- Today’s main news: OnDeck’s bumpy ride isn’t over. UK equity crowdfunding recovers. Capital Float partners with Amazon in India.
- Today’s main analysis: Subprime auto loan delinquencies on the rise. 8 out of 10 online shoppers vow not to return to retailers if they have bad returns experience.
- Today’s thought-provoking articles: The state of bank innovation. An earthquake in European banking. Lending Loop: Bringing P2P lending to Canada.
- OnDeck’s bumpy ride isn’t over. AT: “I like the alternatives mentioned for OnDeck. Is a Kabbage-OnDeck merger feasible? Could other FinTech companies swoop in on Kabbage and sweep OnDeck off its feet first? It will be interesting to see what becomes of this troubled FinTech company.”
- Subprime auto loan delinquencies on the rise. AT: “Here is an opportunity for alternative lenders to take over where banks are leaving off, but there are high risks.”
- The state of bank innovation in 5 charts. AT: “While banks see the need for innovation, and large banks have the capital to make it happen, real innovation can’t happen if the talent goes to FinTech.”
- Is Kabbage gearing up to buy OnDeck? AT: “This news broke yesterday, but the expectation that OnDeck will continue to decline makes the company vulnerable. But there is insight here in that OnDeck won’t be a cheap buy no matter who snags it–if anyone does.”
- MPL industry sees efficiency, cost, authentication, transparency as primary drivers of growth.
- Alexa orders Starbucks from Ford Sync 3. AT: “This is an awesome IoT synchronization. I look forward to the day when I can pre-order fast food from a “drive-through” window on my dashboard and pick it up in the express lane.”
- Is Lending Club really like Amazon?
- Why China’s $7.6B P2P lending fraud isn’t likely to happen to Lending Club.
- Mobile might be the only platform to serve the underbanked. AT: “It’s increasingly looking like this is the case.”
- Are P2P loans right for your portfolio?
- 5 New York startups tell why they like NYC.
- What is a mortgage REIT?
- Trying to get REIT investors to think like a property investor.
- 6 guidelines for building a client-friendly financial app.
- CEFs: Democratizing alt investment strategies.
- 8 of out 10 online shoppers vow to not return to retailers for bad returns experience. AT: “Interesting. Returns can be a source of stress as-is, so why make it difficult?”
- UK equity crowdfunding recovers from slump.
- How tech can help close the advice gap.
- Open APIs to shake up small biz banking market. AT: “When small banks learn to leverage technology successfully, they’ll be able to disrupt big bank business in similar ways to FinTech. This is a cool contest.”
- Why investors should demand more disclosure from P2P platforms.
- China’s digital edge export-worthy. AT: “As long as they don’t export the corruption.”
- Capital Float partners with Amazon India to disburse loans to e-sellers. AT: “Great partnership.”
- 3 ways fintech is disrupting Indian lending.
- Bengalaru NGO extends loans to farmers widows.
- United States
- OnDeck’s Bumpy Ride Isn’t Over (Bloomberg), Rated: AAA
- ‘Subprime credit losses are accelerating’: There’s a problem in the auto loan market (Business Insider), Rated: AAA
- The state of bank innovation in 5 charts (Digiday), Rated: AAA
- Is Kabbage Gearing Up To Buy OnDeck? (PYMNTS.com), Rated: A
- Marketplace Lending Industry Sees Efficiency, Cost, Authentication and Transparency as Primary Drivers of Growth (PRWeb), Rated: A
- Alexa Now Orders Starbucks From Ford Sync 3 (PYMNTS.com), Rated: A
- Is Lending Club Really Like Amazon? (The Motley Fool), Rated: A
- Why China’s $7.6 Billion Peer Lending Fraud Is Unlikely To Happen To Lending Club (LC) (CNA Finance), Rated: A
- Why mobile might be the only platform to serve underbanked (American Banker), Rated: A
- Are Peer To Peer Loans Right For Your Portfolio? (Forbes), Rated: A
- 5 local startup leaders weigh in on what’s in store for fintech in NYC (Built in NYC), Rated: A
- What Is a Mortgage REIT? (Yahoo! Finance), Rated: B
- Trying to get REIT investors to think like a property investor — and not a stock market investor (FP Street), Rated: B
- 6 Guidelines for Building a Client-Friendly Financial App (Think Advisor), Rated: B
- Closed-End Funds: Democratizing Alternative Investment Strategies (Think Advisor), Rated: B
- United Kingdom
- 8 out of 10 online shoppers vow not to go back to a retailer if they have a bad experience returning items (Net Imperative), Rated: AAA
- Report: UK Equity Crowdfunding Recovers from January Slump (Crowdfund Insider), Rated: AAA
- How tech can help close the advice gap (FT Adviser), Rated: A
- Open APIs to shake up small business banking market (Finextra), Rated: A
- Why investors should demand even greater levels of disclosure from P2P platforms (City A.M.), Rated: B
- European Union
- An earthquake in European banking (The Economist), Rated: AAA
- European Commission opens public consultation on fintech (Finextra), Rated: B
- Technology, take to the stand (Money Management), Rated: A
- Report: China’s digital edge export-worthy (China Daily), Rated: A
- Capital Float partners with Amazon India to disburse loans to e-sellers (India Times), Rated: AAA
- 3 Ways Fintech Is Disrupting The Indian Lending Space (CXO Today), Rated: A
- Bengaluru NGO extends loans to farmers widows in Warangal (Th Hans India), Rated: B
- Cato Pastoll of LendingLoop Presents Bringing Peer-to-Peer Lending to Canada (StartUp Toronto), Rated: AAA
OnDeck’s Bumpy Ride Isn’t Over (Bloomberg), Rated: AAA
On Deck Capital Inc. jumped as much as 11 percent on Thursday after a report that the New York-based online lender is an acquisition target of closely held rival Kabbage Inc.
Assuming Kabbage were to propose a traditional takeover at a standard premium, it probably would be swiftly rejected by On Deck’s earliest investors, who still own a combined stake of more than 45 percent, according to data compiled by Bloomberg.
A different type of merger arrangement might not be such a terrible idea, especially in the face of potentially heightened regulation. Together, Kabbage and On Deck could share the costs of compliance, if increased scrutiny of online lending is formalized. The combined company could also cut overlapping costs and create scale, which may help it better compete against other providers of loans to small businesses including Square Inc., PayPal Holdings Inc. and CAN Capital.
Could Kabbage’s purported interest in On Deck draw other suitors?
‘Subprime credit losses are accelerating’: There’s a problem in the auto loan market (Business Insider), Rated: AAA
US auto loan and lease credit loss rates weakened in the second half of 2016, according to a new report from Fitch Ratings, which said they will continue to deteriorate.
Losses on subprime auto loans have spiked in the last few months, according to Steven Ricchiuto, Mizuho’s chief US economist. They jumped to 9.1% in January, up from 7.9% in January 2016.
Banks are losing share in the auto lending market, potentially as a result of tightening lending standards. Independent finance companies and credit unions are stepping in to the void.
The state of bank innovation in 5 charts (Digiday), Rated: AAA
Of the more than 100 banking executives surveyed for industry strategist Jim Marous, 71 percent cited improving the digital experience in their top three priorities for 2017; half also identified enhancing data analytics as a priority and 41 percent cited reducing operating costs.
Just 10 percent, most likely those from major institutions, indicated that investing in or partnering with a third-party fintech startup is a priority.
The biggest challenge for banks seems to be hiring and retaining innovation talent and leadership with the specialized skills necessary to lead an increasingly digital bank, according to a new report by Celent, Innovation Outlook 2017: Making Progress.
Is Kabbage Gearing Up To Buy OnDeck? (PYMNTS.com), Rated: A
OnDeck Capital, Inc has market capitalization of $321 million at present, meaning it won’t be a cheap buy. But OnDeck has seen its share price drop 80 percent since first going public in 2014, and as of February of this year had posted five straight quarters of losses. And more losses are widely expected to come — OnDeck has already publicly noted that it has been forced to set aside additional funds for future losses after determining its calculations in its internal models were off.
Kabbage announced earlier this month that it has priced the largest asset-backed securitization of small business loans in the online lending industry. That means it will be selling about $525 million worth of loans to investors, which Kabbage says will allow it to up its loan volume to around $2.7 billion.
Marketplace Lending Industry Sees Efficiency, Cost, Authentication and Transparency as Primary Drivers of Growth (PRWeb), Rated: A
Ninety percent of those involved in the burgeoning marketplace lending industry anticipate an increase in traditional bank and marketplace lender partnerships in 2017, eOriginal, Inc., the expert in digital transactions, today announced as part of the results of a survey conducted at last week’s LendIt USA 2017 Conference in New York.
The increasing convergence of traditional and marketplace lenders was a sentiment echoed by Prosper President and eOriginal Advisory Board Member Ron Suber in his keynote at the conference. According to survey respondents, the anticipated growth in partnership was despite the ongoing obstacles for collaboration, including technology integration (38 percent) and conflicting goals (27 percent).
Survey takers were also asked to highlight challenges to growth within marketplace lending. The top answers included regulations (47 percent) and access to capital (25 percent). When asked to focus specifically on the adoption of end-to-end digital transaction management solution, participants cited the challenges to be full adoption by partners (31 percent), lack of infrastructure (29 percent), security and privacy concerns (22 percent) and cost (17 percent).
Alexa Now Orders Starbucks From Ford Sync 3 (PYMNTS.com), Rated: A
Starbucks just recently announced an ordering integration with Ford’s SYNC3, the automaker’s voice-activated technology powered by Alexa. In a nutshell, this will allow drivers to voice-order their caffeinated beverage of choice while on the road.
On the new in-car voice ordering feature, customers reportedly assign their usual Starbucks order in advance and can direct the request to the 10 stores they’ve most ordered from.
Is Lending Club Really Like Amazon? (The Motley Fool), Rated: A
At the recent Lendit conference, CEO Scott Sanborn made an interesting argument: that online lending is currently in a similar place to online retail at the turn of the millennium. He read passages from a 1999 Barron’s story, “Amazon.bomb,” which criticized Jeff Bezos and foretold the end of Amazon (NASDAQ: AMZN) as we know it. As Amazon investors are well aware, that didn’t happen!
Does Sanborn have a point?
Lending Club was also a first mover in its field, and commands a leading 45% market share Sanborn argues this scale enables a similar “network effect” that will allow Lending Club to get through this tough period.
The second parallel Sanborn drew was cost savings. Just as online retailers like Amazon cut out the costs of physical stores, Lending Club and other online lenders don’t need bank branches or human underwriters. These costs savings allow online lenders to offer loans at lower rates than credit cards, which is how people traditionally obtained unsecured personal loans.
And while sites like eBay and Amazon need buyers, investors in high-yield loans are more fickle. The current low-interest rate period has made high-yield online loans attractive — but that could change if the Fed raises interest rates.
If defaults spike, Lending Club’s underwriting algorithms would come under scrutiny, and lenders might flee the platform again. In contrast, an Amazon customer pays right away, a good is shipped, and the transaction ends. And while Amazon needs to cultivate repeat customers, Lending Club is much more dependent on the financial behavior of others on an ongoing basis.
Why China’s .6 Billion Peer Lending Fraud Is Unlikely To Happen To Lending Club (LC) (CNA Finance), Rated: A
A key difference between the Chinese and US peer lending scene is the level of defaults that occur due to fraudulent listings. Up until the recent regulatory crackdown, fraudulent listings on Chinese lending platforms were rampant, often running as high as 50% versus 1% in the US.
The lack of regulation in China has also fostered a large number of fly-by-night operations opening up shop, often with dubious intentions from the get-go. The hurdles to entry for peer-to-peer lending platforms in the US by contrast are substantial. In fact regulation of the sector is considered so severe that Zopa, the largest based marketplace lender in the UK has actively shelved their expansion plans into the US in order to avoid becoming tied up in US regulations.
Why mobile might be the only platform to serve underbanked (American Banker), Rated: A
In 2015, a Federal Deposit Insurance Corp. study found that one in five citizens were “underbanked.” That same study also found that almost 8% of respondents were completely “unbanked.”
Yet financial institutions globally are serving more people than ever. A recent report from the World Bank found that from 2011 to 2014, 700 million people became account holders at banks, other financial institutions or mobile money-services providers. The number of unbanked individuals dropped by 20%, to 2 billion adults, during that same time period.
What Is a Mortgage REIT? (Yahoo! Finance), Rated: B
Mortgage-backed securities got a black eye in the financial crisis, but real estate investment trusts that own them are currently generous to income income-oriented investors, with dividend yields averaging nearly 10 percent, according to the National Association of Real Estate Investment Trusts.
But with interest rates expected to rise, are they safe enough for a retiree who must preserve principal? Experts have mixed views.
Like ordinary bonds, mortgage securities can lose value when rising rates make older issues with lower yields less appealing. On the other hand, funds that own mortgage securities can gradually pay higher yields as newer securities are added to the portfolio.
Trying to get REIT investors to think like a property investor — and not a stock market investor (FP Street), Rated: B
In other words, to generate a return in REITS, investors need to think like a property investor — and not a stock market investor. All of which means that perceived wisdoms — including that REITs are an interest play, higher-dividend-paying REITs are more attractive investments, and REIT returns are macro-driven — need to be expunged.
6 Guidelines for Building a Client-Friendly Financial App (Think Advisor), Rated: B
The Fintech App Development Compass outlines six steps to help firms build and launch an effective app for their clients.
- Know Your User
- Focus on Access – One of the hallmarks of fintech is that it can bring financial services to underserved portions of the population.
- Establish and Maintain Trust – To keep that trust, they need to make sure that clients will be safe when using the app, and that their concerns and feedback will be heard by developers.
- Test and Iterate
- Drive Positive User Behavior
- Recognize the Value of Mutual Success
Closed-End Funds: Democratizing Alternative Investment Strategies (Think Advisor), Rated: B
Flows into the alternative asset category show this; a 2015 McKinsey article notes that global alternative assets under management grew at a 10.7% annualized rate between 2005 and 2013, twice as fast as traditional investments.
As a result, lines have blurred between traditional and alternative asset classes as investment managers battle for an overlapping opportunity set.
Open-end mutual funds can invest only 15% of their portfolios in illiquid securities. Closed-end funds do not have this restriction, making them attractive vehicles for investing in alternative strategies.
8 out of 10 online shoppers vow not to go back to a retailer if they have a bad experience returning items (Net Imperative), Rated: AAA
Retailers who fail to provide consumers with a customer friendly and easy returns service risk losing a large proportion of their customer base, according to new data from leading European payments provider Klarna.
Online returns are big business for British retailers today, with nearly 9 out of 10 (87%) of online shoppers having returned items they have purchased online.
On average online shoppers estimate they returned 10% of their total online purchases in the last twelve months. With online spending in the UK reaching £133 billion in 2016, the online returns economy in the UK could be valued as high as £13bn.
A survey of 2,000 UK consumers reveals that 83% of respondents who shop online would not shop with a retailer they have a bad returns experience with. Over three quarters (77%) of online shoppers believe UK retailers need to improve their returns capabilities, while one in four (28%) have been put off returning items due to the hassle of the retailer’s returns process.
Two thirds of online shoppers (67%) say easy returns are an essential factor in their choice of retailer. 28% of online shoppers would spend more if there was an easier online returns process, while 67% say free returns mean they will buy more from a retailer over time.
Report: UK Equity Crowdfunding Recovers from January Slump (Crowdfund Insider), Rated: AAA
The report states:
“February’s OFF3R Index data, made up of 6 equity crowdfunding platforms, has shown a strong uptick funds raised since January. The figures have jumped from just under £9 million in January to well over £16 million in February. These figures were boosted by large rounds from Hibergene (raised via SyndicateRoom) and CauliRice (raised via Crowdcube). Early data from March appears to suggest that this momentum will continue for the equity crowdfunding sector. There has been an increase in the number of larger rounds this month across many of the platforms. This is consistent with the data trends that we saw last year as investors increase investments in equity crowdfunding just before the end of the tax year.”
How tech can help close the advice gap (FT Adviser), Rated: A
Robo advice has been touted over the past 24 months as an answer to the advice gap.
In the Review, which was published in March 2016, robo-advice was hailed as one of several areas where development of technology-based services could go some way towards closing up the so-called advice gap.
“That is why we need to defend professional advice and help firms by using any new emerging technology and have it embedded in their businesses, so the experience the customer receives when they come and meet with their adviser is as streamlined and professional as possible. Quite simply we cannot allow our profession to be left behind.”
As the FCA’s Mr Geale explains, technological innovation will create new ways for consumers to engage with the financial services industry, and the industry will find new ways to provide compliant products and services.
There will always be circumstances or considerations that cannot be captured by an automated model, which is why some firms, such as Learnvest in the US, offer a 24/7 email contact offering, while Australia’s Movo offers tiered packages tied to different levels of human involvement.
Open APIs to shake up small business banking market (Finextra), Rated: A
The global fintech industry, with an estimated 12,000 fintechs and counting, has changed the way small businesses can manage their money in all kinds of ways.
The promise of fintech is so great that $36 billion of venture capital and growth equity has been invested in the sector globally in 2016 alone, representing exponential growth since 2010. The promise of fintech is so great that $36 billion of venture capital and growth equity has been invested in the sector globally in 2016 alone, representing exponential growth since 2010.
Although there are big differences between small business banks and loans in costs and quality (with some banks charging twice what others do for monthly bank account fees, for example), 28% of UK start-ups don’t look into the lifetime costs of a bank account when they open one, and only 4% of businesses switch bank accounts each year. And 35% of businesses who think their banking service to be poor are still not considering switching.
To align with the Open Banking agenda, Nesta’s Challenge Prize Centre has launched the ‘Open Up Challenge’, a new £5m prize fund to inspire the creation of next-generation services, apps and tools designed for the UK’s 5 million small businesses. The Challenge is looking for 20 winning entries from anywhere in the world that will use the UK’s open banking APIs – newly available from early 2018 – to transform the way small businesses discover, access and use core financial products.
Why investors should demand even greater levels of disclosure from P2P platforms (City A.M.), Rated: B
These platforms are proving that, when it comes to matching borrowers and lenders, online is a superior location to the traditional bank branch network. A chunk of bricks and mortar cost has been removed and platforms are able to access new sources of data to determine the expected risk of the loan. This results in better rates for both borrowers and lenders.
Thankfully, the market-leading platforms, both in the UK and the US, have significantly developed their approach to disclosure. They recognise that the answer lies in validation and standardisation. They may not eat their own cooking – but they can ensure that their output is subjected to the most intense scrutiny. Zopa, Funding Circle, Ratesetter, Market Invoice, and now Prosper Marketplace in the US, are providing sufficient disclosure to allow third party validation of their lending data, in order to show their returns to a consistent standard.
Presenting granular historic data of this kind also demonstrates the correct alignment between platform and investor. Lenders should seek platforms that can demonstrate that their overriding motivation is to originate loans at an interest rate that adequately compensates for the risk of default.
Platforms rely on revenues derived from loan origination fees. So, if the status of historic lending can be meaningfully appraised, then continued loan origination fees rely on the performance of historic loans. That results in a genuine alignment between investor and originator because the economic outcomes for both have become inextricably intertwined.
An earthquake in European banking (The Economist), Rated: AAA
To date, despite dire warnings, European retail banking has been remarkably unscathed by technology-driven disruption. Customers stay loyal, and banks still do the most of the lending. Financial-technology (“fintech”) companies are beginning to mount a challenge, most conspicuously in the online-payments industry in northern Europe: Sofort, iDEAL and other fintech firms conduct over half of online transactions in Germany and the Netherlands, for example. But their reach is more limited elsewhere in Europe. Physical payments are still overwhelmingly made with cash or bank cards.
Regulators, however, are about to transform the landscape. The Payments Services Directive 2 (PSD2), due to be implemented by EU members in January 2018, aims to kick-start competition while making payments more secure. Provided the customer has given explicit consent, banks will be forced to share customer-account information with licensed financial-services providers.
This should change the way payment services work. They could become more integrated into the internet-browsing experience—enabling, for example, one-click bank transfers, at least for low-value payments. Security for payments above €30 ($32) will be tightened up, with customers having to provide two pieces of secret information (“strong authentication”) to wave through a transaction.
According to Deloitte, a consultancy, banks’ lockhold on payments serves as a handy source of income, earning European banks €128bn in 2015, around a quarter of retail-banking revenue. Many see PSD2 as a threat to their business models; they fear becoming the “dumb pipes” of the financial system.
European Commission opens public consultation on fintech (Finextra), Rated: B
The Commission has set up a Task Force on Financial Technology working across issues relating to financial regulation, technology, data, access to finance, entrepreneurship, consumer protection and competition.
Market participants and EU citizens are invited to give their feedback by responding to an online questionnaire which addresses emerging aspects of the fintech ecosystem, including the application of artificial intelligence and big data, distributed ledgers, and barriers to market entry for fintech startups.
Technology, take to the stand (Money Management), Rated: A
Money Management asked financial service law firms and an Australian regtech what the top 10 common areas of regulatory and legal concern were, and broke down the nexus of technology, advice, and regulation.
The Fold Legal managing director, Claire Wivell Plater, said the fintech ‘regulatory sandbox’ specified in ASIC RG 257, would not shake up traditional advice due to capped limitations.
New said the legal crux with sandbox was taking disclosure, reduced compensation, and additional dispute resolution requirements into account.
Nearly three years after the implementation of the Future of Financial Advice (FOFA) reforms, Wivell Plater said advisers could trust technology solutions and recognise that through all the FOFA changes, it played a part in the agenda to maintain integrity in financial advice.
Managing director of regtech firm GRC Solutions, Julian Fenwick pointed to conflicted remuneration, best interests duty and continued issues of conduct risk; advisers would need to be flexible and ensure a technology partner would not compromise legal obligations or align them to a third-party.
The potential lack of flexibility in technology solutions placed best interests duty compliance as a significant area of attention for the regulator.
Vigilance was required around updates to ASIC and the Australian Prudential Regulation Authority (APRA) policy amendments, and would help advisers stay abreast of legal hurdles.
The Financial Planning Association (FPA) last year proposed robo-advisers appoint independent actuaries to monitor automated advice.
Wivell Plater said advisers were skating on thin ice when it came to ensuring automated advice still provided client and situation accurate solutions.
Lack of specialist knowledge on algorithmic resources was a pitfall for unintentional non-compliance.
‘Regtech,’ or regulatory technology, emerged as a major forerunner last year in financial services, and New said advisers had questions about check-ups on newly-implemented technologies and how they could be utilised for risk mitigation.
Wivell Plater recommended advisers check that both their systems, and those of their technology providers, were well protected against cyber-attacks which compromised privacy law.
Technology was no substitute for professionalism, which meant planners needed to ensure their own competency was up to scratch.
Wivell Plater reminded advisers that it was their ASFL duty to safeguard themselves and maintain regular checks on technological services.
Report: China’s digital edge export-worthy (China Daily), Rated: A
China is in a strong position to export its internet financial services and standards to economies along the Belt and Road Initiative, as the country maintains an “obvious” edge in the booming sector, a key report said on Thursday.
As of October 2016, the Chinese mainland had about 1,850 peer-to-peer lending online platforms, with total transactions in the first 10 months of last year exceeding 1.59 trillion yuan ($232 billion), data from the report showed.
Capital Float partners with Amazon India to disburse loans to e-sellers (India Times), Rated: AAA
Digital lending platform Capital Float has announced its partnership with Amazon India to disburse thousands of loans to e-sellers. The company – the only fintech startup to partner with the e-commerce giant – has also partnered with other leading online platforms including PayTM, Snapdeal and Shopclues.
Capital Float has designed a collateral free credit facility for online sellers called Pay Later that helps them make supplier payments within 24 hours.
3 Ways Fintech Is Disrupting The Indian Lending Space (CXO Today), Rated: A
The Indian fintech sector saw investments upwards of $1.6 billion in 2016 and has been growing at a steady rate, while investments in the global sector grew by 10% to $23.2 billion.
P2P lenders in India are primarily focussing their portfolio on categories such as personal loans, commercial loans and micro finance. The P2P lending model has great potential for growth in India considering the fact that there are over 5.5 crore small businesses operating in the country, a large percentage of which do not own bank accounts.
Though robo advisory has a low market share, it is nonetheless expected to grow at a CAGR of 68% and manage assets worth USD 5 trillion by the year 2025.
Bengaluru NGO extends loans to farmers widows in Warangal (Th Hans India), Rated: B
Rang De, peer-to-peer lending platform has associated with the town-based Sarvodaya Youth Organisation, is offering loans to the farmers’ widows in the district. At a programme held in Hanamkonda, Parkal MLA Ch Dharma Reddy distributed loan of Rs 50,000s to a group of widows of Atmakur mandal.
The selected widows were given each Rs 50,000 loan and every month 20 farmers’ widows would be selected to distribute the loans. The loans could be repaid in instalments spread over 24 months, he added.