Digital Lending: How Artificial Intelligence, Machine Learning Are Making a Difference

machine learning digital lending

Artificial intelligence (AI) and machine learning (ML) are ubiquitous in today’s workplace conversations. Turn on any business news channel and you’ll hear them repeated over and over. Ask any venture capitalist and they are sure to brag about several investments in these areas. Google artificial intelligence and machine learning, and you’ll find 213,000,000 hits, and […]

The post Digital Lending: How Artificial Intelligence, Machine Learning Are Making a Difference appeared first on Lending Times.

machine learning digital lending

Artificial intelligence (AI) and machine learning (ML) are ubiquitous in today’s workplace conversations. Turn on any business news channel and you’ll hear them repeated over and over. Ask any venture capitalist and they are sure to brag about several investments in these areas. Google artificial intelligence and machine learning, and you’ll find 213,000,000 hits, and rising. Overhyped? We don’t think so.

Accenture boldly claimed that AI could boost average profitability rates by 38% and lead to an economic benefit of $14 trillion by 2035. That is no small statement. Even more astonishing is the general alignment among analysts on this issue. It’s widely agreed that AI and ML hold great promise across all industries, and, specifically, in finance.

In 2019, IDC projected that banking would be the second largest global industry to invest in AI, with $5.6 billion going toward AI-enabled solutions (trailing only retail). Why? The anticipated effect on business. According to the research firm, Autonomous, the financial industry’s slice of the global AI pie represents upwards of $1 trillion in projected cost savings.

Fintech Disruptors and Underwriting

Fintech disruptors, characterized as fast-moving companies, often start-ups, focus on a particular web-based innovative financial technology or process, spanning mobile payments to lending. Fintech disruptors initially found an entry point in finance through the use of AI/ML in underwriting.

In the U.S., if the customer consents, you can gain almost unlimited data about their credit profile: how many loans they have, whether they have a mortgage, if they’re delinquent, and whether they requested credit recently. According to the Brookings Institution, “AI coupled with ML and big data, allows for far larger types of data to be factored into a credit calculation. Examples range from social media profiles, to what type of computer you are using, to what you wear, and where you buy your clothes.” Access to this type of data gave rise to the development of sophisticated algorithms to underwrite consumer credit risk. We’ve seen this across a variety of lending companies offering unsecured consumer, student, or even small business loans, particularly focused on digital lending.

Importantly, though, those employing AI must be hyperaware of data collection practices, model design, and the potential for misuse. There is an inherent obligation when using these powerful tools to avoid profit at any cost. When used responsibly, AI can promote growth and better serve consumers. To meet this goal, companies must focus on creating ecosystems that are exponentially more just and equitable than what we have today.

On the surface, the digital lending numbers seem incredible. Digital lenders have grown to $50 billion in originations per year, not including incumbents. And, the research firm Autonomous notes that the digital lender model continues to raise $5 billion in annual venture capital investment, dominated by investments in the U.S.

And, yet, that same report shows that an AI/ML-driven digitization of the lending process is not headed to zero cost. To date, the cost advantages of onboarding and ongoing servicing (up to 70% reductions) have not been able to overcome the relatively high marketing costs that have yet to effectively scale lower than $250 per loan. Moreover, capital costs can reduce efficacy relative to traditional bank competition, and, then, there are the unplanned expenses, such as legal fees or elevated product development costs, the firm reports.

So, if digital lending driven by AI/ML-powered underwriting cannot deliver a material cost advantage, is further AI/ML advancement possible? And, will it improve outcomes for the consumer? Yes, absolutely. It all boils down to operations. As the use of AI shifts beyond obvious use cases and is deployed cross-functionally across entire companies to address various operational inefficiencies, the real promise emerges.

AI/ML 2.0: Improving Outcomes for Everyone

According to Deloitte, the top 30% of financial services firms who are frontrunners are more adept at integrating AI into the core strategic business of their firms, delivering revenue and cost gains quicker than competitors. In our opinion, this is clearly the case with fintech disruptors. Those that are focused on AI integration throughout the organization will quickly pull ahead of those who limit AI deployments to chatbots, underwriting, and other AI/ML 1.0 use cases.

Fintech disruptors can offer the market’s most cost-effective solutions by dramatically curtailing operation costs. Harnessing large-scale, multi-functional AI systems across organizations, instead of simply deploying in underwriting, presents fintech disruptors the opportunity to control costs at each stage and offer quality outcomes for their customers at reduced costs – with lean workforces.

So, while these systems may not face the end customer in any way – in fact, that may not be visible at all – they are the true future of AI/ML for fintech disruptors.

Fintech disruptor leaders who understand the opportunity to use an interconnected system of AI models across their organizations will likely drive the greatest overall efficiencies, both reducing costs and boosting revenues. This enhanced efficiency can be used to drive competitive position and ultimately higher profits.

AI/ML 2.0 at Work

AI can be used to help allocate resources across a variety of functions. For instance, a lender could create an AI model used to predict which of its retail partners would see the greatest increase in usage as a result of a field visit by a partner support representative. Generally, these visits don’t have uniform outcomes. Therefore, using a model-driven approach could help to allocate resources in the most effective manner. Increasing usage obviously drives overall revenue, but also helps to amortize cost over a greater number of transactions, driving better unit economics. Further, with time, the usefulness of such a system can grow. The more data collected from previous visits, the better the algorithm can be at predicting which visits will yield increasing usage.

Or, a lender could deploy AI in the call center to optimize the efficiency of the collections support team. Outbound reach to delinquent customers could be prioritized based on an ML algorithm that evaluates the potential for a successful call and the expected dollar collection. This may sound simple, but making the “good” calls and avoiding the “bad” ones offers all the obvious advantages of more precise resource allocation.

What is less obvious, though, is how these models are interconnected. The model used in the call center complements the underwriting model. If the collections team performs better, then the underwriting model can be recalibrated to maintain the overall risk of the loan portfolio. If the model prioritizing field visits is working, then it increases usage and reduces the average costs to originate a loan. This further enables a recalibration of both the underwriting model and the collections model. The combination of these models, ultimately, increases both expected and realized returns on the loan portfolio, reducing expenses and allowing the company to pass this savings back to customers in the form of lower rates. This is a win for everyone.

Optimizing the AI/ML Ecosystem

This is the true promise of AI/ML – a robust ecosystem of interdependent models utilized to enhance cross-functional outcomes. This leads to a much broader point: inefficiencies exist in all aspects of business – including accounting, legal, operations, finance and customer experience – and negatively impact profits.

Responsibly managed AI/ML 2.0 promises to address many of these functional silos with great success, improving outcomes for everyone involved.

Author:

Dr. Tamir Hazan is a co-founder and head of Analytics at Digital Lending: How Artificial Intelligence, Machine Learning Are Making a Difference appeared first on Lending Times.

Monday August 13 2018, Daily News Digest

Reasons for Personal Loan Inquiries July 2018

News Comments Today’s main news: OnDeck CEO says online lending is the future of SMB lending. SALT Lending now in 35 states. LendInvest debuts exclusive 5-year fix product through buy-to-let club. Weidai files $100M IPO in New York. Wonga says $3M African loans are unaffected by UK woes. Today’s main analysis: LendingTree Personal Loan Offers Report for July 2018. […]

Reasons for Personal Loan Inquiries July 2018

News Comments

United States

United Kingdom

China

International

Other

News Summary

United States

OnDeck Capital CEO says online lending is the future for small businesses, talks strong earnings (Proactive Investors) Rated: AAA

CEO Noah Breslow tells Proactive Investors the small business lending company has provided over US$9bln to small businesses, crossing the US$10bln mark this fall, saying online lending is the future for small businesses and consumers.

U.S. Cryptocurrency-Backed Lending Platform Now Available in 35 States After Passing Stringent Regulations (Crypto Disrupt) Rated: AAA

The cryptocurrency-backed lending firm, SALT, has released details that it is now operational across 35 states in lieu of passing crypto regulations and will be expanding its network to 20 new locations.

SALT is based in Colorado and is one of the few companies that allows borrowers to leverage their held crypto as collateral for loans. As more people than ever before hold crypto, it is important that cryptocurrency-backed lending firms pass regulatory checks to offer more competition to potential crypto borrowers in the safest possible manner.

SALT is planning to move into 20 new states, which will include North Carolina, Oklahoma, Florida, and Virginia. Crypto users in all but 15 states can now leverage their crypto to receive personal cryptocurrency-backed lending packages.

Tesla and Spotify say public markets have major flaws. Do they have a point? (Quartz) Rated: AAA

According to two prominent executives this week, the stock market isn’t all that it’s cracked up to be. Initial public offerings are broken, according to Spotify CFO Barry McCarthy (paywall). Tesla CEO Elon Musk says stock investors are too focused on the short-term, and his threat to take the company private sent tradersbankersfans, and government watchdogs into a tizzy.

McCarthy and Musk aren’t alone in their worries. The number of IPOs and listed companies in the US is shrinking: There were an average of 310 public offerings annually from 1980 to 2000, according to an analysis by Jay Ritter, a finance professor at the University of Florida. The average has slipped to 108 since then.

A common complaint is that public markets are too demanding. It’s expensive to comply with regulations, and these days there’s ample private money available for companies to tap without all the hassles of dealing with analysts, short sellers, quarterly reporting, and the rest of it.

Source Quartz

LendingTree Personal Loan Offers Report – July 2018 (Lending Tree) Rated: AAA

Offered loan amounts are down about 3.5% for all borrowers, while offered APRs inched up. Rate and loan amount offers varied widely among consumers, depending on factors including, but not limited to, credit score, income, and current debt obligations.

The most common reasons for seeking a personal loan are credit card refinancing and debt consolidation. These two categories comprise 64% of all loan inquiries.

Source Lending Tree

WV ranked 24th in US for student loan debt (Herald Dispatch) Rated: B

West Virginia schools rank 24th in the nation for the amount of debt its students graduate with, with Marshall University coming in sixth out of the schools tallied in a recent LendEDU report.

By licensing data collected from the annual Peterson’s voluntary financial aid survey, LendEDU, an online loan marketplace, completed its annual Student Loan Debt by School by State Report, a comprehensive analysis of student loan debt statistics for over 1,000 colleges and universities throughout the United States.

The total outstanding student loan debt now stands at $1.52 trillion, making it the second largest form of consumer debt behind only mortgages.

Average individual student loan debt up $ 313 in 2017 (UPI) Rated: AAA

The average amount of individual student loan debt owned by U.S. college students increased by more than $300 in 2017, according to a study by LendEDU.

The New Jersey-based online loan marketplace’s annual Student Loan Debt by School by State Report found the average debt per borrower for the class of 2017 was $28,288, up $313 from $27,975 in 2016.

“Student loan debt in the U.S. continues to be an issue of the utmost importance. The total outstanding student loan debt now stands at to $1.52 trillion, making it the second largest form of consumer debt behind only mortgages,” LendEDU said Wednesday.

The annual report uses data from the Peterson’s financial aid survey, which collects responses from 1,080 four-year public and private institutions to determine average individual student loan debt figures and rank states and colleges in terms of debt per borrower.

Who’s Departed, Who’s Left and Who’s Leading Among Robo-Advisors (Think Advisor) Rated: A

The second quarter of 2018 was a busy one for robo-advisors. Hedgeable announced its impending closure, WorthFM became history and LearnVest notified customers it was discontinuing its planning and online investment services.

During the same quarter, US Bank and Fifth Third Bank launched their robo-advisor platforms and SoFi, a fintech lender with a robo product, introduced checking accounts with debit cards, further blurring the lines between banking and digital advice. And U.K.-based Wealth Wizards, an independent digital advisor with AI capabilities, is exploring a talking robo-advisor.

What you need to know on Wall Street today (Business Insider) Rated: A

The crypto bear market has been a blessing for this bitcoin trading firm’s booming new business

Genesis Global Trading, a crypto trading shop based in New York,launched a crypto lending unit, Genesis Capital, earlier this year.That business originated $30 million in crypto loans on Tuesday, its largest amount ever, according to chief executive officer Michael Moro. The company typically lends out around $2 million per day on average.

In a sense, it could be a bearish indicator for the market. Many of the people who are borrowing crypto from the firm are doing so in order to take a short position on a given coin.

What happens when the government stops doing its job? (The Washington Post) Rated: A

It took almost two years for two dozen officials at the Consumer Financial Protection Bureau to pull together a case against Golden Valley Lending. The online lender was making small short-term loans at interest rates as high as 950 percent, violating laws in at least 17 states that cap interest rates.  Last October, the agency finalized a rule to stop “payday debt traps” by requiring lenders to determine whether people can afford to repay their loans.

Yet a few months later, it unceremoniously dropped the case, telling a federal judge in Kansas that it would “continue to investigate the transactions that were at issue.” Golden Valley is still doing business; its Web site says: “Get the money you need. It’s easy!”

Mulvaney has all but halted the enforcement of certain government regulations. He stripped the bureau’s fair-lending unit of enforcement power and redefined it as an advocacy office.

RealtyShares Launches New Brand Identity and Online Learning Center (SC Now) Rated: A

RealtyShares announced today the launch of its new corporate brand identity and online learning center. The brand changes come at a time when the company is continuing its focus on the commercial middle market, commercial transaction values under $50 million.

As part of the rebrand, RealtyShares is launching a new online learning center where investors can learn more about diversifying investments and the role that commercial real estate can play in an investment portfolio. This learning center includes guided learning paths and educational articles created and curated by RealtyShares’ expert professionals. The content is designed to help investors with a range of investing experience better understand the risks and rewards of investing in commercial real estate.

Kirill Bensonoff: 5 ways real estate can be transformed with a blockchain approach (Augusta Free Press) Rated: A

The real estate market has seen steady growth the past few years, and is showing no signs of slowing down. The commercial real estate industry alone is expected to reach $414 billion in commercial transactions next year.

This isn’t the biggest news in the real estate industry though.

According to real estate and cryptocurrency expert, Kirill Bensonoff, the most significant growth for real estate in the next few years will be how blockchain technology is applied to the market.

U.S. Fintech Even Opens New East Coast Headquarters In North Carolina After Securing More Than $ 40 Million in Series B Funding (Crowdfund Insider) Rated: B

Holistic financial health platform Even announced on Friday it has opened its new office in Raleigh, North Carolina. This news follows the company securing $40 million through its Series B funding round. Founded in 2014, Even describes itself as a mission-driven technology company working to help Americans escape the paycheck-to-paycheck cycle.

Even also reported that its mobile apps instantly budget so that users know how much is “okay to spend,” safely address cash flow issues with Instapay (on-demand access to wages), and help employees automatically save money out of their paycheck before it ever hits their bank balance.

Buy The Block: First Black-Owned Real Estate Investment Platform Allows Communities to Fight Gentrification (Digital Journal) Rated: A

Buy the Block founder Lynn P and her team have struck gold in the hills of Colorado for a second time in as many years with the release of their new app now available on Android and iOS platform. This app will expand the already extensive number of BlockVestor enthusiasts that populate the first Black-female owned FINRA and SEC regulated real estate crowd investing platform in the United States. The addition of the new app will rapidly expand a brand that is on the cutting-edge in alternative financing. This unique and innovative platform allows many inner-city residents a never-before available opportunity to invest with their peers and their communities.

Lowe’s Ventures backs Moved, a startup that makes moving less stressful (Tech Crunch) Rated: A

Moving can also be expensive, so the company has announced a partnership with Affirm, where Affirm’s financing will allow you to break up the moving costs into monthly payments.

To be clear, Moved isn’t doing the moving itself — instead, it’s basically connecting you to a marketplace of movers and other service providers. Pittenger said the company is “very strict about the suppliers and the vendors” and will remove them if customers aren’t happy with their experience.

Moved is managing all of this through a real, human assistant who can help you figure out what you need, handle the scheduling and serve as a “consumer advocate” who ensures that you’re not getting ripped off.

Take a Crash Course in Student Housing Investments (US News) Rated: A

As the back-to-school season gets under way, you may be shopping around for new investments for your portfolio. Real estate is a solid diversification tool and student housing is an under-the-radar sector to consider this fall.

“The student housing real estate investment market is virtually untapped,” says Jay Morrison, CEO of the Tulsa Real Estate Fund. An aura of exclusivity surrounds student housing investments but it’s a sector that’s far from fully realized, “which means there’s plenty of room for opportunity for new investors in this market.”

As a smaller niche within the commercial real estate market, student housing has long been the domain of institutional investors and people with a high net worth.

United Kingdom

LendInvest Debuts Exclusive Five-Year Fix Product Through Buy to Let Club (Crowdfund Insider) Rated: AAA

Following the recent changes on its marketplace lending platform, UK-based LendInvest announced the launch of an exclusive five-year fix product through the lender’s Buy to Let Club. The lender reported that the product is Designed for landlords who wish to utilize a higher fee, lower interest rate loan, and allows the borrower to leverage their cash flow.

According to LendInvest, the five year fixed rate of 2.75% is available up to 75% LTV through the distributor, with a product fee of 4.99% which can be added to the loan. Affordability is then calculated at an Interest Cover Ratio (ICR) of 140% for higher rate taxpayers; 125% for limited companies and basic rate taxpayers, at an assessment rate of 4.19% against the total gross loan amount. The mortgage is available on loans up to £500,000 for purchase and remortgages, and suitable for standard property types and HMO’s.

Business funding options – what choices do you have? (Estate Agent Today) Rated: A

When you are starting up a new business, it is unlikely that you will already have enough capital to invest. Taking out a business loan is the best option as this will give you the chance to get set up.

But which loan type is best for your business idea?

Peer to Peer Lending

As banks are increasingly wary about giving out business loans, peer to peer lending has become a more popular method for matching people who wish to invest their money and those who need to borrow. Though this method can be quite expensive and may be risky, it is quite easy to raise substantial funds this way.

Crowdfunding

There are two types of crowdfunding: equity-based and reward-based. Equity-based crowdfunding is where people contribute money to receive equity in your business; reward-based crowdfunding is where people contribute money for a reward.

Competition from alternative lenders driving growth in business lending (London School of Business and Finance) Rated: A

Competition from alternative lenders is driving banks to boost lending amounts for businesses, according to Conrad Ford, Chief Executive of SME finance aggregator Funding Options.

Barclays and NatWest/Royal Bank of Scotland are among the banks that are boosting access to finance for SMEs.

Growing competition

Competition from alternative lenders is thought to have been the driving force behind Barclays’ decision to increase its lending amount to £100,000.

Commenting on the trend, Ford stated that there is growing competition in this sector, adding that Barclays is not the only bank that is taking action, with RBS/NatWest launching their Esme loans service, a digital lending platform that enables SMES to access unsecured loans of up to £150,000.

The pros and cons of alternative property investment and crowdfunding (Buy Association) Rated: A

With tax changes and stricter lending rules making it harder for some to finance a property purchase, investors are increasingly looking to navigate the challenges in the buy-to-let sector.

It’s why setting up a limited company through which to buy and operate rental properties is growing in popularity.

Peer to peer lending has exploded in popularity because it offers investors high interest rates paid over relatively short time periods.

There is obviously a level of risk involved – the property is used as security, and if house prices drop suddenly then you risk losing some capital. That’s why it’s important to consider the loan to value ratio (LTV) – for example, if this is 75%, the borrower can borrow three quarters of the value of their property. This means house prices would need to fall 25% before the investor made a loss.

China

How peer-to-peer lending turned middle-class Chinese dreamers into angry protesters (Quartz) Rated: AAA

In recent years, many in China’s middle classes poured their savings into peer-to-peer lending platforms, known as P2P for short, drawn in by promises of high returns. But amid a larger effort to curb financial risk to China’s economy, financial regulators tightened rules for these platforms, leading many of them to collapse without returning investor money. In Li’s case, the main stakeholders of Yonglibao, which he had put his money into, suddenly disappeared in mid-July (link in Chinese), he told the South China Morning Post. By the time its founders abandoned its offices, the platform had amassed a transaction volume of 7.6 billion yuan ($1.1 billion). The other protester told Quartz he had lost the equivalent of $50,000 on a platform called iqianjin.com—its name is Love Money, though it can also be understood as “Get Ahead” or “Money Coming.”

Both hoped a protest in Beijing would compel the government to help people recover their money from the dozens of P2P platforms that stopped allowing fund withdrawals last month. Instead, they were foiled by hundreds of uniformed police who locked down the area, patrolling corners near the offices of the central bank and securities regulators, and checking identity cards. More than 120 buses were brought to the area to take the stealth protesters away, according to a reporter with AFP.

Chinese Peer-to-Peer Lender Weidai Files to Raise Up to 0 Million in New York (Capital Watch) Rated: AAA

Hangzhou-based peer-to-peer lending platform Weidai, which translates as “micro-lending,” filed its preliminary prospectus Friday seeking to raise up to $100 million in an initial public offering in New York.

The proposed IPO size shrinked significantly since the company first announced its plans in April. According to Bloomberg citing sources, Weidai was previously planning to raise nearly $400 million.

Launched in 2011, the online micro-lending platform has attracted multiple high-profile investments, including a $159 million series C funding in 2016 led by Vision Knight Capital. Among other key investors were Chinese billionaire Chen Tianqiao’s Shanda Group and Shenzhen-listed software developer Hakim Unique Internet Co.

HK is running out of runway (The Edge Markets) Rated: AAA

BRACE, brace. Hong Kong’s initial public offering (IPO) take-off is going to come to a screeching halt.

Source: The Edge Markets

Ascletis Pharma Inc, a Hangzhou-based maker of HIV drugs, has slumped 20% since making its entrance at the end of July (1).

Even the online insurer that sparked a revival of Hong Kong’s IPO frenzy is in the red. ZhongAn Online P&C Insurance Co, a company backed by Internet behemoths Tencent Holdings Ltd and Alibaba Group Holding Ltd, surged on its debut in September, but now stands 42% below its price on listing.

Two-thirds of IPOs that raised more than US$1 billion in the two years ended July 2017 were below their offer prices after six months; three-quarters had dropped after a year, data compiled by Bloomberg show. Ironically, the cause of the pain can be traced partly to measures Hong Kong Exchanges & Clearing Ltd has taken to fight back against a US market that was luring away China’s new-economy stars.

Hexindai Further Strengthens Risk Control to Better Protect Investors (Crowdfund Insider) Rated: A

Hexindai (NASDAQ:HX), a China-based peer to peer lender, announced on Friday it has further strengthened its risk control system to better protect investors throughout the entire process of borrower acquisition, risk-based pricing, post-loan management, and default risk coverage through its new comprehensive, stable and efficient asset security system, HX-CORE. Hexindai reported it established the system based on advanced risk control technologies that leverage risk control models and enormous volumes of credit data from cooperating partners and business data accumulated by the online lending platform.

According to Hexindai, the risk-based pricing is conducted by the Company’s proprietary risk control system, called Hurricane, which was developed by the lender and operates in cooperation with a number of credit information organizations and third-party Big Data risk management companies.

Ning Tang, CEO of CreditEase, Shares Insight into P2P Lending in China (Crowdfun Insider) Rated: A

Ning Tang, founder and CEO of CreditEase – a huge Chinese Fintech that started as just a peer to peer lending platform, recently spoke to Bloomberg in Asia. CreditEase is also the majority shareholder of US listed online lender Yirendai (NYSE:YRD)

Tang provided an interesting update on the Chinese P2P sector as it has been going through a transformational process. In July alone, it has been reported that over 100 peer to peer lenders shut down in China as regulatory authorities tighten operational standards to curb rampant fraud. The actions are to ensure a robust and sustainable sector of online lending.

Tang shared that revenues have not been impacted much by the regulatory actions as CreditEase has become more diversified with inclusive finance, alternative asset management, and wealth management.

China reduces risks of peer-to-peer lending (CGTN) Rated: A

Chinese authorities are taking immediate actions to reduce risks in the peer-to-peer (P2P) lending business and better protect the interests of private investors.

The latest moves by Chinese financial regulators include urging leading internet platforms to undergo self-inspection and fix problems. They will also guide unqualified P2P lending platforms in exiting the market and dealing with their assets and debts in a market-oriented way based on legal principles.

European Union

Sweden’s Largest Loan Marketplace (Killer Startups) Rated: A

Thanks to rapid technological development around the world, it’s now possible for consumers to sidestep banks and other unnecessary intermediaries and secure private loans more efficiently.

One nation where this hasn’t been an issue is Sweden.  Look no further than Lendify – the country’s largest peer-to-peer lending platform – for proof.

“Lendify is a marketplace platform that connects borrowers with investors, without the involvement of banks or credit card companies,” said Erik Wikander, the company’s Founder.  “Some of Sweden’s foremost entrepreneurs are a big part of the platform – and we’ve been granted full approval from Finansinspektionen (the government’s financial regulation agency).”

Schwarmfinanzierung: Deloitte Study on “Crowdlending” in Germany says Banks Win (Crowdfund Insider) Rated: A

Deloitte Germany has published research on the crowdfunding sector and when it comes to comparing new forms of online capital formation and old banks – banks win. That is, at least in the eyes of the Deloitte research.

Deloitte states that when it comes to providing finance to medium sized firms, the fabled Mittelstand, these companies have “little interest” in using this new form of finance. Simply put, their relationships with banks is too strong of a bond.

The research published by Deloitte was done in partnership with EFAM (Europäisches Forschungsfeld für Angewandte Mittelstandsforschung) at the University of Bamberg, the document said that the threat to traditional banks by crowdfunding or crowdlending has not panned out. This more recent study follows a similar one back in 2015 which stated that crowdlending was relatively unknown among company executives. Three years later, their survey of 250 medium size German firms appears to indicate little has change.

International

CreditRiskMonitor Announces Licensing Agreement with DBRS (Credit Risk Monitor) Rated: AAA

CreditRiskMonitor (OTCQX: CRMZ) today announced a new licensing agreement with DBRS, an independent, privately-held, globally recognized credit agency. DBRS is the fourth-largest ratings agency globally, with ratings on more than 2,400 issuer families and nearly 50,000 securities worldwide.

CreditRiskMonitor has also invested in cutting-edge technologies to improve the accuracy of its predictive scoring methods. The FRISK® score, a measure of bankruptcy risk in public companies, uses crowdsourced click patterns of risk professionals who subscribe to CreditRiskMonitor’s service. The PAYCE score, used for private company financial risk assessment, is formulated with deep neural network technology, a type of artificial intelligence.

Can Blockchain Revolutionize The Traditional Lending System? (Crypto Coin News) Rated: A

With the introduction of blockchain technology, there have been lots of projects built on blockchain that have attempted to improve the traditional banking system. This brings us back to the question; Can blockchain revolutionize the traditional lending system? The answer is unequivocally YES since there are projects already on the brink of achieving this. Also, the below features of blockchain technology is naturally what is needed to revolutionize the traditional lending system.

Ways blockchain technology edge the traditional lending system:

  • Accessibility
  • Time
  • Removal of intermediaries
  • Reduced risk

Assuring the future of financial services (Network World) Rated: A

The financial services industry is experiencing a period of dramatic change as a result of the growth in digitalization and its effect on customer behavior. In an emerging landscape made up of cryptocurrencies, frictionless trading, and consolidated marketplace lending, traditional banks have found themselves shaken by the introduction of new, disruptive, digitally-native and mobile-first brands.

With a reputation as being somewhat conservative and slow to innovate, many financial service providers are now modernizing and improving their systems, transforming their new business models and technologies in an effort to stay ahead of the more agile challengers snapping at their heels.

However, while this digital transformation brings significant opportunities, implementing these new technologies also presents challenges.

Australia

Blockchain P2P lender secures $ 1.35m to fund growth (Mortgage Business) Rated: A

BLOCKLOAN, a new blockchain-based marketplace lender headquartered in Sydney, has announced that venture capital fund Xplora Capital has purchased $1.35 million in tokens, as it continues its mission to provide “transparent, easy to understand, [and] real-time” access to personal finance on a global scale at more competitive rates than the banks.

The fintech said that by using cryptocurrency-backed loans on a global P2P lending marketplace, it aims to eliminate the “unnecessary” fees associated with traditional lending, while promising end-to-end loan origination, matching and management through the use of pooled smart contracts and an automated KYC and credit risk engine.

India

Are Digital Platforms Transforming Lending Decisions? (Entrepreneur) Rated: AAA

The effects of technology and the disruptions technology make, manifests itself in clearly perceivable ways. This is very evident in many sectors – in a short span (just eighteen months after its release) Google Maps had knocked out GPS navigation device makers and Amazon and Taobao (Alibaba) have disrupted how consumers shop for goods by moving them to online from offline (O2O). Enterprises are worried about being Uber-ed or Airbnb-ed as new age companies are challenging traditional ways of doing business.

Banking and Lending space have also gone through an amazing level of rapid innovation and disruption starting at the turn on the new millennium. Traditional banking monoliths can no longer feel impervious as they were protected by a myriad of government regulations which used to make it hard for fintech start-ups. Fintech start-ups don’t have to deal with the large legacy systems that drag down big banks and are nimbler and more suited to adapt to global trends and changing regulations. Internet only online banks with meagre to no brick and mortar branch presence have come up and have shaken up the large banks by offering better interest rates for deposits and borrowing than traditional banks. As an added benefit with the ubiquity of eKYC systems and adoption by fintech industry, accounts can now be opened in a matter of minutes and can be ready to transact than days and after an insane amount of paperwork that needed to be filled in earlier days.

Africa

Wonga faced collapse in the UK, but says its 3 million loans in South Africa are unaffected (Business Insider) Rated: AAA

An emergency cash injection of R178 million has saved microlender Wonga from collapse – for now.

The UK firm, which has operations in South Africa, is currently facing immense pressure after the British authorities forced it to write off loans worth R4 billion because Wonga failed to properly check whether customers could afford them.

Wonga’s shareholders, two venture capital funds, have pledged the money to prop up Wonga.

Mobile banking inevitable but ATM card will remain useful (The New Times) Rated: A

During a wide-ranging interview with The New Times at a recent GSMA M360 Africa Series in Kigali, Mr Akinwale Goodluck, Head of the Global Mobile Operators’ organisation in sub-Saharan, sought to dispel the myth that mobile money would cannibalise banks.

He pointed to the fintech synergy between telcos and banks, noting how the significant numbers of people across the region are using “phones to do proper mobile banking.”

This is true, and perhaps more pronounced in East Africa. The sub-region has the largest mobile money market on the continent, accounting for 56.4 per cent of total users in sub-Saharan Africa, according to GSMA.

East Africa is, however, only leading the way, but not for long.

Asia

Indonesian startups Akseleran, Pomona confirm recent funding (Deal Street Asia) Rated: AAA

Two Indonesian startups have confirmed raising a funding round earlier this year.

P2P lending startup Akseleran said it raised a pre-Series A funding round of $1.85 million, while adtech startup Pomona said it secured an undisclosed Series A funding round.

P2P lending startup Akseleran raises $1.85 pre-Series A funding Peer-to-peer lending startup Akseleran has confirmed raising a $1.85-million pre-Series A funding round backed by a New York-based family office, the parent company of PT Bintraco Dharma Tbk and several angel investors.

According to a press release, the startup plans to use the fresh funding for expansion by recruiting representatives in a number of cities in Java such as Yogyakarta, Solo, Surabaya and Semarang. It also plans to step up its marketing campaigns through various advertisements.

Authors:

George Popescu
Allen Taylor

Monday July 23 2018, Daily News Digest

securitization

News Comments Today’s main news: OnDeck completes two international credit facilities. Elevate launches prime credit card for non-prime customers. RateSetter backtracks on Rolling Market rate changes. China’s P2P lender are falling like dominoes. Banco BNI Europa invests in US consumer loans. Today’s main analysis: Deloitte’s survey on fintech lenders. Today’s thought-provoking articles: An inside look at SoFi-Promontory Interfinancial Network […]

securitization

News Comments

United States

United Kingdom

China/Hong Kong

International

India

Other

News Summary

United States

Elevate launches prime credit card for non-prime consumers (Bankless Times) Rated: AAA

Elevate and Capital Community Bank of Utah announced the launch of Today Card powered by Mastercard. As the first non-prime credit card with a full suite of prime features, Today Card will be issued by Capital Community Bank of Utah and will specifically help expand access to credit for members of the New Middle Class, the nearly 160 million non-prime Americans who are too often overlooked by mainstream financial institutions.

An Inside Look at Bank/Fintech Partnerships: Promontory Interfinancial Network and SoFi (Lend Academy) Rated: AAA

The recent surge in financial innovation has caused many community banks to rethink how they are serving their customers and what they can do to improve that experience. I recently spoke with two community banks about their decision to buy SoFi loans using Promontory Interfinancial Network’s service.

I spoke with Brian Plum, CEO of Blue Ridge Bank, which is a Virginia based community bank with mortgage offices in North Carolina, and Nicole Austin, Chief Lending Officer of Pioneer Bank, which is a New Mexico-based community bank.

Both banks had experience in looking at fintech partnerships before moving ahead with their decision on the SoFi program. They both said that as lending and banking changed, they needed to better understand how new technology could help their businesses.

Lowest Jobless Claims since 1969, Strong Bank and Card Issuer Earnings (PeerIQ), Rated: AAA

Blackstone is launching a $10 Bn direct lending fund focused on middle-market corporate credit opportunities. The search for yield has pushed investors into higher-yielding middle-market lending, with direct lending funds raised $54 Bn in 2017. Consumer, small-business and middle-market lending have been a consistent theme among investors starved for yield by low global interest rates.

Deloitte’s Survey on Fintech Lenders

The main take-aways from the study:

1. 7% of respondents listed cost of funding as one of the top 3 concerns, with liquidity and an inability to diversify rounding out the top 3.

Source: Deloitte, PeerIQ

PeerIQ view: Securitization remains the cheapest source of large-scale financing. MPL bonds continue to go mainstream as credit spreads tighten vs comparable consumer credit issuers. Emerging issuers continue to take efforts to build a brand in the ABS markets via repeat issuance.

Source: Deloitte, PeerIQ

3. Investors remain interested in the online lending space with $11 Bn in equity capital expected to flow into the sector in 2018. The number of startups has decreased, suggesting a maturing market and some consolidation.

Why You Should Bank Without a Branch (US News) Rated: AAA

The first online banks hit the U.S. market more than 20 years ago, attracting customers with higher interest rates and lower fees. While some early innovators are no longer operating, others have evolved. Take ING Direct, for example, which was acquired by Capital One and transformed into Capital One 360 in 2012, or Ally Bank, which is one of the most dominant names in the online banking market.

Today, however, these banking institutions face competition from new direct banks as well as traditional banks that are looking to expand using the online-only model. For instance, Finn by Chase and Marcus by Goldman Sachs bring digital banking to areas in which the companies have no physical presence.

Long-Term Business Loans Available Today (LendEDU) Rated: A

Fortunately, some lenders offer long-term small business loans, which give borrowers the opportunity to repay the loan over a longer period of time (typically up to 25 years).

Long-term business loans certainly do exist but if you’re hoping to score one, you’ll need to have an established business (i.e., no startups or new businesses) and have good business credit.

There are a variety of lending institutions, both traditional and non-traditional, that offer long-term financing, so it’s always best to review all your options, including those offered by your chosen banking institution. However, there are a few lenders that consistently top the charts, and those that follow are known to offer competitive rates, flexible terms, quick access to funds, and positive customer feedback.

Compare Long-Term Business Loans

Loan Amounts

$5,000 – $300,000

$25,000 – $500,000

Term Lengths

Up to 60 months

Up to 60 months

APR Range

10% – 35.5%

4.99% – 26.99%

Walmart’s pay-advance app Even used by 200,000 employees (American Banker) Rated: A

Walmart’s experiment with offering Even.com’s money management and pay-advance app to employees appears to be off to a good start.

The retailer launched the app to employees in December. On Thursday, Walmart and its fintech partner announced that 200,000 Walmart employees are now using it. (The retailer employs 1.5 million people in the U.S.)

About 75% of associates use the app every week and 46% use it every day.

DFS Report Indicates Increased Level Of Online Lending In New York (Mondaq) Rated: A

The New York State Department of Financial Services (“DFS”) found that online marketplace lending has increased dramatically since 2015. In the newly published report, DFS analyzed responses from a “New York Marketplace Lending Survey” along with comments from relevant stakeholders.

Based on data from 2017, DFS found that:

  • the total number of loans increased approximately 118% and the total dollar amount of all loans increased approximately 42% as compared to 2015 levels;
  • many more individuals were being served in this market than small businesses;
  • lenders generally charge a variety of fees (e.g. origination fees, closing fees, processing fees, maintenance fees, transactional fees, and penalty fees), with origination fees being the most common;
  • delinquent loans (both to individuals and businesses) represent approximately 11% of the total number of loans outstanding as of the end of 2017; and
  • respondents used “internal models with various inputs provided by the applicant such as employment history, business history, bank statements and tax records” to determine whether a borrower qualifies for a loan.

LendKey, Gradifi Help U.S. Employers Offer a Student Loan Refinance Benefit to Employees (Business Wire) Rated: A

Gradifi today said it is now offering access to LendKey’s nationwide network of lenders through Gradifi Refi, a student refinance program for employers seeking to help their employees save money or reduce the monthly payment on their student loans.

Gradifi Refi is one of three employee benefit solutions from Gradifi that enable employers to positively impact their employees’ financial well-being. Gradifi’s SLP Plan (Student Loan PayDown) benefit helps employees pay off their student loans faster through employer-sponsored contributions to their student loan provider. The College SaveUp benefit helps employees save for their children’s education and avoid further student debt through employer contributions to an employee’s 529 college savings plan account.

LendingTree Announces Top Customer-Rated Lenders by Loan Product for Q2 2018 (Markets Insider) Rated: B

Mortgage Category

#1 Winner:
loanDepot, LLC

Personal Loans Category

#1 Winner:
LendingClub

Home Equity Loans Category

#1 Winner:
First MidWest

P2Bi partners with Amalgamated Bank (Bankless Times) Rated: B

P2Binvestor (P2Bi), a marketplace lending platform offering crowdsourced, asset-secured lines of credit to growing companies, today announced a partnership with Amalgamated Bank, a socially responsible bank based in New York.

The P2Bi bank partnership program gives growing businesses a way to quickly access capital while allowing banks to increase their addressable market and improve their conversion rates. This particular alliance will enable Amalgamated Bank to continue to help fund emerging socially responsible businesses.

Colonial Partners with Roostify for Superior Online Mortgage Experience (PR Newswire) Rated: B

Starting today, Roostify’s online, mobile-friendly application and loan collaboration tools will be available to all of Colonial retail mortgage branches and its Home Loan Center national call center.

United Kingdom

RateSetter backtracks on Rolling Market rate changes (Peer2Peer Finance) Rated: AAA

RATESETTER has reversed its decision to stop investors setting their own rate for capital reinvesting on its Rolling Market.

The peer-to-peer lender implemented an overhaulof its popular Rolling Market product on 6 June, no longer allowing investors to set their own rate on reinvested money.

In an email to customers, the lender said feedback demonstrated how much investors valued the option to set their own rate for capital reinvesting.

Some challenger banks are challenging (The Finanser) Rated: AAA

The UK’s challenger banks are busy getting on with it. They’ve got their licences, they’ve deployed their services, they’re partnering with third parties and creating marketplaces. Much of this was cited in a report by CBInsights, comparing the features of the five most notable new ones: Atom, Starling, Monzo, Revolut and Tandem.

N26 were also included, but is not a UK start-up and their report builds on the one I blogged about last month from Optima. The thing I took from the CBInsights report is the massive numbers of users that Revolut and Monzo have already gained. At that time, it was 1.5 million for Revolut and 500,000 for Monzo.

Starling marketplace grows with Growth Street addition (FinTech Futures) Rated: A

Growth Street will be the first SME finance provider on Starling Bank’s in-app marketplace, giving users access to services like pensions, insurance and loyalty schemes.

This partnership is Growth Street’s first marketplace integration, and represents the first live use of its third-party API. The firm is a P2P platform that matches investors’ funds with growing SMEs.

MarketInvoice looks to bolster its financial crime prevention (Peer2Peer Finance) Rated: A

MARKETINVOICE is looking to bolster its financial crime prevention with the appointment of dedicated anti-money laundering (AML) officer.

All regulated firms have to have someone in the business with responsibility for AML monitoring, with some choosing existing staff and others making it a dedicated role.

The peer-to-peer business finance platform is advertising for a AML/financial crime officer to sit within its legal unit.

The IFISA Phenomenon – The New Way to Invest (Dispatch Weekly) Rated: A

There are different types of ISAs including Cash ISAs and Stock & Shares ISAs but the Innovative Finance ISA (IFISA) is fast becoming the new trend in the ISA market.

Source: The Weekly Dispatch

Home loans turned us into a hot property, says Christian Faes, founder of lendinvest (The Sunday Times) Rated: A

Christian Faes could hardly have picked a worse time to get into mortgage lending. It was 2008, financial markets were in free fall and most people were more concerned about putting food on the table than buying a house.

That did not deter Faes, a former lawyer who had moved to London from Australia’s Gold Coast 10 years earlier. He co-founded Montello Bridging Finance in a “windowless serviced office” in the City and set about cold-calling potential investors. “The idea was really sound, but it wasn’t the best moment to be setting up a mortgage lending company,” said Faes, 41.

China/Hong Kong

China’s Peer-to-Peer Lenders Are Falling Like Dominoes as Panic Spreads (Bloomberg) Rated: AAA

The shakeout in China’s $192 billion peer-to-peer lending industry is accelerating at a rapid clip.

At least 118 platforms have failed this month through early Friday, according to Shanghai-based Yingcan Group, whose tally for July stood at 57 just three days ago. The number of failures, which includes platforms that have halted operations or come under police investigation, is already the highest in two years with more than a week left in the month.

China’s clampdown on financial risk has weighed on P2P platforms for the past two years, but the pressure has intensified in recent months after the country’s credit markets tightened and the banking regulator issued an unusual warning to savers that they should be prepared to lose all their money in high-yield products. While that has triggered bouts of panic among users of smaller P2P platforms, there’s little evidence that the turmoil has spread to more systemically important parts of China’s financial sector.
Source: Bloomberg

Chinese Investors Reel as Internet Lenders Close (Wall Street Journal) Rated: AAA

A string of Chinese internet lenders have shut their doors in recent weeks, stranding investors as the economy slows and regulators tighten controls over an unruly side of the fintech sector.

Across China, more than 200 internet-based fund managers since late June have either shut down, closed parts of their operations or are reeling from cash crunches, missing executives and other problems, according to industry tracker Wangdaizhijia.

The tide began to turn against the sector as an end-of-June deadline for new stringent registration regulations approached. With a slowing economy making it difficult for some companies to pay back loans, some lenders decided to shut down, analysts said. Investors, already souring on the sector, began pulling out funds, further pinching the lending platforms.

Source: Wall Street Journal

Distributed Credit Chain wants to use blockchain to prevent the next financial crash (Tech World) Rated: A

Figures from Bloomberg Economics based on data from the People’s Bank of China indicated that three major assets of shadow banking – trust lending, entrusted loans and banks’ acceptances – increased by $555 million in 2017. Entrusted loans, for example, are when businesses loan money to each other, using banks as intermediaries. Meaning that larger (state owned) companies may lend money to smaller companies and make a profit from the differences in interest.

Micro-lending is another phenomenon that has ballooned in recent years, with a proliferation of online lending or peer-to-peer lending platforms springing up. Outstanding debts on these sites increased by 256 percent between October 2015 and October 2017, topping 1.2 trillion yuan (over $179 million).

These issues have been acknowledged by the Chinese government, with China’s top banking regulator, Guo Shuqing, promising the shadow banking industry will be ‘dismantled’.

Shanghai vows to ramp up enforcement of P2P lending platform regulations (Global Times) Rated: A

The Shanghai municipal government has announced it will soon launch a campaign to enforce compliance of financial regulations on the city’s peer-to-peer (P2P) online lending platforms, according to a report by domestic website the Shanghai Observer, in a sign that local authorities will put order into China’s troubled fintech sector.

The Shanghai Office of the Leading Group for the Special Campaign against Internet Financial Risks said that it will  investigate the local online lending industry and severely punish those committing illegal fundraising and financial fraud, as well as fugitive owners. The authorities have reasserted their support of law-abiding firms in a bid to promote a more orderly internet finance industry.

In the last 50 days, up to 163 P2P lending platforms have essentially gone out of business, stopping cash withdrawals from customers, and many have seen their owners run away and declared fugitives,  chinanews.com reported.

Jim Rogers-backed ITF to miss August deadline for virtual bank licence in Hong Kong (South China Morning Post) Rated: B

ITF, a fintech company backed by US veteran investor Jim Rogers, plans to apply for a virtual bank licence in Hong Kong, but will not rush to meet the first application deadline on August 31.

The fintech firm would prefer to wait for more details about regulations, according to its adviser Ignious Yong.

European Union

Creditshelf raises €16.5m through landmark IPO (AltFI News) Rated: AAA

German mid-market lending platform Creditshelf has successfully closed its IPO, raising €16.5m at the fixed price €80.00 per share.

In the end, the company had no need of its €15m backstop order, provided by Hevella Capital GmbH & Co. KGaA, part of a group controlled by Rolf Elgeti. But Obotritia Capital KGaA, which is also part of the group, subscribed for an additional amount of €1.5m, underlining its support for the firm.

International

OnDeck Completes Two New International Credit Facilities (PR Newswire) Rated: AAA

OnDeck (NYSE:ONDK) announced today the closing of an AUD75 million asset-backed revolving credit facility with Credit Suisse, and the closing of a CAD50 million asset-backed revolving credit facility with Crédit Agricole, to finance OnDeck originations in Australia and Canada, respectively.

The new Credit Suisse facility will be used to refinance OnDeck Australia’s current loan book at a significantly lower cost, as well as to fund future originations. The Crédit Agricole facility is the first for OnDeck Canada and provides the business with access to CAD25 million of committed capacity and an additional CAD25 million of capacity available at the discretion of the lenders.  Both facilities are floating rate and have an initial weighted average interest rate of approximately 5.6%. The Credit Suisse facility and Crédit Agricole facility are scheduled to mature in June 2020 and June 2021, respectively.

Banco BNI Europa invests in US consumer loans via Fintex and Upgrade, Inc (Fintech Finance) Rated: AAA

European challenger bank Banco BNI Europa and Fintex have entered into a strategic partnership to invest in Upgrade’s consumer loans and expand access to affordable credit to consumers in the United States. Banco BNI Europa, which is active across Europe, now invests in US consumer loans through Upgrade, one of the fastest growing platforms in the US. This loan purchase programme was implemented by Fintex Capital, which issued a bond to Banco BNI Europa backed by the portfolio and Fintex acts as asset manager for the underlying loans.

As part of the agreement, Banco BNI Europa committed an initial sum of USD 30 million. Banco BNI Europa has already invested in US consumer loans originated on platforms like Lending Club and Prosper through a third-party fund.

How the Blockchain is Helping Redefine Business Financing (Equities) Rated: A

In fact, one report by CB Insights found that about 29 percent of startups failed because they ran out of working capital, which speaks volumes about the morbid state of business financing for startups and budding businesses.

Consequently, business financing has become one of the many areas of fintech that could benefit immensely from blockchain, the decentralized ledger that has been disrupting industries for over a decade.

Here are a few ways that showcase why blockchain could change the way enterprises access funding.

Credit Rating Firm Backs $ 8 Million Fundraise for Crypto Alternative (CoinDesk) Rated: A

A startup looking to build a credit scoring protocol on top of the recently-launched Ontology blockchain has raised $8 million in seed funding.POINTS, founded in 2017, said it drew funding from a mix of traditional venture capitalists including Danhua Capital and Ceyuan Ventures, a backer of OKCoin. Other participants in the seed round include the Ontology Foundation as well as Zhong Cheng Xin Credit Technology, China’s first nationwide credit rating agency.The new capital will be used to expand the company’s engineering team in an effort to speed up its development of blockchain-based know-your-customer (KYC) and credit scoring applications. The idea is to build its protocol on top of a decentralized network and empower apps that can eliminate repetitive processes around identity.

Bitcoin Holds the Line, Salt Slumps, Dash Drives Onward (Blockonomi) Rated: A

The crypto lending platform Salt Lending just got a dose of some strange news when the company suddenly released an announcement stating the appointing of what they call an interim CEO. The former CEO ,who was essentially the face of the company and one of the cofounders, Shawn Owen, appears to have left the company.

But the circumstances under which he left are unclear.

Salt tokens (that run on Ethereum) have been on a strong downward slide for the last few months, and are currently sitting at just over one dollar each. The tokens entered the market at the three dollar range and so are down by more than 66% post ICO. It is also unclear as to whether or not Salt Lending is still operating or giving out new crypto-to-cash loans.

RAD Lending: The Future of Crypto-Assets Backed Lending (News BTC) Rated: A

The growing user base of cryptocurrency and related products has skyrocketed, with the highest number originating from countries like New Zealand, Denmark and Belgium. The community growth is expected to follow the upward trajectory to hit 100 million users soon.

RAD Lending platform might just be the push the market needs to fill the gap between crypto holdings and real-life fiat spending. The P2P lending platform from RAD will act as a matchmaker between loan requests and funding proposals.

India

Digital lending to become $ 1 tn opportunity in India over next 5 years (Money Control) Rated: AAA

A Boston Consulting Group (BCG) report suggests that digital lending in India will become a $1 trillion opportunity in the next five years.

According to the report, four fundamental drivers that pushed the space are internet giants that changed the way consumers behave, rapid growth in technological advances including the proliferation of smartphones and consequent increase in the consumption of data. Also the digital market lending prospered under supportive regulatory conditions across the globe.

Funding in Indian startups this week (16 July-21 July) (EnTrackr) Rated: AAA

This week 16 startups received funding, of which 10 received a total sum of about $228.5 million. Among them, BookMyShow raised the highest investment of $100 million, followed by Cars24 which raised about $50 million.

Meanwhile, funding for six of the total funded startups remained undisclosed.

Source: EnTrackr

Lending platform LenDenClub gets NBFC-P2P certification from RBI (MediaNama) Rated: A

P2P lending platform LenDenClub has received its NBFC-P2P certification from the Reserve Bank of India (RBI), the Economic Times said. The RBI issued those guidelines last October, to register and accredit P2P lending firms that resell loans from individuals who have money to invest.

RBI’s registry will help solve problem of credit shortage: iSpirt’s Sharad Sharma (Livemint) Rated: A

Out of the 8.8 million businesses in India that file taxes, at least 6.6 million businesses do not have access to the credit sources such as banks, non-banking financial companies (NBFCs), and upcoming online lenders. This is a problematic situation for both lenders, and for businesses (especially small businesses), looking for capital loans.

The problem of credit shortage for small businesses is daunting, but the regulators in India have already set things in motion to address the issue. According to Sharma, the revamped goods and services tax (GST) structure, the Reserve Bank of India’s (RBI’s) new public credit registry (PCR) initiative, and UPI (Unified Payments Interface) 2.0 will solve the shortage of data for lenders.

Here’s a look at some brands that are making India artificially intelligent (Business Standard) Rated: A

The rise of promising tech-startups has been successful in ushering India into a dawn of technology.

While AI is believed to revolutionize the current modus operandi and bring about fast-paced automation and efficiencies, it still remains an abstract topic, palled by a lack of nuanced understanding amongst the general public.

Here are some enterprises that are integrating AI in everyday tasks:

Faircent: Making Lending more conducive with AI & Machine Learning

If you think AI is only limited to the IT industry, think once again. Faircent, India’s largest P2P (peer-to-peer) lending platform, has been utilizing the technology to provide users with money during your financial crunch. Doing away with methodologies of conventional lenders (which can often prevent a creditworthy applicant from securing a loan,) the platform leverages Machine Learning and Artificial Intelligence to enhance the effectiveness of its credit profiling and assessment.

Ebix acquires enterprise lending software company Indus for $ 29 M (Your Story) Rated: A

Global on-demand software provider Ebix Inc on Friday announced the acquisition of Indus Software Technologies Pvt. Ltd. (Indus), a global provider of enterprise lending software solutions to financial institutions, captive auto finance and telecom companies, for approximately $29 million, including $5 million of contingent earn-out.

Further to this acquisition, key Indus business executives will become a part of the combined EbixCash senior leadership. The acquisition will increase the employee strength of Ebix in India by 900, to approximately 7,200 employees.

Canada

Fintech OnDeck Canada lines up $ 50-million credit facility from Crédit Agricole (Financial Post) Rated: AAA

OnDeck Canada, the local online arm of the U.S. headquartered OnDeck now has a $50-million asset-backed credit facility, provided by Crédit Agricole, to fund its loans. According to a recent ranking of assets, the French bank is the world’s ninth largest. Its Montreal office offers commercial and investment banking services.This is the first time that OnDeck Canada — which has originated $180 million in small business loans since 2014, all made using a “wide spectrum of data, technology and analytics” — has arranged funding from a source other than its parent.There are two parts to the three-year facility that will finance loan originations created by OnDeck Canada: a $25-million committed facility and an extra $25 million that can be drawn if needed. OnDeck provides term loans up to $250,000 and revolving lines of credit of up to $50,000 to small business.

Authors:

George Popescu
Allen Taylor

Loan Amounts

$5,000 – $300,000

$25,000 – $500,000

Term Lengths

Up to 60 months

Up to 60 months

APR Range

10% – 35.5%

4.99% – 26.99%

on LendingClub’s secure website

on Funding Circle’s secure website

Monday February 5 2018, Daily News Digest

Nav financing

News Comments Today’s main news: Banco BNI starts lending through Fellow Finance. eBay drops PayPal for Adyen. Aviva exec backs robos. OneConnect secures $650M funding. Stripe sets up engineering hub in Dublin. EBANX gets $30M in funding from FTV Capital. Today’s main analysis: FT Partners’ Alternative Lending Market Analysis for January, and an interview with Nav CEO. Today’s thought-provoking articles: […]

Nav financing

News Comments

United States

United Kingdom

China

European Union

International

India

APAC

MENA

Latin America

News Summary

United States

eBay ditches PayPal for Adyen (Fintech Futures), Rated: AAA

What the good fintech can giveth, it can taketh away. eBay has given PayPal the boot and turned to Dutch firm Adyen as its primary processing partner.

Looking to sweeten this bitter pill, eBay says PayPal, a “long-time” partner, will be an option at the checkout for its buyers.

PayPal powers BofA Merrill digital payments (Fintech Futures), Rated: A

Bank of America Merrill Lynch’s (BofA Merrill) US-based commercial clients can now make payments in local currencies to payees who hold PayPal accounts.

Strong Job Gains, Marcus Acquihires, MLA Testimony (PeerIQ), Rated: AAA

Janet Yellen chaired her last Fed meeting as the committee kept interest rates on hold in January. Futures are pricing in a 93% probability of a rate hike in March and 3 rate hikes for 2018. The recent sell off on the long end of the curve has seen 10-year treasury yields edge past 2.85%, providing respite to banks who were seeing their loan margins compress as the curve flattened.

In securitization news, Marlette completed its largest securitization to date, with MFT 2018-1 coming in at $464 Mn. The deal was significantly over subscribed and eventually upsized continuing the trend of larger deal size that we pointed out in ourQ4 securitization trackerThe senior tranches were rated AA by Kroll. The collateral pool has 40,303 loans with an average loan balance of $12k, weighted average coupon of 14.3% and a FICO score of 703. All the loans were originated by Cross River Bank.

CEO Monthly Alternative Lending Market Analysis (FT Partners), Rated: AAA

This month’s report features an exclusive interview with Levi King, Co-founder and CEO of Nav, which is a data aggregation platform and marketplace that bridges the gap between small businesses and financial institutions. In the interview, Levi discusses the motivation behind founding Nav and how the company solves the challenges small businesses face managing their credit and securing financing solutions, among other topics.

Source: FT Partners

Download and read the full report here.

Open banking’s early adopters bet on ‘tremendous gains in value’ (American Banker), Rated: AAA

Only a few banks have embraced open banking and offer APIs to almost anyone. But they are betting on having a head start on competitors, as trends in the industry, such as increased bank-fintech partnership and evolving regulation, will push the banking-as-a-platform movement toward reality.

Operating as BBVA Compass in the U.S. in Birmingham, Ala., in 2016 it named a head of open APIs, and has engaged in several data-sharing agreements with fintechs. It is one of a handful of U.S. banks engaged in open banking — Capital One, Silicon Valley Bank, Citi and CBW Bank in Weir, Kan., also have such programs.

Last May, BBVA opened up its API Marketplace and made commercially available eight APIs so companies, startups and developers would be able to build new products and services by accessing and integrating customer’s banking data — with their permission — into their applications.

Source: American Banker

Fiserv Has Largest U.S. Marketshare of Top Bank Core Processors (Bank Innovation), Rated: A

According to data gathered by FedFis.com, the top processor is Brookfield, Wis.-based Fiserv. With more than 37% of the market share, Fiserv is well ahead of its competitors. The second, Monett, Mo.-based Jack Henry & Associates, has just half Fiserv’s market share with 17.6%. Close behind JHA is Fidelity National Information Services Inc., better known as FIS.

Enova Reports Fourth Quarter and Full Year 2017 Results (PR Newswire), Rated: A

Enova International (NYSE: ENVA), a financial technology company offering consumer and small business loans and financing, today announced financial results for the quarter and year ended December 31, 2017.

Fourth Quarter 2017 Summary

  • Total revenue of $243.7 million in the fourth quarter of 2017 increased 20.4% from $202.4 million in the fourth quarter of 2016.
  • Gross profit margin was 47.7% in the fourth quarter of 2017 compared to 51.8% in the fourth quarter of 2016, driven by growth in the installment loan and receivables purchase agreement segment as well as a higher mix of new customers, which requires higher loan loss provisions.
  • Net income was $6.9 million, or $0.20 per diluted share, in the fourth quarter of 2017 compared to net income of $8.7 million, or $0.26 per diluted share, in the fourth quarter of 2016.
  • Fourth quarter 2017 adjusted EBITDA of $38.1 million, a non-GAAP measure, increased from $35.1 million in the fourth quarter of 2016.
  • Adjusted net income of $8.9 million, or $0.26 per diluted share, a non-GAAP measure, in the fourth quarter of 2017 increased from adjusted net income of $8.5 million, or $0.25 per diluted share, in the fourth quarter of 2016.

Full Year 2017 Summary

  • Total revenue of $843.7 million in 2017 increased 13.2% from $745.6 million in 2016.
  • Gross profit margin was 53.0% in 2017 compared to 56.0% in 2016.
  • Net income was $29.2 million, or $0.86 per diluted share, in 2017 compared to net income of $34.6 million, or $1.03per diluted share, in 2016.
  • Full year 2017 adjusted EBITDA of $157.8 million, a non-GAAP measure, increased from $142.3 million in 2016.
  • Adjusted net income of $46.9 million, or $1.37 per diluted share, a non-GAAP measure, in 2017 increased from adjusted net income of $37.5 million, or $1.12 per diluted share in 2016.

No Credit? No Problem! Microlender for Women Uses Novel Approach (WSJ), Rated: A

Daniela Morales’s lender is demanding. Every Friday morning, at 9:45 sharp, she has to visit a small apartment in Woodside, Queens, to make her weekly payment—currently $293 plus $17 interest on a $6,900 balance.

Ms. Morales’s lender is Grameen America, a nonprofit microlender for women entrepreneurs. To get a Grameen loan, you don’t need any collateral or credit history, just the support of a small group of Grameen loan recipients who can vouch for you. It is, essentially, a reputation-based loan.

There are other nonprofit microlenders operating in the city, including Accion and BOC Capital Corp. But Grameen America, modeled on a Bangladeshi microlender, is unique in its peer support and loan-approval model.

The loans, which start at $500 and command an interest rate of 18% on a declining balance, must be repaid in six months. The interest rate falls as the loan is repaid. Members who establish a good track record qualify for larger sums.

How This Founder Is Using Fintech To Give Women More Financial Control (Benzinga), Rated: A

Morty is an online mortgage broker. Our mission is to empower homebuyers to make smarter home financing decisions. With a modern tech stack and a marketplace of lenders, we offer customers the most options, great rates, and a transparent process.

What surprised you the most in the fintech industry in 2017?

That there wasn’t more innovation in the mortgage space. It’s the only lending vertical that hasn’t moved online- credit cards, student loans, small business loans, personal loans- all have a big online presence. There is still so much to be done in mortgage, it’s exciting.

Hackers Targeting Payroll Direct Deposit (PYMNTS), Rated: A

In an article penned for JD Supra by law firm Ogletree, Deakins, Nash, Smoak & Stewart, P.C., experts warned of a type of payroll scam that sees fraudsters diverting direct deposits from employee accounts to criminal accounts.

According to the firm, fraudsters use a phishing scam by sending an email from an address similar to a legitimate company account.

Ogletree Deakins warned that not only does this scam result in lost funds, but it is ultimately a data breach, with scammers gaining access to corporate systems and data. The report also noted that scammers are targeting all types of businesses using all types of payroll providers.

Will Markets Ever Live Up to Our Expectations (Guru Focus), Rated: A

The fintech industry is the powerhouse behind the meteoric rise of the peer-to-peer lending market. After several platforms launched online payments, it was only a matter of time before new ones emerged offering lending services that are offered by and to registered members.

LendingClub Corp (NYSE:LC) has been one of the most notable players in this space and its popularity pushed it public in 2014. However, since then, the company has struggled to live up to expectations, reflecting the actual picture of the status of the peer-to-peer lending.

According to critics, while peer-to-peer lending is an attractive option for borrowers looking for alternative financing solutions, it appears to have growth limitations due to lack of funding for new products. Peer-to-peer lending platforms do not take deposits and this is a limiting factor, but analysts suggest that if they are to grow to the point of rivaling the mainstream lending market, then they may have to start taking customer deposits.

How to Win Man vs. Machine Advice Game (ThinkAdvisor), Rated: A

TD Ameritrade put the competitive pressures tied to robo-advisors and other technology left, right and center at its LINC 2018 RIA conference this week in Orlando. Industry leaders highlighted the power and threat of technology and how to address these trends in the advice business.

The dealmakers financing top adviser technology (InvestmentNews), Rated: A

It’s impossible to look at the landscape of modern adviser technology without seeing Steve Lockshin’s footprints.

As an early investor in Betterment, Mr. Lockshin, 41, was instrumental in encouraging the robo-adviser to pivot from competing against advisers to partnering with them.

Brad Bernstein could see the role of advisers was changing.

What was once an industry of investment managers and salespeople was shifting to financial planning. Driving the change was technology — automating and commoditizing many of the ways advisers traditionally added value for clients. Mr. Bernstein, 51, managing partner at growth equity firm FTV Capital, believed there was a demand for products that helped advisers better articulate their value to clients.

That’s what attracted Brooks Gibbins, 45, to the industry when he founded FinTech Collective with his partner, Gareth Jones, in 2012. The venture capital firm has been one of the most active early-stage fintech investors over the past five years, seeding some of the biggest names on the adviser fintech scene.

Seeing the opportunity for adviser fintech startups to get acquired by, or partner with, financial institutions, Ian Sheridan decided to draw on his more than 25 years of experience in the financial services industry — working in wealth, retirement and investing in startups — to identify which technology would be part of the next wave of innovation.

Fidelity rocked the adviser fintech world in 2015 when it acquired eMoney, one of the most popular financial planning and client portal tools among independent advisers. The reported $250 million price tag proved there was money to be made in adviser fintech.

“Prior to that, there was good technology out there, but there wasn’t this stream of new business models, this new equity flowing in,” said Mike Durbin, 50, the president of Fidelity Institutional who spearheaded the deal. “The pace has clearly quickened.”

After a career that took him from E.F. Hutton to founding the Lockwood family of companies, Len Reinhart turned toward private investing in retirement.

American Association of Private Lenders Opposes Florida Mortgage Licensing Bills (PR Newswire), Rated: A

The Florida legislature kicked off its legislative session by introducing Florida Senate Bill 894 and House Bill 935, legislation that could cover private mortgage lenders. The bills, introduced by Sen. Rene Garcia (R-Miami) and Rep. Jeanette Nunes (R-Miami), would eliminate a longstanding business purpose exemption for loans secured by a Dwelling.

On January 18, the bill passed the House Insurance and Banking Subcommittee with a 13-1 vote. On January 24, the House Commerce Committee passed the bill on a unanimous vote. The Senate similarly passed the bill on a unanimous vote in the Senate Banking and Insurance committee on January 23.

American Association of Private Lenders’ (AAPL) position is that the proposed regulation would harm Florida residents, business and the state’s economic growth by consolidating power to a few licensed parties. Private lenders provide much needed capital to a marketplace which is underserved by large financial institutions. Professional business parties need to be able to work with each other without significant regulatory intervention. The proposed regulation would result in less market competition, translating to higher interest rates, a higher cost of credit and would force business out of Florida and into neighboring states including Alabama, Georgia, Tennessee, North and South Carolina, all of which exempt business purpose loans from licensing requirements.

Amy Johnson Named as Chief Operating Officer at dv01 (PR Newswire), Rated: B

dv01, the data management, reporting, and analytics platform that provides institutional investors insight into lending markets, today announced the appointment of Amy Johnson as Chief Operating Officer. Johnson will report to dv01 founder and CEO, Perry Rahbar.

As COO, Johnson will be responsible for dv01’s finance, legal, and sales efforts, including helping execute the company’s vision and scale its operations.

The 10 D.C. Area Startups That Raised Capital in January (DC Inno), Rated: B

Reston, Va.-based online lender StreetShares closed $23 million in equity funding on Jan. 24. The lender focuses on veteran-owned small businesses and relies on a peer-to-peer lending model. About $20 million of the new round is from Bethesda, Md.-based firm Rotunda Capital Partners. Previously, StreetShares had raised $8.3 million between three rounds.

United Kingdom

Aviva executive backs robo-advisers in call for financial advice shake-up (New World News), Rated: AAA

An Aviva executive has backed the rise of robo-advisers and called for a shake-up of financial advice to help open up the industry to the mass market.

Andy Briggs, chief executive of Aviva UK Insurance, said the current regime is freezing out large swathes of the population because only the upper echelons can afford the hefty fees.

Mr Briggs said robo-advisers could also be more powerful and beneficial to customers if the artificial intelligence did not have to carry out full financial assessments.

Treasury begins SME finance inquiry (Bridging&Commercial), Rated: A

The Treasury committee has launched an inquiry into SME finance to look at the state of the market and the lessons to be learned from RBS’s Global Restructuring Group (GRG).
The Treasury’s inquiry will look at the extent of competition in the market, the various sources of funding available to SMEs – including P2P lending and crowdfunding – and whether the current regulatory framework provides enough protection to SMEs when they borrow money.

The committee will also consider the regulation of SME lending and whether banks should be bound by a broader set of duties when dealing with SMEs.

The pros and cons of each of the six types of ISA on the market (Your Money), Rated: A

6) Innovative Finance ISA

An Innovative Finance ISA (IFISA) is a peer-to-peer lending or crowdfunding product. In some instances, you can generate returns of around 8 – 9% by lending to private borrowers or by taking stakes in ‘crowdfunded’ investments. The IFISA is also subject to the same £20,000 annual ISA allowance so you can split your money between this ISA, as well as cash and stocks and shares.

While this is regulated by the FCA, peer-to-peer lending is not covered by the FSCS meaning your capital is at risk.

Things can only get better, says Christie & Co (The Caterer), Rated: B

Easily available debt from banks, financial institutions, peer-to-peer lending and even crowdfunding, together with forecasts of revpar growth of 2.4% in London and 2.3% in the regions, will help drive investments. Strong leisure business enjoyed by hotels last year – up 20% – is expected to continue to grow, depending on a continued weak pound.

Sainsbury’s and British Land chairmen join late payments start-up (Financial Times), Rated: B

A UK start-up that is aiming to end the culture of late payment that plagues British business has recruited two FTSE 100 chairmen as investors and advisers.

David Tyler, chairman of supermarket chain J Sainsbury, and John Gildersleeve, chairman of property group British Land, have joined the advisory board of Previse.

The London-based business pays supplier invoices instantly and collects the money from customers later. By analysing years of payment data it uses artificial intelligence to calculate the likelihood it can collect from the big customer. It has pilots running with two large corporations and is in talks with dozens more, Mr Gildersleeve told the Financial Times.

China

Ping An OneConnect fintech subsidiary raises $ 650 million in financing (Finextra), Rated: A

OneConnect is the only one-stop FinTech-empowered solutions provider in China. Financing of the three subsidiaries received positive responses, particularly from international institutional investors, including the SoftBank Vision Fund (which invested in Ping An Good Doctor and Ping An Healthcare Technology), International Digital Group (IDG) and SBI Group etc., proving that the capital market fully recognizes Ping An’s technological innovation, the business model for its technology as well as the growth potential and business value of the Group.

European Union

Banco BNI Europe Starts to Lend on Multiple P2P Lending Platforms (P2P-Banking), Rated: AAA

Today Banco BNI Europe announced it will start lending on Fellow Finance.

‘Investing via Fellow Finance in consumer and SME loans offers us a great opportunity to easily expand our operations and we are very satisfied with the analytical and professional approach of Fellow Finance in credit intermediation’ echoes Pedro Pinto Coelho, Executive Chairman of Banco BNI Europa.

U.S. Fintech Stripe Picks Dublin for New Engineering Hub (U.S. News), Rated: AAA

U.S. payments firm Stripe said on Monday it would place its first engineering center outside its home market in the Irish capital Dublin, attracted by the city’s growing technology workforce and global outlook.

Robo Advisers Start to Take Hold in Europe (WSJ), Rated: AAA

Estimates differ, but according to TechFluence, a technology research firm with offices in Frankfurt and London, the European market had assets under management of about $3.5 billion at the end of 2017. That compares with an estimated $200 billion to $250 billion in the U.S., according to Burnmark, a fintech research firm. Estimates of the number of services range from 98 to 126 in Europe, compared with about 200 in the U.S.

The cost of entry is also much lower: generally €5,000 to €10,000 (about $6,200 to $12,400), versus hundreds of thousands at least for a discretionary service through a bank, says Timo Pfeiffer, head of research and business development at Solactive AG, an index provider that has researched the growth of robo advisers in Europe.

Popular with banks

This has led to a number of banking groups preparing robo-adviser offerings, Mr. Mellinghoff says. One example is Comdirect, a subsidiary of Commerzbank , CRZBY -3.17% which launched a robo-advisory platform in May. This service, called Cominvest, had gained assets of more than €200 million as of end of December and is expected to grow rapidly in the coming years, says Sabine Schoon, head of corporate strategy and consulting at Comdirect.

The European market has also attracted interest from major U.S. providers; BlackRock Inc. BLK -2.98% announced in June 2017 that it was taking a minority stake in Scalable Capital, a robo-adviser specialist that operates mainly in the German and British markets.

BBVA’s digital push helps drive 20% profit rise (Financial Times), Rated: A

Spanish bank BBVA’s dash to get customers to buy products digitally rather than in branches helped it report a 20 per cent rise in underlying full-year profits, with results boosted by lower costs as well as higher revenues.

Top P2P Cryptocurrency Token Etherecash Gets Listed on QRYPTOS, Following Successful Crowdsale (The Daily Telescope), Rated: A

Top P2P cryptocurrency startup Etherecash has announced that its ECH token will be listed on popular cryptocurrency exchange QRYPTOS on 6th of February 2018, following a successful crowdsale in which the company raised over 40 million USD. This news comes as The Estonian-based lending startup saw a very successful Q4 to 2017 as it gears up for its token distribution in early 2018.

Crypto-lending ICO Etherecash recorded contributions of over 40 million USD and over 46000 new registrations.

GN Compass Creating More Liquidity for its Token, GNCT (PR Web), Rated: B

GN Compass is the first peer-to- peer lending platform for Cryptocurrency-Backed Loans.

All transactions are verified and distributed on the Ethereum Blockchain. GN Compass is joining an expanding group of pioneering projects integrating the Bancor Protocol to maximize the trading liquidity of GN Compass tokens.

Mifid tips balance against active funds in favour of ETFs (Financial Times), Rated: B

New business inflows almost doubled for Europe’s exchange traded fund industry in 2017, in the run-up to the EU’s introduction of rules designed to improve market transparency and strengthen investor protection.

Net inflows into European-listed ETFs reached a record $108bn last year, up from $55.7bn in 2016, according to ETFGI, a London-based consultancy.

International

Disruptive innovation in equity crowdfunding (Deloitte), Rated: AAA

A 2017 report from Deloitte and the World Economic Forum, “Beyond Fintech: A pragmatic assessment of disruptive potential in financial services,” studies the disruptive forces shaping the future of equity crowdfunding.

View the infographic here.

Disruptive innovation in digital banking (Deloitte), Rated: AAA

A 2017 report from Deloitte and the World Economic Forum, “Beyond Fintech: A pragmatic assessment of disruptive potential in financial services,” examines disruptive innovation in digital banking.

View the infographic here.

IdentityMind Global Introduces KYC and Anti-Money Laundering Plug-in for ICOs (Crowdfund Insider), Rated: A

IdentityMind Global, Digital Identities You Can Trust, an SaaS platform that builds, maintains and analyzes digital identities worldwide, allowing companies to perform identity proofing, risk-based authentication, regulatory identification, and to detect and prevent identity fraud, announced the immediate availability of its KYC Plug-in for ICOs which provides a turnkey solution for customer onboarding functionality and user experience to walk ICO participants through the know your customer (KYC) process to meet regulations worldwide.

BFB partners with US real estate fintech start-up (Trade Arabia), Rate: A

Bahrain FinTech Bay (BFB) and the Fintech Consortium (FTC) have announced a strategic partnership with OffrBox, a New York City-based Fintech start-up that has developed an end-to-end real estate transaction platform on which one can buy and sell residential properties online.

India

How early-stage startups raise money (Times of India), Rated: A

The first ’round of funding’ Abhishek Latthe got when he was setting up his wearable device startup SenseGiz in 2013 was from his family and friends. The next year, he set up a crowdfunding page on Kickstarter and raised $47,000. Late in 2014, he took out a bank loan. It was only two years later in 2015, that he could convince Karnataka Semiconductor Venture Capital Fund to back him with Rs 3 crore.

Banks do not back companies without collateral and since the business model is unproven, other investors too hesitate. So, funding options include getting help from friends and family, crowdfunding, or dipping into one’s savings, but how do founders decide on the path to take?

Gadkari says peer-to-peer lending and bridge funding, which fulfil a company’s short-term working capital needs, have also become popular. Choosing the best funding option depends on the company’s need. The next step for an entrepreneur is to negotiate the company’s valuation.

FinTech will revolutionise lending in India, says Faircent CEO (money control), Rated: A

Lending is one of the oldest professions in the world and is one of the pivotal reasons for the banking system to take shape.

There is evidence of lending activities dating back to 2,000 BC between merchants, farmers and traders.

However, up till now, lending as an activity has been largely limited to financial institutes such as banks and Non-banking Financial Companies (NBFCs).

For instance, lenders on Faircent.com usually avail average gross returns of 18% to 26% per annum. This makes online P2P loans a lucrative alternative investment avenue for them.

What makes online P2P lending even more lucrative as an asset class for potential investors is the fact that it offers lenders the opportunity to diversify their investments across multiple risk buckets and loan requirements.

Source: money control

Everything you need to know as pressure mounts on cryptocurrencies (GK Men), Rated: B

Sapan Gupta a Practice-Head at Shardul Amarchand Mangaldas said, “capitalising on the blockchain technology could open new ways of securing peer-to-peer lending transactions, boosting trade finance, fintech and information repository sectors”.

APAC

After a Successful Crowdsale Campaign, Karma (KRM) Begins Trading With Blockchain (Coin Idol), Rated: AAA

Decentralized p2p lending platform Karma has just announced trading as well as access to its platform and blockchain solutions. The project has now been backed by Danish fintech startup OpenLedger. Karma’s p2p lending platform can be used on the OpenLedger DEX platform and the Korean exchange CoinLink.

Why Blockchain’s Growing Pains Could Benefit Underbanked SMBs (PYMNTS), Rated: AAA

According to a report released earlier this month by EY, 21 percent of people in the world — about 1.6 billion people — are underbanked. More than 200 million micro and SMBs fall into the underbanked category, too, with access to finance the largest hurdle for many of these firms.

EY pinpointed the APAC region as a particularly wide opportunity for financial services players to address this gap: Bank revenue in this market, researchers said, could reach $88 billion by 2020. If traditional banks don’t step in, alternative financial services firms will.

“A lot of smaller, private small businesses are under-funded,” Tran noted. “It’s not like here [in the U.S.], where we have an established financial and banking system. If you implement something like a decentralized blockchain, a P2P lending system, that would enable [SMBs] to get funded a lot easier than going through the normal banking system. With blockchain technology, you can put a platform together that is smart contract-based, allowing individual investors to participate in a growing economy. On the other hand, you allow [SMBs] to get funded very quickly.”

MENA

Top 20 Fintech Startups In The Middle East (Forbes), Rated: AAA

1 PayTabs
Online payment processing solutions

2 Souqalmal.com
Financial products comparison site

4 Beehive
SME focused peer2peer lending platform

5 Yallacompare
Financial products comparison site

8 liwwa
Peer-to-peer lending platform

StartAD launches on February 18 for fintech startups (Arabian Business), Rated: A

Innovation platform startAD will host a ten-day entrepreneurship programme, Venture Launchpad, at New York University Abu Dhabi (NYUAD), from February 18-27.

It will see ten fintech startups pitch their business ideas to investors. UAE-based early-stage startups are encouraged to apply by February 12, 2018, the application deadline.

The programme will equip them with the tools and knowledge to develop a scalable and capital efficient scheme. These include insights into crowdfunding, peer-to-peer lending, blockchain, algorithmic trading, credit scoring, cryptocurrency, payments, insurance tech and money transferrals.

Latin America

Brazilian Fintech EBANX Secures $ 30 Million Investment From FTV Capital (Crowdfund Insider), Rated: AAA

Brazilian fintech EBANX announced on Wednesday it has secured a $30 million investment from FTV Capital.

EBANX also processes payments for major merchants from 50 different countries, including the U.S. and China. The company reported that just last year it processed $1.2 billion in cross-border transactions and achieved the milestone of helping more than 30 million users from the region gain full access to major international e-commerce merchants.

Authors:

George Popescu
Allen Taylor

A Distributed Ledger For Alternative Lending, KYC, Digital Identity

SAP blockchain solution

SAP’s website is asking us to “Imagine people, businesses, machines, and algorithms all communicating in a frictionless way—where data sharing is fast, open, yet completely secure for all parties.” That’s what the company is seeking to offer its customers with the incorporation of blockchain technology to its Leonardo IoT (Internet of Things) portfolio. The early […]

SAP blockchain solution

SAP’s website is asking us to “Imagine people, businesses, machines, and algorithms all communicating in a frictionless way—where data sharing is fast, open, yet completely secure for all parties.” That’s what the company is seeking to offer its customers with the incorporation of blockchain technology to its Leonardo IoT (Internet of Things) portfolio.

The early evidence shows that isn’t such an unimaginable thing at all. In the middle of last month, the company joined with the Alastria Consortium and the Blockchain in Trucking Alliance (BiTA) bringing 27 customers and partners with a total market value of $819B. The partnership is evidence that we can imagine a seamless future in the lending industry and beyond.

And what are the benefits that the members of these consortiums believe in so much?

Benefits of Blockchain

The blockchain, a true P2P network, will reduce alliance on some types of third-party intermediaries such as banks, lawyers, and brokers. The transactions not being limited by office hours, the blockchain can speed up process execution in multi-party scenarios. The fact that all of the information is viewable by all parties and cannot be altered promises to reduce fraud and create trust. The use of the distributed ledger technology (DLT) will provide quick ROI by helping businesses create leaner and more efficient processes, which will make them more profitable.

The distributed and encrypted nature of the blockchain makes it difficult to hack and promises greater IoT security. The blockchain is also programmable making it possible to trigger actions, events, and payments once conditions are met.

Our interview with Nadine Hoffman, innovation manager for SAP Financial Services, and Juergen Hofman, the company’s social manager for financial services, sheds a light on the benefits to business and industry and why SAP is a fitting company to grow these advances.

SAP’s Application of the Blockchain

While using the company’s hyperledger as a base structure, Nadine tells us that having encountered so many potential partners who want to add to the existing product has led the company to being what she terms as “tech agnostic.” She expands by saying, “We offer infrastructure to connect existing technology and advantage to combine with other technology, using machine learning to take the best of all worlds specifically for process and use.”

She says the DLT will help companies discern what the best technology is for their needs, with a focus on lending.

The full life cycle of lending is a slow and complex process because there are so many parties to cooperate with. Nadine tells us that onboarding can make it seamless with the use of the DLT. The blockchain customer owns their own data and is in charge of how and with whom it is shared, which leads to greater transparency. The ownership of a “single source of truth” will allow customers to reach real digitalization.

Juergen chose to focus on two examples of the benefits SAP has already seen, one in the area of bonded loans and the other as pertains to KYC (know your customer).

In the case with bonded loans, as SAP exhibited through its partnership with Deloitte, the bond comes with a bond and a loan aspect, but since it isn’t dealt across a stock exchange, it isn’t subject to DOC rules. Also, we once again see speed and efficiency as an upside. With the exchange and confirmation of information and requests for changes, the process of issuing bonded loans manually is more time consuming. What’s more, if a customer later wants to sell his or her share, banks might not be aware of it, which creates KYC issues.

The Deloitte blockchain solution creates a digital asset and different investors buy a piece of it. It serves as a marketplace, a shop window, and source of P2P transactions. The offering can be made to all of the peers in a network and to a specific network.

When it comes to KYC benefits, it’s really pretty simple. Juergen gives us this example: You walk into a bank you want to do business with. You have to provide them with all of your information. Then, you want to do business with another bank, and you have to do the same thing. The distributed ledger solution is to store a customer’s ID and link it to their personal documents, which are not stored on the blockchain. Once the transaction is cleared, the link is established and the documents are accessed to prove identity and the onboarding process continues. In this, SAP provides a solution to KYC issues, with running proof of identity.

In terms of regulation, Juergen says the data of a trade must be tamper proof, and the SAP DLT can be advantageous to those ends in that it records transactions as a “single source of truth,” which is tamper proof and contains info that is easier to access in real time.

SAP’s Blockchain Application Over Its Competitors

Nadine tells us that SAP has the edge over its competition because the company is active in 25 industries, not only in lending cases, but in all of its DLT cases. She reminds us that, quite often, the company is doing work that spans multiple industries. The SAP DLT breaks down former silos and gives a 360-degree view of a chain. Working across industry lines in this manner helps to create the ease with which parties from all industries can integrate.

Juergen underscores this, adding that, in the case with bonded loans, the company’s advantage is that it has strong capabilities with its other solutions.

Still, the technology being what it is, and the company’s tech-agnostic stance, means that there really is no competition. Yes, there are similar offerings from other large software companies, but there’s a lot of space in the market for more than one company to find the right footprint.

SAP Blockchain Performance Benchmarks

The technology is still evolving. It is not yet mature, which means we have no history of performance to report. Currently in the pilot phase, the technology will go live and be available soon.

When it does become available, SAP’s DLT will become so for everyone, and Juergen tells us that there won’t be a typical customer. From small firms to major banks, the broad range of companies in business with SAP, along with the global reach of the company, help to create a blockchain that will benefit fintech companies as well as traditional companies as the technology changes how everyone does business.

SAP’s Fit with the Direction of the Industry

Nadine assures us that SAP is pleased with its tech progress and that they have multiple use cases ongoing in every industry–public sector, telecom, and healthcare; and that every industry is working on blockchain topics but not limiting technology. Through the IoT, machine learning, and DLT, the company is furthering its investigation into and introduction of new products for customers.

Nadine also sees the advantage of the openness of the market. “There are a lot of players approaching lending, not only banks. Industries are creating their own banks and creating alternative lending markets. We’re investing in all of this.”

When asked what the company is looking for right now, she assures us that SAP is “very good” when it comes to the tech side. The hurdle to face now comes from the legal and regulatory side. That is on its way she tells us.

Conclusion

It seems only rational to think that we are going to get to the point where the blockchain is in place and well-functioning in accordance with the SAP vision. This is the latest and most adroit technology when it comes to the streamlining of data sharing and acquisition, and it’s just human nature to go down new avenues and do what comes next. We learn beyond what we had previously known and we use it to make our lives better and easier, and that’s what we’ll do with the blockchain.

Is there any reason to think that SAP won’t be one of the companies at the forefront of this application? Not at all. With the company’s vision, establishment in all industries, and existing IoT and DLT structures, they are a safe bet to be among the leaders paving the way into this seamless version of what’s next.

Author:

Written by Paul Keenan.

Wednesday September 27 2017, Daily News Digest

small business alternative loan originations

News Comments Today’s main news: SoFi’s lawsuits not affecting brand. Zopa to reopen to investors. Funding Circle revenue hits 50M GBP. CFPB sues over illegal online lending in Canada, Malta. Today’s main analysis: Why Square is entering the banking business. Today’s thought-provoking articles: Prosper loses unicorn status. Banks tell Equifax to get it together. Job loss concerns amid digital disruption […]

small business alternative loan originations

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Asia

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News Summary

United States

SoFi’s lawsuits don’t seem to be affecting its brand (Tearsheet), Rated: AAA

The resignation of the company’s co-founder and former CEO, Mike Cagney, amid lawsuits from employees stemming from sexual harassment allegations and other workplace issues has thrown into question whether the brand can continue to be known as a “different kind of finance company,” as it markets itself. But despite the bad news so far, the damage to the company’s standing seems to have been contained — the result of being in the shadow of bigger scandals in Silicon Valley and the company’s actions in the aftermath of the scandal.

Based on online sentiment expressed on Twitter, Facebook, Instagram, blogs, forums and news sites between Aug. 12 and Sept. 23 (when the news of lawsuits first emerged), 71 percent of categorized mentions of the brand were positive, according to social media analytics firm Brandwatch. While sentiment dips Sept. 12-16 (reaching the level of 86 percent negative on Sept. 16, coinciding with Cagney’s resignation), feelings quickly rebound by Sept. 19, showing a certain resilience despite the negative press.

In addition, the quick timing of Cagney’s resignation reduced the effects of the negative news, said Crenshaw.

“I guess I don’t really care as it pertains to my loan,” said Alex Nocella, 27, a SoFi customer since 2013. “It damages my view with the way they’re operating their business, but it doesn’t change the relationship I have with them. It wouldn’t stop me from getting another loan with them.”

In addition, he said, the company was proactive about informing customers of Cagney’s resignation prior to the news becoming public by giving them a heads-up on the customer-only Facebook group.

Source: Tearsheet

Why Square Is Entering the Bank Business (Market Realist), Rated: AAA

Square Capital has distributed more than $1.8 billion in loans to over 140,000 merchants since its inception in 2014. In 2Q17, Square Capital loan volumes rose at 68% year-over-year to $318 million.

In the business of supplying alternative financing to merchant customers, Square competes with PayPal (PYPL), Amazon (AMZN), and LendingClub (LC). PayPal says it has distributed $3.0 billion in small business loans through its credit arm, while Amazon says it has supplied more than $2.5 billion in credit to its merchant clients.

Why Square Is Pursuing a Bank Charter

Square is pursuing its application for a bank charter because it’s seeking more independence in its financial services business. Square Capital head Jacqueline Reses told the Wall Street Journal, “As we scale, it’s becoming increasingly important that we have direct relationships with regulators.”

While a partnership with Celtic Bank has helped Square Capital grow, Square prefers running a financial services operation that it controls. The US (SPY) small business alternative lending market is forecast to originate $52 billion in loans by 2020 compared to $5.0 billion in 2015, according to BI (Business Insider) Intelligence.

 Why Square Opted for an Industrial Bank Model 

Square (SQ) is seeking an industrial bank license rather than a traditional bank license. Why? In deciding to go for an industrial bank license as opposed to a traditional bank license, Square chose the easy way out.

Source: Market Realist

How SFS Could Change Square Capital

Square has applied for an industrial bank charter so that it can take its lending business to a higher level and potentially unlock more growth.

However, Square intends to keep its consumer-facing financial services separate from its main bank unit.

Through Square Cash, Square is targeting the multibillion-dollar P2P (peer-to-peer) payments market. According to Forrester Research, global P2P transactions will reach $17 billion by 2019. According to Javelin Strategy and Research, the number of Americans using the P2P payment service will increase to 126 million by 2020 from 69 million in 2016.
$1 trillion alternative financing market

SFS, to be capitalized with $56 million in cash, will provide credit and offer deposit account services to merchants. The Polsky Center estimates that US (SPY) alternative loan volume rose to $34.5 billion in 2016 from $28.3 billion in 2015. Globally, the alternative financing market is forecast to grow to $1.0 trillion in the coming decade.

Square’s bank CEO will be Lewis Goodwin, an executive who recently joined the company from Green Dot (GDOT). Goodwin was CEO and president of Green Dot for several years.

Green Dot is a provider of prepaid debit card services. In 2016, Goodwin’s last full year as the company’s head, Green Dot’s revenue grew to $718.8 million from $694.7 million in the prior year.

Prosper raises $ 50 million but loses unicorn status (Business Insider), Rated: AAA

In another sign that the US marketplace lending industry has successfully 

Source: Business Insider

Banks To Equifax: Get It Together (Or Else) (PYMNTS), Rated: AAA

Equifax has been the Bad News Bears of financial services lately. First there was the massive data breach that sent the personal information of most of the U.S. adult population to the dark web for exploitation. Then there was the fake phishing site to which the credit rating agency accidentally referred a bunch of recently breached people, as they could not distinguish their own site from a cloned version of it. Thankfully, that site was actually set up by a security researcher to illustrate a flaw, not a real cybercriminal – but still, it hasn’t been a good fortnight for Equifax.

And now the banks – i.e. the lenders who supply credit rating agencies like Equifax with the data they need to feed their scoring model – are making loudly discontented noises in Equifax’s direction.

“If there’s only two players, then they have less ability to play them against one another” in negotiating prices for credit reports, Thomas said.

But the willingness of lenders to support Equifax is damaged by the firm’s handling of the hack so far, which has failed to impress anyone.

U.S. CFPB suing over alleged illegal online payday loan business (Biv.com), Rated: AAA

The U.S. Consumer Financial Protection Bureau (CFPB) is seeking the BC Supreme Court’s help to compel a group of former employees of a Langley company that allegedly ran an illegal online payday loan business through a web of affiliated companies in Canada and Malta.

The U.S., on behalf of the bureau, filed a petition in BC Supreme Court on September 8, naming Roo Chang, Annie Wang, Juila Zhu, May Chan, Doug Patton, Andrew Hung, Michelle Duncan and the Bank of Montreal as respondents.

The petition is related to a lawsuit filed by the bureau in New York in July 2015 over alleged violations of the Consumer Financial Protection Act “by using a series of interrelated Canadian and Maltese companies … to operate an illegal online payday lending business targeting U.S. consumers in all fifty states.”

The Second Annual Online Lending Policy Summit in Washington (Lend Academy), Rated: A

Yesterday, I attended the second annual Online Lending Policy Summit in Washington DC. It was headlined by the Acting head of the OCC, Keith Noreika, Congressman Greg Meeks (D-NY), Congressman Tom Emmer (R-MN) and William Isaac, the former head of the FDIC.

William Isaac was the head of the FDIC under President Reagan and he painted a stark picture of the US today where 60% of the population cannot get a bank loan. He said that we have to do better and figure out a way to lend to a broader cross section of the population.

I found Congressman Meeks to be the most engaging speaker of the day. His enthusiasm for financial innovation was infectious. He said that fintech should focus more on being an enabler than a disruptor. We need to enable more access to credit through partnerships with traditional financial institutions. He brought up the idea that fintech platforms could partner with black-owned banks that are struggling to keep up with the technological changes happening today.

Top 10 Jungle Releases Top 10 Small Business Loan Award to OnDeck Capital (PR Newswire), Rated: A

Digital media powerhouse Top 10 Jungle has just released its Top 10 Small Business Loan Reviews for 2017 and has given the top spot to New York City-based OnDeck Capital.

Acting Comptroller Noreika Comments On Madden “Fix,” Other OCC Initiatives (The National Law Review), Rated: A

In Madden, the Second Circuit ruled that a nonbank that purchases loans from a national bank could not charge the same rate of interest on the loan that Section 85 of the National Bank Act allows the national bank to charge.  Yesterday, at the Online Lending Policy Summit in Washington, D.C., Acting OCC Comptroller Keith Noreika advocated a Madden “fix” as an example of an action Congress could take “to reduce burden and promote economic growth.”  Mr. Noreika stated that the OCC supports proposed legislation that would codify the “valid when made rule” and provide that a loan that is made at a valid interest rate remains valid at that rate after it is transferred.

Mr. Noreika also was asked whether, as we have previously suggested, the OCC would address the risk posed by the theory that a bank making loans is not the “true lender” if a nonbank marketing and servicing agent acquires the “predominant economic interest” in the loans.  Unfortunately, Mr. Noreika stated that “true lender” guidance might be unnecessary at this time due to prior guidance issued during the tenures of former Comptrollers Hawke and Duggan.

With regard to the OCC’s special purpose national bank (SPNB) charter proposal, Acting Comptroller Noreika stated that the OCC is continuing to consider the proposal and intends to defend its authority to grant an SNPB charter to a nondepository company in the lawsuits filed by the NY Department of Financial Services and the Conference of State Bank Supervisors.

Mr. Noreika also indicated that the OCC intends to revisit its guidance on deposit advance products, observing that its views on such products are not necessarily consistent with those of the CFPB.

First-of-its-Kind Online Subscription-based Golf Club Upgrade and Instant Financing Program Powered by Klarna (PR Newswire), Rated: A

An innovative new online golf club upgrade and financing program, developed by TaylorMade Golf (www.taylormadegolf.com) in collaboration with Klarna (www.klarna.com), provides golfers access to the newest and most advanced equipment as soon as it is released.

In the first five months since its inception, the program has experienced significant success, with a 30 percent overall lift in conversions and a five percent increase in average order value.

‘The Turn’ is a first-of-its-kind upgrade program for purchasing golf clubs. It is named for when golfers finish the ninth hole of a round of golf and then ‘turn’ for home. The program allows TaylorMade Golf fans to finance their purchases over 18 or 30 months on the TaylorMade Golf website, and keep or exchange their clubs for the latest models toward the end of the payment period. If a customer chooses to upgrade, payments on the existing clubs will stop and payments on the new clubs will begin.

The program is powered by Klarna, a global leader in providing instant financing solutions to e-tailers and customers. Customers opt-in to the program by applying for financing at the point of checkout through a simple, instant credit approval process that provides them with an open line of credit that may be used wherever Klarna is accepted.

ArborCrowd Announces $ 40.8 Million Multifamily Real Estate Deal (Crowdfund Insider

Commercial real estate crowdfunding platform ArborCrowd announced on Tuesday it is now offering a $40.8 million multifamily real estate deal to investors. The property, Quarry Station Apartments, is located in San Antonio, Texas.

Deloitte says it was hacked (American Banker), Rated: A

Another hack: Deloitte said Monday it suffered a cyberattack. But the hacker accessed data affecting only a “very few” of the big accounting firm’s clients and “no disruption has occurred to client businesses, to Deloitte’s ability to continue to serve clients, or to consumers,” the firm said.

ReliaMax Acquires Assets of FUTR Corporation (BusinessWire), Rated: A

ReliaMax, the complete private student lending solutions provider for banks, credit unions, schools and alternative lenders, today announced it has acquired the assets of FUTR Corporation, a San Francisco- and Texas-based private student loan servicing provider. The acquisition brings over 40 new lenders and $55 million in borrower servicing to The ReliaMax Solution, the only fully-integrated private student loan solution that includes borrower acquisition, origination, servicing, insurance, and capital markets/portfolio liquidity support.

Fidelity Axes Suit Over High-Cost Investments, Robo-Adviser Fees (BNA.com), Rated: A

The participants’ claim that Fidelity breached its fiduciary duties by selecting and hiring Financial Engines—an online financial advice provider commonly known as a robo-adviser—also fails, Burroughs wrote. The allegations were premised on the notion that Fidelity, rather than the plan sponsor Delta, hired and selected Financial Engines, but the plan’s language contradicts this premise, Burroughs concluded, granting Fidelity’s motion to dismiss.

LEND360 Partners with LendingTree to Award a $ 10,000 Prize to Winner of the LEND360 Startup Innovators Program (PRWeb), Rated: B

LEND360 announces LendingTree, the nation’s leading online loan marketplace, will award a $10,000 prize to the winner of the LEND360 Startup Innovators Program, an on-site competition where fintech startups will present cutting-edge solutions that are propelling the online lending ecosystem forward.

Startups in the fintech space will pitch solutions on the LEND360 Innovation Floor Spotlight Stage. Each company will have approximately five minutes to make their pitch followed by a brief Q&A session. All LEND360 attendees are invited to attend.

Members of the LEND360 Investor Advisory Board will judge all presentations and attendees will submit their choice via our conference app. The winner will be announced on Friday morning, October 13, and will have the opportunity to pitch their solution on the mainstage.

Check Into Cash founder pulls ads from NFL games, denounces league as ‘unpatriotic’ (Times Free Press), Rated: B

But after NFL players and coaches challenged President Donald Trump and many took a knee during the national anthem played before their games over the weekend, Jones said he is through sponsoring the wardrobes or advertising on stations that air the National Football League.

“Our companies will not condone unpatriotic behavior!” said Jones, CEO of the payday lending chain Check Into Cash and owner of Hardwick Clothes — America’s oldest suit maker.

Envestnet to buy FolioDynamix for $ 195 mln (PE Hub), Rated: B

Envestnet (NYSE: ENV), a leading provider of intelligent systems for wealth management and financial wellness, today announced that it will acquire FolioDynamix, a provider of integrated wealth management technology solutions.

How Do You Refinance Your Student Loans? It’s Actually So Much Easier Than You Think (Bustle), Rated: B

In February, Forbes reported that the total student loan debt had reached $1.13 trillionspread out across almost 45 million borrowers in the United States.

According to SoFi’s own refinancing calculator, people who refinance with SoFi save on average almost $23,000 total, or $288 a month — not an insignificant chunk of change. (Other lenders boast similar returns.) “If you’re paying an 8 or 9 percent [interest rate], and you can refi down to 4 percent, and you can lower the term — take it from 15 years to 10 years — you’ve cut the interest rate, you’ve cut the length, you would have been paying double the interest for a longer period of time,” Bradford explains.

By combining your all federal and private loans into one new private loan, you lose out on certain protections that come with federal loans, like income-based repayment or student loan forgiveness, according to the Consumer Financial Protection Bureau.

Research by LendEDU found that 57 percent of applicants qualify, so there’s little excuse not to at least try. And according to Student Loan Hero, across the top six student loan refinancers, it takes on average less than 20 minutes total to check your rates and apply online (or even on an app).

United Kingdom

P2P lender Zopa set to reopen to new investors (Financial Times), Rated: AAA

Zopa, the UK’s first peer-to-peer lender, is aiming to reopen to new investors by the end of this year following a long-running imbalance between those who want to lend money via the platform, and those who want to borrow.

Zopa’s website offers annualised projected returns of up to 4.5 per cent to those prepared to lend money to individuals via its platform for five years. However, high demand meant Zopa stopped taking new client money last December. After re-opening temporarily, it stopped again in March, and started a waiting list which has details of 15,000 potential investors waiting to lend.

Andrew Lawson, Zopa’s chief product officer, said the company was growing its book of new loans at 50 per cent year-on-year but was finding it harder to lure appropriate borrowers due to declining credit quality and fierce competition among peer-to peer lenders.

The platform’s existing investors have also been hit by long delays after a surge in demand for Zopa’s Innovative Finance Isa, which allows peer-to-peer loans to be held within the popular tax-free wrapper.

Funding Circle hits £50 million in revenue as CEO restates IPO ambitions (Business Insider), Rated: AAA

Online small business lender Funding Circle lifted the lid on business performance on Wednesday, showing revenue passed £50 million for the first time last year.

  • Revenue rose 59% to £50.9 million;
  • Operating expenses rose by 43% to £103.1 million;
  • Losses dipped by 3% to £35.7 million thanks partly to a foreign exchange boost;
  • £1 billion lent last year;
  • Loans outstanding rose by 61% to £1.37 billion;

Graham Wellesley hits back at critics (P2P Finance News), Rated: A

Earlier this year, a series of media reports highlighted a report from auditor BDO which stated that Wellesley & Co was “dependent on raising further capital to continue to operate for 12 months”. This statement referred to the firm’s performance as at December 2015.

However, Graham Wellesley told Peer2Peer Finance News that these reports were misleading as they referred to the firm’s mini-bonds only, and not its peer-to-peer lending platform.

LendInvest and NACFB launch broker development finance course (Financial Reporter), Rated: A

LendInvest has launched its first property development course for brokers, in partnership with the NACFB.

Aimed at providing brokers with a better understanding of how to add more value to clients that require development finance, the courses outline in detail what it takes to make sure small-scale developments run smoothly.

Can you trust the bonds that pay 8.5%? We run the rule over five deals wooing savers with juicy rates (This is Money), Rated: B

QuidCycle — 6.1 per cent

QuidCycle is a so-called peer-to-peer lending company, which brings together borrowers and savers.

There is just one bond available now, paying 6.1 per cent for five years. You must invest at least £500 and your money isn’t accessible until the fixed term expires.

THE RISKS: The worry is that the borrower won’t be able to make repayments. QuidCycle has a Provision Fund, a pot of money set aside in case borrowers can’t pay.

Your money is spread across at least five borrowers to limit your risk exposure, and there’s an option to lend a maximum of £100 to any single borrower.

Former Swift chief Campos joins Scottish financial technology vendor ID Co (Finextra), Rated: B

A leading UK financial technology company has strengthened its position in the market with the appointment of new chairperson, Lazaro Campos, and chief technology officer, Scott Leckie.

The Edinburgh headquartered business, established in 2010, has won some major clients in the UK and North America. These include a large UK retail bank, Prosper Marketplace, Marlette Funding, OakNorth Bank, eMoneyUnion, and Fair Finance. Over the last 12-months alone, the volume of transactions facilitated by the company has grown by 15% month over month.

New chairperson Lazaro Campos brings over 30-years C-level experience in banking technology, having previously served as a non-executive director of The ID Co. from 2014. He is also co-founder of innovation ecosystem company FinTechStage, member of the advisory board of financial services company Payoneer and Senior Advisor to management consulting firm Booz Allen Hamilton. Elsewhere Lazaro served at SWIFT, the global banking network, in various executive roles and was its CEO from 2007 until 2012.

International

Avalon is Inviting Investments in Its Initial Coin Offering to Reshape The Trends of Online Lending (Digital Journal), Rated: A

Avalon Capital Group, Inc. has announced that it is inviting investors from around the world to make investments in its initial coin offering. With a well-established base of research, development and operations, the company is introducing cryptocurrency and initial coin offerings as a new way of transaction for its valued customers. In addition, the rising private investment company is backed by HSBC bank with 4,000,000 USD investment already.

This blockchain based crypto lending model will open new possibilities of lending money online safely and easily. Furthermore, this decentralized peer to peer lending platform will enable anyone to lend and borrow money is a safe and secure environment online.

India

How Fintech Players can Help Banks Bridge the Gap in SME Lending in India (BW Disrupt), Rated: A

The SME business opportunity in India can be seen in possibly every sector – financial services, telecom, education, automobiles, media, food, real estate and so on. SME businesses are the biggest contributor to the economy of any country and the same goes with India. After agriculture, small business in India is the second largest employer of human resources. Also, in recent years, this sector has been weaving some of the most inspiring business success stories. In fact, MSMEs were found to account for 46% of the industrial production and 95% of the total industrial units.

From inefficacy of measures in credit flows (such as credit scoring for SMEs) to information asymmetry faced by banks and financial institutions, there are plentiful challenges that have impacted the contribution and performance of small and medium enterprises in the Indian economy. More than 80% MSME entrepreneurs are forced to resort to other unorganized avenues of financing to obtain credit assistance.

Fintech lenders can change that.

P2P Lending – A twist or a stick? (India Times), Rated: A

Although still in its infancy as a market, P2P lending firms in the US and UK in 2010 generated cumulative lending of USD 1.5m and this increased to USD 7bn in 2015 so unprecedented rise in the demand. In the US alone, in 2015, P2P platforms issued approximately $6bn in loans and based on our global analysis, this is expected to grow to $150bn by 2025 (25 times or 2400% over 10 years).

The estimated P2P lending to be generated in India over the next 5 years is pegged at circa USD 4bn (160 times the current lending size). Still this is way too low compared to China where there are circa more than 2000 P2P lending firms with a lending book size north of circa USD15bn indicating the potential to grow exponentially in India.

What are the risks involved in P2P lending?

1. Weak underwriting process resulting in bankruptcy of the P2P firm due to poorly executed business model resulting in granting loans to scrupulous borrowers with poor credit history

4. Data privacy laws could be breached if the platform firms disclose the names of the borrowers and lenders in their website.

5. If KYC and AML checks are not carried out robustly, the platform firms could be used for money laundering and routing illegal sources of funding.

Our perspectives

1. Platform based lending will invariably gain huge momentum over the next 3-5 years due to competitive interest rates and ease of making finance available.

2. Secured lending may have a better preference from a risk averse investor stand point due to the fact that this business has progressed very well since the past 5 years and there are established RBI regulations governing this type of lending.

4. Over a period of time, if unsecured P2P lending is well established like in the developed markets (e.g. Funding Circle in the UK), banks and institutional investors will potentially look to buy blocks of P2P loans to add to their portfolios.

Kae Capital backs consumer lending startup CrediFiable (VC Circle), Rated: A

Online consumer lending platform CrediFiable, which is operated by Bengaluru-based OneFiable Technologies Pvt. Ltd, has raised an undisclosed amount of funding from Kae Capital, the startup said in a statement.

Asia

Job loss concerns raised amid digital disruption in Indonesia (Straits Times), Rated: AAA

Disruptive innovation in digital technology is on the horizon, with bankers and toll road operators beginning to replace manual jobs with digital machines, raising concerns that millions of jobs in the finance and service sectors will be replaced.

Meanwhile, banks are opening fewer physical branches, putting more money into developing digital banking and digital offices.

State lender Bank Mandiri, the largest bank in terms of assets, has announced that it plans to open only 100 branches this year, far fewer than the annual plan of 400 to 600. Such a move will lead to a reduction in the number of new recruits taken on.

Other lenders joining the digital wave include private lender BTPN, which spent 1.3 trillion rupiah (S$131 million) on developing a digital platform, dubbed Jenius, over the past three years, while DBS Indonesia launched Digiland, an entirely paperless and signature-free banking experience.

Southeast Asia’s fintechs: Target the underbanked (Euromoney.com), Rated: A

But southeast Asia isn’t China. While Ant Financial knows China like the back of its hand, and vice versa, the company recognizes the limits in its abilities outside the country. Because of that, Ant Financial and Alipay’s work in southeast Asia is done through local partners.

It’s the Facebooks and Googles of the world that really keep the banks up at night, not the explicit fintech companies, says Yew.

CIMB says more than 90% of its total banking transactions are done through digital and self-service channels at this point.

Aquaculture investment platform GrowPal wins G-Startup Indonesia 2017 (e27), Rated: B

Global startup competition G-Startup Worldwide announced aquaculture investment platform GrowPal as the first-place winner of G-Startup Indonesia 2017.

GrowPal is a P2P lending platform that aims to help freshwater fishermen raise funding for their business.

Canada

Fear of financial loss limits investors’ opportunities (Investment Executive), Rated: A

Specifically, 72% of investors surveyed said they feel financially secure in the current economic climate and 68% said they are comfortable taking risks to get ahead. However, if investors were forced to choose between safety and performance, 83% would choose safety.

76% of investors surveyed believe that some fund managers charge high fees for just tracking an index, which investors say they can also do and at a lower cost.

Another area in which investors could benefit from good advice is alternative investment strategies that go beyond stocks and bonds. Although many investors are open to alternative investments, the Natixis study suggests a lack of education in this area may be a roadblock. For example, 71% of investors believe alternative investing is too complex and 65% say these investments are riskier than traditional asset classes.

Authors:

George Popescu
Allen Taylor

Monday May 22 2017, Daily News Digest

cumulative net trigger loss

News Comments Today’s main news: DBRS confirms SoFi professional loan program 2016-B LLC.  Bond buyers return to online lenders. RateSetter acquires Vehicle Trading Group. Linked Finance receives full FCA authorization. Australian banks have paid $60M in forced refunds. StashAway raises $2.2M. Today’s main analysis: Prosper Marketplace Issuance Trust PMIT 2017-1. Today’s thought-provoking articles: Bond buyers return to online lenders. China, […]

cumulative net trigger loss

News Comments

United States

United Kingdom

China

European Union

International

Australia/New Zealand

India

Asia

Canada

Barbados

News Summary

United States

DBRS Confirms SoFi Professional Loan Program 2016-B LLC (DBRS), Rated: AAA

DBRS, Inc. (DBRS) has today reviewed and confirmed the four outstanding publicly rated classes from SoFi Professional Loan Program 2016-B LLC. All four classes were confirmed because performance trends are such that credit enhancement levels are sufficient to cover DBRS’s expected losses at their current respective rating levels.

RATINGS

Issuer Debt Rated Rating Action Rating Trend Notes Published Issued
SoFi Professional Loan Program 2016-B LLC Post-Graduate Loan Asset-Backed Notes, Class A-1 Confirmed AAA (sf) May 19, 2017 US
SoFi Professional Loan Program 2016-B LLC Post-Graduate Loan Asset-Backed Notes, Class A-2A Confirmed AAA (sf) May 19, 2017 US
SoFi Professional Loan Program 2016-B LLC Post-Graduate Loan Asset-Backed Notes, Class A-2B Confirmed AAA (sf) May 19, 2017 US
SoFi Professional Loan Program 2016-B LLC Post-Graduate Loan Asset-Backed Notes, Class B Confirmed A (high) (sf) May 19, 2017  US

Weekly Industry Update: Prosper Marketplace Issuance Trust (PMIT 2017-1) (PeerIQ), Rated: AAA

Prosper priced its first unsecured consumer deal of 2017 on May 19th, representing the sixth deal consisting of Prosper collateral, and the first deal backed by Prosper’s consortium of institutional investors. The deal was structured by Credit Suisse and co-led by Jefferies.

The Consortium appears on track to deliver the $5 Bn loan purchasing commitment to Prosper as evidenced by i) size of the deal size ($470.8 Mn), ii) average age of the portfolio (two months), and speed to marketing th deal. The deal generates incremental revenue for Prosper which holds unrestricted cash and cash equivalents of $22.3 MM.

We note that Kroll has added 4.5% points for base case loss range reflecting the somewhat higher path of losses on CHAI 2016-PM1 than initially expected. (CHAI 2016 PM-1 has a revised base case loss range of 12 to 14% from 10.61% initially). 

 The deal’s excess spread is substantially tighter, reflecting higher coupons, improved market conditions, and stronger investor appetite for MPL ABS bonds. The attractive excess spread of ~10% implies a significant return for residual tranche investors assuming base case loss estimates are borne out.

Improved Predictive Risk Model PMI-7 

Prosper made a significant change in the in the credit underwriting by switching from Experian to TransUnion, the dominant credit bureau in the FinTech sector. The switch to TransUnion affords Prosper access to trended bureau data, more diverse credit attributes, and alternative data. Trended data provides lenders with a longitudinal view rather than merely a snapshot into a borrower’s credit behavior.

Prosper rolled out a new proprietary credit risk model PMI-7 on December 20th based on the TransUnion dataset. Although the trended bureau data is a significant long-term enhancement, it will take some time for Prosper to re-calibrate models based on new performance data. Investors and Prosper will be monitoring the vintage performance from PMI-7 closely to assess the smoothness of the transition.

Source: PeerIQ

Bond investors in the deal benefit from credit enhancement consisting of over-collateralization, subordination, reserve accounts, and excess spread. For PMIT 2017-1, the A, B, and C tranche has a total credit enhancement of 43.9%, 31.1%, and 10.4%.

Pricing Tighter

The Prosper deal priced tighter than a recent LendingClub prime deal ARCT 2017-1, in part due to the much higher initial credit enhancement in PMIT as compared to other recent deals.

We observe a parallel shift in the credit curve: For instance, PMIT 2017-1 A (A-rated) has about 44% credit enhancement and 0.8 year WAL; ARCT 2017-1 A (BBB-rated) has about 29% credit enhancement with a similar WAL. PMIT 2017-1 A was priced 95 basis points tighter than the senior class in ARCT 2017-A.

Walking down to lower junior tranches, PMIT 2017-1 C (B-rated) was priced about 40 basis points wider than ARCT 2017-1 B (BB- -rated). The steepening in the pricing curve again reflects demand for senior rather than equity-like risk profile.

Trigger Talk

We continue to observe a pattern of higher CNL triggers in recent deals, reflecting conservative outlook from market participants. Exhibit 4 shows several cumulative net loss (CNL) trigger profiles in recent personal loan ABS deals. Here, we summarize the cumulative loss trigger profiles from recent deals and contextualize the CNL triggers of the new Prosper deal with those of CHAI 2015-PM1.

All Is Forgiven? The Bond Buyers Return To Online Lenders (PYMNTS), Rated: AAA

After the rather spectacular fireworks display that Lending Club had going on this time last year, it was not great surprise when the bond buyers who had been snapping up P2P marketplace debt suddenly got a case of cold feet and starting fleeing those marketplace lending platforms.

Since April of this year, over $2 billion in securities backed by loans have either been sold or are being prepared for an imminent sale, according to credit-rating firms and people familiar with the matter.

That is some much needed good news for the segment, as it represents more than was issued in the entire second quarter of 2016, according to data tracker PeerIQ.

And it seems to be a continuation of recent activity that saw $3 billion in bonds backed by online loans that were issued in the first quarter of 2017, double the amount from the same period a year earlier.

Bonds backed by online loans is a small part of the securitization market — as of 2016, $7.8 billion of bonds backed by online loans were issued, compared with $191 billion in total issuance of asset-backed securities, according to S&P Global Ratings.

New Fed Mortgage rolls out the “Fast Track Mortgage” (PRWeb), Rated: A

NewFed Mortgage Corp., a multi-state residential mortgage lender is excited to announce their “Fast Track Mortgage” loan origination technology integration with BeSmartee, an online mortgage automation company based in Huntington Beach, California. This smart technology platform utilizes intuitive artificial intelligence targeting the specific needs and qualification of borrowers.

Fast Track is an online self- serve platform offering mortgage shoppers the convenience of 24/7 access to obtain a personalized rate and cost quote with the option to continue to apply and obtain a conditional loan approval in less than 15 minutes. Fast Track streamlines the application process by allowing the borrower online to pull their own credit report, calculate costs, obtain loan disclosures on the spot and receive an automated loan approval and along with the option to order their home appraisal. The ease of Fast Track Technology allows borrower to send documents right through their specially created account.

Nuance Strengthens Biometrics Security Portfolio and Attacks Fraud with Advanced, Multi-Modal Offering (NASDAQ), Rated: A

Nuance Communications, Inc. (NASDAQ:NUAN) today took a major step towards reducing the risk of consumer fraud by announcing a new suite of biometric security solutions, driven by the latest in artificial intelligence (AI) innovations.  The new Nuance Security Suite includes not only the company’s award-winning voice biometrics technology, but also new advances in facial and behavioral biometrics that combine to provide advanced protection against fraud, across customer service channels.

Applying deep neural networks (DNN) as well as advanced algorithms to detect synthetic speech attacks, and integrating facial and behavioral biometrics means the Nuance Security Suite takes fraud prevention to new levels.  By combining a range of physical, behavioral, and digital characteristics to provide secure authentication and more accurately detect fraud across multiple channels – from the phone to the Web, mobile apps and more – Nuance’s new Security Suite allows enterprises to attack fraud head-on, while at the same time offering an improved customer experience.

With its latest Security Suite, Nuance can equip an organization with one or more of the following options to fight fraud, improve security and boost the customer experience:

  • Voice biometrics – authenticates the customer when they say a predetermined phrase like “My voice is my password,” or during the course of normal conversation with an agent to determine if the customer is indeed who they say they are.
  • Facial biometrics – utilizes the camera on a smart phone to verify the person in real time.
  • Behavioral biometrics – tracks how users interact with Web and mobile applications, (e.g. scrolling, mousing, or tapping), creating a pattern against which to compare.
  • Additional biometric modalities – In addition to offering support for voice, facial, and behavioral biometrics, the Nuance Security Suite can also accept plug-ins for other emerging authentication technologies such as retinal scans.

The mortgage search goes digital (American Banker), Rated: A

Interest rates on the rise and a lower inventory of homes on the market are tightening access to the housing market. At the same time, nonbank, online-only lenders have boomed, accounting for 73% of loans originated, according to the Federal Housing Authority.

This trend is likely to continue in the coming years. And members of the digital-native Millennial generation, who rely on online search to find home loans–and everything else–are taking over as the primary home-purchasing segment of the population–Millennials accounted for 84% of closed home loans in January 2017, according to the Ellie Mae Millennial Tracker™ report. In this environment, an effective organic local search strategy is no longer just beneficial for traditional mortgage lenders; it’s existential.

Of 5,849 loan officers whose online presence Yext studied across the online ecosystem (including sites like Google, Facebook, Bing, Yelp, and many others), 64% of their business listings contained incorrect addresses, 42% had phone number errors, and 46% had errors in business names. 9.25% of loan officer listings were duplicates, and 57.8% of loan officers studied had no online presence at all.

CFPB Explores Ways to Assess the Availability of Credit for Small Business (CFPB), Rated: A

The Consumer Financial Protection Bureau today launched an inquiry into ways to gather and use new and existing information to identify the financing needs of small businesses, especially those owned by women and minorities. Small businesses typically need access to credit to take advantage of growth opportunities, yet public information on this lending market is inconsistent and incomplete. The Request for Information asks for public feedback to help the Bureau better understand how to bridge this information gap. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB to collect data about small business lending to help identify needs and opportunities in the market and to facilitate enforcement of fair lending laws.

500 Startups Creates Pooled Investment Fund for Fintech (Crowdfund Insider), Rated: A

500 Startups has filed a Form D 506(c) for a pooled investment fund targeting Fintech. The 500 Fintech LP is seeking $25 million according to a filing with the Securities and Exchange Commission.

The Silicon Valley based operation has committed over $350 million in early stage investments. Over 1,800 companies have benefited from both funding and support around the world since the global seed fund was launched in 2010.  Some of the better known investments include Twilio, Credit Karma, Maker Bot and more.

TSB offers online consumer lending (The Mountain Press), Rated: A

PIGEON FORGE — Tennessee State Bank is excited to announce online consumer lending, powered by Lending Club, the world’s largest online credit marketplace, is now available.

These loans range from $1,000 to $40,000, are unsecured (which means no collateral is required), and can be used to eliminate high interest debt, kick-off a home improvement project, or make a major purchase.

JPMorgan formally quits R3 (LinkedIn), Rated: A

Not subscribing to a consortium like R3 is not the same as banks not leveraging blockchain/DL. Here is a link to an excerpt from a report we did on a bankers perspective (former head of digital banking at Deutsche Bank) on blockchain which may provide some insights:

At the same time, Ripple is posting amssive gains, overtaking Etherium on market cap:

First Federal Lakewood invests in Boston startup Numerated Growth Technologies (Cleveland Business), Rated: B

The mutual bank, with $1.6 billion in assets, has announced an investment partnership with Boston’s Numerated Growth Technologies Inc., a fintech (the term ascribed to programs and technology that support financial services) startup spun out of Boston-based mutual Eastern Bank own in-house fintech accelerator, Eastern Labs.

Numerated’s platform focuses on small-dollar loans, allowing the loan process to be managed in real-time — reportedly conducting the process in as quick as five minutes, according to the firm — in addition to automating marketing to existing and prospective bank customers, which helps feed the loan pipeline as fewer consumers visit brick-and-mortar bank branches.

Nicki Minaj Is Starting An ‘Official Charity’ To Pay Off Student Loans (Huffington Post), Rated: B

Last weekend, hip-hop living legend Nicki Minaj made waveswhen she decided ― seemingly spontaneously ― to start making tuition and student payments for straight-A students who reached out to her via Twitter.

Most notably, Minaj announced that she was in the process of launching an “official charity for Student Loans/Tuition Payments,” meaning kids who are having trouble paying their way through school could soon get some much-needed help.

United Kingdom

HSBC tech chief on digital challenger banks: ‘We are building similar stuff ourselves’ (Business Insider), Rated: AAA

One of HSBC’s most senior technology executives says that the big bank is not far behind digital-only challenger banks when it comes to consumers offerings.

Raman Bhatia, HSBC’s head of digital for retail banking and wealth management in the UK and Europe, told Business Insider that while startups enjoy a technological advantage, HSBC is working hard to catch up.

Bhatia pointed to HSBC’s SmartSave app as an example of how the bank is keeping pace with digital rivals. The app helps people automatically put money into savings based on pre-set rules. It evolved from Nudge, an internally developed and trialled savings app HSBC worked on last year. SmartSave was trialled with around 2,000 HSBC customers in December.

Assetz Capital reaches quarter of a billion lending milestone (P2P Finance News), Rated: AAA

ASSETZ Capital announced that it has now lent £250m to UK businesses.

The peer-to-peer lender said it has provided up to £25m of secured loans a month since its launch in 2013, with more than £55m lent so far this year.

Stuart Law (pictured), chief executive of Assetz Capital, said investors have earned more than £21m with actual rates of between 3.75 per cent and 18 per cent.

Sub-prime vehicle finance provider bought out of administration (AM Online), Rated: AAA

Peer-to-peer lending company RateSetter has acquired sub-prime vehicle finance provider Vehicle Trading Group out of administration.

The Leicester-based operation has now been sold to RateSetter, which is planning to rebrand the business, but Insider Media reported that the deal “will not impact its day-to-day operations”.

Linked Finance receives full authorisation from UK regulator (The Irish Times), Rated: AAA

Linked Finance, a peer-to-peer lending platform, has received full authorisation by the UK’s financial conduct authority to enter the UK lending market.

Figures from the first quarter of 2017 show that the company’s Irish platform increased lending activity by more than 326 per cent on the same period a year earlier.

Since its launch in 2013, Linked Finance has facilitated more than 870 loans and more than €25 million in funding for Irish small to medium enterprises.

Deloitte Launches Enhanced Digital Banking Offering (PR Newswire), Rated: A

Deloitte today announced the launch of its enhanced Digital Bank offering to further accelerate a bank’s digital transformation. Based on the Salesforce Intelligent Customer Success Platform and utilizing the Salesforce Financial Services Cloud, Digital Bank helps banks create exceptional experiences by providing tailored banking capabilities with accelerated implementation and realization of value.

Digital Bank’s capabilities and potential benefits include:

  • Augmented Salesforce Platform with many technologies, fintech solutions and AppExchange partners, as well as personalized channel engagement through automated marketing using Salesforce Marketing Cloud
  • Ability to expand relationships by having full visibility into bank relationships across business units
  • Established customer trust through multifactor secured cloud banking platforms and improved onboarding for customers through a fully mobile process enabled by many technologies
  • Increased speed and agility to meet customer needs, as well as the regulatory needs of the banking industry, using predictive analytics based on account behavior to recommend next best offers and next best actions
  • Accelerated implementation allowing banks to generate ROI faster, including linking newly created accounts in Salesforce to a blockchain secured digital identity

The job creation contradiction in fintech (AltFi), Rated: A

It got me thinking about the broader impact of fintech lenders in the UK, especially those built to fund businesses. Companies like Funding Circle – the country’s largest marketplace lender for SMEs – regularly reference their impact on job creation in corporate updates. The logic is that the loans that Funding Circle and other platforms like it facilitate help small businesses to grow, and so too to hire more staff.

Leading US firm OnDeck released a report in late 2015 analysing the economic impact of the first $3bn lent through the platform. The report found that OnDeck loans had powered $11bn in business activity, creating 74,000 jobs across the country. Similarly, Funding Circle published findings last summer suggesting that its lending had supported the creation of 40,000 jobs in the UK since 2010, boosting the economy by £2.7bn.

In this way, they are unquestionably killing jobs, as well as creating them – but nobody ever talks about that.

Barely a month goes by without news of a fresh round of bank branch closures. In March, for example, we learnt that RBS and NatWest would be cutting 158 branches and 400 jobs across the country.

Welsh start-ups can become unicorns with a $ 1bn plus valuation (Wales Online), Rated: A

As a result, Improbable has become one of the few UK start-ups to achieve the so-called ‘unicorn’ status, namely having a valuation of over $1bn.

Since then, their numbers have grown to nearly 200 firms globally and that are collectively valued at £523bn. The most valuable is Uber, the online taxi company that, in only four years, has reached a valuation of over £50bn.

A recent article in Forbes Magazine suggested that investors, with few places to put their money during an era of near zero interest rates, are fuelling the growth in unicorns as they look for better returns.

Property is top pick less than a year after funds gated (FT Adviser), Rated: A

According to research from peer-to-peer lending platform Kuflink, conducted in the first week of May, nearly a third of UK investors are planning to direct their attention to traditional asset classes such as property over the course of the financial year.

This comes after some of the largest property funds in the UK temporarily stopped investors from cashing-in their money last summer when thousands of people panicked after the European Union referendum and pulled out of the asset class.

The Kuflink survey, which questioned 1,100 investors across the UK, also found that Brexit and the snap election have impacted UK investment decisions more than any other political event in their lifetime.

Almost 40 per cent of investors are taking a more cautious approach by favouring ‘safe-haven’ asset classes, while 38 per cent are waiting until after the 8 June election to make any further investment decisions.

China

WeiyangX Fintech Review (Crowdfund Insider), Rated: AAA

Belt and Road Forum for International Cooperation, also known as the Belt and Road Initiative, was held in Beijing on May 14-15.

On May 12, the State Council Information Office of China announced that China has reached a series of agreements with U.S. related to agriculture, investment, energy and especially in financial service area.

Key points of the Initial Agreements of the China – US Economic Cooperation 100-Day Plan in financial service area:

  1. By July 16, 2017, China is to allow wholly foreign-owned financial services firms to provide credit rating services in China, and to begin the licensing process for credit investigation.
  2. The People’s Bank of China and The U.S. Commodity Futures Trading Commission (CFTC) are to work towards a Memorandum of Understanding (MOU) concerning the cooperation and the exchange of information related to the oversight of cross-border clearing organizations.
  3. By July 16, 2017, China is to issue further necessary guidelines and allow wholly U.S.-owned suppliers of electronic payment services (EPS) to begin the licensing process.

The hotly anticipated initial public offering of Alibaba’s finance arm, Ant Financial, has reportedly been delayed until at least the end of 2018 because of the need to secure regulatory approval and to focus on building the business.

E-commerce giant Alibaba Group and affiliated online payment service Alipay are aiming to use facial recognition technology to help retirees simplify pension authentication. Shenzhen is chosen to be the first pilot city.

The Peoples Bank of China (PBOC), the country’s central bank, announced that it has set up a Fintech committee to enhance research, planning and coordination of work on financial technology.

Happigo Home Shopping Co. Ltd., a leading Chinese multichannel e-retailer, announced that the company had the local government approval to build a small loan company.

The new micro-credit company will be named “Happy Tongbao”, which has about RMB 300 million in registered capital. It will focus on online micro-credit and expects to start its business in Hunan Province, lending to merchants in desperate need of a loan, then gradually expand to the entire Chinese market. Entrusted loans, bill business, financial advisory and other online business models is said to be covered in its future development.

To reduce lending risks, Happigo said it had developed a cloud system for tracking merchants on its online shopping platform to help it keep a record of the business of would-be borrowers’ cash flow.

IFRM: A Risk Control Model keeping No Bad Debt! (Xing Ping She Email), Rated: A

IFRM ( Internal Financal Risk Management) is a unique method created by Xeenho, focusing on the operation modes of platforms. In the IFRM Solution, the risks of P2P lenders are evaluated through three indicators: FOW (qualitative indication system), TOS (quantitative indication system) ,O2O Due Diligence, and Big Data Supervision. By using the model, Xeenho has been keeping the Zero Bad Debt since 2014 with a business volume up to $400M.

FOW ——qualitative indication system
FOW means Forbidden, Observation and Warning. FOW detects and prevents P2P fraud, if a platform is categorized as Forbidden, Observation or Warning then it won’t proceed to the next step.

TOS ——quantitative indication system
TOS means Transparency, Operation and Safety. TOS thoroughly evaluates a platform, from its basic information to its UX, and the risk is ranked thereafter.

O2O ——due diligence from online to offline
O2O means making due diligence from online to offline, in order to ensure a platform that passed FOW and TOS is as good as it seemed to be.

Big Data——Analytics & Observation System
This dynamic surveillance system continuously over watches the performance of a platform, and adjusts the rating accordingly.

The Business Model of Xeenho
European Union

Alternative Lending Index Unveils European Cross-Border Lending Opportunities (Crowdfund Insider), Rated: AAA

Twino, one of the leading Baltic lending marketplace, has produced in conjunction with KPMG Baltics a report called Alternative Lending Index which assesses the potential of alternative finance in 23 European countries based on a set of economic credit data. While the report does not pretend to exhaust the analysis of the drivers and hurdles of alternative finance across Europe, it presents a very useful snapshot of the Pan-European credit landscape that should help support international strategies.

The first platform to tackle cross-border lending was Estonian pioneer Bondora in 2009. Since then, and particularly in the past two years, international lending marketplaces have mushroomed in the Baltics. There are now more than a dozen of them, with a strong dominance of consumer lending platforms. Leaders such as Mintos and Twino have long passed the €100 million mark in cumulated loan funding. They currently grow at a rate of between €10 to €20 million worth of new loans funded a month. If you operate a lending marketplace in the UK, France or Germany you should know these platforms because they are targeting your smartest investors:

Together, these platforms have funded over €500 million in cumulated loan volume – which would make the Baltics, if it were a single country, the 4th largest online alternative lending market in Europe after the UK, France, and Germany.

Together, these platforms have funded over €500 million in cumulated loan volume – which would make the Baltics, if it were a single country, the 4th largest online alternative lending market in Europe after the UK, France, and Germany.

The ALI ranks 23 European countries. It concludes that countries with the highest gaps and inefficiencies in traditional lending, hence the highest potential for alternative lending in Europe are, in that order:

  • Hungary, Slovenia, Latvia, Poland, Romania, Greece and Ireland.

Conversely, the countries where the existing sources of financing available to households and corporate borrowers are sufficient and the potential for the development of alternative lending is therefore considered low, leaving little room for alternative lenders are:

  • France, Germany, Netherlands, Austria, Finland and Sweden.

Read the full report.

International

US Anniversary and the (Possible) Regulation of Crowdfunding in Ireland (Lexology), Rated: AAA

The US has just celebrated the first anniversary of its regulated crowdfunding regime, known as “Regulation Crowdfunding”. It was by all accounts a very happy anniversary for many US start-ups, as Regulation Crowdfunding reportedly raised $40 million in its first year. US advisory and education firm, Crowdfund Capital Advisors report that the average successful crowdfunding campaign raised around $282,000 from around 312 investors. Regulation Crowdfunding allows companies to raise up to $1,070,000 over a 12-month period.

An unregulated environment brings with it its own set of benefits and drawbacks:

  • On the positive side, the absence of a regulatory framework means there are no restrictions on who can invest, or on the amounts that can be raised or invested. In contrast, the Regulation Crowdfunding regime in the US has strict limits on the amount which a person may invest through crowdfunding each year. These limits are determined by an individual’s annual income and net worth.
  • On the negative side, the lack of regulation means that many investor-protection mechanisms are simply not available. For example, the Central Bank’s codes of conduct and client asset rules do not apply to crowdfunding platforms.

The Department of Finance (the “Department”) and the SME State Bodies Group have issued a public consultation paper on the possible ‘Regulation of Crowdfunding in Ireland’. They are considering how to facilitate the development of crowdfunding in Ireland for the benefit of the economy while also ensuring adequate protection for small investors and consumers.

The objective of this consultation is to invite the views of interested parties on whether a regulatory regime would be appropriate for the crowdfunding sector.

Breaking Banks: Small-business fintech around the globe (American Banker), Rated: A

How do we get money to small businesses that make the economy work for most people around the world? What kind of systems do we need to create? And how do we make them flexible so multiple cultures can utilize them?


A ‘paradigm shift’ is taking place in financial technology (Business Insider), Rated: A

Venture capital firms, which poured $117 billion into fintech startups from 2012 to 2016, have been pulling back on their investments.

Financial technology companies experienced a surge in funding from 2012 to 2015, during which time venture capital firms poured $92 billion into the space.

In 2016, global venture capital investment in fintech companies dipped to $25 billion, from $47 billion in 2015.

According to Morgan Stanley, there are a number of factors that will push legacy financial firms to step up their investments in fintech companies. The most obvious factor is the fear of disruption.

Deregulation is another trigger. If the Trump administration follows through on its promises of Wall Street deregulation, then incumbent firms won’t have to spend as much cash on regulatory compliance. That would free up money for fintech investment initiatives. Legacy firms’ focus on lowering cost also provides an incentive to invest in fintech.

Online Financial Advice Lacks The Human Touch (iexpats.com), Rated: B

Robo-advisers can do more or less the same job, but without the human touch and the expensive fees that go with it.

Now, anyone can find financial advice 24/7 as long as they have an internet connection, cash to invest and a smartphone or other gadget to access the web.

The recommendations that come out of the robo-advice process should be similar to those suggested by a human adviser.

Some would argue robo-advisers are less likely to make mistakes, but if a consumer keys the wrong information the ‘rubbish in, rubbish out’ rules applies.

Australia/New Zealand

Big banks pay $ 60m in advice refunds (Financial Standard), Rated: AAA

AMP, ANZ, CBA, NAB and Westpac have to-date repaid $60 million out of an estimated $204 million for charging clients for financial advice that was not provided.

On a per-institution basis, AMP has paid $3.8 million out of an estimated $4.4 million; ANZ paid $43 million out of an estimated $52 million; CBA paid $5.8 million out of an estimated $105 million; NAB paid $4.4 million out fan estimated $5 million; and Westpac has paid its estimated total compensation of $2.6 million in full.

Robo adviser to get access to Westpac’s Panorama platform (Financial Review), Rated: AAA

Small-balance investors that financial advisers usually avoid will now get a chance to use BT Panorama, Westpac’s $500 million integrated banking and wealth operating system, after the bank inked a deal with Barry Lambert-backed robo adviser Ignition Wealth.

Currently the platform has about $110 billion under administration and 800 advisers are using it.

Via Ignition Wealth, which rich lister Mr Lambert took a minority stake in in 2016, customers can go fully advised, use a hybrid model where they control their investments with an adviser, or go fully DIY. Fees slide up and down depending on how it’s used.

Ignition Wealth has announced it is partnering with BT Panorama to offer its digital advice solution to accountants, advisers, and investors using the BT Panorama platform.

The digital advice provider said its 360 advice offering would offer a post-Future of Financial Advice (FOFA) compliant solution for accountants and financial industry professionals who did not hold an Australian financial services licence (AFSL) but were looking to source financial advice for their clients in a post-FOFA environment.

Advisers, accountants, and investors using BT Panorama would have access to digital and full service financial advice powered by Ignition Wealth from Q3 of 2017.

DIY investors reject advice, says ASX study (ifa), Rated: A

The main reason some Australian investors do not use financial advice is because they prefer “to be in control” and are not convinced that advice adds value, recent research from the ASX has shown.

According to the 2017 ASX Australian Investor Study report, which looked at the behaviour and attitudes of 4,000 Australian investors, around 60 per cent of all investors use some form of professional financial advice.

For those not using advice, 90 per cent said it is because they “prefer to be in control”, while 56 per cent said they were “not convinced advice adds value”. Close to 40 per cent said advice was “too expensive” while around 30 per cent said their “investment is too small to need advice”.

Borrowers could save more than $ 3000 a year by switching to an online lender (News.com.au), Rated: A

AUSSIE borrowers could save up to $3184 a year by switching to an online lender, but unfamiliarity and lack of face-to-face customer service are keeping them away, according to Mozo.

The financial comparison website examined 504 home loans from 89 providers, finding nearly two thirds of the best-value home loans on the market are from online lenders, which were 0.7 per cent cheaper on average than the big four for a typical 25-year, $350,000 loan.

Online lenders iMortgage, loans.com.au and UBank scored the highest marks in Mozo’s Experts Choice Awards, while Homestar was named Non-Bank Home Lender of the Year.

But according to a survey of 1000 consumers, Australians are less likely to apply for a home loan online than other financial products despite the huge savings on offer. Australians are twice as likely to purchase car insurance online versus a home loan.

The biggest barrier for applying for a home loan online was lack of familiarity with online lenders, with 56 per cent of respondents saying they simply don’t know enough about them, while 43 per cent said they would prefer to discuss their needs face-to-face with a mortgage expert.

More men than women would consider applying for a home loan online. Of those who said they would, half were aged between 25-44.

OnDeck business loans help franchise businesses get on with it (Professional Planner), Rated: B

Small business loan specialist OnDeck announced a partnership with the Franchise Council of Australia (FCA), the peak body for the franchise sector in Australia. The agreement underscores OnDeck’s go-to-market approach for its joint flagship product with partner MYOB – ‘MYOB Loans Powered by OnDeck’.

By partnering with the FCA, OnDeck aims to reach the thriving $146 billion franchise sector as a supplier of choice for small business loans, which can be approved online in as fast as one business day with minimal paperwork. OnDeck aims to fill a serious gap in the market for franchise owners by satisfying more of their unsecured lending requirements that go beyond equipment financing to renovation, relocation and working capital needs.

India

Fintechs to drive financial inclusion or will banks save the day? (India Times), Rated: AAA

Disintermediation of the lending value chain – Banks would traditionally source, acquire, underwrite, onboard, collect and service customers. Most would do some parts well, and a few parts not so well. This is increasingly now being solved by the entry of new ‘customer owning’ entities into the game, who will acquire, owners of data who can underwrite, and the lenders who can lend and collect. This makes partnerships key.

Alternate data – Lending to the bottom of the pyramid and micro SMEs has always been the problem to solve for financial institutions, due to lack of documented income and collateral. Non-traditional data promises to come in and provide an alternative.

However, most such data algorithms do not seem to be working out. Many fintechs across India, Africa etc, are running NPAs upwards of 8-10%, including some of the flagbearers of the phenomenon, but that is not out in the public domain, and typically shoved under the carpet. The main reason for this is that the algorithms are raw and untested. They have not run their credit cycles yet.
Payments – Payments as an innovation is done. It’s commodity now. Fintechs who continue to invest in incremental experiences will find it difficult to scale. The trend to watch for will be digital ecosystems. What I mean is digital marketplaces, the likes of Ping-an and Alipay, serving the integrated needs of the digital consumer a.k.a the millennials, enabled through digital payments and leveraging financial services cross-sell sitting on top of all of this, as the revenue driver.

Fintech firm Telr gets $ 3 million funding (The Hindu), Rated: A

Financial technology start-up Telr said that it had received an investment worth $3 million from Innovations East fund as part of its series-B funding round.

Telr, which is a payment gateway aggregator of multiple payment methods such as cards and online banking, has operations in West Asia, South East-Asia and India.

The Rainmakers (Business Today), Rated: A

Year ago, Captain Pankaj Kumar, owner of a New Delhi-based shipping solutions company, was looking to raise Rs 20 lakh. He approached banks for a loan, but soon realised it would be anything but smooth sailing. Then, his former banker suggested that he approach CoinTribe, a Gurgaon-based online lending platform that connects creditworthy micro and small enterprises (the company helps individuals as well) with potential lenders such as banks and non-banking financial companies (NBFCs). This time, paperwork was minimal, and the entire process moved fast.

Then, his former banker suggested that he approach CoinTribe, a Gurgaon-based online lending platform that connects creditworthy micro and small enterprises (the company helps individuals as well) with potential lenders such as banks and non-banking financial companies (NBFCs). This time, paperwork was minimal, and the entire process moved fast.

At present, the company caters to small businesses with Rs1-50 crore turnover; anything below that is treated as a micro business. The ticket size varies from Rs5-30 lakh (the company also offers unsecured loans starting from Rs20,000 to cement dealers, for shorter tenure) with interest rate pegged at 18-20 per cent. So far, it has helped disburse close to Rs170 crore loans, servicing over 500 customers and 250-odd dealers through its marketplace.

Harnessing the power of data, CoinTribe has come up with a three-step screening process that ascertains an applicant’s identity, analyses its ability to repay and gauges its intent to pay. To determine a borrower’s identity, the company checks all available online data and social media footprint. To analyse any given applicant’s ability to pay, it has identified 180 sub-industries and places the potential client in the right category to run it past all relevant data points.

Asia

Singapore Fintech Startup StashAway Raises US $ 2.2 Million in Series A (Crowdfund Insider), Rated: A

According to TechinAsia, StashAway, a Fintech startup based in Singapore focused on providing wealth management, announced it had secured US $2.15 million in funding for its Series A round.

StashAway is a software solution for individual investors to manage their investment portfolio.

Why should security professionals pay attention to the rise of fintech? (MIS Asia), Rated: A

The rise of financial technology (fintech) may result in increased cybersecurity threats and attacks, said Chia Hock Lai, President, Singapore Fintech Association, at the Computerworld Singapore Security Summit 2017.

He highlighted the five areas of fintech that introduce cybersecurity risks:

  1. According to a report by Accenture and CB Insights, global investments in fintech rose from 2012 to 2016 to reach US23 billion.
  2. More than a third (34 percent) of banks globally said they are open to collaborating with a fintech company, according to a study IDC did on behalf of SAP last year.
  3. According to the World Bank Group, only 50 percent of adults in ASEAN have bank accounts. The availability of mobile or peer-to-peer payments from fintech startups will thus enable more underserved to access financial services, said Lai.
  4. “[Gartner predicts that] in the next four years, the number of IoT devices [that will be in use in the consumer sector] will reach 13.5 billion,” said Lai. With every device generating data, machine learning will be required to analyse the large amounts of data generated to churn meaningful insights.
  5. According to Aite Group, banks will increase their investment on blockchain over the next few years to reach US$400 million in 2019.
Canada

futureshare Launches to Help Canadian Homeowners Unlock Their Real Estate Wealth (Marketwired), Rated: A

There is more than $2.9 trillion in unmortgaged real estate equity in Canada (CREA), and today fintech platform futureshare launches to help Canadians unlock that real estate wealth without taking on new debt. The company was founded in 2016 as an alternative to home equity loans, home equity lines of credit (HELOCs) and reverse mortgages and gives homeowners a lump sum free of ongoing payments and interest rates in exchange for a percentage of the home’s appreciation, which can be paid out without penalty at any time or once the property is sold. futureshare’s online platform is the first of its kind in Canada and is now live in beta and accepting online applications for homes within Ontario with plans to launch in Alberta, Manitoba and British Columbia by the end of 2017.

The average Canadian owes $1.67 for every dollar in income (StatsCan), and futureshare is designed to help homeowners access the equity tied up in their home without adding to their ongoing debt burden. Unlike a reverse mortgage or HELOC, futureshare doesn’t require homeowners to have perfect credit scores or to fall within a specific income bracket, and it doesn’t increase monthly payments. A homeowner’s eligibility is based primarily on their home value and whether they have at least 25 per cent equity ownership in their home. Homeowners will be able to access on average up to 10-20 per cent of their home equity using futureshare’s platform, and unlike a loan, there’s no ongoing payments or interest rates.

Barbados

COMPANY AIMING TO PUT IDLE MONEY TO USE (Barbados Advocate), Rated: A

SOME of the $3 billion sitting idle at commercial banks in Barbados will soon be better utilised so as to earn higher returns for depositors and to help grow this country’s economy.

Those funds will be utilised under a new facility known as Peer-to-Peer lending, which was officially launched by finance company Carilend on Thursday night, at the Limegrove Lifestyle Centre, Holetown, St. James.

Authors:

George Popescu
Allen Taylor

Report: Marketplace lending 2.0

Report: Marketplace lending 2.0

The story is more than marketplace lending and banks The first report that the Deloitte Center for Financial Services released on marketplace lending in March of 2016 asked essentially one question: Is the convergence between marketplace lenders (MPLs) and banks inevitable?1 And our response was that not only were they already converging, but that there […]

Report: Marketplace lending 2.0

The story is more than marketplace lending and banks

The first report that the Deloitte Center for Financial Services released on marketplace lending in March of 2016 asked essentially one question: Is the convergence between marketplace lenders (MPLs) and banks inevitable?1 And our response was that not only were they already converging, but that there would likely be much more bank-MPL convergence to come in the way of partnerships, joint ventures, mergers and acquisitions (M&A), and lending as a service (LaaS) (in both a branded and white labeling capacity), making disintermediation a moot point.

But 12 months later, we see a picture that is much bigger in scope than just MPL-bank convergence. Marketplace lending is an integral piece of a larger fintech puzzle that is transforming the financial services industry. At its core, what we are calling marketplace lending is simply lending that is enabled through digital platforms that mine data that are increasingly nontraditional, and streamline the loan acquisition, origination and servicing processes.2 We expect that asset classes such as small business, student, and unsecured consumer will move almost completely to digital platforms in the medium term, while other asset classes, such as residential mortgages and auto lending will get there more slowly. The lenders and originators will likely continue to sometimes be separate entities, sometimes the same entity, and will include a variety of types, from banks to online nonbanks to other types of fintechs to traditional technology firms, as well as various types of retail organizations and service providers, in a range of cooperative scenarios including partnering, merging, and LaaS.

Further out, we see a technology platform-enabled lending environment moving from a predictive to a prescriptive analytics stage. In developing their precision for mining, refining and using data effectively to originate loans, lenders should be able to use these data sets to offer tailored financial solutions to customers through a rich ecosystem. Lastly, to comply with any possible future regulation coming from multiple agencies and jurisdictions, MPLs are forming alliances and associations seeming to promote and establish standardization and transparency in order to get ahead of, and work with, regulators.

We cannot ignore the ever-present credit cycle question

A common observation, often repeated, is that marketplace lending, in its current scale, has not yet been tested by a full credit cycle. We did see some headline-grabbing industry events in 2016, but they do not seem to have negatively impacted the industry. Instead, demand remains high with a lot of capital looking for high yield in a still low-interest rate environment. The S&P/ LSTA US Leveraged Loan 100 Index showed a healthy 11.8 percent return from end-January 2016 to end-January 2017,3 so the credit market continues to grow. In short, a sharp downturn in the credit cycle appears unlikely in 2017, unless geopolitical or other events take an unexpected turn. That said, recent spikes in long-term US treasuries yields (the three-year pierced three percent in January),4 while not holding long enough to indicate where the industry is in a credit cycle, is a trend to watch. And with the Federal Reserve System (the Fed) expected to increase interest rates further, it is only natural to assume that we have possibly moved off the height of the credit cycle toward an environment of tighter margins.

The macro credit data volumes and performance are not showing much to indicate this downward trend just yet.

According to the Fed, residential mortgage delinquency rates are relatively high, but they reflect a steady quarterly decline since 2010 when they exceeded 11 percent (Figure 2), and charge-offs have been negligible for some time (Figure 3). Also, unsecured consumer loan delinquencies, although inching up since 2014, are in the two percent range as are charge-offs, both moderate rates for a financial system.5 But while the data at this point are not showing a precipitous fall in the credit cycle in 2017, there are other signs that point to perhaps the beginning of a downward trajectory on the not-too-distant horizon.

The most recent annual Office of the Comptroller of the Currency (OCC) study on lending in the United States is one such sign. The survey reports banks relaxing standards for a fourth consecutive year.6 Predictably, the nature of looser standards has depended on the asset class. For commercial loans, relaxed standards are in pricing, guarantor requirements, and loan covenants, while in retail, lenders are reducing collateral requirements and accepting higher loan-to-value ratios along with higher debt-to-income ratios.

A loosening of underwriting standards has in turn increased the number of subprime borrowers in one asset class in particular: auto lending. Delinquencies have steadily risen in this asset class, with the securitization market driving its growth.7 According to the Fed, motor vehicle loans grew 7 percent year-on-year to over $1.1 trillion in third quarter 2016.8 While not even close to the scale of the financial crisis meltdown of nine years ago fueled by residential mortgage-backed securities (the auto lending market is substantially smaller and less systemic), large banks are involved as managers, trustees, and servicers in securitizations of subprime auto loans, so repercussions of a crash will have some degree of scale.9

With regard to the residential mortgage market, a recent analysis by Deloitte’s US economics team noted that a generational rethinking of ownership in a sharing economy has homeownership on the decline.10 This finding supports a Federal Reserve study that looked for a student debt-homeownership correlation from 1997 to 2010 and found that a “10 percent increase in student loan debt causes a one to two percentage point drop in the homeownership rate for student loan borrowers during the first five years after exiting school.”11 Considering that student debt has increased by 35 percent since 2011 (through November 2016),12 there is reason to believe that homeownership will indeed continue to fall. While this in itself is not a harbinger of a credit-cycle downturn, the combination of that with rising home prices and housing starts, and a recent increase lately in companies entering the market, are signs that the market may be in for a type of bubble as competition increases, supply increases, and demand decreases.

Quantifying marketplace lending

We would be remiss not to put the size of marketplace lending into perspective with the US credit market on a whole. From its beginnings in 2007, MPLs have originated about $40 billion in loans.13 Considering that the average marketplace loan is three to four years old, current outstanding credit is considerably less. Meanwhile, total outstanding unsecured consumer credit alone in the United States is $3.7 trillion.

That said, given its rapid growth, convergence, and expansion into different asset classes, we believe marketplace lending is worth analyzing as another credit cycle indicator. But perhaps the first hurdle to clear in putting a magnifying glass to volume and performance in marketplace lending is that the standard data aggregators upon which credit market statistics trackers depend do not identify marketplace lending as

a separate category. But along with marketplace lending’s growth, companies have emerged in its ecosystem that, due to their business models as platforms for connecting MPLs and investors, have access to marketplace lending data that make a good proxy for the performance and volume of the industry as a whole.

One such company, Orchard, is fully engaged in the complex task of collecting, scrubbing, and synthesizing marketplace lending data that are far from uniformly reported across MPLs. As Figure 4 depicts, originations from a group of MPLs that account for approximately 90 percent (by Orchard’s estimation) of the MPL-originated unsecured consumer lending market have declined for three consecutive quarters, which follow years of constant, and robust, quarter-on-quarter growth.

Given its rapid growth, convergence, and expansion into different asset classes, marketplace lending is worth analyzing as another credit cycle indicator.

Lower originations in the second and third quarters of 2016 are likely a result of a temporary decline in funding after events in early 2016, reflecting a stronger discipline among some MPLs to deliberately manage origination and recalibrate the underwriting process. After this adjustment, we expect to see originations grow in subsequent quarters, at least in the short term.

In summation, marketplace lending will most likely see performance downturn as it experiences its unique market reconciliation in the credit landscape, which we expect to include the convergence we discussed earlier, and some players falling out of the market as the macro credit cycle goes its inevitable natural route on the downward, tighter-margin, less-demand trend of a cycle. But we remain convinced that marketplace lending itself will survive and thrive as a model as the success cases continue to execute with rigor, and become ever more entwined into the lending market as a whole.

As for charge-offs (Figure 6), at least part of the spike could possibly be explained by a lag mismatch. Since it takes a minimum of four months for a loan to charge off, the charge-off numerator is likely in this case to be mismatched to a smaller origination denominator that is not the actual vintages from which the numerator (charge-offs) came.

As noted earlier in the paper, underwriting standards in the US credit market overall appear to be loosening, and at least some MPLs may also be following this natural cycle. Admittedly, at least for now, we do not see this phenomenon happening much among the players from which the data was collected for Figures 4, 5, and 6 as they are mostly the established players that undertook the aforementioned underwriting recalibration.

But we do know that the number of MPLs in the marketplace lending space overall have increased tremendously over just the past 12 months and that underwriting rigor is being sacrificed by some players in this more competitive, crowded market. Anecdotally, we know that non-prime borrowers are being targeted more often; there are now a number of MPLs (again, not reflected in the data collected here) chasing borrowers who had been rejected by other MPLs, especially for personal unsecured installment loans aimed at consolidating credit card debt. So, yes, these market facts and the evidence of data collected showing the market is susceptible to volatility could be interpreted as a credit market that is prone to a softening like any other and could indicate that we are potentially at the cusp, albeit early, of a downward turn.

Changes in the last 12 months that hint at a maturing market

The trend is to focus on a balanced hybrid funding model.

The big names in marketplace lending have raised rates in line with the Federal Funds rate while allowing tighter spreads as their costs of funding rise due to their own credit tightening policies along with an increasingly competitive market. We argue that this behavior is a sign that the industry is maturing. And we posit that the lenders who survive this trend of higher rates and tighter spreads will need some kind of combination of the following attributes: origination scale, reputation, access to balance sheets, access to hybrid investment funding, and technology that can gain efficiencies (for example, doing more with fewer employees and less capital, including, the outsourcing of servicing that is not otherwise important for the expansion of services).

Another sign of maturity is in the MPL funding model. Like large lending institutions, MPLs seem to be moving in the direction of funding that maximizes retention and lowers risk. At its inception, marketplace lending was funded predominantly through selling fractional loans to retail investors. To gain scale, the funding pendulum swung all the way to the other side and MPLs predominantly sold whole loans to private equity, hedge funds and other institutional investors, including banks. Now, the trend is to focus on a balanced hybrid funding model that includes a healthy mix of retail (which can be more “sticky”) and wholesale funding, as well as long- and short-term capital sources, including balance sheet funding and securitization. We believe that MPLs with multiple, tested, vintage portfolios will be at an advantage, especially in a less favorable credit environment, to secure this type of hybrid funding.

On the other side of the funding equation, a more conservative investor with specialization in MPL-originated loans may be becoming the norm—investors who know how and where to kick the tires. In short, the digital financing space may be becoming less of a risk play and more of a viable business model that is being taken seriously by multiple facets of the finance industry. The hedge fund investors who jumped in for the short-term high-yield portfolios including some who leveraged for more yield, have diminished. There are now more investors that have developed expertise in assessing the operations of MPLs and the performance of their loans. At a recent conference, a panel of investors that specialize in online lending platforms agreed that in addition to analyzing operations and controls remotely, it was important to go onsite to meet the staff and look at the actual facilities in which they operate. In particular, the panelists agreed that they were looking at the general operating environment and staff enthusiasm as well as for humility; that staff members know what they don’t know and respect the money they are receiving from investors and giving to customers. They also emphasized assessing an MPL’s technology prowess as much for reporting and cybersecurity capabilities as for acquisition and originations capabilities.16

Not only are many investors physically meeting with lenders and evaluating them with measured, layered diligence, but they are also not shy about outsourcing some crucial due diligence to an ever-expanding marketplace ecosystem, such as market intelligence, legal and tax services. Another sign of maturity in the digital lending space is that more investors are preferring passive (buying portfolios wholesale) versus active (hand picking loans for tailored portfolios) investing in marketplace lending-originated portfolios. We believe this behavior further emphasizes the importance they place on the due diligence regarding the operations of the lenders and not just what is being originated—another trend that may facilitate more institutional investing. Meanwhile, the signs are everywhere that banks have become an integral ecosystem player in marketplace lending. Let’s remember that whether intentional or not, marketplace lending fits into a years-in-the-making effort by many banks to transform their online presence from just a service to a sales channel. As Figure 7 shows, the average MPL-originated loan size has grown, and one of the reasons for this is that banks are often becoming much more involved in putting their balance sheets into the space. Banks—such as Cross River Bank, a vocal proponent for “skin in the game” as a necessity for the future health of marketplace lending—have begun to specialize in partnerships with MPLs. Furthermore, the scenario we explored last year of a bank potentially building an MPL-like lender (online platforms leveraging technology to originate and process loans) has organically become a reality. Examples include Wells Fargo’s FastFlex for small business lending, and Marcus by Goldman Sachs for unsecured consumer lending (Figure 1).

Expanding asset classes also portend the future

In terms of sheer volume, unsecured consumer lending (which increasingly includes student loans) still often rules the marketplace lending landscape by a wide margin, with small business an up-and-coming second, yet other asset classes are also beginning to benefit in meaningful ways.

Small business

On the small business front, the Fed estimates there is still unsatisfied demand to the tune of hundreds of billions of dollars17 and that marketplace lending has begun to make a dent by bringing renewed attention to the market that includes increased bank involvement in the sector either through their own efforts or through MPL relationships.18 Big banks are approving more loans, albeit still only in the 20 percent range of applications according to a monthly survey by Biz2Credit (Figure 8); but the four percent growth rate is quite significant considering they are still the largest lenders to small businesses. The uptick in bank lending is also filling demand for installment loans that enable some small businesses to move away from merchant cash advances (MCAs). Although the MCA market is not going away, the growing trend of bank incumbents becoming more engaged in tech-enabled efforts is proving that there was an unfulfilled demand for lower cost installment products.

Residential mortgage Currently, only four of the top 10 mortgage lenders are banks, credit unions, or other depository institutions, compared to six in 2015 and eight in 2011. In fact, the three banks that accounted for half of all mortgage originations in 2011 now only account for 21 percent. And as one of the two largest nonbanks involved in residential mortgage originations, Quicken Loans also recently introduced an online lending channel, RocketLoans, offering personal installment loans.19

However, the residential mortgage process still often requires reams of antiquated legal documentation and procedures in most states, so MPLs involved directly with residential mortgages have for the most part used their digital platforms to source customers and sell the loans to the large mortgage players. But even in doing this, they have made the market more dynamic and competitive. LendingTree, for example, has heightened competition among banks and MPLs by collecting enough data for assessing a prospects’ credit worthiness to enable more competition among lenders to offer customers pre-approved mortgages that lead eventually to acquisition and origination.20 Most importantly, though, MPLs have begun the process of bringing digitization into an often cumbersome, multi party business.

Commercial real estate

Nonbanks have been investing in the CRE market for a while. Private equity, hedge funds, REITs, and institutional lenders have created and developed a deep nonbank market, so it is only natural that marketplace lending proliferates to make processes even easier for institutional investors. They are doing this, in particular, to invest in projects on central platforms, which has come in the form of “crowdfunding models” that serve to aggregate capital to invest in real estate.

Auto lending

Although auto lending is an asset class that may see a rocky patch in the near future, MPLs are nonetheless focusing on aspects of it that are easily disintermediated. Namely, auto financing is still typically unnecessarily paper-based. Where retail mortgages have multiple parties (for example, bank, attorneys, inspectors, appraisers) that make documentation complex, auto financing does not—often, instead, financed through just the dealer from which the car was purchased. Given the technology-fueled disruptive innovations that have been transforming the automotive industry, such as driverless cars, ridesharing, and connected cars, financing autos through marketplace lending seems a natural step in the innovation evolution, including a dealer building its own online lending platform. These types of lending platforms, for example, could become available with a developed software or hosted service programs that dealers or dealer networks could join.

Securitization is a powerful indicator of marketplace lending’s maturation and future

A burgeoning online-originated, loan-backed securities market may be a telling indicator that marketplace lending is fast becoming a more permanent aspect of the financial services industry. Analysts who pontificated that the end of the Prosper-Citi securitization relationship was a sign that the market for marketplace lending-backed securitization was faltering have been proved wrong.21 The pace and depth of securitizations in the online lending space has not abated. The first securitization happened as recently as October 2013 and the first major credit agency-rated tranches as recently as January 2015.22 Since then, the number of securitizations and cumulative value have grown by double- and triple-digit rates of growth. As of year-end 2016, the total cumulative value was 80 percent higher than 12 months prior (Figure 9).

But more than just growing, securitization has become a viable source for further funding for marketplace lending and a catalyst for its maturing and standardizing. Regarding the latter, the percentage of marketplace-originated loans that were funded through asset-based securities (ABS) was 70 percent in 2016 versus less than 10 percent in 2014. Regarding the former, there are multiple indicators.23

For one, although market interest rates have increased, the loans being securitized often reflect more rigorous underwriting and tighter spreads than in previous years, debunking theories that investors are only interested in online lending as a high-yield play in a low-rate market; in 2016, spreads tightened 50 percent, yet new issuance was oversubscribed.24 That the securitization market already has ecosystem players, such as PeerIQ, that specialize in risk management solutions, portfolio monitoring, and loan surveillance of securitized MPL-originated loans is itself a sign that the market is expanding and maturing. As PeerIQ reports, standardized securitization issues are already becoming a norm as Marlette issued a deal from its mutual fund trust-branded shelf, Lending Club on its LCIT shelf. Upstart and Prosper are initiating their own programs, and SoFi is well along the road of successful repeat issuances, which has reduced its funding costs considerably. Lastly, in terms of market credibility, there are currently 120 marketplace lending-originated ABS.25

None of this is surprising to us, as is evident in the predictions we made in the securitization discussion in our previous paper. We still expect the number of securitizations to exceed 100 in the next couple of years and to continue growing in value by double-digit percentages annually for at least the next two years after that. We continue to expect an increase in the range of investors and sponsors, and there will also likely be more bank partnerships in the loans that are securitized to meet the five-percent risk retention requirements. Lastly, we expect more third-party servicing to raise the level of investor confidence.26

However, while the US Securities and Exchange Commission (SEC) is considering whether a debt instrument can be treated as a tradable security, aforementioned platform ecosystem players are busy building the connector/facilitator platforms and obtaining broker-dealer licenses that are the necessary ingredients for secondary market trading of marketplace lending loans or loan portfolios.

A secondary market in marketplace lending is quite a different story. Although a small one has grown out of the ABS market, the secondary market for online lending otherwise is still very much in its infancy, comprising a few listed funds.

An industry seeking advocacy and standardization

MPLs seem to have astutely grasped that establishing a position in a sector that has historically been rife with economy-breaking transgressions requires proactive measures.

Generally, a sector or industry that self-polices and organizes advocacy mouthpieces is one that is developing for durability.

MPLs seem to have astutely grasped that establishing a position in a sector that has historically been rife with economy-breaking transgressions requires proactive measures.

The marketplace lending industry’s Small Business Borrowers’ Bill of Rights was recognized for accomplishing its intent by the US Treasury in collaboration with the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Fed, the OCC, the Small Business Administration, and the SEC. They acknowledged that the Small Business Borrowers’ Bill of Rights was being appropriately proactive to “organize support from online marketplace lenders for transparent pricing and terms, non-abusive products, responsible underwriting, fair treatment from brokers, inclusive credit access, and fair collection practices …”27

The two associations created after publishing our last paper are an extension of this effort: the Marketplace Lending Association (MLA) and the Innovative Lending Platform Association (ILPA). Both seem to be carefully controlling their membership, a sign that they are striving for uniformity in message regarding regulations and promoting standards and protocols, although the MLA added 12 new members recently to capture representation of more asset classes.28 Their challenges are to address governance, funding stability (for example, a healthy mix of institutional, retail, securitization, and long-term), economic downturn readiness (for example, well-run operations will survive, and should be able to pivot seamlessly from origination to servicing), and to promote uniform standards, protocol, and transparency.

We believe that one way online lenders will likely tackle transparency issues will be to continue in the vein of using groundbreaking technology, such as blockchain, to create immutable records to minimize problems such as “stacking” [see Sidebar: Blockchain may go a long way to solving several growing marketplace lending problems].

Blockchain may go a long way to solving several growing marketplace lending problems

Marketplace lending is a natural to join the pioneer use cases for blockchain in that it: 1) is a small and focused enough market with transaction volume for a shared network; 2) comprises tech-savvy companies open to integrating new technology; and 3) comprises nimble players without the size and baggage of complex legacy systems that inhibit integrating blockchain into their core operations.

Blockchain enables near real-time transactions in a “trustless” environment on a distributed ledger that guarantees immutability and irreversibility (if you are unfamiliar with the basic tenets of the blockchain, please refer to Deloitte’s thought leadership white paper

on the topic).29 Hence, in adopting blockchain: MPLs would not have to sacrifice their competitive advantage of fast and efficient digital loan processing as the near-real-time, digital-based feature of recording blockchain transactions would mesh perfectly; the

MPL would gain efficiencies and both the customer and MPL would be assured secure and tamper-proof transactions with the immutability and irreversibility features, and the distributed ledger in a trustless environment would gain efficiencies for the company by eliminating third-party operations.

One particular problem blockchain can address is “stacking,” where borrowers are approved and receive funding from an MPL and immediately afterward or simultaneously apply, are approved and receive funding from another MPL, increasing the probability of default. If a marketplace lending-originated approval to release funds were conducted on a blockchain, transactions would be recorded on a trustless, distributed ledger that prevents duplication and guarantees immutability. Yet, though the transaction in a blockchain is protected and immutable, one might argue that there could possibly be the issue that a borrower could conduct transactions under a different alias. But blockchain can also solve this problem by extending the scope of the distributed ledger to include smart contracts that point to databases with customer data. In the course of an application, a lender would have access to these data on a permissioned basis by a customer, which comes with it the knowledge of whether the customer data has been accessed by another lender.

The biggest hurdle to clear to make distributed ledger technology in lending an effective tool for marketplace lending would be cooperation—that is buy-in from enough players in the industry to participate on a networked, trustless, blockchain. It seems only natural that a technology-driven, innovative industry would be one to embrace a new, ground-breaking technology to speed transactions, reduce operational complexity, and enhance security.

A constantly evolving ecosystem seems critical to this equation of standardization, protocols, and transparency. Banks are ideal compliance providers. Shrewd investors with expertise are likely to want to use platforms and intelligence providers to perform due diligence, and third-party loan servicing is also key; while many MPLs have taken pride in using their technology know-how to service their own originations, organizations with significant scale and expertise are better adapted to service delinquent loans, and the market (that is, investors) is demanding this expertise. A third-party servicing mandate for certain securitization contracts most certainly set the precedent, but third-party servicers are becoming a commonplace factor in marketplace lending of all stripes in line with independent reviews, “hot” backup servicing arrangements, and data validation standards.

Same regulatory issues, but an OCC federal fintech charter would be a game changer

The premise of the decision Madden v. Midland Funding, LLC, that a lender cannot increase the interest rate of a loan that exceeds the usury cap in the borrower’s state of residence applies only in the three states that the Second Circuit Court of Appeals serves: Vermont, New York, and Connecticut.30 Hence, MPLs and banks still have the option to avoid these states or have national bank involvement include balance sheet risk.31 But MPLs are also on alert regarding loans being inhibited for importing even when made by nationally chartered banks in states without usury caps; the Maryland Court of Special Appeals ruled that a payday lender could not market loans online to Maryland residents if those loans had been generated at interest rates above Maryland’s usury caps to Maryland residents by nationally chartered banks. However, the specifics of this case are not a clear-cut worry for MPLs just yet. The payday lender, a nonbank credit servicer, did buy the loans from these banks, and Maryland had a law requiring credit servicers to be licensed in Maryland to service Maryland residents, and the case is also currently on appeal to a higher court.32

That aside, though, bank lending regulations still apply equally to any type of lender, regulations that include the Unfair, Deceptive, or Abusive Acts or Practices, Truth in Lending Act, the Fair Credit Reporting Act, Servicemembers Civil Relief Act, and Anti-Money Laundering and Know Your Customer, to name a few. Also, MPLs must comply with the same collection procedures as any other type of lender.33

The good news is that the assessment by the US Treasury, following its request for information on marketplace lending, acknowledged, with the affirmation of the Federal Reserve, the SEC, and the OCC, that marketplace lending is a welcome and legitimate means to meet both consumer and small-business credit demand that traditional banks had not been serving in the past decade and a half. Other positive developments on the regulatory horizon include the Financial Services Innovation Act, which would create fintech innovation offices in 12 different government agencies and a protection period from regulation while new products are created and tested, and the IRS Data Verification Modernization Act, which would require the IRS to reduce paperwork requirements for borrowers.34

Possibly the most positive development on the regulatory front, the OCC fintech charter, has unfortunately been put into question due to the uncertainty around how it aligns with policymakers on both sides of the aisle in Congress and with a new Republican White House. In theory, the new administration and legislative bodies are deprioritizing federal regulations in favor of state regulations, which would put the OCC charter on shaky ground. The MPL is a prime, and eager, candidate for the OCC’s proposed special-purpose federal charter, which would grant a national bank charter to a fintech that either engages either in fiduciary activities, lending, paying checks, or receiving deposits.35 With a federal charter, MPLs would have the flexibility to import interest rates from the state in which they originate their loan. In fact, without the movement to a national charter, marketplace lending stands the chance of seeing its growth as an industry seriously limited given the complexity that state-by-state regulation adds to an MPL’s operations and geographic scope.

Even without the uncertainty on the policy front, the OCC is waiting on the continuing public comment period on its white paper and then further analysis, following these comments, which will result in a policy statement announcement.36

Thinking optimistically that it does come to pass, we believe that the prime qualifying MPL candidates for this charter would have scale and/or unique and solid technology platforms matched with conservative, reliable, hybrid pools of capital and the ability to operate with fairly tight spreads. Also, compliance with the Community Reinvestment Act (CRA) would favor the more established MPLs as banks have already been engaging with them to meet their CRA requirements, the Lending Club-Citi partnership being a high-profile example.37

Marketplace lending is simply an aspect of the evolution of lending

Marketplace lending has expanded well beyond a question of MPLs converging with traditional banking. Rather, it has taken many shapes to become an integral and expanding part of the lending landscape. Marketplace lending is a prime example of how digitization is becoming integral to financial services’ meaningful market share and operating efficiencies, while meeting rising expectations for customer experience in a digital world.

Yet, as marketplace lending evolves, it is also on the cusp of transformation, again. That there was unmet consumer small loan demand is now not in question,38 but the “low-hanging fruit” that drove MPL growth is well understood and being served by an increasingly diverse group of MPLs and other lenders. Convergence means that banks, MPLs, other organizations, and the marketplace lending ecosystem have likely become more efficient at using technology platforms to originate loans. So now it is up to MPLs who want to retain some degree of autonomy to continue to develop and evolve within the financial services industry with a disciplined approach, including underwriting with rigor, having hybrid funding access (which can include balance sheets), and finding customer scale through tactical partnerships. But let us not forget that there is also ample market opportunity for marketplace lending that does not require scale—providing online lending as a service (LaaS) in either a branded or white labeling capacity. LaaS seems to be a sure ticket to survival, especially with a lending market that includes both small and mid-size traditional banks and credit unions that do not have the operational and/or capital capacity to develop in-house marketplace lending as well as financing arms of parent companies with core operations out of the realm of lending. Imagine the potential, for example, of linking auto-dealer financing to digital lending platforms.

So what about the downturn in the credit cycle that we predict will have an impact on marketplace lending, and won’t this affect the securitization market? Sure, a little and maybe more, for a time. But we believe that marketplace lending is not only here to stay, but will be difficult to identify as its own class as it converges and integrates and becomes a common aspect of lending. So, yes, a credit cycle would change the landscape, but its sturdier aspects, which have already changed lending for good, are expected to remain. Its players and ecosystem could deepen and expand, and securitization and secondary markets that come of it may only grow and strengthen, fueled by the successful market players.

Lastly, there seems to be tremendous opportunity for MPLs in the United States to grow exponentially by going global. Once MPLs work out data integrity kinks and obtain more clarity on regulations to which they may be subjected, it may be only natural that the success stories expand abroad and join markets that are already flowering in Europe and Australia, and growing exponentially in China.

Contacts

Industry leadership

  • Kenny M. Smith, Vice Chairman, US Financial Services Leader, Deloitte Consulting LLP
    +1 415 783 6148, kesmith@deloitte.com

Author

  • Stephen Fromhart, Research Manager, Banking & Securities, Deloitte Center for Financial Services, Deloitte Services LP, Contacts Deloitte Center for Sandeep Gupta Financial Services

General contacts

  • Sandeep Gupta, Partner,Deloitte & Touche LLP, New York
    +1 212 436 5614, sandgupta@deloitte.com
  • Chris Herrmann, Partner, Deloitte & Touche LLP, San Francisco
    +1 415 783 4303, cherrmann@deloitte.com

Deloitte Center for Financial Services

  • Jim Eckenrode, Executive Director, Deloitte Center for Financial Services, Deloitte Services LP
    +1 617 585 4877, jeckenrode@deloitte.com
  • Val Srinivas, Ph.D., Research Leader, Banking & Securities, Deloitte Center for Financial Services, Deloitte Services LP
    +1 212 436 3384, vsrinivas@deloitte.com

Report originally published here.

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References

1 Stephen Fromhart and Val Srinivas, “Marketplace lenders and banks: An inevitable convergence?” Deloitte Center for Financial Services, March 29, 2016.
2 Marketplace lending and MPL: Not too long ago, a technology platform to connect borrowers and investors was referred to as peer-to-peer lending, but this term was considered too narrow once institutional investors and other investing scenarios entered the equation. The same has now been said of the terms marketplace lending and marketplace lenders (MPLs) as online lenders that fund through balance sheets are technically not tapping a “marketplace” for funding. There is considerable debate on the subject, but in this paper, marketplace lending and marketplace lenders refer also to lenders employing an online (or other digital) lending platform while funding with their own balance sheet.

3 “S&P/LSTA U.S. Leveraged Loan 100

Index,” S&P Dow Jones Indices, accessed

February 14, 2017.

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Loans and Leases at Commercial Banks,” Board of Governors of the Federal Reserve System, November 18, 2016.

6 “Banks Loosen Standards for the 4th Straight Year – US Regulator,” Reuters
News, December 20, 2016.

7 Aaron Back, “A Warning Flashes on Auto Loans,” The Wall Street Journal, November 8, 2016.

8 “Consumer Credit, October 2016,” Federal

Reserve Statistical Release, December 7,

2016.

9 Joe Cioffi, “A Whole Lot of Hurt in Auto Lending May Be Coming,” American Banker,

December 27, 2016.

10 Patricia Buckley and Akrur Barua, “The US housing market recovery: The past is not prologue,” Deloitte University Press,
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11 Alvaro A. Mezza, Daniel R. Ringo, Shane

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Effect of Student Loans on Access to

Homeownership Finance and Economics

Discussion Series, Federal Reserve Board,

November 2015.

12 “Federal Reserve Statistical Release G.19: Consumer Credit,” Board of Governors of the Federal Reserve System, February 7, 2017.

13 This $40 billion figure is an estimate based on rounding up the data supplied by Orchard in the last quarter depicted in figure 4 to include asset classes that are not represented in the data

in figure 4.

14 “Federal Reserve Statistical Release G.19: Consumer Credit,” Board of Governors of the Federal Reserve System, February 7, 2017.

15 “Consumer unsecured Q3 2016,” Orchard

Quarterly Industry Report, December 9,

2016. Note: For the purpose of protecting the privacy of Orchard’s clients, we do cannot list the names of the MPLs from which this data was collected.

16 “Key Investor Considerations for Marketplace Loan Investment Strategies,” Marketplace Lending & Investing Conference, September 27-28, 2016.

17 “Small Business Credit Survey 2015,” The Federal Reserve Bank of Atlanta, Boston, Cleveland, New York, Philadelphia, Richmond, and St Louis, March 2016.

18 “Opportunities and Challenges in Online

Marketplace Lending,” US Department of the Treasury, May 10, 2016.

19 Annamaria Andriotis, “Banks No Longer Make the Bulk of U.S. Mortgages,” The Wall Street Journal, November 2, 2016.

20 Peter Rudegeair, “Online Lenders Offer

New Competition for Banks,” The Wall Street Journal, June 28, 2015.

21 Noah Buhayar, “Citigroup Said to Stop

Securitizing Prosper’s Online Loans,”

Bloomberg, April 12, 2016.

22 Tracy Alloway, “P2P Consumer Loans Given Landmark Rating,” Financial Times, January 28, 2015.

23 “Marketplace Lending Securitization Tracker: Q4 2016,” PeerIQ, accessed at www.peeriq.com.

24 Ibid.

25 Ibid.

26 Ibid.

27 “Opportunities and Challenges in Online

Marketplace Lending,” US Department of the Treasury, May 10, 2016.

28 MLA members are Lending Club, Prosper

Marketplace, Funding Circle, Able, Affirm,

Avant, Commonbond, Marlette Funding, PeerStreet, Sharestates, StreetShares, and Upstart. Associate members are dv01, LendIt, and eOriginal. ILPA members are
OnDeck, CAN Capital, and Kabbage.

29 David Schatsky and Craig Muraskin,

“Beyond Bitcoin: Blockchain is Coming to

Disrupt your Industry,” Deloitte University Press, December 7, 2015.

30 Marc Franson and Peter Manbeck,

“The Regulation of Marketplace Lending:

A Summary of the Principal Issues

(2016 Update),” Chapman & Cutler LLP, April 2016.

31 Ibid.

32 Ibid.

33 Ibid.

34 “Marketplace Lending Securitization Tracker: Q4 2016,” PeerIQ, accessed at www.peeriq.com.

35 Lalita Clozel, “OCC Grants New Charter to Fintech Firms with Strings Attached,” American Banker, December 5, 2016.

36 Lalita Clozel, “Does the OCC really have the power to charter fintech firms?”

American Banker, January 18, 2017.

37 Lalita Clozel, “How the OCC Plans to Apply CRA-Like Requirements to Fintech Firms,” American Banker, December 9, 2016.

38 “Opportunities and Challenges in Online

Marketplace Lending,” US Department of the Treasury, May 10, 2016.

 

Friday March 10 2017, Daily News Digest

delinquency rates in u.s.

News Comments Today’s main news: China’s tech giants are pouring billions into U.S. startups. Zopa puts investors on waiting list. RateSetter investors embrace provision fund rules. Latvia breaks RE dev crowdfunding record. Ping An Bank to provide third-party depository service to P2P lenders. Carilend to open first P2P lending platform in Caribbean. Today’s main analysis: Marketplace Lending 2.0. How Brexit could […]

delinquency rates in u.s.

News Comments

United States

United Kingdom

  • Zopa introduces investor waiting list. GP:” Perhaps another way of doing this would be to have a waiting dollar list, not a waiting investor list: each investor can invest $x per month, depending on platform needs. This way you don’t lose clients who see no activity for some time and you take a token of their participation to have them commit and stay committed. ” AT: “Regulated growth is the best kind of growth.”
  • RateSetter investors embrace new provision fund rules. GP:” A very interesting change. We should evaluate these changes in depth.”

European Union

  • How Brexit could help Berlin take London’s fintech crown. AT: “I have to say, though I’m a firm believer that it will take a lot of mojo to overtake the UK as the world’s leader in P2P lending and fintech, there is a compelling argument that Berlin’s growth could be fueld by U.S. and Asian companies choosing Germany over the UK to gain access to European markets post-Brexit. Howevr, they’ll still need a presence in the UK if they want access to the UK market. Whether business interests lean toward Berlin over London in the aggregate and over the long haul, however, remain to be seen.”
  • Latvia’s largest crowdfunded RE dev project.
  • Fellow Finance P2P lending review.

China

Asia

Caribbean

  • Bid to change loan services. AT: “Barbados need no longer be known only for good music and sunny beaches. Fintech has reached so many new shores.”

News Summary

 

United States

China’s tech giants are pouring billions into US start-ups (CNBC), Rated: AAA

Joe Chen, CEO of Chinese social networking service Renren, first met SoFi CEO Mike Cagney in Palo Alto in 2011 and, over coffee, decided to invest in the fast-growth, disruptive online finance start-up. That initial $4 million investment helped SoFi get its start and led to two more financings within three years, with Renren contributing a major chunk of some $230 million raised.

Similarly to Renren, China’s tech titans Baidu, Alibaba and Tencent are leading a surge of Chinese investment in cutting-edge U.S. technology start-ups with bold ambitions to expand their footprint, attract top talent and gain an edge in innovation.

Collectively known as the BAT, China’s giant technology companies that dominate search, e-commerce and mobile messaging in their home market are going global. The United States is their primary shopping place to diversify and build out their brands.

China’s four largest internet companies — the BAT plus e-commerce company JD.com — have invested $5.6 billion in 48 U.S. tech deals over the past two years, according to CBI Insights data.

Last year Chinese investors put a record $45.6 billion in U.S. companies, triple the amount for 2015, according to research group Rhodium Group in New York City.

Besides its groundbreaking investment in SoFi, Renren has invested in a series of U.S. fintech start-ups, leading a $31 million lead investment in crowdfunding real estate site Fundrise in 2014 and leading a $40 million investment in U.S.-based stock-trading outfit Motif in 2015.

For the founders of U.S. tech start-ups, getting cozy with Chinese acquirers and investors can make good business sense. With a Chinese investor, their business gains a competitive edge in the exceedingly difficult-to-penetrate China market. Getting funds from China’s leading tech companies can help U.S. companies gain an entry point to China, an immediate on-the-ground presence and strategic insights such as how to best customize products for the local Chinese market.

Why ‘challenger banks’ haven’t taken off in the US (Tradestreaming), Rated: AAA

Digital banks, big in the U.K., have a trust problem in the States.

That model hasn’t really caught on in the U.S., though, where startups are mostly building technology-based solutions for payments, investing and lending – anything that doesn’t require opening a bank account with an unknown entity. Building that type of business profitably is hard: the cost of customer acquisition is high and complying with complex financial regulations can be a big undertaking.

BankMobile, a rare U.S. success story, offers a compelling case study. With about 2 million accounts since its 2015 launch, it has grown so quickly Customers is selling it to Flagship Community Bank in Clearwater, Florida. (The Durbin Amendment of the Dodd-Frank Act requires companies with more than $10 billion in assets cap their interchange fees at 44 cents, and Customers’ asset size is just below that. BankMobile’s revenue comes mostly from interchange fees on debit cards.) The $175 million deal is expected to close before the end of the third quarter.

Luvleen Sidhu, president and chief strategy officer, said one of the main reasons BankMobile has been so successful is it is acquiring new customers at a low cost – about $10 per account, she specified, compared to the roughly $300 she said it generally costs to acquire a customer returns come out to “maybe $85 a year” in revenue.

U.S. startups are joining banks, not challenging them.

However, it will take more than a better customer experience enabled by technology to motivate customers to open an account or switch from their current bank, despite their general dissatisfaction with the current financial system, Khan said. These new experiences need to focus more on customer behavior – something banks get but startups need to work on more. What will ultimately make a digital bank stand out from legacy banks that are improving digitally is the way it handles data.

That’s why it’s important to remember a tech giant like Facebook or Amazon could get into banking services before a digital bank even takes off, Khan said. If it’s a competition for customer trust, the tech company could beat out all the banks.

Marketplace Lending 2.0 (Deloitte), Rated: AAA

But 12 months later, we see a picture that is much bigger in scope than just MPL-bank convergence. Marketplace lending is an integral piece of a larger fintech puzzle that is transforming the financial services industry.  We expect that asset classes such as small business, student, and unsecured consumer will move almost completely to digital platforms in the medium term, while other asset classes, such as residential mortgages and auto lending will get there more slowly.

Further out, we see a technology platform-enabled lending environment moving from a predictive to a prescriptive analytics stage.

Download the report here.

Six ways Goldman Sachs’ online lender, Marcus, strives for an edge (American Banker), Rated: AAA

  1. It’s tackling a pain point for consumers: credit card debt.
  2. It’s kicking it old school with direct mail.
  3. It’s borrowing culture and office design strategies from startups.
  4. It’s light on fees.
  5. It’s turned off automated voice response.
  6. It lets people defer payments. This isn’t for everyone necessarily, but those who make 12 consecutive payments on time earn a pass. They can contact the bank to defer one payment with no fees or extra interest, so a 32 -month loan becomes a 33-month loan.

What Crowdfunding and ‘Democratizing Capital’ Could Mean for Minority Entrepreneurs (Equities.com), Rated: A

The digital crowdfunding trend in America started in 2003 when ArtistShare launched as the world’s first donation crowdfunding platform for creative artists. Crowdfunding has surely stimulated the national and global economy over the years, but equity crowdfunding is a federally regulated tool with the ability to shift power from large, robust institutions to the individual entrepreneur and investor.

Equity crowdfunding acts as a catalyst for individuals to collectively combat institutional discrimination along with the very real wealth and unemployment disparity between races in the country. While organizing a crowdfunding campaign strategy is complex in nature, leaders across the country are working hard to make this crowdfunding easier and more accessible to everyone.

Below are a few leaders making a difference in the minority community:

  • Dar’shun Kendrick at Minority Access to Capital– Securities lawyer with a focus on helping minorities access capital the legal way.
  • Maureen L. Murat, Crowdie Advisors– Future lawyer with a passion for immigration and securities law helping entrepreneurs raise capital via equity crowdfunding.
  • Kendrick Nguyen and Paul Menchov at Republic– Equity crowdfunding platform highlighting minority, female, and impact investing offerings.
  • Devin Thorpe, Champion of Social Good– Journalist, author, and avid speaker on a mission to solve some of the world’s biggest problems before 2045 by championing the work of change agents who will do it.
  • Lynn Da, Buy The Block– Advocate for minority investment education and access to real estate crowdfunding investments. Platform set to launch April, 2017.
  • StartingFive Partners and General Catalyst Partners, FundLatinos – These two groups came together to develop this donation crowdfunding platform to bring together with the vision to build the tools, technology and partnerships needed to foster a trusted environment for Latinos to raise money for personal and community causes that matter.
  • Charlie Jackson, CEO at Texas Diversity Fund– Equity crowdfunding platform with a focus on encouraging diversity in entrepreneurship.

Backed Secures First Institutional Debt Capital (PR Newswire), Rated: A

Backed, the online lending platform that has digitized co-signing of personal loans, today announced it has finalized its debt financing deal with Israel’s largest financial institution, Harel Insurance and Finance. Harel has also participated in Backed’s extended seed round, and has become a lead equity investor. Backed and Harel are setting up an independent special purpose funding vehicle for financing its growing loan portfolio.

Backed was founded with the mission of helping individuals with thin or no credit history gain access to fair loans. Its unique co-signing mechanism is fully digitized, and allows the Backer (co-signer) to keep track of the loan progress and to step in to cover missing payments if necessary. Backing is designed to help borrowers and Backers avoid defaults, rather than impose added risk on the co-signers. Simultaneously, the co-signing model allows Backed to offer competitive returns to its investors, with reduced risk due to its co-signing mechanism.

LendingHome Launches One-Stop Online Mortgage for Digital Natives, by Digital Natives (VentureBeat), Rated: A

LendingHome’s online mortgage is the first to prioritize the customer experience by putting control over the process into the hands of the homebuyer. While the first wave of digital lenders brought the old-school paper mortgage application online, retrofitting it to be accessed via the Internet, much of the process is still controlled by the lender offline and is opaque and confusing for the homebuyer. In contrast, LendingHome has created the next-generation digital mortgage that gives homebuyers confidence and control over the process with a dynamic, interactive online experience. It also offers a faster, simpler, and more transparent mortgage process than the outdated paper-laden methods still used by many lenders.

It gives homebuyers confidence and control over the process with a range of loan options, innovative features, and trustworthy resources to choose from. It includes the ability to:

  • Select the right loan for your needs anywhere, anytime: Borrowers can select from a range of loan products at competitive rates. Using LendingHome’s Trade Points tool, they can configure the loan that’s best for their needs without wasting time going back and forth with a loan officer.
  • Lock your rate with the click of a button: Online rate lock allows borrowers to capture available rates in real time without the worry of missing out because the market moved.
  • Get guidance right when you need it: An educational hub offers advice on complex topics like debt-to-income and loan types. Extensive in-product tips and education are available exactly at the time they’re needed to help throughout the application process. While it’s easy to complete the mortgage process online, LendingHome has personalized loan specialists available to talk to borrowers via phone or chat when needed.
  • Know what to expect and do at every step: A personalized dashboard lets borrowers know exactly what documentation they’ll need to provide, without the headache of fielding last-minute piecemeal requests via email and phone. A Milestone Tracker lets them know exactly where they stand in the mortgage process and what comes next.
  • Stay on the same page with your real estate agent: A Loan Tracker tool enables borrowers to seamlessly share the progress of their loan with their real estate agent or partner.

LendingHome’s home financing solution is available at www.lendinghome.com/home-loans to homebuyers in Arizona, California, Colorado, Florida, Georgia, Nevada, Oregon, Texas, and Washington, with more states to be added in the coming months.

There are 15.8 million homebuyers — many of whom are tech savvy — expected to enter the market from 2015 to 2025, according to research from the book. Today, forty-seven percent of homebuyers are first-time buyers, and half (50 percent) are under the age of 36. They have a median age of 33 and nearly six in 10 are Millennials (56 percent) per a recent survey by Zillow Group. Per the same survey, the majority of homebuyers, 87 percent, use online resources to search, shop and purchase their home.

Fueled by Rocket Mortgage, Detroit-Based Quicken Loans Achieves Record-Breaking Year (PR Newswire), Rated: A

One year after Quicken Loans’ Rocket Mortgage Super Bowl ad ignited a nationwide conversation about the power of the American homebuyer, the largest FinTech lender funded $7 billion of its record $96 billion in total closed loan volume in 2016 through Rocket Mortgage. In just 11 months Rocket Mortgage’s closed volume alone would already rank as a top-30 national mortgage lender, among the nearly 50,000 banks, credit unions, brokers and mortgage companies in the United States.

Monroe Capital Corporation BDC Announces Fourth Quarter Financial Results (NASDAQ), Rated: A

Monroe Capital Corporation (Nasdaq:MRCC) (“Monroe”) today announced its financial results for the fourth quarter and full year ended December 31, 2016.  The Board of Directors of Monroe also declared its first quarter dividend of $0.35 per share, payable on March 31, 2017 to stockholders of record on March 17, 2017.

Fourth Quarter 2016 Financial Highlights

  • Net investment income of $5.4 million, or $0.32 per share
  • Adjusted Net Investment Income (a non-GAAP measure described below) of $5.8 million, or $0.35 per share
  • Net increase in net assets resulting from operations of $7.5 million, or $0.45 per share
  • Net asset value (“NAV”) of $240.9 million, or $14.52 per share
  • Paid quarterly dividend of $0.35 per share on December 31, 2016

5 female founders shaping the future of fintech (Built in NYC), Rated: A

Alexa Van Tobel launched LearnVest in 2009 with the mission of making financial planning affordable and accessible.

Sallie Krawcheck, a former titan of finance at companies like Citigroup and Bank of America, launched Ellevest in 2016 with the mission of closing the gender investment gap. The robo-advisor works to help women secure their financial futures by taking women’s unique life attributes — such as longer lifespans, different salary curves and more frequent career breaks — into consideration.

A former McKinsey consultant, Jennifer Fitzgerald cofounded PolicyGenius to fill a  gap in the insurance industry.

Vicki Zhou, who previously held roles at Citigroup, SFC Associates and Archipelago Capital Management, launched the company in 2013 with Herbert Moore. WiseBanyan’s platform provides users with tailor-made financial plans by recommending and managing an assortment of bonds and stocks, which users can then track, add to or withdraw from.

Orchard Platform is a marketplace lending platform that helps institutional investors, investment managers and loan originators connect and transact. Angela Ceresnie co-founded the company in 2013 with Matt Burton, David Snitkof, Jonathan Kelfer and Phill Rosen.

Want to start a mortgage company? loanDepot CEO updates thoughts on barriers to entry (Housingwire), Rated: B

Hsieh said last year that regulation was a barrier to entry into the business. People are eye-balling entering the mortgage industry because of $9 billion of untapped potential market share, Hsieh said at the time.

Now a year later, Hsieh added to it, stating technology is now a new barrier to entry — no longer just capital and regulatory obstacles.

And there’s data to back his claim. The Mortgage Bankers Association forecasts$1.63 trillion in total mortgage originations in 2017. So it’s true that more people want in, but greater investment in technology is becoming an ever-increasing necessity.

Citi names Piazza permanent head of fintech unit (American Banker), Rated: B

Citigroup on Thursday announced that Yolande Piazza will serve as the permanent head of its fintech unit.

Piazza had been serving in that role on an interim basis since August, when the previous chief executive of Citi FinTech, Heather Cox, left for a role with USAA.

Kabbage, Arcadia price pair of MPL deals (Global Capital), Rated: B

Sole lead Guggenheim increased the deal size of the Kabbage offering from $500m to $525m before pricing on Wednesday.

The $388.8m ‘A’ notes were priced at 275bp over swaps, while the $83.3m ‘B’ notes were priced at 400bp over swaps. The $27.7m ‘C’ notes and the $25m ‘D’ …

East Bay real estate investor crowdfunds purchase of San Jose tech park (Biz Journals), Rated: B

The Hellyer Oaks Technology Park in San Jose has been acquired by Walnut Creek-based Vertical Ventures, but the sale was funded partially by a real estate crowdfunding tool called CrowdStreet.

United Kingdom

UK’s biggest peer-to-peer lender introduces investor waiting list (AltFi), Rated: AAA

Zopa, the oldest and largest peer-to-peer lending platform in the UK, has introduced a waiting list for new investors on the platform. The new setup applies to both institutional and individual investors, and follows on from the “platform limit” which was introduced in December.

The newly introduced waiting list is an attempt to place a greater weight of emphasis on existing investors, by moderating the on-boarding of new customers. Zopa doesn’t yet know how long the waiting list will be, but says that it will try to manage it such that it’s never too long.

Of course, this wouldn’t be an issue at all if originations were outstripping investments. It would appear that Zopa is overweight investment at the moment.

RateSetter’s investors embrace new provision fund rules (P2P Finance News), Rated: AAA

RATESETTER’S investors have widely endorsed changes introduced to the provision fund, as hardly any of them have used the one-month window to withdraw their funds without an exit fee.

The peer-to-peer finance firm updated its lender terms in early February, one month ahead of changes to its provision fund to address concerns that it was “too binary”.

The average amount invested has now ticked up to over £22,000 – a 0.6 per cent month-on-month increase that also confirms investors feel comfortable with the platform’s strategy.

European Union

How Brexit could help Berlin take London’s fintech crown (MarkeWatch), Rated: AAA

When it comes to Brexit’s winners and losers, Berlin looks set to snag a few victories — especially the city’s growing financial-technology sector.

A rolling billboard (“Keep calm and move to Berlin”) is one of the stunts that have ruffled British feathers.

But Berlin’s gains might not come from a Brexit-driven exodus — that is, from U.K.-based technology companies abandoning their homeland. Instead, its fintech scene will benefit from U.S. and Asian businesses actively choosing Berlin, and not London, as their EU base.

That at least is the prediction from Stefan Franzke, CEO at Berlin Partner, a business development agency. He estimates that Berlin is home to roughly 80 to 100 fintechs and expects that number to double by late 2018.

To be sure, Londoners have played down the Brexit threat to the U.K. capital’s fintech crown.

At the same time, Germany is already catching up, by some measures. Funding inflows for the country’s fintech sector totaled $421 million in last year’s first three quarters, topping the U.K.’s $375 million, as shown in the chart above from accounting giant EY.

But London’s fintech scene is going to be hard to overtake, given advantages like the U.K. capital being a top financial hub and the English language serving as the business world’s lingua franca nowadays.

Latvia’s largest crowdfunded RE dev project – 950,000 euros fully funded in less than 24 hours. (Crowdestate Email), Rated: AAA

A residential real estate project located at Saules Aleja 2A in Riga, Latvia was fully funded on Crowdestate.eu crowdfunding platform. This was the single largest crowdfunding campaign in Latvia for a real estate development. The project is managed by Crowdestate and advised by a leading Estonian residential developer Hepsor OÜ.

The development project will include the purchase of a land plot and the construction of a residential building next to a park and a beautiful pond in the highly sought after Agenskalns neighborhood. In less than 24 hours, 769 investors from 23 countries all over the world participated in funding this project, reaching the record breaking amount of 950 000 euros.

The investment opportunity offers an IRR of 20.46% per annum.

On crowdestate.eu platform anyone can be an investor, with the minimum investment starting from 100 euros. The largest amount invested into the Saules Aleja 2A project was 30 000 euros and the average investment per investor was 1 297 euros.

Fellow Finance P2P Lending – My Portfolio and Strategy (P2P-Banking), Rated: AAA

Fellow Finance is a p2p lending marketplace in Finland. It started 2013 with loans to Finnish consumers, and later added Polish consumer loans and loans to Finnish SME’s. Since launch more than 100 million EUR in loans were funded.

I currently invest only in Finnish consumer loans and concentrate on 3 and 4 star loans for which the market rates are currently 13% and 15%. The Finnish consumer loans are covered by a buyback guarantee of 70%, meaning in case they are 90 days overdue, they will be sold for 70% of outstanding principal to a collection agency.

The market rates do fluctate sometimes at +/- 1%, and I felt it necessary to tweak the rate of my allocator then to keep it bidding (at the best possible rate). Fellow Finance is one of the very few platforms, where investors can configure the autoinvest to buy on the secondary market, but I have not used that.

Overall the website – which is available in english language – is good, only sometimes a tad slow to respond.

 

China

WeiyangX Fintech Review (Crowdfund Insider), Rated: AAA

Last week, the National People’s Congress (NPC)and Chinese People’s Political Consultative Conference (CPPCC), the country’s top legislative and political advisory body, opened the 2017 sessions in Beijing.

And this year, “Fintech” was once again named as the top keywords of “Two Sessions”:

(15 Top Keywords of 2017: artificial intelligence, virtual reality, Internet+, sharing economy, blockchain, Fintech, content industry, Internet healthcare, automatic drive, platform era, innovation, institutional improvement for internet, information safety, digital economy and smart city)

Ping An Bank is planning to provide third party depository service for P2P online lending platforms.

Here are some main points of the measures:

  • Actual controllers of P2P online lending platforms must be government, large state-owned enterprises, main-board listed companies, small and medium enterprise board listed companies, or financial institutions with licenses from China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission or Ministry of Human Resources and Social Security;
  • Platforms must be in operation for more than a year without any negative press reports, and monthly turnover should exceed 100 million yuan;
  • Platforms should market their depository cooperation with Ping An Bank truly and objectively;

On March 2nd, Wanda Group and China UnionPay officially announced a strategic co-operation. The two sides will develop cutting-edge financial technology to promote the application of intelligent transaction and smart service in commercial scenarios.

On March 2nd, Fintech platform Xiaoying Financial secured 1 billion yuan in Series B funding. The new investors include Suzhou Goldmantis Group, the Industrial Fund of Jinke Entertainment, Shanghai Urban Real Estate Holdings Company, Bo Nian Kang Health Management Group and more.

On March 2nd, prepaid card company Jiangsu Ruixiang announced it had ceased cooperation with more than 50 Lotte Mart stores in Jiangsu provinces.

Asia

Dubai Regulator Signs FinTech Pact with Singapore’s Central Bank (Cryptocoins News), Rated: A

The Monetary Authority of Singapore (MAS) and the Abu Dhabi Global Market (ADGM) have signed a cooperation agreement to develop and nurture Fintech innovations and entrepreneurs in both countries.
Dubai is certain to benefit from the agreement with Singapore, the latter arguably established as Asia’s and one of the world’s leading Fintech hubs.
Notably, the two authorities will also collaborate on projects that explore the possibility of technologies such as blockchain and distributed ledger technology (DLT), digital and mobile payments, big data and more.

P2P lending changes the finance game (Manila Bulletin), Rated: B

First to be introduced and gained traction in the United States and Europe, this method called peer-to-peer or ‘person-to-person’ (P2P) lending paves the way to democratize the lending while keeping it credible and very secure.

There are less requirements needed compared to the traditional money-lending process. What attracts the borrowers are the low interest rates and the minimal requirements, while the convenience and safety attracts the lenders.

Caribbean

Bid to change loan services (Nation News), Rated: AAA

Carilend Ltd officially launched its peer-to-peer (P2P) lending website last week, introducing a process that matches lenders (who can lend from $2 500 up in $25 increments) directly with borrowers (who can borrow from $2 500 to $50 000 in $25 increments, subject to credit referencing and scoring).

Carilend officials said theirs was the first P2P lending site in the Caribbean “aiming to bring together borrowers and lenders to give a better deal and a better experience to both”.

Authors:

George Popescu
Allen Taylor

Friday September 2nd 2016, Daily News Digest

Friday September 2nd 2016, Daily News Digest

News Comments Today’s US interesting bits: a pattern in a series of FDIC communications; Deloitte claims banks going paperless reduces operations expenses by 25%; Zopa reduces interest rates by 0.2% and my commentary on central bank interest rate impact in US, UK and Australia on P2P lending. In Australia bank savings interest rate is 3%, […]

Friday September 2nd 2016, Daily News Digest

News Comments

United States

United Kingdom

European Union

Australia

 

United States

International Growth Is The Next Frontier for FinTech Companies, (Forbes), Rated: AAA

By 2020, global marketplace lending could reach almost a half trillion dollars, Morgan Stanley reports.

The International Finance Corporation (IFC) estimates that there are 125 million small businesses throughout the world, including 89 million in emerging markets.

Thus, the opportunity is available for FinTech companies such as OnDeck, which began its international expansion by offering loans up to $150,000 (CAD) to small businesses in Canada. OnDeck is by far the biggest U.S. player to enter the market up north. In 2015, the company also expanded into Australia through a partnership with Commonwealth Bank (ASC: CBA) one of that country’s largest banks.

Biz2Credit recently finalized a deal with Australian Finance Group (ASX: AFG), one of Australia’s largest mortgage brokering services providers. The partnership will enable AFG brokers to provide small business borrowers with a broader range of options while allowing faster access to capital. Australia is a hotbed of FinTech activity at the moment.

Earlier this year, Biz2Credit reached an agreement with Tata Capital, the flagship financial services company of the $108 billion Tata Group, to expand the company’s financial footprint in India, and recently partnered with Kotak Mahindra Bank, India’s fourth largest private sector bank. India has 48 million small businesses, almost double the number of the United States, according to the Economic Times.

China remains a tough nut to crack for U.S.-based FinTech firms, however. According to a report by Tech Crunch, tech-savvy Chinese consumers have readily adopted online banking, money transfers, payments, crowdfunding, lending, and investing via mobile platforms. Further, Alipay, an Alibaba subsidiary, attracted 150 million clients and $93 billion within 18 months. China, as always, makes it difficult for outsiders to enter the marketplace.

Moody’s: Tie-ups between marketplace lenders, banks can benefit small businesses, (Moody’s), Rated: AAA

The partnerships that small business marketplace lenders (MPLs) are forming with banks could help them lower their non-credit costs by cutting customer acquisition costs and funding costs, Moody’s Investors Service says in a report. This in turn should lead to benefits for small businesses.

Although many small borrowers are able to borrow from MPLs, they are often unhappy about the level of interest rates that they are charged on their loans. For example, OnDeck reported in its 10-K filing with the SEC that its weighted average APR for the term loan and lines of credit was roughly 41% in Q4 2015.

Moody’s believes that while lending rates reflect credit risk, they are also high partially because the MPLs have higher customer acquisition and funding costs than banks do. The partnership with banks can help reduce both of these costs.

For example, in the OnDeck-JPMorgan Chase & Co. (A3 stable) partnership, small business clients that are approved by Chase can apply for loans up to $250,000 using the OnDeck technology platform. That allows them to benefit from the speed of an MPL’s platform while being charged lower rates than those typically charged by stand-alone small business MPLs.

FDIC on Marketplace Lending, Supervisory Appeals, and Communication, (Lexology), Rated: A

Not taking a vacation this summer, the FDIC recently published three financial institution letters on important issues for banks.

In FIL-50-2016, the agency requested comment on draft guidance regarding third-party lending. The guidance provides safety and soundness and consumer compliance measures that FDIC-supervised institutions should follow when lending through a relationship with a third party, the agency explained, supplementing the FDIC’s existing Guidance for Managing Third-Party Risk, issued in 2008.

The FDIC also asked interested parties to weigh in on updates to guidelines for institutions to appeal certain material supervisory determinations in FIL-52-2016. Intended to expand the circumstances under which banks may appeal a material supervisory determination, the proposed amendments to theGuidelines for Appeals of Material Supervisory Determinations would be effective upon adoption.

Finally, the FDIC reissued a 2011 financial institution letter to reinforce the agency’s expectations for communications with banks. “An open dialogue with bank management is critical to ensuring the supervisory process is effective in promoting an institution’s strong financial condition and safe-and-sound operation,” according to the letter.

To read FIL-50-2016, click here.

To read FIL-52-2016, click here.

To read FIL-51-2016, click here.

Proposed FDIC guidance on marketplace lending could have far-reaching impact on industry, (Lexology), Rated: AAA

Following up on its recent Supervisory Insights article on marketplace lending and Advisory on Effective Risk Management Practices for Purchased Loans and Purchased Loan Participations, the FDIC on July 31, 2016, released its proposed Examination Guidance for Third-Party Lending. If nothing else, this series of recent developments demonstrates the FDIC’s concern with the role of banks in marketplace lending. Unlike the prior two releases, the July proposed guidance is subject to public comment, with a comment period expiring October 27, 2016.

All three issuances share a common set of fundamental concerns. These include concerns that

(a) a bank may rely on a marketplace lending platform to an unjustified extent;

(b) the marketplace lending activity may not fit within a bank’s corporate strategy;

(c) that lending through a marketplace platform may not be consistent with the bank’s underwriting standards;

(d) that the bank may not adequately assure that the activity is being conducted in accordance with applicable law; and

(e) that the bank may not otherwise adequately manage risks inherent in the activity.

While the Proposed Guidance will only apply to state-chartered, FDIC-insured banks that are not members of the Federal Reserve System, it could have far-reaching effects given the increased prevalence of state-chartered banks of all types in marketplace lending. Moreover, the Proposed Guidance may strain the tension between financial innovation and comprehensive regulatory oversight inherent in much of FinTech.

China P2P Lender Yirendai Plunges Another 10% As Lawsuits Pile Up, (Forbes), Rated: A

Yirendai’s stock, which trades as depositary receipts, fell by 10% yesterday to $24.09.  It has lost nearly a third of its value since Aug. 18 when it closed at $37.50. China on Aug. 23 announced lending restrictions that have triggered concerns about the growth prospects of an industry that has been hurt by fraud.

Yirendai, which is controlled by lender CreditEase of Beijing, says the U.S. suits are without merit, the government-published Shanghai Daily said today.

Shares in LendingClub of the U.S., whose owners include Chinese businessman Chen Tianqiao and business is comparable with Yirendai’s, lost 1.5%.

Banks, slow as a paper-based process, (Tradestreaming), Rated: A

According to Deloitte, by streamlining the process and adding technology to eliminate paper from the process, operating expenses in the processing divisions can be reduced by as much as 25 percent. Records management associated costs can be reduced by 60 percent to 70 percent.

Though some are experimenting with paperless branches, end-to-end paperless process is still far off. This is especially peculiar considering that since 2000, when the Uniform Electronic Transactions Act was passed, signing and maintaining documents electronically is considered a compliant way to record transactions. Other countries have similar laws.

According to Petrogiannis, there is some confusion within the banking industry about the compliance of esignatures. Additionally, not many companies have changed internal policies with the change in legislation, according to the Deloitte report. Though the report focuses on the South African banking industry, it is representative of trends in banking elsewhere.

The story of paper is symptomatic to the speed of the banking industry. It has been about 16 years since the UETA was passed and almost 10 years since Steve Jobs introduced the first iPhone and the mobility revolution that followed. In this case, at least, banks are more than a decade behind both technology and regulation.

United Kingdom

Zopa drops rates, more platforms to follow?, ( AltFi), Rated: AAA

The UK’s largest marketplace lender is cutting lender rates by 0.2 per cent across all three of its products.

Interest rates on Zopa’s Access, Classic and Plus account will fall to 3.3 per cent, 4.1 per cent and 6.5 per cent, respectively, effective as of September 8th.

The rate that Zopa delivers to its lenders is, of course, inexorably linked to the rate charged to its borrowers. And that latter rate was the first to fall, as the platform took steps to remain competitive while maintaining a “high standard of borrower”.

UK peer-to-peer lenders were overwhelmingly positive in the wake of the Bank of England’s decision to cut rates in early August, with a number of sector representatives saying that the move would prompt large swathes of investors to look to P2P in the search for return. But there’ll be nothing for those investors to lend against if the platforms can’t stay competitive on the borrower side, hence today’s adjustment.

According to AltFi Data Analytics, average gross interest rates across Zopa products fell from 7.2 per cent to 6.7 per cent in July. That rate will surely fall further in August.

Rates at rival P2P lender RateSetter are determined by the market, rather than by the platform. And at this stage, the market seems to be following a similar pattern. Average gross interest rates at RateSetter fell from 4.7 per cent to 4.4 per cent in July, and one must assume that they have continued to drop in August. We should be able to say for certain within a week or two. Stay tuned.

‘No evidence’ of peer-to-peer investors underestimating risk, says P2PFA, (Bridging And Commercial), Rated: A

In August, former chief executive of the Financial Conduct Authority (FCA), Tracey McDermott, expressed concerns that the rapid growth of the P2P marketplace could leave some investors unaware of the risks.

However, Robert Pettigrew, director of the Peer-to-Peer Finance Association (P2PFA), insisted that this was not the case.

Louis Alexander, managing director of The Bridgecrowd, explained that the firm requires all new investors to complete a questionnaire which assesses their level of knowledgeability.

“We only select investors to join that have a suitable level of knowledge of loans, property and investing.”

LendingCrowd recommends that all investors seek independent financial advice before entering into any type of investment, including lending through LendingCrowd. Stuart Lunn, CEO of LendingCrowd, said: “…[We] recommend that investors diversify their investments as much as possible by lending to as many different borrowers as they can, to help reduce the impact of any losses on their portfolio.

European Union

France looks to crowdlending, (WindPower), Rated: A

There are four in France that focus on renewables: Lumo, Lendosphere, GreenChannel, and Enerfip. From 1 October developers will be able to borrow up to €2.5 million a year in certain cases, said Reid Feldman, a partner at the law firm Kramer Levin Naftalis & Frankel.

They see crowdlending as a way to involve local citizens. When people become involved in financing “their” project, it “allows them to take ownership and become an engine of development of the project, not a spectator”, a spokesperson for developer ABO Wind said.

Meanwhile, local authorities increasingly see crowdlending as “very important for good project development”, said Laura Verhaeghe, co-founder of Lendosphere said, which has raised nearly EUR6 million in 27 funding campaigns for wind projects.

There is a lot of energy in the sector,” Feldman added, while Thomas Verhaege of developer Innovent has high expectations. “We hope in future to be able to raise all the money from private investors,” he said.

Fellow Finance opened a new financing channel for SMEs, (Email), Rated: A

Fellow Finance Oyj is the largest crowdfunding service in the Northern Europe and the first one that offers both peer-to-peer-lending services to consumers and loan-based crowdfunding to companies. Fellow Finance has intermediated loans for over EUR 72 million and the service has 104,000 users from 35 countries.

Fellow Finance has opened a crowdfunding service intended for small and medium-sized companies.

Fellow Finance is the first platform in the Northern Europe that offers loan-based crowdfunding for both companies and consumers.

Australia

The growing popularity of peer-to-peer lending, (Switzer), Rated: A

Now, the banking community is taking notice of these emerging competitors in the lending sphere. As P2P lending moves towards bigger loan offerings, rather than offering small-dollar-amount personal loans, customer bases appear to be decreasing in the big banks. As more borrowers start to outsource their loan options from the big banks, the user-friendly and efficient lending and investing experience of P2P lending could emerge as the preferred option.

Banks and the stock market are, however, not entirely redundant. With the interest rate for a one-year term deposit sitting at 3.00% p.a. with Commonwealth and Westpac, the stability of these institutions seems to be reliable for investors.

So, will P2P lending’s most significant impact be not only how it changes the process of lending, but how it changes the banking industry?

Author:

George Popescu