Modern Small and Medium Enterprises (SMEs) represent a significant part of the global economy, accounting for nearly 90% of all modern businesses. Modern SMEs are large contributors to the creation of workplaces and economic growth, especially in developing countries. Although they’ve become a vital part of the financial ecosystem, these businesses are facing extreme difficulties […]
Modern Small and Medium Enterprises (SMEs) represent a significant part of the global economy, accounting for nearly 90% of all modern businesses. Modern SMEs are large contributors to the creation of workplaces and economic growth, especially in developing countries.
Although they’ve become a vital part of the financial ecosystem, these businesses are facing extreme difficulties in accessing finances. SMEs are often associated with higher risks, sizeable transaction costs, and a lack of collateral—about 50% of small business loans get rejected.
Many business owners cite this financial exclusion as a key obstacle to the growth of their venture. The common hurdles in obtaining a loan include burdensome processes, low level of transparency, and the high costs associated with searching for a loan. For instance, the research by the Federal Reserve indicates that small business borrowers spend nearly 24 hours on paperwork alone during the loan application process at a bank.
The problem is global: businesses from East Asia and Pacific regions represent the largest share (46%) of the total number of underbanked SMEs worldwide, followed by Latin America and the Caribbean (23%) and Europe and Central Asia (15%). In 2018, the finance gap between the needs of global SMEs and available funds reached $5.2 trillion, according to SME Finance Forum.
Following the financial crisis of 2008, with the idea of de-risking their balance sheets, large banks started to avoid lending to SMEs by introducing stricter requirements to receive funds. For instance, in the UK, where SMEs represent a tremendous 99.9% share of the 5.7 million businesses, the value of issued bank loans fell to £55.6 million in Q4 of 2018, a 78% drop from its maximum of £255 million in 2009.
The other reasons include the variety of regulations banks have to cope with, insufficient credit history, and the high transaction costs of underwriting and onboarding customers. All in all, providing loans to small businesses has become less of a priority for banks. “If you look at the great recession, what you’ve seen is a bounce-back of commercial lending, but lending to small businesses really hasn’t come back,” sums up Darrell Esch, Vice President of global credit at PayPal. The majority of banks are not interested in lending relatively small amounts of money on a frequent basis. Some banks have introduced a sort of a loan threshold (commonly around $100,000 to $250,000), and won’t engage in loans below this level. The others will not address requests from SMBs with less than $2 million in revenue.
But technology changed the scenery for many small and medium-sized enterprises. In comparison to traditional financial institutions, digital lending companies provide favorable terms on credits. With low-interest margins, faster approval, and without initial fees, they are scaling up quickly and already capitalizing on new scoring methods.
On the Path to Digitalization
Top decision-makers in the banking sphere are aware of the success of alternative lending companies. However, still slowed down by legacy systems, banks are only dipping their toes in digital lending. The outdated technology at banks isn’t the sole issue. At the recent Lending Fintech Europe in London, lga Zoutendijk, a career banker with several decades of experience, said that “legacy culture is a bigger problem at large banks than legacy tech and a much more difficult challenge to overcome.”
For traditional lenders, fintech is an opportunity to innovate and modernize. However, one can’t fight legacy culture alone: on their path to embrace digitalization, bank institutions need a fintech partner to bring technology, speed, and flexibility to the table.
Fintechs are looking for such partnerships as well. With all the improvements in customer experience, they predictably lack the expertise in areas such as risk management, loan monitoring, and servicing that banks have in spades. This mutual knowledge gap creates partnership opportunities. Denise Leonhard from Paypal is sure that “nobody is going to be able to do it alone. To get to the next evolution of payments, it’s going to be really partnership-driven.”
Addressing the Challenge
But what is the biggest challenge in initiating the loan process for banks? Moody’s Analytics, a financial intelligence provider, conducted a poll among bank institutions. The results revealed that 56% of bankers consider manual collection and data processing to be the greatest obstacle in the process of underwriting.
These outdated methods lack consistency, accuracy, and auditability, not to mention, they are time-consuming. This results in additional work for risk officers at a bank, and assessing an SME’s creditworthiness becomes a challenging and unprofitable task. Traditional players just can’t compete with agile, fast-moving alternative lenders and their “time-to-money” credit decisions which take less than a day.
Lending to SMEs is not profitable for banks unless they change their operational approach. The solution lies in the automation of manual processes. Banks have to adopt such solutions for enhanced data collection, scoring, and further rule-based decisions, and solve the problem of the data’s inconsistency and delay. Igor Pejic, the renowned author of Blockchain Babel, sums it up: “It is simply not possible to offer the customers the speed they need in today’s economy with manual processes.”
But what’s more important for banks, those changes mean investing in the future: alternative lending options make customer experience of SMEs convenient, transparent, and adapted to the way those businesses operate.
The Future of SME lending
Partnerships between banks and fintechs are one of the most-discussed topics in the industry as they have the immense potential to impact long-term growth, customer experience and client retention for both parties. Industry professionals agree that bank-fintech collaboration is evolving as a common industry practice that will shape the future of the lending domain.
By partnering with alternative lenders, traditional players fight the challenges associated with the process of credit risk assessment, increase the quality of the loan portfolio, and stay competitive in the SME lending sector. More importantly, they have the opportunity to offer small businesses a shortcut to finance with fast access to cash, less paperwork, and fewer rejected applications.
In return, alternative lenders benefit from partnerships by getting experience in handling a complex regulatory environment, reaching new markets, and scaling quickly. In regards to this, old-fashioned “collaboration” is the new industry trend, while “disruption” is regarded somewhat as a thing of the past. Effectively, change is almost impossible without industry-wide cooperation and consensus.
The question: is how will banks and fintechs manage their respective strengths to proceed with deeper integration in a newly-formed system? It’s important to note that these integrations shouldn’t be regarded as acquisitions by any means. In other words, the technological vision of fintechs shouldn’t be at odds with the slow processes within banking institutions: one needs to convince multiple stakeholders and departments that the partnership makes sense. Here’s Chris Skinner on the partnerships: “Banks are slow to move, particularly at the beginning. Realistically, you should consider allowing at least 12-months from the moment you engage to the moment you have a partnership agreement signed.”
However, the financial industry holds little pessimism about collaborations: 82% of top executives at banking institutions have plans to partner with a fintech within the next 5 years. That’s only a matter of time before both parties streamline their processes to completely change the dynamics of SME lending.
All in all, given the competitive advantages that come with strategic partnerships, banks and fintechs have better chances to achieve their scale ambitions and reinvent their business models.
According to the CGAP report, the global opportunity for SME credit is estimated to be around $8 trillion. At the same time, more than 50% of overall applications are being rejected regularly. If banks want to take their share of the lucrative market, they need to modernize, and that’s totally good news for small businesses, technological partners, and the whole fintech ecosystem.
Dmitri Koteshov is the digital content marketer at HES (HiEnd Systems), a fintech company behind comprehensive lending and credit scoring solutions. As a seasoned professional, Dmitri maintains a longstanding interest in providing insights on fintech software development and analyzing current technology trends.
Online lender LendingClub Corp (LC.N) reported an adjusted third-quarter profit that edged past analysts’ estimates and raised its full-year earnings forecast on Tuesday, helped by record loan originations and higher transaction fees.
The company said it now expects 2018 adjusted earnings of between $89 million and $94 million, up from a previous range of $75 million to $90 million.
Fifty years ago, if you needed a loan for yourself or your business, you would typically walk into a brick-and-mortar bank, fill out a bunch of paperwork, talk to a loan officer, and wait several days or weeks to find out if you were approved. Today, this story has changed, and it’s going to look even more different in the future.
Borrowers seem to like GreenSky’s new way of obtaining credit. So far, the fintech company has served more than 1.9 million customers, providing them over $13 billion. Perhaps GreenSky’s most promising distinction is that it has also been consistently profitable with its new way of providing loan services. Its transaction volume has grown steadily from $2.1 billion in 2015 to $3.8 billion in 2017. During the same time, it grew its merchant base from 5,000 to nearly 13,000. Clearly, consumers in the 21st century like the new way of borrowing.
GreenSky estimates the home improvement industry, one of its key targets, to be just south of $350 billion annually. At a transaction volume of $3.8 billion, the fintech company has roughly 1% of the market.
The APR’s for GreenSky’s products tend to fall between 5% and 24%, depending on the borrower’s credit profile. Loan terms vary from 42 to 90 months, and customers can borrow up to $55,000. GreenSky does not cater to subprime borrowers.
Late in 2018, GreenSky announced a new partnership with American Express.
OnDeck posted gross revenues of $103 million, up 8% from the previous quarter and 23% from the prior year period. OnDeck is benefiting from higher interest income due to rate increases as well as their origination growth while being able to decrease funding costs. Effective interest yield was 36.5%, up from 33.1% last year.
Net income came in at $9.8 million for the quarter, up from a loss of $4.1 million from the prior year period.
Gross revenue of $392 million to $396 million, up from $380 million to $386 million,
Net income of $20 million to $24 million, up from $10 to $16 million, and
Adjusted Net income of $40 million to $44 million, up from $30 million to $36 million.
GreenSky reported record transaction volume in the third quarter of $1.4 billion, up 33% year over year. Revenue increased 29% to $113.9 million year over year. GAAP net income was $45.7 million.
Net revenues were $184.6 million, up 20% from the prior year period and originations were $2.9 billion, up 18% from last year. Applications also reached their highest levels, up 30% year over year.
In Q3 2018 GAAP Consolidated Net Loss was $22.7 million, or $7.3 million if you exclude $15.5 million of expenses related to outstanding legacy issues.
Total loans issued by the company now stands at over $40 billion.
Net Revenue in the range of $688 million to $698 million.
GAAP Consolidated Net Loss in the range of $129 million to $124 million, reflecting expenses related to outstanding legacy issues through the third quarter partly offset by higher Adjusted EBITDA guidance.
Adjusted EBITDA in the range of $89 million to $94 million.
October’s best mortgage offers for borrowers with the best profiles (the 95th percentile of borrowers) had an average APR of 4.61% for conforming 30-year fixed-rate purchase loans, up from 4.39% in September. The APR on refinance loan offers increased 22 basis points (bps), to 4.62%.
For the average borrower, the purchase APR for conforming 30-year fixed-rate loans offered on LendingTree’s platform was 5.27%, up 18 bps from September. The loan note rate of 5.14% is the highest rate of the year.
Consumers with the highest credit scores (760-plus, representing the 65th percentile of borrowers) received an average APR of 5.12%, versus 5.42% for consumers with scores of 680 to 719. The APR spread of 30 bps between these score ranges is the same as it was in September. For the average purchase loan amount of $233,938, the spread represents over $15,000 in additional costs for borrowers with lower credit scores over 30 years.
For the average borrower, the APR for conforming 30-year fixed-rate refinance loans increased 17 bps from September to 5.26%. The spread between credit score brackets (760-plus and 680 to 719) remained the same as last month, at 24 bps. That amounts to nearly $13,000 in extra costs over the life of the loan for borrowers with lower credit scores, given an average refinance loan of $238,447.
LendingTree today released its study on where millennials owe the most on their cars.
Even car loans are bigger in Texas. Metros in the Lone Star State dominate the top of the list: McAllen, Houston, El Paso and San Antonio have the highest median auto loan balances for millennials at $23,704, $20,925, $20,544 and $20,521 respectively.
Car capital of the world has the lowest auto debt. Ironically, Motor City has the lowest levels of millennial auto debt on our list with a median debt of $10,841 as well as the lowest average debt of $14,573.
Great Lakes area metros shine with the least auto debt. After Detroit, millennials in Rochester, N.Y., Grand Rapids, Toledo, Ohio, and Cleveland carry the lowest median auto debts, at $12,165, $12,429, $12,678 and $12,717 respectively.
New York and Ogden, Utah. These metros are on opposite ends of the spectrum when it comes to carrying any auto debt at all — New York has the lowest percentage of millennials with auto debt at 41.5 percent while Ogden, Utah has the highest percentage of millennials with auto debt (64.5 percent).
To prevent the average consumer from being charged more than $1700 in hidden markups on auto loan packages, Outside Financials opens an independent loan marketplace to facilitate transparency in auto lending and auto refinance.
Eugene Ludwig, founder and chief executive officer of IBM’s Promontory Financial Group, said artificial intelligence — already employed to help identify potential anti-money-laundering activity — is getting smarter, and can now be used to identify vulnerable groups of people who have been incorrectly labeled as high risk.
For example, Nerdwallet personal loan product page sorted loans by interest rates.
“All our consumers hated it. They wanted it sorted by monthly payments, which seems odd until you put yourself in their shoes and see what is going on month by month,” Chen said. “We have to meet them where they are. If you start by wagging your finger, that’s a good way to get them to hit the back button on their browser.”
Nerdwallet has three million members and more than 100 million visits each year, Chen said.
Riivos Mortgage, a division of Riivos, Inc., the provider of cloud-based continuous value chain management technology, today announced that NRL Mortgage, an originator serving customers coast to coast, is using the Riivos Mortgage Lending forecasting, planning and reporting application to help them analyze and capitalize on growth opportunities. NRL Mortgage is majority owned by St. Christopher’s Holdings LLC, a privately-owned holding company based in Houston, Texas.
U.S. District Judge Lee Yeakel on Tuesday reversed a previous order from June and granted, in part, the request by acting CFPB Director Mick Mulvaney and two industry trade groups to delay the payday rule’s August 2019 compliance date. They sought a delay to prevent lenders from having to comply with the old rule before the revisions are finalized.
Obtaining a banking license and then launching an actual new retail bank requires capital. A lot of capital. Enter Zopa, the U.K. peer-to-peer lending company that wants to become a bank, which today is announcing that it has closed £60 million in further funding. Only £16 million is actually new new money, having already disclosed £44 million in August, so this is effectively an extension of that earlier fund-raise.
Jaja Finance, the company on a mission to simplify the world of consumer finance, announces that it has already reached its fundraising target of £3m on equity crowdfunding platform Seedrs. The company will use the funds to expand its team and launch its digital credit card, Jaja.
Germany-based challenger bank N26 is bringing its services to Denmark, Norway, Poland, and Sweden.
“N26 passes on these cost benefits to its customers. N26 partners with the most innovative fintech and traditional financial companies to offer its customers best-in-class products such as TransferWise (foreign exchange), Raisin (savings), Clark and Allianz (insurance), auxmoney (credit) and others.”
BBVA and Red Electrica Corporation have become the first businesses in the world to deliver a syndicated loan using blockchain. The €150m deal, granted by BBVA, BNP Paribas and MUFG, was reached in record speed using BBVA’s proprietary platform- which is powered by distributed ledger technology.
In financial services, an industry where trust is a particular issue, Monzo was founded on the idea that there should be an alternative to traditional banking practices. Monzo argues that banks should get rid of punitive fees, do more to ensure customers know exactly what they can expect to pay for an overdraft, and provide greater control over how people spend their money.
Start-up Wagestream has just raised £4.5m for a business it promises will kill off the payday loan sector and the ‘payday poverty cycle’.
Bankers who regard payment technology companies such as fintechs as a problem may be missing opportunities.
Alternatives to payday lending are an example. These fintechs provide credit for nonprime customers, such as a recently divorced woman faced with a slew of new expenses. It is pricey credit, but cheaper than payday lenders. Unlike payday lenders, these companies provide credit reporting and reduced rates as a client pays off the loan. Eventually, a successful client qualifies for bank lending and leaves to take advantage of bank interest rates.
FinTech has revolutionized the way that banks and insurance companies function. Rather than prioritizing themselves and their services as in the past, banks must emphasize client needs in today’s new technological era. This focus on personalized financial services manifests itself in FinTech—a financial infrastructure for consumer enablement. As FinTech applies data and technology to financial services in an effort to address industry challenges, artificial intelligence is essential to FinTech’s existence and usage.
A division of the worldwide accounting and consulting firm PwCis currently working with a new stablecoin project that aims at developing a U.S. Dollar-based coin. The Hong Kong division will be exploring the best practices for issuing new stablecoinsworking with the Loopring Foundation.
A new piece of research, sponsored by Finastraand executed by Mercator Advisory Group, shows that small and midsized financial institutions can derive significant benefits to operational efficiency by pursuing three distinct cost-saving strategies: vendor consolidation, cloud delivery, and artificial intelligence. Based on in-depth interviews with C-level representatives of community banks and credit unions with asset size between $200 million and $5 billion, the research gauges attitudes toward and levels of adoption for each strategy.
Consolidation of vendors ultimately eliminates the need to maintain and manage multiple systems, and can improve operational efficiency by 20-30%.i
Cloud delivery brings numerous benefits including the ability to easily scale system capacity to meet demand.
Artificial intelligence (AI), which is the least adopted of the three strategies to date, promises to make processes smarter, faster and more personalized to the consumer. However, in order to reap these rewards, banks must prioritize their vendor consolidation and cloud delivery road maps.
The white paper, titled Landmark Decisioning: Using Vendor Consolidation, Cloud Computing, and Artificial Intelligence to Improve Operational Efficiency, is available here.
Persona, the blockchain-based solution for identity management,has just announced its partnership with FintruX, the P2P lending ecosystem, to streamline the onboarding process for customers while ensuring they remain in full control over their personal details.
Persona is the first identity management solution developing its own blockchain, as opposed to other projects being developed as ERC20 tokens over Ethereum.
Funding Societies | Modalku (FSMK) is the only peer-to-peer (P2P) lending platform from Southeast Asiato be included in Fintech100, an annual list of the top 100 leading financial technology innovators from around the world.
While the fault lines of the last global financial crisis have been mostly addressed, risks remain and have shifted in three ways over the past 10 years, said the Monetary Authority of Singapore’s (MAS) managing director Ravi Menon on Wednesday (Nov 7).
Meanwhile, the extension of credit has shifted from banks to non-banks – one of the areas that have not been given enough attention, said Mr Menon.
Equifax Canada and Loop today announced the launch of a credit health and monitoring platform for businesses. Launched at the intersection of Small Business Month and Financial Literacy Month, the new platform empowers Canadian small business owners and entrepreneurs alike, to improve their financial and credit health through easy-to-read credit scores, reports and resources.
It is now possible to attain a loan for Canadian Dollars (CAD) using bitcoin as collateral. The ability to use crypto as a form of collateral for fiat is a sign of further legitimacy for the sector. More providers are expected to follow suit and offer crypto loans, with a wider range of fiat currencies for a larger range of acceptable cryptocurrencies used as collateral.
News Comments Today’s main news: OnDeck creates subsidiary for bank partnerships. Lendio hits $1B in business loans. Blend Network on track to exceed 5M GBP in lending. Hexindai completes P2P compliance self-inspection report. Today’s main analysis: Bank earnings for JPMorgan, Wells Fargo, and Citigroup. Today’s thought-provoking articles: Why Google and Amazon are not a threat to small banks. Cities […]
Q3 bank earnings. An exellent report on JPMorgan, Wells Fargo, and Citigroup bank earnings. Especially interesting are the figures on digital banking customers.
Why Google and Amazon are no threat to small banks. I’ve been saying all along that banks should not be worried. Amazon and Google are stretching well beyond their core offerings, but they can’t get too far afield without destroying their business models.
OnDeck Capital, an online lender that also provides the technology to JPMorgan Chase’s digital small-business lending platform, is creating a new subsidiary to pursue partnerships with other banks.
The wholly owned subsidiary will be called ODX, according to New York-based OnDeck.
OnDeck, which specializes in online small-business loans, has been working to build its bank partnership business since announcing its deal with JPMorgan Chase in 2015. The nation’s largest bank launched its QuickCapital platform in 2016.
Lendio today announced it has facilitated $1 billion in financing to more than 51,000 small businesses across the U.S. Since its inception in 2011, Lendio has been bridging the financing gap for small business owners. As a result of access to growth capital, Lendio’s small business clients have burgeoned, generating an estimated $3.8 billion in economic output and creating more than 25,000 jobs in communities nationwide.
Revenues at JPM grew by 5% YoY to $27.8 Bn, and earnings grew by 24% YoY to $8.4 Bn. Earnings growth was driven by record NII of $14.1 Bn, up by 7% YoY, while fixed income trading revenues dropped by 10% YoY. JPM saw a small increase of 2% YoY in its consumer loan book. Net charge-offs declined by 11% YoY to $1.1 Bn and the provision for loan losses declined by 35% YoY to $0.9 Bn. The bank saw healthy growth of 11% YoY in its digital banking customers to 32.5 Mn. JPM’s ROE for this quarter was 14%, up by 3% points YoY.
Wells Fargo Q3 Earnings
WFC’s revenues were flat YoY at $21.9 Bn, but earnings grew by 33% YoY to $6 Bn. Earnings growth was driven by 1% YoY increase in NII to $12.6 Bn. The consumer loan book continues to decline with a drop of 3% YoY to $440 Bn driven by auto loans. Net charge-offs declined by 13% YoY to $0.5 Bn and the provision for loan losses declined by 19% YoY to $0.6 Bn. Digital banking customers grew by 4% YoY to 29 Mn. WFC’s ROE for this quarter was 12%, up by 3% points YoY.
Citigroup Q3 Earnings
Citi’s revenues were flat YoY at $18.4 Bn, but earnings grew by 12% YoY to $4.6 Bn. Earnings growth was driven by 9% YoY increase in fixed income trading revenue, the first increase since 2017. Citi’s outstanding consumer loans grew by 3% YoY to $309 Bn. Net charge-offs increased slightly by 1% YoY to $1.7 Bn but the provision for loan losses declined by 13% YoY to $1.9 Bn. Digital banking customers grew by 5% YoY to 18 Mn. Citi’s ROE for this quarter was 9.6%, up by 2% points YoY.
It’s a logical theory that sounds reasonable on its face: Since most small businesses already use Google, Amazon and Facebook for marketing, it will be easy for these tech giants to market loans to small businesses that they already have as customers.
One CNBC headline sums up the sentiment: “Another industry Amazon plans to crush is small-business lending.” The story notes that Amazon has already made billions of small-business loans to thousands of merchants and suggests that the online giant could come to dominate lending. In addition, there are countless fintech startups also seeking to disrupt small-business lending.
That’s because the theory misses a crucial detail: When tech giants and fintech startups target a business segment, they take a programmatic approach of catering to the most common use cases. That’s the opposite of what community banks do.
In data for 2017, the Census Bureau found that 13.7% of the U.S. population was foreign-born.
Key findings Cities with larger foreign-born populations and homeowners have higher home prices. Prices for the top 10 cities average $491,750 compared with $167,560 for the bottom 10.
But the lead city has modest home prices. Miami is top of the list with 26% of homes owned by foreign-born residents, but has a median price of just $278,700.
Immigrants love the coasts. The rest of the top five are also coastal cities, all in California with 17% and higher foreign-born homeownership rates and home prices above $300,000.
Some bargains are available. In addition to Miami, more affordable cities with high immigrant populations include Houston at No. 6 and Las Vegas at No. 7.
Cheaper cities are mostly shunned. Immigrants show little interest in bargain hunting in the cities towards the bottom of the list. The percentage of foreign-born homeowners in the bottom five cities is below 3%, despite home prices averaging about $160,000.
There are many VC firms investing in fintech today but most are based in the US or Europe. Our next guest on the Lend Academy Podcast runs a different type of fund that has its origins in China.
Anju Patwardhan is a Managing Director of the CreditEase Fintech Fund, which has quietly become one of the leading VC firms globally focused on fintech. They only launched in March 2016 and already they have made 45 investments into many of the leading fintech names such as Upgrade, Marqeta, Funding Circle, Ellevest, NAV, Figure, Onfido, DV01 and True Accord just to name a few.
Barclays is launching a US current account in a move that will put them in a head to head battle with Marcus; the account will be added to their current digital offering in the U.S. which currently includes credit cards, savings and loans to about 13 million customers; “We’re going to launch checking, we’re in the process of doing the build and we’re doing some testing .
We expect to have that in the market next year,” explained Barry Rodrigues, head of cards and payments at Barclays International, to the FT; the company does believe their knowledge in the U.S. market with credit cards can help to position them as they make this push into checking accounts; the company has not released targets for how many accounts they look to attract.
So how can a fintech startup stand out in an increasingly crowded fintech space? For personal finance and lending startup MoneyLion, the answer is to go where the audience goes—and go around in a loop with them 500 times.
Pedal To The Metal Scaling
That’s why MoneyLion recently announced it was partnering with Penske Automotive Group, Inc.PAG‘s Team Penske to sponsor NASCAR driver Austin Cindric’s Ford Motor CompanyFMustang for four races this season. It’s an unexpected move from a fintech startup, whose primary marketing channels to date have generally been social media and TV commercials.
With the number of retirement age citizens (65+) set to increase from 48 million today to 79 million, if reforms aren’t made, social security will start running out by 2035.
4. If you start investing now, you could be a millionaire later
If you want to start off small you can try investing in peer-to-peer lending with a minimum of $25. Instead of going through banks, peer-to-peer lending connects borrowers to lenders. Lenders can finance all or part (along with other investors) of a borrower’s loan at an interest rate of roughly between 5-36 percent.
Speaking exclusively to Development Finance Today, Yann Murciano, CEO, and Roxana Mohammadian-Molina, chief strategy officer (left), both of Blend Network, highlighted the company’s significant growth and future plans for the platform.
“We had a target of £5m, which it looks like we are going to exceed, because we will be at more than £4.2m in the next 10 days.
“In the first four months, we provided one facility of £1.3m and one for £1.4m, so this is how quickly we are growing.
Green and social infrastructure crowdfunding platform Abundance is set to announce a fund-raising of its own. The platform will this week unveil plans to raise a seven-figure sum to fund its next stage of growth, with an equity issue that will be hosted on its fellow crowdfunding service Seedrs.
But there is perhaps one small corner of the alternative finance universe in which the UK has been behind the curve – namely royalty finance. Originally developed to service the mining and commodities industries, the concept of royalty finance has been adapted to the needs of SMEs and mid sized companies. US businesses have been able to access this form of funding since the early 1990s, when a fund called Cypress Growth Capital was established to provide an alternative to venture capital, but to date the idea has failed to gain much traction in the UK.
But things are changing. Corporate finance companies offering variations on the royalty finance theme are emerging – including
The Financial Conduct Authority has written a “Dear CEO” letter to platforms providing high-cost short-term credit – which includes some peer-to-peer lending firms – to check on their creditworthiness assessments, particularly for repeat borrowers, and to assess whether customers are being treated fairly.
It warns that firms must be able to fund any remediation costs from complaints and should inform the FCA if they are unable to.
The letter follows the collapse of payday lender Wonga in August.
Hexindai Inc. (NASDAQ: HX) (“Hexindai” or the “Company”), a fast-growing consumer lending marketplace in China, today announced it has completed the submission of its P2P Compliance Self-Inspection Report to the Beijing Municipal Bureau of Financial Work, completing one of three key steps for compliance with industry reforms from the National P2P Rectification Office.
Hexindai is actively supporting and participating in this compliance process, which aims to foster the stable growth of the P2P lending industry in China. The result of this process will be a set of standards and best practices across the whole industry to protect the interests of both borrowers and lenders.
Now, Hexindai will focus on the next two steps in the process, including an inspection conducted by Beijing Internet Finance Industry Association. This will be followed by verification of inspection results by the Beijing Municipal Bureau of Financial Work with field inspection and possible final check by higher level government organizations.
On October 10th, People’s Bank of China, China Banking & Insurance Regulatory Commission and the China Securities Regulatory Commission jointly issued the “Administrative Measures on Anti-Money Laundering and Anti-Terrorism Financing for Internet Finance Institutions (Trial)” (hereinafter referred to as the “Administrative Measures”).The purpose of this document is to regulate the possible anti-money laundering and anti-terrorist financing of Internet finance institutions, and to effectively prevent money laundering and terrorist financing activities.
The “Administrative Measures” will be implemented from January 1, 2019, and require deeper compliance requirements for Internet finance institutions. At the same time, NIFA should coordinate with other industry self-regulatory organizations to formulate industry rules to achieve effective linkage between supervision and self-discipline management.
Dow Jones VentureSource is out with their quarterly report on VC activity for Q3 of 2018. According to their numbers, European VC fundraising increased during Q3 but investment in European companies “showed a notable decline in deal flow activity and investment levels.”
The report states that VC investment for the quarter totaled €3.51 billion across 24 European VC funds. This is a significant increase of 50% versus Q2 of 2018. Additionally, when comparing to Q3 of 2017 both capital and fund closings increased by 90% and 14% – respectively.
A new digital platform, run in partnership with Bendigo and Adelaide Bank, has launched to give Australians a “radically different banking alternative”.
The new digital app, called Up, was created by Melbourne-based technology developer Ferocia and operates under Bendigo and Adelaide Bank’s banking licence.
The smartphone banking app was officially launched last week and enables customers to track their money in real time, predict upcoming bill charges automatically and pay them on time, and also offers multiple saver accounts, round-ups on purchases, digital payments (such as Apple Pay and Google Pay) and no international transaction fees.
Start-ups in fintech and peer-to-peer (P2P) lending platforms are devising strategies of attracting more millennials towards small-ticket loans ranging from Rs 10,000 – 200,000, which are being mainly utilised towards experiential travel. Entrepreneurs say small ticket loans generally go towards home renovation, home decoration, home repairs, purchase of second cars/bikes, etc.. “But off late, the trend is tilting more towards utilisation of such loans for fulfilling travel ambitions,’’ say entrepreneurs.
“There is no doubt this segment (travel) is rising and more people are opting for this loan. Any customer would love a packaged deal which comes with financial support to go on a vacation, and this will also help them enjoy their vacation well,” says Bhavin Patel, co-founder and CEO, LenDenClub.
Although people going for longer vacations or to expensive destinations take loans that are in lakhs, during long weekends, the frequency of very small loans ranging from Rs 3,000 – 10,000 increases significantly, observes Bala Parthasarathy, co-founder and CEO, MoneyTap. The idea is to supplement their existing cash coffers, without causing any imbalance in their daily lifestyles, say experts.
It’s 2018. We’re facing the impending risk of climate change, rampant wealth inequality, and increasing populism around the world. We need to think beyond quarter-to-quarter profits to survive this. Companies must think about the long-term effects of their work—beyond their bottom dollar.
Find a purpose for your company that will help you soar during the good times, and persevere during the tough. What’s helped me fight fires every day—and get through the hardest challenges—is our mission of powering a new, more equal digital economy in India. A true mission serves a massive need in our society, especially for SMBs navigating the post-GST economy, and has the potential to create millions of jobs for companies looking to digitize and become compliant.
What’s my business model? How does it relate to my mission? What vulnerabilities does it have?
A mission should be more than words on your website’s ‘About’ page. It should lie at the core of everything you do, including your business model. You’re destined to fail—or at least be gravely disappointed—if your mission and business model do not align.
One of India’s fastest growing P2P lending platforms, ATL facilitates instant unsecured loans (personal, education and business loans) to eligible borrowers by connecting them with investors or lenders across India through a 100% digital ecosystem.
With this certification, ATL joins a select group of fintech startups who hold the NBFC-P2P accreditation. RBI follows a very stringent due diligence process while granting this license, which involves eligibility criteria like financial stability, business continuity plan, and how the business will aid in RBI’s larger vision of financial inclusion. The startup says that recognition from RBI is a strong validation of the startup’s sharp business model, processes and compliance with the RBI guidelines.
It looked like the end had arrived for Adewale Fatai’s chicken farm. Money was running out. Built to house 30,000 chickens, the farm was producing fewer than 2,000 chicks. His family had no funds to lend, and Nigeria’s banks weren’t interested.
Instead, he went online.
Two years later, Fatai now has 20,000 chickens. Flanked by thousands of chirping birds at his farm in Nigeria’s southwestern Ogun state, Fatai says his operation was saved by Farmcrowdy, one of a breed of new peer-to-peer lending companies aiming to match farmers with small investors.
Equity Group Holdings Ltd., Kenya’s biggest bank by market value, expects its financial-technology unit to bring in as much as 2.2 billion shillings ($22 million) of revenue in its first year of independent operations, according to Chief Executive Officer James Mwangi. The bank “has resolved to make Finserve an independent commercial subsidiary,” Mwangi said in a statement published in the Nairobi-based Sunday Nation newspaper. The unit serves 1.96 million subscribers on its mobile-banking platform, Equitel, he said.
The unit, Finserve Africa Ltd., became an independent entity this year and facilitates cross-border transactions in seven Eastern African nations worth 2 billion shillings each month, according to the statement. It has a startup capital base of 1 billion shillings and its assets are valued at 1.98 billion shillings, Mwangi said.
With a walloping around US$100 billion check, SoftBank’s Vision Fund is the world’s largest venture capital vehicle, and it’s also considered too big to be a conventional one. The Vision Fund is known for throwing gigantic amount at startups, urging them to compete for more market share at costly expenses.
Online lender Social Finance’s ex-CEO Mike Cagney, after investments from SoftBank in 2015, said that the funding “takes the pressing need of an IPO off the table,” and allow the company to put off an IPO indefinitely.
It seems that, receiving SoftBank investment is the new form of doing an IPO.
The firm in Southeast Asia invested in Grab and is encouraging the ride-hailer to form joint ventures with its portfolio companies to help them enter the region.
Unethical debt collection practices are part of the reason Indonesia’s financial services authority, OJK, has been strictly monitoring the sector. It recently blacklisted 407 online lenders for not registering with the authority. Raja Uang was one of them.
OJK cracks down on all firms who operate without being registered with OJK, but in practice, it’s difficult to ensure they do shut down for good.
Banks have to struggle with a lot of challenges – from issuing credit to operational risks, and technological troubles to good old fashion fraud. In addition to the risks of yesteryear, modern banks face falling long-term rates, growing fintech competition, and low profitability. In this challenging environment, savvy modern banks focus more of their attention […]
Banks have to struggle with a lot of challenges – from issuing credit to operational risks, and technological troubles to good old fashion fraud. In addition to the risks of yesteryear, modern banks face falling long-term rates, growing fintech competition, and low profitability. In this challenging environment, savvy modern banks focus more of their attention to mitigating risks.
Chief among these challenges are low-performing loan portfolios, which are a constant thorn in the side of lenders. For example, European non-performing loans stand above €1 trillion with more than one third of banks having NPL ratios above 10% (ECB, 2017).
This minefield of factors has driven lenders to seek out new ways to increase profits and cut funding costs in order to stay competitive.
Artificial Intelligence in Fintech: Will it take over?
“AI is a powerful tool for banks, thanks to its ability to harness vast quantities of data to learn more about customer patterns and behaviors”, says Steve Ellis, head of the innovation group at Wells Fargo.
As powerful as artificial intelligence (AI) is, traditional banking is still heavily reliant on statistical methods that were developed over half a century ago. Lenders determine creditworthiness based on 20+ data points, which leave otherwise worthy customers behind.
Modern machine learning (ML) makes it possible to go much deeper when analyzing data, and allows lenders to extract valuable insights from available data patterns.
According to a McKinsey report, a number of European banks have already replaced the antiquated statistical-modeling approach with machine-learning techniques. The results speak for themselves: a 10% increase in the sale of new products, 20% savings in capital expenditures, and a 20% decline in churn.
The data doesn’t lie: Lenders are betting on AI. Evidence of this modern trend can be seen in numerous ‘banks and fintech collaborations’ and AI-based software releases:
JPMorgan Chase pioneered a Contract Intelligence platform designed to “analyze legal documents and extract important data points.”
American MobileBank deploys AI software to lend to thin-file millennials.
Canadian TD Bank uses Layer 6’s AI engine for scoring and cybersecurity.
Deutsche Bank came out with new AI-based equities to predict their pricing and volume more accurately.
Wells Fargo employs its own AI team to provide more personalized services and strengthen digital offerings.
Bank of America Merrill Lynch implements HighRadius’ AI solution to speed up receivables reconciliation for their large business clients.
Logistic regression is no longer the de facto standard
Nine times out of 10, logistic regression is used to build scoring models and solve classification issues. Before it can take over and provide predictive results, there’s an important step of preliminary analysis and data quality control that must be taken. If the dataset contains:
imperfect and missing values, outliers and unstructured data;
numerical and categorical values (age, income vs marital status, education);
raw data that doesn’t fit strict parameters(data with fractions or decimals, etc.)
data analysts will spend days (if not weeks) just to preprocess the data before it can be assessed. Cutting corners and ignoring such data may lead to the loss of valuable insight and incorrect predictions.
How modern AI/ML methods build better risk models
Today, lenders have the ability to collect more data than ever about their clients. In addition to traditional socio-demographic data, this may include transactional data, records from credit bureaus, social media, Google Analytics, as well as other non-traditional sources.
Processing and interpreting this data so that it can be used to issue loans to worthy credit seekers is where modern ML/AI methods give banks the edge they need.
Machine learning techniques like gradient boosting, random forest, or neural networks can better find hidden dependencies in a dataset, which helps to gain more accurate predictions. This assists banks in determining how collected parameters in a dataset should be weighed to predict whether borrowers will consistently repay their loans on time.
This is made possible by data signals, which define significant parameters that affect the power of a scoring model. Depending on the type of business, geography, target audience, and data authenticity, significant parameters may differ. Modern ML can determine which data points contain the desired signal.
Traditional data sources like credit bureaus still remain an important part of the process and provide the data that contain the above-mentioned signal. Unfortunately, they do not cover noteworthy market segments such as millennials, self-employed entrepreneurs, small business owners, immigrants, or the unbanked.
The team at GiniMachine carried out pilot projects to build accurate scoring models with minimal data points and without access to an applicant’s credit history. Some of the most promising and predictive parameters included the applicant’s industry and occupation, the size of their company, the total years they’d been in business, the size of their family, and data from social networks like their overall activity, as well as the quantity and quality of their connections.
The team at GiniMachine has proven that it is possible to capitalize on information about borrowers that is collected from alternative sources to accurately and efficiently assess borrower’s credibility and make effective lending decisions.
Modern ML methods can build more accurate risk models because of their capacity to:
use built-in ‘raw’ data pre-processing tools
find hidden dependencies of arbitrary complexity
harness unstructured, big data, and data from alternative sources
The financial world, and lending businesses in particular, have seen major changes throughout the last few years. Using ML and AI in concert with traditional practices is the way forward for banks that want to remain competitive in the modern world. It’s clear that making good loans to the people of the future requires a futuristic helping hand.
Dmitry Dolgorukov is a CEO and co-founder of GiniMachine & HES, a technology entrepreneur, and an investor with over 15 years of executive experience in software development and fintech. In 2018, Dmitry was ranked as one of the top 200 Fintech leaders in Europe that contribute to the industry as influencers through action.
Consumers are increasingly finding that new technologies are making online lending more accessible, simple and affordable. Online lending has entered the mainstream, yet it is still a long way from challenging the domination of banks in our financial lives. Online lending has also evolved from being a competitor of traditional banks to a collaborator for greater […]
Consumers are increasingly finding that new technologies are making online lending more accessible, simple and affordable. Online lending has entered the mainstream, yet it is still a long way from challenging the domination of banks in our financial lives. Online lending has also evolved from being a competitor of traditional banks to a collaborator for greater success.
A LendIt 2018 panel discussion moderated by Kevin Wack, a reporter at American Banker, delved deeper into these emerging partnerships between banks and online lenders. The moderator believes that the current discussion is the 2018 version of a 2015 discussion–partnering with banks.
In 2015, the discussion revolved more around how banks should respond to the rise of online consumer lending and whether they should become a part of the revolution. But the current discussion is about how the banking industry has shaped up with the advent of online lending.
Introduction of Panel Members
Barclays: Jeremy Takle is the head of US Digital Consumer Bank at Barclays. Introducing the company, he shared that Barclays is a relatively new entrant in the US online lending segment. The company acquired Juniper Bank in 2004 and launched a consumer lending product in 2016.
Prosper: Usama Ashraf from Prosper discussed how his company emerged as the pioneer in US online lending. The Prosper platform was founded in 2006 and since has facilitatedAshraf over $12 billion in originations.
Lending Club: Sameer Gulati, the COO of Lending Club, was also a part of the panel discussion. Lending Club has done about $32 billion in loans, which runs the gamut of personal loans, business loans, auto re-financing solutions, and patient solutions.
Lightstream: Another panelist was Todd Nelson from LightStream, a company that works to extend loans for practically everything. LightStream is a branch of SunTrust, and making loans is an important part of SunTrust. It focuses on providing the same products as SunTrust but sets broader benchmarks.
Bank, Fintech, and Online Lender Competition
Gulati holds the view that there is an increasing amount of competition from banks, but this will increase opportunity for the industry. The competition will help make online lending a mainstream product. Ashraf also believes that bank competition is increasing, but marketplace lenders are the largest players in the lending space. Banks in the US have large deposits that enable them to grow the asset side of the equation at a comparatively cheaper rate. As a result, competition is increasing, especially for personal loans.
Takle said fintech lenders are relatively new entrants in the lending space. The fintech sector has undergone a drastic transformation thanks to the changing role of technology and innovation. The huge addressable market that online lending could fill was a major factor that attracted Barclays to this market. Moreover, Goldman Sachs and other regional banks are entering into the market to tap into the huge opportunity.
Nelson believes LightStream is customer-centric. The company designs its products according to the needs of the customer. The debt products are designed to meet the clients’ requirements and to offer flexible repayment structures. When asked how different are the credit standards at LightStream, he said LightStream is a regional bank over 100 years old. The business has a modern risk appetite but is less aggressive compared to other banking companies in the space.
Credit Risk Appetite For Banks
Ashraf Wack said traditional banks have limitations pertaining to the type of risk they will take on due to their investor base.
Gulati discussed how banks are at the top end of the credit spectrum with 40% of buying volume. That comes to about $4 billion for Lending Club. The business is focused on devising ways to say yes to more people in the credit market and is dependent on non-traditional data to increase penetration in the credit markets.
Wack asked the panel to put forth their thoughts on how “Frenemy” is used as a familiar term for the banking sector and fintechs.
Ashraf said he believes collaboration between banking and fintech is critical. In the initial days, it was not clear how banks and fintechs should work together. But now the collaboration is beneficial as banks are meaningful buyers of loans and play an active role in the capital markets. The collaboration of banks with fintechs will also provide opportunities for cross-selling products.
Takle believes there are a lot of opportunities to collaborate across both vertical and horizontal segments in online lending. This allows for rapid scaling with significant funding and access to latent demand.
Talking about the growth of Lending Club, Gulati shared the framework for the company’s partnerships with banks. Lending Club has been able to add new product categories on the basis of its discussions with funding partners. He also thinks that protecting the intellectual property of a business is crucial to the growth of the business. At times, few partners are inspired by the business’s products and end up developing similar products.
Nelson went on to say that banks should not be thought of as a monolithic figure and advises online lending platforms not to compete with banks for customer acquisition, but to instead benefit from the combined capabilities of both spaces.
Ashraf believes these relationships usually start with one aspect and, over time, add more elements to a mutually-beneficial relationship.
The Relative Strengths of Banks and Fintechs
Ashraf said the expertise of online lending platforms in tech combined with banks’ ability to attract customers will together help the space grow.
Nelson believes that fintechs are successful in identifying the needs of the customer quickly and banks have expertise to develop scalable products to cater to these needs. He also praised billionaire founder of Prosper and Ripple Chris Larson for his long-term vision.
Talking about banking as a service and its appetite to fulfil the customer’s needs, Ashraf said that a lot depends on the product type and the space for which it is considered. There are three main ways that banks are currently considering the fintech space, he said:
Regional banks are looking to access the customer base of fintechs
Banks want to incorporate technology in their systems
Banks and fintechs can collaborate on a variety of products
The Final Take
Takle believes there are a lot of customers who are looking to shop around for a single product. Gulati emphasized how important customer ownership is for a company. Most players operating in the space do not understand the meaning of the term nor its implementation in business.
Customers do not want to be owned. LendingClub believes that its job is to offer the products, services, and experiences but not to control the customer. If the customer’s need is matched better elsewhere, they should go there.
Prosper strives to offer the best customer experience and works to make sure that customers are well educated on the product that the business is offering.
Ending the panel with a final discussion on marketing partnerships, Nelson said businesses are operating in a space where there are big aggregators who commoditize products and there is massive competition on the price. Although price constitutes an important part of the entire equation, it must not be considered the only parameter. It is important that businesses understand products should not just be commodities in number but something that is a great experience for the customer and provides overall value to all stakeholders.
News Comments Today’s main news: OnDeck completes two international credit facilities. Elevate launches prime credit card for non-prime customers. RateSetter backtracks on Rolling Market rate changes. China’s P2P lender are falling like dominoes. Banco BNI Europa invests in US consumer loans. Today’s main analysis: Deloitte’s survey on fintech lenders. Today’s thought-provoking articles: An inside look at SoFi-Promontory Interfinancial Network […]
Deloitte fintech lender survey. The cost of funding is the No. 1 concern among lenders. Liquidity and inability to diversify are also in the top 3 concerns. Larger companies, however, have securitization as an option. I’d want to know why smaller companies find it hard to diversify.
Why bank without a branch. There are several benefits to branchless banking, but it may turn that traditional banks end up owning this space as challenger banks in the U.S. have not caught on. It may be because there hasn’t been a real online-only banking solution for small businesses, which I think can open up the floodgates for this market.
Elevate and Capital Community Bank of Utah announced the launch of Today Card powered by Mastercard. As the first non-prime credit card with a full suite of prime features, Today Card will be issued by Capital Community Bank of Utah and will specifically help expand access to credit for members of the New Middle Class, the nearly 160 million non-prime Americans who are too often overlooked by mainstream financial institutions.
The recent surge in financial innovation has caused many community banks to rethink how they are serving their customers and what they can do to improve that experience. I recently spoke with two community banks about their decision to buy SoFi loans using Promontory Interfinancial Network’s service.
I spoke with Brian Plum, CEO of Blue Ridge Bank, which is a Virginia based community bank with mortgage offices in North Carolina, and Nicole Austin, Chief Lending Officer of Pioneer Bank, which is a New Mexico-based community bank.
Both banks had experience in looking at fintech partnerships before moving ahead with their decision on the SoFi program. They both said that as lending and banking changed, they needed to better understand how new technology could help their businesses.
Blackstone is launching a $10 Bn direct lending fund focused on middle-market corporate credit opportunities. The search for yield has pushed investors into higher-yielding middle-market lending, with direct lending funds raised $54 Bn in 2017. Consumer, small-business and middle-market lending have been a consistent theme among investors starved for yield by low global interest rates.
Deloitte’s Survey on Fintech Lenders
The main take-aways from the study:
1. 7% of respondents listed cost of funding as one of the top 3 concerns, with liquidity and an inability to diversify rounding out the top 3.
PeerIQ view: Securitization remains the cheapest source of large-scale financing. MPL bonds continue to go mainstream as credit spreads tighten vs comparable consumer credit issuers. Emerging issuers continue to take efforts to build a brand in the ABS markets via repeat issuance.
3. Investors remain interested in the online lending space with $11 Bn in equity capital expected to flow into the sector in 2018. The number of startups has decreased, suggesting a maturing market and some consolidation.
The first online banks hit the U.S. market more than 20 years ago, attracting customers with higher interest rates and lower fees. While some early innovators are no longer operating, others have evolved. Take ING Direct, for example, which was acquired by Capital One and transformed into Capital One 360 in 2012, or Ally Bank, which is one of the most dominant names in the online banking market.
Today, however, these banking institutions face competition from new direct banks as well as traditional banks that are looking to expand using the online-only model. For instance, Finn by Chase and Marcus by Goldman Sachs bring digital banking to areas in which the companies have no physical presence.
Fortunately, some lenders offer long-term small business loans, which give borrowers the opportunity to repay the loan over a longer period of time (typically up to 25 years).
Long-term business loans certainly do exist but if you’re hoping to score one, you’ll need to have an established business (i.e., no startups or new businesses) and have good business credit.
There are a variety of lending institutions, both traditional and non-traditional, that offer long-term financing, so it’s always best to review all your options, including those offered by your chosen banking institution. However, there are a few lenders that consistently top the charts, and those that follow are known to offer competitive rates, flexible terms, quick access to funds, and positive customer feedback.
Walmart’s experiment with offering Even.com’s money management and pay-advance app to employees appears to be off to a good start.
The retailer launched the app to employees in December. On Thursday, Walmart and its fintech partner announced that 200,000 Walmart employees are now using it. (The retailer employs 1.5 million people in the U.S.)
About 75% of associates use the app every week and 46% use it every day.
The New York State Department of Financial Services (“DFS”) found that online marketplace lending has increased dramatically since 2015. In the newly published report, DFS analyzed responses from a “New York Marketplace Lending Survey” along with comments from relevant stakeholders.
Based on data from 2017, DFS found that:
the total number of loans increased approximately 118% and the total dollar amount of all loans increased approximately 42% as compared to 2015 levels;
many more individuals were being served in this market than small businesses;
lenders generally charge a variety of fees (e.g. origination fees, closing fees, processing fees, maintenance fees, transactional fees, and penalty fees), with origination fees being the most common;
delinquent loans (both to individuals and businesses) represent approximately 11% of the total number of loans outstanding as of the end of 2017; and
respondents used “internal models with various inputs provided by the applicant such as employment history, business history, bank statements and tax records” to determine whether a borrower qualifies for a loan.
Gradifi today said it is now offering access to LendKey’s nationwide network of lenders through Gradifi Refi, a student refinance program for employers seeking to help their employees save money or reduce the monthly payment on their student loans.
Gradifi Refi is one of three employee benefit solutions from Gradifi that enable employers to positively impact their employees’ financial well-being. Gradifi’s SLP Plan (Student Loan PayDown)benefithelps employees pay off their student loans faster through employer-sponsored contributions to their student loan provider. The College SaveUp benefit helps employees save for their children’s education and avoid further student debt through employer contributions to an employee’s 529 college savings plan account.
P2Binvestor (P2Bi), a marketplace lending platform offering crowdsourced, asset-secured lines of credit to growing companies, today announced a partnership with Amalgamated Bank, a socially responsible bank based in New York.
The P2Bi bank partnership program gives growing businesses a way to quickly access capital while allowing banks to increase their addressable market and improve their conversion rates. This particular alliance will enable Amalgamated Bank to continue to help fund emerging socially responsible businesses.
The UK’s challenger banks are busy getting on with it. They’ve got their licences, they’ve deployed their services, they’re partnering with third parties and creating marketplaces. Much of this was cited in a report by CBInsights, comparing the features of the five most notable new ones: Atom, Starling, Monzo, Revolut and Tandem.
N26 were also included, but is not a UK start-up and their report builds on the one I blogged about last month from Optima. The thing I took from the CBInsights report is the massive numbers of users that Revolut and Monzo have already gained. At that time, it was 1.5 million for Revolut and 500,000 for Monzo.
Christian Faes could hardly have picked a worse time to get into mortgage lending. It was 2008, financial markets were in free fall and most people were more concerned about putting food on the table than buying a house.
That did not deter Faes, a former lawyer who had moved to London from Australia’s Gold Coast 10 years earlier. He co-founded Montello Bridging Finance in a “windowless serviced office” in the City and set about cold-calling potential investors. “The idea was really sound, but it wasn’t the best moment to be setting up a mortgage lending company,” said Faes, 41.
The shakeout in China’s $192 billion peer-to-peer lending industry is accelerating at a rapid clip.
At least 118 platforms have failed this month through early Friday, according to Shanghai-based Yingcan Group, whose tally for July stood at 57 just three days ago. The number of failures, which includes platforms that have halted operations or come under police investigation, is already the highest in two years with more than a week left in the month.
China’s clampdown on financial risk has weighed on P2P platforms for the past two years, but the pressure has intensified in recent months after the country’s credit markets tightened and the banking regulator issued an unusual warning to savers that they should be prepared to lose all their money in high-yield products. While that has triggered bouts of panic among users of smaller P2P platforms, there’s little evidence that the turmoil has spread to more systemically important parts of China’s financial sector.
A string of Chinese internet lenders have shut their doors in recent weeks, stranding investors as the economy slows and regulators tighten controls over an unruly side of the fintech sector.
Across China, more than 200 internet-based fund managers since late June have either shut down, closed parts of their operations or are reeling from cash crunches, missing executives and other problems, according to industry tracker Wangdaizhijia.
The tide began to turn against the sector as an end-of-June deadline for new stringent registration regulations approached. With a slowing economy making it difficult for some companies to pay back loans, some lenders decided to shut down, analysts said. Investors, already souring on the sector, began pulling out funds, further pinching the lending platforms.
Figures from Bloomberg Economics based on data from the People’s Bank of China indicated that three major assets of shadow banking – trust lending, entrusted loans and banks’ acceptances – increased by $555 million in 2017. Entrusted loans, for example, are when businesses loan money to each other, using banks as intermediaries. Meaning that larger (state owned) companies may lend money to smaller companies and make a profit from the differences in interest.
Micro-lending is another phenomenon that has ballooned in recent years, with a proliferation of online lending or peer-to-peer lending platforms springing up. Outstanding debts on these sites increased by 256 percent between October 2015 and October 2017, topping 1.2 trillion yuan (over $179 million).
These issues have been acknowledged by the Chinese government, with China’s top banking regulator, Guo Shuqing, promising the shadow banking industry will be ‘dismantled’.
The Shanghai municipal government has announced it will soon launch a campaign to enforce compliance of financial regulations on the city’s peer-to-peer (P2P) online lending platforms, according to a report by domestic website the Shanghai Observer, in a sign that local authorities will put order into China’s troubled fintech sector.
The Shanghai Office of the Leading Group for the Special Campaign against Internet Financial Risks said that it will investigate the local online lending industry and severely punish those committing illegal fundraising and financial fraud, as well as fugitive owners. The authorities have reasserted their support of law-abiding firms in a bid to promote a more orderly internet finance industry.
In the last 50 days, up to 163 P2P lending platforms have essentially gone out of business, stopping cash withdrawals from customers, and many have seen their owners run away and declared fugitives, chinanews.com reported.
German mid-market lending platform Creditshelf has successfully closed its IPO, raising €16.5m at the fixed price €80.00 per share.
In the end, the company had no need of its €15m backstop order, provided by Hevella Capital GmbH & Co. KGaA, part of a group controlled by Rolf Elgeti. But Obotritia Capital KGaA, which is also part of the group, subscribed for an additional amount of €1.5m, underlining its support for the firm.
OnDeck (NYSE:ONDK) announced today the closing of an AUD75 million asset-backed revolving credit facility with Credit Suisse, and the closing of a CAD50 million asset-backed revolving credit facility with Crédit Agricole, to finance OnDeck originations in Australia and Canada, respectively.
The new Credit Suisse facility will be used to refinance OnDeck Australia’s current loan book at a significantly lower cost, as well as to fund future originations. The Crédit Agricole facility is the first for OnDeck Canada and provides the business with access to CAD25 million of committed capacity and an additional CAD25 million of capacity available at the discretion of the lenders. Both facilities are floating rate and have an initial weighted average interest rate of approximately 5.6%. The Credit Suisse facility and Crédit Agricole facility are scheduled to mature in June 2020 and June 2021, respectively.
European challenger bank Banco BNI Europa and Fintex have entered into a strategic partnership to invest in Upgrade’s consumer loans and expand access to affordable credit to consumers in the United States. Banco BNI Europa, which is active across Europe, now invests in US consumer loans through Upgrade, one of the fastest growing platforms in the US. This loan purchase programme was implemented by Fintex Capital, which issued a bond to Banco BNI Europa backed by the portfolio and Fintex acts as asset manager for the underlying loans.
As part of the agreement, Banco BNI Europa committed an initial sum of USD 30 million. Banco BNI Europa has already invested in US consumer loans originated on platforms like Lending Club and Prosper through a third-party fund.
In fact, one report by CB Insights found that about 29 percent of startups failed because they ran out of working capital, which speaks volumes about the morbid state of business financing for startups and budding businesses.
Consequently, business financing has become one of the many areas of fintech that could benefit immensely from blockchain, the decentralized ledger that has been disrupting industries for over a decade.
Here are a few ways that showcase why blockchain could change the way enterprises access funding.
A startup looking to build a credit scoring protocol on top of the recently-launched Ontology blockchain has raised $8 million in seed funding.POINTS, founded in 2017, said it drew funding from a mix of traditional venture capitalists including Danhua Capital and Ceyuan Ventures, a backer of OKCoin. Other participants in the seed round include the Ontology Foundation as well as Zhong Cheng Xin Credit Technology, China’s first nationwide credit rating agency.The new capital will be used to expand the company’s engineering team in an effort to speed up its development of blockchain-based know-your-customer (KYC) and credit scoring applications. The idea is to build its protocol on top of a decentralized network and empower apps that can eliminate repetitive processes around identity.
The crypto lending platform Salt Lending just got a dose of some strange news when the company suddenly released an announcement stating the appointing of what they call an interim CEO. The former CEO ,who was essentially the face of the company and one of the cofounders, Shawn Owen, appears to have left the company.
But the circumstances under which he left are unclear.
Salt tokens (that run on Ethereum) have been on a strong downward slide for the last few months, and are currently sitting at just over one dollar each. The tokens entered the market at the three dollar range and so are down by more than 66% post ICO. It is also unclear as to whether or not Salt Lending is still operating or giving out new crypto-to-cash loans.
The growing user base of cryptocurrency and related products has skyrocketed, with the highest number originating from countries like New Zealand, Denmark and Belgium. The community growth is expected to follow the upward trajectory to hit 100 million users soon.
RAD Lending platform might just be the push the market needs to fill the gap between crypto holdings and real-life fiat spending. The P2P lending platform from RAD will act as a matchmaker between loan requests and funding proposals.
A Boston Consulting Group (BCG) report suggests that digital lending in India will become a $1 trillion opportunity in the next five years.
According to the report, four fundamental drivers that pushed the space are internet giants that changed the way consumers behave, rapid growth in technological advances including the proliferation of smartphones and consequent increase in the consumption of data. Also the digital market lending prospered under supportive regulatory conditions across the globe.
This week 16 startups received funding, of which 10 received a total sum of about $228.5 million. Among them, BookMyShow raised the highest investment of $100 million, followed by Cars24 which raised about $50 million.
Meanwhile, funding for six of the total funded startups remained undisclosed.
P2P lending platform LenDenClub has received its NBFC-P2P certification from the Reserve Bank of India (RBI), the Economic Times said. The RBI issued those guidelines last October, to register and accredit P2P lending firms that resell loans from individuals who have money to invest.
Out of the 8.8 million businesses in India that file taxes, at least 6.6 million businesses do not have access to the credit sources such as banks, non-banking financial companies (NBFCs), and upcoming online lenders. This is a problematic situation for both lenders, and for businesses (especially small businesses), looking for capital loans.
The problem of credit shortage for small businesses is daunting, but the regulators in India have already set things in motion to address the issue. According to Sharma, the revamped goods and services tax (GST) structure, the Reserve Bank of India’s (RBI’s) new public credit registry (PCR) initiative, and UPI (Unified Payments Interface) 2.0 will solve the shortage of data for lenders.
The rise of promising tech-startups has been successful in ushering India into a dawn of technology.
While AI is believed to revolutionize the current modus operandi and bring about fast-paced automation and efficiencies, it still remains an abstract topic, palled by a lack of nuanced understanding amongst the general public.
The same has inspired present-day companies to advance their understanding and grasp of the discipline, and discover innovative ways of bringing this powerful technology to the masses.
Here are some enterprises that are integrating AI in everyday tasks:
Faircent: Making Lending more conducive with AI & Machine Learning
If you think AI is only limited to the IT industry, think once again. Faircent, India’s largest P2P (peer-to-peer) lending platform, has been utilizing the technology to provide users with money during your financial crunch. Doing away with methodologies of conventional lenders (which can often prevent a creditworthy applicant from securing a loan,) the platform leverages Machine Learning and Artificial Intelligence to enhance the effectiveness of its credit profiling and assessment.
Global on-demand software provider Ebix Inc on Friday announced the acquisition of Indus Software Technologies Pvt. Ltd. (Indus), a global provider of enterprise lending software solutions to financial institutions, captive auto finance and telecom companies, for approximately $29 million, including $5 million of contingent earn-out.
Further to this acquisition, key Indus business executives will become a part of the combined EbixCash senior leadership. The acquisition will increase the employee strength of Ebix in India by 900, to approximately 7,200 employees.
OnDeck Canada, the local online arm of the U.S. headquartered OnDeck now has a $50-million asset-backed credit facility, provided by Crédit Agricole, to fund its loans. According to a recent ranking of assets, the French bank is the world’s ninth largest. Its Montreal office offers commercial and investment banking services.This is the first time that OnDeck Canada — which has originated $180 million in small business loans since 2014, all made using a “wide spectrum of data, technology and analytics” — has arranged funding from a source other than its parent.There are two parts to the three-year facility that will finance loan originations created by OnDeck Canada: a $25-million committed facility and an extra $25 million that can be drawn if needed. OnDeck provides term loans up to $250,000 and revolving lines of credit of up to $50,000 to small business.
News Comments Today’s main news: Consumer debt surpasses mortgage debt. Funding Circle, INTRUST Bank expand partnership. Revolut offers app store for business banking. VPC Specialty Lending hits record monthly returns. Today’s main analysis: Amazon’s big push into lending, and beyond. Today’s thought-provoking articles: The past and future of banking. Should income investors consider P2P lending? Banks can’t partner themselves into […]
Funding Circle, INTRUST Bank expand partnership. This makes me wonder if Funding Circle’s long-term strategy is to expand these types of partnerships nationally, and if they do, will they take INTRUST with them or partner with other regional banks?
Amazon’s push into lending, and beyond. As it stands now, I don’t see Amazon competing with most online lenders. Their niche is lending to small businesses that sell on the Amazon platform. Of course, that could change at any time.
The past and future of banking. This is something every alternative lender should consider. How much of the P2P lending pie will banks ultimately have, and are we willing to give up any of our portion?
Mortgages may represent the largest debt for households, but as a percentage of disposable income, home loans are comprising less of a liability, LendingTree found.
In a research report, the online lender, which analyzed data from the Federal Reserve, said that mortgage-related household debt has declined 5.5%, while consumer credit, which includes revolving credit and installment loans, jumped 45%. Of that, 42% was student loan debt. What’s more, LendingTree found that American household debt is on track to hit $1 trillion above the 2008 peak by the end of June. The debt figure has been increasing at a 3.4% annual rate and includes mortgage debt.
By the end of the second quarter, LendingTree is forecasting total mortgage and consumer debt to reach $15.7 trillion compared with $14.7 trillion 10 years ago.
Funding Circle, the small business loans platform, and INTRUST Bank, a leading US regional bank headquartered in Kansas, today announced the next phase of their strategic partnership to support the growth of US small businesses. Following the successful launch of this partnership earlier this year, the second phase increases INTRUST’s funding commitment and kicks off a targeted, co-branded marketing campaign, giving business owners across Kansas, Missouri, Oklahoma, and Arkansas greater access to fast and flexible financing.
To date, over 150 American small businesses have received loans backed by INTRUST through the Funding Circle platform. The upsized commitment is anticipated to increase this number above 500.
The report provides an in depth look at the moves Amazon has made in payments, lending, the new Amazon Cash program and also takes a look at how the company has been developing fintech programs internationally.
By the simple addition of a debit card, Amazon could move the unbanked into a quasi bank account that could be used at places beyond Amazon.
They have had a small business lending operation since 2011 and much fanfare was made about the $3 billion they have loaned through June 2017. But that doesn’t even put them in the top three online small business lenders in that time period. OnDeck, Kabbage and CAN Capital all loaned more.
To be fair Amazon is not trying to be a general purpose lender. Their SMB lending operation is targeted solely at Amazon marketplace sellers as a way to help them grow their business so they will sell more products on Amazon. It is not clear they have a desire to do more than that.
One of the big things that’s happened over the past 25 years is that the big banks have gotten bigger. We now have what are known as the Big Four banks in the U.S. — Citigroup, Bank of America, Wells Fargo and JPMorgan Chase. All of those have grown substantially through acquisitions, not just from the financial crisis, which saw a lot of consolidation, but beforehand. Actually, three of the four were actually acquired themselves, and the acquiring companies just decided to keep the names because they were more recognizable.
Douglass: I believe that peer-to-peer lending will represent at least 25% of total lending spent in 25 years. Now, I only say 25%. For me, it’s very clear that peer-to-peer lending has become a lot more widespread and a lot more feasible than it was previously. I do expect the peer-to-peer lenders — or a bank, perhaps, who hops in — to help solve for one of the current difficulties, which essentially is poor underwriting by some of the peer-to-peer facilitators right now, meaning that the investors who are putting the money in aren’t making the kind of money that they’d hoped to — I believe those will ultimately be solved.
But, I only say 25% because banks have legitimately trillions of dollars to lend, and they will absolutely be looking for ways to deploy that capital effectively. So, I would expect that they will be helping facilitate a lot of these peer-to-peer loans. I believe they will be, in some cases, investing alongside. I think they will often invest in alone, and perhaps then sell it to peer-to-peer lenders for an arbitrage so that they can do it all again, sort of like you see with agency-backed mortgages.
Marcus, the consumer lending arm for Goldman Sachs, wants to become the one-stop shop for many of your financial matters, except for one: credit cards — at least for now. Right now, Marcus is heavily focused on launching a savings platform in the U.K. in the coming months, Talwar said.
When JPMorgan Chase set out to make its digital-only brand Finn, it quickly rejected the idea of using it to lure millennial customers over to the institutional side of the bank.
Finn has also found that for the 27 states where JPMorgan Chase is part of a shared ATM network but has no ATMs or branches of its own, customers have difficulty depositing cash. While those same customers can still withdraw cash and often don’t carry money with them, customers that work for tips have a hard time keeping Finn as their main banking account.
Sharestates announced the launch of a Long-Term Portfolio Loan Program to facilitate the needs of borrowers throughout the life cycle of their real estate projects.
Some highlights of the Long-Term Portfolio Loan Program include 30 and 40-year mortgage terms, interest rates ranging from 5.99 to 7.5%, loans with a 10-year interest only period, followed by 20 or 30 years of amortization, as well as the ability to cover three or more properties under a single loan.
Venmo today is officially introducing its own debit card in partnership with MasterCard, following beta tests of a Visa-branded debit card last year. The new card will allow Venmo users to pay anywhere MasterCard is accepted in the U.S., and will record transactions to the user’s Venmo account for easy splitting with friends. It can also be used at an ATM to withdraw funds from the Venmo’s account’s balance.
Unlike the beta version of the card, the MasterCard-branded Venmo card can be used to withdraw up to $400 per day at ATMs displaying the MasterCard, Cirrus, PULSE, or MoneyPass acceptance marks. No fees apply for U.S. MoneyPass ATMs, while the others will charge a $2.50 ATM domestic withdrawal fee.
There are no fees for using the card for purchases, even if you get cash back at the point of sale. However, if a signature is required to get cash back at a bank, you’ll pay a $3.00 Over the Counter Domestic Withdrawal Fee, the company says.
CrowdOut Capital, the first tech-enabled online marketplace to fund corporate loans for middle market companies, announced it funded more than $112 million in loans in less than two years. Accredited investors choose from the company’s vetted loan offerings on a deal-by-deal basis.
CrowdOut funds loans as small as $3 million to companies with annual revenues between $10 – $500 million to fuel growth.
My next guest on the Lend Academy Podcast has spent his career doing just that. James Gutierrez is the CEO and Founder of Insikt. Since I last had James on the show a lot has changed but their mission is still to improve the financial health of the underserved consumer.
For banks, these partnerships won’t generate the quantum leap they need to move beyond a decades-old, product-centric mentality to deliver next-generation financial services that consumers deserve. At best, financial institutions may gain a workable solution that squats awkwardly in the existing infrastructure and brand. At worst, after a lot of time and effort — and increasing their infrastructure costs — banks will fail to deliver any noticeable difference to customers beyond a flurry of press releases.
StraightUp, an innovative real estate-focused platform giving investors access to previously unavailable development opportunities, announced today a merger with Slice, the first blockchain-based REIT for investors around the world.
StraightUp was designed to democratize access to previously unattainable high-potential investment opportunities in New York City. As a result of merging with Slice, the new and improved platform will give international investors access to premium equity opportunities in desirable cities across the country, including New York City, Los Angeles and San Francisco.
The survey of over 1,000 U.S. respondents, conducted by Affirm, found that Americans typically take their biggest vacations of the year over the summer, and cost is a major factor when planning travel.
55 percent of Americans said it’s very important to have the cost of the vacation paid off before going. The cost of a trip can linger even after the vacation is over: 32 percent of people said they regretted taking a vacation altogether.
What differentiates Depository Network from both of those companies/platforms is the fact that Depository Network is actually not a lending platform. Rather, it is a depository infrastructure that other P2P lending platforms, banks and credit institutions can utilize. Depository Network is the world’s first fully decentralized multi-platform collateral network that connects traditional lending and blockchain technology.
When a business needs to raise capital, the more short-term the borrowing options, the better. For every option, though, business owners must weigh the increased cash flow against the trade-off. Interstate Capital looked at a breakdown of options – from bank loans to savings – invoice factoring comes out on top.
American Financial Resources, Inc. (AFR) announces that it has completed a pilot and will now be providing its broker network with notification when a house for which AFR owns the servicing is listed for sale. This will enable AFR’s broker partners an opportunity to reconnect with the homeowner and, ideally, assist with their next mortgage, on both the relisted property as well as the borrower’s next home.
Two years after JPMorgan Chase & Co. launched an arms race in credit-card rewards with its Sapphire Reserve card, Wells Fargo will now offer three points per dollar spent on dining, travel and streaming services such as Netflix on its Propel card. Other purchases will earn one point per dollar, and points are redeemable at one cent per point.
Revolut, a digital only bank that says it is signing up over 120 businesses per day, has launched a new services for their business customers – Revolut Connect. This new feature is described as an “App store” for businesses to help provide easier access to digital tools.
With more than 60,000 businesses uses their bank now, Revolut Connect is designed to help firms easily connect and build integrations for the most popular business apps, including accounting platforms like FreeAgent, communication tools like Slack, Apps to help with tax, payroll, expense management and more. Revolut adds that many more popular Apps are in the queue. Revolut wants to create a one stop mobile experience where businesses may manage all of their financial needs in a single mobile friendly application.
The £289m VPC Specialty Lending investment trust has recorded its highest monthly return to date for May 2018, according to stock market filings.
Its net asset value [NAV] total return for the month of May, the latest numbers released by VPC, was 1.03 per cent for the month. Returns comprised 0.94 per cent of income gains and 0.09 per cent of capital gains.
Peer-to-peer investment trusts now have around £1 billion of assets under management between them, but the jury is still out on whether or not they are worth backing.
P2P trusts launched four years ago as direct peer-to-peer lenders including Zopa and Funding Circle were fast gaining traction. The trusts promised exposure to hundreds, or even thousands, of different peer-to-peer loans, in return for a juicy dividend yield.
Over half (56%) of brokers said the lenders changing their mind on a deal frustrates them the most about the specialist finance market, LendInvest found from surveying brokers at the NACFB Commercial Finance Expo in Birmingham.
A quarter (24%) identified the lack of good service as their main frustration. Rates not being good enough was an issue for 14% of those surveyed, while only 6% of those surveyed cited lack of choice as their biggest frustration.
According to a recent poll carried out at the Intelliflo Change the Game conferences held in Manchester and London, robo-advice is now regarded as less of a threat to business for advisers than it has been in recent years.
Last year, both options gained equal top share in the poll (37% each of 315 respondents), while this year,’ robo-advice’ dropped to 25.5% (419 respondents), with ‘large product providers going direct’ down slightly but still the top concern at 32.5%.
But the rising popularity of the secondary market and ‘instant access’ accounts have created enhanced liquidity for P2P investors. On an array of platforms, lenders can sign up for long-term loans before selling their stake to others, while some of the bigger platforms allow free or low-fee withdrawals.
We’ve put together a guide to all the platforms offering IFISAs with extra liquidity…
Hui Ying Financial Holdings, which operates an online peer-to-peer lending platform in China, lowered the proposed deal size for its upcoming IPO on Tuesday.
The Shanghai, China-based company now plans to raise $32 million by offering 5.6 million shares at a price of $5.85. The company had previously filed to offer 6.8 million shares at the same price. Hui Ying Financial Holdings will raise -19% less in proceeds than previously anticipated and command a market value of $436 million. Shares are currently listed on the OTCQB under the symbol SFHD.
Fintechs Banco BNI Europa and Raisin have furthered the collaboration between the two firms. Banco BNI Europe says it has entered into a cooperation to allow Portuguese savers to gain access to the best savings rates available from across Europe.
Global Debt Registry (“GDR”)today announced the launch of its loan registry designed to verify and provide transparency on loan data on the cloud-based IBM Blockchain Platform. All loan level collateral positions and verification activity will now be immutably recorded on the decentralized registry with highly secure permissioning and access controls to provide new levels of efficiency to the $400bn asset backed securities (ABS) market.
Mobilum is a cryptocurrency enabled payment processing platform which allows for cryptocurrency payments in real time at points of sale via an already existing debit or credit cards of the customer and the issuer of the Mobilum token. Mobilum recently announced its partnership with EthicHub, an affiliation that is expected to bolster a mutual sharing of investment opportunities for users on both platforms.
EthicHub’s crowd lending projects have provided financial solutions for small projects especially those involving farmers in less economically disadvantaged parts of the world, an accomplishment for which it was awarded the Best financial inclusion project at LaBitConf in Bogota as well as the award of the “Start-up with the Greatest social impact” at Unconference Fintech Awards in Madrid, Spain.
Faircent.com was the first platform in India to meet all guidelines prescribed by RBI and receive the NBFC-P2P certification in May, this year. This is a validation of the business model that we have painstakingly built over the last five years.
All financial transactions on our platform are undertaken through an escrow account under the trusteeship of ITSL (an IDBI Trusteeship Services Ltd). Borrowers are evaluated by our fully-automated credit evaluation mechanism across more than 400 data points to understand their ability, stability and intent to repay before they are listed on the platform.
Finastra today announced that it has entered a definitive agreement to sell its Canadian-based Collateral Management Corporation (CMS) business to Teranet. The transaction is expected to close in July 2018, subject to required regulatory approvals and customary closing conditions.
CMS will join Teranet as a new complementary line of business. Jointly, they will deliver enhanced, integrated solutions to a broad set of financial services customers, leveraging investments in technology, rich insightful data, and market leading electronic registry and workflow platforms.
Rajesh Bhat and his wife were evaluating various ways of arranging finance to purchase a home in 2012 without a real estate agent. The experience made them realize how complex and time-consuming the process of home buying was. This led to Bhat spending a year identifying gaps in the home mortgage sector and, in 2014, […]
Rajesh Bhat and his wife were evaluating various ways of arranging finance to purchase a home in 2012 without a real estate agent. The experience made them realize how complex and time-consuming the process of home buying was. This led to Bhat spending a year identifying gaps in the home mortgage sector and, in 2014, with a seed capital of $200k, he launched a customized mortgage software solution.
What is Roostify?
Located in San Francisco, Roostify is focused on delivering an accelerated and transparent online mortgage experience for consumers. The company aspires to digitize mortgage lending and eliminate paper-based processes. Today, the company partners with dozens of banks, brokerages, and lenders who depend on the company to speed up processing, reduce unnecessary paperwork, and provide a 21st century digital experience to its mortgage borrowers.
Roostify aims to provide a transparent, fast, and simplified mortgage process to its customers. Bhat is its CEO and founder. The firm allows borrowers to enjoy a complete digital mortgage experience and emerge as the end-to-end solution for lenders from the lead stage of home buying to closing.
The company has raised over $33 million from investors with $25 million coming in its Series B round in February 2018 led by Cota Capital, and secured marquee investors like Santander, JP Morgan Chase, and Point 72.
How Roostify Works
The world is digitizing in every sphere of life. Real estate buyers manage to research and shop online for loans; however, the loan application process (especially for traditional street banks) is still offline. With an average home loan taking 40 days and $8,000 to process, the system is definitely broken.
Roostify wants to change the narrative for banks by providing the best possible experience through its proprietary mortgage application software.
Roostify exists entirely on the public cloud providing a private label experience through customer access using Amazon Web Services (AWS). Consumers access the bank’s website with access to Roostify’s AWS solution.
The company charges banks on a subscription basis. The pricing is structured on the amount of closed loans. There is an initiation fee, and other fees are charged on the basis of the features the banks choose.
Roostify’s Relationship With Its Customers (Banks)
The Roostify platform is built around a customer-centric approach to effectively manage the customer relationship (CRM) apart from incorporating automation, digitization, and collaboration. Roostify focuses on saving time by obtaining complete information online and facilitating easy decision-making, thereby eliminating the lengthy processes of physical documentation. Consumers (i.e. borrowers) have access to view the loan’s progress through Roostify’s mobile-accessible, online application. The best part about the application experience is that the platform offers a customizable interface to provide unique user experiences.
Roostify’s platform handles the workflow, paperwork, activity, signings, etc. to provide a true enterprise solution. It is developing continuously, bringing more and more flexibility in its working while it looks for opportunities to integrate with third-party developers.
The Application Programming Interface is built out according to the customer’s requirements. Roostify’s platform, unlike other players that are involved in simple applications, document capture, and other solutions provide an end-to-end customer experience. Some customers have seen a 20% increase in sales funnel volume while others have seen a 40% reduction in closing times.
Roostify has successfully established partnerships with a variety of consumer finance, real estate, and mortgage processing systems in order to ensure an improved digital experience for all the stakeholders in the ecosystem. Recently, Roostify integrated with LendingTree, the leading online loan marketplace, to expand the platform together and provide consumers the additional facility of applying online with the right lender.
Apart from LendingTree, Roostify has partnered with other lead generators like BOK Financial to ease and diversify the process of loan shopping for consumers. Customers see new leads and new business as a result of Roostify’s integration with its partners to enable true online fulfillment. The company’s client roster includes JP Morgan Chase, Bank of Oklahoma, Georgia Credit Union, and others. It is also looking to expand abroad and diversify from its core mortgage offering to other solutions in the fintech space.
Roostify has achieved healthy volumes of loan originations. In March 2018, its loan transactions topped $5.5 billion.
Key Trends in Mortgage Lending
According to Bhat, banks are beginning to figure out how to transact in the online space and rethinking how they acquire customers online. Soon, the entire process will be digital. Also, with data moving online, there is tremendous opportunity for growth in applying machine learning and artificial intelligence to the lending process. Another trend that is shaping fintech is its evolution from B2C focus to B2B specialization. Banks are now comfortable getting technology from fintech startups, and it is a win-win opportunity for all stakeholders.
The company dominates this niche, primarily because the competition is low. Instead of focusing on B2C lead generation, the company has taken the smarter route towards creating enterprise technology for existing lenders. Its latest funding round highlights the Silicon Valley pivot towards B2B fintech players whose business models do not involve burning cash on Google Ads to acquire customers. Roostify is taking that business model to mortgage lending.
Fintech is often viewed as an industry disrupter, but its greatest influence may be as a collaborator, benefiting both banks and themselves, especially in the lending space. Conceptually, partnering makes sense. For community banks, the cost of building or buying their own online origination platform is prohibitive. By collaborating, banks can achieve more with less […]
Fintech is often viewed as an industry disrupter, but its greatest influence may be as a collaborator, benefiting both banks and themselves, especially in the lending space. Conceptually, partnering makes sense. For community banks, the cost of building or buying their own online origination platform is prohibitive. By collaborating, banks can achieve more with less risk: They can get improved services for significantly lower capital expenditure; a reduced cost of doing business; and, more importantly, access to market segments that would otherwise not meet their credit criteria. Collectively, this advances not only the business of community banks but also the mission.
In turn, by partnering with banks, fintech firms can gain brand exposure, more quickly scale their businesses, and increase their access to capital and liquidity, which translates to better company returns.
Bank and Fintech Partnership Models
Initially, bank-fintech partnerships followed consumer demand for digital services, especially mobile access. Lending partnerships soon followed, first focusing on retail consumers, and more recently, on SMEs. Partnership structures vary depending on which party sources the borrower, underwrites and funds each loan, and whether the product is white labeled under the bank’s name or co-branded. Below is an expanded chart of most common structures and selected partnerships, published by Lend Academy.
Union Bank / Lending Club
BancAlliance / Lending Club
Credigy / Lending Club
ING / Kabbage
JPMorgan / OnDeck
Santander / Kabbage
Radius Bank / Prosper
Regions Bank / Fundation
Regions Bank / Avant
New Resource Bank / P2Binvestor
Partnership Model Breakdown
Lending Club, one of the industry’s largest online consumer lenders, partnered with a series of banks via the FFB model. In their case, the banks provided lending capital as part of Lending Club’s P2P investor base. This partnership type expands the bank’s loan portfolio and enhances the online lender’s access to capital.
JP Morgan’s partnership with OnDeck (BFB) improved the “difficult customer experience” of securing a small business loan by combining existing customer data with a streamlined underwriting platform to fund loans more quickly.
The BFF model uses the bank’s customer base to source borrowers while the fintech firm underwrites and funds the loan. Banks generally receive referral fees when their customers borrow via the fintech portal. With the Regions Bank and Fundation partnership, Fundation funds loans up to $1 million while Regions handles larger loans.
P2Binvestor and New Resource Bank advanced the bank-fintech partnership into new territory with a co-lending, asset-based financing product. Together, the bank and P2Bi provide the capital, and the bank sits in a senior lien position. P2Bi underwrites and manages each facility, essentially acting as an ABL service provider. In turn, borrowers receive a blended interest rate that reflects the risk profiles of both the bank and the fintech firm.
This model (BF-BF) offers several unique benefits for banks and borrowers. For banks, it provides the opportunity to support small businesses that would otherwise not meet their credit criteria and allows them to generate additional lending revenue with less risk. In addition, the co-lending structure acts as a potential onboarding mechanism to traditional bank lending as once the borrower qualifies it can graduate to the bank’s regular lending products. Since P2Binvestor’s technology is already integrated with the bank partner, the transition from bank-fintech partnership to bank is seamless, also a significant borrower benefit.
There can, however, be challenges. In a recent Manatt survey on bank-fintech partnerships, bank respondents cited overall preparedness as a point of concern when considering a fintech collaboration. Per mandates from the Office of the Comptroller of the Currency (OCC) and Consumer Financial Protection Bureau (CFPB), banks must implement appropriate oversight and risk management processes for third-party relationships and service providers. Other issues for community banks include data security and staff training, and technology integration with legacy systems. Due to these concerns, it’s imperative that when in conversations with a fintech firm, community banks are clear about the responsibilities, requirements, and protections that will contribute toward a successful partnership.
As seen above, there are numerous ways that banks and fintechs can partner together in order to meet the needs of the consumer involved. Although challenges can be present, it’s important to address these issues before they surface in order to prevent them from happening. Overall, the ROI from these partnerships can ultimately change the success of a business.
Krista Morgan is CEO of P2Binvestors.
For more on community bank and fintech partnerships, check out P2Binvestor’s white paper on the topic.
One student explains her student loan turmoil. AT: “This article highlights how student loans can draw unsuspecting students into high debt before they realize the implications of that debt. A variable interest rate on a student loan?”
Our case here involves Wealthfront, an automated investing service founded by all-star venture capitalist Andy Rachleff. Boasting over $10.5bn under management, the platform offers a wide-range of thoughtful strategies to the casual investor, including indexes optimised to harvest tax-losses and a smart-beta product, overseen by Random Walk proselytiser Burton Malkiel.
Back to Wealthfront’s risk parity offering. In an attempt to lure investors, it backtested its new strategy versus its competitors at AQR and Bridgewater. Here are the results:
The loan, ironically called a “Smart Option” loan, has a variable interest rate that fluctuates based on changes in the financial market — which may have been explained to me at the time (I truly don’t remember), but I know I didn’t fully grasp what that meant.
Now, eight years later, that loan — one of nine that left me $95,000 in debt upon graduation (because, yes, interest does accrue while you’re in school) — very clearly marks the exact moment when I lost control of my own financial destiny.
Cloudvirga, an Irvine, Calif.-based provider of digital mortgage point-of-sale (POS) software provider, closed a $50m Series C funding round.
The round was led by Riverwood Capital with participation from Upfront Ventures. In conjunction with the funding, Riverwood executives Scott Ransenberg and Jay Schneider will join Cloudvirga’s board of directors.
One is Fair Square Financial, which last week snagged a $100 million investment from Vikram Pandit, the former CEO of Citigroup.
It’s an infusion of cash that the online credit card company says will allow it to expand beyond its downtown co-working space this year while doubling its workforce to 100 employees during the next two years.
The expansion decision is the result of surprisingly strong customer demand for its online-serviced, low-fee Ollo cards, Fair Square CEO Rob Habgood said. The credit cards carry a variable interest rate that currently sits at a lofty 24.99 percent.
Much of the hype around fintech focuses on what traditional banks do wrong: they’re slow to adopt new technology; they don’t center the customer; they’re too big to respond nimbly to change. This narrative is part of why fintech continues to attract massive investment, with $31 billion total flowing into the sector last year, according to KPMG.
The truth is that there’s actually a lot that banks do right — things that fintech startups can struggle to replicate. I mean, there’s a reason why they’ve been successful.
Here are the three areas where I feel fintech’s needs and banks’ expertise overlap.
The rate of credit card delinquencies jumped 52 basis points (BPS) in the first quarter (Q1) of 2018, and will likely continue to increase over the next 12 months as consumers take on more debt. That’s according to an analysis from Moody’s on Friday (May 18) after the release of the New York Federal Reserve Bank’s Household Debt and Credit Report.
The rate of new delinquencies on credit cards stood at 6.42 percent in Q1, up from 5.9 percent for the same period last year. According to Moody’s, the delinquency trend for the next year is for an “increase.” The Q1 credit card delinquency rate trails the 7.3 percent rate for auto loans but is higher than the 3.4 percent rate for residential mortgages.
Meanwhile, the rate of total new household debt delinquencies was about 4.5 percent in Q1 of 2018, “down slightly from a year ago,” Moody’s said. “Over the next year, we believe delinquencies will rise a bit as lenders modestly loosen underwriting standards.”
Dream Live Prosper (DLP), an award-winning family company led by Don Wenner (Founder and CEO), is excited to announce the appointment of Greg E Schecher as Director of Originations and Capital Markets.
Based out of the company’s Southeast headquarters in St. Augustine, Florida, Greg will lead the firm’s CRE bridge loan lending and marketplace lending platform.
HSBC UK has created the “first live” use case of open banking for credit applications using the InterConnect cloud platform from Equifax.
According to Equifax, the solution will help quick affordability assessments by allowing individuals to submit their bank transaction information electronically, in less than five minutes, during an application for credit.
Each submission is presented directly to HSBC UK’s underwriting team in real-time, providing the bank with view of a customer’s affordability and offering faster lending decisions.
About 150,000 Britons have lent nearly £10bn in this way over the past decade, earning around 4.5% interest on average. By contrast, the average interest rate on an easy access savings account is just 0.51%.
The bigger platforms, such as Zopa, Funding Circle and RateSetter, are therefore attractive alternatives for would-be savers.
The market was boosted by the launch in 2016 of innovative finance Isas, which allow people to invest £20,000 a year tax-free in P2P platforms and equity-based crowdfunding, where they buy stakes in companies.
The fintech industry is one of the fastest growing areas of the British economy and is generating more than £20 billion annually. The sector continues to grow, it currently employs over 60,000 people and has produced more billion pound-valued start-ups than any other British economic sector.
A BAN on cryptocurrency adverts will do more harm than good, a crypto-backed peer-to-peer lender has warned.
Lendingblock, which lets individuals lend in a range of digital currencies such as Bitcoin, Ethereum and Ripple, said rather than Google, Facebook and Twitter pursuing a current ban on cryptocurrency adverts to help clamp down on scams, they should help promote education and awareness.
Lendingblock warned a complete blackout on information may be “the easiest option” but warned that cryptocurrencies aren’t going anywhere so it would be better to partner with the industry and ensure consumers understand the market.
The Manufacturer has partnered up with the alternative finance specialist ThinCats to make £100 million of funding available to UK manufacturers, as more and more investors are becoming increasingly keen to help fund SMEs.
The main issue for some SMEs is that they do not have the largest amounts of assets against which the banks are more willing to lend. As a result, many of them can’t invest in their growth, or delay investment until they reach the point they can fund it themselves. The wider knock-on effect of this problem is that the UK’s productivity and growth is being held back.
What separates Bitmillex from other crypto exchanges is that the platform was developed out of the long-standing demand of a credible cryptocurrency exchange which will prioritize fund security and also will be able to extend a much wider range of investing and trading options than what is offered by current regular exchanges.
Speaking further, Mr. Briton highlighted the other state of the art features of Bitmillex which keeps it ahead of other crypto exchanges-
Most advanced security and hosting protection through cloud hosted servers that are connected to custom hardware security modules and multiple protective layers to withstand any attack and hack attempts. In addition, 98% of all balances are to be stored in secure offline cold storage.
Multiple social trade offerings through Auto-Trade, Peer-to-Peer BTC market and Peer to Peer Lending & Borrowing opportunity. (use the term copy trading)
Bitmillex has introduced MTG trading software to ensure a ground-breaking multi-terminal and multi-platform trading experience(MT4)
Traders have the flexibility to hold funds in fiat and trade major forex pairs when the crypto market is bearish
Bitmillex is offering its revolutionary Debit Card to users that will be linked to their wallets and will provide them immediate access to their balance at ATMs or POS in fiat currency worldwide
Current regulations and policies on peer-to-peer lending do not directly restrict or prohibit foreign investment in P2P lending intermediaries.
Relying on a network, a P2P lending intermediary will generally charge a certain consulting fee, service fee, etc., once a lender and borrower that have been brought together establish a lending relationship.
Local financial service office recordal/registration. Article 5 of the measures specifies that, within 10 working days after collecting its business licence, a P2P lending intermediary, or one of its branches, that proposes to launch P2P lending information intermediary services is required to carry out, on the strength of relevant materials, recordal/registration with the local financial regulator of the place where it has its business registration. Once it has completed recordal/registration with the local regulator, the P2P lending intermediary is required to apply for the appropriate telecoms service operating permit in accordance with relevant regulations of the competent telecoms authority before it can launch its services.
Mojang founder Markus “Notch” Persson, Skype’s Niklas Zennström and Spotify’s founding duo Daniel Ek and Martin Lorentzon are Sweden’s richest people in tech today – all worth $1 billion or more.
Following Paypal’s announcement that it would buy the Swedish payments company iZettle for $2,2 billion (19 billion SEK), Jacob de Geer and Magnus Nilsson – founders of iZettle – have joined the few dozen Swedish entrepreneurs worth 1 billion krona or more.
In a review of documents produced for 1,450 digital coin offerings, The Wall Street Journal has found 271 with red flags that include plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.
“An autonomous car will need 40 times more bandwidth than the cars we use today,” says East. “The demand for data centers is growing 30% per year in the U.S. and 70% in China, but there are only six public companies in the supplier’s market.” They are: Equinix (EQIX), CoreSite Realty (COR), CyrusOne(CONE), Digital Realty Trust (DLR), QTS Realty Trust (QTS), and Switch (SWCH).
Data centers aren’t easy markets to enter. It’s not hard to purchase a piece of land to build the property, but the facility needs to be outfitted in fiber, equipped with interconnected networks, and wired for massive electric power and top-tier security devices. It takes about $1,000 to build one square foot of data center, said East, compared with the average cost of $300 for conventional real estate.
Capgemini and Efma today announced the launch of FinTechVisor, an innovative platform designed to bring FinTechs and financial institutions together to collaborate. The FinTechVisor portal offers a world-wide networking and collaborative community for FinTechs and financial institutions to become game-changers by co-creating the future of the financial services industry.
Launched today at the CCX Forum in London, the portal, which connects financial institutions and FinTechs, will have a feature that allows bankers and insurers to rate FinTechs and comment on their solutions, as well as a “matchmaker-like” personalized function for financial institutions to find a FinTech partner who complements their needs and interests.
InnerScope and Klarna have teamed up to offer a frictionless one-click checkout solution which gives customers a choice of 2 simple no-hassle payment options, Pay Now, or Slice It options.
The Pay Now option is for customers who want to pay in full at checkout can do it quickly and securely with a credit/debit card.
The Slice it option with its instant financing and a quick and simple credit application process allowing the customers to spread the cost of their purchases over a 6 to 24-month period at 0% annual percent rate (“APR”), depending on transaction value, giving them flexibility and increased purchasing power.
Online lender Prospa has launched a $146 million initial public offering, offering shares at $3.64.
Prospa, which lends to small businesses, says the majority of funds raised in the IPO, which includes institutional, retail and employee offers, will be used to grow its existing business, add new products and expand into New Zealand.
The High Court has sided with the Commerce Commission on how to interpret peer-to-peer lender Harmoney’s platform fees, deeming them to be credit fees and falling under the regulator’s purview.
The commission, which oversees the Credit Contracts and Consumer Finance Act 2003, claimed Harmoney’s platform fees were an unreasonable credit fee and sought a declaration from the court backing up its interpretation.
Justice Patricia Courtney today backed the commission’s interpretation, saying Harmoney’s documents amounted to a credit contract and that the way the peer-to-peer lender was structured went “beyond mere matchmaking”, providing a nominal creditor to hold loans as a bare trustee for investors and undertaking the full administration of the transactions.
Zip Co Ltd (ASX: Z1P) provides online credit for consumers and businesses at point-of-sale through brands zipMoney and zipPay.
Afterpay Touch Group Ltd(ASX: APT) provides a platform that allows retail merchants to offer consumers to ‘buy now, receive now, pay later’ without having to enter into a traditional loan agreement.
Money3 Corporation Limited(ASX: MNY) started out as a a payday lender, which it plans to exit in the next financial year. The company is predominantly involved in providing secured auto loans, which make up around 80% of its loan book.
Australia’s Westpac Banking Corp admitted on Monday to signing up a legally blind pensioner as loan guarantor for her daughter’s business without warning her of the risks, then threatened to evict her when the business failed.
The testimony, given to a powerful inquiry into the country’s financial sector, came as Australia’s “big four” lenders all admitted to misconduct in their submissions to a third round of public hearings that focuses on loans to small businesses.
Other transgressions included fraudulent loans and double-charging interest, the inquiry heard, a further hit to the sector’s reputation after previous rounds of hearings uncovered widespread abuses in Australia’s financial planning industry.
People earning more than Rs. 20,000 per month can utilise this app to borrow anywhere between Rs.3,000 to Rs.500,000. Offering flexible payback options, MoneyTap allows borrowers to select their own EMI plans.
Endeavoring to fill the gaps in SME unsecured loan segment, CoinTribe as a loan marketplace makes it easier for banks to confidently enter the uncharted domains.
Peer-to-peer or P2P lending has emerged as an alternative option for investors who wish to earn higher rates of return than what traditional fixed-income instruments can offer. However, lending on these platforms also entails higher risk, which investors need to be aware of before venturing into this relatively new investment avenue.
Peer-to-peer (P2P) lending is a relatively recent option and is a form of crowd-funding used to raise loans which are paid back with interest by bringing together people who need to borrow, from those who want to invest. For the funds that you invest, the interest rate may be set by the P2P platform or mutual agreement between the borrower and lender.
Risks: Since this is an unsecured loan where there is no face-to-face interaction, a P2P lender, i.e., the investor needs to be aware of the risks involved such as default on the part of the borrowers.
Small and medium enterprises (SMEs) can no longer avoid going digital if they want to stay relevant. And RHB Bank Bhd, which has a new five-year strategy, is looking to help them do just that.
Jeffrey Ng, the bank’s head of group business and transaction banking, says the digital economy is the biggest trend impacting SMEs, and many of them will require assistance to adopt the technology. Ng was previously head of RHB’s SME division.
For RHB, this means onboarding SMEs into its electronic financial supply chain platforms. Suppliers and buyers can perform payments for goods entirely on the bank’s platforms and receive payments instantly. SMEs that want to offer cashless payments can also do so with RHB’s solutions.