- Today’s main news: French crowdfunding leaders make 2017 wish list.
- Today’s main analysis: California Supreme Court says payday lending businesses are not arms of the tribes.
- Today’s thought-provoking articles: UangTeman adopts P2P, OJK bars balance-sheet lending.
- California Supreme Court denies tribal sovereignty immunity for payday lenders. GP:” The tribal structure is not very popular in the marketplace lending space. Therefore I don’t think this is a big deal.” AT: “The important sticking point here is structure. If tribes want sovereignty immunity, then they must act sovereignly. That means no partnerships with non-tribal entities, evidently. More interestingly, there could be stark implications for marketplace lenders across the board: Pay attention to structure.”
- Why the unbanked are unbanked, and what can be done about it. AT: “Smartphones. Interestingly, Jaimie Anzelone points out that the unbanked are not necessarily unbanked out of necessity. It’s a choice. She encourages FinTech leaders to meet them where they play–on their phones. I can’t disagree, but it does involve winning their trust.”
- How will marketplace lenders fare in an economic downturn? GP:” I believe it’s all about underwriting quality and sticky funding.” AT: “Quite a legitimate question. My guess is, some will thrive and others dive.”
- Will banking disappear? GP: ” Banking will not dissapear. The tools we use for banking will change.” AT: “A bit of hyperbole. In reality, banking will have to change, and we see it happening now as we speak. The question is, will banks go completely digital?”
- Capital One encourages SME FinTech adoption.
- French crowdfunding leaders predict strong market, ask for tax incentives. AT: “The interesting thing here is that several of the interviewees mentioned tax incentives similar to what the UK offers. If that were to happen, the French crowdfunding sector could explode.”
- Top FinTech trends in Sweden for 2017.
- Mobetize Mobile includes real-time social biometrics ID verification.
- Katipult selected for Hong Kong FinTech mission.
- United States
- California Supreme Court Declines to Extend Tribal Sovereign Immunity to Payday Lending Businesses (JD Supra), Rated: AAA
- Using FinTech to Level the Financial Playing Field (Finextra), Rated: A
- How will fintech lenders cope with an economic downturn? (Econsultancy), Rated: A
- Banking ‘Disappears,’ and Other Fintech Predictions for ’17 (American Banker), Rated: A
- Capital One Collaborates To Encourage SME FinTech Adoption (PYMNTS.com), Rated: B
- European Union
- French Crowdfunding Leaders Predict Strong Market Growth, Call for Better Investor Tax Incentives in 2017 (Crowdfund Insider), Rated: AAA
- Top fintech trends in Sweden in 2017 (Computer Weekly), Rated: B
- Fintech startups flourish in 2016, mostly in lending (The Jakarta Post), Rated: B
- Mobetize Mobile smartLoan Platform to Include Real-Time Social Biometrics Identity Verification (Military Technologies), Rated: A
- Katipult selected as 1 of 6 firms for Hong Kong FinTech mission (Digital Journal), Rated: A
- UangTeman to Adopt Peer-to-Peer Service as OJK Bars Balance-Sheet Lending (Jakarta Globe), Rated: AAA
- Campfire closes $ 2.9m investment to fund social lending expansion (Deal Street Asia), Rated: A
California Supreme Court Declines to Extend Tribal Sovereign Immunity to Payday Lending Businesses (JD Supra), Rated: AAA
On December 22, 2016, the California Supreme Court issued People ex rel. Owen v. Miami Nation Enterprises. The decision found that certain tribal business entities that provided loans in California are not “arms of the tribe” entitled to immunity from California state law regulating payday loans.
In 2005, two federally recognized tribes, the Miami Tribe of Oklahoma and the Santee Sioux Nation, created business entities under tribal law for the purpose of offering online payday loans throughout the country. These tribal entities hired a series of management companies to operate their payday lending businesses.
In 2007, the State of California sued the tribal entities for violating state law by providing payday loans without a license and exceeding statutory limits on the size of the loans and related fees. A state Court of Appeal sided with the tribal entities, concluding that they shared the tribes’ immunity because of several formal ties.
The California Supreme Court reversed. The court first announced a five-factor test for determining whether a tribal business entity is entitled to sovereign immunity as an “arm of the tribe.” California courts must consider “(1) the entity’s method of creation, (2) whether the tribe intended the entity to share in its immunity, (3) the entity’s purpose, (4) the tribe’s control over the entity, and (5) the financial relationship between the tribe and the entity.”
The California Supreme Court’s decision is notable for its potential impact on the marketplace lending industry and the body of law that governs the applicability of state usury and consumer protection law to marketplace lending models.
- Moreover, it may be more difficult for a tribal entity to establish immunity under this test than it is for a marketplace lender to demonstrate entitlement to federal preemption under the National Bank Act or Depository Institutions Deregulation and Monetary Control Act. If so, this could influence marketplace lenders either to pursue a special purpose national bank charter or to coalesce around a bank partnership model instead of a tribal lending model.
- The payday lending arrangements, by contrast, eliminated part of that risk by guaranteeing a minimum monthly payment to the tribal entities. This suggests that an important touchstone in the tribal immunity analysis will continue to be the exposure to business-related risk the various parties bear in a lending arrangement.
- The California Supreme Court’s approach to tribal immunity arguably mirrors recent decisions applying the so-called “true lender” doctrine to analyze not just formal, but also functional aspects of a marketplace lending arrangement in determining the applicability of state law. Relevant to the court’s decision in this case were the tribe’s limited ongoing financial stake and limited actual control over lending decisions. This substance-over-form approach parallels the analysis in cases like Consumer Financial Protection Bureau v. CashCall (covered here) and diverges from the focus on the formal nature of the lending partnership in Beechum v. Navient Solutions, Inc. (covered here).
Using FinTech to Level the Financial Playing Field (Finextra), Rated: A
Individuals without bank accounts, or the “unbanked” as they’ve been unceremoniously dubbed, account for 7% of all Americans. Without a bank account, they are disconnected from the financial ecosystem, making it hard to become financially stable, save, build credit history, safely transfer money, take out a loan or seek financial advice. Dangerous stereotypes lead us to believe that the unbanked are poor, uneducated and trapped in a cycle of living paycheck to paycheck. The truth is, this overlooked demographic remains unbanked for practical reasons:
- It’s Expensive to Maintain a Bank Account – Average fees to maintain a checking account have tripled in the last four years. Today, most banks require a minimum balance or direct deposit to keep an account open or these fees from being waived.
- Lack of Trust in Banks – Straight forward pricing is important to a consumer, but banks lack transparency and uniformity, especially when it comes to fees.
- Check Cashing Services = Convenient & Easy – While they do charge a service fee at a high rate, the fees are clearly listed and visible for the consumer to see. This builds the trust and familiarity with consumers that has proven difficult for banks to achieve.
- They Just Don’t Want a Bank Account – Enough said.
A 2015 study conducted by the Federal Reserve System found that 40% of unbanked Americans have access to a smartphone. This high rate of mobile penetration presents a huge opportunity for FinTech to revolutionize the position of the unbanked in the financial ecosystem.
How will fintech lenders cope with an economic downturn? (Econsultancy), Rated: A
Today, non-bank lenders, many of them generating leads and conducting business primarily or exclusively online, are big players in the lending markets, in many cases having taken market share from banks.
These include direct lenders like Sofi, Avant and OnDeck Capital, as well as marketplace lenders like LendingClub and Prosper.
Not only have fintech lenders brought much if not all of the loan application process online, they created user experiences that made it easy for consumers and business owners to complete that loan application process quickly and without hassle.
Many fintech lenders have developed their own proprietary lending models, which are often different than those traditionally used by bank lenders. Some boast of using thousands of data points to evaluate borrowers and even relying very little on credit scores from the major credit bureaus.
But there’s a problem: the vast bulk of the loans fintech lenders have issued were issued after the Great Recession, and thus, the underwriting models they have been using haven’t been battle tested against an economic downturn.
According to Bloomberg, several bonds issued by Avant, an online lender that offers personal loans, have breached or are expected to soon breach delinquency or default triggers for the first time ever.
But given that non-bank lenders have been among the most willing to lend to borrowers that wouldn’t pass muster with banks, it’s entirely possible that they could be at greater risk for loss than most have anticipated when the next recession hits.
If that happens, it could offer bank lenders an opportunity to win back business they have ceded in the past eight years by applying some of the fintech lenders’ innovations around user experience.
Banking ‘Disappears,’ and Other Fintech Predictions for ’17 (American Banker), Rated: A
Whether it’s through IoT devices, fintech platforms, virtual assistants or chatbots, people will likely spend more time connecting to their money through such channels and less time directly interacting with their banks.
APIs “will serve as the keystone joining fintech companies and financial institutions to accelerate banking’s digital transformation and better meet the shifting demands of consumers,” Suresh Ramamurthi, chairman and chief technology officer of CBW Bank in Weir, Kan., said in an email. “2017 will also see open APIs support a ‘marketplace approach’ to banking that will empower financial institutions to develop services that better anticipate emerging market needs across multiple business verticals, delivering tangible value to both businesses and consumers.”
In its predictions for 2017, the core systems provider Jack Henry noted that the adoption of digital channels for small-business banking presents “a way to drive revenue from the self-service revolution.” In other words, the more digital a banks can make its small-business banking unit, the more it can fatten a thin-margin business. Digital services bring efficiency to the business, but digital platforms also allow banks to incorporate other fee-based services to their lineup.
One of the reasons banks are looking to improve their digital products for business is to bring them to parity with consumer products. Entrepreneurs and business leaders often complain that the digital products they use in their business life pale in comparison to those they use in their personal life.
Capital One Collaborates To Encourage SME FinTech Adoption (PYMNTS.com), Rated: B
Capital One Spark Business is today announcing a new effort to push SMEs over the edge from being interested in FinTech to actually adopting it. The unit is now looking to establish an ecosystem of SME FinTech partners — the first of which, announced today (Jan. 10), are business payments firm Bill.com and SME HR company Gusto.
French Crowdfunding Leaders Predict Strong Market Growth, Call for Better Investor Tax Incentives in 2017 (Crowdfund Insider), Rated: AAA
France is the second largest European crowdfunding market after the UK. We asked the CEOs of France’s leading crowdlending and crowdinvesting platforms to share their hopes, wishes and predictions for the sector in 2017.
Stéphanie Savel, CEO of equity crowdfunding platform WiSeed
“The challenge faced by the French crowdfunding sector, and in particular by the equity crowdfunding, is to demonstrate its capacity to channel French consumer savings towards productive investments.”
“The change I would like to see is that platform regulation and investor taxation become as favorable for crowdfunding in France as they are in the UK.”
Olivier Goy, CEO of crowdlending platform Lendix
“We believe that 2017 will comfort crowdlending as an actual alternative for business finance. One or more platforms (including Lendix, of course !) will pass the milestone of financing €100 million worth of loans in a single year.”
Thomas de Bourayne, CEO of crowdlending platform Credit.fr
“In the same vein, closing good partnerships with traditional banks and institutional investors will be key. Any government measure that will help directing French savings towards SMEs through crowdfunding platforms will be the icing on the cake.”
“Disappointment with traditional asset classes will drive a growing number of retail investors to turn to crowdlending for better returns and stronger social and economic impact.”
Joachim Dupont, CEO of equity crowdfunding platform Anaxago
“In 2017, the higher returns as well as the depth, breadth, and quality of the assets it offers to investors, will enable crowdfunding to gain more visibility and reach new highs.”
“The change I would like to see for the French crowdfunding sector is stronger tax incentives for crowdfunding investors, in line with those offered in the UK.”
Top fintech trends in Sweden in 2017 (Computer Weekly), Rated: B
Sweden has grown into one of Europe’s major fintech hotspots, with Stockholm-based payments companies Klarna (valued at $2.25bn) and iZettle ($500bn) leading the way.
The goal of the new directive is to level the competitive playing field, make payment services more secure and promote innovation. Key to these plans is the requirement for banks to open up their application programming interfaces (APIs) for qualifying payment service providers to access.
David Fock, CPO at Klarna, said personalisation through artificial intelligence (AI) and deep learning would be key trend for Sweden’s fintech sector.
Fintech startups flourish in 2016, mostly in lending (The Jakarta Post), Rated: B
As many as 135 fintech startups emerged as of December last year compared to only 51 in the first quarter of the year, OJK strategic management deputy commissioner Imansyah told a press briefing on Tuesday.
The OJK has yet to identify the types of fintech services the flourishing startups offer, with products ranging from payment, lending, insurance to capital markets.
“But most of them are P2P lenders,” Imansyah added.
Total transactions within the fintech platforms are forecast to reach US$37.15 billion in 2021, from $15.02 billion forecast in 2016, representing around 19.8 percent growth rate per year during the period, according to data from market statistics portal Statista. (est)
Mobetize Mobile smartLoan Platform to Include Real-Time Social Biometrics Identity Verification (Military Technologies), Rated: A
Mobetize Corp. (OTCQB:MPAY), a provider of mobile financial services (MFS) technology for the multi-billion dollar business to business (B2B) segment of the Fintech as a Service (FAAS) sector, is pleased to announce it has implemented real-time social biometric Digital Identity Verification to enhance Know Your Customer (“KYC”) capabilities to counter online identity fraud for its smartLoan platform.
Our solution will be to analyze social behavioural patterns using an artificial intelligence system together with proprietary machine learning algorithms to determine whether an online identity is authentic, a fraudster or a bot.
Katipult selected as 1 of 6 firms for Hong Kong FinTech mission (Digital Journal), Rated: A
After completing a highly competitive application process, Katipult and five other Canadian fintech companies are selected to participate in the Canadian Fintech Mission to Hong Kong on January 15th – 20th!
Katipult is looking to expand its presence in Asia while already boasting a regional sales office and clients in Singapore, Thailand, Indonesia, and Malaysia.
UangTeman to Adopt Peer-to-Peer Service as OJK Bars Balance-Sheet Lending (Jakarta Globe), Rated: AAA
UangTeman, Indonesia’s first online lending service, is set to change its business model to peer-to-peer lending to comply with the Financial Services Authority’s latest, a top executive said on Tuesday (10/01).
UangTeman is among the local fintechs who use a balance sheet lending model, meaning it distributes funds from its own pocket instead of passing funds from individual or business lenders in a peer-to-peer business model.
Zulkifli’s comments came as a response to OJK’s latest regulation on financial technology released Dec. 29. The regulation forbids any financial technology companies to loan out its own money, to prevent them prying on best debtors from traditional financial firms and banks.
Campfire closes $ 2.9m investment to fund social lending expansion (Deal Street Asia), Rated: A
Tokyo-based crowdfunding site Campfire, which is expanding into the social lending space, has closed a 330 million yen (~$2.9 million) funding round.
To date, crowdfinance in Japan is dominated by the likes of cross-border lending marketplace Crowdcredit and peer-to-peer (P2P) lending platform Maneo, which possesses a first mover advantage given its inception in 2008 and its use of a franchise model that allows people to wihtelabel it.
Coinciding with the investment, Campfire has named Taniya, the founder and chairman of Japanese robo-advisory startup Money Design, as well as someone with expertise in the financial robo-advisory space, as its new chairman while Yusuke Sato, the CEO of Freakout Holdings, and Antonio Kamiya, the CTO of listed firm Fujisan Magazine Service, have joined the company as external directors.They have also added a chief information officer, Hiroue Harada.
An analysis by the Lending Times, a publication covering developments in the alternative investments space, P2P lending has faced slow growth in Japan due to a substantial number of lending options available to consumers, with banks possessing an average lending rate of less than 2 per cent and loan to deposit ratio estimated at 70 per cent.