Wednesday April 19 2017, Daily News Digest

FinTech MENA

News Comments Today’s main news: SoFi raised new $105M fund.Landbay unveils March 2017 UK Rental Index.P2P-Banking launches IFISA comparison database.Personal loan applications surge in Australia. Today’s main analysis: Development of fintech in Hong Kong.Fintech startups in MENA raise $100M last decade. Today’s thought-provoking articles: OCC fintech plan uncertain as comptroller term expires.Goldman’s internal fintech revolution can’t […]

FinTech MENA

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United States

Online lender SoFi has a new $ 105 million fund for yield-hungry investors (CNBC), Rated: AAA

SoFi, the online lending start-up sporting a lofty $4.3 billion valuation, has just raised a $105 million fund to give outside investors another way to buy into the company’s loans.

In a regulatory filing Monday afternoon, SoFi Prime Income Fund is listed as the issuer of equity in a limited partnership. According to the filing, the fund has 33 investors that put in a minimum of $500,000 each.

Nino Fanlo, SoFi’s chief financial officer, said the fund is the first of its kind for SoFi and provides another avenue to raise capital for issuing loans. Returns after fees are expected to be in the low double digits, he said.

OCC Fintech Plan Faces Uncertainty as Comptroller Term Expires (Credit Union Times), Rated: AAA

As the term of Comptroller of the Currency Thomas Curry expires and with no replacement in sight, the OCC could be headed toward a showdown with Congress over the agency’s decision to issue special charters to fintech companies.

In March, the OCC published a draft supplement to its licensing manual, which contains existing regulations for chartering national banks.

And although Curry said the OCC will issue charters to fintech companies, his own future is in doubt. His term expired this month and President Trump has not nominated a replacement, although Joseph Otting, a former associate of Treasury Secretary Steven Mnuchin at OneWest Bank ,has been mentioned as a possible nominee.

Sens. Sherrod Brown (D-OH), ranking Democrat on the Senate Banking Committee and Jeff Merkley (D-OR) said earlier this year that authority to issue such charters must come from Congress.

Meanwhile, traditional banking and credit union trade groups are divided over the charter proposal.

Earlier this year, NAFCU said that the OCC must ensure that online lenders are subject to the same consumer protections and data standards as banks and credit unions.

The American Bankers Association has said it supports the concept of the OCC issuing fintech charters, but wanted it to ensure that companies meet the same standards as traditional banks.

For Goldman, the Fintech Revolution Can’t Come Soon Enough (NYT), Rated: A

Goldman Sachs’s internal technology revolution cannot come soon enough.

Goldman’s fledgling Main Street operation is a bright spot. With more than $115 billion in deposits, it’s already one of the top 25 banks in the United States by that measure. Marcus, as the online consumer-lending unit is called, is experiencing “demand more robust than we thought,” the unit’s boss, Harit Talwar, said recently.

Consumer lending can earn at least a 3 percent return on assets — triple what Goldman has been managing as a whole of late.

For now, lending through new web platforms remains a small industry, with just $40 billion of credit extended over a decade, according to Deloitte.

CREATING A BETTER TOMORROW (NYSE), Rated: A

Texas-based Elevate Credit (NYSE: ELVT), which recently held its IPO at the exchange, exists because of what it sees as an opportunity in the financial services market.

In between are working people, roughly 170 million residents of the U.S. and the U.K., whom Elevate refers to as “the New Middle Class.” These are people with low or no credit scores, who often have to resort to non-prime lenders in moments of personal or medical emergency.

Elevate offers three products. The first, called Rise, is an unsecured, online loan vehicle; Sunny is its U.K. counterpart, and Elastic is a line of credit issued by Kentucky-based Republic Bank, Member FDIC. While the company’s customers have credit scores typically in the 560 to 600 range, those with lower credit or no credit can also be approved, depending on what Elevate’s data analysis reveals about their reliability.

Elevate’s analytics platform, DORA, is home grown. It’s based on open-source software tools that enable model development and risk analytics. DORA inputs and outputs are monitored and evaluated to help ensure legal and regulatory compliance. Elevate’s IQ platform deploys business logic and algorithms. And driving the analytics and decision-making technology is the very human decision to create specific data sets, generated from sources that monitor non-prime customers.

The platforms draw on more than 10 different sources of consumer information, including the big three credit bureaus as well as other bureaus that specialize in non-prime customers. In addition, Elevate acquires data from LexisNexis, ID Analytics and other unique data sources to validate the applicant’s identity and to draw inferences about the applicant’s intent to repay. Elevate uses this data in ongoing tests to optimize its underwriting, to ensure that fraud and serious credit risks are more easily distinguished from acceptable risks.

In the last year, Elevate’s charge-off rates have remained steady, while its customer acquisition costs have dropped, says Rees.

Elevate also uses its nimble, data-driven underwriting model to reward its best customers. Borrowers who establish a history of on-time repayment, and who take advantage of online financial literacy tools and videos, will see their APRs drop over time. Currently, the most responsible Elevate customers pay APRs as low as 36 percent.

Is An OnDeck Acquisition On Deck? (PYMNTS), Rated: A

When OnDeck completed its IPO in 2009, it entered the public markets with a massive amount of buzz, ending the day with a share price north of $20 dollars and a valuation around $1.9 billion.

Two years out, and the banks’ lunch remains uneaten — because those alternative lenders like OnDeck have had a rather bumpy two years.  OnDeck’s share price is down 75 percent since its 2014 IPO — in the last 12 months the firm has shed 37 percent of its value.

Today OnDeck’s market cap stands at $330 million.

Marathon Partners Equity Management, LLC has owned 1.75 percent of OnDeck since the end of 2016 — and the activist investor is now pushing for a new direction, preferably one that involves a sale.

That letter apparently did not get quiet enough of a reaction from the board — OnDeck’s official response was that they “value dialog with their shareholders,” and so as of the end of last week, the campaign ramped up.

Whether or not very drastic changes are coming soon to OnDeck remains to be seen — the annual meeting for shareholders will likely be spirited.

Not Everyone Is Happy About Latest Fintech Charter Proposal (Corporate Counsel), Rated: A

Public comments are now available from companies, regulators, advocacy groups and individuals weighing in on the Office of the Comptroller of the Currency’s licensing manual draft supplement for special purpose national bank charters.

The OCC received only 17 total comments on its March 15 supplement for evaluating bank charter applications from financial technology companies, far from the 120 it received on the broader whitepaper Exploring Special Purpose National Bank Charters for Fintech Companies, which introduced the idea of the OCC granting fintech companies these bank charters back in December 2016.

“While many states have made admirable efforts to align their regulations with technological innovation, state laws by and large were drafted for a physical branch banking environment that did not envision online delivery of financial services,” wrote Robert Lavet, general counsel of San Francisco-based personal finance company Social Finance, or SoFi, in his comments to the OCC.

In her comments, personal lending company Oportun Inc.’s chief compliance officer Joan Aristei voiced no concerns with the financial inclusion standards. She wrote the guidance on this type of plan will “inform our discussions regarding how we can modify and enhance the efforts we have already undertaken,” adding that she “appreciates the OCC’s willingness to innovate and look beyond traditional measures of financial inclusion.”

New York State Department of Financial Services superintendent Maria Vullo called the OCC’s proposal for fintech charters a “hasty and misguided effort.” She said that regulation for the financial technology providers is better left to the states, not the OCC.

The Tax Implications of Real Estate Crowdfunding (Alpha Flow), Rated: A

The first thing to understand is that an equity investor in a syndication is actually a partner in partnership. Investments in syndications will generally be considered “passive” activities.

When combining all passive activities, if the investor has a net passive loss, then the remaining net loss is effectively “suspended” whereby they are carried forward to future years and subject again to the passive activity rules. If an investor has passive income then that is taxed at the taxpayer’s marginal tax rate.

In the subsequent tax year, any passive losses that carried over can offset passive income that is generated.

Crowdfunding syndications offer one additional special tax advantage and that is favorable long-term capital gains rates. When a property (apartment building, retail center, etc.) is acquired through a syndication and is held for longer than one year, the sale of the property would typically result in long-term capital gains. These gains are taxed at a rate of 15% (with certain exceptions). Any depreciation that was deducted on the property would be subject to tax rates not to exceed 25%.

MortgageHippo raises $ 2.25M to help lenders give you a mortgage online (Chicago Tribune), Rated: A

MortgageHippo, a mortgage-technology startup based in Chicago, has raised about $2.25 million in seed funding, the company announced Tuesday.

CMFG Ventures, based in Madison, Wis., led the $1.5 million round that closed last week, Saportas said. CMFG is the venture capital arm of CUNA Mutual Group, which sells insurance and investment products to credit unions. The investment closed MortgageHippo’s seed funding.

Inside Bond Street’s content marketing strategy (Tearsheet), Rated: A

Jones said the company is “passionate about building a brand,” which it does by creating editorial content. It has a blog that profiles business owners Bond Street serves across the country, like the guys behind the Two Hands cafes and restaurants or the women that launched Sky Ting Yoga in New York City; and an online magazine that looks at the cultural and economic impact of independent businesses in New York (celebrity restaurateur Daniel Boulud and artist Baron von Fancy are among many interviews that address the importance of supporting local businesses). It also has a podcast called the Nitty Gritty that features the entrepreneurs behind brands like Sweetgreen, charity:water, McNally Jackson and Smitten Ice Cream; and a series of city-specific resources for female entrepreneurs.

Jones declined to share Bond Street’s annual content marketing budget, but said the company has two dedicated employees working on content marketing, out of about 40 total employees.

Marketing has become expensive for online lenders because of the high cost of customer acquisition. Partnerships are an easy way to bring that cost down, Benton said. To date, Bond Street has partnered with WeWork to offer loans to member companies of the co-working space company; SMB-focused software companies like Booker and Front Desk to offer their clients discounted loans; and most recently, with NerdWallet, the comparison shopping site for credit cards and other financial services, to help provide small business owners with financing options.

Payix and Nortridge Software Announce Strategic Alliance (BusinessWire), Rated: B

Payix® and Nortridge Software announce they have formed a strategic alliance to help lenders connect with their borrowers and improve their ability to collect payments. The alliance allows Payix to offer real-time integration between its suite of collections tools and the Nortridge Loan System (NLS).

Payix’s collections tools include its intuitive, engaging and affordable mobile collections application, as well as web, interactive voice response (IVR), text, and collector portal applications. Nortridge clients can add the Payix solutions to their existing collections tools with virtually no IT work on their part and in just a few weeks’ time.

The Nortridge and Payix teams collaborated in the development of the seamless web services interface between the Nortridge Loan System and the Payix payment system, ensuring that transactions could be carried out in real-time and without interruption.

Payix’s collections tools are white-labelled to help lenders promote their own brands with their borrowers, and they were specifically designed for any size lender to use easily and affordably.

China Rapid Finance will be the Fifth Online Lender to IPO in the US (Lend Academy), Rated: B

In late March, 2017 we learned that Chinese online lender China Rapid Finance filed to go public, hoping to raise up to $100 million. They will list on the New York Stock Exchange under the ticker symbol XRF and will be the second Chinese online lender to go public in the United States.

Milbank Advises FinTech Lending Company College Ave Student Loans in Its $ 30 Million Capital Raise (Milbank), Rated: B

Milbank, Tweed, Hadley & McCloy LLP advised College Ave Student Loans on a $30 million capital raise.

The Milbank team was led by Corporate partner Roland Hlawaty with Corporate associate Joanne Luckey.

$ 3M Raised for Clarendon Park Apartments in Phoenix Through RealtyShares (Yahoo! Finance), Rated: B

RealtyShares, a leading online marketplace for real estate investing, today announced that its network of accredited investors has collectively funded a $3 million investment for the acquisition of Clarendon Park Apartments, a 138-unit multifamily property in Phoenix, Ariz.

The deal is sponsored by Rincon Partners, an Arizona-based owner and operator of multifamily properties focused primarily on the Southwestern United States. Rincon Partners intends to use the funds to rehabilitate and modernize the apartment interiors and amenities to potentially improve its position within the market.

The property is located in midtown Phoenix, between the city’s two largest employment corridors and close to shops, restaurants and newly developed amenities. The property itself features a swimming pool, spa, clubhouse and fitness center, as well as access to light rail within two blocks.

United Kingdom

Landbay Unveils March 2017 UK Rental Index (Crowdfund Insider), Rated: AAA

Last week, UK-based peer-to-peer lending platform Landbay released the March 2017 Rental Index. This report reveals details about the country’s rental market.

“Since March 2016, average rents in the UK have risen by 0.9% to £1,191. In England, rents were up 0.87% to £1,222; in Northern Ireland, they rose by 0.07% to £557; meanwhile in Scotland rents rose to £723 following annual growth of 1.25% and in Wales, the average rent is up 1.41% to £636. Average rents for one, two and three-bed properties hit £1,012, £1,152 and £1,321 respectively in March 2017.”

P2P-Banking Launches Database to Enable Investors to Compare IFISA Providers Easily (P2P-Banking), Rated: AAA

P2P-Banking launches a new IFISA database, that enables investors an easy comparison of offers by IFISA providers. UK taxpayers can invest up to 20,000 GBP per year tax-free in ISAs. This amount is per tax year, so a person could invest 20,000 GBP this tax year and invest 20,000 GBP in a different ISA next year. The Innovative Finance ISA, short IFISA, was introduced in 2016 with most offers becoming approved by HRMC only in the 2017/2018 tax year.

The new database of IFISA offers allows speedy selection and sorting to review IFISA products by different providers and then links to the provider’s website for in detail information. Investors can filter by interest rate, term, loan type, minimum investment amount, possibility of transfers in and out, flexible IFISA, bonus & cashback promotions and several other criteria.

Fintech synergy as challenger bank teams up with robo advice app (AltFi), Rated: A

Starling Bank is partnering with app-based wealth manager Moneybox for real-time savings.

Moneybox’s savings and investment services will be now offered by digital-only bank Starling to enable customers to easily open ISAs and round up their spending in real time.

The service will be available to Starling customers as early as the end of April.

The new service is made possible through Starling’s open APIs. The integration has two distinct features. Firstly, it allows customer data to be securely shared between the two apps, meaning transactions will appear within the Moneybox app in real time as customers spend.

Secondly, the integration with Starling means that customers will be able to set up round ups from their Starling account in a matter of seconds.

Starling Bank publicly launched its API and developer platform to enable external developers and technology companies to integrate with the banking app earlier in April, and Moneybox is the first to launch a live integration on this API.

CEO Stephen Findlay Comments on BondMason’s New SIPP Service (Crowdfund Insider), Rated: A

In response to growing demand from investors in search of better investment returns for their pensions, UK P2P service provider BondMason has launched a new Self-Invested Personal Pension (SIPP) service.

The new SIPP service offers a flexible, tax-efficient way to save for retirement and allows investors to access returns from a diverse set of approved P2P Lending opportunities. Investors can open with a lump sum from £5,000 and there is no tie-in – an investor can typically exit in full within 48 hours. The service also aims to allow SIPP administrators to easily and compliantly grant their clients access to returns from P2P Lending.

Social P2P venture hindered by wholesale crackdown (P2P Finance News), Rated: A

THE FOUNDER of ThinCats has said that the regulator’s clampdown on wholesale lending will affect projects that can be funded through his social peer-to-peer lending platform Community Chest.

Kevin Caley (pictured) launched the social enterprise last year and it funded its first loan in February 2017 for £130,000. The debt facility went to a local Birmingham finance company called ART Business Loans, which supports West Midlands enterprises.

But Caley says the Financial Conduct Authority (FCA)’s tighter restrictions on wholesale lending mean that loans like these will no longer be possible, as the money was lent to another lender.

ClearBank: a MSFT Azure B2B Fintech (Daily Fintech), Rated: A

A well kept secret of the UK B2B banking sector, is now public. Clear Bank, a clearing Bank in the UK, is ready to compete with the four UK clearing banks,

  • Barclays
  • HSBC
  • Lloyds
  • Royal Bank of Scotland (RBS).

Clear Bank is the fifth UK clearing bank and the only one that is pure B2B since it does not offer services direct to the consumer.

Back in the 60s there were 16 clearing banks in the UK. Consolidation in this part of transactional banking has left the UK currently with 4 clearing banks that process over 80 Trillion pounds annually worth of payments in the UK.

Clear Bank will be helping Challenger banks to access the payment system at the Bank of England level, at the same level as incumbents.

Clear Bank will help the 44 UK Building societies offer current account services in a cost effective way. Right now, only 2 out of the 44 offer such capabilities to their members due to prohibitive costs.

Clear Bank will boost indirectly retail banking by reducing the substantially processing costs, which will facilitate competition for incumbents in the UK.

Clear Bank will help Fintechs by providing Banking as a service through the Cloud at a very low cost. Clear Bank will be offering an API so that Fintechs can interconnect to the ClearBank Fabric.

UK Firms VC Funding Holds Steady Despite Brexit (PYMNTS), Rated: A

According to Venture Beat, U.K.-based startups raised $1.04 billion in venture capital (VC) during the first three months of 2017. That’s a slight decrease from the $1.17 billion raised during same period one year ago, but it’s above the amounts raised in each of the last three quarters.

The U.K. remains number one in Europe for VC raised, with Germany second at $779 million and France third at $665 million.

Peer-to-peer lending service Funding Circle helped push the U.K. into the number one spot, raising $97 million in VC funding and $43 million in debt funding during the first three months of 2017.

Which fintech stocks does Neil Woodford own? (The Motley Fool), Rated: A

The fintech — financial technology — sector has emerged rapidly over the last decade. The Confederation of British Industry expects it to be worth £300bn in the UK alone by 2020.

Given Neil Woodford’s long-prevailing dislike of the big banks, it’s perhaps not surprising that he’s attracted by the relatively simple business models and exciting investment opportunities in the fintech sector.

Woodford is invested in some unquoted fintech companies, such as RateSetter, a peer-to-peer lending platform, and Seedrs, which opens up venture capitalism “to anyone with an internet connection”. However, he also has two holdings that are listed on the stock market — and very interesting they are too.

P2P Global Investments (LSE: P2P) is a FTSE 250 firm with a market cap of around £700m.

VPC Specialty Lending Investments (LSE: VSL) is in the FTSE SmallCap index but is a decent-sized company with a market cap of around £290m. Its business is similar to P2P’s and like the FTSE 250 firm, considerable quantities of cash flow into shareholders’ pockets.

George Banco appoints RateSetter co-founder to board (Loantalk), Rated: A

Guarantor lender George Banco has appointed the co-founder of peer-to-peer platform RateSetter as a non-executive director.

Peter Behrens (pictured above) – who also serves as the chief operating officer at RateSetter – co-founded the platform in 2010, and has seen more than £1.8bn of loans facilitated through the company in this time.

Alternative funding options come into focus (Works Management), Rated: B

Alternative funding options will be a major theme at Business, Innovation, Technology and Efficiency (BITE) 2017 hosted by MHA Carpenter Box at the Amex Stadium, Brighton on Thursday 27 April.

Andy Davis (pictured), former editor of FT Weekend and author of the ‘Beyond the Banks’ report on alternative finance, will be one of the industry experts forming an ‘alternative funding panel’ at the free one-day conference, where he will share his expertise with local business leaders.

European Union

Why EU Passporting Is Vital For Britain’s Fintech Firms (Forbes), Rated: AAA

The impact on fintech could be significant, as an Emerging Payments Association (EPA) report Passport to the Future makes clear: “HM Treasury estimates the UK fintech market employs 60,000 people and is worth £6bn to the UK economy. Fintech is part of the UK’s financial services sector that employs 1.9 million people and contributes 10 per cent of the UK’s GDP. Payments represents over 40 per cent of financial services in revenue terms and in 2016, 40 per cent of all fintech investments were in payments companies, amounting to £10bn globally.”

In a recent survey of its members, the EPA found that 88 per cent of its members think that passporting rights are important or very important to their current businesses, while over 91 per cent think passporting is important or very important to the UK’s fintech sector and its continued growth.

As the EPA’s report states: “This could see the flight of some or part of the 5,500 licensed companies abroad and have a significantly negative impact on the UK economy.”

Alfa Finance Launches New P2P Lender DoFinance (Crowdfund Insider), Rated: A

Latvia based Alfa Finance Group has launched a new peer to peer lending platform named DoFinance.  The company stated it had invested €2 million to get the P2P lender up and running. The online lender is said to be available in all EU and EEA countries.

International

Simplex Partners with Beacon – Risk Magazine’s FinTech Start-Up of the Year (BusinessWire), Rated: A

Simplex Inc., one of Asia’s leading financial services technology firms, announced a strategic partnership with Risk Magazine’s FinTech start-up of the year, Beacon Platform, Inc.

The partnership combines Simplex’s expertise in implementing trading and risk management solutions with Beacon’s experience in building cross-asset trading and risk management platforms for industry leaders including Goldman Sachs, JP Morgan and Bank of America Merrill Lynch.

Australia

Personal loan applications surge as credit cards wane (The Sydney Morning Herald), Rated: AAA

Australians are shunning high interest credit cards and turning to personal loans for large purchases.

Driving the switch are tech-savvy consumers taking up loans from peer-to-peer (P2P) lenders, a new breed of online competitors to banks.

Credit card applications fell by almost 4 per cent in the March 2017 quarter compared with the same quarter last year, the latest report on consumer credit by credit bureau Equifax shows. That’s the biggest fall since September 2012 quarter.

Reserve Bank figures suggest that more frequent but lower value transactions are being made on credit cards.

One P2P lender is showing an interest rate on its website of 10.3 per cent on a $10,000 unsecured personal loan paid back over three years.

Banks would typically charge 13.02 per cent for a loan on the same terms, while credit cards are higher still – typically 14.15 per cent for a non-rewards credit card and 19.6 per cent for a rewards card, plus annual fees.

China

Development of Financial Technologies (Legislative Council Panel on Fiancial Affairs), Rated: AAA

This paper provides an update on the local financial technologies (Fintech) landscape and measures to support the development of the industry.

The number of Fintech start-ups operating in co-working spaces and incubator/accelerator programmes in Hong Kong increased by 60% between August 2015 (86) and August 2016 (138), according to Invest Hong Kong (InvestHK)’s Start-up Profiling Survey.

Hong Kong attracted about US$400 million of venture capital (VC) investment in Fintech companies during 2014-2016, lower than the Mainland and India (both of which are economies with huge domestic markets) but ahead of regional peers such as Australia, Japan and Singapore1 .

Universities such as The Chinese University of Hong Kong and The Hong Kong Polytechnic University will launch dedicated, publicly-funded firstyear first-degree and senior year programmes in Fintech starting from the 2017/18 academic year. Moreover, The University of Hong Kong’s School of Professional and Continuing Education has been offering a part-time, four-month programme, Executive Certificate in Internet Finance.

For payment services, the general public is increasingly receptive to new products and services, as Stored Value Facility (SVF) operators are launching new services while banks are rolling out new payment services (such as a note-issuing bank’s mobile App which enables cross-bank P2P fund transfer through mobile messaging). Building on the momentum from the introduction and development of various new payment channels in the market, the Government will strive to provide more convenient means for settling government bills and fees, such as making on-line credit card payment through digital wallets in mobile phones. HKMA will also work with the Government to explore with the industry ways of improving the payment infrastructure (such as introducing the Faster Payment System in 2018) and encouraging more standardisation in payment applications across various services providers, including the use of QR codes in streamlining the payment process, and facilitating the development of new electronic and mobile payment channels by the Government for various government services.

Read the full report here.

Alibaba’s Ant Financial Increases Bid for MoneyGram (Crowdfund Insider), Rated: A

Dallas based MoneyGram (NASDAQ:MGI), a global provider of money transfer services, has become quite popular. This past January, Alibaba’s Ant Financial subsidiary announced it had offered the firm $13.25 per share to acquire the company. The two companies had entered into a definitive agreement to merge.  Today, it appears that agreement was not quite as definitive as thought as Ant Financial has now increased the share offer to $18/share.

Last night, MoneyGram and Ant Financial announced they had updated the agreement in an effort to fend off a competing bid by Kansas based Euronet Worldwide.

Dianrong Announces New Financial Leadership Appointments (Crowdfund Insider), Rated: B

Chinese peer-to-peer lending platform, Dianrong, announced on Tuesday the following financial leadership changes, effective immediately: Xuxia Kuang, the lender’s CFO, has been named COO. Yawen Cui has joined Dianrong as the new CFO. Kuang and Cui will report to Dianrong founder and CEO Soul Htite.

MENA

‘Fintech startups in Middle East, North Africa raised $ 100m last decade’ (Venture Burn), Rated: AAA

Fintech startups in the Middle East and North Africa have raised $100-million over the last decade, yet 28% fail in their initial years, says a new report by business support organisation Wamda and online payment gateway Payfort.

The region was home to 105 fintech startups by the end of 2015 (see featured image), with half of these having been launched since 2012. In all 30 firms are situated in North Africa. The UAE leads with 30 fintech startups, followed by Egypt with 17 and Jordan and Lebanon with 15 each.

Just 10% of fintech startups in the region account for 43% of investments and employ 55% of the 1600 employees in the sector.

Africa

How to make sure your crowdfunding campaign is successful (Destiny Man), Rated: AAA

“The vast majority of the South African market activity – $13,8m – came from peer-to-peer consumer and business lending, with the remaining $1.2 million spread across microfinance, donation-based and reward-based crowdfunding,” according to a report published by the Cambridge Centre for Alternative Funding.

In order to reap the benefits of crowdfunding, it’s important to launch a great campaign. Patrick Schofield, CEO and founder of Thundafund, a crowdfunding platform that has helped several companies start or expand, says there are several things you can do to increase the chances of success for your business.

“Spend as much time on pre-campaigning planning as you would on your actual campaign. If you’re thinking of [running a campaign] for up to 45 days spend, 45 five days getting your ducks in a row,” he says.

Approaching journalists and key influencers will get you enough people who can make noise about what you’re doing.

‘Crowdfunding is the future’(Times Live), Rated: A

In an alternative funding benchmarking report by the UK’s Cambridge Centre for Alternative Finance, published last month, South Africa was identified as the potential leader in the growth of online and peer-to-peer lending models in Africa.

In 2015 South Africa represented 18% of the total African online alternative finance market, raising more than $15-million. Kenya was the only African country ahead of it, with $16.7-million raised. South Africa’s online alternative finance market focused more on business activity and less on charitable causes.

Local IT firm Khonology has partnered with the UK’s White Label Crowdfunding to develop bespoke crowdfunding platforms for entrepreneurs here.

Authors:

George Popescu
Allen Taylor

Monday March 27 2017, Daily News Digest

marlette funding

News Comments Today’s main news: CFPB fines Experian $3M. Marlette Funding closes $333M securitization. EU considers passporting for fintechs. CreditMonk makes user reviews relevant for SMBs. Today’s main analysis: Recent securitizations. MFT 2017-1. Today’s thought-provoking articles: RateSetter provides update on wholesale lending. China the new leader in fintech worldwide. IT Consortium CEO calls for reg postponement on fintech. United States CFPB […]

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United States

CFPB fines Experian $ 3 million for lying about consumers’ credit scores (Housingwire), Rated: AAA

Experian, one of the nation’s three major credit reporting bureaus, misled consumers by telling them that the credit scores they purchased from the company were the same ones that lenders used to make credit decisions, the Consumer Financial Protection Bureau said Thursday.

And for that deception, the CFPB is fining Experian $3 million.

According to the CFPB, Experian developed its own proprietary credit scoring model, which it calls the “PLUS Score.” Experian then took that “PLUS Score” and applied it to information in consumer credit files to generate a credit score it offered directly to consumers.

Experian then marketed and sold the PLUS Score to consumers.

According to the CFPB, Experian violated Dodd-Frank from at least 2012 through 2014 by “falsely representing that the credit scores it marketed and provided to consumers were the same scores lenders use to make credit decisions.”

Additionally, the CFPB said that Experian also violated the Fair Credit Reporting Act, which requires a credit reporting company to provide a free credit report to consumers once every twelve months.

Until March 2014, consumers getting their annual report through Experian had to view Experian advertisements before they got to the report. This violates the Fair Credit Reporting Act prohibition of such advertising tactics, the CFPB said.

Marlette Funding Closes $ 333 Million Securitization Transaction (Yahoo! Finance), Rated: AAA

Marlette Funding, LLC, a provider of online consumer lending platforms and services, announced today it closed its second proprietary “MFT” securitization. Approximately $333 million of Best Egg collateral was financed via three classes of Notes and one class of Certificates with certain loan sellers retaining risk on a portion of the Notes and/or Certificates.

The transaction was significantly oversubscribed and successfully priced which was based upon Marlette’s differentiated product offering and superior credit trends. Underwriting the transaction were Goldman Sachs, who served as the structuring agent, Deutsche Bank and Citi. The Class A, B and C fixed-rate Notes were rated A (sf), BBB (sf) and BB (sf), respectively, by Kroll Bond Rating Agency (KBRA).

The “MFT” securitization is yet another significant milestone for the company, and a cornerstone of its long-term capital strategy. The transaction involved the sale of loans by Marlette and four other whole loan buyers who accessed the securitization markets via Marlette’s effective creation and management of the MFT shelf. The transaction was also notable for complying with the Dodd-Frank Act’s risk-retention requirement by utilizing a jointly sponsored entity comprised of Marlette and the originating bank, Cross River Bank.

Recent Securitizations (Orchard Platform), Rated: AAA

Data extracted from Finsight’s US ABS Market Overview.

Marlette Funding Trust 2017-1 (MFT 2017-1), (PeerIQ), Rated: AAA

Financing headlines dominated the news cycle this past week. OnDeck, an SME lender, amended its asset-backed revolving credit facility with Deutsche Bank to extend the facility’s maturity date to March 2019 and increase the borrowing capacity to $214 Mn. Further, Fundation, a leading credit solutions provider for small business, secured an asset backed credit facility from MidCap Financial.

Marlette has a strong capital market team led by ex-DB banker Karan Mehta and uses securitization as a funding channel. Citi Held for Asset Issuance 2016-MF1 (CHAI 2016-MF1), closed on March 4, 2016, was the first deal from the Marlette Platform which executed in challenging market conditions; Marlette Funding Trust 2016-1 (MFT 2016-1), closed on August 2, 2016, and was the second deal and first under the MFT shelf. MFT 2017-1, backed by $333 Mn of consumer loans, represents its third and the largest ABS transaction (Exhibit 1), led by Goldman Sachs, Deutsche Bank and Citigroup. Due to high demand, MFT 2017-1 was upsized by 18%, from $257 Mn to $304 Mn before pricing last Friday.

In a sign that regulatory uncertainty continues, the Marlette transaction did not include any loans from Colorado. Most recently, in February, Colorado state regulators filed a complaint against Marlette and demanded various remedial actions including refunding any excess charges to Colorado residents. Originators relying on the partner-funding bank model to impacted markets (such as NY, CT, VT) are structuring transactions to mitigate regulatory risk. 

Source: PeerIQ, Bloomberg, Kroll Rating

Besides credit supports, senior tranche investors have additional structural protection in the form of cumulative net loss rate triggers, which lead to accelerated repayment of principal in the event of worse-than expected collateral performance.

Such CNL trigger profiles represent the first order approximation of loss timing curve. If the CNL triggers are set too tight, the triggers have elevated risk of being breached, leading to reputational hazard to the issuer; if too wide, the original bond rating may be challenged and the senior bond holders may not receive the structural protection they expected.

 

Honeymoon’s Over for Peer-to-Peer Lending (Bloomberg), Rated: A

If they were, perhaps Promise Financial would still be making loans to finance wedding dresses and cakes and bad DJ’s. This relatively young firm was offering to make unsecured loans of around $10,000, typically for weddings, and charged interest rates that went up to nearly 30 percent.

But it stopped making loans at the end of January, according to a Bloomberg News article on Friday by Matt Scully. Instead, it’s changed its name to DigiFi and will provide technology to bigger banks.

And second, it makes more sense for many smaller online lenders to team up with larger financial operations rather than try to go it alone in an unforgiving and complex world.

This is yet another sign of the slow abandonment of the original vision of peer-to-peer lending in the U.S., where individuals lend to one another in a decentralized, Internet-based platform. The largest online lending firms, such as LendingClub and Prosper Marketplace, finance loans through securitizations, money from institutional investors and banking relationships. Promise, for example, raised around $100 million of funding agreements from investors including Greg Lippmann, a legendary mortgage-debt trader.

Does Marketplace Lending Offer Greater Transparency for Your Investment? (NREI Online), Rated: A

Companies that do the bulk of their business online are in many ways more accessible than traditional brick-and-mortar establishments, and that’s particularly true when it comes to marketplace lending.

Marketplace lending, also known as peer-to-peer lending, refers to the practice of matching borrowers and investors through online platforms. These transactions can be based on a number of consumer- or industry-driven needs—anything from student loans to commercial real estate deals. Taking advantage of advanced technology, data-driven algorithms and innovative credit models, these platforms may frequently better serve their client base. They have broad options in terms of asset class and geography, quick response times and lower overhead costs, which can translate to an overall better value for both borrower and investor.

Digital technologies provide greater transparency and actionable intelligence to the marketplace, allowing investors to better understand loan performance and, in many cases, to research potential loan transactions directly and thoroughly from the convenience of their desktop or mobile device.

Digital technologies also allow for better consistency of reporting standards, loan origination data and portfolio performance, which leads to better decision-making by investors.

These digital technologies enhance the speed and efficiency of a transaction, many times providing real-time data afforded by the ability to better monitor information associated with a particular deal.

Alt-Lending Reshuffles, Auto Loan Alarm Bells And HHGregg Goes Bust (PYMNTS.com), Rated: A

Alt lending, particularly marketplace lending, looks like it is about to become a much smaller neighborhood. The auto-lending market continues to kill canaries in those coal mines at an alarming rate. And the retail death cycle mows on with HHGregg officially declaring bankruptcy and Sears more or less admitting to its shareholders that the same fate may soon befall them.

All in all, Prosper lost $118.7 million last year, up from $26 million in 2015. According to the in-house explanation, those losses are primarily derived from lower loan volumes, higher costs that are also attributed to legal settlements and restructuring efforts.

And Prosper isn’t alone in losing money in marketplace lending — OnDeck reported $85.5 million in annual losses for 2016, and LendingClub is looking at $146 million.

The latest data out of Ally Financial indicates that growth in the auto lending segment will come in between 5 percent and 15 percent of adjusted earnings in 2017.

The National Automobile Dealers Association indicates that its used-car price index has dropped 8 percent from a year ago and now sits at its lowest level in seven years.

Back on March 6, HHGregg filed for Chapter 11 bankruptcy, and, without a buyer in line, it has no choice but to move forward with the filing.

Competing with fintech on business loans isn’t rocket science (American Banker), Rated: A

If you’re a business, applying for a loan from a bank is not a fun experience. For most borrowers, it’s as bad today as it was 20 years ago. Banks in 1997 required borrowers to meet in person with a banker. They asked for piles of paper documents like tax returns and articles of incorporation. They took their time getting back to the business with an answer. And all of that’s true in 2017.

One reason is that fintechs are figuring out ways to win on their own or with large partner banks. These firms give business borrowers a world-class user experience: Websites are beautiful, minimal data is required to start and a loan request can be answered immediately. Fintechs will continue to get better and better, and borrowers will end up pursuing the path where it is easier to borrow. After all, business owners are consumed on a daily basis with simply running their business; in many cases, they’d rather pay a higher interest rate than spend scarce time on a lengthy process with an unsure outcome.

The other reason banks need to respond now is that business lending innovation is within reach. Here are a few obvious opportunities.

  • Put your application online
  • Allow your borrowers to upload required documents
  • Eliminate the paper
  • Publish your criteria and your process
  • Create a fast lane
  • Communicate with your borrowers

BlackRock and Vanguard call for delay to fiduciary rule (Financial Times), Rated: A

BlackRock and Vanguard have called on US officials to delay the introduction of landmark rules set to govern America’s $16tn retirement industry just weeks after President Donald Trump ordered a review of the controversial measures.

Mr Trump ordered the DoL to revise or scrap the rule, which the Obama administration predicted would generate $17bn annually in cost savings for American workers and retirees, if it found the measures would limit savers’ access to financial advice or increase litigation against advisers.

The new regime is expected to lead to a rise in financial advisers recommending cheaper passive funds over expensive actively managed products that pay a commission. BlackRock and Vanguard, which have large passive fund ranges, were expected to be among the winners of the measures.

Fifth Third invests in 5-year network upgrade as part of $ 112M contract (American Banker), Rated: A

Fifth Third Bancorp has made a major investment in its electronic network as part of an effort to modernize its branches and partner with fintech firms.

The Cincinnati company discussed the five-year project to upgrade its network Thursday at American Banker’s Retail Banking 2017 conference in Miami. Part of a $112 million renewal of a preexisting contract, the upgrades will allow customer videoconferencing with remote experts, Wi-Fi inside branches, distance learning and real-time data feeds to fintech partners.

Fifth Third has already begun piloting self-service video kiosks in its branches. People tend to be intimidated at first, but once they use a video teller they become comfortable, said Jerry Frederick, chief infrastructure officer at Fifth Third. Wi-Fi in the branches is allowing staffers to help customers using computer tablets.

Important Fintech Terms to Help You Understand the Fintech Industry (TechBullion), Rated: A

According to a report by PwC, the cumulative investments in the fintech sector will exceed $150 billion by 2019. The report also notes that 20 percent of financial services businesses will be taken over by fintech startups by 2020. Here are 10 important terms to help you understand the industry.

Payment Gateway refers to a service provider authorizing credit card payments. It acts as an intermediary between an online payment portal and a financial institution such as a bank.

Coined by the UK Financial Conduct Authority (FCA), RegTech is a combination of two terms; regulation and technology. It refers to the systemic changes taking place in the fintech industry where traditional regulation would not be effective. RegTech makes use of blockchain, big data, cloud technology and artificial intelligence making it a fast and effective method.

KYC is the acronym for “Know Your Customer.” The phrase is widely used in the fintech and financial services sector as a whole. It refers to the procedures that companies should use in identifying their customers and determining the legality of their transactions. The object of KYC procedures is to combat money laundering.

P2P Lending is the short form for peer-to-peer lending. P2P lending refers to a modern development where one can obtain a loan from another individual without involving a financial institution acting as an intermediary. It is a way of obtaining social loans.

What do you want to ask SoFi CEO Mike Cagney at Disrupt NY? (TechCrunch), Rated: B

Today, however, the company is tackling an even wider range of services, from mortgages to personal loans, to wealth management and life insurance. And thus far, SoFi’s business has been a hit, with total equity financing of $1.9 billion.

I’m going to have Cagney on stage in a fireside chat, and I’ll have plenty of my own questions.

But, in the spirit of social sharing and community that SoFi aims to espouse, I’d like to hear what you want to ask Cagney. You can send me your questions anonymously, or by email: remember to put “SoFi Disrupt” in the subject heading.

House Committee Schedules Hearing on the State of Bank Lending (Crowdfund Insider), Rated: B

The Subcommittee on Financial Institutions, part of the House Financial Services Committee, has scheduled a hearing on the state of bank lending in the US. The hearing will take place at 2PM Tuesday, March 28th. Typically these hearings are live-streamed on the HFSC website.

United Kingdom

RateSetter provides update on wholesale lending (P2P Finance News), Rated: AAA

The peer-to-peer lender stopped taking on new wholesale partners last December, after it emerged that the City watchdog had concerns about the practice within the P2P sector.

RateSetter added more details to its annual performance table earlier this month, introducing new sub-categories that include a breakdown of how much of the funds are channelled to wholesale lending.

Last month, the FCA confirmed its position on wholesale lending and highlighted that if a lending business borrows through a P2P platform and lends that money to others, it may be “accepting deposits”.

If the borrower does so without the correct regulatory permissions, this would involve a breach of the Financial Services and Markets Act (FSMA) and may be a criminal offence.

HOW I GOT STARTED: GRAY STERN OF LANDBAY (BQ), Rated: A

Of course. When I moved to the UK I had a very limited network here. Luckily, I met my co-founder and CEO John Goodall very early on (July 2013). He had just completed his MBA and had been looking at the burgeoning peer-to-peer lending space – so we were both looking at the opportunity from different sides (John as a saver, and me as a property investor). It was a logical step then to launch Landbay as a peer-to-peer funded mortgage lender.

Our equity funding has been split between private individuals and a number of institutional investors, including a hedge fund and the listed company Zoopla Property Group. As a mortgage lender we also have to raise lending capital.

To date, we’ve been funded by retail investors, but over the course of this year we will be complementing this with significant institutional funding. Getting those facilities in place has been a challenge, but we’ve come out the other side with the capacity to rapidly scale our lending operation.

As a mortgage lender we also collect a lot of data, so applying this data to help streamline other processes, say the provision of insurance, tax/accounting, conveyancing, property management – this is the logical next step. A streamlined process saves on time and cost – and my hope is that we can redirect these savings back into the properties themselves, creating better homes for more people.

How An IFISA Can Help You Save Tax (iexpats.com), Rated: A

Many peer to peer lenders offer IFISAs, but if you do not know about them, most do not tell you about the tax saving option.

Any income paid as interest on loans is wrapped in the ISA and remains tax-free. Money paid into an ISA is not taxed and any cash taken out is tax-free as well.

However, lending money online is risky, which is why the return is often between 5% and 7%, compared with the meagre returns from high street banks and building societies.

Expats remaining UK tax resident while on assignment abroad still pick up ISA tax breaks, but non-residents do not.

European Union

In blow to London, EU considers passporting for fintech services (Reuters), Rated: AAA

The European Commission could introduce EU passporting and lower regulatory requirements for financial technology firms, moves that could undercut London’s leading position in “fintech” as Britain gets ready to leave the European Union.

The EU executive’s vice president Valdis Dombrovskis said on Thursday that the Commission is considering how to regulate the expanding sector to encourage its development in Europe, while protecting consumers from risks that may emerge.

He said the Commission was exploring new rules that would give fintech companies passporting rights to expand across borders and operate anywhere within the EU’s single market.

That could threaten London’s status as the European hub for fintech companies, because firms based there are likely to lose their passporting rights when Britain leaves the bloc at the end of a two-year divorce process due to start next week.

RBS mulls mortgage robo advice service, shuts 158 branches (AltFi), Rated: A

The Royal Bank of Scotland is testing its robo advice services for mortgage loans and expects to make a decision on whether to roll it out by the end of the third quarter.

The government-owned bank has already cut hundreds of jobs and replaced them with “robo” like advisors, in an attempt to cut costs.

China

China is new leader in fintech worldwide with 39% of global volume (e27), Rated: AAA

2016 became the first year when the US lost its dominant global leadership in fintech  –  lost to Asia! Only the previous year, Asian fintech was twice smaller than the US, and just last year, it easily surpassed the US, accounting for 47 per cent of the global volume, as you can find in the new issue of Money Of The Future 2016/2017 fintech report.

While China dominates Asian fintech market by amount of funding, India is number one, in terms of the number of fintech deals (Paytm is the leader).

Fintech helps Chinese SMEs get loans (Straits Times), Rated: A

Mr Li Dongrong, President of the National Internet Finance Association of China, said financial technology, called fintech in short, can help solve the “last mile” problems of delivering banking services to those in remote areas. “In this age of mobile finance, we can achieve a breakthrough in this,” he added.

Indeed, in the last three years, JD Finance, the online finance arm of e-commerce giant JD.com, has lent more than 250 billion yuan (S$50.7 billion) to over 100,000 small business, and given credit worth tens of billion yuan to some 4 million farmers, said Mr Chen Shengqiang, chief executive of JD Finance.

China: WeiyangX Fintech Review (Crowdfund Insider), Rated: A

On March 15, the People’s Bank of China issued a report “Development of payment services in rural areas” to summarize and analyze the payment business in China’s rural areas during this past year.

By the end of 2016, the number of users of online banking has witnessed impressive growth in the rural areas, and online banking transactions also grew significantly.

Overall, in the rural areas, online banking maintained stable growth, and mobile banking continued to grow at a rapid speed. While telephone banking transactions fell significantly.

On March 13, Chunghwa Post announced that it would launch a cross-border payment business in April this year with Alipay.

On March 16,Yirendai released its financial results for Q4 of 2016 and full year of 2016. According to the report, the net income was RMB 1.1164 billion (US$160.8 million), achieving a 305% year-on-year growth. However, the subprime loans accounted for around 90% of the total loans, which would be a severe potential risk for the company’s long term development.

India

Fintech Tracker: Can CreditMonk Make User Reviews Relevant To Small Business? (Bloomberg Quint), Rated: AAA

That’s the idea behind financial technology firm CreditMonk – an open-source platform that allows businesses to rate each other based on payment behaviour.

The company is creating a database which clients can access to get an idea of the payment track-record of firms they may be dealing with. This is not unlike the information that credit bureaus like CIBIL provide. The difference is that while CIBIL gets its data on repayments of loans from banks and financial institutions, CreditMonk depends on ratings generated by users.

The process of rating a company on the website is similar to rating a hotel on a website like TripAdvisor. A reviewer first has to sign in to the website and disclose which company they represent. A company that is listed on the website can then be rated on a scale of one to five on the basis of various parameters.

The reviewer can choose to post the review anonymously on the website but since a log-in is mandatory to write a review in the first place, CreditMonk can investigate claims of a false review, if such a situation arises, Doongursee said.

CreditMonk is likely to face a challenge in building credibility while it sets up its database, according to Mahesh Murthy, a venture capitalist, and a co-founder at Seedfund.

Mobetize Expands B2B Data Top-Up Service to India with Smart Charge (Korea IT Times), Rated: AAA

Mobetize Corp. in Vancouver Canada, a provider of  mobile financial services (MFS) technology for the multi-billion dollar business to business (B2B) segment of the Fintech as a Service (FaaS) sector announced the expansion of its B2B Data Top-up/Gifting service to India with smartCharge from the press release of Globe Newswire on March 24.

Mobile data traffic is expected to increase by 800% on a global basis within five years.

During 2016 alone, India experienced significant growth in mobile traffic – up 76% from last year, and by 2021, consumer mobile traffic in India will grow 7.4-fold at a Compound Annual Growth Rate of 49% year over year. Much of this growth will be fueled by pervasive consumer adoption of smartphones, smart devices and the use of machine-to-machine connections with an estimated 1,380 million mobile-connected devices by 2021.

Asia

Lufax plans online platform as part of transformation from P2P to wealth management company (SCMP), Rated: A

Lufax, China’s biggest peer-to-peer (P2P) lender backed by Ping An Insurance, is planning to set up a platform to facilitate global asset allocation for middle income earners in Asia and Chinese investors.

The Singapore-based platform will be launched this year, according to Lufax chief executive Gregory Gibb.

The company will also target middle class Asian investors in countries such as India and Indonesia, who want to invest internationally with smaller amounts down to US$10,000.

The challenge for Lufax is how to communicate with customers using standardised information and tell them of investment risks and opportunities via a mobile phone screen – all in 30 seconds to one minute.

Lufax was valued at US$18.5 billion in a January fundraising and is in talks with four investment banks – JP Morgan, Citigroup, Citic Securities and Morgan Stanley – for a planned initial public offering in Hong Kong.

Africa

IT Consortium CEO calls for regulatory postponement on Fintech (Ghana News Agency), Rated: AAA

Mr Romeo Bugyei, Chief Executive Officer of IT Consortium has appealed to government to allow the Financial Technology (Fintech) industry in Ghana to grow and be fully established in order to foster the growth of financial inclusion.

Mr Bugyei, who runs IT Consortium, a Fintech organisation engaged in payment aggregation and enabling the use of systems for financial services, said Fintechs help to make things cheaper by giving alternative ways of banking using digital or technological solutions.

He explained that because Fintechs were currently not regulated, they were required to partner with banks when doingtransactions that required depositing, which meant that the banks indirectly regulated Fintechs.

He said the central bank, at the meeting held with Fintechs, declared its intention to leave the sector unregulated for the time being, but said it would monitor the sector to know the technologies being used and guide where there were problems.

He stated that the Bank of Ghana was one of three central banks globally, including the central banks of Philippines and Mexico, that had been selected by BFA Global, to participate in a programme funded by the Gates Foundation called ‘Regtech for Regulators Accelerator (R2A)’ designed to help pioneer the next generation digital financial supervision tools and techniques

Authors:

George Popescu
Allen Taylor