Details Title: Internet 3.0: Decentralize everything Internet 1.0 is HTML websites. Internet 2.0 is a social network and user-created content. Internet 3.0 is the decentralization of everything: decentralization of marketplaces, of resources usage and allocation, etc. Is Internet 3.0 the P2P of everything? Examples of decentralization include: Decentralized exchanges (Ether Delta) Decentralize computing power (Golem) […]
Internet 1.0 is HTML websites.
Internet 2.0 is a social network and user-created content.
Internet 3.0 is the decentralization of everything: decentralization of marketplaces, of resources usage and allocation, etc.
News Comments Today’s main news: California SC finds arbitration agreement waiver unenforceable. BondMason first P2P provider to launch SIPP. China’s internet finance thrives as fraud fades. Marvelstone plans robo-advisor for family offices. Today’s main analysis: Real estate tech deals tick up. Today’s thought-provoking articles: 5 areas of fintech attracting investment. UK still fintech unicorn capital of Europe. Millennials favor search […]
Real estate tech deals tick up. AT: “I suspect most of this is being driven by RECF. Mortgage tech is starting to rise. PropTech is huge, and that includes tools for real estate brokers and investors including rental unit management.”
Why I don’t believe in the hybrid advice model. AT: “This is a position I’d expect of LendingRobot’s Emmanuel Marot. Although brilliant, LR and Marot cannot fight market forces. Nonetheless, I agree with his bottom line: Humans can spout meaningless justifications better than any robot, which is why the hybrid model is catching on. While investors think technology is cool, there is still that spark of meaningless human voice-in-the-head begging them to fear it.”
On April 6, the California Supreme Court issued a unanimous opinion in McGill v. Citibank, finding that a pre-dispute arbitration agreement was unenforceable to the extent it required the plaintiff to waive her right to seek public injunctive relief. According to the court, the right to pursue a public injunction constitutes an “unwaivable public right” under California law. Therefore, “a provision in any contract ― even a contract that has no arbitration provision ― that purports to waive, in all fora, the statutory right to seek public injunctive relief . . . is invalid and unenforceable under California law.”
The California court further explained that its partial unenforceability finding is consistent with the U.S. Supreme Court’s decision in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985). In that case, the Court stated that “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitrable, rather than a judicial forum.”
The court also acknowledged, but found no reason to address, the plaintiff’s related claim based on what is known under California law as the “Broughton-Cruz” rule, asserting that a request for a public injunction cannot be decided in arbitration. Finally, the decision remanded the case to the California Court of Appeals to consider ― if either party should raise the issue ― the question of whether the rest of the arbitration agreement remains enforceable in light of language contained in the most recent version of the underlying account agreement stating that, “if any portion of the arbitration provision is deemed invalid or unenforceable, the entire arbitration provision shall not remain in force.”
The decision of the California Supreme Court in McGill v. Citibank will likely be appealed.
In light of this decision, providers of consumer products and services should review their existing arbitration agreements to determine whether the consumer’s ability to pursue a public injunction or other “public rights” is completely foreclosed.
McGill v. Citibank also highlights the risks of including language in an arbitration agreement (or in any contract) stating that the agreement will be invalid if any portion of the agreement is deemed invalid or unenforceable. Given the impossibility of predicting how courts may interpret even well-settled questions of law, standard severability language is always preferable unless different language is specifically mandated.
At the same time, some of the steam has come out of the sector. Overall investment and merger and acquisition activity in fintech almost halved from a record high of $46.7bn in 2015 to only $24.7bn last year, according to KPMG.
Another negative factor was the governance scandal last year at Lending Club, the biggest online lender in the US, combined with disappointing performances by some of its rivals, which turned investors off peer-to-peer lending.
Total fintech investment in Asia inched up to a new record of $8.6bn last year, although the number of deals fell by more than 8 per cent. More than half the region’s total fintech investment came from one deal: Ant Financial’s $4.5bn funding round.
The launch of voice-activated assistants such as Amazon Alexa and Google Voice has opened up possibilities for making online banking easier for customers. Banks such as Capital One have already latched on to this trend.
Cyber security shot to the top of the boardroom agenda for banks after one of the biggest bank robberies in history was carried out by cyber thieves on the Bangladesh central bank via the Swift payments system in February 2016. The crooks made off with $81m that was on deposit at the US Federal Reserve.
Most big financial groups remain convinced of the potential for blockchain to revolutionise parts of their industry and several central banks are examining the potential for using the technology to create digital currencies. Venture capital investment in blockchain companies rose by a fifth to $544m last year, according to KPMG.
The insurance industry has been slower than other areas of finance to wake up to the digital disruption at its door. But recently start-ups such as So-sure, Friendsurance, Lemonade, Guevara and Brolly have emerged with plans to transform the sector. Venture capital investment in insurance technology companies doubled last year to almost $1.2bn, according to KPMG.
2016 was a banner year for real estate tech with over $2.6B in funding to the category across 277 deals. At the current run rate, 2017 could very well reach another consecutive funding high, even as deals are on track to come in slightly below last year’s total.
So far this year, real estate tech companies have received $733M across 61 deals. At the current run-rate investment activity is on track to reach $2.9B invested across 247 deals.
On a quarterly basis, deals have materially declined since Q3’16.
Funding, on the other hand, has increased in each of the last three quarters and Q1’17 received the second-largest quarterly funding total ever, behind Q2’16.
On paper, it looks pretty good: let the robot do the simpler stuff, like a modern-portfolio-theory allocation between a few ETFs, and have a human being intervene to provide more sophisticated and personalized advice.
In practice, I think it’s nonsense. If you believe the market is truly efficient, then there’s no point in using an advisor, robot or human. Just invest in a broad market ETF and be done with it (except for tax harvesting).
If you think the market is efficient-ish, then low cost optimization is the solution. Go robot. If you think you need an active manager, you should read the trove of statistical analysis that demonstrate you’re simply paying for someone’s yacht. Indexes beat stockpickers [92% of time]…
It does make sense for robo-advisors to move to the hybrid model, since it allows them to differentiate and de-commoditize their service, but for their clients, not so much.
Machine learning algorithms have become so good in the last 10 years, that any number-crunching and quantitative decisions a smart but junior employee can do, the machine will do better, faster, and cheaper.
Investors with at least $100,000 with Wealthfront can now borrow up to 30% of their balance for loans for anything except purchasing more investments on the firm’s platform, the company announced Wednesday.
Reuters reports loans will cost between 3.25% and 4.5%, and any money a client deposits into their account after taking out a loan will pay off the balance rather than investments.
Financial services firm Edward Jones today announced a multi-year partnership with SixThirty, a St. Louis-based venture fund that invests in financial technology (FinTech) startup companies. Backed by the St. Louis Regional Chamber, SixThirty was founded in 2013 and to date has funded more than 25 startups across the globe.
As part of the partnership with SixThirty, Frank LaQuinta, a general partner with Edward Jones, has joined the organization’s Investment Committee which evaluates the investment pipeline and selects FinTech startups that SixThirty invests in.
Pi Capital International LLC (“Pi Capital”) is pleased to announce that it was the exclusive financial advisor and placement agent to Money360, Inc. for a structured debt facility of up to $250 million. The financing vehicle is designed to allow Money360 to employ funding as it provides commercial real estate loans to its U.S. client base. The fund provides Korean investors with a short-duration, high-yield fixed-income instrument.
“The fund raise by Pi Capital will allow us to substantially increase our assets under management,” said Evan Gentry, M360 Advisors’ CEO. “We believe this gives us a competitive advantage with an anticipated $250 million investment from one of South Korea’s most reputable financial institutions.”
ApplePie Capital, the first online lender solely dedicated to the franchise industry, today announced the appointment of franchise industry veteran Ronald Feldman as chief development officer, as well as the acquisition of Funding Solutions, LLC, a well-established national franchise lending consultancy that specializes in SBA, conventional and equipment finance loans. Feldman and Funding Solutions’ managing partner Randy Jones will join ApplePie’s leadership team.
These additions position ApplePie’s financial platform to exponentially expand upon its hallmarks of speed, flexibility and efficiency with new product options, an expanded network of lending sources and an extraordinary wealth of franchise finance expertise for its growing list of franchisor partners. Currently, ApplePie serves more than 40 franchisors including Orangetheory Fitness, Jimmy John’s, Jersey Mike’s and Marco’s Pizza.
Responsible for growing ApplePie’s brand portfolio and contributing to product strategy, Ronald Feldman comes to the company with more than 20 years of experience in franchise leadership and franchise financing. He previously served as chief development officer at FranData, the industry leader in market research, and as a principal and co-founder of Franchise America Finance (FAF) and The Siegel Financial Group. Feldman was also an early franchisee of The Goddard School system. As an active advocate of the franchising business model, Feldman currently serves the International Franchise Association (IFA) as chair of the Supplier Forum Advisory Board and sits on both the Board of Directors and the Executive Committee of the association. Feldman was awarded the Sid Feltenstein MVP Award for service to the IFA’s Political Action Committee (FRANPAC) in 2013.
Unfortunately, some Millennial stereotypes are rooted in fact. A 2015 PWC survey showed that only 24% of us have basic financial knowledge, and even so, only 27% of us seek financial advice on saving and investing.
When it comes to jobs, we’re not the deadbeats that people assume. In fact, a 2015 Deloitte report found that 54% of Millennials had started or had planned to start their own businesses by year-end. Although we may work differently than generations past, many of us are passionate, entrepreneurial and looking to make a difference.
“Advisors need to understand how truly connected this new generation is to each other and to information.” When it comes to trusting a financial advisor, Kamine highlights this outsider oversight as a road block.
Millennials currently represent a meaningful fraction of U.S. wealth that will grow as baby boomers continue to pass down an astounding $30 trillion over the next 30 years. When this transfer of wealth happens, an estimated 66% of Millennials will fire their parents’ financial advisor, according to InvestmentNews Data.
This year, 86% of Millennials said they are interested in socially responsible investing, according to Morgan Stanley.
The Millennial Disruption Index reports 71% of us would rather go to the dentist than listen to what banks tell us. In our financial planning, we have shorter-term goals that we’re trying to align with the things we care about.
With an average age of 51, many advisors still build financial plans based on their view of a traditional life cycle with set ages for when we start a family, buy a house, climb the corporate ladder and retire. But their view is not our reality. Kamine adds, “Financial advice has been like a structured box without much creativity or understanding of the individual. Advisors need to become more dynamic because we’re revolting against structure. I’ve told my advisors I don’t envision buying a house for at least the next five years. And I’m definitely not focused on planning for retirement 40 to 50 years from now.”
The report, the first in a series on regulation in the fintech industry, focuses specifically on marketplace lenders, mobile payments, digital wealth management platforms and distributed ledger (also known as blockchain) technology.
While the GAO did not issue any recommendations in the report, it noted that regulation of these four subsectors was varied depending on the types of products or services offered and the way in which they are delivered to consumers.
College Ave Student Loans, the leading next-generation student loan fintech lender, has teamed up with America’s #1 College Life Expert Harlan Cohen to help families get comfortable with the uncomfortable when it comes to college and money. Hosted by Harlan Cohen, author of The Naked Roommate, the Naked Financial Truth Digital Tour will feature a series of free webinars and videos focused on financial advice, strategies and tips to help parents and students plan for post-secondary education.
The first webinar, “The 7 Biggest Financial Mistakes College Students Make (And How Parents Can Help)” will be held on Tuesday, April 25 at 7 p.m. ET. Registration for the webinar is free and available online at
These eight companies — which are required to have a presence in the region to receive an investment — will begin the 12-week accelerator on April 24, meeting with mentors and advisors selected to help guide them toward growth and fundings. They run the gamut of the financial industry, from creating data visualizations of personal assets to a student loan repayment benefit program. Four focus on putting financial technology to use solving social issues.
In the next several weeks Raymond James is setting its sights on rolling out a revamped suite of “longevity” planning tools. The updated software comes with the kinds of bells and whistles that advisors might expect from a nearly five-year-old package – a “new look and feel” as well as a “more conversational design,” as company execs put it.
Other notable enhancements, they say, include more flexibility for analyzing portfolio return patterns and capabilities allowing real-time updates as clients’ household budgets and retirement goals change over time.
Tamarack, a leader in providing independent software solutions in the equipment finance and commercial lending industry, has added Channel Partners Capital as its newest client to utilize Tamarack’s Lease/Loan Origination Accelerator on Salesforce.
Channel Partners, a leading provider of small business working capital loans, will benefit from added flexibility, streamlined operations and enhanced audit controls, as a result of using Tamarack’s Lease/Loan Origination Accelerator on Salesforce.
Tamarack’s Lease/Loan Origination Accelerator on Salesforce is a scalable solution offering users the ability to automate work queues,increase throughput of loans without additional head count and customize notifications from lead generation through to funding.
BondMason has become the first peer-to-peer service provider to launch a self-invested personal pension (SIPP) product. The service aims to offer investors a flexible and tax-efficient way to save for retirement.
The new retirement product, which selects loans across P2P lending platforms, will grant UK savers exposure to higher-return assets than traditional pension savings products. Starting from a minimum investment of £5,000.
MILLENNIALS are favouring search engines over professional financial advice when it comes to managing their own money, research claims.
A poll of more than 2,000 adults by Zurich UK claims 15 per cent of millennials, referring to those aged 18-34, are turning to search engines such as Google instead of seeking professional financial advice, more than any other age group.
Only three per cent of 35-44 year olds and nine per cent of those aged 45-54 and over 55 respectively, opt for web-based information.
Asked why they eschew professional help, one in five millennials cited confidence in their ability to sort their own financial futures as a reason for not initially seeking professional help, while 37 per cent felt they do not earn enough to need to speak to a financial adviser, and almost a quarter said they were too young.
High Street bank TSB said some loan providers make a “hard mark” on credit files when someone asks for a loan price or quote.
TSB chief executive Paul Pester said: “We estimate that consumers are losing out by as much as £400m each year, which is going straight into the pockets of aggressive loans providers. It is time the industry comes clean on these costly underhand tactics.”
P2P lending offers an innovative funding option for businesses – including developers – and is fast becoming the go-to option.
It’s essential that the development finance sector stays competitive and vibrant, and alternative lending allows that to happen. Far from just being a back-up for situations that the traditional lending sector can’t cater to, crowdfunding and P2P platforms can actually be a more efficient source of funding.
Achieving compliance will not happen overnight. Indeed, MiFID II is widely considered to be one of the most sprawling pieces of financial legislation ever devised, and thus it presents numerous challenges. One of which being that recording calls will become mandatory for all areas of financial advice.
Then, if you add GDPR (the EU’s General Data Protection Regulation), coming into effect in May 2018, into the equation, 2018 is shaping up to be a regulatory nightmare for financial services firms. Under GDPR, we all have a‘ right to be forgotten’ or a right to erasure of all personal information held on us by a particular company. This places a duty on companies to be able to quickly access and delete the information they hold on specific individuals, on request.
However, comparing the responses of IT professionals and those responsible for managing Risk & Compliance within a business shows IT teams have a better overall understanding of the consequences of non-compliance. 62% of risk and compliance managers admitted to not knowing a company can be fined up to five million euros or 10 per cent of annual turnover, compared to only 42% of IT managers and decision makers.
A stranger’s photograph appears on your smartphone screen, and you decide whether to give him or her a loan or not. The money is not yours, but instead is provided by microfinance organizations. That’s the main difference from traditional American P2P (peer-to-peer) lending, and with Suretly you can earn or lose depending on whether the recipient of your largesse proves to be a reliable borrower or not.
Suretly is geared exclusively to short-term loans of up to one month; in other words, those with the highest interest.
The money itself is loaned by the microfinance organization that the borrower applies to, but only if they attract enough sureties to cover the whole amount, plus interest. Users share the risks, and depending on whether the individual returns the money or not, they can lose or earn from $1 to $10.
On the app, borrowers are divided into seven categories from A to G depending on their trustworthiness. The higher the risk that the loan won’t be repaid, the higher the price of its surety. The maximum commission is $1.5.
Listed Australian deposit taking institution Goldfields Money (ASX:GMY) looks to be making good on its intention to become a leading player in the digital banking product distribution and BaaS market in Australia, announcing last week that it had signed an MoU with Singapore headquartered remittance fintech Instarem.
What is interesting about the MoU is the intent to move beyond remittance towards a broader banking play for cross-border SMEs and products orientated towards visa holders visiting or living in Australia.
The two companies should have a healthy market ready to capitalise on. According to the Australian Bureau of Statistics, over the last 10 years the proportion of the Australian population born in China alone has increased from 1.2% to 2.2%, coming in just behind New Zealanders and British immigrants. Those born in India currently make up 1.9% of the population, while citizens from the Philippines, Vietnam and Malaysia collectively add up to further 2.7%.
Migration isn’t going away. And the degree to which an individual’s assets are spread across countries is also on the increase thanks to globalization.
China has four large state-owned banks, and state-owned enterprises generally have easier access to financing. Many small companies are troubled by the financing bottleneck, creating pent-up demand.
Meanwhile, working-class families struggle to figure out where to invest their savings to seek higher returns, and many of them move money online. The country, home to the world’s biggest online population, also has a number of groups, such as college students, who are underserved by banks.
By March 2017, 3,607 Chinese P2P lending platforms had run into trouble or been forced to close, with only 2,281 platforms in normal operation.
On top of P2P lending, Internet finance also covers business such as third-party online payment, crowd funding, and other financial services.
Risk caused by the Internet finance industry has wide repercussions. Some P2P lending platforms resembled hybrid financial institutions providing clients with various financial services online, analysts said.
Businesses such as P2P lending, Internet-based insurance, third-party online payment, and online asset management were among key areas for strengthened supervision, industry observers said.
Internet finance last week appeared on the top banking regulator’s list of ten most important areas for enhanced risk control, with targeted measures to be taken to stem emergence of a financial crisis.
Wang said 2017 will be a watershed year for Chinese Internet finance as the rules are tightened, bringing the industry out of the wilderness.
Singapore-based Marvelstone Capital plans a robo advisor platform for the under-served family office market in Asia.
The platform is being developed with Singaporean fintech startup Smartfolios, and will be launched in the third quarter of 2017. It will be available on desktop and mobile for Marvelstone Capital’s clients.
Marvelstone will target family offices based in Singapore, Malaysia, Indonesia, Myanmar, as well as India. The company points out that Malaysia is an important market and Cho added: “It is a huge market and the culture is quite unique as well, there’s a huge Shariah-compliant market, so it is definitely one of the most important markets for us.”
Where ? Online webinar When ? January 24, 2017, 12 p.m. to 1 p.m. EST Description During this webinar, panelists will address whether a fintech company should apply, and how it would go about applying, for the proposed fintech OCC charter. Key topics include: What to consider when evaluating whether a fintech bank makes sense […]
January 24, 2017, 12 p.m. to 1 p.m. EST
During this webinar, panelists will address whether a fintech company should apply, and how it would go about applying, for the proposed fintech OCC charter.
Key topics include:
What to consider when evaluating whether a fintech bank makes sense
What are the advantages of having an OCC charter
Timing, costs, and issues in applying for a charter
Key issues that the OCC will be evaluating
Composition of the management team
Capital and liquidity requirements
What it is like to be subject to examination and supervision by the OCC
Promoting fair access, financial inclusion and CFPB and other governmental objectives – considerations and solutions.
The panel is made up of former OCC lawyers who dealt with chartering issues during their tenure with the OCC and they will share their experience on these topics and will also be available to answer questions during the webinar Q&A session.
News Comments Our community’s voice : Yesterday Lending Times wrote : “Another of Jefferies’ securitization breaks triggers: Loan Depot. I am not an expert in securitization, nor in investment banking. But it looks to me that Jefferies’ made securitizations have by far the highest probability of breaking triggers. This is very strange. See Circle Back […]
Our community’s voice :
Yesterday Lending Times wrote : “Another of Jefferies’ securitization breaks triggers: Loan Depot. I am not an expert in securitization, nor in investment banking. But it looks to me that Jefferies’ made securitizations have by far the highest probability of breaking triggers. This is very strange. See Circle Back and OnDeck’s. And now LoanDepot’s.”
Our readers commented: ” the Jefferies point is a very good one… The Jefferies MPLT shelf has had every deal breach except AVNT. We see 2 or 3 more deals breaching in the next few months. “
A short overview of Beechum v. Navient Solutions . Very interesting, especially in perspective to CFPB vs CashCall and Madden vs Midland.
Orchard’s weekly online lending snapshot. To note: UK’s listed P2P investment funds are inching up again. Lending Club’s stock is now 76% higher than the bottom. And borrower’s interest rates uptick. It all looks like noise to me, no overall trend.
Bondora launches a referral program. It is interesting to our readers to know that the referral earns 5% of their referred friend lent amount for the 1st 30 days. PledgeMe in New Zealand had a flat $500 for friends referred who invest over $50,000 which is much harder to achieve. Lending Club’s marketing campaign at some point was probably a better idea : “We will give you $50 to invest in Lending Club notes”. Hard to say not to “free” $50.
Clarence Nunn was the head of GE Capital’s franchise business before General Electric decided new regulations gave it a good reason not to be in that business anymore. So now Nunn has a new mission — building out Chase’s U.S. expansion in mid-sized business lending in the southeastern U.S. Nunn will oversee a region including Florida, Georgia, Tennessee and the Carolinas, where the bank is expanding its middle-market lending into eight more cities this year.
Firms with $20 million to $500 million a year are becoming an increasingly important subset of Chase’s business — while other segments in smaller business lending have seen contractions, Chase has expanded lending in this segment into 30 new service regions. In the same period, lending in areas targeted for expansion increased nearly six-fold to $10.7 billion.
“Middle market growth has averaged 46 percent a year. As the economic recovery is continuing to really take hold, Chase is committed to keeping credit available for the businesses that are really pushing recovery,” Chase commercial banking chief Doug Petno told investors earlier this year.
All in all, revenue has grown to $351 million since 2008 — and executives have a long-term target of $1 billion.
“We’ve made a huge amount of progress in a very short amount of time in these new markets,” said Petno. “Building organically, banker-by-banker, client-by-client, loan-by-loan, we’ve essentially created a nice size bank from scratch.”
In Beechum v. Navient Solutions, Inc. this past Thursday, September 22, a federal district court in the Central District of California dismissed an action raising usury claims against several student loan servicers, rejecting the plaintiffs’ arguments based on the “true lender” doctrine.
The decision comes on the heels of a decision by another judge of the Central District of California in U.S. Consumer Financial Protection Bureau v. CashCall, Inc. (covered here), which relied on the true lender doctrine to rule in favor of plaintiff CFPB. The two cases illustrate contrasting approaches to the application of true lender doctrine to marketplace lending models.
The plaintiffs in Beechum v. Navient Solutions, Inc. obtained student loans from Stillwater National Bank and Trust Company.
Although the decision is a narrow one based on California State law, it adds yet another data point to the growing body of law on the true lender doctrine. The court’s analysis is potentially noteworthy for several reasons:
The court’s focus on the face of the transaction is a departure from cases like CFPB v. CashCall, which have, in similar contexts, applied a “predominant economic interest” test to scrutinize a transaction.
The defendant servicers argued that the court should dismiss the complaint on the alternative ground that application of State usury law to loans originated by Stillwater would run afoul of federal preemption under the National Bank Act. Because the court dismissed on the ground of a State law usury exemption, however, it did not reach the federal preemption issue. This may signal reluctance to wade into thorny preemption issues created by the Second Circuit’s May 2015 decision in Madden v. Midland Funding, LLC.
Although the court does not explicitly mention the principle that a loan valid when made cannot become usurious as a result of a subsequent transfer, the result in the case adds to the body of case law standing for that proposition.
Silicon Valley venture capital firm Canvas Ventures has raised a $300 million fund to make new investments into startups working on fintech, healthcare, artificial intelligence and other cutting-edge technology.
Its previous investments include marketplace lending company Lending Club Corp. (LC.N), which went on to raise more than $1 billion in its 2014 initial public offering; mobile payments company Check, which was acquired by Intuit (INTU.O); and Wifi camera company Dropcam, which was acquired by Alphabet’s Google (GOOGL.O).
Russell Elmer has been named as the new GC replacing Jason Altieri who has been Lending Club’s GC for the past seven years. As one would expect, Elmer will be reporting to Lending Club CEO Scott Sanborn.
Most recently Elmer has been Deputy GC and Corporate Secretary at PayPal so he has plenty of Fintech/ payments exposure. Elmer has also been General Counsel at Pricelock and General Counsel at E*Trade. He was also a Partner at Gray Cary Ware & Freidenrich (now DLA Piper) where he spent nearly a decade. Elmer is expected to oversee all legal matters including corporate securities, M&A, corporate governance, government and regulatory affairs and litigation.
Recent legal and regulatory developments are affecting the ways that marketplace lenders and investors do business — and their impact will continue to be felt well into the future. This is a turbulent time in this developing industry and senior members of Pepper Hamilton’s Marketplace Lending practice sat down for a podcast to discuss some of the industry’s most significant issues and their implications leading into the 2016 Marketplace Lending + Investing Conference taking place in New York this week.
On the other hand, marketplace mortgages could divert billions of dollars of income from banks, which would hurt their already thin margins and shake up — even transform — the credit sector.
Several marketplace lending entrepreneurs I interviewed said they avoid direct competition with banks. They prefer to serve a small segment of the credit sector that banks have little to no interest in.
Such modesty is uncalled for. Marketplace lending is an explosive idea with enormous potential.
But when my colleague,Ioannis Akkizidis, and I stress tested a portfolio of marketplace loans from one of the major US platforms, returns diverged toward zero already under moderate stress. In addition, if banks manage to compete with the interest rates offered by these lending platforms, a wave of prepayments could ripple through the sector, curtailing interest income. Medium and strong stress resulted in losses for investors, which was accelerated by the absence of collateral.
At ABS East conference Steve Eisman was quoted saying;
“The central problem is that these lending startups, their founders and backers in particular, don’t have a lot of experience making loans to consumers, and some of them approach loan-making as they would retail sales…When you go to Amazon and buy a book, you buy it and the transaction is over. But when you take out a loan, that is just the beginning of the transaction — it’s like a relationship. Silicon Valley, I think, is clueless”
Hoopes explained (via an email to Bloomberg) that;
“Traditional Wall Street occasionally forgets that online lending has a long track record and that these platforms have been built by people with deep financial markets experience. Borrowers and investors are turning to these online products because they are delivering enormous value compared to the traditional alternatives.”
Celebrated Entrepreneur Barbara Corcoran And OnDeck Team Up In New Campaign Highlighting The Importance Of Financing For Small Businesses, (Email), Rated: A
Beginning this month, Ms. Corcoran will be featured in television and radio commercials and customer communications emphasizing OnDeck’s unique ability to provide small businesses across the United States access to much-needed financing. She will also serve as a contributing editor to the OnDeck blog, offering advice to OnDeck’s customers and small business readers.
The launch of the Barbara Corcoran marketing campaign follows a busy summer for OnDeck, which unveiled a new brand identity with the enhanced
Europe’s first securitisation backed by unsecured consumer loans from an online platform has priced today, in the latest sign of nascent integration between new lending companies and institutional funding markets. The £150m deal is backed by loans originated on the Zopa platform, which were made and previously held by P2P Global Investments PLC.
Deutsche Bank was the sole arranger and manager on the Zopa deal. P2P Global Investments PLC will retain a “net economic interest” in the deal for the duration of the transaction.
While embracing technology that facilitates the lending process, Folk2Folk maintains numerous brick and mortar locations as they believe in dealing with people – not just websites.
Folk2Folk is a small business lender that provides “responsible” credit. LTVs only go up to 60% of the value of the security.
To date, Folk2Folk has facilitated over £115 million in loans.
Our vision is to replicate our unique and successful business model across the UK in 2017. This expansion will help us scale the business to reach our target of a loan book of over £1 billion by 2020.
There has been an industry slowdown, which I believe has been down to a number of factors from seasonality, Brexit uncertainty as well as increased competition in borrowing rates as the BoE has reduced rates.
The important factor is that despite the slowdown, or bump in the road as you put it, the industry is still growing well above 50% year-on-year.
We are fortunate in being a very well diversified business and currently over 75% of our staff are female.
Peer-to-peer (P2P) lending platform Bondora said last week it has launched a Refer-A-Friend program, under which investors can earn 5% from the amount their referred friends lent in the first 30 days of signing up via the platform.
Late last month, PledgeMe, a New Zealand-based crowdfunding platform, also launched a referral program,PledgeMe.Friends, under which users get a $500 reward if a friend they’ve referred launched a successful campaign that raises more than $50,000.
Bondora is an leading Estonia-based P2P lending platform. The platform has facilitated the disburse of more than €66 million. The average Bondora loan is €2,370, but loans range from €500 to €10,000. Bondora also operates a secondary market for P2P loans where investors can buy and sell their existing investments.
News Comments United States A very interesting risk that has not been clearly described so far: the risk that small SMB loans end up being regulated like personal loans. A fascinating read on politics and regulators. Goldman announcing their p2p lender will be live in the fall with $16bil in lending capital from depositors. Goldman […]
Online marketplace lenders would face significantly higher regulatory hurdles if most of their loans to small businesses were reclassified as consumer loans, as the Treasury Department has recommended, an industry representative and a legal expert told Bloomberg BNA.
Officials discussed the need for greater transparency and noted that small-business loans under $100,000 “share common characteristics with consumer loans, yet do not enjoy the same consumer protections.”
The industry is pushing hard to head off the suggestion.
“They’re very smart in being concerned about that,” said Richard Eckman, a partner at Pepper Hamilton LLP in Wilmington, Del. “There are a whole host of consumer laws that apply to loans that are for personal, family and household purposes; that’s sort of the definition of a consumer loan.”
The federal consumer protection law that ranks as the biggest concern of marketplace lenders such as CAN Capital, which cater exclusively to small businesses, is the Truth in Lending Act (TILA).
“TILA, in particular, is onerous,” Eckman, a specialist in marketplace-lending law, said in an e-mail.
On May 3, 16 members of the committee’s Republican majority and three of its minority Democrats, along with House Small Business Committee Chairman Steve Chabot (R-Ohio), sent a letter to Treasury Secretary Jack Lew sounding themes that foreshadowed Sanz’s testimony. The Treasury Department at that time was preparing its report on marketplace lending, and the House members wrote that they wished “to raise concerns with recent comments by public officials that seem to indicate a preference to regulate lending to small businesses and consumers similarly.”
“[W]e believe it is important for the Department to carefully study and understand key distinctions between commercial and consumer lending markets,” the letter said. “Mistaken efforts to conflate these categories would restrict the availability of capital to small business owners.”
“There’s no reason why small businesses shouldn’t have the same protection as consumers,” Lauren Saunders, associate director of the nonprofit National Consumer Law Center, in Washington, told Bloomberg BNA.
“The research has shown that these small-business owners who borrow smaller loans, under $100,000, are not that sophisticated and at times they really don’t understand the fine print, the hidden terms and conditions that we see in the typical fintech loans to small businesses,” she said. “These contracts are very opaque. The fees and terms are hidden in a way that really makes it impossible for the borrower to do any kind of comparison shopping.”
There wasn’t a ton to get excited about in Goldman Sachs’searnings report on Tuesday.
Sure, per-share earnings beat analysts’ estimates, but how excited can you get over beating an estimate that dropped like this?
However, there was a tantalizing detail or two offered on the conference call by Chief Financial Officer Harvey Schwartz about the firm’s intriguing efforts to tap into the Main Street customer base. Schwartz said that the bank would roll out its consumer lending platform this fall after surveying thousands of consumers on what they would look for in such a thing. The bank developed one product involving unsecured loans, Schwartz said as way of teaser, telling analysts to standby for more information in the fall.
This may not end up being a big enough business alone to return Goldman’s revenue to record highs, at least not in the short term. Rather, the intrigue lies in its potential to disrupt the disruptors — the online startups that have pioneered the brave new world of peer-to-peer or marketplace lending.
With 20,000 customers opening up new savings accounts on top of the $16 billion in deposits it acquired from General Electric’s online bank in the second quarter, Goldman theoretically should be able to fill in the gaps easily at times when investor demand gets skittish.
There’s one sector of finance that really doesn’t get a lot of airtime when it comes to fintech – deposits. Checking accounts, savings accounts, transaction accounts – while they’re the bread and butter of banking, they’ve been relatively untouched since they were first invented. You put money in, and, if you’re lucky, earn a little interest before you take the money out.
Is there an opportunity here for a fintech startup to slice away this part of a bank’s core business, by adding a little flavour to the whole deposit experience?
Serial fintech investor and entrepreneur Peter Thiel certainly thinks there are opportunity in deposits. In January of this year he invested €1M into a German fintech startup Deposit Solutions.
Deposit Solutions is the first open architecture platform for retail deposits in Europe. Among many things, it solves one of the central problems for account holders related to accessing great deposit products – it eliminates the need to switch banks. Instead, a saver requires just one master account with Deposit Solutions and can then pick and choose their deposit product of choice from the Deposit Solutions marketplace.
There are a number of other fintech startups playing in this space, either building the deposits piece from scratch or interfacing into an existing authorized deposit-taking institution. Digit,SmartyPig and Qapital are a notable few. With lending having taken most of the glory to date, opportunities here are getting thin on the ground. Maybe the humble bank account is the next big fintech play.
The increasingly close relationship between banks and marketplace-lending platforms, as well as the uncertainty surrounding the “rent-a-charter” model to avoid state usury limits described above, have led to speculation that marketplace lenders may ultimately obtain bank charters. A fundamental issue is whether the equity and institutional investment markets will provide a stable long-term source of funding for the industry. This issue has garnered attention in recent months as leading marketplace-lending platforms have experienced steep declines in their stock prices and as questions have been raised about how lending platforms interact with fund investors and about weak secondary-market trading of asset-backed securities. The question may acquire renewed urgency in light of the governance issues at a leading marketplace lender that recently made headlines, along with its disclosure that the DOJ is now investigating. 
An important prudential regulatory concern with acquisitions of bank charters by marketplace lenders is a desire to avoid making the marketplace-lending industry an attractive supplier of brokered deposits, which are an unstable source of capital and may be particularly risky where a bank has inadequate anti-money-laundering controls or is undercapitalized. Regulators also anticipate grappling with the activities of many lending platforms that may be incompatible with partner banks that have charters limiting their activities to those activities that are considered “incidental to the business of banking”—typically insurance and securities work. The edgy innovations of marketplace-lending platforms that use technology in creative ways to marry finance with social media offerings are a particular challenge in this regard.
Although Madden v. Midland applies directly only to cases where a national bank is selling or assigning a loan, the policy underlying the decision to limit the exporting authority under the NBA might also be applied to a state bank’s rate exportation powers under Section 27 of the Federal Deposit Insurance Act (the state bank equivalent to section 85 of the National Bank Act). Secondary market participants and marketplace lenders now wait for the decision from the District Court on remand. If the court upholds the Delaware choice of law provision, market participants may manage the impact of the Madden v. Midlanddecision by electing a favorable choice of law provision in the underlying debt contract. That at least will provide an option for continuing to work with national banks despite the Madden case.
Unfortunately, that solution will not work for buyers and sellers of existing loans, although presumably such parties are not too inconvenienced by a limit on the post-assignment interest that can be charged on a loan after substantial interest has already accrued, particularly if they have purchased the debt at a substantial discount. Other lenders may continue to rely on the state banks’ ability to export interest rates. In that situation, lenders should choose state banks whose state has a generous interest rate cap and is outside the Second Circuit.
The group impacted most by the Madden v. Midland decision appear to be marketplace lenders who acquire a loan shortly after origination and therefore have essentially all accruing interest at risk of challenge. One alternative option adopted by one on-line marketplace lender picking up on the “substantial interest” distinction in the Madden decision, is to require the bank loan originator to maintain an on-going economic interest in all loans after sale and receive certain payments on the loans only when borrowers made payments.
What remains following the Supreme Court’s refusal to hear Madden v. Midland is an outlier Second Circuit on the issue of the “valid-when-made” rule, and the blueprint for how to apply preemption under the National Bank Act as provided by the Solicitor General in its brief, a brief that as noted above clearly considers theMadden v. Midland decision to be wrong. Unfortunately, until such time as the right case comes along, market participants will have to make adjustments to accommodate the decision as necessary to address its impact on their particular situation.
The start of a new credit cycle means that income investors will have to adjust to stagnant bond prices, and new opportunities in credit markets from peer-to-peer lending will be tested by tighter monetary policy, according to David Schawel, CFA.
Returns for fixed-income investors consist of the coupon; the shortening of the bond, known as the roll; and price appreciation. Since the 1980s, falling interest rates have caused existing bonds to appreciate, as their prices increased to match the yields of bonds issued at lower interest rates. Schawel, a portfolio manager for New River Investments, thinks interest rates are nearing a lower bound.
“Most likely we’re not going to be in a 30-year bull market for interest rates falling again,” Schawel told Will Ortel during a recent Take 15 interview.
Schawel cautions fixed-income investors against assuming that bonds will continue to appreciate. Instead, the coupon and the roll will drive returns from bonds. With the roll becoming more important, investors need to pay close attention to the yield curve. Much of the return from bonds will come from the roll while the bond is on the steep part of the curve. Recently, the curve has flattened, reducing the yield premium, as the US Federal Reserve moved to tighten monetary policy.
Schawel sees the rise of marketplace or peer-to-peer lending as indicative of inefficiencies in yield.
MarketInvoice, a 100-strong firm based on the edge of The City in the confines of London’s Silicon Roundabout, has just announced a multi-million investment totalling £7.2 million (c.$9.5m) led by MCI.TechVentures Fund of MCI Capital, a listed Polish private equity group. Sylwester Janik, a senior partner of MCI Capital, a multi-stage private equity group based in Warsaw with nearly two decades of expertise of investing in digital economy companies, has at the same time joined MarketInvoice’s board.
To date the platform has provided £850m (c.$1.11bn at current exchange rate) worth of funding to UK businesses, and the firm is set on path to reach the £1bn mark before the end of 2016. At present the firm provides over £1.5m (c.$2m) per day in cash flow finance to UK businesses via its platform. At present MarketInvoice has a current market share of around 13% in its P2P alternative financing segment.
MarketInvoice, which has seem 100% year-on-year growth over the last three years, typically charges between 2%-3% on invoices handled for clients depending on the amount of the invoice. Businesses can select those invoices they want to finance, unlocking tied-up cash in 24 hours.
“In the wake of Brexit, we think the coming months present a big opportunity for MarketInvoice. Recent intervention by the Bank of England suggests that we might see significant reductions in bank lending.”
Funding Circle co-founder James Meekings said “the process of leaving the European Union will take two years and there will be no immediate change to Funding Circle’s day to day operations”.
A few weeks ago, AltFi Data cut its projection for 2016 UK origination by 14%, after the £840m originated in Q2 2016 became the first quarterly volume figure ever to fail to eclipse the sum originated in the preceding quarter.
Matthias Knecht quit Funding Circle Continental Europe at the end of June. Knecht was a member of Funding Circle’s global leadership team and a former co-founder of Zencap, a peer-to-peer lending outfit which Funding Circle acquired in October 2015. An article in Gründerszene suggested that a conflict had arisen between Knecht and Funding Circle CEO Samir Desai over the allocation of resources.
LendInvest, the UK’s largest marketplace for real estate loans, has also been making changes. In the immediate aftermath of the Leave vote, LendInvest tightened its lending criteria for loans worth more than £3m, adjusting the cap on LTVs for these loans to 65%. The company has also temporarily paused lending on new second charge applications.
Funding Circle CEO Samir Desai described 2015 as the year in which “it looked like we were turning water into wine”. He described 2016, by contrast, as a year for getting heads down, and for getting on with building business.
Lately the Wall Street Journal has been set to attack mode. Its coverage of the US marketplace lending sector has become almost exclusively cynical. The Times, The Telegraph and This is Money covered the recent insolvency and subsequent acquisition of the business lender FundingKnight. How many other news items in the history of the peer-to-peer lending industry have enjoyed that level of attention in the national press? Not many!
Ben McLannahan, US Banking Editor at the FT, aptly summed the whole thing up when he posted on Twitter saying“#LendingClub = have we hit the trough of disillusionment?” He was referring to something called the Gartner Hype Cycle, which is an attempt to chart the typical growth trajectory of disruptive technology companies.
UK-based Nucleus Commercial Finance claims it has made the largest ever P2P loan to date following a £14.5 million financing facility offered to UK steel stockholder Industrial Metal Services (IMS). The company has lent more than £400m to date and Shah claims that 90% of this has already been pad back with just £5,800 incurred in bad debts.
The new BridgeCrowd website features a fully online view of the current live and historic loan book, a loan performance update system and an E-Wallet, where investors can place capital into loans and manage their account and interest.
The BridgeCrowd has launched a new website with added features following strong growth over the last 18 months.
Bridge Crowd offers 68% LTVs across residential owner occupied and buy-to-let properties.
The UK’s oldest peer-to-peer lending service Zopa, has today announced that Ronen Benchetrit will become the company’s new Chief Technology Officer (CTO) in a strategic hire for the fintech business.
Most recently, Ronen served as CTO for leading online gaming operator PokerStars. In this role, Ronen was responsible for the provision of the areas of technology and for management of the company’s product roadmap, ensuring the quality, reliability and security of external and internal systems, networks and platforms.
LenDenClub has launched its new version of P2P lending platform with features such as end-to-end automation of lender-borrower transaction cycle right from registration, document verification, credit analysis, transaction matching to report generation. An algorithmic-based program, built based on artificial intelligence, will be used for reviewing borrower’s creditworthiness. For the company, the upgradation of P2P platform will accomplish a major milestone and prepare them for payment and digital signature automation to bring 100% automation in lending process through right technology for borrower identification, data collection, digital signature usage, payment automation, etc.
The company had successfully raised seed funding recently.
From the document published by the MAS on Lending-based Crowdfunding – Frequently Asked Questions (FAQs), generally, the operation of P2P lending is restricted by MAS under the Securities and Futures Act (Cap. 289) (SFA) and the Financial Advisers Act (Cap. 110) (FFA).
Specifically, the P2P lending business needs to prepare and register a prospectus with MAS in accordance with Section 239(3) of the SFA. In addition, not only the registration of the prospectus but also the P2P lending platform need to follow the licensing requirements, particularly, the P2P lending business which fall within the scope provided by MAS needs to hold a Capital Market Services (CMS) license.
From the document, MAS states in paragraph 10 that “ …Platform operators should now ensure that the participants on their platforms are aware that each lender has to lend at least $100,000 if the borrower is to fall within the Promissory Note Exclusion. Offers of consolidated promissory notes commenced after the date of these FAQs must comply with the Prospectus Requirements” This means, that the P2P lending platforms, which previously used a single promissory note issued by the borrowers, need to apply for a license, if they still want to proceed their lending business; however, as provided in the MAS document, the removal of the Promissory Note Exclusion will be effected after the amendment of SFA.
This will affect many of existing P2P lending platforms such as MoolahSense and Capital Match which have the main function to help businesses to find loan from investors because some of P2P lending platforms are using a promissory note exemption without a Capital Market Services (CMS) license; however, MAS will make it easier for licensed P2P platforms. Therefore, a small offer exemption in accordance with the aforementioned law might be used by many P2P lending platforms.
There continues to be strong interest from Chinese Wealth Management firms to invest in US Online Lending loans
Investor interest is focused on making strategic equity investments in all types of global FinTech firms within Online Lending
Chinese Marketplace Lenders continue to increase their focus on offering more diversified products to clients including wealth management, insurance, and other financial services
Implementing a robust operational infrastructure is widely understood as a necessity required to successfully invest in the US Online Lending industry
Increased interest in US Online Lenders from Chinese investors and notable US-Chinese partnerships such as those between DriveWealth and CreditEase, Robinhood and Baidu, and Saxo Bank and Lufax — that further emphasize the importance of this series of events.