- Today’s interesting articles are the thought provoking piece in American Banker; the fact that German fintech raised 80% more money than British ones in Q2; and a great article on banks key numbers, a must read. Also OnDeck’s marketing is on fire : new site, new smart marketing campaign and , less for marketing, new structure.
- Yesterday August 23rd Lending Times wrote: “LendUp raises $47 mil equity round on a strong anti-bank and anti-establishment rhetoric.I wonder how much of the P2P lending success in the past has been based on the anti-bank sentiment that drove borrowers and investors be willing to even pay more for their loans or investments. It seems that the relabeling from P2P lending to marketplace lending somehow coincided with a reduction in lending volumes which could have triggered the reduction in originations in Prosper and Lending Club as early as Feb or March 2016. Goodwill may be worth much more than most people believe.“
- Sasha Orloff, CEO of Lendup corrected Lending Times as follows
- ” I wanted to thank you for featuring us today in Lending Times. You are becoming the de-facto news source for lending, and love your emails. I regularly forward them to our board and our team.
But can you please change the article line about us being anti-bank? We are very pro-bank actually! Our entire mission is to provide anyone with a path to a better financial future. We do this for the 56% of the country who banks are unable to approve, and through our product, education and gamification help them build their credit score and move into asset building credit that is offered by banks – new homes, new cars, student loans. We do this because the average person will pay $250,000 more over the course of their life due to a low credit score.
But I worked at a bank for a long time, as did many of our employees. We just feel between outsourcing technology, increased regulation, and the changing demographics in our communities, banks have some challenges in developing products for the thin-file, no-file and low credit-score populations. So we are building solutions to help our customers actually graduate into banks, and we partner with banks for many of our products.
While I believe our system could be better, I think the banking system is the best system we have. There are plenty of opportunities, but disrupting FICO, our regulatory system, and system seem hard to do. So instead, we think our technological and product expertise can complement the banks nicely.
Plus well, we need banks to operate. And they have been a great help.
Can you please update the “anti-bank rhetoric” part? That is not true.”
- A very provocative article that is worth thinking about. I commented in line as it was easier.
- And an even more interesting article showing the costs and fundamental numbers of banks. Good information for banks wannabes and fintechs alike. A must read !
- Fundation raises $100mil line of credit from Goldman Sachs. Congratulations !
- OnDeck setups new $100mil structure. I am not sure if it’s a new type of structure or they have been using this structures all along.
- A reminder of the bank inertia and its sources. A giant with adobe feet.
- Interesting payments tech that “enables lenders to make disbursements in real time” using FDIC insured accounts.
- OnDeck’s new website make over : with growth comes new image. Well done.
- MoneyLion offers free FICO score access. My CapitalOne card does as well. Discover Card also does it. When will Credit Karma start feeling all of these indirect competitors ?
- Lendit announces a partnership with Capital One for PitchIt Europe 2016. Well done !
- OnDeck launches marketing campaign around helping small businesses with time management. Good marketing, well done.
- Interest Q&A with Kabbage founder and CEO.
- UK P2P platforms are benefitting from government policies. Interesting P2P Lending volume growth prediction.
- Cormac Leech departs Liberum investment bank to serve as principal at Victory Park. An interesting move as Liberum seemed a very successful niche investment bank with Cormac. I would love to understand the real reasons for this move. It could be a good trend indicator.
- New HR head at Lend Invest. Lend Invest plans to continue growing.
- Octopus Investment interested in helping innovation in Fintech with an original setup.
- A short how-to for advisors on investing in P2P. Useful read, a little obvious.
- A reminder that the Chinese government plans to impose caps on lending volumes. We talked about it already this week.
- News Comments
- United States
- It Should Be Obvious Now that Marketplace Lending Is Unsustainable, (American Banker), Rated: AAA
- Fintech’s License to Fail, (Bloomberg), Rated: AAA
- Goldman Signs $100 Million Credit Facility For Online Lender Fundation, (Wall Street Journal), Rated: A
- On Deck Capital’s unit, Ondeck Asset Funding I, establishes new asset-backed revolving debt facility, (Reuters / SEC 8-k filing), Rated: AAA
- Why banks refuse to upgrade core banking systems, (Tradestreaming), Rated: A
- Yantra Financial Technologies Enable Disbursement of Loans in Real Time with BlastPay, (Business Wire), Rated: A
- OnDeck New Website and Brand Identity, (OnDeck), Rated: A
- MoneyLion Offers Free Credit Monitoring Tools Through TransUnion, (Business Wire), Rated: AAA
- LendIt Announces Partnership with Capital One to Co-Host their Annual Fintech Start-up Competition, (Press Release), Rated: A
- OnDeck Launches Initiative to Help Small Business Owners with Time Management, (PR Newswire), Rated: A
- Q&A: Kabbage CEO & Co-Founder Rob Frohwein, Originating $2B Loans & Growing, ( Crowdfund Insider), Rated: A
- United Kingdom
- UK peer-to-peer platforms are benefitting from government policies, (Business Insider), Rated: AAA
- VPC Specialty Lending Investments PLC Appointment of Principal at Victory Park Capital Advisors, LLC, (MoneyAM), Rated: AAA
- New head of HR for LendInvest, (Mortgage Introducer), Rated: B
- Financial Technology in the UK Gets a Boost From Octopus Investments, (Payment Week), Rated: A
- Jane Dumeresque: The adviser’s guide to P2P due diligence, (Professional Adviser), Rated: A
- European Union
- German fintech startups raised 80% more than British ones in the second quarter, (Business Insider), Rated: AAA
- Is P2P Lending Out Of Control In China?, (China Tech News), Rated: A
- Former Aussie CEO steps down as chairman of online lender, (The Adviser), Rated: A
It Should Be Obvious Now that Marketplace Lending Is Unsustainable, (American Banker), Rated: AAA
Comment: We would like to remind out readers that plenty of companies in marketplace lending have been profitable or are profitable.
The title is of course attention grabbing through its provocative message. Beyond the title, I think we need to really to company marketplace lending to the average startup which doesn’t make money.
Facebook was not profitable for a very long time. Tesla is not. ZipCars was never profitable. Uber still isn’t profitable. Not being profitable is not the only indicator of a company’s success for a given period of time.
Of course, never being able to be profitable is a reasonable indicator that a company is nonsustainable. But as I mentioned at first: Zopa, Lending Club, Lend Invest and other companies have been profitable at times and they made the conscient choice to trade profitability for growth.
The company I’m pitching to you has revenues that rise and fall as much as 50% or more on a quarter-to-quarter basis. Its quarterly earnings and losses are equally volatile. Almost all its revenue comes from new product sales — it has very little continuing revenue. Operating expenses generally increase a little more slowly than revenue when sales are rising, but when sales fall, expenses keep increasing anyway because of accounting charges for layoffs and office closures when management downsizes.
Management can’t plan ahead because the company sells most of its products to a few large customers. Those customers dictate sales volume and product pricing and their purchases determine whether the company makes or loses money in any given period.
Management’s only lever for controlling the company’s earnings volatility is to try to guess how much and at what price those customers may buy in the future. The company increases or decreases personnel and marketing expenses based on that guess.
The company also has a large ongoing technology investment program that it can’t afford to cut much if it wants to compete. Oh, and the company isn’t growing — sales in the most recent quarter were flat compared to the same quarter two years earlier — and it is only marginally profitable even when things are going well. [Comment: The author is stating, to my knowledge true facts. However, the author is citing a single company out of 507 companies Lending Times keeps track of in this market.
The company I just described is Prosper Marketplace, a fintech “unicorn” with a billion-plus private market valuation and the granddaddy of the marketplace lenders. [Comment: As an industry insider I believe that what we need to read here is “this is a lesson we all need to learn from”. I am not convinced that once can’t do P2P lending without avoiding these problems. All the problems described here are not must haves in order to enable P2P lending. ]
Companies like Prosper and Lending Club have done a fantastic job revolutionizing the front end of the consumer lending experience — and in doing so have created real value for some borrowers — but their vision of a “disintermediated” loan marketplace is proving itself unable to handle even minor financial market bumps without running off the road.
There is another view on the viability of MPLs. Lending Club’s $2 billion-plus market capitalization shows that many people still believe that the sector’s recent problems are temporary and that the MPL model can work to create shareholder value.
Lending Club has lost a cumulative $115 million over the last four and a half years [Comment: Of which it lost $81m due to corporate procedures and not due to their business model. Losing $34m while growing at the pace they did over the last 4.5 years is in-fact outstanding results.]. (Prosper has lost a cumulative $125 million over the same period) and nothing suggests that will change anytime soon.
The path ahead is clear if boards, venture investors and management want to salvage something before the string runs out. Stable funding is everything for a lender,[Comment: entirely agreed]. and the best place to find that is to fund lending directly with bank deposits. [Comment: there are other sources of capital that behave like a depositor capital, like 401k, self-directed IRA, etc. ] .
While this won’t result in the type of equity valuation dreamed of by the MPLs’ tech boosters, it will provide something real for the venture and institutional investors who put up the equity to fund companies like Prosper. [Comment: the valuations indeed may have been a little unrealistic. But valuations are made by offer and demand. It takes 2 to make a valuation, the buyer and the seller. ]
[Final Comment: I find this article extremely helpful in sorting out what are real problems for the space and what is not. I also find the last 6 months are the best possible lesson on what works and what doesn’t work. That is an amazing amount of useful information. We now know what in which direction to build. And the fact that despite all its problems Lending Club still originated $2bil in volume approximatively means there is a real business, there is real demand. ]
Fintech’s License to Fail, (Bloomberg), Rated: AAA
Comment: one of the most interesting articles I’ve read this month.
Who would want to be a bank these days? Quite a few technology startups, it seems.
Mondo received a commercial banking license in the U.K. this month and plans to offer checking accounts next year. Atom Bank, backed by Spain’s BBVA, and Starling now have U.K. licenses. Germany’s Number26, received its own permit last month.
The apparent rush to enter a business that has destroyed shareholder capital and jobs over the past decade reflects a certain confidence that incumbent lenders are stuck in a rut.
It also reflects a desire to fully control the back-end plumbing of their offerings rather than just the funky user interface.
But that comes at a price: Mondo will need to raise as much as 20 million pounds ($26 million) of additional funding to make the transition to a full-fledged bank. That may sound like small beer for a startup that once crowd-funded 1 million pounds in 96 seconds. But the long-term picture is more troubling: with a license, these firms will have a larger cost base and a higher barrier to profit.
Lending is an expensive trade with high capital costs. For every 100 pounds of mortgage lending in the U.K., a new bank would have to have about 2.80 pounds of capital, according to regulators.
Present an entrepreneur with these realities and you’ll likely be told that their new banking model will involve less balance sheet and more data.
E-invoicing specialist Tungsten failed to deliver on its banking bet and agreed to sell its license in 2015.Tungsten, a U.K. electronic-invoicing specialist, sold its banking arm last year, saying regulatory approval was “incompatible with profitable growth”. Japanese network operator NTTDoCoMo sold its stake in a German private bank back in May.
Doubtless, a startup somewhere will find a way to profit from its banking license — but in the absence of a proven business model this will look less like a one-way street and more like a revolving door.
Goldman Signs 0 Million Credit Facility For Online Lender Fundation, (Wall Street Journal), Rated: A
Fundation Group LLC, which makes online business loans, this week completed a $100 million credit facility with Goldman Sachs Group Inc., according to the lender’s chief executive.
The new credit line will help the firm expand its recent partnerships, including those with traditional banks, such as Regions Financial Corp. and a network of community banks, to extend loans to the banks’ business customers.
Through its partners, Fundation offers term loans of up to $500,000 with annual rates under 30%.
In addition to banks, and a small amount via its own website, Fundation partners with business-service providers such as Wolters Kluwer N.V. to make loans. It also recently began working with the U.S. Department of Commerce’s Minority Business Development Agency to facilitate lending.
Fundation is majority owned by Garrison Investment Group, a credit investment firm.
On Deck Capital’s unit, Ondeck Asset Funding I, establishes new asset-backed revolving debt facility, (Reuters / SEC 8-k filing), Rated: AAA
Borrowing Base Advance Rate
Up to 80%
LIBOR (minimum of 0.0%) + 7.25%
Commitment Termination Date
August 19, 2018
Why banks refuse to upgrade core banking systems, (Tradestreaming), Rated: A
At the center of the bank are the core banking systems. This is the big book in which the bank writes who withdraws or deposits money. These systems, many of which were built when the 8-track tape was still around, is updated only once a day.
When you see a withdrawal instantly on your mobile phone, it’s done by a slew of mirror sites, or backend reconciliation to fake the system out. There is no such thing as real time banking. Sometimes, the system lags.
“Are you really going to build a Tesla from a Model T foundation?” asked Peter Olynick, senior practice lead for retail banking at NTT DATA, a business and IT services provider. Banks have done a good job in pimping out their Model T with ‘wrap around’ solutions, but this approach has limits.
Replacing the core system isn’t just costly, it’s also risky. A migration mistake might affect every service the bank provides.
Only 15 percent of bankers expect to build a new core deposit system in the next three years.
Banks find it increasingly difficult to launch advance products on top of aging core systems.
Yantra Financial Technologies Enable Disbursement of Loans in Real Time with BlastPay, (Business Wire), Rated: A
Yantra Financial Technologies, a financial technology firm specializing in designing, developing and managing electronic payment systems, has enabled lenders to deliver funds in real time with BlastPay, an FDIC insured business bank account that gives users complete control over disbursements.
Founded in 2012, Topeka, Kan.–based Yantra Financial Technologies is a financial technology firm specializing in designing, developing and managing electronic payment systems, and focuses on creating secure contextual and conditional ways of moving money.
OnDeck New Website and Brand Identity, (OnDeck), Rated: A
OnDeck’s brand new website which just launched.
The new site – www.ondeck.com – marks an inflection point for the rapidly growing online lending industry as pioneers like OnDeck shift their brand voice to reflect the maturing industry and the fact that the company is no longer a start-up, but is now the largest online lender to small businesses, with almost a decade of experience and expertise in providing billions of dollars in capital that helps small businesses grow.
MoneyLion Offers Free Credit Monitoring Tools Through TransUnion, (Business Wire), Rated: AAA
MoneyLion, the mobile-first personal finance platform, is helping consumers gain a clearer picture of their credit health with free credit monitoring tools provided by credit bureau, TransUnion®. Data collected by MoneyLion since Q1 2016 has shown that loan takers that use their credit monitoring tools are 28 percent less likely to default.
MoneyLion’s credit monitoring tools allow users to:
- View their individual credit report
- Use a credit simulator to forecast the impact of financial decisions on their credit score
- Set up real-time alerts informing users of critical changes to their credit report
Founded in 2013 by a team of leading technologists and financiers, MoneyLion uses superior analytics and machine learning-based risk technology to gain a 360-degree view of its users’ personal finances, enabling better underwriting and the development of tailored financial product offers.
LendIt Announces Partnership with Capital One to Co-Host their Annual Fintech Start-up Competition, (Press Release), Rated: A
LendIt, the largest conference series dedicated to connecting the global online lending community, today announced a partnership with information based lending company Capital One to co-host PitchIt @ LendIt, a competition to find a future star of the fintech world.
he competition is aimed at firms innovating within the online lending and fintech space. It provides a showcase for eight high growth fintech firms to pitch their business case to a panel of expert judges as well as some of the technology industry’s leading figures attending the forthcoming LendIt Europe 2016 conference in London. (
OnDeck Launches Initiative to Help Small Business Owners with Time Management, (PR Newswire), Rated: A
Half of the survey respondents agreed that: “As a business owner, work/life balance is an illusion,” with even more – 61 percent – saying that “they constantly feel like they are racing against the clock.” When asked, “How many hours per week would you need to successfully run your business?” those surveyed felt they would need 69 hours on average.
“Our research shows that small business owners are pressed for time and need to find ways to free up more time in their day,”
According to a study from the Federal Reserve Bank of New York, small business owners spend an average of 33 hours searching and applying for a traditional bank loan.
OnDeck will provide time management tips to streamline common time-intensive areas of running a business, including marketing, customer service and people operations. The advice, which also includes work/life balance best practices, comes from OnDeck executives, SCORE President David Bobbitt, small business owners and other small business experts. SCORE is a non-profit organization comprised of 11,000+ volunteer mentors who provide free and confidential small business mentoring and advice :
Facebook Live Chat: 7 Ways Small Business Owners Can Be More Efficient Marketers
Quickbooks Online Essentials Contest: Streamline Your Accounting
Q&A: Kabbage CEO & Co-Founder Rob Frohwein, Originating B Loans & Growing, ( Crowdfund Insider), Rated: A
Before founding Kabbage,Rob Frohweinestablished, led and advised a number of successful businesses, including LAVA Group, U.S. Micro Corporation and Surgical Biologics. Additionally, he served in business development and legal capacities for ZapMedia and Security First Network Bank. The Villanova law and undergrad alum practiced law with Troutman Sanders LLP, co-authoredthree books on intellectual property including and co-hosted a career-centered radio program sponsored byUSA TODAY.
Kabbage is funded and backed by leading investors including Reverence Capital Partners, SoftBank Capital, Thomvest Ventures, Mohr Davidow Ventures, BlueRun Ventures, the UPS Strategic Enterprise Fund, ING, Santander InnoVentures, Scotiabank, and TCW/Craton. All Kabbage U.S.-based loans are issued by Celtic Bank, a Utah-Chartered Industrial Bank, Member FDIC. When did Kabbage gain traction and make good on its name?
The idea for Kabbage first came about when we recognized that many companies were offering automated access to data via APIs like eBay’s. There was a lot of rich transaction-level data that could be extremely useful for decision-making on underwriting.
In fact, we now work with some of the world’s largest banking institutions. ING in Spain, Santander in the U.K., Scotiabank in Canada and Mexico now leverage the Kabbage Platform to better serve their SMB customer base.
Kabbage is to FinTech what Amazon is to e-commerce. Just as Amazon powers e-commerce for thousands of merchants, Kabbage is the first fully-automated, data-driven platform that is scalable and easily adopted.
There are several difference between Kabbage and Marketplace Lenders. Kabbage partners with a federally insured, industrial bank to provide a line of credit to businesses. Unlike a marketplace platform, Kabbage and this bank retain all of the credit risk.
I would say that banks simply haven’t been equipped to serve businesses seeking smaller loan sizes under $250,000, even though they likely want to.
UK peer-to-peer platforms are benefitting from government policies, (Business Insider), Rated: AAA
So far, only a handful of platforms have received authorization from the Financial Conduct Authority (FCA) to offer the Innovative Finance Savings Account (IFISA), due to regulatory holdups. But for those that have a live product, it has resulted in a significant uptick in business. We spoke to two P2P lenders that offer IFISAs about the impact it’s had on their businesses: Crowd2Fund and Crowdstacker.
Here are some of the key takeaways:
Property lending will make up the largest share of P2P activity in the UK in 2020, followed by business lending and consumer loans.
Traditional lenders will reclaim some P2P lending volume by building or acquiring the technologies that are proving successful.
While the general concept of P2P lending is the same, there are major differences between the UK and US P2P lending markets.
VPC Specialty Lending Investments PLC Appointment of Principal at Victory Park Capital Advisors, LLC, (MoneyAM), Rated: AAA
Victory Park Capital Advisors, LLC, (“VPC”), the investment manager to the Company, has appointed Cormac Leech as Principal to the firm. Cormac will be based in London and act as the European representative for VPC and will be working across all aspects of its business including the London listed VPC Specialty Lending Investments PLC. He will start his role in September.
Cormac was previously a Director and Co-Founder of Alternative Finance at Liberum, the London based investment bank.
New head of HR for LendInvest, (Mortgage Introducer), Rated: B
LendInvest has appointed Erin Stewart to lead the company’s growing HR department. Stewart was most recently head of HR for EMEA and APAC at Essence, the global digital agency and the world’s largest independent buyer of digital media. During four years at Essence, Erin oversaw the launch of several of the agency’s Asian offices in cities including Singapore, Tokyo. In each location she established the HR functions to support the business’ fast expansion.
ErinStewart joins a growing team at LendInvest in the company’s central London headquarters. Since spring 2015, the LendInvest team has increased threefold from 30 employees to 105 full time members of staff. Other senior hires made in the past year have included specialists from OneSavings Bank, RBS, IG Group and CBRE. Today, 40% of the team works on technology and product development, with 30% committed to originating, underwriting and servicing property finance loans.
Financial Technology in the UK Gets a Boost From Octopus Investments, (Payment Week), Rated: A
A common model when it comes to technology investment is the “accelerator investment” model, which works with other strategies to help bring startup investment in technology to the mainstream. Organizations like Barclays have been said to use similar methods for some time now.
Octopus’ methods, meanwhile, are a little different, launching what’s known as Octopus Labs to help drive development, and not just investment.
One big example of this is the Octopus Choice system, a peer-to-peer (P2P) lending system that fills in the gap in P2P lending.
Jane Dumeresque: The adviser’s guide to P2P due diligence, (Professional Adviser), Rated: A
The peer-to-peer (P2P) market offers some excellent investment opportunities but before diving in, says Jane Dumeresque, advisers need to do thorough research and ensure they and their clients pick a quality provider.
Once the decision to invest in P2P has been taken, there are a whole host of criteria lenders and advisers should look for to evaluate which P2P provider to use. For starters, it is important to know who owns the business and whether they are looking to build a sustainable business or to quickly build market share and then exit before the loan book has gone through an economic cycle.
Does the business have the financial expertise to assess the loan risk and is this done by people or using algorithms?
These are the types of questions that should be answered before your client makes the decision to invest in a platform and some companies will be better equipped to answer them than others.
For years now we have all known there is no such thing as a free lunch and, not surprisingly, there is a correlation between risk and reward – invariably, if it looks too good to be true, then it probably is.
It is important for an investor to understand how long their money will be tied up, what return they are getting, when they are getting it and what security they have in the event the borrower is unable to pay? What processes are in place?
For those prepared to invest the time, there are some excellent investment opportunities in the peer-to-peer market, where investors can not only earn an attractive return with good security but can also help businesses gain access to capital they would otherwise not have.
German fintech startups raised 80% more than British ones in the second quarter, (Business Insider), Rated: AAA
Germany overtook Britain as the fintech funding capital of Europe in the second quarter of the year, with German startups pulling in $186 million (£142 million) compared to $103 million for British businesses.
The three largest fintech funding deals in Europe in the second quarter were all in Germany: marketplace lender Finanzcheck raised $46 million; digital-only bank N26 raised $40 million; and payment provider AEVI raised $34 million.
But the report adds: “Regardless of Brexit, the UK will not give up its role as Europe’s fintech leader easily, demonstrated by the country’s regulatory sandbox and its recent announcement of a fintech bridge with Singapore aimed at making it easier for UK-based fintech companies to operate in that country and vice versa.
Globally, KPMG and CB Insight’s “Pulse of Fintech, Q2 2016” report found fintech funding hit $9.4 billion, boosted by Ant Financial’s bumper $4.5 billion injection in China. Funding to VC-backed fintech firms fell by 49%.
Funding for fintech companies in North America saw the biggest drop off globally, declining 28% on the first quarter of the year.
The report also found a big increase in the number of corporate venture capital funds — mainly off-shoots of banks — getting involved in funding, while the number of VCs putting money on the table is in decline. A third of fintech funding deals globally involved some sort of corporate investment.
Is P2P Lending Out Of Control In China?, (China Tech News), Rated: A
Chinese regulators are considering new rules to cap P2P (peer-to-peer) lending ito control risk and protect investors, eight months after it initiated a campaign to “clean up” faulty P2P lenders, according to Chinese media reports.
An individual lender can provide loans of no more than RMB200,000 (US$29,976) on one P2P platform, and can lend no more than RMB1 million (US$150,000) in aggregate across different P2P channels.
For other non-individual legal entities, the cap is RMB1 million on a single platform and RMB5 million across all P2P channels, according to Chinese media reports citing an insider.
A total of 515 P2P lenders in China have closed doors or exited the sector during the first half of the year. There are 2,349 P2P lenders currently in operation in China, compared to over 4,000 P2P lenders that have been in existence, cumulatively.
Former Aussie CEO steps down as chairman of online lender, (The Adviser), Rated: A
In a trading update this week DirectMoney announced that Mr Nantes, a current director, replaces Stephen Porges who has stepped down from the chairman role and will remain as a non-executive director of the company.
DirectMoney has recently completed a $5.7 million capital raising which will fund further development of the company’s technology platform, the marketing of the DirectMoney Personal Loan Fund and underpin new institutional funding initiatives, which are currently in due diligence.
Mr Nantes has over 20 years of experience in financial services. Prior to being the CEO of Adcock Private Equity, he was group head of financial Services at Crowe Horwath, which held over $10 billion in funds under management and was Australia’s largest SMSF provider with over 10,000 funds.