According to a Bloomberg article, China houses the biggest P2P lending industry in the world, an achievement that has now become an albatross around the country’s neck. According to one report, outstanding P2P loans in China are worth an estimated $217.96 billion. This is more than the combined outstanding loans for the rest of the […]
According to a Bloomberg article, China houses the biggest P2P lending industry in the world, an achievement that has now become an albatross around the country’s neck. According to one report, outstanding P2P loans in China are worth an estimated $217.96 billion. This is more than the combined outstanding loans for the rest of the world. But the high-flying industry is now facing an existential crisis in China.
It is first important to understand the fundamental difference in the P2P lending ecosystem in the China versus the U.S. In the U.S., the platform is not on the hook if the borrower defaults. In China, P2P lenders provide explicit guarantees in the majority of the cases. This was the reason for the common sense-defying growth of P2P lending, and now it has become the iceberg that could sink the entire industry.
The Current P2P Lending Scenario in China
In 2018, nearly 247 Chinese P2P lenders defaulted in June and July, and around 2,305 platforms suffered from some kind of financial and operating issues. The count of operating P2P lenders has shrunk from 3,383 in 2016 to just 1,645 in August 2018. The flunked P2P platforms include those who ceased operations because either they were not able to repay investors or operators absconded with investors’ funds. A ‘domino’ effect is now taking place due to the collapse of these P2P lending platforms.
It all started in June 2018 when the number of platforms having problems was just 63. In July, this figure surged to 118. The initial months before June had only a paltry 20 firms facing such issues. Contributing to the downturn were outright scams. The biggest happened in 2016: Ezubao scammed investors over $7.6 billion through its well-known Ponzi scheme.
According to an estimate by the China International Capital Corp., only 10% of current P2P lending platforms would be able to survive the coming three years. Liquidity issues is one of the major reasons responsible for the failure of approximately 73% of the P2P lending platforms. As per analysts, the number of failures have risen primarily due to three factors:
Panicked withdrawals from investors
Increasing compliance costs
And a stiffening credit environment, which prompted defaults
The Regulation Perspective
A critical reason for this meltdown is the harsh regulations ushered in post-Ezubao. The new rules set by authorities were intended to give existing surviving players a tough set of prerequisites for operating in the industry. China Banking and Insurance Regulatory Commission (CBIRC) has transformed the role of P2P lending platforms to something that will only assist lending between parties and will not engage directly in handling the funds. Promising any kind of guarantee has been expressly disallowed.
CBIRC has proposed several measures to keep a check on the business of P2P lending platforms. The new measures include:
A mandate for P2P companies to self-review and report statistics like unpaid and non-performing loans.
Inspection powers are vested with the National Internet Finance Association and local industry associations.
Penalties have been set for deterrence.
Setting up of communication windows to assist customers with complaints.
Carrying out compliance inspections on platforms.
A ban has been imposed on setting up of a new P2P lending company.
P2P borrowers who fail to repay loans will be penalized in China’s social credit rating system.
Platforms now cannot use independent capital pools to fund the business. They have to count on real investors who want to fund loans.
Platforms are bound to make detailed disclosures with respect to their working.
Legal consequences for operators of Ponzi schemes.
An Analytical Overview of P2P Lending in China
These new regulations issued by the Chinese regulators were termed by Moody’s as “credit positive.” According to the agency, the changes made to the system and the regulations introduced will provide better protection to individual lenders and help in avoiding risk spilling over into the overall financial system.
The regulations have had a positive effect in the sense that weaker and/or dodgy online platforms will not be able to survive in the industry. This will rehabilitate the image of P2P lending in China and allow strong genuine players to grow the P2P lending market again. Though the P2P lending industry has been known for its over-exuberance, it was many times the only source of borrowing for small businesses and individuals.
But the mess still remains for millions of investors who have been left high and dry by such errant platforms. These investors had hoped government will step in and make them whole. Instead, the government’s measures have centered only on policy changes. This has led to mass protests and have been covered extensively by local and international media.
Regulators have framed measures to tackle the online lending crisis, but there is still no official guideline on how to recover already lost assets. It is unlikely that investors will be able to recoup their invested money. The write-offs are devastating for some. Reports of investor suicides are common on Chinese social media platforms. The new regulations address the issues at hand, but an awareness campaign educating investors about the pros and cons of investing in P2P lending attempts to curb a similar showdown in the future. It has become all the more critical as, now, risk consolidates into fewer (though, hopefully, regulated and well-managed) players as the industry continues to shrink.
News Comments Today’s main news: Betterment adds financial advice packages. Funding Circle the fastest growing P2P lender in UK. TransferWise revenue almost doubles. China’s P2P lending problems hit consumer spending. Lending Club CEO says U.S., China need clearer P2P lending regulations. Today’s main analysis: Funding Circle’s IPO, and aggregate excess payment. Today’s thought-provoking articles: How China tech companies are […]
Chinese tech giants are dominating the North American VC market. This is a first, but does it signal a shift in the global balance of power? Not really. China still has a way to go. But it does signal that China has a lot to offer the rest of the world in financial services. The interesting thing is, this historic first happened at a time when China is going through a P2P lending crisis and cracking down on scams.
Where millennials carry the most debt. Of the top 6 highest in terms of median balance, 4 of the metro areas are in Texas. Yes, Dallas and Houston are among them, but not at the top of the list. Interesting.
Betterment, the largest, independent online financial advisor, today announced it will be piloting a new line up of financial advice packages, expanding its access to personalized advice from licensed financial experts. This new service furthers Betterment’s commitment to making advice more accessible and personalized.
Early this week, Funding Circle announced plans to raise £300Mn on the London Stock Exchange through an IPO, valuing the company at up to £1.65 billion. To date, Funding Circle has originated over £5 billion in loans across Europe and the United States. Funding Circle has grown revenue by a 54% CAGR to £63 Mn in the first half of 2018. Funding Circle charges 100bps for servicing and estimates it receives revenue equal to almost 5% of loan value originated.
Hu Liming from Tencent Financial Cloud talked about the importance of the AI offerings within their cloud computing platform. AI is powering their anti-fraud offerings, their lending process, their collections and customer service efforts. More than 20 of the largest banks and insurance companies in China are using Tencent Financial Cloud for their core services.
LendingTree, the nation’s leading online loan marketplace, today released its study on the places where millennials carry the most debt. The study found that student loans make up the biggest share of millennial debt, but auto loans are close behind. The study revealed that the typical urban millennial carries significant debt; the average debt balance for millennials living in the 50 biggest U.S. cities is $23,064.
Millennials in San Antonio, Pittsburgh, and Austin, Texas, shoulder the largest debt burdens of the 50 biggest metros, with median non-mortgage debts of $27,122, $26,403 and $26,164, respectively.
Three California cities — San Jose, Sacramento and Los Angeles — have the lowest median balances on the list at $18,376, $18,691 and $19,299, respectively.
In the top 10 cities, more than half of millennials have outstanding debts totaling $25,000 or more (not including mortgages), and roughly 1 in 4 millennials living in these cities owes more than $50,000.
The 10 Places Where Millennials Carry the Most Debt
For all of the excitement centered around fintech over the past half-decade, most venture-backed fintech companies struggle to acclimate to public markets. LendingClub and OnDeck have plummeted since their late 2014 IPOs after several years of darling status in the private markets. GreenSky, which went public in May of this year, has been unable to return to its IPO price. Square is the exception to the rule.
Sometimes we overlook the companies that hail from the era that precedes the current wave of fintech fascination, a vertical which has accumulated over $100 billion in global investment capital since 2010.
PeerStreet, an award-winning platform for investing in real estate backed loans, today announced the addition of a new investment option, Cash Offer Loans. Cash Offer Loans are a new investment option that provides PeerStreet investors with a shorter duration than typical bridge loans.
Finitive (www.finitive.com), a financial technology platform providing institutional investors with direct access to alternative lending investments, announced today the closing of a $50 million senior secured warehouse credit facility for Bungalow (bungalow.com). This transaction was the first of its kind in the co-living sector.
Lending clubs have revolutionized how small businesses get money and act as a third party between individuals who want to lend money and people who need it. You can think of it as a peer-to-peer lending system that’s normally backed up and insured. You could get around 7% with one of these investments.
FUNDING Circle has unveiled more details of its plan to raise £300m through a listing on the London Stock Exchange’s main market in October.
The peer-to-peer lending platform said retail investors will be able to apply for shares via intermediaries such as Hargreaves Lansdown, AJ Bell Youinvest and The Share Centre, with a minimum application size of £1,000.
Funding Circle will test investor demand for British peer-to-peer lenders in a listing scheduled for October and expected to value it at more than 1.5 billion pounds (US$1.94 billion).
Capitalising on high-street banks’ retreat from lending to that sector since the financial crisis, it has facilitated more than 5 billion pounds in loans to more than 50,000 companies across Britain, the United States, Germany and the Netherlands.
Crypto lending or digital asset backed loanis comparatively a new concept used in earning profits without much effort. It revolves around the concept of shorting. Perhaps, you do not understand how shorting works, do not worry because all you need to know is that you are lending fund to others who are making short trades. In exchange for the funds, you get an interest rate that goes from 5% to 50% each year.
ACORN OakNorth, a UK-based alt lender focused on small- and medium-sized businesses (SMBs) and property financing, has secured a £78 million ($100 million) funding round from the EDBI of Singapore, NIBC Bank, Clermont Group, and Coltrane Asset Management. OakNorth’s loans have helped create 8,500 homes in the UK and 8,000 jobs.
The UK payday loan industry grew rapidly from 2008-2012, coinciding with the global financial crash and the pauperisation of millions of people in the UK. The numbers of loans issued in this period were 10.2 million per year, with a value of £2.8 billion.
Wonga’s posted pre-tax profit losses in 2016 of nearly £65 million, after recording huge profits just a few years before.
In its 2014 review of the payday loans industry, the FCA found that the average income of a payday lender was £16,500 a year, far below the UK’s median wage of £26,500 at that time.
The CMA found most recipients (52 percent) of payday loans have experienced financial problems in the recent past, with 38 percent of all customers having a bad core/credit rating and 10 percent of customers having had a bailiff or debt collector visit to their home. Over half (53 percent) use payday loans to pay for living expenses, food, utility bills—with 7 percent having to use these loans to pay for general shopping such as clothes and household items.
The Chinese government legalized peer-to-peer lending platforms in 2015. P2P sites attract money from individual investors – mostly savers – by offering them extraordinarily high yields. They lend this money at high interest rates to borrowers who have trouble getting loans elsewhere – classic subprime. By the end of 2017, there were over 8,000 P2P platforms, according to the People’s Bank of China, with over 50 million registered users. By the end of June, in a little over two years, the industry had gone from zero to $190 billion in outstanding loans.
In May, new vehicle sales still surged 7.9% from a year ago. Through the first five months of the year, sales were up 5.1%. But in June, the year-over-year sales increase eased to 2.3%. And in July, sales actually fell 5.3% year-over-year.
That 5.3% decline in July was a big, sudden, and unexpected swing from the 7.9% surge in May.
Around 4 a.m. on Sept. 7, construction workers in Jinhua, a city in eastern China’s Zhejiang Province, found the body of a woman hanging from a tree in a park. She was Wang Qian, a 31-year-old single mother who had lost her savings in China’s recent peer-to-peer (P2P) lending crash.
Wang worked as an individual seller on Taobao, a Chinese shopping site similar to eBay. She lost about 260,000 yuan ($37,990). She had invested her money in P2P platform PPMiao, which collapsed on Aug. 6. She lost about 260,000 yuan ($38,000).
Launched in 2013, N26 is a German neo-bank and one of the fastest growing banks in Europe. It serves more than 1 million customers, both businesses and individuals, across 17 European markets, and intends to enter the UK market in 2018 and the US market in 2019.
Smava is a loan portal that aims to make personal loans transparent, fair and affordable for consumers. Based on digital processes, Smava provides a market overview of 70 loan offers from 25 banks. As of January 2018, Smava had originated over US$3 billion in loans through its platform since inception.
Raisin is a fintech startup providing savings and investments marketplaces across Europe. The company operates several localized platforms for the German, French, Spanish, and Austrian markets, and more. These allow savers to shop and compare rates European-wide. In February, it launched a dedicated UK site, enabling savers to access deposit accounts in GBP, and another platform dedicated to the Dutch market in August.
SolarisBank is a platform with a full banking license which enables companies to offer their own financial products. Through APIs, partners gain access to SolarisBank’s modular services including payments and e-money, lending, digital banking as well as services provided by integrated third party providers.
Launched in 2014, CrossLend is a B2B marketplace lending platform that specializes in flexible refinancing via a capital market structure. CrossLend also offers cross-border credit intermediation through cooperation with a partner bank. The company aims to facilitate the borrowing, investing, and trading of money across the globe.
Founded in 2016, Billie offers a fully automated invoice financing platform that aims to “revolutionize small business financing.” Based on big data analytics, fully digitalized processes and a highly scalable state of the art tech platform, the company offers a simple and fast way for small businesses to access capital.
The idea became popular when it was first proposed around a decade ago. The then fast-growing sector fostered a series of unicorns. US P2P pioneer Lending Club was valued at $5.4 billion in its 2014 IPO and its peer Prosper was valued by private investors as worth $1.9 billion in its prime. Although a few years later than its foreign counterparts, Chinese P2P platforms have grown rapidly with leaders in the sector such as Hexindai who has gone public, and the likes of Lufax and Dianrong poised for an IPO.
Merely three years ago, peer to peer (P2P) lending in China was hailed as the banks of tomorrow and the harbinger of financial innovation. Powered by technology and ever burgeoning rounds of funding and valuation, P2P lending was set to disrupt financing the world’s 2nd largest economy dominated by state owned (or sponsored) banks. The new elites in jeans and T-shirts would show the suited up old guard how finance is supposed to work. Here came the new finance, Silicon Valley style – with Chinese characteristics.
Fair was its blossom; and wretched is its downfall. By June 2018, the Chinese financial information provider 01Cajing reported only 1504 functioning P2P platforms, down from over 3000 in the heydays. The change in fortune is as swift as it is bizarre. Is this an omen of darker times to come for South East Asian marketplace lending? Before this question can be addressed, it is necessary to disentangle how the crisis precipitated in China, and the confluences of forces behind the calamity.
On Monday, the Preparatory Committee of the Digital Finance Association announced a series of self-imposed regulations that it plans to apply to all member companies when the association kicks off later this year.
Lendit, 8percent and Popfunding, the three P2P firms in the preparatory committee, left the older Korea P2P Finance Association in May along with other firms due to disagreements over its management direction.
The word “digital disruption” holds true meaning when we look at the online alternative lending sector. Marketplace lending is an amazing example of the evolution and transformation of the incumbent lending sector. Though alternative lending has been around for a decade, Australia has taken a while to embrace this revolution. Even though it is at […]
The word “digital disruption” holds true meaning when we look at the online alternative lending sector. Marketplace lending is an amazing example of the evolution and transformation of the incumbent lending sector. Though alternative lending has been around for a decade, Australia has taken a while to embrace this revolution. Even though it is at a nascent stage in the land down under, with the recent entry of American players and big-ticket VC investments, it is a matter of time before it turns into a multi-billion-dollar industry.
Australia is now ranked as the second largest online alternative finance market in the Asia-Pacific region, behind only China. According to the first comprehensive study conducted in the Asia Pacific in 2015, the Australian online alternative lending market increased by 320% with a market value of nearly USD$350 million. From 2015 to 2016, the market size grew 53.6% and is now at USD$609.6 million. The chart below represents the growth the market saw between 2013 and 2015. Lack of funding options for SMEs, missing flexibility in personal loan products, and a highly regulated banking sector are some of the reasons why Australia has emerged as one of the most lucrative untapped lending markets.
Regulatory Framework: P2P lending
It has been mandated by the Australian Securities and Investment Commission that all P2P lending companies operating in Australia need to hold an Australian Financial Service License (AFSL) and Australian Credit License (ACL) to be able to engage and carry on financial services legally. In addition, P2P online platforms must operate as managed investment schemes, and that scheme needs to be registered if the investment is offered to retail customers.
Major players in P2P Lending Market
SocietyOne was launched in 2012, by Matt Symons and Greg Symons. It has raised $55.24 million in various funding rounds from eight investors (Australian Capital Equity, Beyond Bank, Consolidated Press Holdings, Global Founders Capital, Justin Reizes, News Corp Australia, Reinventure Group, Seven West Media). Through its platform, SocietyOne enables savvy investors to diversify their investments based on their varying individual investment goals and degree of risk. Qualified borrowers can have access to unsecured loans ranging from $5000 to $35000, to be repaid over a loan term of 2, 3 or 5 years.
Since its launch, it has evolved rapidly and has a firm foothold in the consumer finance industry, and today the platform is among the largest provider of personal loans. Its philosophy to connect borrowers and investors through its Clearmatch technology (where a soft online credit check that does not affect the credit score is made to evaluate whether the borrower is eligible for the loan or not) platform is making a real difference in offering better deals than traditional banks. In 2015, it surpassed $50 million in total funded loans. As the chart below shows between January, 2016 and June, 2017 loan origination has increased by a staggering 345%.
Alongside such an impressive growth, it has became a popular choice among the investors as it offers a steady return of 9% and has a very low default rate of about 1.8% across the whole loan portfolio.
Marketlend was founded in 2014 by Leo Tyndall, a former executive at UniCredit, where he was handling securitization and capital market operations. Tyndall started the company with his life savings and in June, 2016 it raised USD $1 million from Jonathan Barlow and Mateusz Szeszkowski.
It is the first platform in Australia that facilitates combination of prompt lending with insurance and margin protection. The P2P structure of Marketlend comprises of three key strengths: providing an innovative solution for financing against unpaid invoices, improving insurance cover against risk and loss protection and ensuring securitization of loans to meet the needs of investors especially the institutional investors. It offers rate of returns upto 10.40% for investors.
Marketlend gives top most priority to the security of its borrowers and investors. It accepts losses of at least 1% of the loan through its reserve fund and has even partnered with an insurance company to provide insurance cover under certain circumstances. Since its inception in 2014, it has funded $24 million of loans with zero default.
As per the study conducted by East & Partners on behalf of Western Union Business Services, it was observed that around 83% of the small and medium sized businesses are struggling to have access to credit. To exploit this opportunity, Boyd Pederson, a former managing director at Boston Consulting Group founded Bigstone in 2016. In August 2016, Bigstone raised USD $3 million from four investors (Cicada Innovations, CVC Capital Partners, Narith Phadungchai, and Paniti Junhasavasdikul). Low APR (8%-24%) makes the platform an attractive proposition in the highly competitive alternative lending market.
Bigstone provides loans ranging from $10,000-$250,000 to SME businesses with a maximum loan term of two years. The whole loan approval process is simple, easy and quick and loan is approved or rejected in minutes. On the other end of the spectrum, it enables the investors to spread risk by investing in diversified small loans offered to borrowers in real time.
Online lending platform DirectMoney is Australia’s first P2P Company to be listed on the Australian Stock Exchange (ASX). It was launched in 2006 by Guy Baldwin and David Doust and at the time was considered a path breaker since it offered varied rates of interest to the borrowers depending upon their credit ratings whereas others provided a single rate of interest to all the borrowers. It raised an undisclosed amount as seed capital from Trevor Folsom, the co-founder of Investible.
DirectMoney connects the borrowers and investors through its pioneer platform and enables the investors to invest in secured and unsecured personal loans. Investors invest by buying the units in the DirectMoney Personal Loan Income Fund and after making deductions for loan losses and management fees, the interest charged from borrowers is the return paid to the investors.
Borrowers can apply for loans ranging from $5,000 to $35,000 to be repaid over 3 to 5 year with varied rates of interest applicable depending upon the credit worthiness of the borrower.
MoneyPlace is another innovative marketplace lender that develops a connection between creditworthy borrowers who are seeking to access personal loans with wholesale investor clients. This platform was launched in 2014 by Stuart Stoyan and has its headquarter at Melbourne, Australia. Investment in MoneyPlace is open only to wholesale and institutional investors who fund unsecured personal loans. Auswide Bank agreed to invest AUD $60 million over a stretch of five years and took a 20 percent equity stake in the start-up and in the beginning of this year Auswide increased its stake to 51 percent with the option of increasing it to 75%.
Depending on the risk profile of the loans, investors can earn a rate of return varying from 7.7% to 15%. It offers four different investment options based on varying risk profiles namely; conservative, balanced, high yield or customized portfolio.
With a motive to minimize the risk factor involved in the loans, the loans are divided into fractions. The investors can buy the fractions of different loans and thereby spread their risk over a diversified portfolio of loans.
According to the research by Morgan Stanley, value of loans made by online lending platforms in Australia is expected to reach $22 billion in next five years. P2P lending to consumers is expected to reach $10.4 billion whereas P2P lending to small businesses is expected to reach $11.4 billion during the same period. These numbers clearly represents the opportunity for P2P lenders to establish a meaningful presence in the Australian market. Established fintech lenders like RateSetter (UK), OnDeck (US) are expanding operations in in Australia. This goes to show the importance of the Australian market and the potential it represents.
The regulation of financial services is a delicate balancing act for regulators and a topic which can quickly divide the opinions of participants. On the one hand, the presence of increasingly tightening regulation can add credibility to a sector, encourage intermediary and institutional involvement, and create barriers to entry for rogue firms which may be […]
The regulation of financial services is a delicate balancing act for regulators and a topic which can quickly divide the opinions of participants. On the one hand, the presence of increasingly tightening regulation can add credibility to a sector, encourage intermediary and institutional involvement, and create barriers to entry for rogue firms which may be looking for an easy ride in a hot new sector. On the other hand, it can also create barriers to entry to legitimate disruptors, increase costs for all involved, and generally stifle innovation.
The history of the FCA and P2P
The history of the FCA’s involvement in the regulation of peer-to-peer (“P2P”) lending is a relatively short one, starting April 2014 when they took over the regulation of consumer credit from the Office of Fair Trade.
The FCA’s definition of what constitutes P2P lending can be found in article 36H of the Regulated Activities Order. The language is designed with online P2P platforms in mind. Notably, invoice finance platforms do not fall within the definition. The regulation requires that P2P lenders meet minimum capital and client money requirements, and adhere to the principles and conduct of business rules of the FCA handbook.
One of the most important developments in the regulation of P2P lending came in the form of the Innovative Finance ISA (“IF ISA”), launched in April 2016. These IF ISAs allowed for P2P loans to be held within a tax-efficient ISA wrapper. To offer IF ISAs, P2P providers must be fully authorised by the FCA and approved by the HMRC.
The IF ISA was, and still is, significant for a number of reasons: It is a shining example of the FCA’s commitment to the growing P2P sector and the ISA represents a trustworthy structure and brand with broad, mass market appeal.
So how do participants feel about the current levels of regulation? Well, in a 2016 study by Nesta, it was found that over 90% of P2P lending platforms regarded current regulation as “adequate and appropriate”, with 6% citing it as “too relaxed” and just 4% claiming it was “excessive”. It makes sense that P2P platforms had felt relatively happy with the regulatory environment at the time, as the FCA has taken a relatively light touch with them and there have not been any major hiccups in the market.
But what are participants worried about? The same report asked platforms their perceptions of industry risks. Highest on the list was the “collapse of one or more well knows platforms due to malpractice” with 57% deeming this either high or very high risk. Second on the list was a cyber security breach, with 51% considering the risk as high or very high.
The future of FCA regulation
The FCA’s relatively light touch has arguably helped early market entrants at this critical stage, but some could argue that it has also been to the detriment of some of the larger platforms. The FCA’s rules meant that platforms formed prior to April 2014 were only granted interim permission, whereas new platforms would need to apply for full authorisation. This meant that newer platforms, without legacy infrastructure, were able to get their full authorisation quicker. It has only been in recent weeks that two of the “Big 3” platforms, Zopa and Funding Circle, have been granted full authorisation and the third, RateSetter, is expected to receive it imminently. The total number of platforms with full authorisation now stands at 16 according to the Orca IF ISA tracker, which is up from just two in November 2016, and we expect the flurry of newly authorised platforms to continue through 2017.
What does this mean for the industry? With the heavy hitters now passing the bar and further entrants getting the FCA’s stamp of approval, it seems likely that the sector will continue on its growth trajectory. One area of growth expected is in IF ISAs, which, once HMRC ISA plan manager approval has been granted, can be offered by the larger platforms thanks to their full authorisation.
Regulation is likely to continue to tighten as the sector grows and matures. Indeed, in December 2016, the FCA published its interim feedback on the call for input to the post-implementation review of its crowdfunding rules. In it, the regulator states that there’s enough concern to warrant some changes and clarifications to the current rules.
The FCA highlighted some of its concerns, as follows:
Inadequate disclosures and transparency about risk and loan performance. Firms’ desire to maintain confidence is leading firms to act in a non-transparent manner.
Regulatory arbitrage. Firms are testing the boundaries of the regulation, introducing the risk of arbitrage with investment management or banking activities.
Unfamiliar markets. Firms are targeting growth through new products or in new markets, without appropriate expertise, exposing longer-term investors to unforeseen lending risks.
Consumer protection. Consumers may not realise they do not have the usual protections as borrowers, where agreements are non-commercial, and firms may not make them aware of this.
Institutional investors could bring benefits for retail investors but better controls are needed to mitigate the risks – particularly around conflicts of interest.
Cross Investment and Due Diligence. Some platforms allow investment in loans formed on other platforms, which can make it harder for investors to conduct due diligence and the failure of one platform may have a direct impact on the viability of others.
Wind-down Plans. Improvements are needed in wind-down plans to reduce risks to investors of the plans not operating as usual.
The FCA expects to publish new rules later this year.
The concerns of the FCA are clearly somewhat echoed by the market, as there has been little uptake from intermediaries and, although it’s increasing, institutional involvement is still relatively subdued. As a mitigating factor, the P2P ecosystem will continue to develop; independent third parties such as Orca will help to educate investors and provide the necessary transparency and tools required to conduct in-depth due diligence.
So, as long as the FCA maintains its commitment to ensuring innovation is allowed to flourish, while strengthening the sector, new rules should be welcome news to all involved.
Samantha McBride is a Director at Orca, which provides investors and financial advisors with the research required to perform in-depth due diligence on peer-to-peer investments. Samantha gained her Law degree in 2009 from the London School of Economics and has worked in financial services for the last eight years. Samantha began her career in mergers and acquisitions, working as an Investment Banking Analyst for both Nomura and Deutsche Bank, before moving into Investment Management. Prior to joining Orca, Samantha worked as a Senior Investment Associate at Partners Capital, a global outsourced investment office, and, most recently, a Portfolio Manager & CCO at Elm Partners, a quant-driven, low-cost investment manager.
News Comments Today’s main news: Nyca Partners raises $125M for second FinTech VC fund Today’s main analysis: P2P lenders lead increase in personal loans. Corporate bond ratings. Today’s thought-provoking articles: Will the UK retain the FinTech crown? United States Nyca Partners raises $125M for second FinTech VC fund. GP:” We are curious to see in which […]
Most consumers open to robo-only retirement advice. AT: “This was a global survey. Be sure to click the link labeled ‘a new survey’ and read a more detailed breakdown of the survey results. As I’d suspect, younger persons are more open to robo-only advice of any kind and older persons are more interested in the best price on services, which often includes robo-advice.”
Morningstar’s corporate credit research highlight. GP: “Most interesting part: The levels in the corporate bond markets are the tightest that credit spreads have registered since the fall of 2014 and are significantly tighter than their long-term averages.”
Will the UK retain the FinTech crown? AT: “This question is asked more and more, since Brexit. But I see no evidence that the UK is losing its ground. However, this interview with Gillian Roche-Saunders is a must-read for its insights in the UK FinTech sector. One interesting comment she made is that the government itself ‘has taken their foot off the Fintech pedal.”
Most people are willing to trust robo-advisors for retirement planning and investment advice, but the majority also want human interaction when it comes to more complex tasks, according to a new survey from consulting firm Accenture.
Sixty-eight percent of people are open to robo-only advice for retirement planning and 78% say they’d welcome it for investing advice, according to a survey of close to 33,000 consumers, of which close to 10,000 were working with a professional wealth or asset manager, in 18 countries and regions conducted in May and June by Accenture.
Nonetheless, Accenture also found that 38% of consumers would switch to Google, Amazon or Facebook for financial advice services, while only 31% would go to one of the tech giants for banking and 29% for insurance.
The levels in the corporate bond markets are the tightest that credit spreads have registered since the fall of 2014 and are significantly tighter than their long-term averages. The average spread of the Morningstar Corporate Bond Index is 42 basis points tighter than its long-term average of +168 since the end of 1998. The average spread of the Bank of America Merrill Lynch High Yield Master Index is currently 187 basis points tighter than its long-term average of +580 basis points since the end of 1996.
Lovell Minnick Partners, a private equity firm specializing in financial and related business services companies, today announced that it has made a growth capital investment in Currency Capital, LLC, an online equipment financing exchange serving owners of small- and medium-sized companies. The investment will support Currency Capital’s growth strategies. Financial terms of the private transaction were not disclosed.
With Currency Capital, borrowers are provided with unparalleled, instant access to financing options from hundreds of lenders with “one click,” making the entire application, selection, approval and funding process simple and transparent.
Currency Capital provided approximately $150 million in loans to customers in 2016. Equipment buyers are also able to purchase equipment for sale by the Company’s industry-leading partners: eBay, Big Tex Trailers, IronPlanet and Proxibid.
Nyca Partners, the venture capital firm focused on the FinTech market, raised $125 million for a second fund. According to a report, Hans Morris, the former Visa president turned venture capitalist, created Nyca Partners in 2014, launching a $30 million fund. The fund invested in a slew of FinTech startups, including Lending Club, SigFig and Orchard. The new fund, which includes 10 institutional investors and 29 limited partner advisors, has made investments in about a dozen startups, including Embroker and Ladder, two insurance FinTechs.
The change in government, and the ramifications of the Brexit decision, has clearly stressed the UK’s prominence in innovative finance. Continental Europe is attempting to take advantage of the decision to depart Europe and Asian business centers, like Singapore and Hong Kong, are seeking to claim the Fintech crown.
Crowdfund Insider: 2016 was a choppy year for some Fintech/Crowdfunding platforms.
Gillian Roche-Saunders: 2016 was a year of highs and lows, and I think it’s fair to say the lows have received more press.
One of my key takeaways from the year is how crowdfunding now feels established as an alternative source of capital.
Crowdfund Insider: What about Peer to Peer lending platforms? You predicted last year there would be more robust rules for online lenders like the handling of client money, vetting, and wind downs. Is that still going to occur?
Gillian Roche-Saunders: What I didn’t predict was that there could be such a disconnect over the definition of peer-to-peer lending activity. The Treasury drafted article 36H specifically to capture the peer-to-peer lending industry’s activities, yet we’ve spent much of the year debating with the FCA whether the industry is actually undertaking that same activity. It could sound like quite a dull and technical debate until you realise that only article 36H loan agreements can go into the Innovative Finance ISA. The knock-on effects of the FCA and Treasury not being joined up on this point are significant for consumers and platforms.
Crowdfund Insider: How is the current political environment for Fintech? Does the government embrace the strategic importance of Fintech for the UK innovation economy?
Gillian Roche-Saunders: If you’d asked me a year ago I would have said that political support was beyond dispute. We had the best ecosystem for Fintech with a regulator and government behind it 100%. I still think we’re heading in the right direction, and let’s not forget it’s been quite a year for the UK, but it does seem as if the government has taken their foot off the Fintech pedal.
Crowdfund Insider: Are you seeing additional Brexit driven concern for Fintech firms? Anyone moving to Paris or Berlin?
Gillian Roche-Saunders: There continues to be a lot of chatter about the Brexit risk, and comments that we will see our talent and companies move abroad. Anecdotally, we have seen the opposite.
As for UK companies, the impact of Brexit will vary depending on the client base. Institutionally focused players, like enterprise tech and Regtech firms, may find their client base moving overseas and need to follow. The challenges in operating in a truly cross-border way have meant that crowdfunding hasn’t been reliant on Europe and that is likely to insulate the industry now.
Crowdfund Insider: What are your predictions for 2017 regarding alternative finance? Another year of growth & innovation or consolidation?
Gillian Roche-Saunders: It’s stating the obvious but 2017 will be the year of the Innovative Finance ISA. Many firms have been laying the groundwork on that for quite some time but we’ve seen a real spike in activity since autumn.
We can certainly expect more innovation generally. As platforms continue to compete for profile and customers, new opportunities to differentiate will be taken up. It will be interesting to see if there is more cross fertilisation between the lending and investment models. We’ve advised clients to focus on one route or another initially – the FCA may treat both sectors under the broad church of crowdfunding but the models are very different – but this year may be the first time when bringing together both under one roof makes sense.
CROWD2FUND is rolling out a white label solution for institutions wishing to expand into peer-to-peer lending.
The platform, which is one of only four P2P lenders to offer the Innovative Finance ISA, is already in talks with potential partners.
Institutions – such as investment firms – will be able to use Crowd2Fund’s “Powered by” feature to operate as a P2P platform under their own brand. Crowd2Fund says it has already seen “significant demand” from institutions looking to leverage their customer base, although it declined to name which ones.
The latest Quarterly Consumer Credit Demand Index from credit agency Veda shows the number of personal loan applications for the December 2016 quarter was 12.4 per cent higher than the December 2015 quarter.
There was a significant pick-up in the growth of personal loan applications in all states and territories, led by NSW and the Northern Territory with an increase of 14.5 per cent, Queensland with 13.1 per cent and Victoria with 12.5 per cent.
Overall consumer credit applications are up 7.7 per cent, with credit card applications rising 3 per cent and mortgage applications up 6.6 per cent.
However, the Veda figures reveal wide geographic variations with mortgage applications.
They were 14.9 per cent higher in the Australian Capital Territory, 11.2 per cent higher in Tasmania, 10.6 per cent higher in Victoria and 9.6 per cent higher in NSW.
However, in Western Australia, applications were 10.6 per cent lower and 10.8 per cent lower in the Northern Territory.
Israel’s Finance Ministry released a draft version of a proposed law Monday that would encourage online peer-to-peer lending by creating a regulatory framework for it. The new law will also create protections for the people lending money through P2P websites, as well as for the borrowers – a move the treasury hopes will give the nascent industry more legitimacy and enable it to become a more serious competitor to the banks and credit card companies.
The Capital Markets Authority will be responsible for enforcing the proposed regulations.
The Consumer Financial Protection Bureau (CFPB) in the U.S. is the trend setter in financial regulations. Other markets follow their lead. However, The Financial Conduct Authority (FCA), and to a certain extent the Prudential Regulatory Authority (PRA), both in the UK, have been way ahead in regulating alternate financial institutions engaged in distributing consumer credit […]
The Consumer Financial Protection Bureau (CFPB) in the U.S. is the trend setter in financial regulations. Other markets follow their lead. However, The Financial Conduct Authority (FCA), and to a certain extent the Prudential Regulatory Authority (PRA), both in the UK, have been way ahead in regulating alternate financial institutions engaged in distributing consumer credit and/or taking public deposits. The higher threshold has led to a consolidation in the industry with only serious, well-capitalized firms left in the market. This has also led to increased investor confidence with FinTech valuations firming up in the UK.
U.S. companies that want to enter the UK market must keep an eye on the regulatory environment. In fact, ensuring your company is on the right side of the FCA and PRA is an important part of a CEO’s job. With the CFPB cracking the whip on the U.S. companies, startups are looking for new avenues to expand and grow. One of the most lucrative markets is the UK, the birthplace of peer-to-peer lending.
One advantage to doing business in the UK is they’ve already gone through a massive regulatory upheaval. Now the dust has settled and there are clearer rules than in the U.S. The FCA has been considerably more responsive to challenger banks than the U.S., but a lot of that has to do with the public mistrust of banks after the recession in the U.S., and the LIBOR fixing scandal. Big banks vacated the consumer and small business lending space while challenger banks like Metro, Fidor and Atom took it upon themselves to capture the UK market.
U.S. firms are also looking to take a bite of the pie via mergers and acquisitions in the UK. But it is extremely important for American firms to be cognizant of UK laws governing the sector. A specialist UK law firm is a wise investment.
What a UK Law Firm Can Do For Your U.S. Company
Walker Morris is a renowned full-service commercial law firm in Leeds ranked among the top 20 law firms in the UK by Bloomberg. Their specialty is helping U.S. companies establish a foothold in the UK market. They’ve previously represented U.S.-based alternate finance providers Enova and Avant, both os which raised hundreds of millions in VC money for expansion into the UK. Jeanette Burgess, a partner at Walker Morris LLP, heads the regulatory services team. She advises U.S. lenders acquiring in the UK on all aspects of UK regulations that include financial services, health and safety, and data protection. Debbie Jackson, one of the partners in the corporate group at the firm, specializes in handling compliance issues such as M&As and corporate governance.
While the UK government has been supportive of the FinTech sector, there has been a public clamor for tougher regulations for alternative finance providers. This has led to the FCA examining whether retail lenders understand the risks of such platforms.
Another area of concern is investor demand. As demand increases and more funds flow to platforms, startups are forced to dilute their lending criteria, which leads to default rate increases. Burgess and Jackson are worried this could lead to a dot-com-like crash if left unattended, which is why the firm favors tighter compliance. They believe it will lead to fewer alternate finance platforms taking advantage of less experienced lenders.
There is increasing global concern about the effect of Brexit on the British alternative lending market. Walker Morris, however, does not see any major adverse consequences coming from Brexit.
Another factor in play is that England will start exit proceedings by March 2017 and the divorce from the European Union should take around two years. So there might be some lag time in feeling the full ramifications of the vote. Walking Morris has actually seen an uptick in business with many continental firms looking to establish a presence in the UK.
In response to public and political pressure, the FCA has become cautious. Usually, the process of P2P firm authorization is less onerous than for full-service credit firms. The FCA has a statutory maximum of six months for deciding on an application. They can extend that up to 12 months and more if they require more information. Walker Morris has seen a lot of startups wait in limbo for getting their license. This increases the attraction for U.S. firm to buy an already-licensed UK company as compared to waiting for over a year to gain entry to the UK market.
UK regulatory bodies have been engaging and supportive after seeing the value of credit innovation brought by the young startups. As the sector matured and billions of pounds began pouring into the market, it became essential for the FCA to ensure the little guy investing his retirement money isn’t hurt. This led to tighter scrutiny and tougher regulations, necessitating the need for having a full-service law firm on your side. Investors will see increased value in getting a top-tier law firm on board as this could be the difference between winning and losing a fast moving market.
News Comments Today’s main news: Wellesley aims to raise 1.5M BP on Seedrs. China cracks down on P2P lending. Today’s main analysis: It doesn’t take much to put nonprime Americans into financial crisis. Today’s thought-provoking articles: Why France will steal the UK FinTech crown. Indonesia releases new P2P regulations. United States What it will take to put […]
Wellesley aims to raise 1.5M BP on Seedrs. GP:” I am surprised by the small size of the raise at 1.5M only.” AT: “I’m still not sure what to make of P2P platforms using other crowdfunding platforms to raise capital. It strikes me as on the level of a bank taking out a loan to make new loans.”
Why France will overtake the UK in FinTech. GP:” The UK attracted 10x more investment, Germany 6x more. There is a serious French talent drain to London and other parts of the world. I am not convinced.” AT: “I certainly think France has the chops to become a FinTech powerhouse, but I don’t see the country overtaking the UK any time soon. Besides, it’a a good come-on for selling BI’s ecosystem report.”
UNEXPECTED EXPENSES: IT DOESN’T TAKE MUCH TO PUT NONPRIME AMERICANS INTO FINANCIAL CRISIS (Elevate email), Rated: AAA
Unexpected expenses are more likely to hit nonprime Americans much sooner and harder than their counterparts with prime credit scores, according to research released today by Elevate’s Center for the New Middle Class. For example, the research shows that the 160 million Americans who are nonprime, can only weather an unexpected expense of 31 percent of their monthly income, as opposed to 53 percent for their prime counterparts.
The Center’s latest study explores the impact of unexpected expenses on nonprime Americans, defined as those who have credit scores below 700. Key findings include:
A bill becomes a crisis for nonprime Americans at $1,400; for prime, it’s $2,900
Many common expenses such as a vehicle transmission, broken arm, or apartment security deposit are above the $1,400 threshold for nonprime Americans, but below the $2,900 threshold for prime Americans
Almost half of nonprime Americans have more than three disrupting expense events per year compared to approximately one-quarter of primes
Nonprime Americans can survive only half as long as prime Americans after a drop in income
Half of nonprime Americans have an income that fluctuates month-to-month
Additionally, based on geographic location, purchasing power can create large disparities in threshold amounts. For example, local purchasing power adjusted for $100 in Tulsa, OK, acts more like $131 in Kansas City, MO, and a mere $77 in New York, NY.
While surprises are undoubtedly in store for 2017, indications are that certain trends—the growth of bank partnerships and industry consolidation—will continue and accelerate as some legal certainty is achieved, legal cases which absorbed the industry’s attention in 2016 will be resolved and the focus will shift to Capitol Hill, as marketplace lenders step up lobbying activities given the new administration’s presumed predilection to assist the expansion of credit.
Taking a Look Back at 2016
From the start of the year through mid-May we witnessed what can be described as “rational exuberance” as market participants continued to look optimistically at opportunities, tempered by a recognition that regulatory scrutiny was increasing and demanded careful attention.
The mid-May developments at Lending Club, with the abrupt resignation of its CEO Renaud Laplanche, one of the most prominent figures in the industry who had just a few weeks before regaled the LendIt crowd with a keynote address, marked the start of the second distinct period.
With the end of the summer, the market entered its third phase, as parties again waded back into the water, cautiously optimistic about the outlook. By the end of the year, things had come nearly full-circle, as Lending Club tapped investor demand and completed its first rated securitization of consumer loans.
What’s Ahead for 2017
Increased Bank Partnerships. One theme likely to continue in 2017 is the increasing focus on partnerships between lending platforms and traditional banks.
While the Office of the Comptroller of the Currency’s December announcement to move forward with limited purpose national bank charters for fintech companies represents a measured and beneficial step for the industry, it is relatively unlikely that any final developments occur before the end of 2017.
Further Industry Consolidation. Expect the industry consolidation that started in 2016 to continue and grow in 2017.
Lastly, expect M&A activity in the marketplace arena to accelerate in 2017.
Morningstar Corporate Credit Research Highlights (Morningstar Email), Rated: A
Money360, the leading commercial real estate marketplace lending platform, announced today that it closed a record $35.6 million in commercial real estate loans in December 2016 — the result of ongoing growth of the company.
December’s transactions reflect short-term bridge loans for a mix of property types, including retail, office and industrial in California, Florida and Illinois. A total of five properties were financed including a one-story suburban office building in Irvine, California; a three-building industrial complex in Richmond, California; a seven-building anchored retail property in Orlando, Florida; a three-story suburban office building in Palm Harbor, Florida; and a three-story office property in Rosemont, Illinois.
December’s loans were for terms of between one and two years, and all were collateralized with a first-lien positions on the properties. They include:
Irvine, California: $5.4 Million to Refinance an Office Property Currently Being Re-entitled for Multifamily Development: Money360 provided a 12-month, $5.4 million bridge loan to the owner of a one-story, suburban office building to pay off two maturing loans, taxes and to provide cash out to afford the borrower sufficient time to continue processing land entitlements for a 45-unit condominium project planned on the site. The borrower brought in equity of $548,000 to close with a loan-to-value of 75 percent.
Richmond, California: $5.7 Million to Purchase a Three-Building Industrial Complex: Money360 provided a $5.7 million 24-month bridge loan to allow the borrower to purchase Adel Park, consisting of three contiguous industrial buildings containing a total of 159,156 square feet. The borrower was processing an SBA loan, but due to a hard closing date, opted for the bridge loan to consummate the purchase.
Orlando, Florida: $9.53 Million to Refinance a Seven-Building Anchored Retail Property: Money360 provided $9.53 million in bridge financing to pay off two current maturing loans and to finance tenant improvements and leasing commissions associated with re-tenanting the anchor space. The first-lien mortgage loan has a term of 24 months, with a loan-to-value ratio of 73.9 percent.
Palm Harbor, Florida: $2.5 Million to Refinance a Three-Story Office Building: Money360 provided a $2.5 million bridge loan to pay off a maturing CMBS loan for the three-story Palm Harbor office building in Palm Harbor, Florida. The first mortgage loan is for a term of 24 months with a loan-to-value ratio of 71.43 percent. The subject property is 84.6 percent occupied and professionally managed.
Rosemont, Illinois: $12.5 Million to Refinance a Suburban Office Property: Money360 provided a $12.5 million bridge loan for a single-tenant, suburban property in Rosemont, Illinois, allowing the borrower to pay off a maturing loan and buy out existing partners. The 24-month loan is secured by 71,132 square foot property, broken down as 60,207 square feet of office space and 10,925 square feet of warehouse space.
Peer to peer lending platform Wellesley has been crowdfunding on Seedrs for almost a month to raise £1.5M (approximately $1.82M). The campaign is currently restricted to Wellesley customers so it is hard to track.
Wellesley, like many other young firms, needs additional capital to continue operations.
Wellesley told P2P Banking that the platform’s campaign on Seedrs stands out because over 15,000 people have already invested in the company, the firm has a social issue of building Britain, and the company has been running for three years while remaining less speculative than other startups in this space.
Peer to peer lending platform Octopus Choice has received full authorisation from the Financial Conduct Authority. Octopus Choice is part of Octopus Investments. The company said the FCA approval was a first for an advisor focused P2P platform.
Octopus Choice was launched in April 2016, to coincide with the FCA’s decision to broaden the scope of advisers’ permissions to include P2P lending. The company now claims to be one of the fastest growing P2P platforms having facilitated approximately £45 million in loans for 75 deals since launch.
From today, new customers will no longer be able to buy non-standard investments through James Hay’s platform except for in SSASs.
James Hay lists the following investments as non-standard: intellectual property, land banking, overseas commercial property, peer-to-peer lending, unconnected loans, carbon credits, storage pods, UK unquoted shares, overseas unquoted shares, unquoted loan notes and bonds, second-hand endowment policies, and fractional property investments.
Gold bullion will no longer be treated as a non-standard investment in James Hay products, however, and will still be allowed for new investments.
Californian fintech firm InvestCloud has announced a strategic acquisition of London fintech company Babel Systems for $20 million in a deal.
The strategic acquisition connects InvestCloud’s digital platform with Babel’s trading and accounting capabilities in a move to provide a unique solution for fintech companies. InvestCloud will carry on supporting clients using other accounting solutions and also serve as an open supplier to the market, the release stated.
The client base of Babel includes the market leader in Robo-Advice ‘Nutmeg’ and other progressive Wealth Managers and Family Offices. The fintech company is the modern trade and accounting firm that addresses the needs of a regulated and international marketplace. The modular Babel’s solution is API based and enables the company to be integrated with any client platform.
Kuflink Ltd is our entry into the peer-to-peer world. This business is about to go live and compliments Kuflink Bridging, as it will be facilitating lenders and borrowers on UK property.
The conclusion of those findings was clear and this complemented Kuflink Bridging. Whilst the peer-to-peer sector is highly regulated, the barriers to entry are very high and this appeals to us given our knowledge of the industry, niche offering and desire to build a successful business. Just nine months later, we are ready to launch our unique peer-to-peer lending platform.
When we asked Moneysupermarket.com what the best buy deals were on personal loans from £1,000 – £1,999, £2,000 – £2,999, and £3,000 – £4,999 – enough for a modest car purchase or an affordable kitchen, the cheapest deal each time was from Zopa, the original peer-to-peer lender.
The advent of peer-to-peer lending has revolutionised the loan market by cutting out middle men and matching up savers looking for a better than average deal with would-be borrows hoping the beat the high street loan rates. When peer-to-peer (also known as P2P) started out it wasn’t regulated in the way as the banks and customers were initially nervous about both lending and borrowing. That’s all changed, with Uk registered P2P lenders falling under the same policing as traditional banks by the Financial Conduct Authority (FCA). From April 2017 they’ll also have to have at least a £50,000 cash buffer to bail out their customers if one side of the deal fails for some reason.
The first nationwide crackdown on P2P lending in China is underway — and expected to eliminate many of the 2,400 or so leading platforms in the nation.
The crackdown comes following a series of multi-billion dollar scams in the Chinese P2P lending space, as well as governance issues in U.S. segment leader LendingClub. Chinese regulatory authorities have officially released new guidelines and sent inspection teams to companies to make sure said guidelines are being following. Those that do not comply by August of this year will be shut down.
The new regulations will block lenders from guaranteeing principal or interest on loans they facilitate as well as cap the size of loans for individuals at Rmb1m and at Rmb5m for companies. Lenders going forward will also be required to use custodian banks — which the vast, vast majority do not.
Verint® Systems Inc. (Nasdaq: VRNT) today announced that CreditEase—a leading FinTech company in China, specializing in small business and consumer lending as well as wealth management for high net worth and mass affluent investors—is leveraging Verint Speech Analytics™, along with Call Recording™ and Quality Management™, to support the transformation of its customer engagement platform.
Since implementing the Verint software solutions, CreditEase has experienced improvements in operational performance and reports an increase in the use of digital channels through omnichannel service strategies. The ability to assess larger data samples, focus on important interactions, gain customer intelligence and target coaching to employees also has helped the organization enhance service delivery and the customer experience.
CreditEase also reports that it has saved operating costs of 45 percent on an annual basis by reducing print and mailed financial statements as customers have migrated to the use of digital channels and self-service e-statements. Its quality assurance initiatives also have yielded benefits in terms of generating an additional 30 percent savings by helping personnel become even more effective in their roles. The organization’s customer satisfaction ratings also have increased, in part due to a sharp reduction (by 80 percent) in billing-related complaints.
Registration – P2P lending (pinjam meminjam) startups must register and obtain their business license before operating.
Foreign ownership – Foreign businesses have to find a local partner because foreign ownership is limited to 85 percent of a company, and they can only act as lenders.
Minimum capital requirements – A company must have access to a little over $260,000 in order to carry out its business. It must have at least approximately $74,000 in capital by the time it registers, and it must also have at least approximately $188,000 to obtain its operating license.
Interest rate provision – There is no limit on the interest rate, but loans cannot exceed $150,000.
Consumer protection – Fintech firms must only “advise” lenders and borrowers of its selected interest rates, which take “into account fairness and developments in the economy”. They must also use escrow and virtual accounts in order to prevent operators from directly accessing the capital flowing between the lenders and borrowers.
CoAssets Limited, a Singapore-founded Fintech firm that is listed on the ASX (ASX:CA8), has launched a newly incorporated subsidiary, CoAssets Real Estate (Care) Pte Ltd.
“As a crowdfunding platform, user protection is one of our key focus. We are now looking at crowdfunding deals that are backed by assets as a way to protect our users amidst economic uncertainty. Given this move towards secured crowdfunding and our market position as a real estate crowdfunding platform, having a real estate agency fits in well into our overall business strategy,” said Getty Goh, CEO of CoAssets.
CoAssets also shared that all deal listed on the crowdfunding platform undergo a proprietary risk assesment model labeled CoAssets Risk Assessment Model or CRAM. This process was said to be developed with the assistance of one of the top auditing firms. The CRAM score is used to help decide whether crowdfunding or other forms of financing could be offered to companies that are looking for funding.
Kellerhhof International Sdn Bhd led RE/MAX Malaysia‘s equity crowdfunding campaign over the past month to aim to raise MYR 200,000 (approximately $45,000). The campaign on CrowdPlus.asia finished yesterday and resulted in RE/MAX Malaysia successfully surpassing its minimum goal, raising MYR 322,888 (approximately $72,000).
Yesterday our Equity Crowdfunding was closed. An amazing 161% funded, what gives us great appreciation.
News Comments Today’s main news: Landbay launches new landlord products. Funding Circle secures additional funding from UK government. Today’s main analysis: 4 reasons FinTech potential remains untapped. Today’s thought-provoking articles: Ron Suber says victory goes to those who change. China’s P2P lending growth slows. United States 4 reasons FinTech potential remains untapped for 2017. AT: “This […]
4 reasons FinTech potential remains untapped for 2017. AT: “This excellent analysis focuses on the relationship between the financial sector and technology. It’s optimistic in its outlook, which is one reason I like it. Another reason is, it looks at the industry from an investor’s POV and gives solid reasons why there’s still room for investment.”
Suber: ‘Victory goes to the ones who change.’ AT: “This interview of Ron Suber by Crowdfund Insider reveals two things. First, Ron Suber understands that change is constant, and the answer for marketplace lending is blowing in the wind. Secondly, there’s no one-size-fits-all solution for addressing the constant. Every platform is different, but amid those differences is the one reality none can ignore – only those who adapt to the rapid changes can survive. MPL is a Man-vs-Marketplace story.”
Funding Circle secures more funding from UK government. AT: “Brexit continues to be a factor for many UK lenders, and this article highlights how the UK’s exit from the EU is affecting Funding Circle, which is why the government is doubling down on the sector. The UK is in the unique position of defending its lead on everyone else in a sector that has seen its ups and downs.”
P2P lending growth slows amid new compliance rules. AT: “There’s always a balancing act with regulation. It shouldn’t stifle business. Rather, it should inspire innovation even if its main goal is to protect consumers. I think the China market will bounce back.”
What if 40% of corporate profits were generated by an industry still fundamentally reliant upon a technology introduced over 140 years ago by Alexander Graham Bell? This disruption of financial services is the focal point of the fintech revolution, integrating digital technology for the modern economy and investor.
Increasingly, fintech is questioning the viability of this antiquated business model, leveraging digital technology much as Uber, Netflix and Amazon have to disrupt static industries. Here are four reasons the fintech potential remains as yet untapped.
1) Financials are Historically Tech Averse
This technological stagnation in financials is even reflected in its price action. In this chart, the financial sector exhibits only a weak correlation to technology as compared to the S&P 500 Index, lower on average by 0.277 points. This tenuous correlation suggests a fundamental disconnect between the financial and tech industries.
2) Fintech Can Compete on a Wide Economic Frontage
Finance’s historical aversion to tech adoption fosters a vast array of market opportunities for fintech, affording a wide range of revenue streams. While digital payments is perhaps the most mature fintech segment, itself a $450 billion industry, some of the most aggressive fintech activities focus on customer origination and sales, which accounts for 60% of financial revenues.
3) Fintech Grounded in a Strikingly Efficient Economic Model
nstead of being channeled through a series of agents and middlemen, each extracting fees for the “access” they provide, the fintech tactic allows for significant cost compression. In particular, digital lenders can operate at up to a 400 basis point cost advantage over status-quo actors, gains achieved through reduced fixed costs and overhead.
These technology-inspired solutions specifically target customer origination, one of the most lucrative business segments for banks with a 22% Return on Equity. With this competition from fintech, analysts at PriceWaterhouseCoopers project that 28% of retail banking revenues will be at risk by 2020.
4) Fintech Investment Dynamics Intensifying
Considering how embryotic the fintech movement is, the industry offers a remarkably dynamic investment space. As perspective on how early in the business lifecycle fintech is, consider that venture capital accounted for 86% of all fintech investment in Q1 2016; that is roughly 7 out of every 8 dollars. Moreover, the rate of investment into fintech is accelerating sharply reaching $22.3 billion in 2015, nearly as much as the preceding 5 years combined.
The one constant in the lending universe of turmoil has been Prosper President Ron Suber.
Crowdfund Insider: 2016 was a challenging year for online lending, in your opinion what were some of the biggest issues the industry encountered during the year?
Ron Suber: What I’ve learned:
Change is the only constant. Victory goes to the ones who change and adjust best because companies evolve, technologies become outdated, regulations change, relationships morph and opportunities appear in a shifting landscape.
Crowdfund Insider: What about the securitization of marketplace lending loans?
Ron Suber: Securitizations are a critical component to the future success, growth and distribution of assets for the global online lending industry. They must be structured right from day one, consistently distributed to the appropriate investors, provide performance as expected along with transparency to continue successfully.
Crowdfund Insider: Demand for credit remains robust. How will online lending continue to be competitive?
Ron Suber: Each platform must continue to update/improve the pricing, credit, risk and underwriting models while incorporating new sources of data. The advancements in machine learning, identity/income/employment verification methods along with new borrower acquisition channels will enable the leading platforms to extend their competitive advantages.
Crowdfund Insider: What are your predictions for US online lending for 2017.
Ron Suber: Progress will continue to be made but it will not be a straight line.
LendingTree, Inc. (TREE), operator of LendingTree.com, the nation’s leading online loan marketplace, today announced that it will participate in Needham & Company’s 19th Annual Growth Conference at The Lotte New York Palace Hotel in New York City.
Alternative lending companies aren’t typically as strict as big name banks, and therefore have higher acceptance rates. The leniency from alternative lending companies is great for small businesses with financial dings or questionable credit history. Alternative lending also offers benefits such as quicker approval times, more flexibility, and less paperwork.
Small businesses must have been in business for at least a year, and earn at least $4,200 in mostly revenue. Monthly revenue, transaction volume, and credit score are also deciding factors.
Once linked, Kabbage will review the data to determine loan eligibility. Compatible banks and online services include: Chase, Bank of America, Wells Fargo, PNC, U.S. Bank, Regions, BB&T, TD Bank, USAA, Citibank, Capital One, SunTrust, Navy Federal, BBVA Compass, Fifth Third Bank, PayPal, Authorize.Net, Stripe, Sage, Square, eBay, Shopify, Yahoo, Amazon, Etsy, and Intuit.
FYI: Kabbage also looks at personal credit score, which should be at least above 550.
Although we like Kabbage overall, it is our responsibility to tell you about the things we don’t like. The biggest complaint we have is the limited amount of time small businesses have to repay their loan.
According to Investopedia, the Top 10 terms of 2016 were:
5. Fintech. “The financial technology industry continues to grow with investments pouring into the industry in 2016. Often conflated with the lending industry, fintech firms are revolutionizing everything from banking and payments to insurance, advising and everything in between. As the financial sector begins to understand the full impact of fintech, 2017 looks poised to be another winner for industry.”
4. Peer-to-peer lending. “The Lending Club scandal cast peer-to-peer (P2P) lending into the spotlight, and the light doesn’t seem to be fading anytime soon. Traffic for this term has doubled in popularity since last year. P2P lending allows individuals to borrow and lend money without the use of a middleman (like a bank).”
2. Blockchain. “With technology rapidly changing the world, the hype around blockchain skyrocketed in 2016. Blockchain has been popular with apps like Venmo and other mobile banking start-ups, but now traditional financial institutions are exploring this new technology for opportunities to better interact with customers, suppliers and competitors. Investors are paying attention. Blockchain is now a top 50 term on the site.”
Landbay, a peer-to-peer lending platform, is now offering new products for professional landlords. The lender will now offer standard term tracker at 3.88% to 65% loan-to-value, along with offering fixed rate products from 4.2%, an HMO tracker starting at 3.98% and an expat tracker starting at 4.38%.
The launch of the professional landlord products comes just a couple of weeks after Landbay announced it received full authorization from the FCA for peer to peer lending.
By the third quarter of the year, UK P2P lending had hit £6.5bn, while globally the sector was valued at more than £106bn, a 271 per cent increase on the previous year. One by one, the UK’s biggest platforms reported record-breaking lending figures, while government initiatives such as the Innovative Finance ISA (IFISA) and the bank referral scheme ensured that P2P lending finally broke into the mainstream.
The year got off to a great start for the P2P sector, with the news that the UK peer-to-peer lending industry doubled to £2.2bn last year, with the number of borrowers increasing by 96 per cent.
In the US, Lending Club’s share price was down, and in China, Ezubao lenders were starting to question why the platform had suddenly gone quiet.
This was the month that China’s P2P bubble burst.
On 6 April, the game-changing IFISA was finally introduced, allowing consumers to make tax-free investments (up to £15,240 for the 2015/16 tax year) in P2P platforms for the first time.
This was the month that the Lending Club scandal broke, leading to the resignation of founder and chief executive Renaud Laplanche.
There is only one word to sum up June 2016: Brexit.
The Brexit effect finally reached consumers in August, as the Bank of England slashed the base rate to an all-time low of 0.25 per cent in an effort to increase lending and stimulate the flagging economy. These interest rates had an almost-immediate effect on high street savings accounts, and by the end of November the average cash ISA rate was just 0.73 per cent.
Zopa took the world by surprise when it announced its first securitisation deal at the end of September.
Throughout October, banks began to tighten lending requirements, and SMEs struggled to find finance in the wake of the Brexit fallout. By the end of the month, the government launched the long-awaited bank referral scheme, which will see major high street banks refer SME borrowers to sources of alternative finance, including P2P.
Having announced the launch of a digital bank at the end of November, Zopa continued to ring in the changes with a full rebrand in December. Meanwhile, RateSetter completed another industry first by selling off £2.1m of bad loans to debt management company 1st Credit.
Peer-to-peer lending platform Funding Circle has secured £40m from the UK government to support small businesses amid concern that the Brexit vote could constrain credit.
But the latest deal comes as doubt is cast over future support from EU states for small British businesses following the Brexit vote.
Funding Circle struck a deal before the referendum in June with the European Investment Bank, whose shareholders are members of the EU, for the bank to lend £100m.
Barclays research has found that one in five small companies believes Brexit is affecting their current or future funding requirements. The most common reasons cited were a need to start exporting to new non-EU markets, economic uncertainty and a need to replace current employees who are EU citizens.
Lithuania has made a significant progress in creating a suitable environment for the development of the Fintech sector: legal acts regulating P2P lending platforms have been adopted, simplified procedures for getting licences for the activities of payment and e-commerce institutions have been approved, and the government has approved the Draft Law on Crowdfunding.
TransferGo is Lithuanian Start-up that aims to change the way we see money transfer.
Licenced in 2016 in Lithuania, Moneta International offers an innovative and unique B2B payment and cash management.
Established in 2004, Paysera is an international electronic payment system that allows people to receive and send money all around the world, collect payment and exchange currency via the Internet or by SMS messages.
Coingate is a Bitcoin payment processor that allows businesses to accept Bitcoin and receive pay-outs in US Dollars, Euros or bitcoin.
Lenndy is the first real estate crowdfunding platform in Lithuania.
OPAY is an online payment collection system for e-commerce.
SAVY is the first P2P online lending marketplace in Lithuania focused on secured and unsecured consumer loans.
Mintos is a Latvia p2p lending marketplace that started to operate in Lithuania in 2015.
The growth rate of China’s peer-to-peer lending transaction volume dropped by nearly half in 2016, as the industry faced reshuffling amid a slew of compliance regulations.
Last year, the transaction volume of P2P lending nationwide, which involves small businesses or individuals borrowing money from online investors, exceeded 2.8 trillion yuan ($403 billion), increasing by 138 percent from a year earlier. But the growth slowed down to slightly more than half of the growth rate in 2014 and 2015, according to a report by P2P001, a Shenzhen-based financial web portal, on Monday.
As of the end of 2016, 184 P2P lenders, or 7.98 percent of 2,307 P2P lenders that were running without severe financial problems, launched a fund custody mechanism, which they established directly with commercial banks. Another 122 such companies signed a fund custody agreement with banks but had not yet launched the mechanism, the report said.
As of the end of 2016, the total loan balance of P2P lending companies hit a record high of 1.21 trillion yuan, increasing by 115.9 percent from the end of 2015.
China’s banking regulator will encourage the launching of more consumer finance companies while helping them improve comprehensive risk management.
Since the State Council agreed to launch a trial program on consumer finance companies in four cities, including Beijing and Shanghai, in 2009, the China Banking Regulatory Commission has approved the establishment of 17 consumer finance companies.
As of the end of September, total assets of consumer finance companies reached 107.72 billion yuan in China. Their total loan balance was 97.03 billion yuan and the average nonperforming loan ratio was 4.11 percent. These companies lent an accumulated amount of 208.44 billion yuan to 24.14 million clients, according to the CBRC.
In Indonesia, various fintech startups are active in the P2P lending sector. Until now, they have been unencumbered by existing financial regulation. But that situation will come to change, as the government issued a new regulation. Firms are required to have a minimum of Rp1bn when registering with the Indonesian Financial Services Authority. Additionally, there is a capital requirement of Rp2.5bn when applying for a business license.
Cerulli Associates, a global research and consulting firm, says that managers should not ignore the spread of roboadvice and the emergence of digital ledger technology (DLT).
Cerulli expects that a hybrid robo-advice model, which allows investors to benefit from robo’s lower fees and digital efficiency while bolting on specialist face-to-face consultation, will prove popular.
News Comments Today’s main news: Klarna looking at competing with PayPal in the U.S. LendInvest to launch auction finance product. Today’s main analysis: KPMG report on online lending in continental Europe: a must read. Today’s thought-provoking articles: 2017 tech trends in China. MPL ABS. Entrepreneurs likely to plunder savings. United States Klarna takes aim at PayPal in U.S. GP: […]
Klarna takes aim at PayPal in U.S. GP: “I continue to see Klarna as a point of sale financing company that is a serious challenger for the top position.” AT: “This shouldn’t come as any surprise. We now live in a global village. Competition has taken on a brand new face with the rise of technology and second- and third-world countries gaining greater access to consumers, technology, and capital. Klarna actually has the clout to compete with PayPal and could very well become a major player in the U.S.”
7 ways to invest $1,000. AT: “Increasingly, I’m seeing more popular publications recommending P2P lending as an option for everyday investors. Lending Club is a popular option, but I wonder how many of these pundits recommend LC because that’s what they’re familiar with. Do they try out other platforms?”
A faint smile lights up Sebastian Siemiatkowski’s face as he recounts how his humble online-payments startup bagged the Warren Buffett of venture capitalists (VCs) as a board member.
Today Klarna’s ambitions go beyond cocky. It’s gunning for the $93 billion US market for credit card issuing, an industry that’s dominated by giants such as American Express and Capital One, with PayPal and ambitious startups in close pursuit. Like PayPal, Klarna is an online-payments platform with an emphasis on “buy-now-pay-later” financing. “We’re a bank,” Siemiatkowski says from a stark conference room in Klarna’s head office.
Klarna’s main competition: PayPal, whose financing business, PayPal Credit, formerly known as Bill Me Later, has been steadily growing since 2008, albeit with an embarrassing blip. Last year, the Consumer Finance Protection Bureau forced PayPal to pay a $25 million fine for sneakily signing people up for credit. Yet today “it’s one of our fastest-growing businesses,” PayPal spokesman Josh Criscoe says, increasing at a 27 percent annual clip.
Even more similar to Klarna is Affirm, a San Francisco startup launched by Max Levchin, a PayPal co-founder. Affirm is also racing to partner with merchants (it has 800 so far) to offer payment options, including financing, as an alternative to credit cards.
Klarna processes 40 percent of all Swedish online payments.
Once you check out, Klarna pays your bill and emails you an invoice. The startup’s foray into financing—and beyond plain-vanilla payments processing—is what got investors like Sequoia so excited. Its latest investment round, in December 2015, brought its valuation to $2.3 billion.
Perhaps Klarna’s boldest innovation is its email-and-address method of establishing the creditworthiness of its customers. No other online-payments company takes such risk on both the consumer and the merchant, the company claims.
Remarkably, Klarna’s bold bet on people’s honesty and solvency has worked. Its default rates are under 1 percent. Credit card default rates in the US have averaged 2.2 percent for 2016.
Klarna’s geography is relevant for another reason: Scandinavians are bored of cash, and Sweden is on track to become one of the first countries that is truly cashless. Homeless magazine peddlers carry card readers, and churches take their tithes through SMS. Half the branches of Sweden’s biggest banks don’t even have cash on hand or take cash deposits. Americans aren’t ditching cash as quickly, but to Klarna’s benefit right now, they’re bigger on digital payments.
Despite significant turbulence earlier in the year, marketplace lending ABS has maintained steady growth and better or similar performance than other areas of the consumer loan ABS sector, according to JPMorgan ABS analysts. They add that the marketplace lending ABS sector has also been one of the fastest growing in ABS, starting with US$3.3bn in 2013 from three programmes to US$9bn across 15 different shelves in 2016, with this year’s total including US$3.4bn from eight marketplace lending ABS programmes.
Furthermore, recent performance data in 2015 and 2016 show MPL ABS has better or similar performance than branch consumer loans and non-prime auto loans on most metrics.
Social Finance, or SoFi, is the largest online lender in the country, originating approximately a billion dollars in credit a month across personal loans, student loan refinancing and mortgages. Mike Cagney is the CEO, and he said what’s unique about the company is their focus on HENRYs — the acronym stands for high earners, not rich yet.
“It’s a customer segment the banking industry has struggled to deliver value to, primarily because there’s a lot of misconceptions around millennial customers — the idea that they’re fickle, they’re not loyal…we’ve found that really not to be the case.”
This is a four part guide on how to earn interest on your Bitcoin from reliable sources. The first part was on how to lend cryptocurrencies using Magnr. Last time we introduced our users to P2P lending, more specifically on Bibond. This time, we’re going to talk about another P2P lending website, BTCJam.
BTCjam was founded in late 2012 and by the end of 2014, BTCjam had facilitated bitcoin loans in excess of $10 million dollars in value with more than 100,000 users in over 200 countries. BTCjam also has an “Autoinvest” feature, which allows you to keep a diversified portfolio without having to monitor the loan offers. This feature will take your designated parameters into account and find suitable investment opportunities.
With difficulties qualifying for mortgages, a string of nonbank lenders, such as SoFi and LendingHome, are taking market share from traditional banks. According to PwC, their market share could grow to $150 billion by 2025, a 33% annual growth rate. As of April of this year, nonbank lenders originated 48% of all mortgages, up by 400 basis points from their 2015 market share.
Unlike big banks, which take a long time to look at income, FICO score, tax returns and more, online lenders process the application online in 20 minutes, according to LendingHome’s website. They close the deal in two weeks — vs. 45-60 days with banks — sometimes funding up to 100% of the purchase.
If hard money and non-banks aren’t your thing, there are other ways to get a deal, like asset-based mortgages. “Buy 2 Rent,” a mortgage product from Blackstone-owned B2R Finance, mainly looks on the rental income the property will produce.
And unlike traditional banks, it doesn’t look at personal income, which is a huge plus if you don’t have stable income (although a 660 FICO score and other underwriting criteria are required).
This past February, a BuzzFeed article reported that Zenefits was employing insurance salespeople who didn’t have legitimate state licenses. A few days later, Zenefits COO David Sacks sent an internal email that read, “the fact is that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker (Conrad) has resigned.”
Online lending platform Lending Club was once a bright spot in the fintech industry. But its CEO’s problems cast a shadow on the company this year. In the spring Lending Club’s board discovered that Laplanche had a personal investment in Cirrix Capital, but he failed to disclose it before he urged Lending Club to invest $10 million in the company. An investigation also revealed that a Lending Club engineer had falsified information to make some loans look like they had met a loan buyer’s requirements when, in fact, they hadn’t.
Trump may also benefit startups. A Republican-controlled Congress could end gridlock, creating opportunities to reform laws that are slowing down startups, says Bradley Tusk, CEO of Tusk Holdings, a political consultancy and venture firm known for advising Uber. Areas of interest include contract-worker rights, peer-to-peer lending laws, online gambling restrictions, and scrutiny toward for-profit education.
Online lender for short-term property finance LendInvest, will launch a new auction finance product to help brokers and borrowers prepare for the forthcoming 2017 auctions. The auction finance product is designed for borrowers that need their deals to be fast-tracked by their lender.
LendInvest bulleted out some of the features of auction finance product:
50% discount on valuation fees
No exit fees
Available on loans ranging between £75,000 to £7.5 million
Last week, the Financial Conduct Authority released their interim feedback of their review of their crowdfunding and peer to peer lending rules. And it didn’t sound good.
Andrew Bailey, CEO of the Financial Conduct Authority (FCA), stated that “fast-moving, evolving” peer-to-peer (P2P) lending industry poses “some quite big challenges in terms of transparency and fairness.”
In a new market that is disrupting traditional finance, there is no point advertising to consumers who are uninformed.
Instead of throwing money into glossy adverts, I believe the best foundations are built by going back to the old days of lending when your bank manager knew you, your family, your business and your friends. They would never lend to someone unless they met them and got to know them personally.
Research from investment platform Crowdfinders claims just 28 per cent of people would turn to banks or professional institutions for funding, compared to the 35 per cent who would resort to personal savings.
Meanwhile, just 15 per cent said they would turn to friends and family for the cash, probably because two thirds confessed their loved ones don’t have the financial means to support them.
After these funding options, the next most popular avenues were fundraising through the sale of personal items such as cars or luxury items, or looking to a current business or professional network, both of which were cited by 11 per cent of people.
Just one in 20 said they would use peer-to-peer lending platforms or venture capital, and only 6 per cent would apply for a bridging loan or specialist finance.
Established in 2011 by Luke Lang and Darren Westlake, Crowdcube is the world’s leading investment crowdfunding platform.
Launched in 2012, Seedrs is the world’s leading equity crowdfunding platform for investing in businesses. It was the first equity crowdfunding platform to get regulatory approval from the Financial Conduct Authority in the UK.
Founded in 2012 by Tom Britton, Goncalo de Vasconcelos and Gonçalo Vasconcelos, SyndicateRoom is the platform where investors make smarter and more exciting investments.
Founded by Dawn Bebe in 2010 and headquartered in Cornwell, Crowdfunder is the leading UK crowdfunding platform, connecting projects with people to make great ideas happen.
Founded in 2013, CrowdShed operates and offers online funding platforms, helping people, businesses, charities and art projects to get fund.
Venture Founders is an equity investment platform that is designed to make capital more accessible for a range of early-stage and growth businesses. It offers investors a range of curated, structured, and good investment opportunities.
Angels Den is an investment platform that connects angel investors with businesses.
Founded in 2013 by Ayan Mitra, Code Investing is a digital investment platform that offers investment opportunities in high growth, small to medium companies.
Spacehive is the only UK-based crowdfunding platform exclusively for projects aimed at improving local civic and community spaces. It is also the world’s first funding platform for civic projects.
Crowdfunding site Zopa provides 2 to 5-year low rate loans to borrowers with good credit, and 5 percent interest rates to P2P lending contributors. Zopa is the Europe’s largest P2P lending service having now lent more than £1.8 billion.
The research – which was conducted by financial information company Boring Money on behalf of the Financial Services Consumer Panel, a statutory body that advises the UK financial regulator – found that robo-advice providers are currently providing insufficiently pro-consumer services on a number of fronts.
It concludes that “many online investment firms” failed to clearly communicate whether the advice provided was regulated or not, to disclose relevant costs and charges and to use language that consumers might reasonably understand.
The consumer body calls on the Financial Conduct Authority (FCA) to enforce existing regulations governing online investment tools as well as to develop a framework for product providers to adopt language that is less reliant on complex industry jargon.
Gomes, Kotlikoff and Viceira⁴ developed a lifecycle model in 2008 which includes flexible consumption, investment and labor supply. They optimize a utility function using simulation, recursive Bellman equations and backward induction to derive optimal lifecycle behaviour. Parameter values are estimated using empirical data.ramework to create a portfolio of assets such that the expected return is maximized for a given level of risk. Financial market data is used to estimate expected return, standard deviation and correlation for every asset class.
New technologies can significantly improve the input for these models and increase the quality of the advice. By replacing a questionnaire by more sophisticated data sources and machine learning models, a significant increase in accuracy of risk tolerance, income and consumption estimates can be expected.
More complex is to estimate personal preferences. Since one cannot directly measure emotions, approximating utility and risk tolerance requires creative approaches. Expectations are high for artificial intelligence applications for decision making.
Using powerful machine intelligence, merging more data sources and leveraging scientific results to better understand the client’s situation would lead to a next generation of automated advisers.
KPMG, along with AltFi data, has published a new report on alternative lending in Europe. KPMG also sourced data from the most recent Cambridge Centre for Alternative Finance report. The document, entitled Alternative Lending Market Trends in Continental Europe 2016, provides an interesting snapshot of online lending beyond the UK.
Following the UK, the top two European countries for online lending include France and Germany. The authors point out that Latvia is breaking away from the pack with the third highest volume of funded loans in 2016 through Q3.
Peer to peer consumer lending is the largest segment of online lending. Through Q3 of 2016, consumer P2P generated 72% of total lending.
Regarding the largest continental European platforms, Younited Credit in France and Auxmoney in German come in at first and second place respectively. Mintos and Twino, both operating out of Latvia, are in 3rd and 4th place – punching above their weight class.
Credit cards have never taken hold, with most customers opting instead to use their phones and payment apps such as Alibaba’s payment system, Alipay, and WeChat. An Ernst & Young report found that 40 percent of consumers in China now use new payment methods.
Further underpinning growth in the country’s fintech segment is a new social credit system that the government expects to fully implement by 2020. The system assigns each citizen and business a credit score based on their social behavior, previous purchases and other financial data. The score would then be used to determine a person’s eligibility for everything from loans and government jobs to where they can travel.
In the meantime, China’s peer-to-peer lending segment is expected to continue to grow over the next year to fill the space left by more traditional banking. China Rapid Finance, one of the country’s largest consumer lending platforms, facilitates in providing loans to online consumers and the middle class, who by and large do not have access to credit scores. The company currently has more than 1 million borrowers, and analysts anticipate that number will rise.
Post demonetisation, peer-to-peer startups expect to see a delay in the final RBI guidelines which were expected to come by October 2016, but which they now believe will be out by March 2017.
As per the consultation paper that came out earlier this year, several players including iLend, Faircent, Venture Catalysts-backed LenDenClub, among others have either begun or are in the process of using escrow or nodal accounts in partnership with banks like IDFC. Demonetisation has also resulted in over 20% increase in lenders seen on the platforms, as well as bigger ticket sizes for some players.
This is a temporary account as it operates until the completion of a transaction process. According to fintech industry experts, this is a natural progression for P2P players. More transparency and security is expected through this process, since transactions will be better recorded and the auditing process will be simpler.