Wednesday March 7 2018, Daily News Digest

marketplace lending categories

News Comments Today’s main news: Citigroup may open a national digital bank. Marcus to open in UK, Goldman recruiting engineers. Robo.Cash posts 2017 results. Tera Funding to hedge P2P project finance risk. Today’s main analysis: Preparing taxes for LendingClub, Prosper investments. Today’s thought-provoking articles: Why institutional investors turn to marketplace loans. Branches are still disappearing despite Chase’s investment. Credit card […]

marketplace lending categories

News Comments

United States

United Kingdom

China

European Union

International

Australia

India

Asia

Canada

News Summary

United States

Citigroup moving toward ‘national digital bank’ (Business Insider), Rated: AAA

Citigroup Inc is laying the foundation, through a growing network of mobile banking tools, to support the launch of a national digital consumer bank sometime within the next three years, its chief financial officer said on Tuesday.

Citigroup, the fourth-biggest U.S. bank by assets, had fewer than 700 U.S. branches at year-end compared with more than 4,000 at the three biggest banks, JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co.

Citigroup, Kabbage Form Consortium on Fintech Cybersecurity (WSJ), Rated: A

Four financial companies including Citigroup Inc.C -0.48% and online lender Kabbage Inc. said Tuesday they have formed a consortium to address fintech firms’ cybersecurity risks, a sign of the industry’s growing links to traditional banks and insurers.

 

Why institutional investors are turning to marketplace loans (LendingClub), Rated: AAA

Greenwich Associates, an unaffiliated research company, conducted a study to better understand how marketplace lending is perceived and the current state of adoption within the institutional investing community.

Study Finding #1: Higher yields drive investment.

Sixty-seven percent of institutional investors cited the higher yield that marketplace loans tend to offer as their primary reason for investing.

Study Finding #2: Different investors use the asset for different things.

Because marketplace loans can be used for many different reasons, one of the first questions that investors may face when considering marketplace loans is how to categorize them. For over two-thirds of surveyed institutional investors currently invested in MPL (see chart below), they fall in the category of structured products, putting them alongside ABS and collateralized loan obligations (CLOs). Almost half of current investors reported viewing them as short-duration instruments and one-third as high-yield bonds.

Almost 40% of institutional investors who are not yet invested in marketplace loans said they didn’t know how to characterize them.

Study Finding #3: The path to institutional adoption will be driven by a few key catalysts.

Since mid-2017, however, each new issuance was rated by at least one rating agency, removing this obstacle and further broadening exposure to the asset class.

Investors deeply value data and analytics, which are key to understanding the credit profile of borrowers on marketplace lending platforms.

While the secondary market for marketplace loans is illiquid, there is a more active secondary market for the securitized offerings.

Study Finding #4: Marketplace lending is here to stay.

A majority of current investors, 52%, believe that marketplace lending will be a significant player in the financial system in the next 10 years. This is another meaningful vote of confidence in the industry.

New phase of growth and development for ‘Peer-to-Peer’ lending (IBS Intelligence), Rated: A

Among the investors participating in a new Greenwich Associates study, 30% of institutions not currently investing in marketplace loans (MPL) are watching the space or conducting research and due diligence on the asset class—a level of interest that suggests future institutional involvement is on the horizon.

The first marketplace loans were securitised in September 2013, and the trend has accelerated rapidly since then. Cumulative issuance now stands at $28.2 billion, with $4.4 billion issued in Q4 2017.

LendingClub and Prosper Tax Information for 2018 (Lend Academy), Rated: AAA

Note that investors who invest through a retirement account do not have to worry about tax reporting. Here at Lend Academy we believe there is a strong case for investing in marketplace lending through a product like an IRA.

Copied below is how LendingClub summarizes the tax treatment of investing in loans on the platform:

Generally, gains and losses from recoveries, sales or charge-offs related to LendingClub Notes are reported for tax purposes as capital gains or losses, rather than ordinary gains or losses. Generally, LendingClub Notes are considered capital assets because they are owned for the purposes of investment (similar to a stock or a bond). Generally, realized capital losses are first offset against realized capital gains. For individuals, any excess capital losses can be deducted against ordinary income up to $3,000 ($1,500 if married filing separately). Capital losses in excess of this limit may be carried forward to later years to reduce capital gains or ordinary income until the capital losses are fully utilized.

Source: Lend Academy

I had $12.21 in proceeds (recoveries) from loans that were charged off which is offset by the cost basis of charged off loans, $204.33. This resulted in a net loss of $192.12.  On my 1099-B outlining long-term transactions I had proceeds of $109.64 with a cost basis of charged off loans of $1,469.02 resulting in a net loss of $1,359.39. The short and long-term transactions roll up on the 1099-B summary shared above (middle box). Ignoring taxes, I earned a profit of about $500 on my LendingClub account for the year.

Source: Lend Academy

Filing Taxes for a Prosper Account

Below is my 1099-OID which includes the net interest of $840.62 I received for the year.

Source: Lend Academy

My losses totaled $834.71 which means I earned a net return of around $100 for the year.

How would regulators react to Amazon-JPM checking partnership? (American Banker), Rated: A

The negotiations between Amazon and big banks like JPMorgan Chase and Capital One to offer a checking-account-like product pose significant questions for regulators about the e-commerce giant pushing further into the banking space.

Who owns the customer?

If the bank “owns the customer,” then “the rules governing banks protect the consumer,” said Karen Shaw Petrou, managing partner of Washington-based financial services consultant, Federal Financial Analytics. “If the bank doesn’t own the customer, then the rules — not just the consumer protection rules but the safety and soundness rules — are both different.”

What is Amazon’s role in the accounts?

If JPMorgan is “contracting with Amazon to do the marketing and customer intake, in that case, Amazon is subject to the regulation for those activities,” similar to other bank partnerships, said Brian Knight, director of the program on financial regulation and a senior research fellow at the Mercatus Center at George Mason University.

Who, if anyone, would regulate Amazon?

Another tricky question is which agency would regulate the partnership depending on how it is structured. For example, if Amazon were to act as a vendor to the bank, the e-commerce company would fall under a wide range of bank regulations involving partnerships and data security. However, if JPMorgan were to be a vendor to Amazon, those regulators would have limited influence over the deal.

Branches are still going away, despite Chase’s flashy investment (Tearsheet), Rated: AAA

Earlier this year JPMorgan Chase announced it’s investing $20 billion in 400 new branches and last week at the company’s Investor Day CFO Marianne Lake said 75 percent of its deposit growth comes from customers that visit its branches. Research published last month by Novantas shows 60 percent of Americans would still prefer opening a checking account at a branch than on digital channels and a September report by Deloitte similarly found 56 percent of people prefer to open bank accounts in branches (based on a survey of 3,000 consumers who had opened a deposit wealth management or consumer loan between January 2016 and May 2017).

JPMorgan Chase may be opening hundreds of new branches, but that hardly suggests every bank will follow.

Source: Tearsheet

Legacy vendors have been losing revenue
Global financial services and ATM producer NCR has been watching revenue fall over the past year where ATM sales and software licenses are concerned as revenue from services and cloud has shown a slight uptick. Diebold Nixdorf, another manufacturer of connected commerce and self-service products in the banking and retail industries, reported a 9.6 percent decline in revenue from banking sector services to $3.4 billion from 2016 to 2017.

Reimagining Lending Risk Management for the Digital Era (Lend Academy), Rated: A

As of February 2018, US bank lending of various kinds – auto loans, commercial credit, mortgages, credit cards or small business lending – constituted $11.7 Trillion, representing around 60% of US GDP and 70% of commercial banking assets.

A tale of two startups with ‘superstore’ ambitions: Robinhood and Cadre (TechCrunch), Rated: A

“If you think about Amazon, they took the book model, built brand equity, trust, credibility and now they are a superstore for any retail product,” Cadre’s co-founder and CEO Ryan Williams told attendees at an industry event in San Francisco last week. “We’re doing the same for the investments world.”

Robinhood’s co-founder and CEO, Vlad Tenev, speaking at the same event later in the evening, had much the same messaging. “Five years from now,” Tenev told the crowd, Robinhood will be a “full service financial institution” with every product one can find at a “local bank branch and more.”

‘PIN on glass’ is still a novel concept for U.S. retailers (Tearsheet), Rated: A

Though common in Europe, chip cards with PIN numbers still haven’t caught on in the U.S. But a mobile chip-and-PIN terminal could nudge more retailers to get on board.

TransUnion Introduces New IDVision Alerts to Mitigate Rise of More Sophisticated, Emerging Risks (Nasdaq), Rated: A

A new TransUnion (NYSE:TRU) analysis found that the growth in outstanding balances of suspected synthetic fraud in the credit card market is slowing in large part due to recently focused efforts by issuers to prevent such instances of fraud.

Outstanding suspected synthetic fraud balances rose 5.2% between Q4 2016 ($276.01 million) and Q4 2017 ($290.37 million). This was a far smaller percentage rise than what was observed the previous year when such balances rose 68.5% between Q4 2015 ($163.77 million) and Q4 2016. Despite the slowing of fraud balance growth in the credit card space, TransUnion found that the incidence of such fraud on credit applications remains similar to last year, moving from 0.59% at the end of 2016 to 0.60% in 2017.

While the growth of synthetic fraud in the credit card market is slowing due to proactive measures being taken by issuers, outstanding balances of suspected synthetic fraud identities increased 6.6% to $885.42 million in Q4 2017, up from $830.25 million in Q4 2016 for auto loans, credit cards, personal loans and retail cards combined.

TransUnion today introduced 25 new IDVision Alerts and data enhancements to its current collection of alerts, including new alerts for possible synthetic fraud, new or recently created identities and social security numbers that may be compromised. In total, TransUnion IDVision Alerts now provide more than 65 notifications to businesses about high risk, suspicious identities and other potentially fraudulent activities.

 

Varo Money Helps Americans With High-Yield Savings Accounts & SMS Alerts (Varo Email), Rated: A

Mobile banking startup Many Americans Are Struggling to Achieve Good Financial Health

A recent survey of more than 1,000 U.S. adults age 18+, conducted by Propeller Insights on behalf of Varo Money, determined that 85 percent of American adults sometimes feel stressed out about money, and a full 30 percent feel stressed out about money constantly.

  • About 1 in 5 Americans (19 percent) are living paycheck to paycheck
  • More than two-thirds of Americans (69 percent) report having had to dip into their savings to make it to the next payday at least once in the past two years
  • 55 percent of millennials have dipped into their savings in the past few months
  • About a third (31 percent) of millennials understand what their finances will look like from month to month only “somewhat” or “not at all”

Helping Customers to Make More from Their Money

Varo’s 1.25% APY Savings Accounts have no fees or minimum balances and offer a rate that is more than 60x the average rate offered by traditional banks. According to Varo’s two new features are part of its continued expansion of features and focus on financial health for Varo customers:

  • 1.25% APY High-Yield Savings Account: All Varo customers can easily open an online savings account with a few taps through the Varo app and receive a rate of 1.25% APY. Customers can access funds 24/7 and easily transfer money from their checking into savings. There are no fees or minimum balances required.
  • SMS Alerts: Customers can receive notifications based on aggregated financial activity across all linked accounts that let them know how they’re doing on income, saving, and if they are at risk of overspending so they can stay on top of their money effortlessly. Standard text messaging and/or data rates from the wireless service provider may apply.

Startup, Rentlender Revolutionizes the Rental Market, Offering Finance Options for Renters (PR Newswire), Rated: A

According to a Harvard University housing report, over 110 million Americans, or about 36 percent of households, now live in rental units — an increase of 9 million renters over the past decade — the largest 10-year gain on record.

Unfortunately, other records are being smashed too: the number of cost-burdened renters — that is, households paying more than 30% of their income on housing — jumped to 21.3 million. And a record 11.4 million Americans are spending more than half their income on rent. The news is even worse for New Yorkers, who last year spent 65.2%, or two-thirds of their total income, on rent2.

With upfront rental deposits and fees at move-in costing over $3,000 (more if you live in New York City, where comparable costs typically top $20,000); there has never been a greater need for finance options for renters.

Beginning today, New York City-based startup Rentlender is partnering with Upstart to provide modern financing solutions for renters.

Renters must meet a minimum set of requirements to qualify for a loan including having a minimum credit score of 620 and a maximum debt-to-income ratio of 45%.  All loans are originated by Cross River Bank, an FDIC insured New Jersey state chartered commercial bank, and lending terms and fees are as follows:

  • Loan amounts: $1,000 to $50,0003
  • Loan duration: 3 or 5 years
  • Annual percentage rate: 7.436.25% to 29.99%4
  • Origination fee: 0% – 8% of loan amount
  • No prepayment fee

Renters can use these loans to ease the burden of renting in a number of ways:

  • Upfront costs – Pay first month, last month, security deposit and broker fees
  • Individual Months of Rent – Finance one or two months rent
  • A Full Year’s Rent – Finance a full year’s rent in addition to up-front costs

The loan application process is Powered by Upstart and provides renters with a fast, easy and paperless application process:

  1. Check Your Rate –  With a quick form, renters can see the loan options for which they qualify.
  2. Submit an Application – Complete the application online and indicate the bank account where funds should be sent.
  3. Accept Your Loan – Upon approval, log in and digitally sign loan documents. Funds can be available as quickly as the next business day.

Crowdfunding enters the New York City real estate scene (Born2Invest), Rated: A

These two problems are big hurdles for investors, but StraightUp is offering a solution to these woes. Crowdfund Insider notes that it is a new real estate crowdfunding platform that provides backers and investors an “unbeatable opportunity” on properties in New York City.

Capital markets tech firm Capitolis snagged $ 29 million in VC (New York Business Journal), Rated: A

Who gets: Capitolis, a New York-based technology provider for the capital markets, secured new funding.

Amount raised: $20 million in series A financing, plus $9 million in seed funding.

Credible Appoints Jobe Danganan as General Counsel and Corporate Secretary (BusinessWire), Rated: B

Credible, the consumer finance marketplace that helps consumers save money and make smarter financial decisions, today announced that it has appointed Jobe Danganan as general counsel and corporate secretary, effective immediately.

GDS Link to Exhibit at LendIt Fintech USA 2018 (PRWeb), Rated: B

GDS Link, a global provider of credit risk management solutions and consulting for multiple verticals within the financial services industry including marketplace lending for both consumer and small business, point of sale retail finance, alternative financial services, credit card, auto and leasing, will be attending LendIt Fintech USA 2018, April 9-11 at the Moscone West in San Francisco.

Upgrade Inc. Named a 2018 ‘Best Place to Work in the Bay Area’ (PR Newswire), Rated: B

Upgrade, Inc. (), a consumer credit platform that combines personal loans with tools that help consumers understand and monitor their credit, announced that it has been named a ‘Best Place to Work in the Bay Area’ finalist in the small company category by the San Francisco Business Times and Silicon Valley Business Journal.

United Kingdom

Goldman Sachs is recruiting at least 6 people for the UK launch of its online lender Marcus (Business Insider), Rated: AAA

Goldman Sachs is recruiting engineers in London to help build and launch its online lender, Marcus, in the UK.

Credit Card Customers Prepare for Debt Crackdown (Market Oracle), Rated: AAA

The Financial Conduct Authority (FCA) has, as of this month, given credit card providers six months to adhere to the new rules that tackle the issues surrounding persistent debt*.

From September 2018, credit card providers must review the last 18-month history of a borrower’s repayment records, if they are in persistent debt, and assess whether they are subject to the new rules.

Source: Market Oracle

Investors flock to Assetz Capital IFISA (P2P Finance News), Rated: A

ASSETZ Capital has had almost 3,000 investors start the process of setting up an Innovative Finance ISA (IFISA), with those who have already started investing putting an average of nearly £12,000 into the product.

Business borrowers should think outside the bank (Insider.co.uk), Rated: A

SMEs are the backbone of the Scottish economy, making up 99% of the business population and accounting for more than half of all private sector employment.

The unemployment rate in Scotland rose to 4.5% in the final three months of last year, slightly higher than the rate of 4.4% for the UK as a whole, but there are grounds for optimism. Independent forecasts suggest that growth in the Scottish economy will be slightly higher than last year.

According to research from the British Business Bank , published on 20 February, net bank lending remained “relatively flat” in 2017, while P2P business lending volumes rose by 51% to almost £1.8 billion.

Why SME banking may spawn the industry’s next big winners (Euromoney), Rated: A

Small businesses, which account for more than 99% of private businesses in the UK and in aggregate contribute more than half of turnover and employment, are particularly poorly served by big banks.

The big five high street lenders are built for serving either retail customers or medium-size and larger companies with collateral to back three-year and longer term loans that the banks like to hawk to companies that do not really need them as a way to sell associated risk management.

Small businesses want short-term, flexible working capital with no punishing fees for low usage or early repayment. This is expensive for banks to underwrite – especially for new startups and sole traders lacking several years’ worth of financial history – and to administer. Few small businesses want the interest-rate hedging and FX facilities that banks like to bundle up with term loans for medium-size and larger corporate customers.

The market is at last now producing non-bank competitors looking to provide the right kinds of services and products for small businesses – ones that give these challengers a shot at the £2 billion of annual revenue the British Bankers Association suggests SMEs now pay for financial services.

Wealth Wizards launches AI robo system (FT Adviser), Rated: A

Wealth Wizards, the robo-adviser majority owned by LV, has launched an artificial intelligence service which will learn how advisers serve their clients and replicate that house view.

China

Chinese IPOs In US Continue To Disappoint Investors (China Money Network), Rated: AAA

Industry watchers foresee a 25% to 30% increase in the the number of Chinese IPOs in the U.S. in 2018, versus 2017. That’s a significant gain given that the number of Chinese IPOs in the U.S. in 2017 was more than double the number in 2016.

Peer-to-peer lending company Qudian Inc. raised more than a billion dollars when it went public on the New York Stock Exchange in last October. Today the stock is down just over 50%, according to data from Dealogic, a loss of more than US$500 million for investors.

The average PE ratio for profitable Chinese companies listing in the U.S. reportedly rose to 50 in 2017, versus 31 a year earlier, driven in part by the marketing efforts of the three banks behinds most of the IPOs, Morgan Stanley, Credit Suisse AG, and Goldman Sachs Group Inc.

Another problem has been the Chinese government’s crack down on online consumer lending. This has hurt the businesses of financial technology companies, which made up the largest group of IPOs in 2017.

European Union

Online Lender Robo.Cash Posts 2017 Stats (Crowdfund Insider), Rated: AAA

Robo.cash outlined the results of its first year in operation on the European P2P lending market: 2,000 investors from the EU and Switzerland invested over €3M in the issue of 330,000 short-term PDL-loans in Kazakhstan and Spain. The average inflow of investments is €240,000 with 150 new investors joining the platform monthly.Robo.Cash views the results and platform dynamics as proving the growing demand for complex automated solutions in the global alternative fintech.

The European investors financed 330 thousand short-term PDL-loans (Financial IT), Rated: A

The European P2P-platform Robo.cash was launched in Latvia on February 21, 2017. It has achieved to attract over €3 million and 2.000 investors from 29 European countries (the EU and Switzerland) in one year. The average inflow of investments is €240 000 with 150 new investors joining the platform monthly.

International

The Pro-Growth Magic of Inflation Anchoring: Eco Research Wrap (Bloomberg), Rated: AAA

Credit-constrained industries grow faster in countries with well-anchored inflation expectations, based on an IMF analysis of data covering 22 manufacturing industries for 36 advanced and emerging-market economies between 1990 and 2014. It seems to be the anchoring – not the level – that matters for growth. So while most advanced economies angle for 2 percent, there’s nothing magical about that number.

Killing zombies

The share of global zombie firms – low-productivity companies that struggle to meet their interest payments – has more than tripled in the past two decades, climbing to 2 percent of companies in 2016 from 0.6 percent in 1996. Early, incomplete data for 2017 indicate that the may finally be disappearing, suggesting that climbing interest rates are making it harder for the laggard firms to hang on.

Websites for Bitcoin (BTC) Borrowing and Lending (Hade Platform), Rated: A

1) Bitbond

They have more than 100,000 happy borrowers and investors. The peer to peer Bitcoin borrowing community has offered loans to more than 2500 borrowers. The loan application process is simple, and the loans can be received within one hour. Investors receive up to 13% interest on the loans they give, with some investors having a history of loaning to more than 100 borrowers. The duration of the loans, which are generally to help finance small businesses, range from 6 months to 3 years. Bitbond has users from more than 120 countries, and has an investment volume above $1million.

2) Btcpop

With a large user base above 20,000, from more than 60 countries, Btcpop holds a volume above $1million.

3) BTCjam

BTCjam has more than 100,000 users from more than 200 countries. The website supports peer to peer lending and has a volume of more than $13 Million BTC in their holding.

Australia

RateSetter CEO: Comprehensive credit reporting and open banking to help Australia play catch-up (mozo), Rated: AAA

For many Australians hearing the words ‘credit history’ may well elicit a shudder down their spine – especially if they’re looking at taking out a finance option such as a personal loan, credit card or home loan. But in just under four months that could well change, with the impending implementation of mandatory Comprehensive Credit Reporting (CCR).

From July 1, the big four banks will be required to have at least 50% of their credit data – both positive and negative – available to be shared, which Daniel Foggo, Australian CEO of peer-to-peer lender RateSetter, suggests will help Australia catch up to the rest of the world.

Promontory says AI for banking compliance ‘a long game’ (Financial Review), Rated: A

The inaugural chairman of the Australian Prudential Regulation Authority says it will take “massive investment” before regulators let banks use artificial intelligence to meet their multimillion-dollar compliance obligations.

While AI is being used to deliver personalised banking experiences to customers via “chatbots” and helping bank staff make more customer-centric decisions, the technology which Promontory thinks has the capacity to cut sky-high compliance costs is still a work in progress.

The company is combining its regulatory prowess with IBM’s artificial intelligence technology known as “Watson” to cut costs, but also to improve accuracy for regulators.

Verrency, a global Australian payments platform and fintech marketplace, has been accepted into the latest fintech cohort of Silicon Valley-based technology accelerator Plug and Play Tech Center.
India

Women are Looking at Alternative Forms of Investments and Tech is Here to Help (Entrepreneur), Rated: AAA

More and more women are taking charge of their financial decisions and moving beyond the usual investment routes and looking at P2P lending, mutual funds as options.

Rajat Gandhi, Founder and CEO, Faircent, believes that gone are the days when women investors looked only at traditional tools of investments as part of their financial planning. “These ambitious go-getters are increasingly ditching the traditional tools of savings and investments and exploring the relatively new and more lucrative forms of investments,” said Gandhi.

At Faircent, 14% of the lenders registered are women and they account for 21% of the total amount disbursed through the platform.

“Female lenders on our platform are earning an average NAR of approx. 20% p.a proving that women tend to invest wisely; know how to take calculated risks, can meticulously diversify their investment portfolio across different borrowers and hence, end up enjoying better returns,” asserted Gandhi.

Meanwhile, Keerti Kumar Jain, founder and CEO, of Anytime Loan, shared the following statistics from their platform regarding female lenders.

Blockchain: a new technology or a new kind of enterprise? (YourStory), Rated: A

Let us imagine a new kind of enterprise that is designed to create value through a self-regulating method that is both decentralised and auto-incentivising. This is in direct contrast to the conventional top-down hierarchical, command and control enterprise.

We will do this in a two-step process.

First, we set up an initial monetary policy (“the white paper”) in the form of a finite number of digital tokens that represents the overall value of the enterprise. This also creates the requisite economic scarcity to start with that is essential to this approach.

Second, we set up clear encodable rules for how the participants who generate value in the enterprise will “earn” in tokens. This incentivises the participants to “do the right thing” to generate value for the enterprise, which in turn increases the value of the tokens.

Distributed ledgers

One basic requirement for setting up such an enterprise, is the use of a transparent immutable Distributed Ledger to establish trust between all participants of the enterprise.

Examples of the new kind of enterprise

A Distributed P2P Lending Network in which Lenders and Borrowers are joined by a network of Verifiers, Hosting providers and Developers, all incentivised to build, maintain and use the distributed lending platform that is hosted on a blockchain technology.

Asia

Tera Funding sets out to hedge risks of P2P project finance (The Korea Herald), Rated: AAA

The high return — often at above 10 percent — that the instrument promises to the lenders, triggered a rush into the sector, and roughly a third of loans on P2P platforms went into project financing as of September.

As such, the default rate of the average local project financing P2P platform operators is relatively higher at 1.7 percent, over threefold that of other P2P platforms, according to an estimate by the Financial Services Commission.

The returns are roughly estimated 8-15 percent of investment per a year, without tax deducted, depending on the level of risk.

Fintech lenders hit back at OJK (The Jakarta Post), Rated: A

Indonesia’s financial technology (fintech) players were in shock when they found out that their main regulator, the Financial Services Authority (OJK), had some disconcerting views about their businesses despite having a relatively close relationship.

Executives of peer-to-peer (P2P) lending fintech firms on Tuesday voiced their concerns about a controversial statement from OJK chairman W…

Funding for RedDoorz, Hotelogix, and 23Mofang (Tech in Asia), Rated: A

Online lender Finova Capital secures US$6 million Sequoia Capital backing (India). The startup provides loans to small businesses in India’s tier-2 cities and rural areas. Finova will use the funding for technology development and hiring talent. Sequoia India made its investment in two tranches, the first taking place late last year.

Paytm Mall in talks with SoftBank to raise US$600 million (India).

Canada

Katipult Named Finalist For Most Promising Partnership Award at Lendit Fintech Industry Awards (Crowfund Insider), Rated: B

Canadian fintech Katipult announced last week it has been nominated, alongside Polymath Inc., for the Most Promising Partnership Award at the second annual Lendit Fintech Industry awards in April. According to Katipult, the partnership will be competing against some of the world’s finance and fintech giants including partnerships involving Goldman Sachs, Macquarie Group, Swedbank, and Lending Club.

Authors:

George Popescu
Allen Taylor

Monday March 5 2018, Daily News Digest

marketplace lending

News Comments Today’s main news: Kabbage says ‘no’ to lending for assault guns. Collateral enters administration. Orix invests $60M in Wecash. SMBs accept face-to-face payments via mobile devices. Today’s main analysis: The friction between new finance and old regulations (a must-read report). Today’s thought-provoking articles: 3 lessons from LendingClub’s earnings. The business schools that produce the highest salaries. Beware fintechs […]

marketplace lending

News Comments

United States

United Kingdom

China

European Union

International

Australia/New Zealand

India

Africa

News Summary

United States

Online lender Kabbage to restrict weapons lending (Reuters), Rated: AAA

Kabbage Inc, a U.S. online lender for small businesses, said it will cut ties with clients that make or sell assault-style rifles or that sell weapons or ammunition to people under 21 years old, one of the strongest steps by any financial firm after last month’s high school massacre in Florida.

3 Revelations From LendingClub’s Earnings Report (The Motley Fool), Rated: AAA

1. Lawsuit settlements

One piece of good news is that the company recently dealt with its largest liabilities from the 2016 scandal, settling both federal and state class action shareholder lawsuits. The bad news: LendingClub has to pay plaintiffs a total of $125 million, with $47.75 million covered by insurance, leaving LendingClub on the hook for the remaining $77.25 million. That amounts to roughly 12% of the company’s liquid assets and about 5% of the current market capitalization.

2. A challenging environment

In addition to these company-specific problems, the macroeconomic environment has become more challenging, though that is no fault of LendingClub. Increased awareness of personal loans delivered via the internet has spurred a large increase in applications, and LendingClub saw a 43% increase in applications in 2017 — much higher than the company’s 3.7% growth in originations.

3. Cost cuts in 2018

LendingClub believes it has stabilized both its credit model and its investor base in 2017 while introducing new investor products, and it will pivot in 2018 to focusing on controlling costs. Part of that will entail outsourcing its loan servicing to industry-standard third parties while reallocating internal engineers to the things that differentiate the company, like data-driven underwriting and product innovation.

For the full year 2018, the company forecasts 18% to 22% revenue growth while targeting cost growth of only 14% to 16%.

 

The top 20 business schools where graduates earn the most money, ranked from lowest to highest salary (Business Insider), Rated: AAA

With that in mind, online lender SoFi looked at the average salary graduates of American business schools earn and ranked the top 20.

SoFi’s approach is unique. It reviewed the self-reported income on over 60,000 student-loan refinancing forms from January 2014 to December 2017.

The average salary for graduates of all business schools SoFi reviewed was $109,992.

  • 20. University of Texas at Austin — $139,776
  • 3. Stanford University — $186,534
  • 2. Columbia University — $189,295
  • 1. University of Pennsylvania — $224,034

There is Friction Between New Finance & Old Regulation (Crowdfund Insider), Rated: AAA

The Milken Institute is out with a comprehensive report this week that drills down into existing legislative action by Congress that addresses the emerging Fintech industry. This is the first report of its kind and provides a solid perspective on what Congress has accomplished to date while recognizing the fact elected officials can do far more.

“Subjecting nonbank lenders to 50 different state usury laws is inconsistent with today’s increasingly interconnected and digital global economy.”

The research provides multiple policy recommendations. In brief, they are as follows:

  • Provide certainty on “true lender” and “valid when made” issues to maintain a vibrant, competitive marketplace for credit.
  • Harmonize inconsistent state-by-state regulations related to mobile banking to drive financial inclusion and access.
  • Update tax reporting guidelines regarding cryptocurrency transactions to protect against tax evasion and to promote a more transparent, responsible marketplace.
  • Enable the reporting of alternative data that can expand access to credit.
  • Develop common reporting standards among U.S. financial regulators to foster a more transparent marketplace.
  • Require the IRS to automate certain data collection and reporting processes that can help enhance the speed and efficacy of the underwriting process.

This report is a must read policy paper for Capitol Hill staffers and US Fintech industry participants.

Read the full report here.

Equity and Credit Market Volatility, Continuing Bank-FinTech Partnerships (PeerIQ), Rated: AAA

US equity markets had a bad week as the S&P500 closed 3.3% lower at 2,659. CDX IG spreads widened marginally by 0.6 bps to 55 bps and CDX HY spreads widened by 8.7 bps to 337 bps. We have seen significantly higher volatility this year, driven mainly by rising interest rates and inflation expectations. No new MPL deals have priced since the rise in volatility, although we expect the first $1 Bn MPL ABS transaction to announce soon.

We share a few anecdotes from our informal conversations which we share in generic fashion to protect the innocent:

  • A large issuer: “Our bonds are oversubscribed 2 to 3x. And when we share that with our investors they want more.”
  • A large ABS investor: “We need help monitoring losses in the personal loan ABS space. Is this an indutry issue?”
  • A large investment bank (Warehouse): “We ar doubling our exposure to warehouse lending. We have the mandate to grow the book.”
  • A large investment bank (Syndicate Desk): “MPL has gone mainstream now.”
  • A lender: “The 5% risk retention requirement is hurting our ability to issue loans to consumer and grow our business responsibly.”
  • An issuer: “We are a small emerging originator and we have 7 term sheets – from large banks and small – in the last few weeks. Competition in warehouse lending is growing.”

Also heard at the conference was that Citibank is planning a Marcus-like online lender to enter the consumer unsecured loans space, although the timeline was unclear. Our view is that the GS Marcus – and specifically the ROE and NIM opportunity – is inspiring competitive response from other banks including Citi.

Marketplace lenders develop new wrinkles to attract more funding (American Banker), Rated: A

Last year, marketplace lenders learned that maintaining diverse sources of funding is just as important as managing the credit risk in their loans.

LendingClub, Marlette Funding and others developed their own securitization platforms, rather than relying on whole-loan sales to large investors. They also invited some of these investors to contribute seasoned loans to collateral pools for these in-house deals.

Marketplace lending’s death has been over exaggerated (PaymentsSource), Rated: A

It’s clear that equity investors no longer see the value of marketplace lenders, such as companies that provide credit at the point of sale or online lending.

Source: PaymentSource

A typical lender leverages equity into debt at a fixed ratio. If they want to grow their portfolio they have to raise equity and lever it into more debt. An off-balance sheet marketplace eliminates the equity-debt leverage ratio allowing a lender to double and triple their portfolio as quickly as they can grow their marketplace.

The SEC Goes Hot with ICO Subpoenas but are Regulators “on Shaky Legal Ground?” (Crowdfund Insider), Rated: A

The fact the Securities and Exchange Commission has been issuing subpoenas to initial coin offering (ICOs) issuers has been rumored for quite some time. Recently, multiple publications, including Crowdfund Insider, revealed this fact. The SEC has been warning of this sort of activity for many months and, while not surprising to most, it is an unpleasant moment for an issuer when that subpoena shows up.

Mulvaney says the CFPB will depend heavily on state Attorneys General for enforcement of consumer protection laws (Lexology), Rated: B

For example, the acting director noted that the agency will devote greater resources to consumer education, instead of relying heavily on enforcement actions to ensure consumers make the correct choices, reaffirming previous remarks in a Wall Street Journal opinion piece (previously covered by InfoBytes here).

Mulvaney stated that he does not anticipate devoting any further resources to mandatory arbitration clauses, citing Congress overturning its arbitration rule through the Congressional Review Act as evidence the Bureau does not have the authority to do so.

3rd Circuit holds payday lender’s arbitration clause unenforceable (Lexology), Rated: B

On February 27, the U.S. Court of Appeals for the 3rd Circuit held that an arbitration clause is unenforceable if the corresponding forum selection provision designates a forum that does not actually exist.

The benefits of fintech for the credit invisible (microbilt), Rated: A

 

Rethinking The Reputation Of The Merchant Cash Advance (PYMNTS), Rated: A

The rise of alternative lending and familiarity of growing names like OnDeck is beginning to shift public perception of the merchant cash advance, however.

There are scenarios, too, in which a merchant cash advance may actually be the best financial option for a business in need of working capital.

“We see a lot of clients who already have a long-term equipment loan, or an SBA loan, or a loan from a traditional bank or a factoring line, and they’re looking to unlock short-term liquidity from their business,” he said. “When you take out an SBA loan or equipment loan, you have to have some type of collateral to pledge, and that money can dry up quickly. We come in un-collateralized.”

One driver behind the shifting reputation of merchant cash advances is the industry’s participation in technology adoption and innovation.

At Best Egg, talk is a best practice (American Banker), Rated: B

So, every quarter, he and the company’s management team host an all-hands meeting and outline to the company’s 100-plus employees what the most important goal for the next 90 days will be.

So the word went out to employees that for the time being, efforts to grow the business would have to take a back seat to making certain that the existing business was profitable. According to Meiler, it was employees’ focus on the task that helped Best Egg rack up $11 million in GAAP profits last year, even as competitors were still posting operating losses in the tens of millions of dollars. And, he adds, the company still grew its business by 60% anyhow.

Best Fintechs to Work For (American Banker), Rated: A

Office exercise happens beyond a standing desk at many of the companies. NvoicePay not only provides stretching areas and lockers to employees, it offers monthly classes with a certified trainer and kinesiologist. Marlette Funding’s Best Egg unit offers employees self-defense classes on site, along with yoga.

And if you like the beach, check out nCino, where employees regularly go for early morning paddleboat sessions at nearby Wrightsville Beach in Wilmington, N.C., and SmartbizLoans, which hosts “Disco Yoga” at San Francisco’s Baker Beach.

Addressing an employee’s well-being and comfort comes in different forms, whether it is Cross River Bank’s policy of providing 100% of the premium for various insurance benefits covering employees and their families, Nav’s unlimited paid time off option for employees, or Ensenta’s tradition of celebrating workforce diversity with multiple holidays, including Kwanzaa, Diwali, and the Day of the Dead.

To keep burnout in check, PeerStreet mixes play with hard work (American Banker), Rated: A

To that end, they’ve established a company that regularly celebrates its successes and milestones with parties, and encourages employees to get together and have fun in nonwork environments. A prime example of the latter is the PeerStreet Olympics, an annual event in which the company is divided for a day into teams of friendly athletic competition, some of which takes place on the beach near its Southern California offices.

United Kingdom

Peer-to-peer lender Collateral enters administration (Financial Times), Rated: AAA

Collateral (UK), a small P2P company offering pawnbroker-style and property-backed loans with 15 per cent returns, went into administration on Wednesday after it emerged that it was not authorised by the Financial Conduct Authority.

BondMason offers to step in on Collateral loans (P2P Finance News), Rated: A

PEER-TO-PEER investor BondMason has offered to step in and manage the loanbook of the troubled Collateral platform.

BondMason, which invests in loans across more than 30 P2P platforms on behalf of investors, revealed it has invested 2.48 per cent of its portfolio through Collateral, which has fallen into administration.

P2P platforms reassure investors after Collateral closure (P2P Finance News), Rated: A

PEER-TO-PEER lending firms have been reassuring their investors about the safety of their platforms in the aftermath of Collateral going into administration.

Business lenders Ablrate and MoneyThing have both sent messages to their customers detailing their stability, performance and regulatory requirements that mean they have to hold client money separately and have a ‘living will’ that puts a plan in place should a business fail.

Growth in the number of Zombie businesses in the South East says report (Daily Echo), Rated: A

The proportion of south east companies which are only paying the interest on their debts – one of the signs of a so-called ‘zombie’ business – has risen to four per cent in December from one per cent in April 2017, according to indicative research by R3, the insolvency and restructuring trade body.

This represents around 12,000 businesses in the region.

Beware Fintech Firms Bearing Bitcoin (Bloomberg), Rated: AAA

Rather than try and undercut banks, or chase millennial savers’ pennies at a loss, fintech firms are now leaping at the chance to make serious cash through a technology that most banks won’t even touch. What’s more, Bitcoin has the power to take over people’s lives. One trader says it’s worse than gambling; Korea calls victims “zombies.”

Here’s a roll call of recent converts: Mobile-payments firm Square Inc. has rolled out Bitcoin trading; social-payments app Circle splashed $400 million on Poloniex, only about 15 months after it had stopped offering bitcoin trading; and money-transfer company Revolut has started offering crypto trading facilities.

Trading platform Coinbase booked more than $1 billion in revenue last year, according to Recode, which, if true, is more than peer-to-peer marketplace Lending Club and more than Square. On top of the money to be made from trading fees and asset-price gains, Bitcoin could also act as a lure, helping startups cross-sell their other products to a bigger audience.

 

London Fintech Humaniq Launches New Version of Mobile App (Crowfund Insider), Rated: A

On Friday, London-based FinTech firm Humaniq revealed it is marking the milestone of its mobile app reaching its first 50,000 downloads by unveiling a new, improved version.

Some of the new features include:

  • New referral program: The new 2.0 referral program will build on this by displaying community progress with referrals and thereby make the referral process more transparent and intuitive for all users.
  • Transaction options extension: Transactions can now be made through the messaging chat system.
  • New registration process: Allows users to start interacting with a Humaniq assistant bot, which becomes smarter and is learning to execute more useful commands, even without the registration.

Peer-to-peer lender Linked Finance helps firms to add 2,400 jobs (The Times), Rated: A

The country’s largest peer-to-peer lending platform said that it had supported the creation of more than 2,400 jobs since it began its Irish operations almost five years ago.

Linked Finance, which connects local businesses in need of loans with an online lending community of individuals, institutions and other investors, said firms that had borrowed money through its platform had raised staffing levels by 24 per cent on average.

City Moves for 5 March 2018 – who’s switching jobs at ArchOver? (City A.M.), Rated: B

ArchOver, the peer-to-peer (P2P) business lending platform, has announced Bill Johnston will join its board of directors as a non-executive director (NED). In his role, Bill will support ArchOver in formularising its training and development programme, to ensure it has the right talent in place as it continues to scale.

China

Orix invests $ 60m in Chinese fintech startup (Asian Review), Rated: AAA

Japanese financial services group Orix bought a 6.4 billion yen ($59.8 million) stake in Wecash, a Chinese startup that uses big data and artificial intelligence to rate consumer credit.

Wecash can calculate a consumer’s creditworthiness in 10 seconds or less using phone records and other personal information, and has partnered with dozens of financial institutions so far. It also suggests potential lenders to consumers looking to take out a loan.

Only about 30% of the Chinese population is believed to borrow money from banks.

Hong Kong gives fintech measures the thumbs up (Asia Asset Management), Rated: B

Hong Kong will allocate HK$500 million (US$64.1 million) to financial services, including fintech, over the next five years, Mr. Chan said in the budget speech.

European Union

We talked to Nordic fintech queen Lena Apler – and her message to legacy banks is reboot or die (Business Insider), Rated: A

Big banks are particularly exposed when it comes to ETF funds. The fast-growing $5 trillion-dollar industry is being challenged by a crop of robo advisors, such as Apler’s portfolio company Sigmastocks, an algorithm-powered tool that tailors portfolios for customers, or BetterWealth, a roboadvisor app.

Although the region’s leading banks, such as Danske, Nordea and Swedbank are doing some good things and building new digital banking products and roboadvisory capabilities, Apler says, it won’t be enough.

Apler’s online bank Collector, which received its full banking license in 2015, has expanded to comprise cards, saving accounts and quick loans to both consumers and businesses. Collector doesn’t face the same issues as legacy banks in a digital world, Apler explains.

International

SMBs Turn To Mobile Devices To Accept Payments In Face-To-Face Environments (PYMNTS), Rated: AAA

The retail point-of-sale (POS) terminal market is no stagnant business. While it is currently a $15 billion industry, Global Market Insights is expecting it to reach $45 billion by the year 2024.

Only 13 percent of small- and medium-sized businesses (SMBs) are considering adding new payment types to face-to-face and remote environments, according to The PYMNTS SMB Technology Adoption Index.

Here are five ways SMBs are accepting payments from their customers.

  1. About a quarter – or 26 percent – of SMBs use hardware and software integrated POS to accept payments in a face-to-face environment.
  2. Almost two in 10 – or 19 percent of SMBs – use check scanning to accept payments in a face-to-face environment.
  3. And just about the same amount – 18 percent – of SMBs use NFC-enabled terminals to accept payments in a face-to-face environment.
  4. Fourteen percent of SMBs use mobile phones to accept payments in a face-to-face environment.
  5. Just under one in 10 – or 8 percent – of SMBs use mobile tablets. 

AltFin Shines As Investor Interest In B2B FinTech Continues (PYMNTS), Rated: A

Total venture capital across the global FinTech market between 2010 and 2017 hit a combined $97.7 billion, growing at a compound annual growth rate (CAGR) of 47 percent.

Accenture highlighted Kabbage, the U.S. alternative small business lending firm, that secured $900 million in 2017, while other alternative finance players, like LendingPoint and SoFi, landed significant investment rounds.

This week, alternative lender C2FO showed that the alternative finance funding gears are still turning, landing $100 million from Allianz X and Mubadala Investment Company. Existing backers Temasek, Union Square Ventures and Mithril Capital also participated, an announcement said.

This week’s blockchain investment comes from Square Peg Capital, which provided $5.5 million in Series A funding to AgriDigital, an Australian company hoping to use the funds to expand into North America.

Reports in The Australian Financial Review this week said the company uses blockchain to facilitate supply chain finance to the agriculture business, offering supply chain management features also powered by distributed ledger technology.

Why More MBA Students Are Gunning For Careers In Fintech (Business Because), Rated: A

According to CB Insights, $4.7 trillion of revenue generated by financial services firms is at risk of being displaced by fintech startups.

Prominent business school alumni have founded successful fintech startups, such as Giles Andrews, who setup peer-to-peer lender Zopa after getting an MBA at INSEAD. Jeff Lynn and Carlos Silva developed crowdfunding platform Seedrs during their MBA at Oxford’s Saïd Business School. According to PwC’s Global Fintech Report 2017, funding of fintech startups has increased at an annual growth rate of 41% over the past four years, with $40 billion in cumulative investment made.

Niels Turfboer is UK managing director at Spotcap, the Berlin-based online lender.

Lending and profit on the blockchain – Bitstrades targets new markets (The Merkle), Rated: B

Bitstrades is clearly aiming to position itself as a complete platform that both links users together and also leverages economies of scale to make both lending and investing possible. The Bitstrades ICO raised millions in funding and now the BSS token is available for trading.

TigerWit Raises $ 5M in Funding (Finsmes), Rated: B

TigerWit, a global fintech company, secured $5m in funding.

Australia/New Zealand

Financial planners not needed in credit space (TheAdviser), Rated: A

Bringing financial planners into the credit space would be unnecessary, according to a Commonwealth Bank executive, as there are more than enough brokers to service the mortgage needs of Australians.

The CBA executive said: “With 16,000 brokers out in the marketplace, we’re certainly not in a position where we need more people to serve Australians well in meeting their mortgage needs. For me, it’s certainly not a quantity issue.

The PC has also alleged that brokers working for lender-owned aggregators could feel compelled to provide customers with home loan products offered by the bank with an ownership share of the business.

Commissioner Stephen King referenced CBA’s ownership of Aussie Home Loans and cited figures published in the PC’s report, which said that 37 per cent of loans written by Aussie brokers were for CBA products.

We launch a new calculator that figures out the true “cost of credit” of a loan contract (Interest.co.nz), Rated: B

This one will be very helpful for readers who know just three things: how much they are borrowing, the amount of their repayments, and the number of those repayments.

It will be very useful indeed for anyone contemplating taking out a personal loan, a car loan, or even a payday loan.

With just these three items, you can work out the effective cost of credit of the debt obligation, expressed as a % per annum.

India

FY 19 – Beginning of a New Era for P2P Lending in FinTech Sector (India Info Online), Rated: AAA

India is poised to be a USD 4-trillion economy by 2022, of which USD 1-trillion would be digital economy.

Digital economy was a focal point for this budget ’18 as government’s support with regard to lending MSME’s allocated 3794 crore in the form of capital support and interest subsidy by 2022 which will help develop the MSME sector. Micro, Small and Medium Enterprises (MSMEs) contribute about a third of India’s manufacturing output and provide employment to over 10 crore people. Despite this, the share of institutional lending in the total borrowings of MSMEs is less than 10%.

The prudential guidelines include maximum leverage ratio that can be maintained (2 times), minimum net owned funds (Rs2 crore), cap on aggregate exposure of lender to all borrowers (Rs.10 lakh), borrowers across all P2P (Rs10 lakh), exposure of single lender to borrower (Rs50,000) and maturity of loans (not exceed 36 months).

Signzy is helping banks solve customer authentication, onboarding problems with blockchain-based solution (YourStory), Rated: B

Signzy developed blockchain and AI-based solutions to digitally identify, verify, and authenticate customers. Its onboarding solution, Real KYC, has now been deployed by more than 45 large clients, including leading banks, NBFCs, mutual funds, P2P lending platforms, payment wallets, and so on.

Africa

Nigerian banks are using Facebook Messenger to onboard small businesses (Tearsheet), Rated: AAA

Mastercard is working with Facebook Messenger to bring a digital payments and banking experience to small businesses in Nigeria, in an effort to incentivize Nigerian merchants to close the mobile payments adoption gap and bring them onto the formal financial grid.

The payments giant, which has said it’s in the business of killing cash, is bringing this initiative to a country where 98 percent of the $301 billion in consumer-to-business payments is transacted using cash.

Authors:

George Popescu
Allen Taylor