- 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 2015 numbers; IFISA meant 667% growth for Crowd2Fund;
- In NZ a very important decision on classification of fees.
- And a must read about the new Chinese regulation implications: They are now information intermediaries. What does that mean ?
- A $1 bil fund launched fully dedicated to marketplace lending. I am sure the fund will get some great deals. Good timing as the industry made a bottom and is on an up trend.
- Scott Sanborn answers Bloomberg’s article. Well answered and well written. “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.”
- A very interesting study from PeerIQ of SoFi’s capital sources, the cost of capital, new business directions and more. A must read.
- Morningstar is now a regulated rating agency. The cost of credit ratings is about to go down.
- The new risk retention rules for securitizations are extremely important as they will affect the cost of capital and sources of capital for P2P and marketplace lending. The 1st deal under the new rules closed and it’s structure is worth noting.
- KBRA upgrades Kabbage securitization rating.
- SoFi hires a new head of risk from Wells Fargo. A reminder: “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.”
- For entrepreneurs: apparently, and I find it a little suspicious in fact, blockchain investments equaled 1/2 of all 2015 fintech VC funding.
- City CEO : banks at risk of Uber moment.
- Starling Bank and Monzo/Mondo bank playing pranks with their domains. A fun read. But most importantly : 4 new challenger banks in the UK are more fintech banks than traditional banks while they can leverage the bank advantages. A fascinating dynamic to watch.
- Yirendai gets hit with multiple lawsuits after its stock fell by about 30%. We didn’t report on every single lawsuit. This is usual when a stock falls a lot. Some people may call this the ambulance chasers of the equities market.
- JP Morgan puts the entire car buying process online. An extremely interesting move, worth attention and thought.
- Zopa revenue grows by 179% in 2015 vs 2014. Loss grows by 145%. Expects to be profitable in 2017. Headcount grows from 70 to 157 people. A very good dynamic. I am very optimistic about this direction.
- Crowd2Fund saw a 667% increase in funds and a 373% increase in new investor after getting IFSA approved. ( The 667% number is suspiciously close to 666%, a very strange number that is too close to 2/3, I find it strange to be exactly 2/3…).
- Harmoney is waiting on the decision if their fees are credit fees or not. If it is a credit fee, due to regulation, the fee has to be “reasonable and only cover the lender’s transaction-specific costs”. A very important decision for the NZ lenders.
- A discussion of the history, politics, and future of the Comprehensive Credit Reporting scheme. A very interesting discussion.
- The new regulation goes beyond max loans size. P2P platforms are now information intermediaries. This means they can’t anymore 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. And of course, banks drag their feet to offer custodian services as they see p2p lenders as competitors.
- And an interesting article about Chinese lending platforms numbers and their customer’s profiles and dynamics. A fairly alarming article.
- News Comments
- United States
- $ 1 bil fund launched: River North Marketplace Lending Corp, (Peer IQ Newsletter), Rated: AAA
- Lending Club Responds to Bloomberg Article: Scott Sanborn, (Bloomberg), Rated: AAA
- A study of SoFi’s securitization characteristics, (Peer IQ Newsletter), Rated: AAA
- Morningstar Credit Ratings, LLC Now Registered to Rate Corporate Issuers and Financial Institutions ,(PR Newswire), Rated: AAA
- Say hello to the new face of CMBS deals, courtesy of Dodd-Frank, (Forbes), Rated: AAA
- KBRA Upgrades & Affirms Ratings on Kabbage Funding 2014-1 Resecuritization Trust, (Email), Rated: A
- Online Lender SoFi Hires Former Wells Fargo Consumer Risk Chief, (PeerIQ), Rated: A
- Blockchain Investments Equaled Half of All 2015 Fintech VC Funding, (The Merkle), Rated: A
- City CEO: ‘The whole banking model is a bit broken’ and at risk of an Uber moment, (Business Insider), Rated: A
- How rival challenger bank Starling pranked Mondo on day new name Monzo was unveiled, (TechCrunch), Rated: A
- Yirendai Gets Hit with Several Lawsuits on Share Price Decline, (Crowdfund Insider), Rated: A
- JPMorgan Courts Millennials by Putting the Whole Car-Buying Nightmare Online, (Bloomberg), Rated: B
- United Kingdom
- Zopa’s 2015 Annual Report Reveals: £8.9M Loss Despite Revenues Almost Doubling, (Crowdfund Insider), Rated: AAA
- Peer-to-Peer Platform Boost Comes From Government Policies, (Insights),Rated: A
- New Zealand
- Commission asks the Court to clarify Harmoney, (Scoop), Rated: AAA
- Fintech players up the ante on Comprehensive Credit Reporting, (DailyFintech), Rated: A
- Regulator shakes up turbulent P2P lending industry with new regulations, (GlobalTimes), Rated: A
- China’s Murky World Where E-Commerce Meets Student Lending, ( Bloomberg), Rated: A
$ 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.
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
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.
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.
Zopa’s 2015 Annual Report Reveals: £8.9M Loss Despite Revenues Almost Doubling, (Crowdfund Insider), Rated: AAA
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.
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.
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.
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.