- Today’s main news: Zopa competes with tech giants, not banks, for talent. Funding Circle to use 4 big banks to prepare for IPO. Japan tours Europe to pitch Open Banking. Lending Loop expands into corporate lending.
- Today’s main analysis: Preqin on the PE outlook.
- Today’s thought-provoking articles: Banking Amazon’s moment. How a commission-free robo-advisor plans to generate revenue. The tipping point for alternative data. China’s flimsy finance. Women and their financial lives.
- The benefits of Amazon’s co-branded partnership with Chase. AT: “PeerIQ’s analysis of the Amazon-Morgan Chase partnership in banking is a good read. If you want to know the significance of this partnership in the grand scheme, this is where you’ll get it.”
- Amazon hires head of mortgage lending division. AT: “Did you know they had one? It looks like it could be a part of their newly-formed banking division.”
- How a commission-free robo-advisor plans to generate revenue.
- The tipping point for alternative data.
- How banks are promoting Zelle.
- Women sacrificing more their financial lives.
- High-net-worth individuals and real estate crowdfunding.
- Wealth manager to issue loans against Bitcoin.
- Restaurants outpace other industries in mobile adoption.
- U.S. Treasury previews fintech regulation report.
- Judge partially dismisses action against online lending investors.
- Alabama Senate okays bill on payday lending interest rate caps.
- Square cash app supports direct deposits.
- Zopa competes with tech giants for talent. AT: “All online lenders are competing against tech giants for talent.”
- Funding Circle picks 4 big banks to prepare for IPO. AT: “Many advisors increase the chance for success.”
- Funding Circle co-founder becomes advisor to Lendingblock.
- Augmentum IPO raises 94M GBP.
- BBVA, solarisBank raise 56.6M GBP.
- Preqin on the PE outlook. AT: “An excellent read with excellent charts.”
- United States
- Banking’s Amazon Moment (PeerIQ), Rated: AAA
- Amazon hiring head of newly-formed mortgage lending division (Housing Wire), Rated: A
- How a commission-free robo-adviser plans to generate revenue (Tearsheet), Rated: AAA
- THE TIPPING POINT FOR ALTERNATIVE DATA (All About Alpha), Rated: AAA
- How banks are promoting Zelle (Tearsheet), Rated: A
- LESS ACTIVE ROLE IN FINANCIAL LIVES LEAVES WOMEN MAKING LESS, SACRIFICING MORE (PR Newswire), Rated: AAA
- Are HNW Investors Ready for Real Estate Crowdfunding Platforms? (National Real Estate Investor), Rated: A
- NY Wealth Manager to Issue Loans Against Bitcoin (CoinDesk), Rated: A
- Restaurants Outpace Other Industries Investing In Mobile Technologies in 2018 (Modern Restaurant Management), Rated: B
- U.S. Treasury Official Previews Report on FinTech Regulation (The National Law Review), Rated: B
- Pennsylvania judge partially dismisses action against investors of an online lending scheme (Lexology), Rated: B
- Alabama Senate OKs bill to cap payday lending interest rates (Tuscaloosa News), Rated: B
- Square’s Cash app now supports direct deposits for your paycheck (TechCrunch), Rated: A
- United Kingdom
- Zopa is competing with tech giants not banks for talent, says CEO (P2P Finance News), Rated: AAA
- Funding Circle Picks Goldman Sachs, Morgan Stanley for IPO (Bloomberg), Rated: AAA
- Funding Circle co-founder joins crypto-lending platform as advisor (AltFi), Rated: A
- Augmentum Fintech raises £94m in IPO (Fine Extra), Rated A
- BBVA and Visa-backed banking platform solarisBank scores €56.6m in Series B raise (AltFiNews), Rated: B
- Review: The flimsy finances behind China’s miracle (Nasdaq), Rated: AAA
- Last China P2P Company Delists Domestically, foreseeing New Tide of Listings Abroad (PRNewswire), Rated: A
- Chinese peer-to-peer lender Golden Bull decreases proposed US IPO deal size to $7 million (Nasdaq), Rated: A
- PREQIN ON THE PE OUTLOOK (All About Alpha), Rated: AAA
- Fintech Australia begins hunt for new CEO as Danielle Szetho steps down (IT Brief), Rated: A
- Open Banking Provides Perfect Environment for FinTech Integration in Japan (PRNewswire), Rated: AAA
- P2P PLATFORM LENDING LOOP NOW OFFERING CORPORATE LENDING (Beta Kit), Rated: AAA
- Som Seif’s Purpose Financial to acquire fintech lender Thinking Capital (BNN), Rated: A
Banking’s Amazon Moment (PeerIQ), Rated: AAA
Co-branded partnerships are not new, and banks have long partnered with retail institutions to launch co-branded credit cards. In a co-branded partnership, the financial partner deals with deposit or credit management, account servicing, and regulatory compliance, while the retail partner deals with marketing and customer acquisition. We have recently seen Barclays launch a credit card with Uber and Goldman Sachs potentially partner with Apple to finance device purchases. What is novel about this partnership is that it extends the same business model to checking accounts.
Benefits of Partnership
In the current regulatory environment, Amazon needs a partner as there is no clear regulatory swim lane for Amazon to compete head-on with the banks today. The Bank Holding Company Act demarcates commerce and banking. Partnering with JPM makes sense as it avoids Amazon having to comply with onerous banking regulations, but also makes it possible to offer products like checking accounts to its customers.
These strategic partnerships are also incredibly valuable to banks. As we pointed out in a prior newsletter, banks that do not establish a digital banking presence do not have a seat at the table. For banks, this is a battle for long-term customer relevance. Banking products are increasingly commoditized, and new generation customers want to bank with technology firms. They like the customer experience, the self-service nature, control, and value. These customers shudder at the idea of walking into a bank branch.
The customer segment that Amazon is targeting – younger generation, unbanked – generate notoriously low checking account and debit card fee-income for banks. Amazon has no legacy bank branch network, low customer acquisition cost and can make the economics work where most banks cannot. Banks also get access to a new customer acquisition channel, like Alexa where Amazon controls access and can leverage the customer data that their partner has gathered to offer better products to existing and new customers.
Significance of this Partnership
The primary motivation in the short-term is economics. Amazon pays about $250 MM in interchange fees – about 2% per transaction. Customers with an Amazon checking account can pay directly out of their checking accounts and avoid the network transaction fees. If Amazon captures even 25% of this opportunity, and adds $50 Mn to its bottom line, it would be accretive to its market capitalization by ~$10 Bn.
Amazon’s banking footprint today consists of its Visa Signature Rewards credit card issued by Chase, and Amazon Lending, a small business lender that has made ~$3 Bn in loans. It is conceivable that once Amazon’s customers sign up for a checking account, Amazon could sell them a variety of financial products like insurance and investment advice. Bain estimates that Amazon could establish a retail financial relationship with 70 Mn US customers, similar to that of Wells-Fargo.
Who might follow Amazon?
Amazon hiring head of newly-formed mortgage lending division (Housing Wire), Rated: A
While limited in scope, Amazon’s plans are to start with offering checking programs first, then maybe move into the debt product space after.
Well, after reporting that, we’ve received information that Amazon is currently looking to hire someone to lead their newly-formed mortgage lending division.
Due to non-disclosure agreements, we probably shouldn’t reveal their identities. After all, with Amazon planning a move into mortgage lending, it’s best we work with them and not against them. Am I right?
We can say that if you look at the top 10 HMDA lenders and pick out the nonbanks, that’s where Amazon is recruiting their talent.
How a commission-free robo-adviser plans to generate revenue (Tearsheet), Rated: AAA
Digital investment startup M1 Finance is making a big bet that no fees are the future.
The Chicago-based company, which launched its platform two years ago, decided to drop its assets under management fees to zero in December.
Investment companies can make as much as 70 percent of revenue from services that don’t involve charging customers commission, like lending and transaction fees for third parties, according to its CEO, Brian Barnes.
Instead of subscriptions, Barnes added that revenue from other services is more than enough to sustain a profitable business: lending to banks based on the securities it holds, interest from loans to customers who borrow from M1 using their portfolio as collateral, and transaction fees paid to the company from exchanges. While it’s free to use the platform and execute trades, M1 charges customers other miscellaneous fees for services like paper statements, transferring an account to another brokerage, and wire transfers.
THE TIPPING POINT FOR ALTERNATIVE DATA (All About Alpha), Rated: AAA
The term “alternative data” as Deloitte uses it refers to any set or sets of data that may be useful for investors but that is outside their traditional/conventional frame of reference. In this age of “big data” that frame is going to have to expand, and the use of (say) communications metadata or satellite imagery, which might still be innovative this week, might be quite common next week, and a bare necessity for survival the week after that.
The traditional model for data analytics by IM firms (however ‘alternative’ they may be in their assets or strategies) involves as the paper puts it “structured data sets acquired from various information providers” that are then “aggregated and loaded into proprietary quantitative models.”
But the sometimes unstructured data sets on which investment managers will hereafter be expected to draw are large, heterogeneous, and would have to be processed at an extremely fast rate to be of any use. This requires machine learning and cognitive computing for the analytics.
In 2016, big data analytics (BDA) solution vendors received $3.2 billion from securities and investment services (S&IS) firms. About 15% of that (close to half a billion) originated from technologies that at least potentially support the generation of alpha.
How banks are promoting Zelle (Tearsheet), Rated: A
How banks promote Zelle is about more than television ad campaigns.
This year Chase and Wells Fargo have launched 15- and 30-second commercials advertising Zelle, the peer-to-peer payments offering built right into banks’ mobile apps. Zelle itself has even launched a couple of spots, one featuring Hamilton star Daveed Diggs.
Smaller banks that can’t afford national commercials, however, will need to promote Zelle in their existing products, their mobile banking apps, and perhaps take a page from fintech startups’ marketing playbook and design their apps in such a way that the product does the selling for them. That’s according to a new report by Javelin Strategy on Zelle’s rollout; that it emphasizes within its own mobile banking experience that a product called Zelle exists and communicates the benefits of using it and the reasons its better than competitors like Venmo or Square Cash.
Only 25 percent convey that Zelle is free or that it only requires an email or cell phone number, and only 38 percent convey that users can send it to anyone with a U.S. bank account, even if they bank at a different institution than the sender.
However, within those mobile apps, banks are positioning Zelle a little more prominently. Bank of America, Wells Fargo and USAA are all examples of different banks that have chosen to show customers they can send money with Zelle. Bank of America more clearly shows users they also have the options to split or request money. Chase has chosen to rebrand its existing peer-to-peer payment service, Chase Quick Pay, by adding the Zelle name at the end of it and offering customers the option to “QuickPay with Zelle.” SunTrust has changed platforms entirely from PopMoney to Zelle.
LESS ACTIVE ROLE IN FINANCIAL LIVES LEAVES WOMEN MAKING LESS, SACRIFICING MORE (PR Newswire), Rated: AAA
A recent study of college-educated Americans found that more than half (54%) of adults don’t think they will ever make enough money to reach their financial goals. Findings released today by national online lender Laurel Road reveal the factors fueling this pessimism, which is significantly higher in women than in men. Millennial women (64%) are significantly more stressed than their male peers (47%) about their finances, and they report starting salaries that fall more than $10,000 lower than millennial men’s, on average ($29,403 vs. $39,839).
Fiscally confident millennial male grads (94%) were significantly more likely than their female counterparts (79%) to prioritize their future earning potential over personal passions when picking a major. Of those without a degree in finance, 88% of male millennials report taking personal or business finance courses while in college, compared to only 54% of female millennials. Meanwhile, nearly one-fourth (24%) of women completed an unpaid internship, compared to just 12% of men.
Millennial women (35%) are more than three times as likely as their male peers (11%) to not have completely understood their financing options when applying to college. These stark differences have a clear trickle-down effect post-graduation. More than half of women (57%) have had to decrease nonessential spending to save money since graduation, compared to just 35% of their male peers.
76% of college-educated adults aren’t completely confident they thoroughly understood their financing options to pay for college. Accordingly, more than half (55%) of Americans with student loans report that it took them longer than expected to pay them off – and for millennials, that number rises to 66%.
However, readjusting interest rates through options like refinancing can ease the burden. But it seems Americans might not be fully aware of this option, as only about one-third (34%) of college-educated adults who have taken out student loans have refinanced their student loans. Despite having less student loan debt, millennial men (62%) are taking advantage of refinancing benefits to a far greater degree than women (39%).
Additional findings include:
Advice adverse: Just more than half (57%) of college graduates have asked for financial advice, and only 16% do so on a monthly basis.
Overlooking the basics: Surprisingly, many college-educated Americans still haven’t taken some of the most basic steps to ensuring a healthy, long-term financial plan, including:
- 83% have not taken a personal finance course or seminar outside of college classes
- 62% have not negotiated a higher salary at a job
- 37% have not begun investing in a retirement account
Persisting pessimism: Nearly 2 in 3 (66%) grads are not fully confident they know the steps required to finance a home. While millennial men (42%) are more likely than their female peers (29%) to feel completely confident they know the steps required to finance a home, it seems a solid financial foundation early on is key to building a comfortable future later on down the road.
Are HNW Investors Ready for Real Estate Crowdfunding Platforms? (National Real Estate Investor), Rated: A
Cecilio is founder and CEO of San Diego-based DiversyFund Inc., which bills itself as a “vertically-integrated real estate crowdfunding platform.” Rather than acting as a middleman, DiversyFund manages all of its real estate projects from start to finish.
Accredited investors put money directly into development of commercial and residential real estate projects in Southern California, such as a multifamily development in San Diego’s Hillcrest neighborhood. Investors can place as little as $5,000 in one of DiversyFund’s deals. Today, DiversyFund claims over 30,000 investors and more than $100 million in assets under management.
For now, an accredited investor must either make at least $200,000 a month or have a net worth of at least $1 million. But DiversyFund plans to open up its online platform this spring to non-accredited investors who can put as little as $500 into a project, Cecilio says.
NY Wealth Manager to Issue Loans Against Bitcoin (CoinDesk), Rated: A
With all the ICOs that have taken place (not to mention the meteoric rise in the value of crypto assets late last year), there are a lot of entrepreneurs who fit this description, but few products that allow them to turn long-term HODLing into actionable capital.
That’s the idea behind a new subsidiary being started by Dominion Capital, a family office based in New York City. While the company has long invested in a variety of assets, Dominion’s known for helping to finance projects by backing loans.
For the entrepreneurs who are willing to bet on the strength of their holdings, there’s a strategic opportunity at play. Essentially, the service would allow individuals and projects to borrow against either their own crypto assets (or those invested by supporters) rather than converting them directly to cash.
Restaurants Outpace Other Industries Investing In Mobile Technologies in 2018 (Modern Restaurant Management), Rated: B
The new findings show an overwhelming focus on mobile technologies, with 63 percent planning to invest; a well-advised investment given nearly 85 percent of all mobile users searching for a restaurant go on to make a purchase. The total average across all industries is 51 percent. In fact, restuarants and bars are among the most bullish to invest in mobile, trumped only by accounting services (70 percent) and marketing agencies (67 percent).
What’s more, nearly in one in four (23 percent) plan to invest in real-time analytics or big data solutions, to help analyze and identify growth opportunities. This is an emerging opportunity for all small businesses as insights, typically available only to large corporations, are becoming increasingly more available.
U.S. Treasury Official Previews Report on FinTech Regulation (The National Law Review), Rated: B
Craig Phillips, Counselor to the Secretary of the U.S. Department of the Treasury (Treasury), recently delivered remarks at a conference held by the Institute of International Bankers in which he previewed the upcoming Treasury report about possible reforms to the laws and regulations that apply to non-bank financial institutions and FinTech companies.
Mr. Phillips reportedly signaled that the report will include a review of the regulations governing mortgage originators and servicers, marketplace lenders, payment processors and other FinTech companies, and will also cover the “regulatory asymmetries” between such institutions and more regulated institutions.
Pennsylvania judge partially dismisses action against investors of an online lending scheme (Lexology), Rated: B
On January 26, the U.S. District Court for the Eastern District of Pennsylvania partially dismissed an action brought by the Pennsylvania Attorney General against out-of-state investors of an online payday lender and the lender for violating Pennsylvania’s Corrupt Organizations Act (COA). The Attorney General alleged that an online payday lender and the investors “designed, implemented, and profited from a consumer lending scheme to circumvent the usury laws of states.” The alleged conduct, which the court referred to generally as “rent-a-bank” and “rent-a-tribe” schemes, involved the online lender partnering with an out-of-state bank and later with tribal nation to act as the nominal lenders of the loans.
Alabama Senate OKs bill to cap payday lending interest rates (Tuscaloosa News), Rated: B
Payday lending customers would have longer to repay their loan under a bill approved Thursday by the Alabama Senate, which marks the latest attempt to cap the interest rates charged with the short term loans.
The bill by Republican Sen. Arthur Orr of Decatur would give borrowers 30 days to repay a loan instead of as little as 10 days. Orr said the change would give people a better opportunity to pay off the loan. Senators approved the bill on a 20-4 vote.
Square’s Cash app now supports direct deposits for your paycheck (TechCrunch), Rated: A
Case in point, the app just rolled out support for ACH direct deposits, meaning users can now get their paycheck or other deposits put directly into their Cash app balance.
Like other features in the peer-to-peer payments app setting up direct deposits is almost too simple. After accepting a disclosure you’re given an account number and routing number, which is all an employer needs to start making direct deposits. Users get a notification when deposits hit their account, and all funds get added to their normal Cash app balance – meaning it can be sent to a friend, spent using a debit card, used to buy bitcoin or withdrawn to another account.
This feature combined with the Cash app’s debit card now means that the app can essentially provide all the basic functions of a bank account, assuming you don’t need to deposit checks or do complex things like wire transfers.
Zopa is competing with tech giants not banks for talent, says CEO (P2P Finance News), Rated: AAA
ZOPA is competing with Google and Facebook for talent, not the likes of HSBC, the peer-to-peer lenders’ chief executive Jaidev Janardana (pictured) has said.
Funding Circle Picks Goldman Sachs, Morgan Stanley for IPO (Bloomberg), Rated: AAA
Funding Circle Ltd., the biggest online loan provider in Britain, named Bank of America Merrill Lynch, Goldman Sachs Group Inc., Morgan Stanley and Numis Corp. Plc to help manage its initial public offering, according to a person familiar with the deal, in a milestone for U.K. fintech.
The offering in London, planned for the second or third quarter, will probably value the eight-year-old company at between 1.5 billion pounds ($2.1 billion) and 2 billion pounds, according to the person, who asked not to be identified as the information is private. That would make it the biggest IPO by a British financial-technology startup.
Funding Circle has arranged more than 4 billion pounds in loans for small and medium-sized companies in the U.K., the U.S., Germany and the Netherlands.
Funding Circle co-founder joins crypto-lending platform as advisor (AltFi), Rated: A
Andrew Mullinger’s LinkedIn profile reads: “currently semi-retired until I get bored”. The Funding Circle co-founder stepped back from the firm in May 2016. He has now joined a very different kind of online lender.
Lendingblock, an open exchange for cryptocurrency loans, today announced that Mullinger has joined the company as an advisor.
Augmentum Fintech raises £94m in IPO (Fine Extra), Rated A
Fintech venture firm Augmentum has raised £94 million in an initial public offering ahead of a listing on the London Stock Exchange.
BBVA and Visa-backed banking platform solarisBank scores €56.6m in Series B raise (AltFiNews), Rated: B
solarisBank, the first banking platform to be fully regulated by the FCA with a banking license, has successfully completed a Series B investment round, gaining another €56.6m in funding. Current investors Arvato Financial Solutions and SBI Group renewed their stakes, with BBVA, Visa, Lakestar and ABN AMRO’s Digital Impact Fund (DIF) joining them.
Review: The flimsy finances behind China’s miracle (Nasdaq), Rated: AAA
Since the financial crisis of 2008, China’s economic growth has depended less on exports than on rising levels of domestic investment. Capital spending is mostly directed at construction, which directly accounts for some 20 percent of China’s gross domestic product and indirectly for much more. The long construction boom has produced dozens of ghost cities – McMahon counts 50 in all – filled with empty apartment blocks. Mighty skyscrapers have sprouted up in unlikely provincial backwaters.
Increasing property supply has been accompanied by rising prices. Sky-high valuations have priced many Chinese workers out of the market, creating a nation of “mortgage slaves” and “ant tribes” – graduates forced to live in cheap properties in urban peripheries. In some super-hot markets like the southern city of Shenzhen, the price of land has exceeded the value of the properties built on it, giving rise to the expression “flour more expensive than bread.”
If China’s economy is fuelled by construction, it’s no secret what keeps the cranes swinging and the bulldozers revving. The country has been on a credit binge ever since Beijing announced the “Great Stimulus” late in 2008.
Last China P2P Company Delists Domestically, foreseeing New Tide of Listings Abroad (PRNewswire), Rated: A
China-based Jiayin Fintech, parent company to Niwodai, one of chinese largest P2P lending companies, applied delisting from National Equities Exchange and Quotations (NEEQ) in China on 7 March.
Jiayin Fintech’s main business is offering micro-finance services solution, among which, the part accounting for the largest income is tying qualified individual borrowing needs with the investing demands through Niwodai platform. So this delisting may indicate some trends of P2P industry, according to media in China.
Chinese peer-to-peer lender Golden Bull decreases proposed US IPO deal size to million (Nasdaq), Rated: A
The Shanghai, China-based company now plans to raise $7 million by offering 1.6 million shares at a price range of $4.00 to $4.50. The company had previously filed to offer 2 million shares at the same range. At the midpoint of the revised range, Golden Bull will raise -23% less in proceeds than previously anticipated.
PREQIN ON THE PE OUTLOOK (All About Alpha), Rated: AAA
Preqin has issued a report on the near term outlook for private equity based on a recent (November 2017) survey of more than 350 PE firms around the globe.
Although this isn’t new, the worries about high valuations for portfolio companies have been a factor for years now; such worries are getting more intense over time. In November 2016, 36% of respondents said pricing for portfolio companies had gotten higher over the preceding year. In November 2017, 58% said the same thing.
A majority (56%) of fund managers plan to make more exits in 2018 than they did in 2017, though only 8% said that will be “significantly” more.
Fintech Australia begins hunt for new CEO as Danielle Szetho steps down (IT Brief), Rated: A
Fintech Australia’s Danielle Szetho is stepping down from her position as CEO after nearly two years in the role.
The organisation has already begun the search for its new lead executive while appointing Sarah Worboys as interim CEO.
Open Banking Provides Perfect Environment for FinTech Integration in Japan (PRNewswire), Rated: AAA
With a rapidly changing, quality business environment, the Government of Japan has launched a series of events across Europe to inform and promote active discussions around the future opportunities in Japan’s lucrative and intelligent market.
On February 19, a “Japan You Didn‘t Know“ roundtable event kicked off in London at the office of global management consulting firm, A.T. Kearney. Discussions at the event focused on the impact of the new wave of finance, technology, consumerization and personalization sweeping Japan, and how the country is adapting its policy and regulatory framework to welcome foreign investors to deliver predictable conditions for accelerated growth.
Japan boasts the world’s third largest economy and has seen eight straight quarters of stable macroeconomic growth. Driven by a transformation of the market by means of bedrock deregulation and international trade deals, Japan is designing an efficient and productive environment that welcomes foreign business for the coming opportunities in financial services.
P2P PLATFORM LENDING LOOP NOW OFFERING CORPORATE LENDING (Beta Kit), Rated: AAA
Toronto-based Lending Loop, which provides a peer-to-peer lending platform for small business loans, is now allowing corporations to invest in small business loans through its online platform.
The launch of corporate lending is expected to expand small business’ ability to access fast financing, while enabling more lenders to earn attractive returns. To date, Lending Loop says it has facilitated over $17.5 million in loans to businesses across Canada.
Canadian ETF pioneer Som Seif’s Purpose Financial announced Friday it is acquiring Montreal-based Thinking Capital, an online lender to small businesses, for an undisclosed amount of cash and securities.