Review of Indian Regulation on P2P market

india p2p lending regulation

Today, there are approximately 60 million small businesses in India looking for funding, out of which only 33 percent are able to access any kind of institutional credit. The situation is similarly dire in the case of individuals. Almost 80% of MSMEs self-finance themselves, 32% rely on their friends and relatives for credit, and an additional 12% […]

india p2p lending regulation

Today, there are approximately 60 million small businesses in India looking for funding, out of which only 33 percent are able to access any kind of institutional credit. The situation is similarly dire in the case of individuals. Almost 80% of MSMEs self-finance themselves, 32% rely on their friends and relatives for credit, and an additional 12% try raising funds from informal banking networks. All these numbers highlight the extent of shortcomings in the Indian lending system and the mega “bottom of the pyramid” opportunity for the young P2P sector.

P2P Market overview

The P2P lending market in India originated around 2012 when Shankar Vaddadi and his team launched the first social peer-to-peer lending platform, i-Lend. Lack of proper regulation governing the P2P ecosystem has proven to be the biggest stumbling block in the growth of this industry, but having said that, it is widely expected that the P2P lending space will grow into a $4-$5 billion industry by 2023.

The Indian P2P lending industry has approximately 63 players including Faircent, Lendbox, LenDen Club, Monexo, LoanBaba, CapZest, i2ifunding, and many more, all of which have been carving their own niche in the lending industry by serving a diversified customer base.

P2P Regulations in India

Rules and regulations in India with respect to lending have always been stringent making it difficult for new players to enter the market. India’s central bank, Reserve Bank of India (RBI), has always prioritized protecting the interests of all the stakeholders involved in the lending process (especially the borrowers). One such act, Usurious Loan Act, allows the judiciary to intervene in case the lending platform or lender is charging an unrealistically high-interest rate. The primary lenders in India, banks, are exempted from the scope of this law, but P2P lenders fall under the ambit of this regulation.

In India, even the states have the right to pass laws on regulating money lending, and 22 states have passed legislation to this effect. One such recent example is Maharashtra Money Lending Act of 2014. As per the guidelines prescribed in the Act, it is mandatory for all lenders to register and acquire a license before they start operating. Furthermore, this act can restrict the operation of money lenders to a specific district and empowers state government to decide the rate of interest to be charged.

In reality, the Indian P2P sector also benefited from a lack of government policies as it allowed them to experiment and launch multiple products without considering any repercussions of the law. This changed in 2016 when RBI released a consultation paper on P2P lending. This paper has been used as a yardstick by RBI to frame regulation to govern the P2P lending market.

The Reason Behind RBI Regulations

Although the P2P market helps in financial inclusion of the economically disenfranchised sections of the society, multi-billion dollar Ponzi schemes like Ezubao in China are too big of a risk to ignore. The main reason cited behind the Ezubao scam was “lack of enforceable regulations.” With the industry starting to spread its wings in the country, RBI stepped up its regulatory efforts in a bid to avoid such a scam in the country.

RBI initiated P2P regulations with the main motive to bring in a new age of economic reform and financial inclusion in India wherein every individual can have access to credit with better terms and transparency without risking the hard earned money of the lender on the platform.

P2P Lending: A Throw Down on RBI Regulations

RBI consultation paper clearly outlined the risk of money laundering attached with P2P lending and will also try to cap the interest rates charged at P2P platforms. The new framework will incorporate the following norms:

  • Recognition as NBFCs – All P2P lending platforms will come under the review of RBI and will be compulsorily registered as a Non-Banking Financial Corporation (NBFC).
  • Permitted Activity – P2P lenders will be permitted to serve only as mediators who would be responsible for matching and originating loan deals between lenders and borrowers. Besides that, all online portals must specify the adequate regulatory framework governing that portal and are further prohibited from giving any assured returns. To reduce the risk of money laundering, the funds must be transferred directly from the lender´s account to the borrower´s account. Under the guidelines of Foreign Exchange Management Act (FEMA), a law has been imposed on P2P lenders that strictly prohibit them from entering into cross-border transactions.
  • Prudential Regulations – RBI has mandated a capital requirement of $312,000 (INR 20 Million) for all P2P lenders. In order to avoid indiscriminate expansion, RBI will prescribe a leverage ratio and also put a limit on the contribution made by a single lender towards a particular loan.
  • Government Regulations – It was reported that RBI has made it mandatory for all P2P lending portals to adopt a company structure. As a result, this notification will render all the services provided by other organizational structures such as sole proprietorship, partnership, or LLP (Limited Liability Partnership) as non-compliant.
  • Business Continuity Plan (BCP) – In order to ensure smooth flow of operations, the platforms are required to integrate efficient risk management systems and proper backup processes. Moreover, to ensure that operations do not cease due to any event, companies should prepare a Business Continuity Plan (BCP).
  • Customer Interface – All P2P platforms must give top most priority in ensuring confidentiality of customer data and to offer complete transparency in its operations. Also, platforms must install a proper grievance handling mechanism to address complaints of lenders and borrowers.
  • Reporting Requirements – All online P2P platforms are required to submit a regular report on their financial position, loan arrangement deals, and summary of complaints, if any, filed by borrowers or lenders with RBI.

Impact of RBI Regulations

Guidelines and regulations proposed by RBI are expected to impact the P2P lending space in the following ways:

  • More at Stake for P2P Lending Platforms – The new $312,000 (approx) capital requirement will lead to small players shutting shop. This will allow serious players to emerge and restrict operations of fly-by-night operators looking to dupe the general public.
  • Opportunities for Growth – RBI guidelines would help minimize the risk of money laundering, and moreover, would help stabilize the industry by introducing streamlined and standard procedures for loan origination. Investors in such platforms would not need to worry if they are compliant with the law.
  • Higher Quality of Credit – RBI has made it compulsory for lenders to maintain a database of loan deals originated and a proper record of borrowers who failed to meet their financial commitments. This database is the first step in controlling fraud. It will also help in reducing loan stacking, a common problem plaguing the P2P industry all over the world.
  • Greater Transparency and Accountability – Platforms would need to report to RBI on a regular basis. Anyone found non-compliant would risk RBI snatching its license or face heavy penalties. This would ensure greater transparency and accountability for the entire ecosystem.

Conclusion

What once used to be a relatively small part of the fintech industry has turned into a viable option for Indian lenders as well as borrowers. The fact that RBI has framed regulations for P2P lending goes to show that the industry is ready to move to the next level of market adoption. Regulations will surely help all the stake holders involved but the biggest winner will be the underserved Indian population who can finally step on the credit ladder.

Author:

Written by Heena Dhir.

Friday May 5 2017, Daily News Digest

Friday May 5 2017, Daily News Digest

News Comments Today’s main news: Lending Club’s Q1 2017 results: a little disappointing. SmartFinance to IPO in U.S. Prosper says system error overstated returns. Details on NAV’s raise of $38mil Series B. Next Insurance secures $29M during Series A. Metro Bank hits 1 million accounts. LendIt Europe to meet in London this year. Mexican fintech raises $4M in Series A. Today’s main […]

Friday May 5 2017, Daily News Digest

News Comments

United States

United Kingdom

  • Metro Bank hits one million accounts. GP:”This is a very large number of accounts. I am very impressed.”AT: “Great achievement. Congratulations.”
  • Sand. Meet Head. GP:”Certainly worth a read.”AT: “I love Anand’s sense of humor, but his insights are prescient, as well. I’m always amazed at the hubris of incumbents in any industry. Any time there is market disruption, the surest path to survival is humility, not boasting.”
  • LendIt Europe returns to London. GP:”I think there was no doubt it will be in London and stay in London. “
  • Robo-advisor to provide full retirement advice in two hours. GP:”I am not sure why it takes 2 hours to compute such a simple algortihmic solution. “AT: “This sounds like a joke, but I know it isn’t. I think most people will want the robot’s advice checked by a human until they are 100% comfortable with the technology.”
  • Octopus-backed Moola goes live.
  • What is fintech and why Google and Facebook will be the banks of the future. GP:”Google is already struggling to defent against monopole attacks and Facebook is avoiding carefully to be turned into a credit bureau. I doubt they will move in that direction. Also banks don’t have a good image with the public and aren’t that profitable so I see no reason for Google or Facebook to come even close to being banks.”AT: “The headline is misleading and somewhat overstated.”
  • Fintech: What will bring the most change? AT: “A poll indicates that blockchain may be the most disruptive fintech technology in fintech. I think it certainly has the potential to be, but we haven’t seen it yet.”
  • What does rising inflation mean for your money? AT: “A blog post at Funding Circle.”

China

European Union

India

Middle East

Central America

News Summary

United States

Lending Club Reports First Quarter 2017 Results (Crossroads Today), Rated: AAA

($ in millions)

March 31,
2017

December 31,
2016

March 31,
2016

Originations

$

1,958.7

$

1,987.3

$

2,750.0

Net Revenue

$

124.5

$

130.5

$

152.3

Net Income (Loss)

$

(29.8)

$

(32.3)

$

4.1

Adjusted EBITDA (1) (2)

$

0.2

$

(0.9)

$

26.3

Key accomplishments and developments in the first quarter across the Lending Club platform include:

Investors

  • Banks further increased their purchasing, funding 40% of total originations for the quarter, up from 31% in the fourth quarter, and retail investors expanded to 15%, up from 13% in the prior quarter
  • Developed a retail investor mobile application, now available in the App Store
  • Lending Club initiated activities to support the securitization of Lending Club loans with external partners

Borrowers

  • Achieved another nearly $2 billion originations, surpassing $26 billion in total loans since inception almost ten years ago
  • Continued the Company’s lead as the largest personal loan provider in the U.S. with a borrower base of almost 2 million individuals
  • Introduced an enhanced version of our Joint Application loan program, giving borrowers the ability to jointly apply for a personal loan

Adjusted EBITDA (3) Adjusted EBITDA was $0.2 million in the first quarter of 2017, improving $1.0 million from the fourth quarter of 2016, resulting from the decrease in revenue noted above, and a decrease of $10.3 million in other general and administrative expenses. The decrease in other general and administrative expenses was primarily driven by an insurance recovery of $9.6 million. Adjusted EBITDA also includes $10.6 million of expenses primarily associated with the Board Review that was disclosed in 2016.

Lending Club’s $ 30M quarterly loss is its smallest in the last year (American Banker), Rated: AAA

Lending Club, the online consumer lender whose fortunes were hurt by scandal last year, lost $29.8 million in the first quarter amid lower revenues and rising expenses.

BRIEF-Lending Club reports Q1 adjusted loss per share $ 0.02 (Reuters), Rated: AAA

  • LendingClub corp – qtrly originations $1,958.7 million versus $2,750.0 million
  • Q1 adjusted loss per share $0.02
  • Q1 loss per share $0.07
  • Q1 earnings per share view $-0.03 — Thomson Reuters I/B/E/S
  • Q1 revenue $124.5 million versus i/b/e/s view $122.8 million

Here is the Lending Club Q1 Earnings Deck (Crowdfund Insider), Rated: AAA

Below is the Lending Club Q1 earnings deck. The company is predicted Q2 growth of 6% to 10%. Full year sequential growth is expected to be 15% to 19%.

See the Lending Club Q1 2017 results in full here.

Lending Club slowly woos investors back after last year’s scandal (Financial Times), Rated: AAA

In the first quarter the San Francisco-based company originated $1.96bn of loans, it said on Thursday, down slightly from the $1.99bn of the fourth quarter. Banks bought 40 per cent of the loans, up from 31 per cent in the fourth quarter, indicating that many are now satisfied that the company has ironed out its problems.

But net revenues for the quarter were $125m, down 5 per cent from the fourth quarter. The quarterly net loss was $29.8m, slightly less than the previous period.

According to data from Orchard, a technology provider to the industry, total returns from an index of US consumer loans came to 3.95 per cent last year, down from 8.71 per cent in 2014.

Online Lender Prosper Says System Error Overstated Returns (Bloomberg), Rated: AAA

Prosper Marketplace Inc., one of the largest U.S. online-lending platforms, notified the majority of the investors that buy its loans that it had overstated their annual returns due to a system error, a spokeswoman said.

The error has been fixed, according to spokeswoman Sarah Cain. Some of the investors that were affected saw their annual returns fall in half, but in most cases returns fell less than 2 percentage points, Cain said. The issue has been going for “several quarters,” she said.

The glitch didn’t affect the cash that investors received, tax documents, expected future returns, or any other information the startup provided to loan buyers. In a small number of cases, returns were understated, Cain said.

Q1 2017 Shareholder Letter (Square), Rated: AAA

Our first-quarter results demonstrate our continued ability to grow the business at scale while balancing investment and margin expansion. Improvements in net loss and Adjusted EBITDA reflect strong top-line growth, coupled with ongoing operating leverage and improvements in transaction loss rates. Similar to previous quarters, we saw strong momentum across our products, with revenue growth driven by both transaction-based and subscription and services-based monetization.

We launched in the UK, our fourth international market, where small and medium businesses (SMBs) generated £1.8 trillion of revenue in 2016.

Square is a great fit for the UK market, which has 5.5 million SMBs2 and a thriving entrepreneurial scene. The annual revenue of SMBs in 2016 was £1.8 trillion, which is 47% of all private sector UK revenue. In the UK, the average adult now carries less than £25 in cash and 70% of shoppers prefer to pay by card, yet industry research estimates that half of UK small businesses still do not take card payments. Our contactless and chip reader aims to meet the needs of the UK market, where there are more than 100 million contactless cards.

See Square’s full Q1 2017 report.

FT Partners Advises NAV on Series B Financing (FT Partners), Rated: AAA

Read the full announcement here.

PeerStreet Hits New Milestone: $ 300 Million in Loans Funded (PeerStreet), Rated: A

Under a year ago, we announced PeerStreet had funded $75 Million, October we rounded $150 Million and now, thanks to the ongoing support from our investors and lenders, we’ve just surpassed $300 Million with zero losses to date.

The number of lenders PeerStreet works with has grown from 25 to 89. The loans we’ve recently made available for investment are more diverse than ever, with 11 new states added since this time last year, now totaling coverage across 28 states and Washington D.C. Currently, we are publishing triple the number of loans we did a year ago. To support this growth, our underwriting and portfolio management teams have doubled since last year.

Next Insurance Secures $ 29 Million During Series A Funding Round (Crowdfund Insider), Rated: A

Next Insurance, an insurtech company that specializes in small to medium businesses, announced on Wednesday it secured $29 million during its Series A funding round, which was led by Munich Re/HSB Ventures with participation from  Markel, Nationwide, and other existing investors.

The funding from the Series A funding round will go towards continuing to grow Next Insurance’s insurance products and expand the company’s offering to new business sectors. The announcement follows Next Insurance’s recent release of the first ever Facebook chatbot for small business insurance.

CAN ALTERNATIVE DATA SOLVE ONLINE LENDERS’ ‘ALGORACISM’ PROBLEM? (The Alternative Lending Report), Rated: A

A March 2017 letter written by Congressman Emanuel Cleaver, II (D-Mo.), to Consumer Financial Protection Bureau Director Richard Cordray raises fresh concerns about “algoracism” tainting the creditrisk-scoring models used by online lenders.

Cleaver’s letter highlighted five predatory practices cited by the HBS paper as pervasive in the “Wild West” of online lending and alleges that risk-scoring algorithms may be designed to discriminate against minorityowned, small business borrowers.

Minority-owned businesses comprise roughly 15% of the 28.8 million small businesses in the United States, according to a 2016 Small Business Administration report.

Biased algorithm design can occur if engineers code data correlation parameters with attributes that make inadvertently discriminatory assumptions, which could be violating the Equal Credit Opportunity Act. ECOA prohibits creditors from discriminating against borrowers on the basis of race, color, religion, national origin, sex, marital status, age or because they receive income from a public assistance program.

In fact, FastPay’s loan algorithm is over 80% weighted towards the credit risk of the brand counterparties, which typically average 90-days sales outstanding before they pay their creative and advertising technology vendors. Despite prolonged payment terms, Proctor & Gamble and other Fortune 500 brands pose extremely low credit-default risks to invoice financiers like FastPay.

Ultimately, Arora attributes flawed credit-risk modeling in fintech to the big banks that refuse to share data. But banks in the U.S., unlike in Singapore and the UK, where lenders are opensourcing their loan algorithms, see no incentive to make accountholder data available to third parties.

Regardless, Mills said Kabbage, which charges an annual percentage rate, ranging from 24% to 99%, is an interesting fintech small business lender because they factor variables like borrower credit card data and the company’s Facebook page into their risk scoring models.

Source: The Alternative Lending Report

See the full report at SmallBusinessLending.io.

How Lending Club Is Differentiating Itself From Other Online Lenders (Forbes), Rated: A

In less than a year, Sanborn cut and rehired 179 jobs and hired a new CFO, COO, general counsel and chief capital officer. In addition, the company launched a new auto refinance product and an investor mobile application, Lending Club Invest.

Sanborn: Nearly 75% of borrowers also say that their FICO score has increased by 19 points after consolidating debt or paying off credit cards, which can help put them on a better financial track.

Sanborn: Today we have more than 148,000 retail investors – more than any other online lender. Part of the evolution of our marketplace is growing and balancing the mix of investors – having the right mix of investors strengthens our marketplace and makes us more resilient, scalable, and better able to serve a wide range of borrowers of all credit profiles.

Sanborn: Our mission has been to transform the banking system to make credit more affordable and investing more rewarding. So, everything that we do comes from this goal and with the intention of delivering a great experience for everyone who comes to our marketplace. With 10 years of experience and incredibly powerful data and insight that informs us on our customers’ behaviors, choices and needs. We’re also able to calibrate this data into our models to price credit risk and better manage our marketplace and the success of both our borrowers and investors.

A traditional bank uses government-guaranteed deposits to lend to make a spread and can only give loans to a narrow spectrum of borrowers. Our credit marketplace attracts investors that span retail, asset managers, funds and banks, all with different risk appetites, to invest in loans across the credit spectrum so we can say yes to more borrowers. Our diverse investor base also means we’re not reliant on any one type of investor to fund our loans, so we have the agility to pivot funding channels to meet changing market conditions.

OCC fintech charter plans in jeopardy as Curry departs (Finextra), Rated: A

Proposals by the US Office of the Comptroller of the Currency to issue special purpose banking charters to fintech firms are up in the air following the departure of leading advocate Thomas Curry and his replacement as acting head of the Federal agency by Simpson Thacher & Bartlett partner Keith Noreika

Curry completed his five-year term as Comptroller last month but planned to stay on and push through his controversial fintech charter.
Noreika, a member of the Trump transition team, has extensive experience advising banks on regulatory issues, although his views on Curry’s fintech plans are not known.

Crowdfunding Real Estate Isn’t Just For Millionaires Anymore. (Yes Magazine), Rated: A

In up-and-coming neighborhoods, it’s not uncommon for developers to swoop in and alter historic buildings beyond recognition, or tear them down completely to make way for new projects. But when Eve Picker, president and founder of the real estate crowdfunding portal Small Change, came across a three-story property called the Buvinger Building in Pittsburgh’s Lawrenceville neighborhood, she saw a way to both preserve history and add much-needed housing units in a thriving area.

Luckily for Picker, the funding process is easier than it used to be. She posted a detailed project overview on Small Change’s website, which included information about the building’s history and aesthetics, the financial returns and risk factors, and a link to invest. Small Change met their investment goal of about $240,000 in just under three months, and construction on the project began in late Feb. 2017.

Though the internet paved the way for Title III crowdfunding, it solves a problem that existed long before the digital revolution. When securities regulations were put in place to protect non-wealthy investors after the stock market crash of 1929, one unintended consequence was that those very same investors were frozen out of a broader range of investment opportunities. It took years for the SEC to approve the Title III regulations in the JOBS Act, Roderick explains, because of the challenge inherent in striking a balance between protecting investors and making it easier for developers to raise money.

Small Change, however, is raising more than just capital. It’s a crowdfunding platform that backs real estate development projects only if they benefit underserved communities.

It also means that, in addition to financial returns, many Small Change investors are seeking investments that align with their values. It’s not something easy to quantify—and that’s where the Change Index comes in. The index is Small Change’s proprietary system for measuring a project’s viability in terms of transportation, the environment, and economic inclusiveness.

The Index also provides a metric for potential partners and investors to gauge their compatibility with a particular project.

Small Change plans to launch its first Reg CF offerings later this spring. It’s still one of only about 25 Title III electronic crowdfunding portals that the SEC has approved. While most Title III portals are focused on startup and small business financing, Small Change deals exclusively with real estate, which makes it even more of an outlier.

Major Credit Unions Will Unveil New Blockchain Tech Next Week (Coindesk), Rated: A

CULedger, a consortium project unveiled late last summer, is supported by more than 50 credit unions and four of the biggest credit union service organizations in the US. Spearheading the project are the Credit Union National Association and Mountain West Credit Union Association (MWCUA).

Those involved in the initiative say they want to utilize the tech in a bid to improve how credit unions function – while also making them more competitive in an increasingly tough environment for financial institutions. The idea is to create a blockchain-powered utility through which credit unions could send money or exchange other types of information.

FinTech and Digital Wallets are the Core of Financial Inclusion (Due), Rated: B

In a FDIC survey released in 2016, the Federal organization found the roughly 7% of American households are unbanked. That is 9 million households with no checking account or savings account. No direct deposit. No credit cards. These families utilize virtually no mainstream financial services. In some parts of the country, as much as 40% of the population is unbanked!

With no bank relationship, these individuals have little if any credit history and poor credit scores. There is a lack of trust and understanding of how banks and mainstream financial services work. This is a serious problem the entire financial industry needs to overcome.

Instead, less savory businesses are often chomping at the bit for this demographic’s financial business. Payday loans, title loans, and other expensive, low-quality financial products are all these people have had access to.

In many ways, digital wallets work like a bank account. You can store funds, make payments, and transfer to other financial accounts. In the case of Bluebird, you can even write checks!

Digital wallets look a lot like a regular checking account to outsiders, but there are some important technical differences between bank accounts and digital wallet accounts.

Financial technology startups are not encumbered by those sentiments. While the rules of the game are the same, startups can quickly adapt to new market trends, customer feedback, and more.

Unlike a giant bank where you have to navigate a series of annoying phone menus to reach a live human, startups are right on the pulse of what their customers are saying and doing. That is a major advantage.

United Kingdom

Challenger bank hits one million accounts (AltFi), Rated: AAA

Metro Bank surpasses one million customer accounts less than seven years removed from launch.

Metro Bank, which became the first new high street bank in the UK for over one hundred years in 2010, now has more than a million customer accounts. The milestone was reached, fittingly, on the bank holiday Monday, when the majority of incumbent banks are closed.

Some stats from the last seven years include: being open 75 per cent longer than the average bank, saving customers over 4 million days by printing over 1 million cards instantly in-store, and preventing over 20,000 cards from being cancelled unnecessarily.

Sand. Meet head. (CB Insights), Rated: AAA

Source: CB Insights
Source: CB Insights

It goes by many names.

Hubris.
Arrogance.
Cluelessness.

It’s also worth understanding that there is no upside to saying stuff like this.

Cuz more often than not, you’ll find yourself on the wrong side of history like so many of these CEOs.

And then we’ll make slides to immortalize your cluelessness.

Europe’s largest lending and fintech event, LendIt Europe, returns to London this autumn (LendIt Email), Rated: AAA

LendIt Europe 2017 launched last night with a cocktail reception for 75 of London’s fintech elite at the Dion in St. Paul’s. The 2017 event is set to be Europe’s largest lending and fintech event, with over 1,000 participants from the UK and Continental Europe as well as North America and Asia. Taking place at the Intercontinental O2 Hotel on October 9-10, this year’s conference is expanding with the industry to cover the hottest topics in fintech including blockchain, insurtech, digital banking, and much more.

Early confirmed keynote speakers are Jaidev Janardana, CEO of Zopa, Francesco Brenna, Partner at IBM Global Business Services, and Shane Williams, co-founder of UBS Smartwealth. With six tracks of content including Digital Banking, Credit & Underwriting, Policy & Regulation, The Cutting Edge in Fintech, Innovations in Lending, and Investor Insights, this year’s LendIt Europe agenda will be the most comprehensive yet, with more details being released on www.lendit.com/europe in the coming months.

A featured component to this year’s conference, and back for its second year running, is the PitchIt startup competition. PitchIt allows innovative fintech startups from across EMEA to present their solution in front of the LendIt audience of international investors and industry leaders. The PitchIt programme has been an exciting part of the LendIt series of events, with past winners and finalists going on to secure significant investment and publicity.

Robo-adviser to provide full retirement advice in 2 hours (FT Adviser), Rated: A

Robo-adviser Wealth Wizards has launched a new automated paraplanner tool to help firms provide retirement advice in less than two hours.

Wealth Wizards said the tool generates a “regulated advice solution” made up of an annuity, drawdown or a blend of the two.

The report could then be edited by an adviser to make sure it suited the client’s needs.

Octopus-backed robo advisor Moola goes live (AltFi), Rated: A

Investors have a new robo advisor to choose from following the soft launch of Moola.

The firm, which is backed by private equity specialist asset manager Octopus, announced back in December that it had received full regulatory approval from the Financial Conduct Authority (FCA) as well that it had arranged a tie-up with Blackrock-owned ETF provider iShares.

The passive only portfolios are risk targeted and cost just 0.75 per cent per year.

What is FinTech and why Google and Facebook could be the banks of the future (Manchester Evening News), Rated: A

In total, the sector generated almost £7bn revenue last year and now employs more than 60,000 people.

Not only that, but the big players are wising up to this need for disruption with Barclays opening a flagship FinTech accelerator in May, offering 500 workspaces for start-up innovators.

HSBC and Tradeshift have also confirmed that their new ‘procure-to-pay’ product will go live in summer allowing businesses to manage their entire supply chain and working capital requirements in one place, from any device.

The innovation specialist at SoftwareONE said: “Back in the 80s, when ATMs came into play, people thought it would be the end of bank branches and jobs, but instead it freed up clerks to perform other tasks, like mortgage advice, which actually added value to the customer.

“Moving on to the current day and bank branches have now become mobile phones – or apps – people can access their accounts and information at a touch of the screen.”

AccessPay, which moved from London to Manchester, is flying after a recent £2m funding boost.

Based in City Tower, the fast-growing firm is looking to recruit 60 new staff and expand into the US after securing funds from Clydesdale and Yorkshire Banks’ Growth Finance team.

The specialist in cloud-based payments and cash products has been driving innovation in the sector since it was founded in 2012.

Fintech: What Will Bring the Most Change? (City A.M.), Rated: A

Finance professionals have two basic questions about fintech and what it means for them:

  • How will fintech positively affect their careers?
  • How will fintech negatively affect their careers? For example, will peer-to-peer (P2P) lenders replace banks as the preferred platform or intermediary for borrowing and lending? If the answer is yes, then bank loan officers and credit risk analysts should start looking for alternative careers. The particular areas of fintech that evoke this sort of existential concern include blockchain, mobile payment, P2P lending, and robo-advisers.

 

The responses of our 333 poll participants suggest that interest in blockchain technology has risen to an all-time high, with four out of 10 readers opting for that choice. Another 22% are believers in robo-advisers.

Read between the lines: What does rising inflation mean for your money? (Funding Circle), Rated: B

Inflation is rising – and is set to climb even higher by the end of the year. Official figures revealed a surprise jump in the headline rate of inflation to 2.3% in March, its highest rate for four years. And it is estimated to climb to 2.8% by the end of the year.

But there’s one area where inflation is hitting hard right now – our savings. If you can’t get a savings return higher than inflation, you’re losing money. The cash in your nest egg will be worth less and less as inflation outstrips the returns you get. And right now, no-one can get an inflation-beating rate from traditional banks and building societies with even the much-heralded new Government-backed savings bond paying less than inflation at 2.2%.

China

Chinese online lender SmartFinance targets IPO in US (Deal Street Asia), Rated: AAA

SmartFinance, a Chinese internet loans business that judges borrowers on factors including how often they charge their phones, has consulted banks about a possible U.S. listing that could happen as soon as this year.

The rapidly expanding company, which anticipates it will reach a $1 billion valuation by the end of 2017, has hired former Cheetah Mobile Chief Financial Officer Andy Yeung to help better manage investor relations and smooth the path to an eventual listing.

Jiao, who is known to colleagues by his English name UBee, told Bloomberg the company’s next step is an initial public offering, probably in the U.S. By the end of 2017, he expects to have more than 2,000 staff and facilitate as many as 4 million loans a month.

SmartFinance is more commonly known as Yongqianbao, which translates as “need money pal,” and taps into as many as 1,200 data points collected by its smartphone app to assign credit ratings for would-be customers. Making calls that go unanswered or failing to frequently charge your phone are all potential signs of a problematic borrower.

China’s Ping An to launch first overseas fintech and healthcare fund of $ 1 bln (Reuters), Rated: A

Ping An Insurance Group Co of China Ltd, the country’s largest insurer by market value, is launching its first overseas fund to primarily invest in financial and healthcare technology worldwide, underscoring its push beyond its home market.

The initial size of the so-called Ping An Global Voyager Fund will be $1 billion, the insurer said in a statement on Thursday. It will be managed from Hong Kong and led by Jonathan Larsen, an 18-year stalwart of Citigroup who joined Ping An as its chief innovation officer.

P2P Industry News (Xing Ping She Email), Rated: A

IPO boom of P2P Lending platforms is coming!
China Rapid Finance (CRF) has gone public in the US and it is also the second P2P Lender listed successfully in America, which may bring an IPO boom of Internet finance industry.

It was revealed that Qudian, a P2P lender focusing on providing consumer finance products for young people, has already submitted their IPO prospectus to the SEC, expecting to finish IPO process by the second quarter of this year. Fintech companies such as PPDAI, Lego Group Inc. Are also actively preparing for US IPO. Several giants are among the long waiting list of IPO candidates, including Ant Financial, Lufax, Zhongan Insurance and Jingdong Finance etc. In fact, the assessment value of Ant Financial has already reached to $60 billion, and once the IPO could be successful, the director Jack Ma may become the China’s richest person again with holding at least 5% shares.

Ant Financial planning to buy MoneyGram with $3.5 billion Loan
Recently, an insider revealed that Ant Financial is going to sign a loan contract valued $3.5 billion for the acquisition of an American company MoneyGram International.

The loan application has attracted 14 providers, including ANZ, Barclays, Citi, Credit Suisse, DBS, Goldman Sachs, HSBC, ING, J.P. Morgan, Mizuho Bank and Morgan Stanley. With Deutsche Bank and Societe Generale participated as leading banks, and BNP Paribas SA is the sponsor. Ant Financial has got the Green Light for the acquisition by raising the biding price by 1/3 and surpassed its rivals.

European Union

Altisource Launches Enhanced Vendor Oversight Platform to the Market (Yahoo! Finance), Rated: AAA

Altisource Portfolio Solutions S.A. (“Altisource”) (ASPS), a leading provider of real estate, mortgage and technology services, today announced the expansion of the Vendorly™ platform, an innovative vendor oversight platform for financial institutions. The platform launched last year exclusively for members of the Lenders One® Cooperative, a national alliance of independent mortgage bankers, and is now available to the broader mortgage and community bankers market outside of the Lenders One network. The Vendorly platform is designed to help streamline vendor due diligence, document maintenance, monitoring and audits.

The scrutiny of vendor oversight practices continues to be a focus of regulators. It’s important for mortgage and community bankers to have a multifaceted vendor oversight program. Through the Vendorly platform, and its vendor oversight offerings, Vendorly can help strengthen its customers’ compliance management framework and increase their operational efficiencies. Vendorly offers managed vendor oversight services, including due diligence, document management, annual assessments, information security assessments, financial condition reviews and on-site audits.

Vendorly is announcing collaboration with Secure Insight, an innovator in the mortgage industry in providing settlement agent risk evaluation, rating, monitoring and database reporting on fully vetted mortgage closing professionals. Currently servicing close to 100 clients nationwide, Secure Insight will deliver real-time risk ratings and related settlement agent data to clients through the Vendorly platform. Together, Secure Insight and Vendorly intend to develop a platform that produces a transaction-based tool with risk data on each transaction prior to a closing (and just before the proceeds are wired). It is expected that this process will provide data in a more efficient, streamlined manner and give lenders greater comfort in the protection of their money, documents and consumer data at each closing.

India

i-lend plans to venture out with funds from 50K  (India Times), Rated: A

Peer-to-peer lending startup i-lend has raised an undisclosed amount in a pre-series A round from early-stage venture capital firm, 50K Ventures. It plans to spend the money on marketing, scaling up and expanding its core team.

The Hyderabad-based company recently started operations in Bengaluru and plans to expand to a few more cities in the coming months. It is also looking to raise Series-A funds later this year.

The company has disbursed more than 600 loans since its inception in Ventures is thinking 2013 and 50K Ventures is thinking about expanding i-lend to other verticals.

Why Nomura, Google, IBM and Amazon are Investing in Indian Fintech (Edgy Labs), Rated: A

In a press release, Nomura Holdings, Inc. unveiled its initiative, called the “Voyager-Nomura FinTech Partnership in India.” Through the Voyager Program, the company invites startups and entrepreneurs with innovative Fintech solutions for the financial industry, especially capital markets and investment banking.

To further consolidate the Voyager Program, Nomura Holdings has recruited the expertise of many authoritative partners, including Google, Amazon, IBM, PwC and Internet Services Pvt. Ltd.

Middle East

Responsible finance summit focus on Islamic fintech (Middle East Association), Rated: AAA

With the retail share of responsible investment doubling to 26 per cent in 2016, ethical, responsible and Islamic fintech can support further growth to deliver the financial products, experts said at a summit in Zurich, Switzerland.

The Responsible Finance & Investment (RFI) Summit opened yesterday (May 3) with leaders from across the responsible investment, impact investment and Islamic finance sectors gathering to discuss how to promote greater awareness of and engagement within responsible finance.

The first day’s sessions focused on ethical, responsible and Islamic fintech and the power they harness which can disrupt financial services and in doing so address the inequities in society and support equitable, inclusive and sustainable economic growth.

Central America

Sr. Pago raises 4 million dollars in its Series A investment round (Crossroads Today), Rated: AAA

Sr. Pago, the first 100% Mexican financial integrator for acceptance of credit and debit cards provided for the country’s non-banking population, through the placement of its Series A has successfully raised four million dollars in capital, thus ensuring the acceleration of its operations and underpinning its long-term vision.

This raising of capital is taking place thanks to the confidence of three recognized investment funds: IGNIA and EB Capital, with headquarters in Mexico City, and an international fund with its headquarters in Miami, FL, which through this capitalization have become strategic partners of Sr. Pago, supporting the business model of this Mexican Fintech company as the only one that has the country’s non-banking economically active population as its primary market and main consumer.

Authors:

George Popescu
Allen Taylor

Wednesday February 1 2017, Daily News Digest

Zopa loan originations

News Comments Today’s main news: Betterment to offer human advice. Dubai to open to crowdfunding. Today’s main analysis: Zopa provides insight into borrowers. Today’s thought-provoking articles: Why Yirendai is not a good investment. i-lend expands across India. United States Betterment to offer human advice. AT: “If there was ever evidence that robots won’t kill human financial advisors, […]

Zopa loan originations

News Comments

United States

United Kingdom

European Union

China

  • Investors should be leery of Yirendai. AT: “This is a very long, detailed analysis of Yirendai from an investment standpoint, however, there are some great insights into the Chinese P2P lending market from a business standoint, as well. Could the Chinese be headed toward an LC-style crisis?”

India

Middle East

United States

Betterment now offering human advice with its robo (InvestmentNews), Rated: AAA

The New York-based firm has hired about a dozen financial advisers, half of them certified financial planners, whom Betterment’s retail clients can now reach out to for help via phone or email for an additional cost, the firm said Tuesday. It’s offering two tiers of service, with the initial digital-plus-adviser service requiring clients have a $100,000 minimum.

The Betterment Plus service will give clients with at least $100,000 in assets an annual planning call with an adviser and unlimited advice via email for 40 basis points, while Betterment Premium will provide unlimited calls and emails for clients with $250,000 in assets for 50 basis points.

For its core digital-only clients, Betterment recently changed its pricing from a tiered system based on assets to a 25 basis point annual fee no matter the account size. As a result, clients who have less than $10,000 in their accounts will see their fee decline from 35 basis points, and clients with $100,000 or more will see it increase from 15 basis points.

Former CIO of the CFPB and FinTech Entrepreneur Joins FinMkt’s Advisory Board (deBanked), Rated: A

New York City-based FinMkt, a leading provider of marketplace technology solutions for the financial services industry, today announced the addition of Tim Duncan, a seasoned financial technology entrepreneur and innovative leader, to its Advisory Board. Tim brings an impressive roster of experience, including serving on the executive launch team for the U.S. Consumer Financial Protection Bureau as its Head of Technology and CIO. Tim will advise FinMkt’s management team on strategy and product development.

Tim was recruited by Elizabeth Warren, then Special Assistant to the President of the United States, to join the executive team tasked with launching the CFPB on time and on budget. As Head of Technology and CIO, Tim led technology strategy, planning, and implementation for this inaugural federal agency in the digital age with a budget of $500 million. Under his leadership, the agency implemented an agile, lean process to document, budget, approve, and prioritize technology projects and also became the first federal agency to utilize scalable commercial cloud services while increasing staff from 50 to 500 in an 18-month period.

PeerIQ Announces Agreement with Freedom Financial Network (Yahoo! Finance), Rated: A

PeerIQ, a leading provider of data and analytics for the online lending sector, today announced that Freedom Financial Asset Management, a subsidiary of Freedom Financial Network and one of the fastest growing marketplace lending platforms offering unsecured consumer debt, has adopted the PeerIQ Analytics Platform for enhanced loan data management, reporting, and portfolio analysis—for use by both Freedom’s capital markets team and institutional buyers of Freedom loans.

By adopting PeerIQ’s platform, Freedom Financial will leverage PeerIQ’s full suite of tools: investor dashboards, loan surveillance, portfolio benchmarking, automated reporting, credit facility monitoring, ca­­­­­sh flow analytics, and loan performance modeling.   Moreover, PeerIQ will offer the same tools for institutional investors to streamline diligence of Freedom’s loan data and monitor existing loan portfolios.

Finally, Freedom has tapped PeerIQ to serve as the independent “fair value” valuation provider for its asset management arm.  Drawing upon its deep experience in credit and lending, including its strategic data partnership with TransUnion, PeerIQ launched its valuation service last year.

Braintree hires former Lending Club exec as chief technology officer (Chicago Tribune), Rated: A

Braintree, the Chicago-based mobile payments company, has hired Lending Club’s former chief technology officer.

In his role at Braintree, John MacIlwaine will lead all aspects of product development, the company’s general manager, Juan Benitez, wrote in a blog post announcing the move Tuesday.

FT Partners’ CEO Monthly FinTech Market (FT Partners), Rated: A

FinTech M&A
* 

Industries Where FinTech Is Changing The Game (NASDAQ), Rated: B

The first area where FinTech has made a serious impact is lending.

Loans are happening faster than ever before and the use of technology has improved both business efficiencies and is making headway on lowering risk, thereby also lowering rates for borrowers while still maintaining healthy profit margins.

RedFin has taken a stand against inefficient real estate transactions and the traditional 6% fees. They understand that most of the home search process now takes place online and by streamlining the transaction process with technology, they can lower costs.

Taking changes a step further, startups like RealtyShares are taking the marketplace lending model to real estate investors. Now real estate developers and project managers can look to the marketplace for lending instead of banks.

The payments industry is another area where startups are disrupting the norm.

Due is working to make business payments and digital wallets easier and cheaper for freelancers and other business owners around the world.

SoFi Ranks Fordham Law Graduates No. 15 In Average Salary (The Fordham Ram), Rated: B

Fordham University claimed a spot on SoFi.com’s released 2017 rankings of highest average graduate salary rates. At No. 15 with an average graduate salary of $160,590, Fordham comfortably ranks in the top 20 law schools for graduate salaries. Average debt of Fordham Law graduates is $151,406, giving Fordham a 1.1 salary to debt ratio, according to SoFi.

United Kingdom

Zopa gives insight into its borrowers (Business Insider), Rated: AAA

The numbers point to a solid borrower base. The press release indicated that the top three types of loans on Zopa’s platform are car loans at 34% of the total origination volume; debt consolidation at 31%; and home improvement at 20%. This indicates that debt consolidation loans, the

Lewis: Peer-to-Peer Lenders Expect Higher UK Rates (Bloomberg), Rated: A

The Bank of England would want to get ahead of spiking inflation, says Rhydian Lewis, CEO of peer-to-peer lender RateSetter. He told Daybreak Europe’s Markus Karlsson that customers on his platform expect interest rates to rise.

Listen to the podcast.

Anthony Hilton: Let’s be positive as peer-to-peer pain looms (EveningStandard), Rated: A

However, even in these benign conditions and despite Zopa’s obvious progress, some peer-to-peer firms are showing signs of strain. And most of those that appear successful have moved a long way from the original concept, under which people with surplus funds met via a platform on the internet people looking to borrow. Superficially, the industry still strives to be swanlike in its grace and stability, but under the water the paddling is in some cases increasingly frenzied.

Even big firms such as RateSetter have had pause for thought. From the beginning, it has used a small levy on borrowers’ interest payments to endow a compensation fund to be used to reimburse any lenders whose loans go sour. The problem that emerged last year was that RateSetter’s bad-debt experience was significantly worse than expected even in these good times. This briefly threatened to overwhelm the fund and, although some neat juggling meant disaster did not materialise, it did prompt a rethink about the scheme.

What all this means is that the honeymoon is over, the shake-out is beginning and what survives may bear little relationship to what set out on this journey. The bigger firms are gaining market share at the expense of the smaller, the venture capitalists are becoming much more choosy about whom they back, and a lot of the smaller poorly branded businesses will wither away.

This is inevitable and part of the usual cycle. Rather than be negative about it, it is worth remembering that — even if peer-to-peer lending is less innovative than originally hoped — it has still changed ideas about what is possible and how customers can be served.

So would you invest in Folk-2-Folk for 6.5% interest? (This is Money), Rated: A

Almost every other peer-to-peer firm is online only, but Folk2Folk is slightly unusual in that it has high street branches. Currently these are just in the West Country, but the firm is set to open a branch in Harrogate in February 2017, with others planned around the country.

Folk2Folk is also authorised by the Financial Conduct Authority. This is a good sign as it means that they have met a strict set of lending criteria and will be allowed to provide an innovative finance Isa in the future, meaning investors can earn interest tax-free on up to £15,240 in the tax year 2016/17.

Some peer-to-peer lenders let you invest with as little as £10 but Folk2Folk currently has a minimum investment level of £25,000 – this means the type of investors it would be suitable for are more likely to be reasonably wealthy.

All of its loans are backed by property, which can be repossessed and sold by Folk2Folk if a borrower were to default, helping creditors to recover at least part of the loan.

European Union

Belgian P2P lending startup Mozzeno launches (Finextra), Rated: A

The Belgian fintech startup mozzeno is launching the first digital platform to enable private individuals to participate indirectly in financing loans to other private individuals.

For investors, an accessible investment with returns of up to 5.79% gross and 3.91% net.

Investment Protection: mozzeno works with the loan insurer Atradius ICP which insures loans granted via mozzeno. Depending on the class of risk, this insurance covers from 60% to 100% of the payment of three late instalments and of the remaining amount of the loan.

China

Yirendai: Leaked Internal Emails Raise Much Deeper Concerns (Seeking Alpha), Rated: AAA

The P2P lending space in China is something akin to a Ponzi scheme which is rife with fraud. This is NOT an overstatement.

During 2016, YRD continued to report loan growth which was downright explosive. (But so did every other P2P player in China’s rapidly booming P2P space). Accordingly, the headline metrics for YRD looked temptingly good. YRD appeared to present a low P/E ratio, strong revenue growth, huge return on equity, etc. This began to attract a number of US quant funds (shown below) to take numerous small positions based on their “factor models”.

Ahead of the Ppdai IPO, the SCMP article quite clearly comes across as a warning to US investors who might be tempted to invest in a Chinese P2P. The SCMP makes clear what Chinese investors have known all along. Here are a few quotes from SCMP, which again came out just last week:

  • In China, “P2P lending… has been mired in a slew of scandals amid runaway investment and fraud since late 2015.”
  • “Beijing will heighten requirements for P2P players… The intention of the heightened regulation is partly to shut down some firms that purport to be P2P lenders.”
  • “dozens of unscrupulous players raised funds from depositors and then channeled the loans to corporate clients such as property developers.”
  • “In 2015, Beijing-based Ezubao was found to have defrauded more than 1 million investors of about 100 billion yuan.”

A large number of small Chinese retail investors (in this case, it was around 13,000 investors) log on with their smartphones and opt to make small investments in some sort of P2P loan product. There is no research and no due diligence. They just click on their smartphone and then “poof” they have invested in something which is supposed to provide some attractive level of returns. Their money is transferred out of their bank account immediately and automatically.

The reality as I see it is that YRD has largely been set up as a dumping ground for terrible subprime paper, foisting the future losses on oblivious US investors who are relying on superficial factor models.

India

P2P platform i-lend eyes pan-India expansion, fresh capital (India Times), Rated: AAA

Online peer-to-peer lending platform i-lend is preparing itself for a pan-India expansion and looks to raise Rs 4-5 crore from investors to finance it, founder director Shankar Vaddadi told ET.

Vaddadi said that the company is waiting for Reserve Bank of India to announce the final peer-to-peer lending norms before it takes steps towards building presence across the country.
India has about 30 online P2P marketplaces including Faircent, i2iFunding and LenDenClub.
Vaddadi said i-lend has processed 380 loans so far for Rs 3 crore.
Middle East

Dubai To Open Up To Crowdfunding Platforms, As Part Of Fintech Push (Forbes), Rated: AAA

The regulator of offshore financial hub the Dubai International Financial Centre (DIFC) is preparing to license loan-based crowdfunding platforms for the first time.

The consultation, which was launched on January 31, is the first in what is promised to be a series of initiatives covering crowdfunding and the financial technology (fintech) industry more broadly.

According to the local Khalifa Fund, around 70% of SMEs in the UAE have had their applications for funding from conventional banks rejected and loans to SMEs account for just 4% of outstanding bank credit in the country.

Authors:

George Popescu
Allen Taylor

July 5th 2016, Daily News Digest

July 5th 2016, Daily News Digest

News Comments United States According to the bond market yield-curve there is 60% chance of recession. However, the equity market doesn’t agree. Interesting times. A short survey on the different US regulators’ interaction with the marketplace lending space. New Capital Rules likely to be imposed on wall street will likely push bank-dealers to shut down […]

July 5th 2016, Daily News Digest

News Comments

United States

  • According to the bond market yield-curve there is 60% chance of recession. However, the equity market doesn’t agree. Interesting times.
  • A short survey on the different US regulators’ interaction with the marketplace lending space.
  • New Capital Rules likely to be imposed on wall street will likely push bank-dealers to shut down trading units in debt-securitization due to insufficient return on equity. This change could have a huge impact on marketplace asset backed securitization.
  • Wells Fargo continues to push FastFlex, their own quick SME financing product competing with OnDeck, Kabbage, CAN Capital and all other SME marketplace lenders.
  • Morgan Stanley is pointing out all the positive data coming out of Lending Club: higher origination than predicted in Q2 2016 and much more.
  • Lending Club’s CIO unvailing the future plans for Lending Club : Point-of-Sales, offline and a cloud-base micro-services platform.
  • CFPB’s monthly report points out the most-complained-about companies in consumer loans. It would be interesting to plot company size vs number of complaints.
  • Square analysts believe that more regulation in marketplace lending will favor Square vs its competitors.
  • Last week news, worth a reminder after the long weekend: Avant is downsizing, again.
  • Boston, feeling left behind in fintech, is launching a fintech hub initiative supported by Fidelity, Putnam, Santander Bank, U.S. Bank and Boston Private Financial.

United Kingdom

  • An interesting way to leverage your p2p investments: buying discounted P2P public fund shares at the present 20% discount, and relying on stock buy-backs to bet on up side in yield + equity appreciation.
  • Brexit: in short, fintech firms fear for staff shortages and lost EU customer access.

European Union

  • Insurer Aviva France, in partnership with Eiffel Investment Group and AG2R La Mondiale launching a €100 million fund to invest in “crowdlending SME debt” in France and elsewhere.
  • A list, without any transparency on the inclusion criteria,  of the top 11 p2p lending platforms in Europe, (Pre-Brexit), per Fintechnews.ch. And a very interesting map of relative p2p lending market size in European countries.

Australia

  • Public p2p lender DirectMoney preparing a new share issuance to finance loans as loan demand outstrips funding.”DirectMoney chief Peter Beaumont yesterday defended the fintech company’s stockmarket listing and expressed disappointment over losses worn by shareholders.”
  • OnDeck Australia and Commonwealth Bank (CBA) receiving the Fintech-Bank Collaboration of the Year Award.

India

  • P2P players are moving towards institutional capital for growth. Following in the footsteps of their US cousins, we hope the Indian p2p lenders have learned their lessons from Prosper, Lendnig Club and Avant’s experiences with institutional capital.

China

  • P2P lenders exiting office space in Shanghai have brought office space vacancies supply to a 10-year-high level.

Korea

  • Interesting data and information on one of the 1st Korean p2p lending companies we learn about.

News Summary

Unites States

Bond Markets Have a Message About the Economy That Stock Investors Might Not Want to Hear, (Bloomberg), Rated: AAA

There’s a big disagreement brewing in global markets.

There’s 60 percent chance of recession, according to a Deutsche Bank model.

While risky assets including equities have surged following the U.K. electorate’s historic vote to leave the European Union, government bonds have also rallied; two things that ought to suggest different outlooks for economic growth. Soaring bond prices have sent yields on the perceived safe havens of government debt plumbing fresh lows, even while expectations of looser monetary policy produce a burst of animal spirits in stock markets.

The flight to safety has prompted some analysts to question the durability of the rally in equities, where the S&P 500 was up 3.5 percent last week and the FTSE 100 has erased its post-referendum dip — at least, in local-currency terms. Still others say that money is pouring into stocks as lower bond yields force investors to search for returns in alternative asset classes.

The spread between the yield on 10-year and two-year U.S. Treasury notes narrowed in the immediate aftermath of the June 23rd referendum, widened briefly, and is now shrinking again as investors continue to flock to the perceived safety of U.S. government debt. A model maintained by Deutsche Bank AG’s Steven Zeng, who adjusts the spread for historically low short-term interest rates, suggests the yield curve is now signaling a 60 percent chance of a U.S. recession in the next 12 months — up from a 55 percent probability as of mid-June, and the highest implied odds since August 2008.

“This relentless flattening of the curve is worrisome,” Deutsche analysts led by Dominic Konstam said in their note on the model. “Given the historical tendency of a very flat or inverted yield curve to precede a U.S. recession, the odds of the next economic downturn are rising.”

The 10-year yield is currently at 1.44 percent, making a recession just about 40 basis points away according to this particular interpretation of the bond market’s moves.

Rundown of Regulator Interest in Marketplace Lending, (Lend Academy), Rated: AAA

U.S. Treasury

The Treasury first publicly showed interest in marketplace lending with a request for information(RFI) back in July 2015. Over 100 companies responded to the RFI and the Treasury reported on their findings in May 2016 where they shared their response in the form of a white paper. It did not provide any recommendations for new regulations and was generally quite positive on the industry.

Office of Comptroller of the Currency (OCC)

On March 31, the OCC released a white paper titled Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective. More recently, the head of the OCC, Thomas Curry, reaffirmed his commitment to responsible innovation in a speech just last week. He brought up the idea of a “regulatory sandbox” – a place where fintech companies can have a conversation about what the rules of the road are for their new ideas. He also brought up the idea of a limited purpose charter for fintech firms as a possible way forward.

Federal Deposit Insurance Corporation (FDIC)

The FDIC first addressed marketplace lending in a paper titled Supervisory Insights. They are concerned about the impact on banks as well as the general risk to financial services.

Consumer Financial Protection Bureau (CFPB)

Early this year, the CFPB made two announcements impacting marketplace lending. They said that they would begin accepting complaints directly from consumers about marketplace lending companies. Around the same time they issued a new No-Action letter policy that was designed to encourage innovation in financial services.

According to the Wall Street Journal the CFPB is planning to supervise marketplace lenders and will release a proposal some time in the fall. The CFPB has not commented publicly on this news so right now it is just a possibility but it makes sense.

Securities and Exchange Commission (SEC)

SEC involvement in marketplace lending goes back to the early days of Lending Club and Prosper. In 2008 the SEC decided that the notes issued by these companies were securities and should be registered as such. The result was Lending Club and Prosper filing a S-1 registration and becoming quasi public companies with quarterly financials being filed with the SEC.

Now that Lending Club is a public company it is has more responsibilities to both equity and debt investors both of which come under the purview of the SEC. The reality is while the SEC keeps a close eye on marketplace lending it is unlikely there will be much in the way of new developments here.

Federal Trade Commission (FTC)

The FTC recently hosted a financial technology forum on marketplace lending. The forum sought to look at consumer protections in marketplace lending and fintech more broadly. According to Jessica Rich, director of the FTC’s consumer-protection bureau marketplace lenders haven’t done enough in borrower protection.

United States Congress

In May 2015, the House Small Business Committee held a hearing on Capital Hill.

In January, in the wake of the San Bernardino shooting tragedy, the House Financial Services Committee held a hearing on terrorism financing that included a discussion of marketplace lending. But no new initiatives have come yet from these hearings.

Financial Stability Oversight Council (FSOC)

The FSOC most recently included their thoughts on marketplace lending in their annual report. Although the report highlights the lower cost and efficiencies of marketplace lenders they also discuss risks and concerns. One of the main concerns listed are the new and untested underwriting models used by platforms.

Conclusion

This list is only a start of the involvement we are likely to see from regulators as it pertains to marketplace lending. Due to the attention, we’ve seen many industry associations created to ensure a productive dialogue is being undertaken in Washington with all the organizations discussed here. We sincerely hope that any new regulation to come is thoughtful and comes from a well informed view of the industry.

Capital Rules Stifling Securitized-Debt Trading Profit: JPM, (PeerIQ), Rated: AAA

New layers of regulatory capital expected to be imposed on Wall Street are likely to further pressure banks to exit trading of securitized-debt, JPMorgan analysts John Sim, Kaustub Samant, Carol Zhang wrote in client note Friday.

NOTE: Reports of dealers paring or shutting down trading units have grown; banks include Barclays, DB, MS, SocGen, Jefferies, RBS, Nomura, CS

  • There’s “no path to profitability” under current and recently released capital rules
  • JPM analysts calculated ROE (return on equity) for hypothetical RMBS portfolio based on impact from Basel’s Fundamental Review of the Trading Book
  • Concluded ROE of ~4%, “clearly not attractive enough to entice dealers to enter the space and make markets”
  • Adjusted model to various hypotheticals, such as reallocation, bid-ask, turnover rates
  • Concluded the “cumulative effect of all of these realistic and unrealistic changes would only increase the return to 7%, which is far short of our 10% to 15% ROE threshold”
  • “Running ROEs for hypothetical ABS and CMBS businesses would not result in markedly different results”
  • Primary market and business of underwriting new-issue securitizations can still be attractive, however, contingent  underwriting volumes
  • Revenue derived from underwriting fees without consuming much capital; when balanced with secondary trading, ROEs for the business can become attractive, depending on volumes
  • Liquidity will continue to be constrained for non-agency RMBS, particularly in legacy space where dealers have no commensurate underwriting
  • CRT deals will also suffer from limited trading activity relative to market size; expect limited liquidity for Jumbo RMBS and SFR deals

How Wells Fargo Aims to Satisfy ‘Need for Speed’ From Millennial Borrowers, (The Street), Rated: AAA

Known as FastFlex, the San Francisco-based bank’s product offers customers with a business checking account a one-year loan of up to $100,000. Wells Fargo is considering expanding the availability of the loan next year, Lisa Stevens, the company’s head of small business, said in an interview.

FastFlex is designed for businesses with under $5 million a year in revenue who have “quick short-term needs to do some type of expansion or cash management,” Stevens said.

Some 67% of millennials are willing to take some financial risks to grow their businesses, compared with just 54% of older owners.

The FastFlex loan is one effort to meet that demand, he said, by providing a digital service with a rapid turnaround, two of the qualities that millennials have said they value most highly in financial services products. “We wanted to design our own product that would compete well in the marketplace-lending environment,” Case said.

Lending Club Corp : Positive Updates from the Annual Meeting, (Morgan Stanley), Rated: AAA

2Q16 originations down ⅓ from 1Q equates to ~$1.8bn in originations or -4.4% YoY,vs. our $1.4bn (-25% YoY) estimate.Assuming volumes for the first five weeks in the quarter (prior to

Assuming volumes for the first five weeks in the quarter (prior to announcement of irregularities and CEO resignation) were consistent with the 1Q run rate, this suggests volumes over the remaining 8 weeks were down ~50% sequentially and 37% YoY.

LC has had dialog with hundreds of investors,and none have outrightly refused to come back as an investor on the platform. Most investors need to go through a due diligence process and LC appears confident in its ability to bring them back to prior levels of investment over the long term.

While investors from every category have returned to the platform, banks and large investors are taking longer with their audits, which is in-line with our expectations.It is unclear if 2Q represents the trough in terms of origination volumes, but management commentary on investor appetiteand conservativeapproach on origination expectations suggests 3Q and

It is unclear if 2Q represents the trough in terms of origination volumes, but management commentary on investor appetiteand conservativeapproach on origination expectations suggests 3Q and
4Q volumes should be similar to 2Q with potential for upward bias.

LC expects to incur $9mn of investor incentives (to be booked as contra-revenues) in 2Q , which are likely to continue in 3Q with a plan to eliminate these by 4Q.

LC expects to “resume revenue and EBITDA growth in 1H17” though it remains unclear to us if this comment suggests sequential or YoY growth.We expect LC to return to origination, revenue,and adjusted EBITDA growth by 2Q17, though we expect 1H17 to remain below 1H16 given tough comps on 1Q17e.

2016 Bay Area CIO of the Year Innovation/Transportation finalist: A conversation with LendingClub’s John MacIlwaine, (Silicon Valley Business Journal), Rated: AAA

How do you predict your company will be different in two years, and how do you see yourself shaping that change?

We’ll also have a wider set of financing products that will be accessible online, offline, and at point of sale, while expanding our partnerships with banks and other non-financial institutions. We’re enabling that change by building our cloud-based micro-services platform, which simplifies integration of our solution for our partners and allow us to quickly and efficiently scale our core business and expand our product set.

What do you feel has been your biggest impact/success at this company? My biggest impact on LendingClub has been building a world-class team of engineers, scaling our technology platform to support the company’s incredible growth (compound annual growth rate of 124 percent Q4 2009 to Q4 2015 and well over $16 billion in loan originations to date), and setting a clear vision for a technology platform that is flexible and adaptable enough to handle future loan origination growth, partnership integration, and regulatory compliance updates.

What are your top three priorities for 2016-2017?

  1. Transform our current technology platform into a suite of cloud-based micro-services;
  2. Move our platform hosting environments to AWS (Amazon Web Services);
  3. Double the size of our world-class technology team.

CFPB June 2016 complaint report highlights consumer loan complaints, complaints from Arkansas consumers, (JDSupra Business Advisor), Rated: AAA

The CFPB has issued its June 2016 complaint report which highlights complaints about consumer loans and complaints from consumers in Arkansas and the Little Rock metro area.

The report does not specifically identify any complaints as involving marketplace lending.  Unlike prior monthly complaint reports, the June 2016 report includes a “Sub Product spotlight” section that highlights auto lending.

  • The most-complained-about issue involved managing the loan, lease or line of credit.  Other complaint issues included problems arising when the consumer was unable to pay, such as issues relating to debt collection, bankruptcy, and default.
Source: CFPB June complaint report.

General findings include the following:

  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 61 percent from the same time last year (March to May 2015 compared with March to May 2016).  As we noted in our blog posts about the April and May2016 complaint reports, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects that in March 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.
  • Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 15 percent from the same time last year (March to May 2015 compared with March to May 2016).  Complaints during those periods decreased from 479 complaints in 2015 to 405 complaints in 2016.  In the March, April, and May 2016 complaint reports, payday loan complaints also showed the greatest percentage decrease based on a three-month average.

Square Inc Better Risk Reflection Leads to Upgrade: Wedbush, (Bidness Etc), Rated: A

Helmed by Twitter CEO, Jack Dorsey, the Square’s lending business encountered a substantial obstacle in May, in the form of new and strict scrutiny from regulatory authorities. In a comprehensive study, the US Department of Treasury along with several other government agencies put forward recommendations, to safeguard the access and growth to credit through the continued developments of online marketplace lending.

Wedbush analysts believe that regulatory scrutiny is likely to increase the company’s lending business.

For the 2Q, Square projects revenue to fall between $151–156 million. Wedbush expects the company to surpass its own expectations — reporting closer to the sell-side firm’s own $168 million estimates — but foresees considerable downside to the financial services company’s shares, if it reports within its given guidance range.

Interestingly enough, in a research note published yesterday, Morgan Stanley lowered its prices target on Square stock from $12 to $10, following a meeting with the company. The sell-side firm also raised its Stock-Based Comp estimates, in light of the company’s transition from private to a public entity and higher comp to select personnel vs. prior expectations.

Why Online Lender Avant Is Cutting Down Its Workforce Again, (Fortune), Rated: A

After also deciding to pull back in May from new verticals such as auto loans to concentrate on its core personal loans business, Avant is now cutting its lending target for that unit by 50% to about $100 million per month, Bloomberg reported.

Avant’s problem, like much of the so-called peer-to-peer lending market, isn’t a lack of demand from potential borrowers. Instead, the company and other online lenders are having increasing difficulty raising money to lend out as hedge funds and other investors outside the usual banking circles that backed the industry have grown wary.

The company had grown quickly for the past few years, reaching $3.5 billion in total loan volume. But with less access to capital, business has slowed recently, and loan volume declined 27% in the first quarter from the fourth quarter—the first such quarter-to-quarter drop since Avant started in 2012.

LendingClub’s Negative Press Blitz Continues, (Yahoo Finance), Rated: A

An $800 million LendingClub Corp (NYSE: LC) fund that invests in the company’s online consumer loans is expected to report its first monthly loss in the past 64 months in June. According to a letter to investors from LendingClub CEO Scott Sanborn, LendingClub’s Broad Based Consumer Credit (Q) Fund’s June return “is likely to be negative.”

The fund is LendingCub’s largest and has regularly returned around 0.5 percent per month throughout its five-year history. However, default rates on the fund’s loans have begun to rise in recent months and returns have dropped, prompting a number of investor redemption requests

The Wall Street Journal’s Peter Rudegeair reported that as of June 17, LendingClub had received $442 million in redemption requests representing about 58 percent of the value of the fund. In response to the large number of redemption requests, LendingClub announced it was placing restrictions on withdrawals and would be considering winding down the fund entirely.

Group led by State Street, Putnam launches fintech initiative, (Boston Business Journal), Rated: A

The Boston Financial Services Leadership Council and the business consulting group Mass Insight have created Financial Technology Boston, under which they will host networking events and possibly job fairs involving fintech professionals from the corporate, startup, government and higher-education worlds.

In addition to State Street (NYSE: STT), Fidelity and Putnam, the BFSLC includes Santander Bank, U.S. Bank and Boston Private Financial (Nasdaq: BPFH).

Boston is already home to fintech-focused incubators FinTech Sandbox and the DCU Center of Excellence in Financial Services, as well as a monthly meetup for fintech professionals.

United Kingdom

Why investors should scoop up discounted P2P funds before putting cash into platforms, (AltFi News), Rated: AAA

Analysis by AltFi Data shows loan origination has more or less been static across the UK P2P lending industry in 2016. This somewhat contrasts with the rapid growth seen in 2015 and 2014. Any number of explanations are given for this including a broad risk-off attitude from markets as well as the ongoing fiasco at the major US platform Lending Club.

However, for professional and private investors alike who are not dissuaded from the adverse headlines, and attracted by the high yields on offer from investing in the market, there is a clear argument to avoid investing directly on platforms. While this is the normal route for many, buying shares in the investment trusts offering exposure to loans originated from the platforms that are heavily discounted at present arguably makes more sense.

Over time in addition to the 7.4 per cent yield on offer, a narrowing of this discount or perhaps even a move to a premium could significantly bolster returns.

The table below shows what will happen to the share price following a 20 per cent return in net asset value alongside changes in the discount/premium. It clearly shows that buying at a premium massively adds to the total return.

Of course there is always the risk that the discount moves out further. This could be caused by investors going off the trusts even more. Or it could be broader negative sentiment towards equity markets that sees index level selling of the FTSE 250 – in the case of P2P GI – or FTSE All Share selling in the case of VPC Specialty Lending. This would add to weakness in both trusts’ share prices, and potentially widen the discount.

However, as AltFi reported last week P2P GI has started to defend its discount by buying up its shares using spare cash. Last week it bought £2m of its shares at an average price of 827p, says Monica Tepes, analyst at Cantor Fitzgerald.

This did temporarily lower P2P GI’s discount to 17.5 per cent although it has since moved back to over 20 per cent.

Brexit: FinTech firms fear for staff shortages and lost EU customers, (Tech Republic), Rated: AAA

London is a major player in the international FinTech market, with startups in the UK capital securing more venture capital funding last year than their European counterparts.

That status won’t necessarily change after Britain leaves the EU but FinTech firms have said it will complicate the picture, particularly when it comes to their ability to sell services to Europe and attract new talent.

Controlling migration was the second most important reason for quitting the EU, according to those who voted Leave in last week’s referendum.

Access to the single market allows goods and finance to be moved between EU countries without tariffs. However, full access also requires free movement of workers between European countries, something many Leave voters oppose.

Nevertheless, for peer-to-peer (P2P) lending platform MarketInvoice, as for many other London-based FinTech firms, free movement of European labor is essential to meet its demands for skills.

“Here at MarketInvoice we have a super-diverse team from all corners of the globe. Most notably within our software-engineering and data-science teams. Many FinTech founders themselves come from outside the UK,” said Anil Stocker, CEO of MarketInvoice.

European Union

Insurer Aviva France to Lend €50 Million to SMEs Through Crowdlending Platforms, (Crowdfund Insider),Rated: AAA

Aviva France, together with two partners, alternative asset management firm Eiffel Investment Group and insurer AG2R La Mondiale, is launching an investment fund called “Prêtons Ensemble” (Lending together) dedicated to financing loans to small and medium-size enterprises (SMEs) provided through crowdlending platforms.

Starting with an initial endowment of €50 million from Aviva France and €20 million from AG2R La Mondiale, the fund is expected to quickly grow to €100 million by rallying other institutional investors around the project.

The goal is to invest in the French real economy by financing SME loans granted through regulated crowdfunding platforms. Eiffel Investment Group is a specialist with more than eight years of experience in investing on crowdlending platforms, notably in the more advanced UK and US markets. Eiffel Investment will be in charge of the due diligence on the platforms and their loan portfolios. Currently, they have identified around 100 platforms and have made contact with 50 of them. Eventually, in five years from now, the fund should be invested to 70% in lending to SMEs and minimum to 50% in France. At the onset, we’re starting with a dozen platforms, mostly, but not only from France as the market is still emerging here. The (soon-to-be published) list includes names such as Younited Credit, Finexkap and Lendix.

The fund will be diversified in terms of the platforms’ business model and of the type of credit provided to SMEs. This means that it will include both unsecured and secured loans, short-term invoice financing as well as mid-term loans. On average, the loans are expected to have a maturity of 2.5 years.

Our decision was made long before the Lending Club problems surfaced. Upon hearing about them, we conducted a thorough analysis of their actual causes and impact. We were quite reassured to find out that the scale of the financial issue was small, that it had been fixed, and that a subsequent audit did not uncover any other impropriety.

Europe’s Top 11 Peer-to-Peer Lending Platforms, (Fintech News), Rated: A

Comment: As author chose to label the article Europe’s top 11, and includes UK companies, we chose to do the same.

In Europe today, although the vast majority of the P2P lending activity is concentrated in the UK – which accounts for over 84% of the whole European market –, Germany, France and Nordic countries are experiencing strong growth and development in the P2P lending space with a number of homegrown startups starting to emerge as regional leaders.

Australia

Fintech losses blamed on rerating, (The Australian Business Review), Rated: AAA

DirectMoney, which writes personal loans, slid to 4.5c a share after coming to market last year at 20c via a backdoor listing. On Friday, the company unveiled a $5.7m non-renounceable capital raising at 4.2c a share on a one-new-share-for-every-two-held basis.

The raising, underwritten by Bell Potter, opens on July 11.

It follows a mixed ride for investors, with the stock exchange in February querying its financial position and DirectMoney subsequently unveiling a deal with Macquarie, which bought $5m of the company’s personal loans and took shares in the company in exchange for advisory services.

In May, DirectMoney revealed loan demand was outstripping funding as the company slowly gained traction for its personal loan fund for retail investors. In the interim, the company turned to two “large financial institutions” for funding facilities, signing a non-binding term sheet with one for $20m.

Part of the cash from the $5.7m raising will be used as upfront collateral for the funding facilities. “We’ve proven our ability to originate loans; that is difficult for some organisations and what we are now doing is establishing committed funding programs of sufficient size so we can leverage the assets we’ve built,” Mr Beaumont said.

DirectMoney has written $17.6m of unsecured personal loans up to $35,000 for three to five years. Revenue in the financial year to the end of May was $1.19m, compared to $435,513 in the six months to December 31.

DirectMoney chief Peter Beaumont yesterday defended the fintech company’s stockmarket listing and expressed disappointment over losses worn by shareholders, arguing there were many benefits and the sector globally had suffered a de-rating.

“We’re disappointed there were investors that came in at higher prices and have had capital losses at this point, but marketplace lending globally has experienced a resetting of valuations, whether it’s LendingClub in the US or others, since last year,” he said.

The inaugural Australian Fintech Awards regonised innovation in the finance industry, with OnDeck Australia and Commonwealth Bank (CBA) receiving the Fintech-Bank Collaboration of the Year Award. OnDeck entered the Australian market last year with CBA and online accounting software provider, MYOB, as distribution partners.

India

P2P players bank on institutional lenders for growth, (Economic Times), Rated: AAA

I-lend has stitched a partnership with Hyderabad-based non-banking finance company Star Finserve, becoming the first peer-topeer online lending platform to join hands with an institutional lender while several other players including MicroGraam, Faircent and LenDenClub are in talks for similar pacts.

“The cost of loan origination is going up steadily for NBFCs and banks, the number of successful applications is declining and through these partnerships the institutional lenders can cut down on incurring origination of loan and administration costs,” said VVSB Shankar, founder of i-lend.

Shankar said the decline in the number of applications could be attributed to several factors such as competition among institutional lenders, quality of borrowers or involvement of non-performing assets. The company’s loan book size is about `1.5 crore and lenders on the platform can opt for borrowers who pay 18-21% interest.

Peer-to-peer platforms have reported an increase in the number of high net worth individuals or HNIs they have attracted over the past six months. “HNIs and family offices are showing interest in the peer-to-peer space. Since there is a criterion for lenders to have an income of over `10 lakh, this is bound to happen. Our top lenders have invested more than `40-50 lakh each, with the highest being around Rs 60 lakh,” said Rajat Gandhi, founder of Faircent, which has a loan book size of Rs 6.5 crore.

Smaller players including LenDen-Club said they have also seen increasing interest from HNIs, specifically from Maharashtra and Gujarat, spending about Rs 15 lakh individually. Since retail investors are central to how such platforms function, the companies aim to firm up a select few partnerships with institutional lenders over the next one year.

China

Exit of P2P lenders from Shanghai office market poses a challenge, (South China Morning Post),Rated: A

The recent collapse and exodus of numerous peer-to-peer lending (P2P) companies in China after a government crackdown on fraud has rattled the Shanghai CBD office market and may “pose a challenge for landlords”, experts say.

In the second quarter of the year, supply spiked to a 10-year high, according to real estate firm Colliers International, as overall vacancy rates in the area increased 3.2 per cent quarter on quarter to 7.2 per cent.

Korea

8PERCENT: Men in 30s Major P2P Investors, (The Korea Bizwire), Rated: A

8PERCENT, a P2P (peer-to-peer) lending company, revealed on July 4 that 30-something men who live in metropolitan areas are their primary investors.

As of June 30, top P2P lending company 8PERCENT’s total accrued loans summed up to 26.6 billion won ($23 million), with a total of 8,283 investors investing 3.21 million won ($2800) on average per person.

The average age of the investors was 34.3, and more than 90 percent of the investors were between the ages of 20 and 40. 8PERCENT also revealed that 77 percent of the investors lived in metropolitan areas, and that 67.5 percent were male and 32.5 percent, female.

The largest investment made so far was 453 million won ($395,000) diversified into 1,115 different bonds.

“Until last year, 90 percent of investors were from metropolitan areas, but the portion from non-metropolitan areas increased to 23 percent this year. Investment from women also increased from the low 20s to 30 percent, and we’re seeing growth in the number of investors in their 50s as well,” said Kang Seok-hwan, chief marking officer of 8PERCENT.

Small credit loans of 24.2 billion won ($21 million) comprise more than 90 percent of the total investments. Out of the total amount, 13.4 billion won ($11 million) was loaned to individuals, and 10.8 billion won ($9.4 million) to corporations.

Besides credit loans, borrowers also obtained real estate mortgage loans of 2.4 million won ($2 million).

 

Author:

George Popescu