Thursday January 11 2018, Daily News Digest

consumer loan mpl abs

News Comments Today’s main news: Vanguard’s robo-advisor passes $100B AUM. YieldStreet raises $113M. RateSetter, Funding Circle join FSB funding platform. Funding Circle looks at Autumn for flotation. ETHLend launches secondary blockchain partnership. Modalku hits $7.4M in total crowdfunding. Today’s main analysis: KBRA 2017 consumer loan marketplace lending year in review and 2018 outlook. Today’s thought-provoking articles: LendingTree survey: Survey takers […]

consumer loan mpl abs

News Comments

United States

United Kingdom

China

European Union

International

Australia/New Zealand

India

APAC

Canada

 

News Summary

United States

Vanguard’s Digital Advice Platform Is First to Pass $ 100B in AUM (Investopedia), Rated: AAA

Vanguard reached another milestone that should keep competing robo-advisors on their toes: it is the first firm to have a digital advice platform to surpass the $100 billion mark in terms of assets under management. And that comes with Vanguard having launched the service in 2015, just three years ago.

According to Stokes, 90% of the platform’s $101 billion in assets under management as of the end of 2017 are from existing clients. Vanguard’s assets under management beat those of Charles Schwab, which has $25 billion in assets under management for its Intelligent Portfolios, Institutional Intelligent Portfolios and Intelligent Advisory services, as well as Betterment’s $10 billion in assets, noted FinancialPlanning.

KBRA Releases 2017 Consumer Loan Marketplace Lending Year in Review and 2018 Outlook (BusinessWire), Rated: AAA

Kroll Bond Rating Agency (KBRA) released its 2017 Consumer Loan Marketplace Lending Year in Review and 2018 Outlook. The accompanying research report highlights the fact that 2017 was a notable year in the consumer loan marketplace lending (MPL) space in many respects. Total ABS issuance topped $7.8 billion in 2017, up from $4.6 billion in 2016, a year-over-year increase of 71%. SoFi led the way in 2017 in terms of number of ABS deals and total securitization volume, having completed six securitizations for $3.2 billion in total notes. Prosper completed three securitizations totaling $1.5 billion under their PMIT program followed by four deals from LendingClub’s prime and near prime shelves totaling $1.2 billion and three from Marlette’s MFT shelf totaling $919 million. Avant completed two securitizations totaling $480 million while Upstart issued its inaugural securitization in June 2017 followed by a subsequent deal in November. Investor demand strengthened with orders exceeded total deal size and a larger number of investors participated in the deals.

KBRA’s 2017 year in review and 2018 outlook provides:

  • KBRA’s outlook for 2018
  • Information behind the growth in the consumer MPL market
  • Detailed loan origination and ABS issuance volume by platform
  • Securitization performance and rating trends
  • Comparison of collateral characteristics, lending license arrangements platform servicing strategies and funding sources
  • Synopsis of legal and regulatory developments affecting the sector
  • Summary of significant equity raised by fintech companies

Read the full report here.

LendingTree Survey Reveals Optimistic Outlook for Personal Finances in 2018 (PR Newswire), Rated: AAA

LendingTree recently conducted an online survey among 1,025 Americans to gauge financial expectations, concerns and overall sentiment regarding personal finances for 2018. According to the results, two out of three Americans have an optimistic outlook for the year ahead, with millennials being even more optimistic.

According to the survey, almost half of Americans (45%) feel that 2017 was at least somewhat better than 2016 in terms of personal finances. Approximately one third (34%) earned more in 2017 than they did in 2016, 24 percent put more into savings in 2017 compared to 2016, and 21 percent improved their score over the past 12 months. However, only 16 percent reduced their total credit card debt, making debt reduction a priority in the year ahead.

Additional positive expectations for 2018 include:

  • 46% expect income to increase
  • 28% expect to pay off credit card debt
  • 35% plan to make and/or stick to a budget in 2018
  • 35% also expect to improve their credit score
  • 18% expect to save for a down payment on a house
  • 27% plan to build an emergency fund
  • 26% expect to save for a savings/purchase goal

To view the rest of the survey results, visit 

Spike in delinquency rate mars outlook for personal loans (American Banker), Rated: A

U.S. consumers are falling further behind on loans commonly used to consolidate debt, the latest sign that monthly payment burdens have become unsustainable for more households.

In the third quarter of 2017, 1.9% of all bank-issued personal loans were at least 30 days delinquent, according to data released Tuesday by the American Bankers Association. That was a notable jump from the second quarter, when the delinquency rate was 1.52%.

YieldStreet Raises $ 113 Million Financing Round to Disrupt Alternative Investing (BusinessWire), Rated: AAA

YieldStreet, the alternative investment platform working to change the way wealth is created, today announced that it has closed a $113 million financing round. The round includes $12.8 million of Series A equity financing co-led by Greycroft and Raine Ventures, as well as a revolving credit facility of $100 million from a New York based family office (the “Family Office”). Additional equity investors include Saturn Ventures, Expansion Venture Capital, the Family Office and FJ Labs.

The equity capital will help enable YieldStreet to accelerate the transformation of wealth creation by investing in further product innovation and growing its loyal community of investors. The raise comes as YieldStreet reached a tipping point in 2017, almost tripling prior year originations and surpassing $250 million raised by retail investors at the end of the year.

Alan Patricof, co-founder of Greycroft and one of the pioneers of modern private equity as the founder of Apax Partners, will join the YieldStreet advisory board. Ian Sigalow of Greycroft, Gordon Rubenstein of Raine Ventures and a representative from the Family Office will join YieldStreet’s board.

It’s Time to Talk About Alternative Assets (ThinkAdvisor), Rated: A

While many high-net-worth investors get advice from friends, family and sources on the internet, the majority — 72% — rely on financial professionals such as their advisors for investment information, according to research by Millennium Trust. In fact, financial professionals are over three times more relied on and trusted than the next trusted investment source: 51% of HNW investors trust financial professionals more than competing sources, including family, which is the most trusted source for only 13% of investors.

When advisors discuss potential investments with clients, they often focus on traditional options like stocks, bonds and mutual funds. As our research shows, however, many HNW investors are interested in alternative investments, such as hedge funds, private equity, real estate, commodities, marketplace lending and crowdfunding.

For example, 63% are moderately or extremely interested in investing in real estate and 46% report the same level of interest in private equity. But when it comes to discussing those investments with their broker or advisor, the numbers are significantly lower: Just 25% have discussed residential rental properties, 20% commercial rental properties, 23% real estate investment trusts, and 27% real estate limited partnerships, whereas 38% have discussed private equity.

Ryan Feit, CEO of SeedInvest, Updates on 2017 Progress & Crowdcube Partnership (Crowdfund Insider), Rated: A

SeedInvest is one of the most selective investment crowdfunding platforms in the US.

Today, SeedInvest is a full stack platform allowing companies the ability to sell securities under each of these exemptions.

How were your numbers for 2017? Can you share some top line detail?

Ryan Feit: We had another record year at SeedInvest.  We invested around $50 million into startups during 2017 (more than in our prior four years combined).  By our calculations we did at least twice as much investment volume as the next largest US-based equity crowdfunding platform that is open to all investors.

During 2017, what were some of the highlights for SeedInvest?

Ryan Feit: Here are a few additional highlights for 2017:

  • HelloMD completed the largest Regulation CF Side-by-Side round fundraise in history, raising $3 million.
  • Knightscope completed the largest pure Equity Crowdfunding round in history, raising $20 million.
  • We launched Auto Invest to help investors easily diversify in up to 25 startups and so far, 470 investors have made 3,300 auto investments into startups.
  • We launched LIVE Fundraising at events around the world and through our partnerships with LAUNCH Festival/Scale and
  • TechCrunch Disrupt, $10 million was raised from 5,800 people on SeedInvest.
  • SeedInvest had 14,000 startups apply to raise capital (vs. 1,500 in 2015).
  • SeedInvest had 2.5 million site visitors (vs. 400k in 2015).
  • SeedInvest processed 20,000 investments (vs. just 275 in 2015!).

Petal Card Raises $ 13M Led by Thiel’s VC Firm (Bank Innovation), Rated: A

Petal, the card designed to serve the credit invisible, has raised $13 million in funding that it will use to double its employees as the young startup tries to meet the demand of its growing user-base.

The Series A funding round was led by Peter Thiel’s VC firm, Valar Ventures.

U.S. News & World Report Names LendingPoint One of 2017’s Best Personal Loan Companies (BusinessWire), Rated: A

LendingPoint, the company working to revolutionize access to consumer credit, was named one of nation’s six best personal loan companies by U.S. News & World Report.

The media company evaluated personal loan companies in five key areas, reviewing data on eligibility, loan terms, fees, repayment methods and additional features. LendingPoint was cited as 2017’s top lender for people with fair to good credit, who have merit-based qualifications beyond FICO scores that make them worthy loan candidates.

Alkami raises $ 70 million for mobile banking software (TechCrunch), Rated: A

Plano-based Alkami has developed a white label service that credit unions and banks use across digital platforms.

And Alkami’s 4.5 million users have generated enough revenue for the company to justify a $70 million Series D round, led by General Atlantic, with participation from MissionOG. Existing investors include S3 Ventures and Argonaut Private Equity.

Chase Partners with AutoFi to Deliver Digital Car-Buying for Dealerships across the Country (BusinessWire), Rated: A

Chase announced today a partnership with AutoFi, a financial technology company that helps customers select and finance vehicles through their automotive dealers’ website and reduce the time it takes to complete the sale. Chase is the first national bank on the AutoFi platform.

The AutoFi digital retailing platform connects dealers with buyers and lenders. Chase will deliver financing terms online through the AutoFi platform, often within seconds.

Nearly half of consumers want to purchase and finance vehicles online, Chase’s research has found.

CECL compliance dragging small banks toward automation (American Banker), Rated: A

Like many small-to-midsize banks, Bank Independent in Sheffield, Ala., calculated its monthly allowance for loan and lease losses the hard way: setting aside a week every month to complete a largely manual, Excel-based model.

Download Your Guide to LendItFintech USA (LendIt), Rated: B

Discover who attends, why you should attend, andmore.

Ascentium Capital Exceeds $ 1 Billion in Funded Volume During Fiscal Year 2017 (Ascentium Capital), Rated: B

Ascentium Capital LLC, the nation’s largest private-independent finance company, announced it surpassed $1 billion in annual funded volume for the first time in the organization’s history.

 

Real estate investing startup Cadre partners with Goldman Sachs (Reuters), Rated: A

New York-based real estate investment company Cadre has partnered with Goldman Sachs Group Inc (GS.N) to allow the bank’s private wealth management clients to invest through the startup’s platform.

Goldman Sachs clients have committed to investing $250 million in properties through Cadre’s platform so far, the companies said on Wednesday.

Better Saves Homeowners $ 2.7 Million in Mortgage Refinancing Costs in 2017 (Better Email), Rated: A

PeerStreet: A Group Of Surfers Out To Revolutionize Real Estate Investing (Benzinga), Rated: A

PeerStreet is an investment platform that enables accredited investors to easily invest in high-yield, short term, real estate backed loans. PeerStreet sources its loans from non-bank lenders across the nation. They underwrite both the lenders and the loans using advanced algorithms, big-data analytics, manual processes and on-the-ground due diligence to filter and select high quality loans.

Who are your investors, if any?

Our investors include: Andreessen Horowitz, Felicis Ventures, Rembrandt Venture Partners, Montage Ventures, ThomVest, The Kaiser Family Foundation, Colchis Capital, Toba Capital, Le Frak, and many notable individual investors including Dr. Michael Burry, Adam Nash, Ron Suber, D. A. Wallach, etc.

Is there anything else Benzinga should know about your company?

PeerStreet is entrenched in the financial technology and lending industries at large. PeerStreet has been named by American Banker as one of the “Best Places to Work in Financial Technology” in 2018 and one of the “10 Best Startups in Los Angeles” in 2017 by Zippia. PeerStreet is a member of the Marketplace Lending Association and has partnerships with over 150 private residential real estate lenders in over 30 states.

Q&A With Chief Investment Officer Chris Fraley (RealtyMogul), Rated: A

Q: How do you intend to translate your experience from Rockwood Capital to your role at RealtyMogul?

In 2018, I see RealtyMogul expanding the size of its investment transactions, something I have direct experience in managing and find very exciting. I believe RealtyMogul is entering its third phase of growth as a business, evidenced by its recent acquisition of Serendipity Apartments this past September. Due to the ability to invest larger amounts of equity, we were able to maintain a majority, controlling interest in a $24M apartment community. While providing opportunities in preferred equity, mezzanine debt and smaller, passive limited partner interests will still be a critical aspect of our business, I’m hopeful that our real estate team’s substantial institutional background will help us acquire and successfully manage properties with larger transaction values.

Q: Do you think RealtyMogul will impact the traditional institutional investing model?

Absolutely. The institutional world is already starting to sign on to the concept of direct investing because the typical closed end fund model is broken, inefficient and fraught with possibility of misalignment of interests.

Surprisingly, most institutional investors do not want to invest in value add real estate investments in the bottom of a cycle until there is clear evidence of a market recovery. This was evident in the last downturn by the paucity of institutional allocations to value add strategies in the 2008-2012 timeframe. When the market starts to recover, institutional investors should start to make allocations. This may take a year or two. They lock up allocations with 3-4 year investment periods, oftentimes at the peak of cycle. Now is a perfect example of this disconnect.

Direct investment platforms allow investors to move in and out of market more efficiently and avoid an extra layer of fees to the investor. I believe this is the future of our industry and RealtyMogul is poised to lead.

RealtyMogul Hires New Chief People Officer (RealtyMogul), Rated: B

RealtyMogul, a unique commercial real estate private markets investing platform, today announced the addition of Soley Van Lokeren as Chief People Officer.

Stressing About When And How To Pay Your Debts? Pefin’s AI Assistant Is Here To Help (Benzinga), Rated: A

Pefin is the world’s first Artificial Intelligence (AI) financial advisor. The platform provides intelligent, unbiased and personalized financial planning and advice. Pefin’s mission is to look after the financial best interests of users in a way that embraces the unique individuality of their lives.

The platform offers:

  • 1. Long-term Financial Planning services, including a complete Financial Plan
  • 2. Financial Advice, including savings and debt management strategies
  • 3. Investment Advice and Portfolio Management Services
  • 4. Real-time monitoring, updates, and curated financial literacy content for each user

Tech advances force advisers to adjust — or else (ROI-NJ), Rated: A

There’s a machine-versus-human calculus that’s going on in the world of money management.

It may not yet be that more financial advice is provided by machines than humans, but to say the industry is on that path isn’t hyperbole. Investors themselves — particularly those of a younger demographic — have shown they are willing to trust a robot for advice.

John Babcock, president of Peapack-Gladstone Bank’s private wealth management division, sides with the humans, but understands automation is quickly changing the face of his business.

ProShares and VanEck are withdrawing their requests for bitcoin ETFs (Business Insider), Rated: A

Two financial services giants — ProShares and VanEck — are withdrawing requests to the Securities and Exchange Commission to list bitcoin ETFs.

 

US Banks Rely on Fintech Firms to Overcome Legacy Systems (Payments Journal), Rated: A

Legacy systems are preventing nearly two thirds (64%) of US commercial banks from developing Fintech applications, research commissioned by Fintech provider Fraedom has revealed.

Interestingly, 82% of the respondents that highlighted this concern were shareholders. Over half of those polled also noted a lack of expertise within banks as an important concern (56%), just ahead of limited resources (53%).

Commercial banks outsourcing services to a Fintech provider is clearly a trend on the rise, with only 22% of US banks revealing that they do not outsource any payment services compared to 30% of their UK counterparts.

How a Fintech Startup Aims to Take the Fear Out of Investing (Wharton), Rated: A

Riskalyze CEO Aaron Klein talks to former Wharton visiting professor Vinay Nair about his startup’s business model and path to growth.

Nair: Can you give us a sense of what your Risk Number model is and why advisors are attracted to it?

Klein: We built the technology on top of the academic framework that won the Nobel Prize for economics in 2002 — Daniel Kahneman and Amos Tversky’s work on prospect theory. We had a team of academics do a deep dive into the methodology and they said, ‘On the one hand, there are a lot of novel things in what you’ve done. On the other hand, a lot of what you’ve done is taken stuff that we’ve been working on in the labs for 15 years to 20 years and figured out a way to make it commercially viable and understandable by the average human.’

Listen to the podcast here.

Can taking out a loan be a good experience? (WGN Radio), Rated: A

Kabbage has enough experience with small businesses to say providing loans to small businesses can make for a good experience. John Parise is the Head of Customer and Partner Marketing and has been following company journeys for years now. His way of making loans a positive experience is by offering flexibility.

Listen to the podcast.

Fintech Startup Apruve Partners With MSTS For Credit Card Alternative (Benzinga), Rated: B

B2B fintech companies MSTS and Apruve announced Wednesday a payment process obviating the need to leverage capital and resources to provide credit and payment terms.

The new service enables automated instant credit approval, buyer onboarding, billing, customer service and collections services while allowing business clients to eschew the high transaction fees of credit cards.

4 of the 5 Biggest IPOs in 2017 Bombed. Here’s Who Won (Madison), Rated: B

The number of companies going public in 2017 surged 52% over the year ago period, hitting 160 deals, with the proceeds from the IPOs reaching $35.6 billion, double the amount in 2016, according to an analysis by Renaissance Capital.

5. Qudian (down 47.8%)

United Kingdom

RateSetter and Funding Circle added to FSB Funding Platform (P2P Finance News), Rated: AAA

RATESETTER, Funding Circle and Assetz Capital are some of the peer-to-peer lenders that have been included on the Federation of Small Businesses’ (FSB) new business funding platform.

The FSB Funding Platform, developed by Finpoint, matches potential borrowers with more than 100 lenders through the use of Artificial Intelligence (AI).

FSB launches AI-led business finance aggregator (P2P Finance News), Rated: A

THE FEDERATION of Small Businesses (FSB) has launched a new business finance aggregator that uses Artificial Intelligence (AI) to match potential borrowers with more than 100 lenders.

The trade body unveiled the FSB Funding Platform on Wednesday, after it was trialled on FSB members in three UK regions.

The new platform has been developed for the FSB by Finpoint and is regulated by the Financial Conduct Authority.

Funding Circle eyes autumn flotation, report claims (The Digital Banking Club), Rated: AAA

UK peer-to-peer lender Funding Circle is set to hire investment advisers as part of preparations to float on the London Stock Exchange.

UK Businesses Enter 2018 Vulnerable to Economic Shocks (CL News), Rated: A

These are unpredictable times for the UK economy. The great financial crisis remains fresh in the memory of business owners and its effects are still being seen in the form of relatively low wages growth and lagging productivity. Meanwhile, the ongoing talks on Britain’s future relationship with the European Union are a reminder that the future too is uncertain. Against this backdrop, a significant number of Britain’s SMEs are acutely vulnerable to any downturn in trade, according to a survey by the business lender, Nucleus Commercial Finance.

Small business owners were more or less evenly split on the question of whether the UK should remain in Europe, but as the survey indicates, the possibility that current trade talks will lead to a poor outcome is now a major concern,  trumping both the possibility of another major financial crash or the threat of digital attack by hackers.

And almost half of the businesses taking part in the survey said they are financially exposed to any event that impacts on trade, with 47% admitting they wouldn’t last a month on the basis of their current cash reserves. 30% said they wouldn’t last two weeks.

After 2017’s European Brexodus companies want to know the UK is open for business (Verdict), Rated: A

The first Morgan McKinley London employment monitor of the new year has revealed a 37 percent decrease in jobs available year-on-year while there are 30 percent fewer people seeking jobs in the capital.

Month-on-month there was a 52 percent decrease in jobs available, while the number of people seeking jobs in London fell by 40 percent.

China

WeChat shows messaging is the future of financial services ‘platforms’ (Tearsheet), Rated: AAA

WeChat could be the next big broker-dealer among high-net-worth Chinese investors.

Its parent company, Tencent, now has a license that allows it to sell mutual funds on WeChat and give the popular messaging app’s 980 million users more options to help boost funds sold on the platform. It also gives Tencent more sway in deciding which financial products third-party companies can sell on its different platforms.

WeChat is showing that messaging channels, at least in China, are where people like making financial transactions.

European Union

Berlin-based FinTech startup Penta accuses TransferWise to have stolen its debit card branding (EU Startups), Rated: A

The London-based FinTech giant TransferWise just announced its borderless current account, which enables users to spend money in a choice of up to 28 foreign currrencies with a debit card. Tranferwise’s choice of a neon green colour for its first debit card was met with anger by Berlin-based SME challenger bank Penta, which turned to Twitter to express its anger at the striking resemblance to its own neon green card.

Looking at the two card designs, you’ll notice that it’s really just about the colour, and chances are high, that TransferWise picked the similar colour “by accident”.

International

Crypto P2P lender ETHLend launches secondary blockchain partnership (P2P Finance News), Rated: AAA

CRYPTO-BACKED peer-to-peer lending platform ETHLend has partnered with a technology provider to help record and store transactions more securely.

ETHLend, founded by Finland-based Stani Kulechov, is a P2P lending platform funding business and personal loans in the Ethereum digital currency.

Central banks are experimenting with blockchain technology — here’s why (Business Insider), Rated: A

So, blockchain can be quite resilient, it can also be a way to create greater transparency into central banking, more credibility because of the rules a blockchain-based system enforces.

Blockchain based BABB Kicks Off Initial Coin Offering to Create the “World Bank for the Micro Economy” (Crowdfund Insider), Rated: A

BABB, a banking platform based on Blockchain based in London, is launching its initial coin offering (ICO) on January 15th with a pre-sale. The general token sale of BAX will commence immediately following the pre-sale seeking to raise a hard cap of USD $20 million. Once their app is live, BAX will be used to pay for services, fees and licensing costs; so if an individual or business wants to use a BABB account, they will use BAX to pay for it. BAX tokens can also be used for other services.

The money raised by the ICO will be used for BABB to deliver: a smartphone app with bank account capability and international money transfer functionality; a European banking license in the appropriate jurisdiction for their go-to market strategy; and a partnership with a leading retail or central bank in an emerging market, to open corridors for international transactions.

Finova’s FNVA to Become the First Equity-linked Token (BTCManager), Rated: A

Finova Financial is growing as a trusted online lender enabling people to access affordable loans quickly. The platform is recognized as part of the “Fintech 100 list of the world’s leading financial technology innovators for 2016.”

Finova’s FNVA tokens are unique because these tokens are linked with a share of equity in Finova Financial itself. Also, it utilizes the ERC-20 Ethereum token standard that will be traded on cryptocurrency exchanges that are SEC approved and has the backing of assets of a US corporation. Therefore, the token sale is like a hybrid between an ICO and IPO.

These tokens will soon be available through FrontFundr investment platform.

The token price structure of the sale is displayed below, where the price will increase over time. A total of $18.5 million worth of tokens will be sold, on a sliding scale between $0.75 and $1.56 as the supply of FNVA increases.

 

Source: BTCManager
Australia/New Zealand

Auswide Bank sells stake in MoneyPlace, only two years after investing in online lender (The Courier Mail), Rated: AAA

BUNDABERG-based bank Auswide is offloading its 62 per cent stake in online lender MoneyPlace only two years after making an investment to “take a position” in the hi-tech sector.

Mom and pop investors fleeing property rental business (Scoop), Rated: A

Increasing numbers of mom and pop landlords are contemplating giving up on property investment and exploring alternative investments due to reasons such as the increasing pressure they feel from what can be a capital-intensive investment, changes to the legal environment (such as the Healthy Homes Guarantee Act 2017) and fears of how methamphetamine contamination could ruin their retirement planning.

CEO of New Zealand’s largest peer-to-peer mortgage lender Southern Cross Partners, Luke Jackson, says a string of inquiries about alternative investment options that don’t stray too far from property have been received by his team in recent weeks.

India

Existing NBFC cannot operate as peer-to-peer lender (IIFL), Rated: AAA

The Reserve Bank of India (RBI) notified that existing non-banking financial companies cannot operate as peer-to-peer lenders. Further, new applicants for peer-to-peer lending license will need to provide the list of promoters and the source of funds for the minimum capital requirement of Rs20mn, the regulator said.

RBI further clarified that electronic platforms that assist only banks, non-banking financial companies and other regulated financial institutions to identify borrowers for lending will not be classified as peer-to-peer lending platforms. Only electronic platforms that also cater to retail lenders can register separately as such platforms, the central bank said.

The future of online financial advice and mutual funds (hubbis), Rated: A

Kunal Bajaj points out India is a large country without sufficient financial advisors to serve the population’s needs. With most people simply finding a financial advisor close to their home or place of employment, financial advice in India is primarily limited by geography which is not an ideal situation. As an added problem, many people find that their advisor has persuaded them into choosing a product which did not meet their needs. “Clearfunds eliminates this issue by delivering a bespoke solution for each customer which uses our internet platform.” Bajaj explains.

Traditional financial advisors try to channel every client into one of 21 possible portfolios (0-100 Debt-Equity or 100-0 Equity-Debt, in five-percent steps) or outcomes, often through first impressions or physical factors. With an online financial advisor, this is not possible, and therefore more work is put into finding out more about the person themselves and their individual requirements by asking periodic psychometric questions about the stability of their employment and income stream.

Bajaj has seen Clearfunds go from strength to strength in the 12 months since the platform has been online. “We have customers across 400 cities and around $10 million in assets under management.” He says. “Betterment and WealthFront took over a year to gather their first $10 million in the USA but now they both have billions in assets. Nutmeg has been in business for 7 years and has around 40,000 accounts and a billion dollars of assets under management.”

APAC

Indonesia P2P Startup Modalku Milestone: Hits $ 74 Million in Total Crowdfunded MSME Loans (Crowdfund Insider), Rated: AAA

Modalku, an Indonesia-based peer-to-peer lending fintech startup, successfully surpassed $74 million (Rp 1 trillion) in total crowdfunded MSME loans.

Canada

Mike Novogratz is planning a crypto version of Goldman Sachs (Business Insider), Rated: A

In a statement out Tuesday, Novogratz said he is looking to raise $200 million for Galaxy Digital LP, a “best-in-class, full service, institutional quality merchant banking business” for the crypto market. Novogratz also plans to list the company on TSX Venture Exchange, a Canada-based exchange for small cap companies.

The new bank will be born out of Canadian-based First Coin Capital, which Novogratz plans to buy and then merge with Bradmer Pharmaceuticals. Its main businesses will include trading, advisory services, asset management, and private equity-like investing.

Authors:

George Popescu
Allen Taylor

Tuesday January 9 2018, Daily News Digest

LendingTree purchase APR

News Comments Today’s main news: IEG Holdings wants to turn Lending Club into a balance sheet lender. Groundfloor launches nationwide. Crowd2Fund launches 30M GBP fundraise. China may get a second consumer credit bureau. Klarna expands e-commerce footprint. Today’s main analysis: LendingTree releases mortgage offer report for December. Today’s thought-provoking articles: Are corporations posting fake comments on government regulatory websites? History […]

LendingTree purchase APR

News Comments

United States

United Kingdom

China

European Union

International

India

Asia

Canada

News Summary

United States

IEG HOLDINGS (IEGH) LAUNCHES TENDER OFFER FOR UP TO 4.99% OF LENDINGCLUB (LC) (Zacks.com), Rated: AAA

On January 5, 2017, IEG Holdings (OTC:IEGH) launched a tender offer for up to 4.99% of LendingClub (NYSE:LC).
– Management believes it can convert LendingClub from a broker of loans into a balance sheet lender

Groundfloor Expands Historic Qualification Under Regulation A To Launch Nationwide (Business Insider), Rated: AAA

Non-accredited and accredited investors in all 50 states can now participate in real estate crowdfunding investment opportunities with Groundfloor. Groundfloor, the first issuer qualified by the U.S. Securities & Exchange Commission to offer real estate debt investments via Regulation A that are available to non-accredited investors, today announced that it has received qualification as an issuer under Tier 2 of Regulation A. The qualification allows over 150 million additional investors to access real estate investment opportunities that have been previously unavailable to them, tripling Groundfloor’s addressable market.

In 2017, Groundfloor saw tremendous growth of over 380% in origination volume and 786% in revenue, prior to announcing a partnership with its first institutional investor, Direct Access Capital (DAC).2 Groundfloor lends in 27 states, and has self-originated over $50 million in loans for 398 real estate projects earning individual investor portfolios average annualized returns of 11.74 percent to date. Groundfloor has also raised $9.1M in venture capital from leading fintech VCs and angel investors.

LendingTree Releases Monthly Mortgage Offer Report for December (PR Newswire), Rated: AAA

LendingTree®, the online loan marketplace, today released its monthly Mortgage Offers Report which analyzes data from actual loan terms offered to borrowers on LendingTree.com by lenders on LendingTree’s network. The purpose of the report is to empower consumers by providing additional information on how their credit profile affects their loan prospects.

Source: Purchase APR by Credit Score Range (PRNewsfoto/LendingTree)
  • December’s best offers for borrowers with the best profiles had an average APR of 3.80% for conforming 30-year fixed purchase loans, up from 3.75% in November. Refinance loan offers were up 1 bps to 3.70%.
  • For the average borrower, purchase APRs for conforming 30-yr fixed loans offered on LendingTree’s platform were up 12 bps to 4.42%, the highest since July 2016. The loan note rate hit the highest since March 2016 at 4.32% and was up 14 bps from November.
  • Consumers with the highest credit scores (760+) saw offered APRs of 4.26% in December, vs 4.56% for consumers with scores of 680-719. The APR spread of 30 bps between these score ranges was 3 bps wider than in November and the widest since this data series began in April 2016. The spread represents nearly $15,000 in additional costs for borrowers with lower credit scores over 30-years for the average purchase loan amount of $233,586. The additional costs are due to higher interest rates, larger fees or a combination of the two.
  • Refinance APRs for conforming 30-yr fixed loans were up 7 bps to 4.31%. The credit score bracket spread widened to 24 from 20 bps, amounting to $12,000 in extra costs over the life of the loan for lower credit score borrowers given an average refinance loan of $241,973.
  • Average proposed purchase down payments have been rising for 8 months and reached $63,740.
Source: Purchase Mortgage Offers by Credit Score (PRNewsfoto/LendingTree)

Many Comments Critical of ‘Fiduciary’ Rule Are Fake (WSJ), Rated: AAA

A significant number of fake comments appear among thousands criticizing a proposed federal rule meant to prevent conflicts of interest in retirement advice, according to a Wall Street Journal analysis.

Consider the experience of Robert Schubert, a Devon, Pa., salesperson. A comment posted in his name on the Labor Department website opposed the rule, saying: “I do not need, do not want and object to any federal interference in my retirement planning.”

In an interview, Mr. Schubert said the comment was a fraud. He didn’t post it and doesn’t agree with it. “I am disgusted that people can post comments using my name,” Mr. Schubert said.

Mr. Schubert is among 50 people who responded to a survey last week conducted by research firm Mercury Analytics for The Journal—40%, or 20 of whom said they didn’t post the comment listed under their name, address, phone number and email.

The Journal previously found fraudulent postings under names and email addresses at the Consumer Financial Protection Bureau, Federal Energy Regulatory Commission and Securities and Exchange Commission and the Federal Communications Commission. The Journal’s findings were cited by calls from Congress to delay the repeal of the FCC’s net-neutrality rule.

Corporate Powers Are Stealing Online Identities, Posting Fake Comments to Push for Consumer Law Repeals (Alternet), Rated: A

A pattern of cyber deception is appearing across the federal government in the nooks and crannies of the process where White House directives or Congress’ laws are turned into the rules Americans must abide by—or in the Trump era, are repealed.

Hundreds of thousands of comments, purportedly made by Americans, have come in over the electronic transom to at least five different federal agencies calling for an end to Obama-era consumer protections and other regulations that impede profits, a series of investigative reports by the Wall Street Journal found. Except, the people who supposedly sent these comments never did.

Wrapping up 2017 (PeerIQ), Rated: A

The US economy added 148k jobs in December and the unemployment rate held steady at 4.1%. The jobs number was below economists’ estimates of 190k, but average hourly earnings rose 2.5%, a strong increase, and a metric that market participants are watching as a precursor to higher inflation.

In regulatory news, Indiana is planning legislation that would cap the interest rate on personal loans at 36%, down from the current cap of 391% on payday loans. If passed, this legislation would affect the payday lending industry and some experts have expressed concerns that this may crimp credit availability to the neediest individuals. The US government is also considering updating the credit scoring methodology used in evaluating mortgage applications, to use competitors to FICO score like VantageScore, with the hope that the new scores would expand mortgage credit access to borrowers.

Apollo Global Management and Värde Partners have agreed to acquire a 40.5% stake in OneMain Financial, the non-prime lender spun off by Citigroup after the financial crisis, from Fortress Investment Group.

 

 

Edison Partners makes $ 15M investment in fintech (ROI-NJ), Rated: A

Growth equity investment firm Edison Partners has invested $15 million into MoneyLion, a digital personal finance platform based in New York City.

Student Loan Startup Frank Secures $ 10 Million During Series A Funding Round (Crowdfund Insider), Rated: A

Frank, a New York-based student loan startup, announced this week that it has secured $10 million through its Series A  Funding Round, which was led by Apollo Global Management, with participation from Reach Capital, and Aleph. This funding round brought its total funding amount to $15.5 million.

Digital financial advice startup SuperEd raises $ 5 million from key investors and staff (Smart Company), Rated: A

Digital superannuation advice startup SuperEd has completed a $5 million capital raise from both external investors and staff members to ramp up its expansion, with the 2012-founded company betting on digital advice being a big deal for fund managers going forward.

Credit Karma Teams with American Express to Offer Advance Tax Refund (Finovate), Rated: A

Earlybird Advance is a no-fee, no-interest loan from MetaBank that allows users who file through Credit Karma to claim from $500 to $1,000 of their tax refund as soon as 24 hours after the IRS accepts their tax return. This is a step up from the three-to-four week time period it generally takes for taxpayers to receive their funds.

Testimonial Tree Partners With J4 Mortgage Solutions to Offer Online Review Software to Mortgage Lenders and Title Companies (PR Newswire), Rated: B

Testimonial Tree announces its new alliance with J4 Mortgage Solutions, LLC, a mortgage technology consulting firm, to add online reviews and automated feedback to its suite of tech services.

The Future Of Financial Advice Requires AI With A Human Touch (FA-Magazine), Rated: A

“Digital leaders report an 8.6 percent increase in revenue, an 11.3 percent rise in productivity, and a 6.3 percent improvement in market share. Advanced firms now generate 32 percent of their revenue through digital channels, and expect that amount to rise to 48 percent by 2022,” the study pointed out.

Digital leaders acknowledge what will be the growing importance of AI in the digital transformation of industry from the front office to the back office over the next five years. According to the study, while more than half of the digital leaders are already using AI to increase productivity, some 40 percent are extending AI applications to investment management as well.

Community Reinvestment Fund, USA and U.S. Bank Partner to Expand Access to Credit for Small Businesses (BusinessWire), Rated: A

Community Reinvestment Fund, USA (CRF) – a mission-driven non-profit lender dedicated to improving communities and transforming lives – announced today that it has partnered with U.S. Bank to deliver a new solution for connecting small business borrowers with responsible lending options from community-based lenders across the country.

There are approximately 28.8 million small businesses in the U.S., accounting for more than 63 percent of the net new jobs created between 1993 and 2013. However, the Federal Reserve Bank’s 2016 Small Business Credit Surveyfound the most common challenge facing small businesses was “credit availability or securing funds for expansion.”

Predicting Comptroller Otting’s Impact on Fintech (Lend360), Rated: A

Second, Comptroller Otting may be helpful to Fintech companies in addressing important issues such as the Second Circuit’s decision in Madden v. Midland Funding and the so-called “true lender” issue.  For example, the OCC could adopt a rule or issue interpretative guidance: (1) providing that loans funded by a bank in its own name as creditor are fully subject to Section 85 and other provisions of the National Bank Act for their entire term; and (2) emphasizing that banks that make loans are expected to manage and supervise the lending process in accordance with OCC guidance and will be subject to regulatory consequences if and to the extent that loan programs are unsafe or unsound or fail to comply with applicable law.  (The rule should apply in the same way to federal savings banks and their governing statute, the Home Owners’ Loan Act.)  In other words, it is the origination of the loan by a supervised bank (and the attendant legal consequences if the loans are improperly originated), and not whether the bank retains the predominant economic interest in the loan, that should govern the regulatory treatment of the loan under federal law.

 

Consider Alternative Funds to Hedge Against a Market Downturn (NASDAQ), Rated: A

To ease your anxiety, you might consider adding a small dose of alternative investments–things that zig when the stock market zags–to your portfolio, even if it means giving up some potential returns.

Wells Fargo Investment Institute, the research and strategy arm of the giant bank, recommends a 23% allotment to various alternative investments for moderate-risk investors, for example, up from 16% two years ago. At Altfest Personal Wealth Management, in New York, 15% of client assets are invested in alternatives, up from 10% last year.

Market-neutral funds. If your goal is to invest in an asset that doesn’t move in sync with the S&P 500, consider a market-neutral fund, such as a merger-arbitrage fund.

Options-based funds allow you to maintain your stock exposure–or even put new money in the market–with some degree of safety.

Long-short stock funds. These funds bet on some stocks and against others with the goal of delivering respectable returns with low volatility. The funds have been 15% to 25% less volatile than an S&P 500-stock index fund over the past decade.

CLSA Top Three Books For 2018 (ValueWalk), Rated: A

What do an undocumented immigrant in the South Bronx, a high-net-worth entrepreneur, and a twenty-something graduate student have in common? All three are victims of our dysfunctional mainstream bank and credit system. Today nearly half of all Americans live from paycheck to paycheck, and income volatility has doubled over the past thirty years. Banks, with their high monthly fees and overdraft charges, are gouging their low- and middle-income customers, while serving only the wealthiest Americans.

“The Unbanking of America”

Why I Joined MetaProp As An EIR (LinkedIn), Rated: A

I recently left RealtyShares, the online marketplace for real estate investing, as CEO after founding the company in my living room back in 2013.

When Zach realized I was leaving the CEO role at RealtyShares, he reached out and asked if I wanted to get involved with MetaProp, the first real estate technology incubator based out of NYC.

This opportunity would give me a chance to pursue my passion in real estate technology through a different lens while mentoring startup founders and CEOs and helping them as they embark on the same journey I embarked on four years ago.

AlphaFlow Appoints Chris Woida As Co-Chief Investment Officer (AlphaFlow), Rated: A

AlphaFlow, the first automated alternative investment platform for real estate, announced today that Chris Woida has joined the company as co-Chief Investment Officer. Woida will serve as co-CIO alongside the firm’s CEO Ray Sturm, who will act as both CEO and co-CIO.

Woida brings over 10 years of experience in the financial services industry, previously helping build BlackRock’s smart beta and factor-based platforms and serving as the lead investment strategist for its flagship style-factor hedge fund during his seven years with the company. Most recently, he served as Managing Director, Head of Index Solutions at Axioma, a provider of enterprise market risk and portfolio analytics solutions. In this role, Woida helped the index business expand into derivatives, fixed income and alternative data sources, including AI and ESG.

MPOWER Financing Hires Lutz Braum, Fintech and Higher Ed Marketing Veteran (Cleveland19), Rated: B

MPOWER Financing, a public benefit corporation focused on removing financial barriers to higher education in the U.S., has appointed Lutz Braum as its vice president of marketing and business development.

Finova Financial’s New Fundraising Process Leverages Cryptocurrency to Serve Non-Accredited Investors (Finovate), Rated: B

Alternative lender Finova Financial introduced a new product this week that will offer non-accredited investors access to regulated public securities offerings.

The new offering is called the JOBS Crypto Offering (JCO) and will allow investors to use cryptocurrency to invest in equity ownership of previously privately-held companies.

Read more about Finova’s JCO offering here.

Is it possible to land a car loan with no down payment? (Bankrate), Rated: B

Buying a car is a significant investment, with the average new car costing $34,968 in 2017.

The average down payment for a used car is generally 10 percent of the purchase price; if you’re buying a new car, you can expect to pay slightly more, probably between 12 and 20 percent.

LENDINGTREE, LEADSCON ANNOUNCE $ 25,000 INNOVATION CHALLENGE IN LAS VEGAS (Business Insider), Rated: B

LendingTree®, the online loan marketplace, and Access Intelligence, a business information and marketing company, today announced a new initiative to showcase the top innovations in financial technology (fintech) lead generation at LeadsCon Las Vegas this March.

Startups and established businesses from around the world can apply today for a chance to receive exposure, bragging rights and $25,000 in cash.

United Kingdom

IFISA first-mover Crowd2Fund kicks off £30m fundraise, eyes £1bn valuation by 2022 (AltFi), Rated: AAA

Crowd2Fund has embarked on an ambitious series of fundraises that it hopes will see £30m raised within the next 24 months.

The peer-to-peer lender, one of the first to launch an Innovative Finance ISA, has already raised £1.5m from 113 of its own investors (all of whom are either sophisticated or high net worth individuals). More shares were made available after demand exceeded the initial target of £1m. These investors have bought shares in the company at a valuation of £33m. The capital is being raised through Crowd2Fund’s platform.

UK consumer lending not driven by subprime borrowers, regulators say (Daily Mail), Rated: A

Rapid growth in Britain’s consumer credit has been driven by borrowing by people with good credit scores, not subprime lending, according to research from regulators on Monday.

Unsecured consumer lending grew at near double-digit rates in 2016 and 2017, and concern that lenders had overestimated their borrowers’ creditworthiness led the Bank of England to tell them in September to hold 10 billion pounds ($13.54 billion) of extra capital.

However, research jointly published by Britain’s Financial Conduct Authority and a BoE blog showed that two-thirds of outstanding lending as of November 2016 was held by borrowers with credit scores in the top 30 percent.

Here’s everything you need to know about business finance (UKTech.news), Rated: A

Wherever you are on your life cycle, knowing the financing options available to you is a crucial part of growing and running your business.

Equity Funding

Equity finance can be used at various stages of your business life cycle and giving up equity can be a big decision.

Private equity

Private equity focuses on more medium to long term investment and will usually involve the development of the product and a new management structure to improve the performance of the business.

Crowdfunding

Crowdfunding aims to connect businesses with a large number of potential investors via a shared online platform.

Debt Funding

Debt finance is usually used as a means of long term investment or funding working capital.

Peer to Peer (P2P) lending

P2P lending brings individual borrowers and lenders together via an online platform by by-passing traditional banks with the aim of achieving better rates for all.

Asset finance

Assets can be purchased via leasing or hire purchase agreements which can assist the cash flow of the business. The asset is not fully paid for upfront but over a fixed period of time and the lease or hire purchase agreement is secured on the asset being financed.

Debt factoring

A debt factor will take on the sales ledger of the business and chase money owed by your customers. The factor will advance most of the value of the outstanding sales invoices to the business with the balance being paid once the customers have fully repaid their debt.

China

China Fintech: 2nd consumer credit bureau in sight now (EJ Insight), Rated: AAA

Last week, on January 4, the People’s Bank of China (PBoC) accepted a license application for consumer credit bureau led by the National Internet Finance Association of China. As of now, the Credit Reference Center of the central bank is the only consumer credit bureau in China.

Consumer loan securitization boom put on hold as China clamps down on leverage (Reuters), Rated: A

A boom in asset-backed securities issued by micro-lenders aiming to expand in China’s fast-growing online credit market looks set to slow this year amid growing regulatory scrutiny.

Rules announced on Dec. 1 limited the amount of lending backed by the products the companies can make. They were also required to consolidate them on their balance sheets.

Ant Financial is the largest issuer of consumer loan securities, accounting for 60 percent of all issues in 2017, according to Reuters calculations based on data from China Securitisation Analytics.

Its two Chongqing-based micro-loan companies had total net capital of 10.6 billion yuan, but issued 265.1 billion yuan in loans by the end of June, according to CIB Research, a unit of Industrial Bank Co (601166.SS). Outstanding loan securities issued by the two units have exceeded 250 billion yuan, it said.

Growth in China’s financial technology has only just begun, CEO says (CNBC), Rated: A

China’s burgeoning financial technology industry went through plenty of ups and downs last year, but growing pains experienced in the sector aren’t fazing one local player.

But increased competition in the space doesn’t suggest the sector is overcrowded, according to David Ye, the co-founder and CEO of Jianpu Technology.

“In China, we have close to 9,000 microfinance companies, we have close to 2,000 peer-to-peer companies. Only four of them got listed … It’s just a tiny drop of water in the big blue ocean,” he said.

This firm’s fintech play is connecting financial services in China from CNBC.

European Union

Klarna Payments Expands eCommerce Footprint with ACI Worldwide (BusinessWire), Rated: AAA

ACI Worldwide (NASDAQ: ACIW), a global provider of real-time electronic payment and banking solutions, today announced an extended partnership with Klarna, leveraging ACI’s UP eCommerce Payments solution. This will enable online businesses in 10 major markets, including the U.S. and U.K., to easily integrate Klarna’s payment products, and offer shoppers a fast and frictionless checkout process that can improve conversion rates immediately.

International

History of Ripple (BuyRipple.com), Rated: AAA

Source: BuyRipple.com

Cryptocurrency markets: Top 10 coins with greatest 24-hour change 8 Jan 2018 (finder), Rated: A

3. ETHLend (LEND) +32%

The peer to peer lending platform has seen a decent spike after it featured heavily across exchange Coinspot’s Facebook page as they look too soon be listed on the exchange. That exposure has also highlighted the achievements the Estonian company has made recently, including launching its fiat based loans at the end of 2017.

Crypto cards just suffered a major setback (Financial Times), Rated: A

Strict terms and conditions usually govern the circumstances in which prepay cards can be issued by unlicensed (non-bank) institutions due to their popularity with the unbanked or low-credit community as well as their propensity to be taken advantage of for money laundering reasons. These T&Cs tend to be jurisdiction dependent, and can in some cases restrict the types of funds that can be loaded onto cards by source (for example the source of funds might be restricted to welfare payments and/or employer compensation for services rendered).

Take as an example the following condition attached to a card brought to market by an outfit called TenX:

LOADING FUNDS TO YOUR ACCOUNT

Five.1 Your Card is a payout card tied to an account directly or indirectly established by an employer or other such corporate payor (each, a “Payor”) on behalf of a consumer to which electronic funds transfers of the consumer’s wages or other compensation are made on a recurring basis, whether the account is operated or managed by the employer, a third party payout processor, or a depository institution. Only funds from a Payor may be loaded to your Account In case of errors or questions about the funds loaded to your Account, contact your payout provider.

How will lenders meet identity verification challenges in 2018? (Bankless Times), Rated: A

Online lenders will start to move away from the social security number (SSN) as a personal identifier.

Big data and machine learning will take centre stage in the drive for better identity verification.

Larger online lenders will bring more of their fraud-fighting efforts in-house.

Online financial institutions will begin to adopt blockchain.

Cybersecurity startups raked in $ 7.6 billion in VC money in 2017 — twice as much as the year before (Business Insider), Rated: B

Globally, venture investors put $7.6 billion in cybersecurity companies last year, which was up from $3.8 billion in 2016, according to the research firm. The number of cybersecurity-related investments jumped to 548 in 2017 from 467 deals the year before.

Global spending on cybersecurity was estimated to reach $83.5 billion in 2017, and that number could hit $119.9 billion in 2021, according to an IDC report from October.

India

FinTech Trends That Will Shape The Industry In 2018 (BW Disrupt), Rated: A

Banks will increasingly start looking at startups in the FinTech, RegTech and InsurTech space as their extended innovation arms with a view to collaborate with them.

The BharatQR code, a unique interoperable payment acceptance solution developed by the NPCI (National Payments Corporation of India), Mastercard and Visa will enable point of sale (POS) transactions to be made more seamlessly. Along with banks, payment wallets like Paytm and MobiKwik will continue to make huge investments to leverage this new standard.

Startups in this space are likely to well as adoption by banks and other financial institutions rises in AI, ML, NLP (Natural Language Processing) and NLG (Natural Language Generation).

Asia

How one woman beat the odds to start-up success (Myanmar Times), Rated: AAA

In credit-scarce Myanmar, obstacles abound for budding entrepreneurs with bright ideas, big potential and dry pockets. With banks reluctant to lend to individuals without appropriate collateral and proven track records, many small businesses ultimately fail.

Ma Khin Yadana is among those with a success story behind her garment business, which she started from scratch around five years ago.

To get back on her feet, Ma Khin Yadana sought help from a small business group on Facebook, where she met with other garment shop owners across Myanmar who were willing to invest in start-up businesses like hers by extending credit via a peer-to-peer (P2P) lending system. In return, the funds would be paid back with interest within 15 days.

However, the constant pressure of having to repay loans has begun to take a toll on the young entrepreneur. “Most of the loans from investors are on six-month terms. So far, I have 70 investors to whom I must repay K100 million in total.

When the loans are due, I have to repay in full plus interest. The main problem is the 15pc interest rate, which is too high,” she said.

In mid-2017, with higher levels of debt coming due, Ma Khin Yadana negotiated with investors for lower interest rates of 10pc.

Canada

CIBC Innovation Banking unit launched to help grow startups (Finextra), Rated: A

Today, CIBC (TSX: CM) (NYSE: CM) introduced CIBC Innovation Banking, a full-service business that delivers strategic advice and funding to North American technology and innovation clients at each stage of their business cycle, from start up to IPO and beyond.

Authors:

George Popescu
Allen Taylor

Move Over ICO, There’s Another Fundraising Vehicle In Town

Finova Financial and their JCO

Governments all around the world are increasingly concerned with the potential abuses of initial coin offerings (ICOs), a new method of fundraising that provide startups with operating capital out of the gate without giving away company equity. For good reason. It seems that virtually every startup these days is looking to fund their ventures with […]

Finova Financial and their JCO

Governments all around the world are increasingly concerned with the potential abuses of initial coin offerings (ICOs), a new method of fundraising that provide startups with operating capital out of the gate without giving away company equity. For good reason. It seems that virtually every startup these days is looking to fund their ventures with an ICO, and many of them think doing so is a good way to skirt securities regulations. That’s why Gregory Keough, CEO of Finova Financial decided to introduce a new method to raise capital through a hybrid vehicle he calls JOBS Crypto Offering, or JCO.

What is a JOBS Crypto Offering?

Keough likens the JCO to a hybrid between the ICO and an IPO (initial public offering).

“A lot of people are selling securities and trying to make them sound like they’re not securities,” Keough said.” As of September, Forbes reports there had been $2.3 billion raised by ICOs this year. And interest in them seems to be growing.

Unlike the traditional IPO, where investors trade currency for equity in a company, with an ICO, investors trade cryptocurrency for tokens. These tokens are often used as virtual bartering chips for specific actions related to the company issuing them. For instance, at Storj, a decentralized cloud storage startup, your tokens can be used to purchase cloud storage. So, investors getting in on the fundraising push don’t end up with stake in the company but are actually pre-paying for some part of the product. And ICOs are open only to accredited investors, thanks to the SEC that has ruled that ICO tokens are in fact a security.

This creates a conundrum. Companies issuing ICOs consider their offerings a utility token, but the SEC treats them like a security. JCOs don’t come with that baggage.

“The JCO offers more regulatory clarity and security,” Keough said. That’s because Finova has gone out of its way to comply with all SEC regulations and places the JCO in the category of Reg A offerings so that accredited an non-accredited investors can get in on the action, further differentiating it from the ICO.

The Details on Finova’s JCO

“We’re able to tap into VC and traditional money,” Keough said. In other words, he is offering investors equity in his company if they participate in the offering.

But the transaction isn’t conducted like a traditional security. It still involves the blockchain, and investors can still use cryptocurrency to initiate the transaction. Finova will also accept traditional currency.

To develop the concept, Finova commissioned law firm Cooley to assist with the legal framework. Like an IPO, the offering is open initially to a select few investors in a private round called SAFT (Simple Agreement for Future Tokens). Once that round is completed, the JCO is opened up to other investors on a public exchange. Finova will have to register an official public offering through the SEC, and then the tokens are created. If that isn’t done, investor funds are returned to them. Keogh said Finova hasn’t decided which exchange they are going to use yet, but the firm is looking at three separate exchanges.

“We take the equity stack and move it to the blockchain,” Keough said. “The token represents equity in Finova. We see it as an alternative path to the IPO for startups.”

Once tokens mature and investors start receiving dividends, they’ll be dropped into digital wallets. Tokens will then be available for selling back to the company or trading on a secondary market, like traditional securities. Keough believes other companies will want to issue their own JCOs, and it could potentially make the ICO as irrelevant as 8-track tapes. The company plans to sell $600 million in tokens through multiple tranches. Tokens sold earlier will appreciate in value until all are sold. The JCO will officially open in December and make its way to non-accredited investors by late January.

The Past, Present and Future of Equity Fundraising

While the private sale of tokens is limited to $50 million by regulation, Keough said Finova is seeing a lot of interest in its JCO. “There is a tremendous amount of interest in the U.S. and globally for something that has regulatory clarity,” he said. The JCO is intended for more mature companies because, as bigger money comes in, the more regulatory clarity is necessary for investors to feel comfortable getting in. Finova will accept Ethereum, Bitcoin, other cryptcurrencies, and fiat currency.

Finova is so sure of the JCO that they want to help other companies issue their own. He see the JCO as the IPO of the future.

To date, Finova has raised $150 million in equity and debt. Started two years ago, they’ve raised $100 million in revenue. While not yet profitable, they are getting close. Their niche is to provide technology to the unbanked, about 30% of the U.S. population, so they can have access to traditional financial services like lending and bank cards. A balance sheet lender, most of their customers have poor credit scores and no bank account.

“We created a digital service where they can get case the same day based on their most important assets,” Keough said. As a secured lender, they offer lines of credit for automobiles. The customer uses equity in their vehicle to tap into the line of credit when needed. Finova puts a lien on the vehicle until the customer is out of debt.

With a kickstart in Florida, they now operate in seven states with an eye on expansion as they grow their capital stack.

Author:

Allen Taylor