Monday March 5 2018, Daily News Digest

marketplace lending

News Comments Today’s main news: Kabbage says ‘no’ to lending for assault guns. Collateral enters administration. Orix invests $60M in Wecash. SMBs accept face-to-face payments via mobile devices. Today’s main analysis: The friction between new finance and old regulations (a must-read report). Today’s thought-provoking articles: 3 lessons from LendingClub’s earnings. The business schools that produce the highest salaries. Beware fintechs […]

marketplace lending

News Comments

United States

United Kingdom

China

European Union

International

Australia/New Zealand

India

Africa

News Summary

United States

Online lender Kabbage to restrict weapons lending (Reuters), Rated: AAA

Kabbage Inc, a U.S. online lender for small businesses, said it will cut ties with clients that make or sell assault-style rifles or that sell weapons or ammunition to people under 21 years old, one of the strongest steps by any financial firm after last month’s high school massacre in Florida.

3 Revelations From LendingClub’s Earnings Report (The Motley Fool), Rated: AAA

1. Lawsuit settlements

One piece of good news is that the company recently dealt with its largest liabilities from the 2016 scandal, settling both federal and state class action shareholder lawsuits. The bad news: LendingClub has to pay plaintiffs a total of $125 million, with $47.75 million covered by insurance, leaving LendingClub on the hook for the remaining $77.25 million. That amounts to roughly 12% of the company’s liquid assets and about 5% of the current market capitalization.

2. A challenging environment

In addition to these company-specific problems, the macroeconomic environment has become more challenging, though that is no fault of LendingClub. Increased awareness of personal loans delivered via the internet has spurred a large increase in applications, and LendingClub saw a 43% increase in applications in 2017 — much higher than the company’s 3.7% growth in originations.

3. Cost cuts in 2018

LendingClub believes it has stabilized both its credit model and its investor base in 2017 while introducing new investor products, and it will pivot in 2018 to focusing on controlling costs. Part of that will entail outsourcing its loan servicing to industry-standard third parties while reallocating internal engineers to the things that differentiate the company, like data-driven underwriting and product innovation.

For the full year 2018, the company forecasts 18% to 22% revenue growth while targeting cost growth of only 14% to 16%.

 

The top 20 business schools where graduates earn the most money, ranked from lowest to highest salary (Business Insider), Rated: AAA

With that in mind, online lender SoFi looked at the average salary graduates of American business schools earn and ranked the top 20.

SoFi’s approach is unique. It reviewed the self-reported income on over 60,000 student-loan refinancing forms from January 2014 to December 2017.

The average salary for graduates of all business schools SoFi reviewed was $109,992.

  • 20. University of Texas at Austin — $139,776
  • 3. Stanford University — $186,534
  • 2. Columbia University — $189,295
  • 1. University of Pennsylvania — $224,034

There is Friction Between New Finance & Old Regulation (Crowdfund Insider), Rated: AAA

The Milken Institute is out with a comprehensive report this week that drills down into existing legislative action by Congress that addresses the emerging Fintech industry. This is the first report of its kind and provides a solid perspective on what Congress has accomplished to date while recognizing the fact elected officials can do far more.

“Subjecting nonbank lenders to 50 different state usury laws is inconsistent with today’s increasingly interconnected and digital global economy.”

The research provides multiple policy recommendations. In brief, they are as follows:

  • Provide certainty on “true lender” and “valid when made” issues to maintain a vibrant, competitive marketplace for credit.
  • Harmonize inconsistent state-by-state regulations related to mobile banking to drive financial inclusion and access.
  • Update tax reporting guidelines regarding cryptocurrency transactions to protect against tax evasion and to promote a more transparent, responsible marketplace.
  • Enable the reporting of alternative data that can expand access to credit.
  • Develop common reporting standards among U.S. financial regulators to foster a more transparent marketplace.
  • Require the IRS to automate certain data collection and reporting processes that can help enhance the speed and efficacy of the underwriting process.

This report is a must read policy paper for Capitol Hill staffers and US Fintech industry participants.

Read the full report here.

Equity and Credit Market Volatility, Continuing Bank-FinTech Partnerships (PeerIQ), Rated: AAA

US equity markets had a bad week as the S&P500 closed 3.3% lower at 2,659. CDX IG spreads widened marginally by 0.6 bps to 55 bps and CDX HY spreads widened by 8.7 bps to 337 bps. We have seen significantly higher volatility this year, driven mainly by rising interest rates and inflation expectations. No new MPL deals have priced since the rise in volatility, although we expect the first $1 Bn MPL ABS transaction to announce soon.

We share a few anecdotes from our informal conversations which we share in generic fashion to protect the innocent:

  • A large issuer: “Our bonds are oversubscribed 2 to 3x. And when we share that with our investors they want more.”
  • A large ABS investor: “We need help monitoring losses in the personal loan ABS space. Is this an indutry issue?”
  • A large investment bank (Warehouse): “We ar doubling our exposure to warehouse lending. We have the mandate to grow the book.”
  • A large investment bank (Syndicate Desk): “MPL has gone mainstream now.”
  • A lender: “The 5% risk retention requirement is hurting our ability to issue loans to consumer and grow our business responsibly.”
  • An issuer: “We are a small emerging originator and we have 7 term sheets – from large banks and small – in the last few weeks. Competition in warehouse lending is growing.”

Also heard at the conference was that Citibank is planning a Marcus-like online lender to enter the consumer unsecured loans space, although the timeline was unclear. Our view is that the GS Marcus – and specifically the ROE and NIM opportunity – is inspiring competitive response from other banks including Citi.

Marketplace lenders develop new wrinkles to attract more funding (American Banker), Rated: A

Last year, marketplace lenders learned that maintaining diverse sources of funding is just as important as managing the credit risk in their loans.

LendingClub, Marlette Funding and others developed their own securitization platforms, rather than relying on whole-loan sales to large investors. They also invited some of these investors to contribute seasoned loans to collateral pools for these in-house deals.

Marketplace lending’s death has been over exaggerated (PaymentsSource), Rated: A

It’s clear that equity investors no longer see the value of marketplace lenders, such as companies that provide credit at the point of sale or online lending.

Source: PaymentSource

A typical lender leverages equity into debt at a fixed ratio. If they want to grow their portfolio they have to raise equity and lever it into more debt. An off-balance sheet marketplace eliminates the equity-debt leverage ratio allowing a lender to double and triple their portfolio as quickly as they can grow their marketplace.

The SEC Goes Hot with ICO Subpoenas but are Regulators “on Shaky Legal Ground?” (Crowdfund Insider), Rated: A

The fact the Securities and Exchange Commission has been issuing subpoenas to initial coin offering (ICOs) issuers has been rumored for quite some time. Recently, multiple publications, including Crowdfund Insider, revealed this fact. The SEC has been warning of this sort of activity for many months and, while not surprising to most, it is an unpleasant moment for an issuer when that subpoena shows up.

Mulvaney says the CFPB will depend heavily on state Attorneys General for enforcement of consumer protection laws (Lexology), Rated: B

For example, the acting director noted that the agency will devote greater resources to consumer education, instead of relying heavily on enforcement actions to ensure consumers make the correct choices, reaffirming previous remarks in a Wall Street Journal opinion piece (previously covered by InfoBytes here).

Mulvaney stated that he does not anticipate devoting any further resources to mandatory arbitration clauses, citing Congress overturning its arbitration rule through the Congressional Review Act as evidence the Bureau does not have the authority to do so.

3rd Circuit holds payday lender’s arbitration clause unenforceable (Lexology), Rated: B

On February 27, the U.S. Court of Appeals for the 3rd Circuit held that an arbitration clause is unenforceable if the corresponding forum selection provision designates a forum that does not actually exist.

The benefits of fintech for the credit invisible (microbilt), Rated: A

 

Rethinking The Reputation Of The Merchant Cash Advance (PYMNTS), Rated: A

The rise of alternative lending and familiarity of growing names like OnDeck is beginning to shift public perception of the merchant cash advance, however.

There are scenarios, too, in which a merchant cash advance may actually be the best financial option for a business in need of working capital.

“We see a lot of clients who already have a long-term equipment loan, or an SBA loan, or a loan from a traditional bank or a factoring line, and they’re looking to unlock short-term liquidity from their business,” he said. “When you take out an SBA loan or equipment loan, you have to have some type of collateral to pledge, and that money can dry up quickly. We come in un-collateralized.”

One driver behind the shifting reputation of merchant cash advances is the industry’s participation in technology adoption and innovation.

At Best Egg, talk is a best practice (American Banker), Rated: B

So, every quarter, he and the company’s management team host an all-hands meeting and outline to the company’s 100-plus employees what the most important goal for the next 90 days will be.

So the word went out to employees that for the time being, efforts to grow the business would have to take a back seat to making certain that the existing business was profitable. According to Meiler, it was employees’ focus on the task that helped Best Egg rack up $11 million in GAAP profits last year, even as competitors were still posting operating losses in the tens of millions of dollars. And, he adds, the company still grew its business by 60% anyhow.

Best Fintechs to Work For (American Banker), Rated: A

Office exercise happens beyond a standing desk at many of the companies. NvoicePay not only provides stretching areas and lockers to employees, it offers monthly classes with a certified trainer and kinesiologist. Marlette Funding’s Best Egg unit offers employees self-defense classes on site, along with yoga.

And if you like the beach, check out nCino, where employees regularly go for early morning paddleboat sessions at nearby Wrightsville Beach in Wilmington, N.C., and SmartbizLoans, which hosts “Disco Yoga” at San Francisco’s Baker Beach.

Addressing an employee’s well-being and comfort comes in different forms, whether it is Cross River Bank’s policy of providing 100% of the premium for various insurance benefits covering employees and their families, Nav’s unlimited paid time off option for employees, or Ensenta’s tradition of celebrating workforce diversity with multiple holidays, including Kwanzaa, Diwali, and the Day of the Dead.

To keep burnout in check, PeerStreet mixes play with hard work (American Banker), Rated: A

To that end, they’ve established a company that regularly celebrates its successes and milestones with parties, and encourages employees to get together and have fun in nonwork environments. A prime example of the latter is the PeerStreet Olympics, an annual event in which the company is divided for a day into teams of friendly athletic competition, some of which takes place on the beach near its Southern California offices.

United Kingdom

Peer-to-peer lender Collateral enters administration (Financial Times), Rated: AAA

Collateral (UK), a small P2P company offering pawnbroker-style and property-backed loans with 15 per cent returns, went into administration on Wednesday after it emerged that it was not authorised by the Financial Conduct Authority.

BondMason offers to step in on Collateral loans (P2P Finance News), Rated: A

PEER-TO-PEER investor BondMason has offered to step in and manage the loanbook of the troubled Collateral platform.

BondMason, which invests in loans across more than 30 P2P platforms on behalf of investors, revealed it has invested 2.48 per cent of its portfolio through Collateral, which has fallen into administration.

P2P platforms reassure investors after Collateral closure (P2P Finance News), Rated: A

PEER-TO-PEER lending firms have been reassuring their investors about the safety of their platforms in the aftermath of Collateral going into administration.

Business lenders Ablrate and MoneyThing have both sent messages to their customers detailing their stability, performance and regulatory requirements that mean they have to hold client money separately and have a ‘living will’ that puts a plan in place should a business fail.

Growth in the number of Zombie businesses in the South East says report (Daily Echo), Rated: A

The proportion of south east companies which are only paying the interest on their debts – one of the signs of a so-called ‘zombie’ business – has risen to four per cent in December from one per cent in April 2017, according to indicative research by R3, the insolvency and restructuring trade body.

This represents around 12,000 businesses in the region.

Beware Fintech Firms Bearing Bitcoin (Bloomberg), Rated: AAA

Rather than try and undercut banks, or chase millennial savers’ pennies at a loss, fintech firms are now leaping at the chance to make serious cash through a technology that most banks won’t even touch. What’s more, Bitcoin has the power to take over people’s lives. One trader says it’s worse than gambling; Korea calls victims “zombies.”

Here’s a roll call of recent converts: Mobile-payments firm Square Inc. has rolled out Bitcoin trading; social-payments app Circle splashed $400 million on Poloniex, only about 15 months after it had stopped offering bitcoin trading; and money-transfer company Revolut has started offering crypto trading facilities.

Trading platform Coinbase booked more than $1 billion in revenue last year, according to Recode, which, if true, is more than peer-to-peer marketplace Lending Club and more than Square. On top of the money to be made from trading fees and asset-price gains, Bitcoin could also act as a lure, helping startups cross-sell their other products to a bigger audience.

 

London Fintech Humaniq Launches New Version of Mobile App (Crowfund Insider), Rated: A

On Friday, London-based FinTech firm Humaniq revealed it is marking the milestone of its mobile app reaching its first 50,000 downloads by unveiling a new, improved version.

Some of the new features include:

  • New referral program: The new 2.0 referral program will build on this by displaying community progress with referrals and thereby make the referral process more transparent and intuitive for all users.
  • Transaction options extension: Transactions can now be made through the messaging chat system.
  • New registration process: Allows users to start interacting with a Humaniq assistant bot, which becomes smarter and is learning to execute more useful commands, even without the registration.

Peer-to-peer lender Linked Finance helps firms to add 2,400 jobs (The Times), Rated: A

The country’s largest peer-to-peer lending platform said that it had supported the creation of more than 2,400 jobs since it began its Irish operations almost five years ago.

Linked Finance, which connects local businesses in need of loans with an online lending community of individuals, institutions and other investors, said firms that had borrowed money through its platform had raised staffing levels by 24 per cent on average.

City Moves for 5 March 2018 – who’s switching jobs at ArchOver? (City A.M.), Rated: B

ArchOver, the peer-to-peer (P2P) business lending platform, has announced Bill Johnston will join its board of directors as a non-executive director (NED). In his role, Bill will support ArchOver in formularising its training and development programme, to ensure it has the right talent in place as it continues to scale.

China

Orix invests $ 60m in Chinese fintech startup (Asian Review), Rated: AAA

Japanese financial services group Orix bought a 6.4 billion yen ($59.8 million) stake in Wecash, a Chinese startup that uses big data and artificial intelligence to rate consumer credit.

Wecash can calculate a consumer’s creditworthiness in 10 seconds or less using phone records and other personal information, and has partnered with dozens of financial institutions so far. It also suggests potential lenders to consumers looking to take out a loan.

Only about 30% of the Chinese population is believed to borrow money from banks.

Hong Kong gives fintech measures the thumbs up (Asia Asset Management), Rated: B

Hong Kong will allocate HK$500 million (US$64.1 million) to financial services, including fintech, over the next five years, Mr. Chan said in the budget speech.

European Union

We talked to Nordic fintech queen Lena Apler – and her message to legacy banks is reboot or die (Business Insider), Rated: A

Big banks are particularly exposed when it comes to ETF funds. The fast-growing $5 trillion-dollar industry is being challenged by a crop of robo advisors, such as Apler’s portfolio company Sigmastocks, an algorithm-powered tool that tailors portfolios for customers, or BetterWealth, a roboadvisor app.

Although the region’s leading banks, such as Danske, Nordea and Swedbank are doing some good things and building new digital banking products and roboadvisory capabilities, Apler says, it won’t be enough.

Apler’s online bank Collector, which received its full banking license in 2015, has expanded to comprise cards, saving accounts and quick loans to both consumers and businesses. Collector doesn’t face the same issues as legacy banks in a digital world, Apler explains.

International

SMBs Turn To Mobile Devices To Accept Payments In Face-To-Face Environments (PYMNTS), Rated: AAA

The retail point-of-sale (POS) terminal market is no stagnant business. While it is currently a $15 billion industry, Global Market Insights is expecting it to reach $45 billion by the year 2024.

Only 13 percent of small- and medium-sized businesses (SMBs) are considering adding new payment types to face-to-face and remote environments, according to The PYMNTS SMB Technology Adoption Index.

Here are five ways SMBs are accepting payments from their customers.

  1. About a quarter – or 26 percent – of SMBs use hardware and software integrated POS to accept payments in a face-to-face environment.
  2. Almost two in 10 – or 19 percent of SMBs – use check scanning to accept payments in a face-to-face environment.
  3. And just about the same amount – 18 percent – of SMBs use NFC-enabled terminals to accept payments in a face-to-face environment.
  4. Fourteen percent of SMBs use mobile phones to accept payments in a face-to-face environment.
  5. Just under one in 10 – or 8 percent – of SMBs use mobile tablets. 

AltFin Shines As Investor Interest In B2B FinTech Continues (PYMNTS), Rated: A

Total venture capital across the global FinTech market between 2010 and 2017 hit a combined $97.7 billion, growing at a compound annual growth rate (CAGR) of 47 percent.

Accenture highlighted Kabbage, the U.S. alternative small business lending firm, that secured $900 million in 2017, while other alternative finance players, like LendingPoint and SoFi, landed significant investment rounds.

This week, alternative lender C2FO showed that the alternative finance funding gears are still turning, landing $100 million from Allianz X and Mubadala Investment Company. Existing backers Temasek, Union Square Ventures and Mithril Capital also participated, an announcement said.

This week’s blockchain investment comes from Square Peg Capital, which provided $5.5 million in Series A funding to AgriDigital, an Australian company hoping to use the funds to expand into North America.

Reports in The Australian Financial Review this week said the company uses blockchain to facilitate supply chain finance to the agriculture business, offering supply chain management features also powered by distributed ledger technology.

Why More MBA Students Are Gunning For Careers In Fintech (Business Because), Rated: A

According to CB Insights, $4.7 trillion of revenue generated by financial services firms is at risk of being displaced by fintech startups.

Prominent business school alumni have founded successful fintech startups, such as Giles Andrews, who setup peer-to-peer lender Zopa after getting an MBA at INSEAD. Jeff Lynn and Carlos Silva developed crowdfunding platform Seedrs during their MBA at Oxford’s Saïd Business School. According to PwC’s Global Fintech Report 2017, funding of fintech startups has increased at an annual growth rate of 41% over the past four years, with $40 billion in cumulative investment made.

Niels Turfboer is UK managing director at Spotcap, the Berlin-based online lender.

Lending and profit on the blockchain – Bitstrades targets new markets (The Merkle), Rated: B

Bitstrades is clearly aiming to position itself as a complete platform that both links users together and also leverages economies of scale to make both lending and investing possible. The Bitstrades ICO raised millions in funding and now the BSS token is available for trading.

TigerWit Raises $ 5M in Funding (Finsmes), Rated: B

TigerWit, a global fintech company, secured $5m in funding.

Australia/New Zealand

Financial planners not needed in credit space (TheAdviser), Rated: A

Bringing financial planners into the credit space would be unnecessary, according to a Commonwealth Bank executive, as there are more than enough brokers to service the mortgage needs of Australians.

The CBA executive said: “With 16,000 brokers out in the marketplace, we’re certainly not in a position where we need more people to serve Australians well in meeting their mortgage needs. For me, it’s certainly not a quantity issue.

The PC has also alleged that brokers working for lender-owned aggregators could feel compelled to provide customers with home loan products offered by the bank with an ownership share of the business.

Commissioner Stephen King referenced CBA’s ownership of Aussie Home Loans and cited figures published in the PC’s report, which said that 37 per cent of loans written by Aussie brokers were for CBA products.

We launch a new calculator that figures out the true “cost of credit” of a loan contract (Interest.co.nz), Rated: B

This one will be very helpful for readers who know just three things: how much they are borrowing, the amount of their repayments, and the number of those repayments.

It will be very useful indeed for anyone contemplating taking out a personal loan, a car loan, or even a payday loan.

With just these three items, you can work out the effective cost of credit of the debt obligation, expressed as a % per annum.

India

FY 19 – Beginning of a New Era for P2P Lending in FinTech Sector (India Info Online), Rated: AAA

India is poised to be a USD 4-trillion economy by 2022, of which USD 1-trillion would be digital economy.

Digital economy was a focal point for this budget ’18 as government’s support with regard to lending MSME’s allocated 3794 crore in the form of capital support and interest subsidy by 2022 which will help develop the MSME sector. Micro, Small and Medium Enterprises (MSMEs) contribute about a third of India’s manufacturing output and provide employment to over 10 crore people. Despite this, the share of institutional lending in the total borrowings of MSMEs is less than 10%.

The prudential guidelines include maximum leverage ratio that can be maintained (2 times), minimum net owned funds (Rs2 crore), cap on aggregate exposure of lender to all borrowers (Rs.10 lakh), borrowers across all P2P (Rs10 lakh), exposure of single lender to borrower (Rs50,000) and maturity of loans (not exceed 36 months).

Signzy is helping banks solve customer authentication, onboarding problems with blockchain-based solution (YourStory), Rated: B

Signzy developed blockchain and AI-based solutions to digitally identify, verify, and authenticate customers. Its onboarding solution, Real KYC, has now been deployed by more than 45 large clients, including leading banks, NBFCs, mutual funds, P2P lending platforms, payment wallets, and so on.

Africa

Nigerian banks are using Facebook Messenger to onboard small businesses (Tearsheet), Rated: AAA

Mastercard is working with Facebook Messenger to bring a digital payments and banking experience to small businesses in Nigeria, in an effort to incentivize Nigerian merchants to close the mobile payments adoption gap and bring them onto the formal financial grid.

The payments giant, which has said it’s in the business of killing cash, is bringing this initiative to a country where 98 percent of the $301 billion in consumer-to-business payments is transacted using cash.

Authors:

George Popescu
Allen Taylor

How to Give Millennial-Friendly Financial Advice

financial advice millennials

People often need financial advice that’s best suited to meet their needs, which differ from one generation to another. You cannot expect millennials to consume the same financial advice as baby boomers. How Millennials Manage Their Money In 2015, the number of millennials stood at 75.4 million while the number of baby boomers stood at […]

financial advice millennials

People often need financial advice that’s best suited to meet their needs, which differ from one generation to another. You cannot expect millennials to consume the same financial advice as baby boomers.

How Millennials Manage Their Money

In 2015, the number of millennials stood at 75.4 million while the number of baby boomers stood at 74.9 million. Millennials are described as anyone who is between 18 to 34 years old. Baby boomers, on the other hand, are between 51 to 69 years old. Between the two age groups is Generation X, which is made up of individuals who are 35 to 50 years old.

According to recent statistics, the median net worth of the top 20% of millennials is eight times higher than that of the lower 80% of this group. This is twice the ratio reported in the year 2000. Millennials also have a different saving culture compared to their predecessors. For instance, investors aged between 21 to 36 years of age hold more than half of their portfolio in cash with only 28% going into stocks. Older generations, on the other hand, held only 23% of their portfolio in cash with 46% going into stocks. It has also been revealed that 40% of millennials worry about their finances at least once a week.

Research studies have revealed that millennials are 1.5 times more likely to discuss their finances online. What is shocking is that a third of consumers aged between 18 to 29 years old have never had a credit card.

Growth of Tech-Driven Personal Finance Services

Over 80% of millennials own a smartphone and the number is steadily increasing. Over 89% of millennials usually check their mobile devices within the first 15 minutes of waking up. They also expect their financial institutions to be mobile and web-friendly. On the other hand, over 87% of millennials seek financial thought leadership through at least one social network.

What Millennials Look for When Picking a Financial Institution

Millennials have two main financial priorities; paying off their student loans and other debts, and saving for the future. On average, they spend 43% of their income to pay down their debts and put away 38% of their income as savings for the future. Three out of five millennials would like their bank to be a financial partner as opposed to just another business that feeds off their sweat. What is shocking is that only 32% of millennials feel like their bank understands them.

Before making a purchase, 84% of millennials always consider the values of a business or brand. If they are not in line with their own values, they always shop around for a more suitable brand.

10 Tips for Connecting with Millennials

  • Think Mobile First – To connect with millennials, you need to have a mobile app through which they can access your services. Alternatively, you should design a website that is mobile friendly.
  • Help Them Walk Before They Run – Financial growth is normally gradual, so you should develop solutions with low barriers of entry and can help millennials to manage multiple financial priorities as well as any urgent financial priorities they may have.
  • Give Credit a Makeover – Since millennials have different needs and values, you should reposition your credit products to align with those values and needs.
  • Make Financial Planning a Gateway
  • Consider Everyone a Competitor – Do not just look at the real world for competitors because millennials use social networks to get financial thought leadership, so you also need to offer better thought leadership through the same platforms.
  • Make it Rewarding
  • Make it Personal and Actionable
  • Educate Emphatically
  • Provide Holistic Solutions – To fully connect with millennials, you should provide solutions that take their priorities into considerations and can help resolve them.
  • Connect Visually


Ohio University Online

Author:

To learn more, checkout the infographic below created by Ohio University’s online Master of Financial Economics program.

Tuesday August 1 2017, Daily News Digest

Charge offs

News Comments Today’s main news: Ron Suber joins Credible as Executive Vice-Chairman. Prosper pulls plug on anti-theft app. FCA extends credit assessment rules for P2P platforms. Klarna launches P2P payment app. Revolut’s Seedrs campaign oversubscribed. Harmoney loses 63% revenue. UIDAI launches mAadhaar app. Today’s main analysis: Vintage Analysis on loan performance with age. Elevates Q2 2017 results. Today’s thought-provoking articles: AI and the […]

Charge offs

News Comments

United States

United Kingdom

China

European Union

International

Australia/New Zealand

India

Asia

South America

Israel

News Summary

United States

Ron Suber Joins Credible as Executive Vice-Chairman (Credible), Rated: AAA

Renowned fintech executive, advisor and investor Ron Suber has joined personal finance marketplace Credible.com as executive vice-chairman and a member of the board of directors.

“It’s been extremely exciting to see the Credible team turn a startup with a promising business model into a fast-growing company that’s respected by consumers, lenders and the industry” Suber said. “I have decided that now is the right time to help Credible seize their broader opportunity in the fintech ecosystem.”

Revisiting Vintage Analysis- How Loans Perform With Age (Orchard), Rated: AAA

The older vintages have longer lines, as they have more months of history. Using this data, we can examine how loans booked at different times compare to each other at equivalent periods in their life-cycle. This can help an investor evaluate their current portfolio and help them make comparative judgments about its performance.

Source: Orchard Platform

Factors to Consider Within Vintage Analysis

Interest Rates

Source: Orchard Platform
Source: Orchard Platform

Credit Grade

Vintage analysis can also help us to see how loans within a particular credit grade perform over time. In our prior analysis, we examined the performance of the top graded loans (A for Lending Club and AA for Prosper). However, as time has passed, these two platforms have increasingly been lending to borrowers with credit just below the top grades.

FICO Score and Debt-to-Income Ratio

From the data below we can see how loans from Lending Club charge-off over time controlling for the debt-to-income ratio of the borrower.

Source: Orchard Platform

 

ELEVATE CREDIT ANNOUNCES SECOND QUARTER 2017 RESULTS (Elevate), Rated: AAA

Second Quarter 2017 Financial Highlights

  • Nearly 20% year-over-year revenue growth: Revenues totaled $150.5 million, an 18.7% increase from $126.8 million for the prior-year period.
  • Almost 29% year-over-year growth in loans receivable: Combined loans receivable – principal, totaled $481.1 million, a 28.7% increase from $373.7 million for the prior-year period.
  • Stable credit quality: Loan loss provision was 48.0% of revenues and within our targeted range of 45%- 55%. The ending combined loan loss reserve, as a percentage of combined loans receivable, was 13.8%, lower than the 15.7% reported for the prior-year period.
  • Customer acquisition costs within targeted range: The total number of new customer loans for the quarter was approximately 66,000 with an average customer acquisition cost of $294, within our targeted range of $250-$300.
  • Second consecutive quarter of net income: Net income of $3.0 million, or $0.08 per diluted share, versus a net loss of $7.5 million, or $(0.59) per diluted share, for the second quarter of 2016.
  • Adjusted EBITDA margin: Adjusted EBITDA totaled $19.8 million, up from $7.3 million in the second quarter of 2016. The Adjusted EBITDA margin increased to 13.2% from 5.8% for the prior-year period.

Second Quarter 2017 Business Highlights

  • Elevate IPO. On April 6, Elevate began trading on the New York Stock Exchange under the “ELVT” ticker symbol.
  • $200 Million in Outstandings for Elastic. Just a year after achieving $100 million in outstandings, Elastic surpassed $200 million in total principal outstandings, with more than 120,000 open accounts.
  • Elevate Labs Launched. The Company launched Elevate Labs, including its new San Diego-based Advanced Analytics Center, underscoring its approximately $40 million annual investment in state-of-the art technology and data science.
  • RISE Enters Kansas with Line of Credit Product. Bringing additional responsible loan opportunities to non-prime consumers and expanding its product offering, RISE entered its 16th state, Kansas, the first state where RISE offers a line of credit product.
  • Savings for Customers. The average effective APR of its products for the quarter was 131%, down from 148% in the same quarter last year. The Company estimates indicate that Elevate’s products – Rise, Elastic and Sunny – saved customers approximately $304 million in the three months ended June 30, 2017 versus payday loans.
Source: Elevate release q2-2017-release

Elevate Reports Net Income of $ 3 Million on 0.5 Million in Revenue (Crowdfund Insider), Rated: A

According to the company, revenues for the quarter totaled $150.5 million – an 18.7% increase versus year prior where Elevate delivered $126.8 million in revenue. Elevate reported net income of $3.0 million, or $0.08 per diluted share, versus a net loss of $7.5 million, or $(0.59) per diluted share, for the second quarter of 2016.

Combined loans received were said to total $481.1 million, an increase of 28.7% from $373.7 from year prior quarter.

Prosper pulls plug on anti-ID-theft app (American Banker), Rated: AAA

Prosper Marketplace, one of the largest marketplace lenders, is discontinuing the Prosper Daily app.

The app, formerly known as BillGuard and a favorite of many fintech insiders, helped users protect their identities and monitor their credit scores.

The online lender said it will no longer have access to users’ financial accounts once the app is discontinued and that it will reimburse annual subscribers.

Artificial Intelligence And The Future of Digital Lending (The Financial Brand), Rated: AAA

To be a digital lender, banks and credit unions must do more than provide a digital app. Internal lending processes must be transformed to eliminate friction and unneeded steps, with artificial intelligence (AI) supporting proactive loan decisions.

According to PwC, a financial organization must initially define what is desired from both a customer experience and operational efficiency basis around consumer lending. Next, banks and credit unions must build a digital lending strategy around the following organizational competencies. The path to becoming a true digital lending organization involves five steps.

  1. User-Centric Design
  2. Data-Driven Decision Making
  3. Flexible Infrastructure
  4. Effective Development Approach
  5. Organizational Agility

Digital Borrower Expectations

The expectations of the digital borrower have increased over the past several years, mostly based on marketplace offerings and digital experiences in other industries. While the interest rate and closing costs on loans are still primary considerations, the speed, simplicity, transparency and customer service of the entire process is important.

According to the PwC report, Consumer Lending: Understanding Today’s Empowered Borrower, three out of four demographic segments prefer to be online for each phase of the lending process as opposed to traditional methods, such as in person or on the phone.

While some lender apps offer the higher-ranking features – such as the ability to calculate the loan amount that the borrower can afford and the ability to lock in an interest rate on a loan, most of the other features are still not offered by most organizations.

Being a Digital Lender is More Than Just Fewer Clicks

To become a digital bank, organizations need to think beyond ‘minimizing the number of clicks’, reducing manual data entry, and improving the speed of decisions.

The process of becoming a digital lender for the long-term moves investments from ‘digital features’ to a ‘digital mentality’ and process that can support changing digital lending options. It is a major move from investing in just digital output to investing in the digital input that works behind the scenes. It is a strategic framework for the future of digital lending.

PeerStreet Integrates with Personal Capital to Provide More Detailed Investment Overview (PeerStreet Email), Rated: A

PeerStreet, an award-winning platform for investing in real estate backed loans, has announced an integration with Personal Capital, powered by the Envestnet | Yodlee Data Aggregation Platform. Customers of both Personal Capital, an automated investment service with more than $4.8 billion assets under management, and PeerStreet can now view their PeerStreet positions within the context of their investment portfolio on Personal Capital.

Realty Mogul’s REIT Turns One (Realty Mogul Email), Rated: A

Celebrating its one year anniversary, MogulREIT I recently declared its twelfth consecutive month of 8% annualized return on investment. With ten assets across the country, MogulREIT I is a diversified portfolio of commercial real estate investments designed to provide consistent cash distributions, while protecting and returning capital contributions.

Money360 Closes $ 143M in Commercial Real Estate Loans in Q2, Marking a Record-Breaking Quarter (Markets Insider), Rated: A

Money360, a direct marketplace lender focused on commercial real estate, today announced that the company closed $143 million in loans in the second quarter, marking the lender’s best quarter to date. Money360 has now closed more than $350 million in total loans and is on pace to close more than $500 million by the end of the year. On average, the company is now closing $50 million in loans each month.

A few of the $143 million in loans closed in the second quarter include:

  • A $15.6 million bridge loan for a three-tenant medical office property in Grand Forks County, North Dakota.
  • A $11.1 million bridge loan for the acquisition of a multi-tenant retail property in Wayne County, Michigan.
  • A $9.7 million bridge loan for a two-story, 198-room hotel property in Cumberland County, North Carolina.

Read our analysis of Money360.

Wells Fargo Sued in Yet Another Public Embarrassment (Financial Advisor), Rated: A

The assault on the Wells Fargo brand continues, with a lawsuit accusing the bank of pushing almost 250,000 of its clients into delinquency by forcing them into auto insurance they didn’t need — or even ask for, Bloomberg reports.

The bank allegedly made millions of dollars off unsuspecting clients, according to the proposed class-action lawsuit filed in San Francisco federal court and cited by the newswire.

Wells Fargo allegedly didn’t check whether its clients taking out auto loans already had auto insurance, or ignored the fact that they did, Bloomberg reports.

Insurance CEOs Say Change Is Coming (CB Insights), Rated: A

Markel co-CEO Richard Whitt III on the $919M acquisition of State National

We, like a lot of people, are starting to look at the insurtech space. And State National, I think they are ideally situated to sort of be the go between the insurtech folks and sort of your standard insurance carrier types. It’s a clash of cultures there, I would say.

The insurtech folks are used to things happening lightening fast and with minimal regulatory issues and all that and that’s not insurance. So there almost needs to be a translator between insurtech folks and standard insurance folks. And that is a role that State National plays…And we see them helping us with our insurtech initiatives sort of being that translator between us and those folks.

Chubb CEO Evan Greenberg: “Change is coming”

But with that said, change is coming. And we are not alone in terms of carriers improving their capabilities, because of what technology brings that will lead that change. It’s around data, it’s around straight through process, it’s around data that improves the customer experience, while at the same time improving your ability to select risk and to do it quickly i.e. in seconds and to be able to then straight through process business.

You taking out a loan for your business and technology enables those other forms of distribution. The customer will buy it from a desktop, the customer will buy it from a mobile device, they will buy it any time anywhere and they will service it anytime anywhere.

Timothy Li of Fluid (Lend Academy), Rated: A

Into this void steps Fluid, the brainchild of Timothy Li, our next guest on the Lend Academy Podcast. He has found a unique way to provide students access to credit and consequently a way to start building their credit while they are in college. Fluid provides small loans of up to $500 at 0% interest. It is a fascinating idea that we explore in some depth on the show.

Are Technology Firms The Next Financial Service Providers? (Forbes), Rated: A

Financial system regulatory costs continue to climb in part due to it being rife with problems that led to 45% of financial intermediaries, such as money transfer services and stock exchanges, experiencing economic crime. Blockchain increases transparency and decentralizes the financial system with encrypted, unforgeable records embedded in a secure network. By reducing transaction costs and removing intermediaries, blockchain technology is poised to increase mass peer-to-peer collaboration, which could make existing financial organizations unnecessary.

Automated investment services, sometimes referred to as robo-advisors, are emerging as an easily accessible, cost-efficient solution to managing assets with 24/7 availability and annual fees of .2% to .5%, making it substantially less than typical rates.

The financial technology upsurge is bringing accessibility and availability to the forefront, making existing banking options resemble archaic institutions. With apps that let you make quick, feeless transactions (such as Venmo) and peer-to-peer lending platforms (such as Lending Club), customers and millennials are welcoming these innovative platforms. According to a 2015 report, 75% of millennials visit bank branches either once a month or less than that, and 38% of them don’t use a branch to perform banking activities.

Fintech, however, is fostering financial inclusion and building public confidence, evidenced by mobile platforms such as M-Pesa reaching 80% of households within four years.

OCC files motion to dismiss fintech charter lawsuit (American Banker), Rated: A

The Office of the Comptroller of the Currency has filed a motion to dismiss a lawsuit by state regulators challenging the agency’s fintech charter.

2020 REI Group Launches REI Data Systems With Investorwell (Digital Journal), Rated: A

Dallas- based 2020 REI Group has announced the creation of a data services and technology division to further their mission of providing products and services to real estate investors nationwide.

The new division will be labeled as REI Data Systems and will be led by Mike Inman, Vice President of Technology for 2020 REI Group.  Inman was most recently IT Manager of Application Development for the City of Grand Prairie and has a vast background in cloud based applications, GIS mapping, mobile applications, and data analytics.

The official launch for InvestorWell will be mid-August. The platform will help real estate investors find funding for their projects based on eight simple questions.

The Role of Digital in Financial Planning (Insead Knowledge), Rated: A

Long-term saving is a classic case study in behavioural biases. These must be managed and mitigated – whether it is through digital or face-to-face advice.

Inertia is one such bias. While people will generally put off taking action, research has shown that if they are intimately involved in preparing a plan, they are more likely to stick to it. The most committed planners also tend to be the most financially literate.

While robo-advisors are getting lots of press at the moment, they are mostly just a delivery mechanism. A nice user interface should not be a substitute for solid advice that ultimately addresses a key financial and behavioural problem. Digital poor advice is still poor advice.

  • Users should be asked, in non-misleading terms, whether they want a basic, average or luxury retirement lifestyle.
  • The language should be free of jargon and go to the heart of the users’ problem.
  • The tool should allow users to be actively involved in making the trade-offs based on their unique needs, wants and circumstances.

Startups want to change what you insure and how you insure it (TechCrunch), Rated: A

In the real world, however, insurance coverage hasn’t kept up with the social and economic changes of recent years. Sharing economies have gained scale. Jobs have gone from full-time to gig-based. And the vast millennial generation has entered adulthood intent on completing any complex transaction in a couple of minutes online.

So far this year, insurance-focused startups have raised more than $700 million in venture funding, according to Crunchbase data, with significant backing from both traditional VCs and large insurers. The lion’s share of investment has gone to companies pioneering and popularizing coverage categories and delivery models, with a particular focus on millennial customers.

One of the most richly funded players in this space is Trōv, which has an app for quickly insuring personal and work items like laptops, smartphones and high-end cameras. The five-year-old company raised a $45 million Series D round in April led by reinsurer Munich Re, bringing total funding to nearly $90 million.

Cover, which just closed an $8 million Series A, offers a similar service. Customers take a picture of the item they want to insure and Cover offers a policy, underwritten by a partner insurance firm.

One of the most richly funded insurance startups over the past few years is Metromile, which insures based on how much customers drive. Rack up few miles, and pay little beyond a small monthly base rate. Drive more, and it goes up. U.K.-based Cuvva, meanwhile, has raised seed funding to build out insurance offerings for short-term use of a car, for people learning to drive and for people who drive very little.

Silicon Valley-based Hippo is also marketing itself as a new kind of homeowners insurance company, with policies that offer stronger protections for common valuables like home electronics.

For short-term rentals, meanwhile, Slice Labs is partitioning off a space.

Next Insurance, founded last year, sells coverage for yoga instructors, photographers, home contractors and others whose needs don’t always fit with standard insurance policies. The Silicon Valley company raised $48 million to date from VC and insurance industry backers. Bunker, which bills itself as an insurer for freelancers and independent contractors, is also scaling up. The San Francisco company closed a $6 million Series A round in May.

One is Ladder, which has raised $16 million to build out a platform for offering direct-to-consumer term life insurance online. Another, Brooklyn-based Fabric, has raised $2.5 million for its digital platform offering instant quotes on accidental death coverage, as well as broader life insurance policies.

An Attorney’s Take On Real Estate Crowdfunding (RealCrowd), Rated: A