Banks have to struggle with a lot of challenges – from issuing credit to operational risks, and technological troubles to good old fashion fraud. In addition to the risks of yesteryear, modern banks face falling long-term rates, growing fintech competition, and low profitability. In this challenging environment, savvy modern banks focus more of their attention […]
Banks have to struggle with a lot of challenges – from issuing credit to operational risks, and technological troubles to good old fashion fraud. In addition to the risks of yesteryear, modern banks face falling long-term rates, growing fintech competition, and low profitability. In this challenging environment, savvy modern banks focus more of their attention to mitigating risks.
Chief among these challenges are low-performing loan portfolios, which are a constant thorn in the side of lenders. For example, European non-performing loans stand above €1 trillion with more than one third of banks having NPL ratios above 10% (ECB, 2017).
This minefield of factors has driven lenders to seek out new ways to increase profits and cut funding costs in order to stay competitive.
Artificial Intelligence in Fintech: Will it take over?
“AI is a powerful tool for banks, thanks to its ability to harness vast quantities of data to learn more about customer patterns and behaviors”, says Steve Ellis, head of the innovation group at Wells Fargo.
As powerful as artificial intelligence (AI) is, traditional banking is still heavily reliant on statistical methods that were developed over half a century ago. Lenders determine creditworthiness based on 20+ data points, which leave otherwise worthy customers behind.
Modern machine learning (ML) makes it possible to go much deeper when analyzing data, and allows lenders to extract valuable insights from available data patterns.
According to a McKinsey report, a number of European banks have already replaced the antiquated statistical-modeling approach with machine-learning techniques. The results speak for themselves: a 10% increase in the sale of new products, 20% savings in capital expenditures, and a 20% decline in churn.
The data doesn’t lie: Lenders are betting on AI. Evidence of this modern trend can be seen in numerous ‘banks and fintech collaborations’ and AI-based software releases:
JPMorgan Chase pioneered a Contract Intelligence platform designed to “analyze legal documents and extract important data points.”
American MobileBank deploys AI software to lend to thin-file millennials.
Canadian TD Bank uses Layer 6’s AI engine for scoring and cybersecurity.
Deutsche Bank came out with new AI-based equities to predict their pricing and volume more accurately.
Wells Fargo employs its own AI team to provide more personalized services and strengthen digital offerings.
Bank of America Merrill Lynch implements HighRadius’ AI solution to speed up receivables reconciliation for their large business clients.
Logistic regression is no longer the de facto standard
Nine times out of 10, logistic regression is used to build scoring models and solve classification issues. Before it can take over and provide predictive results, there’s an important step of preliminary analysis and data quality control that must be taken. If the dataset contains:
imperfect and missing values, outliers and unstructured data;
numerical and categorical values (age, income vs marital status, education);
raw data that doesn’t fit strict parameters(data with fractions or decimals, etc.)
data analysts will spend days (if not weeks) just to preprocess the data before it can be assessed. Cutting corners and ignoring such data may lead to the loss of valuable insight and incorrect predictions.
How modern AI/ML methods build better risk models
Today, lenders have the ability to collect more data than ever about their clients. In addition to traditional socio-demographic data, this may include transactional data, records from credit bureaus, social media, Google Analytics, as well as other non-traditional sources.
Processing and interpreting this data so that it can be used to issue loans to worthy credit seekers is where modern ML/AI methods give banks the edge they need.
Machine learning techniques like gradient boosting, random forest, or neural networks can better find hidden dependencies in a dataset, which helps to gain more accurate predictions. This assists banks in determining how collected parameters in a dataset should be weighed to predict whether borrowers will consistently repay their loans on time.
This is made possible by data signals, which define significant parameters that affect the power of a scoring model. Depending on the type of business, geography, target audience, and data authenticity, significant parameters may differ. Modern ML can determine which data points contain the desired signal.
Traditional data sources like credit bureaus still remain an important part of the process and provide the data that contain the above-mentioned signal. Unfortunately, they do not cover noteworthy market segments such as millennials, self-employed entrepreneurs, small business owners, immigrants, or the unbanked.
The team at GiniMachine carried out pilot projects to build accurate scoring models with minimal data points and without access to an applicant’s credit history. Some of the most promising and predictive parameters included the applicant’s industry and occupation, the size of their company, the total years they’d been in business, the size of their family, and data from social networks like their overall activity, as well as the quantity and quality of their connections.
The team at GiniMachine has proven that it is possible to capitalize on information about borrowers that is collected from alternative sources to accurately and efficiently assess borrower’s credibility and make effective lending decisions.
Modern ML methods can build more accurate risk models because of their capacity to:
use built-in ‘raw’ data pre-processing tools
find hidden dependencies of arbitrary complexity
harness unstructured, big data, and data from alternative sources
The financial world, and lending businesses in particular, have seen major changes throughout the last few years. Using ML and AI in concert with traditional practices is the way forward for banks that want to remain competitive in the modern world. It’s clear that making good loans to the people of the future requires a futuristic helping hand.
Dmitry Dolgorukov is a CEO and co-founder of GiniMachine & HES, a technology entrepreneur, and an investor with over 15 years of executive experience in software development and fintech. In 2018, Dmitry was ranked as one of the top 200 Fintech leaders in Europe that contribute to the industry as influencers through action.
In the last 25 years, technology in general, and the internet in particular, has unimaginably altered our way of living. After four long years of controversy, and push and pull, on April 14, 2016, the EU parliament finally approved the landmark General Data Protection Regulation (GDPR). GDPR was introduced to replace the Data Protection Directive […]
In the last 25 years, technology in general, and the internet in particular, has unimaginably altered our way of living. After four long years of controversy, and push and pull, on April 14, 2016, the EU parliament finally approved the landmark General Data Protection Regulation (GDPR). GDPR was introduced to replace the Data Protection Directive 95/46/EC and integrate data protection laws throughout Europe, allowing non-European organizations to adhere to these laws. GDPR will be effective from May 2018.
The Principles of GDPR
The concept of GDPR has been initiated because the internet has fundamentally redone how businesses interact with personal information. Data is the new oil, and internet companies were harvesting user data to make billions in profits. European Union legislators felt like they had to do something to protect consumer information.
News Comments Today’s main news: Yirendai releases Q4 & FY 2017 results. LendInvest intros fixed rate notes. Virgin Money launches financial well being portal for employees. LHV to open bank in UK to serve fintechs. Today’s main analysis: A European manifesto for an age of irrelevance. Today’s thought-provoking articles: GM launching P2P car renting service. A European manifesto for […]
GM launching P2P car renting service. AT: “While not directly related to alternative lending, this is an interesting concept. Uber is the alternative to hailing taxi. If this catches on, car renters can drop Hertz and use someone else’s family car.”
FinTech companies are focusing on using technology to drive their services and offerings and support their clients. Commonly, this means financial institutions are operating online. For Ameritech Financial, a document preparation company focusing on helping federal student loan borrowers apply for existing federal repayment plans, the private company uses technology in every part of its business to support clients in their search for relief from high student loan payments.
WebMax, a digital mortgage solution provider, and FinLocker, a financial data and analytics platform, announced today that they finalized a partnership as a result of successful execution on their five joint customers. The partnership aims to build on 17 months of collaborative efforts to further propel lenders into the digital mortgage revolution.
According to the Mortgage Bankers Association, between 2010 and 2017, mortgages took 70 percent longer to close and origination costs skyrocketed 80 percent as the burden of regulatory compliance grew.
On Tuesday, fintech mobile app Pockitapp announced it has teamed up with Dwolla to deliver back-end banking integration services. According to Pockitapp, Dwolla provides a secure online payment system and mobile payment network to enable auto clearing house (ACH) transfers, including vendor payments. Pockitapp reported that working with Dwolla allows the fintech startup to offer access to allfinancial institutions rather than just one.
LendInvest’s first bond issuance is trading on the LSE (LIV1) and was issued in August 2017 after raising £50 million from both retail and institutional investors. This new issuance is expected to trade on the LSE as well.
Estonia’s LHV Bank is swimming against the Brexit tide by setting up shop in the UK to service the country’s thriving fintech market.
LHV UK is currently recruiting and intends to be in a position to start servicing new financial intermediaries by H2 2018. Banking services on offer will include real-time payments, overdraft facilities, and forex.
The study found that start-ups are nearly twice as likely to use personal savings as those that have been in business for a decade or more, suggesting that small businesses in the UK are not seeking support from high street lenders.
The study also showed that small businesses are more ambitious than older companies when it comes to their growth plans, with 14% predicting business growth in the next three months compared to 3% of businesses that have been trading for longer.
The top forms of finance for small businesses over the past 12 months were revealed in the research, with more than 35% of start-ups using personal finances and 15% relying on money from family members.
The UK fintech scene has the world’s biggest financial centre at its disposal. UK fintech’s will enjoy privileged access, in geographical and regulatory terms, to the enormous B2B market that the City of London gives them access to.
They will also have privileged access to the UK’s highly competitive retail finance market, worth £58 – £67 billion a year. There are also signs that leaving the EU could help invigorate at least some segments of that market. A recent article in the FT — not by any means a Brexitcheerleader — reported that small-to-medium UK providers of retail banking services are actively looking forward to Brexit in the hope that it will free them from onerous EU regulations designed for huge ‘too large to fail’ banks but now applied to all financial institutions, even smaller ones.
The company reported that in the fourth quarter of 2017, it facilitated RMB 13,438.5 million (US$2,065.5 million) of loans to 202,370 qualified individual borrowers through its online marketplace, representing a year-over-year growth of 95%; 74.6% of the borrowers were acquired from online channels; nearly 100% of the loan volume originated from online channels was facilitated through mobile.
During that quarter, Yirendai facilitated 233,374 investors with total investment amount of RMB 15,967.4 million(US$2,454.2 million), 100% of which was facilitated through its online platform and 92% of which was facilitated through its mobile application. Also in the fourth quarter, total net revenue was RMB 1,824.8 million (US$280.5 million), an increase of 21% from the previous quarter and 70% year-over-year; net income was RMB 448.8 million (US$69.0 million), an increase of 48% from the previous quarter and 18% year-over-year.
Yirendai also noted that in the full year of 2017 it facilitated RMB 41,406.1 million (US$6,364.0 million) of loans to 649,154 qualified individual borrowers through its online marketplace, representing a year-over-year growth of 102%; 72.9% of the borrowers were acquired from online channels; nearly 100% of the loan volume originated from online channels was facilitated through mobile.
China Investment Corp., which recently sold its shares of Blackstone Group LP, is seeking to boost alternative and direct investments to 45 percent or more of its overseas portfolio in the next three years, from about 38 percent at the end of last year, President Tu Guangshao said in an interview in Beijing.
The divestment of the Blackstone stake, one of the first investments for the wealth fund that was started in 2007 with an initial $200 billion, may signal CIC’s pursuit of steadier returns. It ends a wild ride for CIC — Blackstone shares plunged 89 percent from the U.S. firm’s IPO to a February 2009 trough, but have since surged almost nine-fold.
Sit Back, Relax, and Pray for the Best: A European Manifesto for the Age of Irrelevance (INTL FCStone Email), Rated: AAA
About a year ago, European indices were outperforming, pundits were certain that the Euro would fall to parity with the dollar, and the biggest political risk was France. A year later, the Eurostoxx 50 Index has underperformed almost every major global index (in local currency at least), M. Draghi spends his press conferences talking down the Euro, and France has become the continent’s anchor of stability.
The Eurozone manufacturing PMI fell to 58 last month, the European Commission Economic Sentiment Indicator fell in the past two months, and, most worryingly for the European Central Bank and the normalization of monetary policy, headline inflation fell to 1.2% last month, against 1.9% a year ago. To add insult to injury, this European soft patch is taking place just as U.S. growth accelerates: the Citigroup Economic Surprise Index for the U.S. has jumped to 45, against minus 22 for the Eurozone.
1 – European indices have underperformed since May and recent economic data has disappointed
2 – The European economy is not rolling over: it is settling at a sustainable growth rate
3 – M. Draghi turned a treacherous press conference into a success
4 – Greek bonds could benefit from the normalization of European monetary policy
5 – The European discount reflects the continent’s irrelevance. That may not be such a bad thing.
Some of the blockchain’s strongest marketing points include its ability to democratize markets and, given the way peer-to-peer lending platforms operate, they could do a lot better if they adopted the use of blockchain. This could result in companies like LendingClub Corp. (NYSE:LC) and Hexindai Inc. (NASDAQ:HX), which have experienced mixed performances since going public, expand their addressable market by targeting customers that hold crypto assets of some form.
With blockchain technology, however, borrowers can tokenize the assets they own and add them to the distributed ledger infrastructure to sell, trade or use as collateral for loans. Some of these assets may not qualify as collateral in the mainstream lending market, but with blockchain technology and through tokenization, assets such as patents, intellectual property or even branding can be tokenized and used as collateral for hard money loans.
There are companies that have already launched this type of service. SALT Lending, which allows cryptocurrency traders to use their investments in the market as collateral for loans, is a perfect example. However, analysts suggest peer-to-peer lending platforms that are already established could do even better since their profiles are already proven as good alternatives for sources of loans in the credit market.
It’s a maturing market that’s here to stay. European direct lending has grown from a relatively unknown asset class to raising around US$22bn in 2017 alone. According to research by the Alternative Credit Council (ACC), the global direct lending market is expected to break the US$1tn mark by 2020. That’s quite a trajectory.
P2P platforms and crowdfunding sites also have an important role to play. We’re seeing them dominate the €50,000 – €1m loan range . Larger deals are more appropriate for asset managers, who have the necessary scale and risk analysis expertise.
Fintech startup, Avail Finance, has raised 17.2 million in an investment round led by Matrix Partners india. The round also saw participation from Ola’s co-founders – Ankit Bhati and Bhavish Aggarwal, Co-Founder and CEO of Flipkart – Binny Bansal, Freecharge founder – Kunal Shah and founder of Mswipe – Manish Patel. The funds raised include debt and credit lines from multiple NBFCs.
One of the key topics at this week’s Money 20/20 Asia fintech trade show is also the so-called open banking that allows more flexibility when these small players in the market launch their own financial services.
It is long since an established bank has shared its license and regulatory expertise through an open platform based on application programming interface, or API, but related technologies are thriving recently along with the fever for fintech across industries.
News Comments Today’s main news: Prosper loses $26M with spike in lending. Prosper’s Q3 growth with $1.5B in securitizations for 2017. LexinFintech files for $500M U.S. IPO. Finastra named best in class. The first securities lending platform launched. Compass raises $100M for expansion. Today’s main analysis: The U.S. yield curve flattening. Today’s thought-provoking articles: Have we reached the end of […]
Prosper loses $26M with lending spike. AT: “Add this to the OnDeck struggles and there seems to be a plague on P2P lending profits this year. It’s puzzling, but one reason could be the industry leaders have reached a plateau. This doesn’t spell the end, or even the beginning of the end, for online lending. Rather, we are starting to see a few hurdles to leap over as the leaders learn to optimize profits, expenses, and business processes for the mature stage.”
LendingTree to have logo on pro basketball jerseys. AT: “This is interesting. Since LendingTree is a marketplace for loans, it’s hard to see how this won’t be good for the industry. Now, if they can get the entire NBA to put their logo on all team jerseys, then move to baseball and football, they could get wide exposure for their brand.”
Prosper Marketplace recorded a big jump in loan originations during the third quarter, but the San Francisco-based online lender still racked up $26.9 million in losses.
The privately held firm has lost $210 million since the start of 2016, in spite of various cost-cutting measures. In July, Prosper announced plans to discontinue a personal finance app that it acquired in 2015.
Prosper, a peer-to-peer lending platform for consumer loans, today reported growth in both transaction revenue and loan originations for the third quarter of 2017. Continued demand for Prosper’s personal loan product resulted in $822 million in loan originations through its platform, up 6% quarter-over-quarter and 164% year-over-year. The company also grew transaction fee revenue 5% quarter-over-quarter and 164% year-over-year.
The following table summarizes the financial highlights from the quarter:
Key Operating and Financial Metrics (Unaudited)
Three Months Ended September 30,
Transaction Fees, Net
Servicing Fees, Net
Net Cash Provided by (Used in) Operating Activities
Summary of Key Financial Highlights:
Prosper facilitated $822 million in loan originations through its platform, up 6% quarter-over-quarter and 164% year-over-year, driven by strong demand for its personal loan product.
Transaction fee revenue rose to $37.2 million, up 5% quarter-over-quarter and 164% year-over-year.
The company reported a Net Loss of $26.9 million in the third quarter of 2017, which included $28.1 million in non-cash charges related to warrants to purchase preferred stock that were issued to a consortium of investors and a third party in connection with a settlement agreement.
Prosper generated $9.9 million of Net Cash from Operating Activities and Adjusted EBITDA(1) of $7.3 million in the third quarter of 2017.
To put it simply, the Treasury yield curve measures the spread between short- and long-term debt issued by the U.S. government. It’s the extra compensation that investors demand to lock away their money for an extended period.
To get a sense of just how dramatic this trend has been, here’s a look at a handful of curve measures now versus the start of 2017. In trading Monday, they were all close to the flattest levels in a decade.
From two years to 10 years: 72 basis points, down from 125
From two years to 30 years: 119 basis points, down from 187
From five years to 10 years: 33 basis points, down from 52
From five years to 30 years: 80 basis points, down from 114
The two-year Treasury yield is at the highest level since 2008 as investors prepare for a rate hike in December, and begin to build up expectations for further increases next year.
Asset-liability managers like insurance companies and pension funds are always seeking duration, and 30-year Treasuries are among the best ways to get it. Combine that appetite with increased demand from passive mutual fund giantslike Vanguard and BlackRock, and you’ve got a recipe for a sustained bid on the long end of the Treasury curve.
If one does take history at face value though, the $14.3 trillion Treasuries market is sending a warning about the economic outlook. Yield curves are the flattest in a decade, and it’s no coincidence that about 10 years ago marked the start of an 18-month recession.
While banks’ lending margins have increased slightly from their 2015 lows, they remain below the average of the past 30 years, according to the Fed.
PeerStreet, an award-winning platform for investing in real estate backed loans, is excited to announce that it is aggressively expanding available resources and tools for private real estate lenders on its platform.
PeerStreet lenders can now access detailed Property Valuation Reports which allow lenders to analyze property data and adjust property details to generate highly accurate valuations that reflect current or future market conditions. The data that makes this possible is licensed by PeerStreet from HouseCanary, a leading provider of real estate valuation data and analytics. PeerStreet is providing this service to our lenders free of charge through our Lender Platform.
“Currently, our platform is a robust secondary marketplace for lenders. We’ve purchased over half a billion in loans from local lenders, but we see great value in developing practical tools to grow lenders’ businesses beyond providing capital to them,” said Brew Johnson, Co-Founder and CEO of PeerStreet.
The Charlotte Hornets and LendingTree today announced a multi-year partnership in which the Charlotte-based online loan marketplace’s logo will appear on the team’s jerseys, effective immediately. LendingTree also becomes a Founding Level Partner of the organization and the Official Loan Shopping Partner of the Charlotte Hornets. The Hornets will wear the LendingTree logo on their jerseys for the first time on Wednesday, November 15, when the team debuts its new Classic Edition uniform in an 8 p.m. contest against the Cleveland Cavaliers that will be televised nationally on ESPN.
Along with placement on all team uniforms, LendingTree will have fixed signage on the Spectrum Center concourse and on the venue’s mobile entry scanners, as well as digital signage on the scorer’s table, basket stanchion, center-hung scoreboard and 360 LED boards. LendingTree also receives entitlement of the new Hornets app, the team roster page on hornets.com and score updates on the team’s social media outlets. Additional advertising elements include banner ads and pre-roll video ads on hornets.com and spots on Hornets television broadcasts on FOX Sports Southeast and radio broadcasts on WFNZ.
After Farmers & Merchants State Bank in Archbold, Ohio, switched its internet domain from dot-com to dot-bank, it got a handful of calls from customers wondering where its website had gone.
The $1 billion-asset bank also noted some assumed when a sentence ended “.bank.” in its promotional materials, the last period was part of the web address, instead of perfect punctuation.
Farmers & Merchants is one of only a few hundred institutions that have made the switch to the generic top-level domain that became widely available in mid-2015. While the extension is supposed to signal a bank is, in fact, a bank, the domain is still not available to most bank customers.
While it is not encouraged to apply for loans from major financial institutions like big banks (owing to interest rates of 15% – 23%), there are other options such as Lending Club that offer interest rates at just 5.32% for preferred clients. With interest rates that low, it is viable to consider nonconventional options to get your investments up and running. Lending Club is one example of a highly reputable service comprising a community of lenders that can help investors achieve their objectives.
According to the CFPB, payday loan companies collectively raked in roughly $3.6 billion in fee revenue in 2015. The CFPB also estimated that there are 15,766 payday loan stores throughout the U.S., slightly more than the country’s 14,350 McDonalds.
This lending product is commonly targeted at low-income consumers who use payday loans as plugs gaps in expenses in order to keep them afloat. Some credit unions see this an opportunity to help the underserved/underbanked market.
The Hoboken, N.J.-based LendEDU polled 1,000 consumers who have used a payday loan in the last year with some surprising results:
The average payday loan borrower used a payday loan 3.80 times in the last year.
Eighty-two percent said they looked at the interest rate and fees before borrowing.
The average amount borrowed was $442.16.
Fifty-one percent said they did not regret using a payday loan.
Two-thirds of respondents said they explored other borrowing options (ex. installment loans, credit cards) before using a payday loan.
However, some 75% of respondents indicated they were well informed throughout the application process; and when asked “Did payday loans make your financial situation better or worse off?” more borrowers stated that payday loans made their situations better, (44.2%) than worse, (30.3%).
According to a report by Sarah Strochak of the Urban Institute, the outpouring of financial technology (fintech) in the mortgage space has brought with it all sorts of innovation, including new ways to capture data, reaching more people and expanding access to credit. The Urban institute also states that in having the ability to reach more people, fintech firms also have the potential to disrupt the inequality status quo in the economy.
For example, the Urban Institute draws on the case of Down Payment Resource, a company that has created a database that matches customers with down payment assistance programs.
The Telegraph asks a question which will evoke a sigh from many readers. Have we seen the end of the peer-to-peer lending boom? Last year’s record £3.2 billion lending total – of which two thirds went to Zopa, Funding Circle or RateSetter – has been impacted by a succession of unrelated bad news stories.
First there’s been the falling rate of returns, which run at barely 3.7% for Zopa Core 4.5% at Zopa Plus – down by a good 1.5% since the good times. Not to mention a deteriorating risk situation: nowadays, the Telegraph says, fully 20% of applicants get Zopa approval compared with barely 0.5% in the old days. That puts Zopa’s approval rate on a par with the mainstream banks.
Flux, the London fintech startup founded by former early employees at Revolut, has announced a partnership with Barclays in the U.K. that will see it trial its itemised receipt technology with 10,000 of the bank’s customers.
The young company has built a software platform that bridges the gap between the itemised receipt data captured by a merchant’s point-of-sale (POS) system and what little information typically shows up on your bank statement or mobile banking app.
Alison Whistance, described as a finance expert, joins ThinCats as Origination Manager, South-West, as the peer to peer lender gears up for its next period of growth. Recently, ThinCats announced a £200 million funding program in conjunction with its parent company ESF Capital.
LexinFintech Holdings, a Chinese online consumer lending company, has filed for a $500m initial public offering in the US and in the process revealed that funding costs have spiked this year – just as Beijing has signalled its intent to crack down on the sector in a drive to rein in financial risk.
LexinFintech said in a Securities Exchange Commission filing that it was seeking to raise as much as $500m from its listing on the Nasdaq equities exchange under the ticker symbol “LX”.
The company said total operating revenue for the nine months to the end of September rose 35.3 per cent year on year to Rmb3.99bn ($600.6m), while operating costs rose 19.9 per cent to Rmb3.1bn, shaking out to a net profit of Rmb5.8m for the period, compared to a loss of Rmb193.7m a year prior.
In the past few years, technology has revolutionized the financial sector, and as fintech continues to swell into more sectors, the real estate industry will welcome its own version, known as proptech, according to a senior executive from international real estate consultancy company Jones Lang LaSalle.
Perhaps the most prominent example of fintech on life in China is the ubiquity of mobile payment. The Better Than Cash Alliance reported earlier this year that Alipay and WeChat Pay enabled $2.9 trillion in Chinese digital payments in 2016, a 20-fold increase in the past four years.
A recent HSBC study finds that 70 percent of Chinese millennials have their own property, with 91 percent planning to buy a house in the next five years, a greater percentage than their counterparts in countries including Canada, France, the US and the UK.
The European Commission (EC), the economic bloc’s legislative body, is launching a study aimed to assess the feasibility and potential of an EU-wide blockchain infrastructure.
The study, which is set to cost €250,000, will focus on whether blockchain can assist the EC’s objective of creating the conditions for a reliable, transparent and EU law compliant “data and transactional environment.”
Aite Group’s bi-annual report, Commercial Loan Origination: Scoping the Market and Comparing the Vendors, is a comprehensive review and ranking of the 10 leading global commercial loan origination vendors. It uses a highly governed and quantitative vendor evaluation methodology known as the Aite Impact Matrix (AIM), which provides an in-depth market assessment of financial technology vendors.
Total Lending, powered by LaserPro (the installed base of which was evaluated based on the long-standing D+H commercial loan origination capabilities that comprise this new “good-better-best” tiered offering) was recognized by Aite Group as having the highest client strength score.
FusionBanking Credit Management Enterprise obtained the highest score for product features, delivering on the largest number of required commercial loan origination functionalities with the least amount of required configuration or custom code.
Finastra also received the “All Things to Everyone” award for its breadth of offerings from a single vendor.
SBL Network Ltd, the new financial technology company created to provide transaction and information services to the global capital markets industry, is to launch the industry’s first peer-to-peer securities lending platform.
Aquila Network provides the first market place allowing major institutional owners of equities such as Pension Funds, Insurance Companies and Sovereign Wealth Funds, to negotiate and lend directly to Hedge Funds.
SBL has raised approximately £1m this year via two EIS-qualifying funding rounds and now announces the launch of its Aquila Network, the first peer-to-peer securities lending platform, established in response to what the firm says is growing demand for greater transparency in the securities lending marketplace.
Overall, global Fintech investment remains solid with$8.2 billion invested across 274 deals.
Some of the larger investments during the quarter include:
Intacct – $850 million
Concardis – $806 million
CardConnect – $ 750 million
Xactly – $564 million
Merchants’ Choice Payments solutions – $470 million
Access Point Financial $350 million
Service Finance Company – $304 million
Prodigy Finance – $204 million
TIO Networks – $238.9 million
Dianrong – $220 million
Insurtech is on course for a record breaking year with VC investments standing at $1.53 billion by the end of Q3 for 179 deals. For the entire year of 2016, Insurtech saw $1.79 billion invested in 203 deals.
Regionally, Fintech deals break down as follows:
Americas – $5.35 billion for 158 deals
the US claimed $5 billion and 142 deals
Europe – $1.66 billion for 73 deals
The UK dominated
Asia – $1.2 billion fro 41 deals
China continued to dominate but deals in Hong Kong, India and Korea were in the top 10
What happens when a company gets blacklisted? Will the employees have access to credit or will they get declined despite having good credit scores and salaries?
If one lands in such a situation, the logical thing to do is to change the employer. More because it would not only have an impact on one’s credit life, but more importantly, continued employment with a blacklisted employer can lead to financial disruptions sooner or later.
If the need for funding arises while being employed with a such company, one could take the following steps:
# The first lending institution to be contacted has to be the bank with your salary account.
# Each lending institution has its own methodology of categorizing companies and the current employer may not be part of the list with all lenders. So, “there may be some lenders willing to give loans unless one is employed with prominent companies that go bankrupt (as we have seen over past few years). However, one has to be very careful and in the endeavor to procure credit one must not apply with various lenders at the same time since this can have adverse impact on the credit profile. A better option would be to connect with a credit advisor with established repute and seek assistance,” informs Ramamurthy.
# Peer to peer lending is another new age option that can be explored by such individuals.
LendEx financial-tech (fintech) start-up plans to initiate an ICO (Initial Coin Offering) using the Ethereum platform based on block chain technology. The investments will be used to launch the LendEx P2P (peer to peer) lending platform, which will focus on online lending to clients in Central and Southeast Asia.
“The LendEx online platform, built with the help of block chain technologies, will provide crypto investors with access to the platform and will allow issuing microcredits for borrowers checked in national currencies,” said fintech entrepreneur and start-up author Alexey Sidorov.
The LendEx release will be held in two stages: the actual ICO and pre-ICO, which will begin Dec. 1.
European Overview The alternative lending market in continental Europe is still in its nascent stage but has been demonstrating strong growth. The European online alternative market, including the UK, grew by 92% in 2015 to €5.4 billion while, excluding the UK, the European alternative lending market reached approximately €1 billion in 2015. The average growth […]
The alternative lending market in continental Europe is still in its nascent stage but has been demonstrating strong growth. The European online alternative market, including the UK, grew by 92% in 2015 to €5.4 billion while, excluding the UK, the European alternative lending market reached approximately €1 billion in 2015. The average growth of the online alternative lending market between 2013 and 2015 was 73%.
Although the UK is the pioneer as far as alternative lending is concerned, continental Europe is catching up rapidly. In the first three quarters of 2016 the total market volume of the European alternative lending market stood at €623 million.
France’s Alternative Lending Market
After Brexit, France is battling Germany for the position as the biggest alternative lending market in Europe. The volume of French online lending market grew from a paltry €76 million in 2013 to €319 million in 2015. In 2016, the number of fintech companies in France stood at 55 with Younited Credit being one of the biggest with loan originations amounting to $600 million. In 2015, France Fintech Association was established in order to stimulate the fintech market.
Fintech lenders in France are growing aggressively owing to the measures taken by the French government and the regulatory authorities overseeing the alternative lending market. AMF (Financial Market Authority) and ACPR (Prudential Control Authority and Resolution) are the two regulators that regulate the French alternative lending market. These bodies launched the Fintech Forum, a joint initiative to gain a clear view of regulatory and supervisory challenges faced by fintech companies. After Brexit, they launched “Agility Program” to attract UK fintech companies to France. The program will guide financial firms through the French authorization process and will provide other such services to help UK’s financial firms to set up in France.
Top Alternative Lending Companies in France
The French market is buzzing with new lending startups, but there are some stalwarts who have created a strong position in the French market for themselves. Though the sector has currently seen no listing, there are many potential unicorns.
Founded in 2009, Younited Credit is one of the biggest fintech lenders in France. It was founded by Thomas Beylot, Charles Egly, and Geoffroy Guigou. The company operates as a peer-to-peer lending platform and is recognized by the French Central Bank. It allows investors to lend money to the borrower directly with the help of a secured bond market place. So far, the company has managed to raise US$122 million in funding and is currently working to expand across Europe. Since its launch, Younited Credit has helped fund almost 60,000 projects for a total origination of more than €433 million.
Lendix is a peer-to-peer lending platform founded in 2014 by Olivier Goy. It is an online marketplace for business loans where investors are allowed to lend money directly to small and medium enterprises (SMEs). Lendix has raised approximately US$27 million to date. The company also bagged the 32nd position in the global ranking of the 2016 FINTECH 100.
Founded in 2013 by Nicolas Lesur, Unilend is the leader in participative financing for SMEs. It is the
first French site which allows anyone to lend money directly to SMEs. The startup has raised more than €10 million in funding. NewAlpha Asset Management led its latest funding round.
FinexKap is a web-based platform founded in 2012 by Cedric Teissier and Arthur de Catheu. The company provides short-term capital solutions to SMEs. SMEs can simply sell their receivables and gain access to short-term funds. FinexKap has raised €7 million in equity since inception. It recently raised €12 million in debt for further expansion.
Founded in 2014, Lendosphere is a niche platform dedicated to renewables and environment-friendly projects. Currently, the company has 70 projects under its ambit out of which 66 are completed while fundraising is going on for the remaining 4. Total loans originated by the company is more than €19 million.
French banks loaned out €2.169 trillion in 2016. Almost 50% of it went to households, and consumer credit accounted for €161 billion in outstanding loans. Outstanding loans to small businesses stood at almost €400 billion.
French banks accounted for 20% of overall bank credit in the Eurozone. These statistics highlight the tremendous market opportunity for alternative-lending entrepreneurs. It is one of the last developed markets that have not been tapped aggressively by online lenders and where regulators have been supportive of alternative financing. The sector is sure to see upheaval with the category maturing and Brexit creating an opportunity for startups to capture the trillion dollar French market as well as use Paris as a springboard for the entire European credit market.
In the burgeoning world of technology and finance, credit has a unique importance. Banks provide loans involving credit risk; the risk of default is immense and can even lead to bank failure. After learning from the vicious financial hurricane in 2008, banks became more watchful to whom they are lending in order to avoid such […]
In the burgeoning world of technology and finance, credit has a unique importance. Banks provide loans involving credit risk; the risk of default is immense and can even lead to bank failure. After learning from the vicious financial hurricane in 2008, banks became more watchful to whom they are lending in order to avoid such a meltdown.
The European Banking Authority (EBA) supervises the European banking sector and safeguards the banking ecosystem. The Basel committee also took substantial steps to strengthen Basel II framework after the collapse of Lehman Brothers during the financial crisis. The consequence of such turmoil demonstrated the limitations of technical analysis of credit risk due to incomplete data and an overdependence on credit agencies. Therefore to reduce risk in the economy, quantitative assessment of risk should be coupled with qualitative measures and judgment.
Open Source Investor Services B.V. (OSIS) is a service provider that quantifies risks involved in credit. The company intends to fill the gap through its suite of technical products where investors not only get a credit rating but are also made available the relevant qualitative data and the requisite solutions necessary for further in-depth analysis. Founded in 2010 by two veteran bankers, Jeroen Batema and Dr. Burkhard Heppe, OSIS is headquartered in The Hague, the Netherlands and has a team of approximately 10 professionals. It alsohas offices in Austria and the UK.
Credit Risk Tools for Lenders
OSIS aims to provide services to investors, insurers, and financial service providers to help calculate the risks involved in credit through statistical analysis of data using tools like LoanCracker RA for banks and LoanPilot ABS for investors, as well as a collection of tools to fulfill other strategic purposes.
Specializing in credit portfolio management solutions and guidance for IFRS 9 loan loss provisions, OSIS quantifies expected 12-month credit losses which is further put to use in the modeling of securitization and stress testing. It has a portfolio optimization platform that provides essential insights to the database to help the company achieve credit rating due diligence. It also monitors data quality through LoanQualifier and provides services for validation of credit data, credit risk modeling in compliance with Basel II and Solvency II, loan level data check, loan market analysis, stress testing techniques, and evaluation of ABS securitization deals. Basel II compliance and transparency regarding capital adequacy numbers is an extremely vital area of compliance for tier-1 banks and OSIS, and its portfolio of solutions ensures banks are not only evaluating credit risk properly but also are on the right side of the regulator.
OSIS aims at providing visualized information to originators and investors for a refined understanding of credit risk complexities. The objective is to give an alternative to the cliché credit rating agency services that give comprehensive data for decision making. With a high level of risk involved and previous fallacies of credit agencies exposed, each participant is cautious and desirous to conduct their own risk assessment rather than depending upon credit rating agencies, which only display the results and hide the assumptions behind them. Unlike those agencies, OSIS is transparent and publishes the risk assessment done through rigorous and statistical data analysis while letting its clients know the true nature of risk.
LoanPilot ABS helps clients to calculate an internal rate of return and expected losses based on the Basel II and Solvency II credit models. After rating and valuation, disclosures are uploaded to the cloud where both parties have easy access to the disclosures. Investors and originators can facilitate data in such a manner that each party sees the same portfolio with different angles. This helps the client look at data and results from multiple perspectives, something that can be valuable in a market frenzy.
OSIS made a great achievement by signing a contract with Global Credit Data, the largest interbank credit loss sharing database in the world with approximately 40 member banks in Australia, South Africa, Europe, Asia, and North America. OSIS provides its analytical services to all member banks to help them analyze the collected data using its proprietary tools.
OSIS has completed over 1,000 checks on mortgages and 1,200 on SME loan portfolios. The company was hired as an advisor on data quality improvement at European Data Warehouse in 2013 and since then has provided billions of data quality calculations on SME and residential mortgage-backed securities (RMBS) data at EDW. It has worked with AMAL asset management, a third–party servicer in Australia and New Zealand. It also has a partnership with Dutch Securitization Association which has been successful in managing the first country-wide standardized investor report for RMBS. OSIS has eminent clients like ING, PECDC, NIBC, DSA, European Data warehouse, Van and Lanschot Bankiers and is looking to partner with other fintech companies including marketplace lenders. Its tech can help originators understand credit risk and the attendant issues in multiple scenarios. Also, it will allow young lending startups to separate the element of credit scores from their lending models and see borrowers and their finances in a more comprehensive state along with the analytics.
The Team Behind OSIS
Batema is chief executive officer. Prior to OSIS, he was a director in BNP Paribas Fortis in Brussels, Belgium, holding the responsibility of all capital relief securitizations. His 15 years in banking, along with being the chairman of the Global Credit Data management board, helped him understand how data sets from different banks create a more complete picture and help build a prudential system of analysis for the Basel II regulations.
Heppe is chief technical officer. Before the incorporation of OSIS, he worked as managing director of Merrill Lynch, in the wealth management division of Bank of America, and as vice president at Citigroup.
One other prominent members OSIS is Tony Lee, global head of sales & business development, whose experiences in fintech, securitization, credit risk and IT & software sales have proven to be a catalyst in the sales of complex solutions and analytical tools.
Future Prospects for Fintech and OSIS
OSIS has provided an easy and cost-effective way of analysis, making it much simpler for market participants to get standardized data & results and make improved judgments on credit risk. OSIS is a trusted partner with financial institutions and has created a potent niche for itself with future prospects for growth. As the fintech lending industry matures and credit performance becomes more important than “growth,” partnering with marketplace lenders should be its next area of focus.