Internet 1.0 is HTML websites. Internet 2.0 is a social network and user-created content. How is Internet 3.0 coming along? What is Internet 3.0? Are you familiar with Napster, Kazaa, and BitTorrent? Today, Bittorent has met Bitcoin and given birth to the following startups, networks, or organizations: Decentralized computing power. Golem, among others, is a […]
Internet 1.0 is HTML websites. Internet 2.0 is a social network and user-created content.
How is Internet 3.0 coming along?
What is Internet 3.0?
Are you familiar with Napster, Kazaa, and BitTorrent? Today, Bittorent has met Bitcoin and given birth to the following startups, networks, or organizations:
Decentralized computing power. Golem, among others, is a peer-to-peer market for putting your computer’s excess CPU power to use for other people. It works because there is no easy way to pay anybody on the planet fractions of a dollar for having used their CPU for 1 minute. This is, however, possible via blockchain.
Decentralized exchanges. Ether Delta, among others, is a cryptocurrency exchange which operates in a decentralized way (i.e., without a central counterparty). Decentralized exchanges allow peer-to-peer trading, which means that when a trade is executed the items are exchanged directly between the traders without touching any third party, and without the traders being able to stop the exchange. This approach eliminates counter-party risk entirely. On the other side, it also allows people to trade completely anonymously.
Decentralized protocol approval. Tezos, among others, is an open-source platform for assets and applications and allows the participants to vote to change its rules and protocols. Participants can choose to change the fee structure, rules, the protocol APIs, nearly everything. This protocol change-mechanism is built within the network rules, and nobody has the right of veto or override. Imagine if eBay merchants could vote to reduce the eBay fees without the eBay management being able to stop it. Of course, this opens the doors to politics, and also to oligarchies as having more Tezos coins obviously gives you more power to influence the votes.
Other similar companies include but are not limited to:
Decentralized file storage (Filecoin)
Decentralized domain naming (Namecoin)
Decentralized cloud storage (Storj)
Decentralized databases (BigchainDB, IPFS)
Decentralized internet address allocation (JACS)
Decentralized Video Encoding and Streaming (Livepeer).
Decentralize financial services (Bitcoin, Litecoin, etc.) and more.
Other online platforms like Facebook or Google don’t share any of the ad revenue earned from the personal-data exchanged through the platform. They keep 100%.
In addition, all centralized marketplaces and platforms exert full control over who can advertise, who and what can be sold, to whom, where, etc.
Their full control, when the company is young or fragile, is not being exercised much. They want to attract users and customers. However, as the company grows, and pressure from investors and the financial markets increases, the platform position of the de facto monopoly in their sector is usually leveraged to increase fees and to control who and what can be transacted on the platform. For example, Google has a history of banning certain ad categories on its platform. Most people agree that the bans, so far, have been legitimate and are targeting harmful or mostly fraudulent industries from selling their products and services. However, Google’s power of life-or-death over entire industries is troublesome.
In comparison, decentralized networks and organizations have so far mostly tried a few different business models.
Financing and crypto coins
Traditional , centralized, startups sell their equity to investors. Equity is scarce by definition, to 100%. And once sold, investors typically have a contractual right preventing startups from creating more shares and diluting them without their approval.
Equity is a problem in a decentralized project. Equity to what? What does an equity holder control?
Most decentralized organizations mentioned above have created their own crypto coins in order to finance their creation. Their usual business model is to make the coin, artificially or legitimately, a required part of each transaction on their network. As the number of transactions grows and the coin inventory is limited, the coins become more valuable. And the network itself uses its own inventory of coins to finance its expenses. In addition, some decentralized networks also take a percentage of the value exchanged on their platforms.
However, the token approach has, so far, failed to work for most networks.
The most successful tokens today have thousands of active daily addresses.
This is not surprising. All these decentralized organizations are new startups. It takes time for startups to build traction. A handful of them will have millions of users after 3-5 years. Most startups may still be viable businesses even though they only have hundreds of daily active users, but their tokens will not have any real value due to over-inventory. Therefore, maybe relying on token activity and scarcity to finance all decentralized projects may not be a viable way to finance these projects.
I believe an alternative token model is needed for most of these projects. A model that will have significant return to investors even if the network only achieves modest success of 100s of transactions per day. However, this may require an increase in network fees.
The X Open questions of decentralized entities
As I think of decentralization, many questions are on my mind:
What are these entities? Are they businesses, networks, organizations, protocols, or something else? The concept of Decentralized Autonomous Organization, or DAO, has been used in the past. But to my knowledge, no actively operating entity using a real DAO model is live and generating revenue today. All entities have executives, employees, bank accounts, offices, etc. Or is it? The Bitcoin network itself, with all the developers in various organizations who are trying to contribute to it, is fairly decentralized.
Governance: Leaders in centralized entities are required. Often, leaders aren’t any good at taking decisions, but making some decision is often better than not being able to make any decision. Many an organization has died because nothing at all was done. Are decentralized organizations able to make decisions fast and efficiently over 5 to 10 years while they grow?
Are decentralized networks cheaper to run, and do they have a disruptor advantage over centralized networks? It is not clear. Lending Club, one of the first P2P lending startups, argued that their cost structure was cheaper than banks’. However, it turns out the cost of capital lending and cost of customer acquisition were under-estimated and banks have cheaper capital and cheaper customer acquisition. Lending Club’s profit margins are not impressive. Neither is Uber’s. Nor are Amazon’s. I believe there is no single answer to this question, but assuming that a decentralized entity is more cost effective than a centralized entity is not obvious. In human history, disciplined centralized organizations (armies, empires, …) have clearly been more successful than federations, communes, etc.
Is there value built, and where is it? The startup/VC model has worked since the Dot Com boom because it was a profitable model for everybody involved. VCs made money, and successful entrepreneurs attracted more smart wannabe entrepreneurs. It is very important to see the founders and investors in these decentralized organizations be successful or there will be no second generation decentralized entities.
What is the innovation here?
I believe that an exchange that can work without counterparty risk is a real innovation.
I believe that a method to pay fractions of a dollars efficiently to anybody on the planet is a real innovation.
I believe one day we will see the Netflix of Internet 3.0 bankrupt the Blockbuster of Internet 0, 1.0, or 2.0.
However, questions remain. Is decentralization in business similar to communism in politics? Does this model really work? In 1990, in Moscow, everything was rationed, bread was extremely scarce. When a communist leader asked the London mayor who is in charge of the bread supply to London so they can learn their secrets, the mayor, confused, answered “Nobody!” Our modern food supply is a decentralized market, and fewer and fewer people are going hungry.
There are multiple fintech lenders and marketplaces in the UK dealing in mortgages and other financial products. What sets Nuvo apart is it’s claim to be the first artificial intelligence (AI)-powered digital broker. Launched by Nick Sherratt (heads oversees operations and finance) and Richard Hayes (CEO) 18 months ago, Nuvo fills the gap between traditional […]
There are multiple fintech lenders and marketplaces in the UK dealing in mortgages and other financial products. What sets Nuvo apart is it’s claim to be the first artificial intelligence (AI)-powered digital broker.
Launched by Nick Sherratt (heads oversees operations and finance) and Richard Hayes (CEO) 18 months ago, Nuvo fills the gap between traditional brokers and established price comparison websites. They had been running their own mortgage brokerage in Macclesfield, Cheshire for a decade, also selling life insurance and income protection. Their experience as a traditional broker helped them understand what was missing in the market. As a result, they’ve made it easier for customers to access the best mortgage offers in less than a minute, once they’ve gained some basic information from the user.
Now Nuvo Works
The focus was on user accessibility and speed of providing quotes. But the platform’s USP is its AI-powered chatbot technology, which helps users chat in real time and suggests the best mortgage products suited to their finances. The platform was established with 1 million GBP in a seed round, and it recently raised 1 million GBP in a second round of funding.
Historically, if a customer wanted advice on mortgages, he would rush toward a broker or any other independent financial advisor and, in turn, the advisor charged a fees for their advice. However, recent research conducted by Nuvo revealed that nearly 40% of Britons rely on their own research once they get a list of prices from comparison websites. But the problem is most comparison sites don’t give the full picture and can’t answer queries accurately. This passive information overload did not really solve the user problem. Thus, Nuvo was born of the need to marry the traditional mortgage broker experience with the convenient of free comparison websites.
Nuvo has digitalized large parts of the mortgage application process through incorporating real-time sourcing. With an emphasis on transparency, customers can put their queries online with the help of a laptop or other mobile device and get an instant response. Instead of collecting data from the customer through a lengthy form, Nuvo provides a platform that allows the customer to provide details to a chatbot. Customers can also opt to chat with a qualified human financial advisor via the website or by booking a telephonic interview. It means the process is a two-way process, so the customer can ask specific questions at any point if there is something they do not understand.
What Artificial Intelligence Brings to the Table
Artificial intelligence and machine learning add substantial value by bridging the data, information, and context gap so that the virtual assistant and its human counterparts can deliver a seamless customer experience. If the platform lacks data, or the customer provides insufficient data, then it implements sentiment analysis to ascertain intent. Sentiment analysis identifies the customer attitude, emotions, and opinions. If the platform feels like customers are unhappy and/or confused, they can quickly add it to their processing and allow the virtual assistant to interact without sacrificing user experience. There is no need on the part of the customer to wait for a response if the virtual assistant is unable to answer a complex question. Nuvo removes the uncertainty and interjects with a human being.
The first version of the product launched was a Facebook chatbot with some basic functionality that helped people find the best deals on mortgages. Soon, Nuvo will launch the new version integrated on their site with a state-of-the-art user interface, better communication technology, and a next-gen interaction process. Nuvo utilizes its access to endpoints for a better user experience. It also ensures that APIs match the products the platform is offering to users.
The platform launched after the review by UK’s regulator, The Competition and Market Authority (CMA), which recommended that customers use a variety of sites for comparing the best deals. But there are no other companies giving real insight into the market and products.
The UK Mortgage Market Has Not Caught Up With Technology
Most digital brokers are startups and not evolved from traditional brokers. Products and prices are changing constantly. Nuvo allows customer to find the most suitable offer by updating information on a daily basis. Customers can see and compare all the options to make sure they are getting the best deal, eliminating the need for a traditional broker. Also, the founders’ traditional brokers’ practice became a competitive advantage for Nuvo as it enables the company to combine domain expertise and knowledge in their aim to better serve customers.
The UK is one of the largest marketplaces for mortgage deals. Habito and Trussle are other startups aiming for a slice of UK’s lucrative mortgage market. But Nuvo is in for the long haul and believes it can achieve a market share of 5%-10% of the online mortgage market in the next five years.
According to Nuvo founders, they have 10,000 more deals on their platform than Habito at this moment. There is an in-house team of financial experts that assist the customer in solving complicated financial decisions at zero cost. Nuvo does not charge fees to customers like traditional brokers. Instead, they get a commission from the insurer or the mortgage provider.
Founder Richard Hayes said, “Millennials are now willing to transact digitally, so we have an opportunity to resonate with anyone who is willing to engage digitally.”
So far, the mortgage sector has not been able to innovate to meet the demands of customers, but Nuvo, with its AI-powered chatbot, is attempting to simplify the on-boarding process. They are also focused on first-time buyers to build trust and confidence in the mortgage ecosystem.
A major tailwind for digital brokers is the slow but steady death of brick-and-mortar mortgage advisors. In 1985, there were over 120k independent financial advisors in the mortgage space, but now it’s under 20k. Correspondingly, there has been a massive increase in people seeking mortgages. This suggests that the market is consolidating and scale will be an important element in winning the sweepstakes.
How Nuvo is Capturing the Future Digital Mortgage Market
“2018 will see a full mortgage journey on our platform,” Hayes said. Nuvo is incorporating new features to speed up the application process and using APIs to enhance the customer experience at large. “We all know that buying a house is a costly and long process.” Thus, the platform assimilates all the information about property such as value, construction details, and more, from different sources to help the customer get the best mortgage deal and insights about the property itself.
The platform is focused on its journey to help borrowers find the best mortgage and other financial products. It is looking to raise further funding to grow aggressively in this massive market space with its proprietary AI technology.
In just over a decade, alternative lending has evolved from a niche fintech play into a hundred billion dollar industry. 2017 was somewhat of a bumpy ride. Growing competition, shrinking bottom lines, stringent regulations, and traditional banks’ willingness to take on alt-lending using their financial muscle were the key trends that emerged last year. It […]
In just over a decade, alternative lending has evolved from a niche fintech play into a hundred billion dollar industry. 2017 was somewhat of a bumpy ride. Growing competition, shrinking bottom lines, stringent regulations, and traditional banks’ willingness to take on alt-lending using their financial muscle were the key trends that emerged last year. It is difficult to be sure what 2018 will bring, but here is what experts and pundits are predicting.
Ron Suber (Founder and former president, Prosper & chairman of the board, Credible) believes the marketplace lending industry has finally grown up. Companies will focus more on cash flow, profitability, and EBITDA. He encouraged online lenders to look for a lower cost of capital if they want to compete with the like of Marcus. He is also predicting the entrance of big technology companies like Amazon, Apple, Facebook, and Google.
Peter Renton (Lend Academy) believes five of the top 25 banks will launch their own platforms. He also believes Congress will pass a Madden fix and the IRS will modernize with its own API. One startling prediction he makes that one of the top online lenders (Lending Club, SoFi, Prosper, OnDeck, or Avant) will be acquired, and he believes a major platform will be hit by a cyber attack. Like everyone else, he believes the tech giants will solidify their positions in alternative lending, and more interestingly, he says messaging apps will integrate with online lending platforms.
Krista Morgan (CEO, P2Binvestor) makes predictions for MPL sector:
Companies will shift their focus on business models and unit profitability as hiring and spending decrease.
Mergers and shutdowns will continue as equity investors remain absent. She thinks it will be a tough year.
Investors believe the market is set for a correction; therefore, they will be looking at short duration assets for deploying their capital. Platforms will have to shift their focus to product development.
2018 will be the year of increased diversity.
Adam Stettner (Founder and CEO, Reliant Funding) predicts a year of instability. He also believes market variables will counterbalance themselves this year. The Fed is expected to increase interest rates, which will have a ripple effect in terms of rates for various types of loans. If unemployment levels remain low, it will lead to wage inflation. So the order of the day for alternative finance and small business funding companies will be adaptability, he says.
Additionally, Stettner sees a year of increased fraud, and companies will have to invest in identification tools and fraud detection techniques.
Two more predictions he points to are increased consolidation as companies overextend themselves and more disruption from big business names entering the space.
Juan Tavares (LendingPoint) predicts balance sheet lenders will take over, there will be more collaboration, and payments and credit will intersect more.
Small Business Lending
Trevor Dryer (Co-founder and CEO, Mirador) made predictions on small business lending:
Banks will continue to increase small business lending and alternative lenders will struggle.
Crowdfunding got a boost last year when Title III of The Jumpstart Our Business Startups Act (JOBS Act) was implemented, opening the gates for crowdfunding. Dryer believes this sector will thrive in 2018.
Alternative lending has removed physical barriers that makes the lending process faster and more convenient. Alternative lending will continue to be more inclusive and encourage more people to start businesses.
Legislative barriers will continue to fall.
Alternative lenders will focus on experience and relationship building. Companies able to streamline and automate the application processes will thrive.
Alternative Lending in India
Rajesh Gupta (Founder and CEO, Cash Suvidha) made the following predictions for the Indian alternative lending market.
A significant increase in alternative lending market share.
Favorable regulations, cash benefits, ease of usage, and increased internet and smartphone penetration.
Investors and venture capitalists will remain optimistic about the Indian alternative lending industry since it is the second most funded segment in Indian fintech.
“2018 will witness a transformation in the Indian financial landscape, all thanks to alternative lending,” he writes.
Traditional Financial Services and Alternative Investing
Kevin McPartland (Greenwich Associates) says 2018 will be the year of digital. He believes product-agnostic investing will be huge, and passive investing will gain on active investing. 2018 will also be the year that alternative data goes mainstream, he believes while data will be more important than trading. He also believes wealth management will “come out of retirement” and, finally, a ton of innovation in the financial markets as banks focus on crypto.
Chris Skinner (The Finanser Blog) writes a lot about banking’s reaction to alternative lending. He believes 2018 will be the year of artificial intelligence for banks and that banks will continue to drive digital technology deeper into their core systems. Not surprisingly, he also predicts that banks will develop more proof-of-concept operations for distributed ledger technology. Finally, he predicts the banks will develop an Enterprise Data Architecture this year to clean up their fragmented systems.
Alexander Prokhorov (FinSight Ventures) made some general predictions for fintech that apply just as well to alternative lending:
Software will converge with financial products in the U.S. and Europe
Insurtech will be more prominent
Artificial intelligence will transform financial services
There will be a lot of innovation in emerging economies such as Africa, Latin America, and Asia
Wealth management will pick up speed
Crypo assets and blockchain will take center stage for retail investing
Don Steinbrugge, CFA (Founder and CEO, Agecroft Partners) is predicting a banner year for the hedge fund industry. He believes hedge fund assets will reach an all-time high for the 10th straight year. He also believes there will be an increase in hedge funds shutting down. And there will be an increase in cryptocurrency funds. Strategies that will gain assets, he believes, include:
Asia long/short equity
Those that blur the lines between private equity and hedge funds
The Lending-Times Prediction
Allen Taylor (Editor, Lending-Times) believes more U.S. platforms will open the doors to non-accredited investors. Blockchain will feature more prominently in alternative lending with more platforms focused on crypto-lending including a prominent alternative lender adding cryptocurrency to its list of core services. He also believes increased specialization will lead to platforms targeting specific industries, regions/states, and other narrow target markets.
2018 will surely see the alternative lending industry enter a consolidation phase to withstand the changes in market dynamics, and companies best able to cope with these headwinds would emerge bigger and stronger.
News Comments Today’s main news: Lending Club plots two ABS before end of year. Scott Sanborn speaks to Lending Club’s Q3 results. Alibaba funds WeLab. Aegon sees strong Q3. Prospa originates over $500M. Jumo wins Mastercard Foundation prize. Today’s main analysis: Top cities maxed out on credit card debt. Today’s thought-provoking articles: Did Lending Club just land another blow to […]
Cities maxed out on credit cards. AT: “LendingTree has some of the most interesting studies. This one looks at credit card balances. It appears folks in San Diego are maxed out to the max while Greenville, South Carolinians are looking pretty good.”
Lending Club is looking to price two more ABS deals this quarter, as the company plans to shrink its proportion of bank funding in the year ahead, executives said on a third quarter earnings call this week.
In Q3, we delivered $154 million in revenue, the highest in the company’s history, and up 34% year-over-year, and 10% sequentially. As importantly, we generated an EBITDA of $21 million. That’s almost 5x the level of last quarter. And we’ve narrowed our GAAP losses by almost $19 million, down to $6.7 million.
We processed a record number of applications, bringing the total borrowers served by Lending Club to over 2 million since launch and an improved efficiency from last quarter.
To put that into perspective, it took 8 years for us to reach our first 1 million, and we’ve helped an additional 1 million borrowers in just the last 2 years.
Although we anticipate some short-term volume effects as we calibrate our targeted marketing to the new model, the 58% annual growth in applications we saw in Q3, combined with the conversion efforts we now have in testing, give me confidence about our outlook in 2018.
Separately, we continue to broaden our mix of investors. As part of that, we delivered on our goal to complete a second securitization that included a total of 33 investors, 10 of which were new to the LendingClub platform.
Lenders should be judged not on how fast they grow during good times, but how they perform in periods like today when consumer defaults are ticking up. On that basis, LendingClubLC -15.93% looks unprepared and investors are right to be skeptical of the online lender.
LendingClub, the most prominent of the online lenders, said loans to certain borrowers at the low end of the prime credit spectrum “are not currently meeting our expectations.” It will start limiting these loans, which account for around 3% of total loans, and temporarily halt their sale to investors. It will also temporarily halt this lending, which accounts for around 3% of its total loans, and also adopt a new credit model that tightens criteria for these borrowers.
Online lenders’ credit models, which analyze various factors beyond traditional credit scores, are supposedly one of their core strengths. That loans are performing worse than expected at LendingClub is a sign the models might be flawed.
LendingTree®, the online loan marketplace personified by Lenny the little green guy who has the banks crawling to him, released on Wednesday the findings of its study on which cities have the dubious distinction of containing the most consumers with signs of being maxed-out with their credit cards.
#1 San Diego, California Maxed-out score: 98
San Diego residents carry $6,629 in credit card balances on average. Nearly one in five (18%) have at least one card maxed-out. That’s second only to Oklahoma City, where 18.5% of residents have a maxed-out card. San Diego residents also use more of their credit lines overall, with 32.8% utilization.
#2 Los Angeles, California Maxed-out score: 93
Los Angeles residents also push their credit further than most, with 17.5% of residents having at least one maxed-out card. Those that do have a maxed-out card have 1.33 maxed-out cards on average. Balances average $6,472, a touch lower than their neighbors to the South in San Diego, helping utilization come in at 32.0% versus San Diego’s 32.8%.
#3 San Antonio, Texas Maxed-out score: 92
San Antonio residents don’t face the same high cost of living that Southern Californians deal with, but they share an affinity for using their credit cards. The study findings revealed that 17.2% of San Antonio residents have a maxed-out credit card, and their total credit card balances average $6,474, similar to those among Southern Californians.
LendingClub is facing two parallel securities litigation cases stemming from alleged false statements it made in connection with its initial public offering (“IPO”).
With respect to the motion to intervene, the federal court granted the motion, for the limited purpose of allowing the state court case plaintiffs the opportunity to “set forth their argument for why they are the better representative” of the class. Additionally, the federal court granted the motion to intervene “on the condition that they remain under this Court’s jurisdiction so that the undersigned judge may coordinate their action with the federal action to avoid any prejudice to absent class members.”
The California state court plaintiff then argued that class certification should be denied in the federal court case because certain theories of recovery that were dismissed in the federal court case remained active in the California state court case, making the state court case “superior.”
The federal court plaintiffs responded that their proposed class was in fact superior because the price of LendingClub’s stock was lower on the day they brought the federal suit.
The federal court declined to enjoin the California state court case. However, it did express “concerns” with “the current form of state plaintiffs’ class notice, which fails to notify class members of the parallel federal action, the pendency of Cyan and its potential effect on their case, or the potential that the filing date of their suit could substantially limit damages.”
Lastly, the federal court addressed an issue of first impression raised by LendingClub and the individual defendants regarding the traceability of the federal plaintiffs shares.
Because of this trading pattern, the traceability of the lead plaintiffs shares turned on whether the court adopted a “last-in, first-out” (“LIFO”) or “first-in, first-out” (“FIFO”) method to calculate holdings.
If the lead plaintiff’s transactions were accounted for using LIFO, all of its holdings as of the end of the lock-out period would remain traceable to the lock-up period. If, however, the court adopted a FIFO calculation, the lead plaintiff would have been deemed to have owned no shares traceable to the IPO. First, the court noted that “[w]hether LIFO or FIFO applies is a matter of first impression in the Section 11 traceability context.” The court ultimately held that LIFO applied because the majority of courts use the LIFO method to estimate losses under the PSLRA when determining a putative lead plaintiff’s stake in the litigation, and “[i]t would be incongruous to measure losses by one method, yet measure traceability by the opposite method.”
Is Square considering a move into crowdfunding? A patent filed in March 2015 and granted in September 2017 suggests that might be the case.
The patent, titled “Mobile point-of-sale crowdfunding,” outlines a method for merchants to request crowdfunding from patrons based on their processing history.
The patent reads:
“Thus, the merchant has conveniently acquired a new espresso machine, customers may benefit from the new espresso machine, and investors have received a return on investment with the added security that the techniques described herein provides (e.g. underwriting of the crowdfunding project by the payment processing system and direct repayment to the investors from POS transactions processed for the merchant by the payment processing system).”
Wela today announces it has passed $1 million in annual recurring revenue (ARR), one of several achievements to mark 2017 as a record year of growth for the personal finance app. In the last two quarters, Wela doubled its total users and amount of linked accounts. Additionally, Wela Strategies, an extension of the app that manages investment accounts, passed $135 million in assets under management. Wela’s growth is evidence of a demand among millennials and young families for a personal finance solution that delivers advice in the way they want to receive it — through the convenience of an app that incorporates artificial intelligence (AI), through the skill provided by a human advisor, or a combination of the two offerings.
In 2017, Wela’s staff doubled in size, adding key management roles, including a chief technical officer, product manager and user experience manager. In an effort to better serve its rapidly growing user base, Wela plans to hire additional support for its customer experience, financial advisory and development teams in the next few months.
Death can be a frightening thought. But, according to a survey from financial-advice website Credible, there’s one thing that scares millennials even more: having credit-card debt.
Of the 500 Americans polled who are currently in credit card debt, more than 33 percent said debt is the scariest aspect of their daily lives.
The findings make sense, according to Credible. Americans hold more than $1 trillion in credit card debt and, among the respondents, the average debt is a whopping $5,290.
When asked how they got into debt, 34 percent said it was due to an emergency expense, 32 percent said their debt is due to a large one-time purchase and 4 percent said they choose not to pay their debt despite having the resources to do so.
Based on the latest research conducted at our annual ELEVATE fee-based advisory conference, one of the most important ways for independent firms to help advisers succeed in this kind of asset gathering is to help them lead with behavioral finance, and to complement that effort with client segmentation that captures qualitative and emotional factors for the adviser.
Aging pre-retirees and retirees need enhanced guidance in navigating the emotionally charged life planning decisions many of them increasingly face. Meanwhile, the highest long-term growth potential client segment, Millennials, generally opt for advice from individuals who build a truly personal connection with them, in a relationship that is as much social as it is professional.
Loans to small business owners backed by U.S. Small Business Administration guarantees increased 36 percent in number and 15 percent in dollar amount in the SBA’s New York district in the 2017 federal fiscal year, putting the district office over $1 billion in annual loan program lending for the first time.
In the seven-county lower Hudson Valley region, the SBA guaranteed 500 loans worth $191 million.
Goldberg said 36 percent of the region’s SBA loans were under $50,000; 42 percent went to minority-owned businesses; and 16 percent, or $160 million, went to women-owned businesses.
The top five lenders by dollar amount in the Hudson Valley were Empire Certified Development Corp. $40,726,000; Manufacturers and Traders Trust Co., $11,393,800; Noah Bank, a minority-owned bank headquartered in Elkins Park, Pennsylvania, $9.12 million; Celtic Bank Corp., based in Salt Lake City, $7,886,400; and Cross River Bank, based in Fort Lee, New Jersey, $7,768,100.
In Westchester County alone, the top five SBA lenders in number of loans were TD Bank, with 42; JPMorgan Chase Bank, 39; Wells Fargo, 14; Citibank and Manufacturers & Traders Trust Co., both with 11; and New Millennium Bank, headquartered in Fort Lee, with nine loans.
The top five lenders in Westchester County by dollar amount were Empire State Certified Development Co., $8,866,000; Newtek Small Business Finance Inc. in New York City, $5,917,400; Live Oak Banking Co., of Wilmington, North Carolina, $5,165,000; TCF National Bank, based in Wayzata, Minnesota, $4,995,500; and NewBank, $4,540,000.
There’s any number of reasons megabanks are rolling out mobile-first banking offerings, from evolving consumer demand to increased competition from fintechs to a significant generational transfer of wealth.
But the biggest motivation for banks like Wells Fargo to develop new smartphone apps may be to ensure they get clients early in their financial lives and keep them.
I’ve been saying for so long now that banks need to replace core legacy systems that I’m boring myself, but here I go again. The reason I’m talking about it again is that, even though some disagree and think they can fudge the issue with plug-ins, I believe that the new competition will decimate banks that don’t replace their core systems.
If you are tech first, your singular focus is on agility. It’s about fast change cycles in a microservices architecture using a SDK (software developer kit) network of APIs (Application Programming Interfaces). It’s about speed, change, service, updates, vision.
If you are finance first, your singular focus is on stability. It’s about slow change cycles in a monolithic architecture using control systems and sign-off structures that avoid any exposures. It’s about risk, security, stability, control, management.
Acting Comptroller of the Currency Keith Noreika delivered a speech today discussing the US banking industry. In the speech, Noreika makes an important point: US banks need more competition, not less. He also intimates that mixing commerce and banking can deliver benefits to consumers. Take this one step further, and Noreika is indicating big tech, like Amazon, Apple, Google, Facebook and more, should be allowed to become banks.
“Meaningful competition could have a number of other positive effects besides tempering the risk concentrated in having just a few mega banks. It could make more U.S. banks globally competitive and promote economic opportunity and growth domestically. For banking customers, particularly those underserved by traditional banks, more competition could result in better banking services, greater availability, and better pricing. If a commercial company can deliver banking services better than existing banks, we hurt consumers by making it hard for them to do so.”
Mr. Cooper, the nation’s largest non-bank mortgage servicer, today announced that it has led the Series A funding round in Matic Insurance, a digital insurance agency whose technology enables homebuyers to obtain homeowner’s insurance seamlessly during the mortgage process .
Matic’s insurance marketplace will enable Mr. Cooper to provide customers a convenient and modern way to shop for insurance while helping them obtain competitive insurance policy quotes and bind within minutes instead of days, all part of a digital mortgage application interface planned to launch in 2018.
LendUp Hires First Chief Financial Officer, Announces Significant Growth Milestones (PR Newswire), Rated: A
LendUp today announced that Bill Donnelly, former VP of Global Financial Services for Tesla, has joined as its first CFO. The company further strengthened its leadership team with the addition of a General Manager for its loans business and a Chief Data Scientist.
Donnelly is a 30-year consumer credit veteran with extensive experience in credit cards and loans products. Donnelly spent the last four years with Tesla as VP of Global Financial Services, responsible for providing financing solutions for Tesla’s customers across 29 countries. He also served as President of Tesla’s captive finance company, Tesla Finance LLC, which offered an industry-leading leasing program innovative for its consumer-friendly agreement and for being the first end-to-end electronic lease with the ability to execute contracts on a vehicle’s touchscreen.
In addition to Donnelly, Anu Shultes has joined as General Manager of the company’s loans business, which recently surpassed $1.25 billion in originations.
Dr. Leonard Roseman has joined LendUp as Chief Data Scientist, to lead a growing team that uses Machine Learning to improve financial inclusion through expanded credit access and lowering the cost of credit to borrowers.
Concord Servicing Corporation, a leading force in the financial portfolio servicing industry, has announced a strategic reorganization of its senior management team. Changes at Concord include the promotion of Executive Vice President Shaun O’Neill to President and Chief Operating Officer, and the addition of financial industry veteran Stephen Bertrand to serve as Chief Financial Officer.
The Economist reports that, nationally, banks have closed over 10,000 branches in the past decade. In the first six months of 2017, 869 branches closed across the U.S.
Mobile banking apps on phones have become the new ‘branches’ even as some brick-and-mortars have shuttered, continued Roger Shumway, EVP of Bank of Utah. “I don’t think branches have declined, they’re just in your hand,” he said. “For community banks, the niche you see in Utah is that they can talk to a real decision-[making] person. If they get into an issue, there’s a face, and [an app on] a phone that they love.”
“We see overall that there’s been a 30 percent drop in branch transactions, but if you look at the overall transactions including electronic, transactions are actually up,” said Zupon.
A combination of the rise of robo-advice and the habits of millenials could mean social media platforms such as Facebook could become major players in the financial advice market in the future, according to Coutts.
He noted that Facebook already has a service allowing individuals to make payments, and said financial advice may be a next step for the social media giant as it seeks to grow.
Analysis from IRN Consultants highlighted recent research which showed each new robo-advice customer signed up is losing the company £162.50 on average in the first year and only making £17.50 in subsequent years.
One of the companies the report pointed to was Nutmeg, whose accounts for 2014 showed revenues of £635,000 compared with operating expenses of £5.9m.
Under existing Financial Conduct Authority (FCA) guidelines, peer-to-peer (P2P) lenders operate within a virtually unregulated space. While this is not damaging in itself, it does create a number of risks, as the FCA has acknowledged. The most significant of these risks are that as companies become more sophisticated, their resemblance to traditional financial institutions increases, but their regulatory obligations do not.
Over the past year, there has been a noticeable rise in the number of P2P lenders using low rates as an advertising measure. Unlike credit card providers that must give 50 percent of all applicants the headline rate they advertise, P2P providers can simply pick a rate and then advertise it, as, unlike their counterparts, it is very difficult for the legitimacy of their offer to be checked.
It is clear that there is a requirement for greater industry guidelines, so it can sometimes seem mystifying that bespoke regulations have not already been put in place. Simply put, this is because the P2P industry is developing at a much faster rate than the regulatory bodies are acting.
The Fair By Design fund will invest in companies tackling the so-called “poverty premium” — the extra costs the poorest pay for essential goods and services, such as energy, credit and food. About 6m households pay an average of £500 a year in higher charges.
The £20m fund was launched on Wednesday and hopes to raise £11m from companies, charitable foundations and rich individuals.
It will invest in companies tackling four areas: energy, finance, insurance — where the poor pay more because they cannot get credit or live in high-crime areas — and so-called “geo-based premiums” based on location.
Fair for You, an online lender, is one business seeking investment. The not-for-profit company offers cheaper loans to those with bad credit records, who go to rent-to-own providers such as BrightHouse, which an independent survey found charged more than £1,000 over three years for its cheapest washing machine. The regulator in October forced it to pay £14.8m compensation to 249,000 customers.
COUNCILLOR Ros Kayes is calling on Bridport Town Council to support the local Citizens Advice Bureau as the roll out of Universal Credit in the town draws closer.
Cllr Kayes reported that Universal Credit would be rolled out in Bridport on December 4th and it is then when those claiming benefits will have to start the process of receiving the credit and will no longer receive any money from existing credit.
The committee will review a strategic plan of financial reforms; coordinate China’s monetary policy and financial regulation; and forge policies on financial risk management so as to maintain country’s financial stability, Xinhua said.
The outlook for reforming China’s developing financial markets and the banking system remains obscured, in part, by a lag in the timing for key appointments such as a successor for Zhou Xiaochuan, longtime head of the People’s Bank of China. Some newly appointed party leaders, including Xi’s close economic adviser Liu He, are thought to support more market-oriented reforms.
With the economy still growing at an annual pace of over 6% and financial markets seemingly on an even keel, Xi’s team can claim to have weathered the post-2008 financial crisis with few major hiccups. But rising levels of corporate, banking and government debt have prompted the International Monetary Fund to raise the alarm. Estimates of the ratio of non-performing loans to total lending in the banking sector range as high as 35%. Most economists and banking analysts say the real level is likely much lower.
The level of debt in the Chinese economy skyrocketed after Beijing unleashed record amounts of stimulus — at least 17.5 trillion yuan ($2.6 trillion) — to help fend off the worst impact of the 2008 financial crisis. That credit binge has not yet been fully digested. In the years since, the level of debt surged further, much of it as “off balance sheet” lending by so-called shadow banks that operate outside the state-dominated formal banking industry.
Moody’s Investor Service estimates that the size of shadow bank lending has more than doubled since 2012, growing more than 20% in 2016 to reach 64 trillion yuan ($10 trillion), or about 86.5% of China’s GDP.
On 8 November 2017, the French Crowdfunding Association Financement Participatif France released the common set of performance indicators that member platforms specializing in loans, mini-bonds (a debt instrument specific to SME lending marketplaces) and bonds are invited to publish.
Key indicators give a clear picture of crowdlending risk and its cost:
The share of borrowed capital already repaid. The older the loans, the higher the portion already repaid.
The portion of interest due already paid. The older the loans, the higher the share of interest already paid.
The net internal rate of return representing the annual profitability of the loans, net of known or proven losses at the date of calculation.
The maximum possible internal rate of return representing the annualized yield of loans if all loans were repaid in accordance with the original schedule.
The annual cost of risk represents the decrease in profitability caused by delays and defaults relative to the maximum possible rate of return. This is the difference between (4) and (3).
Growing restrictions imposed on foreign banks operating in developing countries since the 2007/9 global financial crisis are hampering better growth prospects by limiting the flow of much-needed financing to firms and households, a World Bank report warned on November 7.
Rise of Developing Economy Banks
As advanced economy banks retrenched after the crisis, developing country banks stepped into the void and expanded across borders, accounting for 60 percent of new bank entries since the downturn. The result has been an increase in banking relationships between developing countries and regionalization of international banking operations.
For example, Africa’s Ecobank started in Togo and now has operations in 33 countries across the continent. It also has offices in Paris, Beijing, Dubai, Johannesburg, and London, which allows it to attract capital from wealthy countries to invest across Africa.
At the same time, the total asset size of the world’s largest banks increased by 40 percent, raising concerns that regulatory efforts since the crisis have failed to address the risk of banks that are too big to fail. Nearly 30 percent of developing countries have put in place restrictions on foreign bank branches. These curbs are depriving many economies of opportunities to access global credit that could benefit businesses and households.
There is a long string of middlemen (think brokers, titling agencies, inspectors, etc.) who slow down the process, amplify human error, and drive up the costs of doing business.
A public, distributed blockchain ledger that acts as a living database for all deals, negotiations, and settlements in the industry can overcome many of these shortcomings and reduce the need for “trust managers.”
One of the most exciting companies in the space is REALISTO, who employs the Ethereum blockchain to overcome many of these inefficiencies. Every investment made via their crowdfunding platform is mirrored on their blockchain and verified via smart contracts.
With the formation of blockchain consortia – or groups of financial institutions that collaborate to develop blockchain solutions – blockchain is already set to affect the way financial institutions process payments and handle settlements.
Traditionally, settlements between merchants and banks can take up to days. As consumers, you would have to wait three to five days for your payments to be cleared and verified behind the scenes after swiping your debit card at a local merchant.
By digitizing payments on a secured network, blockchain can serve the 2 billion unbanked people ignored by institutional banks. To use cryptocurrencies, all you need is a smartphone – no minimum account balance, credit history, or banks.
Blockchain lending is a development that is growing in popularity and offering alternative and less stressful ways of acquiring loans quicker and more efficiently even at lower interest rates.
Lendoit offers a robust system which overlaps between blockchain technology and conventional verification systems. Therefore, prior to borrowing, intending borrowers are subjected to standard KYC verification during application, while other aspects of the loan acquisition and repayment processes are based on an Ethereum Smart Contract.
Prospa has claimed first in the race to originate over half a billion in small business loans. The online lender states that over the past 12 months, Prospa has experienced dramatic growth, doubling the size of its loan book. Prospa has now provided credit to more than 12,000 SMEs in Australia and is the number one online lender in the country. Prospa will provide loans of up to $250,000 with a term of 3 to 24 months.
Queenstown Lakes District Council’s (QLDC) announcement and vote to amend its District Plan, restricting the number of days some houses can be used for short term peer to peer lending through sites such as AirBnB, will go a long way to improving rental affordability and shortages for workers in the region.
The report commissioned by QLDC from Infometrics shows AirBnB occupied 14% of the District’s housing stock in the June 2017 quarter.
Asia experienced a solid increase in fintech investment in Q3 2017, with $1.21 billion raised across 41 deals. China accounted for more than 50 per cent of all Asian fintech investment at $745 million.
Notably, corporate participation in Asia fintech venture capital (VC) deals remained high at 22 per cent of overall round counts, although actual direct investment was minimal in 2017 with just $840 million invested YTD in associated deal value.
In Singapore, an Indo-Asia Pacific business hub, the fintech sector saw $25.3 million over six deals in Q3 2017, with the Monetary Authority of Singapore (MAS) continuing to be the key driver of the city-state’s fintech ecosystem.
Dubai-based investment company National Bonds is moving into the financial advisory space with a new digital app offering low-cost investment options, its chief executive has revealed.
The company plans to challenge poor advice, offered by UAE financial advisory firms, by launching an upgraded app in the second quarter of next year to offer customers access to a variety of investment choices – not just National Bonds, Mohammed Al Ali, its chief executive told The National.
The Mastercard Foundation today presented its third annual Clients at the Centre Prize to Jumo. The US$150,000 prize recognizes the innovative work of the South African-based company as a large-scale, low-cost financial services marketplace that serves poor people.
The Prize highlights best practices in financial services where client satisfaction is a priority. Close to 100 financial service companies around the world submitted entries to the competition.
The other two Prize finalists were ftcash, one of India’s fastest-growing financial technology ventures which aims to empower micro-merchants and small businesses with the power of digital payments and loans, and Destacame, a free online platform in Latin America that empowers users by giving them control over their data to build their financial capabilities and to access financial products.
The Mastercard Foundation is hosting its fifth annual and largest Symposium on Financial Inclusion (SoFI) in Accra, Ghana.
The symposium, which ends today, champions the idea that, to achieve greater financial inclusion, financial service providers in developing countries must do more to meet the needs and expectations of people living in poverty.
Uganda launched its National Financial Inclusion Strategy (NFIS) 2017 – 2022 which seeks to reduce financial exclusion from 15 to five per cent by 2022.
Borrowell wins Deloitte Fast50 award (Borrowell Email), Rated: A
Borrowell has won a Companies to Watch award as part of the Deloitte Fast50 program. We are one of only eleven companies across Canada to win that award this year, and the only company from Toronto. Fast50 winners in the category for established companies include well-known names like Shopify, SkipTheDishes, Wave and Influitive. The list was announced an hour ago. George Popescu
News Comments Today’s main news: SoFi surpasses $25B in originations. JPMorgan Chase rolls out mobile banking app. ID Analytics has 85% visibility into online consumer lending. Zopa prices new securitization. Fannie Mae expands digital mortgage platform. SEC investigated Bank of Internet. China’s cash loan market hits 1 trillion RMB. Lendified secures $60M credit facility. Facebook, Clearbanc partner on merchant cash advance. Today’s main […]
JPMorgan Chase rolls out mobile banking app. AT: “Apparently, this is an attempt to reach millennials, but I wonder if the younger crowd will fall for that, giving their distrust of legacy financial institutions, or opt for the more independent mobile banking apps?”
JPMorgan Chase spent more than a year researching what millennials (and clients wanting to bank like them) desire in a financial relationship. The result is a new mobile-only app that lets people sign up for a bank account within minutes and also helps manage their spending.
The megabank made a splash on Monday debuting Finn by Chase, an app that includes a checking and savings account and a physical debit card.
At Money2020, deBanked caught up with Kevin King, Director of Product Marketing and Ken Meiser, VP of Identity Solutions for ID Analytics. The last time I crossed paths with the company was six months ago at the LendIt Conference in New York City. Since then, the company has increased its visibility into the online consumer lending market to 85%.
Behalf’s merchant acceptance partners have found a way to apply Amazon’s small business strategies to their own business models. By adding the Behalf instant credit approval tool to their ecommerce experience, they also unlock the power of flexible terms on every sale. Customers of our partners can get instant access to up to $50,000 in buying power with their choice of flexible payment terms. With this boost in working capital, small businesses are able to invest in their growth, which increases their business purchasing velocity. Case in point: 92.3% of the Behalf acceptance partners surveyed reported that adding Behalf to their checkout experience drove a 10-20% sales lift.
Online lender Bank of Internet was the subject of a formal 16-month Securities and Exchange Commission investigation, according to a report.
The company, led by Chief Executive Greg Garrabrants, was the subject of scrutiny until June — when it ceased without the SEC taking any action.
The probe was focused on alleged conflicts of interests, auditing practices, and loans made to two entities, according to subpoenas and government documents obtained by Probes Reporter, a publisher of investment research.
Large U.S. banks are starting to pay up to keep depositors from moving their money, saying customers are becoming increasingly demanding as the stronger economy nudges interest rates higher.
The average interest rate paid by the biggest U.S. banks on interest-bearing deposits jumped to 0.40% in the third quarter, the highest level since 2012 and the biggest quarterly increase this year, from 0.34% in the second quarter, according to Autonomous Research.
Bank executives said that the newest pressure for higher rates is coming primarily from wealth-management customers, typically well-to-do individuals and families who deposit cash as part of their investment accounts.
Fifth Third executives said they were raising deposit rates for some of those customers, particularly those who had other relationships with the bank.
On October 25, 2017, Credit Sesame announced it has raised over $42 million in equity and venture debt
The funding comes from existing and new investors including Menlo Ventures, Inventus Capital, Globespan Capital, IA Capital, SF Capital, among others, along with a strategic investor
The $42 million in funding is comprised of $26.6 million in equity and $15.5 million in venture debt, bringing the Company’s total funding to over $77 million
Headquartered in Mountain View, CA, Credit Sesame was founded in 2011 and has provided credit and loan management tools to over 12 million members
The mobile and web solution provides consumers with tools to build a path to achieve financial wellness, including free access to their credit profile complete with their credit score, credit report grades, credit monitoring, interactive step-by-step tools and recommendations for better lending options
On October 18, Chinese online micro-credit provider Qudian Inc listed on the NYSE, raising $900 million in an IPO that was priced at $24, in the biggest ever US listing by a Chinese fintech firm. The financial sector firm’s stock, trading under the symbol QD, closed at $33 as of October 23. The stock commands a market capitalization of $8.8 billion in the US stock market.
Year-end Forward P/E for the depository receipt is estimated at 21.47. Estimated earnings-per-share stand at $8.21.
China Internet Nationwide Financial Services (CIFS)
This Beijing-based financial sector firm, trades under the ticker CIFS on the NASDAQ GM stock exchange, is engaged in providing financial advisory services in China. The company’s stock listed on the US stock market on August 8 at an initial offer price of $10 a share, raising $20.2 million for the company. The stock, trading at $31.5 (as of October 23rd), commands a market capitalization of $693 million in the US stock market.
Listed since April 28th on the NYSE stock market, China Rapid Finance Limited operates one of China’s largest online consumer lending marketplaces. The company caters well to China’s 500 million EMMAs (Emerging Middle-class Mobile Active consumers), and has facilitated over 20 million loans to more than 2.7 million borrowers. Back in April, the company raised $69 million in an IPO, marking its listing on the US stock exchange under the ticker XRF. The shares initially offered at $6 a share, and now trade at $9.06 (as of October 23) with a market capitalization of $586.2 million.
JPMorgan was the first major US bank to partner with a fintech company when they launched their small business lending partnership with OnDeck in early 2016. That partnership was renewed earlier this year and has helped the bank to offer a seamless small business lending experience and reach customers it might not have otherwise. In recent months they have struck a new partnership with Mosaic Smart Data to help the slumping fixed income trading revenues and they have also completed an acquisition of WePay, a Silicon Valley company that offers payment capabilities to business platforms using APIs. Finally, just this week they launched Finn by Chase, an app aimed at millennials that allows people to use a phone to open a bank account, make deposits, issue checks, track spending and set up savings plans.
Bank of America saw more than 1 million users added to their digital channels and active digital banking users go from 32.8 million to 34.5 million in the last year. The main driver of this growth was through their mobile app. Customers are using the mobile deposit feature more than any other, mobile deposits now account for 21 percent of total bank deposits.
Wells Fargo’s digital growth, which includes web based and mobile users, saw a 2 percent increase from 2016. Branch and ATM interactions were down 6 percent while digital sessions through the web and mobile app increased 6 percent.
Citi is the first global bank to integrate banking, money movement and wealth management on mobile.
“Technology has helped us bring efficiency, speed and first-rate customer service to the small-loan space for all of our stakeholders, borrowers and brokers alike,” said Bonnie Habyan, executive vice president, marketing, at Arbor. Small-balance owners and operators need to work long hours to be successful, and the time and paperwork dedicated to obtaining financing is an inefficient use of time. Online multifamily financing platforms such as Arbor LoanExpress, or ALEX, address this by providing the ability to e-sign and upload documents.
“Crowdfunding was originally created to give average investors access to investments they normally wouldn’t have access to, and to give sponsors or borrowers easier access to capital,”said Bill Lanting, vice president, Commercial Debt at RealtyShares. “We were formed specifically with that idea in mind, to make borrowing easier and less cumbersome, and also to make investments in assets more available to everybody.”
AutoGravity, a FinTech pioneer on a mission to transform car financing by harnessing the power of the smartphone, announced a partnership with Global Lending Services LLC, a South Carolina-based auto finance company, to provide access to finance offers through the innovative AutoGravity digital platform. Qualified car buyers gain access to an even broader set of car finance options through the AutoGravity iOS, Android and Web Apps.
The good news about student loans is that they allow millions of people to earn college degrees who otherwise wouldn’t be able to afford them. The bad news is that college graduates enter the workforce deeply mired in debt that deflates their net worth and keeps them cash-strapped for years, if not decades. The current wave of college graduates is facing debt in amounts far above previous generations.
Oliver Wyman, a global management consulting firm, sets the median figure for an undergraduate degree at more than $25,000. That figure rises with each advanced degree. Graduates with MBAs enter the workforce with a median debt of $45,000. Medical school graduates can expect to be $200,000 in debt.
Debt repayments for the typical college graduate will amount to $265 a month and for medical school graduates, $1,600 a month.
Target announced that, starting this November, the retailer will integrate a wallet function in its Target mobile app. The purpose, says the retailer, is to allow customers to pay for purchases and redeem promotions through the use of a smartphone.
Veteran investor Jim Rogers believes that banks must invest in the financial technology (fintech) space or they face being replaced.
According to the report, he has invested in Hong Kong-based ITF Corporation, the world’s first financial technology bank founded by Hui Jie Lim. Rogers has also invested in Tiger Broker, a Chinese online brokerage.
He also believes that digital currencies could change how we see money in the next 10 to 20 years. Even though he hasn’t invested in the crypto market Rogers is of the opinion that governments could issue their own cryptocurrencies in the future.
A securitisation of loans originated by peer-to-peer lending firm Zopa has received a warm reception in the market. The deal, which is the second securitisation of Zopa loans, has been priced significantly tighter than last year’s transaction.
The securitisation was led by P2P Global Investments PLC, the first UK listed investment trust to dedicate itself to investing in marketplace loans, and was arranged by Deutsche Bank. The most senior class of notes was priced at 70bps over one month Libor, compared to 145bps last year.
The senior tranche of the £209m securitisation, which represents 80 per cent of the portfolio, was rated AA by Moody’s.
One central piece to understanding why trading (or flipping) strategies can be highly attractive is the effect of even small premiums pocketed on the portfolio yield. Take an investor that invests into a 100 (whatever currency) loan part and sells that part for 100.40 after holding it for 5 days. That is only a 0.4% premium, but the annualized yield is 33.8%.
Two main strategy approaches
A) Invest on the primary market and then sell the loan later on the secondary market
B) Buy loan parts on the secondary market which they deem underpriced and then sell at a higher price. Be it buying at discount and selling at a lower discount, or already buying at premium and selling at an even higher premium.
One important point, is that market conditions change, usually good opportunities will stop working after a few months or weeks either because too many investors try to use them, or more general the demand/supply ratio changes or the marketplace itself changes the rules how the market functions.
First an investor will want to look how loan information is presented on the primary and secondary market.
Understand the allocation mechanism on the primary market. How does the autoinvest feature work exactly?
When is interest paid? Does it accrue for each of the day held, or does the investor holding the loan at the date of the interest payment gets full interest credited. This is important, because if in the example at the start of the article the investor not only makes a 0.40 capital gain but also collects interest for the 5 days he held the part, it will have a huge impact on yield
Usually for this strategy longer duration loans are more attractive.
Usually smaller loans are more attractive.
Usually the time span a trading investor wants to hold on to a loan part, will be as short as possible (days). However there might be patterns observed where it could be desirable to hold for longer time spans.
Strategies that allow to hold parts only at a time when the status of a loan cannot change can be attractive.
The UK peer-to-peer (P2P) lending market has flourished in the last decade. Lending volumes among the major platforms are increasing rapidly, pushing the cumulative total above £7 billion for the first time, as the understanding of the investment model continues to grow.
New technology architectures, as well as the ability to quickly run up minimal viable products, mean that emerging P2P companies can turn ideas into reality much faster than their larger counterparts (“fail fast” or as I like to call it, “test quickly”).
This prioritisation of speed and efficiency, coupled with the ability to focus, means that P2P lenders can zero in on specific problems and provide what customers want and are increasingly expecting. At Landbay we can bring a new micro service up from scratch in 20 minutes, with the lag for code from committing to going live being about six to eight minutes whilst still maintaining the up time required.
As the alternative finance market has become saturated with different funding options, it can be difficult for brokers to determine the best solution to suit their clients’ needs.
Loans can also be tailored to fit the specific needs of customers, with fixed rates available to allow customers to budget effectively for the full term of the loan. The flexibility of loans means borrowers can cover unexpected costs or finance planned purchases at more affordable rates, meaning P2P finance is a great option when situations happen to change at a company.
Whilst 25% of borrowers that apply to banks have their loan application rejected, according to British Business Bank, other forms of lending have paved the way for businesses to obtain cash, with P2P lending becoming one of the most prominent solutions in the current market.
Dear Andrew, your comments on the BBC on Monday 16th October reflect the concerns that many share with the FCA about the effect of the high cost of credit impacting society widely and, in particular, the young.You cited concerns about certain aspects of credit card and payday lending practices, but you did not pass comment on the retail banks and their provision of overdraft credit at rates that may well exceed the rates of payday and credit card loans.It should be noted that at 1p per day for every £7 of overdraft, the fees for an overdraft of, for example, £2,000 pa, are in excess of 50% interest, uncompounded. This is certainly higher than many credit cards.Alex Letts
Founder and chief unbanking officer, U
Cash loan originated from the payday loan in America, and accelerated in China. In less than one year, the total volume increased from 600 billion RMB to 1 trillion RMB. As a branch of consumer finance, cash loan developed rapidly as much as P2P lending industry.
Early in this April, the regulator issued the first order to clean up the “cash loans”，while after six months the trend of compliance in the field is still unclear. Recently, with several relative businesses coming to the U.S. for IPO, the critical voice on the profiteering of cash loan becomes louder.
However, owing to the annual lending rate much more than the rate legal limited (36%), taking the consumer finance vents, cash loan still grow wildly under strict regulation.
Houses are for living in, not for speculation, Chinese President Xi Jinping said last week. The trouble is, fueling this speculation has been a surge in consumer lending, not only by banks but also by fintech firms such as recently listedQudian Inc.
Thanks to improved earnings and corporate debt that’s souring at a slower rate, Chinese bank shares have rallied this year.
What investors may be ignoring at their peril, however, is the spike in household advances. Consisting of mortgages, credit-card debt and auto loans, consumer lending as a share of the total is relatively low. Only 400 million Chinese had personal loans in 2016, or about 29 percent of the population. The ratio in the U.S. is about 82 percent, according to Bloomberg Intelligence. But it’s been growing fast and even People’s Bank of China Governor Zhou Xiaochuan is worried. China’s household debt-to-GDP ratio reached 47 percent in the first half, according to a recent Citigroup Inc. report.
In the first half year of 2017, Chongqing Ali Microcredit Ltd. has made the revenue of 3.97 billion RMB, which increased 100 million RMB compared to the 3.86 billion RMB of 2016. The company’s net profit was 2.644 billion RMB, in a growth of about 700 million RMB from the end of 2016.
As one of the Ant Financial eco-system, Ali Microcredit takes the business of credit loan (Ant Jiebei). Therefore, Ali Microcredit is already the industry leader in the consumer finance field. Even compared to the listed banks, Ali Microcredit’s profit data can defeat many of them. Take the first half year for example, the company profit exceeded 14 of all the 38 listed banks in stock exchange of Shanghai, Hong Kong and Shenzhen, including Guangzhou Rural Commercial Bank (01551.HK, profit of 2.639 billion RMB), Bank of Tianjin(01578.HK,profit of 2.62 billion RMB), Bank of Hangzhou(600926.SH, profit of 2.53 billion RMB),etc.
Chinese people are becoming more and more willing to spend. But if they don’t have money, they borrow. This ever-growing phenomenon has recently thrown cash loans, also known as fast loans, right under the public spotlight.
Han, a 26-year-old white-collar worker in Shanghai, who preferred only to give her surname, borrowed a 6-month loan of 10,000 yuan ($1505.53) from Mayi Jiebei, the online cash loan service provided by e-commerce giant Alibaba’s subsidiary Ant Financial, at the end of September.
When borrowing the money, Han was informed by Mayi Jiebei that she will need to pay a monthly interest rate of slightly more than 100 yuan. In total, Han will need to pay an interest rate of 637 yuan to the provider.
Currently, the entire cash loan market is worth between 600 billion yuan and 1 trillion yuan, the wdzj.com report showed.
China Rapid Finance has named Zhou Ji’an a non-executive independent director. He becomes the seventh member of a board that includes former executives of Hewlett Packard, McKinsey & Company, Morgan Stanley, and UBS.
Mr. Zhou is the executive director and general manager of China United SME Guarantee Corporation aka Sino Guarantee. He previously served in senior roles with China Export & Credit Insurance Corporation, and China Life Insurance Co . and is a senior scholar of the Eisenhower Fellowships, an international nonprofit leadership corporation.
Two main topics of the 6th Annual Convention of the European Crowdfunding Network (ECN) on October 19th and 20th were technology innovation and cross-border finance.
To retain their lead in innovation over banks and traditional finance’s Fintech, startups must keep delivering greater customer orientation and execution efficiency. The success of Initial Coin Offerings (ICOs) is a clear signal, and a red flag, that there exist gaps in technology and cross-border funding that finance has not filled.
Cross-border alternative finance is still hampered by the fragmentation of the European Union (EU) regulation at many levels: Not only do crowdfunding and crowdlending regulation differ from one country to the next, but so do investor taxation and corporate law.
Ingi Sigurdsson, CEO, Karolina Engine, claimed that artificial intelligence enables the platform to predict the success of crowdfunding campaigns with 80% accuracy. Mads Dalsgaar CMO, Funderbeam, explained how Funderbeam uses Bitcoin’s blockchain to register, clear and settle the trading of private companies’ shares. For Rein Ojavere, CFO of Bondora, technology enables his lending platform to “cut through the layers of fat” of multiple investment intermediaries. In the same vein, Lasse Mäkelä, CEO of Invesdor, called his company a “digital investment bank.”
Umberto Piattelli of law firm Osborne Clarke summarized the conclusion of ECN’s updated complete review of national crowdfunding and crowdlending regulations in 29 countries. He stressed the strong correlation between the growth of alternative finance and effective crowdfunding regulation. Only 11 out of the 28 EU markets researched have published specific regulations for crowdfunding and crowdlending. These markets have taken off rapidly after the issuing of such regulations.
Swedish fintech company Tink has signed with Nordic banks Nordea, Klarna and Nordnet. Integrating in 2018, the banks will use Tink’s payment technology and personal finance management (PFM) platform within their existing customer channels.
In addition to the partnership agreements, SEB, Nordea, Nordnet, ABN Amro, Creades and Sunstone has invested €14 million in Tink.
The Depository Trust and Clearing Corporation (DTCC), a provider of clearance, settlement, and a wide range of other services to the financial markets, has issued a new white paper on technological innovations and the disruptions fintech may generate.
By “core banking functions,” (1) the authors of the white paper have in mind credit, liquidity, and maturity transformation. The banks have more institutional experience handling these functions than upstart fintech firms and, to the extent the latter take over the core functions of the former, there may be reason to worry. Likewise, the fragmentation (2) of “the creation and delivery of financial services across additional providers and platforms” could cause errors and inefficiencies. And (3) if certain players could become too good at delivering these services in this way, they could pose systemic risks.
A research report by Transparency Market Research, predicts that the global peer-to-peer (P2P) market lending valuation will reach US$897.85 billion by 2024, as it expands at a significant CAGR of 48.2% from 2016 to 2024.
Dragon Victory International Limited (NASDAQ: LYL) announced today that, the Company has entered into a Strategic Cooperation Agreement (the “Agreement”) with Shenzhen 708090 Investment and Development Co., Ltd (“708090”), a leading provider of shared workspace, community, and services for entrepreneurs, freelancers, startups and small businesses, to promote incubation services.
On October 24th, Fiserv announced that Regions Bank will expand their digital money movement capabilities with the addition of person-to-person payment and account-to-account transfer solutions from Fiserv.
On June 15th, Yirendai announced that it was awarded the Best P2P Lending Platform in ChinaAward at The Future of Finance Summit (the “Summit”) held in Singapore. Yirendai is the first FinTech company in China to receive this prestigious reward.
Qudian Inc. (NYSE: QD) is a leading provider of online small consumer credit in China. The Company uses big data-enabled technologies, such as artificial intelligence and machine learning, to transform the consumer finance experience in China. The company recently emphasizes Its collection efforts and pricing policy. The Company’s collection efforts extend to every delinquent borrower. The Company’s collection process is divided into distinct stages based on the severity of delinquency, which dictates the level of collection steps taken. As part of the major upgrade of the Company’s risk management system in January 2017, the Company has developed a machine learning algorithm to better allocate collection resources based on more detailed grouping of larger delinquency risk. Higher risk groups are allocated with more collection resources as the likelihood of their outstanding balance becoming longer-term delinquent or even uncollectable is generally higher.
On Tuesday, ASIC announced that it had reached a confidential in-principle settlement with ANZ resolving the dispute over alleged BBSW misconduct. Commenting on the matter, RateSetter chief executive Daniel Foggo said the corporate regulator’s activity in this area of the market bodes well for a more transparent financial system.
There was a time when a loan mostly meant you were going to buy a house or a car. This is not the case any longer. With changing times, now there are loans against salary advance to fund even your honeymoon. Today, there are loans available practically for every need and dream.
Take the case of the ubiquitous car loan, the advent of luxury cars has turned several car companies to offer loans that are tailored to suit customer offerings. For instance, Volkswagen Finance (India), offers financing solutions to customers for both new and pre-owned Volkswagen group vehicles (namely Volkswagen, Skoda, Audi, Porsche, Lamborghini, MAN and Scania) through registered and authorised Volkswagen group dealer channels.
Yet, borrowing is not as smooth as one would expect it to be. Take for instance Mumbai-based Amit Shukla, he had to take a personal loan of Rs 5 lakh to fund his first commercial car, because a car loan did not work out the way he wanted it to work for him.
When equity and debt-based crowdfunding platforms were launched in the market, there were concerns that these vehicles could be used for money laundering. After all, investors could unknowingly fund a fraudulent company and the money could end up being misused by the issuers for their personal gain or, even worse, to fund criminal activities.
The Securities Commission Malaysia (SC) introduced a legal and regulatory framework for equity crowdfunding (ECF) in 2015 and peer-to-peer (P2P) financing last year to address these concerns. According to the SC’s deputy general manager Tengku Ahmad Ruzhuar Tengku Ali, the regulator views money-laundering activities to be of minimal risk on ECF and P2P platforms due to the safeguards built into their frameworks and the platform operators’ vetting process.
There have been several cases of fraud linked to investment crowdfunding. The first widely known case, involving US-based Ascenergy, came to light in 2015. The company had raised US$5 million from about 90 local and foreign investors by leveraging some of the better known crowdfunding platforms such as Fundable and EquityNet.
The SC’s approach
All six ECF operators registered in Malaysia are operational. According to Tengku Ahmad Ruzhuar, 31 issuers had successfully raised RM18.3 million on ECF platforms as at end-September, reaching 80% of their target amount.
Retail investors are allowed to invest up to RM5,000 per issuer and a total investment of RM50,000 within a 12-month period. Angel investors registered with the Malaysian Business Angel Network can invest up to RM500,000 while there are no restrictions for sophisticated investors.
Issuers are able to keep the funds raised if they reach a minimum of 80% of the target amount, but they are not allowed to raise multiple funds for the same purpose.
Lendified, a Canada-based lender who provides small business loans online has entered into an agreement with ClearFlow Commercial Finance to increase its lending capacity. According to the lending platform, through the agreement, ClearFlow is providing it with a $60 million credit facility to fund loans delivered through its website.
Small businesses advertising on Facebook can now get their hands on up to half a million dollars in growth capital, in the latest example of an online platform moving into territory historically dominated by bricks-and-mortar banks.
The social network has been trialling a scheme in partnership with Clearbanc, a Toronto-based firm, since February. Under the scheme, known as “Chrged,” customers connect their Facebook Ads account and their payment processor with Clearbanc, which then makes an offer.
Funds are not loans but merchant cash advances, giving Clearbanc the right to a certain portion of revenues flowing through the customer’s account until it gets its money back, plus a fee, typically of 5-10 per cent. The fee is set by analysing daily cash flows to determine the customer’s ability to repay.
About 1,000 small-business owners have so far taken up an offer.
According to CB Insights and PwC’s Canada’s latest MoneyTree report, 2017’s sluggish start may transform into a podium finish by year’s end.
The report, which tracks VC activity in Canada for Q3 2017, indicates that Canada could exceed $2.5 billion ($2 billion USD) across more than 300 deals for the year. The result would match or surpass activity from last year, when a total of $2.2 billion USD was invested, and 2016, which fell just below the $2 billion USD threshold.
Seed-stage deals accounted for 32 percent of deals in Q3 2017, a 19 percent drop from 51 percent of all deals in Q2 2017. However, early-stage and expansion-stage deals increased to 27 percent and 21 percent of deal share, respectively. Expansion-stage deals climbed to an eight-quarter high in Q3 — a strong contrast from past quarters where seed-stage deals were the most prominent, and perhaps a sign of a more robust investment ecosystem.
FinTech was another notably strong sector, as Canadian FinTech companies have received $252 million ($200 million USD) across 27 deals. This year is on pace to see $341 million ($270 million USD) invested across over 30 deals, on par with last year’s figure of $351 million ($278 million USD).
News Comments Today’s top news : Klarna is taking over the online retail (credit?) market; Point raised $15.4 mil ; Lending Club hired new CFO ; and Facebook is enabling payments in their 30,000 chat bots. Analysis : A great summary of the P2P market economics ; US SME’s optimism survey and retail credit card […]
US individuals are also borrowing more. The study author calls is a dramatic increase in household indebtedness as they look at 2016 vs 1986. As I look at 2016 vs 2008 I would say the increase has slowed down and it hasn’t caught up yet with the 2008 level.
Klarna is also entering the UK online market through a partnership with Arcadia. There isn’t much P2P point-of-sale in the UK as far as I know. Perhaps worth a thought ? Klarna in the US has very recently ” launched a real-time consumer financing solution for the US commerce market. They are launching together with Shopify, BigCommerce, Magento, Cybersource, Demandware and OpenCart. Financing will be available via core integrations and plugins.”
Messenger bots can accept payments natively without sending users to an external website, Facebook’s head of Messenger David Marcus announced today onstage at TechCrunch Disrupt SF 2016.
Finally, the credit card info people already have stored in Facebook or Messenger can be used to instantly make purchases in bots that are part of the new closed beta the developers can apply for. Marcus also revealed that 34,000 devs have joined the platform and built 30,000 bots in the April launch, up from over 10,000 devs in May and 11,000 bots in July.
To support payments in Messenger, Marcus says that the company is working with all the major players in the industry including Stripe, PayPal, Braintree, Visa, MasterCard and American Express — not just Stripe and PayPal which the Facebook developer blog post mentioned.
During the talk, Marcus discussed Messenger’s rise to 1 billion users thanks to a forced migration from Facebook’s main app, his relationship with Mark Zuckerberg, and the early stumbles with chatbots that have been used by millions of people across 200 countries.
The survey found that 87.5 percent of small business owners are investing more in their business in 2016 than 2015. Of those business owners who said they will be investing, the vast majority (91.4 percent) plan to borrow funds to do so. More than a third (38.3 percent) plan to borrow between $10,000 and $40,000, and 37.5 percent plan on borrowing more than $40,000.
When it comes to assessing growth or working capital, the majority (67.6 percent) of small business owners prefer alternative financing over other available options, including traditional bank loans. 20.7 percent plan to access short-term financing, less than a third (31.53 percent) plan to borrow funds from a local bank, and 27.9 percent plan to use a credit card or line of credit. In addition, 28.7 percent of respondents said they were affected by the Federal Reserve’s interest rate hike earlier this year, which impacted their willingness to spend and invest in their businesses.
More than half of respondents (61.7 percent) are borrowing funds for working capital, and of those 38.3 percent will use the money for marketing purposes. More than a third (38.3 percent) are borrowing to invest in inventory, and 30.9 percent are doing so to hire employees.
In total, 63.1 percent of all respondents are increasing their staff. Of those, 48.8 percent are hiring full-time employees and 32.5 percent are hiring a mix of full-time and part-time staff.
In addition, 42.9 percent of business owners plan to expand locations this year, and of those borrowing money, 22.3 percent are doing so to add locations.
The Small Business Growth Survey, which surveyed small businesses from around the country, was conducted by Bizfi, the platform that combines aggregation, funding and a marketplace for small businesses. Bizfi surveyed more than 100 small business owners in 33 states. The companies ranged from restaurants, retailers, healthcare providers and transportation to real estate. More than half of the businesses have four employees or less and 38% have between 5 and 50 employees. The revenue of the companies range widely from less than $100,000 to more than $5 million.
Bizfi surveyed more than 100 small business owners in 33 states. The companies ranged from restaurants, retailers, healthcare providers and transportation to real estate. More than half of the businesses have four employees or less and 38% have between 5 and 50 employees. The revenue of the companies range widely from less than $100,000 to more than $5 million.
WalletHub has published their Credit Card Debt Study that shows a dramatic increase in household indebtedness – specifically in credit card debt. According to the report, US consumers cranked up on credit during Q2 of 2016 generating $34.4 billion in debt. This is the largest Q2 accumulation since 1986, according to the report. Credit card debt is now on track to hurdle $1 trillion in outstanding balances by the end of 2016 with average debt balances moving up to $8500 per household. The authors called the situation “perilous” and stated;
“Q2 2016 also appears strikingly similar to Q2 2007, which ended less than six months prior to the start of the Great Recession.”
The report said “we are flirting with financial disaster” coming on the heels of last year’s record increase in credit card debt of $71 billion and last quarter’s record-low first-quarter pay down of $27.5 billion. Consumers may be reverting to bad habits.
Lending Club, which has been rebuilding its executive ranks in the wake of a recent scandal, is hiring Thomas Casey as its chief financial officer.
Casey worked most recently as executive vice president and CFO at the medical device company Acelity. He previously spent more than two decades in senior leadership roles at GE Capital, Washington Mutual, JPMorgan Chase and Citigroup, Lending Club said in a press release.
In an interview, Sanborn said that Lending Club’s search for a new CFO began before Dolan’s resignation, since she had signaled her intent to leave the company.
The stock of Yirendai Limited (NYSE:YRD) registered a decrease of 31.46% in short interest. YRD’s total short interest was 725,200 shares in September as published by FINRA. Its down 31.46% from 1.06M shares, reported previously. With 1.04 million shares average volume, it will take short sellers 1 days to cover their YRD’s short positions. The short interest to Yirendai Limited’s float is 8.53%. The stock decreased 3.48% or $0.74 on September 9, hitting $20.51. About 512,373 shares traded hands. Yirendai Ltd – ADR (NYSE:YRD) has risen 370.41% since February 5, 2016 and is uptrending. It has outperformed by 357.23% the S&P500.
HERO Funding securitization, (Kroll Bond Rating Agency, Email), Rated: A
Kroll Bond Rating Agency (KBRA) assigns a preliminary rating of AA(sf) to HERO Funding 2016-3 (“HERO 2016-3) Class A1 Notes and Class A2 Notes (together, the “Class A Notes”). The notes are newly issued asset-backed securities backed by a portfolio of Property Assessed Clean Energy (PACE) bonds.
The notes are secured by an Initial PACE Bond Portfolio and a Subsequent PACE Bond Portfolio (together, the “PACE Bond Portfolio”), each consisting of limited obligation improvement bonds (each, a “PACE Bond”) issued by the Western Riverside Council of Governments (“WRCOG”), San Bernardino Associated Governments (“SANBAG”) and the County of Los Angeles, California. The Initial PACE Bond Portfolio comprises 180 PACE Bonds with an aggregate principal balance of approximately $264.1 million and is secured by 12,394 PACE assessments levied against 12,394 residential properties (“PACE Assessments”) in 34 California counties. The average PACE Assessment is approximately $21,310 with an average annual payment of approximately $2,916. The Subsequent PACE Bond Portfolio is expected to consist of PACE Bonds with an aggregate principal balance of $66.0 million. The transaction benefits from credit enhancement in the form of excess spread, over collateralization, and a liquidity reserve.
Point, the first financial technology platform that allows homeowners to unlock their home equity wealth without taking on new debt, announced today that it has raised $8.4 million in Series A funding led by Andreessen Horowitz which also led the company’s seed round in 2015, bringing the total funding to $15.4 million (including venture debt financing). Alex Rampell, general partner at Andreessen Horowitz, has taken a board seat at Point. Andreessen Horowitz was joined by the company’s earlier backers Ribbit Capital and Bloomberg Beta. Individual angel investors include Orogen Group CEO Vikram S. Pandit, Airbnb CFO Laurence Tosi, LendingHome founder/CEO Matt Humphrey, and Invitation Home’s co-founder Brad Greiwe.
Point reached several key milestones including building a proprietary pricing engine that unifies property risk and homeowner risk, investing in over 50 properties across California, and bringing investor capital to its platform.
Point is the first financial technology platform that allows homeowners to unlock their home equity wealth without taking on new debt and gives investors access to a new asset class — owner-occupied residential real estate.
Weekly Orchard Lending Snapshot, (Orchard Platform), Rated: A
Comment: Not really in our field , but I find interesting to talk about how financial sectors are being disrupted by technology.
(Bloomberg) — Premiums for U.S. auto insurers may drop more than 40 percent once the use of automated vehicles has been fully adopted by 2050 and driving becomes safer, according to insurance broker Aon Plc.
The report also sought to identify what the main drivers for the use of MPLs are for borrowing money among consumers. Ease and quick turnaround are the most cited reasons by respondents, 81% say that one of the main drivers is an easy/quick application process, with 72% saying that it is the fast decision-making that makes the use of MPLs attractive. Additionally, MPL services offer competitive rates, and repayment flexibility – attracting a wide range of price conscious customers.
The consultancy firm further explores whether the MPL business model is really of sufficient improvement on that of the traditional banking proposition, to give rise to a ‘disruptive’ shakeup of the SME and consumer lending market. As it stands – within the current banking environment – the cost of an unsecured personal loan comes in at around 815 bps at banks, while at MPLs total costs stand at around 800 bps. For retail buy-to-let mortgages the bps for loans comes in at 460 for MPL and 500 for banks, while for SME loans, MPL can offer solutions at around 720 bps while banks offer loans at around 715 bps.
The current market conditions are, in many ways, abnormal. Interest rates remain at historic lows, while QE and other measures continue to operate across Europe. The researchers consider whether the current financial environment, rather than a disruptive new business model, is the main driver for the rise of MPL.
As part of the research the Big Four firm considers the total cost of attracting the required funds for the respective loans. For banks, a large portion of the loan is not sensitive to changes in rates, at around 270 bps, while for MPLs around 90 bps is not sensitive to changes in rates. This means that, as a proportion of the total bps of the loan, the credit environment disproportionately affects MPL loans – mainly in terms of return to lenders whose money is on the line. When, and if, the UK, European and US rates again begin to see relatively significant increases, the higher proportion of interest sensitive loan costs will disproportionately affect MPLs, seeing an unsecured loan increase from 470 bps to 530 bps for banks, while for MPLs the increase is from 635 bps to 795 bps.
Neil Tomlinson, Deloitte UK head of banking, says that MPLs are unlikely to become a disruptive force in the long-term, “More broadly, our research shows that total funding costs for banks are lower than for MPLs, and the interest rate-sensitive component of an MPL’s funding profile is higher than that of banks. On that basis, MPLs’ costs could rise by more than banks as the credit environment normalises and interest rates increase. Despite the challenges, MPLs do have an opportunity to carve out a niche market and can do so by exploiting their market-leading user experience and boosting word-of-mouth recommendations. These benefits could decrease customer acquisition costs, making MPLs a more viable option. As more MPLs become fully authorised by the FCA, issues surrounding trust and security could lessen. In turn, we may well see banks become more open to partnering with them to enhance their overall customer proposition.”
Among the findings of the study by P2P lender ThinCats was that almost a third (30%) of those surveyed said they had been put off investing in more traditional asset classes following the EU referendum.
ThinCats Caley concluded: “In the last two months alone, our research tells us, thousands of investors have started looking at P2P lending as a way of earning meaningful returns while avoiding the rollercoaster ride of volatile markets.”
According to Caley, “a major attraction of P2P lending is it sits apart from market volatility, providing high and predictable returns, whichever way the market winds are blowing” although he also recognised continuing misgivings from the wider financial services sector.
“Another obstacle preventing advisers from suggesting P2P to their clients is the FCA classification of it as a ‘non-standard’ investment’. Change is in the air, however, with the Innovative Finance ISA in the pipeline. When it arrives, this will allow people to invest their full ISA allowance in P2P without paying tax on the interest they earn.”
Comment: Klarna in the US has very recently ” launched a real-time consumer financing solution for the US commerce market. They are launching together with Shopify, BigCommerce, Magento, Cybersource, Demandware and OpenCart. Financing will be available via core integrations and plugins.”
To separate buying a product from paying for it online, Klarna effectively offers credit to buyers although they do not go through lengthy application processes. Credit is a highly regulated space.
Swedish fintech unicorn Klarna has signed a deal with Sir Philip Green’s huge retail conglomerate Arcadia, marking the first major partnership for the online consumer credit company in the UK.
The deal will see Klarna launch its “Buy now pay later” online payment option on the websites of Topshop and Miss Selfridge, two of Arcadia’s biggest brands. It will then be rolled out to Arcadia’s other five brands, which include Burton and Dorothy Perkins.
Siemiatkowski says Klarna has been working on the Arcadia deal for almost a year.
Klarna uses non-traditional credit measures to assess whether to approve buyers, but Siemiatkowski stresses that the company looks at a range of different factors rather than simply eye-catching examples such as browsing habits.
Some established companies have drawn inspiration and are creating their own fintech projects. Clydesdale and Yorkshire Bank, for example, recently launched a mobile banking app called ‘B’. Similar to the new mobile banks, B aims to help customers manage their money, for example by sending prompts when customers fall into an overdraft.
Other traditional companies have dedicated funds that invest in external fintech firms
Santander UK recently teamed up with Kabbage, a US company in which it invests, to allow it to provide small businesses with funding in a matter of hours. [Comment: old news for our readers.]
For financial services companies, often weighed down by old IT systems, partnerships with fintech firms can be a more efficient way of plugging gaps in their business models.
Royal Bank of Scotland, for example, has joined forces with a number of online lenders to small business, including Iwoca.
Warren Mead, global co-head of fintech at KPMG, said: “Getting access to customers is very hard and expensive, so more fintech companies are turning to banks to have partnerships. I don’t see them dominating the space in banking; I think they’ll end up being acquired. One or two could merge.
Some incumbents have already taken large stakes in a number of fintech firms. Spanish Bank BBVA, for example, acquired a 30 per cent stake in Atom Bank last year.
Recent decades have seen the numbers of SME housebuilders plummet. In 1988, the number of small builders – defined as those building 100 units or fewer – stood at 12,200 in the UK.
This fell to 5,700 by 2006 and then 2,400 by 2014.
The Government should take action to ensure that land is not unnecessarily banked and that larger developers who do not develop land in their stock sell it on to SMEs who will develop the land swiftly.
Place increased scrutiny on the land market, including requiring the publication of data on land pricing, option agreements and ownership.
Prioritise SMEs over major housebuilders in bids to develop land released from public ownership.
The Government should explore state-backed funding schemes to provide businesses like LendInvest with more capital to lend to SMEs.
Put SME property development at the heart of the industrial strategy. Commit to and act upon the funding understood by industry to have been earmarked by government for SME development projects.
Build on the Government’s support for alternative finance as a route for SME growth by promoting cross-fertilisation between small scale developers and alternative finance companies.
The Government should support industry initiatives to develop skills for property developers.
The Industrial Strategy should go further in incentivising development activity to position property development as an attractive entrepreneurial opportunity.
Government at all levels must work with SME developers to make it easy to plan and develop property.
Dozens of peer-to-peer online financing investors lodged an hours-long protest in front of Ernst & Young in Shanghai last Friday — only to learn they had targeted the wrong business.
At about noon, dozens of P2P investors gathered in front of the EY office in the bustling financial district of Lujiazui in Shanghai. They complained they lost money after investing in Uprosper Asset, an online lender that boasted of a “strategic cooperation” with EY, one of the “big four” audit firms. Some protestors refused to leave until 6 p.m.
However, the London-based EY dismissed any strategic cooperation with the P2P lender and told Caixin it has never audited or commented on that company’s financial reports.
EY demanded the online lending company remove all “relevant falsified information.” Since then, the names of all companies with whom the P2P site claimed to have a partnership have been deleted.
In June, Usprosper Asset owner Wang Mian disappeared, causing investor panic and a cash crunch at the P2P platform. Since then, 2,216 investors have been unable to get back a combined estimated 436 million yuan ($65.2 million).
In a recent article, LendingTimes.com looked at differences between alternative data and traditional credit reports in regards to online lending. Now, we intend to further explore the uses of alternative data by examining two sectors of the alternative data source industry: companies that cultivate Big Data and companies that use Big Data as a source […]
In a recent article, LendingTimes.com looked at differences between alternative data and traditional credit reports in regards to online lending. Now, we intend to further explore the uses of alternative data by examining two sectors of the alternative data source industry: companies that cultivate Big Data and companies that use Big Data as a source for risk assessment in marketplace lending.
Big Data’s Worth is Growing Big (Like $48.6 Billion-Big):
First and foremost it’s important to note that Big Data is a business all on its own. Companies, such as Microbilt, have been collecting alternative data for their clients for over 35 years. Alternative data companies are profitable and growing. IDC predicts “big data technology and services market growing at a CAGR of 23.1% over the 2014-2019 forecast period with annual spending reaching $48.6 billion in 2019.”
With the surge of marketplace lending over the past few years, the alternative data business has been booming. Companies are looking for the fastest and easiest way to get reliant information about potential employees, clients, and borrowers; Big Data companies, like Microbilt or LexisNexis, are providing banks, marketplace lenders, and other companies with essential (and speedy) information.
Putting These New Data Sources to Work in More Way Than One:
In our previous article on alternative data sources, we discussed a few of the many types of information that are usually excluded from traditional credit reports but included in alternative data reports, such as utility bills, bank account records, and even social media account information. While all of this information has proven to be useful in risk management for lenders, it is also being utilized by government agencies, nonprofit organizations and commercial businesses. Often times, Big Data is being used for the sole purpose of identity verification to prevent fraud, but it also helps form a complete picture of individuals and businesses.
Microbilt not only caters to lenders but also many other types of organizations. They offer services such as bank verification, background screening, and business credentialing. Using several hundred variables of data such as criminal records, DMV records, government filings and phone records, Microbilt can help confirm identification and assess risk.
With access to what seems to be an infinite amount of information, it’s is easy to understand why online lenders are choosing to utilize alternative data. Big Data allows them to make very informed decisions about potential borrowers in just a few minutes. The ease and speed of decision-making have made online lending a much more attractive option for borrowers as well.
How Alternative Lenders are Using Alternative Data:
With marketplace lending on the rise (123% CAGR since 2010 and reported $36billion industry in 2015), online lenders are in need of data that can keep up with their pace. Unlike traditional lenders that use standard credit reports to assess potential risk, more and more marketplace lenders are turning to alternative data in order to find and weed through loan applications in a very timely manner. The connection between online lending and alternative data is so strong and obvious that it is no wonder that several companies founded in recent years have combined the two businesses.
Kabbage, for example, is a marketplace lender that collects and uses Big Data in their lending platform. They were co-founded in 2008 by Marc Gorlin, Rob Frohwein, and Kathryn Petralia and were named #63 on Forbes’ America’s Most Promising Companies list in 2015. They have been utilizing alternative data from the start in order to make greater informed decisions about small business lending.
One of the most prominent forms of alternative data that Kabbage uses is social media. When a potential customer creates an account with Kabbage to apply for a small business loan, they are given the option to connect one or all of their business’ social media accounts to their Kabbage account. This simple connection can have a huge impact. Co-founder Gorlin explained in a 2013 interview that they’ve “learned that if someone has added Facebook or Twitter data” to their Kabbage account “they are 20 percent less likely to be delinquent.”
Big Data or Big Brother?
Other than social media Kabbage also looks at other types of alternative data: sales records and employee history, as well as how often the company uses 2-day shipping for its products (therefore implying they place customer service/satisfaction high on their priority list). Kabbage takes qualitative data and turns it into quantitative data, taking every piece of information into account when assessing risk.
Many people see this as a pro to alternative data. More information means better-informed decisions. But some analysts are starting to wonder how much information is too much information? While banks are typically only looking at numbers, companies like Kabbage are also privileged to age, race, religion, and other factors. Marketplace lending lacks the regulations placed on banks; again, this can be seen as a negative or a positive depending on the situation and the outcome.
While there are some worrisome aspects to using alternative data, Kabbage and other companies have been very successful in their use of it. According to Forbes of 2015, Kabbage has done $41million in revenue and have raised $106milling in venture funding. They, along with many other similar alternative lenders, continue to look “promising.”
Marketplace Lenders “Could Command $150 Billion to $490 Billion Globally by 2020”:
Morgan Stanley reported that in the year 2015, online lenders provided 7.9 billion in small-business loans, which is an enormous 68% increase from the previous year, but it is important to note that this number only makes up 3.3% of the total small-business loans in the US. Morgan Stanley believes online lenders’ share of not only small-business loans, but also P2P lending will continue to rise, stating in a report from June 2015 that marketplace lenders “could command $150 billion to $490 billion globally by 2020.”
The marriage of alternative lending and alternative data seems like a match made in heaven, but their sky-rocketing CAGR’s and minimal government regulations have many analysts worried of a potential (and some may argue inevitable) bubble burst. While there is a potential for billions of dollars of business within marketplace lending industry, it will be interesting to see how the use of alternative data continues to spread.