News Comments Today’s main news: Auto loan delinquency rate hits 5.8%. RateSetter reaches 100M GBP in investor returns. Marcus may expand to Germany. OurCrowd surpasses $1B AUM. liwwa lends $11M to SMEs. Today’s main analysis: LendingTree among the 5 worst finance sector stocks, according to Nasdaq. Today’s thought-provoking articles: 3 ways technology shifts consumer approach to debt. New reporting rules […]
But it’s the growth of new products at SoFi that will most likely attract the attention of investors, as the company tries to justify its $4.4 billionprivate market valuation.
In the letter, Noto said the SoFi at Work program, which partners with companies to help their employees pay off student loans and other debt, expanded its funded loan volume by 118 percent from a year earlier. The program, used by over 700 businesses, was launched in September 2016, so the growth is coming off a small base from last year at this time.
Based in Charlotte, NC, LendingTree, Inc.TREE operates as an online loan marketplace for consumers seeking loans and other credit-based offerings. This Zacks Rank #5 stock has a VGM Score of D. Shares of the company have lost 18% so far this year. The 2018 earnings estimates have been revised 5.7% down over the last 30 days.
The emergence of fintech and blockchain are making the loan experience streamlined and accessible to ordinary consumers, as well as to people who have issues with their credit score, businesses interested in alternative interest plans and people who are hesitant about taking loans from banks for whatever reason.
Peers Over Institutions
P2P lenders pool together smaller amounts contributed by investors and lend the money out to consumers through digital platforms. Recently, P2P platforms like Lending Club and Prosper are making available loanable amounts of around $30,000 to $40,000 at competitive interest rates and with easier application processes.
Credit Scores Matter Less
As of 2017, those aged 18-29 have an average score of just 652 which is lower than previous generations and has become an issue as they start settling down and are in need of loans for mortgages.
Fintech and blockchain, however, are starting to minimize the overall impact of credit scores in an effort to bring more financial inclusion. They can include factors such as: salary, purchasing history, educational attainment, and even social media activity.
The Drive to Decentralize
The centralized approach of financial institutions controlling the people using their systems financial activities is also being challenged.
Decentralization has been key to blockchain’s growing appeal.
Private equity firms smell money in the financial advice business. Last month, Hellman & Friedman LLC paid $3 billion to buy Financial Engines Inc., an online retirement planning service. Thomas H. Lee Partners LP in October took a stake in HighTower, a Chicago-based wealth adviser with $50 billion under management at the time. And in April 2017, private equity giant KKR & Co. and Stone Point Capital LLC bought a majority share of Focus Financial Partners LLC in a deal that valued the wealth manager at $2 billion.
Fair Square Financial LLC, the two-year-old, 50-worker Wilmington company that markets the Ollo credit card, says it has raised $100 million more from Orogen Group, the New York investment firm headed by former Citigroup CEO Vikram Pandit; Atairos Group, headed by former Comcast chief financial officer Michael Angelakis; and others.
Fair Square, which has lent MasterCard holders about $400 million since early last year (using the Bank of Missouri’s lending powers), is one of a string of software-intensive lenders and financial service firms that have sprung up in Wilmington in recent years, capitalizing on the area’s concentration of credit card managers and workers.
Of the many informative and innovative sessions powering the 2018 Benzinga Global Fintech Awards, none may be as important to the future of lending as the fireside chat between Cornelius Hurley, Executive Director at Online Lending Policy Institute, Colin Darke, General Counsel at Rocket Loans, and Jeremy Potter, Associate Counsel at Quicken Loans.
One of the main catalysts of the chat was a discussion about Hurley’s two main myths surrounding the future of lending:
Online lending is unregulated and is a shadow banking component.
There is a nexus between payday lending and online lending.
A longstanding real estate and private equity firm, Muirfield Investment Partners, has joined with AlphaPoint in an effort to offer its investors a more easily tradeable way to participate in the property market.
The idea is to use blockchain as a conduit for introducing more liquidity into the real estate market.
AlphaPoint’s plan is to see everything go on the blockchain. The actual asset won’t be on paper and tokenized, but that documentation will be stored using the tech. Further, it can use software to pay out dividends, if those are part of the deal, and to ensure that assets aren’t transferred to people they shouldn’t be.
If you want to attract and retain millennials, it’s all about the benefits. And no perks are more sought after among this group than studen loan benefits. In this post, guest author Alyssa Schaefer, the chief marketing officer of Laurel Road, a national online lender, explains why employers can’t wait to roll out student loan benefits if they’re serious about hiring the best and brightest millennials.
That’s why it’s so frustrating when the company you borrowed from sells your loan to another lender or stops servicing loans altogether.
Unfortunately, if you have BorrowersFirst personal loans, that’s exactly the position you’re in. BorrowersFirst no longer offers personal loans or manages loans for people who borrowed from it in the past.
In the new guide, Gartner discusses these key findings:
Data breaches have led to rampant compromise of personally identifiable information (PII). As a result, correctly reciting PII is worthless as a stand-alone method of corroborating a person’s claimed identity.
Onerous “identity proofing” methods for new-account opening and as part of step-up or multifactor authentication use cases increase customer abandonment. This creates a competitive liability when customer attrition and market share loss exceed the potential fraud loss.
Many technologies used in online fraud detection use cases, such as device reputation, can be used in identity proofing and substantiation use cases. In addition, these technologies can be invoked to elevate trust during subsequent interactions.
Peer-to-peer (P2P) lending has increased in popularity over recent decades, spurred on by the age of connectivity. Blockchain startups have been quick to recognize the benefits that the new technology can bring to P2P finance, directly connecting individuals who wish to exchange value without the need of any intermediaries such as banks.
Now, one startup plans to use artificial intelligence (AI) and machine learning in combination with blockchain technology to create a P2P lending platform for home loans. This could prove to be an ideal solution for frustrated millennials, who may be more open to using new technology to achieve their property ownership goals.
Possible social good applications include peer to peer lending, digital identities (ideal for refugees), protection against runaway inflation, campaign finance reform, direct democratic votes, solar energy trading and freedom of speech free from censorship.
UK Peer-to-peer lending platform RateSetter has topped the milestone of returning £100 million in pre-tax interest payments to its investors. RateSetter reports accomplishing this without any individual investor losing a penny.
THE Funding Circle SME Income Fund (FCIF) has reported its first drop in net asset value since 2016 after adopting new IFRS 9 reporting standards.
The new accountancy standards mean funds have to include potential losses in their portfolio. The fund, which invests in loans originated by peer-to-peer lender Funding Circle, revealed its returns were down 0.6 per cent in April after allowing for a 1.1 per cent provision.
This was the first drop in NAV since the fund’s first monthly update in November 2015 when it was down 0.1 per cent. The NAV had been consistently positive up until last month.
As Marcus looks to launch a UK savings product soon the bank is already eyeing additional European markets; they plan to make Germany the next stop, though it might be looking at 2019 or beyond; Marcus is slowly becoming an important part of the overall Goldman strategy as they look to diversify; their consumer brand has a goal to boost Goldmans’ revenues by 5 percent in three years.
Azbit, found online at Azbit.com, is an online trading platform that comes with built-in margin trading and algorithmic trading tools.
A pre-ICO Azbit tokens begins on July 1, 2018.
Azbit has an electronic payment system that will provide support and processing for all online and cryptocurrency payments, then offer additional services like instant exchange, a P2P debt platform, and P2P lending backed by your crypto portfolio.
Lithuania invites Chinese companies and investors to take advantage of a friendly and flexible FinTech environment in the country which offers broad development possibilities, chairman of the Board of the Bank of Lithuania, said on Tuesday ahead of his trip to Beijing.
It is estimated that by 2024 the annual growth of the global peer-to-peer lending market will amount to almost 50 percent in the country.
Equity crowdfunding platform OurCrowd recently reached a major milestone. The Israel-based company has surpassed $1 billion in assets under management.
OurCrowd is currently backing 150 startups across the globe and has previously helped 20 startups successfully exit from funding since its launch in 2013. One of OurCrowd’s most notable investments is Hyperloop, which it backed before Virgin Group invested in the company last year.
Cellulant, a Nairobi & Lagos–based digital payments provider, raised $47.5M in Series C funding.
The round was led by TPG Growth’s The Rise Fund, with participation from Endeavor Catalyst, Satya Capital, Velocity Capital & Progression Africa.
Led by Ken Njoroge, co-founder and Group CEO, and Bolaji Akinboro, co-founder and CEO, Cellulant Nigeria, Cellulant provides a digital payments platform that delivers connected, flexible payment options for consumers and businesses, and works with financial institutions, governments and mobile network operators to increase transparency and expand their reach in Africa.
News Comments Today’s main news: Sharestates forms sister company, launches $300M fund with bank partners. UK mortgage industry in need of innovation, says FCA. PaisaDukan raises $225K in seed money. ShopBack buys Seedly. Today’s main analysis: Credit card usage at all-time high, delinquency rates in check. Today’s thought-provoking articles: Ant Financial is getting policy attention in China. Investor experience […]
Amazon – stop being everything to everybody. AT: “If you’re looking for evidence that Amazon is trying to be a bank, you might find it here, but what they’re really up to goes well beyond financial services. This is a pretty good look at Amazon’s business model, but when will they experience the point of diminishing returns?”
Sharestates, an online real estate investment platform, today announced their partnership with prominent bank partners and equity investors, launching a new $300 Million fund that will provide individual and institutional investors with increased funding power for real estate deals.
Coinciding with the launch of the $300 Million fund will be Syndicate Profile, a sister company offering 12-40% annual returns to investors with the potential for quarterly cash flow. With individual investments starting at $25,000, individual and institutional investors, as well as family offices, will be able to deploy capital across a spectrum of real estate opportunities not available outside of Syndicate Profile.
TransUnion’s report found that serious credit card delinquency rates per borrower (90+ DPD) increased in Q1 2018 to 1.78%, up from 1.69% in Q1 2017. The delinquency rate is now level with the 1.77% mark observed six years prior in Q1 2012, though it remains below the 10-year first quarter average of 1.91%. The average card debt per borrower also followed a similar path as delinquencies during the last year, rising 2.63% to $5,472 in Q1 2018 from $5,332 in Q1 2017.
The number of credit card accounts rose 2.6% in the last year to 416.5 million in Q1 2018, up from 405.8 million in Q1 2017. In that same timeframe, the number of consumers with access to a credit card also increased by 2.1% to 174.9 million from 171.4 million one year ago.
The latest origination data point to a modest 1% growth rate between Q4 2017 and Q4 2016.
Changes between Q1 2018 and Q1 2017 for Key Consumer Credit Metrics
A bill (Senate Bill S8340) sitting in the New York State Senate now, will create a limited state charter for internet lending.
Sponsored by New York State Senator Elaine Phillips, the bill would authorize the Department of Financial Services (DFS) to issue a new, limited state charter to “Internet Lending Services Corporations.” These entities are defined as businesses making loans over an internet or electronic platform.
An article in the FT shares examples of businesses that have not benefited from the recent economic expansion and at the same time took out loans; companies with poor credit ratings took out $564 billion in commercial loans in 2017 which beat out a record set before the financial crisis; these loans are funded by private equity firms and other types of asset managers; the article notes that loan quality may be deteriorating as more capital enters the space and lenders look to make riskier loans.
Heeding predictions that the future of banking is digital, banks of every size now offer customers mobile and online ways of opening accounts. Yet according to J.D. Power, the majority of customers — even millennials who prefer digital banking — say they open bank accounts in branches because it is too confusing to do so online.
The online lender is considering a roughly 30-acre site in downtown Pineville for its headquarters after determining that its plans for SouthPark would not be adequate to accommodate its growth. LendingTree will go before Pineville Town Council on Tuesday to discuss its proposal for what’s known as the Cone Mill site, at 436 Cone Ave.
CyberMiles (CMT) is one project that has been flying under the radar for some time now, but one that has the potential to transform ecommerce as we know it for good. Think of it like a next generation eBay. Therefore, it is not surprising that it was selected as the most promising blockchains during the recent global blockchain technology expo.
FinTech Breakthrough, an independent organization that recognizes the top companies, technologies and products in the global FinTech market, today announced that it has selected CIT‘s point-of-sale digital platform as the winner of its “Best Small Business Lending Solution” award. The platform allows business customers to finance their purchases at the point-of-sale in as little as five minutes.
CIT’s point-of-sale platform finances B2B purchases of more than $2,500. An automated credit process and mobile document signing, simplifies the financing experience enabling customers to shop, apply and complete purchases either in store or online.
The Financial Conduct Authority (FCA) has published an interim report on UK mortgage market. According to the FCA, Mortgage debt accounts for over 80% of total UK household liabilities – so this is a significant sector of finance that has a profound impact on individuals.
While the FCA found that competition was effective for providing home financing, the sector of finance could do with a bit more innovation.
Spanning online payments, insurance, lending, credit scores, asset management and more, Jack Ma’s Chinese behemoth resembles a mashup of PayPal, Geico, Wells Fargo and Equifax — with a bit of BlackRock thrown in for good measure. Thanks to clever mobile apps and a burgeoning Chinese middle class, Ant oversees the world’s biggest money-market fundand handles more than $2.4 trillion of mobile payments every three months. Many of the company’s 870 million customers rely on it for nearly every aspect of their financial lives.
But Ant’s extraordinary reach may soon expose the company to a major challenge: Chinese policy makers, worried that Ant and other financial holding companies pose systemic risks to the nation’s $12.7 trillion economy, are drafting new regulations that could make it much harder for the companies to grow.
CEBNet, which is the news source for China’s banking sector, reported on Friday that twelve of the 26 Chinese banks had included in their annual filings a case in which blockchain applications were accepted to be used in different cases over the past year. Among these institutions, there are commercial banks, including China Construction Bank, Bank of China, and the Agriculture Bank of China, as well as private ones such as the Chinese Merchants Bank and some other banks at the city level.
Peer-to-peer lending is turning to a priority type of additional income for a growing number of the European investors and going to increase its importance in the next few years. According to the studies conducted by the own analytical center of the Latvian P2P platform Robo.cash, the younger generation of investors who consider P2P lending as an advantageous and comfortable financial tool will contribute to the dynamics greatly.
The younger generation is speeding up
With an account of stagnating interest rates on deposits in developed countries, as well as the cautious lending policies held by banks after the global economic crisis, alternative lending is attracting more and more investors and borrowers. Its volumes have grown drastically and the global scale is predictedto come close to $1 trillion by 2025. The increased volume of investments made by investors, who are already experienced in P2P lending, and a grown number of new investors help to maintain such a high momentum on the market.
The own statistics of the P2P platform Robo.cash working in the European market since February 2017 shows that 22-37-year-old Millennials are steadily catching up with an elder generation of investors. This promises to create a favorable environment for the further growth of alternative lending globally. Six months ago, an average age of investors of the platform was equal to 38 years and age groups were distributed as follows: Silent Generation (73-90) — 0.8%; Baby Boomers (54-72) — 9.5%; Gen X (38-53) — 38.6%; Millennials (22-37) — 50.3% and Post-Millennials (18-21) — 0.8%. Today, the typical investor has grown younger to 37 years due to the increased share of investors under 37 years old: Millennials — 53.9% and Post-Millennials — 1.8%.
Open Banking, which is the sister regulation of the EU’s PSD2 legislation, is off to a slow start – but that is to be expected. We’re only at the start of a revolution which will unleash an incredible range of innovative financial services and products, and profoundly change the financial and tech industry. Ultimately, it may radically alter how we think about money and do business.
Data sources have been restricted or denied, integration was complex and slow, and there was no universal regime for security and compliance. In short, all the cards were stacked in favour of financial institutions – they could push exclusive arrangements or buy any solution perceived as a threat at a very early stage. As a result, innovation has been largely restricted to international payment processing, automation, peer-to-peer lending and accounting software. Scaling a consumer focused fintech solution that seeks to do a core banking service better or cheaper has been incredibly difficult to pull off. Open Banking turns this situation on its head.
While Amazon may have missed out in the purchase of Flipkart, Amazon just extended it’s investment into India’s Capital Float – India’s largest online lender.
May, 2018 – Amazon Pay – Who moved PayPal and Square’s cheese? Amazon did.
March, 2018 – Amazon Checking Account
March, 2018 – Amazon Mortgage – Amazon is making it’s first inroad into personal finance with Amazon Mortgage.
Feb, 2018 – Amazon Lending – We have known this for sometime now, Amazon Lending started back in 2011 has made over 3 billion worth of loans to small businesses that sells goods on their platform. An invitation only program, Amazon lends anywhere from $1,000 to $750,000. Terms are favorable to credit cards and the fees a deducted from the merchant’s seller accounts at Amazon. Of course amazon uses sellers inventory, product mix and revenue data to underwrite but now with the help of Bank of America, Amazon is ready to restart their SME (Small and Medium-sized Enterprises) lending in a big way again. This is a direct threat to OnDeck, recently teamed up with JPMorgan Chase and Kabbage, which might need to re-stack their chips and integrate more with Ebay and Paypal. – “Amazon has partnered with Bank of America for its lending program: Sources” –
Ten years before Jeff Bezos founded Amazon.com, a movie entitled “1984” was released. If you haven’t watched this film, stop reading and do yourself a favor and get it today…. on Amazon. DOH!
There are a few main ways how AI is used today in the financial world.
Advanced customer service
Lowering the risk in P2P lending
Improved insurance support
Enhanced investment analysis
This company is a P2P lender that actively uses AI in their service. Their company is situated in the USA. They created AI algorithms that can assess all risks of lending money to a certain customer, and it allows managers of the company to give loans very fast.
PaisaDukan.com, a P2P Lending marketplace owned by Mumbai based FinTech start-up BigWin Infotech today announced second round of seed funding and secured USD 225K through angel investment. The company has raised $650K of seed funding last month that takes company to the total Seed investment of $875K till date. The investors’ names are still undisclosed by the company.
Fintech Valley Vizag, an initiative of Government of Andhra Pradesh, conducted a demo day to enable startups to showcase their solutions to leading corporates in banking and financial industry. As a part of this Connect, eight corporate partners who were looking for innovative solutions shared their 19 high priority use cases. These corporate partners included ICICI Lombard, DCB, Kotak Mahindra, RBL Bank, Fullerton India, IDFC, Tata Capital and Bajaj Allianz.
UAE-based company Vault Investment and Vietnamese MIG Holding, announced that they have aligned to form Relam Investment Company LLC.
Lootah also announced three new technological investment projects. The first would serve the real estate sector through the crowdfunding platform.
During the launch ceremony today, Relam Investment Company signed three partnership agreements. The second agreement was with Cygnus Technology Services represented by Mr. Swapnil Patil which is a technological company to launch the services system (OYA) in UAE and Vietnam followed by the agreement for BRICX – a Real Estate Crowdfunding project with MMD Technologies represented by Mr. Samy Moselhy.
A thriving economy starts with local investments, and for my future and the future of my kids, I know that investing in Israel is the right choice moving forward. Low risk investment optionsexist, and this includes your standard bonds, real estate and certain stock options.
It’s difficult to help fund a startup through venture capital, but through peer to peer lending, a lot of investors can invest in local, small companies. OurCrowd is a go-to choice, based in Israel, that allows you to invest in upcoming startups.
Singapore-based ShopBack, an online product comparison and rewards platform, has made its first acquisition. The company snapped up Seedly, which focuses on personal finance advice and expense tracking for young people.
Founded in 2016, Seedly developed an app that allows users to connect their bank accounts and credit cards as well as get detailed reports about their spending habits.
On its website, community members can ask each other questions and review products like mobile plans, lending startups, and robo-advisors.
News Comments Today’s main news: Credit Card ABS vs installment loans ABS comparison. Assetz Capital hits 240M GBP in four years. Octopus Choice close to 50M GBP in first year. Lendix expands to Italy. Today’s main analysis: 90+ wealthtech companies. Today’s thought-provoking articles: 88% of global banks sweat losing revenue to fintechs. 17 fintechs that may become unicorns. China SME […]
Credit Card ABS vs installment loans ABS comparison. GP:” People often try to use credit cards data, which there is plenty of, and goes back very far, to predict installment loans behavior. However, Americans have a priority in defaults which is proportional to the pain point if the product stops working. We believe unsecured personal loans are very low on the totem pole of default priorities. PeerIQ here analyzed the difference quantitatively and concluded very interestingly: ‘Peak delinquencies in credit card ABS are ~8% in a stress scenario. By contrast, three-year unsecured personal loans (such as loans in the seminal CHAI shelf) are typically associated with a ~12% cumulative loss estimate (under a benign base case).’ “
90+ companies transforming investment, wealth management. GP:” We saw Wealthfron enter lending last week. Perhaps we should look at a few other companies for partnerships.” AT: “WealthTech as a sub-niche seems to have come out of nowhere. Yet, many of these companies are important to the overall fintech ecosystem, and I see WealthTech growing by leaps and bounds worldwide in the foreseeable future.”
Fintech puts payday lending in old wine in new bottles. GP:” It is very hard to point exactly when innovation happens. Before 1990 there was no online payday lending, because there was no internet. Today it exists. Something did change. Everything we build is built on top of online lending. Perhaps lending was invented when the first money was invented and searching who invented something, for the glory, is not very useful in this case. We are losing time with the history of lending or with the exact meaning of certain words. I would rather look who is making the money, Elevate Credit or brick and mortar stores? Who’s revenue is growing?”
Fintech lures MBAs away from banking and consulting. GP:”Fintechs even lures executives and CEOs of Wall Street banks, no wonder MBAs are also following. “AT: “We’re also starting to see banks and traditional financial institutions poach talent from the fintech companies.”
Global banks sweat losing revenue to fintechs. GP:”I think they are right to be concerned in a world with Uber, AirBnB, mobile phones, and in a market where there is no need for hardware or physical assets to be competitive and scale fast.”
Indonesia’s fintech landscape. GP:” The Indonesian market is particularly closed to international ownership, investment, etc. However, they are the 4th most populous country in the world and their financial sector is far from being mature. Which leaves a lot of opportunity if people are willing to approach the Indonesian market properly, perhaps in partnership with local entrepreneurs and by structuring firms through local law firms .”
Banks earnings season continued this week following strong Q1 results from JP Morgan and Citi last week. Morgan Stanley beat expectations on each line of business increasing year-over-year profits by 82%. The investment bank also generated 122% YOY revenue growth in the fixed income currency and commodities business. Bank of America exceeded expectations and benefitted from the greater net interest income due to a rise in long-term rates.
For the first time since 2015, GS surprised analysts by missing expectations on top and bottom line performance. Fixed income revenues were flat year-over-year trailing double-digit business unit gains across peers including JPM, C, MS, and BAC.
Bloomberg reports that, Navient, the largest servicer of student loans, reached an agreement to purchase JPMorgan’s approximately $6.9 Bn FFELP education loan portfolio.
In the ABS space, Yirendai reported its progress in funding consumer loan products via ABS. Another Chinese online lender, China Rapid Finance, announced that it plans to list on the NYSE, making it the second Chinese online lender to go public in the US.
We are often asked by investors whether credit card receivables are a proxy for installment loan performance. This week, we dig into credit performance of credit card securitizations representing over $100 Bn+ in consumer credit ABS deals. We include the following issuers in our analysis: American Express, Bank of America, Discover, Capital One, JP Morgan Chase, and Citi.
We compare delinquency and loss levels of credit card ABS to installment loans and conclude that credit card ABS performance is a poor proxy for installment loans, and that installment loan delinquencies are arguably a leading indicator of credit risk.
Credit Card ABS – A Strong History of Credit Performance
The credit card ABS market has historically been the benchmark sector in consumer ABS due to its liquidity, transparency, and strong performance including through the Great Recession.
The Credit Card ABS market is not an originate to distribute risk-transfer market, but rather a critical channel for funding and liquidity. Issuer incentives are strongly aligned with investors due to their dependence on debt capital markets for funding. Credit Card ABS provides over 50% of funding for card issuers (followed by deposits). New Credit Card ABS issuance is expected to grow in the wake of higher rates and funding costs from deposits.
Post-2008, new ABS issuance contracted significantly, including in the credit card markets. Consumers entered a de-leveraging phase reducing demand for loans. Large banks, in response to the new capital and liquidity regime, shifted to borrowers with higher credit scores and focused on existing relationships. Wider spreads and higher capital charges also reduced available sources of funding for consumer credit.
Post-crisis, non-bank lenders emerged to fill the lending gap by offering installment loan products to expand access to credit. Since installment loans sometime re-finance higher rate credit card debt, some investors have drawn analogies between credit card performance to installment loan debt.
Credit Card ABS Delinquencies are Near Multi-Decade Lows
In our March 2016 newsletter, we discussed credit card master trust performance, noting that delinquencies from 2011 through 2015 followed a downward trend for major credit card issuers.
We continue our analysis below, observing delinquencies continuing the downward trend in 2016, reaching historic lows in early 2016.
While the Composite index shows this trend, there is variability among the individual trusts. Discover and Capital One, with a mass-market tilt in customer base, experienced larger rises in delinquencies, compared to Amex and Chase which have a mass affluent footprint.
Installment Loans Lead Credit Card Losses
There are limitations in comparing delinquency rates on credit card ABS to installment loans. For instance, unlike MPL ABS deals which consist of static pools, credit card trusts are revolving securitizations that re-invest principal and interest over time. Also, we do not have access to the credit score distributions for credit card issuers to compare risk on an apples-to-apples basis.
Delinquencies on credit cards reached multi-decade all-time lows in early 2016.
Credit card delinquencies are in early stages of reverting to historical levels, whereas the Loan Performance Monitor indicates that the unsecured personal installment loans have started a pattern of higher losses in successive vintages starting in 2015.
Through-the-cycle losses on credit card products are lower than losses on installment lending products.
Peak delinquencies in credit card ABS are ~8% in a stress scenario. By contrast, three-year unsecured personal loans (such as loans in the seminal CHAI shelf) are typically associated with a ~12% cumulative loss estimate (under a benign base case).
Note: We should expect higher losses on installment loans as non-banks offer access to credit to borrower segments outside of a traditional bank’s higher credit score underwriting box.
Historical credit card performance data is a poor proxy for measuring installment loan performance.
We can also offer the following tentative hypotheses which we look forward to testing with our TransUnion partnership:
Installment loans are lower in the consumer payment priority stack.
Installment loan losses lead performance in other asset classes such as credit card.
Credit card account management strategies (e.g., re-pricing of delinquent loans, credit line decrease tactics, etc.) are powerful levers for managing risk as compared to installment loans where issuers can only set terms at time of approval.
Deeper borrower relationship engagement (as measured by breadth of product penetration) reduces borrower’s credit risk all things being equal.
We identified over 90 companies in the wealth tech space and organized them into 7 main categories based on the services and software they offer, then sub-categorized them by the client group they serve, whether business-to-consumer (B2C), business-to-business (B2B) or both.
Wealthfront has raised approximately $129.5M from investors, including Social Capital, Spark Capital, Greylock Partners, and Index Ventures.
This includes AdvisorEngine which raised a $20M Series A investment from WisdomTree Investments.
Stash, for example, is a goal-based digital investment platform that lets investors contribute as little as $5. Another company, Acorns, rounds up credit and debit card purchases to the nearest dollar then automatically collects and invests that spare change.
This category is exclusively B2B focused and includes Plaid Technologies, a software intermediary that securely connects financial application users with their respective bank accounts.
Click here to see a full list of WealthTech startups.
FinTech continues to see massive investment across the board and according to the annual FinTech Report, global cumulative investment will exceed $150 billion in 2017 alone. At least 80% of financial institutions PwC recently surveyed believe that they are at risk to innovators whether that be mobile banks like Monzo and N26 or more hardcore technological innovations like Lemonade and Algodynamix who want to change FinTech from the inside out with AI and other technologies like Blockchain. Trust is central to all of these emerging propositions whether it is from an emotional perspective because of previous traditional banking issues or a technological one like Blockchain.
Tom Blomfield, CEO, Monzo wants the youth market to come through word of mouth; “We’re focused on people who live their lives on their smartphones. Generally (but certainly not exclusively), these people tend to be younger and more willing to try out new products and services. For these customers, ‘trust’ is earned by making a product or service that demonstrably works well. It’s less about expensive advertising campaigns or branches on the high street… For us, it’s centred around transparency and community. We have a very active community forum.”
Ajay Bhalla, President, Global Enterprise and Security, Mastercard wants to increase trust by removing friction from the tedium of security.
Allianz Invests in Lemonade (PR Newswire), Rated: A
Lemonade, the insurance company powered by artificial intelligence and behavioral economics, today announced a strategic investment by Allianz, the world’s largest insurance company.
U.S. stock exchange group Nasdaq (Nasdaq: NDAQ), announced on Wednesday the launch of its venture investment program, Nasdaq Ventures, which is dedicated to discovering, investing in and partnering with unique fintech companies worldwide. According to the group, this program’s main objective is to identify and collaborate on new technologies and groundbreaking services and solutions which align with its clients’ needs an d the company’s long-term objectives in the global capital markets.
As banking continues to go digital, online innovators and niche players in North America are getting personal by adding social activities to their customer services.
SoFi, short for Social Financial, combines better rates on student loan refinancing with parties for its members (aka borrowers), around the country. It even offers career and financial counselling.
CommonBond offers an online student loan evaluation tool to help prospects determine the best ways to manage their debt. It estimates that members save an average of $14,581 as they repay their student loans, and even more for people like doctors and dentists with advanced degrees and higher debts.
And before you conclude that I am being a reflexive skeptic, Georgetown law professor Adam Levitin weighed in via e-mail:
First, Fintech is a meaningless term. The consumer-facing stuff is mainly (1) gussied up payday lenders (see, e.g., Think Financial and their tribal lending alliances), (2) money transmitters, and (3) BitCoin Bros. The money transmitters are probably harmless enough, but the first group are just trying to escape state usury laws and rollover restrictions, while the third group are grab bag of fools and con artists who think they are much more clever than they actually are. People on the Hill go ga-ga for Fintech without having any real knowledge of what they are and assuming that a digital platform represents a material (and better) transformation of a product.
The Lyric Financial website is remarkably content-free, particularly for specific product features and details of terms and conditions. Apart from the cloying trendiness which it is far too early in the morning to stomach, it’s very hard to find out what the deal really is.
You’re subjected to mandatory binding arbitration, which for a sophisticated product aimed at financially unsophisticated customers is a very bad sign.
It gets worse. In the bowels of their T’s and C’s I found this:
These Terms & Conditions, as well as any claims arising from or related thereto, whether in tort, contract or otherwise, are governed by, and are to be interpreted and enforced in accordance with, the laws of the State of Tennessee, without regard to New York’s conflicts of laws principles.
Which sounds suspect – my take is that they are under Tennessee’s statutes (don’t know if that signifies anything noteworthy, either good or bad) but they don’t want to be liable under an aspect of NY law (which I’m guessing is much better settled and consumer-friendly than TN’s).
Many fintech founders went to business school. Insead’s MBA alumni include Giles Andrews, British founder of peer-to-peer lending platform Zopa, and Taavet Hinrikus, the Estonian-born chief executive of online foreign exchange marketplace TransferWise. Jeff Lynn and Carlos Silva jointly developed the business plan for equity crowdfunding business Seedrs as part of their MBA course at Oxford’s Saïd Business School.
Now, as fintech founders grow their businesses, they are heading back to business schools to find well-qualified staff. About a fifth of hires from the international MBA class at Madrid’s IE Business School last year were made by financial services companies. Fintechs made 5 per cent of those hires, up from none last year.
Eight of Nutmeg’s 78 staff are MBA graduates, including two product managers, its chief marketing officer, chief architect and head engineer.
MBA graduates are unlikely to join fintech companies in the expectation of high salaries. Many,particularly those who have worked in private equity, understand start-ups operate differently, Nutmeg’s Mr Hungerford says.
Biz2Credit announce on Thursday it has formed a partnership with Puerto Rico’s Oriental Bank to help develop a digital lending platform for the bank’s commercial clients. According to the Biz2Credit, Oriental Bank will be considered the first bank in Puerto Rico to engage commercial clients through a digital platform that supports applications for business credit cards, as well as lines of credit, term loans, real estate loans, equipment purchase, and SBA loans.
Elevate Credit, Inc. (“Elevate”), a leading provider of innovative online credit solutions for nonprime consumers, today announced the appointment of Tony Leopold as the General Manager of its Rise product, effective immediately.
BMO Harris Bank today announced a partnership with 1871 – a leading technology and entrepreneurship ecosystem which is currently home to nearly 500 high-growth digital startups in the Merchandise Mart – that will provide a select group of FinTech startups the opportunity to participate in a three-month mentorship program.
ASSETZ Capital hit its fourth anniversary with £240m lent to date and a plan to double that figure over the next 12 months.
The peer-to-peer lending platform, which channels funds to small- and medium-sized enterprises (SMEs) and small property developers, confirmed on Friday that it has returned over £20m of interest to investors since inception, yielding rates ranging between 3.75 and 18 per cent to investors.
OCTOPUS Choice is set to have raised £50m within its first year of operation.
The lender offers average returns of 4.2 per cent based on conservative loans-to-value of up to 70 per cent and currently has 20 loans open for investment.
It pre-funds the loans, which a spokesman said has been given the green light by the Financial Conduct Authority (FCA) – despite several other P2P lenders having to stop the practice in order to gain approval from the City watchdog.
The platform’s loan book shows it has funded loans of as little as £95,000 to more than £5m, secured on properties valued between £175,000 and £8m.
According to a report published by GP Bullhound, TransferWise is one of Europe’s fastest growing unicorns. Also, according to the same report, the UK has the largest number of fastest growing unicorns, which are fast-growth, profitable businesses at 18 with a cumulative value of $39.6 bln.
Despite the clouds of Brexit looming, British tech deals hit a high in 2016 according to GP Bullhound. Whether the growth in the tech sector can be maintained post-Brexit is an interesting question.
Anyone can use robo-advice to manage their finances, whether that involves a £500 initial investment in a Stocks and Shares ISA, or a £100,000 Self Invested Personal Pension (SIPP).
Just last year, the Financial Conduct Authority (FCA) warned that 16 million UK consumers could be trapped in a ‘financial advice gap’ where they need professional investment advice but simply can’t afford it.
There is a £310 billion shortfall in the UK’s pension savings, according to Aviva’s calculations, while Zurich Insurance recently found that 41% of women and 30% of men aged 25 to 39 have nothing saved in their pension fund.
According to a MetLife survey, 45% of retirement savers are so concerned about their dwindling returns that they feel forced to take on more risk – a decision which could have disastrous consequences in the absence of professional financial guidance.
European marketplace lending platform Lendix has opened its platform to Italian SMEs. As of today, Italian businesses may borrow from €30,000 to €2 million directly financed by international investors. Lendix called the operation “a new step towards a true European credit market.”
The report, Global Fintech Report 2017 [PDF], found that 88 percent of global banks are increasingly concerned that they will lose revenue to fintech businesses. The areas major banks feel they will lose out on include payments, fund transfers and personal finance sectors. In response, 82 percent claim that they intend to increase partnerships with financial technology services over the next three to five years.
The survey found that difference in management and culture in addition to regulatory uncertainty and legacy technology limitations, are identified as being significant challenges for financial technology companies and banks. Not only that, but banks are restricted to a system of checks and balances that can hinder the innovation process while fintechs are able to adapt easily due to a lack of bureaucracy.
GP Bullhound, a boutique investment bank focused on tech, on Thursday published an in-depth report looking at the global fintech industry.
The report found 39 fintech companies around the world already valued at $1 billion or over, and found that global venture capital investment into the sector has risen almost fivefold in the past three years to reach $13.6 billion in 2016.
GP Bullhound identified promising businesses in the alternative lending space, data analytics, digital banking, insurance, and asset management. Here are the 17 businesses that made the cut and, in GP Bullhound’s view, could be the next fintech unicorns:
LendInvest — Online mortgage platform
Prodigy Finance — Peer-to-peer university loans for overseas students
ID Finance — Online lending in Russia
Ebury — Financing for small businesses trading overseas
iZettle — Mobile phone linked card readers
WorldRemit — International money transfer on your smartphone
Cardlytics — Analytics of card spending
Kreditech — Digital credit scoring and lending
Taulia — Supply chain finance
PolicyBazaar — Indian insurance marketplace
Collective Health — Tools for employers to manage company health insurance
Atom — Digital-only challenger bank
OakNorth — Digital challenger bank pitched at entrepreneurs
N26 — App-only bank that is hugely popular across Europe
Small business lending activity across the globe is in flux. China saw a whopping 17 percent increase in small business lending in Q1, while U.S. banks are rebooting their efforts to capture SMEs from their alternative rivals. The U.K. and Canada, meanwhile, see their small businesses struggling to find financing.
$3.2 trillion worth of outstanding SME loans in China means lending activity to small businesses in the community has inched up in Q1 2017. New data from the People’s Bank of China released the statistic, which signals a 17 percent increase from a year ago, reports said.
Three out of five London SMEs have been turned away from lenders, according to data released by SME finance LDF. Its research revealed that more than half of London’s SMEs say the jargon associated with financing has turned them off from accessing a loan, and 57.6 percent said they have been turned down from a loan outright.
Fewer than 15 percent of Canada’s small businesses are run by entrepreneurs aged 25 to 39, said CIBC Capital Markets in a new report.
Three minutes could be all it takes for a small business to get financed from NatWest. The bank said last week that it has rolled out a new platform for its SME customers that have been pre-assessed for financing.
A dip of 1.1 in the PayNet Small Business Lending Index may appear to be bad news — signaling a slight decline in Canadian small business lending in February compared to January. But according to PayNet data, medium-sized business lending increased nearly two points in the index, marking the highest level since January 2016 and reflecting separate data from CIBC Capital Markets that signals strong growth among Canada’s SME community.
You recently answered a question regarding the safety of a home loan with an online lender (the debt would be on-sold to another provider and the loan would continue). My question relates to the security of money in an associated offset account. How secure would the money in the offset account be? If the lender goes bust would they be able to take all of our savings in the offset account and then on-sell the full value of the loan?
There was a time when a compelling reason not to go with a cheaper online lender was that, not being authorised deposit-taking institutions, they could not offer offset accounts. Some have since begun splitting out certain repayments in a quasi offset – on occasion, simply like a displayed redraw facility.
But there is a downside: offset accounts set up in this way are not subject to the Financial Claims Scheme or the scheme protecting deposits of up to $250,000 in the event the provider goes bust … only truly separate deposit accounts of locally incorporated authorised deposit-taking institutions (ADIs) are, whether they are offset or not.
Note APRA regulates ADIs (mainly banks, building societies and credit unions); online and other non-bank lenders are subject to the Consumer Credit Code and can be ruled on by the Credit and Investments Ombudsman.
Gerard Brody, chief executive of Consumer Action, says: “Non-bank lenders that offer these products should be warning customers clearly that if they go under, the money in the account won’t be protected by the government guarantee.”
On April 11, Xiaomi Corp., China’s leading mobile phone maker, launched the mobile application Xiaomi Lending in Android market, signaling a strong ambition to expand in the country’s booming Internet Finance sector.
On March 20, Dianrong.com announced to enter into a strategic partnership with Quark Finance, with an aim to launch a new online microcredit platform.
On April 12, Chinese online peer-to-peer lending service Renrendai.com announced that its P2P business would be operated as an independent platform.
National Internet Finance Association of China has announced the first major report to its members regarding the legal and regulatory status of consumer finance. The document, which is echoing to the P2P Finance Association established by the organization in March, is the first to officially classify consumer finance in the eyes of the Chinese government.
On April 8, the first Committee of Internet Finance Law was established in Beijing. The committee held symposiums about the technology innovation and legal protection in Fintech industry, which attracted several representatives of governmental organizations and university professors.
However, what is noteworthy is that P2P as a product does have the ability to make a real difference in the financial inclusion space.
According to “Accenture’s Digital Disruption: The Growth Multiplier” report, digital tech could power $2 trillion of global economic output by 2020. The survey states that the US is leading the race with digital revenue making up a third (33%) of output. In terms of industry sector, Financial Services is the largest contributor in terms of their digital contribution to national and global GDP. In fact the same is true for every country across the world.
P2P lending and borrowing ticks all the boxes in terms of being simple, rates that appeal to both borrowers and lenders and is available to individuals often neglected by banks. As a result, it is finding traction regardless of social strata, age or education.
Our lenders are young with 51% belonging to the age bracket of 30-39 years. About 36 % of the lenders are over 40 and 13 % are below the age of 30.
It is well known in India that it is very difficult to get a loan from a bank if you are an SME. When we talk of financial inclusion, it should not be merely limited to an individual, but also ensuring access to finance for companies of all sizes. P2P has done a great job in lending to SMEs and this is largely possible because of wide range of data sets used to arrive at a lending decision.
Financial institutions are increasingly at risk of losing business to fintech innovators, with 67 per cent already feeling the heat, says a PwC study.
According to PwC’s Global FinTech Report, 67 per cent believe their business is at risk from financial technology (fintech) firms and as many as 95 per cent of incumbents seek to explore fintech partnerships to boost innovations.
In India, 67 per cent financial institutions acknowledge that non-traditional fintech poses a threat to their businesses, lower than the global average of 80 per cent, indicating that the market in India is not yet as matured as it is globally.
Finahub Technology Solutions, a Kerala-based software technology solutions company, is riding a building wave in financial services–the increasing use of Aadhaar-enabled e-KYC (know your customer) by banks and non-banking financial services (NBFC).
The bank or the financial institution is a KYC User Agency, and must first register with the UIDAI. The intermediary, called a KYC Service Agency, transfers the confidential Aadhaar information in an encoded form from the user to the UIDAI, and then back to the bank’s server.
The software solutions provider, in this case Finahub, provides software that connects all the points in the chain.
The software solutions provider, in this case Finahub, provides software that connects all the points in the chain.
The company also offers an Aadhaar e-sign facility as an add-on service. If this option is chosen, once the e-KYC process is complete, the bank’s representative asks the customer to scan his fingerprint a second time.
From 2008 until 2013, the investment value in fintech had increased threefold.
As reported by Tech In Asia, in Indonesia fintech is the business sector with the second largest investment in 2016, after e-commerce. According to Bank Indonesia, there are around 142 local fintech companies in Indonesia. They are categorized into four types: Market Provisioning, which includes CekAja and Cermati; Deposit, Lending, and Capital Raising, which includes UangTeman and Investree; Investment and Risk Management, which includes Bareksa and Stockbit; and Payment, Clearing, and Settlement, which includes Midtrans and Doku. This last category is the one with the most players, comprising around 80 companies.
There are at least 11 fintech startups that received funding from investors during 2016.
The agreement, signed on Friday, provides a framework for the two regulators to share information on market trends and regulatory issues that develop from innovation within their respective markets.
The regulator said increased co-operation between the two regulators will support them to promote innovative practice, and described the agreement as “positive confirmation” of the relationship between ASIC and the OJK.
The emergence of Africa’s FinTech industry, through its software and platforms, has made financial products and services more accessible to consumers in developing countries with low standards of living. It has also made these products and services more affordable by reducing the cost of doing business for financial institutions and other intermediaries.
Africa’s largest economy, Nigeria has experienced 27% growth in mobile money usage between the years of 2011 and 2016. The country’s FinTech industry currently comprises of over 50 companies with investments exceeding $200m in the last two years. Nigeria, according to Irrational Innovations, has developed effective payment and lending platforms, with 37% of FinTech start-ups focused on offering payment and remittances services (such as Paga and Remitta) while 32% offer lending and financing services (like Renmoney and Onefi). The remaining 31% are divided amongst insurance, banking, trading, data, bitcoin and business solutions.
Kenya has also exhibited very promising potential and growth in the mobile money lending operations. In March 2015, financial times reported that $150m worth of loans had been issued to borrowers, following the collaboration between Kenya Commercial Bank and M-Pesa (a mobile money platform). The vast majority of these borrowers are low income earners previously regarded as un-bankable due to their lack of credit history and access to financial services (financial exclusion).
Ghana has also been on the rise in regards to Africa’s FinTech space. As of 2009, about 70% of Ghana’s population were un-banked, and the country had a GDP growth rate of 4%. But between 2011 and 2015, largely due to the utilisation of mobile money, the country recorded a 41% increase in the population’s access to formal financial services, as well as a compounded GDP growth rate of 7.7% between the same periods.
The use of mobile money in Sub-Saharan Africa has increased over the years, with approximately 70% of adults in Kenya, for example, utilising mobile phones for money transactions. African small- to medium-sized businesses (SMEs) account for over 45% and 33% of the continent’s employment and GDP rates respectively.
News Comments Today’s main news: OnDeck’s bumpy ride isn’t over. UK equity crowdfunding recovers. Capital Float partners with Amazon in India. Today’s main analysis: Subprime auto loan delinquencies on the rise. 8 out of 10 online shoppers vow not to return to retailers if they have bad returns experience. Today’s thought-provoking articles: The state of bank innovation. An earthquake […]
OnDeck’s bumpy ride isn’t over. AT: “I like the alternatives mentioned for OnDeck. Is a Kabbage-OnDeck merger feasible? Could other FinTech companies swoop in on Kabbage and sweep OnDeck off its feet first? It will be interesting to see what becomes of this troubled FinTech company.”
The state of bank innovation in 5 charts. AT: “While banks see the need for innovation, and large banks have the capital to make it happen, real innovation can’t happen if the talent goes to FinTech.”
Is Kabbage gearing up to buy OnDeck? AT: “This news broke yesterday, but the expectation that OnDeck will continue to decline makes the company vulnerable. But there is insight here in that OnDeck won’t be a cheap buy no matter who snags it–if anyone does.”
Alexa orders Starbucks from Ford Sync 3. AT: “This is an awesome IoT synchronization. I look forward to the day when I can pre-order fast food from a “drive-through” window on my dashboard and pick it up in the express lane.”
On Deck Capital Inc. jumped as much as 11 percent on Thursday after a report that the New York-based online lender is an acquisition target of closely held rival Kabbage Inc.
Assuming Kabbage were to propose a traditional takeover at a standard premium, it probably would be swiftly rejected by On Deck’s earliest investors, who still own a combined stake of more than 45 percent, according to data compiled by Bloomberg.
A different type of merger arrangement might not be such a terrible idea, especially in the face of potentially heightened regulation. Together, Kabbage and On Deck could share the costs of compliance, if increased scrutiny of online lending is formalized. The combined company could also cut overlapping costs and create scale, which may help it better compete against other providers of loans to small businesses including Square Inc., PayPal Holdings Inc. and CAN Capital.
Could Kabbage’s purported interest in On Deck draw other suitors?
Of the more than 100 banking executives surveyed for industry strategist Jim Marous, 71 percent cited improving the digital experience in their top three priorities for 2017; half also identified enhancing data analytics as a priority and 41 percent cited reducing operating costs.
Just 10 percent, most likely those from major institutions, indicated that investing in or partnering with a third-party fintech startup is a priority.
The biggest challenge for banks seems to be hiring and retaining innovation talent and leadership with the specialized skills necessary to lead an increasingly digital bank, according to a new report by Celent, Innovation Outlook 2017: Making Progress.
OnDeck Capital, Inc has market capitalization of $321 million at present, meaning it won’t be a cheap buy. But OnDeck has seen its share price drop 80 percent since first going public in 2014, and as of February of this year had posted five straight quarters of losses. And more losses are widely expected to come — OnDeck has already publicly noted that it has been forced to set aside additional funds for future losses after determining its calculations in its internal models were off.
Kabbage announced earlier this month that it has priced the largest asset-backed securitization of small business loans in the online lending industry. That means it will be selling about $525 million worth of loans to investors, which Kabbage says will allow it to up its loan volume to around $2.7 billion.
Ninety percent of those involved in the burgeoning marketplace lending industry anticipate an increase in traditional bank and marketplace lender partnerships in 2017, eOriginal, Inc., the expert in digital transactions, today announced as part of the results of a survey conducted at last week’s LendIt USA 2017 Conference in New York.
The increasing convergence of traditional and marketplace lenders was a sentiment echoed by Prosper President and eOriginal Advisory Board Member Ron Suber in his keynote at the conference. According to survey respondents, the anticipated growth in partnership was despite the ongoing obstacles for collaboration, including technology integration (38 percent) and conflicting goals (27 percent).
Survey takers were also asked to highlight challenges to growth within marketplace lending. The top answers included regulations (47 percent) and access to capital (25 percent). When asked to focus specifically on the adoption of end-to-end digital transaction management solution, participants cited the challenges to be full adoption by partners (31 percent), lack of infrastructure (29 percent), security and privacy concerns (22 percent) and cost (17 percent).
Starbucks just recently announced an ordering integration with Ford’s SYNC3, the automaker’s voice-activated technology powered by Alexa. In a nutshell, this will allow drivers to voice-order their caffeinated beverage of choice while on the road.
On the new in-car voice ordering feature, customers reportedly assign their usual Starbucks order in advance and can direct the request to the 10 stores they’ve most ordered from.
At the recent Lendit conference, CEO Scott Sanborn made an interesting argument: that online lending is currently in a similar place to online retail at the turn of the millennium. He read passages from a 1999 Barron’s story, “Amazon.bomb,” which criticized Jeff Bezos and foretold the end of Amazon(NASDAQ: AMZN)as we know it. As Amazon investors are well aware, that didn’t happen!
Does Sanborn have a point?
Lending Club was also a first mover in its field, and commands a leading 45% market share Sanborn argues this scale enables a similar “network effect” that will allow Lending Club to get through this tough period.
The second parallel Sanborn drew was cost savings. Just as online retailers like Amazon cut out the costs of physical stores, Lending Club and other online lenders don’t need bank branches or human underwriters. These costs savings allow online lenders to offer loans at lower rates than credit cards, which is how people traditionally obtained unsecured personal loans.
And while sites like eBay and Amazon need buyers, investors in high-yield loans are more fickle. The current low-interest rate period has made high-yield online loans attractive — but that could change if the Fed raises interest rates.
If defaults spike, Lending Club’s underwriting algorithms would come under scrutiny, and lenders might flee the platform again. In contrast, an Amazon customer pays right away, a good is shipped, and the transaction ends. And while Amazon needs to cultivate repeat customers, Lending Club is much more dependent on the financial behavior of others on an ongoing basis.
A key difference between the Chinese and US peer lending scene is the level of defaults that occur due to fraudulent listings. Up until the recent regulatory crackdown, fraudulent listings on Chinese lending platforms were rampant, often running as high as 50% versus 1% in the US.
The lack of regulation in China has also fostered a large number of fly-by-night operations opening up shop, often with dubious intentions from the get-go. The hurdles to entry for peer-to-peer lending platforms in the US by contrast are substantial. In fact regulation of the sector is considered so severe that Zopa, the largest based marketplace lender in the UK has actively shelved their expansion plans into the US in order to avoid becoming tied up in US regulations.
In 2015, a Federal Deposit Insurance Corp. study found that one in five citizens were “underbanked.” That same study also found that almost 8% of respondents were completely “unbanked.”
Yet financial institutions globally are serving more people than ever. A recent report from the World Bank found that from 2011 to 2014, 700 million people became account holders at banks, other financial institutions or mobile money-services providers. The number of unbanked individuals dropped by 20%, to 2 billion adults, during that same time period.
In 2015, Pew Research found that although two-thirds of Americans owned a smartphone, 19% of respondents rely on a smartphone to some degree for staying connected to the world around them. Further, 10% of Americans who own a smartphone lack broadband internet at home and 15% who own a smartphone admit to having a limited number of options for internet access beyond their cell phone. Deemed “smartphone-dependent,” this group is largely made up of relatively low-income individuals, consumers with less education, younger adults and minorities.
Estimates vary, but the peer to peer market is expected to grow to somewhere between a few hundred billion to over trillion dollars over the coming years, as it captures a high single digit share of consumer lending. The key medium term questions for growth are firstly, how well banks react with their own online lending services, and secondly how successful peer to peer lenders are at maintaining effective lending standards.
Due to differing state regulation, peer-to-peer loans are available in the majority of states, but not everywhere, income qualifications may also apply, such as having an income of over $70,000. Currently, if you live in Iowa, New Mexico, North Carolina or Pennsylvania then your ability to own loans via peer to peer platforms is likely constrained, but in most other states in the US you may qualify.
Often peer to peer debt is issued for several years and so earning a, say, 9% return in one year is great, but if the next year the loan defaults and you lose the full value only 1 year into a 3 year loan term, then that temporary 9% return is not so attractive, and you’ve lost money.
With debt investing, you do need to pay careful attention to your downside risk if you want to be successful, because your interest payments (your upside) can be fairly small relative to the total amount you have at risk (your downside).
Again, to return to the graph above, how many of borrowers can’t pay you back in a bad economy is a reflection of your lending standards, with tighter standards you’re likely to see more borrowers able to pay you back, with looser standards your loans could see far higher loss rates on your investment. There are strong voices on both sides of this debate.
This matters because as interest rates increase, your peer to peer loans are received fixed interest payments. So earning, for example, 5% may seem attractive now, but if the Federal Reserve were to sharply raise interest rates in the coming years, then 5% may be less attractive if government debt also paid 5% interest and so you could invest in government securities, rather than peer to peer and achieve a similar interest rate, or purchase newly issued peer to peer debt at higher interest rates.
With peer to peer lending you may be invested invested in a loan for several years, whether you like it or not. Some peer to peer lenders have so-called ‘secondary markets’ that enabled notes to be traded, though there’s no guarantee your note will sell.
It is possible to defer or eliminate tax on peer to peer loans, by purchasing peer to peer loans within an IRA for example.
My hope is to see more technical talent join the New York tech community in general. There are already a few unicorns in the space based in New York and this is very promising. We are noticing a lot of people in banking and consulting who are joining the fintech community because of the lack of innovation and disruption in big corporation due to regulations and bureaucracy.
First, this location is unparalleled for access to talent. New York is home to so many diverse industries — from design to marketing to risk analysis — and that helps us hire top-notch team members. Second, as a fintech company, there’s no better place to be than in one of the world’s largest financial markets.
Being based in New York has made all the difference for Payoneer. New York has always been a financial services hub, but has really become a ‘high-tech hub’ and that has helped our digital payments business grow beyond our expectations. The combination of the city’s dynamic startup community and established financial services community has allowed Payoneer to build a very strong foundation of employees, partners and customers. There are people with big dreams in all of the hi-tech hubs, but particularly in New York many of these people have been in demanding, professional environments for years, so they bring a different focus and discipline to the table. In my opinion, there truly is no place better to start or expand a fintech company than in NYC.
Being in New York enables me and the whole team to be close to our customers and partners, making sure we understand what their vision is and how we can help them overcome their challenges. The fintech ecosystem in the city has grown significantly in the recent years which enables us to learn and cooperate with other local companies.
NYC is still a significantly more traditional market than the Silicon Valley, especially in the financial sectors, and we haven’t seen as much crossover of experienced successful executives into fintech companies. In the last few months, I’ve started to get the feeling that this is beginning to change. Several people I know, who worked for 30-plus years for big banks, have moved to startups that are challenging those same banks to be better, and leaner.
ConsenSys now employs 160 blockchain and Ethereum experts with offices in several major cities around the world including the Middle East and Asia, making it the largest blockchain startup. About 40 percent of our staff works out of our office in Bushwick, Brooklyn. We’re proud of our remote-first work culture, and at the same time, many of the Fortune 500 clients of our enterprise group works with are based in New York.
Although Ethereum is increasingly catching on all over the world, there is so much excitement about it in New York that we chose to host the launch of the Enterprise Ethereum Alliance right in Brooklyn, along with 30 partners. New York has been a financial capital of the world for many years, so it makes sense that interest in blockchain would be high here.
Mortgage-backed securities got a black eye in the financial crisis, but real estate investment trusts that own them are currently generous to income income-oriented investors, with dividend yields averaging nearly 10 percent, according to the National Association of Real Estate Investment Trusts.
But with interest rates expected to rise, are they safe enough for a retiree who must preserve principal? Experts have mixed views.
Like ordinary bonds, mortgage securities can lose value when rising rates make older issues with lower yields less appealing. On the other hand, funds that own mortgage securities can gradually pay higher yields as newer securities are added to the portfolio.
In other words, to generate a return in REITS, investors need to think like a property investor — and not a stock market investor. All of which means that perceived wisdoms — including that REITs are an interest play, higher-dividend-paying REITs are more attractive investments, and REIT returns are macro-driven — need to be expunged.
Flows into the alternative asset category show this; a 2015 McKinsey article notes that global alternative assets under management grew at a 10.7% annualized rate between 2005 and 2013, twice as fast as traditional investments.
As a result, lines have blurred between traditional and alternative asset classes as investment managers battle for an overlapping opportunity set.
Open-end mutual funds can invest only 15% of their portfolios in illiquid securities. Closed-end funds do not have this restriction, making them attractive vehicles for investing in alternative strategies.
Retailers who fail to provide consumers with a customer friendly and easy returns service risk losing a large proportion of their customer base, according to new data from leading European payments provider Klarna.
Online returns are big business for British retailers today, with nearly 9 out of 10 (87%) of online shoppers having returned items they have purchased online.
On average online shoppers estimate they returned 10% of their total online purchases in the last twelve months. With online spending in the UK reaching £133 billion in 2016, the online returns economy in the UK could be valued as high as £13bn.
A survey of 2,000 UK consumers reveals that 83% of respondents who shop online would not shop with a retailer they have a bad returns experience with. Over three quarters (77%) of online shoppers believe UK retailers need to improve their returns capabilities, while one in four (28%) have been put off returning items due to the hassle of the retailer’s returns process.
Two thirds of online shoppers (67%) say easy returns are an essential factor in their choice of retailer. 28% of online shoppers would spend more if there was an easier online returns process, while 67% say free returns mean they will buy more from a retailer over time.
“February’s OFF3R Index data, made up of 6 equity crowdfunding platforms, has shown a strong uptick funds raised since January. The figures have jumped from just under £9 million in January to well over £16 million in February. These figures were boosted by large rounds from Hibergene (raised via SyndicateRoom) and CauliRice (raised via Crowdcube). Early data from March appears to suggest that this momentum will continue for the equity crowdfunding sector. There has been an increase in the number of larger rounds this month across many of the platforms. This is consistent with the data trends that we saw last year as investors increase investments in equity crowdfunding just before the end of the tax year.”
Robo advice has been touted over the past 24 months as an answer to the advice gap.
In the Review, which was published in March 2016, robo-advice was hailed as one of several areas where development of technology-based services could go some way towards closing up the so-called advice gap.
“That is why we need to defend professional advice and help firms by using any new emerging technology and have it embedded in their businesses, so the experience the customer receives when they come and meet with their adviser is as streamlined and professional as possible. Quite simply we cannot allow our profession to be left behind.”
As the FCA’s Mr Geale explains, technological innovation will create new ways for consumers to engage with the financial services industry, and the industry will find new ways to provide compliant products and services.
There will always be circumstances or considerations that cannot be captured by an automated model, which is why some firms, such as Learnvest in the US, offer a 24/7 email contact offering, while Australia’s Movo offers tiered packages tied to different levels of human involvement.
The global fintech industry, with an estimated 12,000 fintechs and counting, has changed the way small businesses can manage their money in all kinds of ways.
The promise of fintech is so great that $36 billion of venture capital and growth equity has been invested in the sector globally in 2016 alone, representing exponential growth since 2010. The promise of fintech is so great that $36 billion of venture capital and growth equity has been invested in the sector globally in 2016 alone, representing exponential growth since 2010.
Although there are big differences between small business banks and loans in costs and quality (with some banks charging twice what others do for monthly bank account fees, for example), 28% of UK start-ups don’t look into the lifetime costs of a bank account when they open one, and only 4% of businesses switch bank accounts each year. And 35% of businesses who think their banking service to be poor are still not considering switching.
To align with the Open Banking agenda, Nesta’s Challenge Prize Centre has launched the ‘Open Up Challenge’, a new £5m prize fund to inspire the creation of next-generation services, apps and tools designed for the UK’s 5 million small businesses. The Challenge is looking for 20 winning entries from anywhere in the world that will use the UK’s open banking APIs – newly available from early 2018 – to transform the way small businesses discover, access and use core financial products.
These platforms are proving that, when it comes to matching borrowers and lenders, online is a superior location to the traditional bank branch network. A chunk of bricks and mortar cost has been removed and platforms are able to access new sources of data to determine the expected risk of the loan. This results in better rates for both borrowers and lenders.
Thankfully, the market-leading platforms, both in the UK and the US, have significantly developed their approach to disclosure. They recognise that the answer lies in validation and standardisation. They may not eat their own cooking – but they can ensure that their output is subjected to the most intense scrutiny. Zopa, Funding Circle, Ratesetter, Market Invoice, and now Prosper Marketplace in the US, are providing sufficient disclosure to allow third party validation of their lending data, in order to show their returns to a consistent standard.
Presenting granular historic data of this kind also demonstrates the correct alignment between platform and investor. Lenders should seek platforms that can demonstrate that their overriding motivation is to originate loans at an interest rate that adequately compensates for the risk of default.
Platforms rely on revenues derived from loan origination fees. So, if the status of historic lending can be meaningfully appraised, then continued loan origination fees rely on the performance of historic loans. That results in a genuine alignment between investor and originator because the economic outcomes for both have become inextricably intertwined.
To date, despite dire warnings, European retail banking has been remarkably unscathed by technology-driven disruption. Customers stay loyal, and banks still do the most of the lending. Financial-technology (“fintech”) companies are beginning to mount a challenge, most conspicuously in the online-payments industry in northern Europe: Sofort, iDEAL and other fintech firms conduct over half of online transactions in Germany and the Netherlands, for example. But their reach is more limited elsewhere in Europe. Physical payments are still overwhelmingly made with cash or bank cards.
Regulators, however, are about to transform the landscape. The Payments Services Directive 2 (PSD2), due to be implemented by EU members in January 2018, aims to kick-start competition while making payments more secure. Provided the customer has given explicit consent, banks will be forced to share customer-account information with licensed financial-services providers.
This should change the way payment services work. They could become more integrated into the internet-browsing experience—enabling, for example, one-click bank transfers, at least for low-value payments. Security for payments above €30 ($32) will be tightened up, with customers having to provide two pieces of secret information (“strong authentication”) to wave through a transaction.
According to Deloitte, a consultancy, banks’ lockhold on payments serves as a handy source of income, earning European banks €128bn in 2015, around a quarter of retail-banking revenue. Many see PSD2 as a threat to their business models; they fear becoming the “dumb pipes” of the financial system.
The Commission has set up a Task Force on Financial Technology working across issues relating to financial regulation, technology, data, access to finance, entrepreneurship, consumer protection and competition.
Market participants and EU citizens are invited to give their feedback by responding to an online questionnaire which addresses emerging aspects of the fintech ecosystem, including the application of artificial intelligence and big data, distributed ledgers, and barriers to market entry for fintech startups.
Money Management asked financial service law firms and an Australian regtech what the top 10 common areas of regulatory and legal concern were, and broke down the nexus of technology, advice, and regulation.
The Fold Legal managing director, Claire Wivell Plater, said the fintech ‘regulatory sandbox’ specified in ASIC RG 257, would not shake up traditional advice due to capped limitations.
New said the legal crux with sandbox was taking disclosure, reduced compensation, and additional dispute resolution requirements into account.
Nearly three years after the implementation of the Future of Financial Advice (FOFA) reforms, Wivell Plater said advisers could trust technology solutions and recognise that through all the FOFA changes, it played a part in the agenda to maintain integrity in financial advice.
Managing director of regtech firm GRC Solutions, Julian Fenwick pointed to conflicted remuneration, best interests duty and continued issues of conduct risk; advisers would need to be flexible and ensure a technology partner would not compromise legal obligations or align them to a third-party.
The potential lack of flexibility in technology solutions placed best interests duty compliance as a significant area of attention for the regulator.
Vigilance was required around updates to ASIC and the Australian Prudential Regulation Authority (APRA) policy amendments, and would help advisers stay abreast of legal hurdles.
The Financial Planning Association (FPA) last year proposed robo-advisers appoint independent actuaries to monitor automated advice.
Wivell Plater said advisers were skating on thin ice when it came to ensuring automated advice still provided client and situation accurate solutions.
Lack of specialist knowledge on algorithmic resources was a pitfall for unintentional non-compliance.
‘Regtech,’ or regulatory technology, emerged as a major forerunner last year in financial services, and New said advisers had questions about check-ups on newly-implemented technologies and how they could be utilised for risk mitigation.
Wivell Plater recommended advisers check that both their systems, and those of their technology providers, were well protected against cyber-attacks which compromised privacy law.
Technology was no substitute for professionalism, which meant planners needed to ensure their own competency was up to scratch.
Wivell Plater reminded advisers that it was their ASFL duty to safeguard themselves and maintain regular checks on technological services.
China is in a strong position to export its internet financial services and standards to economies along the Belt and Road Initiative, as the country maintains an “obvious” edge in the booming sector, a key report said on Thursday.
As of October 2016, the Chinese mainland had about 1,850 peer-to-peer lending online platforms, with total transactions in the first 10 months of last year exceeding 1.59 trillion yuan ($232 billion), data from the report showed.
Digital lending platform Capital Float has announced its partnership with Amazon India to disburse thousands of loans to e-sellers. The company – the only fintech startup to partner with the e-commerce giant – has also partnered with other leading online platforms including PayTM, Snapdeal and Shopclues.
Capital Float has designed a collateral free credit facility for online sellers called Pay Later that helps them make supplier payments within 24 hours.
The Indian fintech sector saw investments upwards of $1.6 billion in 2016 and has been growing at a steady rate, while investments in the global sector grew by 10% to $23.2 billion.
P2P lenders in India are primarily focussing their portfolio on categories such as personal loans, commercial loans and micro finance. The P2P lending model has great potential for growth in India considering the fact that there are over 5.5 crore small businesses operating in the country, a large percentage of which do not own bank accounts.
Though robo advisory has a low market share, it is nonetheless expected to grow at a CAGR of 68% and manage assets worth USD 5 trillion by the year 2025.
Rang De, peer-to-peer lending platform has associated with the town-based Sarvodaya Youth Organisation, is offering loans to the farmers’ widows in the district. At a programme held in Hanamkonda, Parkal MLA Ch Dharma Reddy distributed loan of Rs 50,000s to a group of widows of Atmakur mandal.
The selected widows were given each Rs 50,000 loan and every month 20 farmers’ widows would be selected to distribute the loans. The loans could be repaid in instalments spread over 24 months, he added.
We have asked if auto lending is headed down the same path as mortgage lending in a previous analysis. That spurred a talk with Jason Laky, senior vice president and business leader for consumer lending and auto finance at TransUnion, about delinquency trends. “We expect a modest increase in delinquency for auto and unsecured loans,” Laky […]
“We expect a modest increase in delinquency for auto and unsecured loans,” Laky said, “We expect mortgage to continue to decrease in delinquency because it is still working off the recession bubble.”
Laky also said a couple of drivers are related to this: the emergence of FinTech, and the reintroduction of the unsecured personal loan for the prime consumer. In recession, a lot of consumers chose not to take personal loans, and it was concentrated in sub-prime and non-prime.
2013-15 saw a fast growth of FinTechs and reintroduced the unsecured products to prime borrowers, particularly younger millennials with online savvy. This created a new channel and level of interest, spurring a large growth in the volume of loans. There was a shift from sub-prime to prime and overall delinquencies therefore came down from 2009.
Prime consumers take larger loans than sub-prime, so this shifts the overall average indebtedness and the personal loan debt continues to grow for borrowers who have these loans. “There’s no view in the APR of loans like these since it is not reported, and fees are included in the loan balance. So you can’t back into it using loan parameters like an auto loan,” Laky said.
When asked why the trend has turned around, Laky said there are very small basis points increases in delinquencies. Because of the maturity of the industry, it was driven in Q2 from pull-back from investors. FinTech lenders focused on profitability, so older ones mature, and they are showing up. It’s pretty modest and is almost within expectation and margin of error.
The default rates look back to Q4 2009, the tail end of the recession, and it was at 4.98 percent coming out of the recession. So there is quite a lot of space still, in Laky’s view. “The longer we get into the credit cycle, the more important it is to look at consumer overall indebtedness,” he said, “Early on in the cycle, lenders are not participating as fully so you can make great individual products. The longer you get in the cycle, the more likely consumers are getting mortgages, auto loans, personal loans, etc. It’s important to keep an eye on the indebtedness of the consumer. We don’t do full consumer indebtedness, but for each category, the average debt per borrower has been increasing since before 2012. It adds up, and it is worth keeping an eye on as a lender.”
When asked if we can predict the next credit cycle using indebtedness, Lasky said, “It’s hard to predict the credit cycle, and particularly challenging now because the economy is doing well. If you look at macro factors, GDP is growing okay, 2-3 percent for the next year. Employment is doing well with 100,000 to 200,ooo new jobs. Wages have seen two percent growth. For the consumer, things are okay. It’s hard to see a credit cycle taking a major turn where consumers’ economic health is good. What we may see is a category by category reassessment of lenders about which segments they want to play in in a rising interest rate environment.”
When TransUnion built their model, a 50 bps increase was projected. If the interest rate increases more, that’s a sign the economy is doing better than expected. So an interest rate increase is not a bad thing, but it slightly affects funding costs for every lender in unique ways. When a rate increase affects the cost of funds, then pricing models need to be examined so competitive segments can be prioritized. Some lenders may drop some products as a result.
There has been renewed interest by bank and credit unions in unsecured personal loans because FinTechs have been successful. Banks have a huge advantage because funding can be from deposits. With the entrance of banks and a possible increase in the interest rate, FinTechs and traditional finance companies will have to think hard about what to participate in and how to get compensated for the risk.
According to Jason Laky, FinTechs have been really good at embracing data and analytics to think about how and where to lend. That will pay off in terms of having staying power as the credit cycle matures. Should we worry based on delinquency trends and data? It depends on how well we analyze what’s happening, he said.