Thursday September 7 2017, Daily News Digest

robo-advisors

News Comments Today’s main news: Square plans to apply for an ILC banking license. Laplanche boosts volumes at Upgrade. SoFi CEO pulls out of Goldman fintech conference due to recent sexual harassment allegations. RealtyMogul launches MogulREIT II. Today’s main analysis: Why broker-dealer robo-advisors miss the point. Today’s thought-provoking articles: Why broker-dealer robo-advisors miss the point. RateSetter says even a millionaire couldn’t […]

robo-advisors

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United States

Square to apply for industrial bank, inflaming ILC debate (American Banker), Rated: AAA

Payment processor Square is seeking an industrial loan company, according to several sources familiar with the matter, further sparking debate over whether fintech companies should be allowed to use the controversial charter.

“ICBA’s feeling about Square applying for an ILC is the same about SoFi,” said Camden Fine, the president and CEO of the Independent Community Bankers of America. “If these entities want to be banks, they should apply for banking charters and come under full and unified banking supervision.”

Square’s main purpose for the charter will be to extend its small-business lending business, the spokesperson said. Though it also intends to take deposits, which would provide some amount of funding for its on-balance-sheet loans, the lion share of the company’s loans would still be sold off to third parties.

Square also felt the ILC charter was best suited to its structure, as the company owns a point-of-sales hardware appliance business and even a food delivery service called Caviar.

Ousted Lending Club chief boosts volumes at new venture (Financial Times), Rated: AAA

Renaud Laplanche, the former Lending Club chief ousted over a governance scandal last year, is stepping up lending at his new venture, determined to re-impose himself on the market for refinancing more than $1tn of credit card debt.

Mr Laplanche launched his firm, Upgrade, in April, having raised $60m in Series-A funding from a group of investors including Union Square Ventures, Ribbit Capital and CreditEase, China’s leading online lender. As at Lending Club, he is homing in on consumers struggling with big balances on credit cards — offering to swap a floating rate of, say, 17 per cent for a fixed rate about 5 percentage points less.

While Mr Laplanche declines to say how much business he has done so far, he has begun to boost volumes, responding to steady demand from consumers and also for high-quality assets from half a dozen core institutional investors. That new cadre of investors is unfazed by the scandal which erupted in May 2016, he said.

SoFi CEO Backs Out of Goldman Event Amid Sexual Harassment Probe (Bloomberg), Rated: AAA

Social Finance Inc. Chief Executive Officer Mike Cagney was supposed to take the stage at the Goldman Sachs FinTech Conference in New York City on Thursday, but he backed out amid a lawsuit and internal investigation at the firm.

Why broker-dealer robo advisors miss the fintech point (Financial-Planning), Rated: AAA

Over the past two years, there’s been a growing trend of broker-dealers announcing prospective launches of their own robo advisor solutions. From LPL developing a platform with BlackRock’s FutureAdvisor to Voya planning to launch a robo advisor, and Kestra Financial announcing it is working on a robo platform on the back of its acquisition of H. Beck, there’s been no shortage of announcements.

Launching a robo advisor does hold appeal among broker-dealers. Many of their reps are asking for it, either because it’s an easier way to handle smaller clients, or just to have a robo advisor option for millennial clients. Who wouldn’t want a button for the advisor’s website that young people can click to open up small accounts that will grow with time? And from the broker-dealer’s perspective, ideally, this helps them address the coming generational shift of assets from baby boomers down to millennials.

But for a broker-dealer that in the aggregate is losing 3% to 5% a year in asset outflows a decade from now, it’s a crisis, because a broker-dealer still has a multi-decade open-ended timeframe as an ongoing business entity. This is why we see broker-dealers, as well as RIA custodians, so obsessively beating the drum about advisors needing to focus more on younger clients. It’s not actually because advisors desperately need younger clients for our businesses to survive. It’s because they, the broker-dealers and RIA custodians, need us to get younger clients for them so their businesses survive and so they have younger clients after we’re gone and retired!

And so from the broker-dealer’s perspective, if millennials are pursuing robo advisor solutions, then the broker-dealer wants to roll out a robo advisor to get those younger clients and solve its own long-term generational issue. But here’s the problem with the strategy: robo advisors live and die by their ability to get clients online, and that’s not easy for anyone, especially a large base of independent registered representatives.

DOOMED TO FAIL

Betterment is just over $10 billion in total assets after six years. Wealthfront is just over $7 billion AUM in that same duration. Schwab made news for $15 billion dollars of assets, but has actually noted only a third of that total was new assets. Vanguard is now over $80 billion, but remember they had much of their assets already as well. Vanguard is direct-to-consumer through the Internet already; those in Vanguard’s Personal Advisor Services were predominantly existing Vanguard investors, simply upsold to human advice. Even Edelman online, which launched in early 2013, has accumulated barely 1,000 clients and just $62M of AUM after four years (and their average robo client is actually a baby boomer anyway.)

Source: Financial-Planning

VALUE IN EFFICIENCY
In other words, the real blocking point of robo advisors is the client acquisition cost — what it takes to market and get a young investor to invest on your platform. As the founding companies learned the hard way, this is not an “If you build it, they will come,” kind of asset-gathering opportunity. Instead, robos at best have been struggling to solve those client acquisition costs in the face of slowing growth rates, and many have been getting outright buried by those costs. That’s why robo advisor growth rates continue to slow down. Most of them have already sold, and most of the ones that are left aren’t even really focusing on a pure robo strategy anymore.

RealtyMogul.com Launches Second Real Estate Investment Trust, MogulREIT II, to Invest in Multifamily Apartment Buildings (BusinessWire), Rated: AAA

RealtyMogul.com, the online marketplace for commercial real estate investing, today announced the launch of the company’s second real estate investment trust or “REIT,” MogulREIT II.

MogulREIT II aims to invest in multifamily apartment communities across the United States that have demonstrated consistently high occupancy and income levels across market cycles. MogulREIT II also plans to invest in multifamily properties that offer value add opportunities with appropriate risk-adjusted returns and potential for appreciation objectives.

According to the U.S. Census Bureau’s Housing and Vacancy Homeownership Report, the U.S. apartment market has experienced a strong recovery, as evidenced by the steady drop in vacancies and an average annual effective rent growth of 3.9% per year, between 2010 and 2015.

MogulREIT II plans to only consist of properties that satisfy RealtyMogul’s rigorous zero-based underwriting process, which analyzes each potential deal from scratch through a combination of proprietary in-house analytics and underwriting. RealtyMogul also spends over $1 million annually for the use of third-party data and technology to vet each deal. The process is so intensive, fewer than 1% of the requests reviewed by RealtyMogul pass its high underwriting standards. Keep in mind there are risks to investing, including loss of capital, so one should evaluate the full offering materials.

RealtyMogul MogulREIT II Survey Data (RealtyMogul Email), Rated: A

Overview

RealtyMogul recently commissioned Harris Poll to conduct an online survey among over 2,000 U.S. adults to better understand the reasons people choose to rent over buying a house.

Americans have shifting priorities and owning a home might not be at the top of the list

  • Roughly 7 in 10 Americans (71%) believe the home buying process is overwhelming
  • 70% of Americans believe people these days will need to rent well into their 30’s in order to save enough money to buy a home
  • Over a third of Americans (35%) would prefer renting over owning a home to maintain a flexible lifestyle
  • Roughly a third of Americans (34%) would rather save their money to spend on traveling than to put it towards buying a home
  • A third of Americans (33%) would prefer to rent than own a home if it meant they could still afford small luxuries (e.g. eating out, fancy coffee, avocado toast) in their everyday life

Read the full survey results here.

LendingRobot CEO exits (Geekwire), Rated: A

Emmanuel Marot has left LendingRobot, the peer-to-peer lending company he co-founded in 2013. He served as CEO of the startup for the past four years, navigating LendingRobot through a merger with NSR Invest in August.

Marot isn’t sure what his next career move will be but remains General Manager of Zenvestment.com, according to LinkedIn.

Legislative Update 162 (Experian Email), Rated: A

Highlights this issue:

  • On September 7, the House Subcommittee on Financial Institutions and Consumer Credit has scheduled a hearing to review “Legislative Proposals for a More Efficient Federal Financial Regulatory Regime.” The Subcommittee has not released the full agenda, but it is expected that the hearing will focus on several bills affecting consumer credit.
  • Congress continues to consider legislation that would repeal the CFPB’s Arbitration Rule using an expedited legislative process under the Congressional Review Act (CRA). The House of Representatives passed a resolution of disapproval on July 25. The Senate is expected to take up the measure upon their return from the August recess, although there is uncertainty when a vote will take place given other priorities that Congress must pass by September 30, which is the end of the US Fiscal Year.
  • On August 30, three Democrats on the House Energy and Commerce Committee sent a letter to the Government Accountability Office (GAO) requesting that GAO further evaluate post-breach identity protection products used by government agencies.
  • Legislators in California continue to debate legislation that would enact a broadband privacy law in the state, similar to the one first issued by the FCC and then overturned by Congress. A.B. 375 would prohibit an internet service provider from using, disclosing, selling or permitting access to customer personal information.

Read the full report.

StartEngine Files to Raise $ 5 Million Reg A+ Crowdfunding Offer (Crowdfund Insider), Rated: A

StartEngine, one of the most activea investment crowdfunding platforms in the US, has filed with the Securities and Exchange Commission to raise up to $5 million in common equity at $5 per share.

The actual listing is not yet live on the StartEngine platform. The filing indicates that up to an additional 100,000 shares may be issued as “bonus shares”. There are no selling shareholders and the entire proceeds will go to the company. According to the filing, the minimum investment is $500.

Web site steered U.S. borrowers into bad, illegal payday loans: CFPB (Reuters), Rated: A

The bureau imposed a $100,000 fine on California company Zero Parallel LLC, which as a “lead aggregator” identifies potential borrowers and then sells their information. The action shows the agency has its eye on the online side of the industry, which crosses state lines and has grown in recent years. Potential borrowers fill out web forms and then are immediately sent to a lender’s site to take out the debt.

According to a CFPB statement, Zero Parallel sold applications to lenders it knew did not follow states’ usury laws, interest-rate restrictions and prohibitions on who can make the loans, and kept borrowers in the dark about risks and costs.

Zero Parallel simply sold leads to the highest bidders, according to the CFPB, and borrowers did not know they were taking out illegal loans.

Zero Parallel will pay the fine without admitting or denying the allegations, the CFPB said. The agency also said it had reached an agreement with Zero Parallel’s owner, Davit Gasparyan, to resolve similar charges filed last year against his previous company, T3Leads, with a $250,000 fine.

FINTECH Gains Traction as Businesses Embrace Alternative Banking and Financial Solutions (PR Newswire), Rated: A

Global Payout, Inc. (OTC: GOHE) makes payment solutions available to clients around the world, serving the needs of everything from commercial enterprises to government institutions. Its Global Reserve Platform is a web-based banking platform that includes everything domestic, foreign exchange, and international payment service providers need to conduct financial transactions. It handles online banking, compliance, mobile wallets, card management, biometric payments, authentication, merchant payment processing, bill payments and more, while also offering core and traditional banking products. Global Payout’s primary focus in this area is logistics, in addition to small to medium size companies, banking, and travel firms.

The CEO of Able Lending Responds to the Rumors (Lend Academy), Rated: A

Yesterday, the CEO of Able Lending, Will Davis, reached out to me to clear the air. Here is his unedited statement:

We believe this story originated by the fact that we’ve been in active discussions with a number of originators to acquire Able, and there’s a non-zero chance this story was placed in order to throw an interested party off the trail.

This anonymous source doesn’t seem to be anyone close to Able, because Able does not own a portfolio of loans (it originates and distributes loans to direct lenders, who then hold those loans on their balance sheet) and therefore has no portfolio to sell. In any event, we have no plans to go out of business and no plans to declare bankruptcy.

Passive Investments In CRE: Do They Really Exist? (Seeking Alpha), Rated: B

The wealth of new crowd-funding opportunities in CRE is just the latest addition to a long line of traditional equity funds, REITs and ETFs already offering investors the chance to invest without the high upfront cost traditionally associated with a direct CRE investment. It sounds easy, right? But how truly “passive” are these opportunities?

The only problem with passive investing in CRE? Pure 100 percent passive investing doesn’t exist.

United Kingdom

RateSetter: Even a millionaire could no longer live off savings interest (P2P Finance News), Rated: AAA

ROCK-BOTTOM interest rates are now challenging the convention that someone with £1m in savings could live off the interest, RateSetter claims.

The peer-to-peer platform’s latest savings tracker found on average UK adults think they would need an income of £26,140 per year to live comfortably, but £1m in an average savings account would pay just 0.14 per cent interest, equating to £12,500 each year.

£1m invested in a one-year bank bond with an average rate of 0.79 per cent would earn just £7,900, while the same amount could earn £45,000 in a RateSetter account earning 4.5 per cent interest.

Investors opting to put their £1m into FTSE 100-listed stocks would have earned £80,000 in interest over the 12 months to the end of August, the research found.

Funding Circle reveals new brand positioning and identity with ‘Made to do More’ campaign (The Drum), Rated: A

The challenge was to find an emotional positioning that resonated with Funding Circle customers while instilling trust and confidence as a financial services company. Rooster Punk helped Funding Circle to identify a common thread that connects small business owners, investors and the people who work at Funding Circle. Results revealed they share a uniquely driven yet positive attitude to work and life, a restless determination to succeed and the tenacity to get there. The agency called this ‘Made to do More’.

Rooster Punk’s founder, Paul Cash, commented: “Developing Funding Circle’s new position and identity had to go deeper than a product message around faster business loans. We set out with the ambition that we didn’t just want people to buy from Funding Circle, instead we wanted them to buy into them.

Meet the firm which hopes to solve the late payment problem (City A.M.), Rate: A

This warning comes from Tony Duggan, chief executive of fintech firm Crossflow Payments, a company which acts like a cog between corporations, their suppliers, and funding providers – ensuring that suppliers don’t have to wait for a month or more to get paid.

Duggan’s warning is not just a reference to Brexit, but centres on the introduction of new payment practice laws, which will make it a criminal offence for a corporation not to make public whether it is paying suppliers according to the terms of the contract.

The code looks to stamp out problems with late payments. Ultimately it aims to improve the cashflow of businesses – largely suppliers – by making sure they are paid by their corporate customers on time.

Crossflow is a no frills sort of business; it’s basically a B2B version of peer-to-peer lending, and one that is currently pretty unique in the UK arena.

Peer-to-peer lender Linked Finance marks 1,000th loan (RTE), Rated: A

Peer-to-peer lending platform Linked Finance has funded its 1,000th loan for a small or medium sized company here.

Figures published by Linked, which facilitates loans from individuals directly to businesses outside the banking system, show €31m has now been borrowed through the platform.

The company, which was launched in 2013, also said that €2.5m in interest has already been repaid to Linked Finance lenders.

Marrying self organising teams and customer obsession – Interview with Andrew Lawson (Customer Think), Rated: A

Highlights from my conversation with Andrew:

  • Capital One was an early pioneer in big data, data driven decision making , customer centricity and human centred product design.
  • Back in 2014, a lot of banks were talking a lot about being customer centric but when you get inside the banks there was little evidence to back that up. [Ed: Have things changed?]
  • Customer obsession is very much behind the growth of peer-to-peer lending.
  • When Andrew joined Zopa in 2014 they were a team of around 50 people lending about £20mill per month.
  • Zopa was founded to “make money simple and fair”.
  • Zopa was awarded Superbrand status in the early part of 2017. The annual Superbrands’ league table is based on independent research to identify the UK’s strongest brands, as voted for by marketing experts and thousands of British consumers.
  • Zopa still thinks of itself as a start-up despite the fact that they have been going for 13 years now.
  • In that time Zopa have never spent any money on growing their brand and have grown organically and via word of month.
  • Zopa has won a bunch of customer service awards that celebrate and recognise their approach.
  • Zopa has recently moved to a system of self-organising teams and that is helping them to achieve more and deliver more on their customer promise.
  • In the first quarter of 2016 they delivered more than they had in the whole of 2015 with the same number of people.
  • Ultimately, it’s all about creating an environment where you find and allow great people to go and solve problems.
  • Andrew’s role is all about ensuring they have the right people in the right tribes solving the right problems. It’s not about him being able to come up with all the answers as that just doesn’t scale.
  • In terms of mistakes, initially they found that their tribes went too tribal and it was difficult seeing what was going on within the tribes. That was a problem particularly given the level of technical and strategic dependencies that exist between tribes.
  • On a day to basis, their teams work in a way that is akin to a modern agile environment and are able to pick the right model (1 week sprints, 2 week sprints, kanban etc) depending on their context and preferences.
  • As is the nature of agile working, they are constantly tweaking and looking for ways to improve.
  • Other challenges they have faced include the management of people from different backgrounds, skillsets and with different experiences.
  • Given that they are now 250 people in London, the next big challenge for them will be how do they move this system into a remote context.
  • The heart of their success has been in creating those relationships where there weren’t relationships before i.e. between business people and tech people. It’s easy when you sit next to them or are in the same office but more difficult when you are in different locations, time zones or even speaking different languages.
  • They embraced a lot of Spotify’s approach as there are lots of things written about them and by them on how they organise themselves (videos, talks, blog posts, slide shows etc). Google ‘Spotify and Tribes’ to find more.
  • Don’t make assumptions around customers needs. Go and ask then as you will almost certainly be wrong.


UK fintech investment rises in H1 (Finextra), Rated: A

More than a billion dollars was invested in British Fintech companies in the first half of this year, over a third more than the same period in 2016, according to trade body Innovate Finance.

Fintech employs over 60,000 people in the UK and contributes $9bn (c.£7bn) to the economy.

Two peer-to-peer lending platforms also received significant rounds of investment. London-based FundingCircle a marketplace which allows investors to lend directly to SMEs raised another £80m in equity funding. Venture capital group Accel led the funding round alongside investors such as Temasek from Singapore. The business lent £1.1bn in 2016. In June Zopa another peer-to-peer lender raised £32m from Indian investor Wadhawan Global Capital and European venture capital fund Northzone. The business plans to use the funding for the ambitious roll out of its own retail bank.

China

After regulators ban on coin fundraising, over 40 ICO platforms closed (Xing Ping She), Rated: AAA

Several platforms have taken steps after the central bank’s announcement of ban on ICO (initial issue of tokens). Up to September 5th, more than 40 platforms in China have taken measures to suspend the operation, registration or even permanently stop the service of ICO. Among them, ICOAGE, a well-known ICO platform, has launched a one-key withdrawal function. Meanwhile, ICOAGE’s official website says that it will actively negotiate with the project side, and even if the project does not accept the refund, ICOAGE will pay the relevant digital currency in advance to ensure the safety of investors. It is worth mentioning that, despite the regulation to stop the ICO, there still stages “the last madness” in the market, with some of tokens’ daily gains exceeding 30%.

China steps up financial regulation to address risks (China.org.cn), Rated: A

China’s ban on Initial Coin Offerings (ICOs), a digital coin fundraising scheme, was only part of a broader campaign to curb the country’s financial risks.

In an announcement Monday, China’s central bank ordered a complete halt on new ICO offerings, in which technology start-ups issue their own digital coins, or “tokens,” to investors to access funds.

Similar to ICOs, peer-to-peer (P2P) lending served as an Internet-based alternative for companies and individuals to borrow money. As the P2P industry took off in recent years, it also made room for high-profile fraud, which prompted regulators to act fast.

European Union

Klarna’s newest investor could hold the key to ‘growing the company’s revenues manifold’ (Business Insider), Rated: AAA

Klarna last week reported some impressive revenue growth, which, combined with a push into digital banking and recent deals with VISA and Stripe make its future prospects look rosy.

What could make Permira a strategic asset for Klarna, is its stake in Magento, one of the world’s biggest e-commerce platforms. The idea would be to integrate Klarna with Magento; a goal that Lundell says was in the works already before Permira’s entry.

Seeing that Magento runs some 15 percent of global e-commerce, getting visibility on the platform could open up a gigantic new market for Klarna and its CEO and cofounder Sebastian Siemiatkowski.

Mambu’s SaaS Banking Engine Helps N26 Transform Operations (Fintech Finance), Rated: A

Mambu announced that its innovative solution is being used by N26 to allow the Berlin-based mobile bank to integrate systems and quickly bring services to market in support of its growth strategy.

Before N26 was granted a full banking licence in July last year, it used the services of a partner bank and then migrated to its own platform in late 2016. Since then their customer base has grown by 500%, helping them reach the 500,000 customer mark in August 2017.

Mintos Reports Topping €300 Million Milestone in Online Lending (Crowdfund Insider), Rated: A

Latvia based Mintos has reached a new milestone having now topped  €300 million in online loans since platform launch two years ago. Mintos reports that more than €200 million has been invested in 2017 alone, making Mintos a market leader in continental Europe claiming a 40% market share.

Mintos states that as of September 2017, approximately € 1 million is invested in loans through Mintos daily, which is three times more than just a year ago.

European Central Bank working on new fintech licensing guidelines (Independent), Rated: A

The European Central Bank is working on new licensing guidelines that would also cover financial technology firms, Daniele Nouy, the ECB’s top bank supervisor told a conference on Wednesday.

The fintech sector, though still relative small, has been stealing market share from traditional lenders in a variety of sectors from payments to lending, attracting investment $6.5bn (£4.9bn) in the first half of the year.

Wirecard Supports Fellow Finance’s Market Entry in Germany and Ensures a Completely Digital Credit Process (Business Insider), Rated: B

Wirecard supports the Finnish FinTech company Fellow Finance to enter and provide a digital infrastructure for the German financial market. Wirecard is supporting Fellow Finance by placing their German full banking licence at the Fellow Finance’s disposal and in addition enabling a completely digital credit process. For example, the identification of the borrower as well as the signature of the credit agreement are made fully electronically.

The market volume of German alternative online financial services grew enormously between 2013 and 2015. In peer-to-peer consumer lending alone, there was year-on-year growth of 95%.

International

Q2 2017 Fintech Insights (FT Partners), Rated: AAA

Source: FT Partners

Get the full report here.

Banking the Unbanked through AirFox ICO (Cryptocoins News), Rated: A

AirFox’s groundbreaking idea involves using a mix of micro-credit and advertising to facilitate to make mobile data plans accessible to the world’s poor and underprivileged.

AirFox will launch their initial coin offering (ICO) on September 19, 2017 at 10:00 am EST. The token on sale is called AirTokens (AIR) and the period of sale has been fixed at 31 days. There are plans afoot to sell a total of 1.5 billion AIR, out of which 1.05 billion (70 per cent) are on offer at the crowdsale. AirTokens are based on the Ethereum (ETH) blockchain.

Laying out his vision Victor Santos, CEO and Co-founder of AirFox says, “Investors will be able to hold AirTokens that will be used by Lenders and Advertisers to sponsor the mobile internet of millions of users. There will be a market for buyers and sellers of AirTokens. Those who wish to take the AirTokens and lend micro-credit to users, will also be able to earn an interest using the data that we collect on the smartphone.”

AirFox raises $ 6.5M in token presale (CoinReport), Rated: A

AirFox, the firm utilizing advertising and blockchain technology to bring smartphone data and internet to 4 billion people in the developing world, has met the presale target of its token, AirToken (AIR), almost two weeks early, raising $6.5 million, according to an email CoinReport received from BIGfish Communications, AirFox’s PR firm.

India

Modalku Gets Audited to Gain Public Trust (Jakarta Globe), Rated: A

Mitrausaha Indonesia Group, also known as Modalku, a homegrown marketplace that provides peer-to-peer lending, received an “unqualified opinion” which is the best possible audit outcome  from public accounting firm Purwantono, Sungkoro & Surja, hoping it will help the company gain the public’s trust.

Purwantono, Sungkoro & Surja, a member of Ernst & Young, granted the company an “unqualified opinion” ranking after reviewing the company’s financial statements, income reports and other relevant comprehensive income statement, equity changes, cash flow datat and other information for the year ending Dec. 31. A ranking of this stature means the statements are deemed sound.

Credit scoring platform CreditVidya bags $ 5 mn from Matrix, Kalaari (VC Circle), Rated: A

Mumbai-based InfoCredit Services Pvt. Ltd, which operates credit scoring platform CreditVidya, has raised $5 million (Rs 32 crore) in a fresh round of funding led by Matrix Partners, the company said.

Existing investor Kalaari Capital, which had invested $2 million in June 2016, has also participated in the round. While Matrix put in Rs 23.81 crore, Kalaari accounted for the rest.

What is P2P lending and borrowing: All you want to know about Digital marketplace for loans (Financial Express), Rated: A

In layman’s terms, Peer-2-Peer (P2P) lending and borrowing is like a digital marketplace for loans. Hence usually it is known as ‘marketplace lending’ or often gets confused with crowd-funding. Instead of applying for a loan with a bank, NBFC, private finance company or any other loan institution, you can request a loan from regular people like you and me (therefore, the term Peer-2-Peer).

Most of these loans are unsecured for a large number of people who are underbanked or thinly banked.

The actual logistics of Peer-to-Peer can be a little more complicated in India, but some platfoms like ours allow the borrower to download the app, fill the application form and apply for the loan. As a borrower, you have to fill a quick online registration form and pay the upfront registration fee which is refundable. Then proprietary credit assessment is done and a brief commentary of why you want a loan is shared with the lenders. The app requires the loan applicant to submit bank statement, upload basic KYC documents like PAN card, Aadhaar card etc. The proprietary algorithm assigns the loan interest rate and tenure to post the loan on the marketplace for lenders to assess and invest.

MENA

Developing Asia accounts for large trade finance gap (The Asset), Rated: A

Businesses particularly the micro, small and medium-sized enterprises (MSMEs) continue to face challenges in accessing sufficient credit, resulting in a global trade finance gap of US$1.5 trillion in 2016.

Emerging economies continue to face the greatest shortfalls with developing Asia accounting for 40% of the global total in trade finance gap. The MSMEs have the biggest difficulties in accessing trade finance, representing 74% of the total rejections in 2016, compared with 57% in the previous year.

The cost of regulatory compliance can lead banks to exit client relationships as reflected by the 40% response in the 2016 survey and 45% in 2015, including the withdrawal of correspondent relationships.

Mideast fintech startup NOW Money fetches $ 1.46 mln (PE Hub), Rated: A

NOW Money has closed its bridge funding round with a total of US$1.46m.

In addition to the recent US Venture Capital investment, mentioned in a previous press release, this funding round includes $700,000 from Dubai-based Venture Capital firm, Myrisoph Capital. Other contributions have come from private investors and MENA-based women’s investor network WAIN.

WAIN is the first investor network for women in the MENA region. Its goal is to build an informed ecosystem of women investors who support women entrepreneurs in the Arab world.

Canada

IOU Financial Partners with Rubicon Global to Fund Recycling Ecosystem (Business Insider), Rated: A

IOU FINANCIAL INC. (“IOU” or “the Company”; TSX-V:IOU), a leading online lender to small businesses (IOUFinancial.com), is pleased to announce a strategic partnership with Rubicon Global.  IOU joined the RUBICONPro buying program to provide Rubicon’s network of independent haulers with fast, convenient and reliable, non-collateral funding solutions.

Where bank loans are not an alternative, an IOU term loan will help Rubicon’s haulers invest in equipment to take on more recycling volume and proudly join Rubicon’s expansion projects for a more sustainable world.  IOU loans will also be provided to Rubicon’s base of thousands of small businesses embracing recycling to contribute to a healthy planet.  IOU will also promote Rubicon’s innovative model to its thousands of existing and past borrowers.

Africa

Development of African ­crowdfunding platforms (DandC), Rated: AAA

Africanise crowdfunding means setting up local crowdfunding platforms with adapted technology for local investment. No bank account? Not a problem! Many African countries lack conventional money transfer infrastructure; bank accounts and credit cards still tend to be the exception, not the rule. To permit widespread participation in crowdfunding in such circumstances, mobile phone-based money transfer services (like the Kenyan financial service M-Pesa) are needed. The Indian crowdfunding platform Ketto () works with a courier service that collects cash payments.

Copying these approaches is not the way to move ahead in Africa, not least because of the lack of an adequate institutional and legal environment. First and foremost, SME financing  requires national crowdfunding platforms with traditional financing options (donation-, rewards- and lending-based). Minimum contributions must be small and payable in local currency.

Authors:

George Popescu
Allen Taylor

Wednesday July 19 2017, Daily News Digest

UK financial services

News Comments Today’s main news: Goldman’s traders have worst first half of Blankfein’s reign. RateSetter hit hard by struggling loans. RateSetter offers investors free sell out option. LandlordInvest hits 1M GBP lending milestone. Revolut offers free personal accounts for Europeans. Today’s main analysis: Goldman has worst first half in Blankfein era. Today’s thought-provoking articles: 35 institutional investors raise stakes in Yirendai. A […]

UK financial services

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United States

United Kingdom

China

European Union

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News Summary

United States

Goldman’s Traders Turn In Worst First Half of Blankfein’s Reign (Bloomberg), Rated: AAA

Goldman Sachs Group Inc. traders turned in their worst first-half performance since Lloyd Blankfein rose from that business to become chief executive officer in 2006.

Investment-banking revenue fell 3 percent to $1.73 billion from a year earlier, better than the $1.59 billion prediction. Investment management as well as the Investing and Lending business also surpassed expectations.

35 INSTITUTIONAL INVESTORS ARE RAISING STAKES IN YIRENDAI LTD. (YRD) (Post Analyst), Rated: AAA

(NYSE:YRD) enjoyed a 74.75% run-up in share price since hitting record low of $18.3. The stock managed 3.53% rise and now stands at $31.98 as of July 17, 2017.

Institutional investors currently hold around $143 million or 7.7% in YRD stock.

Yirendai Ltd. 13F Filings

At the end of Mar reporting period, 35 institutional holders increased their position in Yirendai Ltd. (NYSE:YRD) by some 1,343,454 shares, 22 decreased positions by 2,144,331 and 5 held positions by 1,150,551. That puts total institutional holdings at 4,638,336 shares, according to SEC filings. The stock grabbed 21 new institutional investments totaling 973,854 shares while 12 institutional investors sold out their entire positions totaling 1,445,115 shares.

For Millennials, It’s Hip To Have A Traditional Bank (PYMNTS), Rated: A

In a survey held from the end of June into early July and conducted by SurveyMonkey, the web-based survey firm queried more than 1,000 adults above the age of 18, 290 of which were defined as 18- to 34-year-olds: millennials.

Among the findings in the How We Will Pay study: 83 percent of respondents wanted to be able to use an ever-burgeoning roster of new devices to conduct commerce. But, interestingly, when it came to actually transacting, 77 percent of those surveyed said trust remained a key factor when deciding who they want enabling those transactions.

People tend to trust the banks, financial institutions and bank card networks where payments relationships are already in place and already are known to consumers, according to the data.

Most Americans, at 63 percent, have used peer-to-peer payments, said SurveyMonkey. PayPal claimed the lion’s share there at about 80 percent across all demographics. Venmo remains a distant second, at 11 percent, with even greater adoption among millennials at 30 percent. Peer use also mattered to those surveyed, as 28 percent of millennials used the platform because their friends and family members did.

Eighty percent of surveyed millennials wanted the option to visit a brick-and-mortar bank branch based near their towns. In fact, the banks without a tangible footprint in a millennial-centric town lose out, as members of that demographic claimed they would be less likely to open an account with a bank were it not to have a physical branch nearby, said SurveyMonkey.

A new fintech startup wants to democratize trust funds (Business Insider), Rated: A

Now, app-only fintech Tomorrow, which launched services across the US this week, wants to help this group access inheritance products: In the US, 74% of millennials don’t have a will, and 50% of millennial households would struggle to pay their bills without their primary wage earner, according to studies Tomorrow cites. The company’s raised $2.6 million in Seed funding from backers including Plug and Play, Allianz Life, and Curious Capital. It’s now available for iPhone, and will release an Android version later.

Tomorrow aims to show that 

Urban FT Acquires iParse To Bridge The Mobile Banking Gap (PYMNTS), Rated: A

When it comes to mobile banking, there’s often a massive gap between the consumer’s experience with a big bank and with a smaller regional operator or credit union. The big banks have embraced mobile as a critical part of their overall delivery experience — with custom mobile banking apps, proprietary mobile wallets, biometric-authentication, cardless ATMs and more.

But when it comes to the smaller players serving more local populations, the well of mobile innovation can run dry rather quickly and for many reasons.

“A staggering statistic I came across recently really gave me pause. A full 42 percent of credit unions still don’t have mobile banking apps — and it’s not because they don’t want them or don’t think they need them,” Steggall remarked, “but because they don’t have the ability or the resources to do the technical integrations, and they can’t justify the cost.”

While Urban FT’s new products with iParse are for smaller FIs, Steggall told Webster the company also sees a profitable future working with existing payments processors in the market today. Steggall said the iParse solution will help those players — including larger processors already offering their own mobile banking services — better serve their smaller bank and credit union partners.

4 Tips for Developing a Product Around an Unknown Concept (Entrepreneur.com), Rated: A

Being an innovator always comes with the huge challenge of educating potential investors, developers and end users on the significance of a totally new product or service. When bitcoin hit the market, its leaders struggled to answer the same question: “Why is this necessary?”

When you’re building something new, your mistakes form the blueprints future entrepreneurs will study. If you’re a trailblazer in a novel space, here are four ways to forge ahead.

1. Don’t sell — educate.

YieldStreet, an online alternative investments platform, created YieldStreet University, which combines video content, infographics and other visuals to help simplify complex concepts about alternative investing for its customers.

2. Slow your roll.

Faster isn’t always better. When you’re dealing with an unknown concept, speed kills the sales process. If your service or product is new to the market, resist the temptation to immediately convert cold traffic. First, take time to make sure your clients or customers understand what they’re working with and how to utilize your product or service to its fullest potential.

3. Be open about swings and misses.

Honesty builds trust. One study from Label Insight showed 73 percent of participants were willing pay more for more transparent brands.

4. Focus on your mission, not personas.

Don’t concern yourself with selling to anyone in Box X or Box Y. If you do, you’ll end up tailoring your product to suit demographics instead of your vision. Identify your mission and purpose, and sell that.

Recent IPO Movers of the Week (July 10-14, 2017) (Money Morning), Rated: B

China Rapid Finance Ltd. (NYSE: XRF) soared 20.6% for the week. The online consumer-lending marketplace announced on Monday that it had reached the 20 million-loan milestone on its platform.

United Kingdom

Peer-to-peer lender Ratesetter hit by £80m of struggling loans (The Guardian), Rated: AAA

The peer-to-peer lender Ratesetter has been hit by £80m of struggling loans in the first major setback for the nascent online lending sector.

The company said it would use its own funds to prevent losses being taken by its 50,000 users, who are mostly small investors using the website in order to lend their savings to other individuals and benefit from higher interest rates than are available at high street banks.

The company admitted that it had made £36m of loans to a company called Vehicle Trading Group Limited (VTG), a motor finance holding company that then fell into administration because it had taken on too much debt.

It also loaned a further £12m to an advertising company called Adpod, which during 2015 became 50% owned by VTG. The website admits that the loans, of which £8.5m are still outstanding, should not have cleared its own credit policy.

RateSetter gives investors option to sell out free due to wholesale “interventions” (P2P Finance News), Rated: AAA

RATESETTER is giving all its lenders an option to sell out of their investment free of charges, as part of its wind-down of exposure to its wholesale lending portfolio.

The peer-to-peer platform wrote to investors on Tuesday to outline “interventions” it has made on three former wholesale lending partners.

LandlordInvest reaches £1m lending milestone (P2P Finance News), Rated: AAA

BUY-TO-LET peer-to-peer platform LandlordInvest has passed the £1m lending milestone.

The property lender, which launched in December 2016, has amassed 700 investors and completed six loans over the past seven months.

A vision for a transformed, world-leading industry (The City UK), Rated: AAA

TheCityUK and PwC’s Strategy& have developed a vision for the future of the industry, drawing on extensive engagement with leaders across the industry and a rigorous fact-based assessment. By 2025:

1) The industry will have transformed itself to be highly digitised, innovative and customer-centric. It will be a leader in cyber security, using data in a secure and sophisticated way. This will be alongside new technologies, to drive forward significant improvements in the way services are delivered. Firms will be consistently and relentlessly doing what is right for their customers.

2) London will still be one of the most important and attractive international centres for financial services and global business, retaining the full ecosystem of financial and related professional services. It will continue to play an important domestic role and be a leading FinTech centre that keeps the UK at the forefront of financial innovation.

3) Regional and national financial centres will have become more important within the UK industry. There must be a strong supply of local talent with the relevant skills, competitive costs and high productivity. Banking, insurance and asset management centres outside of London will continue to develop, hosting more headquarters of major companies. While other regional and national hubs will focus on enhancing specialist roles which serve both UK and global markets.

Access the full report here.

The peer-to-peer lending model involves a fair bit of intervention in the market (FT Alphaville), Rated: A

While Funding Circle (and Zopa, for the most part) allow the losses from loans to fall onto lenders, Ratesetter has built a loss reserve to protect investors from bad debts. This “Provision Fund” is funded by taking a fee when a loan is extended and, in times of stress, can be topped up by diverting interest payments and capital away from investors. This means lenders on Ratesetter need to pay attention to the risk in the overall loan book, rather than any individual borrower.

At the moment, the Provision Fund has a 119 per cent coverage ratio, so there is enough money in the fund — if you include expected future fees — to cover losses 1.19 times higher than currently expected. Ratesetter’s target ratio is 125 per cent to 150 per cent.

The important thing here is that the Provision Fund currently has £12.9m in cash and £8.9m of expected future income, versus £18.2m of expected losses. If Ratesetter had let £12m of bad debts suddenly wash into the fund, it would have resulted in a big knock to its coverage ratio. We don’t know what that would do to investor confidence, but it’s fair to say it wouldn’t have helped.

OFF3R Report Says Equity Crowdfunding Defies Brexit Uncertainty in First 6 Months (Crowdfund Insider), Rated: A

OFF3R is out with a report today on the status of equity crowdfunding in the UK. According to their numbers, the UK investment crowdfunding sector is booming. In fact the OFF3R Index states that UK crowdfunding platforms raised a record £130 million during the first half of 2017.

Additionally, the report states that March of 2017 was a record breaking month as well. Over £40 million was raised with several large crowdfunding rounds on the big three platforms; CrowdcubeSeedrs and SyndicateRoom.

Retail Banking IT – giving customers what they want (IT ProPortal), Rated: A

Peru Consulting asked 1000 consumers and 100 Senior IT Leaders in the banking sector.  The results, published in our report – Retail Banking IT: Turn to Face the Change – offer a startling insight into the scale and speed of change and the challenges faced by traditional banking’s IT leaders.

For example, when asked about the specifics of banking transactions using mobile phones, nearly two thirds (63%) of consumers in the 18-44 age group stated this was important to them, while only 14% of the 55-64 age group felt the same.

More generally, the next 12 months holds little comfort for the retail banks when it comes to customer loyalty, with 38% of 18-24 year olds and 41% of 25-34 year olds set to change the bank that provides their main account.

We asked the Senior IT Leaders why they though their customers would be likely to switch banks. Strangely, while 64% recognised that challenger banks are taking their market share, less than 5% recognised that customers might be tempted by new technology such as mobile apps. Given the strength of the GAFA companies and fintechs, this is a dangerous blind spot for the traditional banks.

Guru Appointed to Head Up Comparison Site (Fintech Finance), Rated: B

CONSUMER credit comparison site MoneyGuru.com has appointed an experienced channel director to lead its rapid expansion after a successful launch period.

The site has signalled its intention to disrupt the big four in the comparison market by appointing expert Deborah Vickers who has helped some of the biggest names in the market with optimisation and product development.

Deborah, 35, from Northwich brings 13 years of experience in technology and IT to the role, many of these within the financial services sector. She started her career at industry leader MoneySupermarket.com as a service desk manager before working her way up to IT delivery manager during her eight year tenure.

China

China Is Leapfrogging U.S. In Payments Technology, Ex-Ambassador Max Baucus Says (Forbes), Rated: AAA

Former U.S. Ambassador to China Max Baucus on Saturday lauded China’s can-do spirit and cited the country’s rush to online payments as an area where the country was overtaking the United States.

Baucus was speaking at an annual LendIt fintech conference held in Shanghai that attracted more than 2,000 participants.

“Apple Pay is trying to be an accepted mode of payment in the United States but it is catching up very slowly,” he said. “It’s disadvantaged, I think, compared with China and other Asian countries’ emerging payment systems. Why? Because established legacy institutions such as banks and credit card companies, while still useful, will soon be overtaken by the new innovative technology being developed here and in other Asian countries.”

China’s Internet Sector Grows Up (Institutional Investor), Rated: A

Leading investors who specialize in financial technologies and are taking stakes in new technology startups in the country say China is no longer an innovation laggard and in fact is taking a commanding lead in specific areas.

Take online payments. Two Chinese Internet giants, Alibaba Group Holding and Tencent Holdings, already hold strong leads over their U.S. counterparts in this area. Alipay, for instance, is Alibaba’s online escrow payment system that now counts more than 630 million users globally, of which 450 million are in China. Tencent’s messaging app, WeChat, boasts 900 million users, and its WeChat Pay service has about 600 million active users. Both Alipay and WeChat Pay allow their users to make transactions all over the world using their mobile phones, notes Jones, adding that at present not a single U.S. rival can offer a similar global product.

Lufax international platform starts up in Singapore (Xing Ping She), Rated: A

On 17th July, Ping An Insurance announced the affiliate Lufax started a international business platform, Lu International Financial Asset Exchange in Singapore. Lu International was known to have got the capital market service licence(CMS) approved by MAS. It is also the first Chinese fintech company  to have a CMS in Singapore, and will start for operation in the third quarter of 2017.

Lu International was registered in Singapore in January 2017, after licensed it will provide a series of wealth management services including securities trading, asset management and custody for investors with overseas bank accounts or assets.

Lu International aim to provide pure online banking services for the Asian middle class, and the investment amount will be among $10 thousand to $1 million,according to Gregory D Gibb, the CEO of LufaxHoldingLtd. The initial product line of Lu International is relatively simple, mainly including monetary fund, fixed income products, bond fund, REITs fund and ETF.

European Union

Revolut Introduces Free Personal Euro Accounts Following $ 66 Million Raise (Crowdfund Insider), Rated: AAA

Just days after announcing it secured $66 million through its Series B funding round, digital challenger bank Revolutintroduced free personal euro accounts. The company revealed this new feature enables all its customers, across 42 European countries, to open a free Euro account straight from their smartphone in as little as 60 seconds.

Getting Paid to Run Up Debt (Handelsblatt.com), Rated: AAA

It used to be clear: borrowing cost money. But now Smava, a Berlin-based fintech, has broken new ground by offering loans at a negative rate of interest. In other words, paying consumers to borrow. “Anyone borrowing €1,000 ($1150) will only pay back €994,” says Smava boss Alexander Artopé. That translates to a cool -0.4 percent.

Unsurprisingly, there’s a catch: The largest amount a Smava consumer can borrow at these enviable terms is €1,000, and each person is restricted to a single loan.

Citi to set up a ‘major new trading operation’ in German city after Brexit (Business Insider), Rated: A

American banking giant Citi is set to become the latest major financial firm to choose Frankfurt for its post-Brexit EU hub, reports late on Monday suggested.

Financial centres across the EU — including Frankfurt, Paris, Dublin, and Luxembourg — are battling to attract financial services work moving out of London as a result of Brexit as a result of expected legal changes that will make operating in the EU out of London tricky.

Frankfurt is emerging as a popular destination for many international firms choosing a post-Brexit base. Three Japanese lenders, Daiwa, Sumitomo Mitsui Financial Group, and Nomura, have all confirmed in recent weeks that they will set up new post-Brexit bases in Frankfurt.

Cyprus fintech startup Capital.com raises $ 25 million (Tech.eu), Rated: A

Cyprian fintech startup Capital.com has raised $25 million from Larnabel Enterprises and VP Capital and launched its mobile trading app.

The Capital.com app allows investors to trade financial products and receive updates from its patent-pending Smart Feed with news, analysis, and research based on user behaviour. The app, the company claims, uses AI to detect common trading biases and patterns.

International

What The SoftBank Vision Fund Means For Tech Investing (CB Insights), Rated: AAA

The SoftBank Vision Fund, first announced in October 2016, has now closed at least $93B of a target $100B to invest in global technology companies – making it the largest tech investment fund in history.

$100B is an unprecedented sum for a single fund, totaling almost exactly the same amount that all VC-backed companies received in 2016 ($100.8B across 8,372 deals globally, per CB Insights data). Yet the fund’s massive size is raising concerns among some investors, who fear that an influx of high-dollar rounds could overinflate the market and prolong exits while crowding out competing investors.

With both Saudi Arabia and the UAE — which have contributed a combined $60M of sovereign capital to the fund — counting on the Vision Fund’s investments to diversify their national economies, the stakes are high. Other high-profile investors are also placing bets with the Vision Fund: The Vision Fund has closed contributions of $1B or less from Apple, Qualcomm, Sharp, Foxconn, and Larry Ellison’s family office. (SoftBank’s own $25B rounds out the $93B secured so far.)

Australia/New Zealand

Cyber-attacks significant threat but RBNZ says no need for prescriptive requirements (NBR), Rated: AAA

Cyber-attack poses a significant threat to the global financial system but the Reserve Bank has decided not to introduce more prescriptive requirements at this stage due to the swiftly changing nature of both the threats and the technology, said Reserve Bank head of prudential supervision Toby Fiennes.

Fiennes said the central bank did not believe prescriptive regulations would appreciably improve the outcome, when the technology and threat landscape are both changing so rapidly.

VicSuper has launched a digital advice suite called Beeline to strengthen member engagement.

The digital advice service would act as an online coach to provide members with access to financial advice 24 hours a day, seven days a week, free of cost to members, with the fund saying it would provide super advice at scale.

Areas of financial advice would include additional contributions and investment asset allocation in their superannuation. The service would also provide general advice to members on retirement adequacy and budgeting goals.

Surging investor confidence in clean energy drives record $ 2 billion investment from CEFC (Mozo), Rated: B

The CEFC assisted in a number of clean energy projects in 2016-17 including the establishment of a green loan marketplacewith peer-to-peer lender RateSetter, 500 new energy efficient homes for low income families in New South Wales and ten large-scale solar projects in regional Queensland, New South Wales and Victoria.

India

RentoMojo raises $ 10 mn from Bain Capital Ventures, Renaud Laplanche (The Hindu Business Line), Rated: AAA

RentoMojo, a consumer product leasing start-up, has raised $10 million (over Rs. 64 crore) from Bain Capital Ventures and Renaud Laplanche.

The series B funding also saw participation from existing investors, Accel Partners and IDG Ventures, Rentomojo said in a statement today.

The funds raised will be used to further strengthen the product, finish building a stellar leadership team, and expand into new categories and geographies, it added.

Asia

Indonesia: P2P app Julo raises seed funding from Skystar Capital, others (Deal Street Asia), Rated: AAA

Indonesian peer-to-peer (P2P) lending startup Julo has raised an undisclosed amount of investment in a seed round led by Skystar Capital, along with East Ventures, Convergence Ventures, according to an announcement. A few notable angel investors also participated in the round.

Julo is focussed on financial inclusion in Indonesia by helping over 100 million people obtain loans for their various personal use.

Loan applicants can carry out the process from their phones through Julo’s app, where they submit pictures of personal documents and then receive their loan within 24 hours upon successful verification.

How Singapore-based P2P lending platform Crowd Genie aims to help underbanked SMEs grow (e27), Rated: A

One of the recipients of the CMS is Singapore-based P2P lending platform Crowd Genie. Like many of its ilk, Crowd Genie was founded by entrepreneurs who saw that certain traditional financial services were rigid and could not serve certain profiles of clients.

Ideally, the profile of borrowers would be SMEs turning over about S$1 million (US$731,000) to S$5 million (US$3.66 million) in revenue yearly, and would have had a bank loan and a corporate bank account; they would also have to be in operation for about two to four years, and need a short-term funding gap that the banks are not able to extend.

In place of just traditional financial metrics, Mehra and his co-director Bikash Saha, who has experience in a credit rating agency and retail banking, leverage a hybrid of machine-based learning algorithms combined with hands-on groundwork to assess the credit risk profile of potential borrowers.

Part of the reason Crowd Genie is still heavily reliant on human input is that its machine-learning algorithm is currently a work-in-progress. Accurate data analytics can only be achieved once there are enough actionable data points.

Mehra says the next review of the algorithm will take place at the end of the year, when Crowd Genie has accumulated about 300 – 400 cases.

Currently, institutional investors are qualified to be lenders on Crowd Genie; retail investors are barred.

Africa

Will robots narrow the financial advice gap? (Biz Community), Rated: A

Interestingly, however, a study by international investment house, Legg Mason, personal interaction is still important for these younger investors – 53% of participants in this group indicated that technology can never truly replace personal customer service. This was particularly relevant when it came to retirement and tax planning, but was of less importance when it came to tracking the stock market.

Furthermore, humans can remove irrelevant data from their memory, which allows for increased learning. Robots, however, store all data, which begs the question around the long-term competency of robo-advice.

Authors:

George Popescu
Allen Taylor