According to Javelin Strategy & Research, account takeover fraud increased by two million new fraud victims from 2015 to 2016. That represents a 16 percent jump in new fraud cases of that kind in just one year. The problem isn’t getting better. As the alternative lending landscape grows with increased technological advancements, and the number […]
According to Javelin Strategy & Research, account takeover fraud increased by two million new fraud victims from 2015 to 2016. That represents a 16 percent jump in new fraud cases of that kind in just one year. The problem isn’t getting better.
As the alternative lending landscape grows with increased technological advancements, and the number of lenders using alternative credit data and alternative lending practices increases, so too do the number of attempted frauds. Experian’s Clarity Services is an alternative credit data provider with solutions designed to decrease default rates and flag potential fraud before it happens.
Source: Clarity Services
Three Distinct Types of Lending Fraud
Online lending fraud can take on any number of different characteristics, many of them quite sophisticated. But there are three general categories of lending fraud that online lenders should concern themselves with.
First-party fraud is when borrowers use some sort of deception to trick a lender into believing they are a good credit risk and get away with money they do not intend to pay back.
Second-party fraud is a type of lending fraud in which the fraudster is a friend or trusted acquaintance of the party whose name is on the application.
Third-party fraud, often called “identity theft” or “identity fraud” is when someone submits a fraudulent loan application in someone else’s name pretending to be that person. However, unlike second-party fraud, the perpetrator is unknown to the victim and probably acquired the victim’s identity illegally or in underhanded ways.
Each type of fraud presents its particular challenges and should be fought in different ways. This article will focus on first- and third-party fraud.
The Threat of First-Party Lending Fraud
First-party fraudsters are difficult to detect because they apply for loans under their own names. In many cases, the clues that they do not intend to pay back a loan are very subtle and easy to miss.
One popular type of first-party fraud is loan stacking. This is when the applicant submits multiple credit applications at different lenders on the same day hoping to be approved for several unsecured loans. They then accept the various loan offers available to them, take the cash, and never intend to pay it back. For online lenders, where credit standards are often lower than at banks and loans are approved much more quickly, it has become a real problem. Javelin Strategy & Research claims it costs lenders $340 million in annual losses.
The good news about first-party fraud is that it can be detected using powerful predictive tools, which allow online lenders easy and quick alerts to inconsistencies, fabrications, and misrepresentations in loan applications.
The Varieties of Third-Party Lending Fraud
Third-party fraud is a little more subtle. In this case, another party is applying for a loan pretending to be someone else. They’re actually using real-life facts about the victim in order to deceive the lender into giving them money. It is really difficult to detect when fraud rings get their hands on stolen identity information that allows them to apply for multiple lines of credit at several lending institutions. Again, alternative finance lenders are often easy targets.
Here are six types of third-party lending scams often perpetrated against alternative lenders:
Identity theft – Identity theft takes place when personal financial information is obtained illegally for the purpose of assuming that person’s identity. Information can be acquired in a number of ways including dumpster diving and sifting through trash bins looking for credit card bills and other account documents, hacking into databases or mobile phone apps where personal identity information is stored, or buying it on the black market.
Account takeover fraud – An individual or fraud ring gains access to digital data, usually by hacking or phishing. Then they use credit information such as credit card numbers, bank accounts, etc. to access the victim’s money in those accounts.
Information fabrication – This type of fraud relies on falsifying information about a party in such a way that it is believable. For instance, falsified pay stubs for a fictional job are often used to prove current employment.
Synthetic identity fraud – This type of identity fraud now accounts for 85 percent of all identity fraud in the U.S. Fraudsters combine real identity information with falsified information about a supposed credit applicant in order to defraud the lender.
Credit piggybacking – This sophisticated scheme involves a fraudster being added as an authorized user on a credit account in good standing in order to instantly increase the fraudster’s credit score and thus, the likelihood of a loan approval.
Loan stacking – As mentioned previously, loan stacking occurs when an individual applies for multiple loans from different lenders. Third parties can wreak havoc on a victim’s credit file and get away with a lot of cash using this fraudulent scheme.
Fraud can be quite sophisticated, targeting alternative lenders and, in many cases, the most unlikely victims. For instance, a loan stacking ring could obtain the credit information of subprime individuals, use credit piggybacking to boost their credit scores, and add some synthetic identity elements to bamboozle a small lender into approving someone who otherwise would never be approved for credit. Often, they get away with such schemes due to lack of detection and fraud prediction tools.
How to Catch a Fraudster
Experian’s Clarity Services has designed solutions specifically to detect fraud before it happens using predictive variables to look at over 250 fraud-specific attributes. Clear Fraud Insight is designed to lower alternative lender default rates and detect potential fraud before a loan is approved. Some preliminary results have shown a 60 percent increase in acceptances while defaults remained constant, and alternatively, an 11 percent reduction in defaults as acceptance rate remained unchanged.
Different lenders should expect different results. Nevertheless, isn’t it time to upgrade your risk assessment tools?
In the US, there are tens of millions who do not have a reliable FICO score, either because their credit history is not sufficient or it is non-existent. This becomes a vicious cycle and an important reason why subprime borrowers struggle to obtain credit. Traditional lenders are dependent on FICO, and handicapped as they lack […]
In the US, there are tens of millions who do not have a reliable FICO score, either because their credit history is not sufficient or it is non-existent. This becomes a vicious cycle and an important reason why subprime borrowers struggle to obtain credit. Traditional lenders are dependent on FICO, and handicapped as they lack qualitative information about subprime borrowers who might otherwise be creditworthy. Clarity Credit Bureau was born with the clear goal to collect subprime data and cater to this population, which is not being served properly by the big three credit bureaus.
Over the years, the company has been able to carve its own niche in the subprime market. Now, lenders and financial institutions are using Clarity for subprime borrowers across the entire credit spectrum, and they are using the bureau in conjunction with other credit bureaus in order evaluate credit applications at a more granular level. This layering of Clarity above traditional data has created value for Clarity clients as they are able to offer credit to a wider client base with the assurance that they are creditworthy.
Extensive Database
Around 200-220 million consumers within the age group of 19 to 65 form the largest part of the credit consumer population in America. About one-third of this nearly 70 million person group are subprime borrowers. Sixty million are covered by Clarity, which is nearly 80% of the entire subprime market. This extensive and elaborate data is what makes the company stand out and be the sought after credit rating agency for subprime borrowers. on average, the entertains anywhere between 400,000 to 800,000 report requests every day.
Clarity does not use FICO data. The company has developed over 30 different report products. They also use the same information as traditional bureaus such as credit history, identity verification, etc. The only difference is that Clarity focuses on data collection for a different population set.
Traditional Bureaus as Laggards
Traditional Bureaus lag behind Clarity Credit Bureau due to the paucity of an adequate mechanism to have access to the subprime borrower data. Typically, financial institutions do not provide financial services to subprime customers without FICO data, and they report to credit bureaus.
But, if a lender client of Clarity requests a report on a customer and extends credit to that customer, the financial service provider submits the performance of the credit line to Clarity. It is structured as a “Give and Get” model, similar to other credit bureaus.
Competitive Edge in the Market
According to the Clarity’s founder, Clarity Credit Bureau is the largest bureau in the subprime credit reporting space. Moreover, it has succeeded in carving its niche as the most innovative player in this segment, and its revenues grew by over 70% from 2014 to 2015.
A Solution for Loan Stacking
Loan stacking is a serious threat in the P2P lending space. Borrowers have managed to take advantage of lenders due to the shortcomings of the alternative lending industry. To fend off loan stacking, lenders have been using a consortium approach for 10 years. This involves a group of lenders getting together and sharing every approved application among the consortium. It’s a temporary fix as information sharing is restricted to the consortium, and if the consumer gets a loan from a non-consortium player like a tribal lender or payday lender, the original lender would not be any wiser.
Keeping this in mind, Clarity has developed a real-time solution: Temporary Account Record, a patent-pending solution that will close the reporting gap from hours to minutes, which helps reduce the risk of underwriting unsecured loans. Everyone who is part of the Clarity family and using this technology will be notified when a lender approves a loan.
Real-Time Technology
In today’s world, where technology changes hands in mere weeks, methods used by the three big rating bureaus are quite off the pace. These bureaus use archiving technology for updating their database. Archiving technology will add new data to an existing database randomly from time to time. The resulting report generated might not be up to date or accurate. Clarity, however, uses real-time technology for reporting where the updated information is gathered and stored in the original format along with the date and timestamp.
Clarity Credit Bureau makes use of MySQL, an open source relational database, and the Bongo database system to capture and leverage big data. It uses an on-premise database architecture, instead of operating on the cloud, with multiple data centers complying with industry standard security and encryption certification. Though this is a costly solution, it is necessary as they deal with extremely sensitive public data.
Company History
Clarity Credit Bureau was founded in 2008 and is headquartered in Clearwater, Florida with the aim to provide unprecedented credit risk solutions to lenders and service providers that deal with nonprime consumers. The company also collects and analyzes multiple data points on the behavior of nonprime consumers, and endeavors to provide customized data-driven solutions to clients to meet their specific needs and circumstances.
Clarity Credit Bureau has over 100 employees and around 600 clients.
Founder and Manpower
Tim Ranney, the President and CEO at Clarity Services, has expertise in the IT sector and large database systems. Prior to the inception of Clarity Credit Bureau, he spent nearly 20 years in Internet security and risk management, serving as chief operating officer of an industry leader and senior executive for both Network Solutions and VeriSign.
After exploring Ancestry.com to assemble her family tree, a woman was shocked to discover that someone had been using the identity and social security number of her deceased nephew who had died in infancy, for more than 20 years. That story, as recently reported by CBS News, is just one example of the growing trends […]
After exploring Ancestry.com to assemble her family tree, a woman was shocked to discover that someone had been using the identity and social security number of her deceased nephew who had died in infancy, for more than 20 years. That story, as recently reported by CBS News, is just one example of the growing trends of identity fraud that Americans and businesses are facing today. It’s also become a key challenge in the financial and lending sector and has raised an important question across the industry: how do we thwart the rise of fraudsters while still offering consumers fast, accessible lending options? For many organizations, the answer lies in a multi-layered approach.
FRAUD: A GROWING THREAT
As with most things today, consumers want immediate, convenient results. The same is true for getting a loan. Many consumers are choosing to go online for lending options as opposed to a traditional bank. At the same time, online lenders are also serving a significant portion of the population with little or no credit history. It’s been reported that approximately 45 million Americans fall into this “thin file” applicant category.
Vetting loan applicants can be complex and incomplete without a credit report. A lack of information combined with lightning speed turnaround times (typically loan decisions are made within 24 hours when traditional lending can take up to a week), means online lenders are faced with big loopholes that savvy fraudsters can take advantage of, often without consequence.
Loan Stacking
One of the main types of fraud that lenders should be aware of is loan stacking. This involves taking multiple loans from different lenders at the same time without intent of paying them back. Since most online lenders typically approve loans in less than 24 hours, lenders aren’t able to pinpoint a fraudster or someone who’s applied for many loans within a short period of time, until it’s too late.
It’s become a growing concern for lenders recently and the occurrence nearly doubled between 2013 and 2015. In fact, the speed at which borrowers apply for loans seems to correlate with risk of fraud. It’s also been reported that borrowers who apply for a second loan within 15 days are four times as likely to be identified as fraudsters with no intent to repay, while a third loan makes borrowers 10 times as likely to be fraudulent.
Account Takeover
Account takeover, via identity theft is another dangerous type of fraud for online lenders. While identity theft is not a new issue, fraudsters have taken it to a new level by targeting wealthy individuals, also called “whale phishing” or “whaling.” Proofpoint estimated whale phishing rose an estimated 45 percent in the last three months of 2016. Just recently a Lithuanian man was arrested for defrauding two U.S. Internet companies for more than $100 million through whaling attacks.
That kind of massive blow can be accomplished in a shockingly straightforward way. Fraudsters simply harvest pieces of identification of a targeted individual (i.e. social security number and mother’s maiden name) to take over accounts, apply for as many loans as possible within a short amount of time and then cash out. The pace is simply too fast for lenders to see red flags and criminals are rarely caught. As a result, those fraudulent loans act like money transfers for criminals and lenders must pay the hefty price.
Synthetic Identities
Similar to account takeovers, lenders are also recognizing the need to protect against synthetic identities. In these scenarios, fraudsters use a synthesis of real (stolen) data and fake data to create a new identity. This has created a complicated challenge for lenders, since some of the information supplied might be real, but the combination is fraudulent. This fraud type is a major risk for banks and lenders; Gartner estimates synthetic identity fraud makes up about 20 percent of credit charge-offs and 80 percent of losses from credit card fraud
FINDING THE RIGHT SOLUTION
So how do lenders protect against the rapidly growing risk of fraud? Many lending institutions are joining forces as a first step. Online Lending Network, recently announced by ID Analytics, enables key online lenders like Lending Club, Prosper and Marlette Funding to report when a consumer requests an offer for a loan, submits an application or when a loan is funded.
While collaboration and communication are beneficial, experts are also pointing to the tools that institutions are using to combat fraud. “In the ongoing battle against fraud, online lending institutions would do well to use a broader set of tools that provide additional layers of protection and assurance,” said Robert Capps, VP of Business Development for NuData Security Inc. “Verifying if a particular device or IP address has been used for good transactions in the past (i.e., device authentication), that the transaction came from an actual human, demonstrating the legitimate online behavior of consumers, and utilizing positive consumer identification tools can make fraud attempts less successful and ultimately less profitable for the criminals.”
Tools like Identity Check from Whitepages Pro offer a unique solution to connect many disparate identity attributes to create dynamic and powerful linkages in one search. Identity Check immediately validates a phone number while checking to see if a mobile number has been linked to an applicant in the past. It also checks for an address, email and IP address from which the online account was created. In this way, it brings a more comprehensive vetting solution to online lenders, without sacrificing efficiency.
Fraud is a complex and expensive issue. To effectively tackle the growing threat, online lenders can take strategic steps to protect themselves without treating their good customers like criminals. By validating more identity elements and utilizing linkages, lenders can squeeze fraud out of their application queue, while preserving fast online lending options for legitimate consumers.
News Comments Today’s main news: Ron Suber: To guy to know in fintech. Funding Circle passes Zopa in cumulative lending. Dianrong, Ng to launch global fintech marketplace. Australian banks forced to refund $200M. Paytm raises $1.4B from SoftBank. Today’s main analysis: Fintech alternatives to short-term small-dollar credit. Today’s thought-provoking articles: A review of the biggest allocations in consumer lending. OJK’s […]
Fintech alternatives to short-term small-dollar credit. AT: “This is a must-read report from Harvard Kennedy School’s Todd Baker on how fintechs can help low-income working families escape high-cost lending solutions to their financial problems. In other words, he’s talking about replacing the current system with a better alternative.”
The bank-fintech cognitive dissonance. AT: “I’m not sure what the cognitive dissonance is that is being spoken of here. There’s not much new we haven’t seen before. Millennials are taking over and they prefer digital services.”
Customers welcome AI. AT: “A very interesting read that encompasses the breadth of artificial intelligence uses in several business sectors including financial services.”
Ron Suber’s job title is president of Prosper Marketplace. It barely describes the role he’s assumed at the center of San Francisco’s flourishing fintech community. Suber spends much of his time inexhaustibly networking, investing in and advising fintechs. He’s invested in 16 of them, including high-profile players like DocuSign and SoFi, and serves as an official adviser to a half dozen of them, at last count.
The paper proposes a number of concrete steps that private sector and government employers, employee benefit providers, FinTech companies, other financial companies and non-profits can take to accelerate the adoption of superior FinTech alternatives to STSDC by low-income working Americans:
Employers (private and public) should adopt and subsidize employee financial health benefit plans that include the highest Utility products from FinTech companies.
Employee benefits intermediaries should support adoption of financial health benefit plans.
FinTech companies should broaden their offerings to incorporate the product capabilities of other FinTech companies into their own product offering for lowincome working Americans.
Non-FinTech financial companies should adopt FinTech products to help improve their own customers’ financial health.
FinTechs and financial sector should resolve data governance Issues
The non-profit sector should advocate for FinTech benefits and data governance and consider subsidizing test cases.
The paper also sets forth public sector legislative/regulatory actions that could help accelerate adoption of FinTech alternatives to STSDC:
Congress should make employer contributions/subsidization with respect to Employee Financial Health Benefit Plans tax deductible.
State regulators should work collaboratively to reduce the burden of 50-state licensing and compliance on FinTech companies.
Federal and state banking regulators, with assistance from Congress as necessary, should make insured banking charters (national and state) available to FinTech companies with business models involving innovative digital deposit taking and other digital banking/lending activities that are (i) consistent with the purposes of banks generally but are (ii) inconsistent with the community banking format of locally-based customers and physical distribution coupled with a traditional mix of bank balance sheet and revenue components.
Regulatory and statutory uncertainty about permitted uses of “alternative data” should be resolved to avoid unnecessarily restricting the provision of high Utility FinTech products to low-income working families.
Credigy, a U.S. subsidiary of National Bank of Canada struck a $1.3bn purchase program with Lending Club. Aegon, Dutch provider of life and annuity insurance products, will invest $1.7bn in loans issued by the German based Auxmoney platform. NewOak, New York-based asset management and institutional advisory firm, partnered with Canadian platform LendingArch to purchase up to $2bn in consumer loans.
Now, those three commitments represent the largest investment commitments to date coming from one firm but by far the largest commitment of all is the $5bn consortium deal for Prosper loans.
Since the financial crisis banks have pulled back on any products deemed outside their narrow credit box, though when examining the types of borrowers these firms target we are not talking about subprime borrowers.
These are carefully underwritten borrowers who for the most part fall on the prime end of the credit spectrum, though those with higher risk appetites can potentially get a considerable higher yield if they are willing to move into D, E and F grade loans.The more allocations we see of this nature will help more clients of wealth managers to begin seeing this as a high yielding, short duration and low volatile play. The fear of the unknown is really the biggest problem most platforms are facing today.
Attacking Loan Stacking: Alt-Lenders Fight Back
Alternative lenders in their struggle against loan stacking now face added competition from debt consolidators swooping in to poach their customers.
State of the Marketplace Lending Sector (Part 2)
There’s no shortage of buzz over conditions in the marketplace lending sector, much of it negative. Rampant layoffs, mini-scandals, and financial underperformance threaten to curb industry growth at best, and drive it to the outer fringes of the lending sector at worst.
MCA Funder Wins Latest Skirmish Against Long Island Attorney Amos Weinberg
Merchant Funding Services won its most recent MCA lawsuit against a defendant represented by Long Island attorney Amos Weinberg. Merchant and Weinberg are adversaries in half a dozen New York lawsuits involving MCA contracts.
Marketplace Lender Bizfi Reportedly Laying Off Staff and Facing Operating Issues
Several sources have informed The Alternative Lending Report that Bizfi, the New York-based marketplace lender, has terminated over a third of its approximately 150 employees, and is significantly reducing the number of loans it issues.
Yellowstone Capital Closes $75M Cash Infusion from South Korea
Yellowstone Capital closed a final round of $75 million in funding from Yesco Co. in South Korea. Yellowstone is using the funding to support the growth of its MCA business and to retire an existing debt facility, according to Pi Capital.
Addressing the Lack of Transparency in Small Company Lending
In this editorial, the publisher of The Alternative Lending Report talks about innovations in finance and technology, legal and regulatory dynamics, and strategies within the alternative lending segment.
New Technology & Product Launches
Coverage of all the relevant platform announcements, new software and services, and notable product releases.
Industry News
A recap of recent news of importance to lenders, brokers, and service providers operating in the small company loan sector.
Loan Tape
Small business lending data, recent litigation involving alternative lenders, equities with exposure to SME loans, SBA funding trends, macro-economic data, recession indicators, new investment tracking, and all the M&A and partnership deals in the sector.
The matter of fact is that banks already have a preexisting customer base which is an advantage in the short run. The disadvantage however is that this customer base is aging, changing and shifting to make way for the millennials.
The banking customers of tomorrow fall within this group of individuals – these are the living, breathing, multitasking clientele who are fluent in an array of different technologies and that – brings traditional banking at a disadvantage.
When it comes to SMEs, millennials are more likely to cooperate with fin-techs as it is faster, simpler and (way) cheaper to attain a smaller loans through the push of a few buttons and the use of algorithms, rather than double checking credit scores and waiting anxiously for weeks for the desired approval.
The United State Commodity Futures Trading Commission (CFTC) announced the launch of a fintech initiative ‘LabCFTC’ that is aimed in promoting fintech innovation in order to improve the quality, resiliency as well as competitiveness of the markets the CFTC oversees.
The fintech office is located in New York and will constantly work on to accelerate CFTC engagement with fintech and regtech solutions.
While individual loan results differ, the average return historically on most loans has ranged from 5-7%. In a few select cases with riskier loans, the returns have sometimes been as high as 13% as the graphic below shows.
First, P2P lending is short term in nature. Most loans are 36 months, while a few are 60 months. As a result, the loans do not offer the same kind of long-term investing income that dividend stocks do. Instead, investors will have to keep rolling over their investment into new loans.
Second, because of the tax treatment of loans, all income received will be taxed at ordinary income rates, while dividends can be taxed at reduced rates in many cases (depending on how long an investment in firm has been held).
Third, while dividends can feature rising payouts over time if companies become more successful, P2P loans are only made at fixed and unchanging rates. As a result, your income cannot grow in the same way that it can with dividends.
Fourth, while a diversified portfolio of loans to individuals may seem safe, it’s not as attractive as one might expect. In fact, a borrower’s ability to repay loans is likely to be related to the overall economy, and so if a recession occurs, many loans may default all at once. In contrast, companies are more creditworthy than individuals typically, and they may offer greater consistency in dividend payouts compared to P2P loan interest.
Fourth, while a diversified portfolio of loans to individuals may seem safe, it’s not as attractive as one might expect. In fact, a borrower’s ability to repay loans is likely to be related to the overall economy, and so if a recession occurs, many loans may default all at once. In contrast, companies are more creditworthy than individuals typically, and they may offer greater consistency in dividend payouts compared to P2P loan interest.
Lending Club grades the riskiness of its loans with “A” loans being safest and “G” loans being riskiest. In most areas of the investing world, riskier investments have higher returns – but in Lending Club’s case, the returns on G loans are 5.08% historically compared to 7.20% for safer D loans.
Elsewhere, US fintech start-up LevelUp raised $50m from the likes of JPMorgan Chase and US Boston Capital, with its total funding now at $85m.
Appear Here, a marketplace for the emerging and popular short-term retail space scene, raised $12m in the US this week.
The Series B round, led by Octopus Ventures, has boosted the start-up’s total funding to more than $21m.
Elsewhere, Capsule, a pharmacy delivery start-up, confirmed this week that it raised $20m from Thrive Capital. The company only operates in New York at the moment.
Funding Circle, the UK’s original marketplace lender for businesses, is now the UK’s largest marketplace lender by cumulative loan disbursals.
It might not mean much in the grand scheme of things, but it’s significant in that Zopa has been perched atop the peer-to-peer lending pile for more than a decade.
Funding Circle has now lent a cumulative total of £2.289bn, placing them approximately £1m ahead of Zopa’s £2.288bn total. The firm is running at a higher monthly lending rate than Zopa, and remains the only UK-based marketplace lender to have lent more than £100m in a month. Its record of £116m came in March.
FUNDING Circle’s Samir Desai (pictured) has stepped down from the platform’s investment trust to focus on the peer-to-peer lending side of the business.
Desai, who was a non-executive and non independent director of the Funding Circle SME Income Fund (FCIF), launched in November 2015, will now focus on his duties as chief executive of the Funding Circle Group, according to a stock market announcement.
US-FOCUSED peer-to-peer investment trust Ranger Direct Lending has brushed off any concerns over defaults in its portfolio.
The London-listed fund, which focuses on secured business lenders mainly in the US, revealed in its first-quarter portfolio update that $15.7m (£12.1m) out of its $500m loan investments are in default.
87 per cent of defaults were in real estate loans, equating to $13.6m, but the company revealed it has had no write-offs in this sector so far.
There’s a new business model among the ranks of the fully authorised peer-to-peer lenders. Lend & Borrow Trust Company (LBT) is a platform which allows users to borrow against their precious metals.
Lenders earn interest by investing in loans that are secured against “investment grade” gold and silver bars. LBT takes effective control of the pledged gold and silver on behalf of lenders, and will sell it off if a borrower defaults on a repayment.
The pledged precious metals are stored in specialised bullion vaults in England and Hong Kong, operated by cash-handling company Loomis. Pledged bars must meet the standards of the London Bullion Marketing Association.
The platform supports lending in five different currencies: GBP, EUR, USD, CAD and CHF. Its first loan was a £2m loan in GBP. Its second was a $5.25m deal in CAD.
Investors must invest a minimum of £5k to use the platform. The minimum loan size for business borrowers is £25,001, and £60,261 for individuals.
Cardiff-based FinTech disrupter Delio will create an additional 30 jobs with £200,000 of Welsh Government support.
Delio, a platform which helps financial institutions connect high net worth clients with investment opportunities, will expand with the repayable business finance.
Chinese P2P lender Dianrong announced a new technology agreement with Maggie Ng, a leading consumer banking executive in Asia Pacific, to launch a global fintech marketplace connecting Asian investors with high-quality, low-volatility and largely untapped asset classes, including U.S. consumer lending.
Ng and Dianrong engineers are currently completing beta testing for the new fintech platform that will provide Asian investors with an integrated solution to access U.S. marketplace lending assets.
According to the release, the new platform will utilize multiple U.S. marketplace lenders and a single onboarding and “know-your-customer” process. The platform will also offer advanced risk modeling capabilities, added credit enhancement and structuring features, and blockchain solutions to safeguard data integrity. Investors will also have access to real-time performance monitoring, U.S. tax-exemption filing capabilities and a secondary market for liquidity.
The People’s Bank of China (China’s central bank) launched a fintech committee last week. Will it make a difference?
One of the challenges that the industry faces is that the regulation around fintech is split. Some falls under the PBoC, but plenty doesn’t. A PBoC fintech committee should hopefully bring some clarity to regulation around fintech itself.
You’ve said in the past it is very difficult to be a bank in China these days. Why?
The rise of digital payments offered by the tech giants known as “the BAT” (Baidu, Tencent, Alibaba) have eaten away debit and credit cards. We calculated that lost fees cost banks about US$20 billion in 2015, which is a huge chunk. One of the directors at one of the banks we’ve spoken to said, “look, our payments business is gone.”
How damaging have these well-reported cases of fraud been to China’s P2P industry?
It’s difficult to say because not a lot has been reported. There is a lot that we don’t hear about. Anecdotally, someone I know lost a few thousand renminbi in a product that blew up on one of the P2P lending platforms and they got back some of it.
What in Chinese fintech excites you most?
Some of the lending in the SME space and consumer space has been quite exciting. To give an example, there is a simple fintech that provides the equivalent of US$100 credit to migrant workers in big cities to allow them to buy a mobile phone as soon as they arrive to the city. The interest rate is high on those loans, but for the migrants who go from making a few hundred renminbi in rural areas, to making a few thousand renminbi when working in Shanghai, that loan is very helpful especially when they first arrive to the city.
P2P Industry News (Xing Ping She Email), Rated: A
Blackmail Virus Spread to CNPC: over 20,000 Gas Stations Off-line
Recently, The widespread Blackmail Virus “WannaCry” has caused great panic in China and many gas stations were damaged. According to reports, On May 13th, gas stations of CNPC in several cities, including Beijing, Shanghai, Hangzhou, Chongqing, Chengdu and Nanjing, were suddenly off-line, The credit card and online payments doesn’t work.
Bitcoin Yearly Up 260%，Regulations to be Launched by PBOC in June.
Influenced by the event of Blackmail virus, the price of Bitcoin stopped growing trend. On May 12th, the price fell by 6.42% to $1,735, then rebounded to $1,805 on the morning of May 14, with yearly growth of 267%.Recently, problems of Bitcoin have drawn attention of People’s Bank of China(PBOC). PBOC has been boosting two regulations on Bitcoin: one is for trading platform, another is anti-money laundering. These regulations are going to be issued in June.
A Consumer Intelligence report by PwC revealed that most consumers believe artificial intelligence (AI) will help humankind.
More than half of the 2,500 individuals surveyed agree AI will help solve complex problems that plague modern societies (63 percent) and help people live more fulfilling lives (59 percent). On the other hand, less than half believe AI will harm people by taking away jobs (46 percent). When it comes to a blockbuster-movie-style doomsday, only 23 percent believe AI will have serious, negative implications.
But what do consumers think about AI’s impact on their immediate future? In the next five years, more than half can imagine AI assistants replacing humans as tutors (58 percent), travel agents (56 percent), tax preparers (54 percent), and office assistants (52 percent). However, consumers still have reservations about consciously adopting AI as home assistants, house cleaners, financial advisers, chauffeurs, health coaches, and doctors.
Over 40 percent of consumers also believe AI will expand access to financial, medical, legal, and transportation services to those with lower incomes.
In their own roles, business execs see huge potential for AI to alleviate repetitive, menial tasks such as paperwork (82 percent), scheduling (79 percent), and timesheets (78 percent). In fact, 78 percent agree it will free all employees from such tasks at all levels across their organisations. Already, 34 percent of business execs say that the extra time freed up from using digital assistants allows them to focus on deep thinking and creating.
From the examples Kendall cites, SERV’D is addressing these challenges most comprehensively. In India, SERV’D provides an app that “helps households and the informal workers they employ create simple formal work contracts and pay them online.” The data capture from this service – wages and other payments – could enable more than 400 million informal workers in India to demonstrate their financial history and lead them to financial inclusion in banking products and services.
Australia’s major banks will pay more than $200 million in refunds to customers who were charged fees for financial advice they did not receive, new figures show.
AMP, ANZ, the Commonwealth Bank, NAB and Westpac will pay $204 million plus interest to customers affected by the banks’ failure to provide advice they had charged for.
The Australian Securities and Investments Commission on Friday released an update on its 2016 “fees for no service” compensation program report, which shows the five institutions have so far repaid $60.7 million to 45,000 customers affected.
In an era where consumers trust Facebook and Google to manage their money before a financial institution, the advice sector needs to start collaborating more effectively with technology companies or risk becoming “pretty irrelevant pretty quickly”, Netwealth’s Matt Heine has said.
If the advice industry is not able to build a market that addresses this issue and open up communication with innovative technology firms, “we’re going to become pretty irrelevant pretty quickly because that’s the new expectation of how a service is delivered”, Mr Heine said.
According to Mr Heine, the new frontier in financial advice is going to be a focus on artificial intelligence for driving higher returns, managing processes and engaging with clients.
India’s Paytm said on Thursday it has raised $1.4 billion (£1.07 billion) from Japan’s SoftBank Group in a deal that will help the digital payments startup expand its user base and maintain its lead in Asia’s third-largest economy.
SoftBank will also get a board seat in Paytm after the investment, which was made into Paytm parent One97 Communications, according to a statement from the Indian digital payments provider.
PaySense offers individuals, such as working professionals, credit options ranging from Rs. 5,000 to Rs. 1 lakh, and does the credit scoring as well as the documentation processes by leveraging the India Stack.
To support the development of a technology-based financial industry in Indonesia, in December 2016 the Financial Services Authority (OJK) issued Regulation 77/POJK01/2016 regarding technology-based fund-lending services.
The OJK’s fintech-based money lending services or fintech peer-to-peer (P2P) lending platforms are meant to facilitate the provision of cash funds on an expeditious, simple and efficient basis, particularly for small and medium-sized business operators to help boost their competitiveness.
Providers are restricted by the following rules:
A provider must be established as a legal entity in the form of a limited liability company as defined by Law 40/2007, or in the form of a cooperative as defined by Law 25/1992.
The maximum direct or indirect foreign share ownership in providers – in the form of a limited liability company established and owned by foreign citizens or legal entities – is 85% of the total issued capital.
Providers must have Rp1 billion in capital (ie, paid-up capital for a limited liability company and self-capital for a cooperative) at the time they apply for registration and Rp2.5 billion at the time they apply for the licence. Limited liability companies or cooperatives intending to engage in P2P lending services must register with and subsequently apply for a licence from the OJK.
Providers are prohibited from conducting other business outside P2P lending services, including:
acting as a lender or borrower;
providing security or guarantees for other parties’ debt; and
Most of the robo-advisors in the South African market will find it very difficult to survive, a newcomer has warned.
The low-cost investment product platform has just become the new kid on the block with the launch of its own independent robo-advisor, ItransactGO.
The number of robo-advisors in South Africa has grown quite considerably over the past two years, although some entrants effectively only offer a particular fund manager’s house view online. Yet, there have been suggestions that the rise of robo-advice could spell the end for conventional face-to-face financial advice in due course.
ItransactGO is primarily aimed at financial advisors, self-help investors and financially disadvantaged investors.
The robo-advisor doesn’t favour a particular asset manager or house view, will look across all asset classes including cash, bonds, property, domestic and offshore equities and automatically rebalances the investor portfolio.
News Comments Today’s main news: Ron Suber: To guy to know in fintech. Funding Circle passes Zopa in cumulative lending. Dianrong, Ng to launch global fintech marketplace. Australian banks forced to refund $200M. Paytm raises $1.4B from SoftBank. Today’s main analysis: Fintech alternatives to short-term small-dollar credit. Today’s thought-provoking articles: A review of the biggest allocations in consumer lending. OJK’s […]
Fintech alternatives to short-term small-dollar credit. AT: “This is a must-read report from Harvard Kennedy School’s Todd Baker on how fintechs can help low-income working families escape high-cost lending solutions to their financial problems. In other words, he’s talking about replacing the current system with a better alternative.”
The bank-fintech cognitive dissonance. AT: “I’m not sure what the cognitive dissonance is that is being spoken of here. There’s not much new we haven’t seen before. Millennials are taking over and they prefer digital services.”
Customers welcome AI. AT: “A very interesting read that encompasses the breadth of artificial intelligence uses in several business sectors including financial services.”
Ron Suber’s job title is president of Prosper Marketplace. It barely describes the role he’s assumed at the center of San Francisco’s flourishing fintech community. Suber spends much of his time inexhaustibly networking, investing in and advising fintechs. He’s invested in 16 of them, including high-profile players like DocuSign and SoFi, and serves as an official adviser to a half dozen of them, at last count.
The paper proposes a number of concrete steps that private sector and government employers, employee benefit providers, FinTech companies, other financial companies and non-profits can take to accelerate the adoption of superior FinTech alternatives to STSDC by low-income working Americans:
Employers (private and public) should adopt and subsidize employee financial health benefit plans that include the highest Utility products from FinTech companies.
Employee benefits intermediaries should support adoption of financial health benefit plans.
FinTech companies should broaden their offerings to incorporate the product capabilities of other FinTech companies into their own product offering for lowincome working Americans.
Non-FinTech financial companies should adopt FinTech products to help improve their own customers’ financial health.
FinTechs and financial sector should resolve data governance Issues
The non-profit sector should advocate for FinTech benefits and data governance and consider subsidizing test cases.
The paper also sets forth public sector legislative/regulatory actions that could help accelerate adoption of FinTech alternatives to STSDC:
Congress should make employer contributions/subsidization with respect to Employee Financial Health Benefit Plans tax deductible.
State regulators should work collaboratively to reduce the burden of 50-state licensing and compliance on FinTech companies.
Federal and state banking regulators, with assistance from Congress as necessary, should make insured banking charters (national and state) available to FinTech companies with business models involving innovative digital deposit taking and other digital banking/lending activities that are (i) consistent with the purposes of banks generally but are (ii) inconsistent with the community banking format of locally-based customers and physical distribution coupled with a traditional mix of bank balance sheet and revenue components.
Regulatory and statutory uncertainty about permitted uses of “alternative data” should be resolved to avoid unnecessarily restricting the provision of high Utility FinTech products to low-income working families.
Credigy, a U.S. subsidiary of National Bank of Canada struck a $1.3bn purchase program with Lending Club. Aegon, Dutch provider of life and annuity insurance products, will invest $1.7bn in loans issued by the German based Auxmoney platform. NewOak, New York-based asset management and institutional advisory firm, partnered with Canadian platform LendingArch to purchase up to $2bn in consumer loans.
Now, those three commitments represent the largest investment commitments to date coming from one firm but by far the largest commitment of all is the $5bn consortium deal for Prosper loans.
Since the financial crisis banks have pulled back on any products deemed outside their narrow credit box, though when examining the types of borrowers these firms target we are not talking about subprime borrowers.
These are carefully underwritten borrowers who for the most part fall on the prime end of the credit spectrum, though those with higher risk appetites can potentially get a considerable higher yield if they are willing to move into D, E and F grade loans.The more allocations we see of this nature will help more clients of wealth managers to begin seeing this as a high yielding, short duration and low volatile play. The fear of the unknown is really the biggest problem most platforms are facing today.
Attacking Loan Stacking: Alt-Lenders Fight Back
Alternative lenders in their struggle against loan stacking now face added competition from debt consolidators swooping in to poach their customers.
State of the Marketplace Lending Sector (Part 2)
There’s no shortage of buzz over conditions in the marketplace lending sector, much of it negative. Rampant layoffs, mini-scandals, and financial underperformance threaten to curb industry growth at best, and drive it to the outer fringes of the lending sector at worst.
MCA Funder Wins Latest Skirmish Against Long Island Attorney Amos Weinberg
Merchant Funding Services won its most recent MCA lawsuit against a defendant represented by Long Island attorney Amos Weinberg. Merchant and Weinberg are adversaries in half a dozen New York lawsuits involving MCA contracts.
Marketplace Lender Bizfi Reportedly Laying Off Staff and Facing Operating Issues
Several sources have informed The Alternative Lending Report that Bizfi, the New York-based marketplace lender, has terminated over a third of its approximately 150 employees, and is significantly reducing the number of loans it issues.
Yellowstone Capital Closes $75M Cash Infusion from South Korea
Yellowstone Capital closed a final round of $75 million in funding from Yesco Co. in South Korea. Yellowstone is using the funding to support the growth of its MCA business and to retire an existing debt facility, according to Pi Capital.
Addressing the Lack of Transparency in Small Company Lending
In this editorial, the publisher of The Alternative Lending Report talks about innovations in finance and technology, legal and regulatory dynamics, and strategies within the alternative lending segment.
New Technology & Product Launches
Coverage of all the relevant platform announcements, new software and services, and notable product releases.
Industry News
A recap of recent news of importance to lenders, brokers, and service providers operating in the small company loan sector.
Loan Tape
Small business lending data, recent litigation involving alternative lenders, equities with exposure to SME loans, SBA funding trends, macro-economic data, recession indicators, new investment tracking, and all the M&A and partnership deals in the sector.
The matter of fact is that banks already have a preexisting customer base which is an advantage in the short run. The disadvantage however is that this customer base is aging, changing and shifting to make way for the millennials.
The banking customers of tomorrow fall within this group of individuals – these are the living, breathing, multitasking clientele who are fluent in an array of different technologies and that – brings traditional banking at a disadvantage.
When it comes to SMEs, millennials are more likely to cooperate with fin-techs as it is faster, simpler and (way) cheaper to attain a smaller loans through the push of a few buttons and the use of algorithms, rather than double checking credit scores and waiting anxiously for weeks for the desired approval.
The United State Commodity Futures Trading Commission (CFTC) announced the launch of a fintech initiative ‘LabCFTC’ that is aimed in promoting fintech innovation in order to improve the quality, resiliency as well as competitiveness of the markets the CFTC oversees.
The fintech office is located in New York and will constantly work on to accelerate CFTC engagement with fintech and regtech solutions.
While individual loan results differ, the average return historically on most loans has ranged from 5-7%. In a few select cases with riskier loans, the returns have sometimes been as high as 13% as the graphic below shows.
First, P2P lending is short term in nature. Most loans are 36 months, while a few are 60 months. As a result, the loans do not offer the same kind of long-term investing income that dividend stocks do. Instead, investors will have to keep rolling over their investment into new loans.
Second, because of the tax treatment of loans, all income received will be taxed at ordinary income rates, while dividends can be taxed at reduced rates in many cases (depending on how long an investment in firm has been held).
Third, while dividends can feature rising payouts over time if companies become more successful, P2P loans are only made at fixed and unchanging rates. As a result, your income cannot grow in the same way that it can with dividends.
Fourth, while a diversified portfolio of loans to individuals may seem safe, it’s not as attractive as one might expect. In fact, a borrower’s ability to repay loans is likely to be related to the overall economy, and so if a recession occurs, many loans may default all at once. In contrast, companies are more creditworthy than individuals typically, and they may offer greater consistency in dividend payouts compared to P2P loan interest.
Fourth, while a diversified portfolio of loans to individuals may seem safe, it’s not as attractive as one might expect. In fact, a borrower’s ability to repay loans is likely to be related to the overall economy, and so if a recession occurs, many loans may default all at once. In contrast, companies are more creditworthy than individuals typically, and they may offer greater consistency in dividend payouts compared to P2P loan interest.
Lending Club grades the riskiness of its loans with “A” loans being safest and “G” loans being riskiest. In most areas of the investing world, riskier investments have higher returns – but in Lending Club’s case, the returns on G loans are 5.08% historically compared to 7.20% for safer D loans.
Elsewhere, US fintech start-up LevelUp raised $50m from the likes of JPMorgan Chase and US Boston Capital, with its total funding now at $85m.
Appear Here, a marketplace for the emerging and popular short-term retail space scene, raised $12m in the US this week.
The Series B round, led by Octopus Ventures, has boosted the start-up’s total funding to more than $21m.
Elsewhere, Capsule, a pharmacy delivery start-up, confirmed this week that it raised $20m from Thrive Capital. The company only operates in New York at the moment.
Funding Circle, the UK’s original marketplace lender for businesses, is now the UK’s largest marketplace lender by cumulative loan disbursals.
It might not mean much in the grand scheme of things, but it’s significant in that Zopa has been perched atop the peer-to-peer lending pile for more than a decade.
Funding Circle has now lent a cumulative total of £2.289bn, placing them approximately £1m ahead of Zopa’s £2.288bn total. The firm is running at a higher monthly lending rate than Zopa, and remains the only UK-based marketplace lender to have lent more than £100m in a month. Its record of £116m came in March.
FUNDING Circle’s Samir Desai (pictured) has stepped down from the platform’s investment trust to focus on the peer-to-peer lending side of the business.
Desai, who was a non-executive and non independent director of the Funding Circle SME Income Fund (FCIF), launched in November 2015, will now focus on his duties as chief executive of the Funding Circle Group, according to a stock market announcement.
US-FOCUSED peer-to-peer investment trust Ranger Direct Lending has brushed off any concerns over defaults in its portfolio.
The London-listed fund, which focuses on secured business lenders mainly in the US, revealed in its first-quarter portfolio update that $15.7m (£12.1m) out of its $500m loan investments are in default.
87 per cent of defaults were in real estate loans, equating to $13.6m, but the company revealed it has had no write-offs in this sector so far.
There’s a new business model among the ranks of the fully authorised peer-to-peer lenders. Lend & Borrow Trust Company (LBT) is a platform which allows users to borrow against their precious metals.
Lenders earn interest by investing in loans that are secured against “investment grade” gold and silver bars. LBT takes effective control of the pledged gold and silver on behalf of lenders, and will sell it off if a borrower defaults on a repayment.
The pledged precious metals are stored in specialised bullion vaults in England and Hong Kong, operated by cash-handling company Loomis. Pledged bars must meet the standards of the London Bullion Marketing Association.
The platform supports lending in five different currencies: GBP, EUR, USD, CAD and CHF. Its first loan was a £2m loan in GBP. Its second was a $5.25m deal in CAD.
Investors must invest a minimum of £5k to use the platform. The minimum loan size for business borrowers is £25,001, and £60,261 for individuals.
Cardiff-based FinTech disrupter Delio will create an additional 30 jobs with £200,000 of Welsh Government support.
Delio, a platform which helps financial institutions connect high net worth clients with investment opportunities, will expand with the repayable business finance.
Chinese P2P lender Dianrong announced a new technology agreement with Maggie Ng, a leading consumer banking executive in Asia Pacific, to launch a global fintech marketplace connecting Asian investors with high-quality, low-volatility and largely untapped asset classes, including U.S. consumer lending.
Ng and Dianrong engineers are currently completing beta testing for the new fintech platform that will provide Asian investors with an integrated solution to access U.S. marketplace lending assets.
According to the release, the new platform will utilize multiple U.S. marketplace lenders and a single onboarding and “know-your-customer” process. The platform will also offer advanced risk modeling capabilities, added credit enhancement and structuring features, and blockchain solutions to safeguard data integrity. Investors will also have access to real-time performance monitoring, U.S. tax-exemption filing capabilities and a secondary market for liquidity.
The People’s Bank of China (China’s central bank) launched a fintech committee last week. Will it make a difference?
One of the challenges that the industry faces is that the regulation around fintech is split. Some falls under the PBoC, but plenty doesn’t. A PBoC fintech committee should hopefully bring some clarity to regulation around fintech itself.
You’ve said in the past it is very difficult to be a bank in China these days. Why?
The rise of digital payments offered by the tech giants known as “the BAT” (Baidu, Tencent, Alibaba) have eaten away debit and credit cards. We calculated that lost fees cost banks about US$20 billion in 2015, which is a huge chunk. One of the directors at one of the banks we’ve spoken to said, “look, our payments business is gone.”
How damaging have these well-reported cases of fraud been to China’s P2P industry?
It’s difficult to say because not a lot has been reported. There is a lot that we don’t hear about. Anecdotally, someone I know lost a few thousand renminbi in a product that blew up on one of the P2P lending platforms and they got back some of it.
What in Chinese fintech excites you most?
Some of the lending in the SME space and consumer space has been quite exciting. To give an example, there is a simple fintech that provides the equivalent of US$100 credit to migrant workers in big cities to allow them to buy a mobile phone as soon as they arrive to the city. The interest rate is high on those loans, but for the migrants who go from making a few hundred renminbi in rural areas, to making a few thousand renminbi when working in Shanghai, that loan is very helpful especially when they first arrive to the city.
P2P Industry News (Xing Ping She Email), Rated: A
Blackmail Virus Spread to CNPC: over 20,000 Gas Stations Off-line
Recently, The widespread Blackmail Virus “WannaCry” has caused great panic in China and many gas stations were damaged. According to reports, On May 13th, gas stations of CNPC in several cities, including Beijing, Shanghai, Hangzhou, Chongqing, Chengdu and Nanjing, were suddenly off-line, The credit card and online payments doesn’t work.
Bitcoin Yearly Up 260%，Regulations to be Launched by PBOC in June.
Influenced by the event of Blackmail virus, the price of Bitcoin stopped growing trend. On May 12th, the price fell by 6.42% to $1,735, then rebounded to $1,805 on the morning of May 14, with yearly growth of 267%.Recently, problems of Bitcoin have drawn attention of People’s Bank of China(PBOC). PBOC has been boosting two regulations on Bitcoin: one is for trading platform, another is anti-money laundering. These regulations are going to be issued in June.
A Consumer Intelligence report by PwC revealed that most consumers believe artificial intelligence (AI) will help humankind.
More than half of the 2,500 individuals surveyed agree AI will help solve complex problems that plague modern societies (63 percent) and help people live more fulfilling lives (59 percent). On the other hand, less than half believe AI will harm people by taking away jobs (46 percent). When it comes to a blockbuster-movie-style doomsday, only 23 percent believe AI will have serious, negative implications.
But what do consumers think about AI’s impact on their immediate future? In the next five years, more than half can imagine AI assistants replacing humans as tutors (58 percent), travel agents (56 percent), tax preparers (54 percent), and office assistants (52 percent). However, consumers still have reservations about consciously adopting AI as home assistants, house cleaners, financial advisers, chauffeurs, health coaches, and doctors.
Over 40 percent of consumers also believe AI will expand access to financial, medical, legal, and transportation services to those with lower incomes.
In their own roles, business execs see huge potential for AI to alleviate repetitive, menial tasks such as paperwork (82 percent), scheduling (79 percent), and timesheets (78 percent). In fact, 78 percent agree it will free all employees from such tasks at all levels across their organisations. Already, 34 percent of business execs say that the extra time freed up from using digital assistants allows them to focus on deep thinking and creating.
From the examples Kendall cites, SERV’D is addressing these challenges most comprehensively. In India, SERV’D provides an app that “helps households and the informal workers they employ create simple formal work contracts and pay them online.” The data capture from this service – wages and other payments – could enable more than 400 million informal workers in India to demonstrate their financial history and lead them to financial inclusion in banking products and services.
Australia’s major banks will pay more than $200 million in refunds to customers who were charged fees for financial advice they did not receive, new figures show.
AMP, ANZ, the Commonwealth Bank, NAB and Westpac will pay $204 million plus interest to customers affected by the banks’ failure to provide advice they had charged for.
The Australian Securities and Investments Commission on Friday released an update on its 2016 “fees for no service” compensation program report, which shows the five institutions have so far repaid $60.7 million to 45,000 customers affected.
In an era where consumers trust Facebook and Google to manage their money before a financial institution, the advice sector needs to start collaborating more effectively with technology companies or risk becoming “pretty irrelevant pretty quickly”, Netwealth’s Matt Heine has said.
If the advice industry is not able to build a market that addresses this issue and open up communication with innovative technology firms, “we’re going to become pretty irrelevant pretty quickly because that’s the new expectation of how a service is delivered”, Mr Heine said.
According to Mr Heine, the new frontier in financial advice is going to be a focus on artificial intelligence for driving higher returns, managing processes and engaging with clients.
India’s Paytm said on Thursday it has raised $1.4 billion (£1.07 billion) from Japan’s SoftBank Group in a deal that will help the digital payments startup expand its user base and maintain its lead in Asia’s third-largest economy.
SoftBank will also get a board seat in Paytm after the investment, which was made into Paytm parent One97 Communications, according to a statement from the Indian digital payments provider.
PaySense offers individuals, such as working professionals, credit options ranging from Rs. 5,000 to Rs. 1 lakh, and does the credit scoring as well as the documentation processes by leveraging the India Stack.
To support the development of a technology-based financial industry in Indonesia, in December 2016 the Financial Services Authority (OJK) issued Regulation 77/POJK01/2016 regarding technology-based fund-lending services.
The OJK’s fintech-based money lending services or fintech peer-to-peer (P2P) lending platforms are meant to facilitate the provision of cash funds on an expeditious, simple and efficient basis, particularly for small and medium-sized business operators to help boost their competitiveness.
Providers are restricted by the following rules:
A provider must be established as a legal entity in the form of a limited liability company as defined by Law 40/2007, or in the form of a cooperative as defined by Law 25/1992.
The maximum direct or indirect foreign share ownership in providers – in the form of a limited liability company established and owned by foreign citizens or legal entities – is 85% of the total issued capital.
Providers must have Rp1 billion in capital (ie, paid-up capital for a limited liability company and self-capital for a cooperative) at the time they apply for registration and Rp2.5 billion at the time they apply for the licence. Limited liability companies or cooperatives intending to engage in P2P lending services must register with and subsequently apply for a licence from the OJK.
Providers are prohibited from conducting other business outside P2P lending services, including:
acting as a lender or borrower;
providing security or guarantees for other parties’ debt; and
Most of the robo-advisors in the South African market will find it very difficult to survive, a newcomer has warned.
The low-cost investment product platform has just become the new kid on the block with the launch of its own independent robo-advisor, ItransactGO.
The number of robo-advisors in South Africa has grown quite considerably over the past two years, although some entrants effectively only offer a particular fund manager’s house view online. Yet, there have been suggestions that the rise of robo-advice could spell the end for conventional face-to-face financial advice in due course.
ItransactGO is primarily aimed at financial advisors, self-help investors and financially disadvantaged investors.
The robo-advisor doesn’t favour a particular asset manager or house view, will look across all asset classes including cash, bonds, property, domestic and offshore equities and automatically rebalances the investor portfolio.
As more individuals and businesses turn to online lenders for instant approval and quick turnaround/funding, the issue of loan stacking continues to make headlines. How can a consumer receive multiple loans of the same type on the same day … with no intention of paying and without raising flags? When it comes to loan stacking, […]
As more individuals and businesses turn to online lenders for instant approval and quick turnaround/funding, the issue of loan stacking continues to make headlines. How can a consumer receive multiple loans of the same type on the same day … with no intention of paying and without raising flags? When it comes to loan stacking, timing matters. The key is the speed of the transactions, which sometimes occur simultaneously or within a few minutes of each other, coupled with the length of the reporting gap to credit bureaus.
Loan stacking is an ongoing concern with serious consequences for marketplace lenders. Like all fraud, it greatly increases risks for defaults and erodes profits. The issue has lenders scrambling to shield themselves while continuing to satisfy customer expectations.
Loan Stacking: What Is It?
Though definitions can vary slightly, most financial experts agree that loan stacking occurs when a consumer secures multiple loans of the same type from different financial institutions by exploiting weaknesses and time lags in reporting to credit bureaus. This intentionally deceitful behavior constitutes fraud, as opposed to a consumer simply shopping for multiple options.
Not Your Grandfather’s Loan Stacking
Sometimes called “credit stacking,” the practice dates back to the 1800s. But it became a much bigger issue in the early 2000s, when online small-dollar lenders began dealing with its modern version. The fraud proliferated as automation decreased the time necessary to secure a loan and receive proceeds. In subsequent years, loan stacking has been compounded by lead generators propagating consumer applications to multiple lenders electronically.
Lenders have tried to solve the problem in multiple ways. Some have simply implemented more aggressive underwriting, seeking consumers who appear responsible with their use of credit. The challenge is that lenders are working from a false assumption that consumers with higher credit scores won’t stack multiple loans.
In evaluating available credit reports, lenders often search for dates and frequency of hard post inquiries. However, this approach has limited success because the lead generation environment causes multiple inquiries that may not be an accurate reflection. Even “real-time” reporting, which reduces the window of invisibility from days to hours, is an incomplete remedy because it allows a brief blind spot to exist.
Finally, a Solution That Closes the Reporting Gap
Clarity Services offers Temporary Account Record, an innovative solution that further closes the gap from hours to minutes, greatly reducing risk for underwriting unsecured loans to consumers throughout the country.
It’s similar to the process that occurs with credit cards, where the final transaction on a purchase isn’t posted for several days. At the time the purchase is approved, a temporary hold is placed on the credit card for the amount of money that covers the transaction – thereby reducing the available credit balance. A Temporary Account Record, which is typically triggered by a consumer’s e-signature, works the same way.
For example, if a loan is approved at 10 a.m. the lender submits a temporary tradeline, which is available for other lenders to view in the Clarity system until it is replaced with a permanent tradeline record.
Lenders can see other tradelines, which exclude lender names, and make a determination of whether the consumer can handle the stacked loan. Both lenders win; the lender who submits the temporary tradeline reduces the likelihood that someone else will stack a loan and overextend a consumer after they’ve made a loan. The other lender has visibility into a possible stacking that can indicate a consumer may have difficulty with repayment.
Benefits of Temporary Account Record:
Closes the reporting “window of invisibility”
Makes it much more difficult to stack loans
Is necessary if proposed CFPB small-dollar rules become law
Lowers default rates
So, what type of information appears in a Temporary Account Record? Structurally, it is identical to a traditional account record, including data such as loan amounts and payment terms. What’s different is a flag that notes it’s a temporary record and not a funded tradeline record.
Add Clarity and Reduce Risk to Subprime Lending
The value of Clarity’s subprime consumer credit data cannot be overstated, particularly when you consider that 51 percent of U.S. households fall into the nonprime category, as well as consumers with no credit file or thin files that don’t generate a traditional credit score. In the U.S. today, there are roughly 53 million people without a reliable FICO® score, either because their credit history is insufficient or nonexistent.1 Clarity maintains a dedicated, full-time Fraud Prevention Team to provide lenders with maximum protection against loan stacking and other threats.
Safeguard your profits! Call Clarity’s fraud experts today at 727-400-6754 to schedule a brief consultation.
1 FICO. (2015). Insights White Paper No. 90, Can Alternative Data Expand Credit Access. Retrieved from
Author:
Tim Ranney is president and CEO of Clarity Services, Inc., a real-time credit bureau providing credit-related data on subprime consumers. Prior to founding Clarity in 2008, Ranney spent 20 years as a leader in internet security and risk management, serving as COO of an industry leader and senior executive for both Network Solutions and VeriSign.
HNC Software, the company that made the Falcon Fraud Tool, which is used to evaluate credit card transaction risk so card issuers can block cards if there is a problem, sold the tool to FICO. Then the founders pivoted and started a new company called ID Analytics. The goal was to provide actionable insight into […]
HNC Software, the company that made the Falcon Fraud Tool, which is used to evaluate credit card transaction risk so card issuers can block cards if there is a problem, sold the tool to FICO. Then the founders pivoted and started a new company called ID Analytics. The goal was to provide actionable insight into credit and identity risk. That was 2002. Lending Times recently spoke with ID Analytics Director of Product Marketing Kevin King.
Rather than focusing on credit card fraud, ID Analytics focuses on new account fraud. They look for indications of identity or intention fraud in applications for loans, credit cards, wireless phones, etc.
Lenders want to know is if an applicant plans to pay back a loan or take the money and run. So ID Analytics built a data consortium of lenders similar to a credit bureau. Companies come to them to evaluate applicants. When the assessment is returned, ID Analytics holds on to borrower information (name, SSN, address, phone number, date of birth, etc.) and asks companies to provide insight on the results of loans issued. What they want to know is, did it turn into fraud or continue to look good?
This business model worked well and the company’s data set became larger as more industries and credit bureaus took an interest. Compliance, authentication, and credit risk were included in the analysis.
Thirteen years later, ID Analytics had formed relationships with several Fortune 500 companies. New industries like FinTech and alternative payments are interested in the power and predictability of knowing the borrower. As they enter new markets, they understand applicants better than the credit bureaus because ID Analytics’ assessment is current.
In addition to knowing whether an applicant pays all their bills, ID Analytics can see how the borrower behaves. For instance, if a borrower applies for five credit cards in the space of one minute, ID Analytics’ score reacts, within seconds, for a high velocity string of behavior. The company employs 150 people, so it can be more responsive and nimble than a larger credit bureau.
The Birth of the Online Lending Network
In 2011-12, ID Analytics started working with P2P lenders and supported them as the industry grew. Those lenders, leading players now, became concerned when loan stacking emerged in 2015. Loan stacking revealed a blind spot in the world of online lending: It was too easy to get loans from multiple lenders at the same time. Since ID Analytics already had relationships with online lenders, this enabled them to see 60%-70% of marketplace behavior. So they built an online lending network.
The Online Lending Network, founded in April 2016, is a group of lenders who have partnered to solve a set of pressing problems in the online lending industry. These problems are disparate because most providers only contribute to one or two bureaus rather than all of them. More relevant and critical, the soft inquiry credit process that developed as a core business model to improve customer experience leaves lenders blind for the short term. They can’t see what a borrower has done in recent activity when an application is made. The network helps to build technology and provide data assets, which makes it unique.
Unlike a lot of fraud behavior, which is nuanced, loan stacking is black and white and involves multiple unsecured loans piled up against the same asset. It needs a black-and-white solution to identify lender risk immediately. ID Analytics offers a two-fold solution.
Adoption by a majority of lenders enables the most complete coverage and visibility of data. Providers can take that visibility and turn it into the intelligence needed to stop stacking. Participation and speed to market wins the day.
When a borrower presents herself to a lender, the critical questions are, “Is this person real?” and “Will they be able to pay me?” The Online Lending Network essentially provides attributes, black and white insights, that count the number of times a particular borrower has been into an online lender in the past three months. It can also zoom into the last hour of activity. These attributes can be drilled down to categories like small business, P2P, subprime, etc.
Members of the network provide their full top-of-funnel velocity. Each time a borrower requires a loan offer, that information is sent to ID Analytics and, in a sub-second, the application is reflected in the information provided. Numbers in the first few test weeks were promising, but there will be much more in the months to come.
It took just five months from concept to live production to get the network up and running. While slow for FinTech, that’s lightning fast for analytics.
What Data Can ID Analytics Tell About Borrowers?
In the top three online marketplaces, 1-1.1% of individuals requesting an offer have been to another marketplace lender in the past three days. In the last hour, 0.3% visit another marketplace lender. ID Analytics can also see that 3% of applicants have applied for another credit product in the last hour even if that application was outside the online lending marketplace.
Sets of attributes showing how frequently credit is sought are “attributes version 1.0,” but in Q1 2017, ID Analytics plans to launch Attributes 2.0. In this set, borrowers are identified as having gone through a truth-in-lending process and commit to moving forward with a loan. That will require members of the network to reveal two distinct points in loan origination: First, when the borrower requests the origination and, second, when the borrower commits to the loan. Looking at these two points can provide a lot of insight. It’s important to discern whether the applicant is a rate shopper who is responsive or someone who really is opening up too many loans.
The problem with loan stacking could be one of fraud, where the fraudster is aware they can open 4-6 loans in two hours and get the funds without planning on repayment. This type of fraud is what TransUnion is trying to solve.
Another scenario is the unintended consequence of the leap forward in customer experience. A borrower goes to the P2P marketplace and gets $10,000. They say, “That was fantastic; I can do home repairs and go on vacation!” Then they look around and see what all they can do with another $10,000 and take out another loan from another lender that they also intend to repay. But in 24 hours they have borrowed $20,000 and will end up defaulting on those loans because they are in over their heads. This is an equally important problem, but it is not of malicious intent.
ID Analytics is focused on a different aspect of the problem than TransUnion is. TransUnion is focused on fraud, building a set of more analytically-driven tools to put a lot of science into the solution. ID Analytics is solving the problem of stacking by utilizing coverage and visibility. They can tell everybody in their Online Lending Network when a borrower comes, when he was seen at other lenders, and when loans were committed to within the last hour. This transparency is a more straightforward approach.
ID Analytics works with marketplace lenders seeking to understand their problems and provide products that solve their unique challenges. There are at least 15 large players in their network with a majority of those brands reading Lending Times regularly.
