Wednesday December 14 2016, Daily News Digest

Wednesday December 14 2016, Daily News Digest

News Comments Today’s main news: SoFi’s student loan refis serve as models for super prime jumbo mortgages. LendInvest launches first auction finance product. Today’s main analysis: If it walks like a bank and quacks like a bank, it’s a bank. Share buybacks continue at P2P Global Investments. Today’s thought-provoking articles: FCA bashes CFDs, yet invests in P2P. China’s […]

Wednesday December 14 2016, Daily News Digest

News Comments

United States

United Kingdom

  • LendInvest launches first auction finance product. GP:” LendInvest has been at the tip of the innovation, growth and online lending space. I am not surprised they continue innovating. Combined with their growth and their executive team recent hires, I would expect they are probably eyeing an IPO in the year or two.”  AT: “If this goes over big, I predict copycats.”
  • Share buybacks continue at P2P Global Investments trust. GP:” This is a valid strategy to help support the company , it’s NAV and take advantage of market innefficiencies.”
  • FCA bashes CFDs but invests in P2P – what gives? GP:” There is a huge different in CFDs (like FX spot) vs P2P. CFDs , nearly always, see investors losing money. P2P , nearly never sees investors losing money. How do I know this ? I run one of the main companies helping FX Spot and CFD brokers setup from tech, liquidity , legal and everything else. It was called Boston Technologies. ” AT: “I must admit, this does seem to be a double standard.”
  • Future outlook and predictions for UK P2P lending. GP:” All positive as you would expect.”
  • Expend to raise 750,000BP on Crowdcube. AT: “I find it ironic that FinTech companies are using crowdfunding sites to raise capital. Last week, it was Sharestates on SeedInvest. On the one hand, I understand that they are companies like any other and need operating capital. On the other hand, it could lead to a perception of robbing Peter to pay Paul, like a bank taking out a loan to pay off loans. Whether true or not, a perception could lead to detrimental effects in the market. I’m not sure this is a trend we want to see developing.”

Australia

China

India

News Summary

United States

SoFi’s Debut Prime Jumbo RMBS Is Big Play on Silicon Valley (National Mortgage News), Rated: AAA

SoFi Lending Corp.’s securitization of its student loan refis for high net worth individuals is now a model for its recent expansion into super prime jumbo mortgages.

SoFi has launched a $169.8 million bond issuance backed by 270 super-sized mortgages that SoFi has originated primarily to wealthy homeowners in California.

SoFi Mortgage Trust Series 2016-1 will issue four classes of super senior notes, and two tranches of supportive senior notes, secured by 15- and 30-year fixed rate home loans that the San Francisco-based lender began underwriting in late 2014.

The senior notes have preliminary AAA ratings from Fitch Ratings, DBRS and Kroll Bond Rating Agency.

The OCC’s Proposed Fintech Charter: If It Walks Like a Bank and Quacks Like a Bank, It’s a Bank (Paul Hastings), Rating: A

The OCC recognizes that the demographics of the financial marketplace also are changing with 85 million millennials becoming consumers of financial services—a demographic that has come of age using and relying on technology. As the Whitepaper notes, these market forces have resulted in technology-driven nonbank companies seeking new ways to deliver financial products and services. While frequently viewed as competition to traditional banks, given the challenges of bank regulation, technology companies frequently consider whether to become banks themselves. The Fintech Bank Charter may be a vehicle to do so. Whether the Fintech Bank Charter would carry with it all of the obligations of being a full-service bank, including the application for and receipt of FDIC insurance, and the significant regulation of bank holding companies under the Bank Holding Company Act (“BHCA”)[2]remains uncertain.[3] To be clear, and we think this thought has been lost by some commentators on the Whitepaper, this entity will be a bank and will be regulated as a bank with all of the requisite burdens and obligations of being a bank.

The Whitepaper is significant for its reaffirmation that the OCC has the authority to grant special purpose charters for national banks and federal savings associations under the National Bank Act and the Home Owners’ Loan Act (“HOLA”), respectively.[4] Existing OCC regulations define a “special purpose national bank” as a bank that conducts activities other than fiduciary activities that engages in at least one of the following three core banking functions: receiving deposits; paying checks; or lending money.[5]

While the OCC would be the primary prudential regulator and supervisor of a special purpose national bank, depending on the structure of the bank and the activities it conducts, other federal regulators may have oversight roles over its ownership structure and/or the operations of the bank.

The chartering process for a Fintech Bank would be the same as for a full-service national bank, applying supervisory standards involving safety and soundness, as well as requirements to provide fair access to financial services, treat customers fairly, and comply with all applicable laws and regulations. The OCC traditionally tailors these standards based on a bank’s size, complexity, and risk profile.

A special purpose national bank clearly will benefit:

  • Fintech companies seeking to operate under one national license rather than on a state-by-state regime (e.g., lenders, mortgage lenders, mortgage services, and money transmitters);
  • Nonbank lenders, mortgage originators, and servicers with less than $10 billion in assets, which can avoid CFPB supervision;
  • Payment processors or prepaid card program managers, which can control their own operations without being subjugated to a bank partner; and
  • Full service banks, which no longer will have to compete with nonbank Fintech companies, which they perceive are operating on an uneven playing field, as the laws and regulations applicable to all banks will apply to Fintech Banks.

Peer-to-Peer Lending Market: Small Business Units to Act as Building Blocks (OpenPR), Rate: A

TMR findings suggest that the opportunity in the global peer-to-peer market will be worth US$897.85 bn by 2024 from US$26.16 bn in 2015. The market is anticipated to rise at a whopping CAGR of 48.2% between 2016 and 2024. The biggest contributor to this growth will be small business end user segment that was likely to pace ahead at an impressive CAGR of 48.8% during the forecast period, very much retaining its leading stance.

The key trend likely to be adopted by leading players in the global peer-to-peer (P2P) lending market is to build strategic alliances to expand its small business loan divisions. For instance, Prosper Marketplace, Inc. joined hands with OnDeck and bought American Healthcare to improve its product portfolio. Similarly, LendingClub Corporation is also targeting startups by collaborating with trustworthy investors in the market.

Small Biz Loan Approval Rates at Banks & Institutional Lenders Reach New Heights (Crowdfund Insider), Rated: A

On Tuesday, Biz2Credit released its latest small business lending index, which reportedly revealed that loan approval rates at big banks and institutional lenders continued their recent surge and improved to new highs last month (November 2016).

According to the report, small business loan approval rates at big banks improved to 23.7%  during the month of November, which was up by two-tenths of a percent from October 2016. This marked the eighth time in the past nine months that lending approval rates increased at big banks. In addition to the increase, approval percentages at small banks improved 48.8%, up one-tenth of a percent from October.

Fintech Startup BlueVine Raises $ 49 Million in Series D Funding (Yahoo! Finance), Rated: A

BlueVine, a leading online provider of everyday financing to small businesses, announced today it has closed $49 million in funding. The Series D funding round was led by existing investors, including Lightspeed Venture Partners, Menlo Ventures, 83North, Citi Ventures, Rakuten FinTech Fund and Silicon Valley Bank.

Since launching in March 2014, BlueVine’s cloud-based financing solutions have helped thousands of small businesses obtain quick, easy access to the funds they need to purchase inventory, cover expenses and expand operations.

This financing will support BlueVine’s rapid growth as it expands its team and range of offerings. BlueVine has already funded more than $200 million in working capital for SMBs and is on track to fund more than $500 million in working capital during 2017.

BlueVine also announced it has once again increased its maximum credit lines based on client demand:

  • For invoice factoring the maximum credit limit has been increased from $250,000 to $2,000,000
  • For the business line of credit the maximum credit limit has been increased from $50,000 to $100,000

BlueVine offers credit lines starting at $5,000 for a business line of credit and $20,000 for invoice factoring.

Even Financial Milestone: Surpasses $ 1.5 Billion in Loan Requests & Increases Online Loan Originations by 205% (Crowdfund Insider), Rated: A

On Tuesday, fintech firm Even Financialannounced it increased loan originations by 205% quarter over quarter since the beginning of 2016. The company reported that, with more than $1.5 billion in loan requests, its platform has grown to serve over one million customers with its proprietary API and a broad network of consumer portal partners, backed by leading analytics and funnel optimization designed specifically for online finance.

2017 predictions from 4 top tech investors (Yahoo! Finance), Rated: B

More innovation in financial technology, though it could be the most regulation-prone sector

  • Many companies are working on elegant solutions to provide financing at point-of-sale that is either less expensive than today’s credit cards and/or available to consumers who may not qualify for credit cards. Loans will finally join the ranks of products and services available on demand.
  • Much of the fintech legislation to date has begun in the House or the Senate; the choices made at the bottom of the ballot are just as important as the one at the top, and investors and startups should remain hyper-aware of regulatory shifts.
  • Money center banks take the next step in 2017. We’ll see a handful of notable fintech acquisitions, but these companies will strive to continue to operate like startups, and will pay top dollar, in order to retain and attract top talent.
United Kingdom

LendInvest launches first auction finance product (Mortgage Introducer), Rated: AAA

The product, which is offered up to 75% loan-to-value, is designed for borrowers who need their deals to be fast-tracked by their lender to ensure certainty of funding within tight timeframes.

It features a 50% discount on valuation fees and no exit fees, terms from one to 12 months and loans from £75,000 to £7.5m.

Share buybacks continue at P2P Global Investments trust, nears 2 per cent of issuance (altfi), Rated: AAA

The largest closed-ended portfolio offering exposure to the P2P/marketplace lending space P2P Global Investments has entered into another round of share buy-backs in the past three weeks, according to regulatory filings.

In the past two months, the fund has engaged in share buybacks on 14 separate days, with tranches of buybacks ranging from 3,400 to 50,000 in a single day, the latter has occurred on four separate occasions.

British regulator bashes CFDs, yet allows £85 million of taxpayers money to fund potentially detrimental P2P lending sector (Finance Feeds), Rated: A

The Financial Conduct Authority (FCA) in Britain finds itself at a crossroads in terms of priorities once again today, as barely a week has passed since the national financial markets regulator released a set of proposed rulings which seek to limit the method by which contracts for difference (CFDs) are provided by large, publicly listed, well capitalized and very stable OTC electronic trading firms, yet allows other unregulated and potentially problematic businesses to flourish.

Today, just one week later, the FCA finds itself in a difficult position as the peer to peer lending industry – a particular sector which the FCA only recently deemed worthy of concerns around the growing complexity of the peer-to-peer market – has been the subject of an £85 million taxpayer funded round of investment.

Falling transparency and rising complexity among peer-to-peer lenders is a theme throughout the FCA’s 48-page report. The FCA writes at one point: “Firms’ desire to maintain confidence in platforms has occasionally led to firms acting in a nontransparent manner, masking true loan performance and exposing investors to risks.”

Future Outlook and Predictions for UK P2P Lending Market (TechBullion), Rated: A

Over the last few years, P2P lending has grown exponentially with cumulative lending reaching about £3.7 billion October last 2015in the UK.

Currently, the UK is the leading market in Europe, accounting for about 85 percent of the European market. In the next few years, P2P sector will grow fast, forcing some banks to change their ways.

According to Research and Markets, by 2018 P2P lending in the UK might be worth more than £5 billion.

In a new report, BI Intelligence predicts that UK P2P lending will grow at a 45 percent five-year compound annual growth rate, to reach $23 billion by 2020. The report also forecasts consumer, property, and business P2P lending volume in the UK, factors driving the growth, and how some unique features of the market are helping the country develop its P2P lending industry.

UK Fintech Startup Expend Looks to Raise £750,000 on Crowdcube (Crowdfund Insider), Rated: A

Expend, a UK-based fintech app startup, has launched a crowdfunding campaign on Crowdcube. The company is seeking £750,000 for growth and is offering 5.27% in equity. 

Australia

Turnbull says fintech is switched on (Investment Magazine), Rated: A

He acknowledged that financial services technology, or fintech, is ripe for investment in the industry by big companies, as well as by the private equity and venture capital industry. Peer-to-peer lending, crowdfunding, robo-advice and digital currencies were among the emerging fintech industries the PM name-checked in the speech.

Turnbull told the audience that working in the “fintech hub” of Sydney meant that they were in “one of the most exciting industries in the most exciting region” in the world.

China

China’s ‘Big Four’ banks still keeping a safe distance from burgeoning peer-to-peer lending sector (South China Morning Post), Rated: AAA

China’s major banks are seemingly taking a “wait-and-see” approach to being future custodians for the nation’s growing number of peer-to-peer (P2P) lending firms, whose reputation has been hit hard by a series of high-profile fraud cases.

By law, all P2P platforms now need to have the backing of a registered bank by August 2017, after being given effectively a 12-month grace period to meet the mandatory requirement.

So far, however, the country’s so-called “Big-Four” state-owned banks are yet to act as custodian to any P2P platforms, with only smaller lenders – mostly city commercial banks – dominating the segment.

India

RBI guidelines to act as a growth catalyst for P2P business (Your Story), Rated: AAA

For many individuals, P2P lending is an alternate source of securing finance. However, at present, it is  an unregulated sector. There are lines of reasoning in favour of as well as against regulating P2P lending. The jury is still out on whether and how the RBI should oversee this sector.

Those who don’t favour the RBI issuing guidelines often ask a question — why do we need a regulatory framework for P2P lending marketplaces? Arguably, the sector is in a nascent stage of development and poses no systemic risks. P2P lending is not perceived to have any significant impact on monetary policy transmission mechanism either. Further, it is often said that regulations may limit the progress of this innovative, efficient, and accessible avenue of alternate finance.

The RBI had released a consultation paper on P2P lending in April 2016 and had also welcomed feedback and suggestions.

The scope of regulations…

  • Permitted activity
  • Prudential regulations on capital
  • Governance
  • Business continuity plan (BCP) and customer interface
  • Regulatory reporting

Serious buyers always prefer to enter a sector that is regulated.

Strict regulations = greater accountability = higher transparency = big growth opportunities for serious players 

Authors:

George Popescu
Allen Taylor