Monday February 26 2018, Daily News Digest

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News Comments Today’s main news: Revolut breaks even, prepares for global expansion. RateSetter finances divorces. Which Isas pay 6% or more. Half of all employers offer financial advice. CoAssets increases revenue by 471% in half a year. Today’s main analysis: Do Americans really want a bank branch? Today’s thought-provoking articles: Ron Suber, Godfather of Fintech. Unscrupulous banks fueled the rise […]

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News Summary

United States

How Helping Your Employees Improve Their Credit Helps Your Bottom Line (Forbes), Rated: AAA

One possible cause of an employee’s poor attitude is that he or she has looming debts or is attempting to climb out of a credit score canyon. Workers facing these challenges are often unable to completely focus on their job responsibilities. It’s no surprise that constant stress over meeting financial obligations leads to a loss of focus and time dedicated to work obligations. And because employees work for paychecks that go toward their debts, it makes sense that they begin to associate the two.

Defeating Debt-Fatigue

About 

Giving the middle class credit: New bill a step in right direction (The Hill), Rated: A

Consumers need access to credit, and bank-fintech partnerships are one way to meet their needs. Indeed, bank-fintech partnerships are good for both consumers and banks.

As I noted, consumers benefit because banks can use fintech to deliver safer, more transparent, lower-cost and more convenient financial products and services over the internet and mobile devices.

Banks benefit because fintech companies can leverage big data and technology, offering the infrastructure banks need to serve and welcome more people into the financial system.

An excellent example of community banks using fintech to compete with the Wall Street banks is Radius Bank, a $1-billion asset institution in Boston, which according to news reports is establishing “long-term relationships” with fintech providers, and is finding them to be “mutually beneficial.”

Ron Suber, the Godfather of Fintech (Lend Academy), Rated: AAA

In this podcast you will learn:

  • Ron’s background and how he became interested in marketplace lending.
  • Why he saw a big opportunity for Prosper back in 2012.
  • What was behind Ron’s decision to leave Prosper last year.
  • What rewirement means to Ron and why it is important.
  • How the typical work week looks today for Ron.
  • Highlights of some of the trips he has taken recently.
  • What it was like doing the road show for the Credible IPO in Australia.
  • Details of the meeting Ron recently had with the Australian Treasurer.
  • What Ron is doing at Prosper these days.
  • Knowing what he knows now, what he would have done differently at Prosper.
  • What the marketplace lending industry still needs to improve upon today.
  • What inning the industry is in today.
  • What Ron looks for when he considers a new investment.
  • Why he pulled the trigger on some of his recent investments.
  • Ron’s view on Marcus and its impact on the online lending space.
  • What area of fintech Ron is most excited about today.
  • How he is able to maintain so many connections in fintech.
  • What is next for Ron Suber.

 

Chris Larsen Of Ripple (XRP) @Google (ValueWalk), Rated: A

Fed Minutes (PeerIQ), Rated: A

The Fed released the minutes of the January FOMC meeting and provided a bullish outlook to the economy with upside risks due to tax reform. The committee indicated that they were on track to raise interest rates in the March meeting, and market participants are expecting 3 rate hikes in 2018.

Meritize Raises $ 6.8M in Seed Funding (Finsmes), Rated: A

Meritize, a Frisco, Texas-based student lending platform, raised $6.8M in seed funding.

Colchis Capital, Chicago Ventures and Cube Financial Holdings led the investment round with participation from ECMC, College Loan Corporation, University Ventures, City Light Capital, PC Squared and Meritize management.

LendingPoint Co-founder Weighs in on Lending Club’s Earnings Report (deBanked), Rated: B

“In my view, [Lending Club’s] underlying problem is that they don’t have alignment of interest between their stakeholders,” Tavares said. “At LendingPoint, we have a different approach. We look at it really as a balance sheet model, which means that we put everything on our books. We use our own equity. We leverage other investors’ capital, but we’re not an origination platform…Lending Club’s model primarily is that they have to continue feeding the beast, so to speak, in order to continue making their revenues. They don’t have inventory to continue generating assets or to monetize going forward. That’s a significant shortcoming in their model,” he said.

Bay Area Man’s Opportunity Fund Giving Small Businesses A Leg Up (CBS Local), Rated: A

About 8,000 small business loans are denied every day in this country, according to the U.S. Federal Reserve. It’s a story Alicia Villanueva knows all too well.

So in 1992, Weaver founded Opportunity Fund, launched with a consortium of 15 banks. But although the San Jose-based non-profit works with traditional lenders, its business practices are a bit different. Weaver says Opportunity Fund delves into an applicant’s financial picture and character.  And since it lends to people with bad or non-existent credit, a granted loan comes with an automatic offer of hands-on financial management support, and a hefty dose of financial responsibility.

Today, Opportunity Fund loans about $5 to $7 million a month to small business owners in California and 13 other states. The money comes from business and private donations. An average loan can range from $2,600 to $250,000. Under Weaver’s leadership, 6,200 businesses have received loans.

Opportunity Fund, along with other partners like Lending Club, is set to expand into other parts of the U.S. later this year.

A Look at CUneXus’ Strong Growth in 2017 (Finovate), Rated: A

Lending automation company CUneXus published some impressive growth stats today. Here’s a quick overview of a few of the California-based company’s success metrics:

  • Grew from 45 FI clients to 72 over the course of one year, from 2016 to 2017, a 60% year-over-year increase
  • Reaches more than 6.5 million potential end consumers across the U.S.
  • Averaging more than $6 million in new loan requests per day
  • Generated more than 140,000 loans totaling more than $2.5 billion with its 1-click borrowing solution

These and other FI clients have reported that CUneXus has helped contribute to their own success, including:

  • Loan processing times cut in half
  • A 110% increase in pre-approved lending activity
  • A 135% spike in funded loan amounts

3 Ways Technology is Bringing in New Real Estate Investors (Realty Biz News), Rated: A

Today, in addition to teaming up with development companies, many investors are using technology solutions to research options remotely. Here are the three trending ways technology is revolutionizing how new investors step into the real estate market space.

Mobile apps like Vacation Rentals by Owner (VRBO) and Airbnb have become popular and more people are now looking to invest in such short-term rentals.

Big data is now a critical offering for the public, and the real estate niche is looking for ways of gathering and presenting the information for driving purchase behavior.

Following the success of the customer-centric applications, it’s clear to see that the industry holds a huge potential if technology is leveraged to bring in new investors. Real estate is the largest global economy asset with figures hinting at $217 trillion – surpassing the world’s GDP of $80 trillion! This is a clear indicator that there is a huge potential for financial freedom creating entrepreneurs looking to tap into the real estate market.

New York Federal Reserve: Fintech Has Improved the Mortgage Lending Market (Crowdfund Insider), Rated: A

The New York Federal Reserve has published a staff report pertaining to “The Role of Technology in Mortgage Lending”.

While still relatively small, this segment of onlien lending has grown annually by 30% from $34 billion of total originations in 2010 or 2% of the market, to $161 billion in 2016 or 8% of the market.

The Fed research finds that Fintech lenders reduce mortgage processing time by about 10 days, or 20% of the average processing time.

Additionally, default rates tank by a whopping 25% indicating the credit process is superior to the antiquated analog method of traditional banks.

 

 

Do the Majority of Americans Really ‘Want’ to Use a Branch? (The Financial Brand), Rated: AAA

According to research conducted by Novantas, 60% of Americans said they would rather open a new checking account in person at a bank branch than on a phone, tablet or desktop computer. Reinforcing this finding is the reality that most consumers still only use digital channels for the most basic banking functions, such as checking account balances and transferring funds. For more complicated issues, like problems with an account or advice, most consumers prefer human contact.

The reliance on branches in North America is almost double other countries, where better digital offerings have been introduced. In fact, according to Novantas, 75% of consumers in Australia report visiting the branch less than once per month, or even less! The UK is very similar while, interestingly, only about half of US consumers exhibit the same behavior.


The banking industry has seen the closure of 1,700 branches in the 12 months ending in June 2017 – the largest one-year decline on record. Capital One Financial Corp. has cut 32% of its branches from mid-2012 to mid-2017, while SunTrust Banks Inc. cut 22% and Regions Financial Corp. has cut 12%.

U.S. Bank Offers New Online Tool to Help Consumers Get Fast, Convenient Car Loan Approvals (BusinessWire), Rated: A

Working with financial technology startup AutoGravity, U.S Bank created a new platform on USBank.com that provides a simplified, streamlined loan application process for users that typically takes just minutes to receive a loan decision.

Car buyers using the new U.S. Bank tool simply:

1) Pick their car and select a dealership online

2) Apply for a pre-approval for a U.S. Bank loan online

3) Close the loan at the dealership and drive off in their new car

When Weak Bank Lending Is a Good Sign (WSJ), Rated: A

Total commercial and industrial loans extended by U.S. banks were up just 1% from a year earlier on Feb. 7, according to weekly Federal Reserve data. For the month of January, C&I loans were down an annualized 10.8% compared to December, according to calculations by Keefe, Bruyette and Woods.

Asked how demand for loans has changed over the past three months from large and medium-sized firms, 84% said it was “about the same” or “somewhat stronger,” while just 16% said it was “moderately weaker.” For small firms with annual sales of less than $50 million, 88% of bankers said loan demand was about the same or better, while only 12% said it was weaker.

Financial incumbents are starting to care about financial education (Tearsheet), Rated: A

On Wednesday, Greenlight Financial Technology — the creator of a smart debit card for kids, teens, and college students — closed $16 million in a Series A funding round. Its investors went beyond your traditional venture capital firm, including a disparate coalition of  financial services bigwigs like SunTrust Bank and Ally Financial as well as the Amazon Alexa Fund, among other VCs. Greenlight, whose mission is to help strengthen financial literacy among kids and give parents a platform to raise “financially smart kids,” will use the new funds to develop its products.

That coalition of Greenlight partners signals a renewed understanding of the reality of most Americans’ financial lives — 57 percent of Americans are financially unhealthy according to the Center for Financial Services Innovation — by legacy financial services companies coming to terms with the fact that they need to be in the business of financial health in order to keep customer relationships in tact over the long term.

Don’t be THAT credit union. Offer short-term loans to your members. (CUInsight), Rated: B

CashPlease is an innovative new short-term, small-dollar loan solution that allows credit unions to implement a consumer loan product efficiently and compliantly.  Here’s how:

  • No additional loan officers or other additional staff needed
  • Underwriting technology that is automated and proven
  • Assistance with compliance best practices
  • Data-driven marketing to educate consumers about the availability of lower-cost loans

ATTORNEY GENERAL HERRING OBTAINS FULL RESTITUTION FOR CUSTOMERS OF ONLINE LENDER (Virginia.gov), Rated: A

Attorney General Mark Herring announced today that his office has reached a settlement with eight affiliated online lenders and debt collectors to resolve allegations that the companies offered unlawful open-ended credit plan loans and engaged in unlawful debt collection practices including contacting borrowers’ employers and implementing wage garnishments. As a result of the settlement, borrowers will receive nearly $150,000 in restitution and forgiven debt.

The settlement includes the following key terms relating to loans made by the lenders during the period from January 2015 through June 19, 2017:

  • The Lenders agree to refund all interest and fees paid by consumers in excess of 12% of the loan amount, totaling approximately $85,000;
  • The Lenders agree to forgive all outstanding remaining debt of Virginia consumers, totaling over $63,000;
  • The Lenders agree to a permanent injunction against consumer lending activity in Virginia;
  • The Debt Collectors agree to a permanent injunction against all debt collection activity in Virginia;
  • The Lenders agree to pay $10,000 in civil penalties and $10,000 in attorneys’ fees;
  • The Debt Collectors agree to pay $75,000 in civil penalties and $10,000 in attorneys’ fees.

The companies include six lenders (Field Asset Service Team, LLC; VIM Holdings, LLC; MR Capital Group, LLC; Nascent Holdings, LLC; B Financial, LLC; and DTS Capital, LLC, collectively “the Lenders”) and two debt collectors (Bradley Goldberg & Miller, LLC and U Solutions Group, LLC, “the Debt Collectors”) that acted in concert to provide and collect open-end credit plan loans made over the Internet to Virginia consumers.

The Lenders offered open-end credit plan loans and imposed “service fees” as high as $160 per month. The Debt Collectors then emailed consumers in an effort to collect on these loans and contacted the consumers’ employers to implement wage assignments and collect money directly from the consumers’ paychecks.

CFPB Drops Lawsuit Against Payday Lender (JD Supra), Rated: B

The CFPB has dropped a recent lawsuit against a payday lender accused of charging up to 950% interest.

The case is CFPB v. Golden Valley Lending, Inc., et al., Case No. 17-cv-02521 (District of Kansas).

United Kingdom

Difficult divorce? RateSetter can help (P2P Finance News), Rated: AAA

The ‘big three’ peer-to-peer lender has been offering a family finance product for a number of months, whereby individuals can apply for a loan to pay for their divorce litigation.

The P2P platform offers personal loans ranging from £500 to £35,000, with terms between one year and five years, according to its website. Borrower rates range from 3.9 per cent to 29.9 per cent.

Unscrupulous banks have fuelled rise of alternative lenders (RealBusiness), Rated: AAA

Now it emerges that one bank was actively working against small businesses in its greed-fuelled quest for profits and bonuses. RBS has been exposed for making up fees, imposing punishingly high interest rates, acquiring equity and property from failed businesses – and pocketing huge bonuses off the back of it.

As a result, it is alternative lenders that are now the go-to for independent businesses in need of assistance when it comes to growth. Take, for example, the business cash advance, which is sometimes referred to as a merchant cash advance. This funding can be from as little as £500 up to £300,000 and is advanced to the business against future credit and debit card turnover.

These Isas pay 6% and more – but should you invest? (Which?), Rated: AAA

Last week, Ratesetter launched an Isa paying a top rate of 5.8%, while yesterday (24 February), Easyjet founder Stelios Haji-Ioannou launched an tax-free account aiming to pay 4.05% per year.

Other innovative finance Isas are currently paying returns as high as 16% a year.

Zopa is currently paying between 4% and 4.6%. Zopa primarily lends to individuals, Ratesetter lends to both individuals and businesses whereas Funding Circle lends exclusively to small businesses. The latter’s innovative finance Isa is only available to existing customers, but is projecting an annual return of 7.5%.

EasyMoney launches Innovative Finance ISA (P2P Finance News), Rated: A

EASYMONEY, part of Sir Stelios Haji-Ioannou’s ‘easy’ family of brands, has launched in the UK with an Innovative Finance ISA (IFISA) offering a target rate of 4.05 per cent a year.

Jacob Rothschild-backed firm plans £100m float (Professional Adviser), Rated: A

Augmentum Fintech, which is preparing to float next month, has unveiled plans to issue a target of 100 million ordinary shares at a price of £1 each, with a maximum issue size of 125 million shares.

FCA seeks feedback on its ideas for a global sandbox (Mondaq), Rated: A

The FCA’s new webpage contains its ideas for a global sandbox [14.02.02]. Its current sandbox only allows firms to test their ideas in the UK.

It highlights three areas:

  • addressing “pre-identified challenges” in areas known for “regulatory problems that cross jurisdictional boundaries” e.g. AML and KYC on-boarding.;
  • enabling firms wishing to expand in different markets to “bring their ideas to market more quickly and easily, creating more effective competition.” The FCA asks for firms who could benefit from testing out their ideas in a number of markets to get in touch; and
  • policy and regulatory challenges – the FCA suggests the sandbox could be used to convene “joint events and papers on emerging trends and challenges” using the experiences of the range of firms and regulators taking part to develop “consistent approaches”.

Brexit to shut the door on lengthy London house price boom (Euronews), Rated: A

British inflation will outstrip gains in house prices this year and next, particularly in the capital, as uncertainty over Brexit and weak consumer spending power hits demand, a Reuters poll found on Friday.

Next year, house prices will rise 0.9 percent in London and 2.0 nationally, still both below the 2.1 percent expected inflation rate. In 2020, London prices will increase 2.0 percent and by 2.3 percent nationally.

“Quite simply, with loan-to-income ratios for first time buyers sitting at around four times, average salaries of 33,000 pounds ($46,000), and your average flat in London costing over 500,000 pounds, it’s extremely difficult to see how London can be viewed as anything but very expensive,” LendInvest’s Lockhart said.

China

Hang Seng Bank deploys fintech to simplify mobile banking, mulls use of facial recognition at ATMs (SCMP), Rated: A

Hang Seng Bank plans to expand the use of fintech to mobile banking services and is also toying with the idea of incorporating facial recognition, after initial success with iPhone X, to allow customers to withdraw cash from its ATMs across the city, according to its chief executive.

The global facial recognition market is forecast to be worth US$6.5 billion by 2021, up from US$2.3 billion in 2016, according to estimates from research company Technavio.

European Union

Klarna Bank AB appoints Niklas Savander to Board of Directors (LeapRate), Rated: B

Klarna Bank AB has announce the appointment of Niklas Savander to the Board of Directors with effect from Thursday 22nd of February 2018. Niklas Savander will replace Niklas Adalberth.

International

Digital banking start-up Revolut breaks even as it prepares global expansion (CNBC), Rated: AAA

Revolut said Monday that it had broken even for the first time in December, and that its monthly transaction volume surged to $1.5 billion, an increase of over 700 percent in the last 12 months.

The start-up has signed up a total of 1.5 million users to its mobile app, up 50 percent from a figure it achieved in November.

Cryptocurrency A Risk Factor, Bank Of America Says In Annual SEC Filing (International Business Times), Rated: A

The 10-K filing referred to cryptocurrencies, without naming any specific one, three times under a subsection titled “Risk Factors” and described three different ways in which they could pose problems for the bank’s business.

The first reference was under geopolitical risks, with the bank talking about international money-laundering.

The third reference was along similar lines, with BoA saying: “The widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote connectivity solutions,” adding it “might not be successful in developing or introducing” competing products at lower prices.

 

Australia

SPOTCAP AWARDS SCHOLARSHIP TO ASPIRING FINTECH ENTREPRENEUR (Global Banking & Finance), Rated: A

Spotcap today announced Vishal Uppal as the winner ofthe Fintech Scholarship 2017. The first of its kind in Australia, the scholarship awards one aspiring graduate with an interest in fintech $10,000 towards the cost of their tuition.

India

Guide to smart banking: Why P2P lending is an ‘interest’ing idea (Business Line), Rated: AAA

P2P lending, on the other hand, is a completely tech-driven investment, which gives a net annualised return of 18-22 per cent to lenders, who start earning their principal and interest back from the very first month. The returns are higher because you can lend directly to the borrower and the intermediary costs are drastically reduced.

A majority of investors on these platforms are salaried professionals aged between 20 and 35 years looking for additional sources of income.

On Faircent.com lenders can invest as low as 750 per loan size or choose tech-enabled processes like auto-invest to save time. These features are a major attraction for millennials and, in fact, according to the last Research and Analytics report on P2P lending published by Faircent.com, 64 per cent of lenders are below 35 years of age.

Retirement plan: How real estate investment can help millennials secure their future (Financial Express), Rated: A

A growing number of millennials are also opting for investments into commercial real estate, as opposed to investments into residential properties made by their parents.

Commercial real estate: better yields for better financial security

Leases on these properties are usually taken out for multiple years by blue-chip companies, thus ensuring that steady rental income is assured for a specific duration of time. With India’s rise as a prominent international business destination, the sector is also witnessing remarkable growth; the country’s 537 million square feet of rent-generating commercial real estate inventory is currently estimated to be worth nearly $70 billion.

How technology is enabling millennials to make high-value real estate investments

The investments can start as low as Rs 5 lakh, making the entire process extremely affordable for millennial buyers whilst also allowing them to make multiple investments to diversify their portfolio, increase rental incomes, and minimise risk. Average rental returns to the tune of 7%-8% are quite common, while the overall returns can be as high as 22%.

India is projected to become the youngest country in the world by 2020, with a median age of 29.

Movers And Shakers Of The Week [19-24 Feb 2018] (Inc42), Rated: B

BigWin Infotech, a government recognized fintech startup has appointed Suneel Mohnot a the Director on its board.

BigWin Infotech is a self-funded startup who has recently forayed into P2P lending business through its solely owned market place PaisaDukan.com post revised RBI guidelines for NBFC-P2P and one of the strong contenders for NBFC-P2P license.

APAC

CoAssets Reports Half-Year Results With 471% Increase In Revenue (AsiaOne), Rated: AAA

CoAssets Limited (“CoAssets” or the “Group”) (ASX: CA8), a leading crowdfunding platform and Fintech lender specialising in facilitating funding for businesses reported its financial and operating results for the half year ended 31 December 2017, together with an update on the Group’s growth and capital strategy to the Australian Securities Exchange (ASX) on 22 February 2018.

Total reported revenue increased by 471% from S$446,040 in 2016 to S$2,547,554 in 2017. Group’s profits in year 2017 was S$2,046,013, from a loss of S$3,899,325 in 2016. This increase in profits was due to business activities as well as investment gains. Operating expenses decreased from S$3,570,287 in 2016 to S$2,577,013 in 2017. This represents about S$1million or 28% in cost savings. Registered investor base reached 433,805 as at 31 December 2017. This represents an 88.17% increase from 30 June 2017.

Singapore — CoAssets Pte Ltd (“CAPL”)

After receiving the Capital Market Services (CMS) licence from the Monetary Authority of Singapore (MAS) in June 2017, the company crowdfunded more than S$5.11million worth of deals from 1 July 2017 to 31 December 2017.

Singapore — CoAssets International Pte Ltd (“CAI”)

The company disbursed more than S$6.65million worth of loans over the last 6-months, with its loan book growing to more than S$16.21million as at 31 December 2017.

China — CoAssets China

This represents the Group’s fastest growing market, achieving remarkable growth in registered user base of more than 117% (from 173,000 to more than 375,000 members) from 1 July 2017 to 31 December 2017. The CoAssets platform in China funded more than RMB28.15million (S$5.94million) worth of crowdfunding projects over the last 6-months in 2017.

Hong Kong — Fintech Pte Ltd

In April 2017, the Group acquired Fintech Pte Ltd, an online corporate cash management platform called “PiggieBank ” in Hong Kong.  Since then, PiggieBank has successfully managed funds flow of more than S$21. 39million as at 9 February 2018.

Hong Kong — Brighten Finance Limited (“BFL”)

As at 31 December 2017, BFL’s loan book was worth HK$36.91million (S$6.27million).

EF, KoinWorks Serve Online Loans for Courses (netral english), Rated: A

English First, an English Education Institute signed a joint venture with KoinWorks – a Indonesian Peer to Peer Lending Platform – that serves investments and online loans without collateral for various productive loans.

Africa

Blockchain and financial services disruption (Punch), Rated: AAA

Key areas of the financial services that are most likely to be affected by blockchain include transfers, payment and lending. We have seen different start-ups such as OneFi, Inspire, Upstart, and Funding Circle, playing critical roles in peer- to -peer lending and services to individuals.

The closest we have seen so far is what VoguePay, a leading online payment start-up, has done.

It recently launched a multi-currency payment platform to enable businesses to send and receive payment from local and international customers, allowing merchants to accept payment in dollars, Euros, Rands, Cedis, Naira and Bitcoin payment.

The average Nigerian bank pays about five per cent interest rate on fixed deposits while requesting for two-digit interest rates on loans from customers. Economically, this does not make much sense because the margin is too wide when compared to what they offer for holding customers’ fund. Many people are tired of the highly monopolistic nature of banking.

Authors:

George Popescu
Allen Taylor

August 10th 2016, Daily News Digest

August 10th 2016, Daily News Digest

News Comments Today’s most interesting article are FT’s report on Lending Club’s Q2 results and a few articles on new regulations, policy and VPC’s fund and strategy in the UK section. Today’s good news: CUneXus raised $5 mil. Congratulations ! United States One of the most interesting articles on Lending Club’s Q2 results, thought through, and with […]

August 10th 2016, Daily News Digest

News Comments

United States

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United States

Lending Club’s latest results tell us a lot about the online credit business model, (FT Alphaville), Rated: AAA

Lending Club released its second-quarter results yesterday. Besides the updates on repairs after its scandals earlier in the year, executives provided an insight into some broader shifts that have been bubbling under the surface for some time.

Total originations in the second quarter were $1.96 billion an increase of 2% compared to last year. The slower origination growth was due to the slowdown in investor capital that occurred post May 9. Roughly 51% of the second quarter volume was originated prior to May 9, which represented 42% of the quarter in terms of calendar days.

You can file that under statements that are meant to re-assure but reveal trends that may or may not be worrying depending on your perspective. If you take the bait, and do the maths, you find that even without the slowdown post May 9 — the date founder Renaud Laplanche left the company — Lending Club was on track for year-on-year origination growth of 46 per cent for the quarter.

That compares with y-o-y growth of 68 per cent in the first quarter, 82 per cent in the fourth quarter last year, 92 per cent in the third quarter last year and 90 per cent in the second quarter of 2015. If you assume that Lending Club’s originations would have continued at the same pace after May 9, instead of accelerating, for example, then it seems that the company’s loan growth has been slowing quarter-on-quarter for a little while.

If you take the view that very fast loan growth is desirable, then this is a bad thing. But if you think that numbers like 90 per cent don’t belong in conversations about loan growth, then it’s a good thing. Jaidev Janardana, chief executive of Zopa, told us recently that volume is “a bad metric to be worried about”.

After Brexit, the online lender began rejecting the least credit-worthy customers who would have previously received a loan and assuming a higher level of risk for customers it accepted, which resulted in a higher cost of borrowing for those people. All else equal, the changes had the effect of shaving 10 per cent off its volumes. “We should make the right lending decisions and if that means we are going to grow slower for a period of time, so be it,” said Janardana.

You can see similar things happening at Lending Club, for different reasons, as per this slide from the second quarter investor presentation:

The first thing to note there is the population reduction in the lowest rated loans.

“As this recovery gets longer, credit has become more available and these individuals in particular have shown a propensity to be building debt kind of coming into the loan and then continuing to accumulate debt after the LendingClub loan as opposed to leveraging the loan to kind of pay off their debt.”

He’s basically saying that subprime borrowers have been coming to Lending Club for easy credit, rather than debt consolidation.

The second thing to note from the slide above is the interest rate hikes.

Those two bars in the middle show how the investor base changed after the scandal. In particular, banks who were previously buying Lending Club’s loans seem to have fled in larger numbers than any other category (though, obviously, the figures in the chart are percentages rather than absolute numbers).

Sanborn talked about this on the call too, in effect providing a hierarchy of funding sources. First, he noted the “self-managed retail investors who proved to be the most resilient”. Then he talked about managed accounts, which includes funds set up to invest in Lending Club’s loans. They “initially paused” but after being paid to buy loans — “incentives,” as Lending Club calls them — many returned.

Then we get to “asset managers, insurance companies, hedge funds and securitization investors”. They “experienced a significant pause”, which is a rather passive way to say they got scared off by a major scandal involving the former chief executive. Asset managers and hedge funds, who were “the most responsive to incentives”, were the first large investors to resume buying, Sanborn said. (As a side note, “responsive to incentives” is a great bit of code to remember if you’re ever asking for a bribe.)

And finally, the banks, who have “more complex diligence and regulatory requirements”, are taking the longest to come back to Lending Club. Things on this front are likely to get tougher for online lenders. Late last month, the Federal Deposit Insurance Corporation invited comments on new proposals for how banks shouldmanage third-party lending relationships.

Online lenders like Lending Club are very unlike banks in a great number of ways, but the role their retail investors play seems awfully like the role that depositors play at banks. They both are the last line of defence and risk losing their money when it all goes wrong. In the case of a bank depositor, government insurance protects them up to a point. But if you’re a retail investor on Lending Club, you own promissory notesissued by the company rather than loans themselves, so all that protects you at present is the fact that Lending Club has no debt.

To close, here’s how much the mess that led to Renaud Laplanche’s departure cost the company (our emphasis):

GAAP net loss was $81.4 million for the second quarter of 2016, compared to a net loss of $4.1 million in the same period last year. The results for the second quarter of 2016 were negatively affected by a Goodwill impairment charge of $35.4 million related to the 2014 acquisition of Springstone, an increase in professional service fees of $14.9 million primarily due to matters identified in the board review previously announced, approximately $14.0 million in incentives paid to investors, and an increase in compensation related costs of $6.5 million associated with severance costs and a retention program.

With this Lending Club disclosure from May, shortly after Laplanche left (our emphasis again):

On May 11, 2016, the compensation committee of the board of directors approved incentive compensation packages and salary adjustments for certain named executive officers. Specifically, Carrie Dolan, the Company’s Chief Financial Officer, was granted $3.5 million in restricted stock units (RSUs), which vests quarterly over a four year period, and a $500 thousand cash award, payable twelve months from the grant date. The compensation committee also approved an increase to Ms. Dolan’s base salary to $400 thousand per year, with a 75 percent bonus target. John MacIlwaine and Sandeep Bhandari, the Company’s Chief Technology Officer and Chief Risk Officer, respectively, each received $500 thousand in RSUs, which fully vest twelve months from the grant date, and a $500 thousand cash award, payable twelve months from the grant date.

Here is the Q2 Earnings Deck for Lending Club, (Crowdfund Insider), Rated: AAA

Here is the deck.

Sanborn put an upbeat spin on the results stating they were “confident on their future”. [Comment: the moment when the CEO is anything less than upbeat it’s time to jump ship. So no surprise here. A CEO being upbeat is what I would say “business as usual”. ]

An interesting factoid shared on the call. The Board Review, initiated following the shocking departure of former CEO Renaud Laplanche, cost the company (and thus investors) $13 million.

 

CUneXus Closes $ 5 Million Series A, (Finovate), Rated: A

CUneXus, creator of sales and marketing automation solutions for lenders, quietly closed a $5 million funding round late last week. Two investors contributed to the round; both prefer to remain anonymous.

The California-based company’s total raised is now $7 million. Regarding plans for the funding, CUneXus president & CEO Dave Buerger said, “The use of funds is twofold: (1) aggressive growth and the addition of key personnel, and (2) continuous product development and improvement.”

Since launching in 2011, CUneXus has built a host of solutions for online and mobile lending and cross-selling. At FinovateSpring 2016 the company announced its recent partnership with Edmunds.com and showed off AutoXpress, a vehicle purchasing experience that takes place completely online or on mobile.

Lending Club looks for reprieve in year of bad news, (SiliconBeat), Rated: A

Comment: this is yesterday’s news, literally. As I explained yesterday, I believe the Q2 numbers for Lending Club are actually really good given the circumstances. The journalist here focuses on the profit and loss line item which is not at all a good indicator of Lending Club’s business at this time. 

The latest black eye for Lending Club came late Monday, when the company reported a second-quarter loss that ballooned from a year ago due to a big drop in loan volume. Lending Club said it lost $81.4 million, or 21 cents a share, on revenue of $103.4 million, compared with a loss of $4.1 million, or a penny a share, on $97 million in sales a year ago. Excluding one-time items, Lending Club lost 9 cents a share.

Those results fell short of the estimates of analysts surveyed by Thomson Reuters, who forecast Lending Club to lose 2 cents a share on $100.5 million in revenue. Lending Club said one of the main factors in its results falling short was that its loan volume, or the value of the loans it handled during the quarter, fell by 30 percent from a year ago to $1.96 billion. The company also said its loan volume would be flat for the rest of the year.

There was also another shake up in Lending Club’s executive ranks, as the company announced the departure of Chief Financial Officer Carrie Dolan. Dolan’s departure comes about three months after Lending Club founder Renaud Laplanche was forced to resign amid a scandal involving loans that were made against the instructions of an investor, as well as Laplanche and his family members improperly using the Lending Club platform to take out multiple loans in late 2009.

Loan originations rose 41 percent from a year ago, to $589.7 million, which Jefferson Harralson, of Keefe, Bruyette & Woods said became “more optimistic” and could offset some of the recent worries about Lending Club’s business.

PYMNTS Daily Data Dive: OnDeck Is On Track With Q2 Earnings, (PYMNTS), Rated: A

The company has altered its business model and is taking on more loans in the balance sheet. Credit performance has improved, which has increased the provision for loan losses. The company is advancing its international expansion, its partnership with JPMorgan and expects gross revenue between $73 million and $76 million in Q3.

Here are the numbers:

$69.5 million | OnDeck’s revenue, which was a year-on-year increase of 9.8 percent and $1.6 million over analyst expectations

$32 million | Provision for loan losses, almost twice the $15.5 seen this time last year

47% | The year-on-year growth in loans under management, reaching $1 billion

41% | The year-on-year growth in originations, which reached $590 million

$0.20 | Net loss per share; projections were for a net loss of $0.24 per share

Marketplace lending technology patents held invalid, (Lexology), Rated: A

On July 25, 2016, three appellate judges in the United States held that a popular online marketplace lender’s patents were invalid because they merely reflected an “abstract idea” that is not entitled to be patented or otherwise eligible for exclusive protection under American intellectual-property laws.

The judges from the Federal Circuit Court of Appeals likened the claimed inventions to a “fundamental economic concept” (i.e., an abstract idea) that served as the basis for the consumer-loan industry. They ruled that simply implementing this concept with “generic technology” to automate the process does not then make it patentable.

To read the full opinion of the Federal Circuit panel, click here.

Peer-to-peer Lending Market to Grow at CAGR of 53.06% to 2020, (News Maker), Rated: A

Comment: This is a report that is being sold. This report 1st came out about 2 weeks ago. Just a reminder. If Lending Club can still grow year-over-year despite all the problems I don’t think anybody doubts that p2p lending could very well grow at 53% CAGR for the next 4 years.

Research analysts forecast the global P2P lending market to grow at a CAGR of 53.06% during the period 2016-2020.

Browse full table of contents and data tables at

Credit unions can ‘up their game’ with the right digital lending partner, (CU Insight), Rated: A

Comment: This article is a bit of an advertisement for p2p-bank partnerships. I think it’s worth being clear and reminding the obvious to our readers: quite a few p2p lenders have such partnerships and they seem to function well.

The success of Lending Club and Prosper, despite recent setbacks, demonstrates to credit unions the opportunity to ‘up their game’ and become a part of this digital revolution. What’s more, your credit union can keep the loans on your balance sheet.

Your credit union is able to profitably fund and manage smaller dollar, unsecured loans at a fraction of the cost of manual and paper processes, often as low as $500 each.

What kind of Digital Lending Partner can help your credit union ‘up your game’ quickly? One that has proven success in digital lending, and:

  • Allows your credit union to use your underwriting controls and risk-rating standards
  • Keeps the loans on your balance sheet as earning assets
  • Accepts online applications by computer or mobile phone
  • Provides approvals in an instant, funds in just days
  • Monitors loans, deposit activity and credit information
  • Handles loan renewals
  • Provides proven safety in the cloud
United Kingdom

Britain counting on fintech for banking revolution, (Reuters), Rated: AAA

British banks, starting 2018,  will have to share customers’ data with third parties who can then show how much could be saved by using other lenders, the competition watchdog said on Tuesday. Under the new rules, banks will have to share a customer’s data with third parties, providing the customer agrees. The CMA will also require lenders to publish their maximum fee for unarranged overdrafts, which earn banks 1.2 billion pounds ($1.6 bln) a year.

New banks, consumer advocates and lawmakers, however, derided the plans as relying too much on people’s ability and willingness to use new technology.

The CMA believes setting a 2018 deadline will also boost the “fintech” sector, which uses technology to make financial services cheaper and more efficient.

The government wants to see fintech grow, but European Union countries like Germany would like to lure the sector from London after Britain voted to leave the bloc.

Only 3 percent of consumers and 4 percent of business customers change banks in any year due to inertia.

Andrew Tyrie, chair of parliament’s Treasury Select Committee which has pushed for six years to get more competition in banking, said he was not optimistic the measures will get to the heart of the problem.

Land said the Financial Conduct Authority (FCA), which capped payday loans’ interest rates, will review the overdraft measures and obstacles to new entrants to see if they improve, but Rishi Khosla, co-founder and CEO of OakNorth Bank, said this “passing of the buck” to other market watchdogs could put many fledgling companies at risk.

“The FCA should be prepared to step in with an industry-wide cap if they (the banks) do not significantly reduce the charges being paid by people who fall into difficulty,” said Money Advice Trust, a charity that helps people deal with debt.

The Financial Services Consumer Panel, which advises the FCA, said the measures rely on untested technology and consumers having to act on complex information. “At least it has given the FCA some good evidence to take on the banks.”

VPC Speciality Lending fund shifts strategy to greater balance sheet exposure after difficult Q2, (Alt Fi News), Rated: AAA

The key drivers of the recent shortfall, VPC says, was a cash drag from holding cash to cover currency hedges, and a peak in defaults, reflecting the life cycle of loans.

The portfolio is a combination of ‘marketplace’ and ‘balance sheet’ loans. Marketplace loans are originated by a platform, which earn an origination fee, with the fund lending directly to underlying borrowers targeting unlevered returns of 6 to 10 per cent, or 11 to 18 per cent on a levered basis. Balance sheet loans on the other hand are made to platforms with target returns of 11 to 16 per cent on an unlevered basis. The balance sheet loans are made through a special purpose vehicle [SPV] with the platform using the cash to originate loans.

At launch back in March 2015 balance sheet Loans were expected to be around  half of the portfolio, and currently represent 43 per cent of the invested portfolio. However, according to analysts at Numis Securities the management team at VPC believe that industry illiquidity has created attractive opportunities for balance sheet lending.

The VPC Speciality Lending Investment trust is looking to up its stake in balance sheet lending with profits from its marketplace loan holdings and move away from Funding Circle US’ exposure. More spare cash will be moved into balance sheet loans rather than marketplace loans in the VPC Speciality Lending investment trust, according to an update by the closed-ended fund’s management team.

The VPC Speciality Lending trust saw growth in its net asset value of just 0.33 per cent during the second quarter of 2016 on a total return basis, reflecting a 0.62 per cent loss in May.

According to AltFi Data, VPC Speciality Lending had outerperformed the broader UK marketplace lending space, as measured by the Liberum AltFi Returns index (the LARI) since its launch back in March 2015 until recently.

While the fund’s Q2 numbers are “below expectations”, VPC says long-term returns should be in their target range. The higher than expected losses, they add, came from the Funding Circle US loans which substantially underperformed expectations while the balance sheet loans in the portfolio experienced no setbacks and are generating coupons of between 12-16 per cent, with a weighted average coupon of 12.96  per cent

The trust is currently trading on a discount of 16.9 per cent. At launch in March 2015 it moves rapidly to a premium likes its peers in the space such P2P Global Investments. But, like its peers, it has also seen a substantial period at a double digit discount in 2016.

“We believe there is little scope for this discount to narrow until the fund consistently delivers monthly returns in line with its target. In addition, we believe the fund’s fees are high at 1 per cent of gross assets with a 15 per cent performance fee on net asset value [NAV] returns  [with] no hurdle.”

 

FCA Chief Told Parliament Committee Crowdfunding is Too Small to Be Systemically Important, (Crowdfund Insider), Rated: AAA

Financial Conduct Authority (FCA) Chief Executive Andrew Bailey basically gave a Parliament Treasury Committee a crash course on Crowdfunding 101 this past June.  The letter by Bailey was recently posted on the Treasury Committee website, along with a statement from Andrew Tyrie MP, Chairman of the Committee, who questioned “government subsidies”;

“On the basis of this correspondence, the risks associated with crowdfunding platforms appear to be restricted to those using the platforms to lend or invest. Government policies to promote the crowdfunding sector may have the right intention – to increase competition in the SME lending market – but government tax incentives, in effect government subsidies, may be encouraging some consumers into the use of inappropriate products. The FCA needs to be alert to these risks. The Government may need to reconsider these tax incentives.”

There is also an element of irony here. Internet finance is broadly recognized for its high degree of transparency. Old finance is known for its obfuscation and arcane operations – the source of too many systemic problems (how soon we forget the saga of LTCM). Many in the alternative finance sector believe Fintech is empowering finance to  come out from the shadow banking past and is better labeled as sunlight banking. It remains a truism that the best form of regulation is transparency.

Roche-Saunders explained a few days back it was clear that traditional finance sees “P2P encroaching on their space.”  Yet she was confident in the abilities of the FCA to draw the line at a point where competition is enabled and alternative finance can thrive. The FCA review process is accepting comments now with a deadline of September 8th.

FundingKnight to boost loan book after acquisition, (Bridging And Commercial), Rated: A

Gary Mealing, head of property lending at FundingKnight, explained to Bridging & Commercial that the company expects a large increase in activity after GLI Finance acquired its remaining shareholding.

FundingKnight’s origins and our skills are in commercial assessment, which means we’ll be focusing heavily on businesses with a property need and we’ll also have an appetite to fund over longer periods, also for larger amounts – up to £5m.

There has been a lot of focus around commercial property funds and the pressures from their investors to liquidate, and then there is the uncertainty so far with regards to the UK economic growth post-Brexit.

European Union

Interview – Finbee the First Year, (P2p Banking), Rated: A

More than 3,000 investors have issued 2M EUR worth of loans via FinBee and none of them lost any money due to a default and our compensation scheme. P2P lending is a relatively new concept in Lithuanian lending market, so raising awareness and overcoming scepticism was one the biggest challenges that we’ve faced from day one.

Current default figures are better that we expected and projected. We expected to operate with 8 to 10 percent of non-performing loans. Currently we have 2.25 percent (it worth noting that we consider a loan to be non-performing when two monthly instalments are missed, that is when loan is 60+ days late). We also project 40 percent recovery of non-performing loans. So we expect 4.8 – 6 percent losses after recovery. Having in mind that investors now invest on 26 percent interest rate on average, they can expect 20 percent returns even without our compensation fund.

What plans and goals do you have for FinBee for the next year?

Operations in Czech republic.

India

Raghuram Rajan sets agenda for rest of his term, (Live Mint), Rated: A

Reserve Bank of India (RBI) governor Raghuram Rajan set himself a crowded agenda in the last four weeks of his term as he left interest rates unchanged in his final monetary policy review on Tuesday.

On his agenda: guidelines for peer-to-peer (P2P) lending platforms and account aggregators, new norms to improve the functioning of corporate bond markets and tweaks to the marginal cost-based lending rate (MCLR) system, which Rajan hopes would improve the pass-through of past rate cuts by the central bank.

Singapore

Digital gold and silver may be up for P2P lending soon, (Asia One), Rated: B

(P2P) lending in Singapore could soon be extended to cryptocurrencies, if a unique partnership between vault operator Silver Bullion and a gold-backed digital currency seller is inked.

Silver Bullion, a gold and silver vault that offers peer-to-peer lending backed by those commodities, is in talks with Digix Global, a company that sells asset-backed tokens – or cryptocurrency bearing rights to gold – to use these tokens to borrow funds on the loan platform, the vault operator told The Business Times.

Several borrowers use the loan to buy more bullion with it, Mr Gregersen said. Lenders, on the other hand, use the interest to pay for storage on their own silver or gold stash.

Such loans are fully backed by physical gold and silver, and lending that stretches beyond six months has a collateral-to-loan value of at least 200 per cent. This means that a loan of S$100,000 must be backed by a collateral worth at least S$200,000. The exceptions are loans with a one-month tenure, which have a collateral-to-loan value of 160 per cent.

The discussion comes as Digix Global has moved to store gold bullion that is backing its cryptocurrency with Silver Bullion. They expect to store up to US$3 million worth of gold in Silver Bullion’s vault by the end of 2016. Digix Global will be transferring its gold holdings from Malca-Amit, at Singapore’s Le Freeport.

On Digix Global, users can buy Digix tokens, each of which represents one gram of gold.

Author:

George Popescu

August 10th 2016, Daily News Digest

August 10th 2016, Daily News Digest

News Comments Today’s most interesting article are FT’s report on Lending Club’s Q2 results and a few articles on new regulations, policy and VPC’s fund and strategy in the UK section. Today’s good news: CUneXus raised $5 mil. Congratulations ! United States One of the most interesting articles on Lending Club’s Q2 results, thought through, and with […]

August 10th 2016, Daily News Digest

News Comments

United States

United Kingdom

European Union

India

Singapore

 

United States

Lending Club’s latest results tell us a lot about the online credit business model, (FT Alphaville), Rated: AAA

Lending Club released its second-quarter results yesterday. Besides the updates on repairs after its scandals earlier in the year, executives provided an insight into some broader shifts that have been bubbling under the surface for some time.

Total originations in the second quarter were $1.96 billion an increase of 2% compared to last year. The slower origination growth was due to the slowdown in investor capital that occurred post May 9. Roughly 51% of the second quarter volume was originated prior to May 9, which represented 42% of the quarter in terms of calendar days.

You can file that under statements that are meant to re-assure but reveal trends that may or may not be worrying depending on your perspective. If you take the bait, and do the maths, you find that even without the slowdown post May 9 — the date founder Renaud Laplanche left the company — Lending Club was on track for year-on-year origination growth of 46 per cent for the quarter.

That compares with y-o-y growth of 68 per cent in the first quarter, 82 per cent in the fourth quarter last year, 92 per cent in the third quarter last year and 90 per cent in the second quarter of 2015. If you assume that Lending Club’s originations would have continued at the same pace after May 9, instead of accelerating, for example, then it seems that the company’s loan growth has been slowing quarter-on-quarter for a little while.

If you take the view that very fast loan growth is desirable, then this is a bad thing. But if you think that numbers like 90 per cent don’t belong in conversations about loan growth, then it’s a good thing. Jaidev Janardana, chief executive of Zopa, told us recently that volume is “a bad metric to be worried about”.

After Brexit, the online lender began rejecting the least credit-worthy customers who would have previously received a loan and assuming a higher level of risk for customers it accepted, which resulted in a higher cost of borrowing for those people. All else equal, the changes had the effect of shaving 10 per cent off its volumes. “We should make the right lending decisions and if that means we are going to grow slower for a period of time, so be it,” said Janardana.

You can see similar things happening at Lending Club, for different reasons, as per this slide from the second quarter investor presentation:

The first thing to note there is the population reduction in the lowest rated loans.

“As this recovery gets longer, credit has become more available and these individuals in particular have shown a propensity to be building debt kind of coming into the loan and then continuing to accumulate debt after the LendingClub loan as opposed to leveraging the loan to kind of pay off their debt.”

He’s basically saying that subprime borrowers have been coming to Lending Club for easy credit, rather than debt consolidation.

The second thing to note from the slide above is the interest rate hikes.

Those two bars in the middle show how the investor base changed after the scandal. In particular, banks who were previously buying Lending Club’s loans seem to have fled in larger numbers than any other category (though, obviously, the figures in the chart are percentages rather than absolute numbers).

Sanborn talked about this on the call too, in effect providing a hierarchy of funding sources. First, he noted the “self-managed retail investors who proved to be the most resilient”. Then he talked about managed accounts, which includes funds set up to invest in Lending Club’s loans. They “initially paused” but after being paid to buy loans — “incentives,” as Lending Club calls them — many returned.

Then we get to “asset managers, insurance companies, hedge funds and securitization investors”. They “experienced a significant pause”, which is a rather passive way to say they got scared off by a major scandal involving the former chief executive. Asset managers and hedge funds, who were “the most responsive to incentives”, were the first large investors to resume buying, Sanborn said. (As a side note, “responsive to incentives” is a great bit of code to remember if you’re ever asking for a bribe.)

And finally, the banks, who have “more complex diligence and regulatory requirements”, are taking the longest to come back to Lending Club. Things on this front are likely to get tougher for online lenders. Late last month, the Federal Deposit Insurance Corporation invited comments on new proposals for how banks shouldmanage third-party lending relationships.

Online lenders like Lending Club are very unlike banks in a great number of ways, but the role their retail investors play seems awfully like the role that depositors play at banks. They both are the last line of defence and risk losing their money when it all goes wrong. In the case of a bank depositor, government insurance protects them up to a point. But if you’re a retail investor on Lending Club, you own promissory notesissued by the company rather than loans themselves, so all that protects you at present is the fact that Lending Club has no debt.

To close, here’s how much the mess that led to Renaud Laplanche’s departure cost the company (our emphasis):

GAAP net loss was $81.4 million for the second quarter of 2016, compared to a net loss of $4.1 million in the same period last year. The results for the second quarter of 2016 were negatively affected by a Goodwill impairment charge of $35.4 million related to the 2014 acquisition of Springstone, an increase in professional service fees of $14.9 million primarily due to matters identified in the board review previously announced, approximately $14.0 million in incentives paid to investors, and an increase in compensation related costs of $6.5 million associated with severance costs and a retention program.

With this Lending Club disclosure from May, shortly after Laplanche left (our emphasis again):

On May 11, 2016, the compensation committee of the board of directors approved incentive compensation packages and salary adjustments for certain named executive officers. Specifically, Carrie Dolan, the Company’s Chief Financial Officer, was granted $3.5 million in restricted stock units (RSUs), which vests quarterly over a four year period, and a $500 thousand cash award, payable twelve months from the grant date. The compensation committee also approved an increase to Ms. Dolan’s base salary to $400 thousand per year, with a 75 percent bonus target. John MacIlwaine and Sandeep Bhandari, the Company’s Chief Technology Officer and Chief Risk Officer, respectively, each received $500 thousand in RSUs, which fully vest twelve months from the grant date, and a $500 thousand cash award, payable twelve months from the grant date.

Here is the Q2 Earnings Deck for Lending Club, (Crowdfund Insider), Rated: AAA

Here is the deck.

Sanborn put an upbeat spin on the results stating they were “confident on their future”. [Comment: the moment when the CEO is anything less than upbeat it’s time to jump ship. So no surprise here. A CEO being upbeat is what I would say “business as usual”. ]

An interesting factoid shared on the call. The Board Review, initiated following the shocking departure of former CEO Renaud Laplanche, cost the company (and thus investors) $13 million.

 

CUneXus Closes $ 5 Million Series A, (Finovate), Rated: A

CUneXus, creator of sales and marketing automation solutions for lenders, quietly closed a $5 million funding round late last week. Two investors contributed to the round; both prefer to remain anonymous.

The California-based company’s total raised is now $7 million. Regarding plans for the funding, CUneXus president & CEO Dave Buerger said, “The use of funds is twofold: (1) aggressive growth and the addition of key personnel, and (2) continuous product development and improvement.”

Since launching in 2011, CUneXus has built a host of solutions for online and mobile lending and cross-selling. At FinovateSpring 2016 the company announced its recent partnership with Edmunds.com and showed off AutoXpress, a vehicle purchasing experience that takes place completely online or on mobile.

Lending Club looks for reprieve in year of bad news, (SiliconBeat), Rated: A

Comment: this is yesterday’s news, literally. As I explained yesterday, I believe the Q2 numbers for Lending Club are actually really good given the circumstances. The journalist here focuses on the profit and loss line item which is not at all a good indicator of Lending Club’s business at this time. 

The latest black eye for Lending Club came late Monday, when the company reported a second-quarter loss that ballooned from a year ago due to a big drop in loan volume. Lending Club said it lost $81.4 million, or 21 cents a share, on revenue of $103.4 million, compared with a loss of $4.1 million, or a penny a share, on $97 million in sales a year ago. Excluding one-time items, Lending Club lost 9 cents a share.

Those results fell short of the estimates of analysts surveyed by Thomson Reuters, who forecast Lending Club to lose 2 cents a share on $100.5 million in revenue. Lending Club said one of the main factors in its results falling short was that its loan volume, or the value of the loans it handled during the quarter, fell by 30 percent from a year ago to $1.96 billion. The company also said its loan volume would be flat for the rest of the year.

There was also another shake up in Lending Club’s executive ranks, as the company announced the departure of Chief Financial Officer Carrie Dolan. Dolan’s departure comes about three months after Lending Club founder Renaud Laplanche was forced to resign amid a scandal involving loans that were made against the instructions of an investor, as well as Laplanche and his family members improperly using the Lending Club platform to take out multiple loans in late 2009.

Loan originations rose 41 percent from a year ago, to $589.7 million, which Jefferson Harralson, of Keefe, Bruyette & Woods said became “more optimistic” and could offset some of the recent worries about Lending Club’s business.

PYMNTS Daily Data Dive: OnDeck Is On Track With Q2 Earnings, (PYMNTS), Rated: A

The company has altered its business model and is taking on more loans in the balance sheet. Credit performance has improved, which has increased the provision for loan losses. The company is advancing its international expansion, its partnership with JPMorgan and expects gross revenue between $73 million and $76 million in Q3.

Here are the numbers:

$69.5 million | OnDeck’s revenue, which was a year-on-year increase of 9.8 percent and $1.6 million over analyst expectations

$32 million | Provision for loan losses, almost twice the $15.5 seen this time last year

47% | The year-on-year growth in loans under management, reaching $1 billion

41% | The year-on-year growth in originations, which reached $590 million

$0.20 | Net loss per share; projections were for a net loss of $0.24 per share

Marketplace lending technology patents held invalid, (Lexology), Rated: A

On July 25, 2016, three appellate judges in the United States held that a popular online marketplace lender’s patents were invalid because they merely reflected an “abstract idea” that is not entitled to be patented or otherwise eligible for exclusive protection under American intellectual-property laws.

The judges from the Federal Circuit Court of Appeals likened the claimed inventions to a “fundamental economic concept” (i.e., an abstract idea) that served as the basis for the consumer-loan industry. They ruled that simply implementing this concept with “generic technology” to automate the process does not then make it patentable.

To read the full opinion of the Federal Circuit panel, click here.

Peer-to-peer Lending Market to Grow at CAGR of 53.06% to 2020, (News Maker), Rated: A

Comment: This is a report that is being sold. This report 1st came out about 2 weeks ago. Just a reminder. If Lending Club can still grow year-over-year despite all the problems I don’t think anybody doubts that p2p lending could very well grow at 53% CAGR for the next 4 years.

Research analysts forecast the global P2P lending market to grow at a CAGR of 53.06% during the period 2016-2020.

Browse full table of contents and data tables at

Credit unions can ‘up their game’ with the right digital lending partner, (CU Insight), Rated: A

Comment: This article is a bit of an advertisement for p2p-bank partnerships. I think it’s worth being clear and reminding the obvious to our readers: quite a few p2p lenders have such partnerships and they seem to function well.

The success of Lending Club and Prosper, despite recent setbacks, demonstrates to credit unions the opportunity to ‘up their game’ and become a part of this digital revolution. What’s more, your credit union can keep the loans on your balance sheet.

Your credit union is able to profitably fund and manage smaller dollar, unsecured loans at a fraction of the cost of manual and paper processes, often as low as $500 each.

What kind of Digital Lending Partner can help your credit union ‘up your game’ quickly? One that has proven success in digital lending, and:

  • Allows your credit union to use your underwriting controls and risk-rating standards
  • Keeps the loans on your balance sheet as earning assets
  • Accepts online applications by computer or mobile phone
  • Provides approvals in an instant, funds in just days
  • Monitors loans, deposit activity and credit information
  • Handles loan renewals
  • Provides proven safety in the cloud
United Kingdom

Britain counting on fintech for banking revolution, (Reuters), Rated: AAA

British banks, starting 2018,  will have to share customers’ data with third parties who can then show how much could be saved by using other lenders, the competition watchdog said on Tuesday. Under the new rules, banks will have to share a customer’s data with third parties, providing the customer agrees. The CMA will also require lenders to publish their maximum fee for unarranged overdrafts, which earn banks 1.2 billion pounds ($1.6 bln) a year.

New banks, consumer advocates and lawmakers, however, derided the plans as relying too much on people’s ability and willingness to use new technology.

The CMA believes setting a 2018 deadline will also boost the “fintech” sector, which uses technology to make financial services cheaper and more efficient.

The government wants to see fintech grow, but European Union countries like Germany would like to lure the sector from London after Britain voted to leave the bloc.

Only 3 percent of consumers and 4 percent of business customers change banks in any year due to inertia.

Andrew Tyrie, chair of parliament’s Treasury Select Committee which has pushed for six years to get more competition in banking, said he was not optimistic the measures will get to the heart of the problem.

Land said the Financial Conduct Authority (FCA), which capped payday loans’ interest rates, will review the overdraft measures and obstacles to new entrants to see if they improve, but Rishi Khosla, co-founder and CEO of OakNorth Bank, said this “passing of the buck” to other market watchdogs could put many fledgling companies at risk.

“The FCA should be prepared to step in with an industry-wide cap if they (the banks) do not significantly reduce the charges being paid by people who fall into difficulty,” said Money Advice Trust, a charity that helps people deal with debt.

The Financial Services Consumer Panel, which advises the FCA, said the measures rely on untested technology and consumers having to act on complex information. “At least it has given the FCA some good evidence to take on the banks.”

VPC Speciality Lending fund shifts strategy to greater balance sheet exposure after difficult Q2, (Alt Fi News), Rated: AAA

The key drivers of the recent shortfall, VPC says, was a cash drag from holding cash to cover currency hedges, and a peak in defaults, reflecting the life cycle of loans.

The portfolio is a combination of ‘marketplace’ and ‘balance sheet’ loans. Marketplace loans are originated by a platform, which earn an origination fee, with the fund lending directly to underlying borrowers targeting unlevered returns of 6 to 10 per cent, or 11 to 18 per cent on a levered basis. Balance sheet loans on the other hand are made to platforms with target returns of 11 to 16 per cent on an unlevered basis. The balance sheet loans are made through a special purpose vehicle [SPV] with the platform using the cash to originate loans.

At launch back in March 2015 balance sheet Loans were expected to be around  half of the portfolio, and currently represent 43 per cent of the invested portfolio. However, according to analysts at Numis Securities the management team at VPC believe that industry illiquidity has created attractive opportunities for balance sheet lending.

The VPC Speciality Lending Investment trust is looking to up its stake in balance sheet lending with profits from its marketplace loan holdings and move away from Funding Circle US’ exposure. More spare cash will be moved into balance sheet loans rather than marketplace loans in the VPC Speciality Lending investment trust, according to an update by the closed-ended fund’s management team.

The VPC Speciality Lending trust saw growth in its net asset value of just 0.33 per cent during the second quarter of 2016 on a total return basis, reflecting a 0.62 per cent loss in May.

According to AltFi Data, VPC Speciality Lending had outerperformed the broader UK marketplace lending space, as measured by the Liberum AltFi Returns index (the LARI) since its launch back in March 2015 until recently.

While the fund’s Q2 numbers are “below expectations”, VPC says long-term returns should be in their target range. The higher than expected losses, they add, came from the Funding Circle US loans which substantially underperformed expectations while the balance sheet loans in the portfolio experienced no setbacks and are generating coupons of between 12-16 per cent, with a weighted average coupon of 12.96  per cent

The trust is currently trading on a discount of 16.9 per cent. At launch in March 2015 it moves rapidly to a premium likes its peers in the space such P2P Global Investments. But, like its peers, it has also seen a substantial period at a double digit discount in 2016.

“We believe there is little scope for this discount to narrow until the fund consistently delivers monthly returns in line with its target. In addition, we believe the fund’s fees are high at 1 per cent of gross assets with a 15 per cent performance fee on net asset value [NAV] returns  [with] no hurdle.”

 

FCA Chief Told Parliament Committee Crowdfunding is Too Small to Be Systemically Important, (Crowdfund Insider), Rated: AAA

Financial Conduct Authority (FCA) Chief Executive Andrew Bailey basically gave a Parliament Treasury Committee a crash course on Crowdfunding 101 this past June.  The letter by Bailey was recently posted on the Treasury Committee website, along with a statement from Andrew Tyrie MP, Chairman of the Committee, who questioned “government subsidies”;

“On the basis of this correspondence, the risks associated with crowdfunding platforms appear to be restricted to those using the platforms to lend or invest. Government policies to promote the crowdfunding sector may have the right intention – to increase competition in the SME lending market – but government tax incentives, in effect government subsidies, may be encouraging some consumers into the use of inappropriate products. The FCA needs to be alert to these risks. The Government may need to reconsider these tax incentives.”

There is also an element of irony here. Internet finance is broadly recognized for its high degree of transparency. Old finance is known for its obfuscation and arcane operations – the source of too many systemic problems (how soon we forget the saga of LTCM). Many in the alternative finance sector believe Fintech is empowering finance to  come out from the shadow banking past and is better labeled as sunlight banking. It remains a truism that the best form of regulation is transparency.

Roche-Saunders explained a few days back it was clear that traditional finance sees “P2P encroaching on their space.”  Yet she was confident in the abilities of the FCA to draw the line at a point where competition is enabled and alternative finance can thrive. The FCA review process is accepting comments now with a deadline of September 8th.

FundingKnight to boost loan book after acquisition, (Bridging And Commercial), Rated: A

Gary Mealing, head of property lending at FundingKnight, explained to Bridging & Commercial that the company expects a large increase in activity after GLI Finance acquired its remaining shareholding.

FundingKnight’s origins and our skills are in commercial assessment, which means we’ll be focusing heavily on businesses with a property need and we’ll also have an appetite to fund over longer periods, also for larger amounts – up to £5m.

There has been a lot of focus around commercial property funds and the pressures from their investors to liquidate, and then there is the uncertainty so far with regards to the UK economic growth post-Brexit.

European Union

Interview – Finbee the First Year, (P2p Banking), Rated: A

More than 3,000 investors have issued 2M EUR worth of loans via FinBee and none of them lost any money due to a default and our compensation scheme. P2P lending is a relatively new concept in Lithuanian lending market, so raising awareness and overcoming scepticism was one the biggest challenges that we’ve faced from day one.

Current default figures are better that we expected and projected. We expected to operate with 8 to 10 percent of non-performing loans. Currently we have 2.25 percent (it worth noting that we consider a loan to be non-performing when two monthly instalments are missed, that is when loan is 60+ days late). We also project 40 percent recovery of non-performing loans. So we expect 4.8 – 6 percent losses after recovery. Having in mind that investors now invest on 26 percent interest rate on average, they can expect 20 percent returns even without our compensation fund.

What plans and goals do you have for FinBee for the next year?

Operations in Czech republic.

India

Raghuram Rajan sets agenda for rest of his term, (Live Mint), Rated: A

Reserve Bank of India (RBI) governor Raghuram Rajan set himself a crowded agenda in the last four weeks of his term as he left interest rates unchanged in his final monetary policy review on Tuesday.

On his agenda: guidelines for peer-to-peer (P2P) lending platforms and account aggregators, new norms to improve the functioning of corporate bond markets and tweaks to the marginal cost-based lending rate (MCLR) system, which Rajan hopes would improve the pass-through of past rate cuts by the central bank.

Singapore

Digital gold and silver may be up for P2P lending soon, (Asia One), Rated: B

(P2P) lending in Singapore could soon be extended to cryptocurrencies, if a unique partnership between vault operator Silver Bullion and a gold-backed digital currency seller is inked.

Silver Bullion, a gold and silver vault that offers peer-to-peer lending backed by those commodities, is in talks with Digix Global, a company that sells asset-backed tokens – or cryptocurrency bearing rights to gold – to use these tokens to borrow funds on the loan platform, the vault operator told The Business Times.

Several borrowers use the loan to buy more bullion with it, Mr Gregersen said. Lenders, on the other hand, use the interest to pay for storage on their own silver or gold stash.

Such loans are fully backed by physical gold and silver, and lending that stretches beyond six months has a collateral-to-loan value of at least 200 per cent. This means that a loan of S$100,000 must be backed by a collateral worth at least S$200,000. The exceptions are loans with a one-month tenure, which have a collateral-to-loan value of 160 per cent.

The discussion comes as Digix Global has moved to store gold bullion that is backing its cryptocurrency with Silver Bullion. They expect to store up to US$3 million worth of gold in Silver Bullion’s vault by the end of 2016. Digix Global will be transferring its gold holdings from Malca-Amit, at Singapore’s Le Freeport.

On Digix Global, users can buy Digix tokens, each of which represents one gram of gold.

Author:

George Popescu