- Today’s main news: SoFi CEO’s top 3 things to focus on. KBRA assigns prelim ratings to Prosper Marketplace Issuance Trust, Series 2018-1. Funding Circle fund dividend in line with target. Assetz Capital secures new funding. Experian acquires ClearScore.
- Today’s main analysis: Credit analysis and valuation methods for MPL. (A MUST-READ)
- Today’s thought-provoking articles: Top 5 trends of institutional investors allocating capital to MPL. PayPal CEO sees international potential. New Zealand issues P2P lending guidance.
- SoFi CEO Anthony Noto on the 3 things needed to outpace the competition.AT: “This is a good practice for all CEOs. Identify the top 3 things to focus on to beat the competition.”
- KBRA assigns preliminary ratings to Prosper Marketplace Issuance Trust, Series 2018-1.
- Credit analysis and valuation methods for MPL. AT: “This is a Lend Academy must-read.”
- Top 5 trends of institutional investors allocating capital to MPL.
- A look at 2 “who’s my lender” cases in MPL.
- Small businesses wait to get paid.
- Even Financial expands Credit.com partnership.
- Consumer Capital files for $40M IPO on Nasdaq.
- Digital Assets Data raises seed funding.
- Funding Circle SME fund right on target.
- Assetz Capital secures new institutional funding.
- Monzo adds new investment to marketplace.
- Challenger banks edge ahead of high street on savings.
- Experienced bankers move into alt finance.
- SMEs are more aware of P2P lending.
- Lendy sees strong growth.
- Lenders warn of selling products to vulnerable consumers.
- PayPal CEO sees international potential. AT: “And so do I.”
- Experian acquires ClearScore.
- Debitum Network lists on KuCoin.
- Singapore, Lithuania signs fintech collaboration agreement.
- United States
- New SoFi CEO Anthony Noto on the 3 things his fintech company must do to outpace competition (CNBC), Rated: AAA
- KBRA Assigns Preliminary Ratings to Prosper Marketplace Issuance Trust, Series 2018-1 (BusinessWire), Rated: AAA
- Credit Analysis and Valuation Methods for Marketplace Lending Loan Portfolios (Lend Academy), Rated: AAA
- The Top 5 Trends of Institutional Investors Allocating Capital to Marketplace Lending (Lendit), Rated: AAA
- Marketplace Lending Update: Who’s My Lender? (Lexology), Rated: A
- Online lender’s new target: Small businesses waiting to get paid (American Banker), Rated: A
- Even Financial Expands Partnership with Credit.com (Credit.com), Rated: A
- Consumer Capital Files For $ 40 Million Nasdaq IPO (Seeking Alpha), Rated: A
- Digital Assets Data Raises Seed Funding Round (Finsmes), Rated: B
- United Kingdom
- Funding Circle fund announces on target dividend (AltFiNews), Rated: AAA
- Assetz Capital secures new line of institutional funding (P2P Finance News), Rated: AAA
- Monzo adds investments and peer-to-peer lending to its marketplace (AltFiNews), Rated: A
- Challenger banks are edging ahead of the high street on savings (AltFiNews), Rated: A
- Experienced bankers are moving into alternative finance sector (London School of Business & Finance), Rated: A
- SMEs becoming more aware of P2P lending (Peer2Peer Finance), Rated: A
- P2P platform sees strong growth in investors (AltFiNews), Rated: A
- Lenders warned against selling products to vulnerable consumers (Peer2Peer Finance News), Rated: B
- European Union
- Revolut adds direct debits in Europe (Tech Crunch) Rated: AAA
- The Top Three Irish Startups to Watch Out For This St. Patrick’s Day (Red Herring), Rated: A
- PayPal CEO sees international potential as countries like India skip over legacy fintech (CNBC), Rated: AAA
- Experian Acquires ClearScore for $ 385 Million (Finovate), Rated: AAA
- Debitum Network (DEB) gets listed on KuCoin (Crypto Insider), Rated: A
- Singapore and Lithuania agree fintech collaboration deal (Finextra), Rated: B
- Australia/New Zealand
- Guidance For Crowdfunding And Peer- to-Peer Lending Published (Proshare), Rated: AAA
- Securities Commission to push ahead with digital agenda (New Straits Times), Rated: AAA
New SoFi CEO Anthony Noto on the 3 things his fintech company must do to outpace competition (CNBC), Rated: AAA
“First, we have to have the best selection — and not just selection of each product, but variations of those products,” Noto said. “Second, we have to provide unmatched convenience. Anytime, anywhere, on any device, you should be able to access all of your financial information, do any activity that you want across the broad spectrum of products that we’ll launch over time.”
Noto’s third initiative for the company — which helps its “members,” or customers, refinance student and mortgage loans, take out personal loans and even get career advice — had to do with speed.
KBRA Assigns Preliminary Ratings to Prosper Marketplace Issuance Trust, Series 2018-1 (BusinessWire), Rated: AAA
Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to four classes of notes issued by Prosper Marketplace Lending Issuance Trust 2018-1 (“PMIT 2018-1”). This is a $647.5 million consumer loan ABS transaction.
Preliminary Ratings Assigned: Prosper Marketplace Issuance Trust, Series 2018-1
|Class||Preliminary Rating||Expected Initial Class Principal|
Credit Analysis and Valuation Methods for Marketplace Lending Loan Portfolios (Lend Academy), Rated: AAA
As Marketplace lenders continue to lend at a fast pace, there has been a significant increase in the past several years in non-bank consumer, student and small business lending.
1. What are the most prevalent methods of valuing loan portfolios today?
Discounted cashflow (DCF) methodology at the loan or cohort level is the most prevalent valuation methodology used today to value marketplace loan portfolios and related assets, including tranches in securitizations and servicing rights, regardless of the lending vertical.
2. Are valuation methods standardized? If not, why not? How does this lack of a valuation standard affect investors?
Marketplace lending is a fragmented space, and it is also diverse, with innovative forms of underwriting and funding methods being deployed.
3. How do loan valuation methods differ across lending verticals?
Marketplace lending verticals cover a wide spectrum of product, ranging from $500 installment loans, to $100,000 merchant cash advances (MCAs) made to small businesses, to sub-650 FICO unsecured consumer loans to credit impaired borrowers, to student loans extended to borrowers in medical school with high future earning potential. Thus, any methodology that falls short of incorporating all impactful data to project full cashflows does not do justice to the portfolio. In essence, the assumptions used in the DCF are based on loan characteristics that have the biggest impact on prepayment, default, and recovery behavior. These loan characteristics depend on the asset class but often include underwritten payment schedule (e.g. 36 months amortizing term, 60 months amortizing term, daily pay MCA, etc.) credit metrics (e.g. FICO bands, platform ratings, repeat borrower flags), loan size (e.g. <$5K, $20-$30K, etc.), note rate, and more. These assumptions then feed into the DCF model to project principal and interest cashflows generated from the loan portfolio, incorporating prepayments and defaults, net of recoveries.
7. What about the secondary market? How are deals priced relative to what valuation methods tell us they should be priced? How do valuation analysts obtain information about private sales of loans? In the securitization market is there a valuation standard? How are these deals priced relative to the valuation of the underlying loans?
While many new platforms have started originating in the past few years, several lenders have been originating loans since early 2010s, albeit initially at lower volumes. Data on these loans has been normalized and made available for analysis by firms such as PeerIQ and dv01. More established lenders have returned to securitization markets as issuers with sizeable deals.
The Top 5 Trends of Institutional Investors Allocating Capital to Marketplace Lending (Lendit), Rated: AAA
The types of institutional investors allocating to the marketplace lending asset class has changed dramatically, from mostly family offices and fund of funds about five years ago to institutional investors such as pensions, endowments and sovereign wealth funds today.
It is a big shift from what the typical fund used to look like just a few years ago, which:
- only purchased loans from origination platforms
- invested only in consumer loans
- invested in loans only from the largest platforms such as Prosper and Lending Club
- used a credit model to purchase only select loans from the platforms (active buying versus passively buying)
- offered only one fund to allocators
The expansion of institutional investors has ushered in higher investment standards for this asset class which now require a very high level of portfolio management expertise, risk management oversight and robust operational infrastructure before making an allocation.
As a result, these allocators and investors have generally shifted investment activity towards the top five trends:
- investing through a combination of loans, securitizations and warehouse lines of credit
- investing in multiple sub-asset classes
- using both well established and newer origination platforms
- investing both actively and passively from platform
- investing through multiple sub-asset class funds
Marketplace Lending Update: Who’s My Lender? (Lexology), Rated: A
Over the last several weeks, two notable cases in federal court challenging certain aspects of the business model of marketplace lending companies headed down separate paths. First, in an action brought against Kabbage, Inc. and Celtic Bank Corporation in the United States District Court for the District of Massachusetts,1 the parties agreed to, and the Court approved, a stipulation staying the proceedings pending an arbitrator’s review of whether the claims in that action are covered by the arbitration provisions in the governing loan agreements. Second, in an action against marketplace lender Avant in the United States District Court for the District of Colorado,2 the Court accepted a magistrate judge’s recommendation to remand the case to state court over Avant’s objection.
Online lender’s new target: Small businesses waiting to get paid (American Banker), Rated: A
According to Fundbox, it takes the average small business 21 days to get paid, 81% of small- business invoices are 30 days past due, and the value of small businesses’ unpaid invoices is $825 billion — which is equivalent to 5% of U.S. GDP.
Fundbox’s underwriting software pulls data from accounting systems, invoicing systems, payments (e.g. screen scraping from PayPal), public records, web interactions, social networks and tax returns. It uses artificial intelligence to assess the creditworthiness of the company and can render a credit decision in minutes based on the business’s incoming and outgoing invoices. Borrowers pay by the week for whatever credit they use.
Using the new Fundbox Pay product, a small business that has provided a product or service (a lawyer, say, or a construction company) puts in a request for payment and gets paid immediately by Fundbox. The seller pays a 2.9% transaction fee, in return for immediate cash flow and not having to worry about the buyer defaulting.
Even Financial Expands Partnership with Credit.com (Credit.com), Rated: A
Even Financial, the technology platform powering financial services online, has expanded its strategic partnership with Credit.com, a go-to source for expert information about credit scoring, credit reporting, credit cards and personal finance. Even Financial will now power Credit.com’s personal loans marketplace, as well as its related content tools.
With this expanded partnership, Credit.com will provide its users access with a native, personalized and optimized loan matching experience, powered by Even Financial’s proprietary technology. Even’s technology utilizes machine learning, big data and an extensive network of touchpoints and financial products to provide a personalized experience.
Consumer Capital Files For $ 40 Million Nasdaq IPO (Seeking Alpha), Rated: A
The firm aims to become a one-stop shop that focuses on lending service for micro, small-to-medium sized enterprises (“SMEs”) in China. The company is specifically engaged with micro financing services and financial advisory services, operating through the subsidiary Arki E-Commerce, and VIE, Arki Network.
Digital Assets Data Raises Seed Funding Round (Finsmes), Rated: B
Digital Assets Data, a NYC-based fintech startup, raised a seed funding round of undisclosed amount.
Vestigo Ventures, an early-stage venture capital firm focused on fintech, made the investment. In conjunction with the funding, Mark Casady, general partner of Vestigo Ventures, will serve on Digital Assets Data’s Advisory Board.
Funding Circle fund announces on target dividend (AltFiNews), Rated: AAA
The £311m Funding Circle SME Income fund has revealed its latest dividend of 1.625p per share, in line with its forecast rate.
Its eighth pay-out and seventh at the same level – it’s first was 1p, the latest dividend will be paid on 30 April 2018 to shareholders on the register as at the close of business on 23 March 2018 (the record date) and the corresponding ex-dividend date will be 22 March 2018.
Assetz Capital secures new line of institutional funding (P2P Finance News), Rated: AAA
ASSETZ Capital has secured a new line of institutional funding that it says will widen its scope and scale of lending.
The peer-to-peer lender said the unnamed institutional investor was part of a $100bn (£71.5bn) global multi-asset manager and would provide funding dedicated to the residential property bridging, refurbishment and conversion markets.
Monzo adds investments and peer-to-peer lending to its marketplace (AltFiNews), Rated: A
In an update to its first release, Monzo has added a new category to its marketplace beta: investments.
AltFi can now reveal that users on the beta are able to access digital wealth investment accounts from Scalable Capital, Wealthify, Wealthsimple and WiseAlpha, peer-to-peer lending accounts with Zopa, and property-backed investments with Bricklane.com and Octopus Choice.
Challenger banks are edging ahead of the high street on savings (AltFiNews), Rated: A
Challenger banks like OakNorth, Masthaven, Aldermore and Axis Bank are coming out ahead of the game by offering savings rates more than 1 per cent higher than the average offered by high street incumbents.
New research conducted by fellow challenger Gatehouse Bank revealed today that the average one year fixed-term deposit account offered by UK challengers pays 1.82 per cent on average in interest returns, compared to 0.63 per cent by high street competitors.
Likewise, the average 2 year fixed-term deposit account at a challenger bank pays 1.29 per cent more than the high street, coming in at 2.05 per cent on average compared to only 0.76 per cent from incumbents.
Experienced bankers are moving into alternative finance sector (London School of Business & Finance), Rated: A
Experienced bankers are moving into the alternative finance sector, creating an ideal environment for SMEs seeking finance, according to alternative finance provider ThinCats.
The shift towards digital banking was highlighted in a 2016 study from the Federation of Small Businesses, with 1,500 towns being without bank branches as banks aim to direct their customers towards digital banking.
Whilst more than 90 per cent of small businesses use internet banking, face-to-face services are still valuable to businesses when it comes to making decisions regarding the future of their company and obtaining finance.
SMEs becoming more aware of P2P lending (Peer2Peer Finance), Rated: A
The latest SME Finance Monitor, from insight agency BDRC, shows 32 per cent of the 130,000 firms interviewed were aware of P2P lending in the fourth quarter of 2017 .
When combined with crowdfunding, awareness of these forms of finance was 46 per cent. This was up from 36 per cent at the start of 2017.
Larger SMEs tend to be more aware of P2P, the research shows, with 48 per cent of firms with 50 to 249 employees familiar with the sector, compared with just 32 per cent of one-man bands and 31 per cent of those with fewer than 10 members of staff.
P2P platform sees strong growth in investors (AltFiNews), Rated: A
P2P lending platform Lendy has grown its investor base to 20,000 in the past year, according to a statement by the firm, representing a more than 50 per cent increase.
The secured property lender has seen strong demand in particular from investors under 40 years of age. It had 13,000 investors in total a year ago, it says. Investors aged below 40 now represent 50 per cent of the property platform’s investor base.
Investors, Lendy adds, have now received more than £37m in interest from Lendy loans since inception in 2012, up from £16m at the end of 2016.
Lenders warned against selling products to vulnerable consumers (Peer2Peer Finance News), Rated: B
In a speech to the Credit Summit on Thursday, Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said there are worrying numbers of households who are too deeply in debt.
He said one in five mortgages today are interest-only mortgages, many of which were made at the height of the credit boom to borrowers with little equity in their homes and not a lot of disposable income. These mortgages will not mature until about 2032.
He said the £14.8m fine paid by rent-to-own firm BrightHouse last year shows how seriously the regulator takes the issue.
On a more positive note, Davidson reassured the industry that consumer debt in the UK has not reached levels that are likely to be harmful to lenders.
He also said there has been progress by the sector in addressing conduct issues and that “by and large you do a good job for us, your customers”.
Revolut adds direct debits in Europe (Tech Crunch) Rated: AAA
Fintech startup Revolut is slowly making traditional bank accounts irrelevant. The company is adding direct debits in EUR to make it easier to pay for utilities and subscription services.
The Top Three Irish Startups to Watch Out For This St. Patrick’s Day (Red Herring), Rated: A
Backed to the tune of €650m ($800m) Mingo has clearly impressed more than a few crypto-noobs. Its versatility and learning curve should ensure it stays ahead of the crowd heading past St. Pat’s into the 2018 summer.
The company already has dozens of success stories to tell since its 2014 foundation – including itself, which has raised $1.5m to date.
“We’re addressing two markets across two countries with Flender: business lending and consumer lending in the UK and Ireland – an established market currently worth £2.5bn ($3.46bn) per annum,” co-founder and sales director Oli Cavanagh recently told Silicon Republic.
PayPal CEO sees international potential as countries like India skip over legacy fintech (CNBC), Rated: AAA
For PayPal CEO Dan Schulman, the main driver of his company’s gains to date has been “the digitization of cash.”
With 227 million subscribers, 65 percent of whom reside outside of North America, PayPal has seized on this “explosion” of digital payments around the world, Schulman said.
In its latest quarter, PayPal added 8.6 million net new active users, a record since Schulman joined the payment processing giant as president and CEO in 2014.
With over 50 percent of its revenues coming from outside North America, PayPal has started to leverage its international ecosystem to benefit small businesses in the United States as well, the CEO said.
“In North America, … only 5 percent of small businesses export internationally. Eighty percent of small businesses on PayPal in the U.S. export internationally,” Schulman said.
Experian Acquires ClearScore for $ 385 Million (Finovate), Rated: AAA
About a year after Experian received authorization from the U.K.’s FCA, the company has made further inroads into the nation with the acquisition of U.K.-based ClearScore. The deal is anticipated to close for $385 million (£275 million).
Founded in 2014, ClearScore has onboarded 6 million members in the U.K. through its free membership model. The company matches individuals to personal financial products, offers free credit reports, and provides financial education. The company is projected to generate $55 million in revenue in 2018, a 50% increase over what it earned in 2017.
Debitum Network (DEB) gets listed on KuCoin (Crypto Insider), Rated: A
Debitum is a borderless, small business financing network that seeks to revolutionize the alternative finance industry to enable more small to medium businesses to obtain loans in situations that may previously have been difficult, time consuming, or outright impossible.
According to a review by the World Bank, although SMEs’ more than 2/3rds of SMEs do not have access to credit. Over recent years alternative financing via peer-to-peer lending, crowdfunding, balance-sheet lending, invoice trading (loans backed by account receivables) and VAT financing, has served to assist financing for SMEs, however no single solution encompasses all fields of business.
As a result, the global credit gap still stands at a whopping $2 trillion, accounted by the World Bank Organization and the IFC.
Singapore and Lithuania agree fintech collaboration deal (Finextra), Rated: B
The Monetary Authority of Singapore (MAS) and the Bank of Lithuania have agreed to work together to support the development of the FinTech ecosystems and encourage greater financial innovation in the two countries.
The FinTech Co-operation Agreement between the two countries was signed on the sidelines of the Money 20/20 Asia conference in Singapore today.
Guidance For Crowdfunding And Peer- to-Peer Lending Published (Proshare), Rated: AAA
The fair dealing provisions of the Financial Markets Conduct Act 2013 ban:
- misleading and deceptive conduct
- false or misleading representations
- unsubstantiated representations
- offers of financial products in the course of unsolicited meetings.
Securities Commission to push ahead with digital agenda (New Straits Times), Rated: AAA
The Securities Commission Malaysia (SC) and Bank Negara Malaysia established Brokerage Industry Digitisation Group (BRIDGe) yesterday, a joint working group between the regulators and industry to accelerate digitisation of the stockbroking industry.