Friday February 3 2017, Daily News Digest

direct lending

News Comments Today’s main news: American Banker pushes back on SoFi acquisition of Zenbanx. Billionaire Dan Loeb prepares to bet on MPL.  RateSetter updates lender terms ahead of provision fund changes Today’s main analysis: January International P2P lending volumes. Today’s thought-provoking articles: Rise in personal loans dominated by P2P lending. United States Where SoFi-Zenbanx deal falls […]

direct lending

News Comments

United States

United Kingdom

Australia

India

Asia

International

News Summary

United States

Where SoFi-Zenbanx merger falls short (American Banker), Rated: AAA

The announcement that Social Finance is buying Zenbanx marks an important milestone in SoFi’s ongoing evolution from a one-product company exploiting a pricing anomaly in the government student loan market to the preferred private bank for millennial achievers.

But as positive as this partnership is, it won’t solve all of the challenges facing an alternative lender like SoFi, which still needs a more direct banking capability to deliver sustainable funding for its loan portfolio.

For the last couple of years, SoFi’s quest to become the central financial services hub for its approximately 230,000 HENRY (High Earner Not Rich Yet) customers has had mixed success. While 230,000 is a large number of customers for a fintech startup, it pales into comparison to a money-center bank like Wells Fargo, which has more than 300 times as many customers and is much fewer than the customer count at private bank competitors like First Republic. More importantly, the vast majority of SoFi’s customers have only a single-serve (and not very profitable) student loan relationship because SoFi lacked the transaction banking and deposits capabilities needed to make it the center of its customers’ financial lives.

Billionaire Dan Loeb Is Preparing To Make A Major Bet On Marketplace Loans (Forbes), Rated: A

Billionaire hedge fund manager Dan Loeb of Third Point believes the election of President Donald Trump has created new opportunities for active investors, who will have newfound ability to outperform passive indices as growth and inflation set in, and correlations between stocks and other asset classes fall.

Loeb isn’t just re-positioning his stock bets for the Trump economy. As Forbes has reported, the hedge fund is bringing so-called ‘quantamental’ experts into its ranks, and has made significant investments in fintech and biotechnology.

Third Point is cutting its exposure to U.S. RMBS and moving heavily into the marketplace lending sector, where firms firms like Prosper, SoFi and LendingClub have filled a lending void left by banks. Marketplace lenders are increasingly pooling unsecured loans made to consumers into trade-able securities and distributing them to institutional investors such as hedge funds, bond funds, and even high net worth family offices. Third Point likes the duration of these loans, which normally are repaid in under three years, and appears to be stepping into the market at an opportune time.

That Third Point is stepping into market, however, indicates the fund sees a way to navigate the uncertainty of this nascent lending business. It also signals the hedge fund has not lost its excitement about novel fintech platforms despite a year of turbulence. The hedge fund’s VC arm, Third Point Ventures, is an investor in SoFi, Upstart and Swift Capital.

SoFi rides rally with new student loan securitization (Kitco), Rated: AAA

Social Finance seized the recent risk-on wave for consumer-related debt by dramatically pulling in pricing on Thursday on its latest student loan securitization.

The online startup priced the biggest part of its new US$561m bond at 45bp, or 10bp tighter than its prior broadly syndicated deal, according to bankers.

Lower rated tranches came even tighter in a 25bp-40bp range, according to IFR data.

SoFi’s CFO Nino Fanlo said the new deal attracted more than US$4bn of orders and the participation of about 40 accounts, or double the investor base in SoFi deals sold a year ago.

The US government provides a backstop for a huge chunk of the roughly US$1.3trn of outstanding US student loans – and SoFi has seized on refinancing its top earners.

Only US$5.7m of SoFi student loans had been charged off from the US$9.2bn pool it had originated as of December 31, according to Moody’s.

2017 is the year for Americans to get out of debt (MoneyLion), Rated: A

In fact, 54 percent of users surveyed expect their financial situations to improve in 2017. When asked how, respondents identified getting out of debt (63%), improving credit scores (57%), and better managing expenses (38%) as among their top objectives for the year.

The survey also revealed that 66 percent of respondents are relying on higher income in 2017 to pay for their expenses, yet only 52 percent expect to earn more this year. Added to this, a quarter of those surveyed do not track their expenses with 75 percent of that group saying it’s because they don’t know where to start.

Fintech Startups Want to Save One Key Page of Dodd-Frank (The Wall Street Journal), Rated: A

Section 1033 says that banks must “make available to a consumer, upon request…information relating to any transaction, series of transactions, or to the account” and “in an electronic form that can be used by computer applications.”

Fintech startups argue this language enshrines their right to pull data from customers’ bank accounts when the customers give them permission. Companies such as Betterment LLC, an online investment manager, say that accessing bank-account data helps them make it easier for consumers to use investing apps, borrow money or move dollars between accounts.

Banks, on the other hand, say that while they support customers’ right to share their account data, there should be certain restrictions as well. These are needed, they add, to protect consumers from third parties accessing more data than is authorized, or to track how data is used.

Already, Betterment and a group of well-funded fintech startups have created an industry group, called the Consumer Financial Data Rights group, in hope of protecting Section 1033 and pushing for broad implementation of it. The group, formed in January, said it would work with policy makers to promote “consumer choice and access.”

Other group members include Personal Capital Corp., Affirm Inc., Kabbage Inc., Varo Money Inc., and Hello Digit Inc.

Renovate America Completes $ 100 Million Credit Facility for Benji (Yahoo! Finance), Rated: A

Renovate America, a leading U.S. provider of home-improvement financing, announced today that it has completed a $100 million credit facility with Credit Suisse. The facility will enable Renovate America to expand Benji, the company’s unsecured consumer home-improvement lending product.

As Renovate America’s newest financing option, Benji is designed for well-qualified borrowers and is expected to rapidly expand to all 50 states. Benji can only be used to finance home improvements, from energy and efficiency upgrades to kitchen and bath projects. Benji offers consumer and small business protections which set it apart from other unsecured lending, including contractors agreeing to be paid only when homeowners have agreed that the project is complete, and post-funding dispute resolution support if needed.

Money360 Funds $ 8.3 Million Bridge Loan for Illinois Retail Center (SAT PR News), Rated: A

Money360, the leading commercial real estate marketplace lending platform, announced today that it has provided a bridge loan to the owner of a retail center in Jacksonville, Illinois.

Money360’s $8.3 million loan allowed the borrower to pay off a maturing loan on the Lincoln Square center, a 206,257-square-foot anchored retail property that is currently 82 percent occupied by a combination of 29 national and regional tenants.

IHT Realty Crowdfunding Offers Record High 28% Yield Investment Opportunity (Yahoo! Finance), Rated: B

We are pleased to announce that IHT Realty Crowdfunding has an opportunity for accredited investors.  Our Sponsor has acquired a beautiful, 2-home property to transition into a Residential Assisted Living Facility located in Jacksonville, FL.

The Sponsor is offering a 28% yield on the equity portion consisting of a 12% annualized yield and 16% deferred for 24 months. A majority of the equity is already pledged leaving a small tranche available for investment. The debt is already in place (crowdfunded by IHT in 24 hours) and the Sponsor has closed on the property and already started the rehab.

This investment will consist of repurposing 5.8 acres of land with two single-family homes.  These homes are great examples of the all-brick construction of the 1950’s and 1960’s.  The project starts with enlarging the homes’ heated areas from 1,488 sq. ft. to approximately 2,000 sq. ft. each by converting the oversized garages into 2 and 3 bedrooms with private full or half baths.

Sweet Water – Park LLC is the Sponsor for this project.

PayCommerce to use digital ledger for cross-border payments (The Asset), Rated: B

PayCommerce successfully conducted test payments between the US and India using its Federated Ledger, a blockchain-based technology.  This is the first phase of testing before an expected roll-out to PayCommerce network members at the end of Q2 2017. Other regions, such as Mexico, the Gulf Cooperation Council region, and the UK, are planned in 2017. Introduction is planned for Singapore, Canada and the Philippines in 2018.

United Kingdom

RateSetter updates lender terms ahead of provision fund changes (P2P Finance News), Rated: AAA

RATESETTER has published updated lender terms as it prepares to tweak its provision fund.

The new terms have been published on Thursday, one month ahead of the changes to the fund to address concerns that it is too “binary.”

Under previous rules, if the provision fund were no longer able to cover expected defaults, all loans would be assigned to the fund and losses would be distributed equally.

Under the new terms, RateSetter will be able to divert interest and capital into the provision fund if it thinks losses are becoming uncomfortably large.

Lenders with active investments can withdraw before 1 March 2017 if they are unhappy with the changes.

Podcast: Giles Andrews OBE, Zopa (Consult Hyperion), Rated: A

Giles Andrews was part of the team that founded Zopa in 2004. He became CEO in 2007 and moved to the role of Executive Chairman in 2015.

In this podcast, he talks about Zopa’s plans to launch a new, and more transparent, bank.

Listen to the podcast here.

MarketInvoice and Funding Circle represent P2P on fintech delivery panel (P2P Finance News), Rated: A

MARKETINVOICE and Funding Circle executives are among the industry experts selected for the Treasury-backed fintech delivery panel, which will aim to maintain the UK’s position as a global fintech hub.

Anil Stocker (pictured), chief executive of MarketInvoice and Martin Cook, general counsel at Funding Circle, are the only peer-to-peer lending professionals making part of the 24-strong panel, which will be run by Tech City UK.

Other fintech experts on the panel include: Michael Harte, group head of innovation at Barclays; Taavet Hinrikus, chief executive of TransferWise; Peter Smith, chief executive of Blockchain; and Jeff Lynn, chief executive of Seedrs.

Former NACFB chief launches SME funding platform (Credit Strategy), Rated: A

Tyler stood down as chief executive of NACFB in October 2016 after 11 years in the position and is now managing director of the online platform, FinancemyBusinessonline.

The platform, now live, provides a matching service between SMEs and lenders.

The platform has around 100 lenders registered including Paragon Bank, iwoca, Funding Circle and Aldermore.

Innovative Finance – a more interesting way to save? (Unbiased), Rated: B

The Innovative Finance ISA is a new breed of ISA, falling somewhere between a cash ISA and a stocks & shares ISA. It lets you loan your money out through peer-to-peer (P2P) lending and pay no tax on the interest.

The current ISA limit for 2016/17 is £15,240, split across all ISAs including cash, stocks & shares, Help-to-Buy, Lifetime ISA and Innovative Finance ISA. The total amount you pay into your ISAs each year can’t exceed £15,240 but if you want to, you can put the whole lot into one Innovative Finance ISA. From this April the ISA limit will rise to £20,000.

P2P platforms are required to have a provision fund to reimburse lenders for their potential losses. FCA regulation requires this fund to be at least £50,000 by April 2017, but the most reputable lenders have much larger funds totally millions of pounds.

Market Report: Direct Lending in the UK (BondMason), Rated: A

Since its inception in 2005, the UK’s P2P lending market has grown significantly. In 2016 there were 80+ Direct Lending platforms facilitating £3.2bn of lending, across many different types of borrowers from buy-to-let mortgages, property developers, SMEs, and consumers.

Here’s a snapshot;

  • The UK Direct Lending market is big and growing with plenty of room for growth
  • The big four platforms dominate but there are an increasing number of other operators
  • Regulation is improving but shouldn’t be relied upon to protect lenders’ returns
  • Attractive returns compared to other investment opportunities
  • Managing risk is key through choosing the right platforms, level of diversification, borrower, and loan selection
  • Services such as autobid and listed funds are increasingly popular for investors
  • The flight to quality will lead to a few platforms disclosing significant defaults in 2017 who may exit or scale back operations significantly
  • Why Direct Lending is likely to form a key component of any investor’s portfolio

Australia

Rise in personal loans dominated by peer to peer lending (Financial Buzz), Rated: AAA

Online marketplace lenders dominated personal loan applications during December 2016 quarter. The recent Veda credit agency report shows that the personal loan application numbers for this period were about 12.4 percent more compared to December 2015 quarter. The figures were taken from the most recent Quarterly Consumer Credit Demand Index.

There was a considerable rise in personal loan applications growth all over Australia. The Northern Territory and NSW led with a rise of anout 14.5 percent. Queensland was 13.1 percent. Victoria enjoyed a 12.5 percent increase in the growth rate. An upside of 7.7 percent was observed in consumer credit applications. Mortgage applications went up by 6.6 percent and credit card by three percent.

Your morning briefing (PaymentsSource), Rated: A

Sunglass pay: Wearables that can make payments are popping up in all sorts of garments, from gloves to rings, as developers look for what makes consumers comfortable. In Australia, sunglasses are getting a test. Business Insider reports Visa is testing the technology at Laneway, an upcoming music festival in five Australian cities. People will be able to make payments by tapping their sunglasses at checkout.(they take their glasses off, instead of bending over). Inamo, a local startup, developed the supporting technology, while Oberthur will handle risk management and Heritage Bank will be the deposit-taking institution.

India

FinTech startup SlicePay acquires P2P lending platform Trustio to enhance its credit offerings (The Tech Portal), Rated: A

SlicePay, a fintech startup which provides buy-now-pay-later kind of service to its users, has today announced that it has acquired Trustio, a NewDelhi-based peer-to-peer lending company.

The company has also recently tied up with a systemically important large NBFC which has a 2500+ crore loan book and are in the final stages of discussions with a publically traded NBFC that has 10,000+ cr book.

Mahindra Finance announces winners of Global Fintech Challenge with Matchi and KPMG India (Match.biz), Rated: A

Leading Indian NBFC, Mahindra Finance, is delighted to announce three winning solutions from their recent Global Fintech Challenge. All three solution providers will continue with Proof-of-Concept projects within Mahindra Finance with a view to roll out and implement their technologies.

Category 1 Theme: Real Time Credit Risk Assessment
Winner: EFL Global (USA)

Category 2 Theme: SME Risk Monitoring
Winner: NanobiData

Category 3 Theme: SME Cash Flow Management
Winner: Finansync (UK)

Asia

How Asia is making a new push into e-payments (The Asset), Rated: A

Malaysia in 2015 looked to revamp its bill payment system by introducing its JomPAY service. Operated by MyClear, a subsidiary of Bank Negara Malaysia the service looks to develop an open electronic bills payment platform for consumers, banks and billers. Currently the platform has 42 banks and over a 1000 businesses registered on the system.

The Vietnamese Ministry of Finance in 2015 instructed commercial banks to stop over-the-counter tax payments and work with tax agencies to create online portals to execute e-tax payments. Similarly the Indonesian Ministry of Finance last year launched its MPNG2 system, an automated tax management that aims to give taxpayers flexibility in payments and simplify the overall filing process.

India also last year saw the RBI (Reserve Bank of India) introduce its Unified Payments Interface (UPI) system, a tool that allows a user with multiple bank accounts to make payments via a single application. Currently the app is compatible with 29 banks including the likes of Axis Bank and ICICI Bank.

International

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

Funding Circle leads ahead of Zopa and Ratesetter. The total volume for the reported marketplaces adds up to 476 million Euro.

Zopa celebrated passing 2 billion pounds in loans lent since launch. That figure means  300,000 loans to 246,000 borrowers funded by around 75,000 lenders.

Further milestones reached this month were:

  • Harmoney passes 500 million NZD since inception
  • Assetz Capital passes 200 million GBP since inception
  • Twino passes 100 million EUR since inception

 

How fintech continues to dominate VC investment (The Asset), Rated: A

In 2015, as a share of global fintech capital investment, 56% was made in the US, with only 19% in China. However, as of September-end 2016, that number had dropped to 41% in the US, and more than doubled to 46% in China.

In the US, lending received 20% of VC investment in 2016, dropping down from 58% in 2015. Whereas VC investment in payments rose from 11% in 2015 to 14% in 2016; in blockchain 3% to 8%; in insurance 0% to 34%; and in wealth management, 0% to 7%.

Investment is shifting towards business-to-business based business models in the US, while China continues to focus on business-to-consumer based business models, as vast opportunities in consumer finance remain untapped by banks.

Authors:

George Popescu
Allen Taylor