- Today’s main news: Cross River Bank CEO Gilles Gade Addresses OCC FinTech Charter. Europe introduces standardized banking API.
- Today’s main analysis: SoFi’sWealth Management division takes a look at Europe.
- Today’s thought-provoking articles: Big 3 still waiting for FCA. Banks vs. third-parties.
- Cross River CEO comments on OCC FinTech charter. GP: ” One would expect that the OCC Fintech Charter would take out of business banks who’s focus is on partnering with Fintechs to enable them to originate accross state boarders easily. In a surprising statement CRB comes out in support of the OCC Charter. We will not know what CRB really thinks, and nobody wants to be seen as preventing progress. Perhaps the charter is a good thing for CRB. Or perhaps not. We will find out in a few years.” AT: “CRB supports the OCC charter, and for some very good reasons.”
- Window of opportunity closing on alternative lending salvation. AT: “This is interesting commentary although somewhat pessimistic. There might be some evidence of a bubble, but it isn’t all doom and gloom. Every industry has its ups and downs, and for nascent ones, it’s often turbulent. What we’ve seen in 2016 is just a ripple, not a tidal wave.”
- Credit Karma to launch free tax preparation service.GP:” An interesting effort from Credit Karma to grow beyond credit and use their existing free-lead-for-sale model in other verticals. Very interesting.” AT: “This is interesting. If Credit Karma can get the word out about their free tax preparation service, it could deliver a huge blow to paid tax preparation. It would be disruptive, to say the least, and could lead to increased competition with new models of tax advice.”
- Speakers announced for the Context alternative lending summit in Miami, FL. GP: ” A good time of the year to visit Florida for a business pretext.”
- 1 P2P brand that took a beating and 1 FinTech brand on the rise. AT: “This isn’t breaking news, but it does allow us to see what good company two major players in FinTech run in.”
- Winners of OnDeck contest to meet with Barbara Corcoran. AT: “These three businesses will get a lift by receiving start-up advice from Shark Tank regular Barbara Corcoran, and OnDeck gets great exposure for helping these start-ups get a leg up.”
- Big 3 still waiting on FCA. AT: “If you’re wondering why the Big 3 have not been authorized by the FCA yet, this could provide a clue. I think the analysis on RateSetter is particularly interesting.”
- Wellesley & Co. put on notice for late accounts.
- Brexit’s affect upon FinTech. AT: “This is the first time I’ve seen mention of Brexit’s affect specifically on P2P lending or equity-based crowdfunding. Nice distinction.”
- Local alternative lending enables growth outside of London. AT: “This is commentary by Folk2Folk’s CEO, Jane Dumeresque.”
- Family and friends bridge gap in start-up funding. AT: “Based on a study by ThinCats.”
- Europe opens standardized banking API. AT: “An interesting view posted on Kabbage’s blog.”
- SoFi Wealth Management division looks at Europe and UK markets. GP:” Did you know that SoFi has a Wealth Management division ? Neither did we.” AT: “SoFi explains why they’ve increased exposure on the other side of the Atlantic by comparing monetary policies, unemployment rates, and other factors.”
- Klarna founder combines tech and social impact with innovation hub.
- Look&Fin secures 3M Euro. GP:” P2P lending in Belgium, hurray.”
- United States
- Cross River Bank CEO Gilles Gade Addresses OCC FinTech Charter (Cross River Bank Email), Rated: AAA
- The Window Of Opportunity To Save The Alternative Lending Industry Is Rapidly Closing (Forbes), Rated: A
- Credit Karma Launches Always-Free Online Tax Preparation Service (PR Newswire), Rated: A
- Context Summits Announces Speakers for 2017 Alternative Lending Summit (PR Newswire), Rated: A
- 10 Brands That Took a Beating in 2016 and 10 That Took Off (Go BankingRates), Rated: B
- Barbara Corcoran Unveils The Winners Of Annual OnDeck Seal Of Approval Contest (Yahoo! Finance), Rated: AAA
- United Kingdom
- Peer-to-peer platform Folk2Folk gets authorised by the regulator — but the ‘Big 3’ are still waiting (Business Insider), Rated: AAA
- Wellesley & Co. put on notice over late accounts, launches fundraise on Seedrs (altfi), Rated: A
- Brexit and FinTech (Financier Worldwide), Rated: A
- Local alternative lending is enabling business growth outside the city (City A.M.), Rated: A
- £4bn start-up funding gap bridged by friends and family (TaxAssist Accountants), Rated: B
- European Union
- Banks vs. Third Parties: Europe Unleashes Client Banking Data (Kabbage), Rated: AAA
- EUROPE AND THE U.K. LOOK STRONG – WEEK OF DEC. 7, 2016 (SoFi), Rated: AAA
- Klarna-founder’s new innovation hub will combine tech and social impact (Business Insider Nordic), Rated: A
- Belgian crowdlending platform Look&Fin secures €3 million for growth (Tech.eu), Rated: B
- One-stop shop for all your loan needs with Oxyloans (New Indian Express), Rated: A
- The Largest Global Banks And How They Rank For Investments In Fintech Startups (CB Insights), Rated: A
Cross River Bank CEO Gilles Gade Addresses OCC FinTech Charter (Cross River Bank Email), Rated: AAA
Cross River Bank welcomes the announcement of the OCC’s proposed fintech limited charter as a positive development for the fintech industry, and we commend Commissioner Curry on his leadership. This initiative fosters an environment of collaboration and reflection on what is in the best interest of the consumer.
We believe the OCC’s initiative will provide a great opportunity for both fintech firms and banks to engage in a constructive dialogue with regulators. This is a step in the right direction as some banking laws may need to be revisited in the process, which could benefit the entire financial services industry.
It is our hope that this development will further stimulate innovation and economic growth by:
- clarifying the respective roles and responsibilities of industry players;
- encouraging regulatory agencies to provide clear and consistent guidance; and
- providing a framework to create a regulatory environment that protects the consumer and promotes investor confidence
As the comment period advances, we look forward to hearing more details on several critical issues, including:
- Regulatory consistency;
- Capital requirements and the impact on participants, large and small;
- The issue of preemption, the right of the charter, and states’ treatment alignment (exportation of home state usury laws);
- Timeline and documentation required to obtain a charter;
- Interplay between the limited charter and with the application of other laws such as CRA, Reg W, etc. without compromising their importance;
- Optionality of the charter;
- Accessibility to funds; and
- Examination standards as well asfrequency of examination and content of examination manual.
- The FSA experience in the UK may be a good barometer of what to expect in the US.
- We very much appreciate that there is a steep learning curve for fintech platforms as they become educated on the complexities of the banking compliance framework.
- We identify with our partners that a change to the status quo is needed. Banks, such as CRB, are well equipped to advise and prepare the fintech applicants for a limited charter, if they so choose that route. We also believe that a top down culture of compliance is the foundation all fintech companies venturing into the charter application process must achieve. As the relationship between traditional banks and fintech companies evolves, it is important to not compromise the standards we set for ourselves and continue to work towards our common goal through a thoughtful and deliberate approach. The OCC’s proposal is the starting point of this transformative moment of our nascent industry.
- CRB is a financial services pioneer and stands ready to help the fintech industry move forward, and we applaud the message of optimism and inclusion behind the OCC’s announcement.
The Window Of Opportunity To Save The Alternative Lending Industry Is Rapidly Closing (Forbes), Rated: A
Over the past five years, no segment of the Fintech sector has been as hot as alternative lending.
Each promised to disrupt the status quo of lending, particularly in the smallbusiness space. However, I believe that the sector has failed to deliver on this promise.
Instead, plentiful capital and sky-high valuations created a bubble that only a handful of the most forward-thinking players can survive.
The competition for these sub-prime borrowers is so strong right now that companies are willing to pay up to 10% for a successfully closed lead. This is very problematic.
While specific statistics are hard to pin down, we estimate that there are approximately 1,300 companies operating in the alternative lending space today. These 1,300 organizations are competing for about 1% of the overall market, compared to about 6,500 traditional banks competing for the remaining 99%.
As a result of this race to the bottom, these lenders continue to take on ever-riskier loans.
Online lenders must shift their focus from growth to quality, with strong data analytics and monitoring taking center stage. There’s really no excuse for systemic non-performing loans anymore.
Credit Karma Launches Always-Free Online Tax Preparation Service (PR Newswire), Rated: A
Credit Karma today introduced Credit Karma Tax™, its new online self-directed tax preparation service. Credit Karma Tax provides always-free federal and state tax preparation, along with free e-filing, for its members. This announcement coincides with a new look and feel for the company.
Credit Karma Tax will launch for the 2017 tax filing season. The service will be available to U.S. consumers.
Context Summits Announces Speakers for 2017 Alternative Lending Summit (PR Newswire), Rated: A
Context Summits, the preeminent producer of investment summits for the alternative asset management industry, today announced the preliminary agenda and speaker lineup for its upcoming Alternative Lending 2017 Summit, occurring on January 30-31, 2017 at the Fontainebleau Hotel in Miami Beach, FL.
Context Summits Alternative Lending 2017 will expand its programming to two full days of keynote and panel sessions from industry leaders and investors in the sector, followed by targeted one-on-one meetings.
On the first day (January 30), Ron Suber, President of Prosper Marketplace, will deliver a morning keynote on “Current Market Environment & the Future of Alternative Lending.” This day will also feature panel sessions on securitization, transparency, portfolio stabilization, crowdfunding and small business lending.
On day two (January 31), Sam Hodges, Co-Founder of Funding Circle, will deliver a morning keynote about “The Changing Relationship with Lending Institutions & the Impact on the US Economy,” followed by several panels on capital raising, valuation methodologies, legal and regulatory risks, navigating credit risk and student loans.
Additional industry speakers include:
- Rohit Arora, CEO of Biz2Credit
- Stu Richards, CEO of Bredin
- Brendan Ross, CEO of Direct Lending Investments
- Perry Rahbar, CEO of dv01
- Greg Zeeman, COO of Enova International
- Sam Graziano, CEO of Fundation
- Matthew Rodak, CEO of Fund That flip
- Gregory Parker, CEO of Indie Crowd Funder
- Peter Renton, Founder of Lend Academy
- Mike Romano, Co-Founder of Lendsnap
- Kristin Slink, Co-Founder & COO of LoanHero
- Mark Solovy, Managing Director of Monroe Capital
- Brew Johnson, CEO of PeerStreet
- Clay Smudsky, Managing Director at SoFi
- Michael Weisz, Founder & President of YieldStreet
10 Brands That Took a Beating in 2016 and 10 That Took Off (Go BankingRates), Rated: B
The peer-to-peer lending company Lending Club was on a downward path in 2016, with losses of $81.4 million in the second quarter and $36.5 million for the third quarter.
Regulators decided to gain some control over the rapidly growing online peer-to-peer lending industry, and their regulatory demands required online platforms to increase their fees. Consequently, some large investors either withdrew funds or stopped investing.
Moreover, CFO Carrie Dolan resigned, further destabilizing the company. Lending Club has eliminated high-risk borrowers and added auto loan refinancing to its mix. However, fourth-quarter predictions show an expected net loss of between $38 million to $48 million.
PayPal is on its way to world domination in global payments. The firm announced a partnership with Visa in July that allows users to pay with a Visa card, or using automated clearing house (ACH) debit payments. Also, PayPal will be available for use in physical stores where Visa contactless transactions are accepted. Such a pairing will be hard to beat. PayPal announced third-quarter revenues of $2.67 billion.
Barbara Corcoran Unveils The Winners Of Annual OnDeck Seal Of Approval Contest (Yahoo! Finance), Rated: AAA
OnDeck® (ONDK), the leader in online lending for small business, and celebrated entrepreneur Barbara Corcoran announced the three winners of the 2016 OnDeck Seal of Approval Contest —B’more Organic®, Beau & Belle Littles™, and Hardball Cider®— during a nationally televised broadcast of the Rachael Ray Show yesterday. Chosen from over 1,000 submissions, each of the winning small businesses will receive a $10,000 cash prize from OnDeck and a one-on-one coaching session with Barbara Corcoran designed to propel their businesses to the next level.
The winners of the 2016 OnDeck Seal of Approval Contest are three innovative small businesses from diverse backgrounds:
- B’more Organic, an organic smoothie company founded by Jennifer and Andrew Buerger, promotes healthy living with a socially conscious mission. Dedicated to local, family-owned sustainable farming, B’more Organic smoothies use skyr, an Icelandic yogurt packed with protein. One percent of their sales benefit Jodi’s Climb for Hope, a non-profit dedicated to funding the development of a new viable treatment for breast cancer. The company’s biggest challenge is educating consumers about the brand while competing in the increasingly popular health food space. With Barbara’s advice and the $10,000, B’more Organic hopes to gain marketing techniques to help move more of their products off the shelf.
- Beau & Belle Littles, maker of reusable swim diapers, started out in 2015 in Loveland, CO. What began as a few well-designed and adorable swim alternatives for Rachelle and Paul Baron’s water-loving six-month-old, Beau, quickly developed into a top-selling Amazon product – the Nageuret Swim Diaper – which grossed $250,000 in the first year. The eco-friendly diaper manufacturer also donates 5% of their profits to Compassion International to help bring children and their parents out of poverty worldwide. Leveraging Barbara’s advice, the Baron family is looking to expand their reach, develop new product lines, and pinpoint the most cost-effective way to expand.
- Hardball Cider, driven by founder Geoffrey Dean’s passion for baseball and real hard cider, began three years ago in Mount Bethel, PA. The company’s three varieties of cider can now be found in the area’s local restaurants and, appropriately, in many of Pennsylvania’s major and minor league baseball stadiums. As an avid Shark Tank fan, Geoffrey hopes that Barbara can offer guidance on how to plan for controlled expansion across multiple market segments and to overcome his challenge of scaling production.
Peer-to-peer platform Folk2Folk gets authorised by the regulator — but the ‘Big 3’ are still waiting (Business Insider), Rated: AAA
Zopa, Funding Circle, and RateSetter — the UK’s three biggest peer-to-peer lending platforms — are still waiting to be authorised over 2 years after the government announced that the FCA would authorise the sector. All three are operating under what is known as interim permissions and all three dwarf Folk2Folk, with over £1 billion lent over each platform.
You might assume that their sheer size means it takes longer to audit them. But several people I have spoken to close to the authorisation process say they have had little communication from the regulator over the last 6 months and little clarity from on timings.
Several industry sources have suggested that the complexity of some platforms, notably RateSetter, could also be delaying the process. RateSetter operates a provision fund, meant to cover investor losses, and offers fixed-term investment products. (FT Alphaville’s Kadhim Shubber has a good summary of RateSetter’s complexity here.)
The FCA declined to comment. However, it said in a statement from March: “How long it takes to consider an application depends on a number of factors including the completeness of the application, the complexity of the business, and the firm’s demonstrated compliance with regulatory requirements.”
Wellesley Group Investors Limited, the operator of secured peer-to-peer lending platform Wellesley & Co., has received a First Gazette notice for compulsory strike-off from Companies House. The notice required the firm to either file its accounts with Companies House within two months of 6 December 2016, or be struck from the register and dissolved.
Wellesley says that the filing of its accounts has been delayed for three reasons. The first is to allow time for a new chief financial officer (Alasdair Lenman) to review processes and procedures and implement a transition to IFRS accounting standards. The second is to complete a fundraising round (which we’ll come back to). The third is to prepare an annual review for publication alongside the financial statements, which will provide “further transparency on Wellesley’s business model, market opportunity and strategy”.
Wellesley has been flirting with the idea of a fundraise on equity crowdfunding site Seedrs for some time, and the campaign is now live. The firm is looking for a minimum raise of £1.5m, but with capacity to take on as much as £4m. It’s a convertible round, so the valuation of the firm is not clear at this stage.
Brexit and FinTech (Financier Worldwide), Rated: A
For example, peer-to-peer lending, which is a relatively new concept, is not regulated by an EU Directive. This means that firms operating peer-to-peer lending platforms do not need to worry about the loss of passporting rights as they continue to develop their business. However, equity-based crowdfunding, which is a popular alternative to traditional forms of fundraising, is regulated by the EU Markets in Financial Instruments Directive (MiFID) and will subsequently be regulated by MiFID II when it comes into effect in January 2018. Accordingly, for UK equity-based crowdfunding firms that have developed, or intend to develop, an EU customer base in reliance on passporting their services into the single market, the loss of passporting rights and access to the single market will be a cause for concern.
If such issuers were to lose those rights, then equity based crowdfunding platforms would not be able to offer those issuers’ securities to investors across the EU with the same level of ease that they currently enjoy.
Local alternative lending is enabling business growth outside the city (City A.M.), Rated: A
Many businesses are already accessing alternative finance. A recent report from the University of Cambridge showed that more than 12 per cent of new lending to SMEs came from the peer to peer sector – in 2015 alone, 20,000 small and medium-sized firms raised money this way country-wide.
In particular, the ascendancy of peer to peer lending at the local level will encourage business growth outside of the City, pooling resources into rural areas by connecting local business owners with local investors. What we are now seeing is a return to a formally bygone tradition of community-focused lending, a movement in which our business has its roots.
Unlike the high street banks, alternative local lenders can take a more holistic approach through their local knowledge and understanding of the reputation of the businesses in their local area. This means that businesses can access the right type of finance that suits their requirements.
Ultimately, we want to see businesses coming to alternative lenders first. Things are moving in the right direction, but it is now up to the lenders themselves to implement policies that attract more businesses, while at the same time protecting them at every level.
£4bn start-up funding gap bridged by friends and family (TaxAssist Accountants), Rated: B
More than 1.6 million people have given money to a close friend or family member, giving them the financial support to start or grow their business, according to new research from peer-to-peer lending platform, ThinCats.
It is estimated that £7.2bn has exchanged hands between friends and family, with entrepreneurs increasingly forced to rely on social networks to solve the lending gap.
Banks vs. Third Parties: Europe Unleashes Client Banking Data (Kabbage), Rated: AAA
For years, client data stored in banks was inaccessible to third parties. But with the help of technology (like “screen scraping” and “banking API”), the information that used to be proprietary is now available if the account owner gives their consent.
In the U.S., there are no official legal bans on these types of technologies. However, banks claim this procedure creates potential security risks, which has caused many banks to limit access to accounts when their systems detect unusual peaks of data traffic. Still, banks are not willing to provide official and secure APIs (data exchange channels) for third parties.
A different approach was taken by the European Union, which revised its Payment Service Directive (PSD) to include a common, standardized banking API that would allow interested companies to use client data stored in banks. Before the updated PSD directive, PSD2, each member state could treat solutions (based on screen scraping technology) at their own discretion: one would ban it, the other wouldn’t. With PSD2, third parties will gain access to banking information through an official and secure API.
The screen scraping technology can mine all data available to a user in a banking transactional system, while the API that is currently developed in accordance to PSD2 guidelines will probably be limited to a few basic operations, such as account balance checking or locking an amount of money necessary to make payment.
EUROPE AND THE U.K. LOOK STRONG – WEEK OF DEC. 7, 2016 (SoFi), Rated: AAA
We have recently reduced our overweight position in the United States and increased exposure to the United Kingdom and Eurozone. This shift is driven by the differing outlooks for monetary policy on each side of the Atlantic, by supportive valuations, and the market’s increased tolerance for political risk.
We can see in the chart below that the unemployment rate has followed a strikingly different path in the Eurozone when compared to the United States and United Kingdom.
The outlook for the ECB’s monetary policy is incredibly dovish, with rates not expected to go positive until 2018. The market expects the Bank of England (BoE) to raise rates at a similarly slow pace (albeit from a higher level).
Given lower interest rates and the expected gradual pace of hikes, you would expect higher stock valuations in the U.K. and Eurozone, all else being equal. After all, if the return on bonds is low then domestic investors can be expected to buy stocks, pushing up their price.
That has not been the case.
But, investors seem to be more comfortable with political risk. The widely touted fears of a Brexit and the surprise Trump victory affected asset prices for only a few days.
Economic and political risks certainly remain in the U.K. and Europe. However, we feel that when weighed against a more supportive monetary environment and better valuations the risks are well compensated.
Klarna-founder’s new innovation hub will combine tech and social impact (Business Insider Nordic), Rated: A
Immediately after Niklas Adalberth stepped down from Klarna last Fall – after ten years spent building Sweden’s first Fintech unicorn – he announced he wanted to work with charity and social impact, and not “die with a huge bag of money on my bank account”, according to Di Digital.
Now he has delivered on that statement, with Norrsken Foundation
The non-profit foundation’s core mission is to channel the tools and methods of entrepreneurship – like apps, product development and big data – into social impact areas, such as corruption and charity. The foundation will house and incubate both for-profit startups, as well as non-profit organizations.
Starting in January 2017, the Norrsken House will house some 200 social entrepreneurs from around the world
Among the startups taking residence will be two apps that will help immigrants find new job opportunities, called Just Arrived and Welcome App; the former with financial backing from Adalberth. Another one is Klarity, founded by Adalberth, “an Instagram for reporting corruption”, which enables the user to upload images, for example when people receive bribes.
Belgian crowdlending platform Look&Fin secures €3 million for growth (Tech.eu), Rated: B
Belgian Look&Fin, a crowdlending platform dedicated to SME financing, has completed its first funding round of €3 million. The funding comes from private Belgian and French investors.
Look&Fin will use the funds to increase the number of projects that it finances. The platform intends to spread to other countries and raise €150 million euros by the end of 2018.
One-stop shop for all your loan needs with Oxyloans (New Indian Express), Rated: A
Oxyloans was born from the idea of helping customers who had their loan applications rejected by traditional banks for various reasons, and those who seek a different option from private moneylenders who allegedly charge usurious interest rates coupled with harsh recovery methods.
Marking an entry into the Peer-to-Peer (P2P) world, apart from easy access to loans, Oxyloans promises high returns for investors as well, through its Peer-to-Peer Investing (P2PI) platform.
Moreover, the lending platform assures flexible loan repayment options, with the Equated Monthly Installments (EMI) being decided between the lender and the borrower.
The Largest Global Banks And How They Rank For Investments In Fintech Startups (CB Insights), Rated: A
VC-backed global fintech financing activity declined for the second straight quarter in Q3, with $2.4B raised across 178 deals, according to The Pulse of Fintech – Q3’16 published by KPMG and CB Insights. But banks are still finding opportunity in the sector.