News Comments Today’s main news: Yirendai releases Q4 & FY 2017 results. LendInvest intros fixed rate notes. Virgin Money launches financial well being portal for employees. LHV to open bank in UK to serve fintechs. Today’s main analysis: A European manifesto for an age of irrelevance. Today’s thought-provoking articles: GM launching P2P car renting service. A European manifesto for […]
GM launching P2P car renting service. AT: “While not directly related to alternative lending, this is an interesting concept. Uber is the alternative to hailing taxi. If this catches on, car renters can drop Hertz and use someone else’s family car.”
FinTech companies are focusing on using technology to drive their services and offerings and support their clients. Commonly, this means financial institutions are operating online. For Ameritech Financial, a document preparation company focusing on helping federal student loan borrowers apply for existing federal repayment plans, the private company uses technology in every part of its business to support clients in their search for relief from high student loan payments.
WebMax, a digital mortgage solution provider, and FinLocker, a financial data and analytics platform, announced today that they finalized a partnership as a result of successful execution on their five joint customers. The partnership aims to build on 17 months of collaborative efforts to further propel lenders into the digital mortgage revolution.
According to the Mortgage Bankers Association, between 2010 and 2017, mortgages took 70 percent longer to close and origination costs skyrocketed 80 percent as the burden of regulatory compliance grew.
On Tuesday, fintech mobile app Pockitapp announced it has teamed up with Dwolla to deliver back-end banking integration services. According to Pockitapp, Dwolla provides a secure online payment system and mobile payment network to enable auto clearing house (ACH) transfers, including vendor payments. Pockitapp reported that working with Dwolla allows the fintech startup to offer access to allfinancial institutions rather than just one.
LendInvest’s first bond issuance is trading on the LSE (LIV1) and was issued in August 2017 after raising £50 million from both retail and institutional investors. This new issuance is expected to trade on the LSE as well.
Estonia’s LHV Bank is swimming against the Brexit tide by setting up shop in the UK to service the country’s thriving fintech market.
LHV UK is currently recruiting and intends to be in a position to start servicing new financial intermediaries by H2 2018. Banking services on offer will include real-time payments, overdraft facilities, and forex.
The study found that start-ups are nearly twice as likely to use personal savings as those that have been in business for a decade or more, suggesting that small businesses in the UK are not seeking support from high street lenders.
The study also showed that small businesses are more ambitious than older companies when it comes to their growth plans, with 14% predicting business growth in the next three months compared to 3% of businesses that have been trading for longer.
The top forms of finance for small businesses over the past 12 months were revealed in the research, with more than 35% of start-ups using personal finances and 15% relying on money from family members.
The UK fintech scene has the world’s biggest financial centre at its disposal. UK fintech’s will enjoy privileged access, in geographical and regulatory terms, to the enormous B2B market that the City of London gives them access to.
They will also have privileged access to the UK’s highly competitive retail finance market, worth £58 – £67 billion a year. There are also signs that leaving the EU could help invigorate at least some segments of that market. A recent article in the FT — not by any means a Brexitcheerleader — reported that small-to-medium UK providers of retail banking services are actively looking forward to Brexit in the hope that it will free them from onerous EU regulations designed for huge ‘too large to fail’ banks but now applied to all financial institutions, even smaller ones.
The company reported that in the fourth quarter of 2017, it facilitated RMB 13,438.5 million (US$2,065.5 million) of loans to 202,370 qualified individual borrowers through its online marketplace, representing a year-over-year growth of 95%; 74.6% of the borrowers were acquired from online channels; nearly 100% of the loan volume originated from online channels was facilitated through mobile.
During that quarter, Yirendai facilitated 233,374 investors with total investment amount of RMB 15,967.4 million(US$2,454.2 million), 100% of which was facilitated through its online platform and 92% of which was facilitated through its mobile application. Also in the fourth quarter, total net revenue was RMB 1,824.8 million (US$280.5 million), an increase of 21% from the previous quarter and 70% year-over-year; net income was RMB 448.8 million (US$69.0 million), an increase of 48% from the previous quarter and 18% year-over-year.
Yirendai also noted that in the full year of 2017 it facilitated RMB 41,406.1 million (US$6,364.0 million) of loans to 649,154 qualified individual borrowers through its online marketplace, representing a year-over-year growth of 102%; 72.9% of the borrowers were acquired from online channels; nearly 100% of the loan volume originated from online channels was facilitated through mobile.
China Investment Corp., which recently sold its shares of Blackstone Group LP, is seeking to boost alternative and direct investments to 45 percent or more of its overseas portfolio in the next three years, from about 38 percent at the end of last year, President Tu Guangshao said in an interview in Beijing.
The divestment of the Blackstone stake, one of the first investments for the wealth fund that was started in 2007 with an initial $200 billion, may signal CIC’s pursuit of steadier returns. It ends a wild ride for CIC — Blackstone shares plunged 89 percent from the U.S. firm’s IPO to a February 2009 trough, but have since surged almost nine-fold.
Sit Back, Relax, and Pray for the Best: A European Manifesto for the Age of Irrelevance (INTL FCStone Email), Rated: AAA
About a year ago, European indices were outperforming, pundits were certain that the Euro would fall to parity with the dollar, and the biggest political risk was France. A year later, the Eurostoxx 50 Index has underperformed almost every major global index (in local currency at least), M. Draghi spends his press conferences talking down the Euro, and France has become the continent’s anchor of stability.
The Eurozone manufacturing PMI fell to 58 last month, the European Commission Economic Sentiment Indicator fell in the past two months, and, most worryingly for the European Central Bank and the normalization of monetary policy, headline inflation fell to 1.2% last month, against 1.9% a year ago. To add insult to injury, this European soft patch is taking place just as U.S. growth accelerates: the Citigroup Economic Surprise Index for the U.S. has jumped to 45, against minus 22 for the Eurozone.
1 – European indices have underperformed since May and recent economic data has disappointed
2 – The European economy is not rolling over: it is settling at a sustainable growth rate
3 – M. Draghi turned a treacherous press conference into a success
4 – Greek bonds could benefit from the normalization of European monetary policy
5 – The European discount reflects the continent’s irrelevance. That may not be such a bad thing.
Some of the blockchain’s strongest marketing points include its ability to democratize markets and, given the way peer-to-peer lending platforms operate, they could do a lot better if they adopted the use of blockchain. This could result in companies like LendingClub Corp. (NYSE:LC) and Hexindai Inc. (NASDAQ:HX), which have experienced mixed performances since going public, expand their addressable market by targeting customers that hold crypto assets of some form.
With blockchain technology, however, borrowers can tokenize the assets they own and add them to the distributed ledger infrastructure to sell, trade or use as collateral for loans. Some of these assets may not qualify as collateral in the mainstream lending market, but with blockchain technology and through tokenization, assets such as patents, intellectual property or even branding can be tokenized and used as collateral for hard money loans.
There are companies that have already launched this type of service. SALT Lending, which allows cryptocurrency traders to use their investments in the market as collateral for loans, is a perfect example. However, analysts suggest peer-to-peer lending platforms that are already established could do even better since their profiles are already proven as good alternatives for sources of loans in the credit market.
It’s a maturing market that’s here to stay. European direct lending has grown from a relatively unknown asset class to raising around US$22bn in 2017 alone. According to research by the Alternative Credit Council (ACC), the global direct lending market is expected to break the US$1tn mark by 2020. That’s quite a trajectory.
P2P platforms and crowdfunding sites also have an important role to play. We’re seeing them dominate the €50,000 – €1m loan range . Larger deals are more appropriate for asset managers, who have the necessary scale and risk analysis expertise.
Fintech startup, Avail Finance, has raised 17.2 million in an investment round led by Matrix Partners india. The round also saw participation from Ola’s co-founders – Ankit Bhati and Bhavish Aggarwal, Co-Founder and CEO of Flipkart – Binny Bansal, Freecharge founder – Kunal Shah and founder of Mswipe – Manish Patel. The funds raised include debt and credit lines from multiple NBFCs.
One of the key topics at this week’s Money 20/20 Asia fintech trade show is also the so-called open banking that allows more flexibility when these small players in the market launch their own financial services.
It is long since an established bank has shared its license and regulatory expertise through an open platform based on application programming interface, or API, but related technologies are thriving recently along with the fever for fintech across industries.
News Comments Today’s main news: SoftBank leads $120M funding round for Lemonade. Shareholders file class action against Qudian. RateSetter looks to cautious growth in car financing. LoanBook rakes in 650K GBP on Crowdcube. Prospa planning a 2018 IPO. Today’s main analysis: Muddy Waters goes cold on China Internet Nationwide Financial Services Inc. (CIFS). Today’s thought-provoking articles: Two big banks […]
Two big banks to launch online lending platforms. AT: “I suspect more to come. This Lend Academy analysis is worth the read and highlights how online lending has grown to the point of being ‘legitimized’. Marcus has proven that traditional banks can compete with up-and-coming tech companies. But will they be the only success story? Maybe not, but we will have to wait and see.”
The law firm of Kessler Topaz Meltzer & Check, LLP announces that a shareholder class action lawsuit has been filed against Qudian Inc. (NYSE: QD) (“Qudian” or the “Company) on behalf of investors who purchased the Company’s securities between October 18, 2017 and November 20, 2017, inclusive (the “Class Period”).
Qudian shareholders may, no later than February 12, 2018, petition the Court to be appointed as a lead plaintiff representative of the class through Kessler Topaz Meltzer & Check, or other counsel, or may choose to do nothing and remain an absent class member.
A little over a year ago Goldman Sachs launched their consumer lending platform Marcus as part of a digital strategy to move into the retail banking segment. They have since grown faster than any online lending platform with originations approaching $2 billion. Goldman Sachs now believes revenues from online loans will equal that of trading in the near future.
U.K. based Barclays has been increasing their footprint in the U.S. the last few years through the Barclaycard brand. They are now one of the top 10 credit card issuers in the US. News broke last month that Barclays would be launching a digital bank in 2018 and rebranding from Barclaycard to Barclays in the US.
After a meteoric rise, marketplace lending has had its share of challenges and scrutiny, but the future should still be bright for such an industry on the forward edge of technology and consumer needs. Yet marketplace lending seems to be ending 2017 under an unwarranted attack from regulators and commentators determined to find similarities in marketplace lending to the subprime mortgage market in the years leading up to the financial crisis.
CEO Charles Clinton and CIO Marious Sjulsen co-founded EquityMultiple with a shared vision of transforming real estate investing through tech and by providing new access to private transactions while streamlining the investment process.
Erin:Please share EquityMultiple’s latest stats.
Charles: We’ve funded 32 investments to date and are expecting to hit around 100% year-over-year growth in dollars invested. For investments that have fully repaid or are currently cash-flowing to investors, we’re averaging around a net 9% annualized dividend.
Erin: What sets EquityMultiple apart from its industry peers? How will EquityMultiple continue to differentiate itself?
Charles: We’ve taken a different path from most of our direct competitors and I suspect that will continue. This started at the very beginning – rather than look for venture capital financing, we sought out a real estate firm to partner with and found that in Mission Capital, a national capital markets firm that has done over $70 billion of business in its 15-year history.
Erin: Earlier this year you stated that individuals made up 100% of EquityMultiple’s investments. Has institutional money entered into this investment flow? Why or why not? What are your methods of tapping into new investors?
Charles: We are still 100% focused on individual investors by design. We feel that individual investors are the customers that we provide the most value to. For institutional investors, there often is no real accessibility issue for getting into commercial real estate. Individual investors, on the other hand, are significantly under-allocated into real estate by comparison.
Investors can access the robo-adviser by itself for 25 basis points (formerly 50 basis points), which includes algorithmic portfolio construction, tax minimization strategies, and now support from human advisers via email and text.
For 50 basis points and an account minimum of $50,000, investors can access Ellevest Premium, which includes the technology platform as well as personalized goals-based planning from an adviser with certified financial planner credentials.
Roughly a quarter of American families suffer a major disruption to their income each year, according to the Urban Institute. Nearly one in five of those families suffer an income drop of 50% or more: a potentially catastrophic shock for low-income families.
But it’s not just these one-time shocks that affect families’ ability to plan and save — it’s the month-to-month fluctuations, as well. The JP Morgan Chase Institute foundthat, between 2012 and 2015, 55% of the bank’s customers regularly experienced more than a 30% change in income — up or down — from one month to the next.
BankMobile has become the first bank to start using online lending software developed by Upstart, which is designed to use artificial intelligence and alternative data to determine the creditworthiness of consumers with thin or no credit files.
BankMobile, the digital-only subsidiary of Customers Bank in Wyomissing, Pa., which is due to be spun off and merged with Flagship Community Bank in mid-2018, is planning to use the software to offer its first credit product to the students it reaches through relationships with 800 universities.
Finra has fined Merrill Lynch $1.4 million for alleged supervisory failures related to extended settlement transactions, the industry’s self-regulator says in a press release.
From April 2013 through June 2015, the wirehouse allegedly didn’t collect enough margin to offset credit, market and exposure risk presented by the longer time period between trades and settlements inherent in such trades, Finra says.
Banks have always proclaimed themselves as technology companies with banking licenses. But culturally, banks are still banks: conservative. Innovation teams can only innovate so much before someone in legal or compliance tells them no; they can only move so fast before someone tells them to slow down.
In this installment of Confessions, in which we trade anonymity in exchange for honesty, we spoke with an analyst at a startup attached to a large bank about internal innovation, attracting strong talent and why alternative bank service companies should get serious about becoming or partnering with a bank.
Move over Wells Fargo, another prominent financial firm has taken your place as the poster child for bad behavior.
Equifax, the credit reporting agency whose primary responsibility is to protect consumers’ personal information, became public enemy No. 1 this year when it revealed that thieves hacked into its database and stole the personal information — birth dates, credit card data, Social Security numbers — of some 145 million consumers.
Runway Growth Credit Fund Inc. (“Runway Growth Credit”), a provider of term debt to fast-growing companies seeking an alternative to raising equity, today announced the successful closing of its $275 million initial equity capital raise with an increased commitment to $139 million from OCM Growth Holdings, LLC, an entity owned by certain investment funds managed by Oaktree Capital Management, L.P. (“Oaktree”), along with commitments from other investors.
As reported by CoinDesk, the first leg of the sale – in which the firm is selling Simple Agreements for Future Equity (SAFEs) that will later be redeemed for tokens by accredited investors – began yesterday, albeit a bit laterthan planned. Hiccups aside, Byrne told CoinDesk the sale ultimately attracted a big crowd – some 2,000 accredited investors.
As such, he indicated the company may move to shorten the initial two-month timeframe for the token sale.
Some of the offers, he said, were as high as $5 million or more for single token allocations.
Comptroller of the Currency Joseph Otting said in a press conference Wednesday morning that there is a place in the banking world for some kind of fintech charter, though the exact parameters of such a charter are still unclear and have to be worked out.
“I’m not sure what it looks like, and how it’s funded, but I do think there’s a space there that a technology solution can solve,” Otting said when asked whether he sees a future for the Office of the Comptroller of the Currency’s nascent fintech charter.
An October paper put out by Strategic Partners Fund Solutions, of Blackstone, argues that(despite risks and drawbacks) investing in the secondary private equity market can still be a smart play, offering “accelerated returns with lower volatility, lower loss rates, and greater downside protection” than the primary market.
The 2016 Small Business Credit Survey, published by the Federal Reserve Bank of New York, reports that startups are more likely than their mature counterparts to be undergoing growth and planning to add jobs. The report shows 70 percent of startup applicants are in need of funding to support this growth, versus 60 percent of mature applicants. Additionally, in 2016, 52 percent of startups applied for financing.
The Credit Survey highlights that only “31 percent of startup applicants were approved for the full amount of financing sought”.
Debt crowdfunding: Peer-to-Peer lending
Lending Tree was a revolutionary option for individuals to secure financing when they simply wanted to compare options or if they may not have been bankable. Kiva, for example, allows lenders to contribute small amounts, sometimes as little as $25, to help fund requests.
As of October 2017, Kiva reports funding over 1M loans resulting in $1 billion being lent.
Now, instead of searching for affluent individuals looking to invest in a business, entrepreneurs can turn to sites like MicroVentures. MicroVentures is a public, online venture capital investment bank. Investors have the opportunity to invest as little as $100, which opens up the market to a much larger pool of potential investors. This option is best suited for established companies with strong historical performance and larger financial needs. Since their launch in 2011, MicroVentures reports facilitating over 160 investments, resulting in over $100M in capital investment to date.
Bank on Atlanta, a financial access program that will focus on providing free or low-cost banking products, along with financial education and financial counseling, to unbanked and underbanked residents in the city of Atlanta has been created.
Research shows that relying on alternative financial service providers such as check-cashing or payday lending establishments makes it hard for residents to rise out of poverty in our city.
Online student loan marketplace LendEDU.com studied the most sought-after gift cards and listed them in descending order: Amazon (AMZN – Get Report) , Walmart (WMT – Get Report) , Target (TGT – Get Report) , Best Buy (BBY – Get Report) , and Subway. But these cards sold for only 2% to 5% less than face value, compared with 1-800-Flowers (FLWS – Get Report) , H&M or Dress Barn gift cards which offered, on average, 30% off face value on their sites. Even Dunkin’ Donuts (DNKN – Get Report) and Godiva mark down their gift cards by 25%.
Credit Karma, the leading personal finance technology company in North America, today announced it has appointed Gannesh Bharadhwaj as general manager of credit cards. Previously president of Renew Financial, Bharadhwaj brings a strong background in financial institutions as Credit Karma remains focused on using innovative technology to bridge the gap between banks and consumers.
Entrepreneurs can make charity a part of their approach to business, and in a variety of ways. A survey by Funding Circle revealed some interesting figures, as reported by Joshua Sophy last December for smallbiztrends.com.
Of 1,400 small business owners polled, 52 percent said they were donating or had already donated to charity.
Chip, the chatbot app that plugs into your bank account and lets you automatically save for a rainy day, has raised nearly £1.1 million on equity crowdfunding platform Crowdcube.
The fund raise, which is part of a larger £2.4 million funding round, forms part of plans for the London-based startup to apply for a banking license so that it has more flexibility regarding the kinds of products it can offer in the future. The app currently claims 30,000 active users “who are collectively saving millions a month”.
We conclude that China Internet Financial Services Inc. (NASDAQ:CIFS) is a King Zero – just another worthless China fraud, says Muddy Waters Research.
Every one of the purported borrowers to which CIFS disclosed having made loans (accounting for 84.2% of loan balances) appears to be a sham counterparty. (The purported borrowers of the remaining 15.8% of reported loan balances were not disclosed; however, we strongly suspect that most – if not all – of these loans and associated income are also fabrications.)
CIFS’s recently announced “big data” company purchase also appears to be a lie.
47.3% of CIFS’s reported 2016 net income purportedly was generated by its Kashgar subsidiary; however, that subsidiary existed for only two days in 2016.
CIFS is too good to be true – claiming to turn a seeming commoditized business model into an overnight juggernaut with purported gross margins over 97% and net margins over 70%.
Since 2009, China has surpassed the United States as the largest market for new-vehicle sales, according to Deloitte Consulting LLC. And now, auto finance is starting to catch up.
For many years, the Chinese automotive market has been propped up by government incentives like tax breaks, which encouraged customers to purchase cars. So far, this incentive has led to more than 2 million cars being sold a month, with growth running up 15% last year, the Wall Street Journal reported in March. But as the tax breaks are expected to wind down, auto lenders have a greater opportunity to step in and capture marketshare in China, where penetration rates remain lower than other developed nations.
In the U.S., for instance, 84% of new cars in the U.S. were financed in 2014 compared with 20% in China, according to Experian. The Chinese auto finance rate rose to 38% in 2016, and is expected to rise steadily in the next few years; reaching an estimated 55% in 2021, according to ReportLinker.
China maintains a public blacklist of debtors that effectively restricts their movements and their spending habits.
The country’s highest court publishes the names and ID numbers of “dishonest people” on its website and restricts those people from flying domestically, using high-speed trains, or enrolling their children at expensive private schools.
Defaulters are also prevented from staying at hotels with three-stars or more. They also face tougher exams if they want to join the civil service, and are charged higher fees for booking cars. The bans work by linking to a person’s ID number. Some people used their passport when travelling to circumvent the ban, but that loophole now appears to be closed.
LoanBook, a Spanish marketplace lending platform, has successfully secured its initial £650,000 funding target from more than 200 investors through equity crowdfunding platform Crowdcube. Founded in 2013, LoanBook claims to be Spain’s largest marketplace lending platform, with a 4-year track record of working capital lending to Spanish SMEs and 40% market share.
iZettle CEO Jacob de Geer says you should team up with peers – and experiment.
“Apart from getting the business started, is to experiment with whatever idea you have. Most of your trials will fail, but one in 100 will work. If you view problem solving as a way of increasing the value of the company that you are building, then you are off to a good start.”
Klarna co-founder Sebastian Siemiatkowski thinks it’s important to have a holistic approach to problem solving.
When I advise young entrepreneurs, I tell them, “It’s not about figuring out the best business ideas, and it’s not about solving problems theoretically, but it’s about testing your ideas. It’s about coming up with an idea, and then trying it and learning from it.”
Investment bankers lining up for a stronger 2018 pipeline of initial public offerings have online business lender Prospa in their sights.
Street Talk understands a handful of banks have pitched their wares to Prospa’s chief executives Greg Moshal and Beau Bertoli in recent weeks ahead of a planned run at the local bourse some time next year.
Alternative investing is as much a mindset, as it is about specific investments. Here are some alternative investments approaches culled from our members around the world that are applicable to any investment decisions.
Invest in markets or assets that your analysis leads you to believe will do well; don’t invest in a product just because it’s likely to (or, worse, has in the past) “outperform the market”.
Understand that returns are one-dimensional, risk is multi-dimensional
You should constantly revisit your assumptions of the return drivers of the investment (much more so than its price performance), in case they change and you need to rethink your investment.
When we’re asked to define alternatives, we often end up saying “well, anything that’s not traditional”. Actually that’s not quite such a lame definition; alternative investment practitioners know that the best opportunities are usually those that are yet well known or exploited, and hence the field of “alternative investment” is one populated by investment ideas that may not be immediately obvious.
Diversification is the only free lunch – make sure you are diversified
India has a unique problem of too much money chasing too few customers. So at one end, we have traditional salaried class getting loan offers and at the other end, people are left at the mercy of hawkish money lenders ever-more resembling Shakespeare’s Shylock. Clearly, P2P lending and borrowing is the disruption that was waiting to happen as banks and NBFCs have successfully struggled at twin accounts of making credit affordable and accessible in a credit-hungry nation.
If 2016 saw demonetisation change India’s fintech ecosystem forever, this year will be remembered for the Reserve Bank of India’s (RBI) multiple regulations aimed at organising the sector. Recognition of peer-to-peer lending startups, revised guidelines for digital wallets, finalising charges for digital payments—the second half of the year saw it all, setting the template for a more mature yet challenging 2018.
The 22nd Wharton India Economic Forum (WIEF) has announced the finalists of the Yes Bank – Wharton India Startup challenge.
Perpule:Perpule’s 1Pay is a self -checkout app for express checkouts and easy payments in Perpule’s partnered stores like Hypercity, Spar etc.
Capzest: Capzest is a digital lending platform focused on providing unsecured credit to individuals for income generation purposes. It secures partnerships with income generation service platforms and provides short term capital to their various stakeholders. It was founded in October 2015 in Mumbai by Rohan Adlakha andSayantan Sarkar.
Luharia Technologies Pvt. Ltd: Based in Hyderabad, Luharia Technologies owns and operates peer-to-peer platforms for businesses and individuals. Founded by ISB alumni Keerthi Kumar Jain, Luharia’s flagship solution is Vote4Edu, which is an online peer-to-peer lending platform for K-12 education loans. The company also runs Vote4Cash, a P2P marketplace where borrowers can avail cash loans. Machine Bank, an infrastructure ecommerce platform, and P2P lending platform SMEBank are also owned by Luharia Group.
Your credit score reflects how well you have treated your credit in the past. It is one of the most important factors that lenders consider while evaluating a loan or credit card application. But what if you don’t have a credit score?
If your bank has rejected your personal loan application, approach NBFCs. Since they usually target customers with low or no credit score, they are more flexible with credit scores than banks.
Peer to Peer Lending
Since P2P platforms connect borrowers and investors online, they run with lower overheads and resultantly offer services cheaper than what traditional financial institutions have to offer. There are over 40 peer-to-peer lending platforms in India that are helping a large section of people who have been failed to qualify for loans from banks.
News Comments Today’s main news: U.S. credit-card debt hits new record. LendingClub raises its outlook. OnDeck shares rise 17%. Zopa’s disappearing capital from IFISA. Ping An to invest in AI. Blackstone assumes majority stake in Banco Popular’s real estate portfolio. Securities and Exchange Board of India to study impact of fintech on financial markets. Today’s main analysis: SoFi bank charter could […]
Credit card debt hits new high. AT: “Making sure I understand, if millennials — the largest living generation — aren’t carrying credit cards (I’ll assume that some do), then most of this debt is from older Americans. Boomers must really love their credit cards.”
The tide could be turning for LendingClub. AT: “It looks as though it is, but keep in mind that markets fluctuate. There will be a fall again. The question is, by how much? A dip, perhaps. Bit the stock price will fall, and it may rise again. I like seeing LendingClub makes its climb back.”
The 10 biggest fintech companies in America. AT: “The figures come from CB Insights and Pitchbook. But I can’t help but wonder, aren’t they tracking PayPal? Is PayPal not considered a fintech company? I know it’s got a longer history than the word “fintech,” but it seems to me to fit the definition.”
Investors remark on disappearing capital from Zopa IFISA. AT: “Technology fails. It’s one of the downsides to fintech. Nevertheless, too many of these types of failures and platforms will lose trust and credibility. It doesn’t appear to be a hacker. Rather, it looks like an internal IT glitch. Probably easily solved with a little investigation.”
U.S. consumer credit-card debt just passed an ominous milestone, beating a record set just before the global financial system almost collapsed in 2008.
Outstanding card loans reached $1.02 trillion in June, data from the Federal Reserve show, as lenders including Citigroup Inc. and JPMorgan Chase & Co. compete to sign up cardholders who may carry balances — a relatively lucrative business in a prolonged period of low interest rates.
By the numbers, the performance was also in line with what investors wanted to see — revenue was up 35 percent to $139.6 million during Q2, a solid beat on the analysts’ consensus estimate of $136.4 million. Originations returned to growth in the second quarter, up 10 percent to $2.15 billion. Meanwhile, operating expenses fell by 12.5 percent to $165.1 million in the quarter.
Revenue for the year — on the strength of that big performance — got an upward revision to the range of $585 million to $600 million, a reasonable pick-up on the previous forecast of $575 million to $595 million.
Following a beat-and-raise quarter from LendingClub Corp LC, analysts surmised the company may have reached an inflection point.
Credit Suisse analysts Stephen Ju and Christopher Ford noted this is the first quarter in about a year in which the company reported year-over-year growth in loan originations. The analysts expect ongoing acceleration throughout the next four quarters, as the company continues to recover.
Canaccord Genuity expects originations to grow sequentially in the third quarter or fourth quarter, aiding revenue growth acceleration in the second half of 2017 and notable sequential margin expansion.
The firm maintains its 2017 earnings per share estimate at 3 cents but nudged up its 2018 earnings per share estimate from 19 cents to 20 cents.
Shares of OnDeck Capital Inc (ONDK.N) rose as much as 17 percent on Monday after the online lender said it had made progress on a plan to cut costs and improve the credit profile of its borrowers, and expects to reach double-digit loan growth again by next year.
Social Finance Inc., or SoFi, on June 6 applied for a bank charter with the Federal Deposit Insurance Corp.
S&P Global Market Intelligence research shows SoFi originated 1,160 mortgages in 2016, with only two of those mortgages, or 0.2%, made in distressed or underserved tracts, a CRA measure. Across the U.S., 2.0% of all mortgages were in underserved areas that year.
Of the $8 billion in total loans that SoFi said it originated in 2016, about $810 million were property loans, according to S&P Global Market Intelligence data. None of the mortgages issued by the parent company were in SoFi Bank’s proposed CRA assessment area of Salt Lake City and nearby areas.
Fewer than 1.00% of SoFi’s consumer loans are made to borrowers in Utah, according to reports for the company’s asset-backed securities issued in 2015, 2016 and 2017. The securitization documents cover $4.6 billion in principal loan balances.
SoFi’s CRA strategy will revolve around financial literacy, education and scholarships, according to its application. SoFi stated it will measure the success of its CRA plan in terms of employee hours devoted to community service, the number of scholarships awarded and the percent of its investment pool that goes into Utah Housing Bonds.
Betterment’s three new features went live in late July. The features are:
Financial Advice Via App: Through Betterment’s mobile app, clients can now message a licensed financial expert. Experts can answer questions like how to set goals, which tax features to use, and how much risk to take in investing.
Socially Responsible Investing (SRI) Portfolio Options: These options give customers a way to invest in a globally diversified portfolio of companies considered socially responsible.
Combining Plus and Premium Plans: Betterment is now combining its Plus and Premium plans, which allow customers to now make unlimited phone calls to certified financial professionals. The new, combined plan charges a .4% annual fee.
The first feature, the ability to get financial advice through an app, attempts to address a big issue with robo advisors. Many investors want a human touch. They want to talk to an advisor from time to time. This will no doubt be true during the next bear market. Betterment’s new feature attempts to address this need.
The new pricing plan will benefit investors who were already using the higher-level Betterment plans. Those who were Plus customers can now get more personalized advice for the same fee and those who were Premium customers are paying less for the same service–always a good thing.
The Premium plan now gives customers access to more holistic investing advice. This advice can run the full scope of your investments, from your 401(k) to real estate to individual stocks to your Betterment portfolio.
The fintech lender’s consumer lending activities penetrated into areas that could benefit from additional credit supply, such as areas that have lost a disproportionate number of bank branches and highly concentrated banking markets.
Consumers presenting the same credit risk could obtain credit at lower rates through the fintech lender than through traditional credit cards offered by banks.
The lender’s use of alternative credit data allowed consumers with few or inaccurate credit records (based on FICO scores) to access credit at lower prices, thereby resulting in enhanced financial inclusion.
You may no longer need to worry about carrying your ATM card with you everywhere as long as your bank’s ATM and smartphone are equipped with near field communication technology (NFC). NFC, a method of wireless data transfer that detects and enables technology to communicate, is reportedly being rolled out at banks across the country. Financial institutions believe that cardless or “Smart ATM’s” are the wave of the future and they are enabled as long as ATM’s and customers have a smartphone or mobile device equipped with NFC.
It’s been estimated that 2.2 billion smartphones will be equipped with NFC by 2020.
The emergence of robo-advice and robo-investing platforms in recent years has led many traditional advisory firms to place a greater emphasis on their digital footprints. A growing number, in fact, are moving to offer digital versions of their “human” services. The 2017 InvestmentNews Adviser Technology Study, for example, showed that 7% of independent advisory firms offered a robo-advice option at the end of 2016, compared with just 3% two years earlier. At the same time, 19% of the firms that do not offer a robo-advice option intend to introduce one in 2017—nearly double the number that indicated that intention in 2015.
Only about 4% of the mass affluent and high-net-worth individuals in our survey reported that they use an automated investing or robo-advice tool.
For context, some 49% of individuals in our study currently use a financial adviser; the balance are self-directed investors.
Better Mortgage is now available in 13 different states as it has received a license to lend to house hunters in Florida. The Sunshine state is an important addition to the online lenders services as Florida is a popular vacation home state.
Better Mortgage says it is continuing to expand its footprint in the US. The lender is now available and improving access to homeownership in 13 markets including; Arizona, California, Colorado, Connecticut, Washington, DC, Florida, Georgia, Illinois, New Jersey, North Carolina, Oregon, Pennsylvania and Washington. Better Mortgage says that it is seeing particularly strong uptake in Seattle, Washington, San Francisco, California, and Washington, D.C.
While each offers a unique focus and value proposition to investors, platforms have now consolidated into several main categories of business model:
eREITs: Fundrise and RealtyMogul, two of the original players the real estate crowdfunding space, have pivoted to offering semi-blind funds that aggregate properties throughout the country.
Commercial equity investing: probably the closest to the original ideal of real estate crowdfunding, these platforms offer CRE equity opportunities to accredited investors, allowing them to participate in high-upside, larger commercial projects. While the return potential is often great, these tend to be the longer term and riskier than other RECF investments.
Debt investing: Some platformstake some or all of an existing real estate loan, secured by a deed on the underlying property, and syndicate it out to a network of individual investors at a fixed rate of return.
Some platforms (like EquityMultiple, see below) perform their own diligence on investments, which should give you some comfort as an investor. Even so, you’ll want to understand some key components of any deal you consider, and be sure it aligns with your investing objectives before pulling the trigger. Here are some of the main things to consider:
Risk Factors – Examples of risk factors are tight construction timelines, a precarious labor market in the area, an unsubstantial track record or aggressive leverage on the part of the Sponsor who originated the deal.
Payout Structure – Be sure to understand where your investments fits in the capital stack, and what order you will be repaid principal and profits relative to the Sponsor and other LP investors.
Cash Flow and Liquidity – Simply looking at how many dollars you’re expected to receive over the lifetime of a deal (the simple return) or even a time-weighted return (IRR – internal rate of return), won’t give a complete picture of the timing and magnitude of returns.
Small Change, a real estate crowdfunding portal, recently completed the sale of its first-ever offering open to all investors — and raised $95,000. Thirty-nine investors put in an average of $2,435. The minimum investment was $500. The money will help OJT (Office of Jonathan Tate), a New Orleans-based developer, finance the construction of two affordable single-family homes, on vacant lots.
The homes will be in New Orleans’ Milan neighborhood, which is two-thirds black and one-third white, and has a median income around $33,000.
So it has to move beyond the perception that it is a singular service provider, says Voya Financial Advisors’s Tom Halloran, president of its broker-dealer. One way the firm is doing that is by tying together its institutional businesses with retail, mixing technological innovation with old fashioned salesmanship, even considering the deployment of a robo advice platform.
In fact, it’s up to you to track your performance and ensure that your compensation reflects it, said Joanne Bradford, chief marketing officer of online lender SoFi, on a recent episode of the “So Money” podcast.
A new report on savings and investment suggests that savers are missing out on billions of pounds by spurning investment opportunities, including peer-to-peer lending. The report is supported by RateSetter, one of the UK’s largest P2P operators, and was produced by the Social Market Foundation think tank.
The report found that savers are holding more than £200bn in cash above and beyond what is referred to as the “rainy day” level. “Rainy day” funds – which are held in cash in case of emergency – are defined by the report as three months’ worth of income. The Social Market Foundation says that this idle pot of £200bn could have generated returns of £94bn over the past five years, had it been invested in the FTSE 100, or £40bn, if invested via P2P lending.
The £240m Ranger Direct Lending fund was announced its latest dividend of 24.26 pence per ordinary share for the 3-month period to 30 June 2017, its lowest in more than a year.
Its latest numbers show returns were again comparable to the last few months. This was due to a combination of expenses such as legal fees and higher than expected cash levels. In 2017, excluding the estimated dividend mentioned above, a total of 55.44 pence per share has been paid in dividends to ordinary shareholders. In 2016, a total of 89.61 pence per share was paid in dividends to ordinary shareholders.
Investment firm Octopus seems to have its tentacles in all the pies, as it has today become the latest business to offer an Innovative Finance Isa.
Octopus is also aiming to dismiss the risks associated with peer-to-peer lending by contributing five per cent of every loan from its own pocket. Any losses suffered will come out of this sum first, meaning investors can get their initial investment back plus any interest due to them before Octopus earns anything.
Investors will be able to put as little as £10 in the tax-free product, and up to their annual Isa allowance which currently stands at £20,000.
ThinCats, an alternative lending industry leader, announced on Tuesday it has received full authorization by the Financial Conduct Authority (FCA). According to the online lender, the approval highlights its commitment to protecting consumers and also developing the alternative finance industry as a vital source of capital for businesses and income for investors.
Chinese financial giant Ping An Insurance (Group) Co will spend more than 7.77 billion yuan ($1.16 billion) on technology research and development this year, and artificial intelligence will be the focus of that R&D, according to a senior executive of the company.
Established in 2008, Ping An Technology has about 4,000 technology workers and has paid attention to R&D in cognition, robot advisory and cloud businesses. Their applications are mainly used in finance and healthcare industries; up to now, there have been more than 200 application scenarios.
On the evening of August 7, the public bankers issued a friend said that the balance of micro-loan loans over 100 billion. According to the public bank in 2016 annual report, the balance of micro-loan loans 7 months increase of nearly 300%.
In addition, July 16, the public bank retail credit director Fang Zhenyu Lundi summit speech revealed that the balance of microfinance loans 76 billion yuan, which means that the balance of 72 days of microfluice increased by 24 billion yuan. At the same time, he also revealed that the daily loan loans to 150,000 pen, up to 20 to 300,000 pen, the daily repayment of the number of 200,000 pen, a single loan approval time is 0.3 seconds, almost real-time approval. In the allocation of talent, the public bank IT department staff accounted for 57%, background managers accounted for 6%, business and support staff accounted for 37%.
Last year, the conference had a massive showing of over 1,300 attendees. This year, the conference nearly doubled to 2,400 attendees. There was hardly any place to stand when Soul Htite of DianRong and Renaud Laplache of Upgrade took the main stage to talk about Fintech entrepreneurship.
Gopher Asset Management had investment associates in just about every session at the conference looking for the next investment opportunity. Gopher is a subsidiary of Noah Holding Limited (NOAH:NYSE), one of the biggest wealth management companies in China with a current market cap of USD $1.7 billion.
Galaxy Internet, another Chinese venture capital firm is actively seeking investment opportunities in the area of finance, ecommerce, payments and big data.
Borrowell is owning the Canadian market in a big way. They just raised a $12 million round. Borrowell is helping Canadian’s to build credit starting with affordable loans. In a short amount of time, Borrowell has amassed over 300,000 borrowers and is looking to expand into other markets.
Jack Quigley, Founder and CEO of CrowdFundUp. He’s probably the hardest working man in Fintech. He’s constantly making deals and connecting dots. He’s 100% committed to China and recently moved to Shanghai and I think he’s not leaving until he brings home the trophy. I visited his office in Shanghai, overlooking a bustling city. CrowdFundUp will be China’s gateway into commercial real estate in Australia.
Banco Popular S.A. (‘Popular’) has today approved the sale of a majority stake in its real estate portfolio to Blackstone Real Estate Partners Europe V (‘Blackstone’). The agreement has been reached following a competitive process in which three international companies with long track records in the management of real estate assets presented offers. Blackstone was selected as the successful bidder after submitting the best offer in terms of both its value and management plan.
The agreement was confirmed after the European Union Directorate General for Competition today approved the acquisition of Popular by Banco Santander S.A. (‘Santander’) with no restrictions.
The transaction will involve the creation of a company to which Banco Popular will transfer assets with an aggregate gross book value of approximately €30 billion, as well as 100% of the share capital of Banco Popular’s real estate management company, Aliseda.
The valuation attributed to the Spanish assets of the business (e.g. properties, loans and tax assets, not including Aliseda) is approximately €10 billion. This is consistent with the valuation and provisions made by Santander during the acquisition of Popular and does not, therefore, result in any material capital gain or loss for Santander or Popular. The final valuation is subject to change depending on the assets remaining within the business at closure and following the integration of Aliseda.
Blackstone will own a majority 51% stake in the new company while also assuming management responsibilities, while Banco Popular will own the remaining 49% stake. As a result, the aforementioned assets will no longer be consolidated on Banco Popular’s balance sheet.
Lithuania is the latest country joining the Fintech revolution by recognizing the importance of fostering a regulatory environment that is conducive to change and challenges established norms. The Bank of Lithuania is out with a statement regarding the launch of a sponsored Fintech Sandbox.
The following measures are will apply:
Relatively easy and low-cost authorization process: following submission of all necessary documents, it takes only 3 months for the Bank of Lithuania to take a decision on the issuance of an electronic money or payment institution license. In other EU countries, the process may take 12 months and more.
Access to the Bank of Lithuania payment infrastructure for non-banking sector companies planning to provide payment services, thus avoiding a middleman.
Newcomer program. The Bank of Lithuania applies a one-stop shop principle for meetings and consultations with potential financial market participants.
Specialized banking license. In order to establish a bank in Lithuania that would provide usual banking services, the lowest initial capital requirement in the entire euro area – EUR 1 million – is applied. This is five times less than the requirement applied to banks that provide the full range of services, including investment ones.
ID Finance Co-Founders Boris Batine and Alexander Dunaev were far from newcomers to the world of finance when they started up their business in 2012. Long before founding a data science, credit scoring and digital finance company, the Russian-born and U.K.-educated entrepreneurs met while working abroad at Renaissance Capital and Deutsche Bank.
And so, in 2012, with only a few hundred thousand of their own dollars to get up and running, ID Finance launched in one of those underserved markets — their home market of Russia.
By 2015, the firm was profitable, and in 2016, it officially relocated it headquarters to Barcelona, Spain, one of three nations outside Russia ID Finance has expanded its efforts into — Belarus and Brazil being the other two.
These days, the firm originates 50,000 new loans a month — loans that it mostly finances off its own balance sheet, as opposed to selling them off on a marketplace. As of February of this year, the firm raised $50 million in debt from a consortium of banks to fund further expansion in South America.
A New $200 Million Fund
As ID Finance has expanded around the world — and partnered with various FIs — its founders realized that there are a host of small businesses that are simply being underdeveloped because they are almost invisible to investors.
Working with Elbrus Capital Fund Manager Yury Popov and asset management company Da Vinci Capital, the FinTech Credit Fund is being jointly offered as a $200 million debt finance fund aimed at FinTech companies focused on alt lending innovation. The funding from the credit fund, according to Batine, is aimed at helping up-and-coming FinTech lenders fund their own loans — and finance their loan portfolios.
“The alternative lending market is worth a potential $2 trillion, and we see a huge opportunity to back the billion dollar companies of tomorrow focused on digital lending,” Dunaev said.
Humaniq was launched in 2016 with a vision to build a world where the unbanked and underbanked around the world also have access to the banking and financial transactions. An estimated 2 billion people can be brought under the umbrella of financial inclusion with Humaniq’s services.
Tell us more about Humaniq and the problem you solve?
Humaniq is on a mission to bring new mobile digital services and financial inclusion solutions to the 3.5 billion unbanked / under banked globally who have no access to the digital economy.
How does Humaniq work, especially with respect to privacy and security?
Humaniq offers a biometric blockchain app that can be used in any simple smartphone device.
The Humaniq LITE app is part of a broader humanitarian capitalism venture. Humaniq has a digital currency tied to it, known as HMQ.
Who’s your target audience and how exactly do you help?
We are working with emergent economies – where people live on USD$2.50 a day. Many of them do not have documentation and have had little or no education.
Our first big pilot will be in Ghana with local and international organisations, targeting 18 to 40-year-old low-income smartphone users and merchants in suburban areas including the capital city of Accra.
How did you acquire your first customer and how long did that take?
We did various test in India and Africa with previous test versions of our app. We are also working with Brazilian organizations.
With regards to funding, how did you fund your business? How hard was it and how much time did it take to acquire those funds?
Our business model has thrived on the P2P innovation and blockchain driven crypto economics. We built our model on the back of a crypto, Ethereum driven smart contract Initial Coin Offering(ICO).
The New Zealand government is looking to remove the distinction between class and personal advice, as well as allow the provision of digital advice as it seeks to overhaul the country’s regulatory regime for financial advisers.
Unlike the FA Act, the new Bill enables the provision of more types of advice by being technology-neutral, lifting the existing restrictions around advice needing to be provided by a human adviser.
In turn, this allows for the provision of robo-advice and works to future-proof the legislation for technological developments. It also serves to increase the New Zealand population’s access to quality financial advice.
Thus, regulators are faced with the challenges as well as opportunities to evolve their functioning more effectively through the adoption of new technology solutions. It is in this context that the CFRT committee will help the SEBI deal with relevant risks and challenges.
The Committee would examine, deliberate and advise the SEBI on an ongoing basis on the following issues:
Recent and medium term trends (within next 5 years) in fintech developments in securities market worldwide.
Opportunities and challenges from new fintech solutions and its impact on Indian Securities Market.
Fintech solutions for further widening and deepening of Indian securities market.
Approach and framework for the regulatory sandbox in Indian market conditions to facilitate the adoption of fintech and promote financial innovations.
Preparing the Indian securities market and regulatory framework to adapt to new fintech solutions while promoting market integrity, market development, consumer protection and managing change, business models and market disruptions.
Assessing technological solutions for SEBI regulatory functions viz. information management and data mining, risk management including cyber security, intermediary supervision, consumer protection, etc., through the application of new technological solutions like applying distributed ledger technology, Big Data, data analytics, Artificial Intelligence, machine learning etc.
Technology capacity building by Indian securities market in general and SEBI in particular.
The Committee on Financial and Regulatory Technologies will, among other things, deliberate on financial technology solutions for “further widening and deepening of the Indian securities market” through traditional and alternative platforms, including peer to peer lending and equity crowd-funding.
While questioning the manner in which these entities help start-ups raise funds, the regulator has said that any violation would be “construed as organising an unrecognised stock exchange” and that SEBI would be “constrained to initiate action.”
Under the current legal framework, issue of shares to more than 200 persons constitutes a public issue and needs SEBI approval.
Rubique, the one-stop online marketplace providing technology-enabled end-to-end solutions to financing needs of individuals & SMEs has announced the appointment of two directors- Suresh Sethi, EX-CEO & Managing Director of Vodafone M-Pesa and Alexia Yannopoulos Director at Apis Partners LLP.
The Centre for Finance, Technology and Entrepreneurship (CFTE) has revealed that it is setting up an international hub in Singapore designed to aid finance professionals gain the necessary skills in FinTech.
Working closely with the Monetary Authority of Singapore (MAS), CFTE has been formalizing plans to expand its education platform to the Association of Southeast Asian Nations (ASEAN), according to a report from FinTech Finance.
CFTE is to deliver courses that cover a range of areas in the finance industry. These include artificial intelligence, application programming interfaces (APIs), coding, blockchain, and RegTech. They will either be delivered online or via in-class training.
It is especially likely to absorb the investor cluster who, under the government’s new restrictive measures on real estate transactions, are swiftly turning away from banks and seeking for an alternative source of investment income, according to industry watchers.
In late May, the association enforced a set of guidelines, setting a 10 million won ceiling on the investment per business unit, responding to the government’s gesture to protect investors from potential dangers of the new investment platform.
INDONESIAN peer-to-peer (P2P) lending marketplace PT Amartha Mikro Fintek (Amartha) encourages and targets “millenials” to invest in micro-businesses and SMEs through the Amartha Short Movie Festival.
The Amartha Short Movie Festival is a competition divided into two categories which are short documentaries with the theme empowering micro-businesses and short fiction movies with online peer-to-peer lending as the theme. Applications are open from August 8 to October 9, 2017.
Global Domination Capital is set to be the regions’ first fintech startup company, offering equity crowdfunding and peer-to-peer lending solutions to the OECS countries and the CARICOM member states. This includes Barbados, Jamaica, The Bahamas, Trinidad and Tobago and The Turks and Caicos Islands.
Global Domination Capital is expected go live and accept both new investors and borrowers to the platform by late September.
News Comments Today’s main news: Klarna looking at competing with PayPal in the U.S. LendInvest to launch auction finance product. Today’s main analysis: KPMG report on online lending in continental Europe: a must read. Today’s thought-provoking articles: 2017 tech trends in China. MPL ABS. Entrepreneurs likely to plunder savings. United States Klarna takes aim at PayPal in U.S. GP: […]
Klarna takes aim at PayPal in U.S. GP: “I continue to see Klarna as a point of sale financing company that is a serious challenger for the top position.” AT: “This shouldn’t come as any surprise. We now live in a global village. Competition has taken on a brand new face with the rise of technology and second- and third-world countries gaining greater access to consumers, technology, and capital. Klarna actually has the clout to compete with PayPal and could very well become a major player in the U.S.”
7 ways to invest $1,000. AT: “Increasingly, I’m seeing more popular publications recommending P2P lending as an option for everyday investors. Lending Club is a popular option, but I wonder how many of these pundits recommend LC because that’s what they’re familiar with. Do they try out other platforms?”
A faint smile lights up Sebastian Siemiatkowski’s face as he recounts how his humble online-payments startup bagged the Warren Buffett of venture capitalists (VCs) as a board member.
Today Klarna’s ambitions go beyond cocky. It’s gunning for the $93 billion US market for credit card issuing, an industry that’s dominated by giants such as American Express and Capital One, with PayPal and ambitious startups in close pursuit. Like PayPal, Klarna is an online-payments platform with an emphasis on “buy-now-pay-later” financing. “We’re a bank,” Siemiatkowski says from a stark conference room in Klarna’s head office.
Klarna’s main competition: PayPal, whose financing business, PayPal Credit, formerly known as Bill Me Later, has been steadily growing since 2008, albeit with an embarrassing blip. Last year, the Consumer Finance Protection Bureau forced PayPal to pay a $25 million fine for sneakily signing people up for credit. Yet today “it’s one of our fastest-growing businesses,” PayPal spokesman Josh Criscoe says, increasing at a 27 percent annual clip.
Even more similar to Klarna is Affirm, a San Francisco startup launched by Max Levchin, a PayPal co-founder. Affirm is also racing to partner with merchants (it has 800 so far) to offer payment options, including financing, as an alternative to credit cards.
Klarna processes 40 percent of all Swedish online payments.
Once you check out, Klarna pays your bill and emails you an invoice. The startup’s foray into financing—and beyond plain-vanilla payments processing—is what got investors like Sequoia so excited. Its latest investment round, in December 2015, brought its valuation to $2.3 billion.
Perhaps Klarna’s boldest innovation is its email-and-address method of establishing the creditworthiness of its customers. No other online-payments company takes such risk on both the consumer and the merchant, the company claims.
Remarkably, Klarna’s bold bet on people’s honesty and solvency has worked. Its default rates are under 1 percent. Credit card default rates in the US have averaged 2.2 percent for 2016.
Klarna’s geography is relevant for another reason: Scandinavians are bored of cash, and Sweden is on track to become one of the first countries that is truly cashless. Homeless magazine peddlers carry card readers, and churches take their tithes through SMS. Half the branches of Sweden’s biggest banks don’t even have cash on hand or take cash deposits. Americans aren’t ditching cash as quickly, but to Klarna’s benefit right now, they’re bigger on digital payments.
Despite significant turbulence earlier in the year, marketplace lending ABS has maintained steady growth and better or similar performance than other areas of the consumer loan ABS sector, according to JPMorgan ABS analysts. They add that the marketplace lending ABS sector has also been one of the fastest growing in ABS, starting with US$3.3bn in 2013 from three programmes to US$9bn across 15 different shelves in 2016, with this year’s total including US$3.4bn from eight marketplace lending ABS programmes.
Furthermore, recent performance data in 2015 and 2016 show MPL ABS has better or similar performance than branch consumer loans and non-prime auto loans on most metrics.
Social Finance, or SoFi, is the largest online lender in the country, originating approximately a billion dollars in credit a month across personal loans, student loan refinancing and mortgages. Mike Cagney is the CEO, and he said what’s unique about the company is their focus on HENRYs — the acronym stands for high earners, not rich yet.
“It’s a customer segment the banking industry has struggled to deliver value to, primarily because there’s a lot of misconceptions around millennial customers — the idea that they’re fickle, they’re not loyal…we’ve found that really not to be the case.”
This is a four part guide on how to earn interest on your Bitcoin from reliable sources. The first part was on how to lend cryptocurrencies using Magnr. Last time we introduced our users to P2P lending, more specifically on Bibond. This time, we’re going to talk about another P2P lending website, BTCJam.
BTCjam was founded in late 2012 and by the end of 2014, BTCjam had facilitated bitcoin loans in excess of $10 million dollars in value with more than 100,000 users in over 200 countries. BTCjam also has an “Autoinvest” feature, which allows you to keep a diversified portfolio without having to monitor the loan offers. This feature will take your designated parameters into account and find suitable investment opportunities.
With difficulties qualifying for mortgages, a string of nonbank lenders, such as SoFi and LendingHome, are taking market share from traditional banks. According to PwC, their market share could grow to $150 billion by 2025, a 33% annual growth rate. As of April of this year, nonbank lenders originated 48% of all mortgages, up by 400 basis points from their 2015 market share.
Unlike big banks, which take a long time to look at income, FICO score, tax returns and more, online lenders process the application online in 20 minutes, according to LendingHome’s website. They close the deal in two weeks — vs. 45-60 days with banks — sometimes funding up to 100% of the purchase.
If hard money and non-banks aren’t your thing, there are other ways to get a deal, like asset-based mortgages. “Buy 2 Rent,” a mortgage product from Blackstone-owned B2R Finance, mainly looks on the rental income the property will produce.
And unlike traditional banks, it doesn’t look at personal income, which is a huge plus if you don’t have stable income (although a 660 FICO score and other underwriting criteria are required).
This past February, a BuzzFeed article reported that Zenefits was employing insurance salespeople who didn’t have legitimate state licenses. A few days later, Zenefits COO David Sacks sent an internal email that read, “the fact is that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker (Conrad) has resigned.”
Online lending platform Lending Club was once a bright spot in the fintech industry. But its CEO’s problems cast a shadow on the company this year. In the spring Lending Club’s board discovered that Laplanche had a personal investment in Cirrix Capital, but he failed to disclose it before he urged Lending Club to invest $10 million in the company. An investigation also revealed that a Lending Club engineer had falsified information to make some loans look like they had met a loan buyer’s requirements when, in fact, they hadn’t.
Trump may also benefit startups. A Republican-controlled Congress could end gridlock, creating opportunities to reform laws that are slowing down startups, says Bradley Tusk, CEO of Tusk Holdings, a political consultancy and venture firm known for advising Uber. Areas of interest include contract-worker rights, peer-to-peer lending laws, online gambling restrictions, and scrutiny toward for-profit education.
Online lender for short-term property finance LendInvest, will launch a new auction finance product to help brokers and borrowers prepare for the forthcoming 2017 auctions. The auction finance product is designed for borrowers that need their deals to be fast-tracked by their lender.
LendInvest bulleted out some of the features of auction finance product:
50% discount on valuation fees
No exit fees
Available on loans ranging between £75,000 to £7.5 million
Last week, the Financial Conduct Authority released their interim feedback of their review of their crowdfunding and peer to peer lending rules. And it didn’t sound good.
Andrew Bailey, CEO of the Financial Conduct Authority (FCA), stated that “fast-moving, evolving” peer-to-peer (P2P) lending industry poses “some quite big challenges in terms of transparency and fairness.”
In a new market that is disrupting traditional finance, there is no point advertising to consumers who are uninformed.
Instead of throwing money into glossy adverts, I believe the best foundations are built by going back to the old days of lending when your bank manager knew you, your family, your business and your friends. They would never lend to someone unless they met them and got to know them personally.
Research from investment platform Crowdfinders claims just 28 per cent of people would turn to banks or professional institutions for funding, compared to the 35 per cent who would resort to personal savings.
Meanwhile, just 15 per cent said they would turn to friends and family for the cash, probably because two thirds confessed their loved ones don’t have the financial means to support them.
After these funding options, the next most popular avenues were fundraising through the sale of personal items such as cars or luxury items, or looking to a current business or professional network, both of which were cited by 11 per cent of people.
Just one in 20 said they would use peer-to-peer lending platforms or venture capital, and only 6 per cent would apply for a bridging loan or specialist finance.
Established in 2011 by Luke Lang and Darren Westlake, Crowdcube is the world’s leading investment crowdfunding platform.
Launched in 2012, Seedrs is the world’s leading equity crowdfunding platform for investing in businesses. It was the first equity crowdfunding platform to get regulatory approval from the Financial Conduct Authority in the UK.
Founded in 2012 by Tom Britton, Goncalo de Vasconcelos and Gonçalo Vasconcelos, SyndicateRoom is the platform where investors make smarter and more exciting investments.
Founded by Dawn Bebe in 2010 and headquartered in Cornwell, Crowdfunder is the leading UK crowdfunding platform, connecting projects with people to make great ideas happen.
Founded in 2013, CrowdShed operates and offers online funding platforms, helping people, businesses, charities and art projects to get fund.
Venture Founders is an equity investment platform that is designed to make capital more accessible for a range of early-stage and growth businesses. It offers investors a range of curated, structured, and good investment opportunities.
Angels Den is an investment platform that connects angel investors with businesses.
Founded in 2013 by Ayan Mitra, Code Investing is a digital investment platform that offers investment opportunities in high growth, small to medium companies.
Spacehive is the only UK-based crowdfunding platform exclusively for projects aimed at improving local civic and community spaces. It is also the world’s first funding platform for civic projects.
Crowdfunding site Zopa provides 2 to 5-year low rate loans to borrowers with good credit, and 5 percent interest rates to P2P lending contributors. Zopa is the Europe’s largest P2P lending service having now lent more than £1.8 billion.
The research – which was conducted by financial information company Boring Money on behalf of the Financial Services Consumer Panel, a statutory body that advises the UK financial regulator – found that robo-advice providers are currently providing insufficiently pro-consumer services on a number of fronts.
It concludes that “many online investment firms” failed to clearly communicate whether the advice provided was regulated or not, to disclose relevant costs and charges and to use language that consumers might reasonably understand.
The consumer body calls on the Financial Conduct Authority (FCA) to enforce existing regulations governing online investment tools as well as to develop a framework for product providers to adopt language that is less reliant on complex industry jargon.
Gomes, Kotlikoff and Viceira⁴ developed a lifecycle model in 2008 which includes flexible consumption, investment and labor supply. They optimize a utility function using simulation, recursive Bellman equations and backward induction to derive optimal lifecycle behaviour. Parameter values are estimated using empirical data.ramework to create a portfolio of assets such that the expected return is maximized for a given level of risk. Financial market data is used to estimate expected return, standard deviation and correlation for every asset class.
New technologies can significantly improve the input for these models and increase the quality of the advice. By replacing a questionnaire by more sophisticated data sources and machine learning models, a significant increase in accuracy of risk tolerance, income and consumption estimates can be expected.
More complex is to estimate personal preferences. Since one cannot directly measure emotions, approximating utility and risk tolerance requires creative approaches. Expectations are high for artificial intelligence applications for decision making.
Using powerful machine intelligence, merging more data sources and leveraging scientific results to better understand the client’s situation would lead to a next generation of automated advisers.
KPMG, along with AltFi data, has published a new report on alternative lending in Europe. KPMG also sourced data from the most recent Cambridge Centre for Alternative Finance report. The document, entitled Alternative Lending Market Trends in Continental Europe 2016, provides an interesting snapshot of online lending beyond the UK.
Following the UK, the top two European countries for online lending include France and Germany. The authors point out that Latvia is breaking away from the pack with the third highest volume of funded loans in 2016 through Q3.
Peer to peer consumer lending is the largest segment of online lending. Through Q3 of 2016, consumer P2P generated 72% of total lending.
Regarding the largest continental European platforms, Younited Credit in France and Auxmoney in German come in at first and second place respectively. Mintos and Twino, both operating out of Latvia, are in 3rd and 4th place – punching above their weight class.
Credit cards have never taken hold, with most customers opting instead to use their phones and payment apps such as Alibaba’s payment system, Alipay, and WeChat. An Ernst & Young report found that 40 percent of consumers in China now use new payment methods.
Further underpinning growth in the country’s fintech segment is a new social credit system that the government expects to fully implement by 2020. The system assigns each citizen and business a credit score based on their social behavior, previous purchases and other financial data. The score would then be used to determine a person’s eligibility for everything from loans and government jobs to where they can travel.
In the meantime, China’s peer-to-peer lending segment is expected to continue to grow over the next year to fill the space left by more traditional banking. China Rapid Finance, one of the country’s largest consumer lending platforms, facilitates in providing loans to online consumers and the middle class, who by and large do not have access to credit scores. The company currently has more than 1 million borrowers, and analysts anticipate that number will rise.
Post demonetisation, peer-to-peer startups expect to see a delay in the final RBI guidelines which were expected to come by October 2016, but which they now believe will be out by March 2017.
As per the consultation paper that came out earlier this year, several players including iLend, Faircent, Venture Catalysts-backed LenDenClub, among others have either begun or are in the process of using escrow or nodal accounts in partnership with banks like IDFC. Demonetisation has also resulted in over 20% increase in lenders seen on the platforms, as well as bigger ticket sizes for some players.
This is a temporary account as it operates until the completion of a transaction process. According to fintech industry experts, this is a natural progression for P2P players. More transparency and security is expected through this process, since transactions will be better recorded and the auditing process will be simpler.
News Comments Today’s main news: Smava raises $34m; Lenddo partners with FICO in India. Today’s main analysis : PeerIQ’s analysis of securitization and pricing. Today’s thought-provoking articles: Blackston’s “now is the most difficult period ever“. Lendup has 29% of non-performing-loans. United States Amazing info and data from PeerIQ on the securitization market and loan pricing. […]
Weekly Industry update from PeerIQ, (PeerIQ email), Rated: A
Several marketplace lending ABS deals are coming to market amidst favorable market conditions and impeding risk retention rules.
P2P Global Investments, a UK UCIT investing in marketplace lending loans, sold £114 M ($167.36 MM) of rated notes backed by Zopa loans. The senior bond of the deal—Marketplace Originated Consumer Assets (MOCA 2016-1)—was rated Aa3/AA by Moody’s and Fitch respectively.
Noteworthy is that the deal is the highest rating afforded to any marketplace lending transaction from Fitch. Moody’s assigned a cumulative loss estimate of 7% and expected recoveries of 5%. We show deal structure and pricing below:
Sophisticated loan-level analytics are required to accurately value seasoned loans contributed to the collateral pool. Aged portfolios offer greater clarity to loan performance. However, there are other analytical considerations. The average conditional default rates (CDRs) are lower in the first twelve months of consumer loan pool than CDRs in the pool seasoned beyond twelve months. Therefore, seasoned unsecured consumer loans pool tend to have higher cumulative net losses as a percentage of deal balance. As the loans season, the conditional prepayment rates (CPR) tend to be elevated as well.
The price of a seasoned loan is the present value of projected loss-adjusted cashflow for the remaining balance of the loan, discounted at an appropriate rate. We show below the price behavior of a typical 60-month loan over its life while holding the discount factor constant:
As losses ramp up, the loan price drops; and then price exceeds par as risky loans approach maturity. This behavior results from positive survival bias of a loan given its remaining principal balance.
Specifically, in the early life of a loan, the credit loss projection ramps up and dominates the loan coupon—the loan price drops below par. As the loan seasons and survives over time, the credit risk on the remaining principal balance decreases. This survival bias of the credit risk profile leads to certain high credit risk loans valued above par.
For a higher coupon loan, the interest return or carry of the loan dominates loan pricing—the loan price exceeds par. At maturity, if the loan has not experienced any credit impairment, the price of the loan will be par; this leads to a “pull-to-par” profile.
Securitization Tracker Update
We look forward to releasing the Q3 securitization tracker this week. As origination volumes have slowed in certain areas, and as ABS markets started with a slow Q1, readers are asking what is the state of the ABS market? You may be surprised.
Stay tuned as we share volumes, pricings, and our outlook this week.
The CEO of marketplace lender Funding Circle says the industry is going through a “golden age” despite troubles for platforms like Lending Club this year.
Funding Circle is the UK’s biggest marketplace lender, worth over $1 billion.
Funding Circle CEO Samir Desai told Business Insider: “It was certainly a tough first half of the year with various things going on with Lending Club, which caused investors to take another look, and then the stuff with Brexit. But actually, what I’ve always said is I think we’re in this golden age for our industry.”
So why does Desai think we’re in a golden age? “If you look at the net returns that have been generated by marketplace lending platforms, they have been the highest of any asset class over the last 5 years with the lowest levels of volatility. If you look on the borrower side, borrowers flock in their droves to this kind of customer experience.
“For any professional investor, this is the most difficult period we’ve ever experienced,” Baratta, Blackstone’s global head of private equity, said Tuesday, speaking at the WSJ Pro Private Equity Analyst Conference in New York. “You have historically high multiples of cash flows, low yields. I’ve never seen it in my career. It’s the most treacherous moment.”
The firm is still selling more assets than it’s buying, according to President Tony James.
Blackstone finished gathering $18 billion for its latest private equity fund last year. The firm also has an energy private equity vehicle, which finished raising $4.5 billion last year.
Blackstone, founded by Schwarzman and Peter G. Peterson in 1985, managed $356 billion in private equity holdings, real estate, credit assets and hedge funds as of June 30.
LendUp extended nearly 75,200 installment loans in California last year, up about 110% from a year prior, according to the California DBO. The amount lent out on these loans last year surpassed $22 million, up 225%.
Missed payments are also high. Some 29%, or 5,921, of the unsecured installment loans outstanding at the end of last year were 30 or more days past due, according to a report from the California DBO.
Peer-to-peer (P2P) lending platform Landbay has launched a new comparison tool that will help tenants and landlords to compare their rents against the prevailing market rate as rental values continue to spiral.
The ‘Rent Check’ facility, which has launched today (Monday), utilises data from the P2P lender’s monthly rental index and allows users to compare rental movements for specific property types to check that rents are tracking the wider market.
“Together, Landbay’s Rental Index and the Rent Check tool will give both tenants and landlords a simple way of accessing data from across the UK, not only providing an in depth view of the market, but helping inform their next move.”
Zoopla invested £500k in the startup earlier in the year which guaranteed it exclusivity for new Landbay products that will be rolled out across its network of property websites Zoopla and PrimeLocation.com.
Smava, a leading marketplace lender in Germany, has clinched $34m in a round led by Runa Capital, with additional participation from Verdane Capital, mojo.capital and a gaggle of existing investors. Runa is an active investor in the alternative finance sector, having already invested in consumer lender Zopa and gateway platforms Lending Robot and Lendio. Verdane is a Scandinavian private equity firm with a track record of investing across the consumer internet space.
Alexander Artopé, CEO and co-founder of smava, said that the $34m will allow the company to expand its customer base, hire additional talent and to enhance its credit scoring technology.
Investors including Cerved Credit Management SpA and a venture between KKR & Co. and Varde Partners LP submitted non-binding offers on Friday for Banca Monte dei Paschi di Siena SpA’s non-performing loans platform, according to people with knowledge of the matter.
As part of the deal, the lender will also transfer management of an 8.6-billion euro ($9.6 billion) loan portfolio to the platform’s buyer, along with the exclusive management of a portion of Monte Paschi’s future bad loans, the people said, asking not to be identified because the process is private. Monte Paschi, which is being advised by Mediobanca SpA, plans to complete the sale by the end of the year, the people said.
China’s banking regulator has indicated that the government would not bail out failed firms in the shadow banking sector despite a string of recent collapses which have triggered protests across the country from disgruntled investors.
Wang Shengbang, a senior official at the China Banking Regulatory Commission, said investors putting their savings into high-yield debt products should be aware of the risks.
Among the most troubled have been peer-to-peer (P2P) online lending platforms. The collapsed Ezubao, which raised more than 74 billion yuan ($A14.5 billion) from nearly a million investors across the country, is being investigated over claims it ran a Ponzi scheme. Some 21 people from the P2P firm were arrested earlier this year.
He said only around 17 per cent of shadow banking products, or around 3.2 trillion yuan ($A640 billion) were held in riskier high-yield products, which is around 1.5 per cent of China’s overall banking assets.
In a recent report, Moody’s said P2P lending did “not pose systemic risks given its small size” at about 1 per cent of total shadow banking assets.
Liu Li-Gang, chief China economist at Citi, said while (NPLs) were higher than official figures indicate, the level was still manageable.
FICO, the world leader in credit scoring, has today announced a new partnership with Lenddo, a specialist in credit and verification technologies. Together, the companies plan to develop a credit risk score for consumers in India who have a limited or no formal credit history.
Lenddo was founded in 2011 to improve financial inclusion for 1 billion people around the world, enabling financial service providers to access and serve new and underserved markets using its disruptive technology and leveraging new sources of digital data, such as mobile-social digital footprints.
News Comments Today’s main news : Sharestates hits $1.3bil in funding capacity; MeasureOne raised $2.3 mil for student loan analytics ; Indian p2p market is growing at 30-35% per month, examples, and data; Fitch claims the Chinese structure finance market is heating up. Today’s main analysis : Moody’s SME securitization challenges ; US SME loans are […]
In a new report, Moody’s Investors Service examines several credit risks in securitizations backed by loans to small businesses which are originated by US marketplace lenders (MPLs) that focus on lending to businesses with less than $10 million in revenues. These key risks have been recent topics of discussion and debate among sector participants. As small business MPLs originate more loans, they are likely to continue to turn to asset-backed securities (ABS) to fund their loans.
1. As a result of the short history of MPLs, the lenders often have not calibrated their proprietary credit models for a long enough period of credit history, such as a full credit cycle, to be considered dependable.
2. Lack of alignment of interest between the MPL and securitization investors could pose risks to the securitizations.
3. Moody’s says the regulatory environment with regards to small business marketplace lending is relatively new and susceptible to change.”If MPLs are negatively affected by regulatory scrutiny or changes, a weakening of their financial strength could damage their securitizations in a scenario in which that outcome leads to servicing disruptions or leaves MPLs unable to honor obligations to repurchase ineligible loans from the transactions under their representations and warranties, among other potential risks,”
4. The ability of small business MPLs to carry out servicing responsibilities through a credit downturn is a risk in small business marketplace lending transactions because MPLs have short operating histories and may be financially vulnerable in a credit downturn if loan origination volumes deteriorate significantly.
I’ve been fortunate to oversee financial services, banks, and savings associations of all shapes and sizes for more than 30 years, at the federal and state levels.
Marketplace lending may use new technology or techniques, but it’s still about extending credit to borrowers—something that’s been done for more than 3,000 years. As entrepreneurs, you recognized an opportunity to deliver greater value by improving how credit is provided, making it faster, cheaper, and more convenient.
The rapid growth in marketplace lending over the past few years suggests that, as a group, you are on to something. The surging demand for this type of service has gotten investors’ attention. Whole loan sales to institutional investors have been increasing as a source of cost-effective funding, and asset-backed securities have provided an additional source of funding. In 2015, institutions originated about $6.6 billion in securities backed by marketplace loans—that’s three-fourths of the $8.2 billion in such securities originated to date.2 Maintaining strong, stable funding sources is critical to sustaining the sort of growth we’ve seen in marketplace lending.
However, the growth that we’ve witnessed has occurred under relatively positive conditions.
Long-term performance is just one thing to watch. The expansion of marketplace lending raises four other important policy and regulatory questions.
First, do new techniques, technologies, and products raise concerns about compliance with existing laws and regulations? Let’s take the example of the new algorithms for determining the creditworthiness of a consumer. While they have the potential to make credit available to more people who may not have otherwise qualified, do they raise issues of illegal bias? Does an underwriting model create a disparate impact on a particular protected class? New companies and companies deploying new technology should understand and ensure their products and services comply with existing laws, such as the Equal Credit Opportunity Act, that apply to all creditors—even those that are not banks. Lenders who operate without considering these questions may be accruing underappreciated financial risks and reputational liabilities.
Second, are existing laws and regulations adequate? I understand that earlier today, you heard from Congressman McHenry, who has been a real thought leader on these issues, about his views on the adequacy of the current statutory framework.
Third, do innovative activities, products, or services present a need for entirely new regulation or law to protect the public’s interest or prevent risk to the broader financial system?
The fourth type of policy question regarding innovation involves answering should innovation be regulated and, if so, “who” should be responsible for regulating an organization or activity. To some extent, the conversation about whether there should be a national substantive law or a federal license or charter for marketplace lenders and fintech firms is part of answering the question of “who” should regulate the activity.
We have heard voices on both sides of whether to grant federal banking charters to fintechs. Some have suggested that federal charters could ensure that fintechs engaging in banking activity receive rigorous, bank-like federal regulation and ongoing supervision. This may also provide a more level playing field for financial services offered on a national scale. Others have suggested that federal charters could help fintechs better navigate the existing regulatory landscape by consolidating oversight, reducing licensing burden, and applying a single uniform set of rules
On the other side, some have expressed concerns that, if granted a limited charter, companies might face lighter supervision or fewer consumer protections would apply. Others expressed concern that fintechs may seek federal charters to avoid consumer protections granted by state laws. The agency faced similar questions when it granted the first charter for Internet based banks in the late 1990s.
If we at the OCC do decide to grant limited-purpose charters in this area, the institutions who receive the charters will be held to the same strict standards of safety, soundness, and fairness that other federally chartered institutions must meet.
These four types of policy questions are among the many that our Innovation Framework Development Team is considering in their work to create a framework to enable the OCC to assess responsible innovation.
One. The framework will support responsible innovation.
Two. The framework will foster a culture within the OCC that is receptive.
The U.S. Comptroller of the Currency said on Tuesday his agency plans to complete this autumn a framework to regulate marketplace lending, citing concerns that new financial-technology innovations may pose risks to consumers and the banking system.
New York based Sharestates, one of the US online real estate crowdfunding platforms, announced today that it has surpassed $1 billion in committed capital for the purchase of loans.
Sharestates launched its full operation less than two years ago in February of 2015. Since then, the firm has originated over $150 million in loans across more than 210 projects, with an average loan size of approximately $728,000. To date, Sharestates has returned over $50 million to investors with an average return rate of 11.36% for 2016, with zero loss of principal. Sharestates’ current trajectory has it on a $25-$30 million month to month origination volume, leading it to break over $200 million in originations by years end.
To compete in the market, Sharestates leverages proprietary technology and a close partnership with The Atlantis Organization, which – founded by Radni Davoodi and Raymond Y. Davoodi in 2004 – has become one of the nation’s leading title agencies with over $4 billion in closed transactions.
Only 48 percent of small- and medium-sized businesses said they can get financing at rates below 8 percent, according to a new survey from C2FO, a financial technology startup that has created a marketplace where small- and medium-sized businesses can get paid early by the large companies they supply. The inaugural such survey, released last year, showed nearly 60 percent of respondents were able to secure funding at rates below 8 percent.
C2FO canvassed more than 1,800 small- and medium-sized businesses (SMEs) in the U.S., U.K., Germany, France, and Italy, with 80 percent of those firms having $2 million or less in gross annual revenue. It found borrowing was priciest in the U.K. and the U.S. with 42 percent and 47 percent of SMEs borrowing at a rate of below 8 percent, respectively. That compares with 52 of respondents in France, 51 percent in Germany, and 58 percent in Italy.
An apparent higher cost of capital has caused some of these firms to look at other sources, such as peer-to-peer, or marketplace, lending that involves directly matching would-be borrowers with lenders. On average, 18 percent of respondents in each country reported using peer-to-peer lending at some point.
More expensive credit in the U.S. stands somewhat at odds with the most recent survey from the National Federation for Independent Business (NFIB), which showed just 3 percent of small business owners reporting in July that their borrowing needs were not satisfied — 1 percentage point above the record low reached in September of last year. Still, the NFIB small business optimism survey has been sputtering with sentiment making little to no improvement over the last year, falling 0.2 point in August to a three-month low of 94.4.
“Uncertainty is high, expectations for better business conditions are low, and future business investments look weak,” NFIB Chief Economist Bill Dunkelberg said in a statement. “Our data indicates that there is little hope for a surge in the small business sector anytime soon.”
MeasureOne, a higher education data and analytics firm focused on the $1.4 trillion-dollar student loan market, today announced $2.3 million Seed financing led by Socratic Ventures along with Colchis Capital and University Ventures. The investment will allow MeasureOne to expand its rich data repository and analytics capabilities to help higher education institutions and lenders invest in talent, with better insights into student risk and potential.
MeasureOne specializes in data-driven insight for the higher education finance industry, and its most recent report on private student lending shows that families are effectively managing their private student loans.
MeasureOne, founded in San Francisco with offices in Dallas, TX and Ahmedabad, India. MeasureOne is applying data science and industry expertise in order to increase understanding of student loans and empower student loan lending, risk assessment, repayment, capital market investments and public policy development.
A new species is prowling America’s most obscure industry conferences: the data hunter.
In one recent example, Mr. Haines discovered a mobile advertising company that also collected data on the type of device someone was using when displaying an ad to them. The data helped estimate iPhone sales ahead of Apple Inc.’s announcements in 2011 and 2012, and it was lucrative for Mr. Haines’s old company, Quanton Data.
Erik Haines, head of data and analytics at New York-based Guidepoint Global LLC, trawls the globe for meaningful data to sell to hedge-fund clients.
Hedge funds and other sophisticated investors are increasingly relying on intermediaries like Mr. Haines, 35 years old, as they seek insights into a company’s sales and health that aren’t readily available from conventional sources.
Gone are the days when a hedge fund would call up a random sampling of Aéropostale stores to ask managers about sales or simply visit big-box retailers to get a feel for the traffic.
The firm struck a deal with a large insurance company to find out every day what kinds of cars received insurance policies, a possible indicator of how sales are going for automobile manufacturers. Another deal is with a company that surveys construction permits across county municipal offices, which is a “proxy for construction activity,” he said.
There are also companies set up to create exhaust. In those cases, often a person’s data is the price of a free phone application or service. For example, app provider Slice Technologies Inc. lets users track the arrival of packages to their homes in its signature Slice app or block spam through another service it owns called Unroll.me without charge. But in exchange for those services, about four million users allow the company to read their emails. Slice, in turn, also analyzes receipts and other data in a person’s email which it packages into anonymized data for advertisers and hedge funds. It might showAmazon.com Inc. selling more of a particularly profitable item or an increase in Netflixsubscriptions, which investors can use as a factor in their trades.
Steve Schwarzman, Blackstone CEO, interview analysis, (Termsheet, Email), Rated: AAA
Dan Primack in Termsheet reports:
“Blackstone boss Steve Schwarzman was interviewed at a CNBC conference yesterday by Becky Quick, and said four things of particular interest: (1) He believes much of the hedge fund industry will deviate from 2/20 due to performance troubles; (2) When asked what Blackstone’s stock price drop over the past year is a reflection of, he replied: “That’s a reflection that investors are wrong.” (3) The Fed will eventually raise rates (in part because the media is “daring” it to do so), but he believes the only real impact will be on financial markets, not on the real economy. (4) He declined to endorse either presidential candidate, and also seemed to accept the idea of changing the tax treatment of carried interest, as part of a more comprehensive tax reform package.”
Comment: We covered these news yesterday. More information today.
Thomas Casey will start his term at Lending Club Sept. 19. He was the finance head at WaMu prior to its sale to J.P. Morgan Chase & Co. in 2008 and was most recently finance chief for Acelity LP Inc.
In mid-July, Lending Club appointed BlackRock Inc. veteran Patrick Dunne as its new chief capital officer, as the company continues to struggle to restore investor confidence after forcing out its former CEO amid a lending scandal. Dunne is well known in Bay Area finance circles, having formerly headed BlackRock’s S.F. office.
A new wave of online marketplaces is offering savers, investors and those running their own super funds much higher interest rates on their cash than they can get from banks.
All use “risk-based pricing”, where borrowers with the best credit scores pay lower rates of interest than those with poorer creditworthiness.
With a bank, everyone who wants a car loan who is considered a good risk pays the same interest rate.
With P2P lenders, the investors say how much money they want to invest, the term and the interest rate they want to receive. Then it is an auction process to match-up lenders with borrowers. [Comment: To my knowledge there are very few P2P lenders who still do reverse auction if any at all ].
While P2P lenders could be a good option as part of a well-diversified portfolio, they are not like having your money with a bank. [Comment:It is in the entire industry’s interest to make sure retail investors have a realistic expectation of risk vs reward of what they are getting into. Unhappy retail investors who have the impression that fraud was committed usually attracts draconian regulation. ]
For banks, just keeping up with customer expectations forces them to run at breakneck speed. To do this, some institutions run hackathons or add bean bags and an open space floor plan.
A new model developed by Israeli fintech hub, The Floor, solves this problem. Four of the world’s largest banks, HSBC, Santander, RBS and Intesa SanPaolo partnered with the the coworking space, looking for better dealflow. In addition, Accenture, KMPG and Intel are also cooperating with the new program.
The Chinese Pando Group, a $250 million venture firm, is an investor in The Floor and also provides a bridge to the East Asian market, traditionally ignored by Israeli companies.
Citi and Barclays also operate fintech accelerators in Israel, but those are focused on seed stage startups and operate as any other accelerator. The Floor targets companies in growth stage that have already raised at least $1.5 million in equity. “The goal is to get these startups integrated in banks,” explained Cohen.
The banks have a final say in approving companies into the coworking space. “We are a boutique coworking space,” said Moises Cohen, one of The Floor’s founders.
The Floor targets companies in growth stage that have already raised at least $1.5 million in equity. “The goal is to get these startups integrated in banks,” explained Cohen.
The Floor’s management team uses their industry connections to dramatically shorten the time it takes a participating fintech firm to get a pilot with a major bank. In at least one case, the team managed to get a startup integrated with a partner in under 2 months.
The model has attracted 10 companies since the hub was founded early this year. The Floor plans to expand that number to 25, or 5% of the fintech firms located in Israel. The new coworking space opened in August in the Tel Aviv Stock Exchange building. Before that, the companies worked in their own spaces. One company relocated from Russia to join The Floor.
China’s structured finance market will continue expanding in both scope and scale, with increased asset-class diversification.
A total of CNY193.4bn (USD29.8bn) of Chinese structured finance transactions were issued in 2Q16, representing a 96% yoy increase. The increase was principally driven by 242% growth in the Asset-Backed Specific Plan scheme, which is regulated by the China Securities Regulatory Commission.
Issuance under the Credit Asset Securitization (CAS) scheme, which is regulated by the People’s Bank of China and China Banking Regulatory Commission and is the leading structured finance market by size, increased 43% yoy. The increase was predominately due to residential mortgage-backed securities (RMBS) and auto-loan asset-backed securities (ABS) issuances, although limited by a significant fall in collateralised loan obligation issuance. Fitch expects both RMBS and ABS asset-classes to maintain the growth momentum in 2H16.
Highlights for 2H16 include the issuance of three non-performing loan (NPL) ABS and two asset-backed note (ABN) securitisation transactions.
The three NPL ABS deals, originated by Bank of China Ltd. (A/Stable) and China Merchants Bank (BBB/Stable) were pilot transactions, as the regulators have restricted the market during the 2008 global financial crisis.
Fitch expects more NPL ABS to be launched in the near-term, as the government has granted quotas of CNY50bn to six commercial banks to help them deal with rising NPL ratios.
The two ABN securitisation transactions adopted a special purpose trust structure similar to CAS scheme, the first time this asset-class has used this structure since inception in 2012. This type of instrument allows non-financial corporates to issue asset backed notes in China’s interbank bond market.
The opening up of the interbank securitisation market to non-financial corporates leads Fitch to expect a continued flow of ABN issuance, as it provides a deeper investor-base than the stock-exchange bond market
A full copy of the report, China Structured Finance Quarterly – 2Q16, can be found here.
While RBI prepares the blueprint to regulate the sector, for some of the pioneers in the field, business is growing at the rate of an average 30-35 per cent on a monthly basis.
Delhi-based Faircent, which started operations around 2014, saw almost more than ten times growth in loan transactions in the last one year, according to Rajat Gandhi, founder and CEO, Faircent. So far, the company has raised close to $3.5 million, with one of the investors being Mohandas Pai, former director at Infosys. On an average, there has been an almost 35-40 per cent growth in monthly business for the company, according to Gandhi. The number of loan requests in the platform too has doubled between April-September 2016, from about 14746 in April to about 29108 in the beginning of September.
Another P2P lending platform, Lendbox, which started operations about ten months back, has already facilitated loans of around Rs 9 crore in its platform. Loan disbursements through the platform has been growing at around 30-32 per cent on a monthly basis, according to Ekmeet Singh, CEO, Lendbox. Further, the company is looking to raise around $3 million from investors.
The industry is expecting RBI to create separate category of NBFCs (non-banking finance company) for P2P lending on the lines of NBFC MFIs (Microfinance Institutions), which in turn is expected to give a strong footing to P2P facilitators.
“Since P2P platforms do not undertake lending themselves, and are mere facilitators, capital requirement of Rs 2 crore, which is at a par with NBFCs, could be too high for most P2P platforms to meet. Hence, we suggested RBI to create a separate category of NBFCs,” according to the founder of a P2P company.
“After RBI came out with draft regulations on P2P lending, there has been an increase in interest in the sector from institutional investors as well as borrowers and lenders. We are in advanced stages of discussions for raising around $3million to fund growth,” said Singh.
Micrograam, a rural-centric P2P firm is looking to raise around Rs 10 crore from investors, said Rangan Vardan, founder, Micrograam. At present, the capital base of the company is close to Rs 2.5 crore. The company has facilitated lending of about Rs 21 crore in the last five years. In 2014, the company had roped in V Balakrishnan, former Chief Financial Officer of Infosys, as its chairman.
Hyderabad-based i-Lend, which started operations around 2013, has been going slow in lending, but is expecting a surge in business and institutional lending after RBI comes out with final guidelines on P2P lending. The company is looking to raise around $1.5-2 million from investors.
“At present, we are growing at a rate of around 15-20 per cent on a monthly basis. We are present in three cities–Hyderabad, Chennai and Chandigarh. We are planning to expand to Bangalore soon. The sector is waiting for RBI guidelines. Once it comes out, institutional investments are likely to increase significantly,” said Shankar Vaddadi, Founder & Director, founder and director, i-lend.
There are about 40 [P2P lending] entities in the country, according to Xeler8, which tracks startup activity in the country. Mohandas Pai, who has backed Faircent, said the Reserve Bank of India’s regulatory guidelines will bring clarity, which will attract more players and intensify competition.
On the other hand, regulation may also lead to many players shutting shop if they’re unable to meet requirements such as maintenance of Rs 2-crore capital and an interest rate cap, which were published in the RBI’s discussion paper in May.
“I know of at least five startups from this space that will have to shut down once the final guidelines are out,” said Sunil Kumar, founder, Bengaluru-based P2P startup Loan-Meet, which has been bootstrapped since it started operations last year.
News Comments United States A very interesting read. A great forward facing article showing how bank’s VC arms invest, what they invest in and what to expect. What bank’s VC arms invest in is a great indicator and instigator of what will happen in a few years. An interesting article about a Rocket Internet alumni […]
A must read ! N26, a fintech company in Germany, got a banking license. N26 said the license will let it offer savings, investment, credit and insurance products from partners. N26 said it plans to offer new services, including the ability for consumers to split expenses like restaurant bills directly from their phones, and that it plans to generate more revenue from credit card transactions and commissions from partners.
An article showing the interest rate context in India. The author, however, claims there is no chance for a Lufax-type of fraud to happen in India. This is a ridiculous claim. India is a large country, not extremely centralized, where it is very hard to enforce regulation and with $1bil people, a large majority of whom are not sophisticated in finance. I expect that India will be 2nd only behind China in the amount of fraud expected in the p2p lending sector.
Looking at bank CVCs only provides part of the picture on future trends, as banks can swallow and incorporate innovative private companies through private equity arms or through mergers and acquisitions.
h.Ds will be written about millennials and generations to come: Their mobility — geographic, in the job market, in the way they communicate, purchase and do business — is already established as one of their pivotal traits.
Banks are capitalizing on this mobility and reacting to it.
Banks can’t innovate alone. Saddled with legacy systems, heavy regulations and cumbersome workflows, banks just can’t move as fast as startups. But startups, in turn, need the banks…The future is about partnerships.
BBVA, for example, launched Innova Challenge, an initiative that promotes open and collaborative culture between the bank and developers, with the aim of including a larger community in creative and technological development. BBVA opened its platform to the developer community through an API. Citi also opened up its APIs to developers through its Citi Mobile Challenge.
“Many fintechs have succeeded but today they are still operating only at the edges of banking,” explains the Santander Group in a recently published white paper about the future of fintech, titled Fintech 2.0. “To help engineer more fundamental improvements to the banking industry, they must now be invited inside, to contribute to reinventing our industry’s core infrastructure and processes. That can succeed only as a collaborative endeavor, with banks and fintechs working together as partners.”
Funny enough, Deutsche Bank also recently published a white paper under the same title and a similar theme though focused on payments.
One company trying to fit into the circle around banks is Spotcap. Founded in 2014 by Toby Trebel and Jens Woloszczak, Spotcap provides lines of credit to SMBs in Spain, Australia, and the Netherlands. Incubated and backed by Rocket Internet, the Berlin-based online lender uses both technology and experience to determine an SMB’s creditworthiness; Internally-developed algorithms and smart contracts combined with a human review board determine if an SMB qualifies for a credit line.
Spotcap has only been in the Netherlands for 15 months and is still small, only underwriting $50m in the first half of 2016. Although it’s a drop in the bucket of the regional lending market, Spotcap has grown 500% year over year and has less that a 1% default rate since it started lending in the Netherlands.
What makes Spotcap different from other online lenders is its approach to incumbent financial institutions. Currently, 25% of Spotcap’s loan book is in piggyback loans with banks — where two or more lenders underwrite a loan together. For example, an SMB needs a $1 million loan, but a bank feels the maximum secured loan they can offer is $750k. The bank then contacts an unsecured lender like Spotcap, which evaluates if the SMB qualifies for the remaining $250k. If so, the bank packages the two separate loans, and the SMB pays both the bank and the unsecured lender. Banks win with piggybacked loans since they gain a new customer while staying in their lending comfort zone, and also make more money.
Unless the Armageddon or zombie apocalypse happens anytime soon, banks will likely remain the backbone of finance. Spotcap, and other innovators like it, have an opportunity to work closely with bank partners.
The online retailer has entered into a partnership with San Francisco lender Wells Fargo& Co. in which the bank’s student-lending arm will offer interest-rate discounts to select Amazon shoppers. The discount will be offered both to students who want loans to attend college and those who want to refinance existing loans. The offer also represents the latest effort among private student lenders to stand out by discounting in an increasingly competitive market. Many offer discounts to customers who set up recurring payments to pay back their loans automatically or for loan refinancings by graduates who are members of professional associations.
Wells Fargo, the largest U.S. bank by market value and the second-largest private student lender by origination volume, will shave a half a percentage point off the interest rate on student loans it extends to applicants who are members of Amazon’s Prime Student. The subscription-based service charges $49 a year, half the cost of Amazon Prime, and offers free two-day shipping and unlimited instant streaming of movies, among other perks.
Wells Fargo and Amazon have been in discussions for more than a year about the partnership, which is set to be announced and made available Thursday.
The companies aren’t compensating each other for what Wells Fargo describes as a multiyear agreement that will reach millions of potential borrowers.
Private student lending, which plummeted during the recession, is rising again. Five of the largest private student lenders, including SLM Corp., better known as Sallie Mae, Wells Fargo and Discover Financial Services Inc., distributed $6.46 billion in loans between July 2015 and March 2016, up 7% from the same period a year earlier–and the fifth consecutive year of increases, according to data released this month by MeasureOne, a San Francisco firm that tracks the market.
The discount could give Wells Fargo a competitive advantage to other lenders. Its interest rates are close to the interest-rate ranges Discover and Citizens Financial Group, which has been rapidly expanding into student loans over the last couple of years, charge. A half-percentage-point discount could make its loans more affordable than competitors for some borrowers.
Blackstone, the world’s biggest alternative investment manager, expanded its empire to record size in the second quarter as assets under its management surpassed $350bn for the first time.
Blackstone’s economic net income — a measure of earnings which includes unrealized gains on investments such as buyouts and real estate — was $520m in the three months ended in June, increasing only 2 per cent on the same period last year, the group said in results on Thursday.
But its total assets under management rose to $356bn, a 7 percent increase on the year and a new record for the group, which broke the $300bn barrier in April last year. Assets on which Blackstone earns fees for managing them rose to $266bn.
Blackstone funds have received over $130bn of net inflows since the beginning of 2015.
Blackstone’s buyout unit reported a 2.5 percent increase in the value of its stakes in private and public companies during the quarter, suggesting that the big private equity groups have begun to recover from the volatility of the year’s first half.
Blackstone’s credit investing arm posted gross returns of 9.7 per cent as its funds benefited from a rebound in debt markets in recent months, especially in loans tied to energy companies, as oil prices have increased.
Mr Schwarzman and chief operating officer Tony James both emphasized repeatedly that they “only need” to buy a few assets every year, insulating their performance, they say, from economic trends and market volatility.
N26, a Berlin startup that offers financial services directly to consumers, said Thursday it’s received a German banking license that will let it offer a fuller range of products across Europe.
The company, whose mobile app lets European consumers maintain an account, transfer money and pay by MasterCard from their smartphones, said in a statement it’s now licensed as a bank by the European Central Bank and Germany’s BaFin financial supervisory authority. The startup, which changed its name from Number26, said the license will let it offer savings, investment, credit and insurance products from partners.
N26 said it plans to offer new services, including the ability for consumers to split expenses like restaurant bills directly from their phones, and that it plans to generate more revenue from credit card transactions and commissions from partners.
The Berlin startup counts the Silicon Valley billionaire Peter Thiel among its investors, and in June landed a $40 million investment round led by Hong Kong billionaire Li Ka-Shing’s Horizon Ventures. The U.K.’s TransferWise Ltd., which offers a digital service for money wiring, also counts Thiel and billionaire Richard Branson as investors. And so-called robo-advisor Betterment LLC secured $100 million in funding this year, led by Sweden’s Investment AB Kinnevik.
Under questioning from Chris Philp (MP for Croydon South), Bailey confessed that he is “pretty worried” about certain aspects of the UK’s P2P market. Bailey says that peer-to-peer lending investments are at the asset management end of the investment spectrum, the opposite end to bank deposits. But Bailey believes that the platforms’ marketing efforts do not always reflect that positioning. “I am pretty worried about some of the things that are said about these funds when they’re sold to people,” he said. “Some of the things that you read is that they get very near, but not quite there, to promising capital certainty”.
At yesterday’s meeting, Philp said that peer-to-peer lenders have an incentivisation mismatch, in that their fees are tied to transactional volume, but without taking any balance sheet risk. Philp said that this is exactly what happened with the “origination and syndication of sub-prime loans in the US in the run up to 2008”. Philp later put a question to Bailey: “Why not require the platforms to co-invest let’s say 10% of the loan value on their own balance sheet, either pari-passu or even the first loss piece? If their own money was on the line, alongside that of consumers’, that would concentrate their minds when it came to making good credit decisions”.
That’s how much Ratesetter increased its expected future losses on Thursday, “partly to reflect greater economic uncertainty due to external events”. The online lender, which is one of the UK’s top three, added £3m to the £13.9m of expected claims on its provision fund, which serves as protection against defaults for its retail investors.
Those “external events” are presumably a reference to Brexit, but skeptical readers might also remember the higher than expected defaults on its 2014 cohort of loans. At the start of that year, Ratesetter had expected a 2.07 per cent default rate. So far, defaults on the 2014 cohort of loans have reached 2.915 per cent. It’s also worth noting that last month Ratesetter brought on board a new chief risk officer, Cyrille Sallé de Chou, who joined from Lloyd’s.
The provision fund is paid for in part by an upfront borrower payment and in part by payments spread over the lifetime of the loan. Until now those future payments were not included in the calculation of the current value of the fund, now it is.
“The value of this contractual future income is over £6 million. We have reduced this to £4 million to take into account the fact that some of this income will not be received due to borrowers paying back loans early or defaulting,” said Ratesetter in a blogpost. (Data from Ratesetter’s website suggests a higher number of £4.9m in future fees.)
Without that extra money, it appears that Ratesetter’s expected losses would have been bigger than the provisions in the fund. With the extra money, Ratesetter has around £22m to protect against £17.3m in forecast losses from £612m lent out. The company expects a 2.8 per cent default rate, up from 2.3 per cent.
If at any time, in the opinion of RateSetter, the Provision Fund does not have sufficient funds to cover current or expected borrower default (a “Negative Position”), and RateSetter reasonably believes the Negative Position is not capable of being rectified through the ordinary course of business, RateSetter may declare a “Resolution Event”. If a Resolution Event is declared, we will notify you, along with any other RateSetter Customers entitled to protection from the Provision Fund (the “Eligible Lenders”).
The likes of the £100m Hadrian’s Wall and £150m Honey Comb investment trust are preferable as fixed income alternatives over P2P focused trusts, according to Old Mutual Global Investors’ Paul Craig.
Craig, who runs Old Mutual’s Cirilium range of multi-asset fund of funds which total about £3bn of assets under management, is a fan of the sector. The Cirilium range includes the Old Mutual Cirilium Balanced, Old Mutual Cirilium Dynamic, Old Mutual Cirilium Moderate Old Mutual Cirilium Strategic Income and Old Mutual Cirilium Conservative funds.
The manager has one of the best records of any fund of funds managers since the aftermath of the financial crisis within the Investment Association’s various multi-asset sectors. Craig launched the range back in 2008 and they were originally called the Henderson Cirilium funds having been subsequently sold to Old Mutual Global Investors in 2014 by Henderson.
He owns stakes in three alternative credit funds across the Cirilium range. They are all closed-ended trusts listed on the London Stock Exchange. These are SQN Asset Finance, Honey Comb, and most recently, Hadrian’s Wall – which is the only new investment trust to have floated this year.
Hadrian’s Wall is targeting a yield of 6 per cent and a total return of 7-8 per cent by offering exposure to loans to UK SMEs secured by underlying assets and collateral. Loans target mid-market sized firms with annual revenue between £1m-25m.
“Hadrian’s wall is a prime example. For us as multi-managers we can look at all the new issues that come to market and we don’t need to pigeonhole as to whether it is P2P or direct lending or whatever.We buy on the merits.”
“We have been somewhat absent from the P2P space not because we think it is a bad investment class but more that it is such a new class that it is not tried and tested and we just do not know how the rating will react in less certain times. The beauty of the likes of Hadrian’s Wall versus P2P is that there is a bit more granularity and because we are running diversified portfolios we are quite happy to take that concentration of credit risk within the portfolio because we don’t need the additional diversification within the portfolio.”
“The granularity of these portfolios makes it easier to calculate the net asset value (NAV) of these portfolios, Craig says, which he thinks will equal less discount sensitivity than from the likes of Hadrian’s Wall compared to P2P-focused trusts. Also, while it is hard to know what will happen with interest rates, as long as Hadrian’s Wall are able to make loans to good quality businesses, and that they are able to repay, then we can expect a return of close to 10 per cent per annum. For us that is very attractive because it is providing us with a return that is not dissimilar to equity but with far less risk than equity and very little in the way of interest rate risk.”
Since launching in 2014, Lending Crowd has facilitated loans totalling £6 million to scores of borrowers and have over 2,000 investors signed up to our platform. Deals range in size from £20,000 right up to over £1m – last year we teamed up with Diet Chef to complete one of the biggest ever peer-to-business deals seen in the UK in a £1.5m debt finance transaction.
1. The recent development of online alternative finance
In order to maintain the role of international financial center, the financial authority of Hong Kong has been aware of issues relating to Fintech industry. On November 13th, 2015, Stored Value Facilities Payment Systems, such as online stored payment business as PayPal, is allowed to operate by non-bank. This is a milestone for Hong Kong including non-bank of operating business highly relevant to conventional bank.
2. Relevant industry background
On one hand, from viewpoints of investors, the deposit rates of savings are from 0%~0.001%. Even the deposit rates of fixed deposit of 12 months are from 0.15%~0.2%. Additionally, inflation rates are around 4% continuously in 2013 and 2014, which means the real interest rate may be negative in Hong Kong. Accordingly, there are strong incentives for investors to vitalize their capital.
On the other hand, from viewpoints of borrowers, there are two fundraising channels for loans, including banks (Licensed Banks, Restricted License Banks, Deposit-taking Companies) and Money Lenders. Since the financial authority restricted the mortgage market of banks to prevent a real-estate bubble, it is difficult for borrowers to get the loan amount they need from banks by mortgage. As a result, they turn to Money Lenders as an alternative opportunity. Although the interest rates of Money Lender are generally higher than banks, compared with banks which normally take 1-6 weeks for examining procedure, the process of Money Lender is more simplified.
The market scale of Money Lenders in Hong Kong is approximately 30.5 billion HKD (3.9 billion USD) and 6.6 billion HKD (852 million USD) in mortgage market in 2013. And the top 10 Money Lenders share 53.9% of this market. Though peer-to-peer platforms in Hong Kong are still at an initial stage, with strength of technology, they can provide relatively lower interest rates and attract more investors by Internet.
On May 7th, 2014, the financial authority, has issued a notice regarding risks and legal compliance of crowdfunding since crowdfunding has become a widespread idea and business model in Hong Kong. The Chief Executive Officer, Securities and Futures Commission has also indicated “Parties seeking to engage in crowd-funding activities should be aware that a breach of the relevant laws could lead to serious consequences including criminal liability.”
Accordingly, a company operating or advertising as a lending business, such as peer-to-peer lending, may need a license in Hong Kong.
Is P2P lending in India is growing fast enough or can we grow faster? Or should we grow at breakneck speeds seen in sectors like transportation that propelled the likes of Ola and Uber into stratosphere?
The Indian P2P space, in fact continues to grow steadily and see good traction. While there are no official figures, if one has to extrapolate our figures, we have grown eight times in the last six months in our loan disbursals. In fact, this is true for the entire Fintech space. In 2015 the space exploded, but it has not shown signs of weakening. According to a Tracxn and Blume Ventures report about $103 million was raised across 22 rounds in 2015 in the Fintech space. About halfway through the year, 2016 has seen $68million being raised and if this trend continues, this year would be better than last year. Compared to 2013 when only $4 million was raised and 2014 when $18 million was raised, the sector has grown leaps and bounds. The report states that the big boys of the investing world, including the likes of Sequoia Capital, Accion, Apsada Investments, SAIF Partners, and Walden International are the most active investors in Alternative Lending in India.
P2P sector in India is still at a very early stage when compared to a country like the US and the UK.
An Economic Times report points out that for the first time since March 2011, the country’s consumer durables sector witnessed three months of consecutive double-digit growth during the festival season last year. Banks grew their personal loan portfolio by 17.3% year-on-year in August 2015 compared with 12.8% a year ago.
Another aspect of P2P loan is the borrowings made to start a business. The government’s key focus around Make in India and Startup India has meant people’s entrepreneurial ambitions have been spurred and most now dream of having their own business.
In India things are very different and I see very little chance of [cases like Lending Club or Lufax] happening. [Comment: I strongly disagree. India is a large country, not extremely centralized, where it is very hard to enforce regulation and with $1bil people, a large majority of whom are not sophisticated in finance. I expect that India will be 2nd only behind China in the amount of fraud expected in the p2p lending sector. ]