August 8th 2016, Daily News Digest

August 8th 2016, Daily News Digest

News Comments Today’s news pour some cold water on P2P SME lending : SME securitizations and SME yield performance seem to be less than expected. See 1st article in US section and 1st article in UK section. Finova raised $52.5 mil , Mosaic $220 mil. And today’s the day : Lending Club and OnDeck release […]

August 8th 2016, Daily News Digest

News Comments

United States

United Kingdom

Australia

News Summary

United States

Funding Circle, and other online lenders, falter in America, (Financial Times), Rated: AAA

“Our portfolio of Funding Circle US loans has continued to substantially underperform our expectations, a trend which continued during the quarter and created a drag on the overall portfolio. We stopped purchasing new Funding Circle US loans late in 2015 so the portfolio continues to amortize down.” [ Comment: see the complete VPC Q2 2016 letter in the UK section below].

That’s from VPC Specialty Lending (VSL) Investments’ second quarter letter, released earlier this week (mea culpa, we didn’t spot it at first).

VSL’s disclosure forced Funding Circle’s listed fund to issue its own filing to the market yesterday, sort of but not outright rejecting the suggestion that loans were underperforming:

The Company’s US Credit Assets are projected to return in excess of 8% per annum on a net unlevered basis – consistent with historic performance observed on the Funding Circle US marketplace.

But that might be downplaying the historic performance a little. When Funding Circle floated its fund last year, this is the US loan performance it revealed in its November prospectus (note the numbers didn’t include expected future losses and showed the to-date performance at that time):

Sachin Patel, Funding Circle’s global co-head of capital markets, said that loans originated in the first half of 2015 had underperformed and are expected to return 7.25 per cent to its large, accredited investors, rather than the 8 per cent or more that it targets.

Funding Circle launched in the US in late 2013 and is run out of San Francisco by Sam Hodges. According to the 2015 prospectus for Funding Circle’s fund, US loans originated in early 2014 also “experienced higher than expected annualised loss rates”.

Similar missteps were seen in Funding Circle’s first years of operation in the UK too:

But Funding Circle isn’t the only online lender to small businesses in the US that is disappointing investors. According to a Morgan Stanley note last month, a second securitisation of loans originated by OnDeck, which is listed, breached its loss trigger in June:

MPLT 2015-OD3 from OnDeck breached triggers in June, joining the 3 deals we had previously highlighted – MPLT 2015- CB1 (Circleback), MPLT 2015-OD1 (OnDeck) and GLCII 2014-A (Lending Club).

That makes four online lending securitisation deals that have hit their loss trigger, meaning that cashflows are diverted to senior bondholders at the expense of the lower tranche investors. Three of those four deals, as far as we can tell, were arranged by Jefferies.

It’s also worth keeping an eye on securitisations of loans from Avant, a US consumer lender that also gets a dishonourable mention in VSL’s letter (note that Victory Park is an equity investor in Avant):

We also saw a reduction in the value of three residual interests in securitizations of Avant loans that are held at fair market value. These markdowns, which flow through capital, reflect loss curves coming in slightly higher than in the first quarter. While the capital markets have recently begun to re-open for marketplace lending loans, we have no current plans to pursue additional securitizations.

FTC Announces FinTech Forum on Crowdfunding, Peer-to-Peer Payments, (JD Supra Business Advisor), Rated: AAA

The FTC announced it will be hosting the next event in the FinTech Forum series on October 26, 2016.

BNY Mellon sees possible rise of P2P collateral lending, (Global Custodian), Rated: A

Peer-to-peer lending among buy-siders could emerge due to a challenging regulatory environment for sourcing and optimising collateral, according to BNY Mellon.

In the report, BNY Mellon states that institutional investors may also find further opportunities in a peer-to-peer relationship, where buy-side firms are both the collateral provider and receiver.

The report can be found here.

 Income: any Fintech to fill-in the supply shortage?, ( Daily Fintech), Rated: AAA

The world still needs current [Comment: I believe most people use the word fixed instead of current] income for a variety of reasons: wage stagnation, tax overburdening, and the usual cash flows needs that are not at all well managed.

Source: Pension Partners

Challenger banks in the UK have been offering bonds (3yrs or less) to entice customers to sign up on their platforms.

Source: Daily Finance

There are two Alternative finance options that can generate income, much like high yield bonds or publicly traded REITS have been doing in normal conditions.

Investors in the UK can invest in the LE listed

Finova Financial Raises $ 52.5 M First Round For Car Equity Loans, (Wall Street Journal), Rated: A

Finova Financial has raised $52.5 million in its first institutional funding—much of it in the form of debt—for its consumer lending service that provides car owners with a line of credit.

The funding was led by MHS Capital, with participation from Refactor Capital; CoVenture; Metamorphic Ventures; 500 Startups; Funding Circle co-founder Sam Hodges; NerdWallet co-founder Jake Gibson; and Al Hamra Group, a company owned by a ruling family in the United Arab Emirates.

A “large percentage” of the round was the credit facility, the company said, but declined to give specifics.

Founded in January 2015, Finova provides loans in exchange for liens on consumers’ cars, which the company calls a “car-equity line of credit,” which resembles a home equity credit line. Its loans are typically $1,500 to $1,700.

Finova charges about 70% less than the industry average, according to Mr. Keough said.

In contrast to typical paper applications, with Finova people can apply on a website or mobile device by providing information about their cars and driver’s licenses and receive decisions quickly, Mr. Keough said. About 65% of customers apply via phones.

The car equity loan is Finova’s first product, and the company intends to launch other products for “unbanked” consumers, as the company describes its target market.

“My investment thesis is: financial services for the rest of us,” said Sheel Mohnot, the partner at 500 Startups who leads the firm’s fintech investments. “There could not be a better fit (than Finova) for working with a population who is unbanked.”

Warburg Pincus Leads $ 220 Million Round for Solar Lender Mosaic, ( Wall Street Journal), Rated : A

Private-equity firm Warburg Pincus is leading a $220 million equity investment in energy-financing startup Solar Mosaic Inc., according to two people familiar with the situation. The company, known as Mosaic, provides loans for solar installations for homeowners. It is starting to finance other energy-efficiency upgrades that are meant to reduce utility bills.

Warburg Pincus will have a slight majority control of Mosaic through its $200 million investment, one person said. Other investors in the round include financial technology venture firm Core Innovation Capital and Obvious Ventures, a firm, co-founded by Ev Williams, that seeks to invest in startups that offer a positive social impact. Andrew Beebe, managing director at Obvious Ventures, has had a long career in solar energy.

Mosaic has said that it plans to originate about $1 billion in residential-solar loans in the coming 12 months. It secured $200 million in credit from DZ Bank as the lead lender earlier this year. NY Green Bank also participated.

The company’s business model is built around allowing people to own their own solar systems. That contrasts against the predominant model of financing residential solar under lease programs in which homeowners rent the solar power their properties generate.

Privately held GreenSky LLC and Spruce Finance Inc., backed by Kleiner Perkins Caufield & Byers, also operate in the category. Earlier Mosaic investors include Spring Ventures, Serious Change, Blue Haven Initiative and Bronze Investments.

Colorado Inquiry Prompts Avant to Rejig Bonds, Kroll Says, (PeerIQ), Rated: AAA

Avant Inc., the online lending marketplace, removed unsecured consumer loans made to Colorado residents from a securitization deal after a state regulator sought information about its lending policies, according to Kroll Bond Rating Agency. Colorado concluded that loans mad to its residents must comply with its lending statutes, even if the debts originate through partner banks in another state, as Avant does in Utah, Kroll said in an Aug. 2 report. Such statutes include usury laws and restrictions on late fees and other charges, Kroll said in its evaluation of an upcoming $200 million securitization to be sold by Avant. “In light of the letters from the Colorado regulator, Avant has removed all loans made to Colorado residents,” Kroll said. Carolyn Blackman Gasbarra, a spokeswoman for Chicago-based Avant, declined via e-mail to comment while the deal is pending. Kroll said Avant is “proactively addressing any regulator concerns.” Sheila Bair, the former head of the Federal Deposit Insurance Corp. and a frequent proponent of tougher regulation, was added to the company’s board earlier this year.

Inside CommonBond’s 401(k) platform for student loan debt, (Tradestreaming), Rated: AAA

In July 2016, student loan platform CommonBond acquired online loan repayment advisor Gradible. The acquisition of Gradible, which uses an algorithm to recommend what the best repayment options are for student loan borrowers, has enabled CommonBond to roll out a new platform that it’s calling the 401(k) for student loans.

The 401(k) platform will enable employers to contribute to their employees student loans just as they contribute to their employees’ retirement. “What the acquisition of Gradible allows us to do is to marry up certain technologies that they’ve built with technologies that we’ve already built to accelerate the platform,” said David Klein, co-founder and CEO of CommonBond.

Gradible’s merger with CommonBond was two years in the works. A personal connection lead CommonBond to partner with the software company, becoming one of the refinance options Gradible offered on its platform. Eventually, CommonBond’s desire to expand its reach together with Gradible’s intention to accelerate its vision led to the merger.

Klein believes that bringing Gradible in-house will enable CommonBond to reach and meaningfully impact every one of the over 40 million Americans saddled with student debt, and to a certain extent this is true. As a student loan reassessment tool, Gradible can help students discover alternative ways to manage their debt, such as income-based repayment and public service loan forgiveness.

But the 401(k) will ultimately serve the “top talent”, who are the most likely to make it out of student debt in the first place.

CommonBond had one company ask it to implement the platform for them, and Klein has also piloted the 401(k) at CommonBond itself – much to its employees’ delight.

While the CommonBond-Gradible marriage can’t fix what’s broken with the student loan industry at large, its 401(k) product is opening up the traditional closed lender-borrower relationship to employers. So far, this threesome has benefited the entire loan ecosystem: lenders are getting repaid faster, employees are happier, and employers are meaningfully participating in their employees’ financial lives.

Online Lenders Have a Tough Job Ahead, (Wall Street Journal), Rated: AAA

LendingClub Corp. and OnDeck Capital Inc. have suffered through growing pains this year.

They each report second-quarter results Monday [Comment: today].

Jefferies closes Lending Club bonds sale, (Financial Times), Rated: A

Comment: our readers are familiar with this information from last week’s Monday Lending Times. I believe a reminder is a good idea though.

Jefferies has closed a private sale of bonds backed by personal loans originated by Lending Club, marking a step in the rehabilitation of the scandal-hit online lender ahead of its second-quarter earnings. Meanwhile, the Jefferies-led deal is “very positive” for the online-lending industry, said James Gutierrez, chief executive of Insikt, a platform that has sold bundles of Lending Club and Prosper loans to wealthy individuals.

Three months on, Jefferies has sold $105m of bonds backed by Lending Club loans, offering yields of 3.75 to 6.5 per cent.

Offers of unsecured personal loans sent out in the mail dropped 19 per cent in the second quarter from the first quarter, to 507m, according to Mintel Comperemedia, a market intelligence agency. All told, the industry has sent out 4.44bn loan offers to consumers over the past two years, peaking at 749m in the fourth quarter last year.

Goldman Sachs, which had been preparing a securitisation of prime loans from Lending Club before the scandal blew up in May, is prepared to bide its time, according to a person briefed on the bank’s plans.

MPOWER Brings on SoFi and Student-Lending Veteran Renee Suryan as Director of University Relations, (PR Web), Rated: A

Comment: Please see the Lending Times article on MPOWER here.

MPOWER Financing is pleased to formally announce the addition of Renee Suryan to its team. With more than 20 years of experience in student lending, including 10 years as a financial aid administrator, she joins MPOWER as Director of University Relations. Currently growing at a rate of 40 percent month-over-month in loan volume, MPOWER projects it will have more than 200 school partnerships and 21 state licenses by the end of 2016.

MPOWER Partners with FUTR to Support Domestic and International Student Loans, (PR Web), Rated: B

MPOWER Financing today announced that it is partnering with FUTR Corporation to provide superior loan servicing and support to MPOWER borrowers.

FUTR is a privately held and venture-backed higher education finance provider headquartered in San Francisco, with an operational hub in Bryan, Texas. FUTR is focused on bringing together modern technology and quality service to provide new levels of transparency and insight that borrowers need to optimally manage their financial future.

The Time To Start Thinking About Repaying Student Loans Is When You Take Them Out, (Forbes), Rated: B

Comment: article written for borrowers. Probably not useful to our readers.

Credible.com is a multi-lender student loan marketplace. One issue that’s underappreciated is that the time to start thinking about repaying your student loans is not when you graduate, but when you take them out.

The 27 fintech unicorns from around the world, ranked by value, (Business Insider), Rated: AAA

Comment: Article would have deserved to be in an international section. However it is only marginally relevant to our readers and we prefer not focus our newsletter on this article. Hence we located it at the end of our US section.

An interesting list. Many of our own industry participants are present. However I had not heard of a few of them. Worth a read.

United Kingdom

VPC Specialty Lending Investments PLC, (VPC Specialty Lending), Rated: AAA

Comment: There is a disclaimer the readers must read and agree to before accessing this article.

In the second quarter of 2016, VPC Speciality Lending Investments PLC (“VSL” or the “Company”) delivered a net return of 0.33%. Although the return wasbelow expectations, it does not reflect what we believe will be the level of long-term returns for our shareholders given our existing portfolio and pipeline. There are several reasons for the decline in short-term performance, which are outlined below along with the steps we are taking to mitigate these factors in the near term.

The decision by U.K. voters to leave the European Union (“EU”) and the subsequent depreciation of the GBP had a negative impact on the Company’s performance as we had to maintain an outsized cash balance related to our currency hedge. Leading up to the EU Referendum, we took a conservative approach to our cash management and credit allocations. A substantial portion of our assets are held in USD and other currencies, which are hedged to GBP via forward currency swaps. The hedging program was put in place when the investments were made following the Company’s March 2015 IPO and September 2015 C share offering. Since then, due to the substantial depreciation of GBP against USD, the Company has had to deposit in cash up to 11.5% of the Company’s NAV. While the direct effect of the currency swings on our income has been limited because our non-GBP exposure is largely hedged, the obligation to settle the hedges upon expiration and the need to maintain additional liquidity in the event the GBP depreciates further has limited our ability to be largely fully invested, as we strive to be. The outlook for the GBP continues to be uncertain – several economists have set target prices for USD/GBP at $1.20 or below with a one-year time horizon – leaving us to remain conservative. We are reviewing all available options to reduce the cash drag related to the margin requirement, including a revolving credit facility for the Company.

The majority of our whole loan portfolio performed in line with our expectations, although certain positions did experience higher than expected losses.

Accordingly, we believe we are now in the period of peak losses for our portfolios (assuming static economic conditions), leading to muted NAV returns in the near term but we expect the returns to even out over the life of the investments.

As previously announced, our portfolio of Funding Circle US loans has continued to substantially underperform our expectations, a trend which continued during the quarter and created a drag on the overall portfolio. We stopped purchasing new Funding Circle US loans late in 2015 so the portfolio continues to amortize down.

We also saw a reduction in the value of three residual interests in securitizations of Avant loans that are held at fair market value.

On a more positive note, our balance sheet loan portfolio continued to show excellent performance with no impairments and coupons ranging from 12% to 16%.

  • On 26 May 2016, the Company made initial investments in West Creek Financial, Inc., a provider of point-of-sale lease-to-own financing to underserved customers enabling purchases of durable goods such as furniture, mattresses, and appliances.
  • On 30 June 2016, the Company made initial investments in Fundbox Ltd., a provider of short-term working capital advances to small and medium-sized businesses in the U.S. and the Company funded a new tranche of senior secured debt to Elevate Credit, Inc. Elevate is a provider of cash advances and installment loans to U.S. consumers.

While cash drag as a result of the currency hedge and the performance of certain whole loan investments were disappointing, we are encouraged by the performance of our existing balance sheet investments as well as the attractive terms of newer deals. In order to further demonstrate our commitment to the Company and our confidence in achieving returns of 8% or greater, we have agreed with the Company’s Board of Directors to modify our management agreement such that we will apply 20% of our monthly management fee to purchase shares of the Company at the prevailing market price on an ongoing basis, whilst the shares are trading at a discount to net asset value.

Understanding of risk remains a central issue for P2P industry, (Alt Fi), Rated: A

Andrew Tyrie, Chairman of the Treasury Select Committee, has written to the outgoing and incoming heads of the FCA – Tracey McDermott and Andrew Bailey respectively.

“Government policies to promote the crowdfunding sector may have the right intention – to increase competition in the small to medium enterprise lending market – but government tax incentives, in effect government subsidies, may be encouraging some consumers into the use of inappropriate products.”

The problem of a perceived lack of understanding of risk by investing consumers has been a common sector theme of late.

Analysis from AltFi Data illustrates that, to date, the lending performance of the largest UK platforms has delivered consistently positive net returns. Zopa, Funding Circle, Ratesetter and MarketInvoice together make up over 65% of the sector’s origination volume and lead the way when it comes to disclosure of their lending track record. 10 years of data representing that track record demonstrates that net returns have remained positive in a range of 5-6.5%. Bad debt performance has also been impressive, coming in at 5% for the worst ever annual cohort i.e. less than 1.7% annualized, and at no worse than 1.66%, i.e. less than 0.55% annualized, over the past 5 years.

Liberum Alt Fi Index. Source: AltFi.com

Assetz Capital Reports: Peer-to-Peer Lending Expected to Thrive As Bank of England Slashes Interest Rates, (Crowdfunding Insider), Rated: A

On Thursday, Assetz Capital one of the UK’s largest peer-to-peer lenders, announced it is predicting that both savers and borrowers will continue to turn to alternative finance companies in increasing numbers as Bank of England slashes interest rates from 0.5% to 0.25%.

Assetz Capital revealed, since launching in 2013, around £130 million has flown through its platform to credit-worthy borrowers, earning investors a total gross interest of more than £12 million to date and this lending is predicted to continue to rise rapidly.

Assetz Capital also predicted the number of business borrowers will also rise as a result of the cut interest rate.

Australia

Fintech B2B small business lending marketplace Bigstone raises million, (Financial Review), Rated: A

Fintech start-up Bigstone has raised $3 million from a range of investors, including ASX-listed diversified investments and venture capital firm CVC, to grow its small business lending marketplace and offer an alternative to the big banks.

Other major investors in the round were the founders of Bangkok-based fund Lighthouse Venture Partners Paniti Junhasavasdikul and Narith Phadungchai, in addition to private investors.

By the end of the year, Bigstone is hoping to have financed $10 million worth of loans to more than 200 small businesses.

A University of Sydney and KPMG study released earlier this year found that Australia’s online alternative finance market grew by 320 per cent in 2015 to $460 million, making it the third largest market in the Asia Pacific behind China and Japan.

Author:

George Popescu

August 8th 2016, Daily News Digest

August 8th 2016, Daily News Digest

News Comments Today’s news pour some cold water on P2P SME lending : SME securitizations and SME yield performance seem to be less than expected. See 1st article in US section and 1st article in UK section. Finova raised $52.5 mil , Mosaic $220 mil. And today’s the day : Lending Club and OnDeck release […]

August 8th 2016, Daily News Digest

News Comments

United States

United Kingdom

Australia

News Summary

United States

Funding Circle, and other online lenders, falter in America, (Financial Times), Rated: AAA

“Our portfolio of Funding Circle US loans has continued to substantially underperform our expectations, a trend which continued during the quarter and created a drag on the overall portfolio. We stopped purchasing new Funding Circle US loans late in 2015 so the portfolio continues to amortize down.” [ Comment: see the complete VPC Q2 2016 letter in the UK section below].

That’s from VPC Specialty Lending (VSL) Investments’ second quarter letter, released earlier this week (mea culpa, we didn’t spot it at first).

VSL’s disclosure forced Funding Circle’s listed fund to issue its own filing to the market yesterday, sort of but not outright rejecting the suggestion that loans were underperforming:

The Company’s US Credit Assets are projected to return in excess of 8% per annum on a net unlevered basis – consistent with historic performance observed on the Funding Circle US marketplace.

But that might be downplaying the historic performance a little. When Funding Circle floated its fund last year, this is the US loan performance it revealed in its November prospectus (note the numbers didn’t include expected future losses and showed the to-date performance at that time):

Sachin Patel, Funding Circle’s global co-head of capital markets, said that loans originated in the first half of 2015 had underperformed and are expected to return 7.25 per cent to its large, accredited investors, rather than the 8 per cent or more that it targets.

Funding Circle launched in the US in late 2013 and is run out of San Francisco by Sam Hodges. According to the 2015 prospectus for Funding Circle’s fund, US loans originated in early 2014 also “experienced higher than expected annualised loss rates”.

Similar missteps were seen in Funding Circle’s first years of operation in the UK too:

But Funding Circle isn’t the only online lender to small businesses in the US that is disappointing investors. According to a Morgan Stanley note last month, a second securitisation of loans originated by OnDeck, which is listed, breached its loss trigger in June:

MPLT 2015-OD3 from OnDeck breached triggers in June, joining the 3 deals we had previously highlighted – MPLT 2015- CB1 (Circleback), MPLT 2015-OD1 (OnDeck) and GLCII 2014-A (Lending Club).

That makes four online lending securitisation deals that have hit their loss trigger, meaning that cashflows are diverted to senior bondholders at the expense of the lower tranche investors. Three of those four deals, as far as we can tell, were arranged by Jefferies.

It’s also worth keeping an eye on securitisations of loans from Avant, a US consumer lender that also gets a dishonourable mention in VSL’s letter (note that Victory Park is an equity investor in Avant):

We also saw a reduction in the value of three residual interests in securitizations of Avant loans that are held at fair market value. These markdowns, which flow through capital, reflect loss curves coming in slightly higher than in the first quarter. While the capital markets have recently begun to re-open for marketplace lending loans, we have no current plans to pursue additional securitizations.

FTC Announces FinTech Forum on Crowdfunding, Peer-to-Peer Payments, (JD Supra Business Advisor), Rated: AAA

The FTC announced it will be hosting the next event in the FinTech Forum series on October 26, 2016.

BNY Mellon sees possible rise of P2P collateral lending, (Global Custodian), Rated: A

Peer-to-peer lending among buy-siders could emerge due to a challenging regulatory environment for sourcing and optimising collateral, according to BNY Mellon.

In the report, BNY Mellon states that institutional investors may also find further opportunities in a peer-to-peer relationship, where buy-side firms are both the collateral provider and receiver.

The report can be found here.

 Income: any Fintech to fill-in the supply shortage?, ( Daily Fintech), Rated: AAA

The world still needs current [Comment: I believe most people use the word fixed instead of current] income for a variety of reasons: wage stagnation, tax overburdening, and the usual cash flows needs that are not at all well managed.

Source: Pension Partners

Challenger banks in the UK have been offering bonds (3yrs or less) to entice customers to sign up on their platforms.

Source: Daily Finance

There are two Alternative finance options that can generate income, much like high yield bonds or publicly traded REITS have been doing in normal conditions.

Investors in the UK can invest in the LE listed

Finova Financial Raises $ 52.5 M First Round For Car Equity Loans, (Wall Street Journal), Rated: A

Finova Financial has raised $52.5 million in its first institutional funding—much of it in the form of debt—for its consumer lending service that provides car owners with a line of credit.

The funding was led by MHS Capital, with participation from Refactor Capital; CoVenture; Metamorphic Ventures; 500 Startups; Funding Circle co-founder Sam Hodges; NerdWallet co-founder Jake Gibson; and Al Hamra Group, a company owned by a ruling family in the United Arab Emirates.

A “large percentage” of the round was the credit facility, the company said, but declined to give specifics.

Founded in January 2015, Finova provides loans in exchange for liens on consumers’ cars, which the company calls a “car-equity line of credit,” which resembles a home equity credit line. Its loans are typically $1,500 to $1,700.

Finova charges about 70% less than the industry average, according to Mr. Keough said.

In contrast to typical paper applications, with Finova people can apply on a website or mobile device by providing information about their cars and driver’s licenses and receive decisions quickly, Mr. Keough said. About 65% of customers apply via phones.

The car equity loan is Finova’s first product, and the company intends to launch other products for “unbanked” consumers, as the company describes its target market.

“My investment thesis is: financial services for the rest of us,” said Sheel Mohnot, the partner at 500 Startups who leads the firm’s fintech investments. “There could not be a better fit (than Finova) for working with a population who is unbanked.”

Warburg Pincus Leads $ 220 Million Round for Solar Lender Mosaic, ( Wall Street Journal), Rated : A

Private-equity firm Warburg Pincus is leading a $220 million equity investment in energy-financing startup Solar Mosaic Inc., according to two people familiar with the situation. The company, known as Mosaic, provides loans for solar installations for homeowners. It is starting to finance other energy-efficiency upgrades that are meant to reduce utility bills.

Warburg Pincus will have a slight majority control of Mosaic through its $200 million investment, one person said. Other investors in the round include financial technology venture firm Core Innovation Capital and Obvious Ventures, a firm, co-founded by Ev Williams, that seeks to invest in startups that offer a positive social impact. Andrew Beebe, managing director at Obvious Ventures, has had a long career in solar energy.

Mosaic has said that it plans to originate about $1 billion in residential-solar loans in the coming 12 months. It secured $200 million in credit from DZ Bank as the lead lender earlier this year. NY Green Bank also participated.

The company’s business model is built around allowing people to own their own solar systems. That contrasts against the predominant model of financing residential solar under lease programs in which homeowners rent the solar power their properties generate.

Privately held GreenSky LLC and Spruce Finance Inc., backed by Kleiner Perkins Caufield & Byers, also operate in the category. Earlier Mosaic investors include Spring Ventures, Serious Change, Blue Haven Initiative and Bronze Investments.

Colorado Inquiry Prompts Avant to Rejig Bonds, Kroll Says, (PeerIQ), Rated: AAA

Avant Inc., the online lending marketplace, removed unsecured consumer loans made to Colorado residents from a securitization deal after a state regulator sought information about its lending policies, according to Kroll Bond Rating Agency. Colorado concluded that loans mad to its residents must comply with its lending statutes, even if the debts originate through partner banks in another state, as Avant does in Utah, Kroll said in an Aug. 2 report. Such statutes include usury laws and restrictions on late fees and other charges, Kroll said in its evaluation of an upcoming $200 million securitization to be sold by Avant. “In light of the letters from the Colorado regulator, Avant has removed all loans made to Colorado residents,” Kroll said. Carolyn Blackman Gasbarra, a spokeswoman for Chicago-based Avant, declined via e-mail to comment while the deal is pending. Kroll said Avant is “proactively addressing any regulator concerns.” Sheila Bair, the former head of the Federal Deposit Insurance Corp. and a frequent proponent of tougher regulation, was added to the company’s board earlier this year.

Inside CommonBond’s 401(k) platform for student loan debt, (Tradestreaming), Rated: AAA

In July 2016, student loan platform CommonBond acquired online loan repayment advisor Gradible. The acquisition of Gradible, which uses an algorithm to recommend what the best repayment options are for student loan borrowers, has enabled CommonBond to roll out a new platform that it’s calling the 401(k) for student loans.

The 401(k) platform will enable employers to contribute to their employees student loans just as they contribute to their employees’ retirement. “What the acquisition of Gradible allows us to do is to marry up certain technologies that they’ve built with technologies that we’ve already built to accelerate the platform,” said David Klein, co-founder and CEO of CommonBond.

Gradible’s merger with CommonBond was two years in the works. A personal connection lead CommonBond to partner with the software company, becoming one of the refinance options Gradible offered on its platform. Eventually, CommonBond’s desire to expand its reach together with Gradible’s intention to accelerate its vision led to the merger.

Klein believes that bringing Gradible in-house will enable CommonBond to reach and meaningfully impact every one of the over 40 million Americans saddled with student debt, and to a certain extent this is true. As a student loan reassessment tool, Gradible can help students discover alternative ways to manage their debt, such as income-based repayment and public service loan forgiveness.

But the 401(k) will ultimately serve the “top talent”, who are the most likely to make it out of student debt in the first place.

CommonBond had one company ask it to implement the platform for them, and Klein has also piloted the 401(k) at CommonBond itself – much to its employees’ delight.

While the CommonBond-Gradible marriage can’t fix what’s broken with the student loan industry at large, its 401(k) product is opening up the traditional closed lender-borrower relationship to employers. So far, this threesome has benefited the entire loan ecosystem: lenders are getting repaid faster, employees are happier, and employers are meaningfully participating in their employees’ financial lives.

Online Lenders Have a Tough Job Ahead, (Wall Street Journal), Rated: AAA

LendingClub Corp. and OnDeck Capital Inc. have suffered through growing pains this year.

They each report second-quarter results Monday [Comment: today].

Jefferies closes Lending Club bonds sale, (Financial Times), Rated: A

Comment: our readers are familiar with this information from last week’s Monday Lending Times. I believe a reminder is a good idea though.

Jefferies has closed a private sale of bonds backed by personal loans originated by Lending Club, marking a step in the rehabilitation of the scandal-hit online lender ahead of its second-quarter earnings. Meanwhile, the Jefferies-led deal is “very positive” for the online-lending industry, said James Gutierrez, chief executive of Insikt, a platform that has sold bundles of Lending Club and Prosper loans to wealthy individuals.

Three months on, Jefferies has sold $105m of bonds backed by Lending Club loans, offering yields of 3.75 to 6.5 per cent.

Offers of unsecured personal loans sent out in the mail dropped 19 per cent in the second quarter from the first quarter, to 507m, according to Mintel Comperemedia, a market intelligence agency. All told, the industry has sent out 4.44bn loan offers to consumers over the past two years, peaking at 749m in the fourth quarter last year.

Goldman Sachs, which had been preparing a securitisation of prime loans from Lending Club before the scandal blew up in May, is prepared to bide its time, according to a person briefed on the bank’s plans.

MPOWER Brings on SoFi and Student-Lending Veteran Renee Suryan as Director of University Relations, (PR Web), Rated: A

Comment: Please see the Lending Times article on MPOWER here.

MPOWER Financing is pleased to formally announce the addition of Renee Suryan to its team. With more than 20 years of experience in student lending, including 10 years as a financial aid administrator, she joins MPOWER as Director of University Relations. Currently growing at a rate of 40 percent month-over-month in loan volume, MPOWER projects it will have more than 200 school partnerships and 21 state licenses by the end of 2016.

MPOWER Partners with FUTR to Support Domestic and International Student Loans, (PR Web), Rated: B

MPOWER Financing today announced that it is partnering with FUTR Corporation to provide superior loan servicing and support to MPOWER borrowers.

FUTR is a privately held and venture-backed higher education finance provider headquartered in San Francisco, with an operational hub in Bryan, Texas. FUTR is focused on bringing together modern technology and quality service to provide new levels of transparency and insight that borrowers need to optimally manage their financial future.

The Time To Start Thinking About Repaying Student Loans Is When You Take Them Out, (Forbes), Rated: B

Comment: article written for borrowers. Probably not useful to our readers.

Credible.com is a multi-lender student loan marketplace. One issue that’s underappreciated is that the time to start thinking about repaying your student loans is not when you graduate, but when you take them out.

The 27 fintech unicorns from around the world, ranked by value, (Business Insider), Rated: AAA

Comment: Article would have deserved to be in an international section. However it is only marginally relevant to our readers and we prefer not focus our newsletter on this article. Hence we located it at the end of our US section.

An interesting list. Many of our own industry participants are present. However I had not heard of a few of them. Worth a read.

United Kingdom

VPC Specialty Lending Investments PLC, (VPC Specialty Lending), Rated: AAA

Comment: There is a disclaimer the readers must read and agree to before accessing this article.

In the second quarter of 2016, VPC Speciality Lending Investments PLC (“VSL” or the “Company”) delivered a net return of 0.33%. Although the return wasbelow expectations, it does not reflect what we believe will be the level of long-term returns for our shareholders given our existing portfolio and pipeline. There are several reasons for the decline in short-term performance, which are outlined below along with the steps we are taking to mitigate these factors in the near term.

The decision by U.K. voters to leave the European Union (“EU”) and the subsequent depreciation of the GBP had a negative impact on the Company’s performance as we had to maintain an outsized cash balance related to our currency hedge. Leading up to the EU Referendum, we took a conservative approach to our cash management and credit allocations. A substantial portion of our assets are held in USD and other currencies, which are hedged to GBP via forward currency swaps. The hedging program was put in place when the investments were made following the Company’s March 2015 IPO and September 2015 C share offering. Since then, due to the substantial depreciation of GBP against USD, the Company has had to deposit in cash up to 11.5% of the Company’s NAV. While the direct effect of the currency swings on our income has been limited because our non-GBP exposure is largely hedged, the obligation to settle the hedges upon expiration and the need to maintain additional liquidity in the event the GBP depreciates further has limited our ability to be largely fully invested, as we strive to be. The outlook for the GBP continues to be uncertain – several economists have set target prices for USD/GBP at $1.20 or below with a one-year time horizon – leaving us to remain conservative. We are reviewing all available options to reduce the cash drag related to the margin requirement, including a revolving credit facility for the Company.

The majority of our whole loan portfolio performed in line with our expectations, although certain positions did experience higher than expected losses.

Accordingly, we believe we are now in the period of peak losses for our portfolios (assuming static economic conditions), leading to muted NAV returns in the near term but we expect the returns to even out over the life of the investments.

As previously announced, our portfolio of Funding Circle US loans has continued to substantially underperform our expectations, a trend which continued during the quarter and created a drag on the overall portfolio. We stopped purchasing new Funding Circle US loans late in 2015 so the portfolio continues to amortize down.

We also saw a reduction in the value of three residual interests in securitizations of Avant loans that are held at fair market value.

On a more positive note, our balance sheet loan portfolio continued to show excellent performance with no impairments and coupons ranging from 12% to 16%.

  • On 26 May 2016, the Company made initial investments in West Creek Financial, Inc., a provider of point-of-sale lease-to-own financing to underserved customers enabling purchases of durable goods such as furniture, mattresses, and appliances.
  • On 30 June 2016, the Company made initial investments in Fundbox Ltd., a provider of short-term working capital advances to small and medium-sized businesses in the U.S. and the Company funded a new tranche of senior secured debt to Elevate Credit, Inc. Elevate is a provider of cash advances and installment loans to U.S. consumers.

While cash drag as a result of the currency hedge and the performance of certain whole loan investments were disappointing, we are encouraged by the performance of our existing balance sheet investments as well as the attractive terms of newer deals. In order to further demonstrate our commitment to the Company and our confidence in achieving returns of 8% or greater, we have agreed with the Company’s Board of Directors to modify our management agreement such that we will apply 20% of our monthly management fee to purchase shares of the Company at the prevailing market price on an ongoing basis, whilst the shares are trading at a discount to net asset value.

Understanding of risk remains a central issue for P2P industry, (Alt Fi), Rated: A

Andrew Tyrie, Chairman of the Treasury Select Committee, has written to the outgoing and incoming heads of the FCA – Tracey McDermott and Andrew Bailey respectively.

“Government policies to promote the crowdfunding sector may have the right intention – to increase competition in the small to medium enterprise lending market – but government tax incentives, in effect government subsidies, may be encouraging some consumers into the use of inappropriate products.”

The problem of a perceived lack of understanding of risk by investing consumers has been a common sector theme of late.

Analysis from AltFi Data illustrates that, to date, the lending performance of the largest UK platforms has delivered consistently positive net returns. Zopa, Funding Circle, Ratesetter and MarketInvoice together make up over 65% of the sector’s origination volume and lead the way when it comes to disclosure of their lending track record. 10 years of data representing that track record demonstrates that net returns have remained positive in a range of 5-6.5%. Bad debt performance has also been impressive, coming in at 5% for the worst ever annual cohort i.e. less than 1.7% annualized, and at no worse than 1.66%, i.e. less than 0.55% annualized, over the past 5 years.

Liberum Alt Fi Index. Source: AltFi.com

Assetz Capital Reports: Peer-to-Peer Lending Expected to Thrive As Bank of England Slashes Interest Rates, (Crowdfunding Insider), Rated: A

On Thursday, Assetz Capital one of the UK’s largest peer-to-peer lenders, announced it is predicting that both savers and borrowers will continue to turn to alternative finance companies in increasing numbers as Bank of England slashes interest rates from 0.5% to 0.25%.

Assetz Capital revealed, since launching in 2013, around £130 million has flown through its platform to credit-worthy borrowers, earning investors a total gross interest of more than £12 million to date and this lending is predicted to continue to rise rapidly.

Assetz Capital also predicted the number of business borrowers will also rise as a result of the cut interest rate.

Australia

Fintech B2B small business lending marketplace Bigstone raises million, (Financial Review), Rated: A

Fintech start-up Bigstone has raised $3 million from a range of investors, including ASX-listed diversified investments and venture capital firm CVC, to grow its small business lending marketplace and offer an alternative to the big banks.

Other major investors in the round were the founders of Bangkok-based fund Lighthouse Venture Partners Paniti Junhasavasdikul and Narith Phadungchai, in addition to private investors.

By the end of the year, Bigstone is hoping to have financed $10 million worth of loans to more than 200 small businesses.

A University of Sydney and KPMG study released earlier this year found that Australia’s online alternative finance market grew by 320 per cent in 2015 to $460 million, making it the third largest market in the Asia Pacific behind China and Japan.

Author:

George Popescu

July 27th 2016, Daily News Digest

July 27th 2016, Daily News Digest

News Comments Today we have a very long US section, I guess we are compensating for yesterday. Quite a few very interesting pieces of info. And a fun Chinese section as well. Do note the fund raises in P2p in China despite the overall doom and gloom feeling. Reminder 1 USD  = 6.67 RMB United […]

July 27th 2016, Daily News Digest

News Comments

  • Today we have a very long US section, I guess we are compensating for yesterday. Quite a few very interesting pieces of info.
  • And a fun Chinese section as well. Do note the fund raises in P2p in China despite the overall doom and gloom feeling. Reminder 1 USD  = 6.67 RMB

United States

United Kingdom

European Union

China

News Summary

United States

Elevate Announces 5 Million Expanded Credit Facility from Victory Park Capital, (Business Wire), Rated: AAA

Comment:  Elevate was planning an IPO early 2016. See below.

Elevate, a provider of innovative online credit solutions for non-prime consumers, today announced it has increased its credit facility with Victory Park Capital (VPC), a privately held registered investment advisor dedicated to alternative investing, by an additional $100 million to a total of $545 million. The company will use the additional capital to support the rapid growth of its credit products in the U.S. and U.K. and for further investment in its suite of online credit solutions.

Despite market turmoil in the online lending space over the past few months, Elevate has continued to benefit from high consumer demand for its products and has experienced year-over-year loan portfolio growth of more than 80% since Q1 2015,” said Ken Rees, CEO of Elevate. “We believe that more responsible non-prime credit products like RISE, Elastic and Sunny are making a positive difference in the lives of our customers who often struggle with limited financial options. This expanded credit facility with Victory Park Capital will help us continue to serve this growing consumer need.”

Old article, context relevant: This Should Be The First Tech IPO of 2016, (Fortune), Rated: AAA

Comment: article published January 11 2016.

Elevate Credit has improving financials, but regulatory risks.
Elevate Credit, a Texas-based provider of online credit solutions to non-prime consumers, on Monday said that it plans to offer 3.6 million shares at between $20 and $22 per share. It’s the first company to set an IPO range so far this year, and likely will attempt to price before the end of January.

Elevate was formed in 2014 as a spin-out from Think Finance, which had been founded in 2001 to provide analytics and tech services to “lenders looking to meet the needs of Americans underserved by today’s traditional banking system.” Elevate represented Think’s branded consumer lending products group, including Rise(installment loans in the U.S.), Elastic (open-end lines of credit in the U.S.) and Sunny (installment loans in the UK). It is led by former Think Finance CEO Ken Rees, who previously founded CashWorks, which was bought by GE Money Services in 2004.

The company reports a $20 million net loss on $300 million in revenue for the first nine months of 2015, compared to a $44 million net loss on $180 million in revenue for the year-earlier period. Elevate also today disclosed preliminary fourth quarter data, showing that it broke even on around $134 million in revenue. This compares to an $11 million net loss on $94 million in revenue for the fourth quarter of 2014.

The numbers are promising, but Elevate will have to answer two major questions before its IPO.

The first revolves around Victory Park Management, a private equity affiliate that is the sole source of debt financing for all Rise and Sunny loans. There is no indication that VPM is in any sort of trouble―and it recently amended its credit facility with Elevate in order to accommodate increased loan volume—but investors may balk at backing a financial services business that relies so heavily on a single debt provider.

Second, Elevate may need to get some investors comfortable with a tech-enabled business model that shares certain elements of brick-and-mortar payday lending. In particular, Elevate charges very high interest rates in certain markets. For example, the APR on a Riseloan in Idaho can total 365%. Same for a Rise loan in Elevate’s home state of Texas. The company says it is different from payday lenders in that its loans don’t contain balloon payments and that repayment can help borrowers improve their credit scores. At the same time, however, its listed IPO risk factors includes promised new rules on payday lending from the Consumer Financial Protection Bureau. The company also says that the introduction of new rate caps by state legislatures could “make it difficult or impossible to offer [Rise] at acceptable margins.”

IPO on horizon, subprime lending startup Elevate adds 5M in credit from Victory Park Capital, (Tech Crunch), Rated: AAA

Elevate’s niche right now is providing loans to borrowers with creditscores between 575 and 625. As the company expands, it wants to provide loans to customers with even lower credit-scores.

Ken Rees, CEO of Elevate, is quick to note that 65 percent of Americans are underserved as a result of their low credit-scores. With additional lending data, it might just be possible to underwrite loans with confidence for these underserved customers. Previously, customers of Elevate would have been forced to take title or payday loans.

“20 percent of all title loans result in the customer losing their car,” noted Rees.

Elevate’s revenue run rate is hovering around $500 million even while average customer APR has been falling. The company has seen an 80 percent growth in loans outstanding over the last year, while charge-off rates have decreased from 17-20 percent in early 2014 to 10-15 percent today. Charge-off rates monitor loans that a company feels it can’t collect.

Rees’ previous company, Think Finance, backed by Sequoia and TCV, got itself into legal troubles last year and was accused of racketeering and the collection of unlawful debt.

Elevate rewards borrowers for watching financial literacy videos with better interest rates on products like RISE that are targeted at financial progression. The company also offers free credit monitoring. The average weighted APR for RISE is a hefty 160 percent, but it’s relatively tame next to a traditional 500 percent APR payday loan. RISE loans drop by 50 percent APR after 24 months, and fall to a fixed 36 percent APR by 36 months.

Over 65 percent of Elevate borrowers have experienced a rate reduction. All of these lending practices have improved customer retention for the company, 60 percent of Elevate borrowers who payoff their loan will get another. Typically these new loans will be granted at even lower interest rates.

Prosper Said to Pitch Fund That Would Buy Its Online Loans, (Bloomberg), Rated: AAA

Prosper Marketplace Inc. is setting up a private fund that will purchase consumer loans arranged through its online platform, providing another source of capital to fuel growth after other investors pulled back.

Executives at the closely held company are meeting with potential clients this week to pitch the Prosper Capital Consumer Credit Fund, according to a person familiar with the matter who asked not to be identified discussing confidential talks. The fund’s managers are targeting returns of 6 percent to 8 percent.

The goal is “sustainable and attractive risk-adjusted returns,” according to a presentation obtained by Bloomberg. The fund will buy a cross-section of “unsecured consumer loans originated through the Prosper marketplace on a passive basis.”

LendingClub, for instance, has run investment vehicles for several years similar to the one being started by Prosper. And Social Finance Inc., an online lender that gained popularity by refinancing student debt, started a hedge fund this year to buy its loans and potentially those of competitors.

The Prosper fund plans to start buying loans for clients as soon as September and could manage as much as $1 billion over time, according to the person. The fund won’t use leverage or charge investors performance or management fees, though loans in the portfolio will still be subject to Prosper’s standard servicing fees of 1 percent. The minimum investment is $250,000 and Prosper expects it to be attractive to family offices, high-net-worth individuals and foundations, the person said.

A similar fund managed by a LendingClub unit has had a rough ride this year. Returns slumped. The company disclosed that it had improperly allocated some loans to the portfolio. And by mid-June, clients had asked to pull out $442 million — or 58 percent — of the fund’s assets, forcing managers to limit withdrawals, according to a letter sent to investors. In response, LendingClub has said it overhauled the fund’s governance.

The new Prosper fund will allow quarterly resumptions of up to 5 percent of net asset value, according to the presentation.

Goldman Sachs: The Newest Online Lender, (Seeking Alpha), Rated: AAA

The emphasis it has placed on this initiative, and the speed with which it has been accomplished, demonstrate that it is a priority for Goldman Sachs.

 

(Source: GS report)

Harit Talwar would head up the project. His last position was at Discover , where he ran the U.S. cards division. Unusually, Talwar was hired as a full partner, giving some idea of how seriously Goldman took the Mosaic initiative. Abhinav Anand, head of Analytics, also came from Discover, where he was in charge of the risk division.

Boe Hartman, formerly of Barclay’s credit card division, was Chief Technology Officer. David Stark, formerly of Citigroup’s credit card division, was Chief Risk Officer, in charge of the underwriting. These men worked for traditional banks.

However, Darin Cline, head of operations, was formerly head of operations at Lending Club. And Greg Berry, Chief Architect, used to work for OnDeck. These officers had experience with the new online lenders. Goldman wanted the best of both breeds as it put its own product together.

The benefits of sticky capital: steady growth

When you are a lender, you need funds to lend, and when you want to grow as an online lender, you need a source of funds that won’t dry up when the credit market contracts a few points. This is one of the problems Lending Club has faced recently. Its originate-to-distribute model, plus its meteoric growth (until recently), meant that it was heavily dependent on institutional funding. But it turns out that institutional funding flees quickly when credit markets turn slightly less rosy. The impacts of a recent, fairly small, capital drought have ramified into internal mismanagement, crippled growth, and a share price collapse for Lending Club.

The benefits of cheap capital: profit (with a regulatory wrinkle)

Those same depositors also provide just about the cheapest capital there is. The average interest rate on a Lending Club loan is 12.8% and 14.6% at Prosper. With a cost of capital at 1.05%, comparable rates would give GS Bank a fat interest margin of 11.75-13.55% (not counting allowances for losses).

In its “New Shadow Banking” report, Goldman’s researchers estimated a TAM for the consumer loans business at $258B, with an average ROA of 2.2%. That is $5.67B of profits up for grabs, and you can bet that Goldman intends to own a big piece of it. Every percentage point of that amount would add about one additional percentage point to the bank’s 2015 net income.

How to build your own bank, (Tradestreaming), Rated: AAA

Large financial institutions are opening up their APIs.
Exposing the tech underbelly of the finance industry is leading to an increasingly collaborative partnership environment.

BBVA offers an API marketplace for its European and US business units. In the US, the bank’s Compass unity provides connectivity for pre-authorized users to access key account data. It also offers an open security hookup that application developers can integrate to have BBVA clients authorize access to BBVA account information in their name. In Europe, the APIs go further, providing data on card purchases, identify verification, and money transfers.

In August 2015, technology industry bank SVB acquired a fintech startup, Standard Treasury. The startup had raised a couple of million dollars and was working on developing APIs for banking and that activity, the technology, and the team that developed it, was brought in-house at SVB.

Some banks have created APIs for just a select group of partners. They’re not necessarily interested in opening them widely for general use. Instead, they’re a quick and easy way to get vetted entities on their platforms. Barclays’ Developer Network (BDN) is the UK bank’s offering for approved firms to build applications using bank data and infrastructure. Barclays uses BDN in conjunction with the 13-week accelerator it runs together with Techstars. Participating startups in 4 locations (London, New York, Cape Town and Tel Aviv) get access to BDN in addition to working with decision makers at the bank and a group of mentors.

RBS has taken a similar approach to Barclays. The RBS API was made available as part of the Open Bank Project, an open source API and app store for banks. RBS uses its API as part of hackathons the bank sponsors.

Fidelity officially launches retail robo-adviser, (Investment News), Rated: A

Comment: What is happening in the robo-advisor space is very relevant to the p2p lending space.

Boston-based fund company Fidelity Investments on Wednesday officially launched its retail robo-adviser, Fidelity Go, after months of testing it out with about 1,000 users. Geode Capital Management, a Boston-based investment firm that has acted as a sub-adviser for Fidelity products for 13 years, will invest, monitor and manage Fidelity Go portfolios. The account minimum is $5,000, and clients are charged 35 to 40 basis points.

The company is focusing on younger, emerging and digitally-savvy investors with the platform, and has worked with this target audience to develop the robo.

Fidelity is also working on an institutional platform, which will be an integrated experience for investment advisers, bankers and broker-dealers, a spokesman said. More details will be available by the end of the year, he said.

How One Community Bank Closed Its Branches And Went Fully Digital, (The Financial Brand), Rated: A

A few years ago, Radius Bank had six branches. Today it has only one. How did they pull off this massive transition from brick-and-mortar to virtual?

An Amalgamation of Partnerships Solves the Fintech/Product Puzzle.

With traditional marketing media, it is difficult to accurately measure account acquisition, so the bank made the shift to go 100% digital in late 2014, bringing all consumer/retail marketing in-house. Now, instead of airing a commercial on television, Radius uses YouTube in conjunction with the Google Display Network. Billboards have been replaced with banner ads across the internet.

The mortgage industry (finally) moves online, (Tradestreaming), Rated: AAA

75 percent of home buyers would use online mortgages if they knew they could speak with someone when needed.
“I was frustrated by how offline, opaque and inefficient the mortgage application experience was,” said Rajesh Bhat of Roostify.

Roostify offers originators the technology to build a consumer-facing one-stop shop for the mortgage process with the ability to integrate additional products through an API.

Some of the newer players, like LendingHome or LandBay, try to replace current originators. Both are peer-to-peer home lenders. Sindeo and Blend Labs help customers through their mortgage applications by providing information or streamlining data collection and processing. SoFi, known more as a student loan provider, is now also active in the mortgage market, offering online applications for mortgages.

Quicken Loan’s Rocket Mortgage — which promised that home buyers could get approved for a mortgage in 8 minutes — was a big catalyst for that process.

Crowdlending platform uses Bitcoin, (Springwise), Rated: A

BTCJam is a lending platform that deals in Bitcoin to facilitate international P2P lending.

Founded in 2012 with the aim of providing affordable credit, the system boasts 19,905 loans funded, USD 24 million borrowed in over 200 countries to date, with 24 loans currently fundraising.

Although recent reports claim the business is withdrawing from trading in the US leaving uncertainty amongst many American users, BTCJam continues to service its customers worldwide.

Another Bone of Contention Between Political Parties: Student Loan Debt, (Real Money), Rated: A

In 2013, the amount of money student loan borrowers owed the federal government crossed the $1 trillion threshold for the first time, according to the Consumer Financial Protection Bureau. For the class of 2016, the average student graduated with $37,172 in loan debt.

Five of the top lenders in this space include Sallie Mae (SLM) , Action Alerts PLUS holding Wells Fargo (WFC) , Discover (DFS) , Citizens Bank and SoFi — which acts as an online loan marketplace.

“The federal government should not be in the business of originating student loans. In order to bring down college costs and give students access to a multitude of financing options, private-sector participation in student financing should be restored,” the party’s official platform stated.

That stance is a repudiation of the 2010 federal legislation that scaled back the role of private lenders providing student loans. The banks now act as middlemen, collecting fees and keeping records while students go through federal channels to secure the loans.

However, the federal government has also taken steps to provide relief for borrowers in recent years as the interest rate on federal loans for undergraduate students dropped to 3.76% in 2016 from 4.29% in 2015. The government also adjusted the maximum Pell grant amount for inflation to $5,815 from $5,775 last year. Pell grants are used by nearly 8 million lower-income students in the country.

Democratic presidential candidate Hillary Clinton recently released her campaign’s college financing plan. The main tenets of her plan aim to allow students from families making up to $125,000 annually to go to school without having to incur any debt. Another tenet states that all community colleges will offer free tuition.

Kabbage enlists Marketo for marketing, (Finextra), Rated: AAA

Marketo, Inc. (NASDAQ: MKTO), the leading provider of engagement marketing software and solutions, today announced that Kabbage Inc., a disruptive financial technology platform that provides businesses with access to working capital, is leveraging the Marketo platform to improve email open rates and cut down on campaign production time.

Up until October 2015, Kabbage, relied on a different marketing automation provider and a number of other tools to manually engineer communications with potential customers. As the company grew, the team needed to consolidate and integrate these tools with its existing CRM for better alignment between marketing and sales. In this way, the team hoped to strike the right cadence of communication with its customers, serving them with a premiere customer experience, at any time and from virtually any device.

Kabbage chose Marketo for its ability to track the return-on-investment of email campaigns and also for its proven track record of security in highly regulated industries such as financial services and healthcare. Since implementing Marketo, Kabbage has seen email open rates and click-to-open rates jump more than 10 percent compared to campaigns deployed via the company’s previous marketing automation system. The marketing team attributes this success to the speed and ease-of-use of the Marketo platform, saving on average 2-3 hours in day-to-day production time.

OnDeck Capital’s Hidden Margin Of Safety, (Seeking Alpha), Rated: A

This article explores how GAAP accounting is obscuring the earnings power of ONDK.

ONDK is optically profit-less, but has the potential to ramp up earnings substantially if it slows down its expansion.

While this is not what the company will or should do, it’s a helpful illustration of another source of margin of safety in the stock.

This is ignoring the substantial opportunity ahead of the company and the value creation over the longer-term.

Credibly Interview: Innovative Online Lending Is Changing The Industry, (Nasdaq), Rated: A

After the bust of the first Internet bubble, folks did not go back to using fax machines. The fact is, what the lending industry has done in terms of creating a far superior user experience — following on how gaming, social, travel, and virtually every other industry has moved online — has created an opportunity to get more capital to the folks who need it and lowering people’s cost of funds along the way.

[Another myth I see] is the demise of innovative lending. But I just want to spend a second talking about what I mean by “innovative lending.” We as an industry have been challenged in coming up with what we should be calling ourselves. “Peer-to-peer,” in the early days, captured the essence of what the models were about in many ways, but that quickly evolved to perhaps institutional-to-peer. “Marketplace” implies that there’s a pure marketplace that’s operating, matching up borrowers and lenders in a hands-off kind of way. But that also implies a singular source of financing; that the financing for those individual loans comes from “the marketplace.”

I talk a lot about the importance of having diversified sources of funding available to you regardless of how you originate assets.

we all know that small businesses represent roughly 60% of GDP and roughly 60% of our labor force — and during the short time we’re sitting here today, our industry will probably do more of that to the tune of $10 million to $20 million. There’s a significant social benefit that we’re helping to create, and none of what we’re reading about in the press is going to change any of that.

MPL Policy Summit to be Held on September 13th in Washington DC, (Business Wire), Rated: AAA

Spearkers :

Thomas J. Curry, Comptroller of the Currency

Congressman Patrick McHenry, (R, NC-10th), House Financial Services Committee.

Goldman Sachs Gets Closer To Taking On The Marketplace Lenders, (PYMNTS), Rated: A

When asked by a JPM analyst if the firm was considering the “case for buying something? … So you get to a critical mass more quickly?” Schwartz neatly shot that idea down.

“This particular effort, when we looked at it, we really felt like it was best designed from scratch. The reason for that is we are kind of uniquely positioned. It allows us to leverage our technology skills and our risk skills … if you look at the competitive landscape, there are benefits that online lending platforms provide to consumers, and there are benefits for large commercial providers of credit … we are really looking to bridge the gap between those strengths and offer consumers, the best we can, a really thoughtful, differentiated product.”

Goldman purchased $15 billion in consumer accounts from GE Bank during Q2. He noted the two efforts were separate — Goldman Sachs isn’t becoming Goldman Sachs Savings & Loan — but connected insofar as they both buttress and diversify the Goldman brand.

“We view those as separate. Having said that, the acquisition went well, adding in excess of $15 billion of deposits to the firm … We have had in excess of 20,000 consumers open up new accounts with us. We have had very significant growth in a short period of time. It really speaks to the brand strength.”

It also remains to be seen if Republicans will win the election in November and reinstate Glass-Steagall as is a plank of their party platform. Such a regulatory change could statutorily bar Goldman from entering into these types of retail functions because it is an investment bank.

United Kingdom

Dear Mr. Bailey, “The Peer-to-Peer Lending Sector Has Embraced a Level of Transparency Which is Unrivaled in Financial Services”, ( Crowdfund Insider), Rated: AAA

The letter is embedded here.

The UK Peer to Peer Finance Association has released a letter addressed to Andrew Bailey, Chief Executive of the FCA, buttressing their position regarding the recent dialogue with the House of Commons’ Treasury Select Committee.

This past June, Andrew Tyrie, MP, Chairman of the Committee, expressed concern regarding the risk of peer to peer lending. In an open letter to Bailey (then Deputy Governor of the Bank of England for Prudential Regulation) the Committee expressed its concern “to ensure that the FCA is paying due attention to the risks – and the opportunities – afforded by the growth of peer-to-peer lending”.

Today Farnish is responding to oral evidence presented by Bailey last week to the House of Commons Committee.

In her response, Farnish asserted that peer to peer lending platforms “exist solely because they create value to consumers on both sides of the platform: investors are able to earn fair predictable risk-adjusted net returns that can outperform other investment products, whilst borrowers can access fast and flexible finance.”  Farnish asked that Bailey and the FCA “would start from first principles, based on risks and benefits to consumers.”

Farnish assured Bailey, and others, the sector “accepts its responsibility for ensuring that those investing in peer-to-peer products understand the nature of their investment, and appreciate the degree of risk incurred.”

European Union

Rocket Internet to Develop Banking Services With FinTech Group, (Wall Street Journal), Rated: AAA

FinTech Group is developing a digital bank for Rocket Internet using the banking license of FinTech subsidiary Bank biw as a first step of a comprehensive partnership of the two companies. Rocket and FinTech Group plan to develop joint banking business models at an EU level.

China

Chinese P2Ps plagued by flaky guarantees, ( FT # Fintech), Rated: AAA

China’s peer-to-peer lending industry is experiencing breakneck growth. Yet the industry is yet to deal with the “rigid repayment” problem – the perception afflicting the Chinese fixed-income universe that default is impossible.

A fintech conference in Shanghai last week, known as LendIt, attracted standing-room-only crowds. A conference staffer called the scene on the first day “chaos” and tightened entry restrictions on the second day to prevent un-registered guests from sneaking in.

Loans outstanding from

P2P platform focused on property collateral mortgage Hepan Finance received RMB 66M Series A Investment, (Crowdfund Insider), Rated: A

Founded in 2013, Hepan Finance is a P2P platform focused on providing operating capital to small businesses in the Shanghai area. Prior to launching the lending platform, the company’s experience, and expertise was primarily in value assessment and foreclosure of real estate properties. This experience has transferred to the P2P platform’s ability to confidently control risk and deal with collateral assets after default. On the investor side, the platform offers a 12% return for its 12-month wealth management product, which recently decreased from a 15% return in early 2016. The 1-month short-term product provides a 7.2% return. According to its website, Hepan has managed RMB 2.4 billion in investments and has over 220,000 registered investors.

Hepan’s recent Series A Investment was led by Chinese VC firm ZCZB Capital. According to its website, ZCZB Capital focuses on providing fast, small loans (under RMB 5 million) to startups in a variety of industries. Prior to this injection of funding, Hepan had shrunk in borrowing and only made loans against high-end properties. It was stated that the new funds would be used in recruiting, engineering upgrades and offline promotions.

Online finance marketplace Caogen Investment received RMB 1B Series B Investment from a state-owned fund, (Crowdfund Insider), Rated: A

Founded in 2013, Caogen Investment is an open lending platform focused on providing operating capital to small businesses. More flexible than other P2P platforms, Caogen accepts property, equipment, material and even products as collateral. The platform now works with suppliers and distributors in over a dozen industries including fishery, furniture, hard rock mining and energy. On the investor side, returns range from 6.5% to 12% with terms ranging from 31 to 365 days. According to its website, Caogen has managed RMB 34 billion and has 6 million registered users.

P2P platform focused on banker’s acceptance-secured business loans Yinpiao.com received RMB 120M in funding from SOE, (Crowdfund Insider), Rated: A

Banker’s acceptance (BA) bills are a promise of future payment guaranteed by a bank. These are often traded on the secondary markets. P2P platform Yinpiao.com relies on BA assets to back online investment products. The platform not only sells BA before maturity but also originates loans secured by BA. Before launching Yinpiao.com in 2014, the platform’s finance team had over seven years of experience in trading BA and handled over RMB 50 billion each year. On the investor side, the platform provides an average return of 8.8% with terms varying from 7 to 180 days. According to its website, Yinpiao.com investors purchased 6 billion wealth management from August 2014 to June 2016.

Investing RMB 120 million in Yinpiao.com, Huayu Economic Development Ltd. is a state-owned corporation that controls 26 companies in nuclear power, munition technology, aerospace, and mining. Aside from the funding, Huayu may introduce Yinpiao.com to high-quality borrowers from multiple supply chains in the industrial sector.

P2P platform focused on supply chain financing Ziben Online raised RMB 200M in funding from four strategic investors, (Crowdfund Insider), Rated: A

Ziben Online (ZO) provides short-term capital to small businesses in certain supply chains. ZO typically works with large corporations by providing loans to their suppliers.

Author:

George Popescu

Editorial: Realism or optimism ?

Goldman Sachs’s online bank got 20,000 new customers in the last 3-months by offering online savings accounts at 1.05% while its interest rate on a 5-year CD is 1.85%. While many articles call for online lenders becoming banks or becoming part of banks, the need for depositor sticky capital can be obtained in many ways. […]

Goldman Sachs’s online bank got 20,000 new customers in the last 3-months by offering online savings accounts at 1.05% while its interest rate on a 5-year CD is 1.85%.

While many articles call for online lenders becoming banks or becoming part of banks, the need for depositor sticky capital can be obtained in many ways. I am not certain that the bank regulation vs the cost of capital is the optimal trade-off.  There are other sources of capital, which behave like depositor capital and can be accessed without a banking license. Take for example self-directed IRA capital.

Beyond payments, robo-advisors, lending, p2p insurance and blockchain, a fairly new and fairly ignored part of fintech covers depositor technology. We have read this week about N26, a German fintech, with investors like Peter Thiel.  N26 provides savings, investment, credit and insurance products from partners. N26 said their brand new German banking license will let it offer new services, including the ability for consumers to split expenses like restaurant bills directly from their phones, and that it plans to generate more revenue from credit card transactions and commissions from partners. Perhaps there is a way to innovate in consumer deposit with fintech without becoming a bank. Perhaps in a similar way how lenders partner with banks like Web Bank or Cross River Bank.

Elsewhere this past week we saw Blackstone, the world’s largest alternative investment manager, break their AUM record. This clearly shows that there is interest from investors in alternative investments as long as the manager is credible, transparent and has an impeccable reputation. There is no lack of money.

Separately we also saw this week Amazon entering into a marketing agreement with Wells Fargo for student loans. I expect this modus operandi to be the template Internet companies ( Google, Amazon, Apple….) will use to test the fintech waters. This approach allows internet companies, like JP Morgan did with OnDeck, to test the waters, with very few resources and without risking their franchise reputation.

And last but not least, this past week we saw the reports of quite a few fundraisers in alt lending, from Common Bond’s $300mil to PayJoy’s $17.5mil via India’s Deal4Loans $15mil. We saw the news that Jefferies is back in the market with Lending Club’s securitization. And the news from PeerIQ that the spreads are coming down because the investors are once again very aggressively seeking alt-lender’s ABS products for their yield. To me this shows clearly that all indicators are well into the green and the entire marketplace market sentiment is back to realism if not even back to optimism. This move was expected and it was just a matter of time.

Author:

George Popescu
George Popescu

July 19th 2016, Daily News Digest

July 19th 2016, Daily News Digest

News Comments Dear readers, today I was traveling all day for my other company Lampix (www.lampix.co) . Unless I am traveling, I aim to send the daily Lending Times at 1pm EST. I was able to do so reliably for sometimes and will continue to aim towards 1pm EST daily. United States Lending Club’s CEO, Scott […]

July 19th 2016, Daily News Digest

News Comments

  • Dear readers, today I was traveling all day for my other company Lampix (www.lampix.co) . Unless I am traveling, I aim to send the daily Lending Times at 1pm EST. I was able to do so reliably for sometimes and will continue to aim towards 1pm EST daily.

United States

United Kingdom

  • A very long and complete article on the FCA, crowdfunding, and p2p lending. This article comes in the recent context of the FCA conducting a new review of the space. A learned a lot from this article.
  • Crowd2Fund launches their own auto-investing tool. A must have for all p2p companies to make sure their lenders deploy capital easily, fast, often, and that they are diversified enough not to hurt themselves.
  • In the UK’s version of today’s comedic note: JustUs is attempting to raise £5.35m, and a Chinese group GuanQun has plowed in …….drumroll….£50k. Yes, 50 thousand GBP. I think this piece of news hurts more than it help.

Australia

India

News Summary

 

United States

Lending Club’s CEO Scott Sanborn’s response to Wall Street Journal’s article on July 12th, (Wall Street Journal), Rated: AAA

We respectfully disagree with your characterization of charge-off rates on the LendingClub platform in “Online Lender’s New Issue: Bad Loans” (Money & Investing, July 12). The article fails to note that lower-graded loans, which have experienced higher charge-off rates, represent just 25% of the company’s standard program loan volume, while 75% of standard program loan volume has exhibited stable performance.

We believe the single most critical factor in the discussion of performance is net returns to investors. Our expectation of performance on the loans you have singled out is a net annualized return of roughly 5%. Based on the steps we have taken to improve performance, which aren’t mentioned in the article, we anticipate the performance of any future loans in this subset to be more than 8%. We believe that in the current low-yield environment, LendingClub platform performance continues to compare very favorably with available alternatives. For example, the Barclays U.S. Aggregate Bond Index returned 1.96% for the year ending March 31.

Scott Sanborn,CEO, LendingClub,San Francisco

 Student loan platform CommonBond raises 0M and M in equity, buys Gradible, (Tech Crunch), Rated: AAA

Today, CommonBond, a platform that specializes in loans and refinancing for students, is announcing that it has raised $300 million in debt to loan out to prospective borrowers; and a further $30 million in a Series C equity round to continue building out its platform.

On top of this, the company has acquired another startup, Gradible, for an undisclosed amount to add new services to its business, specifically providing a facility for future employers to contribute to student loan payoffs. (Think of it as a 401k for student loans.)

The funding comes as NYC-based CommonBond says it’s passed the half-billion dollar mark for funds lent on its platform since going national three years ago. David Klein, the company’s CEO and co-founder, told TechCrunch that the company is profitable on a per-loan basis and projects that it will be fully profitable as a business in 2018.

CommonBond is not disclosing its valuation with this round. “We have strategically decided not to play the unicorn game,” Klein said in an interview. “But what I can tell you is that if we were a private company when you bought our stock and were now going public, you’d be happy with the return.”

He also described it as an “unstructured upround”, in reference to situations where a valuation is tied to complex terms that might be seen as a down-round in another light. As a point of reference, one of CommonBond’s competitors, Social Finance (SoFi), raised money last year at what was thought to be a $4 billion valuation.

The $30 million in equity funding takes the total raised by CommonBond to date to just under $80 million, while the $300 million being announced today looks like the closing out of a round that was first reported unconfirmed earlier this year at a lower value. Taking equity and debt funding altogether, the company has raised around $1 billion.

Klein said that the funding his company is announcing today is the first major round of financing raised by an online loan platform this year in the U.S. (The UK’s Future Finance, a would-be competitor that also focuses on students, raised $171 million earlier this year.) So what is CommonBond doing right, exactly, that others are not?

In the case of CommonBond, he said that some of the important factors are the fact that it targets higher education students, who will be earning more over the years when they are working, and it’s also seeing a growth in its loan volumes, which are double what they were a year ago — although the company is not disclosing actual numbers.

That is where the Gradible acquisition comes into play, too. The company — which had raised funding from the likes of AngelPad, 500 Startups and Kima Ventures — will help CommonBond differentiate itself from SoFi and others by giving it an extra set of services to offer to students not just during periods when they are in school, but beyond. The Gradible deal — terms of which were not disclosed — will also mean that CommonBond can tap further into the loan refinancing market as well, competing more against the likes of Earnest.

Baidu invests in ZestFinance to develop search-powered credit scoring for China, (Tech Crunch), Rated: AAA

Baidu, which operates China’s dominant search platform, took part in a $60 million round for payments firm Circle in June. Baidu’s search engine has around 80 percent marketshare in China.

“ZestFinance’s unique ability to analyze and process complex, disparate data to make accurate credit decisions is very valuable to the Chinese credit market, where a centralized credit scoring system has yet to emerge,”

ZestFinance was founded by ex-Google CIO and VP of engineering Merrill, and it uses machine learning and big data to transform information into measurements and signals for credit scoring. It has raised nearly $100 million from investors, with its most recent raise a $20 million Series C round in July 2013. JD.com also put money in as part of its strategic partnership last summer.

Alibaba and Tencent both operate digital banks and micro-loan programs, while Baidu stepped into the banking ring via a partnership with brick and mortar bank CITIC. ZestFinance previously partnered with JD.com, Alibaba’s closest rival in China’s e-commerce space, to power the credit service run by its financial arm, which is valued at more than $1 billion. Then there are multi-billion dollar payment services like Alipay (Alibaba) and WeChat Pay (Tencent), too.

Can SoFi Be New School And Old Fashioned At The Same Time?, (Pymnts), Rated: AAA

The firm is much beloved of investors, having snapped up a cool $1 billion in Series E Funding in a round lead by SoftBank. The firm is currently valued at $4 billion and has loaned out over $10 billion for student loans. According to its CEO Mike Cagney, he would like to see the company grow to a value of $100 billion someday.

But SoFi, despite its slightly different business model than its marketplace lending fellows (SoFi does not sell off loans in their entirety, and holds on to a percentage of all of them) and fairly rarified customer-base (SoFi’s initial and current focus is on millennial borrowers with debt from elite universities) is still feeling the tidal pressures that are pulling the rest of its segment around.

And, it seems in SoFi’s case, it is being pulled in two nearly opposite directions.

Being Even More Alternative

Whatever else can be said of SoFi – if recent reports in CNN Money about the lengths they go to help their users meet and mingle are accurate – they definitely take the “social” part of Social Finance seriously.

Over 8,000 borrowers have met up at the 300 or so (mostly fully booked) SoFi events held nationwide over the last year. Events include social mixers full of free food and alcohol, yoga classes and the chance to meet other young, upwardly mobile professionals.

“You meet a lot of interesting, like-minded people,” New York-based SoFi Customer Elsa Yan noted of the four different SoFi events she has attended.

Getting Into Traditional Banking

While SoFi may seem to be doubling down on the alternative path by developing their answer to Tinder for the financially responsible – recent reports indicate that SoFi is also moving toward being much more like one of those traditional banks whose methods it has historically eschewed.

And the Super Bowl ad worked a little too well and flooded its website with far more traffic than it was ready to handle. Days passed – customers waited, got mad, and turned to Twitter and online review sites to blast SoFi for being inept.

Then it came out that the firm just plainly didn’t have the capital reserves necessary to meet the surge in loan demand – which didn’t help the PR situation – and had their growth happy CEO singing a slightly different tune.

On the table: SoFi could seek regulatory approval for a state banking charter in Utah. This has the upside of adding the sort of stability lenders would like to see – but comes with the miles of red tape SoFi has built a reputation for speedily avoiding. Also possible options are credit cards and deposit accounts. Finally, partnerships with big financial institutions seem very much in play. That last option has seemed increasingly likely since the former co-chief executive officer of Deutsche Bank AG, Anshu Jain, announced his intention to join SoFi’s board of directors. Cagney also met extensively with JPMC’s Jamie Dimon earlier this year.

So far, SoFi is doing somewhat better than its peers. In May, SoFi received a triple-A rating from Moody’s on a $380 million deal that repackaged loans into bonds. It was the first securitization by an online lending startup to get the top rating from Moody’s.

Untangling The Marketplace Lending Mess, (New York Financial Press), Rated: A

“I foresee a heightened period of FinTech innovation, where new technologies and platforms will emerge to overcome these recent challenges, and help the industry scale,” Dara Albright says.

“Just this month, Prosper launched a revamped user experience for its retail investors,” explains Albright. “Another online lending product, American Homeowner Preservation 2015A+ LLC, received SEC approval to use Reg A+ to bring a higher-yielding, fixed-income alternative to retail investors, and more and more platforms are incorporating IRA Services’ ISCP™ technology into their platforms in order to help retail investors facilitate tax-deferred P2P investing.

PTIN Directory Selects Bizfi to Provide Access to Funding for Hundreds of Thousands of Accountants and CPAs and Their Small Business Clients, ( Business Wire), Rated: A

The National Directory of Registered Tax Return Preparers & Professionals (PTIN) has selected premier fintech company Bizfi to provide its tax professionals, accountants, CPAs and their small business clients with access to funding through its aggregation marketplace via a custom referral process.

PTINdirectory.com is the first comprehensive national online directory of federally registered tax preparers. It is independently owned by the National Directory of Registered Tax Return Preparers & Tax Professionals, Ltd. and has no affiliation with the Internal Revenue Service or any government agency.

The partnership gives PTIN’s hundreds of thousands of members access to the full range of Bizfi’s funding products, including lines of credit, short-term financing, equipment and invoice financing, medical financing, franchise financing, medium-term loans and even long-term loans backed by a guarantee from the U.S. Small Business Administration. Members are able to leverage these solutions for their own businesses as well as refer their small business clients to Bizfi to speed the process of applying for and receiving capital.

Bizfi is a fintech company combining aggregation, funding and a participation marketplace on a single platform for small businesses. Founded in 2005, Bizfi and its family of companies have provided more than $1.7 billion in financing to more than 31,000 small businesses in a wide variety of industries across the United States.

Is Online Lending Doomed? 5 Predictions for the Future of the Industry, (Forbes), Rated: A

1. Lending Club will survive. The fall was great, but it is not a death knell.

2. There will be shake-out and consolidation.

3. Banks will “play ball.” Recently, big names like Wells Fargo and American Express have launched online, fast-decision loan products with a small-business focus. One way or another, we can expect to see more banks looking for a piece of the pie, and it will be interesting to see how Bank of America and others will respond.

4. (More) Regulation is coming — but how much is unclear.

5. Online lending is here to stay.

Online Marketplace Lending — Recently Misunderstood?, (Forbes), Rated: A

It’s true that charge-offs are ticking up for some consumer credit lenders. As of May 2016, Prosper had charged off, from year-ago loans, about 4.2% of loan principal amounts; at LendingClub, gross charge-offs of its top-graded loans ticked up to 1.51% from 1.46%, while charge-offs of its lower-graded loans went to 6.31% for year-ago loans from 4.58% on loans that had been originated in 2013. These numbers are nowhere near the double-digit charge-offs seen during the financial crisis, but the trend has caused institutional purchasers to re-think how these loans compare with some popular bank offerings, even though banks’ charge-off rates have also ticked higher in 2016 versus their low in 2015.

In the real estate sector, there are additional differences, since loan underwriting turns more on the nature of the underlying property (asset) than the credit worthiness of the borrower. By taking a mortgage on the property, lenders on real estate provide themselves with some level of security – a feature of real value if the borrower turns out to be less than reliable. Because real estate loans are secured by the subject property, they typically involve significantly less risk compared to unsecured consumer loans, at least in the eyes of most sophisticated investors. There’s never any assurance against a widespread drop in asset prices, which would adversely impact asset-backed loans, but the relative infrequency of such events, together with the presence of a significant equity “cushion” on most individual loans, generally acts to mitigate such risk.

Nasdaq and KBW launched a new fintech index on July 18, 2016, ( Business Insider), Rated: A

The index will track the performance of companies that leverage technology to deliver financial products and services and represents approximately $785 million in total market cap. The index has 49 fintech companies including major data, exchange, trading and payments companies. Their distribution is nearly exclusively electronic.

In May, SoFi received a triple-A rating from Moody’s on a $380 million deal that repackaged loans into bonds. It was the first securitization by an online lending startup to get the top rating from Moody’s. The deal likely presages the continued normalization of the markets.

Myth Busting: Are Online Lenders Shadow Banks?, (Benzinga), Rated: A

As non-bank lending institutions, alternative lenders have occasionally come under fire for acting as “shadow banks,” a term coined to describe the subprime lenders that led to the 2008 financial crisis. However, the term is a misnomer when applied to innovative lenders, according to an industry expert.

“As each day, week and month goes by, we are looking at new ways of making data, information, trends, ideas, concepts more available, more transparent, and [bringing] the industry to welcome a very open and robust dialogue,” Goldman said.

However, there’s a lot of work to be done to get to that point, Goldman said, as different loan originators will have different data points and metrics.

Goldman sees standardization of what data originators should provide as a top priority to enforcing true transparency in the industry. He sees Orchard Platform’s work in creating a lending exchange as “[getting] to the heart of that” priority.

KBRA Announces Addition of Xilun Chen to ABS Team, (Press Release), Rated: B

Kroll Bond Rating Agency (KBRA) announced today the appointment of Xilun (Xi) Chen to the role of Senior Director within the Commercial ABS group. Xi will be reporting to Anthony Nocera, Managing Director and head of Commercial ABS. Xi joins from Standard & Poor’s where he spent the last 6 years focusing on various esoteric ABS assets.

As Marketplace Lenders Offer Less, LoanMart Offers More Opportunities for the Credit Challenged, (Business Wire), Rated: B

LoanMart, one of the nation’s premier financial technology companies, is excited to introduce a new type of loan to meet the significant demand of its customers: an Unsecured Personal Loan.

LoanMart will now offer Unsecured Personal Loans in 8 states including California, Alabama, Missouri, New Mexico, Utah, South Dakota, Georgia and Indiana. LoanMart will also continue to offer vehicle secured loans in 11 states and small business loans for self-employed consumers in another 14 states.

Starting in 2002, LoanMart offers both vehicle secured and personal loans.

United Kingdom

A Case of Regulatory Evolution: A Review of the UK Financial Conduct Authority’s Approach to Crowdfunding, (Crowdfund Insider), Rated: AAA

The United Kingdom is the leader in online alternative finance in the European market, accounting for just under 75 percent of all transaction volumes in Europe. In 2015, online alternative finance in the United Kingdom grew to GBP 3.2 billion, increasing by 84 percent from GBP 1.74 billion in 2014.

The FCA defines crowdfunding as an umbrella term to capture various “categories” of activity, some of which are regulated whilst others are not.

This broad term includes four sub-categories:

  • Donation-based crowdfunding: people give money to enterprises or organisations whose activities they want to support.
  • Pre-payment or rewards-based crowdfunding: people give money in return for a reward, service or product (such as concert tickets, an innovative prod- uct, or a computer game).
  • Loan-based crowdfunding: also known as “peer- to-peer lending”, this is where consumers lend money in return for interest payments and a repayment of capital over time.
  • Investment-based crowdfunding: consumers in- vest directly or indirectly in new or established businesses by buying investments such as shares or debentures (FCA 2016a).

The first two categories are exempt from regulatory oversight from the FCA.

Investment Crowdfunding

In 2015, equity-based crowdfunding experienced 295 percent growth compared to the previous year.

The FCA defines the instruments traded on investment-based crowdfunding as “non-readily realisable securities” that are not listed on regulated stock markets, and are distributed and sold over the internet.

At the time of the February 2015 review, the FCA publically acknowledged the full authorisation of ten firms as of 1 April 2014, with an additional four platforms receiving authorisation by the end of 2014. While the FCA has yet to release a 2016 crowdfunding review, our assessment is that as of March 2016, a total of 24 crowdfunding platforms have permission to function as an investment-based crowdfunding business in the UK. Additionally, a closer examination of the FCA’s registry indicates that at least 12 platforms are operating an investment-based crowdfunding business as an appointed representative.

At the end of 2015, investment crowdfunding raised GBP 337.8 million.

Investment Crowdfunding Risks

In addition to use of social media for financial promotion, equity crowdfunding platforms must also navigate potential additional supervision of the “online forums” typical for most crowdfunding campaigns. While the existing guidance does not specifically discuss how online forums should be supervised, this is probably an area that will attract attention in the future.

Another potential area of risk may relate to the required due-diligence that platforms must undertake before allowing businesses to raise equity on their platform

Loan-based crowdfunding

In March 2016, the FCA indicated that a total of eight firms (only an additional seven in the course of a year) had received full authorisation to operate as a P2P platform, with a further 86 firms awaiting a decision.5 Of these 86 platforms, only 44 have interim permissions related to their previously held OFT license (FCA 2016c).

Interestingly, it seems as though one particular firm, Resolution Capital (FCA 2016d), is “currently attached to” approximately 25 businesses, including several firms operating in the P2P lending space. As such, it seems like a considerable number of appointed representative firms are using the Resolution Capital license.

Loan-based platforms rules

The FCA implemented prudential requirements (FCA 2015a), which reflect the standardised capital reserves that a platform must comply with.

Utilising the GABRIEL portal, platforms are expected to report to the FCA on a quarterly basis, with monthly reporting of any information relating to the holding of client monies (FCA 2016e). Although prudential rules are not easy to generalise, as they are based upon the individual permissions and activities of each platform, P2P lending firms do have a base capital requirement of GBP 50k, with a GBP 20k requirement during the transition period.

At present, firms are obliged to meet minimum capital requirements only upon authorisation, with a transitional period until April 2017 (FCA 2015a). A platform operating in the P2P space is also required to notify the FCA should the value of their loans outstanding increase by 15 percent or more, thus necessitating a recalculation of any prudential requirements. In addition to financial reporting, platforms are required to report any disputes between consumers and the platform.

In addition to capital requirements, platforms are obliged to conform to Client Money Rules, as outlined in the FCA Handbook in the section relating to their Client Asset Sourcebook rules (or CASS) related to “adequate protection”– i.e. no co-mingling of client monies, clear and transparent holding of client monies, etc. (FCA 2016f). Rules related to client money were further modified in 2016, following the Consultation Paper entitled: “Loan-based Crowdfunding Platforms and Segregation of Client Money”.

Loan-based crowdfunding platforms must comply with disclosure requirements, where all communications are “fair, clear and not misleading”.

The FCA’s approach to crowdfunding is often lauded as the “gold-standard” for crowdfunding regulation. With regulation now having been in place for over a year, it is interesting to note the high levels of satisfaction registered by crowdfunding platforms.

Of the P2P Lending (loan-based crowdfunding) platforms surveyed, 91 percent regarded the current regulatory regime as “adequate and appropriate” to their activities, with only 5.66 percent suggesting that “tighter or stricter” regulation need to be implemented. A mere 3.77 percent viewed regulation as “excessive and too strict”.

Crowd2Fund Launches New Investment Feature Smart-Invest, (Crowdfund Insider), Rated: A

Crowd2Fund announced on Monday the launch of its new intelligent investment feature known as Smart-Invest, which will reportedly allow investors to automate their crowdlending investments.

Earlier this spring, Crowd2Fund was approved for IF ISA and promoted higher interest rates for investors.

Chris Hancock, CEO and founder of Crowd2Fund added: “The combination of Smart-Invest and the IF ISA government scheme continues to demonstrate our commitment in helping our investors grow their savings whilst supporting great British businesses.”

Chinese financial group backs Alderley Edge lender JustUs, ( Bdaily), Rated: A

In June, JustUs embarked on a drive to raise £5.35m, with the bulk (£4m) sought from institutional investors and a further £1m via crowdfunding platform Crowdcube.

The fundraising, which will value JustUs at £26m, will allow the firm to recruit over 100 new staff and launch a new media campaign.

Since its inception, the company has secured around £2m in investment.

Peer-to-peer consumer lending firm JustUs has received backing from a Chinese financial group, giving a boost to its £5m fundraising goal.

Four representatives of GuanQun Investment, which has already ploughed £50k into the Cheshire-based firm, are heading to JustUs’ Alderley Edge headquarters next week (July 29) to discuss ramping up investment and explore strategic global partnerships.

Based in London, GuanQun Investment (GQI) forms part of Beijing-based Guanqun Chicheng, which has supported around 200k SMEs since it was established in 2009

Australia

Cloud SMSF administration software provider, Class, has collaborated with peer-to-peer lender, RateSetter, to provide self-managed superannuation fund (SMSF) accountants and their clients with a direct-connect date feed.  This would allow for automated data entry and transactions processing within Class.

RateSetter [Australia] has facilitated more than $50 million in loans through its platform since it launched in 2014, with SMSFs providing the funds for close to a quarter of the loans.

India

Lending marketplace Deal4Loans raises fifteen million dollars from Franklin Templeton, (Tech Circle), Rated: AAA

Mywish Marketplaces Pvt. Ltd, which operates retail loans marketplace Deal4Loans.com, has raised $15 million from Franklin Templeton International Services (India) Pvt. Ltd. The development comes after VCCircle first reported in May that the company was looking for a big-ticket investment in its first institutional round of funding.

The company had in April raised an undisclosed amount of funding from a bunch of high-profile investors, including Ram Shriram, founding board member and one of the first investors in search engine giant Google; WhatsApp’s global business head Neeraj Arora and Puru Vashishtha, a former Wall Street hedge fund investor.

Founded in 2009 by Durham University MBA alumnus Rishi Mehra, Deal4Loans offers comparison of retail loans across six different categories – home loan, personal loan, car loan, credit cards, loan against property and education loan. The platform has 50 lending partners (a mix of banks and non-banking financial companies) and 7 million registered customers. The marketplace uses algorithms to acquire customers for the participating banks’ loan products and to match customers with products.

According to VCCEdge, the data research platform of VCCircle, Deal4Loans earned a net profit of Rs 78.5 lakh on net sales of Rs 7.7 crore for the year through March 2015.

RBI more open to experimentation at early stages of a product or method of service: Raghuram Rajan, (Live Mint), Rated: A

Reserve Bank of India (RBI) governor Raghuram Rajan on Monday said that the Indian central bank is more open to experimentation at the early stages of a product or method of service but at the same time will have to be more conscious of the risks to stability.

“Non-bank entities are providing innovative payment products and services, forcing banks to reflect upon their strategy—to compete or to collaborate? Banks may not have the wherewithal to compete effectively if they have not been investing in technology and associated personnel. However, if they collaborate without building these capabilities, they may be left with crumbs from the client while their partner take the whole client cake,”

Rajan said RBI welcomes both competition and collaboration.

Author:

George Popescu