- Today’s main news: What SoFi is planning next.
- Today’s main analysis : Incumbent finance companies say FinTech partnerships boost revenue.
- Today’s thought-provoking articles: How marketplace lending is evolving. How UBank is using Agile to lead online banking. P2P lending offers a new form of financial inclusion.
- SoFi is dominating and here’s what they’re planning next. AT: “There are several interesting takeaways from this interview. Most of them focus on the differences between being a startup company and being an established leader in the industry. Today’s startups should look forward to following SoFi’s lead in the growth stage.”
- Stripe’s valuation doubled. AT: “The impetus was a funding round led by CapitalG, Alphabet, and other investors. Still, this indicates that Stripe plans to get aggressive in its competition with Square, which is probably less a competition than two innovative companies carving out their unique niches. Personally, I think Stripe has a lot more potential. Let’s hope it isn’t overvalued.”
- SoFi offers term life for Millennials. AT: “We saw this coming. The interesting thing is the market they’re targeting, which isn’t really surprising except that Millennials don’t often see themselves as in the market for life insurance.
- PeerStreet raises $ 15 million for real estate loan marketplace.
- Credible adds MEFA to marketplace.
- Trends for the underbanked.
- 8 million Americans can get a lower rate on student loans, says Credible. AT: “The challenge for Credible, and the rest of the student loan industry, is to get the word out.”
- Money360 closes $ 10.5 million bridge loan.
- LendIt launches FinTech industry awards.
- LendingTree survey shows most Americans waive holiday shopping budgets. AT: “And they’re planning to shop online this holiday season.”
- National Funding sponsors Holiday Bowl.
- 54% of legacy financial institutions earn revenue from FinTech partnerships. AT: “If that is the case, I think we’ll see more partnerships in the future. However, 54% is barely a majority. What’s going on with the other 46%? Why aren’t they seeing a boost in revenues? It likely has nothing to do with the partnerships, but we don’t know.”
- How marketplace lending is evolving. AT: This round table offers some interesting insights from industry insiders.”
- How to cut mortgage fraud risk.
- LendInvest appoints new BDM for Northern England.
- Metro Bank revamps online banking platform.
- Is Zopa taking P2P backward by opening a bank?
- How UBank uses Agile to move ahead. AT: “Here is an interesting case study on how one online bank uses Agile to better its business model. The focus is on the technology, but that’s a huge part of the business for P2P lenders, alt finance companies, and others in the alternative lending space.”
- HashChing trailblazes fully-digital loan approval.
- United States
- SoFi Is Dominating The Finance Space: Here’s What They’re Planning Next (Forbes), Rated: AAA
- THIS START-UP’S VALUATION JUST DOUBLED TO $9 BILLION (Vanity Fair), Rated: AAA
- SoFi Offers Term Life Insurance for Millennials (Crowdfund Insider), Rated: AAA
- PeerStreet Raises $15M For Real Estate Loan Marketplace (Socal Tech), Rated: A
- Credible adds MEFA to its marketplace (Bankless Times), Rated: A
- For Underbanked, Higher Fees And Auto Payments (PYMNTS.com), Rated: A
- 8 million Americans could get a lower rate on their student loans (CNN Money), Rated: A
- Money360 Closes $10.5 Million Bridge Loan for Signal Hill, California, Property (Yahoo! Sports), Rated: A
- LendIt Launches Fintech Industry Awards (LendIt Email), Rated: B
- LendingTree Survey finds Most Americans Waive Budgets for Holiday Shopping (PR Newswire), Rated: B
- First Responders treated to National Funding Holiday Bowl (PR Newswire), Rated: B
- United Kingdom
- 54% of incumbents say fintech partnerships have boosted revenue (Business Insider), Rated: AAA
- Key themes discussed as marketplace lending sector evolves (Structured Credit Investor), Rated: AAA
- How to cut mortgage fraud risk (Money Marketing), Rated: A
- LendInvest appoints former Castle Trust manager as BDM for Northern England (Mortgage Strategy), Rated: A
- Metro Bank revamps online banking platform (altfi), Rated: A
- A backward step as peer-to-peer pioneer Zopa takes banking road? (Evening Standard), Rated: A
- How UBank’s FinTech culture enables Agile to thrive (CIO.com.au), Rated: AAA
- HashChing trailblazes fully-digital loan approval (Australian Banker), Rated: A
- Peer-to-peer lending: A new form of financial inclusion (The Jakarta Post), Rated: A
SoFi Is Dominating The Finance Space: Here’s What They’re Planning Next (Forbes), Rated: AAA
There is more than one trillion dollars of student debt in the U.S. today, making student loan debt the second largest amount of debt, second only to the $8.5 trillion owed in mortgages. Despite the gargantuan size of the market, there have traditionally been very few options: 90 percent of the loans are made by the government at standard 7 to 8 percent interest rates.
Dan Macklin, VP of Community and Member Success, co-founded SoFi at Stanford with CEO Mike Cagney as well as James Finnigan and Ian Brady. Macklin and I sat down recently to discuss the future of SoFi and his unusual and effective community growth tactics.
When you started out you were groundbreaking in your market and now there are a number of competitors seemingly coming up behind you. Is that a fear, are you always looking backwards? And how are you developing?
It’s great that other competitors are coming into the market because it validates the fact that this is a real market. It’s actually helpful for us in everything we do in that if another competitor gets some press we always see a spike in SoFi traffic because those articles almost definitely mention the fact that SoFi is the dominant player in the industry. We’re very happy with that!
Now you’re developing and you’re helping other smaller businesses get started as well. Why are you doing that?
We developed the SoFi Entrepreneur Program to help entrepreneurs who are starting a company and have student debt.
It’s very true that student debt is holding many people back from entrepreneurship and we want to try to alleviate that and encourage people to start those companies.
Through the program we do two things. One, we allow people to defer their loans for six months, that can be extended to 12 months, and that gives just a little bit of time where they can devote their time and energy to their companies and not have to worry about that student loan payment. But then second, and I think more importantly, we try and help them proactively as much as we can. We introduce them to investors, we bring them along to conferences, and we promote their products to our customer base.
Being the co-founder of a scrappy start-up is one thing and one type of job. What are the challenges that you’ve personally faced now that it’s a much bigger company? And what tips would you have for others, having been through this process?
So as a co-founder, I don’t know everything that’s going on in the business, but that’s the way it should be, because if you try to keep too close a hold on things then you won’t grow at the pace that you could be growing at.
How are you developing? Now that you’re a large established company and maybe a more-trusted brand, how are you developing your approach to market?
We’re doing a lot more marketing. You may have seen the Super Bowl ad earlier this year, and we’re doing a lot more out-of-home ads: billboards, taxi tops, as well as TV.
We’re now working with more than 600 companies who are helping their employees and offering SoFi as an employee benefit. Student loans are a big problem for the young workforce of the US today, and we see student loan benefits as the new 401k.
THIS START-UP’S VALUATION JUST DOUBLED TO BILLION (Vanity Fair), Rated: AAA
At least one start-up, however, appears to be bucking this trend: on Black Friday, payments start-up Stripe announced a new funding round that will nearly double the company’s most recent valuation, bringing its value to $9.2 billion, the company said. The new funding round, as The Wall Street Journal first reported, includes $150 million from investors such as CapitalG, the investment arm of Alphabet, Google parent company; General Catalyst Partners; and Sequoia Capital, an early investor. Stripe is now valued more highly than other private fintech start-ups, including $4 billion Social Finance.
Stripe, meanwhile, is also trying to build out new ways to make money, essentially also becoming a financial-services company by broadening its portfolio to include fraud prevention tools, among other things. Stripe’s clients include other highly valued start-ups like Lyft and Slack, more traditional retailers like Macy’s and Adidas, and less-traditional clients like NASDAQ, UNICEF, and “both presidential campaigns,” TechCrunch reports.
SoFi Offers Term Life Insurance for Millennials (Crowdfund Insider), Rated: AAA
SoFi has partnered with Protective Life Corporation to provide individual term life insurance of up to $1 million. All you have to do is complete the form online.
SoFi notes that Millennials are the least likely to posses life insurance. They also say that Millennials overestimate the cost of life insurance premiums by 213%. The expected high cost of term life is “causing them to delay getting coverage”.
PeerStreet Raises M For Real Estate Loan Marketplace (Socal Tech), Rated: A
Los Angeles-based PeerStreet, a startup which operates a marketplace for investing in real estate backed loans, has raised $15M in a Series A funding round. The funding was led by Andreessen Horowitz, and also included The Kaiser Family Foundation, Rembrandt Venture Partners, Montage Ventures and others.
Credible adds MEFA to its marketplace (Bankless Times), Rated: A
Student loan marketplace Credible.com has partnered with the Massachusetts Educational Financing Authority (MEFA) in a move which sees MEFA offering student loan refinancing to borrowers across the country.
Credible.com now offers student loan refinancing through six lenders.
In a release Credible.com said the average borrower saves an average of 1.59 percentage points and $18,668.
For Underbanked, Higher Fees And Auto Payments (PYMNTS.com), Rated: A
There are 67 million adults in the United States who are part of the “underserved” market, and those individuals, who do not have bank accounts, paid as much as $141 billion in fees for various financial products last year.
The study found that border trends are afoot, as those individuals have begun shifting some of their financial activity, traditionally tied to alternative financing, in part away from online payday firms and storefronts. Activity has, in fact, moved toward other conduits, such as small business marketplace lenders. Marketplace loans jumped by as much as 210 percent, and payday loans across storefront and online conduits slipped by 23 percent — a finding the study attributed to installment loans, or subprime cards, in the wake of regulatory pressures.
8 million Americans could get a lower rate on their student loans (CNN Money), Rated: A
Eight million Americans could get a lower interest rate on their student loans, and many of them might not even know it.
That’s the estimated number of borrowers eligible to refinance their debt, according to a new report from Credible, an online student loan marketplace. It’s roughly one-third of all people who are currently paying down student loans.
Your eligibility does depend, though, on how much money you earn relative to the amount of debt you have, and it helps to have a good credit score.
Credible, which helps student borrowers shop around for the best rates, analyzed data from its users over the past 17 months to see who was getting the best rates, and how much money they were saving. Here’s a look at what they found.
Recent grads who used Credible to refinance had an average income of $54,200 and a loan balance of $49,379.
On average, borrowers who refinanced reduced their rate by 1.7 percentage points, cut their term by five years, and can expect to save $18,668 over the life of the loan, according to the report.
Money360 Closes .5 Million Bridge Loan for Signal Hill, California, Property (Yahoo! Sports), Rated: A
Money360, the leading commercial real estate marketplace lending platform, announced today that it has provided a $10.5 million bridge loan for a fully occupied, single-tenant suburban office complex in the Southern California coastal community of Signal Hill, California.
Totaling 72,485 square feet, the 3.7-acre complex features three, three-story buildings connected by steel-framed pedestrian bridges in a campus-like setting that surrounds an attractive water feature. The complex has been fully built out for classroom and administrative office use and is currently leased by an established private university providing post-secondary education in pharmaceutical, nursing and clinical research studies.
LendIt Launches Fintech Industry Awards (LendIt Email), Rated: B
Nominations are now being accepted in 18 categories recognizing top performers, innovators and emerging talent in lending and fintech, including:
- Top Consumer Lending Platform
- Emerging Real Estate Platform
- Top Fintech Equity Investor
- Top Fund Manager
- Best Journalist Coverage
- Glenn Goldman – CEO at Credibly
- Brian Korn – Partner at Manatt
- Gilles Gade – CEO at Cross River Bank
- Angela Ceresnie – Chief Operating Officer at Climb Credit
“There is no better place than LendIt USA 2017 to announce the winners of our first-ever LendIt Awards, as this year we are expecting more than 5,000 attendees, making it the largest fintech event ever held in New York City,” said Jason Jones, co-founder of LendIt. “LendIt is dedicated not only to connecting the global online lending industry, but also the global fintech industry, as online lending has been so important in putting fintech on the map.”
The awards nomination period closes on December 21 with finalists announced mid-January.
LendingTree Survey finds Most Americans Waive Budgets for Holiday Shopping (PR Newswire), Rated: B
LendingTree®, the nation’s leading online loan marketplace, recently conducted its second annual Holiday Shopping Survey among 1,062 American adults and found that once again, more than half of Americans plan to shop for the holidays without a set budget. With more 43 percent admitting to having some form of financial regret after holiday shopping, some consumers may be facing more debt in the new year.
According to the survey, 27.02 percent of American’s were saddled with holiday-related debt in the first few months of 2016, and 4.6 percent are still paying off last year’s shopping debt. However, this is an overall improvement from last year, where almost 31 percent welcomed the new year with holiday shopping debt.
oughly two out of three shoppers (66.1%) estimate they will spend, in total, $500 or less on gifts during this holiday season. This represents a slight increase from the 64 percent who planned to do the same last year.
First Responders treated to National Funding Holiday Bowl (PR Newswire), Rated: B
54% of incumbents say fintech partnerships have boosted revenue (Business Insider), Rated: AAA
The growing number of partnerships between fintechs and legacy players suggests that incumbents believe there are benefits to working with new market entrants.
- Cost savings. Eighty-seven percent of respondents said they were able to cut costs to some extent by working with fintech providers.
- Brand refreshes. Eighty-three percent of respondents said collaborations with fintechs offered opportunities for incumbents to refresh their branding.
- Increased revenue. Fifty-four percent of respondents said partnerships had resulted in boosted revenue. It’s worth noting that this is the benefit seen by fewest incumbents, which suggests it may take longest to emerge as the parties involved work out a business model that suits everyone.
The battle already underway will create surprising winners and stunned losers among some of the most powerful names in the financial world: The most contentious conflicts (and partnerships) will be between startups that are completely reengineering decades-old practices, traditional power players who are furiously trying to adapt with their own innovations, and total disruption of established technology & processes:
- Traditional Retail Banks vs. Online-Only Banks: Traditional retail banks provide a valuable service, but online-only banks can offer many of the same services with higher rates and lower fees
- Traditional Lenders vs. Peer-to-Peer Marketplaces: P2P lending marketplaces are growing much faster than traditional lenders—only time will tell if the banks strategy of creating their own small loan networks will be successful
- Traditional Asset Managers vs. Robo-Advisors: Robo-advisors like Betterment offer lower fees, lower minimums and solid returns to investors, but the much larger traditional asset managers are creating their own robo-products while providing the kind of handholding that high net worth clients are willing to pay handsomely for.
Key themes discussed as marketplace lending sector evolves (Structured Credit Investor), Rated: AAA
Q: In an eventful year for the marketplace lending industry – during which growth has been rapid, but not without setbacks – which key themes stand out?
Chris Kennedy, md, MountainView: The market has seen incredible growth up to this stage. Part of the process of a growing market is pull-backs and right now we are experiencing some of that, but this is still a huge opportunity for growth for investors – both investors in loans and in platforms. Unsecured consumer debt and unsecured small business debt is a US$1.2trn opportunity – at least – as US banks are over-regulated and do not have the economics to make these loans effectively.
Right now the M&A shake-out will only help the larger players grow market share and self-regulate to a certain extent, developing common standards with regard to being a data furnisher to the credit bureaus and really focusing on what works. I think everyone will realise that lending into the prime space, as SoFi does, works. These borrowers perform and the loans are good loans, so relative to global yield curves, these are above-average opportunities.
Q: The importance of thorough due diligence has come to the fore this year. What is driving this?
Charles Moore, chief commercial officer, Global Debt Registry: This year has really put due diligence under the spotlight. It has always been important, but the specific issue of due diligence that has really come into focus has been loan verification.
Currently, the loan verification approach taken is generally to compare a loan tape to a loan agreement. The challenge in marketplace lending is that they are both electronic documents that are both provided by the seller of the asset, which represents something of a conflict of interest and is not a particularly robust model. That was being questioned last year by some of the risk departments, but I think this year is when it has really been brought to the front office and become part of the deal conversation.
Q: The concept of ‘trust but verify’ has been increasingly discussed in marketplace lending. Why is data standardisation important in this regard?
Brady Akers, director, Orchard Platform: Trust and verification are critically important, especially for this emerging industry to grow, and transparency is a necessity. I think it will take a coordinated effort for participants across the industry, and companies like Global Debt Registry, PwC and Thomson Reuters will play a vital role in due diligence and validating that borrowers actually exist, and that the data is accurate.
Institutional investors looking to enter this space, or deploy more capital, begin their research with data analysis. Right now, that is a very difficult and expensive process because datasets are not consistent across lenders.
Q: Regulatory initiatives are changing the market. What are the implications of this from an audit perspective?
CK: From an auditor’s perspective, we are starting to see some requests that not only lenders but also platforms go out and seek independent third-party fair value marks – not only on the loan portfolios, but also the servicing assets of these platforms. On the loan side, it has been a pretty simplistic model of holding the loans at par and adding monthly adjustment for accrued interest and layering in some loss provision. Talking to investors and platforms, we have said that you really want to bake in a more robust approach and move to a discounted cashflow methodology.
Q: How much of an issue is loan stacking and should market participants be worried about it?
CK: The process is really understanding and tracking borrowers, so platforms will need to work with the credit bureaus to create some kind of data exchange. However, loan stacking is only affecting something like 5%-10% of the market.
How to cut mortgage fraud risk (Money Marketing), Rated: A
Recent figures from Financial Fraud Action UK revealed a financial scam was committed, on average, every 15 seconds during the first six months of 2016, says Roy Armitage, head of credit at Lendinvest.
That represents a 53 per cent rise year-on-year, with these scams coming in all shapes and sizes. Furthermore, a staggering 56 per cent of UK organisations have been affected by fraud in some way, and it is one of the biggest risk concerns facing board members.
It is crucial that lenders engage with these data feeds and add in their own information in a structured way. The richer those structured data feeds become, the more they benefit everyone across the industry.
However, the data can only do so much. There is no single algorithm that can look over that data and then decide if the application is credible and transparent. It’s also vital therefore to employ quality and experienced underwriters who know how to cast a truly critical eye over all application data.
LendInvest appoints former Castle Trust manager as BDM for Northern England (Mortgage Strategy), Rated: A
Online mortgage lender LendInvest has appointed its first business development manager for Northern England.
Damien Druce joins from Castle Trust where he was National Development Manager and was previously head of distribution and development at Crystal Specialist Finance.
He will be based in Greater Manchester and will travel extensively, considering bridging and development loan opportunities between Staffordshire and the Scottish borders.
Metro Bank revamps online banking platform (altfi), Rated: A
Metro Bank, the first in a flurry of UK-based challenger banks to receive a licence over the past five or six years, has launched an upgraded version of its commercial internet banking platform. Organisations with subsidiaries are now able to use a single customer view dashboard to keep tabs on all offshoots.
Metro Bank does not currently use marketplace lending platforms as a distribution channel for lending to small businesses, as far as we’re aware, but has been lending through consumer focused peer-to-peer site Zopa since May of last year. The challenger bank currently holds around £7.3bn in deposits, with 52 per cent coming courtesy of commercial customers.
Its revamped digital banking platform was built by Backbase, a fast growing fintech software provider.
A backward step as peer-to-peer pioneer Zopa takes banking road? (Evening Standard), Rated: A
Banks have performed a similar role for centuries but what is different about Zopa and the other marketplace lending platforms which have followed its lead is that they use the internet to find and match the borrowers and lenders.
As peer-to-peer infrastructure and regulatory costs are negligible in comparison to the banks, borrowers and lenders get a much better deal.
So it came as a shock last week when Zopa announced it was to apply for a banking licence. Its entire ethos has been to set out its stall as the future — yet here it was embracing the past.
With that action, all the promise that peer-to-peer technology would bring a new form of lending was called into question.
How all this would continue to work if all peer-to-peer lenders followed the Zopa lead and started to operate as banks is not immediately clear, given that their costs would soar and the value disappear because of that regulation and capital requirement.
How UBank’s FinTech culture enables Agile to thrive (CIO.com.au), Rated: AAA
Some organisational cultures can find it difficult to adapt to an Agile mindset. Central to adopting an Agile approach is emphasising visibility and transparency. This includes making everything (including bad news) visible across the entire organisation. It also means prioritising face-to-face communication. Finally, open team reflection is critical to identifying where things went wrong and how they should improve.
One organisation that has done this successfully is online bank, UBank.
To help drive the Agile approach even further, UBank’s digital team was recently organised into four cross-functional scrum teams, rather than by role-based functions. Cross-functional teams are used to foster a culture of innovation and encourage out-of-the-box thinking and problem solving.
Within a few weeks, UBank’s flat structure enabled this reorganisation of teams to work smoothly. The teams started talking a lot more, sharing development work, doing code reviews on each other’s code,
Strong executive support helped ensure success. Taking UBank’s CEO and other divisional leaders on the Agile journey helped guide the business transformation that the digital team was trying to achieve. To accomplish this, Bulletproof coaches worked with the product owners to link UBank’s goals to the initiatives that the digital team worked on.and clarifying with the product owner when they weren’t clear on exactly what they should be developing.
However, if you’re not there yet, there are some key takeaways that you can look into before you start your Agile journey.
- Have a clear organisational vision: Have buy-in across the business about what your purpose is.
- Provide visibility at the executive level: It’s important that everyone has visibility into why the cross-functional development teams are working on certain initiatives.
- Foster a trusting environment: Software development is complex in nature which means issues will always arise.
HashChing trailblazes fully-digital loan approval (Australian Banker), Rated: A
Online home loan marketplace HashChing has announced they are set to pilot their new virtual identification system this weekend.
The technology will allow brokers on the HashChing platform to scan their clients’ faces via video call, along with a picture of their driver’s license or passport.
Speaking to Australian Broker, HashChing co-founder and CEO Mandeep Sodhi said they partnered exclusively with South African company e4 International to develop the groundbreaking new technology.
The new system will dramatically speed up turnaround times and decrease processing costs, Sodhi said. Currently it can take one to a few weeks for brokers to validate their customers’ identities.
Peer-to-peer lending: A new form of financial inclusion (The Jakarta Post), Rated: A
Players within the financial services ecosystem expect P2P lending to become a solution for the lack of access to financial services in the country and to achieve financial inclusion through synergy with other financial institutions and technology companies.
The platform offers numerous advantages over banking services. For example, its flexibility allows it to channel capital to virtually anyone, in any amount, effectively and transparently, at low interest rates.
Financial services like P2P lending promise to be a solution for Indonesia, which has been struggling to overcome a bundle of problems: First, Indonesia still has to increase financial inclusion. The Indonesian FinTech Association has reported that 49 million SMEs are not bankable, as they are unable to provide collateral to access conventional loans. P2P lending can help creditworthy SMEs by providing loans without collateral.
Second, Indonesia must overcome regional disparities in financing across the archipelago. Some 60 percent of financing services are now concentrated in Java. P2P lending, meanwhile, can reach anyone in any place.
Third, there is a gap in infrastructure financing of Rp 1,000 trillion (US$73.9 billion) annually. The existing financial institutions can only provide about Rp 700 trillion in loans of the total annual demand of Rp 1,700 trillion. With lower overhead costs, combined with innovative credit scoring algorithms, P2P lending can close the gap in the infrastructure financing.
Learning from other countries, the potential of P2P lending can be optimized through collaboration with banks. China, for instance, has a dynamic SME ecosystem that allows support from financing services. In that environment, the number of P2P lending companies has soared over the past five years, while that of banks in China has doubled.
Despite its huge potential, P2P lending should be regulated carefully. The role of regulators is highly needed to nurture a healthy business ecosystem.
To ensure business safety, a significant capital ownership requirement (above Rp 20 billion) would be an important part in a selection mechanism and for quality control, since P2P lending is a capital-intensive and scalable business.
P2P lending firms must also guarantee the security of public funds and data while maintaining reasonable interest rates to ensure the financial health of the public.