Tuesday November 19 2017, Daily News Digest

Moody's wage growth

News Comments Today’s main news: Clarity Services integrates with Experian. Octopus Choice passes 100M GBP AUM. Funding Circle hits 100M Euro in German lending. Younited Credit tops 100K loans. Square Peg invests $8M in Airwallex. Silver Bullion hits $50M in loans. Today’s main analysis: The deteriorating auto loan quality. Today’s thought-provoking articles: China’s startup investors are a bunch of “cashed-up […]

Moody's wage growth

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United Kingdom

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News Summary

United States

Integration of Clarity Services by Experian (Clarity Services Email), Rated: AAA

As a supplier to Clarity Services Inc, we are writing to formally notify you that as of October 6, 2017, Clarity Services Inc has been purchased by Experian Holdings, Inc.

Effective January 1, 2018, purchases and invoice payments will be processed by Experian’s centralized Procurement and Accounting departments.

Source: Clarity Services

PayPal Co-Founder Max Levchin Gave a Remarkably Honest Response to Accusations About His New Startup (Inc.), Rated: AAA

To its critics, though, Affirm, which recently raised $200 million in a growth round, is engaged in something sinister, luring people into a financial trap by enticing them to buy things they can’t afford. CEO Max Levchindoesn’t agree with that interpretation at all, but he does accept some of the blame for not creating a more accurate perception.

Here’s how Affirm works: You can borrow money to make a purchase at any store that integrates with Affirm (or any store at all if you use the mobile “virtual card”). If Affirm’s proprietary credit model judges that you’ll be able to pay back the sum, then you’re offered a loan. During the next several months — up to a year — you’re expected to make monthly payments, which include interest. The APRs range from 10 to 30 percent.

The key things that differentiate Affirm from other credit options are that you get all of the information up front, stated plainly, and the interest charged by the startup is simple rather than compounding. When you make the initial purchasing decision, you know exactly how much extra you will end up paying to buy the product right now, instead of saving up over several months. There are no additional fees.

Moodys Warns Of Deteriorating Auto Loan Quality (ValueWalk), Rated: AAA

The economy is expected to expand in 2018, with projections for stock market performance clocking in at 8% basis Goldman Sachs. But not all is well –  a Moody’s report notes that specific asset sectors are struggling, particularly when it comes to  car loan quality worsening.

ValueWalk

Moody’s anticipates that US GDP growth will strengthen slightly to 2.3% in 2018 from 2.2% in 2017, with unemployment also continuing to move lower to 4.0% from 4.4%.

Auto loan quality is worst, but pockets of “challenged” loans exist across the board

Auto loan ABS issuers will likely securitize pools with attributes broadly similar overall to those in the pools backing their 2017 securitizations, even as a further decline in US auto sales pressures lenders to loosen underwriting to support volumes. We project sales will slip another 0.6% after an estimated 3.6% drop in 2017, following eight consecutive years of annual increases.

Auto loans appear to be on the front-lines of credit issues. Household debt, for instance, has increased to $13 trillion, with a significant part of that increase in auto loans. Sub-prime auto loans, in particular, are showing signs of weakness.

When looking at investment in asset-backed securities, the originator makes a difference. ABS backed by loans from online lenders such as SoFi, Lending Club Corporation, Prosper Marketplace Inc. and Marlette Funding have correlated with “prime credit quality.” But that is not the case across the board.

Source: ValueWalk

Square to small banks: Don’t lump us in with Amazon and Facebook (American Banker), Rated: A

Square, the Silicon Valley payment processor that is at the center of the fight over the tech industry’s ambitions in banking, is firing back at its small-bank critics, while also taking steps to placate community activists.

Advocacy groups that once expressed concern about the adequacy of Square’s plan to satisfy its obligations to low- and middle-income customers are now sounding more supportive of the fintech’s bid to open a bank.

Levi King of Nav (Lend Academy), Rated: A

In this podcast you will learn:

  • Levi’s background that led to the founding of Nav.
  • The products that Nav offers today.
  • How their business model works.
  • How they get small business owners interested in finance.
  • How Nav saves their customers money.
  • Why Levi thinks that small business owners may not need to be educated on finances in the future.
  • Their approach to producing content on their site.
  • The marketing channels they use to attract small business owners.
  • Levi’s thoughts on the entry on Amazon, PayPal and Square into small business lending.
  • Why proprietary data sets are going to be so important going forward.
  • The story behind the Nav brand and why they rebranded a couple of years ago.
  • The big name equity investors they have and how they closed their funding rounds.
  • What the future holds for Nav.

Traditional FAs Shouldn’t Fear AI (Financial Advisor IQ), Rated: A

Traditional wealth managers are convinced the advent of robo-advisors and artificial intelligence threatens the jobs of financial services professionals, Wendy Spires writes on WealthBriefing. But the reality is that the high-touch business of financial advice stands to benefit from AI, as do its traditional practitioners, she writes.

For example, while 71% of wealth managers believe financial advice clients are prepared to accept advice from robo-advisors, the reality is different, she writes. Self-directed investing, for example, dropped from 45% in 2010 to 38% in 2016 — during a time when the number of robos and the services they offer expanded significantly, according to Spires.

 

Working in America’s gig economy (Multibriefs), Rated: A

“The gig economy … is now estimated to be about 34 percent of the workforce and is expected to be 43 percent by the year 2020,” notes Intuit CEO Brad Smith. “We think this points to a lot of growth as we look ahead.”

Based on the most recent demographic data available from the Bureau of Labor Statistics, it appears the gig workforce is fairly evenly distributed across the age spectrum, but the highest percentages are seen at opposite ends of the scale. Individuals 65 years and older had the highest level of self-employment at 24.1 percent, while those under 35 (the so-called millennial generation) made up 18 percent.

BLS data reveals a few more interesting statistics concerning the gig workforce:

  • Men are almost twice as likely as women to be self-employed.
  • More than 30 percent of gig workers possess professional or advanced degrees.
  • Whites and Asians are marginally more engaged in gig work than are other racial or ethic groups.

In fact, data crunched by online lender Earnest and reported by Priceonomics indicates that about 85 percent of gig workers make less than $500 per month.

Consumer board seeks $ 287 million in restitution over CashCall case (Northern California Record), Rated: A

A Nov. 20 hearing featured the Consumer Financial Protection Bureau calling CashCall a purveyor of “financial snake oil” and arguing the online lender should pay as much as $287 million because they deceived customers.

How To Build The Best B2B Customer Experience (Forbes), Rated: A

In order to build the best B2B customer experience, companies should focus their effort on four principles:

  1. Invest in digital systems. Financial technology start-up Kabbage leverages new technology to approve small business loans in just seven minutes—a huge improvement over the 20 days it takes a typical bank. By simplifying the loan application process for web and mobile, Kabbage allows customers to apply for loans within minutes from anywhere in the world, which relieves a huge pain point for small businesses.
  2. Leverage data.
  3. Customize the experience.
  4. Use omnichannel to see the big picture. In fact, the average B2B customer uses six different channels as they make a decision. Customer experience happens in many places, which means companies need to create a consistent omnichannel experience.

Interesting Investments: Peer-to-Peer Lending (Equities.com), Rated: A

Peer-to-peer (P2P) lending, also known as peer lending, crowdlending, or social lending, is essentially what it says on the tin: lending money to another in an unsecured loan.

Prosper, one of the bigger companies managing P2P lending, has seen a fairly consistent return of about 9 percent through 2014, with a dip to 6.6 percent in 2012. Lending Club has seen a rise from 4.9 percent in 2009 to about 8 percent in 2014. All told, not bad ROIs.

First, you must be at least 18 years old, with a Social Security number, and live in an eligible state to even consider investing. Then, some states require that you have a minimum $70,000 gross income ($85,000 for California), and a minimum net worth of $70,000. You may not be able to invest more than 10 percent of your net worth. However, if your net worth is at least $250,000, there is no minimum income requirement.

Prosper, for example, has an annual default rate 3 to 4 percent higher across all grades. Lending Club has a 6 to 7 percent default rate.

Boston Fintech Company Cayan Is Getting Acquired for $ 1.05B (Bostinno), Rated: B

Cayan, a payment processing company that has been around the Boston fintech scene for the last 19 years, is in the process of getting acquired by Total System Services in an all-cash transaction valued at approximately $1.05 billion. The transaction is expected to close in the first quarter of 2018.

United Kingdom

Octopus Choice passes £100m AUM (AltFi), Rated: AAA

Octopus Choice has passed £100m of assets under management, following on from the launch of its Innovative Finance ISA in the summer.

Assetz Capital Makes Changes to the Great British Business & Green Energy Accounts (Crowdfund Insider), Rated: A

On Monday, online lending platform Assetz Capital announced it is doing away with the Great British Business Account (GBBA) and the Green Energy Account (GEA).

Ranger Direct Lending makes further $ 9.1m provision for Argon Credit (AltFi), Rated: A

The £232m Ranger Direct Lending fund has made a further $9.1m provision against its indirect investment in the collapsed Argon Credit lending platform.

ThinCats Reveals New Branding, Launches Updated Website (Crowdfund Insider), Rated: B

SME peer to peer lender ThinCats has launched a new website and branding designed to position itself for its next phase of growth in 2018.

Goji – Empowering Direct Lending (LinkedIn), Rated: B

Paul McMahon, former group marketing director of Aegon and UK CEO of FNZ, and Vincent Bordes, Founding Partner of Vestigo, the credit risk consultancy, will comprise the advisory board. Elizabeth McCallum joins as Goji’s Head of Marketing,  David Beacham as our Head of Distribution, and Rehan Islam as Head of Investments.

China

China’s Wild Bunch: Startup Investors Are Cashed-Up Cowboys (WSJ), Rated: AAA

In the first 11 months of this year, 3,418 new venture-capital and private-equity funds in China raised 1.6 trillion yuan ($241.76 billion), more than double the amount of 2015 and more than 10 times that of 2006, according to consultancy Zero2IPO Group. It estimates about 12,000 investment firms manage 8.5 trillion yuan in capital, an increase from 8,000 firms managing 5 trillion yuan in 2015.

Out of 221 unicorns in the world, 59 are in China, according to CB Insights. While that may lag behind the 127 from the U.S., it’s ahead of the U.K.’s 12 and India’s nine. Many Chinese investors want to invest in Silicon Valley because they think the valuations there are more reasonable.

Government agencies and local governments have announced 1,040 venture funds since 2015 aiming to raise about 8 trillion yuan, according to Zero2IPO. Much of the money is used to lure businesses to set up local offices, to help boost employment and tax revenues. The Hubei Province’s 200 billion yuan fund is believed to the largest of its kind.

Source: The Wall Street Journal

Borrowing From Multiple Online Lenders Remains Prevalent (Caixin), Rated: AAA

In China, online lenders or peer-to-peer (P2P) platforms that only facilitate lending do not have full access to borrowers’ credit information as there is no such centralized platform that shares the data.

Some borrowers take advantage of this information asymmetry to apply for loans from multiple lenders so they can roll over previous debts elsewhere, or to take out cheaper loans to repay the ones that charge higher interest rates and profit from the difference, or even become lenders on other P2P platforms themselves, according to a study by the Beijing Internet Finance Industry Association.

The association’s recent report found that among the 61 online lenders surveyed, 44% of their customers on average had borrowed from multiple sources.

The survey found that nearly 500,000 borrowers tried to profit from arbitrage by taking advantage of the different interest rates charged by different online lenders. On average, each of them borrowed from 2.36 online lenders, the survey said.

China’s war on risk hands US$ 121b loan market to big firms (The Malay Mail Online), Rated: AAA

China’s whac-a-mole approach to risk — hit it everywhere it pops up — is set to hand control of the surging US$121 billion technology-driven lending market to a small group of leaders such as Lufax Holding and the finance affiliate of Jack Ma’s Alibaba Group Holding Ltd.

Macquarie estimates credit extended by China’s fintech firms will jump more than seven-fold by 2022 to 6.2 trillion yuan (RM3.8 trillion) to pay for things like luxury and household goods or training and education. About half that market is micro-lending — typically small, short-term loans with high interest rates, Macquarie says.

China’s 10 biggest fintech companies account for 36 percent of all loans, said Dexter Hsu, a Taipeh-based Macquarie analyst. Tighter regulation could erode China’s more than 2,000 online micro-lenders and so-called P2P platforms, which directly match borrowers with investors, to less than 200, he said.

Chinese FinTech IPOs Don’t Dazzle Wall Street (PYMNTS), Rated: A

Newly listed Chinese FinTech companies in the U.S. are struggling on Wall Street, leaving investors with unexpected losses and posing as a setback to other Chinese firms hoping to go public.

“The quality of the businesses were either too early [to go public], untested or just poor,” said Anh Lu, an equities portfolio manager at T. Rowe Price in Hong Kong. “And they were asking for very high valuations on top of that.”

European Union

Funding Circle hits €100m lending milestone in Germany (P2P Finance News), Rated: AAA

FUNDING Circle has hit the €100m (£88.2m) loans milestone in Germany just two years after launch in the country.

The business lending platform says 3,000 investors have backed 1,100 German businesses and created more than 2,000 jobs since 2015.

The platform entered the European market following its acquisition of German platform Zencap in 2015. It now has operations in the UK, US, Germany and the Netherlands.

Earlier this month it said it had passed £3bn of lending in the UK and $5bn globally across all its platforms.

C’est Génial! Younited CREDIT Tops 100,000 Loans (Crowdfund Insider), Rated: AAA

Younited Credit has just surpassed 100,000 in loans since platform inception. The Paris based online lender (formerly named Pret d’Union) reported an accelerating rate of loan originations as the number has doubled since September 2016 when total loans stood at 50,000. The platform provides loans from €1000 to € 40,000. To date, Younited Credit has originated over € 650 million in loans.

BorsadelCredito.it Raises €1.6M in Funding (FinsSMEs), Rated: A

BorsadelCredito.it, a Milan, Italy-based fintech startup, raised €1.6m in funding.

The round was led by P101 Ventures, with participation from Azimut Enterprises Holding, GC Holding, Banca Popolare di Fondi and private investors.

DreamQuark wins the 2017 Fintech of the Year (Digital Journal), Rated: B

A startup company called DreamQuark, which produces Artificial Intelligence applications for financial services, has been awarded the Finance Innovation ‘Fintech of the Year’ prize.

National Personal Credit Platform Appoints Chairman (Caixin), Rated: B

The chairman of a wholly-owned central bank subsidiary, Zhu Huanqi, has been appointed chairman of a planned national personal credit-information platform, Caixin has learned from sources familiar with the matter.

International

Online Banking and Payments: Innovative Solutions on the Horizon (FinsSMEs), Rated: AAA

In the near future, online banking and payments will go through some fascinating changes beyond what has already happened over the past several years.

Advanced Mobile Payments

Today, there is increasing demand for biometric authentication apps. To ensure that consumers get what they want, MasterCard is going a step further by developing facial identification, voice recognition, and even cardiac rhythm programs. These innovative solutions will enhance the mobile payment experience for customers and retailers alike.

Growing Opportunities for Mobile Wallets

Back in 2014, Apple was the only real contender for mobile wallets. Within just one year, others followed their lead, including Samsung and Google. Then, in just a short amount of time, more big-name players joined in, such as Chase, Amazon, and Walmart. However, that was not the end. Even social media platforms started offering online payment options. With sites like Facebook that have mobile wallet solutions, people can send money and make payments.

Another prediction is that by 2025, 75 percent of all transactions will be made using mobile wallets rather than actual cash.

Greater Demand for Digital Remittances

For instance, a San Francisco-based company founded in 2001 called Xoom has experienced amazing growth because of digital remittances. In fact, it passed up MoneyGram, which speaks volumes.

Growth Potential with Peer-to-Peer Lending

For instance, having originated loans over $20 million since being founded, Lending Club ranks as one of the fiercest competitors in this arena.

How Banks Are Leveraging Chatbots for Customer Service (Crowdfund Insider), Rated: A

Bank of America: Erica

In October of 2016, Bank of America unveiled Erica, their new AI chatbot. Available in the bank’s mobile app, Erica can work with voice and text commands.

Erica uses machine learning and specially-designed algorithms to provide Bank of America services that were typically reserved for the bank’s top-tier customers. As an example, it could recommend a way to pay down more on your credit card debt to save on interest payments. Or if your checking account is close to being overdrawn, it could contact you to recommend a transfer from your savings account.

Swedbank: Nina

Customers can access Nina from the bank’s website, and it can understand a wide range of text requests using specially designed Natural Language Understanding technology.

In the first three months after Nina’s release, the software was handling an average of 30,000 customer interactions per month.  Of those early interactions, Nina was able to provide a resolution rate of 78%.

Capital One: Eno

Eno from Capital One is a chatbot program that works through SMS messaging.

You can use this AI chatbot to check the balance on your accounts, see your available credit, track recent transactions, pay bills, and more.

Wells Fargo

The Wells Fargo virtual assistant is a chatbot that the bank recently released for use with Facebook Messenger. Once a customer enrolls their account, they can then use Messenger to contact the virtual assistant for basic tasks like tracking recent transactions, balance inquiries, and finding the nearest ATM.

Digital investments: Modern ways to invest in the digital age (Bankless Times), Rated: A

The internet has brought about all kinds of new ways to invest one’s money.

  • Bitcoin
  • Peer-to-peer lending – You’re best off using a well-established site such as Ratesetter.
  • Micro-investment apps – Some apps round up all of your expenses to the nearest dollar and then put the leftover change into an account (for example, if a cup of coffee costs $3.14, this will be rounded up to $4 and the $0.86 extra change will be put into the account).
  • Social media shares
Australia/New Zealand

Australian Fintech Airwallex Secures $ 8 Million Investment From Square Peg (Crowdfund Insider), Rated: AAA

Less than one year after securing $13 million during its Series A funding round, Aussie fintech startup Airwallex announced it has received an $8 million investment from Paul Bassat’s Square Peg.

Testing a chatbot’s home loan advice gives a range of outcomes (Stuff), Rated: A

A mortgage broking firm is offering an AI chatbot to help first-home buyers understand some of the basics – but an experiment shows you shouldn’t put too much faith in any online calculators’ estimates of how much you might be able to borrow.

Squirrel has launched Alan, an online tool that answers questions like “how much deposit do I need”, “what’s an auction” and “how much can I borrow?”

Regulatory Pathway for Challenger Banks Just OK, Could be Improved (Crowdfund Insider), Rated: A

FinTech Australia has provided a comment onthe consultation paper published in August regarding authorising new entrants into the banking industry. The creation of digital challenger banks in Australia is a welcomed move but, according to FinTech Australia, needs some improvement.

India

5 Consumer Lending Trends To Look Forward To In 2018 (Inc42), Rated: AAA

This amendment to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 is a step towards standardisation and providing a visible digital identity, thereby promoting transparency in financial transactions. Another factor that is pushing financial transparency is the rise of Fintech and the subsequent new-age companies that are offering digital avenues for finance such as payment platforms, blockchain companies, alternative financers like P2P lenders and so on.

Consumer Lending Trends To Look Forward To In 2018

Alternative Lending Boom

New service providers will serve the underserved and unserved, meeting the unmet demand. We will continue to see the rise of direct lending as well as P2P lending, marketplaces, crowdfunding platforms etc.

Ease Of Access To Credit

Credit will continue to grow, thanks to the alternative lending boom. One such burgeoning space is the Line of Credit. It has gained momentum in 2017 with the metros being early adopters and is expected to expand into tier 2 & tier 3 cities in 2018.

The Rise Of InsurTech

Investment In Emerging Technologies

Blockchain will expand in putting together smart contracts, and digital identification. Already, FinTech investments in Asia increased to $5.4 billion in 2016, up 12.5% from $4.8 billion in 2015, driven mainly by China and India.

Government And Regulatory Push For Fintech

Asia

Unique Secured P2P Lender Silver Bullion Reaches $ 50 Million in Loans (Crowdfund Insider), Rated: AAA

Silver Bullion, a peer to peer lending platform based in Singapore, has reached $50 million in loan originations. The unique platform that provides secured lending based off of bullion saw more than double the lending volume in 2017 versus year prior.

Amartha Powers Micro Peer to Peer Lending in Indonesia, Focuses on Women Entrepreneurs (Crowdfund Insider), Rated: A

Amartha Founder & CEO, Garuda Typhoon Andi Putra recently commented;

“Since its establishment, Amartha has been committed to connecting the unbanked micro entrepreneurs, and investors who want to add this asset investment in a sector that is more profitable and socially valuable. The uniqueness lies in the micro-entrepreneurs or Amartha Partners, all of which are women. Today, more than 72,000 women micro entrepreneurs throughout Indonesia have enjoyed our services, with a total fund distributed more than 200 billion rupiah (US $ 15 million). “

Affin Islamic Bank lists latest sponsored venture on IAP (New Straits Times), Rated: A

KUALA LUMPUR: Affin Bank Bhd’s wholly owned subsidiary, Affin Islamic Bank Bhd, has today listed its latest sponsored venture with Segi Seri Sdn Bhd on Investment Account Platform (IAP), a shariah-compliant platform similar to crowdfunding and peer-to-peer lending platforms.

Affin Islamic said the venture plans to raise RM3.3 million on IAP to part-finance contract awarded to them recently, which is related to preparation and serving of dietetic food to an established government hospital in Malaysia for a duration of three years.

 

Canada

Another challenge is the new technology. Instant Financial Inc., a Vancouver-based startup, released an app this year that lets workers paid by the hour get their day’s earnings after a shift. It’s free for employees. Employers pay a fee. The focus so far is the hospitality industry, and includes companies such as McDonald’s and Outback Steakhouse in the United States. Instant has about 175,000 people on the service in the United States and about 5,000 in Canada. Wal-Mart has a similar product, which it sourced from another company.

Africa

A mobile banking service is transforming how the poor transfer money — here’s how it works (Business Insider), Rated: AAA

In 11 countries around the world, some 30 million people use a mobile money service that is transforming how people handle their finances.

It’s called M-Pesa, and it has lifted hundreds of thousands of people out of poverty in Kenya.

Krispo, 40, is enrolled in GiveDirectly’s experiment in basic income, a system of wealth distribution in which people receive a standard salary just for being alive.

The money comes with no strings attached. Krispo and the other villagers have received $22 a month since October 2016, and they’ll continue getting it until October 2028.

Scattered around town are M-Pesa stands, outfitted with live agents who can dispense money — essentially an ATM with a human teller.

There is a small fee for each transaction. For the amount given to GiveDirectly recipients, this fee is 30 shillings. (GiveDirectly actually wires 2,280 shillings each month — 30 shillings above the 2,250 recipients can spend — to cover the cost.)

Authors:

George Popescu
Allen Taylor