P2P investment fund in Israel

P2P investment fund in Israel

Fintech Partners (FP) has brought the concept of P2P investing to Israel by launching a managed p2p investment fund. It was formed in early 2015 by two entrepreneurs. Instead of raising outside capital, they started by investing their own money in 2013. The CEO and co-founder Yonatan Brand is an LLB and MBA graduate of […]

P2P investment fund in Israel

Fintech Partners (FP) has brought the concept of P2P investing to Israel by launching a managed p2p investment fund. It was formed in early 2015 by two entrepreneurs. Instead of raising outside capital, they started by investing their own money in 2013. The CEO and co-founder Yonatan Brand is an LLB and MBA graduate of the Hebrew University of Jerusalem. He practiced Cooperative law with experience in the private and public sectors. CFO and co-founder, Tzahi Ben Hanoch holds a Bachelor’s degree in Accounting and Economics from the Hebrew University of Jerusalem. His field of expertise includes M&A deals, auditing and he has worked as a consultant in PWC Israel.

Fintech Partners provide their clients with a variety of investment opportunities characterized by basic advantages of economy to scale and discretionary management. They list their unique selling proposition as:

– Portfolio diversification including a variety of platforms, markets, currencies, and products.
– Preferred terms in each platform.
– Gateway to unique platforms, inaccessible to the private investor.
– High liquidity options.
– Due Diligence from experienced professionals

The company is always looking for new evolving platforms to add to the company portfolio. It only seeks to partner new originators after thorough evaluation and due diligence. This is a particularly rewarding value add as a first-movers advantage with a young platform can reap long-term dividends in being able to cherry pick the best investments for the fund. To maintain this advantage, the company signs long-term contracts with the partner marketplace lenders. Such a preference cannot be achieved by a private investor or an unprofessional entity.

Fund history

FP launched their first fund in May 2015; a limited partnership in partner’s management funds and they started offering it to the private investors. Funds were invested in ILS (Shekel). They are planning to launch 3 more single currency (USD, EUR, and GBP) funds in their bid to provide more sophisticated products to the market. For now, they are not hedging the currency exchange rate fluctuations. It is looking to launch a single currency fund in the future to manage the currency risks. Considering Israel is a relatively fresh P2P market and people are not well aware or educated about this new investment avenue, they were still able to bring $1.5 million worth of assets under management. The idea behind the fund was simple, they wanted to keep it as safe as possible so that they can build trust among people; hence targeted return on investment was kept at a moderate 5%. They have been able to achieve the 5% target, net of fees. This helps them provide a proof of concept and they can now venture into different funds as per the risk appetite of the investors. They will also employ leverage in future to extract aggressive returns, but they will have to partner foreign banks as Israeli banks are not yet proficient in handling the new sector.

Investment targets and fees

Like other investment management companies, Fintech Partners also runs their own risk and return evaluation algorithms before investing. To invest in Israel they use Tarya, eLoan and Credit Place while Lending Club, Funding Circle, and Market Invoice are used to invest outside Israel. Unlike other investment funds, they don’t charge any management fees but only a success fee or performance fees on expected returns. This provides comfort to the investors in the nascent market that the managers’ interests are aligned with them and their focus is on performance and not simply AUM growth. Usually, the company charges around 20% performance fees on the expected returns.

The company is looking to expand but does not need significant money to scale up. The founders want a strategic partner who can help in marketing and fund raising from clients. It has only one significant competitor in Israel, but that fund is open to only sophisticated investors and only invests in two lending platforms. Fintech Partners is open to all due to the legal structuring accomplished by the founders. According to Israeli law, 35 private investors are allowed per year, since they are not public yet. That allows them to introduce their product to non-accredited investors who are looking to lend on p2p platforms but are more comfortable in a professional setup managing their money on these sites. Because of the limit on a number of investors and small size of funds, they don’t accept everyone and choose their clients very carefully.

Future steps

The company is focused on being an Israeli company and is not looking to shift to the US or the UK for growth. Just like any other new product or service launched in the market, people have a lot of questions and doubts on whether it is genuine or safe and whether the manager is experienced enough to handle their money. The founders have already proven with their first fund that they are here to stay. And according to the research, default rates on average are lower in marketplace lending than the traditional banks. A P2P platform collects a lot more information than the banks and they have been able to leverage this big data to provide a better service with lower defaults.
Fintech investments reached $21.6 billion in 2015 according to Dow Jones Venture Source and PWC estimates that P2P market size will cross $150 billion by 2025. The first movers’ advantage for Fintech Partners will create a moat around its business. As more and more people get comfortable with the p2p market, the size and profit of Fintech Partners is bound to increase exponentially in the coming future.

Author:

George Popescu

July 20st 2016, Daily News Digest

News Comments United States A very interesting risk that has not been clearly described so far: the risk that small SMB loans end up being regulated like personal loans. A fascinating read on politics and regulators. Goldman announcing their p2p lender will be live in the fall with $16bil in lending capital from depositors. Goldman […]

News Comments

United States

United Kingdom

India

Singapore

China

  • The take away from Lendit China per Orchard and Lendit Organizer Jason Jones :
    • There continues to be strong interest from Chinese Wealth Management firms to invest in US Online Lending loans
    • Investor interest is focused on making strategic equity investments in all types of global FinTech firms within Online Lending
    • Chinese Marketplace Lenders continue to increase their focus on offering more diversified products to clients including wealth management, insurance, and other financial services
    • Implementing a robust operational infrastructure is widely understood as a necessity required to successfully invest in the US Online Lending industry
United States

Small-Biz Online Lenders Aim to Dodge Consumer-Loan ‘Nightmare’, (Bloomberg DNA), Rated: AAA

Online marketplace lenders would face significantly higher regulatory hurdles if most of their loans to small businesses were reclassified as consumer loans, as the Treasury Department has recommended, an industry representative and a legal expert told Bloomberg BNA.

Officials discussed the need for greater transparency and noted that small-business loans under $100,000 “share common characteristics with consumer loans, yet do not enjoy the same consumer protections.”

The industry is pushing hard to head off the suggestion.

“They’re very smart in being concerned about that,” said Richard Eckman, a partner at Pepper Hamilton LLP in Wilmington, Del. “There are a whole host of consumer laws that apply to loans that are for personal, family and household purposes; that’s sort of the definition of a consumer loan.”

The federal consumer protection law that ranks as the biggest concern of marketplace lenders such as CAN Capital, which cater exclusively to small businesses, is the Truth in Lending Act (TILA).

“TILA, in particular, is onerous,” Eckman, a specialist in marketplace-lending law, said in an e-mail.

On May 3, 16 members of the committee’s Republican majority and three of its minority Democrats, along with House Small Business Committee Chairman Steve Chabot (R-Ohio), sent a letter to Treasury Secretary Jack Lew sounding themes that foreshadowed Sanz’s testimony. The Treasury Department at that time was preparing its report on marketplace lending, and the House members wrote that they wished “to raise concerns with recent comments by public officials that seem to indicate a preference to regulate lending to small businesses and consumers similarly.”

“[W]e believe it is important for the Department to carefully study and understand key distinctions between commercial and consumer lending markets,” the letter said. “Mistaken efforts to conflate these categories would restrict the availability of capital to small business owners.”

“There’s no reason why small businesses shouldn’t have the same protection as consumers,” Lauren Saunders, associate director of the nonprofit National Consumer Law Center, in Washington, told Bloomberg BNA.

“The research has shown that these small-business owners who borrow smaller loans, under $100,000, are not that sophisticated and at times they really don’t understand the fine print, the hidden terms and conditions that we see in the typical fintech loans to small businesses,” she said. “These contracts are very opaque. The fees and terms are hidden in a way that really makes it impossible for the borrower to do any kind of comparison shopping.”

Goldman’s Shot Across LendingClub’s Bow, (Bloomberg), Rated: AAA

There wasn’t a ton to get excited about in Goldman Sachs’searnings report on Tuesday.

Sure, per-share earnings beat analysts’ estimates, but how excited can you get over beating an estimate that dropped like this?

However, there was a tantalizing detail or two offered on the conference call by Chief Financial Officer Harvey Schwartz about the firm’s intriguing efforts to tap into the Main Street customer base. Schwartz said that the bank would roll out its consumer lending platform this fall after surveying thousands of consumers on what they would look for in such a thing. The bank developed one product involving unsecured loans, Schwartz said as way of teaser, telling analysts to standby for more information in the fall.

This may not end up being a big enough business alone to return Goldman’s revenue to record highs, at least not in the short term. Rather, the intrigue lies in its potential to disrupt the disruptors — the online startups that have pioneered the brave new world of peer-to-peer or marketplace lending.

With 20,000 customers opening up new savings accounts on top of the $16 billion in deposits it acquired from General Electric’s online bank in the second quarter, Goldman theoretically should be able to fill in the gaps easily at times when investor demand gets skittish.

Will deposit accounts be the next wave of fintech innovation?, (DailyFintech), Rated: AAA

There’s one sector of finance that really doesn’t get a lot of airtime when it comes to fintech – deposits. Checking accounts, savings accounts, transaction accounts – while they’re the bread and butter of banking, they’ve been relatively untouched since they were first invented. You put money in, and, if you’re lucky, earn a little interest before you take the money out.

Is there an opportunity here for a fintech startup to slice away this part of a bank’s core business, by adding a little flavour to the whole deposit experience?

Serial fintech investor and entrepreneur Peter Thiel certainly thinks there are opportunity in deposits. In January of this year he invested €1M into a German fintech startup Deposit Solutions.

Deposit Solutions is the first open architecture platform for retail deposits in Europe. Among many things, it solves one of the central problems for account holders related to accessing great deposit products – it eliminates the need to switch banks. Instead, a saver requires just one master account with Deposit Solutions and can then pick and choose their deposit product of choice from the Deposit Solutions marketplace.

There are a number of other fintech startups playing in this space, either building the deposits piece from scratch or interfacing into an existing authorized deposit-taking institution. Digit,SmartyPig and Qapital are a notable few. With lending having taken most of the glory to date, opportunities here are getting thin on the ground. Maybe the humble bank account is the next big fintech play.

Bridging the Great Divide: Collaboration Considerations for Banks and Marketplace Lenders, (Lexology), Rated: A

Online Platforms as Chartered Banks

The increasingly close relationship between banks and marketplace-lending platforms, as well as the uncertainty surrounding the “rent-a-charter” model to avoid state usury limits described above, have led to speculation that marketplace lenders may ultimately obtain bank charters. A fundamental issue is whether the equity and institutional investment markets will provide a stable long-term source of funding for the industry. This issue has garnered attention in recent months as leading marketplace-lending platforms have experienced steep declines in their stock prices and as questions have been raised about how lending platforms interact with fund investors and about weak secondary-market trading of asset-backed securities. The question may acquire renewed urgency in light of the governance issues at a leading marketplace lender that recently made headlines, along with its disclosure that the DOJ is now investigating. [5]

An important prudential regulatory concern with acquisitions of bank charters by marketplace lenders is a desire to avoid making the marketplace-lending industry an attractive supplier of brokered deposits, which are an unstable source of capital and may be particularly risky where a bank has inadequate anti-money-laundering controls or is undercapitalized. Regulators also anticipate grappling with the activities of many lending platforms that may be incompatible with partner banks that have charters limiting their activities to those activities that are considered “incidental to the business of banking”—typically insurance and securities work. The edgy innovations of marketplace-lending platforms that use technology in creative ways to marry finance with social media offerings are a particular challenge in this regard.

Will Madden v Midland Disrupt Loan Sales and Platform Lending?, ( National Law Review), Rated: AAA

Although Madden v. Midland applies directly only to cases where a national bank is selling or assigning a loan, the policy underlying the decision to limit the exporting authority under the NBA might also be applied to a state bank’s rate exportation powers under Section 27 of the Federal Deposit Insurance Act (the state bank equivalent to section 85 of the National Bank Act). Secondary market participants and marketplace lenders now wait for the decision from the District Court on remand.  If the court upholds the Delaware choice of law provision, market participants may manage the impact of the Madden v. Midlanddecision by electing a favorable choice of law provision in the underlying debt contract.  That at least will provide an option for continuing to work with national banks despite the Madden case.

Unfortunately, that solution will not work for buyers and sellers of existing loans, although presumably such parties are not too inconvenienced by a limit on the post-assignment interest that can be charged on a loan after substantial interest has already accrued, particularly if they have purchased the debt at a substantial discount.   Other lenders may continue to rely on the state banks’ ability to export interest rates.  In that situation, lenders should choose state banks whose state has a generous interest rate cap and is outside the Second Circuit.

The group impacted most by the Madden v. Midland decision appear to be marketplace lenders who acquire a loan shortly after origination and therefore have essentially all accruing interest at risk of challenge.  One alternative option  adopted by one on-line marketplace lender picking up on the “substantial interest” distinction in the Madden decision, is to require the bank loan originator to maintain an on-going economic interest in all loans after sale and receive certain payments on the loans only when borrowers made payments.

What remains following the Supreme Court’s refusal to hear Madden v. Midland is an outlier Second Circuit on the issue of the “valid-when-made” rule, and the blueprint for how to apply preemption under the National Bank Act as provided by the Solicitor General in its brief, a brief that as noted above clearly considers theMadden v. Midland decision to be wrong.  Unfortunately, until such time as the right case comes along, market participants will have to make adjustments to accommodate the decision as necessary to address its impact on their particular situation.

The Outlook for Fixed Income: Stagnant Prices, Tighter Money, (Enterprising Investor), Rated: AAA

The start of a new credit cycle means that income investors will have to adjust to stagnant bond prices, and new opportunities in credit markets from peer-to-peer lending will be tested by tighter monetary policy, according to David Schawel, CFA.

Returns for fixed-income investors consist of the coupon; the shortening of the bond, known as the roll; and price appreciation. Since the 1980s, falling interest rates have caused existing bonds to appreciate, as their prices increased to match the yields of bonds issued at lower interest rates. Schawel, a portfolio manager for New River Investments, thinks interest rates are nearing a lower bound.

“Most likely we’re not going to be in a 30-year bull market for interest rates falling again,” Schawel told Will Ortel during a recent Take 15 interview.

Schawel cautions fixed-income investors against assuming that bonds will continue to appreciate. Instead, the coupon and the roll will drive returns from bonds. With the roll becoming more important, investors need to pay close attention to the yield curve. Much of the return from bonds will come from the roll while the bond is on the steep part of the curve. Recently, the curve has flattened, reducing the yield premium, as the US Federal Reserve moved to tighten monetary policy.

Schawel sees the rise of marketplace or peer-to-peer lending as indicative of inefficiencies in yield.

30 Best Workplaces sin Finance and Insurance, (Fortune), Rated: B

#23: OnDeck Capital

# of work sites 3
U.S. employees 625
Global employees 638

United Kingdom

Fintech MarketInvoice Attracts m In First ‘P2P Lender’ Major Fundraise Post Brexit, (Forbes), Rated: AAA

MarketInvoice, a 100-strong firm based on the edge of The City in the confines of London’s Silicon Roundabout, has just announced a multi-million investment totalling £7.2 million (c.$9.5m) led by MCI.TechVentures Fund of MCI Capital, a listed Polish private equity group. Sylwester Janik, a senior partner of MCI Capital, a multi-stage private equity group based in Warsaw with nearly two decades of expertise of investing in digital economy companies, has at the same time joined MarketInvoice’s board.

To date the platform has provided £850m (c.$1.11bn at current exchange rate) worth of funding to UK businesses, and the firm is set on path to reach the £1bn mark before the end of 2016. At present the firm provides over £1.5m (c.$2m) per day in cash flow finance to UK businesses via its platform. At present MarketInvoice has a current market share of around 13% in its P2P alternative financing segment.

MarketInvoice, which has seem 100% year-on-year growth over the last three years, typically charges between 2%-3% on invoices handled for clients depending on the amount of the invoice. Businesses can select those invoices they want to finance, unlocking tied-up cash in 24 hours.

“In the wake of Brexit, we think the coming months present a big opportunity for MarketInvoice. Recent intervention by the Bank of England suggests that we might see significant reductions in bank lending.”

Funding Circle SME Income Fund Raises GBP14.5 Million In Placing, (London South East), Rated: AAA

Funding Circle SME Income Fund Ltd on Wednesday said it has raised GBP14.5 million via a share placing.

The London-listed closed-ended fund, set up to invest in loans originated through peer-to-peer lending marketplace Funding Circle, said it had issued 14.3 million shares at 101.53 pence per share.

Shares in Funding Circle SME were untraded on Wednesday, having last traded at 98.00p.

The new funds from the share placing will be used to back investment plans.

Can it really be “business as usual”, (Alt Fi), Rated: AAA

Funding Circle co-founder James Meekings said “the process of leaving the European Union will take two years and there will be no immediate change to Funding Circle’s day to day operations”.

A few weeks ago, AltFi Data cut its projection for 2016 UK origination by 14%, after the £840m originated in Q2 2016 became the first quarterly volume figure ever to fail to eclipse the sum originated in the preceding quarter.

Matthias Knecht quit Funding Circle Continental Europe at the end of June. Knecht was a member of Funding Circle’s global leadership team and a former co-founder of Zencap, a peer-to-peer lending outfit which Funding Circle acquired in October 2015. An article in Gründerszene suggested that a conflict had arisen between Knecht and Funding Circle CEO Samir Desai over the allocation of resources.

LendInvest, the UK’s largest marketplace for real estate loans, has also been making changes. In the immediate aftermath of the Leave vote, LendInvest tightened its lending criteria for loans worth more than £3m, adjusting the cap on LTVs for these loans to 65%. The company has also temporarily paused lending on new second charge applications.

Funding Circle CEO Samir Desai described 2015 as the year in which “it looked like we were turning water into wine”. He described 2016, by contrast, as a year for getting heads down, and for getting on with building business.

Lately the Wall Street Journal has been set to attack mode. Its coverage of the US marketplace lending sector has become almost exclusively cynical. The Times, The Telegraph and This is Money covered the recent insolvency and subsequent acquisition of the business lender FundingKnight. How many other news items in the history of the peer-to-peer lending industry have enjoyed that level of attention in the national press? Not many!

Ben McLannahan, US Banking Editor at the FT, aptly summed the whole thing up when he posted on Twitter saying “#LendingClub = have we hit the trough of disillusionment?” He was referring to something called the Gartner Hype Cycle, which is an attempt to chart the typical growth trajectory of disruptive technology companies.

UK firm claims largest ever P2P loan, (Finextra), Rated: A

UK-based Nucleus Commercial Finance claims it has made the largest ever P2P loan to date following a £14.5 million financing facility offered to UK steel stockholder Industrial Metal Services (IMS). The company has lent more than £400m to date and Shah claims that 90% of this has already been pad back with just £5,800 incurred in bad debts.

P2P lender launches new website, (Bridging and Commercial), Rated: A

The new BridgeCrowd website features a fully online view of the current live and historic loan book, a loan performance update system and an E-Wallet, where investors can place capital into loans and manage their account and interest.

The BridgeCrowd has launched a new website with added features following strong growth over the last 18 months.

Bridge Crowd offers 68% LTVs across residential owner occupied and buy-to-let properties.

Zopa names Ronen Benchetrit CTO, (Finextra), Rated: B

The UK’s oldest peer-to-peer lending service Zopa, has today announced that Ronen Benchetrit will become the company’s new Chief Technology Officer (CTO) in a strategic hire for the fintech business.

Most recently, Ronen served as CTO for leading online gaming operator PokerStars. In this role, Ronen was responsible for the provision of the areas of technology and for management of the company’s product roadmap, ensuring the quality, reliability and security of external and internal systems, networks and platforms.

India

LenDenClub Launches Automated P2P Lending Platform Adhering to Proposed RBI Guidelines, (PR Newswire), Rated: A

LenDenClub has launched its new version of P2P lending platform with features such as end-to-end automation of lender-borrower transaction cycle right from registration, document verification, credit analysis, transaction matching to report generation. An algorithmic-based program, built based on artificial intelligence, will be used for reviewing borrower’s creditworthiness. For the company, the upgradation of P2P platform will accomplish a major milestone and prepare them for payment and digital signature automation to bring 100% automation in lending process through right technology for borrower identification, data collection, digital signature usage, payment automation, etc.
The company had successfully raised seed funding recently.

Singapore

Overview of the Regulatory Framework for P2P Lending and Equity-based Crowdfunding in Singapore, ( P2P Banking), Rated: AAA

From the document published by the MAS on Lending-based Crowdfunding – Frequently Asked Questions (FAQs)[11], generally, the operation of P2P lending is restricted by MAS under the Securities and Futures Act (Cap. 289) (SFA) and the Financial Advisers Act (Cap. 110) (FFA).

Specifically, the P2P lending business needs to prepare and register a prospectus with MAS in accordance with Section 239(3) of the SFA. In addition, not only the registration of the prospectus but also the P2P lending platform need to follow the licensing requirements, particularly, the P2P lending business which fall within the scope provided by MAS needs to hold a Capital Market Services (CMS) license.

From the document, MAS states in paragraph 10 that “ …Platform operators should now ensure that the participants on their platforms are aware that each lender has to lend at least $100,000 if the borrower is to fall within the Promissory Note Exclusion. Offers of consolidated promissory notes commenced after the date of these FAQs must comply with the Prospectus Requirements” This means, that the P2P lending platforms, which previously used a single promissory note issued by the borrowers, need to apply for a license, if they still want to proceed their lending business; however, as provided in the MAS document, the removal of the Promissory Note Exclusion will be effected after the amendment of SFA.

This will affect many of existing P2P lending platforms such as MoolahSense and Capital Match which have the main function to help businesses to find loan from investors because some of P2P lending platforms are using a promissory note exemption without a Capital Market Services (CMS) license; however, MAS will make it easier for licensed P2P platforms. Therefore, a small offer exemption in accordance with the aforementioned law might be used by many P2P lending platforms.

China

Orchard Platform’s Jeremy Todd Shares Lang Di Fintech Experience Highlights, (Crowdfund Insider), Rated: AAA

  • There continues to be strong interest from Chinese Wealth Management firms to invest in US Online Lending loans
  • Investor interest is focused on making strategic equity investments in all types of global FinTech firms within Online Lending
  • Chinese Marketplace Lenders continue to increase their focus on offering more diversified products to clients including wealth management, insurance, and other financial services
  • Implementing a robust operational infrastructure is widely understood as a necessity required to successfully invest in the US Online Lending industry

Increased interest in US Online Lenders from Chinese investors and notable US-Chinese partnerships such as those between DriveWealth and CreditEase, Robinhood and Baidu, and Saxo Bank and Lufax — that further emphasize the importance of this series of events.

Author:

George Popescu
George Popescu