- Today’s main news: Zopa’s securitization ; SoFi’s new life insurance product; New true lender decision in California.
- Today’s main analysis: 4 charts about emerging markets;
- Today’s thought-provoking : Ant Financial is worth more than Goldman Sachs. Are you paying attention yet ? ; Lemonade’s charity model to reduce fraud.
- SoFi is about to launch Life Insurance. Insurance companies typically have large funds from premiums payment under management waiting for payouts. I would expect that the insurance premiums may be the cheapest capital out there, if regulation accepts it, for lending. The reason why SoFi chose life insurance is likely because the policies have similar or longer maturity than the loans maturity.
- New True Lender case in California now supports the lender-bank partnership. It appears, at least to a nonattorney like myself, that there are now a few contradictory cases that may perhaps lead to a supreme court action, again.
- Lendio signs up new channel partner focused on minority and women-owned businesses.
- Most famous US P2P insurance company, Lemonade launched. Why is this interesting ? First, because SoFi may be the 2nd P2P insurance company in the US. Second because insurance premiums may be a great source of capital for lenders. And 3rd, and most interesting here, they will pay to charity any leftovers in each fund after payouts and the company takes its toll in an effort to reduce fraud. A very interesting approach, isn’t it ? Imagine if Prosper and Lending Club paid to charity any profit left after paying investors their due and taking a set fee that is proportional to the loan performance. Yes it will cap the upside to investors, but it may be able to, in fact, increase the return to investors from the (about) 7% to maybe 9% or higher.
- A short article about using bots in finance. An interesting read.
- And as we continue to think that retirement money may be a great source of capital for lenders, we can read about the implications of the, soon to be live, DOL fiduciary rule.
- MoneyLion, after the recent raise, launches in Malaysia. Why Malaysia ? Because they have an office there and it’s great to be king of a small kingdom than a sergeant in an empire.
- RealtyMogul updates us on their MogulREIT initial results.
- And a very interesting article on banking and money in the emerging markets. A must read as there are many misconceptions and rumors that should be disproved. I was very surprised that mobile accounts are much smaller than I thought.
- This week’s big news : Zopa’s 1st securitization. The short version : sole arranger and the lead manager is Deutsche Bank. And Fitch has conferred a landmark rating on the deal.
- And Moody’s detailed analysis of Zopa’s securitization. Also a very interesting read.
- A bar chain raised £500,000 within the first week on Crowdstacker. Interesting because approximately half the funds raised so far have been invested through the Innovative Finance ISA.
- LendInvest’s partnership with a real estate auction house is live.
- A survey of 5 of the Kiwi P2P companies. Interesting read. A great environment worth monitoring as a natural well-defined experiment who’s model can be used to understand bigger markets.
- SocietyOne is approaching $200m in lending for 2016. Funding grew 275% since end of June.
- Ant Financial apparently worth more than Goldman Sachs. Are you paying attention yet ?
- China’s big P2P lenders shrug off the new regulations. They have been apparently complying with it for a while. I wouldn’t be surprised if they were aware of the regulation long before the market.
- United States
- SoFi Plans to Offer Life Insurance by End of Year, (Bloomberg Technology), Rated: AAA
- New true lender case provides support for the bank partnership model, (Pepper Hamilton), Rated: AAA
- Lendio and Supplier Success Partner to Improve Access to Capital for Minorities, (PR Web), Rated: A
- P2P insurance startup Lemonade launches with charity pledge, (FinExtra), Rated: A
- American Express Adds Its Bot to the Party, (Bank Innovation), Rated: A
- DOL fiduciary rule to cost the securities industry $ 11 B by 2020: study, (Investment News), Rated: A
- Personal Finance App MoneyLion Launches in Malaysia, (Business Wire), Rated: A
- RealtyMogul.com Closes $ 8.2 Million in Multifamily and Retail Transactions, (Business Wire), Rated: A
- 4 charts on banks, mobile money and financial inclusion in emerging markets, (Tradestreaming), Rated: AAA
- United Kingdom
- Zopa readies £ 138 m debut securitisation, receives Aa3 rating, (AltFi News), Rated: AAA
- Moody’s assigns provisional ratings to Marketplace Lending ABS to be issued by Marketplace Originated Consumer Assets 2016-1, (Moody’s Investor Service), Rated: AAA
- Bar Chain BurningNight Group Secures Over £ 500,000 Within First Week on Crowdstacker, ( Crowdfund Insider), Rated: A
- Lendinvest announces industry first auction finance partnership is now live, ( Property Reporter), Rated: A
- NeEw Zealand
- New Zealand’s top five P2P lending platforms, (SMN Weekly), Rated: A
- Fintech lender aims to break $ 200 m barrier, (Australian Broker), Rated: AAA
- Jack Ma’s Finance Business May Be Worth More Than Goldman Sachs, (Bloomberg), Rated: AAA
- China big P2P lenders shrug off crackdown, (Morgans), Rated: A
SoFi Plans to Offer Life Insurance by End of Year, (Bloomberg Technology), Rated: AAA
The San Francisco company will soon start selling term life insurance to its base of mostly millennial customers, said people familiar with the matter. SoFi expects to roll out the product, which pays out a benefit if a customer dies during the period of time covered by the plan, before the end of the year or as soon as next month.
SoftBank Group Corp. led a $1 billion investment in the startup last year, valuing it at $4 billion, and it’s now seeking to sell an equity stake of about $500 million to help fund its rapid growth, people familiar with the matter said this month. Last year, the company issued $5 billion in loans and is on pace to double that this year, two of the people said.
SoFi could take a slice of the $159 billion in U.S. life insurance premium revenue generated last year, according to data from the National Association of Insurance Commissioners, a trade group.
People are more likely to purchase policies around certain life events, such as getting married, having children or buying a home, according to a study published last year by Deloitte LLP. SoFi may be well positioned to capitalize on that demographic thanks to its already sizable base of young customers.
Mike Cagney, SoFi’s chief executive officer, chairman, and co-founder, has said his goal is to eventually render banks obsolete.
New true lender case provides support for the bank partnership model, (Pepper Hamilton), Rated: AAA
On September 20, the U.S. District Court for the Central District of California dismissed a class action suit alleging illegally charged usurious interest rates on private student loans in violation of California law. Beechum v. Navient Solutions, Inc.
In doing so, the court rejected the plaintiff’s arguments that the defendants were the de facto “true lenders” of loans made by a national bank under a bank partnership with a non-bank partner.
The plaintiffs, in this case, obtained private student loans using loan applications that identified Stillwater National Bank and Trust Company, a national bank, as the “lender.”
The plaintiffs alleged that the “actual lenders” of the loans were the Student Loan Marketing Association (SLMA) or subsidiaries of the SML Corporation.
Under the agreement, SLMA would originate, underwrite, market and fund loans on which Stillwater would be identified as the lender and which SLMA would then purchase from Stillwater.
The court relied on two California appellate decisions in holding that courts “must look only at the face of a transaction when assessing whether it falls under a statutory exemption from the usury prohibition and not look to the intent of the parties.”
In looking “solely to the face of a transaction” in determining whether the subject loans were exempt from California’s usury prohibition, the court applied an objective standard that, unlike the highly subjective and fact-sensitive “true lender” line of reasoning, would result in consistent outcomes from one case to the next.
While this recent decision does not address the question of whether the claims were preempted by the National Bank Act, the case represents the latest “true lender” case, with a reasoned and measured approach to bank partnerships. In dismissing this case, the court rejected the idea of looking beyond the face of the transaction and into the intentions of the parties.
The Central District of California is the same court that, just three weeks prior, provided the decision in Consumer Financial Protection Bureau v. CashCall, Inc.Unlike the CashCall decision, the court did not use the “predominant economic interest” test for determining “true lender” status and acknowledged the negative effect on the secondary market of looking to the intentions of the parties instead of the transaction on its face.
Lendio and Supplier Success Partner to Improve Access to Capital for Minorities, (PR Web), Rated: A
Lendio, a marketplace for small business loans, today announced a partnership with Supplier Success, LLC, a Detroit-based company focused on providing working capital solutions, and on improving minority and women business owners’ access to capital.
Through this strategic partnership, Lendio and Supplier Success will provide minority and women business owners access to transparent lending rates and respectful business practices. Lendio recently reported facilitating more than $250 million in funding to more than 10,000 small businesses.
By joining forces with Supplier Success, we’re able to expand our capabilities to provide minority business owners easier access to financing,” said Brock Blake, CEO, and co-founder of Lendio.
P2P insurance startup Lemonade launches with charity pledge, (FinExtra), Rated: A
Lemonade raised $13 million in the biggest seed round of 2015 and, having secured a license as a full-stack insurance carrier by New York State, the firm is now inviting homeowners and renters to sign up online and through its app. Under the peer-to-peer model, Lemonade will ask customers to nominate a charity when they buy a policy.
Claims are paid out of these pools and any funds that are left at the end of the year go to the chosen charity. Policies start at $35 a month for homeowners and $5 for renters, with the entire process digitized, “replacing brokers and bureaucracy with bots and machine learning”. Lemonade takes a flat 20% fee and says that its model not only benefits charities but also customers and the company itself by reducing the incentive for fraud.
American Express Adds Its Bot to the Party, (Bank Innovation), Rated: A
When Facebook Messenger launched five (!) years ago this month, it was not immediately clear why or what it might do — messages already existed within Facebook, everyone was texting madly already, so why launch a whole new app?
A Forrester report in August warned banks off bots. Today’s bots are not ready for regulated industries that demand a certain level of user experience.
But the warning came too late — banks embraced bots, and a whole host of bots was wheeled out at Finovate. Perhaps most significantly, Kore (from the guys that brought you Kony) introduced its Smart Bot platform for banks to build their own bots. (In response to Kore’s demo a few fintech watchers at the show tweeted various versions of, “Uh oh.”)
DOL fiduciary rule to cost the securities industry $ 11 B by 2020: study, (Investment News), Rated: A
Implementing the Department of Labor’s new fiduciary rule for retirement accounts will cost the brokerage industry $11 billion in revenue over the next four years.
Hardest hit will be independent broker-dealers, who stand to lose $4 billion in revenue, or 22%, of the industry’s total, according to the study, which was released in August. IBDs are also expected to see a decline of $350 billion in client assets, or 11% of the industry’s total.
Personal Finance App MoneyLion Launches in Malaysia, (Business Wire), Rated: A
MoneyLion is headquartered in New York with offices in San Francisco and Kuala Lumpur, Malaysia.
MoneyLion’s free mobile app will help Malaysian consumers gain a 360-degree view of their finances through a suite of analytics tools that track spending and saving activity across multiple bank accounts.
RealtyMogul.com Closes $ 8.2 Million in Multifamily and Retail Transactions, (Business Wire), Rated: A
Following last month’s launch of MogulREIT I, RealtyMogul.com’s first crowdfunded real estate investment trust, the company announced today that it had closed five transactions in markets across the country. Four of the five deals were equity investments into multifamily properties, while the fifth marked the commercial real estate platform’s largest 1031-qualified transaction to date.
4 charts on banks, mobile money and financial inclusion in emerging markets, (Tradestreaming), Rated: AAA
Africa has long been touted as the continent whose specific geographical challenges and the widespread poverty of many of its inhabitants have enabled it to skip over traditional banking infrastructures into the waiting arms of cost-efficient fintech solutions.
The statistics, for those who are rooting for a cashless, bankless Africa, are encouraging. The following charts, sourced from a recent report on financial inclusion in emerging markets published by the institute of international finance, demonstrate that the economy is Africa is starting to pick up, along with mobile phone ownership.
According to an analysis from the Global Findex, 2.2 billion, or 95 percent, of the total 2.3 billion adults in low- and middle-income countries with a financial account held the account at a financial institution in 2014.
Moreover, contrary to popular belief, financial incumbents are major drivers of economic inclusion in developing countries.
Banks have a number of reasons aside from profitability to expand their activities in emerging markets, such as CSR and investment. Whatever the cause, the way forward for banks in developing countries will probably start with cellphones, smart or otherwise.
Zopa readies £ 138 m debut securitisation, receives Aa3 rating, (AltFi News), Rated: AAA
The first securitisation of loans issued by leading consumer lending platform Zopa – “Marketplace Originated Consumer Assets 2016-1 plc” (“Moca 2016-1”) – has been provisionally rated by Moody’s. The loans that make up the £138m portfolio were funded in the first instance by P2P Global Investments, the £870m investment trust.
Moody’s has assigned a rating of (P)Aa3 to the £114m senior tranche of Class A Notes. The Class B Notes, of which there are £7.5m, were rated (P)A2. The £7.5m of Class C Notes were assigned a rating of (P)Baa2. The £9m of Class D notes were rated (P)Ba3. There are also £12m of Class Z Notes which will not be rated. All Notes are due October 2024. Target Servicing Limited has been appointed as the back-up servicer of the portfolio.
We now learn that Fitch has conferred a landmark rating on the Zopa deal. Fitch rated the Class A Notes “AA-(EXP)”. This is the highest rating to have ever been assigned to a marketplace lending transaction by Fitch. There has been over $10bn in global securitisation issuance by the marketplace lending sector to date. Fitch declined to rate Funding Circle‘s SBOLT 2016-1 earlier this year.
This will be the UK marketplace lending sector’s second securitisation to date. Funding Circle’s SBOLT 2016-1, a £130m transaction, received an Aa3 rating from Moody’s in April. The Class A Notes, which were sold to KfW, came with a guarantee from the European Investment Fund attached.
Moody’s assigns provisional ratings to Marketplace Lending ABS to be issued by Marketplace Originated Consumer Assets 2016-1, (Moody’s Investor Service), Rated: AAA
The securitised portfolio as of 31 August 2016 consists of unsecured consumer loans to UK private borrowers. According to the borrower but not verified by the platform provider these loans are mainly used to finance cars (36.2%), for debt consolidation (34.0%) and for home improvements (22.3%). The portfolio consists of 27,137 contracts with a weighted average seasoning of 10 months and a maximum loan term of five years. Most borrowers are employed full-time (89.9%) and their average outstanding loan balance with Zopa is GBP 5,500.
According to Moody’s, the transaction benefits from: (i) a granular portfolio originated through the Zopa marketplace lending platform, (ii) a static structure that does not allow to buy additional receivables after closing, (iii) continuous portfolio amortization from day one, (iv) an independent cash manager and liquidity provided through two reserve funds, (v) an appointed back-up servicer at closing, and (vi) credit enhancement provided through subordination of the notes, reserve funds, and excess spread.
Moody’s notes that the transaction may be negatively impacted by: (i) misalignment of interest between the platform provider Zopa and investors who finance the loans, (ii) the fact that Zopa does not retain a direct economic interest in the securitized portfolio, (iii) the limited historical data that does not cover a full economic cycle, (iv) a higher fraud risk due to the online origination process, (v) an unrated servicer with limited financial strength, and (vi) the regulatory uncertainty due to the still developing regulation for the marketplace lending segment.
Moody’s determined the portfolio lifetime expected defaults of 7.0%, expected recoveries of 5% and Aaa portfolio credit enhancement (“PCE”) of 35.0% related to the loan portfolio. The expected defaults and recoveries capture our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody’s to calibrate its lognormal portfolio default distribution curve and to associate a probability with each potential future default scenario in the ABSROM cash flow model to rate Consumer ABS.
The principal methodology used in these ratings was “Moody’s Approach to Rating Consumer Loan-Backed ABS” published in September 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
In rating consumer loan ABS, default rate and recovery rate are two key inputs that determine the transaction cash flows in the cash flow model. Parameter sensitivities for this transaction have been tested in the following manner: Moody’s tested six scenarios derived from a combination of mean default rate: 7.0% (base case), 7.5% (base case + 0.5%), 8.0% (base case + 1.0%) and recovery rate: 5.0% (base case), 0% (base case – 5%).
Bar Chain BurningNight Group Secures Over £ 500,000 Within First Week on Crowdstacker, ( Crowdfund Insider), Rated: A
BurningNight Group, a city center bar chain, successfully raised over £500,000 within the first week of its crowdfunding campaign on UK’s peer-to-peer lending platform, Crowdstacker. The company is currently offering 7% p.a. interest to those investing in the £3.5 million raise.
According to Crowdstacker, approximately half the funds raised so far have been invested through the Innovative Finance ISA.
Lendinvest announces industry first auction finance partnership is now live, ( Property Reporter), Rated: A
Last month, the two firms announced their partnership as an industry first and will see LendInvest pre-qualify lots at LOT11 auctions which fall within the lender’s criteria. Lendinvest, the world’s first online lending business for the property, has announced today that details of the properties it has pre-qualified ahead of the next LOT11 auction are now live.
The partnership begins with LOT11’s quarterly auction on 27 September.
New Zealand’s top five P2P lending platforms, (SMN Weekly), Rated: A
HarmoneyCorp Ltd. (www.harmoney.co.nz) – Harmoney became the first FMA-licensed P2P lending platform in mid-2014. The platform has helped match borrowers and lenders for more than $307 million in loans.
Lending Crowd Ltd. (www.lendingcrowd.co.nz) – The platform can be used by either individuals or businesses. It was the fourth P2P lending platform to obtain a license in New Zealand.
Lendme Ltd. (www.lendme.co.nz) – LendMe, New Zealand’s second authorized P2P lender, got licensed in April 2015 and commenced operations just five months later.
Pledgeme Ltd. (www.pledgeme.co.nz) –PledgeMe is a platform that combines three different crowdfunding models in one place – project (aka reward), equity, and lending (aka P2P lending) crowdfunding.
Squirrel Money Ltd. (www.squirrelmoney.co.nz) – Squirrel Money is part of the Squirrel Group, which also provides mortgage brokerage services. The platform helps people borrow funds to finance everyday needs such as renovations or buying a car, or events such as marriage or starting a family. In August 2016, the platform launched New Zealand’s first P2P secondary market, which allows loans to be on-sold to other investors.
Fintech lender aims to break $ 200 m barrier, (Australian Broker), Rated: AAA
Marketplace lender SocietyOne believes 2016 will be a breakthrough year as it aims to push past $200m in lending.
According to the lender’s latest financial update, the first week of September saw it reach the $150m lending milestone, one year after it hit the $50m mark.
The lender has also announced a significant increase in its funding available for lending, up to $75m after sitting at $20 million on 30 June.
Jack Ma’s Finance Business May Be Worth More Than Goldman Sachs, (Bloomberg), Rated: AAA
Leung estimates that most of Ant Financial’s value is in Alipay, China’s most popular online payment service, with a projected worth of $50 billion. Its micro loans service is probably worth another $8 billion, while Ant’s wealth management unit is given a valuation of $7 billion. The rest of Ant Financial’s valuation comes from investments and cash on hand, outstripping Goldman’s roughly $70 billion market value as of Monday.
The company could grow to $100 billion in two years, as the current valuation doesn’t include growth brought in by insurance, credit scoring, and cloud computing, Leung said.
Ant Financial is considering an initial public offering in Hong Kong in the first half of next year, people familiar with the matter said last month.
China big P2P lenders shrug off crackdown, (Morgans), Rated: A
Regulators have unveiled a series of measures to head off signs of rising risks in its fast-growing P2P market, including borrowing limits and forcing P2P platforms to use third-party banks as custodians of investor funds. The regulator’s announcement knocked 22 per cent off the New York-listed shares of Chinese P2P lender Yirendai Ltd, while Chinese stocks fell to a two-week low, weighed by banking shares on concerns over the crackdown on riskier lending practices.
But many larger P2P companies including Lufax, Yirendai, PPDAI and Dianrong.com say they already comply with many of the new requirements, so could benefit from the restrictions.
The volume of P2P loans surged more than 20 times to 656.8 billion yuan ($US98.7 billion) at the end of July from just 30.9 billion yuan in January 2014, according to industry data provider Wangdaizhijia.
Nomura estimates that could reach 880 billion yuan by the end of 2016 and 1.5 trillion yuan by the end of 2018.
Several lenders already segregate investors’ funds into custodial accounts with banks to prevent fraud, while for companies like Lufax, a typical unsecured loan would be in the 100,000 yuan to 200,000 yuan range, below the government cap.