Thursday October 6 2017, Daily News Digest

China mortgage loans

News Comments Today’s main news: SoFi surpasses $25B in originations. JPMorgan Chase rolls out mobile banking app. ID Analytics has 85% visibility into online consumer lending. Zopa prices new securitization. Fannie Mae expands digital mortgage platform. SEC investigated Bank of Internet. China’s cash loan market hits 1 trillion RMB. Lendified secures $60M credit facility. Facebook, Clearbanc partner on merchant cash advance. Today’s main […]

China mortgage loans

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India

Asia

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News Summary

United States

A new milestone: we’ve surpassed $ 25b in loan originations! (@SoFi on Twitter), Rated: AAA

Thank you to our community of over 390,000 people for growing with us.

Will JPM’s millennial-app experiment grant access to new markets? (American Banker), Rated: AAA

JPMorgan Chase spent more than a year researching what millennials (and clients wanting to bank like them) desire in a financial relationship. The result is a new mobile-only app that lets people sign up for a bank account within minutes and also helps manage their spending.

The megabank made a splash on Monday debuting Finn by Chase, an app that includes a checking and savings account and a physical debit card.

ID Analytics Now Has 85% Visibility Into Online Consumer Lending (deBanked), Rated: AAA

At Money2020, deBanked caught up with Kevin King, Director of Product Marketing and Ken Meiser, VP of Identity Solutions for ID Analytics. The last time I crossed paths with the company was six months ago at the LendIt Conference in New York City. Since then, the company has increased its visibility into the online consumer lending market to 85%.

Fannie Mae goes all-out on fintech collaborations (Business Insider), Rated: AAA

Fannie Mae, a US government agency that funds mortgages for lenders, rolled out 

92.3% of acceptance partners said Behalf increased their sales 10-20% (Behalf), Rated: AAA

Behalf’s merchant acceptance partners have found a way to apply Amazon’s small business strategies to their own business models. By adding the Behalf instant credit approval tool to their ecommerce experience, they also unlock the power of flexible terms on every sale. Customers of our partners can get instant access to up to $50,000 in buying power with their choice of flexible payment terms. With this boost in working capital, small businesses are able to invest in their growth, which increases their business purchasing velocity. Case in point: 92.3% of the Behalf acceptance partners surveyed reported that adding Behalf to their checkout experience drove a 10-20% sales lift.

Source: Behalf

Download and read the full whitepaper here.

Bank of Internet was under 16-month SEC investigation (New York Post), Rated: AAA

Online lender Bank of Internet was the subject of a formal 16-month Securities and Exchange Commission investigation, according to a report.

The company, led by Chief Executive Greg Garrabrants, was the subject of scrutiny until June — when it ceased without the SEC taking any action.

The probe was focused on alleged conflicts of interests, auditing practices, and loans made to two entities, according to subpoenas and government documents obtained by Probes Reporter, a publisher of investment research.

Wealthier Depositors Pressure Banks to Pay Up (WSJ), Rated: AAA

Large U.S. banks are starting to pay up to keep depositors from moving their money, saying customers are becoming increasingly demanding as the stronger economy nudges interest rates higher.

The average interest rate paid by the biggest U.S. banks on interest-bearing deposits jumped to 0.40% in the third quarter, the highest level since 2012 and the biggest quarterly increase this year, from 0.34% in the second quarter, according to Autonomous Research.

Bank executives said that the newest pressure for higher rates is coming primarily from wealth-management customers, typically well-to-do individuals and families who deposit cash as part of their investment accounts.

Fifth Third executives said they were raising deposit rates for some of those customers, particularly those who had other relationships with the bank.

Source: The Wall Street Journal

FT Partners Advises Credit Sesame on its ,000,000 Growth Financing (FT Partners), Rated: A

  • On October 25, 2017, Credit Sesame announced it has raised over $42 million in equity and venture debt
    • The funding comes from existing and new investors including Menlo Ventures, Inventus Capital, Globespan Capital, IA Capital, SF Capital, among others, along with a strategic investor
  • The $42 million in funding is comprised of $26.6 million in equity and $15.5 million in venture debt, bringing the Company’s total funding to over $77 million
  • Headquartered in Mountain View, CA, Credit Sesame was founded in 2011 and has provided credit and loan management tools to over 12 million members
    • The mobile and web solution provides consumers with tools to build a path to achieve financial wellness, including free access to their credit profile complete with their credit score, credit report grades, credit monitoring, interactive step-by-step tools and recommendations for better lending options
Source: FT Partners

 

The 13 Chinese Companies That Listed On US Stock Exchanges In 2017 (Frontera), Rated: A

With about $2.4 billion raised in IPOs on US exchanges by Chinese companies so far this year, other China-based firms are increasingly vying for US investors and exchanges.

Qudian Inc (QD)

On October 18, Chinese online micro-credit provider Qudian Inc listed on the NYSE, raising $900 million in an IPO that was priced at $24, in the biggest ever US listing by a Chinese fintech firm. The financial sector firm’s stock, trading under the symbol QD, closed at $33 as of October 23. The stock commands a market capitalization of $8.8 billion in the US stock market.

Year-end Forward P/E for the depository receipt is estimated at 21.47. Estimated earnings-per-share stand at $8.21.

China Internet Nationwide Financial Services (CIFS)

This Beijing-based financial sector firm, trades under the ticker CIFS on the NASDAQ GM stock exchange, is engaged in providing financial advisory services in China. The company’s stock listed on the US stock market on August 8 at an initial offer price of $10 a share, raising $20.2 million for the company. The stock, trading at $31.5 (as of October 23rd), commands a market capitalization of $693 million in the US stock market.

China Rapid Finance Ltd (XRF)

Listed since April 28th on the NYSE stock market, China Rapid Finance Limited operates one of China’s largest online consumer lending marketplaces.  The company caters well to China’s 500 million EMMAs (Emerging Middle-class Mobile Active consumers), and has facilitated over 20 million loans to more than 2.7 million borrowers. Back in April, the company raised $69 million in an IPO, marking its listing on the US stock exchange under the ticker XRF. The shares initially offered at $6 a share, and now trade at $9.06 (as of October 23) with a market capitalization of $586.2 million.

Source: Frontera

Leading Banks are Embracing Digital Strategies More Than Ever (Lend Academy), Rated: A

JPMorgan was the first major US bank to partner with a fintech company when they launched their small business lending partnership with OnDeck in early 2016. That partnership was renewed earlier this year and has helped the bank to offer a seamless small business lending experience and reach customers it might not have otherwise. In recent months they have struck a new partnership with Mosaic Smart Data to help the slumping fixed income trading revenues and they have also completed an acquisition of WePay, a Silicon Valley company that offers payment capabilities to business platforms using APIs. Finally, just this week they launched Finn by Chase, an app aimed at millennials that allows people to use a phone to open a bank account, make deposits, issue checks, track spending and set up savings plans.

Bank of America saw more than 1 million users added to their digital channels and active digital banking users go from 32.8 million to 34.5 million in the last year. The main driver of this growth was through their mobile app. Customers are using the mobile deposit feature more than any other, mobile deposits now account for 21 percent of total bank deposits.

Wells Fargo’s digital growth, which includes web based and mobile users, saw a 2 percent increase from 2016. Branch and ATM interactions were down 6 percent while digital sessions through the web and mobile app increased 6 percent.

Citi is the first global bank to integrate banking, money movement and wealth management on mobile.

How Tech is Changing Multifamily Lending (Multi-Housing News), Rated: A

“Technology has helped us bring efficiency, speed and first-rate customer service to the small-loan space for all of our stakeholders, borrowers and brokers alike,” said Bonnie Habyan, executive vice president, marketing, at Arbor. Small-balance owners and operators need to work long hours to be successful, and the time and paperwork dedicated to obtaining financing is an inefficient use of time. Online multifamily financing platforms such as Arbor LoanExpress, or ALEX, address this by providing the ability to e-sign and upload documents.

“Crowdfunding was originally created to give average investors access to investments they normally wouldn’t have access to, and to give sponsors or borrowers easier access to capital,”said Bill Lanting, vice president, Commercial Debt at RealtyShares. “We were formed specifically with that idea in mind, to make borrowing easier and less cumbersome, and also to make investments in assets more available to everybody.”

AutoGravity Announces Partnership With Global Lending Services (PR Newswire), Rated: A

AutoGravity, a FinTech pioneer on a mission to transform car financing by harnessing the power of the smartphone, announced a partnership with Global Lending Services LLC, a South Carolina-based auto finance company, to provide access to finance offers through the innovative AutoGravity digital platform. Qualified car buyers gain access to an even broader set of car finance options through the AutoGravity iOS, Android and Web Apps.

Can employers help solve the student debt problem? (HRDive), Rated: A

The good news about student loans is that they allow millions of people to earn college degrees who otherwise wouldn’t be able to afford them. The bad news is that college graduates enter the workforce deeply mired in debt that deflates their net worth and keeps them cash-strapped for years, if not decades. The current wave of college graduates is facing debt in amounts far above previous generations.

Oliver Wyman, a global management consulting firm, sets the median figure for an undergraduate degree at more than $25,000. That figure rises with each advanced degree. Graduates with MBAs enter the workforce with a median debt of $45,000. Medical school graduates can expect to be $200,000 in debt.

Debt repayments for the typical college graduate will amount to $265 a month and for medical school graduates, $1,600 a month.

Target.com Introduces GiftNow (PYMNTS), Rated: B

Target announced that, starting this November, the retailer will integrate a wallet function in its Target mobile app. The purpose, says the retailer, is to allow customers to pay for purchases and redeem promotions through the use of a smartphone.

Legendary Investor Jim Rogers Believes FinTech Will Replace Banks and Cash (Cryptocoins News), Rated: B

Veteran investor Jim Rogers believes that banks must invest in the financial technology (fintech) space or they face being replaced.

According to the report, he has invested in Hong Kong-based ITF Corporation, the world’s first financial technology bank founded by Hui Jie Lim. Rogers has also invested in Tiger Broker, a Chinese online brokerage.

He also believes that digital currencies could change how we see money in the next 10 to 20 years. Even though he hasn’t invested in the crypto market Rogers is of the opinion that governments could issue their own cryptocurrencies in the future.

United Kingdom

New Zopa securitisation priced, highlights market confidence (AltFi), Rated: AAA

A securitisation of loans originated by peer-to-peer lending firm Zopa has received a warm reception in the market. The deal, which is the second securitisation of Zopa loans, has been priced significantly tighter than last year’s transaction.

The securitisation was led by P2P Global Investments PLC, the first UK listed investment trust to dedicate itself to investing in marketplace loans, and was arranged by Deutsche Bank. The most senior class of notes was priced at 70bps over one month Libor, compared to 145bps last year.

The senior tranche of the £209m securitisation, which represents 80 per cent of the portfolio, was rated AA by Moody’s.

Using the secondary market for above average returns on investment (P2P Banking), Rated: AAA

One central piece to understanding why trading (or flipping) strategies can be highly attractive is the effect of even small premiums pocketed on the portfolio yield. Take an investor that invests into a 100 (whatever currency) loan part and sells that part for 100.40 after holding it for 5 days. That is only a 0.4% premium, but the annualized yield is 33.8%.

Two main strategy approaches

Investors can
A) Invest on the primary market and then sell the loan later on the secondary market
or
B) Buy loan parts on the secondary market which they deem underpriced and then sell at a higher price. Be it buying at discount and selling at a lower discount, or already buying at premium and selling at an even higher premium.

One important point, is that market conditions change, usually good opportunities will stop working after a few months or weeks either because too many investors try to use them, or more general  the demand/supply ratio changes or the marketplace itself changes the rules how the market functions.

  1. First an investor will want to look how loan information is presented on the primary and secondary market.
  2. Understand the allocation mechanism on the primary market. How does the autoinvest feature work exactly?
  3. When is interest paid? Does it accrue for each of the day held, or does the investor holding the loan at the date of the interest payment gets full interest credited. This is important, because if in the example at the start of the article the investor not only makes a 0.40 capital gain but also collects interest for the 5 days he held the part, it will have a huge impact on yield
  4. Usually for this strategy longer duration loans are more attractive.
  5. Usually smaller loans are more attractive.
  6. Usually the time span a trading investor wants to hold on to a loan part, will be as short as possible (days). However there might be patterns observed where it could be desirable to hold for longer time spans.
  7. Strategies that allow to hold parts only at a time when the status of a loan cannot change can be attractive.

Monzo and Starling take bigger steps towards payment integration (AltFi), Rated: A

Monzo has announced today, after a week of dropping hints on various Twitter accounts, that it plans to integrate Android Pay into its user interface for current account users.

A few hours earlier, Starling Bank confirmed this morning that it will be the first bank in the UK to connect with Fitbit Pay.

Case study: the technology behind P2P (Banking Technology), Rated: A

The UK peer-to-peer (P2P) lending market has flourished in the last decade. Lending volumes among the major platforms are increasing rapidly, pushing the cumulative total above £7 billion for the first time, as the understanding of the investment model continues to grow.

New technology architectures, as well as the ability to quickly run up minimal viable products, mean that emerging P2P companies can turn ideas into reality much faster than their larger counterparts (“fail fast” or as I like to call it, “test quickly”).

This prioritisation of speed and efficiency, coupled with the ability to focus, means that P2P lenders can zero in on specific problems and provide what customers want and are increasingly expecting. At Landbay we can bring a new micro service up from scratch in 20 minutes, with the lag for code from committing to going live being about six to eight minutes whilst still maintaining the up time required.

Brokers should consider the P2P option (Mortgage Introducer), Rated: A

As the alternative finance market has become saturated with different funding options, it can be difficult for brokers to determine the best solution to suit their clients’ needs.

Loans can also be tailored to fit the specific needs of customers, with fixed rates available to allow customers to budget effectively for the full term of the loan. The flexibility of loans means borrowers can cover unexpected costs or finance planned purchases at more affordable rates, meaning P2P finance is a great option when situations happen to change at a company.

Whilst 25% of borrowers that apply to banks have their loan application rejected, according to British Business Bank, other forms of lending have paved the way for businesses to obtain cash, with P2P lending becoming one of the most prominent solutions in the current market.

Open letter to Andrew Bailey, chief executive of FCA (Specialist Banking), Rated: A

Dear Andrew, your comments on the BBC on Monday 16th October reflect the concerns that many share with the FCA about the effect of the high cost of credit impacting society widely and, in particular, the young.You cited concerns about certain aspects of credit card and payday lending practices, but you did not pass comment on the retail banks and their provision of overdraft credit at rates that may well exceed the rates of payday and credit card loans.It should be noted that at 1p per day for every £7 of overdraft, the fees for an overdraft of, for example, £2,000 pa, are in excess of 50% interest, uncompounded. This is certainly higher than many credit cards.Alex Letts
Founder and chief unbanking officer, U
China

Chinese Cash loan market grown to 1 trillion RMB in one year (Xing Ping She), Rated: AAA

Cash loan originated from the payday loan in America, and accelerated in China. In less than one year, the total volume increased from 600 billion RMB to 1 trillion RMB. As a branch of consumer finance, cash loan developed rapidly as much as P2P lending industry.

Early in this April, the regulator issued the first order to clean up the “cash loans”,while after six months the trend of compliance in the field is still unclear. Recently, with several relative businesses coming to the U.S. for IPO, the critical voice on the profiteering of cash loan becomes louder.

However, owing to the annual lending rate much more than the rate legal limited (36%), taking the consumer finance vents, cash loan still grow wildly under strict regulation.

Xi’s Neighborhood Watch (Bloomberg), Rated: AAA

Houses are for living in, not for speculation, Chinese President Xi Jinping said last week. The trouble is, fueling this speculation has been a surge in consumer lending, not only by banks but also by fintech firms such as recently listedQudian Inc.

Thanks to improved earnings and corporate debt that’s souring at a slower rate, Chinese bank shares have rallied this year.

Source: Bloomberg

What investors may be ignoring at their peril, however, is the spike in household advances. Consisting of mortgages, credit-card debt and auto loans, consumer lending as a share of the total is relatively low. Only 400 million Chinese had personal loans in 2016, or about 29 percent of the population. The ratio in the U.S. is about 82 percent, according to Bloomberg Intelligence. But it’s been growing fast and even People’s Bank of China Governor Zhou Xiaochuan is worried. China’s household debt-to-GDP ratio reached 47 percent in the first half, according to a recent Citigroup Inc. report.

Source: Bloomberg

Ali Microcredit Ltd. made 2.6 billion RMB in first half, exceeding 14 public banks (Xing Ping She), Rated: A

In the first half year of 2017, Chongqing Ali Microcredit Ltd. has made the revenue of 3.97 billion RMB, which increased 100 million RMB compared to the 3.86 billion RMB of 2016. The company’s net profit was 2.644 billion RMB, in a growth of about 700 million RMB from the end of 2016.

As one of the Ant Financial eco-system, Ali Microcredit takes the business of credit loan (Ant Jiebei). Therefore, Ali Microcredit is already the industry leader in the consumer finance field. Even compared to the listed banks, Ali Microcredit’s profit data can defeat many of them. Take the first half year for example, the company profit exceeded 14 of all the 38 listed banks in stock exchange of Shanghai, Hong Kong and Shenzhen, including Guangzhou Rural Commercial Bank (01551.HK, profit of 2.639 billion RMB), Bank of Tianjin(01578.HK,profit of 2.62 billion RMB), Bank of Hangzhou(600926.SH, profit of 2.53 billion RMB),etc.

Cash loan controversy (Global Times), Rated: A

Chinese people are becoming more and more willing to spend. But if they don’t have money, they borrow. This ever-growing phenomenon has recently thrown cash loans, also known as fast loans, right under the public spotlight.

Han, a 26-year-old white-collar worker in Shanghai, who preferred only to give her surname, borrowed a 6-month loan of 10,000 yuan ($1505.53) from Mayi Jiebei, the online cash loan service provided by e-commerce giant Alibaba’s subsidiary Ant Financial, at the end of September.

When borrowing the money, Han was informed by Mayi Jiebei that she will need to pay a monthly interest rate of slightly more than 100 yuan. In total, Han will need to pay an interest rate of 637 yuan to the provider.

Currently, the entire cash loan market is worth between 600 billion yuan and 1 trillion yuan, the wdzj.com report showed.

LendingClub of China: World’s no.2 economy is a fintech haven (MSN), Rated: A

China provides the infrastructure for financial technology to succeed, such as clearly-defined laws and good internet penetration, says Soul Htite, Dianrong CEO.
Watch the video interview here.

China Rapid Finance names Zhou Ji’an a non-executive independent director (Bankless Times), Rated: B

China Rapid Finance has named Zhou Ji’an a non-executive independent director. He becomes the seventh member of a board that includes former executives of Hewlett Packard, McKinsey & Company, Morgan Stanley, and UBS.

Mr. Zhou is the executive director and general manager of China United SME Guarantee Corporation aka Sino Guarantee. He previously served in senior roles with China Export & Credit Insurance Corporation, and China Life Insurance Co . and is a senior scholar of the Eisenhower Fellowships, an international nonprofit leadership corporation.

European Union

ECN Convention Debates Technology & Cross-border Future in EU Alternative Finance & Crowdfunding (Crowdfund Insider), Rated: AAA

Two main topics of the 6th Annual Convention of the European Crowdfunding Network (ECN) on October 19th and 20th were technology innovation and cross-border finance.

To retain their lead in innovation over banks and traditional finance’s Fintech, startups must keep delivering greater customer orientation and execution efficiency. The success of Initial Coin Offerings (ICOs) is a clear signal, and a red flag, that there exist gaps in technology and cross-border funding that finance has not filled.

Cross-border alternative finance is still hampered by the fragmentation of the European Union (EU) regulation at many levels: Not only do crowdfunding and crowdlending regulation differ from one country to the next, but so do investor taxation and corporate law.

Ingi Sigurdsson, CEO, Karolina Engine, claimed that artificial intelligence enables the platform to predict the success of crowdfunding campaigns with 80% accuracy. Mads Dalsgaar CMO, Funderbeam, explained how Funderbeam uses Bitcoin’s blockchain to register, clear and settle the trading of private companies’ shares. For Rein Ojavere, CFO of Bondora, technology enables his lending platform to “cut through the layers of fat” of multiple investment intermediaries. In the same vein, Lasse Mäkelä, CEO of Invesdor, called his company a “digital investment bank.”

Umberto Piattelli of law firm Osborne Clarke summarized the conclusion of ECN’s updated complete review of national crowdfunding and crowdlending regulations in 29 countries. He stressed the strong correlation between the growth of alternative finance and effective crowdfunding regulation. Only 11 out of the 28 EU markets researched have published specific regulations for crowdfunding and crowdlending. These markets have taken off rapidly after the issuing of such regulations.

Tink secures investment and bank partners as it plans European expansion (Banking Technology), Rated: A

Swedish fintech company Tink has signed with Nordic banks NordeaKlarna and Nordnet. Integrating in 2018, the banks will use Tink’s payment technology and personal finance management (PFM) platform within their existing customer channels.

In addition to the partnership agreements, SEB, Nordea, Nordnet, ABN Amro, Creades and Sunstone has invested €14 million in Tink.

International

DTCC: HOW TO THINK ABOUT FINTECH (All About Alpha), Rated: A

The Depository Trust and Clearing Corporation (DTCC), a provider of clearance, settlement, and a wide range of other services to the financial markets, has issued a new white paper on technological innovations and the disruptions fintech may generate.

By “core banking functions,” (1) the authors of the white paper have in mind credit, liquidity, and maturity transformation. The banks have more institutional experience handling these functions than upstart fintech firms and, to the extent the latter take over the core functions of the former, there may be reason to worry. Likewise, the fragmentation (2) of “the creation and delivery of financial services across additional providers and platforms” could cause errors and inefficiencies. And (3) if certain players could become too good at delivering these services in this way, they could pose systemic risks.

Source: DTCC

Read the full report here.

The Importance of Fintech Spreads Across the Financial Industry (PR Newswire), Rated: A

A research report by Transparency Market Research, predicts that the global peer-to-peer (P2P) market lending valuation will reach US$897.85 billion by 2024, as it expands at a significant CAGR of 48.2% from 2016 to 2024.

Dragon Victory International Limited (NASDAQ:  LYL) announced today that, the Company has entered into a Strategic Cooperation Agreement (the “Agreement”) with Shenzhen 708090 Investment and Development Co., Ltd (“708090”), a leading provider of shared workspace, community, and services for entrepreneurs, freelancers, startups and small businesses, to promote incubation services.

On October 24th, Fiserv announced that Regions Bank will expand their digital money movement capabilities with the addition of person-to-person payment and account-to-account transfer solutions from Fiserv.

On June 15th, Yirendai announced that it was awarded the Best P2P Lending Platform in ChinaAward at The Future of Finance Summit (the “Summit”) held in Singapore. Yirendai is the first FinTech company in China to receive this prestigious reward.

Qudian Inc. (NYSE: QD) is a leading provider of online small consumer credit in China. The Company uses big data-enabled technologies, such as artificial intelligence and machine learning, to transform the consumer finance experience in China. The company recently emphasizes Its collection efforts and pricing policy. The Company’s collection efforts extend to every delinquent borrower. The Company’s collection process is divided into distinct stages based on the severity of delinquency, which dictates the level of collection steps taken. As part of the major upgrade of the Company’s risk management system in January 2017, the Company has developed a machine learning algorithm to better allocate collection resources based on more detailed grouping of larger delinquency risk. Higher risk groups are allocated with more collection resources as the likelihood of their outstanding balance becoming longer-term delinquent or even uncollectable is generally higher.

Australia

ANZ BBSW penalty too low: P2P lender (InvestorDaily), Rated: A

On Tuesday, ASIC announced that it had reached a confidential in-principle settlement with ANZ resolving the dispute over alleged BBSW misconduct. Commenting on the matter, RateSetter chief executive Daniel Foggo said the corporate regulator’s activity in this area of the market bodes well for a more transparent financial system.

India

Gratification Unleashed (OutlookMoney), Rated: A

There was a time when a loan mostly meant you were going to buy a house or a car. This is not the case any longer. With changing times, now there are loans against salary advance to fund even your honeymoon. Today, there are loans available practically for every need and dream.

Take the case of the ubiquitous car loan, the advent of luxury cars has turned several car companies to offer loans that are tailored to suit customer offerings. For instance, Volkswagen Finance (India), offers financing solutions to customers for both new and pre-owned Volkswagen group vehicles (namely Volkswagen, Skoda, Audi, Porsche, Lamborghini, MAN and Scania) through registered and authorised Volkswagen group dealer channels.

Yet, borrowing is not as smooth as one would expect it to be. Take for instance Mumbai-based Amit Shukla, he had to take a personal loan of Rs 5 lakh to fund his first commercial car, because a car loan did not work out the way he wanted it to work for him.

Asia

Finance: Ensuring a safe investment crowdfunding landscape (The Edge Markets), Rated: AAA

When equity and debt-based crowdfunding platforms were launched in the market, there were concerns that these vehicles could be used for money laundering. After all, investors could unknowingly fund a fraudulent company and the money could end up being misused by the issuers for their personal gain or, even worse, to fund criminal activities.

The Securities Commission Malaysia (SC) introduced a legal and regulatory framework for equity crowdfunding (ECF) in 2015 and peer-to-peer (P2P) financing last year to address these concerns. According to the SC’s deputy general manager Tengku Ahmad Ruzhuar Tengku Ali, the regulator views money-laundering activities to be of minimal risk on ECF and P2P platforms due to the safeguards built into their frameworks and the platform operators’ vetting process.

There have been several cases of fraud linked to investment crowdfunding. The first widely known case, involving US-based Ascenergy, came to light in 2015. The company had raised US$5 million from about 90 local and foreign investors by leveraging some of the better known crowdfunding platforms such as Fundable and EquityNet.

The SC’s approach

All six ECF operators registered in Malaysia are operational. According to Tengku Ahmad Ruzhuar, 31 issuers had successfully raised RM18.3 million on ECF platforms as at end-September, reaching 80% of their target amount.

Retail investors are allowed to invest up to RM5,000 per issuer and a total investment of RM50,000 within a 12-month period. Angel investors registered with the Malaysian Business Angel Network can invest up to RM500,000 while there are no restrictions for sophisticated investors.

Issuers are able to keep the funds raised if they reach a minimum of 80% of the target amount, but they are not allowed to raise multiple funds for the same purpose.

Canada

Canadian Small Business Lender Lendified Secures $ 60 Million Credit Facility From ClearFlow (Crowdfund Insider), Rated: AAA

Lendified, a Canada-based lender who provides small business loans online has entered into an agreement with ClearFlow Commercial Finance to increase its lending capacity. According to the lending platform, through the agreement, ClearFlow is providing it with a $60 million credit facility to fund loans delivered through its website.

Facebook teams up with Clearbanc to offer cash advances to business (Financial Times), Rated: AAA

Small businesses advertising on Facebook can now get their hands on up to half a million dollars in growth capital, in the latest example of an online platform moving into territory historically dominated by bricks-and-mortar banks.

The social network has been trialling a scheme in partnership with Clearbanc, a Toronto-based firm, since February. Under the scheme, known as “Chrged,” customers connect their Facebook Ads account and their payment processor with Clearbanc, which then makes an offer.

Funds are not loans but merchant cash advances, giving Clearbanc the right to a certain portion of revenues flowing through the customer’s account until it gets its money back, plus a fee, typically of 5-10 per cent. The fee is set by analysing daily cash flows to determine the customer’s ability to repay.

About 1,000 small-business owners have so far taken up an offer.

MONEYTREE Q3 REPORT: STRONG AI AND FINTECH FUNDING PUSHING 2017 BACK ON TRACK (Betakit), Rated: A

According to CB Insights and PwC’s Canada’s latest MoneyTree report, 2017’s sluggish start may transform into a podium finish by year’s end.

The report, which tracks VC activity in Canada for Q3 2017, indicates that Canada could exceed $2.5 billion ($2 billion USD) across more than 300 deals for the year. The result would match or surpass activity from last year, when a total of $2.2 billion USD was invested, and 2016, which fell just below the $2 billion USD threshold.

Source: Betakit

Seed-stage deals accounted for 32 percent of deals in Q3 2017, a 19 percent drop from 51 percent of all deals in Q2 2017. However, early-stage and expansion-stage deals increased to 27 percent and 21 percent of deal share, respectively. Expansion-stage deals climbed to an eight-quarter high in Q3 — a strong contrast from past quarters where seed-stage deals were the most prominent, and perhaps a sign of a more robust investment ecosystem.

FinTech was another notably strong sector, as Canadian FinTech companies have received $252 million ($200 million USD) across 27 deals. This year is on pace to see $341 million ($270 million USD) invested across over 30 deals, on par with last year’s figure of $351 million ($278 million USD).

Source: Betakit

Authors:

George Popescu
Allen Taylor

Thursday April 6 2017, Daily News Digest

loan originations

News Comments Today’s main news: Renaud Laplanche’s new firm Upgrade launches as a consumer platform. US MPL securitizations total $3B in Q1 2017. RateSetter targets growth in SME lending. NewOak Asset Management agreement to purchase $2bil in loans from LendingArch. Today’s main analysis: Fundrise files Reg A+ for new investment offer. Q4 Loan origination stats per market, a must […]

loan originations

News Comments

United States

  • Renaud Laplanche’s Upgrade launches as a consumer platform. GP:” With a $60mil A round from top investors and a 70-people team, Upgrade is Renaud Laplanche’s answer to being outsted from Lending Club. A very interesting nuance: Upgrade is using Blockchain to ‘enhance data integrity by creating time-stamped, immutable transaction records.’  Also they are already lining up Jefferies for securitization and the company will retain risk on balance sheet while providing whole loans for sale. I am not sure how you can sell whole loans if you retain risk. I assume the answer is that they will not retain risk on all loans. So put apart the confusion on their whole loan sale/balance sheet retained risk / what do they do with the rest of the loan-risk, it looks very promissing. I would also be curious if they plan to use direct mail for marketing or something more efficient. Their plan does include consumer tools for credit monitoring and understanding, but I wonder if that is enough to generate loan leads. Why not look into taking the lessons from Lending Club and launching a credit card business instead ?  ”   AT: “Lending Club’s Renaud Laplanche is back. And he may be bigger and better than before. A consumer credit platform for the MPL industry would be a huge boon.”
  • MPL securitizations reach $3B in Q1 2017. GP:” The full report can be found under our reports section with all charts and information. Very useful as usual.” AT: “PeerIQ’s report is a must-read.”
  • Fundrise files Reg A+. GP:” Reg A+ as our readers already know, is a mini IPO. A way to raise capital that shouldn’t be ignored.” AT: “Fundrise continues to innovate, which is probably why they’re still in front in the RECF niche. However, their shift into eREITs and eFUNDs is very telling. Where to next?”
  • Q4 slump caps off tough 2016 for US fintech lenders. GP:” Great data and summary. A must see table.” AT: “Despite major losses, Lending Club was still an industry leader in originations. I see them turning around.”
  • Lending Club is offering hardship plans for borrowers, protecting returns for lenders. GP:”Lending Club is trying to figure out a way to reduce defaults. Humans tend to game systems so I am curious how will such a program behave over time.”  AT: “Here’s the evidence, a tiny bit of it. Lending Club continues to focus on customer needs. I like this program. Hardship plans for borrowers has the potential to make a big impact on the economy and put a little confidence in everyday people.”
  • LendingHome’s investor platform hits $100M. AT: “Congratulations. Great milestone.”
  • Amazon launches Amazon Cash. AT: “As an avid Amazon shopper, I love this idea. It makes me wonder if Amazon will ever own a bank. I think they will, a digital one.”
  • OCC Fintech Charter is key first step. GP:” An article in support of the charter. In fact, most people are in support of the charter.”
  • Chase spent $600M on fintech deals in 2016. GP:” Chase has $26mil active customers on their mobile app.  Most of the spent was on mobile and digital… I wonder what else is there that is not mobile and digital.”
  • LC CEO sketches the future. GP:” A summary of the talk at Lendit. In 2016 LC lost $146mil, out of a $800 mil in cash approx. However, the 3 new initiatives look very vagues to me.”
  • Online lenders spooked by Colorado’s tough stance on interest rates. GP:” Even Upgrade, Renaud Laplanche’s new firm, doesnt’ originate in Colorado.”
  • The fintech accelerator in Little Rock.
  • Online RECF will flip industry on its head. AT: “I would say it already has. It just needs to go the next step and create more opportunities for non-accredited investors.”
  • Arizona gives legal status to blockchain-based smart contracts. AT: “I’d like to see more states draw attention to smart contracts. I see a lot of opportunity for mass acceptance.”
  • Online Lending Network to reduce fraud.
  • Goldman Sachs is bringing AI, blockchain to Columbia B-school.

United Kingdom

  • RateSetter targets growth in SME lending. GP:” An interesting move, not many personal lenders move into SME as the businesses are completely different and there isn’t much efficiency. In fact in the US Kabbage launched Karrot , moving from SME to personal lending, and last year they had announced they are shutting Karrot down.”
  • BofE still worried about personal lending. GP:” Personal lending is such a small piece of the credit markets I fail to see it as a major threat to anything at all.”
  • Bridging P2P lending’s data gap. GP: ”  ‘lack of independent research that allows investors and advisers to benchmark P2P platforms’ . There are a few options, perhaps not well know yet. Perhaps the research companies should advertise more and build real marketing arms. “
  • UK consumer slowdown underway.
  • When VCs get two bites of the apple. GP:” Participating preferred investments have been standard in the US since the VC industry existed. And yes, investors are in the investment to make money, and they will not only take participating preferred deals, but also coupons on their money, and control the budgets, key hires, force redemptions… Anybody thought investors were non profits giving money away for free?”
  • The complete guide to using Revolut for P2P lending investors.

European Union

Australia

Canada

International

News Summary

United States

Upgrade, Inc. Launches New Consumer Credit Platform (Upgrade), Rated: AAA

Upgrade, Inc. () today announced the launch of a new consumer credit platform that combines a marketplace lending approach with tools that help consumers understand and monitor their credit.

Upgrade started operations in August 2016 and closed its Series A round of financing in March, raising $60 million in equity and convertible notes from investors including Apoletto, Credit Ease, FirstMark Capital, Noah Holdings, Ribbit Capital, Sands Capital Ventures, Silicon Valley Bank, Union Square Ventures, Uprising and Vy Capital.

All loans originated through the Upgrade platform are issued by WebBank, Member FDIC. Upgrade will acquire loans from WebBank, retain a representative portion of those loans on its balance sheets and offer whole loans for sale to institutional investors.

Jefferies is advising the company on its capital markets strategy and is expected to participate in loan purchases to help establish the company’s securitization program.

Personal loans are available through the Upgrade website starting today. Credit monitoring, alerts and education features will launch in coming weeks.

US MPL securitisations total $ 3bn in first quarter (P2P Finance News), Rated: AAA

SEVEN marketplace lending (MPL) securitisations took place in the US in the first quarter of 2017, with a total value of $3bn (£2.4bn), according to new research.

This is up from $2.4bn in the fourth quarter of 2016. Alternative lending research firm PeerIQ found that total issuance to date now stands at $18bn, equating to 80 US MPL deals since September 2013.

Read the full report: MPL securitization tracker for Q1 2017 from PeerIQ.

Fundrise Files Reg A+: “For Sale Housing eFUND”, New Real Estate Investment Offer (Crowdfund Insider), Rated: AAA

Fundrise is adding a new investment vehicle to its growing list of opportunities for smaller investors. This time the real estate marketplace has filed a Form 1-A with the SEC for a “Fundrise For-Sale Housing eFUND”.

Now Fundrise is looking to develop single family attached and detached homes, including condos in southern California.

For investors, the objective is to pay distributions from cash flow from operations as a partnership which means different taxation for investors (IE you receive a K-1)

As with their other Reg A+ filings, Fundrise is seeking a maximum amount of $50 million (the legal limit).

Q4 slump caps off tough 2016 for US fintech lenders (AltFi), Rated: AAA

S&P Global Market Intelligence, a research arm of major ratings agency S&P, has released 2016 origination numbers for 13 major online lenders. The data is headlined by a 14.5 per cent year over year fall in originations for the entire group in the fourth quarter.

Despite the difficult Q4, S&P estimates that the 13 lenders in question grew full-year originations in 2016 by 15 per cent. The student and SME focused lenders exhibited especially strong full-year origination growth, with 62.3 per cent and 43.0 per cent respectively.

Analysis from AltFi Data shows that originations in the UK’s marketplace lending sector grew 49 per cent in Q4 2016 on a year on year basis.

SoFi was the largest online lender by volume in the US during Q4 2016, with roughly $2.5bn lent. But Lending Club just about remained the largest player by yearly origination volume with a little over $8.5bn lent, besting SoFi by around $600m.

Offering Hardship Plans for Borrowers and Protecting Returns for Investors (Lending Club Email), Rated: AAA

We’re excited to announce that after a beta test, we will begin offering hardship plans to borrowers effective May 4, 2017. Hardship plans allow borrowers to temporarily make interest-only payments to accommodate an unexpected life event. As part of this change we are also making additional data fields related to these plans available for investors.

Our hardship plan program specifically targets borrowers who are more likely to return to repaying their loan. Under the plan, borrowers are allowed to temporarily make interest-only payments for a period of 3 months to accommodate an unexpected life event. After 3 months, regular payment terms and obligations resume. Only borrowers who fulfill specific characteristics (such as a demonstrated history of repayment) and who claim a hardship will be offered plans. Importantly, borrowers’ loans must be either current or between 1 and 30 days past due to qualify for a hardship plan.

Finally, we are adding 15 new data attributes of borrowers who utilize hardship plans to investor reports and the API. The fields will only apply for hardship plans offered as of May 4, 2017 and going forward. You can find more information on these new data fields here.

LendingHome, the leading mortgage marketplace lender, today announced that $100 million has now been invested on its platform for individual investors since the platform’s launch in January 2016.

Individual investors can access LendingHome’s marketplace with a minimum opening balance of $50,000 and a minimum investment of $2,500. Investors benefit from fractional notes backed by mortgages that yield 8.75 percent on average. They also receive immediate monthly cash flows and the ability to diversify across hundreds of investments.

In its first year of operation, more than 500 loans were fully funded through the investor platform. Currently all loans offered on the platform are short-term bridge loans for professional real estate investors who buy, renovate, and resell properties. The average loan duration is under one year.

Amazon launches Amazon Cash, a way to shop its site without a bank card (TechCrunch), Rated: A

Amazon this morning announced the launch of Amazon Cash, a new service that allows consumers to add cash to their Amazon.com balance by showing a barcode at a participating retailer, then having the cash applied immediately to their online Amazon account. The service will support adding any amount between $15 and $500 in a single transaction, Amazon says.

Amazon Cash will be available at brick-and-mortar retailers across the U.S., including CVS Pharmacy, Speedway, Sheetz, Kum & Go, D&W Fresh Market, Family Fare Supermarkets, and VG’s Grocery. Other stores will be added in the future.

The service is not all that different from a similar effort by PayPal, whose PayPal My Cash Card lets you add funds to your online PayPal account, using cash from your wallet. It also has a barcode-only service, powered by Green Dot.

The advantage to Amazon Cash is that, as soon as you checkout at the register, the funds are available in the customer’s Amazon account. There are also no fees – something that can’t be said of all the prepaid cards on the market.

The OCC Fintech Charter is a Key First Step, Not the Last Word (Crowdfund Insider), Rated: A

While Americans prize the innovations that can improve their lives, our regulatory framework today is structured in such a way that makes experimentation and greater competition in financial services expensive and difficult.  For instance, obtaining and maintaining licenses in 50 states is a major hurdle, and can impose outdated and arbitrary restrictions that are hardly even applicable to platforms that born on the internet.

This has important implications, because while the incumbent national institutions bypass all these state rules, those same traditional bricks and mortar players currently may not always deliver credit products that best meet the current needs of under-served urban and rural communities.

The recent charter proposal from the Office of the Comptroller of the Currency (OCC) strives to strike the balance of promoting greater innovation but doing so within the constructs of existing national bank laws and regulations.  As it has done with previous generations of innovative products, like credit cards, the OCC recognizes that the business of banking is not static, and the agency is working within its existing authority to create a single national regulatory option for financial technology firms.

Finally, promoting competition from the formation of innovative “de novo” banks is clearly a bipartisan priority. The OCC special purpose bank charter is a critical response to help advance this goal nationally and its associated benefits.

Chase Spent $ 600 Million on Fintech Deals in 2016 (Bank Innovation), Rated: A

$600 million of JP Morgan Chase’s $9.5 billion technology spend in 2016 went to fintech solutions, and given the company’s 2016 results, it seems like money well spent.

According to the company’s Annual Report 2016, released today, the bank’s spend on fintech included improving its mobile and digital services.

Chase ended the year with 26 million active customers on its mobile app.

It also reported 94 million transactions took place in 2016 on its P2P service, Chase QuickPay, representing a 30% increase year over year—and as Chase is one of the banks supporting Zelle, it expects further development in P2P during the course of 2017.

Lending Club CEO sketches the future (Banking Exchange), Rated: A

When Lending Club CEO Scott Sanborn spoke at the LendIt USA Conference in March the majority of the audience represented a key part of Lending Club’s funding base—institutional investors, including banks—as well as potential partners and competitors in the marketplace lending community.

“Roughly 60% of our loans are to people who are paying off existing credit card debt with a lower interest fixed-payment loan from us,” Sanborn said. “On average borrowers are telling us they’re saving about 25% versus their credit cards so it’s a pretty material spread there that we’re comfortable with.”

Lending Club lost $146 million in 2016.

Sanborn likened the situation to the online retail business, where he had worked earlier. The launch of eBay and Amazon in 1995 spawned a host of dotcom competitors, many of which went away. Amazon itself was expected to close doors, first in 1999 and then in 2001, he noted. Today the behemoth has $100 billion in e-commerce sales, with Walmart a distant second. Likewise, the development of the online lending business is not a linear process, said Sanborn, but more of a cycle.

Sanborn said the good news for 2016 that didn’t get a lot of press: “Lending Club remained the number one provider of personal loans in the country. We issued $8 billion in loans last year, bringing our total [outstandings] to $25 billion.”

Sanborn spent the bulk of his speech describing three initiatives he sees shaping the online lending industry—and Lending Club—going forward.

  1. Evolving the customer experience
  2. Unleashing the platform’s potential
  3. Amplifying core innovations

Online lenders spooked by Colorado’s tough stance on interest rates (American Banker), Rated: A

The ongoing battle over the interest rates that online lenders can charge has moved to Colorado, which is taking aggressive steps to enforce its 12% rate cap for consumer loans.

Inside the fintech accelerator program in Little Rock (Tearsheet), Rated: A

A recent addition to the pool of development programs for financial technology startups is the Venture Center Fintech Accelerator based in Little Rock, Arkansas, which just graduated its first class. It is backed industry giant FIS, a banking technology company that operates in over 130 countries.

The program selects 10 entrepreneurs a year, and it covers a broad range of focus areas, including core banking services, wealth management, wearables, wallets, back office, compliance and payments. For the startups, it’s an opportunity to get honest feedback from counterparts in the banking sector. This year, organizers received 295 applications.

Grant Easterbrook, co-founder of Dream Forward, a 401(k) startup and 2016 class graduate, said the program was mix of meetings and independent work organized around a series of themes relevant to growing the business.

Each week, every company had deliverables, and the work culminated in a demonstration day for investors, bankers and other stakeholders. Bauer said that while many accelerators focus on fundraising, the FIS program zeroes in on getting the products to market, which he said can be the biggest challenge for early-stage entrepreneurs.

Online real estate crowdfunding will flip industry on its head (Daily News), Rated: A

An acronym for Jumpstart Our Business Startups, this lesser-known, but very impactful law has substantially relaxed some of the most stringent securities laws dating back to the Depression era and single-handedly created a whole new investment category known as equity crowdfunding.

And while the title of the category is equity crowdfunding, in reality both equity and debt opportunities are allowed. It is now possible to take relatively small amounts of money and purchase a small stake in a Silicon Valley startup, loan money to an established small business, and — yes — participate in real estate deals.

As an early adopter I have been participating in this space since late 2013, patriating in over 30 deals. They have almost exclusively been debt and I have had several successful exits with no loss of capital this far. My net return over this time has been a very satisfactory 11%.

While we are still in the early phases, I think that real estate crowdfunding is here to stay. From a few million dollars in 2012 to over $3 billion in 2016, we have clear evidence of growing momentum in this space.

Arizona Gives Legal Status to Blockchain Based Smart Contracts (Trustnodes), Rated: A

Ethereum’s technology has just been given the seal of approval by the State of Arizona which passed a bill giving legal status to smart contracts and blockchain based signatures, considering them as any ordinary contract or signature.

In effect, the new legislation applies current contract law to blockchain based contracts, erasing any uncertainty and making it clear that any blockchain based agreement is fully enforceable in a court of law.

The law goes further to state that blockchain based data amounts to ownership, importing current property rights to the nascent field and removing any legal ambiguity as to what may amount to theft.

Things like futures, as in you pay a farmer now for his crop at a set price with delivery at a later date, things like escrow, things like blockchain based insurance, and so on, can now be set in code with the code itself applying enforceable contractual terms where it operates as intended.

Online Lending Network to reduce fraud (Bankless Times), Rated: B

ID Analytics hopes its new Online Lending Network will reduce fraud committed against participating members.

Within a year of its inception, ID Analytics believes the Online Lending Network has gained visibility into 75 per cent of the U.S. domestic marketplace lending activity.

Goldman Sachs Is Bringing Artificial Intelligence And Blockchain To Columbia B-School (Business Because), Rated: B

New York’s Columbia Business School will host a fintech conference sponsored by Goldman Sachs, Microsoft and Deloitte — the latest example of the fintech frenzy at elite business schools.

Students at the business school run Columbia FinTech Club, an organization that aims to develop education and innovation in the field of financial technology. Columbia alumni include Jon Stein, the founder of digital wealth manager Betterment, which uses software to create a portfolio and automatically rebalance it, which is valued at $700 million.

United Kingdom

RateSetter targets growth in SME lending (P2P Finance News), Rated: AAA

RATESETTER is planning to ramp up its business lending, after working behind the scenes last year to boost its small- and medium-sized enterprise (SME) technology and grow its dedicated team.

But it sees opportunities for growth within the sector, as SMEs across the country grow increasingly hungry for working capital.

Small businesses have shrugged off Brexit, with the weak pound creating a very strong case for boosting exports, Marston said. The firm found that in the South East region alone, at least 40 per cent of small companies are looking to grow in the next six months.

Bank still worried about personal lending (BBC), Rated: AAA

The recent rapid rise in consumer borrowing is still a potential threat to the stability of the UK’s financial system, says the Bank of England.

These elements of household borrowing – known as consumer credit – are dwarfed by the amount of money that has been lent to home buyers in the form of mortgages.

But the Bank fears that lenders may have become too slack in deciding to whom they should lend.

Data from the price comparison service Moneyfacts shows that some card issuers will now offer interest-free periods of as long as 43 months.

Another area of concern, the Bank said, was that some lenders had been offering larger, unsecured, personal loans than before.

Consumer credit lending is still less than 10% of all lending by UK banks to household borrowers, and is far smaller than mortgage lending which amounts to 70% of loans to households.

Bridging P2P lending’s data gap (Professional Adviser), Rated: A

A strange thing happened in April last year, when the regulator allowed financial advisers to recommend peer-to-peer (P2P) lending to their clients. What happened was – nothing. At least not to begin with.

To an extent, this reflects a certain wariness for the P2P lending sector among some advisers, which is based on a lack of familiarity with the asset class. But there is a much bigger problem – the lack of meaningful data about the sector and a dearth of tools with which to interrogate what little information is available.

In short, there has been a lack of independent research that allows investors and advisers to benchmark P2P platforms. Independently assessed default and return rates have been hard to find – as have been industry-wide figures on subjects such as the total size of the market.

This matters increasingly as the P2P scene grows ever larger. There are now more than 50 P2P platforms and, in the three years from 2014 to 2016 alone, lending grew from £1.25bn to £3.13bn, providing credit to both consumers and businesses. Currently, just over 177,000 retail investors are active in this space. By 2020, it is estimated 2.7 million people will be investing in P2P lending.

They will need independent data, analysis and insight to guide their decisions.

UK consumer slowdown underway, caution needed on rates-Bank of England’s Vlieghe (Arab News), Rated: A

Bank of England rate-setter Gertjan Vlieghe said on Wednesday a consumer slowdown was already underway in Britain and was likely to worsen, underscoring the need for caution on interest rates.

Vlieghe, who is considered one of the central bank’s most dovish policymakers, repeated his view that a premature rate hike was more dangerous than one that came too late.

The BoE is widely expected to keep interest rates at their record low throughout this year and possibly until 2019 as it steers the British economy through the uncertainty linked to the exit from the EU.

However, one rate-setter — Kristin Forbes — voted last month for a rate hike and others said they might follow suit soon if there were signs of inflation picking up by more than expected or that economy was maintaining its momentum of 2016.

When VCs get two bites of the apple (Financial Times), Rated: A

But this is finance and that means things inevitably get even more complicated. This time we’re going to look at the way venture capitalists have structured their investments in two of the UK’s rising fintech stars: Funding Circle and Transferwise.

Transferwise, a payments business, has raised just over $100m from investors including Index Ventures, Peter Thiel’s Valar Ventures, Andreessen Horowitz, and Baillie Gifford, according to Crunchbase.

Funding Circle, a lender to small businesses, has raised $370m from the likes of Index Ventures, Accel Partners, BlackRock, Baillie Gifford, and others, also according to Crunchbase.

Funding Circle, on the other hand, seems to have a more complicated setup called a “participating preferred” structure. This means the investors get their money back in a sale, ahead of anyone else, and they get a share of the cash that’s left over.

The Complete Guide to Using Revolut for P2P Lending Investors (P2P-Banking), Rated: B

The important fact is that with the own account number it is possible to use that for withdrawals from UK marketplaces as no reference is needed for the transfer. I have done this a couple of times now and it takes only a few hours for the money to arrive and get credited.

Entering the recipients bank details on a smartphone is a bit cumbersome, but it needs to be done only once, as the details are stored and can be reused for future transfers.

Note to UK investors: You cannot use the Revolut app likewise for transfering funds from on p2p lending platform in the Eurozone to another p2p lending platform in the Eurozone.

And when I did a comparison of exchange rates at the time of writing this article, I found that actually Revolut offers a much better exchange rate. This is what I got when I compared:

  • Revolut: 238 Euro gets 206.12 GBP
  • Transferwise: 238 Euro gets 204.92 GBP
  • Currencyfair: 238 Euro gets 202.91 GBP

Important tip: Never exchange money on Revolut on a weekend, as Revolut will charge a 1% fee then.

European Union

Deutsche Bank acquires stake in FinTech TrustBills (Deutsche Bank), Rated: A

Deutsche Bank AG today announced the acquisition of a 12.5 percent share interest in the receivables auction platform TrustBills. Founded in 2015, the Germany based FinTech TrustBills is an electronic True Sale marketplace for national and international trade receivables. TrustBill’s goal is to become an international receivables market place for companies of all sizes. Terms of the agreement are not being disclosed.

GRANT SUPPORTS DELIVERY OF NEXT GEN FINTECH FOR SPEAKERBUS (Speakerbus), Rated: B

Speakerbus today announced a milestone in its TRADECOM European Union funded project with the successful submission of its scheduled phase 1 reports. The European Commission’s innovation in SME’s programme (Horizon2020), awarded Speakerbus an innovation grant to advance the commercialisation of its vTurret; itself a prototype developed from a UK Government Innovation Grant, a grant specifically awarded to showcase and fast-track technological innovation in technology.

The partly funded project demonstrates Speakerbus commitment to Software as a Service (SaaS), cost pressures, scalability, redundancy, VoIP, compliance, access to an advance API and multi-vendor collaboration, as the project matures.

Australia

Fintech all talk no action in bank competition race (Fiancial Review), Rated: A

One theme often overlooked in the debate around the role of the major banks and home lending is competition, or lack of it. Australia’s banking sector is one of the most highly concentrated in the world and the much-hyped arrival of digital disruption has hardly shifted the dial.

Sims makes no bones about the fact that he thinks the market share of the big banks, along with their profits, are too high. He notes that their earnings have increased over the past 15 years as their share of the lending market continues to rise.

The hype around the changes digital technology was going to have on the industry has also failed to materially affect the competitive landscape, although it has forced the existing players to compete with each other with better payments systems and smartphone apps. The biggest competitive shift has been the rise of mortgage brokers, although they will be impacted the most from the banking regulator’s latest crackdown on interest-only loans.

Canada

NewOak Asset Management Partners with LendingArch to Purchase up to Billion in Consumer Loans (LendingArch Email), Rated: AAA

Today LendingArch, the Calgary-based online and point-of-sale lending platform, announced a partnership with NewOak Asset Management LLC, a New York-based asset management and institutional advisory firm who have advised on over $5.5 trillion in assets on behalf of the world’s top banks, institutions, law firms and regulators. This partnership gives NewOak the ability to purchase up to $2 billion worth of loans originated through LendingArch’s platform over the next three years, the largest deal of its kind for a Canadian consumer lending platform.

NewOak will also be taking on an advisory role with LendingArch, providing insight on capital markets, credit, growth, and additional business opportunities as the company further expands its point-of-sale lending platform.

The NewOak partnership is LendingArch’s first of many institutional-based deals that they are looking to strike in North America and internationally, and means that the company can continue to provide high-quality, low-cost loans across a range of verticals, giving Canadians a viable alternative to banks for consumer lending.

International

CFA challenges investment industry: transform or be disintermediated (The Asset), Rated: A

CFA Institute, the investment management industry’s global think-tank and lobby group, has come out with a very strong challenge to the industry to “transform” itself or risk being “disintermediated” in the face of industry difficulties.

Among the significant trends that the study cited are:
• Uncertainties brought about by geopolitical developments such as Brexit, Trump’s election, regulatory reform, etc;
• Disruptions brought about by fast-paced developments in the financial technology (fintech) sector;
• The persistent low-yield environment and the resulting shift from passive to active management.

 

Authors:

George Popescu
Allen Taylor

Tuesday March 7 2017, Daily News Digest

p2p industry growth

News Comments Today’s main news: Ron Suber’s updates on MPL. Amazon’s history points the way for online lending. Best Egg exceeds $3B in personal loans.eOriginal to lead Fannie Mae’s next-gen electric vault. Experian joins MLA. First FinTech fund for inclusion of the underserved raises $141 mil. Trillion Fund up for sale. Today’s main analysis: How to join the P2P lending […]

p2p industry growth

News Comments

United States

United Kingdom

Israel

Asia

News Summary

United States

Amazon’s history points the way for online lending: Lending Club CEO (American Banker), Rated: AAA

As the online lending sector seeks to rebound from a wrenching year, it should look to Amazon for inspiration, the CEO of industry bellwether Lending Club said.

In many ways where online lending is in 2017 parallels the early days of online retail, Scott Sanborn said at the LendIt conference in New York on Monday. In that situation, new entrants disrupted an established industry, before going through a period of pain and change themselves during the dot-com bubble.

The original online retailers that survived and thrived after that period reinvented and expanded what they did, Sanborn said, citing Amazon as the prime example.

Much like how Amazon went from selling books to selling cloud services, Sanborn predicted online lenders that succeed well into the future will change how they do business.

eOriginal to Lead Fannie Mae’s Next Generation Electronic Vault (PRWeb), Rated: AAA

eOriginal, Inc., the trusted expert in digital transaction management, has been selected as the technology solution provider for the Fannie Mae next generation electronic vault (eVault). Fannie Mae is committed to enhancing the digital mortgage revolution and removing obstacles to eMortgage adoption through a modern, secure, and scalable platform. eOriginal’s hosted platform enables the secure management of electronically signed assets (eNotes) throughout their post-execution lifecycle.

By utilizing eOriginal’s hosted solution, Fannie Mae will accelerate deployment and greatly reduce costs for ongoing support efforts. The movement to cloud-based/vendor-hosted solutions is an industry best-practice that the lending community is embracing.

How To Join The P2P Lending Revolution And Earn +10% Yields (Forbes), Rated: AAA

In 1999, I was a partner in launching one of the world’s first pure online banks. At the time, the idea was controversial to say the least.

Since launching our online bank, the industry has, in fits and starts, adopted the technologies necessary to provide some form of online banking to their clients.

While earning fees on deposits, overdrawn checks, and so forth are an important component of the typical bank’s revenue statement, the real juice comes from lending.

And that’s where the banks have a real problem.

With the credit freeze locking out many ordinary Americans, the door opened wide for Peer-to-Peer lending platforms. A radical new approach to lending, P2P platforms act as intermediaries between borrowers and investors, bypassing the traditional gatekeepers of credit… the banks.

In 10 short years, P2P lending has facilitated over $35 billion of loans in the US.

Loans made through P2P platforms currently account for just 3% of the total unsecured consumer loans in the US.

Given the positives, the P2P share of unsecured consumer loans is projected to enjoy a compounded annual growth rate of 47%, rising to 8.4% of the market by 2020.

With P2P investing thriving in the sub $250k space, banks are beginning to take note. As a senior banker friend of ours commented, the bankers are now paying very close attention to the rising competition.

Unlike the Boomers, Millennials have no loyalty or connection with banks. That’s why they are twice as likely to switch banks. Over 94% consumers under the age of 35 are active users of online banking.

Already about one-third of 18-to 34-year-olds have used P2P lending, with the average age for Lending Club users just 30.

Prosper President Ron Suber Updates on Marketplace Lending Industry (Crowdfund Insider), Rated: AAA

Ron Suber, the President of Prosper and a perennial keynote speaker at the annual LendIt conference, delivered a rousing update on the status of marketplace lending.

The previous 12 months have been tough on the online lending sector, funding dried up as institutional money panicked leaving platforms gasping for cash. Platforms were compelled to revisit operating models looking for efficiencies while honing the credit process. Yet the platforms that have survived stand to benefit and grow from the new resilience and confidence created from shared survival.

The key to future success included the following foundational elements: loan performance, data transparency, platform profitability, customer acquisition, and automation.

 

Ron Suber LendItUSA 2017 Presentation by CrowdfundInsider on Scribd

Experian joins Marketplace Lending Association (Finextra), Rated: AAA

As part of our commitment to driving responsible financial innovation, Experian has joined the Marketplace Lending Association as an associate member.

Now more than ever, the financial industry is seeking new and innovative ways to provide valuable financial services to consumers and businesses. Experian has been at the forefront, and is leading this charge by focusing on combining technology with the power of data to help drive an economy that is continually changing. This is critical, especially in the marketplace lending sector, which has brought many innovations to the market over the last decade.

Experian is already an active partner with many of the nation’s leading marketplace lenders, providing powerful data, analytics and consulting services to consumer and small-business lenders. We are uniquely positioned to help marketplace lenders attract more consumers to our platform, reduce fraud risk and navigate the complex world of regulatory and compliance.

First FinTech Fund for Inclusion of the Underserved Raises $ 141 Million (Cryptocoins News), Rated: AAA

The Accion Frontier Inclusion Fund closed with $141 million in capital contributions. This is a global non-profit dedicated to building a financially inclusive world with economic opportunity for all, by giving people the financial tools they need to improve their lives. It is managed by Quona Capital, which invests in entrepreneurs and growth-oriented businesses seeking to change how financial services are delivered in emerging markets.

Altisource launches mortgage trading platform (Housingwire), Rated: A

Altisource Portfolio Solutions, a provider of real estate, mortgage and technology services, announced the launch of its new mortgage trading platform – noteXchange.

noteXchange is a secondary market trading platform that brings buyers and sellers together. It enables communication, shorter sales cycles and automated processes, according to the company.

The platform creates a uniform, compliant, secure and efficient technology solution in the mortgage trading market. It is designed to replace the current system of transacting through spreadsheets and email.

This move comes as no surprise to HousingWire readers, who read in the March magazine about mortgage companies increasing their securityafter a record number of hacks.

Credit Cards, Friends and Family and Savings Aren’t Helping Nonprime Americans (BusinessWire), Rated: A

It’s no secret that nonprime (subprime) Americans have limited personal resources to weather unexpected expenses – but new data from Elevate’s Center for the New Middle Class reveals that informal, relationship-based options for emergency loans are largely unavailable as well. According to research released today by the Center, which researches and reports on the realities of being nonprime in America, almost 70 percent of nonprime Americans couldn’t cover an urgent expense of $500 or more with their savings and 64 percent wouldn’t be able to borrow that amount from friends and family. These findings complement the Federal Reserve Board’s 2016 finding that 46 percent of Americans do not have $400 in savings to cover an emergency expense.

This latest study focuses on how nonprime Americans – defined as those having a credit score below 700 – borrow money as they are largely barred from traditional prime products, like personal loans from banks or even loans from new online lending companies that are focused on prime consumers.

Additional key findings include:

  • 71 percent would not be able to borrow $2,000 from family or friends if an urgent need arose
  • 72 percent of nonprime Americans would not be able to put $500 on a credit card
  • 80 percent would not be able to put $2,000 on a credit card
  • 59 percent said they “regularly” carry a credit card balance
  • Only 1 in 5 nonprime Americans have borrowed from friends or family in the last 12 months
  • 7 percent use overdraft protection strategically, using it to cover expenses for which they did not have money

ID Analytics’ Online Lending Network Helps Members Reduce Fraud (Yahoo! Finance), Rated: A

ID Analytics LLC, a leader in consumer risk management, today announced that the company’s Online Lending Network has helped reduce fraud for members. The Online Lending Network is a consortium formed to enhance responsible lending, help protect consumers and businesses, and address credit and fraud risks. Early research shows that 1.5 percent of online loan applicants were seen applying at or seeking offers from other lenders within six hours of submitting their application, and this group was found to be twice as risky as the average online loan applicant.

PeerStreet Integrates with Betterment via Quovo to Provide More Detailed Investment Overview (Yahoo! Finance), Rated: A

PeerStreet, an award-winning platform for investing in real estate backed loans, has announced an integration with Betterment, the largest independent online investment advisor. Using account aggregation through Quovo, customers of both Betterment and PeerStreet can view their PeerStreet positions within the context of their investment portfolio on the Betterment dashboard.

Customers of both services are increasingly seeking an easy way to see their all of their investments in one place, even across multiple investment platforms. Integrations with Betterment and similar financial services have become one of the top requests from PeerStreet users. Both PeerStreet and Betterment were able to quickly respond to their clients’ needs using Quovo, the industry leader in financial account connectivity, to aggregate and integrate consumer financial data.

This integration is another example of both PeerStreet and Betterment using technology to help provide greater transparency, ease of use and control. It stems from a core philosophy of listening to customers and being responsive to requests that fundamentally improve the user experience, even across multiple platforms.

LendIt keynote: Online lending is an industry built to last (Housingwire), Rated: A

At first look, it seemed to be an unlikely crowd for a conference involving technology-focused disruptors, but perhaps the formality of the event was indicative of the startups in attendance – growing companies beginning to rub shoulders with the establishment.

Prosper and its peers Lending Club and OnDeck are part of the “older guard” of fintech companies, and find themselves at the front lines of conversations with regulators, banks, venture capitalists and private equity firms.

Looking to the future, Mr. Suber is convinced that in order to grow sustainably and in order to be “built to last”, the next evolution of online lenders involves partnering with banks to find long-term capital and achieve profitability. He believes there are five ways for banks to engage with online lending:

  • Loan Sales: Banks purchase loans through online lending platforms to diversify asset base and gain access to assets they don’t directly underwrite
  • Lenders as a Service: Banks utilize lending platforms created by startups for origination and servicing that can be leveraged in discussions with regulators
  • Vendor relationships: Banks can leverage, securitize, custody cash, and serve as trustees for online lenders
  • M&A advisory: Banks can help fulfill every entrepreneurs’ dream of an exit
  • Greenfield operations: Some banks build their own online platforms while taking advantage of their low cost of capital

Best Egg Exceeds Billion in Personal Loans with Focus on Debt Consolidation (BusinessWire), Rated: A

Best Egg announced today its loan origination has surpassed $3 billion as it reaches its third year in business. With its A+ rating with the Better Business Bureau, Best Egg is a personal loan product that leverages technology to simplify and speed the process for getting a loan.

Online personal loans have surged over the past three years. Consumers were underserved by the options available from the incumbent banks and credit unions, which are many times saddled with slow processes, small loan amounts, and lack of product innovation. TransUnion’s February 2017 Quarterly Industry Insights Report highlights significant growth in personal loan uptake over the last few years.

AlphaFlow Announces New Investment Platform (Crowdfund Insider), Rated: A

On Monday, AlphaFlow announced the launch of its new investment platform, AlphaFlow Managed Portfolios.

Sturm claimed that he, along with co-founder and CTO of AlphaFlow, Bogdan Cirlig, launched the industry’s first multi-platform funds.

The AlphaFlow Managed Portfolios platform will do the following:

  • Build, monitor, and automatically rebalance a portfolio of 75-100 real estate loans for investors
  • AlphaFlow Advanced Analytics drive every investment decision
  • Investors earn 8-10% with the protection of real estate collateral
  • Simple 1% AUM fee, with no additional hidden costs

Fidelity’s New Robo Ups Ante for Advisors (Financial Advisor IQ), Rated: A

After launching its robo for retail investors last summer, Fidelity Investments is forging ahead on a revamped technology platform for advisors. By mid-year, the asset manager and financial services custodian expects to offer its 3,000-plus customer base of RIAs and brokerages a whole new set of online tools to manage client portfolios.

But Fidelity isn’t the only industry heavyweight trying to develop robo technologies for advisors, says Sean McDermott, an analyst with Corporate Insight in New York.

SigFig, which includes backing by UBS and Eaton Vance, is one such rival listed by the veteran robo analyst as already making significant inroads.

Another established player in U.S. wealth management is FutureAdvisor, McDermott adds. FutureAdvisor is owned by asset manager BlackRock.

EULER HERMES DIGITAL AGENCY, FLOWCAST PARTNER: CREDIT INSURANCE BENEFITS FROM AI (Euler Hermes), Rated: A

Euler Hermes, the world’s leading trade credit insurer, today announced a pioneering partnership between its Digital Agency and Flowcast, a fintech company focused on revolutionizing trade and supply chain finance with artificial intelligence (AI). The announcement was made as the partners attended LendIt USA, a major lending and fintech conference in New York this week.

Euler Hermes provides trade credit insurance solutions to protect companies against non-payment of accounts receivables by customers. Its Digital Agency recently launched its first breakthrough product – Single Invoice Cover – which protects B2B companies from non-payment, transaction by transaction, while optimizing end-to-end supply chains by extending the optimal credit terms to buyers. Based on a proprietary API (application program interface), it creates a seamless process for businesses, while facilitating a comprehensive and granular management of credit exposure.

Flowcast will use its strength in analyzing transaction data to significantly evolve the concept by developing smart algorithms to create the foundation of an innovative underwriting solution within Single Invoice Cover. Benefits include improved working capital and financing along the supply chain.

Based on invoice-level data, Flowcast has developed smart algorithms that predict a range of risk parameters, such as the probabilities of default or expected timing of invoice payment – critical factors for business. The process applies sophisticated machine learning techniques that significantly outperform more traditional models. EHDA and Flowcast are working together to extend the scope and the performance of these models to “reinvent” trade credit insurance and risk management offerings, particularly at the transaction and Single Invoice Cover levels.

Innovative Lending Platform Association and Coalition for Responsible Business Finance Join Forces (PR Newswire), Rated: B

The Innovative Lending Platform Association (ILPA) and the Coalition for Responsible Business Finance (CRBF) today announced they are joining forces and will now operate as the ILPA – the leading trade organization representing a diverse group of online lending and service companies serving small businesses. Joining ILPA’s existing members, OnDeck® (NYSE: ONDK), Kabbage® and CAN Capital, are CRBF member companies Breakout Capital, Enova International’s The Business Backer™, PayNet and Orion First Financial. United by a shared commitment to the health and success of small businesses in America, the newly expanded ILPA is dedicated to advancing best practices and standards that support responsible innovation and access to capital for small businesses.

In addition, leading national small business organizations that formerly served as the CRBF Advisory Board will now represent small business customers as formal advisors to the ILPA. The Advisory Board includes individuals from the National Federation of Independent Business (NFIB), the National Small Business Association (NSBA), the Small Business & Entrepreneurship Council (SBE Council), the U.S. Chamber of Commerce, and new representatives from the Association for Enterprise Opportunity (AEO). These small business organizations have provided key input into the collective group’s best practices and standards initiatives over the past year, ensuring that the needs of their small business constituents are addressed.

United Kingdom

Trillion Fund P2P & Crowdfunding Platform Up for Sale (Crowdfund Insider), Rated: AAA

Trillion Fund, a peer to peer lending and crowdfunding platform that also offers white label services is up for sale. The company announced today that it was putting all assets on the auction block. Trillion Fund initially launched as a renewable energy investment platform but struggled to gain traction as the market for renewable energy projects shifted in the UK – in part due to changes in governmental support. Trillion Fund is now inviting offers from businesses looking to enter the P2P lending sector.

Burton expects the purchase opportunity to be of interest to firms considering an entry into the P2P sector as the platform is fully operational and approved by the UK government.

LendInvest: “The UK Risks Losing Another Generation of Property Entrepreneurs” (Crowdfund Insider), Rated: AAA

LendInvest, an online property finance marketplace, is demanding the government to revise its treatment of small and medium-sized property investment and development companies. Noting that four in five SMEhouse builders have disappeared since last housebuilding boom, LendInvest is calling on the government to recognize the positive contribution they can make to resolving the UK’s deep-rooted housing crisis.

In a new report entitled Starting Small To Build More Homes: a blueprint for better policymaking for property SME market LendInvest shares industry evidence to examine the root cause – and subsequent impact – of challenges faced by property SMEs such as constrained access to finance and distorted policy around regulation, taxation and access to land.

Key findings from the report include:

  • Four in five housebuilders have gone out of business since the last housebuilding boom
    By returning to the same level of market plurality as in 2007, we could build 25,000 more homes every year
  • Small housebuilders were responsible for 3 in 8 of the UK’s new homes before 1990, today they only deliver 1 in 8
  • The British Business Bank has yet to allocate funding for property firms
  • The Homes & Communities Agency must lend a weighty £56m a month to achieve its target to supply £3 billion of housebuilding finance by March 2021

LendInvest Start Small to Build More Homes by CrowdfundInsider on Scribd

Assetz Capital CEO Stuart Law Predicts Boost for P2P Sector in Upcoming Budget (Crowdfund Insider), Rated: A

Stuart Law, CEO and co-founder of P2P lender Assetz Capital, expects a boost for the peer to peer lending sector in the upcoming budget. Specifically, Law believes a small business tax rise and IFISA rule change could boost the online lending sector.

Law said that businesses and investors remain in limbo since the Brexit vote.

Technology: The power of crowdfunding (IPE), Rated: A

BrickVest has deals worth £250m (€294m) in its platform at the moment, and estimates that figure will increase by £50m-70m at the end of the first quarter of this year.

Institutional investment through credit lines and co-investments is underpinning the industry, making up 73% of the market, according to O’Roarty. In the UK, retail investors account for 75% of the funds raised – although regulatory concerns about the suitability of retail investors could change the landscape in the future.

PropertyCrowd is finalising its first deal, a gross loan of £1.28m, with participation through PropertyCrowd standing at £432,000 (the firm will take on a maximum 50% debt participation).

Its first non-exchange-traded e-REIT, offered to both accredited and non-accredited investors, was oversubscribed by 403% in four hours when it launched in December 2015. In February, Rise Companies Corporation, which owns Fundrise, raised more than $14m in equity online, offering investors the ability to own a share in the platform itself.

As with all new markets, crowdfunding real estate platforms will inevitably experience their share of growing pains. They will also have to get larger. In 2015, the sector totalled only $600m – the total commercial real estate market stands at $704bn.

Millennial Money Matters podcast: Episode 3, Funding Circle (AltFi), Rated: A

In episode 3 of Millennial Money Matters, we look at Funding Circle, one of the leading lights of financial technology in the UK.

Israel

Property Investment In Israel Is Evolving To Offer Ample and Flexible Opportunities (Haaretz), Rated: AAA

There are several conditions in Israel’s economy that are driving an interest in investment properties. The most obvious is the increasingly high sale prices. The average price of owner-occupied residencies in Israel rose by 4.01% during the year to Q1 2016, to ILS1,423,000 (US$369,107), from annual price rises of 6% in Q4 2015, 5.2% to Q3, and 7.3% to Q2, and 7.6% to Q1, according to the Central Bureau of Statistics (CBS). The main reason for the continued rise in house prices is the supply shortage, due to low construction volumes.

One of the more innovative programs to enter the property investment market is the crowd-funding method that a number of leading companies are taking ownership of. Crowdfunding, adopted by high-tech startups as an alternative means to raise funds, was limited in Israel by Israel’s Securities Law until 2016. Section 15 of the law dictated that any offer or sale of shares to the public (i.e. to more than 35 potential investors) requires the issuance of a prospectus approved by the Securities Authority; a timely and costly endeavor, formerly rendering crowdfunding prohibitive in Israel.

Although Crowdfunding for real estate is a relatively new space, crowdfunding for real estate platforms were responsible for raising over $100 million in 2015 alone for hundreds of real estate properties across the U.S.  Real Estate crowdfunding platforms in Israel offer an opportunity for virtually any pocket and the way it works is very simple.

Asia

Bank Mandiri bets on peer-to-peer lender (Nikkei Asian Review), Rated: AAA

The venture capital arm of Bank Mandiri, Indonesia’s largest state-owned bank by assets, on Tuesday said it has acquired a stake in peer-to-peer lending startup Amartha Mikro Fintek.

Amartha Mikro develops credit-scoring technology that evaluates small businesses that conventional banks have deemed too risky to lend to. It then connects them with individual lenders over a website.

It specializes in loans under 10 million rupiah ($750) and has a network of agents in Java that helps potential customers submit online applications.

Authors:

George Popescu
Allen Taylor

Who’s Solving the Loan Stacking Problem?

loan stacking online lending

HNC Software, the company that made the Falcon Fraud Tool, which is used to evaluate credit card transaction risk so card issuers can block cards if there is a problem, sold the tool to FICO. Then the founders pivoted and started a new company called ID Analytics. The goal was to provide actionable insight into […]

loan stacking online lending

HNC Software, the company that made the Falcon Fraud Tool, which is used to evaluate credit card transaction risk so card issuers can block cards if there is a problem, sold the tool to FICO. Then the founders pivoted and started a new company called ID Analytics. The goal was to provide actionable insight into credit and identity risk. That was 2002. Lending Times recently spoke with ID Analytics Director of Product Marketing Kevin King.

Rather than focusing on credit card fraud, ID Analytics focuses on new account fraud. They look for indications of identity or intention fraud in applications for loans, credit cards, wireless phones, etc.

Lenders want to know is if an applicant plans to pay back a loan or take the money and run. So ID Analytics built a data consortium of lenders similar to a credit bureau. Companies come to them to evaluate applicants. When the assessment is returned, ID Analytics holds on to borrower information (name, SSN, address, phone number, date of birth, etc.) and asks companies to provide insight on the results of loans issued. What they want to know is, did it turn into fraud or continue to look good?

This business model worked well and the company’s data set became larger as more industries and credit bureaus took an interest. Compliance, authentication, and credit risk were included in the analysis.

Thirteen years later, ID Analytics had formed relationships with several Fortune 500 companies. New industries like FinTech and alternative payments are interested in the power and predictability of knowing the borrower. As they enter new markets, they understand applicants better than the credit bureaus because ID Analytics’ assessment is current.

In addition to knowing whether an applicant pays all their bills, ID Analytics can see how the borrower behaves. For instance, if a borrower applies for five credit cards in the space of one minute, ID Analytics’ score reacts, within seconds, for a high velocity string of behavior. The company employs 150 people, so it can be more responsive and nimble than a larger credit bureau.

The Birth of the Online Lending Network

In 2011-12, ID Analytics started working with P2P lenders and supported them as the industry grew. Those lenders, leading players now, became concerned when loan stacking emerged in 2015. Loan stacking revealed a blind spot in the world of online lending: It was too easy to get loans from multiple lenders at the same time. Since ID Analytics already had relationships with online lenders, this enabled them to see 60%-70% of marketplace behavior. So they built an online lending network.

The Online Lending Network, founded in April 2016, is a group of lenders who have partnered to solve a set of pressing problems in the online lending industry. These problems are disparate because most providers only contribute to one or two bureaus rather than all of them. More relevant and critical, the soft inquiry credit process that developed as a core business model to improve customer experience leaves lenders blind for the short term. They can’t see what a borrower has done in recent activity when an application is made. The network helps to build technology and provide data assets, which makes it unique.

Unlike a lot of fraud behavior, which is nuanced, loan stacking is black and white and involves multiple unsecured loans piled up against the same asset. It needs a black-and-white solution to identify lender risk immediately. ID Analytics offers a two-fold solution.

Adoption by a majority of lenders enables the most complete coverage and visibility of data. Providers can take that visibility and turn it into the intelligence needed to stop stacking. Participation and speed to market wins the day.

When a borrower presents herself to a lender, the critical questions are, “Is this person real?” and “Will they be able to pay me?” The Online Lending Network essentially provides attributes, black and white insights, that count the number of times a particular borrower has been into an online lender in the past three months. It can also zoom into the last hour of activity. These attributes can be drilled down to categories like small business, P2P, subprime, etc.

Members of the network provide their full top-of-funnel velocity. Each time a borrower requires a loan offer, that information is sent to ID Analytics and, in a sub-second, the application is reflected in the information provided. Numbers in the first few test weeks were promising, but there will be much more in the months to come.

It took just five months from concept to live production to get the network up and running. While slow for FinTech, that’s lightning fast for analytics.

What Data Can ID Analytics Tell About Borrowers?

In the top three online marketplaces, 1-1.1% of individuals requesting an offer have been to another marketplace lender in the past three days. In the last hour, 0.3% visit another marketplace lender. ID Analytics can also see that 3% of applicants have applied for another credit product in the last hour even if that application was outside the online lending marketplace.

Sets of attributes showing how frequently credit is sought are “attributes version 1.0,” but in Q1 2017, ID Analytics plans to launch Attributes 2.0. In this set, borrowers are identified as having gone through a truth-in-lending process and commit to moving forward with a loan. That will require members of the network to reveal two distinct points in loan origination: First, when the borrower requests the origination and, second, when the borrower commits to the loan. Looking at these two points can provide a lot of insight. It’s important to discern whether the applicant is a rate shopper who is responsive or someone who really is opening up too many loans.

The problem with loan stacking could be one of fraud, where the fraudster is aware they can open 4-6 loans in two hours and get the funds without planning on repayment. This type of fraud is what TransUnion is trying to solve.

Another scenario is the unintended consequence of the leap forward in customer experience. A borrower goes to the P2P marketplace and gets $10,000. They say, “That was fantastic; I can do home repairs and go on vacation!” Then they look around and see what all they can do with another $10,000 and take out another loan from another lender that they also intend to repay. But in 24 hours they have borrowed $20,000 and will end up defaulting on those loans because they are in over their heads. This is an equally important problem, but it is not of malicious intent.

ID Analytics is focused on a different aspect of the problem than TransUnion is. TransUnion is focused on fraud, building a set of more analytically-driven tools to put a lot of science into the solution. ID Analytics is solving the problem of stacking by utilizing coverage and visibility. They can tell everybody in their Online Lending Network when a borrower comes, when he was seen at other lenders, and when loans were committed to within the last hour. This transparency is a more straightforward approach.

ID Analytics works with marketplace lenders seeking to understand their problems and provide products that solve their unique challenges. There are at least 15 large players in their network with a majority of those brands reading Lending Times regularly.

Authors:

Written with Nicki Jacoby

Allen Taylor

Debunking Millennial Myths

Debunking Millennial Myths

ID Analytics released a study in 2015 that debunks the myth that millennials aren’t interested in traditional forms of credit. Our research found that while millennials are applying for traditional financial services at high rates, they are being turned down. Traditional credit scores often hinder millennials’ ability to gain access to these services due to […]

Debunking Millennial Myths

ID Analytics released a study in 2015 that debunks the myth that millennials aren’t interested in traditional forms of credit. Our research found that while millennials are applying for traditional financial services at high rates, they are being turned down. Traditional credit scores often hinder millennials’ ability to gain access to these services due to an inaccurate reflection of credit risk.
The most recent research from ID Analytics looks at the consequences of believing these myths.
Millennials who don’t receive service tend to stop seeking service for a year. These findings show that risk managers play an important role in millennial engagement and may be jeopardizing their company’s long-term success by declining millennials at high rates.

The High Cost of Millennial Myths

In the summer of 2015, the millennial generation— individuals born between 1981 and 2004—overtook baby boomers to become the largest generation of adult U.S. consumers. The generation’s combination of size, youth and influence make them an undeniably coveted market. Yet they continue to be misunderstood, often portrayed
as being radically different than past generations when it comes to their reportedly low interest in traditional credit and services. However,
ID Analytics’ analysis of millennial credit- seeking behaviors, detailed in their whitepaper Millennials: High Risk or Untapped Opportunity, found that millennials are in fact applying for traditional services at higher rates than any other generation, and the real issue is their markedly low activation/booking rates – often driven by poor offers or outright declinations.

The study highlighted how traditional credit scores, often the deciding factor in credit decisions, frequently underestimate millennials’ creditworthiness due in part to their limited visibility into critical behaviors like cell phone bill payment. The end results were staggering—over one-third of all millennial consumers cannot be scored by traditional credit tools, and one-third of those who can be scored are evaluated as sub- prime. These findings formed the backbone of what we refer to as the “Millennial Myths”.

Continuing the exploration into this crucial demographic, ID Analytics performed a follow-up study detailing the consequences these beliefs— how do millennials react to being declined? What are the long-term consequences for lenders?

Study Methodology

ID Analytics looked at applicants between 18 and 32 years of age to determine their behavior patterns once they were declined for credit or services. A sample of millennial
consumers was taken over five years from 2010 to 2015, reviewing applications from various industries including Bankcard, Retail Card, Marketplace Lending, and Telecommunication.

Once Declined, Millennials Walk

ID Analytics’ research shows that the most common consequence for an enterprise declining a millennial applicant is that the consumer walks away for at least a year—both from the enterprise and from credit/ service seeking altogether.

Millennials are being disproportionately declined

While the impact of declining credit to millennial consumers is harmful to the long- term success of entire industries, common questions are, “How often are they actually being declined?”, and “is the issue confined to young millennials”? To answer these questions, ID Analytics segmented millennials into three age groups and measured how often they were declined for credit in a given year.
As detailed in figure 4, the immediate observation is that over 66% of millennials are declined at least once per year, with roughly 20% of millennials being declined multiple times per year. While results show that the decline rates are highest for the 18-22-year-old age bracket, they do not vary much from the older millennial segments.

Taken together, these findings illustrate the broad impact of the myths on millennials of all ages—effecting two-thirds of the U.S.’s largest consumer generation every year.

Seizing the Opportunity

These findings tell an urgent but optimistic message—successful engagement of millennials is in the hands of risk managers. Millennials desire popular forms of traditional credit and services,
and many are more creditworthy than they initially appear. This most recent analysis sends another clear message—while many in the industry have been focused on the risk of engaging a generation who largely appears un-creditworthy, conservative strategies which decline millennials at a high rate may pose the greater risk to long-term success.

The recommended path forward is a safe engagement of this burgeoning demographic—an approach which requires thoughtful strategies and an expanded view of applicant credit risk which goes beyond traditional credit bureaus. One way to accomplish this is leveraging alternative credit data solutions like ID Analytics’ Credit Optics, which captures fundamental millennial credit behaviors that are missing from most credit scores. It offers risk managers a way to identify “low score” and “no score” consumers of acceptable risk and break through the myths dragging down the competition.

Alternative Credit Solutions

In addition to considering conventional credit data, ID Analytics also utilizes proprietary alternative insights from the wireless, banking, peer-to-peer lending, checking and savings, and the sub-prime markets, plus address change histories, to deliver a precise and unique view into a consumer’s credit risk and worthiness. This is what we call ‘alternative credit data’. ID Analytics’ alternative credit solutions are leveraged by lenders to augment credit decisions affecting every credit-active U.S. consumer, including those in the underbanked, thin-file, and no-file categories, and even for consumers with very good credit history.
For more information on this study and the ID Analytics portfolio of credit risk solutions, please visit www.idanalytics.com

Author:

Kevin King

Kevin King

Director of Product Marketing, ID Analytics

Alternative Credit Solutions

Kevin King has nearly a decade of experience in managing fraud, identity, and credit risk through the combination of unique data and advanced analytics. Since joining ID Analytics in 2007, he has helped to lead online lenders, peer-to-peer marketplaces, traditional financial institutions and leading telecommunications companies grow safely – finding ways to grow a business, without growing risk. King is the author of several ID Analytics white papers on fraud trends, analytic innovations, and best practices; and holds a B.A from the University of Colorado

Tuesday October 25 2016, Daily News Digest

brexit investors

News Comments Today’s main news: ID Analytics, a new credit bureau created by Lending Club, Prosper, and Marlette. CFPB come out with a report to encourage fintechs. Today’s main analysis : The UK faces a huge test in the wake of Brexit. Today’s thought-provoking articles: How venture capitalists vet deals with crowdfunding. Canada gets its first FinTech […]

brexit investors

News Comments

United States

  • New online lending network promises to protect consumers and businesses. AT: “Following the news of OnDeck leading the way on price comparison and several online lenders cooperating to kick off a marketplace lending association, here is more evidence that online lending is trying hard to keep regulators off their backs. It’s another positive sign of growth and respectability for the industry. My only concern is that it could get out of hand with too many competing self-regulatory attempts.” GP : ” One needs to make the difference between SMART Box and ID Analytics clear : SMART box allows SME borrowers to compare the cost of capital between lenders with a standard method. ID Analytics is perhaps very close to being a credit bureau where Lending Club, Prosper, and Marlette contribute information to prevent loan stacking. If I were them I would certainly expect the regulators to name ID Analytics a credit bureau.”
  • CFPB assesses FinTech as positive. GP ” Like all regulators, CFPB has its detractors and its proponents. CFPB courageously came out encouraging “firms focused on giving credit to access the roughly 45 million consumers with little-or-no credit history by using alternative measures”. The agency also discourages “deceptive, harmful and discriminatory behavior”. It’s hard to disagree with that. While some behavior is clearly over the line, the main issue is to identify a clear method on what is close to the line. For example, if one offers auto loans, and most people buying cars are man, is that discriminatory ? I heard of a company who offers wedding loans, and most people taking them were of a certain ethnicity. Is that discriminatory ? Is that cultural ? Should we shut down that company ? Does it discriminate against people who are planning to never get married ? “
  • How venture capitalists use crowdfunding as a way to vet deals. AT: “Not only is it effective, but it should be encouraged. There’s got to be a way to narrow the prospects for the capital backers. Crowdfunding is a terrific vehicle.” GP: ” With one limitation. Crowdfunding works great for B2C products, not so much for B2B. Also, there is a large tendance to over promise, do an outstanding crowd sale, and make it impossible to deliver. The laws of physics seem to be hard to change no matter how much money one has. Also, and I learned a lot from Lampix and the Highway 1 accelerator, the hardware is slow and most crowdfunding sites are for hardware devices. “
  • Charlotte, NC has its own FinTech accelerator. AT: “If a city the size of Charlotte make the news for this kind of innovation, then who can argue that FinTech is destined to be a major wave of progression?”
  • BoA “hires” a robot to give financial advice. AT: “While I’m all for innovation in the banking sector, I can’t help but wonder how many consumers will actually want financial advice from a bot over the phone.”
  • Fundrise owes a lot to the success of its REITs to Title III of the JOBS Act. AT: “And not just Fundrise, the entire industry owes a debt of gratitude to the president for signing it.”
  • Lantern Credit goes after the underserved in lending. AT: “If there is any way to move the financial services industry forward, it’s wrapping our arms around the underserved.”
  • Bad debts drive CircleBack out of lending. AT: “How much more will follow? Perhaps the online lending sector needs to adopt better vetting practice for borrowers. This is why an online lending network is necessary.”
  • Bizfi gets a veteran payments administrator as CEO.

United Kingdom

Canada

European Union

Australia

India

Asia

News Summary

 

United States

ID Analytics Announces the Online Lending Network to Help Protect Consumers and Businesses (Yahoo! Sports), Rated: AAA

ID Analytics LLC, a company in consumer risk management, today announced the launch of the Online Lending Network, a new consortium formed to enhance responsible lending, help protect consumers and businesses, and address credit and fraud risks. Founding members include Lending Club, Prosper Marketplace, and Marlette Funding, as well as lenders representing online, marketplace, specialty finance and social lending. The network has achieved significant coverage of prime and sub-prime lending in only a few months, including over two-thirds of marketplace lending activity.

Through the Online Lending Network, lenders report when a consumer requests an offer for a loan product, submits a loan application, or when a loan is funded. In return, the lender receives information on whether that consumer has either requested other loan offers or applied for loans elsewhere in the days, hours or minutes before. The near real-time nature of the response makes high-velocity fraud, like loan stacking, very difficult. It also has the potential to protect authentic consumers from overextending their credit capacity to facilitate responsible lending.

The Online Lending Network will also provide access to tools to evaluate credit, including the detection of synthetic identities, and detection of potential identity theft, as online lenders are a target for fraudsters using stolen identities.

CFPB Gives Upbeat Assessment of Fintech in ‘Project Catalyst’ Report (The Wall Street Journal), Rated: AAA

The federal consumer finance regulator released a report Monday on consumer-friendly financial-technology products, marking the agency’s first overview of the rapidly expanding industry.

The report covers the work the Consumer Financial Protection Bureau has done on its “Project Catalyst,” which aims to encourage the development of innovative consumer financial products that meet regulatory requirements.

The CFPB outlined in its report the types of fintech products and services that it would encourage. In particular, the agency is looking at firms focused on giving credit access to roughly 45 million consumers with little-or-no credit history by using alternative measures. The agency is also looking at firms that provide better technology for mortgage servicing, digital disclosures, credit reporting, and products that help consumers refinance student loans and manage cash flows through access to their wages.

The report also came with several broad warnings to fintech firms about creating products that are harmful, deceptive or discriminatory. The CFPB noted that both banks and nonbank fintech firms should be held to the same rules and oversight—a topic driving much debate among consumer groups, who want fintech firms to adhere to the same rules that apply to banks, and some in the industry who don’t want sweeping regulation.

How VCs are Using Crowdfunding to Vet Deals (VC-List), Rated: A

The crowdfunding industry is growing at an incredible rate, allowing startups and small businesses to launch more crowdfunding campaigns than ever before. Entrepreneurs from all types of industries have leveraged the opportunities that crowdfunding offers to raise much-needed capital for their companies. As such, some VCs have begun to embrace crowdfunding as a new source of deal flow that allows them to vet deals much quicker than in days past.

Crowdfunding platforms not only provide VCs with efficient instruments to review deals and maintain communication with entrepreneurs, it also provides them with the additional deal flow. It gives them the ability to look at more deals in more geographically disparate locations and invest. VCs can review business plans, proforma financials, disclosures and other documentation without having to listen to a glossy sales pitch. They are then able to ask crucial questions of the entrepreneur seeking funding.

Crowdfunding also helps the class of VCs and other investors that don’t have staff dedicated to sourcing projects, and when entrepreneurs approach this class of investor, they are more likely to get a more personal and direct response, rather than be vetted by staff that are not likely to be as knowledgeable as the investors who make the final decisions.

Crowdfunding, while still a relatively young industry, is proving itself as a valued partner to the VC community. As it continues to grow, we will likely see much more interaction between the two industries.

Queen City Fintech looks for 2017 class as Charlotte’s financial tech scene grows (Charlotte Business Journal), Rated: A

Queen City Fintech, the accelerator program based in uptown, is currently accepting applications for its 2017 cohort.

The program has gained support from major financial firms since launching in 2011. Companies including Bank of America, Wells Fargo, Ally Bank, Synchrony Financial, BB&T, Barings and Ernst & Young see value in investing in an accelerator for the financial technology space.

Charlotte has also made strides in the fintech space as a city, which makes the program more appealing to entrepreneurs around the world.

Bank of America’s Bot Will Spout Financial Advice Through Your Phone (Fortune), Rated: B

Bank of America plans to provide customers with a chatty “virtual assistant” named Erica who will use artificial intelligence to make suggestions over mobile phones for improving their financial affairs.

Michelle Moore, head of digital banking for Bank of America, said in an interview on Monday that Erica will be smarter than a robot because she will bring up topics on her own, using predictive analytics as opposed to only answering questions customers ask.

Erica will be introduced to customers late next year, and will be able to converse by text as well as voice, said Moore.

How Title III of the JOBS Act helped Fundrise ‘democratize real estate’ (Technical.ly), Rated: A

When Dupont-based Fundrise first launched in 2012, the company’s mission was to “democratize” real estate investing — to “give everyone the opportunity to invest directly in high-quality real estate.”

The company’s tech-driven model allowed for a significant departure from the old school methods of real estate investing, but there was a rub — Fundrise’s democracy had imposed legal limits. That’s because, back in 2012, Fundrise couldn’t actually give “everyone” the same investment opportunity. Under the SEC rules of the time, any individual investing with Fundrise needed to be an “accredited investor” — an individual with a net worth of $1 million or $200,000 in annual income. That’s a pretty limited democracy.

But even back in 2012 this was starting to change. That year President Barack Obamasigned the JOBS Act, Title III of which opens up equity crowdfunding to non-accredited investors. And finally, on May 16, 2016, that section of the Act was implemented by the SEC.

There are still some limitations, though. For example, each Real Estate Investment Trust (REIT or eREIT as Fundrise calls them) that the company sets up has a $50 million cap. According to Davis, demand is much higher than this.

Lantern Credit CEO Chad Swensen on Enabling Lending to the Underserved Consumer at Money20/20 (Businesswire), Rated: A

Large segments of the US population are unable to access mainstream credit offer for various reasons. Lending to those underserved segments requires specialized credit risk assessment and management. As banks try to expand access to credit to underserved borrowers, they are turning to innovative technologies to meet the financial needs of more people.

Lantern Credit is using machine learning real-time credit modeling and education to enable consumers to gain better control over their finances and improve their credit wellness. The Company is partnering with lenders and retailers to predict credit worthiness of consumers with greater precision and to facilitate improved matching between credit products and interested customers.

Bad Debts Trigger Online Lender To Stop Dealing (iExpats), Rated: A

Ripples of fear are spreading across online peer to peer lending and crowdfunding platforms as more signs of failing investments become public.

The latest victim is the US online lending platform CircleBack.

The firm has ceased lending as cash from investors dried up on reports of borrowers defaulting on their loan repayments.

The business model was to borrow funds from equity investors that were then loaned to US consumers at interest rates ranging from 6.6% to 35%.

However, investors were concerned that losses were running at 13.5%.

Another concern is crowdfunding equity valuations.

Bizfi Appoints Alternative Finance and Payments Veteran John Donovan as CEO (Yahoo! Finance), Rated: B

Bizfi (www.bizfi.com), a leading fintech company with a platform that combines aggregation, funding and a marketplace for small businesses, announced its board of directors has appointed John Donovan as the Company’s chief executive officer (CEO). Donovan is a 30-year veteran in the payments and alternative finance industry serving both small businesses and consumers.

United Kingdom

Brexit Confronts U.K.’s Online Lenders With Biggest Test Yet (Bloomberg), Rated: AAA

British peer-to-peer lenders were preparing for serious trouble even before the Brexit vote rocked the U.K. on June 23.

Funding Circle Ltd., the No. 1 online lender to small and medium-sized businesses, carried out a stress test envisioning a three-year recession beginning in January 2017 that would crater the property market. If the U.K.’s split from the European Union wreaks that type of havoc, investors in the platform’s loans should still pocket a net return of 6.4 percent, says Jerome Le Luel, the firm’s chief risk officer. That’s not far off the 7.2 percent the loans should generate without a crisis.

The debate shows the tension at play as the industry, which accounts for just 3.6 percent of total lending to small businesses and consumers in Britain, tries to move into the mainstream. First developed 11 years ago by Zopa, the model has taken off around the world: Global peer-to-peer loan volume is projected to hit almost $350 billion this year, a 12-fold increase since 2013, according to research firm AltFi Data Ltd.

The fallout from the Brexit vote isn’t the only source of uncertainty facing the industry. After more than a year of review, the FCA has yet to clear the way for Funding Circle, Zopa, and other big platforms to tap a deep well of new customers: the government’s Individual Savings Account program. Millions of savers use so-called ISAs to manage assets worth 518 billion pounds.

Meanwhile, Philp, the member of Parliament, is pushing for changes that could upend the industry’s economics. He’s asked Andrew Bailey, the head of the FCA, to consider requiring peer-to-peer lenders to invest their own capital as a portion of every loan they arrange for investors.

Policy makers keen to stimulate economic growth are embracing the approach. The week of the EU referendum, the bloc’s European Investment Bank started distributing 100 million pounds in loans to British small businesses through Funding Circle’s platform. The firm was hopeful it would be the first tranche of a recurring program. Now, due to Brexit, it’s probably a one-off.

At first blush, Brexit hasn’t frightened off investors. In September, British platforms originated a record 364 million pounds in loans, a 30 percent jump over September 2015.

Brexit feeds into more European commercial real estate investment numbers (FTSE Global Markets), Rated: A

As £1.4bn has been pulled from UK property funds post Brexit, a new study from BrickVest says 21% of respondents both Dublin and Hamburg as top European cities; while 16% selected Frankfurt, highlighting a new trend towards German commercial real estate.

Some 40% of the top ten voted European cities were German, compared with 38% of institutional real estate investors who cite London as the top European city to invest in commercial real estate, ahead of Berlin (36%), Munich (31%) and Paris (22%).  Even so, real estate investment platform, BrickVest’s research showed that three in ten (30%) institutional investors believe Brexit will either increase or significantly increase European commercial real estate investment opportunities. A further one in four (23%) institutional investors believe that Brexit will have no impact on commercial real estate investment opportunities.

The research did, however, highlight some concern regarding the illiquidity of commercial real estate investing. Three-fifths (61%) of respondents do not believe that in light of £1.4bn being pulled from UK property funds post Brexit, real estate investors have enough access to a secondary property investment market.

In light of Brexit, which European cities are you currently looking at/planning to look at for commercial real estate investment? (survey with 96 investors)

 

London

38%
Berlin 36%
Munich 31%
Paris 22%
Dublin 21%
Hamburg 21%
Frankfurt 16%
Barcelona 11%
Zurich 11%
Amsterdam 10%
Brussels 10%
Copenhagen 10%
Warsaw 5%
Milan 4%
Madrid 3%
Stockholm

1%

Bruce Davis, MD of Abundance, Shares Insight & Perspective on FCA Regulatory Review (Crowdfund Insider), Rated: A

The UK has been heralded as the gold-standard of regulatory policy regarding crowdfunding, peer to peer lending and Fintech in general. Many countries have studied the approach established by the Financial Conduct Authority (FCA) before enacting rules of their own.

Today, the FCA is in the midst of a scheduled post-implementation review of the crowdfunding market and regulatory framework.  The agency has published a paper explaining their thoughts and perspective on how disruptive finance has evolved alongside some of their concerns.

Bruce Davis: The FCA made great efforts to consult the industry in the process of developing the regulatory framework for crowdfunding in 2014.

At an individual level, the sector is supervised by a flexible team within the FCA who cover issues as and when they arise. We believe that this level of supervision is sufficient for the risks within the industry although we would like to see a greater emphasis on enforcement of rules against businesses which are adjacent to our sector or operating under an exemption.

Bruce Davis: Aside from the odd ‘off the cuff’ comment, we have found the FCA takes its responsibilities to foster competition and innovation seriously. It could still do more to encourage innovations which will encourage more people to take control of their money and how it is invested.

Bruce Davis: I think that pound for pound the crowdfunding industry is perhaps the most supervised sector in the whole financial services industry. Our track record of customer satisfaction and low levels of complaints suggests that this could be scaled back and more focus put on enforcement of the rules against those who operate outside of our regulated sector (but who still offer investments to the public under exemptions or old assumptions about the permissions surrounding an offer of investments to the public).

Canada

OSC Launches Canada’s First Regulatory Sandbox for Fintech (Finance Magnates), Rated: AAA

The Ontario Securities Commission (OSC), one of the thirteen provincial financial regulators in Canada, today unveiled a new fintech-focused hub called LaunchPad which aims to help guide FinTech startups through the complexities of the regulatory framework.

LaunchPad will be staffed by a dedicated team who will work directly with fintech companies to help them navigate, and even potentially tailor, Ontario’s securities laws while ensuring investors remain protected.

The OSC will apply what it learns through the LaunchPad hub more broadly to modernize regulation for similar businesses. These include online advisory firms, peer-to-peer lending services, crowdfunding platforms and angel investor organizations.

The program has a dedicated website, which can be accessed through www.osclaunchpad.ca, and already accepting now requests for support from eligible fintech businesses.

Lending Loop reopens peer-to-peer lending after regulator OK (WHBL), Rated: A

Canadian financial technology startup Lending Loop said on Monday it was re-launching its online lending marketplace after receiving regulator approval to sell investment opportunities to lenders regardless of their wealth.

The company, which paused its unlicensed operation in March, said the Ontario Securities Commission has now granted it an exempt market dealer license, and that it can connect small businesses looking to raise capital to individual lenders seeking a return on capital everywhere in Canada except Quebec.

The approval, which follows a rival company’s green light last month, suggests Canadian regulators are coming to terms with the peer-to-peer lending model, which is already popular in the United States, Europe and elsewhere.

The company will allow borrowers – typically small and medium-sized businesses – to seek loans of between C$5,000 and C$500,000 and over durations ranging from 3 months to 5 years.

Rival Lendified Holdings Inc and its Vault Circle Inc subsidiary secured an exempt market dealer license on Sept. 28. It plans to present lending opportunities only to accredited investors, who must have significant financial assets when it launches in the first quarter of 2017.

European Union

Post Brexit: Bondora Plans European Office in Germany Instead of London (P2P-Banking), Rated: A

Estonian p2p lending marketplace Bondora will open a new European office in Germany, saying that post Brexit London is no longer attractive as a Fintech hub. Bondora formerly planned to move to London but stopped the plan after the Brexit vote. ‘There is too much uncertainty, the UK lost its attractiveness as a fintech hub’ explains Bondora CEO Pärtel Tomberg the decision.

For the Bondora business model very good access to the European market is crucial says Tomberg. He sees uncertainty how long London might be able to provide this.

P2P Lending Won’t Displace Banks; Dealing with Credit Risk Management (Fintech News Switzerland), Rated: A

Peer-to-peer lending, which aims at shaking up the banking market and attacking one of the core profit-generating activities of banks, is not likely to displace banks from their core roles of lending to retail consumers, according to a report by Deloitte.
Despite the promising outlook, the P2P lending industry has recently come under fire as Renaud Laplanche, CEO of Lending Club, one of the leading platforms in the US, was forced to resigned after the company revealed that it had provided mis-assessed loans to Jefferies and Co., which was distributing the loans to institutional investors, reports the Wall Street Daily.

The skepticism over P2P lending has also been felt in China where loan sharks have been widely criticized for practicing aggressive debt recovery tactics, demanding, for instance, nude photos as collateral from female borrowers for blackmail if they fall behind on their repayments, reports the Financial Times. Other disturbing debt recovery tactics in China include property destruction and bodily injury.

While P2P lending has enabled the masses to gain access to credit and investment opportunities in China, the sector has nevertheless a Wild West aspect with lenders reportedly peeking in bathrooms in order to assess credit risks and borrowers settling payment obligations with bottles of spirits.

Yet, P2P lending remains a risky bet compared to other savings and investment options, according to Deloitte. However, it highly depends on the market. Switzerland seems to be a very attractive destination. The country is known to be very reliable and strict in credit-Risk Management and investors can get attractive yields with the likes of CreditGate24 and others.

Australia

Bravura Solutions chief: fintech doesn’t need to go abroad to be successful (Australian Financial Review), Rated: A

Bravura Solutions is proof that fintech is one of Australia’s unheralded export successes. At least that’s the view of chief executive Tony Klim, who says his company’s return to the ranks of the ASX will show it is possible to build an internationally successful fintech business based in Australia.

Bravura, which is in the midst of a $200 million, pre-Christmas share sale, provides software and technology services for superannuation, life insurance, and private wealth firms. It administers about $2.3 trillion of assets for clients including Bank of New York Mellon, JPMorgan, Mercer, Fidelity, and Citigroup.

The initial public offering for the company, backed by local private equity firm Ironbridge, is Bravura’s second attempt at life on the ASX, coming a decade after it first floated on the exchange as a two-year-old business focused on the British and Asian markets.

One of the biggest differences between then and now, Klim says, is that Australia is much more focused on technology, as the commodities boom that has powered the national economy for decades fades and the government attempts to identify and help develop other sectors that may one day take the place of mining.

While fintech firms operating in consumer niches such as peer-to-peer loans have captured the imagination of the media and investors alike, Klim proudly says Bravura has been profitable by focusing on less sexy stuff.

9 Australian companies have made it to the latest global Fintech 100 (Business Insider), Rated: B

Nine Australian companies are in the global 2016 Fintech 100.

The latest annual list, compiled by accelerator H2 Ventures and KPMG, includes Prospa (31), Tyro (43) and SocietyOne (50) among the leading 50 established fintech companies.

Another six are in the 50 emerging stars list: Afterpay, Brighte, Data Republic, Identitii, Hashching and Spriggy.

India

Our take: as Fintech firms allowed 100% FDI through automatic route, challenges for regulators (Medianama), Rated: A

Fintech companies classified under “other financial services” will now be permitted 100% foreign direct investment (FDI) through the automatic route, as opposed to the approval route earlier, according to a Reserve Bank of India (RBI) notification.

The RBI and other regulatory authorities have an uphill task of trying to figure out which fintech companies fall under whose purview. Regulators will have to spell out explicit rules and come out with more detailed classification. Fintech companies operate in areas where regulation in unclear, and regulators need to update themselves on their activities and specify  what a particular company can and cannot do.

A great example of this was the RBI’s consultation paper the peer-to-peer (P2P) lending companies which sought to regulate them as NBFCs. It added that it took into consideration SEBI’s guidelines on crowd funding, and clarified that since P2P lending it is not a transaction where equity or debt is exchanged, it would come under the RBI’s ambit.

The RBI’s review of guidelines for prepaid payment instruments (PPIs) is welcome and it will be in the interest of everyone to understand new developments in the fintech space. Other regulators would be wise to issue or clarify rules for developments in their sectors.

Asia

P2P lending rises in Korea in Q3 (Korea Herald), Rated: A

Peer-to-peer lending in South Korea rapidly grew in the third quarter, reaching 188 billion won (US$166 million), according to the data compiled by industry tracker Crowd Institute.

Local banks shunned lending to such small businesses amid a protracted economic slowdown, but for investors hunting for high returns, P2P lending emerged as an alternative investment tool amid record low-interest rates in Asia‘s fourth-largest economy.

The alternative lending service has gained popularity in the past few years, with accumulated P2P loans reaching over 150 billion won as of June this year, and the figure is expected to top 300 billion won by the end of the year.

Overcoming challenges: Building a strong and sustainable fintech sector (Business Times), Rated: A

While fintech holds great promise for the society with key benefits being cost-effectiveness, efficiency, and exceptional user experience, it is still a fairly nascent sector. As with all industries that are developing rapidly, there are growing pains and issues to be ironed out, especially those surrounding corporate governance and regulatory requirements.

Singapore has been proactively addressing the subject with the Monetary Authority of Singapore (MAS) setting up a fintech and Innovation Group in 2015 to examine regulatory policies and sector development strategies.

Besides online lending, cryptocurrencies such as bitcoin have also had their fair share of issues. Bitcoin famously vouched to give a bank account to anyone without requiring identity verification. While the process becomes more seamless, the anonymity of it may expose it to vulnerabilities. In August this year, hackers stole US$65 million worth of bitcoins from bitcoin exchange Bitfinex and in 2014, US$460 million of bitcoins vanished from Mt Gox, the world’s largest bitcoin exchange before it declared bankruptcy after the hack. Incidents such as these are a cause for concern, but it is important to keep in mind that they are rare and far between. These scandals expose the gaps in the sector and provide a valuable learning experience.

In Singapore, the MAS has set up a regulatory sandbox to allow startups to experiment with fintech solutions within a well-defined space and duration. For that period, the MAS will ease certain regulatory requirements and provide appropriate safeguards to contain the consequences of failure for customers. Other countries such as Thailand, Australia, the UK, and Malaysia are also implementing their own versions of a regulatory sandbox to develop a safe and conducive sector where innovation has the space to flourish.

As with every worthy endeavor, growing pains are an inevitable part of the process. With the government’s active involvement in the sector, Singapore is in a good position to learn from experience and embrace change instead of being hampered by short-term challenges.

Authors:

George Popescu
Allen Taylor