- Today’s main news: Banks pull back on car loans as used-auto prices plummet. Trump’s expected OCC pick, a banker, signals paradigm shift. Elevate Credit rated a buy. RateSetter rejigs relationships with former wholesale lending partners. China Rapid Ffinance raises $60M in IPO.
- Today’s main analysis: Goldman Sachs embraces banking’s bland side. Global money transfer.
- Today’s thought-provoking articles: German Crowdfunding Association urges regulator to include real estate. Sweden’s next fintech giant. P2P money transfers to drive digital payment growth. 5 Korean fintechs to watch.
- Banks pull back on car loans, used-auto prices plummet. GP:”This is bug news. It’s more like a drop in origination.”AT: “Will this lead to a surge in alternative lenders picking up the auto loan slack? My bet is, it will.”
- Mimecast Limited vs. Yirendai Ltd. GP:”I am not very familiar with Mimecast. Mimecast is an international company specializing in cloud-based email management for Microsoft Exchange and Microsoft Office 365. Not sure why they are being compared to Yirendai. “AT: “Interesting head-to-head comparison.”
- Goldman Sachs embraces banking’s bland side: Lending money. AT: “Instead of funding the lenders, GS is beginning to lend money to business itself. I think the most interesting part of this is extending credit to consumers to make online purchases. If that is true, Goldman could be positioning itself to compete directly with Klarna, Amazon, and other big online retailers and software companies. A good example of a bank trying to make the most of the 21st century.”
- Elevate Credit Inc. rated a buy. GP:”An overall vote of confidence.”
- State regulators mount counter-offensive on OCC fintech charter. AT: “I agree, but I don’t see it happening. The one thing state power holders and federal power holders have in common is the need for control and hunger for a fight. There will be a major battle over who regulates fintech going forward.”
- Trump’s expected OCC pick, a banker, signals paradigm shift. AT: “This reveals where Trump’s loyalties are–banks and traditional financial institutions.”
- Wall Street pushes back on Mnuchin’s idea of ultralong debt. GP:”The approval or rejection of 50-100y treasury bonds has impacted the market trends.”
- RECF to take center stage at Crowd Invest Summit.
- Nav raises $13M to help small businesses with credit scores.
- Data suggests Venmo is winning mobile payments.
- Colorado vs. Fintech. AT: “This is mostly a rehash of the developments in the Colorado vs. Avant, Best Egg and WebBank, CRB vs. Colorado lawsuits. The most interesting parts are where OLPI sheds some light on parts of the briefs filed in court, particularly regarding whether Avant or WebBank is the true lender.”
- What fintech is going to do to banking. AT: “At heart, fintech is about taking away frictions. Does that mean banks are all about creating friction?”
- FinTech funding in New York declines.
- First Associates implements AI.
- Adams Business Credit rebrands.
- Hybrid approach to robo models a winner.
- MoneyLion shortlisted for top industry award.
- De Rito partners chooses RealtyShares for acquisition of shops at Fry’s marketplace shopping center.
- Download a complimentary copy of Alternative Credit Guidebook.
- RateSetter rejigs relationships with former wholesale lending partners.
- Lendy: 2017 is the year that P2P lending finally matures.
- Robots and responsibility.
- Fintech startup Curve names Callum McCaig as its first PR hire.
- MarketInvoice joins UK fintech financial crime exchange.
- German Crowdfunding Association urges regulator not to exclude real estate.
- Johan Tjärnberg is quietly building Sweden’s next fintech giant.
- Can a public sector organization become a fintech disruptor?
- P2P money transfers to drive digital payment growth. AT: “The market is expected to grow to $3.7 trillion in 2017.”
- Global money transfer.
- United States
- Banks Pull Back on Car Loans as Used-Auto Prices Plummet (WSJ), Rated: AAA
- Mimecast Limited versus Yirendai Ltd. Head to Head Compare (CMLVIZ), Rated: AAA
- Goldman Sachs Embraces Banking’s Bland Side: Lending Money (WSJ), Rated: AAA
- Elevate Credit Inc (ELVT) Now Covered by William Blair (The Cerbat Gem), Rated: AAA
- State Regulators Mount Counter-Offensive Seeking to Stop OCC’s Fintech Charter (Lexology), Rated: A
- Trump’s Expected OCC Pick Signals Shift at Regulator That Could Ripple Through Financial Markets (WSJ), Rated: A
- Wall Street Pushes Back on Mnuchin’s Idea of Ultralong Debt (WSJ), Rated: A
- Real Estate Crowdfunding to Take Center Stage at Crowd Invest Summit (Yahoo! Finance), Rated: A
- Nav raises $ 13 million to help small businesses with credit scores (TechCrunch), Rated: A
- Data Suggests That Venmo Is Winning Mobile Payments (Seeking Alpha), Rated: A
- Colorado versus Fintech (OLPI), Rated: A
- What fintech is going to do to banking (Financial Times), Rated: A
- FinTech Funding in New York Declines (Cryptocoins News), Rated: A
- First Associates Implements AI to Enhance Customer Satisfaction and Boost Portfolio Performance (PRWeb), Rated: A
- Adams Business Credit Rebrands as Context Business Lending (PR Newswire), Rated: A
- ‘Hybrid’ Approach To Robo Investing Models a Winner (Insurance News Net), Rated: A
- MoneyLion Shortlisted for Top Industry Award (MoneyLion Email), Rated: B
- De Rito Partners Chooses RealtyShares for Acquisition of Shops at Fry’s Marketplace Shopping Center (Yahoo! Finance), Rated: B
- Download a complimentary copy – ALTERNATIVE CREDIT GUIDEBOOK (NN Investment Partners), Rated: B
- United Kingdom
- RateSetter rejigs relationships with former wholesale lending partners (AltFi), Rated: AAA
- Lendy: 2017 is the Year that P2P Lending Finally Matures (Crowdfund Insider), Rated: A
- Robots and responsibility (FT Adviser), Rated: A
- Fintech startup Curve names Callum McCaig as its first PR hire (Gorkana), Rated: A
- MarketInvoice joins UK FinTech Financial Crime Exchange (Finextra), Rated: B
- European Union
- German Crowdfunding Association Urges Regulator Not to Exclude Real Estate from Crowdfunding Regulation (Crowdfund Insider), Rated: AAA
- This guy is quickly but quietly building Sweden’s next fintech giant – already operating in 65 markets (Business Insider), Rated: AAA
- Can a Public-sector Organization Become a Fintech Disruptor? (ValueWalk), Rated: A
- P2P MONEY TRANSFERS TO DRIVE DIGITAL PAYMENT GROWTH AS MARKET APPROACHES $ 3.9 TRILLION IN 2017 (Juniper Research), Rated: AAA
- Global Money Transfer (FT Partners), Rated: AAA
- CFA considers AI, robo-advice in exams (Financial Standard), Rated: AAA
- VC-backed China Rapid Finance raises $ 60m in US IPO (AVCJ), Rated: AAA
- P2P funding platforms or traditional banking systems (India Info Online), Rated: AAA
- 5 Korean Fintech Startups to Watch in 2017 (Seoul Space), Rated: AAA
Banks Pull Back on Car Loans as Used-Auto Prices Plummet (WSJ), Rated: AAA
Wells Fargo & Co., one of the largest U.S. auto lenders, last month reported a 29% fall in its auto loan originations for the first quarter from a year earlier. The decline, the biggest for the San Francisco-based bank in at least five years, was part of a common refrain in quarterly announcements from lenders including J.P. Morgan Chase & Co. , Ally Financial Inc. and Santander Consumer USA Holdings Inc.
Bankers’ caution is increasingly showing up in car sales, which Tuesday came in worse than expected for April. The declines are mostly occurring in lending to riskier borrowers, in particular those with low credit scores, where lending had ramped up for years.
Some anticipated the market would cool off after record new car sales in 2015 and 2016. But banks are also posting higher losses on defaulted auto loans, hit by a mix of more borrowers falling behind on payments and the declining value of used cars.
When lenders repossess cars, they resell the vehicles and use the proceeds from the sale to recover as much of the unpaid balance as possible. Declining values mean that lenders are recouping a smaller share of those balances. Lenders who are repossessing cars tied to prime auto loans that were securitized in 2015 are recovering about 51% of the unpaid loan balances on average, down from 56% for 2014 loans and 65% for 2011 loans, according to S&P Global Ratings.
Car loans have been among the fastest-growing consumer lending categories since the last recession.
Mimecast Limited versus Yirendai Ltd. Head to Head Compare (CMLVIZ), Rated: AAA
We will compare the two companies on revenue growth, earnings, revenue per employee, operating margins, free cash flow and valuation.
- Yirendai Ltd. has larger revenue in the last year than Mimecast Limited.
- YRD is showing a profit while MIME has negative earnings over the last year.
- YRD generates substantially larger revenue per employee ($344,000) than MIME ($202,000).
- Both companies are growing revenue. Yirendai Ltd. is growing revenue massively faster than Mimecast Limited.
- For every $1 in revenue, the stock market prices in $6.42 in market cap for MIME and $3.66 in market cap for YRD.
Goldman Sachs Embraces Banking’s Bland Side: Lending Money (WSJ), Rated: AAA
The firm has been opening its checkbook for the past several years to finance corporate takeovers, lend against mansions and art, and make personal loans for things such as kitchen remodels and fixing broken windshields.
It is exploring new credit businesses such as trade finance, equipment leasing and extending credit that consumers use for online purchases, according to people familiar with the discussions.
Loans outstanding across Goldman have doubled to $95 billion since 2011, filings show. Real-estate loans are up 10-fold. Business lending has tripled, while loans in its private-wealth division, secured by everything from stock portfolios to rare artwork, have quadrupled. Goldman doesn’t report revenues tied to lending, which remains a small part of its overall business.
Elevate Credit Inc (ELVT) Now Covered by William Blair (The Cerbat Gem), Rated: AAA
They set a “buy” rating and a $12.00 price objective for the company. Compass Point reissued a “neutral” rating and set a $9.00 price objective on shares of Elevate Credit in a report on Tuesday, April 18th. One analyst has rated the stock with a hold rating and four have assigned a buy rating to the stock. The company has an average rating of “Buy” and a consensus price target of $11.00.
Shares of Elevate Credit (NASDAQ:ELVT) opened at 7.64 on Monday. Elevate Credit has a one year low of $7.00 and a one year high of $8.86. The firm’s 50 day moving average is $8.05 and its 200-day moving average is $8.05. The firm’s market capitalization is $99.33 million.
State Regulators Mount Counter-Offensive Seeking to Stop OCC’s Fintech Charter (Lexology), Rated: A
Clearly, CSBS is mounting a legal counter-offensive to the OCC’s attempt to license entities historically regulated by the states. While state and federal regulators currently are arguing as to who should control the regulatory sandbox, the true focus of regulatory concern should be on the development of innovative financial services, consistent with safe and sound operations, with viable and effective consumer protections. While, historically, payments companies and lenders have been regulated by the states, the OCC’s SPNB Charter has sparked a dialogue as to whether the current regulatory system for fintech operations is viable. Innovation of financial services may also require innovation of financial services regulation. Rather than trying to pigeon-hole financial services into traditional regulatory models, perhaps it is time for regulators, at both the federal and state level, to act in concert to develop a system of licensing, regulation, and enforcement for financial products and services that is efficient, not redundant, and minimizes the regulatory burden on financial institutions while it provides for the continued protection of consumers. Setting aside the merits of the pending suit, the right policy prescription will likely involve the federal and state governments working together to minimize the regulatory burden while appropriately protecting the safety and soundness of FinTechs and provide necessary consumer protection.
Trump’s Expected OCC Pick Signals Shift at Regulator That Could Ripple Through Financial Markets (WSJ), Rated: A
President Donald Trump’s expected move to replace the Comptroller of the Currency signals a change in direction at the bank regulator that could ripple through the financial markets, from private-equity buyouts to financial technology—and even municipal securities.
Comptroller Thomas Curry, whom people familiar with the matter say could be replaced as soon as this week, is a career regulator appointed by President Barack Obama. Mr. Curry used his office to tamp down on what he viewed as overly risky lending practices in the banking industry.
His expected replacement—Joseph Otting, a former chief executive of OneWest Bank—would be the first former banker to hold the comptroller’s job since the 1990s.
Wall Street Pushes Back on Mnuchin’s Idea of Ultralong Debt (WSJ), Rated: A
A committee of Wall Street advisers is pouring cold water on a proposal by U.S. Treasury Secretary Steven Mnuchin to issue superlong 50-year and 100-year U.S. government bonds, arguing that the big pension funds and insurers expected to buy the securities won’t have much interest.
The committee meets quarterly, in advance of a regular release by the Treasury on its plans for financing the U.S. debt. Currently, the U.S. Treasury issues no debt longer than 30 years. Mr. Mnuchin has argued that ultralong bonds could be a useful tool for locking in today’s low borrowing costs for a very long time. Last month, the Treasury requested the advisory committee analyze the viability of bonds longer than 30 years.
The 30-year bond strengthened Wednesday, after the advisory committee cast doubt on the idea 50- and 100-year bonds. The yield on the 30-year Treasury dropped to 2.963% from 2.982% on Tuesday, according to Tradeweb. Yields fall as bond prices rise.
A key question for the Treasury is what types of investors would buy ultralong bonds, especially if the members of its advisory committee aren’t interested. Relatively few individual investors have 100-year or even 50-year investing horizons.
Real Estate Crowdfunding to Take Center Stage at Crowd Invest Summit (Yahoo! Finance), Rated: A
Crowd Invest Summit, the country’s largest crowdfunding investment conference, taking place on September 6 th and 7th at the Los Angeles Convention Center, has today announced that it will be expanding its focus on Real Estate crowdfunding.
Since the signing of the JOBS Act in 2012, Real Estate Investing has been the fastest growing segment of the new Crowdfunding Industry. According to Fundingtree.com, over $3 Billion Dollars has been raised so far.
Crowd Invest Summit is the largest investment focused crowdfunding event in the country. It was founded by pioneers in the equity crowdfunding sector Josef Holm and Alon Goren. The conference was developed with the vision that every American – whether accredited or not – can now become equity investors.
Nav raises $ 13 million to help small businesses with credit scores (TechCrunch), Rated: A
Goldman Sachs is leading a $13 million investment in Nav, a startup that helps small businesses with financial advice and credit scores. Billionaire Steven Cohen’s Point72 Ventures is also investing, along with Clocktower Ventures and the CreditEase Fintech Investment Fund.
This follows $25 million that was invested in the company last year, and is considered part of the same Series B round, bringing the total to $38 million.
Characterizing Nav as a Credit Karma for small businesses, King believes his startup will “materially decrease the death rate of small businesses in the U.S.” They currently have over 200,000 customers, most of whom don’t pay anything for their credit score, but can opt to pay about $20 per month for added financial advice.
Data Suggests That Venmo Is Winning Mobile Payments (Seeking Alpha), Rated: A
- 68% of mobile payments users are using Venmo most often.
- Venmo processed $6.8B in mobile payments in Q1.
- Rapid smartphone adoption, alongside a large unbanked population, makes the theme of mobile payments an attractive investment.
In the days leading up to the quarter, a new survey of 2,170 Millennials found that Venmo is leading the category. The researchers asked the following question: “Which of the following mobile payment apps do you use most often?”
Researchers found that 44% of respondents answered “Venmo”, 1% of respondents answered “Square Cash”, 14% of respondents answered “My bank’s mobile payment app”,and 4% of respondents answered “Other”. However surprisingly, 35% of respondents answered “I don’t use a mobile payment app”.
Colorado versus Fintech (OLPI), Rated: A
On February 15, 2017, the Administrator of the Uniform Consumer Credit Code for the State of Colorado (“Colorado”) sued Avant and Best Egg (in separate actions), claiming in both actions that they violated Colorado’s usury rate and entered into loan agreements containing a governing law provision other than Colorado.
Shortly after, WebBank and Cross River separately sued Colorado seeking Declaratory Judgement and Injunctive Relief.
On April 25, 2017, Colorado filed a Motion to Dismiss both Complaints for Declaratory Judgment and Injunctive Relief.
Colorado initially argues that WebBank’s action for declaratory judgement should be dismissed based on the well-pleaded complaint rule. There seems to be two issues with this position: (1) WebBank was purposely left out of Colorado’s initial complaint (although this theory might apply if Avant brought the federal action for declaratory judgment), and (2) diversity jurisdiction does apply as to Avant and WebBank vis-a-vis Colorado.
Second, Colorado argues that WebBank’s action should be dismissed because WebBank’s injury is too attenuated. Colorado does not directly address WebBank’s contention that the suit challenges WebBank’s overall business model.
Finally, Colorado argues that “interest exportation does not preempt the application of state usury laws to non-banks as a matter of law.” Colorado seems to acknowledge WebBank’s right to preempt Colorado’s usury rate based on DIDA (the Depository Institutions Deregulation and Monetary Control Act of 1980 – extending the National Bank Act’s preemption to FDIC-insured state banks). Colorado argues that WebBank is trying to assign its preemption to Avant – that Avant is the lender.
Colorado also argues that the valid when made doctrine is not applicable because “there is no ‘subsequent usurious transaction’ between WebBank and Avant that is alleged to invalidate a consumer’s loan obligation. Instead, Avant merely purchased the subject consumer loans from WebBank.” This is a difficult argument to follow. Colorado sued Avant claiming that Avant loans are usurious and Avant, and not WebBank, is the true lender. Colorado points out that Avant buys the loans from WeBank within two business days of the loans being made. Relying on Midland in the Avant action, Colorado states that Avant cannot “enforce a bank’s federal interest rate exportation rights when they purchase loans from banks (or purchase loan receivables) because banks cannot validly assign such rights to non-banks.” It seems to imply that Colorado is not saying the loans are invalid (due to Avant having a Supervised Lender’s License), but rather the loans just need to be limited to the Colorado usury rate –yet, as noted, the argument is difficult to follow.
What fintech is going to do to banking (Financial Times), Rated: A
- Fintech is ultimately about taking away frictions.
- I guessed that there was a 25 or 30 per cent chance that 10 years from now, there was about a 25 per cent chance that there would be a fintech company with the kind of $250bn market cap that some big American banks have. I do not expect that in the foreseeable future fintech will have the kind of existential impact on banks that Netflix has had on Blockbuster. But I do think in some areas fintech companies are likely to have the kind of effect Skype has had on the big telephone companies — forcing drastic reductions in pricing and profit margins on some key products.
- I was quite serene about the impact of fintech on financial stability.
- By providing for faster settlements, more transparency, and diversification, fintech is likely to have as many stabilising as destabilising effects.
- If the large banks of today are not as large five or 10 years from now, I think it is more likely to be because of bad lending, heavy regulation or market pressures to break up because the whole is valued less than the sum of the parts than because of disruption from fintech. I say this because much of what fintech does depends on the banking system and because I doubt that over this horizon banks can be completely disrupted.
FinTech Funding in New York Declines (Cryptocoins News), Rated: A
In the report from data provider CB Insights, The Global FinTech Report: Q1 ’17, it found that during the first three months of the year, fintech funding to venture capital-backed New York companies dropped by 35 percent on a quarterly basis. However, while financial technology deals in the state rose by 26 percent from Q4 ’16, it registered a 33 percent drop below the same quarter last year.
During the first three months there were three New York City companies – Namely, Trumid, and Payfone – who were among the top ten U.S. financial technology backed deals.
Namely raised $50 million in Series D funding from Altimeter Capital, Scale Venture Partners, Sequoia Capital, Four Rivers Group, Matrix Partners, and Greenspring Associates.
Trumid raised $27.6 million in Series D funding from Thiel Capital, and Payfone raised $23.5 million in Series E funding from BlueCross Blue Shield and Andrew Prozes.
First Associates Implements AI to Enhance Customer Satisfaction and Boost Portfolio Performance (PRWeb), Rated: A
First Associates has announced today that it has implemented A.I. enabled speech analytics as part of its third-party loan and lease servicing. The speech analytics platform facilitates higher quality customer interactions while ensuring compliance with financial industry regulations.
Using speech analytics, First Associates monitors, scores and provides agent feedback on 100% of voice interactions with consumers using data-driven benchmarking. Traditional loan servicing management techniques call for a 1% sample size of voice interactions using human quality assurance agents to assess quality and effectiveness. The company has already seen significant improvements across quality and performance metrics from the implementation.
Adams Business Credit Rebrands as Context Business Lending (PR Newswire), Rated: A
Adams Business Credit, a national asset-based lender, will rebrand as Context Business Lending, bringing the firm in unison with the family of businesses and affiliates under Context Capital Partners, an alternative investment firm. The newly named Context Business Lending will continue to focus on providing flexible working capital solutions for businesses that do not qualify for traditional bank financing.
Context Business Lending typically provides loans of up to $15 million for lower middle-market businesses that may be experiencing some type of challenge, which may include: rapid growth; seasonal fluctuations; supply chain and vendor pressure; operating losses/negative net worth; turnaround and restructuring; merger or acquisition and debtor-in-possession financing. The firm is sector agnostic and works with businesses in the manufacturing, distribution, wholesaling and service sectors.
‘Hybrid’ Approach To Robo Investing Models a Winner (Insurance News Net), Rated: A
Investors who rely on “robo-only” investment models are making a big mistake, financial advisor tells InsuranceNews.Net.
McElwee provides three specific reasons why that’s the case:
- Robo advice assumes that the past is destined to repeat itself.
- People make bad financial decisions when they are under financial stress.
- Questions, questions, questions. Robo advisors build financial profiles of clients based on a set of questions designed to reveal how a client thinks about risk, return, and financial planning.
MoneyLion Shortlisted for Top Industry Award (MoneyLion Email), Rated: B
Usage of MoneyLion’s app nearly quadrupled in the second half of 2016, allowing them to track $12bn in transactions from more than one million users. To date, users have saved over $5 million in rate reductions through MoneyLion.
De Rito Partners Chooses RealtyShares for Acquisition of Shops at Fry’s Marketplace Shopping Center (Yahoo! Finance), Rated: B
RealtyShares, a leading online marketplace for real estate investing, has just announced an $800,000 commercial equity investment in Mesa, Arizona, funded through the company’s network of accredited investors. The deal is sponsored by De Rito Partners, one of Arizona’s largest retail investment and brokerage firms.
De Rito Partners acquired the property in 2016, and is seeking to capitalize on a temporary tenant turnover in a formerly fully-leased retail property. The firm intends to use the funds raised through RealtyShares to invest in tenant improvements and implement a leasing strategy to achieve market-level rents.
The property is shadow-anchored by a Fry’s Marketplace, one of the largest grocers by sales in the Phoenix metropolitan area according to Chain Stores Guide. The shopping center is comprised of more than 20,000 square feet of rentable retail space, and is currently leased to tenants including Starbucks, H&R Block and Subway. It is located at the intersection of two major thoroughfares, four miles from downtown Mesa.
De Rito Partners owns 20 properties, manages approximately 1.9 million square feet of retail space, represents 180 shopping centers in a leasing agency capacity, and is currently developing a Fry’s Marketplace-anchored shopping center and a strip center located in Chandler, AZ.
Download a complimentary copy – ALTERNATIVE CREDIT GUIDEBOOK (NN Investment Partners), Rated: B
RateSetter rejigs relationships with former wholesale lending partners (AltFi), Rated: AAA
The acquired motor finance companies are Vehicle Stocking Limited and Vehicle Credit Limited. Both firms were acquired out of their parent company’s administration, and both have previously received wholesale funding from RateSetter. RateSetter will now lend directly to these companies’ customers.
The size of these two motor finance firms’ combined loanbooks is roughly £30m. These portfolios are said to be “performing well”, and we’re told they would have continued to be serviced had RateSetter not stepped in.
Another of RateSetter’s former wholesale lending partners is George Banco, a guarantor lender with a representative APR of 49.7 per cent. RateSetter has now taken an equity stake in the company, and will lend directly to its 10,000 customers.
Lendy: 2017 is the Year that P2P Lending Finally Matures (Crowdfund Insider), Rated: A
Lendy, a UK based peer to peer lending platform in the secured property sector, believes 2017 is the year for P2P lending to finally mature. Management says that P2P will shift from alternative finance to “main challenger to the traditional banks.” But to accomplish this goal, P2P lending platforms must build upon best practices and operate more like mainstream lenders while providing rigorous due diligence and superlative service.
Lendy advocates on four key steps in providing a better service than traditional financial firms:
- Initial due diligence – carry out an extensive ‘know your customer’ (“KYC”) process when they first source a loan.
- Legal panel – after the loan has passed the first stage it is then reviewed by a legal panel. Solicitors ensure that a legal charge is properly made against each security property, and that each of the security properties has good title.
- Valuation – use a highly rated independent firm to value security properties.
- Credit checks – put each lending proposition under extensive scrutiny to determine its viability.
German Crowdfunding Association Urges Regulator Not to Exclude Real Estate from Crowdfunding Regulation (Crowdfund Insider), Rated: AAA
Invited to defend their views vis-à-vis the financial commission of the parliament, representatives of the German Crowdfunding Association have challenged the government’s position and presented substantial counterarguments.
As a reminder: crowdfunding regulation at European Union (EU) level was so far deemed “premature” by EU authorities and is therefore not included in the Capital Markets Union, the EU’s effort to harmonize capital market regulations at EU level. Hence, each EU country currently issues its own regulation which creates a legal patchwork and hinders cross border deals.
The German government’s report firstly notes that German real estate projects represent 10% of the successful projects and 33% of the capital raised through crowdinvesting, that is €36 million. Projects are typically residential property development, mostly construction, the reminder being renovations. German real estate crowdinvesting nearly doubled in size last year while the growth of startup crowdfunding slumped.
The government finds this trend negative. It justifies its proposal to exclude real estate from the scope of the crowdfunding exemptions as follows:
- The large share of real estate in crowdinvesting represents a deviation from the intention of the legislator which was to foster the funding of high-growth startups.
- There is no lack of funding for real estate projects. Social real estate, for example, can be funded through schemes that are specific to social housing.
- Real estate crowdinvesting could be considered as a form of deregulation of real estate finance which could, bearing in mind the role played by real estate in the 2008 financial crisis, create a price bubble, and ultimately pose a threat to financial stability.
The Crowdfunding Association and crowdinvesting platform leaders found many of the government’s arguments “incomprehensible” and offered point-by-point rebuttals:
- Crowdfunding counters price bubbles and real estate overheating. The current real estate market boom is in no way due to crowdfunding, which is much too small to influence market prices, but rather to macroeconomic factors such as the currently low interest rates.
- Crowdfunding helps finance real estate SMEs and innovative entrepreneurs. There is no sensible criterion for distinguishing real estate financing from other types of business financing.
- The risk of subordinated debt instruments is not specific to real estate. It would therefore be more appropriate to open crowdinvesting to all securities, including profit sharing securities, rather than to exclude real estate from crowdinvesting.
Currently, the German crowdfunding market is disproportionately small. It is surpassed on the Continent by the French market (28% smaller GDP) and dwarfed by the UK market (15% smaller GDP).
This guy is quickly but quietly building Sweden’s next fintech giant – already operating in 65 markets (Business Insider), Rated: AAA
Johan Tjärnberg is quietly building a fintech business that may prove as successful as Klarna. During 2016, his payments company, Bambora, grew 20% to revenues of SEK 2 billion.
Bambora is a platform that aggregates hundreds of payments services, and it’s currently available in 65 markets. Bambora’s clients can even choose to use Klarna as their payment service.
During 2017 the business will expand to North America, where the number of merchants using the service will increase by 10,000 over the year. That will boost the sales of the group by 30% to EUR 260 million, Johan Tjärnberg said to Bloomberg News.
Currently, the company has about 100,000 clients, of which 30,000 are located in the US and Canada.
Can a Public-sector Organization Become a Fintech Disruptor? (ValueWalk), Rated: A
In 2010, Klaus Regling, the head of the euro-area rescue fund for the European Stability Mechanism (ESM), asked me to join the board. I agreed, and said that I wanted to build the Google of the public sector. He looked at me and asked: “Why Google? We can be better than that.” And of course, he was right.
The ESM provides financial assistance to Eurozone countries that have lost market access. It was set up at the height of the euro crisis. Without the ESM, countries such as Greece would have defaulted, and the euro would have broken up. The ESM is the institution that kept the euro together during the crisis. Our total lending capacity is $742 billion. We have provided assistance to five countries: Greece, Ireland, Spain, Portugal and Cyprus. In all, we have provided $281 billion in loans, which is three times as much as the IMF over the same period of time.
Here is how we are planning to move forward to build a modern public institution.
Digital at Heart
First of all, we wanted a lean model, and so we kept only the strategic functions in-house, like funding, economics and investments. We outsourced support functions and non-strategic functions as much as we could. We were the first financial institution worldwide to use a fully cloud-based trading system.
Secondly, we wanted to leverage new technology where possible.
Finally, our workforce of tomorrow, made up of millennials, is the first in our field to consist almost entirely of technology natives.
A Public Sector-driven Fintech solution
Europe has launched the capital markets union, an ambitious effort to harmonize corporate, tax, and bankruptcy laws across the countries of Europe. The differences between these laws are vast because of centuries of history in the 28 members of the European Union. Now we hope to make the laws more similar, because it would create a truly pan-European financial market. For example, the union would break down borders for private equity investment and venture capital, and open up an alternative channel of funding for small- and mid-sized enterprises. Thus, it would reduce Europe’s heavy reliance on bank lending.
The ECB idea is about the centralization of settlement and payment processes for securities. This is a very important initiative, and one that could be complemented by a similar initiative for the primary issuance of securities. It is worth considering a European public sector issuance platform to help distribute debt more efficiently: a fintech solution, driven by the public sector.
One could even think of using new technologies, such as blockchain, to set up the new issuance platform.
P2P MONEY TRANSFERS TO DRIVE DIGITAL PAYMENT GROWTH AS MARKET APPROACHES $ 3.9 TRILLION IN 2017 (Juniper Research), Rated: AAA
A new study by Juniper Research has found the value of digital payments will approach $3.9 trillion this year, representing an increase of more than 14% on last year’s total. While the bulk of transaction value (55%) will be accounted for by online retail purchases for physical goods, P2P (Person to Person) money transfers will see the largest year-on-year net increase in value ($200 million).
The new research – Digital Payment Strategies: Online, Mobile & Contactless 2017-2021 – argued that the US would see particularly strong growth, with the bank-backed Zelle Network expected to build on its successful debut in 2016 as additional banks come on board.
The research also emphasised that the demonetisation policies employed by India’s government had encouraged a surge in mobile wallet adoption and, with it, sharp increases in both P2P and mobile retail transactions.
Global Money Transfer (FT Partners), Rated: AAA
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CFA considers AI, robo-advice in exams (Financial Standard), Rated: AAA
The CFA Institute believes artificial intelligence, fintech and robo-advice will have the greatest impact on the financial services industry – to the extent it is considering including such topics in its examinations.
An overwhelming majority (70%) of CFA members globally who took part in a study said affluent investors will be positively affected by automated financial advice tools in the form of reduced costs, improved access to advice product choices.
Respondents (46%) however, were concerned about automated financial advice algorithms being the biggest risk emanating from robo-advice, followed by mis-selling (30%) and data protection concerns (12%).
VC-backed China Rapid Finance raises $ 60m in US IPO (AVCJ), Rated: AAA
China Rapid Finance (CRF), a VC-backed peer-to-peer (P2P) lending platform, is trading up 32% on its IPO price following an offering on the New York Stock Exchange that raised $60 million.
The stock closed on May 2 at $7.90, giving the entire company a market capitalization of around $448 million.
P2P funding platforms or traditional banking systems (India Info Online), Rated: AAA
India’s P2P Lending sector is poised to grow at a rapid pace thanks to favourable demographics, rising computer literacy, internet connectivity and the ongoing wave of digitalisation among others. With the higher economic growth, the credit-backed consumption growth may jump too.These could be the possible triggers for the growth of P2P Lending Industry.
There is no official assessment suggesting the size of the market in India. But it is estimated to be around Rs 200 Cr. The P2P lending industry may grow 25 to 30 times over next 5-6 years. Talking about the interest rate, the yield on 10-Year Sovereign benchmark bond hovers in the range of 6.45% to 6.95%.
However, it is also important to note that the P2P Lending sector is unregulated.
On the other hand, in P2P lending projects, investors can earn in the range of 14% p.a. to 30% p.a. on a reducing balance method. In P2P Lending, interest rates are decided depending upon the creditworthiness of borrowers.
5 Korean Fintech Startups to Watch in 2017 (Seoul Space), Rated: AAA
Korean fintech startup company Honest Fund is a P2P crowdfunding company that raised over $6 million in funding led by KB Investments, Shinhan Capital, Hanwha Investment, and others. It is a peer to peer personal loan lending service that connects borrowers and lenders directly without the need of banks. These funds will not impact the borrower’s credit rating and will charge between 5% to 15%with the average being 9%. They offer a different personal credit review model compared to the banks that only look at a person’s credit rating.
PeopleFund is the first Peer-to-Peer lending platform through a Bank in Korea focused on unsecured personal loans. In 2015 alone PeopleFund has processed over $13 million in loans.
8 percent is a P2P lending company that raised over $13 million. Their APR is set at 8 percent which is why the company is called 8 percent. Established in late 2014 this P2P lending company has become the pioneer in this industry. 8 percent reviews an application and based on credit score and other measures. It is cheaper for clients to use 8 percent than a bank and therefore 8 percent has been able to grow every month. Loans for startup employees and a bridge for big companies have been their new model in 2016. They made news in 2016 for getting funding of $10 million from KG Inicis, one of the leading payment gateway companies in Korea. Bringing together investors and creditworthy borrowers are what 8 percent brings to the table.
Viva Republica runs a money transferring service called TOSS which raised over $48 million in funding from Altos Ventures, Goodwater Capital, Paypal, and KTB Network. They are known for Toss, which is a financial services platform that makes payment system easier by only asking users for 1 password to go along with three easy steps. The max they can transfer per transaction is $430 which makes everyday payments easy. Now they have over 6 million registered users in Korea and Toss has already processed over $3 billion in transactions. Toss now does credit scoring as well as micro-loans and is looking into cross-border money transfers and loan brokerages.