It is just the beginning of the coin offering market. In this article we, Block X Bank, an investment bank focused on blockchain, will explore using the best data available the past, present and future of the Initial Coin Offering (ICO) market. Total potential market size Private Equity Assets under management are valued in total to about […]
It is just the beginning of the coin offering market. In this article we, Block X Bank, an investment bank focused on blockchain, will explore using the best data available the past, present and future of the Initial Coin Offering (ICO) market.
Total potential market size
Private Equity Assets under management are valued in total to about $2.5 trillion USD. A Private Equity investor is typically locked in for 7 to 10 years. In general, the investment is difficult to value during that time. And the investor receives back their payment at the time that is solely at the discretion of the fund manager.
Imagine a world where most crypto-coins are regulated securities trading on regulated securities exchanges. And these coins are backed by shares in companies, cash flows, dividends, interests, notes, and other existing proven financial products.
Crypto-coins and initial coin offerings have in fact even more advantages: Initial coin offerings enable companies to not only raise money but to also get a set of initial customers and to build a community. This community will then also act as marketing agents and soft influencers to help promote the company and product as they have a vested interest in them being successful.
Per data from ICO Raises (www.icoraises.com) ICOs have raised approximatively about $3.494 billion until Dec 15 2017.
The general rule of thumb is that the average crypto holder will likely diversify into riskier and potentially higher return tokens about 5% to 10% of their portfolio.
As of December 19th 2017 according to coinmarketcap.com the total value of the tokens held by crypto market participants (in other words the market cap) is roughly $600 billion USD.
Therefore, we expect that about $30bil to $60bil in value is available for Initial Coin Offerings and other high-risk high-reward investments in the crypto space.
Some of these $30bil will probably be used for day trading and highly speculative pump-and-dumps or similar “business ventures”. We assume that a significant percentage , perhaps 20% of it at least, will still be used for Initial Coin Offerings.
Therefore, Block X Bank estimates that about there is additional demand for $3 to $5bil in ICOs as of December 2017.
From business-plans only to revenue-generating companies
The Initial Coin Offering market started with funding very early stage companies who only have a business plan. We have already noted that in the second half of 2017 the ICO market is now trending more towards companies with existing revenue, customers and working products. Early stage companies are still successful but only if they have a famous investor who puts their seal of approval by investing in the project first.
Basic economic cycle
Despite this move towards more established companies the Initial Coin Offering market also goes through the standard economic cycles.
The well know cycle of human emotions as applied to market cycles:
Lending is as old as civilization itself. Seven thousand years ago, in the Fertile Crescent known as Mesopotamia, Sargon the farmer had 100 apples. His friend, Hammurabi, had 10 bushels of wheat. They exchanged what they had and now Sargon has wheat and Hammurabi has apples. Everyone bartered to meet their needs. Then Sargon got […]
Lending is as old as civilization itself.
Seven thousand years ago, in the Fertile Crescent known as Mesopotamia, Sargon the farmer had 100 apples. His friend, Hammurabi, had 10 bushels of wheat. They exchanged what they had and now Sargon has wheat and Hammurabi has apples. Everyone bartered to meet their needs.
Then Sargon got a little creative.
He came to Hammurabi with a special offer: 60 apples in return for 10 bushels of wheat with the promise that at a future date, he will deliver another 60 apples to complete the deal. Now, Sargon has the wheat he needs, plus an additional 40 apples. With the extra fruit, he can take the seeds and plant more. In due time, he pays off his friend who is happy to see a 20% rise in income. Everybody benefits.
Thus, began the concept of credit.
It was only a matter of time before some other clever people decided to create a common medium of exchange to scale it up. Currency made it all easier. You could buy apples, wheat, and everything else with silver, gold, and eventually paper.
You could also borrow currency to create leverage. The credit system has underwritten prosperity from Mesopotamia, to the first paper currency minted in ancient China, the deposit and loan banking system which started in ancient Greece, the Renaissance fueled by the Italian Banking system, the first Credit Union in 1852, to the last time 1,000 Smartphones were shipped from Singapore to San Francisco backed by a letter of credit.
From then until now the process hasn’t changed. An individual goes to a lender asking for a loan. He fills out forms, provides information about his assets, income, and current debt levels. The lender reviews the information and makes a decision.
For the most part, lenders are financial institutions who take deposits, which they usually pay very little to depositors to hold, then lend out those deposits to borrowers paying them 10-20%. It has been great for the lenders, who haven’t had any incentive to change or innovate the process.
To pay back the loan plus interest, it’s the borrowers who must take risks. They are the innovators, so they produce. They are the ones forced to sweat.
Credit has propelled man forward from the stone age to the digital age.
The Revolution in Online Lending
The great advancements traditional lending financed came with a downside. The user experience was cumbersome, borrowers were limited to whom the lender decided was a worthwhile risk, and lenders benefited most. A lot of people were left out, and the lenders made huge margins loaning out other people’s money while the people who deposited the money saw very little of those returns.
The peer to peer lending model, launched by Prosper in 2006, introduced the most significant breakthrough in consumer lending. It transformed the lenders into innovators, reinventing the credit system to fix all of these imperfections.
Online lenders are productively disrupting the ancient credit model in 4 ways:
1. Utilize technology to give users a better experience.
An applicant for a loan no longer has to haul himself to a lending institution, wait on line, and fill out paperwork. Everything can be done in the comfort of the user’s home. The user can fill out forms online and submit them to an online lender in one click. The online lender can call information like credit scores and past income histories from its own computer, make a decision, and if approved, wire the loan directly to the borrower’s account.
2. Leverage new methods of gathering data to transform risk algorithms.
With vast amounts of data available at everyone’s fingertips, online lenders can now use new information to underwrite loans. Risk models can now be expanded to include new factors like social media, email histories, even mobile phone usage. Online lenders like Upstart have advanced lending models that go beyond credit scores to evaluate risk based on academic achievements. Cabbage underwrites businesses by looking at the lenders available Amazon information.
Expanding on the traditional credit score and debt to income models, online lenders are discovering a new class of prime lenders.
3. Diversifying sources of capital.
Traditional financial institutions are no longer the only business in town. Peer to peer lending lets individuals lend to other individuals. A borrower can now get money from multiple sources. Every lender is forced to be more competitive. Retail and individual investors can opt to invest in loans rather than put their money in a checking account. They can be just like any financial institution, making double digit returns on money originally designated for their checking account.
4. Increase profits for all stakeholders.
Automating more of the loan process requires less labor costs to service each loan. That creates productivity gains which translates to more profit for all parties involved.
For thousands of years human progress has marched forward under a credit system that benefits one party over the others. The emergence of a new system of credit that rewards all involved will propel the advancement of mankind to heights beyond our wildest imagination.
Sargon would be impressed.
Gilad Woltsovitch is the Co-Founder and CEO at Backed Inc., responsible for designing the company’s first-class platform, UX and UI. Before Backed, Gilad co-founded iAlbums, a semantic curation engine for media players in 2010 where he served as the company’s CEO from 2011-2014. In 2013, Gilad also served as the entrepreneur in residence for Cyhawk Ventures and joined the Ethereum project, establishing the Israeli Ethereum meet-up group. Gilad holds a Masters of Art Science and Bachelors in Sonology from the Royal Conservatory of The Netherlands in The Hague, University of Leiden.
When it comes to satisfying the consumer need for instant gratification, the internet has disrupted a number of industries. Take, for instance, online lending. RocketLoans, a subsidiary of Rocket Holdings (the parent of Quicken Loans), offers loan approvals in as little as 10 minutes with funding in under 24 hours. That might sound remarkable, but […]
When it comes to satisfying the consumer need for instant gratification, the internet has disrupted a number of industries. Take, for instance, online lending. RocketLoans, a subsidiary of Rocket Holdings (the parent of Quicken Loans), offers loan approvals in as little as 10 minutes with funding in under 24 hours. That might sound remarkable, but it’s the new normal. Several other companies offer a similarly rapid approval process.
What’s perhaps even more remarkable is that these online lenders aren’t just targeting traditionally “safe” borrowers, those with long established credit histories and good credit scores. They’re also promising the same speedy approval process to the more than 64 million “thin file” customers in the U.S., people who have little or no credit history and often aren’t served by traditional banks and lenders. It’s a huge potential opportunity in a market that’s projected to reach $350 billion by 2020, but one that brings additional risk of fraud.
For online lenders, managing that risk is a challenge in what has become, essentially, a real-time marketplace. While they might want to take more time to review an application and verify the identity of the person behind it, lenders don’t have that luxury. A survey by PwC, found that one in three borrowers not only place an emphasis on the speed of the application and approval process when choosing a lender but that they value it even more than a lower interest APR. The takeaway for lenders competing for their business is that borrowers have choices and they’re not afraid to take their business elsewhere if they can get money faster.
But how can lenders meet the demand for rapid approvals without shortchanging the identity verification process? First, it’s important to understand how online lenders come by their customers. While some capture leads directly through their own online storefronts or portals, many others purchase leads from online lending marketplaces (sometimes called ping tree marketplaces). The ping tree provides a centralized marketplace for multiple companies ranging from lead generators and wholesalers to retail recipients, matching providers and buyers based on transaction type, field requirements, and pricing – all within milliseconds.
When they evaluate leads for purchase, most lenders perform a few basic checks. Is the borrower from a geography where the lender is authorized to do business? Has the borrower been applying for multiple loans simultaneously or in quick succession (a fraud tactic known as loan stacking)? Is the borrower on any lists of known bad actors? Lenders also check with alternative credit bureaus that can see whether a borrower has a history of staying current with bills from cell phone companies, utilities and other service providers. While not a credit history per se, on time bill payment can be indicative of whether a borrower is likely to pay back a loan.
While these simple checks are important, they are essentially binary. They can’t really provide context about the borrower’s true identity or a meaningful indication of the quality of the lead. Without evaluating the veracity of the metadata provided by the applicant, it’s hard for lenders to know whether there’s a real, contactable customer behind the transaction.
It’s here, at the top of the funnel, where non-personally identifiable information (non-PII) data can make a difference. Non-PII data (and the linkages between data elements) gives lenders a much more powerful indicator of the quality of leads. Comparing the non-PII signals from prospective borrowers to those of their best performing customers can give lenders a more informed perspective on the quality of leads they acquire. Good leads can be fast tracked for approval while more questionable leads can be flagged and either rejected outright or sent for further review.
Positive signals include things like:
email address age (more than 720 days is good)
IP address proximity to physical address (within 10 miles is good)
phone and address match
email and name match
phone and name match
address and name match
Some risk signals include:
linked email, phone or address details that don’t match
an email address that is less than 90 days old
a non-fixed VoIP or toll-free phone number
the phone country code and physical address don’t match
phone, email or address are invalid
a proxy IP address
Strong positive non-PII data signals are a good indicator that a borrower is a real person, and not a manufactured identity. Because fraudsters are continuously evolving their tactics and coming up with new exploits like synthetic identity theft (combining real and fake identity details to fool fraud systems), lenders need to rely more on data that is continuously updated and analyzed.
For lenders, being able to quickly distinguish between a real customer and a fraudster not only speeds up the transaction, but also reduces the chance that a good customer is made to wait or, worse, has their transaction rejected (also known as customer insult). Customer insult is no small problem; not only is there an immediate loss of revenue, but a rejected customer is unlikely to return in the future. On the flip side, customers that enjoy a speedy transaction are much more likely to recommend an institution to friends and family.
Non-PII data (and the linkages between data elements) applied at the top of the funnel ensures that only the best leads make it into the funnel. It can also help at the bottom of the funnel. With better qualified leads, lenders can see better take rates on loan offers. And with the reduced risk of fraud comes lower First Payment Default rates.
Of course, none of the potential benefits of non-PII data would matter if using it slowed down the transaction process. Fortunately, the data can be integrated into most fraud management systems without introducing noticeable lag. That means lenders can continue to offer speed while improving identity verification.
Tom Donlea leads the global marketing efforts of Whitepages Pro, the worldwide identity verification data provider for risk management in banking and online lending. With over ten years of online payments and risk experience, he previously was the founding executive director of the Merchant Risk Council.
In the last couple of years, blockchain technology has disrupted multiple segments of traditional finance. Lenders are beginning to see the advantages the technology offers and how it can help to improve their existing processes. It is still in a nascent stage in alternative lending with massive room for growth. One such company is Berlin-headquartered Bitbond, […]
In the last couple of years, blockchain technology has disrupted multiple segments of traditional finance. Lenders are beginning to see the advantages the technology offers and how it can help to improve their existing processes. It is still in a nascent stage in alternative lending with massive room for growth. One such company is Berlin-headquartered Bitbond, which launched in 2013 as the first global marketplace for small business loans using cryptocurrency Bitcoin as the nodal currency for loans.
While working as a consultant, Founder and CEO Radoslav Albrecht witnessed the inefficiencies prevalent in bank lending processes, which led him to develop a global online lending platform that can be accessed by almost every SME around the world.
While brainstorming the idea for his startup, he came across the problem of processing cross-border payments and realized traditional remittance methods are extremely expensive and time-consuming. He stumbled upon Bitcoin and realized it is the perfect alternative for transmitting money across borders in an efficient, cheaper, and safer way.
In 2013, he partnered with a software developer from Berlin to launch Bitbond, but they soon parted ways and Albrecht became the sole owner of Bitbond.
Bitbond has an uncluttered business model primarily focusing on small business owners like retailers, online stores, and restaurants who have a working capital requirement. Average loan size is $12,000, and loan periods range from 10 weeks to three years. The company caters to businesses all around the globe. Both individuals as well as institutional investors invest in the platform.
As far as revenue is concerned, it charges an origination fee paid upfront by the borrower, which usually ranges from 1%- 2.5% depending on the duration of the loan. For every loan repayment, the company charges 1% from the investor as a loan servicing fee.
Extensively dealing in Bitcoin to orchestrate payment processes, Bitbond’s process is simple and secure. Investors fund loans with fiat currency and that currency is converted into Bitcoin on the platform. Once that process is complete, a borrower is paid in Bitcoin and can choose a payment method or get the coin transferred to their bank account withdrawing the money after converting the Bitcoin back to the user’s native fiat currency. Bitbond has partnered with Bitpesa, an online payment platform, to convert Bitcoin to pay off loans and process payments across different countries. It has also partnered with Bit4coin, an Amsterdam-based Bitcoin company, that converts Bitcoin into Euros.
Because Bitcoin is relatively new, bank integration is still a problem. Therefore, in some countries, borrowers have to go to a Bitcoin exchange to get currency converted. But the company is trying to tackle this issue by adding more banks to its network. Thus far, they’ve integrated with banks in over 50 countries.
Key Success Factors
The fact that Bitbond exclusively deals in cryptocurrency gives it the ability to lend anywhere in the world. This geographical freedom is what gives Bitbond an upper hand over its rivals. Other lenders dealing in SME funding like Kabbage and OnDeck are no doubt bigger than Bitbond in terms of size, but they are active in only developed markets like the U.S. and the UK. Borrowers already have multiple options whereas Bitbond enjoys negligible competition in dozens of markets across the world.
The firm is also partnering with multiple e-commerce platforms that refer their online sellers to Bitbond. It is a win-win as the e-commerce platforms are able to add value to sellers’ operations while Bitbond is able to partner the company across multiple countries.
Key Performance Indicators (KPI)
It’s a fully regulated financial service institution under German law with a loan volume that stands at $4.5 million. Out of that, $3.5 million was originated this year alone. Bitbond is hoping to grow on a 10X basis for the coming couple of years.
Bitbond focuses on small online retailers on platforms like eBay and Amazon. They usually have annual revenue between $200,000-$300,000. The loans are typically for buying larger quantities of inventory at a better price. It is able to reach loan decisions in an hour, and even in difficult cases, Bitbond does not take more than two days to get back to the borrower with an answer. This is the reason why small online retailers prefer Bitbond to other financing options. When the company started off, the majority of traffic came from the U.S. but the bulk has now shifted to Europe and Africa.
Lender risk assessments of the future will be much more automated and help cut down loan application processing times. Lack of flexibility when it comes to products is another area where the industry will see a change. Down the road, products will be customized as per the need of the particular business as compared to a one-size fits all approach currently followed.
Future Plans and Company Leadership
Bitbond wants to grow stronger in Europe and Africa, but they also want to tap neglected regions of the world. Secondly, the firm also wants to explore other verticals like secured lending for offering higher ticket loans. They wants to develop a large secured loan marketplace where the collateral is digitally liquidated as compared to the investor or platform physically having to obtain possession.
Albrecht has a degree in economics and, prior to Bitbond, worked as a senior consultant at Roland Berger advising banks around the world on restructuring strategy. Bitbond has so far raised a total of $7.5 million in various rounds of funding with $5 million of it as debt. Obotritia Capital is the lead debt investor and Sekip Can Gokalp led the last equity fund raise of $1.2 million.
There is no doubt Bitcoin is the future and the industry will continue to grow at a neck-breaking pace. Bitbond will definitely reap rich benefits for starting early, and it’s global play is something investors, both debt and equity, would love to participate in for a combination of scale and diversification.
According to an article in Harvard Business Review, online lenders lent an estimated $10 billion in 2016 to small and medium businesses (SMB) as compared to $300 billion by U.S. banks. A report by Morgan Stanley predicts fintech lenders will garner almost 20% of the market by 2020. The major issue facing banks is the […]
According to an article in Harvard Business Review, online lenders lent an estimated $10 billion in 2016 to small and medium businesses (SMB) as compared to $300 billion by U.S. banks. A report by Morgan Stanley predicts fintech lenders will garner almost 20% of the market by 2020. The major issue facing banks is the cost to process a loan is the same for a $100,000 note and an application for $1 million. Thus, banks have no incentive to focus on smaller loans. This led to their exodus and online lenders swarmed into the market.
The Thrive Group Inc. understands the risk-reward ratio is better in helping banks to recapture the market by getting them on the digital-first bandwagon as compared to launching a marketplace lender and struggling with credit and customer acquisition risks. Thrive describes itself as a financial technology company building a modern lending infrastructure focused on digital experiences, intelligent automation, workflow efficiencies, and real-time risk management capabilities.
Founder and CEO Kunal Sehgal got his first taste of fintech when he joined Venmo (now part of PayPal), a mobile payment service in 2011. Kunal was able to understand the technological side of finance at Venmo, how it was thriving because it had married tech and user experience to make the process of transferring money frictionless. Before Venmo, Kunal worked at Rothschild in their London and New York offices as an associate in Tech M&A and debt restructuring.
Considering his entire career has revolved around amalgamating finance with technology, it was inevitable that he would launch a fintech company. Kunal joined forces with Ke Zhu, co-founder and CTO, to launch Thrive in 2015. Ke Zhu has vast experience in developing and implementing tech systems that are both maintainable and extendable. Prior to Thrive, he worked at Prosper as senior software engineer and lead developer.
Initially, the company aimed to enter direct lending but decided against it after looking at the market where many startups were struggling to stay afloat because of high default rates, regulatory crack down, etc. Thrive pivoted and developed a platform whose main focus was to make the origination process quicker and hassle-free along with enhancing the user experience. Their first rollout focused on SMB lending and, eventually, the company will target other markets, as well. The goal is to help reduce underwriting and approval times, which will automatically slash costs associated with SMB loans, the original pain point of banks.
The Problem For Alternative Lenders
Most alternative lenders are struggling because of the high cost of capital, lack of stable flow of investment funds, and difficulty in acquiring customers. The original choice for a fintech startups used to be between becoming a balance sheet or marketplace lender. But the future is in redefining and reshaping the lending and borrowing experience. The focus has shifted to infrastructure, and fintechs partnering with banks are leveraging specialization for a win-win. The fintech focuses on borrower experience and reducing costs while the bank focuses on credit risk and customer acquisition. JP Morgan’s deal with OnDeck is a case in point.
Thrive’s First Client
Thrive was recently able to secure its first multi-year technology licensing agreement with Horizon Community Bank (HCB). Thrive will provide the bank’s cloud-based lending technology to help fast-track and complete its end-to-end small business lending process. This will cover digital applications, automated credit, ID verification, automated loan offers, and more. The bank will be able to bring down the loan processing time from weeks to days. The partnership will also open the door to acquiring customers through new digital customer acquisition channels.
This first partnership proved to be more fruitful than expected for Thrive as HCB also decided to come on board as an investor in the young startup.
Revenue Model and USP
Thrive’s first client going live is a huge validation, and the company wants to originate $5-$10 million in loans in the first year. They charge a percentage for every loan origination.
Most startups in the industry originate loans using their own platforms leaving them exposed to market vulnerabilities and risk. Thrive’s nearest competitor is Akouba, which provides SaaS solutions for community and regional banks, but the underlying difference is Akouba stops at the origination phase whereas Thrive provides the complete package right from the origination process to providing loan servicing. Servicing is integrated into the platform making it a seamless solution, and it removes the hassle of coordinating with multiple vendors. LendKey has a similar model but is focused only on student and home loans.
Thrive has hit upon a business and revenue model that is asset light and holds no customer acquisition or capital risk. They leverage banks’ balance sheets and use existing customer relationships for driving business. Thrive will target banks with an average size of $10-$15 billion for future growth. Mid-tier banks would find it difficult to invest resources in building a complete technology infrastructure; the only choice would be partnering with someone like Thrive to capture their SMB customer base.
News Comments Today’s main news: Lending Club charge-off rates increase from 4.2% to 6.2% from 09/15 to 09/16. Fundrise is crowdfunding under Reg A+. LandlordInvest offers first property-backed IFISA. Zopa cuts rates – again. Today’s main analysis: Savers want better returns more than FSCS protection. Today’s thought-provoking articles: Funding Circle changes property loan prices. United States […]
Fundrise is crowdfunding itself under Reg A+. AT: “Other RECF platforms like Sharestates and P2P platforms like Wellesley seek growth capital through 3rd party crowdfunding platforms. Instead, Fundrise is going to sponsor its own capital-raising push. Very interesting, and they have the chops to pull it off.” GP:” This is another flavor of p2p, it’s p2-to-equity-to-build-a- marketplace-lender-to-p. “
Zopa cuts rates again. GP:”This comes on the heels of Zopa refusing any new lending capital for a short period of time at the end of last year. Cutting lending rates confirms that they have more lending demand then borrowing demand. Competition will in fact affect borrower rates, pushing them down, and lender rates pushing them up not down. I am not certain how this could be due to competition.”
Savers want better returns more than FSCS protection. AT: “I don’t know why anyone should be surprised by this. If you have nothing to protect, then why not increase the risk. It makes sense that savers would want higher interest rates considering their savings are low to begin with.”
Klarna CEO says Trump, Brexit could be good for business. GP:”The capital markets agree with Klarna’s CEO, at least for now. And that’s where people vote with their money. Watch what people do not what they say. ” AT: “Siemiatkowski’s personals beliefs are at odds with his business sense, and that’s a good thing.”
Fundrise first filed a preliminary Form 1-A with the SEC at the end of December 2016. The filing was done under “Rise Companies Corp.” so it fell under the radar of many people. The most recent version offering circular indicates that Fundrise wants to sell up to 1 million shares of their Class B non-voting Common stock. The price per share is not yet available. Initially, Fundrise will limit the offer and sale of the shares to investors who have purchased investments sponsored on their platform.
Since Fundrise’s launch, they have originated approximately $210 million in both equity and debt investments deployed across more than approximately $1.19 billion of real estate property. This amount alone makes it part of a select group of the largest online real estate marketplaces in the US. Their first five sponsored “eREITs” have collectively generated $119 million in investment as of the beginning of this year.
Fundrise claims a compound annual growth rate of 780% – going from $0.9 to $70.9 million for a three-year period from January 2013 to December 2015. For the 9 month period ending September 2016, Fundrise had year over year growth of 129% going from $45.1 million to $103 million. For the six months ended June 30, 2016, net revenue stood at $3.5 million.
The average size of the real estate assets originated by Fundrise during the nine months ended September 2016 was about $5.7 million.
“Investor performance is coming down for peer-to-peer loans because there’s a growing number of charge-offs where a bank or a lender can’t collect on the loan and then the loan is deemed worthless,” says Colin Plunkett, equity research analyst at Morningstar in Chicago.
Plunkett cites Lending Club Corp. (ticker: LC), whose annualized charge-off rates increased from 4.2 percent to 6.2 percent in the personal loans-standard program and 5.9 percent to 11 percent for the personal loans-custom loans program from September 2015 to September 2016.
Sid Jajodia, chief investment officer at Lending Club in San Francisco, says the lender updated its credit policy to tighten its thresholds to stabilize delinquency rates by not lending to as many borrowers who had high debt-to-income ratios and other risk factors. The standard loan program that includes borrowers with a FICO score of 660 and above is open to institutional and retail investors, but the custom loan program, which includes a riskier pool of borrowers with a FICO score of 600-659, is open only to institutional investors, Jajodia says.
Investors need to decide if the borrowers have the long-term credit ability and a willingness to repay versus what was projected when the security was initially priced, says Burke Dempsey, managing director of investment banking at Wedbush Securities in New York. They also need to examine the trustworthiness of the loan originator and if that lending company has “the integrity and commitment to deliver a transparent and quality product to all parties, especially under pressure of high growth or a turn in the economy,” he says.
Plunkett says it’s also important for investors to consider how a company makes its money. A key difference between Social Finance and Lending Club is how the companies maintain their balance sheets, he says.
Andrew Crosby, a senior at the University of Puget Sound and president of Four Horsemen, says the nonprofit switched from using Prosper, after experiencing a 12.21 percent default rate, to Lending Club, which has netted an 8.38 percent default rate.
Both Crosby and Livingston say they’ve also seen the industry migrate from offering loans for weddings, home improvement and college tuition to narrowly focusing on debt consolidation.
According to the Economist, current U.S. student loan debt exceeds $1.2 trillion, a staggering increase of over 300% for the past decade.
Seven out of 10 graduating seniors at public and non-profit colleges had student loans in 2014, with an average debt of $28,950. This represents an increase of 2% over the Class of 2013.
One driver of student debt is the skyrocketing costs of attending college. The average cost of a non-profit private four-year college for 2014-15 was $42,419, up from $30,664 from 2000-2001. Public four-year college costs expanded over the same period from $11,635 to $18,943, according to CNBC.
Graduates of the class of 2014 in Delaware had the dubious honor of carrying the highest student debt load, averaging $33,808. New Hampshire, Pennsylvania, Rhode Island and Minnesota round out the five worst states for student debt, with an average indebtedness of over $31,000. These states tend to have a higher percentage of students carrying debt, for example, New Hampshire had a whopping 76% of students shouldering debt upon graduation.
The best states for low student debt are led by Utah with an average of $18,921 for the class of 2014, with a relatively low 54% carrying some student debt. It appears that there is a little overlap with averages and the amount of students with debt. While states like States Utah, have lower percentages of students in debt, higher debt averages tend to have higher amounts of students with debt. The other states in the top five are New Mexico, Nevada, California and Arizona, with an average of $20,418 owed. These best states for student debt have an average of 52% of graduates saddled with student debt.
Peer-to-peer (P2P) platform LandlordInvest has become the first provider to offer a property-backed Innovative Finance ISA (IFISA) after receiving HM Revenue & Customs approval as an ISA manager.
The property-backed IFISA will allow savers to invest up to £15,240 in the current tax year – rising to £20,000 next year -in P2P loans secured by residential property. According to LandlordInvest, savers could earn between 5% and 12% tax-free returns a year.
ZOPA has lowered its lender rates by 0.2 per cent across all accounts, just four months since its last reduction, citing competition in the personal loans market.
Access account lenders will see interest rates cut from 3.1 per cent to 2.9 per cent, Classic investors will see a drop from 3.9 per cent to 3.7 per cent, while Plus account holders will see targeted returns fall from 6.3 per cent to 6.1 per cent.
Lender rates were last reduced in September, a month after the Bank of England cut interest rates.
On Wednesday, marketplace lending platform Funding Circle announced changes as to how it prices property loans. The lender revealed that following a recent review of its property loan offering, it is increasing the interest rate on certain property loans and will begin to list some loans at a higher risk band than A+ or A.
Explaining why it is making the changes, Funding Circle stated:
“Over the past three years, you have lent over £300 million to experienced property professionals, earning over £16 million in interest after fees and bad debt. This has provided us with an ever-growing source of property credit performance data, which we use to regularly review our credit assessment models and help us make even more accurate pricing and risk banding decisions.”
Savers would rather get a better interest rate on their money than benefit from more FSCS protection, according to research from peer-to-peer lending platform RateSetter.
According to RateSetter’s research, only 4% of people in the UK have more than £75,000 in savings and therefore stand to benefit from the increase in protection. More than two-thirds of people (67%) have £10,000 or less in savings.
The FSCS limit was reduced from £85,000 to £75,000 in January 2016 following changes in the pound/euro exchange rate, but RateSetter research carried out at that time found that just a quarter of savers were aware of it.
Asked whether they would rather have a more protection for their savings or earn a higher rate of return, the vast majority of savers favoured the latter, with 69% saying they would rather earn 1 percentage point more in interest than have an extra £10,000 of FSCS protection.
The governor of the Bank of England has put banks and fintech companies on notice to expect tougher, more intrusive regulation as the use of disruptive technology in financial services becomes more sophisticated and widespread.
Mark Carney, who is also chairman of the Financial Stability Board that makes recommendations to G20 nations, said on Wednesday that fintech could signal an end to the traditional universal bank model. He added that it could also increase “herding” risks and make the system more interconnected and complex.
Mr Carney said on Wednesday that the burgeoning peer-to-peer lending sector, which in the UK now represents about 14 per cent of new lending to small businesses, “does not, for now, appear to pose material systemic risks”.
Earlier on Wednesday, Bundesbank president Jens Weidmann, who is also involved in the FSB, echoed the views of his Bank of England counterpart, saying that while enhancements in financial technology could bring banking services to more people, they could also “exacerbate financial volatility”.
Both Mr Carney and the Bundesbank president warned that there were risks emanating from the use of so-called robo-advice, where algorithms are used to manage risk.
The millennial generation are four times more likely to have money invested in peer to peer than people aged 55 and over, according to research from ThinCats.
Hamstrung by rock-bottom interest rates for most of their adult lives, 4 per cent of 18-34-year-olds currently have money in the emergent peer to peer sector, compared to 1 per cent over-55s.
A third (29 per cent) of the millennial generation cite the ability to cut out banks as the sector’s biggest attraction, while 28 per cent like that they can lend directly to businesses. A quarter (23 per cent) have had peer to peer recommended to them by a friend.
One of the key reasons for the peer to peer demographic split could be appetite for risk adjusted rate of return. Younger investors place much greater emphasis in earning high returns in exchange for greater risk, with one in five (19 per cent) citing this as their primary motivation when investing, compared to only one in ten (9 per cent) over-55s.
Despite his personal disappointment at Britain’s plans to leave the European Union, Siemiatkowski believes Brexit, along with President Trump’s protectionist rhetoric in the US, could actually be good for his business.
“Isn’t it so sad that you’ve got the younger generation that has been brought up with the amazing promise of Europe. All of us have lived and travelled and worked where we want. Then the older generation decides, end of party — you’re going back to the old ways.”
The majority of market participants at Deutsche Borse’s Funding and Financing Summit are looking at alternative securities lending structures.
Over 60% of the audience at the Luxembourg event this week claimed to be exploring new models as part of their financing efforts in the current low yielding environment accompanied by strict regulatory requirements.
Centrally cleared stock loan trades (40% of the audience), principal lending, peer-to-peer trades and pledge structures (17%) are among the new routes being looked at as extensions or complete replacements of the traditional agent lender model.
Increased regulations, demonetisation and the push towards Digital India have brought the country’s banking system and financial services sector into the limelight.
With rapid advancements and huge inflow of data, having analytics and Big Data tools/services is now critical for any financial institution to be able to understand and analyse credit risk, fraud risk or to make more efficient, fast and profitable decisions.
This is great news for FICO whose credit rating services would come in handy for institutions in the lending business.
A growing consumption and shift to digital or disruptive modes of financial transactions like P2P lending, brings along risks like fraud, data theft and cyber crime.
In a recent study by Kroll, global provider of risk solutions, when survey participants were asked what dissuaded them from operating in a particular country. About 19 percent of respondents stated they were dissuaded from operating in India because of digital fraud concerns, the second most after China (25 percent).
Financial institutions can further increase revenues by deploying analytics frameworks to improve customer cross-sell, enhance acquisition effectiveness, increase wealth management, penetration in high net worth customers and staying more cautious of ‘riskier’ customers.
Onfido, a global identity verification company, announced this week it is helping to bring financial services to the 2 billion unbanked individuals worldwide with its Machine Learning-based solution. The company stated it plans to use its proprietary technology to verify people’s identification by comparing an identity document to a selfie and is helping convert the previously unbanked for some fintech companies.
Onfido, a global identity verification company, announced this week it is helping to bring financial services to the 2 billion unbanked individuals worldwide with its Machine Learning-based solution. The company stated it plans to use its proprietary technology to verify people’s identification by comparing an identity document to a selfie and is helping convert the previously unbanked for some fintech companies.