Wednesday April 26 2017, Daily News Digest

robo-advisors deal share

News Comments Today’s main news: Wela pairs AI with financial advisors in mobile app. KBRA assigns prelim ratings to Avant Funding Trust 2017-A. Assetz Capital to launch property-only, longer-term accounts. Mint Bridging ups development as FC exits market. China Creation Ventures leads $16M IceKredit round. Today’s main analysis: Affordability of houses in U.S. cities relative to income. Today’s thought-provoking […]

robo-advisors deal share

News Comments

United States

  • Wela launches mobile app pairing AI with real financial advisors. GP:”In online lending the equivalent would be mixing AI underwriting and human underwriting. “AT: “It won’t be long before everyone is managing their finances with mobile apps: Household income, investments, savings, college education expenses, you name it. Artificial intelligence will be a major part of that movement.”
  • Kroll assigns preliminary ratings to Avant Loans Funding Trust 2017-A. GP:”Avant continues to securitize and the securitization continues to perform well. This is great news for Avant and their peers.”
  • Affordability of houses in major U.S. cities relative to income. GP:”Afforability of housing, as it is the largest budget item in most people’s budget, is correlated with all kind of useful parameters like affordability,etc. However, the correlation is not always in the direction one would expect: if housing is cheap it could mean people have no credit/only expensive credit options/no good income , etc. “AT: “While interesting data, this says nothing about whether these markets are good investment markets for real estate. Rather, its says a lot more about whether John Q. Homeowner can afford to buy a home in these markets. Looking at median incomes, I’d say the majority of income earners all across the country would have a difficult time buying a home in most of these markets. But the data can also be misleading. For instance, in Dallas, the median house value is $162,300, but the average middle-class home purchaser can get a home for half that. Medians don’t give a realistic view of on-the-ground reality, in my opinion.”
  • Upgrade to hire up to 300 in Phoenix. GP:”Renaud Laplanche is hiring up to 300 people after barely opening doors. Lending Club I believe has about 1,000 employees. In my personal experience in growing companies I made the mistake of hiring too many too fast and I now prefer to see what I can do with as few people as possible.” AT: “Upgrade is expanding fast. I wonder why they chose Phoenix.”
  • Reliamax now services $275M in private student loans. GP:”A decent size portofolio. We encourage as much transparency as possible. I wish more companies published their portofolio size and numbers.”
  • RIP MPL? AT: “This is an apologia for Misys, which I think is trying too hard to convince people that banks can compete with fintech companies on technology. One problem: They haven’t proven it yet, and it doesn’t appear as if they are working at it real hard. In order for the premise to be true, community banks will have to follow the larger banks in adopting emerging technologies, and very few of them are. I don’t even think it’s on their radars.”
  • Lending Technologies introduces Leads2Lend. GP:”We have on our database close to 20 tech companies who provide platforms to lenders. How many more will enter this space? Is this a crowded space yet?”
  • Banks to overhaul their technology. AT: “There are some valiant efforts here, but big banks are not agile. I don’t see these changes happening as rapidly as their digital competitors in fintech can operate.”
  • How the CRE industry is adapting to fintech.
  • Comparative look at REITs and MPL. GP:”REIT is very tax efficient.”
  • Roostify names Frank Gelbart as CRO.

United Kingdom

European Union

China

International

  • Mapping robo-advisors around the globe. GP:”Robos market is well correlated with online lending.” AT: “That the wealthiest nation in the world would lead in WealthTech funding is not surprising. But this is about investment. U.S. consumers have not adopted robo-advice as quickly as consumers in other nations, especially Asia.”
  • Fintech patents jump, U.S. leads. GP:”I am surprised China comes in as #2.” AT: “I think U.S. creators care more about protecting their intellectual property than creators in other parts of the world, or it could be that the U.S. mechanism for protecting patents is much more sophisticated and effective than in other parts of the world. Either way, you can’t judge the size of the fintech sector by patents alone. Otherwise, the UK would be way down the list.”

Australia

News Summary

United States

Wela Launches World’s First Financial Advice App Pairing Artificial Intelligence with Real Advisors (Yahoo! Finance), Rated: AAA

Wela today announces its free mobile app changing the way financial advice is delivered by pairing real financial advisors with Artificial Intelligence (AI) through the personification of its digital advising algorithm, Benjamin. The first true digital advisor, Benjamin utilizes AI to track users’ daily, weekly and monthly spending habits and provides personalized advice based on their financial needs and goals. Unlike other free consumer finance apps on the market, Wela pairs AI capabilities with a human touch, offering access to real financial advisors via phone, video chat or in-person at no additional cost.

The Wela iOS app enables users to track all their financial accounts in one place, protecting user privacy by leveraging bank-level security, as well as 256-bit SSL encryption and two forms of secure authentication. Capable of aggregating data from more than 13,000 financial institutions, Wela’s digital advising algorithm, Benjamin, uses linked account information to run a complete analysis, helping users take steps toward financial health based on three main pillars: creating an emergency reserve, paying off debt, and implementing an investment strategy. In addition to Benjamin’s foundational metrics, the algorithm delivers custom insights on demand, helping users stay on track to reach their short- and long-term goals.

Wela’s in-app budgeting tool, Benjamin, makes budgeting tangible and prevalent on a day-to-day basis. Once Benjamin is activated, the onboarding process begins with the creation of a personalized ‘Daily Spend Limit’. Benjamin then compares that number to actual daily spending and other transactions so users can understand how they are progressing toward the customizable goals they have set for themselves within the app. With real-time analysis of daily spending, rather than an end-of-month review, users are empowered with a better budgeting method and reassurance in their progress.

“Wela is the first free app to give comprehensive financial advice in real time in real-world scenarios personalized for you,” said Matt Reiner, Wela CEO and co-founder.

KBRA Assigns Preliminary Ratings to Avant Loans Funding Trust 2017-A (Yahoo! Finance), Rated: AAA

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Avant Loans Funding Trust 2017-A (“AVNT 2017-A”). This is a $192.6 million consumer loan ABS transaction that is expected to close on May 4, 2017.

This transaction represents Avant, Inc.’s (“Avant”, the “Servicer” or the “Company”) fourth rated securitization collateralized by a trust certificate backed by unsecured consumer loans originated through its online marketplace lending platform (“Avant Platform”). There have been four prior unrated securitizations, in which Avant or Avant’s institutional investors were the sponsors and the collateral was unsecured consumer loans originated under the Avant Platform.

Avant has a strategic partnership with WebBank, whereby WebBank, a Utah chartered industrial bank, originates loans through the Avant Platform. Avant utilizes technology and customized scoring models to assign credit grades. The Avant website is designed to provide customers with an easy interface and quick online loan decisions at competitive rates compared to traditional lending platforms.

Avant retains a portion of loans originated through the Avant Platform. Avant does not fund loans through a peer-to-peer platform, but instead partners exclusively with institutional investors for whole loan sales.

Affordability Of Houses In Major U.S. Cities (Relative To Income) (Investment Zen), Rated: AAA

Using median income data from the U.S. census and median home prices from Zillow, this map shows how many years of median income it costs to purchase a median house in each of these cities.

DETROIT

#1

  • Median House Value: $38,200
  • Median Household Income: $25,764
  • Amount of Income Needed to Purchase: 1.5x

SAN FRANCISCO

#27

  • Median House Value: $1,147,300
  • Median Household Income: $81,294
  • Amount of Income Needed to Purchase: 14.1x

California finance startup opening downtown Phoenix office, hiring up to 300 (Biz Journals), Rated: A

San Francisco-based financial services startup Upgrade Inc. is opening its first expansion office in downtown Phoenix, with plans to potentially hire up to 300 people.

The startup is opening an operations center in July on two floors of the Renaissance Square Building One at 2 N. Central Ave.

ReliaMax Now Services $ 275 Million in Private Student Loans (Yahoo! Finance), Rated: A

ReliaMax, the complete private student lending solutions provider for banks, credit unions and alternative lenders, says it services $275 million in loans, an increase of nearly 670 percent from the close of 2015, driven by portfolio conversions that helped banks, credit unions and alternative lenders enter the private student loan asset class.

The ReliaMax loan servicing platform was built with the latest technology and exclusively for private student loans, making it unencumbered by the infrastructure constraints facing other student loan servicers whose platforms were designed to principally serve federal student loans or other consumer loans.

Marketplace lending RIP? (Bankless Times), Rated: A

Once banks master financial technology, the marketplace lending industry is in deep trouble, Jean-Cedric Jollant believes. And the bad news is that’s starting to happen.

“The (fintech) challengers made the move by trying to build a hybrid model where they may not own 100 per cent, 50 per cent or even zero per cent of a loan, but the need the technology to do that,” Mr. Jollant said. “They need new underwriting material and servicing software which they don’t necessarily have.”

Once more banks embrace new technology, they will be able to capitalize on a long list of advantages they have over marketplace lenders, Mr. Jollant said. Their abilities to process payments, service credit and onboard customers are superior. Close the technology gap and the banks can provide much better service at competitive rates.

“So (the marketplace lenders) are just intermediaries. Eventually they will not be able to compete with banks. The only difference between what the marketplace lenders are doing today and the banks really is the underwriting model and that gap will be breached really fast.”

Mr. Jollant believes the venture capital industry will soon begin to sour on marketplace lenders, possibly as soon as later this summer. Those surviving that will then have to withstand the next downturn, which many models have yet to be tested by.

Lending Technologies Corp Introduces Leads2Lend CAM Solution (PR Newswire), Rated: A

B2B fintech firm Lending Technologies Corp, a pioneer in loan origination technology, announces Leads2Lend, its new marketing platform for alternative lenders. Produced in cooperation with Lead One Marketing, Inc. the Leads2Lend program provides alternative finance companies with an all-in-one digital solution to identify and engage with potential new customers—ultimately leading to a stronger bottom line.

The Leads2Lend platform combines Lending Technologies Corp’s white-label customer acquisition management (CAM) technology with a digital marketing program that connects alternative finance firms with new clients. Using Lending Technologies Corp’s proprietary digital onboarding and loan building tools, designated agents can individually download leads and create bespoke lending solutions for the clients. Other functionalities include tools to expedite credit decisions and facilitate loan package construction.

Lending Technologies Corp’s white-labeled CAM technology, serving customers in the U.S. and Switzerland, provides a fully digital, mobile-responsive, end-to-end process for banks and alternative finance companies that allows lenders to save time and money while reducing the risk associated with underwriting loans to small- and medium-sized enterprises. Lending Technologies Corp provides a seamless, paperless solution to all users and gives loan officers the latest digital tools for lenders to issue credit decisions—all with a comprehensive back end.

An omnichannel overhaul in 5 steps (American Banker), Rated: A

U.S. Bank and Bank of Montreal have begun multiyear overhauls of their websites, mobile apps, call centers and ATMs.

Fix what’s broken. Both U.S. Bank and Toronto-based BMO are starting with the “dissatisfiers” — the things that vex customers or make them give up on one channel (say, mobile) and switch to another (such as the call center). JPMorgan also made this part of its approach when it rewrote its mobile app last year.

Make incremental enhancements. 

U.S. Bank’s mobile app was improved 27 times in the past two years, with the help of so-called agile development methods.

BMO also has adopted agile development. “Gone are the days when our tech people took months and months and built detailed requirements,” Badarinath said.

Create a “unified customer experience.” For years, banks have talked about having a consistent experience across mobile apps, websites, branches, ATMs, video kiosks, call centers and text messages. Yet you would not want to talk with a teller the same way you tap on a mobile app or withdraw cash from an ATM.

This fits with recent Javelin research that found most consumers would prefer to apply for credit cards in digital channels: 48% said online, 13% mobile, and 34% said they would prefer a branch. For a checking account it was 41% online, 8% mobile and 49% in a branch.

Today, only 8% of successful applications start and finish in a smartphone or tablet.

Establish an innovation team.

BMO has a group whose job is to look for interesting fintechs the bank can partner with to augment his group’s work.

Test emerging technologies.

And it is exploring options for using chatbots to let people use text messages to request and perform transactions.

Gaston envisions using augmented reality to help customers who want to purchase a car, a house or a boat understand their options.

He foresees using machine learning in the bank’s decisions about online accounts.

How is the CRE Industry Adapting to the Emergence of Fintech Solutions? (NREI Online), Rated: A

NREI recently spoke with Frank Muhlon, head of transactions at CrediFi Corp., to hear more about what’s ahead for this segment of the market.

Frank Muhlon: For sales and financing, technology allows for faster and broader market reach, meaning you have the ability to get to multitudes of investors and lenders. Being able to get to those people faster is really helping to drive the business.

The other area is risk mitigation and the opportunity to reduce your risk, which goes hand-in-hand with more transparency and more information.

Frank Muhlon: At its heart, it has always been a people business and I really don’t foresee that changing. But tech and innovation have been a hallmark of commercial real estate for some time. Eight to 10 years ago we went through a significant and humbling downturn and going through that adversity brought innovation and numerous opportunities. Institutional capital, debt and equity capital got reshuffled, and it presented some opportunities in the marketplace.

I think there is a segment of our industry that is not completely convinced that tech is necessarily disrupting our business in the way that it is disrupting other industries.

Frank Muhlon: In the last five years, the crowdfunding space has grown. There were fewer than 10 pioneering real estate platforms focusing mostly on equity investment. Now there are arguably over 100 sites covering the entire capital stack.

Five years ago, crowdfunding as a whole was a few billion [dollars] in activity globally. In 2016, it was well over $50 billion. Real estate is a more modest piece of that, but it has grown substantially as well. There was about $3.5 billion in activity on real estate crowdfunding sites in 2016. That has been a tremendous growth market, and alternative financing and lending is seeing similar trends.

The online lending industry was about $40 billion last year and it could be upwards of $1 trillion in the next five years.

Frank Muhlon: CredifX is the first cloud-based and data-driven commercial real estate financing marketplace for borrowers, brokers and lenders. The platform focuses on loans of $1 million and up across all major property types nationally. We leverage technology to match loan applicants with financing based on their criteria and the extensive loan product offerings in our lender network.

Comparative look into REITs and Marketplace Lending (Realty Biz News), Rated: B

One reason to invest in REITs is the favorable tax treatment and dividend payouts. Unlike investing in businesses where you expect to see increasing profits from continued growth, 90% of the profits have to be issued in dividends from investments in REITs. Instead of waiting for a business venture to show profits before receiving a dividend, investors get their share quarterly or annually in regular dividend checks.

With Marketplace lending, investors can expect to receive monthly disbursements throughout the lifetime of the loan. Principal investments are typically returned to investors between 6 months to 24 months, depending on loan payoff dates and loan extensions. Servicing fees vary by marketplace lending platform, but typically range from 1% – 3%, compared to REIT management and servicing fees from 3% – 15%.

Finally, REITs instantly diversify your portfolio resulting in better returns. In one REIT you may be invested in a commercial building, an apartment building, and a couple of warehouse distribution centers. The more diverse the portfolio, the better the returns, and the better the hedge against volatility.

While this style of diversification may work to the benefit of experienced REIT investors. marketplace lending allows portfolio diversification controlled by the investor.

Roostify Names Frank Gelbart as Chief Revenue Officer (Yahoo! Finance), Rated: B

Roostify, a provider of automated mortgage transaction technology, today announced it has named Frank Gelbart as Chief Revenue Officer. Frank will be responsible for driving new and existing revenue streams as well as managing partner relationships for Roostify.

United Kingdom

Assetz Capital to launch property-only and longer-term accounts (P2P Finance News), Rated: AAA

ASSETZ Capital is launching two new investment accounts to capitalise on the surge of demand it has experienced on both the investor and the borrower side.

The peer-to-peer lending platform is expanding its account range to seven offerings, adding a longer-term and a purely property-backed account to its existing 30-day access, quick-access, green-energy, “great British business” and manual loan accounts, it told Peer-to-Peer Finance News.

The longer-term account will offer investors an interest rate of about 4.75 per cent over one-year investments, while the new specialist account, which caters for investors who want to focus exclusively on loans secured against property rather than other assets, will target returns of around five per cent.

Mint Bridging ups development lending as Funding Circle exits market (Financial Reporter), Rated: AAA

Mint Bridging has reported an “influx” of development finance business after Funding Circle announced plans to stop lending in this area earlier in the month.

Its product ranges can accommodate up to £5,000,000 at 80% LTV, with heavy refurbishment projects up to 100% of the purchase price & 100% of the refurbishment costs.

P2PGI keeps NAV growing through UK asset-backed market (P2P Finance News), Rated: A

P2P GLOBAL Investments (P2PGI) continued to shore up its finances in March, posting a 0.55 per cent increase in net asset value, from 0.38 per cent in February, which brings first-quarter growth to 1.17 per cent.

The P2P investor’s shift away from US and unsecured assets, as well as a share buyback last month, was the main driver of the improvement.

US consumer assets now dropped to 45.1 per cent of the London-listed fund’s portfolio, down from 46 per cent a month earlier and 48.4 per cent at the start of the year.

The firm is targeting a further reduction to 30 per cent of total investment, to boost its focus on UK property and asset-backed products, where it said new origination from partnering with P2P lenders has increased significantly in the last quarter

Growth Street Reports Rapid Growth as 600 Investors Sign Up in Just 5 Months (Crowdfund Insider), Rated: A

Peer to peer lender Growth Street is reporting solid growth. The online lender said it has captured over 600 investors since platform launch at the end of 2016. Growth Street is a platform that provides online financing options for UK SMEs. The company also touted its review on 4thWay that categorized the P2P lender as one of the lowest risk platforms in the industry.

High earners log-on for robo-advice (Finextra), Rated: A

The demand for robo-advice rises with income, despite it being widely seen as a low-cost financial advice solution, according to Deloitte, the business advisory firm.

Deloitte’s research shows over half (51%) of people earning £45,000 to £70,000 would use a robo-adviser for investments, compared with just 30% of those on incomes under £15,000.
Demand is highest amongst millennials, but the research suggests other age brackets could be interested in using robo-advice. Over two-fifths (43%) of 35-44 year old workers with a pension would use robo-advice on pensions, as would one-quarter (24%) for the 45-54 year olds and a fifth (21%) of those aged 55 and above. Also, 35% of defined contribution pension holders – more than three million people – would be willing to pay for robo-advice to invest their pension pots, with demand highest (45%) among those with the smallest pensions pots, many of whom cannot afford traditional advice.

An MBA Graduate Left Banking To Launch Online Lender Spotcap Overseas (BusinessBecause), Rated: A

When Niels Turfboer enrolled in the MBA program at IE Business School in Madrid, he looked beyond a traditional career in banking. He decided to join the fast-growing fintech industry instead.

Having worked at institutional lenders for over a decade, his MBA training enabled him to spot an opportunity in the business banking space. Four years after graduation, he joined fintech startup Spotcap as managing director.

Spotcap offers working capital lines of credit — up to £250,000 — to small and medium-sized companies online. Spotcap has a run rate of £100 million in loans per year. The company operates in Spain, the Netherlands and Australia. Spotcap also opened a branch in the UK last year, despite Brexit. The business employs 100 people and has raised €75 million in venture capital.

Q. Did you know you wanted to work in fintech before the MBA? 

I’m a traditional banker. I worked for over a decade in the banking industry. But I wanted to be more entrepreneurial. There were opportunities to be entrepreneurial in banking, but after the crisis, this was gone. I chose a very particular school — IE — because it is known for having a strong focus on innovation and for being entrepreneurial. A large part of the MBA course is focused on teaching people to build and run a company.

Q. You’ve launched in the UK. After the Brexit uncertainty, are you reconsidering?

No. We moved in after Brexit. We were surprised at the result, but having analysed the situation, we concluded it’s not a negative. I see downsides, but not for our business model. We know there will be two years of deal making and uncertainty over trade barriers and freedom of movement. It tends to be bad for the economy, and this has had an impact. But we already had this knowledge moving into the market. We might be able to be more selective about lending to companies in industries that are hit hardest by the uncertainty. We are not going to do cherry picking, but we might take precautions in lending money. At the same time, during uncertainty banks are risk-averse and take a step back, and that opens up opportunities for the alternative finance sector to fill that gap.

Q. Is the MBA curriculum relevant to entrepreneurs?

Yes, at least the MBA I’ve done. At IE, 30% of the courses I did had an entrepreneurial focus.

The House Crowd Celebrates Five Years of Property Crowdfunding (Crowdfund Insider), Rated: A

Manchester property crowdfunding, the House Crowd,  is celebrating five years of operations having raised more than £44 million since it launched it 2012. According to the platform, the House Crowd now serves over 15,000 investors who have received over £9 million in returns. The House Crowd received the ‘Crowdfunding Platform of the Year’ award at this year’s inaugural Property Wire Awards, in recognition of its position in the alternative finance industry.

Lend and earn annual returns of up to 6% with Kuflink (Property Investor Today), Rated: B

The Kuflink Group is offering investors an opportunity to earn up to 6% a year through its peer-to-peer (P2P) lending platform, while also providing short-term finance for those looking to invest in property.

When it comes to the option to lend against various properties on Kuflink’s P2P platform and earn up to 6% gross pa for short-terms, up to 12 months usually, interest is paid monthly.

Secondly, Kuflink offer short-term lending against property for business purposes for terms of up to 24 months.

European Union

The FT 1000: The complete list of Europe’s fastest-growing companies (Financial Times), Rated: AAA

7 Optal United Kingdom Fintech 6,161%

 

21 iZettle Sweden Fintech 3,036%

 

46 Epos Now United Kingdom Fintech 1,579%

 

65 Lemonway France Fintech 1,260%

 

78 RateSetter United Kingdom Fintech 1,176%

 

146 Innofis Spain FinTech 781%

 

150 Fonix United Kingdom Fintech 761%

 

167 orderbird Germany Fintech 703%

 

198 YouPass France Fintech 615%

 

242 Trustly Sweden Fintech 501%

 

335 Prepaid Financial Services United Kingdom Fintech 367%

 

433 Paymentsense United Kingdom Fintech 261%

 

763 Smart Currency Exchange United Kingdom Fintech 114%

 

780 Deus Technology Italy FinTech 110%

 

923 HPD United Kingdom Fintech 76%
China

China Creation Ventures Leads $ 16M Round In SME Credit Firm IceKredit (China Money Network), Rated: AAA

China Creation Ventures, a newly founded venture firm established by several former KPCB executives, has led a RMB110 million (US$16 million) series A round in IceKredit Inc., a Shanghai-based credit assessment service provider catering to small and medium-sized enterprises (SMEs).

Founded in 2015, IceKredit applies machine learning algorithms and big data related technologies to make all-rounded credit evaluations for individuals and SMEs in China.

Its products include an SMEs credit evaluation system and an individual credit assessment system, which consists of an anti-fraud engine, personal credit portrait and missing customer contact information restoration.

China’s new illegal fundraising topped $ 36 billion last year (Daily Mail), Rated: AAA

Chinese authorities vowed on Tuesday to step up a crackdown on illegal funding scams, after reporting 5,197 new criminal cases last year involving 251.1 billion yuan ($36.5 billion), state-run Shanghai Securities News reported.

More than 30 percent of illegal fundraising cases were related to private investment and financial intermediaries, including unlicensed investment advisers and providers of third-party wealth management products, the report said.

Moreover, financial fraud spread last year from China’s east to rural areas, where funds approached unsophisticated Chinese farmers, the office of the joint meeting said.

Last year China approved the arrest of 9,441 people on suspicion of illegal soliciting public deposits and prosecuted 14,745, according to a separate Shanghai Securities News report on Tuesday.

P2P Giant Dianrong is Preparing for Full Blockchain Integration (Coindesk), Rated: A

Already, Dianrong has co-founded a blockchain lending platform called Chained Finance; now, less than a week after the firm hired IPO expert Yawen Cui, he has revealed comprehensive plans to swap over much of the startup’s services to a blockchain.

By January of this year, Dianrong had released a statement showing that 3.62 million investors had originated a total of ¥16.2bn in loans last year alone, a 148% increase over the previous year, and its fourth year of growth.

Then, last month the firm revealed it had joined Taiwan-based Foxconn to launch Chained Finance, a blockchain trade finance platform built using technology from the Linux Foundation-led Hyperledger Project.

P2P Lending News (Xing Ping She Email), Rated: A

P2P Lending Funds Depository Cooperation Fair was held in Chengdu
On 24th April, “P2P Lending Funds Depository Cooperation Fair”was held in Chengdu by NIFA. The Fair is aiming at building bridges between P2P Lending institutions and banks.
Owing to the Fair, over 11 commercial banks, including Xingwang Bank, Ping An Bank, Beijing Bank, Shanghai Bank, Baoshang Bank, etc., reached agreements with over 50 P2P Lending institutions and five fintech companies. Officials from People’s Bank of China (Chengdu branch), Bureau of Finance of Sichuan Province, Chengdu financial services office and other relevant departments attended the Fair, with nearly 170 participants.
Chinese:
中国互联网金融协会首办P2P存管对接洽谈会
4月24日,中国互联网金融协会在成都举办“全国网贷机构资金存管对接洽谈会”。据悉此次洽谈会在网贷行业尚属首次,旨在搭建网贷机构与银行的沟通桥梁,促进双方合作。据透露,本次对接洽谈会共有新网银行、平安银行、北京银行、上海银行、包商银行等11家商业银行,与到会的全国50多家网贷机构、5家金融科技公司实现了对接洽谈。参会人数近170余人。人民银行成都分行、四川省金融工作局、成都市金融服务办公室等相关部门领导出席会议。

P2P Lending industry may acquire a bank-like license in the future
On April 22nd, China Fintech 50 Forum(CFT50) was found in Beijing. According to Yang Dong, the vice president of Renmin University Of China Law School and the director of Fintech and Internet Security Research Center(FTCS), who involved in making CBRC Regulations on P2P lending industry, revealed that although P2P is currently playing the role of Internet information intermediary, it may develop to a bank-like institution acquiring a new type of license and the industry also has huge space in the future.
Chinese:
行业整顿后,P2P或将获得类银行牌照
4月22日,在中国金融科技50人论坛成立现场,参与银监会网贷管理办法等新规制定的中国人民大学法学院副院长、金融科技与互联网安全研究中心主任杨东透露,尽管目前P2P定位于网络信息中介,但P2P下一步的发展可能会发放许可,是类似银行的新型牌照,未来的政策空间很大。

The scale of cash loan over 600billion RMB, who will be knocked down by regulations?
Due to the low threshold, lacking of supervision and disorderly development, problems such as violent collection, high commissions and usury, etc., cast a shadow on cash loan.
According to the instructions of the State Council and the requirements of Internet Financial Risk Special Rectification Office, cash loan has been incorporated into the rectification work of controlling Internet financial risk. In addition, Notice on carrying out the rectification work of “cash loan” business activities and its supplementary documents have been issued. Regulators also began to start the cash loan risk investigation.
Chinese:
现金贷规模超6000亿元 上千家平台谁会被监管重拳击倒?
由于门槛低、缺乏监管,无序发展所带来的暴力催收、砍头息、高利贷等问题在现金贷背后投下一片阴影。
根据国务院领导批示及互联网金融风险专项整治工作领导小组办公室要求,现金贷已纳入互联网金融风险专项整治工作,并下发了《关于开展“现金贷”业务活动清理整顿工作的通知》和《关于开展“现金贷”业务活动清理整顿工作的补充说明》两份文件。各地监管部门也由此开始启动现金贷风险排查。

Half-hearted crackdown dents case for Chinese P2P (NASDAQ), Rated: A

A half-hearted crackdown dents the investment case for Chinese peer-to-peer lending. While P2P lender China Rapid Finance is set for a $100 million initial public offering in New York, the timing looks bad. Sector heavyweight Lufax, last valued at $18.5 billion, is unlikely to list soon.

Instead, lending has accelerated and there are still more than 2,000 online platforms in operation, according to industry tracker Wangdaizhijia. Loan volumes in March hit a new record of 251 billion yuan ($36 billion), bringing the total outstanding to 921 billion yuan – up 83 percent in a year.

Shoddy local enforcement is the obvious culprit. Provinces and cities interpret the rules differently, according to an industry insider.

Investors are cautious too. China’s only U.S.-listed lender, Yirendai <YRD.N>, trades at just above 6 times forward earnings, down from more than 15 times last summer.

E.Sun launches new AI chabot to offer futuristic financial advice (The China Post), Rated: B

E.Sun Bank’s (玉山銀行) AI Chatbot (玉山小i) is the latest artificial intelligence financial advisor that Taiwan-based banks have launched to assist locals with any finance-related issues.

The AI Chatbot utilizes the IBM Watson Conversation Service to interpret commands and generate responses, local media reported.

At this stage, the AI Chatbot’s responses are limited to inquiries regarding exchange rates, mortgage assessments, and credit card recommendations. It has yet to acquire the knowledge to answer questions regarding personal financing.

International

Mapping Robo-Advisors Around The Globe (CB Insights), Rated: AAA

Since 2012, private robo-advisors have raised over $1.32B globally across 119 equity investments. Robo-advisors make up the largest sub-category of companies in wealth tech and account for roughly 30% of total funding.

Three of the earliest robo-advisors firms and largest in terms of total funding are Betterment, Personal Capital, and Wealthfront. Though they lead in the US, expanding internationally is a challenge because of the complex international regulatory environment, differing investment practices, and other barriers to entry.

US-based robo-advisors have received 57% of the global deal share since 2012. Germany took second with 9%, followed by the United Kingdom, and China.

The two largest robo-advisor deals outside the US went to Wacai, a robo-advisor and personal wealth management technology company based in China.

The third and fourth biggest deals went to UK-based Nutmeg, with a $37.5M Series C in Q4’16 preceded by a $32M Series B in Q2’14 that included Armada Investment Group, Balderton Capital, Pentech Ventures, and other investors.

Fintech patents jump in “arms race” between banks and startups: These are the 10 countries filing the most (City A.M.), Rated: B

Global fintech patents have grown by 49 per cent in the past five years, reaching 9,545 in 2016 according to official global filings.

The US led the way in terms of numbers of fintech patents with 4,523, more than double the number of the next country, China. The UK boasted more fintech patents than any other country in Europe, ranking seventh with 89 patents, in areas such as banking, exchanges, investment, insurance and payments architecture.

The top 10 countries filing fintech patents

  1. US
  2. China
  3. Korea
  4. Australia
  5. Japan
  6. Singapore
  7. UK
  8. Russia
  9. Canada
  10. Germany
Australia

Fintech firms that walk the talk (The Australian), Rated: A

The rush to judgment about the disruptive power of fintech is premature, given it’s not even clear which part of the financial services value chain will be most affected.

Also, no matter how you cut it, the fact remains that by the end of last year there were 39 fintech companies around the world with valuations in excess of $US1bn, including Xero, which offers cloud-based accounting software for small and medium-sized businesses and is the sole Australasian representative.

Not surprisingly, the dominant vertical where 16 of the 39 companies with valuations in excess of $US1bn ply their trade, is so-called alternative finance, which includes marketplace lending and crowd-funding.

“Consumer lending in the US is a $US1.5 trillion opportunity, and in Australia it’s $100bn and the leading players are yet to crack $1bn.

Authors:

George Popescu
Allen Taylor

Monday January 9 2017, Daily News Digest

mobile payments FinTech

News Comments Today’s main news: MPL securitization tracker Q4 2016. Today’s main analysis: Mobile payments patent landscape. Today’s thought-provoking articles: Orchard updates online lending infographic. China Rapid Finance vows to triple number of users. 2016 breakout year for Canadian MPL. United States MPL securitization tracker Q4 2016. AT: “Securitization continues to grow. This is a trend that […]

mobile payments FinTech

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India

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News Summary

United States

Marketplace Lending Securitization Tracker Q4 2016 (PeerIQ), Rated: AAA

We encourage readers to take a look at our Outlook section highlighting challenges and opportunities for investors in the year ahead.

Here are some highlights:

  • Marketplace lending securitization remains a bright spot in the ABS market. Total issuance topped $2.4 Bn this quarter with cumulative issuance now totaling $15.1 Bn. Total issuance for 2016 came in at $7.8 Bn, as compared to $4.9 Bn in 2015, a 59% increase.
  • Although MPL origination volumes have declined at some platforms, the percentage of loans funded through ABS is at a record high of 70%.
  • The movement towards rated securitizations at larger transaction sizes continues. Further, the growth in average deal size continued, growing to $252 Mn in 2016 as compared to $35 Mn in 2013.
  • New issuance spreads continued to tighten in — a credit friendly environment for securitization. In 2016 we saw moderate spread compression across senior classes, indicating stable investor appetite for MPL ABS paper in the market.
  • We estimate $6.3 Bn to $11.2 Bn MPL ABS issuance for 2017. Goldman Sachs, Morgan Stanley, and Citi take top positions on the league tables.
  • Ratings Agencies grow increasingly comfortable with assessing MPL risk. Kroll provided the first rating for a securitization of Madden-Midland loans. DBRS tops the league tables in ratings activity.
  • We expect higher volatility from rising rates, regulatory uncertainty, and an exit from a period of unusually benign credit conditions. Platforms that have sustained low-cost capital access, can build investor confidence via 3rd party tools, and have strong risk management frameworks will grow and take share.

Lendscape: Orchard Updates Online Lending Infographic as 2016 Comes to a Close (Crowdfund Insider), Rated: AAA

Orchard Platform, the nexus of institutional money flowing into online lending platforms, has updated their Lendscape: a visual presentation of the online lending ecosystem.

Reflecting the shifting sands of online lending, Orchard has added “two new key buckets” to Lendscape.

First, they have added the legal sector (probably the only part of the industry happy to see more regulation).  These firms include Manatt, Pepper Hamilton, Winston & Strawn, and Kaye Scholer.

The other bucket is called ‘Verification’ that includes eOriginal, Global Debt Registry, and VeriComply.

Orchard has also doubled the size of the ‘Loan Servicer’ bucket by adding PFSC, Scratch, and Orion First.

New Data on Online Lending Industry in 2016 (Even Financial), Rated: A

The following data includes borrower behavior on choosing a loan, average loan size by credit score, conversion rates, average time to fund, top platforms and loan performance. Some key data points include:

  • Over ⅓ of borrowers choose the originator with the fastest funding times, not the originator with the lowest APR
  • The top 4 originators with the fastest funding times also have the highest take rates (percentage of borrowers who ultimately accept the loan offer once the borrower is approved), which is between 20-30%
  • Average time to fund a loan is 4.55 days
  • The average loan size is:
    • Excellent Credit – $15,684
    • Good – $10,928
    • Fair – $9,765
  • Borrowers sourced via “inorganic channels” (display ads, performance marketers, etc.) have a 30% higher default rate within the first 3 months

Real Estate Crowdfunding Platform EquityMultiple Expects Investment Volume to Grow by an Order of Magnitude (Crowdfund Insider), Rated: A

Inman, in their 2017 Real Estate Industry Outlook, says there is solid optimism for 2017.

EquityMultiple, a real estate crowdfunding platform, describes itself as the only online investing platform backed by an established real estate company – Mission Capital. This relationship provides a solid backstop that can help with access to deals and institutional horsepower. While Mission Capital does big deals, EquityMultiple sees itself as a perfect fit in matching accredited investors to opportunity in the $2 million to $30 million range.

Charles Clinton: To date, EquityMultiple investors have invested in 18 offerings (16 closed, two still live). Total investment for Q4 looks like it will more than double Q3 and, overall, total investment on the platform has tripled since the end of Q2 of this year.

Charles Clinton: For deals that are already cash-flowing, annualized cash returns are over 10%. This includes fixed-rate investments in senior loans, fixed rate preferred equity investments and distributions from cash-flowing equity deals.

Charles Clinton: Nearly 100% of our investors are individuals and non-institutional entities and trusts.

Charles Clinton: Investors have the added comfort of knowing that the Mission Capital senior leadership in involved in the sourcing and vetting of our deals.

Why Some Lenders Won’t Work With Certain Industries (The Huffington Post), Rated: A

“Lenders don’t want to support industries that they feel are in nefarious markets,” says Ryan Conti, the Customer Success Director at Fundera who manages the team advocating on behalf of small business owners who need funding. “Even though alternative lenders are more open to different businesses and models than banks are, there are certain industries that no one will touch.”

The next most common reason for being blacklisted is operating in some sort of speculative industry.

Since many lenders haven’t been around for an especially long time, their data is often contained within the last 10 to 15 years—sometimes as few as 5 years—and the housing market is one of several that did exceptionally poorly during the recent economic downturn. The decisions created by these lenders’ algorithms reflect that.

This is where things get more nebulous. Those algorithms we mentioned are unique to each lender, so their decisions about whether to lend to your business can differ depending on which lender you go to. The same business might get different answers from different lenders because each one has their own preferences—influencing the industries and locations they finance, and the rates they give these businesses.

One preference for many lenders that often doesn’t require their algorithm: any sort of other lending service, like check cashing or bail bonds. If you do lending, lenders would rather lend directly to your customers instead of starting a chain with you as a middle link.

This is why many enter the alternative lending space, where thousands of non-bank lenders—like peer-to-peer lending sites or companies that have secured their capital through wealthy individuals—can provide a lifeline.

Crowdfunding: Can It Work for Brick & Mortar? (CrowdFundBeat), Rated: A

A great example of restaurant crowdfunding comes from Manu Alfau, chef and owner of La Bodega in Seattle, Washington. Manu used his existing customer base to raise $9,000 to build an outdoor patio. For gifts, he offered parties and food from La Bodega — things that he already knew his supporters would love.

For startups, one advantage of crowdfunding is the opportunity to make people feel like they are truly invested in the success of your business. Simply put, crowdfunding is a way to create a sense of community ownership, which is incredibly important when it comes to sustaining a small business.

THREE STEPS TO AVOIDING CROWDFUNDING PAIN POINTS (Virgin Startup), Rated: B

It’s great to have a bold plan when you are crowdfunding but you’ll need to understand how much you can raise from your crowd. Think carefully about what funds you need for your idea and how you can create a network of people who’ll be interested in supporting your idea.

When you are crowdfunding you need to know if you have access to email databases – and don’t forget social media.

Some of the best crowdfunding campaigns in the world have had a solid timeline and plan behind them. This means you know exactly what is going to happen at each of the stages of your crowdfunding campaign. Break it up into segments, give yourself targets and milestones, set reminders to update your backers, know when you’ll be emailing your database, sharing great social media updates and images.

International

Mobile Payments: FinTech vs. Non-FinTech Patent Landscape (IP Watchdog), Rated: AAA

According to a report by market intelligence firm International Data Corporation, the worldwide annual transactions volume of mobile payments is expected to cross US$ 1 trillion in 2020 from US$ 500 billion in 2015.

The patent landscape of mobile based payments should help in putting things into perspective. Fintech companies are ruling the patent realm. Visa and Mastercard dominate with over 300 worldwide patented inventions each. PayPal is expanding its digital presence by investing huge in acquiring promising startups. In 2015 alone, it bought four startups including Xoom Corp., a digital money transfer company for US$ 890 million and Paydiant, a mobile wallet company for US$ 280 million. With such acquisitions and strategic partnership with Mastercard since 2007, PayPal is clearly one of the strongest mobile payments contender.

Apple is placed at 13th position with respect to number of inventions but 2ndwhen it comes to the total number of patent publications (issued patents and pending publications). Samsung appears as the strongest competitor with 86 inventions and is placed ahead of all tech players. It acquired LoopPay, a mobile payments startup in 2015 for US$ 250 million and immediately rolled out tap-n-pay feature with its Galaxy S6. With this, Samsung is taking on potential market capturers like Apple Pay, Google Pay and PayPal-Mastercard partnership.

Alternative, Traditional SME Finance Spheres See Growth (PYMNTS.com), Rated: A

$50 million in financing from the British Business Bank landed at Funding Circle, on the condition that the funds be used to finance SMEs, reports said this week. The investment by the BBB in the alternative lender signals support from the state-run bank for the industry overall, though the BBB is also working to introduce stricter requirements for firms like Funding Circle to protect both investors and borrowers. The latest investment round brings the total funds the BBB has provided to Funding Circle up to more than $122 million, reports said.

$4.7 million has been financed to startups via a new venture fromInnoVen Capital, an India-based venture capital company that formed its Credit Assistance Program.

60 minutes is all it takes for Barclays to approve of an SME loan, thanks to the launch of its newest small business lending service on the mobile app.

60% of SME invoices are paid late in the U.K., a statistic that Amicus Commercial Finance said reveals the need for small businesses not only to diligently manage cash but to access external financing when clients don’t pay up.

1.67% fewer SME loans slid into delinquency last November, according to the most recent Thomson Reuters/PayNet Small Business Lending Index. The data revealed the first increase in SME lending in the U.S. in six months, with the change in delinquency rates marking the first decline in a year or so, reports said.

1 new SME lender enters China, thanks to certification from the China Banking Regulatory Commission. Reports this week said the CBRC has allowed Yilian Bank to begin lending to small and micro-sized companies.

Top Ten Fintech Predictions for 2017 (Crowdfund Insider), Rated: A

Internet of Things (IoT), Wearables, Smart Home and Connected Car will bring massive change to the Fintech industry forever.

The death of privacy is upon us – sorry for the news flash. We don’t need to look too far to get a glimpse of the future. To receive a microloan in China, you need your photo, personal email credentials and your last 60 days of mobile call logs.

The mobile device will be required as the basis for Continuous-Authentication-As-A-Service for all forms of financial transaction.

The rebirth of trust is upon us with the advent of distributed ledger. For my marketplace lending friends… can we not solve the “Stacking” issues now with distributed databases?

As the genre of Insurtech grows, there will be an explosion of shared risk platforms where people find likeminded folks to insurance each other in the forms of Micro Insurance. A dollar a day could provide coverage for many of life’s little inconveniences.

Marketplace Lending, Insurance Platforms, Payment Systems are not going to gobble up smaller competitors. Instead, these firms will be looking for opportunities for vertical integration.

LendingClub and Facebook are definitely competition for the same eyeballs. Creditors should turn themselves into “APIs” and vertically integrate themselves into every social media platform to extend credit.

Generation Z is now the biggest population cohort in the United States (70 Million+). Generation Alphas are getting their first with the iPad, iPhone, and Apple Watches as we speak. Their concept of credit, wealth management, and living habits will be dramatically different than how we look at currency and leverage today.

It is increasingly difficult for a Wealth Manager, Investment Advisor to steer consumers into ill-fitting products. The platforms with the most transparent set of insight for their consumers will win in FinTech.

It is increasingly difficult for a Wealth Manager, Investment Advisor to steer consumers into ill-fitting products. The platforms with the most transparent set of insight for their consumers will win in FinTech.

Top 4 Alternative Investment Opportunities of 2017 (The Merkle), Rated: B

Although real estate markets have seen quite a bit of negative attention throughout 2016, it is still one of the most profitable alternative investment markets.

One of the most obvious choices for alternative financing is gold.

An emerging trend in the financial sector is peer-to-peer lending, also referred to as social lending. At its core, a borrower gets loans at far better rates than what banks can offer. Lenders will earn higher returns compared to storing funds in bank accounts. But without an authorized body to oversee this activity, a lot of people tend to overlook these opportunities.

Bitcoin was the best performing currency in recent years. Interested parties can opt for centralized or peer-to-peer exchanges to buy and sell cryptocurrency without friction.

United Kingdom

Zopa’s 2016 Recap: We Lent Over £680 Million (Crowdfund Insider), Rated: AAA

The lending platform revealed it lent over £680 million to help 20,000 customers improve their home and 29,000 buy a car.

  • Receiving awards: Named Moneywise ‘Most Trusted Loan Provider’ for the seventh year in a row, the Moneyfacts ‘Best Personal Loan Provider’ for the second year in a row, the MoneySuperMarket’s ‘Best Personal Loan Provider of 2016,’ AltFi’s Editor Choice Award and F5 Awards’ Best P2P Lending Platform.
  • New Partnerships: Became partners with Airbnb, Unshackled, and Partiti.
  • New Products: Launched Zopa Access, Zopa Classic, and Zopa Plus.

Crowdstacker’s Karteek Patel Reports: IFISA Secures £1 Million A Month (Crowdfund Insider), Rated: A

This week, co-founder and chief executive of Crowdstacker, Karteek Patel, revealed the lender’s Innovative Finance ISA (IFISA) has attracted £1 million from investors each month.

During a recent interviewPatel stated three out of four Crowdstacker’s investors have now lent through the IFISA. He noted that 50% of the lender’s investment came through the IFISa and he expects more take up as the ISA season approaches this April.

Could an Innovative Finance ISA be the right option for your savings in 2017? (The Investment Observer), Rated: A

According to recently released figures from the Bank of England, savers are missing out on up to £21 billion of interest by using cash ISA deposits.

As at 31 October 2016, the value of all cash ISAs held in banks and building societies was £271 billion. The interest rate drop in October to 0.25 percent, now means that the highest return on easy access cash ISAs is around 1 percent, resulting in a cumulative annual yield of £2.71 billion.

Crowd2Fund, a directly regulated FCA peer-to-peer lending platform, is one of just a handful of platforms to have been given full approval, and have rolled out their IFISA. Within its first six months of operation the number of registrations on the platform increased by 500 percent, when compared with the six months prior to launch.

Three out of 10 IFISA investors on Crowd2Fund have transferred an existing ISA to the IFISA. Transferring is done by filling in a short form from IFISA providers and once this is completed, existing ISAs should be transferred by your old ISA provider in around 10 days.

Offshore company backs crowdfunding firm run by minister’s brother (The Guardian), Rated: A

Balshore Investments, based in Gibraltar, owns a £20m stake in YouGov, co-founded in 2000 by Nadhim Zahawi, the Tory MP for Stratford-on-Avon. It has invested in Crowd2Fund, founded by Chris Hancock, the brother of the culture minister, Matt Hancock.

As minister of state for skills and enterprise in 2013, Matt Hancock worked in the government department responsible for setting up the regulatory framework for crowdfunding.

Zahawi has praised peer-to-peer lending. In one parliamentary debate, he intended to call on businesses to look “beyond the monopoly of the high street banks, at equity options and at some of the innovative new online platforms, [such as] crowdfunding and peer to peer”.

Gwynne said the issue raised concerns about the government’s commitment to cracking down on offshore tax havens.

Scottish University Launches UK’s First Fintech Course (Cryptocoins News), Rated: B

Scotland’s University of Strathclyde has announced the launching of its new FinTech masters course, making it a first in the U.K. in an announcement on the university’s website.

The Master of Science (MSc) in Financial Technology will provide students the financial, programming and analytical skills needed to help companies accelerate and enhance their security.

An economic modelling study found last year that Scotland could lose more than 14,000 jobs in its financial sector over the next ten years if it fails to embrace the FinTech wave.

European Union

Country spotlight: Lithuania – the young ones (Banking Technology), Rated: A

The P2P lending legislation was about six months in the making. Mitkus says that the team drew upon the expertise of other European jurisdictions, particularly London. He adds that Lithuania is the first country in the Baltics to introduce the national P2P lending regulation, and it will also be among the first ten countries in the EU to regulate crowdfunding on a national level.”

Marius Jurgilas, board member of Bank of Lithuania (the country’s central bank and regulator), points out that the government and the central bank are under a lot of pressure to improve the competitiveness of the financial services market, especially post-financial crisis. At present, 90% of the retail banking market share belongs to three international banks – SEB, DNB and Swedbank. The fintech industry is hoped to diversify the banking sector and boost competition, Jurgilas says.

To this effect, Bank of Lithuania has recently signed a memorandum of understanding with UK-based payments and fintech start-up Revolut.

Revolut, which offers e-transfers, currency exchange, card payments and cash withdrawal across Europe, intends to set up a financial institution in Lithuania and obtain a banking licence. Bank of Lithuania will provide Revolut with access to its managed payment systems enabling cross-border payments in euro.

China

China Rapid Finance to triple number of users on its consumer lending platform (SCMP), Rated: AAA

China Rapid Finance (CRF), the mainland’s largest online consumer lending platform in terms of the number of loans transacted, is looking to triple the number of users this year as it looks to create a business on par with a major commercial bank’s credit-card division.

Zane Wang Zhengyu, founder and chief executive of CRF, told the South China Morning Post that the company would be impervious to the challenges facing other peer-to-peer (P2P) operators on the mainland, and would continue to bolster its online consumer lending businesses in accordance with Beijing’s financial reforms.

CRF, founded in 2010, has 1.2 million borrowers on its platform at present. Wang , however, has set his sights high and wants the firm to have about 3 million borrowers.

India

Loany to introduce new products (Deccan Herald), Rated: A

Loany, which acts as a bridge between the lender and the borrower by connecting them, plans to launch more FinTech tools.

Canada

2016: A BREAK-OUT YEAR FOR ON-LINE AND MARKETPLACE LENDING IN CANADA (Aspire FinTech), Rated: AAA

One group of companies that represents a significant sub-sector of FinTech in Canada, is the on-line, or Marketplace Lending (MPL) sector.

Financeit purchased over $400mm of Home Improvement assets from TD Bank this fall, after completing 2 equity financing rounds during the year, led by Goldman Sachs and the Prisker Family.

Borrowell partnered with CIBC, Thinking Capital with BNS, Lendful with Alterna Bank, Grow with several BC and other western Canadian credit unions, and US SME lender Kabbage partnered with BNS.

SME lender Lendified became the first Canadian Marketplace Lender since CommunityLend (now Financeit) to apply for and receive an Exempt Market Dealer license to sell debt securities backed by Lendified SME loans to Accredited Investors, under the new OSC Launchpad initiative.

Elsewhere, we saw equity financing rounds for Progressa, Fundthrough and Healthsmart, IOU Financial launched in Canada, Wellspring was re-born as Flexiti, and First Access, a non-prime auto lender based in Alberta, expanded their funding base with credit facilities provided by ATB and Ares Management.

Based on what we saw in 2016, and on-going dialogue and interaction we have with the vast majority of participants in the Canadian on-line and MPL lending sectors, we have a few predictions for 2017:

  1. More bank partnerships.
  2. Increased institutional participation.
  3. One (or two) IPOs?
  4. Asset performance will be tested in the US.
  5. Consolidation in the US; not in Canada.
  6. A Canadian pension fund invests strategically.
  7. Regulation.

Authors:

George Popescu
Allen Taylor

August 10th 2016, Daily News Digest

August 10th 2016, Daily News Digest

News Comments Today’s most interesting article are FT’s report on Lending Club’s Q2 results and a few articles on new regulations, policy and VPC’s fund and strategy in the UK section. Today’s good news: CUneXus raised $5 mil. Congratulations ! United States One of the most interesting articles on Lending Club’s Q2 results, thought through, and with […]

August 10th 2016, Daily News Digest

News Comments

United States

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United States

Lending Club’s latest results tell us a lot about the online credit business model, (FT Alphaville), Rated: AAA

Lending Club released its second-quarter results yesterday. Besides the updates on repairs after its scandals earlier in the year, executives provided an insight into some broader shifts that have been bubbling under the surface for some time.

Total originations in the second quarter were $1.96 billion an increase of 2% compared to last year. The slower origination growth was due to the slowdown in investor capital that occurred post May 9. Roughly 51% of the second quarter volume was originated prior to May 9, which represented 42% of the quarter in terms of calendar days.

You can file that under statements that are meant to re-assure but reveal trends that may or may not be worrying depending on your perspective. If you take the bait, and do the maths, you find that even without the slowdown post May 9 — the date founder Renaud Laplanche left the company — Lending Club was on track for year-on-year origination growth of 46 per cent for the quarter.

That compares with y-o-y growth of 68 per cent in the first quarter, 82 per cent in the fourth quarter last year, 92 per cent in the third quarter last year and 90 per cent in the second quarter of 2015. If you assume that Lending Club’s originations would have continued at the same pace after May 9, instead of accelerating, for example, then it seems that the company’s loan growth has been slowing quarter-on-quarter for a little while.

If you take the view that very fast loan growth is desirable, then this is a bad thing. But if you think that numbers like 90 per cent don’t belong in conversations about loan growth, then it’s a good thing. Jaidev Janardana, chief executive of Zopa, told us recently that volume is “a bad metric to be worried about”.

After Brexit, the online lender began rejecting the least credit-worthy customers who would have previously received a loan and assuming a higher level of risk for customers it accepted, which resulted in a higher cost of borrowing for those people. All else equal, the changes had the effect of shaving 10 per cent off its volumes. “We should make the right lending decisions and if that means we are going to grow slower for a period of time, so be it,” said Janardana.

You can see similar things happening at Lending Club, for different reasons, as per this slide from the second quarter investor presentation:

The first thing to note there is the population reduction in the lowest rated loans.

“As this recovery gets longer, credit has become more available and these individuals in particular have shown a propensity to be building debt kind of coming into the loan and then continuing to accumulate debt after the LendingClub loan as opposed to leveraging the loan to kind of pay off their debt.”

He’s basically saying that subprime borrowers have been coming to Lending Club for easy credit, rather than debt consolidation.

The second thing to note from the slide above is the interest rate hikes.

Those two bars in the middle show how the investor base changed after the scandal. In particular, banks who were previously buying Lending Club’s loans seem to have fled in larger numbers than any other category (though, obviously, the figures in the chart are percentages rather than absolute numbers).

Sanborn talked about this on the call too, in effect providing a hierarchy of funding sources. First, he noted the “self-managed retail investors who proved to be the most resilient”. Then he talked about managed accounts, which includes funds set up to invest in Lending Club’s loans. They “initially paused” but after being paid to buy loans — “incentives,” as Lending Club calls them — many returned.

Then we get to “asset managers, insurance companies, hedge funds and securitization investors”. They “experienced a significant pause”, which is a rather passive way to say they got scared off by a major scandal involving the former chief executive. Asset managers and hedge funds, who were “the most responsive to incentives”, were the first large investors to resume buying, Sanborn said. (As a side note, “responsive to incentives” is a great bit of code to remember if you’re ever asking for a bribe.)

And finally, the banks, who have “more complex diligence and regulatory requirements”, are taking the longest to come back to Lending Club. Things on this front are likely to get tougher for online lenders. Late last month, the Federal Deposit Insurance Corporation invited comments on new proposals for how banks shouldmanage third-party lending relationships.

Online lenders like Lending Club are very unlike banks in a great number of ways, but the role their retail investors play seems awfully like the role that depositors play at banks. They both are the last line of defence and risk losing their money when it all goes wrong. In the case of a bank depositor, government insurance protects them up to a point. But if you’re a retail investor on Lending Club, you own promissory notesissued by the company rather than loans themselves, so all that protects you at present is the fact that Lending Club has no debt.

To close, here’s how much the mess that led to Renaud Laplanche’s departure cost the company (our emphasis):

GAAP net loss was $81.4 million for the second quarter of 2016, compared to a net loss of $4.1 million in the same period last year. The results for the second quarter of 2016 were negatively affected by a Goodwill impairment charge of $35.4 million related to the 2014 acquisition of Springstone, an increase in professional service fees of $14.9 million primarily due to matters identified in the board review previously announced, approximately $14.0 million in incentives paid to investors, and an increase in compensation related costs of $6.5 million associated with severance costs and a retention program.

With this Lending Club disclosure from May, shortly after Laplanche left (our emphasis again):

On May 11, 2016, the compensation committee of the board of directors approved incentive compensation packages and salary adjustments for certain named executive officers. Specifically, Carrie Dolan, the Company’s Chief Financial Officer, was granted $3.5 million in restricted stock units (RSUs), which vests quarterly over a four year period, and a $500 thousand cash award, payable twelve months from the grant date. The compensation committee also approved an increase to Ms. Dolan’s base salary to $400 thousand per year, with a 75 percent bonus target. John MacIlwaine and Sandeep Bhandari, the Company’s Chief Technology Officer and Chief Risk Officer, respectively, each received $500 thousand in RSUs, which fully vest twelve months from the grant date, and a $500 thousand cash award, payable twelve months from the grant date.

Here is the Q2 Earnings Deck for Lending Club, (Crowdfund Insider), Rated: AAA

Here is the deck.

Sanborn put an upbeat spin on the results stating they were “confident on their future”. [Comment: the moment when the CEO is anything less than upbeat it’s time to jump ship. So no surprise here. A CEO being upbeat is what I would say “business as usual”. ]

An interesting factoid shared on the call. The Board Review, initiated following the shocking departure of former CEO Renaud Laplanche, cost the company (and thus investors) $13 million.

 

CUneXus Closes $ 5 Million Series A, (Finovate), Rated: A

CUneXus, creator of sales and marketing automation solutions for lenders, quietly closed a $5 million funding round late last week. Two investors contributed to the round; both prefer to remain anonymous.

The California-based company’s total raised is now $7 million. Regarding plans for the funding, CUneXus president & CEO Dave Buerger said, “The use of funds is twofold: (1) aggressive growth and the addition of key personnel, and (2) continuous product development and improvement.”

Since launching in 2011, CUneXus has built a host of solutions for online and mobile lending and cross-selling. At FinovateSpring 2016 the company announced its recent partnership with Edmunds.com and showed off AutoXpress, a vehicle purchasing experience that takes place completely online or on mobile.

Lending Club looks for reprieve in year of bad news, (SiliconBeat), Rated: A

Comment: this is yesterday’s news, literally. As I explained yesterday, I believe the Q2 numbers for Lending Club are actually really good given the circumstances. The journalist here focuses on the profit and loss line item which is not at all a good indicator of Lending Club’s business at this time. 

The latest black eye for Lending Club came late Monday, when the company reported a second-quarter loss that ballooned from a year ago due to a big drop in loan volume. Lending Club said it lost $81.4 million, or 21 cents a share, on revenue of $103.4 million, compared with a loss of $4.1 million, or a penny a share, on $97 million in sales a year ago. Excluding one-time items, Lending Club lost 9 cents a share.

Those results fell short of the estimates of analysts surveyed by Thomson Reuters, who forecast Lending Club to lose 2 cents a share on $100.5 million in revenue. Lending Club said one of the main factors in its results falling short was that its loan volume, or the value of the loans it handled during the quarter, fell by 30 percent from a year ago to $1.96 billion. The company also said its loan volume would be flat for the rest of the year.

There was also another shake up in Lending Club’s executive ranks, as the company announced the departure of Chief Financial Officer Carrie Dolan. Dolan’s departure comes about three months after Lending Club founder Renaud Laplanche was forced to resign amid a scandal involving loans that were made against the instructions of an investor, as well as Laplanche and his family members improperly using the Lending Club platform to take out multiple loans in late 2009.

Loan originations rose 41 percent from a year ago, to $589.7 million, which Jefferson Harralson, of Keefe, Bruyette & Woods said became “more optimistic” and could offset some of the recent worries about Lending Club’s business.

PYMNTS Daily Data Dive: OnDeck Is On Track With Q2 Earnings, (PYMNTS), Rated: A

The company has altered its business model and is taking on more loans in the balance sheet. Credit performance has improved, which has increased the provision for loan losses. The company is advancing its international expansion, its partnership with JPMorgan and expects gross revenue between $73 million and $76 million in Q3.

Here are the numbers:

$69.5 million | OnDeck’s revenue, which was a year-on-year increase of 9.8 percent and $1.6 million over analyst expectations

$32 million | Provision for loan losses, almost twice the $15.5 seen this time last year

47% | The year-on-year growth in loans under management, reaching $1 billion

41% | The year-on-year growth in originations, which reached $590 million

$0.20 | Net loss per share; projections were for a net loss of $0.24 per share

Marketplace lending technology patents held invalid, (Lexology), Rated: A

On July 25, 2016, three appellate judges in the United States held that a popular online marketplace lender’s patents were invalid because they merely reflected an “abstract idea” that is not entitled to be patented or otherwise eligible for exclusive protection under American intellectual-property laws.

The judges from the Federal Circuit Court of Appeals likened the claimed inventions to a “fundamental economic concept” (i.e., an abstract idea) that served as the basis for the consumer-loan industry. They ruled that simply implementing this concept with “generic technology” to automate the process does not then make it patentable.

To read the full opinion of the Federal Circuit panel, click here.

Peer-to-peer Lending Market to Grow at CAGR of 53.06% to 2020, (News Maker), Rated: A

Comment: This is a report that is being sold. This report 1st came out about 2 weeks ago. Just a reminder. If Lending Club can still grow year-over-year despite all the problems I don’t think anybody doubts that p2p lending could very well grow at 53% CAGR for the next 4 years.

Research analysts forecast the global P2P lending market to grow at a CAGR of 53.06% during the period 2016-2020.

Browse full table of contents and data tables at

Credit unions can ‘up their game’ with the right digital lending partner, (CU Insight), Rated: A

Comment: This article is a bit of an advertisement for p2p-bank partnerships. I think it’s worth being clear and reminding the obvious to our readers: quite a few p2p lenders have such partnerships and they seem to function well.

The success of Lending Club and Prosper, despite recent setbacks, demonstrates to credit unions the opportunity to ‘up their game’ and become a part of this digital revolution. What’s more, your credit union can keep the loans on your balance sheet.

Your credit union is able to profitably fund and manage smaller dollar, unsecured loans at a fraction of the cost of manual and paper processes, often as low as $500 each.

What kind of Digital Lending Partner can help your credit union ‘up your game’ quickly? One that has proven success in digital lending, and:

  • Allows your credit union to use your underwriting controls and risk-rating standards
  • Keeps the loans on your balance sheet as earning assets
  • Accepts online applications by computer or mobile phone
  • Provides approvals in an instant, funds in just days
  • Monitors loans, deposit activity and credit information
  • Handles loan renewals
  • Provides proven safety in the cloud
United Kingdom

Britain counting on fintech for banking revolution, (Reuters), Rated: AAA

British banks, starting 2018,  will have to share customers’ data with third parties who can then show how much could be saved by using other lenders, the competition watchdog said on Tuesday. Under the new rules, banks will have to share a customer’s data with third parties, providing the customer agrees. The CMA will also require lenders to publish their maximum fee for unarranged overdrafts, which earn banks 1.2 billion pounds ($1.6 bln) a year.

New banks, consumer advocates and lawmakers, however, derided the plans as relying too much on people’s ability and willingness to use new technology.

The CMA believes setting a 2018 deadline will also boost the “fintech” sector, which uses technology to make financial services cheaper and more efficient.

The government wants to see fintech grow, but European Union countries like Germany would like to lure the sector from London after Britain voted to leave the bloc.

Only 3 percent of consumers and 4 percent of business customers change banks in any year due to inertia.

Andrew Tyrie, chair of parliament’s Treasury Select Committee which has pushed for six years to get more competition in banking, said he was not optimistic the measures will get to the heart of the problem.

Land said the Financial Conduct Authority (FCA), which capped payday loans’ interest rates, will review the overdraft measures and obstacles to new entrants to see if they improve, but Rishi Khosla, co-founder and CEO of OakNorth Bank, said this “passing of the buck” to other market watchdogs could put many fledgling companies at risk.

“The FCA should be prepared to step in with an industry-wide cap if they (the banks) do not significantly reduce the charges being paid by people who fall into difficulty,” said Money Advice Trust, a charity that helps people deal with debt.

The Financial Services Consumer Panel, which advises the FCA, said the measures rely on untested technology and consumers having to act on complex information. “At least it has given the FCA some good evidence to take on the banks.”

VPC Speciality Lending fund shifts strategy to greater balance sheet exposure after difficult Q2, (Alt Fi News), Rated: AAA

The key drivers of the recent shortfall, VPC says, was a cash drag from holding cash to cover currency hedges, and a peak in defaults, reflecting the life cycle of loans.

The portfolio is a combination of ‘marketplace’ and ‘balance sheet’ loans. Marketplace loans are originated by a platform, which earn an origination fee, with the fund lending directly to underlying borrowers targeting unlevered returns of 6 to 10 per cent, or 11 to 18 per cent on a levered basis. Balance sheet loans on the other hand are made to platforms with target returns of 11 to 16 per cent on an unlevered basis. The balance sheet loans are made through a special purpose vehicle [SPV] with the platform using the cash to originate loans.

At launch back in March 2015 balance sheet Loans were expected to be around  half of the portfolio, and currently represent 43 per cent of the invested portfolio. However, according to analysts at Numis Securities the management team at VPC believe that industry illiquidity has created attractive opportunities for balance sheet lending.

The VPC Speciality Lending Investment trust is looking to up its stake in balance sheet lending with profits from its marketplace loan holdings and move away from Funding Circle US’ exposure. More spare cash will be moved into balance sheet loans rather than marketplace loans in the VPC Speciality Lending investment trust, according to an update by the closed-ended fund’s management team.

The VPC Speciality Lending trust saw growth in its net asset value of just 0.33 per cent during the second quarter of 2016 on a total return basis, reflecting a 0.62 per cent loss in May.

According to AltFi Data, VPC Speciality Lending had outerperformed the broader UK marketplace lending space, as measured by the Liberum AltFi Returns index (the LARI) since its launch back in March 2015 until recently.

While the fund’s Q2 numbers are “below expectations”, VPC says long-term returns should be in their target range. The higher than expected losses, they add, came from the Funding Circle US loans which substantially underperformed expectations while the balance sheet loans in the portfolio experienced no setbacks and are generating coupons of between 12-16 per cent, with a weighted average coupon of 12.96  per cent

The trust is currently trading on a discount of 16.9 per cent. At launch in March 2015 it moves rapidly to a premium likes its peers in the space such P2P Global Investments. But, like its peers, it has also seen a substantial period at a double digit discount in 2016.

“We believe there is little scope for this discount to narrow until the fund consistently delivers monthly returns in line with its target. In addition, we believe the fund’s fees are high at 1 per cent of gross assets with a 15 per cent performance fee on net asset value [NAV] returns  [with] no hurdle.”

 

FCA Chief Told Parliament Committee Crowdfunding is Too Small to Be Systemically Important, (Crowdfund Insider), Rated: AAA

Financial Conduct Authority (FCA) Chief Executive Andrew Bailey basically gave a Parliament Treasury Committee a crash course on Crowdfunding 101 this past June.  The letter by Bailey was recently posted on the Treasury Committee website, along with a statement from Andrew Tyrie MP, Chairman of the Committee, who questioned “government subsidies”;

“On the basis of this correspondence, the risks associated with crowdfunding platforms appear to be restricted to those using the platforms to lend or invest. Government policies to promote the crowdfunding sector may have the right intention – to increase competition in the SME lending market – but government tax incentives, in effect government subsidies, may be encouraging some consumers into the use of inappropriate products. The FCA needs to be alert to these risks. The Government may need to reconsider these tax incentives.”

There is also an element of irony here. Internet finance is broadly recognized for its high degree of transparency. Old finance is known for its obfuscation and arcane operations – the source of too many systemic problems (how soon we forget the saga of LTCM). Many in the alternative finance sector believe Fintech is empowering finance to  come out from the shadow banking past and is better labeled as sunlight banking. It remains a truism that the best form of regulation is transparency.

Roche-Saunders explained a few days back it was clear that traditional finance sees “P2P encroaching on their space.”  Yet she was confident in the abilities of the FCA to draw the line at a point where competition is enabled and alternative finance can thrive. The FCA review process is accepting comments now with a deadline of September 8th.

FundingKnight to boost loan book after acquisition, (Bridging And Commercial), Rated: A

Gary Mealing, head of property lending at FundingKnight, explained to Bridging & Commercial that the company expects a large increase in activity after GLI Finance acquired its remaining shareholding.

FundingKnight’s origins and our skills are in commercial assessment, which means we’ll be focusing heavily on businesses with a property need and we’ll also have an appetite to fund over longer periods, also for larger amounts – up to £5m.

There has been a lot of focus around commercial property funds and the pressures from their investors to liquidate, and then there is the uncertainty so far with regards to the UK economic growth post-Brexit.

European Union

Interview – Finbee the First Year, (P2p Banking), Rated: A

More than 3,000 investors have issued 2M EUR worth of loans via FinBee and none of them lost any money due to a default and our compensation scheme. P2P lending is a relatively new concept in Lithuanian lending market, so raising awareness and overcoming scepticism was one the biggest challenges that we’ve faced from day one.

Current default figures are better that we expected and projected. We expected to operate with 8 to 10 percent of non-performing loans. Currently we have 2.25 percent (it worth noting that we consider a loan to be non-performing when two monthly instalments are missed, that is when loan is 60+ days late). We also project 40 percent recovery of non-performing loans. So we expect 4.8 – 6 percent losses after recovery. Having in mind that investors now invest on 26 percent interest rate on average, they can expect 20 percent returns even without our compensation fund.

What plans and goals do you have for FinBee for the next year?

Operations in Czech republic.

India

Raghuram Rajan sets agenda for rest of his term, (Live Mint), Rated: A

Reserve Bank of India (RBI) governor Raghuram Rajan set himself a crowded agenda in the last four weeks of his term as he left interest rates unchanged in his final monetary policy review on Tuesday.

On his agenda: guidelines for peer-to-peer (P2P) lending platforms and account aggregators, new norms to improve the functioning of corporate bond markets and tweaks to the marginal cost-based lending rate (MCLR) system, which Rajan hopes would improve the pass-through of past rate cuts by the central bank.

Singapore

Digital gold and silver may be up for P2P lending soon, (Asia One), Rated: B

(P2P) lending in Singapore could soon be extended to cryptocurrencies, if a unique partnership between vault operator Silver Bullion and a gold-backed digital currency seller is inked.

Silver Bullion, a gold and silver vault that offers peer-to-peer lending backed by those commodities, is in talks with Digix Global, a company that sells asset-backed tokens – or cryptocurrency bearing rights to gold – to use these tokens to borrow funds on the loan platform, the vault operator told The Business Times.

Several borrowers use the loan to buy more bullion with it, Mr Gregersen said. Lenders, on the other hand, use the interest to pay for storage on their own silver or gold stash.

Such loans are fully backed by physical gold and silver, and lending that stretches beyond six months has a collateral-to-loan value of at least 200 per cent. This means that a loan of S$100,000 must be backed by a collateral worth at least S$200,000. The exceptions are loans with a one-month tenure, which have a collateral-to-loan value of 160 per cent.

The discussion comes as Digix Global has moved to store gold bullion that is backing its cryptocurrency with Silver Bullion. They expect to store up to US$3 million worth of gold in Silver Bullion’s vault by the end of 2016. Digix Global will be transferring its gold holdings from Malca-Amit, at Singapore’s Le Freeport.

On Digix Global, users can buy Digix tokens, each of which represents one gram of gold.

Author:

George Popescu

August 10th 2016, Daily News Digest

August 10th 2016, Daily News Digest

News Comments Today’s most interesting article are FT’s report on Lending Club’s Q2 results and a few articles on new regulations, policy and VPC’s fund and strategy in the UK section. Today’s good news: CUneXus raised $5 mil. Congratulations ! United States One of the most interesting articles on Lending Club’s Q2 results, thought through, and with […]

August 10th 2016, Daily News Digest

News Comments

United States

United Kingdom

European Union

India

Singapore

 

United States

Lending Club’s latest results tell us a lot about the online credit business model, (FT Alphaville), Rated: AAA

Lending Club released its second-quarter results yesterday. Besides the updates on repairs after its scandals earlier in the year, executives provided an insight into some broader shifts that have been bubbling under the surface for some time.

Total originations in the second quarter were $1.96 billion an increase of 2% compared to last year. The slower origination growth was due to the slowdown in investor capital that occurred post May 9. Roughly 51% of the second quarter volume was originated prior to May 9, which represented 42% of the quarter in terms of calendar days.

You can file that under statements that are meant to re-assure but reveal trends that may or may not be worrying depending on your perspective. If you take the bait, and do the maths, you find that even without the slowdown post May 9 — the date founder Renaud Laplanche left the company — Lending Club was on track for year-on-year origination growth of 46 per cent for the quarter.

That compares with y-o-y growth of 68 per cent in the first quarter, 82 per cent in the fourth quarter last year, 92 per cent in the third quarter last year and 90 per cent in the second quarter of 2015. If you assume that Lending Club’s originations would have continued at the same pace after May 9, instead of accelerating, for example, then it seems that the company’s loan growth has been slowing quarter-on-quarter for a little while.

If you take the view that very fast loan growth is desirable, then this is a bad thing. But if you think that numbers like 90 per cent don’t belong in conversations about loan growth, then it’s a good thing. Jaidev Janardana, chief executive of Zopa, told us recently that volume is “a bad metric to be worried about”.

After Brexit, the online lender began rejecting the least credit-worthy customers who would have previously received a loan and assuming a higher level of risk for customers it accepted, which resulted in a higher cost of borrowing for those people. All else equal, the changes had the effect of shaving 10 per cent off its volumes. “We should make the right lending decisions and if that means we are going to grow slower for a period of time, so be it,” said Janardana.

You can see similar things happening at Lending Club, for different reasons, as per this slide from the second quarter investor presentation:

The first thing to note there is the population reduction in the lowest rated loans.

“As this recovery gets longer, credit has become more available and these individuals in particular have shown a propensity to be building debt kind of coming into the loan and then continuing to accumulate debt after the LendingClub loan as opposed to leveraging the loan to kind of pay off their debt.”

He’s basically saying that subprime borrowers have been coming to Lending Club for easy credit, rather than debt consolidation.

The second thing to note from the slide above is the interest rate hikes.

Those two bars in the middle show how the investor base changed after the scandal. In particular, banks who were previously buying Lending Club’s loans seem to have fled in larger numbers than any other category (though, obviously, the figures in the chart are percentages rather than absolute numbers).

Sanborn talked about this on the call too, in effect providing a hierarchy of funding sources. First, he noted the “self-managed retail investors who proved to be the most resilient”. Then he talked about managed accounts, which includes funds set up to invest in Lending Club’s loans. They “initially paused” but after being paid to buy loans — “incentives,” as Lending Club calls them — many returned.

Then we get to “asset managers, insurance companies, hedge funds and securitization investors”. They “experienced a significant pause”, which is a rather passive way to say they got scared off by a major scandal involving the former chief executive. Asset managers and hedge funds, who were “the most responsive to incentives”, were the first large investors to resume buying, Sanborn said. (As a side note, “responsive to incentives” is a great bit of code to remember if you’re ever asking for a bribe.)

And finally, the banks, who have “more complex diligence and regulatory requirements”, are taking the longest to come back to Lending Club. Things on this front are likely to get tougher for online lenders. Late last month, the Federal Deposit Insurance Corporation invited comments on new proposals for how banks shouldmanage third-party lending relationships.

Online lenders like Lending Club are very unlike banks in a great number of ways, but the role their retail investors play seems awfully like the role that depositors play at banks. They both are the last line of defence and risk losing their money when it all goes wrong. In the case of a bank depositor, government insurance protects them up to a point. But if you’re a retail investor on Lending Club, you own promissory notesissued by the company rather than loans themselves, so all that protects you at present is the fact that Lending Club has no debt.

To close, here’s how much the mess that led to Renaud Laplanche’s departure cost the company (our emphasis):

GAAP net loss was $81.4 million for the second quarter of 2016, compared to a net loss of $4.1 million in the same period last year. The results for the second quarter of 2016 were negatively affected by a Goodwill impairment charge of $35.4 million related to the 2014 acquisition of Springstone, an increase in professional service fees of $14.9 million primarily due to matters identified in the board review previously announced, approximately $14.0 million in incentives paid to investors, and an increase in compensation related costs of $6.5 million associated with severance costs and a retention program.

With this Lending Club disclosure from May, shortly after Laplanche left (our emphasis again):

On May 11, 2016, the compensation committee of the board of directors approved incentive compensation packages and salary adjustments for certain named executive officers. Specifically, Carrie Dolan, the Company’s Chief Financial Officer, was granted $3.5 million in restricted stock units (RSUs), which vests quarterly over a four year period, and a $500 thousand cash award, payable twelve months from the grant date. The compensation committee also approved an increase to Ms. Dolan’s base salary to $400 thousand per year, with a 75 percent bonus target. John MacIlwaine and Sandeep Bhandari, the Company’s Chief Technology Officer and Chief Risk Officer, respectively, each received $500 thousand in RSUs, which fully vest twelve months from the grant date, and a $500 thousand cash award, payable twelve months from the grant date.

Here is the Q2 Earnings Deck for Lending Club, (Crowdfund Insider), Rated: AAA

Here is the deck.

Sanborn put an upbeat spin on the results stating they were “confident on their future”. [Comment: the moment when the CEO is anything less than upbeat it’s time to jump ship. So no surprise here. A CEO being upbeat is what I would say “business as usual”. ]

An interesting factoid shared on the call. The Board Review, initiated following the shocking departure of former CEO Renaud Laplanche, cost the company (and thus investors) $13 million.

 

CUneXus Closes $ 5 Million Series A, (Finovate), Rated: A

CUneXus, creator of sales and marketing automation solutions for lenders, quietly closed a $5 million funding round late last week. Two investors contributed to the round; both prefer to remain anonymous.

The California-based company’s total raised is now $7 million. Regarding plans for the funding, CUneXus president & CEO Dave Buerger said, “The use of funds is twofold: (1) aggressive growth and the addition of key personnel, and (2) continuous product development and improvement.”

Since launching in 2011, CUneXus has built a host of solutions for online and mobile lending and cross-selling. At FinovateSpring 2016 the company announced its recent partnership with Edmunds.com and showed off AutoXpress, a vehicle purchasing experience that takes place completely online or on mobile.

Lending Club looks for reprieve in year of bad news, (SiliconBeat), Rated: A

Comment: this is yesterday’s news, literally. As I explained yesterday, I believe the Q2 numbers for Lending Club are actually really good given the circumstances. The journalist here focuses on the profit and loss line item which is not at all a good indicator of Lending Club’s business at this time. 

The latest black eye for Lending Club came late Monday, when the company reported a second-quarter loss that ballooned from a year ago due to a big drop in loan volume. Lending Club said it lost $81.4 million, or 21 cents a share, on revenue of $103.4 million, compared with a loss of $4.1 million, or a penny a share, on $97 million in sales a year ago. Excluding one-time items, Lending Club lost 9 cents a share.

Those results fell short of the estimates of analysts surveyed by Thomson Reuters, who forecast Lending Club to lose 2 cents a share on $100.5 million in revenue. Lending Club said one of the main factors in its results falling short was that its loan volume, or the value of the loans it handled during the quarter, fell by 30 percent from a year ago to $1.96 billion. The company also said its loan volume would be flat for the rest of the year.

There was also another shake up in Lending Club’s executive ranks, as the company announced the departure of Chief Financial Officer Carrie Dolan. Dolan’s departure comes about three months after Lending Club founder Renaud Laplanche was forced to resign amid a scandal involving loans that were made against the instructions of an investor, as well as Laplanche and his family members improperly using the Lending Club platform to take out multiple loans in late 2009.

Loan originations rose 41 percent from a year ago, to $589.7 million, which Jefferson Harralson, of Keefe, Bruyette & Woods said became “more optimistic” and could offset some of the recent worries about Lending Club’s business.

PYMNTS Daily Data Dive: OnDeck Is On Track With Q2 Earnings, (PYMNTS), Rated: A

The company has altered its business model and is taking on more loans in the balance sheet. Credit performance has improved, which has increased the provision for loan losses. The company is advancing its international expansion, its partnership with JPMorgan and expects gross revenue between $73 million and $76 million in Q3.

Here are the numbers:

$69.5 million | OnDeck’s revenue, which was a year-on-year increase of 9.8 percent and $1.6 million over analyst expectations

$32 million | Provision for loan losses, almost twice the $15.5 seen this time last year

47% | The year-on-year growth in loans under management, reaching $1 billion

41% | The year-on-year growth in originations, which reached $590 million

$0.20 | Net loss per share; projections were for a net loss of $0.24 per share

Marketplace lending technology patents held invalid, (Lexology), Rated: A

On July 25, 2016, three appellate judges in the United States held that a popular online marketplace lender’s patents were invalid because they merely reflected an “abstract idea” that is not entitled to be patented or otherwise eligible for exclusive protection under American intellectual-property laws.

The judges from the Federal Circuit Court of Appeals likened the claimed inventions to a “fundamental economic concept” (i.e., an abstract idea) that served as the basis for the consumer-loan industry. They ruled that simply implementing this concept with “generic technology” to automate the process does not then make it patentable.

To read the full opinion of the Federal Circuit panel, click here.

Peer-to-peer Lending Market to Grow at CAGR of 53.06% to 2020, (News Maker), Rated: A

Comment: This is a report that is being sold. This report 1st came out about 2 weeks ago. Just a reminder. If Lending Club can still grow year-over-year despite all the problems I don’t think anybody doubts that p2p lending could very well grow at 53% CAGR for the next 4 years.

Research analysts forecast the global P2P lending market to grow at a CAGR of 53.06% during the period 2016-2020.

Browse full table of contents and data tables at

Credit unions can ‘up their game’ with the right digital lending partner, (CU Insight), Rated: A

Comment: This article is a bit of an advertisement for p2p-bank partnerships. I think it’s worth being clear and reminding the obvious to our readers: quite a few p2p lenders have such partnerships and they seem to function well.

The success of Lending Club and Prosper, despite recent setbacks, demonstrates to credit unions the opportunity to ‘up their game’ and become a part of this digital revolution. What’s more, your credit union can keep the loans on your balance sheet.

Your credit union is able to profitably fund and manage smaller dollar, unsecured loans at a fraction of the cost of manual and paper processes, often as low as $500 each.

What kind of Digital Lending Partner can help your credit union ‘up your game’ quickly? One that has proven success in digital lending, and:

  • Allows your credit union to use your underwriting controls and risk-rating standards
  • Keeps the loans on your balance sheet as earning assets
  • Accepts online applications by computer or mobile phone
  • Provides approvals in an instant, funds in just days
  • Monitors loans, deposit activity and credit information
  • Handles loan renewals
  • Provides proven safety in the cloud
United Kingdom

Britain counting on fintech for banking revolution, (Reuters), Rated: AAA

British banks, starting 2018,  will have to share customers’ data with third parties who can then show how much could be saved by using other lenders, the competition watchdog said on Tuesday. Under the new rules, banks will have to share a customer’s data with third parties, providing the customer agrees. The CMA will also require lenders to publish their maximum fee for unarranged overdrafts, which earn banks 1.2 billion pounds ($1.6 bln) a year.

New banks, consumer advocates and lawmakers, however, derided the plans as relying too much on people’s ability and willingness to use new technology.

The CMA believes setting a 2018 deadline will also boost the “fintech” sector, which uses technology to make financial services cheaper and more efficient.

The government wants to see fintech grow, but European Union countries like Germany would like to lure the sector from London after Britain voted to leave the bloc.

Only 3 percent of consumers and 4 percent of business customers change banks in any year due to inertia.

Andrew Tyrie, chair of parliament’s Treasury Select Committee which has pushed for six years to get more competition in banking, said he was not optimistic the measures will get to the heart of the problem.

Land said the Financial Conduct Authority (FCA), which capped payday loans’ interest rates, will review the overdraft measures and obstacles to new entrants to see if they improve, but Rishi Khosla, co-founder and CEO of OakNorth Bank, said this “passing of the buck” to other market watchdogs could put many fledgling companies at risk.

“The FCA should be prepared to step in with an industry-wide cap if they (the banks) do not significantly reduce the charges being paid by people who fall into difficulty,” said Money Advice Trust, a charity that helps people deal with debt.

The Financial Services Consumer Panel, which advises the FCA, said the measures rely on untested technology and consumers having to act on complex information. “At least it has given the FCA some good evidence to take on the banks.”

VPC Speciality Lending fund shifts strategy to greater balance sheet exposure after difficult Q2, (Alt Fi News), Rated: AAA

The key drivers of the recent shortfall, VPC says, was a cash drag from holding cash to cover currency hedges, and a peak in defaults, reflecting the life cycle of loans.

The portfolio is a combination of ‘marketplace’ and ‘balance sheet’ loans. Marketplace loans are originated by a platform, which earn an origination fee, with the fund lending directly to underlying borrowers targeting unlevered returns of 6 to 10 per cent, or 11 to 18 per cent on a levered basis. Balance sheet loans on the other hand are made to platforms with target returns of 11 to 16 per cent on an unlevered basis. The balance sheet loans are made through a special purpose vehicle [SPV] with the platform using the cash to originate loans.

At launch back in March 2015 balance sheet Loans were expected to be around  half of the portfolio, and currently represent 43 per cent of the invested portfolio. However, according to analysts at Numis Securities the management team at VPC believe that industry illiquidity has created attractive opportunities for balance sheet lending.

The VPC Speciality Lending Investment trust is looking to up its stake in balance sheet lending with profits from its marketplace loan holdings and move away from Funding Circle US’ exposure. More spare cash will be moved into balance sheet loans rather than marketplace loans in the VPC Speciality Lending investment trust, according to an update by the closed-ended fund’s management team.

The VPC Speciality Lending trust saw growth in its net asset value of just 0.33 per cent during the second quarter of 2016 on a total return basis, reflecting a 0.62 per cent loss in May.

According to AltFi Data, VPC Speciality Lending had outerperformed the broader UK marketplace lending space, as measured by the Liberum AltFi Returns index (the LARI) since its launch back in March 2015 until recently.

While the fund’s Q2 numbers are “below expectations”, VPC says long-term returns should be in their target range. The higher than expected losses, they add, came from the Funding Circle US loans which substantially underperformed expectations while the balance sheet loans in the portfolio experienced no setbacks and are generating coupons of between 12-16 per cent, with a weighted average coupon of 12.96  per cent

The trust is currently trading on a discount of 16.9 per cent. At launch in March 2015 it moves rapidly to a premium likes its peers in the space such P2P Global Investments. But, like its peers, it has also seen a substantial period at a double digit discount in 2016.

“We believe there is little scope for this discount to narrow until the fund consistently delivers monthly returns in line with its target. In addition, we believe the fund’s fees are high at 1 per cent of gross assets with a 15 per cent performance fee on net asset value [NAV] returns  [with] no hurdle.”

 

FCA Chief Told Parliament Committee Crowdfunding is Too Small to Be Systemically Important, (Crowdfund Insider), Rated: AAA

Financial Conduct Authority (FCA) Chief Executive Andrew Bailey basically gave a Parliament Treasury Committee a crash course on Crowdfunding 101 this past June.  The letter by Bailey was recently posted on the Treasury Committee website, along with a statement from Andrew Tyrie MP, Chairman of the Committee, who questioned “government subsidies”;

“On the basis of this correspondence, the risks associated with crowdfunding platforms appear to be restricted to those using the platforms to lend or invest. Government policies to promote the crowdfunding sector may have the right intention – to increase competition in the SME lending market – but government tax incentives, in effect government subsidies, may be encouraging some consumers into the use of inappropriate products. The FCA needs to be alert to these risks. The Government may need to reconsider these tax incentives.”

There is also an element of irony here. Internet finance is broadly recognized for its high degree of transparency. Old finance is known for its obfuscation and arcane operations – the source of too many systemic problems (how soon we forget the saga of LTCM). Many in the alternative finance sector believe Fintech is empowering finance to  come out from the shadow banking past and is better labeled as sunlight banking. It remains a truism that the best form of regulation is transparency.

Roche-Saunders explained a few days back it was clear that traditional finance sees “P2P encroaching on their space.”  Yet she was confident in the abilities of the FCA to draw the line at a point where competition is enabled and alternative finance can thrive. The FCA review process is accepting comments now with a deadline of September 8th.

FundingKnight to boost loan book after acquisition, (Bridging And Commercial), Rated: A

Gary Mealing, head of property lending at FundingKnight, explained to Bridging & Commercial that the company expects a large increase in activity after GLI Finance acquired its remaining shareholding.

FundingKnight’s origins and our skills are in commercial assessment, which means we’ll be focusing heavily on businesses with a property need and we’ll also have an appetite to fund over longer periods, also for larger amounts – up to £5m.

There has been a lot of focus around commercial property funds and the pressures from their investors to liquidate, and then there is the uncertainty so far with regards to the UK economic growth post-Brexit.

European Union

Interview – Finbee the First Year, (P2p Banking), Rated: A

More than 3,000 investors have issued 2M EUR worth of loans via FinBee and none of them lost any money due to a default and our compensation scheme. P2P lending is a relatively new concept in Lithuanian lending market, so raising awareness and overcoming scepticism was one the biggest challenges that we’ve faced from day one.

Current default figures are better that we expected and projected. We expected to operate with 8 to 10 percent of non-performing loans. Currently we have 2.25 percent (it worth noting that we consider a loan to be non-performing when two monthly instalments are missed, that is when loan is 60+ days late). We also project 40 percent recovery of non-performing loans. So we expect 4.8 – 6 percent losses after recovery. Having in mind that investors now invest on 26 percent interest rate on average, they can expect 20 percent returns even without our compensation fund.

What plans and goals do you have for FinBee for the next year?

Operations in Czech republic.

India

Raghuram Rajan sets agenda for rest of his term, (Live Mint), Rated: A

Reserve Bank of India (RBI) governor Raghuram Rajan set himself a crowded agenda in the last four weeks of his term as he left interest rates unchanged in his final monetary policy review on Tuesday.

On his agenda: guidelines for peer-to-peer (P2P) lending platforms and account aggregators, new norms to improve the functioning of corporate bond markets and tweaks to the marginal cost-based lending rate (MCLR) system, which Rajan hopes would improve the pass-through of past rate cuts by the central bank.

Singapore

Digital gold and silver may be up for P2P lending soon, (Asia One), Rated: B

(P2P) lending in Singapore could soon be extended to cryptocurrencies, if a unique partnership between vault operator Silver Bullion and a gold-backed digital currency seller is inked.

Silver Bullion, a gold and silver vault that offers peer-to-peer lending backed by those commodities, is in talks with Digix Global, a company that sells asset-backed tokens – or cryptocurrency bearing rights to gold – to use these tokens to borrow funds on the loan platform, the vault operator told The Business Times.

Several borrowers use the loan to buy more bullion with it, Mr Gregersen said. Lenders, on the other hand, use the interest to pay for storage on their own silver or gold stash.

Such loans are fully backed by physical gold and silver, and lending that stretches beyond six months has a collateral-to-loan value of at least 200 per cent. This means that a loan of S$100,000 must be backed by a collateral worth at least S$200,000. The exceptions are loans with a one-month tenure, which have a collateral-to-loan value of 160 per cent.

The discussion comes as Digix Global has moved to store gold bullion that is backing its cryptocurrency with Silver Bullion. They expect to store up to US$3 million worth of gold in Silver Bullion’s vault by the end of 2016. Digix Global will be transferring its gold holdings from Malca-Amit, at Singapore’s Le Freeport.

On Digix Global, users can buy Digix tokens, each of which represents one gram of gold.

Author:

George Popescu