News Comments Today’s main news: Lending Club closes 5 investment funds, rebrands LC Advisors. CommonBond closes $248M securitization, receives AA S&P rating. LendingTree Q3 results. LandlordInvest expects to double IFISA intake. Ant Financial puts off IPO. Renredai volume surpasses 37.8B RMB. New Zealand prepares for open banking. SMART Box to debut in Canada. Today’s main analysis: Don’t forget about loan recoveries. Today’s […]
Big Tech vs. Big Banks. AT: “So far, all this talk of Amazon and Google threatening banks has been speculation. They certainly have the financial clout and technological prowess to be the threat that everyone is anticipating. But we still haven’t seen it happen–yet.”
Yesterday, Lending Clubannounced the closure of several funds. The funds were part of what was previously known as LC Advisors, an investment management company dedicated to investing in notes originated by the platform.
Since each fund is a separate legal entity there were many different buyers that participated. While we don’t know the terms of the deals or who purchased these loans, Suri did share with us that there were over 40 bids for the assets and 5 of the 6 funds have been sold at fair value or a slight premium.
What happens next?
Lending Club is rebranding its asset management business. Now called LendingClub Asset Management or LCAM for short.
When we asked Suri about positioning the new offerings to investors he stated that their biggest flagship fund under LC Advisors had delivered slightly over 6% annualized since 2011.
CommonBond, a leading financial technology company that helps students and graduates pay for higher education, today announces the close of a $248 million securitization of refinanced student loans. The offering’s most senior notes achieved AA ratings from Moody’s, S&P, and DBRS – Aa2, AA, and AA (high), respectively – the company’s highest ratings to date.
The transaction was CommonBond’s fifth and largest to date. Investors submitted $1 billion in orders, making the deal more than four times oversubscribed. Goldman Sachs served as structuring agent, co-lead manager, book-runner, and co-sponsor. Barclays and Citi also served as co-lead managers and book-runners on the transaction, while Guggenheim Securities served as co-manager.
The transaction was the first of CommonBond’s to be rated by S&P, who assigned AA ratings to the transaction, alongside similar ratings from Moody’s and DBRS. Moody’s and DBRS also recently upgraded CommonBond’s ratings on previous deals in recognition of the company’s strong credit performance.
To showcase the significance of the third-party debt collection industry in America, the New York Fed publishes in their Quarterly Report on Household Debt and Credit a ‘Third-Party Collections’ chart (below). As of 2017-Q1, between 12-13% of consumers with debt have debt being collected by third-party agencies (blue line). Of those, the average amount of debt in collections is ~$1,400 (red line).
The 2015-2016 roll rate matrix is experiencing a higher percentage of loans going from non-performing (60-89 DPD & 90-119 DPD) to current when compared to the 2013-2014 roll rate matrix. This 100 bps difference for 60-89 DPD and 200 bps for 90-119 DPD can be attributed to the improvement of servicers’ collection and outreach programs for delinquent loans.
Consumer loans have experienced a monthly recovery rate between 5% to 15% within different portfolios on our platform. Based on this table, a $100M pool of loans would have a $1M valuation difference between a 5% and 15% recovery rate input.
LendingTree, Inc. (NASDAQ: TREE), operator of LendingTree.com, the nation’s leading online loan marketplace, today announced results for the quarter ended September 30, 2017.
Third Quarter 2017 Business Highlights
Record revenue from mortgage products of $73.8 million represents an increase of 38% over third quarter 2016 driven by strong growth in both purchase and refinance revenues at 87% and 24%, respectively. According to Mortgage Bankers Association, originations industry-wide were down 16% in the comparable period.
Record revenue from non-mortgage products of $97.7 million in the third quarter represents an increase of 138% over the third quarter 2016 and increased to 57% of total revenue compared to 43% one year ago.
Home equity revenue growth accelerated, increasing $9.0 million, or 176% over third quarter 2016, and marked the eighth consecutive quarter of year-over-year growth exceeding 100%.
Personal loans revenue of $25.4 million grew 44% over third quarter 2016 and grew 24% sequentially.
Revenue from our credit card offerings grew to $39.4 million in 3Q compared to just $6.6 million in 3Q 2016. On a proforma basis, giving effect to the CompareCards and MagnifyMoney acquisitions as if they had occurred on January 1, 2016, credit cards revenue grew 43%.
More than 6.5 million consumers have now signed up for free credit scores and savings alerts through My LendingTree, and the volume of new enrollments accelerated. Revenue contribution from MyLendingTree grew 96% in the third quarter compared to the prior year period as new features and smarter savings alerts are driving increased engagement.
Third Quarter 2017 Financial Highlights
Record consolidated revenue of $171.5 million represents an increase of $76.9 million, or 81%, over revenue in the third quarter 2016.
GAAP net income from continuing operations of $10.1 million, or $0.74per diluted share.
Record Variable Marketing Margin of $59.1 million represents an increase of $22.8 million, or 63%, over third quarter 2016.
Record Adjusted EBITDA of $34.7 million increased $16.2 million, or 88%, over third quarter 2016.
Adjusted Net Income per share of $1.17 represents growth of 65% over third quarter 2016.
During the quarter, the company repurchased 42 thousand shares of its stock at a weighted-average price per share of $237 for aggregate consideration of $10.0 million. As of September 30, 2017, the company has $38.7 million in repurchase authorization remaining.
Business Outlook – 2017
LendingTree is revising Revenue, Variable Marketing Margin and Adjusted EBITDA guidance for full-year 2017, as follows:
Revenue is anticipated to be in the range of $603 – $608 million, representing growth of 57% – 58% over full-year 2016 and an increase from prior guidance of $580 – $590 million.
Variable Marketing Margin is anticipated to be $202 – $205 millioncompared to prior guidance of $190 – $195 million.
Adjusted EBITDA is anticipated to be in the range of $111 – $113 million, up 59% – 62% over full-year 2016 and an increase from prior guidance of $103 – $106 million.
A recent report from McKinsey on the global banking industry addressed the threat banks face from technology firms. Amazon stock jumped 13% on earnings and reporting that Amazon is increasing its lending footprint. Tune into Bloomberg Radio archive to hear more about this topic as PeerIQ’s CEO discusses the threats and opportunities of big technology with Bloomberg’s Lisa Abramowicz and Pimm Fox.
Summary of Amazon’s Lending Business
Amazon finances small businesses that sell products through the Amazon marketplace on an invitation-only basis. Interest rates range from 6 to 15%, tenor ranges from 4 to 6 months, and loan size is up to $750K.
Although there is no segment-level P&L reporting for the lending unit, loss-rates according to Amazon’s Peeyush Nahar have been “very, very small.” Amazon’s lending makes up a small part of their business (e.g., $3 Bn in loans to date vs. Amazon’s $136 Bn annual revenue). Amazon is also not directly financing the consumers indicating substantial opportunity to grow.
Owning the Customer
The most compelling advantage big tech has outside of data and customer acquisition are the creation of entirely new channels that banks cannot easily replicate.
A few examples:
In-Home: Large consumer tech firms occupy the most intimate space of consumer through services such as Amazon’s Echo, Google’s Home, or Apple’s Siri. These platforms represent a trojan horse for delivering new products and services in a highly personal and exclusive manner.
Personal assistants that are increasingly anticipatory and have access to the calendars, preferences, and daily lives of consumers.
Mobile and virtual wallets which shift the battleground from legacy “share of wallet” and “primary card” concepts to mobile platforms and virtual wallets
Virtual spaces created via social media including Facebook or services such as Lyft or Uber which enable unobstructed access to the consumer.
Technology giants like Google and Amazon, which gained their market muscle from non-finance-related ventures, are slowly stepping into the space. Their next target could be small business lending, and according to some experts, it’s fast approaching the market.
Amazon in particular is positioned to dominate. The company has already lent more than $1 billion to merchants selling on its platform, and, just as alternative lenders put the pressure on traditional FIs with their quick surge into the market, the Amazons of the world will do the same, Mills predicted.
Chatter Picks Up Steam
Karen Mills’ statements have found new backing in the latest banking report released by McKinsey & Co. this week. New reports in Bloomberg on Wednesday (Oct. 25) said the report identifies Amazon as the newest, biggest threat to the small business lending status quo.
The report points to sagging return on equities for the banks, which have not been able to surpass 10 percent since the 2007/2008 global financial crisis. The FIs that collaborate with those FinTechs could boost their return on equities to 14 percent and even higher if they develop their own solutions in-house.
When customers open an account at one of these automated investing firms, they’re put into funds from companies like Charles Schwab Corp. and Vanguard Group and charged a fee of anywhere from 25 to 50 basis points. In return, they get some extra benefits, like tax loss harvesting, which can result in a lower tax bill, and automatic re-balancing at no extra cost.
But there’s a catch, the funds that customers buy through these advisors are all available on free trading platforms such as Robinhood Financial, where there’s no added cost.
Consumer analytics company SelfScore has rebranded as Deserve, writes Julie Muhn at Finovate (Banking Technology‘s sister company).
The California-based company continues to be committed to providing underbanked Americans with access to credit, and to fuel that mission, Deserve has received $12 million in funding. The round was led by Accel, with participation from Aspect Ventures, Pelion Ventures, Mission Holdings, Alumni Venture Group, and GDP Venture, and brings Deserve’s total funding to $27 million.
Blockchain is particularly relevant to the lending market. Lending is a contract-intensive process with an extensive lifecycle; it carries significant risk and limited trust across its value chain – from origination to funding through to the fulfillment and servicing of the loan.
Moreover, the integration of blockchain with digital lending ensures transactions are tracked in an open and transparent way. Banks and lenders get direct visibility into exactly what happened during the lending process – who was involved, who had control over the authoritative copy of the digital assets and ultimately, who owns the value of those assets, as required by law.
Touching on the recent boom in real estate crowdfunding firms, John McNellis, co-founder of Palo Alto, Calif.-based development firm McNellis Partners, divided the crowdfunding sector into two groups: firms that simply connect investors with developers and firms that invest in projects themselves. The first concept should work in the long term, he noted. But when it comes to crowdfunding firms underwriting real estate deals, McNellis pointed out that it takes at least a decade in the business to become a reliable underwriter. “To expect these 20-year-olds who are good at tech to be good at underwriting” is unrealistic, he said. McNellis added that established developers normally already have financial partners that they prefer to work with. The developers most in need of crowdfunding dollars would be either those just starting out in the business or developers with a spotty track record.
The decline in underlying collateral quality — a theme across wider consumer ABS sectors — has been playing out in marketplace loan ABS, with recent deals from Prosper, Marlette Funding and Avant featuring a growing proportion of loans taken by borrowers with credit scores of less than 680.
A 2017 crowdfunding reportby the National Women’s Business Council, for example, found that 47% of successful campaigns on the popular crowdfunding platform Indiegogo were run by women.
Keep in mind that online business loan shopping sites may operate in a variety of ways:
Lead generation sites will simply gather your information then sell it to various lenders, which may then call or email you with information or offers.
Online lenders may offer a specific set of loan products aimed at specific types of borrowers (for example, those with significant credit card sales). Remember: just because you can’t qualify with one lender doesn’t mean you can’t quality with others.
Online brokers may try to help get you funding with various lenders with whom they have a relationship. They may charge a significant fee for this service, so be sure to ask.
Online marketplaces will present you with options and allow you to choose which ones seem right for your needs. Ideally, you’ll also see which loans are best matched to your qualifications. (Disclosure: Nav’s small business loan marketplace operates this way.)
Zeus CrowdFunding once again offers borrowers what other lenders won’t – low rates designed specifically for the real estate investor and their year-end needs. For a limited time, qualified applicants will pay only six percent interest for the first six months of the loan term.
The company loans up to 100 percent of a project’s cost to qualified applicants in as little as four days.
On Deck Capital, Inc. (NYSE:ONDK) is scheduled to be issuing its quarterly earnings data before the market opens on Wednesday, November 1st. Analysts expect the company to announce earnings of $0.03 per share for the quarter.
As banks rush to catch a wave of robo technologies, Wells Fargo Advisors is rolling out a factor-based approach designed for advisors and their clients.
The wirehouse has launched an expansion to its electronic model portfolio services platform, according to Patty Loepker, WFA’s head of research directed advisory programs. The new managed accounts program features allocations built around smart beta ETFs.
Litigation finance specialist Pravati Capital has launched its third fund vehicle to capitalize on opportunities in the burgeoning litigation finance sector.
The new fund, named Pravati Credit Fund III, will invest in mature stage, high-probability, high-value cases or case portfolios where there is established liability and precedent for settlement, according to a statement.
Initially, my co-founders and I had experience verifying identity documents meant for an offline world. The current way of verifying documentation for a standard current account requires hours and hours of face-to-face in-branch and still not getting approved; it’s no wonder there’s a 40% drop-off.
Of the 7 billion people in the world, Facebook has brought their social identity online, LinkedIn has brought their professional identity online and now we’re looking to bring their legal identity online.
How exactly are Onfido providing something that mainstream banks should take notice of?
Very simply, we help business verify the identity of the people they are onboarding digitally. That can be with a photo of their government issued ID that the user can send with a smartphone. We cover 600 IDs globally and use machine learning to verify whether the ID is genuine or not. There are three steps to our core technology. The first, we extract the details, see if the patterns are consistent and compare them to the millions of historically computed IDs. The second step is asking the user to take a photo or short video of their face, which we compare to the photo on their identity document for similarity. The third step is to check that their details – name, date of birth and address – are consistent with records on multiple databases. Altogether this verifies the person is who they claim to be and, end-to-end, takes two minutes.
We use a hybrid machine/human approach – the technology is able to automatically process the vast majority of documents, and the small number of outliers are passed to our expert human team for review. It means that human resource can be put to more effective use, and would heavily cut down on the 30,000 people employed by Citibank, for example, who just work on onboarding and compliance checks.
As a Millennial yourself, how much of a role do you think generations play on attitudes to banking?
Millennials are just so used to doing absolutely everything on their phone.
Fintechs have really monopolised the millennial market and they’re building the models to ensure they keep that market for the next 15-20 years. That’s where PSD2 becomes very relevant as a leveller of the playing field for the market – it’ll increase healthy competition.
Silicon Valley investors have more than doubled funding for UK technology companies this year, in a sign of strengthening links with the world’s biggest tech hub after the Brexit vote.
British start-ups received £884.8m from venture capital backers based in San Francisco and the Bay Area in the first nine months of this year, compared to £342m in the whole of 2016, according to London & Partners, the London mayor’s promotional agency.
According to the latest figures from London & Partners (L&P), the Mayor of London’s official promotional firm, investors from around the world have backed London-based fintech firms to the tune of £825m so far this year. This is a positive sign for the industry after UK fintech investment plummeted by more than a third in 2016 as investors put off decisions in the wake of the Brexit vote.
One of the biggest London fintech success stories, currency exchange platform Transferwise, is reported to be in discussions with investors to raise a further £77m, which would value the company at more than £1.2bn.
Strange as it may seem, using the analogy of Lego may be the best way to demonstrate why we believe the peer-to-peer (P2P) industry also isn’t – and can’t be – a one trick pony. While some see the industry as a fad that is set to become redundant, there are many reasons why this isn’t the case.
P2P platforms are exploring a range of new and old ways, and their aim is to create something which is more equitable, satisfactory and useful for everyone.
Uber has appointed a former senior adviser to the Bank of England as non-executive chair in the UK, as it endeavours to clean up its image and “make things right” after Transport for London last month revoked the ride hailing company’s licence to operate in the city.
Laurel Powers-Freeling, who will take up the newly created position, is currently senior independent director at online lender Atom Bank.
Flush with cash, Chinese financial-technology giant Ant Financial Services Group is putting on hold plans for an initial public offering while it steps up investments in everything from startups to artificial intelligence, according to a senior company executive.
Investors and analysts have been expecting Ant to go public sometime in 2018. The Hangzhou-based company last raised $4.5 billion from private investors in April 2016 in a deal that gave it a $60 billion valuation—and its business has since expanded significantly.
51 CreditCard (u51.com), an online platform for credit card bill management, is reported to be listed on Hong Kong Exchanges and Clearing Limited (HKEX) in 2018, aiming to raise at least 500 million dollars.
According to a report of China Daily, the credit database of PBOC has collected credit information of more than 840 million individuals as well as more than 19 million companies and organizations by the end of April. Among these agencies, only 255 licensed micro loan companies have been connected to the company credit information system and 156 to the individual credit information system.
From November 1st, customers will be able to pay their train tickets by using WeChat Pay through the official booking website 12306.com or in the train station (booking office/self-service ticket machine).
On October 18th, Trustdata released the long-awaited “Trustdata: China Consumer Finance Analysis Report (2017)”. The document presents a comprehensive review of consumer finance development in China, makes a deep analysis of payday loan, installment credit and consumer behaviors, and proposes a new concept called “Consumer Finance Development Index”.Statistics from the research notes that, by the end of last month, the credit scale of consumer finance in China has reached more than 110 billion yuan with 3.7 million registered users.
The phenomenon of “Chinese companies lining up for an IPO in the United States or Hong Kong” has re-surfaced recently, Tiger Brokers, an online brokerage helping Chinese investors trade US- or HK-listed stocks, told chinadaily.com.cn Thursday.
Beijing-based Jianpu Technology Inc, which is 100 percent controlled by RONG360 Inc filed its preliminary prospectus with the US Securities and Exchange Commission, without the estimated IPO price range, on Oct 20.
Prior to Jianpu, Chinese online small consumer credit provider Qudian Inc made its debut on the New York Stock Exchange on Oct 18. Qudian priced its IPO of 37,500,000 American depositary shares (ADSs) at $24.00 per ADS for a total offering size of about $900 million, according to Xinhua News Agency. Qudian closed at $26.39 Wednesday after diving 7.24 percent, still above its IPO price.
Recently, Renrendai issued its performance report for the third quarter of 2017.According to the report, the cumulative turnover of the platform surpass 37.88 billion RMB, with 524 thousand transactions in total.
More details, Renrendai remained steady growth in the third quarter. The volume on the platform reached 6.51 billion RMB this quarter, a 109% increase over the same period last year, and the amount of money that investors earn is up 55% from the same period last year. In addition, the per capita borrowing amount on the platform is 80.8 thousand RMB, which represents the capital requirements of small business owners and self-employed people in the class, and always below the national regulations of loan balance ceiling of $200000.
On 27th October, the shares of Qudian tumbled again, closing down $3.59 to $22.8, down 13.6% below the offering price of $24 a share.
The company has fall into constant questioning just after it landed in the SEC. Luo Min, the CEO of Qudian, responded several questions through an interview Qudian’s Luo Min Respond To All, but this move has raised more query. Many media and media outlets gathered to lambast Luo Min for “lying” in her response.
On 23th October, Luo Min avoided all the media interviews again. Since then, the shares of Qudian began to slump, which closed at $26.39 on 26th Oct, down nearly 20 percent from the opening price of $31.89 on Wednesday.
Jianpu Technology Inc, a wholly-owned subsidiary of Chinese fintech firm Rong360, has filed for a $200 million IPO in the US. Goldman Sachs, Morgan Stanley and JP Morgan are bookrunners for the deal, according to a stock exchange filing.
China is preparing to tighten regulation of online consumer lending as part of a campaign against financial risks, dealing a possible setback to Chinese fintech groups that hope to sell shares in the US.
Household debt in China remains low as a share of GDP, and authorities have encouraged growth of consumer credit as a way to rebalance the economy towards consumer spending, but now concerns are rising about irresponsible lending practices online.
Online consumer lending has replaced peer-to-peer lending as the trendy new area in Chinese fintech, as a regulatory crackdown on P2P reduced that sector’s profitability. Short-term consumer loans outstanding in China grew by Rmb1.49tn ($225bn) through the first nine months of this year, compared to an increase of Rmb830bn for all of 2016, according to PBoC data.
Chan also said the rapid growth of new fintech services, such as peer-to-peer lending marketplaces and online money market funds, was made possible by a lack of innovation by the country’s traditional banks in addressing the needs of not only the average consumer, but also many small and medium-sized enterprises.
High-flying start-up Ant Financial Services Group, which runs online payments service Alipay and money market fund Yu’ebao, has made AI a key driver for expanding its businesses and improving customer service.
China was the world’s second-biggest investor in AI enterprises last year, injecting US$2.6 billion into the sector, according to the state-run think tank, Wuzhen Institute. The United States topped the list with US$17.9 billion in investments.
What would your reaction be if you wanted to get a loan and your bank asks to go through your Facebook profile? In China, this is already happening on a large scale, but it’s not banks that are doing the rating—it’s the country’s burgeoning fintech companies. And it’s not Facebook they are looking at—its social platform WeChat and shopping website Taobao.
Social credit scoring analyses data from non-traditional sources: social media, online shopping, payment apps, cell phone accounts, and more. This type of scoring is meant to fill a gap for people who want a loan but don’t have any way of proving they can repay one. In order to gauge whether you are creditworthy or not, the score can take into account a number of variables: who your friends are, what you buy, whether pay your bills on time or even how much time you spend reading the user agreement. It’s like FICO but decidedly more creepy.
Alibaba was once a kind of shadow lender too. The company first started building its own credit scoring model to provide loans to Taobao vendors. For this, it relied solely on the platform’s ability to gather big data—transactions, user ratings, market positioning, and others.
Sesame Score (screenshot above) tracks five areas: identity information, such as information on users’ education and work, ability to keep financial obligations, credit history, behavioral preferences like shopping, money transfers, and connections with other people. In return, it offers deposit-free bike and power bank rentals as well as other benefits.
Yirendai (YRD) is a Chinese fintec company focused on facilitating unsecured loans. Leveraging the experience of its parent company, CreditEase, Yirendai has facilitated more than RMB 47 billion (US$7 billion) of loans since commencing operations in March 2012.
Financials and performance
Yirendai’s core business has seen rapid growth, facilitating over RMB 20 billion(US$3 billion) in loans in 2016, up 112% from 2015. The most recent forecastfrom the company expects loan volume to continue to grow through 2017, with RMB 35-37 billion (US$5.3-5.6 billion) this year. Earnings have been strong and growing as well, with net income for the six months ending June 30, 2017, rising from RMB 392 million to 620 million (US$58.9 million to 93.2 million) over the same prior-year period, translating to diluted earnings per ADS of RMB 6.71 to 10.26 (US$1.01 to 1.54) for the same periods.
China’s upcoming Social Credit System
Presently, eight companies have been licensed to develop algorithmic SCS scoring systems, including China Rapid Finance, a partner of social network TenCent (OTCPK:TCEHY) and Sesame Credit, which is run by Ant Financial, an Alibaba (BABA) affiliate.
Italian P2P firm BorsadelCredito.it has followed in the footsteps of its UK antecedent Funding Circle by launching a closed-end fund. The unlisted fund, which is called Colombo, hopes to raise €100m to invest across a 5 year timespan, and is managed by BorsadelCredito.it (through a vehicle named ART SGR SpA). The fund’s custodian bank is Caceis Bank.
By investing in Italian SME loans, originated exclusively by BorsadelCredito.it, the fund will target a yield of 5 per cent (5.5 per cent pre-tax).
Desai left the audience in no doubt that Funding Circle has “no plans” to launch a bank. Later that same day, Zopa CEO Jaidev Janardana delivered his keynote: “Why we’re launching a bank”.
José Rego, who runs Portuguese P2P firm Raize, sees the issue as black-and-white.
“By definition, if you become a bank, you stop being an alternative lender,” he said. “Becoming a bank is an extremely complex and very expensive strategic decision which typically takes into consideration other elements besides the equity value generated by the alternative lending. Only a select number of platforms are likely to have the opportunity to become banks (if they wish so). So, in reality, I don’t think it should be something we’re thinking about within the industry.”
In a new report ‘Asset & Wealth Management Revolution: Embracing Exponential Change’, PwC anticipates that global Assets under Management (AuM) will almost double in size by 2025, from US$84.9 trillion in 2016 to US$111.2 trillion by 2020, and then again to US$145.4 trillion by 2025.
By 2025, AuM will have almost doubled – rising by 6.2% a year, from US$84.9 trillion in 2016 to US$145.4 trillion in 2025, with the fastest growth seen in the developing markets of Latin America and Asia Pacific.
While active management will continue to grow and play an important role, reaching $87.6 trillion by 2025 (60% of global AuM), PwC predicts growth in passive management to reach $36.6 trillion by 2025 (25% of global AuM).
If current growth is sustained, the industry’s penetration rate (managed assets, as a proportion of total assets) will expand from 39.6% in 2016 to 42.1% by 2025.
PwC anticipates assets growing at 5.7% a year in North America from 2016 to 2020, slowing to 4.0% per annum from 2020 to 2025, lifting assets from US$46.9 trillion to US$71.2 trillion over the nine years. Similarly, Europe is projected to grow at 8.4% and 3.4% per annum respectively over the two periods, with assets rising from US$21.9 trillion to US$35.7 trillion.
McKinsey said that the industry needs to continue its digital makeover to protect the up to 40 percent of revenues at risk by 2025 and prepare for competition from so-called platform companies like Bezos’s Amazon.com Inc.
As he extends Amazon’s reach, the Seattle-based company has had discussions with banking regulators about financial innovation, according to lobbying disclosures reviewed by American Banker. And it already has a small-business lending arm that has doled out more than $3 billion to more than 20,000 of the merchants on its e-commerce platform.
The global banking industry, which had an 8.6 percent return on equity last year, could offset the loss of profits from price competition by partnering with platform companies and generating more revenue from their data. Banks that go further by creating their own platforms could elevate their ROE to 14 percent, according to the report. ROE is a measure of profitability.
Furthermore with smartphone prices of $30 to $50, Asian markets maintain a robust mobile market. 76% of Taiwan is connected to mobile, and 70% of Myanmar is connected.
Experts estimate Asia as the region to become the fastest growing Internet region by 2020. And while their internet industry is flourishing, only 27% of Southeast Asians have a bank account. In 2017, China has 731 million internet users. That is only 53.1% of the population. China represents internet development at a fast pace, but it still has 21% unbanked. Internet traffic growth in Myanmar is at 58%, yet Myanmar is one of the lowest banking rates in Asia with over 70% of adults (aged 15+ years) unbanked.
As an example OECD research points out that financial sector works constitute 19% of the top 1% earners but the share of finance in the overall employment is only 4%.
In developed world, there are huge reserves of money lying in banks at sub zero, zero or miniscule interest rates. On the other hand in the developing world where there is a dearth of credit, loans can only be had at rates as high as 20-30%.
According to Eurostat, SMEs represent around 99% of all enterprises. In OECDcountries alone SMEs are responsible for job creation to the tune of 60-70%.
Karma plans to use the blockchain in such a way that individuals as well as legal entities can make the most of profitable relationships with each other. This will entail creating a community of participants, who will be able to lend money, borrow money, insure against default, Score loans and carry out assessments and even collections. All of this will be fuelled by the Karma token that will be at the centre of this new ecosystem.
The sale of Karma tokens is legal in all jurisdictions including the United States and China. Qualified US investors can participate. The basic price of Karma Token is US$ 0.01. Early investors can get discounts of 50% till US$ 1 mln is collected, thereafter 30% discount is available till US$3 mln is collected and 15% till US$ 8 mln is collected. There is a hard cap of US$ 10 mln on the token sale.
Though fintech can take many forms, “I think the disruption is really in the payer experience,” says Sharon Butler, EVP, education at Flywire, a global payment solutions company. “Essentially we are leveraging banking infrastructure. I think really what fintech is, is sort of the blend of the old and the new.”
Preceding the growth in cross-border tuition fee payment services, which track the money and file it instantly with minimum costs involved, were more staff resources sifting through multiple transactions and matching them to the student, coupled with uncertainty from the student’s side about when or whether the money would actually have arrived.
Improvements in payment services is one of the biggest ways fintech has benefitted students, agrees Devie Mohan, founder of fintech research company, Burnmark.
Fertile ground in China
Financial technology as an industry has grown globally at an unprecedented scale. Last year, fintech reaped $17.4 billion of venture capital investment – a colossal increase on the $2.5 billion it received just four years ago.
And $7.7 billion of this investment went to China, seeing it overtake the US as the top investment market for fintech companies for the first time.
A platform targeting the Chinese market has recently struck a deal to partner with ChinaPay, the online payment subsidiary of China UnionPay, one of the world’s payment giants.
The mobile payment industry is one which has grown particularly quickly in China in comparison with other countries around the world, predominantly led by Alipay and WeChat Pay. These two platforms combined saw $2.9 trillion in transactions overall last year.
Modernising student loans
But it was Prodigy Finance that entered the loan market specifically to serve international students. Since its inception in 2007, the platform has lent over $310 million to international students all around the world to study overseas, and is expanding its services.
Financial services startup Ethercash has proudly announced its Pre-ICO Campaign, which will raise funds to develop its blockchain-backed financial platform. The Ethercash platform aims to revolutionise three core functions of finance to bring greater transparency and security in the way we lend, send and spend. The Etherecash platform will allow its users to leverage their cryptocurrency holdings to acquire fiat currency loans without the need for credit history, through the application of lawyer-backed smart contracts. The Etherecash Pre-ICO campaign will run from October 25th, 2017 until November 7th, 2017 and ICO campaign will begin November 15th, 2017 and finish on December 19th, 2017.
Andrew Sieprath is among the first people in the Europe to embrace “open banking” as a customer.
His chosen banking provider is Revolut, which isn’t even a bank.
Revolut is just one of three “open banking” services due to launch here in the next few months. They will lead New Zealand into something of a banking revolution which threatens to do to banks what Uber is doing to taxi firms, and ultimately put more pressure on them to cut staff or close branches.
There are many emerging open banking models, but as a starting point, think internet banking that’s slicker, more intuitive, and allows users to see and manage accounts from multiple banks in a single place.
While the technology behind robo-advice is making it cheaper to invest, it doesn’t mean it is actually providing advice let alone the right advice, says the Association of Real Return Investment Advisers general manager Rebecca Jacques.
She told a recent Calastone forum that she put a few global and domestic robo-advisers to the test by giving each the same simplistic target: to pay her young children’s private school fees.
Every robo asked for a country of origin; only one asked for a tax bracket – but what was “scary” was that not one asked if the funds would be used for private school tuition, she notes.
But the report found property transactions made up a very small part of that alternative financing industry, making up just $49 million, or 8%, of the $609 million dealt out in 2016.
Australia lags behind the Asia-Pacific average (excluding China) of 17% of alternative financing going towards real estate. The popularity of peer-to-peer property financing in South Korea is a big contributor to the high average.
The $49 million alternative lending spent on real estate in Australia is made up of $36 million in peer-to-peer lending and $13 million in crowdfunding. In the US, peer-to-peer is worth $1 billion and crowdfunding $800 million.
CrowdfundUP – The startup has so far allowed 2,000 people invest in 17 projects, with individual investments typically ranging from $5,000 to $2 million.
CoVESTA – The real estate on offer includes residential, commercial and even agricultural properties, with investors requiring to contribute at least 5% of the purchase price if they wish to be a tenant in the property. For passive ownership, just 1% ownership is required.
It has been observed that, when the P2P lending industry or any other industry is prudently regulated, it attracts more participation. In terms of P2P, the regulation will increase entry of investors as well as borrowers. This is a reason why RBI regulating the NBFC-P2Ps is a long-term positive for the Indian P2P lendingindustry.
RBI regulating the sector means dead-end for players that are looking only to generate money without adding any value.
However, the potential social benefits of P2P lending are contingent on a facilitative and proportionate regulatory ecosystem. A review of the P2P regulations issued by the RBI leaves much to be desired in that sense. Saliently, the P2P regulations delegate potentially arbitrary discretion to RBI in gatekeeping, impose high market-access barriers that would inhibit innovation in a technology-intensive sector, and lack clarity around critical issues like leverage ratio.
A. Excessive regulatory discretion: One of the principal governance issues of a modern state is injecting accountability into regulatory discretion.
B. Disproportionate minimum capital requirements: The RBI has prescribed a mandate that would require a minimum net-owned fund (NOF) of Rs2 crore.
C. Lack of clarity around critical issues like leverage ratio: Leverage ratio is defined as “total outside liabilities divided by owned funds, of the non-banking financial corporation in P2P (NBFC-P2P)”. This leverage ratio has been capped at 2.
The current marketplace for financial products in India is still highly inefficient, time-consuming & uncertain for customers – especially the SMEs and the MSMEs. When they require loans as working capital or for expenditures like purchase of raw materials, payment towards wages etc. to achieve scale and growth, approaching a bank directly or even visiting loan aggregator websites becomes challenging in terms of time & information. Also, due to varied risk appetite of traditional financial institutions, many SME and MSME entrepreneurs are often puzzled in terms of documentation requirements; different banks and lenders have their own set of risk parameters which they assess while sanctioning a lending facility. This results in high rejection rates within the loan ecosystem.
Why online lending is emerging as an enabler for India’s MSME industry
New-age fintech lending marketplaces endeavor to revolutionize the country’s financial lending patterns by changing the way it works. They are enabling easy access to loans by connecting these small businesses to financial institutions on a consolidated platform for quicker sanctions. Such neutral platforms, with customer-centric features offering a wide range of loan products and end-to-end loan fulfillment, enable MSMEs to concentrate on building their businesses rather than worrying about finances to fulfill the gap in their cash flows or fund their expansion and growth.
While the Reserve Bank of India’s (RBI) guidelines for lenders and borrowers on peer to peer (P2P) lending platforms are important cautionary moves, caps on lending should ideally be linked to lenders’ incomes, Neha Agarwal, co-founder of i2ifunding, told Shritama Bose. The company has disbursed more than Rs 3 crore so far in FY18 and has a full-year target of Rs 10 crore, she added.
We have had more than 30,000 registrations on our platform so far, of which around 25,000 people are registered as borrowers and around 5,000 as lenders. Since launch, around 500 loans have been disbursed and we have around 2,000 active lenders.
The average loan size is about Rs 1.5 lakh.
Almost 90% of the lenders have invested more than once. Around 40% of lenders are lending regularly on our platform.
Gregor has a company in Singapore where individuals can securely store their gold and silver.
Using peer to peer lending you can withdraw up to half of your holdings in loans at low-interest rates. For example, if you have $100k worth of gold you can deposit and take out a loan for 50k at around 3.5% interest per year.
The fast growing Fintech industry is another feather in the cap of rising Asia. According to EY FinTech Adoption Index 2017, there is a palpable global shift of fintech activities from the UK and the US to Asia.
Another report provided by KPMG and CB Insights says in 2016, investments in Fintech companies in Asia hit $8.6 billion across 181 deals.
In light of this, fintech innovation labs and fintech accelerator/incubator spaces are rapidly growing throughout Asia, especially in Hong Kong. The FinTech Innovation Lab Asia-Pacific is collaboration between Accenture and leading financial institutions including Bank of America, Merrill Lynch, Goldman Sachs, HSBC, J.P. Morgan, and Standard Chartered, etc.
A bout of high-profile mega-rounds in the Chinese market has also played a vital role in uplifting Fintech investment. One such activity was a whopping US$4.5 billion funding round by Ant Financial, an affiliate of Alibaba group. The other smaller but successful funding rounds in China during 2016 were: US$73 million to Quant Group, and US$30.4 million to China Rapid Finance.
According to a recent research conducted by Startupbootcamp FinTech Mumbai and PwC, it was found that more than 95% of financial service companies are seeking partnership with Fintech startups through collaboration rather than competing with them.
Another report regarding Indian Fintech ecosystem is more interesting. It says Indian Fintech market is expected to double from current US$1.2 billion to US$2.4 billion in 2020.
Tan, who formerly partnered with Sequoia Capital Asia, said his Singapore-based fund is looking for ambitious, strong Korean tech startups to invest in what could become the next unicorn.
He believes Asian-based VCs have a competitive advantage over established VCs from Europe or the US in the region as they can effectively tackle the needs of startups.
Fintech and software as a service, especially targeting small and midsized businesses, are the buzzword in Southeast Asia, according to Yoo Jung-ho, investment manager at Korea Investment Partners.
“In many of these countries, payment, banking abd finance, are still in a nascent stage with only 10 percent of the population utilizing credit and banking services,” said Yoo. “There is a great demand for firms that provides peer-to-peer lending and payment services. “So companies that target small and medium enterprises that make up the majority in Southeast Asia, will have a fighting chance.
According to recent reports, only 12 percent of households in Malawi have access to credit. With 65 percent of the population living under the poverty line, the rural population is especially vulnerable to the limitations of credit.
In today’s modern age, a physical bank is no longer needed to conduct financial services. Virtual and automated banking is expected to replace 30 percent of bank roles in the next ten years. These virtual banks even the playing field for Malawians by allowing consolidated rates, 24/7 access to services, and a location for information about other services. Some of these alternative, virtual services include:
Peer to Peer Loans:Rather than receiving a loan from a financial institution, peer to peer loans allow people to receive a loan directly from an individual financer. In order to apply for a loan, you must visit a peer to peer lending platform such as Prosper or Perform, and the online marketplace will match borrowers and lenders. Although the site still uses credit scores, individuals may have more sympathy towards you and your situation as opposed to a national bank.
Crowdfunding:Another way to finance an opportunity is through crowdfunding. Crowdfunding is a fairly recent innovation that utilizes crowdsourcing as a way to raise funds for a project or business.
The change in financial technologies in the coming years will have a great impact in Malawi, and create more access to services for the entire population.
Lendified, a Canada-based lender who provides small business loans online has entered into an agreement with ClearFlow Commercial Finance to increase its lending capacity. According to the lending platform, through the agreement, ClearFlow is providing it with a $60 million credit facility to fund loans delivered through its website.
Five years ago, 95% of Kabbage’s loans went to eBay businesses. Today, 90% of the company’s loans are extended to brick-and-mortar businesses representing a seismic shift in how the direct lender has transformed since its founding in 2009. Co-founder and CEO Rob Frohwein got the idea for Kabbage from his own knowledge of eBay. He […]
Five years ago, 95% of Kabbage’s loans went to eBay businesses. Today, 90% of the company’s loans are extended to brick-and-mortar businesses representing a seismic shift in how the direct lender has transformed since its founding in 2009. Co-founder and CEO Rob Frohwein got the idea for Kabbage from his own knowledge of eBay. He wanted to give third parties access to business financing and developed a platform for underwriting small business loans to those types of businesses.
Headquartered in Atlanta, Frohwein recruited Kathryn Petralia, who serves as head of operations, and Marc Gorlin, no longer with the company, as co-founders. Despite being a balance sheet lender, Kabbage does have its partners. Victory Park Capital provides most of the funding for its debt while Mohr Davidow, ING, and other investors cover its equity funding.
On August 3rd of this year, Kabbage completed a Series F funding round of $250 million led by the SoftBank Group. That amount brought their total raised through the six rounds to $488,650,000. The company’s A series round in January 2011 raised a modest $6.65 million, with BlueRun serving as the lead investor. Their funding has progressed steadily. Series F almost doubled Series E, which raised $135 million in October 2015. Reverence Capital led that round.
A founding member of the Innovative Lending Platform Association (ILPA), Kabbage is an online lender motivated by unique and interesting data and is one of the largest U.S.-based nonbank lenders to small businesses.
Kabbage has enjoyed a stellar history of partnerships, almost right from the beginning. Its first loans were issued in May 2011 based on debt funding from Victory Park Capital. In February the next year, the company entered an agreement with United Parcel Service allowing small businesses to share their shipping histories with Kabbage. Three years later, in March, they partnered with MasterCard to make Kabbage’s data and technology platform, as well as access to working capital, available to MasterCard’s small business partners. Then, in April 2016, the small business lender began servicing Santander UK’s SME customers. A couple of months later, Kabbage announced a partnership with Scotiabank to enable businesses to borrow up to C$100,000 (US$78,290) online in as little as seven minutes. Most recently, in August 2017, the firm received the previously mentioned $250 million investment from SoftBank Group, capital that Frohwein said will help the company expand in the U.S.; launch analytics tools to provide loans for specific verticals; branch into new markets, like Asia; and explore acquisitions to add new products to its inventory.
Petralia shared how the company might also use the SoftBank investment to expand existing technology, such as the Smart Box Disclosure and Loan Comparison tool. Released in 2016, in partnership with OnDeck and CAN Capital, this tool helps small businesses better assess and compare finance options. There was also industry speculation earlier this year that the SoftBank capital might provide Kabbage with the firepower for a potential takeover of OnDeck Capital, which went public in 2014 but has since struggled with growing losses, rising defaults, and higher funding costs. Both Kabbage and OnDeck have been mum about those rumors.
On October 24, 2017, Kabbage and ING announced a partnership to fund small businesses in France and Italy, an expansion of their 2015 partnership in which they did the same in Spain.
Success and Accolades
As the company has expanded its reach around the world, so has its pedigree. In 2012, they were named to Red Herring’s list of the Top 100 private North American companies. In 2013, they made the Fast Company’s Top Ten Most Innovative Companies in Finance list. Forbes added them to the Top 100 Most Promising Companies list in 2014 and 2015. In 2016, CNBC put them on the Annual Disruptor 50 list of the most forward-thinking and ambitious companies revolutionizing industries and markets worldwide. Then, three years in a row (2015, 2016, and 2017), they were included in the Inc. 500 list of the country’s fastest growing private companies.
Still, partnerships and accolades do not necessarily spell success. When banks pulled out of SME lending in the wake of the 2008-09 financial crisis, Kabbage was one of the companies that stepped forward to fill the void and meet the need. To date, they’ve lent $3.5 billion to more than 115,000 small businesses. In fact, they’ve funded $3 million a day, on average.
The Future of Kabbage and Small Business Lending
Petralia says the future for Kabbage is more direct lending underscored by a marked increase in platform partnerships. The company is actively evaluating products to engage small businesses and their direct lending needs.
Further, Petralia promises that, along with companies like PayPal and Square, Kabbage is poised to help lead the industry into a future with more focus on customer experience and a greater focus on the relationship with the borrower. Where traditional financial companies worked with brokers, fintech lenders continue to focus on the relationship with borrowers.
Kabbage is also carving its niche in the future by tapping into the ever-growing diversity in the U.S. population. Petralia is pleased to confirm that the company is reaching the plateaus and celebrating the accomplishments it does on the strength of a leadership structure and work force that boasts a greater mix of women. On average, women account for 26% of the work force in fintech companies, but that mix is as high as 35% at Kabbage, which also boasts four women on its leadership team.
Furthering the company’s ties to diversity, Petralia says the company also exceeds the financial services industry by double in terms of women and minorities customers, as women and minorities are more likely to run small businesses. As the company’s customer application is blind, no concrete data exists on this.
Still, it looks as if Kabbage is poised to continue to spearhead the growth of the online lending industry, and whether Mr. Frohwein envisioned his company filling that void left by the banks or not doesn’t matter. What matters is that Kabbage is on the cutting edge of new direction in small business lending, and it’s paving a path for others to follow.
SMART box, an initiative started by OnDeck, CAN Capital, and Kabbage voluntarily, will provide small businesses with a standardized pricing comparison tool across all SME credit products. SMART box will allow businesses to easily compare different products from different credit providers in a simple and organized way to enable an “all-in” pricing for the 20, […]
SMART box, an initiative started by OnDeck, CAN Capital, and Kabbage voluntarily, will provide small businesses with a standardized pricing comparison tool across all SME credit products. SMART box will allow businesses to easily compare different products from different credit providers in a simple and organized way to enable an “all-in” pricing for the 20, and growing, number of business credit products that already exist.
The need for self-regulation
The Treasury, SEC, FTC, OCC (office of the comptroller of currency), all have released white papers/reports on alternative lending in general and p2p lending in particular. The p2p market has caught everyone’s attention; from Silicon Valley VCs to Wall Street banks and ultimately the regulators. The industry has been helping the deserving get credit when the banks just vacated the consumer credit and small business lending space due to various reasons. There are also reports of ponzi schemes, usurious interest rates, and fee abuse even for borrowers who are not able to pay on time.
Sooner or later, the SME lending industry would have to be regulated. The big question is whether the framework was going to come from inside the marketplace lending space or will it be imposed by the “Big Brother”. SMART box was launched by the Innovative Lending Platform Association, in partnership with Association for Enterprise Opportunity to exactly pre-empt this situation. SMART box is an initiative predicated on creating a transparent small business lending ecosystem.
Lendio joining the SMART box initiative
Lendio, the marketplace for small business loans, announced on Wednesday July 13th that it will join industry leaders as an early engagement participant in supporting the model small business lending disclosure called the SMART box. As a first step, Lendio is participating in a 90 day national engagement period, where along with other industry players they will discuss and try to find out how SMART box should work. The objective is to identify 2 or 3 metrics that will allow to compare effectively all products from term loans, to factoring, via merchant cash advance, inventory financing and all the remaining 20 or so SME credit product types.
Lendio is a free pure marketplace aggregator with about 75 institutional and fintech lenders on their platform. It is evident that Lendio would love to have transparency as it will be able to offer an industry standard comparison tool to enable prospective borrowers to compare the deals they receive from all the 75 platforms. The clearer the pricing the better the chance of a user comparing different loan options which benefits marketplace aggregators like Lendio.
The industry associations
The founders of Lendio feel there are 5 to 7 different associations having similar principles and goals in the SME lending space. By having multiple associations who all have similar targets with small differences, the resulting discord dilutes and fogs the overall target. Lending Times and Lendio feel that a merger of all similar associations, with a single goal of creating a self regulatory body for SME lenders, will have much more success and will drive a much larger industry adoption.
Similar self regulatory efforts were successful in the commodities trading space where the National Futures Association (NFA) is a self-regulatory body which regulates Future and Commodities Merchants ( FCMs), instead of the CFTC. In comparison, retail currency brokers were unable to organize themselves and as a result Congress forced Retail Foreign Exchange Dealers ( RFED) to be regulated by the NFA, a misfit which led to a reduction from 300 + RFEDs in 2008 down to 5 entities in Q4 2015.
While consumers are familiar with annual percentage rate (APR), SME credit products are not all well represented by an APR. Many SME executives use other metrics to gage their repayment capability and cost of credit. In fact, most SMEs care more about cash-flow than APR.
The SMART box initiative is presently conducting surveys to identify the best possible metrics that will in the same time be simple, understandable and will cover the large SME credit product universe effectively. SMART box will consult nonprofits, regulators, associations and other relevant stakeholders in the community. Lendio feels that there is no one single metric for small business lending that can be used on every credit product. The CEO of Lendio is excited to join Smart Box precisely because the initiative has the nuanced view that there might be a need to have two to three different metrics in order to be able to compare term loans with products like factoring or merchant cash advance.
Kabbage, OnDeck, CAN Capital, Lendio , Lending Tree
Kabbage, OnDeck, CAN Capital, Lendio, and Lending Tree are all part of the SMART Box initiative. To date there are about 20 participating members in this effort. Lendio is also inviting all their 75 partner lenders to join the effort. All lenders should be part of the decision-making process. This will ensure everyone’s buy in with the resulting tools and metrics and that everybody’s products are taken into account.
Benefits of SMART Box
The future effects of the initiative could have larger consequences than one could cursory expect. One school of thought believes that a transparency tool will benefit the cheapest product. However, cheap is not always good and never a good fit for everybody. Transparency will also demistify complicated products.
In all cases consumers will definitely benefit because of the enhanced disclosures and established industry best practices. Consumer satisfaction relaxes the regulator’s urge to force regulation to the space. In general, regulation is best setup by the space’s own partipants with a good long term vision who understand that ethical business behavior is much more profitable than short term abuse. Perhaps SMART box will allow to drive the industry in this direction.
This will also help lower the cost of capital as investment funds, insurance companies etc would be more comfortable in putting their low-cost long-term money into fintech lending when there is no regulatory overhang on the sector.
News Comments Dear Readers, As you are probably aware Lending Times is organizing an event in New York on Monday August 15th titled “The future of Market Place Lending – Madden and beyond”. We would like to welcome our interested readers to participate in the panel. We have 1 seat available at this time. Please […]
As you are probably aware Lending Times is organizing an event in New York on Monday August 15th titled “The future of Market Place Lending – Madden and beyond”. We would like to welcome our interested readers to participate in the panel. We have 1 seat available at this time. Please contact us if you are interested in participating in the panel.
A report from Zephyr shows a reduction by 40% in M&A volume from H2 2015 except in Middle East and Africa. Global PE and VC volumes followed the same patterns in H1 2016 declining 20% in volume over Q1 2016 and 47% over H2 2015.
8 out of 86 p2p platforms that applied with FCA have been authorized. However, the p2p finance association believes delays are not such a big deal. The main issue is that P2p platforms can not offer ISAs until they are FCA approved. The delay is not a big deal because ISAs are long-term savings products and investors can put money in at any point.
Lending Crowd, the 4th licensed p2p lender in NZ, is seeking up to $5 million from financial services sector investors to help the peer-to-peer (P2P) lender build scale and grow loan volumes. To date, Croad said Lending Crowd has received $22 million worth of loan applications and written $2.5 million worth of loans with 60% of this total comprising personal and motor vehicle loans, and 40% business loans.
In Bankrate’s national survey of interest rates from banks and thrifts for July 13, 2016, the rate on personal loans remained unchanged for the 4th consecutive week at 10.94%. This week’s average rate is down four-tenths of a percentage point from its 2016 high. A year ago, interest on the average personal loan was 11.12%.
There are 3 types of places where you can look for a personal loan:
Finance companies (including online lenders)
As recently as a few years ago, banks dominated this space, accounting for 40% of all personal loan originations, according to the credit bureau TransUnion.
“Even though Prosper and Avant and Lending Club to a certain extent have pulled back, there are other lenders that are filling the void,” Tarkan says. “So I don’t know if there’s going to be this massive decline in availability of credit because the marketplace lending sector is contracting.”
John Ulzheimer, a credit expert who formerly worked for FICO and Equifax, says “every mainstream lender” now issues personal loans, and there are many good options, particularly for people with good credit.
To give some examples, Wells Fargo branches throughout the country offer personal loans. In Los Angeles, the nation’s second-largest bank offers personal loans for as little as 9.25%, while Houston-based Integrity Bank — with 3 southeast Texas branches — charges 9%, according to the Bankrate survey.
Both the volume and value of global mergers and acquisitions dropped significantly over the opening half of 2016, according to information collected by Zephyr, the leading global M&A database. Over the first six months this year, only 43,352 deals were announced for a combined $1.94 trillion. This is down nearly 20% in volume and over 40% in value compared to the 53,287 deals worth $3.27 trillion in the last half of 2015, and 52,637 deals worth $2.94 trillion in the first half of 2016.
The one exception was the Middle East and North Africa, where value climbed 23% to $15.7 billion over the six-month span, despite a small dip in volume. All other regions declined over the same time frame, with the steepest drop reserved for Central and Eastern Europe, which slipped 52% from $88.45 billion in H2 2015 to $42.58 billion this year. The top-performing countries by value for H1 2016 were the US, China, the UK, Switzerland, and Canada.
The Zephyr database also showed both the volume and value of global private equity and venture capital investment followed the same pattern as M&A in H1 2016, declining in the preceding six months and year-on-year. In all, there totaled 2,651 deals worth a combined $196 billion during H1 2016, a 20% decline in volume and 47% fall in value from the final six months of 2015.
Comment: a more detailed article on the hearing from July 12th, 2 days ago.
The meeting saw the participation of several industry executives including representatives from Prosper, CAN Capital, the American Bankers Association, the law firm of O’Melveny & Myer and the National Community Reinvestment Coalition. The meeting was timely as multiple regulatory agencies are moving towards applying additional regulations on online lenders – an act that may place financial innovation at risk.
The “key takeaway” offered by the Committee was that online lending may deliver access to credit to underserved or underbanked communities. For both consumers and SMEs alike. Of course, advancement by online lenders may put traditional banks under additional pressure – something the ABA representative expressed by saying regulation should be based Rob Nichols ABAon activities – in other words, banks want similar rules to apply to online lenders.
Parris Sanz from CAN Capital struggled to explain away their avoidance of using an APR and what approximately CAN Capital was charging borrowers (Ms. Levi clarified it as 36% to 60%).
18% spend more than they household income, 38% spend all their household income. ( in 2009 20% spent more than their household income)
21% of households have medical debt vs 26% in 2012
50% of households have no rainy-day fund , also a diminishing %
26% of households have used non-bank borrowing vs 28% in 2012
32% of households only pay the minimum payments on their credit cards vs 40$ in 2009
9% are underwater in their home equity vs 14% in 2012
Study participants were asked five questions covering aspects of economics and finance encountered in everyday life, such as compound interest, inflation, principles relating to risk and diversification, the relationship between bond prices and interest rates, and the impact that a shorter term can have on total interest payments over the life of a mortgage.
63% of individuals got 3 of fewer basic questions correct in 2015 vs 58% in 2009
Most Americans do not compare offers or collect information from more than one company when shopping for credit cards. This practice suggests a gap in applying financial decision-making skills to real life situations.
58% of Americans do NOT compare credit card offers before choosing a credit card to use.
Lendio Announces Support for SMART Box Initiative Focused on Enhancing Online Lending Disclosures, (Press Release), Rated: A
Lendio (www.lendio.com), a marketplace for small business loans, announced today that it will join industry leaders as an early engagement participant in supporting the model small business lending disclosure called the SMART (Straightforward Metrics Around Rate and Total cost) Box, developed by members of the Innovative Lending Platform Association (ILPA).
The SMART Box is a voluntary initiative to promote transparency through standardized pricing comparison tools and explanations, including both various total dollar cost and annual percentage rate (APR) metrics to further empower a small business to assess and compare financing options.
JPM had a particularly strong quarter was fixed income, currencies, and commodities, or FICC, trading, which produced revenues of $3.96 billion — up 385% from the same quarter last year. Analysts had forecast FICC revenues of $3.57 billion, according to Bloomberg estimates. Those are the highest quarterly FICC revenues for the firm since Q1 2015 ($4.1 billion). You’d have to go back to Q1 2013 to find significantly better results ($4.8 billion).
Many firms have been cutting FICC headcount, including Deutsche Bank, Credit Suisse, Goldman Sachs, and Morgan Stanley, which cut 25% of the division last year.
“We’re investing in it,” CEO Jamie Dimon said at the bank’s investor day in February. “We’re investing in it more on the technology side.”
Now the question is whether JPMorgan was the sole firm to smash expectations or whether we’ll see comparable results across the Street in the coming days.
If you use an independent financial adviser or wealth manager, they’ve probably never mentioned P2P lending.
This might seem strange: there’s been a lot of talk of how the peer-to-peer industry is “moving mainstream”, and volumes reflect that. In 2015, the online alternative finance industry in the UK grew to £3.2bn – an 84 per cent increase from 2014 – and alternative finance lending accounted for around 14 per cent of new loans to small firms.
And at the same time, institutional money has flowed readily into the sector. In the last six months, according to AltFi Data, it accounted for 40 per cent of involvement in the UK market – from almost nothing prior to 2014. But most of this money comes from specialist funds, and institutional money is notoriously fickle.
Financial advisers, however, still seem reticent. “They have always been very interested, but what’s needed is conversations. When we get them in a room and speak to them – show them our processes and due diligence – they become more positive on the space. That can give them the confidence to promote P2P lending to consumers,” says James Meekings, co-founder of Funding Circle.
Most advisers will say that, while they’re not against P2P in principle – often far from it – they want to see the sector go through a cycle before seriously considering it. As wealth management veteran John Spiers says (see below), while Zopa was around during the crisis, other major players weren’t – and 2007 and 2009 were unusual anyway because the level of bankruptcies was so low, owing to interest rates being slashed so fast.
As Spiers also points out, plenty of IFAs have been burnt in the past. Now, they have to demonstrate that they’ve done a certain amount of due diligence on each product they’re recommending and, as has always been the case, they want a fee for those recommendations. As one industry analyst bluntly puts it: “if the IFA hasn’t got a product to sell, he’s not going to recommend P2P. It comes down to whether something has a metric next to it that he can understand, then he can sell it.”
For advisers “funds are the way forward,” says Meekings. They can buy stocks, shares, and funds and manage money on behalf of clients, and their existing tools mean they can buy a fund today. “It gives them diversification and global exposure – which is important, because diversifying across platforms [which can focus on just one area, like consumer credit], rather than assets, won’t necessarily do that,” he adds.
“The industry is working to create a scoring system for returns. This should be a function of the return and the shape, i.e. volatility, of that return. If advisers can study lending performance, based on meaningful and detailed data, they can begin to perform satisfactory due diligence,” says Rupert Taylor, co-founder of AltFi Data.
The Innovative Finance Isa is already giving retail investors the opportunity to hold P2P investments in the recognizable wrapper. While many investors wait for the largest platforms to get approval from the Financial Conduct Authority (currently, only three smaller platforms have been given the okay), it has enticed big players like Hargreaves Lansdown into the ring. And it’s worth noting that investors can, even without the dedicated vehicle, populate a stocks and shares Isa or a Sipp with P2P investments.
Moreover, alternative investments heavyweight Octopus Investments launched P2P product Octopus Choice in April, enabling customers to target higher interest rates than deposit accounts, but with less risk than stocks and shares.
Head of Octopus Choice Richard Wazz says that the reception from the hundreds of financial advisers introduced to the product has been “incredibly positive. Advisers are proving themselves to be not only comfortable but excited to recommend it to large numbers of their clients – seeing it as a new and welcome way of diversifying their portfolios.”
By the time the new Isa had launched in April, just eight out of 86 peer-to-peer lending platforms had been granted the necessary permissions to offer the savings vehicle, according to the industry body. Kevin Caley, managing director of ThinCats, said he does not expect approval to happen before the end of August, adding he guessed it “may well take quite a bit longer”.
But speaking to FTAdviser, the P2P Finance Association’s chair Christine Farnish said the delays were not such a big deal because investors’ money can be put into the Isa at any point.
“It’s just a question of a small amount of time in the overall scheme of things,” she said, adding Isas are designed to be a long-term savings product.
The delays were partly a result of the FCA being made responsible for 30,000 consumer credit firms in 2014, and Ms. Farnish said the peer-to-peer sector got “put to the back of the queue”.
Founded in 2010 by entrepreneurs, Tom Carr and Richard Pearce, Verto Homes stated it designs, builds, and sells intelligent, sustainable homes that produce and store clean energy from the sun. The company noted that none of their homes burn fossil fuels for lighting or heat and each is featured automation technology and is controlled by a smartphone app, called Vesta, which was launched on iTunes in 2015.The homes are available starting at £190,000.
Verto Homes, a London-based builder that creates sustainable homes, launched an equity crowdfunding campaign on Crowdcube to raise £1 million. Within just a few hours, the initiative successfully secured 41% of its targetted goal (£415,000) from 14 investors.
Germany’s leading lending marketplace AuxMoney reports continued strong growth. Loan volume increased from €39.3 million in the first half of last year to €79.5 million in the first half of 2016 ‒ an increase of more than 100%.
Founded in 2007, by Raffael Johnen, Philip Kamp, and Philipp Kriependorf, Auxmoney is Germany’s largest crowdfunding platform and Continental Europe’s second largest P2P lender after French Younited Credit – with whom it is now competing neck and neck. According to research institute GfK, Auxmoney is also the most famous FinTech firm in Germany, which does not come as a surprise given its 1.5 million registered members.
In 2015, Auxmoney’s growth was fueled by a spectacular commitment by Dutch insurance company Aegon, as an Institutional Investor, to lend €150 million through the platform. As for its own capital needs, Auxmoney is backed by top venture-capital firms such as Seven Ventures, Index Ventures, Union Square, Foundation Capital and Partech.
Since its beginnings, Auxmoney has originated €268 million worth of loans, out of which nearly two-thirds were originated in the past 18 months alone. Both the number and the size of loans are increasing: the number of loans originated increased by 69% from 6,337 in the first half of 2015 to 10,688 loans in the first half of 2016; at the same time the average loan size increased from €6,196 to €7,439, a 20% increase.
During the first six months of 2016, at least 264 peer to peer lending platforms were shut down in China. This is a direct reaction to the tightening grip of Chinese regulators. The report published in ECNS, states that even tougher oversight is in store for the P2P lending industry as authorities become more vigilant in uncovering fraud and shutting down platforms that do not qualify under Chinese rules.
China published draft rules in 2015 but like many other government initiatives it was not completely clear as to how enforcement would proceed. There have been multiple high-profile P2P platforms that have collapsed. The best known is Ezubao that was described as a Ponzi-scheme months before regulators showed up to shutter the doors. Ezubao apparently fleeced investors of over $7 billion – an incredible amount. Allegedly over 95% of the projects listed in Ezubao were faked.
As of June, there were an estimated 2,349 P2P platforms in operation in China. Chinese is the largest P2P market in the world.
Lending Crowd is seeking up to $5 million from financial services sector investors to help the peer-to-peer (P2P) lender build scale and grow loan volumes. Co-founder Wayne Croad, who majority owns Lending Crowd’s major shareholder Finance Direct, told interest.co.nz the P2P lender has hired Greg Anderson of Northington Partners to raise up to $5 million dollars through a capital raise.
Funds raised will be used to “assist with growing loan volume by extending marketing and product development initiatives.”
Lending Crowd became New Zealand’s fourth licensed P2P lender last year, receiving its license from the Financial Markets Authority. At the time Croad said Lending Crowd would facilitate secured loans of between $2,000 and $200,000 through its website for small and medium sized businesses, vehicles and personal loans for three and five-year terms.
To date, Croad said Lending Crowd has received $22 million worth of loan applications and written $2.5 million worth of loans with 60% of this total comprising personal and motor vehicle loans, and 40% business loans. He said registered non-bank deposit taker Finance Direct has participated in $900,000 of the loans on the Lending Crowd platform on equal terms with retail investors. There are 220 registered retail investors, and 165 active investors. In terms of loan security, Croad said 30% of loans are secured by cars plus a property, 50% are secured by vehicles, and 20% are secured by property only.
“The average weighted return for investors to date has been 12.50% after fees,” Croad said.