The Rise of Crypto Lending, a Natural Progression of Peer-to-Peer Financing

Nexo

The rise of new technologies often give rise to new business models. The peer-to-peer lending space is just over a decade old and still have much to grow into. However, not long after the first P2P lender–Zopa in 2005–opened its doors, a new technology that promises to challenge traditional ways to deliver financial services emerged. […]

Nexo

The rise of new technologies often give rise to new business models. The peer-to-peer lending space is just over a decade old and still have much to grow into. However, not long after the first P2P lender–Zopa in 2005–opened its doors, a new technology that promises to challenge traditional ways to deliver financial services emerged. That technology was the blockchain, a distributed ledger that underlies the cryptocurrency Bitcoin. Since then, other blockchains have been created along with new business models to suit. As it stands in 2018, crypto lending has not made a big dent in P2P lending services, but the potential is there. This article will highlight some of the more significant blockchain-based P2P lenders, which we hope will inspire a new look at technological innovation in this space.

Think of crypto lending like you would the banking industry: Even if Capital One provided perfect products at every turn, there would still be plenty of room for JPMorgan Chase, Citigroup, and Bank of America. There would still be room for the hundreds of other banks that compete for customers.

The companies listed here are not ranked in any manner. Rather, they=se are just some of the choices available for consumers in the market for cryptocurrency loans.

1. SALT (Secured Automated Lending Technology) Lending

One of the best benefits crypto-based lending has to offer is that a lessened importance on traditional credit scores as a factor for risk assessment. SALT Lending touts blockchain-based assets as “the perfect form of collateral.” The company is using this fact to “dramatically reduce the complexity and cost of the loan process.” SALT operates under Regulation D and, in lieu of credit checks, the company does AML and KYC verifications.

Offering three tiers of product, SALT’s loans start at $5,000 and go as high as $250 million. Loan percentages run between 12 and 22 percent APR, but the borrower retains the value of the collateral currency claiming any gains and losses that happen over the life of the loan. SALT accepts Bitcoin, Ethereum, Litecoin, and Dogecoin as collateral, and funds loans in USD.

One fact that could be a significant factor when deciding to use the SALT Lending platform is that loans are not transferable on the blockchain, but through existing financial channels. Thus, they become securities.

It’s not foolish to base a good bit of faith in a company that has proven players on its team. Founder Erik Voorhees was also involved in founding several other crypto websites prior to starting SALT Lending. Among these include Satoshi Dice, which he later sold, Coinapult, and ShapeShift.

2. ETHlend

Unlike SALT Lending, Estonia-based ETHlend is a fully decentralized P2P platform built on the Ethereum blockchain for lending Ether as tokens for collateral. Some insiders fear that platforms that allow their loans to become securities might run the risk of being swallowed up by banks.

ETHlend lends Ethereum, Bitcoin, their own LEND tokens, and DAI tokens, as well as 180+ other Ethereum-based tokens. The company offers address-to-address loans that are sent within minutes, with no middle men, assuring that no one, not even Ethlend, can stop one’s lending or borrowing. The company plans to expand beyond Ethereum to other distributed ledger platforms in Q3 of 2019.

The company’s interest rates range from .25 to five percent MPR, and all transactions are carried out on digital wallets. Borrowers that transact in the LEND token can get a no-fee loan.

Announced earlier this week, Aave is a tech-based company designed to expand on the offerings of centralized fintech companies like PayPal and Coinbase. Aave Pocket, Aave Gaming, and Aave Lending (SaaS) are among the offerings this expansion adds to the platform.

Unfortunately, the service is not yet available everywhere including a block to U.S. citizens.

3. Nexo

A new kid on this block is Nexo, and being a new kid means that they are doing things in a new manner. Founded in Zug, Switzerland—even more of an “EF Hutton” mention than Estonia—in 2017, Nexo promises the world’s first instant crypto-backed loans. Available worldwide, Nexo loans start at $1,000 and top out at $2 million.

The process is an easy one.

  • Log on to the website.
  • Verify your account
  • Deposit crypto assets into Nexo wallet
  • Withdraw loan to your bank account

There will be brief pauses while the borrower is verified—the company complies with the highest AML and KYC (provided by Onfido) standards—and while your deposit is confirmed on the blockchain. Overall, the Nexo process reads like a rather quick and seamless process.

The platform loans Euros, USD, and Tether while accepting Ether, bitcoin, Bincance coin (BNB), and Nexo as collateral currency. The interest rate is eight percent if the collateral currency is Nexo and 16 percent for all others. Nexo assets are stored in multi-signature wallets, more than one multiple cryptographic keys are necessary to gain access, and cold storage (wallets not connected to the Internet) at BitGo and PrimeTrust.

4. LendingBlock

LendingBlock predicts that, as digital assets grow as an asset class, demand for hedging, swaps, repurchases, and short selling will increase. The currency crypto market has more than $500 billion in assets circulating with less than one percent used as collateral. That leaves lots of room for growth.

Touted as the first cross-chain lending platform for the crypto economy, the company promises a product that will help its customers access secure, transparent, and fair crypto-to-crypto loans. Not a lender itself, LendingBlock provides the platform upon which parties can enter P2P contracts. The company acts as agent for both lender and borrower, as well as security trustee of the collateral. This ensures that the borrower doesn’t face any uncovered credit risk to the lender.

All collateral deposits are held in cold storage. Those who think regulation will be necessary before the crypto market can fully mature can take comfort in the fact that the company is focused on becoming a regulated business. They have submitted the full regulatory application to the country of Gibraltar and await the regulator’s response. They have also begun regulatory processes with the Financial Conduct Authority in the UK, and the Securities and Exchange Commission and Commodities Futures Trading Commission in the United States.

Basing the platform on its own token (LND), which is used to make payments and receive interest on loans, allows the company to reduce the cost of exchange fees and makes it easier to manage interest payments. The use of smart contracts reduces expenses, risks, and complexity, which makes for lower costs for borrowers and higher returns for the lenders.

5. BlockFi

New York-based BlockFi might be the ideal platform for Americans who want to secure USD loans with Bitcoin and Ethereum, provided that said Americans live in any of the 44 states where the company is currently conducting business.

The attractive thing about the BlockFi platform is that it seems easy enough for a lay person to understand without any kind of financial advice. A borrower needs to meet only two requirements to qualify for a loan: They can have no liens or bankruptcies on their record, and they must have at least $15,000 of crypto assets between their Bitcoin and Ethereum portfolios.

If those criteria are met, the customer can borrow up to 35 percent of their crypto asset value, with loans ranging from $2,000 to $10 million. Interest rates go from 12 to 14 percent APR, and there is an added fee of one to four percent of the loan value. Borrowers can take a loan in Bitcoin, Ethereum, or Litecoin.

Unlike other crypto-based lenders on this list, BlockFi does not have its own coin or token.

6. Unchained Capital

Texas-based Unchained Capital could very well be the platform of choice for those who want to liquidate their Bitcoin while maintaining it and seeing it go to work in the world.

Not only is the team at Unchained Capital in the market to make money as a lender, they have an idealistic side as well. Noting that 60 percent of Bitcoin sits around and does nothing, they have a goal to circulate it and use it to strengthen the platform. The company was founded by people who believe cryptocurrencies can change the world only if they’re useful.

The Unchained Capital team has designed its personal loans to be ideal for people who are looking to make large purchases, who hope to avoid tax events, and who want to invest. Their commercial loans are geared to companies that want to free up capital, expand their businesses, buy expensive equipment, and balance their portfolios.

Unchained Capital does not have its own cryptocurrency.

7. Other Companies to Consider

The crypto lending space is expanding. New lenders seem to be popping up quite often, which means that some people in the cryptocurrency space, at least, see a market for crypto-backed lending. Despite the market having taken a downturn in 2018, rebounding from the bull run last year that catapulted Bitcoin to $20,000 in December, this space is expanding. Lately, Bitcoin has been holding around the $6,500 mark. Since the majority altcoins tend to follow Bitcoin’s price, that means the market as  whole is down, yet more crypto lenders are ambling to get in the door.

Some of the other companies in the crypto lending space that might be worth checking out include BitBond, Credible Friends, Bitfinex (a crypto exchange that facilitates crypto financing transactions between parties), Celsius, Poloniex (another cryptocurrency exchange that allows traders to lend to other users), CoinLoan, Nebeus, GetLine, and BTCpop.

Authors:

Written by Paul Keenan and Allen Taylor.

Allen Taylor

Monday April 30 2018, Daily News Digest

LendingClub

News Comments Today’s main news: GreenSky files for IPO. LendingTree hits $181M consolidated revenues. KBRA assigns preliminary ratings to Morgan Stanley resecuritization. Zopa says savers are abandoning cash ISA. KBRA assigns first European ratings. Today’s main analysis: FTC vs. LendingClub, dueling unicorns. Today’s thought-provoking articles: JD Supra on LendingClub’s FTC issues. Aussie borrowers should embrace for rate hike. Brazil’s amended payment […]

LendingClub

News Comments

United States

United Kingdom

China

International

Other

News Summary

United States

Fintech Firm GreenSky Files for IPO (Wall Street Journal) Rated: AAA

Financial-technology firm GreenSky Inc., a provider of point-of-sale financing and payments technology, disclosed plans to go public.

The Atlanta company, which operates a lending platform that enables retailers, health-care providers and home contractors to offer loans to their customers, filed preliminary documents Friday for an initial public offering with the Securities and Exchange Commission.

FTC Sues Lending Club For Deceptive Advertising (JD Supra) Rated: AAA

According to the FTC, this deception is made worse by the fact that Lending Club never adequately discloses the up-front fee to consumers during the entire online application process.  The fee is only mentioned once—inside an explanatory “pop-up bubble” that only appears if the applicant happens to click or tap on a relatively small and inconspicuous icon. Because applicants are not required to click or tap on the icon in order to move forward with their loan application, many applicants never saw the disclosure at all.

LendingTree’s 1Q consolidated revenue grows to record $ 181m (Mortgage Professional American) Rated: AAA

Online loan marketplace operator LendingTree saw its consolidated revenue rise to a record $181m during the first this year – up 37% from the same period in 2017, according to a financial statement released Thursday.

January to March revenue from mortgage products stood at $73.5m, up 17% from the first three months of 2017. In particular, purchase and refinance revenues went up 13% and 18%, respectively. Citing the Mortgage Bankers Association, LendingTree said originations industry-wide were projected down 4% in the comparable period.

KBRA Assigns Preliminary Ratings to Morgan Stanley Resecuritization Pass-Through 2018-SC1 (Business Wire) Rated: AAA

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to one class of notes issued by Morgan Stanley Resecuritization Pass-Through Trust 2018-SC1 (“MSRP 2018-SC1”). This transaction represents the securitization of the consumer loan asset-backed trust certificates issued by SoFi Consumer Loan Program 2015-1 Trust (“SCLP 2015-1”) and supported by a portfolio of prime unsecured personal loans (“Underlying Loans”) that were originated by SoFi Lending Corp (“SoFi”).

Preliminary Ratings Assigned: Morgan Stanley Resecuritization Pass-Through 2018-SC1

Class Preliminary Rating Initial Class Principal
B BBB (sf) $36,700,000

 

Diversify Into Real Estate With Your IRA Or 401(k) (Forbes) Rated: A

The IRS does allow 

Navient Reports Greater Earnings and Fewer Student Loan Charge-Offs (Lend EDU) Rated: A

On April 24, Navient stated from its earnings report in the first quarter that it had $500 million of originations in private education refinance loans, a 43 percent fall in private education loan charge-offs and a 32 percent jump in business processing fee revenue year over year, according to a press

Business processing earnings: Earnings were $10 million in the first quarter, compared to $3 million in 2017’s first quarter.

Consumer lending earnings: Earnings were $50 million in the first quarter, up from $38 million in 2017’s first quarter. This jump came from a $7 million increase in net interest income, an $18 million decline in loan losses provision and a $9 million fall in income tax expense.

Federal Education Loans earnings: Earnings were $141 million, up from $129 million in 2017’s first quarter.

Unitus Ventures Marks The First Close Of Its $ 45.2 Mn Fund II With $ 15 Mn (Inc42) Rated: A

Unitus Ventures (formerly known as Unitus Seed Fund), an impact venture fund investing in early-stage startups, has announced to have raised $15 Mn (INR 100 Cr) towards the first close of its $45.2 Mn (INR 300 Cr) Unitus Ventures Fund II.

The fund will be utilised for onward investing of $753K – $2.2 Mn (INR 5 Cr -INR 15 Cr) each to 25 to 30 startups specialising in education, healthcare and inclusive fintech.

Yolande Piazza of Citi Fintech (Lend Academy) Rated: A

In this podcast you will learn:

  • The origins of Citi Fintech and the goal of their group within Citi.
  • How they have created a new and innovative culture within Citi Fintech.
  • Why Citi Fintech released a global open banking API.
  • Citi’s Canvas platform that is their internal sandbox product.
  • How they create these products hand in hand with their customers.
  • Why this is about more than just creating mobile offerings.
  • What Citi’s newly announced national digital bank means for the overall bank.
  • How Citi will help non-bank customers as well as their own customers.

 

Mastercard: Serving The Financial Needs Of The ‘New Middle Class’ (PYMNTS) Rated: A

Whether an applicant has recently immigrated and lacks the background data to be approved, or is recovering from a drastic life event such as a divorce or death of a spouse, demonstrating their creditworthiness is often impossible by traditional means – i.e. the FICO score – leaving as many as 160 million Americans up the creek with no paddle.

Haymond said Mastercard has already put its philosophy into practice by partnering with CreditStacks, a FinTech that focuses on providing credit to new Americans, as well as launching its Inclusive Futures Project in December 2017 to address the needs of gig and on-demand workers.

Mastercard Meets Elevate

Some of the features of the new product will include purchase and fraud alerts, credit score monitoring, a full-service mobile app and on/off functionality for the credit card. Cards will be awarded based on the analysis of data from alternative sources, Haymond said, which can fill in the blanks to evaluate a customer’s creditworthiness when traditional data points are not present or don’t meet requirements.

Millennials now more bullish about finances than baby boomers — study (Spears Magazine) Rated: A

Almost nine in ten (88 per cent) HNW millennials feel more confident about their finances than a year ago- but less than half of baby boomers (47 per cent) shared the same sentiment.

A new study from SunTrust Bank also found that millennials are more confident than their generation X counterparts, of whom 66 per cent are more confident than last year.

Some 16 per cent of those surveyed attributed their increased optimism to ‘having a great investment firm’, while 13 per cent cited increases in income and assets.

Possible Finance launches with small, short-term loans designed for low-income borrowers (Geek Wire) Rated: B

Tony Huang was inspired to create Possible Finance because “it’s so damn expensive to be poor.”

Possible Finance customers can apply for small loans and receive approval quickly using a mobile app. Customers can build credit when they make payments, unlike traditional payday loans, which typically do not report to credit agencies unless a borrower misses payments.

LendingPoint is the fastest-growing company in metro Atlanta (Atlanta Business  Chronicle) Rated: B

Being a successful financial technology (fintech) lender requires focusing more on the lender portion of your business than the fintech portion. That’s the way Tom Burnside, CEO and founder of LendingPoint, runs his company, the number-one overall fastest-growing private company in the metro area.

 

 

United Kingdom

Zopa executive: “Savers are abandoning the cash ISA en masse” (Peer2Peer Finance) Rated: AAA

SAVERS are “abandoning the cash ISA en masse”, as the personal savings allowance (PSA) makes the tax-free wrappers less relevant for consumers, a Zopa executive has said.

New data from UK Finance showed that investment in cash ISAs fell from £773m in March 2017 to just £332m in March 2018 – a decrease of 42 per cent.

Immigration rules ‘could choke fintech’, says lobby group Innovate Finance (The Times) Rated: A

The prospect of tighter immigration rules after Brexit risks choking off a boom in Britain’s burgeoning fintech industry, according to a new study by lobby group Innovate Finance.

The report says the financial technology sector is on course to top 100,000 employees by 2030, with 30,000 jobs set to be created.

The result would be a shortfall of 3,200 highly skilled workers by 2030, at a cost to the fintech sector of £361m, the report said.

Investment trusts back “substantial opportunity” in alternative lending (Peer2Peer Finance) Rated: A

Victory Park Capital Specialty Lending (VPC) and P2P Global Investments (P2PGI) released their annual reports on Friday morning, insisting there were still opportunities for online lending and consumer credit as banks continue to scale back.

VPC reported a NAV return of 3.07 per cent for 2017, up from 0.95 per cent in 2016 but below its eight per cent target.

Similarly, P2PGI posted NAV total returns of 3.03 per cent for 2017, down from 4.1 per cent in 2016 and below its target of six to eight per cent.

Is there still life left in P2P investment trusts? (Peer2Peer Finance) Rated: A

But four years on from the launch of P2PGI, the investment trust has admitted in its 2017 annual report that historic performance was ”more volatile than we would like.”

But P2PGI still sits at a discount to NAV of 17.5 per cent and VPC is at 12.5 per cent.

Putting Your Bitcoin Investments to Work (Coinspeaker) Rated: A

One pioneer in the field to consider is Nebeus, a crypto bank that brings together cryptocurrency opportunities and a standard bank service. Its Nebeus trading platform supports peer-to-peer (P2P) lending and a multi-cryptocurrency wallet. The platform enables customers to buy, sell, store, remit, lend and borrow cryptocurrency funds.

Nebeus offers two cards that allow holders to spend their cryptocurrency at their convenience online, offline, or to get cash at ATMs, and the convenience and protection this card offers is hard to beat.

The Nebeus Exo Card lets users top up their card with all major cryptocurrencies and spend that money with over 30 million merchants online. Users can make $1,500 ATM withdrawals per day, worldwide. And they get 3% cashback In NBTK tokens monthly. There is no monthly fee for the card for NBTK holders.

China

China: WeiyangX Fintech Review (Crowdfund Insider) Rated: AAA

On April 23, China’s leading financial inclusion platform FINUP filed a listing application for the Hong Kong Exchanges and Clearing Limited (HKEX).

Ant Financial Invests in Bangladesh-based Fintech Startup bKash

On April 26, Bangladesh-based mobile financial service provider bKash and Ant Financial jointly announced a strategic partnership to promote the development of financial inclusion for the unbanked and underbanked communities in Bangladesh.

NIFA Establishes e-Contract Standards for Online Lending

On April 23, the National Internet Finance Association of China released a draft of standards on “Safety Regulations for Internet Finance Contracts”.

With $ 1.9 Billion Investment, Former Baidu Unit Challenges Fintech Rivals (Wall Street Journal) Rated: A

Baidu Inc.’s former financial-services unit has attracted a $1.9 billion investment from firms including U.S. private-equity giants TPG and the Carlyle Group, giving it fresh ammunition to compete in China’s increasingly crowded financial-services space.

Chinese VC Firm Sky9 Capital Reaches Final Closing Of $ 200M For New Fund (China Money Network) Rated: B

Sky9 Capital, a venture capital firm founded by a former partner at Lightspeed Venture Partners, announced today that it has completed the final closing of a new fund with total commitments of US$200 million.

Sky9 Capital Fund III, L.P. will invest mainly in China-based businesses with a focus on early-stage companies in the Internet, enterprise, and deep technology sectors.

European Union

KBRA Issues First European Ratings (Business Wire) Rated: AAA

Kroll Bond Rating Agency Europe Limited (KBRA) is pleased to announce its first published European Structured Finance ratings. KBRA issued its inaugural published European ratings on Small Business Origination Loan Trust 2018-1 DAC (“SBOLT 2018-1”), a £206.6 million ABS transaction collateralized by unsecured loans made to small and medium-sized enterprises (“SMEs”) incorporated in the United Kingdom (“UK”). This transaction represents the second ABS securitisation collateralised by unsecured loans to SMEs originated through the online lending platform operated by Funding Circle Limited (“Funding Circle”). The full rating report can be accessed here.

This is KBRA’s first publicly rated European ABS securitisation after being registered as a Credit Rating Agency by ESMA in November 2017.

International

The FTC vs LendingClub, Banking through the Post Office, Dueling Unicorns (PeerIQ), Rated: AAA

On Thursday, Amazon reported $3.27 EPS earnings well above the $1.26 estimates. The stock jumped 7% to record highs in reaction to the beat. The news comes just days after Amazon invested $22mm into Capital Float, India’s self-proclaimed largest online lender. We recently discussed Amazon’s path to the banking sector via its reported partnership with JP Morgan.

The lines between tech and banking continue to blur. Square announced the acquisition of Weebly for $365 Mn.

Dueling Unicorns

Source: PeerIQ, Company Websites, Crunchbase

FTC vs LendingClub

On Wednesday, the FTC charged LendingClub with deceiving borrowers.

In response to the lawsuit, LendingClub posted a detailed rebuttal, refuting the FTC’s claim. As seen in the image below from LendingClub’s blog post, the company believes they provide borrowers multiple opportunities to understand the Origination Fees mentioned in the FTC’s lawsuit. LendingClub goes on to refute each claim made by the FTC individually.

Source: LendingClub

In a post on Lend Academy, Peter Renton questions the cause of this lawsuit, and points to the fact that only two of the five FTC Commissioner seats were occupied at the time of the complaint, and one of the two left on Friday. Renton’s understanding is that LendingClub and the FTC were cooperating and this lawsuit “came out of left field.”

Are You Ready To Give Fintech A Try? (Forbes) Rated: A

In just three years, Germany’s 

Blockchain Startup ShareRing is Facilitating the Adoption of Cryptocurrency (Coinspeaker) Rated: A

ShareRing will achieve this by employing a dual-coin mechanism through its own ShareLedger blockchain that will operate with two distinct tokens. The first – ShareToken (SHR) – will be the utility token of ShareRing. SHR will drive the consensus algorithm and act as a tradable coin on cryptocurrency exchanges.

The second currency, SharePay (SHRP) will be pegged to fiat and can be purchased directly from the ShareRing app using a credit card. A user can then use their SHRP to buy sharing services within the ShareRing application. ShareRing foresees a wide range of partners for the platform, sharing not just apartments and cars, but time, labor, as well as peer-to-peer lending and group tours.

FintruX Network (FTX) Will Be Listed In 3 Exchanges in their first week of token unlock (satPRNews) Rated: B

Qryptos exchange was the first exchange to list FintruX (FTX) On April 22, Bancor network quickly followed suit by listing Fintrux on April 24.

Potential investors, who missed their ICO, will now be able to buy the tokens on Qryptos, Bancor Network and HitBTC as well.

Australia

Borrowers should ‘brace’ themselves for rate hikes (The Adviser) Rated: AAA

After online lender ME claimed that it was “forced” to hike interest rates on its owner-occupier and investor loans as a result of increased funding costs, comparison site finder.com.au asked a panel of economists whether they believed other banks would follow.

According to the finder.com.au survey of 17 economists, 78 per cent said that they expected more lenders would raise their rates out of cycle as a result of rising US interest rates.

 

India

Fintech Startup Rubique Raises Fresh Round Of Funding (Inc42) Rated: AAA

Kalaari Capital-backed online lending marketplace Rubique has raised fresh funding led by Japan’s Recruit Group and Russian venture capital management company Emery Capital.

Blacksoil and existing investor Kalaari Capital also participated in the funding round. Apart from this round, the startup is also in the final stages of closing another tranche’ of funding, to be led by a couple of marquee investors

The startup plans to use the funds to hire more data scientists, enhance technology and reach a monthly revenue of $1.8 Mn (INR 12 Cr) by September.

Crowd Genie Opens India Office to Expand Asia-Pacific Asset Exchange (BC Focus) Rated: A

Crowd Genie Financial Services Pte. Ltd. is incorporated in Singapore and was granted a “Dealing in Securities” license by Monetary Authority of Singapore (MAS) in March 2017. This makes Crowd Genie one of the handful licensed platforms in Singapore.It is a peer-to-peer lending online platform that lets Singapore-based SMEs obtain financing from investors.

Crowd Genie is contemplating to establish a blockchain based Asia-Pacific asset exchange. It recently started an office in Bangalore, India and named Kunwar Singh as its Chief Technology Officer. The company completed its CGCOIN token sale in March this year. It intends to work on the regulatory elements to drive India centric assets onto its exchange.

A primer on crowdfunding (The Hindu BusinessLine) Rated: A

P2P lending is when individuals lend to small businesses/individuals for either a social or a commercial initiative. P2P lending can also be for non-income-generating activities. The consideration here is the interest on the amount lent. The return varies with the risk associated with the business and the individuals running the business — higher the risk, higher the return. Some of the prominent P2P platforms include Milaap, Kiva, Faircent and Cashkumar.

P2P platforms insist on KYC fulfilment for both lenders and borrowers. Diligence exercise is done on borrowers to assess credit-worthiness, genuineness and repayment capability.

Crowdfunding for non-financial consideration is of two types — social lending/donation crowdfunding and reward crowdfunding. Here the return or consideration may or may not be commensurate with the money raised.

 

Latin American

Brazil: Amended payment method regulation (IFLR.com) Rated: A

On March 26 2018, the Brazilian Central Bank enacted amendments to the existing regulation on payment methods, proposing more flexible rules on payment arrangements, payment institutions and on interchange fees charged to issuers of debit cards. The Central Bank expects these changes to foster competition among market players and as a result provide reduced debit card costs for end users.

This new regulation follows an international trend already observed in several developed and developing countries. In the US and Mexico, for instance, maximum limits for interchange fees charged in debit cards transactions led to average cost reductions on such fees of 40% and 50%, respectively.

Authors:

George Popescu
Allen Taylor

Tuesday October 3 2017, Daily News Digest

blooom

News Comments Today’s main news: blooom passes $1B in assets under management. SoFi rolls out new deal. DBRS assigns provisional ratings to SoFi Professional Loan Program 2017-E LLC. The P2P Power 50. PeerStreet funds over $500M in loans with zero losses to investors. Today’s main analysis: LendingClub, Prosper after 10 years. FT Partners’ CEO monthly alternative lending market analysis (a […]

blooom

News Comments

United Kingdom

China

International

Asia

Middle East

News Summary

United States

blooom Becomes Fastest Independent Robo-advisor to Pass $ 1 Billion in Assets Under Management (BusinessWire), Rated: AAA

According to monthly Securities and Exchange Commission (SEC) ADV filings, blooom, inc. reached $1 billion in assets under management (AUM) faster than any other independent robo-advisor. blooom achieved this milestone faster than Betterment and Wealthfront – and with less capital raised.

blooom, a first-of-its-kind robo-advisor, helps anyone with a 401(k) or comparable employer-sponsored retirement plan. blooom’s mission is to make “do-it-for-you” financial advice available, simple and affordable, regardless of the client’s account size.

The $1 billion AUM milestone is one of many key achievements for blooom over the past year.

  • In mid-2016, Sheila Bair, FDIC Chair under two U.S. Presidents and “the second most powerful woman in the world in 2008 and 2009” by Forbes, joined the company as an Advisory Board Member.
  • In February 2017, blooom raised $9.15 million in Series B funding and surpassed the $500 million mark in AUM.
  • Since 2014, as part of its free product evaluation, blooom has analyzed the health of more than $2 billion of individual 401(k) plan balances.
Source: BusinessWire

SoFi rolls out new deal amid exec reshuffle (GlobalCapital), Rated: AAA

SoFi filed documents with the Securities and Exchange Commission on Friday for the upcoming deal, under its SOFI shelf. Deutsche Bank, Goldman SachsJP Morgan, Bank of America Merrill Lynch and Morgan Stanley have been named in the documents as banks on the deal.

DBRS Assigns Provisional Ratings to SoFi Professional Loan Program 2017-E LLC (DBRS), Rated: AAA

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of notes issued by SoFi Professional Loan Program 2017-E LLC (SoFi 2017-E):

— $72,850,000 Class A-1 Notes at AAA (sf)
— $303,000,000 Class A-2A Notes at AAA (sf)
— $161,000,000 Class A-2B Notes at AAA (sf)
— $55,000,000 Class B Notes at AA (sf)
— $34,500,000 Class C Notes at A (sf)

SoFi Unlikely To Damage Digital Lending Sector (Market Intelligence), Rated: AAA

The recent exit of Social Finance Inc. CEO Mike Cagney represents the third departure of a big-name digital lending CEO since the start of 2016. Social Finance, more commonly known as SoFi, was long considered a bright spot in the digital lending industry after making it through a rough 2016 unscathed.

Everything unravels

Heading into 2016, investors started to notice higher-than-expected defaults on loans from large marketplace platforms, especially in lower-graded loans. In order to compensate for these higher losses, some lenders increased interest rates to keep investors on their platforms. For institutions that had been purchasing loans and packaging them into asset-backed securities, the underperformance of loans in previous securitizations became a concern. By April, Citigroup Inc. was having trouble marketing a new securitization of loans from personal-focused lender Prosper Marketplace Inc., leading the two firms to end their partnership. Without this important source of capital, Prosper saw originations fall 55.5% during the second quarter of 2016.

Source: Market Intelligence

Past problems lead to a brighter future

Digital lenders entered 2017 with a renewed focus on operational efficiency and loan quality. For some, these measures are starting to pay off. LendingClub and On Deck both reached targeted profitability measures in the second quarter of the year. Prosper has reignited loan growth thanks to a $5 billion commitment to fund new loans, and the company reported positive adjusted EBITDA for the second quarter. Ex-LendingClub CEO Renaud Laplanche has launched a new personal-focused lender called Upgrade. Student-focused lender Earnest has taken a different approach and according to Bloomberg is seeking a buyer for its business. Originations have started to rebound as large lenders in the industry regain confidence in their models and continue to ramp up volumes.

Source: Market Intelligence

Lending Club and Prosper Data: 10 Years In (Lend Academy), Rated: AAA

Lending Club and Prosper have both been around over 10 years now. A lot has changed since both companies were founded, including the performance of the loans. In this blog post we’ll share the performance of each platform over the last 10 years. The fact that we have access to this data set is one of the things that makes marketplace lending unique. The screenshots from this post are taken from NSR Invest, a marketplace lending robo advisor that is also a sister company to Lend Academy.

Lending Club Data

For Lending Club investors, most loan grade returns peaked in 2013. As you look at this chart it is worth noting that the 2017 numbers are somewhat meaningless because the loans there have not seasoned yet.

Source: Lend Academy

Prosper Data

Prosper launched in 2006 as the first p2p lending platform in the U.S. Initially, they operated with a very different model allowing deep subprime borrowers on to their platform.

When they relaunched Prosper grew very slowly, they needed to prove out their platform to the many retail investors who had lost money in Prosper 1.0. Even in 2009 and 2010 originations were just $8 million and $27 million respectively. Prosper began to scale significantly in 2011 and onwards.

Prosper’s C grade loans are the closest to Lending Club’s D grade loans so this is the best side by side comparison.

Source: Lend Academy

FT Partners’ CEO Monthly Alternative Lending Market Analysis (October ’17) (FT Partners), Rated: AAA

Source: FT Partners

September was another active month for the FT Partners team as we announced three significant FinTech transactions and the appointment of two additions to our senior team.

We are pleased to announce our role advising:

  • Source: FT Partners

    Download the full report here.

    PeerStreet funds over half a billion in loans, maintains zero losses to investors (PeerStreet Email), Rated: AAA

    PeerStreet, the real estate investing platform for real estate debt, has just hit the milestone of having funded half a billion in loans and with zero losses to investors since the company launched in 2015.

    Platforms in the P2P and crowdfunding space are seeing increasing competition and scrutiny, but PeerStreet has continued to offer investors access to quality loans and high yields, earning the public testimonial of some high-profile users, such as 

    College Ave Student Loans Completes $ 161MM in Inaugural Securitization (BusinessWire), Rated: A

    College Ave Student Loans, the leading next-generation student loan marketplace lender, announced it has completed a $161 million securitization of private student loans, its first securitization. The CASL 2017-A transaction, completed over the summer, received an ‘A’ rating from DBRS and a ‘BBB’ rating from S&P for its highest-rated senior notes. The transaction was four-times oversubscribed. Barclays was the underwriter on the transaction.

    The securitization also marks a year of growth for College Ave Student Loans. To date, the company has secured more than $2 billion of committed loan purchasing power from multiple sources.

    Why are Amazon, PayPal meeting with bank regulators? (American Banker), Rated: A

    Technology giants like Google, Amazon, Facebook and Apple are showing an increasing interest in engaging with federal banking regulators, a move that underscores Silicon Valley’s growing involvement in the financial services arena.

    Amazon lobbyists met with the Office of the Comptroller of the Currency starting in the second quarter of 2016, and again this year to discuss “issues related to mobile payments and payment processing, financial innovation, and technology,” according to publicly available lobbying disclosures.

    PayPal, meanwhile, met with OCC officials in the second, third and fourth quarters of last year to discuss “mobile payment innovation” issues related to underserved customers and remittances and money transfers, according to its disclosures.

    Vestwell Raises $ 8 Million in Series A Funding led by F-Prime Capital Partners (Business Insider), Rated: A

    Vestwell, the industry’s first and only fiduciary-backed retirement platform for the financial advisor community, today announced $8 million in Series A Funding led by F-Prime Capital Partners, the venture capital group associated with the parent company of Fidelity Investments, with participation from Primary Venture Partners, FinTech Collective, and Commerce Ventures. Launched in late 2016, Vestwell received $4.5 million in its initial Series Seed of financing in September 2016.

    So far this year, the company has signed over 50 registered investment advisor (RIAs) firms, as well as independent broker-dealers, asset managers, and bank/trust custodians, with plans to onboard several thousand advisors this year.  The funding will be used to grow the team while further enhancing the technology.

    YieldStreet Adds Three Tech Disruptors to Its Advisory Board (YieldStreet Email), Rated: A

    YieldStreet, the fintech company seeking to change the way we invest and accumulate wealth, announced the addition of three new members to its advisory board: Ron Suber of Prosper Marketplace, Alexandra Wilkis Wilson of Gilt, and Mitch Jacobs of OnDeck.

    The three new members join an elite team of advisors whose deep expertise spans technology, investing, policy and financial services. The current members include economic policy expert Donald Marron Jr. of the Urban Institute, Rahul Gupta former Group President of Fiserv (NASDAQ: FISV), Mark Gerson founder of GLG, former House  Majority Whip Tony Coelho, and Todd Deutsch formerly of Goldman Sachs.

    The Risk Of Playing Alt Lending’s Rate Limbo (PYMNTS), Rated: A

    And while there are myriad explanations, one clear issue – according to Quick.me CEO Ola Okeshola – is the simple fact that access to capital for small businesses has dried up significantly since the Great Recession, as banks have either gone out of business or lost interest in lending to that sub-segment of the market.

    FinTech, Okeshola said, can offer SMBs streamlined access to funds in ways that are unprecedented. That’s the good news: There is a large, hungry and addressable market out there.

    The more challenging news is that finding ways to address that market isn’t necessarily as easy as flipping a switch – it’s addressing the right problem in the right way.

    For small business loans, he explained, giving an SMB a low interest rate or a very fast approval time nearly guarantees they will sign on, regardless of how much it cost the alt lender to acquire that customer.

    In Quick.me’s case, that means working with POS providers as their referral source, to basically cut their customer acquisition costs as much as possible. Because they can’t make money back spending hundreds of millions to acquire customers, they instead decided to explore how to work with someone who’s already spent that money.

    The Source Code: Max Levchin (Marketplace), Rated: A

    Max Levchin knows a thing or two about money. He helped found PayPal almost 20 years ago, and his new startup, Affirm, is in the business of lending.


    Source available: Finance Industry Files Lawsuit to Overturn CFPB Arbitration Rule (Ballard Spahr Email), Rated: A

    A coalition of chambers of commerce and consumer financial services associations, including the U.S. Chamber of Commerce and the American Bankers Association, filed a lawsuit in federal court on Friday seeking to block the implementation of the Consumer Financial Protection Bureau’s final arbitration rule. The rule would prohibit the use of class action waivers in consumer financial services arbitration agreements. Class action waivers preclude consumers from participating in class action lawsuits and instead require them to individually arbitrate their disputes with companies.

    Fintech startup Curve partners with accounting software Xero to make filing expenses ‘frictionless’ (TechCrunch), Rated: A

    Curve, the London fintech startup that lets you consolidate all your bank cards into a single card and track your spending, has partnered with accounting software Xero to remove much of the friction involved in filing expenses. The move is part of the newly-launched ‘Curve Connect’ feature that will see Curve connect to a growing list of third-party apps and services to make managing your money easier.

    Specifically, the Xero feature gives you the option to connect the Curve app to Xero so that spending on your Curve card (and therefore any of the underlying cards you’ve linked Curve to) can be automatically added to the accounting software without the need to enter each expense manually.

    Here’s How Blockchain Will Change the Financial Services Industry (Business.com), Rated: A

    The blockchain is, essentially, a vast, distributed ledger capable of recording anything of value. It can record deeds, rental agreements, equities, contracts, money, titles and, realistically, any kind of asset. These records can be stored and moved privately between two parties independent of any financial intermediary. It is essentially a peer-to-peer transaction tool that does not rely on an intermediary for verification or identification of the involved parties.

    If financial intermediaries are not required for transactions, banks are the supposedly biggest losers in this equation.

    Lawyers, investment bankers, and venture capitalists come with high attached costs, but the emergence of peer-to-peer lending schemes and equity crowdfunding schemes have derailed this market for over a decade.

    First Data, Live Oak team up on fintech startup to take on big banks (Biz Journals), Rated: A

    A New York technology firm and a North Carolina banking company have joined forces on a startup that could help community banks compete with mammoth firms such as Bank of America and Wells Fargo.

    Checking account fees surge. Here’s how to dodge them (Bankrate), Rated: A

    There is a paradox in banking right now: Fees have never been higher, but it’s also easier than ever to sidestep them.

    The average cost of an out-of-network ATM withdrawal is $4.69, up 2.6 percent from a year earlier, according to the 2017 Bankrate checking account survey. Meanwhile, overdraft fees rose 1 percent to $33.38.

    But if you tweak your habits, assess priorities and lean on technology, you can dodge these charges altogether.

    Overdraft fees

    Source: Bankrate

    Link a savings account. This will serve as a backstop to your checking account. Your bank may charge you to move money when you overspend, but that fee might be $5 to $10, McBride says — significantly less than the cost of an overdraft. If you have an alert on, you can move money from your buffer account into your checkingwithout a charge.

    Instead, look for no-fee or low-fee accounts, like those offered by online banks and fintech companies, like Dave.com, Chime and Qapital.

    ATM fees

    The average ATM surcharge — the fee levied by the other bank — was $2.97, up 2.4 percent from a year earlier, according to our survey. The average fee banks charge to use another bank’s ATM was $1.72, up nearly 3 percent from a year earlier.

    Source: Bankrate

    If it is unwilling or if you want better options, shop around for other accounts. Some online banks not only have no out-of-network fee, but cover a set amount — say $15 — of ATM surcharges each month.

    Tamarack Launches 5 Clients with Lease/Loan Origination Accelerator (Monitor Daily), Rated: A

    Tamarack Consulting, a provider of independent software solutions in the equipment finance and commercial lending industry, has taken five new clients live on Salesforce utilizing Tamarack’s proprietary Lease/Loan Origination Accelerator.

    With more than 40 Salesforce clients utilizing the Lease/Loan Origination service, Tamarack added VFI Corporate Finance, TEAM Funding Solutions, Centra/4 Hour Funding, BSB Leasing and Dimension Funding to its list of clients that launched through the Lease/Loan Accelerator and are now processing leases and loans via Salesforce.com.

    Tamarack’s Lease/Loan Origination Accelerator on Salesforce is a scalable solution offering users the ability to automate work queues, increase throughput of loans without additional head count and customize notifications from lead generation through to funding.

    Average CEO Pay at Big RIAs Nears $ 800K (Financial Advisor IQ), Rated: B

    If you’re trying to break away or simply want to see what the big boys are doing on The Street in terms of compensating key employees, then Fidelity has some salary benchmarking figures that might be of interest.

    In a new research report, the asset manager and custodian surveyed large RIAs and multi-family offices to see what they’re paying in 20 different job categories.

    Participants were handpicked by Fidelity and required to have at least $1 billion in assets under management. Compensation ranges from CEOs getting on average $458,900 in base pay — $797,300 with cash and other bonuses included — to $285,200 for a typical big company chief investment officer ($469,600 total).

    By contrast, chief financial officers have “a significantly lower portion of their compensation based on incentives,” the survey adds. Base pay for a typical CFO is listed at $243,100 with total compensation topping $328,000.

    Angelo State University Students Graduate With Very Little Debt (San Angelo Live), Rated: B

    Angelo State University has been ranked among the nation’s top 150 “Public Colleges That Give Students the Least Private Student Loan Debt” by The Student Loan Report (SLR), a news and information guide dedicated exclusively to college student loans and financial aid.

    ASU is ranked No. 57 in the nation, which puts ASU in the top 12 percent of the 480 public colleges in the U.S. that left students with private student loan debt. According to the SLR rankings, only 3 percent of ASU graduates leave school with outstanding private student loan debt, and their average debt load is $14,431.

    The fintech name generator (Vested Ventures), Rated: B

    Vested has launched a fintech name generator with categories for banking, investment management, lending, payments, personal finance, tax & accounting, wealth management, blockchain, private equity, insurtech, and more. Check it out here.

    United Kingdom

    What’s £38m of “other expenses” between friends? (Financial Times Alphaville), Rated: AAA

    Take Funding Circle, for example.

    The accounts showed sales up 59 per cent to £50.1m, while its operating loss worsened at a slower rate of 30 per cent to £51.8m.

    Despite the progress, operating expenses at £103m still stand at double the company’s sales.

    Rent on land and buildings, as well as depreciation and amortisation, make up another £9m or so of operating expenses.

    Source: Financial Times

    The P2P Power 50 (P2P Finance News), Rated: AAA

    So, who are the key players influencing the UK’s P2P sector? The inaugural Peer2Peer Finance News Power 50 list aims to identify the big names in the industry who have helped it grow into a force to contend with over the past decade and who will play a key role in its future.

    Our top 10 list gives particular acknowledgement to the most influential individuals that we believe have helped establish the P2P brand or will be the biggest drivers in its future.

    Source: P2P Finance News
    Source: P2P Finance News

    Read the full list of P2p powerbrokers.

    £200m UK SME funding programme launched by ThinCats (RealBusiness), Rated: A

    Lending platform ThinCats and parent company ESF Capital have introduced a £200m SME funding programme for British growth businesses.

    The launch of the SME funding scheme by ESF and ThinCats will support loans from £100,000 right up to £5m for leaders looking for an injection to take their companies to the next level.

    The company is joined by New York-headquartered Waterfall Asset Management, which has added £70m to the pot, a firm that currently manages $6bn of assets.

    Why financial services should be terrified of dispensing wealth management robo-advice (Banking Technology), Rated: A

    Robo-advice costs less than “bricks & mortar & human” services, hopefully harvesting a bigger market. Today it primarily invests clients’ money in mainstream investments aimed at generating attractive risk-adjusted returns over time.

    With mutual distributed ledgers (aka blockchains), there are going to be immutable versions of what was advised, what happened, and what the robo-code at the time decided. Robo-advice with blockchain leaves a permanent trail.

    London-Based Fin-Tech Platform Nebeus Championing Banks as Public Utilities (Business Insider), Rated: A

    London-based Nebeus.com – a crypto-currency platform enabling customers to buy, sell, store, remit, lend and borrow crypto-currency funds – is launching a pre-ICO campaign to fund its ambitious plans.

    Developed over the last three years, the company currently operates as a crypto-currency wallet, allowing consumers to buy, remit, loan, borrow and exchange. They are also proud to have recently joined LEVEL39 – the world’s most connected community for finance, cybersecurity, retail and smart-city technology businesses.

    Having raised over £1.5M GBP in private funding in previous years, the company wants to open up its platform to third-party developers; creating a ‘supermarket’ of financial products and services based on blockchain and smart contracts, while providing full transparency and security as it serves individual, corporate and developer communities.

    Download the Nebeus whitepaper.

    Landbay makes five new hires following record lending month (Financial Reporter), Rated: A

    Landbay has reported a record month of buy-to-let lending in September, with a total of £6.31 million lent across 31 mortgages.

    In response to the growth, as well as to the new PRA regulation surrounding portfolio landlords, Landbay has made five new hires.

    Among them, James Cooper-Smith and Joela Jenvey both join the lending team as Senior Lending Officer and Key Account Manager respectively, while Wing Chan joins the wider team as Operating Manager.

    How To Raise Finance For Your Business (The Voice), Rated: B

    1. THE SOURCE

    Equity has massive implications for dilution – so don’t ignore the debt option.

    2. THE FINANCIAL MODEL

    Put your figures into a spreadsheet and test them. Try out different scenarios – see what happens to the numbers.

    3. THE VALUATION

    To get a sensible, realistic idea of the value of your company, compare the most recent valuations for transactions in the space.

    4. THE MONEY

    For example, Sola Bank and Baldetton Capital work in the £100million arena. Whereas EIS/SEIS and VCT funds generally work in the £1-5million sphere. For smaller amounts contact angel investors.

    5. THE CONTACTS

    6. THE DOCUMENTS

    It is essential to prepare a one-page summary of the opportunity. Too much information is not helpful.

    China

    CBRC cautions on surging consumer loans (China.org), Rated: A

    China’s top banking regulator on Friday warned surging consumer loans may pose potential risks to the country’s lending system.

    It also cautioned against a fast rise in consumer leverage ratio.

    Recent inspections on banks by CBRC branches and the People’s Bank of China, the central bank, have found that some consumer loans were used to make a down payment for home purchases or as an investment, rather than using them for travel, education, home renovation or to buy consumer durables.

    International

    Souqalmal.com raises $ 10m in Series B funding with investment from UK’s GoCompare (The National), Rated: A

    Price comparison website Souqalmal.com has raised US$10 million in Series B funding to expand its regional presence and increase its offline service offering, with leading UK firm GoCompare joining the funding round.

    GoCompare Group, which operates the popular UK comparison site GoCompare, is a minority investor in the funding, which is led by Saudi-based Riyad Taqnia Fund (RTF), with UAE Exchange Group also participating.

    Asia

    TrueMoney finds a niche in Myanmar’s mobile fintech space (Myanmar Times), Rated: AAA

    TrueMoney, one of the newest additions to the string of fintech firms vying for a slice of the mobile money market in Myanmar, is upping its game in the face of rising competition.

    TrueMoney, a Thai company, provides mobile financial services allowing users to deposit cash in mobile accounts online or at physical point-of-sale outlets and transfer cash equivalents to a network of agents domestically or overseas.

    In ASEAN, TrueMoney is the only fintech company to have established a mobile money network in Thailand, Cambodia, Vietnam, the Philippines, Indonesia and Malaysia, allowing users to transfer money between these countries.

    TrueMoney is also the only mobile payments firm that allows Myanmar workers in Thailand to send money home, all within the hour.

    Around 80 per cent of the population do not have bank accounts in Myanmar, where most prefer to carry large wads of cash. With mobile money technology, many operators see the country leapfrogging bank accounts altogether.

    Middle East

    This UAE Startup Secured an Investment of US$ 5M, and is Planning on Expanding to Saudi Arabia (Startup Magazine), Rated: A

    The leading MENA’s peer to peer lending platform, Beehive, has managed to secure US$5 million investment as part of a Series A round Riyad TAQNIA Fund.

    Up to now, Beehive has successfully arranged the lending of over US$ 35 million (AED 130 million) to more than 200 business finance requests. In addition to that, it also registered more than 5,000 international investors.

    Authors:

    George Popescu
    Allen Taylor

Why ICOs Are Necessary for Capital Fundraising

Cryptocurrency market capitalizations

Introduction In 2008, when Satoshi Nakamoto first introduced Bitcoin to the world, nobody would have thought the “virtual currency” will become such a big phenomenon in less than a decade. From being a decentralized source of sending and receiving money to any part of the world, it has transformed into a lucrative investment avenue. It […]

Cryptocurrency market capitalizations

Introduction

In 2008, when Satoshi Nakamoto first introduced Bitcoin to the world, nobody would have thought the “virtual currency” will become such a big phenomenon in less than a decade. From being a decentralized source of sending and receiving money to any part of the world, it has transformed into a lucrative investment avenue. It was trading in the single digit range in 2012 and now recently touched $5,000 for one single bitcoin. Now, startups are issuing their own currencies/tokens via initial coin offerings (ICO) to raise funds.

ICO is an unregulated channel of crowdfunding that uses tokens/coins to raise capital for the issuer. In an ICO, investors buy the coins, which can appreciate in value depending upon how successful the business is. The first ICO was by Mastercoin in 2013. It raised approximately $600,000.

The rise of ICOs can be gauged from the fact that almost $1.3 billion has been raised via ICOs by startups this year.

ICO and Equity: Similar or Different?

There are two schools of thought when it comes to ICOs. Many cryptocurrency enthusiasts feel that ICO is similar to an IPO. It sells coins/tokens instead of shares to investors and has the ability to generate lucrative returns if the business takes off. Also, just like IPOs, ICOs are restricted by the number of tokens and the duration during which the company can sell these tokens.

Many lawyers and general investors feel it is a different breed from an IPO. The main difference being an IPO gives investors a right of ownership in the company when they buy the shares whereas, in the case of an ICO, the buyer gets the right to participate and profit from the business’s ecosystem. Tokens only appreciate in value if the project takes off, but tokens do provide other additional benefits. For example, the tokens issued by Storj — a decentralized storage solution — can be exchanged for storage space on the platform. Any ICO that gives the right of ownership to investors is technically offering securities and would thus need to register with the Securities and Exchange Commission (SEC).

When it comes to regulations, ICOs basically enjoy a free run as compared to the heavily regulated IPOs. IPOs require a ton of paperwork, millions of dollars in fees, and months of preparation to ensure they are compliant with all relevant laws. Any company can launch an ICO at any stage of its life, which means investors are open to risk with regards to the legitimacy of the company.

What does the SEC Have to Say About ICOs?

So far, the SEC has not taken any serious stance against cryptocurrencies, but the growing popularity of ICOs has prompted the commission to form regulatory guidelines. In July this year, the SEC issued the results of an investigation into the ICO of DAO – a decentralized venture fund. DAO raised $150 million worth of ether from 11,000 investors and then got hacked out of $50 million worth of virtual currency. More importantly, the DAO tokens were structured as a security.

On July 25th, 2017, the SEC declared that some ICOs will come under the same regulations that are applicable to other similar investments like stocks. The critical thing to note is the ruling did not include “all” type of ICO offerings but it did include those ICOs which are structured like a security. The SEC believes “ICO may provide fair and lawful investment opportunities,” however, they can also be “used improperly to entice investors with the promise of high returns in a new investment space.”

Market Size Comparison: Bonds, Equity, and Cryptocurrency

Fixed income solutions (bonds, treasury) using traditional currency is a fully developed and functional market and has been around for many decades. The size of the U.S. fixed market is almost $40 trillion, and the U.S. corporate bond market in 2016 stood at $8.5 trillion. The U.S. equity market stood at over $25 trillion in February 2017. In comparison, the cryptocurrency market, though growing rapidly, is still a fair bit behind other developed security markets. Cryptocurrency market capitalization as of June 2017 stood at $103.9 billion with Bitcoin being the major player.

Source: FXEmpire.com

Lack of fixed income solutions

The ICO world has always been focused on valuation gains. But the real maturity of this nascent market will be judged by its depth of fixed income solutions for investors. Though many HYIPs (high yield investment programs) like GlobalBid, CryptomineHolding, and Laser were floated in the cryptocurrency market, there are still doubts over their legality. They come across more like a Ponzi scheme versus a safe investment option. The best example could be Bitcoin-Trader HYIP, which disappeared overnight.

This is where the opportunity lies for an entrepreneur who is willing to take the risk and come up with an innovative yet safe fixed income solution that will help in tying both the worlds together (fixed income solutions and the cryptocurrency market). Investors will gladly accept a solution that provides stability and security of fixed income investment solution alongside the higher returns and blockchain benefits of the cryptocurrency market.

Lending Platforms in Fixed Income

The first real breakthrough has been the emergence of peer-to-peer lending platforms using bitcoins. The technology which has revolutionized consumer and small business finance is being utilized by startups in conjunction with cryptocurrencies to offer fixed income solutions to cryptocurrency investors. Though there are not many lending platforms that use cryptocurrency, the few notable ones are mentioned below:

  1. Bitbond – Headquartered in Berlin, Bitbond is the first global marketplace lending platform for small business loans. Investors simply need to sign up with the platform and deposit bitcoins in their bitcoin wallet, then browse through the available investing opportunities. Once the project is fully funded, the investor starts to receive monthly repayments with interest until the loan matures. The repayments go straight to their bitcoin wallet. The investor can either reinvest or send the coins to a bitcoin exchange to trade it for fiat currency.
    Higher Returns – The average APR is 13%, which is pretty high as compared to returns offered by generic P2P lenders.
  2. NebeusNebeus is an online lending platform based out of the UK and was launched in 2015. It offers services in lending, trading, and remittances. Loans offered by Nebeus have a term of micro (30 days) to standard (360 days). The loan size is determined according to the borrower rating.
    Returns – Investors can expect a yield up to 12.5%.
  3. Getline – Based out of Warsaw, Poland, Getline was established in 2015. It uses a third party platform Esteemify for account verification. Borrowers and investors need to add social accounts as well personal verification details such as bank account, proof of income, etc. Total amount funded so far is 178.86 BTC and the platform usually deals in credit line loans.
    Fees – 30% of any profit obtained by the lender.
  4. BTCPOP – Headquartered in the United Kingdom, BTCPOP was founded in 2014. It is an online lending platform that also has an altcoin exchange and a share market, and it also supports IPOs, bond funding, and trading. It deals in various types of loans like custom personal loans, personal loans with collateral, instant loans, business loans, IPOs, bonds, and instant collateral loans.

   Returns – Lenders can expect an APR of 10% or more.

Conclusion

Cryptocurrencies and ICOs are redefining the concept of money and fund raising. But for a jump to the mainstream, fixed income options need to be developed for the wider investor base. P2P lending using virtual currency is a good start, and it seems a major shake up with a fixed income offering is just round the corner.

Author:

Written by Heena Dhir.