check was ready to be signed?

Yes.

What happened?

We started hiring. While this was happening, a disaster happened in the industry that sent shock waves everywhere. It was the entire loss of trust between one of the lenders in the market, who had some issues of backdating their inventory.

Almost every single fund in the hedge fund industry pulled out, and we got a phone call basically saying that they are pulling out of the industry.

Was there any reason they pulled out that was about Backed?

It was clear that we were showing much better returns than expected. The Backed, Inc business model, the risk and underwriting side of the business I definitely think it’s a strong model. Its very niche specific so the challenges still remain on growth, and how big of a market it can achieve.

How is it doing from the Spring of 2016 to now, a year and a half later? Are more people taking out loans?

Definitely.

How has the industry reacted to the 2016 crisis?

It boils down to who has access to lending capital. Backed, in terms of the model is seeing organic growth. There’s more business to be done in our niche.
Until 2013, the model was pretty much peer to peer lending, and the platforms were just facilitating a marketplace between borrowers and lenders, basically allowing retail lenders to enjoy bank returns by diversifying their portfolio so they cut up every loan into securities, and investors with smaller amounts could diversify a whole portfolio of 100 loans without investing more than 10 or 15 thousand dollars, and earning returns just like the bank have on a pool of a hundred different loans.

So, instead of investing in 100 loans, you are investing in 100 fractions of different loan grades, and that was the whole peer to peer solution.

The problem that impeded our growth, just like any other niche platform, is the problem that the general model shifted heavily from 2013 onwards from peer to peer lending towards very centralized sources of capital, like institutional banks.

Authors:

George Popescu
Allen Taylor

 

 

 

 

 

 

Gilad Woltsovitch is the Co-Founder and CEO at Backed Inc., responsible for designing the company’s first-class platform, UX and UI. Before Backed, Gilad co-founded iAlbums, a semantic curation engine for media players in 2010 where he served as the company’s CEO from 2011-2014. In 2013, Gilad also served as the entrepreneur in residence for Cyhawk Ventures and joined the Ethereum project, establishing the Israeli Ethereum meet-up group. Gilad holds a Masters of Art Science and Bachelors in Sonology from the Royal Conservatory of The Netherlands in The Hague, University of Leiden.

Valuable Predictive Analytics for the Non-Technical Online Lender

predictive analytics

Automation is the great equalizer when it comes to competing with giant lending companies. Predictive analytics isn’t new. Machine learning isn’t new. However, data science can be complex and not something the average non-scientist online lender can manage easily. That’s changing due to a new autonomous approach to predictive analytics using artificial intelligence as a […]

predictive analytics

Automation is the great equalizer when it comes to competing with giant lending companies.

Predictive analytics isn’t new. Machine learning isn’t new. However, data science can be complex and not something the average non-scientist online lender can manage easily. That’s changing due to a new autonomous approach to predictive analytics using artificial intelligence as a core technology allowing lenders to reduce the development of actionable and valuable metrics from months to days.

DMway Analytics provides an autonomous predictive analytics solution powered by machine learning that enables subject matter experts without data science knowledge and experience to build their own predictive models in a fraction of the time it takes traditional models. Here’s how they do it.

Democratizing Predictive Analytics

“We started a couple of decades ago,” said Gil Nizri, CEO of DMway Analytics. “Back then, a lot of algorithms were created for the financial industry. Even then, many data scientists realized that one day we’ll be able to automate algorithms and create algorithms in a couple of clicks.” But it took a while before demand for the technology caught up with the scientific developments that make it possible. “Democratizing predictive analytics took a couple of decades because it’s complicated. Now, what was done by human data scientists can be done by a machine.”

DMway’s mission is to level the playing field for small lending companies by making predictive analysis easy and available to non-scientists who are subject matter experts in their business specialties. One of their verticals is alternative lending. They also serve the financial services, marketing, insurance, telecommunications, and utilities industries.

Some of the questions predictive analytics can answer for online lenders include “who is likely to default on their loan,” “how many people will default this year,” and “who is a good credit risk?”

“Not everyone who works at a lending company has knowledge of predictive analytics, data science, or algorithms,” Nizri said. “Some lending companies simply can’t afford to hire people who can build complicated algorithms and adjust them as needed. That puts smaller lending companies at a disadvantage when competing with larger lenders like CitiBank, Wells Fargo, and other legacy institutions.”

With that in mind, DMway Analytics created a solution that allows small lenders to compete with large lenders in an area that is increasingly more essential to successful lending. By equalizing the playing field, they are democratizing predictive analytics.

Problems Solved By Predictive Analytics

Nizri breaks machine learning for predictive analytics down to three key technological techniques:

  1. Classification – When you want to classify a small population among a larger population. Who will likely pay on time? Who will likely default the loan? Classification involves any use case that fits into that family of problems.
  2. Expected Value – When you want to predict the future, what is the expected value of the thing? For instance, the lifetime value of each customer and what interest rate should be charged for each individual. These can be solved by the DMway algorithm.
  3. How Many Times an Event Occurs – Identify the event you want to count—for instance, loan defaults—and count the number of times it happens within a given time frame.

Once and algorithm is created based on a lending company’s criteria, it becomes automated so that loan application decisions can be made almost immediately, Nizri said. The process can also reduce fraud prevention. If a company can count how many times fraud occurs, and under what circumstances, they can devise a strategy to prevent it. These three predictive models can address 90 percent of the problems lending companies face, according to Nizri.

“By simplifying the creation of predictive models, any loan expert can do this without knowledge of data science complexities,” Nizri said.

DMway Origins and Business Model

DMway officially launched in January 2016 with $1 million in seed money from JVP Media Labs. Prior to that, the company bootstrapped itself from conception to funding. The funding allowed them to go to market with their first product, but there were alpha versions prior to 2015. Since the initial seed round, the Israeli Office of the Chief Scientist (now called Israel Innovation Authority) has invested a couple of hundred million dollars into the startup, as well, giving DMway a huge boost.

The predictive analytic solution is sold as a subscription. Companies pay an annual fee based on the number of users. While lenders are the primary target market, not all customers are lenders. The solution can predict other company data, as well, Nizri said.

Nevertheless, financial services startups were the first companies to adopt DMway’s technology, by design. Because they need to compensate for less manpower, the automated models wrapped up in the solution saves them money and makes them more competitive.

“As a startup you don’t have a lot of capital,” Nizri said. “That’s why fintech companies were the first to adopt.”

After one year, DMway has 10 lending company customers. Most of them are on the higher end of mid-size, Nizri said. Some of them turn over a couple of billion dollars per year. Among the list of clients Nizri mentioned are Direct Finance and Backed Inc. Companies use the platform to predict lending trends, loan default probabilities, and fraud. DMway also provides full underwriting automation and loan approval through its platform.

“When the entire process is done by machine learning algorithm, you can handle a lot more loan applications in a better and more secure way, then you can mitigate risk better than when loans are processed by human underwriters,” Nizri said.

DMway’s co-founders include Nizri, CEO; Professor Jacob Zahavi, chief analytics officer; and Dr. Ronen Meiri, chief technology officer. Zahavi was the first person to ever discuss machine learning algorithms and has been working with them for over twenty years. Nizri is a veteran evangelist of predictive analytics.

How to Be A Competitive Lender

Most predictive analytics tools are developer tools meant to be used by data scientists, but for small lenders who do not employ data scientists, predictive analysis may be out of touch.

“We are removing every barrier of entry for the world of predictive analytics,” Nizri said. “One of those barriers is the need for data science, machine learning, and predictive analytics knowledge. Users of our product do not need any of that knowledge.”

The DMway platform mimics the way a human scientist works and generates a state-of-the-art visual in about three minutes. Nizri said it’s as good as any human-made algorithm. The platform generates out-of-the-box reports and interfaces data science with business users so the non-scientist can better understand the root causes of problems and how to mitigate them. To prove his claims, Nizri benchmarked his company’s algorithm against human-made algorithms and found them to be as good as or better in every controlled situation.

“It’s more than automation,” he said. “It also includes intuitive, heuristic algorithms along with knowledge based on four or five decades of study by a large number of data science veterans. It would take any data scientist 10 or 15 years to reach that level of knowledge and experience. ”

It typically takes a human scientist three to 12 months to create a predictive analytics model and complete a project. By the time a company reaches a conclusion based on the data, it’s no longer relevant. By speeding up the process using machine learning algorithms, DMway levels the playing field and makes predictive analytics more relevant for everyday uses. Nizri believes that once his company has paved the way, other companies will enter the playing field to challenge them.

“If you currently provide loans and your algorithm is bad, it will take your data scientists 3-6 months to improve it, then you are in deep trouble,” he said. “You’ll underwrite bad loans everyday. With DMway, you can have a state-of-the-art algorithm and provide great loans to the marketplace and start profiting within two to three days.”

The Future Belongs to Machine Learning

While machine learning isn’t new, what is new is the rapid pace at which it is forcing innovation in financial services. More and more alternative lenders are implementing machine learning technology into every part of the process, from loan application review to underwriting. As more companies adopt machine learning technology, the more necessary the technology becomes to remain competitive. It is even more important for small lenders because every minute and dollar they can save on the process makes them more level with lending giants and ensures they remain alive in the marketplace.

“Even Lending Club is small compared to the giants,” Nizri said. “The difference they have is the ability to be agile, flexible, and creative. This is what machine learning algorithms give you.”

Nizri sees an effective machine learning algorithm as the difference between alternative lending leaders and run-of-the-mill players. In order to survive, lenders will have to have the best tools available. It’s more important than human talent, which will likely go to the larger companies that can afford to pay their salaries.

For Nizri, augmented analytics is the future, and he is proud to be the head of a company on the forefront of the avant garde. To remain competitive and grow as he sees the company doing, he’d like to see more startup funding and a strategic partner.

“That will help us boost our global sales and offer more value as an industry leader,” he said.

Authors:

Written by Chris McElroy and Allen Taylor.

Allen Taylor

What is the Auto Loan Crisis?

auto loan crisis

The auto loan market has become a big bubble waiting for a small needle. In this report, we will answer the questions: How big is the bubble? How will we know it is ready to burst? What are the best ways to capitalize on what comes next? Anytime a central bank lowers interest rates to […]

auto loan crisis

The auto loan market has become a big bubble waiting for a small needle. In this report, we will answer the questions: How big is the bubble? How will we know it is ready to burst? What are the best ways to capitalize on what comes next?

Anytime a central bank lowers interest rates to nothing, creates $4 trillion out of nowhere, and does “whatever it takes” to re-inflate the world economy, there is bound to be a credit bubble somewhere.

Last decade it was housing. This decade it’s the auto industry.

Once the dust settled on the mortgage crisis of 2008, lending standards for loans on new homes tightened. Banks, desperate to start lending money, looked for places where standards hadn’t been touched.

They found autos. Armed with low interest rates, and tons of quantitative easing the Federal Reserve was force feeding the banks, securing an auto loan became easier than ever. Over 86% of Americans commute to work by car, so this proved to be a good market. Include the 1 million Americans who want to keep working in a buoyant auto industry, and you have the making of a new credit bonanza.

Starting in 2010, sales for both new and used vehicles hit new records. They have broken yearly sales records ever since. Auto manufacturers are producing more cars and trucks than before, riding the great recovery of the past half-decade.

But it is all based on financing. Auto leasing, where the buyer puts some money up front, pays a monthly amount for a number of years, and then returns the car to the dealership, has also reached record numbers. Since 2008, the percentage of auto purchases based on leases has doubled.

The total amount of auto loans outstanding has reached over $1.2 trillion, roughly the same amount of money lent out for student loans.

Given that stock markets are at record highs, interest rates are low, unemployment is at historical lows, and America is enjoying a pro-business president, what could go wrong? We may be reaching our limit. Warning signs are getting louder that the credit system in the auto industry has reached a speculative frenzy.

It all began right after the crisis when interest rates dropped to almost nothing. Normally, an auto loan would be given based on the lender paying a 6% interest rate on the money they lent. By 2010, that rate dropped to 2%.
As a result, the banks ceased to be the only lenders. Car dealerships began to issue loans. The car manufacturers expanded their finance arms, making more money available. Then came the venture capitalists, setting up auto loan lending businesses.

The more players in the field, the more they compete for new business. Prospects, or potential borrowers, were given a lot of leeway in securing new car loans. In short time, having a prime grade credit score (over 620) was no longer necessary. Eventually, having a credit score at all was no longer necessary. Subprime lending in the auto industry has sunk to dangerous levels.

The Latest Entry to the Race Soups Things Up for Everyone

As auto loans became a rare diamond in the ruff of a slowly recovering economy, lenders entered the market from outside the traditional banking system. Nonbank lenders like credit unions, or independently funded loan originators, started to issue loans, often with little to no lending standards.

As banks evaded subprime lenders, nonbank lenders came in to fill the gap. They were able to borrow money at 2%, then offer it to borrowers at well over 10% to get a car. This gave the nonbanks every reason to dole out money to subprime borrowers like it was water. A note from UBS put it all into perspective, “Greater regulation of banks coupled with excessive liquidity supplied from monetary policy has triggered an unsustainable surge in nonbank lending as lenders ease underwriting standards to boost market share.”

Nonbank lenders went from obscurity to controlling over 45% of the auto loan market. Subprime lenders now make up over a quarter of all auto loans. Weak borrowers are why default rates are skyrocketing, so much so that a New York Federal Reserve Bank warned that the problem was of “significant concern.”

Crossing the Wrong Line

The danger for subprime excess is twofold.

The first risk is credit quality. If people who cannot afford a loan get financing, eventually they will default. This is basic arithmetic we learned from the mortgage fallout. Without proper due diligence on the borrower, issuing a loan is like throwing money down a black hole.

Today, over 6 million Americans are delinquent on their car loans.

The second risk is fraud. Borrowers are now able to get financing right at the dealership. The loans require little research. Quite often, the borrower doesn’t have to produce a credit score to get a loan. Even if they have a history of defaulting on previous debts, they get financing right away. After all, the people issuing the loan are the ones selling the merchandise. If the loan doesn’t go through, the dealership doesn’t sell the car. What reason do they have to exercise caution or due diligence?

This poses a major risk for fraud.

One example is Santander Bank. They verified income on just 8% of their borrowers, then packaged all the loans into a security they sold to an investor.

According to UBS, as many as one in five auto loans may have occurred as a result of fraud.

This has not been priced into the market, which makes it especially dangerous. Markets price in everything that is known, and expected. The real shocks come when something unexpected suddenly occurs. Even if people doctor the numbers to get the loan, if they don’t have the money to make their next payment, the loan goes to default and their car gets repossessed.

If we don’t have exact figures on the extent of the fraud, we don’t know how bad things can get once people start to default en masse. This is exactly what led to the 2008 meltdown in home loans.

Santander Bank settled with Massachusetts and Delaware for issuing “unfair and unaffordable” loans to the tune of $26 million. Massachusetts Attorney General Maura Healey said, “These predatory practices are almost identical to what we saw in the mortgage industry a few years ago.”

According to Experian, almost 15% of all auto loans have been issued to borrowers with credit scores ranging from 300 to 500.

What to Watch For

As the undercurrents intensify, it takes a lot less to topple the ship. As the auto loan bubble expands, it takes much less pressure to pop it. The following are the fundamentals which set the environment for free money. If one of these assumptions were to suddenly change, you could see sudden and violent movements in the value of all auto loans.

Unemployment. Rising unemployment means more people will not be able to make payments on their loans, and default rates will rise. It also means more people won’t be able to take out new loans. This means lower sales for car manufacturers, and lower cash reserves to handle all the loans they underwrote but cannot collect.

Interest Rates. The past 5 years have made the auto industry doubly sensitive to interest rates. 80% of auto sales are made on credit. If rates go up, and the Fed has signaled at least 2 rate hikes in 2017, the terms for auto loans deteriorate and less people take out new loans. Current auto loans pegged to general interest rates will demand higher monthly payments from borrowers, adding to already high loan default rates.

Another big sensitivity to interest rates is duration. The length of the average car loan is longer than it has ever been, 70 months. The longer the loan, the more sensitive it is to interest rates. Even small movements can have huge impacts on credit quality. A couple of rate hikes in this environment can have a greater impact than a big rate increase just 10 years ago.

Another worry is “delinquencies.” Auto loans at least 90 days delinquent rose to 7.5% during the first quarter of 2017. A loan can be delinquent for a number of months before it goes into default. The ballooning number of loans that are late in payment implies a sharp rise in defaults in the coming months. A quarter of banks are forecasting a rise in delinquencies for 2017, an unprecedented event.

Of lesser import are trade issues and commodities. If President Donald Trump implements a 35% tariff on Mexican made goods, prices for cars will rise, requiring car manufacturers to up their prices, and consumers to take out more debt. If Mexico were to retaliate and a trade war ensues, the cost of producing a car can continue to rise, along with the price manufactures will have to charge to maintain profit margins. Oil and gas prices are low. However, if the proxy war between Saudi Arabia, the second largest oil producer, and Iran, the world’s fifth largest producer, were to move from Syria to their own countries, the price can go up very quickly.

Is a Collapse Imminent?

While subprime auto loans amount to over a quarter trillion dollars, the entire auto loan portfolio amounts to over $1.2 trillion. Car loans, unlike mortgages, can be paid off quickly. They are shorter loans. If a borrower defaults, it is easy to repossess the car and sell it.

Interests rates are low, inflation is in check. The economy is still expanding, and unemployment is low. In 2008, the total amount of consumer debt was 100% of household income. Today, it is only 80%. The auto industry is a lot smaller than housing, and most analysts maintain that an implosion of subprime auto loans is not big enough to expand beyond autos. In the US, $1.1tn in car-loan debt is less than 10% of the $14tn in home mortgages.

We may be seeing a slow deflating of the bubble rather than a quick pop. Defaults are rising. Less money is being invested into assets backed by auto loans. The amount of subprime auto loans has also plateaued, and even begun to decline. The money invested in nonbanks is “fickle” money. If things no longer look good, they will quickly move their money elsewhere.

As more and more cars are repossessed, used car lots are filling up. Prices for used cars are falling. 2017 saw a 5% decline in used car prices, the biggest decline ever. Used car dealers who have been in business for over 20 years are closing their doors due to too much inventory. This year, 4 million cars are coming off their lease.

This is having an impact on car sales, which are down 2% for the year.

These indicators show a definite slowdown in the auto sector, but not necessarily a crash. The situation is very serious, but not yet critical.

Echoes of Housing 2008

How does the auto loan market compare with conditions right before the 2008 credit freeze? How close are we to the edge of the cliff?

More than 1 million Americans are delinquent on their car payments. The last time the number was so high was in 2008.

Due to a glut of new cars coming on the market, and a rapid fall in car prices, most leased or credit financed cars are underwater. The loan is higher than the value of the car. Even if the car is repossessed, the borrower will have to make payments on a car they no longer have.

According to Morgan Stanley, the share of auto securities holding a bundle of auto loans with a FICO credit score below 550 has risen from 5.1 percent in 2010 to 32.5 percent today. Credit spreads are 40% higher today than right before the crisis.

Subprime delinquency rates are creeping up while the subprime market is ballooning in size. 3% of auto loans default without a first payment being made. That’s on par with the level in the mortgage market before the financial crisis

Here’s what Morgan Stanley said:

Across prime and subprime ABS, [60-plus-day] delinquencies are currently printing at 0.54% and 4.51%, respectively, with the latter approaching crisis-era peak levels (4.69%). Default rates are also picking up in similar fashion (prime: 1.52%; subprime: 11.96%), printing close to crisis levels.

U.S. vehicle sales have lagged behind 2016 levels every month this year. If that performance continues, this year will mark the first since 2009 that industrywide sales declined.

How to Play It

The obvious choice would be to short subprime auto debt. Based on packaged securities by banks, nonbank entities, and the financing arms of the major automakers, you can find the right securities and sell them short.

A great value play is to find the asset securities you believe will be paid off regardless of the financial environment and buy them at a deep discount. As the full portfolio of loans is paid off in half a decade, you will quickly see a rise in the value of your holdings, and a return of at least your investment. It’s possible to buy debt at $.30 to the dollar, only to see 75% of the money paid off.

The Equity Play

Automakers stand to lose the most from a meltdown in subprime loans.

  1. A huge portion of car loans come from the majors themselves. GM, Ford, and others all have financing arms which originate auto loans to help people buy their cars. If defaults rise, these companies stand to have huge write-offs.
  2. Lease expirations and repossessions create an inventory glut. As more cars return to the lots, prices decline. There is also a less need for new cars to be produced. Major automakers generate less by producing less and making less for each sale on depressed auto prices.
  3. Lending standards for autos will tighten. This will create a long-term ceiling on auto sales by tightening the limits on how many people are eligible for a new car loan.

The fact that 2017 has seen a slowdown in sales, even as the number of units delivered rivals record breaking years of the past means that dealerships are offering big discounts to customers to buy their car. This indicates that the auto industry is “buying” sales for this year at the expense of sales in future years. This implies a cyclical downturn for the auto industry right on the eve of a possible credit implosion.

Shorting the automakers is a practical play. You can short the big ones, like GM (ticker symbol GM), Ford (ticker symbol F), or Fiat Chrysler (ticker FCA). Fiat has more debt than cash on hand. GM also has huge amounts of debt, well over their current cash reserves. Their debt is so big, their cash flow after debt service last year was negative.

Ford has more debt than the size of the economy of Hungary.

You can short any of these, or short all of them. The auto ETF, ticker symbol CARZ, is tied to a basket of the major automakers.

The Great Hedge

Install an Airbag on the Fast and Furious Auto Loan Market

If car values become less than the loans, or interest rates make the monthly payments too prohibitive, borrowers may decide to stop paying. Even if they lose their car, they may decide it’s worth it just not to have to make the next payment.

This can put severe downward pressure on most bundled car loans. A credit crunch will depress all values for asset backed car loans.

Even if auto loans are unsecured, some loans are more reliable than others.

The best solution for investors of securitized debt is a portfolio heavy on cosigned loans. Cosigned loans require a lower interest rate, giving the borrower more reason to keep paying. It also puts and additional borrower on the loan. With cosigning originators like Backed, Inc., the cosigner is alerted the moment a payment is missed, enabling the cosigner to make payments before the loan goes into default.

The collateral of a cosigned loan is not just the car. It’s the relationship between the borrower and someone who put their credit on the line on their behalf. A cosigner can be a father, a brother, a friend, boss, or an army buddy. The borrower has far less reason to destroy a relationship he has his life invested into, than to let the loan go into default.
Using relationships as the ultimate human collateral is the surest investment in a volatile environment. Cosigned loans will have a higher paydown rate than all other types of auto loans. A great play is to invest in cosigned loans at depressed prices, if money leaves the entire auto market and the prices for all loans sell cheaper than a 1983 Chevy.

Author:

Gilad Woltsovitch is the Co-Founder and CEO at Backed Inc., responsible for designing the company’s first-class platform, UX and UI. Before Backed, Gilad co-founded iAlbums, a semantic curation engine for media players in 2010 where he served as the company’s CEO from 2011-2014. In 2013, Gilad also served as the entrepreneur in residence for Cyhawk Ventures and joined the Ethereum project, establishing the Israeli Ethereum meet-up group. Gilad holds a Masters of Art Science and Bachelors in Sonology from the Royal Conservatory of The Netherlands in The Hague, University of Leiden.

Low Volatility Returns vs High Returns, Which Is Better?

backed returns

As unsecured online lenders lose their luster, investors are looking for more reliable ways to capitalize on online lending. Whether a financier, lender, asset holder, or borrower, cosigning is a better way to lend. The past two years of online lending can be summed up as the “rise and fall of speculated returns.” According to […]

backed returns

As unsecured online lenders lose their luster, investors are looking for more reliable ways to capitalize on online lending. Whether a financier, lender, asset holder, or borrower, cosigning is a better way to lend.

The past two years of online lending can be summed up as the “rise and fall of speculated returns.” According to TechCrunch, The U.S. consumer lending market is a $3.5 trillion business, and online lenders originated just $10 billion in 2015. Seeing the opportunity, venture capital firms and institutional investors started investing in online lenders. Online lending startups have raised a total of $12.6 billion across 463 deals since 2011, according PitchBook. Online lenders were able to convince investors to provide them money to lend out based on the presumption that new algorithms and machine learning can determine who is most likely to pay off a loan, even if their credit score was a higher risk.

This “high yield” portfolio of high yield loans has become a rocky road for everyone. The computers may not able to accurately predict who could pay off the loans, and higher than expected default rates can result in insufficient interest income or repayment of principal to pay any returns to investors.

Even as bundles of consumer loans are being securitized and sold to large investors, the wave of defaults have caused certain “triggers” to be breached where the online lender is no longer able to issue more consumer loans. They have to use all their money to pay off the investors. In some cases, lenders can continue to issue new loans, but only by raising the amount of interest they charge for each loan. They must raise the standards a potential borrower must meet in order get approval for a loan, thereby cannibalizing their own market.

The classic example is CircleBack Lending, which shut down due to higher than expected defaults. They lost 13.5% on hundreds of millions of dollars in unsecured debt. Loanio, the previous online lending company started by the same founder, also closed due to higher than anticipated default rates.

Does this make online lending a passing fad? Are there still opportunities to make solid returns on what many say is the lending of the future?

Online Cosigning is a Solution for Everyone

Cosigning a loan has been in practice for centuries. It can be used in cases where a borrower has a poor credit history, a thin credit history, or no borrowing history at all. A potential borrower can get a loan even with a credit score of 580-660, or no credit score at all. They can have a loan cosigned by someone with a good credit, and get approved.

Cosigning offers several advantages that negate some of the risks of most personal loans:

  1. Greater Customer Loyalty. When someone takes out an unsecured loan, there is no collateral, just a promise to the bank. A borrower risks losing credit score, and the ability to raise debt in the future. When a loan is cosigned, the borrower is no longer obligated to the bank, but to the cosigner. A cosigner can be an army buddy, a best friend, a trusted co-worker, a sibling, or a parent. This type of personal loan is backed by the trust between the borrower and the cosigner.
  2. Better prospects of collecting the total interest on the loan. In the case of lending to borrowers with higher credit scores, the risk is that they have the means to repay the loan faster than anticipated, resulting in unearned interest income. In cosigning, the borrower has a lower credit score, and is more likely to pay the loan over the full time given.
  3. Higher returns for your risk. With cosigning, you can issue a loan to someone with a below average credit score and ask for higher interest rate to cover the risk. However, the loan is backed by someone with a higher credit score, who serves as hedge.
  4. Greater confidence in your return being realized. Cosigning, with the additional layer of human security, and a higher credit score as backup, leads to lower default rates than other types of unsecured lending. This translates to a higher likelihood of reaping the full return on your investment, and a less danger of bond triggers being breached.
  5. Less risk of default. While a personal loan is unsecured, cosigning adds an additional layer of security. Upon default of a loan, the cosigner assumes liability for the debt. The right online lenders will alert a cosigner at every stage in the debt, and enable them to make payments to keep the debt in good standing without demanding additional fees or paperwork.

Backed, Inc. is a pioneer of online lending. They offer the best in conversion rates, derived from user experience. Their underwiring model enables borrowers to get the best rate available while providing investors with the highest return on their investment relative to the risks. Backed, Inc. uses a unique servicing methodology where the cosigner is treated like a co-borrower, kept in the loop at every step.

Authors:

Before Backed, Gilad Woltsovitch co-founded iAlbums, a semantic curation engine for media players in 2010 where he served as the company’s CEO from 2011-2014. In 2013, Gilad also served as the entrepreneur in residence for Cyhawk Ventures and joined the Ethereum project, establishing the Israeli Ethereum meet-up group. Gilad holds a Masters of Art Science and Bachelors in Sonology from the Royal Conservatory of The Netherlands in The Hague, University of Leiden.

Friday March 10 2017, Daily News Digest

delinquency rates in u.s.

News Comments Today’s main news: China’s tech giants are pouring billions into U.S. startups. Zopa puts investors on waiting list. RateSetter investors embrace provision fund rules. Latvia breaks RE dev crowdfunding record. Ping An Bank to provide third-party depository service to P2P lenders. Carilend to open first P2P lending platform in Caribbean. Today’s main analysis: Marketplace Lending 2.0. How Brexit could […]

delinquency rates in u.s.

News Comments

United States

United Kingdom

  • Zopa introduces investor waiting list. GP:” Perhaps another way of doing this would be to have a waiting dollar list, not a waiting investor list: each investor can invest $x per month, depending on platform needs. This way you don’t lose clients who see no activity for some time and you take a token of their participation to have them commit and stay committed. ” AT: “Regulated growth is the best kind of growth.”
  • RateSetter investors embrace new provision fund rules. GP:” A very interesting change. We should evaluate these changes in depth.”

European Union

  • How Brexit could help Berlin take London’s fintech crown. AT: “I have to say, though I’m a firm believer that it will take a lot of mojo to overtake the UK as the world’s leader in P2P lending and fintech, there is a compelling argument that Berlin’s growth could be fueld by U.S. and Asian companies choosing Germany over the UK to gain access to European markets post-Brexit. Howevr, they’ll still need a presence in the UK if they want access to the UK market. Whether business interests lean toward Berlin over London in the aggregate and over the long haul, however, remain to be seen.”
  • Latvia’s largest crowdfunded RE dev project.
  • Fellow Finance P2P lending review.

China

Asia

Caribbean

  • Bid to change loan services. AT: “Barbados need no longer be known only for good music and sunny beaches. Fintech has reached so many new shores.”

News Summary

 

United States

China’s tech giants are pouring billions into US start-ups (CNBC), Rated: AAA

Joe Chen, CEO of Chinese social networking service Renren, first met SoFi CEO Mike Cagney in Palo Alto in 2011 and, over coffee, decided to invest in the fast-growth, disruptive online finance start-up. That initial $4 million investment helped SoFi get its start and led to two more financings within three years, with Renren contributing a major chunk of some $230 million raised.

Similarly to Renren, China’s tech titans Baidu, Alibaba and Tencent are leading a surge of Chinese investment in cutting-edge U.S. technology start-ups with bold ambitions to expand their footprint, attract top talent and gain an edge in innovation.

Collectively known as the BAT, China’s giant technology companies that dominate search, e-commerce and mobile messaging in their home market are going global. The United States is their primary shopping place to diversify and build out their brands.

China’s four largest internet companies — the BAT plus e-commerce company JD.com — have invested $5.6 billion in 48 U.S. tech deals over the past two years, according to CBI Insights data.

Last year Chinese investors put a record $45.6 billion in U.S. companies, triple the amount for 2015, according to research group Rhodium Group in New York City.

Besides its groundbreaking investment in SoFi, Renren has invested in a series of U.S. fintech start-ups, leading a $31 million lead investment in crowdfunding real estate site Fundrise in 2014 and leading a $40 million investment in U.S.-based stock-trading outfit Motif in 2015.

For the founders of U.S. tech start-ups, getting cozy with Chinese acquirers and investors can make good business sense. With a Chinese investor, their business gains a competitive edge in the exceedingly difficult-to-penetrate China market. Getting funds from China’s leading tech companies can help U.S. companies gain an entry point to China, an immediate on-the-ground presence and strategic insights such as how to best customize products for the local Chinese market.

Why ‘challenger banks’ haven’t taken off in the US (Tradestreaming), Rated: AAA

Digital banks, big in the U.K., have a trust problem in the States.

That model hasn’t really caught on in the U.S., though, where startups are mostly building technology-based solutions for payments, investing and lending – anything that doesn’t require opening a bank account with an unknown entity. Building that type of business profitably is hard: the cost of customer acquisition is high and complying with complex financial regulations can be a big undertaking.

BankMobile, a rare U.S. success story, offers a compelling case study. With about 2 million accounts since its 2015 launch, it has grown so quickly Customers is selling it to Flagship Community Bank in Clearwater, Florida. (The Durbin Amendment of the Dodd-Frank Act requires companies with more than $10 billion in assets cap their interchange fees at 44 cents, and Customers’ asset size is just below that. BankMobile’s revenue comes mostly from interchange fees on debit cards.) The $175 million deal is expected to close before the end of the third quarter.

Luvleen Sidhu, president and chief strategy officer, said one of the main reasons BankMobile has been so successful is it is acquiring new customers at a low cost – about $10 per account, she specified, compared to the roughly $300 she said it generally costs to acquire a customer returns come out to “maybe $85 a year” in revenue.

U.S. startups are joining banks, not challenging them.

However, it will take more than a better customer experience enabled by technology to motivate customers to open an account or switch from their current bank, despite their general dissatisfaction with the current financial system, Khan said. These new experiences need to focus more on customer behavior – something banks get but startups need to work on more. What will ultimately make a digital bank stand out from legacy banks that are improving digitally is the way it handles data.

That’s why it’s important to remember a tech giant like Facebook or Amazon could get into banking services before a digital bank even takes off, Khan said. If it’s a competition for customer trust, the tech company could beat out all the banks.

Marketplace Lending 2.0 (Deloitte), Rated: AAA

But 12 months later, we see a picture that is much bigger in scope than just MPL-bank convergence. Marketplace lending is an integral piece of a larger fintech puzzle that is transforming the financial services industry.  We expect that asset classes such as small business, student, and unsecured consumer will move almost completely to digital platforms in the medium term, while other asset classes, such as residential mortgages and auto lending will get there more slowly.

Further out, we see a technology platform-enabled lending environment moving from a predictive to a prescriptive analytics stage.

Download the report here.

Six ways Goldman Sachs’ online lender, Marcus, strives for an edge (American Banker), Rated: AAA

  1. It’s tackling a pain point for consumers: credit card debt.
  2. It’s kicking it old school with direct mail.
  3. It’s borrowing culture and office design strategies from startups.
  4. It’s light on fees.
  5. It’s turned off automated voice response.
  6. It lets people defer payments. This isn’t for everyone necessarily, but those who make 12 consecutive payments on time earn a pass. They can contact the bank to defer one payment with no fees or extra interest, so a 32 -month loan becomes a 33-month loan.

What Crowdfunding and ‘Democratizing Capital’ Could Mean for Minority Entrepreneurs (Equities.com), Rated: A

The digital crowdfunding trend in America started in 2003 when ArtistShare launched as the world’s first donation crowdfunding platform for creative artists. Crowdfunding has surely stimulated the national and global economy over the years, but equity crowdfunding is a federally regulated tool with the ability to shift power from large, robust institutions to the individual entrepreneur and investor.

Equity crowdfunding acts as a catalyst for individuals to collectively combat institutional discrimination along with the very real wealth and unemployment disparity between races in the country. While organizing a crowdfunding campaign strategy is complex in nature, leaders across the country are working hard to make this crowdfunding easier and more accessible to everyone.

Below are a few leaders making a difference in the minority community:

  • Dar’shun Kendrick at Minority Access to Capital– Securities lawyer with a focus on helping minorities access capital the legal way.
  • Maureen L. Murat, Crowdie Advisors– Future lawyer with a passion for immigration and securities law helping entrepreneurs raise capital via equity crowdfunding.
  • Kendrick Nguyen and Paul Menchov at Republic– Equity crowdfunding platform highlighting minority, female, and impact investing offerings.
  • Devin Thorpe, Champion of Social Good– Journalist, author, and avid speaker on a mission to solve some of the world’s biggest problems before 2045 by championing the work of change agents who will do it.
  • Lynn Da, Buy The Block– Advocate for minority investment education and access to real estate crowdfunding investments. Platform set to launch April, 2017.
  • StartingFive Partners and General Catalyst Partners, FundLatinos – These two groups came together to develop this donation crowdfunding platform to bring together with the vision to build the tools, technology and partnerships needed to foster a trusted environment for Latinos to raise money for personal and community causes that matter.
  • Charlie Jackson, CEO at Texas Diversity Fund– Equity crowdfunding platform with a focus on encouraging diversity in entrepreneurship.

Backed Secures First Institutional Debt Capital (PR Newswire), Rated: A

Backed, the online lending platform that has digitized co-signing of personal loans, today announced it has finalized its debt financing deal with Israel’s largest financial institution, Harel Insurance and Finance. Harel has also participated in Backed’s extended seed round, and has become a lead equity investor. Backed and Harel are setting up an independent special purpose funding vehicle for financing its growing loan portfolio.

Backed was founded with the mission of helping individuals with thin or no credit history gain access to fair loans. Its unique co-signing mechanism is fully digitized, and allows the Backer (co-signer) to keep track of the loan progress and to step in to cover missing payments if necessary. Backing is designed to help borrowers and Backers avoid defaults, rather than impose added risk on the co-signers. Simultaneously, the co-signing model allows Backed to offer competitive returns to its investors, with reduced risk due to its co-signing mechanism.

LendingHome Launches One-Stop Online Mortgage for Digital Natives, by Digital Natives (VentureBeat), Rated: A

LendingHome’s online mortgage is the first to prioritize the customer experience by putting control over the process into the hands of the homebuyer. While the first wave of digital lenders brought the old-school paper mortgage application online, retrofitting it to be accessed via the Internet, much of the process is still controlled by the lender offline and is opaque and confusing for the homebuyer. In contrast, LendingHome has created the next-generation digital mortgage that gives homebuyers confidence and control over the process with a dynamic, interactive online experience. It also offers a faster, simpler, and more transparent mortgage process than the outdated paper-laden methods still used by many lenders.

It gives homebuyers confidence and control over the process with a range of loan options, innovative features, and trustworthy resources to choose from. It includes the ability to:

  • Select the right loan for your needs anywhere, anytime: Borrowers can select from a range of loan products at competitive rates. Using LendingHome’s Trade Points tool, they can configure the loan that’s best for their needs without wasting time going back and forth with a loan officer.
  • Lock your rate with the click of a button: Online rate lock allows borrowers to capture available rates in real time without the worry of missing out because the market moved.
  • Get guidance right when you need it: An educational hub offers advice on complex topics like debt-to-income and loan types. Extensive in-product tips and education are available exactly at the time they’re needed to help throughout the application process. While it’s easy to complete the mortgage process online, LendingHome has personalized loan specialists available to talk to borrowers via phone or chat when needed.
  • Know what to expect and do at every step: A personalized dashboard lets borrowers know exactly what documentation they’ll need to provide, without the headache of fielding last-minute piecemeal requests via email and phone. A Milestone Tracker lets them know exactly where they stand in the mortgage process and what comes next.
  • Stay on the same page with your real estate agent: A Loan Tracker tool enables borrowers to seamlessly share the progress of their loan with their real estate agent or partner.

LendingHome’s home financing solution is available at www.lendinghome.com/home-loans to homebuyers in Arizona, California, Colorado, Florida, Georgia, Nevada, Oregon, Texas, and Washington, with more states to be added in the coming months.

There are 15.8 million homebuyers — many of whom are tech savvy — expected to enter the market from 2015 to 2025, according to research from the book. Today, forty-seven percent of homebuyers are first-time buyers, and half (50 percent) are under the age of 36. They have a median age of 33 and nearly six in 10 are Millennials (56 percent) per a recent survey by Zillow Group. Per the same survey, the majority of homebuyers, 87 percent, use online resources to search, shop and purchase their home.

Fueled by Rocket Mortgage, Detroit-Based Quicken Loans Achieves Record-Breaking Year (PR Newswire), Rated: A

One year after Quicken Loans’ Rocket Mortgage Super Bowl ad ignited a nationwide conversation about the power of the American homebuyer, the largest FinTech lender funded $7 billion of its record $96 billion in total closed loan volume in 2016 through Rocket Mortgage. In just 11 months Rocket Mortgage’s closed volume alone would already rank as a top-30 national mortgage lender, among the nearly 50,000 banks, credit unions, brokers and mortgage companies in the United States.

Monroe Capital Corporation BDC Announces Fourth Quarter Financial Results (NASDAQ), Rated: A

Monroe Capital Corporation (Nasdaq:MRCC) (“Monroe”) today announced its financial results for the fourth quarter and full year ended December 31, 2016.  The Board of Directors of Monroe also declared its first quarter dividend of $0.35 per share, payable on March 31, 2017 to stockholders of record on March 17, 2017.

Fourth Quarter 2016 Financial Highlights

  • Net investment income of $5.4 million, or $0.32 per share
  • Adjusted Net Investment Income (a non-GAAP measure described below) of $5.8 million, or $0.35 per share
  • Net increase in net assets resulting from operations of $7.5 million, or $0.45 per share
  • Net asset value (“NAV”) of $240.9 million, or $14.52 per share
  • Paid quarterly dividend of $0.35 per share on December 31, 2016

5 female founders shaping the future of fintech (Built in NYC), Rated: A

Alexa Van Tobel launched LearnVest in 2009 with the mission of making financial planning affordable and accessible.

Sallie Krawcheck, a former titan of finance at companies like Citigroup and Bank of America, launched Ellevest in 2016 with the mission of closing the gender investment gap. The robo-advisor works to help women secure their financial futures by taking women’s unique life attributes — such as longer lifespans, different salary curves and more frequent career breaks — into consideration.

A former McKinsey consultant, Jennifer Fitzgerald cofounded PolicyGenius to fill a  gap in the insurance industry.

Vicki Zhou, who previously held roles at Citigroup, SFC Associates and Archipelago Capital Management, launched the company in 2013 with Herbert Moore. WiseBanyan’s platform provides users with tailor-made financial plans by recommending and managing an assortment of bonds and stocks, which users can then track, add to or withdraw from.

Orchard Platform is a marketplace lending platform that helps institutional investors, investment managers and loan originators connect and transact. Angela Ceresnie co-founded the company in 2013 with Matt Burton, David Snitkof, Jonathan Kelfer and Phill Rosen.

Want to start a mortgage company? loanDepot CEO updates thoughts on barriers to entry (Housingwire), Rated: B

Hsieh said last year that regulation was a barrier to entry into the business. People are eye-balling entering the mortgage industry because of $9 billion of untapped potential market share, Hsieh said at the time.

Now a year later, Hsieh added to it, stating technology is now a new barrier to entry — no longer just capital and regulatory obstacles.

And there’s data to back his claim. The Mortgage Bankers Association forecasts$1.63 trillion in total mortgage originations in 2017. So it’s true that more people want in, but greater investment in technology is becoming an ever-increasing necessity.

Citi names Piazza permanent head of fintech unit (American Banker), Rated: B

Citigroup on Thursday announced that Yolande Piazza will serve as the permanent head of its fintech unit.

Piazza had been serving in that role on an interim basis since August, when the previous chief executive of Citi FinTech, Heather Cox, left for a role with USAA.

Kabbage, Arcadia price pair of MPL deals (Global Capital), Rated: B

Sole lead Guggenheim increased the deal size of the Kabbage offering from $500m to $525m before pricing on Wednesday.

The $388.8m ‘A’ notes were priced at 275bp over swaps, while the $83.3m ‘B’ notes were priced at 400bp over swaps. The $27.7m ‘C’ notes and the $25m ‘D’ …

East Bay real estate investor crowdfunds purchase of San Jose tech park (Biz Journals), Rated: B

The Hellyer Oaks Technology Park in San Jose has been acquired by Walnut Creek-based Vertical Ventures, but the sale was funded partially by a real estate crowdfunding tool called CrowdStreet.

United Kingdom

UK’s biggest peer-to-peer lender introduces investor waiting list (AltFi), Rated: AAA

Zopa, the oldest and largest peer-to-peer lending platform in the UK, has introduced a waiting list for new investors on the platform. The new setup applies to both institutional and individual investors, and follows on from the “platform limit” which was introduced in December.

The newly introduced waiting list is an attempt to place a greater weight of emphasis on existing investors, by moderating the on-boarding of new customers. Zopa doesn’t yet know how long the waiting list will be, but says that it will try to manage it such that it’s never too long.

Of course, this wouldn’t be an issue at all if originations were outstripping investments. It would appear that Zopa is overweight investment at the moment.

RateSetter’s investors embrace new provision fund rules (P2P Finance News), Rated: AAA

RATESETTER’S investors have widely endorsed changes introduced to the provision fund, as hardly any of them have used the one-month window to withdraw their funds without an exit fee.

The peer-to-peer finance firm updated its lender terms in early February, one month ahead of changes to its provision fund to address concerns that it was “too binary”.

The average amount invested has now ticked up to over £22,000 – a 0.6 per cent month-on-month increase that also confirms investors feel comfortable with the platform’s strategy.

European Union

How Brexit could help Berlin take London’s fintech crown (MarkeWatch), Rated: AAA

When it comes to Brexit’s winners and losers, Berlin looks set to snag a few victories — especially the city’s growing financial-technology sector.

A rolling billboard (“Keep calm and move to Berlin”) is one of the stunts that have ruffled British feathers.

But Berlin’s gains might not come from a Brexit-driven exodus — that is, from U.K.-based technology companies abandoning their homeland. Instead, its fintech scene will benefit from U.S. and Asian businesses actively choosing Berlin, and not London, as their EU base.

That at least is the prediction from Stefan Franzke, CEO at Berlin Partner, a business development agency. He estimates that Berlin is home to roughly 80 to 100 fintechs and expects that number to double by late 2018.

To be sure, Londoners have played down the Brexit threat to the U.K. capital’s fintech crown.

At the same time, Germany is already catching up, by some measures. Funding inflows for the country’s fintech sector totaled $421 million in last year’s first three quarters, topping the U.K.’s $375 million, as shown in the chart above from accounting giant EY.

But London’s fintech scene is going to be hard to overtake, given advantages like the U.K. capital being a top financial hub and the English language serving as the business world’s lingua franca nowadays.

Latvia’s largest crowdfunded RE dev project – 950,000 euros fully funded in less than 24 hours. (Crowdestate Email), Rated: AAA

A residential real estate project located at Saules Aleja 2A in Riga, Latvia was fully funded on Crowdestate.eu crowdfunding platform. This was the single largest crowdfunding campaign in Latvia for a real estate development. The project is managed by Crowdestate and advised by a leading Estonian residential developer Hepsor OÜ.

The development project will include the purchase of a land plot and the construction of a residential building next to a park and a beautiful pond in the highly sought after Agenskalns neighborhood. In less than 24 hours, 769 investors from 23 countries all over the world participated in funding this project, reaching the record breaking amount of 950 000 euros.

The investment opportunity offers an IRR of 20.46% per annum.

On crowdestate.eu platform anyone can be an investor, with the minimum investment starting from 100 euros. The largest amount invested into the Saules Aleja 2A project was 30 000 euros and the average investment per investor was 1 297 euros.

Fellow Finance P2P Lending – My Portfolio and Strategy (P2P-Banking), Rated: AAA

Fellow Finance is a p2p lending marketplace in Finland. It started 2013 with loans to Finnish consumers, and later added Polish consumer loans and loans to Finnish SME’s. Since launch more than 100 million EUR in loans were funded.

I currently invest only in Finnish consumer loans and concentrate on 3 and 4 star loans for which the market rates are currently 13% and 15%. The Finnish consumer loans are covered by a buyback guarantee of 70%, meaning in case they are 90 days overdue, they will be sold for 70% of outstanding principal to a collection agency.

The market rates do fluctate sometimes at +/- 1%, and I felt it necessary to tweak the rate of my allocator then to keep it bidding (at the best possible rate). Fellow Finance is one of the very few platforms, where investors can configure the autoinvest to buy on the secondary market, but I have not used that.

Overall the website – which is available in english language – is good, only sometimes a tad slow to respond.

 

China

WeiyangX Fintech Review (Crowdfund Insider), Rated: AAA

Last week, the National People’s Congress (NPC)and Chinese People’s Political Consultative Conference (CPPCC), the country’s top legislative and political advisory body, opened the 2017 sessions in Beijing.

And this year, “Fintech” was once again named as the top keywords of “Two Sessions”:

(15 Top Keywords of 2017: artificial intelligence, virtual reality, Internet+, sharing economy, blockchain, Fintech, content industry, Internet healthcare, automatic drive, platform era, innovation, institutional improvement for internet, information safety, digital economy and smart city)

Ping An Bank is planning to provide third party depository service for P2P online lending platforms.

Here are some main points of the measures:

  • Actual controllers of P2P online lending platforms must be government, large state-owned enterprises, main-board listed companies, small and medium enterprise board listed companies, or financial institutions with licenses from China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission or Ministry of Human Resources and Social Security;
  • Platforms must be in operation for more than a year without any negative press reports, and monthly turnover should exceed 100 million yuan;
  • Platforms should market their depository cooperation with Ping An Bank truly and objectively;

On March 2nd, Wanda Group and China UnionPay officially announced a strategic co-operation. The two sides will develop cutting-edge financial technology to promote the application of intelligent transaction and smart service in commercial scenarios.

On March 2nd, Fintech platform Xiaoying Financial secured 1 billion yuan in Series B funding. The new investors include Suzhou Goldmantis Group, the Industrial Fund of Jinke Entertainment, Shanghai Urban Real Estate Holdings Company, Bo Nian Kang Health Management Group and more.

On March 2nd, prepaid card company Jiangsu Ruixiang announced it had ceased cooperation with more than 50 Lotte Mart stores in Jiangsu provinces.

Asia

Dubai Regulator Signs FinTech Pact with Singapore’s Central Bank (Cryptocoins News), Rated: A

The Monetary Authority of Singapore (MAS) and the Abu Dhabi Global Market (ADGM) have signed a cooperation agreement to develop and nurture Fintech innovations and entrepreneurs in both countries.
Dubai is certain to benefit from the agreement with Singapore, the latter arguably established as Asia’s and one of the world’s leading Fintech hubs.
Notably, the two authorities will also collaborate on projects that explore the possibility of technologies such as blockchain and distributed ledger technology (DLT), digital and mobile payments, big data and more.

P2P lending changes the finance game (Manila Bulletin), Rated: B

First to be introduced and gained traction in the United States and Europe, this method called peer-to-peer or ‘person-to-person’ (P2P) lending paves the way to democratize the lending while keeping it credible and very secure.

There are less requirements needed compared to the traditional money-lending process. What attracts the borrowers are the low interest rates and the minimal requirements, while the convenience and safety attracts the lenders.

Caribbean

Bid to change loan services (Nation News), Rated: AAA

Carilend Ltd officially launched its peer-to-peer (P2P) lending website last week, introducing a process that matches lenders (who can lend from $2 500 up in $25 increments) directly with borrowers (who can borrow from $2 500 to $50 000 in $25 increments, subject to credit referencing and scoring).

Carilend officials said theirs was the first P2P lending site in the Caribbean “aiming to bring together borrowers and lenders to give a better deal and a better experience to both”.

Authors:

George Popescu
Allen Taylor