Thursday February 14 2019, Weekly News Digest

OnDeck revenues

News Comments Today’s main news: SoFi invests in Apex Clearing. Zopa chairman steps down. Ratesetter ISA tops 17M GBP in first year. Assetz Capital surpasses 700M GBP in lending. Revolut denies getting Lithuanian bank license to influence politics. Today’s main analysis: OnDeck’s Q4 earnings review. Today’s thought-provoking articles: What’s happening with auto loans. How Amazon controls small businesses with lending. Banks […]

The post Thursday February 14 2019, Weekly News Digest appeared first on Lending Times.

OnDeck revenues

News Comments

United States

United Kingdom

European Union

International

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News Summary

United States

SoFi held talks to acquire a fintech company backing some of the hottest robo advisors as it eyes expansion beyond its lending roots (Business Insider), Rated: AAA

OnDeck Q4 2018 Earnings Review (Lend Academy), Rated: AAA

The company achieved much of what they set to do in 2018 and posted another solid quarter as they rounded out the year. Q4 2018 net income came in at $14 million on gross revenues of $109.5 million. The company ended the year with a total of $27.7 million in net income. Below is a snapshot of their Q4 and 2018 full year highlights.

As of Q4 2018 the company still had $246 million of excess debt capacity.

BB&T and SunTrust merger; Tech in Bank Earnings (PeerIQ), Rated: AAA

The Fed’s January 2019 Senior Loan Officer Survey showed that banks tightened standards for commercial real estate (CRE) loans. Overall, banks tightened standards for credit card borrowers. However, lending standards for most categories of consumer loans and C&I loans remained unchanged. Banks also reported weaker demand for both business and household loans.

Source: Federal Reserve, PeerIQ

BB&T agreed to buy SunTrust for $28.2 Bn – the first major mega-bank deal in a decade. This deal will create the sixth-largest US retail bank. The M&A is supported by a constructive regulatory environment fostered by the OCC and CFPB, among others. The previous large acquisition was the JP Morgan acquisition of Bank One in 2004.

A major motivation for the deal was the ability of both banks to pool resources to build better digital offerings. SunTrust has a FinTech focused fund and has partnered with FinTech lenders to provide home improvement and small business loans. Banks are investing billions in digital tech spend to maintain relevance with customers that are increasingly eschewing bank branches for a seamless, online, full-service banking and wealth management customer experience.

Auto Loans in High Gear (Liberty Street Economics), Rated: AAA

Total household debt increased modestly, by $32 billion, in the fourth quarter of 2018, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Although household debt balances have been rising since mid-2013, their sluggish growth in the fourth quarter was mainly due to a flattening in the growth of mortgage balances. Auto loans, which have been climbing at a steady clip since 2011, increased by $9 billion, boosted by historically strong levels of newly originated loans. In fact, 2018 marked the highest level in the nineteen-year history of the loan origination data, with $584 billion in new auto loans and leases appearing on credit reports, up in nominal terms from 2017’s $569 billion. In this post, we take a closer look at the composition and performance of outstanding auto loan debt using the New York Fed’s Consumer Credit Panel (CCP), which is based on anonymized Equifax credit data and also the source for the Quarterly Report.

Amazon’s lending perpetuates the tech giant’s control over small businesses (Tearsheet), Rated: AAA

Amazon runs a marketplace with 2.5 million sellers, 24,000 of which had more than $1 million in sales on the platform in 2018. These sellers represent the potential customer base for the company’s lending model.

From this base of borrowers, Amazon has been able to reportedly lend over $1 billion in 2017, exceeding  $3 billion in total lending volume from its inception in 2011 to 2017. As for 2018, in its annual report, the company reported receivables outstanding from their lending program of $710 million, up from $692 million a year prior.

With access to detailed information and data on each seller, Amazon is able to mitigate lending risk substantially. Seller metrics only available to Amazon are utilized to determine a small business’s creditworthiness. Sales history, product offerings, customer service feedback, and shipping metrics enable Amazon’s lending business to have better insight into how to accurately issue loans. This allows Amazon to have an understanding of the health of each small business on its seller marketplace.

Goldman Sachs, Point72 and others invest $ 44 million in business credit startup Nav (Reuters), Rated: A

Nav, a startup that gives small businesses free access to their credit reports, said on Monday that it had raised $44 million from investors including Goldman Sachs Group Inc (GS.N), Point72 Ventures and Experian Ventures (EXPN.L).

Well Fargo Outage Points to Opportunity in Digital Banking (Lend Academy), Rated: A

Wells Fargo is still digging out from a PR disaster last week when the bank went offline for a large segment of customers due to a fire alarm triggered in a server facility in Minnesota. Customers could not access the mobile app, the website or ATMs. The incident has been used to highlight how big an opportunity there is for fintech firms or more nimble banks.

What the outage shows is that bank infrastructure is still stuck in the past, analysts rightly askedwhy Wells Fargo did not have the bank running on a cloud based system.

Digital bank Chime seemed to benefit from the news with more than 10,000 accounts being opened, a record 24 hour period for the startup.

new survey by Fraedom says 80 percent of banks believe challengers have impacted their business and 30 percent say they are their biggest threat.

Susan Ehrlich of Earnest (Lend Academy), Rated: A

Our next guest on the Lend Academy Podcast is Susan Ehrlich, the CEO of Earnest. They are one of the largest student loan refinancers in the country and they also offer personal loans. Back in 2017 Earnest was acquired by the student loan servicer Navient which was itself spun out from Sallie Mae in 2014.

Government Shutdown Slows SBA Lending Volume, Approval Percentage Dipped Slightly in January (GlobeNewswire), Rated: A

Business loan approval rates dropped three-tenths of a percent at regional and community banks in December 2018. Small bank approvals dropped a full percentage point from 49.9% in December 2018 to 48.9% in January.

Small business loan approval rates for big banks remained at a record high 27% in January 2019, according to the Biz2Credit Small Business Lending Index, which examines more than 1,000 small business credit applications made via its online lending platform.

Goldberg added that since reopening on January 28, her office has guaranteed more than 200 SBA loans worth $59.3 million.

Institutional lenders climbed up to 65.1 %, a jump of three-tenths of a percent from December’s mark of 64.8%.

Loan approval rates among alternative lenders rose from 56.6% in December to 57.3% in January, a jump of seven-tenths of a percent.

Citi rolls out new personal loan, online savings account (American Banker), Rated: A

Citigroup has launched a new consumer loan product and a new high-yielding savings-account as part of its rollout of its new digital bank.

The New York bank recently introduced Citi Flex Loan, which allows select existing Citi credit card customers to convert part of their credit lines to a loan with a fixed annual percentage rate, Mark Mason, Citigroup’s incoming chief financial officer, said Tuesday at an investor conference.

Square’s banking bid avoids backlash that doomed Walmart’s (American Banker), Rated: A

As Square seeks federal approval for a Utah industrial loan company, the fintech’s bid has so far avoided the kind of loud, public opposition that marred past ILC bids by higher-profile nonbanks.

Community banks still criticize the ILC charter as a banking loophole for non-financial firms, and the Independent Community Bankers of America opposes Square’s application.

Almost 60% of small business owners launch with less than $ 25,000 (CNBC), Rated: A

At least that’s according to entrepreneurs polled recently by Kabbage, a financial services and data platform serving small businesses. More than half of those polled, or 58 percent, started their businesses with less than $25,000. A third started with less than $5,000.

These numbers track with the latest data from the U.S. Census Bureau, which found that the median cost to start or acquire a company is about $25,000. It did find fewer businesses that begin with less than $25,000, only 46 percent, though that could be due to its inclusion of new owners who purchase existing operations as well owner starting from scratch.

LoanStreet Adds Commercial Lending Features for Financial Institutions (Crowdfund Insider), Rated: A

LoanStreet, an online platform that enables traditional finance like banks credit unions and other direct lenders to streamline the process of sharing, managing, and originating loans, has added new features. The SaaS platform now offers commercial loan origination and administration solution for any size financial institution, loan or deal volume.

LoanStreet’s new lending features include:

  • Built-in collaboration tools offering the flexibility to originate the loan best suited to your borrowers’ needs without sacrificing the ability to invite other financial institutions into the deal.
  • Single access point allowing all parties, including borrowers, lenders, attorneys and auditors, continuous and secure access to the same information.
  • Integrated platform from origination to maturity avoids re-keying, duplication of efforts and eliminates transfer errors and other critical information loss that occurs over time.
  • Efficient process management enabling online, borrower self-service of key administrative tasks — including online payment acceptance — while improving internal controls and information flow.
  • Automated reporting facilitating completion of all applicable regulatory and financial entries for you and every investor.

Velocity Investments sues woman for breach of contract, seeks ,500 in damages (Louisiana Record), Rated: A

Velocity Investments LLC, assignee of Lending Club Corporation, filed a complaint against Heather Darling on Feb. 12 in the 24th Judicial District Court. According to the lawsuit, the plaintiff states that the defendant has failed to pay off the balance of $22,495.23 plus interest on a contract between the parties. The defendant is accused of sums due on an open account and breach of contract.

Online Loan Companies Are No Easy Fix for Desperate Borrowers (Real Daily), Rated: A

Lending Club is currently the largest online lender in the world. By some estimates, Lending Club, which launched in 2007, facilitated anywhere between $35 billion and $55 billion in online loans in 2018.

Now as more financial institutions are beginning to extend loans, Americans are falling even deeper into debt again. Americans, as individuals and households, owed over $13 trillion dollars, collectively, in 2018.

Best News We’ve Heard All Day: More Single Women Own Homes Than Single Men (Pure Wow), Rated: A

Online loan marketplace LendingTree reports that on average, single women own around 22 percent of homes, while single men own less than 13 percent. The study states that the gender gap in housing across the country is particularly interesting “given the average woman in the U.S. only makes 80 percent of what the average man does.” Interesting, indeed. (We can think of another word for it.)

Thoma Bravo Is Buying Digital-Focused Mortgage Company (WSJ), Rated: A

Thoma Bravo LLC has agreed to buy mortgage software firm Ellie Mae Inc. for $3.7 billion, the latest indication that challenges in the home-lending market are spurring consolidation across the industry.

The transaction will give the private-equity firm control of a company whose technology has been used to help automate the closing of millions of home loans. Based in Pleasanton, Calif., Ellie Mae handles the technology that underpins the entire home-loan origination process, and its services are used in

INSIKT Changes Name to Aura (Business Wire), Rated: B

INSIKT, a mission-driven financial technology company that offers affordable loans to hard-working families, today announced that it has changed its name to Aura to expand its focus on creating greater financial health, independence and economic stability for millions in America.

Roostify Expands Advisory Board with Investment Virtuoso (Roostify), Rated: B

Roostify, the San Francisco-based digital lending platform provider, announced today the addition of financial services consultant Marshall Lux to its advisory board. Lux, a distinguished consultant, advisor and educator, brings more than 30 years’ experience in private equity to the rapidly expanding business and reflects Roostify’s commitment to perfecting a scalable operational model and further developing an ecosystem of technology partners and strategic alliances.

LendIt Fintech USA 2019 (LendIt), Rated: B

April 8-9
Moscone West
San Francisco

HIGHLIGHTED KEYNOTES

Sallie Krawcheck
CEO & Co-Founder
Ellevest

Rob Frohwein
CEO & Co-Founder
Kabbage

Steven Streit
CEO
Green Dot

Mike Cagney
Co-Founder
Figure

United Kingdom

Zopa chairman Giles Andrew to step down after 15 years (Independent), Rated: AAA

Zopa’s co-founder Giles Andrew is to step down as chairman after 15 years at Britain’s oldest peer-to-peer lender.

Zopa appoints Virgin veteran McCallum as chairman (Finextra), Rated: A

P2P lender Zopa has appointed former Virgin Management CEO Gordon McCallum as chairman as it gears up for the forthcoming launch of its new banking venture.

Ratesetter ISA tops £175m in first year (AltFi), Rated: AAA

The peer-to-peer lending platform said its ISA accounts for one-fifth of its £830m of funds under management.

Peer-to-peer lending platform Ratesetter said it has been “blown away” by the popularity of its first ISA product, which has hit £175m of subscriptions a year after launch.

Assetz Capital surpasses £700m lending mark (Bridging and Commercial), Rated: AAA

Assetz Capital has now lent over £700m to SMEs and property developers since launching in 2013.

The P2P lending platform has enjoyed significant progression, providing over £200m of funding in the eight months since it surpassed the £500m lending milestone in June 2018.

Former Assetz Capital founder launches fintech consultancy (AltFi), Rated: A

The co-founder of one of Europe’s largest peer-to-peer lenders has launched a fintech consultancy to help young firms “avoid some of the mistakes made by the early incumbents of the industry”.

Former Assetz Capital chief credit officer Andrew Holgate will lead a team of City veterans at consultancy Equitivo, which will help growing fintech firms raise cash, focus on strategy, trim operations and boost performance.

‘There is no magic bullet, people will get P2P over time’ (FT Adviser), Rated: A

The chief operating officer of peer-to-peer platform Relendex, Max Lehrain, has concerns about the Financial Conduct Authority’s crack down on P2P lenders and crowdfunding platforms.

UK challenger bank Starling secures £75m for European expansion (Fintech Futures), Rated: A

Life is sweet for UK challenger bank Starling as it has raised £75 million in funding for its expansion plans in Europe.

It got £60 million in a Series C round led by Merian Global Investors, including the Merian Chrysalis Investment Company.

Monzo Launches First 100 Business Accounts (Crowdfund Insider), Rated: A

UK challenger bank Monzo announced on Monday the launch of its first 100 business accounts. This news comes just a few months after Monzo revealed it was considered business banking, with Founder and CEO, Tom Blomfield, stating 2019 plans included business accounts. Speaking about the new accounts, Monzo reported:

Main Street banks say fintechs like Monzo, N26 and Chime pose the biggest disruptive threat to their businesses (Business Insider), Rated: A

Main Street banks believe upstarts like Monzo, N26 and Chime, known as challenger banks, pose a significant threat to their business, according to a recent survey.

Fraedom, a credit card specialist who works with companies like Visa, SunTrust, and Bank of Montreal, surveyed bankers on what some of the biggest impacts to their business will be in 2019. The vast majority (80%) believe challenger banks have an increased impact to their business, and 30% pegged the new competitors as the biggest disruptive threat to their business in 2019.

Tandem Bank boss calls for rate cut to kick-start UK economy (AltFi), Rated: A

Ricky Knox, chief executive of app-only lender Tandem Bank called on the central bank to cut rates to kick-start growth, as currently savers are locking away cash in specialist higher interest accounts.

Peer-to-Peer Lending and Brexit (4th Way email), Rated: A

Shares plunged and the pound plummeted to a 31-year low when the UK voted to leave the EU. More recently chaotic Brexit negotiations indicate a disorderly exit that could see investors avoid traditional investments in the UK, but what does this mean for peer-for-peer lending and should lenders be worried?

Bank and P2P lending is far less volatile than equity investing, because:

  • It is short-term orientated.
  • Lenders easily diversify widely across thousands of investments – loans – as opposed to a typical stock investor who diversifies across hundreds of shares through share funds.
  • In P2P lending, buy/sell price swings, often fuelled by uncertainty, are usually irrelevant, since lenders hold loans for the full term.
  • Lenders are usually in a better place in the queue compared to equity investors when recovering losses is involved, which can mean smaller losses on individual investments (loans) that go wrong.
  • With lending being data driven, recession conditions are easier to plan for. A turbulent P2P Brexit would mean a tripling of defaulting loans in some kinds of lending and cut-price sales of borrowers’ assets. Interest rates and reserve funds are prepped for most disasters, leaving a very low chance of a sizeable overall loss on a well-diversified, low-risk lending portfolio.

Most investors in peer-to-peer lending are using platforms that are run by people with relevant banking experience. The banks, when we look at their bread-and-butter lending, have found it easy to maintain net profits even during multiple downturns over the past 20 years, which includes the Great Recession. This is across the spectrum of lending, from buy-to-let mortgages to personal loans and credit cards. Perhaps surprisingly, retail and small business lending combined was still profitable for the UK’s high street banks during the 2008 and 2009 crash.

Learn more about 4th Way here.

Mojo Mortgages secures £7million to revolutionise the UK mortgage experience (Manchester Digital), Rated: A

Mojo Mortgages, a fintech start up based in the North West has secured £7million in Series A funding to transform the mortgage experience.

Mortgage Brain boosts user numbers (Mortgage Introducer), Rated: A

Mortgage Brain welcomed over 2,000 new customers during 2018 with a host of national networks, corporate firms and individual adviser firms choosing to use one or more of its products and services.

A number of new customers – including Censeo, Intelligence Mortgage Solutions, Your Expert Group, Affinity Mortgages and Your Mortgage Solutions – as well as a number of contract renewals and user license increases, have all contributed to Mortgage Brain’s growth throughout 2018.

UK inflation below official target for first time in 2 years (Miami Herald), Rated: A

Lower energy costs as well as a waning impact from the pound’s sharp fall in the aftermath of the country’s Brexit vote have helped consumer price inflation in Britain fall below the Bank of England’s target of 2 percent for the first time in two years.

The Office for National Statistics said Wednesday that consumer prices rose by 1.8 percent in the year to January, down from the 2.1 percent recorded in the previous month. Inflation has been consistently falling since August as the effects of the pound’s decline drop out of annual comparisons. The latest decline was further accentuated by a fall in the price of electricity, gas and other fuels.

Inflation is now at its lowest since January 2017, when inflation was also 1.8 percent.

Arbuthnot Commercial ABL delivers £12m refinancing facility (Bridging Loan Directory), Rated: B

Arbuthnot Commercial Asset Based Lending Ltd. is delighted to announce it has completed a £12m refinancing for L&C Limited, trading under Red 7 Marine (“R7M”), provider of nearshore access solutions to the UK marine construction and maintenance industry, and an investee company of Perwyn Private Equity (“Perwyn”).

European Union

UK fintech unicorn Revolut forced to deny links to Russia (Business Insider), Rated: AAA

Unicorn challenger bank Revolut has strongly denied claims that its activities in securing a banking license in Lithuania are attempts to interfere in the country’s politics.

Revolut was granted a European Banking License in Lithuania in December but has since faced claims of interfering in the country’s political processes by Lithuanian Member of Parliament Stasys Jakeliūnas, chair of the Lithuanian parliament’s budget and finance committee.

German Lending Marketplace auxmoney Overtakes Midsize Banks in Consumer Loan Origination (Crowdfund Insider), Rated: AAA

Düsseldorf-based Fintech auxmoney has surpassed its targets in 2018. Loan volume increased by 74 percent compared to 2017. Raffael Johnen, Founder and CEO of auxmoney, commented:

“While the major German banks are in crisis mode, the leading German fintechs are always setting new records. With our continuously strong growth, we managed to be the first credit marketplace to catch up with medium-sized banks in Germany.”

It issued new loans totaling €551 million last year.

Auxmoney Now Stands for 0.5% of the Market of German Consumer Loans (P2P-Banking), Rated: A

German p2p lending marketplace Auxmoney announced that it has facilitated 551M EUR in consumer loans in the year 2018. Up 74% compared to 2017. Approximately 73,000 loans were financed. That would mean Auxmoney now stands for a market share of roughly 0.5% of the market.

Gymshark teams up with Klarna to announce pay later service (RLI), Rated: B

Fitness wear brand Gymshark has announced the launch of a pay later service in the UK, Sweden, Norway, Finland and Denmark. The company is now in a partnership with Klarna, a payments provider which will offer Gymshark the new payment option. The payment service will allow online shoppers to try on items at home before paying for the order.

Instantor releases report on how machine learning is revolutionising credit risk management in Europe (Fintech Finance), Rated: B

Instantor, the 3rd. fastest growing Swedish FinTech who makes tough calls easy within credit risk management presents “Credit Risk Management 2019 – How Do You Stack Up?”, a report based on a survey conducted by Instantor across Europe among top executives within leading financial organisations. The report reveals that two-thirds of these players are well underway to implementing machine learning (ML) and the majority benefits from its implementation within credit risk management.

International

30 Under 30 Europe: The Young Money Merchants Shaping Financial Markets In 2019 (Forbes), Rated: AAA

Finance is hardly known for its youthfulness, yet this year’s Finance 30 Under 30s are proving that an old industry can learn new tricks. These young venture capitalists, fintech entrepreneurs, crypto enthusiasts and Millennial bankers, with an average age of just 27, are reshaping the sector and transforming our relationship with money.

The Next Global Financial Meltdown Is Just Around the Corner (Equities.com), Rated: AAA

As Bloomberg reported last year:

Shadow banking in China has ballooned into a $10 trillion ecosystem which connects thousands of financial institutions with companies, local governments and hundreds of millions of households. The practice is now at the center of a Chinese government-led regulatory crackdown aimed at defusing financial risks that threaten the wider economy. Unlike in the U.S., traditional commercial banks drive shadow banking, or unregulated lending, in China. That’s because the banks have been able to keep shadow-banking assets off their balance sheets, thereby sidestepping regulatory constraints on lending.

About 169 million Chinese, or about 12 per cent of the population, have invested in wealth management products online, a rise of 66 per cent from two years ago, according to a Moody’s report published this month. Essentially, they are putting money into the shadow banking system.

“The picture is different in the European Union. Here, the shadow sector now accounts for perhaps 30–40% of total financial intermediation. But it is growing. Between 2012 and 2016, shadow banking as broadly measured expanded by almost 40% in the eurozone.

Atlanta-based IDology to Be Acquired by GBG for $ 300m (PR Newswire), Rated: A

GBG, the UK-headquartered Identity Data Intelligence specialist, today announces that it has conditionally agreed to acquire the entire issued share capital of IDology, a US-based provider of identity verification and fraud prevention services, for $300m (£233m) in an all-cash transaction.

Nexo lending to offer crypto-backed loans with Blockport exchange (Bankless Times), Rated: B

Blockport users will be able to use the Nexo platform to get crypto loans, offering them another alternative to selling their cryptocurrencies for fiat currencies. Instead of selling they cryptocurrency assets, Blockport users can now keep their crypto, with all potential upsides, and leverage them to get instant access to cash.

Australia

Next Growth Wave: Fintech (Seeking Alpha), Rated: AAA

In this article we look at some fintech companies, beyond investor’s normal horizon of the United States. In Australia there is a small cluster of listed fintech companies that have started to explode. Some have made gains of 400% in a year and more than 1,000% on the back of strong revenue and turnover growth. Moreover because Australian companies lack access to large scale V.C. investments, technology companies often need to capital raise through a public listing.

Zip Co. (ASX: Z1P)

Zip Co. is quite similar to Afterpay and in some ways its closest competitor with an established market position. However in addition to payment splitting, it also offers interest based loans and is different in other ways.

  • Zip Co. is smaller with a market capitalization of $380 M AUD (about $266 M USD), but still has 12,600 retail partners including most of Australia’s largest retailers, however it hasn’t yet entered the U.S. or the U.K.
  • Zip Co. has Zip Pay, which provides a payment splitting application with no interest, but with more flexibility in length of time or repayment amount than Afterpay’s solution.
  • Zip Co. also has Zip Money also provides loans for purchases above $1,000 AUD, with a 3 month interest free period, but with an establishment fee of up to $99.
  • Source: Seeking Alpha

Labor’s negative gearing policies could hurt first-home buyers (Your Mortgage), Rated: A

“Despite Australia’s tight regulations on foreign investment, other overseas property markets are tighter – including China, Canada and New Zealand,” Driscoll said. “Unlike in Australia, the Chinese lack many appealing alternative investments at home and, due to government crackdowns on peer-to-peer lending, private equity funds and with the majority of their property being leasehold, many investors are forced to look elsewhere.”

India

India’s fintech future looks bright, but it needs to find its raison d’être (India Times), Rated: AAA

Yet there is more room for growth. The market in India is still small; far more deals are being done in China, and for far higher valuations. Last year alone, venture capital investments into Chinese fintechs were more than 10 times larger than those in India, with 75 percent more deals.

Although the value of investments in India declined by 21 percent in 2018 over the previous year, the number of deals actually rose 12 percent, making 2018 the most active year on record for fintech financing.

RBI may change Rs 10 lakh lending cap on P2P platforms, say P2P players (India Times), Rated: A

Peer to Peer or P2P players are hopeful that the comprehensive financial data sought by the Reserve Bank of India might help the regulator to take some major policy decisions concerning the industry.

Asia

Hundreds of unlicensed P2P lenders still operating in Indonesia (The Jakarta Post), Rated: AAA

The Financial Services Authority (OJK) has found that 231 illegal peer-to-peer lending (P2P) providers, including those from other countries, have been operating in the country since January.

An Overview on Peer-To-Peer Lending in Indonesia (Legal Business Online), Rated: A

Two years following the enactment of Financial Service Authority (Otoritas Jasa Keuangan/”OJK) Regulation No. 77/POJK.01/2016 of 2016 (POJK 77/2016), Peer-to-Peer Lending (P2P Lending) has grown popular in Indonesia. Based on data from OJK per Oct. 2018, a total of 15,990,143,141,355 rupiah has been distributed to the borrowers in P2P Lending. It has grown 432.5% from Jan. 2018 until Oct. 2018. Until Dec. 2018, the number of P2P Lending Platform which has been registered and supervised by OJK has reached 88 companies, one of them has been given a license.

Canada

Finastra announces Siobhan Byron as new Head of Technology Enabled Managed Services (Finastra), Rated: A

Finastra has appointed Siobhan Byron as Senior Vice President and Head of Technology Enabled Managed Services (TEMS). In this role, she oversees planning and execution, sales and marketing, research and development and product management across four lines of business including Checks, Enhanced Services, Student Lending and Canadian Mortgage Technology, all in the Canadian market. She oversees more than 1,300 employees that make up Finastra’s TEMS business.

Authors:

George Popescu
Allen Taylor

The post Thursday February 14 2019, Weekly News Digest appeared first on Lending Times.

Monday September 25 2017, Daily News Digest

Federal Reserve Balance Sheet

News Comments Today’s main news: Prosper closes on $50M funding round at $550M valuation. SmartBiz Loans hits $500M in SBA loans. Labour proposes debt cap that would force credit card companies to write off billions. European Central Bank considering requiring fintechs to hold more capital. RateSetter raises $10.5M. FinEX Asia’s private equity fund manager invests $50M in Prosper. Today’s main […]

Federal Reserve Balance Sheet

News Comments

United States

United Kingdom

European Union

International

India

Asia

News Summary

United States

Prosper Closes on a $ 50 Million Funding Round at a $ 550 Million Valuation (Lend Academy), Rated: AAA

Earlier this week Prosper closed on a Series G transaction where they raised $50 million from an investment fund co-managed by FinEx Asia and LPG Capital based in Hong Kong. While Prosper would not confirm their new valuation sources said the post money valuation was $550 million. This represents a 70.5% drop in value from their high in 2015. So the rumors from last month are true.

On April 2, 2015 Lending Club was trading at $19.26 a share. Yesterday the shares closed at $6.10 which is a 68% decline in valuation. This is pretty much in line with the decrease in valuation at Prosper.

A spokesperson for Prosper told me that the money will not be used for operations but rather for new projects. Prosper is now cash flow positive with liquid assets of around $42 million as of Q2 2017. There was no dire need to get this funding round done but it will be helpful for them as they look to grow in a sustainable way.

FT Partners Advises Prosper on its $ 50,000,000 Financing Round (FT Partners Email), Rated: AAA

FT Partners is pleased to announce our role as sole strategic and financial advisor to leading marketplace lender 
Source: FT Partners

Download and read the full transaction announcement here.

Fed News, Prosper Financing, ABS East Highlights (PeerIQ), Rated: AAA

Source: PeerIQ
Source: PeerIQ

Fed Reducing Balance Sheet and Not Offering Regulatory SandBox

Source: PeerIQ

On heels of 70% plunge in valuation, Prosper CEO defends latest fundraisings (Biz Journals), Rated: A

After pocketing $50 million in a huge down round and another deal that could give an investor group a 30 percent stake in the marketplace lender, there’s really only one question for the CEO: Are you giving away the store?

SmartBiz Loans Hits $ 500 Million Mark in SBA Loans for Small Businesses (Small Biz Trends), Rated: AAA

Small business lending platform SmartBiz Loans has announced surpassing $500 million in funded Small Business Administration loans.

SmartBiz Loans says it ranked as the leading facilitator of traditional SBA 7(a) loans under $350,000 for the 2016 fiscal year. This means SmartBiz surpassed Wells Fargo and other major banks in relation to SBA lending.

Small Business Loans Are Still An Option For Struggling Business Owners (Inquisitr), Rated: A

Small business loans are helpful for business owners who have no other financial options. SmartBiz Loans has announced that it surpassed $500 million in funded Small Business Administration loans. A fifth bank has joined its software platform.

According to the Buffalo News, M&T Bank leads a federal small business lending program in the Buffalo-Rochester region. The program’s overall totals have decreased from a year ago. The Small Business Administration reported 806 of the SBA 7(a) loans were originated through August. That’s down 21 percent from the previous period a year ago. Its amount of dollars were down 7 percent from last year, down to $132 million.

M&T Bank used to lead the way until August. Its number of loans dropped down to 41 percent. Its total dollars declined 11 percent to $25 million. It’s still well ahead of Wells Fargo. However, Biz2Credit, Fundera, and others have been catching up.

Matic Insurance Services Debuts Integration with Roostify, Advances to Final Round of TechCrunch Startup Battlefield (PR Newswire), Rated: A

Matic Insurance Services (Matic), a digital insurance agency that enables borrowers to purchase homeowner’s insurance during the home-buying transaction, has forged a partnership with automated lending technology provider Roostify. The company announced the news Tuesday afternoon from the stage of TechCrunch’s Startup Battlefield, part of the TechCrunch Disrupt SF conference held in San Francisco this week. Matic was one of just six elite startups chosen to advance to the final round of the competition.

YC wants to let people invest in its startups through the blockchain  (TechCrunch), Rated: A

“We are interested in how companies like Y Combinator can use the blockchain to democratize access to investing,” said Sam Altman, who leads the accelerator, onstage at Disrupt yesterday. “We should try to figure that out.”

Our sources tell us YC is actually a little further along than that. Like a growing number of venture groups that are jumping into the digital currency world, the group is actively sussing out how it might use cryptocurrency to expand the investment pool.

Millennials still don’t like robo-advice (AltFi), Rated: B

A survey from online marketplace LendEDU found that 46 per cent of people between the ages of 18 and 34 who are saving for retirement use a financial adviser. In comparison, only 24 per cent of the 500 surveyed have used a robo-advice platform.

Around 75 per cent of respondents said they have never used an automated wealth management service, but 62 per cent of those said it was because they had never heard of robo-advice before.

Even so, millennials do not seem to trust automated wealth platforms. Of those surveyed, 51 per cent think a robo-adviser is more likely to make a mistake while managing money, while only 48 per cent think a traditional adviser is more likely to make an error.

Millennials Still Gravitate Toward Human Advisors over Robos: Survey (Advisor Hub), Rated: B

More than 46% of respondents in a survey of 502 millennial investors saving for retirement said they had sought advice from a human advisor, according to LendEDU, a student loan refinancing company. That is almost double the 24.3% who said they had used a robo-advisor either in addition to a human advisor or exclusively, according to the survey, which was released September 19.

AIC taps KKR’s Gopalan as CEO (PE Hub), Rated: B

Angel Island Capital (“AIC”), a San Francisco-based alternative investment advisor and credit manager, today announced the appointment of Dev Gopalan as Chief Executive Officer. A seasoned financial services executive, Mr. Gopalan joins Angel Island Capital from leading global investment firm Kohlberg Kravis Roberts (“KKR”), where he served as Head of US Private Credit and was a member of the Global Private Credit Investment Committee and KKR Credit Portfolio Management Committee.

United Kingdom

Concern at scale of peer-to-peer lender’s defaults (Telegraph), Rated: AAA

A rapidly growing peer-to-peer lender has exposed investors to a bankrupt for a second time, while a quarter of its loan book is considered to be in default, raising fresh concerns about regulation in the booming new finance market.

Sources close to Lendy Finance, which earlier this year became the title sponsor to the sailing regatta Cowes Week, spoke to The Sunday Telegraph after becoming concerned that the level of defaults revealed an ongoing weakness in underwriting checks, which is putting investors at risk to losses. The FCA is investigating how peer-to-peer lenders disclose default rates as part of a delayed consultation into the burgeoning industry.

A study of Lendy’s loan book reveals that almost 25pc of loans, worth £47.2m, are outside original terms, meaning repayments can be one day to 434 days overdue.

However, Lendy says that just 14.5pc of its loan book is “currently in default as defined by our agreements with lenders, and in line with the wider bridging and development finance market”.

Labour proposes debt cap that would see credit card companies forced to write off billions of pounds owed by customers (Telegraph), Rated: AAA

Credit card companies would be forced to write off billions of pounds in long-term customer debts if Labour got into power under a policy to be unveiled at the party’s conference.

John McDonnell, the shadow chancellor, will propose capping the amount of money lenders can charge in interest so that no one has to pay back more than double what they borrowed.

But with £14 billion owed by those classed as being in “persistent debt”, the policy raises questions over whether the cost of the policy would end up being passed onto other borrowers.

The average credit card debt owed by those in persistent debt – classed as people who have paid more interest charges and fees than their original borrowing – is £3,464 per person.

The Financial Conduct Authority has estimated that lenders would lose up to £1.3 billion per year as a result.

My Bondmason Result After Exit – Yield was Mediocre (P2P-Banking), Rated: AAA

Last year in September I signed up at UK platform Bondmason in order to test first-hand how an investment of 1,000 GBP would develop.

What was bad, was that it became clear to me, that the interest level in combination with the non-performing loans would make it very unlikely for Bondmason to reach the projected return – at least for my portfolio. Especially with the Invoice Discounting loans there were issues.

In April 2017 Bondmason announced it would require a larger minimum investment amount of 5K (previously 1K) and raise fees for small portfolios to 1.5% (previously 1%). Dang. I was in no way interested to deposit more money. So my portfolio did not even get to celebrate 1st anniversary. In July I gave them notice to liquidate my portfolio/account. Since then I withdrew 1,013.94 GBP – only slightly more than I deposited. My account still exists as there is 20 GBP stuck in two property loans in default and also 1.41 GBP in cash.

Source: P2P-Banking

Starling is looking to raise £40 million in a new funding round (Business Insider), Rated: A

Startup bank Starling is seeking to raise £40 million from investors in a new funding round to drive international expansion.

The bank, which opened to the public earlier this year, has appointed advisory firm Quayle Munro to oversee the fundraising, according to Sky News.

According to the report, Starling plans to use the money to expand into other European markets, with the first of these likely to be Ireland, where it recently gained a passport — which will allow it to access EU markets after Brexit.

Shadow Chancellor John McDonnell vows to cut interest payments on debt-laden Brits – but it could cost the City £13bn (The Sun), Rated: A

Mr McDonnell will today outline plans for a 100 per cent ceiling for three million owing on average £3,464 in a move that could cost the City £13billion.

The plan, in which someone borrowing £1,000 would pay back no more than £2,000 in total, would bring credit cards into line with current rules on payday loan firms.

It would also apply to in-store credit cards.

What Goldman Sachs Retail Banking Will Look Like (The Market Mogul), Rated: A

Goldman Sachs already has a mass-market offering in the US, after launching its online lender Marcus 18 months ago. Since its inception, Marcus has supervised over $1bn worth of loans to businesses.

Goldman Sachs will start taking deposits in the UK, but in the long run, the bank has plans to lend UK customers money through Marcus like in the US.

NatWest recently announced its plans to launch an online lender Esme Loans, allowing SMEs to quickly take unsecured loans of up to £150,000. Online lending is likely to become more crowded as Santander has also announced plans to incorporate digital banking in its services.

Can an app really change the way we buy houses by dragging lawyers into the tech age? (The is Money), Rated: A

Conveyancing – the legal process of transferring ownership of land and property from one party to another – has changed considerably over the past 10 years.

Technology has so far failed to make inroads to improve the process – and no matter how slick your online lender or mortgage broker tries to be, everyone’s held to ransom by the law.

What is When you Move ?

Simon: Frustrations we’ve seen our clients navigate, in addition to our personal experiences, triggered something of an obsession to develop a tech solution for an industry deep-rooted in some of the most archaic practices still in use  in modern-day business.

When You Move is an app that allows home buyers and sellers to see easily in real time where everyone is up to in the process – be that you, the lawyer, the mortgage broker, the valuer or the lender.

Adopting fintech is saving UK businesses £4.6bn, according to MarketInvoice (City A.M.), Rated: A

The survey found 65 per cent of 3,482 UK businesses have adopted at least one fintech solution, with 19 per cent making use of four services. These fintech products are helping the firms to save on average over £5,500 a year.

MarketInvoice estimates that 65 percent of 1.3m UK businesses are therefore making this average saving, meaning a total of £4.6bn is being saved thanks to fintech.

Ex-Goldman, Barclays and Lloyds MD has just jumped to a fintech firm after 30 years in banking (efinancialcareers.com), Rated: B

Adam Barrett, the head of institutional sales at Lloyd Banking Group has joined the exodus from banking to fintech. After more than 30 years in investment banking, at UBS, Goldman Sachs and Barclays, he’s just gone to peer to peer lending platform Invest & Fund.

Fintech “critically important” for future of UK financial services (P2P Finance News), Rated: B

MAINTAINING the UK’s position as a leading fintech and innovation hub is “critically important”, according to a survey of City firms.

The CBI/PWC financial services survey, released on Monday, questioned 94 companies, including banks, finance houses, securities traders, fund managers and the insurance industry.

Banks in particular saw a need to ensure that the UK remains a leading fintech and innovation hub.

European Union

European Central Bank could ask fintech banks to hold more capital (AltFi), Rated: AAA

The European Central Bank is considering requiring banks involved in financial technology to hold more capital buffers.

Cawley to chair peer-to-peer lender Linked Finance (Irish Times), Rated: A

Former Ryanair deputy chief executive Michael Cawley has been appointed chairman of peer-to-peer lending platform Linked Finance, which hooks up companies requiring capital with individuals and institutions looking to lend.

As of this month, it says it has 16,000 registered lenders on the site. Businesses to have availed of loans through the platform include Viking Splash Tours, the Irish Fairy Door Company and tech company Big Red Cloud.

Linked Finance has set a target to facilitate lending of up to €250 million in coming years. It says its lending was up by more than 240 per cent in the first half of this year. SMEs can borrow up to €250,000 on its platform.

How CrossLend is changing the game for European investors (LendIt), Rated: B

By November 2016, we were engaged in a strategic pivot, actively shifting our focus from B2C to B2B, so we could offer our single-loan securitisation solution to major players on Europe’s lending stage.

The good news is that investors also stand to benefit from the opportunities inherent in CrossLend’s single-loan backed notes, and here’s how:

  1. Simplified access
  2. Flexibility
  3. Ease of diversification
  4. Transparency
  5. Favourable regulatory treatment
  6. Liquidity
  7. State-of-the-art investment tools
International

ConsenSys And Tapscotts Are Warming Up To Global Ethereum-Based CarbonX Platform (ETHNews), Rated: A

On September 21, 2017, blockchain software company ConsenSys announced the launch of a peer-to-peer (P2P) trading company, CarbonX, which will employ the Ethereum blockchain to tokenize carbon credits.

CarbonX is backed by a co-founding group that includes co-authors of best-selling book Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the WorldDon and Alex Tapscott. The company intends to purchase Certified Emission Reduction Credits, also called carbon credits, to be tokenized with the Ethereum blockchain. CarbonX will also tokenize investments it makes in reduction projects.

Report: There are 214 Unicorns in the World. A Good Number of them are Fintech (Crowdfund Insider), Rated: A

CBInsights has just published an updated report, along with some accompanying slides, tallying the number of Unicorns globally and outside the US.

According to their numbers there are 214 Unicorns in the world. There are 24 countries with Unicorns and the US leads the way with 52% and China follows in second place with 23%.

E-commerce is number one and Internet Software & Services take second place. Fintech Unicorns are in 3rd place.

Fintech names like SoFi, Stripe, Credit Karma, Prosper, Kabbage, Avant, are on the list. Outside the US, Fintech names include Lu.com, ZhongAn, Saxo Bank, One 97 Communications, Klarna, Funding Circle, Transferwise are there.

Australia/New Zealand

Sydney fintech RateSetter just raised $ 10.5 million after blitzing peer-to-peer rivals (Business Insider), Rated: AAA

Peer-to-peer online lender RateSetter Australia has secured a $10.5 million capital raising round and has doubled its loan levels on 12 months ago.

Peer-to-peer online lender RateSetter Australia has secured a $10.5 million capital raising round and has doubled its loan levels on 12 months ago.

Australian banks drop ATM fees (Financial Times), Rated: A

Australian consumers will no longer face charges when using another bank’s cash point after the country’s four major banks dropped ATM withdrawal fees for domestic users amid greater regulatory scrutiny for the industry.

Wealth management still key for banks (The Sydney Morning Herald), Rated: A

Former Commonwealth Bank chief executive David Murray says there remains a strong case for bank involvement in wealth management, despite the recent trend of lenders offloading life insurance and funds management assets.

CBA last week became the latest bank to retreat from “manufacturing” wealth products, selling its life insurance arm for $3.8 billion and saying it may spin off the investment business of Colonial First State in an initial public offering.

PledgeMe founder Anna Guenther hopes to take crowdfunding to Australia (NZ Herald), Rated: B

Anna Guenther is planning to take PledgeMe across the Ditch with the Australian Government set to legalise equity crowdfunding next week.

Two new high-profile digital wallet partnerships and the Australian alternative finance market ranks second in the Asia Pacific (Finder), Rated: B

Commonwealth Bank has announced it will be giving its 4.4 million app users access to Android Pay. The bank will also be allowing its customers to make contactless payments with their Garmin smartwatches in early October, with Apple Pay becoming available by the end of the year.

Australian fintech lender Waddle has announced the expansion of its invoice financing and factoring services to New Zealand. The lender is looking to meet the “significant demand” from small businesses in the New Zealand market.

Woolworths customers will be able to use their iPhones to collect and redeem Woolworths Rewards points when shopping at the supermarket or its partners from next month. Find out how much you can collect and redeem here.

India

P2P lending: Direct selling agents may come under RBI regulatory ambit as NBFCs (The Hindu Business Line), Rated: AAA

The Reserve Bank of India’s recent move to regulate peer-to-peer (P2P) lending platforms as non-banking financial companies (NBFCs) has created a grey area of sorts, spelling trouble for thousands of direct selling agents (DSA) or direct marketing agents (DMAs).

The Finance Industry Development Council (FIDC) says it is “very much possible” that DSAs/DMAs who have been providing loan facilitation (offline) services to retail and corporate borrowers, from banks and NBFCs (with whom they have signed a written contract) for the past many years, may also fall under the ambit of RBI’s P2P regulatory framework as NBFCs.

Start-up funding crawls: 20 months, Rs 70 crore (The Indian Express), Rated: A

Since it was floated in January 2016, the government’s Rs 10,000-crore Fund-of-Funds for start-ups (FFS), launched in line with the Start-up India Action Plan of the Government, has made slow progress with only about Rs 70 crore having been disbursed to start-ups until the beginning of this month.

The 17 funds include Mumbai-based early-stage investor Kae Capital, which raised its second $30-million fund in February last year and is reported to have got a commitment of Rs 45 crore from the FFS. Kae Capital has investments in about 16 start-ups, including Truebil, a used-car marketplace owned by Paix Technology; peer-to-peer business loan marketplace startup Loanzen; second-hand products marketplace ListUp promoted by Gijutsu Solutions and shopping portal Fynd run by Shopsense Retail Technologies.

Asia

FinEX Asia’s Private Equity Fund Manager Announces US$ 50 Million Investment in Prosper Marketplace (ACN Newswire), Rated: AAA

FinEX Asia is pleased to announce that its private equity fund manager closed an investment of US$50 million in Prosper Marketplace, a U.S. online marketplace lending platform for consumer loans.

“FinEX Asia is excited to complete the Series G financing into Prosper, a leader in marketplace lending in the U.S.,” said Maggie Ng, CEO of FinEX Asia. “Our team’s expertise is in fintech and consumer lending. Our investment strategy starts with the U.S. because of our strong network with online marketplace lenders. In parallel we are considering investment opportunities in other verticals globally.”

Founded earlier this year by Maggie Ng, a former Consumer Lending Head and Chief Risk Officer at Citibank, FinEX Asia aims to help Asian investors look for quality investment opportunities, both in fixed income and equity investments, by using its fintech platform and know-how. The investment made into Prosper is a good illustration of how such opportunities are welcomed by Asian investors and that FinEX Asia’s investment strategies are well recognized by the capital it represents.

Singapore’s FinMomenta to lend to low-income employees (The Hindu Business Line), Rated: A

Singapore-based fin-tech start-up FinMomenta, which entered the Indian online P2P (peer to peer) lending market early this year with its product called Tachyloans, will soon be lending to salaried professionals working in small and mid-size firms.

Called Corporate HR loans, FinMomenta aims to make lending easier for the working class. The loan size ranges from ₹50,000 to ₹5 lakh.

Blockchain Fintech Firm, MicroMoney Starts a Private Presale for Early Birds (PR Newswire), Rated: A

MicroMoney, a global fintech blockchain company and lending services provider, announces a private presale for its token-generating event for the early birds among funds and big contributors. This presale started on September 15th, 2017.

MicroMoney is a fast-growing company founded in 2015 with the offices in five Asian countries – ThailandMyanmarIndonesia, Sri Lanka, and Cambodia. The company plans to expand its presence to 5 more countries by 2018. MicroMoney was established as a company focused on micro-financing in the money lending industry, providing customers with online loans without any collateral requirements using machine learning algorithms.

There are still more than 2 billion of the unbanked in the world, especially in the emerging market.

Japanese firm eyes expansion in PH (Sunstar), Rated: A

CROWDCREDIT, a Japanese cross-border marketplace lending company which promises to fill in lending gaps by providing funds for lending and financial institutions including banks, is currently studying the market and possibility of business expansion in the Philippines.

In other countries, such as the United Kingdom, for example, banks receive loan applications more than their existing deposit or more than the loans that they can cater to. The case is opposite with Japan’s banks with more excess deposits than loans. With this, the basic concept of Crowdcredit is to provide this excess fund for loan to other countries that would need them.

Crowdcredit has a vast network of global partners which includes Mfx, Kobranzas, Fellow Finance, Savy, Cream Finance, Ovamba, Bondora, Mogo, Mintos, and Prestiamoci.

New LendingCalc White Paper Examines Opportunities in SE Asian Marketplace Lending (LendingCalc Email), Rated: A

Author Terry Tse Provides Practical Advice About How to Select Best P2P Platforms

LendingCalc, Inc., a direct investment platform providing global access to digital specialty finance for institutional investors, has released a new white paper examining the investment opportunities within the growing marketplace lending sector in Asia. The paper was written by newly appointed strategic adviser, Terry Tse, who served as Chief Risk Officer at the China-based P2P giant, Dianrong, and is currently Senior VP of International Development at the largest B2B payment company in China, Lian Lian Pay.

In the paper, Tse contrasts U.S. and Asian regulations and explains how the regulatory regimes in Asia impact the lending opportunities abroad. He also describes the emerging P2P business environment in Asia, which appears to be extremely well positioned for growth. In addition, Tse explains the key structural incentives Asian P2P lenders have implemented to discourage borrowers from defaulting.

The paper concludes with a number of practical suggestions to help investors navigate the socalled “Wild East” that is marketplace loan investing in Asia.

Authors:

George Popescu
Allen Taylor

Friends, Family, Credit Cards or Savings Aren’t Helping Nonprime Americans

Availability of Credit

We’ve always known that the non-prime segment of the American population has not been doing well. Though the unemployment rate is at record low levels, the after-effects of the real estate and financial meltdown in 2008 and normal jobs being exceedingly replaced by gigs have left a lot of these subprimers in a precarious position. […]

Availability of Credit

We’ve always known that the non-prime segment of the American population has not been doing well. Though the unemployment rate is at record low levels, the after-effects of the real estate and financial meltdown in 2008 and normal jobs being exceedingly replaced by gigs have left a lot of these subprimers in a precarious position. A report by Elevate’s Center for the New Middle Class, an online lender that has originated more than $3.7 billion in loans to this category, highlights through hard facts and figures issues being faced by this new middle class. It also busts myths about the various borrowing options available to them.

Source: Elevate’s Center for the new Middle Class

Sub-prime borrowers are those which have a credit score below 700 and basic lending products like low interest personal loans are not accessible to them. The report finds that almost 70% of the nonprime Americans can’t afford emergency expenses of $500 or more with their savings. The report also shows 64% wouldn’t be able to borrow that amount from friends and family and seconds the Federal Reserve Board’s finding in 2016 which revealed that 40% of Americans don’t have $400 in saving to meet any unexpected expenses.

Findings from the Elevate report: Paint a bleak picture
Additionally, the opinion that they can depend on other means of funding like friends and family or credit cards is also debunked by the new research. Almost 72% of Americans won’t be able to put a charge of $500 on their credit cards, this figure jumps to 80% if the amount is $2,000. 71% won’t be able to borrow the $2,000 from their family and friends. Surprisingly, only 1 in 5 Americans has borrowed money from friends or family in the last 12 months. This indicates that either they are not comfortable in asking for the money or maybe the money is just not there in their network.

Source: Elevate’s Center for the new Middle Class

This report provides powerful insight into what is actually going on in the financial lives of the new middle-class American. It also allows policy makers and fintech companies to design policies and products that target the actual pain point for millions of Americans who are not being served by their banks and traditional lenders.

Elevate’s Center for the New Middle Class
Elevate started this center to evaluate the economic behavior and daily challenges faced by this “New Middle Class” of America. This all is done through surveys, research, studies, and a continuous open dialogue with the members of this category. The research and results generated by the center help market players to develop products which are better suited to the needs of the non-prime borrowers.

This is the fifth paper published by the center, which tries to release one paper each month. Usual themes include the challenges faced by the non-prime borrowers and how they find it difficult getting that apartment, job, or utility connection just because of poor credit. Thus, they are stuck in a vicious circle because they can’t get a job without a good credit score and can’t get the credit score without previous credit. Obviously, they won’t get a loan without a job. Last month, the center released a paper on the issues faced by the married non-prime segment.

This particular paper is written to understand how much access this middle class has to the so-called “good options” (i.e. families and friends). These stats are completely opposite to the regular notion that it is easier to borrow money from friends and families, or borrowers should focus on having personal savings for drawing down for emergencies.

With banks already blacklisting the new middle class, and the families and friends option not the panacea we thought it was, it is important to help people get on that credit bandwagon so they can make the entry into the formal credit market. Being able to climb that ladder of credit score success has a domino effect on financial lives.

The New Economy
Almost 51% of non-prime borrowers admitted they have volatile or fluctuating income month to month. For 22% of them, it fluctuates to a level that can create massive issues if an unexpected bill comes due. These trends are exacerbated because of the emergence of the “sharing” and “gig” economy. According to an article on Forbes.com, there are almost 55 million freelancers in America comprising 35% of US workforce. This gives massive flexibility to the new age worker, but it also means that they do not get any perks of employment like job security, health insurance, or vacation pay. Uber, Lyft, and AirBnB are creating opportunities, but they’ve also have led to massive fluctuations in the income of millions of freelancers associated with them.

Conclusion
With more and more people falling under non-prime categories, it has become imperative for financial companies to understand the underlying matrix of this category. Almost 7% of respondents in the Elevate survey use bank overdraft as a form of creative financing, and 59% carry a regular credit card balance. Existing lenders have failed this new middle class, and understanding how this massive community thinks and functions will help new-age lenders develop credit products that will serve this category in a much way better way. Companies who can help them cross the credit hurdle are on their way to capturing a potential trillion dollar market.

Author:

Written by Heena Dhir.

Upstart to start selling machine learning technology

machine learning credit

The fintech industry is highly competitive, and it’s important to have a moat around your business and/or your technology to carve your own niche. Upstart used proprietary machine learning and AI algorithms to develop its platform and ensure that it remains ahead of the pack. Though the AI technology disruption is at the nascent stage, […]

machine learning credit

The fintech industry is highly competitive, and it’s important to have a moat around your business and/or your technology to carve your own niche. Upstart used proprietary machine learning and AI algorithms to develop its platform and ensure that it remains ahead of the pack. Though the AI technology disruption is at the nascent stage, Upstart founders believe it won’t be long when this technology will take over the entire lending ecosystem. The notion of using machine learning and artificial intelligence is to revamp how credit works fundamentally and not just as an assisting tech for online lending, fraud detection, and automation.

Impact of machine learning

The average credit card interest rate is 18.76 percent and $1,292 is paid by a household as credit card interest each year. Upstart, a fintech lender based out of San Carlos, California, claims to help save its borrowers almost 27% as compared to their credit card rates.

Future of machine learning

The young startup believes they are just starting out and that for machine learning to really kick in will require a ten-year investment into the process. Currently, the advantage is measured only in basis points, but after 10 years with the amount of data generated from 5 million originated loans, it will render the system unbeatable. The company has set a 4% loss rate, it could have easily focused on minimizing default rate but the goal is to expand and expand aggressively. The model has over 400 variables and usually considers on average 100 variables for an application. The company prides itself on developing everything in-house and it is no surprise the entire platform is built in-house, as well. So far, in terms of loan automation output, the company has managed to achieve 20% success, but it plans to achieve 80%-90% automation rate by the end of next year.

Selling technology

It has decided to sell its machine learning algorithms on a SaaS basis to banks, credit unions, and non-bank lenders. Its white label service allows point-of-sale financing for retailers. Its systems are instant and automated, thus facilitating any player looking to lend. The founders understand that their services can be replicated by a JP Morgan, but everyone does not enjoy the same scale or wishes to invest the millions and billions necessary for creating the prerequisite infrastructure. It services includes loan servicing rate request, credit modeling, and verification process as well. Pricing wise it has kept things pretty simple; there are no upfront fees. It is based on a pay as you use basis along with licensing fees.

The company is going a step further from the generic machine learning being executed today. It understands that human fraudsters are also utilizing machine learning to sharpen their skills. So the company is prioritizing adversarial machine learning versus machine learning in a static environment. The company believes it can never have a 100% foolproof system, but with enough data, it should reach a critical mass that creates statistically too many checkpoints for a fraudster to succeed on any meaningful scale.

Data is the new oil

Data is the new oil. And Upstart knows it. It is aware that the machine learning is something which can be replicated, but by pivoting to a SaaS model it is ensuring that it is able to extract data from multiple players versus being concentrated on its own in-house originations. This ensures that it will be the first to cross that Rubicon of critical mass when machine learning will become de rigueur for financing and Upstart will be the tallest if not the last man standing.

Company history

Upstart was founded in 2012 and initially started out as somewhat of a Kickstarter for human potential. It basically leveraged data around person’s educational background and other factors to help sell the person a predetermined percentage of their future cash flow for an initial lump sum payment. So using Upstart, X from Harvard Business School can sell 5% of his monthly income for 10 years for $100,000 today. Though the idea had a unique appeal, the company soon pivoted to the marketplace lending model.

Upstart offers innovative refinancing and lending solutions that help the borrower to consolidate their debts (student loans and credit card loans). Loans offered by the company are unsecured and terms available are between three to five years. Ever since its inception, the company has made rapid strides in terms of growth and it has done $640 million in loan origination and successfully originated over 50,000 loan applications. Its USP of offering lower APR is based on its ability to account for a person’s educational background and other qualitative factors to analyze their possibility of default and overall credit worthiness.

Funding to date

Initially, it raised $1.75 million seed capital from six investors and has managed to raise almost $85.0 million in various rounds of funding till date. The latest was a $32.5 million raised from four investors with Rakuten being the lead. With this cash injection, the company now sits on $40 million cash and is looking to achieve a cash flow positive status by the second half of the year. The company’s goal is not to become the biggest originator but a SaaS innovator focused on AI and machine learning.

Team

Dave Girouard, Founder and CEO, has wealth of experience in information technology, his impressive CV includes positions at Google & Apple. Prior to this, he was working at Google as the President of Google Enterprise. Paul Gu, Co-Founder and Head of Product, previously worked in risk analysis at the D.E Shaw Group. Anna M. Counselman, Co-Founder and Head of Operations, was previously Head of Premium Services and Customer Programs at Google. The magnitude of the success and growth of the company can be measured by the fact that in a short span of time it has a team of over 200 employees.

Authors:

Written by Heena Dhir. Edited by George Popescu.

George Popescu

Do Delinquency Trends and Data Say We Should Worry?

comparing borrower-level delinquency rates

We have asked if auto lending is headed down the same path as mortgage lending in a previous analysis. That spurred a talk with Jason Laky, senior vice president and business leader for consumer lending and auto finance at TransUnion, about delinquency trends. “We expect a modest increase in delinquency for auto and unsecured loans,” Laky […]

comparing borrower-level delinquency rates

We have asked if auto lending is headed down the same path as mortgage lending in a previous analysis. That spurred a talk with Jason Laky, senior vice president and business leader for consumer lending and auto finance at TransUnion, about delinquency trends.

“We expect a modest increase in delinquency for auto and unsecured loans,” Laky said, “We expect mortgage to continue to decrease in delinquency because it is still working off the recession bubble.”

Laky also said a couple of drivers are related to this: the emergence of FinTech, and the reintroduction of the unsecured personal loan for the prime consumer. In recession, a lot of consumers chose not to take personal loans, and it was concentrated in sub-prime and non-prime.

2013-15 saw a fast growth of FinTechs and reintroduced the unsecured products to prime borrowers, particularly younger millennials with online savvy. This created a new channel and level of interest, spurring a large growth in the volume of loans. There was a shift from sub-prime to prime and overall delinquencies therefore came down from 2009.

Prime consumers take larger loans than sub-prime, so this shifts the overall average indebtedness and the personal loan debt continues to grow for borrowers who have these loans. “There’s no view in the APR of loans like these since it is not reported, and fees are included in the loan balance. So you can’t back into it using loan parameters like an auto loan,” Laky said.

When asked why the trend has turned around, Laky said there are very small basis points increases in delinquencies. Because of the maturity of the industry, it was driven in Q2 from pull-back from investors. FinTech lenders focused on profitability, so older ones mature, and they are showing up. It’s pretty modest and is almost within expectation and margin of error.

The default rates look back to Q4 2009, the tail end of the recession, and it was at 4.98 percent coming out of the recession. So there is quite a lot of space still, in Laky’s view. “The longer we get into the credit cycle, the more important it is to look at consumer overall indebtedness,” he said, “Early on in the cycle, lenders are not participating as fully so you can make great individual products. The longer you get in the cycle, the more likely consumers are getting mortgages, auto loans, personal loans, etc. It’s important to keep an eye on the indebtedness of the consumer. We don’t do full consumer indebtedness, but for each category, the average debt per borrower has been increasing since before 2012. It adds up, and it is worth keeping an eye on as a lender.”

When asked if we can predict the next credit cycle using indebtedness, Lasky said, “It’s hard to predict the credit cycle, and particularly challenging now because the economy is doing well. If you look at macro factors, GDP is growing okay, 2-3 percent for the next year. Employment is doing well with 100,000 to 200,ooo new jobs. Wages have seen two percent growth. For the consumer, things are okay. It’s hard to see a credit cycle taking a major turn where consumers’ economic health is good. What we may see is a category by category reassessment of lenders about which segments they want to play in in a rising interest rate environment.”

When TransUnion built their model, a 50 bps increase was projected. If the interest rate increases more, that’s a sign the economy is doing better than expected. So an interest rate increase is not a bad thing, but it slightly affects funding costs for every lender in unique ways. When a rate increase affects the cost of funds, then pricing models need to be examined so competitive segments can be prioritized. Some lenders may drop some products as a result.

There has been renewed interest by bank and credit unions in unsecured personal loans because FinTechs have been successful. Banks have a huge advantage because funding can be from deposits. With the entrance of banks and a possible increase in the interest rate, FinTechs and traditional finance companies will have to think hard about what to participate in and how to get compensated for the risk.

According to Jason Laky, FinTechs have been really good at embracing data and analytics to think about how and where to lend. That will pay off in terms of having staying power as the credit cycle matures. Should we worry based on delinquency trends and data? It depends on how well we analyze what’s happening, he said.

Graphs in this article can also be viewed on TransUnion’s website.

Author:

Nicki Jacoby.