Thursday March 9 2017, Daily News Digest

Thursday March 9 2017, Daily News Digest

News Comments Today’s main news: Kabbage’s prices $525M securitization. LendIt announces industry award winners. AlphaFlow launches automated real estate investing platform. Zhong An to sell 5-10% stake ahead of IPO. Ant Financial invests in Mynt. Atom Bank raises $102M for mobile-only bank. Today’s main analysis: Is the short-term credit cycle ready to roll over? TU bolsters fraud prevention exchange. Today’s thought-provoking […]

Thursday March 9 2017, Daily News Digest

News Comments

United States

  • LendIt Awards winners and PitchIt competition. GP:”In my eyes, Scott Sanborn winning best executive of the year is the award that stands out the most. The second award that was interesting is for Zopa winning best consumer lender award while also being the oldest (started in 2005!). Note: Zopa was also nominated among the most innovative platforms. Being the oldest, the one that stands out and among the most innovating is outstanding and certainly worthy of an award. A healthy industry that is growing also needs its celebrations. Having awards is a great way to bond the industry together and make it into an industry celebration. ”  AT: “Congratulations to all awards winners.”
  • Kabbage prices $525M securitization. GP:” ABS on small and medium business loans are less usual than on unsecured person. This securitization seem quite hot. Senior are anticipated to be rated A by Kroll. Expected to close arond March 20. Significantly oversubscribed. We can conclude that the SME securitization market is looking strong. We should look at the next OnDeck securitization with this in mind and hopefully be able to differentiate the market trends vs the company effect in that securitization. “
  • AlphaFlow launches new automated real estate investing platform.
  • Second sign in as many days that the short-term credit cycle will turn over. GP:” The articles on AlphaFlow are a mixed bag. One should critically evaluate the contents beyond the title. The defaults in auto and p2p are inching up as TransUnion showed recently. But very little and I wonder if it’s really significative. In p2p the defaults had inched up last year but it seemed to have been due to companies focused on growth too much. Recently OnDeck’s reserves for losses had to more then triple, however we haven’t seen this in their competitors. Perhaps not yet. I would conclude that we should watch what is going on but not panic, yet. “
  • TU bolsters fraud prevention exchange. AT: “As the number of consumers with personal loans rises the potential for fraud increases. This should be an area of concern for all lenders.”
  • Data aggregation for lending decisions.
  • CreditEase addresses top FinTech trends at LendIt.
  • Election years can disrupt Fintech too. AT: “Regulation is going to be a big discussion for the industry this year and next.”
  • StreetShares partners with Nor-Cal FDC.
  • Qapital raises $12M to expand Fintech app to more areas.

United Kingdom

European Union

China

India

Asia

News Summary

United States

Kabbage prices $ 525m securitisation (Finextra), Rated: AAA

Kabbage, a pioneering financial services, technology and data platform, today announced that on March 7, 2017, it priced $525 million of fixed-rate, asset-backed notes in a private securitization transaction.

The facility is expandable to $1.5 billion. The notes will be issued in four classes by Kabbage Asset Securitization LLC, a newly formed, wholly owned subsidiary of Kabbage Inc. The senior class of notes is anticipated to be rated “A(sf)” on the closing date by Kroll Bond Rating Agency (KBRA). Guggenheim Securities is serving as sole structuring advisor and initial purchaser of the notes. The securitization is expected to close on or about March 20, 2017, and is subject to customary closing conditions.

The securitization was significantly oversubscribed with interest from top-tier institutional investors. This represents the largest asset-backed securitization of small business loans in the online lending industry, next to Kabbage’s prior, expandable, ABS note issuance in March 2014.

LendIt Names PitchIt Competition And LendIt Industry Award Winners (PR Newswire), Rated: AAA

LendIt, the world’s largest show in lending and fintech, today announced the startup winner for its fifth PitchIt competition and 18 winners for its first LendIt Industry Awards in various categories including Innovator of the Year, FinTech Woman of the Year and Executive of the Year.

PitchIt is a leading global competition for fintech startups to earn mentorship, endorsement and exposure to institutions, investors and broad visibility. Out of eight PitchIt finalists, the judges winner as well as the audience winner was awarded to Nova Credit, the world’s first cross-border credit reporting agency. Nova Credit is fundamentally changing the way immigrants secure loans by enabling individuals to transfer their overseas data.

  • Best Journalist Coverage – George Popescu, Editor in Chief, Lending Times
  • Emerging Real Estate Platform – PeerStreet
  • Top Fund Manager – Prime Meridian Capital Management
  • International Innovator of the Year – Trulioo
  • Top Law Firm – Chapman and Cutler
  • Top Accounting Firm – Deloitte
  • Top Fintech Equity Investor – QED Investors
  • Most Innovative Bank – Cross River Bank
  • Top Service Provider – First Associates Loan Servicing
  • Best in Show – Deloitte – awarded to the best exhibitor at LendIt, judged on booth design and impression as well as staff conviction and enthusiasm.

AlphaFlow Launches New Investment Platform to Bring Automated Investing to Real Estate (BusinessWire), Rated: AAA

AlphaFlow, the leader in passive online real estate investment, today announced it has launched AlphaFlow Managed Portfolios. The company will build, manage, and rebalance a portfolio of 75-100 real estate loans for investors. This marks the first automated real estate investment service of its kind.

AlphaFlow provides clients with a first-of-its-kind set it and forget it automated service to build and manage a real estate portfolio. The company’s founders have been at the forefront of the disruption in real estate investing. In 2013, Sturm co-founded RealtyShares, one of the largest real estate crowdfunding platforms. Three years later, AlphaFlow was the first to offer funds that allowed investors to participate in loans across multiple real estate crowdfunding platforms with a single investment. AlphaFlow Managed Portfolios bring similarly innovative benefits to investors, including daily portfolio rebalancing that automatically reviews portfolios on a daily basis for opportunities to reallocate investments in order to increase diversification.

While many investors have embraced online equity investing, the real estate industry has traditionally been slow to change. As a result, the options available today are fairly limited for passive investors. AlphaFlow believes that in the next ten years, everyone will have some type of real estate in their investment portfolio.

The Second Sign In As Many Days That The Market Is Ready To Roll Over (Seeking Alpha), Rated: AAA

It has now been widely known that there is a bubble in the United States automobile market and recent exposes about subprime financing and recent commentary from dealerships about heavily discounted and incentivize selling have led us to this conclusion in a relatively straightforward fashion.

We also believe that the first loan default cracks would show in peer-to-peer lending, a riskier and lower credit worthy form of lending that exists in the spot where bankers simply used to not lend. Just days ago, we saw Lending Club, arguably the most popular peer-to-peer lender, report that delinquencies had risen significantly.

More importantly, this news pushes us further into our thesis that the short term credit cycle is likely about to turn over.

This was always a two pronged thesis: peer to peer lending and the auto market. With the second piece now falling into the puzzle, we think this is a great time to reiterate our notion that the market has hit its peak and that we think this is a great time to get hedged. In addition to having about 60% of our portfolio long and about 40% short at this time, we have also added some short-term S&P 500 puts to further hedge our long positions.

TransUnion Bolsters Fraud Prevention Exchange as Online Fraudsters Continue to Impact Personal Loan Delinquency Rates (Yahoo! Finance), Rated: AAA

Newly released TransUnion (TRU) data found that as personal loan delinquency rates rise, online fraud, which includes loan stacking, continues to make significant contributions to these increases. Serious delinquency rates (90+ days past due) at the conclusion of 2016 for personal loans originated in 2015 rose to 6.22%, up nearly 3% from the year-end 2015 delinquency rate of 6.05% for loans originated in 2014.*

Serious delinquency rates (90+ days past due) for personal loans with characteristics of online fraud stood at 11.02% at the end of 2016 for loans originated in 2015. Online fraud includes fraudulent loan stacking, which involves attempting to secure multiple loans from one or more lenders within a short period of time. While down from the 11.81% rate at the conclusion of 2015 for loans originated in 2014, it represents even more borrowers because of the continued growth in the personal loan space.

To combat online fraud, TransUnion has further expanded its Fraud Prevention Exchange to offer insights from the entire network of available TransUnion customer data — not just from Exchange members. These newest updates were unveiled today at LendIt USA 2017, a lending and FinTech conference.

The Exchange enables lenders to:

  • Reduce fraud losses without impacting the consumer experience and lending timelines.
  • Receive real-time alerts (within seconds) to mitigate instances where lenders don’t discover problematic accounts until days or weeks have passed and losses may have been incubating unknowingly inside live loans.
  • Utilize TransUnion’s vast network of customers inside and outside of the Exchange for more insight into originations fraud.
  • Quickly adjust and adapt to evolving fraud threats and trends.

Data aggregation’s new frontier: Lending decisions (American Banker), Rated: A

Financial data aggregation, long used to power digital personal financial management tools, has found a more moneymaking role — speeding up underwriting decisions.

Rather than faxing in documents or submitting PDFs of data downloaded from multiple websites, consumers and small-business owners are granting online lenders permission to use aggregation technology to grab their financial transaction data.

So long as the technology is working as intended, lenders will gain something they may have not been privy to before — years’ worth of transaction data, such as cash flows that aggregators think lenders should crunch as part of their credit analysis in addition to credit history data. And sure, banks may already count some applicants as customers and have access to their financial transactions. However, most consumers have multiple bank accounts that lenders would also need to mine.

Lenders in other countries like Australia and Europe appear to be further along than U.S. banks — especially in building open application programming interfaces to simplify the flow of data among apps.

CreditEase Addresses Top FinTech Trends at LendIt USA 2017 Conference in New York (Yahoo! Finance), Rated: A

CreditEase, China’s leading fintech company announced today that its subsidiary company, Yirendai (YRD), an leading online digital consumer financial service platform, together with CreditEase Fintech Investment Fund and CreditEase Offshore Private Credit Fund (“OPCF”) delivered a series of keynote speeches at the 2017 LendIt USA conference in New York from March 6 to 7.  LendIt annual conferences are recognized as one of the largest global fintech industry events dedicated to connecting the global fintech and lending communities.

On the main stage, Yirendai executives delivered a keynote speech named From Big to Strong: China FinTech Entering a New Era. Yihan Fang and Yang Cao of Yirendai shared with the audience the latest fintech industry trends in China, regulatory environment of online marketplace lending in China, and industry’s current challenges. In addition, Yirendai announced the launch of Yirendai Enabling Platform (“YEP”), a technology platform that enables partner companies to utilize Yirendai’s data acquisition, anti-fraud technology, as well as customer acquisition capabilities, to help optimize industry’s efficiency and enhance customer experience.

Anju Patwardhan, Senior Partner of CreditEase Fintech Investment Fund and member of Investment Committee delivered a keynote speech on financial inclusion issues for the middle class and also discussed the latest trends in fintech globally. CreditEase Fintech Investment Fund, launched in December 2015, is a venture fund investing in growth-stage fintech companies globally. The Fund has an equivalent of USD 1 billion in total committed capital.

LendIt: Election years can disrupt fintech, too (Housingwire), Rated: A

Congressman Patrick McHenry, a representative of North Carolina’s 10th congressional district and a member of the Republican Party, gave one of the first major speeches on the topic. Congressman McHenry has been a vocal proponent of fintech regulation overhaul and he discussed his priorities, beginning with the modernization of infrastructure underlying the IRS income verification form (4506T), which is used by lenders to make underwriting decisions (the form is currently manually handled by the IRS and takes 2- 8 business days for processing).

A counter-point to this speech was provided by Amias Gerety, who served in the U.S. Treasury during President Obama’s time in office. He outlined the ways in which the Treasury Department currently engages with emerging fintech companies through discussions, white papers and, eventually, changes in policy.

He addressed some of the popular requests of fintech companies including the demands for a “regulatory sandbox” for startups to innovate without the shackles of regulation.

Lastly, he discussed the shadow of the crisis on regulators’ minds as it relates to financial innovation, since many of the products that caused the 2008 recession were considered  “innovative” at the time. He encouraged companies to think about innovating across the whole spectrum of the customer value chain of acquisition, user experience, underwriting, funding and servicing / collections, since the last two stages of funding and servicing / collections tended to get overlooked during a growth cycle but tend to result in “immense bad behavior” during a downturn.

The third notable speech for the day was delivered by Thomas Curry, the Comptroller of Office of the Comptroller of the Currency. He highlighted the power of  “responsible innovation” by fintech companies to expand financial inclusion.

He confirmed that the OCC has the necessary authority and highlighted their capabilities, including “…experienced examiners who specialize in banking technology, have expert knowledge of payment systems, credit, and consumer protection, and know where companies can face pitfalls.”

He confirmed that the OCC has the necessary authority and highlighted their capabilities, including “…experienced examiners who specialize in banking technology, have expert knowledge of payment systems, credit, and consumer protection, and know where companies can face pitfalls.”

StreetShares Partners with Nor-Cal FDC to Serve California Veteran, Small Business Owners and Government Contractors (PR Newswire), Rated: A

As part of the statewide California bizWin™ and VetBizWin™ Initiatives, StreetShares has partnered with Nor-Cal FDC (Northern California Financial Development Corporation) to provide contract financing and small business lending solutions to California small and veteran-owned businesses.

As a Nor-Cal FDC premium partner, StreetShares will work with the Nor-Cal FDC Small Business Finance Support Team to assist small business and veteran business owners in obtaining funding needed to win new opportunities.

Qapital Raises $ 12M To Expand Its Fintech App Into More Areas (PYMNTS.com), Rated: A

Qapital, the FinTech startup, raised $12 million in venture funding to expand its app that enables users to make goals and save money to reach those goals.

With the app, users can integrate their checking, savings and credit card accounts, so in addition to setting financial goals, they can stay on top of their finances.

By including debit cards into the product, the report noted that it gives the startup a new revenue stream, because it can make money from the interchange fees.

United Kingdom

Zopa bags top consumer lender award (P2P Finance News), Rated: AAA

ZOPA reaffirmed its leading position in the peer-to-peer consumer space last night as it won the accolade of top consumer lending platform at LendIt’s awards in New York.

The world’s oldest P2P lender fended off competition from US consumer-finance heavyweights such as SoFi and Avant, bagging top scores on loan performance, volume, growth, and product diversity from a panel of 30 industry experts.

The new award caps off a bumper month for the platform, which posted record lending figures for February. It originated more than £81m of new loans last month – £24m more than the same month last year.

Forming new partnerships will be a key strategy going forward, according to Zopa’s chief product officer Andrew Lawson.

The P2P platform, which has so far focused exclusively on unsecured lending, is also looking to expand its range of loans and maturities. As Peer-to-Peer Finance News previously reported, this may include a move into the secured auto finance space.

Atom Bank raises $ 102M at $ 320M valuation for a mobile-only bank for millennials (TechCrunch), Rated: AAA

Atom Bank, a startup out of the U.K. that has built a mobile-only bank targeting consumers between the ages of 18 and 34, has raised another £83 million ($102 million) in funding led by BBVA, the Spanish bank and owner of Simple in the U.S. The funding gives Atom a post-money valuation of £261 million ($320 million), TechCrunch has confirmed with the company. BBVA also led Atom’s previous $128 million round in November 2015.

Robo-advice case study: Munnypot (Banking Technology), Rated: A

Munnypot looks like the archetypal disruptor. It is a sophisticated robo-advice service that allows consumers to manage their savings digitally. The platform makes straightforward and easy to understand financial advice available to everyone, at a fraction of the cost of most financial advisors or wealth managers.

First, from 2012, regulatory changes were introduced to provide much greater transparency to consumers, particularly around pricing. These changes have, however, made advice less affordable for people without large savings pots. This has contributed to the “advice gap” of 16 million people in the UK who could take advantage of financial advice if it were simpler and cheaper.

Second, the UK’s simplified tax rules similarly paved the way for providing advice to consumers on a range of more straightforward financial products.

Third, changing customer behaviour means most people are now comfortable with using technology for more and more purchases, whether via websites or apps.

Alternative lenders berate Chancellor for ineffective first budget (AltFi), Rated: A

Stuart Law, CEO and co-founder of secured business lending platform Assetz Capital, has berated Philip Hammond for delivering no news of any import for small businesses – “or indeed their lenders” – in his first budget as Chancellor.

Law said that Hammond has missed a chance to remove a “fatal flaw” from the Innovative Finance ISA tax wrapper, which allows investors to shelter peer-to-peer investments from income tax. The existing rules do not allow investors to spread their annual ISA allowance across multiple peer-to-peer platforms, which Law believes is making diversification “very difficult”.

Ex-ING Direct boss joins RateSetter board (Investor Daily), Rated: B

Peer-to-peer lender RateSetter has appointed former ING Direct chief executive Vaughn Richtor to its Australian board of directors.

European Union

PAYPAL FUNDS FINTECH PROF ROLE (Delano), Rated: AAA

The FNR Pearl chair in fintech will be jointly funded over five years by online payment giant PayPal and the National Research Fund (FNR), the government said in a press release following the signing of a memorandum of understanding on 6 March.

The chair will be established at the University of Luxembourg’s Interdisciplinary Center for Security, Reliability and Trust (SnT).

Personetics to Present Its Cognitive Banking Applications at Fintech 2017 in Zurich, Switzerland (Yahoo! Finance), Rated: A

Personetics, the leading provider of cognitive applications for the financial services sector, will present at Fintech 2017, Switzerland’s most influential fintech conference, which will take place in Zurich 9 March.

Personetics will be presenting a session entitled “Personalized Guidance: Turning Customer Data into a Delightful Customer Experience” at 10:50.

China

Zhong An plans to sell 5-10 percent stake ahead of IPO (Yahoo! Finance), Rated: AAA

Zhong An Online Property and Casualty Insurance plans to sell 5-10 percent of the company to a couple of strategic investors, to raise up to 10 billion yuan ($1.45 billion), ahead of a planned initial public offering in mainland China, according to four people with direct knowledge of the matter.

China’s first internet-only insurer, whose current major shareholders include two of China’s largest Internet companies – Alibaba Group’s Ant Financial affiliate with 16 percent and Tencent Holdings Ltd with 12 percent – is in early talks with potential investors, according to the sources who declined to be named.

China’s Biggest Blockchain Backer Launches Startup Accelerator (CoinDesk), Rated: A

A blockchain venture backed by Chinese conglomerate Wanxiang Group has launched a new startup accelerator.

The kick-off, which formally took place on 22nd February, comes soon after Wanxiang pledged to spend as much as $30bn on a smart cities initiative, set to be invested over a seven-year period. As part of that plan, Wanxiang, best known as the country’s biggest makers of automotive parts, said it would look to fund blockchain entrepreneurs.

The investors would be expected to commit at least 1 billion yuan each and the new funds would be used by Zhong An to expand its business and buy time before securing a green light from regulators for the IPO, one of the people said.

India

No misuse of Aadhaar biometrics, says UIDAI (The Indian Express), Rated: A

The Unique Identification Authority of India (UIDAI), which maintains the database of Aadhaar numbers, said on Sunday that there was no misuse of Aadhaar biometrics, which allegedly led to identity theft and financial loss.

Furthermore, with reference to the incident of misuse of biometrics reported in a newspaper, the UIDAI said it was an isolated case of an employee working with a bank’s business correspondent’s company making an attempt to misuse biometrics, which was detected by the authority’s internal security system and subsequently actions were initiated under the Aadhaar Act.

Asia

Ant Financial invests in Globe Telecom’s Mynt (Telecomasia.net), Rated: AAA

Alibaba’s Ant Financial is making its first foray into the Philippines via partnership with Ayala and an investment into Globe Telecom’s Fintech business unit Mynt.

Alibaba’s Ant Financial is making its first foray into the Philippines via partnership with Ayala and an investment into Globe Telecom’s Fintech business unit Mynt.

The flowering field of fintech (Infographic) (Tech in Asia), Rated: AAA

So, why are fintech firms so popular? What makes them better than other finance companies? One of the key reasons is that they have very stable and predictable business models, making people feel safe about their products and/or services. Investors are also attracted to businesses with predictable business models, as the risk is lower. Fintech companies are also low-cost yet deliver exceptional service.

 

Authors:

George Popescu
Allen Taylor

Wednesday September 28th 2016, Daily News Digest

Wednesday September 28th 2016, Daily News Digest

News Comments Today’s main news: LendUp fined $6.3mil; Able raises $100mil; Lending Club sells $300m in loans in private; Today’s main analysis: Speech by Jonathan Davidson, Director of Supervision at FCA; Bondora’s new pricing and its reasons. Today’s thought-provoking articles: Bundling and unbundling; Cognitive computing; United States LendUp gets fined $6.3 mil. This is interesting […]

Wednesday September 28th 2016, Daily News Digest

News Comments

United States

United Kingdom

European Union

 

United States

“Good guy” loan startup LendUp fined .3M for overcharging, (TechCrunch), Rated: AAA

You can read the full announcement from CDBO here.

You can read LendUp’s full statement here.

LendUp was supposed to be different than the payday loan sharks that rip off the poor when they need emergency cash. But in its early days, LendUp charged customers illegal fees, miscalculated interest rates, falsely advertised loans nationwide that weren’t available there and misled people that borrowing from LendUp would boost their credit score.

Now LendUp will have to pay $6.3 million for the violations. That includes a $3.6 million fine by the federal Consumer Financial Protection Bureau for failing to keep its promises, and a $2.7 million fine with the California Department of Business Oversight for the fees and interest rates.

LendUp CEO Sasha Orloff spoke to TechCrunch, admitting his company didn’t have a big enough compliance and legal team to review all of its promotions and features. To remedy the situation, LendUp proactively refunded any wrongly charged customers and ceased all problematic practices as soon as the investigation began. Now, Orloff says his 190-employee company has a 15-person-plus legal and compliance division — more people than the entire LendUp team at the time of the infractions.+

Additionally, Orloff tells me LendUp hired former regulators to come in and build out its compliance program.

The startup wasn’t allowed to discuss the ongoing investigations until they were recently completed.

The penalties might merely be a speed bump for LendUp, though. It raised a $47.5 million Series B round last month to bring itself to $111.5 million in equity funding, giving it plenty of cash to pay the fine and keep operating.

Able Lending Receives $ 100 Million To Fund Small Business Loans Despite Wider Industry Slowdown, (Forbes), Rated: AAA

Amidst a slackening in investor interest in alternative online loans, Austin-based Able Lending announces Tuesday that it has received $100 million to fund its online small business loans from Community Investment Management, the first impact investment firm focused on marketplace lending.

The two-year-old company uses a singular loan structure in a competitive space that has seen the growth of early leaders like OnDeck, CAN Capital and Kabbage plus a proliferation of startups over the last few years. Able has borrowers get “backers” or other friends, family or customers to fund part of the loan. The company says that, in addition to offering longer repayment periods, this enables it to charge lower APRs than its competitors because Able has found that having someone the borrower knows contribute to the loan increases their willingness to repay.

Including the 5% origination fee, Able’s average APR is 16%, compared to small business loan APRs that can be not only high but even abusive — 40% or 80% at competitors and 200% or even 4,000%among even less reputable lenders.

“Able’s unique loan structure, where friends and family contribute a portion of the loan, allows small businesses to access more capital at lower rates,”

So far, about 35% of backers are friends of the business owner, around a quarter of the backers are customers or fans of the business, another quarter is family and the final 14% are the owners themselves.

Able, which initially launched in Austin and is now in every state except for California, Delaware, Nevada, North Dakota, South Dakota, and Vermont, plans to use the new debt financing to lend to 500 new businesses, which need to have at least $100,000 in revenue and be a year old.

So far the company has zero defaults, but it’s only lent out $30 million to a tiny number of borrowers, especially compared to the giants of online business lending such as OnDeck, which in its latest earnings revealed it originated $590 million in loans in the second quarter of this year alone, reaching $5 billion over the company’s lifetime.

The Rise Of Peer-To-Peer (P2P) Lending, (Nasdaq), Rated: AAA

According to Reuters, “twenty of the world’s biggest banks have paid more than $235 billion in fines and compensation in the seven years period (2008-2015) for a litany of misdeeds, ranging from fines for manipulation of currency and interest rate markets to compensation to customers who were wrongly sold mortgages in the United States or insurance products in Britain.”

The market for alternate finance gained popularity in recent years. A finding by Transparency Market Research suggests that “the opportunity in the global peer-to-peer market will be worth $897.85 billion by the year 2024, from $26.16 billion in 2015. The market is anticipated to rise at a whopping CAGR [Compound Annual Growth Rate] of 48.2% between 2016 and 2024.”

One of the major challenges is managing fraudulent activities and malpractices as they result in loss of investor confidence and trust.

In Europe, several countries have introduced changes to alternative finance regulations as an attempt to regulate the activities of these emerging platforms. In the United Kingdom, Financial Conduct Authority (FCA) regulates loan-based and investment-based crowdfunding platforms.

In Australia, providers of marketplace lending products and related services need to hold an Australian financial services license and a credit license  They also need to comply with National Consumer Credit Protection Act (for consumer loans) or Australian Securities and Investments Commission Act 2001 (ASIC Act) for other loans.

Meanwhile, in the U.S., such platforms need to be in compliance with SEC regulations and further have to be in sync with the respective state laws.

In India, the Reserve Bank of India issued a consultation paper in April where it proposed to bring P2P lending platforms under the purview by defining them as NBFCs.

Realizing that trouble was brewing, in August 2016, regulators in China issued an aggressive set of measures to restrain the spread of problematic online lending platforms while ensuring that the sector is cleaned up by making such firms exit. Statistics by CRBC showed that out of the 4,127 P2P lending platforms (end of June 2016), 1,778 were suffering from problems such as poor management, capital constraints or were a Ponzi scheme.

While the peer-to-peer (P2P) platforms continue to face the risk of default, fraudulent practices or borrower’s turning to banks, the growth prospects of this segment remain strong, especially in times when the banking sector continues to struggle with lingering damages. Thus, a well-regulated and transparent peer-to-peer platforms offer great opportunities as an alternative investment for loan providers as well as for borrowers – both in retail and small businesses.

Yirendai Became an Inaugural Member of the Credit Information Sharing Platform of Internet Financial Industry, (PR Newswire), Rated: A

Yirendai Ltd. (NYSE: YRD) has been elected as one of the inaugural member companies of the Internet Financial Industry Information Sharing Platform (IFIISP) on September 9 in Beijing.

IFIISP was launched by China Internet Finance Association (CIFA) and aimed to track credit information in the industry, enabling member companies to cross-examine credit conditions of loan applicants from multiple angles, preventing “multiple loans”, reducing default rate and business risks, ensuring legal compliance and improving information verification processes.

36 member companies in the fields of internet banking and consumer finance etc. of the CIFA were selected into a training camp of the information sharing platform and filed trial applications onApril 14, 2016, while only 17 companies were admitted into the platform at its inauguration as the result.

Inside Wave’s bundled revenue model, (Tradestreaming), Rated: AAA

On the one hand, veteran fintech blogger Pascal Bouvier has written compellingly about the unbundling of incumbents as a result of emerging fintechs and about the different ways for banks to deal with the disbanding of their value chain.

On the other hand, Bernard Lunn and Chris Skinner have argued that the prevalent trend is actually one of rebundling, of banks integrating fintech into their own technologies to form one-stop-shops for customers.

There is, however, a third hand: plain old bundling. Bundling is happening within the fintech ecosystem and without the banks, with payment companies like Square and PayPal launching their own lending services for SMBs. In a sense, if banks are becoming or are trying to become more like fintechs, some fintechs are also becoming more like banks.

For Wave, a Canadian company offering cloud-based solutions for accounting, invoices, payments, and payroll, the decision to bundle up was largely based on the need to provide better customer experience.

“Wave holds all of your financial information. It knows your bank balances, we know who you have invoiced, how much, when they’re due, we know how long we take to pay, all of these insights finance and cashflow,” Maurin explained. “We can therefore do risk assessment and creditworthiness assessments far better than any other entity has been able to do before.”

The fact that Wave’s core accounting software is free has enabled Wave to overcome the costly microbusinesses acquisition process. In fact, all of their signups – between 50-55,000 new businesses each month – are organic. Bundling, however, is what helps microbusinesses get the cash they need and Wave makes a profit.

Fintech’s might be scalable but are they defensible?, (DailyFintech), Rated: AAA

Scaling a business is a challenging endeavor for a fintech provider up against the big old boys of banking. Unlike an incumbent, in the early days, many are single product shops, and often lack a decent loss leader. This can prove challenging on the pricing front, especially when you’re trying to get a foot in the door of a price-sensitive small business. Banks, on the other hand, have a number of cards up their sleeves – from bank accounts to payments – that can, in essence, be given away, priming them for a future up-selling opportunity.

Winning customers with a technically superior product plus a marginal cost saving is the ultimate sweet spot for supercharged acquisition.

As part of our research at Tyro into the current account market, we’ve noticed ING employing this type of ‘continuous ROI’ tactic. As part of theirAustralian cashback campaign, each month they’d let their customers know how much they’d earned.

But imagine if, for the very same account, how much more powerful this would be if you could state, with some degree of certainty, to what lengths you’d helped customers avoid paying late fees, dishonor fees and admin fees.

Any fintech could then generate a continuous ROI measurement on their product and deliver this on a regular basis.

Confidence In The Face Of Alt-Lending’s Potential Implosion, (Pymnts), Rated: A

Investors have cooled off to alternative lending in the U.S. Just look at the near-immediate struggle faced by Lending Club and OnDeck after their IPOs in 2014, or more recently, the knock-on effect Lending Club’s less-than-noble lending practices have had on investor confidence in other marketplace lenders.

Then, there’s the threat of regulation as the CFPB, the Federal Reserve, the Federal Trade Commission and the U.S. Treasury Department all take their turns to probe and poke at the alt-fin space. To some, that means a regulatory crackdown is inevitably close behind.

It’s in this context of stormy seas for the industry that one market player, Able Lending, announced it secured $100 million in debt financing from Community Investment Management (CIM), money that will be lent out to an estimated 500 SMEs in the country.

Alternative SME lending players have faced a problem of supply as of late.

The strength of the national economy means there isn’t a shortage of demand among small businesses for working capital to fuel their growth.

Pat Grady, a partner at investor Sequoia Capital, warned that “upside has been grossly overestimated” in this industry, adding that online lenders are likely headed towards a “culling of the herd.” Ron Suber of alt-lender Prosper, meanwhile, said he noticed many competitors are shopping themselves around.

Recent warnings over loan stacking are the latest scare for the market, with LoanDepot Chief Risk Officer Brian Biglin telling reporters in June that stacking “is causing problems with the whole industry.”

So, what convinces investors to, well, invest?

According to Davis, it’s twofold: transparency and competitive pricing.

Davis predicts that the CFPB, which has recently targeted consumer payday loans, will focus on the payday loan equivalent of the commercial lending space if and when it does turn its focus to corporate lending.

Again, Davis pointed to OnDeck, as well as CAN Capital, as likely initial targets of the CFPB.

“We basically think, ‘What would the CFPB or any other regulator most likely tell a lender to do in their regulation?’”

“Let’s use common sense,” Davis continued, “like transparency, low rates, no disruptive practices, clear contract, no prepayment penalties.”

Lending Club on the road with latest ABS Offering, (GlobalCapital), Rated: AAA

Lending Club is marketing a private unrated ABS offering after drumming up interest at ABS East in Miami last week, say sources speaking with GlobalCApital on the sidelines of the American Banker Marketplace Lending + Investing conference in NY Tuesday.

New York-based Prospect Capital has purchased the loans as is issuing the $300m deal, according to 2 people with knowledge of the deal. The arranger of the deal could not be immediately determined.

California Federal Court in LendingClub Class Action Requires Due Diligence by Lead Plaintiff Before Approving Lead Counsel, (National Law Review), Rated: A

In a recent decision in the now-consolidated LendingClub class action cases, Judge William Alsup of the Northern District of California appointed a lead plaintiff but unexpectedly declined to appoint lead counsel at the same time.  Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who will then move the court—via their current counsel, who is allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.

While “[s]everal lead plaintiff candidates filed motions for an appointment,” all but the Water and Power Employees’ Retirement System, Disability and Death Plan of the City of Los Angeles (“WPERP”) either withdrew or failed to oppose WPERP’s motion.

The Court’s opinion is not clear as to whether WPERP’s motion for appointment of lead counsel will be filed publicly, although, unlike with the accompanying declarations, the motion itself “should be served on defense counsel.”

The decision to separate the appointments of lead plaintiff and lead counsel into separate processes is rare, but it is unclear whether it will have a significant impact.

WTF is cognitive banking?, (Trade Streaming), Rated: AAA

Based on machine learning, natural language processing, and human interface technologies, cognitive computing systems can learn as information changes and requirements evolve, and easily interact with users, other devices, and other data sources. In contrast to traditional computing models which tabulate and calculate based on preconfigured rules and programs, cognitive systems can handle situations that are dynamic and information rich.

Imagine banking was as simple as a Google search. Instead of surfing multiple pages on your bank’s app, you type or talk to a  single input box: “I lost my card.”  A quick chat with a rep you didn’t even realize was not human and the new card is on its way.

Generally speaking, banks are still testing the waters when it comes to cognitive banking. In a 2016 survey conducted by IBM, just 11 percent of bank executives reported they have adopted a cognitive technology. 58 percent named improving operational efficiency as their most important strategic priority right now, which might explain the low adoption rate. Banks are generally focused on cost reducing activities and do not make needed IT investments.

In the same survey, 49 percent cited [the rather superficial outcome of] operational efficiency as the main benefit of cognitive computing, indicating bankers are a bit aloof to the transformative potential of it.

United Kingdom

Comment: Speech by Jonathan Davidson, Director of Supervision – retail and authorisations at the FCA, at the Future of Lending Conference.

The FCA, as far as I know, is almost unique among financial regulators in the world,Malta being another, who have a top-line objective to promote competition.

We also see innovation as a particular imperative. So if you have innovative ideas – whether you are new to the industry or well established – please approach the FCA’s Innovation Hub.

Since we took responsibility for regulating consumer credit in 2014, we’ve handled some 39,000 applications. This was a lot more than we had anticipated.

Nevertheless, we have now dealt with 95% of them, and 99% of those we’ve processed to deadline.

There are a number of important reasons why I think we’ll keep seeing personal lenders coming through the doors.

One big factor is the hangover from the global financial crisis. So we expect innovative lenders to continue taking advantage of the current high margin, low-interest rate landscape.

The other major drivers, of course, are new platforms and technologies. So you can point to developments like real-time data sharing, predictive analytics, and mobile tech, as well as opportunities from the API Open Banking Standard.

At the moment, we see a number of risks in personal lending. I do not intend to go over them in exhaustive detail.

But I want to pinpoint two in particular: namely, affordability and the treatment of customers in financial difficulty.

Our authorisations process for interim permission firms has meant a tough and sometimes long journey for some of you.

I recently had a conversation with a non-exec director at a consumer credit firm who told me that the authorisations process had been, in his words, a ‘nightmare’.

We are very pleased with a large number of firms that have proactively engaged with us on our concerns and made radical changes. Naturally, this has caused delays for firms, but we believe it has had a positive outcome.

We currently have just under 1,700 cases remaining to be determined. The length of time we take to finalize those applications will be affected by lots of different factors. Complex cases from higher risk sectors, for example, tend to take longer. And this brings me to an important message to all firms, please be aware that we do not see authorisation as a one-off focus on performance, equivalent to cramming for an exam and then forgetting everything you’ve learned.

We see your responsibility as twofold. We certainly expect you to look out for your individual customers. But we also want you to be aware of your wider responsibility to the UK economy and society.

The FCA has a statutory responsibility to enhance market integrity, which means we take a direct interest in issues ranging from orderly resolution and market abuse, through to efficiency and transparency.The point I specifically want to address today though is related to issues around the transmission and distribution of risk.We fully understand debt and credit are integral to economic growth. Allowing consumption smoothing and investment. However, we also know that if credit grows too fast, affordability suffers.

From the regulator’s perspective, we’ve already authorized 12 firms who are operating P2P platforms and are assessing 85 additional applications, of which 39 are operating under interim permission. So there is clearly a lot of business interest.

I should immediately say this is not a surprise with yields on bonds at historically low levels. Investors earn as much as 10% on three to five-year P2P loans(link is external).

We will continue to pay close attention to personal lenders, and we will certainly not relax our standards. We want to see firms following our rules, but also the spirit of what we are trying to achieve.

Ultimately, we all want a landscape where the general public has confidence in you. And we all want a market in which you have confidence that your market is working well – with principled firms protected from unprincipled ones.

Zopa’s Janardana & P2P GI’s Champ Comment on Europe’s First Securitization of Unsecured Consumer Loans Originated Online, (Crowdfund Insider), Rated: B

Comment: I rated this B because our readers have been aware of this for a while, and while important it is just a secondary reminder now.

Last week, P2P Global Investments and Zopa teamed up to work on Europe’s first securitization of unsecured consumer loans originated online. dedicated to investing in loans originated via marketplace platforms, and was arranged by Deutsche Bank.

To recap: the £138M ($179 million) transaction is backed by 27,137 loans to individuals, according to Moody’s Investors Service, with a weighted average seasoning of 10 months and a maximum loan term of five years. Deutsche Bank AG arranged the deal, branded “Marketplace Originated Consumer Assets 2016-1.” A securitization of loans originated through financial innovator Zopa has received the highest debut rating globally for any issuance backed by peer-to-peer loans, with an AA- rating from Fitch and Aa3 rating from Moody’s on the most senior notes.

Kuflink partners with risk-scoring platform, (Bridging And Commercial), Rated: A

Peer-to-peer lending platform Kuflink has announced a partnership with Contego, the multi-source identity verification, and risk-scoring platform.

Kuflink has appointed the company to ensure compliance with anti-money laundering (AML) regulation at a time when peer-to-peer lending is under great scrutiny.

Contego’s identity verification and risk-scoring platform will allow Kuflink to verify the identity of its lenders and screen them against politically exposed person and sanction lists.

 

European Union

Estonian P2P lender Bondora hikes max return to 32.5% under new loan pricing scheme, (SMN Weekly), Rated: A

Bondora said on Tuesday it is updating its entire loan pricing system by incorporating a new method for calculation. As a result, аll new loan buyers will get a higher return of up to 32.5% of their investment. For comparison, under the current conditions, lenders can receive a return of no more than 20.2%.

With the move, the platform operator said it aims to increase the rewards for investors who buy higher risk loans. The news comes shortly after Bondora announced the launch of a Refer-A-Friend program, under which investors can earn 5% from the amount their referred friends lend in the first 30 days of signing up via the platform.
Author:

George Popescu