Tuesday May 16 2017, Daily News Digest

corporate bond credit spreads

News Comments Today’s main news: KBRA rates Prosper’s Series 2017-1. SoFi’s bid to become bank pulls FDIC into fintech fray. LendInvest joins Home Builders Federation. Monzo puts API dev on back burner. PBOC sets up new China fintech committee. N26 launches savings accounts with Raisin. Today’s main analysis: Asset volatility diminishing and approaching new lows. Today’s thought-provoking articles: The future […]

corporate bond credit spreads

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News Summary

United States

KBRA Rates Prosper Marketplace Issuance Trust, Series 2017-1 (KBRA Email), Rated: AAA

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Prosper Marketplace Lending Issuance Trust 2017-1 (“PMIT 2017-1”). This is a $450.5 million consumer loan ABS transaction that is expected to close on May 24, 2017.

This transaction represents the sixth securitization collateralized by unsecured consumer loans originated through the online marketplace lending platform operated by Prosper Funding LLC (“Prosper” or the “Company”).

Get the full report.

Volatility in the asset markets has been steadily declining and is nearing new lows. One factor helping to suppress volatility is the lack of many surprises in the first-quarter earnings season, which passed with results generally within the range of expectations. From an economic point of view, while GDP was weak in the first quarter, it is expected to rebound in the second quarter.

Following the French presidential election and the general lessening of international tensions, corporate credit spreads have tightened and asset volatility has declined toward its lowest levels.

Source: Morningstar

The average corporate credit spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade bond market) tightened 3 basis points last week to +117, a new low for the year. The last time the index was at this level was September 2014. From a longer-term perspective, the average spread of the Morningstar Corporate Bond Index has been lower less than one fourth of the time since the end of 1999. In the high-yield market, the Bank of America Merrill Lynch High Yield Master Index tightened 5 basis points to +377. The tightening was led by the energy sector, which declined 10 basis points as oil prices continued to rise. Since the end of 1999, the average spread of the high-yield index has been tighter only 17% of the time.

Source: Morningstar

The Future of Lending is Now with Latest TransUnion Prama Offerings (NASDAQ), Rated: AAA

As TransUnion (NYSE:TRU) data from the end of March 2017 suggest, the consumer credit market is as complex as ever. Mortgage delinquency rates: continuing to drop. Auto loan delinquency rates: rising. Personal loan market: growing, but slowing. Access to credit cards: highest since 2005.

Maneuvering through this ever-changing credit landscape is difficult for lenders of all sizes, ranging from credit unions to regional banks to the largest financial institutions. To help navigate through this complex maze, TransUnion today introduced the newest modules in its PramaSMenvironmentBenchmarking and Data Extract.

Prama Benchmarking provides advanced data analytics and visualization capabilities specific to the auto loan, credit card, mortgage and personal loan markets—to deliver relevant insights for each line of business. Lenders will now be able to measure their performance across numerous metrics and filters, and compare it to the industry and their peers.  This information can be used to improve how financial services companies segment, target, acquire, cross-sell and retain customers. The Data Extract module provides self-service access to query against 100 percent of TransUnion depersonalized archive credit data, allowing customers to receive faster delivery of data to support their own analytics—in their own environment with their preferred tools.

Measuring Business Performance Against Peers

Benchmarking provides performance data on metrics such as delinquencies, charge-offs, bankruptcy, average balance and utilization. It offers views of market share in terms of number of accounts, total limit or total balance. The module also lets lenders analyze depersonalized data using dimensions such as APR, origination vintage, credit tier, state or MSA region, account status and consumer credit age.

For instance, a regional bank in Western Pennsylvania interested in growing its credit card portfolio is now able to observe five years of its own data versus other similar banks in their region.

Extracting Data Faster – From a Month or More to Hours

A traditional archive request process – from customer order to product delivery – typically takes 30 days or more. This includes time spent defining and iterating on the customer’s data requirements. “With Data Extract, the process will take less than 24 hours – an enormous time savings,” said Gomez.

With Data Extract, customers gain the following advantages:

  • Self-service – On-demand, point-and-click access to query TU depersonalized archive credit data.
  • Speed – Secure overnight delivery of the dataset.
  • Confidence – Quick access to depersonalized data to support a customer’s own analytics, so they can make faster decisions with more confidence.
  • Control – Create queries according to their data requirements, avoiding the back and forth that is often typical of an archive request process.
  • Flexibility – Quickly obtain depersonalized data for use within their own analytics environment and processes.

SoFi’s bid to become an industrial bank pulls FDIC into fintech fray (American Banker), Rated: AAA

The Federal Deposit Insurance Corp. has so far managed to stay out of the growing battle over how the U.S. fintech sector should be regulated, but that appears likely to end as one of the nation’s largest online lenders announced plans to apply for a specialty banking charter soon.

Social Finance Inc., the San Francisco-based consumer lender known as SoFi, hopes to secure an industrial bank charter. That state-issued charter used to be a popular way to organize a bank, and was commonly used by companies that are not primarily in the financial services industry.

SoFi COO: We have measures in place, extra authentication for our consumers (MSN), Rated: AAA

Joanne Bradford, SoFi COO, weighs in on how companies are protecting themselves on the heels of a worldwide cyberattack, mortgages, student loans and refinancing.

Watch the video segment here.

SoFi: We Will be the First Unbank – Bank (Crowdfund Insider), Rated: AAA

SoFi Chief Operating Officer Joanne Bradford was back visiting with CNBC today. Bradford addressed several topics including the recent cyber attack that has public and private entities running for cover around the world. SoFi has not been impacted by the digital attack and Bradford was quite confident that SoFi is better prepared for any malicious attempts to infiltrate SoFi due to their single point of access (unlike traditional banks).

Asked if the Fintech industry is more, or less, vulnerable than traditional types, Bradford explained;

“We are less vulnerable. You only come to SoFi at SoFi.com. We don’t have branches which helps make it more efficient. Less points of vulnerability…but for the consumer it is more about speed and ease of use. Getting things done quickly on your mobile device.”

How to Predict If a Borrower Will Pay You Back (NY Mag), Rated: AAA

Recently, three economists—Oded Netzer and Alain Lemaire, both of Columbia, and Michal Herzenstein of the University of Delaware—looked for ways to predict the likelihood of whether a borrower would pay back a loan. The scholars used data from Prosper, a peer-to-peer lending site. Potential borrowers write a brief description of why they need a loan and why they are likely to make good on it, and potential lenders decide whether to provide them the money. Overall, about 13 percent of borrowers defaulted on their loan.

It turns out the language that potential borrowers use is a strong predictor of their probability of paying back. And it is an important indicator even if you control for other relevant information lenders were able to obtain about those potential borrowers, including credit ratings and income.

Listed below are ten phrases the researchers found that are commonly used when applying for a loan. Five of them positively correlate with paying back the loan. Five of them negatively correlate with paying back the loan. In other words, five tend to be used by people you can trust, five by people you cannot.

Here are the phrases used in loan applications by people most likely to pay them back: debt-free, lower interest rate, after-tax, minimum payment, graduate.

And here are the phrases used by those least likely to pay back their loans: God, promise, will pay, thank you, hospital.

Now, let’s consider language that suggests someone is unlikely to pay their loans. Generally, if someone tells you he will pay you back, he will not pay you back. The more assertive the promise, the more likely he will break it. If someone writes “I promise I will pay back, so help me God,” he is among the least likely to pay you back. Appealing to your mercy—explaining that he needs the money because he has a relative in the “hospital”—also means he is unlikely to pay you back. In fact, mentioning any family member—a husband, wife, son, daughter, mother or father—is a sign someone will not be paying back. Another word that indicates default is “explain,” meaning if people are trying to explain why they are going to be able to pay back a loan, they likely won’t.

Misys rolls AI strategy into trade monitoring software (Misys), Rated: A

Misys has stepped up to the artificial intelligence (AI) plate, today unveiling Misys FusionCapital Detect. The component helps financial institutions spot booking errors, anomalies and unusual activity, accelerating trade validations and reducing exceptions with machine learning.

FusionCapital Detect behaves as a smart personal assistant for validation teams, red flagging probable mistakes that are otherwise time consuming to identify. Users can catch errors that existing tools on the market let through, reducing operational risk and preventing manual mistakes that lead to decisions being made on the wrong profit and loss information and incorrect end-of-day reports.

Being able to validate transactions at T+0 has become crucial in today’s pressurised regulatory environment, including under:

  • The European Market Infrastructure Regulation (EMIR): which makes it necessary to identify errors as soon as possible in order to confirm trades within 24 to 48 hours.
  • The Fundamental Review of the Trading Book (FRTB): which requires daily risk reports – unidentified trade errors will invalidate these reports, breaching compliance.

OpenInvest Secures $ 3.25 Million in Seed Funding Led by Andreessen Horowitz (PR Newswire), Rated: A

OpenInvest (www.openinvest.co), a social impact investing platform for retail investors, announced today that it raised $3.25 million in seed funding. The round was led by Andreessen Horowitz with participation from Abstract Ventures, Wireframe Ventures and SV2. OpenInvest is an accessible online financial advisor that empowers investors to fully align their investments with their values, and then take action to more meaningfully engage companies and drive social change.

According to a recent Morgan Stanley survey, 84 percent of millennials want the companies they invest in to align with their values. OpenInvest meets this opportunity with an innovative platform that allows consumers to invest with their hearts, without having to compromise financial returns. The company’s investment screens include climate change, fossil fuels, weapons manufacturers, gender equality, LGBTQ workplace treatment, deforestation, tobacco, companies funding the Dakota Access Pipeline, and companies supporting President Trump, which can be freely mixed and matched to construct a personalized portfolio. Investors can further customize by including or excluding individual companies, while their portfolio auto-rebalances to maintain diversification and broad tracking of the market.

Lemonade sweetens U.S. insurance rollout plans with California license (Reuters), Rated: A

Lemonade Inc, a tech-driven insurance startup that promises renters and homeowners insurance in as little as 90 seconds and payment of claims in 3 minutes, has won approval from California regulators to sell policies in the state, the company said.

The insurer’s foray into California, the most populous U.S. state, comes amid the company’s push to become licensed nationwide, less than a year after launching in New York. Last month, Lemonade, which sells policies directly to consumers through its website and smartphone app, expanded into Illinois.

Green Dot Hits, OnDeck Misses, And First Data Looks Ahead (PYMNTS), Rated: A

First Data’s New Friends

First Data CEO, Frank Bisignano, noted in the wake of First Data’s earnings release this week that the company remains on track to meet its guidance for 2017 and that he is “confident that the current weakness is transitory.”

First Data will be instrumental in helping drive Alipay expansion into the U.S. market, focusing on firms that use First Data’s Clover platform.

By the numbers, First Data reported adjusted earnings per share of $0.28 and revenue of $1.7 billion.

Credit and retail processing in North America were up 1 percent, and the business, globally, gained 2 percent. Accounts on file, again for North America, grew by 7 percent.

The deal will give Alipay scale roughly equivalent to Apple Pay’s in terms of presence, at around 4.5 million U.S. sites.

OnDeck’s Falling Figures

Reflecting the changes, the company lowered its full-year net revenue outlook to a range of $342 million to $352 million. It previously had forecast $377 million to $387 million.

Annual costs are also slated for a big cut — by around $25 million. Those cuts will be achieved by lowering headcount. About 27 percent of the staff will be cut back from levels at the end of 2016.

By the numbers, losses clocked in at $0.11 per share, slightly more than the $0.10 loss analysts were looking for. Gross revenue rose 48.4 percent to $92.89 million on higher net interest income, beating analysts’ estimates of $90.38 million.

Green Dot Beats the Streets (In a Big Way)

The company posted adjusted earnings per share of $1, which was $0.16 better than analysts were forecasting. Revenue clocked in at $253 million, was up 11 percent year over year and was higher than the roughly $234 million that had been forecasted.

Guidance for the full year was also ticking up — just about in line with the magnitude of the beat, with revenue to range from $830 million to $845 million (both ends of the range were taken up by $15 million). Earnings per share are slated to come in between $1.89 and $1.94, which compares with the consensus of $1.92 as of Wednesday morning.

Green Dot is making pre-paid cards look easy, OnDeck is demonstrating how marketplace lending (or marketplace anything) is really, really hard — and First Data is greatly looking forward to next quarter, when it can report smoother sailing.

US Government Awards $ 2.25 Million to Blockchain Research Projects (Coindesk), Rated: A

The US government has awarded research contracts to three startups working with blockchain worth a total of about $2.25m.

The Department of Homeland Security (DHS) quietly revealed the grants last week as part of its Small Business Innovation Research initiative.

Who got funded: DHS said that it parceled out a total of $9.7m between 12 companies, three of which are working with the tech. According to a release, each firm got about $750,000 to fund their research.

Here are the companies that got funds for their blockchain-related initiatives:

  • BlockCypher: The startup has been awarded a grant for its “blockchain platform for multiple blockchains, applications and analytics. BlockCypher was the recipient of a $600,000 DHS grant last summer.
  • Digital Bazaar: According to DHS, the company is working on a “verifiable claims project” that utilizes “fit-for-purpose distributed ledgers”. Like BlockCypher, Digital Bazaar was given a DHS grant in 2016.
  • Evernym: This Utah-based business will use the funds to support its research into “decentralized key management using blockchain”, according to DHS.

Lendio is Now Offering Small Business Loans Within Minutes (Military-Technologies), Rated: A

The team at Lendio is pleased to announce that they are now offering small business loans within minutes.

In addition to providing small business owners loans as quickly as possible, Lendio also features a business loan marketplace that lets people find the financing tools they need to help run their business.

Oportun, Inc. (SEC), Rated: A

Opportun has filed for ABS with the SEC.

My Experience Refinancing Student Loans from Pharmacy School (Pharmacy Times), Rated: A

In 2015, I graduated with over $150,000 in student loans from pharmacy school. At the time, it felt like an insurmountable amount of money to pay back, especially considering I took a substantial pay cut to complete a 1-year residency after graduating. The monthly payments were extremely high and to make matters more confusing, I had multiple loan providers between my private and federal loans, with some in my name and some in my parent’s name. The interest rates on these loans varied from 6.5% to 8%.

After finishing my residency, I knew I had to take a close look at my financial situation and make a plan to aggressively start paying off these loans. After extensive research, I decided to refinance my student loans through Social Finance, Inc (SoFI), an institution that offers a number of different loan types through a “nontraditional” approach.

Refinancing through SoFI will save me over $15,000 in cumulative payments over a 10-year term by lowering my interest rate to 5%.

If you’re refinancing with a longer repayment period (10 to 20 years) and prefer stability, a fixed rate may be the better option. Personally, I chose a variable rate loan because the interest rate was significantly lower than the fixed rate loan, and I plan to pay off my student loans long before the end of my 10-year term.

RealtyShares Names Industry Vet to BOD (Commercial Property Executive), Rated: A

Edward Forst, the former president & CEO of Cushman & Wakefield, has become the newest member of RealtyShares’ board of directors.

With Cushman & Wakefield, Forst oversaw 16,000 real estate professionals in 60 countries.

How Can I Pay for Fertility Treatment? (LendingClub), Rated: B

To begin, you’ll want to determine how you’re going to pay for fertility treatment and related care such as medications, genetic testing and egg freezing services.

The good news is that fertility financing is available so that cost does not have to be a barrier to treatment and your dream of becoming a parent.

The flexible payment plans include:

  • One loan for comprehensive fertility care for up to three services: IVF treatment, medication, genetic testing or egg freezing
  • No upfront payments
  • Fixed rates starting as low as 3.99% APR*
  • Manageable monthly payments for a range of budgets
  • Payment sent directly to your providers in one to three business days, so you can start treatment without delay or pressure to distribute funds correctly

How to Invest in Debt (Michael Pellegrino Email), Rated: B

Get a free sample chapter. Password: debt-investor.

United Kingdom

LendInvest joins the Home Builders Federation (Property Reporter), Rated: AAA

Specialist mortgage lender, LendInvest, has announced that it has joined the Home Builders Federation, in a move aimed at supporting property developers to build more homes of every type.

The Home Builders Federation is the representative body of the private sector home building industry in England and Wales and its members are responsible for 80% of housing output each year. The organisation currently supports the LendInvest Property Development Academy, a non-profit, two-day course delivered in five key cities across the UK and intended to create a new generation of property entrepreneurs.

Monzo puts API development on the back burner (Finextra), Rated: AAA

Digital bank Monzo is putting its API developer plans on ice as it faces up to the challenge of launching current accounts for its 190,000 customers.

The news will be a blow to the 2000 people on the bank’s developer Slack channel who have invested time in building integration to the Monzo API.
In the two years since it launched its first hackathon encouraging developers to build products using the API, the bank now counts some 100 personal projects integrating with the toolkit. Despite these efforts, Monzo will not allow developers to publish their current applications.

Peer-to-peer lending rises as Moneywise users seek higher returns (Moneywise), Rated: A

Nearly half (48%) of Moneywise.co.uk readers use peer-to-peer (P2P) lending in a bid to earn higher returns on savings, our latest poll results reveal.

This is an increase from 39% of Moneywise users who said they used P2P lending in August 2016, and 33% who said the same when we asked in February 2016.

The number of Moneywise users aware of P2P has also risen. Just 4% said they’d never heard of P2P lending in our most recent poll, compared to 6% who hadn’t heard of it last August, and 9% who hadn’t heard of it last February.

Seedrs: Andy Murray Invests in Three UK Entrepreneurs, Den, Morpher & Landbay (Crowdfund Insider), Rated: A

Tennis star and Seedrs advisor Andy Murray has invested in three early-stage UK businesses. The Seedrs listed companies include Den, Morpher and Landbay. Murray’s Seedrs originated portfolio now stands at over 20 companies, according to the platform.

Landbay is back on Seedrs once again. The property rental crowdfunding platform has crowdfunded successfully multiple times on Seedrs.  Landbay was one of the very first peer-to-peer platforms to be granted full authorisation by the FCA at the end of 2016. Landbay has raised £2.3 million overfunding to 157% in the round.

Robo Advice – 5 Key Factors to Success (EValue), Rated: A

1 – Engaging the consumer

Currently, a real need exists to increase consumers’ engagement with their financial life and enable easy access to robust financial advice for all. However, for many consumers, the breadth of choice available, when it comes to making financial planning decisions, only serves to create confusion and adds to the complexity often resulting in no decisions being made at all.

2 – Realistic expectation of range and level of returns

This means that not only should the overall forecasts be realistic but each individual scenario, which makes up the forecast, should also be sensible and capable of occurring. Suggesting a potential outcome which, in reality, is impossible is obviously not particularly helpful to consumers when it comes to making investment decisions.

3 – Risk Suitability Assessment

In the UK, it is clear that robo advice needs to meet the same suitability standard as traditional advice. Therefore, any risk suitability tool must be rigorous and robust in order to ensure an accurate measurement of a consumer’s tolerance to risk and capacity for loss.

4 – Personal Advice Given

As everybody’s situation is different, in order for a robo advice proposition to be successful it must be able to provide appropriate personal advice which not only reflects a consumer’s individuality and specific objectives but is also not detrimental to their other financial needs.

5 – Fully automated with appropriate compliance reviews

By automating the advice process so that it can be delivered remotely and driven by the consumer, costs will be cut sharply as a result. At the same time, consistent quality and thorough documentation generated by the process will provide a full and reliable digital paper trail to ensure regulatory compliance.

Robo Advice market eyes pensions, insurance and mortgages (AltFi), Rated: B

The automated financial advice market is set for a decade of strong growth, according to a new report by consultancy Deloitte, which suggests the underlying disruptive technology will spread into more niches than its current wealth management segment.

To date, automated advice has been most prevalent in wealth management – called robo advice – but this is just the tip of the iceberg. In its latest research into the space, entitled The next frontier: The future of automated financial advice in the UK, Deloitte says the UK offers a rich opportunity for automated advice with up to 15 million consumers willing to pay for it.

China

PBOC sets up new committee to oversee China’s burgeoning fintech industry (SCMP), Rated: AAA

China’s central bank said on Monday it has set up a committee to oversee financial technology, reflecting an attempt to bring regulation up to speed with a fast-growing industry that could bring cross-sector financial risks.

The People’s Bank of China said on its website it will gauge the impact of fintech on monetary policy, financial markets, financial stability, payment and clearing.

It will also beef up the use of new technology, such as big data, artificial intelligence, and cloud computing to enhance its capabilities in protecting against and resolving cross-market financial risks, it said in the statement.

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

People’s Bank of China is going to set up FinTech Committee
Recently, People’s Bank of China (PBC) announced to set up FinTech Committee, aiming at reinforcing the planning and coordination of fintech. PBC is going to do deep research on the influence of fintech on monetary policies, financial market, finance stability, payment and settlement etc. And it also encourages finance sector to use high-tech, such as big data, AI and cloud computing, as regulatory method to improve the ability for identifying, preventing and solving financial risks.

BNP Paribas Group Investigates for Financial Innovation in Asia
On May 5th, executives from security services department of BNP Paribas visited JadeValue, China’s first fintech incubator, to investigate for financial innovation in Asian market. Xeenho Wallet, as one of the incubated enterprise of JadeValue, and a typical example of Chinese modern fintech company, communicated with the European professional financial survey team, and achieved initial intent of cooperation on exchange of P2P industry news.
Xeenho is one of the first P2P funds platforms in China. Based on big data and robo-advice, Xeenho’s risk-control management keeps the Zero Bad Debt in the industry.

European Union

N26 launches savings accounts with Raisin (TechCrunch), Rated: AAA

N26 is launching yet another feature to build a modern retail bank for European customers. This time, the company is partnering with Raisin, a German startup also known as WeltSparen. In just a few taps, you’ll be able to open a savings account for money you don’t need.

All your deposits are guaranteed up to €100,000 per bank by the National Deposit Guarantee Scheme as part of the European Union.

N26 is only launching this feature in Germany for now, but Raisin accepts customers from other countries. So you can expect to see this feature in other countries later this year. Similarly, if you don’t want to have your money stuck on a savings account, N26 will launch overnight savings later this year.

Raisin has built an API in order to facilitate the N26 integration.

Rabobank enters digital identity market (Finextra), Rated: A

Rabobank has partnered with Norway’s Signicat to provide a digital identity hub for businesses looking to onboard new customers and sign legally-binding contracts online.

The joint Digital Identity Service Provider (DISP) offers a range of online login, identity, signature and data archiving services under the banner of Rabo eBusiness. Rabobank says it will initially market the programme to energy, telecom and insurance companies, healthcare institutions and financial services providers.
International

Top 10 FinTech Companies Disrupting Banking (Disruptor Daily), Rated: A

Banking and payment financial technology have grown exponentially in just the past few years thanks to tech like blockchain, artificial intelligence, and big data. These crossovers are making for faster, safer processes and lower prices for individuals and businesses alike.

Wyre boasts transfer speeds under 6 hours internationally, significantly faster than the traditional SWIFT or bank wire transfer networks.

Xendit is a payment processing infrastructure provider that covers the southeastern Asia region. Among the services offered through Xendit are bank transfers, card processing, and escrow services.

Xero offers accounting professionals and small-to-medium businesses (SMBs) with more than 600,000 customers a cloud-based accounting software.

N26 allows UK customers to open accounts in minutes, perform withdrawals at any ATM, and pay with the N26 MasterCard.

Beyond making in-person and mobile payments more secure, Circle is also working to reduce the cost of in-person and international payments as well as the time intensity of global payments.

Simple unifies accounts under one card and splits the net interest margin from lending across all of the partner banks in its network to help simplify the customer experience.

Earnest is using data science, design, and software automation to allow their clients to manage their existing finances and debts while opening up new opportunities for well-behaved clients to see better interest rates and more options.

Featurespace has developed and deployed artificial intelligence and machine learning solutions for financial service providers in more than 180 countries.

InstaMed has changed the healthcare payments industry through the use of their easily-integrated, private cloud computing network.

India

i2iFunding plans to increase loans disbursal to Rs 200 Cr in 2 yrs (India Times), Rated: AAA

Peer to Peer (P2P) lending platform i2iFunding said today that it planned to increase the loans disbursed on its platform to Rs 200 crore over the next two years. It currently disburses loans worth Rs 60-70 lakhs a month.

Having strengthened its risk processes, the company is now keen to expand operations, he said. The company also expects business to pick up the RBI issues regulatory guidelines for the sector.

Five Points to Keep in Mind When Investing in P2P Lending (BW Disrupt), Rated: A

But while there has been a major change in the appetite for risk among Indians, P2P lending requires an investor to be thoroughly aware and educated on how to make informed choices when opting for P2P lending. P2P lending is globally growing at a CAGR of 48%. In India, the industry is expected to touch $5 billion by 2020-2021. It’s here to stay and the faster a smart investor understands, learns, and makes the most of it, higher the returns.

  1. Build a Diversified Portfolio
  2. Small Ticket-size, More Loans – One of the biggest advantage of P2P lending is that the average ticket size can be as low as Rs. 1000/-. So invest small amounts in large numbers. And by that we don’t mean putting Rs. 2,50,000/- across 10 loans of Rs. 25,000/- each but to aim for 50 loans of Rs. 5,000/- each.
  3. Compounding Benefit – P2P lending is the only, unique asset class in which investors begin to receive returns – principal as well as interest – through EMI from the very next month of making the investment.
  4. Realistic Expectations, Long-term horizon – Before investing in P2P lending, it is advisable to choose a lending platform after considering the track record of the leadership and their risk management team.
  5. Informed Choices – Before investing in P2P lending, it is advisable to choose a lending platform after considering the track record of the leadership and their risk management team.
Asia

Fintech start-up 4xLabs raises US$ 1.5m in new funding (Straits Times), Rated: AAA

Singapore fintech start-up 4xLabs has raised US$1.5 million (S$2.1 million) in its latest funding round.

The round saw follow-up investment from Dymon Asia Ventures, as well as participation from new investors such as Malaysia-based OSK Ventures International.

4xLabs aims to increase transparency in the market for travellers and money changers with its cloud-based services.

The firm, set up in 2011, offers two platforms: Get4x, a currency exchange-rate aggregator platform for travellers, and Biz4x, a platform that helps money changers better manage their businesses.

Canada

Toronto Financial Services Alliance Says Strengthening Fintech Ecosystem Must Be a Priority (Crowdfund Insider), Rated: AAA

The Toronto Financial Services Alliance (TFSA) says Canada’s financial service relevance is at risk unless the Fintech ecosystem is improved.

TFSA has published a report specifically on this subject. Entitled, “Seizing the Opportunity: Building the Toronto Region into a Global Fintech Leader,” the report states that the Toronto/Kitchener-Waterloo corridor today benefits from a strong core of financial institutions, top-tier research facilities, a strong talent base and relatively low business operating costs compared with other global Fintech ecosystems.

The report sets out six key areas to target:

  • Collaboration: Closer and more frequent engagement among Fintech startups, well-established financial institutions and the venture capital community.
  • Capital: Improved access to sophisticated seed-level and local later-stage capital for Canadian Fintechs.
  • Regulation: Reduced regulatory burden on emerging Fintech companies, and modernized regulatory frameworks to attract foreign investment and further reflect changing business models, technologies and priorities.
  • Research: Encouraged commercialization of research for financial services to further establish the region as a global leader.
  • Talent: Creation of opportunities and conditions that will attract top talent with experience growing and scaling fintech companies.
  • Awareness: Raising of the region’s profile on the global stage as a Fintech hub.

Power Financial invests C$ 50 million in ‘robo-adviser’ Wealthsimple (Reuters), Rated: A

Power Financial Corp has invested C$50 million ($37 million) in “robo-adviser” Wealthsimple, bringing its total investment in the 2-year-old financial technology company to C$100 million, they said on Thursday.

Toronto-based Wealthsimple provides automated investment advice to consumers and helps manage personalized portfolios based on responses to an online questionnaire about investment goals. It entered the U.S. market at the end of January.

The company said it now has more than 30,000 clients in Canada and the United States, up from 20,000 in late January, investing more than C$1 billion in exchange-traded funds.

South America

Goldman Sachs Sees Big Potential for Fintech in Brazil (NYT), Rated: AAA

Brazil is experiencing a wave of growth in financial technology that will most likely eat into the market share of the country’s huge and long untouchable banks, a new report from Goldman Sachs says.

Entitled “Fintech Brazil’s Moment,” the 45-page research report estimates that the more than 200 financial technology companies in Brazil should generate a potential revenue pool of about $24 billion over the next 10 years. Payments, lending and personal finance are three promising segments, as is insurance, the report found.

The Goldman Sachs economists cited what they called “an oligopolistic market structure” in Brazil where the top five banks, excluding development banks, hold 84 percent of total loans. In retail branch banking, the top five banks have 90 percent of branches. That is up from 71 percent in 2007, the report said, observing that “the market has become more concentrated since the financial crisis” of 2008.

By contrast, in the United States, the top five banks hold just about 20 percent of all branches. In India, that figure is slightly over 30 percent, and in Turkey it is just under 30 percent.

Authors:

George Popescu
Allen Taylor

Wednesday May 10 2017, Daily News Digest

DealVector

News Comments Today’s main news: GDR partners with Equifax. OnDeck shares down 3.5%. iBan raises 110K GBP on Seedrs. Hexindai implements FICO. Bitbond receives 5M Euro debt commitment. KPMG acquires Matchi. RateSetter welcomes Aussie banking reforms. Today’s main analysis: KBRA assigned prelim ratings to SoFi Consumer Loan Program 2017-3. Today’s thought-provoking articles: Consumer privacy and fintech. CreditEase CEO discusses the future of […]

DealVector

News Comments

United States

United Kingdom

China

European Union

International

  • KPMG acquires Matchi. AT: “Matchi should be on any bank’s list of platforms to check if looking for a partnership with a fintech innovator.”
  • 7 ways fintech is changing the job market. AT: “Interesting read. Takeaway for alt lenders: If you want to hire great talent, look for people with excellent skills in other industries and ready to make a career change. Look at industries that are dying, diminishing in importance, or where great talent is being replaced by automation. Fintech skill sets are often developed in other places.”

Australia

Canada

News Summary

United States

Global Debt Registry Partners with Equifax (FINalternatives), Rated: AAA

Loan data specialist Global Debt Registry has partnered with global information solutions giant Equifax that will incorporate the company’s income data into its eValidation suite of verification tools for investors and warehouse lenders in the online lending space.

The new partnership will utilize Equifax’s anonymous income data to incorporate additional loan verification data and enable benchmarking and monitoring of income inflation over time, the company said in a statement.

“It’s critical for investors to have the assurance that when they invest in online lending, the loan data is independently, externally validated,” said Charlie Moore, president of GDR.

KBRA Assigns Preliminary Ratings to SoFi Consumer Loan Program 2017-3 (BusinessWire), Rated: AAA

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to one class of notes issued by SoFi Consumer Loan Program 2017-3 LLC (“SCLP 2017-3”). This is a $530 million consumer loan ABS transaction that is closing on May 18, 2017.

This transaction represents SoFi Lending Corp.’s (“SoFi” or “the Company”) ninth rated securitization collateralized by a portfolio of unsecured consumer loans.

KBRA analyzed the transaction using the U.S. Consumer Loan ABS Rating Methodology published on March 28, 2017. KBRA’s consumer loan methodology incorporates an analysis of: (1) the underlying collateral pool, (2) the originator’s historical static pool data, segmented by characteristics including credit quality and product type, (3) the proposed capital structure for the transaction, (4) KBRA’s operational assessment of the originator and servicer and (5) the legal structure, transaction documents, and legal opinions.

OnDeck downgraded at Stifel; shares down 3.5% (Seeking Alpha), Rated: AAA

OnDeck Capital (ONDK -3.6%) managed to reverse big early losses and close flat yesterday despite a sizable earnings miss.

It’s moved back into the red today as Stifel’s John Davis downgrades to Hold from Buy, and cuts his price target to a Street-low $4.50 from $6.

Consumer Privacy Should Be Top-of-Mind for FinTech Firms to Avoid Scrutiny (BNA), Rated: AAA

With many people underserved by traditional lending institutions, including the close to 45 million adults in the U.S. who the Consumer Financial Protection Bureau estimates are “credit invisible” or have had past credit challenges, emerging FinTech lenders and online lending platforms (FinTech firms) have established themselves as valuable lending resources for both investors and consumers.

Undoubtedly, the digital footprints (both active and passive) left by consumers online offer valuable insights about those consumers’ preferences and behaviors, which can be useful to FinTech firms in assessing whether to extend credit. But the use of the Internet, which provides unprecedented access to an extraordinary amount of consumer information (some of which might be obtained without a consumer’s consent or knowledge), has raised significant privacy questions that FinTech firms might have to confront in order to overcome inevitable regulatory scrutiny.

In the context of marketplace lending, for example, which can include peer-to-peer lending as well as funding through institutional investors, hedge funds, and other financial institutions, market analysts estimate significant growth in loan origination volumes as well as an expansion in the types of products being offered. The California Department of Business Oversight conducted a survey of marketplace lenders and found that marketplace lenders provided over $13 billion in financing to consumers in 2014, having only provided less than $2 billion in 2010.

FinTech firms should be aware of potential risks about the types of alternative data they collect and the means through which they obtain that data. As the National Consumer Law Center has warned, “the devil is in the details” as the use of alternative data can potentially raise a number of significant legal issues, most notably fair lending and privacy concerns.

Gathering information from social networking systems, in particular, can provide significant information about a consumer’s interests and preferences, as well as the consumer’s location and travel history. While Internet users can furnish actively some of this information through entry of data into a system, a significant amount of information also can be gathered passively through cookies and the tracking of user IP addresses.

With the regulatory uncertainty surrounding the use of alternative data (caveating that regulatory priorities may shift under the current administration of President Trump), FinTech firms should consider carefully assessing what data they are collecting and maintaining to ensure that they are complying with current consumer privacy regulations.

Lending Club and MPL – One Year On from Renaud Laplanche’s Ouster (Lend Academy), Rated: A

Today, I thought it would be useful to take a step back and reflect on what we have learned in the past year.

  1. The industry is bigger than one person – the industry did not fall apart because of his departure.
  2. Investors still need yield and borrowers still like installment loans – The main premise for the rise of marketplace lending is still very much in play today. It is no secret that the growth of the industry over the past five years has been driven by institutional investors seeking yield. Lending Club shared in their quarterly earnings report last week that not only are the banks back investing in loans but they are doing so at record levels.On the borrower side there has been no slowdown in demand.
  3. Banks and marketplace lenders are important partners
  4. Compliance can be a selling tool – The sense I had is that compliance was viewed as a necessary burden and not something that could be a sales tool. That changed a year ago and now an investment in compliance has been viewed as essential.
  5. Finance is just as (perhaps more) important as technology when it comes to fintech – The narrative of marketplace lending has often been about the cost savings and customer experience improvements that can be made through advanced technology. I have seen many presentations that talked about how the legacy technology of banks are causing such inefficiencies and that fintech companies can solve this with better technology. All that may well be true but the bottom line we have learned is that in the lending business we should be focused on finance first. If you get that wrong the greatest technology in the world will not matter.

How technology mitigated a crisis in student loan ABS (American Banker), Rated: A

These programs slow the rate of repayment on Federal Family Education Loans, putting the bonds they back at risk of technical default if the securities fail to pay off at maturity. When Moody’s Investors Service and Fitch Ratings raised the alarm early in 2015, eventually putting some $100 billion of bonds under review for downgrade, the market sold off heavily. New issuance ground to a halt.

Yet Navient and Nelnet, the two largest student loan servicers, avoided downgrades on some $18 billion of FFELP bonds. They did so using a strategy that, at first, did not seem promising: extending the maturities of the bonds.

Their efforts were aided by DealVector, an online registry of asset ownership and messaging platform, which helped the two servicers identify holders and collect votes. Over the past year, the two servicers have sent about 165 tranches out for consent; some 60% of those were successful, and about 10% are still in process. The total original face value of tranches passed to date exceeds $18 billion.

Like other kinds of financial assets, FFELP bonds are held “in street name” by a brokerage firm, bank, or dealer on behalf of a purchaser, obscuring their true ownership. This isn’t just a problem for consent solicitations; it also imposes large costs on determining an appropriate price for a security, forming creditor classes, and many other events requiring communication among deal participants.

Real Estate Lender Zeus CrowdFunding Offers Industry’s First Loyalty Program (BusinessWire), Rated: A

Zeus CrowdFunding, the fastest real estate crowdfunding site in America, will offer borrowers a new incentive unmatched in the rapidly growing financial sector: the real estate crowdfunding industry’s first loyalty program. Repeat borrowers with the company can borrow up to 80 percent of a property’s after-repair value (ARV).

The program is called LoyaltyZ, and its mechanics are simple. On a borrower’s first loan with Zeus CrowdFunding, they’re eligible to receive up to 75 percent loan-to-value (LTV) of his or her approved project’s ARV. With each loan that they finish paying back to Zeus CrowdFunding, the borrower will receive one more point on their LTV on their next loan—up to 80 percent of the ARV. On a borrower’s second loan from Zeus CrowdFunding, for example, he or she is eligible to borrow up to 76 percent of the ARV; on his or her third loan, up to 77 percent, and so on. Beginning with his or her sixth loan, a repeat borrower can borrow up to 80 percent of the ARV on every loan.

Zeus CrowdFunding Founder and Chief Acceleration Officer Steven Kaufman says that LoyaltyZ was designed for real estate borrowers interested in completing multiple projects as quickly as possible. No additional sign-up or commitment is required of them.

Fintech Firms Primary Targets for Cybercrime Attacks (Think Advisor), Rated: A

Fintech firms are prime targets for cyberattacks, according to research revealing 130 million fraud attacks detected in just a 90-day period with the growth in attacks outpacing transaction growth by 50%.

Data revealed 50% more cybercrime attacks originating from all of Europe than U.S., the single most attacked nation, and increasing cyberattacks from South America.

The Q1 2017 Cybercrime Report also revealed that attack vectors and patterns are more evolved and malicious, including:

  • Remote access Trojans, which contain a strong footprint in the financial services industry.
  • Identity-spoofing attacks target fintech firms through peer-to-peer loans, global remittance and potential loopholes in new and emerging platforms. ThreatMetrix research showed an 80% increase in digital wallet transactions year-on-year as well as a 180% increase in associated bot attacks, typically used to mass test identity credentials.

According to ThreatMetrix, fraudsters use bots to mass test identity credentials and infiltrate trusted user accounts. New attack trends disclose fraudsters targeting emerging and fintech industries, which they view as more vulnerable to attack.

Read the report on cybercrime here.

Auto Loan Portfolio Marketplace with Automated Decisioning (BusinessWire), Rated: A

defi SOLUTIONS announces the launch of defi EXCHANGE, a secure, online portfolio marketplace where sellers of auto loan portfolios can access multiple buyers and manage the entire sales process. defi EXCHANGE improves efficiencies and profitability by automating and enhancing processes, revolutionizing the way auto loan portfolios are bought and sold.

With defi EXCHANGE, buyers no longer need to build their bulk deal evaluation outside their lending platform in spreadsheets and with manual processes that require extra data scrutiny and attention. Sellers no longer need to provide sensitive consumer data to many potential buyers and then follow up manually. defi EXCHANGE eliminates processing inefficiencies and allows for the complete evaluation and pricing provided by a Loan Origination System.

defi EXCHANGE resulted from the purchase of SellYourBulk.com, the first-ever auto loan marketplace that began operations in 2015.

IBM’s Watson ‘is a joke,’ says Social Capital CEO Palihapitiya (CNBC), Rated: A

IBM isn’t at the forefront of artificial intelligence, Social Capital CEO and founder Chamath Palihapitiya told CNBC on Monday, and he certainly isn’t a fan of IBM’s Watson.

“The companies that are advancing machine learning and AI don’t brand it with some nominally specious name that’s named after a Sherlock Holmes character.”

Digital Banking Inspiration from FinTech Disruptors (Silvercloud), Rated: A

Peer-to-peer payment systems like Venmo gained traction amongst the millennial generation and are beginning to make their way to the broader consumer population as banks consider the appeal in this convenient, paper-free payment approach.

Startups like Branch.co, ZestFinance and MyBucks are using AI and machine learning to offer low-rate payday lending loans. By relying on data and algorithms, these startups believe they offer a faster, more accurate and unbiased way to determine a consumer’s credit worthiness and their corresponding interest rate. Similarly, by removing the loan officer from the equation, these FinTechs can save on costs and ensure a profit from their low rate loans.

The importance of embracing mobile technology is not new in the banking sector. But what is new is how certain FinTech startups like Moven are using the mobile platform to offer services that help consumers better manage their money. Moven, which is an online bank of sorts that works alongside traditional banks, is giving consumers insight into their spending habits — offering them tools to see where their money is going and how they can better prepare for the future. It’s all about transparency and putting the consumer in control of their financial health.

While the technology to create automated investment advice is not new, access to it (by those who are not wealth managers) is. It’s simpler, more accessible and cheaper for the consumer.

Witnessing the success of FinTech robo-advisory startups, and the unmet need they are filling within the market, banks have begun jumping into this market.

If You Can’t Beat ’Em, Join ’Em. Why Banks are Starting to Partner with FinTechs.

Today there are more than 2,000 FinTech start-ups as compared to 2015 when there were only 800. This is why many banks and credit unions have changed their approach; instead of competing with the FinTechs, they are trying to partner with them.

At SilverCloud, we are helping banks and credit unions do just that — give their customers and members the ability to access all the information they need through digital banking channels without ever having to pick up the phone. We are helping banks and credit unions evolve with the demands of customers by providing an engaging digital experience that lowers support costs and drives more revenue through a better experience for the customer and member.

FIN Opposes Elements of CHOICE Act (Crowdfund Insider), Rated: A

Last week Financial Innovation Now (FIN), an alliance of companies which includes Fintech behemoths innovator Amazon, Apple, Google, Intuit and PayPal, spoke out against language used in the Financial CHOICE Act that would repeal debit swipe fee reform. In a letter penned by FIN Executive Director Brian Peters and addressed to US House of Representatives Speaker of the House Rep. Paul Ryan and Minority Leader Rep. Nancy Pelosi, FIN identifies debt reform’s promotion of payment innovation and tech advancement, identifying that “lower debit fees and improved routing choice have meaningfully spurred competition and technological development. Payment innovators are building on this opportunity to deliver real solutions to the marketplace, and more is on the way. This innovation should not be foreclosed.”

A Quick Guide to P2P Lending (IT Business Net), Rated: B

No system is perfect, and like any form of lending, P2P is not without its challenges. Many people are worried about the regulation of the P2P system, since it is fairly new, and laws have not come into effect to control the industry. Additionally, many Americans are worried about financial cyber security with all-online platforms, since data breaches are a frequent occurrence around the globe. Some of the biggest challenges, however, are on a smaller scale. Though P2P lending platforms don’t have the same requirements for borrowers that banks do, credit score can be an issue for some borrowers. It’s currently not possible to use a business credit score, meaning that poor personal credit could affect potential borrowers’ ability to get a loan at a decent interest rate.

Kingdom Trust Completes ‘Consider The Alternatives’ eBook Series (PR Web), Rated: B

Kingdom Trust, a leader in Self-Directed IRA, alternative asset and institutional custody solutions, recently completed its Consider the Alternatives eBook series. The collection of eBooks illustrates the investment potential of the four main alternative asset classes held on the firm’s platform: real estate, precious metals, private lending and private equity.

United Kingdom

iBAN Completes Seedrs Funding Round With More Than £110,000 in Funds (Crowdfund Insider), Rated: AAA

On Tuesday, iBAN completed its equity crowdfunding campaign on Seedrs with over £110,00 in funds.  The online lender was founded last year and launched the initiative in early January with a mission to raise £100,000 for its new crowdlending app, iBAN Wallet.

Interview with Managing Director of LandlordInvest (P2P Banking), Rated: A

LandlordInvest is a UK-based peer-to-peer lending platform for residential and commercial mortgages.

What are the three main advantages for investors?

  1. Security – I personally would not invest in unsecured loans given the risks and the potentially very lengthy enforcement process to reclaim part of the capital, if any at all.
  2. Returns – We offer returns of up to 12%, although we recently funded a loan with a rate of 19% to investors.
  3. Diversification

What are the three main advantages for borrowers?

  1. Manual underwriting – For us, the most important part of our assessment is that the borrower has a verifiable track-record and that the security is enforceable in the event of the default.
  2. Speed – we recently assessed a loan, had it fully funded and completed in two days.
  3. Online application with a simple online control panel

You recently launched an IFISA product. How has the investor uptake been so far and was it a big advantage to be in the forefront of approved providers?

The demand for our IFISA has been good. IFISA account holders, although only around 20% of the total registered investors, account for 50% of all funds on the platform. As such, IFISA account holders usually deposit more than non-IFISA account holders and also invest more.

What was the biggest challenge in launching LandlordInvest and what have been challenges since?

The biggest challenge has been operating under a “real” P2P model, i.e. no pre-funding of loans.

Which marketing channels do you use to attract investors and borrowers?

We use a multichannel approach including, establishing good relations with the press, having an interactive presence on various forums and blogs, affiliate marketing programs and social media presence.

I hear you are planning a secondary market? Will that work with premium and discounts or at par? What other features do you plan to roll out this year?

We are indeed developing a secondary market and expect to launch it in the beginning of May this year. Investors will only be able to sell loan or loan parts at par. Investors will also be able to sell parts of loans.

£266 bln of SME Turnover Delayed by Late Supplier Payments (Crowdfund Insider), Rated: A

The growth prospects of SMEs are being potentially stalled due to late payments, according to new research of over 1,000 SMEs commissioned by Crossflow Payments, the Fintech platform delivering supply chain finance solutions.

Keypoints from the research:

  • £266 billion is held up as 15% of SME annual turnover is subject to late payment
  • Over half (55%) of SMEs who receive payment late for invoices admit payment is regularly late by ten days or more, as a quarter (23%) of SMEs cite late payment problem
  • 3.4 million jobs could be created by solving the late payment problem, as two in three (63%)
  • SMEs would hire up to five new members of staff if their working capital improved
  • Businesses experiencing Brexit payment crunch, as one in ten (10%) SMEs have also witnessed worsening in payment terms since 2016 EU Referendum
China

CEO Of Chinese Fintech Firm Creditease On The Future Of P2P Lending In China (Forbes), Rated: AAA

Sara Hsu: Do you think that P2P [peer to peer lending] firms like yours are helping to make China’s financial system more market-based?

Ning Tang: The bigger picture is that P2P and fintech help the financial system to become more comprehensive. Fintech helps make the financial system more comprehensive, and helps make bank services more efficient.

Hsu: Many P2P companies have failed. What are some of the risks that P2P companies face?

Tang: There are three major risks. One is the platform itself. Is it legit? Is it legal? In many cases, you see fraud. The second risk is on the borrower, the credit quality side. Even if it’s a legit market place, if it cannot assess risk, it will not be sustainable. The third risk is on the lending side—is the source of capital sustainable?

Hsu: What is the impact of regulations on the industry?

Tang: Our experience is that it will make the industry more stable, healthier, and in the coming 10-20 years, it will be a much better industry.

Hsu: Do you advise other P2P firms in terms of credit risk?

Tang: In terms of pooling data together, we are partners. We made it possible for other market place lenders and new finance companies to access our data.

Hexindai Implements FICO’s Decision Engine (PR Newswire), Rated: AAA

Hexindai Inc. (“Hexindai” or “the Company”), a fast-growing consumer lending marketplace in China, today announced that it has entered into an agreement with Fair Isaac Corporation’s (FICO) to implement its decision rules management solution, BLAZE ADVISOR.  Implementation of this decision engine will allow the Company to automate the loan origination approval process, greatly shorten the decision-making time, and lower operational risks, all of which should help drive the Company’s risk management to a higher level. The Company expects to launch the system in the fourth quarter of this year.

European Union

Bitcoin lending platform Bitbond gets €5M debt commitment to boost loans (Crypto Ninjas), Rated: AAA

Bitcoin SME marketplace loan platform Bitbond today announced that it received a commitment from Obotritia Capital to fund loans worth €5 million. Additionally, Obotritia invested an undisclosed amount of equity in acquiring a stake in Bitbond.

With the debt commitment, SME loans from European prime borrowers will be funded instantaneously on Bitbond. This will reduce the time it takes for business owners to apply and receive a loan to 30 minutes.

Over 1,700 loans worth €1.4 million were originated through Bitbond since its launch in 2013. 90,000 users from 120 countries registered with the service to date.

International

KPMG acquires Matchi, global fintech innovation and matchmaking platform (Crossroads Today), Rated: AAA

KPMG International has announced the acquisition of Matchi, a leading global fintech innovation and matchmaking platform that connects financial institutions, including banks and insurance companies, with leading-edge financial services technology solutions and companies worldwide.

The Matchi platform includes more than 700 curated fintech solutions and a database of more than 2,500 fintech companies that financial institutions can work with to apply innovative fintech capabilities to solving their business problems and pursuing new market opportunities.

Fintech companies and solutions are reviewed and undergo a curation process in order to qualify to appear on KPMG’s innovative Matchi platform. Financial institutions are able to search for a specific company or solution, or they can use the platform’s proprietary “Innovation Challenge” capability to present specific problem statements to the global fintech market and receive recommendations on solutions from Fintech innovators.  In this way, financial institutions are able to access and unlock the leading edge technology and deep customer insight of the world’s best fintech firms for their own operations.

Since its inception in 2013, Matchi has connected more than 100 leading banks and insurance companies with fintech innovations, including solutions in next generation payments, regtech, blockchain and P2P insurance.

7 Ways Fintech Is Changing The Job Market (Huffington Post), Rated: A

Fintech grew 11 percent in 2016 making it a $17.4 billion industry.

The revised Payment Services Directive (PSD2) in Europe takes effect in 2018. PSD2 enables users to allow third parties access to bank accounts.

  1. Remote work becoming more viable – Due to the perks of working remotely, many professionals have also opted to become independent contractors over regular employment.
  2. More payment options for employees – There are now even a variety of ways to get paid due to the rise of payment services and digital currencies. Some companies now offer wages in Bitcoin as an alternative to traditional currencies. Some freelancers based in countries where cross-border payments are difficult even take gift cards as payment.
  3. Fintech-empowered rewards and benefits – Aside from digital currencies, the growth of brand loyalty cards also now gives employers options to reward staff.
  4. New technical skills required
  5. Soft skills are increasingly important
  6. More job cuts in traditional institutions likely – Last year, Bank of America laid off 8,400 jobs as the bank invests more in digital initiatives. Brick-and-mortar banks branches even face closure as online and mobile banking grow. In addition, major developments in artificial intelligence and machine learning now allow for the automation of tasks across business functions. Chatbots are now being used to function as front liners in sales and support. Robo-advisors also challenge the competence of human financial advisers. Job cuts are inevitable as these technologies mature.
  7. More opportunities with startups – Those who are displaced from traditional institutions may look into retooling and transitioning to fintech ventures instead. Fintech is a growth industry and there are a variety of segments to venture into. Currently, most fintech ventures are in payments, investments, lending, and personal finance though others are already working on insurance and foreign exchange.
Australia

RateSetter welcomes Australian banking reforms (P2P Finance News), Rated: AAA

RATESETTER’S Australian division has welcomed the country’s banking reforms unveiled in the Federal Budget on Tuesday.

Changes imposed in the major fiscal event include a bumper levy on the country’s biggest banks, an “open banking” scheme to give customers greater access to their banking data and measures to boost competition and accountability in the sector.

The Productivity Commission, an independent review and advisory body created by the Australian government, published its recommendations for banking reforms on Monday ahead of the Federal Budget. The organisation suggested that banks build APIs to enable data sharing with customers.

Canada

Flexiti Financial Appoints COO, CRO to Growing Executive Team (Sys-Con Media), Rated: A

Flexiti Financial, a leading provider of point-of-sale (POS) financing and payment technology for retailers, today announced the appointment of Jerome Peeters as Chief Operating Officer (COO) and Colin Franks as Chief Risk Officer (CRO) to its senior executive team. Both positions are newly created and come at a critical time for Flexiti Financial as the company continues to experience rapid growth in the consumer financing space.

Mr. Peeters joins Flexiti Financial from B2B Bank, where he served as Vice-President, Operations and Client Services. Prior to this, he spent four years at Sears Canada in a series of progressive senior marketing and operational roles within Sears Financial Services and the broader company. Before joining Sears, Mr. Peeters was Senior Director, Marketing and Change Management at CIBC, supporting the President’s Choice Financial business.

Mr. Franks was most recently Chief Risk Officer, Canadian Credit Cards at JP Morgan Chase where he managed Risk across several retail partners including Sears, Amazon and Best Buy. Before joining JP Morgan Chase, he spent over nine years at MBNA managing all aspects of the Risk lifecycle and eventually becoming Director of Strategic and Risk Planning.

Authors:

George Popescu
Allen Taylor

Tuesday April 25 2017, Daily News Digest

UK digital lending

News Comments Today’s main news: VantageScore to include trending data or excessive credit capacity. Patch Homes exits beta, raises $1.5M. Chinese industry news. Today’s main analysis: The debate over U.S. fintech regulation. UK digital lenders can grow with more tech innovation. Today’s thought-provoking articles: FC lending impact, borrower stories. United States VantageScore to include trending data or excessive […]

UK digital lending

News Comments

United States

United Kingdom

International

China

India

Asia

News Summary

United States

Major changes coming to how your credit score is calculated (CNBC), Rated: AAA

The math behind your credit score is getting an overhaul, with changes big enough that they might alter the behavior of both cautious spenders as well as riskier borrowers.

The new method is being implemented later this year by VantageScore, a company created by the credit bureaus Experian, TransUnion and Equifax. VantageScore handled 8 billion account applications last year, so if you applied for a credit card, that score was likely used to approve or deny you.

Using what’s known as trended data is the biggest change. The phrase means credit scores will take into account the trajectory of a borrower’s debts on a month-to-month basis. So a person who is paying down debt is now likely to be scored better than a person who is making minimum monthly payments but has been slowly accumulating credit card debt.

An important metric in calculating credit scores has been the portion of their available credit people are actually using. A person with $5,000 in credit card debt with a $50,000 limit across several cards could score better than someone with $2,000 in debt on a $10,000 limit because of that ratio.

But VantageScore will now mark a borrower negatively for having excessively large credit card limits, on the theory that the person could run up a high credit card debt quickly.

Taking civil judgments, medical debts and tax liens out of the equation comes after a 2015 agreement between the three credit bureaus and 31 state attorneys general.

People with those items on their credit reports now could see a bump of as much as 20 points. But it won’t help much if they also have negative marks like delinquencies and debts that have gone to collection.

Mortgages, though, won’t be affected.

An obscure regulatory debate has put the entire U.S. fintech community on edge (TechCrunch), Rated: AAA

An obscure request for comments on regulatory standards, released by the Office of the Comptroller of the Currency (OCC) last March, has since evolved into a complex turf war between the states and Washington, DC.

The debate centers around a proposal made in December by Thomas J. Curry, the Comptroller of the Currency, in which the OCC details a program for fintech companies to apply for charters as “special purpose national banks.”

Though fintech can still be thought of as a relatively young industry, it is growing quickly enough that it may soon determine how most people save, exchange and invest their money. This proposal comes at a time when the world — from the U.K. to Germany to India to Korea — is evaluating what kind of guard rails the fintech sector needs.

With this in mind, the OCC wants to take the first step to create a uniform, nationwide set of standards for fintechs. But what should have been an uncontroversial first step instead unearthed a slew of objections from a complex web of stakeholders. These parties quickly raised concerns about stifling innovation, overstepping the limits of federal authority and understanding the nuances of fintech, among many others. At the very heart of this battle is the question of what fintech really is. And as evidenced by the debate, that question is much harder to answer than it may seem.

Financial malpractice is just as pernicious today. In its first five years, from 2011 to 2016, the new Consumer Financial Protection Bureau (CFPB) received more than 900,000 consumer complaints about financial services providers.

Fintechs themselves have not been free from fraud and scandal. The publicly traded TrustBuddy, based in Sweden, was forced into bankruptcy for massive misappropriations of investor funds. Cincinnati-based SoMoLend came under similar fire for misleading investors. And China’s peer-to-peer lending sector has spent years battling its way out of the shadow of massive fraud that has tainted the industry.

Weirdly enough, fintech companies, which will arguably be the most impacted by the charter, have been relatively quiet. The strongly vocal opponents of the charter have been an alphabet soup of state regulators, who view this move as a broad overreach of federal authority:

  • New York: DFS Superintendent Maria T. Vullo in January released a stern public comment letter to the OCC. In it, she argued that banks with national charters don’t have to abide by some state lending rules, and this charter could allow payday lenders to sign up for protections meant for tech companies.
  • Florida: OFRC Commissioner Drew Breakspear called the charter a “solution to a problem that does not exist.”
  • Ohio and Oregon: Senators wrote in to the OCC saying this would complicate existing state fintech laws and initiatives.
  • California: Jan Lynn Owen, the commissioner of the CA DBO, argued that the proposal would complicate the DBO’s efforts to compile data on online marketplace lenders — such as fintech firms SoFi, Lending Club, Funding Circle and Prosper — in order to separate them from payday lenders.

Even so, to give some credit to regulators, there are still very real reasons this charter could easily hurt the not-nascent-but-not-yet-matured fintech sector in many ways:

  1. Bureaucracy: The OCC has granted only one national bank charter in the last six years. Would it move quicker to enable fintechs? It’s difficult to see how it would.

  2. One-size-fits-all: Fintechs are too diverse to be included in a charter generally drafted to legitimize deposit-holding institutions. As The Hill notes, this charter could lump together “payday lenders, marketplace lenders, and peer-to-peer payment companies” with robo-advisers, bank service providers, insurance tech, stock market apps, etc… Should they all be treated as banks?
  3. A competitive moat: Though the charter could narrow the gap between fintechs and banks, allowing fintechs to compete nationally instead of applying for state-by-state licenses, it could also lead to a “thinning of the herd” by being too cumbersome or expensive for young companies. This could easily stifle innovation.
  4. More compliance risks: Fintechs could find themselves written into a narrower and narrower regulatory box, increasing the chances they’re shut down for benign compliance missteps.
  5. Balkanized regulators: Similar to the CFPB’s “no action letter,” which promises the bureau won’t take action against companies that meet its standards, gaining a charter from the OCC still won’t shield fintechs from other regulators who may have different rules.

Predictably, it seems national regulatory agencies such as Moody’s are in favor of the charter. Credit unions, which see the charter as a way to level the playing field with fintechs, are also in favor. The Conference of State Bank Supervisors is against it. It seems everyone but fintechs themselves has an opinion on the charter.

Despite the heated pushback against the OCC’s charter plan, there are still very good reasons for centralized, consistent and national oversight of the fintech industry. As ex-Treasury Secretary Tim Geithner notes in Stress Test, his excellent memoir of the financial crisis, one of the reasons the Great Recession was so bad was that the “safeguards for traditional banks weren’t tough enough […] but what made our storm into a perfect storm was nonbanks behaving like banks without bank supervision or bank protections.”

Then what would a good set of national fintech regulations look like?

  1. It would set basic underlying consumer protections. For instance, no fintech firm should be allowed to misrepresent its fees — and this is something that shouldn’t vary by state.

  2. It would preserve state sovereignty.

  3. It would recognize the heterogeneity of fintech. Most fintechs disintermediate banking services, each tackling only one of a wide range of services. On top of that, some fintechs (Zopa, SoFi) are themselves starting to build banks, while others (Moven, Monzo, Atom) want to be “bank-lites.” A banking charter runs the risk of being too broad (and weak) or too narrow (and inflexible). Regulation should be flexible enough to encompass new fintech models as they develop, without risking losing its teeth.

  4. It would promote innovation while following the Hippocratic Oath of first doing no harm.

Like many black markets, alternative finance and shadow banking would be safer if it were brought into the light and monitored.

Patch Homes Exits Private Beta and Raises $ 1M to Revolutionize Home Equity (Patch Homes Email), Rated: AAA

Patch Homes, a home equity financing platform that creates a way for existing homeowners to cash out equity at 0% interest with no monthly payments, today announced it is coming out of private beta in California. The company recently secured $1.0 million in seed funding, led by prominent venture capital firms and fintech angel investors, including Techstars Ventures, KIMA Ventures, Eric DiBenedetto and Airbnb co-founder Nathan Blecharczyk, among others.

“There’s a problem with the current home financing market, in that 67% of homeowner wealth is trapped in home equity,” said Sahil Gupta, Co-founder of Patch Homes. “Most homeowners are asset-rich but cash-poor, and we want to help bridge that gap and solve their cash flow problems. Our model offers home equity financing without any monthly payments, allowing homeowners to tap into their home equity and use their money the way they choose, whether to pay down debt, invest in their future, or make needed home improvements. Each Patch Homes’ product should be a step toward making homeownership a more affordable, accessible and liquid investment.”

In exchange for 0% interest, Patch Homes shares in future appreciation or depreciation of the home value. The model allows customers to receive capital from investors to finance their home equity, without interest rates or monthly payments, in exchange for a fraction of future home value change. Both the homeowner and investor will see a profit when the home appreciates in value and Patch Homes will share in downside loss with homeowners, should the house decrease in value.

Each contract has a 10-year term, although homeowners have the option to exit the contract by selling or refinancing their home at any time before that, without any penalty or exit fees. In the meantime, homeowners can use the cash newly freed up from home equity however they choose.

“What’s unique about Patch Homes is that it’s solving a problem for more than 40% of US homeowner population,” said Eric DiBenedetto, an investor in Patch Homes, an early backer of Lending Club and an active real estate investor.

The company has reached several key milestones in the past year, including launching a digital financing portal for homeowners and bringing investor capital to the company platform.

“Throughout our beta program, we saw homeowners engage deeply with the product and debt-payoff was among the top reasons for cashing out equity” said Sundeep Ambati, Co-founder of Patch Homes. “We’re excited about bringing a new approach to the way Americans look at financing their homes. There is over $4.5 trillion in untapped home equity across millions of homeowners in the US. They want something that is suited to their needs and financial circumstances.”

The seed funding will enable Patch Homes to expand its team and geographical footprint, and continue to develop its innovative solution and assist with marketing efforts. Patch Homes currently serves homeowners in California, with plans to expand to additional states before the conclusion of the year.

KBRA Upgrades and Affirms Ratings on Avant Loans Funding Trust 2016-B (KBRA Email), Rated: A

Kroll Bond Rating Agency (KBRA) upgrades the rating on two classes and affirms the rating on one class of notes issued under the Avant Loans Funding Trust 2016-A (AVNT 2016-A), a consumer loan ABS transaction which closed on April 28, 2016.

The current credit enhancement levels are 86.62% for the Class A notes, 47.01% for the Class B notes, and 23.86% for the Class C notes. Credit enhancement consists of overcollateralization, subordination of junior notes, cash reserves, and excess spread. While losses are above KBRA’s base case loss expectation to date, the continued deleveraging and build in credit enhancement outweighs an increase in loss levels. The transaction has breakeven loss multiples which are sufficient for an upgrade of the rating on the Class A and Class B notes and an affirmation of the rating on the Class C notes.

Read the report here.

CommonBond Launches Student Loans for Undergraduate, Graduate Students (Yahoo! Finance), Rated: A

CommonBond, a leading financial technology company that helps students and graduates pay for higher education, today announces the launch of student loans for undergraduate and graduate students. This launch makes CommonBond the first and only company in the country to offer a full suite of student loan solutions, including loans for current students, refinance loans for graduates, and employer student loan benefits for employees.

“Since CommonBond first helped pioneer student loan refinancing nationwide, we’ve seen very little innovation in the student loan industry,” said David Klein, CEO and co-founder of CommonBond.

CommonBond’s new in-school loans provide:

  • Competitive interest rates: CommonBond’s rates are among the most competitive in the industry, with variable rates starting at 2.87% APR with autopay discount and fixed rates starting at 5.50% APR with autopay discount.
  • Flexible repayment options: CommonBond offers four different repayment options for students in school: deferment, fixed monthly payment, interest-only payment, and full monthly payment.
  • Award-winning customer service: CommonBond knows that paying for college is the first major financial decision that many students make, and provides best-in-class care for prospective and current members.
  • An industry-first social mission: CommonBond enables its members to drive social good when taking out a student loan. For every student loan funded by CommonBond, the company also funds the education of a child in need through a partnership with Pencils of Promise.

CommonBond is also introducing an interactive tool that helps students understand the financial impact over time of different student loan options, enabling them to make informed financial choices.

CommonBond has funded more than $1 billion in loans to date.

LendKey Releases State Of Student Loan Refinancing Report (PR Newswire), Rated: A

LendKey, the lending-as-a-service provider for banks and credit unions, today released its Student Loan Refinance Report, its second in a series that highlights borrower trends across banks and credit unions. This latest report focuses on the state of student refinancing including the borrower demographic, their lending preferences and loan performance. Key findings show that the student refi market is healthy for banks and credit unions, as well as borrowers, who save an average of 2.2% in annual interest expense after refinancing.

“The LendKey report found that students who refinance significantly reduced their student loan debt over the life of the loan, a substantial amount considering the average student debt is $37,000 for the class of 2016,” said Salil Mehta, SVP of Credit Risk & Analytics, LendKey. “The overall health of the student refi industry proves how beneficial such products are to financial institutions and their millennial customers.

The report leverages data from LendKey’s network of 275 bank and credit union partners nationwide, and examines a seven-year span of borrower data from 2011 – 2017. Key highlights of the report include:

  • Loan originations: LendKey’s clients totaled $770+ million in originations; outstanding loan balance was close to $620 million.
  • Borrower savings increased: Borrowers saved an average of 2.2% in annual interest expense over the life of each loan.
  • Borrower age increased: Average age of a borrower has increased slightly over the years; in 2016 the average age at the time of refinance was 28.7 years for a borrower with an undergraduate degree and 34.3 years for a borrower with a graduate degree.
  • More graduate students are refinancing: In 2016, borrowers with a graduate degree represented close to 30% of originations compared to 20% in 2011.
  • Delinquency rates have dropped: Loan performance has improved over the past seven years as delinquency and default rates have dropped. The report found that 30-89 and 90+ day delinquencies are currently 2.2% and 0.5%, respectively.

Student loan debt now exceeds $1.3 trillion and is the largest non-real estate debt among US consumers.

LendKey partners with banks and credit unions to offer a complete online lending solution, including a customized refinancing product. LendKey’s services include loan acquisition, loan origination and loan servicing through a white-labeled platform hosted by the financial institution.

To access the full report, visit: 

SmartBiz Loans Adds Five Star Bank to Technology Ecosystem (SmartBiz Loans Email), Rated: A

SmartBiz Loans, the first SBA loan marketplace and bank-enabling technology platform, today announced the addition of Five Star Bank (www.fivestarbank.com) to the Company’s unique technology ecosystem. SmartBiz Loans’ intelligent technology platform will match Northern California-based Five Star Bank to the right customers in a fraction of the time, allowing the bank to originate SBA loans more efficiently while increasing the likelihood that small business owners using SmartBiz® will receive funding.

The partnership underscores the ability for banks and fintech companies to work together in more creative and collaborative ways to better meet customer needs by combining the speed and agility of new technology with the security and infrastructure of traditional banks. SmartBiz Loans’ focus on regulatory compliance along with their deep knowledge of banks’ unique business requirements, make it an attractive partner for banks looking to expand their reach and ability to underwrite SBA loans.

SmartBiz’s full-stack, intelligent technology platform creates an environment of data stewardship in which banks’ data is protected and analyzed to the highest standard. It incorporates elements of artificial intelligence, machine learning and big data analytics to bring agility and efficiency to underwriting and originating government-backed SBA loans. By automating each bank’s underwriting criteria, SmartBiz eliminates weeks of work for banks, and allows banks to originate more loans to customers they may not have previously served while cutting banks’ processing costs by up to 70 percent. On average, 90 percent of the loan applications SmartBiz refers to its bank partners are approved.

PeerRealty Founders Shift Energy to Secondary Market Platform CFX Markets (Crowdfund Insider), Rated: A

Following the announcement that real estate crowdfunding platform PeerRealty had been sold to Brelion, founders Jordan Fishfeld and Juan Hernandez are shifting their energy to solving a pressing issue in the alternative finance space: creating a secondary market for alternative assets including securities sold on real estate crowdfunding platforms.

CFX Markets is described as an end-to-end digital marketplace that is directly integrated with alternative asset issuers, broker-dealers and transfer agents to streamline the process of secondary market trading of alternative assets.

CFX Markets is not alone in targeting this emerging opportunity. Traditional marketplaces such as OTC Markets, NASDAQ and NYSE have each expressed a certain amount of interest in providing liquidity for new asset classes.

Andy Rachleff, Co-founder and CEO, Wealthfront (Stitcher), Rated: A

Christophe Williams (MBA ’18) chats with Andy Rachleff, co-founder and CEO of Wealthfront. Andy discusses a wide range of topics in FinTech, investing, and how to grow tech companies. He goes in-depth on Wealthfront’s competitive advantages in automated investing and how he approaches product/marketing strategy to grow sustainably. Also covered are Andy’s background in venture capital, the process of founding Wealthfront, and how he sees disruptive innovation affecting financial service incumbents.

The Five Key Elements for New Lending Club and Prosper Investors (Lend Academy), Rated: A

April is officially Financial Literacy Month here in the United States so with that in mind I am providing this resource for new investors in Lending Club and Prosper.

  1. Diversify Your Investment
  2. Expect Defaults
  3. Keep Your Cash Balance Low
  4. Automate Your Investing
  5. Avoid Taxes by Investing Through an IRA

Why the future of credit could lie in ‘social vouching’ (Tearsheet), Rated: A

For Kundu and others working in the space, ‘inclusion’ is more about creating a another kind of credit system that’s based on social vouching and support. Inspirave’s platform, Kundu said, brings in the notion of a social network of friends and family that can help an individual reach their financial goals and in turn, help vouch for the individual. Instead of a formal credit score, the idea of using a social network of referees acts as a powerful counterpoint to traditional credit assessment systems that exclude millions of Americans who don’t have bank accounts or credit cards.

“We don’t think of traditional due diligence of loan underwriting, a formal business plan or technical due diligence,” said Kelly Chan of Kiva U.S., a nonprofit that’s the U.S. arm of a global online marketplace for crowd-funded small-scale loans. “We’re looking to a social community knowing you have a group of supporters to back you or vouch; for example, ‘Sally is a wonderful mother worthy of Kiva loan.’”

The notion of ‘social underwriting,’ Chan said, can create economic opportunities for Kiva’s 3,700-strong community, many of whom are small-business owners.

GAO’s Fintech Report Highlights Data Security, Lack of Clarity on Regulatory Oversight (National Law Journal), Rated: B

Other risks aside from data security cited by the GAO in fintech include:

Marketplace lending: The GAO said payment terms presented by fintech companies in this area must be transparent because “it can be difficult for small businesses to understand and compare loan terms such as the total cost of capital or the annual percentage rate.”  The study also suggests there is a risk that small business borrower protections could be overlooked.

Mobile payments: The GAO study indicates that potential risks associated with mobile payments are similar to those found with traditional payment products. The report states that if a smartphone is hacked, lost or stolen or “if a company does not sufficiently protect mobile transactions,” that could be problematic. Another concern is that consumers could deposit or send money to the wrong person with P2P payments.

Digital wealth platforms: Insufficient or incomplete information from customers could cause trouble for digital wealth platforms.

Distributed ledger technology: “The Financial Stability Oversight Council noted that market participants have limited experience working with distributed ledger systems, and it is possible that operational vulnerabilities associated with such systems may not become apparent until they are deployed at scale,” the report said.

Find out how startups are transforming real estate investing at Disrupt NY (TechCrunch), Rated: B

First up is Ryan Williams, CEO of Cadre, a company that provides a marketplace of investment opportunities for real estate investors. Founded in 2014, Cadre does all the sourcing, due diligence, decision-making and management of investments it makes available, providing a greater level of transparency and oversight to potential investors than was previously available.

Also joining us is Eddie Lim, CEO of home equity platform Point. His company enables homeowners to unlock the value of real estate they own by selling equity to investors rather than accruing debt by refinancing their homes.

Bankruptcy Atty Bruce Feinstein Speaks About The Risks of Online Lending Services (PRWeb), Rated: B

A sudden need for money, like an unexpected medical expense, can lead people to seek a quick source of cash. Online lending services have been eager to fulfill this need, offering fast loans without a credit check. But these loans often come with a slew of consequences, such as high interest rates, hidden fees, and contracts that drag out payments.

“Predatory loans like these can have APRs of over 300%,” explains Mr. Feinstein. “People end up paying several times the cost of the original loan without knowing it, leaving them with no choice but to file for bankruptcy.”

There are some protective laws in effect – for example, the Military Lending Act protects active duty members from being charged interest rates higher than 36% on most consumer loans, including payday loans.

United Kingdom

UK digital lenders can harness growth opportunities with more tech innovation (S&P Global), Rated: AAA

While the U.K. government regulates and champions these lenders, their loan origination growth has trailed that of their U.S. peers. Lower amounts of equity funding to build out technology and continued use of more human processes compared to U.S. digital lenders are some of the reasons for this divergence. Now is the time for U.K. platforms to embrace technological innovation in order to capture future growth opportunities.

A new report by S&P Global Market Intelligence estimates that as of the end of 2016, nine key digital lenders in the U.K. had originated £6.69 billion in loans since their respective inceptions. The nine largest platforms covered in our 2016 U.S. Digital Lending Landscape had originated the equivalent of £53.69 billion from their respective inceptions through the end of 2016.

Using data from venture capital database Crunchbase, we see that as of the end of 2016, nine major U.S. digital lenders, excluding Square Inc.’s digital lending platform, had received $3.49 billion in equity funding. This allowed them to invest more in costly technological build-ups, while their U.K. peers had received only $470.6 million in equity funding through the same date.

In the fourth quarter of 2011, only four of the nine lenders in our report were originating loans. Total originations for that quarter came in at just £27.2 million. Quarterly originations for these nine lenders grew 33.79% year over year to £803.6 million in the fourth quarter of 2016. During the second quarter of 2016, originations dropped due to uncertainty related to Brexit but rebounded in the third quarter and continued to grow.

Meanwhile digital lenders saw SME loan originations increase 23.9% year over year in the third quarter of 2016, followed by an 81.8% year-over-year jump to £357.5 million in the fourth quarter.

Digital lenders in the U.K. could enjoy significant growth as new account options and continued political and regulatory support boost awareness of and participation in the industry. With these prospects on the horizon, digital lenders will need to invest in technology and automate some processes that humans currently handle.

Your April Impact – Lending Impact and Borrower Stories (Funding Circle), Rated: AAA

This month we hit more than 60,000 investors, big and small, lending to businesses through Funding Circle. Together your lending is having a real impact on the UK economy. Already in 2017 you’ve helped more than 5,000 businesses access much needed finance to grow and prosper.

Firstnet create 100 new jobs in Leeds

To facilitate the launch of their new data centre, Firstnet Solutions Ltd borrowed £74,480 in October 2016.

Paralympian goes for gold with a Funding Circle loan

Husband-and-wife team Peter and Linda Norfolk are well-experienced in achieving excellence. Nicknamed ‘The Quadfather’, Peter Norfolk OBE is a double paralympic gold medal and multiple Grand Slam winning wheelchair-tennis player, while Linda was Head of Physio for the Paralympic GB team at the Athens Games.

To hire two new members of staff, Equipment for the Physically Challenged (EPC) borrowed £30,000 in 2016.

Flux wants to make paper receipts obsolete (TechCrunch), Rated: A

Flux, a London-based fintech startup founded by three early employees of foreign exchange and banking app Revolut, is on a mission to make store receipts truly digital.

The company, which is de-cloaking this week with a pilot in East London, has built a software platform that bridges the gap between the itemised receipt data captured by a merchant’s point-of-sale (POS) system and what little information typically shows up on your bank statement or mobile banking app.

To be clear, this isn’t digitising paper receipts with OCR, but — by partnering with merchants, their payment processor/POS systems, and banks — making item level receipts digital in the first place. Flux’s first live integration is with EAT and Bel-Air on the merchant side, and digital-only bank Monzo.

“We are… building a software layer that is agnostic to the financial institution or retailer that it plugs into,” Cusden-Ross says. “We connect retailers via a software plug-in to their point of sale and to the consumer via an integration to their mobile banking app. Flux automagically links receipts to your bank card as you pay. Receipts are stored in the same place your transactions live today, your bank statement. Just open up your bank app and you’ll find all the receipts as well as any loyalty right there, it’s seamless and intuitive”.

LendInvest completes its first Scottish refurbishment loan (Development Finance Today), Rated: A

Launched in February, the new product is lent against a borrower’s gross development value (GDV) to provide more leverage for the developer and reduce the capital needed up front.

Upon completion of the refurbishment, the property will be a two-storey house with three bedrooms and is expected to be sold for around £375,000.

The loan was based on 70% GDV over nine months at a rate of 1.1% per month.

International

Alternative Finance And The Rise Of The Fintech Unicorn (Forbes), Rated: A

China’s fintech sector certainly boomed last year especially after Alibaba’s payments company Ant Financial set records with a $4.5 billion funding round. The impact of Brexit is yet to be seen on the UK and Europe as a whole, but investors are still seeing the potential for financial technology  in the region, according to the report. G.P. Bullhound highlights that the UK could  be described as a standout leader because of three fintech unicorns, or companies that are valued at over $1 billion: Funding Circle, Paysafe and Transferwise.

Despite Asia’s leadership and growth in the alternative finance space, the same could be said about the European market.

Statistics revealed in the report that alternative finance is currently the most successful fintech vertical, ahead of digital payments, digital banking, insurtech and asset management. While in China eight of the 13 fintech unicorns are operating in the alternative finance field, the term ‘alternative’ is somewhat less relevant in the UK and G. P. Bullhound claim that this is because these regions are held back by traditional systems. Perhaps this is why China is forging ahead in the financial technology race?

China

Industry News-China (Xeenho Email), Rated: AAA

In China, 55 P2P lending platforms cooperating with insurance companies, accounting for 1/6 of all the platforms. Currently, the types of insurance applied in P2P are mainly surety insurance and safety insurance for personal account. However, the insurance is not unlimited. According to a drafted document from China Insurance Regulatory Commission: if the policy holder is a natural person, the maximum coverage is 1 million RMB.

China launched special rectification action on Cash Loan business

To implement the special rectification of risks of P2P Lending required by P2P Remediation Office, the first tier cities including Beijing, Shanghai, Guangzhou and Shenzhen have been starting an all-round investigation of Cash Loan. Last Thursday, the Association of Internet Finance of Shenzhen promulgated documents to asks platforms submit details of Cash Loan business monthly.

On April 18th, a Cashless Alliance led by Alipay launched in Hangzhou, China. UN Environment and Ant Financial advocate a low-carbon business together with other 15 alliance members. As one of the sponsors, the parent company of Alipay, Ant Financial announced that they will provide 6 billion RMB to help the process of cashless in two years. The efficiency of business will be promoted by 60% by using the cashless pay and data sharing. Every 3580 payment equals to the plant of a bell hammer. The existing Alliance members including: Alipay, Carrefour(China), CAH, HUAQIANG Group, OFO Inc., BESTORE etc. Now, the alliance is open for all the global businesses and organizations.

The Challenges China’s Fintech Sector Will Need To Tackle For Longterm Growth (Forbes), Rated: A

Venture capital investment in Chinese financial technology firms surpassed $6.7 billion in 2016. The reason for this is simple: China is home to the largest markets for digital payments and online lending. About 40% of consumers use new payment methods. As a result, China boasts the world’s four largest fintech “unicorns,” or startups valued at over $1 billion, including Ant Financial, Lufax, JD Finance and Qufenqi. These firms received large amounts of funding in 2016, with Ant Financial alone receiving $4.5 billion.

China Rapid Finance, a peer to peer lending company, has been approved for listing on the New York Stock Exchange and is planning to raise $100 million for its IPO. Chinese fintech firm CreditEase signed an agreement to provide up to $1.4 billion in funding to American real estate firm Tishman Speyer through sales of its wealth management products.

China’s fintech industry faces some major challenges, however. First is a shortage of skilled workers, and second are increased regulations, particularly in the digital loan sector.

Companies face difficulties in filling positions for software developers and product managers.

The China Banking Regulatory Commission published the Guidelines on Depositing and Managing Online Lending Capital in February, requiring user funds be deposited into commercial banks, transactions be approved by both borrower and lender, and clear records of transactions be recorded. This will help to curb the risky behavior of industry firms, about 60% of the roughly 5,000 which fail to comply with regulations.

Sailing Capital Leads $ 60M Round In Chinese AI Firm SenseTime (China Money Network), Rated: A

Sailing Capital International (Shanghai) Co., Ltd., a RMB-denominated investment and loan fund created under the support of the Shanghai Municipal Government, has led a US$60 million series funding round in SenseTime, a Beijing-based artificial intelligence start-up.

Founded in 2014, SenseTime says its face recognition technology has an error rate below one in 100,000. It also provides text, vehicle and image recognition to mobile Internet companies, financial services and security companies.

India

‘Fintech Disruption In Lending Space Is Very Slow Now’ (Entrepreneur India), Rated: A

The peer-to-peer (P2P) lending space is fast becoming popular in India and abroad as a viable option for borrowers and lenders. The model’s success lies in its ability to connect borrowers, who are in dire need of money with lenders, who are ready to provide for higher returns.

According to Rajat, the disruption by the fintech sector is very slow right now.

“It would be false to state that the fintech companies are eating into the role of banks and NBFC. The sector can really grow very fast. In the next five to 10 years, we will observe a lateral shift in the trend with more and more customers moving to the digital mode, especially for financial services that lend itself to the digital platform like music industry,” he added.

Asia

Visa’s new partnership to develop FinTech talent in Singapore (Human Resources Online), Rated: A

With an increased prominence of fintech in Singapore, demand for locals with the relevant knowledge and skills have gone up. In order to nurture future talent in the industry, Visa today announced a partnership with local polytechnics and Singapore FinTech Association.

According to a press statement, as part of this partnership, students from the five polytechnics in Singapore will have the opportunity to engage with payment experts from the global payments technology company.

“Through this initiative, students will attend learning sessions conducted by Visa representatives and be involved in business case challenges. We hope to inspire our young talent to join this exciting community,” she added.

Authors:

George Popescu
Allen Taylor

Wedneday March 29 2017, Daily News Digest

ron suber fraud

News Comments Today’s main news: How to build a $100 billion company. Square launches in UK. Century-old Thai bank plans digital revamp. ClaimVantage raises funds to expand into Asia. Today’s main analysis: Tech will lead to new sub-prime crunch. Today’s thought-provoking articles: An unofficial chat with Ron Suber. How technology is changing online credit checks. Legal considerations of running a […]

ron suber fraud

News Comments

United States

United Kingdom

China

Asia

MENA

Africa

News Summary

United States

Tech will lead to new sub-prime crunch (TechCrunch), Rated: AAA

The tables below demonstrate cumulative changes in interest rates for Lending Club and Prosper. Although the rate for high-grade loans for Lending Club has slightly increased over time, while dropping a little for Prosper, the tendency for both companies is similar: They are widening the gap between low and high-grade borrowers.

Since 2013, the top 40 percent of earners have accounted for 84 percent of all new income and 34 percent of new debt, which led to a material reduction in aggregate leverage relative to income and provided for consistent growth of retail sales, as this cohort represents 65 percent of total consumption. According to the article, the recession will be a result of a material reduction in consumption from these top earners, who have historically followed the deterioration of lower and middle-income households.

With the penetration of technology, more and more labor-intensive work is shifted to computers or machines. People employed in manual labor, who mostly get an hourly wage, are in less demand on the market, which leads to the number of such jobs decreasing. Most jobs that were previously done manually are being substituted by machines, which, accordingly, increases competition among workers of respective industries.

The statement is easily supported by the last data available: A new study by Forrester forecasts that cognitive technologies such as robots, artificial intelligence, machine learning and automation will replace 7 percent of U.S. jobs by 2025 (with 16 percent of jobs replaced and the equivalent of 9 percent jobs created).

By the end of 2016 there were more than 4.1 million people who drove for a living, with more than 3.5 million doing it full time. The automatization of driving will lead to all of them being forced to change their jobs, and obviously turning to software and tech industries is not an easily affordable option for these people.

Employment in the tech industry is, on the other hand, quickly growing. According to the results of a Cyberstates 2016 report prepared by nonprofit IT trade association CompTIA, employment in tech hit its highest growth rate in more than a decade in 2015, reaching 6.7 million people for companies with formal payroll in place in the U.S., up about 200,000 from the year prior.

Summarizing the above, we can expect that for workers employed in labor-intensive industries, the wages are not going to rise as a result of increased competitiveness for jobs in these sectors. Stagnating wages will lead to credit of such workers suffering (which is, in fact, already happening), as their anticipated increase in income is not realized even when the economy is doing well in general.

How To Build a 0 Billion Company (Newco Shift), Rated: AAA

Mike Cagney, the CEO of financial services startup SoFi, does not lack for confidence. But then again, confidence is what you need to raise billions of dollars and take on some of the largest and most powerful companies in the world — global financial giants like Chase, Citi, and Bank of America. To get there, Cagney’s got a pretty clever playbook: He’s partnering with those same banks, who buy the loans he originates and profit from SoFi’s unique skill at acquiring new customers.

An Unofficial Chat with Ron Suber, the Tom Brokaw of Fintech (finTEK News), Rated: AAA

If you circulate within fintech, pretty much anywhere on the planet, there is a high likelihood you’ve heard of Ron Suber.  And in case you haven’t, he’s the president of Prosper Funding, the marketplace lending platform that has now funded over $8B in loans, and recently closed a deal with a group of institutional investors to purchase up to $5 billion worth of loans over the next 24 months.

I asked him how he deals with all the travel, plus the highs ($5B deal-yeah!) and lows (Lending Club-OMG!) of the job, and he jokingly responded “Funny – (with) a unique combination of Yin Yoga and Johnny Walker Black”.  He also said he does “intention setting” before he gets out of bed every day, which he has found incredibly helpful.

The full deck for the Lendit 2017 presentation can be downloaded at this link: LendIt.FINAL

The last deck he shared with us from the AltFi Australasia Summit in Sydney.  The event was attended primarily by Australians and New Zealanders, with some Asians in attendance as well and also had a slightly different angle.

The speech compared online lending to online trading, showed a 5 point overview of the industry since inception, and included a picture showing traditional banks already involved in marketplace lending.

How to Start a Real Estate Crowdfunding Platform (Crowdfund Insider), Rated: A

Tech development is not cheap. Those hoping to raise angel or VC capital for a real estate crowdfunding platform have, in my humble opinion, missed the boat by a couple of years.

That said, if venture funding isn’t available, it doesn’t make sense to spend a lot of money on technology. Many of the RECF platforms out there today would like to command a tech multiple, but in reality, function more so as technology-enabled brokering or origination shops. For the vast majority of RECF platforms, their value is is not in their technology, but their ability to fund or originate deals.

  • Will this be a personal platform for your own deals, or will the platform raise funds for deals from other parties? If the latter, you may be brokering or dealing, and may need to obtain a license.
  • Will you be selling equity or debt securities? What type of debt will you be selling? What will it be secured by, if anything? What type of equity will you be selling?
  • What type of real estate will you be raising funds for? Will the properties be residential properties? Commercial? Rehab? New development? Is there a geographic scope involved? You should have a specific business plan in mind.

It’s great that RECF platforms are hot right now, but remember – you’re still selling a security, and securities laws really aren’t the type of laws one should take lightly.

RealtyShares Raises Its Largest Joint Venture Capital Investment to Date for Avesta Biscayne Apartment Complex in Miami (Yahoo! Finance), Rated: A

RealtyShares, a leading online marketplace for real estate investing, today announced that its network of accredited investors has raised $3.5 million in equity capital for the $67.3 million acquisition and renovation of Avesta Biscayne in North Miami, Florida. This is the largest equity investment that RealtyShares has raised to date through its real estate investing marketplace.

Avesta Biscayne is a 402-unit apartment community near the Biscayne Bay shoreline, consisting of six mid-rise buildings and amenities including a clubhouse, two pools and a tennis court. The deal is sponsored by Avesta Communities, a vertically integrated multi-family owner-operator specializing in apartments serving the middle-income renter. Previously, Avesta raised $2.25 million through RealtyShares to recapitalize and renovate Avesta Bridgewater, a 344-unit apartment complex in Orlando, Fla.

Shadow banking is getting bigger, not better (Standard.net), Rated: A

In the U.S. mortgage market as a whole, shadow banks held a 38 percent share in 2015, compared with 14 percent in 2007.

In other markets, financial organizations that are not subject to bank regulation have flourished, too. According to the Financial Stability Board, the august body that makes recommendations to the global financial system from Basel, Switzerland, “other financial intermediaries” — the category that includes non-bank lenders but not insurance companies and pension funds — increased their assets to $80 trillion, or 23 percent of total financial assets, in 2014. Their average growth reached 5.6 percent in 2011 through 2014, while the global banking system’s assets stopped growing during that time.

The reason shadow banks have largely escaped public scorn, regulatory scrutiny and high capital requirements is that they often came in the guise of high-tech disruptors. Quicken Loans Inc., the third biggest mortgage lender in the U.S. in 2015, does business online and on the phone, and that somehow makes it less interesting to regulators than a bank that does the same through an old-style branch network. Lending Club and other “peer-to-peer” lending firms quickly became conduits for large investors, not “peers,” yet they avoided regulation as though they were innovative tech platforms.

By 2015, 85 percent of the mortgages they originated was sold to government-sponsored enterprises such as Fannie Mac, Ginnie Mae, Freddie Mac and Farmer Mac. They benefit from implicit and explicit government guarantees originally supplied to banks — without shouldering the same regulatory burden or facing the same stigma. In other words, they profit from regulatory arbitrage.

Kroll Bond Rating Agency Releases U.S. Consumer Loan ABS Rating Methodology (Business Wire), Rated: A

This report describes KBRA’s rating methodology for U.S. consumer loan asset-backed securities (“Consumer Loan ABS”). This includes transactions secured by collateral originated by traditional consumer loan companies, as well as, through online consumer loan marketplace lending platforms (“MPL Platform”).

Wells Fargo’s Robo is Pricier Than Competitors (Financial Advisor IQ), Rated: A

Wells Fargo is betting that having access to a live financial advisor will convince clients to put up higher minimums and pay more for its robo-advice platform than for its competitors’ platforms, the Wall Street Journal writes.

The company’s Intuitive Investor automated advice service requires a $10,000 minimum investment and costs 0.5% of assets annually, according to the paper.

By contrast, Merrill Lynch’s Edge Guide Investing platform and Schwab Intelligent Portfolios only require a $5,000 minimum, while Wealthfront requires $500 and Betterment has no minimums, the paper writes. All of these platforms charge fees ranging from 0.25% to 0.45% of assets, except Wealthfront, which only starts charging 0.25% on accounts with more than $10,000, according to the Journal. Vanguard Personal Advisor Services, meanwhile, comes with a hefty $50,000 minimum but charges only 0.3%, the paper writes.

What’s more, Wells Fargo and other full brokerages aren’t necessarily competing with pure robo-advice pioneers such as Betterment and Wealthfront, William Trout, a senior analyst at research firm Celent, tells the Journal. Rather, they’re aiming to tap into their existing client base, he says. Wells Fargo is targeting its retail bank clients who currently don’t receive any form of advice, Lai tells the paper.

Jed Morey And The Art Of The Publishing Pivot (Innovate LI), Rated: A

So the New York Financial Press, launched in April 2016 by Syosset-based Morey Publishing as an “alternative financial news journal” that would dive deeper than earnings statements and trading indexes (not to be confused with the Wall Street-based media company founded in 2005 by Pierre Alexandre) – is now feeding Mayava Capital Inc., a Syosset startup created to facilitate small-business lending.

The other five sites – each focused on lending in a particular vertical market, such as healthcare or transportation or IT – were created by Morey et al specifically to usher visitors directly into Mayava Capital’s arms.

FUTURE DIGITAL FINANCE AND PERFORMANCE HORIZON RELEASE NEW INDUSTRY BENCHMARKING REPORT (Future Digital Finance Email), Rated: A

Today, Future Digital Finance and Performance Horizon released their findings from their new report titled “Benchmarking Performance Marketing Adoption within Financial Services Strategies”. As the consumer revolution in retail banking continues, the whole financial services vertical has seen dramatic shifts towards electronic interactions across their consumer and business-to-business operations. This new study takes a look at the wider variety of marketing channels firms have begun to leverage, especially ones with clear measurement methodologies that contribute towards revenues.

Key statistics from the survey include:
– Performance marketing, including affiliate marketing, primarily drives customer retention for 21% of financial services companies.
– Almost a third of companies spend at least 20% of their overall media budget on performance-oriented programs, while 21% of companies spend at least 40% of their overall media budget on performance oriented programs.
– Finance companies are looking to grow performance-based marketing programs as 77% of companies prefer to pay new partners based on performance.
– 93% of companies expect mobile website sales will increase, and 92% expect mobile app sales will increase in 2017.
– 86% of companies agree that data and insights from their existing partner marketing programs enable them to make better business decisions.

Mortgage Automation Pioneer cloudvirga Raises $ 15 Million in Series B Funding (PR Newswire), Rated: A

cloudvirga℠, developer of the automated, cloud-based intelligent Mortgage Platform® (iMP), announced today it has raised $15 million in a series B funding round led by Incenter, a Blackstone Group portfolio company. The new funding will support cloudvirga as it scales its technology and expands its product offerings.

Cloudvirga’s flagship mortgage point-of-sale (POS) system, the iMP empowers consumers to take the helm of a completely re-engineered mortgage workflow that automates the entire initial disclosures process and delivers unmatched transaction speed and efficiency to both borrowers and lenders. Central to cloudvirga’s success is its ability to maintain strict regulatory compliance, reduce time to close and save lenders money by moving many traditional back-office tasks to the front of the loan process.

Why squeeze fintech into a bank regulatory box? (American Banker), Rated: A

Within the constraints of its jurisdiction and mission, the OCC is clearly trying to do its part to address the regulatory issues raised by financial service providers in the technology sector. The agency is not simply pursuing a “bank-lite” charter.

The regulation of financial services in the U.S. is highly fragmented, and fintech is challenging every aspect of that structure. Federal and state agencies can stake claim over the regulation of fintech, yet both are ultimately limited by narrow lanes and tightly defined jurisdictional boxes prescribed to them by their respective charters. As a result, even the most well-intentioned efforts are only able to address the trees, but not the forest.

The goal of its proposal is to encourage the entry of fintech firms into federally regulated financial services. But if the actual pool of applicants ends up being extremely small, that’s going to be a real problem.

Random Forest Capital Raises $ 1.75 Million for Strategic Talent Acquisition (Random Forest Email), Rated: B

Random Forest Capital () completed its seed round in January 2017 with $1.75 million led by a very impressive group of angel investors. The money will be used to build out its full stack software and machine learning algorithms and acquire strategic talent for helping institutional investors find the right opportunities in consumer, residential, and commercial credit.

“There are 400+ platforms that originate many types of secured & unsecured debt,” said Kevin Farrelly, chief operating officer, general partner, and co-founder of Random Forest Capital. “We can analyze a massive amount of data from those platforms in seconds whereas a human analyst will take days to weeks.”

Random Forest Capital uses machine learning algorithms and third-party systems with APIs to source investment opportunities from eight platforms (and growing). Their custom algorithms then price the risk and can execute in microseconds.

“Loan originators make money originating loans – so it’s in their best interest to bucket all the loans together. Our goal is to preserve investor capital. These competing interests create a fundamental divide where alpha in marketplace lending is easily found,” said Austin Trombley, chief technology officer and co-founder of Random Forest Capital.

Random Forest Capital recently added two new members to its expert leadership team. Julie Choi, Ph.D. has been named the chief risk officer.  Carl Siemon, Ph.D. has been named the principle data scientist for Random Forest Capital. Siemon is a Physics Ph.D. graduate from UT Austin where he was supported by the prestigious National Defense Science and Engineering Fellowship.

MoneyLion Wins Gold at PYMNTS Innovation Project Awards for Best Credit Innovation (MoneyLion Email), Rated: B

MoneyLion, the mobile personal finance platform that puts consumers in control of their financial lives with AI-driven tools and smarter credit products, has won the gold medal for Best Credit Innovation at the PYMNTS 2017 Innovation Project Awards. The award coincides with a major growth milestone for MoneyLion, which now has over a million users.

Real estate crowdfunding platforms raising American real estate prices (STL Real Estate), Rated: B

But, with the rise of third-party crowdfunding platforms, most notably of Chinese origin, middle class people can get in on a piece of the real estate pie – no matter where they live.

Today, Brooklyn is where it’s at, with the price of Brooklyn town homes and apartments growing 16 percent between 2015 and 2016, while Manhattan properties decreased by 1 percent.

United Kingdom

JACK DORSEY LAUNCHES MOBILE PAYMENTS COMPANY SQUARE IN THE UK (Irish Tech News), Rated: AAA

Mobile payments company Square launched for UK based businesses today. This launch is the fifth market for Square since launching in the US in 2010 and since expanding to Canada, Japan and Australia.

Square Point of Sale has actually been available in the UK, among other markets around the world, for a few years already, however the full features of the product that’s available in Square’s four main markets were not available.

LendInvest Property Development Academy Expands Course Offerings (Crowdfund Insider), Rated: A

LendInvest, a leading UK online property finance lender, is launching the LendInvest Property Development Academy in four more key cities around the country following overwhelming demand for its London & Southeast courses.

In addition to three more courses for London & Southeast candidates this year, the Academy has expanded to:

  • Northern England: Manchester, 25 – 26 May
  • Scotland: Edinburgh, 22 – 23 June
  • Midlands: Birmingham, 7 – 8 September
  • Southwest England: Bristol, 9 – 10 November

All courses are carefully tailored to resonate with common issues facing developers in their respective regions. All modules are taught by industry specialists from the local area who will drawn on locally relevant case studies and anecdotal evidence.

Lendy Integrates Saving Stream Platform to Continue Growth (Crowdfund Insider), Rated: A

Lendy, announced on Tuesday it is integrating its popular investor-facing platform, Saving Stream, under its Lendy brand as part of the platform’s continued growth. According to the company, it is merging Saving Stream, with its borrower-facing brand, Lendy Finance, in order to simplify its branding and to make accessing its loan-based crowdfunding platform easier and more accessible to clients.

Lendy revealed that the total amount loaned to property developers and investors through its peer-to-peer platform has now topped £285 million and its 15,000 registered users have received £20 million of interest from the loans they have written. The company also stated its user base has more than doubled from 5,600 at the start of 2016, with the platform’s popularity among lenders being driven by:

  • The security provided by property-backed loans
  • The additional security provided by Loan To Value (LTV) ratios on all Lendy loans being capped strictly at 70%
  • Returns of up to 12% on loans written through the Lendy service.
China

How technology is changing online credit checks (SCMP), Rated: AAA

It generally takes nothing more than a simple click on the ‘yes’ button to authorise an online peer-to-peer (P2P) lender to go through an applicant’s credit history before approving a loan.

But the assessment may in fact go far beyond the borrower’s imagination.

With vast amounts of data at their disposal, the powerful analytical programs behind the screen are often capable of picking up diverse fragments of an applicant’s life story and piecing together a complete picture. And it all happens in a matter of minutes.

Cloud Atlas, a risk management system developed by Finup, is one such example. After obtaining consumers’ consent to access their mobile contacts book and apps as well as information provided by third-party data agencies, the system is able to carry out a thorough analysis to figure out whether the applicant is eligible for loans on the particular P2P platform.

The pass rate of applicants for loans under the Cloud Atlas system is well below 10 per cent, as the three-year-old company uses strict criteria.

High employee turnover sign of transformation in P2P lending industry (Global Times), Rated: A

With the rollout of new regulations in February, there has been a wave of resignations in China’s peer-to-peer (P2P) lending industry, as employees worry about the prospects of the business.

“I resigned in February,” said a woman surnamed Liu, a former employee at one of China’s leading P2P platforms, which she refused to be named.

Liu started her career in Internet finance in October 2016. Half a year later, she worries about the industry’s prospects.

Recently, P2P industry employee turnover has shot up, with some workers joining larger P2P companies and some moving to other industries.

The number of Chinese P2P lending platforms fell from 3,516 in November 2015 to 2,393 in February 2017, according to data from the Shanghai-based P2P lending platform wdzj.com.

Just a few big Chinese P2P lenders seen surviving in sector tarnished by scandal (SCMP), Rated: A

The seemingly relentless proliferation of China’s peer-to-peer (P2P) lending platforms has finally been contained by stringent measures introduced by the government in a bid to tackle a fraud epidemic that tarnished the industry’s reputation.

The sector, which ballooned to host thousands of firms of varying sizes and specialities, will eventually become limited to just a handful of mega participants, according to Zhang Shishi, a co-founder of the Chinese P2P platform Renrendai.

However, the heated competition that emerged as a wave of profit-hungry new players crowded in, all hunting aggressively for investors and money in the markets, led to a rise in illegal activity. Countless cases of P2P lenders promising high returns from non-existent projects and then running off with the proceeds made the headlines.

Asia

Century-Old Bank Plans Digital Revamp to Fight Fintech Risk (Bloomberg), Rated: AAA

Siam Commercial Bank Pcl, Thailand’s oldest homegrown lender, plans to reinvent its mobile digital payment platform as a lifestyle app to help fend off competition from upstart financial technology providers.

The lender is working with companies including Accenture Plc, Microsoft Corp. and International Business Machines Corp. on the project, Chief Executive Officer Arthid Nanthawithaya said in an interview. The long-term goal is an app that allows customers to search and pay for entertainment options such as restaurants and cinemas, going beyond just day-to-day banking, he said.

Siam Commercial Bank’s shares gained 0.6 percent at 10:46 a.m. in Bangkok on Wednesday. The stock has climbed about 4 percent in the past three years, less than the 8 percent advance in the Stock Exchange of Thailand’s Banking Index.

‘Why would we ignore a billion people?’: An Irish fintech firm has raised €2m to expand into Asia (Fora), Rated: AAA

IRISH-BASED FINTECH COMPANY ClaimVantage has secured €2 million in funding to bankroll its move into Asia.

The international firm, which has been headquartered in Dublin since it was founded in 2006, develops and provides cloud-based claim management software for some of the top insurance firms in the US and Canada.

Singapore Inks FinTech Cooperation Pact with France (Cryptocoins News), Rated: A

The Monetary Authority of Singapore (MAS), Singapore’s central bank and financial authority has signed FinTech cooperation agreements with a pair of French regulators to boost FinTech ties between the two countries.

The cooperation agreement sees Singapore’s central bank partner the Autorité de Contrôle Prudentiel et de Résolution (ACPR), the authority monitoring banks & insurance companies in France and the Autorité des Marchés Financiers (AMF), France’s stock market regulator.

Under the agreement, the three authorities will adhere to a framework that fosters the sharing of information relating to FinTech trends and services. Joint innovation projects and regulatory hurdles will also be discussed between the two countries.

MENA

MENA Fintech Startup NOW Money Wants To Help Everyone Get Access To Banking (Entrepreneur), Rated: AAA

According to the World Bank’s Migration and Remittances Factbook 2016 report, migrants are sending earnings worth more than US$441 billion to families in developing countries, contributing to the 10% of GDP of some 25 developing countries. With KSA, UAE and Kuwait among the top ten high-income countries categorized as main sources of remittances in 2014, six GCC countries accounted for $98 billion in outward remittance flows in 2014. As the region’s expat population transfer money to respective home countries, there’s a prevalent reality that there is a struggle (especially among blue-collar workers) to access bank accounts- and this is what fintech startup NOW Money is trying to solve.

With a tagline of “empowering the unbanked,” founders Katharine Budd and Ian Dillon launched NOW Money to provide expat workers who don’t have access to banking and remittance services with direct access to a current account, debit card and remittance from their proprietary app and service center.

Compared to outbound remittances sent as cash (which is often hard to follow), the startup tracks “payments from salary, to remittance, to collection by overseas. This is an important step change in the progress the UAE is making towards combatting money laundering and criminal funding.” With respect to security and privacy, facial recognition tech is used to enable users to log in to the NOW Money app- a photo cannot be used to fake an entry, since movement is accounted for by this feature: the user has to blink to log in. It also records the way you hold your phone and type, so suspicious behavior will cause an alert notification. Although pin codes and passwords are still present as per the current compliance laws requirement, the team believes such a system is still susceptible to hackers, and thus Budd asserts the advantage of biometrics.

Alternative Financing in Africa, Middle East (Microcapital), Rate: A

The authors estimate that approximately USD 475 million was made available in Africa and the Middle East via alternative financing methods between 2013 and 2015, with Israel accounting for USD 125 million of this total. The authors conclude that alternative finance as a whole grew more slowly in Africa and the Middle East than in other parts of the world as the development of the market was in its early stages.

Kabbage: working capital for small businesses unable to obtain credit from traditional sources (MENAFN), Rated: A

As a large percentage of small businesses, online retail sales as a percentage of total retail sales have doubled in the past five years. Ecommerce sales overall in 2006 were just over 107 billion, representing 2.7 percent of total retail sales . There are over 100 million Ebay users in the US today, with an estimated 200 million new listings in 2Q, 2008 alone. There are an estimated 5 million power sellers transacting over 48 billion on Ebay and more than 8 million high-volume sellers representing over 70 billion across all marketplaces.

Rob Frohwein founded Kabbage to get small businesses capital quickly, an area in which banks have long struggled.

Kathryn Petralia has 12 years of experience in the consumer credit and payments space.

Amy Zimmerman has spent 15 years building tech companies by identifying and cultivating talent. Her focus at Kabbage is to foster the company’s inventive culture.

Africa

The legal considerations of running a FinTech startup in Nigeria (Techpoint), Rated: AAA

However the alternative method is for a startup to operate on its own steam by meeting the requirements to obtain the requisite licences although this method requires significant capital outlay. As such, FinTech startups that are seeking to exploit the significant market opportunities in Nigeria are bound to run into several regulatory compliance obligations.

The payment and processing segment of the FinTech sector for example — which has shown the most growth and success thus far — is primarily governed by the same general framework as are traditional financial institutions providing offline financial services (e.g. money/payment transfers, clearing, switching, settlement etc), in addition to regulations related specifically to that sub-sector.

Thus, the legal and regulatory framework that is generally applicable to financial institutions — such as the Central Bank of Nigeria (CBN) Act, 2007, the Banking and Other Financial Institutions Act (BOFIA) and all subsidiary instruments stemming from same — are all relevant to any non-bank led startups providing digital equivalents of offline financial services. This framework brings with it mandatory obligations such as KYC and AML requirements that must be strictly adhered to.

Commercial lending activities are regulated in Nigeria and as such require licensing by either the CBN (for banks and other financial institutions) or the Ministry of Home Affairs of the various states (non-financial institution lenders).

As it stands, insurance penetration in Nigeria is only at 0.6% and the growth of the middle class, alongside increased economic activity, indicates a very bright future for this sector.

The Nigerian Insurance Act provides the overarching framework for operators of all types of insurance business in the country and the National Insurance Commission (NAICOM) is the industry regulator. Under the act, one must be duly registered with NAICOM before engaging in the business of insurance.

Authors:

George Popescu
Allen Taylor

Wednesday February 22 2017, Daily News Digest

Marcus

News Comments Today’s main news: OCC addresses risk management for bank-MPL relationships. IFISAs dogged by further delays. Radial integrates with Klarna. Bitbond raises $1.2 mil. Today’s main analysis: Marcus marks the end of traditional banking. Today’s thought-provoking articles: 3 upcoming changes to private student lending. The Pulse of FinTech infographics. United States OCC establishes risk management expectations for bank-MPL […]

Marcus

News Comments

United States

United Kingdom

European Union

International

Australia

News Summary

United States

OCC’s Third-Party Risk Management Expectations for Bank Relationships with MPLs (Pepper Hamilton LLP), Rated: AAA

On January 24, the Office of the Comptroller of the Currency (OCC) issued a new bulletin, OCC Bulletin 2017-07 (Supplemental Examination Procedures for Risk Management of Third-Party Relationships). The stated purpose of the bulletin is to assist bank examiners in evaluating the third-party risk management practices of national banks and federal savings associations (collectively, banks). For the most part, Bulletin 2017-7 reinforces existing OCC supervisory expectations. In several notable respects, however, the bulletin breaks new ground, including by addressing relationships with marketplace lenders.

In establishing risk management expectations for relationships between banks and marketplace lenders in its new bulletin, the OCC is following the lead of the Federal Deposit Insurance Corporation (FDIC), which issued its own supervisory expectations for these relationships in late 2015. As in the case of the FDIC’s guidance, the OCC bulletin broadly defines the term “marketplace lender” to include any “companies engaged in Internet-based lending businesses (other than payday lending).”2 Specific examples of marketplace lenders stated in the OCC Bulletin include online companies that make small business loans, consumer loans, student loans and real estate loans.3

If a bank plans to contract with a marketplace lender to “perform some, if not all operational functions, including processing, underwriting, closing, funding, delivering, and servicing of loans,” OCC Bulletin 2017-7 requires the bank to have sufficient support “systems, controls, and personnel [in place] to adequately support the volume of planned loan origination, servicing, or collection activities.”4 In addition, if the bank is considering contracting with a marketplace lender to originate or purchase loans, the bank must determine whether the lender’s underwriting methods are “new, nontraditional, or different from the bank’s underwriting standards.”5 Finally, if the bank will be investing directly or indirectly in, or will be providing warehouse lines or other credit facilities to, any third-party lender, including a marketplace lender, the bank must determine whether the third-party lender’s underwriting standards are consistent with the bank’s own underwriting standards.6

Goldman Sachs’ Recent Move Marks The End Of Traditional Banking (Newsmax), Rated: AAA

At the end of 2016, Goldman Sachs launched a new online lending platform called Marcus. The move into online lending by one of the most successful investment banks in the world is a telling move for two reasons.

First, it’s a good indicator of the post-financial crisis banking industry.

Second, rising compliance costs—combined with over seven years of zero-interest rate policy from the Fed—was a bad environment for bankers.

Peer-to-peer lending has grown from nothing a decade ago to be a $26 billion industry in 2015. However, it still only accounts for 2% of the market for unsecured consumer credit.

Goldman Sachs is using Finacle, a software program owned by Infosys, to run the Marcus lending platform. With this software, Marcus customers will be able to fully customize their loan parameters within guidelines set by the bank.

Gone are the days of negotiating with a banker on loan terms. The Finacle software is fully automated and will process the transactions in real time. It’s a fully operational “bank within a bank” that only relies on approximately 200 Goldman employees, according to Bloomberg.

Marcus is not a peer-to-peer lending platform. Instead, Goldman will be making loans against its own balance sheet. This will give the bank more flexibility with setting competitive loan terms and fees.

According to a Morgan Stanley report published in 2015, the effective annual interest on the peer-to-peer lending platforms analyzed was on average 6.8% lower than those offered by banks.

All the while, P2P lending platforms have historical net annualized returns between 5% and 10%. Compare that to investing in a 5-year US Treasury note that yields less than 2% today, below the reported rate of inflation, and can you see why Goldman Sachs got involved with online lending.

3 Upcoming Changes in Private Student Lending (US News), Rated: AAA

In fact, the day after Trump was elected to office, the stock price for Sallie Mae Corp., a large student loan lender, shot up nearly double from $7.10 per share on Election Day to $12.47 on Feb. 15.

For prospective private student loan borrowers, here are a few expectations that experts say consumers may see in the next year or two as a result of changes at the federal level.

1. More lenders entering the private student loan market: Matherson says easing of lending restrictions will lead to more lenders entering the marketplace over the next two years.

Experts say large commercial banks that left the private student lending market after the 2008 financial crises may also return.

2. Interest rate hikes for both variable and fixed-rate private loans:The Federal Reserve is signaling that it’s on course to raise the short-term interest rate this year.

Lending experts say they expect to see a 1 percent rise in interest rates for private student loans over the next two years. Those increases, they say, will affect both variable and fixed-term rates on private education loans.

3. A growing number of start-ups offering income-shared agreements: Under an income-shared agreement or ISA, students use funds from an investor to pay for college and in turn agree to make payments based on a percentage of their income for a set period of time after they graduate.

Casey Jennings, chief operating officer at nonprofit 13th Avenue Funding, which works with low-income students, says clarification of the legislation will make it much easier for financial and educational institutions to enter this space.

Prosper Marketplace President Ron Suber Joins Unison as an Investor and Strategic Advisor (PR Newswire), Rated: A

Unison Home Ownership Investors, the leading provider of home ownership investments, announced today that Ron Suber, president of Prosper Marketplace, has become an investor in the company and has taken on a significant advisory role as the company is experiencing a period of unparalleled growth, opportunity and availability.

A financial services industry veteran, Suber brings to Unison a wealth of experience across multiple disciplines. As an influencer in the financial technology space, Suber will look to grow the home ownership investment category through his relationships with marketplace lenders, mortgage companies, realtor groups and banks.

LendIt Announces 2017 PitchIt Finalists (PR Newswire), Rated: A

LendIt, the world’s largest show in lending and fintech, today announced eight finalists for its fifth PitchIt @ LendIt competition. In partnership for the first time with 500 Startups, the world’s leader in investing and mentoring, and sponsored by Marqeta, PitchIt is a leading global competition for fintech startups to earn mentorship, endorsement and exposure to institutions, investors and broad visibility.

This year’s finalists were chosen from nearly 300 high caliber applicants covering all areas of fintech including insurtech, blockchain, payments, online lending, credit and artificial intelligence.

The eight 2017 PitchIt finalists are:

  • Nova Credit
  • StackSource
  • Alloy.co
  • Qwil
  • Aella Credit
  • Real Atom
  • Float Credit
  • WeTrust Platform

The finalists will pitch their concepts at LendIt USA 2017 on March 7 to a panel of judges from the venture capital community including: David Teten, ff Venture Capital; Kareem Zaki, Thrive Capital; Ben Malka, F-Prime; and Joel Monegro, Union Square Ventures.

Kabbage preps small business loan deal (Global Capital), Rated: A

Online small business lender Kabbage is marketing a $500m securitization of loans to small and medium sized businesses which will be used to refinance an existing deal from 2014.

Guggenheim is the sole lead of the $500m deal, which is expected to officially begin marketing to investors in the week of March 6.

Kroll Bond Ratings has assigned an A rating to the $370.37m ‘A’ notes, and BBB to the $79.37m ‘B’ notes.

Marketplace deals readied, with innovations (Structured Credit Investor), Rated: A

Kabbage is marketing its first marketplace loan ABS of the year and its second since inception. Meanwhile, SoFi is in the market with its second consumer loan ABS – SoFi Consumer Loan Program 2017-2 – backed by US$343m of consumer loans and comprising several elements that differ from its previous securitisation.

Kroll Bond Rating Agency Assigns Preliminary Ratings to Arcadia Receivables Credit Trust 2017-1 (BusinessWire), Rated: A

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to two classes of notes issued by Arcadia Receivables Credit Trust 2017-1 (“ARCT 2017-1”). This is a $213.137 million consumer loan ABS transaction that is expected to close March 6, 2017.

This transaction is the first rated securitization of prime unsecured consumer loans facilitated by LendingClub Corporation’s (“Lending Club” or the “Company”) proprietary technology platform supporting an online marketplace that connects borrowers and investors by offering a variety of loan products originated by issuing banks through the platform, www.lendingclub.com(the “Lending Club Platform” or the “Platform”).

Why big banks are helping financial tech startups (Tradestreaming), Rated: A

Finlab, short for Financial Solutions Lab, is an 8-month startup accelerator program funded by JPMorgan Chase and run by the Center for Financial Services Innovation. It just sent out its third call for applications from financial technology startups working on tools for underserved populations. It’s an example of how banks are now partnering rather than competing with startups — a trend that’s grown quickly over the past couple of years.

Finlab began two years ago, and winners get $250,000 of capital, one-on-one mentorship and networking opportunities. About eight or nine winners are picked each round. Winners participate in a series of workshops across the country on how to grow their businesses, including a session on regulation.

Big banks are likely to keep supporting these programs — not only for relationship building, but also because startups are working on areas major banks aren’t addressing, said Gilbert.

4 Real Estate Crowdfunding Trends You Should Be Watching (Forbes), Rated: A

Real estate is one of the fastest growing markets to take on the concept of crowdfunding and apply it in a new way.

Here are four emerging trends in real estate crowdfunding to watch this year.

  1. Regulation Brings Crowdfunding to Maturity. Today, crowdfunding has matured and investors are more intrigued than they are skeptical. This is due, in large part, to the JOBS Act and the enactment of Regulation A+. It legitimized the industry and it has been growing ever since.
  2. Foreign Investment in Real Estate Is Booming. According to The Guardian, a recent U.S. real estate study showed that Chinese investors have poured $110 billion dollars into the U.S. market in the last 5 years (both commercial and residential). This investment is set to double in the next 5 years. Because of foreign investment expansion in the U.S., it’s relatively safe to assume that a portion of those dollars will go into alternative funding options like real estate crowdfunding.
  3. Wealthy Millennials Are Investing Their Money Differently. However, with the influx of unicorn technology companies and the increase of millennial millionaires, the need to put their money somewhere is still very much on their minds. Real estate crowdfunding has the potential to help them share the wealth while staying true to their sensibilities.
  4. Crowdfunding for Retirement. Those considering real estate investing, especially through crowdfunding platforms, could potentially improve their rate of return with tax efficient strategies, more specifically IRA’s. Real estate crowdfunding platforms allow those saving for retirement to invest in real estate right from the golf course, with just a few clicks on their phone or tablet.

PeerStreet’s CEO Brew Johnson Talks Real Estate Crowdfunding Market (Forbes), Rated: A

The company was founded by former Google executive Brett Crosby and real estate attorney Brew Johnson. By the end of 2016, the company originated more than $200 million.

Johnson: The biggest differentiators between PeerStreet and other players are pretty simple: (i) our platform is very focused on one asset – first-lien debt. We think creating this focus at the outset is important in delivering value to users. And most importantly, (ii) we don’t originate loans directly to borrowers, but rather we aggregate loans from a distributed network of lenders, curate those loans, and then make it easy for investors to invest in them.

Johnson: We exceeded $200 million in origination volume by the end of 2016. Our KPIs are based on loan volume and quality.

Johnson: We maintain focused on our core asset: short-term, first position lien loans. Our data continue to show that this asset provides favorable risk-return profiles for investors, so 2017 is about growing our loan volume in order to serve even more investors.

Johnson: I think there are opportunities of various sizes across the industry. That said, a couple that I find particularly interesting are the potential implications for a more robust rating and credit scoring of alternative lending investments across platforms and those of creating a truly efficient secondary market or exchange that enables investors to seamlessly trade in and out of positions.

Misys Targets Offerings for P2P Lending (Intralinks), Rated: B

Traditionally focused on treasury and capital markets solutions, Misys revised its focus to include solutions that would allow banks to branch into peer-to-peer (P2P) lending, as well as an offering for machine learning that would detect anomalies in trading patterns.

Altisource’s Premium Title Announces Integration with LendingQB’s Loan Origination System (Yahoo! Finance), Rated: B

Premium Title, a national provider of title and escrow services, announced today its integration with LendingQB’s end-to-end, browser-based loan origination system (LOS). The integration can help provide customers with the ability to obtain title and settlement quotes faster, place orders with Premium Title and receive a title fee certificate guaranteeing fees for 30 days, all without leaving the LendingQB platform.

This integration, gives Premium Title clients the capability to experience a seamless and more efficient process within the LendingQB LOS platform. Lenders using LendingQB can receive an automated quote for title services and a title fee certificate guaranteeing title fees, which auto-populates into the LOS. LendingQB can also maintain the loan estimate and any adjustments in fees associated with the loan, assisting with TRID compliance and faster disclosure timelines.

United Kingdom

Innovative Finance Isas dogged by further delays (Financial Times), Rated: AAA

The Innovative Finance Isa was officially launched by former chancellor George Osborne in July 2015, putting peer-to-peer lending platforms — where individual investors are matched with interest-paying borrowers — on a level playing field with traditional savings and investment products which can be held within an Isa wrapper.

A year on, the FCA has still yet to grant the bulk of peer-to-peer lenders, including the three largest — Zopa, Funding Circle and RateSetter — the authorisation they need to launch an Innovative Finance Isa in time for the new tax year in April.

These three peer-to-peer platforms account for more than 40 per cent of the UK’s market share by loan origination, according to AltFi data, having lent nearly £6bn combined.

Chatbot savings app Plum partners P2P lender Ratesetter (Finextra), Rated: AAA

British AI-powered savings Facebook Messenger chatbot Plum is to start steering users that are willing to take on risk in exchange for higher interest rates to P2P lender Ratesetter.

According to Moneyfacts, the average UK rate on easy-access accounts is 0.15%, while the average return earned by RateSetter investors to date is 4.7%.

The money goes into users’ Plum savings account but the Ratesetter deal means that people can also now choose to earn a better rate – if they are willing to take on the associated risk.

Zopa Named Best Personal Loan Provider & Best Alternative Finance Provider at the 2017 British Bank Awards (Crowdfund Insider), Rated: AAA

Zopa, the UK’s very first peer to peer lending platform, announced on Monday it was named Best Personal Loan Provider & Best Alternative Finance Provider at the 2017 British Bank Awards.

This news comes just a few weeks after Zopa was named Personal Loan Provider of the Year at the Consume MoneyFacts Awards for the fourth year in a row.

Zopa recently announced it topped £2 billion in lending.  According to information provided by the online lending platform, as of today, the lender matched over 246,000 borrowers to 75,000 investors to provide access to capital in the form of loans.

RateSetter Borrowers Have Paid Back £1 Billion, Investors Have Earned £63 Million (Crowdfund Insider), Rated: A

Online lender RateSetter has said it has now collected £1 billion in capital repayments from borrowers since its first loan back in 2010. Overall, RateSetter has originated approximately £1.75 billion in loans while paying out £63 million in interest.  The average interest rate ranged between 3.1% on the Rolling market and 6.0% for the 5 Year market. In 2016, total lending was pegged at £668 million.

Awareness of P2P drops north of London (P2P Finance News), Rated: A

AWARENESS of peer-to-peer finance products among small- and medium-sized enterprises (SMEs) is at its lowest in the Midlands and the north of England, the British Business Bank (BBB) has revealed.

The figures, revealed in its latest annual Small Business Finance Markets report, showed fewer than 40 per cent of firms in the Midlands were aware of P2P lending, compared with almost 60 per cent in London.

Around half of firms in the south of England were aware of P2P, while just 40 per cent of firms in the north had come across it.

Despite the varying levels of awareness, the report found annual lending through P2P platforms increased by 34 per cent to £3.9bn in 2016. Business lending made up £1.3bn of that amount.

SME Loan Fund plans break with GLI in bid for scale (Citywire), Rated: A

The SME Loan Fund (SMEF +), the small directing lending investment trust set up by GLI Finance, plans to break ties with its founder in a bid to gain scale.

The trust launched in 2015 amid a boom in peer-to-peer lending launches, yet was able to raise just £12.4 million capital. Assets currently stand at £53 million, mostly from an initial portfolio of loans transferred by GLI Finance (GLIF +) as part of the launch.

The SME Loan Fund said that GLI had agreed to sell its 48% stake in the trust through a placing. Should the placing prove successful, the SME trust will switch management from Amberton Asset Management, 50% owned by GLI. If it is not, the board will propose the wind-up of the trust.

GLI Finance, an investment trust in its own right, said it would use the money from a share sale to repay a £14.9 million loan to strengthen its balance sheet.

Most board members of P2P trusts have skin in the game (P2P Finance News), Rated: A

THE MAJORITY of board members of peer-to-peer investment trusts have “skin in the game”, research has revealed.

Canaccord Genuity research has assessed the pay and investments of board members of investment trusts. The analysis included funds focused on the P2P sector.

It showed that the highest annual pay packet among P2P investment trusts is £50,000, taken by the chairmen of the Funding Circle SME Income Fund and Victory Park Capital (VPC) Specialty Lending.

Samir Desai, co-founder of the Funding Circle platform, who sits on the investment trust’s board, has put £152,775 into the fund.

This is the highest among its board members, followed by £110,349 invested by non executive director Frederic Hervouet. The Funding Circle SME Income Fund board chairman Richard Boleat takes the highest annual fee on the board at £50,000 and has invested £5,157.

The trust’s board members Jonathan Bridel and Richard Burwood, both non-executive directors, have also invested £5,157 and their annual fee is £40,000 and £30,000 respectively.

Desai does not take a fee and Hervouet has an annual fee of £35,000.

European Union

Radial payments platform integrates with Klarna (Finextra), Rated: AAA

Klarna, one of Europe’s leading payments providers, and Radial, the leader in omnichannel commerce technology and operations, today announced a new partnership to further expand Radial’s payment options.

The integration of Klarna with Radial’s Payment platform enables clients and prospects to offer a financing option at checkout to give customers more choice and could give retailers a 58 percent higher order value.

Financing a purchase over time has historically been optimized for brick and mortar stores. The online equivalent, however, can often be an ordeal, with redirects, lengthy forms and unclear information. Klarna’s process only requires a few fields of information, and lets customers know instantly if they qualify for the financing solution.

International

Bitbond raises $ 1.2 million to grow SME lending platform (Finextra), Rated: AAA

Global SME lending platform Bitbond today announced the closing of an equity funding round of $1.2 million (€1.1 million).

This round brings Bitbond’s raised equity capital to a total of $2.3 million.

Led by mobilike founder Şekip Can Gökalp, a number of business angels contributed to the round. Among them were Fyber founders Janis Zech and Andreas Bodczek as well as Kreditech co-founder & CEO Alexander Graubner-Müller.

Bitbond will use the additional funds for further product development and to grow its user base in markets which are underserved by traditional lenders. Over 1,600 loans worth $1.2 million were originated on Bitbond since its launch. 76,000 users from 120 countries registered with the service to date.

Infographics – The Pulse of Fintech – Q4 2016 (KPMG), Rated: AAA

According to The Pulse of Fintech, after 2015’s record-setting $46.7 billion in global funding to fintech companies, 2016 brought reality back to the market with an almost 50 percent slide in fintech investment.

Australia

Australia weathers fintech slump (The Australian), Rated: A

Global investment in fintech companies almost halved last year as “froth” comes out of the burgeoning industry and investors wait to see if they can successfully disrupt incumbents such as banks and insurers, according to a new report.

Fintech investment funding declined to $US24.7 billion ($32.17bn) last year from a bumper $US46.7bn in 2015, driven by fewer merger and acquisitions, and private equity investments, KPMG found.

However, the less mature Australian fintech industry bucked the trend as investment soared to a record high of $626 million last year, up from $185m in 2015 and $461m in 2014.

In contrast, corporate venture capital arms — those owned by banks and other incumbents — played a bigger role in the market, expanding investment to $US8.5bn from $US4.9bn. Australia’s institutions, including National Australia Bank, are increasingly investing in fintech via internal VC arms.

Authors:

George Popescu
Allen Taylor

Monday September 11th 2016, Daily News Digest

Monday September 11th 2016, Daily News Digest

News Comments Today’s key news in an exhaustingly long news list : US SME borrowers will receive increased regulatory protection starting Nov 12th; Well Fargo and Amazon were called by the CFPB after being contacted by Sen. Brown’s office, and the deal fell apart after 1 month;  large European corporate bonds are also at negative […]

Monday September 11th 2016, Daily News Digest

News Comments

United States

United Kingdom

European Union

News Summary

 

United States

Movement in marketplace lending regulation for small business loans, (Lexology), Rated: A

From 12 November 2016, some businesses will receive the same protection currently available to consumers as unfair contract terms in small business contracts will become prohibited.

Under the new law, a contract term will be unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations;
  • it is not reasonably necessary to protect the interests of the party who would be advantaged by the term; and
  • it would cause detriment to a party if the term is relied on.

The Government is also considering further protections for small businesses. Earlier this year, the Parliamentary Joint Committee on Corporations and Financial Services conducted an inquiry into the impairment of customer loans. One of the recommendations made as a result of the inquiry was to extend responsible lending obligations and ASIC’s monitoring ability under the National Consumer Credit Protection Act to small business loans. In response to the recommendations, in August the Government directed the Australian Small Business and Family Enterprise Ombudsman to undertake an inquiry into small business lending practices and identify if further reforms are required. The Government is due to receive the final report in November.

Orchard Platform Launches Data Partner Program for Loan Originators, (Email), Rated: AAA

Orchard Platform, today announced the launch of the Orchard Data Partner Program, which includes loan data from a range of leading online lenders. The Orchard Data Partner Program is part of the Orchard for Originators product suite. The suite provides unbiased third-party validation of the internal consistency and quality of an originator’s data. Through the Orchard Data Partner Program, qualifying originators will gain the ability to analyze and compare their loan performance to that of their peers (on an aggregated and anonymized basis), and share their data in a consistent and transparent manner with new and existing capital providers.

The Orchard Data Partner Program establishes a framework for loan originators to share their origination and performance data within the Orchard ecosystem in exchange for detailed asset class analytics. By securely submitting loan and payment data to Orchard — and having Orchard standardize the data — originators have access to a number of unique product offerings, including Education & Insights, Data Integrity, and Reporting & Analytics.  Originators also have access to a centralized data storage facility, which can be opened to current and prospective whole loan buyers and other parties during the due diligence process.  Institutional investors seeking to take a growing position in this market have a desire to utilize this information in a transparent and user-friendly way, and the Orchard Data Partner Program provides originators with a scalable solution that helps investors assess such opportunities.

The Orchard Data Partner Program currently tracks over $33B in loan originations.

Amazon-Wells Fargo Student-Loan Plan Ran Into Political Obstacles, (Wall Street Journal), Rated: AAA

Amazon.com Inc. teamed up with Wells Fargo & Co. in July to promote private student loans as a benefit to members of one of its services. Instead, it walked into a political firestorm.

The Wells Fargo-Amazon partnership was meant to offer interest-rate discounts on private student loans to qualified members of Amazon’s “Prime Student” service.

Ticas called the partnership “a cynical attempt to dupe current students who are eligible for federal student loans with a record low 3.76% fixed interest rate into taking out costly private loans with interest rates currently as high as 13.74%.”

After publicly slamming the Amazon-Wells Fargo Deal, Ticas took its complaints to Capitol Hill, contacting senators such as Elizabeth Warren, Sherrod Brown, Dick Durbin andPatty Murray, who is from Amazon’s home state of Washington, according to a person familiar with the matter.

In early August, Sen. Brown’s office contacted the Consumer Financial Protection Bureau, which has been critical of private student lending, and bank regulator the Office of the Comptroller of the Currency. The senator’s office raised concerns pertaining to potentially deceptive marketing practices in the deal, according to a spokeswoman for the Ohio Democrat.

In particular, the senator’s office questioned marketing of the rate discount, expressing concerns about whether it disclosed that the underlying rate may be much higher than the cost of loans under federal programs, or that the discount was subject to change or cancellation, said the spokeswoman.

By the end of the month, Amazon and Wells Fargo scrapped their arrangement, which had been more than a year in the making.

A spokesman for the CFPB declined to comment on whether the agency contacted the companies after receiving Sen. Brown’s concerns.

The CFPB has been a vocal critic of private student loans since it launched in 2011 for what it has described as the industry’s high default rates.

Wells Fargo is the second-largest private student lender after Sallie Mae and is one of the few large banks that has remained a big player in the sector. It has about $12.5 billion in outstanding private student loan balances.

Now Companies Are Getting Paid to Borrow, (The Wall Street Journal), Rated: A

German consumer-products company Henkel AG and French drugmaker Sanofi SA each sold no-interest bonds at a premium to their face value Tuesday. That means investors are paying more for the bonds than they will get back when the bonds mature in the next few years.

“We’re trying to get our heads around it,” Edward Farley, head of European corporate bonds at PGIM Fixed Income, said of Tuesday’s deals. “It seems pretty bizarre to ask a corporate to look after your money and give you back less in two to three years’ time.”

Roughly €706 billion of eurozone investment-grade corporate bonds traded at negative yields as of Sept. 5, or over 30% of the entire market, according to trading platform Tradeweb, up from roughly 5% of the market in early January.

Tuesday’s deals, however, are among just a handful of corporate offerings that have actually been sold at negative yields. They include offerings of euro-denominated bonds earlier this year by units of British oil giant BPPLC and German auto maker BMW AG, according to Dealogic. Germany’s state rail operator, Deutsche Bahn AG, also has issued euro-denominated bonds at negative yields.

Funding Circle ‘basically halved’ US lending volumes at the start of the year, (Business Insider), Rated: A

Marketplace lender Funding Circle halved its lending volume in the US at this start of the year after spotting underperforming loans in an earlier batch of loans, according to the fintech company’s chief risk officer.

Since publication, Funding Circle has provided the following quote from Sam Hodges, cofounder and US Managing Director of Funding Circle US: “The Q1 2015 portfolio represents approximately 10% of total lending in 2015. The overall portfolio for 2015 has delivered 8% per annum for the whole loan marketplace.”

Jerome Le Luel, who joined the company from Barclays last October, made the disclosure during a press conference at Funding Circle’s London headquarters on Thursday, citing it as an example of the company’s pro-active approach to managing risk and making sure investors who lend money on the platform are properly protected.

Le Luel told journalists: “Last year, when I came in, we looked at the vintages we’d just created and although 2014 was looking fine, the first quarter 2015 vintage for some reason was going off track. Significantly off track. 50%. It was earlier on, 6 months along.”

Le Luel said lending volumes in the UK, by far Funding Circle’s biggest market, have been unaffected and the company is still growing at around 100% year-on-year.

UK-listed VPC Specialty Lending Investments, which invests in peer-to-peer loans, said in a letter to investors last month that it stopped purchasing Funding Circle US loans late in 2015 after its portfolio “continued to substantially underperform our expectations.”

Funding Circle has lent over $2.6 billion globally over its platform. The company has operations in Germany, Spain, and the Netherlands, as well as the UK and US. The company has raised over $270 million from investors including BlackRock, Singapore investment giant Temasek, Scottish investment company Baille Gifford, and a fund owned by billionaire Russian internet entrepreneur Yuri Milner.

Moody’s Expects Residential Mortgage Backed Securities from Marketplace Lenders, (Crowdfunding Insider), Rated: A

Foreshadowing the inevitability for all forms of finance moving online, Moody’s has published a report stating the Residential Mortgage-Backed Securities (RMBS) will soon be issued by marketplace lending platforms. They also believe that current regulatory and securitization frameworks will reduce additional risk with RMBS issued by marketplace lending platform.

Balancing out this opinion, Moody’s says there is a difference between consumer lending and mortgage loans. The existing laws will demand a higher degree of compliance compelling new online entrants to “make significant capital and knowledge investment.” These standards will help maintain online lending quality in the RMBS space.

The Moody’s report is available here.

Escaping The Squeeze: 3 Forces Challenging Mid-Sized Banks And Credit Unions, (The Financial Brand), Rated: A

Squeeze #1: Fintech Startups Carving Out the Convenience Position

Fintech startups are establishing the bar for convenience. Pundits like to say that firms like Uber and Amazon are the ones setting expectations, but I really believe that consumers’ points of references are those within an industry, not across industry lines.

Are these startups making bad lending decisions? Consumers don’t care. All they see is that the process takes a tenth of the time and effort that it does with traditional financial institutions.

Squeeze #2: Merchants are Attacking Traditional Payments Deposits

What’s important, here, is that this represents the new behavior in how consumers manage their money. Paychecks get deposited in a bank account, then some portion of it quickly gets moved to loyalty and closed loop prepaid cards.

Squeeze #3: Megabanks are Winning the Millennial Market

Escaping the Squeeze

Reinvent marketing. A good rule of thumb in banking is that financial institutions spend about one-tenth of one percent of assets on marketing. That means the typical megabank has a marketing budget of $1.3 billion. Do you really think you can out-market that kind of spending? You can’t. You have to use other tactics.

Own the financial health position. Millenials will be moving to the life stage that puts a premium on convenience and into a stage where advice and guidance become more important.

Mobile banking now only trails online banking as consumers’ preferred method, (Mobile Payments Today), Rated: A

This year’s results show a marked increase in mobile banking popularity compared with the association’s 2014 findings, which showed mobile in fourth place. Branch banking and ATMs rounded out the top four spots.

However, when considering the latest results, it is important to note that the new survey was conducted online, while previous years’ surveys were conducted over the phone. This makes a reliable comparison impossible, according to an ABA press release.

Blackmoon: Marketplace Lending Platform of the Future, (Tech.co), Rated: A

Valued at more than $850 billion, this market is still not being fully explored by European alternative finance, which is lagging way behind the United States and the United Kingdom.

Wanting to swim against these tides is Blackmoon, a technological platform that enables institutional investors to directly invest in newly-originated loans issued by balance sheet lenders in a marketplace fashion. This MPLaaS (Marketplace Lending as a Service) has offices in Russia and Cyprus, having recently launched their newest office in the United States.

Investors have been quite successful when using this platform: in the last year, they averaged returns were bigger than 15 percent, and the cumulative turnaround exceeded $13 million. Blackmoon wants to reach $1 billion in cumulative turnaround until the end of 2017, to which the company’s US expansion shall provide a decisive contribute.

CreditEase’s Online Inclusive Finance Becomes Harvard Business School Case Study, (PR Newswire), Rated: A

This is the second time a CreditEase story has been published in Harvard’s case databank since 2014. This makes CreditEase the first ever ChineseFinTech firm to be published twice.

In 2014, Lena G. Goldberg, a professor at HBS, put together CreditEase’s seven-year journey from 2006-2013 into a business case. Subsequently, Tang Ning, the Founder, and CEO of CreditEase, was invited a number of times to Harvard to share his stories in financial innovation.

In January 2016, Professor Michael Chu visited Beijing for field research and conducted in-depth interviews with Tang and his management team.

CreditEase is a leading FinTech company in China. Its majority-owned subsidiary Yirendai (NYSE: YRD), an online consumer finance marketplace, is listed on the New York Stock Exchange.

Takeaway from Finovate and Next Money: Ditch the Humans, (American Banker), Rated: A

The Rise of ‘Regtech’

Technology intended to help companies stay compliant is having its moment.

SME Lending

Marketplace lending might still be trying to figure out its future as an industry, but it succeeded in pushing banks to reconsider how they approach lending.

That’s particularly true in small-business lending, an area that remains one of the more manual (and paper-intensive) areas of the industry.

“If we add a human into banking, we don’t just slow it down to human speed, humans create friction,” King said. “Humans only ever add friction.”

The Impact of Micro-Investing Technology that No One is Talking About, (Dara Albright), Rated: A

Micro-investing technology, coupled with new crowd financing structures made possible by the JOBS Act, enables a small business to cost-effectively and compliantly build a large, impassioned and well-diversified investor base.

Despite the SEC’s implementation of all key components of the JOBS Act, there are many issuers still reluctant to employ these “crowd finance” exemptions. Some express concern that an expansive cap table is too difficult to manage. Others fear that too many small retail investors on the cap table will be an obstacle to obtaining future venture capital financing. Other issuers mistakenly believe that it is easier and less cumbersome to raise capital from a small band of large investors than it is to pool tiny increments from a massive crowd.

Due to advancements in micro-investing technology, many of these apprehensions are unfounded.

Where the 27 Fintech Unicorns Got Their Start, (Equities), Rated: A

United Kingdom

Ex-Lloyds CEO Joins Board of P2P Lender, (Bloomberg), Rated: A

Eric Daniels, the former chief executive officer of Lloyds Banking Group Plc during the 2008 global financial crash, has joined the board of British peer-to-peer lender, Funding Circle Ltd.

The six-year-old lender catering to small businesses is increasingly turning to traditional bankers as it expands into the U.S., Germany, Spain, and the Netherlands. The company, which has arranged $2.5 billion in loans, is also girding for the economic impact of the U.K.’s decision to quit the European Union.

In July, Funding Circle hired Jeremy Bennett, the architect of the U.K.’s toxic-asset insurance program following the crash and a former chief of Nomura Holdings Inc.’s European division, as its chief financial officer. Jerome Le Luel, the onetime chief risk officer at Barclays Plc’s credit-card unit, joined the London-based startup last October to oversee risk management.

He said he will serve on Funding Circle’s risk and audit committees. Daniels will work closely with another one-time bank chief who’s jumped into online lending: Bob Steel, the former CEO of Wachovia Corp. who sold that bank to Wells Fargo & Co. during the crisis. Steel joined Funding Circle’s board in 2014.

Hargreaves Lansdown delays P2P launch until 2017, (Bridging and Commercial), Rated: A

Hargreaves Lansdown has revealed that it expects to launch its peer-to-peer lending operation in 2017.

Hargreaves Lansdown also reported that it had capitalized £1.1m of staff costs relating to the development of the cash deposit and peer-to-peer platforms.

The firm has been helping clients choose and manage investments since 1981 and its latest results showed that profit before tax had increased by 10% on last year.

Fintech: Opportunities For All? – Remarks Given By Victoria Cleland, Chief Cashier, Bank Of England – Given At The 2nd International Workshop P2P Financial Systems 2016, (MondoVisione), Rated:AAA

Complete speech can be found here.

 

Since 2010, more than $50bn has been invested in almost 2,500 FinTech companies. In 2015 alone, the UK alternative finance sector grew by 84%. 5 Over 24 countries are currently investing in DLT with $1.4bn in investments over the past three years. Over 90 central banks are engaged in DLT discussions worldwide and more than 90 corporations have joined blockchain consortia. 80% of banks are predicted to initiate DLT projects by 2017.6

In his recent speech “Enabling the FinTech transformation: Revolution, Restoration, or Reformation?” 7 the Bank of England Governor Mark Carney, set out the ways the Bank is enabling the FinTech transformation:

 widening access to central bank money to non-bank Payment Services Providers;

 being open to providing access to central bank money to new forms of wholesale securities settlement;

 exploring the use of DLT in our core activities;

 partnering with FinTech companies on projects of relevance to our mission;

 calibrating our regulatory approach to FinTech developments.

European Union

French Crowdlending Platform Unilend Receives a €2.5 million Investment from NewAlpha’s FinTech fund, (Crowdfund Insider), Rated: A

Unilend, a pioneer in SME crowdlending in France, announced on September 7 that it has received a €2,5 million investment from NewAlpha Asset Management (NewAlpha).

This is the third investment coming from the venture capital fund dedicated to FinTech and Assurtech that NewAlpha launched in November 2015. Investors in the fund, such as Crédit Mutuel Nord Europe, find in NewAlpha a leading innovation scout and incubator who proactively monitors usage innovation and technology change in areas of finance including banking, insurance, and asset management. NewAlpha has concluded more than 60 strategic partnerships and invested over one billion euros in French and international FinTech and Assurtech firms.

Founded in 2013, Unilend leads retail crowdlending in France with a strong community of 10,600 lenders. It was the first French crowdlender to pass the €20 million mark of funds raised in July this year. The platform is now looking to conquering a larger share of the €90 billion of French SMEs’ financing needs.

Bondora reaches new record-high loan origination of €2.8 mln in Aug 2016, (SMN Weekly), Rated:A

In August, grade C-E loan originations in Estonia took the highest share of 32%. In Finland, 13% of all loans were grade D-F, and in Spain, new originations were primarily in the higher interest grades of E, F, and HR. Overall, interest rates were highest in Spain, followed by Estonia and Finland.

Bondora is a leading Estonia-based P2P lending platform. The platform has facilitated the disburse of more than €66 million. The average Bondora loan is €2,370, but loans range from €500 to €10,000. Bondora also operates a secondary market for P2P loans where investors can buy and sell their existing investments.

Bondora is authorized by the Securities and Exchange Commission (SEC) in the US, the Financial Supervision Authority (FSA) in Estonia, and the Regional State Administrative Agency (RSAA) in Finland.

Kroll Bond Rating Agency (KBRA) is pleased to announce that Ira Powell has been appointed as Chief of Staff and that Mauricio Noé has been hired to build our presence in the European markets, (Email , Kroll Bond Rating Agency), Rated: A

Kroll Bond Rating Agency (KBRA) is pleased to announce that Ira Powell has been appointed as Chief of Staff and that Mauricio Noé has been hired to build our presence in the European markets. In Ira’s new position, he will be taking on a broader management and operating role and will continue to report to Jim Nadler, President and Chief Operating Officer at KBRA. Powell joined KBRA as Chief Credit Officer in early 2015 and has been an integral part of KBRA’s recent success and growth. After receiving his J.D. from Harvard Law School, Ira worked in various positions across Structured Finance before most recently spending 15 years in Goldman Sachs’ investment banking division.

In addition, KBRA has hired 20-year ex- Freshfields, ABN AMRO, and Deutsche Bank veteran Noé to lead its European business. KBRA is in the process of establishing a presence in Europe and expects to be a full service and locally staffed regulated rating agency in the near future. We have been certified by ESMA since March 2013 in accordance with Regulation (EC) No 1060/2009 and are currently establishing a regulated European subsidiary. In the meantime, we continue to conduct a significant amount of business in Europe, predominantly for European clients issuing securities into the US market notably in the Private Placement, Project Finance, and Aircraft space.

Author:

George Popescu