Webinar: Marketplace Lending: A Look Ahead at 2018

marketplace lending webinar

As marketplace lending continues to evolve, it’s more important than ever to keep ahead of the developments that are impacting the industry.  In this follow up to last year’s “Look Ahead at 2017” webinar, you’ll learn the key factors shaping the online lending industry: Review of last year and key issues that shaped marketplace lending in […]

marketplace lending webinar

As marketplace lending continues to evolve, it’s more important than ever to keep ahead of the developments that are impacting the industry.  In this follow up to last year’s “Look Ahead at 2017” webinar, you’ll learn the key factors shaping the online lending industry:

  • Review of last year and key issues that shaped marketplace lending in 2017
  • Developments that are fueling continued growth in our industry including originations and new product offerings around securitizations
  • Shifting regulatory considerations that will impact the industry in 2018
  • The impact that the new big lenders will have on the competitive landscape

Speaker
Philip Bartow, Portfolio Manager
RiverNorth Capital Management, LLC

Philip Bartow manages RiverNorth’s marketplace lending strategies. He has over 12 years of experience in investment management, capital markets, and investment banking capacities within structured finance, securitized products and real estate.

Webinar: Marketplace Lending: A Look Ahead at 2018
Wednesday, January 10, 2018
1:00 PM Eastern

Register today:   Allen TaylorPosted on Categories Events, Featured, marketplace lending, Online Lending, RiverNorth, webinar

Webinar: Marketplace Lending: A Look Ahead at 2018

marketplace lending webinar

As marketplace lending continues to evolve, it’s more important than ever to keep ahead of the developments that are impacting the industry.  In this follow up to last year’s “Look Ahead at 2017” webinar, you’ll learn the key factors shaping the online lending industry: Review of last year and key issues that shaped marketplace lending in […]

marketplace lending webinar

As marketplace lending continues to evolve, it’s more important than ever to keep ahead of the developments that are impacting the industry.  In this follow up to last year’s “Look Ahead at 2017” webinar, you’ll learn the key factors shaping the online lending industry:

  • Review of last year and key issues that shaped marketplace lending in 2017
  • Developments that are fueling continued growth in our industry including originations and new product offerings around securitizations
  • Shifting regulatory considerations that will impact the industry in 2018
  • The impact that the new big lenders will have on the competitive landscape

Speaker
Philip Bartow, Portfolio Manager
RiverNorth Capital Management, LLC

Philip Bartow manages RiverNorth’s marketplace lending strategies. He has over 12 years of experience in investment management, capital markets, and investment banking capacities within structured finance, securitized products and real estate.

Webinar: Marketplace Lending: A Look Ahead at 2018
Wednesday, January 10, 2018
1:00 PM Eastern

Register today:   Allen TaylorPosted on Categories Events, Featured, marketplace lending, Online Lending, RiverNorth, webinar

Wednesday August 23 2017, Daily News Digest

Delinquency rates

News Comments Today’s main news: Walmart, Affirm discussing loan offerings to retail customers. Funding Circle has created 80K new jobs. Zopa’s revenue jumped 60% last year. Indonesia fintech investment to hit record high. Today’s main analysis: Consumer debt’s new peak. 3 investments to make before the market collapses. Today’s thought-provoking articles: The rumors of P2P’s demise are greatly exaggerated. Why China […]

Delinquency rates

News Comments

United States

United Kingdom

China

International

Australia

Asia

Middle East

News Summary

United States

Walmart in Talks With Finance Startup Affirm to Offer Loans to Customers (TheStreet), Rated: AAA

Walmart Stores Inc (WMT) is in talks with financing startup Affirm Inc to use its services to offer installment loans to customers with limited credit histories, the Wall Street Journal reported.

The upstart is reportedly nearing a deal with Walmart that could have it offering installment loans to Walmart shoppers as early as this fall. The loans would be focused on costlier items such as tires and other purchases over $200, insiders said.

Consumer Debt Reaches New Peak: Will Losses Follow? (Forbes), Rated: AAA

This week, the Federal Reserve Bank of New York released its quarterly Household Debt and Credit Report.

  • Total consumer debt reached a record $12.8 trillion. The prior peak was $12.7 trillion in 2008.
  • Since the financial crisis, auto loans and student loans have soared. Auto loans are now at $1.2 trillion, up 70% since the depths of the recession in 2010. Student loans have reached an incredible $1.3 trillion.
  • Total credit card debt has reached $784 billion, the highest level since the fourth quarter of 2009. Credit card delinquencies have also started increasing from historic lows.
  • Mortgage debt is growing again, having reached $8.7 trillion. However, it remains below the 2008 peak of $9.3 trillion.
Source: Federal Reserve Bank of New York

Student and auto loan data is worrying. The growth rate of both products has been extraordinary. Credit card growth looks nominal (despite the recent press) compared to the continued surge in student and auto loans.

Source: Federal Reserve

These loss rates are driven by poor underwriting in both the student loan and subprime auto markets. But while interest rates on auto loans (especially subprime) are high (and priced for risk), student loan interest rates are typically in the low single digits – not enough to cover the implied loss rate.

Federal Reserve Bank of New York

Tech giants like Amazon and Facebook more disruptive to banks than fintech start-ups (CNBC), Rated: A

Banks are faced with more competitive disruption from tech behemoths than financial technology (fintech) start-ups, according to a report by the World Economic Forum (WEF).

Drawing on interviews with finance and tech industry experts, the report found that banks were significantly lagging behind tech giants in the development of technologies like cloud computing, artificial intelligence and big data analytics.

Lenders have instead been turning to tech corporations to provide these functions, the report said. It singled out AmazonGoogle and Facebook as three companies dominating the market in these areas of innovation.

One example the report referred to was Amazon Web Services, which has lured several financial institutions including Aon, Capital One and Nasdaq to Amazon’s cloud computing business.

WSJ’s Greg Ip: US needs more Amazon disruption from CNBC.

RiverNorth: Executing on Providing Income for Investors in Marketplace Lending Loans (Crowdfund Insider), Rated: A

RiverNorth is out with an encouraging note on its fund that invests in marketplace lending platform loans. As of the end of July 2017, RiverNorth’s portfolio consisted of 10,173 loans, with an average loan size of $10,176. The RiverNorth Marketplace Lending (NASDAQ:RMPLX) is designed to provide a high degree of granularity and diversification, and holds a duration of 1.5 with a weighted average FICO score of 708 on the consumer portion of the portfolio. Consumer loans represent a 76% allocation as of July. The Fund’s “subsidized and unsubsidized SEC” net yield currently stands at 11.02% and 9.27%, respectively.

Cloud Lending Solutions Releases Software for Leasing and Asset Finance (BusinessWire), Rated: A

Cloud Lending Solutions, a leader in cloud-based leasing software, announced major advancements to its end-to-end leasing solution, CL Lease™ for Self-Financed Lessors, Externally Funded Leases and Captives. CL Lease™ is designed as a customer-centric, cloud-based lease servicing application enabling lessors to efficiently service equipment leases.

By automating operations, CL Lease effectively manages and tracks multiple assets in a schedule, and can manage your asset disposition process (repossessions, and returns). Its fully extendible integration platform works with collection agents, repossession agents, equipment resellers, and dealers. CL Lease can automatically apply fees, calculate taxes, and collect payments through ACH and credit cards.

Recent economic research into the Equipment Lease and Financing industry indicate that equipment and lease software investment is projected to grow by 3.6% in 2017. The investment outlook for most equipment verticals continues to improve with 2017 seeing long-term leasing volume increasing in 10 of 12 leasing verticals, and recent momentum in first-half 2017 has accelerated in 8 of 12 verticals.

A short list of advancements are:

  • Criteria Based Scorecards – Scorecard evaluations consisting of multiple parties with different legal entity types. Lessors will be able to assign different scorecards to different Legal Entity Type values and evaluate different scorecards for business versus individuals. Scorecard evaluations consisting of multiple parties with different collateral types. In this scenario, financial institutions will be able to assign different scorecards to different collateral type values.
  • Financial Statement Analysis – Enable lessors to be able to spread financials and store electronically, this includes balance sheets, income statements, and cash flow statements, as well as configure calculations and financial ratios to support financial analysis. CL Lease will enable financial institutions to customize financial statements with custom fields and generate financial statement information, such as cash flow, from configurable statement calculations and allow users to input, generate and analyze financial statements spanning multiple reporting periods.
  • Multi Company, Multi Currency – Support for being able to manage multiple companies in the same CL Lease implementation. Highly useful for companies operating in multiple countries or jurisdictions, CL Lease can support local regional specifications and manage leases across geographical country lines.
  • Credit Exposure Support – Enhanced to enable lessors to calculate direct exposure, direct proposed exposure, indirect exposure and indirect proposed exposure calculations for borrowing relationships, as well as get updates on the exposure for all borrowing relationships on a daily basis. CL Lease will also enable users to update exposure calculations on-demand.
  • Feature Updates – Additional updates include: Contract Restructuring, Debt Schedules, Delinquency Management, Asset Tracking, Financing of multiple equipment, Cash Management, Reporting and Dashboards.

Cloud Lending Solutions Releases Software for Commercial Bank Lenders (BusinessWire), Rated: A

Cloud Lending Solutions, a leader in cloud-based commercial lending and leasing software, announced upgrades to its end-to-end suite of products for its commercial lending clients using: CL Loan™, CL Lease™, CL Originate™, CL Collections™, and/or CL Marketplace ™ and released a new product in CL Portal™. These advancements to the Cloud Lending solution suite are designed to address fundamental challenges found across Global Banking, Community Banks, Credit Unions, Lending Societies, and Global Financial Institutions.

A partial listing of feature advancements:

  • Underwriting Scorecards: Enables FIs to define rate cards consisting of configurable pricing and terms and assign them to configurable risk ratings. They can also define their scorecards, consisting of evaluation criteria, scores, and weights, which can be executed for a specific loan opportunity based on configurable criteria. Results of the scorecard evaluation, pricing, and terms can then be automatically applied to the loan or presented to the user for selection.
  • Financial Statement Analysis/Financial Spreading: Enables FIs to configure and generate financial statements, financial ratios for business and individual borrowing entities associated with a loan opportunity. Further, lenders can leverage the resulting financial statement data and analysis during the loan underwriting process and configure the layout and format of each financial statement, as well as the calculations and formulas that derive the financial statement values and the resulting financial ratios.
  • Risk Assessment and Exposure Lenders can configure risk assessment templates, generate risk scores/grades for borrowing relationships, define risk assessment criteria in scorecards and the risk rating thresholds, and evaluate risk assessments for borrowing relationships automatically or on-demand.
  • CL Portal™ A configurable front-end portal that provides a differentiated borrowing experience for consumer, commercial and small business loans for borrowers, investors and stakeholders; integrates product workflows and document management to create a personalized and unique experience for loans ranging from fully automated consumer loans to multi-entity, collaborative commercial loans.
  • Loan Committee and Communications: Providing a completely virtual committee experience where members can view, discuss, and vote on loan opportunities via their computer and communicate lending communications between team members online with an audit trail. Improves meeting efficiency by automatically capturing meeting minutes and enforcing loan presentation time limits.
  • Advanced Loan Origination provides FIs an ability define each of the stages of their loan origination process for each loan product and each mandatory task(s) required at each stage. Easily define loan origination tasks driven by additional criteria such as risk rating or loan amount and automatically assign each task to loan team members based on their role. This ensures an efficient process by enforcing due dates for tasks and ensuring policy compliance by enforcing task completion at the applicable stage of the loan origination process.
  • Relationship Dashboard Provides a 360-degree view of the customer relationship allowing financial institutions to obtain a comprehensive view of the entire borrowing relationship. Users get a real-time view into relationship documents and document exceptions; monitor, and evaluate relationship covenants, view financial accounts and loan opportunities in progress, and assess relationship risk using risk assessment templates and credit exposure calculations. This is provided in addition to customer relationship management functionality provided by Salesforce.

Importance of digitally transforming credit risk management (Digital Journal), Rated: A

The analysis suggests that banks urgently need to digitize their credit processes. This comes down to economics since lending continues to be a major source of bank revenue, especially with retail banking. It is the retail banking sector that is facing the greatest threat from new digital services, such as credit lenders. An example of such a lender is Kuliza, which is on-line only and deploys artificial intelligence to assess customer loan requests. A different approach is provided by Fusion Bank which uses ‘crowdlending’ to secure loans. A crowdlending platform brings investors (the crowd) together with borrowers and allows the investors (or lenders) to lend small sums of money directly to hundreds or thousands or borrowers, in anticipated of a return on the loan.

An example of how a major bank can embrace what is happening in the market is provided by Premium Credit, which is a wholly owned subsidiary of Bank of America. To take on the challenge, Premium Credit worked with specialist technology company Arrk Group to create a digital customer acquisition platform. The success of this, for both bank and customer, was to reduce the time taken to process a loan from weeks to a matter of just minutes.

Federal Arbitration Rule Will Harm ‘Little Guys’ (CEI.org), Rated: A

Once again, the Consumer Financial Protection Bureau (CFPB) is putting forth a rule it presents as going after big banks, but will likely have its most devastating effects on small and startup financial institutions.

Other victims of the rule are likely to be credit unions, community banks, and sharing-economy innovations such as peer-to-peer lending.

As online commercial lending grows, some banks still prefer face-to-face meetings (Biz Journals), Rated: A

Many local banks that don’t already offer online commercial loan applications acknowledge that time may come, but for now in-face meetings still offer a lot advantages to potential borrowers.

Here’s a way for you to get a better handle on debt (MarketWatch), Rated: A

People tend to consider using borrowed funds in two contexts and depending on which context they’re in, people’s attitudes about what purchases they’re willing to borrow for drastically change.

Context 1: ‘How to pay’ decisions

One reason people might incur debt is to take advantage of attractive financing.

Context 2: ‘Whether to buy’ decisions

Another far more common reason people may use debt is because they cannot pay for their purchases with other means. Perhaps they are waiting for their next paycheck, or they have designated their savings to other things (expenses, other purchases, investments).

In a dataset from the Bureau of Labor Statistics that includes spending behavior from 30,242 households, we found that people who spent more on experiencesrather than material goods were also more likely to have greater credit card debt and to have paid more in credit card financing charges. We also saw this pattern in people’s likelihood of taking on a peer-to-peer loan. Using a large dataset from one of the biggest U.S. peer-to-peer lending companies, we found that people were more likely to have peer-to-peer loans for experiential purchases (for example, weddings or vacations) as compared to material purchases (such as swimming pools or motorcycles).

The average American household spends $12,800 annually on discretionary purchases and has $7,200 in credit-card debt. Indeed, a recent surveyfound that 74% of Americans have borrowed to pay for a vacation.

American Dream Leadership Series #2: Eric Sager of Online SMB Lender BlueVine (Forbes), Rated: B

What leader in business do you most admire and try to emulate?

I’ll focus on folks I’ve actually worked with. Francoise Brougher, Sarah Friar and Gokul Rajaram at Square are three people I learned a lot from, and there are certain things I try hard to emulate from each of them. Then of course there is Jack Dorsey, cofounder of Twitter and Square, who always impressed me with how thoroughly committed he was to the mission of helping small businesses succeed, and how that commitment influenced every decision I saw him make.

What’s a piece of advice that turned out NOT to be helpful?

To eliminate weaknesses or development opportunities. The truth, which I learned from both sports and business, is that my value to the team is way more about making the most of my strengths, and that any weaknesses, assuming I’m aware of them, can generally be covered very successfully by others on the team.

United Kingdom

Funding Circle has Supported the Creation of 80,000 New Jobs (Crowdfund Insider), Rated: AAA

Last week, Funding Circle celebrated seven years of operation.

Today, Funding Circle has helped to provide financing for more than 32,000 small businesses based in the UK, Germany, the Netherlands and the US. Funding Circle reports that 69,000 individuals and institutions are now lending on their platform. The company estimates that their lending service has supported the creation of around 80,000 new jobs (globally).

Funding Circle is boxing its investors in (The Memo), Rated: A

The vision was that ordinary people could loan their hard-earned cash directly to others, who could borrow at far cheaper rates than from the bank.

But today Funding Circle joined Zopa and Ratesetter in abandoning that vision, instead announcing it will stop people from picking and choosing who to lend their money to, instead automatically pooling these investments across borrowers on the platform.

Some have pointed out that these behaviours and changes now mean that these peer-to-peer platforms are now acting much more like a bank or a fund, becoming middle-men managing the investments they’re facilitating.

Online lender Zopa’s revenue jumped 60% last year (Business Insider), Rated: AAA

Peer-to-peer lender Zopa saw revenues leap 60% higher last year as losses narrowed.

The online lender’s revenue rose from £20.6 million in 2015 to £33.2 million last year, accounts filed with Companies House this week show. At the same time, losses narrowed from £8.8 million to £5.8 million.

Why Rumours of P2P’s Demise Have Been Exaggerated (Forbes), Rated: AAA

Are we really saying that an industry that didn’t exist a decade ago is failing because only one in 20 or so Britons have used it over the past 12 months? In fact, that seems like a pretty impressive adoption rate, particularly in an industry such as financial services, where start-ups face all sorts of issues around trust and credibility.

AltFi Data, one of the most trusted sources of analysis on the alternative finance sector, reckons peer-to-peer lenders have so far made advances of £1bn in the UK this year alone, taking their all-time advances close to £5bn. And those statistics are only for consumer loans; add in business finance and the figures are more like £3bn and £5bn respectively.

Brexit claims another victim: Britain’s venture capitalists (Politico), Rated: A

Since the country gave notice it was leaving the European Union in March, a growing list of British venture capital funds has been told they will not receive financial support from the European Investment Fund, an EU agency that provides almost half of the money for the region’s venture capital industry, according to several fund managers who held discussions with the body.

While little-known outside tech circles, the Luxembourg-based fund remains the largest backer of European venture capital, often providing up to 40 percent of funds’ total investments, equal to billions of euros each year.

In Britain, for instance, the European Investment Fund forked out €2.3 billion between 2011 and 2015 to support 144 local venture and private equity funds, or roughly one-third of overall investment for the sector, according to the latest figures available from the agency.

Zopa scales back higher-risk lending due to UK consumer credit outlook (P2P Finance News), Rated: A

ZOPA has reduced its exposure to higher-risk loans due to the UK’s worsening consumer credit outlook, which has led it to lower its projected returns on some investments.

The peer-to-peer lender also said that it is expecting slightly higher losses on its existing loans and an increase in early repayments from borrowers.

Subprime lender Provident Financial is in crisis (Business Insider), Rated: A

Shares in Provident Financial, a UK-based door-to-door lender, lost more than 74% of their value on Tuesday after the company cut its dividend, issued a profit warning, announced the resignation of its CEO, and announced the regulator is investigating part of its business.

Bradford-based subprime lender Provident warned investors it expects to make a loss of between £80 million and £120 million. Provident told investors in June to expect a reduction in profit of £60 million — but still a profit.

Debt collection rates plummeted from 90% in 2016 to 57% after the company changed from using self-employed agents to full-time “customer experience managers.” Customers are also borrowing £9 million a week less.

Interview with Terry Fisher, Founder at Huddle Capital (P2P-Banking), Rated: A

In an already crowded space, Huddle is differentiating itself by it high quality origination and a focus on educating its lenders to help them make better decisions.

What are the three main advantages for investors?

The main advantage for lenders on Huddle is that we are owned and managed by Access Commercial Finance which is an FCA regulated, balance sheet lender. Our belief is that most fintech businesses in the marketplace are too much ‘tech’ and not enough ‘fin’ so we are looking to correct that balance on Huddle.

What are the three main advantages for borrowers?

The main advantage to borrowers is getting speedy access to funding for strong business cases that have been unable to achieve satisfactory funding elsewhere.

What ROI can investors expect?

Currently we have loans that pay lenders from 8% to 16% per annum, depending on their risk appetite.

What were the main challenges launching your platform in a competitive (crowded?) market?

Once your tech works there are only 2 real challenges in this business – attracting lenders and finding borrowers. Fortunately we have got plenty of borrowers both existing and in the pipeline – so our challenge is getting out there in front of more lenders so they can learn about our platform and the benefits of lending through Huddle.

Which marketing channels do you use to attract investors and borrowers?

We are marketing to investors through the usual channels of PPC & SEO, but the primary channel we use is content led marketing, providing educational led content, empowering potential lenders to understand the lending business better and be in a position to make informed lending decision.

Peer-to-peer lending websites struggle (to attract borrowers (Financial Times), Rated: A

Peer-to-peer lending websites are struggling to attract UK customers who want to borrow money, despite hundreds of millions of pounds of investment in the sector.

Just 7 per cent of 1,100 people said they had used this sort of service to borrow in 2017, according to a survey by consultancy EY. Separate research from Blumberg Capital, a venture capital group, reported only 4 per cent of 1,050 British adults had used alternative lending services in the past 12 months.

How banks could look into YOUR account to decide if they will give you a mortgage (Express.co.uk), Rated: A

MORTGAGE loans and another types of lending are set to get tougher than ever thanks to a new way banks will measure who is a good candidate – by looking directly into into a bank account to check up on spending.

Alastair Douglas, CEO of TotallyMoney.com, told Express.co.uk he expected the development to become the norm “within one or two years”.

Fintech trade body chief steps down (Financial News), Rated: B

The chief executive of the UK’s fintech trade body is stepping down next week after two and a half years in the role, with a former senior Nasdaq executive standing in until a permanent successor is found.

Innovate Finance, a not-for-profit association founded in 2014 to represent the UK’s global fintech community, said in a statement today that Lawrence Wintermeyer will step down at the end of the month.

Former Lloyds boss Eric Daniels sues to claim unpaid bonuses (Financial Times), Rated: B

Eric Daniels, who ran Lloyds Banking Group when it was rescued by UK taxpayers, is suing the lender with a former colleague to claim £1m of unpaid bonuses linked to its HBOS acquisition, according to a person briefed on the lawsuit.

The former Lloyds chief executive, who left in 2011, filed a claim this month with London’s High Court along with a separate claim filed by Truett Tate, the lender’s former head of wholesale banking.

China

China: Number One Fintech Country In The World? (Coin Telegraph), Rated: AAA

China has not only caught up, but rather leapfrogged major cities such as New York, Silicon Valley and London. Many people are even claimingthat clusters of cities such as the Pearl River Delta in China are becoming the “new Silicon Valley.”

Due to China’s relatively new capital market structure, a lot of legacy systems in place in Western countries just aren’t present yet in China.  On top of that, the major Chinese banks are all state-owned (ICBC, ABC, CCB and BOC). They’ve made a living off lending to other large state owned enterprises (SOEs), which has left a large section of the population, in particular small and medium sized enterprises (SMEs) without the proper access to loans and credit.

Source: Coin Telegraph

China has well over 700 mln Internet users, or more than double the entire population of the US.  Combined with a propensity to use smartphones and mobile payments thanks to WeChat and Alipay, Chinese consumers have spectacular adoption rates of Fintech applications in comparison to other nations. For example, 40 percent of consumers in China use non-traditional payment methods such as Alipay, compared to just four percent in Singapore.

Source: Coin Telegraph

With major e-commerce platforms such as Alibaba’s Taoball and Tmall, and JD.com, there has been a need for quick and easy e-payments, which can be done using Fintech applications such as Alipay. Not only has this created opportunities within the payments vertical of Fintech, but also within lending, insurance, investment and wealth management.

Nation sees highest uptake of fintech (China Daily), Rated: A

China ranks top among 20 world markets in terms of fintech adoption, with 69 percent of surveyed consumer respondents saying they are actively using fintech services, 33 percentage points higher than the global average.

China ranks top among 20 world markets in terms of fintech adoption, with 69 percent of surveyed consumer respondents saying they are actively using fintech services, 33 percentage points higher than the global average.

Around 64 percent of fintech users said they prefer using digital channels to manage “all aspects of their life”. And 13 percent of polled consumers said they are regular users of five or even more fintech services, which include money transfer and fintech, wealth planning, deposit and investment, borrowing and insurance.

China’s first independent network bank gets authorized from CBRC (Xing Ping She), Rated: A

On 21st August, Baixin Bank, the first independent network bank in China, announced that they had been authorized by CBRC (China Banking Regulatory Commission).

According to public information, BaIxin Bank was jointly incorporated by China Citic Bank (shareholding ratio: 70%) and Fujian Baidu Borui Network Technology co. LTD (shareholding ratio: 30%). It takes more than one year for Baixin Bank to get the opening approval since Citic Bank’s Board Meeting passed the Bill on Establishment of a Pure Network Banking Company on November 17, 2015.

Li Qingping, the President of Citic Bank, previously said that the two parent companies would not interfere the marketing operation of Baixin Bank. It will provide a platform of banking for common people, enable them to conveniently enjoy finance service. Meanwhile, the bank will take advantages of both Citi Bank’s risk control capacity and Baidu’s innovative technologies like AI, big data and cloud computing, so as to meet the personalized financial needs of customers.

Credit Quality of Internet Companies Susceptible to Finance Business Actions (Financail Buzz), Rated: A

Moody’s Investor Services has opined that the credit quality of Internet companies could be weakened by Chinese technology companies pushing their way into orthodox businesses like finance and banking.

Lina Choi, senior credit officer, and the vice-president of Moody’s said that Internet companies can suffer from potential capital calls and contingent liabilities as a result of loans made to merchants and consumers. The scenario is also affected by wealth management distribution. Incidentally, these are the two main services offered by these online companies.

The first shareholders meeting held today: 13 directors 7 supervisors list of candidates surfaced (EEO.com.cn), Rated: B

Economic Observer learned that on August 22, the first shareholders meeting of Internet Clearing Co., Ltd. will be held in Beijing, after the meeting, the list of directors and supervisors will be officially released.

Compared to the financier, Jingdong Finance, quick money, one wallet of several directors of the rise, the Alipay director of the candidate Wang Zuojiang for the director level.

Tencent nominated director of the candidates Lai Zhiming in the technical and financial aspects have a very strong background.

Ping An paid the nomination of directors Candidate Zhu Yinjia is the only product of all the nominated directors of the professional background of professional payment.

International

3 Investments You Must Make Before Market Collapses (Newsmax), Rated: AAA

Exactly a year ago, in the wake of Brexit, the US 10-Year Treasury rate fell to an all-time low of 1.36%. At that point, bond yields—which move inversely to their price—had been declining for eight years with no end in sight.

Then Trump won the US election; another unexpected twist. An uptick in inflation and a series of rate hikes followed shortly afterward, and the 10-year yield has risen 67% from its lows.

  • Europe

Just a year ago, Europe looked like the last place you’d want to put your money in.

While everyone was applauding the uptick in US growth after the election, Europe recorded higher growth in 2016.

Despite improving fundamentals and strong performance, EU stocks remain relatively undervalued. For example, the Shiller P/E ratio is 55% lower for EU stocks than for their US counterparts.

Source: Newsmax
  • Peer-to-Peer Lending

P2P investors are currently averaging 7.3% returns on 36-month loans. Even those who took the most conservative approach saw returns of 5%.

The likes of Goldman Sachs and Morgan Stanley now account for over 70% of new capital.

Source: Newsmax

Fiserv Acquires Dovetail Group To Reinvent Payments Infrastructure Worldwide (PYMNTS), Rated: B

Fiserv, a financial services technology solutions provider, announced the acquisition of Dovetail Group Limited to further enable it to help financial institutions around the world transform their payments infrastructure. The new capabilities would be used to meet the evolving needs of wholesale, commercial and retail customers.

Australia

Amazon a bigger threat to banks than fintech: World Economic Forum (Financial Review), Rated: A

The combination of “open banking” regimes and data migrating to the computer cloud will lure global technology giants to create platforms for distributing financial services, a move that will force incumbent banks to compete head-on to control customer relationships or risk becoming mere suppliers of commoditised financial products.

That’s a view of the future set out by the World Economic Forum in a 194-page report on fintech disruption, released in New York on Tuesday, that warns traditional bank distribution models and economics “are at risk of being deeply disrupted by the drive towards platform models of banking”.

It calls out the arrival of internet behemoth Amazon into financial services. Amazon Lending, quietly launched six years ago, offers credit to merchants selling on its platform and uses their sales data to measure risk. It has made loans worth over $US3 billion and is expanding in the US, Britain and Japan, according to a recent report in the Financial Times.

It also points to Chinese tech giant Tencent’s Webank platform, which allows retail customers to purchase products from multiple competing credit and asset management providers, as a plausible model for financial services distribution in the future.

Asia

Indonesia’s fintech investments set to touch record high in 2017 (Deal Street Asia), Rated: AAA

Investments into Indonesian fintech startups are set to hit a record high in 2017 at the current run rate, according to an analysis by venture intelligence platform CB Insights. It is estimated that there will be a total of about 50 deals this year alone.

A recent study revealed that 80 per cent of the Indonesian population does not have a formal bank account, with 203 million Indonesians earning less than $4.50 a day.

In January this year, private lender Bank Central Asia (BCA) launched its VC arm, Central Capital Ventura, committing Rp 200 billion ($15 million) in investments so far.

In P2P lending, notable deals include Amartha raising $30 million in a round led by MCI in March this year. More recently, UangTeman announced a $12 million Series A round led by K2 Venture Capital with participation from Hong Kong-based STI Financial Group and American firm Draper Associates.

Moka is one of the best funded merchant payment startups in Indonesia, counting Convergence Ventures, East Ventures, Fenox VC, and Wavemaker Partners among its investors. Other active firms in this area are Pawoon, backed by Ideabox and Kejora Ventures, and Cashlez, backed by MCI and Gan Capital.

Middle East

UAE-Based Fintech Start-Up Secures $ 700K Investment to Advance Financial Services Access for Underserved Migrant Workers (Fox34), Rated: AAA

NOW Money has secured an investment of $700,000 from two U.S.-based venture capital investors – Accion Venture Lab, the seed-stage investment initiative of financial inclusion leader Accion, and Newid Capital.

The investment comes a year after NOW Money’s initial seed funding, which allowed the company to expand the team and develop the technology and brand. With the latest investment, also a part of its seed round, the team plans to launch the service across the United Arab Emirates and expand into the other Gulf Cooperation Council (GCC) countries.

Funding squeeze lifts ME non-bank lending (Oman Trubune), Rated: A

Middle East investment companies are ramping up their lending to businesses, providing a lifeline for small and medium-sized firms struggling to secure finance from banks that tightened credit after a suffering rise in bad loans.

Industry participants estimate non-bank lenders in the region could provide around $1 billion over the next three to five years, including secured loans, mezzanine debt, preferred shares and convertible loans and bonds.

Authors:

George Popescu
Allen Taylor

Thursday September 29th 2016, Daily News Digest

Thursday September 29th 2016, Daily News Digest

News Comments Mail bag, from our community 1) I think far fewer people will read your content if you have to get it from a website rather than reading an email. For example, I read it on the underground when I can’t access the web. Why did you change it?” Lending Times answer: We have […]

Thursday September 29th 2016, Daily News Digest

News Comments

Mail bag, from our community

  • 1) I think far fewer people will read your content if you have to get it from a website rather than reading an email. For example, I read it on the underground when I can’t access the web. Why did you change it?”
  • Lending Times answer: We have not made any changes that we are aware of lately. All the content should be in the email. If people are having issues please let us know and we will tackle it.
  • “2) You say on September 28th that the content on the Zopa securitization is only a “B” as it had been so well covered before. Until today most of the coverage, except the Fitch report, has been uninformed rubbish, such as the Business Insider piece. The really interesting stuff, like the pricing, which is at record low spreads, only came out that day but you didn’t cover it, or at least not that we saw. “
  • Our reader is entirely right and I apologize. Indeed  I had not seen the interesting data our reader is mentioning here. I did search for it and found nothing. Please, when important content comes out do not hesitate to point it out to us. We will make sure to cover it. And in the meantime we are redoubling our efforts to cover Zopa’s securitization data today.

The Rush Summary

United States

United Kingdom

European Union

Canada

Hong Kong

India

News Summary

United States

Goldman Says It Can Beat Fintech Ventures With Online Loan Terms, (Bloomberg), Rated: AAA

Goldman Sachs Group Inc., the Wall Street investment bank pushing into online consumer lending, expects it can make loans on more competitive terms than Silicon Valley upstarts that pioneered and dominate the business.

Using deposits to fund loans — rather than drawing on outside investors — will give the firm more leeway when setting terms and fees, Stephen Scherr, head of the company’s banking operations, told an industry conference in New York on Tuesday.

“We view this as a balance-sheet activity,” he said. “That will avail us of a certain flexibility in the design of the product.”

In April, it completed the purchase of General Electric Co.’s online bank, adding $16 billion of deposits. The securities firm has since started a website where customers can open an account with as little as $1.

Its lending platform plans to make unsecured loans online to consumers with strong credit histories for purposes such as debt consolidation, a person familiar with the matter said last month.

RiverNorth Launches U.S. Pure Play Marketplace Lending Closed-End Interval Fund, (Business Wire), Rated: A

RiverNorth Capital Management, LLC (“RiverNorth”), a boutique investment management firm specializing in opportunistic strategies, today announced the launch of RiverNorth Marketplace Lending Corporation (NASDAQ:RMPLX) (the “Fund”), a registered 1940 Act closed-end interval fund dedicated to the rapidly growing marketplace lending (“online lending”) asset class.

The Fund will invest in a diverse mix of marketplace lending sectors, including unsecured consumer, small business, and specialty finance loan segments. The Fund’s investment objective is to seek a high level of current income.

RiverNorth Capital Management, LLC is an investment management firm founded in 2000. With approximately $3.4 billion in assets under management, RiverNorth specializes in opportunistic investment strategies in niche markets where the potential to exploit inefficiencies is greatest. RiverNorth is the investment manager to multiple registered and private funds.

Pursuant to Rule 23c-3 of the 1940 Act, the Fund must make a quarterly repurchase offer of at least 5% of the Fund’s outstanding shares. The Fund’s Board of Directors will set the actual level of the quarterly repurchase offers. It is possible that a repurchase offer may be oversubscribed, in which case shareholders may only have a portion of their shares repurchased.

IMC’s Berring Prepping New Structured Credit Hedge Fund, (Fin Alternatives), Rated: A

Former IMC Asset Management portfolio manager Simon Berring is launching a new structured credit hedge fund that will focus on securitized consumer and residential credit assets in esoteric, and under-invested segments of the structured credit market.

Berring will look to take advantage of technical weaknesses in credit niches where strong fundamentals and weak prices have created investment opportunities, according to information provided to FINalternatives by a person familiar with the matter. The fund’s opportunity set is further driven by declining participation from major dealers and missteps/retrenchment among several of the larger hedge funds that were focused on less liquid credit markets.

Berring reached an agreement to lift the credit strategy team, IP and track record out of Chicago-based IMC Asset Management earlier this year, the source said.

The new company is currently investing $40 million of initial anchor capital into its strategy, and hopes to raise an additional $100 million for its flagship Ayin Credit Opportunities Fund, the person added.

Ayin plans to launch the new fund in the fourth quarter of this year. While at IMC, Berring’s IMC Credit Fund booked annualized returns of 13% with relatively low volatility of 5% since 2009, and was up 4.4% last year.

Inside Capital One’s new retirement product for SMBs, Spark 401k, (Tradestreaming), Rated: AAA

The company rolled out Spark 401k, the evolved version of its online product for SMBs, ShareBuilder 401k, in August 2016.

“We knew that ShareBuilder 401k was not a website that would be mobile-responsive for some time,” explained Robertson. “We knew we needed to be there.”

Small business owners have some deep-seated fears when it comes to implementing a 401(k) plans for their employees. These preconceptions translate into problematic retirement savings statistics for SMB employees. Only 45 percent of companies with fewer than 100 employees had 401(k)s in March 2016.

What has changed over the past decade, however, is financial technology, and it’s shaking up the slumbering SMB 401(k) industry.

The upcoming DOL fiduciary rule will have a major impact on how companies of all sizes interact with their financial advisors, and companies founded with this ruling in mind could have an edge over more traditional 401(k) providers.

“The good news for SMBs is that [some] fintech players … have been built from the ground up to provide the level of fiduciary coverage that the DOL is mandating,” said David Ramirez, chief information officer at ForUsAll, an online 401(k) platform for SMBs.

Capital One found that no matter how simple or intuitive its technology is, SMB owners still want to speak to a human before they buy.

AltFi Global Summit 2016 – Opening Keynote, (Video), Rated: AAA

 

How Private Bank of Buckhead brings a human face to banking, (Tradestreaming), Rated: A

“We are small enough that we can make decisions customer by customer,” said Charlie Crawford, president and CEO of Private Bankshares, the parent company of the Private Bank of Buckhead. “There is a role in our industry for megabanks and a nice role for banks like ours that can be smaller, nimbler and more customized for the clients.”

“The role of the branch for us is more a place to house our employees and give a launching point to go out and take care of customers in their places of business and homes,” Crawford said.

Relationship banking is usually understood as a marketing tactic meant to increase cross-selling to customers. In the case of the Private Bank of Buckhead, relationships are strategic, rather than tactical.

Community banks have taken a hit in recent years, and consolidation trends continue to increase since the financial crisis. Market share for small banks  fell since 2010. They now hold 22 percent of the commercial and industrial lending market, 8 percent in the individual lending market, and 2 percent in the small business lending market, according to a Council of Economic Advisors paper from last August.

How Consumer Sentiment Has Changed the Dynamic of Financial Disruption, (Crowdvalley), Rated: A

“In the U.S., 33 percent of millennials (ages 15-34) believe that within next five years they will not even need a bank”. – McKinsey & Company. Global Payments 2015: A Healthy Industry Confronts Disruption.

It is difficult to conceive a reality where banks stand redundant and, while the probability of such a happening is highly unlikely, a large number of individuals globally are adopting a new set of expectations for the infrastructure that supports their pecuniary activities on a p2p, p2b level, e-commerce, or for cross border transactions.

In terms of advice from financial services firms, consumers don’t want to talk face to face with an advisor but they want to feel special & have the ability to switch seamlessly between personal and hands-off options.

While the focus seems to be on convenience, professionals in the sector indicate that the fundamental driver in consumer behavior is, in fact, cost.

It is in this quality and security that Matos sees the continuity of the physical bank: “People do recognize, as a setback, the time it takes to go to the branch or to use traditional banking channels, however many of them still think that’s the more secure way to do it.” 

Irfan Khan, CEO of UK based real estate investing portal, Yielders, talks about how it’s no longer about ‘Fin’ but about ‘Fintech’ in addressing how Yielders addresses the demands of clients and partners on providing fast, secure and transparent transacting infrastructure.

Essentially, the traditional banking channels are finding it difficult to keep up with the current pace of disruption.

While banks have always faced attackers, history is a testament to the idea that most startups will never gain solid footing. During the dot.com boom of 1997 to 2000, fewer than 10 of more than 450 payments startups survived, with PayPal being the most notable.

To succeed, financial institutions will need to dramatically increase their customer insights and understanding allowing for a tailored and unique experience for each customer interaction.

Online Lending’s Rapidly Changing Future to be Main Focus at LendIt USA 2017, (Email from Lendit), Rate: A

LendIt USA will be the world’s biggest show in online lending and fintech with more than 5,000 expected attendees and will be held in New York at the Javits Center from March 6 – 7, 2017. The conference will focus on the rapidly changing online lending industry, including the state of the industry to date and factors that will affect the industry going forward.

“Online lending as we know it is going through an evolution, shifting considerably since LendIt USA 2016,”

A featured addition to this year’s conference will be an industry awards event which will celebrate and recognize leading companies, emerging innovators and top executives within alternative lending and fintech. The awards dinner and ceremony, to take place on March 7, will be judged by a distinguished panel of 20 industry experts, representing a diverse cross-section of the industry. Confirmed judges include Don Potts – Senior Vice President at Capital One; Brian Korn – Partner at Manatt; Manish Gupta – Executive Vice President at American Express, Angela Ceresnie – Chief Operating Officer at Climb Credit and George Popescu – Editor-in-Chief of Lending Times.

CMBS Surveillance: Delinquency Report – August, (Morning Star Email), Rated: A

The delinquency rate for CMBS loans remained steady at 2.95%, down 1 basis point from July. While the delinquent unpaid balance declined just $200.6 million, the UPB of outstanding CMBS fell by $3.45 billion.

Liquidations fell to $792.9 million from $1.03 billion in July; however, August’s weighted average loss severity jumped to 51.4% after falling below 30% last month.

By collateral type, weakness has been concentrated in office and retail, both of which continue to underperform with delinquency rates of more than 5% of each property type’s balance.

Open Energy monthly newsletter, focus on the solar energy debt market, (Email), Rated: A

First-Ever SEC Fintech Forum, (JD Supra), Rated: AAA

On the SEC announced it will host a public forum to discuss financial technology (Fintech) innovation in the financial services industry.

The press release notes that the forum is designed to foster greater collaboration and understanding among regulators, entrepreneurs and industry experts into Fintech innovation and evaluate how the current regulatory environment can most effectively address these new technologies.

The panels will discuss issues such as blockchain technology, automated investment advice or robo-advisors, online marketplace lending and crowdfunding, and how they may impact investors. The forum will be on November 14, 2016. See more information here.

Crowdfunding ‘bridges’ the gap between real estate lenders and borrowers, (Tradestreaming), Rated: A

Patch of Land, an LA-based crowdfunding platform, is one of the few [Comment: Lending Times ecosystem database contains about 30 platforms focuses on the same or similar markets, not a few] platforms focused on bridge loans. Founded in 2013, POL has loaned out over $180 million to developers. Real estate crowdfunding platforms are a dime a dozen, but POL has found a twist to differentiate themselves from the rest of the market through their pre-funding process.

“If a loan doesn’t get fully funded, it still remains on the site,” said AdaPia d’Errico, chief marketing officer of Patch of Land. “We’re not like traditional crowdfunders where borrowers need to wait for full funding to get their money.

Choosing to focus on the debt side of investments is also a unique way to approach real estate crowdfunding. Underwriting a bridge loan isn’t as sexy as providing equity to build a project that includes higher upside. But loan terms are easier to understand, something d’Errico feels is important for investors.

Investing in debt may be easier to understand, but it’s still not without its risks.

Another issue is the nature of development. Rehabbing is an art, not a science, and all sorts of issues can slow up projects.

Yield Street crosses $ 9mil in principal and interest payments distributed to investors, (Email), Rated: A

Comment: Yield Street is interesting because they offer some unusual cash flow investments like fleet car leases, pre-settlement litigation portfolios, as well as real-estate.

With this occasion Yield Street quarterly investor updates:  the status of closed offerings will be sent at the end of each quarter.

United Kingdom

MOCA gets away, senior tranche priced 75bps better than SBOLT, (Alt Fi), Rated: AAA

MOCA 2016-1, the inaugural securitisation of Zopa loans, has priced. The pricing makes Fitch’s landmark rating of AA official, while also confirming Moody’s Aa3 rating. The complete breakdown of the pricing is available below.

Funding Circle pulled off the UK’s first securitisation, SBOLT 2016-1, in April of this year. Moody’s again assigned the senior tranche a rating of Aa3, while S&P rated the same tranche BBB.

The disparity in pricing between the UK marketplace lending sector’s debut securitisation and its second (SBOLT and MOCA respectively), notwithstanding the differences in underlying collateral, could suggest that European ABS investors are gradually becoming more comfortable with marketplace loans as an investable asset class.

Simon Champ, CEO of MW Eaglewood Europe, the manager of P2P GI – the original investor in the securitised Zopa loans, also weighed in:“This transaction marks a positive step in enabling us to deliver on our objective to both diversify the sources and reduce the cost of our funding. The funds raised by the issue will now be progressively deployed in line with the investment strategy and our intention remains to steadily increase our leverage ratio to 100%.”

Speaking exclusively to AltFi, Champ added that there was “very strong demand” for the deal, as is reflected in the pricing. “I think this a watershed moment in terms of opening up the asset class to European institutions who don’t necessarily want to buy P2PGI,” said Champ.“Hopefully this will further institutional adoption and lower the cost of leverage.” 

Three firms withdraw from P2P authorisation process, (Bridging and Commercial), Rated: AAA

A freedom of information request submitted by Bridging & Commercial to the FCA has uncovered that no peer-to-peer lenders have had their authorisation applications declined to date.

In March, the industry watchdog reported that eight P2P firms had been fully authorised. The FCA has since confirmed that a further four firms have been authorised, bringing the total to just 12.

Last month, data from the Peer to Peer Finance Association, which represents over 90% of the market, revealed that new P2P lending had taken a hit in Q2, with some lenders blaming it on economic uncertainty and the battle to gain full regulatory authorisation.

Earlier this week, Jonathan Davidson, director of supervision – retail and authorisations at the FCA, stated that it was assessing 85 additional applications, with 39 of those operating under interim permission.

LendingClub Founder Renaud Laplanche featured on stage at TechCrunch Disrupt London, (TechCrunch), Rated: A

In December at our Disrupt London event, Laplanche will make his first public appearance since leaving the company to talk about the past year, and what the future may hold for both him and LendingClub.

European Union

The Rise of the German Fintech Ecosystem, (Crowd Valley), Rated: A

The UK paid for uncertainties of the Referendum vote, which now represents a challenge and an opportunity for the whole European market. We agree with Anna Scally Partner, Head of Technology, Media and Telecommunications, and Fintech Leader, at KPMG in Ireland, when she says that: “Market access and the ability to passport services across the EU are hugely important for fintechs, regardless of their origin or stage of development. Post-Brexit, maintaining a pro-business approach in Europe is critical and these issues will likely feature strongly in discussions between the EU and UK.”

It’s interesting to note that in Germany it’s not just Berlin that does well with technology, Munich plays also an important part, as well as Hamburg, that is where Finanzcheck, one of the fastest growing fintech company in Germany, is located, and Frankfurt, home of the Frankfurter Wertpapierbörse (Frankfurt Stock Exchange), the world’s 10th largest stock exchange by market capitalization, and that is now growing as the country’s fintech hub.

here were no mega rounds of financing in Europe, in both the first and the second quarter, but we have anyway seen some considerable investments, including:

  • $46  million in a Series C round, raised by Finanzcheck, a consumer loans marketplace,
  • $40 million in a Series B round, raised by N26 (previously known as Number26), a mobile online bank,
  • $34.1 million through Private Equity, raised by AEVI, a cashless payments solutions provider.

These were the three biggest rounds of financing in Europe, and all the companies mentioned are based in Germany (see the image below).

Another interesting aspect is the increase of corporate participation in fintech investments. Corporations participated in 28% of the deals conducted, a percentage that’s much higher than the 12% registered in the same period of 2015.

The industry is now growing and evolving, not just in Europe but all over the world. Germany is building up what it seems to be a solid financial technology ecosystem, with the appetite to involve key cities and not just a single location, and it is now well positioned to play a bigger role in the financial technology industry in the future.

Deutsche in deep trouble, but a collapse is not on cards, (The Australian), Rated: A

The good news about the Deutsche Bank crisis is that the world has learnt its lesson from the 2008 collapse of Lehman Brothers, so it won’t allow a disorderly failure of the German banking colossus.

This is a bank tagged by the International Monetary Fund last June as the most significant contributor to global systemic risk, ahead of HSBC and Credit Suisse.

It’s a counterparty to almost every bank of meaningful size, far more so than Lehman, so it simply doesn’t bear thinking that governments and regulators would invite a prolonged nuclear winter by closing the bank’s doors.

While Deutsche has never really recovered from its 2008 losses, the latest round of volatility causing the share price to sink to its lowest level in decades followed news two weeks ago that the US Justice Department wanted $US14 billion ($18bn) to settle allegations of mis-selling of mortgage-backed securities (MBS).

Deutsche has said it has “no intention” of handing over anything like that amount. The penalty almost matches the bank’s $US16bn market capitalisation.

German Chancellor Angela Merkel has ruled out state aid for Deutsche, and Cryan said overnight he hadn’t asked for it.

Canada

Lendified subsidiary Vault Circle receives exempt market dealer license from OSC, (Betakit), Rated: A

Small business loan provider Lendified announced today that its subsidiary Vault Circle has received regulatory approval for marketplace lending from the Ontario Securities Commission (OSC).

“The OSC approval represents a historic leap forward for Canada’s FinTech sector,” said Marcel Schroder, the managing director and chief compliance officer of Vault Circle. “Once launched, our platform will provide accredited investors with access to an exciting alternative investment option not available in Canada today.”

Lendified’s announcement also comes shortly after the OSC’s announcement of a LaunchPad Hub to help FinTech startups navigate the provinces’ regulatory framework. The cooperative approach taken by the OSC might be considered a good signal for fellow Canadian FinTech startup Lending Loop, which voluntarily halted new loan requests on its platform after questions of compliance with the Ontario Securities Act.

While the OSC approval applies to Ontario only, Lendified is planning to expand into other markets in the future. The announcement comes shortly after Lendified announced that it secured $24 million in funding for its online lending activities. The company also recently announced an increase in its lending capacity from $35,000 per loan to a maximum of $150,000 per loan for small business owners.

Hong Kong

Hong Kong Creates a Fintech Sandbox for Banks, (Crowd Valley), Rated: A

The Hong Kong Monetary Authority (HKMA) last week announced the launch of a financial technology sandbox, to allow banks to test new innovative products that do not yet meet compliance standards. The new regime is valid as of September 6.

The announcement comes a few months following similar action by various governments around the world, including the UK, Singapore, Australia and France, but more recently also in other countries in the area, including Malaysia, Thailand and last but not least Japan.

Within the Sandbox, banks can try out their new Fintech products without the need to achieve full compliance with the HKMA’s usual supervisory requirements.

The full speech of Norman Chan is available on the HKMA website

India

P2P firms in talks with NPCI for better integration with UPI, (Livemint), Rated: A

UPI is an interoperable system launched by the Reserve Bank of India (RBI) and NPCI, which will allow peer-to-peer and peer-to-entity payments by unifying the mobile number, Aadhaar number and the bank account number. The threshold of a single UPI transaction, which is currently Rs.1 lakh will also be a limiting factor for the P2P lending space as the loan amounts required are of higher values.

The newly launched Unified Payments Interface (UPI) may not currently be useful for peer-to-peer (P2P) online lending platforms like Peerlend, Faircent and I-lend, but this may soon change.

At present, even if lenders and borrowers transact with each other through UPI , the required information is not disseminated to these third-party platforms.

These companies are in talks with the National Payments Corp. of India (NPCI) so that these platforms can be integrated into the system.

The Need for Facilitating Electronic Payments in the Peer To Peer Lending Sector, (Barandbench), Rated: A

In order to facilitate the use of electronic modes of payment in P2P lending transactions, the following structure may be considered for the purpose of the Regulations to ensure such transactions are not in violation of the Money Lending Acts.

a) The P2P lenders would transfer monies that they intend to loan to borrowers firstly to the P2P Platforms (“Investment Amounts”) as investments into the P2P Platforms (“Investments”), and the Investment Amounts would be utilized by the P2P Platforms to grant loans to borrowers. The amounts received by the P2P Platforms from the borrowers (towards repayment of the loans granted) would be transferred to the lenders as repayment for the Investments. This structure would in effect render the P2P Platforms as ‘lenders’ to the borrowers. The reason we are suggesting this structure is because, if the P2P Platforms are regarded as ‘lenders’ (and since they are to be classified as NBFCs as stated above), then the Money Lending Acts would not be applicable ab initio in respect of the P2P lenders and hence would facilitate the use of electronic modes of payment in the P2P Lending Transactions.

b) Further, to avoid risk of mismanagement/diversion of the amounts payable to/receivable by the lenders and the borrowers as part of the P2P lending transactions (“P2P Amounts”), it can be stipulated that the P2P Amounts would be routed through a specific bank account (“Account”) in the name of the P2P Platforms.

c) Additionally, in this structure, the P2P Platforms’ role is to be limited to aggregating the transactions between lenders and borrowers, conducting KYC checks on the borrowers and the lenders, facilitating the execution of the transaction documents for the P2P lending transactions and transferring the monies received in the Account inter se between the lenders and borrowers.

d) In terms of documentation for this structure, there can be two options that can be considered:

i) the P2P Platforms would execute investment agreements with each of the lenders in terms of which the lenders would make the Investments, and the P2P Platforms would execute loan agreements with each of borrowers in terms of which the P2P Platforms grant loans to the borrowers using the Investment Amounts; OR

ii) the P2P Platforms would execute tripartite agreements with the lenders and the borrowers, in terms of which the lenders would make the Investments and the P2P Platforms would grant loans (using the Investment Amounts) to the borrowers.

Author:

George Popescu

Friday September 8th 2016, Daily News Digest

Friday September 8th 2016, Daily News Digest

News Comments Today is by far the busiest and most interesting day of this past week: News: SoFi expects to make a $80mil profit in 2016, is raising $500mil eyeing entering the EU, and much more info here with numbers and strategy discussion. Klarna launching online lending to thousands of online retailers. Great data on […]

Friday September 8th 2016, Daily News Digest

News Comments

United States

United Kingdom

China

European Union

New Zealand

News Summary

 

United States

Online Retailers Are Proof of Marketplace Lending’s Sustainability, (American Banker), Rated: AAA

Recent news and commentary have been anything but optimistic on the future of marketplace lending. But are the negative projections simply drummed up by traditional banks or is there a real reason to be concerned?

According to Morgan Stanley, global marketplace lending grew at a compounded annual growth rate of 123% from 2010 to 2014 and is expected to grow at a CAGR of 51% from 2014 to 2020. Given that real global economic growth is closer to 3%, what explains marketplace lending’s more pronounced growth?

When pondering this subject, I find it interesting to see how other industries have fared as technology and investment have brought the end user greater value and transparency. The sector of the economy which has seen the most visible change has been that of retail where the consumer is shopping less at stores and malls while spending more online.

The trend is rapidly affecting many of the largest retail chains and malls around the country. The change in consumer behavior is all too clear to retailers like Macy’s, which recently announced the closure of 15% (100 of 668) of its stores. The bottom line is that technology combined with forward-thinking investment by some of the larger online sellers has significantly changed consumer behavior.

According to a Gallup poll last year, customers using bank branches dropped by 50% between 2011 and 2014. One function that kept many customers going into bank branches was to deposit checks. Since 2014, many banks have rolled out mobile deposit apps, further accentuating the fall in foot traffic to branches. And how does this impact lending? Traditionally, lending was one of the banking roles always done in person, whether it was a personal line of credit or a mortgage.

There are reasons for marketplace lending investors to still be encouraged. Investor returns on the main platforms have been strong, with historical yields between 5.20% and 8.37%, depending on the grade of the loan. With U.S. interest rates at or close to zero, we have seen investors searching for alternatives to equities that offer both yield and diversification and for many, they are finding this in marketplace loans.

Additionally, assuming that online lenders stay clear of overly leveraged securitization, which we saw accentuate the financial crisis, marketplace lending has the potential to reduce systemic risk by spreading exposure across many investors rather than having it sit with a small number of big banks.

What’s Next if Payday Loans Go Away?, (Morning consult), Rated: AAA

Stronger regulation of payday lending could increase the use of financial technology such as online marketplace lending, said William Michael Cunningham, founder of Creative Investment Research, which studies trends in banking in black communities.

As the Consumer Financial Protection Bureau prepares to finalize proposed rules cracking down on payday lenders, critics and proponents alike are speculating on what would fill the need for short-term, small-dollar loans.

Payday lending has garnered criticism from progressive Democrats, such as Sens. Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio, who argue that the practice preys on the poor, trapping low-income borrowers in a cycle of deepening debt.

If payday lending were to become less profitable because of the rules, it could result in increased use of installment loans, advocates say.

The proposed CFPB regulation — with a comment period ending in October — would require lenders to confirm that borrowers are able to repay a loan, aiming to prevent borrowers from being stifled by high-interest rates and monthly payments.

Payday loans have become a major source of credit in low-income African-American communities as black-owned banks and other, more highly regulated depository institutions, have slumped, Cunningham said in an interview.

“For a lot of black people in a lot of communities, they don’t have a good alternative to the high-cost payday lending,” he said.

“A lot of free-market guys say, ‘This is just a legal product, and if people want to use it, then they should be able to use it,’,” Cunningham said. “To me, that’s crazy talk.”

“One could make the case that CFPB should take some of that fine money that they’re getting from these financial institutions and create a fund to create responsible depository institutions serving some of these communities,” he said.

“I think it’s the question of whether they’re regulating the product or intending to eliminate the product,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, a trade group for short-term lenders.

A Pew Charitable Trusts report in August said that installment lending can still be harmful.

Shaul’s group took aim Tuesday at the CFPB, saying it “buried and ignored” a slate of positive testimonials about payday loans. CFPB did not provide a comment on the allegations. The portion of borrowers overwhelmed by payday loans — who have borrowed for an excessively long period and are mired in a cycle of renewing them — is arguably small, at 15 percent to 20 percent, Shaul said.

Klarna launches its first credit product with new U.S. partnerships,(TechCrunch), Rated: AAA

Now Bigcommerce, Shopify, Magento, Demandware, OpenCart, and Cybersource (that together account for over thousands of online merchants) will be offering credit lines through Klarna. For the European fintech unicorn (currently valued at $2.25 billion and already profitable), it’s a big deal.

Klarna already provides “try before you buy” services that allow shoppers to pay after delivery (rather than paying upfront with a card or bank account), but this is actually the first time that the company can extend a line of credit online.

The company already has a banking license in Europe and is currently working with WebBankon lending in the U.S., however, it’s also considering making a bigger splash in the States by buying its own bank.

SoFi Looks to Raise $ 500 Million in Latest Test for Fintech, (Wall Street Journal), Rated: AAA

Privately held SoFi hopes to raise about $500 million in equity to fund new growth initiatives among mass-market borrowers and international markets, according to the people and a presentation reviewed by The Wall Street Journal.

To manage through the tougher environment, online lenders including LendingClub, Prosper Marketplace Inc., and Avant Inc. eliminated hundreds of jobs, started charging their customers more to borrow and mothballed projects to expand into new products or countries.

Now, SoFi is looking to branch out from its main student-lending business into the territory from which many of those lenders are backtracking. While it has historically focused on borrowers with pristine credit histories—the company refers to them as Henrys, or “high earners not rich yet”—SoFi is considering lending to prime borrowers with slightly lower but still good credit scores.

“Between Brexit impacting U.K. student loans to the insatiable demand for [euro]-denominated assets, the macro tailwinds support European expansion,” according to the presentation, referring to Britain’s vote in June to leave the European Union.

Unlike many fintech startups, SoFi expects to be profitable this year. Adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, are expected to be $81.3 million in 2016 and $262.5 million in 2017, compared with a loss of $2.8 million in 2015, according to the presentation.

The company expects to take in $357.4 million in revenue in 2016 and $638.1 million in 2017, up from $114.7 million in 2015, according to the presentation. SoFi soon could pass LendingClub in revenue if current projections hold. LendingClub’s revenue is expected to be $469.7 million in 2016 and $569 million in 2017, according to consensus estimates of analysts polled by Thomson Reuters.

Longer term, SoFi has said it wants to compete against the largest financial players by expanding into credit cards, deposit accounts, insurance, and wealth management. SoFi projects that it will extend about $10.5 billion in student, mortgage, and personal loans this year and about $17.5 billion next year, up from $5.2 billion last year. LendingClub’s 2015 loan volume was $8.4 billion.

A fundraising of a half-billion dollars wouldn’t be SoFi’s largest. Last year, SoFi raised more than $1.2 billion in new equity from investors, including Japanese internet giant SoftBank Group Corp. and hedge fund Third Point LLC. The SoftBank investment valued the company at around $4 billion, The Wall Street Journal previously reported.

RiverNorth Gets Approval From SEC for Marketplace Lending 40-Act Fund, (Lend Academy), Rated: AAA

Comment: we covered the launching of RiverNorth. What we missed was that it was a public fund, aka a 40-act fund.

The fund will be listed under the ticker RMPLX and will be available through several major fund platforms over the next few months. They can raise up to a billion dollars with the new fund although the initial investment will be lower with new investors coming in over time.

The fund structure is setup as an interval fund and there will be a NAV that is priced each day. Investing is similar to that of an open-ended fund as investors can purchase at the NAV price on any day, but the liquidity is similar to that of a private fund. Liquidity is offered quarterly and the total redemption amount will vary from 5% – 25% of the fund as determined by the board of directors based on market conditions, liquidity of the fund’s assets and shareholder servicing considerations

The fund also intends to use leverage.

From the filing:

The Fund currently intends to use leverage for investment and other purposes, such as for satisfying repurchase requests or to otherwise provide the Fund with liquidity.  Under the 1940 Act, the Fund may utilize leverage through the issuance of preferred stock in an amount up to 50% of its total assets and/or through borrowings and/or the issuance of notes or debt securities (collectively, “Borrowings”) in an aggregate amount of up to 33-1/3% of its total assets.

The other two important factors for investors are eligibility and expenses. There is a $1 million minimum investment which will apply at the individual investor level if the investor does not have an existing relationship with a RIA. If the investor does have a relationship with an advisor, the minimum would apply to the advisor which could lower the minimum investment per individual. As is noted in the prospectus:

 The Fund expects that the Shares will be initially offered primarily to clients of registered investment advisers and other institutional investors.

Fees for management expenses are 125 bps, although it is waived to 95 bps for the first two years of the fund.

It’s great to finally see the 40-Act funds get off the ground and open up investing in marketplace lending to more investors here in the US. It will be interesting to see how well the RiverNorth fund is received

 

Orchard Platform Is Disrupting Financial Services From The Inside Out, (Forbes), Rated: A

Since its appearance on Forbes’ first annual Next Billion Dollar Startups list last year, the New York-based Orchard Platform has grown its team by at least 200%, partnered with over 20 new loan originators, and continued expanding internationally. But beyond that, Orchard has been working to develop exactly what marketplace lending needs to transition from this year’s growing pains into adulthood: a secondary market.

Orchard’s general mission is simple—become a turn-key solution to both sides of the marketplace lending table. But to fully accomplish that is a much more difficult task involving close collaboration with the same entities that are anathema to many startups: regulatory bodies and financial institutions.

For the past two years, Burton and Orchard have worked closely with the SEC to clarify regulations surrounding marketplace lending and launch what would become the first-ever secondary market in the space. Burton and his team applied for Orchard’s broker-dealer registration, clearly articulated their objectives, and have since moved in lock-step with FINRA to educate them on the industry, all while building out their relationships with policy leaders in D.C.

In a whitepaper on marketplace lending published this past spring, the U.S. Treasury Department made clear that there is a need for a secondary market.

While Burton argues that the LendingClub faulty loans were an isolated incident, and investors have continued to show confidence in its products, the incident exposed the danger of allowing the hype of a still-growing asset class to get ahead of its reality.

September 12, 2016.

This transaction represents SoFi Lending Corp’s. (“SoFi” or the “Company”) third rated securitization collateralized by a portfolio of unsecured consumer loans. SoFi currently originates personal loans through its state licenses or complies with certain requirements where a state lending license is not required. There was one prior unrated securitization, in which SoFi or SoFi’s institutional investors were the sponsors and the collateral was unsecured consumer loans.

The Golden Ratio of P2P, (NSR Invest Email), Rated: B

P2p is a non-volatile, uncorrelated asset with one main risk: the risk that unemployment goes up.

In finance, we call this a “sensitivity.” The good news, my friends, is that a p2p portfolio’s sensitivity to unemployment is a manageable risk. But how? By keeping the default rate in your portfolio as low as possible, of course!

Comment: An article that started well but was very disappointing afterward.  I think that by saying  ” by keeping the defaults” low is like saying “by waving a magic wand”. What you probably want to talk about is how default to unemployment correlation curves vary by loan grade. So you need to take into account that curve to predict default in rising unemployment markets and buy today consequently. 

Promise Financial Launches Digital Cosigner Loans, (PR Newswire), Rated: AAA

Promise Financial, the marketplace lending platform focused on life event financing, announced today that it has launched a digital cosigner loan product. In addition to the company’s individual loans, which primarily serve prime-credit consumers, cosigner loans allow Promise Financial to serve a wide range of non-prime consumers.

“Cosigner loans are a terrific option for consumers who have limited credit experience or have had credit difficulties in the past, but need and deserve access to borrower-friendly financing.”

FutureVault Launches the Most Sophisticated Digital Filing Cabinet and Safety Deposit Box Ever Built at Finovate in New York City, (Email), Rated: B

Comment: The most outrageous title and claim for the week, maybe even for the month. Perhaps a little bit of modesty would help. I would recommend avoiding phrases like “ever built” unless you can clearly prove it is the case. It is difficult to prove that nobody else has ever built this product in-house or commercialized it, ever.

 United Kingdom

FCA circles on P2P platforms with September ‘business model’ inspections, (Alt Fi Credit), Rated: AAA

The Financial Conduct Authority (FCA) will spend the next month in site visits to the larger p2p and crowdfunding platforms with the goal of better understanding their business models , according to two people familiar with the matter.

“The authorisation department has asked us lots of questions like ‘do you have disaster recovery’…and on the other hand they are coming and asking ‘how does your business work’,” said another top industry figure also requesting anonymity.

It is broadly accepted that the FCA is more skeptical of the nascent industry than the UK Treasury which is seen as being very enthusiastic for P2P and fintech as a whole, particularly during the past six years under George Osborne’s former chancellorship.

The FCA has also said that it might take steps to mandate the disclosure of performance data: “Based on the outcome of the review, to help potential investors better understand the risks, we could consider whether to mandate additional disclosures, for example setting out how many businesses that raised funds have since failed and how many have had successful pay-outs,” it said in the review.

China

Tse and Meller — Chinese companies lead the way in fintech innovation, (Nikkei), Rated: A

Financial technologies companies backed by Chinese venture capital raised $2.4 billion in the first quarter of 2016, according to accounting firm KPMG. This represented a 49% share of global fintech investment in the period, bigger than that of North America and Europe combined.

Ant Financial Services Group, Alibaba Group Holding‘s fintech affiliate, itself raised $4.5 billion in April, making it the largest round of funding for a fintech company in the world.

Four out of the five largest fintech companies in the world by valuation are now in China, according to Jason Jones, chief executive of lending industry events group LendIt: Ant Financial; Shanghai Lujiazui International Financial Asset Exchange, or Lufax, which operates as Lu.com; Zhong An Online Property and Casualty Insurance and JD.com‘s JD Finance.

According to the Mintai Institute of Finance, nearly 80% of small- and medium-sized enterprises in China are not adequately served by banks.

Ant Financial developed Sesame Rating, China’s first credit scoring system.

Chinese entrepreneurs’ willingness to experiment means products and services hit the market quickly and evolve quickly. Initially, AliPay, Ant Financial’s payment service, was used only as a payment method for Alibaba’s e-commerce platform. Now, AliPay can be used at brick-and-mortar stores, for utility bills and even for overseas shopping.

China has become fertile ground for fintech solutions. Online wealth management has gained traction among young middle-class consumers. As more risk-tolerant investors, they tend to favor equities and mutual funds over traditional savings accounts. At $66.9 billion in 2015, China’s peer-to-peer lending market is now the world’s largest and more than four times the size of its U.S. counterpart.

China’s internet giants have some of the most sophisticated fintech ecosystems.

Tencent founded WeBank, China’s first online-only bank, in 2014. WeBank offers the consumer, corporate and international banking services. By May 2015, it had launched a personal credit line service to select users without guarantee or collateral through Tencent’s QQ and WeChat messaging platforms. Unlike Ant Financial, WeBank acts as a platform connecting borrowers and lenders directly rather than from its own balance sheet, allowing it to avoid credit risk.

Chinese fintech companies are now starting to expand overseas. In September 2015, Ant Financial acquired a majority stake in Paytm, India’s biggest online payment company, to gain access to a massive population just beginning to embrace mobile payments.

Most Online Lending Platforms Do Business Without License, (Caixin Online), Rated: A

There were 2,235 peer-to-peer (P2P) financing sites in China by the end of August, but only 242 of them had obtained an Internet Content Provider (ICP) license from local telecom regulators, according to data compiled by Yingcan Zixun, which tracks the industry.

Draft rules by China’s banking regulators in August said online lenders should get an ICP license from their local telecom regulatory authority after registering with the government finance office. It’s a requirement that reinforces an internet regulation issued in 2000 that demands a license for all for-profit Internet information service providers.

ut, in practice, few online financing platforms follow the rules.

European Union

The European alternative finance industry is lagging far behind the US and the UK, (Business Insider), Rated: A

Comment: we saw the Cambridge report for Alternative Finance report yesterday. This is just a reminder for our readers with a pop title from Business Insider.

The European alt finance industry’s market volume was €1 billion ($1.1 billion) in 2015, up 72% from €594 million ($668 million) the year before. In comparison, the UK industry’s market volume was €4 billion ($4.5 billion) in 2015, up 84% YoY, while the market volume in the US was €34 billion ($38 billion), up 213% from 2014.

New Zealand

Xero teams up to get into finance game, (Stuff), Rated: AAA

Wellington startup Fuelled has teamed up with accounting software provider Xero to launch a new lending service.

Fuelled will advance Xero customers up to 90 per cent of the money they are owed on invoices, for up to 90 days, at annual interest rates of between 9 and 15 per cent.

Fulcher said the partnership with Xero was important because it enabled Fuelled – with borrowers’ permission – to look at customers’ accounts and see their financial position, including their bank statements.

Xero rival MYOB has also moved into the financing industry, which MYOB chief executive Tim Reed said was a natural extension for its business. Earlier this year it took a minority stake in the Australian arm of United States small business financier OnDeck, which has lent US$5 billion to businesses in North America and Australia since it was founded in 2007.

MYOB customers that applied for loans through OnDeck had to provide much less information than they would when applying for a bank loan, because of the information MYOB already had on their businesses, he said.

New Zealand Online Lender Harmoney Tops 0 Million in Less than 2 Years, (Crowdfund Insider), Rated: A

Harmoney, a New Zealand based peer to peer lending platform, has surpassed $300 million in lending just shy of their 2 year anniversary of consumer lending.

Interest rates start at 9.99% today. Lenders have averaged a realized return of  approximately 13% (net of fees and losses) since platform launch. Harmoney is the largest “Australasian” peer to peer lending marketplace providing loans from $1,000 and $35,000. The company is gearing up for growth in Australia.  Harmoney was launched with NZ $100 million of lending capital from institutions including Blue Elephant Capital Management & Heartland Bank. Heartland Bank is a shareholder in Harmoney.

As of March 2016, Harmoney reported a loss of $14.2 million before tax on revenues of $8.6 million.

Author:

George Popescu

Monday September 5th 2016, Daily News Digest

Monday September 5th 2016, Daily News Digest

News Comments Dear readers, I am in Shenzhen and Tokyo this week. Due to the time difference, we will likely send Lending Times around 9am , Chinese time. We will revert to the normal 1pm New York time next week. Today’s news in focus : summary judgment on CFPB vs Cash Call and its consequences; […]

Monday September 5th 2016, Daily News Digest

News Comments

United States

United Kingdom

Australia

India

 

United States

CFPB Scores Big Win in CashCall Lawsuit That Turns on “True Lender” Analysis, (Lexology), Rated: AAA

The court first ruled that CashCall was the true lender on the loans that were issued by Western Sky Financial because “the entire monetary burden and risk of the loan program was placed on CashCall, such that CashCall, and not Western Sky, had the predominant economic interest.”

Having reached this conclusion, the court then determined that because CashCall was the “true lender,” the choice of law provision in the loan agreements at issue—which provided that the laws of the Cheyenne River Sioux Tribe (CRST) would apply—should be disregarded in favor of the laws of the borrowers’ home states.

Finally, the court held that CashCall’s founder, sole owner, and president was also liable for CashCall’s corporate violations because he participated in and had the authority to control the conduct at issue, and because he knew of or was recklessly indifferent to the misrepresentations.

A federal district court in California handed the Consumer Financial Protection Bureau (CFPB) a big win on Wednesday, August 31, 2016, granting the agency summary judgment on liability in its lawsuit against CashCall, Inc., its affiliated entities, and its owner.

In a 16-page decision and order, the US District Court for the Central District of California ruled that CashCall engaged in deceptive practices by servicing and collecting on loans in certain states where the interest rate on the loans exceeded the state usury limit and/or where CashCall was not a licensed lender.

The decision represents an additional judicial touchpoint on the important question of who is a “true lender” in a transaction and validates, at least for now, the CFPB’s theory that collecting on loans that state law renders void and/or uncollectable constitutes a violation of federal law.

The court’s decision is important both to CFPB enforcement efforts and to the validity of bank partner programs. The CFPB has at least one other pending lawsuit in which it has asserted a similar theory of liability that collecting on loans rendered void by state law constitutes unfair, deceptive and abusive conduct (UDAAP). Moreover, the CFPB may be emboldened by this decision to identify additional ways to “federalize” state law violations under its expansive UDAAP authority.

With respect to the “true lender” question, the decision is inconsistent with standards adopted by other courts. Some courts have determined the “true lender” based solely on the creditor named in the loan agreement. Other courts have determined the true lender through a narrow evaluation of facts regarding which party engages in the three non-ministerial acts that banking regulators have identified: (i) the determination to extend credit; (ii) the extension of credit itself; and (iii) the disbursement of funds resulting from the extension of credit.

Online Lenders Face Higher Litigation Risk After U.S. Court Ruling, (Nasdaq), Rated: AAA

Former CFPB lawyers said the CashCall decision is more likely to spur further CFPB actions against tribal lenders that use such exemptions to make loans online that don’t mesh with certain state laws. The agency has been careful not to take a public stance seen as too aggressive with marketplace lenders as it is a fairly new industry and regulators are wary of killing innovation through new rules.

The agency has been careful not to take a public stance seen as too aggressive with marketplace lenders as it is a fairly new industry and regulators are wary of killing innovation through new rules.

“I don’t think this means the CFPB will target marketplace lenders,” said James Kim, a former senior enforcement attorney at the CFPB who is now at Ballard Spahr LLP. “Having said that, it’s still dangerous for marketplace lending because state authorities and plaintiffs’ lawyers will use this case against them.”

RiverNorth Marketplace Lending Fund Nears Launch, (Crowdfund Insider), Rated: AAA

Chicago-based RiverNorth Marketplace Lending Corporation is poised to launch a fund that will be investing in marketplace lending assets under the 40s Act as a non-listed closed end fund. A substantial portion of the fund is expected to be investing in whole loans. The filing indicates that a substantial portion of the marketplace loans will originate on LendingClub and Prosper – at least initially.

The investment objective of the fund is to seek a high level of current income with at least 80% of its managed assets being in marketplace lending investments.  The new investment vehicle expects to invest up to $1 billion in loans from these online lenders. The minimum initial investment in shares will be $1,000,000, with a minimum subsequent investment of $5,000.  The fund will use leverage to help boost returns and overall leverage is predicted to be approximately 10% of the fund’s net assets at launch. RiverNorth will extend quarterly repurchase offers from 5% to 25%.

You can read the entire filing here.

How does Moody’s respond to questions about whether online lending is a bubble?, (Alt Fi), Rated: AAA

Moody’s published a report on the potential benefits and pitfalls of partnerships between banks and marketplace lenders on Wednesday. The report states that customer acquisition costs amount to around 25 per cent of revenues for some platforms, but that bank partnerships can lower these costs by “rebalancing the channel mix”.

Of course, the elephant in the room is the fact that some banks are now beginning to build their own indigenous funding solutions. The Moody’s report makes mention of Wells Fargo’s FastFlexFM.

Moody’s Jim Ahern regularly reminds inquisitors that the estimated size of the collective pool of marketplace loans in the US is a mere $70-80bn. A drop in the ocean when compared to the scale of the subprime mortgage bubble.

The benefits of securitisation in fintech include lowering funding costs and channeling finance through to the real economy.

Ahern also stressed that securitisation brings an extra layer of scrutiny to bear upon marketplace loan portfolios. Whenever Moody’s rates a bond, the underlying loans are subjected to a rigorous third party analysis.

Bank collaboration with P2P platforms rising, (Euromoney), Rated: AAA

SMEs will often try banks first to get better rates, which can be around 4%. This is in comparison with interest rates at Funding Circle, which typically start from 6%, and increase depending on the assessment of the individual customer.

One bank that has already taken the move is Santander. It has been working with Funding Circle for two years. The bank’s focus is on providing better-quality customer service by referring customers to the platform if the bank itself cannot provide financing. Following its success, Funding Circle signed a similar agreement with RBS at the beginning of the year.

In the US, Lending Club already has agreements with Union Bank and Alliance Partners, which manages the BancAlliance consortium of small local banks.

Santander does not take any fees from the borrowing clients it refers, but not all banks will operate in this way.  Misys’ Jollant says this potential to take a cut will make collaboration even more appealing, adding: “The bank is earning through two points – taking an origination fee that can be around 3% to 6% and a second 1% fee for payments processing and servicing the account. There is certainly money to be made through P2P for the banks.”

Banks will no doubt be delighted if they can make this money while dumping the actual credit risk on investors coming through the P2P platforms, so avoiding capital charges.

The next stage might be the potential opening up of a mandatory referral process. The UK government has assessed the possibility of SMEs being referred on to alternative lenders if their banks are unable to provide funds. These borrowers’ information will be passed on to a referral pool at the British Business Bank, which P2P platforms can access.

United Kingdom

Adviser shuns P2P to back sector’s selling platforms, (FT Adviser), Rated: A

Philip Milton, of Devon-based Philip J Milton & Co, said he invested up to £1m from one of his company’s strategies into P2P Global, buying when the shares were worth £10.30 and selling when they were worth £11.93.

He has since been facing questions from his clients about whether they should put their money into a P2P platform.

P2P giant Zopa to cut rates, (FT Adviser), Rated: A

Comments: We covered these news for our readers on Friday. We found some additional important info to share regarding these news.

In a blog posted on the company’s website, it said all of its lender rates will decrease by 0.2 per cent from the 8 September.

Andrew Lawson, chief product officer at Zopa, said headline rates from other loan providers have fallen between 0.1 and 0.3 per cent since the interest rate cut.

He also pointed out that banks have already reduced their rates dramatically, in many cases by more than 0.25 per cent.

“This lack of competitiveness for investors from the banks has led to a surge in new lenders at Zopa, meaning slower lending speeds and queues of, on average, 10 days for our Classic account.

“The reality is no bank, deposit-taker or lender, is completely disconnected from the bank rate.

Australia

Innovation and fintech are the focus of ASIC’s Corporate Plan, (Finder), Rated: A

The Australian Securities and Investments Commission’s (ASIC) new corporate plan renews its focus on fintech by outlining how it will mitigate the risks of digital disruption. The plan comes after ASIC’s budget was extended by $127.2 million in April.

The plan identified five key challenges to ASIC’s long-term vision, two of which related to fintech, as well as the key risks it will focus on in 2016-17 – 2018/19.

  • Following in the same line as its guidance for marketplace lending, ASIC plans to progress FSI initiative on non-cash payments as well as working with the Treasury on the ePayments code.
India

Why online lending should not be regulated,(DailyO), Rated: A

Comment: a strange article which at 1st recommends no regulation and then points out a reasonable regulation. I believe the title should be instead: ” A proposal on how online lending should be regulated”. It is Lending Times’ view that anytime somebody touches somebody else’s money the temptation is too big and regulation is required. 

In markets in early stages of their development, regulation is a burden for both the emerging sector and the regulator alike.

Whether the lending marketplace system in India would want to emulate the Chinese diffusion model or carve out its own unique model of growth and viability is anyone’s guess. But regulation will play a big part on how this pans out in India.

Markets, if left alone, are self-correcting in nature.

As P2P does not carry liabilities on its books and no conventional balance sheet risks as such (P2P platforms source their income predominantly from arrangement fees from both sides), these platforms, asset-light in essence, become “non-banking, non-financial companies”. Therefore,

1. The proper regulatory authority for “non-banking, non-financial companies’ is the ministry of corporate affairs. However, these companies should register with the Reserve Bank of India (RBI) so that at any point the central bank can track the growth of this sector and make mid-course corrections for systemic risks.

2. Whilst they register with the relevant regulator, they must remain a self-regulating mechanism, which is a self-regulating organization (SRO), as in microfinance and pre-paid wallet sectors. This mechanism supports and supplements regulatory bodies and reduces their burden of supervision.

3. Business rules should be not attempted to be granularly defined or cast in stone in early stages.

Here are a few ways in which to go about it:

a) Among proposed guidelines, P2P lenders are required to put investors’ money in nodal/escrow accounts in banks. Under such an arrangement, banks would have to disclose an array of data including the platform’s number of borrowers and lenders and its volume of bad loans. These can be done equally by an SRO and backstopped by credit rating agencies.

b) Subsequently, the SRO from day one (working closely with the relevant regulating body, and across) can also work out detailed guidelines on various industry safeguards like leverage, interest rate caps, lending/borrowing caps, borrowing processes, KYC, underwriting norms and soft and hard credit check.

c) Since the tech platform has no financial liabilities, exposures or provisioning requirements (it just connects lenders with borrowers), the equity of Rs 2 crore is high. Most companies are happily capitalized at tens of lakhs (pre-funding) with modest debt:equity ratio. Therefore, a proportional capital base dependent on the size of the portfolio may be better.

Author:

George Popescu