Asset Verification for MPL Secondary Markets and Securitizations

Equity ETFs

VeriComply, headquartered in San Francisco, California, was founded by Roger Cohen in late 2015 with the goal to improve and scale the workflow processes around the documents a lender needs to assess. The company is focused on leveraging its proprietary technology to automate the entire chain of reading, extracting, and verifying data from financial documents. […]

Equity ETFs

VeriComply, headquartered in San Francisco, California, was founded by Roger Cohen in late 2015 with the goal to improve and scale the workflow processes around the documents a lender needs to assess. The company is focused on leveraging its proprietary technology to automate the entire chain of reading, extracting, and verifying data from financial documents. Cohen has 35 years of experience in the financial services industry as a consultant, a professional attorney, and a business owner. As a lawyer, he helped five companies go through the IPO process and understands the massive inefficiencies existing in the document management space.

He founded Portford Solutions in 2000 as a document management company. Its flagship product, DocuNECT was designed to connect business users with the information locked in documents. To achieve this, DocuNECT maps the document lifecycle to capture the document, extract the appropriate data, and distribute the data/document to third party business applications, and/or workflow and data specifications. This became the backbone of VeriComply. Cohen essentially took the underlying DocuNECT system and re-engineered it exclusively for use in the financial services industry.

Company Background

VeriComply used family and friends for the initial phase of funding. But in February 2017, it managed to raise an undisclosed amount in seed funding from private investors including John Barlow, founder of Eaglewood Capital, and John Maute, CEO of Helios AMC and Situs Holdings, a global real estate diligence firm, as well as a board member of Money360, a CRE marketplace lending platform.

The company was able to add impetus to its growth story when it brought on Roger Dickerson as President. Dickerson worked as VP of financial operations at Lending Club from 2012 to 2016. He was responsible for the entire investor operations process, which included order placement, treasury, and building out capabilities to sell to institutional investors, reporting, cash custody, loan documentation, and settlements. He oversaw funding of over $23 billion in loans during his tenure. After looking at the prototype, he knew Cohen had developed a document verification product that is better than anything available in the market.

Dickerson also brought in TJ Valenzuela as national sales manager for educating the client base and driving demand. The underlying idea was to provide verification throughout the life cycle of the loan, from creating an asset at origination level and verifying at POS for warehouse lenders and custodians to providing verification in the secondary market.

The VeriComply Process

Since its primary customers are trust companies, VeriComply acts as a sub-verification agent or document custodian. Basically, on getting the loan documents, it extracts data and compares it with loan/data tapes. Outcomes are then discussed with originators and trust company partners to remove any discrepancies. The report is then sent to the client notifying approval status. Loans are verified on various parameters and cover all characteristics of a loan: term, rates, state of origination, APR, etc. It also incorporates the borrower’s information for better analysis.

Considering this is an important cog in the selling of loans in secondary markets and securitization, automating the process gives credibility as well as integrity to the entire portfolio when it sells.

The state-of-art technology used to build the platform means it can quickly configure for multiple originators, loan types, documents, and various field verifications. Fees are charged for the configuration set up, per loan process, and for monthly storage.

Cloud Flexibility: The Difference Maker

VeriComply relies on Microsoft’s cloud offering, Azure, to provide a secured user interface that enables multiple users to work with documents. On top of that, its cloud-based deployment architecture enables users to scale quickly and undertake massive volumes of loan verifications in different verticals. By providing a secure and scalable configuration system, it responds faster to the emerging demands of the market. Moreover, it also enables the holder of the documents to redact data in documents.

VeriComply is on track to provide 100% automation, which is not currently available in the market. Its peers still rely on human-dependent sampling techniques.

Most of VeriComply’s sales are executed through its reseller partners. It has many trust companies on board and works with different originators. The company was able to process 19,000 loans in less than two and half hours for an Upstart securitization, which is a new benchmark for the industry. It is also working with mortgage diligence providers and legal firms. The firm is currently focused on the MPL industry since the concept is easier to sell, documents are more precise and clear, and set up is faster. However, it plans to branch out to other verticals and asset classes, though the point of entry will remain with markpetlace lending.

Riding the Industry Tailwind

Stringent regulations in the MPL industry coupled with longer credit cycles have led to greater scrutiny of underlying loans. Buyers in the secondary market want to make sure whatever they are buying have the least risk attached to it. Thus, there is an overwhelming need for top-of-the-line document verification.

Also in terms of storage of documents, there is a change in trend. Earlier companies used Excel spreadsheets to record transactions, but now people want to use data from the primary source so that there is no chance of manipulation. This is great news for VeriComply.

VeriComply’s Future Plans

Keeping an eye on the future, the company wants to incorporate blockchain technology for publishing legacy documents. It also wants to create a system to help lawyers create customized smart contracts. Though the industry is a long way from leveraging the full power of blockchain, the growing need to transmit information at a quicker pace is forcing companies to move toward the blockchain universe.

For now, the company wants to concentrate on creating demand for its product and raise capital to execute its plans. The company’s product has garnered a good response from the market and is on track to close with over 100 prospective client companies. VeriComply can reduce the time span of the financial services sales cycle and will help further grow the marketplace lending industry by streamlining the documentation process. Strategic funding can help it become the new standard bearer for this niche industry.

Author:

Written by Heena Dhir.

Asset Verification for MPL Secondary Markets and Securitizations

VeriComply document verification

VeriComply, headquartered in San Francisco, California, was founded by Roger Cohen in late 2015 with the goal to improve and scale the workflow processes around the documents a lender needs to assess. The company is focused on leveraging its proprietary technology to automate the entire chain of reading, extracting, and verifying data from financial documents. […]

VeriComply document verification

VeriComply, headquartered in San Francisco, California, was founded by Roger Cohen in late 2015 with the goal to improve and scale the workflow processes around the documents a lender needs to assess. The company is focused on leveraging its proprietary technology to automate the entire chain of reading, extracting, and verifying data from financial documents. Cohen has 35 years of experience in the financial services industry as a consultant, a professional attorney, and a business owner. As a lawyer, he helped five companies go through the IPO process and understands the massive inefficiencies existing in the document management space.

He founded Portford Solutions in 2000 as a document management company. Its flagship product, DocuNECT was designed to connect business users with the information locked in documents. To achieve this, DocuNECT maps the document lifecycle to capture the document, extract the appropriate data, and distribute the data/document to third party business applications, and/or workflow and data specifications. This became the backbone of VeriComply. Cohen essentially took the underlying DocuNECT system and re-engineered it exclusively for use in the financial services industry.

Company Background

VeriComply used family and friends for the initial phase of funding. But in February 2017, it managed to raise an undisclosed amount in seed funding from private investors including John Barlow, founder of Eaglewood Capital, and John Maute, CEO of Helios AMC and Situs Holdings, a global real estate diligence firm, as well as a board member of Money360, a CRE marketplace lending platform.

The company was able to add impetus to its growth story when it brought on Roger Dickerson as President. Dickerson worked as VP of financial operations at Lending Club from 2012 to 2016. He was responsible for the entire investor operations process, which included order placement, treasury, and building out capabilities to sell to institutional investors, reporting, cash custody, loan documentation, and settlements. He oversaw funding of over $23 billion in loans during his tenure. After looking at the prototype, he knew Cohen had developed a document verification product that is better than anything available in the market.

Dickerson also brought in TJ Valenzuela as national sales manager for educating the client base and driving demand. The underlying idea was to provide verification throughout the life cycle of the loan, from creating an asset at origination level and verifying at POS for warehouse lenders and custodians to providing verification in the secondary market.

The VeriComply Process

Since its primary customers are trust companies, VeriComply acts as a sub-verification agent or document custodian. Basically, on getting the loan documents, it extracts data and compares it with loan/data tapes. Outcomes are then discussed with originators and trust company partners to remove any discrepancies. The report is then sent to the client notifying approval status. Loans are verified on various parameters and cover all characteristics of a loan: term, rates, state of origination, APR, etc. It also incorporates the borrower’s information for better analysis.

Considering this is an important cog in the selling of loans in secondary markets and securitization, automating the process gives credibility as well as integrity to the entire portfolio when it sells.

The state-of-art technology used to build the platform means it can quickly configure for multiple originators, loan types, documents, and various field verifications. Fees are charged for the configuration set up, per loan process, and for monthly storage.

Cloud Flexibility: The Difference Maker

VeriComply relies on Microsoft’s cloud offering, Azure, to provide a secured user interface that enables multiple users to work with documents. On top of that, its cloud-based deployment architecture enables users to scale quickly and undertake massive volumes of loan verifications in different verticals. By providing a secure and scalable configuration system, it responds faster to the emerging demands of the market. Moreover, it also enables the holder of the documents to redact data in documents.

VeriComply is on track to provide 100% automation, which is not currently available in the market. Its peers still rely on human-dependent sampling techniques.

Most of VeriComply’s sales are executed through its reseller partners. It has many trust companies on board and works with different originators. The company was able to process 19,000 loans in less than two and half hours for an Upstart securitization, which is a new benchmark for the industry. It is also working with mortgage diligence providers and legal firms. The firm is currently focused on the MPL industry since the concept is easier to sell, documents are more precise and clear, and set up is faster. However, it plans to branch out to other verticals and asset classes, though the point of entry will remain with markpetlace lending.

Riding the Industry Tailwind

Stringent regulations in the MPL industry coupled with longer credit cycles have led to greater scrutiny of underlying loans. Buyers in the secondary market want to make sure whatever they are buying have the least risk attached to it. Thus, there is an overwhelming need for top-of-the-line document verification.

Also in terms of storage of documents, there is a change in trend. Earlier companies used Excel spreadsheets to record transactions, but now people want to use data from the primary source so that there is no chance of manipulation. This is great news for VeriComply.

VeriComply’s Future Plans

Keeping an eye on the future, the company wants to incorporate blockchain technology for publishing legacy documents. It also wants to create a system to help lawyers create customized smart contracts. Though the industry is a long way from leveraging the full power of blockchain, the growing need to transmit information at a quicker pace is forcing companies to move toward the blockchain universe.

For now, the company wants to concentrate on creating demand for its product and raise capital to execute its plans. The company’s product has garnered a good response from the market and is on track to close with over 100 prospective client companies. VeriComply can reduce the time span of the financial services sales cycle and will help further grow the marketplace lending industry by streamlining the documentation process. Strategic funding can help it become the new standard bearer for this niche industry.

Author:

Written by Heena Dhir.

Tuesday February 28 2017, Daily News Digest

Lendix

News Comments Today’s main news: Prosper closes loan purchase agreement for up to $5B in loans with Consortium of Institutional Investors. Zopa, FC awarded Superbrand status. OnDeck launches Australian broker push. Today’s main analysis: Lendix Review. Today’s thought-provoking articles: Questions about SoFi’s funding round with Silver Lake. Zopa mulls move into secured lending. United States Prosper closes loan […]

Lendix

News Comments

United States

United Kingdom

  • Zopa, Funding Circle awarded Superbrand status. GP:” Well deserved. Their brands have gone beyond the UK many times over.” AT: “Marketplace lending is much more mainstream in the UK than in the U.S. Congratulations.”
  • Zopa mulls move into secured lending. GP:” Secured lending is never in fact completely secured. The trap is usually, like with mortgages in 2008 believing it is 100% secure. It is just more secure than unsecured, that’s all. But nice to see Zopa is seeking new market for expansion. Perhaps extending beyond the UK would be another natural step?” AT: “Exansion is good.”

European Union

Australia

India

News Summary

United States

Prosper Closes Loan Purchase Agreement for up to $ 5 Billion of Loans with Consortium of Institutional Investors (BusinessWire), Rated: AAA

Prosper Marketplace, a leading online consumer lending marketplace, today announced that it has closed a deal with a consortium of institutional investors to purchase up to $5 billion worth of loans through the Prosper platform over the next 24 months. The investors in the consortium are affiliates of each of New Residential Investment Corp., Jefferies Group LLC and Third Point LLC, and an entity of which Soros Fund Management LLC serves as principal investment manager. The consortium will also earn an equity stake in the company based on the amount of loans purchased, further aligning the group with Prosper’s future growth and success. Warehouse financing of up to $1 billion will be provided by a syndicate of lenders including Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley.

Prosper has maintained positive momentum since the second half of 2016, with monthly loan originations growing steadily since July. In addition, the Prosper loan portfolio is delivering solid returns to its institutional and individual investors, with an estimated net return of 7.86%1 for January 2017. Prosper continues to diversify its investor base, and is focused on bringing new banks and other institutional investors onto the platform.

Financial Technology Partners (FT Partners) served as strategic advisor to Prosper Marketplace and its Board of Directors on this transaction. DV01 will be the loan data agent to the consortium.

PeerIQ Partners with 1010data to Offer Hosted Normalized Online Lending Data (BusinessWire), Rated: AAA

PeerIQ, a leading provider of data and analytics to the online lending sector, today announced a new data partnership with 1010data, offering the only integrated cloud platform that combines self-service data management and analytics at scale with ready-to-use data. The two companies will provide investors with turnkey access to the highest quality loan-level data from online lending platforms. This will simultaneously increase research productivity and reduce costs associated with analyzing whole-loans and securities. Leveraging PeerIQ’s universal data models and lender-specific data cleaning processes, the partnership also broadens 1010data’s ability to provide its customers with access to loan-level data in another consumer credit capital markets sector.

Those with authorized access to PeerIQ data can now integrate that data into their full set of workflows on the 1010data Insights Platform, including the ability to:

  • Make ad-hoc, time-series analysis simple and fast using 1010data’s extensive built-in analytical function library
  • Quickly develop, modify, share and automate pre-defined reports; easily run queries and create interactive dashboard applications with 1010data QuickApps
  • Output results into Microsoft Excel and/or build Excel-based applications using the 1010data Excel add-in
  • Combine and analyze PeerIQ data with complementary data sources, such as consumer credit and other econometric data which are already available on the 1010data platform

Term Sheet — Monday, February 27 (Fortune), Rated: AAA

Unicorn watch: SoFi, a San Francisco online lending startup, raised $500 million in new funding led by Silver Lake with participation from existing investor SoftBank Group, and GPI Capital, confirming a Wall Street Journal report from earlier this month. The round reportedly values SoFi at $4.3 billion, up from the company’s last valuation of $3.2 billion. SoFi CEO Mike Cangey would not confirm the valuation, but said $4.3 billion was “in the right zip code.” A couple of notes:

1.Why does it need $500 million? SoFi raised $1 billion from SoftBank Group in September 2015, and it has been “off and on” profitable for the past few years. This money isn’t going toward its actual loans. SoFi currently has 250,000 members and originates $1 billion in credit per month.

2. It’s an ambitious plan.

3. “At least one” of the big banks have tried to acquire SoFi, but the company isn’t interested in selling. But Cagney does not want to be a lead generation tool for a bank.

4. Why Silver Lake? The buyout firm has looked at several of SoFi’s past funding rounds, but it was too small for Silver Lake to invest—until now. The firm presents SoFi with a unique benefit: Silver Lake’s limited partners are taking an active role, and some large sovereign wealth fund LPs are buying up some of SoFi’s loans.

Facts About Borrowing Specialized MBA Loans (U.S. News), Rated: A

More b-school students are turning to specialized MBA loans to fund their postgraduate education.

The current fixed rate for graduate PLUS loans for the 2016-2017 school year is 6.31 percent compared with 6.01 percent for a 10-year fixed-rate loan at New York-based CommonBond – a 30 percentage point difference. CommonBond’s fixed rate is just one rate, and it’s available to MBA students who are enrolled at certain b-schools.

Experts say lenders feel more comfortable lending to in-school MBA students compared with other graduates because of their future earning potential.

Citizens Bank currently offers fixed rates as low as 5.1 percent on a 10-year $10,000 loan to business students – that’s much lower than the lowest rate the financial institution offers graduate students who are not enrolled in a graduate law, medical or business program.

Chicago-based Discover Student Loans offers a Discover MBA Loan product to b-school students. Current variable rates on a 20-year $10,000 start at 3.74 percent with the lowest fixed rate available at 6.24 percent. But the company offers a 0.25 interest-rate deduction for enrolling in automatic payments.

VeriComply Completes Angel Funding Round: Investors Include Marketplace Lending Industry Vets (Crowdfund Insider), Rated: A

VeriComply, a company that automates the verification of marketplace loans for the secondary market, announced on Monday it completed its latest Angels funding round. Investors in the funding round included Jon Barlow, founder of Eaglewood Capital and John Maute,  co-founder of Helios AMC and Situs Holdings, a global real estate diligence firm, and board member of Money360, a CRE marketplace lending platform.

Explainer: How neural networks are changing credit scores (Tradestreaming), Rated: A

A credit score has a major impact on a person’s life. It’s the key to getting a car loan, a house or an apartment. The traditional way scores are calculated is a method called logistic regression, which means assigning a value to a number of factors in your financial life (for example, payment history, number of credit accounts, length of credit history) and weighing them.

But credit bureaus are now looking into other ways to determine an individual’s credit history beyond the result of a static formula. They’ve integrated machine-learning into credit scoring methods to get a more balanced picture of someone’s likelihood of defaulting on a debt. But it’s more complex that that — we break down the method.

Artificial neural networks mimic the way the human brain works, so a non-human has the ability to think through the data and assess patterns.

“A neural network more closely mimics the way humans think and reason, whereas linear models are more dogmatic — you’re imposing structure on data as opposed to letting the data talk to you,” said Eric VonDohlen, chief analytics officer at the online lender Elevate, in an interview with American Banker.

NAIC Extends Morningstar Credit Ratings, LLC Designation to Include Financial Institutions, Brokers, or Dealers (Yahoo! Finance), Rated: A

The National Association of Insurance Commissioners (NAIC) has extended Morningstar Credit Ratings, LLC’s designation on its NAIC Credit Rating Provider list to include financial institutions, brokers, or dealers as well as corporate issuers, as of Feb. 22, 2017. Morningstar Credit Ratings’ designation previously covered commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), and asset-backed securities (ABS). Morningstar Credit Ratings, LLC is a subsidiary of Morningstar, Inc. (MORN) and a nationally recognized statistical rating organization (NRSRO).

Morningstar Credit Ratings offers ratings and analytical services for CMBS, RMBS, single-family rental securities, ABS, and corporate issuers and financial institutions. Since late 2009, Morningstar Credit Ratings has rated more than 300 structured finance transactions representing approximately $188 billion of securities issuance across various types of CMBS, RMBS, and ABS. Information about Morningstar Credit Ratings’ offerings as well as all of its NRSRO credit ratings, methodologies, and research are available to issuers and investors at .

For more information about the NAIC’s use of credit ratings, please visit www.naic.org.

Third FinTech Forum to discuss artificial intelligence and blockchain (Federal Trade Commission), Rated: B

Artificial intelligence and blockchain. If those terms relate to your company’s work, you might want to mark March 9, 2017, on your calendar.

The first panel of the half-day forum focuses on the benefits and risks to consumers as artificial intelligence is adapted to financial services.

The third FinTech Forum will take place in the Banatao Auditorium, 310 Sutardja Dai Hall, on the campus of the University of California, Berkeley. Registration opens at 8:00 PT and the event convenes at 9:00.

What’s it like Working as a Product Manager? A PM at OnDeck Takes You through His Day (WayUp), Rated: B

We got to talk to Kennan Murphy-Sierra, 2014 grad from Stanford who now works an Associate Product Manager for OnDeck®, the leader in online lending for small business.

What does an Associate Product Manager in your role at OnDeck do?

Kennan Murphy-Sierra: I am responsible for the user experience of our sales agents and small business owners during our financing application process.

Can you take us through what you did at your job yesterday from the second you walked in the office until the moment you left? What key responsibilities do you tackle on a daily basis?

KMS: It went something like this:

  • Impromptu breakfast catch up with the data [team] to talk about testing a project.
  • Daily standup with tech team (we map out the latest updates in our software development progress).
  • Syncing with a product manager in DC about requirements for a project that will enter development soon.
  • Meeting with tech and sales leaders to nail down requirements for a 2017 initiative.
  • Sizing a new core system feature with tech leads to determine expected timeline and headcount.
  • Double-checking some wording with our legal team and then giving the green-light on a release.
  • Taking a break for a blind 12-chocolate tasting contest between our tech team and the website tech team – we won!

Tony Mitchell’s Internet Fund Rides The Trump Rally To Beat The Market (Forbes), Rated: B

Kam: You also recommended Lending Club last year, are you sticking with that stock also?

Mitchell: I am, and I think that the $500 million that SoFi (Social Finance Inc.) is about to raise shows the belief in online lending.

SoFi is a direct competitor of Lending Club and is only about 10% behind Lending Club in the amount of loans that it funded in 2016.

Lending Club has set the standard, and they have made it much easier than going to a bank for a loan. Lending Club was trading at $5.06 back in June when that article came out and has risen to over $6.50 since then, although it has pulled back somewhat now.

United Kingdom

Zopa and Funding Circle awarded Superbrand status (P2P Finance News), Rated: AAA

ZOPA and Funding Circle have been named as some of the top household names in the UK on the annual Superbrands list for 2017.

Compiled by the Centre for Brand Analysis, the Superbrands list is split into business and consumer categories with more than 1,500 companies scored on their quality, reliability and distinction.

The business list is judged by marketing experts and entrepreneurs, while the public decide on the consumer section.

Seven firms were named on the business superbrands list within a joint peer-to-peer and crowdfunding category, which was topped by Kickstarter.

P2P lender Wellesley also made the list, alongside crowdfunding platforms Seedrs, Crowdcube and Crowdfunder.

Zopa mulls move into secured lending (P2P Finance News), Rated: AAA

ZOPA is looking to expand into the secured auto finance space, where it sees an opportunity to grow its borrower base.

The peer-to-peer lending platform, which usually specialises in unsecured consumer loans, said it sees strong potential in the secured car finance sector as there are healthy levels of demand but typically a poor customer experience.

Tapping into that unmet demand from secured borrowers could help Zopa match an influx of money from yield-hungry investors.

European Union

Lendix Review – First Repayment (P2P Banking), Rated: AAA

Lendix is a p2p lending marketplace offering loans to SMEs in France and Spain (read earlier articles on Lendix). It is one of the larger players in continental Europe.

While the minimum bid on loans is just 20 EUR, the minimum amount for deposits and withdrawals is 100 EUR. Investors can deposit either via bank transfer or via credit card (limited amount). Depositing via credit card is a nice feature which is rarely offered by p2p lending services. I like it because I can react within a minute to new loan announcement emails.

Lendix loans carry interest rates from 4 to 9.9% and are for loan terms between 3 and 84 months.

So far Lendix has done a very good job in vetting borrower applications. The default rate to date is low – only 0.11%. However the marketplace is young and growing and I expect the default rate to rise with time.

Right now I have invested 640 EUR in 8 Lendix loans. I would have invested more, but I found the dealflow to be rather sparse in January and February. My average interest rate is 5.9%. This month I received my first repayment rate. Experiences of more seasoned investors report that repayments are usually on-time.

Global Peer2peer Insurance Market Report: Profiles of Every Known Peer-to-Peer Platform (GlobeNewswire), Rated: A

Research and Markets has announced the addition of the “Peer2peer Insurance” report to their offering.

The insurance ecosystem is undergoing transformation and innovation like never before, and what we have seen is only the beginning. From distribution to pricing, product development to underwriting claims servicing to compliance – no part of the insurance value chain is safe from change.

Insurance companies will need to work hard to transform their core operations to become agile and low cost and customer centric. Some will meet a Blockbuster/Kodak type fate by failing to transform properly. Those that succeed in their transformation will have both scale and agility and will thrive. FinTech is a spectrum of technology innovations and start -ups that demonstrate disruptive potential in applications, processes, products, or business models in the financial industry.

The sharing economy is developing peer-to-peer insurance. Peer to peer lending was laughed at by bankers- now they scramble to offer loans and buy loan books. Will insurers and brokers regret ignoring peer-to-peer insurance? Some platforms are built to work with insurers and re-insurers, but others have built them out of the mix. There are over 40 platforms globally and others on the way. Lemonade has just launched in New York to be the first peer to peer insurer in the USA.

Peer to peer insurance is a new form of technology driven by a social insurance model. Some platforms are well thought out, others are by techie dreamers with no understanding of regulation, law or insurance.

Australia

Business lender launches Australian broker push (Australian Broker), Rated: AAA

Small business lender OnDeck has announced the launch of a new broker product and will be in discussion with local brokers over the next couple of months.

“We realise that over 70% of small businesses in Australia like to access capital through an intermediary like a broker so this is very important for us.”

India

How start-ups are revolutionising money (Daily News & Analysis), Rated: B

FlexiLoans, a technology-based online financing platform, solves the funding problems of SMEs and help them in accessing quick, flexible and adequate funds for growing their businesses.

Another firm, vPhrase, is an artificial intelligence-based data analytics platform that helps businesses make their reports easier to comprehend. vPhrase’s patent-pending platform, Phrazor, analyses data, derives insights and then communicates those insights, in multiple languages.

FinMitra, a goal-based financial advisory and management services firm, helps individuals set financial goals, discover their risk profiles, and find the best investment portfolios in terms of mutual funds and fixed deposits.

Another start-up, S2Pay, enables corporations and financial institutes to leverage technology to create seamless payment processes, enhancing value-chain economics and providing superior end-consumer experience.

Authors:

George Popescu
Allen Taylor

Friday February 24 2017, Daily News Digest

French crowdfunding barometer

News Comments Today’s main news: dv01 creates new securitization portal. China requires P2P lenders to keep money in banks. Today’s main analysis: France’s online alt finance doubles in size. Today’s thought-provoking articles: Robo-advice to go mainstream in 2017. China Rapid Finance to target U.S. IPO as early as 2017. Is ‘peer’ being muscled out of P2P investment? United […]

French crowdfunding barometer

News Comments

United States

United Kingdom

European Union

Australia

China

  • P2P lenders required to keep funds in banks. GP:” What is important to know here is that it is very hard for a p2p lender to find a bank who will accept to bank for them, so this is in fact a way to shut them down more or less. Which is unfortunate because this in desperation people take desperate measures. And wewould all be better off if the p2p lenders did hold all their money in a bank, if banks would accept them.  ” AT: “Considering the business climate in China, I think this is the right move.”
  • China Rapid Finance to target U.S. IPO, maybe in 2017. AT: “Interestingly, the source for this story is saying the IPO will be used to raise money for expansion in China. Rumor, or fact?”

Canada

News Summary

United States

Leading FinTech Analytics Platform dv01 Announces New Portal Dedicated to Securitizations (Yahoo! Finance), Rated: AAA

dv01, the reporting and analytics platform that brings transparency to lending markets, today announced the launch of Securitization Explorer, a new web portal dedicated to providing investors with increased insights into securitizations of consumer loans.

Institutional investors have long used dv01’s cloud-hosted web application to gain real-time insight into consumer loans, analyzing over $50 billion of loans to date.  With the launch of Securitization Explorer, dv01 leverages superior data, analytical, and visualization tools to deliver a comprehensive application dedicated to the needs of investors in consumer loan securitizations.  The new application is fully integrated into the dv01 environment and allows seamless transition from whole loan pool analysis to securitization analysis.

dv01 is the Loan Data Agent on numerous securitizations, overseeing an aggregate securitized collateral balance in excess of $1 billion. The company has aggregated performance data from marketplace lenders including SoFi, Lending Club, Prosper, Marlette Funding, Avant, and CommonBond. By normalizing data across lenders, dv01 simplifies comparison and analysis, enabling institutional investors to study both pool and individual loan performance, as well as quickly detect issues within portfolios.

Orchard’s CEO Matt Burton Talks Marketplace Lending (Forbes), Rated: A

Matt Burton: Like many startups, Orchard began as a small circle of friends with unique perspectives and complementary skill sets. In 2013, we created a Meetup in NYC for people interested in the emerging online lending industry. I met with a number of institutional investors who were investing in online loans and what I discovered was that most of them needed a system capable of purchasing and tracking large portfolios of small loans from multiple lending platforms. Since one didn’t exist, they were trying to cobble something together on their own, and most were struggling with it. Rather than becoming an investor or launching another lending platform, it occurred to me that someone should build the infrastructure to connect these two sides of the market at scale. On the flight home, I decided to launch Orchard and had just the right team of co-founders in mind to do it.

To date, we’ve on-boarded over $40 billion of loans to our platform across 20+ lenders, covering a diverse range of consumer and small business credit products.

We believe that an efficient, diversified method of selling and reselling whole loans and loan portfolios is critical to the industry’s growth and longevity over multiple credit cycles.

We are excited about the possibilities that come with more and more traditional lenders adopting a ‘fintech’ approach to providing services and how that may help underserved segments of the market access the credit they need. The opportunity will likely be even more pronounced in other regions of the world where these underserved segments of the market have almost no access to traditional banking services but wide access to smartphones and mobile-only services.

Let’s not forget that lending is still the primary business activity of banks, credit unions, and specialty finance companies. Most of them are in the process of converting their lending operations to the online model—or quickly evaluating whether to build their own platform or partner with an existing lender or technology provider.

The broader convergence of banking and financial technology feels inevitable at this point.

4 Trends Transforming Online Business Lending (Entrepreneur), Rated: AAA

Alternative lending swooped in to fulfill the needs of consumers and small business owners during the credit pinch after 2008, and every sign points to the industry scaling up. By 2020, some estimate that 1 in 5 small business loans will be made by an alternative lender. That share of the pie will be $52 billion, compared to $5 billion today.

1. Multi-product offerings.

Our nation’s largest financial institutions are full-service banks, offering credit cards, personal loans, student loans, mortgages and small business loans, among other financial products. But to date, most online lenders have stuck to one side of the market, with some notable exceptions like Lending Club, which operates both in the personal loan and small business loan sectors. Over the next few years, we’ll probably see more online lenders offering multiple kinds of loans themselves.

2. Bank partnerships.

Banks have large customer bases, low cost of capital, and scale on their side. Alternative lenders have speed, better user experiences, and a regulatory vacuum to operate in.

While they’re natural competitors, they don’t have to be. Indeed, a number of partnerships are beginning to form between banks and online lenders that will define how the credit needs of small businesses are met in the future.

3. Pushes towards self-policing

But over the past few years, we’ve seen the rise of different self-policing initiatives, from trade associations to industry announcements. The Innovative Lenders Platform Association, the Marketplace Lenders Association, the Responsible Business Lending Coalition, the Small Business Borrower Bill of Rights: they’re all attempts at self-regulation.

4. Increased government regulation.

Regulators aren’t blind to the potential that alternative lenders have to innovate—and to the possibility that misregulation could quickly lead to the death of an important new industry. But, online lending is brand new, and it’s disrupting what’s traditionally been a highly regulated industry. So, expect more news coming out of Washington as regulators look to get up to speed on the innovation that’s happening in online lending, and seek to build first principles on what an appropriate regulatory framework should look like.

VeriComply Appoints Former LendingClub Executive Roger Dickerson President, Prepares to Expand Into MPL (Crowdfund Insider), Rated: A

VeriComply, a company that automates the verification of marketplace loans for the secondary market, announced on Thursday it appointed former LendingClub executive, Roger Dickerson as its new president as it prepares to expand into the marketplace lending industry.

According to VeriComply, Dickerson served as Vice President of Finance Operations at LendingClub where he oversaw investor operations.

Panhandle students owe slightly more, but default less (Amarillo.com), Rated: B

Students in the U.S. congressional district that encompasses the Texas Panhandle hold, on average, more loan debt than the state average. But on the other hand they also default on student loans at a lower rate.

The average student debt per borrower in the district is $29,122, according to a student debt analysis released Thursday by LendEDU, a student loan marketplace.

That amount is about $2,100 more than the state average.

The loan default rate in the congressional district is 7.27 percent, the study found. Statewide, the rate is 7.39 percent.

Texas’ colleges and universities

Average student debt per borrower: $27,048

Debt per borrower rank: 22/50

Proportion of grads with student debt: 58%

Student loan default rate: 7.39%

Total college cnrollment: 748,866

District 13’s colleges and universities

Average student debt per borrower: $29,122

Proportion of grads with student debt: 59%

Student loan default rate: 7.27%

Total college enrollment: 76,084

Source: LendEDU

United Kingdom

2017 will be the year that robo-advice enters the mainstream (FT Advisor), Rated: AAA

It is anticipated that by the mid-point of this year there will be between 50 and 70 players offering an automated advice solution in the UK, including several major providers.

A human element is crucial to the approach of these more complex online financial advisers. Many are also routing online customers to a human if it is apparent that the need is complex or the customer may not have properly understood the questions asked during the process.

But a human element is only part of the solution; additional safeguards will also be required. We would not allow a human adviser, however well trained, to operate without a system of checks, balances and oversight, and the same is true of an automated model.

Once safeguards are in place, EY believes that a robo-adviser would be expected to have fewer biases and a better audit trail than any human.

The ‘peer’ is being muscled out of peer-to-peer investment (BusinessZone), Rated: AAA

The peer-to-peer business lending market has reached over £4bn. Nearly a quarter of all equity investments last year were made through Seedrs and Crowdcube, the two largest crowdfunding platforms.

Yet in both cases, the future depends not on the retail investors – Joe Public – that made their name but on market-shaping institutional investors.

“Around 10% of all businesses funded on our platform have some form of VC, institutional or corporate investment involved at some point in their history, and that rises to 50% when it comes to growth-stage business,” he said.

Seedrs echoes the sentiment. Rich Mason, its business development director, says they’ve seen a “surge” in co-investment with institutions and later stage investors.

At the other end of the spectrum, 25% of Funding Circle’s investment is from institutions (including the securitisation of loans).

ThinCats’ Caley says changes to its lending criteria due to the demands of institutional investors, cut 20-25% of loans last year.

Whether this is a good thing or not seems split between the two leading forces of alternative finance. On one hand, everyday investors now have access to big funding rounds like Monzo, something that would have been impossible in the past.

On the other, the future of peer-to-peer lending is less clear. Very few of these platforms make money and several have already struggled after key institutional investors pulled the plug.

New fintech degree course aims to churn out next generation of entrepreneurs (Finextra), Rated: AAA

Budding entrepreneurs looking for a career in the fast-growing financial technology industry can now sign up to the UK’s first fintech undergraduate degree course at Wrexham Glyndwr University.

The new BSc (Hons) Financial Technology Management course has been designed with the input of fintech startups and support from North American investment firms Franklin Templeton and State Street.

Course leader Anna Sung, lecturer at Wrexham Glyndwr University, says: “Rather than teaching students the technologies behind the rise of fintech, the course will teach them how to generate new business ideas and create their own startup using the technologies available to them.”

Global investment in fintech ventures in the first quarter of 2016 was £4.1 billion and it’s estimated that 100,000 new jobs in the sector will be created in the UK by 2020.

Has the P2P halo slipped? (City A.M.), Rated: A

A look at some headline numbers from Funding Circle, the most well known in the SME lending P2P space, is telling. It operates a pooling system where a retail investor lends to a portfolio of, typically, 100 businesses, with no more than 1 per cent exposure to any one loan. Given average SME default rates, this is a significant risk mitigation tool. And when you overlay this with risk banding, quality underwriting and proactive arrears management and collection, it becomes a pretty tightly controlled environment. The upshot is that investors have received a 7.1 per cent return after fees and bad debts.

Nevertheless, the head of the Financial Conduct Authority (FCA) Andrew Bailey has said that he’s “pretty worried” about some aspects of the P2P market. Speaking to the Treasury select Committee, he was referring to attempts by some platforms to draw direct comparisons between their offerings and the returns from bank deposit accounts – implying that the two products are comparable, when they are not.

Bailey’s caution should be taken as a warning. While the concept and principles of P2P have political and regulatory recognition, behaviours that are seen to be misleading investors will not be tolerated. Absolute transparency about risk, return and redress are essential if the sector wishes to avoid damaging itself. Moreover, while banks exist under increasing levels of scrutiny, platforms can currently operate under lighter regulation.

So is there really a problem with P2P? I think there is, but not in the investor protection/regulatory space, or in its customer outcomes (which are largely excellent). The problem lies with the business model itself.

Robo’s opportunities and risks for advisers – Keith Richards (Professional Adviser), Rated: A

Robo-advice still has its limits, Richards cautioned, however, and advisers should be careful not see it as a ‘one size fits all’ solution.

“Mis-selling scandals of the past have generally been based on formulaic sales processes so it is important not to repeat history. The individual review and tailored recommendation process of financial advisers protects the market from systemic failure.”

Romford climbs to top spot for buy-to-let investor returns (Mortgage Solutions), Rated: A

Romford has replaced Luton as the postcode offering the greatest return for buy-to-let investors, after seeing rental prices grow 8% in the year to November.

The city climbed six places to knock Luton off the top spot, after it posted a capital gains growth of 17% and a buy-to-let yield of 5%.

Luton still remains a desirable market for investors, however, where continued growth in the rental market has offset the shrinking of yields, LendInvest said. The city posted a respectable 5% yield and a capital gains rate of 15% on rental price growth of 8%.

Last in the latest ranking of top 10 postcodes was Stevenage, where, despite 10% rental growth – the highest of all – capital gains were comparatively low at 9% on yields of 4%. Overall, Northampton remained the only postcode in top 10 to be located outside the South East.

European Union

France’s Online Alternative Finance Doubles in Size – Crowdfunding Grows 40% (Crowdfund Insider), Rated: AAA

The French Crowdfunding Association (Financement Participatif France) released today the 3rd edition of its annual industry Barometer. For the first time, the data was compiled by auditing and consulting firm KPMG, which lends to the Barometer additional weight.

As it stands, the 2016 Alternative Finance Barometer reports that:

  • French alternative finance overall raised €668 million, a 112% increase from 2015.
  • French crowdfunding raised €234 million, a 40% increase from 2015.

I draw two conclusions from these numbers:

  • The rapid growth of alternative finance comes from models fueled by institutional investors.
  • The French alternative finance market is catching up, but is still dwarfed by the UK’s.

The Barometer focuses in more detail on the narrowly defined category of crowdfunding that remains closer to the original roots of “funding by the crowd”. The three segments of this category show:

  • Donation and rewards-based crowdfunding show a sustained 37% growth to €69 million.
  • Debt financing and crowdlending grew by +46% to €97 million. The strong 125% growth stated in the 2015 barometer is not directly comparable to the 46% growth rate stated for 2016. The latter is based on comparable data, retro-fitted to a smaller parameter of SME, real estate and green debt funding and crowdlending.
  • Equity crowdfunding decelerates to +36% to €69 million.

In conclusion, while 40% is a very healthy growth number by common standards, it is not enough to sustain some 100 startups in the crowdfunding category. Many will jump ship or consolidate. The winners will most likely go for more hybrid models to get a nudge of acceleration from institutional investors.

Australia

Marketlend Appoints Brad Pattelli as Non-Executive Director (Yahoo! Finance), Rated: A

Marketlend, Australia’s leading peer-to-peer trade credit platform, today announced that it has appointed Brad Pattelli as a non-executive member of its board of directors. Pattelli brings decades of experience as an investor in a broad range of businesses, multiple prior public and private board roles, and significant expertise in the P2P arena as the former President of LC Advisors, a subsidiary of LendingClub, the award-winning online platform.

Founded in 2014, Marketlend provides investors with a unique opportunity to invest in supply chain or debtor lending facilities secured by short-term receivables, primarily from small to medium sized Australian businesses. An A+ rated global insurance company protects Marketlend investors against insolvency of the borrower and its debtors, enabling uninterrupted principal repayment on the majority of Marketlend’s lending facilities, providing investors with significant credit enhancement whilst enabling borrowers to receive better interest rates. Marketlend has recently secured a mandate from an undisclosed institutional investor to invest on its platform.

China

P2P lenders to keep funds at banks (Shanghai Daily), Rated: AAA

CHINA’S banking regulator yesterday issued a new rule requiring peer-to-peer lending platforms to use third-party banks for custody of funds as it enhanced a national campaign to curb financial fraud.

The bank requirement seeks to strengthen fund security and prevent capital embezzlement, the China Banking Regulatory Commission said in a statement yesterday.

A P2P lending platform should sign an agreement with only one commercial bank to safeguard the funds, and all P2P lenders should meet the custody requirement in six months, the regulator said.

As of yesterday, 209 operating online P2P platforms have signed such agreements with commercial banks, accounting for 8.8 percent of all P2P lenders, according to data compiled by Online Lending House, a portal that tracks the sector.

China Rapid Finance Said to Target U.S. IPO as Soon as 2017 (Bloomberg), Rated: AAA

China Rapid Finance, a Shanghai-based peer-to-peer lender, is planning to raise at least $100 million in an initial public offering in the U.S., people familiar with the matter said.

The company, which raised $20 million at a pre-money valuation of $1 billion in November, could hold the IPO as soon as this year, the people said, asking not to be identified because the information is private.  The money will be used to fund expansion in China, one of the people said. The company declined to comment in an e-mailed statement.

Canada

Jean-Sébastien Drolet, RealStarter on Making Real Estate Investments Accessible (Crowdfund Insider), Rated: AAA

Crowdfund Insider had the opportunity to interview the co-founder of Canadian real estate crowdfunding platform, RealStarter.

Jean-Sébastien Drolet:  RealStarter stands for a reachable start in the real estate investment. As you might know, buying property is not accessible to everyone because one encounters many costs and fees. Also, real estate investment can be challenging if you don’t have enough knowledge regarding the market and market trends.

JSD:  I would say our main challenge in 2017 will be to build trust with our users. I say that for two reasons that go hand in hand with each other: real estate crowdfunding is not very well known in Canada, especially in Quebec, and people are distrustful about investing money in real estate through a web platform. (It was only legalized in 2015 in Canada.)

JSD:  I don’t think so — things are moving quite slowly in terms of regulations but they are still moving forward. In 2017, the Canadian regulators across Canada will be looking at what is going on in other jurisdictions to amend the regulatory regime actually in place in order to make it more efficient with the new emerging fintech business models. For example, the AMF (Quebec regulator) recently announced the creation of a technological Innovation Advisory Committee on which RealStarter will be. Its primary mandate will be to analyze technological innovations in the financial sector and anticipate regulatory, market efficiency and consumer protection issues.

JSD:  Yes, it takes time to build a real estate crowdfunding market.  After reading a few market studies about the US and the UK market, we can see it took about three years to achieve good growth in terms of investment volume made through crowdfunding platforms. We predict it is going to take less time in Canada since we now have positive results from these jurisdictions. Also, we like the E-Reit model adopted by certain US crowdfunding platforms, such as Fundrise.  We are currently working toward doing something similar available if the regulation is flexible enough.

Authors:

George Popescu
Allen Taylor