Wednesday November 30 2016, Daily News Digest

uk personal loan effective annual returns

News Comments Today’s main news: Ron Suber joins eOriginal advisory board. Why most P2P lenders have not offered IFISAS. Today’s main analysis : The value of P2P lending to investors. Today’s thought-provoking articles: LendingTree launches small business grant contest. LendInvest reduces minimum loan size. Meet the new Chinese middle class investor. Malaysia is ready to […]

uk personal loan effective annual returns

News Comments

United States

United Kingdom

European Union

China

India

Asia

Canada

News Summary

United States

Prosper Marketplace President Ron Suber Joins eOriginal Advisory Board (PR Web), Rated: AAA

Ron Suber, president of Prosper Marketplace, has joined the advisory board of eOriginal, Inc., the expert in digital transactions. Suber will leverage his deep-rooted relationships with banks, mortgage companies, marketplace lenders and other financial services leaders to accelerate eOriginal’s growth, while articulating the importance and necessity of digital transaction management and eOriginal’s unique solution.

Seen as a thought leader in the financial technology space, Suber joins eOriginal at its hyper growth phase. The company recently completed a funding cycle led by private equity firm, LLR Partners, to support the demand and expand its product development and customer services. In addition to Suber, Jon Barlow, founder and former CEO of Eaglewood Capital Management, also joined eOriginal’s advisory board as the company continues to expand its expertise in marketplace lending and financial services.

“The industry is seeing a convergence of marketplace lenders and traditional lenders moving toward digital lending environments and platforms,” said Stephen Bisbee, president and CEO of eOriginal. “Ron’s experience and knowledge of marketplace lending as well as his foresight of industry trends will be invaluable to eOriginal as we continue to scale and focus on bringing fully digital transactions to a variety of industries.”

LendingTree Launches $ 50,000 Small Business Grant Contest (Yahoo! Finance), Rated: AAA

Small business owners face a long list of challenges, and for many, the obstacle of securing financial resources needed to grow a business claims the top spot on the list. That’s the driving force behind LendingTree’s inaugural $50,000 Small Business Grant Contest, where LendingTree will present the winning small business a $50,000 grant to help fund future growth.

“Since LendingTree launched its small business loan marketplace, LendingTree has been committed to helping small businesses thrive by simplifying the loan shopping process and matching the right businesses with right lenders to meet their financial needs,” said Doug Lebda, founder and CEO of LendingTree. “We wanted to take our commitment one step farther by granting $50,000 to help one small business achieve even more success.”

The contest submission page, along with disclosures and details can be found here:

Small businesses interested in participating in LendingTree’s $50,000 Small Business Grant Contest can submit their registration online from November 29, 2016 through January 13, 2017. The registration form consists of 20 questions, collecting information on historical business performance, future plans, why the business deserves the $50,000 grant and how the grant money would enable future growth. Once the registration submission period closes (5:00pm EST on January 13, 2017), LendingTree’s team of small business experts will evaluate, select and notify the winning small business.

This Startup Is Changing The Way People Invest In Single Family Homes (Forbes), Rated: A

Omri Barzilay: For the ones who are not familiar with the company, what is Roofstock?

Gary Beasley: We believe every investor has a right to invest in real estate, and Roofstock is focused on making it broadly accessible to investors large and small.

Barzilay: Does Roofstockbuy the properties on the website itself?

Watson:  As a marketplace and transaction platform, Roofstock does not own any of the homes on the site.

Barzilay: Do you guarantee a certain yield to your investors?

Beasley: A yield guarantee is something we are considering and may offer in the future as we get more and more data and scale.  Since the homes we offer on Roofstock are already rented, and the tenants have been certified to ensure an acceptable income to rent ratio and payment history, this provides an additional level of comfort for investors not available on other platforms. We do selectively offer rent guarantees, however, which gets investors part of the way there, and continue to evaluate and consider other guarantees and insurance products that could reduce investor risk.

Barzilay: We have seen many crowdsourcing solutions in recent years, including Fundrise, Realtyshares and others which raised a lot of capital. How are you different from them and from other, more traditional, turnkey companies?

Watson: We do one thing, which is rental homes, and we do it very well.  Roofstock allows investors multiple ways to invest in this sector.  The majority of our transactions today have been whole ownership, but we also offer fractional ownership in a basket of homes.

Barzilay: Gary, what opportunities do you see in the real estate technology market?

Beasley: The real estate sector is perhaps the largest financial services vertical that has yet to be transformed by technology.  In my opinion, this is inevitable, although structural inertia makes adoption a bit slower in real estate than many sectors.  Given the high fees, Byzantine processes and long timelines for closing, the sector is ripe for innovation.

Barzilay: What should we expect from Roofstock in the near future?

Watson: We recently launched two new markets and will be launching others in the near future. We are also very excited about the asset management app which is in development and combines machine learning and market analytics to provide a powerful tool for the retail investor.

Financial Poise™ Webinars Announces “INVESTING IN REAL ESTATE THROUGH CROWDFUNDING,” Premiering December 14th, 2pm CST (Benzinga), Rated: A

Investors considering making an investment in real estate have a variety of choices: retail, office buildings, industrial, raw land, and, of course residential. More and more investors are turning to the real estate market to invest their funds. This Financial Poise webinar series will cover several types of real estate classes that one may choose to invest in, explaining where to look for opportunities; how to diligence them; and best practice for execution.

Episode #4 of the REAL ESTATE INVESTING 2016 series is “Investing in Real Estate through Crowdfunding” airing on December 14, 2016 at 2pm CST (Register Here). Moderator Bill McGuinn of Sugar Felsenthal Grais & Hammer will be joined by Elizabeth Braman of RealtyMogul.com, Jessica Healy of Syndicated Equities, and Allen Shayanfekr of Sharestates. Episodes 1-3 are also available On Demand through West LegalEdcenter.

Sold Out: Fundrise’s Income eREIT Nears $ 50 Million Cap (Crowdfund Insider), Rated: A

Fundrise has announced that is Income eREIT is “almost sold out” with less than 10% of the $50 million cap available for investors.  The debt based real estate crowdfunding vehicle has recently declared a dividend of 11.25% through December 2016.

Fundrise’s eREIT approach has replaced its single-property crowdfunding strategy.

GDS Link to Exhibit at Marketplace Lending & Alternative Financing Summit 2016 (IT Business Net), Rated: B

GDS Link, a global provider of risk management solutions and consulting for multiple verticals within the financial services industry including marketplace lending, retail finance, alternative financial services, credit card, auto, and business leasing, will be exhibiting at the upcoming conference at Marketplace Lending & Alternative Financing Summit 2016 in Dana Point, Calif., Dec 4-6, 2016.

United Kingdom

The value of P2P lending to investors (Altus Consulting Email), Rated: AAA

The image of a meteorite approaching awaiting dinosaurs is the cover art which illustrates a new report from UK-based Altus Consulting. The report asks how traditional financial service firms can “benefit from the change rather than risk extinction.” The change here is the rapid expansion of P2P lending with close to 100 firms and business volumes growing at 70% per annum (1). Clearly, an obvious attraction for investors is the high return, especially in the current low interest rate climate. The report underlines this by showing a 5.37% average growth in P2P lending since 2006 (2) and noting the positive stimulus offered by the recent introduction of tax free Individual Saving’s Accounts for the P2P market (3). At the heart of the report, is the prediction on how development through to 2020 will affect investment in the P2P lending market.

But first, to underline the longer run investment potential of P2P lending, the report looks beyond the current economic cycle, back to 1995, using UK personal loan effective annual returns net of servicing fees. It finds that on this basis “the Liberum data shows that, since 1995, not only is the yield an average of 6%, but, even through two major economic crises, there has not been a single year of negative net returns. Lending has performed more consistently through recent economic stress tests than either equities or bricks and mortar”.

With the historic value of P2P lending established, the report takes a clear-sighted look at what are the possible obstacles blocking further growth, before considering what form future development might take. The key blockers to growth identified by the report are:

  • Economic: with typical loan sizes in the tens of thousands and spread across hundreds of borrowers, it means the cost of advising a client on individual P2P loans is likely to outweigh the scale and returns on the investment.
  • Regulation: currently, many firms are operating on interim permissions pending full approval, which may be putting off advisors recommending them.
  • Operational standards: given the relative youth of the P2P industry, there is a lack of tried and tested operational standards.
  • Potential conflict of interests: due to having institutional and retail investors, there are potential conflict of interests.
  • Client underwriting and recovery: the majority of platforms don’t have standard or optimised processes; this is therefore “an area of concern for intermediaries who find it difficult to assess whether one P2P platform is better or worse than another”.
  • Standard risk definitions: the P2P lending industry lacks common risk definitions, which makes it difficult for retail investors to compare performance of loans of the same ‘risk’ type across different platforms.
  • Data feeds: the normal data feeds used by financial advisers such as FE and MorningStar do not currently include P2P data.
  • Risk rating vs established asset classes: as P2P loans are regarded as ‘non-correlated’ assets, this means an adviser has a challenge if they’re to analyse the risk of a client’s portfolio, if it includes P2P assets.
  • Over-complicated marketplace: the P2P sector has yet to see the emergence of a convenient ‘supermarket’ for purchasing its financial products

Putting these impediments aside the P2P market currently has two main sources of capital; namely individual investors looking for a better rate of return on their investments, and institutional investors, “predominantly the investment trusts and British Business Bank”. Currently, up to 60% of investment into P2P lending comes from individual investors.

As indicated in the introduction, at the core of this report aimed at financial advisers, is the prediction on how development through 2020 will affect investment in the P2P lending market. Firstly, Altus expect to see “new open ended funds enter the market encouraging new pools of capital, especially from the corporate pensions sector”. Shifting from the current status quo, the report believes institutional investors, with fewer restrictions than retail investors, allowing them to adopt P2P “relatively easily”.

Secondly, the report sees a major development in the emergence of ‘aggregators’ providing a one-stop-shop with access to multiple P2P services. The report’s authors predict that it’s probable “the majority of P2P business, both retail and institutional, will be transacted through them by 2020”.

While the FT’s Khadim Shubber ponders whether this will mean that “maybe the P2P lenders are the dinosaurs after all?” (4) for founder and CEO of Welendus Nadeem Siam, the future for P2P lending is still at its growth stage: “There are still gaps in the credit market that peer-to-peer lending haven’t exploited, which mean the peer-to-peer sector will continue growing over the next few years. This is in addition to the general public awareness of peer-to-peer lending, which is still very low. Bring these two factors together and you can get an idea of the scale of growth the peer-to-peer lending sector will face.”

References

(1) AltFi, 28th July 2016.
(2) AltFi Data shows the average returns since 2006 for P2P loans is 5.37%.
(3) From April 2016, lenders in the UK enjoy tax-free interest thanks to the Innovative Finance ISA (IFISA), which includes loans arranged through peer-to-peer (P2P) platforms that have full FCA authorisation, and ISA management approval from the UK’s tax authority, HMRC.
(4) ‘P2P will destroy the world, and soon’

Download the ‘Peer to peer: the meteorite approaches an Altus Consulting whitepaper’.

Why Most P2P Lenders Have Not Yet Offered IFISAS (Crowdfund Insider), Rated: AAA

P2P lending rating agency 4thWay is highlighting that 77 IFISA applications are in limbo at the Financial Conduct Authority waiting for full authorisation.  Within this group, ten of the largest UK P2P lenders are still in the queue.  In what was expected to be a big boost for P2P lenders has ended up being a slow-paced process. So what gives?

After many months of the new Innovative Finance ISA (IFISA) being approved there are only several leading peer to peer lenders participating in the savings program. Crowd2Fund and Crowdstacker were approved in April 2016. Another 15 have received the authorisation required to offer IFISAs, two significant ones being Lending Works and Downing. Lending Works has confirmed it will start offering its IFISA soon.

Some, but apparently not all, P2P lending providers that lend their own money on their own platforms might have to change their structure or desist in doing this. Funding Circle and RateSetter are among those that have lent their own money. We do not know if they too have been told to stop.

Funding Circle, RateSetter and Zopa – may not be approved until the regulator is just about ready to give all three of them the nod, in order to ensure none of them get an unfair advantage. So there’s a wait for the lowest common denominator.

The providers have to show that lending is demonstrably directly between a lender and a borrower, and not between the P2P lending platform and the borrower. Otherwise, they need to change their contracts. Growth Street is just one example of an already convincing platform that changed its contracts recently in order to make this direct relationship clearer.

LendInvest reduces minimum loan size (Mortgage Strategy), Rated: AAA

LendInvest has cut its minimum loan size to £75,000 from £100,000 as it expands to become a nationwide lender.

The lender says it is making the change after launching into both Northern England and Scotland, with lower average property values.

Why financial health apps are natural allies for marketplace lenders (alt fi), Rated: A

It’s no surprise, then, that we’re now hearing rumours of further collaborations between financial health tools and online lenders. Nothing signed and sealed yet, but certainly there are conversations going on.

You’d be forgiven for thinking that these firms sound a lot like robo-advisors, but my opinion is that they sit more comfortably within the “financial health” sub-sector of fintech, because they’re as much interested in creating savings as they are in the distribution of them.

The apps could well refer their users to the marketplace lending sector as either borrowers or as investors, and my conversations with some of those in the financial health space would suggest that they already understand the appeal of marketplace lending as an asset class.

So what’s the hold up? Scale, primarily. The apps themselves are fairly early stage, and while they’re growing fast and raising capital, they have some way to go in terms of establishing a solid foundation of users.

EIGHT years to buy a turkey – how to fight back against the banks stuffing savers (Mirror), Rated: A

A new study from peer-to-peer lending firm Octopus Choice has highlighted the pitiful returns on offer from high street savings accounts.

It looked at how long it would take to pay for a range of Christmas staples, using only the interest earned from £1,000 saved in one-year accounts with a range of high street lenders, including HSBC, Royal Bank of Scotland and Barclays.

Octopus found that savers would have to wait a whopping eight years before they could afford a turkey from Marks & Spencer, seven years to buy a Christmas tree, and almost TWO DECADES to cover the cost of a kid’s mountain bike from Halfords.

European Union

French Real Estate Crowdfunding Platform Immovesting is Now Prefunding Deals (Crowdfund Insider), Rated: A

Immovesting, a Paris-based real estate crowdfunding platform, has initiated pre-funding of deals to help support developers / sponsors listing projects on their platform. The “garantie de collecte” or collection guarantee program assures that funds are received on-time regardless of the funding status. This was said to be a first for the French real estate crowdfunding market.

The pre-funding will be utilized on two new listings: The first is for the construction of a luxury residence in Fréjus (83) by IPGest, a specialist developer for the region of Fréjus Saint-Raphaël. The second involves the creation of a commercial complex of 3,200 m2 in the center of Jouy-le-Moutier (95) by the SOPPEC group.

China

CreditEase Wealth Management Releases Survey of Chinese New Middle Class Investment Habits (PR Newswire), Rated: AAA

CreditEase Wealth Management, the wealth management unit of CreditEase, one of China’s largest fintech Companies, announced the results of a report conducted jointly with Bloomberg Businessweek China surveying Chinese new middle class investment habits. Among the results, the report showed that:

  • 76% of new middle class investors are willing to accept investment advice through digital channels
  • 73% prefer low volatility products
  • 62% prefer personalized investment products
  • 61% prefer investment products with low service fees

China’s new middle class is an important contributor to the country’s RMB 50 trillion in total savings and nearly RMB 100 trillion of investable money — estimated to rise to RMB 200 trillion by 2020. However, with only 12% of Chinese investors using investment advisors, as compared to 67% of US investors, the need for reliable wealth management and investment advice is mushrooming. Combined with widespread use of the mobile internet for daily transactions, and relative lack of “traditional” investment advisors, there is a potentially enormous market opportunity for innovative new solutions.

CreditEase Wealth Management believes that “robo-advisors”, which provide automated, algorithm-based portfolio management advice, will play an increasingly important role in filling the “advice gap” for new middle class investors.

“In China’s dynamic investment environment, planning a long-term investment strategy has always been challenging,” said Mr. Tang Ning, CEO and Founder of CrediteEase. “And in recent years, the number of new investment products and options available to new middle class investors has expanded tremendously. By providing powerful, user-friendly tools to create intelligent and balanced portfolios, we believe that sophisticated robo-advisors will help guide investors towards realizing long-term, sustainable wealth creation.”

CreditEase Wealth Management recently launched Toumi RA, its own robo-advisor product to help investors build cross-regional, cross-border portfolios with diversified asset classes. Based on modern investment portfolio theory and advanced back-end algorithms, Toumi RA provides global ETF portfolio asset allocation by tracking stock, bond and property market indexes in China, the U.S. and other countries in real time.

China’s banking regulator asks peer-to-peer lenders to register (Reuters), Rated: A

China’s banking regulator has issued new guidance to tighten control over a fast-expanding peer-to-peer (P2P) lending sector, the regulator said in a statement to Reuters on Tuesday.

The guidance, which the China Banking Regulatory Commission (CBRC) said was aimed at building a comprehensive industry database to lay the foundation of future regulation, requires P2P lenders to register with the government, the commission said.

India

Disruptive Fintech Startups Lassoed (Business World), Rated: A

Financial transactions used to be the domain of behemoth banking institutions, till financial technology (fintech) startups began to disrupt the space. All of a sudden in 2013, fintech startups started leveraging the Internet, with the result that customers began paying for groceries through mobile phones, instead of cards or cash. They even started buying insurance policies with guidance from robo advisories instead of their friendly personal counsellor.

The regulators didn’t know what to make of it then. Was fintech a fad? Weren’t banks too conventional to run on virtual platforms? Banks and financial institutions had to concede, though, that fintech had led to savings on both operational costs and time.

The growth of Peer to Peer lending (P2P lending) has skyrocketed and fast. The past year alone spawned about 20 P2P lending platforms. The industry estimates about 57.7 million small businesses in India, which offer a huge market for P2P fintech startups.

To protect borrowers and lenders on these online platforms, the RBI now proposes that the insufficiently regulated P2P lenders register as non-banking financial companies (NBFCs).

In August, the Securities and Exchange Board of India (Sebi) cautioned investors against online platforms like GREX that raise funds. The market regulator said these platforms were “neither authorized nor recognized” by law. According to industry estimates, close to 200 companies have raised about Rs 350 crore to Rs 450 crore across online platforms in the past year and a half.

Asia

Malaysia: Ready to embrace alternative lending (Enterprise Innovation), Rated: AAA

On May 2016, Malaysia’s Securities Commission (SC) issued its guidelines on how peer-to-peer (P2P) lending is to operate in the country, including requirements for the registration and obligations of a P2P operator as provided in the revised Guidelines on Recognized Markets.

In 6 November 2016, the SC had registered six P2P lending platforms – B2B FinPAL, Ethis Capital, FundedByMe Malaysia, ManagePay Services, Modalku Ventures (aka Funding Societies Malaysia), and Peoplender.

Are the guidelines provided by the Securities Commission of Malaysia sufficient to drive growth in the P2P lending space?

Kevin Teo: The Securities Commission of Malaysia has established a fair set of guidelines to ensure not only consumer protection, but also sufficient room for innovation. As an applicant of the license, we found the selection process to be rigorous and frankly quite intimidating, especially given that there were more than 50 applicants for a handful of licenses.

This ensures that the selected licensees deliver quality service to the public and earn their trust. Consistent education from industry stakeholders is needed to tell the public about such services, and a stamp of approval from a regulatory body adds to the credibility and legitimacy of the budding industry.

Will P2P lending disrupt Islamic banking in Malaysia?

Kevin Teo: Nope, we don’t think so. In fact, we believe it would help Islamic banking, as P2P financing matures and platforms begin to structure their products to be Syariah-compliant, offering Muslim business owners an additional avenue to grow their business.

What is your prediction for P2P lending in Malaysia and Southeast Asia in 2016?

Kevin Teo: P2P financing is a capital-intensive business. Most platforms do not earn a single cent until years after.

To grow in an over-crowdfunded market, they would be tempted to slash interest rates below borrowers’ risk level to attract borrowers, approve loans recklessly and embark on a cycle of negative competition, ultimately resulting in huge loan defaults to investors. Hence in recent months, many smaller or poorly managed P2P financing platforms in other markets had shut down under the weight of loan defaults and economic downturn.

Malaysia is in a uniquely fortunate situation that the Securities Commission evaluated and limited the number of P2P financing platforms. This reduces the chance of poor management and insufficient resources for platforms in Malaysia.

Canada

Peer-to-Peer Pressure: Next Steps for Canadian Fintech (Mondaq), Rated: A

It’s likely we will see more legislation for fintech in 2017.

Like those countries, Canada is seen as being a global fintech hub – with renowned national financial institutions pioneering projects with blockchain technology and fintech startups increasingly popping up across major cities. Regulation, however, is not moving at quite the same pace.

There was something of a milestone in September of this year, when the Ontario Securities Commission (OSC) decided to grant an exempt market dealer registration to an online lender, Vault Circle Inc. This was a significant step forward for peer-to-peer lending platforms in Ontario, which are currently subject to strict securities legislation. The exempt market dealer licence for Vault Circle Inc. means it now has regulatory approval to participate in the accredited investor marketplace.

Authors:

George Popescu
Allen Taylor