Wednesday February 1 2017, Daily News Digest

Zopa loan originations

News Comments Today’s main news: Betterment to offer human advice. Dubai to open to crowdfunding. Today’s main analysis: Zopa provides insight into borrowers. Today’s thought-provoking articles: Why Yirendai is not a good investment. i-lend expands across India. United States Betterment to offer human advice. AT: “If there was ever evidence that robots won’t kill human financial advisors, […]

Zopa loan originations

News Comments

United States

United Kingdom

European Union

China

  • Investors should be leery of Yirendai. AT: “This is a very long, detailed analysis of Yirendai from an investment standpoint, however, there are some great insights into the Chinese P2P lending market from a business standoint, as well. Could the Chinese be headed toward an LC-style crisis?”

India

Middle East

United States

Betterment now offering human advice with its robo (InvestmentNews), Rated: AAA

The New York-based firm has hired about a dozen financial advisers, half of them certified financial planners, whom Betterment’s retail clients can now reach out to for help via phone or email for an additional cost, the firm said Tuesday. It’s offering two tiers of service, with the initial digital-plus-adviser service requiring clients have a $100,000 minimum.

The Betterment Plus service will give clients with at least $100,000 in assets an annual planning call with an adviser and unlimited advice via email for 40 basis points, while Betterment Premium will provide unlimited calls and emails for clients with $250,000 in assets for 50 basis points.

For its core digital-only clients, Betterment recently changed its pricing from a tiered system based on assets to a 25 basis point annual fee no matter the account size. As a result, clients who have less than $10,000 in their accounts will see their fee decline from 35 basis points, and clients with $100,000 or more will see it increase from 15 basis points.

Former CIO of the CFPB and FinTech Entrepreneur Joins FinMkt’s Advisory Board (deBanked), Rated: A

New York City-based FinMkt, a leading provider of marketplace technology solutions for the financial services industry, today announced the addition of Tim Duncan, a seasoned financial technology entrepreneur and innovative leader, to its Advisory Board. Tim brings an impressive roster of experience, including serving on the executive launch team for the U.S. Consumer Financial Protection Bureau as its Head of Technology and CIO. Tim will advise FinMkt’s management team on strategy and product development.

Tim was recruited by Elizabeth Warren, then Special Assistant to the President of the United States, to join the executive team tasked with launching the CFPB on time and on budget. As Head of Technology and CIO, Tim led technology strategy, planning, and implementation for this inaugural federal agency in the digital age with a budget of $500 million. Under his leadership, the agency implemented an agile, lean process to document, budget, approve, and prioritize technology projects and also became the first federal agency to utilize scalable commercial cloud services while increasing staff from 50 to 500 in an 18-month period.

PeerIQ Announces Agreement with Freedom Financial Network (Yahoo! Finance), Rated: A

PeerIQ, a leading provider of data and analytics for the online lending sector, today announced that Freedom Financial Asset Management, a subsidiary of Freedom Financial Network and one of the fastest growing marketplace lending platforms offering unsecured consumer debt, has adopted the PeerIQ Analytics Platform for enhanced loan data management, reporting, and portfolio analysis—for use by both Freedom’s capital markets team and institutional buyers of Freedom loans.

By adopting PeerIQ’s platform, Freedom Financial will leverage PeerIQ’s full suite of tools: investor dashboards, loan surveillance, portfolio benchmarking, automated reporting, credit facility monitoring, ca­­­­­sh flow analytics, and loan performance modeling.   Moreover, PeerIQ will offer the same tools for institutional investors to streamline diligence of Freedom’s loan data and monitor existing loan portfolios.

Finally, Freedom has tapped PeerIQ to serve as the independent “fair value” valuation provider for its asset management arm.  Drawing upon its deep experience in credit and lending, including its strategic data partnership with TransUnion, PeerIQ launched its valuation service last year.

Braintree hires former Lending Club exec as chief technology officer (Chicago Tribune), Rated: A

Braintree, the Chicago-based mobile payments company, has hired Lending Club’s former chief technology officer.

In his role at Braintree, John MacIlwaine will lead all aspects of product development, the company’s general manager, Juan Benitez, wrote in a blog post announcing the move Tuesday.

FT Partners’ CEO Monthly FinTech Market (FT Partners), Rated: A

FinTech M&A
* 

Industries Where FinTech Is Changing The Game (NASDAQ), Rated: B

The first area where FinTech has made a serious impact is lending.

Loans are happening faster than ever before and the use of technology has improved both business efficiencies and is making headway on lowering risk, thereby also lowering rates for borrowers while still maintaining healthy profit margins.

RedFin has taken a stand against inefficient real estate transactions and the traditional 6% fees. They understand that most of the home search process now takes place online and by streamlining the transaction process with technology, they can lower costs.

Taking changes a step further, startups like RealtyShares are taking the marketplace lending model to real estate investors. Now real estate developers and project managers can look to the marketplace for lending instead of banks.

The payments industry is another area where startups are disrupting the norm.

Due is working to make business payments and digital wallets easier and cheaper for freelancers and other business owners around the world.

SoFi Ranks Fordham Law Graduates No. 15 In Average Salary (The Fordham Ram), Rated: B

Fordham University claimed a spot on SoFi.com’s released 2017 rankings of highest average graduate salary rates. At No. 15 with an average graduate salary of $160,590, Fordham comfortably ranks in the top 20 law schools for graduate salaries. Average debt of Fordham Law graduates is $151,406, giving Fordham a 1.1 salary to debt ratio, according to SoFi.

United Kingdom

Zopa gives insight into its borrowers (Business Insider), Rated: AAA

The numbers point to a solid borrower base. The press release indicated that the top three types of loans on Zopa’s platform are car loans at 34% of the total origination volume; debt consolidation at 31%; and home improvement at 20%. This indicates that debt consolidation loans, the

Lewis: Peer-to-Peer Lenders Expect Higher UK Rates (Bloomberg), Rated: A

The Bank of England would want to get ahead of spiking inflation, says Rhydian Lewis, CEO of peer-to-peer lender RateSetter. He told Daybreak Europe’s Markus Karlsson that customers on his platform expect interest rates to rise.

Listen to the podcast.

Anthony Hilton: Let’s be positive as peer-to-peer pain looms (EveningStandard), Rated: A

However, even in these benign conditions and despite Zopa’s obvious progress, some peer-to-peer firms are showing signs of strain. And most of those that appear successful have moved a long way from the original concept, under which people with surplus funds met via a platform on the internet people looking to borrow. Superficially, the industry still strives to be swanlike in its grace and stability, but under the water the paddling is in some cases increasingly frenzied.

Even big firms such as RateSetter have had pause for thought. From the beginning, it has used a small levy on borrowers’ interest payments to endow a compensation fund to be used to reimburse any lenders whose loans go sour. The problem that emerged last year was that RateSetter’s bad-debt experience was significantly worse than expected even in these good times. This briefly threatened to overwhelm the fund and, although some neat juggling meant disaster did not materialise, it did prompt a rethink about the scheme.

What all this means is that the honeymoon is over, the shake-out is beginning and what survives may bear little relationship to what set out on this journey. The bigger firms are gaining market share at the expense of the smaller, the venture capitalists are becoming much more choosy about whom they back, and a lot of the smaller poorly branded businesses will wither away.

This is inevitable and part of the usual cycle. Rather than be negative about it, it is worth remembering that — even if peer-to-peer lending is less innovative than originally hoped — it has still changed ideas about what is possible and how customers can be served.

So would you invest in Folk-2-Folk for 6.5% interest? (This is Money), Rated: A

Almost every other peer-to-peer firm is online only, but Folk2Folk is slightly unusual in that it has high street branches. Currently these are just in the West Country, but the firm is set to open a branch in Harrogate in February 2017, with others planned around the country.

Folk2Folk is also authorised by the Financial Conduct Authority. This is a good sign as it means that they have met a strict set of lending criteria and will be allowed to provide an innovative finance Isa in the future, meaning investors can earn interest tax-free on up to £15,240 in the tax year 2016/17.

Some peer-to-peer lenders let you invest with as little as £10 but Folk2Folk currently has a minimum investment level of £25,000 – this means the type of investors it would be suitable for are more likely to be reasonably wealthy.

All of its loans are backed by property, which can be repossessed and sold by Folk2Folk if a borrower were to default, helping creditors to recover at least part of the loan.

European Union

Belgian P2P lending startup Mozzeno launches (Finextra), Rated: A

The Belgian fintech startup mozzeno is launching the first digital platform to enable private individuals to participate indirectly in financing loans to other private individuals.

For investors, an accessible investment with returns of up to 5.79% gross and 3.91% net.

Investment Protection: mozzeno works with the loan insurer Atradius ICP which insures loans granted via mozzeno. Depending on the class of risk, this insurance covers from 60% to 100% of the payment of three late instalments and of the remaining amount of the loan.

China

Yirendai: Leaked Internal Emails Raise Much Deeper Concerns (Seeking Alpha), Rated: AAA

The P2P lending space in China is something akin to a Ponzi scheme which is rife with fraud. This is NOT an overstatement.

During 2016, YRD continued to report loan growth which was downright explosive. (But so did every other P2P player in China’s rapidly booming P2P space). Accordingly, the headline metrics for YRD looked temptingly good. YRD appeared to present a low P/E ratio, strong revenue growth, huge return on equity, etc. This began to attract a number of US quant funds (shown below) to take numerous small positions based on their “factor models”.

Ahead of the Ppdai IPO, the SCMP article quite clearly comes across as a warning to US investors who might be tempted to invest in a Chinese P2P. The SCMP makes clear what Chinese investors have known all along. Here are a few quotes from SCMP, which again came out just last week:

  • In China, “P2P lending… has been mired in a slew of scandals amid runaway investment and fraud since late 2015.”
  • “Beijing will heighten requirements for P2P players… The intention of the heightened regulation is partly to shut down some firms that purport to be P2P lenders.”
  • “dozens of unscrupulous players raised funds from depositors and then channeled the loans to corporate clients such as property developers.”
  • “In 2015, Beijing-based Ezubao was found to have defrauded more than 1 million investors of about 100 billion yuan.”

A large number of small Chinese retail investors (in this case, it was around 13,000 investors) log on with their smartphones and opt to make small investments in some sort of P2P loan product. There is no research and no due diligence. They just click on their smartphone and then “poof” they have invested in something which is supposed to provide some attractive level of returns. Their money is transferred out of their bank account immediately and automatically.

The reality as I see it is that YRD has largely been set up as a dumping ground for terrible subprime paper, foisting the future losses on oblivious US investors who are relying on superficial factor models.

India

P2P platform i-lend eyes pan-India expansion, fresh capital (India Times), Rated: AAA

Online peer-to-peer lending platform i-lend is preparing itself for a pan-India expansion and looks to raise Rs 4-5 crore from investors to finance it, founder director Shankar Vaddadi told ET.

Vaddadi said that the company is waiting for Reserve Bank of India to announce the final peer-to-peer lending norms before it takes steps towards building presence across the country.
India has about 30 online P2P marketplaces including Faircent, i2iFunding and LenDenClub.
Vaddadi said i-lend has processed 380 loans so far for Rs 3 crore.
Middle East

Dubai To Open Up To Crowdfunding Platforms, As Part Of Fintech Push (Forbes), Rated: AAA

The regulator of offshore financial hub the Dubai International Financial Centre (DIFC) is preparing to license loan-based crowdfunding platforms for the first time.

The consultation, which was launched on January 31, is the first in what is promised to be a series of initiatives covering crowdfunding and the financial technology (fintech) industry more broadly.

According to the local Khalifa Fund, around 70% of SMEs in the UAE have had their applications for funding from conventional banks rejected and loans to SMEs account for just 4% of outstanding bank credit in the country.

Authors:

George Popescu
Allen Taylor