Ever since the concept of alternative lending took hold in 2013, proponents have made substantive claims of what alternative data could achieve by bringing disadvantaged consumers into the lending economy. At the time, however, traditional models such as FICO and Vantage were the status quo. While recent versions of these scoring models now incorporate alternative […]
Ever since the concept of alternative lending took hold in 2013, proponents have made substantive claims of what alternative data could achieve by bringing disadvantaged consumers into the lending economy. At the time, however, traditional models such as FICO and Vantage were the status quo. While recent versions of these scoring models now incorporate alternative data and provide some insight into consumers without complete credit files, acquiring this data has remained a challenge both for lenders and the credit bureaus.
Today, an estimated 45 to 60 million consumers lack the credit history needed to generate reliable credit scores under the current system, and millions more don’t have access to affordable credit because of low scores, according to FinRegLab, a nonprofit research organization.
But now, alternative lending is on the cusp of widespread adoption by lenders. In fact, some lenders are already considering alternative data, such as records of consumer payments from telecoms and utilities, in their decision to extend credit. And there’s solid evidence that alternative lending works. Research from McKinsey found that new alternative data models reduced credit losses in lower-income segments by 20 to 50%, while doubling application approval rates.
According to Accenture, bringing underbanked adults and small businesses into the formal banking sector could generate approximately $380 billion in new revenue. Equifax estimates that more than 91 million consumers in the U.S. alone are thin-file or no-file. About 22 million of those consumers currently qualify only for subprime credit offers, but that can change, with new data sources to inform risk models and the growth of alternative lending options.
Perhaps the best news is that lenders are embracing alternative lending after learning that they can bring disadvantaged consumers into their customer bases without increasing the risk of loan defaults. Those include thin-file or no-file consumers, such as:
Seniors who are unscorable, particularly widowed or divorced adults. Many have relied on lines of credit in their partner’s names for most of their lives, leaving them with a lack of credit history and a sudden lack of credit access.
Immigrants, who can present a conundrum to lenders, as their credit data does not immigrate with them. Lenders are left to make assumptions about credit history, and often the safer decision has been to exclude or decline the individual.
Minority groups, who today are disproportionately underserved. According to a LexisNexis study, 41% of Hispanics and African Americans were unscorable using traditional methods, compared to only 24% of the general population.
Millennials tend to rely on credit less frequently and a significant portion prefers debit cards. This leads to thin credit files and “hidden” financial transactions that do not help boost credit scores.
Here is another proof point that alternative lending has arrived: Adding utility payment data into VantageScore’s credit scoreincreased approval ratesfor low-income adults, African-Americans, and Hispanics by more than 20% – without overextending credit.
Alternative data has become the Holy Grail for lenders because they can increase the size and improve the quality of their approvable populations. But, even with mountains of evidence of the viability of alternative lending, it may be that only the word of regulators has the power to move alternative lending from trend to a sustainable mainstream industry practice.
On Dec. 3, 2019, regulators backed the use of alternative data, such as borrowers’ cash flow, as an alternative to the traditional credit-evaluation system, which relies on applicants’ history of borrowing and repayments. Alternative data “may help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system,” the regulators said in a written statement. “To the extent, firms are using or contemplating using alternative data, the agencies encourage responsible use of such data.”
Now, with increasing adoption of alternative data by lenders, there comes word that “innovative” new options in lending will gain momentum. According to researchers, “It [alternative lending] has already gained momentum in developed countries. The growing significance of innovative lending practices is foreseen to put a positive impact on the growth of the global alternative lending market. Demand for peer-to-peer (P2P) marketplace lending and crowdfunding, in particular, is expected to increase in the near future. This could play a crucial role in the development of the global market.”
As always, the proof is in the numbers. In a recent report of more than 300 lenders by TransUnion, the agency said that “83% of adopters using alternative data to score credit applications report seeing tangible benefits.”
It’s been said that the best test of an innovation is to observe its acceptance and performance in the marketplace. By that measure, alternative lending has been thoroughly tested and is here to stay.
News Comments Today’s main news: Prosper Marketplace Issuance Trust (PMIT) 2019-4 to sell $138M in securities. PeerStreet raises $60M in Series C round. Funding Circle revamps secondary market. ID Finance Crowdcube campaign overfunds. Stablecoin loans surge 38%. Flender raises 75 million euro. Today’s main analysis: Genesis Capital’s digital asset lending snapshot (A MUST-READ). Today’s thought-provoking […]
Prosper Marketplace Issuance Trust, (PMIT) 2019-4, is counting on a de-leverage transaction structure that will boost its credit enhancement levels over time, as it seeks to sell $138 million in securities backed by unsecured consumer loans.
PMIT is also utilizing total subordination of 23.79% for the class A notes and 11% for the class B. The deal’s credit support also includes excess spread of about 9.75%, based on a collateral weighted average interest of 14.32%.
PeerStreet, a platform for investing in real estate backed loans, is excited to announce it has completed a $60 million Series C funding round. Colchis Capital led the round with a consortium of institutional investors. Existing investors Andreessen Horowitz, World Innovation Lab and Thomvest Ventures also participated.
Some things, such as pool parties and potlucks, are just better the more people that get involved. Another one of those things is participation in real estate investment. The more people that invest, the more capital there is to fuel deals and improve everything from office quality to housing availability. People make money and society progresses. It’s how the market should work.
Genesis continues to see sustained growth in its digital asset lending business. In the third quarter of 2019, Genesis added $870M in new originations, breaking our record of $746M set in the previous quarter. As of September 30, 2019, active loans outstanding stood at $450M, roughly flat from the previous quarter despite a significant decrease in Bitcoin’s price.
Originations increased 38.1% QoQ marking a sixth consecutive quarter of strong growth and bringing total originations to $3.1B since we launched the lending business in March 2018. Our loan portfolio largely sustained its value through increased cash (USD and stablecoin) loan issuance, offset by a decrease in the notional value of crypto loans outstanding.
Crypto credit has expanded too quickly and is headed for a blow-up, says a group of former Wall Street traders who are now seeking riches in digital assets. A near $5 billion industry has emerged from nothing just two years ago and the number of loan platforms is rapidly proliferating, according to blockchain data company Graychain Ltd.
Want to start and grow a tech unicorn — a privately held startup company valued at over $1 billion? You have to target a large market. The Atlanta-based fintech company, Kabbage, has a valuation of $1.2 billion and is on the Forbes Fintech 50 2019.
While less than what small businesses borrowed from banks before the recession, small business loans are still a huge market — more than $600 billion lent each year, according to Small Business Lending in the United States, 2016.
Entrepreneurs become successful, essentially, by refusing to do what everyone else is doing, or by doing the thing everyone else refuses to do. But even when you know you’re onto a great thing, it can be difficult to ignore the naysayers and skeptics you’ll encounter on your way to growing a business.
Five of the top 10 cities where buyers are stretching themselves the most are in California. Though there is some speculation that the housing boom in California may be nearing its end, home prices in the state are still high. As a result, many buyers, especially those who don’t work in lucrative industries like tech, will take out large loans to cover the cost of their homes.
Since last year, Los Angeles and San Diego have remained the 2 cities where borrowers have to stretch their budgets the most. The leverage ratios in these two cities are 3.91 and 3.64, respectively.
Salt Lake City is the place with the highest leverage ratio not in California. A housing shortage is one of the key reasons buyers in Salt Lake may need to stretch their budgets so much in order to be able to afford a home.
Like last year, homes in the Rust Belt and the South are the most affordable in the nation. The average home price in our 10 most affordable cities is a bit more than $171,000, which is $90,000 less than the average home price for the whole nation. Furthermore, the leverage ratio in the most affordable cities is 2.25, compared with a ratio of 2.81 for the whole country.
Pittsburgh, Cleveland and Detroit are where buyers are taking the smallest loans relative to their incomes. An average leverage ratio of 2.08 could make these cities attractive to potential homebuyers.
Aura, a mission-driven financial technology company that offers affordable loans to hard-working families, today announced it has closed a $130 million asset-backed revolving credit facility with Varadero Capital, L.P. This new facility comes during a period of rapid growth for Aura in which the company has provided approximately $635 million in loans to more than 475,000 borrowers at over 1,250 partner locations since its founding in 2014.
Marqeta, the world’s first modern card issuing platform, unveiled its new Marqeta Reserve Financing product at the Money2020 conference in Las Vegas today, a reserve financing option built into its core platform workflow. Marqeta Reserve Financing is uniquely tailored to the needs of companies struggling with the logistical, practical and administrative burdens of funding a reserve account to launch new payment card programs and keep it actively replenished with funds.
Become, the online platform for SMBs to find and optimize their funding solutions, today announced the closing of a $10 million Series A investment round led by Benson Oak Ventures and Magenta Venture, supported by RIO Ventures Holdings, iAngels, and Entrée Capital. The company has also secured an additional $2.5 million in venture debt from Viola Credit, bringing the total to $12.5 million. The funds will be used to scale up operations in the United States and Australia in order to execute Become’s mission to remove ecosystem friction and enable more SMBs to “become” the businesses they aspire to be.
The current small business lending landscape is fundamentally flawed, with 58% SMBs denied access to funding with no recourse or guidance on how to solve it.
In fact, with 9% of all jobs in the state falling under the fintech umbrella, Delaware has the highest share fintech employees of any U.S. state, according to a report conducted by the Delaware Prosperity Partnership, First State Fintech Lab and University of Delaware in June.
At the same time, the number of fintech startups in Delaware is small: There are a few mid-stage companies like Marlette Funding, Fair Square Financial and Acorns, but early-stage fintech companies are not exactly booming.
IDology, a GBG company, today released its Seventh Annual Fraud Report, revealing the growing impact of large-scale data breaches and fraud on consumer trust and the critical need for businesses to balance the digital consumer experience with strong identity verification processes. The report also found that senior executives believe their companies are still not prepared to combat synthetic identity fraud and mobile attacks. Additionally, the California Consumer Privacy Act (CCPA) is expected to have significant implications in 2020 and many businesses may not be ready to comply.
Five Key IDology Fraud Report Findings:
The true impact of data breaches: A decline in consumer trust – 49% of businesses report a decline in customer trust over the past year. Additionally, 46% indicate that increased regulations are a top impact of large-scale data breaches.
Fraud vectors are shifting away from point-of-sale (POS) – 58% of businesses report fraud is increasing in their online channels.
New fraud threats, synthetic and AI fraud on the rise – 40% of businesses across industries experienced an increase in synthetic identity fraud (SIF) over the last 12 months and 92% percent expressed concern over SIF. The study found 33% believe that the fraudulent use of artificial intelligence and machine learning will be the most severe form of fraud in the next three years.
Compliance is an increasing burden – 28% of businesses believe CCPA compliance will be more burdensome than GDPR while 30% believe it will be equally as burdensome. CCPA contains additional rules with respect to identity verification that go far beyond what is required for GDPR.
How to thrive in the changing environment– 96% of businesses see identity verification as a competitive differentiator. Also, 80% believe accurate address verification is very or extremely important to the identity verification process.
Digital banking brand Varo has 1 million customers, and is pushing ahead with plans to become a nationally-chartered bank early next year, CEO Colin Walsh told Bank Innovation Tuesday.
Varo offers checking accounts, savings accounts and installment loans. Becoming a nationally-chartered bank will help Varo differentiate through an expansion of its product suite, said Walsh. Like other digital-only banks, Varo intends to grow relationships with customers through multiple product relationships and integrations with other platforms. According to the company, 60% of its customers have more than one product relationship with the brand.
Blend, a fintech that initially specialized in software for mortgage lenders, is expanding into auto loans in the latest example of a startup broadening well beyond its initial area of expertise in an effort to appeal to more customers.
The San Francisco-based firm launched an auto lending product on Monday that is designed to enable consumers to upload documents quickly using mobile devices to get loan approvals faster. It comes on top of two other recent consumer-facing expansions, into home equity loans and deposit account opening products.
Walmart announced a new seven-year contract agreement with Green Dot to continue as the issuing bank and manager for the retail giant’s MoneyCard program. The partners also agreed to launch a new financial tech accelerator.
For every dollar of fraud loss, financial services companies now incur $3.25 in costs (losses related to the transaction face value for which firms are held liable, plus fees and interest incurred, fines and legal fees, labor and investigation costs and external recovery expenses), up from $2.92 in 2018. This represents an 11.3% year-over-year increase. Lenders see $3.44 in costs for every dollar of fraud loss, up from $3.05 in 2018, a 12.8% increase. Banks and credit lenders, in particular, were found to have the highest costs of fraud, with both percentages jumping double digits since last year – 17% and 16%, respectively.
Expansion of Mobile – There has been a significant increase in the use of mobile channels since 2018, with 73% of financial services (a 66% increase) and 71% of lending firms (an 8% increase) now offering this option to customers. This growth stems primarily from small financial services firms and digital financial services and lending firms now transacting through the mobile channel.
More Cross-Border Transactions – International transaction volume has risen among both mid/large-sized digital banks and all digital lenders. However, mortgage lenders have reported a significant drop in foreign transactions, which coincides with a decline in global growth and housing inventory.
The Rise of Botnets – A majority of banks reported double-digit year-over-year growth in botnet activity, which appears to at least be related to banks with international business reporting more transactions. Nearly half (47%) of mortgage lenders reported an average increase of 16% in botnet activity since last year. While surveyed firms appear to be aware of botnet activity, they have not been able to adequately prevent it.
Despite representing nearly 25% of consumer spend, until now rent, utility, cable, and telecom tradelines have been severely underreported in traditional credit reports, with only about 1% of consumer files currently including rent data and 2.4% including utility data according to FICO. When alternative data is included, it has proven to accurately score more than 90% of thin or no-file applicants, representing a powerful revenue tool that lenders can use to safely expand their markets, increase assets, and build lasting relationships with borrowers.
Urjanet and LevelCredit today announced a strategic partnership enabling lenders, banks, and fintech companies to confidently qualify thin and no-credit file consumers using rent and utility bill payment history. The partnership enhances LevelCredit’s existing rent reporting services with consumer-permissioned payment history from thousands of utility, cable, and telecom providers, helping financial services organizations safely extend credit to a growing number of consumers who aren’t getting the credit they deserve today.
It all started with a cold LinkedIn message back in 2016. The co-founder of the (then) tiny startup Nova Credit, Nicky Goulimis, reached out to an executive at American Express to discuss a potential partnership. It was an audacious move but one that, three years later, has paid tremendous dividends for the company.
Credit Karma built a wonderful business providing almost 100 million people with free products to help them manage their debt. It was inevitable that they move into the asset side of their customers’ personal balance sheets. Last week, the firm announced a new savings account.
AccountScore and Equifax have today announced the release of a new credit risk index for the consumer lending sector which allows financial institutions to more effectively understand consumers applying for credit products.
Sunrise, a Lendio company, today announced a strategic partnership with WePay, the integrated payments business of JPMorgan Chase & Co. Through this collaboration, Sunrise will provide its small business clients with a new feature called Sunrise Pay, powered by Chase, which gives users immediate access to invoicing capabilities as well as the ability to set up recurring payments.
Cred, the leading global digital asset lending and borrowing platform serving customers in over 180 countries, today announced that veteran technology executive Cliff Edwards has joined the company as chief marketing officer to help accelerate understanding of blockchain technology and to promote innovative use cases for digital assets.
ID Finance, the fintech company operating in Europe and Latin America, has surged past its £2m crowdfunding target on Crowdcube and is now overfunding with £2.3m raised from over 700 investors. The Barcelona-based lending-tech scaleup is the second-fastest growing fintech in Europe, according to Financial Times, has enjoyed strong investor demand as it looks to disrupt the LatAm market. The company will continue to take commitments from investors at crowdcube.com/idfinance
Trade Ledger, the ground-breaking business lending platform, which automates commercial lending processes for global banks and alternative finance providers, today announces strategic investment in a £1.5M round led by Hambro Perks, to further accelerate revenue growth.
Marks & Spencer is the latest retailer to adopt a “buy now, pay later” payment model, in the hope that it may attract younger customers in the run up to Christmas.
The retailer has partnered with Clearpay to launch the initiative, which allows customers to pay for purchases via a series of four instalments paid over a period of six weeks. The payments can be made via a smartphone app.
The regulator in China’s financial center has ordered Shanghai’s more than 40 peer-to-peer lenders to exit the business, people familiar with the matter said, the latest blow to an online industry that’s shrunk by half this year.
Some of the nation’s biggest platforms including Ping An-backed Lufax and Dianrong.com have been told in recent meetings with Shanghai’s financial services bureau to stop issuing new products and to wind down existing peer-to-peer lending services, the people said, asking not to be identified as the matter is private.
In a Nutshell: Blockchain technology has helped many industries innovate in recent years. Max Crowdfund is one company using the technology to make investing in real estate easier and more accessible. The platform also simplifies investment managment for real estate professionals. Through the use of blockchain technology, properties can be tokenized — or broken down into investment opportunities as low as €1,000 — something that can’t be done through traditional real estate investing. Overall, the Max Crowdfund platform makes real estate investing faster, cheaper, and easier for everyone.
CNH Industrial and the fintech lending platform October entered into a partnership agreement in July 2019 to support Small and Medium Enterprises (SMEs) working with IVECO and CASE Construction Equipment brands through the adoption of crowd-lending in France, Italy, the Netherlands and Spain.
The 19 P2P lenders have now facilitated disbursals of close to Rs 500 crore, estimate industry executives who say that a good chunk of this growth has come in the last twelve months. While P2P lenders are registered with the Reserve Bank of India, the regulator does not release lending data for these platforms. As such, BloombergQuint could not independently verify the extent of loans given out via these platforms.
Aye Finance Private Limited (Aye Finance) is among the few in the Indian online lending space that has been posting profits for the last two years. The company, which provides micro-financial services, has reported a net profit of INR 250 million during fiscal 2019, a 10x increased from INR 23 million net profit a year ago.
As India donned its festive hats to celebrate a whole week of Diwali, the real gift went to the peer-to-peer lending exchange Paxful. It saw the country’s Bitcoin trading volume on its platform reach an all-time high.
Digital financial services from lending to asset management are expected to generate at least $38 billion of annual revenue across Southeast Asia by 2025, more than tripling from $11 billion in 2019, according to a new study by Bain & Co., Google and Temasek Holdings Pte.
Online lending will comprise about half that total for the region, which houses some of the world’s fastest-evolving internet and mobile industries. Growing smartphone penetration promises to unlock internet-based services such as insurance to more than 70% of an adult population neglected by traditional banks, according to the report.
While celebrating its fourth anniversary this week, the fintech start-up that set the peer-to-peer lending ball rolling in Indonesia is preparing for its third major round of investment, possibly in the next month.
Aside from regional expansion, Investree intends to intensively develop its Shariah-compliant business unit over the coming year.
Indonesia’s Software as a Service (Saas) startup Paper.id announced that it has closed an undisclosed amount of Series A funding from Southeast Asia-based venture capital firm Golden Gate Ventures and Indonesia’s P2P lending platform Modalku.
News Comments Today’s main news: SoFi to get its name on a football stadium. Petal raises $300M. Funding Circle closing in on 1-year anniversary of float. Zopa sends warning of imitation scams. Cumulative UK alt lending hits 11.3B GBP. Companies to get social credit in China. Today’s main analysis: Student loan refinancing rates are down. […]
China to take social credit to companies. This is a big deal, especially for U.S. companies doing business in China. Also, it has major implications for P2P lenders in China in the wake of China’s crackdown on the sector.
Europe: Binance enters phase 5 of crypto lending. And introduces new coins XRM, ZEC, and DASH. Crypto lending is getting to be a big deal. It’s on the rise, and Binance, the largest crypto exchange in the world, is on the cutting edge. As soon as crypto is legitimized, crypto lending will become one of the largest segments in alternative lending.
Online lender SoFi Lending Corp. has secured the naming rights and a 20-year deal with the Rams and Chargers, according to the Los Angeles Business Journal. The firm agreed to pay around $20 million per year, reports say.
SoFi Stadium, which will be the largest in the NFL, is the centerpiece to the much larger $5-billion Hollywood Park project developed by Rams Owner/Chairman E. Stanley Kroenke. Construction is 75 percent complete, and the stadium is expected to open next summer for other events before the NFL preseason begins in August.
The opening of the $2.6 billion SoFi Stadium will happen next summer on July 25th. However it’s not for a Rams or Chargers game. Swift announced that she will play two shows (July 25th and July 26th) at the stadium as a part in her much-anticipated 2020 world tour.
Key Findings from the OnDeck Small Business Survey:
Economic concerns arise in several dimensions, including tax policy, job growth, support for small businesses, government spending and the overall economic climate. These issues were cited as the top concerns of more than 33% of those surveyed;
Immigration was an issue of interest for 11.3% of small business owners surveyed, ranking second behind the economy as a concern.
57% of small businesses surveyed said they were either ”Very Optimistic” or ”Somewhat Optimistic” about the economic outlook for their businesses;
93% of those surveyed said they plan to vote in the 2020 election.
60% of small business owners surveyed said they already know who they plan to vote for in the 2020 presidential election.
President Donald Trump was the choice of 37% of small businesses surveyed, followed by Joe Biden at 18%. When combined, the top five Democratic candidates were the preference of 44% of respondents.
GoCardless, the London fintech that aims to become the one-stop shop globally for businesses that want to let customers pay via recurring bank payments, has launched a U.S. debit solution.
Specifically, GoCardless’ new U.S. product supports debit payments on the ACH (Automated Clearing House) network.
The company has also opened an office across the pond in San Francisco’s financial district, headed up by Andrew Gilboy, general manager, North America, who was previously the company’s chief revenue officer.
Today Nav, a fintech company that matches business owners with their best financing options for free, announced new offerings to help small business owners boost their business credit scores, giving an easy solution to developing a strong business credit profile that alternative and traditional lenders can trust and finance.
Since 2013, the disparate impact rule has objectively examined the effects of business practices with lenders, landlords, insurers, and real estate professionals against the provisions of the 1968 Fair Housing Act. The rule required that first a plaintiff must establish a discriminatory effect in policies and/or practices, before the defendant(s) would bear the responsibility of proving their own practices were nondiscriminatory.
During delivery of Capitol Hill testimony earlier this spring, Nikitra Bailey, an EVP with the Center for Responsible Lending (CRL) also underscored the importance of disparate impact in fair housing.
“Disparate impact analysis encourages creative approaches that both increase effectiveness and inclusion,” testified Bailey. “This process and the value of disparate impact analysis was recently pointed out and endorsed by the largest personal loan company in the country, Lending Club.”
Online lender BlueVine announced on Wednesday it has appointed Brad Brodigan as its new Chief Commercial Officer. BlueVine reported that through this role, Brodigan will be responsible for overseeing revenue-generating functions including sales, customer service, and partner management.
Money360, a technology-enabled direct lender specializing in commercial real estate (CRE) loans, announced today it closed approximately $170 million in loans during July and August. This benchmark brings Money360 close to $500 million in loans closed this year.
Groundfloor, a real estate lending and investing platform that allows anyone to participate directly in real estate investments, has launched a new product to make the lending process more easier for real estate investors. Groundfloor now allows certain developers to gain pre-approval on loans with a new program called “QC Maxx.”
In financing news, student loan fintech “College Ave” locked down a $300MM securitization and a AAA rating this week. The securitization was co-led by both Barclays and Goldman Sachs. Affirm, led by Max Levchin, is reportedly close to wrapping up a $1.5 Bn debt and equity financing with Thrive Capital and Spark Capital leading.
Stripe is mirroring other payments companies that have since built lending capabilities – notably, Square and PayPal. Stripe believes it can compete in an already crowded small business lending market (OnDeck, Kabbage, Fundera, Funding Circle, etc.) due to its data & channel advantages stemming from its payments business.
OppLoans, a growing fintech and top rated direct-to-consumer online lending platform, announced today that it has secured its first bank-led asset-backed revolving credit facility. This facility structure will enable OppLoans to further its mission by broadening access to online personal lending products for more middle-income consumers with credit challenges.
M&G Investments and Community Capital Management, a mutual fund that specializes in impact and Community Reinvestment Act (CRA) related investments, have joined with U.S. and international banks to invest $145 million in Aura’s social bonds to finance the origination of affordable, small dollar installment loans to working families in the United States.
Almost all U.S. challenger banks offer no-fee checking, savings accounts and enhanced personal financial management tools. Now some of the most popular have taken, or are poised to take, their next step: making loans.
Personal loans and credit cards are lucrative but inherently risky, and these young companies — like MoneyLion, Varo and others — will have to prove to regulators, investors and the public that they have the wherewithal to weather downturns in the credit cycle.
Prevu, a customer-focused digital home buying platform delivering industry-leading efficiency and savings, announced today the closing of its $2 million seed funding round. The round was led by Corigin Ventures, a prominent seed-stage venture capital firm with expertise in the real estate technology and consumer industries as well as a history of backing startups disrupting residential brokerage business models.
Prodigy Network founder Rodrigo Niño is stepping down from his position as CEO amid mounting financial and legal issues, The Real Deal has learned.
Prodigy, a real estate crowdfunding platform, has faced criticism from investors in recent months over underperforming investment properties and unpaid distributions. On Monday, an investor in one of Prodigy’s newest projects — the 13-story Standard Hotel in Chicago — filed a lawsuit alleging the firm was “insolvent” and had used investments “for purposes other than those relating to the project.”
Opportunity Zones are new, tax-advantaged vehicles for investors to earn more on their money. Created by the Tax Cuts and Jobs Act of 2017, the first qualified opportunity zones (QOZs) first hit the market in early 2018. Designated by state authorities, there are now thousands of QOZs in the US designed to boost development in selected communities. Investors receive a break on capital gains taxes which can be significant. Local officials can spur economic development which leads to more jobs. Online investment platforms immediately saw the opportunity intrinsic to QOZs with multiple platforms now offering investments in developments that benefit from these tax breaks.
Why are your Opportunity Zone Offerings better than some others available on competing investment platforms?
Soren Godbersen: There are a number of firms out there now marketing Opportunity Zone offerings to investors. We’re proud of what we have been able to offer to our investor network and there are a few things about our Opportunity Zone investments that are unique:
AFTER A DECADE OF steady growth, the economic cycle is due for a reversal, with concerns of a recession.
Consider other types of investments outside of stocks and bonds.
Know that timing the market is difficult.
What to Invest in During a Recession?
Other less correlated assets include the real estate niche. With real estate crowdfunding, hypermarket segmentation is available. Investors can choose their property type and geographic region when investing in real estate. Two real estate crowdfunding platforms for accredited investors are CrowdFund and EquityMultiple. Fundrise and Groundfloor open targeted real estate investing to nonaccredited investors as well.
The Litecoin Foundation is putting its capital to work, lending at interest through another cryptocurrency program.
The Foundation has tapped the Celsius Network, a blockchain-based crypto lending program, to become its preferred crypto wallet, Celsius Network CEO Alex Mashinsky told CoinDesk.
As part of the deal, the Foundation will allocate an undisclosed portion of its treasury to the Network. LTC holders can receive up to 10.53% annually back on their crypto holdings and dollar loans as low as 4.95 percent as well.
In a sign of how much Walmart Inc. is betting on e-commerce, the retailer’s revamped credit-card program with Capital One Financial Corp. offers better rewards for online shopping and checking out with its mobile app.
The new options, which become available Sept. 24 and use Mastercard Inc.’s network, offer 5% cash back for purchases made at Walmart’s website, including groceries. At the chain’s physical stores, shoppers only get that rate for a year and have to check out with Walmart Pay at the cashier. Otherwise, store customers get 2% back.
Finicity, a provider of real-time financial data access and insights, announced today the release of its new Verification of Income and Employment (VOIE) solution using patent-pending TXVerify technology that will speed up borrower verifications and further advance the industry shift toward a fully digital experience.
The Finicity VOIE solution digitally extracts a borrower’s pay statement data from the paystub and then cross-verifies that key data with their income transactions from their financial institutions. Enabled by its TXVerify technology, this detailed vetting process creates a real-time picture of an applicant’s income and employment for fast, accurate reports. The solution does this by leveraging the highest value data – direct from banks – along with a scan, photo or PDF of a borrower’s paystubs. This process significantly shifts the current paradigm from a mostly manual process to one that is fully digital, all while reducing fraud and increasing confidence in the underwriting process.
ConsenSys founder Joseph Lubin announced at the Ethereal Tel Aviv press conference (on September 15) that his New York-based venture studio is launching a new product, Codefi, for the emerging decentralized finance (DeFi) ecosystem.
Despite not having invested in emerging DeFi platforms, Lubin described P2P lending systems such as Uniswap and MakerDAO as some of the blockchain industry’s most promising projects.
ZOPA has warned over a growing number of scam operators targeting UK customers using the peer-to-peer lender’s name to dupe investors.
They include: asking customers directly for their Zopa login details; claiming to work with companies investing money in Bitcoin or other cryptocurrencies; or working with companies who would ask them to take out a Zopa loan to fund an investment.
MORE than 150,000 lenders were invested in 321,483 loans facilitated by Peer-to-Peer Finance Association (P2PFA) platforms at the end of the second quarter, which the trade body deemed “a record level of involvement in the sector”.
Funding Circle is the largest P2P lender among the P2PFA platform members, having lent out a cumulative total of £5.4bn as of the end of the second quarter. It is followed by Zopa at £4.5bn, with ThinCats in third place with just over £491m.
£814m of new loans were made in the second quarter, compared to £866m in the first three months of 2019.
European fintech company Transferwise has recorded its third year in a row of profits; the company reported its net profit after tax climbed to £10.3 million in the fiscal year ending March 2019, up 66% from the previous year on revenue of £179 million;
The product range includes five Cash ISA Notice accounts, exclusive to Smarterly, ranging from 35 days at 1.05% to one year at 1.25%; Customers will not be able to apply for these products with OakNorth directly;
First Quarter of Fiscal Year 2020 Operational Highlights
Total loan volume facilitatedwas US$ 28.2 million (RMB192.3 million) during the first quarter of fiscal year 2020, a decrease of 93.5% from the first quarter of fiscal year 2019.
Gross billing amount (net of VAT)was US$4.7 million during the first quarter of fiscal year 2020, a decrease of 90.7% from the first quarter of fiscal year 2019.
Gross billing ratio (net of VAT)for credit loans was 16.7% during the first quarter of fiscal year 2020, an increase from 11.7% during the first quarter of fiscal year 2019.
Number of borrowerswas 18,546 during the first quarter of fiscal year 2020, a decrease of 36.0% from the first quarter of fiscal year 2019.
Number of investors was 9,534 during the first quarter of fiscal year 2020, a decrease of 85.9% from the first quarter of fiscal year 2019.
First Quarter of Fiscal Year 2020 Unaudited Financial Highlights
Net revenue was US$4.9 million during the first quarter of fiscal year 2020, a decrease of 90.5% from the first quarter of fiscal year 2019.
Operating costs and expenses were US$12.6 million during the first quarter of fiscal year 2020, a decrease of 18.9% from the first quarter of fiscal year 2019.
Net loss was US$7.2 million during the first quarter of fiscal year 2020, compared to net income of US$29.7 million in first quarter of fiscal year 2019.
Basic loss per ordinary shares in the first quarter of fiscal year 2020 was US$0.15, compared to basic earnings per ordinary shares (“EPS”) of US$0.62 in first quarter of fiscal year 2019.
Diluted loss per ordinary shares in the first quarter of fiscal year 2020 was US$0.15, compared to diluted EPS of US$0.56 in first quarter of fiscal year 2019.
Adjusted net loss attributable to Hexindai Inc.’s shareholders (Non-GAAP) in the first quarter of fiscal year 2020 was US$7.0 million, compared to adjusted net income attributable to Hexindai Inc.’s shareholders (Non-GAAP) of US$29.9 million in the first quarter of fiscal year 2019.
Adjusted EBIT (Non-GAAP) in the first quarter of fiscal year 2020 was (US$5.8) million, compared to US$36.6 million in the first quarter of fiscal year 2019.
Hong Kong has built a strong environment for fostering innovation and financial technology or FinTech. With its large financial sector and its strategic role with Mainland China and gateway to the rest of Asia and the world, Hong Kong has the potential to take on an important role in being a leader in FinTech. In March 2019, for example, Hong Kong issued its first virtual banking licences, which will likely increase adoption of FinTech in the financial services sector.
Emerging technologies used in Fintech services and operations come in different forms, and include:
data analytics that support the operations of financial institutions (for example, credit scoring, loan processing);
peer-to-peer (P2P) financing (such as P2P lending and crowdfunding platforms);
distributed ledger technology, such as cryptocurrency, bitcoin transactions and smart contract applications, as well as blockchain services to help reduce fraud by keeping provenance data on the blockchain; and
financial investments, such as stock trading apps, robo-advisors and algorithmic trading and budgeting apps.
Leading cryptocurrency exchange Binance has announced its launch of the fifth phase of its cryptocurrency lending product in which it customers subscribe to an allocation to lend other users their funds for interest rates as high as 15% Apr.
the 15% interest rate was only available to Binance’s native coin lenders in the first phase. On Tuesday, the exchange revealed three coins that will be included in the crypto lending product including only privacy-centric coins Monero [XMR], Zcash [ZEC] and Dash [DASH]. Their annualized interest rates will be a constant 3.5% but the lending period is only two weeks starting from this Friday September 20th through October 4th.
According to a company release, the purchase price was in the “low seven-digit amount.” Payment will take place in two separate tranches. creditshelf has the option of settling both tranches in the course of two capital increases via a contribution in kind.
Today, Singapore sits proudly atop the Euromoney Country Risk (ECR) rankings. Based on ECR’s blend of financial and economic data, combined with the views of leading economists, no country in the world today has a stronger financial position.
When MAS said in July 2019 that it planned to issue five new digital banking licences, analysts soon spotted that three of them were wholesale licences, open to banks and non-banks alike.
Winners will be encouraged to lend, using digital means, to small and medium-sized enterprises and other non-retail segments – further evidence that corporate banking will be the next segment to feel the hot breath of disruption on its neck.
Equifax Inc. (NYSE: EFX) and Urjanet today announced a global partnership that empowers consumers and businesses to share their payment data from thousands of utility, telecom and cable providers worldwide for a more complete picture of individual payment history, easier identity verification and the potential for better access to credit. This partnership builds on Equifax’s leadership in alternative data, using the Urjanet Utility Data Platform to incorporate consumer-permissioned data into the Equifax differentiated data approach.
According to Deloitte, we shouldn’t view DLT as just a new type of “database ” but rather as a new way to organize the security value chain from issuance to custody. But what exactly can be transmitted through this chain?
Fractional ownership – take as much as you want
Digitizing shares makes them highly divisible, meaning that investors can buy very small percentages of tokenized assets.
So long, intermediaries!
Security tokens have a simpler investment structure and lower fees.
On the way to maximum liquidity
Cherry on top
A security token is basically a digital signature connected with a smart contract responsible for facilitation and verification of ownership rights transactions.
Groww, an online investment platform that sells mutual fund products, has raised $21.4 million (Rs 152.5 crore at current exchange rate) in a Series B funding round led by Silicon Valley-based venture capital firm Ribbit Capital.
Groww said existing investors Sequoia India and Y Combinator also participated in the funding round.
The Reserve Bank of India (RBI) is studying how non-bank lenders and home financiers price their loans, close on the heels of directing commercial banks to link their loan rates to external benchmarks.
The Reserve Bank of India has ordered commercial banks and non-banking lenders to stop providing unregulated entities access to consumer data held by credit bureaus, dealing a blow to scores of fintech startups that have based their business models on such information.
The banking regulator is not in favour of hybrid loan products or ‘teaser loans’, a senior Reserve Bank of India (RBI) official today clarified. The remark gains significance in the light of State Bank of India chairman Rajnish Kumar’s recent comment that SBI would seek the regulator’s view on whether banks can introduce fixed-cum-floating rate products.
FlexiLoans.com, an online lender for MSMEs in India, said that it has crossed a milestone number of disbursing over INR 5 billion of unsecured business loans across the country with its unique digital-only model. The Mumbai-based company, which has disbursed over 16000 loans across 1000 cities and towns in the country, says that there is no dearth of demand on the credit side. The company caters primarily to micro, small and medium-sized businesses.
How has the online lending market shaped up in the last few years?
Digital Lending market is currently at about USD 2 billion, up from about USD 1 billion in 2016. Significant traction and market niches discovered by various FinTech startups across the country have made this space very exciting, holistic and game-changing.
The declining demand for peer-to-peer (P2P) lending in China has prompted firms to find business elsewhere. LearnBonds report that Chinese P2P companies are eyeing Vietnam, which alarmed local lending companies.
About 70 per cent of the population in the Middle East and north Africa do not have access to banking services, says Ian Dillon, co-founder of Now Money, a Dubai-based financial technology group.
The GCC recorded outbound remittances of $120bn in 2017, according to World Bank data. However, Gulf banks tend to exclude workers earning less than $1,400 a month, leaving most of them reliant on exchange houses to remit cash home.
News Comments Today’s main news: OnDeck publishes Q1 financial results. LendingClub to move 350 jobs out of San Francisco to Utah. Salary Finance picks SoFi co-founder Dan Macklin as CEO. Klarna rolls out payment plans for physical stores in UK. HeZhong International sets terms for IPO. India tops China as Asia’s top fintech funding source. Today’s […]
OnDeck reports Q1 2019 financial results. We’ve been seeing OnDeck’s financial situation steadily improving over the last couple of years. Net income in Q1 was $5.9 million. Adjusted net income was $8.3 million while gross revenue wass $110.2 million. It continues to get better.
OnDeck today announced first quarter 2019 net income of $5.9 million, Adjusted Net Income of $8.3 million and gross revenue of $110.2 million.
Net income was $5.9 million, or $0.07 per diluted share, and decreased from the prior quarter’s net income of $14.0 million, 0.18 per diluted share, primarily due to higher loan loss provision, higher operating expenses and an accrual for income taxes. Net income significantly improved from a loss of $1.9 million, or $0.03 per diluted share, in the year-ago period reflecting higher interest income from asset growth.
Adjusted Net Income was $8.3 million, or $0.10 per diluted share, and decreased from $15.9 million, or $0.20 per diluted share, in the prior quarter and increased from $6.4 million, or $0.08 per diluted share, in the year-ago period, reflecting the aforementioned drivers.
Loans grew 3% sequentially and 19% from a year ago to $1.2 billion. Originations were $636 million, down from $658 million in the fourth quarter and up 8% from $591 million in the year-ago quarter. The annual growth was broad-based with increases from both domestic and international operations as well as in both term loan and line of credit offerings. The average term loan size was unchanged sequentially at $53 thousand and was down from $58 thousand a year ago. Unit volume decreased 5% sequentially and increased 15% from the year-ago quarter.
Gross revenue was $110.2 million, essentially unchanged from the prior quarter, and up 22% from the year-ago quarter driven by higher interest income. Loan Yield of 35.6% decreased from 36.6% in the prior quarter reflecting a decline in portfolio performance while pricing was generally stable, and was unchanged from the year-ago quarter.
Interest expense of $11.3 million was essentially unchanged sequentially and decreased from a year ago despite a higher debt balance as borrowing rates improved. The Cost of Funds Rate continued to improve to 5.4%, a 20 basis point sequential improvement and a 140 basis point improvement from the year-ago quarter, as we refinanced debt at lower costs. First quarter financing activity included the extension and upsizing of four debt facilities aggregating to $595 million with improved terms.
Net Interest Margin was 29.5%, down from 30.0% the prior quarter as lower asset yields more than offset the impact from improved borrowing costs. The increase in Net Interest Margin from 27.8% in the year-ago quarter was driven by improved borrowing costs.
Provision for loan losses increased to $43.3 million and the Provision Rate increased to 6.8%. The 15+ Day Delinquency Ratio increased 120 basis points sequentially to 8.7%. Approximately half of the increase was in loans 15-89 days delinquent reflecting credit testing and economic trends, and the balance was in loans 90-days or more delinquent reflecting the change in our collection strategy for late-stage delinquencies. The Net Charge-off Rate increased to 12.2% and remains near the low end of our 12%-14% target range. The Reserve Ratio increased 30 basis points sequentially and 50 basis points from a year ago to 12.5%, reflecting portfolio quality trends and a higher proportion of 90-day plus delinquent loans, which have higher reserves.
Operating expenses increased from the comparable periods to $48.3 million, reflecting growth in the business and investments in our strategic initiatives, primarily technology and analytics. The Efficiency Ratio was 43.8%, up from 41.1% the prior quarter but improved from 49.3% in the year-ago quarter, while our Adjusted Efficiency Ratio* of 41.0% increased from 39.4% in the prior quarter and 40.1% in the year-ago quarter.
Provision for income taxes was $1.7 million compared to zero in 2018 when taxable income was completely offset by operating loss carryforwards. The effective tax rate was 24% and reflected a 21% U.S. federal rate, local and state income taxes, and losses in international subsidiaries.
Total assets increased 5% sequentially and 18% from a year ago to $1.2 billion primarily reflecting loan growth. Cash and cash equivalents was unchanged from year end at $60 million and decreased from $70 million a year ago. Other assets and other liabilities increased over the comparable periods as we recorded a net $28 million right-of-use asset in other assets and an equivalent increase in other liabilities stemming from the adoption of a new lease accounting standard. The 3% sequential increase in debt to $842 million was consistent with the growth in loans.
Total OnDeck stockholders’ equity of $309 million increased $10 million, or 3%, from year end and $45 million, or 17%, from a year ago. Book value per diluted common share outstanding of $3.89 increased from $3.77 at year end and $3.40 a year ago.
OnDeck today announced that Me So Hungry, a food truck business based in California, is its Small Business of the Month for April 2019. Owned by brothers Cory and Mike Ewing, Me So Hungry is the first food truck business to receive the OnDeck recognition.
LendingTree today released its study ranking car brands by their buyers’ average credit score. Tesla buyers have the highest with a score of 740. Chrysler buyers have the lowest scores, with an average score of 656.
Luxury brand buyers occupied the top spots. Tesla, Porsche and Lexus lead with average credit scores of 740, 727 and 699 respectively.
Chrysler buyers had the lowest average credit score at 656, but it’s worth noting that this still falls in the “fair” range. It’s also right around the average credit score for all used car purchases.
For most auto makes, a credit score in the good range (670-739) was enough to be approved for an auto loan. Of the 30 different makes analyzed, 22 had an average approved credit score fall into that range
In a January 2019 newsletter, DBRS discussed the Evolution of the Shifting Interest Structure in residential mortgage-backed security (RMBS) transactions. Another common structure in RMBS transactions is the sequential pay structure.
The sequential pay structure is one of the most elementary and straight-forward structures in RMBS. Post-crisis, the sequential pay structure and its variations have been widely used in seasoned re-performing loan (RPL) and non-Qualified Mortgage (QM) transactions. Such structure largely benefits the senior classes in payment priorities over the subordinates.
Finitive (www.finitive.com), a financial technology platform providing institutional investors with direct access to alternative lending investments, announced today that the firm raised approximately $6 million in a series seed financing. The round was led by Atomic Labs with participation from Ninepoint Partners – one of Canada’s leading private credit fund managers – as well as other investors and members of the management team.
Built Technologies, a construction lending fintech platform, has raised $55 million in funding through Goldman Sachs and a handful of investors including Regions Financial, the company said Monday.
The Nashville, Tenn., company finished $31 million in series B funding through Goldman Sachs with the remainder amount raised by venture capitalists and Regions. The funding will help the 5-year-old fintech invest in research and development while building out its national client base, according to the firm’s CEO and co-founder, Chase Gilbert.
Novo, a challenger institution in the field of small-business banking, and the no-code platform provider Unqork held Series A funding rounds.
The online lender Upstart, which raised $50 million in a Series D round, says it can both lower loan loss rate and increase the number of customers underwritten.
Extend is building a platform to distribute digital cards by partnering with payment networks and card issuers. Another startup, MotoRefi, claims it can save consumers an average of $100 a month on vehicle refinancing by connecting them to trusted credit unions and community banks.
There are several companies in this space doing great work in creating high quality products: Even, PayActiv, TrueConnect and HoneyBee all offer options to employers that help their employees who need access to quick financing. Even has a groundbreaking deal with Walmart that has resulted in 300,000 employees using their pay advance app.
MoneyLion has four million users and they are focused on ending financial stress for all Americans by taking a holistic approach and being proactive in providing help. Dave helps the 30 million people who are hit by overdraft fees each year by advancing $75 from their next paycheck. Tally is a fully automated debt manager to help consumers get out of credit card debt.
Just ask Colin Walsh, the co-founder and CEO of Varo Money, who began discussions with regulators three years ago to charter a national bank. Though the fintech won approval from the Office of the Comptroller of the Currency last year to move forward, it is still waiting on an answer from the Federal Deposit Insurance Corp.
Cross River, a bank that delivers advanced financial and compliance products/services to the fintech industry, announced on Monday it has teamed up with RS2 to offer a new digital banking experience. Through the collaboration, Cross River and RS2 will provide merchants with a global payment experience for processing credit and debit card transactions, as well as digital banking for their workers and consumers.
Financial technology company Blend began building its platform by helping traditional institutions digitize mortgages, working with firms like Wells Fargo, US Bank and some regional banks and credit unions.
New York has created a statewide financial protection division that will focus solely on corporate compliance and consumer issues, following similar efforts by New Jersey and Pennsylvania.
The New York State Department of Financial Services on Monday named Katherine A. Lemire, a former assistant U.S. attorney, to be executive deputy superintendent of the agency’s newly created Consumer Protection and Financial Enforcement division.
A bankrupt payday lender will have to pay a $7 civil penalty to the Consumer Financial Protection Bureau over nearly $50 million in loans it issued in states where they were not legal, according to bankruptcy court filings.
Judge Brian Morris of the U.S. District Court for the District of Montana granted a stay in the CFPB’s litigation against Think Finance LLC on April 30, pending activity in the bankruptcy court.
Online travel apps CheapOair and OneTravel will soon operate a new feature that allows customers to pay for their airfare in instalments. It means that customers don’t have to pay for the full cost of their flight upfront and can instead spread the cost out into more manageable payments that suit individual budgets, choosing between three-, six- or 12-month instalments. Fareportal, the company that operates CheapOair and OneTravel, said its partnering with online lender Affirm to introduce the new feature.
For example, a $300 (£230) purchase at 10% APR spread out over three months would cost $101.69 (£78) per month.
A recent study by the U.S. Chamber of Commerce revealed that Mississippi, Nebraska and Maine are the three states where small to medium businesses have grown the most year over year. This is according to sales in Amazon stores, specifically. More than half of the items sold in Amazon stores are from small to medium businesses.
The top 10 fastest-growing states breaks down as follows:
The third-party physical product sales, which is what gets sold on Amazon stores primarily, passed $160 billion in 2018. Nearly 20% of rural small businesses generate 80% of their revenue by selling products online.
Unlocking the digital potential for rural small businesses across the country could add $47 billion to the U.S. GDP per year.
Increased adoption could grow annual revenues of rural small businesses by more than 21% over the next three years – the equivalent of $84.5 billion per year – with states in the South seeing the greatest benefit
Online tools and technology have the highest potential impact on rural small businesses with revenue under $100,000
Lendio has announced the opening of a new Lendio franchise in Erie. Through the Lendio franchise program, John Fee, a local business owner himself, will help other entrepreneurs in the community apply for loans, review their options and secure funding, easing their financial hurdles.
Today Fundbox announced that the sales technology leader Brandwise and Fundbox have entered into an exclusive agreement whereas Fundbox will be Brandwise’s business-to-business (B2B) trade financing partner. Brandwise will leverage Fundbox’s business capital platform to power financing terms within the Brandwise ecosystem of 250,000 retailers.
White Oak Commercial Finance, LLC (“White Oak”), an affiliate of White Oak Global Advisors, LLC, announced today the appointment of Michael Goletz to Director of ABL Originations, covering the Midwest U.S. region. Mr. Goletz joins from WNB Specialty Finance, a division of Woodforest National Bank, where he was responsible for sourcing and structuring asset-based lending debt facilities ranging from $5 million to $25 million.
Urjanet, the global leader in utility data aggregation, today announced the winners of its 2019 SPARK Awards: AvidXchange, Bright Power, SimpleBills and Guppy – four companies at the forefront of using utility bill data to better serve their customers, community partners, and the environment.
Most Innovative Use of Utility Data:SimpleBills. In addition to utility bill management, residents can use SimpleBills to report their utility bill payment history to credit bureaus through a unique opt-in service.
Leader in Financial Inclusion: Guppy. Through its partnership with Urjanet to acquire user-permissioned utility data, Guppy enables greater access to financial services for consumers, as well as background and ID checks for businesses, all while keeping the end user in control of their own data.
EUROPEAN Risk Capital (ERG) has launched a £1bn multi-client debt programme for UK-based, mid-market non-bank lenders.
The programme – titled ‘CreditStream’ – has a minimum deal target size of £10m, making it primarily suited to mid-sized lenders including bridging and development lenders, second charge mortgagees, consumer and SME funders, auto/equipment finance companies, and fintech lenders. The maximum deal size can be in excess of £100m.
Copious Capital’s launch product is Pay Me Today, described as an “antidote to payday lending,” which lets companies approve and arrange salary advances for staff who need access to money before payday.
Lendy’s operations manager Pamela Guillamón owns between 25 per cent and 50 per cent of Pay Me Today, according to Companies House documents.
Fund manager Neil Woodford has followed his £88 million sale of his stake in peer-to-peer lending trust P2P Global Investments (P2P) by offloading his entire £40 million stake in rival VPC Specialty Lending (VSLV).
Relendex is “very keen” to get behind modular housing, according to its chief operating officer Max Lehrain. Development Finance Today recently reported on the difficulties lenders faced when funding modular builds, however Fintan explained some ways Relendex was able to feel comfortable with supporting such schemes.
The London-based challenger bank charges 15 per cent equivalent annual rate for arranged overdrafts.
Charges £2 a month for unarranged overdrafts as well as the standard rate of interest. Will waive charges if your monthly overdraft interest comes to less than 10p for the month. Operates a monthly fee cap of £2.
Customers with arranged overdrafts are charges a 50p charge every day your account is overdrawn by more than £20, up to a maximum charge of £15.50 a month.
The digital lender, launched by Clydesdale and Yorkshire Banks in 2016, charges a 12.5 per cent equivalent annual rate on arranged overdrafts. On top of this it charges a fee of £6 a month. The bank charges £6 a day for unarranged overdrafts.
The Berlin-based app-only bank, with more than 2 million customers in 24 countries, said it will launch an overdraft facility for its 200,000 UK account holders “soon.”
Foxstone (www.foxstone.ch) announces the acquisition, in crowdinvestment, of a residential building in Concise (VD) by 55 investors, of all ages and all backgrounds. They acquired a share of the building in co-ownership with a minimum amount of CHF 50’000.-
The total amount raised in co-ownership was CHF 3,250,000 for an acquisition price of the building of CHF 6,800,000, the remaining balance being financed by a mortgage. The net return on equity is 6.53%, which represents an annual return of CHF 3,265 for a CHF 50’000 investment. The Régie du Rhône takes care of the day-to-day management of the building.
News Comments Today’s main news: Klarna launches open banking platform. SoFi re-engineers home loans. Apple’s new credit card. OakNorth secures guarantee of $133M. Qupital raises $15M to bumrush China. Today’s main analysis: Arbuthnot Banking Group audited final results for 2018. Today’s thought-provoking articles: U.S. yield curve, new fintech products. Cities with most overleveraged mortgage debtors. Household debt. Expanding access to credit […]
Europe: Klarna launches open banking platform. Not a surprise. We knew it was coming, and this will likely push Klarna even further up the ranks of most important fintechs globally. With aggressive expansion, Klarna can leverage this platform to focus its core competency in the area of instant loans all around the globe.
Today, SoFi announced the refresh of its mortgage offering as SoFi Home Loans, complete with a reengineered process that helps people buy or refinance a home with an online application, no hidden fees, or prepayment penalties.
SoFi Home Loans offer competitive rates including affordable down payments, with as little as 10% down on loans up to $3MM, with no hidden fees or prepayment penalties. SoFi allows applicants to choose between four different loan terms and fixed or adjustable rates. Those interested in refinancing can choose between traditional mortgage refinancing, cash-out refinancing, and student loan cash-out refinancing. If SoFi Home Loans isn’t able to handle a loan request, SoFi provides an easy option to digitally transfer member information to its affiliate partner who may be able to help.
The Apple credit card is the latest offering by a Silicon Valley tech giant looking for a ready-made avenue into the financial services’ sector. While the new card mostly benefits loyal users of Apple products, it’s also an unwelcome reminder of an ever present question on the minds of wealth managers: Will the FAANG companies like Facebook, Amazon, Apple, Netflix and Alphabet continue their land grab of services historically provided by the financial services industry — and at what cost to traditional RIAs?
Ominously, a majority of investors considering switching financial services providers said they would consider banking with a tech company like Facebook, Google or Amazon if they could, according to a recent survey by Novantis.
For the first time in 3,000 days, and with much anticipation, the 3-month and 10-year treasury curve inverted. The median time to a recession after this curve inverts is between 1 to 1.5 years. However, unprecedented interventions such as QE (and higher central bank holdings globally) make it difficult to draw hard and fast conclusions. Market participants are pricing in a 41% probability of an interest rate cut in the September meeting.
Buying a home represents an important milestone for most consumers. But for those who dive in to the deep end of real estate without a financial safety net, the decision could lead to buyer’s remorse in the long run. Mortgage rates are slowly falling after reaching their latest peak in November 2018, and are close to the lowest they’ve been in the past 3 decades. This makes 2019 a tempting time to buy a home. Some industry experts believe 2019 is friendlier toward buyers than sellers because of the lower rates.
The most recent Quarterly Report on Household Debt and Credit issued by the Federal Reserve Bank of New York (the Fed) and Equifax Inc. (Equifax) showed that household debt rose for the 18th consecutive period during Q4 2018 to $13.5 trillion, $869 billion higher than the peak reached in 2008. This represented the third-smallest increase (0.24%) over the 18 consecutive periods of growth, partly because of decreasing mortgage loan debt during Q4 2018 to $9.2 trillion from $9.4 trillion at the end of Q3 2018 and flat levels of auto loan debt at $1.3 trillion for both Q3 and Q4 2018.
Credit is one of the largest, most powerful, lucrative and important industries in the world. It also is one of the best tools for wealth creation – home ownership, small business ownership and growth, and, leveraged investing. This is readily accessible for prime consumers with more options now than ever before. But for the other half of the country that is non-prime, options are still limited and in many cases non-existent.
Early pioneers of securitizations like SoFi, the scaling of marketplace lending like Lending Club, Prosper and Best Egg, and new distribution models like Greensky and Affirm have contributed towards increasing comfort of these “new asset classes” that were mostly locked up in bank’s balance sheets.
Amount, a technology provider for financial institutions, today announced a strategic partnership with TD Bank. TD Bank, a top ten U.S. bank, is leveraging Amount’s platform to power the bank’s TD Fit Loan, which launched in August 2018. This initial offering allows consumers to consolidate higher-interest debt, while helping TD meet growing consumer demand for a seamless digital and mobile lending experience. Through this partnership, TD and Amount will roll out additional offerings, as well as standalone tools addressing fraud, verifications and decisioning.
SoFi members have received over 15,000 coaching sessions to date.
4. Referral bonuses
Who offers it: Multiple refinance lenders.
Education Loan Finance offers $400 for each successful referral, as well as $100 for the loan applicant.
Laurel Road lets you split its $400 bonus however you and your referral see fit.
Splash Financial provides $250 apiece for both parties.
5. Charitable work
Who offers it: CommonBond.
If you prefer freebies that help others, CommonBond has a one-for-one social impact mission. For each loan the lender issues, it donates an amount based on a formula that funds a child’s education in a developing country through the nonprofit Pencils of Promise. Those donations have totaled over $1 million to date.
Women are the fastest-growing group of entrepreneurs in the U.S. Yet less than 5 percent of small business lending—only $1 in $23—goes to women. CNote aims to fix this disparity with the Wisdom Fund, a new impact investment opportunity launching today.
Investors in the Wisdom Fund will earn an estimated 4 percent annual return, over a 60-month term, on a loan portfolio that’s diversified across established CDFIs. Email email@example.com to learn how you can help fund more women-owned businesses today.
Women seeking loans should contact a participating CDFI. Partners in the Wisdom Fund’s first phase include:
More than half (54%) of loan applicants don’t even have a clear understanding of why they receive the interest rate they do from a lender, while a majority (70%) say it is difficult finding lenders who will look at them as something other than their credit score.
7 in 10 American adults (71%) wish there was another way to prove themselves to credit lenders outside of the standard credit score.
Hispanics (82%) and African Americans (81%) are more likely than Whites (67%) to want lenders to look at additional factors in lending decisions.
77% believe more data is better when evaluating potential borrowers’ credit.
71% would be willing to share more personal data with a lender if it resulted in a fairer credit decision. The motivation is even higher among middle-class earners. 79% of people making $50,000 to $75,000 would share more personal data to prove their creditworthiness, compared to 66% of people making over $100,000.
84% think their bank should use modern technology to assess their creditworthiness.
Specifically, about half of loan applicants (53%) would like their ideal lender to use machine learning to make fairer credit decisions.
More than 2 in 5 (42%) would like their ideal lender to use machine learning to make the credit for homeownership more accessible to everyone.
Surprisingly, older generations want newer technology even more. Baby boomers and seniors (83% and 87%, respectively) wanted their banks to use new technologies to score them, compared to 79% for Millennials and Gen Zers.
SigFig Atlas is billed as a “financial advice and software-guided sales platform” for banks. Accessible either in a branch office or online, SigFig Atlas will assess a customer’s financial needs, then use algorithms to determine which of a bank’s products or services would work best. Beyond robo-advice, Atlas can also recommend checking and savings accounts, loans, mortgages or any other bank products. “ArborCrowd is the first crowdfunding platform launched by a real estate institution, offering a vastly different model than others in the space,” says Adam Kaufman, co-founder and managing director at ArborCrowd.
“ArborCrowd is the first crowdfunding platform launched by a real estate institution, offering a vastly different model than others in the space,” says Adam Kaufman, co-founder and managing director at ArborCrowd.
“We are a marketplace where sponsors can list their offerings and investors can invest typically between $25,000 and $1 million per investment to own their pro-rata portion of that deal or fund,” says Brandon Banks, vice president of real estate at RealCrowd.
Bradley Fulkerson, senior managing director at Transwestern in Atlanta says through Groundfloor, investors provide short-term, high-yield loans, secured by the underlying real estate.
Accredited investors can participate in both equity and debt real estate funding through Portland-based CrowdStreet.
“PeerStreet’s accredited investors earn a stable, consistent return with a yield that’s generally higher than bonds and sometimes even more than equities,” says Brett Crosby, co-founder and chief operating officer at California-based PeerStreet.
Small Change is crowdfunding investing for socially conscious small investors. From the platform, investors choose their projects and invest.
Highly selective RealtyMogul offers commercial real estate investing for accredited and nonaccredited investors.
An overwhelming majority (90 percent) of asset-backed securities (ABS) professionals feel that adopting new technologies will be important to preparing their businesses for the next economic cycle, according to Capital One’s sixth annual survey at SFIG Vegas 2019.
The survey also revealed that ABS professionals believe the biggest risks to their businesses are uncertainty around regulatory risk and increased credit risk, both at 29 percent. However, despite regulatory risk being a top concern, the industry’s apprehension has nearly cut in half over the last two years. In 2018, 48 percent noted regulations were the biggest risk to their businesses while 58 percent thought so in 2017. Additional top-of-mind concerns for 2019 include increases in interest rates (18 percent) and increased competition (17 percent).
Asset tokenization platform TrustToken has announced a strategic partnership with crypto lending platform Cred.
Founded by former PayPal financial technology veterans, Cred is a decentralized global lending and borrowing platform that allows stablecoin issuers, exchanges and wallets to provide valuable earn and lending services worldwide.
On March 19, 2019, the New York State Department of Financial Services (“NYDFS”) filed a brief in opposition to the Office of the Comptroller of the Currency’s (“OCC”) motion to dismiss the NYDFS’ lawsuit challenging the OCC’s statutory authority to grant special purpose national bank charters to Fintechs (the “Fintech Charter”). The brief in opposition signals that the NYDFS will continue its opposition to the Fintech Charter under the leadership of Acting Superintendent Linda Lacewell, who replaced outgoing Superintendent Mari Vullo in February. In opposing the OCC’s motion to dismiss, the NYDFS argued that it has standing to challenge the Fintech Charter, the matter is ripe for judicial review, and its claims are not time-barred. The NYDFS also argued that the OCC’s interpretation of the “business of banking” is not entitled to Chevron deference and “should be invalidated in its entirety.”
Today,Mortech, a Zillow Group business providing mortgage technology solutions for mortgage lenders and secondary market teams, announced a new partnership between Mortech’s product and pricing engine (PPE) and Roostify, a digital lending platform that gives customers more control of their home buying process while allowing loan officers to utilize the latest technology to more easily process loans. The strategic partnership will integrate two proven mortgage technology solutions to improve the digital mortgage experience for many industry-leading lenders.
Finastra has launched Fusion Digital Front Office, an innovative tablet-based banking platform that enables community banks and credit unions to take services directly to the consumer, outside of the branch. The solution provides a simple gateway to manage account origination, sales and service, and transaction processing from any remote location.
“We’re entering the market now with a real institutional offering, we’re definitely going to be offering some new products and services,” such as token lending and over-the-counter (OTC) trading, in the coming months, he added.
Elevate Credit, Inc. (“Elevate”), a leading tech-enabled provider of innovative and responsible online credit solutions for non-prime consumers, has been named as one of six finalists in the “Excellence in Financial Inclusion” category for the LendIt Fintech Industry Awards 2019. This award is given to the company that has made the biggest impact in expanding access to financial services in new and innovative ways.
Revolut, Monzo, Starling Bank, Currencycloud, Aire, Blockchain, MarketInvoice, Quantexa, Nested and Salary Finance were revealed to be among the 24 most dynamic and fast-growing late-stage technology companies to be chosen to join Future Fifty’s 2019 cohort.
Tech Nation and Dealroom data has also revealed that the U.K. has attracted a whopping $7.9 billion in funding in 2018 and closed the gap for exits of venture-backed companies with the U.S. As well as this U.K. sales, IPOs and mergers were worth $40 billion – ahead of every other European country – which points to the success of the tech sector as a whole in the country.
OakNorth has today announced its participation in the ENABLE Guarantee programme, securing a guarantee of £133m from the British Business Bank, the UK government’s economic development bank. OakNorth will use the guarantee to strengthen further its lending support to fast-growth businesses and established property developers and investors.
The ENABLE Guarantee programme is designed to encourage banks to increase their lending to smaller businesses by reducing the amount of capital required to be held against such lending. Under an ENABLE Guarantee, the UK Government takes on a portion of the lender’s risk on a portfolio of loans to smaller businesses, in return for a fee.
As a challenger bank, OakNorth charts a different course. While Revolut, Monzo, and N26 focus on putting their digital current accounts in the hands of millions, OakNorth doesn’t even offer a current account. While other challengers are racing to acquire banking licenses all over the world, OakNorth is happy with just a UK license.
OakNorth provides debt financing to entrepreneurs in growing businesses, lending £0.5M to £40M to profitable, scale-up, British businesses. To fund its underwriting, OakNorth offers digital savings accounts. It currently has 40,000 customers with digital savings accounts and has lend £3 billion in under four years.
Western Circle Limited has made a name for itself by offering responsible payday loans online. Their decision to branch out into the personal loans market through the new brand PersonalLoansNow.co.uk was well received by their customers.
THE END of the tax year is fast approaching, so if you haven’t yet taken full advantage of your £20,000 ISA allowance to make tax-free returns, now is the time. The peer-to-peer lending industry is expecting to see an uptick in inflows into Innovative Finance ISAs (IFISA) this year now that there is a much wider choice of products available and the potential for higher returns than cash with lower volatility than the stock market.
When it comes to asset allocation, advisers constantly face the challenge of finding real diversification in client portfolios. Sue Whitbread met with Matthew Ardron and Benedict Yung of Basset & Gold Group, to talk about their approach of offering fixed rate bonds that invest in alternative lending.
FOUNDERS of the ‘big three’ peer-to-peer lenders are among the confirmed speakers at Innovate Finance Global Summit (IFGS), which takes place next month at London’s Guildhall.
Giles Andrews of Zopa, Samir Desai of Funding Circle and Rhydian Lewis of RateSetter are all participating in various sessions at the fintech industry trade body’s flagship conference on 29-30 April 2019, which marks the start of UK Fintech Week.
Other confirmed speakers from the P2P world include Zopa chief executive Jaidev Janardana, ArchOver’s Angus Dent, Ali Celiker from British Pearl and Roxana Mohammadian-Molina from Blend Network.
Qin Shuifeng, 30, who lives in the suburban district of Jiading, went to a branch of the Postal Savings Bank of China in 2016 to seek a loan for home improvements.
The lender granted her and her husband a credit line of 1 million yuan (US$148,600), of which they drew 600,000 yuan, with an interest rate 10 percent higher than the benchmark rate.
The central government has issued a series of policies favorable to consumer lending since the second half of 2018.
Still, risks remain. To realize sustainable development, players need to build strong operational and risk control capabilities, either by themselves or in partnership with financial technologies firms.
Today, Klarna, one of Europe’s leading payment providers and the global market leader in payment initiation services, announces the launch of its own Open Banking Platform. This platform will enable access to more than 4,300 European banks through a single Access to Account (XS2A) API in line with Payment Services Directive (PSD2). Klarna’s XS2A API is the most established and proven solution that has been developed at scale across markets for almost 15 years through the Klarna Group company Sofort.
This platform provides a fully proven and mature infrastructure, superior market coverage and connectivity, with access to 99% of online banking consumers currently across 14 European markets. By opening up its own advanced technology and capabilities, Klarna is simplifying and democratising access to APIs securely. Both established and newer banks and fintechs as well as other licensed businesses, will be able to build smart and personalised offerings that meet the evolving needs of consumers across Europe. Klarna has been one of the leading proponents of the PSD2 legislation and believes high-quality APIs will drive innovation and competition but most importantly will empower consumers across Europe with increased choice, control and clarity on their finances, and ability to access better products.
U.S. FinTech funding reached its highest level in five years in 2018, according to CB Insights data published last month, hitting $11.89 billion. Yet at a time when analysts say VCs are focusing more on late-stage investment, alternative lenders are having a tougher time securing funding, particularly market newcomers in a crowded market.
But there is evidence that investors’ appetite for alternative lending startups is on the wane, even as overall FinTech funding continues to climb — and as the success of the alternative lending market grows, too.
Just weeks after launching in the US, trading and investment platform eToro announced plans to purchase Copenhagen-based blockchain firm Firmo, reports Julie Muhn at Finovate.
Founded in 2017, Firmo offers a programming language called FirmoLang that runs on a sidechain. Exchanges can leverage FirmoLang to create financial instruments such as P2P lending platforms or cryptocurrency derivatives with tokens. And Firmo is versatile, allowing the tokens to be run on any blockchain.
Battlestar Capital, which is a blockchain staking-as-a-service company, revealed that customers could potentially earn up to 30 percent on a yearly basis when it comes to their idle crypto holdings. Here is everything about the startup’s claims in a nutshell.
In an interview, the company said that it has teamed up with crypto lending startup called Celsius Network in an attempt to launch a large-scale service capable of offering potentially high returns.
Bukalapak is teaming up with Indonesian P2P lending startups Amartha, Modalku, and PohonDana to provide loan facilities in a program called Modal Mitra. The loans are available to offline vendors who are part of the company’s Mitra Bukalapak program.
The financing offered through Modal Mitra ranges between US$70 and US$700 and can be paid back in up to six months, with weekly installments starting from US$6. It can only be used for purchases in the Mitra Bukalapak app.
Bank 131, a new digital bank focused on Russian companies and entrepreneurs that work for global internet companies and/or buy from global ecommerce companies with a Russia presence, announced today they have received their banking license from authorities – the first and only new bank to do so in four years.
Canada’s shadow banking sector has grown substantially in recent years, but the overall financial system has grown even faster, keeping risks in check, suggests a new report from the Bank of Canada.
In the report, the central bank details the results of its monitoring of so-called “non-bank financial intermediation” (NBFI), also known as shadow banking. Among other things, the report finds the Canadian NBFI sector has grown by 1.7 times since 2006, driven by strong growth in investment funds, securities financing transactions and private lending.
When FICO first introduced the credit score in the 1980s, it had good intentions: To level the playing field for consumers and make decisions easier for lenders. Nearly 30 years later, we still use the exact same model. And while it’s never been perfect, its flaws have become much more apparent in recent years as […]
When FICO first introduced the credit score in the 1980s, it had good intentions: To level the playing field for consumers and make decisions easier for lenders.
Nearly 30 years later, we still use the exact same model. And while it’s never been perfect, its flaws have become much more apparent in recent years as consumers’ financial habits have started to evolve.
Currently, we use a traditional credit score to gauge creditworthiness for untraditional consumers, and this situation has created serious limitations. Fortunately, a solution is well within reach, and it comes in the form of a new, alternative credit score.
Unpacking the Value of Alternative Credit Scoring
In order to meet the evolving needs of consumers, it’s time to introduce a new type of credit score — one that looks at data beyond traditional financial institutions in order to understand the creditworthiness of the growing number of consumers who choose to manage their finances in new ways.
While there’s no single prevailing model for alternative credit scoring, many have already been introduced with great success. These models typically rely on a combination of the following activities as a way to gauge consumers’ propensity to pay bills:
Traditional loan repayment behavior
Non-loan payment data (e.g. utility or rent payments)
Cash flow information
Home, job and lifestyle stability information
Education and employment data
Personal and professional connections
Some of the most common data points used to understand these activities include:
Checking and savings account transactions to understand cash flow based on income, spending habits and account balances
Utility bill, rent, cable and/or mobile phone payments to understand intent to make payments and typical payment patterns (early, on-time, late)
Mobile phone location to verify home and work addresses as a way to understand stability
Social media activity to assess home, job and lifestyle stability, education and occupational attainment, online behaviors and personal and professional connections
While the latter two data points (mobile phone location and social media activity) are considered less reliable than bank account and bill payment data, some alternative credit scoring models have used them with success.
Ultimately, with the right data in place, these alternative models can prove just as trustworthy as the traditional FICO credit score and provide several benefits for consumers and lenders alike.
Trust in Alternative Credit Scoring Models
The trustworthiness of alternative credit scoring is extremely important, as lenders must be able to rely on these models to limit their risk. Fortunately, there are several data points that have proven their worth.
According to a recent study on the predictive value of alternative credit scores by the Center for Financial Services Innovation, utility bills and rent payments are among the most reliable data points used in alternative credit scoring models. The fact that these data points are easy to collect only makes them all the more appealing.
The study also reports that many consumers who would be unable to obtain a loan using traditional credit scoring models actually represent prime or near-prime credit risk for lenders, making alternative models that can generate scores for most adults an ideal solution to safely broaden access to credit.
Of course studies are one thing. How all of this works in practice is quite another. So far, though, the results have been positive. Consider the case of TransUnion, which now uses an alternative credit scoring model that it calls CreditVision Link. The firm has over three billion non-traditional data points for more than 260 US adults including property, tax, and deed records; and checking, debit, or payday lending information. TransUnion has used these alternative data points to accurately score more than 90% of applicants who would have been unscorable under the traditional model.
Benefits of Alternative Credit Scoring Models
Once lenders establish trust in alternative credit scoring models, both lenders and consumers can begin to reap the benefits.
For lenders, the benefits of alternative credit scoring typically include:
Enhanced predictions due to access to more timely and holistic information on consumers’ spending habits and payment behavior
Lower costs and increased efficiency due to the use of less expensive data sources and faster data collection methods
Reduced discrimination due to the use of automated data collection, which removes the need for manual and discretionary decision making
For consumers, benefits of alternative credit scoring typically include:
Increased access to credit due to the use of data points beyond traditional financial behavior that fail to capture information on the millions of unbanked and underbanked consumers
More accurate portrayal of creditworthiness due to the use of more timely information, which can make it easier for consumers to build credit
Better service due to a more efficient and less discretionary processes
When all is said and done, FactorTrust, the alternative credit bureau, reports that underbanked US adults represent $105 billion in untapped opportunity for lenders while VantageScore Solutions finds that alternative credit scoring could help approximately 7.6 million consumers who are currently unscorable reach a credit score of 620 or higher.
Why It’s Time for a Change
Why exactly do we need to introduce a new model for credit scoring? There are many factors driving the need for change, but they are largely led by Millennials who are unlike any generation before them. There’s no shortage of articles that try to pick out defining characteristics of the Millennial generation, good and bad — they’re digital, they’re narcissistic, they support brands with a cause.
And whether or not these broad strokes actually define Millennials, one thing that is certain is that this generation approaches many different everyday challenges in their own unique way. Perhaps the best example of this is how they manage their finances.
A New Financial Mindset
Not too long ago, everyone “banked.” We opened checking and savings accounts and we used credit cards — it was just the norm. Those who didn’t follow this pattern typically did so due to dire financial circumstances.
Today, however, we live in a different world. We live in a world shaped by a great recession in which many people were failed by the very banks that they trusted to keep their finances safe. This experience hit particularly hard for Millennials, who came of age in the throes of the recession.
As a result, many Americans (led by Millennials, but not confined to this generation) have started to re-think how they handle their finances.
Growing Financial Options
In addition to world events shaping a new financial mindset, so too has the rise of technology.
Today, consumers have far more options than they once did for how to store and spend money. For instance, many online options now exist that help consumers manage their money and retain access to it digitally, all without any involvement from traditional financial institutions. One of the best examples of these options is Amazon Cash, which enables consumers without credit or debit cards to load cash directly to their Amazon accounts via kiosks at retailers like CVS.
A Change in Banking Status Norms
As a result of a new financial mindset and the growing number of non-traditional financial options, a change in banking status norms has set in.
According to the FDIC, 27% of US households are unbanked or underbanked. Those terms are defined as follows:
Unbanked: No one in the household has a checking or savings account.
Underbanked: The household has an account at an insured institution, but also goes outside of the banking system to alternative financial providers for services and products like money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawn shop loans, and auto title loans.
A large portion of consumers who fall into this group cited non-financial reasons for retaining an unbanked or underbanked status including a lack of trust in banks, privacy concerns, and high or unpredictable bank account fees.
Although the growing number of financial options may make it easy for these unbanked and underbanked households to get by without engaging traditional financial institutions, this status poses a major problem when it comes to credit.
From obtaining a loan with which to buy a house or underwriting for insurance to gauging responsibility when applying for a new job, credit scores are used for a variety of purposes. As a result, credit counts for a lot when it comes to mobility in the US economy.
However, because of how credit scores are traditionally calculated, those who are unbanked and underbanked are typically credit invisible (meaning they have no file with any of the major credit bureaus) or credit unscorable (meaning they have a file with at least one of the major credit bureaus but the information is either too little or too stale to generate a reliable score). Today, 45 million US adults are credit invisible or credit unscorable.
Essentially, this means that the growing group of unbanked and underbanked consumers is severely limited when it comes to activities like buying a house.
It’s Time to Embrace Alternative Credit Scoring Models
Under the status quo, the vast majority of lenders use the traditional FICO credit scoring model. However, this model prohibits 45 million US adults from obtaining credit due to their banking choices rather than the risk they pose to lenders, and seriously limits upward social and economic mobility as a result. Perhaps the most concerning part of this problem is that the overwhelming majority of these credit invisible and credit unscorable consumers are actually good candidates to receive credit.
At a time when more and more consumers are choosing to go outside the traditional financial system, whether it’s because of a lack of trust in banks, the growing number of alternative financial options, or anything else, it’s clear that we need a new type of credit score.
Fortunately, the solution is well within reach. Many firms have already created alternative credit scoring models based on data points like checking and saving account data and utility bill, rent, and mobile phone payment history, and these models have proven their trustworthiness time and again.
Best of all, alternative credit scoring models provide benefits for lenders and consumers alike by enhancing creditworthiness predictions, making the credit application process more efficient and less expensive, and expanding access to credit in a risk-averse way.