- Today’s main news: Impact investment performance. The UK home lending market had a watershed year. Opus, Statista predict digital payments to rise in 2018. Crowd Genie opens up blockchain-based lending to Singapore. Fast Invest offers crypto-enabled loan investments across Europe.
- Today’s main analysis: Where financial institutions will spend money on fintech in 2018.
- Today’s thought-provoking articles: The easiest way to lose your savings in China. Discussion paper on automation in financial advice in Europe. Impact investing in India. 2017 was the year of the customer.
- Where money will be spent on fintech in 2018. AT: “American Banker predicts where banks and other financial institutions will put their investments in 2018. A good read with some solid predictive analysis, and good reporting. Top of the list: Blockchain & AI. Big surprise: Bank will get more aggressive with student lending and mortgages.”
- Performance of impact investing. AT: “Regardless of what you call it, impact investing allows investors to grow portfolios while performing a social good, but how do these investments do over time? Not bad.”
- The future of financing. AT: “Hint: It’s all about digital currency, or is it?”
- Why people make bad financial decisions.
- Automation in financial advice. AT: “A must-read discussion paper.”
- Fast Invest.
- Cork investors most likely to back local companies.
- Impact investing in India.
- How 2017 was the year of the customer. AT: “Actually, it was the year of alternative lending. More than 200 startups entered the market this year.”
- A review of 2017 and looking forward to 2018.
- What’s changed in banking and fintech.
- The sharing economy and cryptocurrency.
- Interview with Crowd Genie CEO. AT: “An excellent discussion.”
- United States
- Where fintech dollars will go in 2018 (American Banker), Rated: AAA
- THE PERFORMANCE OF IMPACT INVESTMENTS (All About Alpha), Rated: AAA
- The Future of Financing (Avertising Specialty Institute), Rated: A
- Why do people make bad money decisions (IOL.co.za), Rated: B
- United Kingdom
- Watershed year for equity release in the UK home lending market (Propertywire), Rated: AAA
- THE EASIEST WAY TO LOSE YOUR LIFE SAVINGS IN CHINA (SCMP), Rated: AAA
- European Union
- Joint Discussion Paper on automation in financial advice (EIPOA), Rated: AAA
- Fast Invest – Crypto-enabled Loan Investments Across Europe (ChipIn), Rated: AAA
- Cork investors most likely in Ireland to back local firms (Independent.ie), Rated: B
- Fintech Outlook 2018: Digital Payments to Rise (Investing News), Rated: AAA
- Biometrics as the Catalyst: FinTech Pulls Away From Banks (Let’s Talk Payments), Rated: A
- The McKinsey Paper on India (All About Alpha), Rated: AAA
- 2017: The year of the customer (livemint), Rated: AAA
- Reviewing the 2017 fintech ecosystem and what its startups are looking forward to in 2018 (Plunge Daily), Rated: A
- Experts’ views on what changed in the banking and fintech sector in 2017 (livemint), Rated: A
- Living the sharing economy in the cryptocurrency way (YourStory), Rated: A
- Exclusive Interview with Crowd Genie CEO Akshay Mehra (ChipIn), Rated: AAA
Where fintech dollars will go in 2018 (American Banker), Rated: AAA
A study released in December found that 82% of U.S. commercial banks plan to increase fintech investment over the next three years; 86% of bank senior managers surveyed said they intend to boost fintech funding imminently. The research was commissioned by the global fintech provider Fraedom.
Here are the fintech markets likely to get some love in the coming year:
Up till now, many blockchain pilots have been about gaining back-office efficiencies, such as in clearing securities, Canaday noted. She said she expects the use of blockchain to shift to ways to make money.
“There was a study done about last quarter’s conference calls where the count of the number of times companies said ‘artificial intelligence’ in their calls was 800, up 25% quarter over quarter,” Steinberg said. “When you’re competing with 800 companies, it’s probably a difficult experience.”
While many fintechs focus on serving consumers, “toward the end of this year we started to see more of a shift in investment toward the B-to-B side,” said Grewal. “There’s big money being thrown into the B-to-B space. We’re seeing a lot of new company formation around the B-to-B payment space in a way we haven’t seen before. That’s one trend we’ll see a lot more of next year.”
Banks could “unlock” $11 billion in new revenue streams from small and midsize businesses by 2020, according to an Accenture report.
Better experiences from fintech apps like Digit and Acorns are turning financial services firms into “ingredients” rather than “destinations,” according to Schwark Satyavolu, general partner at Trinity Ventures.
Grewal also sees a lot of interest in the cross-border commerce space — consumers from China wanting to make purchases in the U.S. and the U.K. and vice versa.
Now that the Consumer Financial Protection Bureau has been defanged, so to speak, banks can get back into student lending and mortgages without fear of reprisal, he said.
THE PERFORMANCE OF IMPACT INVESTMENTS (All About Alpha), Rated: AAA
The Global Impact Investing Network has offered its own take on a much discussed question: do “impact investing” and its variants under various names – sustainable investing, socially conscious investing, ESG investing, etc. – work? And, if so, how well? It looks at this question in a very granular way, focusing especially on II through private equity and private debt. Given this focus it engages in a meta-study, or literature review.
The GIIN begins with the observation that private equity is the most commonly employed vehicle for impact investing. It is used by more than 75% of the impact investors.
How did they do? That 2015 study made the following points:
- Since inception the 71 funds have generated aggregate net returns of 5.8% on average, with 4.6% showing up as the median.
- The fund level internal rate of return can vary a good deal. The top 5% of funds get 22.1% or higher and the bottom 5% lose 15.4% or more.
- That range itself is “similar to what is seen in conventional investing and illustrates that fund manager selection is key to strong performance.”
The Future of Financing (Avertising Specialty Institute), Rated: A
According to government statistics, 28.8 million small businesses currently operate in the U.S., employing 57 million people. A study by U.S. Bank notes the major reason these businesses fail is due to cash flow problems. Eighty-two percent of those businesses, in fact, are tanking because of lack of cash.
“You have this compression happening across every stage along the way,” Graham says. “For example, 24-hour turn with orders, better systems allowing a distributor to invoice faster, and easier ways to accept payment up front. It’s enabling everything to move faster. The need for financing is not as great as it used to be as a result of the options available now to be able to turn everything faster.”
There’s also big growth in the online lending space, Graham says, allowing for a lot of flexibility and options to get bank-like financing for business needs. But she thinks the next huge financing shift will surround something completely different.
“I think a lot of the real changes are going to happen around digital currency,” she says.
“Document requirements won’t change,” Seagraves says. “To get a loan today, you need to have some vehicle to communicate your plan, and that vehicle should include a set of business projections, like an Excel spreadsheet that talks about your financial requirements for the short term and how long it’ll take to become cash flow-positive. Then the lender is going to want to know your financial position as an individual and if any of your assets can be leveraged to secure a loan. These are all very traditional requirements, and I don’t see them changing any time soon.”
Why do people make bad money decisions (IOL.co.za), Rated: B
Eight out of ten American adults feel anxious about the state of affairs of their personal finance.
In addition to this, neural activity associated with “stressful information processing” was 20% higher among people who made their own money decisions compared to someone who received financial advice.
Watershed year for equity release in the UK home lending market (Propertywire), Rated: AAA
The membership of the Equity Release Council in the UK has increased annually by 23%, rising to 219 from 178 at the same time last year, boosted by new entrants to the market, the latest official figures show.
Lending in the third quarter of 2017 surpassed £800 million for the first time in any single quarter, with the sector also on course to reach a record-breaking £3 billion in lending for the first time in a single year.
THE EASIEST WAY TO LOSE YOUR LIFE SAVINGS IN CHINA (SCMP), Rated: AAA
By any measure, 62-year-old Shan Juzhen was an easy mark. After the shortest of conversations with other investors, Shan put more than US$15,000 – or nearly a year of her pension – into a lending club she had never heard of.
She felt it unnecessary to check the qualifications of the lending club, which serves as an alternative for borrowers who cannot get a loan from a big bank. She also did not ask questions about how her money would be lent. The only thing Shan wanted to know was would the platform give her a high return on her investment.
A report published in December by Chaoyang Court in Beijing found that the number of Chinese senior citizens involved with lending-related disputes surged to more than 4,400 in 2016, a nearly sevenfold increase from a year earlier. And among all lending-related disputes the court handled last year, about 45 per cent involved elderly Chinese.
P2P online lending has now reached US$908 billion in transactions, according to Internet Loan House, a website that tracks the industry.
Joint Discussion Paper on automation in financial advice (EIPOA), Rated: AAA
Given this assessment, the ESAs are of the view that, even though automation in financial advice is not presently observed equally across all financial sectors and/or EU Member States, the phenomenon has the potential to continue to grow. The ESAs will assess the feedback to this Discussion Paper in order to better understand the phenomenon and to decide which, if any,
regulatory and/or supervisory action is required.
In considering the topic of automation in financial advice, the ESAs have observed the following across the banking, securities and insurance and pensions sectors :
- In the banking sector:
i. Automation specifically in relation to financial advice does not seem to be very widespread. However, human contact is supported more and more by the use of various automated tools. These include comparison websites that can compare products offered by various financial institutions, and websites providing information on specific products and helping consumers to select between products by using simulators and calculators.
ii. New business models that are based in providing advice through automated advisory tools have nonetheless emerged (e.g. automated tools where the consumer fills in all relevant information and receives an advice on which mortgage to get as a result).
- In the securities sector:
i. Automation in relation to financial advice is a more mature phenomenon, although the provision of advice that is completely automated appears to feature only in a few EU Member States. In this business model, automated tools are used as a type of financial adviser, often referred to as a ‘robo-adviser’: the automated tool asks prospective investors for information about their specific circumstances and, based on the answers provided, an algorithm is used to recommend transactions in financial instruments that match the customer’s profile.
ii. Different automated tools may be used to support different parts of the advice process, for example the collection of information, risk profiling, portfolio analysis, and order processing or trading.
iii. Some advice services are entirely automated, whereas other services foresee human interaction between the consumer and the advice provider at some stage.
iv. In a greater number of European jurisdictions, other automated tools exist that offer various online functionality to consumers. Such offerings include (but are not limited to): the possibility to open and manage online trading accounts that allow the consumer to trade financial instruments on an execution-only basis; automated portfolio management services; and automated tools that compare the prices of transacting in different financial instruments.
Read the full report here.
Fast Invest – Crypto-enabled Loan Investments Across Europe (ChipIn), Rated: AAA
Peer-to-peer (P2P) lending platforms have disrupted American financing. That is old news. What is more interesting is the impact of such platforms in Europe where big banks have long dominated the entire loan-initiation process as well as the investment chain.
European P2P initiatives grew 92% in 2015 to 5.4 billion euros. P2P consumer lending is, so far, the biggest and fastest growing market segment, although far from the only one.
Brexit will mean that British banks will lose what is called “passport rights” that enable them to have access to European markets. And P2P lenders are already jumping into the void this is creating, as well as allowing new kinds of services and income investment opportunities.
Introducing Fast Invest
Fast Invest’s mission is to create a cross-European platform where investors can earn returns for investing in loans. At present, the platform offers an 8-15% return based on past performance for short-term investments of as low as 1 euro, US dollar, pound or Polish zloty after ten months.
Today, before the crowdfunding, the company has 8,500 plus daily customers across Europe, 21 certified lenders, 36 client origin countries and over 50 employees on staff.
Investors will be able to choose between investing in cryptocurrency or a crypto-proved loan investment. This will significantly increase yield over regular bank returns which are about 1.25% API at present. These investments include traditional and alternative investments including issued loans, real estate, private equity and other structured finance products.
Investors can invest as little as 1 euro and get that back within one day with the Fast Invest buyback guarantee.
FIT tokens allow investors to participate in a growing P2P market opportunities across Europe and the US.
Cork investors most likely in Ireland to back local firms (Independent.ie), Rated: B
Cork-based loan investors are the most likely to back local firms, according to data from peer-to-peer lending platform Linked Finance.
The numbers are based on business loans made over the Linked Finance platform, which matches investors to their choice of borrowers using the so called peer-to-peer lending model that cuts out banks.
Analysis of the investors using the platform found that just over one in three (34pc) of lenders have incomes in excess of €100,000, 39pc own their homes outright and 40pc are homeowners with a mortgage.
Fintech Outlook 2018: Digital Payments to Rise (Investing News), Rated: AAA
2017 was a significant year of growth for digital payments, according to an Opus Consulting report, together with the emergence of alternative payments. Peer-to-peer, wallets and mobile payments reached “high adoption levels” in the mainstream, reaching $3.6 trillion in terms of transactions during 2016-2017. According to the report, that amounted to a 20 percent year-on-year growth–a number that will only continue increasing from here.
In terms of global mobile payment revenue, the report states the number is estimated to reach $930 billion in 2018, representing a 19 percent growth from 2017 with China leading the way in the mobile payments market. Global payments revenue as a whole is poised to reach $2.3 trillion, with 43 percent of that representing banking revenues.
Similarly, data from Statista indicates that transaction values are expected to grow at a compound annual growth rate of 41.9 percent over the next five years to 1.32 trillion, while the number of users in the mobile point of service payments will reach 977 million by 2022.
Fintech outlook 2018: Companies to watch
Glance Technologies, whose flagship product is its mobile app, Glance Pay, decided in 2017 that it would create its own cryptocurrency built on the ethereum platform to use smart contracts to provide rewards, which Green says will be purchases in conjunction with its mobile payment app.
Biometrics as the Catalyst: FinTech Pulls Away From Banks (Let’s Talk Payments), Rated: A
The development of biometrics on mobile devices is set to have an outsized impact on mobile wallets and international money transfer. Advances such as fingerprint login, retinal scan, and facial recognition offer a rare opportunity for remittance companies to both combat fraud and improve the user experience.
Mobile wallet transactions alone are expected to reach nearly $1.4 trillionin 2017, growing 32% compared to 2016, and the number of mobile phone users will top 5 billion.
Biometrics improves the user experience by reducing form fields, eliminating the need to upload a picture of a physical ID, and fully automating the know-your-customer (KYC)/anti-fraud process. Moreover, for the first time, digitally funded transfers will offer better KYC and fraud checks than banks or brick-and-mortar competitors.
With hacked or compromised credentials, attackers can wreak havoc by posing as legitimate users and moving or stealing unauthorized funds. Not only is there a risk of theft, but fraudsters also exploit peer-to-peer (P2P) money transfer services for money laundering and terrorism financing. Considering the fact that P2P payments are expected to be used by nearly129 million adults in the US by 2021, the threat isn’t going away anytime soon.
The number of people living outside of the country in which they were born has surpassed 244 million, representing a 41% increase between 2000 and 2015. Many of these people come from places where the identity infrastructure is weak and disconnected from developed systems in the US and Europe.
About 93% of consumers would rather use biometrics than passwords.
The McKinsey Paper on India (All About Alpha), Rated: AAA
Earlier this year, McKinsey & Co. published a paper on impact investing in India. The data base for that study consisted of 48 PE and VC transactions, of which 31 targeted the “financial inclusion” sector: that is, enterprises designed to bring banking and bank-like services to the unbanked.
In this case they varied from a loss of 46% to a gain of 153% with a median gross IRR of 10% and a weighted average of 11%.
2017: The year of the customer (livemint), Rated: AAA
Investments in the fintech space in India also witnessed frenzied activity this year, with total value of investments jumping by 388% from $383 million in 2016 to $1,868 million in the first three quarters of 2017, according to industry database CB Insights.
With over 1 billion mobile phones, 325 million broadband connections and 306 million new bank accounts, India became a case study in digital financial inclusion, driven by the Jan Dhan Yojana, Aadhaar and mobile (JAM), as reported by the communications ministry.
More than 225 alternative lending companies were founded in India in 2017 and the segment was the second most funded in India’s fintech space, as per data from an industry database Tracxn.
According to the National Payments Corporation of India (NPCI), eKYC verifications have jumped almost 77% to 84 million in FY18 over FY17, speeding up the on-boarding process and reducing costs significantly.
In 2017, almost 46 strategic partnerships and deals took place between lenders, payments companies and fintech innovators. Some of these were the tie-ups between Paytm and ICICI Bank for short-term interest-free credit lines; Amazon India and Bank of Baroda for unsecured micro loans; Mobikwik and Bajaj FinServ for offering all features and benefits of Bajaj Finserv EMI cards over a digital payments wallet; Fisdom and Lakshmi Vilas Bank for a robo-advisory platform; and between Senseforth and HDFC Bank for chatbots.
Reviewing the 2017 fintech ecosystem and what its startups are looking forward to in 2018 (Plunge Daily), Rated: A
RBI’s recognition of P2P lendingstartups as a new category of non-banking financial companies (NBFCs), was celebrated all-round by the sector.
One of the most celebrated advantages of the fintech boom is that of ‘financial inclusion’ and the potential to service the underserved. However, the sector is hoping that the guidelines placed will initiate control and check on the unorganised side of money lending and the digital push will bring about competitive rates and transparency.
Another announcement the RBI made in October was the introduction of guidelines for digital wallet companies. There were mandates on higher capital requirements for license holders of prepaid payment instruments or digital wallets, KYC or know-your-customer norms and the initiation of interoperability of various digital wallets.
Rohit Lohia, CO-Founder and COO of Cointribe believes 2018 will see scaling up of players in the lending space especially in small business lending.
Experts’ views on what changed in the banking and fintech sector in 2017 (livemint), Rated: A
Upasana Taku, co-founder, MobiKwik
The government’s decision to bear the merchant discount rate (MDR) on digital payments of up to Rs2,000 will bring greater level of acceptability for digital payment systems. Digital payments will become a way of life both for consumers and merchants and bring a cultural shift in digital payments.
Renu Satti, MD and CEO, Paytm Payments Bank
India is currently at the center of the banking world, and is set to emerge as a benchmark in digital and financial inclusion.
Living the sharing economy in the cryptocurrency way (YourStory), Rated: A
The global economic meltdown of 2008 was the catalyst to get people to shift gears, and supplement their income by sharing assets that they owned. Added to this, the increasing internet penetration and the evolving economic system helped companies such as Airbnb and Uber popularise the concept of shared economy, and successfully pave the path for other industries.
However, while these platforms helped millions of people find alternative sources of income, they suffered elementary setbacks. To begin with, the companies have significant amount of transactional overhead, be it monetary or operational. Second, international boundaries restrict cross-border economic sharing. Thus, the peer-to-peer markets are unable to foster collaborative ownership which is crucial to enable true sharing of resources.
Blockchain — the key to global sharing
The peer-to-peer network in the sharing economy, allows individuals to organise themselves without the involvement of any third party. As the intermediaries are based on the algorithms, the technology builds trust, making it a versatile technology that can be match specific user requirements.
According to a PwC report, the peer-to-peer-lending global market is pegged to touch $335 billion by 2025. As the sharing economy continues to grow, the idea of private ownership is being replaced by the revival of collaborative and shared consumption and adoption of blockchain can guarantee safe and secure transactions.
Exclusive Interview with Crowd Genie CEO Akshay Mehra (ChipIn), Rated: AAA
Crowd Genie is a peer-to-peer lending platform based in Singapore. It connects small to medium businesses seeking loans with capital via a blockchain-based cryptocurrency system.
Lenders can expect to make at least 14% return with all funds held in escrow. This peer to peer lending activities will be tokenized using smart contracts to enable lending without borders more efficient, cheaper and safer. Ultimately, the team has a vision to build an Asset Trading Exchange on Blockchain that will democratize trading and allow investment in infrastructure, stocks, cryptocurrency, and bonds across Asia, which would be prohibitively expensive, and potentially unfeasible due to issues of transparency and trust without Blockchain.
Hi, Akshay. Thanks for joining us today. Can you tell us more about yourself and Crowd Genie?
Crowdfunding is popular in the West, but the idea is relatively new in Singapore and other Asia countries. Observing how lenders getting low returns from the banks because of the overhead costs and how established SMEs unable to receive full funding desired and become under-banked, I would like to match this two parties together to solve the problem and that’s what Crowd Genie has been doing.
Why did you decide to use blockchain in building Crowd Genie?
Although our existing P2P digital loan business is incredibly innovative in the Singapore financial sector, it would have been impossible to scale to enable lending without borders and offer Asia-wide asset trading before blockchain technology was introduced.
To build and scale an asset exchange with pre-blockchain technologies would be prohibitively expensive, and potentially unfeasible due to issues of transparency and trust.
In the whitepaper, you talk about creating “Asian Passport” rights or identities. Tell us how you came up with the idea and how you think you will implement this regionally. Is this based on the idea of European passport banking rights?
To build an end-to-end Asset Exchange, a Digital Passport is essential for us to identify who are the lenders and borrowers, are they associated with negative news, illegal activities or politically exposed. We will continue with our existing due diligence process where we ask for proof of identity and bank statement and check it against a world-wide recognized database. Thereafter we set up a digital passport and store in on blockchain.
Please explain the notion of “fractionalized assets,” and how it is redefining how P2P lending is occurring.
P2P lending is an illiquid investment. Imagine that you have invested in a 12 months tenure loan, but would like to get some money back before it matures, say 2 months later. You can do so by selling it on Crowd Genie Asset Exchange by indicating the fraction of your assets that you would like to sell.