Digital Lending: How Artificial Intelligence, Machine Learning Are Making a Difference

machine learning digital lending

Artificial intelligence (AI) and machine learning (ML) are ubiquitous in today’s workplace conversations. Turn on any business news channel and you’ll hear them repeated over and over. Ask any venture capitalist and they are sure to brag about several investments in these areas. Google artificial intelligence and machine learning, and you’ll find 213,000,000 hits, and […]

The post Digital Lending: How Artificial Intelligence, Machine Learning Are Making a Difference appeared first on Lending Times.

machine learning digital lending

Artificial intelligence (AI) and machine learning (ML) are ubiquitous in today’s workplace conversations. Turn on any business news channel and you’ll hear them repeated over and over. Ask any venture capitalist and they are sure to brag about several investments in these areas. Google artificial intelligence and machine learning, and you’ll find 213,000,000 hits, and rising. Overhyped? We don’t think so.

Accenture boldly claimed that AI could boost average profitability rates by 38% and lead to an economic benefit of $14 trillion by 2035. That is no small statement. Even more astonishing is the general alignment among analysts on this issue. It’s widely agreed that AI and ML hold great promise across all industries, and, specifically, in finance.

In 2019, IDC projected that banking would be the second largest global industry to invest in AI, with $5.6 billion going toward AI-enabled solutions (trailing only retail). Why? The anticipated effect on business. According to the research firm, Autonomous, the financial industry’s slice of the global AI pie represents upwards of $1 trillion in projected cost savings.

Fintech Disruptors and Underwriting

Fintech disruptors, characterized as fast-moving companies, often start-ups, focus on a particular web-based innovative financial technology or process, spanning mobile payments to lending. Fintech disruptors initially found an entry point in finance through the use of AI/ML in underwriting.

In the U.S., if the customer consents, you can gain almost unlimited data about their credit profile: how many loans they have, whether they have a mortgage, if they’re delinquent, and whether they requested credit recently. According to the Brookings Institution, “AI coupled with ML and big data, allows for far larger types of data to be factored into a credit calculation. Examples range from social media profiles, to what type of computer you are using, to what you wear, and where you buy your clothes.” Access to this type of data gave rise to the development of sophisticated algorithms to underwrite consumer credit risk. We’ve seen this across a variety of lending companies offering unsecured consumer, student, or even small business loans, particularly focused on digital lending.

Importantly, though, those employing AI must be hyperaware of data collection practices, model design, and the potential for misuse. There is an inherent obligation when using these powerful tools to avoid profit at any cost. When used responsibly, AI can promote growth and better serve consumers. To meet this goal, companies must focus on creating ecosystems that are exponentially more just and equitable than what we have today.

On the surface, the digital lending numbers seem incredible. Digital lenders have grown to $50 billion in originations per year, not including incumbents. And, the research firm Autonomous notes that the digital lender model continues to raise $5 billion in annual venture capital investment, dominated by investments in the U.S.

And, yet, that same report shows that an AI/ML-driven digitization of the lending process is not headed to zero cost. To date, the cost advantages of onboarding and ongoing servicing (up to 70% reductions) have not been able to overcome the relatively high marketing costs that have yet to effectively scale lower than $250 per loan. Moreover, capital costs can reduce efficacy relative to traditional bank competition, and, then, there are the unplanned expenses, such as legal fees or elevated product development costs, the firm reports.

So, if digital lending driven by AI/ML-powered underwriting cannot deliver a material cost advantage, is further AI/ML advancement possible? And, will it improve outcomes for the consumer? Yes, absolutely. It all boils down to operations. As the use of AI shifts beyond obvious use cases and is deployed cross-functionally across entire companies to address various operational inefficiencies, the real promise emerges.

AI/ML 2.0: Improving Outcomes for Everyone

According to Deloitte, the top 30% of financial services firms who are frontrunners are more adept at integrating AI into the core strategic business of their firms, delivering revenue and cost gains quicker than competitors. In our opinion, this is clearly the case with fintech disruptors. Those that are focused on AI integration throughout the organization will quickly pull ahead of those who limit AI deployments to chatbots, underwriting, and other AI/ML 1.0 use cases.

Fintech disruptors can offer the market’s most cost-effective solutions by dramatically curtailing operation costs. Harnessing large-scale, multi-functional AI systems across organizations, instead of simply deploying in underwriting, presents fintech disruptors the opportunity to control costs at each stage and offer quality outcomes for their customers at reduced costs – with lean workforces.

So, while these systems may not face the end customer in any way – in fact, that may not be visible at all – they are the true future of AI/ML for fintech disruptors.

Fintech disruptor leaders who understand the opportunity to use an interconnected system of AI models across their organizations will likely drive the greatest overall efficiencies, both reducing costs and boosting revenues. This enhanced efficiency can be used to drive competitive position and ultimately higher profits.

AI/ML 2.0 at Work

AI can be used to help allocate resources across a variety of functions. For instance, a lender could create an AI model used to predict which of its retail partners would see the greatest increase in usage as a result of a field visit by a partner support representative. Generally, these visits don’t have uniform outcomes. Therefore, using a model-driven approach could help to allocate resources in the most effective manner. Increasing usage obviously drives overall revenue, but also helps to amortize cost over a greater number of transactions, driving better unit economics. Further, with time, the usefulness of such a system can grow. The more data collected from previous visits, the better the algorithm can be at predicting which visits will yield increasing usage.

Or, a lender could deploy AI in the call center to optimize the efficiency of the collections support team. Outbound reach to delinquent customers could be prioritized based on an ML algorithm that evaluates the potential for a successful call and the expected dollar collection. This may sound simple, but making the “good” calls and avoiding the “bad” ones offers all the obvious advantages of more precise resource allocation.

What is less obvious, though, is how these models are interconnected. The model used in the call center complements the underwriting model. If the collections team performs better, then the underwriting model can be recalibrated to maintain the overall risk of the loan portfolio. If the model prioritizing field visits is working, then it increases usage and reduces the average costs to originate a loan. This further enables a recalibration of both the underwriting model and the collections model. The combination of these models, ultimately, increases both expected and realized returns on the loan portfolio, reducing expenses and allowing the company to pass this savings back to customers in the form of lower rates. This is a win for everyone.

Optimizing the AI/ML Ecosystem

This is the true promise of AI/ML – a robust ecosystem of interdependent models utilized to enhance cross-functional outcomes. This leads to a much broader point: inefficiencies exist in all aspects of business – including accounting, legal, operations, finance and customer experience – and negatively impact profits.

Responsibly managed AI/ML 2.0 promises to address many of these functional silos with great success, improving outcomes for everyone involved.

Author:

Dr. Tamir Hazan is a co-founder and head of Analytics at Digital Lending: How Artificial Intelligence, Machine Learning Are Making a Difference appeared first on Lending Times.

Innovation in the established bank-tech companies

bank marketplace lenders

Since the financial meltdown of 2008, regulators have cracked a whip on bank lending. So far, however, there are no such regulations on crowdlending platforms. To counter this, banks (Goldman Sachs is the prime example) have set up marketplace lending (MPL) platforms in silos, which are completely separate entities. As a result of the aforementioned financial […]

bank marketplace lenders

Since the financial meltdown of 2008, regulators have cracked a whip on bank lending. So far, however, there are no such regulations on crowdlending platforms. To counter this, banks (Goldman Sachs is the prime example) have set up marketplace lending (MPL) platforms in silos, which are completely separate entities.

As a result of the aforementioned financial crisis, banks vacated many business segments due to regulatory issues and a shortage of capital. Marketplace lenders have taken advantage of this and captured many of these areas. The financial software publisher Misys realized that banks need to recapture this space for long term feasibility and has launched a white label crowdlending platform for the banking sector.

The initiative was born out of Fusion Reactor, its own innovative engine where new ideas are brainstormed. The idea for the SaaS solution came from French engineer Jean-Cédric Jollant. From inception to launch took less than two years.

Company History

Misys was founded in 1979. Over the years, they has managed to carve its niche in the financial software industry with roots deeply engraved in lending and have developed products like Loan IQ, which has been present in the financial industry for over 25 years and used by most banks. Around 43% of all syndicated loans all across the globe are processed through Loan IQ.

Misys started as a computer systems supplier to insurance companies but has emerged as a financial services software provider through multiple mergers and acquisitions. Recently merged with payments technology firm D+H, Misys has a presence in 125 countries and has over 2,000 customers. Their team of experts are able to address industry requirements at both a global and local level.

Location and Manpower

Misys is headquartered in London, UK and has offices in the major financial hubs of the world (New York, Paris, the Philippines, and Plano, Texas). Its biggest technology office is in Bangalore, India. The company has 5,000 employees of which 2,000 are developers. Around 500 are based out of Paris Another 150 are in Plano. The rest are evenly spread in all other centers.

FusionBanking CrowdLending

A cloud-based lending platform available as an enterprise solution, Misys plans to run alongside its other array of products as an SaaS. Banks have been losing customers to marketplace lenders (MPLs) because they do not offer a large enough variety of products to compete. Banks either offer prime loans that range from 3%-6% or credit cards that range from 15%, hence leaving a huge gap between 6%-15% interest rate for MPLs. Considering there is a huge population in the near prime category, it is necessary to address this unattended potential customer base.

The Idea Behind FusionBanking CrowdLending

The majority of MPL lenders are not actual lenders but more like intermediaries. MPLs act as a bridge between existing bank customers, bank investors, and existing bank services. In actuality, all three sources are originating from the banks.

Even though MPL lenders don’t have lending capabilities, servicing, or recovery services, they still are managing to put a hole in the bank market. More importantly, banks are on the verge of losing relationships with customers and the revenue generated from those relationships.

Misys came up with FusionBanking CrowdLending to stop the hemorrhaging of clients and help banks service the digital-first millennial generation. Also, the company has combined LoanIQ and CME, an origination software, into a white label platform.

Progression

Since banks are the cheapest source of lending, customers will obviously go to them first. But banks have a high rate of rejection as per their lending guidelines, and those applications are wasted or go to online lenders. For example, Standard Chartered in Asia declines 80,000 SMBs per year on average. Therefore, rather than giving over the relationship to MPL lenders, using Misys’ solution, banks can put this business back on their own platforms.

Revenue Model

Misys charges 2% of whatever they process. Apart from that, the company does not charge hidden,  upfront, or license fees. They charge a one-time customization fee, and the 2% fee is lowered after they cover costs. The main motive is to make the platform profitable for banks as soon as possible and help banks retain 99% of the revenue from their relationships. The company plans to target smaller banks first to have a proof of concept for larger banks.

Conclusion

Until recently, traditional banks believed they had two options, either throw in the towel or enter into partnerships with MPLs. Goldman’s Marcus has changed the narrative. Now, banks believe they have the tools to compete. But, instead of building on their own or buying a platform (which is not sustainable for smaller banks), partnering with Misys makes sense.

Misys has opened an avenue for banks to monetize their relationships digitally Creating a bank-owned lending platform allows for all participants to remain in the bank’s ecosystem.

Author:

Written by Heena Dhir.

Why the Buzz Around Fintech Does Not Stop

fintech financing trend

Despite the fact that investments in world fintech amounted to almost $25 billion last year, even in the US, the ratio of digital business models in the financial sector to the classical does not exceed 1 to 100. It becomes a surprise, however, for those who find this out first, because the buzz around the […]

fintech financing trend

Despite the fact that investments in world fintech amounted to almost $25 billion last year, even in the US, the ratio of digital business models in the financial sector to the classical does not exceed 1 to 100. It becomes a surprise, however, for those who find this out first, because the buzz around the industry is indecently large.

Fintech is a capacious term for designating companies that introduce advanced technologies in the finance industry. The world’s number of startups presently is several thousand. However, only a small share of them excel. Nevertheless, CB Insights informs that, in 2016, venture investments in fintech startups in the world were $12.7 billion. What areas does fintech deal with, who heads this movement, and in what areas do institutional investors invest their funds?

Lending

For users, this is the most graspable market segment. It concentrates over half of the profits of today’s banks, and assimilates half of venture fintech investments. Its progressive development started after the 2008 crisis when, due to regulation changes, it was less profitable for banks to lend to certain groups of borrowers. The first big stories in this segment were those of companies who did not compete directly with banks, but rather embraced customers whom the banks had failed to engage (worldwide, roughly two billion people have no access to banking services). A striking example is Ferratum Group from Finland with a focus on short- and mid-term consumer lending. As early as in 2015, this company demonstrated a revenue of over $111m. Today the company’s capitalization is estimated at $423m — and this is in a fintech market dominated so far by startups who rarely operate at least without loss.

Balance sheet lending is growing fast in developing markets. We are seeing a huge market potential in Eastern Europe, Transcaucasia, South-East Asia, but especially, in Latin America. Therefore, ID Finance was the first among the competition to launch a consumer-lending platform in Brazil. Our office in São Paulo is a gate to a market with a population of 470 million speaking only two languages and sharing about the same cultural field. We managed to create a foothold in a region, from which inroads into the continent will start. For this purpose, ID Finance managed to attract $50 mln of debt funding.

Lending, as a division of fintech, is dominated by American players. Their aggregate capitalisation is about one-third of the value of all other fintech in the world. Another third belongs to Chinese companies, with Ant Financial as their leader. Lending to small enterprises has also been growing extensively because banks see many risks here. Generally, I believe that everyone understands that money is concentrated here, i.e. in the lending industry.

A story of its own is peer-to-peer (P2P) lending when the service provides a platform for bringing together borrowers and lenders who can be represented by retail investors. This model is being used advantageously for lending to enterprises. The major player in this area, the British platform Funding Circle, promises investors who invest in it a 5-8% annual net income, whereas the deposit interest rate in Europe rarely exceeds 1.5%.

The P2P segment witnessed the biggest uproar in the fintech history with the downfall of the Ezubao pyramid operating in China. The company forged 95% of loan applications, with about a million of Chinese investors losing $7.6 bln on their investments in these loans. The P2P loan boom in China is a unique phenomenon in the world: About 4,000 P2P platforms are operating in the country. The second uproar related to LendingClub, whose top management deliberately sold bad loans as those with an acceptable or low-level risk.

Do not forget about POS-lending, where Klarna, Affirm, and Divido are considered prominent players in Western Europe. In Eastern Europe, AmmoPay is more commonly known, and it’s geographic expansion is only to be started.

Payments and money transfers

This segment joins wallets, money transfer services, online payment gateways, and so forth. It accounts for up to one-third of all fintech investments, with major national fintech companies having been set up in the payment segment. The margin in this segment rarely exceeds 2%–3%, and one can earn only by involving big volumes. This is why major payment companies PayPal and Ant Financial (an Alipay brand), who conduct transactions to about $100 billion monthly, have been growing due to close links with eBay and Alibaba – major worldwide e-commerce platforms.

Money transfers are another rapidly growing subcategory of this segment. Investors are attracted by a market turnover of $500 billion and the presence therein of niches and of huge areas for development. The cost of international transfers in some cases is 10% and even more. To reduce this cost by winning over customers is the objective of the technological automation of processes.

InsurTech

The insurance industry with a value of about $5 trillion was one of the most technologically unfeasible ones to date. In the first place, this was owing to stringent requirements imposed by regulatory agencies and the passivity of existing players (for instance, the average age of a major American insurance company is about 100 years). Until present, the major innovations in insurance were in the distribution segment. This is of little wonder because the majority of insurance companies so far have been distributing their products by relying on their huge agency networks that collect up to 20% as commission fees.

A recent trend is creating a digital insurer from the ground up. However, such projects are costly. For instance, the American startup Bright Health, whose official launching date has been slated for 2017, has raised over $80 million to create a new-generation insurance company.

Asset and Investment Management

The existing asset management mechanisms and the available methods of investing funds are often customised to a narrow circle of customers: Either professional investors or high net worth individuals serviced by professional financial advisors. However, with developing technologies, this has enabled automating many processes and making them cheaper. This is often the business of companies in this segment. A part of Asset and Investment Management is robo-advising – an online investment advising service.

In essence, the robo-adviser performs the functions of a portfolio manager who buys and sells securities according to “host” preferences. The robo-adviser helps shape a market strategy and implements it consistently. Mobile applications or a computer program are used to communicate with a robo-adviser. Automated counsellors for stock exchange speculation are gaining popularity due to their effectiveness. According to experts’ estimates, in June 2016 the global volume of assets controlled by robots was $50 billion. According to projections, this volume in the long term can grow to $13.5 trillion. Services cut annual service costs from the industry-established average 2% to sometimes less than 0.4%. The underpinning of fintech startups is namely cost saving, product ease of use and democratisation of access.

The multitude of crowdsourcing platforms can also be related to this segment. And if many people have already got accustomed to investing in pre-order of projects in platforms such as Indiegogo or Kickstarter (crowdfunding), investment in shares of private companies in the same manner (crowdinvesting) is only starting to gain momentum.

Personal Financial Management

Startups for personal financial management are another important fintech category. For instance, American Credit Karma enables users to gain free-of-charge access to their credit rating and credit history (earlier users had to pay up to $100 for this option), and maintains a record of all financial products the customer uses.

Neobanks

In the fintech world, a customer’s current account is something like a Holy Grail because this account is often the image of the organisation with which one interacts. Actually, the current account on its own is monetised not so well, and pays only if it is linked to other products, including payments, loans and investments. This is how most of today’s banks operate, and this is the area where more so-called neobanks – new-generation digital banks – are emerging. But if the first attempts to create a digital bank were focused on the provision of a convenient service built around an existing bank infrastructure, new startups are developing an infrastructure from the ground up. The flexibility of regulatory agencies as to digital banking models also helps startups to create full-fledged banks. Thus, in Great Britain, after the banking legislation had been changed in 2014, several new banks were granted licenses, and during this period London became the world fintech capital.

Simply stated, Neobanks are banks that provide the majority of services via mobile applications and web sites. As a rule, such credit organisations have no distributed system of offices, and the bulk of communication with a customer is carried out online.

Obviously, neobanks function by tapping into the potentialities of online banking, distance personality identification, online payments, and other fintech instruments. The most well-known European neobanks are the British Atombank, German Number26 and Russian Tinkoff, one of the largest digital banks in Europe.

There is also a big segment of B2В services for fintech or traditional financial companies. These are both point solutions related to ensuring security, managing big data arrays, borrowers’ scoring mechanisms, and full-fledged platforms.

In particular, Payment Initiation Services is one of them. They are set up for fast online payments without a bankcard and the need to register an e-wallet. The providers of these services offer a fast and convenient way of payment by standard access to online banking via a login and password, but with an extra functional.

The service providers offer their customers a payment method that is faster than conventional online banking without the need for registration and creating new passwords.

Payment initiation services are focused primarily on those users who often make purchases in e-shops, and to those who simply have no bankcard (in Europe, about 60% of the population have no bank cards). In Europe, the major providers of the payment initiation service are Sofort in Germany, Ideal in the Netherlands, and Trustly in Sweden.

Voice Recognition is worth mentioning as a niche in B2B fintech. Voice recognition is used for identifying bank customers by their voice when they contact the call centre. This method of identification saves about 40-60 seconds on the time of each customer’s turning to a bank (required for validating passport data and the code word).

Online voice recognition systems are built around machine learning technologies. This method of identification is deemed more secure than validating personal data by hand.

Yet another method of identification of a bank customer is Face Recognition. As distinct to voice and speech recognition, it has been so far not during a customer’s regular turning to the bank (the bank’s call centre), but mostly when a photo has to be validated.

As a rule, this technology is used when taking out a loan. When validating documents submitted online (or received by the bank’s central office from field operators), a computer algorithm determines whether a photo is genuine and confirms absence of photo editing. In a broader sense, the facial recognition technology can be used for distance identification of customers by banks and nonbank credit institutions.

Biometric authentication – hi tech or a high risk? This is not my question but the title of an article in Phys.org. Indeed, the security of our data is a core problem, especially when we consider access to our money. Security and ease of access are on the opposite sides of the discussion. Debates on Biometric authentication are not subsiding, but the hottest ones concern scanning the eye retina and fingerprint scanning.

Obviously, fintech includes a great variety of business models and approaches. Part of them, such as payments, are already on an advanced level, whilst others are just emerging. Financial organisations, in spite of their sluggishness, have started considering fintech with growing interest. They are starting to understand that new technologies, jointly with their established customer base, capabilities of attracting cheap loans and a well-developed regulatory base can be the foundation of a new-generation digital financial institution. Telecom operators are looking along the same lines because they have been for long merely “pipes” for data transmission, and are keen to learn how to earn money with customers’ services. Needless to say, this is a gravitation point for companies with huge databases, such as Google or Amazon.

Today fintechs are finding their niches with relative ease. But the bigger they grow the more they start to overlap with traditional financial companies. Here a new dilemma appears – either fintechs will start integrating with banks and share the cake, or traditional financial institutions will vanish as a class to clear the ground for companies of new types. This can occur along the same lines as in the case when Uber eliminated the majority of taxi companies. And do not be hasty in giving an answer; in fact, it is not as obvious as it may seem offhand.

Author:

Boris Batine is the co-founder and CEO at ID Finance

Friday March 24 2017, Daily News Digest

unbanked

News Comments Today’s main news: OnDeck’s bumpy ride isn’t over. UK equity crowdfunding recovers. Capital Float partners with Amazon in India. Today’s main analysis: Subprime auto loan delinquencies on the rise. 8 out of 10 online shoppers vow not to return to retailers if they have bad returns experience. Today’s thought-provoking articles: The state of bank innovation. An earthquake […]

unbanked

News Comments

United States

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European Union

Australia

China

India

Canada

 

News Summary

United States

OnDeck’s Bumpy Ride Isn’t Over (Bloomberg), Rated: AAA

On Deck Capital Inc. jumped as much as 11 percent on Thursday after a report that the New York-based online lender is an acquisition target of closely held rival Kabbage Inc.

Assuming Kabbage were to propose a traditional takeover at a standard premium, it probably would be swiftly rejected by On Deck’s earliest investors, who still own a combined stake of more than 45 percent, according to data compiled by Bloomberg.

A different type of merger arrangement might not be such a terrible idea, especially in the face of potentially heightened regulation. Together, Kabbage and On Deck could share the costs of compliance, if increased scrutiny of online lending is formalized. The combined company could also cut overlapping costs and create scale, which may help it better compete against other providers of loans to small businesses including Square Inc., PayPal Holdings Inc. and CAN Capital.

Could Kabbage’s purported interest in On Deck draw other suitors?

‘Subprime credit losses are accelerating’: There’s a problem in the auto loan market (Business Insider), Rated: AAA

US auto loan and lease credit loss rates weakened in the second half of 2016, according to a new report from Fitch Ratings, which said they will continue to deteriorate.

Losses on subprime auto loans have spiked in the last few months, according to Steven Ricchiuto, Mizuho’s chief US economist. They jumped to 9.1% in January, up from 7.9% in January 2016.

Banks are losing share in the auto lending market, potentially as a result of tightening lending standards. Independent finance companies and credit unions are stepping in to the void.

The state of bank innovation in 5 charts (Digiday), Rated: AAA

Of the more than 100 banking executives surveyed for industry strategist Jim Marous, 71 percent cited improving the digital experience in their top three priorities for 2017; half also identified enhancing data analytics as a priority and 41 percent cited reducing operating costs. 

Just 10 percent, most likely those from major institutions, indicated that investing in or partnering with a third-party fintech startup is a priority.

The biggest challenge for banks seems to be hiring and retaining innovation talent and leadership with the specialized skills necessary to lead an increasingly digital bank, according to a new report by Celent, Innovation Outlook 2017: Making Progress.

Is Kabbage Gearing Up To Buy OnDeck? (PYMNTS.com), Rated: A

OnDeck Capital, Inc has market capitalization of $321 million at present, meaning it won’t be a cheap buy. But OnDeck has seen its share price drop 80 percent since first going public in 2014, and as of February of this year had posted five straight quarters of losses. And more losses are widely expected to come — OnDeck has already publicly noted that it has been forced to set aside additional funds for future losses after determining its calculations in its internal models were off.

Kabbage announced earlier this month that it has priced the largest asset-backed securitization of small business loans in the online lending industry. That means it will be selling about $525 million worth of loans to investors, which Kabbage says will allow it to up its loan volume to around $2.7 billion.

Marketplace Lending Industry Sees Efficiency, Cost, Authentication and Transparency as Primary Drivers of Growth (PRWeb), Rated: A

Ninety percent of those involved in the burgeoning marketplace lending industry anticipate an increase in traditional bank and marketplace lender partnerships in 2017, eOriginal, Inc., the expert in digital transactions, today announced as part of the results of a survey conducted at last week’s LendIt USA 2017 Conference in New York.

The increasing convergence of traditional and marketplace lenders was a sentiment echoed by Prosper President and eOriginal Advisory Board Member Ron Suber in his keynote at the conference. According to survey respondents, the anticipated growth in partnership was despite the ongoing obstacles for collaboration, including technology integration (38 percent) and conflicting goals (27 percent).

Survey takers were also asked to highlight challenges to growth within marketplace lending. The top answers included regulations (47 percent) and access to capital (25 percent). When asked to focus specifically on the adoption of end-to-end digital transaction management solution, participants cited the challenges to be full adoption by partners (31 percent), lack of infrastructure (29 percent), security and privacy concerns (22 percent) and cost (17 percent).

Alexa Now Orders Starbucks From Ford Sync 3 (PYMNTS.com), Rated: A

Starbucks just recently announced an ordering integration with Ford’s SYNC3, the automaker’s voice-activated technology powered by Alexa. In a nutshell, this will allow drivers to voice-order their caffeinated beverage of choice while on the road.

On the new in-car voice ordering feature, customers reportedly assign their usual Starbucks order in advance and can direct the request to the 10 stores they’ve most ordered from.

Is Lending Club Really Like Amazon? (The Motley Fool), Rated: A

At the recent Lendit conference, CEO Scott Sanborn made an interesting argument: that online lending is currently in a similar place to online retail at the turn of the millennium. He read passages from a 1999 Barron’s story, “Amazon.bomb,” which criticized Jeff Bezos and foretold the end of Amazon (NASDAQ: AMZN) as we know it. As Amazon investors are well aware, that didn’t happen!

Does Sanborn have a point?

Lending Club was also a first mover in its field, and commands a leading 45% market share Sanborn argues this scale enables a similar “network effect” that will allow Lending Club to get through this tough period.

The second parallel Sanborn drew was cost savings. Just as online retailers like Amazon cut out the costs of physical stores, Lending Club and other online lenders don’t need bank branches or human underwriters. These costs savings allow online lenders to offer loans at lower rates than credit cards, which is how people traditionally obtained unsecured personal loans.

And while sites like eBay and Amazon need buyers, investors in high-yield loans are more fickle. The current low-interest rate period has made high-yield online loans attractive — but that could change if the Fed raises interest rates.

If defaults spike, Lending Club’s underwriting algorithms would come under scrutiny, and lenders might flee the platform again. In contrast, an Amazon customer pays right away, a good is shipped, and the transaction ends. And while Amazon needs to cultivate repeat customers, Lending Club is much more dependent on the financial behavior of others on an ongoing basis.

Why China’s .6 Billion Peer Lending Fraud Is Unlikely To Happen To Lending Club (LC) (CNA Finance), Rated: A

A key difference between the Chinese and US peer lending scene is the level of defaults that occur due to fraudulent listings. Up until the recent regulatory crackdown, fraudulent listings on Chinese lending platforms were rampant, often running as high as 50% versus 1% in the US.

The lack of regulation in China has also fostered a large number of fly-by-night operations opening up shop, often with dubious intentions from the get-go. The hurdles to entry for peer-to-peer lending platforms in the US by contrast are substantial. In fact regulation of the sector is considered so severe that Zopa, the largest based marketplace lender in the UK has actively shelved their expansion plans into the US in order to avoid becoming tied up in US regulations.

Why mobile might be the only platform to serve underbanked (American Banker), Rated: A

In 2015, a Federal Deposit Insurance Corp. study found that one in five citizens were “underbanked.” That same study also found that almost 8% of respondents were completely “unbanked.”

Yet financial institutions globally are serving more people than ever. A recent report from the World Bank found that from 2011 to 2014, 700 million people became account holders at banks, other financial institutions or mobile money-services providers. The number of unbanked individuals dropped by 20%, to 2 billion adults, during that same time period.

To be sure, the use of mobile banking is also growing in the United States. A recent Bank of America report found that 54% of consumers used a mobile banking app, for instance.

In 2015, Pew Research found that although two-thirds of Americans owned a smartphone, 19% of respondents rely on a smartphone to some degree for staying connected to the world around them. Further, 10% of Americans who own a smartphone lack broadband internet at home and 15% who own a smartphone admit to having a limited number of options for internet access beyond their cell phone. Deemed “smartphone-dependent,” this group is largely made up of relatively low-income individuals, consumers with less education, younger adults and minorities.

Are Peer To Peer Loans Right For Your Portfolio? (Forbes), Rated: A

Estimates vary, but the peer to peer market is expected to grow to somewhere between a few hundred billion to over trillion dollars over the coming years, as it captures a high single digit share of consumer lending. The key medium term questions for growth are firstly, how well banks react with their own online lending services, and secondly how successful peer to peer lenders are at maintaining effective lending standards.

Due to differing state regulation, peer-to-peer loans are available in the majority of states, but not everywhere, income qualifications may also apply, such as having an income of over $70,000. Currently, if you live in Iowa, New Mexico, North Carolina or Pennsylvania then your ability to own loans via peer to peer platforms is likely constrained, but in most other states in the US you may qualify.

Often peer to peer debt is issued for several years and so earning a, say, 9% return in one year is great, but if the next year the loan defaults and you lose the full value only 1 year into a 3 year loan term, then that temporary 9% return is not so attractive, and you’ve lost money.

With debt investing, you do need to pay careful attention to your downside risk if you want to be successful, because your interest payments (your upside) can be fairly small relative to the total amount you have at risk (your downside).

Again, to return to the graph above, how many of borrowers can’t pay you back in a bad economy is a reflection of your lending standards, with tighter standards you’re likely to see more borrowers able to pay you back, with looser standards your loans could see far higher loss rates on your investment. There are strong voices on both sides of this debate.

This matters because as interest rates increase, your peer to peer loans are received fixed interest payments. So earning, for example, 5% may seem attractive now, but if the Federal Reserve were to sharply raise interest rates in the coming years, then 5% may be less attractive if government debt also paid 5% interest and so you could invest in government securities, rather than peer to peer and achieve a similar interest rate, or purchase newly issued peer to peer debt at higher interest rates.

With peer to peer lending you may be invested invested in a loan for several years, whether you like it or not. Some peer to peer lenders have so-called ‘secondary markets’ that enabled notes to be traded, though there’s no guarantee your note will sell.

It is possible to defer or eliminate tax on peer to peer loans, by purchasing peer to peer loans within an IRA for example.

5 local startup leaders weigh in on what’s in store for fintech in NYC (Built in NYC), Rated: A

Clarity Money

My hope is to see more technical talent join the New York tech community in general. There are already a few unicorns in the space based in New York and this is very promising. We are noticing a lot of people in banking and consulting who are joining the fintech community because of the lack of innovation and disruption in big corporation due to regulations and bureaucracy.

CommonBond

First, this location is unparalleled for access to talent. New York is home to so many diverse industries — from design to marketing to risk analysis — and that helps us hire top-notch team members. Second, as a fintech company, there’s no better place to be than in one of the world’s largest financial markets.

Payoneer

Being based in New York has made all the difference for Payoneer. New York has always been a financial services hub, but has really become a ‘high-tech hub’ and that has helped our digital payments business grow beyond our expectations. The combination of the city’s dynamic startup community and established financial services community has allowed Payoneer to build a very strong foundation of employees, partners and customers. There are people with big dreams in all of the hi-tech hubs, but particularly in New York many of these people have been in demanding, professional environments for years, so they bring a different focus and discipline to the table. In my opinion, there truly is no place better to start or expand a fintech company than in NYC.

Forter

Being in New York enables me and the whole team to be close to our customers and partners, making sure we understand what their vision is and how we can help them overcome their challenges. The fintech ecosystem in the city has grown significantly in the recent years which enables us to learn and cooperate with other local companies.

NYC is still a significantly more traditional market than the Silicon Valley, especially in the financial sectors, and we haven’t seen as much crossover of experienced successful executives into fintech companies. In the last few months, I’ve started to get the feeling that this is beginning to change. Several people I know, who worked for 30-plus years for big banks, have moved to startups that are challenging those same banks to be better, and leaner.

ConsenSys

ConsenSys now employs 160 blockchain and Ethereum experts with offices in several major cities around the world including the Middle East and Asia, making it the largest blockchain startup. About 40 percent of our staff works out of our office in Bushwick, Brooklyn. We’re proud of our remote-first work culture, and at the same time, many of the Fortune 500 clients of our enterprise group works with are based in New York.

Although Ethereum is increasingly catching on all over the world, there is so much excitement about it in New York that we chose to host the launch of the Enterprise Ethereum Alliance right in Brooklyn, along with 30 partners. New York has been a financial capital of the world for many years, so it makes sense that interest in blockchain would be high here.

What Is a Mortgage REIT? (Yahoo! Finance), Rated: B

Mortgage-backed securities got a black eye in the financial crisis, but real estate investment trusts that own them are currently generous to income income-oriented investors, with dividend yields averaging nearly 10 percent, according to the National Association of Real Estate Investment Trusts.

But with interest rates expected to rise, are they safe enough for a retiree who must preserve principal? Experts have mixed views.

Like ordinary bonds, mortgage securities can lose value when rising rates make older issues with lower yields less appealing. On the other hand, funds that own mortgage securities can gradually pay higher yields as newer securities are added to the portfolio.

Trying to get REIT investors to think like a property investor — and not a stock market investor (FP Street), Rated: B

In other words, to generate a return in REITS, investors need to think like a property investor — and not a stock market investor. All of which means that perceived wisdoms — including that REITs are an interest play, higher-dividend-paying REITs are more attractive investments, and REIT returns are macro-driven — need to be expunged.

6 Guidelines for Building a Client-Friendly Financial App (Think Advisor), Rated: B

The Fintech App Development Compass outlines six steps to help firms build and launch an effective app for their clients.

  1. Know Your User
  2. Focus on Access – One of the hallmarks of fintech is that it can bring financial services to underserved portions of the population.
  3. Establish and Maintain Trust – To keep that trust, they need to make sure that clients will be safe when using the app, and that their concerns and feedback will be heard by developers.
  4. Test and Iterate
  5. Drive Positive User Behavior
  6. Recognize the Value of Mutual Success

Closed-End Funds: Democratizing Alternative Investment Strategies (Think Advisor), Rated: B

Flows into the alternative asset category show this; a 2015 McKinsey article notes that global alternative assets under management grew at a 10.7% annualized rate between 2005 and 2013, twice as fast as traditional investments.

As a result, lines have blurred between traditional and alternative asset classes as investment managers battle for an overlapping opportunity set.

Open-end mutual funds can invest only 15% of their portfolios in illiquid securities. Closed-end funds do not have this restriction, making them attractive vehicles for investing in alternative strategies.

United Kingdom

8 out of 10 online shoppers vow not to go back to a retailer if they have a bad experience returning items (Net Imperative), Rated: AAA

Retailers who fail to provide consumers with a customer friendly and easy returns service risk losing a large proportion of their customer base, according to new data from leading European payments provider Klarna.

Online returns are big business for British retailers today, with nearly 9 out of 10 (87%) of online shoppers having returned items they have purchased online.

On average online shoppers estimate they returned 10% of their total online purchases in the last twelve months. With online spending in the UK reaching £133 billion in 2016, the online returns economy in the UK could be valued as high as £13bn.

A survey of 2,000 UK consumers reveals that 83% of respondents who shop online would not shop with a retailer they have a bad returns experience with. Over three quarters (77%) of online shoppers believe UK retailers need to improve their returns capabilities, while one in four (28%) have been put off returning items due to the hassle of the retailer’s returns process.

Two thirds of online shoppers (67%) say easy returns are an essential factor in their choice of retailer. 28% of online shoppers would spend more if there was an easier online returns process, while 67% say free returns mean they will buy more from a retailer over time.

Report: UK Equity Crowdfunding Recovers from January Slump (Crowdfund Insider), Rated: AAA

The report states:

“February’s OFF3R Index data, made up of 6 equity crowdfunding platforms, has shown a strong uptick funds raised since January. The figures have jumped from just under £9 million in January to well over £16 million in February. These figures were boosted by large rounds from Hibergene (raised via SyndicateRoom) and CauliRice (raised via Crowdcube). Early data from March appears to suggest that this momentum will continue for the equity crowdfunding sector. There has been an increase in the number of larger rounds this month across many of the platforms. This is consistent with the data trends that we saw last year as investors increase investments in equity crowdfunding just before the end of the tax year.”

How tech can help close the advice gap (FT Adviser), Rated: A

Robo advice has been touted over the past 24 months as an answer to the advice gap.

In the Review, which was published in March 2016, robo-advice was hailed as one of several areas where development of technology-based services could go some way towards closing up the so-called advice gap.

“That is why we need to defend professional advice and help firms by using any new emerging technology and have it embedded in their businesses, so the experience the customer receives when they come and meet with their adviser is as streamlined and professional as possible. Quite simply we cannot allow our profession to be left behind.”

As the FCA’s Mr Geale explains, technological innovation will create new ways for consumers to engage with the financial services industry, and the industry will find new ways to provide compliant products and services.

There will always be circumstances or considerations that cannot be captured by an automated model, which is why some firms, such as Learnvest in the US, offer a 24/7 email contact offering, while Australia’s Movo offers tiered packages tied to different levels of human involvement.

Open APIs to shake up small business banking market (Finextra), Rated: A

The global fintech industry, with an estimated 12,000 fintechs and counting, has changed the way small businesses can manage their money in all kinds of ways.

The promise of fintech is so great that $36 billion of venture capital and growth equity has been invested in the sector globally in 2016 alone, representing exponential growth since 2010. The promise of fintech is so great that $36 billion of venture capital and growth equity has been invested in the sector globally in 2016 alone, representing exponential growth since 2010.

Although there are big differences between small business banks and loans in costs and quality (with some banks charging twice what others do for monthly bank account fees, for example), 28% of UK start-ups don’t look into the lifetime costs of a bank account when they open one, and only 4% of businesses switch bank accounts each year. And 35% of businesses who think their banking service to be poor are still not considering switching.

To align with the Open Banking agenda, Nesta’s Challenge Prize Centre has launched the ‘Open Up Challenge’, a new £5m prize fund to inspire the creation of next-generation services, apps and tools designed for the UK’s 5 million small businesses. The Challenge is looking for 20 winning entries from anywhere in the world that will use the UK’s open banking APIs – newly available from early 2018 – to transform the way small businesses discover, access and use core financial products.

Why investors should demand even greater levels of disclosure from P2P platforms (City A.M.), Rated: B

These platforms are proving that, when it comes to matching borrowers and lenders, online is a superior location to the traditional bank branch network. A chunk of bricks and mortar cost has been removed and platforms are able to access new sources of data to determine the expected risk of the loan. This results in better rates for both borrowers and lenders.

Thankfully, the market-leading platforms, both in the UK and the US, have significantly developed their approach to disclosure. They recognise that the answer lies in validation and standardisation. They may not eat their own cooking – but they can ensure that their output is subjected to the most intense scrutiny. Zopa, Funding Circle, Ratesetter, Market Invoice, and now Prosper Marketplace in the US, are providing sufficient disclosure to allow third party validation of their lending data, in order to show their returns to a consistent standard.

Presenting granular historic data of this kind also demonstrates the correct alignment between platform and investor. Lenders should seek platforms that can demonstrate that their overriding motivation is to originate loans at an interest rate that adequately compensates for the risk of default.

Platforms rely on revenues derived from loan origination fees. So, if the status of historic lending can be meaningfully appraised, then continued loan origination fees rely on the performance of historic loans. That results in a genuine alignment between investor and originator because the economic outcomes for both have become inextricably intertwined.

European Union

An earthquake in European banking (The Economist), Rated: AAA

To date, despite dire warnings, European retail banking has been remarkably unscathed by technology-driven disruption. Customers stay loyal, and banks still do the most of the lending. Financial-technology (“fintech”) companies are beginning to mount a challenge, most conspicuously in the online-payments industry in northern Europe: Sofort, iDEAL and other fintech firms conduct over half of online transactions in Germany and the Netherlands, for example. But their reach is more limited elsewhere in Europe. Physical payments are still overwhelmingly made with cash or bank cards.

Regulators, however, are about to transform the landscape. The Payments Services Directive 2 (PSD2), due to be implemented by EU members in January 2018, aims to kick-start competition while making payments more secure. Provided the customer has given explicit consent, banks will be forced to share customer-account information with licensed financial-services providers.

This should change the way payment services work. They could become more integrated into the internet-browsing experience—enabling, for example, one-click bank transfers, at least for low-value payments. Security for payments above €30 ($32) will be tightened up, with customers having to provide two pieces of secret information (“strong authentication”) to wave through a transaction.

According to Deloitte, a consultancy, banks’ lockhold on payments serves as a handy source of income, earning European banks €128bn in 2015, around a quarter of retail-banking revenue. Many see PSD2 as a threat to their business models; they fear becoming the “dumb pipes” of the financial system.

European Commission opens public consultation on fintech (Finextra), Rated: B

The Commission has set up a Task Force on Financial Technology working across issues relating to financial regulation, technology, data, access to finance, entrepreneurship, consumer protection and competition.

Market participants and EU citizens are invited to give their feedback by responding to an online questionnaire which addresses emerging aspects of the fintech ecosystem, including the application of artificial intelligence and big data, distributed ledgers, and barriers to market entry for fintech startups.

Australia

Money Management asked financial service law firms and an Australian regtech what the top 10 common areas of regulatory and legal concern were, and broke down the nexus of technology, advice, and regulation.

The Fold Legal managing director, Claire Wivell Plater, said the fintech ‘regulatory sandbox’ specified in ASIC RG 257, would not shake up traditional advice due to capped limitations.

New said the legal crux with sandbox was taking disclosure, reduced compensation, and additional dispute resolution requirements into account.

Nearly three years after the implementation of the Future of Financial Advice (FOFA) reforms, Wivell Plater said advisers could trust technology solutions and recognise that through all the FOFA changes, it played a part in the agenda to maintain integrity in financial advice.

Managing director of regtech firm GRC Solutions, Julian Fenwick pointed to conflicted remuneration, best interests duty and continued issues of conduct risk; advisers would need to be flexible and ensure a technology partner would not compromise legal obligations or align them to a third-party.

The potential lack of flexibility in technology solutions placed best interests duty compliance as a significant area of attention for the regulator.

Vigilance was required around updates to ASIC and the Australian Prudential Regulation Authority (APRA) policy amendments, and would help advisers stay abreast of legal hurdles.

The Financial Planning Association (FPA) last year proposed robo-advisers appoint independent actuaries to monitor automated advice.

Wivell Plater said advisers were skating on thin ice when it came to ensuring automated advice still provided client and situation accurate solutions.

Lack of specialist knowledge on algorithmic resources was a pitfall for unintentional non-compliance.

‘Regtech,’ or regulatory technology, emerged as a major forerunner last year in financial services, and New said advisers had questions about check-ups on newly-implemented technologies and how they could be utilised for risk mitigation.

Wivell Plater recommended advisers check that both their systems, and those of their technology providers, were well protected against cyber-attacks which compromised privacy law.

Technology was no substitute for professionalism, which meant planners needed to ensure their own competency was up to scratch.

Wivell Plater reminded advisers that it was their ASFL duty to safeguard themselves and maintain regular checks on technological services.

China

Report: China’s digital edge export-worthy (China Daily), Rated: A

China is in a strong position to export its internet financial services and standards to economies along the Belt and Road Initiative, as the country maintains an “obvious” edge in the booming sector, a key report said on Thursday.

As of October 2016, the Chinese mainland had about 1,850 peer-to-peer lending online platforms, with total transactions in the first 10 months of last year exceeding 1.59 trillion yuan ($232 billion), data from the report showed.

India

Capital Float partners with Amazon India to disburse loans to e-sellers (India Times), Rated: AAA

Digital lending platform Capital Float has announced its partnership with Amazon India to disburse thousands of loans to e-sellers. The company – the only fintech startup to partner with the e-commerce giant – has also partnered with other leading online platforms including PayTM, Snapdeal and Shopclues.

Capital Float has designed a collateral free credit facility for online sellers called Pay Later that helps them make supplier payments within 24 hours.

3 Ways Fintech Is Disrupting The Indian Lending Space (CXO Today), Rated: A

The Indian fintech sector saw investments upwards of $1.6 billion in 2016 and has been growing at a steady rate, while investments in the global sector grew by 10% to $23.2 billion.

P2P lenders in India are primarily focussing their portfolio on categories such as personal loans, commercial loans and micro finance. The P2P lending model has great potential for growth in India considering the fact that there are over 5.5 crore small businesses operating in the country, a large percentage of which do not own bank accounts.

Though robo advisory has a low market share, it is nonetheless expected to grow at a CAGR of 68% and manage assets worth USD 5 trillion by the year 2025.

Bengaluru NGO extends loans to farmers widows in Warangal (Th Hans India), Rated: B

Rang De, peer-to-peer lending platform has associated with the town-based Sarvodaya Youth Organisation, is offering loans to the farmers’ widows in the district. At a programme held in Hanamkonda, Parkal MLA Ch Dharma Reddy distributed loan of Rs 50,000s to a group of widows of Atmakur mandal.

The selected widows were given each Rs 50,000 loan and every month 20 farmers’ widows would be selected to distribute the loans. The loans could be repaid in instalments spread over 24 months, he added.

Canada

Cato Pastoll of LendingLoop Presents Bringing Peer-to-Peer Lending to Canada (StartUp Toronto), Rated: AAA

Authors:

George Popescu
Allen Taylor

Tuesday January 17th 2017, Daily News Digest

conditional default rate over MOB

News Comments Today’s main news: Misys launches P2P software for banks. States tell feds to back off FinTech. Today’s main analysis: Credit models and cashflow projections. Today’s thought-provoking articles: . Seedrs sees a record-breaking year. United States Misys launches P2P lending software for banks. GP:” The first obstacles for banks to build their own technology are time […]

conditional default rate over MOB

News Comments

United States

  • Misys launches P2P lending software for banks. GP:” The first obstacles for banks to build their own technology are time , money and experience. The next one is their own in-house politics and culture. This makes it hard. On the other side buying 3rd party technology is a proven path. In the US quite a few companies offer bank technology for marketplace lending but none offer a pure p2p solution for banks. I wonder how succesful they will be.”  AT: “If banks have their own solution, would it benefit them to partner with marketplace lenders or acquire them? This will depend on how valuable the software actually is to banks. If it ends up being a less expensive alternative for banks, then it could lead to more competition in the field from traditional financial institutions with big pockets. Alternative lenders will have to compete on agility and customer service. This could be the beginning of a new phase for P2P lending.”
  • Credit models and cashflow projections. AT: “More excellent analysis from PeerIQ.”
  • States tell feds to back off FinTech. GP:” I am glad to see pros and cons discussed. It can produce something positive or just gut the initiative of all its real value. Lets see what happens.” AT: “I smell a big fight coming over who should be the regulatory authority for the industry.”
  • Money360 funds $3.87M real estate acquisition loan.
  • SoFi changes locations. GP:” SoFi opens a larger and better NY office.”

United Kingdom

China

United States

Tech vendor Misys launches P2P lending software for banks (Reuters), Rated: AAA

Financial technology vendor Misys is launching software to enable banks to provide peer-to-peer lending to their customers as competition from young companies in the sector heats up.

The technology would enable retail and corporate banks to connect their customers looking for loans with individual or institutional investors digitally, the private London-based software company said on Tuesday.

Jollant said Misys was launching the product because it was already an established provider of financial lending software to many large global lenders. He added that the company was in discussions “with a number of interested banks in the U.S., Europe and India.”

Weekly Industry Update (Part 2): January 16, 2017 (PeerIQ Email), Rated: AAA

The price of a loan is the present value of projected loss-adjusted cashflow for the remaining balance of the loan, discounted by an appropriate rate reflecting the riskiness of the cashflows.
We outline this process in the following subsections:
  1. We apply loan-level credit models to project cashflows over the remaining balance of the loan.
  2. We estimate spread at origination – the incremental compensation an investor earns above the Treasury curve for bearing prepay and default risk.
  3. We incorporate additional market observables to adjust discount rates.

Credit Modeling & Cashflow Projections

The price of a loan depends on the principal repayment and interest rate collected over the loan life. Therefore, the first step in our valuation process is to project the pattern and timing of expected (not historical or realized) cashflows.
Unlike an underwriting model which may be concerned with estimating probability of default, we apply credit models that forecast cashflow (e.g., prepayments, delinquency, and default behavior) over the life of a loan given a loan’s borrower attributes, loan attributes, payment profile, and macro conditions.
Estimating Spread at Origination
Marketplace lending loans, unlike other fixed income securities such as agency MBS or Treasuries, have both prepayment and default risk. Investors earn compensation for bearing these risks in the form of a spread above the Treasury curve.
In the marketplace lending space, investors typically buy newly originated loans from platforms at par in an arms-length transaction. At origination, we have the first observable “traded” value of the loan. The primary market provides price information for estimating spreads at origination. Credit spread at origination (“crSATO”) can be interpreted as the incremental return an investor earns for bearing default and prepayment risk for a newly issued loan over the Treasury curve.
We determine discount rates from a term structure of credit spreads by solving for the rate that equates projected cashflows with par value. (Further spread adjustments are applied for aged portfolios.)

States to Feds: Back Off on New Fintech Bank Plan (The Wall Street Journal), Rated: A

On Monday, Sens. Sherrod Brown (D., Ohio) and Jeff Merkley (D., Ore.) sent a letter to the OCC arguing that its proposal would “upset the current financial regulatory structure” and suggesting alternatives including collaboration with state regulators to aid fintech startups.

State regulators say their rules barring loans above certain interest rates, known as usury laws, are a bulwark against abusive lending practices. New York, for example, bans payday loans and makes lending at annual rates above 16% a civil offense. They plan to submit comment letters expressing their concerns.

Margaret Liu, deputy general counsel of the Conference of State Bank Supervisors, an association of state regulators, on Monday said she shared the senators’ concerns and warned the OCC’s planned expansion would “pre-empt state consumer-protection laws” and “stifle innovation by arbitrarily picking winners and losers.”

State regulators also are discussing some defensive measures, such as a mechanism to make it easier for companies to apply across multiple states for consumer-lending licenses.

Money360 Funds $ 3.87 Million Loan for Retail Center Acquisition (Marketwired), Rated: A

Money360, the leading commercial real estate marketplace lending platform, announced today that it has provided financing to a commercial property owner to purchase a fully leased retail center in Mobile, Alabama.

The $3,865,000, five-year loan is secured by the 1.61-acre, 16,710-square-foot Airport Boulevard Shops shopping center, which is 100% leased to four tenants: MovieStop, GameStop, FedEx Office and Panera Brea. The center was constructed in 2004 in the heart of Mobile’s dominant retail corridor, commonly referred to as the “Miracle Mile.”

Online lender SoFi makes its move to Meatpacking District (New York Post), Rated: B

Social Finance, the online lender better known as SoFi, is the newest tenant at 860 Washington St., the gleaming new office project in the Meatpacking District.

SoFi signed for 6,500 square feet. It will relocate from Union Square. Cushman & Wakefield repped the landlord; JLL repped the tenant.

United Kingdom

A Record Breaking Year for Seedrs: A Discussion with CEO Jeff Lynn (Crowdfund Insider), Rated: AAA

Seedrs delivered a record year of crowdfunding. In an end of the year recap, Seedrs quantified their accomplishments including:

  • £85 million invested in 159 different deals
  • 45,000 individual investments were made during 2016 from 65 different countries
  • FreeAgent, a company that raised £1.2 million Seedrs in 2015, IPOed on LSE’s AIM
  • Since platform launch 4 1/2 years ago, Seedrs has raised £190 million for 450 listed investment opportunities

Jeff Lynn: While Brexit was a disappointment at a personal and political level, it hasn’t hindered our business or our expansion. We opened new offices in Amsterdam and Berlin last year shortly after the referendum, and we haven’t seen any slowdown from entrepreneurs looking to raise or investors looking to invest into early stage equity.

Jeff Lynn: But if you’re an international business, or thinking about expanding internationally, we give you the opportunity to build an investor base across Europe and get all of the commercial and marketing advantages that come with that. And it’s the same principle for investors: if you want to find the most interesting deals across multiple countries, then we can offer you something that national platforms can’t.

Jeff Lynn: We have always been supporters of regulation in this space: we were the first regulated platform, and much of the UK regulatory regime is based on the model we designed. So broadly speaking, we welcome the ongoing regulatory review, and where there are improvements that can be made to the current system, we fully support them.

Jeff Lynn: For the industry more broadly, this will be the year in which institutional capital begins to play a meaningful role in equity crowdfunding.

None of this should come as a surprise: in many ways, equity crowdfunding has tracked the growth of peer-to-peer lending but is about four to five years behind it.

P2P Lender Landbay Granted ISA Manager Status By HMRC (Crowdfund Insider), Rated: A

Peer-to-peer lending platform Landbay announced on Monday it was granted ISA Manager Status by HMRC. This news comes less than a month after the lender received full authorization from the FCA for peer to peer lending.

The Landbay team stated that status will clear the way for the launch of their Innovative Finance ISA before the end of this tax year.

Wellesley Suspends Seedrs Campaign to Attract City Investors (Crowdfund Insider), Rated: A

Just a few weeks after launching its equity crowdfunding campaign on Seedrs, peer-to-peer lending platform Wellesley has reportedly decided to suspend the initiative as it seeks to attract city investors. As previously reportedWellesley sought to raise £1.5 million though the funding portal to continue operations.

Age of enlightenment (Credit Strategy), Rated: A

The business has also been described as the first peer-to-peer unicorn – Funding Circle – which is valued at $1bn.

The firm’s CRO Rahul Pakrashi revealed to Marcel Le Gouais how the business approaches relationship management with its micro SME customers.

MLG: Would you describe collections as sitting in first line here?

“Collections is very different from how banks manage it, because within the banks, there is a balance sheet to absorb any losses. For us, it’s most important that the borrower survives – because these are micro SMEs. The borrower might have only one supplier, so very small movements may make or break them. But if you work with them, understand them and support them, you can default them but have a view on how they can overcome their situation.”

MLG: How would you describe a typical customer?

“These types of firms don’t have many assets and they don’t have many borrowings. If you look at how they borrow from the banks, they don’t have classic SME loans, they don’t do things like hire purchase for example. Everyone has a current account but a lot of their borrowing is on credit cards.”

“So the closure rate is high but many of these are family-run businesses – perhaps just a husband and wife partnership. They basically do it to feed their families and they just want a stable income. They don’t necessarily have big expansion dreams; they don’t necessarily want to be the next Tesco.”

MLG: There’s a lot of cynical industry talk about defaults and loan loss coverage at peer-to-peer lenders, can you tell me about how that works here?

We are writing new business of about £100m each month in the UK and our default rate in the UK is six percent.

“The good thing is that in terms of coverage, investors are receiving net returns of about seven percent after all fees and losses. The loss rate is about two percent. But if you look at the gross yield, it’s about 10 percent minus one percent in fees, so nine percent.”

China

The authentication system of first P2P lending platform raises concerns (iWIN), Rated: A

The first online Debit and credit platform in Taiwan was established on March 24th, 2016. FSC and banks were deeply concerned about it. iWIN called for the people to pay attention to the identification authentication mechanism of the platform. Because the provider doesn’t prohibit minors from using the service, parents should pay attention to children’s financial condition, and ask children to protect their personal information.

Authors:

George Popescu
Allen Taylor

Thursday January 12 2017, Daily News Digest

p2p loan investing

News Comments Today’s main news: Funding Circle raises another $100M, praised by chancellor. Today’s main analysis: Brussels, London form FinTech bridge. Today’s thought-provoking articles: What every entrepreneur needs to know before starting a business. United States What every entrepreneur needs to know before starting a business. AT: “Sharestates CEO Allen Shayanfekr shares from his own […]

p2p loan investing

News Comments

United States

United Kingdom

India

International

  • Global loan servicing software market to grow over 14% through 2021. AT: “This is a come-on to sell a report, but the interesting thing is that the software we’re talking about is software that can be used by MPLs and other financial services in the alt lending space. If the software market goes up, it’s a good sign that the industry is moving in the same direction.”

News Summary

United States

What Every Entrepreneur Needs To Know Before Starting a Business (Fortune), Rated: AAA

As the founder of a real estate crowdfunding startup, I have learned a lot over the last two years and am eager to share that information with other entrepreneurs.

The first tip I would give any entrepreneur is to forget the concept of a 9-5 work day. If you start your company thinking that all of your responsibilities will be handled in an 8-hour day, you are setting yourself up for failure.

Without a solid operations team, the inefficiencies from department to department will end up costing much more in the long term.

The capital raising environment is volatile and the key to survive a raise is to find the quickest path to profitability even if it means growing slower. Because raising capital is a long and tough process, you should make every single penny count. Sharestates started out with a $25,000 family loan and now has originated over $200 million in real estate loans since its inception in 2014. Until your company is ready to raise capital, be sure to be in touch with each department’s spend to ensure you are maximizing each dollar.

Make sure you consult an attorney to ascertain all regulatory and compliance risks – not everyone is aware that sometimes their line of business is subject to some form of scrutiny. This is especially important in an industry as new as marketplace lending.

SoFi: A Financial Services Provider That Is So Not Wall Street (TheStreet), Rated: A

In the old days, banks were imposing granite buildings housing massive vaults and offering 3% on savings and 6% mortgages. Later they morphed into unassuming suburban branches distinguished from fast-food outlets primarily by having multiple drive-through lanes. 21st Century banks increasingly live online, and the chief exemplar of that is SoFi.

Another difference is that SoFi relies less on credit scores when deciding to grant a loan compared to mainstream lenders. “We’re looking primarily at free cash flow — do you have enough money at the end of the month to pay us back for this loan?” Macklin says.

Perhaps the most marked divergence between SoFi and mainstream banks is its interest in customers’ personal lives. The company hosts meet-and-greet singles events and community dinners and provides career planning and job search assistance. It even offers coaching to help would-be entrepreneurs launch businesses.

Roseman says SoFi appears to seek refinancing business with borrowers whose student loan balances are $80,000 and up. “With that type of loan balance, they’re looking at the Ivy Leagues and the Stanford grads, more of the private college folks,” he says.

On life insurance, he suggests looking at other options before signing up for SoFi’s. SoFi doesn’t require medical exams from applicants. which means the insurer shoulders more risk, which generally means higher premiums.

He also cautions against refinancing government student loans as part of a mortgage refinance without accounting for the fact that government loans may allow for modifying payments or forgiving part of the loan.

Why You Should Invest In Peer-To-Peer Loans In 2017 (Forbes), Rated: A

Most lenders spread their loans across a variety of rankings—with the bulk in the highest-quality ratings (lowest default risk) and some in the lower quality, where yields can top 20% to offset the higher risk.

One of the big advantages of P2P lending is the very low correlation these loans have to traditional stock and bond markets.

Due to the nature and number of the loans you’ll make, the correlation to the stock market for a P2P portfolio is just 0.19. For US bonds, the correlation is even less, -0.13.

There are also add-on services you can use to improve your overall returns while better managing your risk. One tool we analyzed in our report consistently provided a net annual return of over 14%.

WILL THESE TECHNOLOGIES KILL CASH ONCE AND FOR ALL? (Ozy), Rated: A

Financial technology (fintech) is a young but $78.6 billion–strong industry, and legal precedents can only help it thrive. Unethical business practices by one company can ruin opportunities for all, and that would be a tragedy given that alternative finance holds the power to transform the industry, bringing services to millions who have long been excluded from the system.

Traditional firms like Goldman Sachs will capitalize on Lending Club’s missteps by arguing that point of sale is where it’s at — and they’ll be right.

Mobile apps aren’t merely add-ons for banks trying to appeal to younger generations; they’re now baseline requirements.

2017 will be the year of alternative payments. Heavy hitters like PayPal, Apple Pay and Google Pay will continue to flourish as merchants increasingly encourage customers to pay via their phones or digital wallets. But smaller companies will emphasize mobile payments as well, using new apps and streamlined systems to drive more widespread adoption among consumers.

The natural next step from alternative payments is for smartphones to become people’s go-to personal finance management systems. Individuals will pay their bills, monitor their budgets and make purchases almost exclusively through mobile apps and notifications.

Approximately 24 million U.S. households rely on services like pawnshops and payday loans to access cash and credit. Fintech companies will target these millions through new products and underwriting models that look beyond traditional credit indicators.

Improved efficiencies will empower consumers and hold banks and fintech companies to higher standards of transparency and ethics.

Enhancements in financing will also enable individual verticals or marketplaces build cooperative microeconomies, thanks to improved access to capital.

Does Funding Circle’s 0M Round Signal A Return To Boom Times For Online Lending? (Fast Company), Rated: A

Last spring, following a loan-doctoring scandal at Lending Club—at the time, the industry leader—capital for online lending startups became harder to come by and many suffered layoffs. Avant, Prosper, and Lending Club cut staff by the hundreds.

Funding Circle weathered the storm, closing 2016 on a high note with $485 million in Q4 loans to small businesses. In total last year, the company lent $1.4 billion. According to Hodges, Funding Circle is cash-flow positive in its home market, the United Kingdom (where it benefits from the support of the government-owned British Business Bank), and expects to make its U.S. business profitable in 2017.

Online lenders also face increased competition from banks, many of which have shiny new platforms thanks to partnerships with startups. Kabbage, for example, has made bank partnerships central to its strategy; CEO Rob Frohwein says that licensing Kabbage technology to banks has grown to become an “eight-figure business” for his organization.

LQD Business Finance Announces Breakout Business Results In 2016 (PR Newswire), Rated: A

LQD Business Finance, an alternative lender that uses a proprietary credit-scoring algorithm to underwrite business loans, announced standout business results in 2016, its first full year of operations. Last year, LQD grew its flow of loan applications to over $140 million and loans closed to $33 million. In addition, the company closed a significant Series A funding round, complementing the $30 million credit facility secured in 2015.

Looking ahead, Souri said LQD anticipates growing its origination run rate to $80 million by the end of 2017 and to more than $200 million over the next 24 months, largely by expanding its data-driven lead generation and targeting the $200 billion market of prime and near-prime loans between $250,000 and $2 million. That market is underserved by both banks and existing alternative lenders. Additionally, LQD is in partnership talks with several banks interested in the company’s underwriting platform.

Professional Bank Services and Austin Associates Announce Strategic Merger (ProBank Email), Rated: B

Professional Bank Services, Inc. (PBS) and Austin Associates, LLC (Austin) announced today they have completed a strategic merger to create the nation’s premier bank consulting and investment banking firm. The resulting firm will operate under the name ProBank Austin, with offices in Louisville, KY, Nashville, TN and Toledo, OH.

Transaction terms are not being disclosed. ProBank Austin will continue to be privately-owned by the management and employees of PBS and Austin.

PwC Launches Blockchain & FinTech Program for Young Entrepreneurs (Coin Telegraph), Rated: A

PricewaterhouseCoopers (PwC), one of the Big Four auditors and a multi-bln dollar professional services firm, launched a program called “Startup Collider” in early September of last year. The program, which begins today, will support young entrepreneurs and startups working within the Blockchain and fintech industries.

By the end of the program, PwC hopes to see its startups cooperate with industry leaders and introduce their technologies to mlns of users and consumers. Dissimilar to many venture capital firms or accelerators, PwC also allows startups to test their technologies with its multi-bln dollar clients and partner corporations. If startups wish to pivot away from their focal point to another market within fintech or Blockchain, PwC will support the decision.

United Kingdom

Chancellor hails ‘vote of confidence’ in UK economy as Funding Circle raises £82 million (Business Insider), Rated: AAA

Chancellor Philip Hammond has praised Funding Circle as “a real success story” after the British peer-to-peer lender raised a further $100 million (£82 million).

The company announced its sixth funding round on Thursday, which takes its total equity funding to over $370 million (£300 million).

The latest funding round was led by existing investor Accel Partners, with participation from other existing backers including Baillie Gifford, DST Global, Index Ventures, Rocket Internet, Temasek, and Union Square Ventures.

UK MD and co-founder James Meekings told Business Insider that the money will go towards building out Funding Circle’s technology platform and hiring more staff.

Brussels and London Form ‘Fintech Bridge’ (Fortune), Rated: AAA

“B-Hive,” the part-government-owned platform set up to facilitate innovation between Belgium’s fintech sector and the traditional financial and technology sectors, has signed a memorandum of understanding (MoU) with Innovate Finance, the trade body for Britain’s fintech sector, it said on Wednesday.

In 2015 Britain’s fintech sector, whose ranges from app-based payment services to crowdfunding and peer-to-peer lending firms, employed over 60,000 people and generated 6.6 billion pounds ($8 billion) in revenue, according to the Treasury.

Crowdstacker Claims the Title of Biggest UK Crowdfund (Crowdfund Insider), Rated: A

Yesterday we published an article about BrewDog raising £10 million on Crowdcube.  The funding round via Mini-bonds was described as the largest ever on a UK crowdfunding platform.  Later in the day, Crowdfund Insider was contacted by Crowdstacker saying not so fast – they believe they have the largest crowdfund record for a UK platform.

Their new record-breaking claim to a single raise has been undertaken via its peer to peer lending platform for leading specialist lender, Amicus Finance plc.  To date, £12 million has been invested.

P2P Platform Flender Surpasses £485,000 During the Final Week on Seedrs (Crowdfund Insider), Rated: A

With less than a week until its Seedrs campaign comes to an end, P2P lending platform Flender has secured 98% of its £500,000 funding target (more than £485,000) from 225 investors.

Funds from the equity crowdfunding campaign will be used for key hires, including a direct sales team and in-house software developers; marketing, including online targeting and above-the-line advertising; product development, specifically native iOS and Android versions plus roadmap features for all channels. Flender’s Seedrs initiative is currently scheduled to close next Tuesday (January 17th). 

iBAN Seeking £100,000 on Seedrs to Create Crowdlending App iBAN Wallet (Crowdfund Insider), Rated: A

Online lending platform, iBAN, recently launched an equity crowdfunding campaign on Seedrs with a mission to raise £100,000 to create its new crowdlending app, iBAN Wallet.

The lender stated that the app would connect lenders and borrowers directly, helping them to control their finances and transfer money while on the go. Through the app, iBAN users will have a modern money management tool, integrated with gamification, and risk management.

4thWay Predicts UK P2P Lending Market to Grow Up to 50% in Coming Year (Crowdfund Insider), Rated: A

4thWay, a P2P ranking site, has published a report on the UK peer to peer lending market.  According to their numbers, delivered another “record year”, with a total of £3.02 billion facilitated via 35 various platforms in the UK.

The totals are as follows:

  • Consumer loans £1.27bn
  • SME loans including invoices £1.01bn
  • Development and short-term property loans £690m
  • Asset-backed (HNW pawnbroking) £40m
  • Rental property £10m

4thWay said investors typically received returns of 3%-7% net of costs and bad debts. Lower returns went to investors who desired greater liquidity and the higher returns to those lending for up to five years.

Bad debts at the majority of P2P lending platforms remained consistently very low at less than 1%.

LandlordInvest gains ISA manager status from HMRC (P2P Finance News), Rated: A

LANDLORDINVEST has been approved by HMRC as an ISA manager, paving the way for the launch of its Innovative Finance ISA (IFISA), Peer-to-Peer Finance News has learnt.

At present, just 18 companies are authorised to offer IFISAs, most of which are very small firms. Out of the eight members of the Peer-to-Peer Finance Association, only Lending Works has HMRC approval. Just before Christmas, Landbaygained full authorisation from the FCA, meaning that HMRC permission is the next step.

LandlordInvest has said that its IFISA will offer investors annual returns ranging between five and 10 per cent.

P2P to “explode” in 2017, but some platforms may close (P2P Finance News), Rated: A

PEER-TO-PEER lending will grow by 50 per cent this year driven by the Innovative Finance ISA (IFISA), but some platforms will fall by the wayside, predicts new research.

Just five IFISAs have been launched so far, but independent P2P analysis firm 4th Way is forecasting a total of 16 by the end of the year, which will boost lending.

“Interest rates in peer-to-peer lending will continue to fall in 2017, benefiting borrowers at the expense of lenders,” he said. “However, we believe P2P has been kind to lenders, as they have been rewarded generously for low risk.

“Over the long term, the amount of interest lenders can earn will be aligned to risk. The high-quality of the loans that most lenders are lending in means more lenders will pile in to push rates closer to a fairer level.”

India

Crowdfunding versus REIT: Crucial differences (MoneyControl), Rated: A

Crowdfunding, the world over, has been about peer-to-peer funding. However, there are many challenges in the Indian real estate market, such as the absence of an organised trust/agency, which make crowdfunding a non-starter. So, what makes crowdfunding different from a Real Estate Investment Trust (REIT)?

With REITs, investors only know the portfolio and not the properties. However, in crowdfunding, individuals can single out a particular building or builder to invest in, he explains.

David Walker, MD of SARE Homes, points out that REIT has already gained official sanction, while crowdfunding is still not officially recognised in India, unlike in the developed nations.

International

Global Loan Servicing Software Market to Grow at a CAGR of Over 14% Through 2021 (Yahoo! Finance), Rated: A

Technavio market research analysts forecast the global loan servicing software market to grow at a CAGR of more than 14% during the forecast period, according to their latest report.

The market study covers the present scenario and growth prospects of the global loan servicing market for 2017-2021. The report also presents a detailed analysis of the key vendors in the market, along with a comprehensive analysis of the emerging trends and challenges faced by the vendors.

The increasing demand for the lending market has given rise to efficient loan servicing software that helps the lenders in managing loan databases and debt collection activities.

Loan servicing software enables lending organizations to minimize financial risk exposure in addition to increasing their operational efficiency. Loan servicing software also supports a wide variety of loan industries and lending products that include SME lending, peer-to-peer lending, mortgage lending, payday loans, credit unions, microfinance, retail lending, POS financing, auto lending, and medical financing. Loan servicing software handles the mortgage, home equity, and other consumer loans on one platform. All these factors are collectively increasing the adoption of loan servicing software.

Authors:

George Popescu
Allen Taylor

Friday October 14 2016, Daily News Digest

u.s. tech disruptors and Asian technology companies

News Comments Today’s main news: Morgan Stanley opens $100 million line of credit for FinTech startup Affirm. Today’s main analysis : In an age when people have lost trust with traditional banks, does it matter that Goldman Sachs offers alternative lending, which is preferred by Millennials, more favorably than a purist platform can? Today’s thought-provoking articles: Peer-to-peer […]

u.s. tech disruptors and Asian technology companies

News Comments

United States

United Kingdom

European Union

  • Some key takeaways from LendIt Europe. You’ll want to read this for two reasons: Some insightful commentary about the conversations that took place at the conference, and the news of what those conversations where–good summary of the conference itself.

Russia

Australia

Asia

China

India

Africa

Middle East

Global/International

News Summary

United States

Morgan Stanley Makes 0-Million Move on Fintech Startup Affirm Inc. (The Wall Street Journal), Rated: AAA

The Wall Street titan is furnishing a $100 million credit line for Affirm, the four-year-old San Francisco company led by PayPal co-founder Max Levchin, which was valued at $800 million in its most recent fundraising.

It is the first time Morgan Stanley has backed the lender, which has raised cash from venture-capital investors and debt from investment bank Jefferies and others.

The new credit will add additional lending capacity for Affirm, which is still small in terms of the overall loan market. Still, the company says it has tripled its lending volume since last year, and expects more than $300 million this year. Overall, it has raised some $525 million in cash and debt financing.

Though some banks and lenders are warning that consumer credit growth may start to taper after years of expansion, the startups are betting on a bigger behavioral shift: That consumers, especially younger ones, will eventually use small loans to replace credit cards.

About a third of Affirm borrowers are millennials, and “a large subset of that group is pretty definitively anti-credit card,” Mr. Levchin said in an interview. And they often have other financing options available, he said.

The credit from Morgan Stanley, which declined to comment, also doubles down on Affirm’s decision hold on to its own loans rather than selling them into the market, a model that has challenged firms such as LendingClub and SoFi this year, as investors cut back sharply on their loan purchases.

American Express and Intuit Help Small Businesses Tackle Cash Flow Crunch (Intuit.com), Rated: AAA

MOUNTAIN VIEW, Calif.–(BUSINESS WIRE)– Intuit Inc. (NASDAQ:INTU) and American Express today announced a partnership that will give qualified QuickBooks Online small business customers who are also American Express OPEN® Business Card Members access to short-term, low-cost financing from American Express to pay vendors and ease the cash flow crunch. This unique partnership will make American Express Working Capital Terms the payables financing solution for QuickBooks Online customers.

A report by the Small Business Administration found that insufficient or delayed financing is the second most-common reason for businesses to fail1. By combining automated accounting processes with increased access to quick financing and payment options, this integration will provide small businesses with timely funding to help pay their vendors, help them stay competitive and reduce accounting headaches.

Lending Robot for Advisors Launches Connecting to Lending Club Platform (Crowdfund Insider), Rated A

Lending Robot, the robo-advisor that connects retail investors to P2P loans, has launched a new product: LendingRobot for Advisors. This new service will help connect registered investment advisors to invest in Lending Club loans. The new application is in partnership with Millenium Trust the firm that provides the custodial services for financial advisors. Millenium is a large financial service firm with about $18.9 billion in assets under custody and more than 458,000 accounts under administration.

For financial advisors, you just create a parent account and then link the accounts of their clients. Advisors may then create unique risk and investment profiles for each client, which are then managed by LendingRobot algorithms according to each preference. All monitoring and reporting is available for any individual client, or as a unified dashboard across all client accounts.

Will You Trust Marcus (And Goldman Sachs) With Your Debt? (Fast Company), Rated: AAA

One hundred and sixty-eight years ago, at a time when U.S. states still minted their own currency and the Statue of Liberty had yet to be built, a Bavarian immigrant by the name of Marcus Goldman first stepped foot on American soil.

Chances are you’d be happy to borrow money to pay off your debt from a hardworking family man like Marcus, his success story writ in sepia tones. Or that at least is the theory behind Marcus by Goldman Sachs, the lending product for everyday Americans that the Wall Street firm unveiled today, more than a year after installing Discover executive Harit Talwar at the product’s helm.

Marcus joinsa crowded field of online lending startups, all chasing after a U.S. market worth as much as $1 trillion, excluding mortgages. But none benefit from the direct backing of a parent institution like Goldman Sachs, with its longevity and balance-sheet billions. As an extension of GS Bank USA, Marcus can fund unsecured personal loans without simultaneously having to find investors willing to buy them. For consumers, that arrangement translates into more flexible loan terms and an interest-based business model that eliminates the need for fees—if, of course, potential borrowers can stomach the idea of doing business with a financial institution that many labeled a pariah during the financial crisis.

Don’t trust that algorithm (Harvard Gazette), Rated: A

I was a very naive, apolitical person going into finance. I thought of mathematics as this powerful tool for clarity and then I was utterly disillusioned and really ashamed of the mortgage-backed securities [industry], which I saw as one of the driving forces for the [2008] crisis and a mathematical lie. They implied that we had some mathematical, statistical evidence that these mortgage-backed securities were safe investments, when, in fact, we had nothing like that.

Big data profiles people. It has all sorts of information about them — consumer behavior, everything available in public records, voting, demography. It profiles people and then it sorts people into winners and losers in various ways. Are you persuadable as a voter or are you not persuadable as a voter? Are you likely to be vulnerable to a payday loan advertisement or are you impervious to that payday loan advertisement?

But all of us are subject to many, many algorithms, many of which we can’t even detect. Whenever we go online, whenever we buy insurance, whenever we apply for loans, especially if we look for peer-to-peer lending loans.

The real misunderstanding that people have about algorithms is that they assume that they’re fair and objective and helpful.

How LearnVest is transforming the financial services giant that acquired it (Technical.ly), Rated: A

In May 2015, Milwaukee financial services giant Northwestern Mutual acquired LearnVest for $250 million.

LearnVest is driving Northwestern Mutual to look at themselves as a software company in order to keep up with the changing landscape and global economy, said Azret Deljanin, director of IT and infrastructure at the New York City financial planning tech company.

Considering Northwestern Mutual has been in business for about 150 years longer than LearnVest, this seems to encapsulate the word “disruptive,” which, yes, is often a cliche in the startup world.

How Technology Is Revolutionizing CRE Investing (NREI Online), Rated: A

Commercial real estate investing is a growing industry where personal relationships are pivotal—and these relationships are commonly built via face-to-face meetings and document-heavy correspondence. Sponsors and investors have typically exchanged information through low-tech and high-touch channels, without a great reliance upon technology.

Thanks to the JOBS Act, sponsors are now allowed to market investment opportunities more broadly through general solicitation of accredited investors. This means they can post properties online, thus opening up an immense new audience of potential partners. In fact, according to the SEC, more than 12 million U.S. households qualify as accredited investors.

As we’re beginning to see, tech is turning commercial real estate investing into a scalable, transparent industry of long-term relationships. Think along the lines of social media: investors can be “linked” with sponsors and monitor investment opportunities—all from the comfort of their smartphones or computers.

As a direct result of this demystification, we are seeing a drastic increase in tech-enabled commercial real estate investing. In fact, according to Massolution’s 2015CF Crowdfunding Industry Report, more than $2.5 billion was invested globally via online avenues in 2015, and that number is expected to grow to $3.5 billion this year.

Get free financial advice for joining Military Times special report (Military Times), Rated: B

Military Times is preparing a special report in which we will connect active-duty members with professional financial planners for a free review of whether you’re on the right track, or if there are some areas you need to shore up to reach your financial goals.

Participants must be willing to have the details of their finances made public after the review, with their names and photos included.

To be considered for this review, contact staff writer Karen Jowers at kjowers@militarytimes.com with your name, age, rank, branch of service, marital status (single, married, engaged), number of children (if any), years of military service and current assignment station.

The Money Blind Spot for Millennials (Next Avenue), Rated: A

The Millennial generation — the kids of boomers and Generation X — seems to really get the importance of saving. But based on four new surveys I’ve seen, Millennials also seem to have a blind spot when it comes to investing.

In Fidelity’s survey, only 62 percent of Millennials said they have investment accounts. Worse, just 9 percent of Millennials said they see themselves as investors.

What’s more, when American Funds asked what makes them feel smarter as an investor, only 43 percent of Millennials said “sticking with my investment strategy” (compared to 65 percent of boomers). And 12 percent of Millennials told American Funds that they think picking the next hot stock or market sector makes them “feel smarter as an investor.” Only 2 percent of boomers felt that way.

Similarly, Wells Fargo’s survey said that 59 percent of thirtysomething workers “focus more on avoiding loss than maximizing the growth of their investments for retirement.”

The Millennials surveys show that many in this generation aren’t turning to financial advisers either.

Ripple CEO Calls for Next President to Appoint FinTech Advisor (CoinDesk), Rated: A

Chris Larsen, CEO of Ripple, is calling for the next US president to appoint an advisor to help navigate the rapidly changing financial technology sector. In a new blog post, released today, Larsen argues that technology is redrawing the boundaries of finance – and that the US government needs to take action to keep American companies competitive.

Thus far, only Clinton has weighed in on the subject of blockchain, indicating support for some form of national policy in a campaign statement published in June. To date, Trump’s campaign has declined to discuss the tech when reached.

Larsen went on to say that a FinTech advisor to the president could help ease concerns in another key area: regulation.

Bitcoin, Fintech and the New President of the United States (News BTC), Rated: A

With the US presidential elections around the corner, there is a sense of apprehension in the cryptocurrency industry regarding government policies under the new president. While the two contenders, Hillary Clinton and Donald Trump continue to debate about various policies, they seem to have missed out one specific segment — the fintech sector.

The potential of cryptocurrencies and their underlying blockchain technology has already been proven by the success of Bitcoin.

Fintech Investment Slides as Insurance Tech Gains (The Wall Street Journal), Rated: A

Organizers of InsureTech Connect had to scramble to pump audio and video from the opening session into an overflow room after a security guard blocked entry to the main hall as it got full, said Jay Weintraub, founder of the inaugural conference. He said he had set an aggressive target of 1,000 attendees, but 1,500 showed up
About $945.6 million flowed into fintech in the third quarter of 2016, according to Dow Jones VentureSource, a 57% drop from the same period a year ago, when VCs deployed $2.2 billion into the broader sector, according to Dow Jones VentureSource. The amount invested in the most recent quarter was also down from the second quarter, when fintech companies raised $1.04 billion.

Investment in insurance technology companies is on the rise. VCs put $167 million to work in insurance in the third quarter. The sector saw more funding in each of this year’s quarters than in any of the similar periods last year.

United Kingdom

Lending Works gains full FCA authorisation (Financial Reporter), Rated: A

Peer-to-peer lending platform Lending Works today announces that it has officially become fully authorised by the Financial Conduct Authority.

LendInvest Appoints Willem Wellinghoff As New VP of Compliance (Crowdfund Insider), Rated: B

Online commercial mortgage marketplace lender, LendInvest, announced on Thursday it appointed Willem Wellinghoff as its new VP of Compliance. Wellinghoff will reportedly be responsible for leading the compliance function, setting and maintaining LendInvest’s compliance and risk management strategy.

ThinCats set to pass £200m landmark (BridgingandCommercial.co.uk), Rated: B

ThinCats has revealed it is about to pass the £200m milestone in loans issued to UK SMEs via its platform.

The news follows ThinCats recent launch of its new two-tiered grading system for all loans on the platform’s primary market to provide investors with another level of information so they can assess the quality of a loan.

What price advice? (Pension Funds Online), Rated: A

Following a recommendation of the Financial Advice Market Review (FAMR) last March, HM Treasury (HMT) has proposed a radical redefinition of “regulated advice”.

The intended result is that consumers will receive “regulated advice” only when they are offered a personal recommendation for a specific ‘product’.

This is much narrower than the current definition, in Article 53 of the Regulated Activities Order, which relates to advising on investments.

Don’t miss this chance to help define ‘financial advice’ (Professional Adviser), Rated: B

As outlined in the Financial Advice Market Review (FAMR) earlier this year, the Treasury is now consulting on revising the definition of regulated financial advice, with a view to bringing it into line with the EU definition set out in the Markets in Financial Instruments Directive (MiFID).

The main part of the MiFID definition concerns the giving of a personal recommendation, whereas the current definition, as contained in the Regulated Activities Order (RAO), is broader and less specific.

Responses must be submitted before the week beginning 21 November to: Assets, Savings and Consumers, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ. Or email: dfa@hmtreasury.gsi.gov.uk

UK government agrees plans for single financial guidance body (Out-Law.com), Rated: A

UK ministers have agreed plans to replace the existing government-sponsored financial guidance services with a single body; to be responsible for delivering debt advice, money and pensions guidance.

At the Budget in March, the government announced its intention to replace the existing services with two public-facing bodies: a streamlined, money guidance body to replace the Money Advice Service (MAS); and a single pension guidance body combining the functions of the Pensions Advisory Service (TPAS) and Pension Wise.

It will now further streamline the existing services in response to concerns raised by industry and finance groups, which had suggested that a single body would provide a more effective service and be less confusing for consumers.

Can fintech change the way the money business works? (E&T), Rated: A

The history of stock market booms is the history of technology.

Another hot sector is ‘fintech’. This is the use of the latest technology to revolutionise financial services. The fintech space is hot and many factors are inflating this concept.

Then there is the lure of early successes. PayPal is the biggest example of an internet disruptor that became a financial big boy. It’s worth more than Barclays Bank. By turning an email address into a bank account, PayPal has become worth almost as much as Goldman Sachs.

Then there is Bitcoin. While deeply flawed, this doyen of money-laundering has taken the finance industry’s breath away with its ‘blockchain’ technology.

Finally there is greed. Kids in hoodies are becoming the richest men on Earth. Make a simple app to send a self-deleting picture of your anatomy and voilà, you are a billionaire. Make a website that acts like a noticeboard for friends and become richer than Croesus. Enable people to blurt words into the vacuum of the internet and have your company worth more than Rolls-Royce.

Klarna onboards new UK partners for its retail financing solution (Banking Technology), Rated: B

Why limit getting in debt quickly only to the Arcadia Group shoppers? Payments provider Klarna onboards a raft of partners for its retail financing solution.

These include Shopify, Worldpay, BigCommerce and CyberSource – they “will now be able to make financing easily available to millions of British consumers through their network of online merchants”.

European Union

Takeaways from #LenditEurope: watch while the next phase unfolds! (Daily FinTech), Rated: A

“The Golden Age is in sight in marketplace lending” as the disruption through capital light business models spreads everywhere.

If you are looking to raise money, go into Insurance. The hype is gone in the US lending market, so it is very difficult to raise equity.

Lenders – From the investor’s side, we have retail, government, private funds, asset managers, institutional investors. Each class needs-requires a different wrapper. From direct loans, whole loans, private funds, private bonds backed by loans in SPVs, BDCs, listed funds, securitized deals.

THE INDUSTRY DISAGREES ABOUT THE BUSINESS MODEL: Engage in this open conversation here. Is the business model:

  • Pure P2P platforms offering efficient intermediation between borrower and lender; with no inventory on the platform (e.g. RateSetter for consumer loans and Funding Circle for smallbiz loans)
  • Using your balance sheet; Efficient servicing for borrowers; with a platform that has an inventory (a la Kabbage and LendInvest).
  • Hybrid lending platforms.

The Oxera report can be downloaded here. The most interesting question addressed is “Do marketplace lending platforms have the incentive to do effective credit risk assessment (since they don’t allocate their own capital but “other people’s money” and they earn the spread – which is around 4%)”? The answer is positive.

Credit spreads have widened in the US and the CHAI securitization deals is on watch from Moody’s. Deals are forced to offer increased coupons and wider spreads. At the same time, in the US the new securitized deals see tightening in the secondary market. In addition, the securitization volume overall has been increasing despite decreasing origination volume.

Russia

Bank of Russia Head Sees Bigger Challenge Than Rates for Lenders (Bloomberg), Rated: A

Preoccupied by ultra-low interest rates in much of the industrialized world, the financial industry risks being blindsided by an even bigger challenge, according to Russian central bank Governor Elvira Nabiullina.

New financial technologies such as peer-to-peer lending and the use of cryptocurrencies such as bitcoin are coming under greater scrutiny by central banks. While some countries such as Singapore have taken a more relaxed approach to regulation as they focus on the benefits of innovation, nations from India toChina are tightening oversight to curb emerging risks. The technologies present a test for regulators that may even eclipse the challenge they pose for the banking industry as a whole, according to Nabiullina.

For the Bank of Russia, as the overseer of lenders and the country’s financial system as a whole, its entire “ideology” of regulation may need to change, Nabiullina said. The governor signaled that countries like Singapore and the U.K. will serve as models for Russia’s approach.

Australia

Statewide Super partners on digital advice (Financial Standard), Rated: B

Statewide Super is teaming with Decimal to provide digital financial advice to members.

The industry fund has signed a three year agreement with the software provider to offer its Eqilize solution to more than 140,000 members as part of an overall expansion of member services.

According to Decimal, Statewide is exactly the type of organisation it had in mind when developing Eqilize.

Asia

US Tech Disruptors…and Their Asian Counterparts (Equities.com), Rated: A

Technology is disrupting businesses.

The United States is a hotbed for such disruptive technologies to emerge, from Uber, which disrupted taxi companies, to Instagram, which disrupted the traditional method of sharing photo memories to Amazon.com (AMZN), which changed our shopping behavior.

According to McKinsey, half of the world’s urban population, or 2.5 billion people, will be living in Asia by 2025. This means that disruptive technology would be prominent in Asia in the decades ahead.

In August 2016, Uber officially gave up its game in China after losing $2 billion in two years there. Its Chinese competitor, Didi Chuxing, managed to lure investments from the likes of Alibaba (BABA), Tencent and Apple (AAPL).

Similarly in South East Asia, Grab is keen to stop Uber’s encroachment into their domestic market. Just recently in April 2016, Singapore taxi drivers are complaining about the private price war between Grab and Uber which reduced their incomes.

In Asia, the practice of lending directly to consumers remain undeveloped. The fintech sector there prefers to lend straight to businesses. Even then, they face stiff competition from the local banks who are eager to defend their market share.

So now is the time to reposition your portfolio towards technology – not only in the US but also in Asia. Even the Oracle of Omaha, Warren Buffett, had given up his tech aversion and invested in IBM (IBM) in 2011. This is a sign of times.

China

Peer-to-peer lending inflates China property bubble (Nikkei Asian Review), Rated: A

The rapid growth of online lending is contributing to China’s surging housing prices, giving borrowers a way around government efforts to control a potentially dangerous bubble.

Borrowing for real estate investment through online platforms totaled 125.6 billion yuan ($18.6 billion) this year through August, roughly double the year-earlier figure, data from Chinese research firm Yingcan Zixun shows.

Mainland stock prices crashed last year — the Shanghai Composite Index remains at just 60% of its 2015 peak — and individuals face tight restrictions on investing abroad. Money with little other place to go is flooding into real estate, creating a bubble that has spread inland, with housing prices jumping 20% in cities such as Nanjing and Hangzhou.

China issues details of rules to tackle online financial risk (Reuters), Rated: AAA

China’s cabinet and major financial regulators on Thursday published details of rules aimed at stamping out fraud and illegal fundraising in the country’s fast-growing online finance sector.

The State Council document, which dates from April, provides guidelines and more far-reaching oversight for regulation of online financial activity, including peer-to-peer (P2P) lending, crowd-funding and third-party payments.

The goal is to provide “market order” and safeguard the “vital interests” and “legitimate rights” of financial consumers, an unnamed senior official told the state-run Xinhua News Agency.

Beijing has abandoned its earlier hands-off approach to overseeing online financial services following a slew of scandals, frauds and high-profile P2P failures.

India

Monexo looks to raise -10 mn. for P2P business in India (The Hindu), Rated: A

Hong Kong-based Monexo Innovations, the latest entrant in the Indian peer-to-peer lending space, plans to raise about $5-10 million to scale up its business.

Currently, Monexo, which unveiled operations last month, has a few hundred lenders registered on its platform where borrowers can avail loans at interest rates in the range of 13 per cent and 30 per cent, depending on various parameters.

Lending on P2P platforms is risky (Business Standard), Rated: A

Becoming a lender at a peer-to-peer (P2P) lending platform could appear attractive. You lend to an individual whose credit profile has been evaluated by the P2P platform and start earning equated monthly instalments the next month. The returns can be as good as 16-22 per cent returns a year, more than double most annual fixed deposit rates. But, this investment comes with much higher risk.

Sebi’s proposals to bring in transparency but costs could go up, say advisors (India Times, ET Markets), Rated: A

In one of its proposals, Sebi has said that corporates should float a separate subsidiary to provide investment advisory services. Currently, they are allowed to do so through a separate department.

Another key proposal by Sebi is to eliminate the dual role played by the distributors of financial products. In simple words, a distributor cannot advice, if he wants to, he will have to get registered with Sebi.

Sebi has proposed a 3-year timeline for distributors who seek to migrate to investment adviser role. Well, this seems to be too long a duration.

Sebi is also looking to bring in the robo-advisors and several professionals such as CAs, CSs, CFAs etc. under the ambit of Investment Advisers regulations. Advisers welcome this move and say it will bring everyone at par. Some also argue that insurance agents should also be put under these regulations.

 

Africa

5 South African Fintech Startups Awarded 0K at AlphaCode Event (Face2Face Africa), Rated: A

Five South African financial technology startups have been awarded a total of $350,000 at a pitching event hosted by fintech club AlphaCode, reports DisruptAfrica. The Broad-Based Black Economic Empowerment (B-BBEE) event held in Johannesburg earlier this week, saw the Black-owned startups each walk away with $69,000 in funding from Merrill Lynch South Africa and Royal Bafokeng Holdings.

Gush added that South Africa has the potential to become a fintech center of excellence because of its incredibly advanced financial services infrastructure.

The five startups that took home a share of the top prize included online invoice selling startup, E-Factor, payment and commercial credit startup, Imafin, credit application platform, Invoiceworx, a digital platform for saving schemes called Stokfella, and Heritage Capital Partners, which seeks to invest growth capital into small to medium-sized companies.

Middle East

Islamic banks need to get ready for imminent Fintech disruption (Gulf News), Rated: AAA

Experts speaking at a plenary session at the Global Islamic Economy Summit 2016 said like their conventional peers, Islamic banks too have no choice but to embrace the next generation of computing and leverage on new generation digital technologies.

The Middle East’s banking sector has been relatively slow in adopting deep and transformative digitisation compared to its global peers, according to recent survey of corporate banking customers worldwide by the Boston Consulting Group (BCG).

According to a recent World Bank statistics more than 2 billion people around the world are unbanked and about half of them are in the Muslim world.

Islamic banking and Islamic finance are expected to hugely benefit from fintech and block chain technologies that will help to simplify transactions involving complex structures.

Global/International

Latest report on peer-to-peer lending market size, business growth and opportunities for 2016 published by leading research firm (WhaTech), Rated: A

The Global Peer-to-peer Lending Industry Report 2016 is a professional and in-depth study on the current state of the Peer-to-peer Lending industry. The report provides a basic overview of the industry including definitions, classifications, applications and industry chain structure.

The Peer-to-peer Lending market analysis is provided for the international markets including development trends, competitive landscape analysis, and key regions development status.

Development policies and plans are discussed as well as manufacturing processes and cost structures are also analyzed. This report also states import/export consumption, supply and demand Figures, cost, price, revenue and gross margins.

Opinion: Fintech should be eco-friendly (Financial Times), Rated: A

Climate change and the alarming degradation of natural capital — soil, air, water, biodiversity — demand urgent and sustained action from the global to the local level. This will cost trillions. Available estimates suggest sustainable developmentwill require annual investment of between $5tn and $7tn.

Today’s financial sector is not up to that challenge.

Against this backdrop, in 2014 UN Environment, the UN agency previously known as Unep, launched an inquiry to look at how the financial system could be better aligned with the needs of sustainable development. Its 2015 report The Financial System We Need found that a quiet revolution was already taking place, led by some developing countries.

Fintech will become truly interesting only if solutions can be scaled up. This is one of the reasons UN Environment recentlyagreed a partnership with Ant Financial Services, the Chinese online and mobile financial services company, to promote green finance products.

Getting the fintech community on board is essential. It’s why — along with Ant — we plan to convene a global coalition of fintech leaders to align the sector’s culture and emerging regulations with the needs of sustainability.

Authors:

George Popescu
Allen Taylor