Established in Russia in 2014, Scorista was born out of the need for a reliable risk-scoring model for Russian lenders. Leveraging the skills of famed Russian programmers, Scorista has created the go-to risk management solution for lenders operating in the sub-prime short-term lending segment. How Scorista Began Maria Veikhman, a business management, IT, and risk […]
Established in Russia in 2014, Scorista was born out of the need for a reliable risk-scoring model for Russian lenders. Leveraging the skills of famed Russian programmers, Scorista has created the go-to risk management solution for lenders operating in the sub-prime short-term lending segment.
How Scorista Began
Maria Veikhman, a business management, IT, and risk management specialist is the founder and CEO of Scorista. It took off when a few lenders in Russia realized the dearth of reliable risk managers in the market and asked Veikhman to create a risk-scoring model for their lending businesses. Scorista was born as a disruptive innovation to automate the area of credit assessment and provide clients with an instant credit decision. They believe they can help lenders achieve the desired KPIs in a very short span of time with a guarantee of results.
What gave impetus to the company was the dearth of risk management solutions for short-term lenders and payday lenders. They only have access to the FICO score, which is not a very bankable option for payday lenders.
More On Scorista
Scorista offers a broad variety of products ranging from credit assessment to underwriting plans, verification plans, individual scoring, and variable kits, which facilitate scoring and dossiers that legally provide access to complete information about the borrowers. Its prime spot is borrowers looking for less than $5k for less than 12 months. According to Veikhman, Scorista has a 93% forecast accuracy rate. This is much higher than anything available for the segment currently.
This performance has led to profitable growth with offices in China and clients in Russia, China, Kazakhstan, Spain, and Latvia. It has just launched its services in the United States. More than 142 lenders are currently using the Scorista platform, and it is processing over 500,000 applications every month. According to its website, Scorista has helped its partners earn an additional $145 million.
The company has raised an undisclosed amount of funding from Life.SREDA.
Scorista’s Business Model
Scorista’s business model is transactional-based. In Russia, Scorista charges an estimated $1K for every credit decision depending on the volume of applications. Credit lenders are provided with credit decisions instantly so that they can further approve or deny a loan. When the borrower files a loan application with the lender, the lender communicates the borrower file through an API or web interface. Its system receives the application, evaluates the same with its scoring algorithm, and provides a credit decision for approval or denial of the loan. In cases where the scoring algorithm depicts that the borrower can’t repay the loan, Scorista works out different models to predict the amount that the borrower can pay. So if a borrower is rejected for a $2,000 loan for a 3-month period, Scorista will additionally provide that he is a good bet for $1,000 for a 1-month period.
Scorista has developed artificial intelligence and machine learning-powered proprietary algorithms for its scoring systems. It keeps fine tuning its algorithms to ensure optimum performance. It is focusing only on its specialization of short-term micro-borrowers to ensure highest efficiency rates in the segment.
The money-back guarantee is Scorista’s USP. Scorista is ready to refund the fees to its clients if they are not satisfied with its services. Others in the industry are generic players looking to cover the entire market rather than specializing in any one segment. In the name of alternative data, many peers focus exclusively on the social media footprint. However, research shows that decision-making based on social networking is not very reliable as the quality and quantity of information available on borrowers is circumspect. Moreover, about 40% of borrowers do not have extractable social media information available.
Scorista has also introduced Mindscore, a psychometric scoring method that uses a social networking profile and psychometrics to score borrowers. It helps in predicting repayment ability, and the default rate of the applicant.
According to Veikhman, using alternative data in the credit model is dependent on the country. Credit bureaus across Russia have a lot of data on borrowers, and, as such, alternative data is not able to add a lot of weight. But there are no reliable credit bureaus in China so a lot of e-commerce data from Alipay, Wechat, and other social media is put to use. The company is also using mobile data in some cases and incorporates details like the workplace of the borrower to make a credit decision.
The Russian and Chinese branches of Scorista have launched a white label product for mobile applications for lenders. It facilitates fast issuance requiring the borrower to download the application and then submit information to the lender. Scorista performs the function of scoring and the lender can directly issue money through the application, credit card, debit card, or bank account.
Scorista mainly integrates with short-term lenders and specializes in facilitating short-term loans. Although banks have a broad line of products, Scorista can work with banks that deal in short-term loans apart from full-term loans.
The sub-prime segment that Scorista specializes in is growing across the world. The global economy is not getting better, and many economists agree that it is in the last legs of the growth phase. The last recession was in 2008-09, so considering a cycle of 10 years, we are looking at a recession sooner rather than later. Also exacerbating the trend is the fact that the number of people drawing a lower than average income is increasing in every nation across the world.
Borrowers with low credit scores can improve their credit ratings by following a regular, structured repayment schedule. This will enable them to have access to better loans and banking products with lower rates of interest. Scorista,, with its credit models, helps borrowers gain that access to credit at the right time for the right amount.
Scorista’s Future Goals
Scorista is looking to expand across global markets. It is looking for partners in multiple countries to expand its offering. It is also looking to onboard well-connected financial investors who can help introduce them to their lending networks.
Scorista wants to establish itself as the FICO score for the sub-prime borrower segment. Its key differentiator is its specialization in only short-term microlending and its money back guarantee. The company has been able to build a solid business and is on the precipice of breaking into the big leagues.
News Comments Today’s main news: Citigroup may open a national digital bank. Marcus to open in UK, Goldman recruiting engineers. Robo.Cash posts 2017 results. Tera Funding to hedge P2P project finance risk. Today’s main analysis: Preparing taxes for LendingClub, Prosper investments. Today’s thought-provoking articles: Why institutional investors turn to marketplace loans. Branches are still disappearing despite Chase’s investment. Credit card […]
Is Citigroup planning a national digital bank? AT: “It would be a welcome addition to the online banking ecosystem. I suspect Americans won’t get into online banking, especially mobile banking, until they see their current bank adopting robust technology akin to fintechs and European challenger banks. When the Big 5 banks all take online banking seriously, regional and local community banks will follow, as will consumers.”
Robinhood and Cadre both have ‘superstore’ ambitions. AT: “I believe there will be, eventually, an online financial services superstore. It may be either Robinhood or Cadre, or neither. Possibly, it could be both, and maybe a few other contenders. It remains to be seen who will become the ‘Amazon’ of financial services. It could even be Amazon.”
Goldman to open Marcus branch in London. AT: “I wonder what advantage this affords an online lender. Is it simply to access tech talent in an area known for its innovation, or it is to tap into Brexit concerns?”
Citigroup Inc is laying the foundation, through a growing network of mobile banking tools, to support the launch of a national digital consumer bank sometime within the next three years, its chief financial officer said on Tuesday.
Citigroup, the fourth-biggest U.S. bank by assets, had fewer than 700 U.S. branches at year-end compared with more than 4,000 at the three biggest banks, JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co.
Four financial companies including CitigroupInc.C -0.48% and online lender Kabbage Inc. said Tuesday they have formed a consortium to address fintech firms’ cybersecurity risks, a sign of the industry’s growing links to traditional banks and insurers.
Greenwich Associates, an unaffiliated research company, conducted a study to better understand how marketplace lending is perceived and the current state of adoption within the institutional investing community.
Study Finding #1: Higher yields drive investment.
Sixty-seven percent of institutional investors cited the higher yield that marketplace loans tend to offer as their primary reason for investing.
Study Finding #2: Different investors use the asset for different things.
Because marketplace loans can be used for many different reasons, one of the first questions that investors may face when considering marketplace loans is how to categorize them. For over two-thirds of surveyed institutional investors currently invested in MPL (see chart below), they fall in the category of structured products, putting them alongside ABS and collateralized loan obligations (CLOs). Almost half of current investors reported viewing them as short-duration instruments and one-third as high-yield bonds.
Almost 40% of institutional investors who are not yet invested in marketplace loans said they didn’t know how to characterize them.
Study Finding #3: The path to institutional adoption will be driven by a few key catalysts.
Since mid-2017, however, each new issuance was rated by at least one rating agency, removing this obstacle and further broadening exposure to the asset class.
Investors deeply value data and analytics, which are key to understanding the credit profile of borrowers on marketplace lending platforms.
While the secondary market for marketplace loans is illiquid, there is a more active secondary market for the securitized offerings.
Study Finding #4: Marketplace lending is here to stay.
A majority of current investors, 52%, believe that marketplace lending will be a significant player in the financial system in the next 10 years. This is another meaningful vote of confidence in the industry.
Among the investors participating in a new Greenwich Associates study, 30% of institutions not currently investing in marketplace loans (MPL) are watching the space or conducting research and due diligence on the asset class—a level of interest that suggests future institutional involvement is on the horizon.
The first marketplace loans were securitised in September 2013, and the trend has accelerated rapidly since then. Cumulative issuance now stands at $28.2 billion, with $4.4 billion issued in Q4 2017.
Note that investors who invest through a retirement account do not have to worry about tax reporting. Here at Lend Academy we believe there is a strong case for investing in marketplace lending through a product like an IRA.
Copied below is how LendingClub summarizes the tax treatment of investing in loans on the platform:
Generally, gains and losses from recoveries, sales or charge-offs related to LendingClub Notes are reported for tax purposes as capital gains or losses, rather than ordinary gains or losses. Generally, LendingClub Notes are considered capital assets because they are owned for the purposes of investment (similar to a stock or a bond). Generally, realized capital losses are first offset against realized capital gains. For individuals, any excess capital losses can be deducted against ordinary income up to $3,000 ($1,500 if married filing separately). Capital losses in excess of this limit may be carried forward to later years to reduce capital gains or ordinary income until the capital losses are fully utilized.
I had $12.21 in proceeds (recoveries) from loans that were charged off which is offset by the cost basis of charged off loans, $204.33. This resulted in a net loss of $192.12. On my 1099-B outlining long-term transactions I had proceeds of $109.64 with a cost basis of charged off loans of $1,469.02 resulting in a net loss of $1,359.39. The short and long-term transactions roll up on the 1099-B summary shared above (middle box). Ignoring taxes, I earned a profit of about $500 on my LendingClub account for the year.
Filing Taxes for a Prosper Account
Below is my 1099-OID which includes the net interest of $840.62 I received for the year.
My losses totaled $834.71 which means I earned a net return of around $100 for the year.
The negotiations between Amazon and big banks like JPMorgan Chase and Capital One to offer a checking-account-like product pose significant questions for regulators about the e-commerce giant pushing further into the banking space.
Who owns the customer?
If the bank “owns the customer,” then “the rules governing banks protect the consumer,” said Karen Shaw Petrou, managing partner of Washington-based financial services consultant, Federal Financial Analytics. “If the bank doesn’t own the customer, then the rules — not just the consumer protection rules but the safety and soundness rules — are both different.”
What is Amazon’s role in the accounts?
If JPMorgan is “contracting with Amazon to do the marketing and customer intake, in that case, Amazon is subject to the regulation for those activities,” similar to other bank partnerships, said Brian Knight, director of the program on financial regulation and a senior research fellow at the Mercatus Center at George Mason University.
Who, if anyone, would regulate Amazon?
Another tricky question is which agency would regulate the partnership depending on how it is structured. For example, if Amazon were to act as a vendor to the bank, the e-commerce company would fall under a wide range of bank regulations involving partnerships and data security. However, if JPMorgan were to be a vendor to Amazon, those regulators would have limited influence over the deal.
Earlier this year JPMorgan Chase announced it’s investing $20 billion in 400 new branches and last week at the company’s Investor Day CFO Marianne Lake said 75 percent of its deposit growth comes from customers that visit its branches. Research published last month by Novantas shows 60 percent of Americans would still prefer opening a checking account at a branch than on digital channels and a September report by Deloitte similarly found 56 percent of people prefer to open bank accounts in branches (based on a survey of 3,000 consumers who had opened a deposit wealth management or consumer loan between January 2016 and May 2017).
JPMorgan Chase may be opening hundreds of new branches, but that hardly suggests every bank will follow.
Legacy vendors have been losing revenue
Global financial services and ATM producer NCR has been watching revenue fall over the past year where ATM sales and software licenses are concerned as revenue from services and cloud has shown a slight uptick. Diebold Nixdorf, another manufacturer of connected commerce and self-service products in the banking and retail industries, reported a 9.6 percent decline in revenue from banking sector services to $3.4 billion from 2016 to 2017.
“If you think about Amazon, they took the book model, built brand equity, trust, credibility and now they are a superstore for any retail product,” Cadre’s co-founder and CEO Ryan Williams told attendees at an industry event in San Francisco last week. “We’re doing the same for the investments world.”
Robinhood’s co-founder and CEO, Vlad Tenev, speaking at the same event later in the evening, had much the same messaging. “Five years from now,” Tenev told the crowd, Robinhood will be a “full service financial institution” with every product one can find at a “local bank branch and more.”
A new TransUnion (NYSE:TRU) analysis found that the growth in outstanding balances of suspected synthetic fraud in the credit card market is slowing in large part due to recently focused efforts by issuers to prevent such instances of fraud.
Outstanding suspected synthetic fraud balances rose 5.2% between Q4 2016 ($276.01 million) and Q4 2017 ($290.37 million). This was a far smaller percentage rise than what was observed the previous year when such balances rose 68.5% between Q4 2015 ($163.77 million) and Q4 2016. Despite the slowing of fraud balance growth in the credit card space, TransUnion found that the incidence of such fraud on credit applications remains similar to last year, moving from 0.59% at the end of 2016 to 0.60% in 2017.
While the growth of synthetic fraud in the credit card market is slowing due to proactive measures being taken by issuers, outstanding balances of suspected synthetic fraud identities increased 6.6% to $885.42 million in Q4 2017, up from $830.25 million in Q4 2016 for auto loans, credit cards, personal loans and retail cards combined.
TransUnion today introduced 25 new IDVision Alerts and data enhancements to its current collection of alerts, including new alerts for possible synthetic fraud, new or recently created identities and social security numbers that may be compromised. In total, TransUnion IDVision Alerts now provide more than 65 notifications to businesses about high risk, suspicious identities and other potentially fraudulent activities.
Varo Money Helps Americans With High-Yield Savings Accounts & SMS Alerts (Varo Email), Rated: A
A recent survey of more than 1,000 U.S. adults age 18+, conducted by Propeller Insights on behalf of Varo Money, determined that 85 percent of American adults sometimes feel stressed out about money, and a full 30 percent feel stressed out about money constantly.
About 1 in 5 Americans (19 percent) are living paycheck to paycheck
More than two-thirds of Americans (69 percent) report having had to dip into their savings to make it to the next payday at least once in the past two years
55 percent of millennials have dipped into their savings in the past few months
About a third (31 percent) of millennials understand what their finances will look like from month to month only “somewhat” or “not at all”
1.25% APY High-Yield Savings Account: All Varo customers can easily open an online savings account with a few taps through the Varo app and receive a rate of 1.25% APY. Customers can access funds 24/7 and easily transfer money from their checking into savings. There are no fees or minimum balances required.
SMS Alerts: Customers can receivenotifications based on aggregated financial activity across all linked accounts that let them know how they’re doing on income, saving, and if they are at risk of overspending so they can stay on top of their money effortlessly. Standard text messaging and/or data rates from the wireless service provider may apply.
According to a Harvard University housing report, over 110 million Americans, or about 36 percent of households, now live in rental units — an increase of 9 million renters over the past decade — the largest 10-year gain on record.
Unfortunately, other records are being smashed too: the number of cost-burdened renters — that is, households paying more than 30% of their income on housing — jumped to 21.3 million. And a record 11.4 million Americans are spending more than half their income on rent. The news is even worse for New Yorkers, who last year spent 65.2%, or two-thirds of their total income, on rent2.
With upfront rental deposits and fees at move-in costing over $3,000 (more if you live in New York City, where comparable costs typically top $20,000); there has never been a greater need for finance options for renters.
Beginning today, New York City-based startup Rentlender is partnering with Upstart to provide modern financing solutions for renters.
Renters must meet a minimum set of requirements to qualify for a loan including having a minimum credit score of 620 and a maximum debt-to-income ratio of 45%. All loans are originated by Cross River Bank, an FDIC insured New Jersey state chartered commercial bank, and lending terms and fees are as follows:
Loan amounts: $1,000 to $50,0003
Loan duration: 3 or 5 years
Annual percentage rate: 7.436.25% to 29.99%4
Origination fee: 0% – 8% of loan amount
No prepayment fee
Renters can use these loans to ease the burden of renting in a number of ways:
Upfront costs – Pay first month, last month, security deposit and broker fees
Individual Months of Rent – Finance one or two months rent
A Full Year’s Rent – Finance a full year’s rent in addition to up-front costs
The loan application process is Powered by Upstart and provides renters with a fast, easy and paperless application process:
Check Your Rate – With a quick form, renters can see the loan options for which they qualify.
Submit an Application – Complete the application online and indicate the bank account where funds should be sent.
Accept Your Loan – Upon approval, log in and digitally sign loan documents. Funds can be available as quickly as the next business day.
These two problems are big hurdles for investors, but StraightUp is offering a solution to these woes. Crowdfund Insider notes that it is a new real estate crowdfunding platform that provides backers and investors an “unbeatable opportunity” on properties in New York City.
Credible, the consumer finance marketplace that helps consumers save money and make smarter financial decisions, today announced that it has appointed Jobe Danganan as general counsel and corporate secretary, effective immediately.
GDS Link, a global provider of credit risk management solutions and consulting for multiple verticals within the financial services industry including marketplace lending for both consumer and small business, point of sale retail finance, alternative financial services, credit card, auto and leasing, will be attending LendIt Fintech USA 2018, April 9-11 at the Moscone West in San Francisco.
Upgrade, Inc. (), a consumer credit platform that combines personal loans with tools that help consumers understand and monitor their credit, announced that it has been named a ‘Best Place to Work in the Bay Area’ finalist in the small company category by the San Francisco Business Times and Silicon Valley Business Journal.
The Financial Conduct Authority (FCA) has, as of this month, given credit card providers six months to adhere to the new rules that tackle the issues surrounding persistent debt*.
From September 2018, credit card providers must review the last 18-month history of a borrower’s repayment records, if they are in persistent debt, and assess whether they are subject to the new rules.
ASSETZ Capital has had almost 3,000 investors start the process of setting up an Innovative Finance ISA (IFISA), with those who have already started investing putting an average of nearly £12,000 into the product.
SMEs are the backbone of the Scottish economy, making up 99% of the business population and accounting for more than half of all private sector employment.
The unemployment rate in Scotland rose to 4.5% in the final three months of last year, slightly higher than the rate of 4.4% for the UK as a whole, but there are grounds for optimism. Independent forecasts suggest that growth in the Scottish economy will be slightly higher than last year.
According to research from the British Business Bank , published on 20 February, net bank lending remained “relatively flat” in 2017, while P2P business lending volumes rose by 51% to almost £1.8 billion.
Small businesses, which account for more than 99% of private businesses in the UK and in aggregate contribute more than half of turnover and employment, are particularly poorly served by big banks.
The big five high street lenders are built for serving either retail customers or medium-size and larger companies with collateral to back three-year and longer term loans that the banks like to hawk to companies that do not really need them as a way to sell associated risk management.
Small businesses want short-term, flexible working capital with no punishing fees for low usage or early repayment. This is expensive for banks to underwrite – especially for new startups and sole traders lacking several years’ worth of financial history – and to administer. Few small businesses want the interest-rate hedging and FX facilities that banks like to bundle up with term loans for medium-size and larger corporate customers.
The market is at last now producing non-bank competitors looking to provide the right kinds of services and products for small businesses – ones that give these challengers a shot at the £2 billion of annual revenue the British Bankers Association suggests SMEs now pay for financial services.
Industry watchers foresee a 25% to 30% increase in the the number of Chinese IPOs in the U.S. in 2018, versus 2017. That’s a significant gain given that the number of Chinese IPOs in the U.S. in 2017 was more than double the number in 2016.
Peer-to-peer lending company Qudian Inc. raised more than a billion dollars when it went public on the New York Stock Exchange in last October. Today the stock is down just over 50%, according to data from Dealogic, a loss of more than US$500 million for investors.
The average PE ratio for profitable Chinese companies listing in the U.S. reportedly rose to 50 in 2017, versus 31 a year earlier, driven in part by the marketing efforts of the three banks behinds most of the IPOs, Morgan Stanley, Credit Suisse AG, and Goldman Sachs Group Inc.
Robo.cash outlined the results of its first year in operation on the European P2P lending market: 2,000 investors from the EU and Switzerland invested over €3M in the issue of 330,000 short-term PDL-loans in Kazakhstan and Spain. The average inflow of investments is €240,000 with 150 new investors joining the platform monthly.Robo.Cash views the results and platform dynamics as proving the growing demand for complex automated solutions in the global alternative fintech.
The European P2P-platform Robo.cash was launched in Latvia on February 21, 2017. It has achieved to attract over €3 million and 2.000 investors from 29 European countries (the EU and Switzerland) in one year. The average inflow of investments is €240 000 with 150 new investors joining the platform monthly.
Credit-constrained industries grow faster in countries with well-anchored inflation expectations, based on an IMF analysis of data covering 22 manufacturing industries for 36 advanced and emerging-market economies between 1990 and 2014. It seems to be the anchoring – not the level – that matters for growth. So while most advanced economies angle for 2 percent, there’s nothing magical about that number.
The share of global zombie firms – low-productivity companies that struggle to meet their interest payments – has more than tripled in the past two decades, climbing to 2 percent of companies in 2016 from 0.6 percent in 1996. Early, incomplete data for 2017 indicate that the may finally be disappearing, suggesting that climbing interest rates are making it harder for the laggard firms to hang on.
They have more than 100,000 happy borrowers and investors. The peer to peer Bitcoin borrowing community has offered loans to more than 2500 borrowers. The loan application process is simple, and the loans can be received within one hour. Investors receive up to 13% interest on the loans they give, with some investors having a history of loaning to more than 100 borrowers. The duration of the loans, which are generally to help finance small businesses, range from 6 months to 3 years. Bitbond has users from more than 120 countries, and has an investment volume above $1million.
With a large user base above 20,000, from more than 60 countries, Btcpop holds a volume above $1million.
BTCjam has more than 100,000 users from more than 200 countries. The website supports peer to peer lending and has a volume of more than $13 Million BTC in their holding.
For many Australians hearing the words ‘credit history’ may well elicit a shudder down their spine – especially if they’re looking at taking out a finance option such as a personal loan, credit card or home loan. But in just under four months that could well change, with the impending implementation of mandatory Comprehensive Credit Reporting (CCR).
From July 1, the big four banks will be required to have at least 50% of their credit data – both positive and negative – available to be shared, which Daniel Foggo, Australian CEO of peer-to-peer lender RateSetter, suggests will help Australia catch up to the rest of the world.
The inaugural chairman of the Australian Prudential Regulation Authority says it will take “massive investment” before regulators let banks use artificial intelligence to meet their multimillion-dollar compliance obligations.
More and more women are taking charge of their financial decisions and moving beyond the usual investment routes and looking at P2P lending, mutual funds as options.
Rajat Gandhi, Founder and CEO, Faircent, believes that gone are the days when women investors looked only at traditional tools of investments as part of their financial planning. “These ambitious go-getters are increasingly ditching the traditional tools of savings and investments and exploring the relatively new and more lucrative forms of investments,” said Gandhi.
At Faircent, 14% of the lenders registered are women and they account for 21% of the total amount disbursed through the platform.
“Female lenders on our platform are earning an average NAR of approx. 20% p.a proving that women tend to invest wisely; know how to take calculated risks, can meticulously diversify their investment portfolio across different borrowers and hence, end up enjoying better returns,” asserted Gandhi.
Meanwhile, Keerti Kumar Jain, founder and CEO, of Anytime Loan, shared the following statistics from their platform regarding female lenders.
Let us imagine a new kind of enterprise that is designed to create value through a self-regulating method that is both decentralised and auto-incentivising. This is in direct contrast to the conventional top-down hierarchical, command and control enterprise.
We will do this in a two-step process.
First, we set up an initial monetary policy (“the white paper”) in the form of a finite number of digital tokens that represents the overall value of the enterprise. This also creates the requisite economic scarcity to start with that is essential to this approach.
Second, we set up clear encodable rules for how the participants who generate value in the enterprise will “earn” in tokens. This incentivises the participants to “do the right thing” to generate value for the enterprise, which in turn increases the value of the tokens.
One basic requirement for setting up such an enterprise, is the use of a transparent immutable Distributed Ledger to establish trust between all participants of the enterprise.
Examples of the new kind of enterprise
A Distributed P2P Lending Network in which Lenders and Borrowers are joined by a network of Verifiers, Hosting providers and Developers, all incentivised to build, maintain and use the distributed lending platform that is hosted on a blockchain technology.
The high return — often at above 10 percent — that the instrument promises to the lenders, triggered a rush into the sector, and roughly a third of loans on P2P platforms went into project financing as of September.
As such, the default rate of the average local project financing P2P platform operators is relatively higher at 1.7 percent, over threefold that of other P2P platforms, according to an estimate by the Financial Services Commission.
The returns are roughly estimated 8-15 percent of investment per a year, without tax deducted, depending on the level of risk.
Indonesia’s financial technology (fintech) players were in shock when they found out that their main regulator, the Financial Services Authority (OJK), had some disconcerting views about their businesses despite having a relatively close relationship.
Executives of peer-to-peer (P2P) lending fintech firms on Tuesday voiced their concerns about a controversial statement from OJK chairman W…
Online lender Finova Capital secures US$6 million Sequoia Capital backing (India). The startup provides loans to small businesses in India’s tier-2 cities and rural areas. Finova will use the funding for technology development and hiring talent. Sequoia India made its investment in two tranches, the first taking place late last year.
Paytm Mall in talks with SoftBank to raise US$600 million (India).
Canadian fintech Katipult announced last week it has been nominated, alongside Polymath Inc., for the Most Promising Partnership Award at the second annual Lendit Fintech Industry awards in April. According to Katipult, the partnership will be competing against some of the world’s finance and fintech giants including partnerships involving Goldman Sachs, Macquarie Group, Swedbank, and Lending Club.
Mortgage Backed Securities (“MBS”), Collateralized Debt Obligations (“CDOs), Collateralized Loan Obligations (“CLO’s), Asset-backed Commercial Paper (“ABSCP”) and other types of securitized products are largely responsible for the Subprime Crises in 2008. These financial instruments created massive financial losses and large-scale damage to the economy overall. A great deal of negative press followed demonizing certain industry […]
Mortgage Backed Securities (“MBS”), Collateralized Debt Obligations (“CDOs), Collateralized Loan Obligations (“CLO’s), Asset-backed Commercial Paper (“ABSCP”) and other types of securitized products are largely responsible for the Subprime Crises in 2008. These financial instruments created massive financial losses and large-scale damage to the economy overall. A great deal of negative press followed demonizing certain industry participants and the use of financial engineering. Best-selling books like Too Big to Fail and The Big Short along with countless congressional testimonies drew even more attention to the subject.
With all the media attention came a fair amount of misinformation. For decades now, securitizations funded large consumer purchases including automobiles and homes. It also fueled the credit card industry and the expansion of consumer credit. Securitizations fund the small to large businesses and countless other aspects of the United States and world economy. Yet, for many it is a relatively new phenomenon that they may not completely understand, or even mistrust.
More recently, internet lenders brought an entirely new buzz to the securitization market. Their more customer-centric model to lending resulted in explosive growth. So much so, the original peer-to-peer funding model was largely replaced by the efficiency of the securitization market. According to Bloomberg/Peer IQ, total securitization of marketplace loans is now close to $90 billion, up from less than $50 million at the end of 2013.
What is Securitization?
Securitizations, or, more specifically, asset-backed securities (“ABS”), are pools of loans such as residential and commercial mortgages, auto loans, consumer loans, leases, trade receivables, or other assets packaged in security form. The loan pools often separate into different securities with varying levels of risk and return. Lower risk, lower interest tranches receive the loan payments first, with the holders of the higher-risk securities receiving payments thereafter. The securities sell as new issues and subsequently may trade in the secondary securities market. Public offerings of ABS require registration with the SEC.
Securitization is like secured lending in many ways. Secured lenders require borrowers to pledge specific assets as collateral for a loan. Cash flows from the borrower and the assets pledged as collateral back the loan in the case of default. In a similar way, the loan pool in the securitization trust acts as collateral for a security. In a securitization of secured loans, assets that collateralize the loans in the pool also flow through the trust in case of a loan loss and subsequent liquidation. The holder of the security has a rightful claim to the cash flows of the loan pool including principal and interest payments, loan sales and recoveries from any defaults.
Essentially, securitization is the process of taking a group of homogeneous assets and transforming them into a security. The assets are pooled together and repackaged into a single security, which is then sold to investors. The security entitles them to the incoming cash flows and other economic benefits generated by the asset pool.
A Simplified Overview of the Securitization Process
How did Securitization Begin?
The modern history of securitization began in 1970s when Government Sponsored Enterprises (“GSE’s) including the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Corporation (“Freddie Mac”) issued the first residential mortgage-backed securities. These first issuers pooled residential mortgage loans and used them as collateral for securities. The market was significantly expanded by the Emergency Home Finance Act of 1970, which authorized Fannie Mae and Freddie Mac to buy and sell mortgages insured or guaranteed by the federal government. Along with credit enhancement of the government guarantee came an entire industry of creating newly issued bonds and trading securities in the secondary market. By 1977, Bank of America issued the first non-government sponsored security in the form of a private label (non-government backed) residential mortgage pass-through bond.
Securitization evolved over the decades, as different methods and products developed from the process. A critical component was the Tax Reform Act of 1986. The Tax Reform Act eliminated the double taxation of income earned at the corporate level by issuers and dividends paid to securities holders. It also allows for Real Estate Mortgage Investment Conduits (“REMICs” or “Conduits”). A REMIC is an important distinction for balance sheet lenders as they were now permitted to structure a security offering as a sale of assets. The ability to package assets off-balance sheet offered regulatory capital relief for lenders and greatly increased capital available to fund growing consumer loan demand. Mortgage securitizations then led to new types of asset securitization including auto loans, credit card receivables and others. As the United States paved the way other advanced countries soon followed with their own ABS.
By the 1990s the securitization market exploded. New rules in the United States by the SEC along with REMIC legislation made the process more efficient. Global consumer culture clamoring for access to credit paired with the expansive growth of institutional managed money seeking new investment opportunities was the perfect combination. Consumer credit was now available to purchase everything from houses and cars to consumer electronics and higher education.
The need for business credit also expanded during this time. The 1990s saw the introduction of commercial mortgages backed securities (“CMBS”), collateralized loan obligations (“CLOs”), Franchise ABS, Equipment Leasing Securitizations and other structures designed to finance business.
Growth of Securitization (1970–2008)
What are the Benefits of Securitization?
For the Issuer, Securitization is Cost Efficient. It allows a company to issue low cost senior debt independent of the company’s rating and fund itself less expensively than it could on an unsecured basis. The strategic use of securitization enables a company to grow its business and earnings without additional equity capital and/or enhance return on equity. These benefits derive primarily from the capital efficiency of securitization. Depending on the structure, securitized assets can be supported with less equity capital than on balance sheet assets primarily due to the transfer of asset-related risks to investors.
Securitization Transfers Asset-Related Risks. Firms that specialize in originating new loans and have difficulty funding existing loans may use securitization to access more liquid capital markets for funding loan production. In doing so, the originator or finance company also transfers risk. These risks generally include interest rate risk, basis risk, liquidity risk, prepayment risk and credit risk. While in some transactions the issuer may retain most of the economic credit risk associated with securitized assets, the credit risk of certain asset types may be small compared with these other risks. In addition, securitization can create opportunities for more efficient management of the asset ability duration mismatch generally associated with the funding of long-term loans, for example, with shorter term bank deposits.
Diversification for Investors. Investors seek diversification of investments for the benefit of their overall portfolio. Securitizations offer unique investment opportunities and attractive risk-return profiles compared to other asset classes such as government and corporate bonds. Securitization also allows the structuring of securities with differing maturity and credit risk profiles from a single pool of assets that appeal to a broad range of investors.
Risk Sharing and Liquidity. Securitized products allow institutional investors opportunities to participate in consumer and corporate assets that cannot be found elsewhere. With securitization, investors may invest in various consumer and business loans without having to develop in-house origination and servicing capabilities required to procure loans, collect payments and managed defaults and liquidations. In this way, investors benefit from the sourcing and servicing expertise of originators freeing money for more efficient capital deployment. Finally, the conversion of basically illiquid banking assets into tradeable capital market instruments often gives investors the opportunity to sell securities in the secondary market and obtain liquidity.
Securitization Provides Market Driven Pricing Discipline. Securitization can provide a market driven pricing discipline by highlighting the market price for risks transferred to investors and, thereby, providing pricing benchmarks to judge the profitability of a business.
How do the Regulators Look at Securitization Post-Crises?
Despite a major setback in 2008, securitization continues to be the primary alternative to bank financing. Securitizations transfers trillions of investment dollars into the economy. The regulatory authorities in the United States recognize the systematic importance of the capital markets to the real economy. In a report to Congress in 2010 by the Federal Reserve (“The Fed”), the Fed states, “the securitization markets are an important link in the chain of entities providing credit to U.S. households and businesses, and state and local governments. When properly structured, securitization provides economic benefits that can lower the cost of credit.” That exact phrase was reiterated in 2014 in a joint agency report by the US Treasury, SEC, OCC, HUD, The Fed, FHFA and FDIC regarding risk retention for securitizations.
Comments like this from the regulatory bodies lead most people to believe that securitization is here to stay. Transforming illiquid typical bank assets into tradable securities, is an important way to channel cash to borrowers and fund economic growth. While new regulation calls for increased scrutiny of deals it recognizes the importance securitization plays to the overall economy. New measures such as better documentation and risk retention are now in place. The rules call for issuers to retain and economic interest or so-called “skin-in-the-game” on deals they bring to market. This makes for a better alignment of interest, stronger transactions and increased transparency. In that way we are better than ever before.
Lending-Times recently conducted a survey of our readers to find out more about the types of lending services they offer and how they relate to their customers. The following are the results of the survey. What type of lending services do you provide? (select all that apply) The majority of readers (55.88%) are in the […]
Lending-Times recently conducted a survey of our readers to find out more about the types of lending services they offer and how they relate to their customers. The following are the results of the survey.
What type of lending services do you provide? (select all that apply)
The majority of readers (55.88%) are in the consumer loan business followed by 36.76% involved in business lending. 17.65% are in mortgage lending while 16.18% are in student lending 10.29% are involved in auto lending. Another 25% identify as alternative lenders, a broad category of lending that includes many types of non-bank loans. Because readers could choose more than one category for this question, the survey results do not add up to 100%.
What is your role within the organization?
The largest percentage of survey takers (25%) fall into the digital sales, marketing, and acquisition category. 11.76% fall into risk, fraud, and compliance occupations, and another 10.29% consider themselves a part of product and technology. The majority, 52.94%, chose “other.”
How do you verify the identity of your borrowers?
When it comes to identifying borrower identities, 37.31% said they do so through data bureau checks. Digital identity verification checks are used by 32.84% of those who took our survey, and 23.88% said they verify borrower identities with a manual review of identity documents. Only 5.97% said “other.”
How do you collect supporting documents for underwriting (for example, utility bills for proof of address, W2s for proof of income, etc.)?
Regarding underwriting practices, 69.74% of survey takers said they collect documents through electronic capture and upload, 25% by email, and 5.26% have borrowers deliver to a physical location. No respondents said they receive documents by fax.
Do you think your current process for onboarding new applicants could be improved?
A simple yes or no response on this question revealed that 93.24% of survey takers believe their new applicant onboarding processes can be improved while only 6.58% responded in the negative.
What stage of the digital transformation journey is your organization at today?
Almost half, 42.11%, of survey respondents said they are a fully digital organization, and the same percentage said they are on track to becoming a fully digital lender. Those just starting out represent 19.74% of our readership who said they are working on a full-digital strategy and evaluating vendors. None of the respondents said they have no plans to become a fully digital lender.
What do you think are the main barriers to oﬀering fully digital lending services? (select all that apply)?
The majority of survey takers (53.42%) said the biggest barrier to offering fully digital lending service is mitigating risk while avoid loan application abondonment. Another 52.05% said meeting compliance without compromising the user experience is the main barrier. Almost one-third of survey takeres (27.40%) said they lack the skills, resources, and budget to offer fully digital lending services. Respondents who said they do not see the value of shifting their loan origination practices to digital channels registered at 9.59%, and those unsure of where to begin came in at 5.48%.
Rank on a scale from 1-5, the value of each beneﬁt in the digital lending process (1 being very valuable, 5 being not valuable).
Our readers seem to value regulatory compliance more than any other digital lending benefit. Risk mitigation followed closely behind followed by improvements in operational efficiency. Cycle time and user experience pulled up the rear.
Do you feel your lending user experience is a competitive diﬀerentiator?
84% of survey takers said the user experience on their lending platforms are a key competitive differentiator while 16% said it wasn’t.
If you already oﬀer digital loans, which of the following options do you provide?
Among survey takers, the digital lending options provided the most include desktop/laptop (52.11%), mobile-optimized website (50.70%), and native app (15.49%). Over one-third (39.44%) said they offer all three options.
Altisource was launched in 1999 and has its headquarters in Luxembourg. In 2009, it was listed under the ticker (NASDAQ: ASPS) it was a spinoff from Ocwen Financial Corp (NASDAQ: OCN); a mortgage loan servicing and asset management company and today its equity market cap stands at just under $500 million. Chart below shows ASPS […]
Altisource was launched in 1999 and has its headquarters in Luxembourg. In 2009, it was listed under the ticker (NASDAQ: ASPS) it was a spinoff from Ocwen Financial Corp (NASDAQ: OCN); a mortgage loan servicing and asset management company and today its equity market cap stands at just under $500 million.
The company has over 10,000 employees on its payroll and since its inception has acquired Investability, RentRange LLC, CastleLine, and Equator. It offers plethora of products ranging from real estate and mortgage portfolio management, asset recovery, and customer relationship management to securitization, loan origination, insurance etc. It is a one-stop shop and serves over 250 lenders.
Justin Vedder, vice president, national sales for origination solutions, has a strong background in operations, strategic sales and sales management. Prior to this, he held high profile positions in various organizations like CastleLine Holdings, The Prieston Group to name a few. Vedder shared his thoughts with Lending-Times on Altisource and the current tailwinds in the non-prime mortgage ecosystem.
Return of High-Risk Mortgage
Non-prime mortgage securities were once a popular choice among lenders. It offered attractive returns but it all changed when housing market came crashing down in 2008. But in the last year or so, the high-risk mortgage has made a return and the sector is slated to originate about $100 billion this year, though the number is minuscule if compared to $2.2 trillion mortgage market. With an increase in lending volume as well as interest rates, higher yields are expected in the coming future and favorable regulatory environment is another reason why investors are again cautiously optimistic about the future prospects of the industry.
Post-2008, the Consumer Financial Protection Bureau (CFPB) came hard on faulty loans and companies who falsified the loan documents. Dodd-Frank Wall Street Reform and Consumer Protection Act piled on additional mortgage industry regulations to protect consumers. Regulation Z of the Federal Truth in Lending Act provides the backbone of mortgage industry regulations, covering topics such as mortgage disclosures, servicing and appraisal requirements.
Prior to 2008, person earning $30,000 a year with a “D” credit rating, not sustainable income and with no down payment could buy a home, the underwriting process was that easy but it all changed after the 2008 financial crisis. Now, the borrower should atleast have a “B” credit rating, regular sustainable income with proofs, two year job history and 20% down payment and numerous amount of paperwork including tax returns, pay stubs, banks statements, W-2 and much more. With the advent of fintech companies, underwriting has become much more automated and companies are using various technologies like AI to make sure borrowers are genuine. And because of these changes, delinquency rate for 90 days or more including loans foreclosure was 2.2 percent in February 2017. All these changes have made the whole lending ecosystem much more secure than before.
Post-2008, approval rates have gone down significantly as lenders are much more circumspect. Therefore customers with low fico score, self-employed, and retired find it difficult to get loans even though they might have lots of savings and investments. Self employed has always find it tough when it comes to mortgages because they write off far more than the W-2 employees, hence they find it difficult to show the required proof of income through tax returns. Hence, high percentage of self-income individuals, even though they have required prerequisite to qualify for mortgages, struggle to get loans. Because the underwriting and loan processing is more comprehensive than before, the non-prime mortgage sector has the opportunity to tap into the self-employed category.
Requirements and Risk level
Disclosures required from applicants are much more wide-ranging and LTV is now decided by a multi-factor approach to ensure the ability to pay. Recently CFPB introduced “Quality Mortgage” Rule; lenders will use this rule as underwriting standards. Some of its key features are:
A borrower may not have a debt-to-income ratio of greater than 43 percent,
Fees and points may not exceed 3 percent of the loan amount,
Lenders must verify a borrower’s income
No mortgages greater than thirty years and no interest only or negative amortization loans.
In 2014, CFPB issued stricter rules for lenders to decide whether the borrower is qualified or not for the mortgages. The “ability to repay” rule, requires the lender to consider more than just the initial interest rate in determining whether the prospective borrower can pay off the loan or not. This rule will make it difficult for the borrowers to qualify for the ARM (Adjustable-rate Mortgage), since lenders will be using higher rates than initial rate available on the loan.
All these additional requirements, along with careful evaluation of collateral, validation of project, income and bank statements, has been the reason why risk level on sub-prime mortgages has gone down considerably and why it is once again becoming popular.
Trelix – Post-2008 era has been tough for the mortgage industry in terms of regulations, and it has become hard to keep track of all regulatory changes and whether every loan is as per regulatory standards or not. Also lack of trained staff has resulted in a high manufacturing cost per loan. Altisource’s Trelix offers “end-to-end licensed underwriting and loan processing services”. This gives a competitive edge to its clients as it manages risk while lowering the cost. Trelix offers host of customized services- processing, underwriting, quality control, loan due diligence etc.
CastleLine Insurance Services – This robust risk management and insurance solution is specifically designed for the mortgage banking industry. It helps the clients to safeguard against the losses arising from loan manufacturing defects, underwriting errors, misrepresentations, and borrower, seller, and employee fraud. This is a game-changer as it helps in increasing mortgage quality and reduces funding costs.
Over the years, Altisource has carved its niche in a highly competitive mortgage industry and has a strong network of on-boarded lenders. Though company as whole has been flourishing but its underwriting business has been on the rise and so far has done over $15 million in volume and its other key business CastleLine insurance business has insured over $15 billion worth of loans.
The industry will continue to grow but it is expected to evolve over a period of time in terms of process automation. The practice of individually reviewing each loan application is cumbersome and error-prone; therefore by leveraging other credit enhancers like insurance and third party guarantee, the industry can accelerate the process and will also provide a much-needed safety net to the mortgage providers.
The company wants to create an enabling environment so that the mortgage providers can go deep and tap into the non-prime lenders market. Right now the trading environment in the secondary market is non-formal as a lot of work is done using nonpublic information or via emails and the company is on track to change the whole landscape of the sub-prime mortgage industry with the help of its next-generation product line and expertise.
Nicki Minaj starting a charity to pay off student loans. GP:”The fact that non finance celebrities are doing PR in the student loan direction , especially with this kind of message, to me signal an image change about student loans. Thsi is not unlike the change in how banks were perceived past 2008. I would be concerned that student loan lenders may one day be seen in the same way as banks by the majority of the public if not worse.”
DBRS, Inc. (DBRS) has today reviewed and confirmed the four outstanding publicly rated classes from SoFi Professional Loan Program 2016-B LLC. All four classes were confirmed because performance trends are such that credit enhancement levels are sufficient to cover DBRS’s expected losses at their current respective rating levels.
Prosper priced its first unsecured consumer deal of 2017 on May 19th, representing the sixth deal consisting of Prosper collateral, and the first deal backed by Prosper’s consortium of institutional investors. The deal was structured by Credit Suisse and co-led by Jefferies.
The Consortium appears on track to deliver the $5 Bn loan purchasing commitment to Prosper as evidenced by i) size of the deal size ($470.8 Mn), ii) average age of the portfolio (two months), and speed to marketing th deal. The deal generates incremental revenue for Prosper which holds unrestricted cash and cash equivalents of $22.3 MM.
We note that Kroll has added 4.5% points for base case loss range reflecting the somewhat higher path of losses on CHAI 2016-PM1 than initially expected. (CHAI 2016 PM-1 has a revised base case loss range of 12 to 14% from 10.61% initially).
The deal’s excess spread is substantially tighter, reflecting higher coupons, improved market conditions, and stronger investor appetite for MPL ABS bonds. The attractive excess spread of ~10% implies a significant return for residual tranche investors assuming base case loss estimates are borne out.
Improved Predictive Risk Model PMI-7
Prosper made a significant change in the in the credit underwriting by switching from Experian to TransUnion, the dominant credit bureau in the FinTech sector. The switch to TransUnion affords Prosper access to trended bureau data, more diverse credit attributes, and alternative data. Trended data provides lenders with a longitudinal view rather than merely a snapshot into a borrower’s credit behavior.
Prosper rolled out a new proprietary credit risk model PMI-7 on December 20th based on the TransUnion dataset. Although the trended bureau data is a significant long-term enhancement, it will take some time for Prosper to re-calibrate models based on new performance data. Investors and Prosper will be monitoring the vintage performance from PMI-7 closely to assess the smoothness of the transition.
Bond investors in the deal benefit from credit enhancement consisting of over-collateralization, subordination, reserve accounts, and excess spread. For PMIT 2017-1, the A, B, and C tranche has a total credit enhancement of 43.9%, 31.1%, and 10.4%.
The Prosper deal priced tighter than a recent LendingClub prime deal ARCT 2017-1, in part due to the much higher initial credit enhancement in PMIT as compared to other recent deals.
We observe a parallel shift in the credit curve: For instance, PMIT 2017-1 A (A-rated) has about 44% credit enhancement and 0.8 year WAL; ARCT 2017-1 A (BBB-rated) has about 29% credit enhancement with a similar WAL. PMIT 2017-1 A was priced 95 basis points tighter than the senior class in ARCT 2017-A.
Walking down to lower junior tranches, PMIT 2017-1 C (B-rated) was priced about 40 basis points wider than ARCT 2017-1 B (BB- -rated). The steepening in the pricing curve again reflects demand for senior rather than equity-like risk profile.
We continue to observe a pattern of higher CNL triggers in recent deals, reflecting conservative outlook from market participants. Exhibit 4 shows several cumulative net loss (CNL) trigger profiles in recent personal loan ABS deals. Here, we summarize the cumulative loss trigger profiles from recent deals and contextualize the CNL triggers of the new Prosper deal with those of CHAI 2015-PM1.
After the rather spectacular fireworks display that Lending Club had going on this time last year, it was not great surprise when the bond buyers who had been snapping up P2P marketplace debt suddenly got a case of cold feet and starting fleeing those marketplace lending platforms.
Since April of this year, over $2 billion in securities backed by loans have either been sold or are being prepared for an imminent sale, according to credit-rating firms and people familiar with the matter.
That is some much needed good news for the segment, as it represents more than was issued in the entire second quarter of 2016, according to data tracker PeerIQ.
And it seems to be a continuation of recent activity that saw $3 billion in bonds backed by online loans that were issued in the first quarter of 2017, double the amount from the same period a year earlier.
Bonds backed by online loans is a small part of the securitization market — as of 2016, $7.8 billion of bonds backed by online loans were issued, compared with $191 billion in total issuance of asset-backed securities, according to S&P Global Ratings.
NewFed Mortgage Corp., a multi-state residential mortgage lender is excited to announce their “Fast Track Mortgage” loan origination technology integration with BeSmartee, an online mortgage automation company based in Huntington Beach, California. This smart technology platform utilizes intuitive artificial intelligence targeting the specific needs and qualification of borrowers.
Fast Track is an online self- serve platform offering mortgage shoppers the convenience of 24/7 access to obtain a personalized rate and cost quote with the option to continue to apply and obtain a conditional loan approval in less than 15 minutes. Fast Track streamlines the application process by allowing the borrower online to pull their own credit report, calculate costs, obtain loan disclosures on the spot and receive an automated loan approval and along with the option to order their home appraisal. The ease of Fast Track Technology allows borrower to send documents right through their specially created account.
Nuance Communications, Inc. (NASDAQ:NUAN) today took a major step towards reducing the risk of consumer fraud by announcing a new suite of biometric security solutions, driven by the latest in artificial intelligence (AI) innovations. The new Nuance Security Suite includes not only the company’s award-winning voice biometrics technology, but also new advances in facial and behavioral biometrics that combine to provide advanced protection against fraud, across customer service channels.
Applying deep neural networks (DNN) as well as advanced algorithms to detect synthetic speech attacks, and integrating facial and behavioral biometrics means the Nuance Security Suite takes fraud prevention to new levels. By combining a range of physical, behavioral, and digital characteristics to provide secure authentication and more accurately detect fraud across multiple channels – from the phone to the Web, mobile apps and more – Nuance’s new Security Suite allows enterprises to attack fraud head-on, while at the same time offering an improved customer experience.
With its latest Security Suite, Nuance can equip an organization with one or more of the following options to fight fraud, improve security and boost the customer experience:
Voice biometrics – authenticates the customer when they say a predetermined phrase like “My voice is my password,” or during the course of normal conversation with an agent to determine if the customer is indeed who they say they are.
Facial biometrics – utilizes the camera on a smart phone to verify the person in real time.
Behavioral biometrics – tracks how users interact with Web and mobile applications, (e.g. scrolling, mousing, or tapping), creating a pattern against which to compare.
Additional biometric modalities – In addition to offering support for voice, facial, and behavioral biometrics, the Nuance Security Suite can also accept plug-ins for other emerging authentication technologies such as retinal scans.
Interest rates on the rise and a lower inventory of homes on the market are tightening access to the housing market. At the same time, nonbank, online-only lenders have boomed, accounting for 73% of loans originated, according to the Federal Housing Authority.
This trend is likely to continue in the coming years. And members of the digital-native Millennial generation, who rely on online search to find home loans–and everything else–are taking over as the primary home-purchasing segment of the population–Millennials accounted for 84% of closed home loans in January 2017, according to the Ellie Mae Millennial Tracker™ report. In this environment, an effective organic local search strategy is no longer just beneficial for traditional mortgage lenders; it’s existential.
Of 5,849 loan officers whose online presence Yext studied across the online ecosystem (including sites like Google, Facebook, Bing, Yelp, and many others), 64% of their business listings contained incorrect addresses, 42% had phone number errors, and 46% had errors in business names. 9.25% of loan officer listings were duplicates, and 57.8% of loan officers studied had no online presence at all.
The Consumer Financial Protection Bureau today launched an inquiry into ways to gather and use new and existing information to identify the financing needs of small businesses, especially those owned by women and minorities. Small businesses typically need access to credit to take advantage of growth opportunities, yet public information on this lending market is inconsistent and incomplete. The Request for Information asks for public feedback to help the Bureau better understand how to bridge this information gap. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB to collect data about small business lending to help identify needs and opportunities in the market and to facilitate enforcement of fair lending laws.
500 Startups has filed a Form D 506(c) for a pooled investment fund targeting Fintech. The 500 Fintech LP is seeking $25 million according to a filing with the Securities and Exchange Commission.
The Silicon Valley based operation has committed over $350 million in early stage investments. Over 1,800 companies have benefited from both funding and support around the world since the global seed fund was launched in 2010. Some of the better known investments include Twilio, Credit Karma, Maker Bot and more.
PIGEON FORGE — Tennessee State Bank is excited to announce online consumer lending, powered by Lending Club, the world’s largest online credit marketplace, is now available.
These loans range from $1,000 to $40,000, are unsecured (which means no collateral is required), and can be used to eliminate high interest debt, kick-off a home improvement project, or make a major purchase.
Not subscribing to a consortium like R3 is not the same as banks not leveraging blockchain/DL. Here is a link to an excerpt from a report we did on a bankers perspective (former head of digital banking at Deutsche Bank) on blockchain which may provide some insights:
The mutual bank, with $1.6 billion in assets, has announced an investment partnership with Boston’s Numerated Growth Technologies Inc., a fintech (the term ascribed to programs and technology that support financial services) startup spun out of Boston-based mutual Eastern Bank own in-house fintech accelerator, Eastern Labs.
Numerated’s platform focuses on small-dollar loans, allowing the loan process to be managed in real-time — reportedly conducting the process in as quick as five minutes, according to the firm — in addition to automating marketing to existing and prospective bank customers, which helps feed the loan pipeline as fewer consumers visit brick-and-mortar bank branches.
Last weekend, hip-hop living legend Nicki Minaj made waveswhen she decided ― seemingly spontaneously ― to start making tuition and student payments for straight-A students who reached out to her via Twitter.
Most notably, Minaj announced that she was in the process of launching an “official charity for Student Loans/Tuition Payments,” meaning kids who are having trouble paying their way through school could soon get some much-needed help.
One of HSBC’s most senior technology executives says that the big bank is not far behind digital-only challenger banks when it comes to consumers offerings.
Raman Bhatia, HSBC’s head of digital for retail banking and wealth management in the UK and Europe, told Business Insider that while startups enjoy a technological advantage, HSBC is working hard to catch up.
Bhatia pointed to HSBC’s SmartSave app as an example of how the bank is keeping pace with digital rivals. The app helps people automatically put money into savings based on pre-set rules. It evolved from Nudge, an internally developed and trialled savings app HSBC worked on last year. SmartSave was trialled with around 2,000 HSBC customers in December.
Deloitte today announced the launch of its enhanced Digital Bank offering to further accelerate a bank’s digital transformation. Based on the Salesforce Intelligent Customer Success Platform and utilizing the Salesforce Financial Services Cloud, Digital Bank helps banks create exceptional experiences by providing tailored banking capabilities with accelerated implementation and realization of value.
Digital Bank’s capabilities and potential benefits include:
Augmented Salesforce Platform with many technologies, fintech solutions and AppExchange partners, as well as personalized channel engagement through automated marketing using Salesforce Marketing Cloud
Ability to expand relationships by having full visibility into bank relationships across business units
Established customer trust through multifactor secured cloud banking platforms and improved onboarding for customers through a fully mobile process enabled by many technologies
Increased speed and agility to meet customer needs, as well as the regulatory needs of the banking industry, using predictive analytics based on account behavior to recommend next best offers and next best actions
Accelerated implementation allowing banks to generate ROI faster, including linking newly created accounts in Salesforce to a blockchain secured digital identity
It got me thinking about the broader impact of fintech lenders in the UK, especially those built to fund businesses. Companies like Funding Circle – the country’s largest marketplace lender for SMEs – regularly reference their impact on job creation in corporate updates. The logic is that the loans that Funding Circle and other platforms like it facilitate help small businesses to grow, and so too to hire more staff.
Leading US firm OnDeck released a report in late 2015 analysing the economic impact of the first $3bn lent through the platform. The report found that OnDeck loans had powered $11bn in business activity, creating 74,000 jobs across the country. Similarly, Funding Circle published findings last summer suggesting that its lending had supported the creation of 40,000 jobs in the UK since 2010, boosting the economy by £2.7bn.
In this way, they are unquestionably killing jobs, as well as creating them – but nobody ever talks about that.
Barely a month goes by without news of a fresh round of bank branch closures. In March, for example, we learnt that RBS and NatWest would be cutting 158 branches and 400 jobs across the country.
As a result, Improbable has become one of the few UK start-ups to achieve the so-called ‘unicorn’ status, namely having a valuation of over $1bn.
Since then, their numbers have grown to nearly 200 firms globally and that are collectively valued at £523bn. The most valuable is Uber, the online taxi company that, in only four years, has reached a valuation of over £50bn.
A recent article in Forbes Magazine suggested that investors, with few places to put their money during an era of near zero interest rates, are fuelling the growth in unicorns as they look for better returns.
According to research from peer-to-peer lending platform Kuflink, conducted in the first week of May, nearly a third of UK investors are planning to direct their attention to traditional asset classes such as property over the course of the financial year.
This comes after some of the largest property funds in the UK temporarily stopped investors from cashing-in their money last summer when thousands of people panicked after the European Union referendum and pulled out of the asset class.
The Kuflink survey, which questioned 1,100 investors across the UK, also found that Brexit and the snap election have impacted UK investment decisions more than any other political event in their lifetime.
Almost 40 per cent of investors are taking a more cautious approach by favouring ‘safe-haven’ asset classes, while 38 per cent are waiting until after the 8 June election to make any further investment decisions.
On May 12, the State Council Information Office of China announced that China has reached a series of agreements with U.S. related to agriculture, investment, energy and especially in financial service area.
Key points of the Initial Agreements of the China – US Economic Cooperation 100-Day Plan in financial service area:
By July 16, 2017, China is to allow wholly foreign-owned financial services firms to provide credit rating services in China, and to begin the licensing process for credit investigation.
The People’s Bank of China and The U.S. Commodity Futures Trading Commission (CFTC) are to work towards a Memorandum of Understanding (MOU) concerning the cooperation and the exchange of information related to the oversight of cross-border clearing organizations.
By July 16, 2017, China is to issue further necessary guidelines and allow wholly U.S.-owned suppliers of electronic payment services (EPS) to begin the licensing process.
The hotly anticipated initial public offering of Alibaba’s finance arm, Ant Financial, has reportedly been delayed until at least the end of 2018 because of the need to secure regulatory approval and to focus on building the business.
E-commerce giant Alibaba Group and affiliated online payment service Alipay are aiming to use facial recognition technology to help retirees simplify pension authentication. Shenzhen is chosen to be the first pilot city.
The Peoples Bank of China (PBOC), the country’s central bank, announced that it has set up a Fintech committee to enhance research, planning and coordination of work on financial technology.
Happigo Home Shopping Co. Ltd., a leading Chinese multichannel e-retailer, announced that the company had the local government approval to build a small loan company.
The new micro-credit company will be named “Happy Tongbao”, which has about RMB 300 million in registered capital. It will focus on online micro-credit and expects to start its business in Hunan Province, lending to merchants in desperate need of a loan, then gradually expand to the entire Chinese market. Entrusted loans, bill business, financial advisory and other online business models is said to be covered in its future development.
To reduce lending risks, Happigo said it had developed a cloud system for tracking merchants on its online shopping platform to help it keep a record of the business of would-be borrowers’ cash flow.
IFRM: A Risk Control Model keeping No Bad Debt! (Xing Ping She Email), Rated: A
IFRM ( Internal Financal Risk Management) is a unique method created by Xeenho, focusing on the operation modes of platforms. In the IFRM Solution, the risks of P2P lenders are evaluated through three indicators: FOW (qualitative indication system), TOS (quantitative indication system) ,O2O Due Diligence, and Big Data Supervision. By using the model, Xeenho has been keeping the Zero Bad Debt since 2014 with a business volume up to $400M.
FOW ——qualitative indication system
FOW means Forbidden, Observation and Warning. FOW detects and prevents P2P fraud, if a platform is categorized as Forbidden, Observation or Warning then it won’t proceed to the next step.
TOS ——quantitative indication system
TOS means Transparency, Operation and Safety. TOS thoroughly evaluates a platform, from its basic information to its UX, and the risk is ranked thereafter.
O2O ——due diligence from online to offline
O2O means making due diligence from online to offline, in order to ensure a platform that passed FOW and TOS is as good as it seemed to be.
Big Data——Analytics & Observation System
This dynamic surveillance system continuously over watches the performance of a platform, and adjusts the rating accordingly.
Twino, one of the leading Baltic lending marketplace, has produced in conjunction with KPMG Baltics a report called Alternative Lending Index which assesses the potential of alternative finance in 23 European countries based on a set of economic credit data. While the report does not pretend to exhaust the analysis of the drivers and hurdles of alternative finance across Europe, it presents a very useful snapshot of the Pan-European credit landscape that should help support international strategies.
The first platform to tackle cross-border lending was Estonian pioneer Bondora in 2009. Since then, and particularly in the past two years, international lending marketplaces have mushroomed in the Baltics. There are now more than a dozen of them, with a strong dominance of consumer lending platforms. Leaders such as Mintos and Twino have long passed the €100 million mark in cumulated loan funding. They currently grow at a rate of between €10 to €20 million worth of new loans funded a month. If you operate a lending marketplace in the UK, France or Germany you should know these platforms because they are targeting your smartest investors:
Together, these platforms have funded over €500 million in cumulated loan volume – which would make the Baltics, if it were a single country, the 4th largest online alternative lending market in Europe after the UK, France, and Germany.
Together, these platforms have funded over €500 million in cumulated loan volume – which would make the Baltics, if it were a single country, the 4th largest online alternative lending market in Europe after the UK, France, and Germany.
The ALI ranks 23 European countries. It concludes that countries with the highest gaps and inefficiencies in traditional lending, hence the highest potential for alternative lending in Europe are, in that order:
Hungary, Slovenia, Latvia, Poland, Romania, Greece and Ireland.
Conversely, the countries where the existing sources of financing available to households and corporate borrowers are sufficient and the potential for the development of alternative lending is therefore considered low, leaving little room for alternative lenders are:
France, Germany, Netherlands, Austria, Finland and Sweden.
The European Union’s financial services chief said on Friday he will ask the bloc’s banking watchdog to rethink its proposed ban on “screen scraping” or financial technology firms directly accessing bank accounts.
It marks a reprieve for fintech firms trying to wrestle market share from long established banks in the fast growing payments and apps sector.
The US has just celebrated the first anniversary of its regulated crowdfunding regime, known as “Regulation Crowdfunding”. It was by all accounts a very happy anniversary for many US start-ups, as Regulation Crowdfunding reportedly raised $40 million in its first year. US advisory and education firm, Crowdfund Capital Advisors report that the average successful crowdfunding campaign raised around $282,000 from around 312 investors. Regulation Crowdfunding allows companies to raise up to $1,070,000 over a 12-month period.
An unregulated environment brings with it its own set of benefits and drawbacks:
On the positive side, the absence of a regulatory framework means there are no restrictions on who can invest, or on the amounts that can be raised or invested. In contrast, the Regulation Crowdfunding regime in the US has strict limits on the amount which a person may invest through crowdfunding each year. These limits are determined by an individual’s annual income and net worth.
On the negative side, the lack of regulation means that many investor-protection mechanisms are simply not available. For example, the Central Bank’s codes of conduct and client asset rules do not apply to crowdfunding platforms.
The Department of Finance (the “Department”) and the SME State Bodies Group have issued a public consultation paper on the possible ‘Regulation of Crowdfunding in Ireland’. They are considering how to facilitate the development of crowdfunding in Ireland for the benefit of the economy while also ensuring adequate protection for small investors and consumers.
The objective of this consultation is to invite the views of interested parties on whether a regulatory regime would be appropriate for the crowdfunding sector.
How do we get money to small businesses that make the economy work for most people around the world? What kind of systems do we need to create? And how do we make them flexible so multiple cultures can utilize them?
One of the main reasons why small businesses fail is due to poor credit risk management. There is a good reason why banks and lenders give priority to risk management. They understand that if you are clearly aware of your customers’ creditworthiness and the local political and economic climate that may affect a customer’s ability […]
One of the main reasons why small businesses fail is due to poor credit risk management. There is a good reason why banks and lenders give priority to risk management. They understand that if you are clearly aware of your customers’ creditworthiness and the local political and economic climate that may affect a customer’s ability to pay, protecting your receivables gets easier. The rule of thumb in credit risk management is to act and not to react. Most small businesses react to credit issues and that is why they fail to achieve their full potential.
Although credit risk management is not as straightforward, having the right discipline and making use of a few pro tips can help achieve your goals without the risk of incurring a loss. Here are a couple of tips that will help you improve your insight into credit risk as well as enable you to take the most appropriate measures to maximize the risk/return profile.
Check the credit record of new customers thoroughly
Just because a new client walks in with a fine cut suit does not mean you should ignore his credit record altogether. This is a mistake made by most small businesses. Other times, the need to look into the credit record of a new client is ignored all together. Needless to say, this is the worst mistake you can make as a business owner/manager.
As aforementioned, when you understand the creditworthiness of a client, you will be able to predict his ability to pay. Finding local and foreign corporate information can be hard more so for the emerging markets. The best way forward is to rely on the services of local consulting firms to assist you with the background check.
Establish credit limits
Set clear credit terms
The last thing you want is to lose a case in court against a debtor. This happens when the credit terms of the sale agreement are not clear. A good sales agreement should be well-worded and have comprehensive terms of credit. This will help reduce the risk of disputes as well as improve chances of your getting paid on time and in full.
Pay for political and/or credit risk insurance
Don’t focus only on the new customers
It is human nature to assume that the long-term business relationships are solid and stable and built on trust. The truth, however, is that approximately 80% of bad debts involve the relationships that are years old. Credit risk management should not be treated as a one-time process. You have to constantly evaluate credit risk for all customers, suppliers and vendors. Keep an eye on trends in business credit profiles which signal imminent trouble.
Don’t ignore your colleagues
Business fraud should be taken seriously
In an effort to build more relationships with customers, most small businesses overlook signs that a deal may be too good to be true. You must always apply consistent risk management practices to all customer relationships. Every red flag should be investigated. Pay more attention to customers with murky business histories, absurd terms, and unusual references. Put everything on hold until you evaluate the credit risk.
The financial services industry has entered into an arms race fuelled by machine learning and AI. Artificial Intelligence is an umbrella term for computers able to execute on a higher level of human mental functioning. Machine Learning is part of that AI; it allows the computer to learn from its functioning without being explicitly programmed. […]
The financial services industry has entered into an arms race fuelled by machine learning and AI. Artificial Intelligence is an umbrella term for computers able to execute on a higher level of human mental functioning. Machine Learning is part of that AI; it allows the computer to learn from its functioning without being explicitly programmed. The machines will get better at their jobs without humans needing to code that improvement.
AI has wide-ranging applications across the business spectrum, but nowhere is it being exploited with as much zeal as in FinTech. According to CB Insight reports, more than $5 billion has been raised by AI start-ups globally in 2016. This dwarfs the over $3 billion raised in 2015. CrowdProcess is a young data science startup from Lisbon with a new take on machine learning and transparency.
The Genesis of CrowdProcess
CrowdProcess was founded in 2013 by Pedro Fonseca, Jaoa Menano, and Samuel Hopkins.
Fonseca, head of data science and CEO, started his career in FinTech at the age of 25. He also co-founded ODMLX, one of the largest open data organizations in Lisbon. Menano, co-founder and CFO, has technical expertise in data science and worked with Fidelidade, an insurance company in Portugal as project manager. Hopkins, CTO and co-founder, is proficient in machine-learning. He has worked at three different start-ups performing different roles as an application programmer, system administrator, and applied data scientist.
CrowdProcess’s headquarters are located in Lisbon and New York. The company has raised $1million in seed capital funded by Seed Camp, Rising Ventures, Kima Ventures and Frontline Ventures. It is currently in a new round with 50% of capital already committed by investors.
How CrowdProcess Taps Into AI Innovation
CrowdProcess offers a SaaS analytics and data decisioning model for the credit space. They help develop, deploy, and monitor credit scoring models. Using AI and machine learning, they can reduce default rates by almost 30% or improve acceptance rates by over 10%. Its USP is the ability to operate without black boxes.
A black box is a system where the inner components, or logic, is not available for inspection. Due to its existence in machine learning models, it hinders the process of regulation. Adverse Action regulation requires the lender to inform the borrower that an adverse action has been initiated on their credit application, and why. This provides more transparency throughout the process.
James, its flagship solution, is a one-stop shop for credit risk management. Lenders gain access to James around the clock. To ensure reliability and avoide vulnerabilities, it is fully secure and highly encrypted. James’ cloud infrastructure is scalable, and its potential can be enlarged to accommodate hockey stick growth.
James’ features include:
Scorecard: Traditional scorecards have been augmented with a random decision factor, gradient boosting, and neural networks.
Validate: It provides precautionary alerts according to the model`s metrics and access to data necessary for validation. James has an edge over other solutions in the market, which may not enable regulators to validate.
Deployment: James has superiority with regards to the timeline of deployment. The model can be run automatically or in conjunction with other models. So a 6-month integration time is essentially reduced to zero and the company can compare multiple models in parallel.
Monitoring: James monitors its own performance in real-time. The system not gives out early warnings and helps ensure data sets are used appropriately. When a material change occurs, the software is tweaked accordingly.
CrowdProcess charges a fixed fee, but its flexible depending on the volume. The company invests a lot on UI and UX removing the need for hiring coders and engineers. A financial analyst with sound knowledge of credit models will be able to use the model without any external support or requirement to code. This young startup has been able to snap established clients like Evo Banco (owned by Apollo Global Management, a bank in Spain) and Cofidis (a consumer financing house, in Paris).
The Value of Machine Learning
In order to help customers know the real value of its model and smooth out the onboarding process, CrowdProcess has launched a 1-day onboarding workshop known as Jumpstart. Customer data is cross–validated with the company´s predictive analysis. Through this back testing, customers are guided toward the proposed benefits of saving time and money in preference to traditional predictive machine learning models. CrowdProcess has undertaken 15 jumpstarts that have resulted in 100% positive outcomes and has beaten existing models.
James has the ability to outperform incumbent models in this sector. Realizing the potential, CrowdProcess is on an aggressive sales roadshow in the U.S. Its USP is not only the ability to offer a better model, but a solution which is transparent and will not turn out to be a regulatory nightmare for its clients. The Portuguese company has major tailwinds and has the chance to capitalize on this massive market.
News Comments Today’s main news: Prodigy Finance funding foreign MBA students at U.S. colleges. Today’s main analysis : UK banks shift overdraft lending toward big businesses. Today’s thought-provoking articles: FinTech ideas banks are stealing. Credit rating agency questions rise of lending algorithms. Ways to mitigate P2P lending risk. United States Foreign MBA students get college loans through Prodigy […]
Foreign MBA students get college loans through Prodigy Finance. AT: “More and more, I think we’ll see international cross-pollination like this. In this case, foreign students are seeking MBAs at U.S. colleges through P2P loans and scholarships. There is plenty of opportunity for this type of lending to grow (U.S. students funding foreign study, college profs funding sabbaticals, international internships, and more).”
Crowdsourced debt financing is growing. GP: “New approach from P2Binvestor has skin in the game. Interesting read. ” AT: “Is there any better way to earn trust in due diligence than for the platform to be the first investor?”
After several years working for Deloitte, Abhirath started looking at funding options to study an MBA abroad. But most local banks were unwilling to lend internationally and offered only high-interest loans, riddled with clauses and extra costs.
Instead, Abhirath applied for an international post-graduate loan from community lender, Prodigy Finance.
Prodigy Finance’s borderless, peer-to-peer lending model gives international students access to the loans they need to study abroad.
In September, Abhirath, along with Vyom Vats, was chosen for Prodigy Finance’s inaugural scholarship program. They both received $20,000 in additional funding.
The consumer online lending market is experiencing difficulty, with increasing delinquency and default. When questions were raised regarding the lack of due diligence in online loans, they were initially dismissed. What could go wrong? Now two years later the answer is clear as defaults are leading to business closures. Business lending for asset-based revolving lines of credit, however, has taken a different path.
Part of causation for the defaults is due to the race to grow, a trend that has reversed recently. Avant cut its monthly lending target in half while Circlebank Lending stopped making new loans entirely, Bloomberg reported. Shakeups have occurred in the C-Suite. LendingClub CEO Renaud Laplanche resigned in May amid questions regarding faltering loans and Prosper Marketplace CEO Aaron Vermut recently resigned as it cut 25% of its staff, reported a $35 million second quarter loss and closed its secondary market for loans.
Krista Morgan, CEO of P2Binvestor, an online platform providing business lending for emerging companies businesses seeking revolving lines of credit, has taken a different approach.
The two-year-old company, which just received $7.7 million in a second round of angel financing, conducts due diligence on each loan and has skin in the game, investing alongside other investors.
The online lender currently works only with a small group of accredited investors connected to the firm, but plans to expand to offer the investment to a wider range of accredited investors shortly. Investors can gain exposure to a large $10 million line of credit by only accepting as little as $1,000 of the risk exposure.
From Friday the 11th to 13th of November, Crowd Valley (a Grow VC Group company) joined professionals from EY, Capital One, Addepar and CoVenture as well as students from institutions such as Cornell, NYU Stern and Columbia for Cornell’s annual Fintech Hackathon held at their Cornell Tech location in New York City. The focus of the event was to promote the innovation of applications and technology for two verticals: Financial Inclusion and Anti Money Laundering (AML).
OnDeck® (NYSE: ONDK), the leader in online lending for small business, announced today that Noah Breslow, Chief Executive Officer, and Howard Katzenberg, Chief Financial Officer, are scheduled to present at the J.P. Morgan 2016 Fintech & Specialty Finance Forum in New York on November 30, 2016 beginning at 12:30 p.m. E.T.
SMEs remain under pressure as banks continue to shift overdraft lending away from them in favour of large businesses.
There has been a 37% fall in the value of overdrafts provided to SMEs over the last five years from £19 billion to £12 billion* (see graph), whilst overdrafts given to large businesses have increased by 25% over the same period from £19 billion to £24 billion.
SMEs, especially those within the retail and leisure sectors, can find the lead up to Christmas very challenging if they do not have access to overdrafts. This is because firms increase spending in order to stock up ahead of the crucial Christmas trading period but customers often delay invoice payments until the New Year.
Furthermore, salaries tend to be brought forward so staff can be paid before Christmas and overdrafts are often used to cover this cost.
SMEs face growing pressure and difficult choices as the value of overdrafts available to them continues to fall.
The Hindu Business Line reported on data released from the Peer-to-Peer Finance Association which shared data indicating that worldwide P2P lending has grown from £2.2 million in 2012 to £4.4 billion in 2015.
For our German readership, Huffington Post released an article which details how P2P platform are the best alternatives for investors looking for higher investment returns and borrowers looking for cheaper credit options than current banking system offers them.
Financial services companies, including technology-oriented fintech start-ups, are emerging to challenge the roles of banks and the large financial institutions. Fintechs are rapidly transforming and disrupting the marketplace by providing digital or “robo-advice” using highly sophisticated algorithms operating on mobile and web-based environments.
However, the rapid pace of ICT development — with A.T. Kearney predicting robo-advisers in the US will manage investment assets worth $2 trillion by 2020 — makes it critical that we plan for a world where technology is in the driver’s seat.
The ASIC position does not go as far as the one adopted by the EU, which provides an explicit “right to explain” and “right to challenge” on decisions made by algorithms. Nor does the ASIC guidance place an explicit onus on the algorithmic provider to explain, in simple terms, the logic behind an algorithmic decision. This might be intentional since algorithms may involve highly complex code and technical considerations well beyond the skill set expected from an average financial services adviser.
Mainland Chinese banks are lagging far behind their global rivals in investing in the digital technology needed to compete in a challenging industry landscape with evolving client demand and fierce competition from fintech companies, an industry report said on Monday.
Many mainland banks devote less than 1 to 3 per cent of their income to technology and digitalisation, while leading global banks on average invested 17 to 20 per cent of pre-tax income to embrace the digital era, McKinsey & Company said in a banking report.
Han Feng, an associate partner at McKinsey, said the digital era for China’s banking industry has arrived.
A few critical steps, if followed diligently by the P2P platform, can help minimise this risk for lenders. Traditional data like bank statements, salary slips, ITR etc. supported by digital data, online transaction data, and mobile and social data should be carefully evaluated and studied to understand the borrower’s ability, stability, and intention to repay the loan taken.
The CIBIL of the borrower is a must for the platform to be able to evaluate past performance. The identity verification process (physical or through technology) has to be done to eliminate fraudulent applications.
P2P lending platforms should allow lenders to diversify across many loans by factionalising an individual borrower. Diversification is a crucial step lenders must take to mitigate risk. As a lender, you need to check if the platform gives you a diversity of borrowers for investment. It’s always better to spread your investment across a minimum of 100 loans of different types and risk grades viz. city, risk/returns, loan purpose, gender, caste/community, tenure, loan amount, etc.
Check how strong the risk team is. Who runs the risk department? If required, please speak/write to the CRO. Ideally, the risk team should be of people with a strong track record in risk management and practice. The data science team within the organisation should be responsible and producing analytical work to improve the quality of the decision-making. In India today, not many P2P lending players publish data and statistics about loan purpose, returns, and default ratio on their website. However, serious, long-term players will, because they realise that it’s critical to do so to bring transparency in the system and build lender confidence.
The agreement between the lender and the borrower is “I owe you” and one can rest assured that the lender has the right to collect what is due to him at any point in the future when say, the country is out of recession or overcomes the impact of a natural disaster. The P2P platform should keep in touch with the borrower and get regular updates on his/her status. Having said that, India’s story looks very positive for the next 10 years.
On the one hand, some forms of Fintech – such as credit card comparison sites and home loan comparison sites – are mostly on the side of the banks. They make most of their money by directing the customers to the banks (more on this below). The banks, of course, tolerate them because they bring in customers.
On the other hand, some forms of Fintech threaten to replace entire segments of the banking business. The P2P lending websites, such as Capital Match and MoolahSense, could well replace banks in the area of small business loans. Most notably, Fintech companies such as Nutmeg have begun to pose a serious threat to the notion of private banking, by replacing the traditional relationship officer or private banker with online wealth management.
Recent developments though, suggest that big banks are taking a third alternative.
And now, Goldman Sachs has become the first bank to launch a P2P lending service. While Fintech lovers often claim that banks lack the innovation and flexibility to match Fintech counterparts, they seem to be forgetting that money is a sort of superpower. The cost of setting up a P2P lending website is peanuts to a bank, and they even have the sheer capital to guarantee loans that go bad.
If a bank launches a P2P site that’s also backed with its own guarantees, it will draw customers from smaller Fintech companies. And unlike those smaller companies, the bank can afford to fail repeatedly.
HSBC is already testing a transaction platform that uses blockchain technology. One of the underlying drivers of cryptocurrencies such as Bitcoin, blockchain is (among other things) a method of verifying transactions.
With blockchain technology, multiple unrelated sources witness the transaction; and it’s not possible for any one party to fabricate it. Think of it as handing money to someone in a dark alley, versus handing money to someone in a well-lit area with 200 witnesses. The latter is fairer and safer.
Fintech sites are filling in many of the problems with traditional banking, but they might be a little overconfident regarding their edge. They might do well to remember second-mover advantage, and that what they’ve build over a decade the banks can pay enough to imitate within the year.
Fintech companies need to pursue that one great quality that banks can’t buy and copy – customer service, and a good relationship with their users. Because if there’s one thing banks – or anyone – can ever own, it’s good service.
Capgemini, a global leader in consulting, technology and outsourcing, announced that it is launching its global fintech initiative in order to fast-track fintech engagements with its global financial services clients.
The fintech initiative by Capgemini, is aimed to extend beyond the traditional incubator concept to encompass connection, curation, incubation, and investment stages. The initiative will elevate the company as an active participant in the process of validating and evolving the core value propositions of participating companies in collaboration with clients. It will also address challenges in integrating external innovation by bridging gaps in adoption including tech integration, data management, process changes, among others.
People who enjoy having opinions about the financial system also tend to enjoy comparing trading — or, um, central banking — to gambling. While we’re sceptical of those types of views, this week’s rundown of legal troubles faced by one broker-dealer-affiliated gaming business almost seemed bankish.
CG Technology — formerly known as Cantor Gaming, and an affiliate of Cantor Fitzgerald — is paying $22.5 million in a non-prosecution agreement, with $16.5 million going to US attorneys’ offices in Brooklyn and Nevada and another $6 million going to the Treasury Department. It wraps up an investigation into the gaming company that’s been going on for years. (The WSJ has a good rundown of the history here and here.)
People who enjoy having opinions about the financial system also tend to enjoy comparing trading — or, um, central banking — to gambling. While we’re sceptical of those types of views, this week’s rundown of legal troubles faced by one broker-dealer-affiliated gaming business almost seemed bankish.
CG Technology — formerly known as Cantor Gaming, and an affiliate of Cantor Fitzgerald — is paying $22.5 million in a non-prosecution agreement, with $16.5 million going to US attorneys’ offices in Brooklyn and Nevada and another $6 million going to the Treasury Department. It wraps up an investigation into the gaming company that’s been going on for years. (The WSJ has a good rundown of the history here and here.)