Thursday May 18 2017, Daily News Digest

Thursday May 18 2017, Daily News Digest

News Comments Today’s main news: Lending Club increases minimum investment to open account. Consumers pay off unsecured personal loans first. American Households Return To Peak Debt, Thanks To Booming Student Loans. RateSetter sells off bad debts. Today’s main analysis: The fast lane to better small business funding. Today’s thought-provoking articles: Consumers pay off unsecured personal loans first. American Households […]

Thursday May 18 2017, Daily News Digest

News Comments

United States

United Kingdom

China

European Union

Australia

India

Middle East

News Summary

United States

Lending Club Increases Minimum Investment to Open an Account to ,000 (Lend Academy), Rated: AAA

Until today new investors at Lending Club could open an account with as little as $25. This has now changed. Going forward to open a new account at Lending Club you must deposit $1,000. The $25 minimum investment per loan still applies but you will no longer be able to start an account with less than $1,000.

The reason for this move can be explained in one word: diversification. We have written manytimes before about the importance of diversification and Lending Club has a page on their site dedicated to this topic. With $1,000 investors will be able to invest in 40 notes; while that is still not very diversified it is a lot better than investing in, say, four notes when someone starts with $100.

American Households Return To Peak Debt, Thanks To Booming Student Loans, (Buzz Feed), Rated: AAA

American households are back at peak debt, with new data showing the highest level of household debt since 2008.

Kind of.

Americans now sit on a $12.73 trillion pile of household debt, meaning mortgages, loans, credit cards, home equity lines of credit, car loans, and student debt. That figure previously peaked at $12.68 trillion in the early days of the Great Recession.

Those numbers aren’t adjusted for inflation, and $12.68 trillion 2008 dollars would be equal to more than $14.5 trillion today. And while debt number is at it’s highest ever, the economy has grown significantly in the last nine years, meaning that as a percentage of the total economy, it’s still well below its 2008 high.

“Almost nine years later, household debt has finally exceeded its 2008 peak but the debt and its borrowers look quite different today,” said Donghoon Lee, a Research Officer at the New York Fed. “This record debt level is neither a reason to celebrate nor a cause for alarm.”

The makeup of American household debt has changed in a big way. Back in 2008, people held $10 trillion in housing debt; that has fallen to $9.1 trillion today. In its place, student loan debt has boomed, and car loan and credit card debt also rose.

Home loans have become harder to come by for middle- and low-income buyers in the decade since the housing crisis began. And as the recession kicked into high gear and unemployment spiked, people poured into colleges in huge numbers, looking to weather the storm. That led to a boom in the for-profit college industry — and a soaring national student debt pile.

When household debt peaked in 2008, Americans had $610 billion in student loan debt, about 5% percent of all consumer debt and 23% percent of all non-housing debt. Today, student debt balances have more than doubled to $1.3 trillion, 11% of all consumer debt and 37% of all non-housing debt.

But people are now defaulting on those student loans at at a higher rate than any other form of debt. 11% of all student debt is now more than 90 days overdue, compared to 7.5% for credit cards and 3.8% for home loans.

“The standout, however, has been student loans—with new serious delinquency flows that deteriorated steadily between 2004 and 2014 and have remained stubbornly high since then,” the Fed researchers said.

The Fast Lane to Better Small Business Funding (Lendio Email), Rated: AAA

Consumers Place Personal Loans Atop the Credit Mountain (GlobeNewswire), Rated: AAA

When faced with the choice of which debts to pay and which to miss, consumers in financial distress tend to prioritize unsecured personal loans ahead of other credit products such as auto loans, mortgages and credit cards. These findings were released today during TransUnion’s annual Financial Services Summit, attended by more than 300 senior-level financial services executives from around the globe.

The most recent study incorporates unsecured personal loans for the first time since TransUnion began analyzing the payment hierarchy dynamic in 2010. Beyond personal loans, this most recent analysis is consistent with prior TransUnion studies in finding that consumers have historically prioritized auto loans over their mortgages and credit cards, and have done so consistently since at least the beginning of 2004.

Personal Loan Delinquencies* Consistently Remain Lower Than Other Loan Types
Delinquency* Rates for Consumers Possessing

Auto Loans, Credit Cards, Mortgage Loans and Unsecured Personal Loans

Year Personal Loan Auto Loan Mortgage Credit Card
Q4 2012 1.10% 1.86% 3.49% 3.11%
Q4 2013 1.17% 1.84% 3.13% 3.23%
Q4 2014 1.19% 1.76% 2.63% 3.05%
Q4 2015 1.26% 1.68% 2.32% 2.87%
Q4 2016 1.49% 1.75% 2.44% 3.65%

*Delinquency rates after 12 months for consumers who possess and are current on all four credit products at the beginning of the respective performance measurement period.    

Recent TransUnion data show that average term lengths are much shorter for unsecured personal loans. For loans originated in Q4 2016, unsecured personal loans had an average term of 28 months. In this same timeframe, the length of auto loans averaged 60 months and mortgages averaged 230 months.

Why Millennials Are Interested In Real Estate Investing (Forbes), Rated: AAA

RealtyShares recently teamed up with Harris Interactive to put out the Real Estate Investing Report, surveying Americans on their investment preferences. And according to the survey results, 55 percent of millennials are interested in investing in real estate, the highest percentage of all demographics questioned. Research from Fannie Mae supports these findings, reporting that 85 percent of millennials think real estate is a good investment.

According to a recent Pew report, there are 75.4 million millennials compared with 74.9 million baby boomers.

In the RealtyShares survey results, 20 percent of millennials indicated they believe real estate has performed the best since 2000. In fact, millennials were the age group with the largest percentage with that belief. The next highest group to believe real estate outperformed the stock market since 2000 is comprised primarily of Generation X (ages 35–44), 16 percent of whom chose real estate as the top performer.

Millennials, ever-vigilant on the internet, are paying heed to online financial experts. One of these experts especially popular among millennials is personal finance blogger Financial Samurai, who recently shared his preference for investing in real estate over the stock market.

While the large down payment needed to invest in real estate is the biggest reason millennials aren’t buying real estate, thanks to online real estate investing platforms, millennials can now invest in real estate without saving tens of thousands of dollars for a down payment.

Juvo Appoints Financial Services Expert Ron Suber As Strategic Advisor (Juvo Email), Rated: A

Juvo, a pioneer in mobile Identity Scoring, today announced the appointment of Ron Suber, president of Prosper Marketplace, as strategic advisor to the company. An investor in Juvo, Suber is a prolific presence in fintech and is well known as an industry influencer around the world. In his advisor role at Juvo, he will help direct the company through its global growth, ongoing product development and expansion into new markets.

Ron’s appointment helps round out the Juvo advisory team, which includes:

  • Nils Puhlmann, leads Juvo’s security and privacy efforts: former Chief Security Officer & co-founder of Cloud Security Alliance
  • Vicente Silveira, fraud and risk management advisor: head of fraud data science at Uber
  • Allison Duncan, social impact advisor: founder and CEO of Amplifier Strategies
  • Ken Laversin, enterprise software/SaaS advisor: senior vice president, worldwide sales at Jasper
  • Monica Rogati, data science advisor: equity partner at Data Collective, former VP of data at Jawbone and LinkedIn data scientist

LendingHome Hires New CFO. Receives Fannie Mae Approval to Expand Home Loans (Crowdfund Insider), Rated: A

LendingHome says it is ready to ratchet up platform growth. The marketplace lending platform that finances residential mortgages has made two announcements today.

First, the online lender has announced that former Nationstar Mortgage CFO, Robert Stiles, has been appointed to become LendingHome’s CFO.

Simultaneously, LendingHome has been approved by Fannie Mae as a seller and servicer provider which will enable  LendingHome to expand its consumer home financing business, a bit of a big deal.

By working directly with Fannie Mae, LendingHome may streamline operations and offer better loan pricing to its customers.

Is the CSBS Vision 2020 the Answer to the OCC Fintech Charter? (Crowdfund Insider), Rated: A

Earlier this week, the Conference on State Bank Supervisors (CSBS) announced their “Vision 2020” initiative.

The CSBS outlined their initial objectives:

  • Redesign the Nationwide Multistate Licensing System (NMLS). CSBS has launched a technology effort that redesigns and expands NMLS, the common platform for state non-bank regulation. The redesign will use data and analytics to provide a more automated licensing process for new applicants, streamline multi-state regulation, and shift state resources to higher-risk cases. State regulators also will ensure transparency through NMLS Consumer Access, which was viewed 3.7 million times last year.
  • Harmonize multi-state supervision. CSBS has created working groups to establish model approaches to key aspects of non-bank supervision. The groups will work to enhance uniformity in examinations, facilitate best practices, and capture and report non-bank violations at the national level. To further streamline the process, CSBS will create a common technology platform for state examinations.
  • Form an industry advisory panel. CSBS will establish a fintech industry advisory panel to identify points of friction in licensing and multi-state regulation, and provide feedback to state efforts to modernize regulatory regimes. The panel will focus on lending and money transmission, and discuss a wide range of solutions. Individual state regulators already have been engaging the fintech industry in formal dialogue.
  • Assist state banking departments. CSBS education programs will make state departments more effective in supervising banks and non-banks. Updated standards and analytics will help states determine where new expertise is most needed, identify and address weaknesses, update supervisory processes, and compare themselves to and learn from other state departments. These higher standards will be validated through an enhanced CSBS accreditation program.
  • Make it easier for banks to provide services to non-banks. CSBS is stepping up efforts to address de-risking – where banks are cautious about doing business with non-banks, due to regulatory uncertainty – by increasing industry awareness that strong regulatory regimes exist for compliance with laws for money laundering, the Bank Secrecy Act, and cybersecurity.
  • Make supervision more efficient for third parties. Banks of all sizes work with a variety of third-party service providers, including fintech companies. CSBS supports federal legislation that would allow state and federal regulators to better coordinate supervision of bank third-party service providers.

Fintech Lawyers on State Regulators’ Possible Alternative to OCC Charter Plan (Corporate Counsel), Rated: A

Lawyers who work for and with fintechs are encouraged that the state regulators at the CSBS are at least thinking about changes to the system that they believe would modernize state regulations of nonbanks or help centralize regulation among the states.

The state banking regulators’ plan for nonbanks such as fintechs outlines six ways in which it seeks to provide “a regulatory system that makes supervision more efficient and recognizes standards across state lines” by 2020, according to a press release.

Initial actions will include: redesigning the Nationwide Multistate Licensing System, harmonizing multistate supervision, forming an industry advisory panel, assisting state banking departments, making it easier for banks to provide services to nonbanks and making supervision more efficient for third parties, according to the association.

LendUp And Beneficial State Bank Announce Major Expansion Of Credit Card Partnership (PR Newswire), Rated: A

LendUp, a socially responsible lender for the emerging middle class, and Beneficial State Bank (Beneficial State), a social enterprise bank, today announced a significant expansion of the L Card, its credit card joint venture. The move is expected to quadruple the availability of L Cards, a Visa credit card product designed by LendUp and issued by Beneficial State for consumers traditionally shut out of mainstream banking due to poor credit scores or damaged credit files. The expansion builds on the firms’ partnership that extends back to the L Card pilot in April 2015.

According to the Credit Builders Alliance, a person with subprime credit pays on average $250,000 more in interest than borrowers with good credit over the course of their lifetime — and that doesn’t even include fees on financial products. In addition, according to LendUp research, many of its own customers are currently shut out of mainstream credit card products, such as rewards credit cards (98.5%) and retail rewards cards (66.5%).

In response, LendUp created a card for Beneficial State that meets borrowers’ immediate credit needs while helping to build their long term financial health. Features include:

  • Instant decisions
  • No over-the-limit fees or security deposits
  • Reporting to the three main credit bureaus
  • Affordable payments

The L Card carries an annual fee of $0$60 and APR ranging from 19.99% to 29.99%; it has a 4.8 average star review on CreditKarma.

Addepar To Buy Alternatives Data Provider AltX (Financial Advisor), Rated: A

Mountainview, Calif.-based Addepar announced on Thursday that it is purchasing AltX, an alternatives market intelligence platform.

Addepar hopes that the acquisition will boost it’s capabilities around alternative investing by enabling advisors to make better-informed decisions, said Eric Poirier, Addepar CEO, in a statement released on Thursday.

AltX’s platform uses machine learning to gather intelligence on alternative investments, incorporating reference data, public filings and news into a database of performance, holdings and key reference data for more than 17,000 funds.

Ascentium Capital Surpasses $ 3.0 Billion in Origination Volume (Ascentium), Rated: A

Ascentium Capital LLC, the top private independent finance company in the United States by new business volume, announced surpassing $3 billion in origination volume since the Company’s inception in August 2011.

Milwaukee FinTech firms aim to help consumers (Biz Times), Rated: A

The pace of FinTech disruption is increasing in the financial industry, with about $22 billion raised by FinTech startups over the past five years, Schedler said.

Northwestern Mutual has invested in two key early FinTech leaders, Betterment and Learnvest. And with its Future Ventures program, it plans to invest $50 million in series A and series B funding rounds over the next five to six years to bring in more partnership opportunities.

Bank My Biz has 13 bank partners in Wisconsin and many more across the country, he said. So if one of those banks isn’t able to extend an equipment or working capital loan of less than $100,000 to a small business, Bank My Biz may be able to do so with its financial partner, Brookfield-based national direct lender Advantage+.

Banks earn income off the term loan and Bank My Biz earns its revenue through the interest rate spread. It charges interest rates of between 9 and 13 percent.

Looking Glass buys marketplace loans on lending sites Funding Circle, LendingClub, Peerform and Prosper. Using its custom predictive analytics software, LGI evaluates and underwrites loans it has determined are unlikely to default. The alternative investment model promises investors a less volatile environment than the equity markets.

It also runs LoansOfTheDay.com, which uses big data, predictive analytics, artificial intelligence and machine learning to distribute risk and optimize returns on peer-to-peer lending sites. LGI contributes a minimum of $25 to each loan on the site.

And its newest product is LendSight, a SaaS underwriting tool banks can use to improve their profit margins by doing predictive underwriting, while allowing Looking Glass to capture more market share, Siefkes said.

Redpoint Capital Group Names Alex Dunev as Managing Partner (BusinessWire), Rated: B

Redpoint Capital Group, LLC (“Redpoint”), an alternative investment company focused on providing financing solutions to companies in the Specialty Finance and FinTech sectors, announced today that it has added Alex Dunev as a Managing Partner. Alex will be responsible for driving Redpoint’s strategic priorities, including sourcing new investment opportunities and raising capital to deploy into Redpoint’s investment strategies. Alex will also manage Redpoint’s office in Westport, Connecticut.

Alex was previously a Managing Director in the Investment Banking Division at UBS, leading the bank’s Specialty Finance efforts in the Americas. Prior to UBS Alex also covered Specialty Finance companies at Morgan Stanley and Credit Suisse.

DiversyFund, Inc. Brings New Innovations to Real Estate Crowdfunding (Digital Journal), Rated: B

Mr. Cecilio and Mr. Lewis formed DiversyFund, Inc. to create the industry’s first online crowdfunding real estate platform where the company acts as the real estate developer on all of its investment offerings in order to deliver to its investors better quality control and more detailed and robust investor reporting, including monthly construction updates on each real estate project with pictures of all work in progress.

Because DiversyFund, Inc. acts as the developer and receives a developer fee that is paid at the project level, DiversyFund does not charge any platform fees, servicing fees or other sales commissions to its investors, enabling investors to keep 100% of their investment returns.

Additionally, DiversyFund, Inc. is the only crowdfunding real estate site that focuses exclusively on strong-performing Southern California real estate markets.

United Kingdom

P2P Lender Sells Off Bad Debts Worth £2.1 Million (iExpats), Rated: AAA

A British peer-to-peer lender has become the first platform to sell non-performing debt.

RateSetter has completed a deal with undisclosed terms to 1st Credit, a debt purchasing company.

The lender says the loans were taken out between 2010 and 2015 and that the company felt borrowers were unlikely to settle the debt.

RateSetter has a £22.23 million provision fund to cover bad debts and expects to pay out £18.78 million compensation to investors.

Landbay introduces retention fee for intermediaries (P2P Finance News), Rated: AAA

LANDBAY has announced that its intermediaries will now receive a retention fee for all customer renewals.

The peer-to-peer lender, which specialises in buy-to-let mortgages, said that it introduced the 0.3 per cent fee because of its ongoing recognition of the role of intermediaries in offering advice in the retention process of customers.

Investing in the UK’s growth when it needs it most (FT Adviser), Rated: A

The notoriety and growth of crowd funding, and its variations, has gathered a great deal of attention. For good and bad. Only last year, Lord Turner warned: “The losses which will emerge from peer-to-peer lending over the next five to 10 years will make the bankers look like lending geniuses.”

While investing in VCTs has its risks, just as any investment has, these risks are for more measured and disciplined with quality offerings. Many quality VCT providers have more recently felt lumped in the same bucket as the under fire feel peer to peer (P2P) lenders and equity crowdfunders (ECFs) both of which now the subject of a clampdown by the FCA.

Despite some of the misconceptions, VCTs raised £458m in the 2015-16 tax year, making it the third highest year for VCT investment since records began in 1995. In the tax year that has just closed, most but not all were fully funded by the end of 2016-2017.

VCTs invest in small, largely unquoted, companies in the UK of up to £15m in size.

London-based VC Notion Capital has announced a new $ 80 million startup fund (Business Insider), Rated: A

Notion Capital, a London-based venture capital firm that backs startups across Europe, has announced a new $80 million (£60 million) startup fund that will be used to back later stage companies.

The VC, which focuses on backing enterprise software and cloud companies, also announced on Tuesday the final closing of a $140 million (£107 million) venture fund to back early stage startups.

Ford: Wine, watches and cars: the rise of alternative investing (Automotive World), Rated: B

As savvy investors champion alternative commodities such as wine and watches, classic Fords have proved themselves another sound investment.

For those who think there’s no money to be made from cars, think again – total growth over the past decade was 457 per cent***. This is a bigger increase than even property, which has increased in value on average 20 per cent in the last decade and 152 per cent since 2000 across Europe*****. And it’s not just new super cars such as the latest Ford GT newly on sale in excess of $450,000 that command a hefty price tag and appreciate rapidly. Among the list of top investor car makes, Ford offers among the lowest entry costs.

In March 2016, a Ford Escort Cosworth with less than 2,500 miles on the clock sold at auction for £67,580 after originally going on sale at £22,050 in 1992. The average price of a Cosworth is now more than double that original price and the Fiesta XR2 which went on sale in 1981 for £5,150, has trebled in value since 2014 to prices well in excess of £10,000, with the best advertised at close to £20,000.******

China

Alibaba Invests In Its First Fintech Company In Hong Kong (Crowdfund Insider), Rated: AAA

As reported by Forbes today, Alibaba has invested in online invoice exchange marketplace Qupital, marking the Chinese e-commerce giant’s first foray into fintech investment in Hong Kong. Qupital raised a total of $2 million in its seed round.

Qupital bills itself as Hong Kong’s first and largest online invoice discounting exchange. The company aims to solve the problem of companies not having quick access to cash by allowing them to raise funds on the site through the auctioning off of unpaid invoices, essentially securitizing their accounts receivable.

Dianrong Announces Next Technology Agreement Outside Mainland China (Military-Technologies), Rated: AAA

Dianrong today announced a new technology agreement with Maggie Ng, a leading consumer banking executive in Asia Pacific, to launch the first global fintech marketplace connecting Asian investors with high-quality, low-volatility and largely untapped asset classes, including U.S. consumer lending. The new strategic alliance combines Dianrong’s advanced technology with Ms. Ng’s extensive consumer-lending experience.

Ms. Ng and Dianrong engineers are currently completing beta testing for the new fintech platform that will provide Asian investors with an integrated solution to access U.S. marketplace lending assets. The platform will utilize multiple U.S. marketplace lenders and a single onboarding and know-your-customer process. It will also offer advanced risk modeling capabilities, added credit enhancement and structuring features, and blockchain solutions to safeguard data integrity. Investors will also have access to real-time performance monitoring, U.S. tax-exemption filing capabilities and a secondary market for liquidity.

Chinese Celebrity-Backed Fintech Firm QuantGroup Considering US IPO (Crowfund Insider), Rated: A

Fintech company QuantGroup, which was founded by several notable Chinese movie stars, is considering a US IPO, according to an article published in Bloomberg last week. The firm is looking to raise an estimated $200 million according to unnamed sources.

The Beijing-based QuantGroup is a financial services company that provides estimated credit ratings using big data.

QuantGroup joins a growing list of Chinese fintech firms in the process of launching US IPOs. Fenqile, a Chinese online shopping mall that lets customers pay in installments, is also looking to raise over $600 million through a US IPO.

LCQ5: Regulation of online crowdfunding and lending platforms (7th Space), Rated: B

Platforms for raising funds from and lending small loans to members of the public through the Internet (crowdfunding and lending platforms) have become popular in recent years. However, some financial advisers have pointed out that investors participating in crowdfunding activities are exposed to considerable risks. In this connection, will the Government inform this Council:

(1) whether it knows the number of companies currently operating local crowdfunding and lending platforms, and the number of complaints received by the authorities in the past three years concerning crowdfunding activities, with a breakdown by type of complaints;

(2) how the current legislation regulates the fundraising and lending activities conducted through crowdfunding and lending platforms;

(3) as some financial advisers have pointed out that investors provide funds through such platforms, which in turn lend the funds to borrowers, whether the authorities will, to avoid such investors breaching the law inadvertently, clarify if such investors are regarded as money lenders under the Money Lenders Ordinance (Cap. 163) and therefore are required to obtain money lender licences; and

(4) whether the authorities will conduct public education activities on the risks faced by investors participating in crowdfunding activities; if so, of the details?

Answers:

Year No. of complaints about crowdfunding No. of complaints about lending platforms
2015 0 6
2016 4 1
2017
(as at end March)
0 0

 

(2) and (3) Depending on the specific structure and features of the relevant arrangement, some types of crowdfunding activities, in particular equity crowdfunding and peer-to-peer lending, may be subject to the provisions of the Securities and Futures Ordinance (Cap.571), and/or the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32).

(4) We will ensure that investors and consumers of crowdfunding and lending platforms will receive proper protection under Hong Kong’s regulatory rules and standards. In view of the rapid development of financial technologies (Fintech), the Investor Education Centre (IEC) is working on a series of articles to introduce various Fintech services/products, associated risks and regulatory framework to the public.

European Union

Older Swiss fintech additiv gets $ 21.3 million in new capital (CNBC), Rated: AAA

A Zurich-based Swiss financial technology (fintech) firm, additiv, has today raised CHF21m Swiss Francs ($21.3m) in capital from core investors including BZ Bank, acting on behalf of its clients, and the investment vehicle Patinex.

Additiv provides systems to help with the digitalization of banks, asset managers and insurers.

Additiv’s key software product is the Digital Finance Suite (DFS). It has offices in Switzerland, Hong Kong and Singapore, as well as an international network of reselling partners and customers around the world.

Additiv’s key software product is the Digital Finance Suite (DFS). It has offices in Switzerland, Hong Kong and Singapore, as well as an international network of reselling partners and customers around the world.

Lendity: ideal marketplace lending exposure for pension funds, asset managers, family offices, private banks (Daily Fintech), Rated: A

A sea of 300 suits is what I faced last week at the first Swiss Alternative Lending conference hosted at SIX and in partnership SIX and Lendity.

Lendity is focused on developing structures that a family office, an asset manager, a pension fund, can book on their books or a private bank can list in their private debt product offering for qualified investors. And at the same time include:

o   Global exposure – US and Europe for now (USD, CHF)

o   Asset diversification – Consumer, SME, real estate etc

o   Platform diversification

o   Tax efficiency, despite the cross-border exposure

o   Regulatory compliance, despite the cross-border exposure

o   Private debt without additional counterparty risk from the issuer.

Lendity is really solving a pain point for both marketplace lending platforms and for institutional investors.

For marketplace lending platforms, Lendity acts as a marketplace that matches them with institutional capital from Financial advisors, Private Bankers, Pension funds, Family offices, and Asset managers (the 5 “investor” types).

FinTech: the influence of technology on the future of the financial sector (Lexology), Rated: A

The European Parliament’s Committee on Economic and Monetary Affairs (ECON) has published its final report on ‘ (2016/2243(INI))’.

On the other side of the coin, the report stresses the following:

  1. Financial services legislation at both the EU and national levels should be sufficiently innovation friendly.
  2. Fintech companies should continue to contribute positively to the development of financial intermediation.
  3. There is scope for improvement in the means that can be used for cross-border payments (while noting the regret of the European Parliament that there is no EU-wide European-owned credit or debit card scheme).
  4. There are no clear European rules or guidelines for outsourcing data to the could with regard to the financial sector.
  5. It is concerned about the increased use of permissionless blockchain applications for criminal activities.

See the full report here.

Australia

Retirees are riskier investors than millennials, says ASX report (Financial Review), Rated: AAA

The latest ASX Australian Investor Study found the proportion of 18 to 24-year-olds who invested in the ASX over the past five years had increased from 10 to 20 per cent. The proportion of 25 to 34-year-olds had also increased, from 24  to 39 per cent.

The survey shows that 81 per cent of 18 to 24-year-olds are seeking guaranteed or stable returns, compared to 67 per cent of 25 to 59-year-old investors and 60 per cent of retirees.

Millennials have grown to recently become the largest generational cohort in Australia, with 4.9 million people, eclipsing Gen X (4.8 million) and baby boomers (4.1 million), Roy Morgan Australia says.

According to the ASX research, 44 per cent of 18 to 24-year-old investors hold cash, 31 per cent hold shares and 25 per cent have investment properties.

The ASX survey also revealed that the proportion of 18 to 24-year-old investors using professional financial advisers was 37 per cent, but Mr Mahony said the number of people who used Google to see where they should be investing was 48 per cent.

NAB’s fintech arm brings robo-advice to home loans (AltFi), Rated: A

The fintech arm of Australian banking giant NAB, UBank, has unveiled a robo-advisor aimed at helping customers complete their home loan applications.

In a national first, “RoboChat” will offer real time help for online home loan applications available 24/7. The robot will answer FAQs, such as “what term do you offer on home loans?” and “do you offer redraws and how do they work?”, as well as stupid and unrelated questions with a sense of humour.

India

Robo advisors: Stay relaxed while getting accurate financial advice (DNA), Rated: A

Robo advisors give users access to advice by highly qualified experts who have multiple decades of financial experience with them as against serviced by a 22-25 year sales executive, or a family member. Also, since this is available online and requires minimal human intervention, it is the best and most economical way to make customised expert financial advice available to the masses.

Capacity (Who will cater to masses?): Bank relationship managers and advisors are a privilege of the rich as reduction in distributor commissions have made intermediaries vacate the low/ medium end of the market.

Robo-advisors reduce a lot of unpleasant experience of interaction. There is no pressure for you to buy right now, in addition to having the option of doing it at your own convenience. The design and UX at certain platforms are created to engage users without being too intrusive.

The unbundling of banking (CB Insights), Rated: A

Paytm, the private Indian mobile payment unicorn, is now coming for the banks.

Middle East

Abu Dhabi Global Market admits first five fintech start-ups into its Reglab sandbox (CNBC), Rated: B

Abu Dhabi Global Market (ADGM) has announced its first batch of financial technology (fintech) regulatory laboratory (Reglab) companies that will go through its new innovation center.

They are:

  • Now Money – UAE: provides mobile technology to allow low income migrant workers in the UAE to access banking and remittance services, which would otherwise be out of reach.
  • Titanium Escrow – UAE: This is an automated escrow service that aims to increase trust in counterparties and stabilize the cash cycle for small businesses.
  • CapitaWorld – India: A one-stop digital platform that automates the entire loan value chain from loan application to credit appraisal and post-disbursement credit monitoring. Rather than needing to physically visit multiple banks to apply for a loan, the CapitaWorld platform allows a borrower to submit a loan application just once online, and its platform will use analytics to carry out verification and credit risk scoring. It will then match the borrower with multiple banks that have signed onto the platform and ensure that the credit risk appetite matches the borrower’s profile.
  • Rubique – India: Rubique is an online platform that connects banks and fund seekers/borrowers via a smart financing process that links to a range of loan, credit card and financing options that attempt to bridge the gap between lenders and borrowers.
  • Finalytix -US: This is a robo-advisory platform for wealth management applications that seeks to help clients optimize their holdings, mitigate risks and costs, and identify new investment opportunities.

Authors:

George Popescu
Allen Taylor

Wednesday February 8 2017, Daily News Digest

uk p2p average growth interest rate at origination

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

uk p2p average growth interest rate at origination

News Comments

United States

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

United Kingdom

United States

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reason #2 Market realities encourage short-term thinking

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

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

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

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

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

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

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

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

OCC’s Proposed Fintech Charter is Anti-Innovation

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

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

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

OCC’s Proposed Fintech Charter is Anti-Competitive

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

The USA is Falling Behind

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Authors:

George Popescu
Allen Taylor