Tuesday November 22, 2016 Daily News Digest

sme overdrafts uk

News Comments Today’s main news: Prodigy Finance funding foreign MBA students at U.S. colleges. Today’s main analysis : UK banks shift overdraft lending toward big businesses. Today’s thought-provoking articles: FinTech ideas banks are stealing. Credit rating agency questions rise of lending algorithms. Ways to mitigate P2P lending risk. United States Foreign MBA students get college loans through Prodigy […]

sme overdrafts uk

News Comments

United States

United Kingdom

European Union

Australia

China

India

Asia

International

News Summary

United States

Prodigy Finance Is Putting International Applicants Into Top-Ranked MBA Programs In The US (BusinessBecause), Rated: AAA

After several years working for Deloitte, Abhirath started looking at funding options to study an MBA abroad. But most local banks were unwilling to lend internationally and offered only high-interest loans, riddled with clauses and extra costs.

Instead, Abhirath applied for an international post-graduate loan from community lender, Prodigy Finance.

Prodigy Finance’s borderless, peer-to-peer lending model gives international students access to the loans they need to study abroad.

In September, Abhirath, along with Vyom Vats, was chosen for Prodigy Finance’s inaugural scholarship program. They both received $20,000 in additional funding.

Crowdsourced-Debt Financing is Growing (ValueWalk), Rated: A

The consumer online lending market is experiencing difficulty, with increasing delinquency and default. When questions were raised regarding the lack of due diligence in online loans, they were initially dismissed. What could go wrong? Now two years later the answer is clear as defaults are leading to business closures. Business lending for asset-based revolving lines of credit, however, has taken a different path.

Part of causation for the defaults is due to the race to grow, a trend that has reversed recently. Avant cut its monthly lending target in half while Circlebank Lending stopped making new loans entirely, Bloomberg reported. Shakeups have occurred in the C-Suite.  LendingClub CEO Renaud Laplanche resigned in May amid questions regarding faltering loans and Prosper Marketplace CEO Aaron Vermut recently resigned as it cut 25% of its staff, reported a $35 million second quarter loss and closed its secondary market for loans.

Krista Morgan, CEO of P2Binvestor, an online platform providing business lending for emerging companies businesses seeking revolving lines of credit, has taken a different approach.

The two-year-old company, which just received $7.7 million in a second round of angel financing, conducts due diligence on each loan and has skin in the game, investing alongside other investors.

The online lender currently works only with a small group of accredited investors connected to the firm, but plans to expand to offer the investment to a wider range of accredited investors shortly.  Investors can gain exposure to a large $10 million line of credit by only accepting as little as $1,000 of the risk exposure.

Crowd Valley at Cornell’s Fintech Hackathon in New York City (GrowVC Group), Rated: A

From Friday the 11th to 13th of November, Crowd Valley (a Grow VC Group company) joined professionals from EY, Capital One, Addepar and CoVenture as well as students from institutions such as Cornell, NYU Stern and Columbia for Cornell’s annual Fintech Hackathon held at their Cornell Tech location in New York City. The focus of the event was to promote the innovation of applications and technology for two verticals: Financial Inclusion and Anti Money Laundering (AML).

OnDeck To Present At The J.P. Morgan 2016 Fintech & Specialty Finance Forum (PR Newswire), Rated: B

OnDeck® (NYSE: ONDK), the leader in online lending for small business, announced today that Noah Breslow, Chief Executive Officer, and Howard Katzenberg, Chief Financial Officer, are scheduled to present at the J.P. Morgan 2016 Fintech & Specialty Finance Forum in New York on November 30, 2016 beginning at 12:30 p.m. E.T.

United Kingdom

Conrad Ford argues that UK SMEs are still under pressure as banks shift overdraft lending in favour of large businesses (Asset Finance International), Rated: AAA

SMEs remain under pressure as banks continue to shift overdraft lending away from them in favour of large businesses.

There has been a 37% fall in the value of overdrafts provided to SMEs over the last five years from £19 billion to £12 billion* (see graph), whilst overdrafts given to large businesses have increased by 25% over the same period from £19 billion to £24 billion.

SMEs, especially those within the retail and leisure sectors, can find the lead up to Christmas very challenging if they do not have access to overdrafts. This is because firms increase spending in order to stock up ahead of the crucial Christmas trading period but customers often delay invoice payments until the New Year.

Furthermore, salaries tend to be brought forward so staff can be paid before Christmas and overdrafts are often used to cover this cost.

SMEs face growing pressure and difficult choices as the value of overdrafts available to them continues to fall.

AU10TIX Announces Partnership With Startupbootcamp Fintech Accelerator Program (Crowdfund Insider), Rated: B

AU10TIX, a fully owned subsidiary of ICTS International N.V, announced on Monday it has formed a new partnership with the Startupbootcamp Fintech Accelerator Program as a way to help support fintech startups.

European Union

Weekly industry news roundup – November 21, 2016 (Bondora), Rated: AAA

The Hindu Business Line reported on data released from the Peer-to-Peer Finance Association which shared data indicating that worldwide P2P lending has grown from £2.2 million in 2012 to £4.4 billion in 2015.

For our German readership, Huffington Post released an article which details how P2P platform are the best alternatives for investors looking for higher investment returns and borrowers looking for cheaper credit options than current banking system offers them.

Sweden’s Klarna buys talent from troubled German fintech startup Cookies (Tech.eu), Rated: A

Swedish payment service provider Klarna has agreed to take on the team behind the insolvent Berlin fintech startup Cookies.

While the terms of the acquisition by Klarna were not disclosed, Swedish media reports that the sum is likely low and that it was essentially an “acquihire.”

Australia

Credit rating agency questions the rise of lending algorithms (Australian Financial Review), Rated: AAA

The increased use of algorithms to write consumer loans has been met with scepticism by rating agency experts who doubt the ability of computers to fully assess credit risk.

Speaking at the Australian Securitisation Forum, Moody’s US-based managing director Jim Ahern told the audience algorithms “work until they don’t” when it comes to approving loans.

Algorithms, he said, are only informed by past and recent data and may be unhelpful if there are meaningful changes in the environment.

We need plans for when robots are in driver’s seat (Australian Financial Review), Rated: A

Financial services companies, including technology-oriented fintech start-ups, are emerging to challenge the roles of banks and the large financial institutions. Fintechs are rapidly transforming and disrupting the marketplace by providing digital or “robo-advice” using highly sophisticated algorithms operating on mobile and web-based environments.

However, the rapid pace of ICT development — with A.T. Kearney predicting robo-advisers in the US will manage investment assets worth $2 trillion by 2020 — makes it critical that we plan for a world where technology is in the driver’s seat.

The ASIC position does not go as far as the one adopted by the EU, which provides an explicit “right to explain” and “right to challenge” on decisions made by algorithms. Nor does the ASIC guidance place an explicit onus on the algorithmic provider to explain, in simple terms, the logic behind an algorithmic decision. This might be intentional since algorithms may involve highly complex code and technical considerations well beyond the skill set expected from an average financial services adviser.

China

Mainland Chinese banks lag global rivals in digital investment, says McKinsey (South China Morning Post), Rated: AAA

Mainland Chinese banks are lagging far behind their global rivals in investing in the digital technology needed to compete in a challenging industry landscape with evolving client demand and fierce competition from fintech companies, an industry report said on Monday.

Many mainland banks devote less than 1 to 3 per cent of their income to technology and digitalisation, while leading global banks on average invested 17 to 20 per cent of pre-tax income to embrace the digital era, McKinsey & Company said in a banking report.

Han Feng, an associate partner at McKinsey, said the digital era for China’s banking industry has arrived.

India

P2P lending: the real benefits and ways to mitigate risk (YourStory), Rated: A

A few critical steps, if followed diligently by the P2P platform, can help minimise this risk for lenders. Traditional data like bank statements, salary slips, ITR etc. supported by digital data, online transaction data, and mobile and social data should be carefully evaluated and studied to understand the borrower’s ability, stability, and intention to repay the loan taken.

The CIBIL of the borrower is a must for the platform to be able to evaluate past performance. The identity verification process (physical or through technology) has to be done to eliminate fraudulent applications.

P2P lending platforms should allow lenders to diversify across many loans by factionalising an individual borrower. Diversification is a crucial step lenders must take to mitigate risk. As a lender, you need to check if the platform gives you a diversity of borrowers for investment. It’s always better to spread your  investment across a minimum of 100 loans of different types and risk grades viz. city, risk/returns, loan purpose, gender, caste/community, tenure, loan amount, etc.

Check how strong the risk team is. Who runs the risk department? If required, please speak/write to the CRO. Ideally, the risk team should be of people with a strong track record in risk management and practice. The data science team within the organisation should be responsible and producing analytical work to improve the quality of the decision-making. In India today, not many P2P lending players publish data and statistics about loan purpose, returns, and default ratio on their website. However, serious, long-term players will, because they realise that it’s critical to do so to bring transparency in the system and build lender confidence.

The agreement between the lender and the borrower is “I owe you”  and one can rest assured that the lender has the right to collect what is due to him at any point in the future when say, the country is out of recession or overcomes the impact of a natural disaster. The P2P platform should keep in touch with the borrower and get regular updates on his/her status. Having said that, India’s story looks very positive for the next 10 years.

Asia

Fintech ideas that banks are already stealing (The Middle Ground), Rated: AAA

On the one hand, some forms of Fintech – such as credit card comparison sites and home loan comparison sites – are mostly on the side of the banks. They make most of their money by directing the customers to the banks (more on this below). The banks, of course, tolerate them because they bring in customers.

On the other hand, some forms of Fintech threaten to replace entire segments of the banking business. The P2P lending websites, such as Capital Match and MoolahSense, could well replace banks in the area of small business loans. Most notably, Fintech companies such as Nutmeg have begun to pose a serious threat to the notion of private banking, by replacing the traditional relationship officer or private banker with online wealth management.

Recent developments though, suggest that big banks are taking a third alternative.

And now, Goldman Sachs has become the first bank to launch a P2P lending service. While Fintech lovers often claim that banks lack the innovation and flexibility to match Fintech counterparts, they seem to be forgetting that money is a sort of superpower. The cost of setting up a P2P lending website is peanuts to a bank, and they even have the sheer capital to guarantee loans that go bad.

If a bank launches a P2P site that’s also backed with its own guarantees, it will draw customers from smaller Fintech companies. And unlike those smaller companies, the bank can afford to fail repeatedly.

HSBC is already testing a transaction platform that uses blockchain technology. One of the underlying drivers of cryptocurrencies such as Bitcoin, blockchain is (among other things) a method of verifying transactions.

With blockchain technology, multiple unrelated sources witness the transaction; and it’s not possible for any one party to fabricate it. Think of it as handing money to someone in a dark alley, versus handing money to someone in a well-lit area with 200 witnesses. The latter is fairer and safer.

Fintech sites are filling in many of the problems with traditional banking, but they might be a little overconfident regarding their edge. They might do well to remember second-mover advantage, and that what they’ve build over a decade the banks can pay enough to imitate within the year.

Fintech companies need to pursue that one great quality that banks can’t buy and copy – customer service, and a good relationship with their users. Because if there’s one thing banks – or anyone – can ever own, it’s good service.

Here are the Ten Fintech Firms that Singapore Just Gave S$ 1.15 Million (Crowdfund Insider), Rated: A

As part of the first annual Fintech Festival, Singapore gifted S$1.15 million to ten different Fintech firms.

The 10 awardees are:

Award         Company Name Prize
ABS Global FinTech Award1 BioCatch S$150,000
MAS FinTech Awards (Singapore Open)2 1st place – fastacash Pte Ltd S$250,000
2nd place – M-DAQ Pte Ltd S$100,000
3rd place – Pole Star Space Applications Ltd S$50,000
MAS FinTech Awards (Singapore SME)3 1st place – Tookitaki S$150,000
2nd place – Turnkey Lender Pte Ltd S$100,000
3rd place – Funding Societies Pte Ltd S$50,000
MAS FinTech Awards (Singapore Founder)4 1st place – CashRun S$150,000
2nd place – Aimazing S$100,000
3rd place – FinChat Technology S$50,000
International

Capgemini launches global fintech initiative (Econotimes), Rated: A

Capgemini, a global leader in consulting, technology and outsourcing, announced that it is launching its global fintech initiative in order to fast-track fintech engagements with its global financial services clients.

The fintech initiative by Capgemini, is aimed to extend beyond the traditional incubator concept to encompass connection, curation, incubation, and investment stages. The initiative will elevate the company as an active participant in the process of validating and evolving the core value propositions of participating companies in collaboration with clients. It will also address challenges in integrating external innovation by bridging gaps in adoption including tech integration, data management, process changes, among others.

Authors:

George Popescu
Allen Taylor