China Rapid Finance’s U.S. IPO Has Been Less Than Stellar

China Rapid Finance’s U.S. IPO Has Been Less Than Stellar

Chinese marketplace lenders do not enjoy a stellar reputation in the world market, but the sheer size of the market renders it virtually impossible to ignore them. According to one report, there are 2,000 active P2P lenders in China, and in January alone, P2P transactions accounted for $32 billion. In 2015, one of the biggest […]

China Rapid Finance’s U.S. IPO Has Been Less Than Stellar

Chinese marketplace lenders do not enjoy a stellar reputation in the world market, but the sheer size of the market renders it virtually impossible to ignore them. According to one report, there are 2,000 active P2P lenders in China, and in January alone, P2P transactions accounted for $32 billion. In 2015, one of the biggest Ponzi schemes in the country’s history was exposed after the internet lender Ezubao was found guilty of duping more than 900,000 people for almost $7.6 billion. To prevent such frauds, the Chinese Banking Regulatory Authority (CBRA) has mandated that P2P lenders need to appoint a commercial bank as custodian for their clients’ funds. Such sweeping changes have been placed to safeguard the interest of lenders, borrowers as well as the investors.

Enter China Rapid Finance

China Rapid Finance was founded in 2001 as a consumer lending marketplace aimed at serving China’s emerging middle class. The company wants to target urban Chinese between the ages 18 and 29. This demographic consists of over 500 million individuals and is known as “Emerging Middle-Class Mobile Active” (EMMA). It has partnered with major internet platforms in China to locate creditworthy EMMAs using various data sources. The company seems to have hit the sweet spot as it has served more than 1.4 million borrowers and has facilitated over 10 million loans.

The company offers two types of loans to customers. Its focus is to help them in building a credit history.

The first type of loan is a consumption loan that ranges from $72 to $865. The other type of loan is for larger purchases like college fees and healthcare and ranges from $865 to $14,400. According to the company, EMMAs borrows roughly 10 times per year. So by lending to them, the company is able to acquire a long-term repetitive customer base.

China Rapid Finance’s U.S. Initial Public Offering (IPO)

China Rapid Finance listed on April 28th, 2017 and opened for trading on the New York Stock Exchange under the symbol XRF. The company was planning to raise $105 million by offering 10 million American depository shares (ADS) at an average price of $10.50 to achieve a fully diluted market value of $586 million.

The company’s 10 million ADS were finally priced at $6.00 allowing XRF to raise $60 million, which came as a big setback for the company considering its funding goal. It was supposed to be a better outing for the company since it had managed to raise $35 million in Series C funding at a valuation of $1 billion. Today, the company is valued at $350 million and opened at $7.48 per share.

Source: Google Finance

Morgan Stanley & Co., International plc, Credit Suisse Securities (USA) LLC and Jefferies LLC were the joint book runners for the IPO.

Performance of Other Chinese Fintech Company at NYSE

China Rapid Finance Ltd is not the first Chinese fintech company to be listed on NYSE. Yirendai Ltd, the consumer finance arm of Chinese P2P lender CreditEase, has been doing fairly well since their IPO compared to their American counterparts like Lending Club and OnDeck, who have continued to struggle.

In 2015, Yirendai shares hit NYSE at $10 each. Today, its shares are trading over $23, representing rich gains for the company’s investors.

Chinese companies prefer the United States stock exchanges because they feel that America is much more mature and receptive to marketplace lending. What will be interesting to see is whether other Chinese fintech companies follow China Rapid Finance. Some already have. The risk of taking a hit on valuation is an extremely pertinent matter. But Chinese companies will still look at American shores for the depth of their capital markets.

Conclusion

IPO is a crucial milestone for start-ups to measure their success and raise capital from the public to kickstart their journey as a mature company. But alternate lending startups and IPOs haven’t gelled well in the past, to say the least. Lending Club, known as the pioneer of tintech lending, found itself in a mess due to lapses in disclosures, which led to its founder-CEO Renaud Laplanche leaving the company in 2016.

Another fintech biggie, OnDeck Capital, is trading lower by more than 50% from its January highs. Though American fintech lenders are delaying their public offerings, China Rapid Finance Ltd has bucked the trend by going for an IPO.

The American fintech lending industry has been extremely quiet with regards to any plans for an IPO. Investors are also not keen with the underperformance of OnDeck and the regulatory shenanigans of Lending Club. But Chinese firms are keen to explore the opportunity to get listed. One big advantage is that listing has huge bragging rights and gives the company a massive reputational boost, especially in front of lenders back home. It will be interesting to analyze their long term performance on the American exchanges. Will they able to sustain the expected scrutiny from American investors and regulators is also a big question mark.

Author:

Written by Heena Dhir.

Tuesday May 9 2017, Daily News Digest

Lending Club

News Comments Today’s main news: OnDeck reports Q1 2017 results. dv01 partners with SoFi. Elevate Credit announces Q1 2017 results. SoFi lets employees sell 20% of vested stock. Crowd2Fund announces new venture debt product. Klarna, Trustly fight EBA on bar screen scraping. Today’s main analysis: LC may  have hit a dead end. The real returns for Prosper investors. Today’s thought-provoking articles: […]

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OnDeck Reports First Quarter 2017 Financial Results (PR Newswire), Rated: AAA

OnDeck® (NYSE: ONDK) today announced first quarter 2017 financial results, additional planned cost savings, and a target to achieve GAAP profitability in the second half of 2017.

Loans Under Management increased to $1.2 billion, up 25% from the comparable prior year period, driven primarily by the growth of originations over the period.  In the first quarter of 2017, originations were $573 million, up 1% from the prior year period, primarily reflecting the impact of credit tightening implemented during the quarter.

Gross revenue increased to $92.9 million during the first quarter of 2017, up 48% from the comparable prior year period.  The increase in gross revenue was primarily driven by higher interest income, partially offset by lower gain on sale revenue. Interest income increased to $87.1 million during the quarter, up 63% from the comparable prior year period, and primarily reflected the growth of average loans, which increased 66% versus the comparable prior year period.  The Effective Interest Yield for the first quarter of 2017 was 33.9%, down from 34.5% in the comparable prior year period, primarily reflecting changes in portfolio mix over the period, partially offset by recent price increases.

Gain on sale was $1.5 million during the first quarter of 2017, down 79% from the comparable prior year period. The decline primarily reflected a lower Gain on Sale Rate during the quarter and the decision to reduce the amount of loans sold through OnDeck Marketplace.  OnDeck sold $42.0 million1 of loans through OnDeck Marketplace at a 3.5% Gain on Sale Rate during the first quarter of 2017, compared to $123.7 million1 of loans at a 5.7% Gain on Sale Rate in the first quarter of 2016.  Loans sold or designated as held for sale through OnDeck Marketplace represented 9.0% of term loan originations in the first quarter of 2017 compared to 25.9% of term loan originations in the comparable prior year period.  To optimize long-term financial performance, OnDeck plans to reduce the percentage of term loan originations sold through OnDeck Marketplace to less than 5% for the remainder of 2017.

Net revenue was $35.4 million during the first quarter of 2017, down 13% versus the comparable prior year period. The decline in net revenue reflected the reduction of OnDeck Marketplace sales, which led to lower gain on sale revenue, and higher provision expense in the first quarter of 2017 versus the prior year period.

Provision for loan losses during the first quarter of 2017 increased to $46.2 million, up from $25.4 million in the comparable prior year period.  The increase in provision expense primarily reflected a 20% increase in originations of loans designated as held for investment in the period and the comparatively lower original loss estimate for loans originated in the prior year period. The Provision Rate in the first quarter of 2017 was 8.7% compared to 5.8% in the prior year period, reflecting that the credit tightening in the first quarter of 2017 was not in effect for the full quarter and the previously mentioned lower loss estimates in the prior year period.  The Provision Rate decreased sequentially from 10.2% in the fourth quarter of 2016.  OnDeck expects the Provision Rate for the remainder of 2017, taken as a whole, to be approximately 7%.

The 15+ Day Delinquency Ratio increased to 7.8% in the first quarter of 2017 from 5.7% in the prior year period and from 6.6% in the fourth quarter of 2016 due primarily to the continued seasoning of the portfolio.  At the end of the first quarter of 2017, the average term loan age in OnDeck’s portfolio was 4.5 months, up from 3.3 months in the prior year period and 3.9 months in the fourth quarter of 2016.  The Net Charge-off rate increased to 14.9% in the first quarter of 2017 from 11.2% in the prior year period and increased sequentially from 14.2%.

The Cost of Funds Rate during the first quarter of 2017 increased to 5.9% from 5.5% in the prior year period primarily due to the increase in short-term rates.

Operating expense was $46.7 million during the first quarter of 2017, up 5% over the comparable prior year period.  Operating expense in the first quarter of 2017 was favorably impacted by the company’s previously announced cost rationalization plan which is expected to produce approximately $20 million of annual savings relative to its 2016 exit operating expense run rate.  Additionally, operating expense in the first quarter of 2016 benefited from a $1 million release in the reserve for unfunded loan commitments and a $1 million gain related to changes in foreign currency values.  Without these benefits, operating expense between the two periods would have been relatively flat.  The company is implementing an additional $25 million of operating expense run rate savings compared to OnDeck’s 2016 exit run rate, the majority of which will be implemented over the remainder of 2017.  The savings are focused on the company’s U.S. lending operations and will be achieved primarily through a workforce reduction to be implemented in the second quarter of 2017.  Combined with the company’s prior workforce reduction, total headcount at the end of the second quarter of 2017 is expected to be approximately 27% lower than December 31, 2016 levels, due to both involuntary terminations and actual and scheduled attrition.

GAAP net loss attributable to On Deck Capital, Inc. common stockholders was $11.1 million, or $0.15 per basic and diluted share, for the quarter, which compares to GAAP net loss attributable to On Deck Capital, Inc. common stockholders of $12.6 million, or $0.18 per basic and diluted share, in the comparable prior year period.

Adjusted EBITDA* was negative $5.2 million for the quarter, versus negative $7.3 million in the comparable prior year period.  Adjusted Net Loss* was $7.6 million, or $0.11 per basic and per diluted share for the quarter versus Adjusted Net Loss of $8.8 million, or $0.13 per basic and per diluted share, in the comparable prior year period.

Unpaid Principal Balance was $1.03 billion at the end of the first quarter, up 57% over the prior year period.  The increase primarily reflected originations growth over the year and OnDeck’s decision to retain more loans on its balance sheet in connection with reducing OnDeck Marketplace loan sales.

Total Funding Debt at the end of the first quarter of 2017 was $788 million, up 69% over the prior year period, which primarily  reflected the growth of Unpaid Principal Balance as well as the increased utilization of debt facilities during the period.  OnDeck continued to expand its funding capacity in 2017. During the first quarter of 2017, OnDeck extended the maturity date of its asset-backed revolving debt facility with Deutsche Bank to March 2019 and increased the facility’s borrowing capacity to approximately $214 million. During the first week of May 2017, OnDeck extended the maturity date of its asset-backed debt facility that finances OnDeck’s line of credit offering to May 2019, increased the facility’s borrowing capacity to $100 million, and decreased the funding costs by 200 basis points.

At the end of the first quarter of 2017, cash and cash equivalents were $73 million, as compared to $80 million at December 31, 2016.

Guidance for Second Quarter and Full Year 2017

Second Quarter 2017

  • Gross revenue between $85 million and $89 million.
  • Adjusted EBITDA between negative $3 million and positive $1 million.

Full Year 2017

  • Gross revenue between $342 million and $352 million.
  • Adjusted EBITDA between positive $5 million and $15 million.

Adjusted EBITDA guidance for the second quarter and full year 2017 includes an approximately $3.5 million charge to be recognized in the second quarter of 2017 associated with the planned workforce reduction.

On Deck Goes From Hot Tech Startup to Dull Lender (WSJ), Rated: AAA

The online lender said Monday that it would put a renewed focus on achieving profitability by slowing growth and cutting costs. Shares fell by nearly 7% in response. Fundamentally, investors are finally waking up to the fact that On Deck is more of a niche financial company than a revolutionary technology platform.

Loan originations may decline by a fifth next quarter, and total originations will be lower this year than last.

If these sound like the business objectives for an ordinary bank, that’s no coincidence. The company plans to sell less than 5% of its loans through its online marketplace this year, Chief Financial Officer Howard Katzenberg said, down from 18% in 2016 and 34% in 2015. Of the rest, some will be securitized, but most will be held on its balance sheet.

On Deck’s shares are down 79% from their initial public offering in December 2014. At 1.2 times book value, it is now valued like a financial company and roughly in line with the average bank. This still looks a bit rich because it has no profits.

Lending Club may have hit a dead end (Business Insider), Rated: AAA

Despite the aftermath of a governance

Lending Club Keeps Pushing Its Comeback (PYMNTS.com), Rated: AAA

The last 12 months have undoubtedly been a difficult period for marketplace lending pioneer Lending Club.

But, as Q1 earnings hit last week, it seems clear that progress is happening — albeit at a fairly slow pace.

Retail investors also expanded, though more slightly — reaching 15 percent, up from 13 percent in the prior quarter.

Lending Club also announced $2 billion originations, surpassing $26 billion in total loans since inception almost ten years ago and 2 million total consumers served on its platform.

Moreover, investing in marketplace lending is not so profitable as it has been in the recent past, and returns to investors have dropped sharply.  Competition has forced down interest rates in the marketplaces to attract consumers with cheaper underwriting, and charge-offs have risen.

According to data from Orchard, a technology provider to the industry, total returns from an index of U.S. consumer loans came to 3.95 per cent last year, down from 8.71 per cent in 2014.

Lending Club’s stock performance has been flat over most of the last year, though it has lost roughly 60 percent of its stock value.

The firm has also seen a massive change-over in its staffing and leadership since its more scandalous days a year ago.  CEO Scott Sanborn cut and rehired 179 jobs and brought on a new CFO, COO, general counsel and chief capital officer.

Leading FinTech Analytics Platform dv01 Announces Reporting Partnership with SoFi (PR Newswire), Rated: AAA

dv01, the reporting and analytics platform that brings transparency to lending markets, today announced a reporting partnership with SoFi, a modern finance company taking an unprecedented approach to lending and wealth management. Institutional investors who use dv01 to conduct analysis on consumer loans and bonds will now have access to all SoFi securitizations, including student and personal loans.

Under the first phase of the partnership, dv01 will receive securitization data directly from SoFi, which it will normalize, format, and roll up for monthly level reporting. The data, which includes 23 historical deals, will be available through the Securitization Explorer, dv01’s online reporting and analytics portal for consumer securitizations.

Investors who have been approved to view SoFi data will have 24/7 access to updated loan level performance and composition details, as well as a suite of reporting and analytics tools. dv01 will be responsible for updating deal collateral data monthly, so investors can continue to track the evolution of a pool over time, even after the deal has closed.

dv01 has provided similar reporting services for several other online lenders, overseeing an aggregate securitized collateral balance in excess of $7 billion. The company launched its dedicated Securitization Explorer tool in February, and since then has also announced its role as Loan Data Agent for the Prosper Marketplace loan purchase consortium led by Jefferies LLC, Soros Fund Management, Third Point LLC, and New Residential Investment Corp, a Fortress Investment Group REIT.

Elevate Credit Announces First Quarter 2017 Results (Stockhouse), Rated: AAA

Elevate Credit, Inc. (NYSE:ELVT) (“Elevate” or the “Company”) today announced results for the first quarter ended March 31, 2017.

First Quarter 2017 Financial Highlights

  • 20% year-over-year revenue growth: Revenues totaled $156.4 million, a 19.6% increase from $130.7 million for the prior-year period.
  • Nearly 40% year-over-year growth in loans receivable: Combined loans receivable – principal, were $444.5 million, a 38.6% increase from $320.7 million for the prior-year period.
  • Stable credit quality: Loan loss provision was 52.9% of revenues and within our targeted range of 45%-55%. The ending combined loan loss reserve, as a percentage of combined loans receivable, was 15.7%, slightly lower than the 16.3% we reported for the prior-year period.
  • Record low customer acquisition costs: The total number of new customer loans for the first quarter of 2017 was approximately 53,000 with an average customer acquisition cost of $198, compared to approximately 41,000 customer loans and an average customer acquisition cost of $235 for the prior-year period.
  • Positive net income: Net income of $1.7 million, or $0.06 per pro forma diluted share, which was based on a 2.5 to 1 stock split and all preferred stock converting into common stock upon the IPO but it excludes the 14.3 million common shares issued in the IPO since this happened after quarter end.
  • Continued improvement in Adjusted EBITDA margin: Adjusted EBITDA was $24.9 million and the resulting Adjusted EBITDA margin was 15.9%.

Financial Outlook

For the full year 2017, the Company expects total revenue of $680 million to $720 million, net income of $13 million to $19 million and Adjusted EBITDA of $95 million to $105 million.

With an IPO on the shelf, SoFi lets employees sell 20 percent of vested stock (CNBC), Rated: AAA

Online lender SoFi is letting employees cash out a portion of their holdings to give them liquidity as the company waits to go public.

Last month, SoFi employees and ex-employees were permitted to sell 20 percent of their vested options in a secondary share sale that totaled $336.5 million, according to sources familiar with the matter. The offering priced the shares at $16.30, said one source, who asked not to be named because the deal was confidential.

The real returns for Prosper Marketplace investors (AltFi), Rated: AAA

Yesterday we learnt that leading US marketplace lender Prosper has been misstating investor returns, due to a system error.

The system error did not affect the money received by investors, only the calculation of their annual return.

Prosper has recently been equipping itself to represent its performance more accurately. The firm signed a deal with analytics firm AltFi Data in March, thus opening itself up to third-party scrutiny.

AltFi Data’s returns methodology gives Prosper a net return of 48.8 per cent over 5 years (up to 28 February 2017), equivalent to an annualised compound rate of 8.3 per cent.
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Square is rolling out its first debit card (recode), Rated: A

Last month, Jack Dorsey teased the launch of a Square debit card. Today, the company started allowing some users of its Square Cash money-transfer service to order one of these cards for themselves.

The prepaid card isn’t linked to your bank account, but instead to the Square Cash app. That means you can only use it to spend money that you are holding in your Square Cash account.

A Square spokesperson said these signatures are screened before printing to prevent inappropriate words and drawings from making their way onto the cards. But there is obviously wiggle room to include your Twitter handle, if you want to be like Jack, or just a first name, too. The cardholder’s first and last names are printed on the back of the card.

Creating a deeper relationship with Square Cash customers might also open up other business opportunities in personal finance for the $7 billion payments company. Lending, anyone?

AI may just create the illusion of good credit decisions (American Banker), Rated: A

AI is also second only to blockchain technology as the most overused and overhyped term referring to technologies that are taking over banking and finance, particularly in credit decisions.

The reality is AI will make lending more consistent and efficient; however, it remains to be seen if it will make lending safer.

How will regulators ever know if the AI algorithms are performing in a nonbiased way? Humans are the programmers of the algorithms, and therefore human biases and tendencies cannot but leak into the overall decision process.

We know the saying “bad data in means bad data out.” AI should help to solve that challenge as it more accurately identifies the “bad” or not useful elements. However, the challenge with AI may not be with “bad data” but rather a lack of necessary data as the economic environment changes.

To this end, neural networks, which are self-learning and so complex that the humans who create them are unable to describe them, also present a number of problems. The foremost problem is: If you don’t know how the decision is made, you cannot be confident that the decision is being made correctly. Yes, you can judge by credit performance. But when a lender runs afoul of a regulation, the regulators won’t accept “We just don’t know how it works” as an excuse.

Affirm Looks To Launch Everyday-Use Virtual Cards (Bank Innovation), Rated: A

Affirm, the lending startup that provides loans at the POS, is looking into launching everyday-use virtual credit cards, Bank Innovation has learned.

The company, launched by a PayPal cofounder Max Levchin, provides point-of-sale loans that allow customers, particularly millennials, to finance purchases with participating merchants. Once approved, consumers receive a one-time use virtual card via Affirm’s app, which they can use for the purchase. Then, depending on individual consumers, Affirm splits the bill into monthly payments.

The Future of Fintech and the importance of payments to a SaaS business: WePay’s Week in Payments (Wepay), Rated: A

Scanning the news in the payments world this week was an interesting exercise because the two standout themes are very much aligned with what we do here at WePay and with the future of digital payments. The first theme is around the future of Fintech and where the nascent industry is headed and the second is around the huge impact of delivering payments as a an integrated part of a solution rather than as an afterthought.

David Dunn, of Braintree Europe, has a piece in ITProPortal about why payments are more than plumbing. It’s a good piece and makes a great case for integrating payments. He says that you can help your business by making it easier for your customers to get to a checkout and by making it easier to scale. We would argue that a SaaS business can go even further by using payments to better retain existing customers and help them grow, better adding new customers by scaling as Dunn mentions and also by optimizing revenue for the platform itself. The way to achieve these goals is via white-label payments.

Kabbage’s Next Growth Phase (deBanked), Rated: A

When you consider the recent milestones Kabbage has achieved it makes it difficult to think of the fintech lender as a startup. In recent weeks Kabbage surpassed a couple of major milestones comprised of extending $3 billion in funding to 100,000-plus small businesses. More than half of those loans were directed toward existing credit lines. Kabbage also recently priced a $525 million private securitization, which tips the company’s hand on strategy.

Kabbage is pursuing its growth plans all while performing a confidential search for a new chief technology officer, details for which are expected to unfold in the coming months.

At the LendIt USA 2017 event, Kabbage co-founder & CEO Rob Frohwein alluded to the online lender’s plans to reach new territories, details for which were scarce. Treyger shared, however, that Kabbage’s global growth plans are somewhat tied to the company’s pipeline of banking partnerships.

Kabbage already counts as partners household names including Santander, ScotiaBank, and ING, all of which license software from Kabbage. Meanwhile, as big banks are accessing smaller businesses, Kabbage’s growth blueprint includes serving larger ones.

How fintech startup Elsen helps anyone become a data whiz (Built in Boston), Rated: A

With less than $1 million in total funding, fintech startup Elsen may not have much by way of investments, but a recent partnership with Thomas Reuters should bring some star power to the burgeoning company.

Founded in 2013 by three Northeastern grads, Elsen is a platform-as-a-service company that enables anyone at large financial institutions to harness massive quantities of data for better decision making and problem solving.

Besides offering data storage to some of the largest vendors in the world, Elsen’s product uses machine learning and AI to speed up the testing of financial algorithms by way of backtesting, a process that sifts through historical financial data to see how an algorithm would perform at tasks like automatically picking stocks, for example.

Interim OCC chief should put fintech charter on ice (American Banker), Rated: A

One thing that Keith Noreika, the new acting head of the Office of the Comptroller of the Currency, could tick off of his to-do list is to pause the OCC’s efforts to develop a fintech charter. Noreika should then take some time to assess whether the charter is developing in a way that best serves the public.

Former Comptroller Thomas Curry deserves major credit for getting the OCC to think about how to encourage innovation in the banking sector. The fintech charter is an important piece of this effort. Unfortunately, based on the most recent information put out by the OCC, it appears that the previous leadership wasn’t thinking sufficiently outside of the box. The charter is shaping up to needlessly mimic many of the requirements of traditional depository institutions, even though those requirements do not make sense in the nondepository context.

For example, requiring firms to get OCC permission to change business plans, and to convince the agency that the firm will not fail, are not necessary.

However, the OCC should not press pause on its response to the lawsuit filed by the Conference of State Bank Supervisors challenging the charter.

‘If you change the rules we’re going to disconnect you, fintech’ (American Banker), Rated: A

As one of the banking industry’s largest vendors, FIS says it might be well suited to help banks effectively navigate the world of fintech.

ANTHONY JABBOUR:  When Apple Pay came out, banks weren’t running to Apple Pay because they thought it would drive new streams of revenue for them. A lot of them did it because they were afraid the bank across the street would offer it and they would suffer by not offering it.

One thing we’re trying to do that’s a little different is, if we believe there’s value for our customers, we want to have the disruptor connect to the FIS network and have our banks connect to it from the FIS network, so we can leverage our banks’ negotiating power with the fintech.

What are some of the types of companies you’re thinking of—alternative lenders, PFM app providers, billing companies?

JABBOUR: Payments would be one. The banks that I speak to look at lending and they say banks lost the lending franchise and exclusivity and other companies popped up over the years and took a major portion of that. And they look at payments right now and they feel strongly they can’t lose the payments franchise.

Do you think that banks can take back market share in U.S. person-to-person payments with Zelle?

JABBOUR: We think that has a lot of potential. We offer Zelle to our clients. I believe we can create a capability for P-to-P for our banks that would be better than any fintech’s because we could make it real-time and it would be accessible from an ATM. I could send you money and you can go to an ATM with your mobile phone and withdraw the cash without having a bank account. We could also tie it with prepaid cards, so instead of me sending you $500, I could send you a $500 Home Depot gift card as a housewarming gift. It’s P-to-P, but it’s more thoughtful because we’re integrating it with prepaid.

What does it take for a payment platform to work? It takes brand recognition so people know it exists, and it needs ubiquity, it needs to work in every place you would want it to work. It’s never about the technology. I like with Zelle that banks said look we have to find a way to solve the brand issue, and if we all use the brand Zelle, that’s going to help. And I think it will.

I could see that argument, but you could argue that banks are late to this P-to-P payment party and that PayPal’s Venmo is the clear leader. Do you think the Zelle brand can win hearts and minds?

JABBOUR: Without question, banks are late to a number of capabilities. When you look at P-to-P, Venmo is the brand, it’s a verb. Whether or not banks can catch up with Venmo comes down to how compelling they make the offer, what else they can wrap around it, how much do they ultimately invest in it. What I know is, if they hadn’t pursued Zelle, they would have fallen further behind.

Crowdfunding: Now Anyone Can Own a Skyscraper! (Inside Indiana Business), Rated: A

Have you ever wanted to own a skyscraper? How about an entire apartment complex? Well, good news, now you can! And, you don’t have to meet “accredited investor” requirements. How? It’s called crowdfunding!

According to the University of Cambridge Judge Business School, in 2015 crowdfunding real estate transactions topped $1.2 billion; over three times the amount in 2014.

Research the Crowdfunding Platform: Currently, more than 125 crowdfunding platforms exist. According to Jason Best, a partner at Crowdfund Capital Advisors, you’ll want to consider comparing associated fees, the quality of property management, and the sustainability of the platform. As with any new industry, it’s safer to choose among the larger more-established companies such as Realty Mogul, Realty Shares, and iFunding, to name a few.

If you’re interested in learning more about this topic, I suggest you listen to podcast Episode #108, “Investing in Real Estate Via Crowdfunding Platforms,” on J. David Stein’s website, Money for the Rest of Us.

Listen to the podcast below:

Robot or human financial advice field is changing (VC Star), Rated: A

What if a visit to the financial adviser was more like an impromptu coffee grab than a dental checkup?

Instead of a boring annual visit, imagine a quick call from you adviser in which he makes a couple simple suggestions to keep your portfolio on track.

That’s the future, according to Michael Kitces, research director for Pinnacle Advisory Group in Columbia, Maryland. Speaking to financial advisers attending last month’s Morningstar Investment Conference in Chicago, Kitces tried to reassure them that investors, rather than turning their money over to automated investment platforms, will continue to pay for advice if it’s relevant and timely.

In a future aided by software tracking customer portfolios and everyday spending, advisers will already know their clients’ problems and will use more frequent chats to figure out fixes, he said.

Is Fintech creating Neo-Luddites demanding a “robot-tax”? (Daily Fintech), Rated: A

A (hypothetical) documentary titled “Software has been eating the world” about Microsoft, would have to cover the first decade (‘75-‘86) before the company went public and the stunning and difficult to replicate nowadays fact that about 12,000 Microsoft employees became millionaires, in addition to the 3 billionaires.

So, when Bill Gates spoke in February about the idea of “the robot that takes your job should pay taxes”, the world reacted.

Just recently, the city of San Francisco announced a change in its public policy framework that will make it the first city to implement a robot tax (Business Insider May 2, San Francisco is considering a once unthinkable measure to offset the threat of job-killing robots).

In financial services, there were no such issues raised when ATMs, online brokerage and e-banking transformed the financial industry.

In this second wave that follows the accelerated pace of tech innovation of other sectors, we all agree that we don’t want a world in which no bank submits candidacy for the Global Finance awards  Call For Entries: Digital Bank Awards 2017. Or a world that has an increased tax for the winner and those shortlisted in the Euromoney Best Digital bank awards: for 2016, Singapore’s DBS Bank, and the short list included BBVA, Citi, and ING.  Or a world that taxes more startups providing the “picks and shovels” for the future of Invisible Finance, like:

–       Cloud banking platforms offering Banking as a Service, like Mambu

–       Cloud based investment financial app stores, like Investcloud

–       AI chatbot technology providers like Kasisto

–       Self-Sovereign identity solutions, like Uport

–       Mortgage enterprise solutions providers like Roostify

The Fintech ecosystem is still relatively un-bundled and it would seem even more problematic to develop and apply a framework for a “robot tax” for the Fintech space.

Billionaire investor Draper to participate in blockchain token sale for first time (Reuters), Rated: B

Billionaire venture capitalist Tim Draper soon plans to take a step that even he, a long-time bitcoin aficionado, has eschewed to now: buying a new digital currency offered by a technology startup.

Draper, an early supporter of bitcoin and its underlying blockchain financial ledger technology, told Reuters in an interview he will for the first time participate in a so-called “initial coin offering” (ICO) of Tezos slated later this month.

Tezos, a new blockchain platform launched by a husband and wife team with extensive Wall Street and in hedge fund backgrounds, will launch the ICO on May 22. Draper will also invest in U.S.-based Dynamic Ledger Solutions Inc, the creator of Tezos, but did not disclose details.

Insight, JG Wentworth among top-rated on online marketplace (Mortgage Professional America), Rated: B

Insight Loans, JG Wentworth Home Lending and CBC National Bank have taken the top three spots in an annual ranking of mortgage lenders.

The league table from online loan marketplace LendingTree rates the lenders on its platform in three categories – mortgages, personal loans and auto finance – based on customer reviews.

CVC Credit Partners provides financing to support Wastewater Specialties, LLC (PE Hub), Rated: B

CVC Credit Partners (“CVC”) announced today that CVC’s U.S. Middle Market Private Debt business acted as Administrative Agent on a first lien senior secured debt facility provided to Wastewater Specialities, LLC (“WWS”). The proceeds were used to refinance existing debt and support future growth through equipment purchases.

United Kingdom

Crowd2Fund Announces New Venture Debt Product (Crowdfund Insider), Rated: AAA

On Friday, crowdfunding platform Crowd2Fund announced the launch of its new venture debt product, which is targeted towards early stage businesses that have a short term requirement to access cash to facilitate growth. The funding portal noted that the interest rates for the product’s loans range from 10% to 15%, with a borrow time period of normally no more than 12-18 months.

Crowd2Fund also noted those businesses that are suitable for the venture debt will be able to increase their value during the loan duration.

MOBILE BIOMETRIC PAYMENT VOLUMES TO TRIPLE IN 2017 TO NEARLY 2BN (Juniper Research), Rated: A

A new study by Juniper Research has found that the number of mobile payments authenticated by biometrics will rise to nearly 2 billion this year, up from just over 600 million in 2016.

The new research – Mobile Payment Security: Biometric Authentication & Tokenisation 2017-2021 – found that while Apple Pay had provided the catalyst for initial growth, other leading wallets including Android Pay and Samsung Pay were increasingly offering biometric solutions for authentication.

Furthermore, the size of the opportunity has been boosted by the greater availability of fingerprint sensors. According to the new research, around 60% of smartphone models are expected to ship with such sensors this year, with many Chinese vendors incorporating them into mid-range models.

The research emphasised the increasing momentum behind alternative biometric solutions. It recognised Mastercard as an early leader in this space through its Identity Check Mobile capability, due to go live later this year. Informally known as “selfie pay”, this allows users to scan their fingerprints and/or take selfies to validate their identities and thereby make payments.

PwC appoints leaders for Analytics, AI, Cybersecurity and FinTech arms (Consultancy.uk), Rated: A

In a bid to expand its footprint in the rapidly growing digital and technology-led innovation space, PwC, one of the major players in the field, has in recent weeks appointed a number of new senior technology positions in the UK wing of their group.

In another appointment aimed at driving growth in technology and financial technology (FinTech), Zubin Randeria, a PwC partner for 23 years non-consecutively, was unveiled as the new lead for around 200 cyber security experts in the UK, as the firm continue to focus on advising companies how to resist digital threats; a key concern of modern business.

Mark Leaver, PwC’s head of Financial Services Consulting since 2015, will meanwhile expand his existing role to include the multi-billion pound FinTech market in his scope. The FinTech space is growing fast, with interest in services particularly high among younger tech savvy users, and on the back of the spike global investments in FinTech companies grew to $25 billion last year, according to data from KPMG.

Bank of England criticised for fintech faux pas (Financial News), Rated: A

The Bank of England has come under fire for working with a fintech startup that was fined $700,000 by a US regulator for breaking banking secrecy laws.

Players in the fintech field have accused the central bank of appearing not to have conducted proper due diligence when selecting its partners after it emerged that Ripple, the startup chosen by the Bank of England to help research new blockchain technology, was fined for “willfully violating” several requirements of the Bank Secrecy Act.

RESCUE DEAL FOR MOTOR FINANCE PROVIDER (Insider Media), Rated: A

A Leicester-headquartered vehicle finance provider has been acquired out of administration.

Vehicle Trading Group called in administrators from Grant Thornton on 2 May 2017.

The company provided finance via its subsidiaries Vehicle Stocking Ltd and Vehicle Credit Ltd, which have now been sold to RateSetter.

China

11 Of The Largest Companies In China Dominate Chinese Fintech (Lend Academy), Rated: AAA

Of the 1.4 billion people in China, only about 300 million are in the national credit bureau, which means that more than a billion people have no credit profile.  Hundreds of millions of Chinese “unbanked” consumers are middle class, have high discretionary income, and would be considered prime or super prime borrowers. On top of that, the large Chinese banks have no history in making consumer and small business loans and were never designed for that purpose (they make infrastructure and commercial real estate loans).

We are seeing the leading Chinese companies from a diverse set of industries muscle their way into the fintech sector.  This article highlights some of the key players that have made the horizontal jump into fintech.

Ant Financial Services Group is owned by Alibaba Group, the largest e-commerce firm in the world.  Ant Financial is focused on serving small and micro enterprises as well as consumers. Ant Financial is the largest fintech company in the world.

JD Finance Group operates seven lines of business: supply chain finance, consumer finance, crowdfunding, wealth management, payment services, insurance and securities trading. JingBaobei is their microlending platform and Baitiao is their crowdfunding platform.

Baidu Jinrong is focused on many different verticals under different brands including consumer finance (Baidu Umoney), wealth and fund management (8 Baidu), payments (Baidu Wallet) and financial asset transaction platform services.

Greenland Group (Stock Code: 337.HK) is one of the world’s largest publicly traded real estate development companies with more than 15 million clients. They are the largest Chinese developer in the US. Greenland Financial was formed in December 2015 and it includes three main business sectors: an online wealth management platform for individual investors; a professional asset allocation and wealth management service for middle-class clients; and a cloud platform to provide internet technology and data analysis services.

Wanda Internet Finance Group leverages Wanda’s offline commercial platform to form a business division comprising of four activities: data application, credit service, online lending and payment, and creating an innovative financial offline-to-online model.

Lufax Holdings is one of the world’s largest and most successful fintech firms.  It is owned by Chinese insurance giant Ping An Group. The business consists of three divisions: Shanghai Lujiazui International Financial Assets Commodity Exchange Co (Lufax), Shenzhen Qianhai Financial Asset Exchange Company Ltd (QEX), and Puhui Financial.  Lufax offers wealth management and insurance services to its 23 million registered users, QEX focuses on institutional business and cross-border business, and Puhui Financial provides loans to consumers and micro-businesses.

Zhong An is China’s first Internet-based insurance company utilizing Big Data analytics.

Tencent has recently created Tencent FiT (Financial Technology Group), which includes TenPay (payments), WeChat Pay, Mobile QQ Wallet, Tencent Credit Services, and Tencent Licaitong, its money market fund and wealth management platform.

Tencent also launched WeBank, the first online-only bank in China, a joint venture that also includes Shenzhen Baiyeyuan Investment and Shenzhen Li Ye Group.

SinaPay is a social payments solution. Weiquanbao is a social wallet focused on mobile payments. Weicaifu is their Internet financial services company with a focus on personal financial management.

Phoenix Finance is an online platform, established by Phoenix Satellite Television Holdings, to provide intelligent financial services for Chinese investors worldwide.

Ezubao P2P Lending Fraud Update: 26 on Trial (Crowdfund Insider), Rated: A

Do you remember the Ezubao Ponzi scheme that ended in the single largest peer to peer lending fraud of all time? Investors, saw approximately 50 billion CNY or about USD $7.2 billion flushed down the tube. Reportedly 900,000 investors were impacted as an astounding 95% of the loans listed on the P2P lender’s site were said to be totally bogus.  Well process kicked off at the end of last year and according to a report from Xinhua, 26 Ezubao executives are now on trial. Proceedings are taking place in No. 1 Intermediate People’s Court in Beijing. Ezubao executives Anhui Yucheng and Yucheng Global and 10 company executives, including Yucheng chairman Ding Ning, have been charged with fraud.

European Union

Fintechs fight plan to bar screen scraping and protect European banks (CNBC), Rated: AAA

A coalition of 62 financial technology (fintech) firms including Klarna and Trustly and lobbying organizations such as the European Fintech Alliance (EFA) are fighting plans by the European Banking Authority (EBA) to ban screen scraping of customer data from online banking interfaces.

The screen scraping ban would come into force as part of the draft regulatory technical standards (RTS) rule under the European Union’s (EU) revised Payment Services Directive (PSD2) regulation.

Screen scraping is the process of collecting screen display data from one application and translating it so that another application can display it. This is normally done to capture data from a legacy application, such as an IBM mainframe computer for instance, in order to display it using a more modern user interface such as a PC or mobile. However, it can also be used to steal data or, depending on your point of view, legitimately gather business intelligence.

The EBA proposals are meeting fierce resistance from European fintechs that have signed a manifesto to fight the plan.

International

Introduction To P2P Lending Marketplace (Code Brahma), Rated: A

One of the biggest advantages of using an online P2P lending platform is that the loans are usually cheaper as the platforms operate with lower overheads and software powered automation. The P2P lenders charge money for the platform and doing credit checks for borrowers.

So, if a platform decides the unit note to be valued at $10 and an investor decides to invest $10,000 she’ll end up with 1000 notes to invest in borrowers.

One loan is typically funded by multiple investors. An investor willing to invest 1000 notes can choose to fund 10 different loans with 100 notes each or can mix and match the amount with loans.

According to a PwC report, the P2P lending platforms in the United States issued loans worth $ 5.5 Billion approximately. The global P2P market was estimated at $26.16 Billion in the year 2015. Transparency Market Research predicts the market to grow by CAGR of 48.2% year on year, reaching a whopping $897.85 Billion by the year 2024. Research and Markets expects the P2P market to grow at a CAGR of 53.06% between the years 2016 and 2020. Morgan Stanely predicts the market to be valued at $490 Billion by 2020.

Fintech vs Bank: Roles And Advantages Of Both Parties (ValueWalk), Rated: B

Globally, fintech funding was US$5.5 billion since 11 years ago and can be up to US$78.6 billion now.

According to TechinAsia, the reasons why consumers can adopt fintech are because of it is easy for them to set up an account, in fact, rates and fees that fintech offered are more attractive and cheap. On the other hand, fintech helps SMEs to acquire some funds.

Banks provide many services such as savings, loans, transfer of funds and much more. Some said that banks would disappear in the future. However, as long as bank dominates on lending, investing and deposits, they will sustain in the market. Banks basically will keep the customer’s information and will not easily give it to other parties. So the customer will feel more secure and safe doing the transaction with the bank.

India

Fintech Forging The Future For Cashless Economy (Techstory), Rated: AAA

When Prime Minister Narendra Modi announced on November 8 that over 80% of our paper currency would be obsolete thereon, most of the country was left spell bound. While this was a move to discourage and partially halt the flow of counterfeit currency in a supposedly invisible economy, also crippling most industries and investors, there was one industrial sector that sat by the side and smirked – FinTech.

While the ripples of the move are still being felt every now and then, the financial climate is much more stable now than it was 5 months ago.

The first challenge, aided in part by the recent Demonetisation announcement, is that of making the population aware of the ease and comfort associated with online banking and cashless transactions. Not only does this involve an ideological shift, it also requires the population to cross a mental barrier – security.

Looking at it through this lens, it comes as no surprise that a report by Finextra Research Ltd. states that 69% of existing FinTech firms plan on raising their expenditures on content marketing. The scope of development for an online app of such a sort can be exponential, as has been witnessed by the growing popularity of Paytm!

In fact, certain projections point to a 30% decrease in banking employment over the next decade, as the concentration of delivering banking services in person decline with time.

While we have always been used to being dependent on our banking corporations to provide the chunk of capital services that we have always required, over time, it will be these fintech apps that will do the job, with banks holding safe, liquid assets and deposits. The borrowers and savers will now all be available on your smartphone.

While the landscape of lending and borrowing might change when it comes to user experience, the degree and scope of investments will only increase. However, the way we read and process it may change over time. As cryptocurrencies becomes easier to process and handle worldwide, other technologies supporting the development of transactions in such currencies will develop.

As innovation takes the lead while the scope of integration broadens, startups can create a real impact in society through different mediums like the P2P marketplace.

Take Kiva, for example, a wonderful peer-to-peer micro finance website that aims to alleviate poverty by allowing everyday people in developed nations to finance budding entrepreneurs in developing nations. Kiva allows you to make a loan to an entrepreneur across the globe for as little as $25. It is one of the world’s first online lending platform connecting online lenders to entrepreneurs across the globe.

PayActiv is another app that encourages better ways and modes of saving regularly, thereby increasing the independence of many of its users over time.

10 tips to get personal loans despite having low credit score or CIBIL score (Plunge Daily), Rated: B

Banks do not give unsecured loans like personal loans as easily as they do secured loans like home loan or auto loan. They take various parameters into consideration and not everyone can pass the stringent eligibility criteria. Credit score is where most applicants lose out on, especially when half of them have no idea what credit score is in the first place. Lenders are totally dependent on CIBIL (country’s biggest credit bureau) among others to understand customers’ past credit behavior and hence, credit worthiness.

Meanwhile, here are ways to get personal loans despite having low credit score:

  1. Approaching non-traditional or alternate lenders – Qbera offers one such personal loan product that is specifically designed for salaried employees above age 23 with high earning potentials. They offer emergency loans if your CIBIL score is 625 and above.
  2. Having a good salary at present
  3. Getting the help of spouse or other close family member or friend
  4. Applying with the same lender
  5. Applying to lenders that caters to people with low CIBIL Scores – Many online lenders understand that a low credit score doesn’t necessarily translate to low credit worthiness. There could be plenty of reasons for a less-than-ideal score due to technicalities.
  6. P2P lending for personal loans – Quite a popular lending trend in developed countries is peer-to-peer lending, it is not that common in India. Customers haven’t taken to it because the loan amount offered is small while the rates are high.
  7. Work on improving your credit score
  8. Mixing it up wisely – If you have taken more loans, please ensure that you have a wise mix of secured and unsecured loans rather than having only one kind.
  9. Paying taxes
  10. Getting loan against collateral
Canada

Home Capital suspends dividend, taps credit line, bolsters board (Reuters), Rated: AAA

Home Capital Group Inc on Monday suspended its dividend, tapped its credit line and added new directors, the latest attempts from Canada’s biggest non-bank lender to restore investor confidence and stem the flow of customer withdrawals.

The company also estimated that the balance in its high-interest savings accounts (HISA) halved in the past week and said it has withdrawn from its C$2 billion ($1.5 billion) credit line for the second time. Home Capital said the balance in its HISAs is expected to slump to about C$192 million on Monday, down 50 percent from a week ago.

Authors:

George Popescu
Allen Taylor

Friday April 14 2017, Daily News Digest

millennial asset allocation

News Comments Today’s main news: Marathon Partner calls for change at OnDeck. LC releases mobile app. Ranger slumps after the collapse of Argon Credit. College Ave secures $30M in a fourth equity round. Droom launches first used auto MPL in India. First Circle secures funding to expand into SE Asia. Today’s main analysis: High-Net-Worth Millennials want advice from humans. Ranking the […]

millennial asset allocation

News Comments

United States

  • Marathon Partners calls for change at OnDeck. GP:”There is an entire industry, especially in New York, of funds who buy a minor number of shares in public companies and then mount a public campaign to impose their views to the companies. Examples are Karl Icahn, Bill Ackman, Dan Loeb and Herbalife.  Their objective is a quick appreciation of the share value and not the long-term success of the company. They typically encourage the company to sell assets to quickly raise cash for the share prices to increase quickly. They then sell their shares at a large profit, having double or tripled their investment in months to a year. And over time, the company is left on its own, now without the assets, it sold. All companies have issues and I am sure plenty of people disagree with the choices made at OnDeck. But from there to saying that OnDeck is in big trouble I think the leap is too large. Many companies have the exact same board structure as OnDeck, common CEO and Chairman and more. I see this campaign as a pressure campaign, unfortunately, picked up by WSJ,  who probably saw some pieces of truth and some sensationalism in it but is likely exaggerated. The real issue at OnDeck: they need cash, and soon. Let’s see how they solve that issues while keeping control. Being a public company opens the doors to this kind of attacks. “AT: “More and more, it’s looking like OnDeck may be headed for a sale. It could at least see a changeover in leadership. That new leadership will be expected to turn the company around, and if they can’t, we could see a buyer emerge in the near- to mid-term future.”
  • Activist steps up pressure on OnDeck. GP:” See comment above.” AT: “One influential person is all it takes to impact a change.”
  • LendingClub releases mobile app for investors. GP:”As many of our readers we are surprised they didn’t have a mobile app yet. There is a difference between a mobile responsive website and a native app. When will people be able to apply for a loan using just the app? While the core of Lending Club’s applicants are baby boomers and Gen X, I still think that mobile apps open the door to new features like taking pictures of your IDs and documents in real time, using the mobile phone’s info for underwriting and applying even faster.” AT: “I wonder why they hadn’t already.”
  • SoFi intros new two-step verification process. GP:” A small important step, focused on security. We discussed recently the importance of security, especially of borrower’s data.”
  • HNW Millennials are hungry for advice from humans. AT: “This is interesting since we’ve been hearing a lot about how millennials prefer robo, or at least want a mix of human-robo advice. High-net-worth individuals are different, though, and I think that’s across generations. Significant is the fact that many HNW millennials are in charge of their families’ fortunes, or at least a part of it. I would imagine they would not want to be responsible for losing what their fathers and grandfathers built, therefore, it makes sense they’d want advice from a human mentor in some respects.”
  • Ranking all 50 states by average credit score of citizens. AT: “The interesting thing about this to me is there seems to be a cultural attitude at play here. The top states and bottom states in the ranking are clumped together in regions, which says to me that attitudes toward credit, and behavior driven by those attitudes, are at work within the cultures. Of course, you also can’t deny economic indicators such as unemployment, which tends to be higher in certain areas, probably due to certain industries losing out to automation and other paradigm-shifting forces.”
  • College Ave secures $30M in a fourth equity round. GP:” Student Lending continues to attract nice investments. Congratulations !”
  • CrediFi launches CredifX MPL for commercial real estate lending. AT: “We’re beginning to see the growing RECF market branch out into specialization. It’s an exciting time to be a marketplace lender in the real estate sector.”
  • Startup helps Chinese investors put money into U.S. funds.
  • Could fintech enable a resurgence in predatory lending. AT: “Yes, but this is a scare tactic aimed at borrowers. This thinking takes away from personal responsibility. It’s important for lenders to take note of this attitude and develop responsible-but-profitable lending practices. Anything else could land lenders in the same hot water as those caught up in the S&L crisis and mortgage default crises.”

United Kingdom

European Union

International

Australia

China

India

Asia

Africa

News Summary

United States

Marathon Partners Calls for Change at OnDeck (Yahoo! Finance), Rated: AAA

Marathon Partners Equity Management, LLC, together with its affiliates (“Marathon Partners”), announced today that it has released a letter that was sent to the board of directors of OnDeck Capital, Inc. (“OnDeck” or the “Company”) last month expressing concerns about the direction of the Company and making recommendations on steps to improve shareholder value.  Marathon Partners also announced today its intention to vote against the three incumbent directors up for election at OnDeck’s upcoming Annual Meeting scheduled to be held on May 10, 2017.

In its letter to the Board, Marathon Partners recommended two courses of action for OnDeck:

  • Fully rationalize the Company’s cost structure in order to rapidly achieve GAAP profitability and reduce the pressure on the organization to grow its loan portfolio
  • Seek the sale of the Company to a stable partner where OnDeck can thrive without the risks of destabilizing confidence in the business from shareholders and the capital markets.

In addition to the concerns expressed in the letter, Marathon Partners is also disappointed with OnDeck’s corporate governance and executive compensation practices, as exemplified by ISS’s Governance QuickScore of ’10’ – indicating the highest level of concern – at the 2016 Annual Meeting.  OnDeck’s current practices, including plurality voting for director elections, a classified board structure, no special meeting rights for shareholders, and combined CEO and Chairman roles, among others, serve to disenfranchise their shareholders’ rights. Marathon Partners also has concerns around the metrics believed to denote success for the Company, such as adjusted EBITDA that ignores stock-based compensation and is blind to increased balance sheet risk.

Given Marathon Partners’ lack of confidence in the Board’s ability to represent the shareholders’ best interests, it plans on voting against the entire class of directors up for election at the 2017 Annual Meeting.

Activist Steps Up Pressure on On Deck Capital (WSJ), Rated: AAA

Marathon Partners Equity Management LLC, which owned 1.75% of On Deck’s shares as of the end of 2016 according to FactSet data, also publicly released the text of a letter it sent to the company’s board and lead independent director in March urging them to slash expenses and explore a possible sale of the business.

The three directors up for re-election are Noah Breslow, who also serves as On Deck’s chief executive; Jane Thompson, a former financial-services executive at Wal-Mart Stores Inc. WMT -0.39% ; and Ron Verni, a former CEO of Sage Software Inc.

On Deck’s shares, which fell 3.3% Thursday afternoon, are down more than 35% over the past 12 months following the reporting of wider losses and cooler investor demand for its loans.

The LendingClub Investor Mobile App Has Arrived (LendingClub), Rated: AAA

Today, with more than $24 billion invested through the platform, LendingClub is thrilled to introduce its new iOS mobile application – LendingClub Invest.

Investors said that some of the most important functionality they use on a regular basis is checking their account summaries and investing in Notes. Armed with this insight, the team crafted a visually-attractive user interface that consolidates the investor’s total account value, available cash, returns and holdings on the first page.

SoFi Introduces New Two-Step Verification Feature to Offer Users Next Level of Account Protection (Crowdfund Insider), Rated: AAA

Online lender SoFi recently announced the launch of its new two-step verification feature that will offer users the next level of account protection. The company revealed that two-factor authentication (or 2FA) would provide an additional layer of security to help protect accounts from unauthorized access.

HNW Millennials Are Hungry For Advice… From Humans (Wealth Management), Rated: AAA

High-net-worth millennials enjoy growing influence in the management of their families’ portfolios, but few are fully satisfied with their investment objectives. They have strong opinions, but are hungry for advice and don’t seem particularly excited about getting it from a computer.

Only 32 percent of millennials rate their values-based investment knowledge highly, with roughly a quarter deeming their knowledge either poor or very poor. That being said, there is a continuing hunger for investment knowledge, with 42 percent claiming they would like to learn more about the area.

The other potential reason for this discontent is that millenials simply have differing philosophies on investment than previous generations.

Ranking All 50 States by Average Credit Score of its Citizens (Statistical Future), Rated: AAA

Scores range from 300 to 850, the data comes from Experian. The national average ends up being 673, this is kind of shocking to me since my banker seemed to stress the necessity of a 720 credit score to get a loan with the best rate. Obviously, not everyone owns their home, but even in the state with the highest average – Minnesota – the average is only 706.5. Even then, the state ranks a full 7 points ahead of the runner up – Wisconsin.

Someone has to bring up the rear and for this metric, that someone is the state of Georgia, with an average credit score of 642.

At first glance, the aspect that pops out the most is that the top four states are all bundled in the upper Midwest while 5 of the 6 lowest are basically neighbors in the south.

High unemployment + low wages = lower than average credit scores.

College Ave Student Loans Secures $ 30 Million During Fourth Equity Round (Crowdfund Insider), Rated: A

Student loan marketplace, College Ave Student Loans, announced on Thursday it secured $30 million during its fourth equity round. Investors of the funding round included new and existing participants, which included Comcast Ventures and Leading Edge Ventures.

First data-driven marketplace for commercial real estate loans speeds process to finance commercial properties (PR Newswire), Rated: A

CrediFi Corp., the leading source of data and analytics for commercial real estate (CRE) finance, has announced the launch of CredifX, its online marketplace for financing commercial properties.

CrediFi has already made the commercial real estate market more transparent, by providing data about more than two million properties and thirteen trillion dollars in loans across the U.S. Now CredifX is taking that transparency revolution one step further. In addition to accessing information about commercial real estate finance through the CrediFi platform, CRE borrowers, brokers and lenders will now have unprecedented access to financing opportunities allowing them to close real estate deals through CredifX, CrediFi’s latest fintech solution.

The launch of CredifX follows just weeks after CrediFi secured $13 million for its Series B funding, helping drive the launch of CredifX.

Chinese Fintech Startup Helps Mainlanders Invest Money in US Funds (Crowdfund Insider), Rated: A

The last method mentioned above, utilizing the $50,000 limit on transfers, is being utilized by Chinese fintech startup, Niu Jiao Suo, to help Chinese investors to move their money overseas. Niu Jiao Suo operates by connecting Chinese investors with foreign mutual funds. Its mobile app allows users to invest in foreign mutual funds like Blackrock, Vanguard, JP Morgan, and Goldman Sachs with a minimum investment amount of $400. Users are limited to $50,000 in total investments per year in accordance with China’s annual threshold. A $400 investment may not sound attractive to funds by itself, but Niu Jiao Suo is able to attract such prestigious funds by bundling their users’ smaller investments together into a larger investment package.

Could Fintech Enable a Resurgence in Predatory Lending? (Tech.co), Rated: B

The average household carries $134,643 in combined debt which includes mortgage, credit cards, auto loans, and student loans. A good chunk of household income go into servicing these loans as illustrated in how Americans spend their paychecks. The biggest chunks of people’s monthly spending correspond to housing, transportation, and education. For other expenses, Americans continue to rely on plastic. While not necessarily a bad thing, many fail to pay charges in full and carry a balance on their cards, further exposing them to compounded interest and other fees.

Credit card debt is at its highest since 2008. Americans added $60.4 billion to the outstanding credit card debt as 2016. Worse is that, 69 percent of Americans have less than $1,000 in savings. 34 percent of respondents revealed that they don’t have any savings at all. When emergency strikes, many are left with little choice but to get more loans. However, with bad credit scores, borrowers are resort to getting them from predatory lenders.

For cash-strapped consumers, the promise of fast and easy money is always enticing. The payday loan industry alone is a $38.5 billion industry.

Late last year, the Office of the Comptroller for Currency started to accept applications from fintech companies that would subject them to federal banking rules. Chartered companies will face controls to prevent money laundering and have to abide by consumer protection rules. However, some argue that a federal charter would also enable fintech companies to bypass state-specific provisions such as interest rate caps. Such flexibility may be abused by enterprising lenders.

You should always go with numbers. Know how much the loan will totally cost you. Calculate the annual percentage rate (APR). Many predatory loans would have APRs of three digits meaning you could pay triple, quadruple, or even more of the loan amount in a year’s time if you fail to pay. While many of these loans are designed to be short term, it’s really dependent on your capacity to pay.

United Kingdom

Ranger slumps as collapsed lender forces write-down (Citywire), Rated: AAA

Shares in Ranger Direct Lending (RDL) have slumped after the investment trust was forced to write down 4% of its portfolio following the collapse of US peer-to-peer lending platform Argon Credit.

Shares in the trust are trading at 996p, down 6.9% since the write-down was announced yesterday, languishing at a 17.3% discount to net asset value.

The £172 million trust holds a position in Princeton Alternative Income, which gives the trust indirect exposure to $28.3 million of a $37.5 million credit facility Princeton has supplied to Argon, which went bust in December.

Numis analyst Charles Cade said the entire position in Princeton represented 12.1% of net assets in December and as Ranger could not determine the exact impact ‘we would not be surprised to see further writedowns’.

RateSetter channels £120k to Essex foster care SMEs (P2P Finance News), Rated: AAA

A £120,000 loan arranged by RateSetter boosted child care placements in an Essex-based foster care company by almost a quarter.

The peer-to-peer lending platform helped Brighter Futures Foster Care increase the number of new foster households from 67 to 83, making its foray into a sector where it found “finance is desperately needed”.

The borrower works with local authorities in the South East to find foster families for young people amidst a national shortage of 10,000 foster places, and is looking to raise further finance to bring the number of placements to 110-120.

P2P lending platform Assetz Capital to raise interest rates for limited time (Finextra), Rated: AAA

Assetz Capital, one of the UK’s largest and fastest growing peer-to-peer finance platforms, today announced it was raising the interest rate on its popular 30 Day Access Account (30DAA) by 0.5% to 4.75% for a limited time.

Investors will have until midday on 11 May to take advantage of the new rate and will benefit from a capped return of 4.75% for up to 90 days after an investment is made. After this, the account will return to its original rate of 4.25%.

Investors can automatically invest any amount from £1 in a diverse portfolio of secured business loans that have passed Assetz Capital’s strict credit checks.

A quiet crash in bank lending? March industry news (Funding Circle), Rated: A

Bank of England statistics reveal that since the EU referendum, net lending (that’s total lending minus repayments) to British small businesses by 22 of the largest banks dropped from £1 billion in the second quarter of 2016, down to just £220 million in the last three months of the year. Meanwhile, Funding Circle investors lent £167 million on a net basis in Q4 alone!

It was also great to see Samir Desai, Funding Circle CEO, featured in the The Sunday Times Maserati 100 list, which recognises influential entrepreneurs who are disrupting the business world.

And finally, our US business announced that Community Investment Management, an impact investment firm focused on direct lending, is now lending an additional $100 million to American small businesses.

FCA accused of hampering P2P market (FT Adviser), Rated: A

The Financial Conduct Authority’s decision to define peer-to-peer lending too narrowly has hampered the market, it has been claimed.

According to one compliance expert, the FCA’s decision has meant only 40 per cent of the P2P loans which HM Treasury had intended to be covered by the legislation were actually captured by the regulator’s definition.

Chinese firm Hywin Financial buys UK wealth manager (Fund Strategy), Rated: A

Hywin Financial Holding Group has acquired UK wealth manager Azure Wealth, which will now be known as Hywin Wealth.

Shangjia Monica Lin has been appointed chair of the board following the acquisition.

Banks favour lending to the owner-occupier market (Bridging and Commercial), Rated: A

Lendy believes that regulations such as Basel III have incentivised banks to take risks in the owner-occupier market and cut exposure to property developers.

This comes after the peer-to-peer secured lending platform found that the number of new residential mortgages worth over £1m increased by 24% in the 12 months to 30th September 2016.

Lendy discovered that the number of new £1m plus mortgages written by banks in 2015/16 increased to 4,844, up from 3,896 in 2014/15, while the total value of these mortgages grew by 18% from £7.59bn to £8.95bn in the same period.

When blockchain meets online lending: The business using one to improve the other (City A.M.), Rated: A

Sydney-based platform Othera goes a step further: the blockchain lending platform allows lenders and investors to access digital loans. It then chops up those loans – which are backed by businesses’ cashflows – in a process called tokenisation. These tokens can then be sold on an exchange, turning a traditionally fairly illiquid asset into a highly liquid digital asset.

Why did you launch Othera?

The overarching reason for launching Othera and building a blockchain lending platform is to unlock the alternative investment asset class and help it become mainstream.

You use blockchain to provide ongoing credit analysis of borrowing firms. How does that work and why is that so useful?

The blockchain provides what I call “total asset provenance” which means that every single interaction between the borrower and the lender is logged on it.

How does tokenisation work?

When we talk about tokenisation in the context of our platform, I am talking about the process of linking the rights to loan repayment cashflows (the principal and interest of the loan) to a digital cryptographic token similar to a bitcoin. So if you hold (own) the token, you will receive the pro rata portion of the loan repayment that your token represents. Tokens represent a digital form of fixed-income alternative investment. Tokens can be bought and sold just like an equity or bond or cryptocurrency.

Tell us about the importance of the secondary market.

Creating a vibrant secondary market for alternative investment assets is key to the growth of an industry or product sector for several reasons:

  • First, at a basic level, investors will only ever commit a relatively small portion of their investable funds into an asset class or a market with no liquidity.
  • Second, secondary markets are also a very good barometer of the performance of an asset class or specific investment, as the market quickly builds the strength or weakness of an investment into the current market price of that asset.
  • And third: liquidity.

Carney Says Crisis Lessons Are Why BOE Keeps Up With Fintech (Bloomberg), Rated: B

Bank of England Governor Mark Carney said the crisis shows why regulators and the banking industry must stay on top of the rapid developments in financial technology so that the system is solid enough to withstand shocks.

European Union

Online Lender 4finance Prices $ 325 Million Over-Subscribed Bond Issue (Crowdfund Insider), Rated: A

Riga-based 4finance Holding S.A., a large online and mobile consumer lending group, has placed and priced $325 million of senior unsecured 5 year fixed rate notes. These notes mature in 2022 and were issued with a 10.75% yield, at par.

The new 5 year issue was described as representing a liquid benchmark offering, with the scale to attract over 50 investors and secures 4finance’s long term funding.

These senior notes have a 5 year maturity with a 2 year non-call period and were offered on a Rule 144A / Reg S basis with ISINs XS1597295838 / XS1597294781 respectively. The bond was priced on April 12th, closing is expected on 28 April 2017.

International

FMS.next Alternative Finance platform enhanced with more FinTech functionality (Bob’s Guide), Rated: B

Profile Software, an international financial solutions provider, today announced the latest upgrade in the FMS.next Alternative Finance platform, to offer enhanced capabilities for “Auto-investing” that further boost the marketplace lending processes.

Australia

LendEx, Australia’s leading peer-to-peer marketplace lending platform for direct commercial property lending, appoints new board members (LendIt Blog), Rated: B

LendEx, Australia’s leading marketplace lender, today announced the appointment of Mr Brian Benger and Ms Kim Jenkins to its board as non-executive directors.

Mr Benger is on a number of the Australian subsidiary boards of Mercer Australia.

Ms Kim Jenkins is CEO of the Australian Retail Credit Association (ARCA), the peak body for organisations involved in the disclosure, exchange and application of credit reporting data in Australia.

China

CHINA: THE WORLD’S NEW FINTECH LEADER (International Banker), Rated: AAA

In November 2016, a report jointly produced by professional-services firm Ernst & Young (EY) and leading Singaporean bank DBS stated in no uncertain terms that China has now leapfrogged ahead of global technology hubs such as Silicon Valley and London to become “the undoubted centre of global fintech innovation and adoption”. Multiple fintech hubs have now emerged in China alone, most prominently in Shanghai, Hangzhou, Beijing and Shenzhen, which has led to EY and DBS concluding that the country now clearly leads the way in fintech and is “revolutionising many aspects of financial services”.

China also dominates the fintech “unicorn” space—those startups valued in excess of $1 billion. The country is home to eight of the world’s 27 unicorns.

Firstly, the sector has been well supported by the country’s regulatory framework.

Secondly, China’s population appears to be increasingly open to using online finance, with evidence mounting that they are eager to incorporate the support provided by various fintech services into many different aspects of their lives, including online banking, payments, transfers, crowdfunding, investing and shopping. Indeed, e-commerce in China is estimated to be a RMB 16 trillion market, and is now transforming the consumption habits of a rapidly growing number of Chinese people.

A significant chunk of China’s fintech success in recent years can be credited to Baidu, Alibaba and Tencent. Collectively referred to as BAT, the three tech giants control an intimidating share of China’s e-commerce landscape, as well as online messaging and Internet search platforms. They also control approximately half of the Chinese third-party payments market; whereas their US equivalents—Alphabet, Apple, Facebook and Amazon—control a mere 2 percent, as per recent analysis by Citigroup.

Payments/e-wallets is the dominant sector at present, with China having 380 million people shopping online via their phones, as well as nearly 200 million people using their phones as a wallet for in-store payments.

The popularity of online banking is also exploding, with both China’s tech companies and its existing banks making a foray into this world, often in joint initiatives.

P2P (peer-to-peer) lending also deserves a mention, with China almost exclusively leading Asia’s growth in platforms designed to deliver credit to individuals and SMEs.

China P2P lender Dianrong sees market shakeout driving its growth (Reuters), Rated: AAA

Chinese online lender Dianrong.com expects to grow rapidly in the next few years, benefiting from tightening regulation driving a shake-out in the nation’s $100 billion-plus peer-to-peer (P2P) industry and pent-up demand for credit and investment.

Loan originations at the P2P lender, which is backed by investors including U.S. investment firm Tiger Global and Standard Chartered’s private equity unit, more than doubled to 16.2 billion yuan ($2.3 billion) in 2016 from the previous year.

Dianrong.com matches investors with individuals and small and medium-sized businesses in real-time, with loan sizes ranging from 500 yuan to 200,000 yuan for individuals and a maximum of one million yuan for small and medium enterprises.

Nearly half of the 4,000-odd online lending platforms in China were “problematic”, China’s banking regulator said in August when it unveiled the rules.

The P2P lender, founded in 2012 by Guo, a former lawyer, and Soul Htite, a co-founder of LendingClub Corp, is looking to grow loan origination by 50 percent annually over the next three to five years. It expects to broker about 30 billion yuan in loans this year.

India

Droom launches loan marketplace for used automobiles (VC Circle), Rated: AAA

Droom, an online platform for buying and selling used vehicles, has launched Droom Credit, a loan marketplace for pre-owned automobiles it claims is the country’s first.

For the initial rollout, it is going live with a dozen lenders, including HDFC Bank, Kotak Prime, Tata Capital, Faircent, i2i Lending and Capital First, a company statement said.

The platform, which guarantees loan approval within 30 seconds, uses the government-backed Aadhaar stack, apart from PAN verification, credit score validation and several other variables for credit evaluation.

There are three ways we are going to earn money, he said.

“First, the take rate, which will depend on who the lender is (different take rates and commission structures for different lenders). It will also depend on the category and profile of the borrower, and on the fulfilment and disbursal of the loan.”

Second, Droom will charge Rs 999 from borrowers.

Third, it will also charge the lender Rs 999 upon successful loan disbursal.

Droom Credit will initially restrict lending to borrowers purchasing vehicles from Droom. Going forward, however, it plans to open it to other platforms too.

Asia

Crowd Genie Receives Regulatory Approval from MAS (Crowdfund Insider), Rated: AAA

Crowd Genie, a small business lending platform, has received regulatory approval from the Monetary Authority of Singapore (MAS). Crowd Genie was granted a Capital Markets Services (CMS) license from MAS, an important development for the peer to peer lending platform. Crowd Genie has been in operation since mid-2016.

First Circle Secures Funding from Global Investors to Expand Access to Credit in Southeast Asia (Yahoo! Finance), Rated: AAA

First Circle today confirmed investments from Accion Venture Lab, the seed-stage investment initiative of financial inclusion leader Accion, and Deep Blue VC. First Circle has now reported equity funding of $2.5m USD – from Accion Venture Lab, Deep Blue VC, 500 Startups, IMJ, and Key Capital – along with an undisclosed sum of debt funding.

The investment funds will be used to further develop First Circle’s technology and data analytics platform.

Africa

South Africa’s FSB to rule on crowdfunding by June 30 (Ventureburn), Rated: AAA

South Africa’s Financial Services Board (FSB) has set a date of 30 June by which it plans to rule on whether to craft specific rules or not for equity crowdfunding, an FSB spokesman said this week.

The African Crowdfunding Association has been calling for the FSB to craft a specific regulatory framework on crowdfunding.

“It’s not that it (equity crowdfunding) is illegal – it’s just that there’s no clarity,” he said.

Thundafund chief executive Patrick Schofield said he was not waiting for any regulatory certainty from the FSB and was going ahead with setting up a platform to facilitate equity crowdfunding in South Africa.

His idea is to use venture capital funds to vet deals and provide a certain percentage of the total equity injection, before placing these on the platform to attract investors.

Meanwhile a new lending threshold which came into effect in November under the National Credit Regulations is also likely to limit the ability of peer-to-peer lending platforms to fund startups.

Authors:

George Popescu
Allen Taylor

Tuesday January 24 2017, Daily News Digest

SMB loan borrower satisfaction

News Comments Today’s main news: Trigger breaches may magnify reputational risk for originators. LendingTree announces top customer-rated lenders for Q3 2016. Landbay, Octopus Choice receive HMRC ISA approval. Ppdai.com plans US IPO. Today’s main analysis: The state of online SMB lending. Is China’s FinTech sector just another knockoff? Today’s thought-provoking articles: Risk assets enter short-term […]

SMB loan borrower satisfaction

News Comments

United States

United Kingdom

European Union

Australia

China

News Summary

United States

Trigger Breaches May Magnify Reputational Risk for Originators (PeerIQ Email), Rated: AAA

Triggers are a structural feature that provide senior bondholders with protection against a reduction in credit support. Triggers applying pre-defined tests (e.g., minimum excess spread, cumulative loss levels, delinquency rates, violations of reps & warranties, etc.) and may re-direct cashflows to senior noteholders if one or more tests are violated.

A trigger breach may force originators/sponsors to divert capital to repay noteholders rather than re-invest precious capital into revenue-generating origination activities. Such a “double whammy” is associated with headline risk, which can leader to reputation damage, and negatively impact future financing activities, either in a warehouse facility setting or during ABS transactions.

Trigger breaches are a manifestation of unexpected credit performance, poor credit modeling, or unguarded structuring practice.

The average time to breach performance triggers for consumer MPL ABS deals was approximately 11 months as collateral losses ramped up within the deal.

The negative headlines associated with trigger breaches increases the cost of capital for originators, and reduces the availability of funding.

If an early amortization trigger is violated, excess spread (e.g., collateral cashflows less financing costs payable to noteholders) are diverted from equity investors to senior noteholders with the goal de-risking the senior noteholders as quickly as possible. Therefore, although senior noteholders may be structurally insulated from first loss-risk, senior noteholders are nevertheless exposed to high levels of prepayment and reinvestment risk.

From the equity investor’s perspective, tighter triggers allow higher potential equity returns in the absence of any collateral losses. However, if losses exceed the available cushion before the triggers are breached, cashflows to the equity investors will be cut off faster and cause a reduction in the expected equity returns.

Conversely, less restrictive triggers allow more cushion for losses before the coverage tests are breached.

Cumulative Net Loss (CNL) Rate Trigger Example: This prevalent trigger can be defined in a number of ways as issuers and originators work together in the deal structuring phase. Exhibit 2 illustrates a contrived trigger threshold profile. The trigger breach level is defined and increases with respect to the deal age. A trigger event occurs if the realized cumulative net loss rate exceeds the trigger threshold of the collateral.

The state of online SMB lending in 4 charts (Tradestreaming), Rated: AAA

It’s no wonder that SMBs aren’t optimistic about their futures. The median SMB holds 27 buffer days of cash in reserve, according to the JPMorgan Chase and Co. Institute. And when they look to access small working capital loans to improve their cash flows, they aren’t finding a lot of lenders willing to work with them.

It’s not like the average SMB has a major appetite for cash, either. 76 percent of loans that SMBs apply for are less than $250,000 and amost half of them are under $50,000, according to a paper co-written by authors at the Harvard Business School and business loan marketplace, Fundera.

As more SMBs turn to online lenders, they’re not always coming back happy. That’s mostly due to the high costs of some of these early loans.

Approximately one-in-six small businesses considering a loan will apply to an online lender this year. But because there’s a lack of data collection on overall loan originations in the U.S., it’s tough to accurately size the effect of new entrants in the SMB lending space.

LendingTree Announces Top Customer-Rated Lenders for Q3 2016 (Yahoo! Finance), Rated: AAA

LendingTree®, a leading online loan marketplace, released today its quarterly list of the top customer-rated network lenders for the third quarter of 2016. Winners were based on a five-star quality review system for overall customer experience as determined by actual LendingTree users. The list features the top lenders in LendingTree’s core financial marketplace categories: Home Lending, Personal Loans, Auto Loans, and Business Loans.

The top lenders of Q3 2016 by rank are:

Home Lending Category

1.    Veterans United Home Loans
2.    Triumph Lending
3.    Royal United Mortgage
4.    HomePlus Mortgage
5.    Wyndham Capital Mortgage
6.    North American Savings Bank
7.    Pulaski Bank Home Lending
8.    AmeriSave Mortgage Corporation
9.    ConsumerDirect Mortgage, A Division of FirstBank
10.  Insight Loans (tie)
10.  Seckel Capital, LLC (tie)

Personal Loans Category

1.    Lending Club
2.    OppLoans
3.    First Midwest Bank

Auto Loans Category

1.    rateGenius
2.    up2drive – a division of BMW of North America
3.    iLendingDIRECT

Business Loans Category

1.    Credibly
2.    RapidAdvance

Risk Assets Enter a Short-Term Holding Pattern (Morningstar Email), Rated: A

Between the uncertainty driven by the change in the administration and the arrival of fourth-quarter earnings season, risk assets entered into a short-term holding pattern last week. The average corporate credit spread of the Morningstar Corporate Bond Index, our proxy for the investment-grade bond market, was unchanged at +127 last week. In the high-yield market, the credit spread of the Bank of America Merrill Lynch High Yield Master Index was also unchanged at +402. In the equity markets, the S&P 500 was essentially unchanged for the week, declining 0.10%. Price action in the commodity markets was mixed, but overall price changes were modest.

A significant portion of investors’ caution toward the corporate bond market is the acknowledgment that corporate credit spreads are trading at very tight levels compared with recent and historical averages. The current level is the tightest that credit spreads have registered since late 2014 and significantly tighter than long-term averages. The average spread of the Morningstar Corporate Bond Index is 41 basis points tighter than the long-term average of +168 since the end of 1998. The average spread of the Bank of America Merrill Lynch High Yield Master Index is currently 178 basis points tighter than its longterm average of +580 basis points since the end of 1996.

In addition to the volatility that earnings can generate, with the change in the administration, many investors are treading cautiously in the market until there is greater clarity regarding the policies that President Donald Trump will pursue in the near term. As such, defensive issuers generally traded better last week, although there did not appear to be a significant sector rotation toward a defensive portfolio posture.

Diversification Strategies for Investors of P2P Lending (Equities.com), Rated: A

Peer-to-peer lending is gaining a momentum among investors. P2P loans have less volatility, a low correlation, and yield much higher returns compared to other fixed-yield investments. Median adjusted returns average 7% on a 36-month loan.

And this is not an asset basket into which you put too many of your investment eggs.

The low minimum investment at these services makes diversification easy. However, loan selection takes time, and speed is key to getting the best loans.

Although default rates are higher on grades D–G at Lending Club, and grades D–HR at Prosper, the ROI is higher too. Loan filtering can mean successful investing in these lower grades.

Beyond robo-compliance: How bots will soon permeate banking (American Banker), Rated: A

As banks become more comfortable with the relying on software robots to replicate the actions of a human interacting with machines to handle rote tasks, experts say they will be quick to deploy the technology companywide as a way to trim expenses and redirect employees to more crucial tasks.

This could include areas in finance departments that are heavily manual, such as accruals and managing and clearing payments. Human resources and administrative functions is also an area where robotics can be deployed.

Austria’s Raiffeisen Bank International AG is among the first to work with Accenture and Blue Prism to automate various business functions. Additionally, it is in the process of creating an in-house robotics center dedicated to experimenting with how the technology can be used in different functions at the bank.

The bank started out with four pilots implementing robotic process automation in tasks that had “low-to-medium complexity; rule-based processes with a logical order of steps, repetitive process patterns with clearly defined process options,” said Markus Stanek, head of group efficiency management at the bank.

With the center, Raiffeisen will experiment with how to implement robotics in in a whole host of banking functions.

FORD CREDIT, AUTOFI DEBUT PLATFORM FOR DIGITAL VEHICLE BUYING AND FINANCING (Ford), Rated: A

There’s a new way for customers to purchase or finance a new Ford vehicle in minutes – right from a dealership website from anywhere, on any device – through a new platform from Ford Motor Credit Company and financial technology company AutoFi.

In addition, Ford Credit has made an investment in AutoFi as Ford Credit continues pursuing technological advances to make the financing experience better.

The AutoFi platform can be used now at Ricart Ford in Groveport, Ohio, and will roll out over time to more Ford and Lincoln dealerships across the United States. The introduction comes as 83 percent of Americans say they would like to spend as little time at the dealership as possible when shopping for or buying a car, according to a new survey of more than 1,000 U.S. adults conducted online by Harris Poll on behalf of Ford Motor Company. Many of those same people, however, still want to touch and feel their new vehicle before signing on the dotted line. The new platform provides the best of both worlds.

Through the dealer website, customers have a transparent and seamless purchase and finance experience from anywhere on their mobile phone, tablet or computer. Once the online part of the transaction is complete, all customers need to do is sign the paperwork when they collect their new Ford.

Consumers may shop for a new Ford in the showroom or from anywhere via the Ricart Ford website. After selecting a vehicle, they can apply for credit and receive a decision, choose the financing terms that make sense for them, and then review and select optional vehicle protection products – completely online on their own time. Customers then can review a final summary of the financing terms and schedule time to complete the transaction and pick up the vehicle.

Why Banks and Alternative Lenders Will Play Ball in 2017 (deBanked), Rated: A

According to the Wall Street Journal last year, big banks have decreased the number of loans to small businesses by more than 38 percent since 2006.

But the recession helped pave way for another industry – alternative lending – which has significantly improved access to capital for small businesses. According to the Small Business Administration (SBA), the 2016 fiscal year was a record setting year for loans, with more than 70,000 approved that totaled $28.9 billion and supported nearly 694,000 jobs.

More and more headlines show that banks are shifting their strategies to keep up with America’s technology and alternative lending habits, making 2017 the year banks finally get back into the fray and play ball with alternative lenders to improve the lending process.

No longer content to be sidelined, banks are starting to play ball, and they will continue to do so at an even faster pace. The fact that banks are moving in now and increasing small business loans validates alternative lending.

Real Estate as an Alternative Investment for Non-Accredited Investors (Crowdfund Insider), Rated: A

So what are some of the options for both non-accredited, as well as accredited, investors today. Below we have highlighted several opportunities to invest in real estate assets online.

Today Fundrise has moved away from single property crowdfunding having trailblazed a new fund structure labeled the eREIT.  Using Title IV of the JOBS Act which updated old Reg to a more flexible security exemption called Reg A+, their eREITs have grown from one to now five (2 of them are sold out).

Small Change is on a mission to become the first real estate funding portal to utilize Reg CF. Created by Title III of the JOBS Act, Reg CF allows issuers the ability to raise up to $1 million online from both accredited and non-accredited investors.

Originally only for accredited investors, this changed when RealtyMogul.com created their MogulREIT (using Reg A+) to offer non-accredited investors the chance to join in on the real estate offers listed on their platform. Minimum investments used to be $2500 but have since been lowered to $1000 to facilitated a wider audience.

American Home Preservation or AHP purchases distressed mortgages at a discount. The platform reports the discount can be up to 50%. They then try to work out a sustainable solution for the home-owners in a win-win scenario.  The people keep their home and investors earn some income. AHP strives to pay a return 12% per year on invested capital in the fund (Reg A+). AHP not only has a unique approach to real estate investing but also has probably the lowest investment minimum at just $100.

2017 Americas Alternative Finance Industry Study (Crowdfund Insider), Rated: B

The Polsky Center and the Booth School of Business at the University of Chicago and the University of Cambridge Judge Business School are working together once again on their benchmark research on alternative finance.  The America’s study, first completed in 2016, will be reviewing sector growth in North, Central and South America.  Widely cited as the very best data available on the growth of Fintech, the study will quantify marketplace/peer to peer lending, crowdfunding and other forms of alternative finance.

While the research has been described as industry leading, there is a question as to how policymakers are using the data. Ziegler believes that regulators have recognized the value in academic and evidence based research that is unbiased.

Last year’s alternative finance report found that the Americas online alternative finance industry grew to $36.49 billion, a 212% annual increase from the $11.68 billion in 2014.

United Kingdom

Landbay and Octopus Choice Receive HMRC ISA Approval (Invezz), Rated: AAA

On Monday, the buy-to-let mortgage specialist Landbay announced that it had passed the 2nd step in regulatory proceedings allowing the P2P lender to offer IFISAs to its investors. Landbay was granted full FCA authorisation in December, making it a member of a niche, but growing, group of peer-to-peer platforms with full permissions – a necessity if a platform wishes to offer the IFISA. The P2P platform has facilitated over £42million worth of investments, in over 421 loans to UK property borrowers, since its inception.

Octopus Choice, a recent entrant into the UK P2P market (early 2016 launch), announced that it’s also been approved as an ISA manager by the Board of HM Revenue and Customs (HMRC).The product of Octopus Investments, the Choice platform has made waves in the P2P lending industry since inception, facilitating more than £45m worth of loans to asset-backed property borrowers, inside one year.

Goji Selected to Launch IFISA for Landbay, Downing, Peer Funding and UK Bond Network (Crowdfund Insider), Rated: A

Specialist provider of P2P and marketplace lending products and services, Goji, has announced that Landbay, bond investment platform UK Bond Network, crowd bond provider Downing, and SME-focused P2P platform Peer Funding have each selected their platform to offer the Innovative Finance ISA (IFISA). Goji said expectations were to launch the IFISAs before tax year deadline.

In an increasingly competitive crowdfunding market, Goji says that firms offering the new investment vehicle are finding themselves a step ahead of the competition as the IFISA quickly becomes an easy differentiator in the eyes of investors.

A peer-to-peer puzzle (Financial Times), Rated: A

Saving Stream is a “peer-to-peer” lending startup that provides “short-term bridging loans, secured against UK property” and is waiting to be fully authorised by the Financial Conduct Authority*.

Late last year, the P2P lender started to borrow money by issuing unsecured mini-bonds with three or five year fixed terms. The proceeds of the mini-bonds are used to fund the same loans that P2P investors snap up through its marketplace. But while P2P investors earn 12 per cent per year, mini-bond investors earn half that, six per cent.

But the question is still bothering us: why would anyone buy the bond? After all, passive management is meant to be cheaper, not more expensive.

A Whole Generation May Never Be Able To Retire From Work (Voice Online), Rated: A

Peer-to-peer lending platform Lending Works surveyed 1,500 non-retired adults in the UK (YouGov) and made some worrying discoveries.

Firstly, over 1 in 5 of those who aren’t yet retired – 22% – gloomily believe that they’ll never be financially secure enough to retire. This suggests they have visions of working until they drop, as they won’t be able to afford to stop earning money. This pessimistic view is highest in the 35-44 year old category, with 25% of them not seeing themselves as ever being financially secure enough to retire, although only 17% of 18-24 year olds, who technically have more time to start saving, agree. Countrywide, the outlook is bleakest in the West Midlands (27%), perhaps due to relatively high unemployment, compared to only 19% in London, where there are, theoretically, more jobs.

The main reason, of course, that we can’t see ourselves retiring is because we can’t afford to. Over a third of non-retired adults – 34% – don’t save a single penny towards retirement each month. Women are proving to be worse at saving than men, with 41% of non-retired females not saving towards retirement, compared to 26% of men.

Why investors are likely to see more robo-input from their financial adviser (Money Observer), Rated: A

The Treasury consultation highlighted that many people rely on digital services for information and guidance on key financial decisions and the new body will have a ‘well optimised’ website as well as telephone, webchat and face-to-face guidance.

We strongly believe that digital communications can help streamline the financial advice process and allow people to choose how they consume information, and are pleased to hear that the new guidance body will recognise this.

There is no question that there is a role for automated advice. To make advice more inclusive the industry needs to develop alternative distribution channels that potentially appeal to a new generation of customers.

In its current guise automated advice is perfectly positioned for those people who have simple investment needs, or who are not looking for a holistic financial review. It can offer a personal recommendation, which differentiates it from self-select or execution-only strategies.

European Union

ASOS partners with Klarna to launch pay after delivery in Nordics (Retail Times), Rated: A

Klarna’s pay after delivery allows retailers to bridge the gap between the online and offline shopping experience. When making a purchase on desktop or mobile, customers in the Nordics will now have the option to pay for their products up to 14 days after delivery – giving them the chance to try on their purchases before paying.

Australia

New Year’s gift for SMEs: Lending to small business in Australia looks set to improve (Australian Anthill), Rated: A

Until relatively recently, a bank rejection meant a business had to forsake growth, stretch its own payments or extend terms to the ATO. But more recently, business owners are being referred to a bank’s lending “partner” of choice, which typically charge interest rates of at least 20 per cent, and in some cases can even reach triple digits.

Luckily a new group of non-bank intermediaries is emerging to provide direct access to the extremely profitable asset classes that have long been solely the domain of banks. The combination of huge volumes of new data, virtually unlimited computing power, and omnipresent networks is enabling innovations like robo-advisers and marketplace lenders to provide lower cost, highly diversified investments for generating reliable, robust and lower capital risk returns.

Business owners and investors are beginning to take notice of the opportunity this represents. In 2014, there was $0 marketplace lending for business conducted in Australia, but according to Morgan Stanley, in 2015 the market reached $25million, and by 2020 it is forecast to grow to $11.4billion, representing 12 per cent of the total addressable market.

Marketplace lending addresses the concerns small business has with banks, and the needs for investors for stable fixed-income returns. Businesses can gain access to funding without the need for collateral, being subject to outdated models of risk, or enduring application processes spanning weeks. Sophisticated investors are empowered to take control of their own portfolios, choose the risks they are willing to take, and effectively “be the bank”.

China

Chinese Peer-to-peer lender Ppdai.com plans US IPO (South China Morning Post), Rated: AAA

Ppdai.com, one of the mainland’s largest online lending platforms, is reportedly planning to raise US$200 million in a US initial public offering (IPO) ahead of Beijing’s tightened regulation on the peer-to-peer (P2P) lending sector.

It would become the second mainland P2P firm to go public in the United States, following Yirendai.com’s US$75 million IPO in late 2015.

Is China’s FinTech Sector Just Another Knockoff? (TheStreet), Rated: AAA

The number of counterfeit products pumped out of China is unprecedented. Their total value adds up to $1.2 trillion, which accounts for 63.2% of the world’s total. Chinese make fake Gucci clothing and Cartier watches, open Apple stores that aren’t authorized retailers and have even duplicated global investment bank Goldman Sachs.

So whether China’s technology sector is another pirated import is a fair question. And the answer isn’t black and white.

Eight of the 27 fintech outliers in the world are located in China and are valued at more than $96 billion combined. The four largest outliers are Chinese. Antfinancial, which operates the payment affiliate of Chinese online retailer Alibaba, is the largest by a big margin. Meanwhile, the U.S. is home to 14 fintech outliers that are collectively worth $31 billion.

What’s Driving China’s Rise?

First, over the past few years, central banks have worked to develop digital finance in China by providing a supportive regulatory framework.

Surpassing the U.S. in 2013, China now makes up 47% of the world’s digital retail sales, and demographics suggest that share will continue to rise. The country has 721 million internet users (around 52% of the population). In comparison, 89% of the U.S. population uses the internet.

Third, a large segment of China’s population remains underserved by traditional banks.

Two Groups Are Accelerating the Process

As we can see below, 20% of Chinese adults do not have access to banking services. China has 8.1 commercial bank branches (and 55 ATMs) per 100,000 people. This is much less than the 28.2 branches (222 ATMs) in the U.S. and Canada, and the 28 branches (81 ATMs) in Europe.

Despite accounting for 60% of GDP and 80% of employment in urban areas, small and medium-sized enterprises (SMEs) get less than one-quarter of loans in China. In growing numbers they are seeking online finance solutions for their payments, credit, investments and insurance needs. Peer-to-peer lending networks make it possible for businesses to receive loans far faster than they could through a bank.

China’s fintech sector is particularly dependent on payment solutions. Currently, about 40% of China’s banking services customers use fintech platforms for domestic and international payments. Almost 58% of all internet users use fintech payment applications, meaning that 380 million Chinese people shop on the internet with their phones. Slightly less than 200 million people substitute their phones for a wallet for in-store payments.

China Rapid Finance Named a Finalist for LendIt “Innovator of the Year” Award (Yahoo! Finance), Rated: B

China Rapid Finance Limited (“CRF” or “the company”), China’s largest consumer lending marketplace in terms of number of loans facilitated, was named a finalist for “Innovator of the Year” honor at the first annual LendIt Industry Awards.

CRF is the only Chinese company nominated in this top category, which will honor the company that has demonstrated a strong culture of innovation, producing groundbreaking changes in the industry. CRF was selected as one of seven finalists, out of hundreds of applicants worldwide, by more than 30 industry experts who judged finalists representing innovation, emerging talent and top performers.

The company will compete for the honor at the LendIt Awards Ceremony on March 7, 2017, at the LendIt conference in New York City. LendIt is the world’s largest show in lending and fintech.

Authors:

George Popescu
Allen Taylor