Friday March 31 2017, Daily News Digest

Kabbage On Deck

News Comments Today’s main news: BlackRock bets on robots to improve stock picking. Orca launches beta platform to stream P2P market investment. Quint raises 10M GBP for recapitalization. Monzo raises 2.5M GBP via Crowdcube. RegTech Association launches in Australia. Lending fraud trial begins in China. Yirendai announces intent on performance bond agreement with PICC P&C. Today’s main analysis: The strategic case […]

Kabbage On Deck

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United States

United Kingdom

European Union

Australia

China

Asia

News Summary

United States

BlackRock Bets on Robots to Improve Its Stock Picking (WSJ), Rated: AAA

BlackRock Inc. BLK +0.96% has started a shake-up of its stock picking business, relying more on robots rather than humans to make decisions on what to buy and sell.

Seven stock portfolio managers are among several dozen employees who are expected to leave the firm as part of the revamp, a person familiar with the matter said.

The changes are the most significant attempt yet to rejuvenate a unit that has long lagged behind rivals in performance. Clients have pulled money from the actively managed stock business in three of the past four years even as BlackRock’s total assets climbed to a record $5.1 trillion. BlackRock had $275.1 billion in active stock assets under management at the end of December, down from $317.3 billion three years earlier.

The Strategic Case For a Kabbage/On Deck Deal (Market Intelligence), Rated: AAA

On Deck Capital Inc. is unlikely to be tempted by a takeout offer from privately held competitor Kabbage, but a combination of the two digital lenders could make strategic sense.

A combination of these two companies would create the largest digital lender focused on small and medium enterprises in the U.S., with an estimated combined 2016 loan origination amount of $3.82 billion.

While a few years ago this would have seemed like an odd pairing, recent changes to On Deck’s business model have moved it closer to Kabbage. On Deck itself has had a tough time as a publicly traded company, with shares falling about 80% since its IPO. The company has struggled to rework its business strategy and create a clear path for profitability, despite growing annual originations from an estimated $15.9 million in 2008 to $2.40 billion in 2016.

By leveraging their existing technology to develop white-label solutions for banks, both companies have found a new source of higher-margin revenue. A combination of what are arguably the most advanced underwriting systems in the SME lending space would only accelerate licensing deals, which could eventually become a significant portion of revenue.

Appeals Court May Tackle `True Lender’ Debate Affecting Fintechs, Online Lenders (Bloomberg BNA), Rated: AAA

A federal appeals court may offer guidance on “true lender” analysis and how it affects bank partnerships with marketplace lenders and fintech companies ( Cons. Fin. Protection Bureau v. CashCall Inc. , 9th Cir., 17-cv-80006, petition for interlocutory appeal 1/13/17 ).

At issue is a petition by CashCall Inc., an online lender based in Orange, Calif., that’s now before the U.S. Court of Appeals for the Ninth Circuit. CashCall wants the Ninth Circuit to hear a mid-case appeal from an August ruling in a deceptive practices case that said it was the “true lender” in an arrangement with Western Sky Financial, a self-described tribal loan company.

In general, “true lender” analysis scrutinizes relationships between banks and nonbanks to discern which party actually makes the loan to a consumer.

PeerStreet Integrates with Wealthfront via Quovo to Provide Improved Access and Transparency (Yahoo! Finance), Rated: A

PeerStreet, an award-winning platform for investing in real estate backed loans, has announced an integration with Wealthfront, the most trusted automated investment service among young people with nearly $6 billion assets under management. This integration was made possible by the rollout of Wealthfront’s new financial planning experience, Path, which allows Wealthfront clients to receive financial advice and planning for all of their accounts.

As customers’ financial lives become increasingly complex, having all investments across platforms in one place provides consumers with more comprehensive information. PeerStreet users have sought out integrations with platforms like Wealthfront. Both PeerStreet and Wealthfront were able to quickly respond to their clients’ needs using Quovo, the industry leader in financial account connectivity. Using its account aggregation engine, customers investing on both platforms can view their PeerStreet positions within the context of their greater Wealthfront investment portfolio.

How crowdfunding is democratizing real estate investing (Marketplace.org), Rated: A

Rodrigo Niño is founder and CEO of a platform called Prodigy Network, which uses crowdfunding to build commercial real estate, like the tallest skyscraper in his home country of Colombia. Marketplace’s Molly Wood talked with Niño about crowdfunding.

Niño: I have to say that it is different because you would argue that traditional equity funding is easier because you deal only with one institution that gives you a check for the total equity that you require for a building, and you don’t need to deal with thousands of investors like we do. On the other hand, the top-down approach was one of the bigger issues in the crisis of 2007. We learned that the model of giving your money to experts that would know better didn’t work. So we like to believe that we act as curators of that collective wisdom of the crowd, and that they need to understand what they do.

Niño: I think that the model will spread and because this industry was ripe for disruption. You know, I think that the commercial real estate industry in the United States is even larger than the stock market. And now, thanks to technology and the JOBS Act, I believe that the public has access to incredible assets because it’s very understandable and very predictable. If you think about it, people cheat and lie and bricks don’t. So, that was exclusive to a select few, and now it is available to everybody.

This Real Estate Startup Is Exploiting Zillow And Airbnb’s Blind Spot (Forbes), Rated: A

Airbnb currently lists over 2.3 million homes, averaging more than 500,000 nightly stays across 65,000 cities. In 2016, the home-sharing giant snatched headlines after raising over $555 million from Google Capital and Technology Crossover Ventures, in pursuit of a reported $850 million round, raising the company’s valuation to $30 billion. This valuation positioned Airbnb as the second most profitable tech startup after Uber.

Founded in 2011 by Bill Lyons, Revestor is a digital real estate search engine that uses proprietary data and live listings to help sync realtors and potential investors with desired residential properties. While other services allow users to search real estate based on specific property details, Revestor lets users search based on investment criteria. This approach works to ensure the most profitable use of available funds, helping homebuyers track the projected resale value of their property over time. Thus, real estate investors can use various tools to determine whether a property matches their firm investing goals.

Bill Lyons: Per a 2016 National Association of Realtor’s study, 51% of home buyers found their home without using an agent. Additionally, over 90% used the internet to research the home they were buying.

Bill Lyons: The riches are in the niches. Everyone has their niche, and Revestor’s niche is that 25% of the business is investors.

Bill Lyons: Crowd funding for real estate is on the rise with companies like Patch of Land and RealtyMogul. I can see Revestor playing a key role in analyzing investments for private groups of individuals.

Investors Want Financial Advice From Both Robots and Humans, Says Accenture (Fortune), Rated: A

But a new study by consulting firm Accenture finds that clients across all ages and economic brackets want robots and humans together, not one instead of the other.

The findings follow news on Tuesday that BlackRock (BHK, +0.08%), the world’s biggest money manager, was laying off some portfolio managers in favor of spending more on data-mining techniques that could improve investment performance.

However, the market is changing so rapidly that study respondents said online tools they considered to be “bells and whistles two years ago” are now expected, Thompson said.

Robos Advisors Face Potential Collapse, Says FinTech CEO (FA Mag), Rated: A

John Ndege, founder and CEO of Pocket Risk, is predicting a collapse in the world of robo-advisors.

On Tuesday, Ndege announced a complete re-launch of his software, Pocket Risk 2, a digital risk tolerance questionnaire that attempts to holistically measure an individual’s risk tolerance and capacity.

Rather than an engine of efficiency, Ndege presents Pocket Risk as a tool to make financial advice more effective. According to Ndege, trust and awareness are the largest barriers between the advice industry and new client acquisition, not technology. Thus, advisors would be better served focusing on delivering financial plans rather than building the next great client portal or onboarding application.

Garnet Capital Advisors Announces $ 100 Million Consumer Loan Sale (Newswire), Rated: A

Garnet Capital Advisors, LLC is announcing the launch of a sale of $100 million of consumer loans on behalf of the National Credit Union Administration (NCUA).

Clarity Trends Report Presents the Evolution of the Subprime Market (Clarity Services), Rated: B

Clarity Services, the subprime industry’s largest credit reporting agency, today announced the release of its 2017 Subprime Lending Trends report. More than just a demographics report, it offers exclusive insight into emerging consumer trends that can help lenders reach the consumer where they are.

The report is based on a dataset containing exclusive performance data on 16 million loans from the past four years.

United Kingdom

Orca Makes a Splash: Launches Beta Platform to Streamline P2P Market Investment (Crowdfund Insider), Rated: AAA

Orca, an independent data, research and analysis provider in the UK P2P lending market, launched a new platform which aims to help financial advisers and sophisticated investors to better “seize” opportunities within the P2P market. The platform, by offering unique standardized metrics to compare P2P investments, will allow users to perform in-depth due diligence on P2P investments, benchmark them, and make risk-adjusted, informed investment decisions or recommendations.

The Belfast-based platform noted that the P2P market has seen tremendous growth in the past two years, increasing by 40% in 2016 and estimates that by 2020 around 2.7 million people will be investing in P2P.

Through Orca’s relationships with UK P2P lending providers, the platform has translated millions of loans, covering 90% of the UK P2P professional market.

Quint raises £10 million to fund recapitalisation (Finextra), Rated: AAA

NORTH West headquartered Quint Group, a leading international, highly innovative fintech group operating in the consumer finance market, has secured a £10m financing deal from Manchester based Tosca Debt Capital to fund its recapitalisation.

Quint is the company behind the UK’s fastest growing consumer price comparison site MoneyGuru.com*. It also owns and operates a portfolio of mutually beneficial and strategically aligned financial technology businesses in the consumer credit sector, including business-to-business lending marketplace and platform, Monevo, consumer credit reporting and financial management services such as Credit Angel, as well as its data business, Monevo Data Services which develops and provides cutting edge credit, risk, marketing and analytical data to the financial services sector.

Digital Bank Monzo Raises £2.5 Million backed by 6,800+ Investors via Crowdcube (Crowdfund Insider), Rated: AAA

Digital bank Monzo has broken a platform record on Crowdcube. The challenger bank has raised £2.46 million supported by 6,800 plus investors. The offer on Crowdcube is for 2.83% equity at a valuation of £84.75 million. The number of investors that have participated in the Monzo offer is the most ever on Crowdcube.

The challenger bank is raising a total of £22 million in the Series C investment round, including a £19.5 million investment from Thrive Capital, £5 million from Passion Capital and £1.5 million from Orange Digital Ventures, alongside the £2.5 million of equity crowdfunding on Crowdcube.

Saving Stream Rebrands as Lendy (P2P-Banking), Rated: A

What was formerly Saving Stream is now called Lendy. The operator of the marketplace has been Lendy Ltd. already, it was just trading as Saving Stream for investors. Now under the new domain Lendy.co.uk the company has brought together its services for investors and borrowers citing feedback by users.

The announcement email sent, reads:

Following feedback from users, we are integrating the Saving Stream platform under the Lendy brand. This is in order to simplify the brand and make accessing the crowdfunding platform easier for all our clients.

Lawrence Wintermeyer, CEO of Innovate Finance, Says Triggering of Article 50 Puts Fintech at Risk (Crowdfund Insider), Rated: A

Theresa May has signed the letter that will formally separate the UK from its 43 year membership in the European Union. As the UK initiates Article 50, Lawrence Wintermeyer, CEO of Innovate Finance – the advocacy group that supports all things Fintech – is out with a cautionary statement. Wintermeyer fears that Brexit may undermine the UK’s dominance in disruptive finance as it may be unable to attract the necessary skills to remain the global leader in financial innovation.

Editor’s note: The EU was organized on November 1, 1993, making it 23 years old.

25% Of Singles Think They’ll Never Be Able To Retire (Grazia Daily), Rated: A

If you want to feel thoroughly depressed about your future financial prospects, we have a disheartening new stat for you: according to a new survey from peer-to-peer lending platform Lending Works, 24 percent of single adults believe that they will never be financially secure enough to retire in their old age.

After surveying over 1,500 UK adults who are yet to reach retirement age, Lending Works found that financial security is more of a worry for those of us who aren’t in a relationship.

19 percent of those who are married or living with their partner reported the same concern. More drastically, 40 percent of the singles said they are currently unable to save money each month to plan for the future, in comparison to 29 percent of those who are married or co-habiting.

Extra! Extra! Daily Mail teams up with IFA to launch advice firm (Citywire), Rated: A

National advice firm Alexander House has partnered with the parent company of The Daily Mail to launch a new firm called Timber Finance.

According to the website Timber will charge an initial fee of 1% with a minimum amount of £750. It will also charge an ongoing fee of 1% per years for advice.

Insurtech the Rising Star of the FinTech Movement (Huffington Post), Rated: A

A recent report released by the lab examines the insurtech sector specifically, and explores the investment landscape in the sector.  The report analyzed over 450 deals conducted over the last three years, and reveals a particular focus in the sector on technologies such as AI and IoT.  Indeed, deals in these two areas alone increased by 79% in 2016.

The insurance industry is targeting technologies such as AI and the IoT specifically to help it deliver more personalized service to increasingly demanding customers.  The technologies both help provide insurers with more data to assess risk, and then help them do the calculations to underpin that assessment.

What to expect from the NACFB CFE 2017 (Bridging&Commercial), Rated: B

The NACFB has revealed that both Funding Circle and LeaseTeam Solutions Ltd will be supporting the event as the Association celebrates its 25th anniversary.

LendInvest’s property development academy expands to the North (Development Finance Today), Rated: B

Academy courses will now be held for the first time in Manchester on 25-26th May, Edinburgh on 22-23rd June, Birmingham on 7-8th September and Bristol on 9-10th November.

European Union

Prosper President Ron Suber Shares Insight & Perspective with French Fintech Industry (Crowdfund Insider), Rated: AAA

Ron Suber, the President of the US marketplace lender Prosper, was interviewed today by Cédric Teissier, the CEO of the French factoring platform Finexkap, at the annual conference of the  France Fintech association, titled “Fintech Revolution 2017 – Here to Stay”. Cédric Teissier asked Ron Suber as head of a worldwide pioneering and leading online lender to share his advice and his vision for the benefit of French fintech startups.

Asked about consolidation in the US market. Ron Suber pointed out that there are 3,000 online lenders in China and 300 in the US. These lenders serve diverse categories of borrowers from student to larger SMEs, from super-prime to subprime. Consolidation will happen because it is all but easy to master the three legs of online lending: the investors, the borrowers and the platform’s operational efficiency in risk management.

There are 14 different ways to find borrowers such as direct mail, partnerships, promotion etc. But out of ten prospects, only two will come to loan origination. Startups must focus on conversion efficiency to start making money. Prosper is 10 years old and next quarter will be its first profitable quarter. Generating cash is the most powerful way to dissipate doubts.

“My vision of where we are going is that of a portal where any of us can go to invest in any currency and any country, a portal similar to the Amazon or Priceline of finance. We are only in the first or second inning of this revolution. I used to buy CDs. My kids never do. Soon they will say: “I can’t believe that you used to go to the bank to get money.”

Compliance for Fintech Companies: What Your Website Visitors Have a Right to Know (Martindale), Rated: AAA

Between 2010 and 2015, total global investment in FinTech amounted to $49.7 billion. The most popular FinTech areas are those of payment and lending services (consumer and retail), block-chain services, such as bitcoin, and cybersecurity and cloud-based services, such as market monitoring and tracking.

Compliance with the Distance Marketing of Consumer Financial Services Directive is regulated by the Malta Financial Services Authority (MFSA). Failure to comply with the provisions in the Distance Marketing of Consumer Financial Services Directive may result in an administrative fine of up to €93,000 on the supplier, or the manager, secretary, director or other person responsible for the supplier’s activity.

Under the Electronic Commerce (General) Regulations, implemented through S.L. 426.02 in Malta, the financial institution shall only send direct marketing by electronic means if certain conditions are met.

The First Hall of the Civil Court in Malta may fine up to €4,658.75 for any breach of the provisions relating to comparative and misleading advertising.

Financial institution websites must ensure compliance with the Data Protection Act and the EU Directive on the Protection of Personal Data, and the Directive on Privacy and Electronic Communications. In Malta, the Data Protection Commissioner may impose fines of up to €23,300 for breach of any provisions within the Data Protection Act, and €50 for each day the violation persists, and/or to imprisonment of up to six months.

Australia

Catching FinTech Winds, RegTech Association Launches in Australia (Cryptocoins News), Rated: AAA

The RegTech Association has officially launched in Australia and is aiming to aid the regulation technology sector just like fintech is changing financial services.

According to a report from Finder, the Association will promote good corporate practice in compliance management and boost regulatory compliance outcomes.

Fintech investment in Australia increased in 2016 while the rest of the globe saw a decrease in funding. In a report from KPMG, last year saw total fintech investment amount to $US656 million across 25 deals compared to $US185 million across 23 deals in 2015.

The rise of regtech – the ‘little sister’ of fintech (Finder), Rated: A

The RegTech Association, which aims to shine a light on regulation technology, officially launched last night with an industry-first event in Sydney for key industry influencers including stakeholders from major banks, start-ups and industry regulators.

“What we’re really looking to do is facilitate collaboration between a group of Australian financial services stakeholders who we think can use these new technologies, and this growing crop of innovators who are building regtech businesses. And we hope that by bringing them together we can create a bit of an ecosystem in Australia around regtech,” Symons said.

China

1.5b yuan lending fraud trial begins (Shanghai Daily), Rated: AAA

A high-profile financial fraud trial — involving 1.5 billion yuan (US$220 million) of investor savings — started at Xuhui District People’s Court of Shanghai yesterday.

Fifteen former employees of the now-defunct online peer-to-peer lender Jinxing Investment were on trial. Ji Jianhua, the company’s chief financial officer, was accused of illegally raising funds, and 14 senior managers have been accused of illegally absorbing public savings.

Prosecutors said there were still 400 million yuan of repayments that weren’t made in the wake of the case being exposed.

More than 200 investors gathered in court in Xuhui for the hearing yesterday, many of them elderly investors. Trials of the 14 senior managers would be held at a later date, the court said.

Yirendai Announces Agreement of Intent on Performance Bond With PICC P&C (Crowdfund Insider), Rated: AAA

Chinese marketplace lending platform Yirendai (NYSE: YRD) announced on Thursday it has entered into an agreement of intent with the Beijing branch of PICC Property and Casualty Company Limited (PICC P&C).

Yirendai reported that under this new agreement, PICC P&C would provide Yirendai with a performance bond for certain loans facilitated through the online marketplace. PICC P&C will also reimburse lenders within the agreed scope should any losses incur due to the Company’s failure to perform adequate due diligence during the credit underwriting process.

Financial Inclusion, Regulatory Protection, and My Recent Trip to China (Orchard Platform), Rated: A

by Matt Burton, Co-Founder & CEO, Orchard Platform

Let me just begin by saying that I’m no expert on China or Southeast Asia, but I am committed to learning and keeping up. The market is incredibly complex and is advancing very fast. Based on my last two trips, I’m floored by how quickly the market is developing.

It’s also pretty clear that the development in the region, particularly in the financial services and technology sectors, is happening at a staggering pace and scale. As of September 2016, China had 8 of the 27 current fintech “unicorns” at an estimated US$96.4 billion total valuation with US$9.4 billion in capital raised—including the four largest valuations globally: Ant Financial (US$60 billion), Lufax (US$18.5 billion), JD Finance (US$7 billion), and Qufenqi (US$5.9 billion). To help put those numbers in perspective, the U.S. is home to 14 fintech “unicorns” at an estimated US$31 billion combined valuation with US$5.7 billion in capital raised.

The region is also seemingly light-years ahead in terms of innovation and adoption of these new technologies by a large base of underbanked and unbanked consumers—something I learned first-hand by being on the receiving end of scowls from the various vendors I interacted with when I tried to pay with cash. Mobile payment is everywhere, and is the preferred method of transacting at the point of sale.

China’s approach to fintech has been to focus on financial inclusion over financial protection, and this has led to rapid innovation and incredible growth.

Another takeaway? A significant area where the U.S. is ahead of China in this space is on the capital markets side. Most lending platforms in China are still funding loans using the peer-to-peer model. However, in my discussions with lenders, that does seem like something that is shifting. Some of the bigger platforms indicated that they are now seeing 20% to 30% of their originations purchased by institutional investors.

Asia

Now seek financial advice from Marvelstone Capital’s ‘robo advisor’ (Techseen), Rated: A

Marvelstone Capital, a Singapore-based data-driven asset management company, has announced the launch of a licensed ‘robo advisor’ platform for family offices in Asia in Q3 this year. The platform is being developed in partnership with Smartfolios, a Singapore-based fintech startup and will be available on desktop and mobile for Marvelstone’s clients.

Authors:

George Popescu
Allen Taylor

Wedneday March 29 2017, Daily News Digest

ron suber fraud

News Comments Today’s main news: How to build a $100 billion company. Square launches in UK. Century-old Thai bank plans digital revamp. ClaimVantage raises funds to expand into Asia. Today’s main analysis: Tech will lead to new sub-prime crunch. Today’s thought-provoking articles: An unofficial chat with Ron Suber. How technology is changing online credit checks. Legal considerations of running a […]

ron suber fraud

News Comments

United States

United Kingdom

China

Asia

MENA

Africa

News Summary

United States

Tech will lead to new sub-prime crunch (TechCrunch), Rated: AAA

The tables below demonstrate cumulative changes in interest rates for Lending Club and Prosper. Although the rate for high-grade loans for Lending Club has slightly increased over time, while dropping a little for Prosper, the tendency for both companies is similar: They are widening the gap between low and high-grade borrowers.

Since 2013, the top 40 percent of earners have accounted for 84 percent of all new income and 34 percent of new debt, which led to a material reduction in aggregate leverage relative to income and provided for consistent growth of retail sales, as this cohort represents 65 percent of total consumption. According to the article, the recession will be a result of a material reduction in consumption from these top earners, who have historically followed the deterioration of lower and middle-income households.

With the penetration of technology, more and more labor-intensive work is shifted to computers or machines. People employed in manual labor, who mostly get an hourly wage, are in less demand on the market, which leads to the number of such jobs decreasing. Most jobs that were previously done manually are being substituted by machines, which, accordingly, increases competition among workers of respective industries.

The statement is easily supported by the last data available: A new study by Forrester forecasts that cognitive technologies such as robots, artificial intelligence, machine learning and automation will replace 7 percent of U.S. jobs by 2025 (with 16 percent of jobs replaced and the equivalent of 9 percent jobs created).

By the end of 2016 there were more than 4.1 million people who drove for a living, with more than 3.5 million doing it full time. The automatization of driving will lead to all of them being forced to change their jobs, and obviously turning to software and tech industries is not an easily affordable option for these people.

Employment in the tech industry is, on the other hand, quickly growing. According to the results of a Cyberstates 2016 report prepared by nonprofit IT trade association CompTIA, employment in tech hit its highest growth rate in more than a decade in 2015, reaching 6.7 million people for companies with formal payroll in place in the U.S., up about 200,000 from the year prior.

Summarizing the above, we can expect that for workers employed in labor-intensive industries, the wages are not going to rise as a result of increased competitiveness for jobs in these sectors. Stagnating wages will lead to credit of such workers suffering (which is, in fact, already happening), as their anticipated increase in income is not realized even when the economy is doing well in general.

How To Build a 0 Billion Company (Newco Shift), Rated: AAA

Mike Cagney, the CEO of financial services startup SoFi, does not lack for confidence. But then again, confidence is what you need to raise billions of dollars and take on some of the largest and most powerful companies in the world — global financial giants like Chase, Citi, and Bank of America. To get there, Cagney’s got a pretty clever playbook: He’s partnering with those same banks, who buy the loans he originates and profit from SoFi’s unique skill at acquiring new customers.

An Unofficial Chat with Ron Suber, the Tom Brokaw of Fintech (finTEK News), Rated: AAA

If you circulate within fintech, pretty much anywhere on the planet, there is a high likelihood you’ve heard of Ron Suber.  And in case you haven’t, he’s the president of Prosper Funding, the marketplace lending platform that has now funded over $8B in loans, and recently closed a deal with a group of institutional investors to purchase up to $5 billion worth of loans over the next 24 months.

I asked him how he deals with all the travel, plus the highs ($5B deal-yeah!) and lows (Lending Club-OMG!) of the job, and he jokingly responded “Funny – (with) a unique combination of Yin Yoga and Johnny Walker Black”.  He also said he does “intention setting” before he gets out of bed every day, which he has found incredibly helpful.

The full deck for the Lendit 2017 presentation can be downloaded at this link: LendIt.FINAL

The last deck he shared with us from the AltFi Australasia Summit in Sydney.  The event was attended primarily by Australians and New Zealanders, with some Asians in attendance as well and also had a slightly different angle.

The speech compared online lending to online trading, showed a 5 point overview of the industry since inception, and included a picture showing traditional banks already involved in marketplace lending.

How to Start a Real Estate Crowdfunding Platform (Crowdfund Insider), Rated: A

Tech development is not cheap. Those hoping to raise angel or VC capital for a real estate crowdfunding platform have, in my humble opinion, missed the boat by a couple of years.

That said, if venture funding isn’t available, it doesn’t make sense to spend a lot of money on technology. Many of the RECF platforms out there today would like to command a tech multiple, but in reality, function more so as technology-enabled brokering or origination shops. For the vast majority of RECF platforms, their value is is not in their technology, but their ability to fund or originate deals.

  • Will this be a personal platform for your own deals, or will the platform raise funds for deals from other parties? If the latter, you may be brokering or dealing, and may need to obtain a license.
  • Will you be selling equity or debt securities? What type of debt will you be selling? What will it be secured by, if anything? What type of equity will you be selling?
  • What type of real estate will you be raising funds for? Will the properties be residential properties? Commercial? Rehab? New development? Is there a geographic scope involved? You should have a specific business plan in mind.

It’s great that RECF platforms are hot right now, but remember – you’re still selling a security, and securities laws really aren’t the type of laws one should take lightly.

RealtyShares Raises Its Largest Joint Venture Capital Investment to Date for Avesta Biscayne Apartment Complex in Miami (Yahoo! Finance), Rated: A

RealtyShares, a leading online marketplace for real estate investing, today announced that its network of accredited investors has raised $3.5 million in equity capital for the $67.3 million acquisition and renovation of Avesta Biscayne in North Miami, Florida. This is the largest equity investment that RealtyShares has raised to date through its real estate investing marketplace.

Avesta Biscayne is a 402-unit apartment community near the Biscayne Bay shoreline, consisting of six mid-rise buildings and amenities including a clubhouse, two pools and a tennis court. The deal is sponsored by Avesta Communities, a vertically integrated multi-family owner-operator specializing in apartments serving the middle-income renter. Previously, Avesta raised $2.25 million through RealtyShares to recapitalize and renovate Avesta Bridgewater, a 344-unit apartment complex in Orlando, Fla.

Shadow banking is getting bigger, not better (Standard.net), Rated: A

In the U.S. mortgage market as a whole, shadow banks held a 38 percent share in 2015, compared with 14 percent in 2007.

In other markets, financial organizations that are not subject to bank regulation have flourished, too. According to the Financial Stability Board, the august body that makes recommendations to the global financial system from Basel, Switzerland, “other financial intermediaries” — the category that includes non-bank lenders but not insurance companies and pension funds — increased their assets to $80 trillion, or 23 percent of total financial assets, in 2014. Their average growth reached 5.6 percent in 2011 through 2014, while the global banking system’s assets stopped growing during that time.

The reason shadow banks have largely escaped public scorn, regulatory scrutiny and high capital requirements is that they often came in the guise of high-tech disruptors. Quicken Loans Inc., the third biggest mortgage lender in the U.S. in 2015, does business online and on the phone, and that somehow makes it less interesting to regulators than a bank that does the same through an old-style branch network. Lending Club and other “peer-to-peer” lending firms quickly became conduits for large investors, not “peers,” yet they avoided regulation as though they were innovative tech platforms.

By 2015, 85 percent of the mortgages they originated was sold to government-sponsored enterprises such as Fannie Mac, Ginnie Mae, Freddie Mac and Farmer Mac. They benefit from implicit and explicit government guarantees originally supplied to banks — without shouldering the same regulatory burden or facing the same stigma. In other words, they profit from regulatory arbitrage.

Kroll Bond Rating Agency Releases U.S. Consumer Loan ABS Rating Methodology (Business Wire), Rated: A

This report describes KBRA’s rating methodology for U.S. consumer loan asset-backed securities (“Consumer Loan ABS”). This includes transactions secured by collateral originated by traditional consumer loan companies, as well as, through online consumer loan marketplace lending platforms (“MPL Platform”).

Wells Fargo’s Robo is Pricier Than Competitors (Financial Advisor IQ), Rated: A

Wells Fargo is betting that having access to a live financial advisor will convince clients to put up higher minimums and pay more for its robo-advice platform than for its competitors’ platforms, the Wall Street Journal writes.

The company’s Intuitive Investor automated advice service requires a $10,000 minimum investment and costs 0.5% of assets annually, according to the paper.

By contrast, Merrill Lynch’s Edge Guide Investing platform and Schwab Intelligent Portfolios only require a $5,000 minimum, while Wealthfront requires $500 and Betterment has no minimums, the paper writes. All of these platforms charge fees ranging from 0.25% to 0.45% of assets, except Wealthfront, which only starts charging 0.25% on accounts with more than $10,000, according to the Journal. Vanguard Personal Advisor Services, meanwhile, comes with a hefty $50,000 minimum but charges only 0.3%, the paper writes.

What’s more, Wells Fargo and other full brokerages aren’t necessarily competing with pure robo-advice pioneers such as Betterment and Wealthfront, William Trout, a senior analyst at research firm Celent, tells the Journal. Rather, they’re aiming to tap into their existing client base, he says. Wells Fargo is targeting its retail bank clients who currently don’t receive any form of advice, Lai tells the paper.

Jed Morey And The Art Of The Publishing Pivot (Innovate LI), Rated: A

So the New York Financial Press, launched in April 2016 by Syosset-based Morey Publishing as an “alternative financial news journal” that would dive deeper than earnings statements and trading indexes (not to be confused with the Wall Street-based media company founded in 2005 by Pierre Alexandre) – is now feeding Mayava Capital Inc., a Syosset startup created to facilitate small-business lending.

The other five sites – each focused on lending in a particular vertical market, such as healthcare or transportation or IT – were created by Morey et al specifically to usher visitors directly into Mayava Capital’s arms.

FUTURE DIGITAL FINANCE AND PERFORMANCE HORIZON RELEASE NEW INDUSTRY BENCHMARKING REPORT (Future Digital Finance Email), Rated: A

Today, Future Digital Finance and Performance Horizon released their findings from their new report titled “Benchmarking Performance Marketing Adoption within Financial Services Strategies”. As the consumer revolution in retail banking continues, the whole financial services vertical has seen dramatic shifts towards electronic interactions across their consumer and business-to-business operations. This new study takes a look at the wider variety of marketing channels firms have begun to leverage, especially ones with clear measurement methodologies that contribute towards revenues.

Key statistics from the survey include:
– Performance marketing, including affiliate marketing, primarily drives customer retention for 21% of financial services companies.
– Almost a third of companies spend at least 20% of their overall media budget on performance-oriented programs, while 21% of companies spend at least 40% of their overall media budget on performance oriented programs.
– Finance companies are looking to grow performance-based marketing programs as 77% of companies prefer to pay new partners based on performance.
– 93% of companies expect mobile website sales will increase, and 92% expect mobile app sales will increase in 2017.
– 86% of companies agree that data and insights from their existing partner marketing programs enable them to make better business decisions.

Mortgage Automation Pioneer cloudvirga Raises $ 15 Million in Series B Funding (PR Newswire), Rated: A

cloudvirga℠, developer of the automated, cloud-based intelligent Mortgage Platform® (iMP), announced today it has raised $15 million in a series B funding round led by Incenter, a Blackstone Group portfolio company. The new funding will support cloudvirga as it scales its technology and expands its product offerings.

Cloudvirga’s flagship mortgage point-of-sale (POS) system, the iMP empowers consumers to take the helm of a completely re-engineered mortgage workflow that automates the entire initial disclosures process and delivers unmatched transaction speed and efficiency to both borrowers and lenders. Central to cloudvirga’s success is its ability to maintain strict regulatory compliance, reduce time to close and save lenders money by moving many traditional back-office tasks to the front of the loan process.

Why squeeze fintech into a bank regulatory box? (American Banker), Rated: A

Within the constraints of its jurisdiction and mission, the OCC is clearly trying to do its part to address the regulatory issues raised by financial service providers in the technology sector. The agency is not simply pursuing a “bank-lite” charter.

The regulation of financial services in the U.S. is highly fragmented, and fintech is challenging every aspect of that structure. Federal and state agencies can stake claim over the regulation of fintech, yet both are ultimately limited by narrow lanes and tightly defined jurisdictional boxes prescribed to them by their respective charters. As a result, even the most well-intentioned efforts are only able to address the trees, but not the forest.

The goal of its proposal is to encourage the entry of fintech firms into federally regulated financial services. But if the actual pool of applicants ends up being extremely small, that’s going to be a real problem.

Random Forest Capital Raises $ 1.75 Million for Strategic Talent Acquisition (Random Forest Email), Rated: B

Random Forest Capital () completed its seed round in January 2017 with $1.75 million led by a very impressive group of angel investors. The money will be used to build out its full stack software and machine learning algorithms and acquire strategic talent for helping institutional investors find the right opportunities in consumer, residential, and commercial credit.

“There are 400+ platforms that originate many types of secured & unsecured debt,” said Kevin Farrelly, chief operating officer, general partner, and co-founder of Random Forest Capital. “We can analyze a massive amount of data from those platforms in seconds whereas a human analyst will take days to weeks.”

Random Forest Capital uses machine learning algorithms and third-party systems with APIs to source investment opportunities from eight platforms (and growing). Their custom algorithms then price the risk and can execute in microseconds.

“Loan originators make money originating loans – so it’s in their best interest to bucket all the loans together. Our goal is to preserve investor capital. These competing interests create a fundamental divide where alpha in marketplace lending is easily found,” said Austin Trombley, chief technology officer and co-founder of Random Forest Capital.

Random Forest Capital recently added two new members to its expert leadership team. Julie Choi, Ph.D. has been named the chief risk officer.  Carl Siemon, Ph.D. has been named the principle data scientist for Random Forest Capital. Siemon is a Physics Ph.D. graduate from UT Austin where he was supported by the prestigious National Defense Science and Engineering Fellowship.

MoneyLion Wins Gold at PYMNTS Innovation Project Awards for Best Credit Innovation (MoneyLion Email), Rated: B

MoneyLion, the mobile personal finance platform that puts consumers in control of their financial lives with AI-driven tools and smarter credit products, has won the gold medal for Best Credit Innovation at the PYMNTS 2017 Innovation Project Awards. The award coincides with a major growth milestone for MoneyLion, which now has over a million users.

Real estate crowdfunding platforms raising American real estate prices (STL Real Estate), Rated: B

But, with the rise of third-party crowdfunding platforms, most notably of Chinese origin, middle class people can get in on a piece of the real estate pie – no matter where they live.

Today, Brooklyn is where it’s at, with the price of Brooklyn town homes and apartments growing 16 percent between 2015 and 2016, while Manhattan properties decreased by 1 percent.

United Kingdom

JACK DORSEY LAUNCHES MOBILE PAYMENTS COMPANY SQUARE IN THE UK (Irish Tech News), Rated: AAA

Mobile payments company Square launched for UK based businesses today. This launch is the fifth market for Square since launching in the US in 2010 and since expanding to Canada, Japan and Australia.

Square Point of Sale has actually been available in the UK, among other markets around the world, for a few years already, however the full features of the product that’s available in Square’s four main markets were not available.

LendInvest Property Development Academy Expands Course Offerings (Crowdfund Insider), Rated: A

LendInvest, a leading UK online property finance lender, is launching the LendInvest Property Development Academy in four more key cities around the country following overwhelming demand for its London & Southeast courses.

In addition to three more courses for London & Southeast candidates this year, the Academy has expanded to:

  • Northern England: Manchester, 25 – 26 May
  • Scotland: Edinburgh, 22 – 23 June
  • Midlands: Birmingham, 7 – 8 September
  • Southwest England: Bristol, 9 – 10 November

All courses are carefully tailored to resonate with common issues facing developers in their respective regions. All modules are taught by industry specialists from the local area who will drawn on locally relevant case studies and anecdotal evidence.

Lendy Integrates Saving Stream Platform to Continue Growth (Crowdfund Insider), Rated: A

Lendy, announced on Tuesday it is integrating its popular investor-facing platform, Saving Stream, under its Lendy brand as part of the platform’s continued growth. According to the company, it is merging Saving Stream, with its borrower-facing brand, Lendy Finance, in order to simplify its branding and to make accessing its loan-based crowdfunding platform easier and more accessible to clients.

Lendy revealed that the total amount loaned to property developers and investors through its peer-to-peer platform has now topped £285 million and its 15,000 registered users have received £20 million of interest from the loans they have written. The company also stated its user base has more than doubled from 5,600 at the start of 2016, with the platform’s popularity among lenders being driven by:

  • The security provided by property-backed loans
  • The additional security provided by Loan To Value (LTV) ratios on all Lendy loans being capped strictly at 70%
  • Returns of up to 12% on loans written through the Lendy service.
China

How technology is changing online credit checks (SCMP), Rated: AAA

It generally takes nothing more than a simple click on the ‘yes’ button to authorise an online peer-to-peer (P2P) lender to go through an applicant’s credit history before approving a loan.

But the assessment may in fact go far beyond the borrower’s imagination.

With vast amounts of data at their disposal, the powerful analytical programs behind the screen are often capable of picking up diverse fragments of an applicant’s life story and piecing together a complete picture. And it all happens in a matter of minutes.

Cloud Atlas, a risk management system developed by Finup, is one such example. After obtaining consumers’ consent to access their mobile contacts book and apps as well as information provided by third-party data agencies, the system is able to carry out a thorough analysis to figure out whether the applicant is eligible for loans on the particular P2P platform.

The pass rate of applicants for loans under the Cloud Atlas system is well below 10 per cent, as the three-year-old company uses strict criteria.

High employee turnover sign of transformation in P2P lending industry (Global Times), Rated: A

With the rollout of new regulations in February, there has been a wave of resignations in China’s peer-to-peer (P2P) lending industry, as employees worry about the prospects of the business.

“I resigned in February,” said a woman surnamed Liu, a former employee at one of China’s leading P2P platforms, which she refused to be named.

Liu started her career in Internet finance in October 2016. Half a year later, she worries about the industry’s prospects.

Recently, P2P industry employee turnover has shot up, with some workers joining larger P2P companies and some moving to other industries.

The number of Chinese P2P lending platforms fell from 3,516 in November 2015 to 2,393 in February 2017, according to data from the Shanghai-based P2P lending platform wdzj.com.

Just a few big Chinese P2P lenders seen surviving in sector tarnished by scandal (SCMP), Rated: A

The seemingly relentless proliferation of China’s peer-to-peer (P2P) lending platforms has finally been contained by stringent measures introduced by the government in a bid to tackle a fraud epidemic that tarnished the industry’s reputation.

The sector, which ballooned to host thousands of firms of varying sizes and specialities, will eventually become limited to just a handful of mega participants, according to Zhang Shishi, a co-founder of the Chinese P2P platform Renrendai.

However, the heated competition that emerged as a wave of profit-hungry new players crowded in, all hunting aggressively for investors and money in the markets, led to a rise in illegal activity. Countless cases of P2P lenders promising high returns from non-existent projects and then running off with the proceeds made the headlines.

Asia

Century-Old Bank Plans Digital Revamp to Fight Fintech Risk (Bloomberg), Rated: AAA

Siam Commercial Bank Pcl, Thailand’s oldest homegrown lender, plans to reinvent its mobile digital payment platform as a lifestyle app to help fend off competition from upstart financial technology providers.

The lender is working with companies including Accenture Plc, Microsoft Corp. and International Business Machines Corp. on the project, Chief Executive Officer Arthid Nanthawithaya said in an interview. The long-term goal is an app that allows customers to search and pay for entertainment options such as restaurants and cinemas, going beyond just day-to-day banking, he said.

Siam Commercial Bank’s shares gained 0.6 percent at 10:46 a.m. in Bangkok on Wednesday. The stock has climbed about 4 percent in the past three years, less than the 8 percent advance in the Stock Exchange of Thailand’s Banking Index.

‘Why would we ignore a billion people?’: An Irish fintech firm has raised €2m to expand into Asia (Fora), Rated: AAA

IRISH-BASED FINTECH COMPANY ClaimVantage has secured €2 million in funding to bankroll its move into Asia.

The international firm, which has been headquartered in Dublin since it was founded in 2006, develops and provides cloud-based claim management software for some of the top insurance firms in the US and Canada.

Singapore Inks FinTech Cooperation Pact with France (Cryptocoins News), Rated: A

The Monetary Authority of Singapore (MAS), Singapore’s central bank and financial authority has signed FinTech cooperation agreements with a pair of French regulators to boost FinTech ties between the two countries.

The cooperation agreement sees Singapore’s central bank partner the Autorité de Contrôle Prudentiel et de Résolution (ACPR), the authority monitoring banks & insurance companies in France and the Autorité des Marchés Financiers (AMF), France’s stock market regulator.

Under the agreement, the three authorities will adhere to a framework that fosters the sharing of information relating to FinTech trends and services. Joint innovation projects and regulatory hurdles will also be discussed between the two countries.

MENA

MENA Fintech Startup NOW Money Wants To Help Everyone Get Access To Banking (Entrepreneur), Rated: AAA

According to the World Bank’s Migration and Remittances Factbook 2016 report, migrants are sending earnings worth more than US$441 billion to families in developing countries, contributing to the 10% of GDP of some 25 developing countries. With KSA, UAE and Kuwait among the top ten high-income countries categorized as main sources of remittances in 2014, six GCC countries accounted for $98 billion in outward remittance flows in 2014. As the region’s expat population transfer money to respective home countries, there’s a prevalent reality that there is a struggle (especially among blue-collar workers) to access bank accounts- and this is what fintech startup NOW Money is trying to solve.

With a tagline of “empowering the unbanked,” founders Katharine Budd and Ian Dillon launched NOW Money to provide expat workers who don’t have access to banking and remittance services with direct access to a current account, debit card and remittance from their proprietary app and service center.

Compared to outbound remittances sent as cash (which is often hard to follow), the startup tracks “payments from salary, to remittance, to collection by overseas. This is an important step change in the progress the UAE is making towards combatting money laundering and criminal funding.” With respect to security and privacy, facial recognition tech is used to enable users to log in to the NOW Money app- a photo cannot be used to fake an entry, since movement is accounted for by this feature: the user has to blink to log in. It also records the way you hold your phone and type, so suspicious behavior will cause an alert notification. Although pin codes and passwords are still present as per the current compliance laws requirement, the team believes such a system is still susceptible to hackers, and thus Budd asserts the advantage of biometrics.

Alternative Financing in Africa, Middle East (Microcapital), Rate: A

The authors estimate that approximately USD 475 million was made available in Africa and the Middle East via alternative financing methods between 2013 and 2015, with Israel accounting for USD 125 million of this total. The authors conclude that alternative finance as a whole grew more slowly in Africa and the Middle East than in other parts of the world as the development of the market was in its early stages.

Kabbage: working capital for small businesses unable to obtain credit from traditional sources (MENAFN), Rated: A

As a large percentage of small businesses, online retail sales as a percentage of total retail sales have doubled in the past five years. Ecommerce sales overall in 2006 were just over 107 billion, representing 2.7 percent of total retail sales . There are over 100 million Ebay users in the US today, with an estimated 200 million new listings in 2Q, 2008 alone. There are an estimated 5 million power sellers transacting over 48 billion on Ebay and more than 8 million high-volume sellers representing over 70 billion across all marketplaces.

Rob Frohwein founded Kabbage to get small businesses capital quickly, an area in which banks have long struggled.

Kathryn Petralia has 12 years of experience in the consumer credit and payments space.

Amy Zimmerman has spent 15 years building tech companies by identifying and cultivating talent. Her focus at Kabbage is to foster the company’s inventive culture.

Africa

The legal considerations of running a FinTech startup in Nigeria (Techpoint), Rated: AAA

However the alternative method is for a startup to operate on its own steam by meeting the requirements to obtain the requisite licences although this method requires significant capital outlay. As such, FinTech startups that are seeking to exploit the significant market opportunities in Nigeria are bound to run into several regulatory compliance obligations.

The payment and processing segment of the FinTech sector for example — which has shown the most growth and success thus far — is primarily governed by the same general framework as are traditional financial institutions providing offline financial services (e.g. money/payment transfers, clearing, switching, settlement etc), in addition to regulations related specifically to that sub-sector.

Thus, the legal and regulatory framework that is generally applicable to financial institutions — such as the Central Bank of Nigeria (CBN) Act, 2007, the Banking and Other Financial Institutions Act (BOFIA) and all subsidiary instruments stemming from same — are all relevant to any non-bank led startups providing digital equivalents of offline financial services. This framework brings with it mandatory obligations such as KYC and AML requirements that must be strictly adhered to.

Commercial lending activities are regulated in Nigeria and as such require licensing by either the CBN (for banks and other financial institutions) or the Ministry of Home Affairs of the various states (non-financial institution lenders).

As it stands, insurance penetration in Nigeria is only at 0.6% and the growth of the middle class, alongside increased economic activity, indicates a very bright future for this sector.

The Nigerian Insurance Act provides the overarching framework for operators of all types of insurance business in the country and the National Insurance Commission (NAICOM) is the industry regulator. Under the act, one must be duly registered with NAICOM before engaging in the business of insurance.

Authors:

George Popescu
Allen Taylor

Wednesday February 8 2017, Daily News Digest

uk p2p average growth interest rate at origination

News Comments Today’s main news: What the SoFi acquisition of Zenbanx means for FinTech’s future. Promontory Interfinancial Network clears path for community banks to purchase SoFi loans. Fund investments into UK FinTech plunge 33%. Today’s main analysis: AltFi takes a closer look at the UK P2P sector. Today’s thought-provoking articles: Review, takeaways from 2017 private placement conference. 3 reasons FinTech […]

uk p2p average growth interest rate at origination

News Comments

United States

  • What the SoFi acquisition of Zenbanx means for FinTech’s future. GP:” With SoFi able to take deposits and looking at credit cards next, I now believe SoFi is the new leader in the fintech credit market. I continue to believe it is a market that is ripe for disruption, innovation and hundreds of billions of dollars in size.” AT: “This is really stating the obvious.”
  • Community banks to have ability to purchase SoFi loans. GP:” Lenders have two main problems: finding borrowers and capital. The bigger the lender the worse the capital issue becomes as borrowers you can nearly always buy by spending more money. Another great move for SoFi, but not a new move: Lending Club and many other lenders had done this years ago. ” AT: “This is a step in the right direction. Online lending really needs a secondary market.”
  • Review, takeaways from 2017 private placement conference. GP: “A healthy active issuance market.”
  • Patch of Land hires CFO, CMO. AT: “It looks as if the new CMO is already making great strides.”
  • Breakout Capital secures credit facility with Drift Capital Partners. GP:” A $25mil in revolving debt.”
  • 3 reasons FinTech is failing. GP:” Failing is in the eye of the beholder. Did Apple look like a failure at any point? Is losing billions of dollars failing? How much did it cost to develop the iPhone and was that expense a loss until revenue started coming in? I personally believe that, like in politics, one can really tell what is success and what is failure only once history has settled. “AT: “While an interesting read, it seems self-serving. FinTech isn’t failing so much as experiencing a few growing pains. I agree with the three points mentioned as “reasons,” but I don’t so much think the implication that all FinTech companies must follow a similar path to success is true. The key to success is differentiation.”
  • We need a government that embraces financial innovation. AT: “The underlying premise is a sound one, but the U.S. has never done anything like the rest of the world. That said, if we’re going to have a FinTech charter, it should foster innovation and help the industry grow.”

United Kingdom

United States

What the SoFi Acquisition of Zenbanx Means for the Future of Fintech (Lend Academy), Rated: AAA

Fintech companies of all kinds have started to partner with banks but this deal is different. It marks the first time that an online lending platform will have the ability to accept deposits.

The size of this deal brings to mind a similar deal from a few years ago when Spanish bank BBVA acquired the digital bank startup Simple for $117mn. Since that acquisition occurred, reporting shows that customer acquisition and disruption in the banking space is not as easy as it may sound. According to a Quartz report in May of 2014 the BBVA-Simple deal was a challenge from the start as the size of the deal raised alarm in the banking community and Simple’s customer growth was slowing down.

BBVA is still grappling with the ramifications of their 2014 acquisition, American Banker reports today that BBVA has taken nearly $90mn in goodwill impairment charges related to the Simple deal. While the charges seem steep, the company is still happy with the Simple deal from a digital standpoint and they have hired 260 more employees to help that part of the business run. Valuing a digital bank seems to be an inexact science to say the least; Simple went to BBVA for $117mn in 2014 and now BankMobile is on the market from Customers Bancorp in what analysts think will be a deal valued around $100mn.

Mike Cagney has also said that also on the list for SoFi will be their move into offering a credit card. As the roll out of their banking products begins, we will learn more about how this acquisition will affect their overall strategy.

Promontory Interfinancial Network Clears a Path for Community Banks to Purchase SoFi Loans (Yahoo! Finance), Rated: AAA

Promontory Interfinancial Network, LLC and Social Finance, Inc. (SoFi) today announced a new program to enable community banks to purchase super-prime student loans originated by SoFi. The program will help community banks gain access to SoFi’s high quality assets by streamlining the due diligence process.

To assist banks in assessing these loans, Promontory Interfinancial Network commissioned Promontory Financial Group, LLC, an IBM Company, to review and report on SoFi’s underwriting, operations, and systems.  The report provides information and analysis banks can use to complement their own due diligence and assists them in their efforts to satisfy regulatory expectations for loan purchases and third-party risk.

The report describes SoFi’s current loan origination and post-origination practices and outlines the controls that SoFi has in place, including those that promote regulatory compliance, consumer privacy, and information security.  In preparing the report, Promontory Financial Group reviewed SoFi policies, procedures, and contracts related to underwriting and servicing and tested loan files so as to confirm compliance with federal laws, regulations and guidance.

SoFi President and Chief Financial Officer Nino Fanlo said, “This unique partnership opens us up to a new group of bank investors and further diversifies our funding sources. Large banks have been buyers of our loans for several years, but this program will help small to mid-sized banks participate in the growth of this asset class, and we look forward to building relationships with them. With one of the largest bank networks of its kind, representing more than 47% of all U.S. banks, Promontory Interfinancial Network is an ideal partner for us.”

Review and takeaways from the 2017 private placement conference (Morningstar), Rated: AAA

The corporate bond market started 2017 with a healthy dose of new issue volume priced in the public debt markets. New issue supply in the corporate bond market totaled $178.5 billion in January. New issuance last week included several large new bond deals, such as Microsoft’s (rating: AA+, stable) $17 billion transaction. In December 2016, Morningstar Credit Ratings, LLC downgraded Microsoft by one notch, placing our AA+ corporate credit rating one notch lower than Moody’s and S&P. Our downgrade took into account the company’s trend toward higher use of debt, the result of a more aggressive shareholder-payout policy, and funding for the $26 billion acquisition of LinkedIn. Apple (rating: AA-, negative) also brought a large deal to market, pricing a $10 billion multitranche new issue. Again, our credit rating is lower than the other agencies, as we believe Apple’s credit profile has been affected by management’s trend toward more aggressive capital allocation and a dramatic increase in debt.

Patch of Land Adds Executives Including New CFO and  CMO (Crowdfund Insider), Rated: AAA

Real estate crowdfunding platform Patch of Land has announced several management changes with two executives. Min Lee will be joining the real estate marketplace as the Chief Financial Officer and Robert Greenberg has been appointed as its Chief Marketing Officer.  Patch of Land said the executives would help accelerate platform growth while stating the company has grown at a compound annual growth rate of more than 290%.

Greenberg has already implemented a program that has apparently grown monthly leads by nearly 270 percent compared to the average monthly totals of the previous nine months. Greenberg has also grown the number of crowdfunding investors registered on the company’s platform to more than 20,000 at year-end 2016.

Breakout Capital Secures Credit Facility with Drift Capital Partners (Benzinga), Rated: A

Breakout Capital, a technology-enabled small business lender, announced today it obtained a new revolving credit facility from Drift Capital Partners, LLC, an alternative asset management company based in Charleston, South Carolina. The facility is structured to scale in alignment with Breakout Capital’s rapid growth, and at least $25 million in revolving debt is expected to be available to provide working capital solutions to Breakout Capital’s current and future customers. Drift’s commitment equips Breakout Capital with significant incremental funding capacity to continue on its strong trajectory and to meet the robust and accelerating demand among small businesses nationwide for Breakout Capital’s transparent, flexible, and innovative financing solutions.

In addition to becoming one of the fastest growing lenders in the market, Breakout Capital is a Founding Member of the Coalition for Responsible Business Finance and a vocal advocate for comprehensive, standardized product and cost disclosure, and full transparency across all alternative finance products.

3 Reasons Fintech Is Failing (Forbes), Rated: A

Everyone from online lenders to bank technology companies has experienced elongated fund-raising cycles, missed targets, and mounting losses.

Right now, the pain is most acute in the online lending space, with industry juggernauts like OnDeck, Lending Club, and CAN Capital seeing depressed stock prices or worse.

While fears of a popping fintech bubble are justified, there is good news. It is by no means too late for the sector to pivot. The first step in saving the industry is to understand why it is failing.

Reason #1: There is a fundamental strategic contradiction between tech and finance

According to Mr. Flowers, “the tech idea that you must get big fast and dominate a sector” is at odds with the slow-moving nature of finance, and lending in particular.

Reason #2 Market realities encourage short-term thinking

If you engage with online lenders like Lending Club or OnDeck, you’d think that they were data companies first, and lenders second.

As competition increases, fintech organizations begin making riskier and riskier decisions. For companies like mine, it could mean accepting clients and deals that aren’t an ideal fit for our product. For online lenders, it means riskier and less desirable loans.

Reason #3: Incumbents in the market are powerful and resistant to change

Incumbents in the finance sector are incredibly powerful and complacent. Most don’t fear fintech companies looking to take their business because, frankly, not a single one poses a real threat at this time.

We Need a Government that Embraces Financial Innovation (Crowdfund Insider), Rated: A

The proposed Fintech charter is anti-FinTech. That’s right. Many Fintech firm founders started their companies because of the already undue burden placed upon the American populace. Most people struggle to access reliable banking products, cheaper credit, real-time payments and investment opportunities. Unfortunately, these are services and products that are rarely made available for the masses.

The OCC’s proposed charter will put us back at least a 100 years.

The white paper published by OCC spends most of its time arguing that the bureau has the “grounds” and certainly the “right” to establish a Fintech specialty charter. It reads like a legal opinion and argument on why the OCC is the single bureau to establish the Fintech charter and they are the ones that should regulate the charter membership. The white paper does not provide any incentive for Fintech companies to seek membership and gave no consideration to the undue burden the additional regulation will place on Fintech firms and established Fintech startups. It simply does not make any sense for any Fintech companies even to consider applying for the OCC’s proposed Fintech Charter.

OCC’s Proposed Fintech Charter is Anti-Innovation

The OCC provided us an illusion that somehow Fintech companies are at a disadvantage and only with a Federally issued bank charter would we finally become competitive to the banks.

This is simply not the case. The Banks support Fintech companies because they are not bound by outdated and overzealous regulation.

Innovative products and services from firms such as SoFi would have died on the table day one within larger institutions that are regulated by bureaus such as the OCC.

OCC’s Proposed Fintech Charter is Anti-Competitive

I have spent a fair amount of time recently in Australia and Asia, talking to Fintech founders and CEOs. Regulation and compliance is always a focal point of our conversations. Often, these conversations end up with their perceptive countries Fintech Sandbox.

The USA is Falling Behind

The United States has fallen far behind some of our global competitors such as China, India and the UK.

The last thing we need is for another government agency to throw its weight around and cast another shadow on our global competitiveness.

We want the OCC and other agencies to revise their proposal and provide the following:

  • A single national charter that allows Deposits, Money Movement and Lending regulated by a single agency and supersedes all state regulation. Not multiple charters for multiple activities and an industry that must adhere to local and state regulations on top of federal rules.
  • A Fintech sandbox that immediately allows all Fintech startups to move money through existing and alternative money movement rails. 
United Kingdom

Fund investments into UK fintech plunge 33% (Fund Strategy), Rated: AAA

A report by Innovate Finance and Pitchbook shows investment from venture capital funds fell 33.7 per cent in 2016 to $783m (£632.7m) compared to $1.2bn in 2015. Total investments following the referendum were $368m.

Fifty four per cent of investments came from UK-domiciled venture capital funds.

“Some of the steam is perhaps coming out of the peer-to-peer phenomenon with a shake out of the sector appearing likely as some of their portfolios start maturing.”

Globally the report found fintech investment increased 10.9 per cent to $17.4bn, compared to $15.6bn in 2015.

Alternative lending and financing accounted for 29 per cent of investment and challenger banks accounted for 20 per cent.

The US also saw investment decrease in 2016 to $6.2bn, down 12.7 per cent on the previous year. It was surpassed by China with deal value at $7.7bn.

Alternative Finance – a closer look at P2P (AltFi), Rated: AAA

Since the EU referendum vote last year, inflation in the UK has accelerated (thanks to sterling’s depreciation) but wage growth has remained stagnant, and mortgage rates have risen from their record lows but the interest rates on our savings haven’t budged. Life, as we’re often reminded, just isn’t fair.

Thanks to AltFi Data, we have also been able to track how this nascent industry has evolved since its conception. In particular, it is interesting to note how gross yields across the UK’s largest P2P lending platforms, despite the differing characteristics of their various business models, appear to have converged over time and currently sit around the 8 – 9 per cent range.

RateSetter, which pioneered the concept of a “provision fund” to shelter investors against losses from borrower default, is an outlier here with its consistently low average yields (around 4 per cent).

Another observation worth highlighting is how arrears have crept higher in recent years, driven predominantly by borrowers with lower credit ratings. AltFi Data’s numbers on Zopa, which provide us with the most granular data we have, suggests that borrowers in the A* band almost never fall behind on payments, while those in the lowest bands, C, D & E have seen their arrears rise steadily since 2014 (see Fig. 2 below). This has contributed to more instances of bad debt in the 2014 and 2015 vintages (see Fig. 3 below), although the overall picture remains fairly robust thanks to Zopa’s core A* offering anchoring the numbers.

Saving Stream Milestone: Value of Outstanding Loan Book Grows By 126% (Crowdfund Insider), Rated: A

On Tuesday, P2P lending platform Saving Stream announced its value of outstanding loan book grew by 126% during 2016. In its year review, Saving Stream stated over the last year, its outstanding loan book increased from approximately £73m in December 2015 to £165m in December 2016.

Saving Stream, which was founded in 2012 and is regulated by the FCA, stated its loan portfolio has also significantly increased, having now lent over £250m to property developers and purchasers. In addition, £60m has been repaid to investors. The platform has grown and has more than 13,000 registered users.

Nasdaq-listed fintech Pioneer Mitek launches in the UK (Yahoo! Finance), Rated: B

Mitek (MITK), a global leader in mobile capture and identity verification software solutions, has launched in the UK with a new office established in London. The US-based company works with over 5,500 organisations providing its technology to 70 million consumers across the globe. Mitek provides financial institutions and other highly regulated businesses with mobile verification technology underpinned by artificial intelligence (AI) that establishes an individual’s identity remotely to accelerate the digitisation of Know Your Customer (KYC) and Customer Due Diligence (CDD) processes around on boarding and payments.

This technology is already used by more than 70 million consumers, and is embedded in over five thousand apps by banks, insurance providers, payments providers, and other financial services. Mitek also offers “selfie authentication”, where the user can use their mobile device’s camera to perform a facial recognition scan in order to on-board into a service or authorise a transaction.

 

Authors:

George Popescu
Allen Taylor

Wednesday January 18 2017, Daily News Digest

Morningstar

News Comments Today’s main news: PRA resets FSCS limit at 85K BP. SoFi double downs on mortgages. Today’s main analysis: High-yield bonds outperform investment grade. Today’s thought-provoking articles: ApplePie podcast on franchise financing in MPL. Dianrong hits year-on-year increase of 148%. FinTech lending opening opps for SMEs in Indonesia. United States Mortgages take center stage at SoFi. AT: “It’s unclear […]

Morningstar

News Comments

United States

United Kingdom

China

Asia

News Summary

United States

Mortgages Taking Center Stage at Online Lender SoFi (National Mortgage News), Rated: AAA

Social Finance, the online lender that made its name refinancing student loans for high-earning millennials, is doubling down on mortgages as rising interest rates are expected to make originations scarcer.

The company says it has endured by eschewing the strategy of some of its competitors in favor of product diversification and building up capital.

With interest rates expected to rise in 2017, loans to purchase homes will find stronger demand than mortgage refinancings. SoFi says it’s well suited to compete in such an environment — roughly two-thirds of its mortgage originations are purchase loans.

Beyond product offerings, SoFi is exploring the potential applications in mortgages of new technologies such as blockchains — the distributed, auditable, cryptographically secured ledgers that underpin bitcoin and other digital currencies. The company is among several groups studying whether these systems offer a better way to track ownership of real-world assets — in this case, real estate.

SoFi will seek growth in mortgages partly by entering new markets. It began marketing to consumers in San Francisco, where its earliest student loan product customers were.

Now, it is picking new markets based on demand for its primary jumbo product.

So far, SoFi has received licenses in 27 states with the addition of New York.

Next on its list is Massachusetts — eventually the company wants to be licensed in all 50 states.

Morningstar Corporate Credit Research Highlights (Morningstar Email), Rated: AAA

Since the beginning of the year, the average corporate credit spread of the Morningstar Corporate Bond Index, our proxy for the investment-grade bond market, has tightened 1 basis point, whereas in the high-yield market, the credit spread of the Bank of America Merrill Lynch High Yield Master Index has tightened 19 basis points. Between tightening credit spreads and a slight rebound in Treasury bonds, fixed-income securities have performed well. Year to date, the Morningstar Corporate Bond Index has risen 0.53% and the high-yield index has risen 1.08%. However, risk assets with higher betas have risen even higher; for example, the S&P 500 has risen 1.6% over the same period.

At these levels, both investment-grade and high-yield corporate bonds are trading much tighter than their long-term averages, and the S&P 500 is only slightly below its all-time high. Currently, the average spread of the Morningstar Corporate Bond Index is +127, which is 41 basis points tighter than its longterm average of +168 since the end of 1998. The average spread of the Bank of America Merrill Lynch High Yield Master Index is currently +402, which is 178 basis points tighter than its long-term average of +580 basis points since the end of 1996. As a point of reference, the tightest that the Morningstar Corporate Bond Index has ever traded was +80 in February 2007, and the tightest the high-yield index registered was +241 in June 2007.

Denise Thomas of ApplePie Capital (Lend Academy), Rated: AAA

So it’s very important that the brand know how to select operators.

The second is that they know how to select and carve out the United States’ for territories because if you think about the number of people that need to support and purchase goods and services in an area, you have to know that that business is located in a spot where that’s going to be a positive unit economic situation because that’s how franchisees make money. When the franchisee makes money so does the parent franchisor because they’re paid in royalty fees off of the revenues of those units. So it’s very, very important that they get those two things right and there’s aligned incentives in that.

The third thing they have to do is franchisors have to support their franchisees in many ways; training, the blueprint for how to start that business, how to market in the area, advertising dollars for national marketing or local marketing. They have to provide a lot of ongoing support to make that franchisee successful and so we interview, we have a very multi-dimensional screening process for the franchisor and then they in turn screen their potential operators and many franchise businesses like to have an operator that opens more than one unit because they’re not training someone twice and they’re really getting leverage. We like those too because they’ve already shown that they can succeed in one location. So it’s a very interesting model because of the leverage points you get all the way through the system.

Listen to the full podcast.

SoFi officially licensed to lend in New York (Housingwire), Rated: A

State estimated to be future No. 2 market for SoFi

After roughly a year to get finalized, SoFi officially received its license to lend in New York, which is one of the most difficult states to acquire a license in, Michael Tannenbaum, SoFi’s chief revenue officer, said in an interview.

After roughly a year to get finalized, SoFi officially received its license to lend in New York, which is one of the most difficult states to acquire a license in, Michael Tannenbaum, SoFi’s chief revenue officer, said in an interview.

However, he noted that there are a lot of nuances to New York licensing and not too many out of state lenders receive approval.

It’s a very concentrated market that already has an awareness of SoFi and will likely be as large as California in business, which is SoFi’s No. 1 market, he noted. Washington State is slated as SoFi’s No. 2 market right now. SoFi is currently licensed in 29 states, also jumping into Montana recently.

From here, Tannenbaum said Massachusetts would be the last remaining big state that SoFi needs to jump into, pointing out the potential Boston could bring, especially since SoFi already has a solid student loan base there.

Rust Belt City Gets Rated Highest Yield for Single Family Rental Market (Crowdfund Insider), Rated: A

HomeUnion, a new online real estate management platform that helps landlords invest in property and then rent it out, has published their list of top Single Family Rental (SFR) markets in terms of yield. Cleveland is the best market, according to HomeUnion with yields of 10.9%. Meanwhile, hot metropolitan markets like San Francisco and Los Angeles are at the bottom of the yield barrel (Orange County is at the very bottom).

Alternatives firms get gobbled up (Pensions & Investments), Rated: A

Alternative investment consultant acquisitions in the past 12 months include:

nGeneral consulting firm Pavilion Financial Corp. acquired alternative investment consulting firm Altius Holdings Ltd. in September. Pavilion already purchased Sacramento, Calif.-based private equity consultant LP Capital in 2014. Pavilion now has $60 billion in alternative assets under advisement.

nSeattle-based consultant Verus Advisory Inc. closed its acquisition of San Francisco-based private equity consulting firm Strategic Investment Solutions on Dec. 31, 2015. The combined firm has responsibility for more than $380 billion in assets under advisement. Eight months earlier, Verus started bulking up its alternative investment capability when it contracted with hedge fund and private credit consulting firm Aksia LLC to gain access to its hedge fund investment team and due diligence reviews.

OnDeck strikes agreement with WEX to offer financing to small business customers (SNL), Rated: B

Online lender On Deck Capital will provide business financing to small business customers of payment solutions provider WEX.

2017 Cloud Lending Summit & Expo to Feature Larry Chiavaro (Benzinga), Rated: B

Larry Chiavaro, Executive Vice President of First Associates Loan Servicing will be moderating two panels at the iiBIG Marketplace Cloud Lending Summit and Expo on Thursday, January 19th.

The Funding & Liquidity in Marketplace Cloud Lending session will feature Chiavaro and other industry leaders, providing insights into securitization, working with institutional investors, crowdfunding, secondary markets and more. The Loan Origination, Servicing & Collection Solutions for Cloud-based Marketplace Lenders session will delve into the latest developments and best practices to increase efficiency and maximize portfolio performance.

United Kingdom

FSCS limit reset to £85k, but what’s the impact for P2P? (altfi), Rated: AAA

The Prudential Regulation Authority (PRA) has announced its intention to raise the level of coverage provided by the Financial Services Compensation Scheme. In a newly published policy statement, after factoring in feedback from interest parties, the PRA has proposed to reset the deposit protection limit to £85k as of 30 January 2017.

When the scheme’s limit was lowered to £75k in July, RateSetter CEO Rhydian Lewis said that it only strengthened the case to “refresh the FSCS”. But is the resetting of the limit to £85k bad news for peer-to-peer lending?

The Bank of England dropped the base rate to the historic low of 0.25 per cent in August. The peer-to-peer lending industry was overwhelmingly positive in reacting to the move, however a number have since been forced to adjust their own rates in the context of increasingly competitive credit markets in the UK.

Meet the P2P lender that wants to take the awkwardness out of lending money to your mates (BDaily), Rated: A

Flender has been in development for the last two years and is built around harnessing the power of social networks, both online and offline, to help individuals and businesses raise capital.

He said: “We were really shocked to discover how big that was. We surveyed the size of the friends lending market across the UK and when you translate that into value, we almost fell off our chairs.”

Using the example of someone trying to fund an MBA, Cavanagh explained that while people could theoretically do a whip around of friends and family, asking to borrow £500 to £1000 from 10 to 15 people, no one does due to the inherent complications and awkwardness associated with such lending.

Using the example of someone trying to fund an MBA, Cavanagh explained that while people could theoretically do a whip around of friends and family, asking to borrow £500 to £1000 from 10 to 15 people, no one does due to the inherent complications and awkwardness associated with such lending.

Cavanagh disagrees and argues that by making it both more formal and so easy to do, Flender’s solution is actually a lot less awkward than lending £500 to a mate, which is then never paid back.

“It’s going to maintain friendships more than anything,” he argued. “[Informal lending] is already going on to the value of £2.9bn a year, and that’s creating problems because it’s not formalised.

“It’s going to maintain friendships more than anything,” he argued. “[Informal lending] is already going on to the value of £2.9bn a year, and that’s creating problems because it’s not formalised.

P2P lender Saving Stream reaches £250m milestone (Mortgage Introducer), Rated: A

Peer-to-peer lending platform Saving Stream has raised £250m in capital from property investors since its launch in 2012.

The platform, which is owned by bridging and development finance provider Lendy Finance, provides loans up to 70% loan-to-value and has attracted 13,000 registered users.

The amount invested has increased by £150m to £250m in the last 12 months, with investors making an annual return of up to 12%.

Orca Money is one of the leading research and comparison facilities for P2P lending in the UK (Invezz), Rated: B

With the Orca Money comparison engine, IFISA investors are encouraged to research and compare thoroughly before they invest, as the rules are different to other ISA products. Orca research materials translate the guidelines governing the Innovative Finance ISA into simple, consumable and easy-to-understand content. Retail investors can get a quick overview of IFISA providers or dig into greater detail about the IFISA and/or the P2P lending platforms who offer them.

China

Dianrong Announces a Year-on-Year Increase of 148% (Yahoo! Finance), Rated: AAA

Dianrong, a Chinese P2P lending pioneer and technology leader announces that 2016 loan originations reached approximately 16.23 Billion RMB, representing a 148% increase over 2015. Growth in loans issued was funded by an astonishing 3.62 million investors, illustrating the breadth and scope of Dianrong’s business model.

During the year, Dianrong was named one of China’s top three online lenders by the renowned rating website, Wdzj.com, and Yingcan Consulting Company in their “Development Index Rating of the Top 100 Online Lending Platforms for October 2016”.

Last year marked the fourth consecutive year of strong growth in origination for Dianrong, hitting approximately RMB 60 million, RMB 790 million, RMB 6.55 billion and RMB 16.23 billion in 2013, 2014, 2015 and 2016 respectively.

Harneys wins two Deal of the Year awards in China (Cayman Compass), Rated: A

Offshore law firm Harneys has won two Deal of the Year awards from China Business Law Journal for its work on the Kaisa Group’s debt restructuring and HengXinLi’s launch of the first global real estate crowdfunding platform in China. Award winners were announced on Jan. 13.

The first global real estate crowdfunding platform in China is designed to provide Chinese investors with access to real estate in major international cities. The platform is aimed at middle-class Chinese nationals who want to invest in real estate in countries such as the U.K. and the U.S.

Innovation economy is next for China: Sky9 Capital founder (Asia Times), Rated: A

How many investment projects do you usually review, and how many do you typically invest in?

We look at over 1,000 opportunities a year, of which we typically do something like five to six projects. I am pretty sure that China will have the world’s biggest companies in fintech, robotics, and areas like cloud computing and software.

If you have to pick one, which start-up in China looks the most promising to you?

Hard to pick a winner, but in my portfolio, I am very excited about the prospects of Tujia, the Airbnb of China; FangDD, the largest online/offline real estate transaction platform; and PPDai, the largest pure-play peer-to-peer lending platform. These all have the opportunities to become decacorns.

LendIt China Launches LendIt News on WeChat (Yahoo! Finance), Rated: B

LendIt, the world’s biggest show in lending and fintech, made several major announcements today related to China.  First, LendIt announced the official launch of Lang Di Fintech 2017, its 2nd annual Chinese fintech conference held on July 15-16 at the Kerry Hotel, Pudong, Shanghai. Second, LendIt announced its partnership with JadeValue Fintech, a leading Chinese fintech incubator, to co-host the 2nd annual Chinese edition of the PitchIt@LendIt startup competition.  Finally, LendIt officially launched its daily fintech news channel called LendIt News on its brand new Lang Di WeChat channel.

This daily news brief is curated by the LendIt content staff to highlight the most important fintech news stories from around the world. This is the first launch of LendIt News, which rolls out in the U.S. in the coming months.  You can find LendIt News at or at WeChat account langdifintech.

Asia

Fintech lending opens up opportunities for SMEs (The Jakarta Post), Rated: AAA

According to the World Bank, only 36 percent of Indonesians have access to banking services and merely 13 percent borrow from formal financial institutions. While there are almost 60 million MSMEs, which provide over 100 million jobs in the country. Most of them cannot get the financing they need to expand.

Fintech-based lending can potentially fill the country’s existing financing gap of almost Rp 1 quadrillion (US$75 billion). In addition, peer-to-peer lending and crowdfunding fintech particularly can tap into the MSMEs, of which only 20 percent are currently bankable. Giving them access to initial or additional funding will definitely enable them to launch or to expand their business.

OJK issues regulations to regulate peer-to-peer lending (Lexology), Rated: B

The IT-Based Lending Regulation is the most developed articulation we have seen of a set of basic rules for the conduct of marketplace lending in Indonesia, although the regulation provides that further details regarding many detailed operational aspects will be regulated in further OJK Circular Letters.

Authors:

George Popescu
Allen Taylor