Thursday December 22 2016, Daily News Digest

new MPL loans UK

News Comments Today’s main news: Prosper switches from Experian to TransUnion. RateSetter sells 2.1M BP of non-performing debt. Today’s main analysis: Why 2017 will be a turning point in MPL. Today’s thought-provoking articles: 4 ways U.S. student loan industry could change. Is risk retention the future of MPL? United States Prosper changes credit bureaus. AT: “In […]

new MPL loans UK

News Comments

United States

United Kingdom

European Union

United States

Notice of PMI7 / TransUnion Migration (Prosper Email), Rated: AAA

Dear Investor,

We are writing to notify you that effective today new borrower applications are being scored on our PMI7 credit model, leveraging TransUnion credit attributes for underwriting.  The primary considerations for the bureau migration are:

  1. TU is the only bureau that delivers historical time-series data in real-time and this information provided meaningful incremental predictive power relative to a snapshot of the current credit bureau alone.

4 big ways America’s student loan industry could change in 2017 (Business Insider), Rated: AAA

There are

Is Risk Retention In The Future Of Marketplace Lending? (Mondaq), Rated: AAA

As marketplace lending continues its dramatic growth and regulators consider how best to protect consumers without limiting financial innovation, the U.S. Treasury has openly expressed an interest in whether marketplace lenders should be subject to some form of “risk retention.” Under new regulations that go into effect later this month, most issuers of asset-backed securities (ABS) will be required to retain a percentage economic interest in the collateral they securitize.

Some believe that applying similar rules to marketplace lenders would ensure that lenders originate high-quality loans, but marketplace lenders uniformly disagree, arguing they are sufficiently motivated to implement stringent underwriting standards and that such rules would hinder innovation.

Although the new risk retention rules likely apply to marketplace lenders that securitize loans and act as a sponsor, it remains unsettled whether similar rules should apply to marketplace lenders in the non-securitization context. Some believe they should.

Marketplace lenders, in contrast, oppose the application of risk retention rules in the non-securitization context. Moreover, online lenders contend that risk retention rules are unnecessary since most investors in marketplace loans are institutional and therefore have the ability to protect themselves through due diligence and representations and warranties.

The subprime mortgage crisis, however, does not necessarily demonstrate the need for risk retention in marketplace lending.

Given federal regulators’ increasing interest in financial technology companies generally, greater regulatory oversight of marketplace lenders seems all but inevitable, and industry participants are bracing themselves for potential changes in the way they do business.

An ‘Uncommon’ Investing Idea for the New Year (Uncommon Wisdom Daily), Rated: A

These days, investors are increasingly venturing outside the stock and bond markets to juice up their returns. This means turning to “alternatives” like precious metals, real estate, trust deeds, promissory notes, limited liability companies and crowdfunding investments, among others. (You can even own them in an IRA!)

It’s called marketplace, direct, online or person-to-person (P2P) lending.

The innovative thing about P2P lending is people can lend and borrow money without ever going to a bank.

Transparency Market Research reports the P2P market was $26 billion in 2015. (Over 60% of which came from the world’s largest P2P lending platform, Lending Club.)

Charles Moldow, a renowned venture capitalist and P2P investor, thinks this market could hit $1 trillion by 2025.

As Ron Suber (Prosper’s CEO) told me last year …

“At some future moment, you will be asked at the point of sale: How do you want to pay for this: cash, credit card, check, PayPal ormarketplace lending? It’s coming.”

Here’s How P2P Investing Works

The main reason I’m recommending P2P investing is outsized yield.

Plus, there are several additional reasons — beyond higher yields — why P2P investing should resonate with mom & pop investors …

  • Higher yields. P2P investing provides a unique opportunity to earn higher yields relative to other asset classes.
  • Low volatility. Prime consumer credit has existed for decades — with a proven track record for consistent returns.
  • Uncorrelated. P2P investing doesn’t follow the traditional ups-and-downs of the market.
  • Safety. According to Lending Club, since 2008, 99% of investors who owned 100-plus notes of relatively equal size have seen positive returns. 81% of those investors have earned 5%-plus over that time.
  • Simplicity. Why try to handpick individual loans?

How to Evaluate Investment Opportunities in CRE Marketplace Lending (NREI Online), Rated: A

It’s no secret that investors are always looking for the best return on their investments. In an effort to achieve that goal, investors have been turning in increasing numbers to peer-to-peer and marketplace lending platforms to achieve a greater return on their fixed-income investments than more traditional vehicles such as U.S. Treasury bonds and CDs. This search for higher yield has led to great growth in the marketplace lending arena. In fact, according to a recent report by American Banker, the industry grew by nearly 700 percent over the past four years.

Given the current economic climate, while many investors are still looking for higher yield, they are also careful to weigh risks associated with their fixed-income investments, seeking out transactions that will serve as a foundation for their financial stability in the future. As a result, investors are beginning to shift their focus from the unsecured debt platforms to those that offer opportunities in secured debt, such as commercial real estate.

The first step to evaluating a marketplace lending platform is to seek out technology processes that help, not hinder, the investment process.

Also, find out whether the investments are backed by collateral, and if that collateral is an income-producing property.

Finally, some platforms also offer low-cost, professionally-managed funds that provide a lower risk because your investment is pooled with others and applied to a unique portfolio of viable transactions.

The key to successful marketplace lending investment, especially in the commercial real estate realm, is knowing when and where to apply the technology, and when and where human judgment and expertise are required.

DV01: Peering into peer-to-peer loans (Forbes India), Rated: A

Rahbar’s all-nighter gave him an insight that would serve him well nearly a decade later. His two-year-old New York City firm, DV01, offers analytics and reporting software for the burgeoning peer-to-peer market, giving investors the ability to track the performance of thousands of loans in a few clicks. Named after a formula traders use to calculate their exposure to interest rate changes, DV01 also automates the laborious financial gymnastics that are needed to model loan performance, and it is on its way to becoming a fixture in the industry’s biggest deals as firms like Lending Club, Prosper and SoFi issue securities to finance their loan pools.

Peer-to-peer lenders originally connected borrowers directly with individual investors, but rising loan demand forced them to turn to Wall Street-style securitisation—the packaging of thousands of individual loans into tradeable securities. Three years ago, Lending Club was the first to market with such a securitisation, and Prosper, SoFi and OnDeck Capital quickly followed. As of the end of September, roughly $11 billion of these loans, according to PeerIQ, has been bundled into securities since 2015.

Rahbar’s startup currently tracks the loans of Lending Club and eight other originators and counts 55 institutions as clients. All told it has logged in some $34 billion in loans. DV01 is backed by $7.5 million in capital from Leucadia National (Jefferies’s parent), Pivot Investment Partners and a fund controlled by George Soros.

IPO Dreams: Fintech Turmoil Is Disrupting SoFi (LC, ONDK) (Investopedia), Rated: A

So it may be no surprise that startup Social Finance Inc. (SoFi), which boasted last year that it was profitable and planned an IPO in spring of 2016, has announced its postponing pubic offering plans — again. SoFi has been one of the poster children of fintech’s potential with a value of $4 billion.

There’s no doubt that SoFi’s prospects for an IPO have been hurt by broader problems in the online lending market, illustrated by Lending Club and On Deck Capital.

How machine learning can redefine lending (Bobs Guide), Rated: A

Technology has played a significant role in the rapid evolution of the lending industry. One such technology, machine learning, is beginning to create new avenues in the lending market.

Though machine learning is not a novel concept, the influx of big data and data mining has given it a shot in the arm by integrating it in our day to day lives. Machine learning today is being implemented in various industries, from financial services, healthcare and retail to transportation, and multiple domains like accounting, audit, marketing and sales. Gartner identified it as a top ten strategic technology trend in 2016, with advances occurring rapidly.

Machine learning enables predictive modelling in credit scoring. Credit scoring is an important process in loan management. While the traditional credit score uses basic statistical tools to arrive at the result, machine learning involves data mining at a large scale by aggregating data through wider channels like Yelp scores, social media activity, and real-time shipping trends. This consecutively delivers a more accurate and meticulous portrait of creditworthiness.

Machine learning can also help in streamlining the lending process, eliminating errors and expediting the loan application approval process.

Machine learning can also help in predicting bad loans and in on-going monitoring of loans.

Schwab RIAs: Accept and adopt digital platforms, or lose your competitive edge (Financial Planning), Rated: A

Schwab surprised the industry with the recent launch of a hybrid robo adviser offering, since it had already two operational digital platforms with over $10 billion in AUM — Schwab Intelligent Portfolios and Schwab Institutional Intelligent Portfolios.

Heburn: First of all, we’re not scared of it. We didn’t look at it as this coming gloom and doom of robotic investment management that’s going to put us out of business. We really looked at it as an opportunity to reach a whole different segment of clientele efficiently in a way [where] we could eventually make money.

Kessler: We don’t consider Betterment or Wealthfront competitors actually. They’re playing in an entirely different field of service than we are. We’re giving a dedicated adviser and a personal relationship.

AI Could Take Over Routine Financial Advice Tasks (Finanial Advisor IQ), Rated: B

Financial advice firms need to embrace artificial intelligence to replace mundane tasks carried out by humans so they can remain competitive, according to a new report from natural language recognition software provider Narrative Science.

Thirty-two percent of companies across the financial services industry are already using AI for predictive analytics, voice recognition and response and recommendations, according to a survey of more than 100 executives in the industry conducted by the National Business Research Institute and Narrative Science this spring.

AI is also coming to the fore when it comes to controlling spending. Apps such as Moven and Simple already deliver personalized automated recommendations based on machine-learned spending and earning habits of their users, according to the report, although it could be a matter of time before such programs reach the financial advice market.

United Kingdom

RateSetter Sells £2.1 Million of Non-Performing Debt to 1st Credit (Crowdfund Insider), Rated: AAA

RateSetter, a leading UK peer to peer lending platform, has completed the sale of £2.1 million of non-performing debt. RateSetter sold the assets t 1st Credit, a debt purchaser.  Exact terms of the transaction were not revealed but RateSetter said it was the first transaction of its kind for a UK peer to peer lending platform.

The non-performing loans were written between 2010 and 2015. RateSetter said it believed there was a low chance for them to collect on the assets. RateSetter said that typically in these situations they have not been able to contact the borrower for a long period of time, or where it has not been possible to put in place a debt management plan with the borrower.

Here’s why 2017 will be a turning point for the UK marketplace lending industry (Business Insider), Rated: AAA

The UK’s marketplace lending sector is one of the world’s

Zopa Named Winner at AltFi Awards & F5 Awards (Crowdfund Insider), Rated: A

Zopa announced on Tuesday it was named a winner at both the AltFi Awards and F5 Awards. The peer-to-peer lender revealed it took home a number of prizes at AltFi and was dubbed Best P2P Lending Platform at the F5 awards.

One to One: Filip Karadaghi, chief executive, Landlordinvest (Mortgage Strategy), Rated: A

We are quite late to the party and many P2P lending platforms have been operating under interim permission with time to develop their business, so we will have to learn from them and use that knowledge to develop our own value proposition quickly.

I believe that the future for P2P buy-to-let and bridging is very bright.

According to the latest crowdfunding report from Nesta, which publishes the leading research report in the P2P industry, real estate loans is the fastest growing sector in P2P.

The future of fintech (Credit Strategy), Rated: B

Speaking at Credit Strategy’s inaugural F5 conference this month, at the London Hilton Bankside, Stefan Franzke, chief executive of Berlin Partner for business and technology, was complimentary about the importance of London as a business centre.

He described the initial impact Brexit had on fintech firms recalling how he received hundreds of messages from businesses contemplating leaving the UK.

However, Franzke said he believes London will still be the financial centre like it is today in 10 years.

He discussed how the peer-to-peer lending market is working to target SMEs and how some banks are even looking at acquiring or creating their own platforms.

European Union

Online Lending Platform Credimi Signs Agreements with Four Primary Investment Funds (Crowdfund Insider), Rated: AAA

Four primary investment funds have signed agreements with Credimi, an Italy-based online lending platform. The funds have subscribed the entire portfolio of (performing) commercial credits originated by the invoice financing platform in the first year. Credimi is the first fintech company authorized by Bank of Italy to the public financing activity, according to art. 106 of Testo Unico Bancario, entailing extremely rigorous control and governance requirements.

The four partners are Anima Sgr, Anthilia Capital Partners Sgr, BG Fund Management Luxembourg S.A. and Tikehau Capital.

Unlike other similar products in Europe, the Credimi model foresees the subscription of the loans portfolio even before Credimi originates the commercial credits (Credimi focuses exclusively on the acquisition of performing receivables). This, alongside the proprietary risk analysis technology and Credimi’s capability to carry out public financing activity, allows to instantly finance SMEs’ invoices.

Authors:

George Popescu
Allen Taylor

Friday October 7th 2016, Daily News Digest

Friday October th 2016, Daily News Digest

News Comments Today’s main news: New P2p lending record month in September in the UK; LendInvest sees 50% boost from Brexit. Today’s main analysis : Lending Club’s loan mix and availability; Marketplace real-estate securitization is coming. Today’s thought-provoking articles: Marketplace real-estate is growing and its risks. United States Good analysis of Lending Club’s volume by grade. […]

Friday October th 2016, Daily News Digest
United States

LendingClub’s Late Loan Mix And Availability – Potential Boon For Income Investors, (Seeking Alpha), Rated: AAA

Investors deserted the platform after LendingClub’s scandal. Loan volume, previously growing near triple-digits, actually declined -1% y/y in 2Q’16.

While all loan grades saw slowdowns, the A, B, and C loan tranches still experienced y/y growth. Investors apparently still had appetite for the platform’s credit-worthy customers:

The sub-prime loan categories, however, showed dramatically diminished investor sentiment:

Tranch E’s -40% y/y growth nearly doubled to the downside Tranch A’s +22% growth. D and F/G loans also performed very poorly, decreasing by nearly a fifth year over year. Loan funding in 2Q decreased almost correspondingly with loan grade.

As a result, the availability of lower-grade loans may actually be increasing. Assuming demand is constant, less funding for lower-grade loans would indicate higher loan availability.

If high-quality and large-scale platform supporters such as Jefferies and Goldman Sachs (NYSE:GS) do not return in force to the platform, individual investors, particularly those looking for income and yield, could stand to benefit from higher loan availability.

Marketplace lenders small but growing in US commercial real estate finance, (Moody’s), Rated: AAA

Marketplace lenders in the CRE space received a boost from a 2013 federal law that allowed businesses to publicly solicit investments from accredited investors, Philipp says in “CRE Marketplace Lending Taps New Capital Sources but Credit Quality Largely Untested.” Today they address the full spectrum of debt investments, though the bulk of CRE debt is still originated by portfolio lenders. In time, though, CRE marketplace lenders could drive banks and other portfolio lenders to shift more of their origination process online to improve standardization, efficiency and speed of execution, especially for smaller loans.

The sweet spot for CRE marketplace lenders is currently loans of less than $5 million, which to some extent overlaps with CMBS loan originations, as well as originations from portfolio lenders. At the very least, therefore, Moody’s expects CRE marketplace lenders to prompt other lenders to raise their game in terms of sourcing and processing loan originations.

Nonetheless, as CRE enters the late stages of the credit cycle, when construction is more feasible, the growth and evolution of CRE marketplace lending bears watching, Moody’s says. CRE marketplace lenders have a short loan performance track record, with most of it during an economic recovery. An element of negative selection could also be in play, with marketplace lenders in some cases making loans that balance-sheet lenders would not.

First CRE MPL securitization could surface in 2017, (Global Capital), Rated: A

Warning: content behind paywall.

The commercial real estate (CRE) segment of the marketplace lending industry is on track to bring a debut securitization to market in 2017, source say, as investors grow comfortable with online lending and key players aggregate sufficient volume to securitize.

Jason Friton, co-founder of Path of Land, noted that CRE marketplace lending has ballooned in the last three years, with the possibility of 2017 being the year key players generate enough volume for securitization.

US Comptroller of the Currency Discusses Marketplace Lending, (JDSupra), Rated: A

Comment: these piece of news is a little old as well but worth attention.

As part of the inaugural Marketplace Lending Policy Summit 2016, US Comptroller of the Currency Thomas J. Curry discussed marketplace lending’s risks and associated policy questions. Of note, Comptroller Curry addressed the OCC’s work around responsible innovation and feedback it has received to date on potentially granting federal banking charters to fintech firms.  Curry noted that if the OCC does decide to grant limited-purpose charters in this area, the institutions who receive the charters will be held to the same strict standards of safety, soundness and fairness that other federally chartered institutions must meet.

View Comptroller Curry’s remarks.

United Kingdom

Sharp Increase in Originations Across UK Platforms in September, (Lend Academy), Rated: AAA

According to the Liberum AltFi Volume Index, September 2016 originations for online lenders hit £364m in the UK. September was a record month, beating out the previous record set in March, 2016 by £18.5m. Over the summer originations were stagnant across the industry as seen in AltFi’s chart below of originations since 2010. They have highlighted the September months to show seasonality as September has historically been a good month for originations.

UK Originations – Source: AltFi Data

If history is an indicator, we may see originations drop again in October but it’s important to note that even in this challenging year for the online lending industry, UK originators have still managed to grow.

Not surprisingly leading platforms Funding Circle, Zopa and RateSetter all had record months. According to AltFi Funding Circle, RateSetter and Zopa originations were £75.2m, £74.3m and £67.8m respectively. Funding Circle officially crossed the £1.5bn mark in cumulative volume. The below chart shows cumulative lending across the three leaders and p2p lenders as a whole.

In their article today AltFi said the reason for the increase in lending is not due to more institutional investor activity. Seems like this is a more retail investor driven boost. They provide these data points:

  • 46% of Funding Circle’s September origination came from whole loans, which are favored by institutions, but this is lower than the high of 60% in March 2016.
  • Similarly, 50% of Zopa’s origination was not covered by Safeguard (favored by institutions), down from a high of 60% in February 2016.
  • 98.5% of RateSetter’s origination was covered by its Provision Fund, indicating that institutional money still makes up a small portion of its overall lending

Online mortgage marketplace LendInvest shrugs off Brexit with 50% jump in investment, (Business Insider), Rated: AAA

Online marketplace mortgage financer LendInvest grew revenues by 133% in 2016 and turned a profit of £3.4 million, accounts show.

LendInvest lent £320 million over its platform in the year to March 2016 end, compared to £174 million in the proceeding 12 months.

Incoming platform investment grew by 50% in the wake of the Brexit vote, but the slowdown in the property market means the number of mortgages underwritten grew by only 29%. Does this mean some investors are left disappointed, with cash sitting in their account?

The London fintech company put out results on Friday showing revenues jumped to £32 million in the year to 31 March 2016, up from £14 million a year earlier.

Profit was largely flat on 2015’s haul of £3.3 million.

All loans are secured against the property being bought and the platform offers returns of over 5% per year to the investors who finance the loans.

CEO and cofounder Christian Faes told Business Insider: “It’s an interesting time for us. The last couple of year’s we’ve shown we can be profitable. We’re also keen to show we can grow the business, which we have done quite a lot in the last year. Profits haven’t accelerated but they’ve stayed steady. If we had fewer people we’d certainly have substantially more profits.”

Faes says: “We’re excited that we’ve shown the business can be profitable and shown it for 3 consecutive years. It’s proving there’s a sound financially viable business that we’re building and in the context of fintech I think it makes us a bit of an outlier. We’re managing to expand and not burn cash to do that.”

Alternative mortgage lender LendInvest posts a 133 percent rise in revenue as profit flattens out, (City A.M.), Rated: A

Revenue leapt to £32m, up from £14m in the year before.

Profits for the lender – which is targeting the funding gap left by the retreat of high street banks from the sector – remained flat however, coming in at £3.4m, up from £3.3m for the year before.

Flatter profits were put down to an increase in employee headcount – to 90 full time staff, from 34 previously – and investment in new technology.

Viventor: One LendIt and 6 Million Later, (Business Wire), Rated: A

Viventor is a peer-to-peer loan marketplace that offers direct investments in a range of loans across Europe. The platform allows investors to open an account with as little as EUR 50.

Viventor, a peer-to-peer lending platform, marks its first year of operations with 60%+ average monthly growth in the investments made through its marketplace.

The development of Viventor’s product and the company’s subsequent rapid expansion has been buttressed by its partnership with Finstar Financial Group, a private equity fund.

Aided by this partnership, Viventor in February 2016 launched new features and loan types that catalyzed growth, allowing it to expand its investments from EUR 100,000 to over EUR 6 million.

Viventor has now attracted close to 2,000 investors from over 30 countries, generating annual returns as high as 12%. All loans listed on the platform are 100% pre-funded and secured by a Buyback Guarantee: listed loans are bought back by the loan originator after 60 days of delinquency. The loan marketplace has not lost a single cent of investors’ money to date.

Viventor is open to any European citizen with as little as EUR 50 to invest.

South Africa

Lulalend Raises New Round of Funding to Support Credit Access for Small Businesses in South Africa, (PR Newswire), Rated: A

According to a 2011 International Finance Corporation report, the funding “gap” for SMEs in Sub-Saharan Africa is estimated to be $70-90 billion, and in South Africa alone, fundable, formal businesses account for a $2.5 billion funding gap.

The round was led by Accion Venture Lab, the early-stage investment vehicle of the financial inclusion leader Accion, with participation from Newid Capital and Hallmann Holding International Investment GmbH.

“Lulalend was founded in 2014 to provide quick, transparent online credit to small businesses in South Africa, and we’re excited to receive this new round of funding that validates our approach and our impact,”

 

Author:

George Popescu