Friday May 25 2018, Daily News Digest

The likelihood that business would choose fintech over banks

News Comments Today’s main news: Prosper qualifies borrowers up to $40K. GreenSky completes largest fintech IPO of the year. RateSetter hits $2.5B in lending. Lebashe increases RainFin stakes to 75%. Today’s main analysis: Peter Renton’s quarterly MPL results. Today’s thought-provoking articles: Alternative loan customers may perform well on traditional credit products. Banks, credit unions, and alternative lenders. How Ashton Kutcher […]

The likelihood that business would choose fintech over banks

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United States

United Kingdom

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News Summary

United States

Prosper Introduces Loans Up To $ 40,000 For Borrowers (Prosper Blog) Rated: AAA

Today we’re pleased to announce that Prosper now offers qualified borrowers access to loans up to $40,000.

GreenSky Completes Largest Fintech IPO of the Year (Lend Academy) Rated: AAA

There is a lot that sets GreenSky apart from many of the fintech companies that exist today. The biggest differentiator is that the company is profitable and runs a high margin business. In fact, the company has been profitable for the last five years. They reported $139 million in net income on revenues of $326 million last year. They also have a highly differentiated, boots on the ground model to originating loans, empowering contractors to offer financing to homeowners at the point of sale. They also partner with other types of merchants to offer financing. GreenSky only holds a small portion of loans on their own balance sheet with most loans being funded through around 15 bank partners.

Segment of Population Using Alternative Loans May Perform Well on Traditional Credit Products (Globe Newswire) Rated: AAA

Two-thirds of consumers active in the alternative loan market fall in the subprime risk category, the riskiest of all credit tiers. Yet, a new TransUnion (NYSE:TRUstudy found that many of these consumers perform well when opening traditional credit products such as credit cards, auto and personal loans.

TransUnion studied over five million consumers who originated a traditional credit product between Q2 2015 and Q1 2016 and measured their performance 12 months after originating the loan. Of the over five million consumers, approximately 450,000 (or 8%) were present in TransUnion’s alternative lending database. TransUnion then compared the performance of the alternative loan population to those consumers who were not seeking or did not possess an alternative loan product.

The study corroborated that many alternative loan borrowers do present greater risks on traditional loans. However, there is a material subset of this population that would present reasonable risks on an auto loan or credit card, among other traditional products.

For instance, in the near prime risk tier (consumers with a VantageScore 3.0 credit score of 601-660):

  • Approximately 14% of those borrowers who possessed only one short-term loan went 90 or more days past due on a traditional account 12 months later.
  • The delinquency level declined to less than 12% when a consumer possessed two alternative loans.
  • The delinquency figure dropped even further to around 9% when a consumer had eight or more alternative loans over the course of seven years.

Near Prime Consumers with Strong Alternative Loan Payment History Perform Better on Traditional Loans

Number of
Satisfactory
Alternative
Loan
Accounts
0 1 2 3-4 5-6 7-8 9-10 11+
Ever 90+
Days Past
Due in 12
Months on
Traditional
Loans
18 % 11 % 11 % 11 % 10 % 9 % 8 % 8 %

Comparing Origination Activity of Alternative Loan Borrowers to the Rest of the Population

Approximately 26% of alternative loan borrowers who originated a traditional loan product in the study opened an auto loan and 50% took out either a personal loan or auto loan. This latter statistic compares favorably to the 37% origination rate for the rest of the population in the study.

From a supply perspective, traditional finance companies are providing by far the most loans to alternative lending consumers, with a market share of 59%. However, credit unions (9%) and FinTechs (3%) supply about 12% of such loans to this credit population.

Five Banks and Credit Unions Rocking The Small Business Market (The Financial Brand) Rated: AAA

FIS found that more than one-quarter (27%) of small businesses in the U.S. are using alternative lenders like these. Among Millennial business owners, that percentage is double (48%). And yet only 7% say they are using these platforms for lower interest rates; in most cases, banks and credit unions offer better rates. FIS also found that small businesses have been turning to non-bank financial apps to make B2B payments.

In research conducted by ath Power Consulting, two-thirds of small business owners said they would consider switching to a competing banking provider if it offered products and services to help them better manage and grow their business, and over half (54%) would consider switching to a non-bank alternative for the same reasons.

Source: The Financial Times

Digital Federal Credit Union and offers a service to small businesses to raise capital and give its members an opportunity to invest in community business. The credit union has partnered with GrowthFountain, a funding portal of crowdfunding solutions. Tennessee Valley Federal Credit Union has also done the same thing.

San Francisco startup Seed is a free mobile-only banking service for small businesses, who can get a checking account and a debit card through Seed’s partnership with The Bancorp and have access to bill payment, mobile check deposit and ACH and wire transfers. Seed is sort of like Mint and QuickBooks except that Seed directly partners with a FDIC-insured bank (like how Simple started out). There’s not a physical checkbook in sight.

My Quarterly Marketplace Lending Results – Q1 2018 (Lend Academy) Rated: AAA

My preliminary return of 4.70% is close to where it was last quarter but still down. I don’t expect my final Lend Academy P2P Fund return to increase this number so I am still stuck in the downward trend of returns.

My six original accounts at Lending Club and Prosper have all been open for at least six years so they are very mature accounts that have experienced several turns of capital as I have kept reinvesting over the years. The returns for the past year are still bad at 2.34% as I continue to pay for poor underwriting performance in 2015 and 2016 at both companies. When you see today that you can get 3% on a 10-year Treasury Note a sub 3% return is just not acceptable for an unsecured consumer loan.

Source: Lend Academy

SoFi finds new downtown San Francisco office a talent magnet as it expands services (San Francisco Business Times) Rated: A

San Francisco-based SoFi said a downtown San Francisco office it picked up this year through an acquisition is paying an unexpected dividend: greater interest from engineers that the fintech wants to hire.

SoFi has 44 engineers at the company’s downtown San Francisco office at 222 Sutter St, consisting of almost 15,000 square feet on one floor. Another 40 or so employees float between SoFi’s downtown office and Presidio headquarters.

How [and why] I invest in startups (TechCrunch) Rated: AAA

A lot of venture funds try to optimize for returns. They run complex ratio economic models to determine what their diluted value will be at the end of the life cycle of the optimal and non-optimal case of every given company.

What I look for in founders

I don’t have a magic formula, but there are four important factors that must all check out for me to invest in a founder.

  1. Domain Expertise
  2. Grit
  3. Purpose
  4. Charisma

Amazon’s Finance Ambitions Are Drawing Attention From the Fed (Bloomberg) Rated: A

Fed Vice Chairman Randal Quarles, the U.S.’s most influential banking watchdog, is monitoring the potential for disruption to the industry and has expressed concern about how tech companies could provide financial services outside of regulators’ oversight, according to people who’ve spoken with him privately. Quarles hasn’t yet made any moves to intervene and the Fed’s influence would be limited.
Should the Fed get involved in the debate, it could be welcome news for traditional banks, who view Amazon and other technology companies as potential threats that enjoy fewer regulatory constraints. The companies are increasingly encroaching on lenders’ business, as evidenced by Amazon’s recent interest in offering a product akin to checking accounts.

Autotrader and Kelley Blue Book Team with LendingTree to Empower Shoppers with Auto Lending Options (PR Newswire) Rated: A

Securing vehicle financing in advance can save car buyers both time and money on their car-shopping journey. With this in mind, Autotrader and Kelley Blue Book, both Cox Automotive companies, have teamed with LendingTree. LendingTree’s auto finance marketplace provides each site’s visitors simple and easy online financing that can be used for new and used cars and trucks, anywhere in the United States.

Plenty of payday loan customers have good credit: TransUnion (American Banker) Rated: A

When Liz Pagel and Matt Komos began analyzing a slew of alternative credit data gathered by FactorTrust, an alternative credit bureau TransUnion acquired last year, they sought to understand the behavior of consumers who use payday loans, pawnshop loans, auto title loans, rent-to-own arrangements and “buy here, pay here” credit.

But 12% turned out to be prime and super prime. Only 3% were unscored.

The researchers then looked at what other credit these short-term borrowers have and found 75% have traditional credit, too.

Developers could make bank from Dodd-Frank rollback (The Real Deal) Rated: B

New legislation passed by the House of Representatives would relax restrictions on thousands of smaller lenders, potentially opening up the spigot for developers seeking commercial loans. The bill, which is awaiting President Trump’s signature, would remove provisions of the 2010 Dodd-Frank Act that many community and regional banks had deemed too costly and unfairly burdensome.

14 Chicago tech companies made Inc.’s 2018 Best Workplaces list (Built In Chicago) Rated: B

OppLoans is an online lender that uses a data-driven credit-scoring algorithm to provide loans to consumers who can’t access credit from traditional institutions. OppLoans is one of the fastest-growing tech companies in Chicago and has been named to the Inc. 500 two years in a row.

 

 

Fundbox Named “Best Overall Business Lending Company” In 2018 FinTech Breakthrough Annual Awards Program (PR Newswire) Rated: B

 Today Fundbox,  a leader in credit and payments for small businesses serving other businesses (SMB2B), announced that it has been selected as winner of the “Best Overall Business Lending Company” award by FinTech Breakthrough, an independent organization that recognizes the top companies, technologies and products in the global FinTech market today.

“We are delighted to recognize Fundbox for one of our program’s marquee awards, the Best Overall Business Lending Company award, an uber-competitive award category for our program with many compelling companies nominated,” said James Johnson, Managing Director, FinTech Breakthrough. “Fundbox stood out from the competition with its artificial intelligence-based underwriting platform. By fully automating the underwriting process with a data-driven risk model, Fundbox promises to underwrite faster, more cost-effectively and with greater accuracy than many other lenders – opening up lending possibilities for more customers. Congratulations to the entire Fundbox team for their industry recognition with our 2018 FinTech Breakthrough Award distinction.”

United Kingdom

RateSetter hits £2.5bn of lending (Peer2Peer Finance) Rated: AAA

The peer-to-peer lender, which launched in 2010, said 65,000 people have RateSetter investment accounts, financing more than 460,000 borrowers.

Investors have lent more than £1.55bn to individuals and almost £950m to businesses and have earned an average annual return of 4.4 per cent.

ArchOver launches Innovative Finance ISA to UK investors (Global Banking & Finance) Rated: A

ArchOver, the peer-to-peer (P2P) business lending platform, is helping British investors make the most of their annual tax-free allowance with the launch of its Innovative Finance ISA (IFISA). ArchOver’s IFISA service offers investors premium credit control and security, proven by ArchOver’s no-loss rate. It allows investors to invest directly in successful businesses, earning tax-free interest of up to 10% p.a. – far more than the average return on a cash ISA.

OakNorth: Brexit creates opportunity to reform banking regulation (AltFi News) Rated: A

OakNorth has called on the Treasury to use Brexit as an opportunity for regulatory reform in banking.

Responding to the Treasury Select Committee’s inquiry on SME finance, the bank said that there should be more proportionality between challenger banks and incumbents.

Mayo-based Doherty Menswear successfully raises €45,000 in peer-to-peer loans (Mayo Advertiser) Rated: B

To date, €1,012,000 has been raised through Linked Finance’s online lending platform (www.linkedfinance.com ) to facilitate business growth in Mayo, for 29 businesses.

Two more hires for ThinCats amid company growth (Peer2Peer Finance) Rated: B

PEER-TO-PEER lending platform ThinCats has appointed two new sales and marketing executives, as its hiring spree continues.

The alternative finance specialist has named Tony Smedley (pictured) as head of sales operations, and Richard Wilson as head of marketing, as part of a new push to “ramp up the provision of vital funding for small- and medium-sized enterprises (SMEs).”

China

China Rapid Finance Announces Preliminary First Quarter 2018 Results (PR Newswire) Rated: AAA

China Rapid Finance Limited (“China Rapid Finance” or the “Company”) (NYSE:XRF), operator of one of China’s largest consumer lending marketplaces, today disclosed preliminary financial results for the first quarter of 2018.

The Company expects to report a net loss in the range of $25 to $30 million, the majority of which consists of approximately $16 million of one-time expenses: 1) non-recurring expenses associated with preparing for registration; 2) write-offs related to receivables and amortizations; 3) non-cash accounting charges related to adoption of the new GAAP standard for revenue recognition (ASC 606); and 4) one-time costs associated with a pilot funding program that was discontinued due to regulatory changes.

Yirendai Reports First Quarter 2018 Financial Results (PR Newswire) Rated: AAA

In the first quarter of 2018, Yirendai facilitated RMB11,956.7 million (US$1,906.2 million) of loans to 174,128 qualified individual borrowers through its online marketplace, representing a year-over-year growth of 65%; 23.1% of loan volume were generated by repeat borrowers who have successfully borrowed on Yirendai’s platform before; 72.5% of the borrowers were acquired from online channels;  100% of the loan volume originated from online channels was facilitated through mobile.

In the first quarter of 2018, Yirendai facilitated 214,231 investors with total investment amount of RMB11,427.6 million(US$1,821.8 million), 100% of which was facilitated through its online platform and 95% of which was facilitated through its mobile application.

In the first quarter of 2018, total net revenue was RMB1,592.7 million (US$253.9 million), an increase of 56% from prior year; net income was RMB278.9 million (US$44.5 million), a decrease of 21% from prior year and adjusted net income in the first quarter of 2018 was RMB668.5 million (US$106.6 million), an increase of 91% from prior year.

The fuse that could light China’s debt bomb (Financial Review) Rated: A

A financial planning manager in a major Shanghai bank branch points to a flickering computer screen displaying a list of wealth management products for customers wanting a higher yield to normal deposits.

For a deposit of 100,000 yuan ($20,600), he recommends a “low risk” product with an interest rate of 4.25 per cent over one year. Alternatively, the customer can opt for a riskier 4.75 per cent yield but there is no guarantee they will get any of their money bank. The customer is advised to act fast as yields are falling rapidly following closer government scrutiny of China’s savings products since March.

European Union

New Robo.cash P2P Lending & Millennials Research & 4M€ Milestone (Crowdfund Insider) Rated: AAA

Robo.cash’s research shows that Millennials are steadily taking over the leading position from the older generation of investors. Six months ago, the average age of investors of the platform was 38 years, and the age groups were distributed as follows: Silent generation (73-90) — 0.8%; Baby boomers (54-72) — 9.5%; Generation X (38-53) — 38.6%; Millennials (22-37) — 50.3% and Generation Z (18-21) — 0.8%. Today, the typical investor has grown younger to 37 years old due to the increased share of Millennials — 53.9% and Generation Z — 1.8%.

Source: Crowdfund Insider

Dublin-founded Future Finance agrees £100m debt facility (Irish Times) Rated: A

Future Finance, a Dublin-founded student loan specialist that recently secured €40 million in funding, has signed a £100 million (€114 million) debt facility.

The deal with alternative asset management firm, Waterfall Asset Management, which includes an option to participate in a further £150 million (€171 million) extension, will enable the company to grow its student lending business further.

International

What the Blockchain Means for the Future of Small Business Funding (Business.com) Rated: AAA

Business financing has always been a thorny issue for many small and medium-sized businesses (SMBs), and is often cited as one of the reasons behind the morbid failure rates for new businesses. One report found that about 29 percent of failed businesses identified the lack of working capital as a major reason for failure, second only to the lack of market demand for their products or services.

Here are a few specific ways the blockchain can be used to bolster funding for SMBs.

1. P2P lending

The blossoming crypto market is also helping fan the flames of disruption for P2P business lending. Earlier this month, Ripple, the company behind the third-largest cryptocurrency, XRP, announced plans to push the use of XRP into other industry segments outside of P2P payments and banking, including the P2P lending industry.

2. Using blockchain and big data to improve existing systems

Wish Finance, a blockchain-based lending platform for SMBs, is using the blockchain to help improve traditional risk scoring systems while providing a simple platform for repayments.

3. ICOs and SMB funding

But as investors become wiser and as trust becomes a permanent feature of the blockchain, there’s a growing opportunity for SMBs with solid business models to cash in.

Africa

Budding SA bank buys peer-to-peer lending firm RainFin (Business Tech) Rated: AAA

Johannesburg-based Lebashe will boost its holdings in RainFin by 24% to 75% for an undisclosed sum, the company said in an emailed statement on Thursday. RainFin, the largest peer-to-peer lender in South Africa, bought back the 49% held by Barclays’s South African unit, with Lebashe acquiring its 51% stake in February last year.

Asia

Singapore’s GIC emerges as most active Asian PE investor in Q1 (Deal Street Asia) Rated: AAA

Singapore’s sovereign wealth fund GIC completed at least 11 private equity deals in the first quarter of this year, making the $344-billion fund the most active Asian PE investor during the period.

GIC joined other investors in sealing two of the biggest investments of the quarter, according to a PitchBook report. It participated in the $5.5-billion buyout of Denmark’s Nets A/S by partnering with private equity firm Hellman & Friedman, and in the $2.5-billion investment in FirstEnergy in January.

Canada

IOU Financial Inc. Releases Financial Results for the Three-Month Period Ended March 31, 2018 (Benzinga) Rated: AAA

IOU FINANCIAL INC. (“IOU” or “the Company”) (TSXV:IOU), a leading online lender to small businesses (IOUFinancial.com), announced today its results for the three-month period ended March 31, 2018.

  • Net earnings on an IFRS basis and adjusted net earnings amounted to $0.8 million in Q1 2018, the second consecutive quarter with positive earnings for the Company.
  • Loan originations increased 11.2% to $24.5 million compared to the same period in 2017.
  • Provision for loan losses decreased 50.6% to $0.9 million in Q1 2018 driven by measures taken to reduce defaults.
  • Opex decreased 23.1% to $1.9 million for the first quarter of 2018

Authors:

George Popescu
Allen Taylor