July 29th 2016, Daily News Digest

July 29th 2016, Daily News Digest

News Comments Today we have a lot of articles about banks and how banks are surfing successfully on the FinTech wave. The bank articles are mostly in the US section but the Australia section has an interesting article as well. Note the 1st article from Bloomberg and the 7th and 8th articles.  In the India […]

July 29th 2016, Daily News Digest

News Comments

  • Today we have a lot of articles about banks and how banks are surfing successfully on the FinTech wave. The bank articles are mostly in the US section but the Australia section has an interesting article as well. Note the 1st article from Bloomberg and the 7th and 8th articles.
  •  In the India section, you will find an article of quotes from P2P lenders in India which are worth a quick read. And in the UK section a very interesting article, the 1st one, just talking about the profitability of Zopa and Funding Circle, but the real interesting piece are the profitability of LendInvest and RateSetter which are not in the title. And a 2nd article that is also very clear and well thought out.

United States

United Kingdom

European Union

India

Australia

 

United States

Big Banks Turn Silicon Valley Competition Into Profit, (Bloomberg), Rated: AAA

It’s not that the upstarts — often called fintech — are failing to gain traction. Internet ventures pitching loans to cash-strapped consumers, small businesses and home buyers, for instance, have posted spectacular growth in recent years. It’s just that banks have a huge lead in lending and are watching the startups closely. As borrowers embrace new services, traditional firms are riding along.

Here are five examples:

LendingClub’s Backers

In May, LendingClub broke out its sales to banks: Community banks and other old fashioned lenders snapped up about 34 percent of the $2.8 billion of loans it arranged in the first quarter, up from an average of about 25 percent during 2015.

Some of LendingClub’s biggest loan buyers have bolstered their war chests or operations with financing from banks. Colchis Income Advisors entered into a credit agreement with Bawag PSK of Austria, according to regulatory filings. Arcadia Funds arranged for two of its Cirrix partnerships to borrow from Silicon Valley Bank. And MW Eaglewood lined up financing for its main LendingClub fund from Capital One Financial Corp. in 2012. Spokesmen for the funds and banks declined to comment or didn’t respond to messages.

Chasing Entrepreneurs

Small businesses can thank internet ventures for simplifying loan applications, speeding decisions and providing much-needed credit when many traditional banks were pulling back in the wake of 2008’s financial crisis. Nonbanks now provide about one-quarter of the $800 billion in loans outstanding to the sector, according to research by QED Investors and Oliver Wyman. But the interest rates aren’t always low.

For a time, banks were content backing the loans. Goldman Sachs was among firms that entrusted more than $300 million years ago to fund lending by On Deck Capital Inc., one of the largest providers of small business loans over the internet.

Now, established lenders are taking a more active role. JPMorgan announced a deal in December, letting it access On Deck’s proprietary credit-scoring system to quickly evaluate applicants before using its own balance sheet to make loans. On Deck, in turn, gets a foothold in the burgeoning “fintech as a service” market. But the arrangement has done little to stop a 49 percent slide in the company’s stock this year.

More recently, established lenders have announced their own online lending portals for entrepreneurs.

Wells Fargo & Co. said in May that its new “fast decision” platform will help it reach a goal of providing $100 billion in new loans to small businesses by 2019. AmEx, which already provides more than $200 billion of funding to entrepreneurs for business purchases on their credit cards, expects a new online-loan portal will let it handle even more of their spending.

Mortgage Apps

Fintech ventures starred in Super Bowl ads this year, with Quicken Loans toutingRocket Mortgage, a platform letting users apply for home loans on smartphones.

The tidal wave is benefiting banks, too. Behind the scenes, many of the upstarts get support from traditional banks. Detroit-based Quicken, for example, raised $1.25 billion for itself and its parent company last year in a bond sale underwritten by JPMorgan and Credit Suisse Group AG. It also used lines of credit from banks to help close $80 billion in home loans that year.

[Comment: 4th was Blockchain, not very relevant to our readers here]

Robo-Advisers

Top Wall Street firms, seeking stable fee income, are now developing their own robotic arms. Bank of America Corp. will unveil an automated investment prototype this year after assigning dozens of employees to the project in November, people familiar with the matter told Bloomberg at the time. Morgan Stanley and Wells Fargo also have said they would build or buy a robo-adviser.

US consumer agency seeks to overhaul debt collection industry, (CNBC), Rated: AAA

“Today we are considering proposals that would drastically overhaul the debt collection market,” said Consumer Financial Protection Bureau Director Richard Cordray in a statement. “This is about bringing better accuracy and accountability to a market that desperately needs it.”

According to a summary, the proposal would make sure collectors “substantiate the debt before contacting consumers,” by confirming their identities and the amount owed, as well as checking for any payments made after a default. Consumers frequently file complaints at the agency about receiving calls for debts that do not exist.

In an attempt to “limit excessive contact,” the proposal would cap agencies’ calls to debtors to six attempts each week. It would also create a 30-day waiting period after a person dies for contacting survivors.

Agencies would have to communicate specific information to consumers, such as when outstanding debt is too old for a lawsuit. They would also have to make it easier to both dispute or pay a debt through tear-off coupons on the bottoms of collection notices.

Roughly 13 percent of consumers have a debt currently in third-party collection, with an average amount of $1,300, data from the Federal Reserve Bank of New York shows.

In a survey released alongside its proposal, the CFPB found more than three-quarters of the country’s 3,994 debt collection firms are small, with less than 100 employees. Larger firms pull in about two-thirds of the industry’s $12.18 billion total revenue.

The agency also found credit card, student loan and automobile debts in collection typically have balances of $2,000 or more.

Cloudvirga Raises $ 7.5 M to Automate the Entire Mortgage Process, (PR Newswire), Rated: A

Cloudvirga, the company developing the cloud-based intelligent Mortgage Platform® (iMP) designed to streamline the mortgage process, today announced it has raised $7.5M in its series A funding sponsored by Dallas Capital with participation from Upfront Ventures and Tribeca Angels.

“Increased regulations stemming from the subprime mortgage crisis have made the entire process more labor intensive and time consuming than ever, and those are the pain points we’re alleviating with iMP,”

Come Together – Finding Common Ground in Small Business Lending Associations, (Lend Academy), Rated: AAA

So where do we go from here? Advancing the marketplace lending industry’s efforts to create a more transparent and efficient financial system is critical as the industry matures.

The good news is that small businesses today – even those with lackluster or thin credit history – can choose from a dynamic set of loan products including term loans (both traditional and short-term), business lines of credit, loans for startup companies, equipment purpose loans, various SBA loans, accounts receivable financing, merchant cash advances, and peer-to-peer loans. This is a far cry from where we were in 2008-2010, when (according to the Huffington Post) more than 170,000 small businesses shut down.

At Lendio, we’re convinced that there needs to be a single, industry unifier – and we feel the SMART Box is headed in that direction. Lendio will now participate in the 90-day engagement period and I’m asking all those who offer loan products throughout the Lendio platform to consider doing so as well.

How Much Lower Will Your Student Loan Rate Be With a Cosigner?, (Wall Street Journal), Rated: AAA

Undergraduates who qualified for private student loans with a cosigner–often a parent–were offered average interest rates of 5.37% versus 7.46% without a cosigner, according to Credible.com, a student-loan marketplace. Rates for graduate students were also discounted to 4.59% on average with a cosigner compared to 6.22% without one.

The figures from Credible.com are based on five lenders’ responses and offers—which included a mix of fixed and variable interest rates—to nearly 8,000 applicants who shopped for student loans on the site over a 12-month period through early June. The lenders include Citizens Financial Group—which is quickly gaining market share in the private student loan market—as well as online lenders CommonBond and College Ave Student Loans.

Approval rates fall dramatically without cosigners. Fifty-one percent of undergraduates shopping for loans on Credible.com received offers compared with 20% of those without a cosigner. Similarly, 56% of graduate students–who lenders have historically viewed as relatively safer borrowers–received offers with a cosigner versus 45% without.

In some cases, it can be cheaper for parents to join their children on a private student loan as opposed to signing up for a parent-only loan from the federal government. The 5.37% average rate undergraduates received with a cosigner on private student loans is nearly one percentage point cheaper than the interest rate on the federal Plus loan for parents that charges 6.31% for the upcoming academic year. Private lenders also don’t charge origination fees, while the Plus loan currently has a roughly 4.3% upfront charge.

Think twice before you co-sign on a student loan, (CNBC), Rated: AAA

But co-signing is risky. It ties you to that debt, meaning you could be responsible for the entire amount outstanding if the primary borrowercan’t — or won’t — pay up. Nearly 40 percent of co-signers found themselves on the hook for at least part of the bill, according to a June survey from CreditCards.com, and 28 percent saw a drop in their credit score from the primary borrower’s bad credit habits.

How Ayasdi’s machine learning is giving banks an analytical advantage, (Tradestreaming), Rated: AAA

“The future is already here — it’s just not very evenly distributed.” Banks are increasingly using machine learning to power part of their operations, but the adoption of these new technologies is not uniform.

Top data scientists are employed by financial institutions and working with programming tools like SPCC and R, they filter and analyze huge data sets in order to perform analytical tasks. “No human being can wrap his head around that amount of data,” said Daniel Druker, CMO of Ayasdi, a machine learning company that partners with financial institutions, like Citi and Credit Suisse. Instead, using machine learning algorithms, a computer can surface insights and recommendations from those data sets, while the quants examine and take actions based on those learnings.

According to McKinsey’s 2015 Global Banking Report, banks that have replaced older statistical-modeling approaches to credit risk with machine learning techniques have experienced up to 20 percent increases in cash collections from outstanding loans.

Out of over 20 banks that work with Ayasdi, Drucker said, 100% are either already operating in this stage or actively exploring implementing such technology.

The highest level of machine learning application is the fully automating business processes. Take a life insurer, for example. When a customer applies for a policy, he might be asked to fill out a 40-page long form and get a physical examination. That information is then sent back to the company for approval. The entire process can take over a month to complete.

According to McKinsey, some European banks using these techniques report 10 percent increases in sales of new products, 20 percent savings in capital expenditures, and 20 percent declines in customer churn.

CB Insights has identified 41 companies providing machine learning solutions in the financial industry. Together with the explosion of general applications of  AI, deals and investments in AI companies reached record levels in 2016. Since the beginning of 2016, over 15 fintech AI companies have closed investment rounds.

How Digital Investments Are Changing the Face of Banking, (The financial Brand), Rated: AAA

Investment in digital banking is driving increased customer acquisition, cross-selling and satisfaction while decreasing branch traffic and related costs.

This is confirmed by the J.D. Power research that showed that there is an immediate lift in overall satisfaction when customers use mobile banking (+27 points on a 1,000-point scale), and this impact increases even more when banks provide their mobile banking customers with a highly satisfying experience (+82). According to J.D. Power, “The outlook for Big Banks remains positive, driven by their (big banks) ability to invest in customer-centric innovations (e.g., digital channels, analytics, and branch transformation), as well as their success in growing customer segments.”

Recent disclosures of mobile banking use by the big banks provides a glimpse of the impact of digital investment on mobile use. Of the three largest U.S. banks, JPMorgan Chase leads the way with nearly 25 million active mobile customers as of the second quarter. That was up 18% compared with the same period last year. Bank of America had the second most active mobile users, with 20.2 million monthly active app users, with Wells Fargo reporting 18 million active users.

 

United Kingdom

Britain’s 2 biggest peer-to-peer lenders lost £50 million in the last decade

The two platforms have facilitated almost £3 billion of loans between them but Funding Circle, founded in 2010, has never made a profit, while Zopa, founded in 2005, made a small profit 2 years running, totalling less than £60,000.

Here’s the breakdown of Zopa and Funding Circle’s financial performance, as per accounts filed with Companies House:

  • Zopa: losses between 2005 and 2014 total £21.79 million, according to accounts filed with Companies House, on cumulative revenues of £25.84 million. The platform made a small profit in in 2011 and 2012, totalling £58,648.
  • Funding Circle: cumulative net loss of £28.71 million on total revenues of £20.89 million, according to accounts covering 2010 to 2014. The company has yet to make a profit.

These losses have been funded by investment from venture capitalists: $273 million (£208.1 million) for Funding Circle and at least $56.6 million (£43 million) for Zopa, according to Crunchbase.

Funding Circle, which offers loans to small businesses, declined to comment on its losses when contacted by BI but pointed to comments CEO Samir Desai made to BI last year when we reported the company’s latest financial results. Desai said at the time:

“If you actually look at the core business of doing loans in the UK — strip away the technology investment and all the other extra stuff we’re doing — the business is already profitable in the UK and is moving that way in the US as well. A lot of the investment we’re doing is investing in creating a global business.”

Zopa’s CEO Jaidev Janardana told BI in an emailed statement:

“We have demonstrated that our business model is profitable with two consecutive profitable years in 2011 and 2012. Since then our investors and the business have placed more value on investing in our growth. In doing so we have been able to double our loan volumes last year, deliver positive returns for our customers at the same time investing in talent, technology, and our office.

“This all means we are in the best position to deliver on our strategic plan for continued growth and profitability long-term. Looking forward, I’m glad to say that we expect to be EBIDTA positive in Q4 2016 and profitable in 2017.”

Christian Faes, CEO of the UK’s fourth largest marketplace lender LendInvest, told BI he thinks that loss-making platforms will face increased pressure to turn a profit to “prove that they can.” Remember, the growth that Zopa and Funding Circle are chasing could be disappearing.

LendInvest, which lets investors put money into short-term mortgages for people looking to renovate then sell properties, made a pre-tax profit of £3.1 million in 2015 and £1.1 million in 2014.

A spokesperson for RateSetter told BI: “We have recorded a profit for two consecutive financial years, proving that our model works and is sustainable. We are now investing to scale up, broaden, and deepen our market while continuing to deliver maximum value for investors.”

Is the dream of peer-to-peer lending beginning to fade?, (Thersa), Rated: AAA

Why is this a problem? Because unlike banks, which can make money on captive and repeat business in current accounts, credit cards and remortgages, P2P lenders need to continuously find and process new borrowers in order to earn commission. Should the sluggish times continue, the danger is that P2P lenders may soon be tempted to shoot for riskier borrowers in order to maintain their rate of growth. Remember that these platforms have investors of their own to placate and appease, many of whom will be pushing for decisive action to keep transaction volumes on an upward trajectory.

Finally, there is the question of where the money flows to on these platforms. Nesta and Cambridge University’s research is unequivocal: peer-to-peer lending has helped many thousands of people and businesses access loans in the face of rejection from high street banks. Yet only 20 percent of borrowers using P2P consumer lending platforms are women, and only a quarter earn less than £25k (note that the median wage of workers in the UK is  £27.5k). Although the makeup of borrowers using P2P platforms may simply reflect lending patterns across the financial industry, it challenges the theory that fintech innovations are inherently more inclusive.

The point of raising these red flags is not to pour cold water on the P2P lending phenomenon. Many of these platforms promise users a brilliant customer experience, faster decision making, more choice and – for some – better rates on loans than they can find elsewhere. Indeed, one of the greatest impacts P2P lenders have had is in changing the practices of long-standing incumbents. Take Wells Fargo, which recently launched a rapid turnaround system for small business loans, partly to match the responsiveness of P2P startups. These innovations should linger on even if P2P platforms fade away, and suggests the sector could catalyse positive transformation in financial services without needing to achieve a dominant position in the loans market.

No, this is not to dismiss the real achievements of P2P platforms. Rather, it is a plea to be pragmatic and realistic about what P2P lending – and all forms of fintech for that matter – can ultimately achieve without a more significant structural change in the nature of the financial industry. John Kay, in his brilliantly detailed new book Other People’s Money, rightly reminds us of the fundamental functions of finance: to enable people to save for the future, receive and send money, manage everyday risks, and borrow to invest in a real economy that truly creates value for others.

Ablrate & Access Commercial Finance Tout Origination Partnership, (Crowdfund Insider), Rated: A

Asset-backed peer to peer lender Ablrate has released information on an origination partnership with Access Commercial Finance based in Leeds. The arrangement is said to have generated over £2.5 million of loans so far this year. Ablrate launched as a niche P2P lender focusing on aircraft finance but has since branched out into capital equipment and property. Ablrate’s arrangement with Access is thus driving platform growth. Ablrate also offers a secondary market for investors in their loans.

The origination partnership is said to have resulted in sizeable deals for a range of sectors, including an £800,000 funding boost for a previously mothballed Eco Park, near Newcastle. The deal is expected to grow by £1.4 million. The waste management plant in Blaydon suffered following the collapse of Lehman Bros in 2013. The £800,000 in finance  raised through Ablrate and Access is expected to get the plant fully operational by October creating at least 30 jobs.

European Union

BBVA Plans New Management Revamp as Chairman Pushes Digital Bank, (Bloomberg), Rated: AAA

Banco Bilbao Vizcaya Argentaria SA is preparing its second management reorganization in 14 months as Chairman Francisco Gonzalez streamlines Spain’s second-biggest lender and accelerates its push into digital banking.

BBVA is pushing to offer more products and services online and via mobile phones as Gonzalez predicts few banks will survive competition from technology companies such as Google Inc. or Facebook Inc.

Vicente Rodero, current head of Country Networks, a unit created last year to boost the results of the group’s lenders in various countries, is set to leave his post. Chief Financial Officer Jaime Saenz de Tejada and Javier Rodriguez Soler, head of strategy and M&A, will be given additional responsibilities.

India

Fintech firms to take profit-first approach, say panellists at VCCircle summit

India’s fintech startups will also learn more from China, owing to similar demographic opportunities and challenges, unlike other industries that primarily learnt from the US, the panellists said. While there are no successful models yet, companies are experimenting with different models that include marketplace, bidding process and intermediary, they added.

Adhil Shetty, founder and CEO of Bankbazaar, said the popularity of the company is that its website received 90 lakh visitors in the month of March alone. Hence, it won’t be an extended arm as the platform offers products from partnering financial services companies as well standalone products.

Gaurav Hinduja, co-founder of Capital Float, which operates a hybrid model by lending online through its non-banking finance company, said these data sets will reduce the time taken from application to disbursal to 10 minutes. He added that social data can be used for verification as well as help in recoveries.

Rajat Gandhi of Gurgaon-based Faircent, which operates a peer-to-peer (P2P) lending platform facilitating borrowers and lenders through a bidding process, said that credit score would continue to be main criteria for disbursal of loans while data from social media can only be a value-add.

Vaddadi also said that fintech companies are increasing focus on customer acquisition, but added that this will not be done by burning cash.

The panellists also said that chances of default by borrowers are lower for fintech companies as these firms monitor the business performance of the borrower through analytics that can give out an early warning. Vaddadi said his firm has a 0.16% default rate.  [Comment: I do not believe this is true unless the fintechs really download the business’s information regularly and reliably. I am not aware of any company who really does this well. ]

Australia

Global banks: Is fintech a threat or an opportunity?, (Financial Review), Rated: AAA

UBS banking analysts surveyed 27,914 customers of more than 210 banks in 24 countries, along with 61 management teams from banks around the world. Local UBS banking analyst Jonathan Mott along with analysts in London, New York and Tokyo.

The survey found that a growing number of Australians are considering trying fintech services in the next 12 months: 15 per cent of Australian respondents said they will use a fintech money transfer business; 14 per cent said they will use a mobile payment fintech; 9 per cent will use peer-to-peer lending; and 9 per cent said they are likely to use a “robo adviser” for digital financial advice.

According to the management survey, 38 per cent of banks have a fintech partnership and this is expected to rise to 51 per cent over the next 12 months. The report said that in developed markets, bank returns on equity could be lifted from an average of 9.8 per cent to 10.2 per cent, as global cost to income ratios fall.

The survey found a high level of satisfaction from customers in the US and Britain using P2P lending which pointed to the threat to banks being real.
Australia’s largest P2P lender, SocietyOne, said this week it had appointed DDB Group to lift brand awareness through a TV, online, radio and print advertising campaign after the company, which is being led by former Westpac senior executive Jason Yetton, raised a further $25 million in equity in May.

UBS also predicted “the use of robo-advisers looks likely to grow exponentially” by between 70 and 150 per cent over the next year.

Cyber security is an area of concern, with 35 per cent of the customer respondents indicating a lack of trust in security as an explanation for not using fintech mobile payment services.

Author:

George Popescu

July 29th 2016, Daily News Digest

July 29th 2016, Daily News Digest

News Comments Today we have a lot of articles about banks and how banks are surfing successfully on the FinTech wave. The bank articles are mostly in the US section but the Australia section has an interesting article as well. Note the 1st article from Bloomberg and the 7th and 8th articles.  In the India […]

July 29th 2016, Daily News Digest

News Comments

  • Today we have a lot of articles about banks and how banks are surfing successfully on the FinTech wave. The bank articles are mostly in the US section but the Australia section has an interesting article as well. Note the 1st article from Bloomberg and the 7th and 8th articles.
  •  In the India section, you will find an article of quotes from P2P lenders in India which are worth a quick read. And in the UK section a very interesting article, the 1st one, just talking about the profitability of Zopa and Funding Circle, but the real interesting piece are the profitability of LendInvest and RateSetter which are not in the title. And a 2nd article that is also very clear and well thought out.

United States

United Kingdom

European Union

India

Australia

 

United States

Big Banks Turn Silicon Valley Competition Into Profit, (Bloomberg), Rated: AAA

It’s not that the upstarts — often called fintech — are failing to gain traction. Internet ventures pitching loans to cash-strapped consumers, small businesses and home buyers, for instance, have posted spectacular growth in recent years. It’s just that banks have a huge lead in lending and are watching the startups closely. As borrowers embrace new services, traditional firms are riding along.

Here are five examples:

LendingClub’s Backers

In May, LendingClub broke out its sales to banks: Community banks and other old fashioned lenders snapped up about 34 percent of the $2.8 billion of loans it arranged in the first quarter, up from an average of about 25 percent during 2015.

Some of LendingClub’s biggest loan buyers have bolstered their war chests or operations with financing from banks. Colchis Income Advisors entered into a credit agreement with Bawag PSK of Austria, according to regulatory filings. Arcadia Funds arranged for two of its Cirrix partnerships to borrow from Silicon Valley Bank. And MW Eaglewood lined up financing for its main LendingClub fund from Capital One Financial Corp. in 2012. Spokesmen for the funds and banks declined to comment or didn’t respond to messages.

Chasing Entrepreneurs

Small businesses can thank internet ventures for simplifying loan applications, speeding decisions and providing much-needed credit when many traditional banks were pulling back in the wake of 2008’s financial crisis. Nonbanks now provide about one-quarter of the $800 billion in loans outstanding to the sector, according to research by QED Investors and Oliver Wyman. But the interest rates aren’t always low.

For a time, banks were content backing the loans. Goldman Sachs was among firms that entrusted more than $300 million years ago to fund lending by On Deck Capital Inc., one of the largest providers of small business loans over the internet.

Now, established lenders are taking a more active role. JPMorgan announced a deal in December, letting it access On Deck’s proprietary credit-scoring system to quickly evaluate applicants before using its own balance sheet to make loans. On Deck, in turn, gets a foothold in the burgeoning “fintech as a service” market. But the arrangement has done little to stop a 49 percent slide in the company’s stock this year.

More recently, established lenders have announced their own online lending portals for entrepreneurs.

Wells Fargo & Co. said in May that its new “fast decision” platform will help it reach a goal of providing $100 billion in new loans to small businesses by 2019. AmEx, which already provides more than $200 billion of funding to entrepreneurs for business purchases on their credit cards, expects a new online-loan portal will let it handle even more of their spending.

Mortgage Apps

Fintech ventures starred in Super Bowl ads this year, with Quicken Loans toutingRocket Mortgage, a platform letting users apply for home loans on smartphones.

The tidal wave is benefiting banks, too. Behind the scenes, many of the upstarts get support from traditional banks. Detroit-based Quicken, for example, raised $1.25 billion for itself and its parent company last year in a bond sale underwritten by JPMorgan and Credit Suisse Group AG. It also used lines of credit from banks to help close $80 billion in home loans that year.

[Comment: 4th was Blockchain, not very relevant to our readers here]

Robo-Advisers

Top Wall Street firms, seeking stable fee income, are now developing their own robotic arms. Bank of America Corp. will unveil an automated investment prototype this year after assigning dozens of employees to the project in November, people familiar with the matter told Bloomberg at the time. Morgan Stanley and Wells Fargo also have said they would build or buy a robo-adviser.

US consumer agency seeks to overhaul debt collection industry, (CNBC), Rated: AAA

“Today we are considering proposals that would drastically overhaul the debt collection market,” said Consumer Financial Protection Bureau Director Richard Cordray in a statement. “This is about bringing better accuracy and accountability to a market that desperately needs it.”

According to a summary, the proposal would make sure collectors “substantiate the debt before contacting consumers,” by confirming their identities and the amount owed, as well as checking for any payments made after a default. Consumers frequently file complaints at the agency about receiving calls for debts that do not exist.

In an attempt to “limit excessive contact,” the proposal would cap agencies’ calls to debtors to six attempts each week. It would also create a 30-day waiting period after a person dies for contacting survivors.

Agencies would have to communicate specific information to consumers, such as when outstanding debt is too old for a lawsuit. They would also have to make it easier to both dispute or pay a debt through tear-off coupons on the bottoms of collection notices.

Roughly 13 percent of consumers have a debt currently in third-party collection, with an average amount of $1,300, data from the Federal Reserve Bank of New York shows.

In a survey released alongside its proposal, the CFPB found more than three-quarters of the country’s 3,994 debt collection firms are small, with less than 100 employees. Larger firms pull in about two-thirds of the industry’s $12.18 billion total revenue.

The agency also found credit card, student loan and automobile debts in collection typically have balances of $2,000 or more.

Cloudvirga Raises $ 7.5 M to Automate the Entire Mortgage Process, (PR Newswire), Rated: A

Cloudvirga, the company developing the cloud-based intelligent Mortgage Platform® (iMP) designed to streamline the mortgage process, today announced it has raised $7.5M in its series A funding sponsored by Dallas Capital with participation from Upfront Ventures and Tribeca Angels.

“Increased regulations stemming from the subprime mortgage crisis have made the entire process more labor intensive and time consuming than ever, and those are the pain points we’re alleviating with iMP,”

Come Together – Finding Common Ground in Small Business Lending Associations, (Lend Academy), Rated: AAA

So where do we go from here? Advancing the marketplace lending industry’s efforts to create a more transparent and efficient financial system is critical as the industry matures.

The good news is that small businesses today – even those with lackluster or thin credit history – can choose from a dynamic set of loan products including term loans (both traditional and short-term), business lines of credit, loans for startup companies, equipment purpose loans, various SBA loans, accounts receivable financing, merchant cash advances, and peer-to-peer loans. This is a far cry from where we were in 2008-2010, when (according to the Huffington Post) more than 170,000 small businesses shut down.

At Lendio, we’re convinced that there needs to be a single, industry unifier – and we feel the SMART Box is headed in that direction. Lendio will now participate in the 90-day engagement period and I’m asking all those who offer loan products throughout the Lendio platform to consider doing so as well.

How Much Lower Will Your Student Loan Rate Be With a Cosigner?, (Wall Street Journal), Rated: AAA

Undergraduates who qualified for private student loans with a cosigner–often a parent–were offered average interest rates of 5.37% versus 7.46% without a cosigner, according to Credible.com, a student-loan marketplace. Rates for graduate students were also discounted to 4.59% on average with a cosigner compared to 6.22% without one.

The figures from Credible.com are based on five lenders’ responses and offers—which included a mix of fixed and variable interest rates—to nearly 8,000 applicants who shopped for student loans on the site over a 12-month period through early June. The lenders include Citizens Financial Group—which is quickly gaining market share in the private student loan market—as well as online lenders CommonBond and College Ave Student Loans.

Approval rates fall dramatically without cosigners. Fifty-one percent of undergraduates shopping for loans on Credible.com received offers compared with 20% of those without a cosigner. Similarly, 56% of graduate students–who lenders have historically viewed as relatively safer borrowers–received offers with a cosigner versus 45% without.

In some cases, it can be cheaper for parents to join their children on a private student loan as opposed to signing up for a parent-only loan from the federal government. The 5.37% average rate undergraduates received with a cosigner on private student loans is nearly one percentage point cheaper than the interest rate on the federal Plus loan for parents that charges 6.31% for the upcoming academic year. Private lenders also don’t charge origination fees, while the Plus loan currently has a roughly 4.3% upfront charge.

Think twice before you co-sign on a student loan, (CNBC), Rated: AAA

But co-signing is risky. It ties you to that debt, meaning you could be responsible for the entire amount outstanding if the primary borrowercan’t — or won’t — pay up. Nearly 40 percent of co-signers found themselves on the hook for at least part of the bill, according to a June survey from CreditCards.com, and 28 percent saw a drop in their credit score from the primary borrower’s bad credit habits.

How Ayasdi’s machine learning is giving banks an analytical advantage, (Tradestreaming), Rated: AAA

“The future is already here — it’s just not very evenly distributed.” Banks are increasingly using machine learning to power part of their operations, but the adoption of these new technologies is not uniform.

Top data scientists are employed by financial institutions and working with programming tools like SPCC and R, they filter and analyze huge data sets in order to perform analytical tasks. “No human being can wrap his head around that amount of data,” said Daniel Druker, CMO of Ayasdi, a machine learning company that partners with financial institutions, like Citi and Credit Suisse. Instead, using machine learning algorithms, a computer can surface insights and recommendations from those data sets, while the quants examine and take actions based on those learnings.

According to McKinsey’s 2015 Global Banking Report, banks that have replaced older statistical-modeling approaches to credit risk with machine learning techniques have experienced up to 20 percent increases in cash collections from outstanding loans.

Out of over 20 banks that work with Ayasdi, Drucker said, 100% are either already operating in this stage or actively exploring implementing such technology.

The highest level of machine learning application is the fully automating business processes. Take a life insurer, for example. When a customer applies for a policy, he might be asked to fill out a 40-page long form and get a physical examination. That information is then sent back to the company for approval. The entire process can take over a month to complete.

According to McKinsey, some European banks using these techniques report 10 percent increases in sales of new products, 20 percent savings in capital expenditures, and 20 percent declines in customer churn.

CB Insights has identified 41 companies providing machine learning solutions in the financial industry. Together with the explosion of general applications of  AI, deals and investments in AI companies reached record levels in 2016. Since the beginning of 2016, over 15 fintech AI companies have closed investment rounds.

How Digital Investments Are Changing the Face of Banking, (The financial Brand), Rated: AAA

Investment in digital banking is driving increased customer acquisition, cross-selling and satisfaction while decreasing branch traffic and related costs.

This is confirmed by the J.D. Power research that showed that there is an immediate lift in overall satisfaction when customers use mobile banking (+27 points on a 1,000-point scale), and this impact increases even more when banks provide their mobile banking customers with a highly satisfying experience (+82). According to J.D. Power, “The outlook for Big Banks remains positive, driven by their (big banks) ability to invest in customer-centric innovations (e.g., digital channels, analytics, and branch transformation), as well as their success in growing customer segments.”

Recent disclosures of mobile banking use by the big banks provides a glimpse of the impact of digital investment on mobile use. Of the three largest U.S. banks, JPMorgan Chase leads the way with nearly 25 million active mobile customers as of the second quarter. That was up 18% compared with the same period last year. Bank of America had the second most active mobile users, with 20.2 million monthly active app users, with Wells Fargo reporting 18 million active users.

 

United Kingdom

Britain’s 2 biggest peer-to-peer lenders lost £50 million in the last decade

The two platforms have facilitated almost £3 billion of loans between them but Funding Circle, founded in 2010, has never made a profit, while Zopa, founded in 2005, made a small profit 2 years running, totalling less than £60,000.

Here’s the breakdown of Zopa and Funding Circle’s financial performance, as per accounts filed with Companies House:

  • Zopa: losses between 2005 and 2014 total £21.79 million, according to accounts filed with Companies House, on cumulative revenues of £25.84 million. The platform made a small profit in in 2011 and 2012, totalling £58,648.
  • Funding Circle: cumulative net loss of £28.71 million on total revenues of £20.89 million, according to accounts covering 2010 to 2014. The company has yet to make a profit.

These losses have been funded by investment from venture capitalists: $273 million (£208.1 million) for Funding Circle and at least $56.6 million (£43 million) for Zopa, according to Crunchbase.

Funding Circle, which offers loans to small businesses, declined to comment on its losses when contacted by BI but pointed to comments CEO Samir Desai made to BI last year when we reported the company’s latest financial results. Desai said at the time:

“If you actually look at the core business of doing loans in the UK — strip away the technology investment and all the other extra stuff we’re doing — the business is already profitable in the UK and is moving that way in the US as well. A lot of the investment we’re doing is investing in creating a global business.”

Zopa’s CEO Jaidev Janardana told BI in an emailed statement:

“We have demonstrated that our business model is profitable with two consecutive profitable years in 2011 and 2012. Since then our investors and the business have placed more value on investing in our growth. In doing so we have been able to double our loan volumes last year, deliver positive returns for our customers at the same time investing in talent, technology, and our office.

“This all means we are in the best position to deliver on our strategic plan for continued growth and profitability long-term. Looking forward, I’m glad to say that we expect to be EBIDTA positive in Q4 2016 and profitable in 2017.”

Christian Faes, CEO of the UK’s fourth largest marketplace lender LendInvest, told BI he thinks that loss-making platforms will face increased pressure to turn a profit to “prove that they can.” Remember, the growth that Zopa and Funding Circle are chasing could be disappearing.

LendInvest, which lets investors put money into short-term mortgages for people looking to renovate then sell properties, made a pre-tax profit of £3.1 million in 2015 and £1.1 million in 2014.

A spokesperson for RateSetter told BI: “We have recorded a profit for two consecutive financial years, proving that our model works and is sustainable. We are now investing to scale up, broaden, and deepen our market while continuing to deliver maximum value for investors.”

Is the dream of peer-to-peer lending beginning to fade?, (Thersa), Rated: AAA

Why is this a problem? Because unlike banks, which can make money on captive and repeat business in current accounts, credit cards and remortgages, P2P lenders need to continuously find and process new borrowers in order to earn commission. Should the sluggish times continue, the danger is that P2P lenders may soon be tempted to shoot for riskier borrowers in order to maintain their rate of growth. Remember that these platforms have investors of their own to placate and appease, many of whom will be pushing for decisive action to keep transaction volumes on an upward trajectory.

Finally, there is the question of where the money flows to on these platforms. Nesta and Cambridge University’s research is unequivocal: peer-to-peer lending has helped many thousands of people and businesses access loans in the face of rejection from high street banks. Yet only 20 percent of borrowers using P2P consumer lending platforms are women, and only a quarter earn less than £25k (note that the median wage of workers in the UK is  £27.5k). Although the makeup of borrowers using P2P platforms may simply reflect lending patterns across the financial industry, it challenges the theory that fintech innovations are inherently more inclusive.

The point of raising these red flags is not to pour cold water on the P2P lending phenomenon. Many of these platforms promise users a brilliant customer experience, faster decision making, more choice and – for some – better rates on loans than they can find elsewhere. Indeed, one of the greatest impacts P2P lenders have had is in changing the practices of long-standing incumbents. Take Wells Fargo, which recently launched a rapid turnaround system for small business loans, partly to match the responsiveness of P2P startups. These innovations should linger on even if P2P platforms fade away, and suggests the sector could catalyse positive transformation in financial services without needing to achieve a dominant position in the loans market.

No, this is not to dismiss the real achievements of P2P platforms. Rather, it is a plea to be pragmatic and realistic about what P2P lending – and all forms of fintech for that matter – can ultimately achieve without a more significant structural change in the nature of the financial industry. John Kay, in his brilliantly detailed new book Other People’s Money, rightly reminds us of the fundamental functions of finance: to enable people to save for the future, receive and send money, manage everyday risks, and borrow to invest in a real economy that truly creates value for others.

Ablrate & Access Commercial Finance Tout Origination Partnership, (Crowdfund Insider), Rated: A

Asset-backed peer to peer lender Ablrate has released information on an origination partnership with Access Commercial Finance based in Leeds. The arrangement is said to have generated over £2.5 million of loans so far this year. Ablrate launched as a niche P2P lender focusing on aircraft finance but has since branched out into capital equipment and property. Ablrate’s arrangement with Access is thus driving platform growth. Ablrate also offers a secondary market for investors in their loans.

The origination partnership is said to have resulted in sizeable deals for a range of sectors, including an £800,000 funding boost for a previously mothballed Eco Park, near Newcastle. The deal is expected to grow by £1.4 million. The waste management plant in Blaydon suffered following the collapse of Lehman Bros in 2013. The £800,000 in finance  raised through Ablrate and Access is expected to get the plant fully operational by October creating at least 30 jobs.

European Union

BBVA Plans New Management Revamp as Chairman Pushes Digital Bank, (Bloomberg), Rated: AAA

Banco Bilbao Vizcaya Argentaria SA is preparing its second management reorganization in 14 months as Chairman Francisco Gonzalez streamlines Spain’s second-biggest lender and accelerates its push into digital banking.

BBVA is pushing to offer more products and services online and via mobile phones as Gonzalez predicts few banks will survive competition from technology companies such as Google Inc. or Facebook Inc.

Vicente Rodero, current head of Country Networks, a unit created last year to boost the results of the group’s lenders in various countries, is set to leave his post. Chief Financial Officer Jaime Saenz de Tejada and Javier Rodriguez Soler, head of strategy and M&A, will be given additional responsibilities.

India

Fintech firms to take profit-first approach, say panellists at VCCircle summit

India’s fintech startups will also learn more from China, owing to similar demographic opportunities and challenges, unlike other industries that primarily learnt from the US, the panellists said. While there are no successful models yet, companies are experimenting with different models that include marketplace, bidding process and intermediary, they added.

Adhil Shetty, founder and CEO of Bankbazaar, said the popularity of the company is that its website received 90 lakh visitors in the month of March alone. Hence, it won’t be an extended arm as the platform offers products from partnering financial services companies as well standalone products.

Gaurav Hinduja, co-founder of Capital Float, which operates a hybrid model by lending online through its non-banking finance company, said these data sets will reduce the time taken from application to disbursal to 10 minutes. He added that social data can be used for verification as well as help in recoveries.

Rajat Gandhi of Gurgaon-based Faircent, which operates a peer-to-peer (P2P) lending platform facilitating borrowers and lenders through a bidding process, said that credit score would continue to be main criteria for disbursal of loans while data from social media can only be a value-add.

Vaddadi also said that fintech companies are increasing focus on customer acquisition, but added that this will not be done by burning cash.

The panellists also said that chances of default by borrowers are lower for fintech companies as these firms monitor the business performance of the borrower through analytics that can give out an early warning. Vaddadi said his firm has a 0.16% default rate.  [Comment: I do not believe this is true unless the fintechs really download the business’s information regularly and reliably. I am not aware of any company who really does this well. ]

Australia

Global banks: Is fintech a threat or an opportunity?, (Financial Review), Rated: AAA

UBS banking analysts surveyed 27,914 customers of more than 210 banks in 24 countries, along with 61 management teams from banks around the world. Local UBS banking analyst Jonathan Mott along with analysts in London, New York and Tokyo.

The survey found that a growing number of Australians are considering trying fintech services in the next 12 months: 15 per cent of Australian respondents said they will use a fintech money transfer business; 14 per cent said they will use a mobile payment fintech; 9 per cent will use peer-to-peer lending; and 9 per cent said they are likely to use a “robo adviser” for digital financial advice.

According to the management survey, 38 per cent of banks have a fintech partnership and this is expected to rise to 51 per cent over the next 12 months. The report said that in developed markets, bank returns on equity could be lifted from an average of 9.8 per cent to 10.2 per cent, as global cost to income ratios fall.

The survey found a high level of satisfaction from customers in the US and Britain using P2P lending which pointed to the threat to banks being real.
Australia’s largest P2P lender, SocietyOne, said this week it had appointed DDB Group to lift brand awareness through a TV, online, radio and print advertising campaign after the company, which is being led by former Westpac senior executive Jason Yetton, raised a further $25 million in equity in May.

UBS also predicted “the use of robo-advisers looks likely to grow exponentially” by between 70 and 150 per cent over the next year.

Cyber security is an area of concern, with 35 per cent of the customer respondents indicating a lack of trust in security as an explanation for not using fintech mobile payment services.

Author:

George Popescu

July 27th 2016, Daily News Digest

July 27th 2016, Daily News Digest

News Comments Today we have a very long US section, I guess we are compensating for yesterday. Quite a few very interesting pieces of info. And a fun Chinese section as well. Do note the fund raises in P2p in China despite the overall doom and gloom feeling. Reminder 1 USD  = 6.67 RMB United […]

July 27th 2016, Daily News Digest

News Comments

  • Today we have a very long US section, I guess we are compensating for yesterday. Quite a few very interesting pieces of info.
  • And a fun Chinese section as well. Do note the fund raises in P2p in China despite the overall doom and gloom feeling. Reminder 1 USD  = 6.67 RMB

United States

United Kingdom

European Union

China

News Summary

United States

Elevate Announces 5 Million Expanded Credit Facility from Victory Park Capital, (Business Wire), Rated: AAA

Comment:  Elevate was planning an IPO early 2016. See below.

Elevate, a provider of innovative online credit solutions for non-prime consumers, today announced it has increased its credit facility with Victory Park Capital (VPC), a privately held registered investment advisor dedicated to alternative investing, by an additional $100 million to a total of $545 million. The company will use the additional capital to support the rapid growth of its credit products in the U.S. and U.K. and for further investment in its suite of online credit solutions.

Despite market turmoil in the online lending space over the past few months, Elevate has continued to benefit from high consumer demand for its products and has experienced year-over-year loan portfolio growth of more than 80% since Q1 2015,” said Ken Rees, CEO of Elevate. “We believe that more responsible non-prime credit products like RISE, Elastic and Sunny are making a positive difference in the lives of our customers who often struggle with limited financial options. This expanded credit facility with Victory Park Capital will help us continue to serve this growing consumer need.”

Old article, context relevant: This Should Be The First Tech IPO of 2016, (Fortune), Rated: AAA

Comment: article published January 11 2016.

Elevate Credit has improving financials, but regulatory risks.
Elevate Credit, a Texas-based provider of online credit solutions to non-prime consumers, on Monday said that it plans to offer 3.6 million shares at between $20 and $22 per share. It’s the first company to set an IPO range so far this year, and likely will attempt to price before the end of January.

Elevate was formed in 2014 as a spin-out from Think Finance, which had been founded in 2001 to provide analytics and tech services to “lenders looking to meet the needs of Americans underserved by today’s traditional banking system.” Elevate represented Think’s branded consumer lending products group, including Rise(installment loans in the U.S.), Elastic (open-end lines of credit in the U.S.) and Sunny (installment loans in the UK). It is led by former Think Finance CEO Ken Rees, who previously founded CashWorks, which was bought by GE Money Services in 2004.

The company reports a $20 million net loss on $300 million in revenue for the first nine months of 2015, compared to a $44 million net loss on $180 million in revenue for the year-earlier period. Elevate also today disclosed preliminary fourth quarter data, showing that it broke even on around $134 million in revenue. This compares to an $11 million net loss on $94 million in revenue for the fourth quarter of 2014.

The numbers are promising, but Elevate will have to answer two major questions before its IPO.

The first revolves around Victory Park Management, a private equity affiliate that is the sole source of debt financing for all Rise and Sunny loans. There is no indication that VPM is in any sort of trouble―and it recently amended its credit facility with Elevate in order to accommodate increased loan volume—but investors may balk at backing a financial services business that relies so heavily on a single debt provider.

Second, Elevate may need to get some investors comfortable with a tech-enabled business model that shares certain elements of brick-and-mortar payday lending. In particular, Elevate charges very high interest rates in certain markets. For example, the APR on a Riseloan in Idaho can total 365%. Same for a Rise loan in Elevate’s home state of Texas. The company says it is different from payday lenders in that its loans don’t contain balloon payments and that repayment can help borrowers improve their credit scores. At the same time, however, its listed IPO risk factors includes promised new rules on payday lending from the Consumer Financial Protection Bureau. The company also says that the introduction of new rate caps by state legislatures could “make it difficult or impossible to offer [Rise] at acceptable margins.”

IPO on horizon, subprime lending startup Elevate adds 5M in credit from Victory Park Capital, (Tech Crunch), Rated: AAA

Elevate’s niche right now is providing loans to borrowers with creditscores between 575 and 625. As the company expands, it wants to provide loans to customers with even lower credit-scores.

Ken Rees, CEO of Elevate, is quick to note that 65 percent of Americans are underserved as a result of their low credit-scores. With additional lending data, it might just be possible to underwrite loans with confidence for these underserved customers. Previously, customers of Elevate would have been forced to take title or payday loans.

“20 percent of all title loans result in the customer losing their car,” noted Rees.

Elevate’s revenue run rate is hovering around $500 million even while average customer APR has been falling. The company has seen an 80 percent growth in loans outstanding over the last year, while charge-off rates have decreased from 17-20 percent in early 2014 to 10-15 percent today. Charge-off rates monitor loans that a company feels it can’t collect.

Rees’ previous company, Think Finance, backed by Sequoia and TCV, got itself into legal troubles last year and was accused of racketeering and the collection of unlawful debt.

Elevate rewards borrowers for watching financial literacy videos with better interest rates on products like RISE that are targeted at financial progression. The company also offers free credit monitoring. The average weighted APR for RISE is a hefty 160 percent, but it’s relatively tame next to a traditional 500 percent APR payday loan. RISE loans drop by 50 percent APR after 24 months, and fall to a fixed 36 percent APR by 36 months.

Over 65 percent of Elevate borrowers have experienced a rate reduction. All of these lending practices have improved customer retention for the company, 60 percent of Elevate borrowers who payoff their loan will get another. Typically these new loans will be granted at even lower interest rates.

Prosper Said to Pitch Fund That Would Buy Its Online Loans, (Bloomberg), Rated: AAA

Prosper Marketplace Inc. is setting up a private fund that will purchase consumer loans arranged through its online platform, providing another source of capital to fuel growth after other investors pulled back.

Executives at the closely held company are meeting with potential clients this week to pitch the Prosper Capital Consumer Credit Fund, according to a person familiar with the matter who asked not to be identified discussing confidential talks. The fund’s managers are targeting returns of 6 percent to 8 percent.

The goal is “sustainable and attractive risk-adjusted returns,” according to a presentation obtained by Bloomberg. The fund will buy a cross-section of “unsecured consumer loans originated through the Prosper marketplace on a passive basis.”

LendingClub, for instance, has run investment vehicles for several years similar to the one being started by Prosper. And Social Finance Inc., an online lender that gained popularity by refinancing student debt, started a hedge fund this year to buy its loans and potentially those of competitors.

The Prosper fund plans to start buying loans for clients as soon as September and could manage as much as $1 billion over time, according to the person. The fund won’t use leverage or charge investors performance or management fees, though loans in the portfolio will still be subject to Prosper’s standard servicing fees of 1 percent. The minimum investment is $250,000 and Prosper expects it to be attractive to family offices, high-net-worth individuals and foundations, the person said.

A similar fund managed by a LendingClub unit has had a rough ride this year. Returns slumped. The company disclosed that it had improperly allocated some loans to the portfolio. And by mid-June, clients had asked to pull out $442 million — or 58 percent — of the fund’s assets, forcing managers to limit withdrawals, according to a letter sent to investors. In response, LendingClub has said it overhauled the fund’s governance.

The new Prosper fund will allow quarterly resumptions of up to 5 percent of net asset value, according to the presentation.

Goldman Sachs: The Newest Online Lender, (Seeking Alpha), Rated: AAA

The emphasis it has placed on this initiative, and the speed with which it has been accomplished, demonstrate that it is a priority for Goldman Sachs.

 

(Source: GS report)

Harit Talwar would head up the project. His last position was at Discover , where he ran the U.S. cards division. Unusually, Talwar was hired as a full partner, giving some idea of how seriously Goldman took the Mosaic initiative. Abhinav Anand, head of Analytics, also came from Discover, where he was in charge of the risk division.

Boe Hartman, formerly of Barclay’s credit card division, was Chief Technology Officer. David Stark, formerly of Citigroup’s credit card division, was Chief Risk Officer, in charge of the underwriting. These men worked for traditional banks.

However, Darin Cline, head of operations, was formerly head of operations at Lending Club. And Greg Berry, Chief Architect, used to work for OnDeck. These officers had experience with the new online lenders. Goldman wanted the best of both breeds as it put its own product together.

The benefits of sticky capital: steady growth

When you are a lender, you need funds to lend, and when you want to grow as an online lender, you need a source of funds that won’t dry up when the credit market contracts a few points. This is one of the problems Lending Club has faced recently. Its originate-to-distribute model, plus its meteoric growth (until recently), meant that it was heavily dependent on institutional funding. But it turns out that institutional funding flees quickly when credit markets turn slightly less rosy. The impacts of a recent, fairly small, capital drought have ramified into internal mismanagement, crippled growth, and a share price collapse for Lending Club.

The benefits of cheap capital: profit (with a regulatory wrinkle)

Those same depositors also provide just about the cheapest capital there is. The average interest rate on a Lending Club loan is 12.8% and 14.6% at Prosper. With a cost of capital at 1.05%, comparable rates would give GS Bank a fat interest margin of 11.75-13.55% (not counting allowances for losses).

In its “New Shadow Banking” report, Goldman’s researchers estimated a TAM for the consumer loans business at $258B, with an average ROA of 2.2%. That is $5.67B of profits up for grabs, and you can bet that Goldman intends to own a big piece of it. Every percentage point of that amount would add about one additional percentage point to the bank’s 2015 net income.

How to build your own bank, (Tradestreaming), Rated: AAA

Large financial institutions are opening up their APIs.
Exposing the tech underbelly of the finance industry is leading to an increasingly collaborative partnership environment.

BBVA offers an API marketplace for its European and US business units. In the US, the bank’s Compass unity provides connectivity for pre-authorized users to access key account data. It also offers an open security hookup that application developers can integrate to have BBVA clients authorize access to BBVA account information in their name. In Europe, the APIs go further, providing data on card purchases, identify verification, and money transfers.

In August 2015, technology industry bank SVB acquired a fintech startup, Standard Treasury. The startup had raised a couple of million dollars and was working on developing APIs for banking and that activity, the technology, and the team that developed it, was brought in-house at SVB.

Some banks have created APIs for just a select group of partners. They’re not necessarily interested in opening them widely for general use. Instead, they’re a quick and easy way to get vetted entities on their platforms. Barclays’ Developer Network (BDN) is the UK bank’s offering for approved firms to build applications using bank data and infrastructure. Barclays uses BDN in conjunction with the 13-week accelerator it runs together with Techstars. Participating startups in 4 locations (London, New York, Cape Town and Tel Aviv) get access to BDN in addition to working with decision makers at the bank and a group of mentors.

RBS has taken a similar approach to Barclays. The RBS API was made available as part of the Open Bank Project, an open source API and app store for banks. RBS uses its API as part of hackathons the bank sponsors.

Fidelity officially launches retail robo-adviser, (Investment News), Rated: A

Comment: What is happening in the robo-advisor space is very relevant to the p2p lending space.

Boston-based fund company Fidelity Investments on Wednesday officially launched its retail robo-adviser, Fidelity Go, after months of testing it out with about 1,000 users. Geode Capital Management, a Boston-based investment firm that has acted as a sub-adviser for Fidelity products for 13 years, will invest, monitor and manage Fidelity Go portfolios. The account minimum is $5,000, and clients are charged 35 to 40 basis points.

The company is focusing on younger, emerging and digitally-savvy investors with the platform, and has worked with this target audience to develop the robo.

Fidelity is also working on an institutional platform, which will be an integrated experience for investment advisers, bankers and broker-dealers, a spokesman said. More details will be available by the end of the year, he said.

How One Community Bank Closed Its Branches And Went Fully Digital, (The Financial Brand), Rated: A

A few years ago, Radius Bank had six branches. Today it has only one. How did they pull off this massive transition from brick-and-mortar to virtual?

An Amalgamation of Partnerships Solves the Fintech/Product Puzzle.

With traditional marketing media, it is difficult to accurately measure account acquisition, so the bank made the shift to go 100% digital in late 2014, bringing all consumer/retail marketing in-house. Now, instead of airing a commercial on television, Radius uses YouTube in conjunction with the Google Display Network. Billboards have been replaced with banner ads across the internet.

The mortgage industry (finally) moves online, (Tradestreaming), Rated: AAA

75 percent of home buyers would use online mortgages if they knew they could speak with someone when needed.
“I was frustrated by how offline, opaque and inefficient the mortgage application experience was,” said Rajesh Bhat of Roostify.

Roostify offers originators the technology to build a consumer-facing one-stop shop for the mortgage process with the ability to integrate additional products through an API.

Some of the newer players, like LendingHome or LandBay, try to replace current originators. Both are peer-to-peer home lenders. Sindeo and Blend Labs help customers through their mortgage applications by providing information or streamlining data collection and processing. SoFi, known more as a student loan provider, is now also active in the mortgage market, offering online applications for mortgages.

Quicken Loan’s Rocket Mortgage — which promised that home buyers could get approved for a mortgage in 8 minutes — was a big catalyst for that process.

Crowdlending platform uses Bitcoin, (Springwise), Rated: A

BTCJam is a lending platform that deals in Bitcoin to facilitate international P2P lending.

Founded in 2012 with the aim of providing affordable credit, the system boasts 19,905 loans funded, USD 24 million borrowed in over 200 countries to date, with 24 loans currently fundraising.

Although recent reports claim the business is withdrawing from trading in the US leaving uncertainty amongst many American users, BTCJam continues to service its customers worldwide.

Another Bone of Contention Between Political Parties: Student Loan Debt, (Real Money), Rated: A

In 2013, the amount of money student loan borrowers owed the federal government crossed the $1 trillion threshold for the first time, according to the Consumer Financial Protection Bureau. For the class of 2016, the average student graduated with $37,172 in loan debt.

Five of the top lenders in this space include Sallie Mae (SLM) , Action Alerts PLUS holding Wells Fargo (WFC) , Discover (DFS) , Citizens Bank and SoFi — which acts as an online loan marketplace.

“The federal government should not be in the business of originating student loans. In order to bring down college costs and give students access to a multitude of financing options, private-sector participation in student financing should be restored,” the party’s official platform stated.

That stance is a repudiation of the 2010 federal legislation that scaled back the role of private lenders providing student loans. The banks now act as middlemen, collecting fees and keeping records while students go through federal channels to secure the loans.

However, the federal government has also taken steps to provide relief for borrowers in recent years as the interest rate on federal loans for undergraduate students dropped to 3.76% in 2016 from 4.29% in 2015. The government also adjusted the maximum Pell grant amount for inflation to $5,815 from $5,775 last year. Pell grants are used by nearly 8 million lower-income students in the country.

Democratic presidential candidate Hillary Clinton recently released her campaign’s college financing plan. The main tenets of her plan aim to allow students from families making up to $125,000 annually to go to school without having to incur any debt. Another tenet states that all community colleges will offer free tuition.

Kabbage enlists Marketo for marketing, (Finextra), Rated: AAA

Marketo, Inc. (NASDAQ: MKTO), the leading provider of engagement marketing software and solutions, today announced that Kabbage Inc., a disruptive financial technology platform that provides businesses with access to working capital, is leveraging the Marketo platform to improve email open rates and cut down on campaign production time.

Up until October 2015, Kabbage, relied on a different marketing automation provider and a number of other tools to manually engineer communications with potential customers. As the company grew, the team needed to consolidate and integrate these tools with its existing CRM for better alignment between marketing and sales. In this way, the team hoped to strike the right cadence of communication with its customers, serving them with a premiere customer experience, at any time and from virtually any device.

Kabbage chose Marketo for its ability to track the return-on-investment of email campaigns and also for its proven track record of security in highly regulated industries such as financial services and healthcare. Since implementing Marketo, Kabbage has seen email open rates and click-to-open rates jump more than 10 percent compared to campaigns deployed via the company’s previous marketing automation system. The marketing team attributes this success to the speed and ease-of-use of the Marketo platform, saving on average 2-3 hours in day-to-day production time.

OnDeck Capital’s Hidden Margin Of Safety, (Seeking Alpha), Rated: A

This article explores how GAAP accounting is obscuring the earnings power of ONDK.

ONDK is optically profit-less, but has the potential to ramp up earnings substantially if it slows down its expansion.

While this is not what the company will or should do, it’s a helpful illustration of another source of margin of safety in the stock.

This is ignoring the substantial opportunity ahead of the company and the value creation over the longer-term.

Credibly Interview: Innovative Online Lending Is Changing The Industry, (Nasdaq), Rated: A

After the bust of the first Internet bubble, folks did not go back to using fax machines. The fact is, what the lending industry has done in terms of creating a far superior user experience — following on how gaming, social, travel, and virtually every other industry has moved online — has created an opportunity to get more capital to the folks who need it and lowering people’s cost of funds along the way.

[Another myth I see] is the demise of innovative lending. But I just want to spend a second talking about what I mean by “innovative lending.” We as an industry have been challenged in coming up with what we should be calling ourselves. “Peer-to-peer,” in the early days, captured the essence of what the models were about in many ways, but that quickly evolved to perhaps institutional-to-peer. “Marketplace” implies that there’s a pure marketplace that’s operating, matching up borrowers and lenders in a hands-off kind of way. But that also implies a singular source of financing; that the financing for those individual loans comes from “the marketplace.”

I talk a lot about the importance of having diversified sources of funding available to you regardless of how you originate assets.

we all know that small businesses represent roughly 60% of GDP and roughly 60% of our labor force — and during the short time we’re sitting here today, our industry will probably do more of that to the tune of $10 million to $20 million. There’s a significant social benefit that we’re helping to create, and none of what we’re reading about in the press is going to change any of that.

MPL Policy Summit to be Held on September 13th in Washington DC, (Business Wire), Rated: AAA

Spearkers :

Thomas J. Curry, Comptroller of the Currency

Congressman Patrick McHenry, (R, NC-10th), House Financial Services Committee.

Goldman Sachs Gets Closer To Taking On The Marketplace Lenders, (PYMNTS), Rated: A

When asked by a JPM analyst if the firm was considering the “case for buying something? … So you get to a critical mass more quickly?” Schwartz neatly shot that idea down.

“This particular effort, when we looked at it, we really felt like it was best designed from scratch. The reason for that is we are kind of uniquely positioned. It allows us to leverage our technology skills and our risk skills … if you look at the competitive landscape, there are benefits that online lending platforms provide to consumers, and there are benefits for large commercial providers of credit … we are really looking to bridge the gap between those strengths and offer consumers, the best we can, a really thoughtful, differentiated product.”

Goldman purchased $15 billion in consumer accounts from GE Bank during Q2. He noted the two efforts were separate — Goldman Sachs isn’t becoming Goldman Sachs Savings & Loan — but connected insofar as they both buttress and diversify the Goldman brand.

“We view those as separate. Having said that, the acquisition went well, adding in excess of $15 billion of deposits to the firm … We have had in excess of 20,000 consumers open up new accounts with us. We have had very significant growth in a short period of time. It really speaks to the brand strength.”

It also remains to be seen if Republicans will win the election in November and reinstate Glass-Steagall as is a plank of their party platform. Such a regulatory change could statutorily bar Goldman from entering into these types of retail functions because it is an investment bank.

United Kingdom

Dear Mr. Bailey, “The Peer-to-Peer Lending Sector Has Embraced a Level of Transparency Which is Unrivaled in Financial Services”, ( Crowdfund Insider), Rated: AAA

The letter is embedded here.

The UK Peer to Peer Finance Association has released a letter addressed to Andrew Bailey, Chief Executive of the FCA, buttressing their position regarding the recent dialogue with the House of Commons’ Treasury Select Committee.

This past June, Andrew Tyrie, MP, Chairman of the Committee, expressed concern regarding the risk of peer to peer lending. In an open letter to Bailey (then Deputy Governor of the Bank of England for Prudential Regulation) the Committee expressed its concern “to ensure that the FCA is paying due attention to the risks – and the opportunities – afforded by the growth of peer-to-peer lending”.

Today Farnish is responding to oral evidence presented by Bailey last week to the House of Commons Committee.

In her response, Farnish asserted that peer to peer lending platforms “exist solely because they create value to consumers on both sides of the platform: investors are able to earn fair predictable risk-adjusted net returns that can outperform other investment products, whilst borrowers can access fast and flexible finance.”  Farnish asked that Bailey and the FCA “would start from first principles, based on risks and benefits to consumers.”

Farnish assured Bailey, and others, the sector “accepts its responsibility for ensuring that those investing in peer-to-peer products understand the nature of their investment, and appreciate the degree of risk incurred.”

European Union

Rocket Internet to Develop Banking Services With FinTech Group, (Wall Street Journal), Rated: AAA

FinTech Group is developing a digital bank for Rocket Internet using the banking license of FinTech subsidiary Bank biw as a first step of a comprehensive partnership of the two companies. Rocket and FinTech Group plan to develop joint banking business models at an EU level.

China

Chinese P2Ps plagued by flaky guarantees, ( FT # Fintech), Rated: AAA

China’s peer-to-peer lending industry is experiencing breakneck growth. Yet the industry is yet to deal with the “rigid repayment” problem – the perception afflicting the Chinese fixed-income universe that default is impossible.

A fintech conference in Shanghai last week, known as LendIt, attracted standing-room-only crowds. A conference staffer called the scene on the first day “chaos” and tightened entry restrictions on the second day to prevent un-registered guests from sneaking in.

Loans outstanding from

P2P platform focused on property collateral mortgage Hepan Finance received RMB 66M Series A Investment, (Crowdfund Insider), Rated: A

Founded in 2013, Hepan Finance is a P2P platform focused on providing operating capital to small businesses in the Shanghai area. Prior to launching the lending platform, the company’s experience, and expertise was primarily in value assessment and foreclosure of real estate properties. This experience has transferred to the P2P platform’s ability to confidently control risk and deal with collateral assets after default. On the investor side, the platform offers a 12% return for its 12-month wealth management product, which recently decreased from a 15% return in early 2016. The 1-month short-term product provides a 7.2% return. According to its website, Hepan has managed RMB 2.4 billion in investments and has over 220,000 registered investors.

Hepan’s recent Series A Investment was led by Chinese VC firm ZCZB Capital. According to its website, ZCZB Capital focuses on providing fast, small loans (under RMB 5 million) to startups in a variety of industries. Prior to this injection of funding, Hepan had shrunk in borrowing and only made loans against high-end properties. It was stated that the new funds would be used in recruiting, engineering upgrades and offline promotions.

Online finance marketplace Caogen Investment received RMB 1B Series B Investment from a state-owned fund, (Crowdfund Insider), Rated: A

Founded in 2013, Caogen Investment is an open lending platform focused on providing operating capital to small businesses. More flexible than other P2P platforms, Caogen accepts property, equipment, material and even products as collateral. The platform now works with suppliers and distributors in over a dozen industries including fishery, furniture, hard rock mining and energy. On the investor side, returns range from 6.5% to 12% with terms ranging from 31 to 365 days. According to its website, Caogen has managed RMB 34 billion and has 6 million registered users.

P2P platform focused on banker’s acceptance-secured business loans Yinpiao.com received RMB 120M in funding from SOE, (Crowdfund Insider), Rated: A

Banker’s acceptance (BA) bills are a promise of future payment guaranteed by a bank. These are often traded on the secondary markets. P2P platform Yinpiao.com relies on BA assets to back online investment products. The platform not only sells BA before maturity but also originates loans secured by BA. Before launching Yinpiao.com in 2014, the platform’s finance team had over seven years of experience in trading BA and handled over RMB 50 billion each year. On the investor side, the platform provides an average return of 8.8% with terms varying from 7 to 180 days. According to its website, Yinpiao.com investors purchased 6 billion wealth management from August 2014 to June 2016.

Investing RMB 120 million in Yinpiao.com, Huayu Economic Development Ltd. is a state-owned corporation that controls 26 companies in nuclear power, munition technology, aerospace, and mining. Aside from the funding, Huayu may introduce Yinpiao.com to high-quality borrowers from multiple supply chains in the industrial sector.

P2P platform focused on supply chain financing Ziben Online raised RMB 200M in funding from four strategic investors, (Crowdfund Insider), Rated: A

Ziben Online (ZO) provides short-term capital to small businesses in certain supply chains. ZO typically works with large corporations by providing loans to their suppliers.

Author:

George Popescu