Friday May 12 2017, Daily News Digest

LC servicing portfolio balance

News Comments Today’s main news: Zopa receives full FCA authorization. Citi appointed depositary bank for China Rapid Finance ADR program. Auto loan fraud soars. Seedrs to launch UK’s first equity crowdfunding secondary market. CRF unveils underwriters’ option for purchase of additional ADS. Funding Societies to launch mobile app. Today’s main analysis: Why investors are betting against Lending Club. Today’s thought-provoking […]

LC servicing portfolio balance

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News Summary

United States

Citi Appointed Depositary Bank for CRF Limited’s Sponsored ADR Program (BusinessWire), Rated: AAA

Citi’s Issuer Services business, acting through Citibank, N.A., has been appointed by China Rapid Finance Limited (“China Rapid Finance”), a Cayman Islands exempted company with limited liability and operations in China, as the depositary bank for its American Depositary Receipt (ADR) program.

China Rapid Finance’s program was established in connection with a $69 million initial public offering (inclusive of the fully exercised over-allotment option), originally priced at $6.00 per ADR. The ADRs are listed on the New York Stock Exchange under the symbol “XRF.” Each ADR represents one Class A ordinary share of China Rapid Finance. As a single-listed ADR program, the underlying Class A ordinary shares are not listed or publicly traded in the issuer’s home market.

Investors Are Betting Big Against Lending Club — Are They Right? (The Motley Fool), Rated: AAA

As of the latest available data, 14% of Lending Club‘s (NYSE:LC) shares are sold short — among the highest percentages in the financial sector. That means more than $300 million is being bet against the peer-to-peer lender.

Lending Club investors who got in at the beginning have seen their shares lose three-fourths of their market value, despite strong performance in the overall market.

For 2014, Lending Club originated $4.4 billion in new loans, compared with just $3.2 billion in its entire history before that year.

Source: Lending Club Q1 2016 Investor Presentation

After the first quarter of 2016, loan originations fell by 29% and have not managed to recover yet.

In fact, revenue is down 18% year over year, and Lending Club lost nearly $30 million in the first quarter of 2017, compared with a profit of more than $4 million in the same quarter a year ago.

Source: Lending Club Q1 2016 Investor Presentation

Auto Loan Fraud Soars in a Parallel to the Housing Bubble (Bloomberg), Rated: AAA

Borrower fraud in U.S. auto loans is surging, and may approach levels seen in mortgages during last decade’s housing bubble, according to a startup firm that helps lenders sniff out bogus borrowers.

As many as 1 percent of U.S. car loan applications include some type of material misrepresentation, executives at data analytics firm Point Predictive estimated based on reports from banks, finance companies and others. Lenders’ losses from deception may double this year to $6 billion from 2015, the firm forecast.

Those fraud rates are coming closer to the over-1-percent level for mortgages in 2009, when the financial crisis was boiling and more lenders started reporting incidents to one another, Frank McKenna, chief fraud strategist at the firm, said in an interview. While those losses will sting lenders, the impact on the overall economy will likely be much more muted than with the housing crisis, just because there’s less car debt outstanding.

Point Predictive has put together a consortium of lenders to share data about dealers and loans. The group, now 13 strong, met at the headquarters of Santander Consumer USA in Dallas last month. Common types of fraud include borrowers lying about their income and their jobs, including falsifying paystubs. Loan applications can also include bogus information about the type of car being financed, or its value. The deception can be perpetrated by consumers, or car dealers, or both.

About 3 percent of dealers can be responsible for all of a lender’s fraudulent applications, Point Predictive said in a February report. Losses from auto loan fraud this year will likely be $4 billion to $6 billion, up from $2 billion to $3 billion in 2015, the firm said.

During the housing bubble, as few as 3 percent of mortgage brokers helped perpetrate most or all of the reported fraud, Point Predictive said. Loans that required little or no documentation allowed borrowers and brokers to lie about employment, salary, and other key facts about their financial condition. One borrower’s application for a mortgage said she made $6,900 a month, when she actually made about $3,286.

What You Need to Know About The CFPB and Small Business Lending (deBanked), Rated: AAA

On Wednesday, the Consumer Financial Protection Bureau (CFPB) held a hearing on small business lending. Here’s why it mattered and what you need to know:

Why: The 2010 Wall Street Reform and Consumer Protection Act, aka Dodd-Frank, empowered the CFPB to collect data on small business lending. The CFPB is just now getting around to rolling this out.

Who: “I’m an MCA funder, factor, equipment lessor or other, and this only applies to lenders right”?
Maybe, maybe not. Although Section 1071 makes several references to loans and credit, it doesn’t refer to the companies subject to data collection as small business lenders. Instead it says financial institutions which it defines as “any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in any financial activity.”

What: What are they trying to collect?

  • the number of the application and the date on which the application was received;
  • the type and purpose of the loan or other credit being applied for;
  • the amount of the credit or credit limit applied for, and the amount of the credit transaction or the credit limit approved for such applicant;
  • the type of action taken with respect to such application, and the date of such action;
  • the census tract in which is located the principal place of business of the women-owned, minority-owned, or small business loan applicant;
  • the gross annual revenue of the business in the last fiscal year of the women-owned, minority-owned, or small business loan applicant preceding the date of the application;
  • the race, sex, and ethnicity of the principal owners of the business; and
  • any additional data that the Bureau determines would aid in fulfilling the purposes of this section.

Elevate Credit Inc’s Quiet Period Will End on May 16th (Sports Perspectives), Rated: A

Elevate Credit’s (NASDAQ:ELVT) quiet period will end on Tuesday, May 16th. Elevate Credit had issued 12,400,000 shares in its initial public offering on April 6th. The total size of the offering was $80,600,000 based on an initial share price of $6.50.

Several research firms recently issued reports on ELVT. Jefferies Group LLC assumed coverage on Elevate Credit in a research report on Tuesday, May 2nd. They set a “buy” rating and a $12.00 target price for the company. Compass Point restated a “neutral” rating and set a $9.00 price target on shares of Elevate Credit in a report on Tuesday, April 18th. Credit Suisse Group AG assumed coverage on Elevate Credit in a report on Tuesday, May 2nd. They set an “outperform” rating and a $11.00 price target for the company. Stifel Nicolaus assumed coverage on Elevate Credit in a report on Monday, May 1st. They set a “buy” rating and a $12.00 price target for the company. Finally, William Blair assumed coverage on Elevate Credit in a report on Monday, May 1st. They set an “outperform” rating for the company. One research analyst has rated the stock with a hold rating and four have issued a buy rating to the stock. The stock has a consensus rating of “Buy” and a consensus target price of $11.00.

Elevate Credit (NASDAQ:ELVT) opened at 7.99 on Thursday. The stock’s market cap is $104.97 million. Elevate Credit has a 12-month low of $7.00 and a 12-month high of $8.86. The firm’s 50-day moving average price is $8.01 and its 200 day moving average price is $8.01.

KBRA Upgrades Ratings on Earnest Student Loan Program 2016-B LLC (KBRA Email), Rated: A

Kroll Bond Rating Agency (KBRA) upgrades the ratings on two classes of notes issued under Earnest Student Loan Program 2016-B LLC (EARN 2016-B), a private student loan ABS transaction which closed on May 11, 2016.

Credit enhancement has increased for each class of notes as a result of low losses, no delinquent loans that are 30+ days past due, low borrower usages of deferment and forbearance, and the deleveraging which has occurred as the notes have amortized. Current credit enhancement for the Class A and Class B notes is 15.23% and 10.44% as a % of Adjusted Pool Balance, respectively. Credit enhancement consists of overcollateralization, subordination of junior notes, cash reserves, and excess spread. The transaction has breakeven loss multiples which are sufficient for an upgrade of the ratings on the Class A and Class B notes.

Get the full report.

Why a virtual bank is making bank branches part of its US launch (Tearsheet), Rated: A

Iam Bank, a startup virtual bank based in Ireland that has offices in the U.K., is set to launch in the U.S. this fall — and it’s going to do it via a physical bank branch.

The bank, which is now in the process of buying a Chicago-based bank it declined to name, said it will set up its first branch, known as a “customer experience center” in Milwaukee in the fall.

“We’ve done a lot of research and it all comes down to trust and credibility,” said Simona Stankovska, head of communications for Iam Bank. “For us, the research shows that people have a massive distrust of purely digital offerings. They need to have a human touch, they need to be able to communicate with someone.”

Despite expectations about the death of the branch (for example, a report last month from commercial real estate firm JLL projected that the number of branches across the U.S. will shrink 20 percent in five years), recent surveys support Iam Bank’s view that consumers — especially millennial ones — will continue to demand a human touch to banking. An Accenture survey last year found that 87 percent of customers, including 86 percent of millennials, feel that they will continue to use branches because they trust or sense that they get more value from letting a human to deal.

Now the hard part for bank robos: Getting customers to use them (American Banker), Rated: A

A few years ago, many in financial services thought robo-advisers would completely disrupt traditional wealth and asset management services at banks.

That hasn’t entirely turned out to be the case. In fact banks have begun to partner with, acquire or create their own robos in an effort to appeal to wealth management clients who want more digital services.

With that in mind, Fifth Third recently launched several digital wealth management products it hopes will compel retail customers to use their wealth and advisory services. One is its Life360 product, which combines human advice with a digital platform that gives customers a full overview of their financial life, including accounts and investments that aren’t held at Fifth Third.

This month, the bank began offering a new digital estate planning product called LegacyLink. The service, available online and through its own dedicated mobile app, provides educational content and interactive checklists around estate planning. The basic service is free and there is an additional paid-subscription service that helps users catalog, track and distribute estate assets.

Indeed, an Accenture survey published in March found that customers who relied on both digital tools and personal help were more engaged clients. The survey found that 64% of hybrid users seek out and receive assistance on financial planning, compared with 44% of those who rely either entirely on digital products or those who use traditional advisory services.

These Millennials Stress about Finances, Jobs and Living Arrangements (BusinessWire), Rated: A

Elevate’s Center for the New Middle Class released a series of reports on Millennials today that shed new light on the financial, employment and familial struggles faced by non-prime Millennials – defined as those with credit scores below 700 – as well as their remarkable optimism.

The Center’s Millennial series covers a variety of topics including savings, personal finance management and unexpected expenses. The series of corresponding reports are titled:

  • Millennials and Work: The Non-Prime Experience
  • Millennials’ Day-to-Day Finances: The Non-Prime Experience
  • Financial Education & Attitudes: Non-Prime Millennials
  • Getting By: How Non-Prime Millennials Overcome Financial Challenges

The first study of the series of four, “Millennials and Work,” notes that non-prime Millennials are 68 percent more likely to live in households with 4+ people, but much less likely to have two income-producing adults in the home, when compared to their prime counterparts.

Half of non-prime Millennials say that their finances cause them significant stress, with 58 percent living paycheck to paycheck and 41 percent running out of money every other month, or more often. The Center’s research found that this group is 55 percent less likely than their non-prime counterparts to say they can come up with $1,200 in an emergency. In fact, this group is 160 percent more likely to intentionally use overdraft to cover an expense when they didn’t have the money.

Core banking veterans raise $ 12m for new cloud-based venture (Finextra), Rated: A

Frank and Mike Sanchez, the men behind the Profile core banking platform, have raised $12 million in seed funding for their new cloud-based fintech firm Finxact.

The funding, which comes from Live Oak Ventures and other strategic investors and angels, will by used to complete development of Finact Core, a cloud-based core banking platform aimed at banks looking to overhaul their systems for the digital age.
Finxact says it is focused on creating an open API, cloud-based Core-as-a-Service platform that will enable the next generation of always-on, digital-first banking.
While several new cloud-based core banking providers, such as Mambu and ThoughtMachine, are looking to hoover up the host of digital-only challenger banks entering the market, Finxact is aiming to win over incumbents saddled with decades-old technology.

Foreign ‘FinTech’ companies flock to Atlanta (CBS46), Rated: A

Dozens of foreign financial tech, or FinTech, companies have chosen to call Atlanta home in recent years, a migration spurred by the area’s relative affordability and friendly business climate.  No less than 50 foreign companies have offices in the city, according the Atlanta Metro Chamber of Commerce.

Both he and Nelson cited the affordable rent and living prices, compared to the west coast and New York, as reasons why Atlanta was able to attract their business.

Anti Bank SoFi Will Become a Bank (Crowdfund Insider), Rated: A

SoFi has decided to become a bank. The Fintech firm that has spent so much time telling the world they were not a bank has decided to join the ranks of their erstwhile adversaries and apply for a bank charter.

The ILC or “Industrial Loan Charter” is a financial institution in the US that can lend money and be owned by a non-financial institutions. Importantly ILC’s can hold FDIC deposits.

SoFi wants to outdo mega-banks like Citi by providing better, cheaper services around the world.  SoFi lays claim to the largest single Fintech investment ever when SoftBank kicked in $1 billion.  Not too long ago this was augmented by another $500 million giving SoFi plenty of head room to expand and grow.

6 FinTech Companies Disrupting the Investment and Lending Landscape (Due), Rated: A

We have the millennials to thank, however, for pushing changes to the investment and lending landscape because like all other financial matters, they want to do it on their terms with the technology that they have grown up with.

Acorns proves that the spare change in your life can go toward something much better than collecting dust under the seat in your car or a jar in a kitchen cupboard. Instead, this extra money can be turned into investment vehicles that grow over time.

With so many consumers and businesses becoming frustrated with traditional banks and lending institutions, it was time for a new kind of finance company that resonated with how people interact and make decisions today.

SoFi has delivered on that with the creation of what it has termed “social finance” in which it offers a range of lending and personal finance products, including life insurance, mortgage loans, personal loans, student loan refinancing and wealth management.

YieldStreet is an online marketplace that connects accredited investors and vetted borrowers with alternative investment opportunities and capital. While this sounds pretty straightforward, there’s much more to what the company is doing. They are opening up the world of investing in ways typically not available before.

One of the most difficult aspects of investing is knowing where and what to invest. While you can do research or get an advisor, not everyone has the time or access to do so.

However, Openfolio is turning investing into a social activity where you can leverage everything that is good about social networks and use your peer group to teach you the best investment tricks. You can also connect with the app’s team of advisors to get assistance and advice on an on-demand basis as well as receive numerous projections and tracking reports to help you better understand investing.

One of the most difficult aspects of investing is knowing where and what to invest. While you can do research or get an advisor, not everyone has the time or access to do so.

However, Openfolio is turning investing into a social activity where you can leverage everything that is good about social networks and use your peer group to teach you the best investment tricks. You can also connect with the app’s team of advisors to get assistance and advice on an on-demand basis as well as receive numerous projections and tracking reports to help you better understand investing.

Robinhood has leveled the investment playing field and has encouraged more people than ever to get involved in creating their own investment portfolio through this technology-driven brokerage. With market data and regular content updates, you’ll be able to learn more about what to invest in and what impacts the stock market. You can get real-time updates about dividends, stock splits, and upcoming initial public offerings (IPOs). This allows you to move on any of those actions immediately.

Intent on revolutionizing the business loan space, Fundera offers a convenient and efficient way to locate the best lending options for your company — from startups to established small businesses to large corporations.

$ 1.25M Raised in 3 Days Through DiversyFund (Digital Journal), Rated: B

DiversyFund, Inc., a fast growing, full-service online real estate investment platform, announced today that their online network of investors have successfully funded a $1.25 million investment in a record time for the Company’s first high-end luxury real estate project in La Jolla, California, with world-renowned design-builder, Roman James.

The investment is being used to fund the construction of a 7,200 SF luxury single-family home in San Diego’s seaside La Jolla community. Genesis Capital provided a $4.2 million construction loan as well for the project.

Cambridge Technology Partners Introduces New Capabilities for a Digital World (PR Newswire), Rated: B

Cambridge Technology Partners the preeminent company for foresight-based digital strategies ( announced two new strategic capabilities today:

I.     Digital Strategies: Scenario Planning practice for a New Digital World; and

II.     Digital Platform: FinTech Innovation for Financial Wellness in the Workplace.

Cetera Financial Group Continues Build-Out of Advice-Centric Solutions with Launch of New Advisory Platform (PR Newswire), Rated: B

Cetera Financial Group® (Cetera)*, a leading network of independent firms supporting the delivery of objective retail financial advice, today announced the launch of the first of its new Advice Architect Ecosystem™ suite of tools for financial advisors and their clients: My Advice ArchitectTM, a technology-driven, innovative investment solutions offering that provides advisors with a seamless and streamlined approach to conducting advisory business.  The platform constitutes a key component of the broader Advice Architect Ecosystem, a series of integrated platforms and services that the company will be announcing in the coming months as it works toward its strategic vision of creating a truly advice-centric experience for its advisors and their clients.

My Advice Architect, developed in collaboration with Envestnet, brings Cetera’s three core advisor-driven investment programs together on the same technology platform, enabling advisors to serve their clients with an unprecedented degree of flexibility, choice and transparency.  The new platform is being made available to financial advisors and financial institutions supported by Cetera in a phased rollout across the network, beginning with Cetera Financial Institutions, its firm specifically focused on serving the wealth management programs of banks and credit unions.

My Advice Architect combines the following investment programs on a seamless technology platform under a single client agreement with no ticket charges, allowing advisors to position their clients among the three solutions as needed:

  • Unified Program: Enables advisors to combine any number of advisor-directed models, fund strategist portfolios (FSPs) and separately managed accounts (SMAs) into one custodial account, thus eliminating the artificial silos around the different investment solutions and allowing advisors to invest their clients in the most appropriate portfolio. The platform provides advisors with access to a broad selection of nearly 100 strategists offering more than 800 mutual fund and ETF strategies, as well as approximately 300 managers offering more than 700 SMA models.
  • Guided Program: A solution that allows advisors to leverage asset allocation models created by third-party model providers and enables them to apply these models to their clients’ needs through asset-class weight adjustments and fund selection.
  • Advisor Program: A purely advisor-directed solution that offers a wide selection of asset types for both discretionary and non-discretionary client accounts.
United Kingdom

Zopa becomes the first of the ‘Big 3’ peer-to-peer lenders authorised by City watchdog (Business Insider), Rated: AAA

Zopa has become the first of the UK’s ‘Big 3’ peer-to-peer lenders to gain full authorisation from the Financial Conduct Authority (FCA).

Zopa announced on Thursday that it has gained full authorisation from the FCA, almost two years after it applied in 2015.

CEO Jaidev Janardana says in a statement: “The authorisation process has been rigorous and in-depth and involved extensive scrutiny of our business.”

Funding Circle and RateSetter, the UK’s two other biggest peer-to-peer lenders, are still waiting for authorisation from the FCA. The size and complexity of their businesses is thought to be part of what is delaying the process. Funding Circle has lent £2.1 billion to date and RateSetter has lent £1.9 billion. Zopa has lent £2.1 billion.

Zopa gains full FCA approval (P2P Finance News), Rated: A

The news is a pivotal moment for the industry, which has been waiting for the largest players to become fully regulated to move the sector into the mainstream. The regulator’s stamp of approval on the so-called grandfather of P2P lending is expected to boost the sector’s legitimacy to investors and financial advisers alike.

With smaller platforms already experiencing an influx of investor demand for the IFISA, it is likely that Zopa’s tax-free wrapper will attract high volumes of new inflows.

Seedrs To Launch UK’s First Equity Crowdfunding Secondary Market (Forbes), Rated: AAA

Seedrs is to be the UK’s first equity crowdfunding platform to offer secondary trading in the shares of businesses raising money on its website, the founders of the company announced today. If successful, the move could overcome the biggest fear of many investors considering crowdfunding – that they’ll be locked into their holdings.

Seedrs, launched five years ago, has so far raised £210m for around 500 companies and, along with rival platform Crowdcube, dominates the UK’s equity crowdfunding sector.

The facility will be open for trading for a single week each month, with shares trading only at a “fair value” dictated by Seedrs’ valuation policy.

Jeff Lynn, the founder of Seedrs, said each one-week trading window would begin on a “trading Tuesday”, and that the company would monitor the experiment closely to avoid abuses. The window could be expanded at a later date if trading volumes justify it.

LendInvest completes its largest development finance deal (P2P Finance News), Rated: A

LENDINVEST has completed its largest development finance deal to date, which will fund the construction of 66 new homes in West Drayton, a town set to benefit from a Crossrail station in 2019.

The online mortgage lender, which is a member of the Peer-to-Peer Finance Association, has lent a total of £21m to Kearns Property Management and Development.

It first provided a bridging loan for the borrower to acquire the site, which subsequently transitioned to a £17m development loan to finance the construction. Then LendInvest lent a further £4m to the borrower to purchase a neighbouring site that became available.

LendInvest to test investors (Business Insider), Rated: A


Innovate Finance Seeks Support From UK Government (Crowdfund Insider), Rated: A

Innovate Finance, the membership association for global fintech, announced on Thursday it sought support from UK Government, as well as political parties across the spectrum, for its Fintech Election Pledge.

While sharing details about the Fintech Election Pledge initiative, Innovate Finance stated:

“The UK’s digital economy accounts for 16% of UK domestic output, comprises 3 million workers, and between 2012 – 2016 attracted more venture capital (VC) and private equity investment than any other European country, at £28bn. At the heart of this digital revolution, stands the UK’s thriving Financial Technology (FinTech) sector.

Whilst VC investment in global FinTech rose to $17.4bn last year (an increase of 10.9% from 2015), over the same period UK FinTech saw a 33.7% decline in investment, to $783m. Although the United Kingdom continues to remain internationally competitive, ranking 3rd globally for investment in FinTech, the UK must continue to remain open to the talent, ideas and capital which underpin and strengthen our digital economy.”


CRF Unveils Full Exercise of Underwriters’ Option For Purchase of Additional ADSs (Crowdfund Insider), Rated: AAA

On Thursday, peer-to-peer lender China Rapid Finance (NYSE: XRF) that the underwriters of its previously announced initial public offering (IPO) have exercised in full the option to purchase an additional 1.5 million American depositary shares (“ADSs”) from China Rapid Finance to cover over-allotments.

According to the online lender, each ADS represents one Class A ordinary share of China Rapid Finance and was sold at the initial public offering price of $6 per ADS.


Read the full report.

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

Chinese P2P lender Wangcaigu Received 60 Million RMB in A+ round of financing
On May 9th, Chinese P2P lender Wangcaigu announced an A + round of financing of 60 million RMB, which was jointly invested by Delta Capital and other investors. On July 8, 2015, Wangcaigu raised A round of funding of tens million RMB from Ruiye Funds, a company with listed background. After the finish of this round of finance, Wangcaigu has expanded its business from accounts receivable business financing to P2P lending with comprehensive services. Recently, the platform has reached agreements on funds depository with Bank of Shanghai.

NIFA requires P2P companies disclose information and related platform is on the way.
The information disclosure work on P2P lending agencies will become more normative. On May 9th, National Internet Financing Association of China (NIFA) announced the Notice of Holding a Training Seminar for the future access to Centralized Information Disclosure Platform. According to the Notice, the beta version of disclosure platform built by NIFA will open in the near future.

In fact, early in November 30, 2016, Zheng Xiaodong, the director of business department of NIFA, declared that the situation of information disclosure of Chinese P2P lenders vary greatly, some are still not transparent. “All the members can disclose information on the platform according, which will avoid different criteria and improve transparency of the industry.

Rates on Bank Deposits Varies, Investors Prefer P2P lending platforms
Recently, the topic of tight finance in banks caused widely discussion again, and the accompanying growth of deposit rates is still weary. For many banks in China, the growth of rates in the long-term deposits is less than the short and medium term deposits.

Actually, there are some banks even offering the same or lower rates for a longer-term deposit. Such low rates can’t arouse attention for people anymore, especially for young people. A girl handling with banking business said that she put majority of her money in P2P financial products such as Yu’E Bao, in which are convenient for payment and enjoy the higher rates than one-year fixed-term deposits in the bank.

European Union

Why We Believe PSD2 Should be Better (Finextra), Rated: AAA

In April this year the European Banking Authority released their final RTS draft for PSD2 to be presented to the European Parliament.

To make our voice heard, an association has been formed consisting of 65 European Fintech companies (and growing), and a manifesto presented, to ask the European Parliament to ensure the RTS be technically neutral and in line with agreed objectives and text of the final PSD2 agreement.

We believe the proposed regulatory standards are inconsistent with PSD2 and will make Fintechs technologically dependent on banks and therefore grant incumbents a gatekeeper role on the fintech sector.

Digital banking arms race continues (AltFi), Rated: A

Monzo’s May Journal, which went out to users yesterday, indicated that its debit card launch is just around the corner. Meanwhile, a recent update to the Revolut app revealed new insurance and wealth tabs, currently listed as “coming soon”.

Both Monzo and Revolut have recently staged equity crowdfunding campaigns on Crowdcube and Seedrs respectively. Both rounds were oversubscribed and both were part of larger institutional investment rounds.

11 members of the Monzo team are also testing out overdraft facilities, which is relatively uncharted territory for digital banks.

Asked about its insurance and wealth plans, Revolut’s head of partnerships Rishi Stocker said that the focus has been on creating fully integrated insurance products, and that the first of these could launch within the next few weeks.

Solid full-year numbers for fintech firm Nucleus (The Scotsman), Rated: A

Nucleus Financial, the Edinburgh-based financial technology (fintech) specialist, has reported a hike in full-year profits and assets under administration despite a choppy economic backdrop.

Figures from the wrap platform, headed by founder and chief executive David Ferguson, show that profit before tax hit £4.3 million last year, up 21 per cent on a like-for-like basis from 2015.

Assets under administration reached £11.4 billion at the end of 2016, an increase of 23 per cent on the year before, with that total climbing to £12.2bn as of the end of March 2017.

Norwegian banks to expand mobile payment app for business use (Reuters), Rated: A

In February more than 100 Norwegian banks agreed to develop Vipps electronic payments app in a bid to fend off competition from Nordic rivals and the likes of Facebook, Apple and Google


Fintech in Microfinance: In Search of the High-Tech High-Touch Unicorn? (Center for Financial Inclusion), Rated: AAA

While microfinance still makes up a major share of impact investing portfolios, many investors appear to have moved on to fintech, the next wave of creative destruction. Rather than be toppled by it, microfinance institutions (MFIs) look to ride that wave too, to extend reach, reduce costs and prices, improve and deepen client services, and improve risk management.

As growth slows, should MFIs now abandon that approach and use high-tech to go low-touch for cost efficiency? If MFIs stay their course, will they be overtaken by new entrants with new models, like Chinese online peer-to-peer lender Yirendai, which went IPO on the New York Stock Exchange last year? Or instead, will MFIs find innovative high-tech ways to further leverage their deep relationships with clients and understanding of client needs?

Mobile payments networks like M-Pesa and BiM are high-tech, but decidedly low-touch delivery channels. Low-touch too are big data algorithms like those of Yirendai and its corporate parent CreditEase used for automated credit scoring and risk management. However, as digital financial technologies like these mature, will base of pyramid (BoP) financial customers still need high-touch MFIs? As fintech-driven models become more sophisticated, can MFIs hope to deliver anything that technology sophisticated telecoms and global commercial banks can’t?

Turns out MFIs, clients, and even global banks themselves demonstrably think the answer is Yes, plenty.

Quarterly InsurTech Briefing Q1 2017 (Willis Towers Watson), Rated: A

Arguably, insurers who stick too long with the old model will fade as premiums and their balance sheets shrink.

The $100 billion small business insurance sector is one of the most promising for disruption, as insurers attempt to navigate the complexity of automating underwriting processes to accommodate a broad range of business classes in a user friendly format and combat the inefficiency of processing small ticket premiums and claims.

While digital distribution platforms have achieved limited market penetration to date, industry research suggests that up to 25% of total small business insurance premium could be digitally underwritten by 2020 – a hypothesis supported by demographic trends and changing small business owner behaviors.

Read the full report here.

The Most Well-Funded Blockchain Startups (CB Insights), Rated: A

Q1’17 saw blockchain startup investment deals rise for the third consecutive quarter and funding rebound after a three-quarter drop, even as debates around scaling bitcoin, cryptocurrency ETFs, and token sales raged on. Notably, ethereum — a smart-contract enabled network that seeks to be the platform of choice for the development of decentralized applications — has seen real growth with its announcement of the Enterprise Ethereum Alliance, a consortium of top tech firms and corporations advancing ethereum business use-cases. Ethereum’s price on cryptocurrency exchanges has skyrocketed along with the media attention.


Class partners with robo-advice provider (SMSFAdviser), Rated: A

Class has teamed up with an SMSF advice provider, allowing accountants administering SMSFs to offer financial advice services to clients without the need for an AFSL.

The partnership with Plenty Plus, which operates under its own AFSL, allows accountants to generate advice without the need for their own license.


P2P lending startups face funding woes (India Times), Rated: A

The fledgling peer-to-peer lending start-ups, which had been waiting for almost a year for the Reserve Bank of India to lay down the rules of operations, may find the going tougher.

“The Ministry of Corporate Affairs is said to have expressed worries regarding lending for corporate entities through P2P platforms,” said one a founder of a Mumbai based P2P lending platform. “While for retail lending it is not a major issue, SME lending falls under a different set of regulations of the Registrar of Companies which needs to be adhered to,” said the person quoted above.

In case of SME lending, it can either be as an investment against shares or as corporate deposits, but in case of P2P lending, it is a pure debt lending – thus those clarifications would be required before the final guidelines came out, resulting in further delays and might require a fresh set of rules around lending within the ministry.

As various issues keep delaying the final guidelines, P2P startups are finding it difficult to raise funds to scale their business because of regulatory uncertainty.


Funding Societies launch mobile app to get investors in the P2P game (Astro AWANI), Rated: AAA

Funding Societies Malaysia, fresh from their recent collaboration with RHB to enhance the Peer-to-Peer (P2P) lending scheme, has today launched a new mobile app, that is geared to get investors to join in on the P2P investing landscape.


George Popescu
Allen Taylor

Tuesday March 14 2017, Daily News Digest

total debt balance

News Comments Today’s main news: SoFi’s loan losses pile up as wealthy borrowers default. Charles Schwab launches hybrid human-robo financial advice. GDR adds Avant as verification network partner. Vista to acquire D+H to merge with Misys.  Today’s main analysis: Household debt edges up as auto, credit card, and student debt climb. The regulation of MPL. Today’s thought-provoking articles: Everything […]

total debt balance

News Comments

United States

United Kingdom

European Union



Middle East

News Summary

United States

SoFi’s Loan Losses Pile Up as Even Wealthy Borrowers Default (Bloomberg), Rated: AAA

Social Finance Inc.’s online borrowers are defaulting at higher rates than underwriters for one of its bond deals had expected, the latest sign that an industry that hoped to upend banking is now getting tripped up by bad loans.

Losses on the company’s personal loans were high enough to breach key levels known as “triggers” last month on a bond deal issued in 2015 and backed by the loans, according to analysts at Morgan Stanley. If defaults keep rising, investors in bonds could end up missing out on expected interest payments.

Other online lenders have had similar trouble with defaults and triggers recently, which has broadly made it more expensive for the startups to fund their businesses. One pioneer in the business, CircleBack Lending Inc., stoppedmaking new loans as growing numbers of its borrowers defaulted.

Credit issues at Prosper Marketplace Inc. resulted in staff cuts at that company, and were largely the result of lending too much, too fast, and a “grow at all cost” attitude fueled by insatiable demand from investors, Prosper CEO David Kimball said at the New York conference last week.

Household Debt Edges Up as Auto, Credit Card, and Student Debt Climb (New York Fed), Rated: AAA

Aggregate household debt balances grew in the fourth quarter of 2016. As of December 31, 2016, total household indebtedness was $12.58 trillion, a $226 billion (1.8%) increase from the third quarter of 2016. Overall household debt is now 0.8% below its 2008Q3 peak of $12.68 trillion, and is 12.8% above the 2013Q2 trough.

Mortgage balances, the largest component of household debt, which stood at $8.48 trillion as of December 31, saw a $130 billion uptick from the third quarter of 2016.

Balances on home equity lines of credit (HELOC) were roughly flat, rising $1 billion to $473 billion.

Non-housing debt balances rose in the fourth quarter; with increases of $22 billion in auto loans, 32 billion in credit cards, and 31 billion in student loans.

Charles Schwab launches hybrid human-robo financial advice (WHTC), Rated: AAA

Brokerage Charles Schwab Corp on Tuesday launched a service that combines its automated investment management technology with human advisors, as financial institutions race to offer digital financial advice.

The service, called Schwab Intelligent Advisory, provides clients with a financial and investment plan, unlimited access to a human advisor via phone or video conference, and an investment portfolio of exchange-traded funds managed by computer algorithms.

The service, for clients with at least $25,000 to invest, includes an online platform that keeps track of financial goals and retirement plans, the San Francisco-based company said in a statement. It will charge a 0.28 percent fee on assets, with a quarterly maximum of $900.

The Regulation of Marketplace Lending: A Summary of the Principal Issues (Chapman and Cutler LLP), Rated: AAA

At the outset, it may be helpful for us to briefly discuss the scope of this paper and some of the terminology we use. There is no single or universally accepted definition of “marketplace lending.” In general, though, marketplace lenders can be viewed as companies engaged in an Internet-based lending business (other than payday lending) which are not banks or savings associations or otherwise regulated as financial institutions. They may offer a wide variety of financial products, including student loans, small business loans, and real estate loans, in addition to the unsecured installment consumer loans on which the industry initially focused. However, “marketplace lenders” may or may not actually be lenders. This term is a generic term to identify participants in marketing, originating, selling, and servicing loans. They also may fund their loans through a variety of means, including equity capital, commercial lines of credit, sales of whole loans to institutional investors, securitizations, and/or pass-through note programs. In this paper we focus on the consumer lenders since they are the most heavily regulated and have the highest loan volumes. However, much of the discussion herein—outside of matters pertaining directly to consumer lending regulation—will also apply to nonconsumer lenders.

Download “The Regulation of Marketplace Lending: A Summary of the Principal Issues” here.

Global Debt Registry Adds Avant as Verification Network Partner (Yahoo! Finance), Rated: AAA

Global Debt Registry (GDR), the asset certainty company known for its loan data validation expertise, today announced it has added leading online lending platform Avant to its verification network.

Investors in loans through Avant now have turnkey access to enhanced loan due diligence services and can easily add new data insights onto portfolios of loans without having to touch sensitive personally identifiable information (PII) about borrowers.

GDR’s eValidationSM and eVerifySM asset certainty tools require no technology investment, using existing data structures and processes to streamline the flow of information from the lender to the investor. In addition to digital scanning for traditional document verification and data integrity, GDR securely analyzes the Personally Identifiable Information (PII) to ensure borrower data can be independently confirmed in compliance with the investors representations and warranties.

Kroll Bond Rating Agency Assigns Preliminary Ratings to Marlette Funding Trust 2017-1 (BusinessWire), Rated: AAA

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Marlette Funding Trust 2017-1 (MFT 2017-1). This is a $257.44 million consumer loan ABS transaction that is expected to close on March 23, 2017. This transaction represents the third securitization collateralized by unsecured consumer loans originated by Cross River Bank, under the Marlette Best Egg Platform and sold to Marlette Funding, LLC (“Marlette”) or its affiliate.

Approximately $250 – $325 million of loans are originated through the Platform per quarter. Since March 2015, over $3 billion of loans have been originated though the Platform, and as of February 2017, Marlette has over $100 million of loans on its balance sheet.

The transaction has initial credit enhancement levels of 27.45% for the Class A Notes, 17.95% for the Class B Notes, and 9.10% for the Class C Notes. Credit enhancement consists of overcollateralization, subordination (in the case of the Class A and Class B Notes) and a reserve account funded at closing.

Traditional Advisor Business Model Will Not Last (Financial Advisor IQ), Rated: A

Several developments are creating a “perfect storm” that will revolutionize the financial advice industry and leave many advisors behind, John Lohr writes in Seeking Alpha.

First Ascent still uses real humans on its investment committee, while an independent advisor serves the client, Lohr writes. That model isn’t likely going away: even robo-advice pioneers such as Betterment now offer upgraded services that give investors unlimited interaction with a licensed advisor, he writes.

But Betterment’s annual fee for unlimited calls with an advisor is just .50%, according to Lohr. That means high-fee advisors are on the way out, he writes.

Clarity Money Marks Continued Growth with 100,000 Customers and Senior Hires (BusinessWire), Rated: B

Clarity Money, a revolutionary personal finance app that acts as the “Champion of your Money,” has reached 100,000 customers since its launch in January 2017. The app has been a “featured” personal finance app on the Apple App Store since its launch. Clarity Money was created by venture capitalist and serial entrepreneur Adam Dell.

To keep up with this growing demand, Clarity Money is pleased to announce three new additions to its team – Melissa Manne, Vice President of Product Management; Colin Kennedy, Chief Revenue Officer; and Marc Atiyeh, Chief Strategy Officer. The Clarity Money team already includes financial and technology veterans from Betterment, Google and IBM, as well as advisory board members Niall Ferguson, economic historian, and Dan Ariely, behavioral economist.

Clarity Money works by using data science and machine learning to provide personalized insights for customers. By utilizing a combination of techniques such as natural language processing, anomaly detection and spectral analysis, customers are able to take advantage of features such as: bill lowering, subscription cancellation, creating a savings accounts and providing tailored suggestions on things such as credit cards.

With the potential impact of financial deregulation and the weakening of the Consumer Financial Protection Bureau, consumers need a financial advocate now more than ever. Banks and financial institutions already have powerful tools designed to sell, market and retain customers, but consumers don’t have an equally powerful tool to level the playing field and protect against hidden fees and recurring charges. Clarity Money empowers consumers to take control of their finances, providing them with transparency, organization and actionable insights.

PeerStreet Awarded ‘Top Emerging Real Estate Platform’ by LendIt (Yahoo! Finance), Rated: A

PeerStreet, a marketplace for investing in real estate backed loans, is pleased to announce that it has been named the Top Emerging Real Estate Platform in the LendIt 2017 Awards. PeerStreet is an Andreessen Horowitz-backed platform, focused on democratizing access to investments in real estate debt.

The Top Emerging Real Estate Platform category focused on younger companies that have demonstrated the greatest potential to impact the future of real estate investing. PeerStreet stood out as the top platform with its unique model, as it is not a direct lender and brings an innovative offering to investors. CEO Jilliene Helman Named Fintech Woman of the Year (Yahoo! Finance), Rated: A CEO Jilliene Helman was named Fintech Woman of the Year at the first annual LendIt Industry Awards. Helman was honored for her “outstanding leadership, integrity, performance, and team-building support within RealtyMogul, as well as her contributions to the advancement of the industry.”

The awards, which showcased leaders from across the fintech industry, were part of the annual LendIt USA Conference held in New York City March 6 and 7th. Helman was selected by a panel of 30 industry expert judges from among a field of six leading fintech pioneers.

New fintech conference focused on branded currency comes to Omaha (siliconprairienews), Rated: A

Flourish: The Growth of Branded Currency is a fintech conference launching in Omaha this April 10 -12. The conference is focused on branded currency, and is targeting a range of retailers from those with a national presence to smaller Midwest retailers and their technology service providers.

K+H Connection is the company hosting the event. K+H is a fintech consulting firm based in Chicago, IL that focuses specifically on helping fintech companies integrate with merchants.

HG: Branded currency is actually a relatively new term. In short, it is any sort of tender that is branded and used for a specific purpose or at a specific merchant or location. It could be a gift card, promotional value you earn through a referral or loyalty program, points earned through a credit card program, prepaid mall-branded gift cards, etc. These types of products are more than just a form of tender, they incentivize spend and behavior.

We’re also focusing heavily on fraud within branded currency. Fraud has been the number one thing that people have asked us to discuss, so we are going to have a huge session on it.

Podcast 93: John Donovan of Bizfi (Lend Academy), Rated: A

Industry pioneer John Donovan talks about why he is excited to be at the helm of one of the leaders in small business lending.

LendIt USA 2017: Sessions You May Have Missed (LendIt), Rated: B

Thanks to everyone who joined us at LendIt USA 2017. Our growth surpassed our expectations and we had close to 5,900 attendees at the two-day conference.

United Kingdom

NACFB offers members ‘unrestricted’ insurance cover for peer-to-peer (Bridging&Commercial), Rated: AAA

The National Association of Commercial Finance Brokers (NACFB) has announced it will now offer members unrestricted insurance cover for peer-to-peer (P2P) lending.

Under the terms of NACFB membership, brokers must have professional indemnity insurance covering them against mis-selling claims from clients.

UK and Japanese regulators agree to cooperate on fintech (, Rated: A

On Thursday, the FCA and JFSA agreed a mutual referral system which will see the regulators provide assistance to fintech businesses that wish to expand UK operations into Japan, or vice versa.

The collaboration, which was confirmed by an exchange of letters, will also facilitate information sharing between the regulators on emerging market trends and regulatory issues pertaining to fintech, as well as information concerning referrals.

European Union

CSI globalVCard Expands Globally (PR Newswire), Rated: AAA

CSI globalVCard, a leading B2B payments company specializing in secure and rewarding payments, today announced that it has expanded services to Europe and has opened a London office, its first move in a planned worldwide expansion. The company plans to roll out its services across additional continents by year’s end. CSI will use the payment issuance capacity of PrePay Solutions (PPS), a subsidiary of Edenred (70% owned by Edenred and 30% by MasterCard), worldwide leader in prepaid corporate services. PPS will bring CSI its unique payment technology to issue and process all  CSI virtual cards and wire transfers in Europe.

Expansion outside of North America was sparked by CSI globalVCard’s growing demand from multi-national clients, their increased need for native currency payments, as well as customer service support across local time zones. The global payments market is estimated at $1.2 trillion, of which B2B payments account for $550 billion. Ten percent of organizations make between 20 and 50 percent of their payments to foreign suppliers, and organizations earning over $2 billion in revenue pay the largest percent of their payments to foreign suppliers.1


Vista to acquire D+H for fintech merger with Misys (Financial News), Rated: AAA

Private equity firm Vista Equity Partners has struck a deal to acquire D+H, a Canadian financial technology provider, with an eye to merging it with UK-based Misys to create a financial software company with $2.2 billion in revenues.

US-based Vista said in a statement today that it will pay C$25.50 per share in cash for D+H, including the assumption of debt, in a deal that values the Toronto-listed firm at 4.8 billion Canadian dollars.

Misys chief executive Nadeem Syed said the combination of the two companies gives them the opportunity to create a “global fintech powerhouse”.

That powerhouse would have about 10,000 employees and 9,000 customers, including 48 of the top 50 banks, the statement said.


Here’s Everything You Should Know About Alternative Lending In Asia (Forbes), Rated: AAA

Over the last 5-10 years, China, India, and Southeast Asia have leapfrogged from a cash-based society to one where mobile payments are common currency, skipping adoption of credit cards, savings accounts and other consumer financial products common in Western countries. The result: a population that’s smartphone-savvy but still largely unbanked, without the credit histories necessary to access traditional small business or personal loans. It’s a prime market for alternative lenders, who usually use alternative means to assess creditworthiness, foregoing traditional credit scores altogether.

Here is a brief taxonomy of the many types of alternative lenders currently operating in both Asia and the West.

According to Bloomberg, China has 2,200 P2P lenders alone, and its P2P lending market is valued at an estimated $100 billion.

Chinese tech giants have aggressively pursued synergies between different divisions of their sprawling businesses. For instance, Sesame Credit, Alibaba’s alternative credit scoring program, looks at the frequency and cost of a customer’s purchases on Alibaba’s mobile payments platform Alipay in order to determine creditworthiness.

Meanwhile, India’s alternative lending market is in a much earlier stage. Giant tech companies don’t yet dominate the scene, and so the balance-sheet lending landscape includes a large number of small specialists like EarlySalary (payday loans), ZestMoney (point of sale), and Buddy (targeted at students). There are only about 30 P2P lenders in the country, which is surprising for a country where nearly 40% of the population is unbanked, and therefore without access to traditional loans.

Southeast Asia has one of the fastest growing economies in the world, but the small- and medium-sized businesses (SMEs) that make it up have more limited access to financial credit than the global average.

In Singapore, the financial center of the region, the major alternative finance players in Singapore are peer-to-company (P2C) lenders: specialized P2P lenders that only provide loans for SMEs. Market leader Capital Match was founded in 2014, but says it has already paid out more than S$32m (US$22.5m) in loans.

Malaysia is doing its part to meet P2P companies like Funding Societies in the middle, having recently updated its financial guidelines to include P2P lending. Thailand has done the same, issuing a consultation paper on regulations for P2P lending last fall.

German Challenger Bank SolarisBank Goes to Asia (Fintech News), Rated: AAA

The financial services subsidiary of the Bertelsmann Group, Arvato Financial Solutions, and the Japanese investor SBI Group will invest in solarisBank in a partnership that promises significant cooperation potential across international markets. In total, the Berlin-based bank raises EUR 26.3 million in the series A financing, meanwhile seed investors FinLeap, Hegus and yabeo Capital participate as well.

As the young bank steps up its internationalisation efforts, new executives are being added to its leadership team: Roland Folz will join the Management Board as CEO, while Gerrit Seidel will take over as Supervisory Board Chairman from HitFox Group and FinLeap founder Jan Beckers.

solarisBank intends to expand its activities in European and Asian countries over the coming years, and will establish joint venture companies with the SBI Group in order to develop businesses in Asia.

Middle East

The real estate property crowdfunder with an ethical conscience (Zawya), Rated: A

As key professional in the Qatar real estate industry gather for the annual Cityscape exhibition in Doha,  MercyCrowd, a brand new type of property crowdfunding platform, will offer for the first time to people in Qatar international real estate purchases through crowdfunding.

MercyCrowd  is part of the Elite International Asset Group, an established international company promoting real estate investment in Europe with a specialty in the French and UK market.  However, what makes MercyCrowd uniquely different is the company’s core belief that sustainable growth can only stem from real assets that generate real increments and tangible benefits to a society.


George Popescu
Allen Taylor

Monday November 7 2016, Daily News Digest

cross river bank spreads

News Comments Today’s main news: OnDeck continues to experience loss in Q3 despite origination record. Today’s main analysis : PeerIQ analyzes Cross River Bank. TransUnion reports low delinquency rates and strong balance growth in credit markets. Today’s thought-provoking articles: The credit scoring blind spot. How FinTech will impact finance in the next decade. ACCC wants to prevent banks […]

cross river bank spreads

News Comments

United States

  • OnDeck shows $12.9m loss in Q3 2016. GP: ” As we have seen for the last few quarters OnDeck has moved from selling loans to holding them on the balance sheet for longer. This strategy continues and for now provides short term losses, in principle, to be offset by long term larger profits. They have about $85mil in cash and equivalents so at a rythm of $15mil in loss per quarter that’s another 6 quarters left. I wish OnDeck would demonstrate and explain when this strategy is going to turn around in their models. On the other side losing $15mil on $71mil in revenue is a little high perhaps. I hope they can make it profitable within 2-3 years.  “AT: “This could be seen as a short-term blip. Sales went down as gross revenues went up, but the company is also investing in technology and analytics, which indicates a long-term strategy for growth.”
  • Cross River Bank is no ordinary bank. AT: “We’ve reported on this already, but PeerIQ takes a look at CRB in their newsletter, including charts showing the bank’s improved ROE positioning. The question here for banks is, can they follow Cross River into alternative lending and be more profitable than ever before?”
  • CFPB ruling won’t change anything. AT: “The structure of CFPB as likely been mended, but that won’t stop the battle from continuing. You’ll likely see more on this issue in the future as Washington continues to talk about regulation of MPL.” GP: ” I also stronly believe that the CFPB structure will be solved one way or another and will have no impact on CFPB’s activity. The ruling on CFPB’s structure is just a witty anecdote. “
  • Credit markets spurred by strong balance growth and low delinquency rates. AT: “This is another indication that the credit market is looking good even for marketplace lenders. Maybe especially for MPLs.” GP: ” This is a great indication that the credit market is healthy. When a market is healthy it’s much easier to build a business. It will become much more interesting when the credit market will be less healthy and that is what online lenders should prepare for.”
  • TD Ameritrade gets a robo-advisor. GP: ” As we wrote in the past, online lenders should learn from the dynamics of the robo-advisor market. I believe they behave in very similar ways.”
  • Wish raises another $500m in new financing. GP:”This is an online shopping app. This makes me think of point of sale financing.”
  • The credit scoring blind spot. GP: ” A very interesting analysis pointing out that credit scores ” are not designed to provide an absolute statement of risk but rather a relative assessment within a population of borrowers.””
  • Kroll assigns final ratings to SoFi Consumer Loan Program 2015-1. GP: ” first term ABS securitization of unsecured consumer loans for SoFi. Very interesting.PeerIQ has repeatedly pointed out that SoFi has the best rated and lowest priced securitizations. Why ? Is it all about belief in their underwriting or just the fact that they focus on super prime borrowers ? “
  • A bill has been introduced that would create a FinTech sandbox in the U.S. AT: “Whether this bill passes or not, I see the U.S. establishing some type of regulation for FinTech.” GP: ” We hope the bill passes !”
  • How Citibank is tackling the FinTech problem.
  • MPOWER reaches new funding milestone and celebrates zero-interest loans. GP: ” We have covered MPower this past spring and we are glad they are seeing such nice traction.”
  • MPOWER secures Series A funding. GP: ” With traction comes funding, very well done. “

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News Summary

United States

OnDeck posts $ 12.9m loss on quarter despite origination record (altfi), Rated: AAA

OnDeck, the New York Stock Exchange listed online lender for small businesses, has published its financial results for the third quarter. The company increased its loans under management by 44 per cent year-over-year to $1.1 billion, while bolstering originations by 27 per cent to $613m. Gross revenues rose by 15 per cent to $77.4m.

OnDeck operates a hybrid lending model which involves keeping some loans on balance sheet while distributing others via an institutional marketplace, often for a mark-up. But the platform’s marketplace sales have been trending downwards in 2016, in keeping with a wider decline in investor appetite across the industry.

The firm’s cost of funding during the third quarter of 2016 decreased to 5.7 per cent, down from 5.8 per cent in Q3 2015. Operating expenses were $49.4 million, up 16 per cent over last year as the company continued to invest in its technology and analytics capabilities.

OnDeck’s common stockholders lost $16.6m in the third quarter, compared to net income of $3.7m across the same period in the previous year.

Cross River Bank – Not Your Ordinary Community Bank (PeerIQ Email), Rated: A

Currently, community banks are in a secular consolidation trend owing to a low spread environment, and higher regulatory fixed costs, such as capital and liquidity rules, tighter Bank Secrecy Act/AML obligations, tighter FDIC de novo charter requirements, and new consumer protection requirements.

Indeed, per FDIC, from 2000 to 2008 there were over 1,000 community bank de novo charters issued. Post-2008, bank formation has slowed to a handful of charters per year. Industry consolidation across the 6,000+ extant community banks is expected to continue.

Cross River Bank was one of the few new charters and was founded in 2008 by CEO Gilles Gade, a former banker at Barclays and CFO of a mortgage lender.

CRB is also an early adopter of new financial technology innovations. It has partnered with payments companies including TransferWise, Stripe, Ripple, and CoinBase. CRB is reportedly developing an online-only digital bank dubbed ‘Almond Bank’ with a focus on millennials.

In prior newsletters, we made the argument that banks can improve their ROE position by purchasing or financing whole loans using Discover Financial Services as a case-study.

Here we test the hypothesis further:

While the broader banking industry consolidates and struggles to earn their cost of capital, Cross River Bank has expanded NIM (net interest margins) and lowered funding costs over time.

Exhibit 2 shows the increasing basis between NIM and cost of funding since June 2012. The improved NIM and declining cost of funding provides a powerful motivation for non-bank lenders to entertain bank acquisition, and also the converse, for banks to seek partnership or origination of consumer loans.

Below, we have listed some statistics to put growth and value in perspective:

  • Cross River Bank has experienced a ~70% CAGR in Net Operating Income since 2012 around when CRB increased MPL origination activities.
  • Total assets have grown from $10 Mm to nearly $500 Bn in assets since inception, while maintaining high levels of equity and asset quality.
  • Maintaining an ROE of 20% over 10 years will generate a 6.2x increase in book value.
  • 9-month revenue more than doubled to $55MM from $26 MM last year.

CFPB structure ruled unconstitutional, but powers likely to remain intact (CI Marketplace Lending), Rated: A

Marketplace lending firms should still prepare for scrutiny and the possibility of challenges brought against them by the CFPB. This is despite a recent ruling that the agency’s structure is unconstitutional, which has raised questions about the government body’s future.

Richard Eckman, partner at Pepper Hamilton law, believes that the CFPB’s future is far from over. He says of the ruling: “It sounds more ominous than it really is. It was more about the structure of the CFPB and that in its current form, it has a single director who can’t be removed without cause, so is therefore technically unconstitutional.”

Of concern is the lack of controls and checks on the CPFB that are incumbent on other US government bodies. However, this could change as a result of the ruling.

At the moment, for example, there are a real lack of checks on the CFPB and this case may provide opponents of the agency with greater ammunition. The CFPB is not subject to an appropriation process, for example, that may now be pursued by Congressional actions and the financial industry – which has been concerned about the CFPB’s extensive powers since its establishment.

For the marketplace lending sector, the recent ruling may have provided hopes for a dissemblance of the CFPB’s powers and perhaps therefore less scrutiny. But the CFPB is still most likely going to pursue platforms if it spots any sign of wrongdoing.

Healthy, Well-Functioning Credit Markets Spurred on by Strong Balance Growth, Low Delinquency Rates (MarketWatch), Rated: A

Balances continue to rise and delinquencies remain muted across all credit products, according to TransUnion’s TRU, +1.17% Q3 2016 Industry Insights Report. The report, powered by PramaSM analytics, points to a healthy, well-functioning consumer credit market, which has seen continued growth across diverse products such as the mortgage market and the personal loan space.

More than 15 million consumers had a personal loan in the third quarter of 2016. The number of consumers with a personal loan grew by 1.5 million between Q3 2015 and Q3 2016. The report also found that personal loan balances surpassed $100 billion for the first time in Q3 2016, with $17 billion of balance growth occurring in the last year.

Despite surpassing $100 billion, total personal loan balances experienced the slowest third quarter growth rate since Q3 2013. In the third quarter of 2016, balances grew 20.9%, down from 24.9% in Q3 2015 and 25.5% in Q3 2014.

FinTech lender share of originated personal loans has more than tripled since 2013. FinTech originations reached 26% of all personal loans in Q2 2016, up from 8% in Q2 2013 and 16% in Q2 2014. Originations are viewed one quarter in arrears to ensure all accounts are reported and included in the data. In total, more than 3.57 million personal loans were originated in the second quarter, down 0.5% from 3.58 million in Q2 2015.

FinTech Lenders’ Share of the Personal Loan Market

Q2 2010   Q2 2011   Q2 2012   Q2 2013   Q2 2014   Q2 2015   Q2 2016

2%            3%           5%            8%           16%          27%          26%

In Q2 2016, near prime originations declined 4.7% and prime originations declined 2.7%, while both subprime and super prime originations grew by 3.2%, compared to Q2 2015. A prior TransUnion analysis found that FinTechs were outpacing traditional lenders in personal loans originated to near prime and prime borrowers. “The decline in near prime and prime originations reflects the challenges faced by some FinTech lenders,” added Laky. “Offsetting this, banks and credit unions are expanding in the super prime risk tier, while traditional finance companies continue to expand in subprime.”

TD Ameritrade Adds Low-Cost Robo Advisory Services (ETF Trends), Rated: A

To help investors better adapt to various market conditions and craft a diversified investment portfolio, TD Ameritrade will provide a low-cost robo-advisory service that offers intuitive and easy-to-use investment advice.

The new TD Ameritrade Essential Portfolios is an automated, low-cost advisory service for digital-first investors. There will be five portfolios, all designed by Morningstar, to provide investors with a diversified strategy based on low-cost exchange traded funds from Vanguard or BlackRock’s iShares. The minimum investment is $5,000 to open an Essential Portfolios account with a 0.30% fee per year.

The low minimum investments in the robo-advisor program may be a good way for starting investors to begin saving today as many human advisors require large minimum balances. The robo-advisory is seen as an easy step for investors to gain more in-depth financial advise without having to hire a financial advisor, allowing users to access their accounts from anywhere with a smartphone or personal device.

Some advice and guidance is better than nothing. Research has shown that people who have a financial plan with specific goals are 85% confident they will reach their retirement goals, compared to 28% that do not, according to TD Ameritrade.

Using a slider bar to change monthly contributions or target dates, investors are able to further customize their recommended strategies. Through the various adjustments, users may find varying details on asset allocations, expected returns and some limited historical returns.

TD Ameritrade joins a number of custodians in adding their own robo-advisories. Charles Schwab launched its retail robo-advice, Intelligent Portfolios, in March 2015. Fidelity Investments came out with its Fidelity Go in July 2016. Others money managers in the space include Vanguard Group, BlackRock Inc., Morgan Stanley and Bank of America.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Investors will choose a robo portfolio based on their investment goals and their general investment time frame, selecting from options like retirement, wealth-generation, education or other. A range of risk exposure is also provided from least to most risky options.

Making another $ 500M Wish (The Daily Pitch email), Rated: A

Shopping app

The credit scoring blind spot – Macroeconomics (Wain Street), Rated: A

In February 2016, about six months after rating a securitization, Moody’s found “faster buildup of delinquencies and charge-offs than expected” in the pool of Prosper loans backing the ABS. Experts had noticed deterioration months earlier…pundits discerned a signalinsights followed—macro trend…credit cycle…borrower stress. But then in July, Moody’s decided there was “absence of substantial deterioration”.  So, what about that borrower stress?  Well, it’s back.  In its October 8-K filing, Lending Club observes “Higher delinquencies are more evident in 2015 and early 2016 vintages, which coincides with an uptick in consumer indebtedness in the U.S.”.  And the pundits are considering the evidence.

WAIN Street’s analysis of over a million loans originated by a leading marketplace lender between January 2012 and June 2016 shows that median credit scores have been flat and even increased slightly since Q1 2014.

First, don’t blame the credit scores.  They are not designed to provide an absolute statement of risk but rather a relative assessment within a population of borrowers.  The actual level of defaults is influenced by economic conditions.  Not convinced.  Just look at default rates for various credit score bands before, during, and after the Great Recession.  For the same credit scores, defaults nearly doubled during the Great Recession.

Third, link individual  borrowers to economic conditions.  We assigned each loan to a Local Economic Vitality band based on data current as of the origination date and examined the loan mix for the eighteen quarters. The proportion of loans originated to borrowers from economically stronger locations peaked mid-2014 and has been declining since then.

Kroll Bond Rating Agency Assigns Final Ratings to SoFi Consumer Loan Program 2015-1 (BusinessWire), Rated: A

Kroll Bond Rating Agency (KBRA) assigns ratings to one class of notes issued by SoFi Consumer Loan Program 2015-1 LLC (“SCLP 2015-1” or the “Issuer”). This is a $189.37 million unrated consumer loan ABS transaction that closed on August 21, 2015 and as of the October 17, 2016 payment date has a current note balance of $143.8 million. At the request of SoFi Lending Corp. (“SoFi” or the “Company”), KBRA is issuing public ratings for SCLP 2015-1 on November 4, 2016.

SCLP 2015-1 represents the first term ABS securitization of unsecured consumer loans for SoFi. Since the closing of SCLP 2015-1, SoFi has sponsored four unsecured consumer loan securitization in 2016, each has been rated by KBRA. SoFi currently originates personal loans through its state licenses or complies with certain requirements where a state lending license is not required.


On September 22, 2016, Republican Congressman Patrick McHenry from North Carolina announced the introduction of H.R. 6118, the Financial Services Innovation Act of 2016 (the “Bill”). McHenry is the chief deputy whip and vice chairman of the House Financial Services Committee. According to the press release, the bill was introduced as part of the “Innovation Initiative” that McHenry co-launched earlier this year with House Majority Leader Kevin McCarthy, a fellow Republican from California. On October 19, 2016, the Bill was referred to the Subcommittee on Commodity Exchanges, Energy, and Credit. Before the Bill becomes law in the United States, it must be past by both chambers of Congress and signed by the President. With this Bill, America joins, among others, the United Kingdom, Hong Kong, and Malaysia in establishing FinTech regulatory sandboxes.

In its current form, the Bill takes a two-prong approach to constructing a regulatory sandbox. First, it creates a government-wide FinTech oversight regime, and second, it codifies an exclusive no-action relief mechanism for financial innovators.

Citibank’s plan to fight the fintech revolution (CNBC), Rated: A

Fintech is revolutionizing the world of finance, and traditional banks worldwide are reacting — boosting mobile services and shuttering branches to trim costs — all in an effort to stay in the game.

Over the past decade, venture capitalists, private equity firms and a number of other big players have been pouring money into fintech start-ups. Since 2010, more than $50 billion has been invested globally in almost 2,500 companies as these innovators redefine the way we bank, according to Accenture. In the United States alone, revealed a Citibank report, investing increased from $1.8 billion in 2010 to $19 billion in 2015.

Although only about 1 percent of North American consumer banking revenue has so far migrated to these new digital business models, claims the report, that number is expected to increase to about 10 percent by 2020 and 17 percent by 2023 as consumer behavior continues to shift toward digital ways to save, spend and move money.

Citibank, for one, formed Citi Fintech in November 2015, a division consisting of a number of employees from tech companies such as Amazon and PayPal. Its first mission: an upgraded app that uses voice and facial recognition to eliminate the need for passwords. Although Citibank won’t disclose any of the details, a spokesperson there did confirm the app is on point to roll out before the end of the year, is partnering with a number of fintech start-ups and was testing its voice recognition feature using Amazon’s “Alexa” program.

Their approach is to embrace the latest financial technology, not fight it. “We talk to fintech’s all the time,” said the Citibank spokesperson.

MPOWER Reaches $ 100M Milestone, Celebrates by Awarding Zero-Interest Loan (PRWeb), Rated: B

MPOWER Financing today announced that it has exceeded $100 million in loan application volume, offering thousands of high-potential students a way to access and complete their undergraduate or graduate education at top U.S. universities. To celebrate this milestone, MPOWER awarded a zero-interest loan to one of its borrowers.

Nitish Gupta, the student granted a zero-interest loan, shares a background and experience similar to many of MPOWER’s borrowers. A graduate student in a STEM (Science, Technology, Engineering, or Math) field, Gupta was turned down several times for loans in his native country of India because the banks failed to recognize his promising future, instead focusing on co-signers, on collateral, or on his not-yet-established credit history. Yet within a week of completing his application to MPOWER, Gupta’s loan was approved based on dozens of factors, including his future earning potential.

MPOWER designed its loans to serve high-potential students like Gupta who may not fit within traditional credit assessment models. MPOWER borrowers attend top universities and hold high post-graduation employment potential but may not yet have an established U.S. credit history.

MPOWER Secures $ 6M Series A Funding from Institutional Investors (PRWeb), Rated: B

MPOWER Financing today announced that it has secured $6M in its Series A equity round, led by Zephyr Peacock India Fund III and followed by several other institutional backers, including initial investors 1776 Ventures, Goal Structured Solutions (GS2), and VilCap Investments (Village Capital), as well as newcomers DreamIt Ventures, Fresco Capital, and University Ventures.

This latest funding allows MPOWER to create solutions for a greater number of students, offering more loan approvals to qualified candidates. MPOWER plans to use the capital to enhance its technology platform and expand its outreach efforts in emerging markets.

United Kingdom

Abundance launches UK’s first green Innovative Finance ISA (BusinessGreen), Rated: A

Abundance has become the first investment platform in the UK to open an Innovative Finance ISA (IFISA) targeting green energy projects.

The IFSA, which has been open to new subscriptions since April in a pre-launch phase was formally launched late last week. It enables investors to lend tax-free to renewable energy projects via Abundance’s peer-to-peer platform.

IFSAs first launched in April this year, and Abundance was one of the first peer-to-peer lending platforms to receive an approval to offer the investment vehicle.

Under Abundance’s IFISA investors will be able to invest in a host of clean energy projects.

Report: UK P2P Property Lending Delivers Returns from 2.25% to 12.7% (Crowdfund Insider), Rated: A

Independent ratings agency 4thWay is out with an interesting report on the peer to peer property lending market in the UK. This sector of alternative finance has been very popular due to the asset class and the solid returns. Even in light of Brexit turmoil, P2P property lending remains a robust and growing opportunity for investors.

According to the report, today there are 12 P2P lenders that specialise in property.  Combined, these platforms have lent £1.6 billion since 2013. Returns have ranged from 2.25% to 12.7% and lender losses have been placed at zero at 11 out of the 12 platforms. 4thWay explains there have been cases of bad debt but lenders have not lost their money largely due to the investment being secured by the property. Overall, lenders have lost just £15,000 out of £1.6 billion lent (0.0009%). Only one platform, Funding Secure,  has experienced losses of 0.02% –  spread over three years. 4thWay states this is easily offset by interest of 12.7% per year.

The report says that lending decisions are underpinned by underwriting processes with “sensible” maximum loans-to-value of 70% to 80%. Average loans-to-value (LTV) are considerably lower. In some cases, lenders can specifically choose loans with a maximum of 50% LTV. An example of this may be found through Proplend. Interest rates remain high as lenders are cautious and thus demand a premium.


Latest Insights into the UK Fintech Investment Market. (TechBullion), Rated: A

Fintech Week 2016ranked the UK first amongst the world’s leading Fintech hubs. Last year, professional services firm EY listed the UK as the most fintech-friendly country, with the industry employing over 61,000 people and generating £6.6bn in revenues. For investors, the country provides a fertile ground for fintech entrepreneurs and start-ups. The UK fintech investment growth is driven by the availability of business capital, supportive regulations, tech talent, and position of London as a global trading base.

The availability of funds in the UK is good for fintech start-ups. According to a study by Let’s Talk Payments  over $5.5 billion of investments were made in the financial technology sector from July 2015 to January 2016. The UK leading fintech investors include Index Ventures, Seedcamp, Balderton Capital, The London Co-Investment Fund, Northzone, Octopus Ventures, Accel, and 83North, Draper Esprit, Anthemis Group, Passion Capital, Notion Capital and General Atlantic.

The fintech industry is served by many angel investors who have the required experience and skills to understand fintech business. Also, private equity investors are many, with more than 130 funds registered.

The UK has the best fintech policy environment in the world, with a very supportive regulatory regime. The Financial Conduct Authority (FCA) has reduced barriers to the entry of new fintech players, with UK-based start-ups benefiting from tax breaks and funding schemes designed to foster growth. For instance, R&D tax incentives are available to firms that employ few people.

Fintech accelerators, too, play an important role in shaping investment environment in the UK. There are many Fintech start-ups accelerators in the UK willing to give support in the form of affordable office spaces, starting capital and mentorship. These accelerators in the UK include Seedcamp accelerator, Barclays accelerator, and Fintech-Innovation-Lab accelerator, Techstars Accelerator, Level39, Tech City UK and Dot Forge Accelerator.


Why FinTech Startups Will Not Win If They Play Like The Banks (Fintech News), Rated: AAA

My recent experience with FinTech Startup Revolut has shown me that the banks can still sleep quietly for a while as Fintech Start-ups will in fact not be in measure to disrupt the industry if they don’t also change the rules of the game…

So what went wrong with my Revolut account… I used my multi-currency card abroad to pay for goods in Euro. I received a VAT refund in Euro that was to be re-credited to my Revolut account. But today, when I logged into my account, I noticed that the refund had been re-credited in Sterling, with someone taking a hefty spread in the process…

What clients of FinTech Start-ups want is a completely different approach that puts them at the center. They want services that are not only answering their needs, but that are also:

  • simple to use
  • fast
  • convenient

Banks on the other hand are struggling to make sense of big data. Because it lives on several databases and systems that are hardly integrated, because they did not think of asking clients the right to use this data twenty years ago when they signed them up, and because of plenty other valid reasons, mining through this data is a difficult, near impossible, task.

Clients are attracted to FinTech Start-ups because of the glitter this new lawyer of technology provides. They see the novelty in the approach and they believe something has changed…

Clients love the new simplicity – no more endless paper form to sign, all is done with a click on a fancy app interface and they even work with pictures of you, your ID card or proof of residence taken through your smartphone!

Clients love the increased speed – they can do it here and there, through the internet and 4G mobile connection, wherever they are, no more need to visit a branch in person.

Clients love the convenience – FinTech Start-ups provide the same services as traditional banks, often even better, and at a fraction of the price they normally pay their bank.

What should have happened instead at a Fintech Start-up?

First, the FinTech angle should have kicked in immediately:

The data analysis should have been instantaneous, with artificial intelligence reading the support chat channel and picking up that I was growing more and more upset by the interaction with the customer service representative.

Social Media listening should have also indicated real-time that I was starting to tweet about my problem and my frustration at the lack of understanding from the customer service representative, and that I was starting to drag influencers in the discussion.

Finally, the CRM system should have spitted out a customer profile showing that over the past 4 months:

I had increased my volume of transactions significantly (so I was on my way to become a “good” client) that all transactions I had done were in Euros and that there were no transaction in GBP (so there was possibly something abnormal with those two transactions in GBP).

So, in other words, the customer service representative should have assessed what was my issue with Revolut (i.e. refund process did not work properly), should have assessed the most practical and easiest way for Revolut to address my need (i.e. fix the refund by compensating the difference) and should have asked me how Revolut could still increase my client satisfaction (i.e. reinforce their client promise and turn me into a champion of their brand to drum up more business).

Client-centric champion Amazon would have paid back the 2.92 GBP in a split-second and would have probably issued a compensation voucher to make up for the bad customer experience. This would have reinforced my trust in their brand and would have led me to sing their praises on the social networks, bringing them additional clients attracted by this positive client experience sharing.

Race to Attract Fintech Talent Accelerates with Worldwide Regulatory Revamp (Crytocoins News), Rated: A

The British regulators, undoubtedly running while others seem to have just began walking, announced a raft of new measures to shake up banking based on recommendations by the Competition and Markets Authority. The most relevant for Fintech is an emphasis on Open Banking, giving access to traditional bank provided APIs and customer data so that they can provide direct services.

The CMA, however, fell short of what some had asked – the breaking up of giant banks as only a handful of them dominate the market, making banking an oligopoly or, even, a cartel which, at times, operates capriciously with little, if any, recourse as the closure of CoinJournal’s banking facilities illustrates.

The race has now been joined by the Swiss which announced a new proposal for light-touch fintech regulations. They are to create a “sandbox” for companies to experiment in a customized regulatory environment together with a fintech license, allowing new entrants to hold up to just above $100 million, making it easier to compete with traditional banks.

The race, however, is not limited to just the west. Abu Dhabi is also making its run with an announcement that they are to launch a Regulatory Laboratory through a new fintech legislative framework. Similar to a sandbox, it makes it easier to launch new innovative products and experiment with market reactions.

The United States is also on the move with the banking regulator appointing a senior lawyer to run a new “Office of Innovation” for Fintech. The primary task of the new center will be the designing of a fintech licensing framework to streamline regulation across the 52 states. Such discussions have now been ongoing for months, with the speed of movement probably decided by the outcome of the election.

The overall picture, therefore, seems to be one of a global understanding that finance is rapidly changing due to new technologies such as blockchains, smart contracts, APIs, and the internet.

How Fintech will revolutionise finance in the next decade (e27), Rated: A

Huy Nguyen Trieu is currently the CEO of The Disruptive Group, a business builder and advisory firm in finance. The firm aims to build and help the next generation of large-scale financial companies by combining a good understanding of financial services and technology disruption.

Prior to founding The Disruptive Group, Huy has navigated between startups and large organisations. He founded Ukibi — a precursor to Linkedin — in 1999. After five intense years, he joined international banks where he built high-growth businesses for over a decade, culminating in his last position as Managing Director at Citi.

Apart from writing his personal blog, Disruptive Finance, he is the Fintech Resident Expert at Oxford and a board member of Fintech Hong Kong.

1. Can you share with us your experiences and motivations behind launching The Disruptive Group?

The Disruptive Group was shaped by my experiences over the last eighteen years. I’ve worked in very large international banks but have also been very involved in the startup scene as a mentor, investor as well as a startup CEO.

3. You mentioned that you are a strong advocate for the potential of fintech. Could you elaborate further on your views?

In 1990, I co-founded Ukibi, which was essentially LinkedIn, but five years before LinkedIn. Despite having great investors, people and a superb product, it wasn’t enough to get significant traction. This experience taught me the importance of timing.

Over the last few years, I’ve applied this approach to finance and it is very clear that finance is being revolutionised because of technology. Although we are only at the beginning, there have been incredible results. For example, Zhong An sold online insurance to more than 300 million people in two years. Twenty per cent of the US adult population uses Credit Karma — a company that had no clients five years back.

In addition to innovative startups, we will start to see some real transformations in finance. The whole value chain will be transformed and there will be new entrants. At the same time, this will be a great way to bring finance to those who couldn’t access it — both in the West and in emerging markets.

Finally, we will start to see whole new services, which we never imagined. It will be much more than bringing new technology to old finance. It will be about creating new ways to manage finance – in exactly the same way that Facebook was not just a mere evolution of existing services.

4. Having been involved in fintech across Europe and Asia, how would you access the potential of fintech across these markets?

I would say that there is a more mature ecosystem in Europe today — especially London. That’s because it started earlier, but also because you have a very established financial capital in London that became a de facto Fintech capital for Europe. Hence, there are definitely a lot of projects, ideas, and emulation happening in Europe. However, the financial infrastructure is also very mature, meaning that startups have to compete with existing products coming from very large companies, which is not easy.

One of the main challenges in Asia would be the heterogeneity of the markets, especially from a regulatory standpoint. Today, in Europe and the USA, you could access a large market without having to be regulated on a case-by-case basis. In Asia, there isn’t a common regulatory framework yet. I think this would help a lot for the development of fintech.

5. Vietnam’s fintech industry is still in its early stages. How would you evaluate Vietnam’s fintech potential, and how does it compare to the international scene?

Despite being in its early stages, Vietnam has huge potential. Only a third of the population has a bank account, but on average, people have more than one mobile phone each! So there is definitely great opportunities to build fintech in Vietnam. There have been some very good traction in Vietnam. For example, we look at the case of  Timo and Momo. That should hopefully attract more and more entrepreneurs to that space.

The examples of London and Singapore show that there are a few keys to building a successful fintech momentum. This includes the ecosystem, talents, money, government and regulations.

Of course, not all countries are in the same position as the UK or Singapore, but a lot can be done to build a thriving ecosystem for new financial services. I don’t know enough about Vietnam to properly compare, but I am definitely looking forward to knowing more at Echelon.


Australian Government Eyeing Big Banks to Prevent Blockchain Monopolization (Crowdfund Insider), Rated: AAA

The Australian Competition and Consumer Commission (ACCC), an independent arm of the Australian government that aims to regulate competition in the market and uphold national consumer law, has been closely eyeing four big banks to prevent attempts of monopolizing the blockchain industry in fintech. The banks include the Commonwealth Bank of Australia, Westpac, National Australia Bank, and Australia and New Zealand Banking Group.

According to Reuters,  ACCC Chairman Rod Sims said the government regulatory body has not yet examined any cases of Australia’s “Big Four” banks purchasing smaller fintech companies or acquiring blockchain technology.  However, in the interest of fair marketplace competition, Sims alluded to the fact that any major proposed deals by the banks would face ACCC scrutiny.

Startup entrepreneurs, however, suggest that the ACCC’s attempts at regulation may harm rather than help small businesses.

Larger companies such as Apple, on the other hand, have leaned toward regulation of big banks in the blockchain industry, especially when they are attempting to enter a new market.

For now, the ACCC has yet to find the big banks in violation of laws protecting marketplace competition.  We will see how far the banks can push the boundaries.


Chinese peer-to-peer lender Lufax sees IPO helping local, overseas growth (Reuters), Rated: A

Lufax, China’s biggest peer-to-peer lending and wealth management platform, sees a potential listing helping to fund expansion at home and abroad, though it has set no specific timeline for a deal, Chief Executive Officer Gregory Gibb told Reuters in an interview on Monday.

Valued at $18.5 billion when it raised $1.2 billion from a group of investors in January, Lufax picked four banks to prepare a Hong Kong initial public offering that could raise $5 billion, sources said previously. Giant Chinese insurer Ping An Insurance (601318.SS) is its biggest investor.

China’s Online Insurer ZhongAn Launches Fintech Incubator (Insurance Journal), Rated: B

ZhongAn Online Property & Casualty Insurance Co. Ltd., China’s first online insurance company, has launched a fintech innovation company.

The company, called Called ZhongAn Information and Technology Services Co. Ltd. (also known as “ZhongAn Technology”), will explore innovation for its parent company, ZhongAn, and its external partners.

ZhongAn Technology will focus on innovation in four main areas: artificial intelligence, blockchain, cloud computing, and data driven.

Further, its services will be rolled out on a blockchain cloud platform.


Framework to be developed to boost ‘fintech’ services (The Japan News), Rated: AAA

Megabanks and regional banks have started creating a framework to safely provide their customers’ information to burgeoning start-up companies that offer new services called fintech, a combination of financing and information technology.

The framework aims to prevent personal information from being leaked and give a further sense of security to customers.

Banks, fintech companies, the Financial Services Agency and experts established a review panel earlier this month and will compile a report by the end of this fiscal year.

Although the FSA can request financial institutions, including banks that are subject to its supervision, to carefully manage the information they have, it only loosely regulates and supervises fintech companies at the moment.

Banks have asked fintech companies through contracts for thorough information management and sharing responsibility when personal information is leaked. They aim at easily cooperating with fintech companies by drawing up unified security standards industrywide.

Singapore fintech snags top Indian bank as client (AsiaOne), Rated: A

A HOMEGROWN fintech has snagged India’s largest bank has its client, using technology to create spending analyser tools for card customers at the State Bank of India (SBI). The move is a good sign that fintechs are moving beyond Singapore, noted the Monetary Authority of Singapore (MAS) in a statement issued by the fintech, Percipient.

Senjo Group Relocates to Fintech Hub Singapore (Crowdfund Insider), Rated: A

Privately held investment firm Senjo Group has relocated its corporate headquarters to Singapore in recognition of Singapore’s growing influence in the Fintech sector. Representatives said the business-friendly environment and focus on financial innovation was key in their decision to lease the entire 56th floor of One Raffles Place. Senjo was only recently set up in 2015. The company was launched to manage a portfolio of payments processing, cross-border remittance, foreign exchange, trade finance, e-commerce, mobile payments, commodity trading and factoring businesses.  Senjō also has regional offices in Japan, Indonesia, Malaysia, Myanmar, Thailand, Luxembourg and the UK, and operations in most major markets.

Korea Fintech Center Signs MOUs With 500 Startups & Silicon Valley Forum (Crowdfund Insider), Rated: B

The Korea Fintech Center has signed a memorandum of understanding (MOUs) with two Silicon Valley organizations, 500 Startups and Silicon Valley Forum.

500 Startups is described as a global venture capital company and startup accelerator. It has supported 1,700 startups in over 50 countries. Silicon Valley Forum has reportedly hosted over 150 conferences and demo days. It also has a global network of more than 20,000 in 40 countries. The new MOUs marked South Korea’s fifth accord with foreign countries in regards to fintech. Other MOUs were from Britain, Australia, France, and Singapore.

Singaporean Government & Banks to Award S$ 1.15 million to FinTech Companies (Crowdfund Insider), Rated: B

The Government of Singapore is inviting startups, tech companies, investors, and banks to its inaugural Singapore FinTech Festival between November 14-18. Events will include a Hackcelerator Demo Day, the FinTech Awards, and a speakers expo. Finalists competing in the FinTech Awards had been busy implementing their solutions to fintech company and financial institution obstacles by June to compete for one of ten awards, ranging from S$ 50,000 to S$ 250,000 for a total prize pool of SG $1.15 million. Nearly 40 startups and companies are finalists, including Citi and OCBC Bank.  The festival is expecting over 6,000 attendees.

Singapore’s FinTech Festival is another step in the country’s push to establish itself as Asia’s leader in fintech and a global hub for the industry.

Latin America

Uber Teams Up With Fintech Bank Bankaool to Launch Its First Debit Card in Latin America (Crowdfund Insider), Rated: AAA

On Friday, Uber and Mexican fintech bank Bankaool announced they have team up to launch Uber’s first ever debit card in Latin America. The online transportation network company revealed that the Uber Bankaool card has been available since October 21st and offers users who do not have a credit card an e-commerce new payment option.


Moscow Hosts Blockchain & Bitcoin Conference, Largest Russian State Bank to Participate (Coin Telegraph), Rated: A

On Nov. 10, representatives of IBM, Microsoft, QIWI and Sberbank will gather in Moscow to discuss challenges related to the digitizing of the FinTech sector and its transition to Blockchain.

Representatives of IT, financial system and entrepreneurship will learn more about operational Blockchain projects in Russia and abroad.

There are many reasons to attend the annual Blockchain & Bitcoin Conference Russia in 2016, including cases of implementing public and private Blockchains in banking, logistics, real estate and media, as well as issues connected with cryptocurrency regulation.


RBS to Host Fintech Hackathon at the Tel Aviv Stock Exchange (Finance Magnates), Rated: A

The Royal Bank of Scotland (RBS) in partnership with Google Cloud Platform and Intel are set to host a 48-hour Fintech Hackathon in Israel from November 15th to the 17th. The event will be taking place at the fintech accelerator dedicated to connecting Israeli startups with global financial markets – The Floor – located inside the Tel Aviv Stock Exchange building.

During the RBS Fintackathon, the bank’s team will set out various challenges and give entrepreneurs from Israel the opportunity to shape, design and build solutions for one of the UK’s largest financial institutions.

The RBS notes that people with ideas from all over fintech world are encouraged to participate.


George Popescu
Allen Taylor

August 1st 2016, Daily News Digest

August 1st 2016, Daily News Digest

News Comments Today’s big news is Lending Club’s 1st securitization. We have a long article from PeerIQ on the subject. Very interesting. To be noted that the analysis is made of bits and pieces, very few of which can be found in the public domain. We wish there was more transparency. In the international section […]

August 1st 2016, Daily News Digest

News Comments

  • Today’s big news is Lending Club’s 1st securitization. We have a long article from PeerIQ on the subject. Very interesting. To be noted that the analysis is made of bits and pieces, very few of which can be found in the public domain. We wish there was more transparency.
  • In the international section I recommend reading the article about Chinese private banks. A very interesting new trend I was not aware of and which could impact the Chinese economy significantly.

United States

United Kingdom


  • The rise of Mexican FinTech. I believe Mexican entrepreneurs are extremely inventive and the Mexican financial market is very different from the US. It is a very interesting market and US companies have no issues finding good talent to cover the Mexican market. I certainly understand why the Mexican fintech market is heating up. Worth a read.



United States

Lending Club’s first securitization, (PeerIQ), Rated: AAA

This week marks the first securitization of LendingClub near-prime loans. The deal is riding the wake of successful issuance and spread compression as evidenced from SoFi and Marlette. It also marks the appearance of a LendingClub branded shelf—LendingClub Issuance Trust (LCIT), suggesting a broader trend of tapping into the ABS markets and a pattern of repeat issuance among MPL originators.

LCIT 2016-NP1 was not rated (bucking a trend of 10 consecutive rated MPL deals), and thus, raises the diligence requirements for institutional investors. Here, we construct the foregoing analysis with publicly available data.

LCIT 2016-NP1 is sponsored by Jefferies and backed by about $135 million of LendingClub (LC) near-prime loans. Reports indicate that the average credit score of the collateral pool is about 640. The deal collateral has a weighted-average coupon of 28.5%.

The loans in LCIT 2016-NP1 are originated under the LendingClub Near Prime Custom Program. The Custom Program consists of loans that do not satisfy the Standard Program credit policy and are only available to qualified institutional investors. According to LC’s Q1 2016 SEC filing, the Custom Program represents 24% of total origination from LendingClub. The Near-Prime (NP) loans have lower average balance and shorter duration than loans in the Standard Program. We show in Exhibit 1 the differences amongst Super-Prime, Prime, and Near-Prime programs.
Exhibit 1 – Comparing LendingClub Super-Prime, Prime, and Near-Prime Loans
How does LCIT 2016-NP1 compare to other MPL ABS executed this year?  Neither SoFi nor Prosper deals are a good comparable to LCIT due to their higher average income and credit scores of the collateral pools.  Investors may be tempted to compare LCIT 2016-NP1 with OneMain deals (OMFIT) as LCIT 2016-NP1 has an average credit score of 640.  OneMain has securitized ~$7.3 billion of subprime unsecured consumer loans since 2014. OneMain Financial, affiliated with Springleaf Financial, has over 1,000 physical branches and lends to customers with credit scores between 600 to 650. OneMain is not a marketplace lender according to the definition in our Securitization Tracker.
Given the characteristics of LendingClub NP loans, we suggest that the collateral LCIT 2016-NP1 may be closer to AVNT 2016-B than other personal loan ABS deals. AVNT 2016-B is backed by loans with an average credit score of 660 and has 18.75%-21.00% base case cumulative loss assumption from by Kroll.
Structural Protection
In the case of LCIT 2016-NP1, the A-tranche has 35.5% credit enhancement, the B-tranche has a 23.0% hard OC (Exhibit 2). Moreover, given the short WAL of 0.75 years, the A-tranche holder should expect credit enhancement to improve significantly beyond 35.5% level a year from today. The accelerated deleveraging on A-tranche provides significant credit loss protection for the bondholder. B-tranche holder benefits from excess spread as well as over-collateralization.
Exhibit 2 compares the structure of various deals and it is easy to see the differences in LCIT 2016-NP1 as compared to OMFIT 2016-3.
Exhibit 2 Comparing Capital Structure
Favorable Pricing Indications
As of last Friday, pricing indication was favorable as compared to guidance. On July 27th, Bloomberg reported the initial pricing guidance for A-tranche at 4% and B-tranche at 7%.  By the 29th, the pricing indication was 25 basis points tighter for A-tranche and 50 basis points tighter for B-tranche (Exhibit 2).
The 6.5% coupon on the B-tranche is comparable to the loss-adjusted return of owning Standard Program whole loans. Furthermore, under Basel III risk-weighted asset requirements, unrated securitizations are subject to supervisory formula approach. Dealer financing desks may have difficulty in providing leverage to unrated tranches in LCIT 2016-NP1.
Collateral Performance
We attempt to analyze the prepayment and default speeds for the NP loans in the Custom Program.  Since data on the performance of Custom Program loans is not publicly available, we analyze the 36-month F-grade cohort of the Standard Program as a proxy. LendingClub’s Standard Program originates loans in grades ranging from “A” to “G” in order of increased credit risk.  Exhibit 3 shows that 36-month F-grade loans have lower average credit scores (680) and higher average loan coupons (24%).  The coupon rate on the F-grade loans is double the average LendingClub coupon rate.
Exhibit 3 – LendingClub F-Grade Loans in Standard Program
Exhibit 4 compares the 1-month Conditional Prepayment Rate (CPR) for LendingClub borrowers to the Standard Program across loan grades. Riskier credits run almost similar prepayments as compared to the average loan pool in the initial life of the loan. Rapid prepayments early in the pool will pay the A-tranche down very quickly, which has 0.75 year expected WAL. Prepayments reduce as F-grade loans season, and the CPR curve runs below that of A- and B- grade loans.
Exhibit 4 1-Month Conditional Prepayment Rate (CPR) of LendingClub Loans in Standard Program
In Exhibit 5 we show the 1-month Conditional Default Rate (CDR) for all LC borrowers, F-grade, and A- and B-grade loans in the Standard Program. The CDR of F-grade loans tends to ramp up quickly in the early part of loan life or Month-on-Balance (MOB) peaking at ~25%. Since the F-grade loan borrowers are paying an average interest rate of 24%, the weaker credits exit the pool through charge-off in the early part of loan life, leaving strong credit borrowers in the pool. The CDR fully ramps up around MOB 8 and levels off between MOB 9 to 22. In the last year of the loan life, the default rate decreases, reflecting credit burn-out behavior for the F-grade loan borrowers. We expect to see similar behavior in the LCIT 2016-NP1 pool.
Investors should expect a high default rate in early years of the deal. We expect the cumulative losses for 36-month LCIT 2016-NP1 loans will be approximately low to mid-twenties given the mild seasoning and shorter collateral WAL.
Exhibit 5 1-Month Conditional Default Rate (CDR) of LendingClub Loans in Standard Program
We note that the transparency we observe in the whole loan market disappears for private or Rule 144A securitization transactions. In analyzing LCIT 2016-NP1, we have relied on sparse information from news media and on our own expertise and analytics to interpret and synthesize the available information.  We believe that transparency reduces informational asymmetries, promotes price discovery, and improves liquidity.
PeerIQ, along with SFIG [Comment : And along with Lending Times], supports self-regulatory efforts to improve loan transparency and standardization on ABS deals in order to encourage the smooth functioning of the ABS markets.

Kroll Opts Out of Lending Club Gig, (Peer IQ Newsletter), Rated: AAA

Kroll has backed out of an assignement to rate a long-delayed securitization of Lending Club personal loans. While there is no official word on the reasons for Kroll’s withdrawal, one source said it might have wanted more credit enhancement than the issuer wa willing to supply. Bloomerg peggged the enhancement at 35.5%, ahtough it’s unclear what form the cushion takes.

In any case, the move created something of a buzz among industry professionals, who are used to seeing Kroll’s grades on such transactions.

The offering is tthe first from a shelf entity called Lending Club Issuance Trust. It’s unclear if Jefferies bought the underlying loans and is acting as the issuer, as would be typical for a marketplace-loan deal, or if Lending Club itself is pulling the collateral from its own portofolio.

Online Lending: High-Yield Investing for a Low-Yield World, (Orchard Platform), Rated: AAA

In the graphs below, we see the yield on U.S. treasury notes of various duration since 1990, as well as a close-up on yields since the beginning of 2016.  As we can see, we are in the midst of a prolonged low-rate environment, and the events of the past 2 weeks have caused yields to fall even lower.

Providers of online consumer loans, LendingClub and Prosper, rates range from a low of above 5% to a high of over 30%, rank-ordering by the risk of the borrower as measured by the originator-assigned credit ratings.

If loans perform as expected, there is ample spread between expected interest income and expected loss.

The Orchard US Consumer Online Lending Index measures the aggregate investor-experienced return of loans originated by major online lenders in the U.S.  The index aims to track the cash-on-cash returns that would be experienced by an investor buying a dollar-weighted slice of all outstanding loans.  As we can see in the graph below, the Orchard Index exhibits solid performance over a multi-year period.  Particularly when compared to traditionally-popular equity and fixed-income indexes, online consumer loans stand out for their ability to achieve solid returns with relatively low volatility.

Investments in online lenders fall 44 percent, (Daily Times), Rated: AAA

Equity investments into online lending companies is down about 44 percent, to $2.1 billion from $3.8 billion, for the first half of the year compared to the back half of last year, according to a report out Friday from PitchBook Data Inc, a venture capital database that tracks deals and valuations.

PE Firm’s Rules: Invest in Experience, Be Wary of Online Lenders, (American Banker), Rated: AAA

In evaluating investment opportunities in fintech, the private equity firm GTCR, where Roche is a managing director, has largely steered clear of marketplace lenders because most, he said, have yet to prove themselves.

The firm is also a big believer in experience, so GTCR will only invest in companies that have competent management with proven track records. For instance, last month GTCR announced it was pairing with Scott Happ, a veteran in the mortgage technology industry, to buy Optimal Blue Holdings, a cloud-based product and pricing engine provider that processes nearly a quarter of the mortgages originated in the U.S.

There are vertical opportunities in banking, insurance or what we are doing in the mortgage industry with Optimal Blue. But there are also a lot of horizontal opportunities. Compliance is a big area of focus. People tend to think of compliance as a regulatory issue, but it is so much broader.

We’re a bit skeptical about marketplace lending. Every once in a while there is some hubris out of Silicon Valley that this new thing will change the world and then it blows up. Some of it survives, but there is going to be an adjustment. We are more inclined to wait and see how far it falls and then look to invest once the business models prove themselves, have more discipline and rigor and are more time-tested.

4 charts that show how banking customers are changing, (Tradestreaming), Rated: AAA

Kabbage’s New Mobile App Reinforces Transition From Fintech To ‘Techfin’, (Forbes), Rated: A

Kabbage had an app for portions of lending management before, this is the first time they have enabled the entire process from application through qualification and funding in the app. And, Frohwein claims the entire process can lead to funding in just minutes.

When asked how this app is different from other online lending companies like OnDeck Capital and LendingTree, he points out that only Kabbage handles everything—including origination and underwriting or approvals—in an automated fashion. Kabbage competitors have a human intervene at some stage in the approval…and that’s where the waiting comes in. This is where the promise of speed pays off for Kabbage and entrepreneurs.

United Kingdom

 Wealthy investors to reduce UK exposure following Brexit vote, (Press Release), Rated: A

69 per cent of high net worth individuals are now looking to ‘rebalance and diversify’ their investment portfolios in order to reduce their exposure to UK-based assets in the wake of the Brexit vote, a global poll reveals.

770 people with investable assets of 1.3m USD or more from countries including the U.S., the UK, Australia, the United Arab Emirates, Qatar, Hong Kong, South Africa and Switzerland were surveyed in July 2016.

New platform offers repayment “guarantee”, (Alt Fi News), Rated: AAA

Orchard Lending Club (OLC) has been spun out of the AIM-listed Orchard Funding Group PLC, which has a market cap of £22.74m. The relationship between the two entities is instrumental to the P2P offering. The parent company will act to “guarantee” the repayment of investor capital, even in the instance of borrower default. OLC sees this as a key selling point for the platform, stating that “no other peer-to-peer lender in the world offers a similar guarantee”.

A company spokesperson tells AltFi that every defaulted loan will be bought back at par, meaning that investors will not lose principal, although they may miss out on interest payments.

OLC says that it specialises in “heavily-regulated” industries that are historically “unlikely” to default.

Ravi Takhar (pictured above), CEO of Orchard Funding plc, offered his take: “Professional practice and schools financing is a historically safe lending market. In the last 16 years, our group has lent over £600 million to professional practices, schools and their clients and has had zero defaults. We are hoping that this, coupled with the potential returns and ease of access will make this an attractive prospect for investors.”

Investors in the platform are able to choose between receiving interest in monthly instalments or on maturity. The minimum investment amount is £100, with terms of 1-5 years available. Interest rates vary by term, from 4% over 12 months to 7.08% over 5 years. OLC will spread investor funds across the entire loan book, meaning that investors are not required to pick and choose between loans.


The rise and rise of Mexican fintech, (Tech Crunch), Rated: A

Since the start of the Mexican tech wave in 2012, a new breed of experienced, tech-savvy and take-no-prisoners founders have emerged and are changing the face of the entrepreneurial ecosystem.

Fintech, in particular, has attracted some of the best; from entrepreneurs with experience in Silicon Valley tech companies such as Adolfo Babatz (PayClip) from PayPal or Adalberto Flores (Kueski) from Ooyala, to others bringing in relevant sector expertise like quant jockDavid Arana (Konfio), P2P pioneer Gerardo Obregon (Prestadero), legal juggernaut Marc Segura (Play Business) and adtech star Pablo Hernandez O’Hagan (Pago Facil), to the ones who have started or scaled financial services businesses, such as hedge fund intrapreneur Fernando Ramos (Briq), and microfinance entrepreneurs Fernando de Obeso (Salud Fácil) and Vicente Fenoll (Kubo) and pawn shop impresario Luis Creel (Cohete).

To complement homegrown talent, Mexico is lucky to welcome entrepreneurs like former AMEX executive Alejandro Constantino (Afluenta) from Argentina, former PlaNet Finance COO Christian Sinobas (KiWi) from Switzerland, serial tech entrepreneurs Ruben Sanchez Souza (Visor) from Brazil and Fernando Cabello from Spain (Aplazame) and former financial sector regulator Daniel Rojas (Rocket) from Colombia.

Mexico represents one of the largest consumer markets in the world, with an emerging middle-class paired with a growing service and manufacturing economy. Against this backdrop, the financial services industry is full of contrasts: Large, nimble banks and financial institutions thrive in a country with abysmal credit penetration, low financial inclusion and scary fraud levels.

Any fintech development relies on a network of pipes, connectors, valves and adapters for data and money to move through an economy. Mexican government, banks and financial companies have been investing in technology and infrastructure since the 1990s. Companies such as BBVA, Citibank, BlackRock, American Express, VISA and Western Union have dynamic Mexican divisions with broad coverage. Today, more than half of internet users bank online and microcredit institutions have fostered a better environment for financial inclusion by creating a culture of credit in micro-business owners.

Despite all the progress in the Mexican entrepreneurial ecosystem, angel investing is still badly lacking. However, a rare bright spot is in the financial services sectors. For example, angel investors have carried most of the financial burden for launching Resuelve tu Deuda,KiWi, Prestadero, Cohete and OpenPay. Indeed, seasoned former and current financiers are participating as angel investors, including Augusto Alvarez, Fernando Padilla, Jorge Ortiz, Fernando Lelo de Larrea and Javier Creel.

But not everything in the garden is rosy. Mexico’s financial regulation was not designed for fast-paced innovation. Despite all the goodwill shown by the government, the money is still not in the bank when it comes to regulation.


Aspiring private banks have focus on fintech, (China Daily), Rated: AAA

China will soon kick off the second round of awarding licenses for private banks. Five privatebanks had opened for business in 2015.

Regulators have completed their feasibility study for setting up a private bank in Fujian, aprovince on the southeast coast of China, according to the China Banking RegulatoryCommission’s Fujian Office.

With a registered capital of 3 billion yuan ($450 million), the bank will position itself as a financialtechnology company and seek to build the core business framework around financial technology,innovative payment solutions and supply chain finance.

Twelve private banks are half way through the process of obtaining the necessary approvals. Theregulator’s decision is awaited.

Xiao Ying, deputy director-general of the CBRC’s Beijing Office, said in June, “Regulators aresteadily pushing forward … a private bank in Zhongguancun, a technology hub in Beijing. Morethan 10 private companies have been initially confirmed as sponsors of the bank.”

Ant’s Alipay challenges China Unionpay’s dominance, (Financial Times), Rated: A

Alipay, the online payments unit of Ant Financial, bypasses Unionpay’s network when processing mobile payments to offline merchants like supermarkets, restaurants, and taxis, Eric Jing told the Financial Times in an interview. That means Alipay is effectively diverting billions in fees away from Unionpay, which processes debit and credit card payments.

Merchant fees in China range from 1.5 per cent to 2.5 per cent, compared with between 2.5 per cent and 3.5 per cent in the US, according to Mr Jing.

“We think merchant fees in the US payments market are too high, and it’s not normal. Running a business isn’t easy [for merchants]. The fees are too high,” said Mr Jing. “The situation in the Chinese market is more normal. Merchant fees are reasonable. Competition between different [payment] market actors is a good thing. It allows service recipients to enjoy better service.

Foreign payment processors like Visa and MasterCard have struggled to gain a foothold in China due to the dominance of Unionpay.

But Alipay, which was spun off from online retailer Alibaba Group in a controversial transaction in 2011, now has powerful backers of its own. In April, Ant Financial raised $4.5bn from an investor group including sovereign-wealth fund China Investment Corp, the national social security fund, and China Construction Bank, the country’s second-largest lender.


George Popescu

July 25th 2016, Daily News Digest

News Comments United States A good summary by PeerIQ of the latest securitizations of SoFi and Marlette with good comparisons to previous securitizations done by the same firms and other firms. Article describing as has been the trend lately, how a German fintech bank partners with Telefonica which has more accounts than CommerzBank and Postbank, […]

News Comments

United States

United Kingdom







News Summary


United States

Weekly securitization update (PeerIQ), Rated: AAA

Last week saw a substantial uptick in issuance news in MPL ABS securitization space. Four deals, totaling more than $1 billion of bonds, were either priced or announced last week.
SoFi and Marlette priced a student and consumer loan deal respectively. Both deals executed at meaningfully tighter levels.
SoFi strengthens its lead as the largest MPL ABS issuer by volume and is enjoying a virtuous cycle of lower funding costs, improved liquidity, and expansion of the ABS base. At the current pace, PeerIQ predicts SoFi may issue 8 to 10 deals this year and is on pace to be one of the largest issuers globally in certain markets.
   sofi securitization comparison
sofi securitization details and comparison
Marlette is a balance sheet lender that originates unsecured consumer loans via the Marlette BestEgg Platform. Loans issued through the Marlette platform are originated by Cross River Bank (CRB). CRB and Marlette retain a share of loans issued through their online platform addressing potential “skin in the game” and true lender concerns.
 marlette securitization comparison
marlette securitization details and comparison
MFT 2016-1 is the second deal from Marlette this year and is backed by a $205 million loan pool. The pricing of MFT 2016-1 is about 200 basis points tighter across capital structure as compared to CHAI 2016-MF1 (Chart 1).
The consequence of better execution on IRR for equity tranche holders is significant. We find that the excess spread on MFT 2016-1 increases IRR by a whopping ~20% as compared to CHAI 2016-MF1.
Market Outlook
In our view, ABS issuance growth trends remain robust this quarter. We predict Q3 will lead to record issuance exceeding historical quarterly deal volumes including prior quarter ($1.7 billion), and last year’s quarter Q3 ($1.1 billion).
Dynamics remain favorable–a global low yield environment, the short duration of MPL ABS assets, and improved IRRs for junior tranche holders–will lead to growth in MPL ABS securitization as we have suggested in our 2Q 2016 Securitization Tracker.
Platforms that generate strong credit performance, build investor trust, and can improve the distribution of their products (via ABS or otherwise) are well positioned to grow.

Counting Down to the Bank of Facebook, (Bloomberg), Rated: AAA

The latest move in upstart finance will soon arrive in Germany, where a new mobile banking service from phone carrier Telefonica will offer checking accounts, a free MasterCard and small instant loans. Telefonica’s partnering with digital bank Fidor, effectively using its license as a springboard for financial services.

It’s a deal that makes sense on both sides. Telefonica wants to assure customer loyalty while maybe gaining a bit of revenue. Fidor needs scale: its customer base of around 100,000 in Germany is hardly the stuff of nightmares for, say, Commerzbank and its 16 million individual customers. But Telefonica’s 43 million customers is a different ballgame.

fidora n26 customers source Bloomberg

That’s not to say it’s a recipe for success — telecoms’ past forays into finance have been mixed. Vodafone’s early experiments with mobile payments in Africa were a big success. U.S. carrier T-Mobile started offering pre-paid debit cards and money transfers to customers in 2014, and ended the service this month because it faced too many competitors.

Tech Threat
A survey of bankers shows non-banks are seen as the biggest threat, ahead of start-ups or incumbents

tech threat sources

For now, the tech giants have barely scratched the surface. Apple and Google have mobile payment tools, Facebook users can send money to friends through Messenger and Amazon is pitching student loans in partnership with Wells Fargo, but they’re not exactly setting the financial world on fire. Their Asian cousins are more advanced: WeChat and Tencent can now be used to pay for everything from rent to a taxi, and Alibaba runs mutual funds.

They’re set to be the main competitors for the payments business in Europe, according to 96 percent of respondents to a Finextra/FIS survey of finance companies last year.

This doesn’t have to be just a nightmare for incumbents. It could be an opportunity. European banks could lift pre-tax profits by 40 percent in five years if they find the right way to limit the impact of disintermediation and capitalize on new tech, according to BCG Partners.

With more ventures like Telefonica’s on the way, expect the pressure to rise.

Marketplace Lending Is ‘Likely Here To Stay,’ But Needs Clearer Regulation, (S&P Global), Rated: A

Edith Ramirez, chairwoman of the Federal Trade Commission, acknowledged the significant growth of the marketplace lending industry during a June 9 forum hosted by the FTC, the first in a series of events focused on fintech. She mentioned the “rocky spring” for marketplace lending and noted reports that show flagging investor interest in the space. Still, Ramirez said that the potential benefits of the services provided by this new breed of financial institution mean that marketplace lending is “likely here to stay.”

“It’s not a good idea to look at the bank model and just port that over and drop it on,” Knight added. “They are different models and they generate different risks and the regulation should reflect that.”

Conor French pointed out that the regulatory environment in the U.K. is easier to navigate for online lenders who are overseen directly by the country’s Financial Conduct Authority.

Lauren Saunders, associate director at the National Consumer Law Center, pointed to the need to “flush out the bad actors” from the marketplace lending industry.

French of Funding Circle pointed out that the traditional lending choices in the financial services industry are not working. They are leaving many consumers “underserved and underbanked,” he said.

Jessica Rich, director of the Bureau of Consumer Protection at the FTC, said that it is “encouraging to learn that marketplace lenders are taking proactive steps to self-regulate.” Still, she pointed out that self-regulation is “not enough.”

Lending Club’s Savior Is Patrick Dunne, (Seeking Alpha), Rated:A

Lending Club hired Patrick Dunne as its Chief Capital Officer.

Patrick Dunne brings a global network of contacts to Lending Club and has experience in dealing with failed products.

Patrick led the growth of BlackRock’s iShares business, whose products often got shut down.

Patrick has worked as a strategist, whose job is to convince clients that a certain trade is attractive.

Adventurous investors may want to pick up shares on the revival of Lending Club’s growth.

SoFi Consumer Loan Program 2016-2 LLC (“SCLP 2016-2”) ( Press Release Kroll Bond Rating Agency), Rated: A

This is a $480.55 million consumer loan ABS transaction that is expected to close on August 1, 2016.

This transaction represents SoFi Lending Corp.’s (“SoFi”) second rated securitization collateralized by a portfolio of unsecured consumer loans. SoFi currently originates personal loans through its 21 state licenses or complies with certain requirements where a state lending license is not required. There was one prior unrated securitization, in which SoFi or SoFi’s institutional investors were the sponsors and the collateral was unsecured consumer loans.

Please click on the link below to access the full report: SCLP 2016-2

Collaborators Outnumber Would-Be Disruptors at Fintech Demo Event, (American Banker), Rated: A

“Fintech is destroying legacy systems and legacy attitudes,” declared Jesse Podell, the emcee and managing director of startupbootcamp FinTech New York, bounding on and off the stage in high spirits.

Five of the 10 graduates from the startupbootcamp accelerator program pitched technology designed to be used by traditional banks.

AlphaPack‘s product, Sandbox, gives banks a safe place to try out new technologies from fintech partners.

Fluent, a startup that began in Kentucky and is migrating east, has a blockchain-based platform for the $6 trillion trade finance space.

RepreZen set out to solve a longstanding problem for banks: data integration.

VendorMach provides what it calls an “early warning system” for vendor risk management. The software is designed to monitor banks’ vendors for signs of liquidity risk, data breaches and other potential issues.

Visualize Wealth has created white-label software for banks to embed in their mobile apps, to give their customers a view of their investments and an objective sense of how those investments are performing.

The Disruptors

CFX has built an online trading platform for private real estate investment trusts, a market the startup pegs at $84 billion, with 1.2 million retail shareholders.

Factury has a blockchain-based lending platform. “The lending industry is filled with fraud and inefficiency at every level,” said Arturs Ivanovs, Factury’s chief marketing officer. “It’s mostly driven by paper-based processes and human labor. Only 7% of this industry is digitized.” Distributed ledger technology will be the fundamental infrastructure for the lending industry, he said.

Consumer-Facing Plays

Seal has built mobile payments into its app providing professional agreements.

token says it’s working to make credit card fraud a thing of the past. “Our credit cards get stolen every day when we shop online,” said Yana Zaidiner, token’s chief operating officer. The firm’s mobile app lets people use a pseudo credit card and payment identity while keeping their real payment information hidden, similar to another startup called made a pitch that’s even more meta and of-the-moment than AlphaBox’s: a mobile app for investing in blockchain assets.

United Kingdom

Growth in UK marketplace lending stagnates, (Financial News), Rated: AAA

Alternative finance data provider AltFi Data estimates that UK P2P platforms will have originated between £260 million and £290 million in loans July, in line with the amount lent monthly since April.

Origination had grown rapidly up to March, when lending spiked to reach £345 million.

He said: “It’s too early to tell what the impact of Brexit has been on origination volumes in the marketplace lending industry. We do know that volume growth has been tepid for the last nine months – long before Brexit was dominating the headlines. Brexit, however, may be added to the potential headwinds facing the industry.” According to AltFi Data, the sector has been experiencing a decline in its monthly net lending growth, which measures the change in outstanding principal. Net lending at the UK’s top four platforms was £44 million in June, down 37% from the previous month.

Rhydian Lewis, the chief executive and co-founder at RateSetter, said: “In recent months there’s been a levelling-off in general borrower demand as people defer large purchases, perhaps reflecting economic uncertainty. A more longstanding thing in our sector specifically is that platforms’ focus has been on sustainability rather than growth, with, for example, the involved process of gaining full regulatory authorisation.”

Landbay: From Prelaunch to Established Platform, How Crowdfunding Fueled Business Growth, (Crowdfund Insider), Rated: AAA

John Goodall and Gray Stern launched their company, Landbay, with the help of Seedrs.  Before their website was even live, Goodall and Stern were raising seed capital on the crowdfunding platform for their vision of mortgage finance.  Their first funding round was for only £50,000 in SEIS eligible seed funding. The round closed in December of 2013 at £71,590 with a pre-money valuation of £616,667.

Jump forward three years and several crowdfunding rounds later, and Landbay, a peer to peer lending platform for secured property loans, has now financed over £42 million for hundreds of mortgages. Landbay has joined the highly respected UK P2PFA, received an investment from Zoopla and reported a  £250 million wholesale funding line provided by a European asset management firm and a major bank. Landbay is now moving forward with a strategy of balancing retail investors and institutional money and ultimately securitization. These are a step stones to furthering growth as Landbay has captured traction as a niche player in the vibrant peer to peer lending market in the UK.

We chose crowdfunding as we have found it to be an effective marketing channel to increase brand awareness and to build a network of users from day one, whilst of course raising capital!

Things are going really well at Landbay. It’s now been two years since our first loan completed, and we’ve lent a total of £42.78 million – in fact, we were 2015’s fastest growing peer-to-peer lending platform in the UK.

This startup helps people get student loans funded by grads of Harvard, Cambridge, and other top unis, (Business Insider), Rated: A

Prodigy Finance has so far lent $200 million (£152.7 million) over its platform since launch in 2008, but CEO and cofounder Cameron Stevens believes loans will total $500 million by the end of the year thanks to several big institutional clients who are set to partner with the platform.

Stevens says: “If you’re coming from India and you’ve been accepted to Harvard or London Business School or wherever it may be — all of the domestic students can access finance but if you’re coming and you’re crossing a border, none of your credit history is following you and you’re excluded from all of that.

Prodigy Finance has so far provided student loans to 4,500 people, with an average loan size of $40,000. Most of the funding goes towards post-graduate students who are looking to do an MBA or similar. Stevens says it has a 99% repayment rate on its loans.

Lending Club Scandal Provokes Major UK ‘Peer-To-Peer’ Investigation,(Forbes), Rated: A

Comment: This article brings no new point of view or additional information but summarises well the last few weeks of press in the UK on p2p.

Campaign for Fair Finance (CFF) founder Dr Roger Gewolb has welcomed the intervention of the UK Financial Conduct Authority’s (FCA) new chief executive Andrew Bailey as an investigation gets underway into peer-to-peer (P2P) lending, a relatively new internet-based way of obtaining a loan. It comes amid concerns in the US and UK about how safe the sector is and protections afforded to consumers.

The P2P lending market in the UK grew to over £2.3bn in 2015 from £1.2bn of new lending in 2014 according to data sourced directly from P2P platform loan books and proprietary BondMason research. It has been predicted that while the rate of growth will slow, a further £1bn to £1.5bn will be added in 2016.

“We want crowdfunding and peer-to-peer lending to succeed,” states Gewolb, a British American financier and consumer protection advocate. “We need an alternative to the tired old banks, but they need better oversight without regulating or legislating them out of business.”

Turning to Andrew Bailey’s first grilling before the Treasury Select Committee earlier this week on Wednesday 20 July, the new CEO of the FCA, a main UK financial regulatory body that operates independently of the government, said that he was actually concerned about the way peer-to-peer lending is sold to consumers. And, he believes lenders get very close to promising investors they will get their money back, plus the interest they have been promised.

However, this cannot in fact always be guaranteed in all instances as P2P lenders are not protected by the UK’s government-backed Financial Services Compensation Scheme (FSCS). Any funds lent through a P2P website are not covered by the FSCS, which by contrasts with safeguards traditional bank savers have for up to £75,000 (c.$100,000).

Mr Bailey also even warned that he felt there were similarities in the way UK’s P2P lenders operate to those of Northern Rock, a British savings bank that crashed mightily and had to be bailed out by taxpayers’ money during the financial crash of 2008. One wonders if it could all happen again.

Recently, other questions have been raised about how safe P2P lending actually is. Highlighting matters, Funding Knight, a UK P2P website platform that promised investors returns as high as 12% for lending money to small businesses, was rescued by investment firm GLI Finance earlier this July after falling into administration (a British form of ‘Chapter 11’). Hundreds of people had feared that they would lose all of their money when the company simply ran out of cash.

Gewolb stresses vigorously too that: “The P2P platforms are clearly competing for bank deposits from the public, and yet they are running without anything near the strict supervision, transparency, independent oversight and protection that banks in the UK are subjected to as a matter of course.” “As things stand, the P2P loans market is relatively untried, untested and not vigorously regulated. Who is looking out for the consumer if it all goes wrong?,” asks Gewolb. He has a point.

“We are here to help,” explains Gewolb. “Whilst we want the industry to survive and thrive, we fear that to date there is not the requisite amount of transparency and independent oversight needed.”

“At the same time we are concerned that there could be over reaction by the regulators and the industry could be regulated out of sight,” argues the campaigner. As the Chinese proverb goes ‘Be careful what you wish for – You just might get it’.


Regulatory Development of Peer-to-Peer Lending in Taiwan, (p2p Banking), Rated: A

Comment: the language in the article seems translated from Chinese. 

In order to encourage and accelerate the development of fintech industry in Taiwan, the financial authority, Financial Supervisory Commission (FSC) of Taiwan, has published Fintech Development Strategy White Paper on May 2016[i]. One of main goals is evaluating the possibility of introducing the mechanism of P2P lending into Taiwan’s capital market and providing a regime for regulating this industry.

Some business models of P2P lending are forbidden due to conflict with The Banking Act[ii] in Taiwan. Recently, it is considered to be introduced in Taiwan and evaluated by the recently established project team of the financial authority in Taiwan, Financial Supervisory Commission (FSC)[iii]. Despite the fact that the attitude toward P2P lending industry of financial authority in Taiwan is still vague, as of July 2016 there are three P2P lending platforms already providing their services in Taiwan, including Lend & Borrow[iv], Wow88[v], XiangMinDai[vi]. They have tried to design their business model to avoid potential legal risks. For better understanding of the P2P lending industry, this article tries to provide a brief regulatory overview of Taiwan in following part.

Currently, there is no any specific regulation toward this industry in Taiwan. Although there is no financial regulation of P2P lending in Taiwan, Banking Bureau of FSC has issued a statement[ix] on April 14, 2016, pointing out some legal compliance issues for P2P lending platforms, including (1) platforms should not involve in issuing any securities, (2) ensure privacy of customers, (3) activities of deposit and store-value business without licenses are forbidden, (4) illegal ways of debt-collection is forbidden.


Online Lending Takes Root in Korea, Spurring Rush for Regulation, (Bloomberg), Rated: AAA

South Korean investors beset by Asia’s third-lowest benchmark yields are embracing peer-to-peer loans that offer average rates of about 9 percent and not a lot of information about where the money winds up.

The nascent online P2P lending market more than doubled to 72.4 billion won ($63.7 million) in the first three months of 2016, Korea’s Financial Services Commission reported on July 12. Cumulatively, P2P loans made since 8Percent became the first platform in December 2014 totaled 153 billion won as of June, the Korea P2P Finance Association of 22 companies estimates.

The expansion is being stoked by South Koreans’ desperation for returns, with the yield for 10-year government bonds slumping to 1.42 percent last week. That’s lower than every Asian nation apart from Taiwan and Japan. The rapid growth has added to urgency for Korea’s government to protect investors from potential fraud, and the Financial Services Commission held a meeting Friday to start drafting industry guidelines. China cracked down last year after a site called ­Ezubao was alleged to have cheated 900,000 investors.

“You must watch out because many P2P businesses don’t clearly disclose where the investment money goes,” said Park Tae-woo, a credit analyst at Samsung Securities.

P2P lenders such as 8Percent, Funda and Midrate directly match lenders with individuals or businesses in need of money. The industry generally offers average rates of about 9 percent to 10 percent, according to the firm 8Percent. The Bank of Korea on July 14 held its benchmark interest rate at a record low 1.25 percent.


Singapore: Crowdo gets MAS licence for P2P lending, equity crowdfunding, (Deal Street Asia) ,Rated: A

Singapore-based crowdfunding platform Crowdo has received its full Capital Market Services (CMS) licence from the Monetary Authority of Singapore (MAS) for securities crowdfunding (SCF) to deliver both peer-to-peer (P2P lending) and equity crowdfunding.

The Securities Commission Malaysia is currently in the midst of operationalising P2P financing for small and medium businesses by 2017. It has called for submissions from those interested in launching P2P financing platforms and had reportedly received about 100 submissions.

Crowdo’s platforms in Malaysia and Indonesia were started just a few months of each other. Since then, the ECF platform in Malaysia has gone on to help facilitate both the largest ECF offer in the region and the first ECF offer lead by a venture capital firm Gobi Partners. On the Indonesian lending platform, it has processed more than 600 loans with zero defaults.

“The license granted to us by MAS effectively makes us the first and only operator in Southeast Asia that can undertake P2P lending under a full license. We are here to stay and to play our part in making Singapore a truly exciting global fintech hub,” it said.


Should you look at alternative loans?, (LiveMint), Rated: A

There is a high rate of technology adoption in the SME segment and most of the applications get completed online, he said. Capital Float lends Rs.50,000 to Rs.1 crore, for tenors of 60 days to 4 years, with interest rates in the range of 16-19% per annum, Rishyasringa added.



The regulated evolution of P2P lending in China, (Fintech Innovation), Rated: AAA

The latest regional report on Alternative Financing published by the University of Cambridge, Tsinghua University and University of Sydney in partnership with KPMG titled “Harnessing Potential: The Asia Pacific Alternative Financing Benchmarketing Report” positions China as the world’s largest alternative finance market with transaction volume in excess of US$101.7 billion in 2015 – almost 99% of the total volume of Asia Pacific.

The online alternative finance market in China grew from US$5.56 billion in 2013 to reach US$101.7 billion in 2015 averaging 328% growth rate over two years. Peer-to-peer lending, both consumer and business together, account for about 91% of all alternative financing in the mainland.


Peer-to-peer (P2P) lending remains the popular option for consumers and small and medium-sized businesses (SMBs) in China that otherwise would have difficulty getting funding from banks. The lack of regular oversight during the early days of P2P lending in China has led to a mushrooming of online lending platforms with some estimates of as many as 2,595 P2P platforms in 2015. The closure of over 896 such platforms in 2015, in addition to high profile scandals such as the eZubao Ponzi scheme, has prompted the China Banking Regulatory Commission (CBRC) to released new rules.


China’s CreditEase to Raise $ 200 Million for Private Equity Fund, (Bloomberg Tech), Rated: AAA

CreditEase Group, which runs a wealth manager and peer-to-peer lender Yirendai Ltd., is seeking to raise $200 million for a global private equity fund as Chinese individuals step up investing abroad.

The fund, which CreditEase started in May, invests in companies directly as well as private equity funds. Representatives from KKR and Blackstone declined to comment.

A separate $80 million pool has invested $50 million in consumer loans from U.S. Internet lenders Prosper Marketplace Inc. and Avant Inc., according to Williamson. The firm has also set up funds focusing on areas such as financial technology and real estate both overseas and in China.

CreditEase distributes products through its 3,200 wealth advisers from about 150 offices in China. The wealth business had more than $6 billion of assets under management at the end of last year. The firm is the majority shareholder of Yirendai, the first Chinese online-loan platform to obtain an overseas listing. Shares of Yirendai have more than doubled in New York trading this year.

Default Pain Turns Into Gain for China’s Debt Rating Companies, (Bloomberg), Rated: AAA

China Bond Rating Co. started selling “The Riskiest Chinese Bond Issuer List” this year and has offered more training sessions to financial institutions than in the whole of 2015. Golden Credit Rating International Co. said it had set up a new department to address investors’ inquiries and provide seminars. S&P Global Ratings and Moody’s Investors Service also reported a spike in interest from fund managers.

Chinese regulators have stepped up controls on rating firms after investors expressed dissatisfaction. The China Securities Regulatory Commission said in March it had issued warning letters to six of them on violations.

Dagong Global Credit Rating Co., Shanghai Brilliance Credit Rating & Investors Service Co., China Chengxin International Credit Rating Co. and China Lianhe Credit Rating Co. cut a record 88 bond issuer ratings in the first half of this year, compared with 57 downgrades in the same period of 2015, according to data compiled by Bloomberg. Corporate bond defaults dropped to zero in July, from one in June and five in May, amid signs that local governments are helping companies in financial trouble.

china downgrades vs upgrades chart

China Bond Rating’s Yang said there has been an “obvious” increase in foreign investor subscriptions to the firm’s list of the riskiest bonds. It provides risk appraisal on debt portfolios for investment firms, and started issuing a daily report evaluating newly sold notes from February. The firm has trained almost 1,000 people nationwide on credit risk management through 10 workshops it has held this year, up from 7 in 2015.

“The surging defaults are giving space for rating agencies to develop risk management businesses,” said Fullgoal’s Ye. “But Chinese regulators should make sure there are firewalls between a ranking company’s rating and investment advisory services.”

Luo Guang, chairman of Golden Credit, sees more defaults in the second half than the first.

China has a boom in ‘get rich quick’ schemes, instead of the economic reform it needs, (South China Morning Post), Rated: A

The Chinese government has been promoting the slogan “All People Innovate, Tens of Thousands Start Business”.  This movement is becoming a bubble with tragic consequences down the road. Starting a business is hard. Innovation is harder.

The start-up mania won’t solve China’s economic difficulties. The economy has been in the doldrums for four years because the government is not addressing the structural problems. The truth is that the investment and export-led model has run into a brick wall; the world is just not big enough for China to develop like Japan or the Asian tigers.

China’s needed reforms are not coming because they conflict with the political doctrine of concentrating economic power in the state sector. Hence one bubble after another has been stoked in the hope that a miracle would happen to the economy without the need to shrink the government.

P2P is the latest, but by no means the biggest, example of the true nature of China’s bubbles. They are about robbing the masses to enrich the few, all in the name of innovation or boosting the economy.

“Get rich quick” is the reigning ideology today, especially for the young. Nothing fits the description better than the internet bubble.

China should stop chasing pipe dreams and get back to basics. Its economy has great potential. Its per capita income could be doubled just by carrying out proper reforms: first, household disposable income should be lifted from 40 to 60 per cent of GDP; second, investment should decrease to 30 per cent from half of the economy; and third, the market, not the National Development and Reform Commission, should decide where and how much to invest.

The hard part is that all these necessary reforms depend on shrinking the state sector and limiting government power. China’s future depends on it.


George Popescu
George Popescu

July 19th 2016, Daily News Digest

July 19th 2016, Daily News Digest

News Comments Dear readers, today I was traveling all day for my other company Lampix ( . Unless I am traveling, I aim to send the daily Lending Times at 1pm EST. I was able to do so reliably for sometimes and will continue to aim towards 1pm EST daily. United States Lending Club’s CEO, Scott […]

July 19th 2016, Daily News Digest

News Comments

  • Dear readers, today I was traveling all day for my other company Lampix ( . Unless I am traveling, I aim to send the daily Lending Times at 1pm EST. I was able to do so reliably for sometimes and will continue to aim towards 1pm EST daily.

United States

United Kingdom

  • A very long and complete article on the FCA, crowdfunding, and p2p lending. This article comes in the recent context of the FCA conducting a new review of the space. A learned a lot from this article.
  • Crowd2Fund launches their own auto-investing tool. A must have for all p2p companies to make sure their lenders deploy capital easily, fast, often, and that they are diversified enough not to hurt themselves.
  • In the UK’s version of today’s comedic note: JustUs is attempting to raise £5.35m, and a Chinese group GuanQun has plowed in …….drumroll….£50k. Yes, 50 thousand GBP. I think this piece of news hurts more than it help.



News Summary


United States

Lending Club’s CEO Scott Sanborn’s response to Wall Street Journal’s article on July 12th, (Wall Street Journal), Rated: AAA

We respectfully disagree with your characterization of charge-off rates on the LendingClub platform in “Online Lender’s New Issue: Bad Loans” (Money & Investing, July 12). The article fails to note that lower-graded loans, which have experienced higher charge-off rates, represent just 25% of the company’s standard program loan volume, while 75% of standard program loan volume has exhibited stable performance.

We believe the single most critical factor in the discussion of performance is net returns to investors. Our expectation of performance on the loans you have singled out is a net annualized return of roughly 5%. Based on the steps we have taken to improve performance, which aren’t mentioned in the article, we anticipate the performance of any future loans in this subset to be more than 8%. We believe that in the current low-yield environment, LendingClub platform performance continues to compare very favorably with available alternatives. For example, the Barclays U.S. Aggregate Bond Index returned 1.96% for the year ending March 31.

Scott Sanborn,CEO, LendingClub,San Francisco

 Student loan platform CommonBond raises 0M and M in equity, buys Gradible, (Tech Crunch), Rated: AAA

Today, CommonBond, a platform that specializes in loans and refinancing for students, is announcing that it has raised $300 million in debt to loan out to prospective borrowers; and a further $30 million in a Series C equity round to continue building out its platform.

On top of this, the company has acquired another startup, Gradible, for an undisclosed amount to add new services to its business, specifically providing a facility for future employers to contribute to student loan payoffs. (Think of it as a 401k for student loans.)

The funding comes as NYC-based CommonBond says it’s passed the half-billion dollar mark for funds lent on its platform since going national three years ago. David Klein, the company’s CEO and co-founder, told TechCrunch that the company is profitable on a per-loan basis and projects that it will be fully profitable as a business in 2018.

CommonBond is not disclosing its valuation with this round. “We have strategically decided not to play the unicorn game,” Klein said in an interview. “But what I can tell you is that if we were a private company when you bought our stock and were now going public, you’d be happy with the return.”

He also described it as an “unstructured upround”, in reference to situations where a valuation is tied to complex terms that might be seen as a down-round in another light. As a point of reference, one of CommonBond’s competitors, Social Finance (SoFi), raised money last year at what was thought to be a $4 billion valuation.

The $30 million in equity funding takes the total raised by CommonBond to date to just under $80 million, while the $300 million being announced today looks like the closing out of a round that was first reported unconfirmed earlier this year at a lower value. Taking equity and debt funding altogether, the company has raised around $1 billion.

Klein said that the funding his company is announcing today is the first major round of financing raised by an online loan platform this year in the U.S. (The UK’s Future Finance, a would-be competitor that also focuses on students, raised $171 million earlier this year.) So what is CommonBond doing right, exactly, that others are not?

In the case of CommonBond, he said that some of the important factors are the fact that it targets higher education students, who will be earning more over the years when they are working, and it’s also seeing a growth in its loan volumes, which are double what they were a year ago — although the company is not disclosing actual numbers.

That is where the Gradible acquisition comes into play, too. The company — which had raised funding from the likes of AngelPad, 500 Startups and Kima Ventures — will help CommonBond differentiate itself from SoFi and others by giving it an extra set of services to offer to students not just during periods when they are in school, but beyond. The Gradible deal — terms of which were not disclosed — will also mean that CommonBond can tap further into the loan refinancing market as well, competing more against the likes of Earnest.

Baidu invests in ZestFinance to develop search-powered credit scoring for China, (Tech Crunch), Rated: AAA

Baidu, which operates China’s dominant search platform, took part in a $60 million round for payments firm Circle in June. Baidu’s search engine has around 80 percent marketshare in China.

“ZestFinance’s unique ability to analyze and process complex, disparate data to make accurate credit decisions is very valuable to the Chinese credit market, where a centralized credit scoring system has yet to emerge,”

ZestFinance was founded by ex-Google CIO and VP of engineering Merrill, and it uses machine learning and big data to transform information into measurements and signals for credit scoring. It has raised nearly $100 million from investors, with its most recent raise a $20 million Series C round in July 2013. also put money in as part of its strategic partnership last summer.

Alibaba and Tencent both operate digital banks and micro-loan programs, while Baidu stepped into the banking ring via a partnership with brick and mortar bank CITIC. ZestFinance previously partnered with, Alibaba’s closest rival in China’s e-commerce space, to power the credit service run by its financial arm, which is valued at more than $1 billion. Then there are multi-billion dollar payment services like Alipay (Alibaba) and WeChat Pay (Tencent), too.

Can SoFi Be New School And Old Fashioned At The Same Time?, (Pymnts), Rated: AAA

The firm is much beloved of investors, having snapped up a cool $1 billion in Series E Funding in a round lead by SoftBank. The firm is currently valued at $4 billion and has loaned out over $10 billion for student loans. According to its CEO Mike Cagney, he would like to see the company grow to a value of $100 billion someday.

But SoFi, despite its slightly different business model than its marketplace lending fellows (SoFi does not sell off loans in their entirety, and holds on to a percentage of all of them) and fairly rarified customer-base (SoFi’s initial and current focus is on millennial borrowers with debt from elite universities) is still feeling the tidal pressures that are pulling the rest of its segment around.

And, it seems in SoFi’s case, it is being pulled in two nearly opposite directions.

Being Even More Alternative

Whatever else can be said of SoFi – if recent reports in CNN Money about the lengths they go to help their users meet and mingle are accurate – they definitely take the “social” part of Social Finance seriously.

Over 8,000 borrowers have met up at the 300 or so (mostly fully booked) SoFi events held nationwide over the last year. Events include social mixers full of free food and alcohol, yoga classes and the chance to meet other young, upwardly mobile professionals.

“You meet a lot of interesting, like-minded people,” New York-based SoFi Customer Elsa Yan noted of the four different SoFi events she has attended.

Getting Into Traditional Banking

While SoFi may seem to be doubling down on the alternative path by developing their answer to Tinder for the financially responsible – recent reports indicate that SoFi is also moving toward being much more like one of those traditional banks whose methods it has historically eschewed.

And the Super Bowl ad worked a little too well and flooded its website with far more traffic than it was ready to handle. Days passed – customers waited, got mad, and turned to Twitter and online review sites to blast SoFi for being inept.

Then it came out that the firm just plainly didn’t have the capital reserves necessary to meet the surge in loan demand – which didn’t help the PR situation – and had their growth happy CEO singing a slightly different tune.

On the table: SoFi could seek regulatory approval for a state banking charter in Utah. This has the upside of adding the sort of stability lenders would like to see – but comes with the miles of red tape SoFi has built a reputation for speedily avoiding. Also possible options are credit cards and deposit accounts. Finally, partnerships with big financial institutions seem very much in play. That last option has seemed increasingly likely since the former co-chief executive officer of Deutsche Bank AG, Anshu Jain, announced his intention to join SoFi’s board of directors. Cagney also met extensively with JPMC’s Jamie Dimon earlier this year.

So far, SoFi is doing somewhat better than its peers. In May, SoFi received a triple-A rating from Moody’s on a $380 million deal that repackaged loans into bonds. It was the first securitization by an online lending startup to get the top rating from Moody’s.

Untangling The Marketplace Lending Mess, (New York Financial Press), Rated: A

“I foresee a heightened period of FinTech innovation, where new technologies and platforms will emerge to overcome these recent challenges, and help the industry scale,” Dara Albright says.

“Just this month, Prosper launched a revamped user experience for its retail investors,” explains Albright. “Another online lending product, American Homeowner Preservation 2015A+ LLC, received SEC approval to use Reg A+ to bring a higher-yielding, fixed-income alternative to retail investors, and more and more platforms are incorporating IRA Services’ ISCP™ technology into their platforms in order to help retail investors facilitate tax-deferred P2P investing.

PTIN Directory Selects Bizfi to Provide Access to Funding for Hundreds of Thousands of Accountants and CPAs and Their Small Business Clients, ( Business Wire), Rated: A

The National Directory of Registered Tax Return Preparers & Professionals (PTIN) has selected premier fintech company Bizfi to provide its tax professionals, accountants, CPAs and their small business clients with access to funding through its aggregation marketplace via a custom referral process. is the first comprehensive national online directory of federally registered tax preparers. It is independently owned by the National Directory of Registered Tax Return Preparers & Tax Professionals, Ltd. and has no affiliation with the Internal Revenue Service or any government agency.

The partnership gives PTIN’s hundreds of thousands of members access to the full range of Bizfi’s funding products, including lines of credit, short-term financing, equipment and invoice financing, medical financing, franchise financing, medium-term loans and even long-term loans backed by a guarantee from the U.S. Small Business Administration. Members are able to leverage these solutions for their own businesses as well as refer their small business clients to Bizfi to speed the process of applying for and receiving capital.

Bizfi is a fintech company combining aggregation, funding and a participation marketplace on a single platform for small businesses. Founded in 2005, Bizfi and its family of companies have provided more than $1.7 billion in financing to more than 31,000 small businesses in a wide variety of industries across the United States.

Is Online Lending Doomed? 5 Predictions for the Future of the Industry, (Forbes), Rated: A

1. Lending Club will survive. The fall was great, but it is not a death knell.

2. There will be shake-out and consolidation.

3. Banks will “play ball.” Recently, big names like Wells Fargo and American Express have launched online, fast-decision loan products with a small-business focus. One way or another, we can expect to see more banks looking for a piece of the pie, and it will be interesting to see how Bank of America and others will respond.

4. (More) Regulation is coming — but how much is unclear.

5. Online lending is here to stay.

Online Marketplace Lending — Recently Misunderstood?, (Forbes), Rated: A

It’s true that charge-offs are ticking up for some consumer credit lenders. As of May 2016, Prosper had charged off, from year-ago loans, about 4.2% of loan principal amounts; at LendingClub, gross charge-offs of its top-graded loans ticked up to 1.51% from 1.46%, while charge-offs of its lower-graded loans went to 6.31% for year-ago loans from 4.58% on loans that had been originated in 2013. These numbers are nowhere near the double-digit charge-offs seen during the financial crisis, but the trend has caused institutional purchasers to re-think how these loans compare with some popular bank offerings, even though banks’ charge-off rates have also ticked higher in 2016 versus their low in 2015.

In the real estate sector, there are additional differences, since loan underwriting turns more on the nature of the underlying property (asset) than the credit worthiness of the borrower. By taking a mortgage on the property, lenders on real estate provide themselves with some level of security – a feature of real value if the borrower turns out to be less than reliable. Because real estate loans are secured by the subject property, they typically involve significantly less risk compared to unsecured consumer loans, at least in the eyes of most sophisticated investors. There’s never any assurance against a widespread drop in asset prices, which would adversely impact asset-backed loans, but the relative infrequency of such events, together with the presence of a significant equity “cushion” on most individual loans, generally acts to mitigate such risk.

Nasdaq and KBW launched a new fintech index on July 18, 2016, ( Business Insider), Rated: A

The index will track the performance of companies that leverage technology to deliver financial products and services and represents approximately $785 million in total market cap. The index has 49 fintech companies including major data, exchange, trading and payments companies. Their distribution is nearly exclusively electronic.

In May, SoFi received a triple-A rating from Moody’s on a $380 million deal that repackaged loans into bonds. It was the first securitization by an online lending startup to get the top rating from Moody’s. The deal likely presages the continued normalization of the markets.

Myth Busting: Are Online Lenders Shadow Banks?, (Benzinga), Rated: A

As non-bank lending institutions, alternative lenders have occasionally come under fire for acting as “shadow banks,” a term coined to describe the subprime lenders that led to the 2008 financial crisis. However, the term is a misnomer when applied to innovative lenders, according to an industry expert.

“As each day, week and month goes by, we are looking at new ways of making data, information, trends, ideas, concepts more available, more transparent, and [bringing] the industry to welcome a very open and robust dialogue,” Goldman said.

However, there’s a lot of work to be done to get to that point, Goldman said, as different loan originators will have different data points and metrics.

Goldman sees standardization of what data originators should provide as a top priority to enforcing true transparency in the industry. He sees Orchard Platform’s work in creating a lending exchange as “[getting] to the heart of that” priority.

KBRA Announces Addition of Xilun Chen to ABS Team, (Press Release), Rated: B

Kroll Bond Rating Agency (KBRA) announced today the appointment of Xilun (Xi) Chen to the role of Senior Director within the Commercial ABS group. Xi will be reporting to Anthony Nocera, Managing Director and head of Commercial ABS. Xi joins from Standard & Poor’s where he spent the last 6 years focusing on various esoteric ABS assets.

As Marketplace Lenders Offer Less, LoanMart Offers More Opportunities for the Credit Challenged, (Business Wire), Rated: B

LoanMart, one of the nation’s premier financial technology companies, is excited to introduce a new type of loan to meet the significant demand of its customers: an Unsecured Personal Loan.

LoanMart will now offer Unsecured Personal Loans in 8 states including California, Alabama, Missouri, New Mexico, Utah, South Dakota, Georgia and Indiana. LoanMart will also continue to offer vehicle secured loans in 11 states and small business loans for self-employed consumers in another 14 states.

Starting in 2002, LoanMart offers both vehicle secured and personal loans.

United Kingdom

A Case of Regulatory Evolution: A Review of the UK Financial Conduct Authority’s Approach to Crowdfunding, (Crowdfund Insider), Rated: AAA

The United Kingdom is the leader in online alternative finance in the European market, accounting for just under 75 percent of all transaction volumes in Europe. In 2015, online alternative finance in the United Kingdom grew to GBP 3.2 billion, increasing by 84 percent from GBP 1.74 billion in 2014.

The FCA defines crowdfunding as an umbrella term to capture various “categories” of activity, some of which are regulated whilst others are not.

This broad term includes four sub-categories:

  • Donation-based crowdfunding: people give money to enterprises or organisations whose activities they want to support.
  • Pre-payment or rewards-based crowdfunding: people give money in return for a reward, service or product (such as concert tickets, an innovative prod- uct, or a computer game).
  • Loan-based crowdfunding: also known as “peer- to-peer lending”, this is where consumers lend money in return for interest payments and a repayment of capital over time.
  • Investment-based crowdfunding: consumers in- vest directly or indirectly in new or established businesses by buying investments such as shares or debentures (FCA 2016a).

The first two categories are exempt from regulatory oversight from the FCA.

Investment Crowdfunding

In 2015, equity-based crowdfunding experienced 295 percent growth compared to the previous year.

The FCA defines the instruments traded on investment-based crowdfunding as “non-readily realisable securities” that are not listed on regulated stock markets, and are distributed and sold over the internet.

At the time of the February 2015 review, the FCA publically acknowledged the full authorisation of ten firms as of 1 April 2014, with an additional four platforms receiving authorisation by the end of 2014. While the FCA has yet to release a 2016 crowdfunding review, our assessment is that as of March 2016, a total of 24 crowdfunding platforms have permission to function as an investment-based crowdfunding business in the UK. Additionally, a closer examination of the FCA’s registry indicates that at least 12 platforms are operating an investment-based crowdfunding business as an appointed representative.

At the end of 2015, investment crowdfunding raised GBP 337.8 million.

Investment Crowdfunding Risks

In addition to use of social media for financial promotion, equity crowdfunding platforms must also navigate potential additional supervision of the “online forums” typical for most crowdfunding campaigns. While the existing guidance does not specifically discuss how online forums should be supervised, this is probably an area that will attract attention in the future.

Another potential area of risk may relate to the required due-diligence that platforms must undertake before allowing businesses to raise equity on their platform

Loan-based crowdfunding

In March 2016, the FCA indicated that a total of eight firms (only an additional seven in the course of a year) had received full authorisation to operate as a P2P platform, with a further 86 firms awaiting a decision.5 Of these 86 platforms, only 44 have interim permissions related to their previously held OFT license (FCA 2016c).

Interestingly, it seems as though one particular firm, Resolution Capital (FCA 2016d), is “currently attached to” approximately 25 businesses, including several firms operating in the P2P lending space. As such, it seems like a considerable number of appointed representative firms are using the Resolution Capital license.

Loan-based platforms rules

The FCA implemented prudential requirements (FCA 2015a), which reflect the standardised capital reserves that a platform must comply with.

Utilising the GABRIEL portal, platforms are expected to report to the FCA on a quarterly basis, with monthly reporting of any information relating to the holding of client monies (FCA 2016e). Although prudential rules are not easy to generalise, as they are based upon the individual permissions and activities of each platform, P2P lending firms do have a base capital requirement of GBP 50k, with a GBP 20k requirement during the transition period.

At present, firms are obliged to meet minimum capital requirements only upon authorisation, with a transitional period until April 2017 (FCA 2015a). A platform operating in the P2P space is also required to notify the FCA should the value of their loans outstanding increase by 15 percent or more, thus necessitating a recalculation of any prudential requirements. In addition to financial reporting, platforms are required to report any disputes between consumers and the platform.

In addition to capital requirements, platforms are obliged to conform to Client Money Rules, as outlined in the FCA Handbook in the section relating to their Client Asset Sourcebook rules (or CASS) related to “adequate protection”– i.e. no co-mingling of client monies, clear and transparent holding of client monies, etc. (FCA 2016f). Rules related to client money were further modified in 2016, following the Consultation Paper entitled: “Loan-based Crowdfunding Platforms and Segregation of Client Money”.

Loan-based crowdfunding platforms must comply with disclosure requirements, where all communications are “fair, clear and not misleading”.

The FCA’s approach to crowdfunding is often lauded as the “gold-standard” for crowdfunding regulation. With regulation now having been in place for over a year, it is interesting to note the high levels of satisfaction registered by crowdfunding platforms.

Of the P2P Lending (loan-based crowdfunding) platforms surveyed, 91 percent regarded the current regulatory regime as “adequate and appropriate” to their activities, with only 5.66 percent suggesting that “tighter or stricter” regulation need to be implemented. A mere 3.77 percent viewed regulation as “excessive and too strict”.

Crowd2Fund Launches New Investment Feature Smart-Invest, (Crowdfund Insider), Rated: A

Crowd2Fund announced on Monday the launch of its new intelligent investment feature known as Smart-Invest, which will reportedly allow investors to automate their crowdlending investments.

Earlier this spring, Crowd2Fund was approved for IF ISA and promoted higher interest rates for investors.

Chris Hancock, CEO and founder of Crowd2Fund added: “The combination of Smart-Invest and the IF ISA government scheme continues to demonstrate our commitment in helping our investors grow their savings whilst supporting great British businesses.”

Chinese financial group backs Alderley Edge lender JustUs, ( Bdaily), Rated: A

In June, JustUs embarked on a drive to raise £5.35m, with the bulk (£4m) sought from institutional investors and a further £1m via crowdfunding platform Crowdcube.

The fundraising, which will value JustUs at £26m, will allow the firm to recruit over 100 new staff and launch a new media campaign.

Since its inception, the company has secured around £2m in investment.

Peer-to-peer consumer lending firm JustUs has received backing from a Chinese financial group, giving a boost to its £5m fundraising goal.

Four representatives of GuanQun Investment, which has already ploughed £50k into the Cheshire-based firm, are heading to JustUs’ Alderley Edge headquarters next week (July 29) to discuss ramping up investment and explore strategic global partnerships.

Based in London, GuanQun Investment (GQI) forms part of Beijing-based Guanqun Chicheng, which has supported around 200k SMEs since it was established in 2009


Cloud SMSF administration software provider, Class, has collaborated with peer-to-peer lender, RateSetter, to provide self-managed superannuation fund (SMSF) accountants and their clients with a direct-connect date feed.  This would allow for automated data entry and transactions processing within Class.

RateSetter [Australia] has facilitated more than $50 million in loans through its platform since it launched in 2014, with SMSFs providing the funds for close to a quarter of the loans.


Lending marketplace Deal4Loans raises fifteen million dollars from Franklin Templeton, (Tech Circle), Rated: AAA

Mywish Marketplaces Pvt. Ltd, which operates retail loans marketplace, has raised $15 million from Franklin Templeton International Services (India) Pvt. Ltd. The development comes after VCCircle first reported in May that the company was looking for a big-ticket investment in its first institutional round of funding.

The company had in April raised an undisclosed amount of funding from a bunch of high-profile investors, including Ram Shriram, founding board member and one of the first investors in search engine giant Google; WhatsApp’s global business head Neeraj Arora and Puru Vashishtha, a former Wall Street hedge fund investor.

Founded in 2009 by Durham University MBA alumnus Rishi Mehra, Deal4Loans offers comparison of retail loans across six different categories – home loan, personal loan, car loan, credit cards, loan against property and education loan. The platform has 50 lending partners (a mix of banks and non-banking financial companies) and 7 million registered customers. The marketplace uses algorithms to acquire customers for the participating banks’ loan products and to match customers with products.

According to VCCEdge, the data research platform of VCCircle, Deal4Loans earned a net profit of Rs 78.5 lakh on net sales of Rs 7.7 crore for the year through March 2015.

RBI more open to experimentation at early stages of a product or method of service: Raghuram Rajan, (Live Mint), Rated: A

Reserve Bank of India (RBI) governor Raghuram Rajan on Monday said that the Indian central bank is more open to experimentation at the early stages of a product or method of service but at the same time will have to be more conscious of the risks to stability.

“Non-bank entities are providing innovative payment products and services, forcing banks to reflect upon their strategy—to compete or to collaborate? Banks may not have the wherewithal to compete effectively if they have not been investing in technology and associated personnel. However, if they collaborate without building these capabilities, they may be left with crumbs from the client while their partner take the whole client cake,”

Rajan said RBI welcomes both competition and collaboration.


George Popescu