Tuesday November 3 2016, Daily News Digest

fintech ecosystem

News Comments Today’s main news: Cross River starts the Almond Bank. SoFi partners with Fannie Mae; Berlin FinTech startup opens in the UK. Today’s main analysis : October 2016 P2P lending volumes. First Indian P2P industry report. Today’s thought-provoking articles: A look at the FinTech ecosystem. SCET offers some insightful commentary on where FinTech is going. United States […]

fintech ecosystem

News Comments

United States

  • Cross River is building the next generation consumer bank. GP: ” This is a great step in the direction of having a US version of the UK Challenger Banks. It seems like a great direction and I wish more banks were as innovative as Cross River Bank and their team. I am sure there are innovative bank executives, so I wonder why there are no real innovating banks. Many people claim it’s because of the regulator. But I have interviewed the Illinois Bank Regulator secretary myself and they are very encouraging of innovation. I believe there is space for bank innovation and I hope our readers are realizing this now.”
  • Big mortgage lenders are taking on online lending rivals on their own turf. AT: “This isn’t really breaking news, but there is a significant point to be made. Washington is edging closer to tackling regulation for the online lending sector even as the sector itself is self-regulating. If Washington does get involved, which could happen at the behest of big banks, the top mortgage lenders are better poised to navigate such regulation, and very well could have a hand in crafting it.”
  • SoFi partners with Fannie Mae to provide homeowners student debt refinancing. AT: “I can see a lot of Millennials taking them up on this offer.” GP: ” First it is notable that Fannie Mae partners with a Fintech. This is huge news. Second, the product is very interesting too, using home equity to pay back student loans. The only question: is the interest on student lower or higher then home equity line of credit/loans ?”
  • Klarna and Provenir join forces to improve shopping cart abandonment. AT: “This is great for ecommerce sites, but I wonder how many consumers will get their feathers ruffled at a perceived privacy intrusion, and how will Klarna and Provenir respond?”
  • The Fintech Ecosystem Report.
  • SCET explains where FinTech is headed.

United Kingdom


European Union





News Summary

United States

Term Sheet — Wednesday, November 1 (Fortune), Rated: AAA

So why would three venture firms throw so much money at a bank? Well, they think Cross River can become the next Bank of America. As WSJ and others reported yesterday, the bank is doing some interesting partnerships with companies like Stripe and Mastercard, as well as online lenders.

But there’s one key element that wasn’t reported in yesterday’s announcement: Cross River is stealthily building a brand-new “next generation” consumer bank.

It’s called Almond Bank, and its run by Ben Weiss, who was most recently entrepreneur-in-residence at Two Sigma Ventures. Prior to that he did business development at Opera Solutions and StockTwits.

A Cross River rep declined to share any more information about Almond Bank, but from what I understand, it’s meant to be an innovative “bank within a bank.” Based in New York, the division has been in the works for about a year. LinkedIn lists around ten employees.

Mortgage Heavyweights Expand to Take On Online Lending Rivals (National Mortgage News), Rated: A

This year, top-10 mortgage lenders like Wells Fargo, Quicken Loans and SunTrust, along with other banking heavyweights like Goldman Sachs, have burst onto the digital lending scene. These big firms may have been latecomers, but their timing was still good, since they came to market amid rising doubts about many of the online lending sector’s early entrants.

The larger, more diversified firms that are jumping into online lending are not all following the same blueprint. Some are banks that fund their loans with low-cost deposits, while others rely on the capital markets for funding. Some make personal loans to consumers, while others focus on small businesses. Their risk appetites vary.

But the better-established companies, some of which were already up and running prior to this year, hold some important advantages over their fresher-faced peers. For one, they generally have a lot of experience navigating the highly regulated financial services industry. That asset is becoming more relevant, since Washington has started to take a closer look at the online lending sector.

Banks that have built their own online lending platforms hold other advantages over the tech-focused startups. Perhaps most notably, these banks are using deposits as a cheap, stable source of funding for their loans. That model stands in contrast with those used by the likes of Lending Club, Prosper and Avant, which depend on more expensive and less reliable sources of cash.

SoFi and Fannie Mae give homeowners a smart way to reduce student debt (OTC Markets), Rated: A

SoFi and Fannie Mae (FNMA/OTC) today announced a new loan option that enables homeowners to pay down student debt using equity in their homes.

With SoFi’s new offering, the Student Loan Payoff ReFi, homeowners will have the ability to refinance mortgages at a lower rate and pay down the balance of an existing student loan. With its cash-out refinance student loan payoff plan, SoFi will pay down the student loan by disbursing payment directly to the servicer of the student debt. SoFi is a Fannie Mae approved seller servicer.

This loan option, available through SoFi, is designed to help homeowners that manage their own student debt or those who have co-signed loans, which often includes parents. An estimated 8.5 million households in the U.S. could potentially pay down or completely pay off their student debt obligations with this new option.

The offering is available to SoFi members and the public in states where SoFi has mortgage licenses beginning today.

How Provenir’s collaboration with Klarna improves shopping cart abandonment (Tradestreaming), Rated: A

Now, thanks to a collaboration between payments solution Klarna and credit risk analytics provider, Provenir, credit scoring, loan origination, and payments are being unbundled and then rebundled together at the point of sale in big ecommerce websites.

The process is seamless, so the customer might not even be aware of what is happening.

In essence, Klarna buys a product for customers and then instantly offers them a line of credit. The customer pays Klarna later. The company allows ecommerce customers to complete their purchase before entering payment information, solving the big pain of cart abandonment for online retailers.


Almost every type of financial activity — from banking to payments to wealth management and more — is being re-imagined by startups, some of which have garnered blockbuster investments. Meanwhile, the old guard is trying to solve a puzzle presented by the fintech revolution: How can they benefit from the rise of digital, and how can they avoid obsolescence?

Here are some of the key takeaways from the report:

  • Fintech investment continues to grow. After landing at $19 billion in total in 2015, global fintech funding had already reached $15 billion by mid-August 2016.
  • The areas of fintech attracting media and investor attention are changing. Insurtech, robo-advisors, and digital-only banks are only a few of the segments making waves. B2B fintechs are also playing an increasingly prominent role in the ecosystem.
  • It’s not all good news for fintechs. Major hurdles, including customer acquisition and profitability, remain. As a result, many are becoming more willing to enter partnerships and adjust their business models.
  • Incumbents are enacting strategies to ensure they remain relevant. Many financial firms have woken up to the threat posed by fintechs and are implementing innovation strategies to stave off disruption. The majority of these strategies involve some interaction with fintech firms.
  • The relationship between incumbents and fintechs continues to evolve. Fintechs are no longer viewed exclusively as a threat, nor can they be ignored. They are increasingly viewed as partners, but that narrative alone is too simple — in reality, a more nuanced connection is taking hold.

SCET Explains – Where Fintech Looks Promising and Why (SCET Berkeley), Rated: A

Whereas 2016 was the year of heavy VC investments in Blockchain, AI, Online Lending and a number of other sectors, funding is anticipated to cool down in 2017, given some sectors have lost both value and allure. However, at the same time, wealth management, back-office operations and wealth management have gained increasing traction, and promise strong returns to investors. Key technologies such as cloud, omni-channel services, APIs, IoT, Big Data, AI & cognitive science are all disrupting the fintech industry. This article aims to amalgamate various cited research and explores where companies are likely to get funded and why.

Cognition and AI in finance has become increasingly popular. AI startups received more than $1.6b from VCs in the first half of 2016 – predictive analytics and the use of Blockchain technologies carry with them the unique ability to learn from customers, provide unbiased advice based on huge amounts of data, and carry the ability to reshape asset management and other investing related products in the financial services sector.

Another core area fintech is expected to soon disrupt is the multi-trillion-dollar insurance industry. According to research conducted by American Banker, Arjan Schutte, a managing partner at Core Innovation Capital believes that the next decade will bring large disruptions in insurance – “It’s a massive, dormant, incredibly inefficient industry that will take a long time to unwrap.” Fintech startups are beginning to come up with better underwriting models, given the nature of change in housing; the emergence of IOT has led to the creations of “preventative insurance,” where since houses are connected to data analytics, real-time monitoring could lead to services by insurance companies – for e.g. if a furnace becomes increasingly hot, temperature analytics indicators can dispatch services to keep houses from damage, rather than just reimburse and evaluate post-cause.

The rise of Blockchain is set to increase as awareness of the distributed ledger technology increases. Though significant hurdles remain in implementation, Blockchain is widely believed to be the future of financial infrastructure, and is most likely going to lead to rewiring. Most projects (a range of wallets and money transfers has appeared over the last half-year) are in their experimental and product adjustment stage and have a long way to go to influence the market.

We now live in a world, where for the first time, credit card payments have overtaken cash payments – non cash transaction volume has been growing by about 10% YoY. Big cash-to-cash players wary of cannibalization are now incumbents that have been replaced by innovators powered by strong technologies. As the line between traditional banking and fintech becomes even more blurred, we are likely to see increased convergence between the two. API based services that allow both banks and fintech companies to engage and retain digital customers, wearables, and social media services are likely to change the face of fintech in 2017.

United Kingdom

UK fintech finds EU barriers emerging after Brexit vote (KFGO), Rated: AAA

Fallout from the vote to leave the European Union is already threatening the growth of financial technology firms in Britain, industry officials said on Wednesday.

The “fintech” sector comprises new forms of online lending, such as crowdfunding and peer-to-peer lending, and Apps for making payments and sending money abroad. It is being touted by the government as key to creating new jobs and growth in financial services.

Bruce Davis, managing director of crowdfunder Abundance Investment, said that since Britain voted to leave the EU, fintech was finding it harder to make its voice heard in government and Brussels.

The EU is currently revising rules for how fintech companies set out information for potential investors.

Davis said while UK members of the European Parliament were “shut out” of meetings to finalize the rules, Germany – which wants to lure fintech firms to Berlin from London – was proving to be an ally in Brussels.

Abundance Investment has a “passport” to offer its services across the EU, obtained by regulators like the Financial Conduct Authority (FCA) in Britain liaising with its peers in the EU.

Brexit has taken up so much “bandwidth” at Britain’s finance ministry, long a cheerleader for fintech, that it has been unable to amend badly drafted UK rules for peer-to-peer lenders, Zopa Chairman Giles Andrews told the committee.

Berlin fintech startup Spotcap launches in UK (TechEU), Rated: AAA

Spotcap, a Rocket Internet fintech startup, is launching in the UK after it raised €31.5 million earlier this year to fuel its growth.

The online lending service provides short term loans for SMEs who usually have difficulties in getting financing, according to the company. Its algorithm has been designed to analyse the financial state of a small business and decide if it is suitable for a loan.

Jens Woloszczak, CEO of Spotcap, said expanding into the UK was important regardless of the uncertainties surrounding Brexit.

“There is no financial district in Europe like London, and Brexit will not change that. British SMEs are resilient and opportunistic which is why there is significant scope for Spotcap in the UK,” said Woloszczak. It obtained a license from Financial Conduct Authority (FCA) in the UK over a year ago.

More NatWest Business Customers Get Access to Alternative Lending (Business News Wales), Rated: A

From today, all of NatWest’s business and commercial customers will benefit from a new and expanded panel of alternative lenders to which they can be formally referred if borrowing directly from the bank is not possible. The panel, called ‘Capital Connections’, builds on NatWest’s existing partnerships to signpost small business customers to alternative sources of finance and creates even more opportunities for customers than the Mandatory Lending Referrals will require.

Britain’s Bank Referral Scheme Goes Live (Forbes), Rated: A

The problem for SMEs is often that they simply do not know these alternative finance providers exist, or where to find them. Nor is it straightforward to compare what’s available from what may be very different types of arrangement.

Enter the bank referral scheme. From this week, the UK’s nine largest banks in the SME sector will all have to participate. Each time they turn down an SME’s application for funding, they will have to offer the business the opportunity to have their details shared with one of three new platforms: Funding XchangeBusiness Finance Compared and Funding Options.

Each of these platforms is working with dozens of alternative finance providers, acting as a bridge between them and SMEs. Every provider on the platform will be entitled to offer potential terms to an SME referred – the small business then gets its pick of what’s available.

LendInvest launches development exit product (Mortgage Introducer), Rated: B

The exit finance product charges interest of 0.7% per month and is available between £250,000 and £5m Enter the bank referral scheme. From this week, the UK’s nine largest banks in the SME sector will all have to participate. Each time they turn down an SME’s application for funding, they will have to offer the business the opportunity to have their details shared with one of three new platforms: Funding XchangeBusiness Finance Compared and Funding Options.up to 75% loan-to-value.

The product comes with no early repayment charges.


International P2P Lending Volumes October 2016 (P2P-Banking), Rated: AAA

Funding Circle had a record month ahead of Zopa and Ratesetter. Lendinvest has strong results too and Assetz Capital makes a big leap forward. The total volume for the reported marketplaces adds up to 443 million Euro. I track the development of p2p lending volumes for many countries. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending platforms. Thincats crossed the 200M GBP funded this inception milestone.

Investors living in national markets with no or limited selection of local p2p lending services can check this list of marketplaces open to international investors. Investors can also explore how to make use of current p2p lending cashback offers available.

European Union

Switzerland eyes Europe’s fintech crown with lower regulation (Financial Times), Rated: AAA

Switzerland hopes to overtake European rivals as a hub for financial technology with a licensing regime that would free companies in the sector from the regulatory burdens facing banks.

A specially created “fintech” licence would give the affluent Alpine country a unique advantage over rival financial centres, Swiss government officials and regulators believe.

While Zürich and Geneva have a long history as financial centres, Swiss policymakers fear the country could lose out to rival cities such as Berlin and London in encouraging innovation in areas such as payment systems, virtual and crypto currencies, investment “robo-advising” and internet crowdfunding.

While the UK is also experimenting with dismantling regulatory hurdles to encourage innovation, other European financial centres hope to attract young companies disillusioned by the UK vote to leave the EU, which could lead to restrictions on workers from other European nationalities.

Switzerland’s plans for a “fintech” licence were part of a package of measures approved by the Swiss cabinet on Wednesday, which also included plans to encourage crowdfunding and the market testing of new technologies. “We want in the future to belong to the most important financial centres in this sector,” Ueli Maurer, the Swiss finance minister, told journalists.

France’s crowdfunding regulation raises lending, investment caps (SMN Weekly), Rated: A

The updates to the legislation regulating the crowdfunding sector in France have come into effect, raising the caps on crowdlending and equity crowdfunding, as well as introducing and specifying the terms of issuance of “minibons” – new business lending instruments.

According to the new directive, platforms registered as Conseil en Investissement Participatif (CIP, equity investment advisor) with France’s financial markets and securities regulator, the AMF, can allow projects to seek up to €2.5 million in equity funding. Until the beginning of November the cap was €1 million. The new regulation also allows expands the type of shares the equity crowdfunding platforms can issue. Now they can offer preferred shares, participatory notes and convertible bonds, in addition to the simple shares and plain vanilla bonds.

The crowdlending platforms who are registered as Intermédiaire en Financement Participatif (IFP, crowdlending intermediary) and are supervised by France’s financial services regulator APCR, have had their lender contribution cap lifted from €1000 per investor per project to €2 000 for an interest-bearing loan. The €4000 cap for interested-free loan is raised to €5000.


Automated advice aims to fill the void (The Australian), Rated: A

Automated financial advice isn’t getting the recognition it deserves in Australia as we steam towards the Robo 2.0 era, says Clover chief executive Harry Chemay.

Speaking to The Australian ahead of today’s FinTech Collab/Collide Summit in Melbourne, Mr Chemay said robo-advice — online wealth management ­advice based on automated algorithms — was ultimately com­plementary to human financial advice and still largely a mis­understood technology.

He defines Robo 2.0 as a ­holistic offering whereby the platform begins to understand a user’s spending habits and provides advice around cashflow management, as well as pure ­investment advice.

Mr Chemay said he was broadly encouraged by the different robo advice business models he’s seeing pop up, marking somewhat of a maturity in a still-nascent field.


In Response to Lending Cap Regulations, More & More Chinese P2P Platforms Start to Transfer to Financial Asset Exchanges (Crowdfund Insider), Rated: B

In August, the China Banking Regulatory Commission (CBRC) issued rules for the online lending industry and set lending caps for both individual and business peer to peer borrowers. In response to these constraints, more and more Chinese P2P lending platforms (especially those with “big lenders”) have started to transfer to financial assets exchanges. Why? Because establishment of these exchanges are normally authorized by local governments with the aim to attract more resources for less developed local capital markets, therefore they may not have such tight constraints on transaction volumes.


Regulatory delays affect P2P lenders’ operational efficiency (Economic Times, India Times), Rated: A

The Reserve Bank of India (RBI) had notified about the need to regulate P2P lending platforms in April this year and six months on, P2P players are still waiting for the final nod. While investor interest had picked up in this sector, clearing way for multiple players to enter, the platforms are finding it difficult to expand operations and smoothen systems without regulatory guidelines in place.

Another problem for the sector is lack of clarity on the rules for foreign direct investment (FDI). The RBI talking about FDI in the automatic route for companies engaged in `Other Financial Services’ has created more confusion. Startups, like Faircent, which has already raised funds from Singapore-based investors, are in a lurch as to what the regulator has to say about foreign money coming into these lending platforms.

Various players are reaching out to banks to allow them to make payments through them. But due to lack of clarity on the issue of nodal accounts from the regulator, banks are hesitant in tying up with these online lending platforms.

Faircent releases the first ever P2P industry report (Business Standard), Rated: A

In the first of its kind data analytic report on peer to peer lending, Faircent.com, India’s largest lending platform has said that it crossed the Rs 1 crore marks monthly funding in August 2016 and growing at 15-20% month on month since then.

The report gives interesting insights on borrowers like:

  • Married borrowers are 1.5 times more likely to get funded by lenders than single borrowers
  • Borrowers with no CIBIL record too make timely repayments and deliver healthy net returns
  • Self-employed professionals like doctors, architects etc are twice likely to get funded than self-employed businessmen
  • Borrowers seeking funds for family events are more likely to receive funding than borrowers seeking funds for purchasing two-wheeler/appliance
  • However, repayments are made more timely by those taking loans for two wheelers/appliance
Middle East

Abu Dhabi Launches First MENA Regulatory Sandbox for Fintech (Finance Magnates), Rated: AAA

Today, Abu Dhabi Global Market (ADGM) announced the launch of its financial technology incubator in the capital’s financial free zone, the Regulatory Laboratory (RegLab).

The step is part of the strategy to make Abu Dhabi a centre for the fast growing fintech industry. Instead of being subject to the full regulatory regime of ADGM, fintech companies will be able to use a lighter ‘RegLab’ framework for up to two years to incubate their products. However, the unique initiative would seek to limit startups accepted into the program to those that “promote significant growth, efficiency or competition in the financial sector”.

Under the proposed framework, the firms will be granted two years to develop, test and launch their products and services in a controlled environment.


George Popescu
Allen Taylor