Thursday April 13 2017, Daily News Digest

small business fintech lenders

News Comments Today’s main news: Small businesses hate fintech lenders more than big banks. All is not well in the world of student loans. UK equity crowdfunding investments set new record in March 2017. Lending Works registers 8.8M GBP in ISA since launch. Today’s main analysis:  VC funding report. Small biz lending approval rates. Today’s thought-provoking articles: Portfolio review – […]

small business fintech lenders

News Comments

United States

  • All is not well in the world of student loans. GP: “There are many parallels between credit crisis in general: investors wrong feel of safety is, I think, the main one. And in this case student debt can only be releaved in bankruptcy in very exceptional cases, in short, nearly never. So investors feel that student debt is safe. The same way as mortgages perhaps? I think we are far away from a crisis or bubble. However student debt is growing and questions have to be asked of where this is going and why. Brian from BlueElephant told me one day that any market that is being skewed by government intervention from its normal equilibrium should be avoided as the price doesn’t reflect the risk. Is the government skewing the student debt market? Certainly. I have no issue with the risk in the student debt market, I am worried about the price pressure from non-profit participants. ”  AT: “Lenders need to get better at judging risk and cutting down on defaults.”
  • Small biz lending approval rates. GP: “We now see for a few quarters an improvement in small bank’s approval rate for small business loans.”AT: “Small banks and institutional investors are doing better at approving loans than big banks and alt lenders. I wonder what this means. Could be a trust issue.”
  • Small businesses hate fintech lenders more than big banks. GP:”As a small business you have a choice to borrow money below 10% from a bank, a product you will not qualify for, or to borrow moey from MCAs and fintech at rates often above 20%, a product you will nearly always qualify for. Who do you have more? The people who have a great product they don’t want to sell to you or the ones who have an expensive product you have no choice but to buy? To me this is a huge issue for the SME fintech lending sector. This means that as soon as credit from any other institution is anywhere close to being competitive the small businesses will not use a fintech offering. The second question is why are fintechs ranked so low? My personal believe is that it’s due to the onerous terms fintech usually charge small businesses especially in comparison to banks.  “AT: “This is interesting. Significant is the fact that this data comes from successful applicants, not non-borrowers. Driving this data could be the varied nature of borrower profiles. Small banks are likely lending to prime borrowers whereas online lenders are heavily weighted toward sub-prime borrower who likely expect to be treated like prime borrowers and can’t get a loan from a bank. This requires further investigation.”
  • VC funding report Q1 2017. GP:”Unaccredited investors had no scalable legal way to invest in private stocks before. The money inventory for unaccredited investors is fixed or at best stable given the wage stagnation, and the small inflation. And I think crowdfunding also includes more entertainment thant the stock market with the benefit of often also receiving a product. “AT: “I think it’s interesting that fewer people in the U.S. are investing in stocks? Does that mean they are investing in crowdfunding asset classes?”
  • Elevate Credit not trading at elevated price. GP:” I would compare them to Yirendai more. “AT: “The comparison to Square is interesting.”
  • Should fintech startups buy banks? GP:”If you want a bank, there is rent, buy or build. These approaches are standard business questions. The real question is should you work with a bank or not. Why not an insurance company? Why not with another deposit taking structure that is not a bank? ”  AT: “I don’t see why not. The most likely targets would be community banks, if they can get there before the big banks swallow them up.”
  • Diversification 101 in MPL. AT: “Basic investing advice.”
  • Podcast: Economic analysis of real estate, Part 2.
  • Redfin vets raise pre-seed round, launch digital mortgage platform.
  • Opus releases new version of OpusNotes.

United Kingdom

European Union

International

Asia

News Summary

United States

All is Not Well in the World of Student Loans (Lend Academy), Rated: AAA

It is clear that burdensome student debt is now holding many people back financially. Student loan debt now stands at a staggering $1.3 trillion (as of the end of 2016) an increase of 170 percent over the preceding 10 years. There are three contributing factors to this increase:

  1. More students are taking out loans.
  2. The loans are for larger amounts.
  3. Borrower repayments have slowed down.

Borrowers are now leaving school with over $30,000 in student loan debt and they are defaulting more. This is particularly true of those borrowers with balances of $100,000 or more. Over 20% of borrowers who left school in 2010 or 2011 owing that amount have already defaulted on this debt (a default means they are at least 270 days past due). That is an astonishingly bad default rate.

Small Biz Lending Approval Rates Improve at Institutional Investors and Small Banks, Stall at Big Banks in March 2017 (Biz2Credit), Rated: AAA

Loan approval rates at institutional investors and small banks improved in March 2017, according to the latest Biz2Credit Small Business Lending IndexTM, the monthly analysis of more than 1,000 small business loan applications on Biz2Credit.com. Big banks’ ($10 billion-plus in assets) loan approval were stagnant in the last month, but remained at an all-time Index high. Meanwhile, loan approval rates at credit unions and alternative lenders continues to falter.

Small businesses hate fintech lenders more than big banks (Financial Times), Rated: AAA

On Tuesday, the Federal Reserve Bank of New York released its 2016 small business credit survey, which gives us an idea of the experiences of over 10,000 firms across the US. As Matt highlighted yesterday, one of the things we learn from the research is that small business expectations doesn’t tell us much about the economy. But we also get some information on how small business owners view various sources of credit. The results for fintech startups, specifically online lenders, are not as great as you might expect:

So, the hype about streamlining processes and building better customer experiences is not all hype, though they do just slightly worse in terms of transparency.

But there is something going on with the cost of credit provided by online lenders, and the terms they demand. The survey defines ‘online lenders’ as “nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital”, so there are potentially two things going on here.

One is that online lenders typically have a higher cost of capital than banks, and so they also charge higher interest rates, which is what drives the dissatisfaction. The second is that online lenders are targeting riskier businesses, who wouldn’t be able to borrow from a bank. That would suggest the higher level of dissatisfaction about repayment terms and interest rates arises from the fact they are lending to businesses that generally encounter high borrowing costs, no matter who they are borrowing from.

Venture Capital Funding Report Q1 2017 (CB Insights), Rated: AAA

US VC-backed companies saw $13.9B in total financing across 1,104 deals in Q1’17, up 15% and 2% from Q4’16, respectively.

While Asia saw an increase in unicorn births from Q4’16, North America remained flat with a total of 3 new unicorns. Notably, Europe has not seen a new VC-backed unicorn since the first quarter of 2016.

Source: Gallup

Elevate Credit: Not Trading At An Elevated Price (Seeking Alpha), Rated: A

The fintech has funded more than $4 billion in loans for 1.6 million customers by using machine learning to lower fraud scores while providing quick lending decisions based on data inputs for a high-risk borrowing group.

Revenues grew 34% to $580 million last year while operating income expanded to $48 million, up from $9 million in 2015. The fintech is still losing money; that typically is a large negative in the recent IPO market, though other offerings have rallied despite large losses.

In total, Elevate sold 14.26 million shares at $6.50 including the over allotment amount. The company raised about $81 million after fees.

The company has a fully diluted market cap of only $350 million using a share count of 41 million and nearly 4 million of outstanding stock options.

The reality is that Square had a very subdued IPO similar to Elevate Credit. The initial price range target was $11 to $13 while the actual offer price dipped to only $9, though Square jumped back to that original price range trading around $12 for most of the first month as a public company.

Should fintech startups buy banks? (Tearsheet), Rated: A

Banks buying startups isn’t anything new. But for financial tech startups, looking for scale at any cost, perhaps the solution would actually be to buy a bank, according to a growing number of observers and experts in the industry.

There are almost 6,000 FDIC-insured banking institutions in the U.S. as of the end of 2016 and 1,541 of them have less than $100 million in assets, including a sliver of failing banks that need saving. With average common equity around $12.5 million for a healthy bank of that size, a well-established startup could pay $25 million and get fully licensed to be deposit taking.

Part of the reason startups haven’t been able to scale, at least in the retail banking world, is that so-called innovations are usually just different ways for people to interface with their banks, while core banking transactions – deposits, loans, mortgages and payments – generally remain the same on the backend. In other words, there hasn’t truly been an Uber for banking, said Pascal Bouvier, a venture partner at Santander Innoventures. Most fintech startups operate at the thin outer layer of banking.

The valuation gap between fintech startups and banks makes it difficult to structure a deal, he said. Banks tend to be valued more through historical earnings and the price of tangible book value, whereas fintech startups, because of their perceived high growth potential, often tend to have higher earnings multiples.

Diversification 101 in Marketplace Lending (LendingClub), Rated: A

While loans are issued in amounts between $1,000 and $40,000, Notes can be purchased for as little as $25.

If you invested $2,500 in only one borrower and that borrower becomes late and the loan eventually charges off, you could potentially lose 100% of your total investment amount. If you invested $25 in 100 different borrowers your potential loss on any single Note would be limited to 1% of your total investment amount.

 

Episode 6 – Economic Analysis of Real Estate, Part 2 (RealCrowd), Rated: A

In this episode listeners will learn about:
– How rising household income impacts multifamily investments
– How property tax factors into decision making
– Where to access data on real estate markets
– What asset class RealSource is pursuing in this current economic climate 

Redfin Veterans Raise Pre-Seed Round and Launch Digital Mortgage Platform “Approved” (Yahoo! Finance), Rated: A

Approved launched its digital mortgage platform today, aimed at radically simplifying the home loan experience for lenders and borrowers nationwide. The company raised $1 Million in pre-seed funding led by Social Capital and Precursor Ventures to support the launch.

Lenders in the pilot saw an average 50% reduction in the time it took to get those documents.

Approved technology includes:

  • DocCast™: Automatically collect original bank statements, W2s, 1099s, 1040s and paystubs.
  • DocVision™ Camera Scanning: Allows borrowers to securely “scan” documents using their mobile devices.
  • White-labeled Dashboards: A delightful and frictionless platform for borrower and lender collaboration.
  • Digital Document Library: Support for all popular loan programs.

Opus releases new version of OpusNotes (Hedgeweek), Rated: B

Opus Fund Services, a provider of hedge fund administration services, has launched new release of the OpusNotes loan accounting platform for marketplace lending vehicles.

United Kingdom

Latest OFF3R Index Data Reveals Significant Increase in Equity Crowdfunding Investments in March 2017 (PR Web), Rated: AAA

This record breaking figure smashed the previous monthly high, set back in July 2015, by over £13 Million. This made March 2017 the most successful month for the total amount raised via equity crowdfunding platforms in the young life of the asset class in the UK.

According to the data from OFF3R, equity crowdfunding had a very strong finish to 2016 but had so far had a slow start to the year.

The data revealed that March 2017 was a strong month for the sector. Just over £300 Million was lent in March via the platforms that form the P2P element of the OFF3R Index, including Zopa, Ratesetter and Funding Circle. This was marginally higher than February’s data but slightly down from January’s year to date high.

Lending Works Announcement: £8.8 Million Has Been Invested In ISA Account Since February 2017 Launch (Crowdfund Insider), Rated: AAA

UK-based peer-to-peer lending platform Lending Works announced on Wednesday £8.8 million has been invested into the company’s Individual Savings Account (ISA) since its launch on February 8th.

Lending Works reported given that there are no limits on transfers of ISA funds accumulated in previous financial years, the largest individual investment to date within a Lending Works ISA stands at £154,190, while the average amount invested among the 815 ISA investors currently stands at £10,769.

Fintech founder: I would not set up in London today (Financial News), Rated: A

The founder of one of London’s best-known fintech startups has said that he would not choose London as a location to set up his business today, as he has “no idea what Brexit will mean”.

Taavet Hinrikus, the chief executive and co-founder of online FX service TransferWise, urged the UK government to quickly secure access to talent and trade with Europe in a post-Brexit world.

Funding Circle’s Desai: use P2P for monetary stimulus (P2P Finance News), Rated: A

UK POLICYMAKERS should start using peer-to-peer platforms to stimulate the economy, Funding Circle’s chief executive and co-founder Samir Desai said on Wednesday.

The head of the country’s third-largest business lender called on the government and the Bank of England to bypass the banking system and inject monetary stimulus via P2P platforms, capitalising on the direct access they provide to the real economy.

Boost Capital Secures New £15m Credit Line (Boost Capital Email), Rated: A

No end to Boost Capital’s growth spurt as the business funding specialist secures new £15m credit line to meet small business loan demand.

An extra £15m will now be available to UK small businesses, after alternative business lender Boost Capital secured a new credit line from American Investment Firm Atalaya Capital Management.

Ex-Aldermore director joins SME lending platform (Bridging and Commercial), Rated: B

SME lending platform Growth Street has announced the appointment of a new commercial director and general counsel.

Chris Weller will serve as commercial director, having formerly held the role at Aldermore Bank from 2013-14 before becoming sales director for invoice finance until 2015.

Meanwhile, general counsel April Nardulli joins from P2P platform RateSetter, having served as senior regulatory counsel, regulatory lawyer and interim compliance manager since her appointment in 2015.

European Union

Finbee Experiences – My Portfolio Review (P2P-Banking), Rated: AAA

A year has passed since I last wrote about the portfolio I built on Finbee. Currently I have invested 1,027 Euro in 35 loans. 32 are current (965 Euro), 2 are late (23 Euro) and one is in default (38 Euro), but rates for this loan are paid to me by Finbee’s compensation fund. The average interest rate of my loan parts is 31%.

My self calculated yield (XIRR) is 31.5%. This is the highest I achieved on any p2p lending marketplace over a longer duration of time. Calculating the result again, this time with assuming a full write-off of the defaulted loan gives a yield of 29.4%.

Why banks are reluctant to enter the roller coaster of FinTech (JAXenter), Rated: AAA

Blockchain, NFC, Peer to peer lending are just a few of the options traditional banking could have fully adopted. This would have had a tremendous impact on the way we exchange transactions, do business and live our lives. However, I cannot name a big bank that has jumped on the bandwagon and delivered a fully-fledged product in this area. Just the opposite — the stories I hear are, for example, about two of the top executives of BNP Paribas in Bulgaria leaving the company to start their own Peer to peer lending platform called Klear. Why didn’t they initiate this project inside the organization?

I think there are two factors causing this:

  • Internal factor: Company culture in the traditional banking
  • External factor: The public image of banks is all about security, while innovation relates to risk.

Usually, new banking products need a lot of IT involvement — for each new type of deposit/loan you need someone to implement tens of forms and wizards.

How to enable innovation in banking

We have a good example of consortium of banks coming up with a radical move to start a joint blockchain project. This way none of the big players risks their own reputation.

Another way to announce innovative projects is by strongly focusing on the physical design and digital UX of the innovation because, believe it or not, the mass client judges how reliable something is by the external look of it.

Former HSBC banker Lake joins fintech revolution (Financial News), Rated: B

Spencer Lake, a former HSBC banker who led the group’s global capital financing business, has joined a fintech firm that boasts the UK bank as one of its main clients.

Lake has been named vice-chairman of Fenergo, a Dublin-based firm that makes what it calls client lifecycle management software, according to a statement from the company on April 12.

International

How fintech startups are helping SMEs choose who they do business with (Daily Fintech), Rated: A

According to Xero, 38 percent of small business owners indicate late payments cause them to delay payments to their suppliers, while 15 percent claim this often sees them delaying wage payments to staff, along with other benefits.

62 percent of businesses would not survive more than three months if all invoices went unpaid, while nearly 25 percent wouldn’t last a month.

Xero’s Live Contacts, a partnership with the local arm of credit bureau Equifax (formerly Veda) is one such data driven solution. As part of a paid-up Xero subscription, businesses can now see a credit risk indicator against a contact in their database, helping them to better assess whether to do business or not, or even risk adjust payment terms.

At the other end of the data spectrum, CreditMonk in India allows businesses to add a review of a creditor’s payment behaviour via its platform.

Asia

SINGAPORE-based Marvelstone Capital, which is a data-driven asset management company, is planning to launch its robo advisor platform for family offices in Asia in the third quarter of this year.

According to Cho, the robo advisor platform is being developed with Singaporean fintech startup Smartfolios, which is focused on building next-generation advisory and thematic investment technologies. The robo advisor will be available on desktop and mobile for Marvelstone Capital’s clients.

To give an idea of the market size of family offices in Asia, Cho cites a report that says that overall, the billionaires in the Asian market have about US$400 billion of assets at their disposal, which equates to an average of about US$3.6 billion per individual, which in turn makes all of them potential clients of family office solutions or even owners of single family offices. (Source:

Cho explains that family offices with below US$1 billion assets under management are the underserved family offices.

He adds that second priority countries will be Korea, China, Taiwan and Japan and that the third priority will be emerging markets such as Myanmar and Vietnam.

30 Under 30 Asia 2017: The Top Young Venture Capitalists And Fintech Entrepreneurs (Forbes), Rated: AAA

Val Yap founded PolicyPal — a Singapore-based smartphone app that helps users never miss a premium by tracking all their insurance on one dashboard.

MoolahSense Adds Invoice Financing to List of Services (Crowdfund Insider), Rated: A

Singapore-based MoolahSense, a marketplace lending platform, has added invoice financing as a new product line. The new service will allow SMEs to access financing to address short-term capital needs of up to $15,000. For investors, a nominal interest rate of up to 12% may be earned. An invoice backed loan would mature in 15 to 90 days’ time and investors would be able to receive returns in a relatively shorter period of time.

Authors:

George Popescu
Allen Taylor

Monday March 27 2017, Daily News Digest

marlette funding

News Comments Today’s main news: CFPB fines Experian $3M. Marlette Funding closes $333M securitization. EU considers passporting for fintechs. CreditMonk makes user reviews relevant for SMBs. Today’s main analysis: Recent securitizations. MFT 2017-1. Today’s thought-provoking articles: RateSetter provides update on wholesale lending. China the new leader in fintech worldwide. IT Consortium CEO calls for reg postponement on fintech. United States CFPB […]

marlette funding

News Comments

United States

United Kingdom

European Union

China

India

Asia

Africa

News Summary

United States

CFPB fines Experian $ 3 million for lying about consumers’ credit scores (Housingwire), Rated: AAA

Experian, one of the nation’s three major credit reporting bureaus, misled consumers by telling them that the credit scores they purchased from the company were the same ones that lenders used to make credit decisions, the Consumer Financial Protection Bureau said Thursday.

And for that deception, the CFPB is fining Experian $3 million.

According to the CFPB, Experian developed its own proprietary credit scoring model, which it calls the “PLUS Score.” Experian then took that “PLUS Score” and applied it to information in consumer credit files to generate a credit score it offered directly to consumers.

Experian then marketed and sold the PLUS Score to consumers.

According to the CFPB, Experian violated Dodd-Frank from at least 2012 through 2014 by “falsely representing that the credit scores it marketed and provided to consumers were the same scores lenders use to make credit decisions.”

Additionally, the CFPB said that Experian also violated the Fair Credit Reporting Act, which requires a credit reporting company to provide a free credit report to consumers once every twelve months.

Until March 2014, consumers getting their annual report through Experian had to view Experian advertisements before they got to the report. This violates the Fair Credit Reporting Act prohibition of such advertising tactics, the CFPB said.

Marlette Funding Closes $ 333 Million Securitization Transaction (Yahoo! Finance), Rated: AAA

Marlette Funding, LLC, a provider of online consumer lending platforms and services, announced today it closed its second proprietary “MFT” securitization. Approximately $333 million of Best Egg collateral was financed via three classes of Notes and one class of Certificates with certain loan sellers retaining risk on a portion of the Notes and/or Certificates.

The transaction was significantly oversubscribed and successfully priced which was based upon Marlette’s differentiated product offering and superior credit trends. Underwriting the transaction were Goldman Sachs, who served as the structuring agent, Deutsche Bank and Citi. The Class A, B and C fixed-rate Notes were rated A (sf), BBB (sf) and BB (sf), respectively, by Kroll Bond Rating Agency (KBRA).

The “MFT” securitization is yet another significant milestone for the company, and a cornerstone of its long-term capital strategy. The transaction involved the sale of loans by Marlette and four other whole loan buyers who accessed the securitization markets via Marlette’s effective creation and management of the MFT shelf. The transaction was also notable for complying with the Dodd-Frank Act’s risk-retention requirement by utilizing a jointly sponsored entity comprised of Marlette and the originating bank, Cross River Bank.

Recent Securitizations (Orchard Platform), Rated: AAA

Data extracted from Finsight’s US ABS Market Overview.

Marlette Funding Trust 2017-1 (MFT 2017-1), (PeerIQ), Rated: AAA

Financing headlines dominated the news cycle this past week. OnDeck, an SME lender, amended its asset-backed revolving credit facility with Deutsche Bank to extend the facility’s maturity date to March 2019 and increase the borrowing capacity to $214 Mn. Further, Fundation, a leading credit solutions provider for small business, secured an asset backed credit facility from MidCap Financial.

Marlette has a strong capital market team led by ex-DB banker Karan Mehta and uses securitization as a funding channel. Citi Held for Asset Issuance 2016-MF1 (CHAI 2016-MF1), closed on March 4, 2016, was the first deal from the Marlette Platform which executed in challenging market conditions; Marlette Funding Trust 2016-1 (MFT 2016-1), closed on August 2, 2016, and was the second deal and first under the MFT shelf. MFT 2017-1, backed by $333 Mn of consumer loans, represents its third and the largest ABS transaction (Exhibit 1), led by Goldman Sachs, Deutsche Bank and Citigroup. Due to high demand, MFT 2017-1 was upsized by 18%, from $257 Mn to $304 Mn before pricing last Friday.

In a sign that regulatory uncertainty continues, the Marlette transaction did not include any loans from Colorado. Most recently, in February, Colorado state regulators filed a complaint against Marlette and demanded various remedial actions including refunding any excess charges to Colorado residents. Originators relying on the partner-funding bank model to impacted markets (such as NY, CT, VT) are structuring transactions to mitigate regulatory risk. 

Source: PeerIQ, Bloomberg, Kroll Rating

Besides credit supports, senior tranche investors have additional structural protection in the form of cumulative net loss rate triggers, which lead to accelerated repayment of principal in the event of worse-than expected collateral performance.

Such CNL trigger profiles represent the first order approximation of loss timing curve. If the CNL triggers are set too tight, the triggers have elevated risk of being breached, leading to reputational hazard to the issuer; if too wide, the original bond rating may be challenged and the senior bond holders may not receive the structural protection they expected.

 

Honeymoon’s Over for Peer-to-Peer Lending (Bloomberg), Rated: A

If they were, perhaps Promise Financial would still be making loans to finance wedding dresses and cakes and bad DJ’s. This relatively young firm was offering to make unsecured loans of around $10,000, typically for weddings, and charged interest rates that went up to nearly 30 percent.

But it stopped making loans at the end of January, according to a Bloomberg News article on Friday by Matt Scully. Instead, it’s changed its name to DigiFi and will provide technology to bigger banks.

And second, it makes more sense for many smaller online lenders to team up with larger financial operations rather than try to go it alone in an unforgiving and complex world.

This is yet another sign of the slow abandonment of the original vision of peer-to-peer lending in the U.S., where individuals lend to one another in a decentralized, Internet-based platform. The largest online lending firms, such as LendingClub and Prosper Marketplace, finance loans through securitizations, money from institutional investors and banking relationships. Promise, for example, raised around $100 million of funding agreements from investors including Greg Lippmann, a legendary mortgage-debt trader.

Does Marketplace Lending Offer Greater Transparency for Your Investment? (NREI Online), Rated: A

Companies that do the bulk of their business online are in many ways more accessible than traditional brick-and-mortar establishments, and that’s particularly true when it comes to marketplace lending.

Marketplace lending, also known as peer-to-peer lending, refers to the practice of matching borrowers and investors through online platforms. These transactions can be based on a number of consumer- or industry-driven needs—anything from student loans to commercial real estate deals. Taking advantage of advanced technology, data-driven algorithms and innovative credit models, these platforms may frequently better serve their client base. They have broad options in terms of asset class and geography, quick response times and lower overhead costs, which can translate to an overall better value for both borrower and investor.

Digital technologies provide greater transparency and actionable intelligence to the marketplace, allowing investors to better understand loan performance and, in many cases, to research potential loan transactions directly and thoroughly from the convenience of their desktop or mobile device.

Digital technologies also allow for better consistency of reporting standards, loan origination data and portfolio performance, which leads to better decision-making by investors.

These digital technologies enhance the speed and efficiency of a transaction, many times providing real-time data afforded by the ability to better monitor information associated with a particular deal.

Alt-Lending Reshuffles, Auto Loan Alarm Bells And HHGregg Goes Bust (PYMNTS.com), Rated: A

Alt lending, particularly marketplace lending, looks like it is about to become a much smaller neighborhood. The auto-lending market continues to kill canaries in those coal mines at an alarming rate. And the retail death cycle mows on with HHGregg officially declaring bankruptcy and Sears more or less admitting to its shareholders that the same fate may soon befall them.

All in all, Prosper lost $118.7 million last year, up from $26 million in 2015. According to the in-house explanation, those losses are primarily derived from lower loan volumes, higher costs that are also attributed to legal settlements and restructuring efforts.

And Prosper isn’t alone in losing money in marketplace lending — OnDeck reported $85.5 million in annual losses for 2016, and LendingClub is looking at $146 million.

The latest data out of Ally Financial indicates that growth in the auto lending segment will come in between 5 percent and 15 percent of adjusted earnings in 2017.

The National Automobile Dealers Association indicates that its used-car price index has dropped 8 percent from a year ago and now sits at its lowest level in seven years.

Back on March 6, HHGregg filed for Chapter 11 bankruptcy, and, without a buyer in line, it has no choice but to move forward with the filing.

Competing with fintech on business loans isn’t rocket science (American Banker), Rated: A

If you’re a business, applying for a loan from a bank is not a fun experience. For most borrowers, it’s as bad today as it was 20 years ago. Banks in 1997 required borrowers to meet in person with a banker. They asked for piles of paper documents like tax returns and articles of incorporation. They took their time getting back to the business with an answer. And all of that’s true in 2017.

One reason is that fintechs are figuring out ways to win on their own or with large partner banks. These firms give business borrowers a world-class user experience: Websites are beautiful, minimal data is required to start and a loan request can be answered immediately. Fintechs will continue to get better and better, and borrowers will end up pursuing the path where it is easier to borrow. After all, business owners are consumed on a daily basis with simply running their business; in many cases, they’d rather pay a higher interest rate than spend scarce time on a lengthy process with an unsure outcome.

The other reason banks need to respond now is that business lending innovation is within reach. Here are a few obvious opportunities.

  • Put your application online
  • Allow your borrowers to upload required documents
  • Eliminate the paper
  • Publish your criteria and your process
  • Create a fast lane
  • Communicate with your borrowers

BlackRock and Vanguard call for delay to fiduciary rule (Financial Times), Rated: A

BlackRock and Vanguard have called on US officials to delay the introduction of landmark rules set to govern America’s $16tn retirement industry just weeks after President Donald Trump ordered a review of the controversial measures.

Mr Trump ordered the DoL to revise or scrap the rule, which the Obama administration predicted would generate $17bn annually in cost savings for American workers and retirees, if it found the measures would limit savers’ access to financial advice or increase litigation against advisers.

The new regime is expected to lead to a rise in financial advisers recommending cheaper passive funds over expensive actively managed products that pay a commission. BlackRock and Vanguard, which have large passive fund ranges, were expected to be among the winners of the measures.

Fifth Third invests in 5-year network upgrade as part of $ 112M contract (American Banker), Rated: A

Fifth Third Bancorp has made a major investment in its electronic network as part of an effort to modernize its branches and partner with fintech firms.

The Cincinnati company discussed the five-year project to upgrade its network Thursday at American Banker’s Retail Banking 2017 conference in Miami. Part of a $112 million renewal of a preexisting contract, the upgrades will allow customer videoconferencing with remote experts, Wi-Fi inside branches, distance learning and real-time data feeds to fintech partners.

Fifth Third has already begun piloting self-service video kiosks in its branches. People tend to be intimidated at first, but once they use a video teller they become comfortable, said Jerry Frederick, chief infrastructure officer at Fifth Third. Wi-Fi in the branches is allowing staffers to help customers using computer tablets.

Important Fintech Terms to Help You Understand the Fintech Industry (TechBullion), Rated: A

According to a report by PwC, the cumulative investments in the fintech sector will exceed $150 billion by 2019. The report also notes that 20 percent of financial services businesses will be taken over by fintech startups by 2020. Here are 10 important terms to help you understand the industry.

Payment Gateway refers to a service provider authorizing credit card payments. It acts as an intermediary between an online payment portal and a financial institution such as a bank.

Coined by the UK Financial Conduct Authority (FCA), RegTech is a combination of two terms; regulation and technology. It refers to the systemic changes taking place in the fintech industry where traditional regulation would not be effective. RegTech makes use of blockchain, big data, cloud technology and artificial intelligence making it a fast and effective method.

KYC is the acronym for “Know Your Customer.” The phrase is widely used in the fintech and financial services sector as a whole. It refers to the procedures that companies should use in identifying their customers and determining the legality of their transactions. The object of KYC procedures is to combat money laundering.

P2P Lending is the short form for peer-to-peer lending. P2P lending refers to a modern development where one can obtain a loan from another individual without involving a financial institution acting as an intermediary. It is a way of obtaining social loans.

What do you want to ask SoFi CEO Mike Cagney at Disrupt NY? (TechCrunch), Rated: B

Today, however, the company is tackling an even wider range of services, from mortgages to personal loans, to wealth management and life insurance. And thus far, SoFi’s business has been a hit, with total equity financing of $1.9 billion.

I’m going to have Cagney on stage in a fireside chat, and I’ll have plenty of my own questions.

But, in the spirit of social sharing and community that SoFi aims to espouse, I’d like to hear what you want to ask Cagney. You can send me your questions anonymously, or by email: remember to put “SoFi Disrupt” in the subject heading.

House Committee Schedules Hearing on the State of Bank Lending (Crowdfund Insider), Rated: B

The Subcommittee on Financial Institutions, part of the House Financial Services Committee, has scheduled a hearing on the state of bank lending in the US. The hearing will take place at 2PM Tuesday, March 28th. Typically these hearings are live-streamed on the HFSC website.

United Kingdom

RateSetter provides update on wholesale lending (P2P Finance News), Rated: AAA

The peer-to-peer lender stopped taking on new wholesale partners last December, after it emerged that the City watchdog had concerns about the practice within the P2P sector.

RateSetter added more details to its annual performance table earlier this month, introducing new sub-categories that include a breakdown of how much of the funds are channelled to wholesale lending.

Last month, the FCA confirmed its position on wholesale lending and highlighted that if a lending business borrows through a P2P platform and lends that money to others, it may be “accepting deposits”.

If the borrower does so without the correct regulatory permissions, this would involve a breach of the Financial Services and Markets Act (FSMA) and may be a criminal offence.

HOW I GOT STARTED: GRAY STERN OF LANDBAY (BQ), Rated: A

Of course. When I moved to the UK I had a very limited network here. Luckily, I met my co-founder and CEO John Goodall very early on (July 2013). He had just completed his MBA and had been looking at the burgeoning peer-to-peer lending space – so we were both looking at the opportunity from different sides (John as a saver, and me as a property investor). It was a logical step then to launch Landbay as a peer-to-peer funded mortgage lender.

Our equity funding has been split between private individuals and a number of institutional investors, including a hedge fund and the listed company Zoopla Property Group. As a mortgage lender we also have to raise lending capital.

To date, we’ve been funded by retail investors, but over the course of this year we will be complementing this with significant institutional funding. Getting those facilities in place has been a challenge, but we’ve come out the other side with the capacity to rapidly scale our lending operation.

As a mortgage lender we also collect a lot of data, so applying this data to help streamline other processes, say the provision of insurance, tax/accounting, conveyancing, property management – this is the logical next step. A streamlined process saves on time and cost – and my hope is that we can redirect these savings back into the properties themselves, creating better homes for more people.

How An IFISA Can Help You Save Tax (iexpats.com), Rated: A

Many peer to peer lenders offer IFISAs, but if you do not know about them, most do not tell you about the tax saving option.

Any income paid as interest on loans is wrapped in the ISA and remains tax-free. Money paid into an ISA is not taxed and any cash taken out is tax-free as well.

However, lending money online is risky, which is why the return is often between 5% and 7%, compared with the meagre returns from high street banks and building societies.

Expats remaining UK tax resident while on assignment abroad still pick up ISA tax breaks, but non-residents do not.

European Union

In blow to London, EU considers passporting for fintech services (Reuters), Rated: AAA

The European Commission could introduce EU passporting and lower regulatory requirements for financial technology firms, moves that could undercut London’s leading position in “fintech” as Britain gets ready to leave the European Union.

The EU executive’s vice president Valdis Dombrovskis said on Thursday that the Commission is considering how to regulate the expanding sector to encourage its development in Europe, while protecting consumers from risks that may emerge.

He said the Commission was exploring new rules that would give fintech companies passporting rights to expand across borders and operate anywhere within the EU’s single market.

That could threaten London’s status as the European hub for fintech companies, because firms based there are likely to lose their passporting rights when Britain leaves the bloc at the end of a two-year divorce process due to start next week.

RBS mulls mortgage robo advice service, shuts 158 branches (AltFi), Rated: A

The Royal Bank of Scotland is testing its robo advice services for mortgage loans and expects to make a decision on whether to roll it out by the end of the third quarter.

The government-owned bank has already cut hundreds of jobs and replaced them with “robo” like advisors, in an attempt to cut costs.

China

China is new leader in fintech worldwide with 39% of global volume (e27), Rated: AAA

2016 became the first year when the US lost its dominant global leadership in fintech  –  lost to Asia! Only the previous year, Asian fintech was twice smaller than the US, and just last year, it easily surpassed the US, accounting for 47 per cent of the global volume, as you can find in the new issue of Money Of The Future 2016/2017 fintech report.

While China dominates Asian fintech market by amount of funding, India is number one, in terms of the number of fintech deals (Paytm is the leader).

Fintech helps Chinese SMEs get loans (Straits Times), Rated: A

Mr Li Dongrong, President of the National Internet Finance Association of China, said financial technology, called fintech in short, can help solve the “last mile” problems of delivering banking services to those in remote areas. “In this age of mobile finance, we can achieve a breakthrough in this,” he added.

Indeed, in the last three years, JD Finance, the online finance arm of e-commerce giant JD.com, has lent more than 250 billion yuan (S$50.7 billion) to over 100,000 small business, and given credit worth tens of billion yuan to some 4 million farmers, said Mr Chen Shengqiang, chief executive of JD Finance.

China: WeiyangX Fintech Review (Crowdfund Insider), Rated: A

On March 15, the People’s Bank of China issued a report “Development of payment services in rural areas” to summarize and analyze the payment business in China’s rural areas during this past year.

By the end of 2016, the number of users of online banking has witnessed impressive growth in the rural areas, and online banking transactions also grew significantly.

Overall, in the rural areas, online banking maintained stable growth, and mobile banking continued to grow at a rapid speed. While telephone banking transactions fell significantly.

On March 13, Chunghwa Post announced that it would launch a cross-border payment business in April this year with Alipay.

On March 16,Yirendai released its financial results for Q4 of 2016 and full year of 2016. According to the report, the net income was RMB 1.1164 billion (US$160.8 million), achieving a 305% year-on-year growth. However, the subprime loans accounted for around 90% of the total loans, which would be a severe potential risk for the company’s long term development.

India

Fintech Tracker: Can CreditMonk Make User Reviews Relevant To Small Business? (Bloomberg Quint), Rated: AAA

That’s the idea behind financial technology firm CreditMonk – an open-source platform that allows businesses to rate each other based on payment behaviour.

The company is creating a database which clients can access to get an idea of the payment track-record of firms they may be dealing with. This is not unlike the information that credit bureaus like CIBIL provide. The difference is that while CIBIL gets its data on repayments of loans from banks and financial institutions, CreditMonk depends on ratings generated by users.

The process of rating a company on the website is similar to rating a hotel on a website like TripAdvisor. A reviewer first has to sign in to the website and disclose which company they represent. A company that is listed on the website can then be rated on a scale of one to five on the basis of various parameters.

The reviewer can choose to post the review anonymously on the website but since a log-in is mandatory to write a review in the first place, CreditMonk can investigate claims of a false review, if such a situation arises, Doongursee said.

CreditMonk is likely to face a challenge in building credibility while it sets up its database, according to Mahesh Murthy, a venture capitalist, and a co-founder at Seedfund.

Mobetize Expands B2B Data Top-Up Service to India with Smart Charge (Korea IT Times), Rated: AAA

Mobetize Corp. in Vancouver Canada, a provider of  mobile financial services (MFS) technology for the multi-billion dollar business to business (B2B) segment of the Fintech as a Service (FaaS) sector announced the expansion of its B2B Data Top-up/Gifting service to India with smartCharge from the press release of Globe Newswire on March 24.

Mobile data traffic is expected to increase by 800% on a global basis within five years.

During 2016 alone, India experienced significant growth in mobile traffic – up 76% from last year, and by 2021, consumer mobile traffic in India will grow 7.4-fold at a Compound Annual Growth Rate of 49% year over year. Much of this growth will be fueled by pervasive consumer adoption of smartphones, smart devices and the use of machine-to-machine connections with an estimated 1,380 million mobile-connected devices by 2021.

Asia

Lufax plans online platform as part of transformation from P2P to wealth management company (SCMP), Rated: A

Lufax, China’s biggest peer-to-peer (P2P) lender backed by Ping An Insurance, is planning to set up a platform to facilitate global asset allocation for middle income earners in Asia and Chinese investors.

The Singapore-based platform will be launched this year, according to Lufax chief executive Gregory Gibb.

The company will also target middle class Asian investors in countries such as India and Indonesia, who want to invest internationally with smaller amounts down to US$10,000.

The challenge for Lufax is how to communicate with customers using standardised information and tell them of investment risks and opportunities via a mobile phone screen – all in 30 seconds to one minute.

Lufax was valued at US$18.5 billion in a January fundraising and is in talks with four investment banks – JP Morgan, Citigroup, Citic Securities and Morgan Stanley – for a planned initial public offering in Hong Kong.

Africa

IT Consortium CEO calls for regulatory postponement on Fintech (Ghana News Agency), Rated: AAA

Mr Romeo Bugyei, Chief Executive Officer of IT Consortium has appealed to government to allow the Financial Technology (Fintech) industry in Ghana to grow and be fully established in order to foster the growth of financial inclusion.

Mr Bugyei, who runs IT Consortium, a Fintech organisation engaged in payment aggregation and enabling the use of systems for financial services, said Fintechs help to make things cheaper by giving alternative ways of banking using digital or technological solutions.

He explained that because Fintechs were currently not regulated, they were required to partner with banks when doingtransactions that required depositing, which meant that the banks indirectly regulated Fintechs.

He said the central bank, at the meeting held with Fintechs, declared its intention to leave the sector unregulated for the time being, but said it would monitor the sector to know the technologies being used and guide where there were problems.

He stated that the Bank of Ghana was one of three central banks globally, including the central banks of Philippines and Mexico, that had been selected by BFA Global, to participate in a programme funded by the Gates Foundation called ‘Regtech for Regulators Accelerator (R2A)’ designed to help pioneer the next generation digital financial supervision tools and techniques

Authors:

George Popescu
Allen Taylor