Tuesday June 6 2017, Daily News Digest

u.s. FICO scores

News Comments Today’s main news: Proposed U.S. REIT credit rating methodology. Tisa group pushes for P2P lending in Sipps. Dumiao issues first digital lending ABS on Shanghai exchange. Today’s main analysis: Borrowers accelerating paydowns on six-figure student loan debt. Top 10 P2P lending platforms by volume and loan balance in China. Today’s thought-provoking articles: Millions of Americans just got […]

u.s. FICO scores

News Comments

United States

United Kingdom

China

  • Dumiao issues first digital lender ABS in Shanghai. GP:”ABS offering on Shanghai Stock Exchange. In general investors see the Shanghai Stock Exchange as being particularly prone to insider trading and not many international investors participate in the market. Despite this there is a need for Chinese ABS and there will be, with or without international investors, a Chinese ABS bond market due to the needs of local insurance, private equity, banks and other participants.”
  • Top 10 P2P lending platforms. GP:”A very useful list.”AT: “Interesting, Yirendai, #2 by loan balance, isn’t on the volume list.”
  • Renaud Laplanche to keynote at LendIt’s Lang Di Fintech conference. GP:”I think his return to the public speaking circuit in our industry in China will not receive as much visibility as expected. Renaud should speak in the US again.”

International

Australia

India

Asia

News Summary

United States

Proposed U.S. Real Estate Investment Trust Credit Rating Methodology (Morningstar), Rated: AAA

The four key components that drive MCR’s credit rating methodology for REITs are:

  1. Our Business Risk encompasses various measures of a REIT’s business risk.
  2. Our Cash Flow Cushion ScoreTM is an evaluation of a REIT’s ability to cover debt maturities, interest, and other debt-like obligations.
  3. Our Solvency ScoreTM is a predictor of default based on four key metrics.
  4. Our Distance to Default Score is based on a REIT’s likelihood of financial distress using market-based inputs.

Two separate component scores converge to form our final Business Risk assessment: Country Risk and Company Risk. Once we assign these two component scores, we weight them as follows to determine the overall Business Risk assessment for each REIT:

  • Country Risk: 10%
  • Company Risk: 90%

We believe EBITDA is the best measure of size for REITs and assign points for size according to the following scale:

Source: Morningstar

The distance to default metric is a market-based measure of financial health. Both inputs, equity volatility, and the ratio of enterprise value to market capitalization, are calculated using daily updated market data. This allows us to incorporate new information faster through the distance to default calculation compared with accounting-based measures of financial health. As a result, our credit ratings can be more responsive to early signs of financial distress.

  • Step 1: Calculate annualized trailing 300-day equity total return volatility (EQVOL).
  • Step 2: Calculate current enterprise value/market cap ratio (EVMV).
  • Step 3: Transform EQVOL into a percentile [0, 1] by ranking it relative to all other stocks in the calculable universe (EQVOLP). 1 represents high equity volatility, 0 represents low equity volatility.
  • Step 4: Transform EVMV into a percentile [0, 1] by ranking it relative to all other stocks in the calculable universe (EVMVP). 1 represents high leverage companies, 0 represents low leverage companies.
  • Step 5: Calculate new raw DTD = 1-(EQVOLP + EVMVP + EQVOLP*EVMVP)/3
  • Step 6: Transform new raw DTD into a decile [1, 10] by ranking it relative to all calculable U.S.-domiciled stocks. 10 represents poor financial health while 1 represents strong financial health.

Request for Comment (Morningstar), Rated: AAA

Morningstar Credit Ratings, LLC (MCR) will accept comments on this Request for Comment until 5 p.m. Eastern Time on July 5, 2017.

Comments should be submitted by the deadline date and time via email to NRSROconsultations@morningstar.com. Comments should contain your name, your title (if writing on behalf of an organization), your organization (if applicable), address, phone number, and email address.

Millions Of Americans Just Got An Artificial Boost To Their Credit Score (Zero Hedge), Rated: AAA

Stated simply, the definition of the all important FICO score, the most important number at the base of every mortgage application, was set for a series of “adjustments” which would push it higher for millions of Americans.

Now, as the Wall Street Journal points out today, efforts to rig the FICO scoring process seems to be bearing some fruit.  The average credit score nationwide hit 700 in April, according to new data from Fair Isaac Corp., which is the highest since at least 2005.

Meanwhile, the share of consumers deemed to be riskiest, with a score below 600, hit a new low of roughly 40 million, or 20% of U.S. adults who have FICO scores, according to Fair Isaac. That is down from 20.5% in October and a peak of 25.5% in 2010.

Extreme refinancing: Borrowers accelerating paydowns on six-figure student loan debt (Credible), Rated: AAA

A growing number of Americans who have student loan debt are enrolling in repayment plans that ease the burden of their monthly payments by stretching them out over a longer time period. Some borrowers pursuing this strategy may qualify to have their remaining debt forgiven after 10, 20, or 25 years of payments. Others will rack up thousands of dollars in additional interest rate charges without qualifying for loan forgiveness.

Credible’s analysis found most borrowers who have refinanced more than $100,000 in educational debt are taking the opposite approach. Most are on track to dispatch their loans in 10 years or less — saving tens of thousands of dollars in interest payments in the process. Many who have refinanced six-figure educational debt at lower rates will pay it off in just 5 years, Credible found.

Read the full report here.

June Legislative Update (Experian Email), Rated: A

Highlights include:

  • On May 19 Experian submitted comments in response to the CFPB’s Request for Information (RFI) on the use of alternative credit data and alternative credit scoring models. The CFPB sought comments on the types of information that should be considered alternative data and how it could be used to improve financial inclusion.
  • On May 18, Representative Marsha Blackburn (R-TN) introduced the Balancing the Rights of Web Surfers Equally and Responsibly (BROWSER) Act of 2017 (H.R. 2520). Blackburn is joined by Representatives Brian Fitzpatrick (R-PA) and Bill Flores (R-TX) as original co-sponsors of the bill. The legislation seeks to bring internet service providers and edge service providers under the same privacy regime, by designating the FTC as the nation’s sole online privacy enforcement agency.
  • On May 8, Representative Barry Loudermilk (R-GA) introduced H.R. 2359, the FCRA Liability Harmonization Act. The bill seeks to bring consistency to national consumer financial protection laws by capping class action damages and eliminating punitive damages to align the Fair Credit Reporting Act with other consumer financial protection laws.
  • In New York, S.B. 5601 amends the state’s breach law by adding biometric data to the definition of personal information and permitting email notification unless the breach includes access credentials for an email account. Notification would instead be provided in real time by providing clear and conspicuous notice when the consumer is accessing the account from their usual location.

Read the update here.

Marketplace ABS evolving (Structured Credit Investor), Rated: A

At the upcoming SCI Marketplace Lending Securitisation Seminar in New York on 22 June, panellists will discuss the structuring and evolution of marketplace loan ABS. The fact that deals are increasingly incorporating features to reduce risk is one area that is expected to be covered.

This trend is supported by the recent US$495m Prosper Marketplace Issuance Trust Series 2017-1 – the first ABS launched by Prosper via its own branded shelf, when previous deals had been issued by Citi on the CHAI shelf. Rated by KBRA and Fitch, the deal comprises US$311m A/A- class A notes and US$70.67m BBB/BBB- class B notes. KBRA rated the US$113m class C notes single B-plus, but these are unrated by Fitch.

Plaid Is Powering the Future of Banking and Finance (Inc.), Rated: A

Plaid co-founders William Hockey and Zachary Perret noticed the need for something simpler, a system that would do the heavy lifting for other companies aiming to work with real financial data. The pair developed APIs that can ingest the mass volumes of financial data on the backend, transform it into a useable format, and then build a service on top – in other words, a platform.

As developers themselves, they focused on building a platform that was developer-friendly and for building integrations. Due to this focus, they quickly saw growing demand from developers and the emerging fintech industry to help build new applications for financial services.

Hockey and Perret’s goal is to drive innovation in financial services. Instead of attempting to serve consumers directly, the pair believed it was a smarter move to build a business- and developer-facing platform, one that would power the entire fintech ecosystem for consumers indirectly.

Moving forward, Plaid will focus on scaling this year. Its main goal is to continue to grow the platform that is seeing a lot of demand — which also means recruiting more people to join the team. Although the team currently numbers around 90, the leadership hopes to grow the team to somewhere around 120 by the end of the year, hiring across all departments.

How this Ohio mutual is getting an edge in tech (American Banker), Rated: A

Recently, First Federal was one of the founders of an Ohio-based fintech accelerator. It’s also invested in Numerated Growth Technologies — a commercial lending technology that lets banks make lending decisions in as little as five minutes.

“Why can’t a group of 10 community banks figure out how to make investments in an innovative platform down the road?” he said. “Or a group of banks being part of a development fund to steer a variety of tech initiatives?”

With the accelerator, First Federal is teaming up with larger banks. Its partners in the accelerator include Fifth Third Bancorp, Huntington Bancshares, KeyCorp and the insurer Progressive. JPMorgan Chase and Silicon Valley Bank are also part of the initiative.

Sweden’s Klarna looks to fuel US growth with e-commerce financing products (451 Research), Rated: A

The vendor has grown from a niche Nordic payments specialist to a global player with operations in 18 markets in little more than a decade. Recently launching in the US, Klarna has chosen to orient its primary go-to-market efforts around an alternative financing offering for e-commerce purchases.

Sequoia raises $ 2 bln for global growth fund, additional capital for China, India funds (PE Hub), Rated: A

Sequoia Capital said it has raised more than $4 billion for venture and growth funds in the United States, China, India and elsewhere in the world, according to filings with the SEC.

The Silicon Valley-based firm said it raised nearly $2 billion ($1.9995 billion) for its Sequoia Capital Global Growth Fund II, according to the filings. The firm had unveiled the fund in 2015 but without a target. Commitments came from 104 LPs.

What is Nevada’s Pro-blockchain Bill? (The Merkle), Rated: A

The state of Nevada has proven to be quite open-minded when it comes to blockchains and cryptocurrencies these days. In fact, the State Legislature approved a bill preventing local governmental entities from taxing any blockchain transaction.

Senate Bill 398 was first introduced in March of this year and is now presented by Governor Brian Sandoval to be signed. Governmental entities can’t impose any tax or fee on the use blockchains by both individuals and entities alike. Moreover, they can’t require these users obtain a license or permission to use blockchain technology either.

Is Marketplace Lending a Safer Investment Than the Stock Market? (National Real Estate Investor), Rated: B

While equities are often thought to yield high returns with fairly low risk, it takes time for them to fully develop and come to fruition. Alternative investment vehicles are coming into the market that are becoming particularly attractive when investing with a low appetite for risk.

With consistency and diligence, the stock market can make for a profitable long-term strategy. According to Credit Suisse, as of February 2017, the U.S. averaged 6.4 percent in inflation-adjusted equity return.

Marketplace lending, on the other hand, has consistent returns with lower volatility. Investopedia names marketplace lending as one of the best investments for high return rates.

Essentially, the main risk associated with marketplace lending is that you are loaning to people who may not have been able to get approved through traditional outlets.

United Kingdom

Tisa group pushes for P2P lending in Sipps (Citywire), Rated: AAA

A working group run by the Tax Incentivised Savings Association (Tisa) is gathering advisers’ views on the use of alternative finance products such as peer-to-peer (P2P) lending in Sipps.

The group, which consists of the heads of several P2P and crowdfunding firms along with consultants and Tisa technical policy director Jeffrey Mushens, first met on 19 January.

It has highlighted tax regulation as a key barrier, as well as wider concerns about non-standard assets being held in Sipps.

Despite the industry body helping to push P2P into the mainstream, advisers may take some convincing, with many hesitant until the market has ‘matured’.

The survey is available here.

Most investors not expecting to beat cash, says peer-to-peer lender (AltFi), Rated: A

Major peer-to-peer lender RateSetter has unveiled the findings of a new survey of 2,000 people, of whom more than 500 invest their money via products like equities, bonds or peer-to-peer loans. The findings suggest that most of these investors expect their portfolios to be outperformed by cash over the next 12 months.

The average return on cash currently stands at a meagre 0.15 per cent, according to Bank of England data.

LendInvest launches new three-year bridge (Financial Reporter), Rated: A

LendInvest has launched a new three-year bridge product with 110% ICR as a funding alternative to a conventional buy-to-let loan.

The product is available on loans between £100,000 and £2 million with a maxmimum LTV of 70% on day 1, rising to 75% as interest on the loan is deferred and rolled up.

China

PINTEC Subsidiary Dumiao is First Digital Lending Tech Provider to Issue ABS on Shanghai Exchange (PR Newswire), Rated: AAA

PINTEC Group, China’s leading financial technology provider, announced that its wholly owned digital lending technology subsidiary Dumiao successfully issued RMB245 million worth of asset-backed securities (ABS) on the Shanghai Stock Exchange, in the first such issue by a digital lending technology provider.

The underlying assets of the ABS are receivables facilitated by Dumiao on Qunar’s “Naquhua” installment payment service. Qunar, a leading online travel agency in China, is supporting the ABS program, ensuring the asset formation and stable service operation. Dumiao, a leading digital consumer lending technology provider, supplies Qunar with a digital lending technology solution and offers consumers flexible and efficient financial service.

The Dumiao offering represents the first internet consumer finance ABS sponsored by a third-party digital lending technology provider. Prior to the listing of Dumiao’s ABS on the Shanghai Stock Exchange, ABS offerings from the internet finance sector had been dominated by e-commerce companies.

Top 10 P2P Lending Platforms (Xing Ping She Email), Rated: AAA

By the end of May 2017, the total loan balance of P2P lending platforms in China reached to $1146.30 billion, and the total volume reached to $366.05 billion. According to the ranking list issued by Online Lending House, we picked out the top 10 P2P lenders per Loan Balance and Volume.

Top10 P2P Lending Platform per Loan Balance in May 2017
Rank Lending Platform Location Loan Balance

(Billion dollars)

Growth of loan balance (%) Overall yield Rate(%) Loan term (Month)
1 Lufax Shanghai 19.48 4.34 7.9 31.01
2 Yirendai Beijing 4.90 5.12 11.56 30.68
3 JBH Beijing 4.18 1.37 7.45 5.39
4 Eloancn Beijing 4.10 -5.12 9.1 10.32
5 PPDAI Shanghai 3.28 12.49 17.22 11.24
6 Xiaoying.com Guangdong 3.06 21.35 7.34 8.4
7 IQianJin Beijing 2.82 13.31 10.96 30.17
8 Hongling Capital Guangdong 2.56 1.68 7.67 2.66
9 Niwodai Shanghai 2.49 -0.02 10.73 16.98
10 Renrendai Beijing 2.35 5.08 10.19 35.07

 

Top10 P2P Lending Platform per Volume in May 2017
Rank Lending Platform Location Volume

(Billion dollars)

Growth of loan balance (%) Overall yield Rate(%) Loan term (Month)
1 Lufax Shanghai 1.65 -0.68 7.9 31.01
2 Xinhehui.com Zhejiang 1.60 8.34 7.13 0.75
3 Hongling Capital Guangdong 1.30 2.22 7.67 2.66
4 Wei Dai Network Zhejiang 1.09 -7.70 7.62 2.81
5 Xiaoying.com Guangdong 1.02 52.99 7.34 8.40
6 Tuandai Network Guangdong 0.73 24.64 9.05 3.59
7 IQianJin Beijing 0.68 42.77 10.96 30.17
8 PPDAI Shanghai 0.61 -7.52 17.22 11.24
9 Yidai.com Sichuan 0.57 53.67 11.70 7.57
10 PPmoney Guangdong 0.52 185.77 9.50 6.35

Renaud Laplanche Joins LendIt’s Lang Di Fintech as Keynote Speaker (Crowdfund Insider), Rated: A

Now Laplanche is returning to the public stage as a keynote speaker roster for Lang Di Fintech 2017, LendIt’s Chinese conference. Lang Di Fintech, said to be the largest Fintech conference in China, marks Laplanche’s first public speaking role since founding Upgrade. His presentation is said to focus on the concept of online lending 2.0, including how new technologies such as Blockchain are increasingly incorporated into a Fintech company’s technology architecture.

International

Singapore fintech hub LATTICE80 launches initiative to connect Asia and Nordic fintech ecosystems (e27), Rated: AAA

Singapore-based fintech hub LATTICE80 has signed a memorandum of understanding (MOU) with the Nordic Finance Innovation (NFI), an independent Nordic executive network for the finance industry.

The partnership will raise awareness of fintech’s potential between Asia and the Nordics; office space sharing; events collaboration; in-country exclusivity; exchange programs for members; and the leveraging of mutual contacts and networks.

Meanwhile, 42 per cent of Nordic financial institutions surveyed want to expand their existing partnerships with fintech firms. 42 per cent of Nordic banks surveyed also intend to set up fintech incubators.

Tommaso Zanobini to Lead Fintech at Deutsche Bank (Crowdfund Insider), Rated: A

Deutsche Bank has hired Tommaso Zanobini as Managing Director and Global Head of Financial Technology (Fintech), a joint venture between Deutsche Bank’s FIG and TMT banking team.

SAIL Capital Awarded Most Innovative Sustainable Investment Firm, Recognised Leader in Global Resource Investing (PRWeb), Rated: B

Wealth & Finance magazine have announced the winners of the 2017 Alternative Investment Awards. SAIL Capital of Newport Beach, CA has been awarded Most Innovative Sustainable Investment Firm 2017 (Energy & Water) & Recognised Leader in Global Resource Investing 2017.

SAIL Capital has been a pioneer and thought leader in impact/alternative investing since the early 2000’s under the leadership of Founder and CEO Walter Schindler.

Now in its fourth year, the 2017 Alternative Investment Awards casts a light on the individuals, firms and departments from across all sectors that have played a part in shaping this dynamic and imitable industry.

Australia

How peer-to-peer lending could hit big bank profits (The Motley Fool), Rated: AAA

For example ANZ pays 2.4% annual interest on its one-year term deposit, and charges 13.95% annual interest on its personal loan.

Direct banks usually offer slightly higher interest rates on deposit accounts, lower loan costs, and reduced fees because they do away with the costs and inefficiencies (and arguably some of the service) of the traditional banks.

For example, the direct bank ME pays 2.85% annual interest on its term deposit, and charges 12.49% annual interest on its personal loan, making for a spread of 9.64%. Compare this to ANZ’s spread of 11.55% and you’ll note that ME’s more bare bones set up allows it to better cater to the more cost-conscious customers.

For example, the P2P lender DirectMoney Ltd (ASX: DM1) pays the investor around a 7.50% annual return for their personal loan fund, and charges the borrower around 9.50% annual interest on their personal loan. The spread is just 2.0% – a fraction of the banks with ANZ at 11.55% and ME at 9.64%.

Big BankANZ Direct BankME P2P LenderDirectMoney
Lender (Personal Loan) 13.95% 12.49% 9.5%
Borrower (Term Deposit) 2.4% 2.85% 7.5%
Net interest spread 11.55% 9.64% 2.0%

* All rate as of 2/6/17

Australia’s ASIC Proposes Next Steps on RegTech (The National Law Review), Rated: A

On Friday 26 May 2017, ASIC released its Report 523 titled “ASIC’s Innovation Hub and our approach to regulatory technology”. This report gives an update on the work of ASIC’s Innovation Hub and outlines ASIC’s current and proposed future approach to RegTech.

The report proposes that ASIC increase its focus on supporting RegTech developers, including by:

  • establishing a new RegTech liaison group comprising industry, technology firms, academics, consultancies, regulators and consumer bodies to enable networking, discussion of RegTech developments and collaboration opportunities that promote positive applications of RegTech;

  • continuing to hold RegTech trials and sharing knowledge about those trials with the market to promote wider use of technologies that promote good consumer and market integrity outcomes; and

  • hosting a problem-solving event (“hackathon”) later in 2017 to stimulate thinking and approaches to deal with problems of regulation commonly faced by the financial services sector.

India

Sundaram Finance backs online education loans marketplace GyanDhan (VC Circle), Rated: A

GyanDhan, an online marketplace for education loans operated by Delhi-based Senbonzakura Consultancy Pvt. Ltd, has secured an undisclosed amount from Sundaram Finance Holdings, a subsidiary of Chennai-based Sundaram Finance Ltd, it said in a statement.

The platform had raised an undisclosed amount in seed funding from Stanford Angels & Entrepreneurs and Harvard Angels in July last year .

It had earlier received angel funding from Satyen Kothari, founder of Cube and Citrus Pay.

Fintech platform MaxMyWealth raises funds from two UK firms (VC Circle), Rated: A

London- and India-based Heathwalk Advisors Pvt. Ltd, which runs financial technology platform MaxMyWealth, has raised an undisclosed amount from two UK-based firms, it said in a statement.

The firm will use the funds to build the team, enhance its offering and grow its customer base.

Asia

Top 10 Fintech Companies South Korea (TechBullion), Rated: A

According to Statista, the Transaction Value in the fintech market amounts to US$43,032m in 2017.

Developed by Samsung electronics, Samsung Pay allows users to make payments using compatible phones and other Samsung-produced devices.

Founded in 2013, Viva Republica is a fintech company that offers innovative peer-to-peer money transfer services via a mobile app called “Toss”.

8percent is a leading start-up that brings together savvy investors and creditworthy borrowers together so that both can benefit financially.

Founded in 2012, Rainist offers financial products recommendation based on individual’s life patterns and purchase behaviour.

DAYLI Financial Group is a leading financial technology platform consisting of innovative technologies such as machine learning, payment solutions, big data analytics, bitcoin exchange, and blockchain solutions.

‘Stocks Plus for Kakao’  enables users to check their stock quotes in real-time via Kakaotalk, a multi-platform messaging app.

Founded in 2011, Newsystock is a Robo-Portfolio platform that provides accurate analysis and equity purchase recommendations in the stock market.

Infosonic is the start-up that produces Sonic Pass as mobile authentication and payment app.

Authors:

George Popescu
Allen Taylor