South East Asia (SEA) is finally embracing financial technology and marketplace lending is at the heart of this boom. The breadth and depth of solutions across FinTech Lending in the region is quite impressive and clearly signifies that a digital revolution is underway in the South East Asian lending industry. Top and Emerging Fintech Sectors in […]
South East Asia (SEA) is finally embracing financial technology and marketplace lending is at the heart of this boom. The breadth and depth of solutions across FinTech Lending in the region is quite impressive and clearly signifies that a digital revolution is underway in the South East Asian lending industry.
Top and Emerging Fintech Sectors in South East Asia by Country
Singapore in particular has become a hub for the nascent fintech lending industry. It is the runaway leader in the region and holds 52% of the market share (both by number of deals and money invested). It is followed by Philippines which accounts for 14%, Thailand 13% and Indonesia 12%.
However, with so many different governments involved, SEA poses an overregulation risk. Already, P2P lenders here have to criss-cross through various layers of regulations that their competitors in other regions don’t have to face.
Singapore Fintech Market: Overview
Singapore has always been known as the technology capital of Asia; MNCs and financial institutions have considered it a natural choice as HQ for their Asian operations. Though Singapore has deep roots in technology and innovation but ironically it got on the Fintech bandwagon rather late. But with the support of regulators, Singapore has established itself as the “Fintech Hub” of South East Asia. Singapore fintech market crossed $83 million in deals during the second quarter of 2017. In 2016, investment in Singapore based fintech companies dropped by staggering 65 percent (US$605 million to US$214 million), as per KPMG International study- Pulse of Fintech. But interestingly the number of deals decreased by only two to 28 during the same period. The main reason for the fall was complicated authorization process for fintechs, but Monetary Authority of Singapore (MAS) is working aggressively to streamline the authorization process, in order to attract more fintechs to Singapore.
“Over the longer term, MAS hopes to see more fintechs using Singapore as a base to pilot and then deploy solutions to other countries within South-east Asia, such as Indonesia and Thailand,” said Mr Chia Tek Yew, the head of financial services advisory at KPMG Singapore.
Monetary Authority of Singapore; the regulatory body has backed the fintech industry right from the get go and that is the reason why Singapore has become the leader in South East Asia. Some of those favorable regulations are mentioned below:
Last year, under the “FSTI” scheme, MAS committed S$225 million (US$164.2 million) over the next five years to foster the innovation ecosystem in Singapore.
It also developed the road map that showed the central bank’s move toward an open Application Programming Interface (API) architecture.
In association with National Research Foundation, it announced the establishment of a dedicated FinTech office to facilitate the use of technology and innovation in the financial sectors (FinTech office to review, align and enhance FinTech-related funding schemes across government agencies).
It also released a consultation paper on proposed guidelines for a ‘regulatory sandbox’ that will enable financial institutions (FIs) as well as non-financial players to experiment with financial technology (FinTech) solutions.
Struck partnership with the Australian Securities and Investments Commission (ASIC) to help FinTech companies from their respective countries scale into each other’s markets and help reduce regulatory uncertainty and time to market and it is trying to strike such more partnerships with other countries as well.
MAS have also announced it will be opening a fintech innovation hub “the looking glass” to promote innovation.
It also released a consultation paper on proposed changes to the payments regulatory framework and establishment of a National Payments Council, whose key initiatives are to promote interoperability and adoption of common standards.
This highlights that though the regulator was slow from the blocks, but has aggressively covered ground to create a supportive environment for the fintech lending community.
Minterest ()- Minterest is a peer-to-business financial technology platform founded by a team of former bankers with more than 120 years of collective experience in corporate and structured finance. It was founded in 2016 by Charis Liau, Ronnie Chia, and Wei Choong Loo. It offers various flexible funding options with interest rate as low as 1% and loan terms ranges from 3-12 months.
Singapore has emerged as an undisputed leader in the SEA region but considering it has always been the gateway to Asia, it will certainly want to have a bigger share of the fintech lending pie. The MAS has laid out a well-thought out road map to attract startups and investments. With a massive demand-supply mismatch in credit, Singapore is poised to witness a marketplace-lending boom.
News Comments Today’s main news: Fitch rates Prosper Marketplace Issuance Trust, Series 2017-1. Zopa raises 32M GBP to start a bank. Evolute raises 5.5M Euro. Capital Match hits S$40M originations. Today’s main analysis: Fintech startups hit purple patch, VCs make a beeline. Today’s thought-provoking articles: 80s generation team made a difference. Family offices eye real estate online. United States […]
Why traditional financial service firms have difficulty competing with tech startups for talent. GP:”Talent moves based on quality of work and reward. If you have the opportunity to build something big and get a bigger reward in the same time, it is hard a proposal that is hard to beat. Intellectual workers are more motivated by seeing what they build then by increasing their salary most of the time.”AT: “Talent geared toward risk and innovation will gravitate toward startups. More conservative employees will gravitate toward traditional firms.”
Zopa completes fundraising ahead of bank transition. GP:”We covered this yesterday but we didn’t connect the raise to the bank license. SoFi and Zopa are looking at banks now. Will the rest of the industry wait to see how this goes or follow behind? Lending Club and Prosper used to be the innovators, are they still truly innovating?”
Fitch Ratings-New York-25 May 2017: Fitch Ratings has assigned the following ratings and Rating Outlooks to the notes issued by Prosper Marketplace Issuance Trust, Series 2017-1 (PMIT 2017-1):
–$311,300,000 class A ‘A-sf’; Outlook Stable;
–$70,670,000 class B ‘BBB-sf’; Outlook Stable.
Collateral Quality: PMIT 2017-1 has a weighted average (WA) FICO score of 706, including 28.1% of non-prime borrowers with FICO scores below 680. The introduction of PMI7, the latest generation of Prosper’s credit model, shifted the company’s risk appetite toward lower credit grades. Due to this, Fitch assigned cumulative gross default (CGD) assumptions for the 36- and 60-month loans in this pool of 13.75% and 20.75%, respectively, increased from previous transactions.
On May 31, 2017, Elevate Credit, Inc. issued a press release announcing the Elastic line of credit product surpassed $200 million in outstanding loans. A copy of the press release is attached hereto as Exhibit 99.1.
On May 25, 2017, Massachusetts Attorney General Maura Healey (“Massachusetts AG”) announced a final judgment and permanent injunction entered in Suffolk Superior Court against an unlicensed online auto title lender, permanently banning the company from operating in Massachusetts and voiding over 200 loans made by the company to Massachusetts borrowers. The judgment also prohibits the title lender from repossessing any of the vehicles connected to the loans, and orders the company to pay $1.135 million in civil penalties and nearly $200,000 in restitution.
Figuring out how best to approach fintech has many traditional financial institutions scratching their heads. According to a report earlier this year, almost 60 percent of them are developing fintech capabilities in house. Of these, only 2.8 percent say they’ve successfully embedded innovation into their company cultures. Even “moderately structured” fintech initiatives challenge these companies; less than a third (29.2%) have managed to implement such projects. Building a creative culture of innovation within a large, risk-averse institution is turning out to be a much more complicated problem than many of them expected.
It’s easy to dismiss big financial institutions as slow and sclerotic compared to startups. In reality, it’s not even fair to compare the two. Traditional banking and financial service firms operate under very different constraints and attract an entirely different type of employee. An engineer who is best suited for a startup likely won’t be a good fit at a traditional firm and vice versa.
Open source libraries, modern software design, the availability of cheap hardware, and the support of venture capital have provided the foundation for the current explosion of startups focused on developing financial technology. These attributes make them a big draw, attracting both top engineering graduates, battle-tested coders, and recent MBAs alike.
Lenders Optimistic that Policy Changes Could Benefit the Lending Environment (Altisource Email), Rated: A
A large majority of lenders surveyed (73 percent) believe the new administration’s policies will have a positive impact on the lending environment, according to the 2017 Lenders One® Mortgage Barometer, a survey of 200 mortgage lending professionals.
Lenders are also ready to make investments in their organizations’ business operations. In fact, 42 percent of lenders indicate their biggest investment is in operational changes (hiring new staff, compliance support and software support), and 25 percent of lenders surveyed say they are currently making the greatest investment in marketing. While these investments are necessary for the industry to keep pace with consumer demand, they may also be driving up the cost per loan, with 65 percent of respondents indicating that the cost per loan will continue to increase.
Regulations Don’t Weigh Quite as Heavy on Lenders in 2017
Lenders are ready for new regulatory requirements, such as updates to the Home Mortgage Disclosure Act (HMDA), with two-thirds (65 percent) indicating they are very prepared for HMDA changes. Yet, the biggest HMDA compliance challenge for lenders is around additional resources needed to report transactional data, such as home equity lines of credit (HELOC) and dwelling secured loans for apartments. While lenders are investing in staff and technology, about one-third (32 percent) of them cite challenges with securing additional resources to report, connect and analyze transactional data.
E-closings See Broad Adoption a Decade after Their Inception
Though 39 percent of lenders report they are not using electronic closings (e-closings) on mortgage loans, a third of those respondents expect their organizations to implement e-closings in one to two years, on average. The majority (61 percent), however, say their organization has implemented e-closings while seasoned lenders — those in the business for 10 or more years — are the predominant category of lenders utilizing them (67 percent).
As banks wade into digital advice, they do so knowing they will need to appeal to every stripe of client, rather than a specific niche.
The strategy then calls for relying on an advantage banks still have over virtual competitors and even wealth management firms, says Mark Jordahl, president of U.S. Bank’s wealth management group: meeting clients in multiple channels, including bank branches.
U.S. Bank is one of several institutions that paired with BlackRock to launch a digital wealth platform, and Jordahl says that it is on track to be launched this year.
As financial technology (fintech) startups enhance collaboration with traditional financial institutions to diversify and modernize financial services, a better understanding of how the regulatory environment impacts a company’s operations is becoming increasingly critical.
Two-way conversations: Regulators have set up new initiatives to allow them to engage directly with fintechs. Many of the regulators have designated a single entry point to make it easier for fintechs to open a dialogue.
Both the CFPB and OCC have begun holding office hours for fintechs in New York and elsewhere and have dedicated personnel to fostering engagement with fintechs.
Dissemination of information: The regulators are interested in learning about new technologies to ensure that information about emerging technology is spread throughout and between agencies.
Clear expectations: Regulators are focused on potential operational risks associated with the use of novel technologies and expect financial institutions to meet high standards for the due diligence and monitoring of their third-party service providers, especially around cybersecurity and data security.
No silver bullet: The regulatory landscape in financial services is complex, and there is no silver bullet for the adoption of new technologies.
Using CB Insights database we identified 5 cybersecurity startups to watch that are working on fighting fraud with a mix of behavioral biometrics and machine learning. We selected these private companies based primarily on CB Insights’ Mosaic scoring algorithm, which uses financial and non-financial signals to assess the health of private companies.
Ravelin offers a fraud detection and prevention platform that allows organizations that rely on online payments to automatically examine customer behavior in real-time and identify fraudsters before they do damage.
Simility offers a fraud prevention platform which combines machine learning and data visualization technology with a rules engine to help protect enterprises from fraud.
Shift Technology is a SaaS company designed to detect potential insurance fraud.
Socure’s social biometrics solution helps organizations detect fraudulent users on websites and in mobile applications using machine learning algorithms.
Sift Science provides machine learning software that automatically learns and detects fraudulent behavioral patterns, alerting businesses before they or their customers are defrauded.
In January, the Dow Jones surpassed 20,000 for the first time and the Case-Schiller Housing Index hit all time high at 185.56.
What then is causing the markets to continue to rise? Artificially low interest rates set by the Federal Reserve have allowed for cheap borrowing.
Thankfully there are many great financial technology companies giving individual investors new ways in which to diversify away from traditional markets.
Peer-To-Peer Lending: Lending Club and Prosper built the first platforms to directly invest in consumer loans. Low interest rates policy means low fixed income returns in the bond market. Peer-to-peer lending is one of the few fixed income investments left to obtain 8 percent plus in returns.
Family Office Networks announced today the launch of a new division in Los Angeles led by local resident James R. (Jim) Hedges, IV. Family offices, high net worth individuals and the top advisors who serve them are invited to join the Los Angeles Family Office Association, which will host events on a regular basis across Los Angeles. The group will celebrate its local kick off with an exclusive, invitation-only networking event this summer at the Beverly Hills Hotel.
The Los Angeles Family Office Association (losangelesfoa.org) will serve one of the most intellectually astute family office regions in the country. The group is designed to serve the extremely accomplished single and multi-family office community by creating an environment in which to share intellectual capital, leverage their years of industry expertise, and bring unique industry-generated deal flow and opportunities.
ZOPA has closed a £32m investment round led by Indian financial conglomerate Wadhawan Global Capital (WGC) and European venture capital fund Northzone, following which WGC’s chairman will join the peer-to-peer platform’s board, the firm confirmed on Thursday.
Kapil Wadhawan will join the consumer lender’s management board to help lead its transition towards a double-operation model comprising new banking propositions such as credit, savings and insurance products.
Zopa’s plans to become a “next-generation bank”, which first emerged last November, will enable the firm to expand its product range to service UK consumers more thoroughly.
The board of the £358m VPC Specialty Lending Investments fund is introducing a hurdle on its performance fees payable to its investment manager Victory Park Capital.
The new hurdle, which came into effect from 1 May 2017, means the payment of the performance fee to the investment manager will be conditional portfolio achieving at least a 5 per cent per annum total return for shareholders. This will be relative to a high water mark starting from 30 April 2017.
ALMOST 40 per cent of Growth Street’s investors are under 35 years old, research from the peer-to-peer lending platform showed.
The firm, which channels funds to small- and medium-sized enterprises, said that 37.5 per cent of its retail lenders are 35 years old or younger, contradicting recent criticism that millennials lack savings and investment skills.
More than a third of UK adults (37 per cent) have not saved or invested a penny in the last three months, according to a quarterly tracker launched by RateSetter this month.
On average, people put away £211 each month in the last quarter.
Men saved significantly more than women over the period (£246 a month, compared to £175).
25-34 year olds put away the most over that period (averaging £245 a month), followed by those of retirement age (£228 a month – aged 65+). Younger adults, aged 18-24, put away the least (£141 per month).
One in five (19 per cent) say that they currently have no savings at all, and two in five (43 per cent) no investments.
Average total savings and investments stand at £17,811 and £20,138 respectively.
Fintech firm Red Deer has partnered with brokerage firm Westminster Research Associates to provide what they describe as an end-to-end Mifid II solution for the asset management industry.
The two businesses will offer research valuation and payments solution that meet Mifid II regulatory requirements around research consumption and valuation—whilst at the same time improving operational efficiencies.
Several years ago, the best-selling book “Rich Dad Poor Dad” convinced people that a person knowing how to invest would be the winner of his life. If we see this as a criteria, then Yang Li, the founder of Xeenho, would be a “winner” already in young age. At his time in 2012, Yang Li was still pursuing his PhD at Central South University. Due to his research in P2P projects, he became considered as the “master of investment” by his friends and family,and even started investing their money for them.
P2P finance started to grow in China around 2008, but did not become well known among the public until 2012. Suddenly, individual investors discovered that the internet also could serve as an instrument for financial investment, allowing them to lend their money to other people for a financial return. This became attractive, especially as P2P companies started to promise clients over 10% returns. However, due to the large increase in number of platforms and lack of good practice, many scandals and bad press arose, consequently bankrupting a lot of the P2P platforms or getting them shut down. In addition, most P2P platforms were run from tier-1 cities, such as Beijing, Shanghai, Guangzhou and Shenzhen, far away from investors in sub-tier cities, i.e.borrowers and lenders on P2P platforms were located in areas with different capital needs and risk tolerance.
Although Yang Li researched P2P platforms from an academic perspective, he discovered a golden business opportunity, as there was an obvious demand from individual investors for professional investment advice. At the same time, the market for online investment advisory was just in its infant stage, with no players offering Robo-advisory services for investors, consequently a whole untapped market full of opportunities.
Yang Li founded Xeenho in 2014, a financial asset management platform, which evaluates P2P platforms risk profiles, and re-packs P2P assets into their own low-risk portfolio. He chose to headquarter Xeenho in Changsha, Hunan province, a second-tier Chinese city, with a clear purpose: “Since there are no financial institutions locating their headquarters in Changsha, many students cannot find a financial job in the city after graduation. They can only work in marketing or other areas.”
At that time, Yang Li only had one other partner, the co-founder Huang Zhenyu. The third co-founder Yang Xue, was still working with a large financial institution in Changsha, but realized that in order to advance in her professional development in her current company, she would have to re-locate to another province. Yang Xue and Yang Li studied their PhD together, and through her work experience she has developed a unique understanding of financial risk management. Yang Li finally managed to persuade her to join after many attempts, and as they already had known each other for many years, trust was already established between them.
Another key member of the team, Ding Yan, used to be a researcher in a listed company in Hengyang, Hunan province. She was not only a classmate to Yang Li before, but also his partner in several math contests. Consequently, she was an obvious choice when built the team.
Although Xeenho has strong theoretical know-how, the reality of building a company is tough with everyday ups and downs. Yang Li nicely told this with his anecdote of a special day. On the 2nd of May 2015, when his daughter was born, Xeenho also experienced a huge increase in number of fake users signing up to receive the registration reimbursement promoted through 10 RMB digital ‘Hongbao’s’, attracting thousands of new users daily. During normal days, this number was normally under 100. The fast increase offake users coupled with the inadequate marketing cost of acquiring them, forced Xeenho to start doing fraud assessment on each new registered manually by phone.
Xeenho’s business may look simple on the outside, but is actually complex looking under the hood. Through Xeenho’s platform, investors are introduced to and guided to the right P2P asset investment for their specific requirements. Compared to registering directly on a single P2P platform, Xeenho’s approach has several advantages. 1) Each asset package is composed of a range of P2P platform assets, which diversifies their portfolio and reduce risk. 2) Xeenho conducts in-depth research and risk management of each platform listed on their platform, in order to detect sudden changes and give investors first-hand information to lower their investment risk. In other words, Xeeno serves like an investor risk management assistant, which they are also earning commissions for.
This comes with a certain operational complexity, as Xeeno has to deal with more than a thousand different P2P platforms, on a real-time information basis. If investments has to be withdrawn from a platform, they need to monitor the original creditors’ rights and debts from the packaged assets. This is the core value of Xeenho, to have first-hand information before any retail investor in regards to debtors and P2P platforms.
Swiss fintech startup Evolute has raised €5.5 million in Series A financing. The investors were not disclosed. Evolute has also just been accepted into the Swiss Startup Factory’s Growth Accelerator Program.
The company says the new capital will be used for further development of its wealth management platform, and to develop more innovative technologies for personalized portfolio optimization.
Mastercard announced Monday (May 29) that Russian financial firms working within the collaborative FinTech acceleration program Fintech Lab has chosen 12 FinTech startups they plan to mentor and guide through the program.
A new generation of tech-savvy investment officers are providing family offices with access to buoyant global property markets via new innovative online real estate portals, says Emmanuel Lumineau, chief executive at BrickVest, the London-based online real estate investment platform.
Maintaining wealth across generations has always been a complex task and the fallout from the financial crisis of 2008 resulted in many family offices focusing upon avoiding risk. Preventing the permanent loss of capital, counterparty and credit risk and a lack of liquidity have been an ongoing concern in the family office sector in recent years. There are about 3,000 single family offices globally, at least half of which were set up during the past two decades, according to a white paper published in 2014 by Credit Suisse. Administrative family offices are estimated to have assets of between $50 million and $100 million US dollars, according to the Zurich-based investment bank.
Family offices and high net-worth investors – with €8 billion of assets – make up the bulk of investors using the platform. These investors are poised to deploy €300 million on the platform over the next year, primarily in European and US real estate. The BrickVest platform has attracted about 200 real estate sponsors with €170 billion of assets under management.
Gregoire de Lestapis has left traditional banking, most recently the direction of BBVA France, for the world of fintech entrepreneurship. In 2016, he joined Lendix, the French SME lending group, as head its Spanish subsidiary and member of the executive team.
Spain is home to very large banks and has among the highest density of commercial bank branches in Europe, why did Lendix decide to enter this overbanked market?
Firstly, the rapid consolidation of the Spanish banks after the financial crisis of 2008 has fractured the relationship between SMEs and their bank.
The credit crunch that followed the crisis made many otherwise viable SMEs bankrupt. Scandals such as the abusive practice of the “floor lending rate clause” emerged. SMEs felt betrayed. The shock was all the greater as they were completely dependent on banks.
Secondly, regulatory requirements such as Basel II are making it less profitable for Spanish banks to serve SMEs. They would prefer to limit their exposure to 25% of the overall liabilities of a given SME.
The third point is that Spanish banks’ credit processes are still very inefficient.
Contrary to what the term “alternative lending” says, we don’t view Lendix as an alternative to banks. All our customers, lenders as well as borrowers, have one or several established banking relationships. Our strategy is to position our offering as complementary to banks’.
What about the competition from other SME lending marketplaces?
Isn’t the Spanish default rate of business loans quite high?
Indeed, the default rate has steadily decreased from its peak of 13%, but it remains high at 8%. We are therefore very cautious. However, the main cause of defaults was the real estate sector. Outside of this sector, the default rate is much lower. Spain’s GDP growth rate is a solid 3% per year.
Olivier Goy, the founder and CEO of Lendix talks about the company’s international expansion as being multilocal, can you explain?
What mutilocal means is that, while sharing the European goal, vision and values, local teams are on the ground and fully immerse themselves in the local context. They make sure that the company respects local regulations. For example, a Spanish retail investor can lend a maximum of €3,000 per project and a total of €10,000 per year, whereas there is only a limit of €2,000 per project in France. As we enable French, Spanish and Italian investors to lend across borders, implementing these different thresholds is quite challenging.
A VCCircle analysis shows that since the beginning of the year, at least 24 fin-tech startups have raised venture funding. And the inflows have been well-distributed across the broader fin-tech space—while digital wallet firm Paytm may have got the biggest slice of the funding pie, raising a whopping $1.4 billion from SoftBank, online lending and payment gateway startups are also hot in terms of investor interest.
Wealth and expense management, financial advisory and investment platforms have also managed to raise capital over the last five months.
The most recent one was US-based Ebix Inc. acquiring an 80% stake in India’s ItzCash Card Ltd for $120 million (Rs 778 crore), a move aimed at gaining a foothold in India’s fast-expanding digital payments market.
Rahul Chandra, co-founder and managing director at Helion Venture Partners, is looking to raise $100 million for early-stage fund Unitary Helion. Rahul Chandra, co-founder and managing director at Helion Venture Partners, is looking to raise $100 million for early-stage fund Unitary Helion.
Banks are no longer fighting financial-technology startups, instead they are gaining from them in terms of acquiring more customers and reducing operational costs leading to a flurry of partnerships in recent months.
RBL Bank, which has partnerships with more than 90 startups, has been able to acquire 30% of its total 2.8 million customers through these tieups, said Rajeev Ahuja, head of strategy retail and financial inclusion at RBL Bank.
MoneyTap, a startup that has tied up with RBL Bank to give lines of credit to customers, was able to bring 2,00,000 users to the bank through downloads of its app, chief executive Bala Parthasarathy said. The app targets the lower-middle income group and offers chatbot tech to be the “front end of the bank”, he said.
Another bank to have seen significant impact from such partnerships is Yes Bank, which acquires nearly 20% of its customers through digital channels, such as through its partnerships with PaisaBazaar and Niyo.
Indian online P2P lending platform Faircent.com announced a new semi-secure student loan product in collaboration with Bangalore-based micro-lending startups. Lenders ay also opt for a partly-secured alternative-investment opportunity that delivers a higher return. Under the partnership, college students may fund purchase of items such as laptops, books and smart mobile, by registering their loan requirements on the platform at a “reasonable rate” with a flexible loan period ranging between 6 and 36 months.
News Comments Today’s main news: Behind the scenes as Orchard platform struggles, Earnest Prices $175 million Securitization, Peer-to-peer lender Wellesley & Co. pauses origination, RateSetter raises funds as it prepares to list, China Minsheng Investment leads $262m pre-IPO Today’s main analysis : LendingClub Files Presentation in Advance of Annual Shareholders Meeting, Parallels to the High Yield Bond Market, Today’s thought-provoking articles: Blackrock’s Consumer […]
UK fintech shrugs off Brexit, trumps Germany GP:”Before Brexit UK was in the EU and was dominating the financial markets. Before it was in the EU it was also dominating the financial markets. Hundreds of years ago it was already dominating the financial markets. So keep calm and carry on.”
The London-listed investment trust said that the loans sold represented 3.65 per cent and 1.48 per cent respectively of the company’s net asset value (NAV) as of 31 March. The firm said it will retain its non-performing Funding Circle US and Upstart loans, which represented 0.68 per cent and 0.21 per cent respectively of NAV as of 31 March 2017.
In a pessimistic new report, researchers from Morgan Stanley have concluded that while fintech companies style themselves as disruptors they will do more to strengthen than undermine incumbents in the long term.
“Only five disruptors have survived as standalone entities out of over 450 fintech firms launched during the dotcom era,” the report said.
Fintech has been most promising in areas lacking infrastructure and where established players have been weakest. This was particularly true of blockchain and robo-advice.
However, these trends are reversing as major financial institutions have started building their own robo-advisors and acquiring blockchain startups.
“Independent start-ups in the robo-advisor space will struggle to be profitable given the high cost of acquisition and intensifying competition.
“We think however that established financial advisors, banks, insurers, etc. will keep automating parts of their value chain…to improve the infrastructure for established incumbents.”
“Marketplace lenders are poised to grow at a… moderate pace leveraging traditional institutions as primary sources of capital; in essence serving as a more efficient customer acquisition and servicing channel for traditional lenders.
“We remain bullish on the potential for marketplace lenders to take share, as they benefit from regulatory arbitrage and changing consumer behavior.”
“We’re launching a full marketplace from scratch,” Mr. Burton said a few months later, at Orchard’s Flatiron district office, and we “hope everyone shows up.” But they didn’t.
More than a year after Mr. Burton revealed his big plans, Orchard has completed just a scattering of transactions. Over that time, it burned through more than $5 million in legal fees and other expenses.
Next month, hoping to add momentum, Orchard plans to unveil a scaled-back version of the platform, eight months later than first planned.
But regardless of the company’s fate, its struggles thus far reveal just how hard it can be for a new entrant — even one with successful founders, a promising service and big-name investors — to break into a highly regulated industry.
Seeking financial expertise, Orchard recruited a few Wall Street veterans from Merrill Lynch and Bear Stearns. In late spring of last year, Mr. Burton had more than a dozen roadshow meetings with executives from the largest loan platforms, including Lending Club, Prosper Marketplace and Social Finance.
He hoped to charge them monthly fees of $2,500 to $5,000 to participate. Orchard also offered them the ability to be its “data partners,” so Orchard could standardize their data for trading purposes — which Mr. Burton called “the big heavy lift.”
Orchard also enlisted the help of Meredith Cross, a lawyer at WilmerHale and the former head of corporate finance at the Securities and Exchange Commission, as it met with Wall Street regulators.
But in July, S.E.C. officials told Orchard that they would consider loans being traded as securities, potentially imposing a tougher level of oversight. That made some lenders nervous about participating. Some lenders were also concerned about exposing investors they had cultivated to loans from competitors.
“We do not have a current need for a trading platform,” said Ryan Rosett, a chief executive of Credibly, which offers small-business loans. “Our capital markets team has the ability to sell our loans directly to a pool of institutional investors.”
Orchard was also fighting a separate headwind. The broader market for online loans was being buffeted by higher consumer loan defaults and investor fears. Some online lenders cut staff members, and others shut down as loan growth dried up.
As Orchard X struggled to get going, he said, legal documents for trades had “ballooned to 150 pages from a 20-page contract,” leaving him exasperated. “I’m a tech guy!” he said.
As it moves forward, Orchard has played down the regulatory issue, proceeding without an explicit formal S.E.C. ruling on whether the loans are securities. It is a potentially risky move, but one the company believes will work in part because it has dropped its goal of legal standardization, cutting the need for lending platforms to agree on regulation issues. The S.E.C. declined to comment.
In January, Orchard X arranged its first sale of about $30 million in loans from an ailing platform, a small-business lender called CAN Capital. The auction took a lengthy four weeks to complete. But Orchard X did receive a fee of 0.5 percent of the sale price.
Looking back, Mr. Burton said on April 4, Orchard should not have tried to persuade lenders to join the trading platform all at once. Having raised $30 million in 2015, Orchard plans to announce next month that it has raised an additional $20 million or more and to formally roll out its revised Orchard X transaction platform.
LendingClub (NYSE:LC) has filed a new form with the SEC (DEF 14A) in advance of the annual shareholders meeting which is scheduled to take place on June 6, 2017. The addition to the Annual Meeting Proxy Statement, a standard filing, includes a presentation on the company asking shareholders to support Director nominees, executive compensation and ratification of the auditor.
Perhaps the most interesting aspect of the filing is the synopsis of the events in 2016 that led to the departure of founding CEO Renaud Laplanche and the ensuing aftershocks that pummeled the online lender.
The CFPB has pursued lawsuits, as well as formal enforcement actions, concerning misrepresentations of attorney involvement in debt collection-related communications.
On April 17, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit in Ohio district court against the Weltman, Weinburg & Reis law firm (WWR), alleging violations of the Fair Debt Collections Practices Act (FDCPA) stemming from the firm’s issuance of debt collection demand letters. The CFPB’s allegations against WWR closely resemble the FDCPA allegations that were considered by the D.C. Circuit Court of Appeals in Jones v. Dufek, 830 F.3d 523 (D.C. Cir. 2016). Dufek also concerned a debt collection letter that was sent by an attorney acting as a debt collector and not as legal counsel. On March 20, 2017, the U.S. Supreme Court denied the Dufek plaintiff’s petition for a writ of certiorari to review the Court of Appeals’ decision in favor of the defendant attorney/collector. Notwithstanding Dufek, however, debt collectors and first-party creditors are well-advised to be extremely diligent when using law firms as debt collectors.
In actuality, the CFPB’s complaint alleges that “no attorney had assessed any consumer-specific information . . . [a]nd no attorney had made any individual determination that the consumer owed the debt, that a specific letter should be sent to the consumer, that a consumer should receive a [collections] call, or that the account was a candidate for litigation.” Thus, according to the CFPB, the subject letters contained numerous misrepresentations that violated both the FDCPA and the prohibitions of the Consumer Financial Protection Act against unfair, deceptive or abusive acts or practices.
The specific deficiencies cited in the CFPB’s complaint against WWR include the fact that subject letters were printed on law firm letterhead, which prominently included the phrase “ATTORNEYS AT LAW” (in bold type and in all caps) and included the law firm’s name in the signature line.
In determining whether the Dufek letter violated the FDCPA as a false, deceptive or misleading representation, the Court of Appeals noted, as a threshold matter, that “if an attorney is acting only as a debt collector and has not formed a legal opinion about the case, he or she cannot send a letter [stating or implying] otherwise” without misleading the recipient/debtor..
Misrepresentations regarding attorney involvement in collections letters and other communications continue to be a “hot button” issue with the CFPB. The collections letters targeted in the CFPB’s lawsuit against WWR are distinguishable from the letter at issue in Dufek in that the Dufek letter included a disclaimer regarding the attorney’s review of the underlying account. Yet, the CFPB’s complaint against WWR can be read as implying that the use of attorney letterhead and the inclusion of the law firm’s name in the signature line were per se improper.
SAN FRANCISCO, CA–(Marketwired – May 24, 2017) – Earnest today announced the close of the $175 million Earnest 2017-A transaction backed by refinanced student loans. The offering received an AA (high) rating on the senior notes by DBRS which is now only one notch below the highest attainable rating of AAA. The transaction was three-times oversubscribed and traded at the tight end of market guidance.
Earnest has now completed five securitizations of refinanced student loans since February 2016 for a total value of over $877 million. In 15 months, the company has increased its rating on the senior notes from A to AA (high), a progression that often takes several years. This speaks to the quality of the underlying collateral and the advancement Earnest has made as a programmatic issuer in the capital markets.
“This marks another strong securitization for Earnest, providing us the opportunity to welcome new investors and continue building our capital markets program. We’re thrilled at the appetite and investor confidence in our offerings,” said Louis Beryl, CEO and co-founder of Earnest.
Elastic line of credit surpasses $ 200 million in outstanding loans, (Email), Rated: A
More than $680 million funded and 155,000 customers served since 2013 validates need for expanded access to credit in the U.S.
FORT WORTH, TX – May 31, 2017 – Elevate Credit, Inc. (“Elevate”), a leading tech-enabled provider of innovative and responsible online credit solutions for non-prime consumers, today announced the Elastic product has surpassed $200 million in total principal outstandings, with more than 120,000 open accounts.
Elastic, a bank-issued line of credit offered by Republic Bank & Trust Company (“Republic Bank”), has loaned over $680 million dollars to more than 155,000 customers, since its launch in 2013. The $200 million in total principal outstandings includes the 10% of outstandings Republic Bank retains. Elastic passed the $100 million in outstandings mark in May 2016.
Elevate (NYSE: ELVT) has originated $4 billion in non-prime credit to more than 1.6 million consumers to date. Its responsible, tech-enabled online credit solutions provide immediate relief to customers today and help them build a brighter financial future. The company is committed to rewarding borrowers’ good financial behavior with features like interest rates that can go down over time, free financial training and free credit monitoring. Elevate’s suite of groundbreaking credit products includes RISE, Elastic and Sunny. For more information, please visit .
Interest Rates on Connext™ Private Student Loans Decrease as Federal Student Loan Rates are Set to Rise, (Email), Rated: A
ReliaMax®, the complete private student lending solutions provider, today announced that the banks and alternative lenders participating in the Connext® Private Student Loan program will lower the interest rates on those loans. EffectiveJune 1, 2017, the lowest rates for variable- and fixed-interest rate Connext® loans for undergraduate and graduate programs will be reduced to 2.87 percent APR* and 5.40 percent APR*, respectively, and the borrower will not be charged an origination fee.
Federal student loan interest rates on new loans are scheduled to increase on July 1 for the 2017-2018 school year. These interest rates are adjusted each year based on the annual Treasury Department auction plus a set percentage amount added for each type of loan program. According to
Blackrock’s Consumer ABS ETF and Parallels to the High Yield Bond Market, (PeerIQ Email), Rated: AAA
Shares of Lending Club and OnDeck surged last Monday 3.9% and 9.5% respectively, on reporting from the
MPOWER Financing Secures Add-on Investment from 1776 Ventures, (Email), Rated: A
MPOWER Financing (www.mpowerfinancing.com) announced today that 1776 Ventures (www.1776.vc) has doubled-down its investment in the company with an additional $500,000 investment ahead of MPOWER’s planned Series B for this summer. 1776 Ventures is an investment fund focused on seed-stage investments seeking to transform complex industries. In addition to being seed and Series A round investors, their partners have also served as a mentor and close advisor to MPOWER Financing.
MPOWER Financing is an innovative fintech company and provider of educational loans to high-promise international students who do not fit the traditional credit criteria of banks or lenders.
Through the partnership, JetBlue’s TrueBlue members who refinance their student loans with SoFi will now earn 1 TrueBlue® point for every $2 they refinance through the lender, up to 50,000 points. With average monthly savings of $288*, refinancing student loans with SoFi frees up extra money that members can use to pursue travel plans, save and invest for the future, or buy a home.
Wellesley & Co., the peer-to-peer lender best-known for investing alongside its investors, has announced wide-ranging changes to the business. In addition to publishing financial results for 2016, the firm has also made a first stab at publishing its loan book online.
Wellesley has now published its audited results for the year ended 31 December 2016. Its loan book grew 10 per cent during the period, to £163.6m, versus £148.7m lent in 2015. The firm made a loss for the year of £210,288, down from a loss of £2.2m in the previous year. But it made a pre-tax profit of £1.3m in the second half of the year.
Other notable points include having supported the development of 822 “mid-priced” homes in the UK. The firm also made a number of new hires in 2016, including Stephen Bell as chief risk officer in February, and Peter Scott as non-executive director in March. The firm claims to have delivered an average interest rate across all products of 4.49 per cent to investors.
Wellesley’s full accounts will be available via its website next week.
Chief financial officer Alasdair Lenman, who was appointed last summer, has resigned from the company. Lenman was hired to help the firm publish its late accounts up to December 2015 ahead of its abortive fundraise on equity crowdfunding platform Seedrs, which was pulled at the start of this year.
Further to these developments, Wellesley has temporarily paused its peer-to-peer lending operations, and is launching a new listed bond on the Irish Stock Exchange.
Turnbull said that Wellesley is pausing its P2P product in order to allow time for technical changes to be made. He said that these changes are designed to satisfy both investor demand and regulatory requirement.
Once re-launched, Wellesley & Co. will no longer deliver monthly interest payments to its investors. The monthly interest payment model was at odds with the style of development loans that the firm originates, which are repaid at maturity. Henceforth, the firm’s P2P product will offer a target rate of return, with interest repaid at maturity.
Wellesley has just launched its third bond, offering investors an annual interest rate of 4.75 per cent over 3 years, or 4 per cent over 2 years, paid monthly. The bond can be held within an ISA wrapper.
The first Wellesley bond was a mini-bond which raised a little shy of £50m. The second was listed on the Irish Stock Exchange, as is this third issue. The second bond was launched in response to ISA demand, and could be invested in via a stocks and shares ISA.
Wellesley is famed for skin-in-the-game approach to P2P, which in practical terms means that it takes a stake of every loan in a first loss position. It has previously been suggested that the proceeds of its bond listings – which in some cases may explicitly be used as working capital by the firm – have been used to fund this first-loss piece, as well as to top up its provision fund.
RateSetter, one of the UK’s “big three” peer-to-peer lenders, has scooped £13m in equity investment from existing backers. Investors in the round included well-known fund managers Woodford Investment Management and Artemis.
The two funds first backed RateSetter with a £20m investment in March 2015, in a round that valued the platform at £150m. This latest round takes the firm’s valuation to over £200m, with £50m in equity capital raised to date.
The online lender has tapped existing investors for what is set to be its last round of private fundraising as the company prepares to list on the stock market to fuel its growth.
RateSetter, which has raised more than £50m of capital in total, will use the funding to launch its lending product in an Individual Savings Account, enabling investors to lend to borrowers online in a tax-free wrapper.
Funding Circle, which has in the past couple of weeks become the largest peer-to-peer site in the UK, also passed the FCA’s authorisation test last week, paving the way for its Innovative Finance ISA.
Fintech firms based in the UK have received more than double the overall capital invested into German fintechs since the start of 2016. In fact, investments grew 81.7 per cent year on year from $284m in Q1 2016 to $516m in the opening quarter of this year, according to research by FinTech Global, a consultancy,
Investments, however, in both German and UK fintech companies have hit five-quarter high’s in Q1 2017 with $218m and $516m amount invested, respectively.
Both the UK and Germany raised nearly half of their total respective funding for 2016 in the opening quarter of the year. Therefore, fintech investment in both countries is on track to surpass the value invested last year.
UK fintech investments in Q1 was driven by the $101.8m round raised by Atom Bank while Germany’s largest deal went to deposit marketplace start-up Raisin which raised $32m Series C round.
Equity crowdfunding platform Seedrs has become the latest alternative finance provider to join a major Natwest programme that aims to open doors for UK SMEs to sources of finance.
“As the most active equity investor in UK private companies, Seedrs has already funded over 500 investment rounds for fast-growth SMEs, with more than £210 million invested into campaigns on our platform to date.
China Minsheng Investment Group, one of the country’s largest private investment group, has led a RMB1.8 billion ($262 million) pre-IPO investment round in Chinese peer-to-peer lending company Tuandaiwang. Other investors in this round include Beijing Yisheng Innovation Technology and Beihai Hongtai Investment. This investment brings the company’s value up to RMB10 billion ($1.46 billion), said a report in China Money Network.
Tuandaiwang operates a P2P lending platform, which enables users to lend their saving at a higher investment return rate than traditional saving rates. It claims that individuals and companies have borrowed around RMB78 billion ($11.4 billion) since its launch in 2012 and lenders can make RMB2.3 billion ($335 million) in returns. The company said that it would spend this proceeds on the platform’s development and investment in other tech assets. The investors in its previous rounds with a combined funding of RMB675 million include JD Capital, Dongguan Securities and Giant Investment.
Chinese smart phone giant XIAOMI has started a three-year loan refinancing for a 2014 loan agreement, with the maximum amount is $1bn. The borrower is XIAOMI(Hong Kong), and the parent company XIAOMI acting as the guarantor. The deadline for underwriter is 23rd June, and the roadshow will be held on 1st June in Hong Kong. Deutsche Bank and Wing Lung Bank jointly served as book runners. The loan has been divided into two parts: Part A for regular loans ( $500 million) , and part B for revolving credit loan ($250 million).
It was revealed that XIAOMI’s $1 billion three-year loan in Oct 2014 was the company’s first show in the loan market. Deutsche Bank, J.P. Morgan Chase & Co. and Morgan Stanley was the initial leading and bookkeeping banks, and other 25 banks were involved in the loan.
Tuandai Group has closed a new round of financing of $270m. The financing was led by Minsheng Capital with $104 million.
Tuandai was set up in 2011, and transformed its core business to P2P Lending in October 2016, dividing its services into asset sector and the internet sector. In early time this month, Tuandai changed the name of their platform from “Tuandai Network” to “Tuandai Network丨 P2P Lending Investment”, and would be engaged in the intermediary business about network lending information.
Banco BNI Europa boosts European SMEs with €10M investment in Portuguese peer-to-peer platform RAIZE, ( Email), Rated: AAA
European Bank BNI Europa signs strategic partnership with Portugal’s largest peer-to-peer lender RAIZE
Portugal/Eurozone: Portugal’s economic recovery fuels interest in SME lending through peer-to-peer platforms
Agreement follows a £45M deal with the UK’s largest invoice peer-to-peer platform in May, 2017
RAIZE (www.raize.pt) is Portugal’s largest peer-to- peer lender focusing on SME lending. The online lender operates its own payments institution licensed and regulated by the Bank of Portugal and currently has more than 10,000 investors lending to SMEs. The platform expects to lend more than €15 million in 2017.
Lendit, a leading marketplace lending start-up, said Monday that it has raised 10 billion won ($8.9 million) from a group of investors including Altos Ventures, a Silicon Valley-based investment firm. Local venture capital fund YellowDog and Collaborative Fund, a New York-based firm, also contributed to the Series-B financing.
“We aim to cement Lendit’s position as the top lending startup in consumer financing by using the funds to boost R&D and foster professionals for tech and finance,” said Kim Sung-joon, CEO & founder of Lendit.
Founded in 2015, Lendit is the country’s top marketplace lender in the consumer lending segment with accumulated loans at 47.4 billion won as of May 29.
RateSetter’s new marketplace seeks to provide “more affordable finance options” for the purchase of energy efficient products by both businesses and individuals.
The marketplace has been given a ‘kickstart’ with a $20 million cornerstone investment from the government’s Clean Energy Finance Corporation (CEFC), RateSetter said in a statement.
It is anticipated that thousands of everyday Australian investors who want to earn attractive returns, while improving the country’s energy footprint, will participate in funding green loans via the marketplace.”
The Reserve Bank is expected to come out by June-July with guidelines to regulate the Indian peer-to-peer (P2P) lending market. The RBI had floated a consultation paper in April 2016 on the Indian P2P lending that has been taking roots in India.
At present, the status is that “it has gone from the RBI to the Ministry of Finance. The Ministry of Finance has put it out to the Ministry of Corporate Affairs and they have to come back (on the subject matter),” Mathews said. Faircent.com, which went live in 2014, has so far facilitated lending to the tune of Rs20 crore from its platform and set a much bigger target for the current fiscal. “So far, we have facilitated around Rs20 crore loans from Faircent platform.
This year we are scaling, we have to do some Rs50 crore of loans this fiscal,” he added. Next week, the company will also enter into loan against property (LAP) domain and match prospecting borrowers and lenders through Faircent.com, Mathews said.
Indian online P2P lending platform Faircent.com announced a new semi-secure student loan product in collaboration with Bangalore-based micro-lending startups.
Under the partnership, college students may fund purchase of items such as laptops, books and smart mobile, by registering their loan requirements on the platform at a “reasonable rate” with a flexible loan period ranging between 6 and 36 months.
Singaporean marketplace lender Capital Match has hit S$40 million in loans funded and has started rolling out infrastructure to onboard European investors.
“The traditional SME lending sector in Singapore is highly inefficient and oligopolistic: at present the largest four banks account for 80 percent of SME Singaporean banking relationships,” Tobias Fischer, Director of Corporate Development, told AltFi.
“[But] banks have been more strict in their lending policies so there has been huge demand on the borrowing side.
“As a result [SME lending] is incredibly profitable, so there are great opportunities for investors to achieve excess returns.”
News Comments United States A very interesting risk that has not been clearly described so far: the risk that small SMB loans end up being regulated like personal loans. A fascinating read on politics and regulators. Goldman announcing their p2p lender will be live in the fall with $16bil in lending capital from depositors. Goldman […]
Online marketplace lenders would face significantly higher regulatory hurdles if most of their loans to small businesses were reclassified as consumer loans, as the Treasury Department has recommended, an industry representative and a legal expert told Bloomberg BNA.
Officials discussed the need for greater transparency and noted that small-business loans under $100,000 “share common characteristics with consumer loans, yet do not enjoy the same consumer protections.”
The industry is pushing hard to head off the suggestion.
“They’re very smart in being concerned about that,” said Richard Eckman, a partner at Pepper Hamilton LLP in Wilmington, Del. “There are a whole host of consumer laws that apply to loans that are for personal, family and household purposes; that’s sort of the definition of a consumer loan.”
The federal consumer protection law that ranks as the biggest concern of marketplace lenders such as CAN Capital, which cater exclusively to small businesses, is the Truth in Lending Act (TILA).
“TILA, in particular, is onerous,” Eckman, a specialist in marketplace-lending law, said in an e-mail.
On May 3, 16 members of the committee’s Republican majority and three of its minority Democrats, along with House Small Business Committee Chairman Steve Chabot (R-Ohio), sent a letter to Treasury Secretary Jack Lew sounding themes that foreshadowed Sanz’s testimony. The Treasury Department at that time was preparing its report on marketplace lending, and the House members wrote that they wished “to raise concerns with recent comments by public officials that seem to indicate a preference to regulate lending to small businesses and consumers similarly.”
“[W]e believe it is important for the Department to carefully study and understand key distinctions between commercial and consumer lending markets,” the letter said. “Mistaken efforts to conflate these categories would restrict the availability of capital to small business owners.”
“There’s no reason why small businesses shouldn’t have the same protection as consumers,” Lauren Saunders, associate director of the nonprofit National Consumer Law Center, in Washington, told Bloomberg BNA.
“The research has shown that these small-business owners who borrow smaller loans, under $100,000, are not that sophisticated and at times they really don’t understand the fine print, the hidden terms and conditions that we see in the typical fintech loans to small businesses,” she said. “These contracts are very opaque. The fees and terms are hidden in a way that really makes it impossible for the borrower to do any kind of comparison shopping.”
There wasn’t a ton to get excited about in Goldman Sachs’searnings report on Tuesday.
Sure, per-share earnings beat analysts’ estimates, but how excited can you get over beating an estimate that dropped like this?
However, there was a tantalizing detail or two offered on the conference call by Chief Financial Officer Harvey Schwartz about the firm’s intriguing efforts to tap into the Main Street customer base. Schwartz said that the bank would roll out its consumer lending platform this fall after surveying thousands of consumers on what they would look for in such a thing. The bank developed one product involving unsecured loans, Schwartz said as way of teaser, telling analysts to standby for more information in the fall.
This may not end up being a big enough business alone to return Goldman’s revenue to record highs, at least not in the short term. Rather, the intrigue lies in its potential to disrupt the disruptors — the online startups that have pioneered the brave new world of peer-to-peer or marketplace lending.
With 20,000 customers opening up new savings accounts on top of the $16 billion in deposits it acquired from General Electric’s online bank in the second quarter, Goldman theoretically should be able to fill in the gaps easily at times when investor demand gets skittish.
There’s one sector of finance that really doesn’t get a lot of airtime when it comes to fintech – deposits. Checking accounts, savings accounts, transaction accounts – while they’re the bread and butter of banking, they’ve been relatively untouched since they were first invented. You put money in, and, if you’re lucky, earn a little interest before you take the money out.
Is there an opportunity here for a fintech startup to slice away this part of a bank’s core business, by adding a little flavour to the whole deposit experience?
Serial fintech investor and entrepreneur Peter Thiel certainly thinks there are opportunity in deposits. In January of this year he invested €1M into a German fintech startup Deposit Solutions.
Deposit Solutions is the first open architecture platform for retail deposits in Europe. Among many things, it solves one of the central problems for account holders related to accessing great deposit products – it eliminates the need to switch banks. Instead, a saver requires just one master account with Deposit Solutions and can then pick and choose their deposit product of choice from the Deposit Solutions marketplace.
There are a number of other fintech startups playing in this space, either building the deposits piece from scratch or interfacing into an existing authorized deposit-taking institution. Digit,SmartyPig and Qapital are a notable few. With lending having taken most of the glory to date, opportunities here are getting thin on the ground. Maybe the humble bank account is the next big fintech play.
The increasingly close relationship between banks and marketplace-lending platforms, as well as the uncertainty surrounding the “rent-a-charter” model to avoid state usury limits described above, have led to speculation that marketplace lenders may ultimately obtain bank charters. A fundamental issue is whether the equity and institutional investment markets will provide a stable long-term source of funding for the industry. This issue has garnered attention in recent months as leading marketplace-lending platforms have experienced steep declines in their stock prices and as questions have been raised about how lending platforms interact with fund investors and about weak secondary-market trading of asset-backed securities. The question may acquire renewed urgency in light of the governance issues at a leading marketplace lender that recently made headlines, along with its disclosure that the DOJ is now investigating. 
An important prudential regulatory concern with acquisitions of bank charters by marketplace lenders is a desire to avoid making the marketplace-lending industry an attractive supplier of brokered deposits, which are an unstable source of capital and may be particularly risky where a bank has inadequate anti-money-laundering controls or is undercapitalized. Regulators also anticipate grappling with the activities of many lending platforms that may be incompatible with partner banks that have charters limiting their activities to those activities that are considered “incidental to the business of banking”—typically insurance and securities work. The edgy innovations of marketplace-lending platforms that use technology in creative ways to marry finance with social media offerings are a particular challenge in this regard.
Although Madden v. Midland applies directly only to cases where a national bank is selling or assigning a loan, the policy underlying the decision to limit the exporting authority under the NBA might also be applied to a state bank’s rate exportation powers under Section 27 of the Federal Deposit Insurance Act (the state bank equivalent to section 85 of the National Bank Act). Secondary market participants and marketplace lenders now wait for the decision from the District Court on remand. If the court upholds the Delaware choice of law provision, market participants may manage the impact of the Madden v. Midlanddecision by electing a favorable choice of law provision in the underlying debt contract. That at least will provide an option for continuing to work with national banks despite the Madden case.
Unfortunately, that solution will not work for buyers and sellers of existing loans, although presumably such parties are not too inconvenienced by a limit on the post-assignment interest that can be charged on a loan after substantial interest has already accrued, particularly if they have purchased the debt at a substantial discount. Other lenders may continue to rely on the state banks’ ability to export interest rates. In that situation, lenders should choose state banks whose state has a generous interest rate cap and is outside the Second Circuit.
The group impacted most by the Madden v. Midland decision appear to be marketplace lenders who acquire a loan shortly after origination and therefore have essentially all accruing interest at risk of challenge. One alternative option adopted by one on-line marketplace lender picking up on the “substantial interest” distinction in the Madden decision, is to require the bank loan originator to maintain an on-going economic interest in all loans after sale and receive certain payments on the loans only when borrowers made payments.
What remains following the Supreme Court’s refusal to hear Madden v. Midland is an outlier Second Circuit on the issue of the “valid-when-made” rule, and the blueprint for how to apply preemption under the National Bank Act as provided by the Solicitor General in its brief, a brief that as noted above clearly considers theMadden v. Midland decision to be wrong. Unfortunately, until such time as the right case comes along, market participants will have to make adjustments to accommodate the decision as necessary to address its impact on their particular situation.
The start of a new credit cycle means that income investors will have to adjust to stagnant bond prices, and new opportunities in credit markets from peer-to-peer lending will be tested by tighter monetary policy, according to David Schawel, CFA.
Returns for fixed-income investors consist of the coupon; the shortening of the bond, known as the roll; and price appreciation. Since the 1980s, falling interest rates have caused existing bonds to appreciate, as their prices increased to match the yields of bonds issued at lower interest rates. Schawel, a portfolio manager for New River Investments, thinks interest rates are nearing a lower bound.
“Most likely we’re not going to be in a 30-year bull market for interest rates falling again,” Schawel told Will Ortel during a recent Take 15 interview.
Schawel cautions fixed-income investors against assuming that bonds will continue to appreciate. Instead, the coupon and the roll will drive returns from bonds. With the roll becoming more important, investors need to pay close attention to the yield curve. Much of the return from bonds will come from the roll while the bond is on the steep part of the curve. Recently, the curve has flattened, reducing the yield premium, as the US Federal Reserve moved to tighten monetary policy.
Schawel sees the rise of marketplace or peer-to-peer lending as indicative of inefficiencies in yield.
MarketInvoice, a 100-strong firm based on the edge of The City in the confines of London’s Silicon Roundabout, has just announced a multi-million investment totalling £7.2 million (c.$9.5m) led by MCI.TechVentures Fund of MCI Capital, a listed Polish private equity group. Sylwester Janik, a senior partner of MCI Capital, a multi-stage private equity group based in Warsaw with nearly two decades of expertise of investing in digital economy companies, has at the same time joined MarketInvoice’s board.
To date the platform has provided £850m (c.$1.11bn at current exchange rate) worth of funding to UK businesses, and the firm is set on path to reach the £1bn mark before the end of 2016. At present the firm provides over £1.5m (c.$2m) per day in cash flow finance to UK businesses via its platform. At present MarketInvoice has a current market share of around 13% in its P2P alternative financing segment.
MarketInvoice, which has seem 100% year-on-year growth over the last three years, typically charges between 2%-3% on invoices handled for clients depending on the amount of the invoice. Businesses can select those invoices they want to finance, unlocking tied-up cash in 24 hours.
“In the wake of Brexit, we think the coming months present a big opportunity for MarketInvoice. Recent intervention by the Bank of England suggests that we might see significant reductions in bank lending.”
Funding Circle co-founder James Meekings said “the process of leaving the European Union will take two years and there will be no immediate change to Funding Circle’s day to day operations”.
A few weeks ago, AltFi Data cut its projection for 2016 UK origination by 14%, after the £840m originated in Q2 2016 became the first quarterly volume figure ever to fail to eclipse the sum originated in the preceding quarter.
Matthias Knecht quit Funding Circle Continental Europe at the end of June. Knecht was a member of Funding Circle’s global leadership team and a former co-founder of Zencap, a peer-to-peer lending outfit which Funding Circle acquired in October 2015. An article in Gründerszene suggested that a conflict had arisen between Knecht and Funding Circle CEO Samir Desai over the allocation of resources.
LendInvest, the UK’s largest marketplace for real estate loans, has also been making changes. In the immediate aftermath of the Leave vote, LendInvest tightened its lending criteria for loans worth more than £3m, adjusting the cap on LTVs for these loans to 65%. The company has also temporarily paused lending on new second charge applications.
Funding Circle CEO Samir Desai described 2015 as the year in which “it looked like we were turning water into wine”. He described 2016, by contrast, as a year for getting heads down, and for getting on with building business.
Lately the Wall Street Journal has been set to attack mode. Its coverage of the US marketplace lending sector has become almost exclusively cynical. The Times, The Telegraph and This is Money covered the recent insolvency and subsequent acquisition of the business lender FundingKnight. How many other news items in the history of the peer-to-peer lending industry have enjoyed that level of attention in the national press? Not many!
Ben McLannahan, US Banking Editor at the FT, aptly summed the whole thing up when he posted on Twitter saying“#LendingClub = have we hit the trough of disillusionment?” He was referring to something called the Gartner Hype Cycle, which is an attempt to chart the typical growth trajectory of disruptive technology companies.
UK-based Nucleus Commercial Finance claims it has made the largest ever P2P loan to date following a £14.5 million financing facility offered to UK steel stockholder Industrial Metal Services (IMS). The company has lent more than £400m to date and Shah claims that 90% of this has already been pad back with just £5,800 incurred in bad debts.
The new BridgeCrowd website features a fully online view of the current live and historic loan book, a loan performance update system and an E-Wallet, where investors can place capital into loans and manage their account and interest.
The BridgeCrowd has launched a new website with added features following strong growth over the last 18 months.
Bridge Crowd offers 68% LTVs across residential owner occupied and buy-to-let properties.
The UK’s oldest peer-to-peer lending service Zopa, has today announced that Ronen Benchetrit will become the company’s new Chief Technology Officer (CTO) in a strategic hire for the fintech business.
Most recently, Ronen served as CTO for leading online gaming operator PokerStars. In this role, Ronen was responsible for the provision of the areas of technology and for management of the company’s product roadmap, ensuring the quality, reliability and security of external and internal systems, networks and platforms.
LenDenClub has launched its new version of P2P lending platform with features such as end-to-end automation of lender-borrower transaction cycle right from registration, document verification, credit analysis, transaction matching to report generation. An algorithmic-based program, built based on artificial intelligence, will be used for reviewing borrower’s creditworthiness. For the company, the upgradation of P2P platform will accomplish a major milestone and prepare them for payment and digital signature automation to bring 100% automation in lending process through right technology for borrower identification, data collection, digital signature usage, payment automation, etc.
The company had successfully raised seed funding recently.
From the document published by the MAS on Lending-based Crowdfunding – Frequently Asked Questions (FAQs), generally, the operation of P2P lending is restricted by MAS under the Securities and Futures Act (Cap. 289) (SFA) and the Financial Advisers Act (Cap. 110) (FFA).
Specifically, the P2P lending business needs to prepare and register a prospectus with MAS in accordance with Section 239(3) of the SFA. In addition, not only the registration of the prospectus but also the P2P lending platform need to follow the licensing requirements, particularly, the P2P lending business which fall within the scope provided by MAS needs to hold a Capital Market Services (CMS) license.
From the document, MAS states in paragraph 10 that “ …Platform operators should now ensure that the participants on their platforms are aware that each lender has to lend at least $100,000 if the borrower is to fall within the Promissory Note Exclusion. Offers of consolidated promissory notes commenced after the date of these FAQs must comply with the Prospectus Requirements” This means, that the P2P lending platforms, which previously used a single promissory note issued by the borrowers, need to apply for a license, if they still want to proceed their lending business; however, as provided in the MAS document, the removal of the Promissory Note Exclusion will be effected after the amendment of SFA.
This will affect many of existing P2P lending platforms such as MoolahSense and Capital Match which have the main function to help businesses to find loan from investors because some of P2P lending platforms are using a promissory note exemption without a Capital Market Services (CMS) license; however, MAS will make it easier for licensed P2P platforms. Therefore, a small offer exemption in accordance with the aforementioned law might be used by many P2P lending platforms.
There continues to be strong interest from Chinese Wealth Management firms to invest in US Online Lending loans
Investor interest is focused on making strategic equity investments in all types of global FinTech firms within Online Lending
Chinese Marketplace Lenders continue to increase their focus on offering more diversified products to clients including wealth management, insurance, and other financial services
Implementing a robust operational infrastructure is widely understood as a necessity required to successfully invest in the US Online Lending industry
Increased interest in US Online Lenders from Chinese investors and notable US-Chinese partnerships such as those between DriveWealth and CreditEase, Robinhood and Baidu, and Saxo Bank and Lufax — that further emphasize the importance of this series of events.