- Today’s main news: MPL securitization tracker Q4 2016.
- Today’s main analysis: Mobile payments patent landscape.
- Today’s thought-provoking articles: Orchard updates online lending infographic. China Rapid Finance vows to triple number of users. 2016 breakout year for Canadian MPL.
- MPL securitization tracker Q4 2016. AT: “Securitization continues to grow. This is a trend that I fully expect to continue. I can’t wait to see the numbers at the end of this year.”
- Orchard Platform updates online lending infographic. AT: “I’m glad to see this additions.”
- New data on online lending in 2016. AT: “I think it’s interesting that 1/3 of borrowers choose a loan provider with the fastest funding time. It’s also interesting that “inorganic channels” produce a 30% higher default rate within the first three months of the loan.”
- EquityMultiple expects investment volume to grow.
- Why some lenders won’t work with certain industries. AT: “The industries that are targeted as the riskiest are not surprising: Adult entertainment, gambling, pawn shops, businesses that sell drug paraphernalia, and firearm dealers.”
- Can crowdfunding work for brick and mortar?
- Three steps to avoiding crowdfunding pain points.
- Mobile payments patent landscape: FinTech vs. non-FinTech. AT: “This is the most interesting read of the day for me. FinTech companies are leading the way on patents. I don’t find that as surprising as I do exhilarating.”
- Alternative, traditional SME finance spheres see growth.
- Top 10 FinTech predictions for 2017. AT: “Some of these are no-brainers, but I was particularly intrigued by the mention of LendingClub and Facebook as direct competitors. On closer scrutiny, however, it does make sense.”
- Top 4 alternative investment opportunities in 2017.
- Zopa lent over 680M BP in 2016. AT: “Excellent record.”
- Crowdstacker reports IFISA secures 1M BP per month. AT: “Congratulations.”
- Is IFISA the right option for savings?
- Offshore company backs crowdfunding firm run by minister’s brother
- Strathclyde launches first FinTech course in UK.
- United States
- Marketplace Lending Securitization Tracker Q4 2016 (PeerIQ), Rated: AAA
- Lendscape: Orchard Updates Online Lending Infographic as 2016 Comes to a Close (Crowdfund Insider), Rated: AAA
- New Data on Online Lending Industry in 2016 (Even Financial), Rated: A
- Real Estate Crowdfunding Platform EquityMultiple Expects Investment Volume to Grow by an Order of Magnitude (Crowdfund Insider), Rated: A
- Why Some Lenders Won’t Work With Certain Industries (The Huffington Post), Rated: A
- Crowdfunding: Can It Work for Brick & Mortar? (CrowdFundBeat), Rated: A
- THREE STEPS TO AVOIDING CROWDFUNDING PAIN POINTS (Virgin Startup), Rated: B
- Mobile Payments: FinTech vs. Non-FinTech Patent Landscape (IP Watchdog), Rated: AAA
- Alternative, Traditional SME Finance Spheres See Growth (PYMNTS.com), Rated: A
- Top Ten Fintech Predictions for 2017 (Crowdfund Insider), Rated: A
- Top 4 Alternative Investment Opportunities of 2017 (The Merkle), Rated: B
- United Kingdom
- Zopa’s 2016 Recap: We Lent Over £680 Million (Crowdfund Insider), Rated: AAA
- Crowdstacker’s Karteek Patel Reports: IFISA Secures £1 Million A Month (Crowdfund Insider), Rated: A
- Could an Innovative Finance ISA be the right option for your savings in 2017? (The Investment Observer), Rated: A
- Offshore company backs crowdfunding firm run by minister’s brother (The Guardian), Rated: A
- Scottish University Launches UK’s First Fintech Course (Cryptocoins News), Rated: B
- European Union
- Country spotlight: Lithuania – the young ones (Banking Technology), Rated: A
- China Rapid Finance to triple number of users on its consumer lending platform (SCMP), Rated: AAA
- Loany to introduce new products (Deccan Herald), Rated: A
- 2016: A BREAK-OUT YEAR FOR ON-LINE AND MARKETPLACE LENDING IN CANADA (Aspire FinTech), Rated: AAA
Marketplace Lending Securitization Tracker Q4 2016 (PeerIQ), Rated: AAA
We encourage readers to take a look at our Outlook section highlighting challenges and opportunities for investors in the year ahead.
Here are some highlights:
- Marketplace lending securitization remains a bright spot in the ABS market. Total issuance topped $2.4 Bn this quarter with cumulative issuance now totaling $15.1 Bn. Total issuance for 2016 came in at $7.8 Bn, as compared to $4.9 Bn in 2015, a 59% increase.
- Although MPL origination volumes have declined at some platforms, the percentage of loans funded through ABS is at a record high of 70%.
- The movement towards rated securitizations at larger transaction sizes continues. Further, the growth in average deal size continued, growing to $252 Mn in 2016 as compared to $35 Mn in 2013.
- New issuance spreads continued to tighten in — a credit friendly environment for securitization. In 2016 we saw moderate spread compression across senior classes, indicating stable investor appetite for MPL ABS paper in the market.
- We estimate $6.3 Bn to $11.2 Bn MPL ABS issuance for 2017. Goldman Sachs, Morgan Stanley, and Citi take top positions on the league tables.
- Ratings Agencies grow increasingly comfortable with assessing MPL risk. Kroll provided the first rating for a securitization of Madden-Midland loans. DBRS tops the league tables in ratings activity.
- We expect higher volatility from rising rates, regulatory uncertainty, and an exit from a period of unusually benign credit conditions. Platforms that have sustained low-cost capital access, can build investor confidence via 3rd party tools, and have strong risk management frameworks will grow and take share.
Lendscape: Orchard Updates Online Lending Infographic as 2016 Comes to a Close (Crowdfund Insider), Rated: AAA
Reflecting the shifting sands of online lending, Orchard has added “two new key buckets” to Lendscape.
First, they have added the legal sector (probably the only part of the industry happy to see more regulation). These firms include Manatt, Pepper Hamilton, Winston & Strawn, and Kaye Scholer.
The other bucket is called ‘Verification’ that includes eOriginal, Global Debt Registry, and VeriComply.
Orchard has also doubled the size of the ‘Loan Servicer’ bucket by adding PFSC, Scratch, and Orion First.
New Data on Online Lending Industry in 2016 (Even Financial), Rated: A
The following data includes borrower behavior on choosing a loan, average loan size by credit score, conversion rates, average time to fund, top platforms and loan performance. Some key data points include:
- Over ⅓ of borrowers choose the originator with the fastest funding times, not the originator with the lowest APR
- The top 4 originators with the fastest funding times also have the highest take rates (percentage of borrowers who ultimately accept the loan offer once the borrower is approved), which is between 20-30%
- Average time to fund a loan is 4.55 days
- The average loan size is:
- Excellent Credit – $15,684
- Good – $10,928
- Fair – $9,765
- Borrowers sourced via “inorganic channels” (display ads, performance marketers, etc.) have a 30% higher default rate within the first 3 months
Real Estate Crowdfunding Platform EquityMultiple Expects Investment Volume to Grow by an Order of Magnitude (Crowdfund Insider), Rated: A
Inman, in their 2017 Real Estate Industry Outlook, says there is solid optimism for 2017.
EquityMultiple, a real estate crowdfunding platform, describes itself as the only online investing platform backed by an established real estate company – Mission Capital. This relationship provides a solid backstop that can help with access to deals and institutional horsepower. While Mission Capital does big deals, EquityMultiple sees itself as a perfect fit in matching accredited investors to opportunity in the $2 million to $30 million range.
Charles Clinton: To date, EquityMultiple investors have invested in 18 offerings (16 closed, two still live). Total investment for Q4 looks like it will more than double Q3 and, overall, total investment on the platform has tripled since the end of Q2 of this year.
Charles Clinton: For deals that are already cash-flowing, annualized cash returns are over 10%. This includes fixed-rate investments in senior loans, fixed rate preferred equity investments and distributions from cash-flowing equity deals.
Charles Clinton: Nearly 100% of our investors are individuals and non-institutional entities and trusts.
Charles Clinton: Investors have the added comfort of knowing that the Mission Capital senior leadership in involved in the sourcing and vetting of our deals.
Why Some Lenders Won’t Work With Certain Industries (The Huffington Post), Rated: A
“Lenders don’t want to support industries that they feel are in nefarious markets,” says Ryan Conti, the Customer Success Director at Fundera who manages the team advocating on behalf of small business owners who need funding. “Even though alternative lenders are more open to different businesses and models than banks are, there are certain industries that no one will touch.”
The next most common reason for being blacklisted is operating in some sort of speculative industry.
Since many lenders haven’t been around for an especially long time, their data is often contained within the last 10 to 15 years—sometimes as few as 5 years—and the housing market is one of several that did exceptionally poorly during the recent economic downturn. The decisions created by these lenders’ algorithms reflect that.
This is where things get more nebulous. Those algorithms we mentioned are unique to each lender, so their decisions about whether to lend to your business can differ depending on which lender you go to. The same business might get different answers from different lenders because each one has their own preferences—influencing the industries and locations they finance, and the rates they give these businesses.
One preference for many lenders that often doesn’t require their algorithm: any sort of other lending service, like check cashing or bail bonds. If you do lending, lenders would rather lend directly to your customers instead of starting a chain with you as a middle link.
This is why many enter the alternative lending space, where thousands of non-bank lenders—like peer-to-peer lending sites or companies that have secured their capital through wealthy individuals—can provide a lifeline.
Crowdfunding: Can It Work for Brick & Mortar? (CrowdFundBeat), Rated: A
A great example of restaurant crowdfunding comes from Manu Alfau, chef and owner of La Bodega in Seattle, Washington. Manu used his existing customer base to raise $9,000 to build an outdoor patio. For gifts, he offered parties and food from La Bodega — things that he already knew his supporters would love.
For startups, one advantage of crowdfunding is the opportunity to make people feel like they are truly invested in the success of your business. Simply put, crowdfunding is a way to create a sense of community ownership, which is incredibly important when it comes to sustaining a small business.
THREE STEPS TO AVOIDING CROWDFUNDING PAIN POINTS (Virgin Startup), Rated: B
It’s great to have a bold plan when you are crowdfunding but you’ll need to understand how much you can raise from your crowd. Think carefully about what funds you need for your idea and how you can create a network of people who’ll be interested in supporting your idea.
When you are crowdfunding you need to know if you have access to email databases – and don’t forget social media.
Some of the best crowdfunding campaigns in the world have had a solid timeline and plan behind them. This means you know exactly what is going to happen at each of the stages of your crowdfunding campaign. Break it up into segments, give yourself targets and milestones, set reminders to update your backers, know when you’ll be emailing your database, sharing great social media updates and images.
Mobile Payments: FinTech vs. Non-FinTech Patent Landscape (IP Watchdog), Rated: AAA
According to a report by market intelligence firm International Data Corporation, the worldwide annual transactions volume of mobile payments is expected to cross US$ 1 trillion in 2020 from US$ 500 billion in 2015.
The patent landscape of mobile based payments should help in putting things into perspective. Fintech companies are ruling the patent realm. Visa and Mastercard dominate with over 300 worldwide patented inventions each. PayPal is expanding its digital presence by investing huge in acquiring promising startups. In 2015 alone, it bought four startups including Xoom Corp., a digital money transfer company for US$ 890 million and Paydiant, a mobile wallet company for US$ 280 million. With such acquisitions and strategic partnership with Mastercard since 2007, PayPal is clearly one of the strongest mobile payments contender.
Apple is placed at 13th position with respect to number of inventions but 2ndwhen it comes to the total number of patent publications (issued patents and pending publications). Samsung appears as the strongest competitor with 86 inventions and is placed ahead of all tech players. It acquired LoopPay, a mobile payments startup in 2015 for US$ 250 million and immediately rolled out tap-n-pay feature with its Galaxy S6. With this, Samsung is taking on potential market capturers like Apple Pay, Google Pay and PayPal-Mastercard partnership.
Alternative, Traditional SME Finance Spheres See Growth (PYMNTS.com), Rated: A
$50 million in financing from the British Business Bank landed at Funding Circle, on the condition that the funds be used to finance SMEs, reports said this week. The investment by the BBB in the alternative lender signals support from the state-run bank for the industry overall, though the BBB is also working to introduce stricter requirements for firms like Funding Circle to protect both investors and borrowers. The latest investment round brings the total funds the BBB has provided to Funding Circle up to more than $122 million, reports said.
$4.7 million has been financed to startups via a new venture fromInnoVen Capital, an India-based venture capital company that formed its Credit Assistance Program.
60 minutes is all it takes for Barclays to approve of an SME loan, thanks to the launch of its newest small business lending service on the mobile app.
60% of SME invoices are paid late in the U.K., a statistic that Amicus Commercial Finance said reveals the need for small businesses not only to diligently manage cash but to access external financing when clients don’t pay up.
1.67% fewer SME loans slid into delinquency last November, according to the most recent Thomson Reuters/PayNet Small Business Lending Index. The data revealed the first increase in SME lending in the U.S. in six months, with the change in delinquency rates marking the first decline in a year or so, reports said.
1 new SME lender enters China, thanks to certification from the China Banking Regulatory Commission. Reports this week said the CBRC has allowed Yilian Bank to begin lending to small and micro-sized companies.
Top Ten Fintech Predictions for 2017 (Crowdfund Insider), Rated: A
Internet of Things (IoT), Wearables, Smart Home and Connected Car will bring massive change to the Fintech industry forever.
The death of privacy is upon us – sorry for the news flash. We don’t need to look too far to get a glimpse of the future. To receive a microloan in China, you need your photo, personal email credentials and your last 60 days of mobile call logs.
The mobile device will be required as the basis for Continuous-Authentication-As-A-Service for all forms of financial transaction.
The rebirth of trust is upon us with the advent of distributed ledger. For my marketplace lending friends… can we not solve the “Stacking” issues now with distributed databases?
As the genre of Insurtech grows, there will be an explosion of shared risk platforms where people find likeminded folks to insurance each other in the forms of Micro Insurance. A dollar a day could provide coverage for many of life’s little inconveniences.
Marketplace Lending, Insurance Platforms, Payment Systems are not going to gobble up smaller competitors. Instead, these firms will be looking for opportunities for vertical integration.
LendingClub and Facebook are definitely competition for the same eyeballs. Creditors should turn themselves into “APIs” and vertically integrate themselves into every social media platform to extend credit.
Generation Z is now the biggest population cohort in the United States (70 Million+). Generation Alphas are getting their first with the iPad, iPhone, and Apple Watches as we speak. Their concept of credit, wealth management, and living habits will be dramatically different than how we look at currency and leverage today.
It is increasingly difficult for a Wealth Manager, Investment Advisor to steer consumers into ill-fitting products. The platforms with the most transparent set of insight for their consumers will win in FinTech.
It is increasingly difficult for a Wealth Manager, Investment Advisor to steer consumers into ill-fitting products. The platforms with the most transparent set of insight for their consumers will win in FinTech.
Top 4 Alternative Investment Opportunities of 2017 (The Merkle), Rated: B
Although real estate markets have seen quite a bit of negative attention throughout 2016, it is still one of the most profitable alternative investment markets.
One of the most obvious choices for alternative financing is gold.
An emerging trend in the financial sector is peer-to-peer lending, also referred to as social lending. At its core, a borrower gets loans at far better rates than what banks can offer. Lenders will earn higher returns compared to storing funds in bank accounts. But without an authorized body to oversee this activity, a lot of people tend to overlook these opportunities.
Bitcoin was the best performing currency in recent years. Interested parties can opt for centralized or peer-to-peer exchanges to buy and sell cryptocurrency without friction.
Zopa’s 2016 Recap: We Lent Over £680 Million (Crowdfund Insider), Rated: AAA
The lending platform revealed it lent over £680 million to help 20,000 customers improve their home and 29,000 buy a car.
- Receiving awards: Named Moneywise ‘Most Trusted Loan Provider’ for the seventh year in a row, the Moneyfacts ‘Best Personal Loan Provider’ for the second year in a row, the MoneySuperMarket’s ‘Best Personal Loan Provider of 2016,’ AltFi’s Editor Choice Award and F5 Awards’ Best P2P Lending Platform.
- New Partnerships: Became partners with Airbnb, Unshackled, and Partiti.
- New Products: Launched Zopa Access, Zopa Classic, and Zopa Plus.
Crowdstacker’s Karteek Patel Reports: IFISA Secures £1 Million A Month (Crowdfund Insider), Rated: A
This week, co-founder and chief executive of Crowdstacker, Karteek Patel, revealed the lender’s Innovative Finance ISA (IFISA) has attracted £1 million from investors each month.
During a recent interview, Patel stated three out of four Crowdstacker’s investors have now lent through the IFISA. He noted that 50% of the lender’s investment came through the IFISa and he expects more take up as the ISA season approaches this April.
Could an Innovative Finance ISA be the right option for your savings in 2017? (The Investment Observer), Rated: A
According to recently released figures from the Bank of England, savers are missing out on up to £21 billion of interest by using cash ISA deposits.
As at 31 October 2016, the value of all cash ISAs held in banks and building societies was £271 billion. The interest rate drop in October to 0.25 percent, now means that the highest return on easy access cash ISAs is around 1 percent, resulting in a cumulative annual yield of £2.71 billion.
Crowd2Fund, a directly regulated FCA peer-to-peer lending platform, is one of just a handful of platforms to have been given full approval, and have rolled out their IFISA. Within its first six months of operation the number of registrations on the platform increased by 500 percent, when compared with the six months prior to launch.
Three out of 10 IFISA investors on Crowd2Fund have transferred an existing ISA to the IFISA. Transferring is done by filling in a short form from IFISA providers and once this is completed, existing ISAs should be transferred by your old ISA provider in around 10 days.
Offshore company backs crowdfunding firm run by minister’s brother (The Guardian), Rated: A
Balshore Investments, based in Gibraltar, owns a £20m stake in YouGov, co-founded in 2000 by Nadhim Zahawi, the Tory MP for Stratford-on-Avon. It has invested in Crowd2Fund, founded by Chris Hancock, the brother of the culture minister, Matt Hancock.
As minister of state for skills and enterprise in 2013, Matt Hancock worked in the government department responsible for setting up the regulatory framework for crowdfunding.
Zahawi has praised peer-to-peer lending. In one parliamentary debate, he intended to call on businesses to look “beyond the monopoly of the high street banks, at equity options and at some of the innovative new online platforms, [such as] crowdfunding and peer to peer”.
Gwynne said the issue raised concerns about the government’s commitment to cracking down on offshore tax havens.
Scottish University Launches UK’s First Fintech Course (Cryptocoins News), Rated: B
Scotland’s University of Strathclyde has announced the launching of its new FinTech masters course, making it a first in the U.K. in an announcement on the university’s website.
The Master of Science (MSc) in Financial Technology will provide students the financial, programming and analytical skills needed to help companies accelerate and enhance their security.
An economic modelling study found last year that Scotland could lose more than 14,000 jobs in its financial sector over the next ten years if it fails to embrace the FinTech wave.
Country spotlight: Lithuania – the young ones (Banking Technology), Rated: A
The P2P lending legislation was about six months in the making. Mitkus says that the team drew upon the expertise of other European jurisdictions, particularly London. He adds that Lithuania is the first country in the Baltics to introduce the national P2P lending regulation, and it will also be among the first ten countries in the EU to regulate crowdfunding on a national level.”
Marius Jurgilas, board member of Bank of Lithuania (the country’s central bank and regulator), points out that the government and the central bank are under a lot of pressure to improve the competitiveness of the financial services market, especially post-financial crisis. At present, 90% of the retail banking market share belongs to three international banks – SEB, DNB and Swedbank. The fintech industry is hoped to diversify the banking sector and boost competition, Jurgilas says.
To this effect, Bank of Lithuania has recently signed a memorandum of understanding with UK-based payments and fintech start-up Revolut.
Revolut, which offers e-transfers, currency exchange, card payments and cash withdrawal across Europe, intends to set up a financial institution in Lithuania and obtain a banking licence. Bank of Lithuania will provide Revolut with access to its managed payment systems enabling cross-border payments in euro.
China Rapid Finance (CRF), the mainland’s largest online consumer lending platform in terms of the number of loans transacted, is looking to triple the number of users this year as it looks to create a business on par with a major commercial bank’s credit-card division.
Zane Wang Zhengyu, founder and chief executive of CRF, told the South China Morning Post that the company would be impervious to the challenges facing other peer-to-peer (P2P) operators on the mainland, and would continue to bolster its online consumer lending businesses in accordance with Beijing’s financial reforms.
CRF, founded in 2010, has 1.2 million borrowers on its platform at present. Wang , however, has set his sights high and wants the firm to have about 3 million borrowers.
Loany to introduce new products (Deccan Herald), Rated: A
Loany, which acts as a bridge between the lender and the borrower by connecting them, plans to launch more FinTech tools.
2016: A BREAK-OUT YEAR FOR ON-LINE AND MARKETPLACE LENDING IN CANADA (Aspire FinTech), Rated: AAA
One group of companies that represents a significant sub-sector of FinTech in Canada, is the on-line, or Marketplace Lending (MPL) sector.
Financeit purchased over $400mm of Home Improvement assets from TD Bank this fall, after completing 2 equity financing rounds during the year, led by Goldman Sachs and the Prisker Family.
Borrowell partnered with CIBC, Thinking Capital with BNS, Lendful with Alterna Bank, Grow with several BC and other western Canadian credit unions, and US SME lender Kabbage partnered with BNS.
SME lender Lendified became the first Canadian Marketplace Lender since CommunityLend (now Financeit) to apply for and receive an Exempt Market Dealer license to sell debt securities backed by Lendified SME loans to Accredited Investors, under the new OSC Launchpad initiative.
Elsewhere, we saw equity financing rounds for Progressa, Fundthrough and Healthsmart, IOU Financial launched in Canada, Wellspring was re-born as Flexiti, and First Access, a non-prime auto lender based in Alberta, expanded their funding base with credit facilities provided by ATB and Ares Management.
Based on what we saw in 2016, and on-going dialogue and interaction we have with the vast majority of participants in the Canadian on-line and MPL lending sectors, we have a few predictions for 2017:
- More bank partnerships.
- Increased institutional participation.
- One (or two) IPOs?
- Asset performance will be tested in the US.
- Consolidation in the US; not in Canada.
- A Canadian pension fund invests strategically.