Thursday January 18 2018, Daily News Digest

mobile banking user growth

News Comments Today’s main news: Marcus passes the $2B loan origination mark. Varo Money secures $45M in Round B. Funding Circle’s fund announces Citibank deal. Qudian enters budget auto financing. PeerStreet intros 30-day notes. Today’s main analysis: Investing in Mintos’ secondary market. Today’s thought-provoking articles: Mobile banking is more important than ever. Credit score changes would force banks to help […]

mobile banking user growth

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United Kingdom

China

International

India

APAC

News Summary

United States

Goldman Sachs’ Online Lending Platform Marcus Has Originated Over $ 2 Billion in Loans, Deposits Rise to Over $ 5 Billion (Crowdfund Insider), Rated: AAA

Meeting a prediction from this past June set by Goldman Sachs CEO Lloyd Blankfein, online lending platform Marcus topped $2 billion in loan originations. Additionally, Marcus reported online deposits of over $5 billion. Deposits and consumer lending have now been combined under a single brand, thus, in reality, creating a challenger bank for the future.

Overall, Goldman Sachs (NYSE:GS) reported net revenues of $32.07 billion and net earnings of $4.29 billion for the year ended December 31, 2017.

Diluted earnings per common share were $9.01 compared with $16.29 for the year ended December 31, 2016. Goldman reported a Q4 loss of $5.51 per share. The results were impacted by a tax related expense of $4.4 billion. Without this expense, Goldman said earnings per share would have been $5.68.

Varo Money Closes $ 45M Series B Financing Round (Varo Money Email), Rated: AAA

Mobile banking is more important than ever (Business Insider), Rated: AAA

As we’ve seen for the past few quarters, mobile banking is continuing to rise, but the rate of growth is decelerating as offerings mature.

  • JPMorgan Chase 

    How a 23-year-old Max Levchin got Peter Thiel to invest in PayPal in under 24 hours (Business Insider), Rated: A

    Levchin told Shontell, “I saw [Thiel’s] name on the pinboard, wandered into a class that was taught by him, which turned out to be more like seminar with six people in the room. So it was a very small group of people. One: I couldn’t sleep because it would be obvious, but two, he was actually pretty interesting. So I stayed awake and chatted him up afterwards.”

    That turned out to be a good move. Here’s Levchin:

    “In the inimitable Peter Thiel fashion, we basically spend about 20 minutes talking after his lecture, and he said, ‘Well, what are you doing in Silicon Valley?’ I said, ‘I just got here two weeks ago. Probably gonna start a company.’ He said, ‘Oh, great. We should meet for breakfast.’

    “We met the next day. He said, ‘All right, so what companies are you thinking of starting?’ I had two ideas that I was concurrently thinking about. I described No. 1., No. 2. He said, ‘No. 1 is better; you should do that.’ ‘OK.’ ‘I’d like to invest.’ It was less than 24 hours later. Peter was a committed investor in my new project.”

    Credit score changes would saddle banks with risk to help nonbanks (American Banker), Rated: AAA

    Recently, the Federal Housing Finance Agency has been evaluating whether to allow originators that sell loans to Fannie Mae and Freddie Mac to use something other than the currently mandated FICO model. Specifically, the FHFA is evaluating whether originators can also use the VantageScore model offered by a company owned by the three credit bureaus — Equifax, Experian and TransUnion.

    VantageScore contends that its model will provide credit scores on more than 30 million additional consumers and make 7.6 million of these scores eligible for a loan sold to Fannie or Freddie because of the model’s supposed ability to more accurately assess blemished and dormant credit histories and accommodate thin credit files that most often effect younger consumers. VantageScore also argues that, since the model consolidates data from all three credit bureaus, it eliminates scoring differences caused by data discrepancies. The result, the company maintains, will be expanded home ownership, a more vibrant housing market, more consistent underwriting and faster economic growth.

    The major proponents of the alternative credit scoring model are large nonbank originators and credit reporting firms — companies that make their living from the quantity of loans they originate, not the quality. Their business models shield them from ongoing credit risk and require ever-increasing volumes to achieve scale economies. In short, nonbank originators generally don’t eat their own cooking — either in the form of loans or in the form of securities backed by the loans they originate. Therefore, they have everything to gain from this FHFA change, and very little to lose.

    PeerStreet Announces New Investment Product “30-Day Notes” (Crowdfund Insider), Rated: AAA

    On Wednesday, PeerStreet announced the launch of its new investment product, 30-Day Note, to provide increased liquidity for accredited investors at 30-day terms. According to the online lender, the 30-Day Notes product was launched quietly in October as a pilot program, is now offered monthly.

    Axial Members Surpass $ 25 Billion in Closed Middle Market Deals (Axial Email), Rated: A

    Axial, the deal network for the middle market, today announced its members have closed more than $25 billion in deals on 2,000-plus M&A and growth capital transactions since Axial’s launch in 2010. To facilitate these closed transactions, Axial arranged more than 2.1 million private member-to-member deal connections. Nearly one-third (650) of the total transactions closed in 2017.

    In 2017, the revenues of businesses that privately transacted using the Axial deal network ranged from $2.9 million to $610 million, with EBITDA ranging from negative $19 million to $223 million. Top sectors of deal flow activity include Business Services, SaaS, Healthcare IT, Distribution & Logistics, and Manufacturing. Notably, 24% of all growth capital transactions attempted in 2017 were in the Technology sector, more than doubling year-over-year from 10% in 2016.

    Worthy Peer Capital Receives SEC Qualification for 5% Money Market Alternative (Worthy Financial Email), Rated: A

    Worthy Financial, Inc., a modern personal finance company that delivers alternative investment products and digital savings solutions to a wide-range of retail investors, is pleased to announce that its subsidiary Worthy Peer Capital, Inc. has been qualified by the U.S. Securities and Exchange Commission (SEC), under Regulation A+, to bring a new liquid peer-debt product to the entire investing ecosystem.

    The new Worthy Bond offers all investors – including non-accredited investors – a 5% fixed return. Although the bonds have a 36 month term, they can be cashed in at any time for those with imminent liquidity needs, thereby serving more as an alternative to traditional money market products. Bonds may be purchased at .

    Democrats Add Momentum to G.O.P. Push to Loosen Banking Rules (The New York Times), Rated: A

    But unlike the $1.5 trillion tax overhaul, which passed along party lines, the effort to loosen the post-crisis rules is somewhat bipartisan. A group of Senate Democrats has joined Republicans to support legislation that would mark the first major revision of the 2010 Dodd-Frank Act, a signature accomplishment of President Barack Obama that has been deemed “a disaster” by President Trump.

    The bill would allow hundreds of smaller banks to avoid certain elements of federal oversight, including stress tests, which measure a bank’s ability to withstand a severe economic downturn. Under current law, banks with assets of $50 billion or more are considered “systemically important financial institutions” and therefore governed by stricter rules. The bill would raise that threshold to institutions with assets of $250 billion or more, leaving fewer than 10 big banks in the United States subject to the stricter oversight.

    Banks with assets of $50 billion to $100 billion would be immediately freed from those requirements. Financial institutions with $100 billion to $250 billion in assets, such as BB&T and American Express, would no longer be subject to tougher rules after 18 months, although the Federal Reserve would retain the authority to periodically conduct stress tests on those firms.

     

    The One Big Reason It’s So Hard to Refinance Your Student Loans (Money), Rated: A

    More than half of borrowers who applied for refinancing in 2017 were turned down, according on a report released Wednesday by LendEDU, a student loan marketplace that tracked 32,000 applications to eight refinance companies.

    Using data from users of the LendEDU marketplace, the report found that 58% of 2017 refinance applicants were ultimately rejected. And those who passed muster had very high FICO credit scores—the average approved applicant had a score of 764. Nationally, the average credit scoreis 700 out of 850; anything above 720 qualifies as excellent.

    Refinancing companies are currently advertising fixed interest rates that start at about 3.5%. Yet the average on refinanced loans in 2017 was 5.56%, LendEDU found.

    Source: Money

    Bill Gates made these 15 predictions in 1999 — and it’s scary how accurate he was (Business Insider), Rated: A

    Gates’ prediction: “People will carry around small devices that allow them to constantly stay in touch and do electronic business from wherever they are. They will be able to check the news, see flights they have booked, get information from financial markets, and do just about anything else on these devices.”

    No. 3: Instant payments and financing online 

    Gates’ prediction: “Automated price comparison services will be developed, allowing people to see prices across multiple websites, making it effortless to find the cheapest product for all industries.”

    The Top Ten Fintech Predictions for 2018 (Crowdfund Insider), Rated: A

    10. Resurgence of Peer to Peer Lending and the Emergence of A New Asset Class

    We’ve seen coin-backed lending such as Salt Lending. There will be many more platforms that will attempt to solve solvency and liquidity issues with lending in fiat currency backed by coins.

    9. Alternative Internet

    The cost of a simple PayPal transaction might go up dramatically because it was routed through Comcast’s fiber. You may have to pay an additional $3.99 a month for an “Online Banking” package if you want to do online banking…

    8. Banks will rule again

    Most of the online platforms (payments or lending) plus secondary markets are at the mercy of banks. Without a bank charter, you are simply limited on growth.

    6. Baby Boomer Financial, Inc.

    The youngest baby boomers are approaching retirement age. The baby boomer generation is about 75 million people (on par with Millennials) in the US and represents a vast amount of wealth in this country. They want to transact, invest, bank and most importantly transfer their wealth in a responsible way. I predict that there will be Fintech startups specifically addressing the needs of this generation of folks.

    4. Mass Adoption of Zero Latency Payment Clearance/Credit.

    Over the past few decades, we went from a cash society and in-person / in-branch interviews to “same-day” ACH (direct deposit) and next day loan funding. I predict that in 2018, we will see instant credit approval and funding.

    3.  Social Networks Venture Into Credit.

    I am making another prediction that Facebook or Snapchat will venture into extending credit.

    2. Vertical Integration.

    WeWork will get into the Working Capital lending business. And dare I say Indeed, Monster, and LinkedIn, will start lending money based on your resume and activities within your professional connections?!

    BlackRock makes impact a necessity for companies (ImpactAlpha), Rated: A

    Larry Fink flips social impact from a luxury to a necessity for every company. The chief executive of BlackRock, the world’s largest asset manager with $6 trillion under management, served notice on corporate CEOs their companies “must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” Fink made his point as clearly as possible: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

    Would a bank payday loan be any safer? (Daily Journal of Commerce), Rated: A

    Thanks to a recent regulatory change, it now may be possible for banks to offer small, short-term loans that could be a lot less dangerous for borrowers. Whether banks will actually do so remains to be seen.

    Standard Chartered creates fintech investment unit (Fintech Futures), Rated: B

    Standard Chartered has established a new business unit, SC Ventures, to invest in fintechs and other start-ups.

    Christopher Blake Joins Cross River Bank Loan Team (Long Island Press), Rated: B

    Veteran loan officer Christopher Blake joined Cross River Bank, where he’ll serve clients in Long Island, Queens and Brooklyn in the lender’s Commercial and Multi-Family Real Estate division, the company announced Tuesday.

    Freefly has teamed up with three fantastic financing partners (Freefly), Rated: B

    AFFIRM FINANCING

    Ideal for individuals looking to finance their Freefly purchases.

    SCL EQUIPMENT FINANCE

    A flexible lender designed for U.S. business, sole proprietors, and independent contractors.

    GLOBAL FINANCE

    A creative lender with options for businesses in the U.S. and many countries across the globe.

    United Kingdom

    Funding Circle’s fund unveils Citibank deal (P2P Finance News), Rated: AAA

    FUNDING Circle’s listed fund has inked a deal with Citibank, whereby the financial institution indirectly channels £50m to small businesses through the peer-to-peer lending platform.

    The transaction was announced by the Funding Circle SME Income Fund (FCIF) on Wednesday.

    Under a rather complicated structured finance deal, Citibank’s London branch will advance a senior, floating rate loan of £50m through two Irish special purpose vehicles. The facility matures in December 2026.

    Funding Circle SME Income Fund Limited (London South East), Rated: A

    The Board is pleased to announce that the Company has entered into a formal agreement with Citibank, N.A. London Branch (“Citibank London”) to establish a funding transaction to make loans to ?UK small businesses through the Funding Circle platform?. The transaction will serve to support the Company’s target dividend yield of 6-7% per annum.

    Under the terms of the agreement Citibank London will provide �50 million of funding into the transaction, by entering into a senior, floating rate loan. The Company will contribute a portfolio of existing UK small business loans at par, and in return shall receive ?approximately �50 million of cash to be deployed in accordance with its investment policy, and junior notes.

    Fintech firms struggling to get a foothold with established lenders (The Irish Times), Rated: A

    Banks and other financial institutions remain extremely wary of working with fintech firms, particularly in Ireland where few are willing to give start-ups the endorsement they need to help secure business elsewhere.

    Andrew Patrick White, founder and chief executive of FundApps, a regtech firm that provides compliance and regulation monitoring services to asset managers and hedge funds, said many financial institutions were afraid of fintech solutions because of a fear that they would be used to replace staff.

    “Your grandmother probably has more sophisticated apps on her iPad than many banks have inhouse,” Mr White added.

    Your morning briefing (PaymentsSource), Rated: A

    ‘All-in-one’ cards get another shotCurve has debuted a card in the U.K. that allows consumers to switch a card used to fund a payment after they have left the store. Through the card’s “back in time” feature, card preferences can be changed for up to two weeks, a system the company is selling as a financial management tool. Curve, which is being offered for free with a $60 premium option with more rewards, works like a regular card and is usable anyplace that accepts Mastercard. While all-in-one cards have struggled to gain traction over the years, more than 100,000 people signed up during the card’s testing phase and spent more than $120 million, according to a release.

    OnePlus’ fraud hit: Electronic equipment company OnePlus became the latest to get hit with card fraud, with consumers reporting unauthorized transactions and the company disabling credit card payments but still allowing PayPal transactions. The company is doing a complete audit of its systems and is looking for alternative payment options.

    When we asked, which, if any, Isas have you used over the 2017/18 tax year, nearly a third (32%) said they’d only used a Stocks and Shares Isa.

    This was followed by nearly a quarter (24%) who’ve only used a Cash Isa, and 17% who use a mixture of different Isas.

    This decline in Cash Isa savings is likely to be attributed to poor cash savings rates and the introduction of the personal savings allowance in April 2017.

    Interestingly, Innovative Finance Isas – used for peer-to-peer lending – don’t appear to have taken off, with just 3% of those who voted in our poll only using this savings vehicle.

    Source: Moneywise

    Name Change for Funding Knight as GLI Finance Updates to Sancus Funding (Crowdfund Insider), Rated: B

    As part of an ongoing strategic update, GLI Finance has renamed peer to peer lending platform FundingKnight to Sancus Funding Limited with immediate effect. GLI Finance, an AIM listed company, has also transferred ownership to Sancus BMS Group Limited.

    China

    Qudian is Moving into Budget Auto Financing (CapitalWatch), Rated: AAA

    The newly listed peer-to-peer lending company in China, Qudian (NYSE: QD), has moved into auto-purchase financing, a new business initiative called “Dabai Auto,” according to the company.

    Launched in late November 2017, Dabai Auto is currently targeting Qudian’s existing high quality users, who have been approved with credit lines, but have not actively transacted in small cash installments. The company also announced that it plans to spend around RMB 100 million ($15.5 million) to promote Dabai Auto through online and offline channels. The offline channels would include Qudian user engagement and delivery centers that are located in the shopping districts of over 100 cities across China.

    HNA-owned P2P lending platform doing business normally, executive says (Global Times), Rated: A

    Payments of investment products on jbh.com, an online peer-to-peer (P2P) platform owned by HNA Group, remain normal and there have not been any capital losses since the platform was set up three years ago, an executive of the company said on Wednesday.

    Payments for all maturing investment products on jbh.com are being made as normal, sina.com.cn reported Wednesday, citing Xia Aobi, president of jbh.com.

    International

    Funding Circle and Lufax: Two High Profile IPOs for 2018 (Lend Academy), Rated: AAA

    Neither IPO is a surprise as both companies have indicated their intentions before. But we now have a clearer indication on the timing. First off the rank will likely be Lufax. The South China Morning Post reported that Lufax is planning to do their IPO in Hong Kong in April at a possible valuation of US$60 billion. This would be more than three times the valuation of their previous funding round in 2016.

    The Funding Circle news actually broke just before the New Year with this article from Sky News. They reported that the company was preparing to hire advisors in the first steps towards an IPO. They are supposedly going to interview investment bankers this quarter with a possible listing in London in late fall which would put us in the latter part of the third quarter.

    A successful Funding Circle IPO, one where the valuation rises after it goes public will be very good for the marketplace lending industry in both the UK and the US. We have had little good news here in the last couple of years when it comes to the public markets and I would very much like to see a success story here.

    Investing on the Mintos Secondary Market – Hint One (P2P-Banking), Rated: AAA

    On the Mintos p2p lending marketplace the majority of investors invest on the primary market into loans, either manually or via autoinvest. But for the 29% of investors that do invest on the secondary market picking loans presents them with a huge choice of about 125,000 offers (no typo, really 125K loan parts on offer!).

    Source: P2P-Banking

    For the shown loans there is a very high probability that they will miss the payment and therefore run an additional 60 days until they are repaid under the buyback guarantee. If that happens the remaining actual loan duration would be 62 or 63 days and the impact of the 0.1% discount on the YTM would be much smaller. The resulting YTM would be somewhere around 11 to 13%. So they would not be a good buy and there are much better offers on the secondary market.

    Source: P2P-Banking

    With two weeks remaining the effective YTM for a buyer is not 36% but rather around 12%. Again there are offers with better YTMs on the secondary market.

    Chinese tech groups undermine banks’ dominance of finance (Financial Times), Rated: AAA

    The recent refusal by US regulators to sign off on Ant Financial’s $1.2bn acquisition of Dallas-based money transfer firm MoneyGram International does not signal the end of the Alibaba-affiliated payments group’s US financial ambitions.

    On one level, the scuppered deal suggests that Chinese companies, whether state-owned or otherwise, will have an ever harder time winning approval for US acquisitions. The move also confirms that the Americans now believe that the definition of national security — their basis for scrutinising overseas deals — embraces anything related to information and data.

    But Ant Financial’s attempted US play also shows how much technology is undermining the dominance of traditional global titans, especially in the financial sphere. It is especially noteworthy that many of the upstart challengers to banks and other legacy companies increasingly either have a Chinese face or Chinese capital behind them. That, in turn, underscores how some Chinese players have leapfrogged into prominence across the world.

    Blockchain is revolutionizing the loan industry – a look at Valorem… (Global Crypto Press), Rated: A

    Smart contracts are providing the solution to the trust issues that are usually the main concerns in the micro loan industry.  Whether it be student loans, cars, or any other kind of micro lending – blockchain technology provides what’s needed to move away from the banks, and towards a peer to peer lending model.

    Volerem Foundation is building the infrastructure to facilitate exactly this.

    India

    Govt should think of new ways to boost sectors like P2P lending: LenDenClub (India Info Online), Rated: A

    Additionally, we also expect the government should think of new ways to boost sectors like P2P lending. Eg.- Enable tax exemption for the lenders on P2P lending platforms, under section 80C. This will result in raising the trust bar and credibility, leading to more and more people investing in such platforms. It will also bring in a good enough capital infusion in the P2P lending space.

    Introducing Syndicates for India (Angel.co), Rated: A

    Today, we are announcing Syndicates for India, a new way for investors in India to invest alongside experienced angels and VC funds that invest in India’s vibrant tech ecosystem.

    To date, over 1,800 startups have raised more than $700M through Syndicates on the AngelList platform, receiving more than $6B in follow-on funding.

    APAC

    Gov’t urged to increase ceiling for individual investment in P2P lenders (Yonhap News Agency), Rated: AAA

    A business lobby of peer to peer (P2P) finance firms said Thursday it has asked financial regulators to raise the annual ceiling on individual investment in P2P lenders.

    The Korea P2P Finance Association has asked the Financial Services Commission (FSC) to increase the limit to 100 million won (US$93,632) per year from the current 10 million won, an association official said.

    ZorroSign Among Top 25 FinTech Companies (PR Newswire), Rated: B

    ZorroSign, Inc., today announced the company has been recognized among the top 25 FinTech companies in Asia-Pacific (APAC) by CIO Outlook. The honor spotlights organizations that are fundamentally disrupting the way companies in the global finance sector do business. ZorroSign offers unique secure eSignature, end-to-end Digital Transaction Management, and post-execution fraud protection solution. With security being on top of mind for financial services providers, ZorroSign Document 4n6 (Forensics) Token technology offers a major advantage to its customers.

    Authors:

    George Popescu
    Allen Taylor

July 15th 2016, Daily News Digest

July 15th 2016, Daily News Digest

News Comments United States Jefferies and Lending Club dipping toes in the securitization water to test bringing back to the markets the securitization that started the Lending Club Odyssey. In a context where SoFi and Marlette are getting a lot of attention and bond rates are falling, going to market with a scrubbed clean portfolio, […]

July 15th 2016, Daily News Digest

News Comments

United States

European Union

  • Lendix launches an ELTIF (a new brand of fund cross-border, non-bank structure the EU has created !) for  €50-75m.  Lendix has €2.4m of turnover, €240k of operating profit and employs 11 people.

United Kingdom

Africa

  • A must read. And yes, AFRICA ! Zidisha in 2009 , disbursed a first loan to a Masai nomad in a remote part of Kenya, over a day’s journey from any bank but that had access to the Internet and to the mobile phone money transfer service we use to send loan payments. Smartphones and the internet penetrate much faster virgin markets when they don’t have to fight with existing infrastructure to displace it. Our readers should look at how fast p2p took off in China. I expect that once p2p takes off in real developing countries it will grow even faster than it did in China, although with smaller markets and similar fraud risks. Many people also forget the invaluable GOODWILL the p2p lending industry benefited from when it was just p2p. Goodwill is worth billions of dollars in advertising.

India

 

United States

Jefferies, LendingClub Said to Eye Revival of Scuttled Bond Sale, (Bloomberg), Rated: AAA

Jefferies Group is again considering selling bonds backed by LendingClub Corp. consumer loans, people with knowledge of the matter said, after disclosure issues at the online lender scuttled an effort earlier this year.

Jefferies is having preliminary conversations with investors to gauge interest in the bonds, and may decide not to go ahead with a sale, the people said, asking not to be identified because they aren’t authorized to speak publicly. The firm hasn’t fixed a deal size, but the original offering was expected to be around $150 million, people with knowledge said in April.

Wall Street banks are looking to sell similar bonds tied to loans made by at least two other online lenders in the coming weeks as well, according to a presale report and a person with knowledge of the matter. The offerings are a sign that markets for riskier debt may be thawing as record low bond yields spur investors to hunt for higher returns, while some of the world’s biggest money managers warn that risks are building up across global markets.

Among the other lenders looking to tap the market is Social Finance Inc., one of the biggest online providers of student loan refinancings. It has hired Deutsche Bank AG to underwrite, and may begin marketing a $575 million securitization toward the end of this month, encouraged by strong interest expressed in a similar deal they issued in June, a person with knowledge of the plans said.

Online lender Marlette Funding has hired Goldman Sachs to underwrite a securitization of its own. It could start marketing the notes as early as this week, according to a presale report from Kroll Bond Rating Agency and public disclosures tied to the offering.

Buyers of securities backed by online consumer loans have included DoubleLine Capital, JPMorgan Chase & Co. and BlackRock Inc., according to data compiled by Bloomberg that track ownership disclosures of the securities.

Kabbage Launches Industry’s First Fully-Mobile Application Experience for Small Businesses, (Press Release), Rated: AAA

Kabbage, the financial services data and technology platform, today announced that it has launched a powerful new iOS app for iPhone® and iPad® that allows businesses to complete the entire application process in a few simple steps. The app features drivers’ license recognition, instant mobile check verification, and Apple’s Touch ID™ fingerprint authentication to deliver the best-in-class user experience and reduce the friction usually required to access business capital.

The company now drives $7 million per month in originations from mobile devices and nearly 64,000 monthly user interactions on the app.

Secondary market analysis, ( NSR Invest), Rated: AAA

What loans are available on the secondary market?
We analyzed the current listings on Folio between June 22-27, 2016.  The following are averages across the available listings:

Note Size: $35
Markup/Discount: +4.12%
Interest rate: 16.71%
Yield to Maturity: 15.39%
Loan Age: 11.17 months
Borrower FICO Score at Origination: 686
Days listed on Folio: 4
Remaining Payments: 39

83% of loans have never been late on payments
89% are current on payments
Even split between FICO scores trending up/down

Interestingly, while the average stated interest rate on Folio is 16.71%, the average is only 13.15% (non-weighted average rate) for the entire Lending Club index of loans. This indicates that investors who sell notes on the secondary market are generally listing notes with lower credit grades as compared to the index distribution of loans.

What about loans that are listed almost immediately after origination?
Loans that are listed within three months after origination (aka “fast flips,” because these notes are bought and quickly listed for sale) have a significantly higher markup compared to all loans listed. These fast flips have an average markup of 5.86%, while the entire sample is only 2.18% (only current loans included).

What dictates markup/discount of a loan on the secondary market?
From the data we analyzed, the greatest correlation with the markup/discount of a note is whether or not the borrower has ever made a late payment – about 40% of note pricing was explained by this metric alone. Other variables with positive correlation to the markup/discount are credit score trend, interest rate, and ask price (higher principal value is correlated with higher markup). A negative correlation was found with attributes such as Inquiries in the last six months, number of remaining payments, days since last payment, and outstanding principal.

Can’t Get a Loan for Your Business? I Don’t Believe it, (Fox Business), Rated: AAA

I don’t hear any complaints about getting financing. And there’s a reason for that. The financing environment for small businesses in 2016 is not just good: It’s great. In fact, it’s better than it was before the Great Recession.

Yes, venture capital and angel investing have both recently slowed.

For the established small businesses who reside in industrial parks and office complexes around the country and distribute pipes, manufacture film, mow lawns, fix roofs and serve meals – the financing environment is strong. When they want loans to grow their companies they have plenty of options today.

Don’t believe me? Then why, as Forbes recently reportedOpens a New Window., is Wells Fargo (which releases earnings this week along with other banking giants Citigroup and JP Morgan) calling on those small business applicants that it previously rejected for loans?

Big banks are lending more: According to monthly index prepared by Biz2CreditOpens a New Window., a marketplace for online lending, small business loan approval rates at big banks ($10 billion+ in assets) is now at an all-time high. Big banks this year are approving loans at a 6% higher rate than last, and the approval rating has increased seven of the last nine months. The most recentOpens a New Window. Private Capital Access (PCA) Index by Dun & Bradstreet and Pepperdine University Graziadio School of Business and Management found that small business access to capital has steadily risen over the past four years. In January, Citigroup said itOpens a New Window. lent more than $10 billion to U.S. small businesses in 2015, which was 120 percent more than it loaned in 2009. Wells Fargo has set a 5-year, $100 billion lending goal with a new loan programOpens a New Window.announced earlier this year. PNC Financial Services Group recently announced that it is extendingOpens a New Window. its popular consumer loan programs to now include small businesses.

Alternative lenders are filling in the gaps that big banks can’t serve. The online lending industry has exploded over the past few years, led by firms like CAN Capital, Kabbage, Lending Club and others. PayPal and Square are providing merchant advances for working capital to their customers who qualify based on their cash flow. And other big companies are jumping in: Office supply giant Staples has partnered with Lendio to offer lower cost loansOpens a New Window. to small businesses. American Express recently announcedOpens a New Window. a planned partnership with Lendio. Chase and alternative lender OnDeck Capital just formedOpens a New Window. an alliance. Kabbage just partneredOpens a New Window. with Scotiabank to provide loans to businesses in Canada and Mexico.

The Small Business Administration is booming. According to this reportOpens a New Window. from the Small Business Finance Institute, 2015 was a good year for bankers offering SBA backed financing, particularly the most common 7(a) loans. “SBA lending overall results, as measured by the agency’s monthly approval statistics, finished FY 2015 with better results in every category, but especially rich for 7(a) guaranteed lenders. The 7(a) program “shattered all previous Total SBA Loan Volume 2015 records for total loan volume, and even for the number of loans greater than $150,000. It’s 504 debenture volume also “grew for the first time since 2012, hopefully signaling that declining years are behind the program.”

Of course, the news is not all rosy. It never is. The PCA survey above also found that small businesses’ access to traditional bank loans, while increasing, still lags behind that of middle market companies, which means that many small businesses still rely on personal assets and personal credit for financing.

So please, don’t tell me that you can’t get a loan for your small business. You can. I understand if it may be too expensive because lenders believe that your business is a riskier investment. However, that’s your choice. Be grateful that you have one.

CreditexchangeTM Raises Seed Capital from Kuber FinancialTM, (Business Wire), Rated: A

Creditexchange, India’s first hybrid digital consumer loans platform and institutional marketplace, has announced that it has raised an undisclosed amount of funding from Kuber Financial as part of its $500,000 seed round.

Creditexchange is building a digital loan origination business which it intends to support with a marketplace for institutional investors through which they can co-invest in portfolios of loans originated by Creditexchange. The hybrid model allows Creditexchange to overcome the issues faced by existing Indian peer-to-peer and marketplace lending models, mainly with regard to turn-around-times and opaqueness around regulation.

Creditexchange had previously announced a strategic technology partnership at LendIt San Francisco 2016 with LendFoundry, a market-leading platform which is trusted by large online marketplace lenders in North America, to develop a best-in-class platform customized for the Indian market.

Kuber Financial is a global FinTech holding company that invests in analytics and technology driven financial services start-ups. It is founded by Timothy Li, an established figure in the US FinTech space where he has been an advisor to start-ups like Kabbage, Rocket Loans, Blinker etc. besides being the ex-CIO of Realty Mogul, ex-CRO of Quick Bridge Funding and ex-GM of consumer lending at Loan Depot. The advisory board of Kuber is made up of Jim Redmond (Advisor to Funding Circle), Eric Bunting (early investor of Kabbage and Funding Circle), Jason Raneses (Software Architect at Credit Karma) and Amy Wan (ex-General Counsel of Patch of Land).

How the Underwriting Process Works With Funding Circle, (Fundera), Rated: A

Soon after you hit the submit button to send your completed online application, you’ll get a call from an account manager. This personal contact will not only help guide you through the process but will serve as an intermediary between you and the underwriter, according to Account Manager Natalie Roberts.

The account manager is charged with the task of getting to know more about your company’s present needs as well as your growth plans for the future. They’ll discuss your loan application with your assigned underwriter, who’s hard at work reviewing your credit report and other financial data.

To that end, if the underwriter is missing information from you or would like to discuss something about your business in more detail, you might get a direct call from them. “It depends on how the process is going,” says Roberts.

If you do receive a phone call, it will usually last about 15 to 20 minutes, depending on the size and complexity of your business and loan application.

You should be prepared to tell your story and answer the following questions:

  • Why did you start your company?
  • What opportunities and challenges do you face?
  • How do you derive revenue?
  • How will this loan help your business grow?
  • How do you plan to repay the loan?

What Else Does the Underwriter Look For?

Collateral

This relates to any type of assets or property that might secure your loan.

Capital

Funding Circle will examine how much capital you’ve invested in your own business.

Capacity

In a nutshell, your capacity is your ability to pay back your loan.

Conditions

This relates to any situation that may affect your funding.

Character

Your character gives Funding Circle a general view of your trustworthiness and stability. For example, the underwriting team may want more information on how much experience you have in your industry and whether you have historically made payments on time. An underwriter might also take a look at your social media feeds and read any of your company’s reviews on sites like Yelp. Positive customer reviews and comments go a long way.

Red flags

Because Funding Circle is in the game to help fuel your growth, if you’re looking for a loan as a lifeline, this will be a red flag. Funding Circle will see this if your company has taken on a large amount of new debt in the past 9 months with no real reason to explain this.

July 28, 2016. This transaction represents the second securitization collateralized by unsecured consumer loans originated by Cross River Bank, under the Marlette Best Egg Platform and sold to Marlette Funding, LLC (“Marlette”) or its affiliate.

Founded in 2013 in Wilmington DE, Marlette operates an online marketplace lending platform, operating under the Best Egg brand (

European Union

Lendix launches first ever SME lending fund in ELTIF structure, (Alt Fi), Rated: AAA

Recent European Union regulation created the ELTIF, a new brand of fund available for retail and professional investors that is designed to stimulate cross-border, non-bank investment across the EU.

The Paris-based SME lending platform has launched the first European Long Term Investment fund (ELTIF) dedicated to SMEs. The French stock market regulator, the Autorité des Marchés Financiers (AMF), gave the go ahead to Lendix to take advantage of the ELTIF format following its launch. It is called the Lendix SME Loans fund II.

The fund will be between €50-75m in size and is currently backed by several larger institutional investors including CNP Assurances, ZencapAM (OFI Group) and the fund ‘Prêtons Ensemble’ managed by Eiffel Investment Group and sponsored by Aviva France and AG2R La Mondiale.

Lendix allows SMEs to borrow €30k to €1.5m over periods ranging from 3 to 84 months to finance their development and expansion. The average loan size is €250k.

Patrick de Nonneville, chief operating officer of Lendix says the average SME borrowing on Lendix has €2.4m of turnover, €240k of operating profit and employs 11 people.

“It’s under the radar of all existing debt funds, so it’s a new asset class for investors. Lendix strengthens its objective to serve both private investors selecting their loans directly on the marketplace and institutional investors investing through the fund,” he said.

United Kingdom

Funding Knight Review – The Safety of Peer-to-Peer Lending, (FX News Call), Rated: B

Comment: A better article on how Funding Knight failed would really be useful for the industry. If you would like to write it Lending Times would love publishing it.

In the wake of emerging peer-to-peer websites, many of those who were saving with Funding Knight had lost hope of getting back their money. Claims indicated that the company was running out of cash, causing its fall into administration. This caused panic to more than 900 savers, but nevertheless, a recent Funding Knight review has given them a new dawn given the rescue of the firm by GLI Finance, an investment firm.

Industry says August rate cut “inevitable”, (Financial Reporter), Rated: A

Following the news that the Bank of England’s MPC voted to maintain Bank Rate at 0.5%, the financial services industry says that the Committee has made its intention to cut rates in the near future clear, and widely expects a rate cut of 0.25% next month.

Africa

Zidisha: the first global peer-to-peer microlending platform, (Blasting News), Rated: A

Lenders anywhere in the world can visit our website and browse loan proposals written directly by disadvantaged entrepreneurs in developing countries. Each lender can lend as little as a dollar to help crowd-fund a loan project. We send the funds directly to the borrower, and as the borrower repays, we return the funds to lenders. Lenders can either withdraw the repayments, or use them to fund new loans. This is a high-impact way to do philanthropy because the funds keep being recycled into new loans; $50 put into a Zidisha loan fund generates on average $750 worth of loans in five years! Lenders can also dialogue directly with the borrowers.

In 2006, I was volunteering in Senegal, Africa, raising microloans for women in rural villages through Kiva.

When I returned to the United States, we registered a local microfinance organization and hired a loan officer to manage the loans and to liaise with Kiva on the villagers’ behalf. Though we tried to be frugal, this ended up being expensive due to administrative costs. To be sustainable, we would have to charge the women more than 30 percent interest, almost enough to leave them poorer than they were before taking the loans! This is the story of microfinance in general: the world’s poorest people are paying the highest interest rates – the global average is 35 percent, but rates of 80 percent – 100 percent are not uncommon.

Eliminating the intermediary bank allowed us to reduce the cost of each loan to just 5 percent. In 2009, we disbursed our first loan to a Masai nomad in a remote part of Kenya, over a day’s journey from any bank but that had access to the Internet and to the mobile phone money transfer service we use to send loan payments. We named the organization “Zidisha,” which is Swahili for “grow,” as in an investment, business or quality-like prosperity. We now have more than 55,000 members in 157 countries and have raised loans for more than 28,000 small businesses around the world.

We’d like to be able to fund everyone who applies and also expand to offerlending services in more developing countries. If we can help people improve their quality of life, then building Zidisha is time well spent.

India

Cibil builds 360 degree view of consumer; what you really must know, (The Financial Express), Rated: A

As lending by microfinance institutions (MFIs) was never higher, it is no surprise that the country’s premier credit information company (CIC), CIBIL, has decided to get into this segment as well. In an interaction with FE, its chief operating officer Harshala Chandorkar speaks about challenges involved and how it is a win-win situation for MFIs, banks and borrowers.

Is the profiling and the data that you have acquired for MFI borrowers any different from that of borrowers from banks? Does the fact that most of the MFI lending tends to happen to joint liability groups (JLGs) a challenge?

The data points remain the same. Most MFI borrowers have a voter ID and an Aadhaar number. The challenge, however, arises when it comes to other aspects. Names tend to be very common in small villages. Addresses are not as strong and differentiated as that in metros.

With the Reserve Bank of India (RBI) deciding to bring peer-to-peer (P2P) lending platforms under its purview, do you expect a change in the way individual’s credit appraisals are done, particularly given that such platforms are probably going to entirely bypass institutions like yours?

I think it will be beneficial for everyone if all the lending via P2P platforms is reported to credit information bureaus as it will help even P2P lenders to take informed decisions when they decide to lend to an individual. Secondly, the non availability of P2P credit information to banks might make borrowers over leveraged.

Author:

George Popescu

July 7th 2016, Daily News Digest

July 7th 2016, Daily News Digest

News Comments United States EarnUp raises a $3mil seed round to help 200 million consumers smooth their loan repayment experience. Could EarnUp be a good lead source for lenders ? Or a good alternative data source ? A great table of MPL raises and valuations from CrunchBase, who claims that data hints at future down […]

July 7th 2016, Daily News Digest

News Comments

United States

  • EarnUp raises a $3mil seed round to help 200 million consumers smooth their loan repayment experience. Could EarnUp be a good lead source for lenders ? Or a good alternative data source ?
  • A great table of MPL raises and valuations from CrunchBase, who claims that data hints at future down rounds for marketplace lenders. However, we have recently seen BizFi, Promise Financial and more raising good rounds at decent terms. Perhaps there is a difference between fund-raising for mature MPLs and fund-raising for challenger Alt Lending 3.0 start-ups.
  • Very interesting 1st hand data from Morningstar about the state of US consumer debt, including trends and statistics. Credit Cards charge-off rate chart, 90 days delinquent data per asset class.
  • 500 Startups shares fintech investment trends chart and data and discussed government policies that could and should enable fintech innovation.
  • Through the survey of France’s P2P and MPL lenders, a great analysis of the lessons learned from Lending Club’s crisis.
  • Securitization trends in Marketplace Lending. A must read.
  • Acquiring borrowers is difficult. Acquiring borrowers at purchase decision time is easier. Focusing on point-of-sale partnerships to generate credit demand is a very interesting direction which is, therefore, popular and gaining ground. A quick article as a reminder of this interesting direction.
  • Royal of Canada dumped 99.5% of their LC stock in Q1 2016. Interesting timing.

Australia

  • Getting SME lender’s loan data is at best difficult. In a space where we talk about transparency, SME originator’s data is a good example of the opposite. RateSetter stands out for publishing their data which lead to a nice summary, mostly figure based, article. I am not sure if this data is from RateSetter Australia only or includes other geographies.

United Kingdom

  • A small article, that is not well researched, not well documented, but asks a question that is worth exploring a lot more “How can p2p lending companies fail, and what happens in that case ?” . The quick and dirty answer is: if they are setup right, where the operations and the loan books are separate with backup servicing, the only effect is that new loans stop being generated. We would love to publish a long article on this matter.

European Union

 

United States

Paying Loans Sucks – FinTech Startup EarnUp Lands Million To Intelligently Automate Payments, (PR Newswire) ,Rated: AAA

 EarnUp, a consumer-first fintech platform that intelligently automates loan payments, announced its launch today with $3 million in seed funding.  Blumberg Capital, Kapor Capital, Camp One Ventures, Fenway Summer Ventures, and other leading angel investors provided seed capital to accelerate the platform’s development and expand user access with a mission to improve consumer financial health. Forbes recently announced EarnUp as a winner of the prestigious Financial Solutions Lab in partnership with JPMorgan Chase & Co. (NYSE: JPM) and the Center for Financial Services Innovation. Though still in private beta, EarnUp already manages hundreds of millions of dollars in consumer loans on its platform. More information is available at www.EarnUp.com.

“Millions of Americans suffer financial stress from income volatility, where their income doesn’t match up with when loan payments are due,” said Matthew Cooper, co-founder of EarnUp. “Our product solves this issue by effectively budgeting for the consumer. We help put money aside as it comes in, giving people peace of mind in knowing the money they need will be there when loan payments need to be made. We give control back to the consumer.”

There are over 200 million Americans with debt and a typical household may have income and expenses hitting their bank accounts over 20 times a month. This financial chaos causes incredible stress for consumers, who may struggle to come up with even the minimum loan payments on time. EarnUp works by automatically putting a few dollars aside for future loan payments whenever consumers can afford it, then sending those payments and making sure they are applied in a way that reduces debt faster.

EarnUp has been bootstrapped to date and the $3 million in seed financing represents the company’s first institutional funding.

Data hints at down rounds, but not wipeout, for marketplace lending, ( TechCrunch), Rated: AAA

Comment: This is bad news for entrepreneurs. VCs usually have terms that protect them in a down round.

Private valuations across the lending space, where available, showed marked appreciation in 2014 and 2015. SoFi, for instance, was valued at $3.5 billion as of July, up from about 1.4 billion in early 2015 and $400 million in early 2014.

Those are post-money values, but the appreciation is well in excess of the sums invested. Avant showed a similar rise, with its post-money valuation doubling in less than a year. And Prosper more than doubled in less than a year, hitting a $1.8 billion valuation in April of last year.

Alternative lending currently looks like the reverse of the standard VC model, in which private markets are where one builds a business, and public markets are where one gets a lucrative exit.

That said, while we can expect down rounds near-term, it’s not clear VCs will lose their shirts in marketplace lending forays, particularly those who were mid- or early-stage investors.

High VC ownership levels mean that even a lackluster exit could return all or more of invested capital. Even after LendingClub’s stock plummet, for instance, VC’s post-IPO stakes would be worth more than the $392 in disclosed investments before going public.

You can find the report here if you register.

Nonhousing consumer debt levels are increasing, with student-loan debt leading the charge, according to the Federal Reserve. Student-loan delinquencies more than 90 days past due have risen since late 2011. With the proliferation of postcrisis loans made to students, especially to those attending for-profit colleges with focused specialties, Morningstar Credit Ratings, LLC expects to see challenges in the sector.

Credit Card and Mortgage Delinquencies at Lows Since the crisis, credit-card and mortgage delinquencies have

Since the crisis, credit-card and mortgage delinquencies have improved, with the balance more than 90 days delinquent declining, according to the Federal Reserve Bank of New York. After  seaking at 8.9% in the first quarter 2010, mortgage delinquencies have come down considerably from their highs, resting at 2.1% at the end of the first quarter. Credit-card delinquencies have also dropped, with the current level of 7.6% nearly half the 13.7% recorded in the first quarter of 2010. Low interest rates made it easier for consumers to either refinance or stay current on their debt obligations.

Meanwhile, after little change over the past few years, auto- loan delinquencies have edged higher, as competition among underwriters led to an increase in subprime auto loans. While we expect to see an uptick in auto delinquencies given the larger subprime component, overall auto-loan delinquency rates remain at relatively low levels. If unemployment remains in check, those auto-loan delinquency gains should be within reason, while we expect credit-card and mortgage delinquency rates to remain low.

New data that has been released since publishing solidifies the trend of consumer spending improving after a typical slow start of the year, with 1Q16 GDP growth at 1.1%.  In addition, consumer confidence has strengthened.

Eye on the Road: Student and Auto Loans Bear Watching Consumers are adding to their household debt levels, with student-loan debt leading the way behind mortgages. Postcrisis, students enrolled in for-profit colleges in record numbers, with dreams of a future career. For many, those dreams never materialized, and they were left saddled with heavy student-debt obligations that they were unable to meet. This pool of nonpaying indebted students contributed to the student loan delinquency rate rising steadily since the end of 2012. While the pace of student-loan delinquencies has slowed, Morningstar Credit Ratings views the sector as vulnerable to declines in employment as the delinquency rate remains near record levels despite a generally healthy job market.

Fintech Investment is Exploding — 5 Ways Governments & Ecosystem Builders Can Help, (500 Startups), Rated: AAA

Quarterly financing to VC-backed fintech companies has been growing immensely:

But investment is not flowing freely everywhere.  For example, in 1Q2016, Chinese fintech companies received $2.4 billion in funding (albeit primarily from two mega-deals), while the rest of Asia received only $0.2 billion.  Meanwhile in Europe, deal count increased but the amount of capital invested did not.  Even when the investment flows, the performance often does not.

Fintech’s 3 Ecosystem Challenges
1. Regulatory regimes are often ill-suited for fintech. Regulations in the finance sector are often unclear or highly complex, and regulatory processes and agencies may be slow.

2. Traditional financial institutions may hold down fintech startups, intentionally or unintentionally. Not long ago in the U.S., many banks did not even entertain meetings with or extend invitations to fintech startup founders.

3. Customer preferences may not be ready for certain fintech solutions. Customer acquisition is very difficult in fintech. Banks in the US spend over $500 to acquire a single user, and over time many startups will get there as well.

5 Ways Goverments Can Help

1. Create a “regulatory sandbox” that provides startups the opportunity to test new ideas without immediate threat of regulation.
2. Offer fast and transparent regulatory review of potential new fintech products or services.
3. Create a support system or kit to help fintech startups meet regulatory requirements.
4. Roll out consumer awareness initiatives to increase demand.
5. Encourage traditional financial institutions to invest in or partner with fintech startups — preferably non-exclusively.

The Lending Club Predicament & The Lessons Learned, (Crowdfund Insider), Rated: AAA

Lending Club’s problems should make the sector reflect on the governance issues that arise from the mixed business models that some crowdfunding platforms have evolved into.

Banks lend their own money and take risk on their balance sheet; hence, they must meet regulatory requirements such as Basel III. Asset managers manage other people’s money and invest on their behalf; hence, they are regulated as financial advisers. Platforms must clearly choose their business model because it has regulatory consequences. It also has an impact on the market valuation of the company. Marketplaces are currently much more highly valued by investors than banks. Even before the scandal, Lending Club’s stock was valued rather like a bank’s stock. Eventually, mixed business models potentially lead to conflicts of interest of the type observed at Lending Club.

Lending Club lost its way a long time before the scandal and the subsequent dismissal of Renaud Laplanche. By progressively marginalizing retail investors and letting investment funds securitize Lending Club’s loans on their own terms, Lending Club de facto surrendered the control of the platform to the very same established finance that P2P Lending was supposed to present an alternative to. This change of course created a detrimental layer of complexity, and potentially of systemic risk, in what was supposed to be a simple and direct relationship between private lenders and borrowers.

Beyond the image problem, the impact of the incidents has been small. European institutional investors are still very much interested in marketplace lending, as can be seen from two recent announcements: a$100 million loan program through Funding Circle by the European Investment Bank and €70 million multiplatform crowdlending fund by Eiffel Investment and French insurers Aviva and AG2R La Mondiale.

Marketplace Lending Securitization Tracker, (PeerIQ), Rated: AAA

Marketplace lending securitization volume topped $1.7 billion this quarter, up 14.8% from Q1, with cumulative issuance reaching $10.3 billion. YTD issuance of the sector stands at $3.2 billion as compared to $1.8 billion from prior year, a 77% increase. Q2 saw a total of 6 deals: 3 are backed by student loans, 2 by unsecured consumer loans, and 1 by SME loans. SoFi issued its first rated unsecured consumer loan deal and received an industry first ever AAA rating from Moody’s on its recent student loan transaction.

MPL securitizations are moving towards rated and larger transactions. The second quarter was the first to have all deals rated by one or more rating agencies. Further, the growth in average deal size continued, the average deal size grew to $267 million in 2016 as compared to $64 million in 2013.

New issuance and secondary spread tightened by quarter end, a good sign for the industry. Across all segments in MPL, Q2 2016 saw moderate spread compression in senior tranches of newly issued deals and widening in junior tranches as compared to Q1 2016.

Numerous factors, including lending platform rate increases, and spread tightening in both primary and secondary markets, look to improve future deal economics. The increase in rates from platforms increases excess spread and improves the economics of securitization for residual holders. The demand for

The demand for higher standard of due diligence, transparency and analytics will be the norm. With the recent Lending Club headlines, ABS investors are demanding greater transparency and validation to enhance trust.

A total of 6 deals were done in Q2 and spanned several marketplace lenders and categories. Here is the breakdown from Q2 2016:

  • 3 student loan securitizations (Earnest, SoFi, CommonBond)
  • 2 unsecured consumer loan securitizations (Avant, SoFi)
  • 1 SME securitization (OnDeck)

Despite Citi stopping the securitization of Prosper loans, they continue to be the leader in marketplace lending securitizations followed closely by Morgan Stanley and Credit Suisse.

Cited as factors for an improving securitization market are increasing platform rates and spread tightening in both primary and secondary markets. A detailed analysis of specific securitizations are outlined in PeerIQ’s report.

Why mobile point of sale (MPOS) Is Gaining Ground in FinTech, (Tech.co), Rated: AAA

Comment: in our market context I would think that lenders would like to acquire/partner/sign up with Point of Sales solutions to extend credit in physical stores.

One such story goes of Swedish payments giant Klarna that recently announced that they were moving beyond its online services into physical stores, which it will accomplish by partnering up with mobile point of sale (MPOS) and e-commerce company Sitoo.

We are approaching a near future where the value chain for payments as we know it will be forever altered and new constellations will surface. More specifically, we expect to see more payment providers partnering up with POS companies to add value to their services and to diversify their position. There’s also a strong possibility that we’re likely to see some of the more aggressive payment providers outright acquiring POS-companies to accelerate growth and control a larger chunk of the value chain.

Royal Bank Of Canada Sold A Lot More LendingClub Corporation Common (LC) Stock, (Fidaily), Rated: A

Royal Bank Of Canada says it sold 35,334 shares last quarter decreasing its holdings in LendingClub Corporation Common by 99.5%. Its investment stood at $1,000 a decrease of 99.7% as of the end of the quarter.

 

Australia

The average RateSetter business loan, (Finder), Rated: AAA

United Kingdom

If Funding Knight went bust how safe is peer-to-peer lending?, (The Telegraph), Rated: AAA

A peer-to-peer website has been rescued after falling into administration, offering a lifeline to 900 savers who faced being unable to get their cash back.

Funding Knight was promising investors returns of up to 12pc for lending cash to small businesses.

Many feared that they would lose their money when the company ran out of cash and went into administration last month.

However, last week  the firm was rescued by GLI Finance, an investment firm, which said savers cash was safe and could be withdrawn at anytime. GLI has also invested a further £1m in the business.

Despite Funding Knight savers being assured that their cash is safe by the new owners, the incident has raised concerns over the safety of peer-to-peer lending.

Any funds they lend through a peer-to- peer website are not covered by the government-backed Financial Services Compensation Scheme (FSCS), which protects bank savers up to £75,000.

A spokesman for the Peer-to-Peer Association, a trade body of which Funding Knight is not a member, said:

He said: “We have been consistent in calling for, and embracing, regulation of the sector and requires robust adherence to its published operating principles, including the publication of platform loan books in full and clear information on all fees and charges to investors and borrowers.”

“Peer-to-peer lending offers overall a lower risk profile than some other forms of investment with less volatility, but it is not entirely without risk.

“Within the peer-to-peer lending sector, there are a number of different asset classes each with their own risk-return profile.”

 

 

European Union

Why Funding SMEs Within The EU Capital Markets Union Action Plan Is Challenging, (Seeking Alpha), Rated: A

European banks are caught in a conundrum because they still have to clear up their bad loan portfolios, which their US counterparts have largely dealt with. This situation, together with stricter capital requirements, and a challenging policy environment with low or negative interest rates, has led to a double whammy affecting both banks and SMEs. Additionally, credit information is still very fragmented in the EU, as shown by our CFA Institute member survey on the Capital Markets Union from May 2015.

Author:

George Popescu

July 6th 2016, Daily News Digest

July 6th 2016, Daily News Digest

News Comments We believe that today we finally fixed the hyperlinks for the pictures in the analysis and events section of the daily newsletter. We apologize it took us so long to fix them. We also believe the hyperlinks to the articles in the “News Summar” section of the newsletter are also working. We have […]

July 6th 2016, Daily News Digest

News Comments

  • We believe that today we finally fixed the hyperlinks for the pictures in the analysis and events section of the daily newsletter. We apologize it took us so long to fix them.
  • We also believe the hyperlinks to the articles in the “News Summar” section of the newsletter are also working. We have tested on all our devices, OSs and email clients we own but our tests are still limited. We would like to kindly ask our readers to report if you have any particular problems reading Lending Times in your favorite environment and we will continue improving in all ways possible. 

United States

  • Debt-to-EBITDA multiples for private equity deals with U.S. targets in 2016 has hit a whopping 6.8x. Are US companies over-leveraged ?
  • After testing the waters with Lendio,(as seen in our article here), AmEx is jumping both feet in with the poorly named “Working Capital Terms” venture. Why not name it AmEx Small Business Loans? In all cases, the SME lending space is heating up with a gorilla-size new entrant.
  • As our readers build origination platforms or lend on p2p platforms, perhaps a scenario they are not setup to handle yet is how to face low-probability-events. Such an example is “what happens in case of death of a lender”. An article surveying a few answers from different platforms.
  • Avant, while downsizing, does offer a buyout to all employees. Readers may want to understand this offer through the example of Zenefit’s down round at $2bil valuation and implications for Zenefits employees.
  • Blackmoon, helping balance sheet lenders to sell whole loans, is entering the US market with a New York office. Our previous article on the company can be found here.

United Kingdom

  • UK Banks expected to lend £150bn , freed by Bank of England’s capital buffer rules relaxation. Since 2008 we have seen that making cheap capital available to banks has not correlated with higher bank loan origination volumes. Is, this time, different ?
  • Interesting discussion of different choices fund managers can make in the search for yield and the advantages of p2p fund’s yields.

Hong Kong

  • LendIt rebrands  “largest conference series dedicated to connecting the global fintech community” from ” largest online lending conference”.

France

  • A great survey of the French p2p market with company names and differences (“prets participatifs” in French).

China

  • Cai Jincong, the founder of Zhejiang Yinfang Investment, was sentenced to life behind bars for running a fake peer-to-peer lending scheme that conned over 88 million yuan (about 13 million U.S. dollars) from 1,200 investors.

 

United States

Pitchbook reports that debt-to-EBITDA multiples for private equity deals with U.S. targets in 2016 has hit a whopping 6.8x, (Term Sheet), Rated: AAA

S&P LDC reports a global average of 5.36x for Q1 2016,  although the figure did top 6x in the third quarters of both 2015 and 2014. Moreover, S&P LDC data shows that large-market deals typically have higher leverage ratios than do mid-market deals, with the Q1 16 large-market figure hitting 5.6x (and, remember, that’s a mean, not a median).

It has been more than three years since the Federal Reserve and FDIC issued leveraged loan guidance to banks, suggesting that any debt-to-EBITDA ratios in excess of 6x (for most industries) is too high. Or, put another way, both lenders and private equity firms are regularly ignoring the Fed’s guidance — and appear to be easily getting away with it (likely because no individual deal is likely to present a systemic risk, and loan syndication makes the “baskets” more like a sieve).

AmEx Challenges Square, On Deck With Online Loan Marketplace, (Bloomberg), Rated: AAA

AmEx’s venture, Working Capital Terms, will approve loans in minutes for existing small-business cardholders, who can use the money to pay vendors. Debts may range from $1,000 to $750,000 with fees of 0.5 percent for a 30-day loan to 1.5 percent for a 90-day loan. AmEx will deposit funds directly into vendors’ accounts in as soon as two days.

AmEx has been looking for new streams of revenue to rejuvenate earnings after deciding last year to part ways with its biggest co-brand partner, Costco Wholesale Corp. In addition to its new in-house loan product, the card issuer offers longer-term small-business loans — ranging from $35,000 to $2 million — through its partnership with Lendio, another online marketplace.

“AmEx can do this because they have good credit knowledge,” said Karen Mills, former head of the Small Business Administration, who’s now a paid adviser for Working Capital Terms. “This will challenge the online competitors, whether or not they respond.” Amex declined to disclose their target for Working Capital Terms’ loan volume.

Working Capital Terms represents “a new type of product for American Express that could eliminate the need for the very expensive, unsustainable products from Square and other online lenders,” said Gil Luria, an analyst at Wedbush Securities Inc.

AmEx isn’t the only big lender pushing into the fray. Wells Fargo & Co., the third-biggest U.S. bank by assets, said in May it was starting a program to offer small businesses online loans in as soon as one day. Larger rival JPMorgan Chase & Co. is collaboratingwith On Deck to speed up the process of providing loans to some of the bank’s 4 million small-business customers.

AmEx shares fell 2.7 percent to $59.08 at 2:46 p.m. in New York. On Deck tumbled 6.9 percent to $4.89, while Square declined 3.6 percent to $8.94. Representatives from On Deck and Square declined to comment.

In the Case of Death, (p2p-banking.com), Rated: AAA

‘What happens when I die’ is a concern occasionaly voiced by investors. Investments in p2p lending will be inherited like any other assets.

Luke O’Mahoney of Ratesetter explained: ‘If an investor dies, we work with the next of kin to establish how they would like the account to be dealt with. Generally they would either use our Sellout function (effectively liquidating their investment) or they would allow the account to run down over time – of course we assist the next of kin or executor with this process’.

Only Assetz Capital mentioned that they have a process to do regular checks on dormant accounts that are in funds to ensure that lenders are aware of those funds.

Personally I wonder, if it would be good practise for marketplaces to contact those investors that have not logged in for a very long period (2 years?) and ask them to update/verifying their data. Failure to do so could then trigger a letter with the same request via postal mail.

Sign of the Times: Avant Offers Buyouts to All Employees, (Crowdfund Insider), Rated: A

Avant, an online lender, has offered the option for buyouts to all 760 of the company’s employees. It was not clear how many Avant employees would accept the offer. The news is a painful reminder that online lending is still struggling to regain its footing following indications of a slowing economy and the unexpected departure of former Lending Club CEO Renaud Laplanche – a now tarnished industry icon.

Russian Lending Marketplace Expands to U.S. in Search of Growth, ( Bloomberg), Rated: A

Blackmoon, a Russian financial technology startup that screens and prices loans issued by others to sell on to investors in a marketplace, is opening a U.S. office to expand in the world’s biggest market for non-bank lending.

Blackmoon is partly counting on an expansion into the U.S. from its new New York base to reach a goal of $1 billion in cumulative loans by the end of next year.

To achieve that, the company will target all kinds of unsecured credit in the largest market for alternative lending: consumer, small-business, student and car loans. Blackmoon currently works with several dozen European online lenders, from Finland to the Czech Republic.

Blackmoon functions as an intermediary between institutional debt investors and lenders — both alternative providers and traditional banks — allowing them to scale their business without additional leverage, while mitigating the risks of default.

Moscow-based Target Asset Management agreed in February to form a $100 millionfund to invest in Blackmoon’s loans.

 

United Kingdom

Carney frees up £150bn in bank lending, (Alt Fi News), Rated: AAA

Mark Carney, Governor of the Bank of England, yesterday took steps to reduce capital buffers for UK banks. The Financial Policy Committee (FPC) has reduced the UK countercyclical buffer rate from 0.5% of the banks’ UK exposures to 0%, with immediate effect. The FPC began to supplement regulatory capital buffers with the UK countercyclical buffer in March of this year, and had intended to increase the buffer to 1% in due course. But now the countercyclical buffer is expected to remain at 0% until at least June 2017.

This reduction is expected to free up £5.7bn in bank lending. The banking sector, in aggregate, targets a leverage ratio of 4%. This means that the £5.7bn in spare capital will allow the banks up to an extra £150bn in lending to UK households and businesses.

While the FPC’s actions would appear to be good news for UK borrowers, they may well herald a more competitive stretch for alternative lending platforms.

Peer-to-peer investing website holding cash of 900 savers goes bust, (This is Money), Rated: A

Comment: this is old news, but a good reminder for people who did not read last week’s Lending Times.

Savers were lured into Funding Knight with promises of returns of up to 8 per cent for lending their cash to small businesses. Last week, the peer-to-peer firm was rescued by investment firm GLI Finance, whose bosses said customers’ money was safe and that they could withdraw it whenever they liked.

Will Neil Woodford’s new higher income fund hold P2P to boost its dividends?, (Alt Fi News), Rated: A

Star fund-manager Neil Woodford is mulling the launch of a new equity income fund that will aim to deliver a higher yield than is currently offered by his hugely popular £8.6bn CF Woodford Equity Income fund.  A 4.5 per cent target yield has been widely reported. Higher yielding equity income portfolios offering an ‘enhanced income’ mostly use call options alongside normal income stocks to boost income pay-outs.

Woodford is bullish on P2P/marketplace lending and has invested in the two specialist investment trusts P2P Global Investments and VPC Speciality Lending – which offer attractive yields of 6 per cent and over for his income fund. He also owns an unquoted positon in P2P platform RateSetter.

The manager currently has 0.96 per cent of his fund’s assets in the P2P Global Investments trust and 0.64 per cent in VPC Speciality Lending trust. These are, respectively, his 28th and 39th largest holdings.  In total he has 109 holdings.

His existing fund is currently hitting a yield of 3.7 per cent. P2P GI and VPC Speciality Lending’s yields are currently a whopping 7.4 per cent and 9.7 per cent, respectively. However, that is partly a function of thier near 20 per cent discounts at present.

LendInvest boosts tech offering with VP of Engineering, (Financial Reporter), Rated: A

Comment: I find surprising that a company of the size and volume of Lend Invest did not, apparently, have a person in charge of technology, until now.

LendInvest has recruited its first VP of Engineering as it continues to drive its technology strategy.

Mike Nuttall joins LendInvest with over 15 years’ senior management experience and has led technology development for companies in sectors such as e-commerce, payments and gaming.

At LendInvest, Mike will be responsible for managing the direction, goals and efficiency of the technology team which now represents over 40% of LendInvest’s workforce.

Free tool launched to help low-carbon businesses source funding, (Startups), Rated: B

Business in the low-carbon, clean technology (cleantech), and sustainability sectors looking for finance can take advantage of a new digital tool launched this week.

Created by Shell Springboard, the Access to Finance Navigator is an interactive database where eco-friendly entrepreneurs can search for funding opportunities and filter funding sources by their location, stage of development, financial requirements, and the user’s business sector.

So far, the database features 84 low-carbon funding sources – said to represent a total value of £157m – from government organisations, angel investors and syndicates, crowdfunding platforms and venture capital (VC) funds.

Sources listed include Funding Circle (crowdfunding), Advantage Business Circle (angel), EcoMachines Ventures (VC), Horizon 2020 (government grants), and funding competitions ran by Innovate UK.

 

Hong Kong

LendIt and AMTD Group Co-Host the First Global Fintech Investment Summit in Hong Kong, (Press Release), Rated: B

AMTD Group Company Limited (“AMTD Group”, “the Group”) is a non-bank financial services group based in Hong Kong offering a wide spectrum of capital markets, asset management, insurance brokerage and risk management solutions to clients across Asia.

LendIt is the largest conference series dedicated to connecting the global fintech community.

LendIt China and AMTD Group will co-host the first Global Fintech Investment Summit in Hong Kong (“Global Fintech HK Summit” or the “summit”) on July 13.

More than 80 leading Asian investors and over 35 international fintech companies are expected to attend the ground-breaking summit.

 

France

The Vibrant Marketplace Lending Industry in France, (Lend Academy), Rated: AAA

The French marketplace lending industry is still in its infancy. Due to a very strict regulatory structure there is only one online consumer lender operating in France, Younited Credit (formerly Pret d’Union) and small business lending platforms have only begun operating in the last 18 months. In late 2014 the French government made it legal to make loans to small businesses without a banking license. This has led to a large number of new platforms, they say the count is around 50, to launch since then.

The French government is also actively involved in the industry through an entity called BPI – setup with similar goals to the British Business Bank. It wants to stimulate lending to small businesses. BPI will take small equity positions in fintech companies, it will invest on platforms and it will make interest free loans to qualifying companies.

Younited is still relatively small compared to the US or UK platforms – they are currently issuing around €17 million in new loans every month in France. With 130 employees they are easily the largest platform in France and one of the largest in Continental Europe.

Earlier this year Younited opened an office in Rome in their first international expansion. One of the great benefits of being part of the European Union is that they can “passport” their banking license to other countries which is what they have done in Italy.

Younited is focused on prime borrowers in both France and Italy offering competitive interest rates to banks. They offer four funds for investors with historical returns ranging from 2.2% for their lowest risk borrowers up to 5.1% for the highest risk fund.

The first online small business lender to launch in France was Unilend – they issued their first loan in November of 2013 a full year before the regulation changed to allow small business lending. The reason is that their loans are setup differently – as a direct contract between the borrower and the investors. They are actually an IOU instead of an actual loan.

Unilend has issued €20 million in loans to date and are currently issuing around €1 million a month. Loan terms range from 3 months to 60 months with interest rates of 4% to 10%. They run a Dutch auction, which allows investors to bid down the rates to a minimum set by Unilend. They have a large investor base of over 10,000 active investors with an average return of 5.25%. They average 700 investors per loan.

BPI has invested in Unilend as an equity holder – they do not own loans. Like every small business platform we met with the loans issued by Unilend are unsecured with no personal guarantees in place. The average loan size is €75,000 with the typical small business doing revenue below €2 million.

One of the curious things about France is that many of these loans are done in partnerships with banks. The small business might be seeking €500,000 in funding but the bank will only issue €400,000. So, they will seek the other €100,000 from a platform like Unilend.

Lendix is a relatively new small business platform, having issued their first loan in April 2015 but they are already one of the leading platforms in France. They currently originate €4 million a month, making them the largest small business lender.

The co-founders of Lendix have all invested their own personal money in the fund which has grown to €29 million in size and is currently yielding 6.5%. They are about to launch a second fund which will be in the €50-70 million range.

As for the loans the average size is €200,000 with a maximum amount of €2 million. The loan terms range from 18 months to 5 years although they have just added short term loan options down to 3 months. They currently have zero defaults although there was one case of fraud where they were able to get the money back.

Finexkap has taken a completely different approach to financing French small businesses. They are providing working capital via receivables financing. But the regulators do not allow invoice financing outside of banks unless it is done in a securitization.

They did €15 million in originations in 2015 and are on track to do €100 million in 2016. Because this is invoice finance the loans are very short in duration. So, even though they have only been issuing loans for a couple of years they have already had 9 turns of their loan book. Of the more than 5,000 transactions they have done they have only had losses on one transaction. So they are developing a solid track record.

The company with the most memorable domain name is Credit.fr. They are part of the new breed of platforms focused on small business loans. They are growing fast and have just crossed €1 million in loans per month issued.

They are open to individual and institutional investors and they have 5,000 registered investors on their platform today. Like Lendix they are also creating a debt fund that they expect to launch in September and that should help them reach scale much faster. The target return for this fund will be around 5% after fees.

Credit.fr has a solid borrower funnel with leads coming from digital, partnerships with companies like Younited and others and also business brokers. The average loan size is €60,000. They feel that their competitive advantage is their risk management where they have an experienced team in place.

Lendopolis is one of the more unique platforms in France. It is actually part of theKissKissBankBank (yes, that is the official name) group of companies that consists of three divisions:

  1. KissKissBankBank – a donation-based crowdfunding site created in a similar vein to Kickstarter focused on primarily cultural and artistic projects. They have financed 15,000 projects since being founded in 2009.
  2. Hellomerci.com – based on the Kiva model of microfinance. These are small loans (less than €10,000) at 0% interest rates loaned out to very small companies.
  3. Lendopolis – launched in 2014 as a more typical p2p small business lender. They have loaned €7 million over 100 loans in their first 18 months.

Like many platforms here Lendosphere also launched soon after the regulations came into effect in late 2014. They are the first platform to be 100% focused on sustainable development projects.

To date they have loaned €6.7 million across 33 projects – either wind turbines or solar panels. The loans are typically 2-5 years at interest rates of 4-8%. They have 3,500 registered investors funding these projects. While it is still a young loan book Lendosphere has had zero defaults and delinquencies.

Most platforms are focused on small business where there has been a lot of entrepreneurial activity in the last 18 months. The French government recognizes that small businesses need more choices when it comes to access to capital so they have helped to create a regulatory environment that enables new approaches to this challenge.

 

China

Lending scheme fraudster jailed for life, (CRI English), Rated: A

A court in east China’s Zhejiang Province has sentenced a man to life behind bars for running a fake peer-to-peer lending scheme that conned over 88 million yuan (about 13 million U.S. dollars) from 1,200 investors.

Cai Jincong illegally raised more than 200 million yuan through Zhejiang Yinfang Investment and Management Co., where Cai fabricated investment products promising over 20 percent in annualized returns, the court said on Tuesday.

Cai, who was under a lot of debt, founded the P2P lending platform in October 2013. It offered returns on investment of up to 50 percent.

The funds were used to service Cai’s own debt and fund the operation of the P2P platform. Cai turned himself to police on January 20, 2015.

Author:

George Popescu