- Main News: RateSetter’s results and their change in business model by amortizing origination fee over the duration of the loan; Prosper’s Monthly Report ; Eisman’s claim online lenders are clueless.
- Main Analysis: Prosper’s Monthly Report analysis; RateSetter’s balance sheet actions.
- Main though generating pieces : Use of blockchain in lending.
- Eisman, famous from the movie The Big Short, claims online lending is clueless. Marketplace Lending Association says online lending has a long track record and is staffed with hires from all over Wall Street. I believe the only way to find out is to look at the financial results of the companies and to see how they change in the next recession.
- Prosper continues to publish their monthly reports which are fantastic. Great data , great transparency, and probably the best possible marketing they could do for lending capital. Weighted Average returns across their entire book estimated at 7.19% .
- An analysis of the Prosper Monthly Report: highest returns since 2013. 2015 delinquency rates remain elevated vs 2013 and 2014 but 2016 looks much better. Average loan size is $13,541 and the average rate is 14.79%. People who speak about the industry should know these numbers by heart.
- OnDeck receives a nice accolade from TopConsumerReviews.com : 5-start rating.
- RateSetter published 2015-2016 financial results. FT focuses on the fact that while claiming they do not take any balance sheet risk they did take £2m in loans on the balance sheet. And the company continues to confirm they do not take balance sheet risk while they are doing it. I think they need to work a little better on the communications front.
- And the actual RateSetter numbers : revenue up 46% at £18.5. ( I am often shocked by the tiny size of the absolute numbers in the UK, I am used to US companies). 70% growth in loans under management. Active investors grew by 66%
- And even more analysis on RateSetter: RateSetter, for those who are not aware , has been profitable in 2013-2015. What changed recently ? Their interest has been aligned with the investor’s interest by charging the origination fee over the duration of the loan instead of all upfront. This change was apparently mandated by City of London investors Woodford Investment Management and Artemis. Also to be noted: “Bad debt rates have risen since RateSetter first opened its doors in 2011” . This has led to numerous articles on their reserves fund and ensuing adjustments.
- FundingCircle has a new channel partnership : ActionCOACH.
- Kameo, a new small company with some traction is trying to accelerate. P2B crowdlending model focused on construction companies.
- Capital Springboard recommends focusing on South East Asia’s P2P lending market and more precisely SME lending in Singapore.
- Othera, a new startup coming out of an incubator, is trying to use blockchain in lending. I am curious to find out more and understand the details.
- News Comments
- United States
- Eisman Assails ‘Clueless’ Silicon Valley Over Online Lending, (Bloomberg), Rated: AAA
- Prosper monthly report, (Prosper), Rated: AAA
- Prosper: Loan Portfolio on Track for Highest Returns Since 2013, (Crowdfund Insider), Rated: AAA
- Business Loan Provider Earns Highest 5-Star Rating from TopConsumerReviews.com, (Press Release Rocket), Rated: A
- United Kingdom
- P2P lending rediscovers balance sheet magic, (FT Alphaville), Rated: AAA
- Revenue Up 46% at RateSetter. Pre-Tax Loss Stands at £4.9 Million, (Crowdfund Insider), Rated: AAA
- Marketplace lender RateSetter ‘deliberately’ made a loss despite boosting revenues to £18.5 million, (Business Insider), Rated: AAA
- Funding Circle partners with ActionCOACH, the World’s #1 Business Coaching firm, (Funding Circle), Rated: A
- Crowdlending startup Kameo backed by Norwegian bankers, (Swedish Startup Space), Rated: A
- 2017 opportunities in alternative lending in Asia, (Fintech Innovation), Rated: A
- Sydney Fintech startup, Othera, is one of few Australian startups doing more than just talking about Ethereum blockchain, (PR Wire), Rated: A
Eisman Assails ‘Clueless’ Silicon Valley Over Online Lending, (Bloomberg), Rated: AAA
While the loans these companies make are small on average and don’t portend to be the next “Big Short” — the title of the book and film that detailed Eisman’s bet against the debt central to the 2008 financial crisis — there is reason for investors to be cautious, he said.
The central problem is that these lending startups, their founders and backers in particular, don’t have a lot of experience making loans to consumers, and some of them approach loan-making as they would retail sales, Eisman said in opening remarks at a conference of investment bankers and investors in Miami Beach, Florida, on Sunday.
“When you go to Amazon and buy a book, you buy it and the transaction is over,” he said. “But when you take out a loan, that is just the beginning of the transaction — it’s like a relationship.”
The remarks were given inside a large conference hall of the beachfront Fontainebleau Hotel, where several thousand Wall Street securitization professionals are convening this week for their 22nd annual ABS East Conference. It’s the same gathering where, in one scene of the film “The Big Short,” the character based on Eisman bursts into outrage at a mortgage executive giving a talk.
“We have seen loans underperform from their expected loss estimate at the time of underwriting,” Stephanie Yeh, a director at Credit Suisse Group AG, said on a Monday morning panel discussion. “There still isn’t a lot of data.”
“Traditional Wall Street occasionally forgets that online lending has a long track record and that these platforms have been built by people with deep financial markets experience,” Nat Hoopes, executive director of the Marketplace Lending Association, a trade group, wrote in an e-mail. “Borrowers and investors are turning to these online products because they are delivering enormous value compared to the traditional alternatives.”
This month, a top U.S. banking regulator, Thomas Curry, warned the startup lenders about the potential for unintended biases in their underwriting that could lead to violations of federal law. Bond graders have also noted that these startups have varying degrees of underwriting sophistication and that regulatory and legal risks abound.
Prosper monthly report, (Prosper), Rated: AAA
Prosper: Loan Portfolio on Track for Highest Returns Since 2013, (Crowdfund Insider), Rated: AAA
Prosper states that the 2016 portfolio is on track to have the highest estimated return since 2013. This is alongside the highest average FICO to date. Estimated returns on August 2016 production continues to be just over 7% on average.
Although delinquency rates for 2015 loans remain elevated in comparison to 2013 and 2014 vintages, Prosper is of the opinion that internal adjustments will “positively impact delinquency in the new 2016 vintages.”
Monthly loan averages stood at $13,541 per borrower with the weighted average borrower rate at 14.79%. Weighted average estimated return adjusted for expected losses came in at 7.19%.
Business Loan Provider Earns Highest 5-Star Rating from TopConsumerReviews.com, (Press Release Rocket), Rated: A
TopConsumerReviews.com recently awarded its best-in-class 5 star rating to OnDeck
Small business ownership is on the rise. For some, the desire to own a business is fueled by numerous success stories of entrepreneurs and inventors, while others are looking for opportunities beyond their traditional 9-to-5 workplace.
P2P lending rediscovers balance sheet magic, (FT Alphaville), Rated: AAA
One of the key features of peer-to-peer (P2P) lending is an absence of centralised balance sheet risk. In the traditional, boring model of banking, a bank holds deposits and loans on its balance sheet and earns a spread by paying depositors less than it charges borrowers.
That was the dream, this is the reality:
That snippet is from the latest annual accounts of Ratesetter, one of the UK’s top three “peer-to-peer” lenders, and shows the startup taking £2m of risk on to its own balance sheet in order to fund a borrower in “financial difficulty”.
In the broader world of business, £2m is not a huge sum of money. But this particular sum of money is important for one specific and one general reason.
First, it’s a meaningful amount of cash for Ratesetter and, according to a spokesperson, it’s the first time it’s done something like this. At the end of March this year, the accounts say, the lender had £15.4m of funds available, meaning the £2m working capital commitment accounts for about 13 per cent of its cash.
Second, it’s yet another sign that P2P lenders will take on balance sheet risk if it suits them.
On a smaller scale, another UK P2P lender, Funding Circle, also takes some balance sheet risk when writing property loans. Borrowers in that market can’t wait around to see if their request for money will be fulfilled by individual lenders on the platform, so the platform itself underwrites the loan.
But just as Laplanche had insisted “we don’t take credit risk”, so too Ratesetter’s chief executive Rhydian Lewis has argued publicly against the need for P2P lenders (more accurately called ‘online lenders’) to use their balance sheets.
A spokesperson for Ratesetter said Lewis’ thinking had not changed on the matter and that the money it lent in this situation was “an exceptional case”, which wouldn’t be repeated.
Revenue Up 46% at RateSetter. Pre-Tax Loss Stands at £4.9 Million, (Crowdfund Insider), Rated: AAA
RateSetter has released its accounts for 2015 – 2016.
According to their financial results, top line revenue increased 46% to £18.5 million from £12.6 million versus prior period. The increase in revenue was paired with a pre-tax loss of £4.9 million compared to a pre-tax profit of £476,000 for the year prior.
RateSetter explained that results were driven by an accounting decision to charge fees over the lifetime of the loans instead of charging upfront.
RateSetter stated that if fees had been charged upfront the peer to peer lender would have recorded a pre-tax profit.
Having turned a small profit in 2013-14 and 2014-15, proving our model, we’ve deliberately planned and delivered an increased level of investment into our business.
RateSetter shared additional information regarding their operations including;
- Major investment in financial year 2015-16; will continue in 2016-17.
- Loans under management increased by 70%, from £341 million on 31 March 2015, to £581 million a year later.
- The number of active investors grew from 18,608 to 31,036 over the same period.
- Today these figures stand at £640 million and 36,310 respectively – with a 70% increase in new active investors in the period since the EU referendum compared to the same three months last year.
Marketplace lender RateSetter ‘deliberately’ made a loss despite boosting revenues to £18.5 million, (Business Insider), Rated: AAA
63% of all RateSetter loans now have the platform’s fee repaid as part of the monthly borrower repayments, a spokesperson confirmed over email, compared to almost none three years ago.
The company says in an emailed statement that the change was encouraged by City of London investors Woodford Investment Management and Artemis, which took part in a £20 million funding round for the platform last year.
“The switch from up front to recurring fees was not a decision we took lightly. However, it greatly enhances the sustainability of our business — we strongly feel that it will prove to be a very positive development and anticipate that others in our industry will follow our lead.”
Bad debt rates have risen since RateSetter first opened its doors in 2011 but the company says the change to the fee model should stop this trend as it “aligns RateSetter’s interests with those of its investors as it provides a financial incentive to only approve loans which perform.”
RateSetter says it currently has £640 million of loans under management and 36,310 investors on its platform.
Funding Circle partners with ActionCOACH, the World’s #1 Business Coaching firm, (Funding Circle), Rated: A
ounded in 1997, ActionCOACH advise thousands of small businesses every week, on how to get more time to finding the best employees, and more money on their bottom-line.
Crowdlending startup Kameo backed by Norwegian bankers, (Swedish Startup Space), Rated: A
Kameo is one of a number of Swedish startups in the crowdfunding business. The company has chosen a slightly different direction than Swedish peers Fundedbyme and Pepins.
Kameo is a platform where individuals partner to finance loans to specific companies, also known as crowdlending.
Harung says they are primarily focused on small construction companies that use Kameo to supplement bank loans for building projects
“Initially, we wanted to use a Saas-platform, but the one we chose wasn’t approved by the Danish FSA. So, we chose to develop our own.” said Mr. Harung.
Mr. Harung had Avanza Bank financier Bjørn Braaten onboard from the start. With nearly 40 percent of the share, Mr. Braaten is currently the largest shareholder in Kameo. The company also counts Svein S. Jacobsen as chairman, who has also served on the board of Nordea Bank.
The service has already been live in Sweden for a while, but now it’s time to bang the drum and start promoting the site.
Mr. Heldaldeclined to comment on exactly how much he has invested himself, but he says it is “in the region of a few million SEK.”
2017 opportunities in alternative lending in Asia, (Fintech Innovation), Rated: A
According to Roger Crook, CEO of Fintech startup Capital Springboard, the P2P market in Southeast Asia remains relatively more young compared to the US and Europe, albeit the industry is witnessing the same experience curve (uptake).
He estimates the overall bank lending in Singapore at S$350 billion a year with SMEs accounting for S$80 billion of the figure. “And if you look at P2P today, it’s probably around S$150 million market total. So, the penetration is very low. The local banks provide about 60% of loans to SMEs while foreign banks take up the rest,” estimated Crook.
Crook observed that the average Singaporean SME is under three years of age, with revenues of less than S$30 million. And with the Monetary Authority of Singapore defining SMEs as businesses with revenues of up to S$100 million, this puts a lot of smaller SMEs out of reach of bank loans.
Sydney Fintech startup, Othera, is one of few Australian startups doing more than just talking about Ethereum blockchain, (PR Wire), Rated: A
Othera, a Sydney startup based in the BlueChilli tech incubator, provides credit analytics and investment solutions to loan originators, institutional and private investors, and small businesses.
Having launched their proprietary credit decisioning software to the market earlier this year, they have followed up with the delivery of an innovative two-part blockchain solution that will redefine how the global financial systems manage and trade debt and other asset back securities- and retail investors can get in on the action too.
Othera currently has two prototypes in testing phase, the Othera Blockchain Lending Platform and the Digital Asset Trading Exchange (both worldwide patent pending). They are linked platforms and when used together, they enable loan originators and investors the ability to directly connect and transact debt or asset backed securities with more investment transparency, lower risk and for known fixed returns. This is a radical investment proposition for an industry that has not seen this been done before.