Monday December 11 2017, Daily News Digest

Lending Club stress test

News Comments Today’s main news: SoFi completes $769M student loan securitization. Affirm is headed to unicorn status. Funding Circle SME fund to double. Funding Circle SME Income Fund NAV, profit to rise. Zopa investors can move repayments into IFISA automatically. Harmoney says Kiwi SMEs are tapping into P2P for cash flow more. TransUnion launches Mobile Score Card in Africa. Today’s main […]

Lending Club stress test

News Comments

United States

United Kingdom

China

European Union

International

Australia/New Zealand

Asia

MENA

Africa

News Summary

United States

SoFi Announces Completion of $ 769 Million Student Loan Securitization, Bringing Total ABS Issuance in 2017 to $ 6.9 billion (PR Newswire), Rated: AAA

SoFi announced today the closing of its $769 million offering of SoFi Private Student Loan notes (SoFi 2017-F).

The closing marked the company’s 12th ABS transaction this year, bringing its total issuance in 2017 to $6.9 billion, up from $4.2 billion in 2016.  The 2017 total includes six Student Loan ReFi and six Consumer Loan transactions.

LendingClub’s Investor Day Highlights (PeerIQ), Rated: AAA

Rep. Patrick McHenry (R-NC) sent a letter to the Cleveland Fed accusing them of using their study on peer-to-peer lending to block bill “Protecting Consumers Access to Credit Act” (H.R. 3299). The bill proposes to overturn a decision in the Madden v. Midland Funding case against the “valid when made” clause which allows sales of legally made loans in one state to parties in other states, even if the loan exceeds the interest rate cap in the state of the borrower.

Positioning and Strategy 

LendingClub doubled-down on the capital-light marketplace lending model, and emphasized the role of technology, data & analytics, and the “virtuous cycle of scale.”  LendingClub also emphasized the new product innovation on the investor side of its business – notably the Exchange Traded Product (ETP) which we think may have been lost in the immediate reaction to revised guidance.

LC sees an addressable market opportunity of $300-350 Bn in the credit card refinance and debt consolidation spaces, and a $38 Tr pool of addressable capital on the investor side of its marketplace.

LC has a two-pronged strategy to attack these markets and meet EBITDA margin goals:

  1. 2018: Focus and Invest
    1. Accelerate personal loans growth while prudently managing credit
    2. Invest in auto and leverage secured capabilities for personal loans
    3. Strengthen Investor franchise by expanding securitization and growing new structures
    4. Address legacy issues
  1. 2019-2020: Expand and Deepen
    1. Expand lead in personal loans through further data, analytics, and product and testing efforts
    2. Expand role in the borrower journey through new products and services
    3. Expand investor universe to lower cost of funds, improve resiliency, capture more value
Source: Lending Club

As seen in the chart below, LendingClub is positioning MPL loans as a new asset class that offers higher risk-adjusted returns as compared to other fixed incomealternatives, while offering lower interest rate risk. LC has delivered historical annualized loss-adjusted returns of 6.7% on its Prime loans portfolio, and 10.9% on its Near-Prime loans portfolio.

Source: LendingClub

The top question on investors’ minds remains the expected performance of MPL loans thru a recessionary scenario in the chart below, LendingClub published estimates of expected annualized charge-offs on Prime loans in a baseline scenario of 5.5%, in a moderate recession scenario of 7.9%, and in a protracted slump scenario of 11.5%.

Source: LendingClub

Why it is easier now for small businesses to go global (Born2Invest), Rated: AAA

It has become significantly easier today to run a multinational business compared to a few years ago. This is down to the increasing adaptation of technological advances to various business operations.

Markets are becoming decentralized and barriers to entry are minimal

The internet is central to the paradigm shift we have witnessed in the business environment over the last couple of decades. For instance, you do not have to live in the U.S. to sell your products or services to the Americans. Even where certain levels of certification are required, these can easily be done online thereby allowing a foreigner to obtain the required credentials for operating a business that targets American citizens. Therefore, market access is global, decentralized and without limits for anyone looking to expand exponentially.

Another thing that is influencing growth strategies among small businesses is the ease of access to financing.

Ideally, most businesses would opt for local lending. However, with the growing popularity of online-based peer-to-peer lending platforms like Lending Club, small businesses can now access financing regardless of whether they have security. But it is not as easy and straightforward as it sounds. According to National Business Capital, the process can be as tasking as trying to apply for a securitized loan with background checks and credit scores playing a crucial role.

Nonetheless, lending institutions are being pressured by the increasing number of peer-to-peer lending platforms. This has forced them to lighten up their lending requirements in a bid to increase their loan portfolios and subsequently interest incomes. In this case, we could say that technological advances and the emergence of alternative lending solutions have forced the hand of the credit market to create a more conducive environment for businesses to thrive.

Max Levchin’s lending startup is heading for unicorn territory (Axios), Rated: AAA

Affirm, the personal credit startup led by PayPal co-founder Max Levchin, has filed a stock authorization form in Delaware that would allow it to raise up to $210 million in new funding at around a $1.4 billion pre-money valuation.

How Max Levchin cofounded and built PayPal into a payments monster after 6 pivots and a bitter rivalry with Elon Musk (Business Insider), Rated: A

He now spends most of his time at Affirm, which offers small loans but doesn’t charge any penalties or fees.

 

PayPal founder talks digital payments, bitcoin (The Seattle Times), Rated: A

Q: Are digital payments progressing as quickly as you hoped since you started PayPal?

A: They are moving at a good pace, adjusted for just how large and complicated the market is. It’s highly regulated and there are a lot of things to be careful about. The elephant in the room for the last seven or eight years has been cryptocurrency.

Q: What are some of the most interesting areas of digital payments?

A: A good example is international remittances, where companies can pop up and do well. They’re the guys who figured out how to do it much cheaper and much more transparently with much lower friction to both the recipient and the sender.

Can I get my pay instantly? New payday apps give workers fast access to wages — for a price (Mic), Rated: AAA

And while many workers typically wait anywhere from once a week to once a month to get the money their company owes them, new apps from financial technology startups like DailyPay, FlexWage and PayActiv are giving workers everywhere — including at Goodwill, McDonald’s and Uber — faster access to wages, and sometimes even on the same day they clocked their hours.

Proponents like Shah say faster access to wages can motivate hourly workers to put in longer hours (since they’ll reap the rewards more quickly) and can reduce their reliance on abusive payday loans with sky-high interest rates that can leave borrowers in an unending debt cycle. Indeed, taking out a single $100 payday loan for two weeks could eat up more than $130 out of your next paycheck, once you factor in interest and fees. Repeat that every two weeks and you are down hundreds of dollars for the year — equivalent to a full month’s rent for many.

With DailyPay — which is used by hourly workers at DoorDash delivery service, the Maids residential cleaning service and Kellermeyer Bergensons Services facilities management firm — employees can access 100% of their accrued and unpaid net wages for a fee of $1 to $3 per transaction. The money can be deposited directly into their bank account or put on a prepaid card or payroll card on the same day.

Another app called Earnin lets workers withdraw up to $100 a day and $500 per pay period in advance of receiving their regular paycheck. While it charges no fees, it does give workers the option of “tipping.” The service then withdraws funds directly from your checking account after you’ve been paid.

FlexWage, for example, only lets workers tap up to 70% of their unpaid wages between regular paychecks (for a $3 to $5 fee per transaction). PayActiv gives them access to 50% of their net pay for every 30 hours worked for a $5 fee.

Instant Financial lets employees withdraw half their daily net pay every day at no cost at all: Instead they charge employers $1 per month per employee enrolled in the program.

Source: Mic

There’s an attractive way to profit from the $ 1.3 trillion student-loan bubble (Business Insider), Rated: A

According to Goldman Sachs, the outstanding student loan balance has reached $1.3 trillion in face value, about the size of the high-yield corporate-bond market. This outstanding debt is not without problems, as it delays homeownership for some millennials and cuts their disposable income.

It’s the $190 billion of outstanding loans that are held within asset-backed securities (ABS) refinanced by private lenders such as SoFi.

“Recent marketplace student loan deals have featured borrower pools with average credit scores above 770 and average borrower incomes above $160k: a very different credit profile than the government guaranteed portfolios.”

Source: Business Insider

Some lenders stand to gain as others leave auto niche (American Banker), Rated: A

The indirect auto business is in a state of transition.

TCF Financial in Wayzata, Minn., surprisingly walked away from the segment on Dec. 1, and others like Regions Financial and Fifth Third Bancorp have tapped the brakes for reasons ranging from competition and credit concerns to regulatory pressure and low yields.

Auto sales are also projected to fall by 7% this year, according to Autodata and the Bureau of Economic Analysis.

Financial Literacy Curricula for Non-Prime Consumers Should Focus on Relevant Topics, Attainable Goals (BusinessWire), Rated: A

America’s financial literacy programs may be failing the very people who need them most, according to newly released research from Elevate’s Center for the New Middle Class (CNMC). Non-prime consumers learn and retain financial education material differently than their prime peers, the research indicated.

To be most effective for a non-prime audience, financial literacy curricula should:

Be trans-media. Use different media types to deliver different messages.

Address the unique challenges of non-prime Americans. A financial wellness program will be more effective for non-prime Americans if it directly addresses their unique challenges – things like income volatility and a lack of available resources. It also needs to identify outcomes that are relevant, attainable, and meaningful to them.

Highlight the next immediate steps.

Focus on building their credit. Non-prime Americans understand that their credit scores affect every part of their financial lives and they are hyper-focused on what they can do to improve them. Anchoring a financial wellness program on credit score management can actually lead non-prime consumers to understand broader financial management principles.

Ken Rees of Elevate (Lend Academy), Rated: A

In this podcast you will learn:

  • The evolution of Ken’s career that led to the founding of Elevate.
  • The different products that Elevate offers today.
  • A profile of the typical Elevate customer.
  • How Elevate’s products help their customers’ financial situation.
  • Their typical loan terms.
  • Ken’s view of the new CFPB rules on small dollar loans.
  • How Elevate’s underwriting process works.
  • The total originations for Elevate in the US and UK.
  • The importance of data analytics in their business.
  • The percentage of customers coming to them through a mobile device.
  • How they can underwrite 95% of their loan applications in an automated way.
  • How their charge-off rates have been trending.
  • The different funding sources they use to fund these loans.
  • What their Center for the New Middle Class does.
  • How their IPO process went and what it is like being a public company.

 

Winners and Losers in the CFPB Mess (Credit Union Times), Rated: A

Winners

Payday Lenders – Like them or not, the payday lending industry was in for a huge takedown under the CFPB’s final rules that will restrict the way they do business.

Still, the industry now has a friend rather than a foe in the director’s office. And that can’t hurt for an industry that just weeks ago appeared to be headed for a major takedown.

Attorneys general call for Consumer Financial Protection Bureau independence (Lake County News), Rated: B

California Attorney General Xavier Becerra on Friday joined attorneys general from 17 other states in calling on the Trump Administration to respect the independence of the Consumer Financial Protection Bureau.

PNC to offer consumer loans through mobile devices (American Banker), Rated: A

PNC Financial Services Group plans to introduce a consumer lending product that it will market through both its mobile wallet and in new branches.

The $375 billion-asset Pittsburgh company intends for the new loan product to be available on a national scale, Chairman and CEO William Demchak said this week.

Kaplan Fox Announces Investigation of Qudian Inc. (Business Insider), Rated: A

Kaplan Fox & Kilsheimer LLP (www.kaplanfox.com) is investigating Qudian Inc. (“Qudian” or the “Company”) (NYSE:QD) on behalf of investors who purchased Qudian American Depository Shares.

On October 17, 2017, Qudian issued 37.5 million American Depository Shares at $24 per share under a Registration Statement and Prospectus filed with the U.S. Securities and Exchange Commission, for gross proceeds of $900 million.

On November 21, 2017, Chinese media sources began to reveal that the personal information of millions of Qudian customers were allegedly available for sale on the black market. On November 23, 2017Bloomberg reported that “Chinese regulators and police are investigating a potential leak of data from online lender Qudian Inc., according to people with knowledge of the matter.

Meet Tim Russi, President of Auto Finance at Ally Financial (Vator.TV), Rated: A

VatorNews: How is technology influencing and impacting Ally’s auto business? Why is this technology integral to the company’s future in this arena?

Tim Russi: We’re a company that’s 100 years old, and you don’t become a 100 year old company in today’s world if you don’t have the ability to reinvent yourself.

Ally operates in what we in the lending world refer to as an ‘indirect model,’ so dealers originate the loans and leases and then we purchase them from the dealers. The speed and access of the indirect model has changed significantly in the last 15 years. The industry was very disruptive in creating online portals for dealers to be able to submit applications to lenders, so the lender didn’t have to be on site to do the loans.

VN: How have you seen technology in the auto space evolve in that short amount of time? How quickly is the space changing?

TR: You look at a lot of the lending models today and they’re going direct to consumers, and we’ve even got a direct model, because as you look at digital and the consumers doing shopping online, and wanting to buy, there’s no reason they shouldn’t be able to select and purchase the vehicle and obtain financing right at the ‘point of sale.’ If the sale’s going to be online, not in the dealership, we want to make sure we’re there and then fulfillment can occur at the dealership.

VN: How has SmartAuction changed the way dealers sell and buy vehicles? What kind of ROI have you seen?

TR: SmartAuction, we actually developed in 1999 and we’ve done over 5 million transactions. We have 20,000 vehicles that are available for sale or purchase in the marketplace. It’s a wholesale marketplace so dealers can post and buy.

Notable Real Estate Trends To Watch For In 2018 (Forbes), Rated: A

3. Fractional Investing

As peer-to-peer lending and crowdfunding catch mainstream attention, folks looking for greater diversification and passive investment opportunities will engage in factional investing. The last few years have seen some extremely credible startups innovate in this space, and next year could lead to individuals moving away from sole ownership to fractional ownership via crowdfunding. – Sohin ShahInstaLend

7. On-Demand Access For Renters

We often hear from renters that they are too busy to sweat the small stuff. They want immediate tour confirmations, like booking a restaurant on OpenTable, and near-immediate confirmation that they have leased, like booking a hotel. This real-time service expectation from a new generation of renters is exactly what we plan to cater to in 2018. – Anthemos GeorgiadesZumper

Peer-To-Peer Lending : Here Are 5 Things To Know (NDTV), Rated: B

  1. P2P lending is a form of financial innovation but the concept that works behind it is the same as in the case of the banking system.
  2. Any lay investor or lender can lend money to any borrower who is registered with the P2P platform.
  3. Borrowers and lenders enter into a contract according to which they agree to the amount disbursed and the rate of interest.
  4. A borrower can raise loan at the rate of interest, which is inversely proportional to his credit score.
  5. Each P2P lending platform charges a fee for the transactions that are fructified at their platforms.

Trump says fines for Wells Fargo will not be dropped (Des Moines Register), Rated: B

President Donald Trump weighed in on an investigation into scandal-plagued Wells Fargo, tweeting Friday that fines and penalties against the bank would not be dropped, and may actually be “substantially increased.”

Trump’s statement comes a day after Reuters reported that Mick Mulvaney, the president’s budget director and now acting director of the Consumer Financial Protection Bureau, was weighing whether the bank should have to pay tens of millions in fines already levied against it for mortgage lending abuses.

United Kingdom

Funding Circle SME fund size to double following C share merger (P2P Finance News), Rated: AAA

THE FUNDING Circle SME Income Fund (FCIF) is set to double the value of its assets after announcing plans to convert its conversion shares into the ordinary portfolio on 20 December.

The investment trust, which invests in loans on the Funding Circle platform, revealed in its half-year report that the move will increase the fund’s size to around £310m.

Currently the ordinary shares are worth £165.3m and the C shares, launched in April, are worth £142.3m.

Funding Circle SME Income Fund Net Asset Value And Profit Both Rise (Morningstar), Rated: AAA

Net asset value per ordinary share was 100.55 pence per share, representing an increase in the total NAV to GBP167.0 million from GBP165.0 million at the start of the half, which ended September 30. Net asset value total return was 12%.

For the C shares, net asset value was 99.82p, having only been issued in April. These shares are due to convert to ordinary shares on December 20.

Zopa investors can now automatically move repayments into their IFISA (P2P Finance News), Rated: AAA

ZOPA investors can now automatically re-direct their repayments into their Innovative Finance ISA (IFISA).

The peer-to-peer consumer lender confirmed this week that customers can gradually move their Zopa money into the tax wrapper without having to sell loans or pay extra fees.

Moving money into the IFISA will contribute to the investor’s annual tax-free allowance, Zopa said. However, once money is in the IFISA and has been lent out, those repayments will not contribute to the IFISA allowance.

Why banks will share your financial secrets (BBC), Rated: AAA

Customers of nine of the biggest UK banks have received letters and emails in recent weeks informing them that their information can be shared, securely, with other firms. All they need to do is give their permission.

The UK’s competition watchdog says this so-called Open Banking regime will revolutionise many people’s financial lives, helping them get better deals.

Most people stay loyal to their bank. The Competition and Markets Authority (CMA) found that only 3% of personal customers move their accounts each year.The UK’s competition watchdog says this so-called Open Banking regime will revolutionise many people’s financial lives, helping them get better deals.

How will it work?

In practice and in time, customers will probably see a dashboard on their bank’s mobile phone app.

This will show them how much money they have in their different accounts, with different banks, and eventually how much they owe on credit cards and store cards too.

A set of computer programming rules in the UK, called Application Programming Interfaces (APIs), will ensure all these new services and banks to talk to each other.

Applications for mortgages could be dealt with more quickly, as providers and brokers could access spending history, rather than ask for printed copies of the last three months of bank statements.

Anne Boden, of mobile-only Starling Bank, says customers will be able to see exactly what they bought for lunch each day, an app could analyse the calorie levels, and then cross-check it with how much exercise that person is doing.

Customers could be bombarded with invitations to try out a new service, and could quickly lose control of their financial data, according to Mick McAteer, of the UK’s Financial Inclusion Centre.

He describes Open Banking as “a daft idea”, which will lead to more financial exclusion for those already on low incomes.

Unscrupulous individuals would be keen to access this data and use it alongside information revealed on social media to build up a complete set of personal information.

The UK needs its own version of business development companies (Financial Times), Rated: A

The great scramble for yield has seen asset managers hunt down ever more alternative sources of income. Many are starting to move into the world of shadow banking, alternative forms of lending in areas where banks are not competing for business as much as they used to.

But evidence from the US suggests that the biggest opportunity probably lies in what is called direct lending, preferably through a structure that might mimic US business development companies. These BDCs are a large and diverse universe of tax efficient, listed, closed-end funds resident in the US. Collectively they are worth at least $100bn, according to Keefe, Bruyette & Woods, the investment bank, nearly all of which has been lent to mid-market private businesses in the US — capital that has arguably helped to improve the nation’s corporate productivity and profitability. Income-hungry investors have also snapped up these funds, with average yields well over 9 per cent per year.

Direct lending companies will service the mid-market secured lending space for loans above £50m but they, in turn, lack an outlet into the public markets typically afforded by BDCs in the US.

Industry reacts to Cambridge report on alternative finance (AltFi), Rated: A

The Cambridge Centre for Alternative Finance’s report, entitled Entrenching Innovation, found the UK online alternative finance market grew 43 per cent in 2016 to £4.6bn.

“Abundance was particularly pleased to see our category (debt securities) confirmed as the fastest growing of all at 1,147 per cent year on year, with an accompanying 40 per cent increase in average deal size to £1.4m. It was also good to see hard evidence of investors in debt securities conducting their own due diligence and being comfortable with the risk/reward offers they found,” he said.

Anil Stocker, CEO and co-founder of fintech business finance firm MarketInvoice, says as awareness increases, which will be propelled by PSD2, so too will the use of alternative finance platforms.

The UK ranks top of all major developed economies for establishing new businesses (City A.M.), Rated: A

The UK outranked all other major developed economies in terms of the number of businesses established last year, according to figures from accounting group UHY Hacker Young.

It became home to 218,000 more businesses in 2016, a rise of six per cent over year-on-year. Meanwhile, other major developed economies including France, Germany, Italy, Japan and the US saw an average two per cent rise in number of businesses over the year.

FCA to change advice definition in January (FT Adviser), Rated: B

The Financial Conduct Authority has said it will introduce its new definition of advice from Wednesday 3 January.

As part of this it has amended its handbook to change the definition of financial advice, meaning only advice which offers a personal recommendation will be considered regulated.

China

Chinese Banks Face Potential Capital Shortfall, IMF Says (WSJ), Rated: AAA

Chinese banks may have insufficient capital to weather potential losses from the nation’s rapidly mounting credit risks, the International Monetary Fund said, in a broad review of China’s financial system.

With Chinese banking-sector assets, at $34.7 trillion, soaring to three times the size of China’s economic output, at $11.2 trillion, the IMF said that “holding more capital would strengthen the banking system and bolster financial stability,” according to a report on Thursday.

The IMF said China should consider boosting risk-weighted assets at its banks by 0.5% to 1% over the coming 12 months.

Source: The Wall Street Journal

 

WeiyangX Fintech Review (Crowdfund Insider), Rated: A

LexinFintech, China’s online provider of installment-based loans has decided to conduct extra due-diligence investigation for its IPO in the US.

This week, KPMG China announced the 50 leading Fintech companies operating in China and published a related insight report.

(Note: Companies are arranged in alphabetical order based on the first letter of their Chinese name in pinyin.)

  1. Anxindeli
  2. Baidu Finance
  3. BAIFENDIAN
  4. 100credit
  5. ICE KREDIT
  6. TENPAY.COM
  7. Dianrong.com
  8. RQuest
  9. FUTUNN.COM
  10. ChinaPnR
  11. PING ++
  12. 3GOLDEN
  13. JFZ.COM
  14. JD Finance
  15. Juxinli
  16. QUARK FINANCE
  17. 99Bill
  18. Tigerbrokers
  19. QuantGroup
  20. LENGJING INFO
  21. LU.com
  22. Ideacome
  23. MSXF
  24. Ant Financial
  25. PINTEC
  26. QFPAY
  27. Qudian
  28. UCREDIT
  29. Rong360
  30. Wecash
  31. ChinaScope
  32. BBD
  33. Souyidai
  34. Suanhua Credit
  35. Feidee
  36. Taiyiyun
  37. TalkingData
  38. Tcredit
  39. Beagle Data
  40. Tong Dun
  41. Wacai
  42. Wei Zhong Shui Yin
  43. WeBank
  44. WeLab
  45. u51.com
  46. Onchain
  47. Hcspark.com
  48. Zipeiyi
  49. Zhongan Insurance
  50. Zuihuibao

New guidelines for banks to support P2P lending (Taipei Times), Rated: A

The Financial Supervisory Commission on Thursday gave its nod to guidelines on collaborations between peer-to-peer (P2P) lending platforms and commercial banks, in a move to support the development of emerging financial services.

Under the guidelines, banks may provide custodian and trust account services to P2P platforms, as well as transaction processing to meet rules against collection of deposits by non-bank entities, the commission said.

However, banks are barred from making recommendations on decisions about loan approval, interest rates and principal amounts.

The guidelines also regulate the so-called peer-to-bank (P2B) model, where banks participate as lenders on P2P platforms.

CreditEase’s CEO Ning Tang spoke about FinTech and innovation at Fortune Global Forum (Business Insider), Rate: A

Ning Tang, Founder and CEO of CreditEase, attended the 2017 Fortune Global Forum on December 6-8 in Guangzhou. With the theme of “Openness & Innovation: Shaping the Global Economy,” the Global Forum convened world leaders, senior executives and prestigious scholars to discuss the dynamic frontiers of international commerce.

Tang stated that the Chinese FinTech industry still sees great potential in the coming decade represented by development in applications such as microloans for SMEs, crowdfunding, robo-advisory, insurance technology, and blockchain products and services.

India’s FDI climate good for China investment (China Business Law Journal), Rated: A

Mumbai-based fintech start-up Kissht recently raised US$10 million in funding primarily from Fosun International, a Chinese investment consortium. The Krishnamurthy & Co team acted for and represented Kissht and its owner OnEMI Technology Solutions, led by Mumbai-based partner Sanket Sethia and associate Vwastav Ghosh.

European Union

Moody’s highlights improving performance for European SME ABS next year (FTSE Global Markets), Rated: AAA

The performance of small and medium-sized enterprise (SME) asset-backed securities (ABS) will remain stable across all major markets in Europe and issuance volumes will likely increase slightly, according to the 2018 outlook for European SME ABS from Moody’s. However, emerging political risks have created some uncertainty in affected markets, with a limited effect on securitised deals in the United Kingdom (UK), and potentially negative effects in Spain.

Billie Raises €10m Series A (LendIt), Rated: A

Billie is an invoice finance platform that launched earlier this year; the round was led by Creandum with participation from existing investors Speedinvest and Global Founders Capital; the company focuses on complete automation with no human interaction; It was co-founded by Matthias Knecht and Christian Grobe; Billie also secured a refinancing facility from a major German bank.

International

Regulated Crypto Platform Plays By the Rules and Disrupts Trading Model (Coin Telegraph), Rated: A

Trade.io’s solution is to develop an exchange platform for the sharing economy where traders can not only exchange tokens, crypto and fiat currencies and other assets but also share in the risk and revenue of the liquidity pool. To participate in the liquidity pool, members buy 2,500 Trade Tokens secured by financial assets in their trade.io wallets. Crypto and fiat currencies are accepted as collateral.

Trade Token owners share in 50 percent of the gains or losses of the liquidity pool, which are distributed to the wallets of pool participants. Besides trading fees and commissions, revenue is earned from investment banking and P2P lending fees.

Australia/New Zealand

Harmoney Reports Increase in Kiwi SMEs That Are Tapping into P2P Lending for Business Cashflow (Crowdfund Insider), Rated: AAA

Earlier this week, Harmoney announced there has been an increase in Kiwi SMEs that are tapping into peer-to-peer (P2P) lending for business cashflow.

The New Zealand online lender stated it estimates $100 million will be loaned to business accounts through its lending platform within the next six to twelve months. Currently, the average loan amount for business cashflow on its platform is $25,000.

Sydney fintech Avoka raises $ 16m in Roger Allen-led round (Financial Review), Rated: A

Avoka Technologies, a fast-growing Sydney-based provider of customer acquisition services to financial institutions, has raised $16 million from investors, including prominent venture capitalist Roger Allen, as offshore revenue rises above 75 per cent and the headcount moves towards 300.

Avoka offers a software-as-a-service platform called Transact, which claims to enable institutions to launch new digital products in weeks rather than months, and monitors customer interaction with them once established.

BankWest’s mobile banking app was built on Avoka, while Mr Copeland said HSBC was about to launch new credit cards whose customer interface was developed through the platform.

Asia

Crowdcredit, Inc from Japan (Makoto UJIKE Email), Rated: AAA

Crowdcredit is a cross border online lending platform, which raises funds from Japanese investors and finances overseas financial institutions, SMEs, or individuals.

Crowdcredit, Inc. announced its completion of appx. USD3.5mn financing mainly from Femto Partners, one of the most influential venture capitals in Japan.

Crowdcredit track record;

  • – Established in January 2013
  • – Started raising funds since June 2014,
  • – Finances financial institutions, SMEs, or consumers in Peru, Cameroon, Estonia, Finland, Spain, Latvia, Lithuania, Georgia, etc.,
  • – Has registered investment user of 8,000+
  • – Has issued funds in total US$ 45.5mm, and
  • – Issues funds of US$ 4mm monthly with increasing trend.
Source: Crowdcredit
Source: Crowdcredit
Source: Crowdcredit

Learn more about Crowdcredit here.

Crowd-lending platform New Union awarded CMS license (The Edge Markets), Rated: A

Crowd-lending platform New Union has been awarded the full Capital Markets Service license (CMS) by the Monetary Authority of Singapore (MAS), and announced a potential deal flow pipeline of about S$2 million to be launched soon.

P2P lending platform Validus Capital gets licence to deal in securities in Singapore (Business Times), Rated: A

VALIDUS Capital announced on Monday that it has been awarded a full Capital Markets Services (CMS) licence by the Monetary Authority of Singapore (MAS), to deal in securities – a move that may give Singapore’s small and medium-sized enterprises (SMEs) more access to financing opportunities.

Singapore banks can save over 10% from fintech (SBR.com.sg), Rated: A

Moreover, about 41% of banked balance has now abandoned traditional channels.

MAS estimates fintech payments already takes up 20-50% of household consumption if the probability of payments disintermediation is high in the next five years.

A majority of 56% of the banked population is also willing to shift their savings into a pure play digital bank. An average of 41% of total balance has already been shifted.

Equity crowdfunding and peer-to-peer lending (The Star), Rated: B

Equity crowdfunding has become an increasingly popular way for early-stage and early-growth companies to tap investors attracted by the potential for high returns. An investor who has spent the last couple of years lamenting over the lacklustre performance of his stocks sees ECF as an investment channel that claims to offer even better returns.

P2P investing is garnering a lot of interest from would-be investors who are looking for something different and better than banks’ fixed deposits.

ECF means investing in very early stage businesses and as such, there are inherent risks to be aware of such as the likelihood of bankruptcy, in which case, you will not be able to recover your original investment.

With P2P investing, the most obvious risk that comes attached is of course the possibility of the borrower defaulting on the debt. As the reasons for not being able to repay the loan are typically financial, any subsequent attempts to recover your investment may prove futile if the business indeed has gone under.

Key tips to investing

1. Know where ECF and P2P stands in your strategic asset allocation.

2. Ensure you are investing in best of breed by comparing apple to apple when it comes to risk versus returns.

a) Ensure the platform is approved by SC.

b) Research each scheme on the platform as not every one is the same.

c) Read the fine print in the platform operator’s agreement and know the rights and liabilities of each party. Pay particular attention to the risk warnings in the agreement with regards to potential loss of invested capital and the unsecured nature of the investment (for P2P).

3. Diversification is key.

4. Monitor how your investments are performing.

5. Consider the time required before you see your investments come to fruition.

MENA

New Amendment To Address Reward-Based Crowdfunding And What To Expect (Mondaq), Rated: AAA

A new omnibus code that amends, amongst others, the Capital Markets Code (“CMC“) has been enacted by the Turkish parliament and published in the Official Gazette on 5 December 2017.

The CMC amendment primarily refers to reward-based crowdfunding (i.e. receipt of goods, reward or pre-sales in return or investment-based or loan-based crowdfunding) while donation-based crowdfunding where the investor donates the money with no return is still subject to aid and donations legislation. The said amendment limits crowdfunding to project or venture financing and only through crowdfunding platforms that are prior-recognised by the Capital Markets Board (“Board“).

Crowdfunding platforms can only operate in Turkey once they obtain the necessary permission from the Board.

Fintech Is The New Oil In The Middle East And North Africa (Forbes), Rated: AAA

Over the past decade, fintech startups in the region have raised over $100 million in funding, and investment is predicted to double by 2020, according to the State of Fintech report. Disclosed investment infintech had jumped 100% to over $35 million by October 2017 — Paytabs ($20million), Souqalmal ($10 million) and Beehive ($5 million) — compared to $18 million last year. The number of fintech startups also increased from 46 in 2013 to 105 in 2015. It is estimated that it will more than double again to 250 by 2020, according to the report.

Aside from the fact that the sector encompasses every tech startup active within the financial services industry, beyond the ones that specialize in online payments or money transfers, e-commerce in the region is set to quadrupleuntil the end of this decade. Additionally, despite the ubiquity of smartphones and internet connectivity, 86% of the adult population in the region is unbanked, while three in four GCC bank customers are ready to switch banks for a better digital experience.

Boosting financial inclusion is crucial for economic diversity and growth across the region. Moussa Beidas, co-founder of Dubai-based startup Bridg, which allows smartphone-to-smartphone payments using bluetooth, says fintech has become an innovative way to bridge the divide and provide cheaper services to the unbanked.

Significant banking changes due to tech innovation (Gulf News), Rated: A

The rapid advancement in innovation is transforming the financial services industry, especially the banks, as technology has become an integral part of the business strategy — from initially being just an enabler to now actually streamlining operating processes.

The Middle East has amassed more than $100 million (Dh367 million) in FinTech start-up funding in the past ten years, with 105 FinTech start-ups launching in 2016, with hopes to raise $50 million in funding by the end of 2017.

Banks in the UAE remain the trendsetters, although other GCC countries are not lagging far behind, with several banks in the region embracing FinTech in many different ways.

Africa

TransUnion launches Mobile Score Card solution (IT Web Africa), Rated: AAA

Data firm TransUnion has launched Mobile Score Card, a mobile loan information service that enables lending firms to access a loan applicant’s credit status.

Mobile Score Card is a database solution that continually ‘learns’ based on mobile transactional history.

It also provides mobile lenders with customisable and reliable risk view of the mobile loans. The product targets banks with mobile lending solutions, savings and credit cooperative organisation and independent mobile lenders.

Authors:

George Popescu
Allen Taylor

Monday December 11 2017, Daily News Digest

Monday December 11 2017, Daily News Digest

News Comments Today’s main news: SoFi completes $769M student loan securitization. Affirm is headed to unicorn status. Funding Circle SME fund to double. Funding Circle SME Income Fund NAV, profit to rise. Zopa investors can move repayments into IFISA automatically. Harmoney says Kiwi SMEs are tapping into P2P for cash flow more. TransUnion launches Mobile Score Card in Africa. Today’s main […]

Monday December 11 2017, Daily News Digest

News Comments

United States

United Kingdom

China

European Union

International

Australia/New Zealand

Asia

MENA

Africa

News Summary

United States

SoFi Announces Completion of $ 769 Million Student Loan Securitization, Bringing Total ABS Issuance in 2017 to $ 6.9 billion (PR Newswire), Rated: AAA

SoFi announced today the closing of its $769 million offering of SoFi Private Student Loan notes (SoFi 2017-F).

The closing marked the company’s 12th ABS transaction this year, bringing its total issuance in 2017 to $6.9 billion, up from $4.2 billion in 2016.  The 2017 total includes six Student Loan ReFi and six Consumer Loan transactions.

LendingClub’s Investor Day Highlights (PeerIQ), Rated: AAA

Rep. Patrick McHenry (R-NC) sent a letter to the Cleveland Fed accusing them of using their study on peer-to-peer lending to block bill “Protecting Consumers Access to Credit Act” (H.R. 3299). The bill proposes to overturn a decision in the Madden v. Midland Funding case against the “valid when made” clause which allows sales of legally made loans in one state to parties in other states, even if the loan exceeds the interest rate cap in the state of the borrower.

Positioning and Strategy 

LendingClub doubled-down on the capital-light marketplace lending model, and emphasized the role of technology, data & analytics, and the “virtuous cycle of scale.”  LendingClub also emphasized the new product innovation on the investor side of its business – notably the Exchange Traded Product (ETP) which we think may have been lost in the immediate reaction to revised guidance.

LC sees an addressable market opportunity of $300-350 Bn in the credit card refinance and debt consolidation spaces, and a $38 Tr pool of addressable capital on the investor side of its marketplace.

LC has a two-pronged strategy to attack these markets and meet EBITDA margin goals:

  1. 2018: Focus and Invest
    1. Accelerate personal loans growth while prudently managing credit
    2. Invest in auto and leverage secured capabilities for personal loans
    3. Strengthen Investor franchise by expanding securitization and growing new structures
    4. Address legacy issues
  1. 2019-2020: Expand and Deepen
    1. Expand lead in personal loans through further data, analytics, and product and testing efforts
    2. Expand role in the borrower journey through new products and services
    3. Expand investor universe to lower cost of funds, improve resiliency, capture more value
Source: Lending Club

As seen in the chart below, LendingClub is positioning MPL loans as a new asset class that offers higher risk-adjusted returns as compared to other fixed incomealternatives, while offering lower interest rate risk. LC has delivered historical annualized loss-adjusted returns of 6.7% on its Prime loans portfolio, and 10.9% on its Near-Prime loans portfolio.

Source: LendingClub

The top question on investors’ minds remains the expected performance of MPL loans thru a recessionary scenario in the chart below, LendingClub published estimates of expected annualized charge-offs on Prime loans in a baseline scenario of 5.5%, in a moderate recession scenario of 7.9%, and in a protracted slump scenario of 11.5%.

Source: LendingClub

Why it is easier now for small businesses to go global (Born2Invest), Rated: AAA

It has become significantly easier today to run a multinational business compared to a few years ago. This is down to the increasing adaptation of technological advances to various business operations.

Markets are becoming decentralized and barriers to entry are minimal

The internet is central to the paradigm shift we have witnessed in the business environment over the last couple of decades. For instance, you do not have to live in the U.S. to sell your products or services to the Americans. Even where certain levels of certification are required, these can easily be done online thereby allowing a foreigner to obtain the required credentials for operating a business that targets American citizens. Therefore, market access is global, decentralized and without limits for anyone looking to expand exponentially.

Another thing that is influencing growth strategies among small businesses is the ease of access to financing.

Ideally, most businesses would opt for local lending. However, with the growing popularity of online-based peer-to-peer lending platforms like Lending Club, small businesses can now access financing regardless of whether they have security. But it is not as easy and straightforward as it sounds. According to National Business Capital, the process can be as tasking as trying to apply for a securitized loan with background checks and credit scores playing a crucial role.

Nonetheless, lending institutions are being pressured by the increasing number of peer-to-peer lending platforms. This has forced them to lighten up their lending requirements in a bid to increase their loan portfolios and subsequently interest incomes. In this case, we could say that technological advances and the emergence of alternative lending solutions have forced the hand of the credit market to create a more conducive environment for businesses to thrive.

Max Levchin’s lending startup is heading for unicorn territory (Axios), Rated: AAA

Affirm, the personal credit startup led by PayPal co-founder Max Levchin, has filed a stock authorization form in Delaware that would allow it to raise up to $210 million in new funding at around a $1.4 billion pre-money valuation.

How Max Levchin cofounded and built PayPal into a payments monster after 6 pivots and a bitter rivalry with Elon Musk (Business Insider), Rated: A

He now spends most of his time at Affirm, which offers small loans but doesn’t charge any penalties or fees.

 

PayPal founder talks digital payments, bitcoin (The Seattle Times), Rated: A

Q: Are digital payments progressing as quickly as you hoped since you started PayPal?

A: They are moving at a good pace, adjusted for just how large and complicated the market is. It’s highly regulated and there are a lot of things to be careful about. The elephant in the room for the last seven or eight years has been cryptocurrency.

Q: What are some of the most interesting areas of digital payments?

A: A good example is international remittances, where companies can pop up and do well. They’re the guys who figured out how to do it much cheaper and much more transparently with much lower friction to both the recipient and the sender.

Can I get my pay instantly? New payday apps give workers fast access to wages — for a price (Mic), Rated: AAA

And while many workers typically wait anywhere from once a week to once a month to get the money their company owes them, new apps from financial technology startups like DailyPay, FlexWage and PayActiv are giving workers everywhere — including at Goodwill, McDonald’s and Uber — faster access to wages, and sometimes even on the same day they clocked their hours.

Proponents like Shah say faster access to wages can motivate hourly workers to put in longer hours (since they’ll reap the rewards more quickly) and can reduce their reliance on abusive payday loans with sky-high interest rates that can leave borrowers in an unending debt cycle. Indeed, taking out a single $100 payday loan for two weeks could eat up more than $130 out of your next paycheck, once you factor in interest and fees. Repeat that every two weeks and you are down hundreds of dollars for the year — equivalent to a full month’s rent for many.

With DailyPay — which is used by hourly workers at DoorDash delivery service, the Maids residential cleaning service and Kellermeyer Bergensons Services facilities management firm — employees can access 100% of their accrued and unpaid net wages for a fee of $1 to $3 per transaction. The money can be deposited directly into their bank account or put on a prepaid card or payroll card on the same day.

Another app called Earnin lets workers withdraw up to $100 a day and $500 per pay period in advance of receiving their regular paycheck. While it charges no fees, it does give workers the option of “tipping.” The service then withdraws funds directly from your checking account after you’ve been paid.

FlexWage, for example, only lets workers tap up to 70% of their unpaid wages between regular paychecks (for a $3 to $5 fee per transaction). PayActiv gives them access to 50% of their net pay for every 30 hours worked for a $5 fee.

Instant Financial lets employees withdraw half their daily net pay every day at no cost at all: Instead they charge employers $1 per month per employee enrolled in the program.

Source: Mic

There’s an attractive way to profit from the $ 1.3 trillion student-loan bubble (Business Insider), Rated: A

According to Goldman Sachs, the outstanding student loan balance has reached $1.3 trillion in face value, about the size of the high-yield corporate-bond market. This outstanding debt is not without problems, as it delays homeownership for some millennials and cuts their disposable income.

It’s the $190 billion of outstanding loans that are held within asset-backed securities (ABS) refinanced by private lenders such as SoFi.

“Recent marketplace student loan deals have featured borrower pools with average credit scores above 770 and average borrower incomes above $160k: a very different credit profile than the government guaranteed portfolios.”

Source: Business Insider

Some lenders stand to gain as others leave auto niche (American Banker), Rated: A

The indirect auto business is in a state of transition.

TCF Financial in Wayzata, Minn., surprisingly walked away from the segment on Dec. 1, and others like Regions Financial and Fifth Third Bancorp have tapped the brakes for reasons ranging from competition and credit concerns to regulatory pressure and low yields.

Auto sales are also projected to fall by 7% this year, according to Autodata and the Bureau of Economic Analysis.

Financial Literacy Curricula for Non-Prime Consumers Should Focus on Relevant Topics, Attainable Goals (BusinessWire), Rated: A

America’s financial literacy programs may be failing the very people who need them most, according to newly released research from Elevate’s Center for the New Middle Class (CNMC). Non-prime consumers learn and retain financial education material differently than their prime peers, the research indicated.

To be most effective for a non-prime audience, financial literacy curricula should:

Be trans-media. Use different media types to deliver different messages.

Address the unique challenges of non-prime Americans. A financial wellness program will be more effective for non-prime Americans if it directly addresses their unique challenges – things like income volatility and a lack of available resources. It also needs to identify outcomes that are relevant, attainable, and meaningful to them.

Highlight the next immediate steps.

Focus on building their credit. Non-prime Americans understand that their credit scores affect every part of their financial lives and they are hyper-focused on what they can do to improve them. Anchoring a financial wellness program on credit score management can actually lead non-prime consumers to understand broader financial management principles.

Ken Rees of Elevate (Lend Academy), Rated: A

In this podcast you will learn:

  • The evolution of Ken’s career that led to the founding of Elevate.
  • The different products that Elevate offers today.
  • A profile of the typical Elevate customer.
  • How Elevate’s products help their customers’ financial situation.
  • Their typical loan terms.
  • Ken’s view of the new CFPB rules on small dollar loans.
  • How Elevate’s underwriting process works.
  • The total originations for Elevate in the US and UK.
  • The importance of data analytics in their business.
  • The percentage of customers coming to them through a mobile device.
  • How they can underwrite 95% of their loan applications in an automated way.
  • How their charge-off rates have been trending.
  • The different funding sources they use to fund these loans.
  • What their Center for the New Middle Class does.
  • How their IPO process went and what it is like being a public company.

 

Winners and Losers in the CFPB Mess (Credit Union Times), Rated: A

Winners

Payday Lenders – Like them or not, the payday lending industry was in for a huge takedown under the CFPB’s final rules that will restrict the way they do business.

Still, the industry now has a friend rather than a foe in the director’s office. And that can’t hurt for an industry that just weeks ago appeared to be headed for a major takedown.

Attorneys general call for Consumer Financial Protection Bureau independence (Lake County News), Rated: B

California Attorney General Xavier Becerra on Friday joined attorneys general from 17 other states in calling on the Trump Administration to respect the independence of the Consumer Financial Protection Bureau.

PNC to offer consumer loans through mobile devices (American Banker), Rated: A

PNC Financial Services Group plans to introduce a consumer lending product that it will market through both its mobile wallet and in new branches.

The $375 billion-asset Pittsburgh company intends for the new loan product to be available on a national scale, Chairman and CEO William Demchak said this week.

Kaplan Fox Announces Investigation of Qudian Inc. (Business Insider), Rated: A

Kaplan Fox & Kilsheimer LLP (www.kaplanfox.com) is investigating Qudian Inc. (“Qudian” or the “Company”) (NYSE:QD) on behalf of investors who purchased Qudian American Depository Shares.

On October 17, 2017, Qudian issued 37.5 million American Depository Shares at $24 per share under a Registration Statement and Prospectus filed with the U.S. Securities and Exchange Commission, for gross proceeds of $900 million.

On November 21, 2017, Chinese media sources began to reveal that the personal information of millions of Qudian customers were allegedly available for sale on the black market. On November 23, 2017Bloomberg reported that “Chinese regulators and police are investigating a potential leak of data from online lender Qudian Inc., according to people with knowledge of the matter.

Meet Tim Russi, President of Auto Finance at Ally Financial (Vator.TV), Rated: A

VatorNews: How is technology influencing and impacting Ally’s auto business? Why is this technology integral to the company’s future in this arena?

Tim Russi: We’re a company that’s 100 years old, and you don’t become a 100 year old company in today’s world if you don’t have the ability to reinvent yourself.

Ally operates in what we in the lending world refer to as an ‘indirect model,’ so dealers originate the loans and leases and then we purchase them from the dealers. The speed and access of the indirect model has changed significantly in the last 15 years. The industry was very disruptive in creating online portals for dealers to be able to submit applications to lenders, so the lender didn’t have to be on site to do the loans.

VN: How have you seen technology in the auto space evolve in that short amount of time? How quickly is the space changing?

TR: You look at a lot of the lending models today and they’re going direct to consumers, and we’ve even got a direct model, because as you look at digital and the consumers doing shopping online, and wanting to buy, there’s no reason they shouldn’t be able to select and purchase the vehicle and obtain financing right at the ‘point of sale.’ If the sale’s going to be online, not in the dealership, we want to make sure we’re there and then fulfillment can occur at the dealership.

VN: How has SmartAuction changed the way dealers sell and buy vehicles? What kind of ROI have you seen?

TR: SmartAuction, we actually developed in 1999 and we’ve done over 5 million transactions. We have 20,000 vehicles that are available for sale or purchase in the marketplace. It’s a wholesale marketplace so dealers can post and buy.

Notable Real Estate Trends To Watch For In 2018 (Forbes), Rated: A

3. Fractional Investing

As peer-to-peer lending and crowdfunding catch mainstream attention, folks looking for greater diversification and passive investment opportunities will engage in factional investing. The last few years have seen some extremely credible startups innovate in this space, and next year could lead to individuals moving away from sole ownership to fractional ownership via crowdfunding. – Sohin ShahInstaLend

7. On-Demand Access For Renters

We often hear from renters that they are too busy to sweat the small stuff. They want immediate tour confirmations, like booking a restaurant on OpenTable, and near-immediate confirmation that they have leased, like booking a hotel. This real-time service expectation from a new generation of renters is exactly what we plan to cater to in 2018. – Anthemos GeorgiadesZumper

Peer-To-Peer Lending : Here Are 5 Things To Know (NDTV), Rated: B

  1. P2P lending is a form of financial innovation but the concept that works behind it is the same as in the case of the banking system.
  2. Any lay investor or lender can lend money to any borrower who is registered with the P2P platform.
  3. Borrowers and lenders enter into a contract according to which they agree to the amount disbursed and the rate of interest.
  4. A borrower can raise loan at the rate of interest, which is inversely proportional to his credit score.
  5. Each P2P lending platform charges a fee for the transactions that are fructified at their platforms.

Trump says fines for Wells Fargo will not be dropped (Des Moines Register), Rated: B

President Donald Trump weighed in on an investigation into scandal-plagued Wells Fargo, tweeting Friday that fines and penalties against the bank would not be dropped, and may actually be “substantially increased.”

Trump’s statement comes a day after Reuters reported that Mick Mulvaney, the president’s budget director and now acting director of the Consumer Financial Protection Bureau, was weighing whether the bank should have to pay tens of millions in fines already levied against it for mortgage lending abuses.

United Kingdom

Funding Circle SME fund size to double following C share merger (P2P Finance News), Rated: AAA

THE FUNDING Circle SME Income Fund (FCIF) is set to double the value of its assets after announcing plans to convert its conversion shares into the ordinary portfolio on 20 December.

The investment trust, which invests in loans on the Funding Circle platform, revealed in its half-year report that the move will increase the fund’s size to around £310m.

Currently the ordinary shares are worth £165.3m and the C shares, launched in April, are worth £142.3m.

Funding Circle SME Income Fund Net Asset Value And Profit Both Rise (Morningstar), Rated: AAA

Net asset value per ordinary share was 100.55 pence per share, representing an increase in the total NAV to GBP167.0 million from GBP165.0 million at the start of the half, which ended September 30. Net asset value total return was 12%.

For the C shares, net asset value was 99.82p, having only been issued in April. These shares are due to convert to ordinary shares on December 20.

Zopa investors can now automatically move repayments into their IFISA (P2P Finance News), Rated: AAA

ZOPA investors can now automatically re-direct their repayments into their Innovative Finance ISA (IFISA).

The peer-to-peer consumer lender confirmed this week that customers can gradually move their Zopa money into the tax wrapper without having to sell loans or pay extra fees.

Moving money into the IFISA will contribute to the investor’s annual tax-free allowance, Zopa said. However, once money is in the IFISA and has been lent out, those repayments will not contribute to the IFISA allowance.

Why banks will share your financial secrets (BBC), Rated: AAA

Customers of nine of the biggest UK banks have received letters and emails in recent weeks informing them that their information can be shared, securely, with other firms. All they need to do is give their permission.

The UK’s competition watchdog says this so-called Open Banking regime will revolutionise many people’s financial lives, helping them get better deals.

Most people stay loyal to their bank. The Competition and Markets Authority (CMA) found that only 3% of personal customers move their accounts each year.The UK’s competition watchdog says this so-called Open Banking regime will revolutionise many people’s financial lives, helping them get better deals.

How will it work?

In practice and in time, customers will probably see a dashboard on their bank’s mobile phone app.

This will show them how much money they have in their different accounts, with different banks, and eventually how much they owe on credit cards and store cards too.

A set of computer programming rules in the UK, called Application Programming Interfaces (APIs), will ensure all these new services and banks to talk to each other.

Applications for mortgages could be dealt with more quickly, as providers and brokers could access spending history, rather than ask for printed copies of the last three months of bank statements.

Anne Boden, of mobile-only Starling Bank, says customers will be able to see exactly what they bought for lunch each day, an app could analyse the calorie levels, and then cross-check it with how much exercise that person is doing.

Customers could be bombarded with invitations to try out a new service, and could quickly lose control of their financial data, according to Mick McAteer, of the UK’s Financial Inclusion Centre.

He describes Open Banking as “a daft idea”, which will lead to more financial exclusion for those already on low incomes.

Unscrupulous individuals would be keen to access this data and use it alongside information revealed on social media to build up a complete set of personal information.

The UK needs its own version of business development companies (Financial Times), Rated: A

The great scramble for yield has seen asset managers hunt down ever more alternative sources of income. Many are starting to move into the world of shadow banking, alternative forms of lending in areas where banks are not competing for business as much as they used to.

But evidence from the US suggests that the biggest opportunity probably lies in what is called direct lending, preferably through a structure that might mimic US business development companies. These BDCs are a large and diverse universe of tax efficient, listed, closed-end funds resident in the US. Collectively they are worth at least $100bn, according to Keefe, Bruyette & Woods, the investment bank, nearly all of which has been lent to mid-market private businesses in the US — capital that has arguably helped to improve the nation’s corporate productivity and profitability. Income-hungry investors have also snapped up these funds, with average yields well over 9 per cent per year.

Direct lending companies will service the mid-market secured lending space for loans above £50m but they, in turn, lack an outlet into the public markets typically afforded by BDCs in the US.

Industry reacts to Cambridge report on alternative finance (AltFi), Rated: A

The Cambridge Centre for Alternative Finance’s report, entitled Entrenching Innovation, found the UK online alternative finance market grew 43 per cent in 2016 to £4.6bn.

“Abundance was particularly pleased to see our category (debt securities) confirmed as the fastest growing of all at 1,147 per cent year on year, with an accompanying 40 per cent increase in average deal size to £1.4m. It was also good to see hard evidence of investors in debt securities conducting their own due diligence and being comfortable with the risk/reward offers they found,” he said.

Anil Stocker, CEO and co-founder of fintech business finance firm MarketInvoice, says as awareness increases, which will be propelled by PSD2, so too will the use of alternative finance platforms.

The UK ranks top of all major developed economies for establishing new businesses (City A.M.), Rated: A

The UK outranked all other major developed economies in terms of the number of businesses established last year, according to figures from accounting group UHY Hacker Young.

It became home to 218,000 more businesses in 2016, a rise of six per cent over year-on-year. Meanwhile, other major developed economies including France, Germany, Italy, Japan and the US saw an average two per cent rise in number of businesses over the year.

FCA to change advice definition in January (FT Adviser), Rated: B

The Financial Conduct Authority has said it will introduce its new definition of advice from Wednesday 3 January.

As part of this it has amended its handbook to change the definition of financial advice, meaning only advice which offers a personal recommendation will be considered regulated.

China

Chinese Banks Face Potential Capital Shortfall, IMF Says (WSJ), Rated: AAA

Chinese banks may have insufficient capital to weather potential losses from the nation’s rapidly mounting credit risks, the International Monetary Fund said, in a broad review of China’s financial system.

With Chinese banking-sector assets, at $34.7 trillion, soaring to three times the size of China’s economic output, at $11.2 trillion, the IMF said that “holding more capital would strengthen the banking system and bolster financial stability,” according to a report on Thursday.

The IMF said China should consider boosting risk-weighted assets at its banks by 0.5% to 1% over the coming 12 months.

Source: The Wall Street Journal

 

WeiyangX Fintech Review (Crowdfund Insider), Rated: A

LexinFintech, China’s online provider of installment-based loans has decided to conduct extra due-diligence investigation for its IPO in the US.

This week, KPMG China announced the 50 leading Fintech companies operating in China and published a related insight report.

(Note: Companies are arranged in alphabetical order based on the first letter of their Chinese name in pinyin.)

  1. Anxindeli
  2. Baidu Finance
  3. BAIFENDIAN
  4. 100credit
  5. ICE KREDIT
  6. TENPAY.COM
  7. Dianrong.com
  8. RQuest
  9. FUTUNN.COM
  10. ChinaPnR
  11. PING ++
  12. 3GOLDEN
  13. JFZ.COM
  14. JD Finance
  15. Juxinli
  16. QUARK FINANCE
  17. 99Bill
  18. Tigerbrokers
  19. QuantGroup
  20. LENGJING INFO
  21. LU.com
  22. Ideacome
  23. MSXF
  24. Ant Financial
  25. PINTEC
  26. QFPAY
  27. Qudian
  28. UCREDIT
  29. Rong360
  30. Wecash
  31. ChinaScope
  32. BBD
  33. Souyidai
  34. Suanhua Credit
  35. Feidee
  36. Taiyiyun
  37. TalkingData
  38. Tcredit
  39. Beagle Data
  40. Tong Dun
  41. Wacai
  42. Wei Zhong Shui Yin
  43. WeBank
  44. WeLab
  45. u51.com
  46. Onchain
  47. Hcspark.com
  48. Zipeiyi
  49. Zhongan Insurance
  50. Zuihuibao

New guidelines for banks to support P2P lending (Taipei Times), Rated: A

The Financial Supervisory Commission on Thursday gave its nod to guidelines on collaborations between peer-to-peer (P2P) lending platforms and commercial banks, in a move to support the development of emerging financial services.

Under the guidelines, banks may provide custodian and trust account services to P2P platforms, as well as transaction processing to meet rules against collection of deposits by non-bank entities, the commission said.

However, banks are barred from making recommendations on decisions about loan approval, interest rates and principal amounts.

The guidelines also regulate the so-called peer-to-bank (P2B) model, where banks participate as lenders on P2P platforms.

CreditEase’s CEO Ning Tang spoke about FinTech and innovation at Fortune Global Forum (Business Insider), Rate: A

Ning Tang, Founder and CEO of CreditEase, attended the 2017 Fortune Global Forum on December 6-8 in Guangzhou. With the theme of “Openness & Innovation: Shaping the Global Economy,” the Global Forum convened world leaders, senior executives and prestigious scholars to discuss the dynamic frontiers of international commerce.

Tang stated that the Chinese FinTech industry still sees great potential in the coming decade represented by development in applications such as microloans for SMEs, crowdfunding, robo-advisory, insurance technology, and blockchain products and services.

India’s FDI climate good for China investment (China Business Law Journal), Rated: A

Mumbai-based fintech start-up Kissht recently raised US$10 million in funding primarily from Fosun International, a Chinese investment consortium. The Krishnamurthy & Co team acted for and represented Kissht and its owner OnEMI Technology Solutions, led by Mumbai-based partner Sanket Sethia and associate Vwastav Ghosh.

European Union

Moody’s highlights improving performance for European SME ABS next year (FTSE Global Markets), Rated: AAA

The performance of small and medium-sized enterprise (SME) asset-backed securities (ABS) will remain stable across all major markets in Europe and issuance volumes will likely increase slightly, according to the 2018 outlook for European SME ABS from Moody’s. However, emerging political risks have created some uncertainty in affected markets, with a limited effect on securitised deals in the United Kingdom (UK), and potentially negative effects in Spain.

Billie Raises €10m Series A (LendIt), Rated: A

Billie is an invoice finance platform that launched earlier this year; the round was led by Creandum with participation from existing investors Speedinvest and Global Founders Capital; the company focuses on complete automation with no human interaction; It was co-founded by Matthias Knecht and Christian Grobe; Billie also secured a refinancing facility from a major German bank.

International

Regulated Crypto Platform Plays By the Rules and Disrupts Trading Model (Coin Telegraph), Rated: A

Trade.io’s solution is to develop an exchange platform for the sharing economy where traders can not only exchange tokens, crypto and fiat currencies and other assets but also share in the risk and revenue of the liquidity pool. To participate in the liquidity pool, members buy 2,500 Trade Tokens secured by financial assets in their trade.io wallets. Crypto and fiat currencies are accepted as collateral.

Trade Token owners share in 50 percent of the gains or losses of the liquidity pool, which are distributed to the wallets of pool participants. Besides trading fees and commissions, revenue is earned from investment banking and P2P lending fees.

Australia/New Zealand

Harmoney Reports Increase in Kiwi SMEs That Are Tapping into P2P Lending for Business Cashflow (Crowdfund Insider), Rated: AAA

Earlier this week, Harmoney announced there has been an increase in Kiwi SMEs that are tapping into peer-to-peer (P2P) lending for business cashflow.

The New Zealand online lender stated it estimates $100 million will be loaned to business accounts through its lending platform within the next six to twelve months. Currently, the average loan amount for business cashflow on its platform is $25,000.

Sydney fintech Avoka raises $ 16m in Roger Allen-led round (Financial Review), Rated: A

Avoka Technologies, a fast-growing Sydney-based provider of customer acquisition services to financial institutions, has raised $16 million from investors, including prominent venture capitalist Roger Allen, as offshore revenue rises above 75 per cent and the headcount moves towards 300.

Avoka offers a software-as-a-service platform called Transact, which claims to enable institutions to launch new digital products in weeks rather than months, and monitors customer interaction with them once established.

BankWest’s mobile banking app was built on Avoka, while Mr Copeland said HSBC was about to launch new credit cards whose customer interface was developed through the platform.

Asia

Crowdcredit, Inc from Japan (Makoto UJIKE Email), Rated: AAA

Crowdcredit is a cross border online lending platform, which raises funds from Japanese investors and finances overseas financial institutions, SMEs, or individuals.

Crowdcredit, Inc. announced its completion of appx. USD3.5mn financing mainly from Femto Partners, one of the most influential venture capitals in Japan.

Crowdcredit track record;

  • – Established in January 2013
  • – Started raising funds since June 2014,
  • – Finances financial institutions, SMEs, or consumers in Peru, Cameroon, Estonia, Finland, Spain, Latvia, Lithuania, Georgia, etc.,
  • – Has registered investment user of 8,000+
  • – Has issued funds in total US$ 45.5mm, and
  • – Issues funds of US$ 4mm monthly with increasing trend.
Source: Crowdcredit
Source: Crowdcredit
Source: Crowdcredit

Learn more about Crowdcredit here.

Crowd-lending platform New Union awarded CMS license (The Edge Markets), Rated: A

Crowd-lending platform New Union has been awarded the full Capital Markets Service license (CMS) by the Monetary Authority of Singapore (MAS), and announced a potential deal flow pipeline of about S$2 million to be launched soon.

P2P lending platform Validus Capital gets licence to deal in securities in Singapore (Business Times), Rated: A

VALIDUS Capital announced on Monday that it has been awarded a full Capital Markets Services (CMS) licence by the Monetary Authority of Singapore (MAS), to deal in securities – a move that may give Singapore’s small and medium-sized enterprises (SMEs) more access to financing opportunities.

Singapore banks can save over 10% from fintech (SBR.com.sg), Rated: A

Moreover, about 41% of banked balance has now abandoned traditional channels.

MAS estimates fintech payments already takes up 20-50% of household consumption if the probability of payments disintermediation is high in the next five years.

A majority of 56% of the banked population is also willing to shift their savings into a pure play digital bank. An average of 41% of total balance has already been shifted.

Equity crowdfunding and peer-to-peer lending (The Star), Rated: B

Equity crowdfunding has become an increasingly popular way for early-stage and early-growth companies to tap investors attracted by the potential for high returns. An investor who has spent the last couple of years lamenting over the lacklustre performance of his stocks sees ECF as an investment channel that claims to offer even better returns.

P2P investing is garnering a lot of interest from would-be investors who are looking for something different and better than banks’ fixed deposits.

ECF means investing in very early stage businesses and as such, there are inherent risks to be aware of such as the likelihood of bankruptcy, in which case, you will not be able to recover your original investment.

With P2P investing, the most obvious risk that comes attached is of course the possibility of the borrower defaulting on the debt. As the reasons for not being able to repay the loan are typically financial, any subsequent attempts to recover your investment may prove futile if the business indeed has gone under.

Key tips to investing

1. Know where ECF and P2P stands in your strategic asset allocation.

2. Ensure you are investing in best of breed by comparing apple to apple when it comes to risk versus returns.

a) Ensure the platform is approved by SC.

b) Research each scheme on the platform as not every one is the same.

c) Read the fine print in the platform operator’s agreement and know the rights and liabilities of each party. Pay particular attention to the risk warnings in the agreement with regards to potential loss of invested capital and the unsecured nature of the investment (for P2P).

3. Diversification is key.

4. Monitor how your investments are performing.

5. Consider the time required before you see your investments come to fruition.

MENA

New Amendment To Address Reward-Based Crowdfunding And What To Expect (Mondaq), Rated: AAA

A new omnibus code that amends, amongst others, the Capital Markets Code (“CMC“) has been enacted by the Turkish parliament and published in the Official Gazette on 5 December 2017.

The CMC amendment primarily refers to reward-based crowdfunding (i.e. receipt of goods, reward or pre-sales in return or investment-based or loan-based crowdfunding) while donation-based crowdfunding where the investor donates the money with no return is still subject to aid and donations legislation. The said amendment limits crowdfunding to project or venture financing and only through crowdfunding platforms that are prior-recognised by the Capital Markets Board (“Board“).

Crowdfunding platforms can only operate in Turkey once they obtain the necessary permission from the Board.

Fintech Is The New Oil In The Middle East And North Africa (Forbes), Rated: AAA

Over the past decade, fintech startups in the region have raised over $100 million in funding, and investment is predicted to double by 2020, according to the State of Fintech report. Disclosed investment infintech had jumped 100% to over $35 million by October 2017 — Paytabs ($20million), Souqalmal ($10 million) and Beehive ($5 million) — compared to $18 million last year. The number of fintech startups also increased from 46 in 2013 to 105 in 2015. It is estimated that it will more than double again to 250 by 2020, according to the report.

Aside from the fact that the sector encompasses every tech startup active within the financial services industry, beyond the ones that specialize in online payments or money transfers, e-commerce in the region is set to quadrupleuntil the end of this decade. Additionally, despite the ubiquity of smartphones and internet connectivity, 86% of the adult population in the region is unbanked, while three in four GCC bank customers are ready to switch banks for a better digital experience.

Boosting financial inclusion is crucial for economic diversity and growth across the region. Moussa Beidas, co-founder of Dubai-based startup Bridg, which allows smartphone-to-smartphone payments using bluetooth, says fintech has become an innovative way to bridge the divide and provide cheaper services to the unbanked.

Significant banking changes due to tech innovation (Gulf News), Rated: A

The rapid advancement in innovation is transforming the financial services industry, especially the banks, as technology has become an integral part of the business strategy — from initially being just an enabler to now actually streamlining operating processes.

The Middle East has amassed more than $100 million (Dh367 million) in FinTech start-up funding in the past ten years, with 105 FinTech start-ups launching in 2016, with hopes to raise $50 million in funding by the end of 2017.

Banks in the UAE remain the trendsetters, although other GCC countries are not lagging far behind, with several banks in the region embracing FinTech in many different ways.

Africa

TransUnion launches Mobile Score Card solution (IT Web Africa), Rated: AAA

Data firm TransUnion has launched Mobile Score Card, a mobile loan information service that enables lending firms to access a loan applicant’s credit status.

Mobile Score Card is a database solution that continually ‘learns’ based on mobile transactional history.

It also provides mobile lenders with customisable and reliable risk view of the mobile loans. The product targets banks with mobile lending solutions, savings and credit cooperative organisation and independent mobile lenders.

Authors:

George Popescu
Allen Taylor

July 12th 2016, Daily News Digest

July 12th 2016, Daily News Digest

News Comments United States LendingClub’s charge off grows from 4.58% to 6.31%. Some people claim it is due to the company verifying only 26.8% of borrower’s income vs 49% in 2013. However, there was a higher proportion of bad loans among those verified than those that weren’t verified, roughly 12% vs 7% respectively. The real […]

July 12th 2016, Daily News Digest

News Comments

United States

European Union

United Kingdom

Korea

India

New Zealand

News Summary

 

Country

LendingClub’s Newest Problem: Its Borrowers, (Wall Street Journal), Rated: AAA

From loans made in 2013 through the first quarter of 2015, gross charge-offs of LendingClub’s lower-graded loans a year after issuance jumped to 6.31% from 4.58%, an increase of 38% or 1.73 percentage points. Charge-off rates on top-graded loans—which go to borrowers with stronger credit histories—rose less dramatically, to 1.51% from 1.46%, according to a presentation by the firm in May. Note: Do not mix charge-off rate and non-performing rate. Charge-off is a usually small subset of non-performing.

Charge-offs are ticking up at some other lenders. As of May, about 4.2% of the principal amount lent by Prosper Marketplace Inc. in the first quarter of 2015 had been charged off, according to MyCRO, a data tracker from online lending and securitization platform Insikt. Loans made a year or two earlier had seen charge-offs of 3.0% and 3.8%, respectively, after a similar amount of time had passed. A Prosper spokeswoman had no immediate comment.

Meanwhile, the percentage of loans written off by banks on their credit-card books last year hit the lowest level since the 1980s, according to Federal Reserve data. The rate was 3.16% in the first quarter versus 3.78% at the beginning of 2013, according to the regulator’s data.

As part of their loan-approval process, most lenders have automated the processes of checking borrowers’ credit metrics and looking up their histories while in many cases avoiding more labor-intensive practices of collecting and reviewing pay stubs or tax returns. For instance, this year, through the first quarter of 2016, LendingClub had verified actual income for 26.8% of loans, down from a peak of 49% in 2013. The company also has argued that verifying every applicant’s income is unnecessary. For loans made in 2012, for example, there was a higher portion of bad loans among those verified than those that weren’t verified—roughly 12% and 7%, respectively.

While about one-third of borrowers said they were paying down credit cards with their online loans, 46% actually started carrying at least 10% more in credit-card debt after getting the loan—well above the 30% rate for unsecured personal loans made by all lenders, Experian said.

LendingClub borrowers are among those who have become more indebted as the firm expanded. Debt-to-income ratios—a common credit measure—for LendingClub borrowers rose to 19.2 in 2015 from 13.8 in 2011, according to an analysis of loan data by research firm MonJa.

Legislation Proposed to Counteract Court Ruling on State Usury Caps, (Wall Street Journal), Rated: AAA

A Republican lawmaker late Monday introduced a bill aimed at helping debt buyers bypass state interest-rate caps, mounting a direct response to a case the Supreme Court recently declined to hear. The move comes after the Supreme Court declined to hear a case in which the Second U.S. Circuit Court of Appeals in New York determined debt buyer Midland Funding LLC couldn’t charge an interest rate higher than New York’s usury cap after purchasing the debt from a Bank of America Corp. unit.

“This ruling will restrict the expansion of credit and restrict innovation” and “poses a risk to the secondary credit markets. It also undermines peer-to-peer lending platforms in the current business model,” Mr. McHenry, a top Republican on the House Financial Services Committee, said in an interview with The Wall Street Journal. “The consequences of the court ruling is what we’re seeking to fix.”

The proposal is likely to generate as much opposition as the case, with debt buyers wanting to keep federal pre-emption and consumer groups pushing hard for states’ rights to protect consumers from being charged high interest rates. Analysts have already predicted any legislation in this area would be difficult to pass.

“It will have trouble passing because the Democrats are going to look at it as a means of circumventing consumers and Republicans will look at it as an unnecessary overlay of states’ rights,” said Isaac Boltansky, an analyst at Compass Point Research & Trading LLC.

The proposal is among a series of bills that Mr. McHenry has been rolling out as part of a package to promote financial innovation called the Innovation Initiative.

As a part of the initiative, Mr. McHenry introduced another bill Monday to the House Ways and Means Committee that would require the Internal Revenue Service to use “website-based, real time responses” when a lender requests a document from the IRS to verify a person’s income and other data points to approve a loan.

Amazon Looks Set to Deliver in Structured Credit After Hire, (PeerIQ), Rated: AAA

Online retailer Amazon has been quietly building a business lending to its customers and now looks set to open this asset book up to investors by securitizing some of these loans.

Nick Clemente, a former director with BNP Paribas’ structured credit team responsible for origination and execution of structured credit and credit derivatives, has joined the tech giant to run capital markets for its Amazon Lending business.

A recent investor newsletter from the firm referred to the group as having provided financing of over $1.5 billion to small and medium-sized businesses across the US, UK and Japan. Amazon Lending specialises in short-term lending and is said to be sitting on $400 million of loans.

The newsletter adds that Amazon Lending is looking to partner with a bank so that these dealers can manage the “bulk of the credit risk”.

How New York Beat Silicon Valley in Fintech Funding in Q1, (Datamation), Rated: AAA

In the first quarter (Q1) of 2016, and for the first time ever, New York City beat Silicon Valley in terms of fintech (financial technology) financing, $690 million versus $511 million, states Fintech’s Golden Age, a new report from Accenture and the Partnership Fund for New York City. In all of 2015, investments in New York totaled $2.3 billion, triple the amount raised by the area’s fintech startups the previous year.

It’s easy to attribute New York City’s rise in fintech scene to the proximity local startups enjoy to Wall Street banks and financial firms. But there are other forces at play, said Maria Gotsch, president and CEO of the Partnership Fund for New York City and co-founder of the FinTech Innovation Lab.

With ready access to funding, established customer relationships and their own considerable experience in maintaining large and complex IT ecosystems, New York City’s banks and other big financial institutions became natural allies for fledgling fintech companies. Funding aside, the area’s deep-pocketed firms are also looking to cut deals with startups that can help them bolster their services offerings.

“Financial institutions have made some major acquisitions,” said Gotsch. “Exits are always good.”

Fed’s Williams Prefers MBS Buying to ECB Tactics in Next Crisis, (Bloomberg), Rated: AAA

When the next crisis comes, don’t expect Federal Reserve Bank of San Francisco chief John Williams to try persuading his colleagues to pull a Mario Draghi.

The European Central Bank president has gotten creative with monetary policy as euro-area growth and inflation have remained sluggish despite rock-bottom interest rates. He’s tried charging banks for overnight deposits to encourage them to lend the cash instead, doling out long-term loans at ultra-low costs to credit institutions, and adding corporate bonds to his quantitative-easing program. He’s also employed measures that the Fed has also used, like signaling policy stance through forward guidance.

Draghi’s innovations would either come in second to tried-and-proven quantitative easing in the U.S. or would be purely off the table, in Williams’ view.

Regulator sounds new alert on banks’ property lending, (Financial Times), Rated: AAA

A top US regulator has sounded a new alert over banks’ commercial real estate lending, adding to concerns that bubbles may be forming in parts of the country’s property market.

CRE loans originated by banks in the first quarter leapt by 44 per cent from the same period in 2015, according to Morgan Stanley. Banks’ share of CRE originations has risen from just over a third in 2014 to more than half in the first quarter of 2016 — a record.

Thomas Curry, comptroller of the currency, used the watchdog’s twice-yearly report on financial risks published on Monday to warn about looser underwriting standards and concentrations in banks’ CRE portfolios. “Our exams found looser underwriting standards with less-restrictive covenants, extended maturities, longer interest-only periods, limited guarantor requirements, and deficient-stress testing practices.”

Several bank executives signalled during the last results season that they weretightening up CRE lending standards, and a survey of loan officers by regulators in the first quarter suggested many were indeed doing so.

Morgan Stanley identified 25 institutions that “may face pressure from regulators given rapid growth and high concentrations”. This “could lead smaller banks to pull back on CRE lending, raise equity and/or drive M&A”, said its report.

U.S. bank regulator toughens commercial real estate oversight, (KFGO), Rated: AAA

Credit risks have risen in U.S. commercial real estate as lenders compete more fiercely in a low rate environment, a federal banking regulator said on Monday, adding that it was stepping up its scrutiny of the sector.

The Office of the Comptroller of the Currency (OCC) said in its semiannual risk report that while the financial performance of lenders improved in 2015 compared to a year earlier, credit risks were higher across the industry. The agency has escalated its oversight of commercial real estate risk from ordinary monitoring to “additional emphasis.”

Curry also mentioned financial technology and marketplace lending as areas the OCC is keeping a close eye on.

Small U.S. banks are delivering healthier profits than their bigger peers, the report noted. Banks with less than $1 billion in total assets delivered return on equity above 10 percent last year while larger banks only delivered single-digit returns.

Tech coalition targets financial startups’ regulatory hurdles, (The Hill), Rated: A

Financial Innovation Now released a report Monday evening detailing how new financial technology (“FinTech”) companies struggle with a patchwork system of state laws and federal laws geared toward traditional institutions.

The report explains how two theoretical FinTech companies–a lending company and a payments processing company–could struggle to comply with decades of regulations geared toward traditional banks.  “Our hope is that this report helps policymakers understand the regulatory landscape for financial technology,” said Peters.

Congress on Tuesday will take a crack at understanding the landscape for marketplace lending companies with a House Financial Services Subcommittee hearing.

The report also tries to tamp down on cybersecurity concerns by boasting financial technology companies’ knowledge and capability with modern tech security features. The report argues FinTech companies are better equipped and more experienced to handle threats than traditional institutions. “Anecdotal breaches will always occur at technology companies just as at other businesses,” the report reads. But “they pale into insignificance compared to the breaches at banks and major retailers.”

Surprise: Auto Loan Durations Decrease Despite Popularity of Extended 72 and 84 Month Loan Terms, (TransUnion), Rated: A

The TransUnion AutoLoan study can be found here.

The study found that the average term for new auto loans rose from 62 months in 2010 to 67 months in 2015. In the third quarter of 2015, seven in 10 new auto loans had terms longer than 60 months. Five years prior, only half of all loans had terms longer than 60 months.

While the length of typical auto loans (with prices averaging ~$21K) have extended to as long as 84 months, the risk factors for these consumers extending to lower their monthly payments, did not change. In fact, many of these loans are not coming to term as the durations of the loans have actually decreased by one month. Cars are either sold before payoff or the loans can often be re-financed. Most surprisingly, the longer auto loan terms actually resulted in increased serious delinquencies (beyond 60 days) for consumers who are cash squeezed.

 

European Union

Europe’s Asset-Backed Bond Market Is Growing More Mysterious, (Bloomberg), Rated: AAA

Europe’s asset-backed securities market (ABS) is going underground. Private bilateral sales of the bonds, which are typically backed by collateral such as car loans or mortgages, now outstrip public sales to investors, according to Bank of America Corp. analysts led by Alexander Batchvarov.

So-called retained transactions, which are kept on banks’  balance sheets, rose to 78 billion euros ($87 billion) in the first six months of the year, which is more than double the 30 billion euros sold in the same period of 2015, according to Bank of America data. For investors in the public market, new-issue supply totalled just 41 billion euros, or roughly half the volume recorded a year earlier.

Synthetic securitizations, in which credit derivatives are used to transfer risk, are also said to be growing in favor as banks seek to bolster their balance sheets — and even as regulators push back against use of such “regulatory capital” trades.

“Discussions with market participants suggest that the volume may be (much) larger,” Batchvarov wrote. “The revival of synthetic securitisations speak[s] to the need of the banks to manage their capital and credit risk of their balance sheet, but apparently this is now done through bilateral transactions, mostly not rated, and rarely seen.”

 

United Kingdom

Re-setting Ratesetter’s default ratings, (FT Alphaville), Rated: AAA

At the end of last month, we reported on Ratesetter’s higher than expected default rates, which has raised questions about the resilience of its provision fund. The story was based on information from the Ratesetter website, where the level of provisioning per year and the expected vs. actual default rates were made available to investors, along with other information like how much of the yearly provisions had been been used up.

That’s the nature of transparency: you should disclose the bad as well as the good.

But now Ratesetter has decided that publishing expected default rates for each year “are not meaningful for [our] model, since investors do not need to provide for defaults”.

And that’s not the only change.

Ratesetter is now tweaking the way it calculates its provision fund coverage ratio. Instead of just subtracting expected losses from the current value of the provision fund, Ratesetter will now add “expected future income” in as well, thereby boosting the coverage ratio. Here’s their explanation of the change:

The “Expected Future Income” from open loans will be included in the calculation of the Coverage Ratio. This will be introduced alongside our regular update of the Expected Future Losses figure. Two years ago we made the strategic choice to spread more of the Provision Fund’s fees over the lifetime of loans as opposed to all being upfront when the loans are made. This obviously changed the short term flow of cash into the Provision Fund but we believe, in the long run, it is a more sustainable model. Today the total value of this contracted future income stands at over £6m.

The provision fund, which at one point Ratesetter thought to invest in its own loans, currently has almost £17.4m covering for £610m worth of lending — that figure doesn’t yet appear to account for the £6m of future income (nor does it account for any recoveries on defaulted debt, Ratesetter points out in its blog). The loss rate expected is 2.3 per cent, while a rate of 2.85 per cent would eat up all of the provisions. That’s a 55 basis point margin of error and probably the number worth remembering even after all these changes.

Financial markets welcome Leadsom quitting UK’s Prime Minister race, (Press Release), Rated: AAA

Andrea Leadsom’s decision to quit the UK’s Conservative party leadership battle is likely to be welcomed by the financial markets, affirms the boss of one of the world’s largest independent financial advisory organizations.

“First, Leadsom quitting eradicates one layer of the uncertainty that has been hanging over the UK since the historic vote to leave the EU.  The many question marks since the Brexit decision have, unsurprisingly, created volatility in the markets.  With Leadsom pulling out there is one less question mark.

“May could possibly kick triggering Article 50 way into the long grass, or go for the Norwegian model and allow free movement in exchange for access to the single market.

“This kind of ‘Brexit-Lite’ might well please the markets – which had widely priced in and were largely relying upon a Remain victory before the shock result.”

 

Korea

P2P raises concerns about fraud, (Korea JoongAng Daily), Rated: A

As of March, there were 20 P2P lenders in Korea that directly connect lenders and borrowers without intermediation by existing financial companies.

The average loan issuance was 22.1 million won per head. Individual loans on credit accounted for about 85 percent of all P2P lending, the data showed. About 6 percent of individual borrowers took out loans from P2P businesses, taking their properties as collateral.

“I was introduced to the company by one of my acquaintances and heard it was a thriving P2P lender that attracts quite a lot investors as it promises 15 percent returns annually,” Choi said.

The FSS has reported such complaints by consumers to police and prosecutors and said it will enhance monitoring on similar practices.

 

India

Education loans marketplace GyanDhan gets funding from Stanford Angels, Harvard Angels, (Techcircle), Rated: A

GyanDhan, an education loans marketplace operated by Delhi-based Senbonzakura Consultancy Pvt. Ltd, has raised an undisclosed amount in seed funding from Stanford Angels & Entrepreneurs and Harvard Angels.

GyanDhan had earlier received angel funding from Satyen Kothari, founder of Cube and Citrus Pay, to grow operations from the concept phase to its first loan disbursal.

The company will use the money raised in the latest round to build the tech platform to provide a better experience both to banks and students, and to develop its data sciences capabilities.

GyanDhan’s product offerings include loans up to Rs 30 lakh without any collateral for higher education abroad.

The company claims it has processed about 2,500 applications to date and has helped students avail loans worth Rs 10 crore through its partner financial institutions. The firm expects to process transactions worth Rs 30 crore by the end of the year.

Peer-to-peer lenders will help you borrow even from banks or non-bank financial corporations, (DNA India), Rated: A

Online businesses like BankBazaar, Paisabazaar, Policy Bazaar, etc have emerged and established themselves as loan aggregators, thereby passing on leads to financial companies like banks and NBFC’s. However, the quality of the lead has to be still ascertained by the banks and NBFCs through their own efforts, due diligence and filtering to assess the suitability of these leads and the conversion from a lead to a prospect and finally to a borrower.

The need to meet deployment targets is another major reason that banks have challenges in finding adequate numbers of borrowers who meet all their criteria.

A P2P platform provides a curated list of pre-verified, credit assessed list of borrowers from whom the financial companies can cherry-pick based on their appetite and provide loans, thereby significantly reducing their loan origination cost and improving their operating spreads.

Increasingly, banks and other financial companies will see a lot of value accruing to their business by aligning themselves with P2P marketplaces who perform all the necessary verification, credit assessment and also use various social and other information to rate borrowers and build a lot of analytics for intelligent credit decisions over and above the conventional methods which will prove to be an irresistible proposition to conventional financial institutions.

New Zealand

Harmoney’s P2P loan insurance a Kiwi world first, (Biz Edge), Rated: A

Harmoney has claimed to be the first in the world to use peer-to-peer lending for ‘unforeseen hardship’ on loans, the company reports. Its Payment Protect offering is a ‘repayment waiver’ that can protect against unexpected events that can affect loan repayment, such as death, terminal illness, disability or redundancy.

“For an individual loan, the waived repayments could be greater than the Payment Protect fee earned. However, across a whole portfolio the fee income and additional interest should outweigh any waived repayments and fee costs,’ Hagstrom explains.

Hagstrom says the method of delivering ‘peace of mind’ to customers through peer-to-peer lending is a rival to traditional insurance and borrowing methods, while providing lender returns through interest income, returns and yield enhancement.

The Financial Markets Authority issued Harmoney the first P2P lending licence in 2014. The company has raised $30 million in working capital, assessed more than $2 billion in loan applications and paid more than $24 million in interest to lenders.

Author:

George Popescu