Tuesday September 5 2017, Daily News Digest

OneMain

News Comments Today’s main news: OnDeck celebrates 10 years of online lending with $7B+ milestone.SoFi responds to sexual harassment allegations, wage lawsuits.RateSetter hires Dave Bibby for North of England.Assetz Capital gets FCA approval.Zopa vows to improve loan sale times.China bans ICOs. Today’s main analysis: OneMain deal analysis.International P2P lending volumes for August 2017. Today’s thought-provoking […]

OneMain

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News Summary

United States

OnDeck Provides Over $ 7B in Capital to Small Businesses in 10 Years (ABL Advisor), Rated: AAA

In 2007, the first online loans from OnDeck to small businesses in the United States created a new type of commercial lender, one that believed the Internet could revolutionize how small business owners access capital.  Today, OnDeck celebrates a decade of innovation on behalf of entrepreneurs, having emerged as the nation’s largest online lender to small businesses. To date, OnDeck has provided over $7 billion in capital to more than 70,000 customers in 700 different industries across the United States, Canada and Australia.

Flash forward to 2017 and the company has now provided small businesses more than $7 billion in capital. In the retail industry alone, OnDeck has lent more than $1 billion online.

OnDeck Celebrates 10 Years of Online Lending (Crowdfund Insider), Rated: AAA

Noah Breslow, CEO of OnDeck, stated:

“OnDeck started lending online to small businesses ten years ago with a customer-first philosophy and a relentless commitment to providing capital online with speed, efficiency and top-quality service to America’s small business owners. This is still the hallmark of our business today as we celebrate a decade of innovation on behalf of small business owners, truly the lifeblood of our economy.”

Source: Crowdfund Insider

On Deck Capital, Inc. (ONDK) Downgraded by Zacks Investment Research (Stock News Times), Rated: A

Zacks Investment Research downgraded shares of On Deck Capital, Inc. (NYSE:ONDK) from a buy rating to a hold rating in a report published on Saturday.

SoFi responds to sexual harassment and wage lawsuits (TechCrunch), Rated: AAA

Now, SoFi CEO Mike Cagney is sharing more information about those suits, which were filed by the same lawyer, Robert Ottinger. In a new post, he also stresses that he’s taking the complaints seriously, writing:

“While we’re confident in our positions in these cases, we take these types of claims seriously. Our legal team is hard at work preparing our responses, and as part of that work, we’ve had many discussions with current and former employees about these issues.

Based on these discussions, we’ve discovered that the same lawyer has been trying to collect information relating to alleged sexual harassment at the company, and that he has several people who are prepared to formally allege they were the victims of or witnesses to improper activity at our Healdsburg operations office.

To be blunt, that kind of behavior has no place at SoFi, and we’re not going to tolerate it.”

Online lender SoFi investigating sexual harassment claims (L.A. Times), Rated: A

Social Finance Inc., the hot online lender known as SoFi, has launched an internal investigation into claims of sexual harassment at the San Francisco company.

In a post on the company blog, co-founder and Chief Executive Mike Cagney wrote Friday that outside attorneys are conducting an investigation in response to a lawsuit filed last month and amended this week by a former employee.

The executive board of ride-hailing company Uber recently hired a new chief executive to replace Travis Kalanick, who left amid complaints of sexual harassment, discrimination, bullying and retaliation at the San Francisco-based firm.

OneMain Deal Analysis (PeerIQ), Rated: AAA

In our recent earnings overview, we highlighted OneMain Financial as the pack leader across non-bank lenders. And it shows – initially slated for $639 Mn, OneMain increased the deal size by almost 50% to $947 Mn due to strong investor demand. OneMain differentiates via their high touch approach, unique distribution channels, and strong servicing, and decades of historical underwriting data.

Source: Kroll Bond Ratings Agency, PeerIQ

OneMain Financial continues to deliver some of the safest bonds in the consumer lending space. For instance, the KBRA net loss range is 115 bps better (6.85% to 8.85%)–a lower loss-rate than even the super-prime borrowers in SoFi’s SCLP 2017-4 (not shown).

Capital Structure and Pricing

Although OMFIT 2017-1’s structure is much closer to SLFT 2017-A than OMFIT 2016-3, its senior tranche has a much shorter WAL than both. OMFIT 2017-1’s A-2 floater pays LIBOR + 80bps with no floor or cap. This introduces a layer of interest rate risk because the underlying loans are not variable rate. At the same time, the floater enables investors to guard against rising rates.

Source: Kroll Bond Ratings Agency, PeerIQ

Amortization Triggers and Revolving Period

An early amortization event will be triggered if OMFIT’s ANL is greater than 17% for any rolling 3-month period. As you can see, OneMain typically has a generous cushion between its 1-month ANL and the 17% trigger.

Source: OneMain Financial, PeerIQ

Amex releases mobile feature in bid to challenge personal lenders (American Banker), Rated: A

American Express unveiled a new mobile feature Wednesday that allows customers to make small installment payments on individual purchases.

Has the marketplace lending sector fully recovered in the USA? (AltFi), Rated: A

The year 2016 will be forever remembered as the annus horribilis in the marketplace lending industry in the US.

According to Pitchbook, online lending equity investment was $2.3 billion in the USA in 2016. Through August 3rd of this year the total stood at $2.5 billion. While this is still down from the heady days of 2015 when $5.6 billion came flowing into the industry we are having a much better year in 2017 than in 2016.

Here are some interesting deals that have closed so far in 2017:

  1. SoFi raised $500 million in a Series F round led by Silver Lake.
  2. Kabbage raised $250 million in a Series F led by SoftBank.
  3. Bread raised $126 million in a Series B led by Menlo Ventures.
  4. Funding Circle raised $100 million in a Series F led by Accel Partners.
  5. Upgrade raised $60 million in a Series A, the largest ever Series A for a US fintech company.

The biggest segment of online lending is still unsecured consumer loans. And with millennials now coming into their peak borrowing years this will provide a significant tailwind for the industry in the US.

There is Bad News: Returns are Dropping

Read the rest.

Adapt, Automate, Accelerate: AI and the Future of SME Lending (Let’s Talk Payments), Rated: A

One of the struggles when lending to an SME is the cost that goes into making a lending decision. It is estimated that at regional and community banks, $4-5K in operational costs go into processing each loan under $100K, leaving very little margin for bad loan decisions. In fact, these small loans take nearly as much time and manpower to process as much bigger loans. This is where automation and artificial intelligence (AI) can come into play.

Unlike traditional models of underwriting, which focus on only a handful of credit attributes, machine learning can analyze thousands of data pointsfrom various sources, which allows for a bank to model credit risk for SMEs more accurately than ever before. These machine learning techniques are able to radically outperform traditional scorecards in SME lending. In the not-distant future, a bank could use robots and predictive AI to 100% automate lending decisions in cases where the SME is under a certain amount and the predictive analytics give the applicant a certain baseline score.

Upgrade Loans In-Depth Review – Read This Before Applying for an Upgrade Loan (Supermoney), Rated: A

Upgrade’s founders are Renaud LaPlanche and Soul Htite. This may not be the first time you’ve heard these names used together because they were both co-founders of LendingClub, America’s largest loan marketplace.

LendingClub has arranged over 28 billion dollars in loans to over 1.5 million customers. Htite also founded one of China’s largest marketplace lending platforms, Dianrong.

So, both founders have a good track record in the online lending business.

Upgrade’s application process is online, and the personal loan structure is pretty standard. It offers term loans with fixed interest rates and charges an origination fee. All loans are unsecured, so no collateral is required.

A differentiating factor about the company is in their plan to help people manage and improve their credit. If applicants are denied, they will have the necessary support to help them improve their credit and work towards getting approved in the future.

 Pros

  • Easy and fast online application which doesn’t hurt your credit score
  • Plans to provide credit monitoring, alerts, and mentoring
  • Can pick your payment due date
  • No prepayment penalties
  • Founders very successful in past online lending ventures
  • Competitive fixed interest rates
  • Funds are quickly transferred to bank account upon approval

 Cons

  • Company is still very new
  • Charges an origination fee
  • Doesn’t offer lowest-advertised interest rate range on the market
  • Only offers fixed interest rates, no variable rates

Ohio has highest U.S. payday lending interest rates (Star Beacon), Rated: A

Local officials are supporting efforts to limit interest rates on advance or “payday” loans in Ohio, which are the highest on average in the country — close to 600 percent; two or three times higher than neighboring states.

That bill — currently in committee in the Ohio Statehouse — modifies the Short-Term Loan Act of 2008, which capped interest rates at 28 percent but also contained a loophole allowing lenders to keep charging whatever fees they want through another loan law.

One in 10 Ohioans — about a million people — have borrowed from a payday lender, according to a May study from the Pew Charitable Trusts. In Ohio, the average APR is 591 percent, meaning a $300, five-month loan could end up costing Ohioans between $780 and $880, according to the study.

How a bank bet on fintech for its digital reboot (American Banker), Rated: A

When Kevin Karrels first joined the digital team at First Tennessee, he knew a drastic overhaul was in order.

“I inherited a broken and weak digital platform,” said Karrels, senior vice president and digital channel strategy executive at the $29.4 billion-asset bank.

Karrels also realized the online and mobile experience was not up to snuff, especially when it came to meeting the expectations of digital-savvy millennial consumers.

For that reason, First Tennessee ditched its multiple vendor relationships to revamp both online and mobile with D3 Banking, a relatively new entrant in the banking technology space; it was founded in 2008.

 

Richard Cordray could step down soon, leaving the Consumer Financial Protection Bureau in limbo (L.A. Times), Rated: A

The Republican push to oust Richard Cordray as director of the Consumer Financial Protection Bureau soon might get a boost from an unexpected source: Cordray himself.

Cordray’s term as the bureau’s first and only director doesn’t expire until next summer. But there is widespread speculation that he will run for the Democratic nomination for governor of his home state of Ohio.

His departure could leave the controversial watchdog agency, created in the aftermath of the 2008 financial crisis, in limbo for months and jeopardize regulations covering consumer arbitration clauses and payday lending.

I ditched my financial advisor for an app, and saving money has never been easier (Business Insider), Rated: A

At the risk of sounding cliché, I’m a millennial with almost no investing experience. I have a 401(k) retirement account, but all my non-retirement savings has been stashed in a standard savings account from Bank of America.

Plus, I knew there was a possible alternative. As someone plugged into the tech world (and someone who listens to a lot of podcasts with ads), I’d been hearing about so-called robo-advisors, apps that automatically manage and invest your money for you. The meeting with the financial advisor got me intrigued about whether these apps might offer a better alternative. So I went home that night and downloaded the two most popular ones, Wealthfront and Betterment.

Not only did the apps take much less time than the human advisor to offer similar advice, they came with a big cost advantage. Wealthfront manages your first $10,000 for free. After that, both Betterment and Wealthfront charge an annual fee equal to 0.25% of your investments.

One other benefit: You can start an account with either service by investing just $500, which is significantly less than what traditional financial advisors typically require.

$ 2B Trial Puts Tribal Payday Lending In Spotlight (Law360), Rated: A

Race car driver Scott Tucker and lawyer Timothy Muir are slated to stand trial soon on charges they ran an illegal $2 billion payday loan operation that they tried to hide behind the sovereign immunity of three Native American tribes, proceedings that are expected to intensify scrutiny of how tribes participate in the business of high-interest online lending.

Optimal Blue’s Digital Marketplace leverages largest investor database (Housingwire), Rated: B

For originators, Optimal Blue delivers an Enterprise Secondary Marketing Solution that completely automates their operations including product and pricing, lock desk workflow, pipeline risk management, secondary market commitment and delivery, and more.

For investors, Optimal Blue provides an Investor Network Management Solution that automates compliance, product and pricing distribution, marketing, and business intelligence capabilities.

For providers, Optimal Blue’s best-in-class eCommerce platform leverages state-of-the-art API capabilities to integrate with their leading technology and service solutions used by originators and investors throughout the loan life cycle – wherever, whenever it matters most.

Rep. Hensarling seeks answers from CFPB’s Cordray on payday loan rule (Financial Regulation News), Rated: B

Responding to reports that the Consumer Financial Protection Bureau’s (CFPB) final payday loan rule will be narrower in its coverage than originally proposed, Rep. Jeb Hensarling (R-TX) is questioning CFPB Director Richard Cordray on the reported change.

The CFPB’s original proposal established limitations for a “covered loan” which could be either a short-term consumer loan with a term of 45 days or less or a loan with a term of more than 45 days where the total cost of credit exceeds an annual rate of 36 percent along with other qualifications.

SoFi’s Career Incubator SoFi Accelerate Is Heading to Chicago (Crowdfund Insider), Rated: B

Online lender SoFi announced this week its program, SoFi Accelerate, will be heading to Chicago later this month. According to the lending platform, SoFi Accelerator is the first-of-its-kind career incubator that gives “ambitious” professionals the time and space to think big – and the tools and structures to make it happen.

How Crowdfunding is Finding Its Way Into Real Estate (Tech.co), Rated: A

Nowadays, we are seeing an increase in platforms providing investors with the chance to join forces and capitalize on real estate properties to diversify and enhance their investment portfolio.

Not only are you able to join other investors in launching a new company and receive the benefits from those companies, now “you are also able to choose from multiple investment opportunities and gain the full return on investment targeted at the beginning of your investment process” says, Craig Cecilio, CEO at DiversyFund.

You want to look for a platform with tools that allow you to:

  • Analyze an investment opportunity the same way the platform is analyzing it. Trust a company that shows you all their research, pictures, market studies, etc.
  • Keep a close eye on the development process of an investment property. Make sure they send you regular updates, so you can feel comfortable every month until payout time.
  • Have a profile dashboard where you can keep track of your earnings as well as new opportunities in the market. A platform you can trust is always creating new ways to help its investors grow their earnings.
  • Be virtually anywhere in the world, but still able to invest when the time is right for you. The world is a lot smaller these days, thanks to technology itself. Your investments should be able to be with you and travel with you anywhere you go.

Research Finds Fintech Enhances Financial Inclusion at Lower Cost (JD Supra), Rated: A

The report concluded that fintech lending has “penetrated areas that could benefit from additional credit supply, such as areas that lose bank branches and those in highly concentrated banking markets,” and that the use of alternative information sources has allowed some borrowers who would be classified as subprime by traditional criteria to be slotted into “better” loan grades and therefore receive lower-priced credit.

The report relied upon five sources of information for its analysis: data on loans that were originated through an online alternative channel (specifically, loan-level data from the Lending Club platform), data on loans that were originated from traditional banking channels, consumer credit panel data, banking market concentration data and bank branch information, and economic factors.

The Federal Reserve Bank of Philadelphia noted an increasing disparity between the rating grades of Lending Club and FICO scores. While the lender’s rating grades initially tracked the FICO scores of borrowers (with roughly 80 percent correlation in 2007), the similarities have dropped to only 35 percent in 2016, seeming to indicate that Lending Club is relying more on other information.

Overall, the study found that Lending Club’s rating grades have served as a good predictor for the borrowers’ probability of becoming at least 60 days past due within the 12-month period following the loan origination date, “despite the fact that the rating grades have a low correlation with the FICO scores.”

To read the working paper, click here.

Why Online Investing Makes It Easy to Diversify Your Real Estate Portfolio (Crowdfund Insider), Rated: A

Diversification is important because it spreads risk across multiple types of investments within a single portfolio.

Asset allocation is important because it reduces the risk of an outsized impact on an investor’s portfolio from a market moving change in one asset class. In addition, asset allocation takes into account each individual investor’s risk tolerance, time horizon and investment goals.

Real estate is an important part of a well-diversified portfolio, and the advent of online real estate investing makes it easy, convenient, and transparent for all investors to add real estate to their investment strategy.

Online lending firm LendUp sees growth opportuniity in Richmond area (Richmond Times-Dispatch), Rated: B

Since opening its first East Coast office in Chesterfield County in late 2015, LendUp Global Inc. has hired 50 employees locally, and company officials say they expect to add more jobs in the area as the company grows.

Nelson and other LendUp managers say the company expects to broaden its hiring in the Richmond area soon to include more engineers and technology specialists.

A Better Model for Lending to the Poor (Bacon’s Rebellion), Rated: A

California-based LendUp Global Inc., is an example of a social justice enterprise that has the potential to help ameliorate the lives of millions of poor people — without a single dollar of government funding.

They conceived the idea of tapping the emerging FinTech industry to make small loans to an estimated 100 million Americans, mostly poor with low credit ratings and income volatility, who cannot get loans from traditional banks. In early 2016, LendUp raised $150 million in venture capital with the goal of becoming a better small-loan provider.

As with payday lenders, LendUp’s interest rates are extremely high on small, short-term loans. A $250 loan repayable within a month would carry a finance charge of $44, equivalent to an annualized interest rate of 214 percent. Interest payments must cover the transaction costs of making the loans, after all. They also reflect the increased risk on non-payment by low credit-score borrowers.

Earlier this year, LendUp passed the $1 billion mark in loans provided. It has made more than 3.5 million loans.

LendingTree announces changes to senior management, board of directors (Housingwire), Rated: B

LendingTree recently announced a pair of changes to its management, promoting its chief financial officer to its board of directors and replacing him with the company’s senior vice president of corporate development.

Gabe Dalporto, who served as the LendingTree’s CFO since 2015 and who previously served as the company’s chief marketing officer from March 2011 to June 2015, was promoted to the company’s board of directors.

Replacing Dalporto as CFO will be J.D. Moriarty, who joined the company earlier this year as SVP of corporate development.

Fintech Robinhood chooses Orlando for regional headquarters, 200 jobs (Biz Journals), Rated: B

Stock-trading app Robinhood is joining the stampede of Bay Area fintechs heading to lower-cost cities to create jobs. Utah and Florida are among the big winners.

United Kingdom

RateSetter hires Dave Bibby to boost property lending in North of England (P2P Finance News), Rated: AAA

RATESETTER has hired high street banking veteran Dave Bibby (pictured) to join its specialist property development team.

The ‘big three’ peer-to-peer lender said that this was a newly created role and that Bibby would have responsibility for developing its property finance business across the North of England.

Bibby has more than 30 years of experience in the banking sector, having worked at NatWest and Santander.

Assetz Capital’s P2P lending platform gets FCA approval (Finextra), Rated: AAA

Today, Assetz Capital, one of the UK’s largest Peer-to-Peer platforms, announced it has received full authorisation from the UK regulator, the Financial Conduct Authority (FCA).

As the UK’s second largest peer-to-peer business and property lending platform, to date it has lent more than £316 million to businesses nationwide. Following its successful FCA application, Assetz Capital is now in the final stages of completing its work on its Innovative Finance ISA (IFISA), which will be ready for roll out in Q4 2017.

Full steam ahead! RateSetter backs Flying Scotsman restorer (P2P Finance News), Rated: A

RATESETTER has helped fuel a locomotive repair specialist best known for overhauling the famous Flying Scotsman.

Investors on the peer-to-peer platform have helped fund a £420,000 loan to restorer Riley and Son to help restructure existing debt and improve cashflow.

The company – one of only three in the UK able to carry out locomotive repair work on the scale of The Flying Scotsman – which is 70ft long, 13ft high and weighs around 10 tonnes – had been given 18 months’ notice to move premises.

Zopa vows to improve loan sale times (P2P Finance News), Rated: AAA

ZOPA has promised a “large change” to address investor concerns about the time it is taking to sell loans.

Investors have been complaining about loan sale times in recent weeks, with some on the P2P Independent Forum claiming it can take weeks to sell out.

The peer-to-peer consumer lending platform has now recognised there is an issue.

Peer to peer Isa fails to take off (Money Observer), Rated: A

Peer-to-peer Isas failed to gain much popularity in their first year, while the amount held in cash Isas fell by nearly £20 billion.

Just 2,000 Innovative Finance Isa accounts were opened in the tax year 2016/2017, according to the latest statistics from HMRC.

Across the 2,000 IF Isa accounts opened, £17 million worth was subscribed. The average subscription per account was £8,500 – about the same as the average stocks and shares Isa account subscription.

Overall, the amount held in Isas in 2016/17 fell to £61.5 billion, compared with £80 billion the previous tax year. This decline was largely driven by a steep fall in the amount held in cash Isas. In 2015/16, a total of £58.7 billion was held in cash Isas; in the latest tax year this fell by a third to £39 billion.Across the 2,000 IF Isa accounts opened, £17 million worth was subscribed. The average subscription per account was £8,500 – about the same as the average stocks and shares Isa account subscription.

How P2P lenders should counter “black box” accusations (AltFi), Rated: A

The UK’s peer-to-peer lenders are shifting towards passive investment strategies. Funding Circle, the leading online marketplace for small business loans, called a halt to manual loan selection at the end of August. Henceforth it will funnel customers into one of two passive investment accounts, with a view to generating more consistent returns for all of its investors.

The change has earned the platform a number of disgruntled investors. One investor, commenting on an AltFi article, called it “the last straw”. “I’ll be withdrawing all my funds from FC and placing them on more attractive P2P platforms,” he wrote.

Canaccord: P2P Global faces long road to recovery (Citywire), Rated: A

Investors in P2P Global Investments (P2P) are no longer being compensated for the risks they are taking, according to Canaccord.

Alan Brierley and Brian Newell, analysts at Canaccord, have downgraded the peer-to-peer lending trust from ‘hold’ to ‘sell’ because they expect returns will stay below the 6% to 8% target until the end of 2018.

Proptech startup Habito lands £18.5m to make mortgages digital (City A.M.), Rated: A

Atomico, the venture fund set up by Skype founder Niklas Zennstrom, led the £18.5m series B round with existing investors Ribbit Capital, Mosaic Ventures and Revolutionary (ad)Ventures also participating.

It brings total funding for the startup – which is also backed by the entrepreneurs behind Transferwise and Funding Circle Taavet Hinrikus and Samir Desai respectively – to £27.5m. City A.M. exclusively revealed its first major round of funding earlier this year.

Atomico, the venture fund set up by Skype founder Niklas Zennstrom, led the £18.5m series B round with existing investors Ribbit Capital, Mosaic Ventures and Revolutionary (ad)Ventures also participating.

It brings total funding for the startup – which is also backed by the entrepreneurs behind Transferwise and Funding Circle Taavet Hinrikus and Samir Desai respectively – to £27.5m. City A.M. exclusively revealed its first major round of funding earlier this year.

PayPal picks five FinTech startups for its year-long incubation program (The News Minute), Rated: A

Global online payments leader PayPal has inducted five new FinTech startups into its PayPal Incubator in Chennai.

The give startups to be selected are Finbox, Neoeyed, Paymatrix, Scalend and Tybo.

“In its 5th year, the PayPal Incubator has received an overwhelming response with over 250 applications from early stage FinTech startups – a 150% growth from last year, reflecting both the need for an incubation program, as well as the FinTech industry’s potential,” said Guru Bhat, GM Technology & Head of Engineering – PayPal.

How do you invest yours? The P2P platforms offering auto-bid or manual lending (P2P Finance News), Rated: A

FUNDING Circle’s upcoming shift away from manual lending will soon mean the three biggest peer-to-peer lenders in the UK only offer auto-bid options, but there is still plenty of choice for investors still looking to self-select their loans.

The manual versus auto-bid debate is important in P2P as it dictates the level of due diligence and diversification an investor will need to conduct.

P2P “unlikely to become primary lending source” (P2P Finance News), Rated: A

PEER-TO-PEER lending poses little threat to the traditional banking business model, new research claims.

A report by the Bank for International Settlements – an international financial institution owned by central banks – looks at ways in which fintech could change how mainstream lenders and regulators operate.

The report suggests this scenario, where P2P becomes a primary source of lending, is unlikely to become significant in the short to medium term.

Abundance made up majority of IFISAs in the last tax year (P2P Finance News), Rated: A

RENEWABLES and ethical investment peer-to-peer platform Abundance took the biggest slice of the Innovative Finance ISA (IFISA) market in the last tax year, figures show.

HMRC data last week revealed that 2,000 IFISAs had been opened in the first tax year of the scheme, with £17m subscriptions.

Now Abundance has revealed that its customers opened 1,436 IFISA accounts last year, equating to total investment of £10.5m.

P2P lenders insist Isa take-up will increase (FT Adviser), Rated: A

Peer-to-peer lenders have said the Innovative Finance Isa will prove much more popular this year as more providers enter the market.

Figures published yesterday (31 August) by HM Revenue & Customs revealed only 2,000 of this type of Isa had been openedin 2016 to 2017.

This compared to 2.5 million stocks and shares Isas and 8.4 million cash Isas during the same year.

Building trust by raising standards—a path to fair treatment of SMEs (Prospect Magazine), Rated: A

It is worth reminding ourselves what an important part SMEs play in the UK economy. At the start of 2016, there were approximately 5.5 million private sector businesses in the UK, of which 99.9% fell within the SME definition. These businesses employ 15.7 million people, accounting for 60% of all private sector employment in the UK.

The launch of the government portal, enabling SMEs declined by high street banks to be referred to an alternative lender, will hopefully help in terms of access, although the Treasury has commissioned an early review of bank referrals to the portal as usage has been lower than anticipated. Meanwhile, banks stand ready to lend and there are also many new lenders on the market—start ups, peer to peer platforms, crowdfunders, fintechs—offering innovative products, with a desire to provide finance for SMEs and encourage entrepreneurs.

New Developments Highlight Manchester As Buy To Let Hotspot (Residential Landlord), Rated: A

Manchester has been flagged as the UK’s new buy to let hotspot following a boost from new developments, according to the latest report from LendInvest.

Following the decline that has marred the buy to let sector in London, investors have been seeking a new location to turn to. Manchester has seen strong growth in both culture and economy, as well as through infrastructure. The report found that Manchester has the fastest rental growth in the UK, with rental prices up 7.53 per cent in the last year. The city is also ranked number one for rental yields in the UK, offering average returns of 6.11 per cent for landlords and buy to let investors.

Debt mess leaves innocent bystander struggling with system (Express), Rated: A

Now in her 70s and caring for her husband, she always has a lot on which is why she didn’t immediately scrutinise the name on a letter that arrived in July.

It turned out to be from agency Pastdue Credit Solutions chasing £588.60 on behalf of its client, payday lender Wonga.

While it detailed Ann’s address correctly, it named not her but a relative who had not lived there for over 20 years.

Ann’s ignorance about the laws governing credit and the way the sector operates led her to fear both for her relative and her home being blacklisted, so she decided to settle the account.

She adds: “They accept my money no problem, but have never explained how they got my address or the issue of any double payment.

SA lending platform Prodigy Finance chose London for ‘pro-business regulation’ (Ventureburn), Rated: B

Cape Town founder of multi-million dollar lending platform AlphaCode and a global investment bank.

So what if the banks leave? We’re the fintech capital (Property Week), Rated: B

I didn’t vote for Brexit. But is all this doom and gloom justified?

Traditional banks might be looking elsewhere today, but we only need to pay attention to office lettings to realise that London is already the place to be for tomorrow’s leaders.

In FinTechCity’s latest annual Fintech50 list, which profiles the European businesses that are transforming financial services, 31 of those listed are based in London.

China

China hits booming cryptocurrency market with coin fundraising ban (Reuters), Rated: AAA

China on Monday banned and deemed illegal the practice of raising funds through launches of token-based digital currencies.

Individuals and organizations that have completed ICO fundraisings should make arrangements to return funds, said a joint statement from the People’s Bank of China (PBOC), the securities and banking regulators and other government departments that was posted on the central bank’s website.

In total, $2.32 billion has been raised through ICOs, with $2.16 billion of that being raised since the start of 2017, according to cryptocurrency analysis website Cryptocompare.

By creating and issuing digital tokens, entrepreneurs can raise large sums quickly — sometimes hundreds of millions of dollars in minutes — with little or no regulatory oversight. But unlike traditional fundraising, token holders are generally not given any share in the particular project, nor any security.

China’s Internet Finance Association Issues ICO Warning (Coindesk), Rated: A

In a statement yesterday, the National Internet Finance Association of China warned that ICOs may be using misleading information as part of fundraising campaigns, urging investors to proceed with extreme caution. The group, which works with government agencies on regulatory matters, further stated its intention to toughen security measures.

What is the development of financial technology in the United States? Please see IDF from the front of the report. (Sohu), Rated: A

To promote the exchange of financial and technological fields between China and the United States, local time from August 23 to 24, by the Peking University Digital Finance Research Center (IDF) and the Shanghai New Financial Research Institute (SFI) organized by the US financial technology delegation , To San Francisco financial technology enterprises and regulatory agencies to visit and study.

Chinese Online Lender Fincera Changes Ticker to YUANF (Crowdfund Insider), Rated: B

Fincera Inc. has received FINRA approval to change its ticker symbol to “YUANF“.  Previously, the China based online lender had traded under “AUTCF”.

European Union

Klarna’s CEO: These two things will make or break a fintech startup (Business Insider), Rated: AAA

This week, as Sthlm Tech Fest gathered the Swedish tech elite under one roof, fintech stood out as a key theme. Recent breakthroughs by homegrown payment giants like iZettleKlarna and Bambora catalyzed a vivid discussion.

Izettle co-founder and CEO Jacob de Geer pointed towards key fintech trends: increased consolidation, lower startup valuations, and the importance of making money on other things than just payments.

This week, as Sthlm Tech Fest gathered the Swedish tech elite under one roof, fintech stood out as a key theme. Recent breakthroughs by homegrown payment giants like iZettleKlarna and Bambora catalyzed a vivid discussion.

Izettle co-founder and CEO Jacob de Geer pointed towards key fintech trends: increased consolidation, lower startup valuations, and the importance of making money on other things than just payments.

Small Businesses Fear Spike in Cost of Capital After Brexit (WSJ), Rated: A

Banks operating in the U.K. could face approximately €15 billion ($17.8 billion) in restructuring expenses, plus potentially another €40 billion in extra capital requirements, according to a study by Boston Consulting Group Inc. and Clifford Chance LLP. Some of these costs could be passed on to companies.

Small and medium-size enterprises are particularly exposed to higher charges, as they often rely on a single bank and lack contingency plans to deal with the fallout from the U.K.’s departure from the European Union. Firms with annual revenue of up to €10 million are defined as small businesses. Medium-size ones earn maximum revenue of €50 million, according to the EU Commission.

U.K. banks in June charged SMEs an average of 3.89% for an overdraft facility and 3.12% for a loan, according to the Bank of England. A year ago, the rates were 4.11% and 3.36%, respectively.

MiFID II: How It Will Impact FinTech’s Future (The Market Mogul), Rated: A

New legislation on the European financial markets, MiFID II, is expected to come into force on January 3rd 2018 and will impact Fintech’s future. Through regulating trading activities and enhancing investors protection, it will aid the creation of more transparent and robust financial markets. It will also extend the regulatory coverage to non-equity products, including cash and derivative instruments in fixed income, foreign exchange and commodities.

The amended directive will also apply to more industry stakeholders engaged in investment services, such as investment banks, portfolio managers, brokers and market makers.

International

International P2P Lending Volumes August 2017 (P2P-Banking), Rated: AAA

Milestones reached this month are:

  • Bondora reaches 100 million Euro in financed loans since launch
Source: P2P-Banking

*Prosper and Lending Club no longer publish origination data for the most recent month.

Lender of Last Resort (Handelsblatt Global), Rated: A

Kreditech has a controversial business model. The company’s 29-year-old chief executive Alexander Graubner-Müller spends a good deal of time explaining how the company rates clients and gives them credit.

Kreditech looks at potential borrowers’ Facebook friendships, among other factors, to score their credit. Based on that score, the company might offer them a loan – but in some cases with double-digit interest, which critics say is excessively high.

But that hasn’t kept Kreditech from securing the kind of high-caliber investors few German fintech firms can match. Besides World Bank’s IFC, the company counts US private equity firm J.C. Flowers among its backers, as well as Paypal founder and Donald Trump supporter Peter Thiel.

Payment services provider PayU, owned by the South African media conglomerate Naspers, spent €110 million ($129.9 million) on a roughly one-third stake.

Australia

Timelio Receives Investment from Anthony Thomson, founder of Atom Bank & Metro Bank (Crowdfund Insider), Rated: AAA

Timelio, an online invoice financing marketplace operating in Australia, has received the backing of Anthony Thomson – a leading Fintech entrepreneur who is founder and Chairman of Atom Bank and founder and former Chairman of Metro Bank. Atom Bank is a digital only platform that received a banking license in 2015 establishing itself as a “Branch-free, Paper-free and Stress-free Bank.” Specific details on the investment were not made available.

To date, Timelio has now funded over $100 million in invoices since platform launch, just over 2 years ago.

Picking your peer-to-peer platform provider to invest (The Australian), Rated: A

Disruption is not just happening to retail, hospitality and taxis. It’s also happening in financial services, especially banks, where borrowers and lenders are finding ways to engage, cutting traditional players out of the picture.

At best, in this scenario, both investors and borrowers can end up winning, with better lending rates and higher returns.

The lenders

Funds are available for personal commitments such as car and housing loans and refinancing existing debts as well as those seeking small business loans.

One of the largest companies in the market is SocietyOne. It offer consumer loans from $5000 up to $50,000 for up to five years with principal and interest repayments fortnightly or monthly. It also lends to the agricultural sector. SocietyOne does not pool loans like some industry rivals; rather investors can select individual loans in which to invest.

At RateSetter, supply and demand for products determine the rates of return. Minimum investment is just $10, for terms of 1 month out to five years.

ThinCats Australia deals in secured business loans for Australian companies. Lenders bid for amounts for fixed rate loans, with a minimum bid of $1000, the maximum being the value of the loan.

Fintech for pets and the rise of alternative business lending (Finder), Rated: B

New research from Businessloans.com.au has found that small businesses are embracing peer-to-peer lending, crowdfunding and online loans. However, while businesses are looking outside the traditional and applying with fintech lenders, not all SMEs are getting the loans they hope for.

Household payment platform easyshare last week ran a promotion for those house sharing in Sydney’s inner west. The first 100 share houses to sign up would be personally delivered a case of beer.

Good Money Microfinance Celebrates Five Years of Three-Way Partnership (Probono Australia), Rated: B

Not for profit Good Shepherd Microfinance says the fifth anniversary of its low or no-interest Good Money shops, now operating in three states, has proved the worth of the three-way partnership between business, community and government.

Since beginning as a pilot store in Victoria, Good Money has grown to seven Australian stores located in Victoria, South Australia and Queensland and is the result of a partnership between banking group NAB, state governments and community organisation Good Shepherd Microfinance.

Good Shepherd Microfinance CEO Adam Mooney told Pro Bono News the stores had provided more than 5,800 low or no-low interest loans to “vulnerable Australians” living on a low income.

Currambine school catches student’s hearing impairment (Community News), Rated: B

IT was not until moving to Perth a couple of years ago that Alyssa Cranston’s hearing impairment was discovered.

The initial test was expensive and the device costed $2500, compounded by the fact Mrs Cranston had been struggling with her own health issues and about the same time was told she needed hearing aids.

They decided their “last resort” was to take out a personal loan through SocietyOne, which uses marketplace lending that connects borrowers with private investors.

India

Company Name : Square Capital (Business Wire India), Rated: AAA

Square Capital, the digital lending arm of India’s largest real estate transaction platform Square Yards has underlined its market dominance by becoming the largest organized distributor of secured mortgages in the country. It is currently facilitating USD 30- 40Mn (INR 200cr – INR 260cr) of loan disbursals every month, contributed majorly by secured mortgages spread across 50+ banking partners for their different products in home loan, home against property and business loan.

Startup Street: An Incubator For Non-Profit Startups (Bloomberg Quint), Rated: A

An incubator for non-profit startups, backed by big names like MakeMyTrip founder Deep Kalra and Paytm chief Vijay Shekhar Sharma, has picked 10 early-stage startups for a six-month programme.

The applicants include non-profit startups by graduates from top institutions such as Harvard, Yale, Princeton, Stanford, Oxford, Indian Institutes of Technology and Indian Institutes of Management, the statement said.

Source: Bloomberg Quint

Banks lag in fintech, startup acquisitions will make them relevant (YourStory), Rated: AAA

It was early 2016 and Rajiv Anand, the Executive Director of Retail Banking at Axis Bank, was hard at work with his team to figure out the impact of the digital world on banking. Among the questions he asked his team was whether the present day consumers know how a bank would look in the future.

His team realised that the answers are not going to come from their bank, but from the people outside his company. Young people in urban centres are no longer going to be in a physical bank branch, but are going to be exploring the bank digitally.

One can say that in July 2017, the marriage between Axis Bank and startups was the best move that happened in the banking sector since a decade. Axis Bank’s acquisition of mobile wallet company FreeCharge for Rs 385 crore in an all-cash deal has taken that relationship further, quite possibly opening the doors to more such deals in the future.

Therefore Axis Banks’s first bunch of startups which are S2Pay, FintechLabs, Perpule, Pally, Paymatrix, and Gieom are indeed defining how banks should function in the future. Of these startups Pally, FintechLabs and Gieom have been selected for long-term engagements with the bank.

YES Bank has tied up with BankBazaar to showcase loan products, including personal loans, home loans, and car loans. The big daddy of them all, State Bank of India, whose balance sheet size is Rs 41 lakh crore, has also entered into the agreement with BankBazaar to display its home loan products on bankbazaar.com and initiate door-step delivery.

Mobile payments and loans startup ftcash too has launched Unified Payment Interface(UPI) for merchants in association with ICICI Bank.

Source: YourStory

9 Indian Startup News That You Don’t Want To Miss This Week (Inc42), Rated: A

WikiLeaks recently published a report claiming that the Central Intelligence Agency, the CIA, in its cyber spying efforts may have compromised Aadhaar data. The report alleges that the CIA is using tools devised by US-based technology provider Cross Match Technologies for cyber spying. However, the official sources have rubbished the reports.

A Mumbai-based firm, Global E-services, has reportedly dragged Amazon India to Bombay High Court over non-payment of rental dues.

After receiving backlash by the government-operated India Post over the unsanctioned use of the term ‘postcard’ Indian startup Paytm has rebranded its cash envelopes to lifafa.

DIPP has, for the first time, included a section dedicated to Indian startups.

Indian startup OYO announced the launch of OYO Asset Management Service. The service is geared towards building a nationwide network of hotels through a partnership with real estate asset owners.

Mumbai-based technology company Zeta has started partnering with banks to deploy solutions around BharatQR, Unified Payments Interface, and card payments to capitalise on the spurt in digital transactions for retail payments.

XSTOK PayLater card is a “Purchase Now, Pay Later” payment option enabled through a line of credit sanctioned to a buyer (member), for making purchases on XSTOK.com.

Fintech helps banks disburse more loans (ET Markets), Rated: A

Two years of fin tech driven reach has helped banks grow about 15 to 20 per cent indicating that banks’ dependence on `feet-on-street’ to campaign for loans may recede in a few years. Bankers said nearly a third of their customers below 30 years were on-boarded through the digital platform.

Reserve Bank of India data showed retail loans grew 15 per cent while overall banking credit grew 4.7 per cent on a year-on-year (YoY) basis. Personal loans grew the most at 35.7 per cent followed by credit card outstanding at over 32.5 per cent. Loans to weaker sections also grew over 11 per cent on a YoY basis.

Future of Fintech: India in 2050 (Busisiness World), Rated: A

If Fintech is such a big revolution, why not seize the opportunity? This is exactly what the emerging start-ups of India are doing and consequently, providing efficient and cheaper financial services with Paytm, Mobikwik, Freecharge, Bank Bazaar etc. leading the way and several others following in to test their Fintech ideas. To share some numbers, the first quarter of 2017 saw global investments in Fintech, to the tune of approximately $3 billion which includes a $1.4 billion investment in Indian giant- Paytm! PwC estimates that within the next 3-5 years, the total investment in Fintech would rise to a whopping $150 bn globally. Needless to say, the age of Fintech entrepreneurs is here to stay!

Let us now explore the Fintech ecosystem and the sectors in Fintech which will roll the next set of innovations!

  • Blockchains
  • Alternate lending- Traditional banking industry found it unprofitable to lend to small entrepreneurs. Fintech entrepreneurs took advantage of this opportunity by diving into Peer to peer (P2P) based lending and building web platforms to bring together the lenders and borrowers at lower interest rates.
  • Robo advisory- Earlier intermediaries played an important role between the stock market and the investors. Many times this led to non-traceable and inefficient transactions. Robo advisory will make the stock market easier to access, transparent and traceable and give more value addition to the smarter investors.
  • Digital payments- Fintech start-ups have increased the speed and convenience of payments. Mobile wallets have already replaced traditional wallets in a lot of places and will penetrate further with better and faster payment options.
  • Insurance sector- Currently, we can find various online market places where consumers can compare their insurance policies and take prudent decisions.

Indian online fintech startups ill-prepared to handle cyberattacks (Gadgets Now), Rated: A

Indian organisations rank quite low in cybersecuritypreparedness, with online fintech startups being the worst performer among them, a report said on Friday.

According to a report by Bengaluru-based cybersecurity startup FireCompass, the online fintech startups scored eight out of 100 as per security benchmark.

Most industries performed moderate, like telecom (61%), IT (52%), manufacturing (51%), insurance (45%) and small banks (43%).

Asia

Indonesian Online Lender UangTeman Raises $ 12m in Equity Funding for Consumer Loans (MicroCapital), Rated: A

UangTeman, an Indonesian firm offering online loans of up to USD 350, recently announced it has secured USD 12 million in Series A funding from Thailand’s K2 Venture Capital, US-based Draper Associates, Indonesia’s Alpha JWC Ventures, Malaysian angel investor Terrence Teong Chee Hooi and multiple unidentified local investors. Hong Kong-based STI Financial Group also lent the firm an undisclosed amount. UangTeman plans to invest a portion of the funding in research and development offices in India and Singapore.

Web operator offers loan refinancing (The Nation), Rated: A

BORROWERS are finding themselves with more options from a financial technology (fintech) startup that aims to secure loan refinancing business worth Bt3.4 billion in transaction value by the end of this year.

The operator, refinn.com, is looking to get 1,700 debtors on board to secure the year-end goal.

Latin America

Three Colombian Fintech Startups Chosen for Village Capital’s Latin American Accelerator Program (Finance Colombia), Rated: A

Three Colombian fintech startups have been selected to participate in an exclusive accelerator program coordinated by Washington-based venture capital firm Village Capital that will award a $75,000 USD investment to top-performing early-stage Latin American companies.

Payment platform ePayco, short-term loan provider RapiCredit, and tuition savings facilitator ESCALA Educación are the three Colombian companies that have been chosen to compete in the first ever regional “Village Capital FinTech – Latin America 2017” program.

Along with these finalists, eight other fintech startups from across Latin America were picked out of the nearly 100 companies that applied for the program, which is supported by PayPalCitibanamex, and BlackRock in addition to Village Capital.

Authors

George Popescu
Allen Taylor

Thursday February 9 2017, Daily News Digest

south korea p2p

News Comments Today’s main news: Huge spike in deposits after Lending Works launches IFISA. Public-private partnership forms Online Lending Policy Institute. Today’s main analysis: How private debt/alternative credit boosts income, risk-adjusted returns. Today’s thought-provoking articles: What roll-back of Dodd-Frank means for MPL. An end to P2P wholesale lending. BondMason calls for end to provision funds. United States Private-public […]

south korea p2p

News Comments

United States

  • Private-public partnership forms OLPI. AT: “This is an interesting approach to dialogue concerning MPL innovation, regulation, and growth. Where the Marketplace Lending Association exists primarily for the benefit of lenders, the OLPI seems to have its focus on consumers. Both attempt to influence public policy, but they different paths.”
  • What rollback of Dodd-Frank means for MPL. AT: “I completely agree that regulation legitimizes the industry, but I am concerned that over-regulation can kill innovation. On the other hand, there is a real danger that protectionist policies can lead to banks reverting back to risky lending practices, hurting consumers, and making it difficult for marketplace lenders to compete. I hope we can strike a fine balance that encourages innovation, fosters competition, and provides more options for consumers.”
  • Zoot Enterprises XOR Data Exchange partner on risk mitigation.

United Kingdom

European Union

China

Asia

News Summary

United States

Unique Public and Private Partnership Forms Online Lending Policy Institute (Yahoo! Finance), Rated: AAA

The Online Lending Policy Institute (OLPI) today announced its formation and the appointment of its first Executive Director, Professor Cornelius Hurley. OLPI will provide a one-stop resource for those interested in Fintech generally and marketplace lending specifically. The OLPI will provide research and education to ensure informed policy and best practices.

The OLPI provides policy analysis, in-depth research, broad educational initiatives (like the successful MPL Policy Summit), and relevant and engaged thought leadership to foster responsible growth of online lending (providing a strong bridge between established financial services and technology knowledge). To that end, the OLPI convenes various stakeholders, facilitates industry consensus, and encourages the development of a regulatory framework that protects borrowers while promoting innovation.

Key activities of the OLPI will include:

  • Substantive research that affects the online lending industry
  • Publishing white papers, studies, and reports
  • Engaging policy makers and industry stakeholders in the creation of forward-thinking public policy
  • Commissioning studies to ensure policymakers and those studying the industry have accurate data to rely on
  • Hosting the annual MPL Policy Summit to share, educate, and exchange ideas
  • Acting as the one-stop solution for all who seek to understand legal and regulatory landscape of online lending
  • Providing the tools necessary to ensure responsible innovation in Fintech– OLPI will be a valuable research resource for the various associations that have already formed to advocate for Fintech

To reach its goals, the OLPI knew it was important to be led by an expert in financial services thought leadership that has built a reputation of integrity and innovation with the banking community at large. The OLPI is pleased to announce the appointment of Professor Cornelius Hurley as the first Executive Director of the Institute. Professor Hurley brings more than 35 years of diversified legal, entrepreneurial, and academic experience in the financial sector.

OLPI’s growing roster of members includes founding members Cross River Bank, Boston University’s Center for Finance, Law & Policy, and RocketLoans, among others. OLPI will announce its broader membership, including many leading industry players at LendIt 2017, where OLPI will host a day of legal and regulatory panels.

What Trump’s Rollback of Dodd-Frank Means for Marketplace Lending (Forbes), Rated: AAA

For marketplace lenders, the industry has matured despite a relative lack of federal regulation and uniformity. While it has thrived due to reduced oversight from lending authorities, a wave of deregulation in Washington could be a curse rather than a blessing as it can further erode the legitimacy fintech pioneers have started to garner since the great recession.

While reactionary regulations can hinder economic recovery, Dodd-Frank was structured in a way that made enacting new rules a heavily vetted process.

Bank lending has increased at a rate of 6 percent a year since 2013, reaching a record high of $9.1 trillion in commercial loans in 2016 and JPMorgan increased core loans more than 10 percent across all categories. If the banking sector has struggled under Dodd-Frank, it hasn’t curtailed profits.

Dodd-Frank has made it much more difficult for consumers to gain access to mortgages and other loan products and raised some costs, in turn affecting profitability, particularly among smaller community banks.

Regulation For Marketplace Lenders Creates Legitimacy

Without smart regulation, fintech companies will continue to be at a disadvantage when compared to brick and mortar counterparts, making it more difficult for a still-developing industry to establish itself as a legitimate entity.

Disruptive innovation can often flourish in this vacuum, but there’s a cost. Without the legitimacy that regulation offers, marketplace lending could struggle to be taken seriously as a direct competitor of the established banking system.

The danger lies in overregulation, but we are a long way from that.

Zoot Enterprises, XOR Data Exchange Partner For Risk Mitigation (PR Newswire), Rated: A

Zoot Enterprises has announced that it has formalized an agreement with XOR Data Exchange to provide Zoot clients access to multi-industry data predictive of identity theft and fraud risk. With the rise in online fraud, clients rely on Zoot to identify new ways to support their business strategy and quickly react to new fraud trends.

The partnership will bring a wider variety of predictive data sets and analytics to institutions that rely on Zoot for their platform needs across a wide variety of industries including financial services, merchant services, telecom, insurance, and healthcare. By sharing data through XOR, businesses are reducing credit and fraud losses, while providing additional insight into fraud rings that may target several different industries and establishing the creditworthiness of businesses that may not be identified using traditional providers.

United Kingdom

Huge Spike in Deposits Reported After Lending Works IFISA Launched (P2P-Banking), Rated: AAA

Lending Works CEO Matthew Powells reported an influx of more than 500K GBP deposits within 3 hours after launching the Lending Works Innovative Finance ISA (IFISA). Lending Works’ IFISA product offers 4% (up to 3 years) or 4.7% (up to 5 years term) tax-free for investments on the p2p lending marketplace.

A recent survey of Lending Works’ existing investors found that 88% plan to open an IFISA, with around a third expecting to invest between 10,000 GBP and the maximum threshold of 15,240 GBP of their annual ISA allowance into the IFISA before the end of the tax year in April.

First major peer-to-peer Isa becomes available, offering up to 4.7pc tax-free (The Telegraph), Rated: AAA

Lending Works has become the first large peer-to-peer company to offer an “innovative finance Isa”, beating several better-known rival lenders to the launch.

The new Isas will offer the same rates and terms as Lending Works’ existing accounts. Investors can lend over a three or five-year period. Three-year loans attract interest of 4pc and five-year loans earn 4.7pc. 

Of these only three have launched an Isa. The companies, Abundance, CrowdStacker and Crowd2Fund have lent out less than £100m between them in total.

An end to the nascent P2P wholesale lending market (Financial Times), Rated: AAA

Last weekend, the Mail on Sunday reported that lending money to businesses that in turn lend that money on — aka wholesale lending — is something the regulator reckons doesn’t count as P2P lending. According to the Mail, the FCA thinks P2P lenders doing this “would mimic banking – but without the same protection for individuals or regulations for the firms involved”.

Good news for fans of clarity. Less good news for fans of Ratesetter, a leading P2P lender with a boundary blurring business model and a wholesale lending operation that has historically made up around 15 per cent of its loan originations, as we showed in March last year.

The FCA’s views on wholesale lending in the P2P sector are not entirely clear. One advisor to P2P lenders said “different platforms have been getting different messages”, but suggested the practice might raise the question of whether deposit taking was going on. As they explained it, a lending business borrowing from a P2P lender would, in effect, be borrowing money from ordinary people for the purposes of lending it on, which is not a million miles away from what a bank does. In short, the P2P lender might be viewed as a channel for attracting deposits.

P2P investing firm calls for end to provision funds (P2P Finance News), Rated: AAA

PEER-TO-PEER lenders should not use provision funds, a P2P investment manager has argued in a new report.

BondMason claims the funds, used by platforms such as Zopa and RateSetter, are just a tool to attract lenders.

The investment firm, which aims to get clients a seven per cent return by selecting P2P loans across approved platforms on their behalf, argues that provision funds “do little (nothing) to improve returns for well-diversified investors.”

Looking at the wider market, the BondMason report found lending in the P2P market grew by 39 per cent in 2016 to £3.2bn but warned that this was down from the annual growth of 91 per cent between 2014 and 2015.

19 laptops containing customer information have been stolen from fintech company GoCardless (Business Insider), Rated: A

Fintech business GoCardless is offering some customers free credit monitoring for a year after admitting 19 laptops containing personal information were stolen from its offices.

The stolen laptops contained personal data on an unspecified number of customers, such as email addresses, passport numbers, dates of birth, and names, according to The Register, which first reported the theft. Importantly, no financial data was held on the laptops.

LendInvest unveils refurbishment product (Mortgage Introducer), Rated: A

LendInvest has launched a refurbishment product with interest between 0.92% and 1.1% per month which is rolled up and paid at the end of the term.

The loan is based on gross development value, not loan-to-value – and is available up to 70% GDV.

Customers can take out loans between £100,000 and £2m for terms up to 18 months.

Peer to Peer Lending on “Right Path” as Wealth Managers Seek Quality Investments (Crowdfund Insider), Rate: A

BondMason has published its Market Report 2017 reviewing the trends in the UK peer to peer lending market.  BondMason is a platform that provides investors a method to diversify their investments across many P2P lending platforms.

According to BondMason’s research, P2P lending is beginning to see a flight to quality as the industry matures and weaker platforms exit the market. BondMason’s numbers indicate that the UK direct lending market totaled £3.2 billion of lending in 2016. This is an increase of 39% versus 2015 but a drop in growth as the industry grew by 91% from 2014 to 2015.

BondMason believes there is significant room for growth of the online lending sector. While P2P lending accounted for £3.2 billion during 2016, the total addressable market is between £100 to £120 billion in the UK.

NatWest to offer online investment fund service and ‘robo-advice’ (Financial Times), Rated: B

NatWest is unveiling a service for customers to access investment funds online through the bank for the first time, ahead of plans to launch a “robo-advice” service later this year.

The service, called NatWest Invest launches later this month and will allow bank customers who do not wish to pay for financial advice to choose their own funds and invest with a minimum of £500.

Other banks in the UK are planning to follow suit by offering robo-advice. Santander is among the lenders in the process of developing an automated advice service and has invested in robo-adviser provider SigFig.

FinTech Monthly (Tech City News), Rated: B

Monese, an online banking app, raised a $10m Series A round. The app enables non-native citizens to open a UK bank account.

Seedcamp sold part of its stake in money transfer startup TransferWise. This news came shortly after it was reported that US giant Andreessen Horowitz increased its investment in the London-based startup.

And finally, Mastercard has launched a mobile marketplace for East Africa’s agricultural sector. The digital platform, called 2KUZE, meaning ‘let’s grow together’ in Swahili, will enable farmers to buy, sell and receive payments for agricultural goods via their phones.

European Union

How Private Debt/Alternative Credit Boosts Income and Risk-Adjusted Returns (LinkedIn), Rated: AAA

Quantitative easing has caused a significant distortion of asset prices and market dynamics. It has had an enormous impact on the price of most publicly-traded liquid assets, causing yields to drop below a level any return can historically justify. In this context, investors are looking for alternative solutions and private markets offer significant investment opportunities and value enhancement.

Alternative Investments and Alternative Credit have asset solutions that are very different from each other with very dissimilar drivers. Understanding these asset classes requires specialization and expertise. For example, in banks, sub-asset classes such as shipping, trade and commodity finance, infrastructure finance, leverage loans, and leasing are executed by specialized departments and treated as asset classes on their own merits.

Firstly, the active asset managers and institutional investors are providing the alternative sources of credit either directly or through their clients. This began the growth of a credit market along with the traditional bank lending in some sectors. The shrinking balance sheets of banks presented a tremendous opportunity for investors who were jolted by traditional fixed-income securities and needed options for diversification and higher yields.

Secondly, many new so-called Fintech companies in Alternative Lending have entered the market and established business models which are challenging the traditional status quo. They are still small in size in comparison with incumbent players; however, their business model is addressing many current challenges in the financial sector (inefficiency, information asymmetry, maturity transformation).

The increasing participation of the institutional investor market and new platforms are likely to bring more transparency regarding the actual return contribution of different asset classes in the future.

How Does Alternative Credit Enhance Risk-Adjusted Return and Income?

Currently, most liquid fully “institutionalized” asset classes do not offer the appropriate balance between risk and return. Monetary interventions themselves over the past few years have caused a positive return  on the most liquid public assets solely as a result of artificial demand pressure.

Contrary to public traditional fixed-income markets, Alternative Credit offers a private pricing differential (PPD) of 0.5% to 5% over the fixed income market, which is an attractive level.

In these uncertain times, Alternative Credit offers a plausible answer: “Going for the safest part in the capital structure and going for shorter tenors.”

  • Credit investments currently the highest safety in capital structure.
  • Alternative Credit can enable exposure for shorter tenors to self-liquidating assets (trade finance, factoring, supply chain finance).
  • Alternative Credit offers a floating rate exposure.

The best feature of Alternative Credit is its due diligence.

Alternative Credit offers portfolio construction opportunities to diversify other asset classes traditionally owned by banks (not mark to market) and segments that are not yet on the public market’s radar.

As equities became too volatile after the financial crisis of 2008, Private Debt became a surrogate for high-yield bonds. In addition, there was a contraction of more than 70% in the AAA-rated bonds and many of them lost their triple-A status (Preqin, 2014). This provided the cornerstone for the development of Alternative Credit, which enhanced the return of the portfolios by offering a combination of higher rates of return and lower risk.

Alternative Credit has already become the cornerstone of investments in many institutional portfolios and has become a regular source of income. It can be concluded that Alternative Credit is the new form of asset class that is expanding quite rapidly, in part due to the shortage of credit created by the credit crisis.

What drives the success of crowdfunding campaigns? (Invesdor), Rated: A

The first article, titled “Success drivers of online equity crowdfunding campaigns” addresses the research question that Andrea so aptly formulated. The question is highly relevant, as a large part of crowdfunding campaigns – both on Invesdor and on other platforms – have not reached their funding targets. Could something be done to increase the probability of a campaign succeeding?

Based on sixty campaigns that had been conducted via Invesdor, we found the following:

1.  Campaign characteristics that are pre-determined by the target company – with assistance from Invesdor – are relevant in determining the campaign’s success:

  • The lower the minimum investment requirement, the more investors and funds a campaign can be expected to attract.
  • Campaign duration is negatively associated with the number of investors.
  • Higher funding targets seem to attract larger numbers of investors.
  • The availability of financials in the pitch is positively associated with the number of investors.

2. The use of the entrepreneur’s (and Invesdor’s) networks is important for campaign success.

  • The more money the target company can raise through its and Invesdor’s private networks during the hidden phase, the more investors and more funds it is likely to attract in total.
  • Posting the campaign on social media is a strong predictor of success.

3. The understandability of the target company’s products may play a role in success

  • The results indicate that companies that offer consumer products, rather than products targeted to other businesses, may be more likely to conduct successful campaigns.

The results presented here are based on an aggregate assessment of campaigns and investments.

Fellow Finance Group 1 January – 31 December 2016 (Fellow Finance), Rated: B

2016 was a year of rapid growth for Fellow Finance. The number of platform users grew 220% and the total amount of intermediated consumer and business loans in Finland and Poland was above 50 million euros. This growth resulted in the overall loan volume exceeding 90 million euros which strengthened Fellow Finance’s position as the leader of the crowdfunding platforms in the Nordic countries and with 4,3% market share in continental Europe (source: Liberum Altfi Index). In Finland, Fellow Finance’s market share was over 30% of the whole crowdfunding market (source: Ministry of Finance of Finland). The average of annual yield for investors was 11%.

China

Hong Kong government dismisses report ranking city 5th for fintech (South China Morning Post), Rated: AAA

The government has dismissed a research report ranking Hong Kong only fifth last year among leading fintech hubs, saying the study did not directly compare financial technology development but rather financial and business environments as a whole.

During a Legislative Council meeting on Wednesday, finance sector legislator Chan Chun-ying asked the government why Hong Kong ranked three spots behind rival Singapore – which ranked second – in the report by global accounting firm Deloitte.

Banks should embrace fintech boom (The Straits Times), Rated: A

Fintech complements rather than threatens banking institutions. In my experience, banking has always been about technology, so today’s fintech innovation boom represents evolution rather than revolution for traditional banking. It is supplementing and diversifying the existing financial system – not replacing or disrupting it.

If we look closely, fintech is currently only focusing on a mere fraction of the financial services spectrum. To date, much of the focus of fintech has been on retail banking services – lending and financing along with payments-related products and services, where mobile and e-commerce has led to real demand from consumers.

Similarly, peer-to-peer lenders appear to be more focused on small businesses and higher-credit-risk borrowers than on mainstream banked clients.

Asia

Korean government to tighten watch over P2P lending (Pulse), Rated: AAA

From the second quarter, the government plans to toughen watch and scrutiny on peer-to-peer (P2P) lending service in burgeoning demand in South Korea.

Currently, moneylenders with assets worth at least 12 billion won ($10 million) fall under the broad state regulation. Smaller lenders can run money business upon registering with local governments.

Under a new act that would go into effect in the second quarter, small lenders also would have to comply with state regulation and watch.

Kelvin Teo erases borders with an online lending platform (Asian Review), Rated: A

In January last year, Riza Fansuri was in a quandary. The 37-year-old, who runs a small food supplier in a Jakarta suburb, wanted to develop new products, but that would take money. He tried applying for loans at banks, but they all turned him down because he could not provide sufficient collateral.

Desperate for help, he turned to a website for peer-to-peer lending, a method of debt financing that allows individuals to lend and borrow money directly from each other online instead of borrowing from banks. Half in doubt, he applied for a loan, and a week later, he managed to secure the 100 million rupiah ($7,485) needed to carry out his plan. His company successfully created two new products — instant ice cream and pudding mixes — that now account for 40% of its sales.

The website Fansuri used is run by Funding Societies, a fintech startup that operates in Indonesia, Singapore and soon in Malaysia. The company was founded by Kelvin Teo, a graduate from Harvard Business School, and Reynold Wijaya, an Indonesian classmate from the school. In less than two years, the company has arranged more than 360 loans worth a total of $19 million.

Authors:

George Popescu
Allen Taylor