Artificial Intelligence, fondly known as AI, is the approach and research field of creating machines that are able to replicate human intelligence. Although we aren’t yet teeming with robots as intelligent as humans, we have managed to build: Intelligent programs that can beat reigning Go world champs Virtual assistants like Siri and Google Assistant to […]
With the passing of time, more and more fields are benefiting from AI and machine learning (ML). The latter is a specific form of AI that deals with devising strategies and methods for allowing a machine to learn from the available and historical data, all to find better solutions for existing problems.
Among the various markets growing by leaps and bounds with machine learning is marketplace lending. AI and machine learning have enabled this sector to automate a variety of processes, shrink operating costs, and make life easier for both lenders and borrowers.
In the past two decades, there has been a tremendous surge in people interested in learning ML as a hobby as well as a professional career choice. Before diving deeper into the subject of how machine learning will transform P2P lending in the future, let’s first get ourselves a brief understanding of ML.
The Craft of Machine Learning a.k.a. ML
Machine learning, or ML, is a subfield of artificial intelligence that follows the notion that machines can learn and adapt better from experience rather than from extensive programming.
Although machine learning is a subset of AI, there are several notable differences between AI and ML. Hence, both fields are considered to be distinct. This analogy is followed by deep learning and machine learning too, where the former is the subfield of the latter.
Today, we are surrounded by many instances of ML, varying from Apple’s Face ID and facial recognition in general to navigational and shopping recommendations generated by virtual assistants. ML also had a profound impact on the financial industry, especially the lending sector, which we are going to discuss in the upcoming sections.
The Present Impact of Machine Learning on P2P Lending
The ongoing evolution of technology and the emergence of tech innovation is having a greater impact on the financial services industry. From designing impactful business models and enhancing the customer experience to cutting costs, the benefits are many.
Fintech firms and the Internet are providing platforms to even niche products to get interested financial supporters as well as potential customers to grab their side. Peer-to-peer financing isn’t only about crowdfunding, but also includes P2P lending.
A bank offers P2P lending by allocating capital from the lending party to the borrowing party while acting as the broker, as well as the risk mitigator. The higher the risk, the higher is the imposed interest rate. Fintech organizations have made this simpler and more effective.
Several Fintech P2P lending firms like LendingClub and Prosper offer a platform where individuals gain interest by lending money to the ones who require it. These firms make money by taking a small fee for making the connection among the two parties possible.
As an alternative to submitting a traditional application, borrowers present compelling stories about why they need the capital via fintech platforms.
Other than the aforementioned, here are some of the most important benefits presently enjoyed by the P2P lending industry thanks to adding the art of machine learning to its arsenal:
1. Easy Identification of Defaulters
As the financial sector grows, so does the number of defaulters and bad loans. This has led the financial institutions to be more careful than ever to spot and avoid defaulters.
Of course, lending is one of the most complex business processes. This is the prominent reason why it is a long and tiresome process to accomplish. Thanks to its intuitive analysis, machine learning can remove the redundant parts and, hence, speed up the whole process.
An automated workflow offers lenders a competitive edge against the competition as there is less space for human error. Thus, lenders can process mammoth workloads in shorter time periods. This helps them not only to maximize profit, but also to better serve their clientele.
3. Lessening/Eradicating Errors
Lending involves a lot of documentation. From the very early stage of loan origination to underwriting, most of the steps involved demand preparing and verifying several documents. Doing it manually not only increases the overall time required but also makes it prone to errors.
Machine learning comes in handy here by adding automation to the process, prompting for human intervention where required the most, and thus, streamlining the complete loan cycle.
4. Reducing Operating Costs by Automating Several Aspects of the Lending Process
There are several aspects contributing to the operating costs of a financial institution. Among them, the most notable aspect is loan decisioning. In most cases, the loan arrives at a positive lending decision irrespective of the loan amount.
Machine learning is able to automate the process, consolidate the entire data, and process the same by taking into account a number of factors. Moreover, ML performs a credit check and enhances the overall experience and quality of the process while reducing the overall costs.
5. Simplifying the Whole Process
The traditional way of lending is a very complex process. Hence, it is obvious for lenders to look for options that can simplify the conventional lending workflow (i.e. decreasing the total time required, lowering the overall cost involved, and smoothing out the whole process).
Machine learning helps in simplifying the whole lending process by:
Automating various aspects of the business process with customizable rules engine
Ensuring straightforward processing of loan applications
Standardizing the entire process
The Upcoming Impact of Machine Learning on P2P Lending
With time, artificial intelligence and machine learning are getting bigger and better. This is evident by the fact that there’s a continuous rise in candidates interested in learning AI in general, and ML in particular.
Although machine learning has already started revolutionizing the way P2P lending works, it will continue getting better and more beneficial for the craft. Following are some projections about how ML will impact lending in the near future:
Ability to self-modify with little to no requirement for human intervention
Better means of filtering irrelevant data from relevant data
Completely automating the underwriting process
Even faster application, approval, and funding processes
Helping lenders to see the bigger picture by insights drawn using efficient ML algorithms
Increasing the outreach of lenders and identifying potential lenders
Introducing younger people to the lending-borrowing culture
More stringent safety protocols to safeguard sensitive information
Offering insightful decisions with a higher probability of success
Providing capital to more and more honest borrowers
Recognize patterns in a specific dataset to help build effective business models
Although machine learning provides access to a variety of avenues for financial institutions, it still needs to do the heavy lifting in some areas to further improve. Three of the most important aspects of ML requiring effort are discussed as follows:
1. Concealed and Undesired Bias
Bias is an inseparable aspect of machine learning algorithms. No ML algorithm can exist bias-free. Although a small degree of bias can be easily managed, the bigger it becomes, the more difficult it gets to fix the same.
Chances for machine learning algorithms to develop concealed and undesired biases from the same data used to train them do exist. Hence, human intervention becomes absolutely necessary to ensure that apposite suggestions or predictions are made by the ML systems.
2. Undetected Errors
Machine learning aims to minimize human interference as much as possible. Hence, it kind of makes humans dependent on machines. Most times, they are free from errors. However, there is room for some errors to slip through.
In case of errors that the machines aren’t able to correct themselves, human intervention becomes mandatory. However, manually identifying and correcting complex algorithms can be arduous and time-consuming.
As lending is an important aspect of the economy, even the smallest of errors being unintentionally passed through can propagate through the system and lead to a huge, undesirable consequence.
3. Time Requirement for Developing Precise Predictions
Machine learning algorithms rely greatly on historical data. The accuracy of the predictions developed by ML algorithms is directly proportional to the total time they spend interacting with the data. Therefore, making precise predictions instantly isn’t possible.
It is mandatory to feed historical data as well as the new data to the ML system continuously for ensuring that the predictions produced by the same are accurate and reliable.
There is no denying the fact that the advent of artificial intelligence and machine learning has completely altered the way the lending sector works today. It has become faster, bigger, and better than ever with continuous improvement.
Borrowers and lenders, irrespective of the capital involved, aim to have as few formalities as possible. Though it seems unachievable with the traditional form of lending, the technology-backed lending strives to move as much closer to it as possible.
Fintech firms leverage the latest technological innovations to offer a quicker, smoother, and reliable experience to the lenders and borrowers. There are lots of challenges faced by the industry as of now. Developing better machine learning algorithms might be the key to solving them all.
News Comments Today’s main news: SoFi launches SoFi Money. Robinhood in talks with regulators about bank products. Orca Money plans to double in size this year. Monzo, TransferWise partner. Banco BNI Europa drops 50M Euro into Linked Finance. Today’s main analysis: FREED 2018-1 Deep Dive. Today’s thought-provoking articles: What financial service firms can learn from direct-to-consumer companies. Graduate degrees with […]
Robinhood is discussing bank products with regulators. This looks like the new way for fintech companies of all stripes to compete. While most of the companies researching banking services have yet to pull the trigger, I think it’s only a matter of time before we start to see new banking models that consumers are ready to test beyond toes dipping in the water. Robinhood could be one of them.
At time of writing, SoFi is paying 1.1% on their account which is a competitive rate when you consider that it is a hybrid account. Other banks who continuously offer the highest rates available on the market such as Goldman Sachs’ Marcus are currently paying around 1.7% on savings accounts. The largest banks in the US such as Bank of America, Citi and JP Morgan Chase pay between 0.01% and 0.1% on savings accounts which varies depending on deposit amounts and current promotions.
The yield curve continued its unrelenting flattening after last week’s Fed meeting. The spread between 10-year and 2-year treasury yields now stands at 36 bps (about 1 to 2 rate hikes from inversion). An inverted yield curve and lower-long term yields have presaged economic slowdown or recessions in the past. You can read our analysis of the Fed’s interest rate decision here.
FREED 2018-1 Deep Dive
FREED 2018-1’s collateral pool consists of 2 types of loans – 61.6% Freedom Plus (F+) and 38.4% Consolidation Plus (C+).
F+ Loans: F+ loans are unsecured consumer loans to near prime and prime borrowers. F+ collateral has a WA age of 8 months and WA remaining term of 41 months. The WA current FICO score of the pool is 723 and the WA interest rate is 14.8%.
C+ Loans: C+ loans are offered to select qualified debt settlement clients as an option to shorten the duration of their debt settlement program by making funds immediately available to fund settlements reached by Freedom Debt Relief. C+ collateral has a WA age of 8 months and WA remaining term of 44 months. The WA current FICO score of the pool is 654 and the WA interest rate is 22.9%.
There’s plenty more. See the rest of the charts here.
Robinhood Markets has more than 4 million U.S. consumers using its free stock-trading platform. Now, it’s in talks to offer them other banking services like savings accounts, according to people familiar with the matter.
On Wednesday, KeyBank announced it has acquired digital lending platform for small businesses Bolstr. According to Key, the fintech software, which is expected to be implemented later this year, will enable the banking group to provide faster and easier access both to SBA loans and to traditional capital for business owners. The acquisition comes just after the OCC recently called on banks to issue more SME loans.
Nigel Morris, Richard Fairbank’s partner in creating the company that became Capital One, is joining the board of LendUp Global Inc. and boosting his investment in the firm, which uses machine learning to look beyond traditional credit scores in the subprime market.
A 2016 Bain study found that nearly a third of customers globally would change their bank if they could do so easily. With dissatisfaction that high, traditional financial institutions should look to emulate the branding strategies of direct-to-consumer retailers, rather than leaning on their well-established names, to engage with millennial and Gen Z consumers.
Research from BCG found that brands that create personalized customer experiences with technology and data can increase revenue by six to ten percent, and direct-to-consumer brands have capitalized on the benefits of personalization.
Many fintech companies’ value proposition is to leverage technology to provide less expensive financial advice, lower interest rates on student loans, or more fair and reflective insurance rates. For example, robo-advisor Betterment charges only 25 basis points for wealth management services and no minimum to enroll, as opposed to traditional financial advisors that charge one to two percent on assets under management and often require high minimum investments to qualify for on-boarding.
A recent PricewaterhouseCoopers study found that 75 percent of bank customers base their purchasing decisions on whether or not they’ve had a positive customer experience at the bank.
Credible’s analysis of student loan debt levels and salaries across 16 graduate school majors shows that the most important consideration isn’t how much debt you’ll take on to obtain an advanced degree — or how much you’ll earn after graduation — but achieving the right balance between the two.
THE PEER-TO-PEER Finance Association (P2PFA) has been accused of reducing transparency and hindering efforts to enhance investor protection after changing the rules governing how firms publish their loanbook.
Previously, members of the self-regulated trade body were obliged to publish their full loanbook, showing information about all the loans on their platform.
But at the start of June, the P2PFA announced that members now have the option to “either continue to publish their entire loan book, or provide a detailed breakdown of loans in their overall loan book to enable a consumer to be informed about the nature and number of loans of different descriptions presently originated through the platform according to standards to be approved by the P2PFA board.”
Ayo Adesina, 34, was lucky enough to come into a £50,000 windfall when he won series two of Channel 4’s TV programme Hunted in 2016.
Mr Adesina, who describes himself as a novice investor, put the majority of the money – £32,000 – into a peer-to-peer property lending platform. He says his investment has grown 7 per cent, or £3,000, since he opened an account a year ago.
BWB Compliance has recruited Dena Chadderton as a senior adviser. With wide-ranging experience both as a regulatory consultant and across the financial services industry, Dena will primarily be advising firms in the fintech and asset management space. In particular, Dena will continue to specialise in the regulation of P2P lending and crowdfunding platforms, a growing part of the current team’s client-base.
Chinese fintech Pintec Technology Holdings Limited (PINTEC) announced on Wednesday it has launched installment financing on its e-commerce platforms. This news comes just a couple of weeks after PINTEC secured $103 million through its latest financing round, which as led by Mandra Capital and SINA Corp.
Asked why Monzo has chosen to work with TransferWise, Blomfield reiterates the challenger bank’s goal of becoming a “hub or control centre” for your money. This won’t necessarily all be done by Monzo, he says, “but with partner organisations who plug into this hub”. TransferWise is the first of these.
Linked Finance, Ireland’s leading peer-to-peer (P2P) lending platform, has secured backing from Portugal’s fastest growing digital bank, Banco BNI Europa, who will deploy up to €50m over a 2-year period, to lend to Irish SMEs.
As part of a wider strategy to identify the best P2P lending platforms in key European markets, Banco BNI Europa will deploy its capital alongside Linked Finance’s existing lenders. Linked Finance, connects Irish SMEs who need loans with an online lending community of more than 19,000 users.
P2P lending platform InLock wants to change this by enabling cryptocurrency to be used as collateral for a loan in fiat — effectively solving the short-term spendability problem. At the same time, borrowers can remain ‘hodlers‘ with the option to get their cryptocurrency back in full after the loan is paid off, regardless of any changes in price.
Csaba: When we looked at the Bitcoin blockchain, we found that 40% of all bitcoins existing today had not been moved at all in the past year. Looking back at 2017, there were plenty of reasons to move them: hard forks, the mempool crisis, regulation problems, an amazing bull run, followed by a 70% correction.
What it does: A fintech firm focused on unlocking the potential in bespoke SME lending globally using its data and technology platform, ACORN machine.
Why it’s hot: ACORN machine is a fintech platform that helps automate the way banks penetrate this underserved and underestimated market. It does this by leveraging process excellence, machine learning and technology to fuel data-driven decision making across the loan lifecycle.
What it does: Peer-to-peer student loan refinancing, mortgages, and other types of personal loans.
Why it’s hot: Like Zenefits, SoFi struggled with a slew of setbacks in 2017. Allegations of sexual misconduct and loan misstatements forced out founder Mike Cagney. Former Twitter CFO and ex-Goldman banker Anthony Noto is now leading a turnaround of the business.
MyBit is an Ethereum-powered ecosystem that aims to connect the global Internet of Things (IoT) industry. ETHLend works with the Ethereum blockchain as well and is a marketplace for peer-to-peer lending services that use smart contracts. The company provides low interest rates and a transparent technology for processing transactions.
Currently, it allows users to lend with Ethereum, but it may be ready to introduce new altcoins at the end of this year, including MYB.
PaisaDukan, a P2P lending platform fully owned by Mumbai based fintech startup BigWin Infotech, has decided to launch 2 branches in Noida & Bangalore as a part of its PAN India expansion and growth plans by the end of next month.
This will enable the company to have better control over their operations and widen its reach.
Rep. Min Byung-doo of the ruling Democratic Party and Rep. Kim Su-min of the minor opposition Bareunmirae Party filed two separate bills to regulate P2P lending firms in July last year and in February, respectively.
With the bills still pending in the National Assembly, financial authorities have been struggling to tackle abusive and deceptive P2P lending practices.
In a recent report by the International Finance Corporation (IFC) and the Central Bank of Nigeria (CBN), less than a third of MSMEs have successfully obtained loans from financial institutions, and that is not for a lack of trying.
Nigeria currently has over 35 million MSMEs and if approximately only 10 million MSMEs have been able to get loans from financial institutions, hence, a credit gap of about 25 million in the country.
What exactly is FINT?
FINT is an online lending marketplace, basically we connect verifiable income borrowers looking for access to affordable credit with lenders who are looking to fund the loans for attractive returns. We have consumer loans i.e. loans between N60,000 and N2 million at rates as low as 8% for 3 – 12 months, with retail and institutional lenders (banks and asset managers).
For lenders, they can lend in the multiples of N20,000 grows at 26-39% for one-year loan tenures, for 6 months 15-22% for 3 months it is 8-14%.
The traditional bank with limited financial products has given way to a financial supermarket where consumers are spoilt for choice. But hundreds of options also leave them feeling clueless. When it comes to financial decisions, it becomes imperative to have in-depth knowledge about the pros and cons of all the products that are available in […]
The traditional bank with limited financial products has given way to a financial supermarket where consumers are spoilt for choice. But hundreds of options also leave them feeling clueless. When it comes to financial decisions, it becomes imperative to have in-depth knowledge about the pros and cons of all the products that are available in the market. Though there are many platforms focused on selling financial services and products, few concentrate on truly helping people make better financial choices. Sensing the opportunity, Miron Lulic launched SuperMoney with the goal of helping “people make smart financial decisions.”
SuperMoney was launched in 2013 in Santa Ana, California. Lulic, founder and CEO, is a serial entrepreneur who is passionate about technological innovation. Prior to this, he founded LoanNow and Swagsy and worked as VP at a tax resolution firm. SuperMoney has no outside investors. Lulic himself has pumped almost $1 million into the business. He does not want to raise capital until the company achieves meaningful scale.
SuperMoney’s Humble Beginnings
When Lulic started SuperMoney, it was nothing but a small personal finance blog. Taking a cue from the Yelp business model, he built a similar platform for personal finance. Using an advanced algorithm, it ranked financial products and companies on multiple parameters. But by 2016, the platform started generating serious traffic, especially for personal loans. Then, in 2017, SuperMoney launched a loan offering engine.
The underlying principle behind SuperMoney is to provide financial transparency and help people make better financial decisions. It has partnered with a handful of lenders, and by using real-time APIs the company scores and rank products offered by those lenders on various parameters, such as origination fees, repayment costs, APR, and more.
SuperMoney’s Technology and Business Model
Since startup, SuperMoney has diversified into several verticals including personal lending, auto loans, student loans, and business lending. It sells clicks as well as leads, but it’s mainly focused on a performance-based advertising model. As such, it only gets paid when advertising partners are successful. The company charges by the loan.
The underlying technology is developed in-house and uses a proprietary segmentation system. SuperMoney has built its own weighted sorting algorithm based on attributes such as user review score, average revenue, and more. This means it is able to store tons of attributes from different lenders and help narrow the target audience for each loan offer. Its partners do not influence ratings and offering decisions. Rather, SuperMoney provides data that helps consumers make better financial decisions for their situation.
With the help of a soft credit pull that does not affect the consumer rating in any way, SuperMoney pre-approves the consumer for multiple offers they can then compare, and pick the best one.
What Differentiates SuperMoney From the Competition
Most consumer finance platforms providing similar services make a profit selling leads to the highest bidder. SuperMoney is more transparent. Instead, it calculates the total repayment cost, interest expense, origination fees, and other lending parameters for the consumer. It directly integrates with all its partners via APIs, which helps give consumers a better perspective in terms of cost associated with each product. This ability to offer apples-to-apples comparison in a clear and transparent manner is the hallmark of the marketplace.
The platform has tasted major success in recent years, and its organic search results have grown exponentially. SuperMoney currently witnesses nearly 1 million visitors per month.
Last April, it launched its personal loan engine and has received financing requests topping $400 million, with close to 1,000 personal loan applications per day. The personal loan has quickly become its biggest vertical. In August 2017, SuperMoney ventured into auto loans. It is also looking at the mortgage space and other niche verticals for future expansion.
Comparison to LendingTree
LendingTree is SuperMoney’s biggest competitor. An online lending exchange that connects consumers with multiple lenders, banks, and credit partners, it is not a direct supplier of loans, but a broker. Their core business model is selling leads to lenders. Lulic believes this is bad for consumers as they are deluged with dozens of tele-callers hawking their products.
SuperMoney is different. It does not let lenders contact the borrower unless the borrower has moved ahead with an offer. Its performance-based model enables them to align interest with end users and partners in a more fruitful manner. Even its marketing strategy is different from other platforms; SuperMoney concentrates on content marketing believing in “quality over quantity.”
Future Trends in Consumer Lending
Lulic believes the industry will witness a prolonged consolidation phase in order for market dynamics to settle. Strong performance of platforms like Golman Sachs’ Marcus will give the banking community self-belief to bring their own direct ventures into this space.
Moving forward, the big solution will be focusing on underserved niches. One such initiative is a dealer financing solution. Lately, a lot of traction has been witnessed in home improvement loans. SuperMoney wants to focus on individual contractors like roof installers, pool installers, and other service providers who do not have good financial solutions at their disposal.
Specialty financers available in the consumer lending space charge high discount rates from contractors, and that has had a ripple effect on contractor’s charges inching higher. To tackle this problem, SuperMoney tweaked its loan offering engine framework to launch a dealer-financing solution with a co-branded landing page. This will help contractors receive multiple competitive offers. It has tested the prototype with 100 dealers and further plans to move into other verticals like elective medical, funeral homes, legal service providers, and more.
SuperMoney also wants to strike additional partnership with banks, add more partners to its marketplace platform, and include dealers for the home improvement space. It is looking to collaborate with a wide variety of financial institutions and financial service providers. If everything goes according to plan, it will raise fresh capital in 2018 to fuel its growth.
The company has laid the blueprint to become one of the leading financial service research tool providers. By venturing into a variety of verticals, SuperMoney has made clear it has big ambitions and wants to become the premier go-to-resource for personal and business finance decisions.
News Comments Today’s main news: Zopa reveals where the 3B GBP loanbook gets you. Revolut now operates in the Nordics. MatchMove, Rubique partner on loan payouts, disbursements. Behalf nabs $150M in debt capital. Today’s main analysis: PayPal has another solid quarter of growth. Today’s thought-provoking articles: Why SoFi wants to be a neobank. LendingClub wants to get customers off the […]
Why SoFi wants to be a neobank. AT: “I think this is a legitimate question for any tech company trying to offer banking services. Is it more beneficial for the company and for its clients to pursue the neobank model or to go through the long and arduous process of becoming a bona fide bank. There is a different, a subtle one. You don’t have to have a banking license to acquire an already operational bank or to partner with a bank.”
PayPal has another solid quarter of growth. AT: “15% growth for a company the size of PayPal is phenomenal. They added 8.7 million new accounts in Q4 2017 alone. And volume is growing even faster. PayPal, evidently, still has a lot of steam, and I think we can thank the overall rise in popularity of fintech, and alternative lending, for at least a part of that growth.”
Credit card issuers block bitcoin purchases. AT: “It’s easy to understand why when you see how many people have bought bitcoin using a credit card. And now that there has been a massive market correction, the timing of these bans is perfect.”
The company, Social Finance (often shortened to SoFi), is set to launch its SoFi Money business in the next few months. With this new product line, the company adds its name to the growing list of so-called “neobanks,” alongside firms like Chime, Simple and Varo Money. If you’re interested, there’s a waiting list for SoFi Money.
However, up until now neobanks have tended to stick to narrowly focused product lines, offering only checking or savings accounts. They have also needed to partner with specialty banks to ensure deposits are covered by the Federal Deposit Insurance Corp. (FDIC).
Should you become a customer, your debit card would say SoFi Money and you’d use the SoFi app to check your balance and call customer service when you have a problem, but your money would be on deposit at WSFS Financial.
Allocca first observed the problem in the late 1990s, when he began to sense a disconnect between the bank’s stated vision and mission to help customers succeed financially — and the actual help and services that were being offered, from credit cards to overdraft fees.
An October 2017 study by PYMNTS and Unifund dubbed these consumers “financial invisibles,” having no (or little) access to further credit when they need it. These consumers live paycheck to paycheck, and the ends just aren’t meeting up. They feel like they could never set aside $300 a month to square away their credit card debt.
Allocca said they can — and they do — and if they get into the habit of setting aside those $300-a-month payments once the debt has been erased, the savings start to build up.
According to the Financial Invisibles Report, even 40 percent of the population that claims not to worry about money still lives paycheck to paycheck, and that’s true across demographics.
Total payment volume: The firm’s total payment volume (TPV) increased to $131 billion in the quarter, up 29% from the $99 billion it posted in Q4 2016, and a 15% sequential increase. That volume Source: Business Insider
Behalf, a provider of working capital solutions for small and medium-sized businesses, announced today that it has secured $150 million in debt financing led by a private investment fund managed by Soros Fund Management LLC. Viola Credit also participated in the Debt Financing. An equity investment in Behalf was also made by Viola Credit and a private investment fund managed by Soros Fund Management LLC.
A third used a debit card, and another 19 percent set up an ACH transfer, which is what you’d expect—people tend to fund for their investment portfolio with cash.
Another 18 percent, though, said they used a credit card. More than a fifth of those respondents said they carried credit card balance as a result of their purchase. Even more troubling, seven out of ten of those who went into debt believed the profit they’d earn from their bitcoin investment would compensate for interest payments.
U.S. officials have long maintained the federal government would make a profit on its $1.4 trillion student loan portfolio or at least break even, but two recent reports suggest just the opposite will be the case. Government lending to college and graduate students could soon become an immense drain on federal coffers, worsening an already deteriorating U.S. budget picture.
The Education Department’s inspector general, an agency watchdog, in a reportreleased last week said the profitability of the U.S. federal student lending program is being squeezed because millions of Americans who borrowed heavily in recent years—including many graduate students—are flocking into a program to have substantial portions of their debts forgiven. Students who borrowed in the fiscal year ended Sep. 30, 2015, and enrolled in such “income-driven repayment” plans, for example, are expected to pay back $11.5 billion less than they took to pay tuition and other schooling costs.
The prospect of taxpayer losses on student loans increases the chances that Congress will make major changes to the program, such as eliminating debt-forgiveness options or placing new dollar limits on how much individuals can borrow.
While hiking through a forest in Patagonia, wading over volcanic ash for miles, kayaking around fjords amongst glaciers and jumping off cliffs into roaring rapids I found the space to contemplate more on three of the most common topics of conversation.
Few know that fear drove me to withdraw from the Prosper deal just days before we were going to invest with Sequoia in January of 2013.
The fear of failure, fear of change, fear of losing, fear of the unknown; all drove me to say no to the Prosper opportunity that I wanted and had worked so hard on with my business partners.
Overcoming that fear changed the trajectory of my life and helped shape my own investment philosophy (and the strategy of using an Investment Thesis).
Things aren’t always as they seem in nature, business, people and life. Keep staring, stay curious but remain open.
Adapting is the ability to adjust and modify one’s self to new conditions and new circumstances, and it’s a proficiency we should nurture as our surroundings change ever more rapidly.
Millennials have become the most in-demand consumer group among online retailers. Experts estimate they already spend over $1 trillion annually. Savvy eCommerce executives are studying Millennials to understand how to better speak to (and sell to) this growing and highly influential audience. This article discusses:
Actionable tips for improving relationships with Millennial customers
Mistakes many companies make when speaking to Millennials
Factors that make Millennials loyal to certain brands
Small business investment continued to register gains at the end of 2017 as delinquencies and defaults remained at low levels according to the latest small business credit trends from PayNet, the leading provider of small business credit data and analysis. However, some warning signs in financial health are starting to emerge.
The December 2017 Thomson Reuters/PayNet Small Business Lending Index (SBLI) decreased 1% to 136.5 from 138.5 (revised) in November 2017. Compared to December 2016, the SBLI increased 2%.
Construction increased +7%, Transportation +13%, and Administrative and Waste Services +5% on a three-month rolling basis compared to three months ago.
Weaknesses are primarily in the services sector with declines in Information Services (-8%), Professional Services (-3%), and Health Care (-2%) on a three-month rolling basis compared to three months ago.
Financial institution executives in charge of mortgage lending compliance training now have a solution to stay ahead of employee training, certification and licensing requirements with the launch of Compliance Keeper 2.0 by OnCourse Learning Financial Services.
The new product alleviates mortgage lending compliance issues regularly plaguing compliance officers, such as tracking loan officers’ completed pre-licensing and continuing education courses, compliance report generation, and assessing company risk and liability.
Mortgage lending compliance made easy Compliance Keeper 2.0 empowers financial services compliance departments to administer, schedule, communicate, report and customize employee training programs to ensure compliance and success.
Additional benefits of the new product are:
Mitigation of risk, and time and money savings on audit preparation.
Ability to meet state and national regulatory compliance requirements on time.
Automatic notifications that alert managers and employees to training and compliance deadlines.
Review of all company license information in one dashboard.
Actionable insight into employee certification needs.
Continuity of training across departments and/or branches.
However, one of the most important areas that blockchain technology can and will disrupt in the near future is financial services. Put simply, the technology represents a shared database that contains entries that are incorruptible and immovable and have to be confirmed in order to be added and each entry is logically linked to the previous one. This makes it perfectly suitable for international money transfers, so it’s unsurprising that 90% of major North American and European banks are exploring the use of this technology, according to an Accenture survey.
According to a PwC report, 77% of financial institutions expect to adopt blockchain technology as soon as 2020.
Fluz Fluz currently has over 40,000 active users in Colombia, where it launched in January 2017 built by the serial Ecommerce entrepreneurs Maurice Harary and Stefan Krautwald. The company sells instantly usable gift cards from over 200 merchants. Whenever a purchase is made using this card, network participants earn cashable rewards called Fluz, which are stored in mobile wallets. Fluz points can be exchanged for other cryptocurrencies or fiat money.
APT SYSTEMS, INC. (OTC Pink: APTY), a fully reporting public company in the Fintech sector, is pleased to announce that it has formally engaged the services of Difitek, Inc. to build the Verifundr escrow and payment platform. We look to Difitek to provide us with a modern framework, architecture and bank grade security features.
Today marks the start of FinTech Fortnight, a two-week celebration of the UK’s rapidly-growing FinTech sector.
Revolut is a mobile-only digital banking app which launched its first UK current accounts in 2017.
Founded in 2007, FreeAgent provides cloud-based accounting software, specifically for freelancers, micro businesses and accountancy practices.
Bud is a London start-up that is trying to introduce “tailor-made banking”, by bundling a person’s various financial services, from a credit card with one bank, to a current account with another, into one platform.
Funding Circle connects investors who wish to lend money directly to small and medium-sized enterprises via its peer-to-peer, alternative financing platform. Since its launch in 2010, investors on the platform have lent more than £3.2bn to UK firms, which has helped more than 33,000 companies access financing.
Digital-only bank Monzo, began life as a start-up offering a pre-paid debit card.
Plum has launched a Fee Fighter tool you can use to check how much you have handed over in fees yourself.
Current account customers handed over an average of £152 each in banking fees last year, effectively putting an end to the myth of free banking.
Given there are around 65 million active current accounts in the UK, this means the banks could have made nearly £10 billion in fees, according to the figures from savings app Plum.
The research, which looked at 11,217 current accounts, showed that only 7 per cent (770 users) paid no bank fees at all.
Over half (57 per cent) of the £152 average annual cost to current account customers came from using an overdraft and 56 per cent of account holders, or 6,276 people, used their overdraft, dipping in to the red at least once in the year.
The next largest slice of the £152 average fee (at 27 per cent) was made up of monthly account charges or unspecified fees – which can include the cost of payments made or bounced by the bank that take you beyond your limit that are are commonly known as paid and unpaid item or transaction fees.
These payments typically cost between £5 and £10 each.
Theresa May today announced the launch of R5-SHCH Connect, a new service which links banks in China with London’s foreign exchange (FX) market.
Using R5-SHCH Connect domestic banks in China now have access to the London FX market, recognised as the leading centre for global FX trading. The new service is a partnership between London’s R5 and the Shanghai Clearing House, announced by UK Chancellor Philip Hammond in December as part of the 9th UK China Economic Dialogue.
SaaS-based core banking software Ohpen has raised €25 million in a Series C round led by private equity firm Amerborgh.
Amsterdam’s Ohpen develops software tools used in the financial sector to digitalise services and for moving customers to the cloud. The new funds will be invested in growth and expanding into new markets.
Europe’s introduction this year of “open banking” regulation, which forces lenders to provide access to accounts of customers who authorise it, has left senior bankers worrying that tech groups will cherry-pick the best parts of their business.
Francisco González, executive chairman of Spanish bank BBVA, has warned that groups such as Facebook and Amazon in the US, and Alibaba and Tencent in China will “replace many banks”. He called on a global body such as the G20 to take action, saying “authorities [need] to bring order to this massive change” that could “pose risks to financial stability”.
The conference gathered more than 2,500 delegates from more than 50 countries from the five continents at the old French stock exchange in Paris, France. Alternative finance was one of the many topics addressed – the event spans Fintech and Insurtech and topics ranging from cryptocurrencies and blockchain to Artificial Intelligence and to Regtech.
They’re young: The 16 firms are on average 5.5 years old (with the oldest being 12 years old, the youngest not even 2),
Very international: They serve on average 4 different countries and together, with much overlap, cover 32 countries on the five continents.
Getting big: They have helped finance nearly €9.5 billion ($12 billion) worth of loans, bonds, and private equity for consumers and SMEs.
Well-funded: They raised on average $30 million in private equity for themselves
Panelists Davis Barons, CEO of Creamfinance, Poland; Boris Batin, CEO of ID Finance, Spain; and Mark Ruddock, CEO of 4finance, Latvia, may be the best-kept secrets of global alternative finance. Founded respectively in 2012, 2012, and 2008, these companies have originated loan volumes measured in the €100s of million, and even, in the case of 4Finance, in billions of euros.
With the increased use of mobiles and digital revolution, every business has been disrupted, and financial services are no exception to this. There has been a drastic change in the way people are now accessing financial products and services. Customers are now looking out for FinServes that offer mobile apps and wearable technology to uninsured millennials. Insurance companies associating with FinTechs is on a rise and FinServes are increasingly leveraging new technologies to enhance customer experience. All insurance related process platforms ranging from claims, underwriting, distribution, and brokerage are being automated in innovative ways.
Invest in technology: You need to implement innovative technology by investing in ventures to sideline your competitors in the FinServe industry.
Work in partnership: You need to collaborate with partners beyond the FinServe industry who have experience and can come up with new ways to generate value.
Analyse your success goals: So, plan your goals for the future by cautiously investing in digital technologies that are easy to implement and considering the opportunities available for improving business models.
Challenges faced by InsurTech
IT security concerns: The security challenges of the IT industry make it a challenge for customers to enter the FinTech environment with complete reliability.
Frictions in customer journey: With the introduction of FinTech, customer expectations have reached a whole new level. However, they still experience a lot of friction throughout their journey as their very high expectations are still not met.
New and different business models: As the traditional insurance industry remained unchanged for over a century, the change in business models is not easily acceptable. Failure to meet user’s rapidly changing needs with time creates a challenge for FinTech adoption.
Even as the government failed to address the issues of angel tax and crowdfunding of startups in Budget 2018, India’s young ventures have welcomed the move to encourage financial-tech sector and healthcare.
Bhavin Patel, Founder & CEO, LenDenClub:
“The government’s step of introducing LTCG tax of 10 percent on capital gains over Rs. 1 lakh could push investors to go to other fixed income avenues like P2P Lending. The policy will encourage investors to consider P2P lending as an alternate platform to invest and earn profitable returns. The reduction in the Corporate tax to 25 percent also appears as some relief to MSMEs like us.
The efforts towards creating the right environment for Fintech companies to grow in India will bring in promising growth prospects for P2P lending platforms.”
Satyam Kumar- CEO and CO-Founder, Loantap:
“We are happy that Finance Minister has acknowledged voice from Fintech Industry seeking soft touch approach to regulation and making a strong case for Fintech participation in supporting SME/ MSME growth. Fintech as a segment has been signalled out in this budget with a very clear objective of credit push to the last mile. We see it as strong government backing for the way fintech industry is shaping in India.”
MatchMove India today announced its partnership with Rubique, India’s leading marketplace for financial services, to transform the current way of paying and disbursing funds to multiple recipients. Rubique’s platform provides a wide range of loan products and end-to-end loan fulfilments to individuals and Small and Medium Enterprises (or SMEs) through its wide network of retailers and distributors.
The globally proven MatchMove Bank Wallet Operating System enables Rubique to pay commissions, incentives and cashbacks to its retailers and distributors securely with just one click.
India’s lending market is expected to be valued at US$3 trillion by 2026 and this presents a huge opportunity for Rubique.
To date, Rubique has processed approximately 100,000 applications, disbursed US$345 million worth of loans and signed up about 65,000 cards across 80 financial institutions. Rubique’s business has seen a fourfold increase year-on-year and it plans to increase its footprint from 27 to 100 cities next year.
Traditional financial services accounts for around 55% of Cayman’s economy, but emerging technologies – blockchain being one example – are poised to change the industry forever.
Fintech, a mash-up of finance and technology, is a word we are likely to hear more often in years to come. In the not-so-distant past, Fintech referred to the back-end computer technology used by banks or trading firms. Over the last decade Fintech has evolved to describe a broad variety of technological interventions into personal and commercial finance, and it’s garnering a lot of investment.
News Comments Today’s main news: VPC Specialty Lending Drops Prosper Loans.Best Egg to broaden services in 2018.Faircent raises $4M.RoboCash updates loan origination process.Tyro to launch new SME solutions. Today’s main analysis: China leads Asia’s IPO boom. Today’s thought-provoking articles: Can Lending Club grow by 20% in 2018?Blockchain could transform these major industries.APAC online lending is […]
China leads Asia in IPO boom. AT: Not really news, but it’s interesting to see where Chinese companies are going public. The big winner is the New York Stock Exchange. But Shanghai and NASDAQ are also looking good with Hong Kong hanging in there.”
Most new entrants have also found it hard to build scale. Lending Club’s top line may grow by 20 percent in 2018, according to Reuters data, but that will take it only to $800 million. Even online student lender Earnest, which largely avoided industry potholes, has struggled. In October it sold itself to old-school servicer Navient for $155 million – less than half its value in a 2015 funding round.
If I can know my monthly cost for Amazon Prime before I sign a contract, why can’t I know my monthly cost for a car payment before going to the dealership? If I can see movie options before I go to the theater, why can’t I see my financing options before I sign a 5-year loan contract? Being empowered with concrete choices would make both budgeting and buying a car that much easier and help to save hours on the financing process. So, using my personal experiences from childhood to fuel my passion, I co-founded AutoGravity in October of 2015.
Our goal at AutoGravity was to make car financing as easy as watching a movie on Netflix, streaming an album off Spotify or buying a book from Amazon. So, we demystified the process by making it accessible to everyone – empowering them through our app on their smartphone.
Financial institutions also could face challenges in the near future as a result of technology-driven competition and long-term impacts from the recently approved tax reforms.
Marsico expects banks to increase automation of certain support-center processes over the next year. Artificial intelligence, for example, could handle some of the work that goes into processing loans, as well as tasks like verifying the authenticity of checks submitted through mobile deposit apps.
One study predicts banks throughout the world will increase their tech budgets by 4.1 percent in 2018.
Most consumers still don’t know they are not required to accept their bank’s overdraft protection service, according to the Pew Charitable Trusts’ latest consumer finance project.
Before the law was changed in 2010, banks automatically enrolled consumers in overdraft protection. If consumers made purchases that overdrew their accounts, the banks covered the expense and then assessed an overdraft fee, which often cost as much as $35.
Since the law changed, consumers must opt-in to this coverage — banks cannot automatically enroll them. Thaddeus King, officer of The Pew Charitable Trusts’ consumer finance project, says it’s clear consumers don’t understand that overdraft protection is not only costly, but unnecessary.
In September a survey found that an estimated eight million consumers have opted-in, primarily because they thought they had to. Two-thirds of consumers who agreed to pay the overdraft fees were unaware it was optional.
Asian companies raised $79.14 billion through initial public offerings as of Dec. 18, up 10% from 2016, data from Dealogic shows. The sum represents 42% of the global tally, which surged 41% on the year to $194.8 billion.
Shanghai, the world’s second largest economy saw a total of 409 companies tapping $31.61 billion from the market, up 30% compared with last year. Of the country’s total funds raised, 56% was from Shanghai, making it Asia’s top IPO destination.
Hong Kong saw total funds raised fall 34% to $14.08 billion this year, despite a 24% jump in volume.
Alibaba-backed online lender Qudian, for instance, saw its New York-listed shares tumble 55% after it debuted in October. Its peer LexinFintech Holdings, backed by JD.com, on Dec. 14 slashed its fundraising target by 76% to $120 million.
Latvia-based European peer to peer lender Robo.Cash, a young platform that is less than a year old, has provided an update on loan origination progress. According to the P2P lender, RoboCash attracted € 2.5 million of investments in pay day lending (PDL) loans in 2017. Robo.Cash launched its platform in Latvia in February 2017.
Robo.cash said the current average sum of investments is € 2.900 per investor with over 1,500 investors from 28 EU-countries have joined Robo.cash in 10 months. The site says investors may be separated as follows:Germany (50,5%), Spain (7,2%), the Czech Republic (6,1%), Austria (4,6%), Latvia (3,9%), Portugal (3,6%), the United Kingdom (3,3%), Netherlands (2,7%), Lithuania (2,3%), Estonia (1,6%).
The Swedish e-commerce company signed 500 online retailers for its new service, which allows consumers to buy products now and pay for them later.
And the company’s North American operations signed on a new CEO, Jim Lofgren, replacing central Ohio native Brian Billingsley, who recently was named chief revenue officer for Dallas-based payment-service company Modo.
“We serve more than 70,000 merchants over 18 markets, and our data in the U.S. market is really very similar to other markets,” Lofgren said recently. “We’re making a very significant impact for our merchants.”
The European Commission is to present draft legislation early next year to remove administrative hurdles to the cross-border operation of crowdfunding sites and online peer-to-peer lending services. It says the initiative will ensure that EU companies can grow and compete.
European fintech successes include TransferWise, the Estonian-developed foreign exchange company, and France’s PayPlug, which makes it easier for sole traders to accept credit card payments.
LoanBook, a Spanish marketplace lending platform, having easily surpassed its initial £650,000 last week is, is heading toward the home stretch having raised over £721,200 for 6.40% equity with the help of more than 253 Crowdcubeinvestors. £340,000 of this investment sum comes from current shareholders, local Business Angels and Family Offices. Funding will be used to continue LoanBook’s platform growth and development.
Swiss bank UBS and UK-based Barclays are both experimenting with blockchain as a way to expedite back office functions and settlement, which some in the banking industry say could cut up to $20B in middleman costs.
2. PAYMENTS AND MONEY TRANSFERS
Abra, another blockchain-enabled mobile wallet and payments startup, was recently integrated into the payments ecosystem of American Express: through a new feature, customers will be able to fund their Abra wallets using an eligible American Express Card.
Other potential applications include using blockchain to provide massive scale data authentication: for example, using its blockchain-enabled KSI (Keyless Signature Infrastructure), cybersecurity startup Guardtime tags and verifies data transactions for cryptographic assurance of their integrity and authenticity.
11. STOCK TRADING
Partnerships with existing trading networks and exchanges will help blockchain take off in the space. Blockchain startup Chain (which is also mentioned below) is a leader on that front: the company helped orchestrate a live blockchain integration that successfully connected Nasdaq’s stock exchange and Citi’s banking infrastructure.
12. REAL ESTATE
Tech startup Ubitquity offers a Software-as-a-Service (SaaS) blockchain platform for financial, title, and mortgage companies. The company is currently working with Land Records Bureau in Brazil, among other stealth clients, to input property information and record documents through the blockchain.
LenderBot is a micro-insurance proof of concept for the sharing economy that demonstrates the potential for blockchain applications and services in the industry. LenderBot, which allows people to enroll in customized micro-insurance by chatting through Facebook Messenger, enables blockchain to serve as the third-party in the contract between individuals as they exchange high-value items through the sharing economy.
28. CREDIT HISTORIES
Lenders minimize the risk posed by loans or lines of credit to small businesses by evaluating their histories using business credit reports. These third-party reports — issued companies such as Dun & Bradstreet — are inaccessible to the small business owners (beyond the basic profile information they provide to the credit bureau). This can make business owners feel like credit bureaus have all the power over loan terms, even though the credit bureau may be assessing outdated or inaccurate information to determine their reports.
Lumeno.us is one startup using blockchain technology to make business credit reports more accurate, transparent, and shareable. Lumeno.us normalizes semi-structured financial data using a proprietary application of collaborative tagging and advanced analytics. From there, it provides business owners the tools to share their data in order to get a loan, find trusted partners, or manage a portfolio or network.
Initial Coin Offerings (ICOs), in which companies sell cryptocurrency-backed tokens in their companies in the same manner as a publicly-traded company sells stock, are another example of blockchain-powered crowdfunding — startups such as OpenLedgermake that possible. Individuals may soon invest in real estate using “crypto crowdfunding,” as well: Singapore-based Real Estate Asset Ledger (REAL) intends to use blockchain technology to inject greater liquidity and transparency into real estate investing.
Imagine, you are trying to make an investment somewhere in the World and you want to be face to face with your investment advisor without leaving your own office or room?
What is different about telepresence is that you can be telepresent through someone else instead of being even present through video conferencing or other methods.
I the financial sector, companies are using telepresence to connect their customers with their loan officers, investment advisors, and other employees to discuss all the requirements and provide solutions without actually the presence of the customer as well as the financial organization at the same place.
Australian fintech and challenger bank Tyro is set to launch a new set of financial solutions for small to medium enterprises (SMEs). Founded in 2001, Tyro describes itself as Australia’s largest independent EFTPOS provider, focusing on smaller to medium enterprises. The company states it is now has a license from APRA to offer banking products and deposits with its platform are government guaranteed. The company currently has 20,000 customers and has $42.2 billion in transaction.
The research paints a clear picture of trends currently taking place in Australia and New Zealand, where $348.37 million and $267.77 million respectively has been issued through online financing options (through 2015). These statistics are notable since 2012, with a growth rate of 653% between 2013 – 2015.
Various small business loans lenders currently offer funding to Australian clients from $5,000-$400,000 (depending on the industry lender). Australian small business loans lenders such as prospa, Capify, Sail, and Spotcap dominate the market.
Faircent raised $4 million (Rs 25 crore) in early-stage funding led a Belgium-based impact investor Incofin Investment Management, Rajat Gandhi, co-founder of Faircent, told BloombergQuint over the phone.
Rajiv Ranjan, a former Infoscion along with Ambar Kasliwal, a Mumbai-based Chartered Accountant, has launched a fully-owned P2P lending marketplace platform.
Called PaisaDukan.com, it is a part of BigWin Infotech, a government recognised start-up and it aims to start operations from January 2018, company officials said. The startup is among a few who have applied for an NBFC ((non-banking financial company)-peer-to-peer (P2P) licence after RBI’s revised guidelines.
Private equity and venture capital firms, which sat on huge money piles and waited on the side lines looking for the right opportunities, caught on to the excitement and loosened their purse strings to record a four-fold jump in investments to $1.84 billion in 2017 from $447 million, showed provisional data from VCCEdge, the data and analysis platform of News Corp VCCircle.
While seed and angel investments accounted for 43% of the total number of deals at 32, growth- and late-stage deals, besides private transactions and venture debt accounted for the rest.
While banks are fighting a bitter turf war with fintech startups to retain their share of business, private sector lender RBL Bank has seen value in strategic partnerships. The bank is growing its advances book by almost half annually, driven largely by partnerships with non-banking finance companies (NBFC) and tech startups.
While startups such as MoneyTap, BookMyShow are helping the bank acquire customers for its credit products, even its tie-up with one of the most prominent NBFCs Bajaj FinservBSE -0.14 % is helping the bank get customers who were never eligible for a credit card previously.
Investors need to position their personal finances in a manner that will enable them to gain from developments in the future. Book profits in the mid- and small-cap space: Mid- and small-cap funds’ strong performance streak continued in 2017 (category average return: 47.19 per cent year-to-date). As valuations of growth stocks shot up, investors turned to value picks. …
With the advent of robo-advisors, where advice is provided at low- or no cost over the internet, questions are being raised as to the future of qualified financial advisors. Is my job becoming obsolete?
A qualified and trusted advisor is able to spot potentially poor financial decisions and gently advise against this course of action. A robo-advisor could never be such a friend in need.
On September 29, 2017, some Texas business groups sued the Consumer Financial Protection Bureau (CFPB) and CFPB Director Richard Cordray in the Northern District of Texas U.S. District Court. Alan Kaplinsky, chairman of the Consumer Financial Services Group of Ballard Spahr helps Lending-Times unpack this lawsuit and shed some light on how it might impact […]
On September 29, 2017, some Texas business groups sued the Consumer Financial Protection Bureau (CFPB) and CFPB Director Richard Cordray in the Northern District of Texas U.S. District Court. Alan Kaplinsky, chairman of the Consumer Financial Services Group of Ballard Spahr helps Lending-Times unpack this lawsuit and shed some light on how it might impact the alternative lending industry.
Summary of the Complaint
Plaintiffs in this case include the U.S. Chamber of Commerce, American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable, Texas Association of Business, Texas Bankers Association, and chambers of commerce for the city of Grand Prairie, Irving-Las Colinas, Grapevine, Lubbock, Bay City, New Braunfels, Longview, McAllen, North San Antonio, Paris-Lamar, and Port Arthur, all within the state of Texas.
The CFPB issued a mandatory ban on arbitration clauses in July 2017. The ban is designed to allow consumers to join class action lawsuits against financial services companies instead of being forced to use arbitration that financial services companies put into their contracts.
“The outcome is extremely important because if it goes into effect, it’s going to cost the financial services industry billions of dollars in the first five years alone,” Kaplinsky said. All types of financial service companies, including online lenders, will likely have to defend new class action lawsuits filed against them by consumers. Some of that cost will get passed on to consumers, he said.
According to the complaint filed in federal district court, plaintiffs are suing the CFPB for ban arbitration clauses for four specific reasons:
Plaintiffs claim the CFPB itself is structured unconstitutionally, therefore the ban cannot stand;
and further claim the “arbitration rule,” as it is called, violates the Administrative Procedure Act because the CFPB “failed to observe procedures required by law when it adopted the conclusions of a deeply flawed study that improperly limited public participation, applied defective methodologies, misapprehended the relevant data, and failed to address key considerations;
plaintiffs further claim the rule violates the APA because it runs counter to the record set prior to the CFPB’s formation and doesn’t take into account important aspects of the problem the agency is trying to solve;
and, finally, they claim it violates the Dodd-Frank Act for failing to advance public interest and consumer welfare.
Who Are Ballard Spahr and Alan Kaplinsky?
Kaplinsky heads the group at law firm Ballard Spahr that specializes in consumer finance issues. The Ballard Spahr Consumer Financial Services Group employs 100 lawyers that specialize in various types of consumer services from banking services to online lending. He has been practicing law since 1970 and has spent his entire career focused on consumer financial services and involved in disputes regarding a variety of asset classes including auto loans, payday loans, credit cards, mortgages, and more.
Arbitration is a special interest of his because he is known for pioneering the arbitration provision in consumer contracts.
“When the CFPB got involved in rule making pertaining to arbitration, it was natural that I would be heavily involved in that,” he said.
Kaplinsky, along with several other lawyers, authors the Consumer Finance Monitor, a blog that keeps its eye on CFPB activities and comments on them. He is not representing the plaintiffs in this case, but he has a strong interest in it due to the nature of his practice and where it intersects with the legal ramifications of the final outcome.
Is the CFPB Unconstitutional?
Regarding the first complaint, that the CFPB’s structure is unconstitutional, Kaplinsky said, “I think they have a very good argument.” He cited the PHH case in the DC Circuit Court of Appeals that came to the same conclusion with a 2-1 vote.
The argument is based on the separation of powers clause in the U.S. Constitution that federal agencies cannot be structured in such a way to assess too much power in the hands of one individual. The CFPB is currently structured so that the director of the agency can not be removed by the president without just cause as opposed to directors of other federal agencies that allow for a sitting president to remove and replace them for any reason at his discretion. Kaplinsky also said the bureau is not subject to Congressional appropriations. Rather, it is funded from the Federal Reserve system “with very few limitations.”
The Administrative Procedure Act
The Administrative Procedures Act (APA) is a law that applies to all rules issued by the federal government.
According to the Act, any rule that is arbitrary, capricious, or contrary to other laws is invalid. Kaplinsky said it’s relevant in this case because the entire process used by the CFPB was “tainted and flawed.”
Reasons cited for the flawed procedures include not using comments received from members of the public throughout its proceedings and ignoring data gathered from its own study regarding the effectiveness of class action lawsuits and arbitration.
“They conducted a study,” he said, “then drew conclusions to propose the rule that is contrary to what the study in fact showed. The study demonstrated unequivocally that arbitration was a good process for consumers and very effective, speedy, and fair. And it’s a much better process for consumers than having to go to court.”
Kaplinsky also said the CFPB’s study showed that class action lawsuits were not beneficial to consumers. Of 562 class action suits looked at, only 12.3 percent produced any settlement benefit to the class action participants, he said. While attorneys litigating class action lawsuits received more than $400 million in attorneys fees, class action plaintiffs received an average of $32 in settlements.
“That’s a paltry amount by anybody’s standards,” Kaplinsky said, and he went on to note that class action settlements typically require consumers to fill out paperwork to receive a claim but only 4 percent of them bother to do so.
The CFPB also didn’t consider whether consumers who go through the arbitration process were pleased with the experience. and ignored other studies, as well, he said.
Does the Arbitration Rule Solve the Problem it Seeks to Solve?
When it comes to getting vindication, do consumers have a choice? The CFPB says arbitration clauses take their choice away. Kaplinsky disagrees.
“If the CFPB thinks wrongdoing was involved, the consumer can get relief,” he said. “There are actually very few arbitrations, so the CFPB concludes erroneously that arbitration isn’t working.” Kaplinsky said the reason there are few arbitrations is because companies often choose instead to settle with consumers. “Companies don’t want arbitration. It costs them money.”
In fact, it costs $3,000 just to initiate the arbitration process. And, according to Kaplinsky, the CFPB didn’t even consider how many companies opt to settle with consumers without going through the arbitration process.
“Companies don’t win all the time,” Kaplinsky said. “They can lose in arbitration. But they try to resolve the matter even if they have to pay out more.”
One reason for this is because lawsuits and settlements can be a public relations negative for a company. If they can settle a dispute in arbitration, the result of which is typically private, then it saves them in the long run on public image.
The Dodd-Frank Act
In 2010, Congress passed and President Obama signed the Dodd-Frank Act, a sweeping piece of legislation that created the CFPB and other financial services regulatory agencies. One of the provisions of the Act is purportedly to advance public interest and protect consumer welfare. Plaintiffs suing the CFPB say the arbitration rule does neither, and Kaplinsky agreed.
“Arbitration is working well,” he said. “The CFPB is saying they don’t care if companies get rid of the process. They want to preserve class action lawsuits, which aren’t working well for consumers.”
Citing Section 1028 of the Dodd-Frank Act, Kaplinsky said any rule passed by the CFPB must be consistent with the results of its own study. Since the CFPB’s study shows that arbitration is working well and class action lawsuits aren’t, and the CFPB came to the opposite conclusion, the arbitration rule is therefore in violation of the Dodd-Frank Act.
The Impact to Alternative Lenders
If Congress doesn’t override the arbitration rule and it is allowed to stand, Kaplinsky predicted that every alternative lender will have to conduct a cost-benefit analysis to determine if they should abandon arbitration clauses altogether and stick to individual disputes or run the risk of class action litigation.
“Most will come to the conclusion that to get rid of the clause altogether and change of their forms will be the best course of action,” he said. “They’ll have to prepare for an onslaught of class action lawsuits.”
Of course, many alternative lenders are pre-funded startups. Some never see venture capital funding even in early seed rounds. One class action lawsuit could put them out of business even if the company isn’t found to be guilty of violating consumer rights because of the high cost of litigation. This is one case everyone in the industry should keep an eye on.
News Comments Today’s main news: blooom passes $1B in assets under management. SoFi rolls out new deal. DBRS assigns provisional ratings to SoFi Professional Loan Program 2017-E LLC. The P2P Power 50. PeerStreet funds over $500M in loans with zero losses to investors. Today’s main analysis: LendingClub, Prosper after 10 years. FT Partners’ CEO monthly alternative lending market analysis (a […]
SoFi unlikely to damage digital lending sector. AT: “Every blight is a blight against the industry, but if by ‘damage’ you mean permanent, then I agree. The marketplace has a short memory and is very forgiving, so I see the short-term repercussions moving away rather quickly and leading to greater long-term stability for everyone.”
According to monthly Securities and Exchange Commission (SEC) ADV filings, blooom, inc. reached $1 billion in assets under management (AUM) faster than any other independent robo-advisor. blooom achieved this milestone faster than Betterment and Wealthfront – and with less capital raised.
blooom, a first-of-its-kind robo-advisor, helps anyone with a 401(k) or comparable employer-sponsored retirement plan. blooom’s mission is to make “do-it-for-you” financial advice available, simple and affordable, regardless of the client’s account size.
The $1 billion AUM milestone is one of many key achievements for blooom over the past year.
In mid-2016, Sheila Bair, FDIC Chair under two U.S. Presidents and “the second most powerful woman in the world in 2008 and 2009” by Forbes, joined the company as an Advisory Board Member.
In February 2017, blooom raised $9.15 million in Series B funding and surpassed the $500 million mark in AUM.
Since 2014, as part of its free product evaluation, blooom has analyzed the health of more than $2 billion of individual 401(k) plan balances.
DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of notes issued by SoFi Professional Loan Program 2017-E LLC (SoFi 2017-E):
— $72,850,000 Class A-1 Notes at AAA (sf)
— $303,000,000 Class A-2A Notes at AAA (sf)
— $161,000,000 Class A-2B Notes at AAA (sf)
— $55,000,000 Class B Notes at AA (sf)
— $34,500,000 Class C Notes at A (sf)
The recent exit of Social Finance Inc. CEO Mike Cagney represents the third departure of a big-name digital lending CEO since the start of 2016. Social Finance, more commonly known as SoFi, was long considered a bright spot in the digital lending industry after making it through a rough 2016 unscathed.
Heading into 2016, investors started to notice higher-than-expected defaults on loans from large marketplace platforms, especially in lower-graded loans. In order to compensate for these higher losses, some lenders increased interest rates to keep investors on their platforms. For institutions that had been purchasing loans and packaging them into asset-backed securities, the underperformance of loans in previous securitizations became a concern. By April, Citigroup Inc. was having trouble marketing a new securitization of loans from personal-focused lender Prosper Marketplace Inc., leading the two firms to end their partnership. Without this important source of capital, Prosper saw originations fall 55.5% during the second quarter of 2016.
Past problems lead to a brighter future
Digital lenders entered 2017 with a renewed focus on operational efficiency and loan quality. For some, these measures are starting to pay off. LendingClub and On Deck both reached targeted profitability measures in the second quarter of the year. Prosper has reignited loan growth thanks to a $5 billion commitment to fund new loans, and the company reported positive adjusted EBITDA for the second quarter. Ex-LendingClub CEO Renaud Laplanche has launched a new personal-focused lender called Upgrade. Student-focused lender Earnest has taken a different approach and according to Bloomberg is seeking a buyer for its business. Originations have started to rebound as large lenders in the industry regain confidence in their models and continue to ramp up volumes.
Lending Club and Prosper have both been around over 10 years now. A lot has changed since both companies were founded, including the performance of the loans. In this blog post we’ll share the performance of each platform over the last 10 years. The fact that we have access to this data set is one of the things that makes marketplace lending unique. The screenshots from this post are taken from NSR Invest, a marketplace lending robo advisor that is also a sister company to Lend Academy.
Lending Club Data
For Lending Club investors, most loan grade returns peaked in 2013. As you look at this chart it is worth noting that the 2017 numbers are somewhat meaningless because the loans there have not seasoned yet.
Prosper launched in 2006 as the first p2p lending platform in the U.S. Initially, they operated with a very different model allowing deep subprime borrowers on to their platform.
When they relaunched Prosper grew very slowly, they needed to prove out their platform to the many retail investors who had lost money in Prosper 1.0. Even in 2009 and 2010 originations were just $8 million and $27 million respectively. Prosper began to scale significantly in 2011 and onwards.
Prosper’s C grade loans are the closest to Lending Club’s D grade loans so this is the best side by side comparison.
PeerStreet funds over half a billion in loans, maintains zero losses to investors (PeerStreet Email), Rated: AAA
PeerStreet, the real estate investing platform for real estate debt, has just hit the milestone of having funded half a billion in loans and with zero losses to investors since the company launched in 2015.
Platforms in the P2P and crowdfunding space are seeing increasing competition and scrutiny, but PeerStreet has continued to offer investors access to quality loans and high yields, earning the public testimonial of some high-profile users, such as
College Ave Student Loans, the leading next-generation student loan marketplace lender, announced it has completed a $161 million securitization of private student loans, its first securitization. The CASL 2017-A transaction, completed over the summer, received an ‘A’ rating from DBRS and a ‘BBB’ rating from S&P for its highest-rated senior notes. The transaction was four-times oversubscribed. Barclays was the underwriter on the transaction.
The securitization also marks a year of growth for College Ave Student Loans. To date, the company has secured more than $2 billion of committed loan purchasing power from multiple sources.
Technology giants like Google, Amazon, Facebook and Apple are showing an increasing interest in engaging with federal banking regulators, a move that underscores Silicon Valley’s growing involvement in the financial services arena.
Amazon lobbyists met with the Office of the Comptroller of the Currency starting in the second quarter of 2016, and again this year to discuss “issues related to mobile payments and payment processing, financial innovation, and technology,” according to publicly available lobbying disclosures.
PayPal, meanwhile, met with OCC officials in the second, third and fourth quarters of last year to discuss “mobile payment innovation” issues related to underserved customers and remittances and money transfers, according to its disclosures.
Vestwell, the industry’s first and only fiduciary-backed retirement platform for the financial advisor community, today announced $8 million in Series A Funding led by F-Prime Capital Partners, the venture capital group associated with the parent company of Fidelity Investments, with participation from Primary Venture Partners, FinTech Collective, and Commerce Ventures. Launched in late 2016, Vestwell received $4.5 million in its initial Series Seed of financing in September 2016.
So far this year, the company has signed over 50 registered investment advisor (RIAs) firms, as well as independent broker-dealers, asset managers, and bank/trust custodians, with plans to onboard several thousand advisors this year. The funding will be used to grow the team while further enhancing the technology.
YieldStreet Adds Three Tech Disruptors to Its Advisory Board (YieldStreet Email), Rated: A
YieldStreet, the fintech company seeking to change the way we invest and accumulate wealth, announced the addition of three new members to its advisory board: Ron Suber of Prosper Marketplace, Alexandra Wilkis Wilson of Gilt, and Mitch Jacobs of OnDeck.
The three new members join an elite team of advisors whose deep expertise spans technology, investing, policy and financial services. The current members include economic policy expert Donald Marron Jr. of the Urban Institute, Rahul Gupta former Group President of Fiserv (NASDAQ: FISV), Mark Gerson founder of GLG, former House Majority Whip Tony Coelho, and Todd Deutsch formerly of Goldman Sachs.
And while there are myriad explanations, one clear issue – according to Quick.me CEO Ola Okeshola – is the simple fact that access to capital for small businesses has dried up significantly since the Great Recession, as banks have either gone out of business or lost interest in lending to that sub-segment of the market.
FinTech, Okeshola said, can offer SMBs streamlined access to funds in ways that are unprecedented. That’s the good news: There is a large, hungry and addressable market out there.
The more challenging news is that finding ways to address that market isn’t necessarily as easy as flipping a switch – it’s addressing the right problem in the right way.
For small business loans, he explained, giving an SMB a low interest rate or a very fast approval time nearly guarantees they will sign on, regardless of how much it cost the alt lender to acquire that customer.
In Quick.me’s case, that means working with POS providers as their referral source, to basically cut their customer acquisition costs as much as possible. Because they can’t make money back spending hundreds of millions to acquire customers, they instead decided to explore how to work with someone who’s already spent that money.
Steve Polsky has a simple vision: Take financial inclusion to the world’s unbanked and underbanked by extending short-term microloans through their smartphones so they can stay connected on those devices longer and more conveniently. “We have an opportunity to walk hundreds of millions of people up the pathway of financial services through their mobile phones,” […]
Steve Polsky has a simple vision: Take financial inclusion to the world’s unbanked and underbanked by extending short-term microloans through their smartphones so they can stay connected on those devices longer and more conveniently.
“We have an opportunity to walk hundreds of millions of people up the pathway of financial services through their mobile phones,” he said. “Nearly 80 percent of the world is on prepaid phone, but their usage is very different than in the United States.”
To that end, prepaid phone users spend trillions of dollars every year on transactions related to those devices. In fact, Polsky said, the most frequent financial transactions for a large number of smartphone users are done on their mobile phones. Many smartphone users prepay for their service by the day, but Juvo allows them to extend their service by borrowing the money to pay for it while building a credit history that can then be used for future credit. After starting in Latin America three years ago, he has taken his brainchild into 25 countries with 500 million downloads.
Juvo’s Explosive Launch
Chief Executive Officer Polsky founded Juvo in 2014, but the actual launch of the app didn’t take place until September 2016. Out of the gate, the company saw 100 million downloads. Growth since that time has quintupled, a big stretch of business from the launchpad of Guatamala and El Salvador where the first users logged in.
“Today, 43 percent of Guatamalan smartphones transact with us multiple times and 47 percent of smartphones in El Salvador transact with us multiple times,” he said.
From these countries, Juvo expanded quickly into Southeast Asia and Eastern Europe. To get to the users in those countries, however, the company had to establish relationships with the mobile operators that provide the service to smartphone users. He spent two years setting up the infrastructure in order to do business and get the reach that he has. Currently, Juvo partners with Millicom, Cable & Wireless, and Tune Talk in the countries where they are operational. In the U.S., they work with Sprint. Every three months, the number of transactions processed through the mobile app doubles putting them on pace to register half a billion transactions by the end of this year.
Financial Identities in the Developing World
In essence, what Juvo is attempting to do is help people in developing countries establish a financial identity. According to World Bank figures, two billion people worldwide in 2014 didn’t have bank accounts. That was down from 2.5 billion three years earlier. At that pace, it will be 12 years before the entire world has a bank account. Juvo wants to make that happen more quickly.
“We call it identity scoring,” Polsky said. “In 83 percent of the world, there is no underlying credit scoring, no signals about financial capabilities, and we can reach a broad number of people to help them gain access to more financial services.”
Those services include checking and savings accounts, credit and debit cards, mortgage products, personal and consumer loans, business financing, investment vehicles, insurance products, credit scores, and more—services that many of us in Western societies take for granted. By bringing the world’s unbanked and underbanked into the financial ecosystem, they’ll have access to more buying power and consumers, and it has the potential to increase the service clout of companies with the ability to service them, such as online lenders. In short, a rising tide raises all ships.
Juvo’s Financial Clout
Recently, the company closed a B Series funding round with $40 million led by New Enterprise Associates and Wing Venture Capital. That takes their total funding up to $54 million including the Series A round completed in September 2016. On top of that, in May, Juvo appointed Ron Suber to its board of advisors.
They’ve also got backers across a broad spectrum of telecom and fintech sectors, Polsky said.
“We partner with these big mobile operators and help them with the way they service their customers,” Polsky said. “And we do it without charging the end customer.”
Instead, they provide the funding to extend mobile service for those consumers without charging fees or interest. A person in Africa, for instance, may be paying for mobile service by the day because that is all they can afford. But they can download the Juvo app and get an extension on their service for one day. After paying for that day’s service on their own timetable (no late fees) they are able to move up to a larger commitment and get funded for two days of service.
“So the consumer can move up as they pay off the previous commitment to bronze, then silver, then gold, then diamond,” Polsky said. “And we do it without ever using the words ‘bank,’ ‘loan’, or ‘credit’.”
This benefit is provided at the expense of the mobile operators, who pay Juvo a percentage of the extra business they gain by extended longer mobile service agreements with their customers. Everyone wins.
Polsky said the worldwide average revenue per user (ARPU) per month is about $12, but it varies in different parts of the world. In the U.S., it’s $30. In other parts of the world, the ARPU is $2.
Communication is a Basic Human Need
Consumers in various parts of the world download Juvo at Google Play, the Apple store, and anywhere mobile apps are available. Most users, Polsky said, are on Android devices because they tend to be more affordable, but the company wants to be available anywhere customers may download the app.
Worldwide, the smartphone is the most important device for most people because communication is a basic human need. And because computers are so much more expensive compared to smartphones, the smartphone is an entry-level device to access of much of what the developing world has to offer. Still, Juvo is a unique company even in Silicon Valley where it is located because of the global nature of its business and the channels through which they reach their customers.
“The idea of someone being out of data and needing to get more minutes on their phone and being able to borrow the money for that, that actually started in Africa,” Polsky said. “But we take it to another level. We’re willing to go up to a full month.”
In Africa, everyone is familiar with M-Pesa, a mobile-based money transfer and microfinancing service. That company is popular in Tanzania and Kenya. Nevertheless, Polsky doesn’t see anyone competing directly with Juvo at this point in the company’s lifecycle. That doesn’t mean there won’t be competition at some point in the future.
“Any time you’re doing something well, you’re going to have competition,” he said.
Right now, though, he’s focused on expansion.
“We’re hoping to partner with upstream financial services and with more big mobile operators,” he said. “That’s how we’ll grow.”
News Comments Today’s main news: Goldman’s traders have worst first half of Blankfein’s reign. RateSetter hit hard by struggling loans. RateSetter offers investors free sell out option. LandlordInvest hits 1M GBP lending milestone. Revolut offers free personal accounts for Europeans. Today’s main analysis: Goldman has worst first half in Blankfein era. Today’s thought-provoking articles: 35 institutional investors raise stakes in Yirendai. A […]
Millennials want a bank close to home. AT: “We’ve seen the reports before that millennials want a bank account. However, this survey shows that they want a bank account close to home with a brick-and-mortar branch. It seems that millennials aren’t interested to much in online banking, but this is just one survey.”
4 tips for developing a product around an unknown concept. AT: “This is an article written by a marketing professional. As a content marketer with more than a decade experience writing for brands positioning themselves online, I’d have to say I agree with this 100%, particularly points 1 and 4. This advice is more than apt for alternative lenders.”
Goldman Sachs Group Inc. traders turned in their worst first-half performance since Lloyd Blankfein rose from that business to become chief executive officer in 2006.
Investment-banking revenue fell 3 percent to $1.73 billion from a year earlier, better than the $1.59 billion prediction. Investment management as well as the Investing and Lending business also surpassed expectations.
(NYSE:YRD) enjoyed a 74.75% run-up in share price since hitting record low of $18.3. The stock managed 3.53% rise and now stands at $31.98 as of July 17, 2017.
Institutional investors currently hold around $143 million or 7.7% in YRD stock.
Yirendai Ltd. 13F Filings
At the end of Mar reporting period, 35 institutional holders increased their position in Yirendai Ltd. (NYSE:YRD) by some 1,343,454 shares, 22 decreased positions by 2,144,331 and 5 held positions by 1,150,551. That puts total institutional holdings at 4,638,336 shares, according to SEC filings. The stock grabbed 21 new institutional investments totaling 973,854 shares while 12 institutional investors sold out their entire positions totaling 1,445,115 shares.
In a survey held from the end of June into early July and conducted by SurveyMonkey, the web-based survey firm queried more than 1,000 adults above the age of 18, 290 of which were defined as 18- to 34-year-olds: millennials.
Among the findings in the How We Will Pay study: 83 percent of respondents wanted to be able to use an ever-burgeoning roster of new devices to conduct commerce. But, interestingly, when it came to actually transacting, 77 percent of those surveyed said trust remained a key factor when deciding who they want enabling those transactions.
People tend to trust the banks, financial institutions and bank card networks where payments relationships are already in place and already are known to consumers, according to the data.
Most Americans, at 63 percent, have used peer-to-peer payments, said SurveyMonkey. PayPal claimed the lion’s share there at about 80 percent across all demographics. Venmo remains a distant second, at 11 percent, with even greater adoption among millennials at 30 percent. Peer use also mattered to those surveyed, as 28 percent of millennials used the platform because their friends and family members did.
Eighty percent of surveyed millennials wanted the option to visit a brick-and-mortar bank branch based near their towns. In fact, the banks without a tangible footprint in a millennial-centric town lose out, as members of that demographic claimed they would be less likely to open an account with a bank were it not to have a physical branch nearby, said SurveyMonkey.
Now, app-only fintech Tomorrow, which launched services across the US this week, wants to help this group access inheritance products: In the US, 74% of millennials don’t have a will, and 50% of millennial households would struggle to pay their bills without their primary wage earner, according to studies Tomorrow cites. The company’s raised $2.6 million in Seed funding from backers including Plug and Play, Allianz Life, and Curious Capital. It’s now available for iPhone, and will release an Android version later.
When it comes to mobile banking, there’s often a massive gap between the consumer’s experience with a big bank and with a smaller regional operator or credit union. The big banks have embraced mobile as a critical part of their overall delivery experience — with custom mobile banking apps, proprietary mobile wallets, biometric-authentication, cardless ATMs and more.
But when it comes to the smaller players serving more local populations, the well of mobile innovation can run dry rather quickly and for many reasons.
“A staggering statistic I came across recently really gave me pause. A full 42 percent of credit unions still don’t have mobile banking apps — and it’s not because they don’t want them or don’t think they need them,” Steggall remarked, “but because they don’t have the ability or the resources to do the technical integrations, and they can’t justify the cost.”
While Urban FT’s new products with iParse are for smaller FIs, Steggall told Webster the company also sees a profitable future working with existing payments processors in the market today. Steggall said the iParse solution will help those players — including larger processors already offering their own mobile banking services — better serve their smaller bank and credit union partners.
Being an innovator always comes with the huge challenge of educating potential investors, developers and end users on the significance of a totally new product or service. When bitcoin hit the market, its leaders struggled to answer the same question: “Why is this necessary?”
When you’re building something new, your mistakes form the blueprints future entrepreneurs will study. If you’re a trailblazer in a novel space, here are four ways to forge ahead.
1. Don’t sell — educate.
YieldStreet, an online alternative investments platform, created YieldStreet University, which combines video content, infographics and other visuals to help simplify complex concepts about alternative investing for its customers.
2. Slow your roll.
Faster isn’t always better. When you’re dealing with an unknown concept, speed kills the sales process. If your service or product is new to the market, resist the temptation to immediately convert cold traffic. First, take time to make sure your clients or customers understand what they’re working with and how to utilize your product or service to its fullest potential.
3. Be open about swings and misses.
Honesty builds trust. One study from Label Insight showed 73 percent of participants were willing pay more for more transparent brands.
4. Focus on your mission, not personas.
Don’t concern yourself with selling to anyone in Box X or Box Y. If you do, you’ll end up tailoring your product to suit demographics instead of your vision. Identify your mission and purpose, and sell that.
The peer-to-peer lender Ratesetter has been hit by £80m of struggling loans in the first major setback for the nascent online lending sector.
The company said it would use its own funds to prevent losses being taken by its 50,000 users, who are mostly small investors using the website in order to lend their savings to other individuals and benefit from higher interest rates than are available at high street banks.
The company admitted that it had made £36m of loans to a company called Vehicle Trading Group Limited (VTG), a motor finance holding company that then fell into administration because it had taken on too much debt.
It also loaned a further £12m to an advertising company called Adpod, which during 2015 became 50% owned by VTG. The website admits that the loans, of which £8.5m are still outstanding, should not have cleared its own credit policy.
TheCityUK and PwC’s Strategy& have developed a vision for the future of the industry, drawing on extensive engagement with leaders across the industry and a rigorous fact-based assessment. By 2025:
1) The industry will have transformed itself to be highly digitised, innovative and customer-centric. It will be a leader in cyber security, using data in a secure and sophisticated way. This will be alongside new technologies, to drive forward significant improvements in the way services are delivered. Firms will be consistently and relentlessly doing what is right for their customers.
2) London will still be one of the most important and attractive international centres for financial services and global business, retaining the full ecosystem of financial and related professional services. It will continue to play an important domestic role and be a leading FinTech centre that keeps the UK at the forefront of financial innovation.
3) Regional and national financial centres will have become more important within the UK industry. There must be a strong supply of local talent with the relevant skills, competitive costs and high productivity. Banking, insurance and asset management centres outside of London will continue to develop, hosting more headquarters of major companies. While other regional and national hubs will focus on enhancing specialist roles which serve both UK and global markets.
While Funding Circle (and Zopa, for the most part) allow the losses from loans to fall onto lenders, Ratesetter has built a loss reserve to protect investors from bad debts. This “Provision Fund” is funded by taking a fee when a loan is extended and, in times of stress, can be topped up by diverting interest payments and capital away from investors. This means lenders on Ratesetter need to pay attention to the risk in the overall loan book, rather than any individual borrower.
At the moment, the Provision Fund has a 119 per cent coverage ratio, so there is enough money in the fund — if you include expected future fees — to cover losses 1.19 times higher than currently expected. Ratesetter’s target ratio is 125 per cent to 150 per cent.
The important thing here is that the Provision Fund currently has £12.9m in cash and £8.9m of expected future income, versus £18.2m of expected losses. If Ratesetter had let £12m of bad debts suddenly wash into the fund, it would have resulted in a big knock to its coverage ratio. We don’t know what that would do to investor confidence, but it’s fair to say it wouldn’t have helped.
OFF3R is out with a report today on the status of equity crowdfunding in the UK. According to their numbers, the UK investment crowdfunding sector is booming. In fact the OFF3R Index states that UK crowdfunding platforms raised a record £130 million during the first half of 2017.
Additionally, the report states that March of 2017 was a record breaking month as well. Over £40 million was raised with several large crowdfunding rounds on the big three platforms; Crowdcube, Seedrs and SyndicateRoom.
Peru Consulting asked 1000 consumers and 100 Senior IT Leaders in the banking sector. The results, published in our report – Retail Banking IT: Turn to Face the Change – offer a startling insight into the scale and speed of change and the challenges faced by traditional banking’s IT leaders.
For example, when asked about the specifics of banking transactions using mobile phones, nearly two thirds (63%) of consumers in the 18-44 age group stated this was important to them, while only 14% of the 55-64 age group felt the same.
More generally, the next 12 months holds little comfort for the retail banks when it comes to customer loyalty, with 38% of 18-24 year olds and 41% of 25-34 year olds set to change the bank that provides their main account.
We asked the Senior IT Leaders why they though their customers would be likely to switch banks. Strangely, while 64% recognised that challenger banks are taking their market share, less than 5% recognised that customers might be tempted by new technology such as mobile apps. Given the strength of the GAFA companies and fintechs, this is a dangerous blind spot for the traditional banks.
CONSUMER credit comparison site MoneyGuru.com has appointed an experienced channel director to lead its rapid expansion after a successful launch period.
The site has signalled its intention to disrupt the big four in the comparison market by appointing expert Deborah Vickers who has helped some of the biggest names in the market with optimisation and product development.
Deborah, 35, from Northwich brings 13 years of experience in technology and IT to the role, many of these within the financial services sector. She started her career at industry leader MoneySupermarket.com as a service desk manager before working her way up to IT delivery manager during her eight year tenure.
Former U.S. Ambassador to China Max Baucus on Saturday lauded China’s can-do spirit and cited the country’s rush to online payments as an area where the country was overtaking the United States.
Baucus was speaking at an annual LendIt fintech conference held in Shanghai that attracted more than 2,000 participants.
“Apple Pay is trying to be an accepted mode of payment in the United States but it is catching up very slowly,” he said. “It’s disadvantaged, I think, compared with China and other Asian countries’ emerging payment systems. Why? Because established legacy institutions such as banks and credit card companies, while still useful, will soon be overtaken by the new innovative technology being developed here and in other Asian countries.”
Leading investors who specialize in financial technologies and are taking stakes in new technology startups in the country say China is no longer an innovation laggard and in fact is taking a commanding lead in specific areas.
Take online payments. Two Chinese Internet giants, Alibaba Group Holding and Tencent Holdings, already hold strong leads over their U.S. counterparts in this area. Alipay, for instance, is Alibaba’s online escrow payment system that now counts more than 630 million users globally, of which 450 million are in China. Tencent’s messaging app, WeChat, boasts 900 million users, and its WeChat Pay service has about 600 million active users. Both Alipay and WeChat Pay allow their users to make transactions all over the world using their mobile phones, notes Jones, adding that at present not a single U.S. rival can offer a similar global product.
On 17th July, Ping An Insurance announced the affiliate Lufax started a international business platform, Lu International Financial Asset Exchange in Singapore. Lu International was known to have got the capital market service licence(CMS) approved by MAS. It is also the first Chinese fintech company to have a CMS in Singapore, and will start for operation in the third quarter of 2017.
Lu International was registered in Singapore in January 2017, after licensed it will provide a series of wealth management services including securities trading, asset management and custody for investors with overseas bank accounts or assets.
Lu International aim to provide pure online banking services for the Asian middle class, and the investment amount will be among $10 thousand to $1 million,according to Gregory D Gibb, the CEO of LufaxHoldingLtd. The initial product line of Lu International is relatively simple, mainly including monetary fund, fixed income products, bond fund, REITs fund and ETF.
Just days after announcing it secured $66 million through its Series B funding round, digital challenger bank Revolutintroduced free personal euro accounts. The company revealed this new feature enables all its customers, across 42 European countries, to open a free Euro account straight from their smartphone in as little as 60 seconds.
It used to be clear: borrowing cost money. But now Smava, a Berlin-based fintech, has broken new ground by offering loans at a negative rate of interest. In other words, paying consumers to borrow. “Anyone borrowing €1,000 ($1150) will only pay back €994,” says Smava boss Alexander Artopé. That translates to a cool -0.4 percent.
Unsurprisingly, there’s a catch: The largest amount a Smava consumer can borrow at these enviable terms is €1,000, and each person is restricted to a single loan.
Cyprian fintech startup Capital.com has raised $25 million from Larnabel Enterprises and VP Capital and launched its mobile trading app.
The Capital.com app allows investors to trade financial products and receive updates from its patent-pending Smart Feed with news, analysis, and research based on user behaviour. The app, the company claims, uses AI to detect common trading biases and patterns.
The SoftBank Vision Fund, first announced in October 2016, has now closed at least $93B of a target $100B to invest in global technology companies – making it the largest tech investment fund in history.
$100B is an unprecedented sum for a single fund, totaling almost exactly the same amount that all VC-backed companies received in 2016 ($100.8B across 8,372 deals globally, per CB Insights data). Yet the fund’s massive size is raising concerns among some investors, who fear that an influx of high-dollar rounds could overinflate the market and prolong exits while crowding out competing investors.
With both Saudi Arabia and the UAE — which have contributed a combined $60M of sovereign capital to the fund — counting on the Vision Fund’s investments to diversify their national economies, the stakes are high. Other high-profile investors are also placing bets with the Vision Fund: The Vision Fund has closed contributions of $1B or less from Apple, Qualcomm, Sharp, Foxconn, and Larry Ellison’s family office. (SoftBank’s own $25B rounds out the $93B secured so far.)
Cyber-attack poses a significant threat to the global financial system but the Reserve Bank has decided not to introduce more prescriptive requirements at this stage due to the swiftly changing nature of both the threats and the technology, said Reserve Bank head of prudential supervision Toby Fiennes.
Fiennes said the central bank did not believe prescriptive regulations would appreciably improve the outcome, when the technology and threat landscape are both changing so rapidly.
VicSuper has launched a digital advice suite called Beeline to strengthen member engagement.
The digital advice service would act as an online coach to provide members with access to financial advice 24 hours a day, seven days a week, free of cost to members, with the fund saying it would provide super advice at scale.
Areas of financial advice would include additional contributions and investment asset allocation in their superannuation. The service would also provide general advice to members on retirement adequacy and budgeting goals.
The CEFC assisted in a number of clean energy projects in 2016-17 including the establishment of a green loan marketplacewith peer-to-peer lender RateSetter, 500 new energy efficient homes for low income families in New South Wales and ten large-scale solar projects in regional Queensland, New South Wales and Victoria.
Indonesian peer-to-peer (P2P) lending startup Julo has raised an undisclosed amount of investment in a seed round led by Skystar Capital, along with East Ventures, Convergence Ventures, according to an announcement. A few notable angel investors also participated in the round.
Julo is focussed on financial inclusion in Indonesia by helping over 100 million people obtain loans for their various personal use.
Loan applicants can carry out the process from their phones through Julo’s app, where they submit pictures of personal documents and then receive their loan within 24 hours upon successful verification.
One of the recipients of the CMS is Singapore-based P2P lending platform Crowd Genie. Like many of its ilk, Crowd Genie was founded by entrepreneurs who saw that certain traditional financial services were rigid and could not serve certain profiles of clients.
Ideally, the profile of borrowers would be SMEs turning over about S$1 million (US$731,000) to S$5 million (US$3.66 million) in revenue yearly, and would have had a bank loan and a corporate bank account; they would also have to be in operation for about two to four years, and need a short-term funding gap that the banks are not able to extend.
In place of just traditional financial metrics, Mehra and his co-director Bikash Saha, who has experience in a credit rating agency and retail banking, leverage a hybrid of machine-based learning algorithms combined with hands-on groundwork to assess the credit risk profile of potential borrowers.
Part of the reason Crowd Genie is still heavily reliant on human input is that its machine-learning algorithm is currently a work-in-progress. Accurate data analytics can only be achieved once there are enough actionable data points.
Mehra says the next review of the algorithm will take place at the end of the year, when Crowd Genie has accumulated about 300 – 400 cases.
Currently, institutional investors are qualified to be lenders on Crowd Genie; retail investors are barred.
Interestingly, however, a study by international investment house, Legg Mason, personal interaction is still important for these younger investors – 53% of participants in this group indicated that technology can never truly replace personal customer service. This was particularly relevant when it came to retirement and tax planning, but was of less importance when it came to tracking the stock market.
Furthermore, humans can remove irrelevant data from their memory, which allows for increased learning. Robots, however, store all data, which begs the question around the long-term competency of robo-advice.
The financial industry relies on language as much as numbers. Communicating with potential customers, marketing, documentation, etc. all are activities that require words. A financial services company may need a way to find documents based on meaning that delivers fewer false positives. A bank may need to extract topics from various data sources like social […]
The financial industry relies on language as much as numbers. Communicating with potential customers, marketing, documentation, etc. all are activities that require words. A financial services company may need a way to find documents based on meaning that delivers fewer false positives. A bank may need to extract topics from various data sources like social media or email so that statistical analysis can be performed. An online lender may need to automatically categorize messages so that intent can be determined and routed to the correct department.
But current language processing is based on statistical modeling instead of natural language understanding, and that leaves financial businesses scrambling to make their systems fit typical uses.
Semantic Fingerprinting With Boolean Logic
“A whole bunch of problems are implied by this,” Francisco Webber, CEO of Cortical.io, said. “The statistical processing model is hard to apply to a business environment. Solutions tend to be labor-intensive, expensive, and insecure. I ended up changing the approach completely by using a brain-based approach.”
The human brain is the reference representation for natural language processing, so by understanding how the brain does it, Webber can get insight into how computers can do it. He said it works better than traditional methods and takes less effort.
Webber called this representation of language according to the principles of the human cortex “a semantic fingerprint of text.” Using Boolean logic, Cortical.io does not rely on additional machine learning programming. Their system can represent any text in any language as a semantic fingerprint to classify, filter, or search documents within a business context.
The Genesis of Semantic Fingerprinting
The team came out of an initial startup specializing in patent retrieval, which was sold to partners. A part of the team regrouped as Cortical.io in 2012.
“We used experience to provide a better solution,” Webber said.
Research funding helped them create the first prototype. In 2013 they found an angel who brought the total funding to $6.5 million by investing in the prototype. Now, there is a version 2.0.
“To convert a word into a semantic fingerprint, we use a Boolean vector,” Webber said. “It uses 128 x 128 bits and 16K features. Our specific process adds to the distribution of features a topology that makes it comparable. For example, the word “organ” has a semantic fingerprint that overlaps with both “piano” and “liver” because the word can be used in different contexts. Our engine is trained to discern which “organ” is wanted based on a collection of reference materials.”
How Semantic Fingerprinting Works
Cortical.io defines a semantic map that folds into every context and is true for every word that occurs within that context. They have selected about 400,000 Wikipedia pages to end up with every word in the collection. This enables them to convert any text into a fingerprint, then add all the words together that make up a fingerprint representation of the sentence. Thus, they can compare words to sentences and paragraphs since any fingerprint can be compared to any other fingerprint.
“We can throw a fingerprint at the engine and look for all contexts where that fingerprint can occur,” Webber said. “So for the possible context of the word, ‘organ,’ the algorithm finds all the contexts in which it appears including ‘liver’ and ‘piano.’ The building blocks are all packaged into a library so we can scale to any problem. We cope with terabytes of data because the algorithm is perfectly parallel. It’s the fastest you can do on modern computers.”
This semantic fingerprint system is more efficient than other natural language processing systems. It has more features and is more fine-grained. Webber said this is the effect of trying to do things the same way a human brain does. This flexibility means that search engines can be easily tailored to a specific site with contract risk analysis, document search, topic detection, and classification of messages, for example.
“Filtering in social media space is a great demonstration of the value of semantic fingerprinting,” Webber said, “because we want a 360-degree view of the brand. We want every tweet relevant to smartphones. We want to process with an analytics packet. You get about 20,000 tweets per second with traditional methods. Matching every tweet with 200 keywords, you get 20 million comparisons per second. We can do 50,000 fingerprints per second and filter out interesting messages.”
Semantic Fingerprinting is Useful For a Variety of Business Processes
Other uses for semantic fingerprinting are highly individualized news feeds and product recommendations. Since the filtering is inexpensive, it can be offered on a “per user” basis. HR departments could utilize the semantic fingerprint instead of manually editing resumes, even if matching an English job description with a French resume. In another example, customer support cases often solve similar problems. Traditional methods of matching are complex, but by adequately fingerprinting documents, all possible duplicate representations can be matched and new customer support cases can be resolved with complete references to any pertinent data.
“Most of our customers come from the financial space,” Webber said. “In something like email compliance monitoring, we can find out if a message needs to be inspected for fraud or regulated items. A big New York bank is a large customer for contract intelligence. On the west coast, a network manufacturer uses it for support functionality. Everything is rooted in the fact that we evolve text into semantic fingerprints and overlap measurements to derive business value.”
Webber said that Cortical.io’s competition has had a marketing effect on the company. IBM Watson is the leader in natural language processing and Cortical.io’s main competitor, but they use a conventional approach to the problem.
“We get called by customers who say they have tried everything including building themselves with elastic search and deploying IBM Watson, but their results are not good enough. If you get 20,000 false positives per day, you need a big team to filter through them. These companies come to us, and a couple of weeks later, they realize our technology does high-precision, high-volume work with low false positives. We solve their problem.”
This semantic approach can be used with higher volumes of data and filter for meaning without keywords in any technology sector where a language model is used, such as speech-to-text.
“Everybody is talking about bots, but a bot doesn’t actually understand what people tell them,” Webber said. “In any application where it makes sense to understand what the text means, our technology is performing well.”
Cortical.io is being used in finance, fintech, insurtech, manufacturers of complex goods, and consumer good companies. Their lean team of 15 people handles about 20 concurrent projects and can ramp up to more.
What the Future Holds — for the Internet and for Cortical.io
“Our main approach is to create a proof-of-concept,” Webber said, “in order to get people acquainted with the technology. In the future, we plan to have smaller packages for smaller companies who want to run as a service in the cloud. Our current focus is on enterprise deployments, at about $100K per node per year. For very large companies, we also offer a flat fee of $1.7 million.”
Cortical.io’s projected return for this year is $5 million.
The semantic engine could be a component that integrates with any other documentation system. It has a lot of potential applications. Startups and small companies can be provided with an API of functionality without investments or needing to know how it works — it can be deployed on a pay-per-use basis. In the future, it may be implemented inside hardware allowing a web-scale application.
“Advertising is not the future of the internet,” Webber said. “The future is in real personalization, getting a system so smart you can see the world the way you want to see it instead of the way some statistical engine puts it in front of you.”
For any financial entity that uses language to communicate with customers and potential customers, Cortical.io opens the door wider by efficiently simplifying processes so the business can flourish.