Princeton Alternative Funding Gets a New Beginning

alternative lending fund

The 2008 financial crisis saw a lending freeze from traditional banks. Grabbing the opportunity, alternative lenders filled the space. Drawn by superior returns, sophisticated financial investors and funds sprung up to invest via these platforms to directly/indirectly lend to consumers and small businesses. Princeton Alternative Funding is one such player. But the company has had to […]

alternative lending fund

The 2008 financial crisis saw a lending freeze from traditional banks. Grabbing the opportunity, alternative lenders filled the space. Drawn by superior returns, sophisticated financial investors and funds sprung up to invest via these platforms to directly/indirectly lend to consumers and small businesses. Princeton Alternative Funding is one such player. But the company has had to face rough weather, with bankruptcy protection and multiple lawsuits hobbling its progress.

Princeton Alternative Funding’s Humble Beginnings

Jack Cook (CEO) founded Princeton Alternative Funding LLC (PAF), a fund management company on March 1, 2015. The company is headquartered in Princeton, New Jersey and helps accredited and institutional investors achieve strong positive returns in the alternative lending sector. Walt Wojciechowski is the CFO and Jeff Davner is the President of the company.

Princeton Alternative Funding LLC is the general partner of Princeton Alternative Income Fund (PAIF), a flexible 3(c)(7) hedge fund. The inspiration for PAF was the evolution of fintech. There were no online lenders 15 years ago, and it is the recent technology advancement that has made it possible for the alternative lender market to come into forefront.

Though the company started on a strong note, its relations soured with its biggest limited partner in late 2015.

The PAIF Bankruptcy Filing

Ranger Direct Lending Trust (RDLT) along with RSIF and its affiliate “Ranger,” invested indirectly in PAIF Offshore. PAIF Offshore is a British Virgins Island Offshore entity, which is a limited partner in PAIF. According to the company’s filings, Ranger’s actual motivation was not to be a limited partner but the owner of the fund. They had reflected to their own investors that they control and own PAIF, which was materially false, according to PAF spokesmen. Though the two parties had major disagreements, PAIF was churning great returns for Ranger.

In fact, in 2015, Ranger received cash payments of $2,299,070.00 in the form of returns from PAIF, but they again attempted to acquire an equity interest in PAF. This attempt was rejected by PAIF, which forced Ranger to look for other means, which in turn destabilized the fund operations. Its bankruptcy filing states that the company entered bankruptcy protection while continuing to fight Ranger and its unwanted advances.

The case has turned more complex with Argon Credit, PAIF’s largest finance company borrower filing a bankruptcy petition in December 2016, placing 60 percent of the company’s assets in the PAIF fund at risk. Shortly after, Bristlecone Holdings, another one of PAIF’s finance company borrowers, filed a bankruptcy petition in the U.S. Bankruptcy Court for the District of Nevada.

PAF’s Climb Back to the Top

2015 saw the company open its fund raising doors. In March, they received their first capital. From March 2015 to Feb 2016, Ranger put in a total of $62 million. The company received new management in March 2016 after it was discovered that certain executives colluded with Ranger. The next year, they added more than 13 limited partners. The fund is now focused on providing revolving lines of credit to finance companies.

The fund has purchased a total of 12 portfolios from LOC (line of credit) originators. Two of them have been paid off and the rest are being serviced. These loans mainly comprise of small-dollar short-term consumer loans. All of them are installment loans, and some fall under lease/rent-to-own categories. There are a total of 60,000 consumer loans in the entire portfolio.

The company has an exclusive partnership with Microbilt Inc., a Consumer Rating Agency that provides top of the line analysis and monitoring capabilities. It will have access to proprietary databases and scorecards of MB, which will allow it to analyze loan originators and their performance as well as evaluate borrower performance on a granular level. The proprietary technology software includes auto underwriting tools, statistical models, and software tools to determine the validity of each loan.

PAF is now primarily funded by Microbilt to the tune of almost $2.5 million.

Conclusion

The year-to-date audited adjusted returns have exceeded the fund’s performance targets since its creation.

  • 2015: 13.97% YTD return
  • 2016: 17.41% YTD return
  • 2017: 15.17% YTD return

Princeton Alternative Funding does not have many competitors. Even players like Victory Park Capital have exited the space. But Princeton Alternative Funding firmly believes the alternative lending sector and its niche is a growing market. Banks and financial institutions are not able to offer easy credit to the consumer market, which is where alternative lending facilities come into play. It is looking to become a force to reckon with in its niche of short-term small-dollar consumer loans.

Author:

Written by Heena Dhir.

Taking Trade Finance to SMEs

trade finance SMEs

The financial crisis of 2008 led to many developments in fintech generally and alternative lending specifically. We’ve heard many of those stories before. One of the problems the crisis revealed is the restriction of capital, particularly among international small- to medium-sized enterprises (SMEs). Another problem was the massive proliferation of mobile coupled with the “digital […]

trade finance SMEs

The financial crisis of 2008 led to many developments in fintech generally and alternative lending specifically. We’ve heard many of those stories before. One of the problems the crisis revealed is the restriction of capital, particularly among international small- to medium-sized enterprises (SMEs). Another problem was the massive proliferation of mobile coupled with the “digital self” that allowed lenders to identify the types of businesses people engaged with. Digital data became a game changer for a lot of companies employing new technologies. One company got the bright idea to solve both of these problems with a single solution aimed at SMEs making their first entrance into the online ecoystem.

Who Are Kountable, And Why Do They Count?

Kountable saw its genesis in 2013 with CEO and Co-founder Chris Hale getting together with co-founders Craig Allen and Kathy Numera.

“We looked at trade finance in a different way,” Hale said, adding that one of his co-founders spent 30 years doing trade financing at the institutional level. Typically being an instrument extended by banks, Kountable puts the emphasis on the finance rather than the trade part of the equation. The financial crisis, Basel III, and other regulations that followed handcuffed banks in their ability to extend capital to SMEs. Kountable stepped in to fill the void.

By using a cloud-based platform for the import and export of goods, Kountable gives SMEs access to trade. By outsourcing third-party logistics and bringing curated transactions so deals get institutional level treatment, the company helps SMEs sidestep problems they would typically have accessing top tier products.

Currency management is one area that requires Kountable’s due diligence. As they buy in one currency and deal in another, there are commercial terms, such as paying suppliers, during negotiations.

The company is successful when it simplifies the translation between big and small. Hale said, in most trade finance deals, you have big-to-big (that is, enterprise-level business trading with enterprise-level business). For example, Cisco might sell a network bridge to a multinational corporation. But when you have a small business involved (Cisco selling to a bank in East Africa, for instance), Kountable ensures that everyone gets the same retail treatment. By bringing users together in a mobile app on a cloud-based system, the company makes it seem institutional to both parties.

“The asset is a trade receivable,” Hale said. For example, an alternative credit fund that extends a $150M line of credit. “We align ourselves with the success of the transaction by pricing our service like a margin-sharing arrangement.” The four-step process includes:

  1. Kountable collects directly from the end customer
  2. The bank buys new servers from Cisco
  3. The reseller negotiates the margin for the procurement process, importation, and installing services
  4. Kountable takes a portion of the margin for the trade services it provides.

The Three Components of the Technology

The technology includes three key components:

  1. Identity management—The small business reseller downloads a mobile app and shares his or her data with Kountable. That includes social media, business registration, and personal info about the owners and shareholders. Kountable builds a “robust profile” on the SME and runs Know Your Customer (KYC) and Anti-Money Laundering (AML) processes for validation. The company also looks at supply, and, if it’s a private business, customs. The company looks at trade as a network. The more transactions they do, the more the network effect creates a safe environment for more transactions.
  2. Cloud-Based Control Management System—This digitally manages assets on the operating side and the financial side of a trade transaction. Hale said it’s tricky because there’s not a lot of financial data inside the transaction. Most of the info is operational. That is, goods are paid for and shipped–in transit, through customs, etc. Traditional financial institutions aren’t set up for this. This system manages the operations and payment of this trade asset. The reason it’s important to have collaboration taking place between the reseller and the in-country partners (who help with the documentation of the banking relationships, clearing customs, and more) through the mobile app with the Kountable team in San Francisco is that they all plug in to make sure transactions go smoothly. These two elements combine to create a financial asset.
  3. Trade Accounting Service—The investor who extended the $150M line of credit (LOC) is consuming trade receivables as collateral. The trade accounting service will be able to report on the synthesis of the financial and operating information in order to report the portfolio value to the investor.

Not being a formal venture fund, Kountable is a “traditional single family office with a portfolio of private companies with double bottom lines.” The company has raised $15M, 85% of which came from the family office with capital added from other investors. These are for-profit companies, of course, but the business focus is on the “larger good.” The concessionary returns the company receives by leaving some of the money on the table to make a significant impact is a part of the reward.

Kountable Key Differentiator and KPIs

“Our committed focus is to the SME,” Hale said. This led the company to build a network of enterprise-level participants and a technology platform to cater to that user. “Most other trade platforms focus on digitization of a two-party trade,” but it’s all “enterprise to enterprise.” Kountable was created to help the global SME population. “That focus on the SME as the user has created an ecosystem unlike any other platform I’m aware of.”

Kountable has about 5,000 SMEs registered and moves $3 million per month in trade transactions. That’s in two countries–Kenya and Rwanda. Interest from 40 other countries has led to building a platform to address the market demand.

“We have a line of sight to profitability just by working within these two markets,” Hale said. “[We’re] building
global expansion to go outside of the family office this year.”

SMEs in Kountable’s two markets buy goods from the U.S. and work with U.S. supplies to sell to customers in East Africa products they wouldn’t have access to otherwise. In the year ahead, Kountable plans to work with U.S. SMEs on similar transactions.

Kountable’s Competition and the Future of Trade Finance

Kountable’s competition consists of large procurement companies, groups like Tradeshift, and financial relationship companies. On the other side, there are e-commerce platforms, like Amazon, that are more consumer focused.

“There really isn’t a competitor that fits together a solution targeting our market specifically,” Hale said. The competition is mostly peripheral.

Hale believes the future is going to see trade financing dramatically influenced by digitization across the board. “The players are focused on enterprise-level digitization, where invoicing becomes an Application Programming Interface (API) and customs brokerage becomes digitized. As that continues, the nature of trade financing will evolve toward a a focus on operations.” He sees this evolution ultimately leading to the incorporation of the blockchain. “The elements of smart contracts and the distributed ledger are very well suited to the network approach to trade facilitation.”

Kountable’s near-term plans are to continue demonstrating the universality of its solution. Hale said they have significant demands in many regions of the world, including the U.S., and the goal is to plant some flags in some specific markets. Along with the U.S., he mentioned Southeast Asia and Latin America as potential growth regions. “There are many elements of our transactions that are replicable across different verticals and different regions,” he said.

Conclusion

The company is looking to internalize its engineering team and build its other respective teams. They have a number of product launches in the next quarter and a half including a redesign of the mobile app. Beyond that, Kountable is focused on growth capital for market expansion, enterprise sales, and putting in place the legal and financial structures needed to move into Southeast Asia markets like Vietnam, Thailand, and Malaysia.

By focusing on the double-bottom line, Kountable not only has a bright future in the spaces of trade and trade financing, but the company is also doing its part to improve the quality of life in areas of the world where goods, services, and technology would be otherwise less accessible. And while it isn’t evident if the company will ultimately succeed, it’s certainly evident that it should.

Authors:

Written with Paul Keenan.

Allen Taylor

Demystifying Securitization

growth of securitization

Mortgage Backed Securities (“MBS”), Collateralized Debt Obligations (“CDOs), Collateralized Loan Obligations (“CLO’s), Asset-backed Commercial Paper (“ABSCP”) and other types of securitized products are largely responsible for the Subprime Crises in 2008. These financial instruments created massive financial losses and large-scale damage to the economy overall. A great deal of negative press followed demonizing certain industry […]

growth of securitization

Mortgage Backed Securities (“MBS”), Collateralized Debt Obligations (“CDOs), Collateralized Loan Obligations (“CLO’s), Asset-backed Commercial Paper (“ABSCP”) and other types of securitized products are largely responsible for the Subprime Crises in 2008. These financial instruments created massive financial losses and large-scale damage to the economy overall. A great deal of negative press followed demonizing certain industry participants and the use of financial engineering. Best-selling books like Too Big to Fail and The Big Short along with countless congressional testimonies drew even more attention to the subject.

With all the media attention came a fair amount of misinformation. For decades now, securitizations funded large consumer purchases including automobiles and homes. It also fueled the credit card industry and the expansion of consumer credit. Securitizations fund the small to large businesses and countless other aspects of the United States and world economy. Yet, for many it is a relatively new phenomenon that they may not completely understand, or even mistrust.

More recently, internet lenders brought an entirely new buzz to the securitization market. Their more customer-centric model to lending resulted in explosive growth. So much so, the original peer-to-peer funding model was largely replaced by the efficiency of the securitization market. According to Bloomberg/Peer IQ, total securitization of marketplace loans is now close to $90 billion, up from less than $50 million at the end of 2013.

What is Securitization?

Securitizations, or, more specifically, asset-backed securities (“ABS”), are pools of loans such as residential and commercial mortgages, auto loans, consumer loans, leases, trade receivables, or other assets packaged in security form. The loan pools often separate into different securities with varying levels of risk and return.  Lower risk, lower interest tranches receive the loan payments first, with the holders of the higher-risk securities receiving payments thereafter. The securities sell as new issues and subsequently may trade in the secondary securities market. Public offerings of ABS require registration with the SEC.

Securitization is like secured lending in many ways. Secured lenders require borrowers to pledge specific assets as collateral for a loan. Cash flows from the borrower and the assets pledged as collateral back the loan in the case of default. In a similar way, the loan pool in the securitization trust acts as collateral for a security. In a securitization of secured loans, assets that collateralize the loans in the pool also flow through the trust in case of a loan loss and subsequent liquidation. The holder of the security has a rightful claim to the cash flows of the loan pool including principal and interest payments, loan sales and recoveries from any defaults.

Essentially, securitization is the process of taking a group of homogeneous assets and transforming them into a security. The assets are pooled together and repackaged into a single security, which is then sold to investors. The security entitles them to the incoming cash flows and other economic benefits generated by the asset pool.

A Simplified Overview of the Securitization Process

From FDIC.gov website

How did Securitization Begin?

The modern history of securitization began in 1970s when Government Sponsored Enterprises (“GSE’s) including the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Corporation (“Freddie Mac”) issued the first residential mortgage-backed securities. These first issuers pooled residential mortgage loans and used them as collateral for securities. The market was significantly expanded by the Emergency Home Finance Act of 1970, which authorized Fannie Mae and Freddie Mac to buy and sell mortgages insured or guaranteed by the federal government. Along with credit enhancement of the government guarantee came an entire industry of creating newly issued bonds and trading securities in the secondary market. By 1977, Bank of America issued the first non-government sponsored security in the form of a private label (non-government backed) residential mortgage pass-through bond.

Securitization evolved over the decades, as different methods and products developed from the process. A critical component was the Tax Reform Act of 1986. The Tax Reform Act eliminated the double taxation of income earned at the corporate level by issuers and dividends paid to securities holders. It also allows for Real Estate Mortgage Investment Conduits (“REMICs” or “Conduits”). A REMIC is an important distinction for balance sheet lenders as they were now permitted to structure a security offering as a sale of assets. The ability to package assets off-balance sheet offered regulatory capital relief for lenders and greatly increased capital available to fund growing consumer loan demand. Mortgage securitizations then led to new types of asset securitization including auto loans, credit card receivables and others. As the United States paved the way other advanced countries soon followed with their own ABS.

By the 1990s the securitization market exploded. New rules in the United States by the SEC along with REMIC legislation made the process more efficient. Global consumer culture clamoring for access to credit paired with the expansive growth of institutional managed money seeking new investment opportunities was the perfect combination. Consumer credit was now available to purchase everything from houses and cars to consumer electronics and higher education.

The need for business credit also expanded during this time. The 1990s saw the introduction of commercial mortgages backed securities (“CMBS”), collateralized loan obligations (“CLOs”), Franchise ABS, Equipment Leasing Securitizations and other structures designed to finance business.

Growth of Securitization (1970–2008)

Source: *Securitization and Fractional Reserve Banking Nov 12, 2009 Nikolay Gertchev

What are the Benefits of Securitization?

For the Issuer, Securitization is Cost Efficient. It allows a company to issue low cost senior debt independent of the company’s rating and fund itself less expensively than it could on an unsecured basis. The strategic use of securitization enables a company to grow its business and earnings without additional equity capital and/or enhance return on equity. These benefits derive primarily from the capital efficiency of securitization. Depending on the structure, securitized assets can be supported with less equity capital than on balance sheet assets primarily due to the transfer of asset-related risks to investors.

Securitization Transfers Asset-Related Risks. Firms that specialize in originating new loans and have difficulty funding existing loans may use securitization to access more liquid capital markets for funding loan production. In doing so, the originator or finance company also transfers risk. These risks generally include interest rate risk, basis risk, liquidity risk, prepayment risk and credit risk. While in some transactions the issuer may retain most of the economic credit risk associated with securitized assets, the credit risk of certain asset types may be small compared with these other risks. In addition, securitization can create opportunities for more efficient management of the asset ability duration mismatch generally associated with the funding of long-term loans, for example, with shorter term bank deposits.

Diversification for Investors. Investors seek diversification of investments for the benefit of their overall portfolio. Securitizations offer unique investment opportunities and attractive risk-return profiles compared to other asset classes such as government and corporate bonds. Securitization also allows the structuring of securities with differing maturity and credit risk profiles from a single pool of assets that appeal to a broad range of investors.

Risk Sharing and Liquidity. Securitized products allow institutional investors opportunities to participate in consumer and corporate assets that cannot be found elsewhere. With securitization, investors may invest in various consumer and business loans without having to develop in-house origination and servicing capabilities required to procure loans, collect payments and managed defaults and liquidations. In this way, investors benefit from the sourcing and servicing expertise of originators freeing money for more efficient capital deployment. Finally, the conversion of basically illiquid banking assets into tradeable capital market instruments often gives investors the opportunity to sell securities in the secondary market and obtain liquidity.

Securitization Provides Market Driven Pricing Discipline. Securitization can provide a market driven pricing discipline by highlighting the market price for risks transferred to investors and, thereby, providing pricing benchmarks to judge the profitability of a business.

How do the Regulators Look at Securitization Post-Crises?

Despite a major setback in 2008, securitization continues to be the primary alternative to bank financing. Securitizations transfers trillions of investment dollars into the economy. The regulatory authorities in the United States recognize the systematic importance of the capital markets to the real economy. In a report to Congress in 2010 by the Federal Reserve (“The Fed”), the Fed states, “the securitization markets are an important link in the chain of entities providing credit to U.S. households and businesses, and state and local governments. When properly structured, securitization provides economic benefits that can lower the cost of credit.” That exact phrase was reiterated in 2014 in a joint agency report by the US Treasury, SEC, OCC, HUD, The Fed, FHFA and FDIC regarding risk retention for securitizations.

Comments like this from the regulatory bodies lead most people to believe that securitization is here to stay. Transforming illiquid typical bank assets into tradable securities, is an important way to channel cash to borrowers and fund economic growth. While new regulation calls for increased scrutiny of deals it recognizes the importance securitization plays to the overall economy. New measures such as better documentation and risk retention are now in place. The rules call for issuers to retain and economic interest or so-called “skin-in-the-game” on deals they bring to market. This makes for a better alignment of interest, stronger transactions and increased transparency. In that way we are better than ever before.

Author:

Written by Phil Toth, managing director at Oberon Securities  

What Led to the Think Finance Bankruptcy?

Think Finance

Post-2008 financial crisis, the alternative lending industry flourished providing access to quick funds to individuals and SMEs left in the lurch by their banks. Behind it’s unprecedented growth was also a weak regulatory framework and a risky business plan that sometimes involved circumventing states’ usury laws. Think Finance is the latest addition to the list […]

Think Finance

Post-2008 financial crisis, the alternative lending industry flourished providing access to quick funds to individuals and SMEs left in the lurch by their banks. Behind it’s unprecedented growth was also a weak regulatory framework and a risky business plan that sometimes involved circumventing states’ usury laws. Think Finance is the latest addition to the list of high-flying fintech startups that got crushed due to their inability to navigate lending laws and/or placate their principal backers over their performance.

Introduction

Think Finance was started in 2001 by Ken Rees in Fort Worth, Texas. It raised $60 million in venture capital from Sequoia Capital and others, and secured a $90 million credit facility from Victory Park Capital Advisors in 2010.

Think Finance is an online provider of software technology, analytics, loan servicing, and marketing services. Working with other companies, the offer and service lines of credit and installment loans over the internet throughout the United States. In 2013, with revenues of over $500 million, Think Finance was ranked #2 on the Forbes list of America’s Most Promising Companies. In 2014, the company did a strategic restructuring, resulting in the spinoff of a new independent company called Elevate, which became a five-time honoree on the Inc. 5000 List of Fastest Growing Companies (2010-2015).

Founder and CEO

Think Finance founder and former CEO Ken Rees is a serial entrepreneur, innovator, and veteran of the financial services industry. In 2001, he founded CashWorks Inc., a non-bank financial technology company in Dallas, served as CEO and president, and, in 2014, sold it to GE. After that, he founded Payday, one of the first online payday lenders. He moved on to head Elevate after the restructuring. Martin Wong, a financial industry veteran, with stints in Citigroup, Western Union, and Cigna, now leads the company.

Trouble in the “Think Finance” Paradise: Filing for Bankruptcy

Privately held Think Finance and five affiliated debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 17-33964, on October 23, 2017. The company is represented by Gregory G. Hesse of Hunton & Williams.

According to documents filed with the court, “While Think Finance had intended to leverage its successful track-record and explore opportunities for continued growth and innovation in the fast-moving fintech industry, it has been forced to seek bankruptcy protection because of a liquidity crisis caused by hedge fund Victory Park Capital Advisors, LLC (‘Victory Park’). Victory Park has caused GPL Servicing, Ltd. (‘GPLS’) – an entity that owes Think Finance and its subsidiaries tens of millions of dollars – to stop paying Think Finance for its services and Victory Park has raided GPLS’s bank accounts. The scheduled payments from GPLS that Victory Park has intercepted represent a major component of Think Finance’s near-term cash flow. Without these funds, Think Finance soon could be forced to cease or substantially curtail its operations.”

Think Finance’s Chapter 11 petition indicates total assets greater than $100 million.

The debtors intend to continue in the possession of their respective properties and the management of their respective businesses as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

What Caused This Meltdown?

Think Finance has been accused of being a predatory lender in multiple federal lawsuits. Along with the Chicago Hedge Fund, Victory Park Capital Advisors, the company was alleged to be running a “rent-a-tribe” scheme under which they were running investors’ money through a web of shell companies to make it look like legally-exempt Native Americans are making short-term, high-interest loans to needy borrowers.

Many lenders have used Native Tribes to dodge the usury law. The law targets the practice of charging excessively high rates on loans by setting caps on the maximum amount of interest that can be levied. But trouble brewed when Victory Park cut off Think Finance’s access to funds. Pennsylvania Attorney General has accused both of being active participants in this scheme.

Both parties are contesting the case on the grounds they do not fall under the scope of a “lender.” Think Finance is portraying itself as a financial technology provider, and Victory Park stated it merely provided money through “commercial transactions” that was used to make the online loans. Bankruptcy should help clear the air on how these transactions were actually structured. But for now, the company’s future looks bleak.

Final Nail? CFPB Sues Think Finance

“We are suing Think Finance for deceiving consumers into repaying loans they did not legally owe,” said Consumer Financial Protection Bureau (CFPB) Director Richard Cordray. “Think Finance wrongly took money from people’s bank accounts, so we are seeking relief for consumers and a civil money penalty.”

The two main grounds for these accusations against Think Finance are:

  1. Think Finance allegedly conned consumers into making payments for a debt they did not owe – Usury laws void a loan if the rate charged exceeds the interest rate allowed by the state. Think Finance allegedly duped its customers into paying for the debt even though those loan agreements were void under the state’s usury laws. Moreover, ThinkFinance was allegedly unlicensed in some states thus rendering those loans void, as well.
  2. Think Finance allegedly collected loan payments that consumers did not owe – Think Finance, without the knowledge of its customers, allegedly transferred loan installments electronically from customer bank accounts and allegedly sent letters to customers asking for payments that they were not obligated to pay.

Therefore, the CFPB is seeking monetary relief for consumers, civil money penalties, and injunctive relief, including a prohibition on Think Finance’s collecting on void loans.

Conclusion

It is safe to say that Think Finance is in an extreme legal quagmire. In the bigger scheme of things, this situation throws light on the “shortcuts” used by fintech companies to grow their lending books. Think Finance’s bankruptcy feels like a tip of the iceberg. With regulations getting more stringent, more such cases are expected to pop up in the future.

Authors:

Written by Heena Dhir.

What Led to the Think Finance Bankruptcy?

Think Finance

Post-2008 financial crisis, the alternative lending industry flourished providing access to quick funds to individuals and SMEs left in the lurch by their banks. Behind it’s unprecedented growth was also a weak regulatory framework and a risky business plan that sometimes involved circumventing states’ usury laws. Think Finance is the latest addition to the list […]

Think Finance

Post-2008 financial crisis, the alternative lending industry flourished providing access to quick funds to individuals and SMEs left in the lurch by their banks. Behind it’s unprecedented growth was also a weak regulatory framework and a risky business plan that sometimes involved circumventing states’ usury laws. Think Finance is the latest addition to the list of high-flying fintech startups that got crushed due to their inability to navigate lending laws and/or placate their principal backers over their performance.

Introduction

Think Finance was started in 2001 by Mike Stinson in Fort Worth, Texas. Ken Rees replaced Stinson as CEO in 2004. The company raised $60 million in venture capital from Sequoia Capital and others, and secured a $90 million credit facility from Victory Park Capital Advisors in 2010.

Think Finance is an online provider of software technology, analytics, loan servicing, and marketing services. Working with other companies, the offer and service lines of credit and installment loans over the internet throughout the United States. In 2013, with revenues of over $500 million, Think Finance was ranked #2 on the Forbes list of America’s Most Promising Companies. In 2014, the company did a strategic restructuring, resulting in the spinoff of a new independent company called Elevate, which became a five-time honoree on the Inc. 5000 List of Fastest Growing Companies (2010-2015).

Trouble in the “Think Finance” Paradise: Filing for Bankruptcy

Think Finance former CEO Ken Rees is a serial entrepreneur, innovator, and veteran of the financial services industry. In 2001, he founded CashWorks Inc., a non-bank financial technology company in Dallas, served as CEO and president, and, in 2004, sold it to GE. After that, he founded Payday, one of the first online payday lenders. He moved on to head Elevate after the restructuring. Martin Wong, a financial industry veteran, with stints in Citigroup, Western Union, and Cigna, now leads the company.

Privately held Think Finance and five affiliated debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 17-33964, on October 23, 2017. The company is represented by Gregory G. Hesse of Hunton & Williams.

According to documents filed with the court, “While Think Finance had intended to leverage its successful track-record and explore opportunities for continued growth and innovation in the fast-moving fintech industry, it has been forced to seek bankruptcy protection because of a liquidity crisis caused by hedge fund Victory Park Capital Advisors, LLC (‘Victory Park’). Victory Park has caused GPL Servicing, Ltd. (‘GPLS’) – an entity that owes Think Finance and its subsidiaries tens of millions of dollars – to stop paying Think Finance for its services and Victory Park has raided GPLS’s bank accounts. The scheduled payments from GPLS that Victory Park has intercepted represent a major component of Think Finance’s near-term cash flow. Without these funds, Think Finance soon could be forced to cease or substantially curtail its operations.”

Think Finance’s Chapter 11 petition indicates total assets greater than $100 million.

The debtors intend to continue in the possession of their respective properties and the management of their respective businesses as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

What Caused This Meltdown?

Think Finance has been accused of being a predatory lender in multiple federal lawsuits. Along with the Chicago Hedge Fund, Victory Park Capital Advisors, the company was alleged to be running a “rent-a-tribe” scheme under which they were running investors’ money through a web of shell companies to make it look like legally-exempt Native Americans are making short-term, high-interest loans to needy borrowers.

Many lenders have used Native Tribes to dodge the usury law. The law targets the practice of charging excessively high rates on loans by setting caps on the maximum amount of interest that can be levied. But trouble brewed when Victory Park cut off Think Finance’s access to funds. Pennsylvania Attorney General has accused both of being active participants in this scheme.

Both parties are contesting the case on the grounds they do not fall under the scope of a “lender.” Think Finance is portraying itself as a financial technology provider, and Victory Park stated it merely provided money through “commercial transactions” that was used to make the online loans. Bankruptcy should help clear the air on how these transactions were actually structured. But for now, the company’s future looks bleak.

Final Nail? CFPB Sues Think Finance

“We are suing Think Finance for deceiving consumers into repaying loans they did not legally owe,” said Consumer Financial Protection Bureau (CFPB) Director Richard Cordray. “Think Finance wrongly took money from people’s bank accounts, so we are seeking relief for consumers and a civil money penalty.”

The two main grounds for these accusations against Think Finance are:

  1. Think Finance allegedly conned consumers into making payments for a debt they did not owe – Usury laws void a loan if the rate charged exceeds the interest rate allowed by the state. Think Finance allegedly duped its customers into paying for the debt even though those loan agreements were void under the state’s usury laws. Moreover, ThinkFinance was allegedly unlicensed in some states thus rendering those loans void, as well.
  2. Think Finance allegedly collected loan payments that consumers did not owe – Think Finance, without the knowledge of its customers, allegedly transferred loan installments electronically from customer bank accounts and allegedly sent letters to customers asking for payments that they were not obligated to pay.

Therefore, the CFPB is seeking monetary relief for consumers, civil money penalties, and injunctive relief, including a prohibition on Think Finance’s collecting on void loans.

Conclusion

It is safe to say that Think Finance is in an extreme legal quagmire. In the bigger scheme of things, this situation throws light on the “shortcuts” used by fintech companies to grow their lending books. Think Finance’s bankruptcy feels like a tip of the iceberg. With regulations getting more stringent, more such cases are expected to pop up in the future.

Authors:

Written by Heena Dhir.

Wednesday November 29 2017, Daily News Digest

Qudian

News Comments Today’s main news: Fiduciary rule delayed–again.SoFi prepares sixth student loan refinance ABS.LendingTree secures $250M amended, restated credit facility.Indonesian tech investments hit $3B YTD. Today’s main analysis: Qudian bounces back. Today’s thought-provoking articles: Will Mulvaney back consumers or payday lenders?American consumers say financial crisis had no impact on their lives.Online education startup promises to […]

Qudian

News Comments

United States

United Kingdom

China

European Union

International

India

Asia

News Summary

United States

DOL Officially Delays Start of Fiduciary Rule (The National Law Journal), Rated: AAA

The Labor Department on Monday announced the official 18-month extension for the start of key provisions of the fiduciary rule.

President Donald Trump directed the Department to prepare an updated analysis of the “likely impact” of the fiduciary rule on access to retirement information and financial advice.

The extension will be published in the Federal Register on Wednesday.

SoFi readies sixth student loan refi ABS (GlobalCapital), Rated: AAA

SoFi is has entered the post-Thanksgiving pipeline with its sixth student loan refinancing transaction this year, in line with its plans to issue 12 securitizations in 2017.

The California-based online lender filed documents with the US Securities and Exchange Commission on Tuesday. Credit Suisse, Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley are banks on the deal, according to the deal documents.

SoFi Tackles Consumer Debts in New Ad Push (Lend Academy), Rated: A

While relaxing over the Thanksgiving weekend you might have noticed a new trend occurring in television while watching the games: six second ads.

SoFi is focusing their message on the consumers lifestyle, presenting an understanding as to why someone needed to increase their credit card debt.

They also placed a Black Friday circular with several national newspapers which you can see in the photo below. The ad is a clever take on the typical sales fliers we all see around this time of year. But instead of an ad featuring low prices we see an ad touting much higher prices. The message is that if you are buying gifts on credit cards this holiday season and carrying a balance you will be paying a lot more than the advertised price. It is a message focused on smart spending, giving a better look at the true costs of products when financed.

Would Trump’s CFPB Pick Mulvaney Back Consumers Or Payday Lenders? (International Business Times), Rated: AAA

Demonstrators gathered outside the Consumer Financial Protection Bureau (CFPB) in Washington D.C.  Wednesday to protest President Trump’s decision to appoint White House budget director Mick Mulvaney to director of the agency.

As a Congressman, Mulvaney accepted $55,500 in contributions from payday lenders during his four successful runs for Congress, including $26,600 during the 2016 election cycle,  according to the National Institute on Money in State Politics. Before he was tapped to lead President Donald Trump’s Office of Budget Management, Mulvaney took $115,200 from the securities and investment industry, and another $96,564 from the insurance industry in the 2016 cycle, both more than any other industry, according to the Center for Responsive Politics. This record, along with comments Mulvaney made indicating he would shutter the agency if given the opportunity, has led critics to question whether Mulvaney’s priority will be consumers — or the companies the agency is responsible for regulating.

Payday lenders appear to want Mulvaney to lead the CFPB.

Note to Mick Mulvaney: Donuts do not a CFPB director make (The Washington Post), Rated: A

President Trump’s hostile takeover of the Consumer Financial Protection Bureau, by contrast, relies on the rather less cherished legal principle of habeas cuppedia, Latin for “you shall have the pastries.”

Under the statute that created the CFPB, the watchdog agency set up after the 2008 crash to police lending abuses, it should now be rightfully run by Leandra English, the deputy director who succeeds the just-resigned director, Richard Cordray, until the Senate confirms a permanent replacement. Trump found another statute that he says lets him appoint Mulvaney. English filed suit to defend her legitimacy, Mulvaney submitted doughnuts, and a Trump-appointed federal judge, to nobody’s surprise, ruled in Trump’s favor.

Ten Years Post-Financial Crisis and Americans Say It Had No Impact, According to Hartford Funds Survey (BusinessWire), Rated: AAA

New data released today by Hartford Funds revealed that a decade after the Great Recession, Americans are unclear how the economic event impacted their life and financial behavior.

The majority (40 percent) of respondents said that the financial crisis had no impact on their life, yet large numbers reported that they avoid the market (42 percent) and have altered their spending and savings habits (46 percent). Others (26 percent) shifted their retirement timeline and plan to work longer then they’d hoped, and 25 percent had to change jobs or take on additional jobs.

The majority (40 percent) of respondents said that the financial crisis had no impact on their life, yet large numbers reported that they avoid the market (42 percent) and have altered their spending and savings habits (46 percent). Others (26 percent) shifted their retirement timeline and plan to work longer then they’d hoped, and 25 percent had to change jobs or take on additional jobs.

STRATEGIC ADVANCES IN THE USA FUEL MONEVO’S GROWTH (BQLive), Rated: A

The company’s growth is set to continue with ongoing success in the US, Monevo’s newest territory.

Personal loan originations in the US reached new heights by the end of 2016. Total balances reached $102bn for the first time, $14bn higher than the end of 2015. The number of consumers with personal loans at the end of 2016 was 15.82 million.

Fifteen US lenders, including Lending Club, Sofi, and Prosper have joined Monevo’s roster of over 150 personal loan lenders across the world.

GETTING STUDENT FINANCIAL AID MAY BECOME WAY EASIER WITH NEW FAFSA APP (Newsweek), Rated: A

Just like Uncle Sam, Education Secretary Betsy DeVos wants you…to be able to apply for financial aid on your phone.

DeVos said Tuesday that the government plans to launch an app for the Free Application for Federal Student Aid, or FAFSA, which some 20 million people fill out every year in hopes of getting grants, loans and other money for college or career training. It’s all part of a plan to make the FAFSA much simpler to submit.

HouseCanary Announces $ 31 Million Series B Funding, Comprised of PSP Growth and Existing Investors (HouseCanary), Rated: A

HouseCanary, the data analytics and valuation platform for real estate professionals, today announced it has closed a $31 million series B funding round, bringing the company’s total funding to $64 million to date. Investors in the round include PSP Growth, the venture and growth equity arm of PSP Capital, a private investment firm founded by entrepreneur and former Commerce Secretary Penny Pritzker, as well as Alpha Edison and other existing investors.

Investors can now value over 100 million properties with a median error of 2.5% or less. Lenders and appraisers use HouseCanary technology to reduce the time it takes to complete an appraisal from more than 25 days to less than a week.

Your Sneak Peak of the LendIt Fintech USA Agenda (LendIt), Rated: A

Fintech

How secure is your data? Recent hacks and breaches have re-stressed the importance of the data security and customer information. This track will help young startups and big box financial institutions verify customers, understand data security and utilize tools to improve efficiency. The future of technology is in robotics, machine learning and biometrics, not grasping these changes will make your business extinct.

BlockFin Summit

Bitcoin. Blockchain. Cryptocurrencies. ICO’s. Everyone’s talking about them, but how will these new age concepts change the future of money?

Digital Banking

Banks are looking to fintech partners to transform their business for the digital revolution. This track will explore the crucial role of mobile banking, smart ATM innovations, chatbots’ role, and the digital transformation at all levels—from branch to infrastructure to data storage.

Lending

Learn how to scale your growth like Lending Club, increase access to credit like LendingPoint, and utilize mobile-only technologies like MoneyLion.

Source: LendIt

The secret to reeling in cybersecurity talent at three big banks (American Banker), Rated: B

There will be 3.5 million unfilled cybersecurity jobs by 2021, up from 1 million last year, according to the research firm Cybersecurity Ventures. Meanwhile, Frost & Sullivan estimates 1.8 million cybersecurity jobs will go unfilled by 2022, a rise of around 20% since 2015.

The military is skilled at producing what Gary McAlum, the chief security officer at USAA, calls “Jedi Knights.”

Wells Fargo is making a big push to hire veterans, said Rich Baich, its chief information security officer. He has held several positions in the Navy, the North American Air Defense Command, the National Reconnaissance Office and the FBI.

As of August more than 8,500 veterans worked at the San Francisco bank, and at any given time it has 200 team members on active duty.

United Kingdom

LendingTree Enters into a $ 250 Million Amended and Restated Credit Facility (PR Newswire), Rated: AAA

LendingTree (NASDAQ: TREE), a leading online loan marketplace, announced today it has entered into an amended and restated $250 million five-year senior secured revolving credit facility that will replace LendingTree’s previous $125 million credit agreement.  The amended and restated revolving credit facility provides increased borrowing capacity and improved pricing, along with greater strategic and operational flexibility. The facility can be used to finance working capital needs, permitted acquisitions, capital expenditures, and general corporate purposes.

The amended and restated revolving credit facility will be governed by a maximum net leverage covenant of 4.50x, with step downs to 4.00x over time. Additionally, the amended credit facility contains an accordion feature under which the borrowing capacity can be increased by $100 million or a greater amount, subject to certain conditions.

Why a blockchain startup called Govcoin wants to ‘disrupt’ the UK’s welfare state (MENAfn), Rated: A

The UK chancellor’s recent Budget reminded us that systemic problems continue to plague the government’s delayed roll-out of universal credit – a single monthly welfare payment that will replace six separate benefits.

Govcoin, intent on ‘disrupting’ welfare state provision, has been working with the Department for Work and Pensions (DWP) since early 2016 to develop a solution for welfare payments.

‘Claimants can – voluntarily – download an app, which enables them to create virtual jam jars and apportion money to them. Whether that’s ‘rent’, ‘gas and electric’ – it’s entirely up to them,’ said Kay in an last autumn.

Govcoin will financially empower benefit claimants. But its distribution model involves benefits being paid – not in pounds and pence – but in the form of a cryptocurrency similar to . Govcoin promises to allow claimants to pay for goods and services – such as utilities – linked to the system.

Peer-to-peer Bitcoin lending fund launches (P2P Finance News), Rated: A

Called Bond, the fund lets accredited investors buy securities known as “Bond Units” in an asset portfolio that holds a mixture of property bonds, real estate and cryptocurrency assets.

Each Bond Unit, which digitally represents an equity share of Bond’s asset portfolio, will be issued on the Bitshares Blockchain and traded via the Bitshares decentralised exchange.

The portfolio has 30 per cent exposure to P2P Bitcoin lending; 30 per cent to property bonds and real estate; and 30 per cent to digital currency learning website the Billion Hero Campaign. The remaining 10 per cent is invested in alternative cryptocurrencies.

China

Banker Bulls Still Like Qudian, Despite China’s Crackdown (Barron’s), Rated: AAA

After losing more than 40% of its market value last week — as Chinese regulators tightened rules for online consumer lending — Qudian is seeing a 16% bounce today in its American depositary receipts (ticker: QD), to a recent $14.

Source: Barron’s

China’s fintech is still in its infant phase (TechNode), Rated: A

One of the Chinese fintech players that made their way to the US public market is Rong360 Inc’s Jianpu, an online platform for discovery and recommendation of financial products. The founder and CEO Ye Daqing recently joined its investor James Mi, founding partner of Lightspeed China Partners, on stage at TechCrunch Shanghai to discuss why the fintech is booming in China and what opportunities lie ahead.

There are many fintech companies that are quite controversial because some of them have damaged the reputation of the market. But two of the [fintech] companies you invested in have both filed for an IPO recently. James, what’s your view [on the market]? What makes you such a good investor, landing two IPOs?

Mi: Lightspeed mostly invests in early-stage companies. We usually look at their development in 3-5 years down the road.

We were actually very prudent about P2P. When we finished looking at all the companies we ended up choosing PPDAI because it was offering a real online solution. No offline sales. And this type of business contributes to the society.

Why are so many Chinese [fintech] companies going IPO in the US recently?

Ye: China will see ten to twenty years of significant growth in fintech and micro-finance. The level of digitalization of finance in China is much lower than that of e-commerce, which took more than ten years to reach 14%. Digital finance is currently at less than 5% penetration. In four to five years, or even longer, fintech will surpass retail. For example, lending, car mortgage, credit cards, and insurance.

Let’s look at another buzzword, that is artificial intelligence (AI). Every single industry nowadays is talking about AI. What will happen when AI meets fintech? 

Ye: The financial industry is actually a data industry, wholly relying on data to make risk control decisions and take care of customer service and marketing. Take our platform for example—it has nearly 70 million registered users, more than 2,500 partnered financial organizations, with 170,000 types of products, and each product is facing a changeable set of challenges and varying user behavior.

European Union

Nutmeg and Revolut investor launches new European fund (AltFi), Rated: A

A leading investor in Series A-stage technology companies, Balderton Capital has closed a total of $375m in its latest fund with a new generation of European tech in its sights.

Flender’s lenders throw €400,000 towards €2m funding round (SiliconRepublic), Rated: A

Dublin fintech Flender is hurtling with fierce velocity towards a funding round worth more than €2m, with involvement from some of its customers, who have already pledged €400,000.

“Initially, we offered €100,000 to them but this quickly overfunded and we increased this to €400,000.”

International

An online education startup thinks it can save bankers from losing their jobs to machines (Quartz), Rated: AAA

The attack on banking jobs has been relentless. British banks are set to close almost 800 branches this year, after shutting nearly 600 in 2016. The CEO of Deutsche Bank, Germany’s largest bank, warned that the company could afford to lose half of its staff to automation. Swiss bank Nordea announced at the end of last month that it was cutting a tenth of its staff, and its CEO said the banking industry could cope with half its current number of personnel. Consultancy Greenwich Associates estimates that 15% of the finance industry’s jobs are at risk of being lost to AI-driven alternatives.

In addition to teaching, Nguyen Trieu is leading by example with the launch of an AI-enabled mobile savings app, which is in the early planning stages.

But there’s a big difference in fintech scenes across the world.

The mindset and the way people use technology and fintech is very different. If you’re in Hong Kong, you have WeChat on your phone and you use it on a daily basis. Here, you don’t use fintech on a daily basis. Some people might use Revolut but they still have a traditional bank account. Here, fintech is seen as innovations on top of existing financial services whereas in Hong Kong, fintech is finance.

So the course is for everyone, everywhere?

And not just for people in finance. When we did the beta test only 40% of the users were from the finance industry—the rest were from tech, or were entrepreneurs or consultants.

So automation, AI, machine learning, and the like are all coming for your job if you don’t retrain?

Banks are thinking today about cutting thousands of jobs and increasing their technology budgets. To me, it is is absurd for a CEO of a bank to think this way.

So, what finance jobs most at risk right now?

In general, anything that can be automated will be automated. But right now, compliance is at risk. Over the past few years there’s been a lot of investment in compliance and KYC [know your customer], because regulators wanted the investment and it was a way for banks to demonstrate they were doing their part after the financial crisis. Now, that has totally changed. It’s starting to cost a lot and regulators have said we want you to show that you are being efficient, not just hiring a lot of people.

Exclusive Interview with Bloom Co-Founder Jesse Leimgruber (ChipIn), Rated: A

Bloom is a global decentralized credit scoring system available to anyone – even the unbanked and underbanked. Bloom’s flexible ecosystem will allow users to have access to credit services which work globally and are extremely secure and transparent thanks to the blockchain’s inherent features.

First off, why did you decide to use the blockchain in building Bloom? 

People shouldn’t be forced to rebuild credit from scratch when they move to a new country. Billions of people around the globe are still considered “credit unscorable,” forcing them into taking out dangerous, informal loans.

To make matters even worse, many governments generate credit scores based on religion, political affiliation, and voting status, instead of data. Even in the United States, 45 Million Americans (including many financially savvy millennials) still do not have a credit score.

What do you think is the biggest problem Bloom will solve and why is the problem important to solve?

3 Billion people cannot access credit, largely due to artificial restrictions from governments.
Tell us more about how BloomID works behind the scenes. The most interesting part about is the vouching process; how does this work and how does Bloom ensure that vouches are not manipulated or faked in any way?
BloomID is the Bloom protocol’s method of both establishing a reliable identity as well as forming the basis of creditworthiness for users who are newly entering the Bloom network. BloomID allows organizations who store information about individual identities to attest to the identity of a Bloom user and mark that information on the blockchain for future re-use. A user’s friends, family, and peers can help an individual bootstrap creditworthiness by vouching for their ability to act responsibly with credit. This is like a reference, similar to co-signing.

Is Bloom already working with notable businesses or firms? Are there any future partnerships in process? If yes, can you explain briefly about it?

We’ve been in touch with 100’s of lenders and partners. We’ve announced quite a few. Peer to peer lending, traditional fiat businesses, crypto lenders… we’re working with people on the whole spectrum.

For example: Self Lender is a credit building lender we are working with, Everex, Lendoit, and ETHLend are crypto lenders. We’re working with partners for anti-fraud such as TypingID.

Download the Bloom white paper here.

Exclusive Interview with ETHLend CEO Stani Kulechov (ChipIn), Rated: A

ETHLend is a Decentralized Lending Innovation using the Ethereum platform as its base.

First off, why did you decide to use the blockchain in building ETHLend?

Finance is where blockchain technology was conceived, and it is in finance that blockchain technology is arguably most transformative. It intrinsically offers greater visibility, scalability, and efficiency – and potentially at a lower cost.

By providing a means of authorizing fully trackable and verifiable transactions, it also offers the potential for truly open-source many-to-many lending. Presented in these terms, it may well seem like a threat to peer-to-peer firms. If blockchain removes the need for marketplaces, why should borrowers and lenders pay fees to these platforms? ETHLend promotes less fees, transparency, and integrity amongst borrowing and lending.

What do you think is the biggest problem ETHLend will solve and why is the problem important to solve?

In today’s world, you are at the mercy of banking institutions for borrowing and lending. We all know the bank pays out minimal interest on investment accounts and charges maximum interest on borrowing. We have partnered up with Bloom who provides credit scoring capabilities so both borrower and lender build a reputation amongst the ETHLend community which is usable elsewhere on the blockchain.

Why do you think the shift from traditional lending to P2P lending is happening right now?

Market research tells us that there are countries at the moment which are paying from 0.5 to 5 percent. For example, here in Finland, it is quite common to have a secured mortgage loan with an interest of 0.4 to 0.8 percent on bank’s marginal. On the contrary, In Brazil, the interest rate tops to 32 percent and Russians pay on average of 11 percent and in India 10 percent (take note that today’s numbers may differ).

The differences in interest rate mean that with a higher interest rate, people and businesses have less access to finance.

Source: ChipIn

Alternative investment LPs want more transparency and co-investment opportunities (HedgeWeek), Rated: A

More than 140 LPs responded to the survey, of whom approximately 52 per cent were based in North America, 31 per cent in Europe and 15 per cent in Asia Pacific. Nearly one quarter (22 per cent) were public pension plans, 15 per cent were consultants and 13 per cent were either endowments or family offices.

Intralinks is a leading financial services company with over USD31 trillion of transactions executed on its platform and over four million users. It has the largest community of GPs and LPs and is used by over 1,000 private equity, real estate and hedge funds on a daily basis. Over USD1 of every USD2 raised globally for private equity was facilitated using Intralinks for a total of USD317 billion in 2016 and 13 out of the 20 largest funds were raised on its platform.

More than one third of investors confirmed that their current allocation was more than 30 per cent, with nearly two thirds confirming that they planned to increase their allocation to alternatives over the next 12 months by 1 to 10 per cent.

Gold, Silver Storage & Lending For Hard Assets in the World’s Safest Jurisdiction (Palisade-Research), Rated: A

Gregor discusses Silver Bullion SG a company he started in Singapore where individuals can securely store their gold and silver. They just hold your precious metals and validate their authenticity. They do this without counterparty risk as your assets are marked, segregated and you hold the title. The company holds over 230 million in hard assets.

Using peer to peer lending you can withdraw up to half of your holdings in loans at low-interest rates.

GoCardless Tops Juniper Leaderboard for Fintech: A Sector Worth More Than 0 Billion in 2018 (BusinessWire), Rated: B

A new study from Juniper Research ranks GoCardless as the current clear leader in the fintech market. GoCardless enables simple payment processing and integration with many popular services, and Juniper believes that its potential for efficient, borderless commerce is disruptive and far-reaching.

Juniper’s Fintech Leaderboard Ranking

1. GoCardless

2. Onfido

3. Square

4. Lemonade

5. Kabbage

India

CROWDFUNDING SET TO GROW (Daily Pioneer), Rated: AAA

Crowdfunding activity in India is driven increasingly by mobile applications and payments. This trend is likely to witness exponential growth.

Rs 300 crore, the Indian crowdfunding industry is at a nascent stage compared to the global standards with the total amount of money raised via crowdfunding in 2016 at USD 738.9 million.

Asia

Investment in Indonesian tech start-ups reaches $ 3bn year-to-date (Oxford Business Group), Rated: AAA

Indonesia’s tech start-ups have been catching the eye of investors, having raised close to $3bn in funding in the year to September 13, a substantial increase on the $631m received in 2016.

Chinese firms are prominent among the foreign investors in Indonesia’s start-up boom, according to research firm CB Insights: Alibaba committed $1.1bn to online marketplace Tokopedia in August, and in May JD.com and Tencent Holdings invested $1.2bn in ride hailing motorbike service Go-Jek, which utilises mobile payment services.

Alternative financing posts 1462% growth

Last year Indonesia posted one of the highest growth rates in the Asia-Pacific region in alternative finance activity. The segment’s total market size expanded by 1462% to $35.4m, according to a report by the University of Cambridge, Monash University and Tsinghua University published at the end of September.

The study found that peer-to-peer (P2P) business lending had come to dominate Indonesia’s alternative finance market, accounting for just over 60% of the 2016 total, with P2P consumer lending representing 18% of the figure, or $6.5m.

Fostering collaboration and growing market opportunities

Indonesian tech start-ups attracted the second-highest amount of investment in South-east Asia between 2012 and September 13, at $4.6bn, behind Singaporean companies, which raised $7.3bn over the same period.

Fintech Challenge seeks to bolster financial inclusion in Vietnam (Nhan Dan), Rated: A

A programme entitled ‘Fintech Challenge Vietnam’ has been launched by the State Bank of Vietnam (SBV), with the aim of fostering innovation in financial services that promote greater financial inclusion in Vietnam.

Fintech Challenge Vietnam has been organised by the SBV with the support of the Mekong Business Initiative and sponsorship by the Vietnam Bankers Association and the Vietnam Fintech Club.

VN Central Bank launches first-ever fintech challenge (VietnamNet), Rated: B

The focus of the Fintech Challenge is on fintech solutions that can improve the offer of financial services to the underserved and unbanked.

The challenge is an opportunity for Fintech companies from both inside and outside Việt Nam who are interested in collaborating with commercial banks to pilot and scale solutions that improve financial services in the following categories: electronic payments, e-KYC (Know Your Customer)/e-Identification, open APIs, blockchain and peer-to-peer lending to apply.

The deadline for application is January 18, 2018, at fintech.mekongbiz.org.

OJK to issue new fintech regulation in March (The Jakarta Post), Rated: B

The Financial Services Authority (OJK) aims to issue a regulation on financial technology (fintech) businesses by March next year amid robust development of the industry, OJK deputy commissioner Nurhaida said Tuesday.

Authors:

George Popescu
Allen Taylor

Paving a Path to Decentralized Credit Profiling

Pave's Global Credit Profile

In the U.S., consumers tend to take credit for granted. Access to credit is nearly ubiquitous, and the three major credit unions ensure that the vast majority of Americans have a credit score, which allows them to be assessed for risk by potential lenders considering making an offer for a loan product. But the recent […]

Pave's Global Credit Profile

In the U.S., consumers tend to take credit for granted. Access to credit is nearly ubiquitous, and the three major credit unions ensure that the vast majority of Americans have a credit score, which allows them to be assessed for risk by potential lenders considering making an offer for a loan product. But the recent Equifax data breach proved that there are drawbacks to the robust credit scoring system, even in the U.S. Pave seeks to solve that problem with their Global Credit Profile, a decentralized database that allows the consumer to control who has access to their credit information.

Why Credit Data Should Be Decentralized

As the Equifax data breach shows, no one’s credit information is secure. It’s estimated that 143 million Americans and as many as 400,000 Brits may have been affected by the breach. Since the breach has been reported, there has been a run on credit monitoring products. And none of the credit bureaus can guarantee that hackers won’t gain access to their data. In fact, its getting increasingly more difficult for any company using the Web for database storage to insure the data they keep is 100% secure.

What Pave wants to do is solve that core data issue for the consumer.

“We’re looking at the existing paradigm and saying it’s broken,” Pave CEO Oren Bass said. “Not too many people are looking to solve the data access problem on a global basis.”

Bass said the three major credit bureaus—Experian, Equifax, and TransUnion—collect information on individuals, which they get from banks, credit card companies, and other businesses that issue credit, and sell that data to third parties. The individual doesn’t get any of the money. They’re cut out of the equation altogether. And who can guarantee that the buyer of the data can keep it safe from bad actors? Pave’s solution is to wrap up the data in a digital wallet-like security lock connected to the blockchain.

Pave’s Meandering Path to Its Data Security Solution

Bass started Pave in 2012 with co-founders Justin Mitchell and Sal Lahoud. They founded the company as a response to the 2008 financial crisis. Their primary product was an income sharing agreement for people with limited credit history, and the target audience was millennials.

“Due to lack of data and legal clarity on the product, it didn’t have staying power,” Bass said, “so we pivoted to include short-term consumer loans.”

Their intent was to lend to people with limited credit histories, but they struggled with getting a solid process for underwriting them. That’s when they wrote an algorithm to assess creditworthiness and were delighted to see it worked so well. They ended up lending to 1,700 people with limited credit histories.

Then, 2016 happened. A difficult year for online lenders on the whole, it proved to be very difficult for Pave. “We capsized as a marketplace lender,” Bass said. “We didn’t have the equity capital to become a balance sheet lender.” So they started using their technology to solve a different problem—the problem of data access for the underserved population.

Earlier this year, Pave ended a seed round and funded half a million dollars in startup capital for the Global Credit Profile. Since 2015, they’ve managed to fund $18 million including a Series A funding round that year.

What the Global Credit Profile Does

The gist of Pave’s Global Credit Profile consists of its three buckets. They collect data for marketing, or prospecting, for underwriting, and to assess the value of consumer information. But when you collect information on individuals, you have to make sure that data is secure. That’s why they decided to connect the data to the blockchain.

Using the Global Credit Profile, users will be able to:

  • Monitor and control their own financial data in real time
  • Dispute errors and omissions
  • Link credit accounts so that more data is included in their profile
  • Port their data anywhere they want to globally to ensure they have access to the best credit products in any country they live or travel to
  • Control who gains access to the data and get paid for that access

Pave’s Global Credit Profile will work by leveraging the inherent decentralization of the blockchain as a distributed ledger allowing each credit transaction to be approved using the same or similar processes used to record cryptocurrency transactions in real time today. Any information currently collected by the credit bureaus can be kept in a consumer’s self-controlled file including rent and mortgage payments, utility bill payments, lines of credit, and more. Plus, the credit profile can include social data gathered from user’s social media accounts.

Each user gets an IP address and a key to enable the application. The user can access all of their financial information in one location.

Who is Using the Global Credit Profile Right Now?

In pre-launch, Pave got quite a few users, but it escalated when they decided to lend to consumers. They have lent $23 million to 1,700 users. Current users include many in Africa and India who connect their utility bills and payment data.

Pave’s technology is powered by a core data center including visualization and data integration. The data is hosted on Amazon Web Services (AWS). For data storage, they use IPFS. Due to the decentralized nature of their system, a hacker wanting access to credit information would need to hack as many 145 million different files with information on different individuals within each file.

The bulk of Pave’s user base today are immigrants, people who have a credit history abroad but don’t have a credit profile in the U.S. where they are living. They’re new to credit, but they have a low profile. They can use their education history, social data, and utility payments. Bass said they want to help these individuals build a credit profile and work their way up to prime status.

“We hope the credit bureaus will partner with us and use our technology to protect against the security issues they have,” Bass said.

Bass sees alternative data becoming the norm in credit profiling in the future. That will include machine learning algorithms, social data, and utility payments for many of the world’s unbanked and underbanked. They currently have plans to raise more capital through an ICO token issue, but they’re currently working with private investors. Ultimately, they want to build an ecosystem that will allow others to develop and build apps that interact with the Global Credit Profile. To make that happen, they need more people on their team with alternative credit, data, and programming expertise.

“The only way we’ll be successful is to take on the status quo of the credit bureaus,” Bass said. And Pave is off to a good start.

Author:

Allen Taylor

OnDeck Turns 10: Snapshot of its Journey Into an SME Lending Giant

OnDeck Loan Originations

OnDeck, with its vision to provide lending solutions to Small and Medium Enterprises (SME), has gone from strength to strength since its 2007 inception to emerge as the largest online lender to small businesses. It has been able to win in an increasingly competitive environment, is now a listed corporation, and has successfully completed a […]

OnDeck Loan Originations

OnDeck, with its vision to provide lending solutions to Small and Medium Enterprises (SME), has gone from strength to strength since its 2007 inception to emerge as the largest online lender to small businesses. It has been able to win in an increasingly competitive environment, is now a listed corporation, and has successfully completed a decade whereas its peers have faced many strong headwinds. Let´s put light on the journey of OnDeck into an SME lending giant.

OnDeck, an alternative lending platform, entered the P2P lending space in August 2007 with the intention to gain a foothold in SME lending. With its “customer first” philosophy, it has focused on providing speedy, efficient, and top quality lending solutions to SMEs. The company was founded by Mitch Jacob (founder), a serial fintech entrepreneur. So far, OnDeck has provided $7 billion in loans to over 70,000 customers in almost 700 different industries. The company has over 400 employees on its payroll and more than $150 million in annual revenue.

Key Milestones

2007-2010

After originating its first loan in 2007, the SME lending powerhouse leveraged its proprietary technology and data driven OnDeck Score to achieve company revenue of an estimated $15 million in 2010 as compared to $5 million in 2009. The financial crisis of 2008 came as a blessing in disguise for the online lending platform as banks simply vacated the small business lending vertical. This helped the young company to quickly reach the $50 million mark in loans disbursed to over 2,000 small businesses.

2011-2014

2011-2014 was considered as a golden era in the history of the company, as the company grew by 127% (CAGR) during that time. In 2013, it originated $458.9 million of loans in the top five states alone: California, Florida, New York, Texas, and New Jersey; this represented a year-on-year growth of 165% and was ranked 11th in the Forbes’100 Most Promising Companies in America. It was awarded an A+ rating from Better Business Bureau for providing remarkable product and service to its clients.

In May 2014, OnDeck entered into a partnership with BBVA Compass, a customer-centric global financial institution, ranked among the top 25 banks in the US. With the help of OnDeck’s innovative technology and business scoring system, the bank was able to offer customized loans to its small business clientele. In this alliance, BBVA referred their clients to OnDeck for loans, and OnDeck used the BBVA data to underwrite the loans. The partnership was a game changer as banks and fintech lenders had been seen as competitors till then. This model showcased a way where they could work on their individual strengths and be allies. OnDeck flourished in 2014 and originated loans worth $788.3 million during the year and witnessing a year-over-year growth of 171%. By the end of 2014, it crossed the coveted $1 billion mark in originations during the year.

IPO

In December 2014, the online lending platform started trading on New York Stock Exchange under the ticker “ONDK.” It managed to raise $200 million from its IPO, and the firm was valued at $1.32 billion after the end of first day of trading. It was a huge milestone for OnDeck as well as the entire alternate lending industry as OnDeck was only the second P2P company to be listed at that time. With a valuation over $1 billion, the company was catapulted into an elite list of “unicorns.”

2015

Since 2007, OnDeck has facilitated over $1.5 billion in loans across 700 industries in almost all 50 US states.

Another feather in its cap was the partnership with JP Morgan Chase, the country’s largest bank with $2.5 trillion in assets and over $100 billion in revenue. Through this partnership, JP Morgan has been offering small business loans to its 4 million small business accounts. The bank leverages OnDeck’s underwriting technology for quick approvals and funding of their loans. While it is a Chase branded loan and it appears on the bank`s balance sheet, OnDeck provides loan servicing and in return has been receiving originations as well as servicing fee per loan. OnDeck is providing a tailor-made platform keeping in mind JP Morgan’s needs and leveraging the bank’s own client base for customer acquisition.

An In Depth Look at the OnDeck/JPMorgan Chase Deal

Economic Impact

OnDeck commissioned an analysis report to show the positive economic impact its lending had on the economy and society. The report stated the company’s first $3 billion lent to the small businesses powered $11 billion in business activity and created 74,000 jobs nationwide.

Key Highlights

  • In order to remain ahead of its competitors, the online platform is continuing to grow its strategic partner channel. In April 2015, OnDeck collaborated with Angie´s list to give small businesses access to loans up to $250,000. Another strategic alliance was announced in the same month between Prosper Marketplace and OnDeck. The focus is to collectively address the financial needs of customers by offering better, innovative, and customised solutions.
  • OnDeck launched its offices in Australia and Canada. They represent unchartered territories, but the company has the capital and the experience to take advantage of new markets sharing a lot of similar characteristics as its home market.

2016

To maintain its strong value proposition and promote transparency, OnDeck created a group named “Innovative Lending Platform Association” (ILPA) with two other major online lending companies, Kabbage and CAN Capital. ILPA is a trade organization that was formed to ensure transparency and standards around pricing and fees. The association was formed with the motive to create the industry´s first model for pricing disclosure by empowering small businesses to better assess and compare finance options. The initiative resulted in the origination of SMART BoxTM which means ¨Straightford Metrics around Rate and Total Cost .¨

OnDeck also joined hands with Intuit Inc. (NASDAQ: INTU), a financial software company, in June 2016. The alliance launched a new “QuickBooks Financing Line of Credit” that provides small businesses easy access to loans at a low rate of interest. Intuit and OnDeck alliance also launched a $100 million small business lending fund to back the new product.

2017

OnDeck is extending its partnership with JP Morgan Chase by signing a new 4-year contract. The project named Chase Business Quick Capital® will allow OnDeck to increase digital functionality on the platform and target the megabank’s millions of small business clientele.

Measures to turn it into a profitable company

The company has endured a rough time as a listed company in the last few months and this has shown in its annual results. In Q4, 2016 its year-on-year (YOY) growth in loan origination fell to 13% as compared to 27% in Q3. To stop this downward slide, it introduced a “cost rationalization” plan which was focused on tightening credit management and job cuts. Along with this, the following lines of actions were also adopted by the company to reach profitability:

  • As per Q4, 2016 results, staff reduction was expected to be around 11%. But the management revised the staff reduction target to 27% to further continue the cost reduction.
  • The company is moving to a balance sheet lending model to reduce dependence on external lenders.

And not surprisingly, its recovery plan and cost optimization measures started paying off in Q1 2017. The net losses dropped substantially by 68% from $36.5million in Q4, 2016 to $11.6 million in Q1, 2017. And above that, provision for losses also reduced by nearly 17% from $55.7 million to $46.2 million in Q1, 2017.

Stock Price responding to the measures

The price chart clearly shows that the last year was not a good period for the company stock. The stock kept plummeting all through the year. But the measures initiated by the management in the last quarter of 2016 have somewhat stalled the downward spiral and the stock price has finally started to show some resistance.

Conclusion

OnDeck announced Q2, 2017 financial results in August. The lender has managed to narrow down the quarterly losses significantly along with kickstarting a $45 million cost rationalization program. More importantly, the company expects to finally hit GAAP-profitability by the year-end. The company has a strong fundamental base, and its ability to pivot for survival and growth will ensure that the company is here for the long run.

Author:

Written by Heena Dhir.

Tuesday September 19 2017, Daily News Digest

Multifamily REITs

News Comments Today’s main news: Equifax cans two executives. Credit Karma to launch free ID monitoring tool. Funding Circle’s new lending options now in effect. Wealthsimple expands into the UK. HighRadius raises $50M. ID Finance launches Mexico operations. Today’s main analysis: Multifamily REITs reduce leverage, development pipelines. Today’s thought-provoking articles: The next crisis will start in Silicon Valley. RateSetter’s Rhydian Lewis […]

Multifamily REITs

News Comments

United States

United Kingdom

China

European Union

International

India

Asia

Africa

Latin America

News Summary

United States

Equifax hack claims two executives (American Banker), Rated: AAA

The Equifax data breach has claimed its first two executives. The company late Friday announced the immediate retirement of David Webb, its chief information officer, and Susan Mauldin, its head security officer. They will be replaced, respectively, by Mark Rohrwasser, who joined Equifax last year as head of the company’s International IT operations, and Russ Ayres, most recently vice president of IT.

Credit Karma to launch free ID monitoring following Equifax hack (Reuters), Rated: AAA

Credit Karma Inc is launching a new free service that will alert customers if their identity data has been compromised in hacks, the San Francisco-based fintech company said on Friday in the wake of massive breach at credit monitoring agency Equifax Inc(EFX.N).

The new ID monitoring service is being tested and will be available in October, the company said on Friday.

CreditKarma saw a 50 percent spike in sign-ups to its platform in the weekend after the hack, it said.

Multifamily REITs Reduce Leverage and Development Pipelines as Fundamentals Downshift and Supply Peaks (Morningstar), Rated: AAA

Key takeaways:

  • Stronger credit profiles and balance sheets provide the multifamily REITs rated by Morningstar Credit Ratings, with flexibility to withstand substantial market disruptions.
  • New apartment supply is pressuring multifamily fundamentals, and REITs on average are lowering their exposure to new construction.
  • Morningstar expects net operating income among multifamily REITs to moderate after years of solid gains.
  • Since 2016, Net Operating Income (NOI) growth has slowed amid additional supply.
  • Multifamily REITs rated by Morningstar reduced their leverage and their exposure to new construction, positioning themselves for the impending completions and an environment where borrowing rates are expected to rise.
  • Rental growth among multifamily properties should be subdued for the next two years. While fundamentals remain sound, surplus inventory of new units likely will keep rent increases in check.
Source; Morningstar
Source: Morningstar

Read the full report here.

The Next Crisis Will Start in Silicon Valley (Bloomberg), Rated: AAA

It has been 10 years since the last financial crisis, and some have already started to predict that the next one is near. But when it comes, it will likely have its roots in Silicon Valley, not Wall Street.

Since 2007, a tremendous wave of innovation has swept across the financial sector, affecting almost every aspect of finance. New robo-adviser startups like Betterment and Wealthfront have begun dispensing financial advice based on algorithmic calculations, with little to no human input. Crowdfunding firms like Kickstarter and Lending Club have created new ways for companies and individuals to raise money from dispersed networks of individuals. New virtual currencies such as Bitcoin and Ethereum have radically changed our understanding of how money can and should work.

But revolutions often end in destruction. And the fintech revolution has created an environment ripe for instability and disruption. It does so in three ways.

First, fintech companies are more vulnerable to rapid, adverse shocks than typical Wall Street banks.

Second, fintech companies are more difficult to monitor than conventional financial firms.

Third, fintech has not developed the set of unwritten norms and expectations that guide more traditional financial institutions.

Enova Announces $ 25 Million Share Repurchase Program (PR Newswire), Rated: A

Enova International (NYSE: ENVA), a financial technology company offering consumer and small business loans and financing, today announced that its Board of Directors has authorized a share repurchase plan for up to $25 million of its common stock through December 31, 2019.

Prime Meridian Ranks High on the Prestigious INC5000 List as one of Fastest Growing Companies in America (PRWeb), Rated: A

Inc. magazine ranked Prime Meridian Capital Management 554 on its 2017 annual Inc. 5000, which ranks the fastest growing private US companies in all industries. Amongst asset managers in the finance industry, Prime Meridian ranks near the very top of the list. The list represents a unique look at the most successful companies within the American economy’s most dynamic segment— its independent small and midsized businesses. Companies such as Microsoft, Dell, Domino’s Pizza, Pandora, Timberland, LinkedIn, Yelp, Zillow, and many other well-known names gained their first national exposure as honorees of the Inc. 5000.

The 2017 Inc. 5000, unveiled online at Inc.com is the most competitive crop in the list’s history. The average company on the list achieved a mind-boggling three-year average growth of 481%. The Inc. 5000’s aggregate revenue is $206 billion, and the companies on the list collectively generated 619,500 jobs over the past three years.

60-Second Market Review and Insights (Credit Chronometer), Rated: A

Regulatory uncertainty will continue to be a significant challenge going forward. Practices will be shaped by the standards imposed on fintech and other non-bank entities, which in turn, depends in part on the outcome of the tussle between the Office of the Comptroller of the Currency (OCC), which has begun offering a special purpose national charter, and state regulators who believe they are best suited to protect consumers.  The industry may soon also be impacted by legislation introduced recently in the Senate and the House that would overrule the 2nd Circuit’s Midland v. Madden decision denying purchasers of high-interest loans the benefit of preemption of state usury laws afforded their sellers under federal law.  Despite the ongoing debates, there appears to be momentum for more uniform and streamlined laws in the future that will provide greater certainty and, consequently, cost advantages for marketplace lenders.

dv01 Launches Cashflows for Securitizations (Business Insider), Rated: A

dv01, the data management, reporting, and analytics platform that offers institutional investors transparency and insight into lending markets, today announced the launch of a cashflow engine for securitizations, with full waterfall and collateral model support. dv01’s cashflow engine is available for a library of 30 consumer unsecured, student, and small business deals, covering over $10 billion of securitizations from originators including Avant, Lending Club, Marlette, Prosper, SoFi, and Upstart.

dv01’s cashflow engine is powered by deal waterfall models that operate on loan level data sourced directly from originators. All projections are performed at the loan level and tied out to trustee reports, ensuring accuracy across the entire waterfall, down to the residual.

Within the cashflow engine, investors have access to full deal structure models to generate tranche and residual cashflow projections. This includes a wide array of functionality, including cohort-level control over assumptions; price, yield, and spread re-computation directly from the results screen; and price-yield matrix calculations. The output computations include a projected paydown chart and cumulative prepay/loss plots, all of which show both historic actuals and projected values.

The cashflow engine is integrated directly into dv01’s Securitizations solution, which offers investors 24/7 access to a reporting and analytics portal populated with loan level securitization data. When analyzing a securitization, users have access to deal-specific detail, collateral, and performance pages, as well as the ability to download updated loan tapes to track the evolution of a pool over time. Additionally, users can use dv01’s Pool Explorer to construct curves using historical platform data.

Fintechs get another alternative to IPOs (Business Insider), Rated: A

US-based VC firm Social Capital — whose portfolio includes fintechs Wealthfront, CommonBond, Jetty, and Cover — has 

Source: Business Insider

Small Business Crowdlending Fund Offers Startups Loan Opportunities (WYSO), Rated: A

Mom and pop business owners often struggle to find enough capital to get their ideas off the ground and succeed, research shows. Kiva Dayton’s recently launched crowdlending platform aims to help solve this problem.

Now, the Downtown Dayton Partnership is offering to commit the first 20 percent of each Kiva loan to help potential business owners build buzz and raise more funds through the platform.

According to a study by the U.S. Small Business Administration’s Office of Advocacy, inadequate capital is the major obstacle facing small businesses when it comes to growth, expansion and wealth creation.

All Kiva loans are zero percent interest and they’re small, with no loans over $10,000.

Younger Americans More Likely to Invest in Bitcoin (Coindesk), Rated: B

New survey data from online student loan marketplace LendEDU suggests that younger consumers in the United States are more interested in investing in bitcoin.

Of those between the ages of 18 and 24, 35.9% said they plan on investing in bitcoin, versus 43.5% who said no and 20.5% who weren’t sure. For the 25-34 age group, the “yes” figure grew to 40.4%, with 31.7% of respondents in that demographic saying no.

United Kingdom

Funding Circle New Lending Options Go Into Effect (Crowdfund Insider), Rated: AAA

Less than a month after Funding Circle announced the new versions of its existing Autobid and Autosell lending tools, the online lender revealed the new changes have officially gone into effect.

As previously reported, as part of these changes, Funding Circle will be eliminating the option to manually choose which businesses an investor may lend to and which loan parts to sell will be withdrawn. This is a significant shift in operation of the peer to peer lending platform as it begins to operate more like a fund.

Wealthsimple Brings Simple, Accessible Investment Advice to the UK (PR Newswire), Rated: AAA

Wealthsimple, a digital wealth manager, continues to make smart investing accessible and low-cost to more people with today’s announcement of the company’s expansion to the United Kingdom. UK residents can now open an account and have access to diversified investment portfolios in less than five minutes on wealthsimple.com or by downloading the iOS or Android app.

At launch, clients are able to open ISAs (Individual Savings Account), JISAs (for children) and personal accounts with a 0.7% management fee.

The London-based team is led by Fintech entrepreneur Toby Triebel, the former CEO and co-founder of the global online lending platform Spotcap. Triebel joined the Wealthsimple team in September 2016, leading the company through regulatory approval and initial beta testing, which saw over five thousand people sign up for early access to Wealthsimple through an online waitlist.

In May, Wealthsimple raised an additional C$50 million from Power Financial group of companies, a strategic partner, bringing Power’s total investment to C$100 million thus far in support of Wealthsimple’s global ambitions.

Rhydian Lewis on ‘dinosaur’ banks and making RateSetter the ‘crowdsourced Libor’ (SpearsWMS.com), Rated: AAA

Since he and co-founder Peter Behrens set up the online exchange from a flat in 2010, it has handled the loans of £2 billion.

‘I’ve come to realise the importance of emotional intelligence to give other forms of intelligence the chance to come out right.’

It makes so much more sense for lending to be funded by investment as opposed to by an instrument called the deposit’ – not least because of the strictures imposed by regulators.

So far, 50,000 people have lent money through RateSetter, with £1.3 billion of loans repaid. Turnover this year should be £30 million; the headcount is 260. ‘Our ambition is that in due course the rates exchanged on RateSetter will be seen as benchmark rates,’ he says. And one day he would like peer-to-peer lending be ‘a crowd-sourced Libor’.

Clever Lending partners with LendInvest (Mortgage Strategy), Rated: A

Clever Lending has been made a strategic partner of bridging specialist LendInvest.

The firm will be able to distribute LendInvest’s specialist bridging and development finance products.

Brokers can now deal directly with Clever Lending to gain access to LendInvest’s range.

Pollen Street completes merger with MW Eaglewood (P2P Finance News), Rated: A

POLLEN Street Capital has completed its acquisition of a controlling stake in MW Eaglewood, creating one of Europe’s biggest alternative finance-focused investment managers.

The deal, first announced in May, sees Honeycomb Investment Trust manager Pollen Street become the majority shareholder of the combined group, which has assets of around £2bn.

Downing-backed report tackles ‘misconceptions’ over debt-based securities (P2P Finance News), Rated: A

A REPORT has been published that aims to tackle advisers’ confusion and misunderstanding of debt-based securities (DBS), following their acceptance into the Innovative Finance ISA (IFISA) in 2016.

The CPD-accredited report, published by Intelligent Partnership, identifies some of the opportunities in the market and the role DBS can play in a diversified portfolio.

The term is used to describe a variety of different models for deploying capital, usually involving a borrower, lender and interest rate over an agreed period. DBS are increasingly arranged through crowdfunding platforms.

The report explains the investment types available, how to evaluate risks in varying market conditions, tax wrapper options, fees and returns, the difference between DBS and peer-to-peer lending, and due diligence issues.

‘Vital advisers understand debt-based securities’ – report (Professional Adviser), Rated: B

Alternative debt-based securities (DBS) will become more popular thanks to regulatory pressure and greater demand for diversification, therefore it is vital advisers understand the products, research provider Intelligent Partnership has said.

Time is running out to save this iconic Welsh pub from closure (Wales Online), Rated: A

A Welsh community has just weeks to raise enough money to save an iconic pub after the current owners set a deadline for when they intend to pull their last pints.

Despite raising £130,400 of an initial target of £300,000 so far – including £50,000 in the first few weeks of the campaign – time is now running out after a deadline was set of Saturday, October 28.

In a fresh attempt to raise more money, a Peer to Peer (P2P) lending scheme is being proposed whereby people can loan £5,000 to the scheme which, the group say, would generate a 4% gross interest return per annum.

China

Too Little, Too Late? China Can’t Seem to Get a Grip on Fintech Regulation (WSJ), Rated: AAA

In recent weeks, Chinese central bank officials, banking and securities regulators have tightened oversight of a range of investing and technology platforms used by individuals to trade virtual currencies, invest in online loans and rapidly shift cash in and out of mutual funds.

A surge of Chinese investment—possibly more than $600 billion in the past two years—has gone into these so-called retail products, according to data from online platforms, financial information aggregators and cryptocurrency research houses.

In August, regulators placed limits on the growth of mutual funds made wildly popular via China’s mobile-payment platforms.

More than 700 online-loan platforms, known as peer-to-peer lenders, closed in the last year ahead of new caps on their operations that take effect this month that dimmed their prospects for profitability.

Source: The Wall Street Journal

HK needs crowdfunding-friendly regulatory regime (EJ Insight), Rated: A

However, despite the fact that Hong Kong is one of the major global financial hubs, so far we still don’t have clear guidelines or any specific regulatory regime for crowdfunding, thereby hindering the development of our tech industry.

As far as equity crowdfunding and P2P lending are concerned, since they involve financial returns and yields, they are usually subject to legal regulation. Yet, in order to ride the global crowdfunding wave, major financial markets such as the US, Britain, Japan, South Korea, Singapore and Australia have all eased restrictions on crowdfunding in recent years.

At present, Hong Kong doesn’t have a single and comprehensive piece of legislation that deals specifically with crowdfunding. Instead, it is regulated separately by different existing laws such as the Securities and Futures Ordinance, the Money Lenders Ordinance as well as the Companies Ordinance.

Nevertheless, according to the same study, Hong Kong is lagging far behind other major financial centers when it comes to crowdfunding volume. In 2015, we raised a mere US$9.3 million (HK$72 million) through crowdfunding compared to US$28.4 billion, US$4.33 billion, US$360 million and US$240 million in the US, Britain, Japan and Australia, respectively.

As such, I suggest that the new regulatory framework for crowdfunding be more flexible. For example, the administration can consider exempting crowdfunding initiatives that involve less than HK$20 million from certain requirements that currently apply to public companies such as the need to submit a prospectus to the Securities and Futures Commission for scrutiny before launching any investment offering for sale to the public.

China hit by financial scam ‘epidemic’ (BBC), Rated: A

Li Wenxing was starting a new life. In May, the young university graduate left his home in rural China on the offer of work with a software company in the city of Tianjin.

But the job was a scam and Mr Li was swept into the web of a gang running a pyramid scheme.

Two months later he was dead.

The tragedy, which is being investigated, sparked national outrage and has illuminated the growing problem of financial fraud and its devastating impact on communities in China.

Pyramid schemes

Pyramid schemes are flourishing in parts of the country where education levels are low.

Peer-to-peer lending and virtual currencies have fuelled the spread of other investing scams, luring victims with little financial knowledge.

Government crackdown

As part of the crackdown, more than 100 arrests were made in southern China last month, targeting individuals over their suspected links to a 360m yuan (£42.3m) pyramid scheme.

Authorities had at least one major bust last year – breaking up a 50bn yuan online finance scam which was suspected of defrauding 900,000 investors.

European Union

Peer-to-peer lending: Information externalities, social networks, and loan substitution (VOXEU.org), Rated: AAA

The evaporation of trust in the banking system following the financial crisis fostered the growth of digital platforms offering peer-to-peer investment opportunities in the US, Europe, and China. In Europe, as the debate about the capital market union progresses (European Commission 2017), policymakers see the possibilities for the digital investment and lending industry to help foster a unified capital market, which has been missing for so long.

Data show instead that over the years, default rates in the platforms have decreased steadily and are much lower than those in the traditional banking system. Lending rates have gone down (though still remaining attractive for investors), and trade volumes have steadily increased.

Brexit Raises Doubts Over Britain’s Fintech Future (Bloomberg), Rated: A

Britain’s impending exit from the European Union has put a “question mark” over the country’s attractiveness to financial technology firms, according to the head of France’s biggest peer-to-peer lender.

The French firm, Younited Credit, has just raised an additional 40 million euros ($48 million) to finance its expansion into another seven European countries, only to postpone its decision on entering the U.K. until the economic consequences of Brexit become clearer.

Maiden PE ICO Light on the Blockchain (Invezz), Rated: A

A new private equity ICO resembles a typical PE fund structure more than it does any blockchain innovation. Ethereum-based FundCoin (FND), which was developed by Dutch fund of hedge fund manager Finles Capital, is scheduled to make its debut as the industry’s maiden private equity token ICO on Sept. 30.

FundCoin, which is targeting EUR 100 million in its ICO, describes itself as bridging the gap between the blockchain and private equity, but there’s one problem. FundCoin doesn’t appear to have attached itself to any blockchain innovation.

Citing a lack of clarity on the designation of digital tokens as securities, U.S., Singaporean and EU investors are excluded from the FundCoin crowdsale, as per the white paper. Finles Capital says the ban will be revisited as regulation takes shape.

Monthly origination summary for August 2017 (Bondora), Rated: B

Loans issued in August 2017 came in at €2,926,457. The figure is well above the running average for the year. August was the third strongest month for originations in 2017 outpaced by only January and March.

As usual Estonia was the leader on loans issued amounts. However, the total share of the country was slightly lower than many previous months. The country represented less than 60% of the total share reaching 59.91%. Meanwhile, Spain came in at 17.57% and Finland represented nearly a quarter of the total with 22.51%.

Source: Bondora

 

International

Alpha Payments Cloud rebrands as Alpha Fintech (Finextra), Rated: B

Alpha Payments Cloud is unveiling its comprehensive rebranding and new corporate identity as Alpha Fintech.

The rebrand aims to crystalize Alpha’s positioning as fintech‘s first end-to-end middleware, connecting the merchant buyer and vendor supplier across the entire payments, risk and commerce spectrum through a single API and UI.

India

HighRadius Raises $ 50 mn (YourStory), Rated: AAA

Hyderabad-based HighRadius, a player in cloud-based integrated receivables software space, announced that it had raised $50 million in growth funding from Susquehanna Growth Equity. Founded in 2006, this is the first external funding round that HighRadius has raised in its journey and the company aims to leverage it to grow its global footprint and also expand the team.

Fastforward to 2017, HighRadius works with hundreds of Global 2000 companies, including brands like Adidas, Starbucks, Procter & Gamble, Johnson & Johnson and Warner Bros. Their integrated receivables platform optimizes cash flow through automation of receivables and payments processes across 6 categories- credit, collections, cash application, deductions, electronic billing and payment processing.

HighRadius currently employs over 500 people across US, India, and Europe. Narahari explained that USA is currently their largest market, with about 90 percent of their business concentrated there and a small percentage in Europe.

Asia

China’s JD.com announces $ 500M e-commerce and fintech joint ventures in Thailand (TechCrunch), Rated: AAA

Following on from Alibaba’s $1 billion deal with Lazada and a $1.1 billion round in Tokopedia led by Alibaba, rival Chinese e-commerce firm JD.com has announced a $500 million investment that will create e-commerce and fintech businesses in Thailand.

Southeast Asia, a region of 600 million consumers, is forecast to see its internet economy grow to $200 billion by 2025 thanks to rising internet access. That potential has attracted investment dollars from Chinese giants lie Tencent and Alibaba, and now JD.com is upping its own efforts.

Africa

Fintech defines new trends in financial services offerings for farmers (AFGRI), Rated: A

For agriculture, the rise of Fintech means easier access to funds, new competitors in financial services and a global reach. Selling cattle or produce? Fintech and digital markets can now connect farmers directly to buyers on a mobile platform, doing away with the middleman. Important to note is that Fintech not only minimises the dependency on traditional banks as the middlemen, but increases the use of peer-to-peer lending, growing and strengthening the sharing economy model. Good examples are M-Pesa and FarmDrive in Kenya, where FarmDrive connects smallholder farmers to loans and financial management tools through their mobile phones.

In Mozambique, the Institute of Cereals of Mozambique (ICM), which is responsible for regulating and promoting agricultural production and commercialisation under the remit of the Ministry of Industry and Trade, recently joined forces with FinComEco to link agriculture to the latest financial technology.

Latin America

ID Finance grows footprint in Latin America with launch of Mexico operations (ID Finance Email), Rated: AAA

19th September 2017 – 

Mexico readies bill to regulate fast-growing fintech industry (Reuters), Rated: A

Mexico would regulate its fast-growing financial technology sector, including firms that use crypto-currencies like bitcoin, to protect consumers and spur competition, under a proposed bill seen by Reuters.

The proposed legislation, which Mexican President Enrique Pena Nieto said this month would be unveiled in the Senate before Sept. 20, seeks to ensure financial stability and defend against money laundering and financing of extremists.

Financial services firms envisage massive potential growth in Latin America’s No. 2 economy by reaching the more than 50 percent of Mexico’s roughly 120 million citizens without bank accounts.

Authors:

George Popescu
Allen Taylor

Friday September 1 2017, Daily News Digest

fintech adoption

News Comments Today’s main news: 2,000 IFISAs subscribed last year. Irish credit unions embrace Facebook Loans. Rubique launches new app features. Mexico has a new fintech law. Today’s main analysis: Mobile fintech vs . traditional banks: 15 things winners do well (a must-read). Today’s thought-provoking articles: The Personal Loan is Back. Is P2P lending headed for trouble? China’s $2T of shadow […]

fintech adoption

News Comments

United States

United Kingdom

China

European Union

International

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Canada

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United States

The personal loan is back (American Banker), Rated: AAA

The personal loan is hip again.

Well, let’s not get too carried away. Just 4.33% of millennials ages 21 to 34 took out unsecured personal loans in 2015, according to a recent analysis by TransUnion.

Peerform is Back With an Interesting New Investment Partner Random Forest Capital (Lend Academy), Rated: A

Late last year Strategic Financial Solutions (SFS) a leading debt settlement company, acquired Peerform and they have been building out new product offerings.

SFS looked at many marketplace lending platforms before deciding to acquire Peerform. They were impressed by their underwriting and regulatory sophistication, their strong brand presence online, their low customer acquisition costs and how they had been frugal with the capital they had raised.

Enter Random Forest Capital. They are a new investment management firm started last year with a focus on data science and machine learning. They love taking masses of unstructured data and not only making sense of this data but finding new predictive power in this data.

Peerform overhauled their APIs to be able to pull in thousands of data attributes and millions of data points for analysis.

The team at Random Forest was able to build proprietary credit models using this new data which they said was more data than is available from any other marketplace lending platform today. As Kevin pointed out, “the money will go where the data is”.

Random Forest also invests in other asset classes beyond consumer credit. They have positions in secured auto, fix and flip real estate and secured commercial debt – bringing their unique data science skills to each asset class.

Out of the shadows: How fintech is infiltrating the mortgage industry (Housingwire), Rated: A

A study released in the National Bureau of Economic Research maintains that nonbanks, such as Quicken and loanDepot, essentially tripled market share for mortgage lending between 2007 to 2015.

Meet Sophie — the AI assistant that wants to save you money (Business Insider), Rated: A

Called Douugh, the app is designed to be a financial control center. More intriguingly, it employs an intelligent virtual assistant named Sophie to help users fully understand and manage their finances.

Users start by plugging in all their bank account information into Sophie. Once she has access to those, she’s able to use them to map out users’ financial situations. From there, she can categorize users’ spending and see if they’re living beyond their means.

Taylor previously worked at SocietyOne, a marketplace lending platform he cofounded. While there, he realized how much of a problem financial literacy was in Australia and the US. That led him to launch Douugh last year.

Right now, Sophie is in training mode. Taylor said the company will remain in beta for the rest of the year and launch in February once Sophie has been trained on enough data. Eventually, Douugh plans to build out a full suite of financial products and make Sophie accessible via Alexa and Siri, he said.

In the future, Sophie could serve as a kind of personal banker for users, operating on autopilot and making transactions. For example, if Sophie sees that you’re about to be charged an overdraft fee for an account you’ve kept empty, Sophie could transfer a few dollars from another account to prevent it.

LendingTree Announces Starbutter AI as Winner of $ 25,000 Startup Innovation Spotlight (Business Insider), Rated: B

LendingTree®, the nation’s leading online loan marketplace, has announced Starbutter AI as the winner of its Startup Innovation Spotlight, a new initiative by LendingTree to showcase the top startup companies in financial technology (fintech) lead generation at LeadsCon.

Starbutter AI is a voice and chat app development company that creates AI-driven chatbots for financial products.

AI-based chat is disrupting lead generation in financial ecommerce, and 2017 has seen a massive shift in the digital landscape toward voice search. Voice search is now 25% of all mobile search and is projected to reach 50% in 3-4 years.

HIGH-FREQUENCY TRADING AND SPOOFING (All About Alpha), Rated: A

Six years ago Michael Coscia placed orders through the CME Group’s Globex platform via a trading algorithm that amounted to “spoofing.” He placed both large and small orders in the copper market, for example, with the large orders (cancelled within milliseconds) designed to create the illusion of market movement in order to create the reality of movements, whence the small order would reap its profits.

In November 2015 a jury convicted Coscia of commodities fraud and sentenced him to three years in prison.

Coscia argued on appeal that Congress’ language on spoofing is void for vagueness, that is, that it fails to provide traders with clear notice of what they are and aren’t allowed to do, and thus is inconsistent with due process of law.

The New York based law firm Cleary Gottlieb has made public a memorandum on the case.

London fintech opens first overseas office in Charlotte at WeWork (Biz Journals), Rated: B

PCI Pal, a London financial technology company focused on call-center compliance, is opening its first overseas office in Charlotte. The company has taken space at coworking giant WeWork’s new uptown location.

Barham says about 30% to 35% of the company’s clients have operations in the U.S., so the firm decided it was time to build out infrastructure here to support them.

BCU goes live on Microsoft Azure with the Temenos Lifecycle Management Suite (Temenos), Rated: B

Temenos (SIX: TEMN), the software specialist for banking and finance, today announces that Baxter Credit Union (BCU) has successfully implemented the Lifecycle Management Suite in Microsoft Azure. The implementation, which included the Collection, Service, and Loan Origination modules, incorporated an upgrade spanning four major releases, as well as the inaugural launch of the Lifecycle Management Suite in the Cloud.

United Kingdom

2,000 IFISAs subscribed last year as consumers eschew low-yielding cash ISAs (P2P Finance News), Rated: AAA

TWO THOUSAND Innovative Finance ISA (IFISA) accounts were subscribed in the last tax year, with retail investors collectively putting £17m in to the tax-free wrapper, official figures show.

ISA statistics released on Thursday by HMRC include IFISA data for the first time for the 2016-2017 tax year. The IFISA was first mooted by then-Chancellor George Osborne in July 2015, as a tax-free wrapper around alternative investments including P2P lending, and was officially launched in April 2016.

The average amount of money invested through an IFISA was £8,500 – slightly less than the average £8,623 put in to a stocks and shares ISA but almost double the £4,622 put in to a cash ISA.

Is peer-to-peer lending heading for trouble? (Which?), Rated: AAA

Two of the biggest peer-to-peer (P2P) lenders in the UK have been beset by problems over the past month, with RateSetter forced to make up a near £9m loan-deal gone sour and Zopa customers experiencing a severe cut in returns. So, is the market for peer-to-peer lending headed for trouble?

RateSetter lent a total of £36m to Vehicle Trading Group from 2014. This was wholesale lending, which meant that Vehicle Trading Group lent that money to other borrowers, including £12m to an advertising firm called Adpod (an unusual choice for a company that offers car loans).

Vehicle Trading Group went bust in May 2017. The Financial Conduct Authority (FCA) has warned P2P firms that lending to other lenders may be in breach of regulations.

RateSetter took over the struggling AdPod in the second half of 2016, but its customers didn’t find this out until shortly after Vehicle Trading Group went bust.

As well as winding down any new lending to wholesale lenders, RateSetter says it no longer issues business loans over £750,000.

Meanwhile Zopa, another well-known P2P website and one of the ‘big three’ players in the market along with Ratesetter and Funding Circle, has warned investors that they may see their returns cut for products with higher projected rates of interest due to a rise in consumer debts going bad.

Which? has been contacted by a member who complained to Zopa after putting £1,500 into Zopa’s higher-risk product, which typically projects returns of around 6% after bad debt. One year later, however, he had made only £42 – less than 3%.

Fintech could be risky if banks don’t cooperate, says the Bank for International Settlements (City A.M.), Rated: A

Banks will need to take measures over the coming years to mitigate the risks of financial technology (fintech), according to a new report from the Bank for International Settlements (BIS).

It noted that while research from McKinsey & Co in 2015 estimated that between 10 and 40 per cent of revenues and 20 and 60 per cent of retail banking profits could be put at risk by fintech over the next 10 years, other market observers saw the developments as more positive.

It also advised institutions to vet any outsourcers through a thorough due diligence process, saying that any risks and liabilities incurred during the operations would remain with the bank.

The new bank: Replacement of incumbents by challenger banks

However, new players could prove just too agile in their ability to push the boundaries of technology, the report warned. In this scenario, new banks or tech companies with a banking branch could steal market share.

The disintermediated bank: Banks have become irrelevant as customers interact directly with individual financial services providers, for instance by using distributed ledger technology

In this case, incumbent banks would no longer be a significant player because there would be no need for a trusted third party or for balance sheet intermediation. Customers could have a more direct say in choosing the services and the provider. This futuristic scenario can be seen in its nascent form in peer-to-peer lending platforms and cryptocurrencies.

China

China’s $ 2 Trillion of Shadow Lending Throws Focus on Rust Belt (Bloomberg), Rated: AAA

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS Group AG.

By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry. Shadow loans grew almost 15 percent to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19 percent of economic output, he estimates.

Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said.

Asset Quality

Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86 percent last year to a size equal to 308 percent of its formal book, the highest of any bank in China, according to Bedford’s report.

Still, the bank reported a bad-loan ratio of just 0.05 percent last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said. Bank of Tangshan representatives didn’t respond to an email seeking comment.

Shadow loans can be used to circumvent regulations capping loans to a single borrower at 10 percent of a bank’s assets, or 15 percent in the case of a group company and its subsidiaries, according to Bedford. For example, he said that Baoshang Bank, an Inner Mongolia lender, has extended shadow loans equivalent to 126 percent of its net assets to one borrower.

Car Finance Penetration Rate in China Expect to Double in Five Years (Xing Ping She), Rated: A

According to a public report, from 2005 to 2015, the ratio of purchasing cars by loan in China has grown rapidly from less than 10% to 25% ~ 30%. During the past ten years, auto finance in China has been developing so fast. And from 2016 to 2017, during the short two years, the car finance penetration Rate continue to rise. Now the rate has reached to 35%~40%, among which the luxury car financial penetration rate is even higher. Furthermore, it is expected to double in five years.

On the prevention of various types of ICO to absorb investment-related risks in the name of the tips (National Internet Finance Association), Rated: B

To protect the legitimate rights and interests of the public, the relevant risk issues are as follows:

First, some institutions at home and abroad use all kinds of misleading propaganda means to ICO in the name of engaged in financing activities, the relevant financial activities without any permission, which is suspected of fraud, illegal securities, illegal fund-raising and other acts. The majority of investors should remain sober, vigilant, beware of being deceived. Once found to have involved in illegal acts, should immediately submit to the public security organs.

Second, due to ICO project assets are not clear, lack of investor appropriateness, a serious shortage of information disclosure, investment activities are facing greater risk. Investors should be calm judgments, be careful to take their own investment risk.

Third, China Internet Finance Association member units should take the initiative to strengthen self-discipline, to resist illegal financial behavior.

European Union

Credit Unions embrace FinTech as loans flood in through Facebook (Independent.ie), Rated: AAA

Credit Unions around Ireland have entered the FinTech arena, with some credit unions reporting a 10-fold interaction with younger adult members since they began rolling out digital loan service initiatives earlier this year.

Since its launch, the “Facebook Loan” initiative has already been a huge success for several credit unions throughout the country – now accounting for up to 15pc to 20pc in loan enquiries per month for some credit unions.

Following an initial successful pilot project, this has now become an established channel for credit unions, with close to half of consumers using the facility to take out a loan never having borrowed from a credit union before.

New European fintech hubs are on the horizon (Business Insider), Rated: A

Sweden‘s deal share of the European fintech investment market is growing for the third consecutive year. Its share expanded 2% between 2015 and 2016 to reach 8%, and currently stands at 12%, meaning it’s already ahead of last year’s figure. The country’s share of deals is also increasing ever-more quickly, from 2% over 2015-2016 to 4% between 2016 and 2017 year-to-date (YTD).

France is also seeing its deal share increase for the third year in a row, and like Sweden, its 2017 YTD share (11%) has already overtaken its 2016 figure (10%). However, its deal share growth has slowed down slightly, from 4% during 2015-2016 to 1% between 2016 and 2017 YTD.

International

Mobile Fintech vs Traditional Banking products: 15 awesome things winners do well (Robosoft Technologies), Rated: AAA

As of 2017, banking executives are completely missing the mark at correctly understanding the rise in popularity for fintech products. It all comes down to the user experience. Banks are misinterpreting and miscalculating the role user experience plays in the overall satisfaction customers have with a banking product.

Fintech vs Traditional banks – attitudes and missed expectations

In 2016, Capgemini Consulting in collaboration with EFMA conducted a global study to gauge customers’ attitudes towards financial service companies – banks and fintech companies alike. As part of the study, the researchers asked customers to rate the most important reasons why they are using financial products coming from fintech companies. In parallel – they asked banking executives to do the same.

The results show a complete disconnect between what consumers want and appreciate about fintech and what banks think consumers appreciate about fintech products.

But what they completely missed is that 80% of consumers rank faster service and good experience as a primary reason why they’re using fintech products (the two being completely correlated). In contrast, only 40% of banking executives believe good service/ experience is critical to fintech’s rise in popularity.

Source: Invoiceinterchange.com

Banking executives do not understand what consumers want.

Consider the following stats to understand the result of banking executives missing the mark on user experience from the Millennial Disruption Index Report:

  • 71% of consumers would rather go to the dentist than listen to what banks are saying
  • 1 in 3 consumers are open to switching banks in the next 90 days if a better product is made available to them
  • All 4 of the leading banks in the US are among the ten least loved brands by Millennials
  • 33% of Millennials believe that in the next five years they won’t need to do business with a bank at all
  • Nearly 50% of Millennials believe that innovation in the banking industry will come from outside the banking industry
  • 73% of Millennials would be more excited about a financial service product coming from Google, Amazon, Apple, Paypal or Square than from their own national bank.

1. Integrated products & services (Mint and YES Bank)

It gets tiring to jump from one product to another at every given moment to get a good feeling of your overall financial life.

That is why Mint.com has managed to grow from nothing to 20 million active users in only 11 years. What Mint.com does is to order and organize your entire financial life in a seamless way to give to a bird’s-eye view of your financial life.

YES bank’s mobile solution, YES Mobile 2.0 is developed keeping in mind today’s customer’s mobile lifestyle. The app offers consumers with a seamless omnichannel experience across platforms – smartphones, tablets and smartwatches. Further, the mobile app also has some innovative features to enable easy transactions on the app. Some of these are:

  • One-touch bill payment.
  • Speech to text capabilities to enable hands-free complaints/queries registration
  • On-the-go bill payments from Wearables including Apple and Android smart watches.
  • Easy transfer of money to phone book contacts, Facebook friends and Twitter followers etc.

2. Personalized recommendations (Credit Karma)

Credit Karma is a simple credit history monitoring tool with an added benefit. Whereas they can use the service for free, they will receive personalized recommendations based on their credit reports, credit card usage and other factors. What is very interesting – and smart – for Credit Karma is that while offering these suggestions they also inform their users of their odds of acquiring a new line of credit – credit card, loans, mortgages and more. And most importantly, the user experience is clean, easy to follow and to act on it.

4. Access credit card balance without logging in (Citibank)

Remember how users ranked “speed of service” as the second most important criteria on why they love fintech products? Citibank actually leads the wave of banking institutions that allow their customers to do just that. Instead of logging in to see the most frequently sought for account information, their mobile app allows users to get a glimpse of their account simply by firing the app.

7. Seamless digital payment option (Apple Pay)

It is literally impossible for banks to create something simpler than this. For readers who are not iOS users, Apple Pay works by double tapping the home button. It then pulls up the Wallet application allowing users to pay at different retailers with the default card on file.

9. Text message notifications (Digit)

Digit is a fintech savings platform which analyzes a person’s checking account balance and spending habits and subtracts a small amount from the account every 2-3 days which is deposited in a savings account.

14. Password entering and password retrieval (Acorns)

First and foremost, Acorns has adopted the widely accepted retail practice of allowing users to unmask their password. This is an acceptable practice which reduces user authentication errors. By simply adding a “show” button, Acorns makes the login experience just a little easier.

In addition, the password reset flow is as simple as they come.

Fintech: beware the fake news (Banking Technology), Rated: AAA

A few years back, the general consensus was that banking as we knew it was over.

Fast forward two years and opinion has arguably swung too far in the other direction. The consensus now is that fintech firms tried to disrupt banks but couldn’t.

If we were to apply Gartner Hype Cycle terminology to fintech in general, we would argue that fintech went from the peak of inflated expectations to the trough of disillusionment in the last two years. If you look at the investment figures, however, the picture is not so clear. While there has been a correction in VC funding, Q2 2017 was the largest quarter of investment yet. Maybe Q2 was a blip, maybe we are heading out of the trough of disillusionment to the slope of enlightenment – or maybe investors are more sanguine about the prospects for fintech, seeing through the hype cycle.

The truth is that fintech is neither going to kill all banks nor is it a fad.

But the pessimism has become exaggerated for four main reasons:

1. Some extremely successful and highly disruptive fintech companies have been born, such as Ant Financial and PayPal (which, if a bank, would be one the ten largest in the US);

2. Adoption rates for fintech products are growing and are already material in many countries around the world (see chart below), meaning that fintech firms are successfully changing customers’ banking habits, which should help lower the cost of acquiring customers in future (a key hurdle for many fintechs);

3. Fintech companies are evolving, pushing further in middle and back office functions, extending the range of services they offer and generally becoming asset heavier and more vertically integrated, putting them in a position to compete more effectively; and,

4. Because the indirect impact of fintech has been massive.

Source: Banking Technology

UAE Remittance Giant Taps Ripple Blockchain for Instant International Payments (CryptCoinsNews), Rated: A

A report by regional publication Arabian Business has revealed that UAE Exchange, one of the region’s earliest remittance operators with some 800 offices across 31 countries, is looking to partner San Francisco-based FinTech firm Ripple to facilitate instant international money transfers.

The remittance operator sees blockchain technology as the solution toward faster and efficient money transfers at significantly lower costs for customers. Ripple uses its bank-friendly public blockchain, the Ripple Consensus Ledger, to link its international partners and facilitate real-time money transfers globally.

FinTech, The Financial Crisis And The Smartphone (Forbes), Rated: A

It is ten years since the Financial Crisis and I am often asked if FinTech was born out of the crisis.

In June 2007 two Bear Sterns hedge funds hit problems, by August BNP Paribas shut down access to hedge funds with sub-prime mortgage exposures, and in September Northern Rock, a UK savings and mortgage bank had a run on it, the first bank to suffer this consequence in 150 years in the UK.

It would be another full year before the collapse of Lehman Brothers in September 2008 and the global financial system melted down.

Chris Skinner, the global FinTech pundit, heralds the beginning of FinTech with the launch of Zopa, a UK peer to peer lender started in 2005. It was the first time he had heard the word FinTech.

US market place lenders Prosper, launched in 2005, and Lending Club, launched in 2006, were out of the gates before any evident signs of the impending crisis.

It appears FinTech was not born out of the Financial Crisis.

India

Rubique Launches New Features On Its App (DQ India), Rated: AAA

The interactive app will now focus on complete digitization of the loan and credit card application process. The most significant new feature of the app is ‘Digital Profiling’ and once the profile is created, all the bank policies and algorithms are run against the user’s profile for tailor-made offers.

The key features of an app:

  1. Digital profiling: created based on the back-end by collecting data through SMS scrapping, network type, device characteristics and certain key data points
  2. Pre-qualified offers: The data engine keeps evaluating the offers available on the platform versus customer profile available & proactively keep notifying users on the eligible offers
  3. Document Upload & instant approval: Aiming towards 100% digitization and create a paperless experience for the user, the app allows user to upload the supporting documents required & Rubique’s unique integration feature which is one of its kind in the entire industry, let user get in principal approval online for his/her requirement making it entie digital
  4. Status tracking: Due to direct integration with financial instituions’ system, user can check the application status in real time
  5. Wish List: The app also allows user can also maintain its wish list related to his/her futue loan & credit card requirement
Asia

Blockchain solution aims to stop trade invoice fraud (GT Review), Rated: A

Trade finance is rife with cases of document duplication and the industry is currently exploring ways in which blockchain can be used to prevent these cases of fraud. Earlier this year, warehousing company Access World experienced a number of cases of warehouse receipt duplication, while the costs of the Qingdao fraud, which also involved multiple warehouse receipts, are still being counted.

Invoice Check from Trade Finance Market (TFM), a Singapore-based fintech company, is one of the early products to launch with this aim in mind. It has been developed over the past year on the Ethereum platform and uses smart contracts.

Canada

Bianca Lopes of Bioconnect Presents Building the Human into FinTech (StartUp Toronto), Rated: A

Latin America

New fintech law: what you need to know (International Law Office), Rated: AAA

On March 23 2017 the draft Financial Technology Law was published. The law will regulate:

  • the organisation, operation, function and authorisation of companies that offer alternative means of access to finance and investment (so-called ‘financial technology (fintech) institutions’ (FTIs));
  • the issuance and management of electronic payment funds; and
  • the exchange of virtual assets or cryptocurrencies.

The Ministry of Finance and Public Credit Comments (SHCP) has sought comments on the draft law from the Mexican banking and financial industries.

Under the law, the main authorities in the fintech field are:

  • the SHCP;
  • the National Banking and Securities Commission (CNBV); and
  • the Bank of Mexico (known as Banxico).

Pursuant to the initiative, the following institutions that undertake financing, investment, savings, payments or transfer activities through interfaces, the Internet or any other means of electronic or digital communications will be considered FTIs:

  • electronic payment institutions – these offer issuance, management, accountability and transfer of electronic payments services. Electronic payment funds include:
    • the amounts or units of an asset that can be assigned a monetary value and are recorded in an electronic transaction accounting ledger; and
    • the amounts accepted by a third party as receipt of an amount of money or respective virtual assets;
  • virtual asset management institutions – these contact third parties through digital means in order to buy, sell or dispose of their own or a third party’s virtual assets and receive virtual assets to make transfers or payments to a person, including another virtual asset management institution. Virtual assets are digital units that have similar uses to the Mexican peso, as determined by Banxico in accordance with certain criteria; and
  • crowdfunding institutions – these serve as mediators to investment seekers and potential investors through digital platforms, such as websites or mobile applications, so that prospective investors can fund applicants through such digital platforms.

Authors:

George Popescu
Allen Taylor