- Today’s main news: LendUp fined $6.3mil; Able raises $100mil; Lending Club sells $300m in loans in private;
- Today’s main analysis: Speech by Jonathan Davidson, Director of Supervision at FCA; Bondora’s new pricing and its reasons.
- Today’s thought-provoking articles: Bundling and unbundling; Cognitive computing;
- LendUp gets fined $6.3 mil. This is interesting in many ways: LendUp recognized their issues, where they came from (only having 2 people in compliance) and built a 15 person department since. Second, the way LendUp is approaching it from a PR point of view: recognizing what they did wrong, and being very clear about it. And last but not least: yes $6.3 mil is a lot of money but they have plenty, so it’s just an expensive lesson for them and a free lesson for everybody that reads Lending Times.
- Able, a very interesting small business lenders, raised $100mil. Why is this interesting ? Because in their model friends , clients and family of the borrower have to participate. It is also interesting because the funds come from an impact investor. And the most interesting part are the numbers : so far they only lent $30mil. So I wonder why that is given the amazing model and a relatively reasonable average APR of 16%.
- Recently we haven’t seen many positive articles on p2p. Here is a good one worth a read. Very optimistic and in the same time, I feel, realistic. A good alternative to the other ton of negative articles. Being realistic is probably, in my eyes, is very important in business. And to be realistic you need both positive and negative views to be entertained.
- China, given the latest regulation forcing lenders to not lend more than X to a given borrower, of course, put together a body so that lenders can report loans. Yirendai becomes part of the body. What is interesting here is that it’s not a paid membership or automatic membership. Once, apparently, has to be elected to become a member. I wonder how sustainable this model of self-regulation is. Of course, what makes it worse, is that we all know how elections are rarely fair and honest and are often based on other reasons.
- A great article about bundling and unbundling using an accounting software provider as an example.
- An article asking, I think, a very important question: are fintechs defensible. Great title. But the article, in my eyes, doesn’t really provide any real meat for the discussion.
- And the second article about Able’s $100m raise, that focuses instead of the raise given the very negative (in the author’s eyes) context of the market. As I’ve been saying since August, I think the context is changing towards positive recently in fact.
- Lending Club sold, in private, trying to avoid any press, $300m in loans to Prospect Capital. The really interesting part is why they did it this way ? Why would anybody do a sale in private ? Either they got an amazing deal that nobody could have come close (I doubt). Or they didn’t want the press which would have led to the question: where are these loans coming from, Lending Club’s balance sheet ? Or they just tried to avoid fees. Let’s see what Lending Club does for the next sale.
- A very legal article on the strange process chosen by the judge in a class action suit vs Lending Club. The takeaway : the judge is acting strangely already so the results of the lawsuit will probably be very unpredictable.
- And great food for thoughts: what is cognitive banking and what can it do ? Worth thinking about it.
- Today’s probably most important news: A great clear and interesting speech by Jonathan Davidson, Director of Supervision at UK’s FCA. The UK FCA is often taken as a role model regulator by many regulators in the Commonwealth and elsewhere. A must read the speech with great numbers which will probably influence the future of regulation in P2P and therefore the market. My takeaway: we feel the FCA continues to support P2P in the best possible way, by being fair.
- An n-th reminder of Zopa’s securitization.
- And P2P company Kuflink partners with Contego for identity verification and risk-scoring.
- After announcing a referral program yesterday, today Bondora announced they are pushing the prices up tiers E, F, and HR and reducing pricing on AA to D. Why ? They are trying to equilibrate their offer and demand in lending capital. This is a difficult exercise which requires constant adjustments.
- United States
- “Good guy” loan startup LendUp fined $6.3M for overcharging, (TechCrunch), Rated: AAA
- Able Lending Receives $ 100 Million To Fund Small Business Loans Despite Wider Industry Slowdown, (Forbes), Rated: AAA
- The Rise Of Peer-To-Peer (P2P) Lending, (Nasdaq), Rated: AAA
- Yirendai Became an Inaugural Member of the Credit Information Sharing Platform of Internet Financial Industry, (PR Newswire), Rated: A
- Inside Wave’s bundled revenue model, (Tradestreaming), Rated: AAA
- Fintech’s might be scalable but are they defensible?, (DailyFintech), Rated: AAA
- Confidence In The Face Of Alt-Lending’s Potential Implosion, (Pymnts), Rated: A
- Lending Club on the road with latest ABS Offering, (GlobalCapital), Rated: AAA
- California Federal Court in LendingClub Class Action Requires Due Diligence by Lead Plaintiff Before Approving Lead Counsel, (National Law Review), Rated: A
- WTF is cognitive banking?, (Trade Streaming), Rated: AAA
- United Kingdom
- Balancing regulatory objectives in the dynamic consumer credit market, (FCA.ORG.UK), Rated: AAA
- Zopa’s Janardana & P2P GI’s Champ Comment on Europe’s First Securitization of Unsecured Consumer Loans Originated Online, (Crowdfund Insider), Rated: B
- Kuflink partners with risk-scoring platform, (Bridging And Commercial), Rated: A
- European Union
- Estonian P2P lender Bondora hikes max return to 32.5% under new loan pricing scheme, (SMN Weekly), Rated: A
“Good guy” loan startup LendUp fined .3M for overcharging, (TechCrunch), Rated: AAA
You can read the full announcement from CDBO here.
You can read LendUp’s full statement here.
LendUp was supposed to be different than the payday loan sharks that rip off the poor when they need emergency cash. But in its early days, LendUp charged customers illegal fees, miscalculated interest rates, falsely advertised loans nationwide that weren’t available there and misled people that borrowing from LendUp would boost their credit score.
Now LendUp will have to pay $6.3 million for the violations. That includes a $3.6 million fine by the federal Consumer Financial Protection Bureau for failing to keep its promises, and a $2.7 million fine with the California Department of Business Oversight for the fees and interest rates.
LendUp CEO Sasha Orloff spoke to TechCrunch, admitting his company didn’t have a big enough compliance and legal team to review all of its promotions and features. To remedy the situation, LendUp proactively refunded any wrongly charged customers and ceased all problematic practices as soon as the investigation began. Now, Orloff says his 190-employee company has a 15-person-plus legal and compliance division — more people than the entire LendUp team at the time of the infractions.+
Additionally, Orloff tells me LendUp hired former regulators to come in and build out its compliance program.
The startup wasn’t allowed to discuss the ongoing investigations until they were recently completed.
The penalties might merely be a speed bump for LendUp, though. It raised a $47.5 million Series B round last month to bring itself to $111.5 million in equity funding, giving it plenty of cash to pay the fine and keep operating.
Able Lending Receives $ 100 Million To Fund Small Business Loans Despite Wider Industry Slowdown, (Forbes), Rated: AAA
Amidst a slackening in investor interest in alternative online loans, Austin-based Able Lending announces Tuesday that it has received $100 million to fund its online small business loans from Community Investment Management, the first impact investment firm focused on marketplace lending.
The two-year-old company uses a singular loan structure in a competitive space that has seen the growth of early leaders like OnDeck, CAN Capital and Kabbage plus a proliferation of startups over the last few years. Able has borrowers get “backers” or other friends, family or customers to fund part of the loan. The company says that, in addition to offering longer repayment periods, this enables it to charge lower APRs than its competitors because Able has found that having someone the borrower knows contribute to the loan increases their willingness to repay.
Including the 5% origination fee, Able’s average APR is 16%, compared to small business loan APRs that can be not only high but even abusive — 40% or 80% at competitors and 200% or even 4,000%among even less reputable lenders.
“Able’s unique loan structure, where friends and family contribute a portion of the loan, allows small businesses to access more capital at lower rates,”
So far, about 35% of backers are friends of the business owner, around a quarter of the backers are customers or fans of the business, another quarter is family and the final 14% are the owners themselves.
Able, which initially launched in Austin and is now in every state except for California, Delaware, Nevada, North Dakota, South Dakota, and Vermont, plans to use the new debt financing to lend to 500 new businesses, which need to have at least $100,000 in revenue and be a year old.
So far the company has zero defaults, but it’s only lent out $30 million to a tiny number of borrowers, especially compared to the giants of online business lending such as OnDeck, which in its latest earnings revealed it originated $590 million in loans in the second quarter of this year alone, reaching $5 billion over the company’s lifetime.
The Rise Of Peer-To-Peer (P2P) Lending, (Nasdaq), Rated: AAA
According to Reuters, “twenty of the world’s biggest banks have paid more than $235 billion in fines and compensation in the seven years period (2008-2015) for a litany of misdeeds, ranging from fines for manipulation of currency and interest rate markets to compensation to customers who were wrongly sold mortgages in the United States or insurance products in Britain.”
The market for alternate finance gained popularity in recent years. A finding by Transparency Market Research suggests that “the opportunity in the global peer-to-peer market will be worth $897.85 billion by the year 2024, from $26.16 billion in 2015. The market is anticipated to rise at a whopping CAGR [Compound Annual Growth Rate] of 48.2% between 2016 and 2024.”
One of the major challenges is managing fraudulent activities and malpractices as they result in loss of investor confidence and trust.
In Europe, several countries have introduced changes to alternative finance regulations as an attempt to regulate the activities of these emerging platforms. In the United Kingdom, Financial Conduct Authority (FCA) regulates loan-based and investment-based crowdfunding platforms.
In Australia, providers of marketplace lending products and related services need to hold an Australian financial services license and a credit license They also need to comply with National Consumer Credit Protection Act (for consumer loans) or Australian Securities and Investments Commission Act 2001 (ASIC Act) for other loans.
Meanwhile, in the U.S., such platforms need to be in compliance with SEC regulations and further have to be in sync with the respective state laws.
In India, the Reserve Bank of India issued a consultation paper in April where it proposed to bring P2P lending platforms under the purview by defining them as NBFCs.
Realizing that trouble was brewing, in August 2016, regulators in China issued an aggressive set of measures to restrain the spread of problematic online lending platforms while ensuring that the sector is cleaned up by making such firms exit. Statistics by CRBC showed that out of the 4,127 P2P lending platforms (end of June 2016), 1,778 were suffering from problems such as poor management, capital constraints or were a Ponzi scheme.
While the peer-to-peer (P2P) platforms continue to face the risk of default, fraudulent practices or borrower’s turning to banks, the growth prospects of this segment remain strong, especially in times when the banking sector continues to struggle with lingering damages. Thus, a well-regulated and transparent peer-to-peer platforms offer great opportunities as an alternative investment for loan providers as well as for borrowers – both in retail and small businesses.
Yirendai Became an Inaugural Member of the Credit Information Sharing Platform of Internet Financial Industry, (PR Newswire), Rated: A
Yirendai Ltd. (NYSE: YRD) has been elected as one of the inaugural member companies of the Internet Financial Industry Information Sharing Platform (IFIISP) on September 9 in Beijing.
IFIISP was launched by China Internet Finance Association (CIFA) and aimed to track credit information in the industry, enabling member companies to cross-examine credit conditions of loan applicants from multiple angles, preventing “multiple loans”, reducing default rate and business risks, ensuring legal compliance and improving information verification processes.
36 member companies in the fields of internet banking and consumer finance etc. of the CIFA were selected into a training camp of the information sharing platform and filed trial applications onApril 14, 2016, while only 17 companies were admitted into the platform at its inauguration as the result.
Inside Wave’s bundled revenue model, (Tradestreaming), Rated: AAA
On the one hand, veteran fintech blogger Pascal Bouvier has written compellingly about the unbundling of incumbents as a result of emerging fintechs and about the different ways for banks to deal with the disbanding of their value chain.
On the other hand, Bernard Lunn and Chris Skinner have argued that the prevalent trend is actually one of rebundling, of banks integrating fintech into their own technologies to form one-stop-shops for customers.
There is, however, a third hand: plain old bundling. Bundling is happening within the fintech ecosystem and without the banks, with payment companies like Square and PayPal launching their own lending services for SMBs. In a sense, if banks are becoming or are trying to become more like fintechs, some fintechs are also becoming more like banks.
For Wave, a Canadian company offering cloud-based solutions for accounting, invoices, payments, and payroll, the decision to bundle up was largely based on the need to provide better customer experience.
“Wave holds all of your financial information. It knows your bank balances, we know who you have invoiced, how much, when they’re due, we know how long we take to pay, all of these insights finance and cashflow,” Maurin explained. “We can therefore do risk assessment and creditworthiness assessments far better than any other entity has been able to do before.”
The fact that Wave’s core accounting software is free has enabled Wave to overcome the costly microbusinesses acquisition process. In fact, all of their signups – between 50-55,000 new businesses each month – are organic. Bundling, however, is what helps microbusinesses get the cash they need and Wave makes a profit.
Fintech’s might be scalable but are they defensible?, (DailyFintech), Rated: AAA
Scaling a business is a challenging endeavor for a fintech provider up against the big old boys of banking. Unlike an incumbent, in the early days, many are single product shops, and often lack a decent loss leader. This can prove challenging on the pricing front, especially when you’re trying to get a foot in the door of a price-sensitive small business. Banks, on the other hand, have a number of cards up their sleeves – from bank accounts to payments – that can, in essence, be given away, priming them for a future up-selling opportunity.
Winning customers with a technically superior product plus a marginal cost saving is the ultimate sweet spot for supercharged acquisition.
As part of our research at Tyro into the current account market, we’ve noticed ING employing this type of ‘continuous ROI’ tactic. As part of theirAustralian cashback campaign, each month they’d let their customers know how much they’d earned.
But imagine if, for the very same account, how much more powerful this would be if you could state, with some degree of certainty, to what lengths you’d helped customers avoid paying late fees, dishonor fees and admin fees.
Any fintech could then generate a continuous ROI measurement on their product and deliver this on a regular basis.
Confidence In The Face Of Alt-Lending’s Potential Implosion, (Pymnts), Rated: A
Investors have cooled off to alternative lending in the U.S. Just look at the near-immediate struggle faced by Lending Club and OnDeck after their IPOs in 2014, or more recently, the knock-on effect Lending Club’s less-than-noble lending practices have had on investor confidence in other marketplace lenders.
Then, there’s the threat of regulation as the CFPB, the Federal Reserve, the Federal Trade Commission and the U.S. Treasury Department all take their turns to probe and poke at the alt-fin space. To some, that means a regulatory crackdown is inevitably close behind.
It’s in this context of stormy seas for the industry that one market player, Able Lending, announced it secured $100 million in debt financing from Community Investment Management (CIM), money that will be lent out to an estimated 500 SMEs in the country.
Alternative SME lending players have faced a problem of supply as of late.
The strength of the national economy means there isn’t a shortage of demand among small businesses for working capital to fuel their growth.
Pat Grady, a partner at investor Sequoia Capital, warned that “upside has been grossly overestimated” in this industry, adding that online lenders are likely headed towards a “culling of the herd.” Ron Suber of alt-lender Prosper, meanwhile, said he noticed many competitors are shopping themselves around.
Recent warnings over loan stacking are the latest scare for the market, with LoanDepot Chief Risk Officer Brian Biglin telling reporters in June that stacking “is causing problems with the whole industry.”
So, what convinces investors to, well, invest?
According to Davis, it’s twofold: transparency and competitive pricing.
Davis predicts that the CFPB, which has recently targeted consumer payday loans, will focus on the payday loan equivalent of the commercial lending space if and when it does turn its focus to corporate lending.
Again, Davis pointed to OnDeck, as well as CAN Capital, as likely initial targets of the CFPB.
“We basically think, ‘What would the CFPB or any other regulator most likely tell a lender to do in their regulation?’”
“Let’s use common sense,” Davis continued, “like transparency, low rates, no disruptive practices, clear contract, no prepayment penalties.”
Lending Club on the road with latest ABS Offering, (GlobalCapital), Rated: AAA
Lending Club is marketing a private unrated ABS offering after drumming up interest at ABS East in Miami last week, say sources speaking with GlobalCApital on the sidelines of the American Banker Marketplace Lending + Investing conference in NY Tuesday.
New York-based Prospect Capital has purchased the loans as is issuing the $300m deal, according to 2 people with knowledge of the deal. The arranger of the deal could not be immediately determined.
California Federal Court in LendingClub Class Action Requires Due Diligence by Lead Plaintiff Before Approving Lead Counsel, (National Law Review), Rated: A
In a recent decision in the now-consolidated LendingClub class action cases, Judge William Alsup of the Northern District of California appointed a lead plaintiff but unexpectedly declined to appoint lead counsel at the same time. Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who will then move the court—via their current counsel, who is allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.
While “[s]everal lead plaintiff candidates filed motions for an appointment,” all but the Water and Power Employees’ Retirement System, Disability and Death Plan of the City of Los Angeles (“WPERP”) either withdrew or failed to oppose WPERP’s motion.
The Court’s opinion is not clear as to whether WPERP’s motion for appointment of lead counsel will be filed publicly, although, unlike with the accompanying declarations, the motion itself “should be served on defense counsel.”
The decision to separate the appointments of lead plaintiff and lead counsel into separate processes is rare, but it is unclear whether it will have a significant impact.
WTF is cognitive banking?, (Trade Streaming), Rated: AAA
Based on machine learning, natural language processing, and human interface technologies, cognitive computing systems can learn as information changes and requirements evolve, and easily interact with users, other devices, and other data sources. In contrast to traditional computing models which tabulate and calculate based on preconfigured rules and programs, cognitive systems can handle situations that are dynamic and information rich.
Imagine banking was as simple as a Google search. Instead of surfing multiple pages on your bank’s app, you type or talk to a single input box: “I lost my card.” A quick chat with a rep you didn’t even realize was not human and the new card is on its way.
Generally speaking, banks are still testing the waters when it comes to cognitive banking. In a 2016 survey conducted by IBM, just 11 percent of bank executives reported they have adopted a cognitive technology. 58 percent named improving operational efficiency as their most important strategic priority right now, which might explain the low adoption rate. Banks are generally focused on cost reducing activities and do not make needed IT investments.
In the same survey, 49 percent cited [the rather superficial outcome of] operational efficiency as the main benefit of cognitive computing, indicating bankers are a bit aloof to the transformative potential of it.
Balancing regulatory objectives in the dynamic consumer credit market, (FCA.ORG.UK), Rated: AAA
Comment: Speech by Jonathan Davidson, Director of Supervision – retail and authorisations at the FCA, at the Future of Lending Conference.
The FCA, as far as I know, is almost unique among financial regulators in the world,Malta being another, who have a top-line objective to promote competition.
We also see innovation as a particular imperative. So if you have innovative ideas – whether you are new to the industry or well established – please approach the FCA’s Innovation Hub.
Since we took responsibility for regulating consumer credit in 2014, we’ve handled some 39,000 applications. This was a lot more than we had anticipated.
Nevertheless, we have now dealt with 95% of them, and 99% of those we’ve processed to deadline.
There are a number of important reasons why I think we’ll keep seeing personal lenders coming through the doors.
One big factor is the hangover from the global financial crisis. So we expect innovative lenders to continue taking advantage of the current high margin, low-interest rate landscape.
The other major drivers, of course, are new platforms and technologies. So you can point to developments like real-time data sharing, predictive analytics, and mobile tech, as well as opportunities from the API Open Banking Standard.
At the moment, we see a number of risks in personal lending. I do not intend to go over them in exhaustive detail.
But I want to pinpoint two in particular: namely, affordability and the treatment of customers in financial difficulty.
Our authorisations process for interim permission firms has meant a tough and sometimes long journey for some of you.
I recently had a conversation with a non-exec director at a consumer credit firm who told me that the authorisations process had been, in his words, a ‘nightmare’.
We are very pleased with a large number of firms that have proactively engaged with us on our concerns and made radical changes. Naturally, this has caused delays for firms, but we believe it has had a positive outcome.
We currently have just under 1,700 cases remaining to be determined. The length of time we take to finalize those applications will be affected by lots of different factors. Complex cases from higher risk sectors, for example, tend to take longer. And this brings me to an important message to all firms, please be aware that we do not see authorisation as a one-off focus on performance, equivalent to cramming for an exam and then forgetting everything you’ve learned.
We see your responsibility as twofold. We certainly expect you to look out for your individual customers. But we also want you to be aware of your wider responsibility to the UK economy and society.
The FCA has a statutory responsibility to enhance market integrity, which means we take a direct interest in issues ranging from orderly resolution and market abuse, through to efficiency and transparency.The point I specifically want to address today though is related to issues around the transmission and distribution of risk.We fully understand debt and credit are integral to economic growth. Allowing consumption smoothing and investment. However, we also know that if credit grows too fast, affordability suffers.
From the regulator’s perspective, we’ve already authorized 12 firms who are operating P2P platforms and are assessing 85 additional applications, of which 39 are operating under interim permission. So there is clearly a lot of business interest.
I should immediately say this is not a surprise with yields on bonds at historically low levels. Investors earn as much as 10% on three to five-year P2P loans(link is external).
We will continue to pay close attention to personal lenders, and we will certainly not relax our standards. We want to see firms following our rules, but also the spirit of what we are trying to achieve.
Ultimately, we all want a landscape where the general public has confidence in you. And we all want a market in which you have confidence that your market is working well – with principled firms protected from unprincipled ones.
Zopa’s Janardana & P2P GI’s Champ Comment on Europe’s First Securitization of Unsecured Consumer Loans Originated Online, (Crowdfund Insider), Rated: B
Comment: I rated this B because our readers have been aware of this for a while, and while important it is just a secondary reminder now.
Last week, P2P Global Investments and Zopa teamed up to work on Europe’s first securitization of unsecured consumer loans originated online. dedicated to investing in loans originated via marketplace platforms, and was arranged by Deutsche Bank.
To recap: the £138M ($179 million) transaction is backed by 27,137 loans to individuals, according to Moody’s Investors Service, with a weighted average seasoning of 10 months and a maximum loan term of five years. Deutsche Bank AG arranged the deal, branded “Marketplace Originated Consumer Assets 2016-1.” A securitization of loans originated through financial innovator Zopa has received the highest debut rating globally for any issuance backed by peer-to-peer loans, with an AA- rating from Fitch and Aa3 rating from Moody’s on the most senior notes.
Kuflink partners with risk-scoring platform, (Bridging And Commercial), Rated: A
Peer-to-peer lending platform Kuflink has announced a partnership with Contego, the multi-source identity verification, and risk-scoring platform.
Kuflink has appointed the company to ensure compliance with anti-money laundering (AML) regulation at a time when peer-to-peer lending is under great scrutiny.
Contego’s identity verification and risk-scoring platform will allow Kuflink to verify the identity of its lenders and screen them against politically exposed person and sanction lists.
Estonian P2P lender Bondora hikes max return to 32.5% under new loan pricing scheme, (SMN Weekly), Rated: A
Bondora said on Tuesday it is updating its entire loan pricing system by incorporating a new method for calculation. As a result, аll new loan buyers will get a higher return of up to 32.5% of their investment. For comparison, under the current conditions, lenders can receive a return of no more than 20.2%.
With the move, the platform operator said it aims to increase the rewards for investors who buy higher risk loans. The news comes shortly after Bondora announced the launch of a Refer-A-Friend program, under which investors can earn 5% from the amount their referred friends lend in the first 30 days of signing up via the platform.