- Today’s big news is Lending Club’s 1st securitization. We have a long article from PeerIQ on the subject. Very interesting. To be noted that the analysis is made of bits and pieces, very few of which can be found in the public domain. We wish there was more transparency.
- In the international section I recommend reading the article about Chinese private banks. A very interesting new trend I was not aware of and which could impact the Chinese economy significantly.
- Lending Club’s first securitization. An in-depth analysis from PeerIQ. It appears the securitization saw more demand than expected which supported the prices going up. The interesting part, which we will never know most likely, is if Lending Club was forced to do this securitization no matter what due to lack of capital or if it was made by choice. In all cases, a must read.
- Kroll rating agency opts out of rating Lending Club’s securitization (as mentioned in the article above). A quick insight from an anonymous source about why. We don’t think it is a valid reason to opt out in fact.
- An article from Orchard with good charts showing how yield may be a good enough reason to invest in marketplace lending in a diversified way. Probably a fair statement.
- Equity investments in 2016 down 44% year over year. No news here. Everything that goes up has to come down at some point. The 2015 record will probably be beaten in 2022 on a 7-year cycle.
- A PE firm which has been investing in “fintech” for 20 years, explains why they are staying away from online lenders. Most because they want to see more track record and proven business plans. A very expected attitude from a PE firm. Please note the difference between PE capital and VC capital they seek different risk to reward ratios.
- A very interesting article of charts showing what customers think of banking, and the customer’s effect on banks.
- And an article emphasizing Kabbage’s mobile platform, which enables the entire process from lead to funding in minutes. We covered Kabbage’s mobile platform when it was launched on July 14th 2016. I really beleive it is a good step and a true innovation as long as the user experience is good.
- Unsurprisingly high net worth capital is looking to diversify and selling the UK to buy other geographies. I expect p2p lenders in the UK will see a reduction in lending capital due to this.
- The platforms named “Orchard Lending Club” , I am not making this up, offers guarantee to buy back at par loans from p2p investors if they default. I wonder why they couldn’t name the platform “Orchard Lending Club Prosper Zopa” , was it taken ? And more importantly, I fail to see how this business model is different than RateSetter’s except that it is via a separate entity. The guarantee is only as good as the guarantor’s strength.
- The rise of Mexican FinTech. I believe Mexican entrepreneurs are extremely inventive and the Mexican financial market is very different from the US. It is a very interesting market and US companies have no issues finding good talent to cover the Mexican market. I certainly understand why the Mexican fintech market is heating up. Worth a read.
- 12 private banks are being approved in China. A very interesting trend. Private banks will also focus on fintech innovation apparently. A very new move for the Chinese economy which will probably impact the entire economy. Investors will prefer to invest with a bank, if the bank starts competing with wealth management, p2p or any other market.
- And a reminder that Alipay is getting so big that it starts competing with UnionPay.
- News Comments
- United States
- Lending Club’s first securitization, (PeerIQ), Rated: AAA
- Kroll Opts Out of Lending Club Gig, (Peer IQ Newsletter), Rated: AAA
- Online Lending: High-Yield Investing for a Low-Yield World, (Orchard Platform), Rated: AAA
- Investments in online lenders fall 44 percent, (Daily Times), Rated: AAA
- PE Firm’s Rules: Invest in Experience, Be Wary of Online Lenders, (American Banker), Rated: AAA
- 4 charts that show how banking customers are changing, (Tradestreaming), Rated: AAA
- Kabbage’s New Mobile App Reinforces Transition From Fintech To ‘Techfin’, (Forbes), Rated: A
- United Kingdom
- Wealthy investors to reduce UK exposure following Brexit vote, (Press Release), Rated: A
- New platform offers repayment “guarantee”, (Alt Fi News), Rated: AAA
- The rise and rise of Mexican fintech, (Tech Crunch), Rated: A
- Aspiring private banks have focus on fintech, (China Daily), Rated: AAA
- Ant’s Alipay challenges China Unionpay’s dominance, (Financial Times), Rated: A
Lending Club’s first securitization, (PeerIQ), Rated: AAA
This week marks the first securitization of LendingClub near-prime loans. The deal is riding the wake of successful issuance and spread compression as evidenced from SoFi and Marlette. It also marks the appearance of a LendingClub branded shelf—LendingClub Issuance Trust (LCIT), suggesting a broader trend of tapping into the ABS markets and a pattern of repeat issuance among MPL originators.
LCIT 2016-NP1 was not rated (bucking a trend of 10 consecutive rated MPL deals), and thus, raises the diligence requirements for institutional investors. Here, we construct the foregoing analysis with publicly available data.
LCIT 2016-NP1 is sponsored by Jefferies and backed by about $135 million of LendingClub (LC) near-prime loans. Reports indicate that the average credit score of the collateral pool is about 640. The deal collateral has a weighted-average coupon of 28.5%.
Kroll Opts Out of Lending Club Gig, (Peer IQ Newsletter), Rated: AAA
Kroll has backed out of an assignement to rate a long-delayed securitization of Lending Club personal loans. While there is no official word on the reasons for Kroll’s withdrawal, one source said it might have wanted more credit enhancement than the issuer wa willing to supply. Bloomerg peggged the enhancement at 35.5%, ahtough it’s unclear what form the cushion takes.
In any case, the move created something of a buzz among industry professionals, who are used to seeing Kroll’s grades on such transactions.
The offering is tthe first from a shelf entity called Lending Club Issuance Trust. It’s unclear if Jefferies bought the underlying loans and is acting as the issuer, as would be typical for a marketplace-loan deal, or if Lending Club itself is pulling the collateral from its own portofolio.
Online Lending: High-Yield Investing for a Low-Yield World, (Orchard Platform), Rated: AAA
In the graphs below, we see the yield on U.S. treasury notes of various duration since 1990, as well as a close-up on yields since the beginning of 2016. As we can see, we are in the midst of a prolonged low-rate environment, and the events of the past 2 weeks have caused yields to fall even lower.
Providers of online consumer loans, LendingClub and Prosper, rates range from a low of above 5% to a high of over 30%, rank-ordering by the risk of the borrower as measured by the originator-assigned credit ratings.
If loans perform as expected, there is ample spread between expected interest income and expected loss.
The Orchard US Consumer Online Lending Index measures the aggregate investor-experienced return of loans originated by major online lenders in the U.S. The index aims to track the cash-on-cash returns that would be experienced by an investor buying a dollar-weighted slice of all outstanding loans. As we can see in the graph below, the Orchard Index exhibits solid performance over a multi-year period. Particularly when compared to traditionally-popular equity and fixed-income indexes, online consumer loans stand out for their ability to achieve solid returns with relatively low volatility.
Investments in online lenders fall 44 percent, (Daily Times), Rated: AAA
Equity investments into online lending companies is down about 44 percent, to $2.1 billion from $3.8 billion, for the first half of the year compared to the back half of last year, according to a report out Friday from PitchBook Data Inc, a venture capital database that tracks deals and valuations.
PE Firm’s Rules: Invest in Experience, Be Wary of Online Lenders, (American Banker), Rated: AAA
In evaluating investment opportunities in fintech, the private equity firm GTCR, where Roche is a managing director, has largely steered clear of marketplace lenders because most, he said, have yet to prove themselves.
The firm is also a big believer in experience, so GTCR will only invest in companies that have competent management with proven track records. For instance, last month GTCR announced it was pairing with Scott Happ, a veteran in the mortgage technology industry, to buy Optimal Blue Holdings, a cloud-based product and pricing engine provider that processes nearly a quarter of the mortgages originated in the U.S.
There are vertical opportunities in banking, insurance or what we are doing in the mortgage industry with Optimal Blue. But there are also a lot of horizontal opportunities. Compliance is a big area of focus. People tend to think of compliance as a regulatory issue, but it is so much broader.
We’re a bit skeptical about marketplace lending. Every once in a while there is some hubris out of Silicon Valley that this new thing will change the world and then it blows up. Some of it survives, but there is going to be an adjustment. We are more inclined to wait and see how far it falls and then look to invest once the business models prove themselves, have more discipline and rigor and are more time-tested.
4 charts that show how banking customers are changing, (Tradestreaming), Rated: AAA
Kabbage’s New Mobile App Reinforces Transition From Fintech To ‘Techfin’, (Forbes), Rated: A
Kabbage had an app for portions of lending management before, this is the first time they have enabled the entire process from application through qualification and funding in the app. And, Frohwein claims the entire process can lead to funding in just minutes.
When asked how this app is different from other online lending companies like OnDeck Capital and LendingTree, he points out that only Kabbage handles everything—including origination and underwriting or approvals—in an automated fashion. Kabbage competitors have a human intervene at some stage in the approval…and that’s where the waiting comes in. This is where the promise of speed pays off for Kabbage and entrepreneurs.
Wealthy investors to reduce UK exposure following Brexit vote, (Press Release), Rated: A
69 per cent of high net worth individuals are now looking to ‘rebalance and diversify’ their investment portfolios in order to reduce their exposure to UK-based assets in the wake of the Brexit vote, a global poll reveals.
770 people with investable assets of 1.3m USD or more from countries including the U.S., the UK, Australia, the United Arab Emirates, Qatar, Hong Kong, South Africa and Switzerland were surveyed in July 2016.
New platform offers repayment “guarantee”, (Alt Fi News), Rated: AAA
Orchard Lending Club (OLC) has been spun out of the AIM-listed Orchard Funding Group PLC, which has a market cap of £22.74m. The relationship between the two entities is instrumental to the P2P offering. The parent company will act to “guarantee” the repayment of investor capital, even in the instance of borrower default. OLC sees this as a key selling point for the platform, stating that “no other peer-to-peer lender in the world offers a similar guarantee”.
A company spokesperson tells AltFi that every defaulted loan will be bought back at par, meaning that investors will not lose principal, although they may miss out on interest payments.
OLC says that it specialises in “heavily-regulated” industries that are historically “unlikely” to default.
Ravi Takhar (pictured above), CEO of Orchard Funding plc, offered his take: “Professional practice and schools financing is a historically safe lending market. In the last 16 years, our group has lent over £600 million to professional practices, schools and their clients and has had zero defaults. We are hoping that this, coupled with the potential returns and ease of access will make this an attractive prospect for investors.”
Investors in the platform are able to choose between receiving interest in monthly instalments or on maturity. The minimum investment amount is £100, with terms of 1-5 years available. Interest rates vary by term, from 4% over 12 months to 7.08% over 5 years. OLC will spread investor funds across the entire loan book, meaning that investors are not required to pick and choose between loans.
The rise and rise of Mexican fintech, (Tech Crunch), Rated: A
Since the start of the Mexican tech wave in 2012, a new breed of experienced, tech-savvy and take-no-prisoners founders have emerged and are changing the face of the entrepreneurial ecosystem.
Fintech, in particular, has attracted some of the best; from entrepreneurs with experience in Silicon Valley tech companies such as Adolfo Babatz (PayClip) from PayPal or Adalberto Flores (Kueski) from Ooyala, to others bringing in relevant sector expertise like quant jockDavid Arana (Konfio), P2P pioneer Gerardo Obregon (Prestadero), legal juggernaut Marc Segura (Play Business) and adtech star Pablo Hernandez O’Hagan (Pago Facil), to the ones who have started or scaled financial services businesses, such as hedge fund intrapreneur Fernando Ramos (Briq), and microfinance entrepreneurs Fernando de Obeso (Salud Fácil) and Vicente Fenoll (Kubo) and pawn shop impresario Luis Creel (Cohete).
To complement homegrown talent, Mexico is lucky to welcome entrepreneurs like former AMEX executive Alejandro Constantino (Afluenta) from Argentina, former PlaNet Finance COO Christian Sinobas (KiWi) from Switzerland, serial tech entrepreneurs Ruben Sanchez Souza (Visor) from Brazil and Fernando Cabello from Spain (Aplazame) and former financial sector regulator Daniel Rojas (Rocket) from Colombia.
Mexico represents one of the largest consumer markets in the world, with an emerging middle-class paired with a growing service and manufacturing economy. Against this backdrop, the financial services industry is full of contrasts: Large, nimble banks and financial institutions thrive in a country with abysmal credit penetration, low financial inclusion and scary fraud levels.
Any fintech development relies on a network of pipes, connectors, valves and adapters for data and money to move through an economy. Mexican government, banks and financial companies have been investing in technology and infrastructure since the 1990s. Companies such as BBVA, Citibank, BlackRock, American Express, VISA and Western Union have dynamic Mexican divisions with broad coverage. Today, more than half of internet users bank online and microcredit institutions have fostered a better environment for financial inclusion by creating a culture of credit in micro-business owners.
Despite all the progress in the Mexican entrepreneurial ecosystem, angel investing is still badly lacking. However, a rare bright spot is in the financial services sectors. For example, angel investors have carried most of the financial burden for launching Resuelve tu Deuda,KiWi, Prestadero, Cohete and OpenPay. Indeed, seasoned former and current financiers are participating as angel investors, including Augusto Alvarez, Fernando Padilla, Jorge Ortiz, Fernando Lelo de Larrea and Javier Creel.
But not everything in the garden is rosy. Mexico’s financial regulation was not designed for fast-paced innovation. Despite all the goodwill shown by the government, the money is still not in the bank when it comes to regulation.
Aspiring private banks have focus on fintech, (China Daily), Rated: AAA
China will soon kick off the second round of awarding licenses for private banks. Five privatebanks had opened for business in 2015.
Regulators have completed their feasibility study for setting up a private bank in Fujian, aprovince on the southeast coast of China, according to the China Banking RegulatoryCommission’s Fujian Office.
With a registered capital of 3 billion yuan ($450 million), the bank will position itself as a financialtechnology company and seek to build the core business framework around financial technology,innovative payment solutions and supply chain finance.
Twelve private banks are half way through the process of obtaining the necessary approvals. Theregulator’s decision is awaited.
Xiao Ying, deputy director-general of the CBRC’s Beijing Office, said in June, “Regulators aresteadily pushing forward … a private bank in Zhongguancun, a technology hub in Beijing. Morethan 10 private companies have been initially confirmed as sponsors of the bank.”
Ant’s Alipay challenges China Unionpay’s dominance, (Financial Times), Rated: A
Alipay, the online payments unit of Ant Financial, bypasses Unionpay’s network when processing mobile payments to offline merchants like supermarkets, restaurants, and taxis, Eric Jing told the Financial Times in an interview. That means Alipay is effectively diverting billions in fees away from Unionpay, which processes debit and credit card payments.
Merchant fees in China range from 1.5 per cent to 2.5 per cent, compared with between 2.5 per cent and 3.5 per cent in the US, according to Mr Jing.
“We think merchant fees in the US payments market are too high, and it’s not normal. Running a business isn’t easy [for merchants]. The fees are too high,” said Mr Jing. “The situation in the Chinese market is more normal. Merchant fees are reasonable. Competition between different [payment] market actors is a good thing. It allows service recipients to enjoy better service.
Foreign payment processors like Visa and MasterCard have struggled to gain a foothold in China due to the dominance of Unionpay.
But Alipay, which was spun off from online retailer Alibaba Group in a controversial transaction in 2011, now has powerful backers of its own. In April, Ant Financial raised $4.5bn from an investor group including sovereign-wealth fund China Investment Corp, the national social security fund, and China Construction Bank, the country’s second-largest lender.