Friday December 15 2017, Daily News Digest

mortgage tech

News Comments Today’s main news: Walmart partners with Even, PayActiv on employee financial wellness. Moody’s says some consumer ABS sectors will be weaker next year. LendInvest has $1B in funds under management. Yirendai’s investment in Lion Rock amounts to $50M. LexinFintech kicked off IPO yesterday. Crowd Genie to launch ICO. Today’s main analysis: Why mortgage tech is finally taking off. Australian […]

mortgage tech

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United States

Walmart Teams Up With Fintech Startups Even & PayActiv to Launch Financial Wellness Services For Associates (Crowdfund Insider), Rated: AAA

On Wednesday, retail giant Walmart announced it has teamed up with fintech startups Even and PayActiv to provide a suite of new financial wellness services for its more than 1.4 million associates nationwide.

Goldman Sachs’ and Morgan Stanley’s Big Growth Opportunities (The Motley Fool), Rated: AAA

Goldman Sachs (NYSE:GS) and Morgan Stanley(NYSE:MS) are both trying to expand their businesses into more traditional areas of consumer banking, such as consumer loans and mortgages.

Matt Frankel: Out of all the major unsecured lending platforms — Lending Club, things like that — Marcus was the quickest one to get to $1 billion in loan volume.

The interest rates people have gotten are more competitive than the others, because they can afford to run it at slightly more compressed margins than, say, a Lending Club.

Frankel: Morgan Stanley’s robo-advisory platform just launched. So that’s one way they’re trying to branch out into more traditional areas of banking and investing.

Just to throw a couple of figures out there, Morgan Stanley’s wealth management business, which is not the highest-margin business, which is why they’re not as efficient as Goldman, their wealth management business, they’re margin has gone from 9% to 22% since 2010.

Morgan Stanley estimates that their clients still have about over $2 trillion worth of assets with other asset managers, and they’re trying to bring some of that in.

Nearly 5 Million Americans in Default on Student Loans (WSJ), Rated: AAA

The number of Americans severely behind on payments on federal student loans reached roughly 4.6 million in the third quarter, a doubling from four years ago, despite a historically long stretch of U.S. job creation and steady economic growth.

In the third quarter alone, the count of such defaulted borrowers—defined by the government as those who haven’t made a payment in at least a year—grew by nearly 274,000, according to Education Department data released Tuesday.

The total number of defaulted borrowers represents about 22% of the Americans who were required to be paying down their federal student loans as of Sept. 30. That figure has increased from 17% four years earlier.

 

Mortgage Tech 101: What It Is & Why It’s Taking Off Now (CB Insights), Rated: AAA

By the end of 2017, nearly $1.8T worth of mortgages will have been originated in the United States this year, according to government-backed mortgage lender Freddie Mac.

Yet, despite the size of the mortgage industry, the space still hasn’t digitized. Originating, processing, and underwriting a home loan with a large bank lender still requires faxes and snail mail and take almost as long as it did 20 years.

Source: CB Insights

Driver 1: New lenders increase the competition

Non-bank lenders are becoming much bigger players in mortgages. In 2011, three banks accounted for half of new mortgage loans, according to the Washington Post. As of September 2016, that share dropped to 21%.

In 2011, just two of the top 10 biggest lenders were non-bank lenders. In 2016, non-bank lenders like Quicken Loans accounted for six of the top 10.

Driver 2: Incumbents are looking to improve their technology

At an average cost of $7,000, originating and processing a loan takes over 400 pages and more than 25 humans working hundreds of hours across 50 days. Of the total, approximately $5,000 can be attributed to human processing costs.

Driver 3: Individuals’ debt burden forces them to find alternative lenders

Eighty percent of millennial renters want to buy a single-family home or apartment, but 72% cannot afford to, according to survey data from Apartment List.

Source: CB Insights

Although total US homeownership has risen to 64% as of Q3’17, when examined by age group, the percentage of homeowners under 35 years old is only 36%. This is down from 44% in 2004.

Some consumer ABS sectors to have weaker collateral performance due to pockets of borrower stress and weaker underwriting (Moody’s), Rated: AAA

The anticipated continued expansion of the US economy into 2018 will support overall collateral performance of consumer asset-backed securities (ABS), according to Moody’s Investors Service. However, growing financial strains among some pockets of borrowers and loosening of underwriting by lenders will result in slightly weaker collateral performance for several categories of consumer ABS, including transactions backed by auto loans, credit cards and unsecured personal loans.

Amid further declines in automobile sales and used vehicle prices, Moody’s says issuers will generally maintain the steady collateral quality in their 2018 auto loan and lease deals, with incremental weakening in certain collateral attributes such as loan terms. New private student loan ABS, meanwhile, will likely continue to have strong credit quality and performance.

An Open Internet is Essential for Financial Inclusion (Huffington Post), Rated: AAA

The Federal Communications Commission (FCC) voted today to dismantle internet “net” neutrality: a vote that determined whether the internet should be treated like a public good or service or whether it should be treated like a product.

Another consequence of dismantling net neutrality has to do with undermining financial inclusion and the impending technological revolution of financial services. An array of financial technologies—online and mobile technologies referred to by their shorthand “fintech”—is heralded with the potential to expand access to financial services to underserved households and in underserved communities.

Internet connectivity is required for online and mobile transactions and many lower-income households alreadycannot afford internet service capable of making these transactions.

Online and mobile banking could become less reliable if internet service companies adjust connectivity speeds. Banks are increasingly shifting their products and services online and the number of bank branches is projected to decline by 20% over the next decade.

Prosper brings on JPM Chase veteran as board member (GlobalCapital), Rated: A

Online lender Prosper announced the appointment of Claire Huang as a board member this week as the company looks to enhance its product offerings in 2018.

Huang’s appointment was effective as of Tuesday, according to a company statement. Prior to joining the San Francisco-based lender’s board of directors, Huang was the first ever chief marketing officer at JP Morgan Chase.

INSIKT raises $ 50 million to lend to low-income communities (TechCrunch), Rated: A

An estimated 45 million Americans don’t have a credit score and others have trouble bringing up their scores, even if they are in a better financial position than in years past.

And after facilitating 125,000 loans in three years, INSIKT is raising $50 million to expand. The round is led by Grupo Coppel, with participation from FirstMark Capital, Revolution Ventures and Colchis Capital. INSIKT has raised $100 million to date.

INSIKT has built what they believe is a better alternative to payday loans, breaking up payments into smaller installments. Its white-label loan processing service is used in over 600 banks and credit union locations across California, Texas, Illinois and Arizona.

Kasisto Raises $ 17M in Series B Funding (Finsmes), Rated: A

Kasisto, the NYC-based creator of a conversational AI platform for finance, raised $17m in Series B funding.

The round was led by Oak HC/FT with participation from existing investors Propel Venture Partners, Two Sigma Ventures, Commerce Ventures, Mastercard and Partnership Fund for New York City.

Consumer lending 2017: Bold bets and strategic exits (American Banker), Rated: A

With the economy continuing to improve and household wealth growing, total consumer debt has increased in 12 consecutive quarters and hit a record $12.8 trillion in the second quarter, according to the Federal Reserve Bank of New York. And, for the most part, consumers are staying on top of their bills. The American Bankers Association said recently that the midyear consumer delinquency rate held steady around 1.56%, which is below the 15-year average of 2.16%.

Banks searching for growth pushed and pulled on a variety of consumer lending levers this year. Personal loans, particularly those offered through digital channels, were especially popular as banks aimed to emulate online lenders’ speed and efficiency.

How Twine, John Hancock’s robo-adviser tool, keeps a startup feel (Tearsheet), Rated: A

John Hancock wants to change that narrative with Twine, its robo-adviser and personal finance tool it released last month.  Twine emphasizes simplicity in its look and feel — a user interface similar to many startup-developed apps out there.

John Hancock looked outside, buying San Francisco-based financial services AI startup Guide Financial in 2015.

Twine operates as a separate organizational unit based in San Francisco, while most of John Hancock’s offices are in Boston. The team of around 25 employees includes engineers, product managers, user experience designers and marketing staff. But despite being organizationally separate, Goose said the team stays in contact with the mother ship through travel and video conferencing.

41% of households mix digital, human financial advice (InvestmentNews), Rated: A

But this isn’t a return to the way things used to be, said Hearts & Wallets, the Rye, N.Y.-based research firm that conducted the study of 40,000 individuals.

Today’s investors are what the firm calls “hybrids,” who use a mix of paid and free live professional advice, digital advice and their own insights. They now account for 41% of all U.S. households, the firm said.

Blenders of digital and live advice include 68% of consumers ages 35 to 44 with investable assets between $100,000 and $250,000, and 85% of consumers under age 35 who have over $1 million in assets. In all, over 75% of consumers under age 45 with assets of over $250,000 are “hybrids,” the firm said.

USAA’s Heather Cox is blurring the lines between business and technology (Tearsheet), Rated: A

In hiring Cox, the San Antonio bank, which has a longstanding reputation for being innovative, effectively agreed to restructure the entire company. She has plans to “levelize” the business and technology teams and morph them into “business technologists,” who are empathetic and understand that technology is the enabling function of their entire business — not the checking account or the insurance policy.

The new model will make USAA look more like one of the technology “greats” — the usual suspects like Apple, Amazon, Facebook and Google — instead of an old bank or insurance company, Cox said.

 

Despite court win, OCC still faces legal ‘landmine’ over fintech charter (American Banker), Rated: A

Comptroller of the Currency Joseph Otting has not weighed in on the fate of a fintech charter yet, but the ball is now squarely in his court.

The agency that Otting was just appointed to run scored a victory earlier week when a judge dismissed a lawsuit from the New York Department of Financial Services, which had challenged the Office of the Comptroller of the Currency’s authority to create a charter for fintech firms.

Jax small businesses turn to site to find lenders (Jacksonville Business Journal), Rated: B

New York-based Fundera has made a splash in Jacksonville with companies looking to find lenders.

Regions Bank Increases Prime Lending Rate (BusinessWire), Rated: B

Regions Bank today announced it is increasing its prime lending rate to 4.50 percent from 4.25 percent, effective Thursday, Dec. 14.

United Kingdom

LendInvest hits $ 1bn in funds under management (AltFi), Rated: AAA

Cutting out retail P2P investors doesn’t seem to have slowed LendInvest down. The UK’s leading fintech property lender now holds £765m (approximately $1bn) under management. Its capital base has more than doubled in 2017, up 104 per cent since the start of the year.

Manchester tops the buy to let index for England and Wales (PropertyWire), Rated: A

The highest yields for landlords are in Manchester at 5.55% and the city is also top in terms of rental growth at 5.76% and has a reasonable capital gains growth at 8.34%, the buy to let index from specialist lender LendInvest.

When it comes to capital gains the top city is Colchester at 11.96%, followed by Southall at 11.09%, Hemel Hempstead at 10.27%, Slough at 10.19%, Harrow at 9.89% and Ipswich at 9.44%.

Millennials will spend £1.1MILLION on rent over their lifetimes if they don’t get onto the property ladder (DailyMail), Rated: AAA

Millennials who began renting at 21-years-old and live in an average-sized property outside of London will spend an average of £110,830 in household rent before buying their first home – typically at an age of 32, according to research by peer-to-peer lending platform Landbay.

For those living in the capital – where property prices and rents are significantly higher – the amount increases to £273,210.

Source: DailyMail

Mortgage write-offs fall 79% in one year (Bridging&Commercial), Rated: A

The value of residential mortgages written off by banks and building societies has dropped by 79% in the past year, according to the latest research.
Data from the Bank of England revealed that UK lenders wrote off £72m of residential loans in the year end 30th September 2017, 79% lower than the same period in 2015/2016 – when £348m was written off – and even lower than pre-credit crunch levels.

Developer secures £1.9m from P2P platform for Merseyside projects (Development Finance), Rated: B

Mitty Group has secured £1.98m worth of funding from Assetz Capital to develop two new residential and leisure sites in Merseyside.

UK consumers ditching banks for digital loan alternatives (Finextra), Rated: A

UK consumers looking for personal loans are increasingly shifting away from traditional banks towards digital loan providers according to Zopa, the pioneering financial services company.

Research on the price comparison sector* shows loan sales obtained via price comparison sites have doubled in the last two years.
The data highlighted by Zopa shows that over 113,000 loans were sold through price comparison sites in the 6 months to April 30 2017, representing a 139% increase compared to the same period in 2015, whereas the overall unsecured personal loan market grew only by approximately 20% in the same period.

Gibraltar launches world’s first licence for fintech firms using blockchain (Independent), Rated: A

Gibraltar’s financial services watchdog will introduce the world’s first bespoke licence for “fintech” firms using blockchain distributed ledger technology from next month in a bid to attract start-ups to the British overseas territory as it prepares for Brexit.

Twenty-two of the world’s biggest banks and fintech firm R3 have just developed an international payments system using blockchain.

Gibraltar expects firms numbering well into “double digits” to seek authorisation after the new rules come into force on January 1, Gomez said.

China

Yirendai Makes $ 50 Million Strategic Investment in Finance Services Platform Lion Rock (Crowdfund Insider), Rated: AAA

China-based fintech Yirendai announced on Wednesday it has made a $50 million strategic investment in Lion Rock through the financial service platform’s Series A funding round.

LexinFintech starts IPO amid sector crackdown (Finance Asia), Rated: AAA

The Shenzhen-headquartered online micro lender, which launched the deal on Thursday, joins a flurry of other Chinese internet finance companies, including Qudian, PPDai and Hexindai, in their rush to  raise capital with a New York listing…with a US share sale worth up to $132 million.

Chinese fintech company PPDAI Group inks partnership deal with Sun Hung Kai (SNL.com), Rated: B

The move comes after Sun Hung Kai became a strategic investor in PPDAI Group through a private placement concurrent with the latter’s U.S. IPO.

European Union

Belgian crowdlending company expands in Europe (The Brussels Times), Rated: AAA

Look & Fin, the largest Belgian player in the field of crowdlending, plans to expand again in Europe.

On average, more than one million euros is invested monthly via Look & Fin. Loans vary between €50,000 euros and €1 million, with an average term of 38 months. Individuals invest on average €2,400 and can count on an average return of 7.6%.

Can a BBVA spinoff crack the digital ID code? (American Banker), Rated: A

Governments, banks and startups have been trying for years to solve the problems associated with identifying people in a digital world. The challenges are only getting harder thanks to identity thieves, data breaches that have exposed the personal information of hundreds of millions of consumers, and the fact that some folks want to avoid having to register face-to-face.

The latest entrant, a recent BBVA spinoff called Covault, is a bit different.

Its app lets consumers store their digital identity documents, passwords and (potentially) digital currency in a secure cloud, and then share pieces of that information with others as they see fit.

Regtech insights from Suade CEO, Diana Parades (Holland Fintech), Rated: A

Diana is the CEO and co-founder of Suade, a software platform which allows financial institutions to better understand and meet their regulatory requirements.

At SIBOS2017, Paredes encouraged financial institutions to think of regulation as being at the centre of their business. More education and research for implementation is needed, suggested Paredes in our interview. Smaller companies like startups offer more agile  implementation as they are technology driven companies. Meanwhile, the big machine of a bank is becoming better at agile acceptance of new technology.

‘Regtech will prevent the next financial crisis.’

Paredes explained this quote saying that while regulation is trying to prevent another crisis, it has no implementation guide. As such, regtech will be needed to give effect to the regulation.

Saxo Payments Banking Circle Nabs Prestigious Award (Holland Fintech), Rated: B

The Banking Technology Awards 2017 has named the organisation’s Banking Circle Virtual IBAN as the Best Corporate Payments Initiative.

International

Exclusive Interview with Celsius CEO Alex Mashinsky (ChipIn), Rated: A

Celsius is a peer-to-peer (P2P) and blockchain-powered global lending and borrowing network designed to enable coin holders to earn interest.

First off, why did you decide to use the blockchain to build Celsius?

The blockchain is the first real technology threat that the large banks have faced for the past 100 years. It has the potential to spur a new financial revolution from which they cannot adjust. We decided to build Celsius using blockchain to leverage the technology’s global presence and decentralized design to extract the bank’s profits and distribute them to our members.

What was your thought process behind it?

We want to find the best way to add the next 100M crypto users to the market, and we came to the conclusion that offering coin holders 5-7% in interest on their coins would be the best way to get there.

Did you face a problem within the consumer credit industry or do you think there is a gap in the market for Celsius to fill?

Unfortunately, the continued concentration in the banking sector has allowed banks to pay people less than 2% interest but charge our credit cards 25% interest when lending us the same dollars.

THE TRANSFORMATION OF THE GLOBAL REINSURANCE INDUSTRY (All About Alpha), Rated: A

A new paper from Milliman, a consultant to the insurance and financial services industries, discusses the ongoing transformation in and of the global reinsurance industry that alternative investment has created.

By the end of 2016, Milliman says, alternative capital in the catastrophe space consisted of around $76 billion, which breaks down as follows:

  • Collateralized reinsurance $39 billion
  • CAT bonds, $25 billion
  • Sidecars $8 billion, and
  • Industry loss warranties $4 billion.

As a proportion of the whole: alternative capital now represents roughly 13% of the available capital in global reinsurance.

Since 2011 the percentage of bonds with indemnity triggers has increased from 30% to roughly 70%.

Australia

Behind the 500% increase in small businesses using marketplace lending (SmartCompany), Rated: AAA

The number of small business customers signing onto loans through marketplace lenders has increased more than 500% over the past year, but experts say scrutiny must be put on the alternative finance sector now to ensure smaller operators get the best deal.

In 2015-16, ASIC’s survey of the sector put the total value of loans through this kind of model at $156 million, but that figure has doubled over the past year to now sit at $300 million. Total borrowers for the year jumped from 7,448 last year to 18,746 this year.

Australian Securities & Investment Commission Publishes Report on Marketplace Lending, Shows Double the Loans (Crowdfund Insider), Rated: AAA

Earlier today, the Australian Securities and Investments Commission (ASIC) published a report on the marketplace lending industry (peer to peer lending).  ASIC believes that by monitoring Fintech they are better positioned to assess any risk as the industry develops.

The survey covers marketplace lending activities of 12 platforms that are regulated by ASIC – so it is not comprehensive of the entire online lending sector.

In summary, there were 353 incidents or suspected incidents of fraud , compared to 126 incidents or suspected incidents of fraud during the 2015 – 16 survey. There was one cyber security incident, compared to zero during the 2015– 16 survey. There were reports of some borrower complaints but most appeared to be minor. The average default rate was 2.2%.

Source: Australian Securities and Investments Commission
Source: Australian Securities and Investments Commission

Read the full report here.

India

Impanix Fuels Loans Marketplace Finbucket With $ 1.87 Mn Funding (Inc42), Rated: AAA

New Delhi-based online loans and investments marketplace FinBucket has raised $1.87 Mn (INR 12 Cr) from Impanix Capital.

As evident from her statement, the online loans marketplace aims to use the newly raised funds in the growth of business and infuse new technology to scale further.

Asia

CROWD GENIE ASSET EXCHANGE TO HOLD ICO (Bitcoinist), Rated: AAA

Crowd Genie, a fully operational Singapore-based peer-to-peer digital lending platform licensed by the Monetary Authority of Singapore (MAS), has been selected by the token holders of the ICOS platform as the latest promising project to hold its own ICO.

Unlike most projects contemplating an ICO, Crowd Genie is not a startup but rather a debt-based lending platform that has been in operation for more than 12 months. It is one of only four P2P lending platforms licensed by the MAS. The project’s vision is to build a tokenized Pan-Asian lending exchange based on smart contracts, to ensure cost-effective, safe and efficient cashflows between lenders and borrowers.

The public ICO will begin on January 15, 2018, and will run until February 15, 2018. On offer will be 50,000,000 CGCOINs, a utility token which can be used to trade on the Crowd Genie platform.

Credit Suisse Snaps Up Fintech Stake (FiNews), Rated: A

Singapore-based fintech Canopy announced it has raised fresh funding of $3.4 million from investors including Switzerland’s second-largest bank Credit Suisse as well as Lionrock Capital.

Canopy, formerly known as Mesitis, is a Singapore-based anonymous account aggregation and analytics platform for financial institutions, wealth management professionals, and high net worth individuals.

Authors:

George Popescu
Allen Taylor

Monday October 23 2017, Daily News Digest

Mosaic

News Comments Today’s main news: SoFi discussed acquisition with Schwab. Victory Park Capital dumps Avant loans, moves away from MPL. Banco BNI Europa partners with Parcela Já on payments solution. Skystar Capital to raise third fund in 2018. Today’s main analysis: Mosaic prices, Nelnet, and Avant. Today’s thought-provoking articles: Asian stocks outpace U.S. since Alibaba IPO. When payday loans […]

Mosaic

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News Summary

United States

SoFi held talks for possible $ 8bn sale this year (Financial Times), Rated: AAA

SoFi, the highly valued online lender, explored a sale earlier this year, holding talks with companies including Schwab, the San Francisco-based broker, according to people familiar with the matter.

The sale discussions at SoFi, which has since been rocked by sexual harassment allegations, were triggered by an indicative offer of $6bn from a foreign bank, according to two people familiar with the matter. That offer came soon after SoFi raised $500m in a fundraising round led by Silver Lake, which valued it at more than $4bn.

After the initial approach, SoFi held talks with other possible acquirers with a targeted price of $8bn-$10bn. Several US companies, including Schwab, discussed a possible deal but none matched the desired price. SoFi decided to wait for an initial public offering, tentatively scheduled for 2019.

Mosaic Prices, Nelnet Acquires Great Lakes, FinTech Financings (PeerIQ), Rated: AAA

Earlier this week, Mosaic priced MSAIC 2017-2, their second solar ABS. The deal was heavily oversubscribed, with over $1.7 Bn in orders for a $307.5 Mn deal.

On Thursday, Nelnet announced it would acquire Great Lakes Education Loan Services for $150 Mn in cash.

In other securitization news this week Avant filed ABS 15-G for is AVNT 2017-B deal. KBRA assigned preliminary ratings to three classes of notes issued by Avant Loans Funding Trust 2017-B (“AVNT 2017-B”). The transaction is a $232.648 Mn consumer loan ABS transaction that is expected to close on October 31, 2017. We took a close look at Avant’s first deal of 2017 in a prior newsletter.

Mosaic Background
With over $1.1 Bn loans funded, Mosaic maintains a proprietary origination channel consisting of a high-quality network of approved solar installers. These installers are carefully screened as Mosaic must rely on these partners to refer quality borrowers because the loans are secured by the installed solar systems.

Last month, Mosaic inked a deal with Goldman Sachs for a $300 Mn forward purchase agreement. In addition to the ~$450 Mn the company has raised through securitizations, other significant sources of financing include a $220 Mn series C equity raise led by Warburg Pincus in 2016 and $650 Mn in warehouse commitments from a diverse mix of banks.

Source: PeerIQ

Asian Companies Sell Most Stock in U.S. Since Alibaba’s IPO (Bloomberg), Rated: AAA

Fifteen Asian companies have raised $3.2 billion in U.S.-listed IPOs and seen their shares climb 46 percent since their listings this year, according to weighted-average share price data compiled by Bloomberg. That compares to an 11 percent climb for the 105 U.S. businesses that listed domestically and raised a combined $23.6 billion.

Combined with other listings, those three have put October on track to be the biggest month of the year for U.S. IPOs. The $29 billion raised in 2017 has already outpaced the $15.2 billion in stock offered by new U.S.-listed companies through this time last year, according to data compiled by Bloomberg.

The 13 Asian companies that raised a combined $1 billion in 2015 are up 117 percent, beating the 19 percent rise for U.S.-based companies that had domestic listings that year. In 2014, 20 Asian companies including Alibaba raised a combined $30 billion. Those stocks are up 152 percent on average. The $50 billion in U.S.-based companies’ shares sold that year have climbed only 35 percent.

When Payday Loans Die, Something Else Is Going to Replace Them (The Atlantic), Rated: AAA

But the regulations will do little to address the other side of the problem: consumers’ demand for small, fast, easy-to-obtain loans. Solving that problem, while ensuring that new predatory loans options don’t pop up, will fall to the financial industry and state legislators—who’ve struggled in the past to protect financially vulnerable Americans.

Some of those options are already out there, and won’t be covered by the CFPB’s new rule, says Nick Bourke, the director of the consumer-finance program at Pew Charitable Trusts. According to Bourke, many of the same payday and auto-title lenders that will be shelving shorter-term loans ahead of the CFPB’s onerous new rules already have other loan options available. And they’re available in about half of all states.

To prevent that, Bourke says, states could mandate that small and installment loan options include affordable repayment structures, reasonable repayment times, and lower fees. That’s an option that has already been implemented in some states such as Colorado, and one that might work elsewhere.

There are few places for poor, underbanked Americans to turn when they’re in need of a couple hundred dollars in a pinch. In the past, many traditional banks have said that the risk and cost of underwriting small-dollar loans simply isn’t worth it: Small loans, coupled with borrowers with low incomes and spotty or nonexistent credit history, don’t really appeal to large, profit-seeking banks.

One of the main alternatives provided by credit unions is the Payday Alternative Loan—which allows federally backed credit unions to provide their members with small loans in amounts ranging from $200 to $1,000, with repayment terms of one to six months. But when you compare the accessibility of PAL loans to the demand for payday products, it’s clear that they can’t meet the need. In 2016, only about 20 percent of the country’s fewer than 4,000 federal credit unions offered the loans. And to get one, a borrower must be a member of a credit union for at least a month, and sometimes complete a financial-education requirement in order to fulfill a loan application. That’s an imperfect swap for many of the 12 million Americans who use payday loans each year to receive an instant cash infusion.

How Often Do Mortgage Lenders Follow-Up via Calls And E-mails? (Tenfold), Rated: A

I conducted a study where I applied for home loans with nine different lenders and then tracked their follow-up attempts over two weeks. During this time, I also did not respond to their follow-up calls and e-mails.

  • Over the course of two weeks, Quicken Loans made the most follow-up attempts. 18 to be exact.
  • Lenders at Citigroup came second with 17 follow-up attempts.
  • loanDepot, in third place, attempted 13 follow-ups.
  • During the same period, Chase Mortgage and PennyMac Loan Services tied for fourth with 11 follow-up attempts.
  • Sales reps at Bank of America only followed-up on the home loan application five times.
  • U.S. Bancorp followed-up twice, and CapitalOne and HSBC Mortgage Services tied for last with just a single follow-up attempt.
Source: Tenfold
Source: Tenfold

Varo Money Announces New Product Features to Help Customers Save More Money (Varo Money Email), Rated: A

SmartBiz Loans brings banks back to SBA lending (Biz Journals), Rated: A

The company, which offers an online Small Business Administration loan marketplace, was the top facilitator of traditional SBA 7(a) loans under $350,000 in fiscal 2016.

As S&P Global Ratings noticed collateral performance in the U.S. subprime auto loan asset-backed securities (ABS) market deteriorated moderately on a sequential basis in August, Davis & Gilbert’s Insolvency, Creditors’ Rights & Financial Products Practice Group fears investors could be in for a surprise if that market segment makes a more notable move.

S&P Global Ratings indicated the subprime net loss rate increased to 7.95 percent in August 2017 from 7.38 percent in July but decreased year-over-year from 8.35 percent.

Between August of last year and the same month this year, analysts noted about 35 new deals with a total collateral amount of approximately $17 billion were added to their index. These additions pushed the outstanding collateral amount up to approximately $35.6 billion compared to $32.0 billion a year earlier.

Fundera Report: The Traditional SME Lending Process Pretty Much Sucks (Crowdfund Insider), Rated: A

Fundera, an online lending comparison site, has partnered with Oliver Wyman on a report about SME lending. Entitled, “Great Expectations: Improving the loan application process for small business borrowers, the document effectively labels the traditional borrowing process as broken.

On the flip side, banks still have an advantage in a lower cost of capital so if you can suffer through the frustration you loan (if ever approved) may come at a lower cost.

So what is the big takeaway from all of this?

The report explains that alternative lenders have a higher cost of capital because they lack access to low cost deposits that banks and credit unions use to fund their loans. The average cost of funds for a bank is around 0.06%. In comparison, OnDeck reported a cost of funds in Q1 2017 of 5.9%.

This App Will Loan You $ 75 Interest Free to Avoid Overdraft Fees (Lifehacker), Rated: A

Another solid solution: Dave. Not your buddy from college, the app.

Once it’s tied to your bank account (using the same military-grade 128-bit SSL encryption technology used by big banks), the app will monitor your finances and reoccurring expenses and then let you know when you’re running at risk of overdrafting your account.

Within the app you can ask to borrow $25, $50, or $75 to get you through until your next paycheck comes. Loans are free, but when you pay them back you’re given the option to leave a 5-15% tip. For every % of tip you give, the app will plant a tree.

Using the app costs $1 per month.

Real Estate Crowdfunding Firm Targets Institutional Investors (InstitionalInvestor.com), Rated: A

First RealFund will offer property investments in high-growth neighborhoods such as Brooklyn.

The New York-based firm will provide short-term real-estate investments in high-growth neighborhoods, according to co-founder and Chief Executive Officer Dan Drew. First RealFund will offer opportunities to co-invest alongside the firm in residential and commercial real-estate deals.

He projects returns of 12 percent to 24 percent on investments lasting one to three years.

First RealFund has a $5 million pipeline of deals and plans to co-invest $100,000 in each of its first two offerings, according to Drew. He said investors can allocate between $500,000 and $3 million in each of the real estate assets offered by First RealFund.

Rory Eakin of CircleUp (Lend Academy), Rated: A

In this podcast you will learn:

  • The circuitous route Rory took through South Africa before founding CircleUp.
  • The huge untapped opportunity that Rory and his co-founder discovered.
  • Some examples of consumer goods companies that have raised capital on CircleUp.
  • How they approach the due diligence process.
  • How and why they are tracking 1.2 million companies in the consumer sector.
  • Why building their own data analysis tools has been a key ingredient in their success.
  • The typical size of the companies that are raising money and the typical equity rounds.
  • The number of companies that have raised money on the platform.
  • The average revenue CAGR for those companies.
  • Their current mix of investors and the average investment on the platform.
  • Why they decided to launch a loan product earlier this year.
  • The typical loan terms they are offering.
  • Who is providing the capital for their loan product.
  • Why they remain focused on the consumer goods vertical for this loan product.
  • What the future holds for CircleUp.

OneMain Increases eSignLive E-Signatures Roll-Out to 1,700 Branches (Globe Newswire), Rated: A

VASCO Data Security International, Inc. today announced that longtime customer OneMain Financial, the largest responsible personal loan company in the U.S., has extended its use of eSignLive e-signatures for loan applications to more than 1,700 U.S. branches in 44 states. The lender has seen 99 percent adoption of the technology, which translates into an annual savings of approximately 500,000 administrative hours and $500,000 in toner costs alone, and enables OneMain to deliver an omni channel experience to improve the customer experience while reducing in-branch costs.

OneMain selected eSignLive in 2012 to enable virtual personal lending, including unsecured loans across online and call center channels.

Real Estate Crowdfunders Turn to Auto-Invest (Patch of Land), Rated: A

Automatic investment tools are gaining traction with real estate crowdfunding platforms as a way for investors to obtain greater access to transactions that meet their investing criteria.

The benefits of automatic investing to the real estate investor are multifold:

  1. It levels the playing field.
  2. It improves flexibility.
  3. It may allow for higher investments.
  4. It increases portfolio diversity. 
  5. Investors gain access even when demand is high.

How auto investing helps lenders

While the multiple benefits of automatic investing are fairly obvious to investors, real estate crowdfunding lenders stand to benefit as well. Using data gathered from investor parameters selected in a respective platform’s auto invest feature, the lender is able to see if a loan will fully fund or by what percentage it will fund before the loan documents are ever signed or approved.

This data helps determine whether an appetite exists on a particular real estate crowdfunding platform for a specific loan. If there’s a huge appetite for a particular loan type, then more of those types of loans may be offered.

Lenders who have built-out this type of auto-investing technology in an intelligent way will have an audit history to see how investing parameters have changed over time, which will help to make smarter lending decisions now and into the future.

Lenders, armed with auto-investing data, will be able to draw trend lines on how investors are or are not changing their investing parameters.

This could mean making a decision to deny a loan application because “crowd” investors have no appetite to fund it while prioritizing another loan through the approval and funding process because of high demand from investors.

Fears of commercially owned banks are unfounded: OCC’s Noreika (American Banker), Rated: A

Acting Comptroller of the Currency Keith Noreika on Thursday pushed back against concerns that his agency’s proposed fintech charter will unduly benefit nonfinancial firms.

Why Fintechs Want More Access to State Banking Regulators (Law.com), Rated: A

This week, the Conference of State Bank Supervisors (CSBS) announced more than 30 companieswill participate in its newly formed Fintech Industry Advisory Panel. The panel is part of the CSBS’s Vision 2020 initiative, which seeks to “modernize state regulation of non-banks, including financial technology firms.”

At financial startup Social Finance Inc. (SoFi), general counsel Rob Lavet, who oversees compliance professionals and is used to interacting with state and federal regulators, will be the one to serve on the panel. Kabbage’s head of global privacy, Sam Taussig, will represent the Atlanta-based small-business lending company.

Some companies have chosen other executives to participate in the regulatory conversation. At CommonBond, for instance, CEO and co-founder David Klein will represent the student loan company.

Judge OKs LendingClub Investor Class, Competing State Suit (Law360), Rated: B

Investors in LendingClub Corp. who accused the online lender of stock fraud were recognized as a class in California federal court on Friday, but the judge allowed a competing state-court case to advance despite his skepticism that it would result in a better outcome for investors.

Payments M&A, deals and financings all happened (The Financial Revolutionist), Rated: B

First Data accidentally let it slip that it was thinking about buying payments processing partner BluePay and 

Lendio Joins Innovative Lending Platform Association (OnDeck), Rated: B

The Innovative Lending Platform Association (ILPA), consisting of the nation’s leading online small business lending platforms, today announced that small business platform Lendio has joined the trade organization as an associate member. Lendio will work with other ILPA members to advance online small business lending education, advocacy, and best practices.

United Kingdom

VPC offloads Avant loans as part of shift from marketplace lending (P2P Finance News), Rated: AAA

VICTORY Park Capital (VPC) Specialty Lending Investments has offloaded the majority of its loans from US personal loans platform Avant.

The alternative lending investment trust said in a portfolio update on Monday that the move is part of its strategy of shifting from marketplace to balance sheet lending.

The investments sold represent 7.6 per cent of the company’s net asset value as at 31 August 2017.

Why investing in your neighbour is the new finance revolution and Cornwall’s leading it (CornwallLive), Rated: A

Crowd sourced funding has transformed the way we do business, whipping up a sense of entrepreneurship and encouraging all of us to think about investing more locally.

According to SWIG Finance which has a base in Truro, more than £10billion has been loaned to UK businesses and consumers by the alternative finance sector as a whole since 2005.

Crowdfunder’s growth has been meteoric with 25,000 members joining the platform every month and raising some £2m a month for UK projects.

ThinCats Expands in Midlands By Appointing Ravi Bagri As New Origination Manager (Crowfund Insider), Rated: B

Peer-to-peer lending platform ThinCats announced on Friday it has appointed Ravi Bagri as its new Origination Manager, who will cover the Midlands region. According to the online lender, Bagri is considered one of the most well-established names in the Midlands finance sector and has nearly 30 years of experience in retail and commercial banking.

Debt collector Cabot plans to float on London Stock Exchange (Financial Times), Rated: B

Cabot has also appointed Andy Haste, chairman of payday lender Wonga, as independent chairman-elect, to help oversee the debt management group’s transition to a public company.

China

Third-quarter funding for China’s fintech hits a speed bump as state tightened reins on capital outflow (SCMP), Rated: AAA

Total funding raised by China’s venture capital-backed financial technology start-ups fell to US$800 million across 26 deals between July and September, a drop of 27 per cent from last year, as the central government kept a tight rein on capital outflows from this sector.

That amount was down from US$1.1 billion in the same period last year and below the US$1 billion recorded in the quarter to June, according to a recent online briefing by Lindsay Davis, an intelligence analyst at venture capital research firm CB Insights.

Davis said deal activity of mainland fintech start-ups in the third quarter dropped 19 per cent from 32 transactions recorded in the second quarter.

Dianrong, the Shanghai-based operator of a popular online lending marketplace, recorded the region’s largest fintech deal last quarter – a US$220 million Series D funding round led by China Minsheng Investment, Singapore sovereign wealth fund GIC and South Korean private equity firm Simone Investment Managers.

That was followed by the US$200 million Series C financing round of Shenzhen Suishou Technology, which runs a personal finance management platform on the mainland. Its investors included Hong Kong-listed conglomerate Fosun International, global investment firm KKR & Co, Sequoia Capital China and Beijing-based venture capital company Source Code Capital.

Source: SCMP
European Union

BANCO BNI EUROPA AND PARCELA JÁ SIGN STRATEGIC PARTNERSHIP TO LAUNCH SOLUTION FOR PAYMENT OF PURCHASES (Global Bnking & Finance), Rated: AAA

Banco BNI Europa and Parcela Já, Portuguese Fintech, have entered into a partnership to launch an innovative solution for the Portuguese market, which aims to enable any retailer to offer its customers the instalment of any purchase without costs to the consumer.

This product is open to all consumers with a credit card. To benefit from this service, the final customer will only have to make the purchase with his usual credit card, deciding at the terminal, at the time of purchase, the instalment he intends to make, between 2 and 12.

PayKey Launches Smart Mobile Payments Keyboard (PYMNTS), Rated: A

Mobile banking startup PayKey, which offers a smartphone keyboard designed for millennial banking customers, has raised $10 million in Series B funding, bringing its total raised to $16 million.

According to news from TechCrunch, this latest round was led by MizMaa Ventures, with participation from other investors that include SBI Group, Siam Commercial Bank’s financial tech subsidiary Digital Ventures, SixThirty and Fintech71.

PSD2 signals a return to relationship banking, says Temenos (AltFi), Rated: A

Jeroen Broekema, online lender Funding Circle’s lead in the Netherlands, recently told us that PSD2 “has the potential to be a game-changer”, but that its success in the short-term will depend on the willingness of the big banks to engage.

Temenos is a software provider to banks and other financial services firms, helping them to keep pace with a rapidly changing market. It’s the fourth largest software company in Europe, with profits of over $185m and a market capitalisation of more than $5bn. (Clearly, selling technology to banks is big business.)

ENEMY TURNED INTO BROTHER: CRYPROCURRENCIES AND BANKS TO INTEGRATE IN JUST ONE YEAR (Bitcoinist), Rated: A

Two factions have formed on their own – people who stay loyal to banks and observe the cryptocurrency market from afar, only dreaming about 30–60% p.a. deposit rates. And then there are those who have switched over to cryptocurrencies and are happy with the state of things but shudder every time they hear about the latest hacking of cryptocurrency wallets. Why make this choice? The market needs a service at the intersection of these factions.

We are finally solving the issue of debit card linkage to cryptocurrency wallets. About 10 companies promise to issue their Master Card or VISA cards – all to no avail… Our marketplace will solve the problem of online lending, including p2p lending, as well as deposits in cryptocurrency assets. Sure, the market may offer similar services, however only Narbonne has the team with that much experience in finance.

Many microfinance companies like to mention that 2–3 billion people are currently unable to get a loan in a bank.

International

The ECN Updates Review of Crowdfunding Regulation in the EU, Israel & the USA (Crowdfund Insider), Rated: AAA

On October 20, at its 6th Convention in Vilnius, Lithuania, the European Crowdfunding Network (ECN), the European association of alternative finance platforms, released its Third Edition of the Review of Existing Regulations of crowdfunding and related alternative financing in the 28 countries of Europe, as well as in North America and Israel.

The 720-page long report was written by local offices of law firms in each country coordinated by international law firm Osborne Clarke under the direction of Tanja Aschenbeck-Florange and her colleague Thorge Drefke.

In response to the new alternative financing models, some 11 EU countries have implemented national level regulations for securities-based and lending-based crowdfunding:

Belgium, Finland, France, Germany, Greece, Italy, Lithuania, The Netherlands, Portugal, Spain, and The United Kingdom.

A few other countries, such as Romania and Ireland, are preparing to issue such crowd-funding-specific regulations.

The result of this lack of regulatory harmonization is a market fragmentation which clearly hampers the development of the industry.

A Call for Action

The aim of the report, in addition to providing a reference document for the platforms and their partners, is to present the European and national regulators and legislators with a clear picture of the fragmented regulatory landscape and to suggest directions for improvements inspired from the best practices observed in each country.

Sovereign funds’ corporate deals halve in Q3, Asians stay active (The Star), Rated: A

The value of corporate deals with sovereign wealth fund (SWF) participation halved in the third quarter as oil-driven funds continued to take a back seat.

GIC participated in the top three deals, the largest being a US$6.4bil offer for Danish payments processor Nets by newly-formed company Evergood 5. The deal was backed by a consortium that included GIC, led by private equity firm Hellman & Friedman.

The second largest was the US$1.6bil acquisition of Hong Kong-based insurer MassMutual Asia by another investor group that included GIC.

GIC also led a US$220mil funding round for Chinese peer-to-peer lending platform Dianrong.

Fintech startup, Trade Ledger, launches world-first tech to help banks fight off global tech giants (Business Insider), Rated: A

Career technologists, Martin McCann and Dr. Matthias Born, are launching a world-first lending tech for banks and traditional lenders that will help to equip them against competition from tech giants such as Facebook, Tencent, and eBay wanting to enter financial services.

Trade Ledger is the world’s first business lending platform that transforms digital data from business supply chains in real time, allowing banks to assess and regularly update credit and default risk of businesses they lend to. Currently this is only done on a one-off or infrequent basis on a very small sample of invoices, and not on any other trade documents.

How Cryptocurrency Loans Are Reinventing Credit (International Business Times), Rated: A

The blockchain nonprofit Celsius, headquartered in New York, now has an initial coin offering to fund the launch of its beta loan platform for Americans in January.

One of the biggest barriers for taking out a loan is credit worthiness. The traditional way banks and lenders assess credit is widely considered outdated in the modern economy.

Users will download the app and log in through Facebook or LinkedIn to authenticate their identities. Ebay or Amazon sellers can upload their transaction histories to show their reliability. Borrowers can even have a guarantor, say a friend anywhere in the world with a cryptocurrency wallet, put up her digital assets to boost your Celsius credit limit.

Borrowers receive their credit in dollars even though lenders are giving them ether.

The plan is to eventually go global. Meanwhile, a Buenos Aires-based startup called the Ripio Credit Network will soon offer similar cryptocurrency services in Latin America. Ripio will focus on short-term microloans, ranging in value from $20 to $2,000. Ripio founder and CEO Sebastian Serrano told IBT the bitcoin wallet platform already has 140,000 users, mostly in Argentina and Brazil.

According to the World Bank, around 2 billion people still doesn’t have any type of bank account.

Like Nubank in Brazil and the fintech startup Tala in Africa and Asia, Ripio will also use cellphone data to help bolster the user’s credit score.

NerdWallet reported the average credit card rate was around 12.3 percent in 2016, accounting for inflation.

Salt has a KeepKey hardware wallet and a digital lending platform set to launch near the end of this year, altogether bringing in more than $45 million in revenue thanks to 25,0000 users.

The Cambridge study estimated there are between 5.8 to 11.5 million active cryptocurrency wallets worldwide.

India

How alternative financial services ecosystem has become big boon for India (Financial Express), Rated: AAA

J Venkatesh had always wanted to gift his college-going daughter a phone. But the machine operator, who works in a tobacco-manufacturing unit in Secunderabad, could never save enough money to buy a smartphone. Though he had a savings account in a large nationalised bank, he wasn’t able to procure a personal loan due to poor credit score. That’s when Home Credit India, a consumer finance provider, came into the picture. Last year, the company gave Venkatesh a small-ticket loan of Rs 10,000 to buy a smartphone. The small-ticket loan boosted his credit score, following which he was able to avail two personal loans of Rs 1 lakh and Rs 73,000 within a gap of less than six months between the two loans.

“With less than 20 million consumers in this country having credit cards and 70% of the formal consumer credit availed by only 24 million households, the opportunity for fintechs is immense,” says Lizzie Chapman, co-founder and CEO, ZestMoney, a fintech firm. At ZestMoney, the ticket size of loans ranges from Rs 3,000 to Rs 3 lakh. “But our sweet spot is in the Rs 20,000-Rs 50,000 space. These are purchases that are too small to warrant taking a personal loan for, but too big to put in one lumpsum for most people,” Chapman adds.

Today, nearly one-third of the customers availing loans through these financial institutions are new to credit.

As per data released in 2016 from the finance ministry, only 28-32% of Indians have access to financial institutions, including post offices and banks.

Online lending startups thrive as banks with bad loans become cautious (Deal Street Asia), Rated: A

Online lending start-ups such as Faircent, Wishfin and Loantap as well as large e-commerce firms are helping expand consumer credit at a time when banks burdened by bad loans have become cautious about lending.

Personal loans advanced by banks grew 15.7% in August, slower than the 18.1% growth that the segment reported a year ago, according to the Reserve Bank of India (RBI) data.

Faircent (Fairassets Technologies Pvt. Ltd) is now processing around 300 loans per month, with an average loan size of Rs1.5 lakh on a monthly basis, compared with 130 loans given in November and December last year.

Wishfin (Mywish Marketplaces Pvt. Ltd), a company which aggregates loan and credit products from banks, has also experienced a huge increase in loans after demonetisation. The firm claims to get around 300,000 applications every month for various financial and credit products, up 2.75 times from a year ago.

LazyPay (owned by PayU) and Simpl (owned by Get Simpl Technologies Pvt. Ltd) also provide a buy-now, pay-later option to customers on their platforms by tying up with online vendors.

Loantap (LoanTap Financial Technologies Pvt. Ltd) is one such platform that provides instant finance to salaried consumers. It has categorized loans for specific-use cases including weddings, holidays, car/bike loans and credit card re-financing, among others.

Now, a safer marketplace for loans (The Hindu Business Line), Rated: A

If you want to raise money quickly for business or personal use, the peer-to-peer (P2P) lending platform has now become more transparent and safer. The RBI last week laid down directions that bring more credibility to the online platform.What is it ?A P2P lending platform brings lenders and borrowers together.

FundPitch to cater to SMEs (The Hindu), Rated: B

While Bodhtree Consulting Limited will launch its operations in the Fintech Valley-Vizag within a few days, two other companies Lycos Internet Ltd (erstwhile Ybrant Digitals) and Kissht will also invest in the city.

The three companies have given the commitment to start their operations in Fintech Valley-Vizag with a total job opportunity for 600.

Besides Bodhtree, its subsidiary FundPitch would also facilitate funding for SMEs — a long needed requirement for innovative entrepreneurs in Andhra Pradesh — J.A. Chowdary, Special Chief Secretary and IT Advisor to Chief Minister, told The Hindu.

Asia

Indonesia’s Skystar Capital to raise third fund in 2018, to target late-stage funding (Deal Street Asia), Rated: AAA

Indonesian early-stage venture capital firm Skystar Capital is expected to hit the fundraising course for its third fund by the second half of next year, a top executive told DEALSTREETASIA.

The VC is now deploying its second fund – which it closed mid-2016 – with check sizes ranging between $100,000 and $1 million. It plans to start the fundraising process when it has utilized at least 50-60 per cent of the current fund.

Lifestyle inflation could be the reason you’re struggling (The Star), Rated: A

WHAT is lifestyle inflation? Quite simply it’s when you increase your spending when your income level goes up, for instance, each time you get a salary increment. It’s a simple idea that when you make more, you spend more.

But aside from that, did you know the Malaysia Employers Federation (MEF) has reported that the average salary increase in 2017 is estimated at 5.3% for executives and 5.43% for non-executives.

Inflation is floating between 3.6% to 3.9%, that only gives you a salary increase of 1%-2%.

Propelling Singaporean SMEs to greater heights with fintech (SBR.com.sg), Rated: A

According to the January 2017 report by Hootsuite and We Are Social Singapore, there are currently 644.1 million people in Southeast Asia. Of which, 53% are internet users making the region ripe for growth and expansion for Fintech adoption.

Paired with the Smart Financial Centre, with funding of $225 million, this has reduced the barriers to entry for fledgling startups and SMEs.

Payments
As a sector that contributes between 23 and 58 percent of the Gross Domestic Product of the region’s various countries, many transactions arise from SMEs. These may include the use of paper money or cheques, processes that are labour-intensive and time-consuming. However, with the rise of payment services like Omise in Thailand, M_Service in Vietnam, and Doku in Indonesia, SMEs can now reach customers without credit cards to transact on an e-commerce platform.

In Singapore, the introduction of PayNow, a payment service that allows transactions to be made to the user’s mobile number on mobile banking apps, has made banking transactions more convenient than ever.

Lending & Financing
Whilst SMEs are key to driving economic growth in Southeast Asia, the fact that they are small and medium enterprises also mean that they encounter difficulties in securing loans from traditional financial institutions. A report by Deloitte states that less than 60% of SMEs in five countries the region have access to bank loans.

Finance Management 
Another key issue SMEs face is the lack of financial literacy or financial literacy tools available to managers.

Improve policy framework to promote consumer finance (Viet Nam News), Rated: A

Experts agreed that the consumer lending market has high potential in Việt Nam, given the low penetration and significant size of the population that remained unbanked and unserved despite increasing income.

Statistics of the State Bank of Việt Nam revealed that total outstanding consumer loans were at VNĐ960 trillion (US$42.1 billion), or 15.7 per cent of the total outstanding loans in the economy, in 2016, of which VNĐ74 trillion was provided by finance companies.

She cited the World Bank’s statistics according to which the population with loans accounted for 46.84 per cent in Việt Nam, but the percentage of population with loan at financial institutions was much smaller at 18.45 per cent.

MENA

Brace yourselves for the future of finance (Khaleej Times), Rated: A

The financial services industry is experiencing a time of unprecedented change. And the principal driver for this change is fintech.

Investment in fintech in the Middle East alone for 2017 was forecast to increase by 270 per cent at the beginning of the year, with this figure expected to rise exponentially in the short to medium-term.

With the number of people owning at least one smartphone in the UAE – forecast to reach 789 million by 2019 – mobile banking plays a large and very important part in our everyday lives. Indeed, research leading up to the annual Gitex Technology Week in Dubai shows substantial growth in the banking habits of the high-earning, always-connected under-35s who require and expect constant mobile banking access.

In addition to mobile banking apps – robo-advisers, peer-to-peer lending and cryptocurrencies such as bitcoin and Ethereum – have all played a role in this colossal upheaval of the financial services industry.

HONEST FINANCING FOR TURKISH FARMS (Delano.lu), Rated: A

Tackling the challenges of the underbanked, the EFSE Fund and the SANAD Fund for MSME, advised by Finance in Motion, have partnered with Village Capital and the LHoFT to develop the Fincluders Bootcamp 2017, unique investment readiness program designed for entrepreneurs offering inclusive financial products.

We caught up with founders from each of the 12 selected startups, this time with Mehmet Memecan, founder of Tarfin:

What does ​’financial inclusion’ mean to you?

In farming, you achieve higher profitability by either planting more value-added crops, or plant more acres of the same crop. Both of these options require additional to capital.

Could you describe the mission of Tarfin?

Tarfin uses technology and its vast retailer network to deliver competitive financing options for farmers’ purchases of farm inputs. Farmers can buy fertilisers, seeds and chemicals today, and only pay after harvest. We bridge the financing gap, and we do it at a cheaper rate than what’s otherwise available to the farmer.

What are the unique challenges and opportunities of your home market?

Unfortunately, we have very low financial literacy in Turkish agriculture.

Africa

Ghanian FinTech Bloom Impact attracts Canadian investment (CFO), Rated: AAA

Ghana’s Bloom Impact, a machine learning loans marketplace accessible from smartphones has raised undisclosed funding from Engineers Without Borders Canada, EWB Ventures, an early-stage investor in innovative Africa-based social enterprises.

Authors:

George Popescu
Allen Taylor

Wednesday July 26 2017, Daily News Digest

Lending Club loans

News Comments Today’s main news: Seedinvest cancels Sharestates’ Series A Offering. LendInvest bond issue. How Samoyed Financial is outsmarting Tencent, Alipay. Faircent launches auto-invest. MoneyMatch to replace 5-6 scheme in Philippines. Today’s main analysis: The state of business lending. Fintech lending: Financial inclusion, risk pricing, and alternative information. Today’s thought-provoking articles: How Goldman Sachs is disrupting consumer lending. How FCA consultations will […]

Lending Club loans

News Comments

United States

United Kingdom

China

European Union

International

Australia

India

Asia

Middle East

Canada

Philippines

News Summary

United States

Seedinvest cancels Sharestates Series A Equities (Anonymous Email), Rated: AAA

Seedinvest gave the investors this explanation, according to our anonymous source:

The closing was held up and we subsequently discovered new material information. Sharestates’ offering (i.e. the ability to make new investments) came to a close during Q1 of this year. As we were working through closing operations, we requested a final set of offering documents from Sharestates’ counsel. This request in and of itself took months to be satisfied. While reviewing the red-line version of these updated documents, our counsel discovered that Sharestates had begun distributing quarterly management bonuses using cash they were generating through normal course of operations. As a result, we do not recommend proceeding with an investment. We are also withdrawing our fund’s commitment. 

How Goldman Sachs Is Disrupting This Trillion Industry (The Motley Fool), Rated: AAA

It’s been just over nine months since Goldman Sachs (NYSE:GS)launched Marcus, its newly created consumer lending venture, and the platform has been rather successful so far. In fact, the company recently announced that it has surpassed $1 billion in loans already, and it could have much more room to grow.

It’s been just over nine months since Goldman Sachs (NYSE:GS)launched Marcus, its newly created consumer lending venture, and the platform has been rather successful so far. In fact, the company recently announced that it has surpassed $1 billion in loans already, and it could have much more room to grow.

In addition, there’s no legacy credit card business to worry about, unlike most banks that also make personal loans.

According to Talwar, Marcus customers enjoy rates that are 300 to 500 basis points lower than credit card interest rates, and Marcus’ loans come with no origination, prepayment, or late fees — a rarity in consumer lending.

The State of Business Lending in 2017, According to Small Business Owners (Fundera), Rated: AAA

The biggest factor that’s presently clouding small business lending is the post-financial crisis surge of alternative small business lenders. Fundera’s VP of Strategy, Brayden McCarthy (along with Karen Mills, former head of the Small Business Administration) identifies in his working paper on small business lending that tighter restrictions on lending were imposed on banks after the 2008 financial crisis. Because of these tighter restrictions, banks had their hands tied when it came to providing loans to small businesses—providing a space within the small business lending market.

Main Takeaways

  • Small businesses are mainly applying for offensive financing rather than defensive financing.
  • Small businesses are still overwhelmingly going to brick-and-mortar banks to apply for financing.
  • A disconnect exists between small businesses owners and educational resources made specifically for them.

When you look at the business owners we surveyed, they are, by-and-large, successful. 56% of the businesses surveyed had a revenue of greater than $100,000 a year, and 60% of those surveyed ran businesses that had been in business for five years or more.

Furthermore, 80.6% of the small business owners reported having a personal credit score of 650 or above, one of the most important parts of the business loan application, and 68% reported having a business credit score of 80 or above.

One of the more shocking results was that a mere 5.94% of the respondents sought business financing in order to refinance a loan.

Meanwhile, only 10.89% of respondents said they applied for small business financing with an online lender. 

That being said, our respondents demonstrated a preference for the experience of applying online. 57.23% applied for a business credit card online directly while another 16% applied online through an affiliate like Creditcards.com, Nerdwallet, or The Points Guy.

Our poll found that 89.73% of those polled checked their personal credit at least once a year. Meanwhile, within the same sample of small business owners, 58.19% don’t check their business credit score at all.

Even more, when we asked respondents if they would be interested in a free business credit check, 34.23% said that they were “not at all interested.”

FINTECH LENDING: FINANCIAL INCLUSION, RISK PRICING, AND ALTERNATIVE INFORMATION (Philadelphia Fed), Rated: AAA

In this paper, we explore the advantages/disadvantages of loans made by a large fintech lender and similar loans that were originated through traditional banking channels. Specifically, we use account-level data from the Lending Club and Y-14M bank stress test data. We find that Lending Club’s consumer lending activities have penetrated areas that could benefit from additional credit supply, such as areas that lose bank branches and those in highly concentrated banking markets. We also find a high correlation with interest rate spreads, Lending Club rating grades, and loan performance. However, the rating grades have a decreasing correlation with FICO scores and debt-to income ratios, indicating that alternative data is being used and performing well so far. Lending Club borrowers are, on average, more risky than traditional borrowers given the same FICO scores. The use of alternative information sources has allowed some borrowers who would be classified as subprime by traditional criteria to be slotted into “better” loan grades and therefore get lower priced credit. Also, for the same risk of default, consumers pay smaller spreads on loans from the Lending Club than from traditional lending channels.

Download the white paper here.

LendingTree Announces Top Customer-Rated Lenders by Loan Product for Q2 2017 (PR Newswire), Rated: A

LendingTree today released its quarterly list of the top customer-rated lenders on its network based on actual customer reviews for the second quarter of 2017. The list features the top lenders in multiple loan product categories, including Mortgages, Personal Loans, Business Loans and Auto Loans, all of which are included in LendingTree’s online loan marketplace.

Lender rankings are based on a weighted average of overall rating and the total volume of customer reviews for mortgage, personal, business and auto loans. Lenders were rated on offered rates, fees and closing costs, responsiveness, customer service and overall customer experience.

Mortgage Category

#1 Winner: Busey Bank

Personal Loans Category

#1 Winner: Avant

Business Loans Category

#1 Winner: RapidAdvance

Auto Loans Category

#1 Winner: RefiJet

Mobile banking startup Varo Money has applied for a bank charter (TechCrunch), Rated: A

But Varo Money, which provides a mobile-first banking product to consumers, is up to that challenge. In an effort to offer similar — but better — checking, savings and lending products to consumers, the company has applied for a national bank charter with the Office of the Comptroller of the Currency.

To get the company off the ground, Walsh raised $27 million from Warburg Pincus and spent the last two years creating a mobile-first competitor to existing checking accounts.

Meet the World’s First Robo-Lawyer for Real Estate Investing (PR Newswire), Rated: A

Bootstrap Legal, a legaltech and fintech startup, today launched software that automates the drafting of complex legal paperwork for those raising capital for real estate projects of $2 Millionand under. For the first time, real estate investors can draft their own legal offering documents using artificial intelligence. The new online service was launched in recognition of the changing marketplace of real estate investing. More and more smaller investors are able to access investment opportunities online. For platforms and issuers originating these offers, a streamlined and low cost service to provide necessary legal documents is vital.

This first-of-its-kind legaltech product both undercuts the legal fees associated with real estate capital raises and expedites the process. Real estate investors typically have limited time to raise capital for their project, and Bootstrap Legal’s new software allows users to control the legal process, so that they can have extra time to raise capital. Users who require additional assistance are connected to a real estate securities attorney to get questions answered.

These Bay Area FinTech Companies Are Revolutionizing The Lending Space (Benzinga), Rated: A

BeSmartee: BeSmartee is an artificial intelligence-powered lending and mortgage platform that originates documents, credit checks, and other financial information in just minutes.

Capsilon: Capsilon builds technology solutions for the mortgage industry’s most imperative challenges.

Credit Sesame: Credit Sesame is a fintech company that operates in the fields of education, credit, and personal finance.

Home Captain: Home Captain is a lending company that pairs clients with a pre-screened realtor in their area with the help of a real estate concierge throughout the way.

SuperMoney: SuperMoney compares financial products and services to give people the information they need to make better financial decisions.

CoinList Attempting to Standardize & Self-Regulate ICOs (Crowdfund Insider), Rated: A

CoinList, founded as a partnership between Angel List and Protocol Labs, is quietly trying to standardize initial coin offerings (ICOs) by self-imposing similar restrictions as the SEC imposes on companies that conduct certain private offerings under Regulation D.

CoinList, which was founded in part by AngelList, appears ready to launch token offerings on its site that are similar to the offerings available on AngelList’s site; that is, offerings regulated by the SEC under Regulation D. In order to invest in the offerings on CoinList, investors have to be “accredited” which is the same requirement that investors on Angel List have to meet as imposed by Rule 506(c) of Regulation D. However, since the SEC hasn’t come out with any guidance on ICOs and token sales yet, the requirement that investors be accredited on CoinList is one that is self-imposed by CoinList.

Why This Co-Founder Keeps His Calendars Public to His Employees (Entrepreneur), Rated: A

From client meetings to doctor appointments to family time, most things Sam Hodges does is public knowledge to his employees. All they have to do is check out his online calendar, which is set to “public” for employees. So why is this co-founder and managing director OK with letting others in on even his private life? Because at Funding Circle, Hodges says he fosters a culture of openness and transparency — in every respect.

“The first really crucial trait is around vision. As a leader your job is to understand the market, understand the business’ capabilities and then come back to the organization with a view on what you need to do in order to become successful.

“A second really vital skill is communication — being able to communicate in the right way with many different types of stakeholders.

“A third really important skill is problem-solving. In a leadership position, oftentimes what you face day to day are the things that are not going well and the opportunities that exist — so comfort with ambiguity, the ability to put structure around problems and the ability to be calm in the face of things blowing up.”

The Emotional Robo-Counselor For Your 401(k) (NASDAQ), Rated: A

So he co-founded Dream Forward, a 401(k) supplier that offers, as its website says, “Emotional Advisor A.I. technology.”

Easterbrook: The super high level of what we do is we’re selling 401(k) plans, fix all the obvious problems, lower the cost, make it easier to use, cause less headaches, no conflicts of interest, and then add conversational AI that employees can talk to about whatever they don’t understand, whatever the issues are.

Easterbrook: It looks like an online chat. It’s a chatbot. It’s designed to basically have 24/7 chat available to employees on whatever they don’t understand, whatever their issues are, whatever concerns they have. It talks to them in plain English in a way that we call it almost an emotional advisor instead of a robo-advisor.

AI 100: The Artificial Intelligence Startups Redefining Industries (CB Insights), Rated: A

Google can take on Amazon’s cloud dominance: PayPal co-founder (Fox Business), Rated: A

Tech companies are increasingly becoming more mobile and cloud based. According to Affirm and PayPal co-founder Max Levchin, Google’s (GOOGL) best bet to rival Amazon (AMZN) is through the cloud services business.

In his opinion, Google should diversify and focus on its cloud storage services as a means of competing and catching up to Amazon’s AmazonDrive.

A quick guide to what’s at stake in the SoFi charter controversy (American Banker), Rated: A

Social Finance’s application for an industrial loan charter has not only drawn opposition from a coalition of incumbent banks and community activists. It also serves as a microcosm of several perennial debates in financial services policy.

From complaints about an unlevel playing field to warnings about systemic risk, from giving back to the community to fostering innovation, here’s a rundown of the issues.

Why I Am Joining Affirm (LinkedIn), Rated: B

I’m excited to share that I recently joined Affirm as Head of Product to help build honest financial products that improve lives.

Affirm presents a new and unique opportunity for me at the intersection of technology, user experience, and financial services. If we’re successful, Affirm has the potential to be the most innovative and globally loved financial institution in the world.

4 Fintech Companies That Might Replace Your Bank One Day (Benzinga), Rated: B

Based in San Francisco, SoFi has changed the lending and wealth management space of fintech.

Wealthfront has introduced to the automated financial advisor to the world. Based in Redwood City, the company has deployed high tech software to follow market trends and create analysis for good investments. The automated financial investor manages risk, lowers taxes, and minimizes fees. Wealthfront’s trademark product, PassivePlus, combines high-level research experts with high-level technology to create a speedy and precise automated financial advisor.

Nerdwallet is the hub for free information on credit cards, banking, investing, mortgages, loans, credit scores, and more.

LendingClub Corp LC, based in San Francisco, allows people to invest and borrow money. The company offers personal loans, small business loans, auto refinancing, and now loans for medical treatments. Investors make monthly payments in order for investors to make a monthly return. Scott Sanborn is the CEO of the company, which has lent $26 billion and has over 1.5 billion customers.

United Kingdom

LendInvest Bond Issue (SyndicateRoom), Rated: AAA

Property investment platform LendInvest is launching a five year retail bond, offering investors a fixed rate of 5.25 per cent. The Bond is due to reach maturity in August 2022.

The bonds will bear interest at a fixed annual rate of 5.25 per cent, payable semi-annually on 10th February and 10th August. The minimum initial subscription is £2,000, each Bond has a face value of £100. Once launched, investors will be able to sell their bonds on the open market at any time during market hours. The offer period is now open and is expected to close at 12 noon (London time) on 4 August 2017.

Upcoming FCA consultations will shape future of UK P2P lending (AltFi), Rated: AAA

Peer-to-peer (P2P) lending will continue to go from strength to strength, with low interest rates still squeezing bank margins, a trend towards fintech and a requirement for rapid decision making. P2P lending is establishing its position in the market even with an uncertain economic and political climate. As a result, myriad of opportunities and challenges must be considered across the sector.

The regulator has also expressed concern that P2P firms’ wind-down plans may not be adequate and is planning to strengthen the rules around this. Firms should therefore expect to see an increase in capital requirements.

Another cause of concern, which requires further exploration, is around potential conflicts of interest. There’s a risk that large investors will have greater access to preferential deals, over small investors, which creates problems for effective competition within the sector. Given the regulator’s mandate to promote competition more generally across financial services, it will be interesting to see how this gets applied to the new rules.

Is new retail bond from LendInvest a buy? (AltFi), Rated: A

That looks a smart move because it’s now planning to return to the retail market but this time via bond – Funding Circle, by contrast, chose to use an investment trust to raise money from the stock market, with a target annual yield of around 6.5%.

Compared with the rates on offer from rival P2P platforms such as Zopa and Ratesetter, the yield of 5.25% is not bad and unlike its nearest rivals the investor also get secured assets to work against. That’s important when comparing the Lendinvest yield of 5.25% against the Funding Circle SME Loan income fund yield of around 6.5%. The latter is not secured and is mostly invested in risky SME loans.

Also, Lendinvest has a sensible average LTV ratio at 63% which should give private investors some comfort although I would observe that if house prices fell more than 15% across the board, the bond might be in danger of breaching its covenant. I don’t think that is likely but it is always possible.

The damaged reputation of asset-backed securities is on the road to recovery (City A.M.), Rated: A

It’s been a decade since the collapse of two hedge funds managed by Bear Stearns. The funds were backed by subprime mortgages, and they failed when hoards of borrowers defaulted on their loans. This sparked a chain reaction which culminated in the global financial crisis of 2008.

“ABS could therefore represent the future of crowdfunding more generally, but real estate crowdfunding in particular. This long-suffering acronym could very well make a comeback to help revolutionise the market for real estate investment as we know it.”

Growth Street bolsters team with new sales and relationship management hires (LendIt), Rated: B

SME lender Growth Street has brought on board a new Director of Sales, Head of Relationship Management and Business Development Manager as the firm’s expansion continues.

The new appointments bring a wealth of sector experience to Growth Street. Chan Purewal, formerly of Boost Capital and Bibby Financial Services, has joined the business as Director of Sales.

Nicola Weedall, previously of GE Capital and latterly Head of Risk and Compliance at invoice financing specialist DueCourse, has joined Growth Street as Head of Relationship Management. Her role will be split between London and Manchester.

Meanwhile, Nick Owers, formerly Head of Banking Relationships at iwoca, becomes a Business Development Manager. Nick has also worked for Lombard and Royal Bank of Scotland in the past.

VC investment into UK FinTech ‘fell by 40% in Q2 2017’ (Tech City News), Rated: A

According to CB Insights’ ‘The Global FinTech Report: Q2’17′, venture capital-backed deals in UK FinTech fell by 40% during the second quarter of this year.

The report says funding plummeted by 52% after a temporary surge in the first quarter of the year following Atom Bank’s and Funding Circle’s $100m deals.

How to boost your retirement income with Peer-to-Peer? (Radio Times), Rated: B

Over the past ten years, peer-to-peer lending has taken the UK by storm and has become a viable option for many people looking for a potential retirement income. To date, more than £10 billion has been invested through UK peer-to-peer lenders, returning on average 7.17% total gross interest. (source: AltFi Data)

With the right peer-to-peer loans that are backed by tangible assets like property, such as ones offered by Assetz Capital, the risk of loss can be reduced as those assets may be sufficient to recover lent funds should the loan default.

Creditors set to miss out in Morgan Tucker administration (The Business Desk), Rated: B

Morgan Tucker, the Nottinghamshire-based consulting engineering firm, went into administration at the end of May owing over £3m to creditors, according to papers seen by TheBusinessDesk.com.

The business’s expansion into the Middle East caused significant losses, it emerged in June.

Among some of the firm’s biggest creditors were Funding Circle which was owed £218,513 and Vendor Loans which was owed £112,000. The firm also owed HMRC £286,513.

China

This Chinese Credit Card Company Plans On Outsmarting Tencent And Alipay With A More Secure Product (Forbes), Rated: AAA

Startup firms like Samoyed Financial, a Chinese online credit card issuer, are on the cutting edge of consumer lending.

Samoyed Financial offers prime consumers credit cards online at below-market interest rates. While so many consumers require loans to make larger purchases, online lending firms in China (particularly peer to peer lending firms) have in the past struggled to control risk.

Credit card use in China has risen from five million in 2002 to 300 million at present.

Because China lacks a complete credit risk credit rating system like FICO, firms have been forced to rely on their own credit risk assessments in the burgeoning consumer lending market. Lin’s firm uses data taken from the consumers’ phone records and online behavior, with consumers’ authorization. The data is then used to build a credit risk model.

Samoyed Financial also incorporates artificial intelligence in the form of the Alpha S robot to review information and determine whether an applicant looks suspicious.

China declares war on get-rich schemes, citing risk of social unrest (SCMP), Rated: A

Chinese police will strike hard against shady financial schemes because of the risk of social unrest from such fundraising ploys, according to the Public Security Ministry.

Guo said at a nationwide meeting with local police authorities on Sunday that law enforcers must use “big data” technology to uncover and stop such crimes as early as possible.

Chinese Fintechs Use Big Data To Give Credit Scores To The ‘Unscorable’ (Forbes), Rated: A

Last November 11, China’s so-called Singles’ Day, sales across Alibaba platforms reached new heights: RMB 120 billion, or $17.9 billion.

Offline borrowing, however, is still largely absent. Hua Bei is basically a virtual credit card, but 60% of the users have never owned a physical credit card. Traditional banks are not lending money to individuals because they lack a reliable credit score. In fact, most Chinese people, by Western standards, are simply “unscorable”–only 25% of the population have a credit history.

With spending increasing, credit card use per capita actually declined from 0.34 in 2014 to 0.29 at the end of 2015, according to People’s Bank of China. In that same year, however, mobile payment users grew 65%. For the whole year, $5.5 trillion third-party mobile payments were completed in China.

Chinese P2P Neo Online Helps Children Realize Football Dream with International Champions Cup (Markets Insider), Rated: B

Neo Online, a leading Chinese peer-to-peer lending platform under Neo Capital Management Group Co., Ltd. (“Neo Group”), joined with the 2017 International Champions Cup China to hold a public interest meeting under the theme “Big big kids in a big big world”.

In January 2017Neo Online launched the public welfare program “Kids Are Awesome”, which supports adolescent development and growth in such areas as culture, sports, arts, and health.

European Union

P2P lending platforms poised to join Nutmeg and Seedrs on Fidor marketplace (AltFi), Rated: AAA

One of the most interesting and recent of these partnerships is between challenger bank Fidor and host of other players such as digital wealth manager Nutmeg.  Fidor’s UK commercial customers can now access a whole suite of investment opportunities through the digital marketplace, including access to alternative investment opportunities via a number of the most respected fintech companies in the UK.

Fidor Bank is a digital bank with over 100,000 users across Germany and UK.

Interview with Loit Linnupõld, CEO of Crowdestate (P2P-Banking), Rated: A

What are the three main advantages for investors?

Pre-vetted real estate investment opportunities – Our experienced real estate and finance team evaluates thoroughly each aspect of every project and picks the best investment opportunities to be published for crowdfunding.
Low minimum investment amount – the minimum investment on our platform is just 100 euros, meaning basically anyone can afford to invest into real estate with Crowdestate.
Everyone can invest – Crowdestate is open to all investors all around the world, provided that they have a way to make an international bank transfer to their virtual investment account previously created on our platform.

There are many different types of investment opportunities on Crowdestate. Debt, equity, secured, unsecured… Why did you decide to use so many different types for the offers?

What ROI can investors expect?

The historical money-weighted average internal rate of return on our exited investment currently at 29.59%. However, as the fast-increasing money supply is driving the expected returns down, the investors’ annual returns are probably going to remain between 10-20%.

Stock loan falls short for buy side as liquidity source (Securities Lending Times), Rated: A

In a joint survey by InvestOps and SimCorp, 14 percent of 100 respondents highlighted securities lending as their most popular source of liquidity.

The survey did not detail respondents’ reasons for neglecting securities lending as a liquidity source or expand on whether heads of operations simply considered the practice as a back-up option.

International

ID Finance’s chatbot cuts client services workload by a third (ID Finance Email), Rated: AAA

ID Finance, the digital finance, credit scoring and emerging markets company has developed and introduced a self-learning chatbot for MoneyMan, its online lending platform serving customers in Spain, Georgia, Russia, Poland, Kazakhstan and most recently Brazil.  Since launch at the beginning of July, over a third of customer requests are already being processed automatically.

The chatbot interacts with new customers at the loan application stage and with registered users when they log in to their personal account. The chatbot helps to locate the information required to determine loan eligibility, and provides recommendations of relevant products tailored to the individual’s requirements and financial prudence. General advice on personal budget planning and financial literacy is also offered.

The chatbot works within the NLP (Natural Language Processing) and NLU (Natural Language Understanding) AI frameworks. Information is processed based on statistical matches covering a wide range of frequently asked questions. And the NLU platform enables analysis of messaging flow so the meaning of the information can be sought out in context.

Additional capabilities include finding non-trivial links in dialogue with users and providing relevant answers to questions unrelated to credit and finance. Thanks to the machine learning technology, the number of questions the chatbot is able to answer increases by 20 per cent daily. The average response time is around ten seconds and if a question cannot be answered the message is automatically forwarded to an available client support operator.

Australia

Former big bank CIO joins fintech board (Broker News), Rated: B

Online loan marketplace and fintech HashChing has welcomed two new financial services heavyweights to its advisory board.

Paul Rickard, managing director of CommSec and former executive at Commonwealth Bank of Australia, and Marty Switzer, chief operating officer of the Switzer Financial Group both joined the board in June earlier this year.

India

Faircent.com launches fully-automated ‘Auto Invest’ feature (DNA India), Rated: AAA

In a pioneering development for the country?s fintech sector, Faircent.com, India?s largest peer-to-peer lending platform has launched a new Auto Invest feature for registered lenders.

It eliminates the need for lenders to browse through several borrower profiles by automating the entire process.

As per its latest Data and Analytics report, 90 percent of the lenders on the platform are earning 18 percent to 26 percent gross returns.

Softbank to pick up 20% stake in Paytm’s parent company One97 Communications (Money Control), Rated: A

The Competition Commission of India (CCI) on Tuesday approved Softbank’s acquisition of 20 percent stake in Paytm’s parent company One97 Communications.

The Competition Commission of India (CCI) on Tuesday approved Softbank’s acquisition of 20 percent stake in Paytm’s parent company One97 Communications.

The target launch is August 15, 2017.

Why India’s Hike messaging app adding payment services matters (Kapron Asia), Rated: A

Hike messenger, a popular phone messaging service app in India, has recently decided to introduce payment services on its platform.

The payment service includes both peer to peer payments that do not require bank accounts and use in-app wallets, and bank to bank payments using the UPI platform introduced by the National Payments Corporation of India (NPCI).

Hike has been able to beat Whatsapp to providing in-app payment services.

Asia

‘Flexible’ Regulations Give Indonesia’s Peer-to-Peer Lending Startups Room To Grow (Forbes), Rated: AAA

It’s been seven months since the Indonesian government issued regulations for the peer-to-peer (P2P) lending industry, and the mood in the sector is optimistic.

Suleiman said the market is dominated by local companies that engaged with regulators as the guidelines were being created and were primed to grow once the legal structure was in place.

Indonesia’s Financial Services Authority (OJK)stipulated that startups must have $200,000 in capital before they can be approved for an operating licenses as lenders, and capped loan values at $150,000. For now, that amount suits most P2P lenders just fine, Suleiman said.

Suleiman said that most SMEs fail to secure traditional bank funding because they don’t have enough collateral, which he said is especially problematic in creative industries.

One company meeting the demand for SME financing is Investree, a P2P marketplace startup that launched in 2016.

Ant gold service together Malaysia’s second largest bank to build local version of Alipay (Tech.Sina.com.cn), Rated: A

The ant gold service today announced an agreement with Touch’n Go (TNG), a subsidiary of CIMB, to form a joint venture to provide electronic wallet solutions for local users.

At present, millions of Malaysians use the Touch’n Go card for electronic payments every day in retail stores, car parks and public transport systems. In the future, new e-wallet will help TNG’s new and old customers to get more services on their mobile phones, including electricity providers.

Indonesian FinTech Launches App For Individual SME Investors (PYMNTS), Rated: B

Reports Friday (July 21) said Mitrausahua Indonesia Group, which operates a peer-to-peer lending platform, has launched a mobile app for individual investors of small businesses.

The app joins Mitrausahua’s flagship offering Modalku. For small businesses, interest rates range from 12 to 26 percent. For investors, Modalku promises returns higher than those of commercial bank deposit and fixed investment products.

The app offers a feature, Automatic Funding, which automates the process by which investors can find SME borrowers suitable to lenders’ preferences. Investors can start investing at $75 but must have $750 deposited into their accounts.

Middle East

Middle East women seed crowdfunding campaigns attract more backers (Khaleej Times), Rated: AAA

A total of 97 campaigns were successfully funded in the region in 2015 and 2016, 24 of which were female-led and 73 male-led. And while the number of campaigns funded in the region is still relatively low vis-a-vis more established territories, however, seed crowdfunding is still relatively new to the region. Average pledge amounts to female-led campaigns are 29 per cent higher than male-led campaigns, compared with a difference of only 5 per cent globally, said PwC and The Crowdfunding Centre report – Women Unbound: Unleashing female entrepreneurial potential.

Seed crowdfunding generated a total financing of $ 3.25 million (with $527,300 going to female led campaigns) in the Middle East for 2015 and 2016, with female-led campaigns in the Middle East generating an estimated 5,320 backers, compared with 4,240 for those that were male-led, it added.

Canada

Despite recent gains, Canada lags in fintech adoption (The Globe and Mail), Rated: A

Although the percentage of Canadians using new financial technology has doubled over the past 18 months, Canada lags much of the rest of the world in adopting services offered by online providers.

In Canada, only 18 per cent of digitally active Canadians have used two or more fintech services in the past six months, compared with 33 per cent globally, according to Ernst & Young LLP’s FinTech Adoption index. And while the Canadian rate has almost doubled from 8 per cent in 2015, Canada remains in the bottom of world rankings along with Japan and Belgium.

China has the highest adoption rate at 69 per cent, while India and Britain are close behind with 52 per cent and 42 per cent, respectively.

Philippines

New lending platform to replace ‘5-6’ scheme (The Standard), Rated: AAA

MoneyMatch, an online peer-to-peer lending platform developed by local company FinTech Global Inc., aims to provide Filipinos an alternative to “5-6” scheme, or moneylenders charging exorbitant interest rates on loans.

Bautista said a borrower could apply for loan from P10,000 to P2 million which could be used to start to a small business, get a housing loan, or a new car, and pay for their loan at terms that they could afford.

The interest rate for the loans will range from 15 percent to 36 percent depending on creditworthiness of the borrower.

Authors:

George Popescu
Allen Taylor

Friday May 12 2017, Daily News Digest

LC servicing portfolio balance

News Comments Today’s main news: Zopa receives full FCA authorization. Citi appointed depositary bank for China Rapid Finance ADR program. Auto loan fraud soars. Seedrs to launch UK’s first equity crowdfunding secondary market. CRF unveils underwriters’ option for purchase of additional ADS. Funding Societies to launch mobile app. Today’s main analysis: Why investors are betting against Lending Club. Today’s thought-provoking […]

LC servicing portfolio balance

News Comments

United States

United Kingdom

China

European Union

International

Australia

India

Asia

News Summary

United States

Citi Appointed Depositary Bank for CRF Limited’s Sponsored ADR Program (BusinessWire), Rated: AAA

Citi’s Issuer Services business, acting through Citibank, N.A., has been appointed by China Rapid Finance Limited (“China Rapid Finance”), a Cayman Islands exempted company with limited liability and operations in China, as the depositary bank for its American Depositary Receipt (ADR) program.

China Rapid Finance’s program was established in connection with a $69 million initial public offering (inclusive of the fully exercised over-allotment option), originally priced at $6.00 per ADR. The ADRs are listed on the New York Stock Exchange under the symbol “XRF.” Each ADR represents one Class A ordinary share of China Rapid Finance. As a single-listed ADR program, the underlying Class A ordinary shares are not listed or publicly traded in the issuer’s home market.

Investors Are Betting Big Against Lending Club — Are They Right? (The Motley Fool), Rated: AAA

As of the latest available data, 14% of Lending Club‘s (NYSE:LC) shares are sold short — among the highest percentages in the financial sector. That means more than $300 million is being bet against the peer-to-peer lender.

Lending Club investors who got in at the beginning have seen their shares lose three-fourths of their market value, despite strong performance in the overall market.

For 2014, Lending Club originated $4.4 billion in new loans, compared with just $3.2 billion in its entire history before that year.

Source: Lending Club Q1 2016 Investor Presentation

After the first quarter of 2016, loan originations fell by 29% and have not managed to recover yet.

In fact, revenue is down 18% year over year, and Lending Club lost nearly $30 million in the first quarter of 2017, compared with a profit of more than $4 million in the same quarter a year ago.

Source: Lending Club Q1 2016 Investor Presentation

Auto Loan Fraud Soars in a Parallel to the Housing Bubble (Bloomberg), Rated: AAA

Borrower fraud in U.S. auto loans is surging, and may approach levels seen in mortgages during last decade’s housing bubble, according to a startup firm that helps lenders sniff out bogus borrowers.

As many as 1 percent of U.S. car loan applications include some type of material misrepresentation, executives at data analytics firm Point Predictive estimated based on reports from banks, finance companies and others. Lenders’ losses from deception may double this year to $6 billion from 2015, the firm forecast.

Those fraud rates are coming closer to the over-1-percent level for mortgages in 2009, when the financial crisis was boiling and more lenders started reporting incidents to one another, Frank McKenna, chief fraud strategist at the firm, said in an interview. While those losses will sting lenders, the impact on the overall economy will likely be much more muted than with the housing crisis, just because there’s less car debt outstanding.

Point Predictive has put together a consortium of lenders to share data about dealers and loans. The group, now 13 strong, met at the headquarters of Santander Consumer USA in Dallas last month. Common types of fraud include borrowers lying about their income and their jobs, including falsifying paystubs. Loan applications can also include bogus information about the type of car being financed, or its value. The deception can be perpetrated by consumers, or car dealers, or both.

About 3 percent of dealers can be responsible for all of a lender’s fraudulent applications, Point Predictive said in a February report. Losses from auto loan fraud this year will likely be $4 billion to $6 billion, up from $2 billion to $3 billion in 2015, the firm said.

During the housing bubble, as few as 3 percent of mortgage brokers helped perpetrate most or all of the reported fraud, Point Predictive said. Loans that required little or no documentation allowed borrowers and brokers to lie about employment, salary, and other key facts about their financial condition. One borrower’s application for a mortgage said she made $6,900 a month, when she actually made about $3,286.

What You Need to Know About The CFPB and Small Business Lending (deBanked), Rated: AAA

On Wednesday, the Consumer Financial Protection Bureau (CFPB) held a hearing on small business lending. Here’s why it mattered and what you need to know:

Why: The 2010 Wall Street Reform and Consumer Protection Act, aka Dodd-Frank, empowered the CFPB to collect data on small business lending. The CFPB is just now getting around to rolling this out.

Who: “I’m an MCA funder, factor, equipment lessor or other, and this only applies to lenders right”?
Maybe, maybe not. Although Section 1071 makes several references to loans and credit, it doesn’t refer to the companies subject to data collection as small business lenders. Instead it says financial institutions which it defines as “any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in any financial activity.”

What: What are they trying to collect?

  • the number of the application and the date on which the application was received;
  • the type and purpose of the loan or other credit being applied for;
  • the amount of the credit or credit limit applied for, and the amount of the credit transaction or the credit limit approved for such applicant;
  • the type of action taken with respect to such application, and the date of such action;
  • the census tract in which is located the principal place of business of the women-owned, minority-owned, or small business loan applicant;
  • the gross annual revenue of the business in the last fiscal year of the women-owned, minority-owned, or small business loan applicant preceding the date of the application;
  • the race, sex, and ethnicity of the principal owners of the business; and
  • any additional data that the Bureau determines would aid in fulfilling the purposes of this section.

Elevate Credit Inc’s Quiet Period Will End on May 16th (Sports Perspectives), Rated: A

Elevate Credit’s (NASDAQ:ELVT) quiet period will end on Tuesday, May 16th. Elevate Credit had issued 12,400,000 shares in its initial public offering on April 6th. The total size of the offering was $80,600,000 based on an initial share price of $6.50.

Several research firms recently issued reports on ELVT. Jefferies Group LLC assumed coverage on Elevate Credit in a research report on Tuesday, May 2nd. They set a “buy” rating and a $12.00 target price for the company. Compass Point restated a “neutral” rating and set a $9.00 price target on shares of Elevate Credit in a report on Tuesday, April 18th. Credit Suisse Group AG assumed coverage on Elevate Credit in a report on Tuesday, May 2nd. They set an “outperform” rating and a $11.00 price target for the company. Stifel Nicolaus assumed coverage on Elevate Credit in a report on Monday, May 1st. They set a “buy” rating and a $12.00 price target for the company. Finally, William Blair assumed coverage on Elevate Credit in a report on Monday, May 1st. They set an “outperform” rating for the company. One research analyst has rated the stock with a hold rating and four have issued a buy rating to the stock. The stock has a consensus rating of “Buy” and a consensus target price of $11.00.

Elevate Credit (NASDAQ:ELVT) opened at 7.99 on Thursday. The stock’s market cap is $104.97 million. Elevate Credit has a 12-month low of $7.00 and a 12-month high of $8.86. The firm’s 50-day moving average price is $8.01 and its 200 day moving average price is $8.01.

KBRA Upgrades Ratings on Earnest Student Loan Program 2016-B LLC (KBRA Email), Rated: A

Kroll Bond Rating Agency (KBRA) upgrades the ratings on two classes of notes issued under Earnest Student Loan Program 2016-B LLC (EARN 2016-B), a private student loan ABS transaction which closed on May 11, 2016.

Credit enhancement has increased for each class of notes as a result of low losses, no delinquent loans that are 30+ days past due, low borrower usages of deferment and forbearance, and the deleveraging which has occurred as the notes have amortized. Current credit enhancement for the Class A and Class B notes is 15.23% and 10.44% as a % of Adjusted Pool Balance, respectively. Credit enhancement consists of overcollateralization, subordination of junior notes, cash reserves, and excess spread. The transaction has breakeven loss multiples which are sufficient for an upgrade of the ratings on the Class A and Class B notes.

Get the full report.

Why a virtual bank is making bank branches part of its US launch (Tearsheet), Rated: A

Iam Bank, a startup virtual bank based in Ireland that has offices in the U.K., is set to launch in the U.S. this fall — and it’s going to do it via a physical bank branch.

The bank, which is now in the process of buying a Chicago-based bank it declined to name, said it will set up its first branch, known as a “customer experience center” in Milwaukee in the fall.

“We’ve done a lot of research and it all comes down to trust and credibility,” said Simona Stankovska, head of communications for Iam Bank. “For us, the research shows that people have a massive distrust of purely digital offerings. They need to have a human touch, they need to be able to communicate with someone.”

Despite expectations about the death of the branch (for example, a report last month from commercial real estate firm JLL projected that the number of branches across the U.S. will shrink 20 percent in five years), recent surveys support Iam Bank’s view that consumers — especially millennial ones — will continue to demand a human touch to banking. An Accenture survey last year found that 87 percent of customers, including 86 percent of millennials, feel that they will continue to use branches because they trust or sense that they get more value from letting a human to deal.

Now the hard part for bank robos: Getting customers to use them (American Banker), Rated: A

A few years ago, many in financial services thought robo-advisers would completely disrupt traditional wealth and asset management services at banks.

That hasn’t entirely turned out to be the case. In fact banks have begun to partner with, acquire or create their own robos in an effort to appeal to wealth management clients who want more digital services.

With that in mind, Fifth Third recently launched several digital wealth management products it hopes will compel retail customers to use their wealth and advisory services. One is its Life360 product, which combines human advice with a digital platform that gives customers a full overview of their financial life, including accounts and investments that aren’t held at Fifth Third.

This month, the bank began offering a new digital estate planning product called LegacyLink. The service, available online and through its own dedicated mobile app, provides educational content and interactive checklists around estate planning. The basic service is free and there is an additional paid-subscription service that helps users catalog, track and distribute estate assets.

Indeed, an Accenture survey published in March found that customers who relied on both digital tools and personal help were more engaged clients. The survey found that 64% of hybrid users seek out and receive assistance on financial planning, compared with 44% of those who rely either entirely on digital products or those who use traditional advisory services.

These Millennials Stress about Finances, Jobs and Living Arrangements (BusinessWire), Rated: A

Elevate’s Center for the New Middle Class released a series of reports on Millennials today that shed new light on the financial, employment and familial struggles faced by non-prime Millennials – defined as those with credit scores below 700 – as well as their remarkable optimism.

The Center’s Millennial series covers a variety of topics including savings, personal finance management and unexpected expenses. The series of corresponding reports are titled:

  • Millennials and Work: The Non-Prime Experience
  • Millennials’ Day-to-Day Finances: The Non-Prime Experience
  • Financial Education & Attitudes: Non-Prime Millennials
  • Getting By: How Non-Prime Millennials Overcome Financial Challenges

The first study of the series of four, “Millennials and Work,” notes that non-prime Millennials are 68 percent more likely to live in households with 4+ people, but much less likely to have two income-producing adults in the home, when compared to their prime counterparts.

Half of non-prime Millennials say that their finances cause them significant stress, with 58 percent living paycheck to paycheck and 41 percent running out of money every other month, or more often. The Center’s research found that this group is 55 percent less likely than their non-prime counterparts to say they can come up with $1,200 in an emergency. In fact, this group is 160 percent more likely to intentionally use overdraft to cover an expense when they didn’t have the money.

Core banking veterans raise $ 12m for new cloud-based venture (Finextra), Rated: A

Frank and Mike Sanchez, the men behind the Profile core banking platform, have raised $12 million in seed funding for their new cloud-based fintech firm Finxact.

The funding, which comes from Live Oak Ventures and other strategic investors and angels, will by used to complete development of Finact Core, a cloud-based core banking platform aimed at banks looking to overhaul their systems for the digital age.
Finxact says it is focused on creating an open API, cloud-based Core-as-a-Service platform that will enable the next generation of always-on, digital-first banking.
While several new cloud-based core banking providers, such as Mambu and ThoughtMachine, are looking to hoover up the host of digital-only challenger banks entering the market, Finxact is aiming to win over incumbents saddled with decades-old technology.

Foreign ‘FinTech’ companies flock to Atlanta (CBS46), Rated: A

Dozens of foreign financial tech, or FinTech, companies have chosen to call Atlanta home in recent years, a migration spurred by the area’s relative affordability and friendly business climate.  No less than 50 foreign companies have offices in the city, according the Atlanta Metro Chamber of Commerce.

Both he and Nelson cited the affordable rent and living prices, compared to the west coast and New York, as reasons why Atlanta was able to attract their business.

Anti Bank SoFi Will Become a Bank (Crowdfund Insider), Rated: A

SoFi has decided to become a bank. The Fintech firm that has spent so much time telling the world they were not a bank has decided to join the ranks of their erstwhile adversaries and apply for a bank charter.

The ILC or “Industrial Loan Charter” is a financial institution in the US that can lend money and be owned by a non-financial institutions. Importantly ILC’s can hold FDIC deposits.

SoFi wants to outdo mega-banks like Citi by providing better, cheaper services around the world.  SoFi lays claim to the largest single Fintech investment ever when SoftBank kicked in $1 billion.  Not too long ago this was augmented by another $500 million giving SoFi plenty of head room to expand and grow.

6 FinTech Companies Disrupting the Investment and Lending Landscape (Due), Rated: A

We have the millennials to thank, however, for pushing changes to the investment and lending landscape because like all other financial matters, they want to do it on their terms with the technology that they have grown up with.

Acorns proves that the spare change in your life can go toward something much better than collecting dust under the seat in your car or a jar in a kitchen cupboard. Instead, this extra money can be turned into investment vehicles that grow over time.

With so many consumers and businesses becoming frustrated with traditional banks and lending institutions, it was time for a new kind of finance company that resonated with how people interact and make decisions today.

SoFi has delivered on that with the creation of what it has termed “social finance” in which it offers a range of lending and personal finance products, including life insurance, mortgage loans, personal loans, student loan refinancing and wealth management.

YieldStreet is an online marketplace that connects accredited investors and vetted borrowers with alternative investment opportunities and capital. While this sounds pretty straightforward, there’s much more to what the company is doing. They are opening up the world of investing in ways typically not available before.

One of the most difficult aspects of investing is knowing where and what to invest. While you can do research or get an advisor, not everyone has the time or access to do so.

However, Openfolio is turning investing into a social activity where you can leverage everything that is good about social networks and use your peer group to teach you the best investment tricks. You can also connect with the app’s team of advisors to get assistance and advice on an on-demand basis as well as receive numerous projections and tracking reports to help you better understand investing.

One of the most difficult aspects of investing is knowing where and what to invest. While you can do research or get an advisor, not everyone has the time or access to do so.

However, Openfolio is turning investing into a social activity where you can leverage everything that is good about social networks and use your peer group to teach you the best investment tricks. You can also connect with the app’s team of advisors to get assistance and advice on an on-demand basis as well as receive numerous projections and tracking reports to help you better understand investing.

Robinhood has leveled the investment playing field and has encouraged more people than ever to get involved in creating their own investment portfolio through this technology-driven brokerage. With market data and regular content updates, you’ll be able to learn more about what to invest in and what impacts the stock market. You can get real-time updates about dividends, stock splits, and upcoming initial public offerings (IPOs). This allows you to move on any of those actions immediately.

Intent on revolutionizing the business loan space, Fundera offers a convenient and efficient way to locate the best lending options for your company — from startups to established small businesses to large corporations.

$ 1.25M Raised in 3 Days Through DiversyFund (Digital Journal), Rated: B

DiversyFund, Inc., a fast growing, full-service online real estate investment platform, announced today that their online network of investors have successfully funded a $1.25 million investment in a record time for the Company’s first high-end luxury real estate project in La Jolla, California, with world-renowned design-builder, Roman James.

The investment is being used to fund the construction of a 7,200 SF luxury single-family home in San Diego’s seaside La Jolla community. Genesis Capital provided a $4.2 million construction loan as well for the project.

Cambridge Technology Partners Introduces New Capabilities for a Digital World (PR Newswire), Rated: B

Cambridge Technology Partners the preeminent company for foresight-based digital strategies (www.CambridgeTechnologyPartners.com) announced two new strategic capabilities today:

I.     Digital Strategies: Scenario Planning practice for a New Digital World; and

II.     Digital Platform: FinTech Innovation for Financial Wellness in the Workplace.

Cetera Financial Group Continues Build-Out of Advice-Centric Solutions with Launch of New Advisory Platform (PR Newswire), Rated: B

Cetera Financial Group® (Cetera)*, a leading network of independent firms supporting the delivery of objective retail financial advice, today announced the launch of the first of its new Advice Architect Ecosystem™ suite of tools for financial advisors and their clients: My Advice ArchitectTM, a technology-driven, innovative investment solutions offering that provides advisors with a seamless and streamlined approach to conducting advisory business.  The platform constitutes a key component of the broader Advice Architect Ecosystem, a series of integrated platforms and services that the company will be announcing in the coming months as it works toward its strategic vision of creating a truly advice-centric experience for its advisors and their clients.

My Advice Architect, developed in collaboration with Envestnet, brings Cetera’s three core advisor-driven investment programs together on the same technology platform, enabling advisors to serve their clients with an unprecedented degree of flexibility, choice and transparency.  The new platform is being made available to financial advisors and financial institutions supported by Cetera in a phased rollout across the network, beginning with Cetera Financial Institutions, its firm specifically focused on serving the wealth management programs of banks and credit unions.

My Advice Architect combines the following investment programs on a seamless technology platform under a single client agreement with no ticket charges, allowing advisors to position their clients among the three solutions as needed:

  • Unified Program: Enables advisors to combine any number of advisor-directed models, fund strategist portfolios (FSPs) and separately managed accounts (SMAs) into one custodial account, thus eliminating the artificial silos around the different investment solutions and allowing advisors to invest their clients in the most appropriate portfolio. The platform provides advisors with access to a broad selection of nearly 100 strategists offering more than 800 mutual fund and ETF strategies, as well as approximately 300 managers offering more than 700 SMA models.
  • Guided Program: A solution that allows advisors to leverage asset allocation models created by third-party model providers and enables them to apply these models to their clients’ needs through asset-class weight adjustments and fund selection.
  • Advisor Program: A purely advisor-directed solution that offers a wide selection of asset types for both discretionary and non-discretionary client accounts.
United Kingdom

Zopa becomes the first of the ‘Big 3’ peer-to-peer lenders authorised by City watchdog (Business Insider), Rated: AAA

Zopa has become the first of the UK’s ‘Big 3’ peer-to-peer lenders to gain full authorisation from the Financial Conduct Authority (FCA).

Zopa announced on Thursday that it has gained full authorisation from the FCA, almost two years after it applied in 2015.

CEO Jaidev Janardana says in a statement: “The authorisation process has been rigorous and in-depth and involved extensive scrutiny of our business.”

Funding Circle and RateSetter, the UK’s two other biggest peer-to-peer lenders, are still waiting for authorisation from the FCA. The size and complexity of their businesses is thought to be part of what is delaying the process. Funding Circle has lent £2.1 billion to date and RateSetter has lent £1.9 billion. Zopa has lent £2.1 billion.

Zopa gains full FCA approval (P2P Finance News), Rated: A

The news is a pivotal moment for the industry, which has been waiting for the largest players to become fully regulated to move the sector into the mainstream. The regulator’s stamp of approval on the so-called grandfather of P2P lending is expected to boost the sector’s legitimacy to investors and financial advisers alike.

With smaller platforms already experiencing an influx of investor demand for the IFISA, it is likely that Zopa’s tax-free wrapper will attract high volumes of new inflows.

Seedrs To Launch UK’s First Equity Crowdfunding Secondary Market (Forbes), Rated: AAA

Seedrs is to be the UK’s first equity crowdfunding platform to offer secondary trading in the shares of businesses raising money on its website, the founders of the company announced today. If successful, the move could overcome the biggest fear of many investors considering crowdfunding – that they’ll be locked into their holdings.

Seedrs, launched five years ago, has so far raised £210m for around 500 companies and, along with rival platform Crowdcube, dominates the UK’s equity crowdfunding sector.

The facility will be open for trading for a single week each month, with shares trading only at a “fair value” dictated by Seedrs’ valuation policy.

Jeff Lynn, the founder of Seedrs, said each one-week trading window would begin on a “trading Tuesday”, and that the company would monitor the experiment closely to avoid abuses. The window could be expanded at a later date if trading volumes justify it.

LendInvest completes its largest development finance deal (P2P Finance News), Rated: A

LENDINVEST has completed its largest development finance deal to date, which will fund the construction of 66 new homes in West Drayton, a town set to benefit from a Crossrail station in 2019.

The online mortgage lender, which is a member of the Peer-to-Peer Finance Association, has lent a total of £21m to Kearns Property Management and Development.

It first provided a bridging loan for the borrower to acquire the site, which subsequently transitioned to a £17m development loan to finance the construction. Then LendInvest lent a further £4m to the borrower to purchase a neighbouring site that became available.

LendInvest to test investors (Business Insider), Rated: A

In

Innovate Finance Seeks Support From UK Government (Crowdfund Insider), Rated: A

Innovate Finance, the membership association for global fintech, announced on Thursday it sought support from UK Government, as well as political parties across the spectrum, for its Fintech Election Pledge.

While sharing details about the Fintech Election Pledge initiative, Innovate Finance stated:

“The UK’s digital economy accounts for 16% of UK domestic output, comprises 3 million workers, and between 2012 – 2016 attracted more venture capital (VC) and private equity investment than any other European country, at £28bn. At the heart of this digital revolution, stands the UK’s thriving Financial Technology (FinTech) sector.

Whilst VC investment in global FinTech rose to $17.4bn last year (an increase of 10.9% from 2015), over the same period UK FinTech saw a 33.7% decline in investment, to $783m. Although the United Kingdom continues to remain internationally competitive, ranking 3rd globally for investment in FinTech, the UK must continue to remain open to the talent, ideas and capital which underpin and strengthen our digital economy.”

China

CRF Unveils Full Exercise of Underwriters’ Option For Purchase of Additional ADSs (Crowdfund Insider), Rated: AAA

On Thursday, peer-to-peer lender China Rapid Finance (NYSE: XRF) that the underwriters of its previously announced initial public offering (IPO) have exercised in full the option to purchase an additional 1.5 million American depositary shares (“ADSs”) from China Rapid Finance to cover over-allotments.

According to the online lender, each ADS represents one Class A ordinary share of China Rapid Finance and was sold at the initial public offering price of $6 per ADS.

CREDIT CHINA FINTECH HOLDINGS LIMITED (Credit China Fintech), Rated: AAA

Read the full report.

P2P Industry News (Xing Ping She Email), Rated: A

Chinese P2P lender Wangcaigu Received 60 Million RMB in A+ round of financing
On May 9th, Chinese P2P lender Wangcaigu announced an A + round of financing of 60 million RMB, which was jointly invested by Delta Capital and other investors. On July 8, 2015, Wangcaigu raised A round of funding of tens million RMB from Ruiye Funds, a company with listed background. After the finish of this round of finance, Wangcaigu has expanded its business from accounts receivable business financing to P2P lending with comprehensive services. Recently, the platform has reached agreements on funds depository with Bank of Shanghai.

NIFA requires P2P companies disclose information and related platform is on the way.
The information disclosure work on P2P lending agencies will become more normative. On May 9th, National Internet Financing Association of China (NIFA) announced the Notice of Holding a Training Seminar for the future access to Centralized Information Disclosure Platform. According to the Notice, the beta version of disclosure platform built by NIFA will open in the near future.

In fact, early in November 30, 2016, Zheng Xiaodong, the director of business department of NIFA, declared that the situation of information disclosure of Chinese P2P lenders vary greatly, some are still not transparent. “All the members can disclose information on the platform according, which will avoid different criteria and improve transparency of the industry.

Rates on Bank Deposits Varies, Investors Prefer P2P lending platforms
Recently, the topic of tight finance in banks caused widely discussion again, and the accompanying growth of deposit rates is still weary. For many banks in China, the growth of rates in the long-term deposits is less than the short and medium term deposits.

Actually, there are some banks even offering the same or lower rates for a longer-term deposit. Such low rates can’t arouse attention for people anymore, especially for young people. A girl handling with banking business said that she put majority of her money in P2P financial products such as Yu’E Bao, in which are convenient for payment and enjoy the higher rates than one-year fixed-term deposits in the bank.

European Union

Why We Believe PSD2 Should be Better (Finextra), Rated: AAA

In April this year the European Banking Authority released their final RTS draft for PSD2 to be presented to the European Parliament.

To make our voice heard, an association has been formed consisting of 65 European Fintech companies (and growing), and a manifesto presented, to ask the European Parliament to ensure the RTS be technically neutral and in line with agreed objectives and text of the final PSD2 agreement.

We believe the proposed regulatory standards are inconsistent with PSD2 and will make Fintechs technologically dependent on banks and therefore grant incumbents a gatekeeper role on the fintech sector.

Digital banking arms race continues (AltFi), Rated: A

Monzo’s May Journal, which went out to users yesterday, indicated that its debit card launch is just around the corner. Meanwhile, a recent update to the Revolut app revealed new insurance and wealth tabs, currently listed as “coming soon”.

Both Monzo and Revolut have recently staged equity crowdfunding campaigns on Crowdcube and Seedrs respectively. Both rounds were oversubscribed and both were part of larger institutional investment rounds.

11 members of the Monzo team are also testing out overdraft facilities, which is relatively uncharted territory for digital banks.

Asked about its insurance and wealth plans, Revolut’s head of partnerships Rishi Stocker said that the focus has been on creating fully integrated insurance products, and that the first of these could launch within the next few weeks.

Solid full-year numbers for fintech firm Nucleus (The Scotsman), Rated: A

Nucleus Financial, the Edinburgh-based financial technology (fintech) specialist, has reported a hike in full-year profits and assets under administration despite a choppy economic backdrop.

Figures from the wrap platform, headed by founder and chief executive David Ferguson, show that profit before tax hit £4.3 million last year, up 21 per cent on a like-for-like basis from 2015.

Assets under administration reached £11.4 billion at the end of 2016, an increase of 23 per cent on the year before, with that total climbing to £12.2bn as of the end of March 2017.

Norwegian banks to expand mobile payment app for business use (Reuters), Rated: A

In February more than 100 Norwegian banks agreed to develop Vipps electronic payments app in a bid to fend off competition from Nordic rivals and the likes of Facebook, Apple and Google

International

Fintech in Microfinance: In Search of the High-Tech High-Touch Unicorn? (Center for Financial Inclusion), Rated: AAA

While microfinance still makes up a major share of impact investing portfolios, many investors appear to have moved on to fintech, the next wave of creative destruction. Rather than be toppled by it, microfinance institutions (MFIs) look to ride that wave too, to extend reach, reduce costs and prices, improve and deepen client services, and improve risk management.

As growth slows, should MFIs now abandon that approach and use high-tech to go low-touch for cost efficiency? If MFIs stay their course, will they be overtaken by new entrants with new models, like Chinese online peer-to-peer lender Yirendai, which went IPO on the New York Stock Exchange last year? Or instead, will MFIs find innovative high-tech ways to further leverage their deep relationships with clients and understanding of client needs?

Mobile payments networks like M-Pesa and BiM are high-tech, but decidedly low-touch delivery channels. Low-touch too are big data algorithms like those of Yirendai and its corporate parent CreditEase used for automated credit scoring and risk management. However, as digital financial technologies like these mature, will base of pyramid (BoP) financial customers still need high-touch MFIs? As fintech-driven models become more sophisticated, can MFIs hope to deliver anything that technology sophisticated telecoms and global commercial banks can’t?

Turns out MFIs, clients, and even global banks themselves demonstrably think the answer is Yes, plenty.

Quarterly InsurTech Briefing Q1 2017 (Willis Towers Watson), Rated: A

Arguably, insurers who stick too long with the old model will fade as premiums and their balance sheets shrink.

The $100 billion small business insurance sector is one of the most promising for disruption, as insurers attempt to navigate the complexity of automating underwriting processes to accommodate a broad range of business classes in a user friendly format and combat the inefficiency of processing small ticket premiums and claims.

While digital distribution platforms have achieved limited market penetration to date, industry research suggests that up to 25% of total small business insurance premium could be digitally underwritten by 2020 – a hypothesis supported by demographic trends and changing small business owner behaviors.

Read the full report here.

The Most Well-Funded Blockchain Startups (CB Insights), Rated: A

Q1’17 saw blockchain startup investment deals rise for the third consecutive quarter and funding rebound after a three-quarter drop, even as debates around scaling bitcoin, cryptocurrency ETFs, and token sales raged on. Notably, ethereum — a smart-contract enabled network that seeks to be the platform of choice for the development of decentralized applications — has seen real growth with its announcement of the Enterprise Ethereum Alliance, a consortium of top tech firms and corporations advancing ethereum business use-cases. Ethereum’s price on cryptocurrency exchanges has skyrocketed along with the media attention.

Australia

Class partners with robo-advice provider (SMSFAdviser), Rated: A

Class has teamed up with an SMSF advice provider, allowing accountants administering SMSFs to offer financial advice services to clients without the need for an AFSL.

The partnership with Plenty Plus, which operates under its own AFSL, allows accountants to generate advice without the need for their own license.

India

P2P lending startups face funding woes (India Times), Rated: A

The fledgling peer-to-peer lending start-ups, which had been waiting for almost a year for the Reserve Bank of India to lay down the rules of operations, may find the going tougher.

“The Ministry of Corporate Affairs is said to have expressed worries regarding lending for corporate entities through P2P platforms,” said one a founder of a Mumbai based P2P lending platform. “While for retail lending it is not a major issue, SME lending falls under a different set of regulations of the Registrar of Companies which needs to be adhered to,” said the person quoted above.

In case of SME lending, it can either be as an investment against shares or as corporate deposits, but in case of P2P lending, it is a pure debt lending – thus those clarifications would be required before the final guidelines came out, resulting in further delays and might require a fresh set of rules around lending within the ministry.

As various issues keep delaying the final guidelines, P2P startups are finding it difficult to raise funds to scale their business because of regulatory uncertainty.

Asia

Funding Societies launch mobile app to get investors in the P2P game (Astro AWANI), Rated: AAA

Funding Societies Malaysia, fresh from their recent collaboration with RHB to enhance the Peer-to-Peer (P2P) lending scheme, has today launched a new mobile app, that is geared to get investors to join in on the P2P investing landscape.

Authors:

George Popescu
Allen Taylor

Wednesday December 7 2016, Daily News Digest

Wednesday December 7 2016, Daily News Digest

News Comments Today’s main news: Marketplace lending trends in 2017 per Moody’s. Folk2Folk receives FCA authorization. Today’s main analysis: Harvard fellow, Fundera VP say regulate but innovate. Today’s thought-provoking articles:  China tests social credit score concept. Kabbage one of the best places to work in 2017. Adel uses Nxt’s blockchain to unveil crowdfund. United States Marketplace lending trends in […]

Wednesday December 7 2016, Daily News Digest

News Comments

United States

  • Marketplace lending trends in 2017 per Moody’s GP: ” Amazing insight here : quality of loans in 2017 will remain unchanged because while underwriting quality is growing, new channels for borrower acquisition will offset those gains. “
  • Harvard fellow and Fundera VP encourage regulation. AT: “If Mills’ and McCarthy’s suggestions are followed, it would only be a matter of time before top marketplace lending executives sit on the board of the regulatory agencies themselves–OCC, SEC, FDIC, FTC, CFPB, and NCUA.”
  • Kabbage earns recognition as best place to work. AT: “Generally, these awards mean nothing unless you are a job hunter looking for a place to become a contributor. However, considering the rough year the industry has had, it’s good to end it on a positive note. Kabbage employees are proud of their work environment. Maybe this will lead to more people looking at alternative lending firms as potential employers, which could play a part in the industry’s growth.”
  • Online lenders as disruptive as Spotify? AT: “This sounds like the lead-in to a punchline, but Ron Suber actually said this. I have to agree with GlobalCapital’s position. Banks have been much more responsive to the changing marketplace than legacy musical companies were with Spotify.”
  • Anthony Hsieh talks about regulation and technology.
  • 2017 alternative investing strategies for advisors. AT: “This is a video that will take up about 3 minutes of your time.”

United Kingdom

European Union

Australia

China

United States

MPL ABS growth likely, subject to strong macroeconomics (Structured Credit Investor), Rated: AAA

Marketplace loan ABS performance will generally remain stable into 2017, with loan originations and issuance growing, according to Moody’s. The agency adds that the marketplace lending sector will use 2017 as a year to rebuild its tarnished reputation after a series of negative developments in 2016.

Moody’s goes on to say that the quality of unsecured consumer loans in new deals will be essentially unchanged because lenders’ underwriting and practices for these loans will be generally stronger amid greater sector scrutiny but this will be offset by shifts in acquisition channels.

The agency expands on this saying that SMEs tend to go to marketplace lenders when they have weak business performance history or need liquidity quickly and banks cannot reach that demand. Moody’s therefore suggests if banks can improve their ability to offer timely loans, more SME marketplace loans available for securitisation could come from struggling businesses, which would expand adverse selection in the deals.

The rating agency adds that the asset performance of outstanding deals is overall stable, with deals’ notes continuing to perform strongly, and student loan deals having ongoing low default rates.

The legal and regulatory landscape will, however, continue to cause uncertainty in the industry, but any new developments will only have a modest impact on the sector or be incremental in nature. The agency adds that SME marketplace lenders will face the highest risk of disruption from regulatory or enforcement actions on the state or federal level.

The agency suggests that originations and securitisation issuance are likely to rise next year, but adds that this depends on several factors like financial market conditions and how well the industry can meet its evolutionary challenges. Moody’s adds, however, that any economic weakness, significantly weaker loan performance or financial market disruptions “would likely significantly slow loan volumes” and states that “as the US interest rate normalisation process resumes, there is a risk that financial market volatility intensifies, with a synchronous repricing of assets globally.”

Karen Mills, Harvard: Regulate, But Allow Online Lending Market Space to Innovate (Crowdfund Insider), Rated: AAA

Senior Fellow at Harvard Business School Karen Gordon Mills along with VP of Strategy at Fundera, Brayden McCarthy, have recently posted a working paper on SME lending.

The intent is to highlight the obstacles and opportunities for SMEs, online lending, and regulatory bodies.

This  current phase is transitioning into a new one, as conversation about disruptive Fintech firms threatening to take over traditional banks come to an end.

In attempts of untangling this alphabet soup and legal morass, Mills and McCarthy have a set of recommendations for regulators navigating this new small business online lending market:

  1. Create a National Non-bank Charter Option for Online Lenders. The Internet is not bound by any one state, and the market for loans online is no exception. (something the OCC recently created)
  2. Set Universal Rules and Guidelines to Strengthen Borrower Protections. An important precondition of a national charter should be the creation of new rules, universally applied, that create borrower protections for small business borrowers.
  3. Develop Joint Guidance on Third-Party Vendor Management. Partnerships between banks and new entrants are already emerging, and are likely to grow, provided that regulators allow it.
  4. Brokers Should Respect Fiduciary Duties. As with mortgage brokers, and more recently with investment brokers, loan brokers offering individualized advice should act in borrowers’ best interest, respecting fiduciary duties of disclosure, loyalty, and prudence.
  5. Shine a Light on Borrower Outcomes by Mandating Disclosure of Originations, APRs, Default Rates, and Borrower Satisfaction Across the Small Business Lending Market. This would entail collecting specific data from market players on their small business loan transactions, such as average APRs and default rates.
  6. Create a National Advisory Board on Responsible Financial Innovation. This body would be a coordinated effort by the major federal regulators involved, including the Federal Reserve, OCC, SEC, FDIC, FTC, CFPB, and NCUA.”

Kabbage Named One of the Best Places to Work in the U.S. for 2017 (Street Insider), Rated: A

Kabbage, earned its first Glassdoor Employees’ Choice Award, ranking 28th on the Best Places to Work list for employers with fewer than 1,000 employees.

Now in its ninth year, the program selects winners based on feedback employees have shared throughout the past year about their jobs, work environments and companies. Employees complete an anonymous review that captures their overall satisfaction as well as qualitative insights into the best reasons to work at the company.

To be considered for the small and medium company category, a company must have fewer than 1,000 employees and have received at least 25 company reviews from U.S.-based team members during the period of eligibility. The final list is compiled based on Glassdoor’s proprietary algorithm, which considers quantity, quality and consistency of reviews.

Online lenders as disruptive as Spotify? Probably not (GlobalCapital), Rated: A

“Think about the music industry – Spotify, iTunes, Pandora. They all started out with a different premise. You can stream it, you can download music and listen to it online or offline. The music industry is evolving and so is our industry,” (Ron) Suber said on a panel at the December 1 conference on marketplace lending.

“You’re going to see each of the platforms learn to roll with the changes of the industry and that includes some concept of the silver bullet – is it balance sheeting, is it the hybrid model, is to peer-to-peer? The music industry is evolving, and so are we. It’s really the people who thought we’re going to buy CDs that realized it’s never going back. And that’s my point to this industry – it’s changing and we’re not going back to the old way of walking into places and asking for money,” Suber added.

Suber is right in pointing out that the marketplace lending industry has changed consumer lending. But his analogy comparing the current state of marketplace lending to apps like Spotify is premature. Although 2016 has been a momentous year for the industry, marketplace lending has not disrupted traditional banking in anything like the same way the internet and music streaming services upended the music industry.

Rather, the relationship between marketplace lenders and banks is one of mutual dependence – smaller platforms need to partner with banks to help them expand their borrower footprint, while some larger platforms need to use banks to originate loans.

Banks, on the other hand, need to leverage these platforms’ technologies and lending algorithms in order to improve their customer service.

Chairman Anthony Hsieh talks technology, regulation & capital markets at Marketplace Lending & Alternative Financing Summit (LoanDepot), Rated: A

“Going forward, the real barrier to entry for lenders will be technology,” Hsieh said. “Not regulations.”

At the end of the day, Hsieh commented that category leaders will be tech-enabled lending platforms that have scale in the market.

“It’s going to be very difficult to find capital for alternative lending moving forward,” Hsieh added. “Those who cannot wait for the liquidity to return will consolidate or cease to exist. Lenders who have the agility to pivot within the pie have an advantage over mono-line lenders in that they can leverage more overall lifetime value from borrowers.”

2017 Alternative Investing Strategies for Advisors (NASDAQ), Rated: B

United Kingdom

Folk2Folk Receives Full FCA Authorisation (Crowdfund Insider), Rated: AAA

Peer to peer lender Folk2Folk has received full approval from the Financial Conduct Authority (FCA).  While many prominent peer to peer lenders are operating under interim approval, Folk2Folk points out it is the lagest P2P lender to receive full authorization to date.

The South Wales based P2P platform labeled full authorization as a major milestone for the business. Folk2Folk may now look to offer the Innovative Finance ISA (IFISA) to customers, subject to HMRC approval.

Growth Street launches peer-to-peer lending for individuals (Bridging&Commercial), Rated: AAA

Alternative banking provider Growth Street has become an appointed representative (AR) on the Financial Conduct Authority’s (FCA) Financial Services Register.
The announcement means that Growth Street will be able to accept individuals as investors on the platform, which will increase its range of investors.
Growth Street has partnered with Resolution Compliance to allow it to expand its activities while continuing with its own direct peer-to-peer application with the FCA.

Zopa with New Look (P2P Banking), Rated: A

Today Zopa launched a new design for the website and introduced a new logo, which I find very simplistic.

Zopa says:

This fresh new identity will give us a springboard for our ambitious plans to bring our products to even more UK consumers, and create radically personalised services that will help people fully realise their financial potential.

Very first opinions voiced by investors on the new design are mixed.

Major Players in the UK P2P Lending Market (TechBullion), Rated: A

This list presents the company profiles of some of the major players in the UK P2P lending market.

Zopa is a peer-to-peer lending platform, which uses the internet to get rid of the banks entirely.

RateSetter allows savers to lend to individual borrowers. Last year, Ratesetter was the largest peer-to-peer lender in the UK.

Funding Circle’s allows savers to lend directly to businesses, getting rid of the banks. Therefore, it provides more favorable interests rates than traditional banks.

LendInvest is the leading online platform for property lending and investing. The company offers an online platform for institutions and people to invest in loans against property.

Wellesley & Co is a top alternative finance platform that allows investors to make good returns on their capital in the form of good interest rates by linking them with creditworthy borrowers looking for a competitive source of funding.

Assetz Capital is a peer to peer business lender that is active in bridging, SME finance, and property development sectors.

Rebuildingsociety.com is an online platform that links creditworthy businesses with savers who lend money in exchange for an attractive return.

FundingKnightis a crowdlender that brings business borrowers together with institutional and private investors.

Lending Works is a P2P lending platform based in London. It was the first P2P lending platform that has insurance to protect its investors against borrower default, using the “Lending Works Shield”.

QuidCycle provides a direct lender to borrower service that gets rid of the traditional middlemen in financial transactions.

LendInvest Announces Four New Dates For Property Development Academy Course (Crowdfund Insider), Rated: B

LendInvest, a leading online mortgage lender in the UK, announced last week new dates for its Property Development Academy course.

The dates are the following:

  • January 20th- 21st
  • April 28th-29th
  • July 7th-8th
  • October 13th-14th
European Union

Adel Fintech Incubator Unveils Crowdfund Using Nxt’s Blockchain (Forbes), Rated: AAA

Adel, a technology incubator for blockchain innovation, dedicated to what its founders from the Czech Republic assert will “deliver a resilient ecosystem for its community” with a mandate to evaluate start-ups, has announced its intention to embark on a month-long crowdfunding exercise from March 1 2017 through an Initial Coin Offering (ICO).

The incubator, which is launching a website to support its initiative, is an infrastructure aimed at developing, supporting and funding innovative start-ups using blockchain technology and based on the Nxt community platform.

Essentially, Nxt provides a Blockchain-as-a-Service (BaaS) platform, which Adel viewed as ideal for blockchain innovation after researching the cryptocurrency market.

Australia

Mum and dad investors shift $ 45 million from banks into P2P loans: RateSetter (The Sydney Morning Herald), Rated: A

Thousands of retail investors are pumping cash into peer-to-peer lending, with RateSetter reporting about $45 million has been taken out of bank accounts and lent directly to borrowers.

The online lending platform, the largest in Australia accepting money from retail investors, has recently hit the milestone of having 5000 investors, helped by the very low interest rates being paid by banks.

RateSetter’s Australian arm expects this number to double in the next six months.

RateSetter chief executive Daniel Foggo said more investors were starting to view a P2P loan as a “mainstream” asset class.

China

China’s New “Social Credit Score” Brings Dystopian Science Fiction to Life (Futurism), Rated: AAA

The Chinese government is taking a controversial step in security, with plans to implement a system that gives and collects financial, social, political, and legal credit ratings of citizens into a social credit score.

Proponents of the idea are already testing various aspects of the system — gathering digital records of citizens, specifically financial behavior. These will then be used to create a social credit score system, which will determine if a citizen can avail themselves of certain services based on his or her social credit rating.

“China has a long way to go before it actually assigns everyone a score. If it wants to do that, it needs to work on the accuracy of the data. At the moment it’s ‘garbage in, garbage out,’” explained Wang Zhichengof Peking University’s Guanghua School of Management.

Of course, supporters of this system have their reasons, including developing a unitary system for granting citizen’s access to financial services, given that 1.3 billion Chinese don’t own a credit card.Besides, the government assures that the system would “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step,” as The Wall Street Journalreports.

Online lending platform denies leaking nude photos of female users (Odisha Sun Times), Rated: A

After the naked pictures of over a hundred female users of an online lending platform in China went viral last week, the company denied it posted the pictures, the Global Times reported.

The People’s Bank of China, the central bank, is reportedly studying ways of collecting and distributing data on how funds raised online are being used because of the risks posed by unregulated lending.

Authors:

George Popescu
Allen Taylor

China Issues Online Lending Rules – Panic Ensues

China Issues Online Lending Rules – Panic Ensues

After nearly eight months since the original draft was first issued, the China Banking Regulatory Commission (“CBRC”) announced the official rules for the online lending industry on August 24, 2016. The unveiling came accompanied with a few policy curveballs that few industry participants were expecting. Titled as the “Interim Guidelines” (indicating there could be more […]

China Issues Online Lending Rules – Panic Ensues

After nearly eight months since the original draft was first issued, the China Banking Regulatory Commission (“CBRC”) announced the official rules for the online lending industry on August 24, 2016. The unveiling came accompanied with a few policy curveballs that few industry participants were expecting. Titled as the “Interim Guidelines” (indicating there could be more permanent policies few years down the road), certain media has hailed the newborn policies as the strictest ever in the history of online lending. However, not much has changed between the draft and final versions with one major exception: borrowers are now subject to a borrowing limit for loans on a single platform as well as across platforms.

Public reactions from industry participants were all positive and supportive as one must never (ever) publicly denounce Chinese policies. Privately, many managers are scrambling to make sense of the new rules while lamenting that regulators have dealt a death blow to the online lending industry.

Rules to Reduce Risk and Police Paperwork

When Chinese media began circulating rumors of borrowing limits in the days leading up to the official CBRC announcement, many dismissed the reports simply as a rumor. Imagine the disbelief as the policies now confirm that “natural persons may only carry a loan balance of up to RMB 200,000 on a single platform and no more than RMB 1 million across multiple platforms. While legal representatives of organizations and other legal entities may only borrow up to RMB 1 million on a single platform and no more than RMB 5 million across multiple platforms.”

In the press conference held by the CBRC, the following official response offers the following explanation for the motivation behind the borrowing limits:

“To better protect lenders’ rights and to reduce the moral hazard risk of lending platforms, we want to limit the concentration risk in loans and work in conjunction with the applicable laws and filing standards for illegal fund-raising cases”

The first part of the statement is easy enough to understand, regulators want to forcibly reduce overexposure to large loans as a moral hazard problem does exist in that platforms are incentivized to make bulky loans as it saves them origination costs and helps them generate larger volumes, while lenders ultimately bear the higher risk from overburdened borrowers. The latter part of the statement, however, is trickier to explain and rationalize.

According to the relevant rules issued by the Supreme People’s Procuratorate and the Ministry of Public Security, the threshold to establish and prosecute a criminal case for illegal fundraising is RMB 200,000 for individuals and RMB 1 million for organizations. What this means is that if someone illegally fundraises any amount below these thresholds, they will not be prosecuted on a criminal basis and would instead undertake a civil procedure. Therefore the logic here, as one Chinese industry blogger mused, seems to be that all borrowers on lending platforms are now deemed to be fundraising illegally and to protect these borrowers and platforms from criminal prosecution, regulators are enforcing loan limits that match exactly with the criminal case thresholds. In this sense, regulators are attempting to protect lending platforms from being implicated as facilitators in criminal fundraising cases. In addition, drawing a clear line for lending platforms will likely reduce the case load for police departments as platform compliance with the limits would lower the likelihood of criminal cases being filed by lenders. Since the Ministry of Public Security is one of the joint authors of these rules, it has been rumored that they pushed hard for the loan limits so that they can reduce police paperwork from criminal fundraising complaints. This rumor is unverified and highly speculative, of course.

Alternative Policy Proposal

Allow me to digress here as I would like to propose my own solutions to the issues that regulators pointed to as motivation for implementing the loan limits. If regulators are concerned about concentration risk in large loans, a more direct solution to protect lenders would be to mandate an investment limit per loan, thus forcing lenders to diversify their loan portfolio. Using diversification to reduce risk is frequently advertised to lenders by top lending platforms in both China and the US and should address the regulators’ concern for investor protection. However, if regulators are more focused on the moral hazard of originating large loans that benefit platforms and increase the risk to lenders, I think there is an even bigger moral hazard issue that should be addressed first.

Fees.

Many Chinese lending platforms collect an outrageous amount of origination fees from the borrower. Examining a certain NYSE listed Chinese lending platform’s latest annual financials, one can find an average fee rate of 20%+ being charged to the borrowers. With these fee rates, the resulting cost to the borrower can soar close to 40% APR, a rate of return that even small time loan sharks will find attractive.

The classic moral hazard issue here is clear: platforms can overburden borrowers and increase default risk to lenders by collecting high fees that benefit their own financial performance. Even worse, with a poor disclosure from the platform, lenders are often only aware of the interest paid to them by the borrower without knowing about the additional fees that borrowers have to pay to the platform.

To resolve this moral hazard problem, I suggest that regulators seriously consider implementing limits on platform fees for borrowers or set a cap on overall borrowing costs. If not, then regulators should at least mandate detailed disclosure of fees on a per loan basis to reduce the information asymmetry between lenders and platforms on borrowing costs for loans.

Although there are existing private lending laws in China regulating the interest rate that lenders can charge borrowers, there are no regulations on the overall borrowing cost inclusive of all fees. Certain platforms have publicly justified the use of this legal loophole to continue to issue high-interest loans under the guise of platform fees. Eventually and hopefully, in one form or another, there must be policies to control fees charged by all types of regulated lending institutions. Otherwise, such irresponsible lending practices will pose a significant risk to China’s financial sector.

Issues with Enforcement

The main issue with enforcing the loan limits is that China has a severely underdeveloped credit rating system and it is often very difficult to verify a borrower’s debt burden while underwriting a new loan. Regulators and platforms would not only have difficulty in determining the debt situation of a borrower across multiple lending platforms, it will also be challenging determine whether the borrower has outstanding loans across a variety of banks, financial institutions, or individual lenders. Perhaps the new policies would further encourage the industry or other government bodies to develop systems to monitor and share credit information of borrowers.

To further complicate enforcement of the rules, loopholes exist for platforms to circumvent the new policies. Institutions can register multiple entities using different legal representatives and spread out loans across these entities within the policy limits. After all, the “Interim Guidelines” does not stipulate limits on aggregate online loans taken out by related entities with different legal representatives. Similarly, individuals can use spouses, relatives, and friends to borrow on their behalf and the individual as the ultimate user of the funds can serve as the guarantor. The policies were most likely designed with this loopholes in mind as regulators do want to provide some leeway for platforms to operate. Ultimately, it would be up to the local financial regulators tasked with enforcement on how they want to apply the rule within their jurisdiction. Strict interpretation and enforcement on a regional level would most likely induce platforms to migrate their place of registration to jurisdictions that have a more lax interpretation of the rules. Thus it would be unlikely for local financial regulators to introduce very strict rules considering the potential detrimental effects on economic activity and tax revenues resulting from platforms migrating to other regions.

Potential Fallout

The borrowing limits would mainly impact Chinese platforms on two levels.

First, there are a few leading platforms in China that have been focused on originating large loans to enterprises of RMB tens and hundreds of millions. These platforms would have to make a drastic adjustment over the 12 month compliance period to reduce their portfolio concentration in these large loans and source borrowers whose capital needs fall within the policy limits. Similarly, companies that have been relying on these large P2P loans will have to find a way to adjust to the new policies or find new financing channels that can satisfy their capital needs. If these companies cannot be successfully weaned off P2P loans, we could witness a wave of defaults and platform collapses at a sizable scale within the year.

On another front, competition will increase for platforms acquiring borrowers that have capital needs that fall within the policy limits. The rise in demand for these small loan borrowers may further drive decreases in the costs of borrowing provided that the supply of credit holds steady. This shift in market dynamics would be very beneficial to borrowers as many still face extremely high all-inclusive costs on loans from P2P platforms in the range of 30 – 40% APR ( a majority of the cost coming from fees collected by the platforms). However, it would be interesting to see if platforms would choose to pass on the discounted rates to the lenders or cut into their own margins in order to maintain a healthy lender base and supply of capital.

The Thirteen Commandments

A list of forbidden activities remain in the announced regulations but in a few adjustments to the original list of 12 items outlined in the draft rules, the final policies now outline the following 13 forbidden activities for online lending platforms:

  1. Use the platform for self-financing or for financing of related parties
  2. Directly or indirectly accept and manage lender funds
  3. Provide guarantees to lenders or promise guaranteed returns on principal and interest
  4. Beyond the approved internet, telecom, and other electronic channels advertise or recommend loan investments to lenders through physical locations managed by the platform or third parties authorized by the platform
  5. Directly make loans to borrowers, unless stated otherwise by applicable laws and regulations
  6. Structure loans into investment products with liquidity timing that differs from the original loan term
  7. Sell self-managed wealth management or other financial products to accumulate funds or broker bank wealth management products, mutual funds, insurance annuities, or trust products and other financial products
  8. Conduct securitization like businesses or facilitate the secondary sale and transfer of packaged assets, securitized assets, trust products, or fund interests
  9. Collaborate with other investment or brokerage businesses to bundle, sell or broker investment products, unless stated otherwise by applicable laws and regulations
  10. Provide false loan information or exaggerate return expectations; concealing investment risk; use biased language or other fraudulent methods to engage in false advertising or marketing; fabricate and disseminate false or incomplete information to damage the business reputation of another or to mislead borrowers or lenders
  11. Facilitate loans for the purpose of making investments in the stock market, futures contracts, structured products or other high-risk investments
  12. Provide equity crowdfunding services
  13. Other activities are forbidden by applicable laws and regulations

The notable addition to this list is rule number 8 that forbids securitization-like services and the secondary sale and transfer of certain assets. It is unclear on what exactly this rule is trying to restrict, but many have interpreted this as an attempt to prevent lending platforms from selling more complicated financial products that are typically controlled by the securities regulator. However, due to the use of Chinese terminology here, a more conservative interpretation of the rule suggests that platforms are not allowed to provide a secondary market for the lenders to trade loans and gain liquidity. Contrary to the US market where a third party provides the secondary loan trading market, the majority of Chinese platforms operate their own secondary market often integrated with the lending platform. Further clarification from the central regulators as well as local regulators will be needed in order to precisely identify the forbidden secondary transfer activities and ultimately, how they will be enforced.

Other Bits

The rest of the new policies remain largely unchanged from the original draft for public opinion. There are a few administrative requirements such as registering with the local financial regulator, updating the business license to include “online lending information intermediary” in the scope of business description, and obtaining an Internet Content Provider license. These tasks may actually be very difficult for platforms to complete as some local government departments have shut the door on processing these requests in fear of inadvertently enabling a platform to conduct fraudulent activity.

The Interim Guidelines also touch upon important policies regarding customer funds custodianship and disclosure standards but deferred details to separate rules that will follow.

Loose Ends – More Regulations to Come

The CBRC Interim Guidelines are just the beginning to a series of applicable laws and regulations for the online lending industry. We can expect more policies and details on the following topics in the near future.

Bank custodianship for customer funds – a draft for public opinion has been circulated by the media in August but I have yet to locate the official copy released on CBRC website. Since I’m unable to confirm the source of the media released copy, I will decline to comment in detail for now. However, it looks like banks will have to step up and provide custodianship for lending platforms. Licensed payment platforms and other third parties would most likely be cut out of the game entirely.

Disclosure standards – the Interim Guidelines outline several pieces of information for disclosure to the public including loan details and performance, platform’s operational performance, audit reports, legal opinions, etc. Detailed disclosure requirements will be covered in a separate set of rules.

Guidelines for local regulators – as platforms are required to register with local financial regulators, the procedural requirements will need to be clarified by the central government. In addition, the current policies stated that local financial regulators will also be required to rate and classify platforms on file, thus a set of rules is expected for the rating process as well.

Regional policies – as provincial governments can make their own detailed rules based on the Interim Guidelines and file with the CBRC, we can also expect to see a variety of regional policies to be released in the near future.

Non-Depository Lending Organization Rules – a draft for public opinion on this topic was issued mid-August prior to the online lending rules. The final policies here will likely have an effect on the activities of lending platforms.

Although the arrival of the Interim Guidelines has finally granted a sense of legitimacy for the online lending industry, new questions have been raised and old questions remain unanswered. However, as with many other nascent industries, regulation for online lending will be a continuous and ever evolving process. We can expect platforms to quickly adapt to the current policies as well as expect many new policies and guidelines from various governing bodies (both local and central) in the months and years to come.

Author:

Spencer Li

About the author: Spencer Li is based in Beijing, China. He is the VP of Product of Fincera. He oversees and manages product development and marketing of a web-based small business lending platform (CeraVest), a closed-loop B2B payment app (CeraPay), and automotive e-commerce platforms. For more information, please visit the corporate website at www.fincera.net.

August 12th 2016, Daily News Digest

August 12th 2016, Daily News Digest

News Comments Our readers have commented on yesterday’s Lending Times section titled: “Why Did Funds Appear To Have Poor Q1/Q2 Returns?” . Our reader’s comments : LCA has 1 or 2 months of negative returns over several years. Yes, VSL and other publicly traded funds have lesser performance. Flip side is the dividend yield is […]

August 12th 2016, Daily News Digest

News Comments

  • Our readers have commented on yesterday’s Lending Times section titled: “Why Did Funds Appear To Have Poor Q1/Q2 Returns?” .
  • Our reader’s comments :
    • LCA has 1 or 2 months of negative returns over several years.
    • Yes, VSL and other publicly traded funds have lesser performance. Flip side is the dividend yield is higher as price drops – 7.5%. Hard to find that return in fixed income markets.
    • Here is a document showing returns for various HF strategies. P2P returns have consistent risk-adjusted returns across years as compared to these other strategies. Not shown in the document are the monthly returns. P2P returns are also generally positive most months. To say returns have been bad recently seems to miss the broader point about the high consistency of risk-adjusted returns, and low correlation.
  • Today’s most interesting news are Square who is lending to non-clients as well now, Uber who is building a lending/lease arm, and Faircent in India who raised $1.5mil.

United States

United Kingdom

India

United States

Square Capital Outgrows Square, (deBanked), Rated: AAA

You don’t need to process payments through Square anymore to get a loan from Square Capital. Restaurants that use Upserve, a restaurant payments and data analytics system, are now eligible as well.

“We are proud to partner with Upserve and offer loans through Square Capital to even more small businesses who traditionally face barriers when seeking access to funds,” said Jacqueline Reses, Head of Square Capital.

The move puts them on a path to truly competing with other alternative lenders such as OnDeck and CAN Capital.

Uber hitches a ride with car finance schemes, (Financial Times), Rated: A

Uber launched its Xchange in-house vehicle leasing programme in the US a year ago and later gave it a shot in the arm with a $1bn credit facility, arranged by Goldman Sachs and funded by more than half a dozen Wall Street banks.

When Grace Mora found herself strapped for cash in 2014, her son recommended she try driving for Uber. With a “terrible” credit score and few options for buying a car, she took out a loan from one of Uber’s partners, Exeter Finance, which would see payments deducted from her earnings as an Uber driver each week.

Ms Mora, who took out a car loan two years ago from Blackstone-owned Exeter, says monthly payments of $726 for her Toyota Prius cost more than the rent on her apartment. “I told them this is usury, absolute usury,” she complains. Yet she still keeps driving for Uber because she receives a 10 per cent discount when she makes repayments through her weekly Uber pay cheques. Mark Williams, a finance professor at Boston University, says the programmes remind him of the “company store model” and describes the terms of the loans as “onerous”.

“Uber is vertically integrating, becoming more of an Uber bank,” he points out.

Last year, more than 50,000 Uber drivers got their cars through such schemes, and Uber expects 100,000 more to do so by the end of this year.

The Silicon Valley-based ride-hailing app is also putting considerable financial firepower behind its lending programme, with a $1bn credit facility that allows its subsidiary, Xchange Leasing, to buy cars and then lend them out.

In addition, Uber is testing a scheme called Advance Pay where new drivers can get a $1,000 interest-free loan — to be paid back from earnings — in partnership with lending start-up Clearbanc.

In Singapore, Uber subsidiary Lion City Rentals has built a fleet of vehicles that it rents out to drivers.

In India, Uber leases vehicles to drivers through Xchange Leasing — a challenging proposition in a country with no centralised credit score system. “If somebody cannot pay the monthly amount, they can simply return the car,” he added.

Uber says its Xchange leasing programme is not profitable.

3 top online payday loan alternatives,(Tradestreaming), Rated: A

Payday loans are the crud at the bottom of the personal loan product basket. The Pew Charitable Trust’s 2010 report on the use of payday loans shows that the phenomenon is hardly minor: that year, approximately 12 million Americans, or about 5.5% of the entire population, used a storefront or online payday loan.

That same survey found that payday loans are rarely just for emergencies. Borrowers tend to use payday loans for everyday expenses. On average, a payday borrower will take out eight loans of $375 each per year and spend $520, or nearly 40%, on interest.

Online payday loan have made it easier to get quick cash. With great convenience, though, comes even worse payday terms and conditions for users.

A number of online payday loan alternatives have sprung up to provide fair everyday lending alternatives.

LendUp bills itself as payday loan alternative with a mission “to provide anyone with a path to better financial health”. And when they say anyone, they mean anyone – even a person burdened with unsavory credit history.

Avant, a Chicago-based company launched in 2012, positions itself as an alternative to both credit cards and payday loans. Users might not have the right credit history to procure a credit card, and the company’s website notes that payday loans can charge up to 700% in interest. However, Avant provides subprime loans regardless of credit history, with rates ranging from 36.00% to 9.95% APR.

QCash was originally launched by Washington State Employees Credit Union in 2003 as an in-house alternative to payday loans. WSECU had found that alarming numbers of their members were turning to predatory lenders for a product that was not available at the credit union – short term cash needs.

Even doesn’t make the cut simply because it hasn’t launched yet, though its premise is promising.

Yet another alternative payday app is Activehours, which essentially mimics payday loans by allowing borrowers to cash in what they’ve earned through the app before the two week payday rolls around.

Are Payday Loans Really All Bad?, (Pacific Standard), Rated: A

A new paper suggests payday loans improve well-being in some situations, but not in others.
Some researchers have linked payday loans to a host of economic ills, including problems paying mortgages and other bills, higher rates of personal bankruptcy filing, an increased need for government assistance, and lower rates of child support payments. Elsewhere, researchers have found that access to payday loans mitigates foreclosure rates after natural disasters, while regulating the industry only results in more bounced checks and a decline in overall financial condition.
A new paper by the Federal Reserve’s Christine Dobridge suggests that both of these narratives may be correct. More specifically, while access to payday loans improves household well-being during times of financial distress, the opposite is true during normal times.

Lending Club Reports Q2 2016 Results With .96 Billion in Originations, ( Lend Academy), Rated: A

Lend Academy reports on Lending Club’s results and includes a few nice charts from the Lending Club deck.

Lending Club still holds $832 million in cash and equivalents with no outstanding debt. They leveraged a portion of this cash to purchase $135 million in loans in the second quarter with a majority of these loans being resold at a later date.

OnDeck Reports Q2 2016 Results and Continues to Grow Originations, (Lend Academy), Rated: A

Lend Academy also reports on OnDeck results also with some nice slides from the OnDeck presentation. Also worth a look.

When trying to understand OnDeck as a company, it’s important to understand what holding more loans on their balance sheet means from a financial perspective. The financial highlights above at a glance paint a pretty negative picture but there is more to the story.  Historically, OnDeck has captured more revenue directly from the sales charge called “gain on sale revenue” due to selling loans on their marketplace. This gain is realized immediately and boosts quarterly revenue when a larger portion of loans are sold.

When loans are kept on their balance sheet, the income is realized over time as loans repay which explains in part the decrease in net revenue. In addition, the company has higher provision expenses since this expense for loans held on their balance sheet is realized immediately even though the loans pay out over time. Q2 2016 provision expenses were $32.3 million, up from $15.5 million in the same period last year. This increase is to be expected as there was a 74% increase in loans designated to be held on balance sheet over the same time period.

The below donut charts show the funding mix for the past three quarters. While the marketplace made up just under half of funding in Q4 2015, this has dropped to around 25% in Q2 2016. Securitization remains a fairly consistent source over the last three quarters.

Do We Need Bank Branches?, (Lend Academy), Rated: A

An article in American Banker says that large bank branch networks are here to stay. The author is basically saying that people of all ages like to deal with real people, particularly when it comes to finance.

The author went on to say that the argument was made 30 years ago that branches would become obsolete but the fact is that branches are still alive and well today.

According to this Washington Post article from April the World Bank predicts that the number of branches in the US by 2025 will drop 33% from their 2004 levels. In Europe that number will be 45%. Clearly the number bank branches is in decline.

Talk to a typical millennial today and ask them when was the last time they visited a bank branch.

When it comes to investing, something that most millennials are just getting started with, I would argue that the popularity of robo-advisors like Betterment or Wealthfront are better suited to serve the needs of this new generation. SoFi has started making inroads here as well with a similar service that is slightly more high touch but still very much tech-oriented.

I think the bank of tomorrow will be so vastly different to the bank of today that we can barely even conceive of it today.

California a Hot Real Estate Market for RealtyShares Crowdfunding Investors, (Realty Shares), Rated: A

California borrowers and sponsors have raised more than $53 million across 90 properties in the Golden State. “One of the most reliable recipes of entrepreneurial success in the last 20 years has been taking an existing asset class and making it freely tradeable by anyone in the world over the Internet,” said Gene Linetsky, Chief Technology Officer.

RealtyShares continues to target supply constrained markets with diversified economic bases across the United States in an effort to give its tech-savvy investors diversification options they might otherwise not have access to.

A Review Fundera’s process, (Nav), Rated: AAA

Pro:

Fundera lists your available options in a clean table. The application form is easy and can be a time-saver. If you click to see more details about each individual funding option, you’ll see an explanation of the pros and cons of each option. Once you’ve submitted your application, you are assigned a loan advisor who connects you to available funding options.

Con:

Using Fundera’s online application form, it’s hard to get a good idea of the annual percentage rate (APR) of each financing product. The “my profile” dashboard shows what options the applicant is ineligible for, but it’s hard to get a firm idea of why.

OnDeck Appoints Gagan Kanjlia to Lead Product Group, ( Yahoo Finance), Rated: B

.0.0.1.2.0.1.0.0.0.0.0.0.$SideTop-0-HeadComponentTitle-Proxy.$SideTop-0-HeadComponentTitle.0">OnDeck Appoints Gagan Kanjlia to Lead Product Group, ( Yahoo Finance), Rated: B

OnDeck appoints Gagan Kanjlia as Senior Vice President of Product.

Kanjlia joins OnDeck from Capital One, where he co-founded the Capital One Garage, a corporate internal incubator for Capital One Financial Services, ran digital product efforts for the Auto Finance and Home Loans divisions and built out the digital product practice for Capital One Financial Services.

“This newly created role on our senior management team reinforces our commitment to product and technology innovation as key drivers of our growth,”

United Kingdom

It’s game on as Mondo, the UK banking startup, finally becomes a licensed bank, (TechCrunch), Rated: AAA

Mondo, the U.K. mobile banking startup and probably the noisiest of the new breed of British challenger banks, is now officially, well, a bank.

That’s because, until now, the London-based company didn’t hold a banking license and existed entirely in the form of a pre-paid Mastercard and accompanying, albeit rather nifty, iOS and (more recently) Android app.

It offers the ability to do things like track your spending in realtime, view geolocation-marked transactions on a map, view spending by category, and get a graphical timeline of your overall expenditure.

Mondo has been granted a UK banking licence ‘with restrictions’ by the UK regulators FCA and PRA. This means that its beta testers can now in theory begin switching to a Mondo current account and use the startup to do a lot more of their banking.

Competitors Starling (for which Mondo’s founders have history), Atom Bank, and Tandem already secured licenses — Mondo says, at only 18 months old, it is the youngest company ever to be granted a banking licence and proof regulators are becoming more nimble as the country attempts to foster its fintech reputation.

It also notes that Mondo co-founder and co-CEO Tom Blomfield, who previously foundedGoCardless, is now the youngest CEO of a bank in the UK, having turned 31 just one day after the licence was granted.

Centre for Economics and Business Research: Small Business Loans on Funding Circle Boosts UK Economy By £2.7 Billion Since 2010, ( Crowdfund Insider), Rated: A

On Thursday, the Centre for Economics and Business Research released its latest report that revealed small businesses loans facilitated by Funding Circle had boosted the UK economy by £2.7 billion since 2010.

The report also revealed:

  • Over three-fifths (61%) of Funding Circle borrowers saw their revenue increase as a result of the loan, while nearly half (47%) reported a rise in profits.
  • The GVA (Gross Value Add) impact has built up over time, from £39.8 million in 2011, to £401.6 million in 2013, reaching £2.7 billion by mid-2016.

You can find the report here.

UK SMEs flock to p2p lending boosting jobs and housebuilding, report finds, (Alt Fi Credit), Rated: A

Small businesses are increasingly using p2p and marketplace lending platforms to meet their financial needs, according to a report by the Centre for Business and Economics Research (CEBR).

The report also highlights that businesses from the North East use non-bank forms of finance much more than traditional high street banks. North East businesses at Funding Circle make up 10 per cent of all lending but only 3 per cent of the UK business population.

Scott Corfe, director at the Centre for Economics and Business Research said: “Since the financial crisis, UK businesses have increasingly turned to non-bank lending to raise the funds they need to invest, hire new staff and expand to new markets. Companies such as Funding Circle are driving billions of pounds of economic activity and generating tens of thousands of jobs, something that’s set to grow rapidly as the financial landscape continues to evolve.”

India

Peer-to-peer lending platform Faircent raises $ 1.5 mn funding from BCCL, (Your Story), Rated: A

Peer-to-peer lending platform Faircent, which caters to retail and business loans, has raised $1.5 million funding from Brand Capital, the Bennett Coleman and Co (BCCL) arm for ad-for-equity investment.

Faircent was founded by Rajat Gandhi, Vinay Mathews and Nitin Gupta in 2014. In two years, it has over 6,000 and 26,000 registered lenders and borrowers, respectively and has disbursed total loans amounting to Rs 6.5 crore.

The firm had earlier raised an undisclosed amount of funding in a Series A round from Mohandas Pai’s Aarin Capital and JM Financial Products, a subsidiary of JM Financial.

Author:

George Popescu

Amex and the 4 types of large-company-approach to SMB lending

This year  retail giant Costco ended a 16-year partnership with Amex. Co-branded cards with Costco accounted for 8 percent of worldwide annual spending and 10% of total cards in circulation for Amex in 2014. Simultaneously, joining companies like JP Morgan, Wells Fargo, and others, Amex has announced a deeper entrance into the SMB credit space […]

This year  retail giant Costco ended a 16-year partnership with Amex. Co-branded cards with Costco accounted for 8 percent of worldwide annual spending and 10% of total cards in circulation for Amex in 2014. Simultaneously, joining companies like JP Morgan, Wells Fargo, and others, Amex has announced a deeper entrance into the SMB credit space with their own in-house venture , poorly named in my opinion, “Working Capital Terms” (WCT).

The 4 approaches to Marketplace Lending for SMBs

One route into the SMB credit space is the partnership approach taken by JP Morgan, Scotia Bank, and Santander. The second route, taken by Wells Fargo is controlling all pieces of technology and client experience under its own house. The 3rd route, as you will read below, and taken by Amex, is to participate into aggregators like Lendio and Fundera under its own brand. And the 4th route, favored by Citi Bank, Deutsche Bank, and Morgan Stanley, is to participate in the space indirectly from the arrears by providing lending capital or securitization services. Which approach will succeed ? If the space is as large as people believe it is most likely all 4 approaches will succeed. Which approach is the most profitable ? One should not jump to conclusion by looking at short term profitability. Real profitability, as companies like AIG demonstrated in 2008, is measured across an entire credit cycle.

Amex’s 3 prong approach, with WTC in addition to their participation in Fundera and Lendio, is in fact quite unique and has the advantage of flexibility, low fixed cost and visibility into the market.

Amex: from Costco to Lendio and Fundera

Ken Chenault, the long-term CEO must have been under tremendous pressure to replace the outgoing business.  It is not that the company had not tested the waters of online lending. It had partnered with Lendio in April, an online small business credit marketplace aggregator. The partnership probably served three objectives:  to expand its merchant financing portfolio, to perhaps to test the waters for Amex’s own plans in the space and to replace the Costco partnership which had a 20% pie in the total Amex loan portfolio.

The Lendio partnership catered to merchants with at least 2 years of operational history and minimum $50,000 in revenue. The loans range from $5000 to $ 2 mil and up to a maximum tenure of 2 years.

The Lendio partnership was preceded by a different kind of association with Fundera. For customers who want to compare its business charge cards with traditional loans, American Express has featured its charge cards on online marketplace Fundera since February 2016. The charge cards offered by American Express available on Fundera are known as Open cards; they are specifically introduced for companies that need to fund large spot purchases of inventory or raw materials, and each month they can pay off the balance in full. Open cards do not have any interest but there is fixed annual fees. Spending limits adjust with usage and payment history.

Amex’s venture named “Working Capital Terms”

On July 5th, 2015 Bloomberg announced Amex’s new initiative, called “Working Capital Terms”. This new venture is targeted at existing small-business cardholders and will be primarily used by merchants to pay their vendors especially those who do not accept credit cards. Thus Amex is muscling in to capture a bigger pie of the business of the existing clients. This is a smart move as it will ensure that cost of acquisition of customers is almost negligible and the existing relationship is enhanced by offering an additional feature. The loan amount will range from $1000 to $750,000 and the payment will be directly made by Amex to the vendor. Charges will be 0.5% for a 30-day loan and 1.5% for a 90-day loan. The pricing is extremely aggressive especially considering the other online lenders.

In 2014, Amex cards for small businesses funded $190 billion in purchases, up from $122 billion in 2010. American Express is focussing on small-business loans where they already have a strong grip to make up for the revenue they have lost. They think small- business cards have room to grow in near future, unlike consumer spending. It considers cards have immense potential in small-business funding space because small businesses tend to traditionally rely more heavily on cash and traditional loans.

Amex vs Square and OnDeck

It plans to begin the online platform for its small business clients, aiming for the market share occupied by start-ups like Square Inc. and On Deck Capital Inc. The company can leverage its existing clientele and low cost of funds to offer sweeter deals. To grow its presence in small businesses, American Express has made some other moves, like the improvement of its OptBlue program that simplifies the acceptance of Amex cards at small business locations. By 2019, American Express wants to reach its goal of parity coverage to other card networks. They have also teamed up with Mexican mobile point-of-sale (mPOS) provider Clip and German mPOS vendor Payleven. American Express’s entry into the small business lending world is proof that Wall Street believes that online lending is here to stay.

Amex’s future plans ?

In a recent interview with Lendio’s CEO, Brock Blake, Lending Times has inquired about Amex’s revealed plans with the Lendio partnership given Amex’s WTC announcement. Brock has clarified that in his view Amex has no expressed any intention to canceling their partnership with Lendio.

Amex is de factor offering 3 different products, through 3 different venues, Lendio , Fundera and their own in-house WTC. Each of these directions is probably complementary, independent, and do not have large fixed costs. I would, therefore, expect for Amex to use these initiatives as an opportunity to test different products and markets. As time goes we shouldn’t be surprised if any or all 3 of these initiatives that demonstrate traction will receive increase resources and in fact ramp up. In an ideal scenario, having a diversified portfolio of  3 profitable products for the SMB credit space can only help the company.

Wells Fargo’s Transplex

As mentioned at the beginning American Express is not the only big lender that is trying to enter small business lending. In May, Wells Fargo &Co, the third-biggest U.S. bank by assets, introduced their small online loan arm known as Transplex. Other major rivals like JP Morgan Chase & Co., Scotia bank, and Santander are collaborating with On Deck, Kabbage etc to speed up the process of providing loans to the same space. These entrances validate the space, the market, and the approach. One route is the partnership approach, where traditional bank partners with an online lender to grow its books. The second route, taken by Wells Fargo is controlling all pieces of technology and client experience under its own house. Though partnership helps in a faster entry, managing a relationship is fraught with complexities in the long run. On the other side, when you own the entire chain, the bank can decide on how to structure every move. But the question is whether the bank has the tech chops and the start-up spirit to compete with the free-wheeling world of fintechs.

The partnership approach, where traditional bank partners with an online lender to grow its books, is a known tech-vendor/bank relationship which is very standard. It is expensive, involving, extensive and with high risks. It has the advantages of leaving the bank in full financial control and having hardly any regulatory risk.

The second route, taken by Wells Fargo is controlling all pieces of technology and client experience under its own house. It has the full control, confidentiality, and probably the best profit margin advantage. If this approach was easy large companies will never buy startups. It is very difficult for large companies to build news businesses and this is probably the hardest, most expensive and riskiest approach with the most benefits if successful.

The partnership approach is the fastest, cheapest and lowest risk approach and probably the least financially profitable one. Managing a relationship is fraught with complexities in the long run. As an entrepreneur, I strongly believe that it is the people managing these initiatives, and not the approach, who will decide which will succeed and which will fail.

 

Author:

George Popescu
George Popescu