You’ve likely heard that OnDeck recently expanded its relationship with JPMorgan Chase. Lending-Times decided to take the opportunity to discuss the deal with OnDeck CEO Noah Breslow. Here’s what he had to say. The relationship goes back almost four years, Breslow said. “Right before we went public,” which happened in 2014. At that time, JPMorgan […]
The relationship goes back almost four years, Breslow said. “Right before we went public,” which happened in 2014. At that time, JPMorgan Chase was involved in developing their internal business strategy and focused on small business products. “The small business loan experience was expensive, and it took a long time for customers to get approved.”
In fact, Breslow said there were several pain points, but the solution turned out to be a partnership with OnDeck, which specializes in small business loans.
“The contacted us and said they wanted to enter into a trial with us to build a digital loan experience,” Breslow said. The non-bank lender said yes, and the rest, as they say, is history. “For us, it meant getting into the highest level of banking. We helped Chase take the small business loan process from six weeks to six clicks.”
A Partnership Made in Nirvana
While the idea made sense for both OnDeck and JPMorgan Chase, it took a while to take the partnership from idea to market.
“There were a million different hurdles,” Breslow said. “That included compliance and regulatory risks, governance issues, and more.” Finally, after a long trek and many discussions, the first loan was made in April 2016. But what, exactly, does each party do for the other?
Chase has customers. Lots of them. According to its 2016 annual report, the company has relationships with approximately 50 percent of American households. In hard numbers, that’s 60 million. The bank also had 26.5 million active mobile customers, up 16% year over year from 2015. Average business deposits were $110 billion. That customer base was completely out of reach of OnDeck until they partnered with the bank.
The bank agreed to market the loan product to its customers in exchange for OnDeck’s technology. They take care of the approval process and provide the capital for the loans. In return, OnDeck provides lending as a service using its proprietary technology to give Chase customers an approved end-to-end digital experience. They takes care of sales, servicing, collections, and customer service.
“When it was time for JPMorgan Chase to decide whether to continue the relationship, they double downed,” Breslow said. And the next four years should demonstrate to the world that bank-fintech relationships really work.
What OnDeck Hopes to Get Out Of Its Partnership with JPMorgan Chase
“It’s not lending revenue for us,” Breslow said. “It’s technology revenue. It’s transactional. So there’s no credit risk.”
That can take a load off. But there is always a give and take where risk and reward meet. For OnDeck, those transactional revenues are small per capita. They get just a small payment for each loan in exchange for the use of their technology. But at scale, those small dollars can add up to millions in revenue each year when Chase customers use the service. And judging from last year’s annual report, Chase’s digital lending apparatus is working quite well.
“It’s a little impact,” Breslow said. “We hope to see it grow in 2018 and 2019 as we scale. Long term, we hope this relationship will become a bellweather for other banks to partner with us so we can integrate our technology into their systems to reach more customers.”
OnDeck has had discussions with other banks, but so far, Chase is the only one to turn a nibble into a bite. “Banks have gone from questioning fintech to realizing that they have to build a digital experience for their loan products,” Breslow said. “The question for them is, ‘Should we build, buy, or partner?’”
Breslow is hoping they’ll opt for the partnership and choose OnDeck.
“We have a great engine to make small business loans, to leverage our platform for the direct lending business. We haven’t been in business for 100 years,” Breslow said. “We don’t have the customer relationships, but banks have them.
Breslow’s Crystal Ball: More Partnerships On The Way
OnDeck has made some major structural changes to its business in the last year to bring itself back to the growth stage. It is liquid with a solid balance sheet and has funding in place from several key institutional investors. Now the focus is on building on that growth, adding new products, and building more partnerships.
“As we head in 2018, we’ll be incorporating new features into our technology, and we believe we’ll have one or more new products by the end of 2018,” Breslow said.
Regarding business lending in general, Breslow sees a couple of trends emerging. First among them is the ability for technology companies to profit. “Profits will come faster and easier,” he said. “We’ll see more data sources, new accounting systems, bank transactional technologies, credit bureaus, and more. Right now, data is flowing in one direction. But I think it’s going to be more frictionless and accurate.”
The second trend he sees is more partnerships between traditional banks and fintech companies.
“It’s happening in consumer lending and small business lending,” he said. “These partnerships will happen all over the world.” Breslow said OnDeck may even be in a position to buy up a smaller company in the next year or two.
One thing is for certain: The future is looking up, both for OnDeck and for online lending. If more banks like Chase partner with technology companies like OnDeck, consumers won’t be able to know the difference. When they go online to apply for a loan, they’ll be applying through their bank (Bank of America, JPMorgan Chase, CitiBank, or a smaller regional or community bank), but the interface that will make it happen will be OnDeck’s or one of its competitors.
A wave of lending start-ups with innovative financial technology at their core and with a single minded motive to facilitate small businesses and consumers have taken the lending sector by storm all across the globe. Post-2008 financial meltdown, these startups have grown both in size as well as in numbers at a breakneck pace. The […]
A wave of lending start-ups with innovative financial technology at their core and with a single minded motive to facilitate small businesses and consumers have taken the lending sector by storm all across the globe. Post-2008 financial meltdown, these startups have grown both in size as well as in numbers at a breakneck pace. The rise of fintech can be gauged from the fact that in a survey by PWC, around 50 percent of the financial services firms shared that they plan to acquire fintech companies in the next three to five years and almost eight out of 10 institutions plan to strike strategic partnerships with P2P lenders.
D+H is a global payments and lending technology provider based out of Toronto serving nearly 8,000 financial institutions. With revenues of over $1.5 billion and 5,500 employees, it’s a bona fide giant in the financial technology industry. The company has realized the shift towards digital lending and mobile-first experience, recently launching Total Lending Small Business, […]
D+H is a global payments and lending technology provider based out of Toronto serving nearly 8,000 financial institutions. With revenues of over $1.5 billion and 5,500 employees, it’s a bona fide giant in the financial technology industry. The company has realized the shift towards digital lending and mobile-first experience, recently launching Total Lending Small Business, a mobile-first lending solution designed to boost traction for traditional lenders and improve the lending experience for small business owners across the United States.
D+H hired David Boswell as head of its new lending products division. Under his supervision, they researched the banking sector for a year-and-a-half to spot opportunities for a new product. Before launching the solution, it was put through rigorous testing and, in March 2017, Total Lending Small Business kicked off. A cloud-based SaaS solution developed to target the small business space, banks and other lenders can use it to deploy an online loan application for small business owners in record time.
The solution is a lot quicker and more efficient than paper-based branch models and processes more loan applications with the same amount of resources. It is a pure win-win as there is revenue augmentation without additional costs.
Rather than try to find something new and exotic, D+H went back to the basics and tried to tackle the problem of borrower experience in the loan application process. Even though the solution is primarily all about elevating lender efficiency and borrower experience, the product offers much more. Since it is cloud-based, it will help lenders reduce overhead expenses such as office space and manpower while reducing the chance of human error. That will improve processing speed and customer satisfaction.
Features of Total Lending Small Business
Total Lending Small Business is an entirely online-based application available in both mobile and desktop versions. The USP is its interactive interface. Borrowers can have virtual conversations that develop questions, and answers, on the go. This allows for a hassle-free experience compared to other platforms that use a preset form for all borrowers.
The platform is particularly beneficial as small business owners sometimes don’t really understand the technical details associated with loan applications. Through live interaction, the platform is able to intuitively interact with each borrower. For now, D+H is sticking to the application process, but the company is expected to add other features to the platform that include uploading documents, upselling, and underwriting.
Buy or Build
Some banks are not large enough to develop their own platform or technology solution. Therefore, it makes sense for them to buy a specialist solution. D+H aims to target about 100 banks up to $20-30 billion in revenue.
Small business lending has proven to be an Achilles heel for banks. The financial crisis led banks to vacate this space as the risk was not consummate to returns. But with growing competition in other lending segments, banks have finally started taking the SMB lending space seriously again. They are either developing their own SMB lending solutions or are partnering with alternative lenders with a proven track record.
One association that has made waves in the lending space is the Chase/On-Deck partnership. On-Deck has turned into a tech provider while Chase Bank is leveraging its existing client base and balance sheet to penetrate the SMB lending market.
Over the years, SMB lending has evolved manifold, and a lot of non-traditional lenders are beginning to enter the space. This makes it pertinent for brick-and-mortar lenders to shore up their SMB customer bases by introducing lending systems commensurate with the technology currently prevalent in the market.
Mortgage Lending Solution
Mortgage lending solution is the principal business of D+H. The company got its start in the early 2000s when the internet gaining popular traction. The premier software is available as an SaaS deployed in the cloud or an on-premise platform. Its main targets are online mortgage businesses.
Solutions range from POS origination, processing, and compliance documentation. All these solutions are highly customized for the customer experience. Earlier, only 2% of mortgage applications were completed on mobile devices, but in last 2-3 years, that number has jumped to 20%. This significant increase in number is due to busy lifestyles and smartphones increasingly replacing desktops and laptops for private browsing.
While developing its SMB lending platform, D+H placed specific emphasis on this shifting trend.
Responding to the trend, D+H launched its second Mortgagebot solution. Mortgagebot LOS, a total lending mortgage solution, has signed over 200 customers in two months since its launch. Company executives believe the growing interest in a mobile-optimized experience will lead to greater demand for the product.
Next big thing: Smartphones
These days, more people rely heavily on their smartphones, yet lending companies don’t develop or design software tailor-made for them. D+H believes the introduction of smartphone solutions into the technology mix will completely change how lenders and borrowers interact. The company has been getting feedback from testing its solution on a real user base to ensure an intuitive customer experience.
Making a difference
Many players have entered the market with their white-label online lending platforms. TransUnion recently launched Find My Offer – “a set of configurable white-label web screens that support a lender’s consumer prequalification and digital prescreen initiatives.”
All of these online lending platforms have a similar set of features, and lenders depending on such platforms to boost growth will find themselves behind the curve. Such platforms are a commodity now, and compulsory for operating a lending business.
News Comments Today’s main news: OCC addresses risk management for bank-MPL relationships. IFISAs dogged by further delays. Radial integrates with Klarna. Bitbond raises $1.2 mil. Today’s main analysis: Marcus marks the end of traditional banking. Today’s thought-provoking articles: 3 upcoming changes to private student lending. The Pulse of FinTech infographics. United States OCC establishes risk management expectations for bank-MPL […]
Marcus marks the end of traditional banking. AT: “I wish this were true. I’d welcome a radical change to the entire banking ecosystem. Unfortunately, this is one company, a great company doing something bold, but one company nonetheless. I’ll believe traditional banking is dead when ICBC, HSBC, and JPMorganChase open digital branches or follow Goldman Sachs online.”
On January 24, the Office of the Comptroller of the Currency (OCC) issued a new bulletin, OCC Bulletin 2017-07 (Supplemental Examination Procedures for Risk Management of Third-Party Relationships). The stated purpose of the bulletin is to assist bank examiners in evaluating the third-party risk management practices of national banks and federal savings associations (collectively, banks). For the most part, Bulletin 2017-7 reinforces existing OCC supervisory expectations. In several notable respects, however, the bulletin breaks new ground, including by addressing relationships with marketplace lenders.
In establishing risk management expectations for relationships between banks and marketplace lenders in its new bulletin, the OCC is following the lead of the Federal Deposit Insurance Corporation (FDIC), which issued its own supervisory expectations for these relationships in late 2015. As in the case of the FDIC’s guidance, the OCC bulletin broadly defines the term “marketplace lender” to include any “companies engaged in Internet-based lending businesses (other than payday lending).”2 Specific examples of marketplace lenders stated in the OCC Bulletin include online companies that make small business loans, consumer loans, student loans and real estate loans.3
If a bank plans to contract with a marketplace lender to “perform some, if not all operational functions, including processing, underwriting, closing, funding, delivering, and servicing of loans,” OCC Bulletin 2017-7 requires the bank to have sufficient support “systems, controls, and personnel [in place] to adequately support the volume of planned loan origination, servicing, or collection activities.”4 In addition, if the bank is considering contracting with a marketplace lender to originate or purchase loans, the bank must determine whether the lender’s underwriting methods are “new, nontraditional, or different from the bank’s underwriting standards.”5 Finally, if the bank will be investing directly or indirectly in, or will be providing warehouse lines or other credit facilities to, any third-party lender, including a marketplace lender, the bank must determine whether the third-party lender’s underwriting standards are consistent with the bank’s own underwriting standards.6
First, it’s a good indicator of the post-financial crisis banking industry.
Second, rising compliance costs—combined with over seven years of zero-interest rate policy from the Fed—was a bad environment for bankers.
Peer-to-peer lending has grown from nothing a decade ago to be a $26 billion industry in 2015. However, it still only accounts for 2% of the market for unsecured consumer credit.
Goldman Sachs is using Finacle, a software program owned by Infosys, to run the Marcus lending platform. With this software, Marcus customers will be able to fully customize their loan parameters within guidelines set by the bank.
Gone are the days of negotiating with a banker on loan terms. The Finacle software is fully automated and will process the transactions in real time. It’s a fully operational “bank within a bank” that only relies on approximately 200 Goldman employees, according to Bloomberg.
Marcus is not a peer-to-peer lending platform. Instead, Goldman will be making loans against its own balance sheet. This will give the bank more flexibility with setting competitive loan terms and fees.
According to a Morgan Stanley report published in 2015, the effective annual interest on the peer-to-peer lending platforms analyzed was on average 6.8% lower than those offered by banks.
All the while, P2P lending platforms have historical net annualized returns between 5% and 10%. Compare that to investing in a 5-year US Treasury note that yields less than 2% today, below the reported rate of inflation, and can you see why Goldman Sachs got involved with online lending.
In fact, the day after Trump was elected to office, the stock price for Sallie Mae Corp., a large student loan lender, shot up nearly double from $7.10 per share on Election Day to $12.47 on Feb. 15.
For prospective private student loan borrowers, here are a few expectations that experts say consumers may see in the next year or two as a result of changes at the federal level.
1. More lenders entering the private student loan market: Matherson says easing of lending restrictions will lead to more lenders entering the marketplace over the next two years.
Experts say large commercial banks that left the private student lending market after the 2008 financial crises may also return.
2. Interest rate hikes for both variable and fixed-rate private loans:The Federal Reserve is signaling that it’s on course to raise the short-term interest rate this year.
Lending experts say they expect to see a 1 percent rise in interest rates for private student loans over the next two years. Those increases, they say, will affect both variable and fixed-term rates on private education loans.
3. A growing number of start-ups offering income-shared agreements: Under an income-shared agreement or ISA, students use funds from an investor to pay for college and in turn agree to make payments based on a percentage of their income for a set period of time after they graduate.
Casey Jennings, chief operating officer at nonprofit 13th Avenue Funding, which works with low-income students, says clarification of the legislation will make it much easier for financial and educational institutions to enter this space.
Unison Home Ownership Investors, the leading provider of home ownership investments, announced today that Ron Suber, president of Prosper Marketplace, has become an investor in the company and has taken on a significant advisory role as the company is experiencing a period of unparalleled growth, opportunity and availability.
A financial services industry veteran, Suber brings to Unison a wealth of experience across multiple disciplines. As an influencer in the financial technology space, Suber will look to grow the home ownership investment category through his relationships with marketplace lenders, mortgage companies, realtor groups and banks.
LendIt, the world’s largest show in lending and fintech, today announced eight finalists for its fifth PitchIt @ LendIt competition. In partnership for the first time with 500 Startups, the world’s leader in investing and mentoring, and sponsored by Marqeta, PitchIt is a leading global competition for fintech startups to earn mentorship, endorsement and exposure to institutions, investors and broad visibility.
This year’s finalists were chosen from nearly 300 high caliber applicants covering all areas of fintech including insurtech, blockchain, payments, online lending, credit and artificial intelligence.
The eight 2017 PitchIt finalists are:
The finalists will pitch their concepts at LendIt USA 2017 on March 7 to a panel of judges from the venture capital community including: David Teten, ff Venture Capital; Kareem Zaki, Thrive Capital; Ben Malka, F-Prime; and Joel Monegro, Union Square Ventures.
Kabbage is marketing its first marketplace loan ABS of the year and its second since inception. Meanwhile, SoFi is in the market with its second consumer loan ABS – SoFi Consumer Loan Program 2017-2 – backed by US$343m of consumer loans and comprising several elements that differ from its previous securitisation.
Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to two classes of notes issued by Arcadia Receivables Credit Trust 2017-1 (“ARCT 2017-1”). This is a $213.137 million consumer loan ABS transaction that is expected to close March 6, 2017.
This transaction is the first rated securitization of prime unsecured consumer loans facilitated by LendingClub Corporation’s (“Lending Club” or the “Company”) proprietary technology platform supporting an online marketplace that connects borrowers and investors by offering a variety of loan products originated by issuing banks through the platform, www.lendingclub.com(the “Lending Club Platform” or the “Platform”).
Finlab, short for Financial Solutions Lab, is an 8-month startup accelerator program funded by JPMorgan Chase and run by the Center for Financial Services Innovation. It just sent out its third call for applications from financial technology startups working on tools for underserved populations. It’s an example of how banks are now partnering rather than competing with startups — a trend that’s grown quickly over the past couple of years.
Finlab began two years ago, and winners get $250,000 of capital, one-on-one mentorship and networking opportunities. About eight or nine winners are picked each round. Winners participate in a series of workshops across the country on how to grow their businesses, including a session on regulation.
Big banks are likely to keep supporting these programs — not only for relationship building, but also because startups are working on areas major banks aren’t addressing, said Gilbert.
Real estate is one of the fastest growing markets to take on the concept of crowdfunding and apply it in a new way.
Here are four emerging trends in real estate crowdfunding to watch this year.
Regulation Brings Crowdfunding to Maturity. Today, crowdfunding has matured and investors are more intrigued than they are skeptical. This is due, in large part, to the JOBS Act and the enactment of Regulation A+. It legitimized the industry and it has been growing ever since.
Foreign Investment in Real Estate Is Booming. According to The Guardian, a recent U.S. real estate study showed that Chinese investors have poured $110 billion dollars into the U.S. market in the last 5 years (both commercial and residential). This investment is set to double in the next 5 years. Because of foreign investment expansion in the U.S., it’s relatively safe to assume that a portion of those dollars will go into alternative funding options like real estate crowdfunding.
Wealthy Millennials Are Investing Their Money Differently. However, with the influx of unicorn technology companies and the increase of millennial millionaires, the need to put their money somewhere is still very much on their minds. Real estate crowdfunding has the potential to help them share the wealth while staying true to their sensibilities.
Crowdfunding for Retirement. Those considering real estate investing, especially through crowdfunding platforms, could potentially improve their rate of return with tax efficient strategies, more specifically IRA’s. Real estate crowdfunding platforms allow those saving for retirement to invest in real estate right from the golf course, with just a few clicks on their phone or tablet.
The company was founded by former Google executive Brett Crosby and real estate attorney Brew Johnson. By the end of 2016, the company originated more than $200 million.
Johnson: The biggest differentiators between PeerStreet and other players are pretty simple: (i) our platform is very focused on one asset – first-lien debt. We think creating this focus at the outset is important in delivering value to users. And most importantly, (ii) we don’t originate loans directly to borrowers, but rather we aggregate loans from a distributed network of lenders, curate those loans, and then make it easy for investors to invest in them.
Johnson: We exceeded $200 million in origination volume by the end of 2016. Our KPIs are based on loan volume and quality.
Johnson: We maintain focused on our core asset: short-term, first position lien loans. Our data continue to show that this asset provides favorable risk-return profiles for investors, so 2017 is about growing our loan volume in order to serve even more investors.
Johnson: I think there are opportunities of various sizes across the industry. That said, a couple that I find particularly interesting are the potential implications for a more robust rating and credit scoring of alternative lending investments across platforms and those of creating a truly efficient secondary market or exchange that enables investors to seamlessly trade in and out of positions.
Traditionally focused on treasury and capital markets solutions, Misys revised its focus to include solutions that would allow banks to branch into peer-to-peer (P2P) lending, as well as an offering for machine learning that would detect anomalies in trading patterns.
Premium Title, a national provider of title and escrow services, announced today its integration with LendingQB’s end-to-end, browser-based loan origination system (LOS). The integration can help provide customers with the ability to obtain title and settlement quotes faster, place orders with Premium Title and receive a title fee certificate guaranteeing fees for 30 days, all without leaving the LendingQB platform.
This integration, gives Premium Title clients the capability to experience a seamless and more efficient process within the LendingQB LOS platform. Lenders using LendingQB can receive an automated quote for title services and a title fee certificate guaranteeing title fees, which auto-populates into the LOS. LendingQB can also maintain the loan estimate and any adjustments in fees associated with the loan, assisting with TRID compliance and faster disclosure timelines.
The Innovative Finance Isa was officially launched by former chancellor George Osborne in July 2015, putting peer-to-peer lending platforms — where individual investors are matched with interest-paying borrowers — on a level playing field with traditional savings and investment products which can be held within an Isa wrapper.
A year on, the FCA has still yet to grant the bulk of peer-to-peer lenders, including the three largest — Zopa, Funding Circle and RateSetter — the authorisation they need to launch an Innovative Finance Isa in time for the new tax year in April.
These three peer-to-peer platforms account for more than 40 per cent of the UK’s market share by loan origination, according to AltFi data, having lent nearly £6bn combined.
Zopa, the UK’s very first peer to peer lending platform, announced on Monday it was named Best Personal Loan Provider & Best Alternative Finance Provider at the 2017 British Bank Awards.
This news comes just a few weeks after Zopa was named Personal Loan Provider of the Year at the Consume MoneyFacts Awards for the fourth year in a row.
Zopa recently announced it topped £2 billion in lending. According to information provided by the online lending platform, as of today, the lender matched over 246,000 borrowers to 75,000 investors to provide access to capital in the form of loans.
Online lender RateSetter has said it has now collected £1 billion in capital repayments from borrowers since its first loan back in 2010. Overall, RateSetter has originated approximately £1.75 billion in loans while paying out £63 million in interest. The average interest rate ranged between 3.1% on the Rolling market and 6.0% for the 5 Year market. In 2016, total lending was pegged at £668 million.
AWARENESS of peer-to-peer finance products among small- and medium-sized enterprises (SMEs) is at its lowest in the Midlands and the north of England, the British Business Bank (BBB) has revealed.
The figures, revealed in its latest annual Small Business Finance Markets report, showed fewer than 40 per cent of firms in the Midlands were aware of P2P lending, compared with almost 60 per cent in London.
Around half of firms in the south of England were aware of P2P, while just 40 per cent of firms in the north had come across it.
Despite the varying levels of awareness, the report found annual lending through P2P platforms increased by 34 per cent to £3.9bn in 2016. Business lending made up £1.3bn of that amount.
The SME Loan Fund (SMEF +), the small directing lending investment trust set up by GLI Finance, plans to break ties with its founder in a bid to gain scale.
The trust launched in 2015 amid a boom in peer-to-peer lending launches, yet was able to raise just £12.4 million capital. Assets currently stand at £53 million, mostly from an initial portfolio of loans transferred by GLI Finance (GLIF +) as part of the launch.
The SME Loan Fund said that GLI had agreed to sell its 48% stake in the trust through a placing. Should the placing prove successful, the SME trust will switch management from Amberton Asset Management, 50% owned by GLI. If it is not, the board will propose the wind-up of the trust.
GLI Finance, an investment trust in its own right, said it would use the money from a share sale to repay a £14.9 million loan to strengthen its balance sheet.
THE MAJORITY of board members of peer-to-peer investment trusts have “skin in the game”, research has revealed.
Canaccord Genuity research has assessed the pay and investments of board members of investment trusts. The analysis included funds focused on the P2P sector.
It showed that the highest annual pay packet among P2P investment trusts is £50,000, taken by the chairmen of the Funding Circle SME Income Fund and Victory Park Capital (VPC) Specialty Lending.
Samir Desai, co-founder of the Funding Circle platform, who sits on the investment trust’s board, has put £152,775 into the fund.
This is the highest among its board members, followed by £110,349 invested by non executive director Frederic Hervouet. The Funding Circle SME Income Fund board chairman Richard Boleat takes the highest annual fee on the board at £50,000 and has invested £5,157.
The trust’s board members Jonathan Bridel and Richard Burwood, both non-executive directors, have also invested £5,157 and their annual fee is £40,000 and £30,000 respectively.
Desai does not take a fee and Hervouet has an annual fee of £35,000.
Klarna, one of Europe’s leading payments providers, and Radial, the leader in omnichannel commerce technology and operations, today announced a new partnership to further expand Radial’s payment options.
The integration of Klarna with Radial’s Payment platform enables clients and prospects to offer a financing option at checkout to give customers more choice and could give retailers a 58 percent higher order value.
Financing a purchase over time has historically been optimized for brick and mortar stores. The online equivalent, however, can often be an ordeal, with redirects, lengthy forms and unclear information. Klarna’s process only requires a few fields of information, and lets customers know instantly if they qualify for the financing solution.
Global SME lending platform Bitbond today announced the closing of an equity funding round of $1.2 million (€1.1 million).
This round brings Bitbond’s raised equity capital to a total of $2.3 million.
Led by mobilike founder Şekip Can Gökalp, a number of business angels contributed to the round. Among them were Fyber founders Janis Zech and Andreas Bodczek as well as Kreditech co-founder & CEO Alexander Graubner-Müller.
Bitbond will use the additional funds for further product development and to grow its user base in markets which are underserved by traditional lenders. Over 1,600 loans worth $1.2 million were originated on Bitbond since its launch. 76,000 users from 120 countries registered with the service to date.
According to The Pulse of Fintech, after 2015’s record-setting $46.7 billion in global funding to fintech companies, 2016 brought reality back to the market with an almost 50 percent slide in fintech investment.
Global investment in fintech companies almost halved last year as “froth” comes out of the burgeoning industry and investors wait to see if they can successfully disrupt incumbents such as banks and insurers, according to a new report.
Fintech investment funding declined to $US24.7 billion ($32.17bn) last year from a bumper $US46.7bn in 2015, driven by fewer merger and acquisitions, and private equity investments, KPMG found.
However, the less mature Australian fintech industry bucked the trend as investment soared to a record high of $626 million last year, up from $185m in 2015 and $461m in 2014.
In contrast, corporate venture capital arms — those owned by banks and other incumbents — played a bigger role in the market, expanding investment to $US8.5bn from $US4.9bn. Australia’s institutions, including National Australia Bank, are increasingly investing in fintech via internal VC arms.
News Comments Today’s main news: ABA Banks seeks MPL partnership. Zopa passes 2bil GBP milestone. Today’s main analysis: SoFi Unsecured Consumer 2017-1. Today’s thought-provoking articles: Orchard Online Lending Snapshot. Five mistakes to avoid when starting a FinTech company. Spanish banks lead FinTech VC in Europe. Tyro, RateSetter, Stockspot and Westpac on past and future. United States ABA seeks MPL partnership. […]
ABA seeks MPL partnership. GP:” This is an outstanding opportunity.” AT: “Is this because the ABA sees marketplace lenders as a threat, or do they see this as an opportunity? Either way, it further legitimizes the industry.”
Is AirBnb contemplating a FinTech acquisition? AT: “This appears to just be a rumor at this point, but if it’s true, then we can look at AirBnb as a major player in FinTech in years to come. The right acquisition could up the stakes for competitors.”
The American Bankers Association, a trade group for U.S. banks, has been hunting for a marketplace lending platform to help its members ramp up their digital offerings.
The ABA has run a formal bidding process to secure a marketplace lending partner, spokesman John Hall confirmed on Friday. He could not say which companies were under consideration because the information was confidential.
It was reported this week that LendingRobot launched a robo-advisor hedge fund for accredited investors that will invest in loans from LendingClub, Prosper, Funding Circle, and Lending Home. loanDepot announced that they have funded $100 billion in home, personal, and home equity loans since their inception in 2010. In yet another sign that positive sentiment seems to be returning to the industry, BorrowersFirst, an online consumer lending platform, announced last week that it has secured an additional $100 million in debt financing to accelerate loan originations and fund continued growth of its balance sheet. The Office of the Comptroller of the Currency issued OCC Bulletin 2017-7 as a supplement to OCC Bulletin 2013-29, which “governs the risk management frameworks maintained by OCC- regulated banks in establishing, monitoring and concluding third party relationships (including relationships with bank affiliates).” On Monday, we announced that LendIt has partnered with us for our 2017 Meetups–as a way to enrich the events–strengthening the depth and breadth of ourrelationships in the industry.
DiversyFund, Inc., announces the launching of its new full-service online crowdfunding real estate investment platform. DiversyFund principals, Craig Cecilio and Alan Lewis, have been delivering exclusive investment opportunities that generate high returns for their investors for over a decade. The company has planned to offer some unique features to its investors in the upcoming months. These are aimed to disrupt the current status quo of the industry.
With their new online crowdsourcing platform, DiversyFund is planning to become the key sponsor and lead developer to the majority of their projects, if not all of them. This is a key difference in their crowdfunding real estate investment platform. It makes them stand out since many of their competitors work with third-party sponsored projects and act only as mediators by providing technology to implement funding for outsourced deals.
This week, word “leaked” that Airbnb is in advanced talks to acquire Tilt, a group payments/social network hybrid start-up that helps people split the cost of rent, dinners and events. Whether or not this deal happens (it probably will), the rumors support our view that of all the next-wave tech giants known as WASSUPPs (WeWork, AirBnb, Slack, Snap, Uber, Pinterest and Palantir), AirBnb is the most aggressive in embracing fintech as core to its business.
Despite a lack of data on the exact size of the real estate crowdfunding market in the U.S. – no federal agency or national trade association tracks those deals – the investment vehicle apparently is attracting a particular class of investor.
“This investor is typically younger,” said Ben Sayles, director in the Boston office of real estate brokerage HFF. “From what I am seeing, this person is high-earning, usually in the tech world – though maybe in the financial world – and doesn’t have a lot of expenses. They probably rent their apartment, do not have a car and have an extra income that they want to put to work.”
Among real estate professionals, the use of crowdfunding to raise capital also appears to be concentrated within a particular demographic.
“For a smaller commercial real estate developer or investor, the non-Donald Trump type, this can be a cheaper source of financing for a $10 million to $30 million project,” said professor Anthony Macari, executive director of graduate programs at Sacred Heart University in Fairfield.
With investors becoming increasingly more comfortable with new Fintech platforms, the amount of money invested in crowdfunding in the Americas jumped from $11.4 billion in 2014 to $36.49 billion in 2015 — and Technavio market research analysts predict the overall industry will grow at a compounded average annual rate of 27% through 2020.
Since the first provisions of the JOBS Act went into effect, real estate has remained one of the most popular crowdfunding investment classes. The physical nature of buildings and land lends real estate more security than higher risk startups. And with a self-proclaimed real estate mogul now in the White House, many leading experts are predicting a record year for real estate. We are also seeing increasing issuer adoption — more real estate firms are launching their own crowdfunding platforms, and a variety of Regulation A+ real estate funds and traditional investment firms are increasingly using platforms to raise a portion of their capital stack.
In addition to standard real estate crowdfunding platforms, we think we will see an influx of hybrid platforms that allow users to not only invest but to solve other problems as well.
Last year’s announcement from OPEC to cut production in combination with President-elect Trump’s oil friendly appointments has oil and gas prices on the rise. Oil prices have already climbed 17.5 percent as of December 27 and show no signs of slowing. And investors are taking notice. EnergyFunders, a crowdfunding marketplace that allows investors to directly invest in U.S. oil and gas wells, reported a 45 percent increase in signups after OPEC’s announcement.
Impact investing, or investing in companies that bring about positive change in the world, is growing in popularity as more millennials enter the market. A recent survey from U.S. Trust states 93% of millennials believe that social impact is key to their investing decisions. Ryan Ràfols, CEO of Newchip.co an aggregation platform that uses Robo-advising to showcase impact investing crowdfunding offering, explains;
“Millennials want to invest in companies that can make a return while making a difference in the world.”
Social Finance Inc. (commonly known as SoFi) ranks Elon among the bottom 10 law schools in the nation in its Return on Education Law School Rankings. It ranked Elon eighth out of the 10 worse schools. Elon’s graduates, SoFi said, average $87,680 in salary and $145,610 in debt.
Luke Bierman, dean of Elon Law, which is based in Greensboro, said he doesn’t argue that a law school degree requires a sizeable investment from a student in terms of both time and money. But he said Elon adopted a new curriculum two years ago intended to make it quicker and less expensive for a student to earn a law degree. He said the school’s current tuition is 20 percent below the national average for private law schools and said the new curriculum allows a student to graduate in 2.5 years as opposed to the three years required through a traditional curriculum.
He said the study released by SoFi doesn’t reflect students who have enrolled at Elon since the adoption of the new curriculum. The first group enrolled solely under the new curriculum, he said, will be graduating in December. He said it’s Elon’s hope that those students will be graduating with less debt.
On paper, the service provided by companies such as BTCJam is an excellent way to use Bitcoin. Extending loans to people from all over the world is a great solution to promote Bitcoin usage. Unfortunately, this concept still needs a lot of work, as there are a lot of caveats to using services such as BTCJam right now. In most cases, a lot of the loans are never repaid in full.
It is evident a lot of BTCJam users are losing money unless they are the borrowers for a specific amount of Bitcoin. In fact, some Reddit users argue the only people who benefit from using BTCJam are the ones who borrow money, and everyone else is losing money left, right, and center. BTCJam has been dealing with these issues for quite some time, yet it seems very little has changed over the past year or so.
Global Debt Registry Successfully Completes SOC 1 and 2 Attestation (Global Debt Registry Email), Rated: A
Global Debt Registry (GDR), the asset certainty company known for itsloan validation expertise, today announced receipt of its Service Organization Control [SOC] 1 and SOC 2 Type 1 attestation engagement report, providing independent validation that the Company’s internal security controls are in accordance with the American Institute of Certified Public Accountants’ (“AICPA”) applicable Trust Services Principles and Criteria. Just days after International Data Privacy Day on January 28, this attestation showcases GDR’s continued dedication to meeting the highest industry standards for protecting confidential consumer information.
GDR’s SOC 1 and 2 Report demonstrates that the Company has the necessary internal controls and processes in place to protect consumer data, maintain operational integrity, and comply with industry standards and regulations. The SOC 2 engagement included evaluating GDR in accordance with the trust principles of security, availability, processing integrity, and confidentiality. The AICPA created the SOC guidelines to provide an authoritative benchmark for service organizations to demonstrate implementation of proper policies, operational practices and controls.
As a partner to online lenders, investors, warehouse lenders and other industry stakeholders, GDR delivers real validation and helps ensure asset certainty including protection against double pledging and double selling of assets with its suite of digital due diligence solutions. The Company contracted with KirkpatrickPrice for its SOC 1 and 2 engagement to meet the ongoing public and private reporting requirements of its financial institution clients.
GDR is also compliant with a number of additional industry standards, including PCI DSS (Payment Card Industry Data Security Standard), the GLBA (Gramm Leach Bliley Act) Safeguards Rule, and ISO 27002 (International Organization for Standardization 27002). As evidenced by the SOC 1 and 2 Report, the Company is continuing its focus on meeting the highest standards of data and information protection and operational integrity for its clients.
Founded in 2007, Lending Club is the world’s largest P2P lending platform with over $20 billion in loan issuance. Lending Club has grown exponentially and currently has a 45% market share. It raised over $900 million from its IPO in 2014, but its share price has since fallen 72%.
Launched in 2006, Prosper was the first P2P platform in the US. It has since funded over $6 billion in loans and serviced over 2 million customers. Prosper grades borrowers through its Prosper Score. This proprietary system focuses on criteria such as debt-to-income ratio and other “soft checks” conducted by credit bureaus.
Launched in 2014 by a bunch of ex-Googlers, Upstart has originated more than $300 million worth of loans. Upstart uses unique grading criteria. It looks at FICO scores but also considers educational background. The firm has the lowest default rates across the industry thus far. Over 94% of loans are on track to be repaid in full. The company makes its money solely on origination fees from the borrower.
Funding Circle was founded by Sam Hodges who, after the 96th time of being rejected by banks, decided to take action. The company only makes business loans and operates in the US, UK, Germany, Spain, and the Netherlands. Funding Circle was founded by Sam Hodges who, after the 96th time of being rejected by banks, decided to take action. The company only makes business loans and operates in the US, UK, Germany, Spain, and the Netherlands.
However, modern consumers are starting to look at alternative investments, which stray from “conventional” standards either because they’re riskier, newer, less tested, or involve unknown variables. What you need to know about alternative investing is this: it’s on the rise, and there may be a benefit in jumping in early.
Types of Alternative Investments
Private lending. Private lending has grown in popularity in recent years, thanks to peer-to-peer apps that make it possible, such as Lending Club. Here, you may lend some of your own money to one or more private borrowers, who pay you back with interest.
Currencies. Currencies are constantly shifting in value against each other as various countries grow or shrink economically. Investing in a country’s currency when they’re poised for growth with an app like XE could result in a major gain.
Other tech-based solutions. There is also a rising number of new apps and technological solutions opening the doors to new investment possibilities. The rise of machine learning and automated investing solutions, like Wealthfront, is an example of this.
Headquartered in Manhattan Beach just across the street from the town’s iconic 24-hour diner, The Kettle, PeerStreet may be located in a small beach town, but the reach of this real estate investment firm is national.
Crosby describes PeerStreet as an eTrade for real estate investing.
The business began right in the heart of Manhattan Beach, and currently has 50 employees. According to Johnson, they’ve recently received funding from venture capitalist Andreesen Horowitz and investor Michael Burry.
However, what I feel very comfortable doing is pointing out some things that failed companies do, based on my experience in Startupbootcamp as well as building a number of successful companies. Here it goes:
They forget to validate
Intuition, experience and opinions are important and helpful. However, building a fintech start-up based only on these three is very risky. A business can’t be built on limited data. Without really understanding if there is a real pain you are solving, a need you are fulfilling or knowing how many people would pay for your product or service you are multiplying the possibility of going after the wrong market, building the wrong solution or having the wrong commercial model or doing the wrong thing.
They lose focus
Successful entrepreneurs focus on one thing at a time and they are very good at saying “No” to anything that would distract their real focus. This does not mean that they are not aware of what is going on around them or blindsided to changes or competition but they just know how to use their time efficiently.
They focus too much on being “investable” and forget to build a sustainable business
It is easy to fall trapped to the chants of investors. It can be easy to believe that you have a sustainable business when an investor says that the company you started working on 12 months ago is worth £2 million. That does not mean that you have a business. It means that you can build a viable business. The criterion that investors use is not normally sustainability but potential for a large payout. Sometimes, those two factors are contradictory. Investors have to go for big money and some of these attempts fail.
They don’t invest enough in team and culture
Building a fintech company is hard. The pressure is incredibly strong and never stops. Under continuous pressure, it is very easy for teams to crack and fall apart which in many occasions kill the company. A start-up’s biggest challenge is getting the team right and having the different skill sets covered to succeed. Complementing each other’s strengths and weaknesses is extremely important in small teams, especially with co-founders.
They underestimate what it takes
The journey of an entrepreneur is incredibly hard and requires grit, execution and a lot of patience. In many cases, entrepreneurs get caught in the “fintech celebrity” hype and think that being on panels, and ranking high in different top lists and Twitter means success. Building a real business takes a lot of hours “in the basement”. Once the reality hits, many founders get bored and quit or fade.
Welendus – One Week on Seedrs (Welendus Email), Rated: A
One week has passed since the release of our Seedrs fundraise campaign with significant results.
Over the past week, Welendus attracted over 50 investors and raised over 25% of our target which only proves the level of interest people have in Welendus. The level of engagement and the discussion is another indication of how much people love Welendus.
We are raising £300k for equity in our company and would like to invite you to be one of our first investors and shareholders. You can access our Seedrs campaign at
Nearly one month after ringing in the new year, Stuart Law, CEO and co-founder of peer-to-peer lending platform Assetz Capital, provided his alternative finance predictions for 2017.
“Brexit has already had a very positive effect on the peer-to-peer (P2P) market, and all indications signal that it will grow further in 2017 whilst bank lending remains subdued. With the larger platforms announcing record second half results in the six-month period after the Brexit vote, they are also attracting increasing amounts of capital in the form of equity. Smaller P2P players however will likely struggle to lure the necessary lending or growth capital to survive independently, so we expect a degree of consolidation and some to drop out of the market altogether.
“Alternative finance has certainly started to make its mark with savvy investors, but the biggest attraction to date will be the Innovative Finance (IF) ISA. We predict that this will attract a huge amount of capital onto the main platforms and represent as much as 30% of all capital inflows to P2P platforms this year, assuming all large P2P lenders such as Assetz Capital get approved before the end of March 2016, and perhaps as much as 50% in 2018.
“The desire to invest in secured loans will increase amongst lenders and professionals.”
Flender stated it does not consider itself a traditional P2P platform with an anonymous marketplace. Instead, its team believes that it will help businesses create lasting bonds with customers, and for consumers to reach through their existing networks and be part of each other’s success. And at the same time, underpinned with legal contracts created by the platform between borrowers and lenders.
On Friday, peer-to-peer business lending platform ArchOver announced it is expanding its current “Secure & Insured” lending model by launching “Secure & Assigned” business loans.
According to the lender, the first Secured & Assigned loan will be for Ergowealth, a firm of chartered financial planners based in Marlow, Buckinghamshire.
The loan announcement comes just a couple of months after ArchOver revealed it was extending its exclusive partnership with international credit insurer and collections company Coface by a further three years.
The Bank is due to release figures this week showing that the growth in personal loans and credit cards is running at more than 10 per cent a year.
Lenders have been slashing rates in the past six weeks and banks including TSB are offering unsecured personal loans at less than 3 per cent.
The rock bottom rates come alongside cheap loans by peer-to-peer lenders which bypass the banks by allowing loans between private individuals. Ratesetter and Zopa are offering loans at just 3.1 per cent and 3.2 per cent respectively.
Funding Circle has announced the appointment of Sarah Beard as its new business development manager.
Prior to joining Funding Circle, Sarah spent three years at Lease Plan as an account manager and three-and-a-half years at Hitachi Capital Business Finance, where she managed a portfolio of 30 introducers.
Sarah, who will be based in Bristol, said she was very excited about joining the company.
Citi’s analysts also take a look at how different the FinTech evolution has been in the West: (1) the U.S. pivoted to InsurTech in 2016; and (2) two of the largest U.S. FinTech VC funding rounds in 2016 were in the health insurance space. Big data, the Internet of Things (IoT), and wearable devices, among other trends, will help insurance companies use FinTech to be more creative and customized.
Europe remains a laggard for start-ups/VC investing at about 10% of global FinTech VC investment in 2015-16. This is not a big surprise as Europe has a smaller VC market versus the U.S., it has none of the large technology/Internet companies that exist in the U.S. or China and its banking system (despite the sector’s weak stock prices, earnings and capital challenges of the past decade) offers more of a full-service provision versus U.S. or Chinese peers.
As reported by Citi:
European banks are increasingly interested in FinTech and with more bank investors and affiliates, we will see more of a shift to business-to-business (B2B). In 2017 we expect more focus on B2B FinTech topics, such as Artificial Intelligence, especially in London which is a hotspot with DeepMind and its concentration of universities; regulatory tech both in the U.K. and the U.S.; and cybersecurity primarily in the U.S. and Israel.
The ECN will also launch an open survey to all EU securities and lending crowdfunding platforms with will deliver input for the European Commission’s review of the Capital Market Union and which will be followed up by individual interviews with interested parties.crowdfunding for both online lending (peer to peer lending) and equity crowdfunding.
CK: The transferability of information is huge with a growing number of middleware, SaaS applications and APIs. Sharing data and improving collaboration in the market is continually on the improve, benefiting the customer.
DF: Investors are much more discerning in the businesses they back. This will be better in the medium term, but it’s been difficult for some businesses locally.
CB: This year Stockspot became the first robo-adviser in the world to give clients the flexibility to personalise their portfolio with the launch of Stockspot Themes. We’ve already managed to generate some fantastic net returns for early adopters (6.2% and 9.2% per year) while charging clients less.
DF: For RateSetter, expanding our offering from consumer lending to business lending was a significant development. In Australia there’s been a real lack of business financing options outside residential property-secured bank finance and expensive short-term working capital finance, so we’re excited that RateSetter now offers Australian businesses a low-rate funding alternative to help them grow and prosper.
JS: My biggest highlight has been Tyro receiving a bank license. We are the only tech company to have achieved this so far. This was such a massive win for us and the sector. Following this, we were then able to deliver next-gen banking, a cloud-based, totally mobile & totally integrated banking solution for SMEs and growth companies.
JS: The FinTech community has limited potential if banking is not opened up. In a way, Australia is cursed by the entrenched bank oligopoly. If we don’t get our act together and open up banking, the next-gen banking providers will not be Australian.
CB: There are two things the Government could do to improve fairness for consumers when it comes to investing and superannuation. One is to require all superannuation and managed funds to provide fee and performance data to comparison websites so consumers can easily compare fund options. The second is to implement a public tender for the right to manage default super funds as outlined by the [Grattan Institute]( Chile established public tenders for the right to manage default super funds and it has reduced average annual super fees by 50%.
The Australian largest marketplace lending platform SocietyOne announced John Cummins has joined the group as CIO, according to The Advisor. Reporting to SocietyOne CEO and MD Jason Yetton, Cummins will be responsible for SocietyOne’s funding requirements to support demand from an expanding number of borrower customers, including building on SocietyOne’s existing network of investor funders which features large financial institutions, mutual banks, credit unions, high net worth individuals and SMSFs.
With India Money Mart serving as a P2P lending platform, borrowers and lenders find transactions easy. This online market place provides a reliable platform for both lenders and borrowers in India with a minimal operational cost.Lenders and borrowers can avail loan facilities at their own will. Borrowers can choose single or multiple lenders at the same time. IMM ensures that these transactions are carried forward without any hassles or meeting one another personally.
There is an entire population that has the money to repay loans, yet mainstream banks reject their loan applications. This does not favour consumer spending, although consumption has grown in this country. According to data available with the RBI there are only around 27 million credit cards in the country, and 300 million bank accounts. In 2016, although personal loans were 22 percent of all bank credit disbursed, several Indians remained without personal credit.
With this as the backdrop, Krishnan Vishwanathan, a consultant from McKinsey, wanted to find a fix to help people consume. Giving up his lucrative career, he set up Kissht, which means EMI in Hindi, to provide collateral-free loans for products that consumers want to purchase. The total loans disbursed so far are to the tune of Rs 17 crore, with over 9,000 customers.
VORAPOL PHORNVANICH, chief executive of PeerPower, a financial-technology start-up, aims to create a new online peer-to-peer lending platform for investors and borrowers.
“At present, investors and savers in Thailand earn a relatively low return on their funds, averaging 0.5 per cent for savings accounts, 2-2.5 per cent for fixed deposits and 4-4.5 per cent for corporate bonds.
“On the other hand, if you are a borrower, you have to pay a relatively high interest rate on consumer loans, which have no collateral. Interest rates are currently as high as 15-36 per cent per annum. The interest-rate spread is huge, so we think this new online platform can help narrow the gap between deposit and lending rates as happens in other countries.”
News Comments Today’s main news: Online lending enters annul SEC report on rating orgs for first time. Today’s main analysis: Cross River Bank tries new approaches. Today’s thought-provoking articles: China’s new P2p rules could trigger run on deposits. Will India sustain its surge on digital payments? What do 2016 hiccups mean for alt lending in 2017? United […]
FinTech rules set to change under Trump. AT: “I’m not sure how the Trump administration will lean on this one. Yes, they are critical of the CFPB and Trump appears at first glance to have a protectionist stance, but I’m hoping he’ll take a more progressive view toward the financial services industry as a whole.”
The Securities and Exchange Commission publishes an annual report on “nationally recognized statistical rating organizations (NSROs).” These are the agencies that publish credit ratings on certain securities and institutions. The mandated report has recognized the emergence of online lending for the very first time.
The SEC also noted that several larger NRSOs published commentaries on the emerging online lending sector.
“Alternative lending is dead,” said Rob Frohwein, co-founder and CEO of Kabbage, “but not because of the hiccups that have occurred in the industry.”
During the year, Lending Club had one piece after another of negative news come out.
Then, in mid-November, it wasreported that Dealstruck, an alternative lender of short- and medium-term small business loans, stopped lending operations altogether.
But while some alternative lenders have run into problems, others remain confident that their model remains the future of lending. And many see the OCC’s proposed FinTech bank charter (the culmination of a review that began in August, 2015) as a sign the industry is both here to stay, and ready to grow up.
Another alternative lender for small businesses that has maintained investor confidence and has continues to grow its lending operations and expand its product offering is BlueVine. The company, which was launched as a modernized option for invoice factoring, recently began offering a line of credit product which now accounts for a sizable part of their business. After funding over $200MM in working capital for small businesses in 2016, they successfully raised $50M in additional funding to expand their efforts.
Through tighter internal controls, self regulation, and closer partnerships with traditional lending institutions, it appears that alternative lending will continue to expand its role in 2017.
After enabling a shake-up of the lending landscape, a small bank in New Jersey has set its sights on payments.
Cross River Bank has about $543 million in assets and just one branch, a small storefront in Teaneck, N.J., that shares a retail center with a mom-and-pop clothing store.
Cross River is essentially a business-to-business bank. It handles the messy, boring parts of banking so its fintech partners can improve customer experience with easy-to-use platforms.
The use of issuing bank partnerships is nearly ubiquitous in digital lending. WebBank is arguably the biggest player by virtue of servicing the largest marketplace lenders: LendingClub Corp., Prosper Marketplace Inc. and Avant. But Cross River is not far behind, acting as the issuing bank for Marlette Funding’s Best Egg platform, Upstart and Affirm. The bank also won the right to issue consumer loans for mortgage giants Quicken and loanDepot.com LLC. Utah-based Celtic Bank is big in the small business space as the issuing bank for On Deck Capital Inc., Kabbage, and Square Capital.
So far, issuing bank partnerships have been extremely profitable. Cross River’s return on average equity exceeds 20%, less than that of its issuing bank competitors but well above the sub-10% ROAE for banks with less than $1 billion in assets.
Gade believes Cross River’s payments activity could double next year, and the bank already has relationships with Stripe and Google Wallet to provide access to the Mastercard Send product.
Cross River currently handles roughly 2 million transactions per month, and there are “a lot of market shares for the taking,” Gade said. He highlighted insurance companies paying out claims, commercial landlords looking to accept payments from tenants and auto companies collecting lease and loan payments as examples.
Issuing bank partnerships currently account for roughly 40% of the bank’s business. Traditional community banking activities, such as commercial real estate and small business lending, account for 40% to 50% of its activity, and the remainder is related to payments. Gade said payments activity could stabilize at roughly 30% of activity, with issuing bank partnerships staying around 40%. The traditional community banking share will shrink but still constitute 20% to 30% of business.
David Vaccaro filed a complaint on behalf of all others similarly situated on Dec. 19 in the U.S. District Court for the Central District of California against Funding Circle USA Inc. and Does 1 through 10 citing the Telephone Consumer Protection Act.
According to the complaint, the plaintiff alleges that beginning in July 2016, the defendant called his home phone to solicit its services. The plaintiff holds Funding Circle USA Inc. and Does 1 through 10 responsible because the defendants allegedly used an automatic telephone dialing system to call the plaintiff without his consent. The plaintiff also alleges his number is registered on the National Do-Not-Call Registry.
Lend Academy claims 2017 will be huge year for bank-marketplace lending platform partnerships. If they made this claim last month after a year of such partnerships being announced, that tells me they’re expecting next year to produce even more such partnerships. It’s not a far-fetched notion. There are plenty of benefits to these partnerships, both for the banks and for the MPL platforms.
If Lend Academy is correct and 2017 will see a surge in bank-marketplace lending platform partnerships, it’s quite possible that at least one of these—perhaps a few—will be with real estate crowdfunding platforms. The only question is, what structure will those partnerships take?
The following three structures promise the most benefits to both parties:
Bank-as-Originator – In this scenario, the bank acquires the customer and originates the real estate loan while the RECF platform underwrites it. Retail stores, industrial expansions, or apartment complexes are three potential uses for this type of partnership.
Banker-as-Capital – If the RECF platform acquires the customer and simply needs capital funding from the bank, this is another scenario that could benefit both parties.
White Labeling – In this case, the bank white labels the RECF’s technology to originate and underwrite the real estate loan. A variation of this is to co-brand both the technology and the service to expand the brands of both the bank and the RECF platform.
President-elect Donald Trump plans to shake up Washington. The full scope of his proposed changes remains to be seen, but they will certainly affect the financial services industry, especially financial technology.
In 2015, Treasury released a request for information regarding online marketplace lending. In May, the department published a white paperoutlining the responses it received and made certain recommendations for best practices in order to encourage growth and expanded access to credit through online marketplace lending.
The most potentially burdensome requirements are those related to financial inclusion. The CRA is only applicable to institutions insured by the Federal Deposit Insurance Corporation, so most OCC-chartered financial technology companies would not be covered. This places partnerships between banks and online marketplace lenders, which are popular with banks to supplement their CRA portfolio, at risk.
Project Catalyst is the CFPB’s effort to encourage innovation in a way that benefits consumers and businesses. Recently, the CFPB announced a policy that will provide financial technology companies with the opportunity to have the CFPB review their products and services, as well as their compliance program. After review, the CFPB can provide a letter indicating the agency’s belief that the company is compliant with the relevant laws and regulations. It also states that the CFPB will not pursue any enforcement actions if the company does not make material changes.
While the policy is considered friendly to the industry, the recently released prepaid card rule is not. Its broad definition of “prepaid cards” captures digital wallets that can store money and may deter startups in that space due to the high compliance burden.
The SEC’s crowdfunding rules allow for equity crowdfunding through the internet. Marketplace lenders are securitizing debt, which implicates the SEC. So-called robo-advisers are increasingly common and projected to have $2.2 trillion under management by 2020.
The agency has been hit hard by critics of late, and President-elect Trump’s transition team is investigating the CFPB’s recent performance, according to the Wall Street Journal. At the same time, it remains embroiled in a legal battle over whether its organizational structure is constitutional. If the CFPB is unable to untangle itself from these issues, it could negatively impact its fintech initiatives — and the US fintech industry more broadly.
The rise of companies utilizing financial technology (fintech) over the past five years can no longer be ignored by traditional wealth managers and established financial services firms.
More and more, boards of directors are demanding that their executives have a comprehensive understanding of the fintech landscape and how these companies could disrupt their business model—and to do this without losing sight of their core competencies.
To tackle this challenge, we recommend:
Zeroing in on a large and robust ecosystem that is still flexible and can encompass the majority of use cases
Prioritizing the capabilities your firm will require in order to compete in the 21st century, understanding how those capabilities can be incorporated into your existing business and whether you need to buy or build those capabilities
Finding the right partner who can help you figure out where to begin
Considering platforms that incorporate fintech technologies that support high touch relationship management – everything from precision advice (the right advice at the right time) to automated approaches to portfolio management
A financial technology advocacy group has reached out to President-elect Donald J. Trump, encouraging him to create a new position at the Treasury Department to support fintech.
In a letter to President-elect Donald J. Trump, Financial Innovation Now (FIN) suggested the creation of an Undersecretary for Technology position in the Department of the Treasury to “ensure the growth of financial technology jobs in the U.S.” as well as “foster competition and innovation in financial services to better serve consumers and the economy.”
The head of a new ‘disruptive’ online mortgage service says 2017 will see more major estate agency and other property businesses backing online models, of the kind seen this year with the investment by high-end firm Savills into budget internet agency YOPA.
Back in June Savills revealed it had made an undisclosed investment in YOPA in a bid to buy a stake in digital technology and gain exposure to a wider range of sales and rental sectors than its traditional high-end involvement.
Now Ishaan Malhi, founder and chief executive of online mortgage firm Trussle, says there will be more of the same in the next 12 months. He believes the need for more digital innovation applies across the property industry, not just with estate agency.
The UK watchdog has promised changes to its much-vaunted crowdfunding regime – changes that are set to arrive in the early stages of 2017. Some of the more unexpected points to be raised – and to keep an eye out for action on in 2017 – include the strengthening of rules surrounding wind-down plans, extending mortgage-lending standards to platforms, the enforcing of additional “requirements or restrictions” on cross-platform investment, and the potential for investment limits in peer-to-peer lending.
Funding Circle, RateSetter and Zopa, each of which has lent over £1.5bn to date, continue to languish under interim permissions. You have to believe that this will change in the first quarter, or at least first half of the year ahead.
2017 should signal the end of referral scheme prognostication, as we should finally be able to gauge the impact of the initiative in practical terms – i.e. how many businesses rejected by the banks for credit will ultimately be funded via the referral scheme in year one?
Brexit and broader economic uncertainty will unquestionably cause tension in certain areas.
Finally, keep an eye out for certain platforms choosing to branch away from retail investment in 2017.
Research by crowdfunding network Crowdfinders has found that 35% of respondents said they would turn to personal savings to fund their business, closely followed by banks and institutions and friends and family.
However, only 8 per cent of the respondents said they would turn to crowdfunding and just 5 per cent said they would opt for P2P lending.
Tighter regulations on China’s peer-to-peer (P2P) lending sector are potentially putting depositors’ money at risk and could even trigger an anticipated run on deposits in March, with many of the lending platforms facing the very real prospect of liquidation, according to market watchers.
Authorities in Beijing are determined to examine the credentials of some 3,000 P2P lending operators and expel any questionable players by March, following a raft of scandals involving at least 100 billion yuan worth of deposits from millions of residents.
It is estimated that only 200 P2P companies will pass the review process undertaken by authorities, with the remaining players forced to close their operations and repay money to depositors.
Under the new rules, a P2P company has to appoint a commercial bank as its custodian while fully publishing how investors’ money is being used.
Banks, battered by worries about the risks after P2P was hit hard by a series of fraud cases, have shown lukewarm response to the custodian business.
Ezubao, one of the mainland’s largest P2P platforms, was found to have defraud more than 1 million investors of about 100 billion yuan last year.
Under the tighter regulations, authorities will also conduct on-site checks on risk management, scale of businesses, IT infrastructure, investment sources and shareholders’ credibility before granting P2P lenders the go-ahead to continue doing their business.
China, the largest fintech sector according to the International Trade Administration (ITA), is going cashless. Consumers are moving away from traditional banking systems to more efficient and user-friendly financial technologies.
KPMG, one of the Big Four auditors with over $25 bln in annual revenue, recently released its Fintech 100 list which represents the largest and most profitable companies within the global fintech market across all categories.
China’s Ant Financial and Qudian topped the list, claiming the first and second in rankings respectively. Lufax, ZhongAn and JD Finance also made it to the top 10 list, as Chinese companies accounted for 50 percent of the top 10 Fintech 100 companies.
Following Prime Minister Narendra Modi’s announcement that Rs 1,000 and Rs 500 notes would no longer be legal tender from the midnight of November 8, fintech startups, particularly wallets and payment gateways, have seen business surge. Sequoia-backed MobiKwik, for instance, has seen a 200 per cent surge in app downloads and a 20-fold increase in peer-to-peer transfers.
Market leader Paytm, backed by Alibaba, says it is currently processing 5 million transactions a day and added over 14 million users in November. Payment gateway PayU, which acquired Citrus Pay earlier this year, saw daily transaction volume skyrocket 80 per cent, which has settled to 25 per cent compared with pre-demonetisation. Tiger Global-backed Razorpay says volumes are now up 50-70 per cent over pre-demonetisation levels, after seeing an initial spike of 150 per cent.
Snapdeal-backed wallet FreeCharge reported that 1,00,000 Snapdeal deliveries in mid-November were through the wallet, while Flipkart is aggressively marketing its wallet, PhonePe.
With cash still scarce, wallet and other digital payment-enablers continue to see rapid doubledigit growth. But the billion-dollar question is whether this will sustain, once the cash crunch eases, as it inevitably will this year.
Founders are confident it will, primarily because of the unprecedented support from the government.
Wallet-led startups say their product is low-cost, does not involve any hardware and can be scaled up rapidly. Of 15 million businesses in the country, only 1 million have PoS machines, making the other 14 million fair game for adoption, apart from other avenues. Payment gateway startups, understandably, beg to differ. “I personally think the concept of prepaid wallets has failed.
A recent RBI report on digital payments mentioned that even in November, only 3 per cent of transactions were through wallets, the rest were through cards. If wallet payment had taken off, it should have been 40:60,” says PayU’s Rau. He argues that it is easier to get customers to use debit or credit cards as they are comfortable with it, than payments using ewallets and mobiles.
Hurdles apart, the sector is likely to see big rounds of fund-raising in 2017, with all the buzz around a cashless economy.
Earlier this month, Delhi-based peer-to-peer lending platform, Rupaiya Exchange, announced it secured $200,000 in angel funding from HNIs and investors. Launched in November 2015 by founder Rohan Hazrati, the company stated it aims to connect borrowers and lenders to facilitate peer-to-peer lending in India.
Alternative lending startups have witnessed a spike in lender registrations after the currency ban as people are now looking to park their investments on their platforms rather than in real estate, gold or the stock market.
Sequoia-backed invoice discounting marketplace KredX has noticed a 4-5x increase in lender registrations on their platform since November 8, including from high net-worth individuals (HNIs) and institutional lenders like banks and non-banking finance companies (NBFCs).
Similarly, peer-to-peer lending companies like Faircent, i-lend and AnyTimeLoan.in (ATL) have noticed an approximately 3x increase in lender registrations as other investment channels seem unstable or inaccessible following the cash crunch.
Government policy has done a lot to boost the fortunes of peer-to-peer lending platform FairCent in 2016. From RBI’s draft paper with guidelines for the industry to Digital India, FairCent benefited last year and looks to grow further in 2017. “From disbursing Rs 15-20 lakh loans a month, we are now disbursing Rs 1.5 crore a month. India’s shift to digital payments has put us in a sweet spot,” says Rajat Gandhi, founder, FairCent. The company, which began operations in 2014, helps customers get cheaper loans based on their creditworthiness and helps lenders earn high returns from their peers or community.
Bengaluru-headquartered Capital Float considers 2016 a remarkable year for fintech startups. “The sector attracted $150 million in funding. Digital India and demonetisation will only give further impetus to the sector,” says Gaurav Hinduja, co-founder, Capital Float. The company, which started in 2013 with loans to SMEs, has come up with innovative products such as ‘Pay Later’, which gives loans to retailers against data on PoS machines. Capital Float, which primarily handles e-commerce finance, has seen 8x growth in 2016, its biggest so far. From Rs 150 crore loans disbursed in 2015, it disbursed Rs 1,000 crore in 2016. Capital Float tied up with 45 new players, including Amazon, Yatra and Ola.
Payment provider Pine Labs says the volume of online transactions trebled in 2016, even before the grand finale of demonetisation. “From handling about 10% of card payment transactions in India, we have grown to 20%,” says Lokvir Kapoor, CEO, Pine Labs. In terms of volume, it has seen a growth to Rs 10,000 crore a month from Rs4,000 crore in January 2016. With clients that include Armani, Jimmy Choo and Pizza Hut, the company feels there more opportunities to grab in the year ahead. “We have more than 60,000 retailers in India and will be heading overseas. We will be setting shop in Singapore with a partner bank,” says Kapoor.
Citizens and observers said that it was a “chaotic” decision, a major “disruption” that required citizens to exchange notes or deposit them within about a month and a half, or else lose the cash value. However, the seemingly radical monetary move may be just what fintech — and a global economy seeing increasing digitalization — needs. Founder and CEO of Faircent.com Rajat Gandhi claims that it is the “Uber moment of fintech”.
As huge amounts of cash were taken off of the market over the past weeks and individuals were forced to deposit them into banks and ATMs, there will be an increase of reliance on digital wealth management. With 86 percent of the currency in circulation theoretically out of sight, we should see a shift from “cash is king” to increased digital banking.
Financial technology overall enjoyed a robust year in 2016 in Canada, highlighted by the creation of several bank partnerships and expansion in the robo-advisor space.
It’s likely that we will see a major fintech exit the Canadian market in 2017 as some of the newly created credit deteriorates in quality due to saturation of the market: both on the consumer and business fronts.
In 2017, investment capital is likely to continue to flow into the fintech space, particularly into lending, as investors clamour over some of the attractive yields available in alternative lending in today’s otherwise low interest rate environment.
We are going to see an increase in collaboration in this space. Between the Canadian Payday Lending Association and the banking associations, we need representation for the alternative lenders operating in the spaces in between – and this is starting to happen.
According to the search tool Factiva, the term “fintech” appeared close to 90,000 times in the global print media this year versus fewer than 300 in 2007, with many more references on social media. Its usage has actually declined since 2014, suggesting the fintech hype may have peaked.
An influential study by Citigroup reported that fintech investments topped $19-billion (U.S.) in 2015, a tenfold increase from 2010. The consultancy McKinsey & Co. is reportedly tracking more than 2,000 fintech startups, with the global estimate around 12,000.
The early view appeared to be that fintech startups would disrupt incumbent banks and steal their customers, similar to Airbnb and Uber. But the emerging consensus is that banks and fintech startups will inevitably collaborate, combining their respective strengths to deliver a superior customer experience. Not everyone agrees, of course, but the tide of opinion has clearly changed.
Addressing the Sixth Conference on E-Banking and Payment Systems held in Tehran on Monday, Ali Kermanshah added that the blueprint is set to define an appropriate role for fintech companies in the Iranian banking system.
According to the CBI official, the roadmap requires the development of 12 new platforms for conducting banking operations and covering system support, six platforms for implementing monetary policies and eight platforms for promoting supervision.
Global Online Lending will See More Platform Consolidation including a Major Lender
Several Reg CF / Title III Crowdfunding Portals Shutter or Pivot
A Prominent Real Estate Crowdfunding Platform will Cease Operations
The FCA Review of Crowdfunding Brings More Regulations
The UK remains one of the leading economies in the world and the European divorce questioned the entire validity of the EU. But Europe needs Britain and Britain dearly needs Europe. Working things out to mutual benefit is good for all countries. Politicians that want to punish the Brits for their political intransigence will be over-ruled by those with more foresight.
US SMEs Receive a Boost from the Incoming Administration
The UK and Singapore will Remain Dominant Fintech Innovation Centers
More Later Stage Companies Use Crowdfunding Platforms
InsurTech will Gain Momentum
Marcus launched small but expect a growing number of credit options and digital banking services to be provided by the emerging challenger bank. SoFi – look out.
News Comments Today’s main news: OCC plans special charter for FinTechs. Today’s main analysis: Zopa cuts savers off. PeerIQ’s analysis of the OCC charter. Today’s thought-provoking articles: P2P lenders blur into mainstream banks. International P2P lending volumes. Harmoney fined for misleading consumers. United States OCC’s special-purpose FinTech charter. AT: “Lend360 offers a breakdown of the OCC charter with awesome […]
OCC’s special-purpose FinTech charter. AT: “Lend360 offers a breakdown of the OCC charter with awesome analysis. This information is straight from the OCC’s white paper on the topic. This charter is making a lot of industry insiders very happy.”
PeerIQ Weekly update focused on the OCC charter (and LC’s latest securitization review). AT: “Get a bird’s eye view of the baseline standards from the OCC white paper in PeerIQ’s nifty chart. Plus, a terrific analysis of LendingClub’s near-prime securitizations for the year.”
OCC charter unlikely to kill bank partnerships. GP: ” It’s unclear how onerous the application process and the ongoing regulatory framework will be. Once we see a few companies going through the process we will know if working with a bank, which has its own costs, is worth it or not. ” AT: “I agree. I think we’ll see many more partnerships in 2017.”
RealtyMogul lowers minimum investment for REIT. GP: ” RealtyMogul went the whole p2p way. I applaud. I think they will see a tremendous amount of free PR and marketing with this. Way to go ! ” AT: “Last week, LendInvest reduced the minimum size of its loans. This could be the beginning of a new wave of competition among crowdfunding, crowdlending, and crowd investing platforms where the players chase new business by offering better incentives and lower standards for approval. In the case of marketplace lenders, that could be a negative as we are already seeing a wave of defaults, which could increase if I’m right. Or, maybe this competition will stay between investment platforms.”
Zopa tells savers to keep their money. GP:” Keeping the number of borrowers and lenders equal is impossible. Some companies would have compromised on the borrower quality. Instead Zopa did the right thing. Well done.” AT: “This is a smart business move, however, we hope it’s a short-term solution. If there is decline in borrowers, there must be a subsequent decline in lenders, or at least funds used to make loans.”
P2P lenders blur into mainstream banks. AT: “There are some good points here. However, it must be noted that businesses, and even entire sectors, do change from time to time. It’s the nature of business–transform or die.”
OCC Announces Special-Purpose FinTech Charter (Lend360 Email), Rated: AAA
This morning (Dec. 2), the OCC announced that it is going ahead with its plan to issue special-purpose charters to Fintech companies, published a Whitepaper on the topic, and requested comment on the granting of special-purpose national bank charters to Fintech companies. Comments are due by January 15, 2017.
The OCC plans to grant charters for special-purpose national banks. Companies
would be required to conduct at least one of the following three core banking functions – receiving deposits, paychecks, or lending money;
would be subject to the corporate organization and structure provisions of the National Bank Act;
may only engage in activities that are permissible for national banks;
would be subject to the receivership provisions in the National Bank Act (in September 2016, in anticipation of today’s announcement
would be required to be a member of the Federal Reserve System; and
would be subject to the same laws, rules, examination and reporting requirements as national banks, including legal lending limits and limits on real estate holdings.
To the extent that an applicant for a special-purpose charter proposes to accept deposits other than trust funds, it would be required to apply to, and receive approval from, the FDIC for deposit insurance. As an insured depository institution, the special-purpose national Bank would be subject to the Community Reinvestment Act. In addition, the Dodd Frank Act includes specific provisions exempting from CFPB enforcement and supervisory jurisdiction insured depository institutions with less than $10 billion in assets. (Said another way, a non-depository special-purpose national bank would be fully subject to CFPB supervision and enforcement, based on its business activities.)
The OCC would expect any applicant for a special-purpose national charter to fulfill all of the requirements of a full-service national bank, including:
a detailed business plan covering a minimum of three years, and clearly articulating why the applicant is seeking a national bank charter;
a strong governance structure and risk management system to identify, monitor, manage, and control risk;
minimum and ongoing capital levels commensurate with the risk and complexity of the proposed activities of the applicant, including a proposed minimum level of capital that the applicant would meet or exceed at all times;
adequate liquidity to readily and efficiently meet expected and unexpected cash flows and collateral needs at a reasonable cost;
alternative business and recovery strategies that address various best-case and worst-case scenarios;
a culture of compliance that includes a top-down, enterprise-wide commitment to understanding in adhering to applicable laws and rules; and
a demonstrated commitment to financial inclusion “that supports fair access to financial services and fair treatment of customers,” including a business plan that demonstrates how the proposed bank plans to respond to the needs of the community.
PeerIQ Weekly Update: December 4, 2016 (PeerIQ Email), Rated: AAA
(See article above on OCC special charter please 1st).
PeerIQ summarizes below the baseline supervisory standards from the OCC’s “Exploring Special Purpose National Bank Charters for FinTech Companies”:
This week marks the first rated securitization of LendingClub near-prime unsecured consumer loans. The transaction is notable in that it is the first rated deal consisting of Madden & Midland loans (~10% of loans from NY, CT, and VT) – a positive sign for market acceptance. The enforceability of these loans will be subject to subsequent court decisions in the second court regarding exportation of usury limits.
We have seen three LendingClub Near-Prime securitizations this year; they are LCIT 2016-1, LCIT 2016-2, and MHMT 2016-LC1.
LCIT 2016-NP2 was priced at 3.0% yield and 6.0% yield for A and B tranches, respectively. The pricing for LCIT 2016-NP2 A was 120 basis points tighter than MHMT 2016-LC1 A with the same credit support, yet, longer WAL; it is also 75 basis points tighter than LCIT 2016-NP1 A. Given the collateral pool of the LCIT deals are similar and tranches have the identical credit enhancement, the expected loss of each tranche should also be comparable. Exhibit 3 displays the pricing of A and B tranches against tranche weighted-average life. The arrows point to LCIT 2016-NP2 deal pricing. As the weighted-average life of the bonds increase, the credit risk premium increases, as indicated by the dotted trend line. The tighter pricing of LCIT 2016-NP2 cannot be explained by tranche average-life.
Could the improved credit market condition explain the favorable pricing in LCIT 2016-NP2? SoFi recently priced SCLP 2016-3 A tranche at 200 basis points over benchmark rates on October 6th; and the SCLP 2016-2 A tranche was priced around 215 basis points over benchmark rates on July 26th, only 15 basis points wider. The dramatic improvement in LCIT 2016-NP2 pricing cannot be rationalized by the marginal spread tightening in the credit market since end of July to December.
Due to the tightening pricing of A and B tranches, LCIT 2016-NP2 excess spread is 22.15%, a 55 basis points improvement than that of LCIT 2016-NP1, and about 270 basis points better than that of MHMT 2016-LC1 (Exhibit 3). The LCIT 2016-NP2 residual holders sit in first-loss position with economics that tie directly to uncertain prepay and default expectations. They benefit from significantly higher yield in return for bearing this risk.
The emergence of rated securities from LCIT shelf supports our belief that the rating agencies are more comfortable in rating this nascent industry with more historical performance data and issuers are more inclined to get their deals rated to expand their investor base.
When President Abraham Lincoln signed the law creating the national banking system and the Office of the Comptroller of the Currency (OCC), the very notion of establishing a national bank charter was itself innovative. Our country’s leaders provided the Comptroller with the authority to grant a national charter because they recognized the public value of a robust, unified, and nationwide system of banks.
The national banking system became a source of strength for the nation and our economy. National banks and, later, federal savings associations became anchors of their communities and the predominant providers of financial services for consumers and businesses. The system flourished because it enabled and encouraged national banks and federal savings associations to adapt to the changing needs of their customers and the market.
More than 150 years later, we have a diversified and evolving financial services industry. New technology makes financial products and services more accessible, easier to use, and much more tailored to individual consumer needs. At the same time, consumer preferences and demands are evolving, driven by important demographic changes: for example, the entry of 85 million millennials into the financial marketplace in the United States. Responding to those market forces are thousands of technology-driven nonbank companies offering a new approach to products and services. Five years ago these services either were available only from traditional banks or not available at all. Initially, many of these nonbank providers of financial services viewed themselves as competitors of banks. Now, some financial technology—or fintech— companies are considering whether to become banks.
The OCC on Dec. 2 released its long-awaited framework for a limited charter available to financial technology companies, but some consultants expect many fintech companies to continue relying on bank partnerships.
So far, the nascent fintech industry has largely relied on bank partnerships to issue loans. If a corporation wants to lend in a state, it needs to be licensed in that state and abide by usury limits that cap maximum interest rates on certain loans. For lenders looking to tap the national market, those requirements are burdensome, requiring a licensed loan officer in each of the 50 states. Instead, fintech lenders have partnered with banks to issue the loan, relying on the bank’s preemption from such state laws pursuant to the National Bank Act. For example, WebBankissues loans for LendingClub Corp. Banks like Cross River Bank and Celtic Bank also focus on this type of business, although the business model has become increasingly uncertain due to various court rulings.
The OCC’s Dec. 2 framework could negate the need for those partnerships. Fintech companies can now apply for a national charter that grants those preemption benefits without a bank partnership. But it remains an open question whether they will ditch banks in favor of the charters, especially considering OCC Comptroller Thomas Curry’s insistence that fintech companies will be subject to the same scrutiny the regulator applies to banks.
RealtyMogul.com has lowered the minimum necessary to invest in their first REIT or MogulREIT I to $1,000. Previously, the minimum investment was $2,500. RealtyMogul.com CEO Jilliene Helman said their goal was to give more investors the opportunity to invest in unique real estate investments on their platform.
Last month, MogulREIT I declared its first dividend that is on track for an 8% annualized return.
Sharestates is accepting investments for an Offering under Regulation D.
Because Sharestates is offering its securities under Regulation D, select materials are publicly viewable. However, investors must sign up or log in to SeedInvest and confirm status as an Accredited Investor prior to making an investment and accessing the complete profile and offering materials.
Once a loan application is filled out by the potential borrower, the first steps of underwriting begin. A quick review discovers whether the loan is a quick one based on some key details including credit score, bankruptcy history, sponsor’s track record, etc. If the initial details fall into our acceptable requirements, the full underwriting process begins: Credit Report, Partial Track Record Report, Title Search, etc. If the loan passes that level of underwriting, then the loan is approved to be funded.
Sharestates funds deals in two different ways. One way is by funding whole loans with its institutional capital partners (hedge funds, private equity funds, etc.). The second way is by funding a loan with both institutional capital and Sharestates’ balance sheet capital. Once the loan is funded and the borrower receives the capital, Sharestates then sells its position online to their registered individual accredited investors. This allows for two key user benefits: 1) The borrower receives their funding quickly, and does not have to wait for Sharestates to raise capital, and 2) Individual accredited investors start earning interest immediately (after funds arrive in Sharestates’ account).
Make sure you have the appropriate exposure to fixed income. Platforms likeBetterment do this automatically based on your age and risk appetite. Atarget date fund also does this automatically, but watch out for high fees with some of the funds.
Be a lender. Peer-to-peer lending companies source and screen applications for credit and then offer you the ability to invest in a diversified portfolio of those loans.
Britain’s biggest peer-to-peer lender is to limit the amount that savers can invest via the platform because of a shortage of creditworthy borrowers.
In an email to customers yesterday, it said: “We always aim to lend your money out in a reasonable time. However, with current volumes of new money transfers combined with demands for loans seasonally declining in December, we don’t expect this to be achievable this month.
The idea of so-called “peer-to-peer” lending was to bypass the mainstream, not become part of it. There was a strong emphasis on community, with loan investors posting personal messages to borrowers.
Last month, perhaps the most significant bridge yet was crossed when the pioneer of P2P lending, the UK platform Zopa, announced that it would establish its own bank. True, the change doesn’t mean the lender is abandoning its roots entirely. About 70 per cent of its business comes from consumers lending directly, and it will continue to connect them to borrowers. But the move is — over time — likely to transform Zopa’s business as it allows the platform to get round the biggest barrier to success in the marketplace model: its critical dependence on new transactions for the income platforms earn.
As should be clear from the marketplace name, online lenders such as Zopa don’t own the loans they originate. Most operate as platforms for investors, which means that new business flow is essential for generating revenue.
That wouldn’t matter so much if the marketplace movement’s goals were modest. Retail lenders tend to be sticky and might live with fluctuations in activity. But the sector has been backed by impatient venture capital investors, drawn in by the possibility of rapid expansion followed by a suitably lucrative exit. And their vision depends on platforms seizing a big share of total lending pretty fast.
What has become clear is that there are simply not enough consumer lenders to deliver the objective. Just to reach the $26bn the sector lent last year in the UK and the US, platforms have already leaned heavily on institutional money. And that has turned them into something more like old-fashioned finance companies — increasingly dependent on market access for funding.
Climbing off the wheel is sensible. Ownership of the loans they originate through a bank structure allows platforms to build up the income they need. Growth may be slower, but their innovative technology and low cost should help platforms carve out a defensible position. Meanwhile profits should be bigger, helping venture capital owners to find an exit — albeit at less elevated multiples.
The FT is reporting that Zopa has put a halt to retail investors lending money on their peer to peer lending platform. Allegedly, yield hungry investors are “flooding” the market hunting for better returns in this historically low interest rate environment.
While the FT called it “the latest sign of trouble” for P2P lending, but that is really hard to discern. Zopa apparently did say that it was a case of investor demand outstripping supply but did not indicate that demand for credit was waning beyond historical norms.
One way of interpreting this phenomena is that there is a growing awareness of the superior risk adjusted returns being made available by Zopa – and frankly many other peer to peer lending platforms in the UK.
The founder of Leicestershire-based peer-to-peer lending platform ThinCats has told Insider that the uncertainty sparked by the outcome of June’s EU referendum could provide opportunities for budding entrepreneurs.
Kevin Caley established ThinCats with Peter Brown and Paul Meier in 2011, partly in response to the financial crash of 2008.
Caley also revealed that ThinCats has overhauled its loan grading system to identify different levels of security and ability to repay.
Brexit, interest rate cuts and global economic turbulence have left a volatile and low-yield environment. Some glimmers of hope shine however, in the form of peer-to-peer lending (P2P) and robo-advice.
Peer-to-peer lending has an established investor-base. Namely, retail investors. The average deposit across a platform is around the £5,000 mark, however, with minimum investments of £10 in several cases, you could be lending capital and earning rates in the region 5% p.a plus in no time.
With a peer-to-peer investment you can expect returns significantly higher than those on offer from a high-street bank. With a record-low base saving rate of 0.25%, it is little wonder people are searching for an alternative. And with interest rates ranging 3-19% p.a, P2P lending could be that alternative.
The major P2P lending platforms, such as Zopa, RateSetter and Funding Circle (£1 billion+ lent by each), tend to return 3-7% p.a, depending on the platform and product.
Peer-to-peer lending platforms Zopa and RateSetter spread your capital between dozens of borrowers, in some cases up to 100.
One of the big perks in the industry that grabbed major headlines was the launch of the Innovative Finance ISA in April 2016. The government has put its cards on the table, giving peer-to-peer lending the stamp of approval.
Industry players speaking with GlobalCapital on the sidelines of the event noted the absence of several unsecured consumer lending players at this year’s conference – namely CircleBack Lending and Peerform – pointing to a wave of consolidation as the online lending market matures.
From insurance to wealth management, from peer-to-peer lending to payments, Fintech startups are transforming the financial system. They attracted $5.2bn in the first quarter of 2016 alone. Customers have many reasons to flock towards Fintech offers: low-cost, user-friendly interface, accessibility, transparency and exciting customer journeys.
In a follow-up to the Ezubao (Ezubo) shutdown, five people affiliated with the Chinese P2P lending platform that is accused of a Ponzi scheme are on trial for gold smuggling. This is the first court case that is a part of a scandal that robbed investors of between 50-58 billion yuan (approximately $7.6-8.4 billion) and shook the Chinese crowdfunding world earlier this year.
According to a Chinese news outlet, the five Ezubao affiliates smuggled over a thousand gold bars (worth approximately $4.8 million) out of China’s Yunnan province and illegally crossed over Myanmar’s border multiple times last year.
As a result of the fraudulent P2P lending platform fallout, 900,000 investors across China lost their savings; authorities froze more than 10 billion yuan in funds and seized about 300 million yuan worth of cash and assets; and 26 people — including Ding and President of Yucheng Zhang Min — face charges of fraud and illegal fundraising.
News Comments Today’s main news: Subprime Auto Debt Grows Despite Rising Delinquencies, Today’s main analysis : Subprime auto debt and delinquencies. Today’s thought-provoking articles: 2017 will be good year for partnering with banks. Rapid growth of alternative finance. Does online lending create less systemic risk? United States Weiss comments at investors conference on marketplace lending. AT: “The […]
Weiss comments at investors conference on marketplace lending. AT: “The U.S. Department of the Treasury weighs in on the debate over regulating marketplace lending and, guess what?, they’re in favor of it. Virtually every relevant department of the executive branch of government supports regulation of the industry, which pretty much spells inevitability to me.”
PeerIQ and TransUnion partner on MPL solutions. AT: “This is an interesting partnership. It can only benefit PeerIQ and should give TransUnion new insight into the MPL sector, which will likely improve its own services in the credit scoring sector. Could this lead to a new rating scheme for marketplace lending?”
In recognition of the changing industry dynamics and in response to the feedback we received to the RFI, in May of this year, Treasury published a White Paper entitled Opportunities and Challenges in Online Marketplace Lending.
We proposed six recommendations to public and private sector participants. First, we support exploring more robust small business borrower protections and effective oversight. Second, we encourage companies to align interests of borrowers and investors by ensuring sound borrower experience and back-end operations. Third, to promote a transparent marketplace, we recommend the creation of a private sector registry for tracking data on transactions, issuances, securitizations, and loan-level performance for the public. Fourth, we suggest the expansion of access to credit through partnerships that ensure safe and affordable credit. Fifth, we support the use of smart disclosures and data verification sources to improve the borrower experience and make loans and investments safer and more accurate. And last, we proposed the creation of a standing, interagency working group on online marketplace lending to facilitate regulatory coordination.
Banks, particularly community banks, have traditionally provided the majority of credit to small businesses in the United States. Community banks are often closest to their borrowers and in a unique position to assess and address the credit needs of their customer base. This can lead to more effective risk assessments and better outcomes for lenders and borrowers.
However, small businesses are increasingly turning to online marketplace lenders as potential financing sources. According to the 2015 Federal Reserve’s Small Business Credit Survey, one in five small businesses sought out online marketplace lenders in 2015 as potential financing sources.
Unfortunately, those same survey results found small businesses approved for financing were often dissatisfied with their experience using marketplace lenders. The top three survey complaints were high interest rates, unfavorable repayment terms, and most critically, a lack of transparency. These results echoed the comments Treasury received in the RFI. Commenters across the spectrum, including some industry participants, argued that small business borrowers need enhanced safeguards to ensure terms are well understood.
The need for greater transparency and standardized terms across the full spectrum of small business credit products is necessary to promote competition and ensure customers have relevant and accurate information to make informed financial decisions.
Treasury’s White Paper showed that the use of data for credit underwriting is a core element of online marketplace lending. It holds both the most promise and the most risk for borrowers. Data-driven algorithms may expedite credit assessments and reduce operational friction. In particular, data allows marketplace lenders to reduce the cost of customer acquisition, automate the origination of loans and the collection of loan documentation, and potentially reduce fraud.
However, these algorithms also carry the risk of disparate impact in credit outcomes and the potential for fair lending violations. There is limited public research on these topics, and therefore, a lack of consensus on the potential benefits and risks. This is partly because credit scoring models and operations are proprietary, and data sources are expensive to construct or unavailable to outside researchers.
These algorithms continue to evolve, and their ability to generate superior credit outcomes was tested in 2016. Unsecured consumer loans across a composite of marketplace lending platforms saw delinquency rates rise 30 to 50 basis points from the same time a year ago. To ensure continued investor confidence in the validity of these new underwriting models, marketplace lenders adjusted to demands by investors for greater transparency, independent due diligence reviews, and heightened data integrity and validation standards.
We also see the potential for marketplace lending to expand credit in underserved markets. According to the CFPB, at least 45 million consumers have no access to credit because they have either no credit report or insufficient credit histories. It is estimated that 26 million Americans are credit invisible and do not have credit records maintained by any of the three credit reporting agencies. An additional 19 million lack a credit score. Use of alternative data may mitigate this problem. Importantly, alternative data can also be used to satisfy customer identification requirements and combat fraud.
However, with the proliferation of partnerships, it will be critical to ensure that financial institutions maintain oversight and compliance obligations under the distribution partnership model. The proposed third party guidance by FDIC is critical in this regard, and extends beyond marketplace lending.
Given the rate of change and innovation occurring in fintech and online marketplace lending, this will continue to remain an area of focus for federal regulatory agencies.
The latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data showed a small increase in overall debt in the third quarter of 2016, bolstered by gains in non-housing debt. Mortgage balances continue to grow at a sluggish pace since the recession while auto loan balances are growing steadily. The rise in auto loans has been fueled by high levels of originations across the spectrum of creditworthiness, including subprime loans, which are disproportionately originated by auto finance companies.
Originations of auto loans have continued at a brisk pace over the past few years, with 2016 shaping up to be the strongest of any year in our data, which begin in 1999.
Although it remains true that banks and credit unions comprise about half of the overall outstanding balance of newly originated loans, the vast majority of subprime loans are originated by auto finance companies.
Auto loan delinquency data, reported in our Quarterly Report, show that the overall ninety-plus day delinquency rate for auto loans increased only slightly in 2016 through the end of September to 3.6 percent. But the relatively stable delinquency rate masks diverging performance trends across the two types of lenders. Specifically, a worsening performance among auto loans issued by auto finance companies is masked by improvements in the delinquency rates of auto loans issued by banks and credit unions. The ninety-plus day delinquency rate for auto finance company loans worsened by a full percentage point over the past four quarters, while delinquency rates for bank and credit union auto loans have improved slightly. An even sharper divergence appears in the new flow into delinquency for loans broken out by the borrower’s credit score at origination, shown in the chart below. The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years.
Both banks and fintech companies have come to the realization that they have core competencies that are complimentary. According to a recent Manatt survey, a whopping 72% of regional and community banks said that they plan to collaborate with a fintech company in the next 12-18 months.
Banks are naturally conservative so it comes as no surprise that the early adopters have chosen to partner with fintech companies rather than buy or build. We expect that partnerships are going to rapidly accelerate in 2017.
Bank-Fintech-Bank (BFB): In this scenario the bank uses their channel to originate borrowers, the online lender underwrites the loan, and the bank uses its depositor base to fund the loan.
Fintech-Fintech-Bank (FFB): In this scenario, the online lender uses their own channel to acquire the borrower, they use their technology to underwrite the loan, and the bank provides the lending capital.
Bank-Fintech-Fintech (BFF): In this scenario the Bank uses their channel to acquire the borrower but the fintech underwrites the loans and funds it themselves.
Co-Brand or White Label: Each partnership must also decide whether to co-brand or white label. Regions Bank is most interesting because they chose to white label with Avant but co-brand with Fundation.
Last month Goldman Sachs officially launched Marcus, the first online lending platform built by a bank. This was a major milestone for the industry. It signaled that banks and online lending platforms can co-exist.
SunTrust is the only major bank to have actually acquired an online lending platform.
Online Lending Update (Orchard Email), Rated: A
I mentioned in last month’s newsletter that the feeling among most of the industry participants I’d spoken with was that the worst was behind us and the prevailing sentiment was that we’d likely end the year on a positive note. While I believe this is still the case, we won’t know it for sure until we start seeing it in the numbers. November was a month of mixed signals.
PeerIQ, a leading provider of data and analytics in the marketplace lending sector, and TransUnion (NYSE: TRU), a global information solutions provider, today announced a core strategic partnership to bring enhanced transparency and insight to alternative lending markets. This newly launched partnership will target the most pressing issues facing lending markets to foster greater investor confidence. It also positions PeerIQ as a key facilitator of efficient investment between marketplace lenders and institutional investors.
In addition to building authoritative data and derived analytics solutions for the industry, PeerIQ and TransUnion will collaborate on distribution and integration opportunities. As part of the partnership, Steve Chaouki, executive vice president and head of TransUnion’s financial services business unit, will become a PeerIQ board observer.
Banks that partner with online lending platforms can find new opportunities to expand their markets, but key challenges also need to be addressed.
Online lender Avant seeks financial-driven bank partnerships, according to Kevin Lewis, head of business development. Avant partners with banks to provide a bank-branded product for both existing customers and new online customers.
Manny Alvarez, general counsel and chief compliance officer for online lender Affirm, says his company seeks customers who either don’t have or don’t use a credit card for big ticket purchases.
Affirm—started by Max Levchin, co-founder of PayPal—works with web-based merchant verticals in segments such as home goods, automotive parts, and luxury apparel.
Richard Neiman, head of regulatory and government affairs at Lending Club, said his company has over 30 bank partners on its platform. He says the banks find these partnerships “attractive and a strong value proposition” because it provides them with the ability to:
1. Acquire attractive assets (consumer credits)
2. Offer a digital system without having to build a new system or adapt a legacy system
3. Fill a product gap
4. Say “yes” to more customers because loans the bank doesn’t want to hold on its balance sheet could be funded by the other investors on its platform.
Lending Club partners with banks to originate and issue its loans. It also partners with large and small banks that invest in loans on its platform or originate loans through white label programs on its platform.
Mastercard has launched Decision Intelligence, a comprehensive decision and fraud detection service. The solution uses artificial intelligence (AI) technology to help financial institutions increase the accuracy of real-time approvals of genuine transactions and reduce false declines.
Current decision-scoring products are focused primarily on risk assessment, working within predefined rules.
The Structured Finance Industry Group, Inc. (“SFIG”) released the First Edition in a series of papers aimed at supporting the responsible growth of securitization in the marketplace lending sector. These papers, termed “Green Papers,” are a product of SFIG’s Marketplace Lending Committee Best Practices Initiative. The Best Practices Initiative was launched in February 2016, and seeks to identify a framework of market standards and recommended best practices through an open discussion among a broad cross-section of market participants.
The involvement by membership in SFIG’s Marketplace Lending Committee and the best practices effort is broad. Each working group differs in size, and SFIG’s Marketplace Lending Committee currently includes 250 individuals, representing more than 70 SFIG member institutions. The initiative has established the following five work streams related to marketplace lending:
RealtyShares announced on Thursday a total of $5,144,000 has been raised through its real estate crowdfunding marketplace for the acquisition and development of four free-standing triple net (NNN) leased quick service restaurants in Nashville, Tennessee.
According to RealtyShares, the tenants, which includes three Checkers and one Taco John’s, each raised more than $1 million through the crowdfunding platform at an 80% Loan-to-Cost (LTC) ratio. All were fully funded within two weeks of being featured on RealtyShares’ online marketplace, demonstrating the crowd’s strong interest in this type of deal.
Earlier this year, the Federal Trade Commission (FTC) held its first FinTech Series forum exploring the benefits, risks, and regulatory issues applicable to the FinTech industry. The forum, which took place on June 10, 2016, focused on marketplace lending. The second forum in the series took place on October 26, 2016, and focused on crowdfunding platforms and peer-to-peer (P2P) payments. The half-day forum featured opening remarks by FTC Commissioner Terrell McSweeny, panel discussions on crowdfunding and P2P payments, a presentation by the FTC’s Office of Technology, Research, and Investigation, and closing remarks by Malini Mithal, the Acting Associate Director of the FTC’s Division of Financial Practices.
At the second FinTech Series Forum, the FTC discussed its planned regulatory direction for the crowdsourcing and P2P payments industries, and the level of compliance flexibility regulators expected to provide early-stage fintech companies (spoiler: not much). The FTC made clear that although FinTech-specific regulation is still taking shape, the agency will monitor this sector aggressively and expects compliance with long-standing consumer protection laws, including its guidance on unfair or deceptive acts or practices (UDAP).
While crowdfunding has created a new system for individuals and groups to raise money for personal and business projects, the FTC believes such platforms also create a potential for fraud and other abuse. The panelists noted that consumer understanding is always a source of risk and commented that some issues may be driven by consumers viewing crowdfunding platforms (particularly reward-based platforms) as online stores, rather than as an investment in a not-yet-extant product.
For its part, the FTC stated it would continue to take action against fraud by project creators, recalling the 2015 Forking Path case (discussed here), in which the FTC asserted that a project creator’s claims constituted UDAP in violation of Section 5 of the FTC Act.
During the forum, one panelist emphasized that regulations that govern existing funding mechanisms should apply to P2P payment with equal force. Indeed, there are multiple overlapping legal and regulatory frameworks that could apply to P2P payment systems, depending on how they are set up, including the Bank Secrecy Act and anti-money laundering regulations, money transmission laws, laws applicable to prepaid programs, payment card network rules, and NACHA rules, to name a few. In addition to such existing regulations, the CFPB’s Prepaid Rule, discussed here, will also likely apply to many P2P transfer systems in the near future.
Bank of America today celebrated the grand opening of its newly renovated Stanford financial center located at 3000 El Camino Real.
Specifically, the financial center features a new design layout and a host of new finishes, such as a digital demonstration counter with iPads showcasing mobile and online banking platforms, new waiting area amenities, and private offices for providing financial advice to clients.
Today, we mark the last page in the beautiful story of BillGuard. What an exhilarating journey it has been.
From BillGuard to Prosper Daily
Six weeks later, in October 2015, we announced BillGuard was joining forces with Prosper. Barely catching our breath, we felt reinvigorated that added resources and access to bleeding edge financial services capabilities could take the materialization of our mission to a new level. We suddenly could take BillGuard from read-only insights to actually impacting user’s accounts and saving them money, or at least reducing their debt. As a team, we could dream even bigger as we moved from our cash-strapped start-up phase, to aggressive growth planning, including plans to double our team and dramatically grow the product and its user base.
2016 A bad year for everyone, even unicorns
Lenders reacted by quickly changing their strategy from growth to profitability. They started cutting costs and hitting “undo” on all those scaling investments. Prosper, LendingClub and Avant were forced to lay off significant portions of their US workforce early in 2016. Lenders reduced other costs wherever they could and reduced borrower acquisition in pursuit of marketplace equilibrium.
Startup Reality hits hard: Scale down or shut down
Then came the time to set our 2017 strategy and budgets. Tight budgets would continue until market conditions and Prosper’s financials shifted back to growth. No matter how many times we ran the numbers, it was clear expenses had to be reduced further. This meant significantly reducing the size of the Tel Aviv office or consolidating the app operations in San Francisco.
Thus started our final BillGuard/Prosper Daily project — organizing and transferring our work to colleagues in San Francisco. It will take a couple of months to complete, and it comes with some sadness as you can imagine. Still, it’s good to know the app will live on and Prosper will continue to build on what we created at BillGuard.
The BillGuard Mafia — Unleashed
As we close the doors on the Rothschild office (and balcony) we’ve been so lucky to call home for the last four years, it is exciting to think of all the new chapters that will be started by this team. Whether they’re joining some of the most recognized companies or starting their own industry-revolutionizing ventures, they will take these BillGuard learnings and friendships and apply them in new ways.
During this difficult moment of seeing our incredible team disband, I struggle to find the words to articulate how much this group has taught me about what it means to be a team, about building beautiful things that people actually use and love, and about handling the great honor that it’s been to lead during this adventure.
Chief Technology Officer Amala Duggirala joins lending startup, Kabbage at a great time. The Atlanta unicorn company has experienced astronomical growth over the past year, priming itself for technology advancements in processing direct loans to small businesses across the country.
Duggirala has two decades of experience in building large-scale systems and growing enterprises. Her history of transforming corporations, including ACI Worldwide, which she helped boomed from $260 million in revenue to $1 billion, will lend itself to taking the Kabbage platform to the next level.
Think Finance, Inc., the company behind CortexSM, which provides a flexible and complete solution for financial service providers to enter the online consumer lending market, announced two of its senior executives will speak at the Marketplace Lending & Alternative Financing Summit taking place December 4th through December 6th in Dana Point, California. The Summit gathers fintech industry leaders – including credit issuers, platform providers, underwriters, rating agencies, service providers, investors and other professionals – to share insights on the latest trends and tools in the growing area of marketplace lending.
Think Finance CEO Martin Wong will participate in a panel discussion focused on online consumer lending platforms in the United States>, and Think Finance Senior Vice President of Decision Sciences and Risk Management Scott Morrison will give remarks during a panel discussion on credit risk.
That being said, alternative finance as a concept still remains somewhat amorphous. Given that the industry has only recently established any significant presence—and given that new forms of alternative finance continue to be created—financing methods now commonly being identified as “alternative” are essentially those that do not originate from traditional sources such as banks and stock and bond markets. Others provide a more stringent definition of the industry as one that has a direct connection between market participants, generally via online platforms.
Furthermore, recent figures show that such financing methods have been experiencing startling growth over the last few years. According to a September report from Cambridge University’s Centre for Alternative Finance (CCAF), the online alternative-finance market in Europe grew by a massive 92 percent in 2015, hitting €5.4 billion. The UK currently possesses the lion’s share of the region’s industry, with the CCAF recording the country’s transaction volume at €4.4 billion, or 81 percent of Europe’s market share.
China is deemed to be the world’s largest alternative-finance market at $101.69 billion, which represents a rather dramatic ascent over the last few years. The country’s market in 2013 was only $5.56 billion before jumping to $24.3 billion by last year, and then exceeding $100 billion last year. Much of China’s growth has been attributed to the rapid rise of mobile Internet in China, which has allowed 685 million people to get connected, more than any other country in the world. The rest of Asia-Pacific pales in comparison to China, with a market value of just $1.12 billion; but with a staggering 313-percent growth rate from 2014 levels, alternative finance looks set to explode across the entire region.
The World Bank recently estimated that the world’s alternative-finance market could grow to $90 billion of investment by 2020 from $34 billion at present.
One of the frequently touted benefits of peer to peer/marketplace lending is the heightened transparency associated with loan originations processed online.
Today, many online lenders are providing credit from their own balance sheet or doing hybrid lending, perhaps using retail and institutional money. So in some respects, online lending is becoming less transparent than the early days, but these multiple capital channels are helping to propel sector growth. Arguably this added complexity comes with solid benefits and additional cost.
“Every originator and every lender have their own product structures and credit policies. They find ways of originating demand and then say ‘yes’ to some of the applicants. Saying yes to the right customers using the right policies and products should result in a very resilient portfolio of loans regardless of whether you’re holding the loans or selling them downstream.”
Rotman is not overly enthusiastic about banks these days. He believes they resemble utilities. Banks must hold higher levels of capital and endure steep overhead costs that are offset with products with a low ROA. All in an attempt to achieve a low return on equity. The positive to all of this is that a bank can survive if profits fall to zero. For online lenders it’s different, “…zero for marketplace lenders is bad and negative ROA is toxic.”
BitLendingClub, a bitcoin peer-to-peer lending platform, announced on Thursday it was shutting down all of its services. The website claimed the closure was due to regulatory pressure.
BitLendingClub’s team shared they are planning to restrict the functionality of the website to either repaying of a loan, deposition to repay or withdrawing funds. They noted there would be no new registrations, loan requests, new users verifications, investments or any other service other than just repaying. They are expecting that service restrictions will begin sometime next week, without knowing a specific date, but will send an email to users when the changes occur.
Latvia-based VIA SMS Group announced this week it is launching Viainvest, a peer-to-peer marketplace for both private and legal entities offering to invest into consumer loans originating from non-banking lenders.
It was also reported that loans available for investment on VIAINVEST are originated by VIA SMS group and its daughter companies across Europe, so investors are able to create diversified and secured investment portfolios.
An Internet lending platform clarified on Thursday that it has not posted or stored any naked pictures, after a great number of nude pictures of female students were exposed online.
JD Capital’s Jiedaibao, a popular online peer-to-peer lending platform, said on its official Sina Weibo account that the naked pictures were from a small number of desperate users who resorted to private transactions with shady lenders while bypassing the platform.
The pictures, serving as a receipt of the loans, are transmitted through social network app WeChat and instant messenger QQ.
India’s leading online platform that facilitates SMEs in obtaining working capital loans, Lendingkart Group, has been recognized as one among the world’s top fintech innovators by KPMG and H2 ventures in their prestigious 2016 FINTECH 100 Global report. Lendingkart Group’s consistent focus on seamless delivery of quality and hassle-free services in facilitating small business working capital loans, has enabled it to become a part of the celebrated report. It is the only Indian fintech company to be featured thus in the online lending SME space.
Lendingkart Technologies is a fin-tech startup in the working capital space. It has developed technology tools based on big data analytics that facilitates lenders to evaluate borrowers’ credit worthiness.
Online lending marketplace IndiaLends has secured $4 million (around Rs 27.3 crore) in its Series A funding round from existing investor DSG Consumer Partners. American Express Ventures, Chinese investment firm Cyber Carrier VC and Noida-based early stage fund AdvantEdge Partners also participated in the round.
The company had previously raised $1 million in a bridge round in October 2015 led by existing investor DSG Consumer Partners and two individual investors—Siddharth Parekh and Gautham Radhakrishnan.
Professional Bank Services (PBS) is a Louisville, KY based financial institution consulting company founded in 1978. It has been employee-owned since 2003. The company prides itself on being a small business with fewer than 100 employees. As one of the world’s largest financial consulting firms, they provide compliance advice for a range of clients from […]
Professional Bank Services (PBS) is a Louisville, KY based financial institution consulting company founded in 1978. It has been employee-owned since 2003. The company prides itself on being a small business with fewer than 100 employees. As one of the world’s largest financial consulting firms, they provide compliance advice for a range of clients from small community banks to multi-billion dollar international financial institutions. In addition, PBS has assisted, trained, reviewed, and audied online lenders since 2013.
PBS’s unique business model as a small employee-owned hands-on company has proved especially advantageous to them with their start-up online lending clients. Not only do they fully understand how small financial institutions operate, but they have also mastered facilitating regulatory compliance for banks and MPLs over the past 38 year.s
“Boots on the Ground” Consulting and Education
PBS considers itself a “boots on the ground” consulting firm. Each day, employees are on location reviewing, advising, and educating banks and online lending businesses. PBS calls its approach to compliance facilitation a “personal” one.
PBS also believes its hands-on method of working with clients enables it to better understand the needs and requirements of each individual MPL and partnering bank. One of PBS’s greatest assets is its team of professionals actively working in the field every day.
PBS offers a wide range of services from in-house compliance training and internal auditing to director education and management consulting. PBS’s Education Department does almost 1000 seminars across the country each year. It caters its program to each client whether a traditional bank (75% of PBS’s clientele) or MPL.
What makes PBS so unique is that, unlike many other consulting firms, the company does not charge retainers. Rather, they have developed a business plan based on phases that are paid for as the work is completed. An informational packet published for potential clients at the 2016 LendIt conference not only describes PBS’s different phases of education and consulting for online lenders, but it also lists the typical pricing for each phase “spanning the first 12-18 months depending on resultant volume.”
The Road to Compliance for MPLs through Bank Partnerships
Retired US Army officer and FDIC veteran Martin Mitchell serves as managing director at PBS. With over 18 years of experience in the industry, Mitchell can is an expert in the field and is often asked to speak about his knowledge of lending compliance at conferences across the US, including the April 2016 LendIt USA. In an article produced by PBS, titled “MPLs: The Unregulated Fallacy,” Mitchell attempts to decipher key terms from the CFPB Title 12 CFR 1090.101 in order to help explain if CFPB regulations apply to and how they affect MPLs.
By reading Mitchell’s article, let alone the actual 12 CFR 1090, it is obvious how complicated it is for MPLs to find out if they are subject to the regulations or not, and how they are required to comply. Mitchell writes that one of the easier routes for online lenders to take for compliance is to partner with a fully compliant bank.
Speaking as a Managing Director for PBS, Mitchell says, “For several years we’ve advocated our MPL clients are best served if they operate and are monitored to the same regulatory requirements of their bank partner.” It is time to recognize that is is a misconception that online lending operates outside (or with fewer) federal regulations. Comprehensive regulation of MPL is inevitable. If an online lender partners with a bank, both entities may work together to fully comply with federal regulations.
The FDIC Perspective and MPL Compliance
Mitchell, who claims a “long history with the FDIC,” calls the MPL space “very exciting,” but he thinks the future of MPL lies in full FDIC compliance. There obviously has been a lot of talk recently about what several analysts call “Rent-a-Charter” deals and how new FDIC guidelines could negatively affect these MPL and bank partnerships, but Mitchell still believes that MPL are “far better served partnering with a solid bank.” According to an August WSJ article, the proposed “FDIC guidelines would reduce a regulatory advantage for online startups.” Mitchell argues that while significant changes in MPL regulations may still be a few years out, the way for online lenders to gain the trust of the public and federal regulators is to adhere to FDIC regulations from the start. Mitchell writes, “We all know this is a regulated business. The best course of action is to stop skirting reality, embrace that fact, and demonstrate the capabilities of these great lenders to operate in a fully compliant manner to all who doubt.”
The Future of MPL and Bank Partnerships: Cross River Bank Announces $28 million growth-equity investment
In the week before the presidential election, the biggest news in the MPL industry was that the small New Jersey bank/online lender Cross River Bank announced they had completed a $28 million growth-equity investment by Silicon Valley VCs including Battery Ventures, Andreessen Horowitz, and Ribbit Capital. CRB is considered to be a “highly regulated financial entity” and FDIC member, so many analysts found it unconventional if not shocking that VC’s would choose to invest in the bank.
While FinTech companies have spent years trying to disrupt the traditional hold banks have on lending, many feel, including Mitchell, that the way forward for these start-ups is a partnership with banks. As Telis Demos recently reported in a WSJ article, prior to President-elect Donald Trump’s win, many FinTech firms felt that partnering with small banks like CRB would “help them take on hobbled financial supermarkets,” but Trump’s presidency could mean a change in dynamics between MPLs and banks. Possible changes to Dodd-Frank and lighter regulations under the new regime raise many questions for the future of online lenders and banks, but it would seem some sort of partnership between the two would be mutually beneficial.