Thursday November 8 2018, Daily News Digest

LendingClub total loans

News Comments Today’s main news: LendingClub loan origination estimates better than expected, losses widen. Zopa closes 60M GBP in funding. Landbay hits 200M GBP lending landmark. N26 expands in Europe. BBVA, Red Electrica Corporation complete blockchain-based syndicated loan transaction. Today’s main analysis: Q3 earnings for GreenSky, LendingClub, OnDeck. Today’s thought-provoking articles: How GreenSky is changing financing. LendingTree’s mortgage offers report […]

LendingClub total loans

News Comments

United States

United Kingdom

International

Other

News Summary

United States

LendingClub profit beats estimates on record loan originations (Reuters), Rated: AAA

Online lender LendingClub Corp (LC.N) reported an adjusted third-quarter profit that edged past analysts’ estimates and raised its full-year earnings forecast on Tuesday, helped by record loan originations and higher transaction fees.

The company said it now expects 2018 adjusted earnings of between $89 million and $94 million, up from a previous range of $75 million to $90 million.

LendingClub loss widens on higher expenses (Reuters), Rated: A

Online lender LendingClub Corp’s quarterly net loss widened, due to higher expenses for outstanding legacy issues.

The San Francisco-based company’s net loss fell to $22.8 million, or 5 cents per share, in the third quarter ended Sept. 30, from a loss of $6.5 million, or 2 cents per share, a year earlier.

LendingClub to expand in Utah (Pulse.com), Rated: B

The Governor’s Office of Economic Development announced 

How GreenSky, In-House Financing, and Blockchain Are Transforming the World of Credit (Premier Gazette), Rated: AAA

Fifty years ago, if you needed a loan for yourself or your business, you would typically walk into a brick-and-mortar bank, fill out a bunch of paperwork, talk to a loan officer, and wait several days or weeks to find out if you were approved. Today, this story has changed, and it’s going to look even more different in the future.

Borrowers seem to like GreenSky’s new way of obtaining credit. So far, the fintech company has served more than 1.9 million customers, providing them over $13 billion. Perhaps GreenSky’s most promising distinction is that it has also been consistently profitable with its new way of providing loan services. Its transaction volume has grown steadily from $2.1 billion in 2015 to $3.8 billion in 2017. During the same time, it grew its merchant base from 5,000 to nearly 13,000. Clearly, consumers in the 21st century like the new way of borrowing.

GreenSky estimates the home improvement industry, one of its key targets, to be just south of $350 billion annually. At a transaction volume of $3.8 billion, the fintech company has roughly 1% of the market.

Source: Premier Gazette

The APR’s for GreenSky’s products tend to fall between 5% and 24%, depending on the borrower’s credit profile. Loan terms vary from 42 to 90 months, and customers can borrow up to $55,000. GreenSky does not cater to subprime borrowers.

Late in 2018, GreenSky announced a new partnership with American Express.

Roundup of Q3 2018 Earnings: GreenSky, OnDeck, LendingClub (Lend Academy), Rated: AAA

OnDeck posted gross revenues of $103 million, up 8% from the previous quarter and 23% from the prior year period. OnDeck is benefiting from higher interest income due to rate increases as well as their origination growth while being able to decrease funding costs. Effective interest yield was 36.5%, up from 33.1% last year.

Source: Lend Academy

Net income came in at $9.8 million for the quarter, up from a loss of $4.1 million from the prior year period.

Source: Lend Academy
  • Gross revenue of $392 million to $396 million, up from $380 million to $386 million,
  • Net income of $20 million to $24 million, up from $10 to $16 million, and
  • Adjusted Net income of $40 million to $44 million, up from $30 million to $36 million.

GreenSky

GreenSky reported record transaction volume in the third quarter of $1.4 billion, up 33% year over year. Revenue increased 29% to $113.9 million year over year. GAAP net income was $45.7 million.

Source: Lend Academy

LendingClub

Net revenues were $184.6 million, up 20% from the prior year period and originations were $2.9 billion, up 18% from last year. Applications also reached their highest levels, up 30% year over year.

In Q3 2018 GAAP Consolidated Net Loss was $22.7 million, or $7.3 million if you exclude $15.5 million of expenses related to outstanding legacy issues.

Source: Lend Academy

Total loans issued by the company now stands at over $40 billion.

Source: Lend Academy
  • Net Revenue in the range of $688 million to $698 million.
  • GAAP Consolidated Net Loss in the range of $129 million to $124 million, reflecting expenses related to outstanding legacy issues through the third quarter partly offset by higher Adjusted EBITDA guidance.
  • Adjusted EBITDA in the range of $89 million to $94 million.

LendingTree Mortgage Offers Report – October 2018 (Lending Tree), Rated: AAA

October’s best mortgage offers for borrowers with the best profiles (the 95th percentile of borrowers) had an average APR of 4.61% for conforming 30-year fixed-rate purchase loans, up from 4.39% in September. The APR on refinance loan offers increased 22 basis points (bps), to 4.62%.

For the average borrower, the purchase APR for conforming 30-year fixed-rate loans offered on LendingTree’s platform was 5.27%, up 18 bps from September. The loan note rate of 5.14% is the highest rate of the year.

Consumers with the highest credit scores (760-plus, representing the 65th percentile of borrowers) received an average APR of 5.12%, versus 5.42% for consumers with scores of 680 to 719. The APR spread of 30 bps between these score ranges is the same as it was in September. For the average purchase loan amount of $233,938, the spread represents over $15,000 in additional costs for borrowers with lower credit scores over 30 years.

For the average borrower, the APR for conforming 30-year fixed-rate refinance loans increased 17 bps from September to 5.26%. The spread between credit score brackets (760-plus and 680 to 719) remained the same as last month, at 24 bps. That amounts to nearly $13,000 in extra costs over the life of the loan for borrowers with lower credit scores, given an average refinance loan of $238,447.

Average proposed purchase down payments fell to $60,361, a decline of about $3,600.

Source: Lending Tree

LendingTree Study Finds Millennials in the South Owe the Most on Their Cars (Benzinga), Rated: A

LendingTree today released its study on where millennials owe the most on their cars.

Key findings

  • Even car loans are bigger in TexasMetros in the Lone Star State dominate the top of the list: McAllenHoustonEl Paso and San Antonio have the highest median auto loan balances for millennials at $23,704$20,925$20,544 and $20,521 respectively.
  • Car capital of the world has the lowest auto debt. Ironically, Motor City has the lowest levels of millennial auto debt on our list with a median debt of $10,841 as well as the lowest average debt of $14,573.
  • Great Lakes area metros shine with the least auto debt. After Detroit, millennials in Rochester, N.Y.Grand RapidsToledo, Ohio, and Cleveland carry the lowest median auto debts, at $12,165$12,429$12,678 and $12,717 respectively.
  • New York and Ogden, UtahThese metros are on opposite ends of the spectrum when it comes to carrying any auto debt at all — New York has the lowest percentage of millennials with auto debt at 41.5 percent while Ogden, Utah has the highest percentage of millennials with auto debt (64.5 percent).

Outside Financial Brings Much-Needed Transparency to Auto Lending (Digital Journal), Rated: A

To prevent the average consumer from being charged more than $1700 in hidden markups on auto loan packages, Outside Financials opens an independent loan marketplace to facilitate transparency in auto lending and auto refinance.

We got a peek at Plaid’s financials, the fintech startup whose valuation has tripled in the past 6 months to as much as $ 3 billion (Business Insider), Rated: AAA

As of October, Plaid told investors it was on track to generate about $70 million over the next 12 months, two people who were briefed on the financials tell Business Insider.

That’s up from the $50 million in revenue the company told investors just one month earlier it was on track to generate, two other people who reviewed Plaid’s financials at the time said.

Fighting financial crime without excluding the underbanked (American Banker), Rated: A

Eugene Ludwig, founder and chief executive officer of IBM’s Promontory Financial Group, said artificial intelligence — already employed to help identify potential anti-money-laundering activity — is getting smarter, and can now be used to identify vulnerable groups of people who have been incorrectly labeled as high risk.

Nerdwallet Wants To Make Comparison Shopping For Financial Services Simple (Forbes), Rated: A

For example, Nerdwallet personal loan product page sorted loans by interest rates.

“All our consumers hated it. They wanted it sorted by monthly payments, which seems odd until you put yourself in their shoes and see what is going on month by month,” Chen said. “We have to meet them where they are. If you start by wagging your finger, that’s a good way to get them to hit the back button on their browser.”

Nerdwallet has three million members and more than 100 million visits each year, Chen said.

InfoSec Governance, Risk, and Compliance Manager (LinkedIn), Rated: B

SoFi is seeking an experienced InfoSec Manager to assist in all aspects of our governance, risk and compliance program.

NRL Mortgage Selects The Riivos Mortgage Lending Application (PR Newswire), Rated: B

Riivos Mortgage, a division of Riivos, Inc., the provider of cloud-based continuous value chain management technology, today announced that NRL Mortgage, an originator serving customers coast to coast, is using the Riivos Mortgage Lending forecasting, planning and reporting application to help them analyze and capitalize on growth opportunities. NRL Mortgage is majority owned by St. Christopher’s Holdings LLC, a privately-owned holding company based in Houston, Texas.

Judge suspends compliance deadline for CFPB payday rule (American Banker), Rated: B

U.S. District Judge Lee Yeakel on Tuesday reversed a previous order from June and granted, in part, the request by acting CFPB Director Mick Mulvaney and two industry trade groups to delay the payday rule’s August 2019 compliance date. They sought a delay to prevent lenders from having to comply with the old rule before the revisions are finalized.

United Kingdom

Zopa, the UK P2P lending company, closes £60M round on path to launching a bank (TechCrunch), Rated: AAA

Obtaining a banking license and then launching an actual new retail bank requires capital. A lot of capital. Enter Zopa, the U.K. peer-to-peer lending company that wants to become a bank, which today is announcing that it has closed £60 million in further funding. Only £16 million is actually new new money, having already disclosed £44 million in August, so this is effectively an extension of that earlier fund-raise.

Landbay reaches £200m lending landmark (P2P Finance News), Rated: AAA

LANDBAY has hailed its quality service and strong broker relationships as it reached the £200m lending milestone this week.

The peer-to-peer property platform, which purely focuses on buy-to-let mortgages (BTL), said it had reached the landmark with a track record of zero defaults.

Atom is intensifying its mortgage push (Business Insider), Rated: AAA

Atom has initially introduced 2- and 5-year buy-to-let remortgage products for landlords that have four to 25 properties. Users will have to pay a 1% loan fee, and the maximum loan term is 25 years.

Source: Business Insider

Older P2P property lenders boast “negligible or zero losses” (P2P Finance News), Rated: A

THE LONGEST running peer-to-peer property platforms are providing investors with high returns and “negligible or zero capital losses,” analysis claims.

Research from P2P analysis firm 4th Way has highlighted 11 lenders who now have a track record of four years or more.

LendInvest seeds newly launched real estate debt fund with £150m (Real Assets), Rated: A

LendInvest has launched a new real estate debt fund with £150m (€171.6m) seed capital from a previous fund.

JAJA SMASHES CROWDFUNDING CAMPAIGN AS IT READIES CREDIT CARD LAUNCH (Fintech Finance), Rated: A

Jaja Finance, the company on a mission to simplify the world of consumer finance, announces that it has already reached its fundraising target of £3m on equity crowdfunding platform Seedrs. The company will use the funds to expand its team and launch its digital credit card, Jaja.

China

Chinese tech CEO predicts ‘exponential’ growth in financial technology (CNBC), Rated: A

Financial technology has reached a tipping point for China’s Ping An Technology and future growth in that area is set to be exponential, according to CEO Ericson Chan.
European Union

N26 Expansion: German Challenger Bank Brings Services to Denmark, Norway, Poland, & Sweden (Crowdfund Insider), Rated: AAA

Germany-based challenger bank N26 is bringing its services to Denmark, Norway, Poland, and Sweden.

“N26 passes on these cost benefits to its customers. N26 partners with the most innovative fintech and traditional financial companies to offer its customers best-in-class products such as TransferWise (foreign exchange), Raisin (savings), Clark and Allianz (insurance), auxmoney (credit) and others.”

International

Banks complete first syndicated loan on blockchain (BBVA), Rated: AAA

BBVA and Red Electrica Corporation have become the first businesses in the world to deliver a syndicated loan using blockchain. The €150m deal, granted by BBVABNP Paribas and MUFG, was reached in record speed using BBVA’s proprietary platform- which is powered by distributed ledger technology.

Seven Businesses That Promise Digital Can Be Ethical (Forbes), Rated: A

In financial services, an industry where trust is a particular issue, Monzo was founded on the idea that there should be an alternative to traditional banking practices. Monzo argues that banks should get rid of punitive fees, do more to ensure customers know exactly what they can expect to pay for an overdraft, and provide greater control over how people spend their money.

Start-up Wagestream has just raised £4.5m for a business it promises will kill off the payday loan sector and the ‘payday poverty cycle’.

Banks should ally with fintechs in battle against payday lenders (PaymentsSource), Rated: A

Bankers who regard payment technology companies such as fintechs as a problem may be missing opportunities.

Alternatives to payday lending are an example. These fintechs provide credit for nonprime customers, such as a recently divorced woman faced with a slew of new expenses. It is pricey credit, but cheaper than payday lenders. Unlike payday lenders, these companies provide credit reporting and reduced rates as a client pays off the loan. Eventually, a successful client qualifies for bank lending and leaves to take advantage of bank interest rates.

Source: PaymentsSource

Report: AI in Fintech (Diplomatic Courier), Rated: A

FinTech has revolutionized the way that banks and insurance companies function. Rather than prioritizing themselves and their services as in the past, banks must emphasize client needs in today’s new technological era. This focus on personalized financial services manifests itself in FinTech—a financial infrastructure for consumer enablement. As FinTech applies data and technology to financial services in an effort to address industry challenges, artificial intelligence is essential to FinTech’s existence and usage.

To read the full report click here for the digital edition.

Crypto Power Player PwC is Assisting on Cred Crypto Lending Platform’s New Stablecoin Project (Bitcoin Exchange Guide), Rated: A

A division of the worldwide accounting and consulting firm PwCis currently working with a new stablecoin project that aims at developing a U.S. Dollar-based coin. The Hong Kong division will be exploring the best practices for issuing new stablecoinsworking with the Loopring Foundation.

Research reveals three tech strategies that will benefit small and midsized financial institutions (Finastra), Rated: B

A new piece of research, sponsored by Finastraand executed by Mercator Advisory Group, shows that small and midsized financial institutions can derive significant benefits to operational efficiency by pursuing three distinct cost-saving strategies: vendor consolidation, cloud delivery, and artificial intelligence. Based on in-depth interviews with C-level representatives of community banks and credit unions with asset size between $200 million and $5 billion, the research gauges attitudes toward and levels of adoption for each strategy.

  • Consolidation of vendors ultimately eliminates the need to maintain and manage multiple systems, and can improve operational efficiency by 20-30%.i
  • Cloud delivery brings numerous benefits including the ability to easily scale system capacity to meet demand.
  • Artificial intelligence (AI), which is the least adopted of the three strategies to date, promises to make processes smarter, faster and more personalized to the consumer. However, in order to reap these rewards, banks must prioritize their vendor consolidation and cloud delivery road maps.

The white paper, titled Landmark Decisioning: Using Vendor Consolidation, Cloud Computing, and Artificial Intelligence to Improve Operational Efficiency, is available here.

Persona and FintruX announce renewed control over personal data (Leaprate), Rated: B

Persona, the blockchain-based solution for identity management,has just announced its partnership with FintruX, the P2P lending ecosystem, to streamline the onboarding process for customers while ensuring they remain in full control over their personal details.

Persona is the first identity management solution developing its own blockchain, as opposed to other projects being developed as ERC20 tokens over Ethereum.

Asia

Funding Societies | Modalku Included in Global List of 100 Leading Fintech Innovators (Markets Insider), Rated: AAA

‘Look at where debt has gone’: MAS chief warns of 3 shifts in global financial risks (Channel NewsAsia), Rated: A

While the fault lines of the last global financial crisis have been mostly addressed, risks remain and have shifted in three ways over the past 10 years, said the Monetary Authority of Singapore’s (MAS) managing director Ravi Menon on Wednesday (Nov 7).

Meanwhile, the extension of credit has shifted from banks to non-banks – one of the areas that have not been given enough attention, said Mr Menon.

Canada

Loop Partners With Equifax to Launch Canada’s First Free Business and Consumer Credit Education Platform (Newswire), Rated: AAA

Equifax Canada and Loop today announced the launch of a credit health and monitoring platform for businesses. Launched at the intersection of Small Business Month and Financial Literacy Month, the new platform empowers Canadian small business owners and entrepreneurs alike, to improve their financial and credit health through easy-to-read credit scores, reports and resources.

Crypto Loans On The Rise – BTC Used As Collateral For Canadian Dollars (Crypto Disrupt), Rated: A

It is now possible to attain a loan for Canadian Dollars (CAD) using bitcoin as collateral. The ability to use crypto as a form of collateral for fiat is a sign of further legitimacy for the sector. More providers are expected to follow suit and offer crypto loans, with a wider range of fiat currencies for a larger range of acceptable cryptocurrencies used as collateral.

Authors:

George Popescu
Allen Taylor

Digital Identity Verification for Alternative Lenders

Digital Identity Verification for Alternative Lenders

Trust is the root of all business transactions. For any financial institution to lend money or offer a banking service, being able to identify the counterparty is a must. And though anonymity is a blessing in a lot of situations, business cannot be conducted under the cloak of secrecy. Financial services are a particular focus […]

Digital Identity Verification for Alternative Lenders

Trust is the root of all business transactions. For any financial institution to lend money or offer a banking service, being able to identify the counterparty is a must. And though anonymity is a blessing in a lot of situations, business cannot be conducted under the cloak of secrecy.

Financial services are a particular focus area for the highest standards in identification, especially due to the strong regulatory push on money laundering, terrorism financing, and KYC (Know Your Customer). Also, according to the World Bank, around 1.1 billion people worldwide cannot prove their identity. They form a major chunk of the 2.5 billion people who don’t have access to financial services. This highlights that identity is a fundamental part of financial inclusion.

Mitek Systems, a global leader in mobile capture and identity verification software solutions, is in the forefront of this growing niche industry. We had an exclusive chat with the company CTO, Stephen Ritter. He gave his views on the opportunity and developments in the ID verification space and how it will be an underlying pillar for the growth of fintech lending and blockchain-led services.

Mitek’s Business Model and Technology

Mitek started as a software company and has evolved to become the leader in mobile banking and mobile deposit solutions. It enables bank customers to take picture of checks for depositing, rendering the physical deposit process redundant. It has entered the digital ID verification market and has developed artificial intelligence (AI) and machine learning-powered proprietary algorithms. It will verify the ID by having the user take a picture of  a government-issued ID and compare it with a selfie. This allows the software to cross verify the selfie face with the picture on the government-issued ID.

Mitek’s solutions specializes in accurately identifying the personal document, and can even recognize and evaluate IDs of multiple countries. It can also extract relevant information from the document. Its advanced forensic algorithms can detect signs of forgery or fake documents. Further, it can distinguish good and bad documents and provide a risk score to determine if the document can be trusted. Its algorithms can also determine if the human face is real or a spoof.

The company’s core competency is computer vision, a specific niche within machine learning. The company has been developing software in the field for the last 15 years and considers itself among the pioneers in the space. With the intense speed of development in the field, the company is actively working with partners for integrating third-party sophisticated technology into their own solutions.

The main solutions provided by Mitek include:

  • Mobile Fill – A solution which allows personal information to be pre-filled in the forms of the applicants, taking help of the Mobile ID capture solution provided by Mitek.
  • Mobile Verify – A combination of Mitek’s computer vision technology and auto capture experience, Mobile Verify validates the authenticity of identity documents thereby simplifying the KYC compliance processes.
  • Mobile Deposit – Mobile deposit is a solution that helps in saving time by allowing the person to deposit checks to the participating banks by uploading the image using the device’s camera.

Mitek’s Competition, and Its Impact on Lending

Mitek has an operating history of over two decades. With more than 6,100 banks and financial institutions as customers, the company has a wide moat compared to startups entering the field. Its direct competitors are few and usually early-stage companies. The more traditional players in the space would be the ones that follow the data bureau approach and are beginning to integrate mobile verify solutions for verification of IDs into their platforms.

Lending will receive a boost across the board as lenders, both traditional and alternative, will be able to onboard customers faster and more securely. Alternative lenders, in particular, should see higher approval rates for prospective borrowers with increased confidence they are not being defrauded. Mitek is currently processing over several million ID documents a month. Both MoneyGram and Kabbage use Mitek’s MobileVerify technology. The company is seeing major traction in the fintech lending industry as players are nimble and the first target for most fraudsters.

Financial Inclusion, Privacy, and Real Life Applications

Ritter believes governments need to step up their efforts in ensuring everyone has access to an identity proof. Financial inclusion is positioned prominently in the United Nation’s 2030 Sustainable Development Goals agenda, and the need for a digital identity goes far beyond the ability to participate in the formal economy. Its impact is multifold and helps to increase overall trade and access to healthcare and government services. Mitek is also focused on data privacy laws, with GDPR the hot topic in Europe. It has taken GDPR as its baseline for information security and is operating with GDPR recommended data security not only in Europe but across the globe.

Kabbage Case Study
Kabbage facilitates easy funding options to small and medium enterprises through its automated technology-backed data platform. With Mitek’s digital identity verification solutions integrated into the Kabbage platform, users are able to automatically populate the loan application form with pre-filled data in less than a second allowing customers to access funding quickly. Mitek’s solution applies advanced algorithms that automatically assess the authenticity of the driver’s license, providing assurance about the identity of the ID’s holder and reducing the likelihood of fraud during the loan application process.

Anonymous Payments Processor Case Study
Customers were facing a lengthy identity verification process, which forced them to leave the platform before completing the transaction. Driven by the need to comply with Anti Money Laundering (AML) and KYC regulations, a leading global payment processor selected Mitek’s Mobile Verify to provide the customers with more efficient ways to reduce the verification process from days to just minutes. Mitek was able to eliminate 92% of the temporary restrictions that the company previously had to place on customer accounts whenever they would reach a certain dollar threshold. By eliminating these temporary restrictions, the company has improved customer experience as well as increased profitability.

Mitek’s Collaboration with Nocks
Mitek’s digital verification identity has enabled blockchain payments platform Nocks to improve their customers’ onboarding by 98%. A cryptocurrency payments platform, Nocks also has to execute AML and KYC compliances. Nocks has now been able to verify the identity of applicants in real-time, dramatically improving new customer conversion rates due Mitek’s Mobile Verify interface.

MoneyGram Case Study
MoneyGram, the money transfer giant, is also using Mobile Verify to validate its customers’ ID. To complete the identity verification step in the money transfer process, MoneyGram customers simply take a picture of their passport or other identity document using their mobile device camera. Mobile Verify then uses advanced machine learning technology to instantly validate the authenticity of the ID.

Mitek is Experimenting With the Blockchain

Mitek is also developing technology to leverage blockchain infrastructure. The public ledger approach in general is interesting as it could allow for generating self-sovereign IDs which are owned and managed by the users themselves. When businesses need their information, people can control their data and allow only limited or conditional access. Moreover, even banking customers are exploring blockchain-based solutions, and Mitek is experimenting to integrate its ID verification systems on a distributed ledger.

Mitek’s Technology Leadership

Mitek was founded in 1985 and is listed on NASDAQ with a market cap of an estimated $250 million. Mitek’s innovative solutions are embedded into the apps of more than 6,100 organizations and used by more than 80 million consumers.

Stephen Ritter is the Chief Technology officer (CTO) of San Diego-based Mitek Systems. He helps in the technological development of the key processes of the company, along with overseeing Mitek Labs. He has more than 22 years of experience bringing new commercial software solutions to market. Ritter worked as tech lead with Emotient (acquired by Apple) before he joined Mitek.

With the increase in regulatory complexities and fraudulent practices, it is critical for businesses to make sure that they are on the right side of the law and yet are simultaneously making their customers’ life easier. Mitek helps them balance this fine line with its suite of sophisticated identification technologies.

Author:

Written by Heena Dhir.

How Blockchain is Changing Alternative Lending

blockchain for alternative lending

Cryptocurrencies entered the mainstream in 2017. The million dollar fortunes made and 1,000% returns hogged the headlines. But behind all the hoopla is blockchain, the technology behind cryptocurrencies, quietly and steadily changing the business universe. The technology has myriad applications. Also called distributed ledger technology (DLT), it can reimagine entire industries in hitherto unknown ways. […]

blockchain for alternative lending

Cryptocurrencies entered the mainstream in 2017. The million dollar fortunes made and 1,000% returns hogged the headlines. But behind all the hoopla is blockchain, the technology behind cryptocurrencies, quietly and steadily changing the business universe. The technology has myriad applications. Also called distributed ledger technology (DLT), it can reimagine entire industries in hitherto unknown ways. From issues of security to scalability and cost effectiveness, entrepreneurs are incorporating DLT to bring the benefits to the masses.

Similarly, alternative lending has changed how Americans borrow. Small business and consumer lending was hard hit when banks decamped en masse after the 2008-09 crisis. Online lending came to the fore with players like Lending Club, SoFi, OnDeck building multi-billion dollar lending platforms.

Almost 10 years since, alternative lending is growing but not at the speed  which experts had imagined. Morgan Stanley had predicted Trillion Dollar funding via such platforms in the coming future. The sector is nowhere close to these figures. Aside from corporate governance issues, fraud and high default rates have been the true bane of the industry. IdentityMind, a RegTech company, reports that fraud caused 12% of losses in P2P online lending. That translates to almost 1.2% of total funding, which is also 2-3 times as compared to banks or retail cards.

Blockchain and Alternative Lending

Blockchain is an open, distributed ledger that records transactions between two parties in a verifiable and efficient manner. Putting digital assets (contracts, documents, financial data, etc.) on blockchain technology helps build a wall against unauthorized access and prevents fraud. Blockchain helps maintains transparency between entities; it could be between buyer and seller, business and employee, or customers and investor.

A World Economic Forum report predicts that, by 2025, 10% of GDP will be stored on blockchains. Amalgamating blockchain and alternative lending has not only a technical appeal but is business common sense. Online finance decentralized lending allows savers to directly fund borrowers; they took away the middlemen, traditional banks, who otherwise used to take the major benefit away from the transaction. Now, it is the alternative lending sectors’ turn to leverage the power of decentralization via blockchain.

The Benefits of a Decentralized Distributed Ledger

Decentralization
Currently, alternative lenders hold their complete data centrally, in either their own servers or on Amazon Web Services-type cloud structures. This is a honey pot for hackers. In 2017, an Equifax data breach collected 145.5 million users’ data. The breach was caused by a software flaw that allowed the hackers to take over the company’s website.

Lenders have access to extremely sensitive data such as bank account numbers, social security numbers, and other personal identification information. Losing control of that data can compromise the entire financial history of an individual or a business. Blockchain eliminates the risk by storing information on a decentralized ledger. So a massive data hack would never be possible because it will be practically impossible for the hackers to have access to each and every part of the distributed record.

Transparency
A distributed ledger also provides transparency and allows that all transactions are recorded are on the blockchain in an immutable manner. Thus, backdating of contracts is not possible under any circumstance (Re: Lending Club backdating loans scandal). Corporate governance improves across the board, and investors and regulators can breathe easy knowing that the data they are seeing is the absolute truth.

Securitization
Digital loans can be tokenized via blockchain and be constructed as a tradeable security. This, in effect, allows securitization for loans; so you don’t need to wait till you are a billion dollar fintech lender. Othera, a blockchain lending platform, is doing just that. It creates an online marketplace where lenders can tokenize their cashflow by putting the loan on the blockchain and selling it to investors.

User-friendly
Apart from this, blockchain technology is more user-friendly as it is open to the public with no authentication or permission issues. It is scalable and cost efficient for businesses to incorporate into their existing systems and allows for all stakeholders to easily extract relevant information about their transactions without risking the entire system’s database.

Digital identity verification
Identity theft is one of the biggest reasons for online lending fraud. That is exacerbated by the fact that the lender and the borrower usually never meet in real life. The old traditional way was to go through the lengthy and costly process of physical verification. But in the age of blockchain, by merging identity verification with decentralized blockchain principles, a tamper proof digital-id can be used as the digital signature for recording and validating all transactions.

How Blockchains Are Revolutionizing Lending

Alternate lending has seen many iterations and pivots since inception. From being a pure peer-to-peer platform, the sector has metamorphosed to one dominated by balance sheet lenders and institutional investors. Now, the era of Alt Lending 2.0 is emerging, which is going to be dominated by players who have co-opted blockchain as an integral part of their business processes.
Here is a brief description of some companies that are doing innovative work in the field.

SAP
The ERP giant is experimenting with blockchain on an enterprise level. One of its applications is focused on KYC.  The distributed ledger solution is to store a customer’s ID and link it to their personal documents, which are not stored on the blockchain. Once the transaction is cleared, the link is established and the documents are accessed to prove identity and the onboarding process continues. In this, SAP provides a solution to KYC issues, with running proof of identity. Thus, there is a single source of truth for all parties.

WishFinance
WishFinance is a Singapore- and Honk Kong-focused lender to merchants and small businesses. It is keeping its entire loan portfolio on a public blockchain to push transparency for investors. The investors can evaluate the performance of a loan at anytime (the data is anonymized so no identifiable borrower information is shared).

SALT
SALT is reversing the model by allowing crytpocurrency holders to cash out without actually selling their crypto assets. It allows loans for Bitcoin. The borrower can redeem his crypto assets once the loan is paid.

Conclusion

Blockchain has the power to allow alternative lending companies to scale effortlessly and solve fraud and KYC issues haunting the industry. Lenders who are able to get their blockchain game right should see renewed investor interest and benefit from higher unit economics.

Author:

Written by Heena Dhir.

General Data Protection Regulation – The Challenge and Opportunity

GDPR

In the last 25 years, technology in general, and the internet in particular, has unimaginably altered our way of living. After four long years of controversy, and push and pull, on April 14, 2016, the EU parliament finally approved the landmark General Data Protection Regulation (GDPR). GDPR was introduced to replace the Data Protection Directive […]

GDPR

In the last 25 years, technology in general, and the internet in particular, has unimaginably altered our way of living. After four long years of controversy, and push and pull, on April 14, 2016, the EU parliament finally approved the landmark General Data Protection Regulation (GDPR). GDPR was introduced to replace the Data Protection Directive 95/46/EC and integrate data protection laws throughout Europe, allowing non-European organizations to adhere to these laws. GDPR will be effective from May 2018.

The Principles of GDPR

The concept of GDPR has been initiated because the internet has fundamentally redone how businesses interact with personal information. Data is the new oil, and internet companies were harvesting user data to make billions in profits. European Union legislators felt like they had to do something to protect consumer information.

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Individuals’ Rights  

Some basic rights are provided to individuals under GDPR while strengthening existing ones under the current Data Protection Act.

The right to be informed
The right to be informed defines the information provided for the processing of personal data must be precise, transparent, and easily accessible while written in easy-to-understand language.

The right to access
With right to access, the person gets the right to request access to his own personal data to check how i is being used by the processing units.

The right to rectification
In case the user’s personal data is incomplete or inaccurate, he has the right to get the misinformation rectified.

The right to erasure
The right to erasure or ‘right to be forgotten’ gives a person right to have procedures in place to delete any personal data that is unnecessary or no longer useful.

The right to restrict processing
The individual gets the right to block or stop processing of personal data in situations where case data provided is inaccurate, or when the individual feels that processing is unlawful.

The right to data portability
The right to portability allows individuals to receive and reuse personal data in other services for their own purposes. Individuals can even copy, move, and forward data from one processing organization to another directly.

The right to object
Under the right to object, the individual can object to the processing of his personal data whenever he wants. Once this objection is received, the processing organization must stop processing data immediately.

Rights related to automated decision making and profiling
Individuals also have the right not to be subject to decisions built on automated processing (includes online credit applications, e-evaluation of performance without human intervention, and more).

The Impact of GDPR on Fintech Lenders

The EU estimates that additional simplicity and clarity of GDPR will save businesses 2.3 billion euros per year. On the other hand, the regulation provides for hefty fines of up to 20 million euros (about $22 million) or 4% of global annual revenues for non-compliance, depending on the nature of the transgression. By May 2018, GDPR will adversely affect businesses, including the likes of Google and Facebook, and it impacts fintech companies, too.

One of the key challenges for the alternative lending industry is to ensure that organizational data gathering and processing methods are accommodating the GDPR’s set of rules. Most fintech companies working in the wide economic space of EU find GDPR a challenge. The major reasons behind this could be that players were gathering the personal data of users and using it for purposes not defined under the terms of agreement. The law means alternative lenders and other fintechs will need to make some changes in how they collect, organize, and process personal data.

GDPR will impact the movement of data between the EU and the UK, and between EU and third-world countries. It will also affect the fintech companies in the following areas:

Client Consent
As per GDPR, personal data is the information which can identify an individual. This includes his name, email address, social media accounts, etc. GDPR makes it compulsory for firms to gain consent from individuals about the gathered personal data. Users get to know about the data firms hold on them.

Also, firms need to define their purpose clearly for which the data is gathered and pursue further consent if the firm wishes to share the data with third-parties.

Outcomes of a breach
Earlier, in case of a breach, firms had their own protocols to work with. But with the introduction of GDPR, it commands to report directly to the supervisory authority of personal data within 72 hours.

Vendor management
IT systems are the backbone of the financial sector, and user’s data regularly flows through various IT applications. As GDPR corresponds with user personal data, companies must understand data flows across their systems. Outsourcing development means that the data can be accessed by external vendors, thus increasing the data’s net exposure. So, vendors will not be able to disassociate themselves from the obligations of concern to data access.

Pseudonymisation
In GDPR, data is pseudonymised into artificial identifiers in order to secure the personal nature of that data. It ensures that data access remains within the ‘need-to-know’ obligations. Due to this add-on, alternative lenders have to create new systems in their operating ideologies with the concept of “Privacy by Design’.

Conclusion

GDPR is a challenge but can become a moat for alternative lenders who are able to integrate GDPR-compliant data collection systems. Being on the right side of law but still ensuring they are able to leverage data will be a very thin plank to walk, but alternative lenders who execute this balancing act will be able to create a competitive advantage.

Author:

Written by Heena Dhir.

The Personal Data App Consumers Can Earn Money With

Opiria personal data mobile app

Consumers have a reason to be concerned as news of personal data mining, bundling, and selling seems to be accelerating. As a result, the data brokerage industry has grown. Opiria’s white paper indicates the industry has a market value of $250B USD. That’s a quarter of a trillion dollars made off other people’s rightfully-owned data, […]

Opiria personal data mobile app

Consumers have a reason to be concerned as news of personal data mining, bundling, and selling seems to be accelerating. As a result, the data brokerage industry has grown. Opiria’s white paper indicates the industry has a market value of $250B USD. That’s a quarter of a trillion dollars made off other people’s rightfully-owned data, but precious little of it went to the people whose data is in question.

Opiria have an idea that attempts to make both sides of the consumer experience more successful and rewarding. How often have consumers chosen not to do something online because they were concerned about the security of their data? If Opiria’s platform is successful, those concerns could be a thing of the past.

The Opiria Solution

Opiria is an online consumer and usability research platform enabling companies to optimize products and services by understanding what consumers think, experience, see, and feel. Through mobile surveys and mobile diaries distributed directly to consumers’ smartphones, companies can get a better understanding of their target audiences without violating their personal data rights.

Christian Lange, the company’s CEO and founder, sheds light on the Opiria vision. He says the Opiria system is a decentralized marketplace built on the Ethereum blockchain for the secure trading of personal data. Consumers sell their data to companies for compensation, which is measured with the PData (for personal data) token.

Lange started his first company in 2005. Focused on measuring human behavior, that company developed software that was used by automotive companies worldwide offering detailed analysis to measure driver behavior with modifications to the automobile’s navigation system. The solution was limited, however, as companies only received data from one driver at a time.The need for big data was evident. This led Lange to the development of a new idea– something easy to use and makes it easy to collect data with technology available worldwide.

To fill that need, Opiria came up with a smartphone app for companies to get feedback from consumers worldwide, 24/7. They began designing the app in September 2015 and had the first version ready to launch by the close of 2016.

How Opiria Works

Opiria is a market research platform for which companies pay an annual licensing fee. The software allows them to interact with consumers through the Opiria app. The system centers on consumer feedback and opinions, part of it is based on surveys.

Still, those who don’t have the time for surveys, or who are not inclined to take them, still have data to sell. “We generate data through our web browsing and our online shopping,” Lange said. “We give information on our wearables, our smart devices, and pretty much anything that has anything to do with being human in the Internet world.”

Through the Opiria app, the company can sell that data knowing that consumer personal data is completely protected. Consumers share what they want to share and with whom they want to share it. Those who care to receive surveys will only receive those which fit their profiles. Being that the app is built on a blockchain, the data will be securely stored to release to further inquirers going forward.

One featured tool of the app is the Mobile Data Survey, which allows feedback over a longer period of time than the moment of usage. When consumers use a product or service, they can provide feedback in the moment. Then they can document it through videos, photos, and comments. This allows companies to get real-time data within seconds where most market research tools are email- and browser-based, and can take as long as a week to provide a company with the data.

For consumers, not only is the app free, but they can also turn their involvement into profit. The PData tokens can be saved and traded for cash.

Opiria’s Progress to Date

A profitable privately held company, Lange says the company needed no external funding to get off the ground. An ICO was launched on January 8 to raise capital. They set the hard cap at $19M USD.

The market has yet to be fully realized, but Opiria has almost 50 companies and 4,000 to 5,000 consumers signed up. Mercedes Benz, BMW, Audi, Intel, and Proctor and Gamble are among the major players paying for the service. Lange tells us that other customers come from every realm of the bitcoin industry including restaurants, hotels, fitness studios, and retail companies.

Opiria is also planning to use 60% of the funds generated from the ICO to grow the number of consumers to 1 million by the end of the year. “If we have a million customers, companies will flock to us,” Lange said.

One attractive aspect that might help them toward the goal of 1 million consumer participants is that personal information is not shared, only consumer data.

Opiria’s Competition and Future Outlook

While Lange says the company has a lot of competition, Survey Monkey possibly being its biggest competitor, he isnt concerned about it. “What gives us the advantage is that we do it all by app; it’s a faster way to do research and a direct line to the consumer,” he said. “A company can send out a survey and it can be delivered to consumers within seconds.”

The next thing they plan to release is software to capture, in an unobtrusive manner, where someone is looking and the emotions they have when they browse the Internet. Marlene Gagesch, the company’s co-founder and chief technical officer, is overseeing this work in Engostott, Germany.

Opiria is also working with Quicken Loans, a collaboration that hopes to equip Quicken with a mobile app that will do a longitudinal study of how people are tracking interest rates, among other things.

Lange goes on to list some other ways Opiria can be beneficial to online lenders. Understanding what kind of lending products people are interested in, for instance. “We can survey potential customers to understand how much interest they are willing to pay, the duration of loans, how you would like your contract laid out, and more,” he said. “You could perform A/B tests to see how people react emotionally to different offers made.”

Lange lays out the process in order to show how Opiria can “perfectly adapt [an] offering to meet potential customer expectations; deploy, get feedback, improve product, repeat.” This process takes weeks or months with classical market research, but with Opiria, it’s done a matter of minutes. “That gives companies a huge competitive advantage,” he said.

Why Opiria, and Can It Do Any Good?

If personal data is already out there for companies to buy—and it’s evident that they are buying it—then who’s to say this is going to work? Lange had an answer for that as well. It seems we’re getting better at guarding our information, and we’ve even gotten to a point where companies find themselves looking for data that just doesn’t exist. That has created this new market for personal data.

Opiria is one of those ideas off the beaten path enough to catch hold. A problem exists–consumer data needs protection–and consumers have to hope that something comes along that pays them for giving up some personal data security. If anyone knows that, it’s Opiria.

Author:

Written with Paul Keenan.

Allen Taylor