Monday August 29th 2016, Daily News Digest

Monday August 29th 2016, Daily News Digest

News Comments Today has a lot of interesting news and analysis : A $1bil fund launched focused on marketplace lending; a very interesting study of SoFi’s cost of capital and their plans; Scott Sanborn answer to Bloomberg; Morningstar is now a rating agency; and KBRA upgrades Kabbage securitization rating. Very interesting UK data : Zopa’s […]

Monday August 29th 2016, Daily News Digest

News Comments

United States

United Kingdom

New Zealand

Australia

China

News Summary

 

United States

$ 1 bil fund launched: River North Marketplace Lending Corp, (Peer IQ Newsletter), Rated: AAA

Last week saw the final registration and approval for River North Marketplace Lending Corp, a non-listed, closed-end, 1940 Act fund fully dedicated to the marketplace lending sector. Registration docs can be found

Lending Club Responds to Bloomberg Article: Scott Sanborn, (Bloomberg), Rated: AAA

Re article entitled, “How Lending Club’s Biggest Fanboy Uncovered Shady Loans” (Aug. 18):

We were disappointed to read your article entitled “How Lending Club’s Biggest Fanboy Uncovered Shady Loans” in which you mischaracterize several attributes of the Lending Club platform.

Your reporter Max Chafkin opens his story by citing “critics” who claim Lending Club is a “credit crisis waiting to happen.” He cites neither evidence nor critics beyond a single disgruntled investor.

Far from precipitating a crisis, Lending Club has helped consumers to save $1.4 billion in lower interest payments and enabled investors to earn an average of 5 percent to 9 percent, which compares very favorably with alternatives.

As to the claim that by not identifying borrowers who have two loans, investors are “leaving money on the table,” this reveals a misunderstanding of how our platform works.

Loans are priced according to the borrower’s credit profile at the time the loan is taken out, so a borrower may have two loans with different rates. As an example, if a borrower uses their loan to pay off existing credit card debt, their FICO score would likely improve. If they take out a second loan — we allow a maximum of two concurrent loans with a maximum exposure of $50,000 — they may reasonably get a lower rate. Our approach ensures interest rates are fair to both parties.

We acknowledge the criticism stemming from recent events and view this as an opportunity to make Lending Club a stronger company. It’s unfortunate that your article focused on the unsubstantiated opinions of a single investor, rehashing issues we have already disclosed, when in fact Lending Club has enabled significant financial benefits for millions of people.

Scott Sanborn
Chief Executive Officer of Lending Club

A study of SoFi’s securitization characteristics, (Peer IQ Newsletter), Rated: AAA

The online student loan sector continues to grow rapidly, with total origination to date now exceeding $10 billion.

SoFi leads this segment, with $7 billion originated since its launch in September 2011.

Interestingly, more than other segments, securitization plays a major role in financing student lending. All leading platforms rely on it heavily, with over 50% of originated loans financed through the ABS markets (Exhibit 1).

Source: PeerIQ, DBRS, Securitization Prospectus

SoFi has a Significantly Lower Financing Cost

Source: PeerIQ, DBRS, Securitization Prospectus

Each platform has a mix of different sources of capital—securitization, warehouse funding, retail deposits and others. Here, we use securitizations as a proxy for overall financing cost of the collateral. We look at the Senior Floating Coupon tranches of the recent securitizations by SoFi, Earnest, DRB, and CommonBond. These tranches have a standard interest rate benchmark of 1-Month LIBOR; they are also structurally similar across all platforms. Investors can use spread over 1mo LIBOR to gauge relative value and risk across various shelves.

SoFi has a much lower financing cost than other lenders in this category (1.10% as compared to 1.80%-2.20%). This lower cost is due to many factors. Structurally, SoFi benefits from high over-collateralization, as well as a lower WAL. This lower WAL of SoFi is due to several features that allocate payments to subordinate tranches differently as compared to structures used by other platforms. Further, SoFi also benefits from the strong history of repeat issuance and good execution, thus enjoying the confidence, as well as broad participation, from ABS investors.  The implementation of a robust, routine securitization platform, with the benefit of great data management and analytics for enhanced investor confidence, will be a major driver in driving funding costs lower.

Morningstar Credit Ratings, LLC Now Registered to Rate Corporate Issuers and Financial Institutions ,(PR Newswire), Rated: AAA

Morningstar Credit Ratings, LLC, a subsidiary of Morningstar, Inc. (NASDAQ: MORN) and a nationally recognized statistical rating organization (NRSRO), today announced the Securities and Exchange Commission has authorized Morningstar Credit Ratings to rate corporate issuers and financial institutions under its NRSRO registration.

“Morningstar has a long tradition of providing investors with independent and robust research and ratings on all types of investments. Over the past several years, investors have come to rely on our ratings and analysis in the structured finance markets,” Vickie Tillman, president of Morningstar Credit Ratings, said.

“The expansion of our NRSRO registration to corporate issuers and financial institutions allows us to bring transparency and unique forward-looking perspectives to investors and issuers and provides a compelling alternative to the other NRSROs. Investors will also benefit from the ability to use our ratings to satisfy investment guidelines and determine risk-based capital charges on corporate debt securities.”

The corporate credit analyst team will continue to provide research, ratings, and analysis for corporate entities. The company will pursue rating assignments for security-specific corporate debt offerings, unsecured real estate investment trust debt, and financial institutions.

Morningstar Credit Ratings, LLC is a nationally recognized statistical rating organization (NRSRO) offering a wide array of services including new-issue ratings and analysis, operational risk assessments, surveillance services, data, and technology solutions.

Say hello to the new face of CMBS deals, courtesy of Dodd-Frank, (Forbes), Rated: AAA

Now the first CMBS deal to be compliant with the U.S. risk retention rules governing commercial mortgage-backed securities has hit the market – and it’s highly significant because it helps commercial real estate players begin to answer some of these questions.

The risk retention rules, legislated under the Dodd-Frank Act, go into effect Dec. 24, which means the time to figure out how to comply is now.

The new deal, Wells Fargo Commercial Mortgage Trust 2016-BNK1, is a conduit deal with an initial pool balance of $870.6 million and includes 40 commercial real estate loans secured by 46 properties, according to a preliminary prospectus filed with the SEC this week.

This CMBS deal is a “landmark securitization,” the Kroll Bond Rating Agency said in its pre-sale report on the deal. Kroll described the deal as having a “vertical” structure, one way of structuring deals so that they comply with the new regulations.

The Wells Fargo deal, in other words, is important because it could potentially serve as a model for other CMBS players trying to figure out how to structure deals that would meet the demands of the Dodd-Frank risk retention rules. These are also known as “skin in the game” restrictions because they aim to increase accountability by requiring sponsors (or their majority-owned affiliates) to hold on to an interest of at least 5%.

KBRA Upgrades & Affirms Ratings on Kabbage Funding 2014-1 Resecuritization Trust, (Email), Rated: A

Kroll Bond Rating Agency (KBRA) upgrades and affirms ratings on certain Resecuritization Trust Certificates issued by Kabbage Funding 2014-1 Resecurization Trust. As part of this rating action, KBRA upgraded the rating on the Class A2-2 Certificates from BBB+(sf) to A-(sf). The rating upgrade is based on structural improvements to the transaction’s concentration requirements and the existence of more historical data relating to Kabbage’s collateral. KBRA is also affirming the ratings on the Class B2A Certificates of BB-(sf), Class B2B Certificates of BB-(sf) and Class B2C Certificates of B+(sf), which were initially rated in November 2015.

The transaction is a resecuritization of notes issued by Kabbage Funding 2014-1, LLC. The Kabbage Funding 2014-1 Resecuritization Trust is a pass-thru structure and the underlying transaction is backed by a pool of short-term small business loan receivables. As of May 31, 2016, the portfolio had an adjusted pool balance of approximately $338.7 million with a weighted average remaining term of approximately 5 months.

Please click on the link below to access the full report: 

Online Lender SoFi Hires Former Wells Fargo Consumer Risk Chief, (PeerIQ), Rated: A

Social Finance Inc., an online lender branching out from its original focus on student loans, has hired a nearly two-decade veteran of Wells Fargo & Co. as its new chief risk officer.

Kevin Moss has joined SoFi, a representative for the company said, after retiring last year from Wells Fargo, where he was chief risk officer for the bank’s consumer lending business, according to his LinkedIn profile. SoFi’s co-founder and chief executive officer, Mike Cagney, is a former Wells Fargo employee himself. He has said that his goal is to revolutionize the banking system, and that he intends to “kill banks.”

The company has started making personal loans and mortgages, and is considering offering wealth management services, deposit accounts, and insurance, Cagney told Business Insider in December.

Blockchain Investments Equaled Half of All 2015 Fintech VC Funding, (The Merkle), Rated: A

To be more precise, blockchain investments beat all other sectors in the Fintech sectors when looking at the 2015 numbers. Half of the 2015 Fintech funding went to distributed ledger companies, and two in three firms successfully raising money are actively developing blockchain solutions.

City CEO: ‘The whole banking model is a bit broken’ and at risk of an Uber moment, (Business Insider), Rated: A

The CEO of London stockbroker finnCap believes big banks are at risk of Uber-style disruption from startups more in-tune with the outlook of millennials unless they take drastic action to adjust their internal cultures.

Smith is not the only person to warn of possible Uber-style disruption in banking. Former Barclays CEO Antony Jenkins predicted a “Uber moment” for banking last year and even the Bank of England has mentioned the car-hailing app in relation to financial disruption.

“You look at the big investment banks — where does any one of them say their mission is anything other than making money ? Culturally, I think that’s a massive, massive problem.”

 

How rival challenger bank Starling pranked Mondo on day new name Monzo was unveiled, (TechCrunch), Rated: A

As Monzo co-founder and co-CEO Tom Blomfield (who previously founded GoCardless) was unveiling the new name yesterday evening at an event held at the startup’s London office and live streamed on YouTube, little would he have known that somebody at rival Starling Bank had registered the domain name “getmonzo.co.uk” — a domain unfortunately similar to the startup’s existing “getmondo.co.uk”.

What most visitors won’t be aware of is that the latter is a bit of an in-joke between Monzo’s Blomfield and Starling’s Boden, since Starling Bank itself changed its name from BankPossible and the two challenger bank founders have a history.

And fun the Starling team had, with lots of self-congratulatory re-tweets appearing as fintech industry watchers and Monzo users, who were actually asked to crowdsource the new name, began to notice the prank. “Fans of Monzo and Starling joined in. It’s a great community doing something exciting,” adds Boden.

Yirendai Gets Hit with Several Lawsuits on Share Price Decline, (Crowdfund Insider), Rated: A

The several law firms have filed class-action lawsuits on behalf of shareholders of Yirendai (NYSE:YRD) who acquired shares at some point during 2016 – some of the filings are specifying date ranges.

The reason this is interesting is that these law firms are faulting Yirendai for actions taking by the Chinese government. If your Mandarin is any good you may read them here. To quote one filing (they are pretty similar):

“Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects.”

While the news of the new rules is still settling in, initial reports appear to indicate that larger, better-capitalized platforms will do fine. It is the smaller, undercapitalized platforms that are in for a bit of a shake out.

JPMorgan Courts Millennials by Putting the Whole Car-Buying Nightmare Online, (Bloomberg), Rated: B

Millennials, countless surveys will tell you, are not fans of big banks. They are smart, price-sensitive consumers who are far more likely than older customers to switch lenders if they find a better deal.

They are also a huge, irresistible demographic for the financial industry, which is why banks do everything possible to ensure that these digitally native customers stay loyal once they’ve pinched their noses and opened accounts.

his latest offering from Chase, the U.S. consumer, and commercial banking arm of JPMorganChase & Co., is in partnership with digital car-buying service TrueCar. Called Chase Auto Direct, it layers auto financing onto online car shopping: Approved borrowers that applied via smartphone or computer are routed to a network of Chase-affiliated dealerships that have the car they want; they walk in to find their paperwork ready. Chase Auto Direct is available for Chase customers in 30 states and will roll out to all 50 states next year.

United Kingdom

Zopa’s 2015 Annual Report Reveals: £8.9M Loss Despite Revenues Almost Doubling, (Crowdfund Insider), Rated: AAA

The can be found here.

The numbers revealed that despite loans disbursals more than doubled, rising from £265 million disbursed in 2014 to £532 million, and revenues for the year increased £11.5 million in 2014 to £20.6 million, the company experienced net losses of 8.9 million, which is a 45% from 2014 (which had a £6.1 million loss).

The company reported that its headcount increased significantly during the year, going from 70 people in December 2014 to 157 in December 2015.

Zopa noted some of its accomplishments in 2015, including it, topping £800 in loans (over $1.16 billion for the Yanks) and has returned £50 million in interest to investors and becoming the first UK peer-to-peer lending platform to surpass £1 billion (about $1.564 billion) in lending.

Janardana went on to add that he and his team expect 2016’s fourth quarter to be EBITDA positive.

They also believe the company is on track to be profitable in 2017.

Peer-to-Peer Platform Boost Comes From Government Policies, (Insights),Rated: A

In April, the U.K. government launched the Innovative Finance Savings Account (IFSA), which, according to a report from Business Insider Intelligence, “allows UK consumers to invest up to £15,000 ($20,000) in alternative finance platforms and get tax free returns.” Options open to U.K. consumers include peer-to-peer (P2P) platforms.

According to the data, the government’s new IFSA has resulted in “a significant uptick in business” for peer-to-peer lenders that have been approved by the Financial Conduct Authority (FCA).

One of those approved is Crowd2Fund, a P2P lender specializing in lending to small businesses, which has seen a 667 percent increase in funds added to the system and a 373 percent increase in new investor registrations.

Government organizations are increasingly taking advantage of new technology breakthroughs and trends by looking to crowdsourcing as a way to spur innovation and decrease costs.

New Zealand

Commission asks the Court to clarify Harmoney, (Scoop), Rated: AAA

Since its incorporation in May 2014, Harmoney has charged borrowers a ‘platform fee’ that is added to all loans funded through its platform.

Before December 2015 Harmoney set the fee at a percentage of the amount borrowed. The Commission’s view is that the platform fee is a credit fee under the Act, and that Harmoney is a creditor. Harmoney says it is not a creditor, and that the fee is the revenue it earns for running its loans marketplace.

If the Court finds that the platform fee is a credit fee, the CCCFA requires the fee to be reasonable and only cover the lender’s transaction-specific costs, as recently confirmed in the Supreme Court’sMTF/Sportzone ruling.

 Australia

Fintech players up the ante on Comprehensive Credit Reporting, (DailyFintech), Rated: A

In March 2014 the Australian Parliament rubber-stamped new Credit reporting & Privacy Laws that enabled Credit Providers (CPs) and Credit Reporting Bureaus (CRBs) to commence voluntary Comprehensive Credit Reporting (CCR).

Australian lenders are well behind on CCR, much to the detriment of Australian borrowers, argue many fintech startups. Compared to the major four banks, fintech CPs suffer from large information asymmetries when it comes to assessing the credit risk of a potential customer.

Many new lenders claim that if they were provided with access to repayment histories and a more detailed breakdown of the lending obligations a customer has outstanding, loan pricing could be far more discretionary and potentially cheaper for a vast number of Australians.

So if CCR data is generally positive for both sides of the lending/borrowing equation, why is the Australian financial sector dragging its feet?

Most likely because this stranglehold on customer data is one competitive moat incumbent financial institutions are relying heavily on going forward. And it certainly is a deep and powerful moat at that.

While many lenders are innovative at the front-end, it’s hard to be truly innovative at the back-end (where credit assessment takes place) when data isn’t readily available.

It has now been a solid two years plus since the new legislation came into effect. Given the opaqueness of CCR implementation across the lending sector, it is unclear how effective the call for voluntary participation has been.

Pre-election, the Labor Party campaigned on driving mandatory CCR. If it keeps the heat on for a Royal Commission into the banking sector then this byproduct issue may get some national attention.

China

Regulator shakes up turbulent P2P lending industry with new regulations, (GlobalTimes), Rated: A

In the Interim Measures for the Administration of Business Activities of Online Lending Information Intermediaries, one of the most notable parts is the limits on the amount that individuals and companies can borrow.

Specifically, the cap for individuals is set at 200,000 yuan ($29,989.50) from a single P2P platform and 1 million yuan from multiple platforms. Companies and other organizations are limited to borrowing up to 1 million yuan from one platform and 5 million yuan from multiple platforms.

Looking at international practices, Li noted that some Western countries have set borrowing ceilings for online lending. For example, in the US, companies can borrow no more than $300,000 from P2P lending platforms. [ Comment: I am not aware of this limit.]

“Nevertheless, even for supporting MSMEs, the lending caps are quite low,” Gao told the Global Times on Friday.

Many P2P lending platforms have let their users borrow way more than the new regulations allow. The website wdzj.com keeps data on the average amount of money borrowed by individual users on 851 P2P platforms. On 72.74 percent of those platforms, the average individual user had borrowed more than 200,000 yuan by the end of July, according to the site’s data. On 46.06 percent of the platforms, the average individual user had borrowed more than 1 million yuan.

Domestic news portal chinatimes.cc on Saturday cited the example of a Shanghai-based P2P platform, which issued 116 million yuan in loans to 92 MSMEs in 2015, with the average loan amounting to 1.26 million yuan, well above the 1 million yuan cap.

Along with the lending caps that are expected to curb the P2P lending business, the new rules also defined the nature of P2P platforms as information intermediaries, rather than credit intermediaries.

Theoretically speaking, classifying P2P platforms as information intermediaries mean that they can’t implicitly guarantee investors’ money, which contradicts the current assumption that the platforms are responsible for investors’ funds, said Luo Mingxiong, president of Beijing Jingbei Crowdfunding Technology Co and director of the Institute of Internet Finance at Shanghai Jiao Tong University.

Given the new classification, however, P2P platforms will no longer be allowed to directly or indirectly guarantee investors’ principal and interest. They are also not allowed to pool investors’ capital or use the money for their own operations, so they will need to set up custodial accounts at third-party banks.

Since the CBRC released the rules for public comment in December 2015, P2P platforms have started to get bank custodians. Yet, as of August 15, less than 3 percent of the P2P platforms had signed custodian agreements with banks, the Securities Times reported on Saturday.

Luo attributed the slow progress to banks’ reluctance to provide custodian services to P2P platforms.

China’s Murky World Where E-Commerce Meets Student Lending, ( Bloomberg), Rated: A

Those without a credit history or parental approval can borrow money to buy a smartphone, pay for holidays, or get the latest sneakers through a raft of apps such as Fenqile. The market leader, whose name literally means Happy Installment Payments, has 50,000 part-time marketers across more than 3,000 universities and proudly touts the slogan “Wait no more; love what I love.”

In the last three years, tens of millions of students have taken out micro-loans with the tap of a button to buy things.

The apps sell everything from cameras to concert tickets sourced from third-parties, charging students annualized interest rates typically above 10 percent. The loans are then packaged and sold to wealthy individuals, who find the expected return of as much as 10 percent much more attractive than the central bank’s benchmark savings rate of 1.75 percent.

Unable to afford the $450 smartphone he had been eyeing, the college sophomore from the southern province of Fujian turned to Fenqile, which allowed him to pay $42 per month for a year at an annualized interest rate of 12 percent. By the end of his junior year, he was also borrowing from six other similar apps and accumulated debt of more than $7,500, the equivalent of 10 years of tuition.

Xiao Wenjie, chief executive officer of Fenqile, said in an interview that the industry was not regulated in the past two years, leading to “disorder” that caused officials to impose recent regulations.

Fenqile, founded in 2013 by Xiao, a former executive at Tencent Holdings Ltd., says it has a 60 percent market share. It counts JD.com and Yuri Milner’s Digital Sky Technologies among backers who have invested tens of millions of dollars each. Fenqile raised another $235 million from investors in June.

The student-targeted marketing has proven highly effective. Fenqile had $1.6 billion in loan volume in the first half of 2016 and projects $4.5 billion for the year, while Qudian crossed the 10 million-user threshold in June, according to the companies.

Lending to students sprung up after authorities tightened rules on credit card use in 2009, such as requiring co-signers for student accounts that had been promoted by banks.

Aixuedai, a lending app founded in 2014 by former Alibaba employees, raised $45 million in December from a fund jointly established by Bank of China and the state-owned Zhejiang Railway Investment Group. Fenqile has started selling securitized student loans to Chinese banks and other investors and will gradually link all of its user profiles to the central bank’s credit system as it seeks to serve the hundreds of millions of people who don’t have credit cards, Xiao said.

Author:

George Popescu

August 12th 2016, Daily News Digest

August 12th 2016, Daily News Digest

News Comments Our readers have commented on yesterday’s Lending Times section titled: “Why Did Funds Appear To Have Poor Q1/Q2 Returns?” . Our reader’s comments : LCA has 1 or 2 months of negative returns over several years. Yes, VSL and other publicly traded funds have lesser performance. Flip side is the dividend yield is […]

August 12th 2016, Daily News Digest

News Comments

  • Our readers have commented on yesterday’s Lending Times section titled: “Why Did Funds Appear To Have Poor Q1/Q2 Returns?” .
  • Our reader’s comments :
    • LCA has 1 or 2 months of negative returns over several years.
    • Yes, VSL and other publicly traded funds have lesser performance. Flip side is the dividend yield is higher as price drops – 7.5%. Hard to find that return in fixed income markets.
    • Here is a document showing returns for various HF strategies. P2P returns have consistent risk-adjusted returns across years as compared to these other strategies. Not shown in the document are the monthly returns. P2P returns are also generally positive most months. To say returns have been bad recently seems to miss the broader point about the high consistency of risk-adjusted returns, and low correlation.
  • Today’s most interesting news are Square who is lending to non-clients as well now, Uber who is building a lending/lease arm, and Faircent in India who raised $1.5mil.

United States

United Kingdom

India

United States

Square Capital Outgrows Square, (deBanked), Rated: AAA

You don’t need to process payments through Square anymore to get a loan from Square Capital. Restaurants that use Upserve, a restaurant payments and data analytics system, are now eligible as well.

“We are proud to partner with Upserve and offer loans through Square Capital to even more small businesses who traditionally face barriers when seeking access to funds,” said Jacqueline Reses, Head of Square Capital.

The move puts them on a path to truly competing with other alternative lenders such as OnDeck and CAN Capital.

Uber hitches a ride with car finance schemes, (Financial Times), Rated: A

Uber launched its Xchange in-house vehicle leasing programme in the US a year ago and later gave it a shot in the arm with a $1bn credit facility, arranged by Goldman Sachs and funded by more than half a dozen Wall Street banks.

When Grace Mora found herself strapped for cash in 2014, her son recommended she try driving for Uber. With a “terrible” credit score and few options for buying a car, she took out a loan from one of Uber’s partners, Exeter Finance, which would see payments deducted from her earnings as an Uber driver each week.

Ms Mora, who took out a car loan two years ago from Blackstone-owned Exeter, says monthly payments of $726 for her Toyota Prius cost more than the rent on her apartment. “I told them this is usury, absolute usury,” she complains. Yet she still keeps driving for Uber because she receives a 10 per cent discount when she makes repayments through her weekly Uber pay cheques. Mark Williams, a finance professor at Boston University, says the programmes remind him of the “company store model” and describes the terms of the loans as “onerous”.

“Uber is vertically integrating, becoming more of an Uber bank,” he points out.

Last year, more than 50,000 Uber drivers got their cars through such schemes, and Uber expects 100,000 more to do so by the end of this year.

The Silicon Valley-based ride-hailing app is also putting considerable financial firepower behind its lending programme, with a $1bn credit facility that allows its subsidiary, Xchange Leasing, to buy cars and then lend them out.

In addition, Uber is testing a scheme called Advance Pay where new drivers can get a $1,000 interest-free loan — to be paid back from earnings — in partnership with lending start-up Clearbanc.

In Singapore, Uber subsidiary Lion City Rentals has built a fleet of vehicles that it rents out to drivers.

In India, Uber leases vehicles to drivers through Xchange Leasing — a challenging proposition in a country with no centralised credit score system. “If somebody cannot pay the monthly amount, they can simply return the car,” he added.

Uber says its Xchange leasing programme is not profitable.

3 top online payday loan alternatives,(Tradestreaming), Rated: A

Payday loans are the crud at the bottom of the personal loan product basket. The Pew Charitable Trust’s 2010 report on the use of payday loans shows that the phenomenon is hardly minor: that year, approximately 12 million Americans, or about 5.5% of the entire population, used a storefront or online payday loan.

That same survey found that payday loans are rarely just for emergencies. Borrowers tend to use payday loans for everyday expenses. On average, a payday borrower will take out eight loans of $375 each per year and spend $520, or nearly 40%, on interest.

Online payday loan have made it easier to get quick cash. With great convenience, though, comes even worse payday terms and conditions for users.

A number of online payday loan alternatives have sprung up to provide fair everyday lending alternatives.

LendUp bills itself as payday loan alternative with a mission “to provide anyone with a path to better financial health”. And when they say anyone, they mean anyone – even a person burdened with unsavory credit history.

Avant, a Chicago-based company launched in 2012, positions itself as an alternative to both credit cards and payday loans. Users might not have the right credit history to procure a credit card, and the company’s website notes that payday loans can charge up to 700% in interest. However, Avant provides subprime loans regardless of credit history, with rates ranging from 36.00% to 9.95% APR.

QCash was originally launched by Washington State Employees Credit Union in 2003 as an in-house alternative to payday loans. WSECU had found that alarming numbers of their members were turning to predatory lenders for a product that was not available at the credit union – short term cash needs.

Even doesn’t make the cut simply because it hasn’t launched yet, though its premise is promising.

Yet another alternative payday app is Activehours, which essentially mimics payday loans by allowing borrowers to cash in what they’ve earned through the app before the two week payday rolls around.

Are Payday Loans Really All Bad?, (Pacific Standard), Rated: A

A new paper suggests payday loans improve well-being in some situations, but not in others.
Some researchers have linked payday loans to a host of economic ills, including problems paying mortgages and other bills, higher rates of personal bankruptcy filing, an increased need for government assistance, and lower rates of child support payments. Elsewhere, researchers have found that access to payday loans mitigates foreclosure rates after natural disasters, while regulating the industry only results in more bounced checks and a decline in overall financial condition.
A new paper by the Federal Reserve’s Christine Dobridge suggests that both of these narratives may be correct. More specifically, while access to payday loans improves household well-being during times of financial distress, the opposite is true during normal times.

Lending Club Reports Q2 2016 Results With .96 Billion in Originations, ( Lend Academy), Rated: A

Lend Academy reports on Lending Club’s results and includes a few nice charts from the Lending Club deck.

Lending Club still holds $832 million in cash and equivalents with no outstanding debt. They leveraged a portion of this cash to purchase $135 million in loans in the second quarter with a majority of these loans being resold at a later date.

OnDeck Reports Q2 2016 Results and Continues to Grow Originations, (Lend Academy), Rated: A

Lend Academy also reports on OnDeck results also with some nice slides from the OnDeck presentation. Also worth a look.

When trying to understand OnDeck as a company, it’s important to understand what holding more loans on their balance sheet means from a financial perspective. The financial highlights above at a glance paint a pretty negative picture but there is more to the story.  Historically, OnDeck has captured more revenue directly from the sales charge called “gain on sale revenue” due to selling loans on their marketplace. This gain is realized immediately and boosts quarterly revenue when a larger portion of loans are sold.

When loans are kept on their balance sheet, the income is realized over time as loans repay which explains in part the decrease in net revenue. In addition, the company has higher provision expenses since this expense for loans held on their balance sheet is realized immediately even though the loans pay out over time. Q2 2016 provision expenses were $32.3 million, up from $15.5 million in the same period last year. This increase is to be expected as there was a 74% increase in loans designated to be held on balance sheet over the same time period.

The below donut charts show the funding mix for the past three quarters. While the marketplace made up just under half of funding in Q4 2015, this has dropped to around 25% in Q2 2016. Securitization remains a fairly consistent source over the last three quarters.

Do We Need Bank Branches?, (Lend Academy), Rated: A

An article in American Banker says that large bank branch networks are here to stay. The author is basically saying that people of all ages like to deal with real people, particularly when it comes to finance.

The author went on to say that the argument was made 30 years ago that branches would become obsolete but the fact is that branches are still alive and well today.

According to this Washington Post article from April the World Bank predicts that the number of branches in the US by 2025 will drop 33% from their 2004 levels. In Europe that number will be 45%. Clearly the number bank branches is in decline.

Talk to a typical millennial today and ask them when was the last time they visited a bank branch.

When it comes to investing, something that most millennials are just getting started with, I would argue that the popularity of robo-advisors like Betterment or Wealthfront are better suited to serve the needs of this new generation. SoFi has started making inroads here as well with a similar service that is slightly more high touch but still very much tech-oriented.

I think the bank of tomorrow will be so vastly different to the bank of today that we can barely even conceive of it today.

California a Hot Real Estate Market for RealtyShares Crowdfunding Investors, (Realty Shares), Rated: A

California borrowers and sponsors have raised more than $53 million across 90 properties in the Golden State. “One of the most reliable recipes of entrepreneurial success in the last 20 years has been taking an existing asset class and making it freely tradeable by anyone in the world over the Internet,” said Gene Linetsky, Chief Technology Officer.

RealtyShares continues to target supply constrained markets with diversified economic bases across the United States in an effort to give its tech-savvy investors diversification options they might otherwise not have access to.

A Review Fundera’s process, (Nav), Rated: AAA

Pro:

Fundera lists your available options in a clean table. The application form is easy and can be a time-saver. If you click to see more details about each individual funding option, you’ll see an explanation of the pros and cons of each option. Once you’ve submitted your application, you are assigned a loan advisor who connects you to available funding options.

Con:

Using Fundera’s online application form, it’s hard to get a good idea of the annual percentage rate (APR) of each financing product. The “my profile” dashboard shows what options the applicant is ineligible for, but it’s hard to get a firm idea of why.

OnDeck Appoints Gagan Kanjlia to Lead Product Group, ( Yahoo Finance), Rated: B

.0.0.1.2.0.1.0.0.0.0.0.0.$SideTop-0-HeadComponentTitle-Proxy.$SideTop-0-HeadComponentTitle.0">OnDeck Appoints Gagan Kanjlia to Lead Product Group, ( Yahoo Finance), Rated: B

OnDeck appoints Gagan Kanjlia as Senior Vice President of Product.

Kanjlia joins OnDeck from Capital One, where he co-founded the Capital One Garage, a corporate internal incubator for Capital One Financial Services, ran digital product efforts for the Auto Finance and Home Loans divisions and built out the digital product practice for Capital One Financial Services.

“This newly created role on our senior management team reinforces our commitment to product and technology innovation as key drivers of our growth,”

United Kingdom

It’s game on as Mondo, the UK banking startup, finally becomes a licensed bank, (TechCrunch), Rated: AAA

Mondo, the U.K. mobile banking startup and probably the noisiest of the new breed of British challenger banks, is now officially, well, a bank.

That’s because, until now, the London-based company didn’t hold a banking license and existed entirely in the form of a pre-paid Mastercard and accompanying, albeit rather nifty, iOS and (more recently) Android app.

It offers the ability to do things like track your spending in realtime, view geolocation-marked transactions on a map, view spending by category, and get a graphical timeline of your overall expenditure.

Mondo has been granted a UK banking licence ‘with restrictions’ by the UK regulators FCA and PRA. This means that its beta testers can now in theory begin switching to a Mondo current account and use the startup to do a lot more of their banking.

Competitors Starling (for which Mondo’s founders have history), Atom Bank, and Tandem already secured licenses — Mondo says, at only 18 months old, it is the youngest company ever to be granted a banking licence and proof regulators are becoming more nimble as the country attempts to foster its fintech reputation.

It also notes that Mondo co-founder and co-CEO Tom Blomfield, who previously foundedGoCardless, is now the youngest CEO of a bank in the UK, having turned 31 just one day after the licence was granted.

Centre for Economics and Business Research: Small Business Loans on Funding Circle Boosts UK Economy By £2.7 Billion Since 2010, ( Crowdfund Insider), Rated: A

On Thursday, the Centre for Economics and Business Research released its latest report that revealed small businesses loans facilitated by Funding Circle had boosted the UK economy by £2.7 billion since 2010.

The report also revealed:

  • Over three-fifths (61%) of Funding Circle borrowers saw their revenue increase as a result of the loan, while nearly half (47%) reported a rise in profits.
  • The GVA (Gross Value Add) impact has built up over time, from £39.8 million in 2011, to £401.6 million in 2013, reaching £2.7 billion by mid-2016.

You can find the report here.

UK SMEs flock to p2p lending boosting jobs and housebuilding, report finds, (Alt Fi Credit), Rated: A

Small businesses are increasingly using p2p and marketplace lending platforms to meet their financial needs, according to a report by the Centre for Business and Economics Research (CEBR).

The report also highlights that businesses from the North East use non-bank forms of finance much more than traditional high street banks. North East businesses at Funding Circle make up 10 per cent of all lending but only 3 per cent of the UK business population.

Scott Corfe, director at the Centre for Economics and Business Research said: “Since the financial crisis, UK businesses have increasingly turned to non-bank lending to raise the funds they need to invest, hire new staff and expand to new markets. Companies such as Funding Circle are driving billions of pounds of economic activity and generating tens of thousands of jobs, something that’s set to grow rapidly as the financial landscape continues to evolve.”

India

Peer-to-peer lending platform Faircent raises $ 1.5 mn funding from BCCL, (Your Story), Rated: A

Peer-to-peer lending platform Faircent, which caters to retail and business loans, has raised $1.5 million funding from Brand Capital, the Bennett Coleman and Co (BCCL) arm for ad-for-equity investment.

Faircent was founded by Rajat Gandhi, Vinay Mathews and Nitin Gupta in 2014. In two years, it has over 6,000 and 26,000 registered lenders and borrowers, respectively and has disbursed total loans amounting to Rs 6.5 crore.

The firm had earlier raised an undisclosed amount of funding in a Series A round from Mohandas Pai’s Aarin Capital and JM Financial Products, a subsidiary of JM Financial.

Author:

George Popescu