- Correspondence :
- On Wednesday, September 14th we wrote: “A great analysis by C2FO on the cost of capital , trends and more for SMEs. This report contradicts quite a few of the latest reports and surveys that claim the opposite ( SME optimism is on the rise, and borrowing is getting cheaper). This survey looks more thorough but it is still hard to figure out who to believe. At least we can say that the trend is unclear.”
- An anonymous reader comments:
- “I really enjoy reading Lending Times – it’s a great source of information about developments in the alt fin space. I’m writing because yesterday you published info about a survey by C2FO which states ‘An apparent higher cost of capital has caused some of these firms to look at other sources, such as peer-to-peer, or marketplace, lending that involves directly matching would-be borrowers with lenders. On average, 18 percent of respondents in each country reported using peer-to-peer lending at some point.’
- I have some comments. First, this cannot be a representative sample of SMEs in the countries covered – I find it inconceivable that 18% of SMEs in the countries included in the survey have used P2P lending – unless there is a huge selection bias in the sample (in which case the findings should not be stated in a manner that implies they are representative of the SME population). In Italy. for example, other sources estimate the 2015 P2P volume was less that EUR5m for both invoice factoring and lending combined. A rare source of P2P info on the Italian market is Octopus, a £6bn asset manager, launched a P2P lender; RateSetter’s auto loan volume reaches £100m in partnership with 209 locations.
- Today’s main analysis: An article on customer ownership in p2p lender-bank partnerships; Alt Fi’s conference take away;
- Today’s main thought provocations: Twino’s geographical expansion; Lending Club and OnDeck’s stocks in August.
- An article discussing the underlying conflicts on customer ownership in the fintech – bank relationships. It is, of course, an obvious concern in any executive’s decision to work with any supplier or partner and in any deal. My take: I believe the banks feel that the fintech’s are not able to take the customer away as the bank has many more services to offer the customers. And as fintech’s go, they do not need to take the customer for the deals to make sense, cheap or free loan customer acquisition is enough. I, therefore, note the concern, but I think it is not material.
- Take away from the Alt Fi conference in depth. In our eyes, the main takeaway is that the established industry players have to focus on sustainability and profitability and the industry overall needs desperately a secondary market.
- Following up on the article just above: Ron Suber’s , keynote speaker, deck presentation in full. Watch the deck and read the comments from the article above.
- Lending Club and OnDeck’s stocks have done well in August. Just a reminder of that. I continue to believe August was the bottom of the 2016 alternative credit crisis.
- And another data point on the Lending Club stock: the call options market is heating up.
- Groundfloor, a real estate crowdfunding company, with Reg A+ , releases interesting data. They did only 111 loans in total to date so the percentage growth numbers are a little meaningless but better than nothing.
- RateSetter’s auto-dealer partnership in 209 locations lent £100m. Great channel to have.
- Octopus , a £6bn asset manager, launched a P2P lender looking to offer investors IFISA. Min investment is £10. Very interesting !
- Twino hits the €300m milestone. Their p2p side did only €50m though. Their geographical extension is to be noted.
- News Comments
- United States
- That Marketplace Lending ‘Partner’ Just Wants Your Customers, (American Banker), Rated: AAA
- Online Lending at AltFi: A New Phase for a Growing Industry, (Crowdfund Insider), Rated: AAA
- Ron Suber on Marketplace Lending: Keep Calm & Lend On (Deck), (Crowdfund Insider), Rated: A
- Why LendingClub Corp. and OnDeck Capital Rocketed in August, (Motley Food), Rated: A
- Options Heat Up As Lending Club (LC) Rallies, (Schaeffers Research), Rated: A
- Groundfloor Doubles Lending Footprint on One Year Anniversary of Qualification Under Regulation A+, (PR Web), Rated: A
- United Kingdom
- Peer-to-peer lender passes £100 million milestone for auto loans, (Asset Finance International), Rated: AAA
- Octopus launches P2P lending platform, (FT Adviser), Rated: AAA
- European Union
- Twino Hits €300 Million Milestone for Loans Issued,(Crowdfund Insider), Rated: A
- Faircent Names Dr. Shakti Goel as Chief of Product and Technology, (Udaipur Kiran), Rated: B
- Startups ease process of obtaining education loans, (The Times of India), Rated: A
That Marketplace Lending ‘Partner’ Just Wants Your Customers, (American Banker), Rated: AAA
In October, Regions Bank announced a deal to let small-business owners access Fundation’s online application directly from the bank’s website. In April, JPMorgan Chase partnered with OnDeck to offer loans to the bank’s existing small-business customers. And most recently, Kabbage teamed up with Scotiabank to make small-business loans in Canada and Mexico.
The deals seem simple: the marketplace lender provides the backend technology and the bank provides the brand name. However, the reality for smaller banks is that making similar partnerships could be very dire to their business models.
The first conflict involves customer acquisition and retention. According to a Forbes blog, acquiring a new small-business customer costs an alternative lender between $2,000 and $3,000. Banks that partner with alternative lenders are essentially providing them free referrals, and marketplace lenders won’t want to let these new customers go.
The second potential conflict these partnerships pose involves regulatory issues. Currently, marketplace lenders operate outside the strict regulatory system for banks. Banks, which have spent decades carefully guarding their reputations, are now entrusting their reputations to unregulated partners. Regulators are very likely to view any loan that goes through a bank in any way as being a loan from that bank, and yet, the loans will not be up to the bank’s standards.
A deal with a business that’s actively competing for some of a community bank’s key customers can never be a true partnership.
Online Lending at AltFi: A New Phase for a Growing Industry, (Crowdfund Insider), Rated: AAA
Comment: post about the AltFi conference in New York that took place on Sept 14th 2016.
When I realized the 2016 AltFi Conference was at the posh Pierre Hotel on the corner of Central Park, it immediately gave me pause. I remembered 2007 and 2008 when certain mortgage-backed security investment conferences were held at such addresses.
Noteworthy absentees from former years were SoFi, Dealstruck, OurCrowd, Symbid, LendKey, Biz2Credit, OneVest, Realty Mogul, Assetz Capital, CommonBond, Seedrs, Crowdcube, P2BInvestor, and Zopa.
Ron Suber, of Prosper Marketplace, presented the opening keynote.
He likened marketplace lending to Boeing in 2013 when it manufactured faulty batteries for its new Dreamliner aircraft. He noted that loan volumes are increasing [again], loan values are coming back and quality securitizations are back since the second quarter of this year.
He also noted that the industry needed to focus on developing a deep liquid secondary market, securitizations with a cusip and a rating so that institutions with certain investment criteria can invest, and properly executed derivatives and synthetic market.
Today he offered a new necessary nine, essential for funds looking to invest in this asset class, many of which were tested earlier this year. They are as follows:
- Proper loan valuation – did they value them correctly?
- Adequate accruals for defaults – in the second quarter, many didn’t set these correctly and had to true up accruals
- Effective loan selection – obvious
- Account for platform performance – many struggled with losses exceeding projections and this was felt by the funds that invested in them
- Fund fees – are these billed and set up correctly?
Manage use and cost of leverage
- Manage use of cash – many funds stopped purchasing new loans and experienced a cash drag
- Purchase price of loans (premium vs. origination fee) – borrowers prepaid and many funds never realized those premiums they anticipated
- Currency hedge – Brexit affected many funds who did not hedge against currency fluctuations
As final thoughts, he left us with four things the industry needs to get right:
- Risk management groups – meaning the industry needs to ensure that it has appropriate safeguards when it comes to legal, compliance, data and other risks
- Equilibrium (between borrowers and investors) – platforms need to be able to balance supply and demand
- Trust and transparency
The third keynote of the day was Albert Periu of Funding Circle US, whose focus was on the need for diversity of funding sources for platforms. He also shared that since formation in 2010, Funding Circle has lent over $2.5 billion to over 20,000 businesses. Periu conceded that diversification of funding sources is difficult to achieve but is the only way marketplace lenders can scale. Funding Circle has used retail investors as a source of capital in the UK and EU for some time, they will soon be utilizing such investors in the US as well.
In an online audience poll 44% agree that retail investors will become a more important source of capital to 56% feel that it will become less meaningful over time.
The final event of the morning session was a debate of sorts about the importance of retail investors to the future of marketplace lending between Peter Renton of LendAcademy and David Stevenson, of AltFi. Stevenson argued that accessing retail investors brings the ire of regulators and that the herd mentality of retail investors causes them to be less permanent. Renton countered that institutional investors are less sticky and move massive amounts of money at a time causing volatility, and further, that the financial crisis was driven by institutional investors and not retail investors.
Ron Suber on Marketplace Lending: Keep Calm & Lend On (Deck), (Crowdfund Insider), Rated: A
Comment: you can find here Ron Suber’s powerpoint presentation from the article just above.
Why LendingClub Corp. and OnDeck Capital Rocketed in August, (Motley Food), Rated: A
Lending Club and OnDeck Capital have taken a beating since their respective IPOs, as investors have generally tempered their expectations for the profitability and sustainability of online marketplace lending.
In August, the company’s share prices began to recover when Lending Club reported earnings and simultaneously announced the departure of its CFO and the addition of a banking veteran to its board of directors.
Shares of OnDeck Capital typically follow Lending Club, and vice versa. In August, OnDeck Capital showed that the problems plaguing its rivals had not affected its ability to originate new loans. Notably, OnDeck’s originations grew 41% year over year compared to just 2% growth in originations at Lending Club. Unlike Lending Club, which seeks to originate loans solely to resell them to investors, OnDeck funded about 75% of its total loans from its own balance sheet capital at the end of the second quarter.
OnDeck Capital and Lending Club regained some trust with their shareholders in August, but they also need to recapture the confidence of investors who buy loans from their marketplaces.
Options Heat Up As Lending Club (LC) Rallies, (Schaeffers Research), Rated: A
LendingClub Corp (NYSE:LC) is on pace for its highest finish since CEO Renaud Laplanche resigned amid a cloud of scandal in early May. Specifically, the stock is up 7.7% at $6.20, breaking out above the $5.80-5.90 region — which capped the shares’ rally in mid-August. Options traders have been quick to chime in, with contracts crossing the tape at four times the usual intraday pace.
While puts are changing hands at a particularly impressive eight times the expected rate for this point in the day, calls still lead puts more than 2-to-1, on an absolute basis. A large chunk of today’s action has come from one trader who appears to have rolled his block of 5,000 October 6 calls up and out to the January 8 call, per data from the International Securities Exchange (ISE). By doing so, the speculator is betting LC will extend its rally beyond the $8 level over the next four months.
Taking a step back, a preference for calls over puts is nothing new for LC, though options volume has generally been light. In fact, traders on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have purchased 5,467 calls over the last 10 sessions, compared to just 78 puts. The resulting call/put volume ratio of 70.09 sits 2 percentage points from an annual peak.
Groundfloor Doubles Lending Footprint on One Year Anniversary of Qualification Under Regulation A+, (PR Web), Rated: A
GROUNDFLOOR, the first and only real estate P2P lending marketplace open to non-accredited investors, today announced that it is clarifying certain historical results included in its September 1 press release describing the expansion of its lending business to 12 additional states just one year after GROUNDFLOOR qualified under Regulation A+.
Since achieving qualification under Regulation A+ and commencing our multi-state offering program in late August 2015 and through September 7, 2016, GROUNDFLOOR has funded 111 loans. During this period, retail securities sales were $13.6 million. GROUNDFLOOR borrowers have fully repaid 39 loans under this program. This compares with retail securities sales of $1.9 million in the preceding 12-month period (with 36 loans funded via our intrastate offerings in Georgia). The average annualized rate of return for investors since inception of our business has been over 12%. As of September 7, 2016, no loans funded under our multi-state offering program or Georgia program have lost principal value.
GROUNDFLOOR’s Regulation A+ highlights (since commencement of our multi-state offering program):
- Number of registered borrowers up 300%
- Number of loans funded up 175%
- Value of loans funded up 525%
- Number of investors up 300%
- Amount invested per investor up 300%
GROUNDFLOOR remains open to investors in 9 states. Upon qualifying under Regulation A+ one year ago, GROUNDFLOOR expanded its lending business beyond Georgia to 10 additional states. Now, 1 year later, they have expanded their lending business to 12 additional states, for a total of 23 states. The states being added are Rhode Island, Massachusetts, New Hampshire, Michigan, Missouri, Minnesota, Colorado, Arizona, Utah, Nevada, Oregon, and Washington.
Peer-to-peer lender passes £100 million milestone for auto loans, (Asset Finance International), Rated: AAA
RateSetter, which was only launched in 2010, has now delivered more than £100 million in car financing, becoming “the first peer-to-peer lending platform to lend this amount through motor partnerships”.
RateSetter motor finance is available through more than 60 affiliated dealerships, car supermarkets and brokers at 209 locations across the UK. Separately, RateSetter also provides personal loans to car buyers, with an average car purchase price of £6,700; the £100 million figure does not include this.
Car finance is a very well-established form of lending which is traditionally difficult for new companies to enter. RateSetter has done this by starting small (in 2013, its first year providing car finance, RateSetter wrote £15 million of motor loans) and by focusing on a personal loan product, rather than hire purchase.
Octopus launches P2P lending platform, (FT Adviser), Rated: AAA
Octopus Investments has created a peer-to-peer lending platform, as it looks to give investors more choice through the Innovative Finance Isa.
The fund management company, which manages over £6bn of assets, has launched Octopus Choice, which targets a return of around 5 per cent through short-term residential property loans, typically between six and 18 months.
This announcement comes just months after the firm decided to launch a new online lending product, which sought to address the scepticism and scarce uptake of P2P products among the advice community.
The platform is powered by an underwriting team that has loaned over £2bn since 2009 and which had a default rate below 0.1 per cent. The minimum monthly investment is £10 and the maximum is £2m, and interest is paid monthly. Investor capital is secured against residential property assets with an average LTV of around 60 per cent, therefore providing a 40 per cent cushion against capital loss in the event of default
Twino Hits €300 Million Milestone for Loans Issued,(Crowdfund Insider), Rated: A
TWINO Group, a European consumer lender, has announced that it has reached a new funding milestone of €300 million in issued loans. TWINO also operates a peer to peer lending platform that has funded approximately €50 million in loans.
Interestingly, TWINO points out that 8% of its investors are based in the UK. The company, which has been operating since 2009 and its P2P lending commencing in 2015, provides unsecured consumer loans for private individuals in ten countries, including Poland, Russia and Georgia. TWINO’s peer-to-peer lending platform, offers European investors the opportunity to invest in consumer loans originated by TWINO Group’s lending companies. T
WINO is unique as it is currently offering a “BuyBack Guarantee”, which protects investors from the borrower default risk, the platform says it has attracted over 4,000 investors from 30 countries. TWINO states that investors earned on average a 12.3% return by investing through the platform.
Faircent Names Dr. Shakti Goel as Chief of Product and Technology, (Udaipur Kiran), Rated: B
Faircent.com, India’s [assumed] largest peer to peer lending marketplace, today announced the appointment of Dr. Shakti Goel as Chief of Product and Technology. Dr. Goel’s deep domain knowledge of Financial Markets and Banking would further accelerate the growth momentum of the largest player in the P2P lending space of India.
A doctorate from MIT (Massachusetts Institute of Technology), and an IIT Delhi graduate, Dr. Goel has worked across geographies in companies like Oracle Corp, Fidelity, Raytheon, State Street Corpand HCL Info-systems in US and India. He has deep domain knowledge of Financial Markets, Banking, Retail and Healthcare.
Startups ease process of obtaining education loans, (The Times of India), Rated: A
Gyan Dhan, founded by founded by two IIT alumni -Ankit Mehra and Jainesh Sinha, operates in the higher education segment for foreign universities. The startup, partnering with SBI and Axis Bank, facilitates loan disbursal to students who do not even have a collateral. ”
Over half the close to 100 loans have been processed without collateral,” said Jainesh Sinha, co-founder. The startup takes into consideration the employability quotient of the student. Sinha added that the startup has also help reduce unnecessary paper work. “In one case, the bank had asked an applicant to furnish the i20 form (which states that you are a non-immigrant student), which wasn’t required. We approached the bank and got the loans sanctioned.
The startup has processed loans worth 21 crore, with an average ticket size of 27 lakh across the country.
Facilitating loan disbursal towards of blue-collar workers, OpenTap, a peer-to-peer lending platform, does the vetting process before it connects loan borrowers and loan givers. The P2P platform says 40% of its loans are for educational purposes — for school and college-going students.