Friday September 1 2017, Daily News Digest

fintech adoption

News Comments Today’s main news: 2,000 IFISAs subscribed last year. Irish credit unions embrace Facebook Loans. Rubique launches new app features. Mexico has a new fintech law. Today’s main analysis: Mobile fintech vs . traditional banks: 15 things winners do well (a must-read). Today’s thought-provoking articles: The Personal Loan is Back. Is P2P lending headed for trouble? China’s $2T of shadow […]

fintech adoption

News Comments

United States

United Kingdom

China

European Union

International

India

Asia

Canada

Latin America

News Summary

United States

The personal loan is back (American Banker), Rated: AAA

The personal loan is hip again.

Well, let’s not get too carried away. Just 4.33% of millennials ages 21 to 34 took out unsecured personal loans in 2015, according to a recent analysis by TransUnion.

Peerform is Back With an Interesting New Investment Partner Random Forest Capital (Lend Academy), Rated: A

Late last year Strategic Financial Solutions (SFS) a leading debt settlement company, acquired Peerform and they have been building out new product offerings.

SFS looked at many marketplace lending platforms before deciding to acquire Peerform. They were impressed by their underwriting and regulatory sophistication, their strong brand presence online, their low customer acquisition costs and how they had been frugal with the capital they had raised.

Enter Random Forest Capital. They are a new investment management firm started last year with a focus on data science and machine learning. They love taking masses of unstructured data and not only making sense of this data but finding new predictive power in this data.

Peerform overhauled their APIs to be able to pull in thousands of data attributes and millions of data points for analysis.

The team at Random Forest was able to build proprietary credit models using this new data which they said was more data than is available from any other marketplace lending platform today. As Kevin pointed out, “the money will go where the data is”.

Random Forest also invests in other asset classes beyond consumer credit. They have positions in secured auto, fix and flip real estate and secured commercial debt – bringing their unique data science skills to each asset class.

Out of the shadows: How fintech is infiltrating the mortgage industry (Housingwire), Rated: A

A study released in the National Bureau of Economic Research maintains that nonbanks, such as Quicken and loanDepot, essentially tripled market share for mortgage lending between 2007 to 2015.

Meet Sophie — the AI assistant that wants to save you money (Business Insider), Rated: A

Called Douugh, the app is designed to be a financial control center. More intriguingly, it employs an intelligent virtual assistant named Sophie to help users fully understand and manage their finances.

Users start by plugging in all their bank account information into Sophie. Once she has access to those, she’s able to use them to map out users’ financial situations. From there, she can categorize users’ spending and see if they’re living beyond their means.

Taylor previously worked at SocietyOne, a marketplace lending platform he cofounded. While there, he realized how much of a problem financial literacy was in Australia and the US. That led him to launch Douugh last year.

Right now, Sophie is in training mode. Taylor said the company will remain in beta for the rest of the year and launch in February once Sophie has been trained on enough data. Eventually, Douugh plans to build out a full suite of financial products and make Sophie accessible via Alexa and Siri, he said.

In the future, Sophie could serve as a kind of personal banker for users, operating on autopilot and making transactions. For example, if Sophie sees that you’re about to be charged an overdraft fee for an account you’ve kept empty, Sophie could transfer a few dollars from another account to prevent it.

LendingTree Announces Starbutter AI as Winner of $ 25,000 Startup Innovation Spotlight (Business Insider), Rated: B

LendingTree®, the nation’s leading online loan marketplace, has announced Starbutter AI as the winner of its Startup Innovation Spotlight, a new initiative by LendingTree to showcase the top startup companies in financial technology (fintech) lead generation at LeadsCon.

Starbutter AI is a voice and chat app development company that creates AI-driven chatbots for financial products.

AI-based chat is disrupting lead generation in financial ecommerce, and 2017 has seen a massive shift in the digital landscape toward voice search. Voice search is now 25% of all mobile search and is projected to reach 50% in 3-4 years.

HIGH-FREQUENCY TRADING AND SPOOFING (All About Alpha), Rated: A

Six years ago Michael Coscia placed orders through the CME Group’s Globex platform via a trading algorithm that amounted to “spoofing.” He placed both large and small orders in the copper market, for example, with the large orders (cancelled within milliseconds) designed to create the illusion of market movement in order to create the reality of movements, whence the small order would reap its profits.

In November 2015 a jury convicted Coscia of commodities fraud and sentenced him to three years in prison.

Coscia argued on appeal that Congress’ language on spoofing is void for vagueness, that is, that it fails to provide traders with clear notice of what they are and aren’t allowed to do, and thus is inconsistent with due process of law.

The New York based law firm Cleary Gottlieb has made public a memorandum on the case.

London fintech opens first overseas office in Charlotte at WeWork (Biz Journals), Rated: B

PCI Pal, a London financial technology company focused on call-center compliance, is opening its first overseas office in Charlotte. The company has taken space at coworking giant WeWork’s new uptown location.

Barham says about 30% to 35% of the company’s clients have operations in the U.S., so the firm decided it was time to build out infrastructure here to support them.

BCU goes live on Microsoft Azure with the Temenos Lifecycle Management Suite (Temenos), Rated: B

Temenos (SIX: TEMN), the software specialist for banking and finance, today announces that Baxter Credit Union (BCU) has successfully implemented the Lifecycle Management Suite in Microsoft Azure. The implementation, which included the Collection, Service, and Loan Origination modules, incorporated an upgrade spanning four major releases, as well as the inaugural launch of the Lifecycle Management Suite in the Cloud.

United Kingdom

2,000 IFISAs subscribed last year as consumers eschew low-yielding cash ISAs (P2P Finance News), Rated: AAA

TWO THOUSAND Innovative Finance ISA (IFISA) accounts were subscribed in the last tax year, with retail investors collectively putting £17m in to the tax-free wrapper, official figures show.

ISA statistics released on Thursday by HMRC include IFISA data for the first time for the 2016-2017 tax year. The IFISA was first mooted by then-Chancellor George Osborne in July 2015, as a tax-free wrapper around alternative investments including P2P lending, and was officially launched in April 2016.

The average amount of money invested through an IFISA was £8,500 – slightly less than the average £8,623 put in to a stocks and shares ISA but almost double the £4,622 put in to a cash ISA.

Is peer-to-peer lending heading for trouble? (Which?), Rated: AAA

Two of the biggest peer-to-peer (P2P) lenders in the UK have been beset by problems over the past month, with RateSetter forced to make up a near £9m loan-deal gone sour and Zopa customers experiencing a severe cut in returns. So, is the market for peer-to-peer lending headed for trouble?

RateSetter lent a total of £36m to Vehicle Trading Group from 2014. This was wholesale lending, which meant that Vehicle Trading Group lent that money to other borrowers, including £12m to an advertising firm called Adpod (an unusual choice for a company that offers car loans).

Vehicle Trading Group went bust in May 2017. The Financial Conduct Authority (FCA) has warned P2P firms that lending to other lenders may be in breach of regulations.

RateSetter took over the struggling AdPod in the second half of 2016, but its customers didn’t find this out until shortly after Vehicle Trading Group went bust.

As well as winding down any new lending to wholesale lenders, RateSetter says it no longer issues business loans over £750,000.

Meanwhile Zopa, another well-known P2P website and one of the ‘big three’ players in the market along with Ratesetter and Funding Circle, has warned investors that they may see their returns cut for products with higher projected rates of interest due to a rise in consumer debts going bad.

Which? has been contacted by a member who complained to Zopa after putting £1,500 into Zopa’s higher-risk product, which typically projects returns of around 6% after bad debt. One year later, however, he had made only £42 – less than 3%.

Fintech could be risky if banks don’t cooperate, says the Bank for International Settlements (City A.M.), Rated: A

Banks will need to take measures over the coming years to mitigate the risks of financial technology (fintech), according to a new report from the Bank for International Settlements (BIS).

It noted that while research from McKinsey & Co in 2015 estimated that between 10 and 40 per cent of revenues and 20 and 60 per cent of retail banking profits could be put at risk by fintech over the next 10 years, other market observers saw the developments as more positive.

It also advised institutions to vet any outsourcers through a thorough due diligence process, saying that any risks and liabilities incurred during the operations would remain with the bank.

The new bank: Replacement of incumbents by challenger banks

However, new players could prove just too agile in their ability to push the boundaries of technology, the report warned. In this scenario, new banks or tech companies with a banking branch could steal market share.

The disintermediated bank: Banks have become irrelevant as customers interact directly with individual financial services providers, for instance by using distributed ledger technology

In this case, incumbent banks would no longer be a significant player because there would be no need for a trusted third party or for balance sheet intermediation. Customers could have a more direct say in choosing the services and the provider. This futuristic scenario can be seen in its nascent form in peer-to-peer lending platforms and cryptocurrencies.

China

China’s $ 2 Trillion of Shadow Lending Throws Focus on Rust Belt (Bloomberg), Rated: AAA

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS Group AG.

By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry. Shadow loans grew almost 15 percent to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19 percent of economic output, he estimates.

Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said.

Asset Quality

Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86 percent last year to a size equal to 308 percent of its formal book, the highest of any bank in China, according to Bedford’s report.

Still, the bank reported a bad-loan ratio of just 0.05 percent last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said. Bank of Tangshan representatives didn’t respond to an email seeking comment.

Shadow loans can be used to circumvent regulations capping loans to a single borrower at 10 percent of a bank’s assets, or 15 percent in the case of a group company and its subsidiaries, according to Bedford. For example, he said that Baoshang Bank, an Inner Mongolia lender, has extended shadow loans equivalent to 126 percent of its net assets to one borrower.

Car Finance Penetration Rate in China Expect to Double in Five Years (Xing Ping She), Rated: A

According to a public report, from 2005 to 2015, the ratio of purchasing cars by loan in China has grown rapidly from less than 10% to 25% ~ 30%. During the past ten years, auto finance in China has been developing so fast. And from 2016 to 2017, during the short two years, the car finance penetration Rate continue to rise. Now the rate has reached to 35%~40%, among which the luxury car financial penetration rate is even higher. Furthermore, it is expected to double in five years.

On the prevention of various types of ICO to absorb investment-related risks in the name of the tips (National Internet Finance Association), Rated: B

To protect the legitimate rights and interests of the public, the relevant risk issues are as follows:

First, some institutions at home and abroad use all kinds of misleading propaganda means to ICO in the name of engaged in financing activities, the relevant financial activities without any permission, which is suspected of fraud, illegal securities, illegal fund-raising and other acts. The majority of investors should remain sober, vigilant, beware of being deceived. Once found to have involved in illegal acts, should immediately submit to the public security organs.

Second, due to ICO project assets are not clear, lack of investor appropriateness, a serious shortage of information disclosure, investment activities are facing greater risk. Investors should be calm judgments, be careful to take their own investment risk.

Third, China Internet Finance Association member units should take the initiative to strengthen self-discipline, to resist illegal financial behavior.

European Union

Credit Unions embrace FinTech as loans flood in through Facebook (Independent.ie), Rated: AAA

Credit Unions around Ireland have entered the FinTech arena, with some credit unions reporting a 10-fold interaction with younger adult members since they began rolling out digital loan service initiatives earlier this year.

Since its launch, the “Facebook Loan” initiative has already been a huge success for several credit unions throughout the country – now accounting for up to 15pc to 20pc in loan enquiries per month for some credit unions.

Following an initial successful pilot project, this has now become an established channel for credit unions, with close to half of consumers using the facility to take out a loan never having borrowed from a credit union before.

New European fintech hubs are on the horizon (Business Insider), Rated: A

Sweden‘s deal share of the European fintech investment market is growing for the third consecutive year. Its share expanded 2% between 2015 and 2016 to reach 8%, and currently stands at 12%, meaning it’s already ahead of last year’s figure. The country’s share of deals is also increasing ever-more quickly, from 2% over 2015-2016 to 4% between 2016 and 2017 year-to-date (YTD).

France is also seeing its deal share increase for the third year in a row, and like Sweden, its 2017 YTD share (11%) has already overtaken its 2016 figure (10%). However, its deal share growth has slowed down slightly, from 4% during 2015-2016 to 1% between 2016 and 2017 YTD.

International

Mobile Fintech vs Traditional Banking products: 15 awesome things winners do well (Robosoft Technologies), Rated: AAA

As of 2017, banking executives are completely missing the mark at correctly understanding the rise in popularity for fintech products. It all comes down to the user experience. Banks are misinterpreting and miscalculating the role user experience plays in the overall satisfaction customers have with a banking product.

Fintech vs Traditional banks – attitudes and missed expectations

In 2016, Capgemini Consulting in collaboration with EFMA conducted a global study to gauge customers’ attitudes towards financial service companies – banks and fintech companies alike. As part of the study, the researchers asked customers to rate the most important reasons why they are using financial products coming from fintech companies. In parallel – they asked banking executives to do the same.

The results show a complete disconnect between what consumers want and appreciate about fintech and what banks think consumers appreciate about fintech products.

But what they completely missed is that 80% of consumers rank faster service and good experience as a primary reason why they’re using fintech products (the two being completely correlated). In contrast, only 40% of banking executives believe good service/ experience is critical to fintech’s rise in popularity.

Source: Invoiceinterchange.com

Banking executives do not understand what consumers want.

Consider the following stats to understand the result of banking executives missing the mark on user experience from the Millennial Disruption Index Report:

  • 71% of consumers would rather go to the dentist than listen to what banks are saying
  • 1 in 3 consumers are open to switching banks in the next 90 days if a better product is made available to them
  • All 4 of the leading banks in the US are among the ten least loved brands by Millennials
  • 33% of Millennials believe that in the next five years they won’t need to do business with a bank at all
  • Nearly 50% of Millennials believe that innovation in the banking industry will come from outside the banking industry
  • 73% of Millennials would be more excited about a financial service product coming from Google, Amazon, Apple, Paypal or Square than from their own national bank.

1. Integrated products & services (Mint and YES Bank)

It gets tiring to jump from one product to another at every given moment to get a good feeling of your overall financial life.

That is why Mint.com has managed to grow from nothing to 20 million active users in only 11 years. What Mint.com does is to order and organize your entire financial life in a seamless way to give to a bird’s-eye view of your financial life.

YES bank’s mobile solution, YES Mobile 2.0 is developed keeping in mind today’s customer’s mobile lifestyle. The app offers consumers with a seamless omnichannel experience across platforms – smartphones, tablets and smartwatches. Further, the mobile app also has some innovative features to enable easy transactions on the app. Some of these are:

  • One-touch bill payment.
  • Speech to text capabilities to enable hands-free complaints/queries registration
  • On-the-go bill payments from Wearables including Apple and Android smart watches.
  • Easy transfer of money to phone book contacts, Facebook friends and Twitter followers etc.

2. Personalized recommendations (Credit Karma)

Credit Karma is a simple credit history monitoring tool with an added benefit. Whereas they can use the service for free, they will receive personalized recommendations based on their credit reports, credit card usage and other factors. What is very interesting – and smart – for Credit Karma is that while offering these suggestions they also inform their users of their odds of acquiring a new line of credit – credit card, loans, mortgages and more. And most importantly, the user experience is clean, easy to follow and to act on it.

4. Access credit card balance without logging in (Citibank)

Remember how users ranked “speed of service” as the second most important criteria on why they love fintech products? Citibank actually leads the wave of banking institutions that allow their customers to do just that. Instead of logging in to see the most frequently sought for account information, their mobile app allows users to get a glimpse of their account simply by firing the app.

7. Seamless digital payment option (Apple Pay)

It is literally impossible for banks to create something simpler than this. For readers who are not iOS users, Apple Pay works by double tapping the home button. It then pulls up the Wallet application allowing users to pay at different retailers with the default card on file.

9. Text message notifications (Digit)

Digit is a fintech savings platform which analyzes a person’s checking account balance and spending habits and subtracts a small amount from the account every 2-3 days which is deposited in a savings account.

14. Password entering and password retrieval (Acorns)

First and foremost, Acorns has adopted the widely accepted retail practice of allowing users to unmask their password. This is an acceptable practice which reduces user authentication errors. By simply adding a “show” button, Acorns makes the login experience just a little easier.

In addition, the password reset flow is as simple as they come.

Fintech: beware the fake news (Banking Technology), Rated: AAA

A few years back, the general consensus was that banking as we knew it was over.

Fast forward two years and opinion has arguably swung too far in the other direction. The consensus now is that fintech firms tried to disrupt banks but couldn’t.

If we were to apply Gartner Hype Cycle terminology to fintech in general, we would argue that fintech went from the peak of inflated expectations to the trough of disillusionment in the last two years. If you look at the investment figures, however, the picture is not so clear. While there has been a correction in VC funding, Q2 2017 was the largest quarter of investment yet. Maybe Q2 was a blip, maybe we are heading out of the trough of disillusionment to the slope of enlightenment – or maybe investors are more sanguine about the prospects for fintech, seeing through the hype cycle.

The truth is that fintech is neither going to kill all banks nor is it a fad.

But the pessimism has become exaggerated for four main reasons:

1. Some extremely successful and highly disruptive fintech companies have been born, such as Ant Financial and PayPal (which, if a bank, would be one the ten largest in the US);

2. Adoption rates for fintech products are growing and are already material in many countries around the world (see chart below), meaning that fintech firms are successfully changing customers’ banking habits, which should help lower the cost of acquiring customers in future (a key hurdle for many fintechs);

3. Fintech companies are evolving, pushing further in middle and back office functions, extending the range of services they offer and generally becoming asset heavier and more vertically integrated, putting them in a position to compete more effectively; and,

4. Because the indirect impact of fintech has been massive.

Source: Banking Technology

UAE Remittance Giant Taps Ripple Blockchain for Instant International Payments (CryptCoinsNews), Rated: A

A report by regional publication Arabian Business has revealed that UAE Exchange, one of the region’s earliest remittance operators with some 800 offices across 31 countries, is looking to partner San Francisco-based FinTech firm Ripple to facilitate instant international money transfers.

The remittance operator sees blockchain technology as the solution toward faster and efficient money transfers at significantly lower costs for customers. Ripple uses its bank-friendly public blockchain, the Ripple Consensus Ledger, to link its international partners and facilitate real-time money transfers globally.

FinTech, The Financial Crisis And The Smartphone (Forbes), Rated: A

It is ten years since the Financial Crisis and I am often asked if FinTech was born out of the crisis.

In June 2007 two Bear Sterns hedge funds hit problems, by August BNP Paribas shut down access to hedge funds with sub-prime mortgage exposures, and in September Northern Rock, a UK savings and mortgage bank had a run on it, the first bank to suffer this consequence in 150 years in the UK.

It would be another full year before the collapse of Lehman Brothers in September 2008 and the global financial system melted down.

Chris Skinner, the global FinTech pundit, heralds the beginning of FinTech with the launch of Zopa, a UK peer to peer lender started in 2005. It was the first time he had heard the word FinTech.

US market place lenders Prosper, launched in 2005, and Lending Club, launched in 2006, were out of the gates before any evident signs of the impending crisis.

It appears FinTech was not born out of the Financial Crisis.

India

Rubique Launches New Features On Its App (DQ India), Rated: AAA

The interactive app will now focus on complete digitization of the loan and credit card application process. The most significant new feature of the app is ‘Digital Profiling’ and once the profile is created, all the bank policies and algorithms are run against the user’s profile for tailor-made offers.

The key features of an app:

  1. Digital profiling: created based on the back-end by collecting data through SMS scrapping, network type, device characteristics and certain key data points
  2. Pre-qualified offers: The data engine keeps evaluating the offers available on the platform versus customer profile available & proactively keep notifying users on the eligible offers
  3. Document Upload & instant approval: Aiming towards 100% digitization and create a paperless experience for the user, the app allows user to upload the supporting documents required & Rubique’s unique integration feature which is one of its kind in the entire industry, let user get in principal approval online for his/her requirement making it entie digital
  4. Status tracking: Due to direct integration with financial instituions’ system, user can check the application status in real time
  5. Wish List: The app also allows user can also maintain its wish list related to his/her futue loan & credit card requirement
Asia

Blockchain solution aims to stop trade invoice fraud (GT Review), Rated: A

Trade finance is rife with cases of document duplication and the industry is currently exploring ways in which blockchain can be used to prevent these cases of fraud. Earlier this year, warehousing company Access World experienced a number of cases of warehouse receipt duplication, while the costs of the Qingdao fraud, which also involved multiple warehouse receipts, are still being counted.

Invoice Check from Trade Finance Market (TFM), a Singapore-based fintech company, is one of the early products to launch with this aim in mind. It has been developed over the past year on the Ethereum platform and uses smart contracts.

Canada

Bianca Lopes of Bioconnect Presents Building the Human into FinTech (StartUp Toronto), Rated: A

Latin America

New fintech law: what you need to know (International Law Office), Rated: AAA

On March 23 2017 the draft Financial Technology Law was published. The law will regulate:

  • the organisation, operation, function and authorisation of companies that offer alternative means of access to finance and investment (so-called ‘financial technology (fintech) institutions’ (FTIs));
  • the issuance and management of electronic payment funds; and
  • the exchange of virtual assets or cryptocurrencies.

The Ministry of Finance and Public Credit Comments (SHCP) has sought comments on the draft law from the Mexican banking and financial industries.

Under the law, the main authorities in the fintech field are:

  • the SHCP;
  • the National Banking and Securities Commission (CNBV); and
  • the Bank of Mexico (known as Banxico).

Pursuant to the initiative, the following institutions that undertake financing, investment, savings, payments or transfer activities through interfaces, the Internet or any other means of electronic or digital communications will be considered FTIs:

  • electronic payment institutions – these offer issuance, management, accountability and transfer of electronic payments services. Electronic payment funds include:
    • the amounts or units of an asset that can be assigned a monetary value and are recorded in an electronic transaction accounting ledger; and
    • the amounts accepted by a third party as receipt of an amount of money or respective virtual assets;
  • virtual asset management institutions – these contact third parties through digital means in order to buy, sell or dispose of their own or a third party’s virtual assets and receive virtual assets to make transfers or payments to a person, including another virtual asset management institution. Virtual assets are digital units that have similar uses to the Mexican peso, as determined by Banxico in accordance with certain criteria; and
  • crowdfunding institutions – these serve as mediators to investment seekers and potential investors through digital platforms, such as websites or mobile applications, so that prospective investors can fund applicants through such digital platforms.

Authors:

George Popescu
Allen Taylor

Friday July 14 2017, Daily News Digest

Visa revenues

News Comments Today’s main news: DBRS assigns provisional ratings to SoFi Professional Loan Program 2017-D. IEG Holdings cites slim margins, weak underwriting as reasons for LendingClub offer. Bank execs say UK sets the standard for fintech regulation. Rocket Internet sells stake in Lendico. Today’s main analysis: Visa’s international expansion. Today’s thought-provoking articles: DBRS Student Loan ABS report (a […]

Visa revenues

News Comments

United States

United Kingdom

China

European Union

International

Israel

India

Latin America

Canada

News Summary

United States

DBRS Assigns Provisional Ratings to SoFi Professional Loan Program 2017-D (DBRS), Rated: AAA

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of notes issued by SoFi Professional Loan Program 2017-D (SoFi 2017-D):

— $245,000,000 Class A-1FX Notes at AAA (sf)
— $266,000,000 Class A-2FX Notes at AAA (sf)
— $40,000,000 Class B-FX Notes at AA (sf)

DBRS Student Loan ABS report (DBRS), Rated: AAA

In this commentary, DBRS provides the following:
— A review of Q1 2017 student loan ABS performance and H1 2017 student loan ABS issuance.
— An outlook for future student loan ABS issuance and the trends expected in H2 2017.
— Analysis and highlights of student loan collateral performance.

Download the full report here.

IEG Holdings Highlights the Urgency of LendingClub Correcting its Flawed, Slim Margin “Broker” Business Model and Weak Underwriting Standards (Sys-Con), Rated: AAA

IEG Holdings yesterday announced the commencement of a tender offer to exchange four shares of IEG Holdings’ common stock for each share of LendingClub common stock, up to an aggregate of 40,345,603 shares of LendingClub common stock, representing approximately 9.99% of LendingClub’s outstanding shares as of April 28, 2017, validly tendered and not properly withdrawn in the offer.

IEG Holdings Corporation (OTCQB: IEGH) (“IEG Holdings”) cautions shareholders of LendingClub Corporation (“LendingClub”) against dismissing IEG Holdings’ tender offer. IEG Holdings believes that the LendingClub board of directors should be held accountable by its shareholders for continuing to pursue a flawed, slim margin “broker” business model. IEG Holdings urges LendingClub to enter into negotiations with IEG Holdings, rather than simply dismissing the tender offer.

FLAWED, SLIM MARGIN, LOSS-MAKING BUSINESS MODEL

Despite brokering more than $26 billion of loans since inception, LendingClub still reported a loss of $29.8 million for Q1 2017 and loss of $146.0 million for the 2016 full year. Transitioning to a balance sheet lender likely would significantly increase gross margins, without a significant change in customer acquisition costs.

WEAK UNDERWRITING STANDARDS

A recent media report by Bloomberg indicates that:

  • LendingClub only verified income about a third of the time for one of the most popular loans it made in 2016, and
  • If LendingClub finds errors in a loan application, it may still approve the loan.

LACK OF COMPANY-OWNED STATE LENDING LICENSES

LendingClub doesn’t hold individual state lending licenses and instead utilizes the services of a Utah-based bank. This raises regulatory risks around issues such as the potential breaking of individual state interest rate caps and compliance.

POOR STOCK MARKET PERFORMANCE AND ZERO DIVIDENDS TO SHAREHOLDERS

LendingClub’s share price has decreased 79% since its initial public offering in December 2014, dropping from $25.74 in December 2014 to $5.39 yesterday, after reaching a low of $3.51 in May 2016. In addition, LendingClub has never paid, and has no reported intention to pay, a dividend to shareholders.

IEG Holdings’ Reasons for the Offer

IEG Holdings believes that changing LendingClub’s business model to a balance sheet lender model would enable the company to generate significantly higher gross margins, provide significantly higher long duration cash flow from customers, build increased customer goodwill with customers and enable increased customer refinancing. The longer duration cash flow would provide more flexibility in reducing lending volumes during periods when underwriting risk levels are rising, as the company would be less dependent on brokering new loan deals every day to provide revenue.

  • IEG Holdings intends to encourage LendingClub to undertake substantial costs cuts by terminating excess employees, achieving substantial cuts in advertising/marketing costs and other significant cost cutting measures;
  • IEG Holdings intends to encourage LendingClub to transform its broker business model with low gross margins and high volumes to focus on high gross margin unsecured loans to near prime clients with strong underwriting, company owned individual state licenses and retention of loans on its balance sheet to secure long duration cash flow from longer term loans; and
  • The acquisition of LendingClub shares would be substantially net asset per share accretive for IEG Holdings stockholders and substantially increase shareholder equity.

New partnership turns PayPal into Apple App Store payment option (Banking Tech), Rated: A

This week the company announced a partnership with Apple to allow shoppers pay for their purchases at the App Store using PayPal. The feature will be available for users of a variety of Apple devices including iPhone, iPad, Apple TV, Apple Watch, and iPod.In addition to the App Store, PayPal will be a payment option for a variety of Apple services including Apple Music, iTunes, and iBooks.

Finicity and JP Morgan Chase pair for data share (Banking Tech), Rated: A

Data aggregation provider Finicity has signed an agreement with JP Morgan Chase to let the bank’s customers choose data to share with apps.

The companies will use a direct API to allow Chase customers to share information with the apps and services that Finicity supports. According to the firms, this tokenised access will eliminate the need for customers to share their Chase credentials with third-party apps.

Paypal Holdings Inc (NASDAQ:PYPL): Beginning of Market Dominance (Library for Smart Investors), Rated: A

Paypal Holdings Inc (NASDAQ:PYPL) is getting investors attention after the stock touched fresh highs amid a new partnership with Apple.

The stock is up over 43% since the start of the year.

In the first quarter, PayPal saw a jump of 10.3% in monthly active users on year-over-year basis. The total number of transactions also increased by 22.5% in the period.

In the first quarter, Venmo processed $6.8 billion in total payments, a 100% growth on year-over-year basis. Venmo is slated to grow more as the company expands to small businesses.

WEALTHTECH — THE DIGITIZATION OF WEALTH MANAGEMENT (FT Partners), Rated: A

WealthTech companies are targeting inefficiencies that span the entire wealth management value chain, from client prospecting to investing to portfolio management and reporting. Benefits include more efficient workflows, improved client experiences and greater transparency. Regardless of their value proposition, WealthTech companies are seeking to improve overall wealth management and investing.

This report highlights a number of key trends within the broader WealthTech industry such as…

  • Growing number of advisors joining the independent channel
  • Incumbent financial institutions are entering the robo-advice space
  • Increased demand for alternative investments
  • Financial planning trending towards goal-based approaches
  • Higher levels of active risk management
  • Commoditization of portfolio management software is leading to expanded offerings
  • RIA custodians evolving into more holistic roles

Download the full report here.

Wells Fargo trims auto loans as market cools, risk overhaul kicks in (Reuters), Rated: A

Wells Fargo & Co (WFC.N) is scaling back and remolding its auto lending business in response to growing stress in the market, as well as a bank-wide push for more centralized risk controls.

Wells, which was the No. 2 U.S. provider of auto loans less than a year ago, has already cut quarterly originations by nearly 30 percent over the nine months leading into March 31, according to a May 11 company presentation. It has also begun consolidating the collections operation in a move that people familiar with the business say could eliminate hundreds of jobs, after a new head of auto finance took the reins in April.

5 Fintech Startups Under the Radar (Bank Innovation), Rated: A

Spotme

This New York City-based startup facilitates micro-loans between borrowers and lenders, allowing users to set up pretty much all the parameters of a loan themselves: users can control the amount, the interest rate, the payback period, and the way they are reimbursed for the loan themselves.

Ledger

Ledger might be able to help out there: this San Francisco-based startup allows users to “open tabs with friends,” boiling down a transaction to just 3 clicks. By connecting with a user’s financial accounts (protected by “military-grade” cybersecurity, according to the company), users are able to aggregate all of their transactions in one place, as well as receive notification about when transactions are due.

Wallio

More and more companies are striving to solve the main problem when it comes to personal finance management services: how do you make a user actually take the financial advice that is being offered?

Wallio starts off the week by giving a user an allocated amount of money they can spend for that week, on whatever the user wants (expenses and savings are already factored into this amount). If a user underspends, great: Wallio will allow that user to put that money towards a goal. If a user overspends, Wallio will simply allocate less money for the user to spend next week.

Samwise

This robo-investing startup allows users to turn their existing brokerage account into an autonomous investing account using machine learning algorithms.

OnePebble

Invest, and make a difference in the world at the same time: that’s the dream of OnePebble, an online investment broker/dealer that puts each investment toward companies “doing good in the world.”

3 Investing Trends to Keep on Your Radar (Morningstar), Rated: A

Trend: Passive products continue to gain assets.

This is the trend shaping the investment management industry today. Asset flows to passive products, both traditional index mutual funds and exchange-traded funds, began in earnest following disappointing active-fund performance during the financial crisis.

Trend: New ways to hire–and pay for–financial advice. 

Robo-advisors provide automated advice for a low annual fee as low as 0.25% or even less. Meanwhile, mutual fund companies and brokerage firms may provide advice for customers who have amassed sufficient assets at the firm. For example, Vanguard Personal Advisor Service charges 0.30% and is available to investors with at least $50,000 in assets at the firm. (The service combines human financial advisors with robo-advisor technology.)

What to watch out for: The profusion of different business models means that the business of selecting an advisor is more complicated than ever. Robo-advisor fees might look like a screaming buy relative to the fees that a full-service human advisor charges, but the robo won’t be able to give you advice on nonportfolio matters like whether to pay off your mortgage or purchase long-term care insurance.

Trend: An increased emphasis on behavioral factors that can affect investor outcomes.

What’s to like: Many robo-advisors have also embedded behaviorial research into their services.

What to watch out for: Behavioral finance is trendy right now, and with any trend comes the opportunity for gimmickry. Beware of advisors who are using behavioral finance as their main hook to snag clients; high-quality advisors have been employing behavioral finance into their practices for years.

US Tax Professionals Tackles the Tax implications of Crowdfunding (Digital Journal), Rated: A

It’s important to understand that all the income a person receives, regardless of the source, is considered taxable income in the eyes of the IRS. That includes crowdfunding dollars.

Even if the campaign only raised the projected $15,000 and no gifts were offered, the money would still be considered taxable income and need to be reported as such on a tax return.

Generally, crowdfunding revenues are included in income as long as they are not:

  • Loans that must be repaid;
  • Capital contributed to an entity in exchange for an equity interest in the entity; or
  • Gifts made out of detached generosity and without any “quid pro quo.” However, a voluntary transfer without a “quid pro quo” isn’t necessarily a gift for federal income tax purposes.

Morgan Stanley digital chief: AI to help advisers, not ‘cyborg bots’ (Financial-Planning), Rated: A

Advisers tasked with processing a “mountain of information” will get a reprieve through artificial intelligence, according to Morgan Stanley Wealth Management’s chief digital officer.

“What we want to do is, with one click of a button, they can take action on that research report to all their clients within minutes, not hours, not phone calls,” Hassan said. “That’s the promise of what we’re trying to build.”

Rival firms have shown they’re headed down a similar path. Like Morgan’s planned offering, the UBS-SigFig service will save advisers’ time through automated messaging to clients on important dates, according to Richard Steinmeier, the head of the UBS Wealth Advice Center.

Congress Should Use Congressional Review Act to Strike Down Ill-Advised Arbitration Rule (Daily Signal), Rated: B

Cutting through the hyperbole that the arbitration rule protects consumers from “unfairness” that would deny them “their day in court,” this rule is in fact highly anti-consumer and harmful to innovation.

This regulation could have particularly harmful effects on FinTech innovations, such as peer-to-peer lending.”

How much money do Arizonans spend playing the lottery? Less than most Americans (AZ Central), Rated: B

Arizonans on average shelled out $100.85 per capita on lottery tickets in 2015, according to the study by LendEDU, based on preliminary data for state government finances collected by the Census Bureau. For Americans overall, the per-capita figure was $206.69.

United Kingdom

UK setting the bar for fintech regulation, bank execs say (SNL.com), Rated: AAA

U.K. authorities have created a world-leading regulatory environment for the burgeoning fintech industry that is being emulated elsewhere, according to bankers.

The Financial Conduct Authority’s “sandbox,” a program launched in 2015 to let companies test innovative ideas under close regulatory supervision, has been particularly helpful, she said.

Meanwhile, initiatives such as FCA-organized hackathons — or “TechSprints” as it prefers to call them — have been particularly appreciated by the industry, according to Sophie Guibaud, vice president of European expansion at Fidor Bank AG, a German online lender that was bought by Groupe BPCE in 2016. These events invite market participants to come up with technological solutions to certain problems, such as financial issues faced by people with mental health problems.

The U.K. is home to more fintech companies valued at more than $1 billion than the rest of Europe put together, according to an April 2017 report by technology investment bank GP Bullhound. Three U.K.-based companies, Funding Circle, Paysafe and Transferwise, have crossed that threshold, and GP Bullhound said that it does not expect London to relinquish its lead, due to its prominence in international financial services.

Comparison site GoCompare invests in mortgage robo-adviser (AltFi), Rated: A

Financial comparison site GoCompare is hoping to transform the UK’s mortgage application process by investing in MortgageGym, a digital mortgage robo-adviser.

Users can complete a free application within 15 minutes on MortgageGym and receive matches within 60 seconds, as well as robo advice and access to live advisers. The website will use automated algorithms to match applicants with the best mortgage providers.

The House Crowd hits £50m via mix of P2P and crowdfunding (P2P Finance News), Rated: A

THE HOUSE CROWD has hit the £50m funding target it set out to achieve in October last year.

The Manchester-based property platform started targeting institutional money at the end of last year to achieve its first £50m of funds channelled to property and buy-to-let borrowers, through both its peer-to-peer side and its crowdfunding arm.

The firm raised over £15m in the six months to early 2017, while a loan it closed last month added another £600,000.

Fintech CurrencyCloud tapped up investors months before Google raise (Business Insider), Rated: A

CurrencyCloud, which provides a platform to process international payments, raised £9.5 million from its existing investors in December 2016. The company had £10.5 million in the bank at the end of the month, accounts show, suggesting the platform had around £1 million left at the time of the fundraising.

The volume of payments jumped by 110% to 1.5 million but net revenue from currency transactions increased by just 10% to £3.2 million. Meanwhile, administrative expenses rose by 54% to £13.9 million as CurrencyCloud invested in “recruiting staff, developing our technology infrastructure and operations services, and moving to new office premises.”

P2P fund share issues boost investment trust sector (P2P Finance News), Rated: A

FUNDRAISINGS by Honeycomb and the Funding Circle SME Income Fund (FCIF) helped push share issues to record levels in the investment trust sector for the first half of 2017.

Secondary issuances raised £3.3bn in the first six months of the year, trade body the Association of Investment Companies has revealed, up from £1.8bn at the same time in 2016.

FCIF raised £142m in conversion shares in April, the largest total in the specialist debt sector, while the Honeycomb investment trust raised £105m through a ordinary share issue.

Alternative Credit funds drive record cash raise (AltFi), Rated: A

Assets in investment trusts have hit an all time high thanks in part to a huge swathe of secondary issuance in closed-ended funds’ shares.

In the first half of 2017, the most poplar area of the investment trust market was Infrastructure – in terms secondary issuance – raising £1.2bn. This was followed by Alternative Credit at  £514m. Funding Circle SME Income raised the largest total in the sector securing £142m via its C share issue, followed by Honeycomb Investment Trust (£105m).

China

The number of Online Financial platforms in China Exceed 19,000, ranking the first place of the world. (Xing Ping She), Rated: AAA

According to data from National Institution of Internet Financial Risk Analysis &Technology,there are more than 19,000 online financial platforms across China, including over 6000 online lending platforms, nearly 3500 online assets managers, and 800 crowdfunding platforms. The total cumulative volume of internet loans, crowdfunding and internet payment have reached to 70 trillion RMB (US$ 10.33 trillion). Zhou Hongren, director of the National Committee of Internet Finance Professional Technology, claimed that, “No matter in terms of quantity or scale, China has already become the largest international finance marketplace around the world.”

European Union

Rocket Internet Sells Stake in Lendico Startup (Handelsblatt), Rated: AAA

Incubator firm Rocket Internet has sold its majority stake in peer-to-peer lender Lendico to Arrowgrass, Handelsblatt has learned, as the British hedge fund acquired complete ownership of the Berlin startup.

The partners to the transaction agreed to keep the purchase price confidential. Rocket Internet, which specializes in helping online startups get off the ground, most recently valued its 50-percent-plus stake in Lendico at €140 million ($159 million).

Funding Circle Germany Takes a Fresh Start (Crowdfund Insider), Rated: AAA

Germany is a huge SME and VSME (very small business) credit market. But it is not as mature a market for online marketplace lending as the UK, the US, or even the Netherlands. This partly explains why Funding Circle Germany’s early loan book underperformed. Now the platform is starting afresh to match its market’s reality.

With offices and business in Germany, the Netherlands and Spain, Zencap had originated €35 million in loans to 500 SMEs at the time of its acquisition. Its operations were very small in comparison with the more than $1.5 billion originated by Funding Circle in the US and the UK at the time (meanwhile Funding Circle passed the $3 billion mark).

The second reason for starting afresh, was a need to revisit the credit model. Since January, the new German team has been busy recalibrating and restarting the German operations.

Loan origination resumed at previous level in the first half of 2017 and is expected to grow again in the second half of this year.

Spanish Fintech Industry Comes into its Own (Finance Magnates), Rated: A

The Spanish fintech ecosystem has been a steadily growing force over the past few years, swelling from just fifty financial technology startups in 2013 to well over three hundred in 2017. This rapid surge is only going to continue with this number estimated to hit four hundred companies by 2018.

In terms of the value of the operations, this sector passed rose from just €35 million in 2014 to €206 million in 2016, justifying a 600 percent growth in just two years.

According to the Spanish Association for Fintech and Insurtech (Asociación Española de Fintech e Insurtech – Aefi), companies operating in this space in Spain are going to create a total of 10,000 jobs in 2017 alone.

While the value offintech operations in Spain is increasing, two areas that constitute the most focus are the crowdfactoring or invoice factoring crowdfunding platforms – these saw a total of €120 milion euros in 2016, that concentrate most of the operations domestically, followed by crowdfunding with €43.5 million and crowdlending or p2p lending with €42 million.

International

Visa Expands Its Footprint in Europe (Market Realist), Rated: AAA

In May 2017, Visa announced that in order to give consumers more control and make transactions transparent, the company will create digital card management experiences for its partners. Visa’s partners include financial institutions. Since the new offerings will lead to more transparency, Visa expects to see volume growth in fiscal 3Q17. Market analysts expect Visa to report revenues of $4.36 billion in fiscal 3Q17—a decline of 2.7%.

 

What Can Visa Expect from Russia, China, Japan, and India?

In fiscal 2Q17, there was growth in Visa’s cross-border business due to Russia’s developed economy. Visa implemented ~1,600 point-of-sale terminals. As a result, payment volumes are expected to grow in fiscal 3Q17.

Management thinks that obtaining a domestic license in China is a time-consuming process. Visa is expected to witness lower revenues and payment volumes from China due to discontinued dual branded cards.

Management has a positive outlook on Japan’s economy due to digitization. Japan’s government has become more inclined to use digital and electronic payments.

In fiscal 3Q17, India could be a major contributor to payment volume growth.

Visa has delivered a return on equity of 16.2% on trailing 12-months basis. Other consumer financial peers (XLF) have delivered the following return on equity on a trailing 12-month basis:

  • American Express (AXP) – 25.1%
  • MasterCard (MA) – 75%Discover Financial Services (DFS) – 21.10%

Visa Expects to Benefit from Its European Business

Visa’s (V) acquisition of Visa Europe allowed the company to enhance its global reach. The main agenda behind the acquisition was to bring innovation to the European market. Visa had been working closely with its partners and clients. The company also plans to create new services and products.

Israel

THE SURPRISING COUNTRY LEADING THE FINTECH REVOLUTION (Ozy.com), Rated: AAA

The country that gave the world smart drip irrigation and the Epilady has also been an early and enthusiastic adopter of financial technology, as in mobile banking apps, digital wallets, online lending and other services that manage moola. In fact, a survey of selected industrialized countries shows that:

As for the specifics, 50 percent of Israeli adults use mobile banking apps at least once a month. In the U.S., it was 38 percent; the U.K., 37 percent; in France, 35 percent; and in Germany, a surprisingly anemic 28 percent.

The five largest banks in Israel control more than 90 percent of the market, and as Sandra Octaviani, research lead for fintech at the University of Utah’s Center for Innovation in Banking and Financial Services, notes, traditional banks tend to serve low-risk, highly profitable clients, which creates an opportunity for nimbler fintech firms to swoop in and serve the underserved.

India

RBI wary of first loan default guarantee cover (India Times), Rated: AAA

The Reserve Bank of India is learnt to be wary of peerto-peer lending platforms offering any FLDG, or first loan default guarantee, cover to institutional lenders for any lending they do through these technology startups, said sources familiar with the discussions.

While various lending entities are keen on exploring this space as a cheap source of customers, they often look for a security cover against loans going bad. Experts say such guarantees or covers might go against the intentions of the central bank.

SME Lending Based on Payment History is the Next Big Wave in Fintech (BW Disrupt), Rated: A

ftCash aims to empower micro-merchants and entrepreneurs with the power of electronic payments and loans with zero upfront cost and no monthly rentals. Merchants are able to offer their customers multiple payment methods including credit cards, debit cards, net banking, mobile wallets, PayPal and more.

Nonethless, credit lending is the next big wave of Indian fintech. Lodha explains, “SME Lending based on payment history will be next big wave in fintech. On an active basis, it allows a lender to decide the paying ability of a merchant/business and the recollection of these loans can be done from the payment platform itself. The combination of the payments data along with GST data provides deeper insights into a business. We at ftcash are heavily invested in this idea and believe there is a great potential for scale here.”

Latin America

Venture fund for Latino entrepreneurs, fintech in Mexico  (ImpactAlpha), Rated: AAA

Financial technology, or fintech, startups offering digital payment, remittances and lending services, could capture 30% of Mexico’s banking market within 10 years, according to Finnovista, a fintech accelerator. Six in 10 Mexicans are unbanked. Financial exclusion is a problem but “also an opportunity,” Francisco Meré, the director of Bankaool, one of the first online-only banks in Mexico, told the Financial Times[paywall]. “The cost of engaging a customer through technology is a fraction of using a branch.” Clip has grown to become one of Mexico’s largest digital payment providers (Accion sold its stake in February). Kubo Financieroprovides peer-to-peer lending; Albo, mobile-based banking; and Kueski, a digital micro-lender — all have secured venture backing. More than 150 fintech, or financial technology, firms now operate in Mexico, giving Mexico 35% of fintech companies serving the under- and un-banked in Latin America.

AFLUENTA INCORPORATES THE MEXICAN INVESTMENT FUND IGNIA TO ITS PRESTIGIOUS LIST OF SHAREHOLDERS (AltFi), Rated: A

Afluenta (www.afluenta.com), a leading online credit platform for the people of Latin America, announced the addition of Mexican venture capital fund IGNIA to its group of shareholders. IGNIA is a venture capital fund specializing in investments in entrepreneurial companies with great potential for growth, whose services meet the needs of the emerging middle class.

In Mexico, where local credit to the private sector is below 35% of GDP, compared to 68% in Brazil, Afluenta aims to revolutionize the market with its human approach to credit and investment.

Afluenta connects borrowers with investors who can be individuals or companies, eliminating intermediaries such as traditional financial institutions. Its technology allows investors to receive competitive returns on their contributions in a simple, fast and efficient way, while applicants obtain loans faster, without bureaucracy and at a lower interest rate than in a bank.

Canada

Katipult CEO finalist for the prestigious EY Entrepreneur Of The Year 2017 (Digital Journal), Rated: A

Brock Murray, CEO of Katipult, a SaaS company that enables firms to design, setup, and manage an investment crowdfunding, Peer to Peer lending, or investor management platform, has been named a finalist in Ernst & Young’s Entrepreneur of the Year in the Emerging Technology category in Prairies.

Authors:

George Popescu
Allen Taylor

Friday July 14 2017, Daily News Digest

Visa revenues

News Comments Today’s main news: DBRS assigns provisional ratings to SoFi Professional Loan Program 2017-D. IEG Holdings cites slim margins, weak underwriting as reasons for LendingClub offer. Bank execs say UK sets the standard for fintech regulation. Rocket Internet sells stake in Lendico. Today’s main analysis: Visa’s international expansion. Today’s thought-provoking articles: DBRS Student Loan ABS report (a […]

Visa revenues

News Comments

United States

United Kingdom

China

European Union

International

Israel

India

Latin America

Canada

News Summary

United States

DBRS Assigns Provisional Ratings to SoFi Professional Loan Program 2017-D (DBRS), Rated: AAA

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of notes issued by SoFi Professional Loan Program 2017-D (SoFi 2017-D):

— $245,000,000 Class A-1FX Notes at AAA (sf)
— $266,000,000 Class A-2FX Notes at AAA (sf)
— $40,000,000 Class B-FX Notes at AA (sf)

DBRS Student Loan ABS report (DBRS), Rated: AAA

In this commentary, DBRS provides the following:
— A review of Q1 2017 student loan ABS performance and H1 2017 student loan ABS issuance.
— An outlook for future student loan ABS issuance and the trends expected in H2 2017.
— Analysis and highlights of student loan collateral performance.

Download the full report here.

IEG Holdings Highlights the Urgency of LendingClub Correcting its Flawed, Slim Margin “Broker” Business Model and Weak Underwriting Standards (Sys-Con), Rated: AAA

IEG Holdings yesterday announced the commencement of a tender offer to exchange four shares of IEG Holdings’ common stock for each share of LendingClub common stock, up to an aggregate of 40,345,603 shares of LendingClub common stock, representing approximately 9.99% of LendingClub’s outstanding shares as of April 28, 2017, validly tendered and not properly withdrawn in the offer.

IEG Holdings Corporation (OTCQB: IEGH) (“IEG Holdings”) cautions shareholders of LendingClub Corporation (“LendingClub”) against dismissing IEG Holdings’ tender offer. IEG Holdings believes that the LendingClub board of directors should be held accountable by its shareholders for continuing to pursue a flawed, slim margin “broker” business model. IEG Holdings urges LendingClub to enter into negotiations with IEG Holdings, rather than simply dismissing the tender offer.

FLAWED, SLIM MARGIN, LOSS-MAKING BUSINESS MODEL

Despite brokering more than $26 billion of loans since inception, LendingClub still reported a loss of $29.8 million for Q1 2017 and loss of $146.0 million for the 2016 full year. Transitioning to a balance sheet lender likely would significantly increase gross margins, without a significant change in customer acquisition costs.

WEAK UNDERWRITING STANDARDS

A recent media report by Bloomberg indicates that:

  • LendingClub only verified income about a third of the time for one of the most popular loans it made in 2016, and
  • If LendingClub finds errors in a loan application, it may still approve the loan.

LACK OF COMPANY-OWNED STATE LENDING LICENSES

LendingClub doesn’t hold individual state lending licenses and instead utilizes the services of a Utah-based bank. This raises regulatory risks around issues such as the potential breaking of individual state interest rate caps and compliance.

POOR STOCK MARKET PERFORMANCE AND ZERO DIVIDENDS TO SHAREHOLDERS

LendingClub’s share price has decreased 79% since its initial public offering in December 2014, dropping from $25.74 in December 2014 to $5.39 yesterday, after reaching a low of $3.51 in May 2016. In addition, LendingClub has never paid, and has no reported intention to pay, a dividend to shareholders.

IEG Holdings’ Reasons for the Offer

IEG Holdings believes that changing LendingClub’s business model to a balance sheet lender model would enable the company to generate significantly higher gross margins, provide significantly higher long duration cash flow from customers, build increased customer goodwill with customers and enable increased customer refinancing. The longer duration cash flow would provide more flexibility in reducing lending volumes during periods when underwriting risk levels are rising, as the company would be less dependent on brokering new loan deals every day to provide revenue.

  • IEG Holdings intends to encourage LendingClub to undertake substantial costs cuts by terminating excess employees, achieving substantial cuts in advertising/marketing costs and other significant cost cutting measures;
  • IEG Holdings intends to encourage LendingClub to transform its broker business model with low gross margins and high volumes to focus on high gross margin unsecured loans to near prime clients with strong underwriting, company owned individual state licenses and retention of loans on its balance sheet to secure long duration cash flow from longer term loans; and
  • The acquisition of LendingClub shares would be substantially net asset per share accretive for IEG Holdings stockholders and substantially increase shareholder equity.

New partnership turns PayPal into Apple App Store payment option (Banking Tech), Rated: A

This week the company announced a partnership with Apple to allow shoppers pay for their purchases at the App Store using PayPal. The feature will be available for users of a variety of Apple devices including iPhone, iPad, Apple TV, Apple Watch, and iPod.In addition to the App Store, PayPal will be a payment option for a variety of Apple services including Apple Music, iTunes, and iBooks.

Finicity and JP Morgan Chase pair for data share (Banking Tech), Rated: A

Data aggregation provider Finicity has signed an agreement with JP Morgan Chase to let the bank’s customers choose data to share with apps.

The companies will use a direct API to allow Chase customers to share information with the apps and services that Finicity supports. According to the firms, this tokenised access will eliminate the need for customers to share their Chase credentials with third-party apps.

Paypal Holdings Inc (NASDAQ:PYPL): Beginning of Market Dominance (Library for Smart Investors), Rated: A

Paypal Holdings Inc (NASDAQ:PYPL) is getting investors attention after the stock touched fresh highs amid a new partnership with Apple.

The stock is up over 43% since the start of the year.

In the first quarter, PayPal saw a jump of 10.3% in monthly active users on year-over-year basis. The total number of transactions also increased by 22.5% in the period.

In the first quarter, Venmo processed $6.8 billion in total payments, a 100% growth on year-over-year basis. Venmo is slated to grow more as the company expands to small businesses.

WEALTHTECH — THE DIGITIZATION OF WEALTH MANAGEMENT (FT Partners), Rated: A

WealthTech companies are targeting inefficiencies that span the entire wealth management value chain, from client prospecting to investing to portfolio management and reporting. Benefits include more efficient workflows, improved client experiences and greater transparency. Regardless of their value proposition, WealthTech companies are seeking to improve overall wealth management and investing.

This report highlights a number of key trends within the broader WealthTech industry such as…

  • Growing number of advisors joining the independent channel
  • Incumbent financial institutions are entering the robo-advice space
  • Increased demand for alternative investments
  • Financial planning trending towards goal-based approaches
  • Higher levels of active risk management
  • Commoditization of portfolio management software is leading to expanded offerings
  • RIA custodians evolving into more holistic roles

Download the full report here.

Wells Fargo trims auto loans as market cools, risk overhaul kicks in (Reuters), Rated: A

Wells Fargo & Co (WFC.N) is scaling back and remolding its auto lending business in response to growing stress in the market, as well as a bank-wide push for more centralized risk controls.

Wells, which was the No. 2 U.S. provider of auto loans less than a year ago, has already cut quarterly originations by nearly 30 percent over the nine months leading into March 31, according to a May 11 company presentation. It has also begun consolidating the collections operation in a move that people familiar with the business say could eliminate hundreds of jobs, after a new head of auto finance took the reins in April.

5 Fintech Startups Under the Radar (Bank Innovation), Rated: A

Spotme

This New York City-based startup facilitates micro-loans between borrowers and lenders, allowing users to set up pretty much all the parameters of a loan themselves: users can control the amount, the interest rate, the payback period, and the way they are reimbursed for the loan themselves.

Ledger

Ledger might be able to help out there: this San Francisco-based startup allows users to “open tabs with friends,” boiling down a transaction to just 3 clicks. By connecting with a user’s financial accounts (protected by “military-grade” cybersecurity, according to the company), users are able to aggregate all of their transactions in one place, as well as receive notification about when transactions are due.

Wallio

More and more companies are striving to solve the main problem when it comes to personal finance management services: how do you make a user actually take the financial advice that is being offered?

Wallio starts off the week by giving a user an allocated amount of money they can spend for that week, on whatever the user wants (expenses and savings are already factored into this amount). If a user underspends, great: Wallio will allow that user to put that money towards a goal. If a user overspends, Wallio will simply allocate less money for the user to spend next week.

Samwise

This robo-investing startup allows users to turn their existing brokerage account into an autonomous investing account using machine learning algorithms.

OnePebble

Invest, and make a difference in the world at the same time: that’s the dream of OnePebble, an online investment broker/dealer that puts each investment toward companies “doing good in the world.”

3 Investing Trends to Keep on Your Radar (Morningstar), Rated: A

Trend: Passive products continue to gain assets.

This is the trend shaping the investment management industry today. Asset flows to passive products, both traditional index mutual funds and exchange-traded funds, began in earnest following disappointing active-fund performance during the financial crisis.

Trend: New ways to hire–and pay for–financial advice. 

Robo-advisors provide automated advice for a low annual fee as low as 0.25% or even less. Meanwhile, mutual fund companies and brokerage firms may provide advice for customers who have amassed sufficient assets at the firm. For example, Vanguard Personal Advisor Service charges 0.30% and is available to investors with at least $50,000 in assets at the firm. (The service combines human financial advisors with robo-advisor technology.)

What to watch out for: The profusion of different business models means that the business of selecting an advisor is more complicated than ever. Robo-advisor fees might look like a screaming buy relative to the fees that a full-service human advisor charges, but the robo won’t be able to give you advice on nonportfolio matters like whether to pay off your mortgage or purchase long-term care insurance.

Trend: An increased emphasis on behavioral factors that can affect investor outcomes.

What’s to like: Many robo-advisors have also embedded behaviorial research into their services.

What to watch out for: Behavioral finance is trendy right now, and with any trend comes the opportunity for gimmickry. Beware of advisors who are using behavioral finance as their main hook to snag clients; high-quality advisors have been employing behavioral finance into their practices for years.

US Tax Professionals Tackles the Tax implications of Crowdfunding (Digital Journal), Rated: A

It’s important to understand that all the income a person receives, regardless of the source, is considered taxable income in the eyes of the IRS. That includes crowdfunding dollars.

Even if the campaign only raised the projected $15,000 and no gifts were offered, the money would still be considered taxable income and need to be reported as such on a tax return.

Generally, crowdfunding revenues are included in income as long as they are not:

  • Loans that must be repaid;
  • Capital contributed to an entity in exchange for an equity interest in the entity; or
  • Gifts made out of detached generosity and without any “quid pro quo.” However, a voluntary transfer without a “quid pro quo” isn’t necessarily a gift for federal income tax purposes.

Morgan Stanley digital chief: AI to help advisers, not ‘cyborg bots’ (Financial-Planning), Rated: A

Advisers tasked with processing a “mountain of information” will get a reprieve through artificial intelligence, according to Morgan Stanley Wealth Management’s chief digital officer.

“What we want to do is, with one click of a button, they can take action on that research report to all their clients within minutes, not hours, not phone calls,” Hassan said. “That’s the promise of what we’re trying to build.”

Rival firms have shown they’re headed down a similar path. Like Morgan’s planned offering, the UBS-SigFig service will save advisers’ time through automated messaging to clients on important dates, according to Richard Steinmeier, the head of the UBS Wealth Advice Center.

Congress Should Use Congressional Review Act to Strike Down Ill-Advised Arbitration Rule (Daily Signal), Rated: B

Cutting through the hyperbole that the arbitration rule protects consumers from “unfairness” that would deny them “their day in court,” this rule is in fact highly anti-consumer and harmful to innovation.

This regulation could have particularly harmful effects on FinTech innovations, such as peer-to-peer lending.”

How much money do Arizonans spend playing the lottery? Less than most Americans (AZ Central), Rated: B

Arizonans on average shelled out $100.85 per capita on lottery tickets in 2015, according to the study by LendEDU, based on preliminary data for state government finances collected by the Census Bureau. For Americans overall, the per-capita figure was $206.69.

United Kingdom

UK setting the bar for fintech regulation, bank execs say (SNL.com), Rated: AAA

U.K. authorities have created a world-leading regulatory environment for the burgeoning fintech industry that is being emulated elsewhere, according to bankers.

The Financial Conduct Authority’s “sandbox,” a program launched in 2015 to let companies test innovative ideas under close regulatory supervision, has been particularly helpful, she said.

Meanwhile, initiatives such as FCA-organized hackathons — or “TechSprints” as it prefers to call them — have been particularly appreciated by the industry, according to Sophie Guibaud, vice president of European expansion at Fidor Bank AG, a German online lender that was bought by Groupe BPCE in 2016. These events invite market participants to come up with technological solutions to certain problems, such as financial issues faced by people with mental health problems.

The U.K. is home to more fintech companies valued at more than $1 billion than the rest of Europe put together, according to an April 2017 report by technology investment bank GP Bullhound. Three U.K.-based companies, Funding Circle, Paysafe and Transferwise, have crossed that threshold, and GP Bullhound said that it does not expect London to relinquish its lead, due to its prominence in international financial services.

Comparison site GoCompare invests in mortgage robo-adviser (AltFi), Rated: A

Financial comparison site GoCompare is hoping to transform the UK’s mortgage application process by investing in MortgageGym, a digital mortgage robo-adviser.

Users can complete a free application within 15 minutes on MortgageGym and receive matches within 60 seconds, as well as robo advice and access to live advisers. The website will use automated algorithms to match applicants with the best mortgage providers.

The House Crowd hits £50m via mix of P2P and crowdfunding (P2P Finance News), Rated: A

THE HOUSE CROWD has hit the £50m funding target it set out to achieve in October last year.

The Manchester-based property platform started targeting institutional money at the end of last year to achieve its first £50m of funds channelled to property and buy-to-let borrowers, through both its peer-to-peer side and its crowdfunding arm.

The firm raised over £15m in the six months to early 2017, while a loan it closed last month added another £600,000.

Fintech CurrencyCloud tapped up investors months before Google raise (Business Insider), Rated: A

CurrencyCloud, which provides a platform to process international payments, raised £9.5 million from its existing investors in December 2016. The company had £10.5 million in the bank at the end of the month, accounts show, suggesting the platform had around £1 million left at the time of the fundraising.

The volume of payments jumped by 110% to 1.5 million but net revenue from currency transactions increased by just 10% to £3.2 million. Meanwhile, administrative expenses rose by 54% to £13.9 million as CurrencyCloud invested in “recruiting staff, developing our technology infrastructure and operations services, and moving to new office premises.”

P2P fund share issues boost investment trust sector (P2P Finance News), Rated: A

FUNDRAISINGS by Honeycomb and the Funding Circle SME Income Fund (FCIF) helped push share issues to record levels in the investment trust sector for the first half of 2017.

Secondary issuances raised £3.3bn in the first six months of the year, trade body the Association of Investment Companies has revealed, up from £1.8bn at the same time in 2016.

FCIF raised £142m in conversion shares in April, the largest total in the specialist debt sector, while the Honeycomb investment trust raised £105m through a ordinary share issue.

Alternative Credit funds drive record cash raise (AltFi), Rated: A

Assets in investment trusts have hit an all time high thanks in part to a huge swathe of secondary issuance in closed-ended funds’ shares.

In the first half of 2017, the most poplar area of the investment trust market was Infrastructure – in terms secondary issuance – raising £1.2bn. This was followed by Alternative Credit at  £514m. Funding Circle SME Income raised the largest total in the sector securing £142m via its C share issue, followed by Honeycomb Investment Trust (£105m).

China

The number of Online Financial platforms in China Exceed 19,000, ranking the first place of the world. (Xing Ping She), Rated: AAA

According to data from National Institution of Internet Financial Risk Analysis &Technology,there are more than 19,000 online financial platforms across China, including over 6000 online lending platforms, nearly 3500 online assets managers, and 800 crowdfunding platforms. The total cumulative volume of internet loans, crowdfunding and internet payment have reached to 70 trillion RMB (US$ 10.33 trillion). Zhou Hongren, director of the National Committee of Internet Finance Professional Technology, claimed that, “No matter in terms of quantity or scale, China has already become the largest international finance marketplace around the world.”

European Union

Rocket Internet Sells Stake in Lendico Startup (Handelsblatt), Rated: AAA

Incubator firm Rocket Internet has sold its majority stake in peer-to-peer lender Lendico to Arrowgrass, Handelsblatt has learned, as the British hedge fund acquired complete ownership of the Berlin startup.

The partners to the transaction agreed to keep the purchase price confidential. Rocket Internet, which specializes in helping online startups get off the ground, most recently valued its 50-percent-plus stake in Lendico at €140 million ($159 million).

Funding Circle Germany Takes a Fresh Start (Crowdfund Insider), Rated: AAA

Germany is a huge SME and VSME (very small business) credit market. But it is not as mature a market for online marketplace lending as the UK, the US, or even the Netherlands. This partly explains why Funding Circle Germany’s early loan book underperformed. Now the platform is starting afresh to match its market’s reality.

With offices and business in Germany, the Netherlands and Spain, Zencap had originated €35 million in loans to 500 SMEs at the time of its acquisition. Its operations were very small in comparison with the more than $1.5 billion originated by Funding Circle in the US and the UK at the time (meanwhile Funding Circle passed the $3 billion mark).

The second reason for starting afresh, was a need to revisit the credit model. Since January, the new German team has been busy recalibrating and restarting the German operations.

Loan origination resumed at previous level in the first half of 2017 and is expected to grow again in the second half of this year.

Spanish Fintech Industry Comes into its Own (Finance Magnates), Rated: A

The Spanish fintech ecosystem has been a steadily growing force over the past few years, swelling from just fifty financial technology startups in 2013 to well over three hundred in 2017. This rapid surge is only going to continue with this number estimated to hit four hundred companies by 2018.

In terms of the value of the operations, this sector passed rose from just €35 million in 2014 to €206 million in 2016, justifying a 600 percent growth in just two years.

According to the Spanish Association for Fintech and Insurtech (Asociación Española de Fintech e Insurtech – Aefi), companies operating in this space in Spain are going to create a total of 10,000 jobs in 2017 alone.

While the value offintech operations in Spain is increasing, two areas that constitute the most focus are the crowdfactoring or invoice factoring crowdfunding platforms – these saw a total of €120 milion euros in 2016, that concentrate most of the operations domestically, followed by crowdfunding with €43.5 million and crowdlending or p2p lending with €42 million.

International

Visa Expands Its Footprint in Europe (Market Realist), Rated: AAA

In May 2017, Visa announced that in order to give consumers more control and make transactions transparent, the company will create digital card management experiences for its partners. Visa’s partners include financial institutions. Since the new offerings will lead to more transparency, Visa expects to see volume growth in fiscal 3Q17. Market analysts expect Visa to report revenues of $4.36 billion in fiscal 3Q17—a decline of 2.7%.

 

What Can Visa Expect from Russia, China, Japan, and India?

In fiscal 2Q17, there was growth in Visa’s cross-border business due to Russia’s developed economy. Visa implemented ~1,600 point-of-sale terminals. As a result, payment volumes are expected to grow in fiscal 3Q17.

Management thinks that obtaining a domestic license in China is a time-consuming process. Visa is expected to witness lower revenues and payment volumes from China due to discontinued dual branded cards.

Management has a positive outlook on Japan’s economy due to digitization. Japan’s government has become more inclined to use digital and electronic payments.

In fiscal 3Q17, India could be a major contributor to payment volume growth.

Visa has delivered a return on equity of 16.2% on trailing 12-months basis. Other consumer financial peers (XLF) have delivered the following return on equity on a trailing 12-month basis:

  • American Express (AXP) – 25.1%
  • MasterCard (MA) – 75%Discover Financial Services (DFS) – 21.10%

Visa Expects to Benefit from Its European Business

Visa’s (V) acquisition of Visa Europe allowed the company to enhance its global reach. The main agenda behind the acquisition was to bring innovation to the European market. Visa had been working closely with its partners and clients. The company also plans to create new services and products.

Israel

THE SURPRISING COUNTRY LEADING THE FINTECH REVOLUTION (Ozy.com), Rated: AAA

The country that gave the world smart drip irrigation and the Epilady has also been an early and enthusiastic adopter of financial technology, as in mobile banking apps, digital wallets, online lending and other services that manage moola. In fact, a survey of selected industrialized countries shows that:

As for the specifics, 50 percent of Israeli adults use mobile banking apps at least once a month. In the U.S., it was 38 percent; the U.K., 37 percent; in France, 35 percent; and in Germany, a surprisingly anemic 28 percent.

The five largest banks in Israel control more than 90 percent of the market, and as Sandra Octaviani, research lead for fintech at the University of Utah’s Center for Innovation in Banking and Financial Services, notes, traditional banks tend to serve low-risk, highly profitable clients, which creates an opportunity for nimbler fintech firms to swoop in and serve the underserved.

India

RBI wary of first loan default guarantee cover (India Times), Rated: AAA

The Reserve Bank of India is learnt to be wary of peerto-peer lending platforms offering any FLDG, or first loan default guarantee, cover to institutional lenders for any lending they do through these technology startups, said sources familiar with the discussions.

While various lending entities are keen on exploring this space as a cheap source of customers, they often look for a security cover against loans going bad. Experts say such guarantees or covers might go against the intentions of the central bank.

SME Lending Based on Payment History is the Next Big Wave in Fintech (BW Disrupt), Rated: A

ftCash aims to empower micro-merchants and entrepreneurs with the power of electronic payments and loans with zero upfront cost and no monthly rentals. Merchants are able to offer their customers multiple payment methods including credit cards, debit cards, net banking, mobile wallets, PayPal and more.

Nonethless, credit lending is the next big wave of Indian fintech. Lodha explains, “SME Lending based on payment history will be next big wave in fintech. On an active basis, it allows a lender to decide the paying ability of a merchant/business and the recollection of these loans can be done from the payment platform itself. The combination of the payments data along with GST data provides deeper insights into a business. We at ftcash are heavily invested in this idea and believe there is a great potential for scale here.”

Latin America

Venture fund for Latino entrepreneurs, fintech in Mexico  (ImpactAlpha), Rated: AAA

Financial technology, or fintech, startups offering digital payment, remittances and lending services, could capture 30% of Mexico’s banking market within 10 years, according to Finnovista, a fintech accelerator. Six in 10 Mexicans are unbanked. Financial exclusion is a problem but “also an opportunity,” Francisco Meré, the director of Bankaool, one of the first online-only banks in Mexico, told the Financial Times[paywall]. “The cost of engaging a customer through technology is a fraction of using a branch.” Clip has grown to become one of Mexico’s largest digital payment providers (Accion sold its stake in February). Kubo Financieroprovides peer-to-peer lending; Albo, mobile-based banking; and Kueski, a digital micro-lender — all have secured venture backing. More than 150 fintech, or financial technology, firms now operate in Mexico, giving Mexico 35% of fintech companies serving the under- and un-banked in Latin America.

AFLUENTA INCORPORATES THE MEXICAN INVESTMENT FUND IGNIA TO ITS PRESTIGIOUS LIST OF SHAREHOLDERS (AltFi), Rated: A

Afluenta (www.afluenta.com), a leading online credit platform for the people of Latin America, announced the addition of Mexican venture capital fund IGNIA to its group of shareholders. IGNIA is a venture capital fund specializing in investments in entrepreneurial companies with great potential for growth, whose services meet the needs of the emerging middle class.

In Mexico, where local credit to the private sector is below 35% of GDP, compared to 68% in Brazil, Afluenta aims to revolutionize the market with its human approach to credit and investment.

Afluenta connects borrowers with investors who can be individuals or companies, eliminating intermediaries such as traditional financial institutions. Its technology allows investors to receive competitive returns on their contributions in a simple, fast and efficient way, while applicants obtain loans faster, without bureaucracy and at a lower interest rate than in a bank.

Canada

Katipult CEO finalist for the prestigious EY Entrepreneur Of The Year 2017 (Digital Journal), Rated: A

Brock Murray, CEO of Katipult, a SaaS company that enables firms to design, setup, and manage an investment crowdfunding, Peer to Peer lending, or investor management platform, has been named a finalist in Ernst & Young’s Entrepreneur of the Year in the Emerging Technology category in Prairies.

Authors:

George Popescu
Allen Taylor

Marketplace lending in Mexico

Marketplace lending in Mexico

Kueski is targeting the microfinance space, for the new borrowers they lend up to Pesos 2,000, for a maximum of 30 days. The whole process is online, so no hassle of going to the bank, collect endless paperwork or wait days for approval for personal credit. In addition, the bank usually asks for a guarantee […]

Marketplace lending in Mexico

Kueski is targeting the microfinance space, for the new borrowers they lend up to Pesos 2,000, for a maximum of 30 days.

The whole process is online, so no hassle of going to the bank, collect endless paperwork or wait days for approval for personal credit. In addition, the bank usually asks for a guarantee among other requirements, turning off new borrowers.

Timely repayment of loans at Kueski is awarded by bigger loans size, longer tenure and low-interest rate for recurring customers. It also helps to build a good credit rating in the credit bureau profile, which can be beneficial to get other credits such as mortgage or auto loan in the future. It is the most convenient lending platform for those who need an immediate loan. The company has become the fastest growing platform of its kind in the region and has already granted thousands of loans.

Kueski is disrupting the consumer lending industry in Latin America and changing the way credit risk is assessed with machine learning, big data, and other novel technologies and has grown ten folds year after year. The company’s portfolio has been profitable since July 2014 with thousands of loans in volume. Though initial loss rate was high, but with constant changes in the algorithm, losses have been cut down drastically.  The average rate of interest is 1.16% daily and can go down to as low as 0.5%.

Underwriting

Kueski underwriting process is first of its kind in Mexico Fintech industry. They have developed analytics with a mixture of traditional features and socio-demographic, email account info, Facebook info etc, which enables them to gather all details of the users for the internal model that they have developed.

The team behind Kueski comes from big data and analytics background that enables Kueski to provide loans to people who don’t even have a credit score. Users are able to apply online for a small loan in the range of 80-350$, specifying how much money they need and when would they like to pay it back. Kueski leverages user’s credit history, their social graph and other online information available to build a credit risk model that will approve or reject loan applications in a matter of minutes in real time.

The firm also gets detailed information from Stat Institute about socio- demographics and socio-economic characteristics of the Mexican population, thus enabling them to leverage new variables and patterns in their algorithm. They have the technology to identify the application and correlate with the address of where people work. Information is used to develop a model using topology analytics, allowing them to create predictions about their users. This proprietary analytics technology is one of the reasons why they can give credit to people who don’t have access to banks or other credit institutions.

To lower their default rates, they have also started using Machine learning. It allows them to use different variables which are strongly correlated with other demographic characteristics. This has helped them improve their default prediction by 10-20%. The company’s technology and algorithms will be the key success factor in winning the Latin American market.

Mexican market specifics

The Mexican market functions in multiple dimensions:

–    More than half of the population of Mexico does not have a bank account, presenting with a huge market opportunity for Kueski.

–    People of Mexico are technology adopters at all ages; even at the age of 60, they are creating their Facebook accounts. This population segment is familiar with the internet, online processes, and technology. Using their digital footprint, the company decides whether to lend them the money or not.

Accessing affordable capital is a longstanding problem in Mexico as 85% of the population does not qualify for a wide range of financial services such as loans and credit cards because of low or non-existent credit scores. Kueski was founded in 2012 to solve this issue and is now the fastest micro-lending service in Latin America.  If the loan is approved, a wire transfer will be made immediately. Service is simple, paperless and available 24/7.

Kueski history

Kueski, one of the leading online lenders to the middle-class demographic in Mexico was founded by Leonardo de la Cerda and Adalberto Flores and has its headquarters in Guadalajara, Mexico. Adalberto Flores was part of Ooyala, an online video technology company, which was later acquired by Telstra two years back. The founder was in charge of operations in Mexico and thus understood the credit bottlenecks in the Mexican economy. He looked at exploring an array of products like purchase financing, P2P lending, installment loans etc. but once the market needs were understood, they decided to offer short-term micro loans to the customers.

The company has raised $35 million in funding recently, of which $10 million was in equity and $25 million in debt funding, with the potential to increase up to $100 million. The Series A round was led by Richmond Global Ventures, Rise Capital, the Crunch Fund and Variv Capital. It also included Victory Park Capital, Angel Ventures Mexico, Core Ventures Group, and Auria Capital. The company has raised more than $5 million in equity in previous rounds.

Kueski aims its business at middle-class customers. Like other competitive lenders, they claim their own special analysis of a particular combination of indicators for someone’s creditworthiness. They look at applicants “digital footprint” which allow their algorithms to execute the credit approval process in minutes versus the weeks of lag time at traditional brick and mortar financial institutions.

75 million Mexicans still lack access to financial services

 

Over the past 5 years, access to bank accounts in Mexico has grown to 39%, an increase of 10% since 2010. While the progress is promising, 75 million Mexicans still lack the access to financial services needed to support their families, their businesses (SMBs), as well as to protect themselves from unforeseen financial shocks. The massive fundraising and the proprietary technology would help Kueski solve the problem of access to credit in Mexico. The team also has a first mover’s advantage to tap the massive growth opportunity in entire Latin America.

Author: George Popescu, Heena Dhir

George Popescu