July 15th 2016, Daily News Digest

July 15th 2016, Daily News Digest

News Comments United States Jefferies and Lending Club dipping toes in the securitization water to test bringing back to the markets the securitization that started the Lending Club Odyssey. In a context where SoFi and Marlette are getting a lot of attention and bond rates are falling, going to market with a scrubbed clean portfolio, […]

July 15th 2016, Daily News Digest

News Comments

United States

European Union

  • Lendix launches an ELTIF (a new brand of fund cross-border, non-bank structure the EU has created !) for  €50-75m.  Lendix has €2.4m of turnover, €240k of operating profit and employs 11 people.

United Kingdom

Africa

  • A must read. And yes, AFRICA ! Zidisha in 2009 , disbursed a first loan to a Masai nomad in a remote part of Kenya, over a day’s journey from any bank but that had access to the Internet and to the mobile phone money transfer service we use to send loan payments. Smartphones and the internet penetrate much faster virgin markets when they don’t have to fight with existing infrastructure to displace it. Our readers should look at how fast p2p took off in China. I expect that once p2p takes off in real developing countries it will grow even faster than it did in China, although with smaller markets and similar fraud risks. Many people also forget the invaluable GOODWILL the p2p lending industry benefited from when it was just p2p. Goodwill is worth billions of dollars in advertising.

India

 

United States

Jefferies, LendingClub Said to Eye Revival of Scuttled Bond Sale, (Bloomberg), Rated: AAA

Jefferies Group is again considering selling bonds backed by LendingClub Corp. consumer loans, people with knowledge of the matter said, after disclosure issues at the online lender scuttled an effort earlier this year.

Jefferies is having preliminary conversations with investors to gauge interest in the bonds, and may decide not to go ahead with a sale, the people said, asking not to be identified because they aren’t authorized to speak publicly. The firm hasn’t fixed a deal size, but the original offering was expected to be around $150 million, people with knowledge said in April.

Wall Street banks are looking to sell similar bonds tied to loans made by at least two other online lenders in the coming weeks as well, according to a presale report and a person with knowledge of the matter. The offerings are a sign that markets for riskier debt may be thawing as record low bond yields spur investors to hunt for higher returns, while some of the world’s biggest money managers warn that risks are building up across global markets.

Among the other lenders looking to tap the market is Social Finance Inc., one of the biggest online providers of student loan refinancings. It has hired Deutsche Bank AG to underwrite, and may begin marketing a $575 million securitization toward the end of this month, encouraged by strong interest expressed in a similar deal they issued in June, a person with knowledge of the plans said.

Online lender Marlette Funding has hired Goldman Sachs to underwrite a securitization of its own. It could start marketing the notes as early as this week, according to a presale report from Kroll Bond Rating Agency and public disclosures tied to the offering.

Buyers of securities backed by online consumer loans have included DoubleLine Capital, JPMorgan Chase & Co. and BlackRock Inc., according to data compiled by Bloomberg that track ownership disclosures of the securities.

Kabbage Launches Industry’s First Fully-Mobile Application Experience for Small Businesses, (Press Release), Rated: AAA

Kabbage, the financial services data and technology platform, today announced that it has launched a powerful new iOS app for iPhone® and iPad® that allows businesses to complete the entire application process in a few simple steps. The app features drivers’ license recognition, instant mobile check verification, and Apple’s Touch ID™ fingerprint authentication to deliver the best-in-class user experience and reduce the friction usually required to access business capital.

The company now drives $7 million per month in originations from mobile devices and nearly 64,000 monthly user interactions on the app.

Secondary market analysis, ( NSR Invest), Rated: AAA

What loans are available on the secondary market?
We analyzed the current listings on Folio between June 22-27, 2016.  The following are averages across the available listings:

Note Size: $35
Markup/Discount: +4.12%
Interest rate: 16.71%
Yield to Maturity: 15.39%
Loan Age: 11.17 months
Borrower FICO Score at Origination: 686
Days listed on Folio: 4
Remaining Payments: 39

83% of loans have never been late on payments
89% are current on payments
Even split between FICO scores trending up/down

Interestingly, while the average stated interest rate on Folio is 16.71%, the average is only 13.15% (non-weighted average rate) for the entire Lending Club index of loans. This indicates that investors who sell notes on the secondary market are generally listing notes with lower credit grades as compared to the index distribution of loans.

What about loans that are listed almost immediately after origination?
Loans that are listed within three months after origination (aka “fast flips,” because these notes are bought and quickly listed for sale) have a significantly higher markup compared to all loans listed. These fast flips have an average markup of 5.86%, while the entire sample is only 2.18% (only current loans included).

What dictates markup/discount of a loan on the secondary market?
From the data we analyzed, the greatest correlation with the markup/discount of a note is whether or not the borrower has ever made a late payment – about 40% of note pricing was explained by this metric alone. Other variables with positive correlation to the markup/discount are credit score trend, interest rate, and ask price (higher principal value is correlated with higher markup). A negative correlation was found with attributes such as Inquiries in the last six months, number of remaining payments, days since last payment, and outstanding principal.

Can’t Get a Loan for Your Business? I Don’t Believe it, (Fox Business), Rated: AAA

I don’t hear any complaints about getting financing. And there’s a reason for that. The financing environment for small businesses in 2016 is not just good: It’s great. In fact, it’s better than it was before the Great Recession.

Yes, venture capital and angel investing have both recently slowed.

For the established small businesses who reside in industrial parks and office complexes around the country and distribute pipes, manufacture film, mow lawns, fix roofs and serve meals – the financing environment is strong. When they want loans to grow their companies they have plenty of options today.

Don’t believe me? Then why, as Forbes recently reportedOpens a New Window., is Wells Fargo (which releases earnings this week along with other banking giants Citigroup and JP Morgan) calling on those small business applicants that it previously rejected for loans?

Big banks are lending more: According to monthly index prepared by Biz2CreditOpens a New Window., a marketplace for online lending, small business loan approval rates at big banks ($10 billion+ in assets) is now at an all-time high. Big banks this year are approving loans at a 6% higher rate than last, and the approval rating has increased seven of the last nine months. The most recentOpens a New Window. Private Capital Access (PCA) Index by Dun & Bradstreet and Pepperdine University Graziadio School of Business and Management found that small business access to capital has steadily risen over the past four years. In January, Citigroup said itOpens a New Window. lent more than $10 billion to U.S. small businesses in 2015, which was 120 percent more than it loaned in 2009. Wells Fargo has set a 5-year, $100 billion lending goal with a new loan programOpens a New Window.announced earlier this year. PNC Financial Services Group recently announced that it is extendingOpens a New Window. its popular consumer loan programs to now include small businesses.

Alternative lenders are filling in the gaps that big banks can’t serve. The online lending industry has exploded over the past few years, led by firms like CAN Capital, Kabbage, Lending Club and others. PayPal and Square are providing merchant advances for working capital to their customers who qualify based on their cash flow. And other big companies are jumping in: Office supply giant Staples has partnered with Lendio to offer lower cost loansOpens a New Window. to small businesses. American Express recently announcedOpens a New Window. a planned partnership with Lendio. Chase and alternative lender OnDeck Capital just formedOpens a New Window. an alliance. Kabbage just partneredOpens a New Window. with Scotiabank to provide loans to businesses in Canada and Mexico.

The Small Business Administration is booming. According to this reportOpens a New Window. from the Small Business Finance Institute, 2015 was a good year for bankers offering SBA backed financing, particularly the most common 7(a) loans. “SBA lending overall results, as measured by the agency’s monthly approval statistics, finished FY 2015 with better results in every category, but especially rich for 7(a) guaranteed lenders. The 7(a) program “shattered all previous Total SBA Loan Volume 2015 records for total loan volume, and even for the number of loans greater than $150,000. It’s 504 debenture volume also “grew for the first time since 2012, hopefully signaling that declining years are behind the program.”

Of course, the news is not all rosy. It never is. The PCA survey above also found that small businesses’ access to traditional bank loans, while increasing, still lags behind that of middle market companies, which means that many small businesses still rely on personal assets and personal credit for financing.

So please, don’t tell me that you can’t get a loan for your small business. You can. I understand if it may be too expensive because lenders believe that your business is a riskier investment. However, that’s your choice. Be grateful that you have one.

CreditexchangeTM Raises Seed Capital from Kuber FinancialTM, (Business Wire), Rated: A

Creditexchange, India’s first hybrid digital consumer loans platform and institutional marketplace, has announced that it has raised an undisclosed amount of funding from Kuber Financial as part of its $500,000 seed round.

Creditexchange is building a digital loan origination business which it intends to support with a marketplace for institutional investors through which they can co-invest in portfolios of loans originated by Creditexchange. The hybrid model allows Creditexchange to overcome the issues faced by existing Indian peer-to-peer and marketplace lending models, mainly with regard to turn-around-times and opaqueness around regulation.

Creditexchange had previously announced a strategic technology partnership at LendIt San Francisco 2016 with LendFoundry, a market-leading platform which is trusted by large online marketplace lenders in North America, to develop a best-in-class platform customized for the Indian market.

Kuber Financial is a global FinTech holding company that invests in analytics and technology driven financial services start-ups. It is founded by Timothy Li, an established figure in the US FinTech space where he has been an advisor to start-ups like Kabbage, Rocket Loans, Blinker etc. besides being the ex-CIO of Realty Mogul, ex-CRO of Quick Bridge Funding and ex-GM of consumer lending at Loan Depot. The advisory board of Kuber is made up of Jim Redmond (Advisor to Funding Circle), Eric Bunting (early investor of Kabbage and Funding Circle), Jason Raneses (Software Architect at Credit Karma) and Amy Wan (ex-General Counsel of Patch of Land).

How the Underwriting Process Works With Funding Circle, (Fundera), Rated: A

Soon after you hit the submit button to send your completed online application, you’ll get a call from an account manager. This personal contact will not only help guide you through the process but will serve as an intermediary between you and the underwriter, according to Account Manager Natalie Roberts.

The account manager is charged with the task of getting to know more about your company’s present needs as well as your growth plans for the future. They’ll discuss your loan application with your assigned underwriter, who’s hard at work reviewing your credit report and other financial data.

To that end, if the underwriter is missing information from you or would like to discuss something about your business in more detail, you might get a direct call from them. “It depends on how the process is going,” says Roberts.

If you do receive a phone call, it will usually last about 15 to 20 minutes, depending on the size and complexity of your business and loan application.

You should be prepared to tell your story and answer the following questions:

  • Why did you start your company?
  • What opportunities and challenges do you face?
  • How do you derive revenue?
  • How will this loan help your business grow?
  • How do you plan to repay the loan?

What Else Does the Underwriter Look For?

Collateral

This relates to any type of assets or property that might secure your loan.

Capital

Funding Circle will examine how much capital you’ve invested in your own business.

Capacity

In a nutshell, your capacity is your ability to pay back your loan.

Conditions

This relates to any situation that may affect your funding.

Character

Your character gives Funding Circle a general view of your trustworthiness and stability. For example, the underwriting team may want more information on how much experience you have in your industry and whether you have historically made payments on time. An underwriter might also take a look at your social media feeds and read any of your company’s reviews on sites like Yelp. Positive customer reviews and comments go a long way.

Red flags

Because Funding Circle is in the game to help fuel your growth, if you’re looking for a loan as a lifeline, this will be a red flag. Funding Circle will see this if your company has taken on a large amount of new debt in the past 9 months with no real reason to explain this.

July 28, 2016. This transaction represents the second securitization collateralized by unsecured consumer loans originated by Cross River Bank, under the Marlette Best Egg Platform and sold to Marlette Funding, LLC (“Marlette”) or its affiliate.

Founded in 2013 in Wilmington DE, Marlette operates an online marketplace lending platform, operating under the Best Egg brand (

European Union

Lendix launches first ever SME lending fund in ELTIF structure, (Alt Fi), Rated: AAA

Recent European Union regulation created the ELTIF, a new brand of fund available for retail and professional investors that is designed to stimulate cross-border, non-bank investment across the EU.

The Paris-based SME lending platform has launched the first European Long Term Investment fund (ELTIF) dedicated to SMEs. The French stock market regulator, the Autorité des Marchés Financiers (AMF), gave the go ahead to Lendix to take advantage of the ELTIF format following its launch. It is called the Lendix SME Loans fund II.

The fund will be between €50-75m in size and is currently backed by several larger institutional investors including CNP Assurances, ZencapAM (OFI Group) and the fund ‘Prêtons Ensemble’ managed by Eiffel Investment Group and sponsored by Aviva France and AG2R La Mondiale.

Lendix allows SMEs to borrow €30k to €1.5m over periods ranging from 3 to 84 months to finance their development and expansion. The average loan size is €250k.

Patrick de Nonneville, chief operating officer of Lendix says the average SME borrowing on Lendix has €2.4m of turnover, €240k of operating profit and employs 11 people.

“It’s under the radar of all existing debt funds, so it’s a new asset class for investors. Lendix strengthens its objective to serve both private investors selecting their loans directly on the marketplace and institutional investors investing through the fund,” he said.

United Kingdom

Funding Knight Review – The Safety of Peer-to-Peer Lending, (FX News Call), Rated: B

Comment: A better article on how Funding Knight failed would really be useful for the industry. If you would like to write it Lending Times would love publishing it.

In the wake of emerging peer-to-peer websites, many of those who were saving with Funding Knight had lost hope of getting back their money. Claims indicated that the company was running out of cash, causing its fall into administration. This caused panic to more than 900 savers, but nevertheless, a recent Funding Knight review has given them a new dawn given the rescue of the firm by GLI Finance, an investment firm.

Industry says August rate cut “inevitable”, (Financial Reporter), Rated: A

Following the news that the Bank of England’s MPC voted to maintain Bank Rate at 0.5%, the financial services industry says that the Committee has made its intention to cut rates in the near future clear, and widely expects a rate cut of 0.25% next month.

Africa

Zidisha: the first global peer-to-peer microlending platform, (Blasting News), Rated: A

Lenders anywhere in the world can visit our website and browse loan proposals written directly by disadvantaged entrepreneurs in developing countries. Each lender can lend as little as a dollar to help crowd-fund a loan project. We send the funds directly to the borrower, and as the borrower repays, we return the funds to lenders. Lenders can either withdraw the repayments, or use them to fund new loans. This is a high-impact way to do philanthropy because the funds keep being recycled into new loans; $50 put into a Zidisha loan fund generates on average $750 worth of loans in five years! Lenders can also dialogue directly with the borrowers.

In 2006, I was volunteering in Senegal, Africa, raising microloans for women in rural villages through Kiva.

When I returned to the United States, we registered a local microfinance organization and hired a loan officer to manage the loans and to liaise with Kiva on the villagers’ behalf. Though we tried to be frugal, this ended up being expensive due to administrative costs. To be sustainable, we would have to charge the women more than 30 percent interest, almost enough to leave them poorer than they were before taking the loans! This is the story of microfinance in general: the world’s poorest people are paying the highest interest rates – the global average is 35 percent, but rates of 80 percent – 100 percent are not uncommon.

Eliminating the intermediary bank allowed us to reduce the cost of each loan to just 5 percent. In 2009, we disbursed our first loan to a Masai nomad in a remote part of Kenya, over a day’s journey from any bank but that had access to the Internet and to the mobile phone money transfer service we use to send loan payments. We named the organization “Zidisha,” which is Swahili for “grow,” as in an investment, business or quality-like prosperity. We now have more than 55,000 members in 157 countries and have raised loans for more than 28,000 small businesses around the world.

We’d like to be able to fund everyone who applies and also expand to offerlending services in more developing countries. If we can help people improve their quality of life, then building Zidisha is time well spent.

India

Cibil builds 360 degree view of consumer; what you really must know, (The Financial Express), Rated: A

As lending by microfinance institutions (MFIs) was never higher, it is no surprise that the country’s premier credit information company (CIC), CIBIL, has decided to get into this segment as well. In an interaction with FE, its chief operating officer Harshala Chandorkar speaks about challenges involved and how it is a win-win situation for MFIs, banks and borrowers.

Is the profiling and the data that you have acquired for MFI borrowers any different from that of borrowers from banks? Does the fact that most of the MFI lending tends to happen to joint liability groups (JLGs) a challenge?

The data points remain the same. Most MFI borrowers have a voter ID and an Aadhaar number. The challenge, however, arises when it comes to other aspects. Names tend to be very common in small villages. Addresses are not as strong and differentiated as that in metros.

With the Reserve Bank of India (RBI) deciding to bring peer-to-peer (P2P) lending platforms under its purview, do you expect a change in the way individual’s credit appraisals are done, particularly given that such platforms are probably going to entirely bypass institutions like yours?

I think it will be beneficial for everyone if all the lending via P2P platforms is reported to credit information bureaus as it will help even P2P lenders to take informed decisions when they decide to lend to an individual. Secondly, the non availability of P2P credit information to banks might make borrowers over leveraged.

Author:

George Popescu

SME credit comparison, transparency and regulation – SMART box

SME credit comparison, transparency and regulation – SMART box

SMART box, an initiative started by OnDeck, CAN Capital, and Kabbage voluntarily, will provide small businesses with a standardized pricing comparison tool across all SME credit products. SMART box will allow businesses to easily compare different products from different credit providers  in a simple and organized way to enable an “all-in” pricing for the 20, […]

SME credit comparison, transparency and regulation – SMART box

SMART box, an initiative started by OnDeck, CAN Capital, and Kabbage voluntarily, will provide small businesses with a standardized pricing comparison tool across all SME credit products. SMART box will allow businesses to easily compare different products from different credit providers  in a simple and organized way to enable an “all-in” pricing for the 20, and growing, number of business credit products that already exist.

The need for self-regulation

The Treasury, SEC, FTC, OCC (office of the comptroller of currency), all have released white papers/reports on alternative lending in general and p2p lending in particular. The p2p market has caught everyone’s attention; from Silicon Valley VCs to Wall Street banks and ultimately the regulators.  The industry has been helping the deserving get credit when the banks just vacated the consumer credit and small business lending space due to various reasons. There are also reports of ponzi schemes, usurious interest rates, and fee abuse even for borrowers who are not able to pay on time.

Sooner or later, the SME lending industry would have to be regulated. The big question is whether the framework was going to come from inside the marketplace lending space or will it be imposed by the “Big Brother”. SMART box was launched by the Innovative Lending Platform Association, in partnership with Association for Enterprise Opportunity to exactly pre-empt this situation. SMART box is an initiative predicated on creating a transparent small business lending ecosystem.

Lendio joining the SMART box initiative

Lendio, the marketplace for small business loans, announced on Wednesday July 13th that it will join industry leaders as an early engagement participant in supporting the model small business lending disclosure called the SMART box. As a first step, Lendio is participating in a 90 day national engagement period, where along with other industry players they will discuss and try to find out how SMART box should work. The objective is to identify 2 or 3 metrics that will allow to compare effectively all products from term loans, to factoring, via merchant cash advance, inventory financing and all the remaining 20 or so SME credit product types.

Lendio is a free pure marketplace aggregator with about 75 institutional and fintech lenders on their platform. It is evident that Lendio would love to have transparency as it will be able to offer an industry standard comparison tool to enable prospective borrowers to compare the deals they receive from all the 75 platforms. The clearer the pricing the better the chance of a user comparing different loan options which benefits marketplace aggregators like Lendio.

The industry associations

The founders of Lendio feel there are 5 to 7 different associations having similar principles and goals in the SME lending space. By having multiple associations who all have similar targets with small differences, the resulting discord dilutes and fogs the overall target. Lending Times and Lendio feel that a merger of all similar associations, with a single goal of creating a self regulatory body for SME lenders, will have much more success and will drive a much larger industry adoption.

Similar self regulatory efforts were successful in the commodities trading space where the National Futures Association (NFA) is a self-regulatory body which regulates Future and Commodities Merchants ( FCMs), instead of the CFTC. In comparison, retail currency brokers were unable to organize themselves and as a result Congress forced Retail Foreign Exchange Dealers ( RFED) to be regulated by the NFA, a misfit which led to a reduction from 300 + RFEDs in 2008 down to 5 entities in Q4 2015.

Next steps

While consumers are familiar with annual percentage rate (APR), SME credit products are not all well represented by an APR. Many SME executives use other metrics to gage their repayment capability and cost of credit. In fact, most SMEs care more about cash-flow than APR.

The SMART box initiative is presently conducting surveys to identify the best possible metrics that will in the same time be simple, understandable and will cover the large SME credit product universe effectively. SMART box will consult  nonprofits, regulators, associations and other relevant stakeholders in the community. Lendio feels that there is no one single metric for small business lending that can be used on every credit product. The CEO of Lendio is excited to join Smart Box precisely because the initiative has the nuanced view that there might be a need to have two to three different metrics in order to be able to compare term loans with products like factoring or merchant cash advance.

Kabbage, OnDeck, CAN Capital, Lendio , Lending Tree

Kabbage, OnDeck, CAN Capital, Lendio, and Lending Tree are all part of the SMART Box initiative. To date there are about 20 participating members in this effort. Lendio is also inviting all their 75 partner lenders to join the effort. All lenders should be part of the decision-making process. This will ensure everyone’s buy in with the resulting tools and metrics and that everybody’s products are taken into account.

Benefits of SMART Box

The future effects of the initiative could have larger consequences than one could cursory expect. One school of thought believes that a transparency tool will benefit the cheapest product. However, cheap is not always good and never a good fit for everybody. Transparency will also demistify complicated products.

In all cases consumers will definitely benefit because of the enhanced disclosures and established industry best practices. Consumer satisfaction relaxes the regulator’s urge to force regulation to the space. In general, regulation is best setup by  the space’s own partipants with a good long term vision who understand that ethical business behavior is much more profitable than short term abuse. Perhaps SMART box will allow to drive the industry in this direction.

This will also help lower the cost of capital as investment funds, insurance companies etc would be more comfortable in putting their low-cost long-term money into fintech lending when there is no regulatory overhang on the sector.

Author:

George Popescu

 

 

 

 

 

July 14th 2016, Daily News Digest

July 14th 2016, Daily News Digest

News Comments Dear Readers, As you are probably aware Lending Times is organizing an event in New York on Monday August 15th titled “The future of Market Place Lending – Madden and beyond”. We would like to welcome our interested readers to participate in the panel. We have 1 seat available at this time. Please […]

July 14th 2016, Daily News Digest

News Comments

  • Dear Readers,
  • As you are probably aware Lending Times is organizing an event in New York on Monday August 15th titled “The future of Market Place Lending – Madden and beyond”. We would like to welcome our interested readers to participate in the panel. We have 1 seat available at this time. Please contact us if you are interested in participating in the panel.
  • Thank you.
  • George Popescu

United States

United Kingdom

European Union

China

New Zealand

  • Lending Crowd, the 4th licensed p2p lender in NZ,  is seeking up to $5 million from financial services sector investors to help the peer-to-peer (P2P) lender build scale and grow loan volumes.  To date, Croad said Lending Crowd has received $22 million worth of loan applications and written $2.5 million worth of loans with 60% of this total comprising personal and motor vehicle loans, and 40% business loans.

 

United States

Personal loans are cheap, but can I get one?, (Bankrate.com), Rated: AAA

In Bankrate’s national survey of interest rates from banks and thrifts for July 13, 2016, the rate on personal loans remained unchanged for the 4th consecutive week at 10.94%. This week’s average rate is down four-tenths of a percentage point from its 2016 high. A year ago, interest on the average personal loan was 11.12%.

There are 3 types of places where you can look for a personal loan:

  1. Banks
  2. Credit unions
  3. Finance companies (including online lenders)

As recently as a few years ago, banks dominated this space, accounting for 40% of all personal loan originations, according to the credit bureau TransUnion.

“Even though Prosper and Avant and Lending Club to a certain extent have pulled back, there are other lenders that are filling the void,” Tarkan says. “So I don’t know if there’s going to be this massive decline in availability of credit because the marketplace lending sector is contracting.”

John Ulzheimer, a credit expert who formerly worked for FICO and Equifax, says “every mainstream lender” now issues personal loans, and there are many good options, particularly for people with good credit.

To give some examples, Wells Fargo branches throughout the country offer personal loans. In Los Angeles, the nation’s second-largest bank offers personal loans for as little as 9.25%, while Houston-based Integrity Bank — with 3 southeast Texas branches — charges 9%, according to the Bankrate survey.

Global M&A, PE and VC activity declines in the first half of 2016 after reaching record highs last year, (Bureau Van Dijk), Rated: AAA

View the full report here.

Both the volume and value of global mergers and acquisitions dropped significantly over the opening half of 2016, according to information collected by Zephyr, the leading global M&A database. Over the first six months this year, only 43,352 deals were announced for a combined $1.94 trillion. This is down nearly 20% in volume and over 40% in value compared to the 53,287 deals worth $3.27 trillion in the last half of 2015, and 52,637 deals worth $2.94 trillion in the first half of 2016.

The one exception was the Middle East and North Africa, where value climbed 23% to $15.7 billion over the six-month span, despite a small dip in volume. All other regions declined over the same time frame, with the steepest drop reserved for Central and Eastern Europe, which slipped 52% from $88.45 billion in H2 2015 to $42.58 billion this year. The top-performing countries by value for H1 2016 were the US, China, the UK, Switzerland, and Canada.

The Zephyr database also showed both the volume and value of global private equity and venture capital investment followed the same pattern as M&A in H1 2016, declining in the preceding six months and year-on-year. In all, there totaled 2,651 deals worth a combined $196 billion during H1 2016, a 20% decline in volume and 47% fall in value from the final six months of 2015.

Congressional Committee Reviews Marketplace Lending, (Crowdfund Insider), Rated: AAA

Comment: a more detailed article on the hearing from July 12th, 2 days ago.

The meeting saw the participation of several industry executives including representatives from Prosper, CAN Capital, the American Bankers Association, the law firm of O’Melveny & Myer and the National Community Reinvestment Coalition. The meeting was timely as multiple regulatory agencies are moving towards applying additional regulations on online lenders – an act that may place financial innovation at risk.

The “key takeaway” offered by the Committee was that online lending may deliver access to credit to underserved or underbanked communities. For both consumers and SMEs alike. Of course, advancement by online lenders may put traditional banks under additional pressure – something the ABA representative expressed by saying regulation should be based Rob Nichols ABAon activities – in other words, banks want similar rules to apply to online lenders.

Parris Sanz from CAN Capital struggled to explain away their avoidance of using an APR and what approximately CAN Capital was charging borrowers (Ms. Levi clarified it as 36% to 60%).

A FINRA survey of US consumer financial capability, (FINRA), Rated: AAA

The US household financial picture is improving.

Financial health

  • 18% spend more than they household income, 38% spend all their household income. ( in 2009 20% spent more than their household income)
  • 21% of households have medical debt vs 26% in 2012
  • 50% of households have no rainy-day fund , also a diminishing %
  • 26% of households have used non-bank borrowing vs 28% in 2012
  • 32% of households only pay the minimum payments on their credit cards vs 40$ in 2009
  • 9% are underwater in their home equity vs 14% in 2012

Literacy

Study participants were asked five questions covering aspects of economics and finance encountered in everyday life, such as compound interest, inflation, principles relating to risk and diversification, the relationship between bond prices and interest rates, and the impact that a shorter term can have on total interest payments over the life of a mortgage.

63% of individuals got 3 of fewer basic questions correct in 2015 vs 58% in 2009

Comparison

Most Americans do not compare offers or collect information from more than one company when shopping for credit cards. This practice suggests a gap in applying financial decision-making skills to real life situations.

58% of Americans do NOT compare credit card offers before choosing a credit card to use.

 Lendio Announces Support for SMART Box Initiative Focused on Enhancing Online Lending Disclosures, (Press Release), Rated: A

Lendio (www.lendio.com), a marketplace for small business loans, announced today that it will join industry leaders as an early engagement participant in supporting the model small business lending disclosure called the SMART (Straightforward Metrics Around Rate and Total cost) Box, developed by members of the Innovative Lending Platform Association (ILPA).

The SMART Box is a voluntary initiative to promote transparency through standardized pricing comparison tools and explanations, including both various total dollar cost and annual percentage rate (APR) metrics to further empower a small business to assess and compare financing options.

JPMorgan had a blowout quarter in fixed income, and it’s big news for Wall Street, (Business Insider), Rated: A

JPM had a particularly strong quarter was fixed income, currencies, and commodities, or FICC, trading, which produced revenues of $3.96 billion — up 385% from the same quarter last year. Analysts had forecast FICC revenues of $3.57 billion, according to Bloomberg estimates. Those are the highest quarterly FICC revenues for the firm since Q1 2015 ($4.1 billion). You’d have to go back to Q1 2013 to find significantly better results ($4.8 billion).

Many firms have been cutting FICC headcount, including Deutsche Bank, Credit Suisse, Goldman Sachs, and Morgan Stanley, which cut 25% of the division last year.

“We’re investing in it,” CEO Jamie Dimon said at the bank’s investor day in February. “We’re investing in it more on the technology side.”

Now the question is whether JPMorgan was the sole firm to smash expectations or whether we’ll see comparable results across the Street in the coming days.

Jefferies in June reported trading — and fixed income — revenues that were better than normal but not by much. Goldman Sachs has previously laid out a bull case for fixed income; we’ll have a window into its FICC business when that firm reports earnings on Tuesday.

OnDeck Announces Date Of Second Quarter 2016 Earnings Conference Call, (Yahoo Finance), Rated: B

.0.0.1.2.0.1.0.0.0.0.0.0.$SideTop-0-HeadComponentTitle-Proxy.$SideTop-0-HeadComponentTitle.0">OnDeck Announces Date Of Second Quarter 2016 Earnings Conference Call, (Yahoo Finance), Rated: B

OnDeck will report financial results for the second quarter ended June 30, 2016, on Monday, August 8, 2016, after the market close.

United Kingdom

How are the alternative finance industry and the .6 trillion wealth management market approaching each other?, (City A.M.), Rated: AAA

If you use an independent financial adviser or wealth manager, they’ve probably never mentioned P2P lending.

This might seem strange: there’s been a lot of talk of how the peer-to-peer industry is “moving mainstream”, and volumes reflect that. In 2015, the online alternative finance industry in the UK grew to £3.2bn – an 84 per cent increase from 2014 – and alternative finance lending accounted for around 14 per cent of new loans to small firms.

And at the same time, institutional money has flowed readily into the sector. In the last six months, according to AltFi Data, it accounted for 40 per cent of involvement in the UK market – from almost nothing prior to 2014. But most of this money comes from specialist funds, and institutional money is notoriously fickle.

Financial advisers, however, still seem reticent. “They have always been very interested, but what’s needed is conversations. When we get them in a room and speak to them – show them our processes and due diligence – they become more positive on the space. That can give them the confidence to promote P2P lending to consumers,” says James Meekings, co-founder of Funding Circle.

Most advisers will say that, while they’re not against P2P in principle – often far from it – they want to see the sector go through a cycle before seriously considering it. As wealth management veteran John Spiers says (see below), while Zopa was around during the crisis, other major players weren’t – and 2007 and 2009 were unusual anyway because the level of bankruptcies was so low, owing to interest rates being slashed so fast.

As Spiers also points out, plenty of IFAs have been burnt in the past. Now, they have to demonstrate that they’ve done a certain amount of due diligence on each product they’re recommending and, as has always been the case, they want a fee for those recommendations. As one industry analyst bluntly puts it: “if the IFA hasn’t got a product to sell, he’s not going to recommend P2P. It comes down to whether something has a metric next to it that he can understand, then he can sell it.”

For advisers “funds are the way forward,” says Meekings. They can buy stocks, shares, and funds and manage money on behalf of clients, and their existing tools mean they can buy a fund today. “It gives them diversification and global exposure – which is important, because diversifying across platforms [which can focus on just one area, like consumer credit], rather than assets, won’t necessarily do that,” he adds.

“The industry is working to create a scoring system for returns. This should be a function of the return and the shape, i.e. volatility, of that return. If advisers can study lending performance, based on meaningful and detailed data, they can begin to perform satisfactory due diligence,” says Rupert Taylor, co-founder of AltFi Data.

The Innovative Finance Isa is already giving retail investors the opportunity to hold P2P investments in the recognizable wrapper. While many investors wait for the largest platforms to get approval from the Financial Conduct Authority (currently, only three smaller platforms have been given the okay), it has enticed big players like Hargreaves Lansdown into the ring. And it’s worth noting that investors can, even without the dedicated vehicle, populate a stocks and shares Isa or a Sipp with P2P investments.

Moreover, alternative investments heavyweight Octopus Investments launched P2P product Octopus Choice in April, enabling customers to target higher interest rates than deposit accounts, but with less risk than stocks and shares.

Head of Octopus Choice Richard Wazz says that the reception from the hundreds of financial advisers introduced to the product has been “incredibly positive. Advisers are proving themselves to be not only comfortable but excited to recommend it to large numbers of their clients – seeing it as a new and welcome way of diversifying their portfolios.”

P2P body chief denies FCA delays damaged industry, (FT Adviser), Rated: A

By the time the new Isa had launched in April, just eight out of 86 peer-to-peer lending platforms had been granted the necessary permissions to offer the savings vehicle, according to the industry body. Kevin Caley, managing director of ThinCats, said he does not expect approval to happen before the end of August, adding he guessed it “may well take quite a bit longer”.

But speaking to FTAdviser, the P2P Finance Association’s chair Christine Farnish said the delays were not such a big deal because investors’ money can be put into the Isa at any point.

“It’s just a question of a small amount of time in the overall scheme of things,” she said, adding Isas are designed to be a long-term savings product.

The delays were partly a result of the FCA being made responsible for 30,000 consumer credit firms in 2014, and Ms. Farnish said the peer-to-peer sector got “put to the back of the queue”.

AngelsDen & Funding Circle’s Alum Verto Homes Launches £1M Funding Raise on Crowdcube, (Crowdfund Insider), Rated: A

Founded in 2010 by entrepreneurs, Tom Carr and Richard Pearce, Verto Homes stated it designs, builds, and sells intelligent, sustainable homes that produce and store clean energy from the sun. The company noted that none of their homes burn fossil fuels for lighting or heat and each is featured automation technology and  is controlled by a smartphone app, called Vesta, which was launched on iTunes in 2015.  The homes are available starting at £190,000.

Verto Homes, a London-based builder that creates sustainable homes, launched an equity crowdfunding campaign on Crowdcube to raise £1 million. Within just a few hours, the initiative successfully secured 41% of its targetted goal (£415,000) from 14 investors.

European Union

Leading German Crowdfunding Platform, P2P Lender Auxmoney Powers On, (Crowdfund Insider), Rated: AAA

Germany’s leading lending marketplace AuxMoney reports continued strong growth. Loan volume increased from €39.3 million in the first half of last year to €79.5 million in the first half of 2016 ‒ an increase of more than 100%.

Founded in 2007, by Raffael Johnen, Philip Kamp, and Philipp Kriependorf, Auxmoney is Germany’s largest crowdfunding platform and Continental Europe’s second largest P2P lender after French Younited Credit – with whom it is now competing neck and neck. According to research institute GfK, Auxmoney is also the most famous FinTech firm in Germany, which does not come as a surprise given its 1.5 million registered members.

In 2015, Auxmoney’s growth was fueled by a spectacular commitment by Dutch insurance company Aegon, as an Institutional Investor, to lend €150 million through the platform. As for its own capital needs, Auxmoney is backed by top venture-capital firms such as Seven Ventures, Index Ventures, Union Square, Foundation Capital and Partech.

Since its beginnings, Auxmoney has originated €268 million worth of loans, out of which nearly two-thirds were originated in the past 18 months alone. Both the number and the size of loans are increasing: the number of loans originated increased by 69% from 6,337 in the first half of 2015 to 10,688 loans in the first half of 2016; at the same time the average loan size increased from €6,196 to €7,439, a 20% increase.

China

264 Peer to Peer Lenders Shut Down in China During First Half of 2016, (Crowdfund Insider), Rated: A

During the first six months of 2016, at least 264 peer to peer lending platforms were shut down in China. This is a direct reaction to the tightening grip of Chinese regulators. The report published in ECNS, states that even tougher oversight is in store for the P2P lending industry as authorities become more vigilant in uncovering fraud and shutting down platforms that do not qualify under Chinese rules.

China published draft rules in 2015 but like many other government initiatives it was not completely clear as to how enforcement would proceed. There have been multiple high-profile P2P platforms that have collapsed. The best known is Ezubao that was described as a Ponzi-scheme months before regulators showed up to shutter the doors. Ezubao apparently fleeced investors of over $7 billion – an incredible amount. Allegedly over 95% of the projects listed in Ezubao were faked.

As of June, there were an estimated 2,349 P2P platforms in operation in China. Chinese is the largest P2P market in the world.

New Zealand

Peer-to-peer lender Lending Crowd seeking capital to help it grow, (Interest), Rated: A

Lending Crowd is seeking up to $5 million from financial services sector investors to help the peer-to-peer (P2P) lender build scale and grow loan volumes. Co-founder Wayne Croad, who majority owns Lending Crowd’s major shareholder Finance Direct, told interest.co.nz the P2P lender has hired Greg Anderson of Northington Partners to raise up to $5 million dollars through a capital raise.

Funds raised will be used to “assist with growing loan volume by extending marketing and product development initiatives.”

Lending Crowd became New Zealand’s fourth licensed P2P lender last year, receiving its license from the Financial Markets Authority. At the time Croad said Lending Crowd would facilitate secured loans of between $2,000 and $200,000 through its website for small and medium sized businesses, vehicles and personal loans for three and five-year terms.

To date, Croad said Lending Crowd has received $22 million worth of loan applications and written $2.5 million worth of loans with 60% of this total comprising personal and motor vehicle loans, and 40% business loans. He said registered non-bank deposit taker Finance Direct has participated in $900,000 of the loans on the Lending Crowd platform on equal terms with retail investors. There are 220 registered retail investors, and 165 active investors. In terms of loan security, Croad said 30% of loans are secured by cars plus a property, 50% are secured by vehicles, and 20% are secured by property only.

“The average weighted return for investors to date has been 12.50% after fees,” Croad said.

Lending Crowd has just released its first financial statements. They show fee and commission income of $18,601 up to March 31, and operating expenses of $39,748, leaving a loss of $17,450.

Author:

George Popescu

Turn a debit card into a credit card in 180 seconds, no FICO needed

Turn a debit card into a credit card in 180 seconds, no FICO needed

In 180 seconds on your phone Float offers a mobile-first financial service that enables consumers instant access to a line of credit that they can use with their existing debit card. Float acts as an overdraft killer.  The start-up services the 63% of millennials who are living without a credit card with a solution that is simple, […]

Turn a debit card into a credit card in 180 seconds, no FICO needed

In 180 seconds on your phone Float offers a mobile-first financial service that enables consumers instant access to a line of credit that they can use with their existing debit card. Float acts as an overdraft killer.  The start-up services the 63% of millennials who are living without a credit card with a solution that is simple, accessible, and consumer-friendly.

$17.5 billion in overdraft fees

Most of us probably know what it feels like to overdraw a checking account. There’s a particular sinking feeling everyone gets when they see that minus sign in front of their available balance. According to research reports, every year $17.5 billion is paid as overdraft fees by Americans.  Float wants to empower people to employ alternative solutions as compared to the normally usurious overdraft facilities of their bank. Their mobile-first consumer financial technology gives users an instant and easy way to access a line of credit without a traditional credit report.

Company history

Float is aiming to revolutionize the credit experience for the modern, mobile consumer. It was established in September 2015 with their head office in Los Angeles, California. They were able to raise seed capital of over $1.5 million from 4 investors (500 startups, Camp One ventures, Funders Club and Plug and Play) and will be raising another $1.5 million in the next 3 months. Total seed money will be in the range of $3-3.5 million. Andy Burke is the CTO of the company. Kevin Bass is the President and Max Klein is the CEO of the company (also the founder of Cachet LA -website on premium lifestyle in Los Angeles). Presently, they have over 15 employees in their company. According to Max, Float was born with a simple mission of creating better experiences between consumers and their finances.

How it works

Float’s vision is to change the way users’ access, manage and spend money on a daily basis and simultaneously help them build a strong credit file. Data security is taken very seriously, they protect sensitive information with full encryption and safeguards that meet industry best practices. This feature is necessary, ensuring the customer feels secure while using Float and linking it to their bank account. Its target market is in the age of 18-30 and it is lending them $50 to $1000 on an average.

Float is committed with a simple and straightforward process of belief in clear, upfront pricing.

–     Charge 5% for transfers to your bank account for $50 or more. For transfers under $50, they charge $2.50 flat.

–    Each billing cycle is about 30 days, just like a typical credit card.

– If the dues are not cleared within the cycle, the user will be charged a $20 penalty.

–    There is an auto pay option to avoid late fees.

–    No other fees, interest, or APR to access your line of credit

The company claims that the process from downloading the Float app to applying and being able to spend the money takes only 180 seconds. The convenience of getting credit in such a short time period can disrupt not only the overdraft segment of the banks but also the payday loan industry. You have to be 18 years or older and must have a bank account with Float associated banks.  Within seconds of connecting a bank account, a line of credit is offered between $50 and $1000 and is available for immediate use with any existing debit card. Since their target market is millennials, they use social media as the main channel for advertising. They create huge awareness at the college campuses with an exclusive brand ambassador program targeting influential and affluent students, enabling them with the tools to help promote Float among their friends.

No-FICO

Float believes in eliminating fear and hesitation out of the on-boarding process, that’s why they don’t use traditional FICO scores before giving credit. Instead, they do cash flow analysis when the user connects their current bank account, and they layer alternative list scores from several other providers to produce an internal score for a personalized line of credit payable every 30 days. In case, someone does not have a debit or credit card, funds will arrive in 1-3 days via an ACH transfer in the connected bank account. There is an option to pay back the loan early as well before every billing cycle and it has to be paid in full to avoid any late fees. There is an auto pay option as well, to ensure the borrower never misses a payment or incurs a late fee. Another feature being added is a set up for direct transfer, which means whenever the balance goes below $50, Float will send $100, and thus ensuring there is no overdraft and the exorbitant overdraft fees. Float’s credit product is currently in early access mode and will be available to select customers from December of this year.

Next steps

Float is launching in Utah the next month and plans to initially lend from its own balance sheet. After the proof of concept, it plans to tie-up with third party providers for the capital needs of it users.  It also secured second place out of 850 applicants in Plug and Play, a 12-week accelerator program that partners with Citi Ventures, Deutsche Bank, Capital One, Intuit, JCB, and USAA to help bring to market the next disruptive financial solution for the growing worldwide economy. Recognition from Plug and Play, a pioneer in fintech sector is particularly noteworthy.

The ability to get add-on credit within seconds will lead to a change in how consumers interact with their finances especially overdraft. The key success factor for the company will be analyzing which user to lend and how to manage prospective delinquents.

Author: Heena Dhir and George Popescu

George Popescu

 

July 13th 2016, Daily News Digest

July 13th 2016, Daily News Digest

News Comments United States An opinionated article on marketplace lending with a few good points and many not-so-well-informed points. A good pretext for a frank discussion about marketplace lending. Overall both Republican and Democrat congressman seem to be supporting marketplace lenders. A few interesting quotes from yesterday’s hearing on The Hill in Washington. While Lending […]

July 13th 2016, Daily News Digest

News Comments

United States

United Kingdom

China

New Zealand

United States

There Are No Universal Truths in Marketplace Lending, (American Banker), Rated: AAA

Comment: while I agree that there are different alt lending markets I tend to disagree with almost all the negative parts the author is writing in this article.

Among other things, the new crop of digital lenders believe: Faster is better for consumers and loan buyers; everything should be automated; millennials are one homogenous group who need to be coddled with an unbelievable customer experience; credit risk is to be avoided; they are technology companies first and lenders second; and that they are marketplaces, while their borrowers are members.

However, I believe the opposite is true. Each lending product and service is unique and in its own universe; thus, attempting to impose the fundamental laws of a particular lending universe on another will lead to an eventual collapse of a particular firm or industry segment.

For instance, Lending Club and Prosper may not have been possible if banks weren’t pulling out of unsecured consumer lending, stockpiling liquidity and pulling back on credit card offers, among other factors.

For example, given the “success” of automating the origination and underwriting of consumer loans, other lending products are trying to automate their entire processes from A to Z, with varying levels of success. Small business loans seem to be benefitting from such automation, real estate not so much. [ Comment: I don’t understand why the author claims that real estate is not a success from automation. I entirely disagree. ]

What is happening now is that everybody is clustering around the same ideas — automated, instant, and convenient. These are lofty goals. The last decade’s subprime residential loans could arguably be described as having these same attributes of automated (i.e., everybody was approved), instant and convenient — and we are still paying the price. [Comment: I believe that the author is mixing here blind fraud and automated systems which have many more verification points than any paper process was ever able to. Once again, I really disagree with the author here.]

But in consumer lending, this has brought about loan stacking, less-than-optimal verification of loan customer data, the onslaught of a regulatory juggernaut, and in many cases, lending products that are not sustainable at a profit. [Comment: this is where the author is perhaps right. Too much automation and speed may facilitate stacking which was very difficult in 1 month-long paper process in conjunction with 1-month-delayed credit bureau reporting frequency]

So, how to survive? New lending firms will survive by finding the faults and vulnerabilities of the existing firms, incorporating the solutions into their own business models, and exploiting them for maximum leverage. Combine this with incorporating what is working with incumbent firms and you have the classic mutation, which ensures the survival of the nimblest. There are firms and there are models. Keep this distinction in mind — go long the model and short the firm.

Emerging online lenders ask lawmakers for time, patience, (The Hill), Rated: AAA

Marketplace lenders — companies that specialize in small-scale commercial and consumer loans that aim to cut costs through algorithm-powered underwriting — say they have the potential to expand credit access to millions of underserved Americans. Using algorithms to reduce the time and labor it takes to underwrite a loan, marketplace lenders aim to provide cheaper loans at a smaller cost and principal. Some firms loan money from investors, while others partner with banks.

“At the end of the day, all of America benefits when our financial system ensures that access to responsible credit is safe,” said Rep. William Lacy Clay (D-Mo.), top Democrat on the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.

“Marketplace lending shows signs of tremendous growth potential and identifiable challenges,” said Rep. Randy Neugebauer (R-Texas), the subpanel’s chairman. “I hope members walk away with a better understanding of the market, its participants, and where we are headed.”

Representatives of marketplace lenders touted their services and warned lawmakers that further regulation could stifle and stall FinTech companies that already struggle to keep up with financial rules created for large banks.

“This is one of the fastest growing industries in the state of Georgia and right now we have 71 million unbanked or underbanked individuals in our system,” said Scott. “We want to make sure that they have access to credit … and that we move with caution.”

Nichols called community banking “a relationship business that is not replicable by technology,” as those smaller banks shutter and struggle to handle up with post-recession financial regulation.

“While banks are driving technological innovation, they remain a visible presence, supporting their local communities as they always have through community outreach and countless hours of volunteering,” said Nichols, “something that cannot happen through a keystroke or algorithm.

Is Desperate American Express Following In Lending Club’s Footsteps?, (Seeking Alpha), Rated: AAA

American Express Co. wants a piece of the action pioneered by Lending Club and OnDeck Capital. The grand old name in American credit cards has plans to launch its own online lending platform for close to subprime loans.

Working Capital Terms will offer loans of 1,000 to $75,000 to small businesses with 90 day terms, Bloomberg reported. AmEx hopes to profit from interest rates of .5% to 1.5%.

The hope is businesses will be interested in the loans, because American Express will put payment directly into vendor’s accounts. The idea is that a small contractor who cannot pay his lumber bill will use Working Capital Terms to pay off Lowe’s ; then pay AmEx back from future profits.

There are two figures in Lending Club’s books that show why American Express is so interested in this business. Those numbers are cash from financing and revenue.

Lending Club reported making $1.91 billion in cash from financing on March 31, 2016. That number was down from $2.195 billion a year earlier, but it is still pretty impressive for a company that reported a market cap of $1.591 billion on July 5, 2016.

The other was revenue; Lending Club’s revenues grew by $71.22 million or a little over 14% during first quarter 2016. Between March 2015 and March 2016, Lending’s Club’s revenues almost doubled increasing from $253.74 million to $501.15 million.

It looks as if Lending Club could have a growing business that generates a lot of cash from financing. Yet it also looks as if Lending Club lacks the resources to make the business profitable.

These numbers show us that online lending is a fast growing business, which is probably why American Express is so interested in it. Amex’s revenues have fallen over the past year from $33.97 billion in March 2015 to $32.96 billion in March 2016.

More importantly, Amex will not take that many risks by launching a lending platform. American Express reported cash and short-term investments of $25.04 billion, a net income of $5.064 billion, $11.32 billion in cash from operations and a free cash flow of $2.167 billion.

This of course raises an intriguing question: will American Express buy Square, OnDeck or Lending Club? All three companies are pretty cheap right now, OnDeck had a market cap of $346.51 million and stock price of $4.9 on July 5, 2016, Lending Club offered a market cap of $1.591 billion and a stock price of $4.17 on the same day and Square had a market cap of $2.886 billion and a share price of $8.935 billion.

Expect to see consolidation in this sphere, as giants like Amex push out the small fry, and the smaller operators either go under or get gobbled up by banks or private equity funds. Amex proves that online lending is here to stay but Lending Club, OnDeck and possibly Square are not.

Fujitsu and Cloud Lending Solutions to Deliver New Fintech Solutions to Financial Institutions in Japan and Asia Pacific, ( Clould Lending), Rated: A

Fujitsu Limited and Cloud Lending Solutions today announced that they have signed a Memorandum of Understanding (MoU) agreeing to a strategic partnership to provide banks and other financial services organizations around the world the cloud-based, end-to-end lending and leasing platform—a Fintech solution—developed by Cloud Lending Solutions.

This solution is a cutting-edge cloud service that digitizes origination, underwriting, servicing, and collections, creating a single system of record for lending and leasing operations. The offerings are expected to help traditional lenders upgrade to new solutions leveraging the latest cloud technology.

Fujitsu is the leading Japanese information and communication technology (ICT) company, offering a full range of technology products, solutions, and services. Approximately 156,000 Fujitsu people support customers in more than 100 countries. We use our experience and the power of ICT to shape the future of society with our customers.

RealtyShares funded + million in real estate deals in Q2 2016, (Realty Shares), Rated: A

This puts Realty Shares on track to originate $140 million in real estate loans in 2016.

Bitcoin-Based P2P Lending App CredibleFriends Raises 40% Of 0,000 Crowdfunding Goal, (Crypto Coins News), Rated: A

CredibleFriends, a P2P lending app that lets people lend bitcoin to friends, has raised $100,006 of its $250,000 fundraising goal on BnkToTheFuture, surpassing the $100,000 needed by July 15 to ensure the funds pledged will be deposited. The app allows users to extend credit to friends and earn interest in the process.

Ben Solomon Joins Bond Street as Head of Capital Markets, (Crowdfund Insider), Rated: B

Online SME lending platform Bond Street has announced today that it has hired Ben Solomon to lead their capital market strategy. Solomon is the former Global Head of Securitized Products Trading at Deutsche Bank.

David Haber, CEO and co-founder of Bond Street, called Solomon’s experience “invaluable” as they scale their platform and deliver superior financial products to their customers.

Solomon joins Bond Street’s management team, which includes Chief Credit Officer Jerry Weiss, Citibank’s former head of risk for small business lending.

Lending Club’s Terrible, Horrible, No Good, Very Bad Year Continues With Borrower Credit Concerns, (Benzinga), Rated: A

Comment: this article is on the tail of yesterday’s news on the Lending Club’s charge off discussion. So just a reminder for our readers.

LendingClub’s investors suffered another setback after the Wall Street Journal reported Monday evening that the company’s woes are likely to continue. The publication reported the company’s charge-off rates have risen as much as 38 percent since 2013.

By comparison, the percentage of loans that banks have written off on their credit-card books in 2015 was 3.16 percent — the lowest levels since 1980.

United Kingdom

Funding Circle Hires Nomura Man Who Designed Toxic-Asset Program, (Bloomberg), Rated: A

Funding Circle Ltd., Britain’s biggest peer-to-peer lending startup, hired the architect of the nation’s toxic-asset program and former chief of Nomura Holdings Inc.’s European division to be its chief financial officer.

Bennett, in an interview, said his decision to join Funding Circle was informed by his experience designing and running the U.K.’s Asset Protection Scheme, which insured the riskiest assets of Royal Bank of Scotland Group Plc after the financial crisis led to the bank’s bailout.

Bennett joins several other financial veterans that have joined Funding Circle. Last October, it hired Jerome Le Luel, chief risk officer at Barclays Plc’s credit-card unit, to oversee risk management. Bob Steel, the CEO of Perella Weinberg Partners LP and former vice-chairman of Goldman Sachs Group Inc., sits on the startup’s board of directors.

The hire is a sign that lending startups in the U.K. are still able to lure talent amid worries that Britain’s vote to exit the European Union will spur another recession and hurt demand for credit. Bennett is also the latest in a line of experienced bankers tapped as fintech startups mature, seeking to avoid pitfalls like the governance scandal that saw the ouster of the founder of LendingClub Corp., the San Francisco-based pioneer of peer-to-peer lending.

Funding Circle Decides Against Issuing C Shares In Upcoming Placing,(London South East), Rated: A

Funding Circle SME Income Fund Ltd Tuesday said it plans to raise between GBP10.0 to GBP15.0 million through a placing that will be priced at a premium to current net asset value, but structured differently to what it had originally intended.

Funding Circle said it has invested over 90% of the net proceeds from its initial public offering, meaning it requires further funds, and the fund said it has the right to increase the size of the placing if investor demand justifies it.

The new shares will be priced at a 2.0% premium to the net asset value that will be published by Funding Circle this Thursday. The placing will close next Tuesday and the results confirmed on the Wednesday before the shares are admitted to trading on July 25.

At the end of the first half to the end of March, the cum-income net asset value stood at 98.85 pence and the ex income NAV was 98.0 pence.

On Tuesday afternoon, Funding Circle shares were trading up 1.5% to 98.75 pence per share.

Goldman Sachs International is acting as the sponsor, global co-ordinator and bookrunner and Numis is acting as the co-bookrunner.

Notably, Funding Circle said it is raising the funds under the share issuance programme which was established by the fund as a flexible mechanism to issue ordinary shares or C shares to satisfy market demand.

The placing unveiled Tuesday will only involve ordinary shares.

Funding Circle said back in June that it would be conducting the capital raising, but said this would be “most likely in the form of a C share issue”, claiming that there was a benefit to opting for those rather than ordinary shares.

“As is usual in C share offerings, any funds raised will be deployed in a separate pool until the earlier of nine months or at such time as the funds have 90% invested, at which time they would be converted to ordinary shares, thus avoiding the performance drag on the ordinary shares that would otherwise derive from holding a substantial cash position pending investment,” it said in June.

Financial Reporter launches new Factsheet with LendInvest, (Financial Reporter), Rated: B

Designed in partnership with some of the biggest names in the industry, the latest Factsheet focuses on development finance on office conversions and is brought to you by LendInvest, the specialist short-term finance provider.

The monthly Factsheets will cover a wide range of topics, including specialist lending, interest-only mortgages, equity release, and buy-to let.
Focusing on complicated scenarios and unique cases, the Factsheets will help brokers utilise products they already sell, as well exploring new opportunities to help enhance their proposition.

China

Internet Finance Executives Go to Jail In Search of Financial Advice, (Caixin), Rated: AAA

A government-backed industry body for Internet finance companies gave a new meaning to the term “a captive audience,” when it took 50 high-level executives to visit a local prison to meet white-collar criminals on June 12.

The group, mostly made up of decision makers from leading peer-to-peer lending websites, traveled to Shanghai’s Qingpu Prison as part of a “cautionary education” initiative, the Association of Shanghai Internet Financial Industry (ASIFI) said.

Among the group who visited the prison were representatives of some of China’s best-known P2P lending websites, such as PPDai, Dianrong.com, and Quark Finance, a source close to ASIFI told Caixin.

From October 2014, courts have announced verdicts on cases linked to 13 P2P service providers.

In April, Yang Yuzhu, head of the central government’s inter-ministerial cooperation office on fighting illegal fundraising, said that there was a 71 percent year-on-year increase in the number of illegal fundraising cases in 2015, with 57 percent more investments involved. He did not say how many cases there have been.

Based on Caixin’s calculations, that means police opened almost 6,000 cases related to illegal fundraising last year and nearly 250 billion yuan was at stake.

New Zealand

Eat My Lunch hits crowdlending campaign goal, (Scoop Independent News), Rated: AAA

New Zealand’s first transparent crowdlending campaign, run by Eat My Lunch on PledgeMe, met its minimum goal of $500,000 today. Eat My Lunch is a social enterprise that helps feed Kiwi kids by running a buy one give one model. For every commercial lunch that is bought, one is given to a child in need.

Eat My Lunch launched the first crowdlending campaign on PledgeMe.Lend in June, offering ‘Lunch Bonds’ to investors to grow their company.

The minimum investment in the ‘Lunch Bonds’ is $1,000 and lenders will be able to choose between two combinations of interest rate and giving. They will be able to choose 6% interest, plus a lunch given to a child each month per $1,000 lent; or 0% interest and two monthly lunches given per $1,000 lent.

In the last year, over 200,000 lunches have been gifted to children in need, often more than 1,000 a day across 33 schools in Auckland and Hamilton. In June, Eat My Lunch had its first birthday and launched their crowdlending campaign.

Author:

George Popescu

A marketplace lender platform built as an insurance company

A marketplace lender platform built as an insurance company

ReliaMax provides an end-to-end turnkey package of origination, servicing, insurance, and capital markets support on private student loans. ReliaMax has insured loans worth $2.6 billion, issued by more than 450 financial institutions to students attending colleges and universities in 49 states and District of Columbia. Business model ReliaxMax has a vertical business model; it’s a 3 […]

A marketplace lender platform built as an insurance company

ReliaMax provides an end-to-end turnkey package of origination, servicing, insurance, and capital markets support on private student loans. ReliaMax has insured loans worth $2.6 billion, issued by more than 450 financial institutions to students attending colleges and universities in 49 states and District of Columbia.

Business model

ReliaxMax has a vertical business model; it’s a 3 party contract between ReliaMax, the borrower, and the lenders. ReliaMax provides borrower acquisition, designs the underwriting, and insures 100% of the principal and interest of each loan for their client financial institutions . In case of borrower default, bankruptcy, or disability, even if the debt is not discharged, ReliaMax will pay the claim to the lender, will own the loan, and will work with the borrower over the life of the loan. The revenue model of Reliamax consists of receiving a premium from the banks for insuring the loans.

ReliaMax Surety Company, an insurance company subsidiary of ReliaMax, works with banks, credit unions, alternative lenders, and institutional investors to provide insurance coverage for private student loans. They are a fully registered licensed insurance company registered across 49 states and DC, therefore, they have in-depth knowledge of regulatory framework all across the country. It also acts as barriers to entry as the founder believes it will take 10 years and a $100 mil for a competitor to attain the regulatory acceptance, technical and market expertise to challenge his company.

Lenders charge interest and the premiums are lower than the interest charged. Credit Unions are therefore still profitable and tend to absorb the fees, partially because they are not in this for the profit. Banks either add a closing-cost or they convert the additional fees into an increased interest rate for the loans. For regulatory reasons, ReliaMax needs a substantial capital reserve to cover all the loans; a substantial amount is offset by buying reinsurance from large reinsurers.

Company information

ReliaMax was founded in 2006 after its founder; Michael VanErdewyk acquired HEMAR –a 3rd party insurance company in July 2006 from Sallie Mae. By acquiring HEMAR, ReliaMax got 18 years worth of data on $12 billion of student loans. The founder had entered the insurance sector by buying HEMAR.

By acquiring HEMAR, ReliaMax got 18 years worth of data on $12 billion of student loans. The founder had entered the insurance sector by buying HEMAR in 2000, a private student loan company formed in 1986. Many key people from HEMAR joined the ReliaMax team during the transition. Their expertise, along with the proprietary modeling and database from HEMAR, created a compelling combination of industry knowledge and data that represents now over $14.6 billion in private student loan disbursements to more than 1 million students over 25 years, reason why ReliaMax is successful in the private student loan market.

ReliaMax is headquartered in Sioux Falls, South Dakota.  Sioux Falls and South Dakota are known for having no corporate income tax, a very small tax on insurance premiums, and most importantly having a very knowledgeable South Dakota Insurance Department due to 30 years of interaction with HEMAR.

The company leverages this data through custom analytical models to help their clients manage their reputational, operational, and financial risk and meet stringent regulatory requirements. ReliaMax has insured loans issued by more than 450 financial institutions, to students attending colleges and universities. The founder claims that it is the only insurer of private loans in the world. That type of innovation and domination is difficult to beat.

Michael, CEO and founder of ReliaMax feels there is huge potential in private student space as this is the second largest asset class behind mortgages. The top management consists of Jonathon Albright, Chief Financial Officer, ReliaMax Holding Company, and has more than 10 years of CFO experience in North America and Europe. Mark Payne COO of their subsidiary ReliaMax Surety Company has a lot of experience in extensive management and leadership. ReliaMax has 70 full-time working employees and they will insure $600 to $700 million in loans this year and next year is expecting to cross the $1 billion mark.

Partnering with SoFi and fintechs

The alternative lending industry provides another scope of growth and expansion for ReliaMax. Since the company has a massive reservoir of data in the private student loan space, all the new entrants in this market want to partner with ReliaMax.

One of the new entrants in the private student loan market is SoFi; who many consider as a possible threat to ReliaMax’s traditional clients. SoFi mainly deals in consolidating refinancing of loans, as they do not have the depth to go down the credit curve. They usually only provide loans to borrowers with FICO of 725 and to individuals with annual income of $200,000 or more, whereas ReliaMax’s clients can go as low as FICO 680 and in some cases even lower.

ReliaMax also feels there are more opportunities in prime as compared to the super prime space.Therefore the founder believes that SoFi could be a good partner for them and they can help SoFi expand its product offerings and go down the FICO score curve for targeting more students.

According to MeasureOne private student loan report of 2016, private student loan market is estimated to be 102 billion or 7.5 percent of the $1.36 trillion student loan market, which is presently covered by the six largest lenders in US private school lending market(Citizens Bank, Discover Bank; Navient; PNC Bank,. Sallie Mae Bank and Wells Fargo), that is nearly 67 percent of the market. By providing excellent solutions and services to the borrowers and lenders, ReliaMax’s customers can definitely take some share away from the big six companies.

Author:

George Popescu

July 12th 2016, Daily News Digest

July 12th 2016, Daily News Digest

News Comments United States LendingClub’s charge off grows from 4.58% to 6.31%. Some people claim it is due to the company verifying only 26.8% of borrower’s income vs 49% in 2013. However, there was a higher proportion of bad loans among those verified than those that weren’t verified, roughly 12% vs 7% respectively. The real […]

July 12th 2016, Daily News Digest

News Comments

United States

European Union

United Kingdom

Korea

India

New Zealand

News Summary

 

Country

LendingClub’s Newest Problem: Its Borrowers, (Wall Street Journal), Rated: AAA

From loans made in 2013 through the first quarter of 2015, gross charge-offs of LendingClub’s lower-graded loans a year after issuance jumped to 6.31% from 4.58%, an increase of 38% or 1.73 percentage points. Charge-off rates on top-graded loans—which go to borrowers with stronger credit histories—rose less dramatically, to 1.51% from 1.46%, according to a presentation by the firm in May. Note: Do not mix charge-off rate and non-performing rate. Charge-off is a usually small subset of non-performing.

Charge-offs are ticking up at some other lenders. As of May, about 4.2% of the principal amount lent by Prosper Marketplace Inc. in the first quarter of 2015 had been charged off, according to MyCRO, a data tracker from online lending and securitization platform Insikt. Loans made a year or two earlier had seen charge-offs of 3.0% and 3.8%, respectively, after a similar amount of time had passed. A Prosper spokeswoman had no immediate comment.

Meanwhile, the percentage of loans written off by banks on their credit-card books last year hit the lowest level since the 1980s, according to Federal Reserve data. The rate was 3.16% in the first quarter versus 3.78% at the beginning of 2013, according to the regulator’s data.

As part of their loan-approval process, most lenders have automated the processes of checking borrowers’ credit metrics and looking up their histories while in many cases avoiding more labor-intensive practices of collecting and reviewing pay stubs or tax returns. For instance, this year, through the first quarter of 2016, LendingClub had verified actual income for 26.8% of loans, down from a peak of 49% in 2013. The company also has argued that verifying every applicant’s income is unnecessary. For loans made in 2012, for example, there was a higher portion of bad loans among those verified than those that weren’t verified—roughly 12% and 7%, respectively.

While about one-third of borrowers said they were paying down credit cards with their online loans, 46% actually started carrying at least 10% more in credit-card debt after getting the loan—well above the 30% rate for unsecured personal loans made by all lenders, Experian said.

LendingClub borrowers are among those who have become more indebted as the firm expanded. Debt-to-income ratios—a common credit measure—for LendingClub borrowers rose to 19.2 in 2015 from 13.8 in 2011, according to an analysis of loan data by research firm MonJa.

Legislation Proposed to Counteract Court Ruling on State Usury Caps, (Wall Street Journal), Rated: AAA

A Republican lawmaker late Monday introduced a bill aimed at helping debt buyers bypass state interest-rate caps, mounting a direct response to a case the Supreme Court recently declined to hear. The move comes after the Supreme Court declined to hear a case in which the Second U.S. Circuit Court of Appeals in New York determined debt buyer Midland Funding LLC couldn’t charge an interest rate higher than New York’s usury cap after purchasing the debt from a Bank of America Corp. unit.

“This ruling will restrict the expansion of credit and restrict innovation” and “poses a risk to the secondary credit markets. It also undermines peer-to-peer lending platforms in the current business model,” Mr. McHenry, a top Republican on the House Financial Services Committee, said in an interview with The Wall Street Journal. “The consequences of the court ruling is what we’re seeking to fix.”

The proposal is likely to generate as much opposition as the case, with debt buyers wanting to keep federal pre-emption and consumer groups pushing hard for states’ rights to protect consumers from being charged high interest rates. Analysts have already predicted any legislation in this area would be difficult to pass.

“It will have trouble passing because the Democrats are going to look at it as a means of circumventing consumers and Republicans will look at it as an unnecessary overlay of states’ rights,” said Isaac Boltansky, an analyst at Compass Point Research & Trading LLC.

The proposal is among a series of bills that Mr. McHenry has been rolling out as part of a package to promote financial innovation called the Innovation Initiative.

As a part of the initiative, Mr. McHenry introduced another bill Monday to the House Ways and Means Committee that would require the Internal Revenue Service to use “website-based, real time responses” when a lender requests a document from the IRS to verify a person’s income and other data points to approve a loan.

Amazon Looks Set to Deliver in Structured Credit After Hire, (PeerIQ), Rated: AAA

Online retailer Amazon has been quietly building a business lending to its customers and now looks set to open this asset book up to investors by securitizing some of these loans.

Nick Clemente, a former director with BNP Paribas’ structured credit team responsible for origination and execution of structured credit and credit derivatives, has joined the tech giant to run capital markets for its Amazon Lending business.

A recent investor newsletter from the firm referred to the group as having provided financing of over $1.5 billion to small and medium-sized businesses across the US, UK and Japan. Amazon Lending specialises in short-term lending and is said to be sitting on $400 million of loans.

The newsletter adds that Amazon Lending is looking to partner with a bank so that these dealers can manage the “bulk of the credit risk”.

How New York Beat Silicon Valley in Fintech Funding in Q1, (Datamation), Rated: AAA

In the first quarter (Q1) of 2016, and for the first time ever, New York City beat Silicon Valley in terms of fintech (financial technology) financing, $690 million versus $511 million, states Fintech’s Golden Age, a new report from Accenture and the Partnership Fund for New York City. In all of 2015, investments in New York totaled $2.3 billion, triple the amount raised by the area’s fintech startups the previous year.

It’s easy to attribute New York City’s rise in fintech scene to the proximity local startups enjoy to Wall Street banks and financial firms. But there are other forces at play, said Maria Gotsch, president and CEO of the Partnership Fund for New York City and co-founder of the FinTech Innovation Lab.

With ready access to funding, established customer relationships and their own considerable experience in maintaining large and complex IT ecosystems, New York City’s banks and other big financial institutions became natural allies for fledgling fintech companies. Funding aside, the area’s deep-pocketed firms are also looking to cut deals with startups that can help them bolster their services offerings.

“Financial institutions have made some major acquisitions,” said Gotsch. “Exits are always good.”

Fed’s Williams Prefers MBS Buying to ECB Tactics in Next Crisis, (Bloomberg), Rated: AAA

When the next crisis comes, don’t expect Federal Reserve Bank of San Francisco chief John Williams to try persuading his colleagues to pull a Mario Draghi.

The European Central Bank president has gotten creative with monetary policy as euro-area growth and inflation have remained sluggish despite rock-bottom interest rates. He’s tried charging banks for overnight deposits to encourage them to lend the cash instead, doling out long-term loans at ultra-low costs to credit institutions, and adding corporate bonds to his quantitative-easing program. He’s also employed measures that the Fed has also used, like signaling policy stance through forward guidance.

Draghi’s innovations would either come in second to tried-and-proven quantitative easing in the U.S. or would be purely off the table, in Williams’ view.

Regulator sounds new alert on banks’ property lending, (Financial Times), Rated: AAA

A top US regulator has sounded a new alert over banks’ commercial real estate lending, adding to concerns that bubbles may be forming in parts of the country’s property market.

CRE loans originated by banks in the first quarter leapt by 44 per cent from the same period in 2015, according to Morgan Stanley. Banks’ share of CRE originations has risen from just over a third in 2014 to more than half in the first quarter of 2016 — a record.

Thomas Curry, comptroller of the currency, used the watchdog’s twice-yearly report on financial risks published on Monday to warn about looser underwriting standards and concentrations in banks’ CRE portfolios. “Our exams found looser underwriting standards with less-restrictive covenants, extended maturities, longer interest-only periods, limited guarantor requirements, and deficient-stress testing practices.”

Several bank executives signalled during the last results season that they weretightening up CRE lending standards, and a survey of loan officers by regulators in the first quarter suggested many were indeed doing so.

Morgan Stanley identified 25 institutions that “may face pressure from regulators given rapid growth and high concentrations”. This “could lead smaller banks to pull back on CRE lending, raise equity and/or drive M&A”, said its report.

U.S. bank regulator toughens commercial real estate oversight, (KFGO), Rated: AAA

Credit risks have risen in U.S. commercial real estate as lenders compete more fiercely in a low rate environment, a federal banking regulator said on Monday, adding that it was stepping up its scrutiny of the sector.

The Office of the Comptroller of the Currency (OCC) said in its semiannual risk report that while the financial performance of lenders improved in 2015 compared to a year earlier, credit risks were higher across the industry. The agency has escalated its oversight of commercial real estate risk from ordinary monitoring to “additional emphasis.”

Curry also mentioned financial technology and marketplace lending as areas the OCC is keeping a close eye on.

Small U.S. banks are delivering healthier profits than their bigger peers, the report noted. Banks with less than $1 billion in total assets delivered return on equity above 10 percent last year while larger banks only delivered single-digit returns.

Tech coalition targets financial startups’ regulatory hurdles, (The Hill), Rated: A

Financial Innovation Now released a report Monday evening detailing how new financial technology (“FinTech”) companies struggle with a patchwork system of state laws and federal laws geared toward traditional institutions.

The report explains how two theoretical FinTech companies–a lending company and a payments processing company–could struggle to comply with decades of regulations geared toward traditional banks.  “Our hope is that this report helps policymakers understand the regulatory landscape for financial technology,” said Peters.

Congress on Tuesday will take a crack at understanding the landscape for marketplace lending companies with a House Financial Services Subcommittee hearing.

The report also tries to tamp down on cybersecurity concerns by boasting financial technology companies’ knowledge and capability with modern tech security features. The report argues FinTech companies are better equipped and more experienced to handle threats than traditional institutions. “Anecdotal breaches will always occur at technology companies just as at other businesses,” the report reads. But “they pale into insignificance compared to the breaches at banks and major retailers.”

Surprise: Auto Loan Durations Decrease Despite Popularity of Extended 72 and 84 Month Loan Terms, (TransUnion), Rated: A

The TransUnion AutoLoan study can be found here.

The study found that the average term for new auto loans rose from 62 months in 2010 to 67 months in 2015. In the third quarter of 2015, seven in 10 new auto loans had terms longer than 60 months. Five years prior, only half of all loans had terms longer than 60 months.

While the length of typical auto loans (with prices averaging ~$21K) have extended to as long as 84 months, the risk factors for these consumers extending to lower their monthly payments, did not change. In fact, many of these loans are not coming to term as the durations of the loans have actually decreased by one month. Cars are either sold before payoff or the loans can often be re-financed. Most surprisingly, the longer auto loan terms actually resulted in increased serious delinquencies (beyond 60 days) for consumers who are cash squeezed.

 

European Union

Europe’s Asset-Backed Bond Market Is Growing More Mysterious, (Bloomberg), Rated: AAA

Europe’s asset-backed securities market (ABS) is going underground. Private bilateral sales of the bonds, which are typically backed by collateral such as car loans or mortgages, now outstrip public sales to investors, according to Bank of America Corp. analysts led by Alexander Batchvarov.

So-called retained transactions, which are kept on banks’  balance sheets, rose to 78 billion euros ($87 billion) in the first six months of the year, which is more than double the 30 billion euros sold in the same period of 2015, according to Bank of America data. For investors in the public market, new-issue supply totalled just 41 billion euros, or roughly half the volume recorded a year earlier.

Synthetic securitizations, in which credit derivatives are used to transfer risk, are also said to be growing in favor as banks seek to bolster their balance sheets — and even as regulators push back against use of such “regulatory capital” trades.

“Discussions with market participants suggest that the volume may be (much) larger,” Batchvarov wrote. “The revival of synthetic securitisations speak[s] to the need of the banks to manage their capital and credit risk of their balance sheet, but apparently this is now done through bilateral transactions, mostly not rated, and rarely seen.”

 

United Kingdom

Re-setting Ratesetter’s default ratings, (FT Alphaville), Rated: AAA

At the end of last month, we reported on Ratesetter’s higher than expected default rates, which has raised questions about the resilience of its provision fund. The story was based on information from the Ratesetter website, where the level of provisioning per year and the expected vs. actual default rates were made available to investors, along with other information like how much of the yearly provisions had been been used up.

That’s the nature of transparency: you should disclose the bad as well as the good.

But now Ratesetter has decided that publishing expected default rates for each year “are not meaningful for [our] model, since investors do not need to provide for defaults”.

And that’s not the only change.

Ratesetter is now tweaking the way it calculates its provision fund coverage ratio. Instead of just subtracting expected losses from the current value of the provision fund, Ratesetter will now add “expected future income” in as well, thereby boosting the coverage ratio. Here’s their explanation of the change:

The “Expected Future Income” from open loans will be included in the calculation of the Coverage Ratio. This will be introduced alongside our regular update of the Expected Future Losses figure. Two years ago we made the strategic choice to spread more of the Provision Fund’s fees over the lifetime of loans as opposed to all being upfront when the loans are made. This obviously changed the short term flow of cash into the Provision Fund but we believe, in the long run, it is a more sustainable model. Today the total value of this contracted future income stands at over £6m.

The provision fund, which at one point Ratesetter thought to invest in its own loans, currently has almost £17.4m covering for £610m worth of lending — that figure doesn’t yet appear to account for the £6m of future income (nor does it account for any recoveries on defaulted debt, Ratesetter points out in its blog). The loss rate expected is 2.3 per cent, while a rate of 2.85 per cent would eat up all of the provisions. That’s a 55 basis point margin of error and probably the number worth remembering even after all these changes.

Financial markets welcome Leadsom quitting UK’s Prime Minister race, (Press Release), Rated: AAA

Andrea Leadsom’s decision to quit the UK’s Conservative party leadership battle is likely to be welcomed by the financial markets, affirms the boss of one of the world’s largest independent financial advisory organizations.

“First, Leadsom quitting eradicates one layer of the uncertainty that has been hanging over the UK since the historic vote to leave the EU.  The many question marks since the Brexit decision have, unsurprisingly, created volatility in the markets.  With Leadsom pulling out there is one less question mark.

“May could possibly kick triggering Article 50 way into the long grass, or go for the Norwegian model and allow free movement in exchange for access to the single market.

“This kind of ‘Brexit-Lite’ might well please the markets – which had widely priced in and were largely relying upon a Remain victory before the shock result.”

 

Korea

P2P raises concerns about fraud, (Korea JoongAng Daily), Rated: A

As of March, there were 20 P2P lenders in Korea that directly connect lenders and borrowers without intermediation by existing financial companies.

The average loan issuance was 22.1 million won per head. Individual loans on credit accounted for about 85 percent of all P2P lending, the data showed. About 6 percent of individual borrowers took out loans from P2P businesses, taking their properties as collateral.

“I was introduced to the company by one of my acquaintances and heard it was a thriving P2P lender that attracts quite a lot investors as it promises 15 percent returns annually,” Choi said.

The FSS has reported such complaints by consumers to police and prosecutors and said it will enhance monitoring on similar practices.

 

India

Education loans marketplace GyanDhan gets funding from Stanford Angels, Harvard Angels, (Techcircle), Rated: A

GyanDhan, an education loans marketplace operated by Delhi-based Senbonzakura Consultancy Pvt. Ltd, has raised an undisclosed amount in seed funding from Stanford Angels & Entrepreneurs and Harvard Angels.

GyanDhan had earlier received angel funding from Satyen Kothari, founder of Cube and Citrus Pay, to grow operations from the concept phase to its first loan disbursal.

The company will use the money raised in the latest round to build the tech platform to provide a better experience both to banks and students, and to develop its data sciences capabilities.

GyanDhan’s product offerings include loans up to Rs 30 lakh without any collateral for higher education abroad.

The company claims it has processed about 2,500 applications to date and has helped students avail loans worth Rs 10 crore through its partner financial institutions. The firm expects to process transactions worth Rs 30 crore by the end of the year.

Peer-to-peer lenders will help you borrow even from banks or non-bank financial corporations, (DNA India), Rated: A

Online businesses like BankBazaar, Paisabazaar, Policy Bazaar, etc have emerged and established themselves as loan aggregators, thereby passing on leads to financial companies like banks and NBFC’s. However, the quality of the lead has to be still ascertained by the banks and NBFCs through their own efforts, due diligence and filtering to assess the suitability of these leads and the conversion from a lead to a prospect and finally to a borrower.

The need to meet deployment targets is another major reason that banks have challenges in finding adequate numbers of borrowers who meet all their criteria.

A P2P platform provides a curated list of pre-verified, credit assessed list of borrowers from whom the financial companies can cherry-pick based on their appetite and provide loans, thereby significantly reducing their loan origination cost and improving their operating spreads.

Increasingly, banks and other financial companies will see a lot of value accruing to their business by aligning themselves with P2P marketplaces who perform all the necessary verification, credit assessment and also use various social and other information to rate borrowers and build a lot of analytics for intelligent credit decisions over and above the conventional methods which will prove to be an irresistible proposition to conventional financial institutions.

New Zealand

Harmoney’s P2P loan insurance a Kiwi world first, (Biz Edge), Rated: A

Harmoney has claimed to be the first in the world to use peer-to-peer lending for ‘unforeseen hardship’ on loans, the company reports. Its Payment Protect offering is a ‘repayment waiver’ that can protect against unexpected events that can affect loan repayment, such as death, terminal illness, disability or redundancy.

“For an individual loan, the waived repayments could be greater than the Payment Protect fee earned. However, across a whole portfolio the fee income and additional interest should outweigh any waived repayments and fee costs,’ Hagstrom explains.

Hagstrom says the method of delivering ‘peace of mind’ to customers through peer-to-peer lending is a rival to traditional insurance and borrowing methods, while providing lender returns through interest income, returns and yield enhancement.

The Financial Markets Authority issued Harmoney the first P2P lending licence in 2014. The company has raised $30 million in working capital, assessed more than $2 billion in loan applications and paid more than $24 million in interest to lenders.

Author:

George Popescu

How People Commit Fraud in Unsecured Personal Lending

How People Commit Fraud in Unsecured Personal Lending

Search Google for loan fraud and you’ll get all kinds of information on lenders scamming borrowers. There is much less information available on scams perpetrated against lenders, but it happens. In fact, we could categorize unsecured personal lending scams into three basic types of fraud: Application Fraud Information Fraud Asset Theft Types of Unsecured Personal […]

How People Commit Fraud in Unsecured Personal Lending

Search Google for loan fraud and you’ll get all kinds of information on lenders scamming borrowers. There is much less information available on scams perpetrated against lenders, but it happens. In fact, we could categorize unsecured personal lending scams into three basic types of fraud:

  1. Application Fraud
  2. Information Fraud
  3. Asset Theft

Types of Unsecured Personal Loan Application Fraud

Perhaps the most basic type of loan fraud is application fraud. It occurs when a potential borrower provides misleading information on an unsecured personal loan application. Borrowers attempt to defraud lenders in a number of ways by presenting false or misleading information on their loan applications. Here are some of the most common examples of application fraud targeting unsecured personal lending institutions:

  • Identity Theft – With identity theft, the applicant uses someone else’s identification to secure a loan. This personal information may include name, social security number, bank account information, credit card numbers, and other personal identification while associating that information with an e-mail address, PayPal address, or other accounts where the fraudster can access the money once it has been loaned. In the case of cash loans, the fraudster need only present identification that verifies the victim exists. In some cases, they may be able to show some proof that they are that individual. In any case, once the identification of the victim has been verified, the fraudster gains access to loan funds and disappears.
  • Fake Bank Account – A little more difficult to pull off is the fake bank account. This usually involves the creation of a fake identification. Since the fraudster isn’t claiming to be an actual real person, the only victim of this crime is the lending institution. The borrower uses the black market or underground resources to secure a fake name, social security number, birth certificate, and other personal documents to give the impression that they are a legitimate individual. Once that is accomplished, they set up a bank account in the fictitious person’s name and use that account as the basis for applying for an unsecured loan. Once the deposit has been made, they can make a large cash withdrawal and disappear.
  • Other Loan Misinformation – Other types of lender fraud include subtle misinformation. For instance, misrepresenting one’s income or personal assets. Other fraudsters may include illegitimate personal references or employers. These types of fraud generally require a co-conspirator—either a friend or relative—who acts as the reference or employer on behalf of the fraudster. Once the loan has been made and the fraudsters have access to it, they all disappear. Other application fraud schemes may be more sophisticated and require multiple actors.

While many lenders have discovered ways of detecting application fraud, and law enforcement agencies have been successful in bringing fraudsters to justice, it is important to recognize that these scams continue to plague the unsecured personal lending industry and companies that do not take measures to detect and prevent it could fall victim to it at the drop of a hat. The best defense against application fraud is vigilant identity and bank account verification. Visit for more information.

Types of Unsecured Personal Loan Information Fraud

With information fraud, people use breached or compromised information to gain access to bank accounts, loan applications, and other tools to defraud lending institutions at someone else’s expense. Here are some common types of information fraud.

  • Web Scraping – Web scraping involves the use of web crawlers to seek out and find personally identifying information through social media accounts and other websites where people sign up for membership or set up profiles. This practice is often followed up by fraudsters setting up fake accounts themselves to troll individuals and lure them into giving away other information, which is then used to steal identities or apply for loans using application fraud techniques.
  • Account Hacking – A more nefarious form of lending fraud involves hacking into the bank account of an individual and applying for a loan on their behalf. The fraudster usually has a way of re-routing borrowed money into their own personal accounts and absconding with the funds before the scam is detected.
  • Loan Phishing Scams – A very common way in the digital age to acquire information that can then be used in the execution of a loan fraud is through phishing schemes. Fraudsters send an e-mail to unsuspecting individuals purporting to be their bank or other financial institution—PayPal has been used quite often as the face of these scammers. The fraudster attempts to get the e-mail recipient to click a link and enter account information into a site designed to look like the victim’s bank website. However, what the victim often does not know is that the site is a hoax and they are sending their bank account information to the person who will then use it to wreak havoc on their lives. Such schemes defraud the unsuspecting victim then defraud the lending institution as the information gatherer uses that falsely acquired information to apply for a loan and then runs off with the money.
  • Accessing Data Leaked on the Dark Web – Underneath the billions of web pages indexed by the search engines, there are billions more that are only accessible if you know how to find them. Fraudsters have become adept at searching the Dark Web, or DarkNet, to find information they can use in identity theft, account hacking, application fraud, and other types of unsecured personal lending fraud. They use a networking technology known as Tor that allows them to use the Dark Web and search for the information they are looking for anonymously.

Types of Unsecured Personal Loan Asset Theft

Asset theft takes place when an individual or institution steals money or other valuables in the process of borrowing money. Some of the common ways this is done are listed below.

  • Bankruptcy Fraud – When individuals file for bankruptcy, they may apply for a loan to pay off debtors and to protect certain personal assets allowed protection under the law. Bankruptcy fraud involves the hiding of assets or income or non-disclosure of certain assets or income that might cause the lending institution to deny the loan.
  • Wire Intercept – Similar to account hacking, wire intercepts allow fraudsters a high-tech way to re-route money transfers from their original destination into their own bank accounts. This type of fraud has become more prevalent in recent years and often involves intercepting loan funds and re-routing them to offshore or foreign bank accounts.
  • Account Takeover – An account takeover is a more sophisticated form of hacking that involves the added step of shutting an individual out of their own bank accounts.
  • P2P Money Transfers – The rise of crowdfunding, marketplace lending, and peer-to-peer (P2P) networks have allowed individuals to transfer money instantly from one party to another through mobile apps without the need for an intermediary. The problem is, these apps can often be unsecured or easily hacked by fraudsters seeking information to steal, exploit, or to use wire intercept and account takeover techniques to access borrower or lender funds.
  • Mule Herding – In the underground economy, fraudsters may seek out what are known as mules. These are individuals who will do the dirty work for the fraudster then send the cash to the fraudster through Western Union or other channels. They are usually found through the Dark Web and may be involved in fraud at any number of levels including information retrieval, application fraud, data breach services, and hands-on theft and delivery of assets.

In the digital age, fraud prevention is not simply the responsibility of individuals who may fall victim to fraud. It’s also the responsibility of the lending institutions whose reputations and assets may be on the line, as well. Data and information security is becoming more important daily for the protection of the entire unsecured personal lending industry. A few companies we covered previously which provide services that can help with anti-fraud solutions are  and

Author: Allen Taylor

Allen Taylor

July11th 2016, Daily News Digest

July11th 2016, Daily News Digest

News Comments A reminder that we brought back the links to the articles in the News Comments. An easy click away to scroll to read more details. International The monthly p2p volumes for platforms focused on the UK and Europe mostly. Growth continues for small platforms. Large platforms see a mixed bag with some reduction […]

July11th 2016, Daily News Digest

News Comments

  • A reminder that we brought back the links to the articles in the News Comments. An easy click away to scroll to read more details.

International

  • The monthly p2p volumes for platforms focused on the UK and Europe mostly. Growth continues for small platforms. Large platforms see a mixed bag with some reduction in volumes for  RateSetter and Funding Circle and small growth for Zopa. While some platforms show great growth ( Saving Stream, Lend Invest, Assetz Capital), previously published data in this report was unreliable (May volume for LendInvest notably was off by a lot per the platform). It is, therefore, unclear if one can rely completely on the data in this report.

United States

United Kingdom

Switzerland

European Union

Singapore

International

International P2P Lending Services – Loan Volumes June 2016, (p2p Banking), Rated: AAA

Zopa leads ahead of Ratesetter and Funding Circle.

The total volume for the reported marketplaces adds up to 334 million Euro.

Investors living in markets with no or limited choice of local p2p lending services can check this list of marketplaces open to international investors. Investors can also check how to make use of current p2p lending cashback offers available.

 

United States

Intermediation Is Not a Necessary Evil, It’s a Desirable Good, (Lending Robot), Rated: AAA

It was called Peer-to-Peer Lending. The idea was to circumvent banks, the inefficient too-big-to-fail organizations that grew fat after centuries of undeserved profits, and create a market without any intermediates, where borrowers would be matched directly with lenders. Of course, such a market would be, by itself, an intermediary. But at least there was hope that the Internet, that great crusher of incumbent businesses, would eliminate as many middlemen as possible.

Peer-to-peer lending appeared on US shores in the form of Prosper Marketplace in 2006, followed by Lending Club one year later. Prosper started as a flexible market, allowing people with not-so-stellar credit to borrow at interest rates determined by the lenders themselves. It turned out to be a disaster: people simply don’t know at which rate they should lend their own money, especially to risky borrowers.

Lending Club focused on the social aspect, building a platform to lend through Facebook. The results were also disastrous: as those of us who have ever lent money to a friend in need painfully know, lending works better between strangers and when following strict rules.

In response, these marketplaces took on a necessary larger role: determining interest rates, distributing loans, and attracting borrowers and lenders. It turns out that lending money also requires tons of extra work for regulatory and technical reasons.: credit score agencies to determine the risk of a given borrower, collection agencies to try to recover funds when a borrower walks away, a qualified custodian to hold assets and cash, and even a bank to issue the loan itself.

From the investor point of view, lending money is by itself complex and time-consuming, which means investment advisors are also needed, sooner or later. So much for building a credit market without intermediaries.

While this newer system was being built, Wall Street smelled money. The bankers and financiers and hedge fund managers came in, bringing along tons of funding that fueled amazing growth and increased obfuscation. Gone were the days of ‘Napster for finance’, it was now ‘marketplace lending’, and most of the loans were no longer funded by ordinary people but from institutional deals made behind closed doors.

Eager to make another pretty dime, institutions brought ‘securitization’ to the table. For those unaware of what securitization is, it is the art of putting a lot of small stuff in an opaque bag, then convincing potential buyers that everything inside is good and it’s not worth opening the bag to check. Unfortunately, sooner or later someone realizes that profits can be increased by sneaking in a few rotten potatoes. And then a few more,… until ultimately there’s not one single good vegetable left in the bag. Hello 2008.

At the root of all financial evil is opacity. It allows unscrupulous people to disguise Ponzi scheme as wondrous investments, and money managers to discreetly sweep away unsavory results. In most cases, it simply entices decent people to be a tad more lax than they should be. Opacity used to be a by-product of all transactions happening with the same institution, usually a bank. Lending money is a risky endeavor, and banks are here to make it theoretically safer through careful diversification and crafty financial setups. In the process, banks hide the risk from ordinary people’s eyes.

But the increasing digitization has driven down transaction costs to the point where they are essentially free and instantaneous. It is no longer necessary to opaquely keep the entire loan process in house, since splitting work between different entities doesn’t cost additional time or money. This makes the whole operation more more trustworthy and resilient.
More trustworthy, because the more participants, the harder it is to keep anything a secret.

More resilient, because even if one piece fails, the system as a whole can keep working.

Here’s how Peer Lending 2.0 could work: a company functions as a marketplace to attract borrowers and capture their personal information. The marketplace is also responsible for scoring borrowers through credit scoring agencies and listing the loans. A custodian would be responsible for holding investors’ money. Investment Advisors are delegated by investors, individual or institutions, to decide which loans to fund. When enough money is committed, the custodian asks a bank to issue the loans, wire the money from the investors, then pays the marketplace for ‘origination fees’. The loan itself would stay at the bank during its duration, which is needed in the process anyhow, and would be services by the usual loan services. The marketplace and the custodian would not be able to package loans and sell them wholesale to a third party. At no time would the advisor be able to talk directly to the marketplace, or withdraw money from the custodian, except for its management fees. At last, each transaction between all these entities would require a time-stamped signature, blockchain-like, to prevent any further tampering, and signature ledgers would be made publicly available at all time (privacy would be maintained through anonymous IDs)

Such a system would be more transparent and safer for investors. It would not cost marginally more to operate, and would be easier to regulate. Maybe we should call it ‘Super-Intermediated Lending’.

Time to Align Incentives for Marketplace Lenders, Investors, (American Banker), Rated: AAA

Once the headlines and hysteria die down, investors will realize that Lending Club and other marketplace lenders have merely been doing what they were set up to do. They provide a market for loans. And the performance of that market is a reflection of loan supply and investor demand. Marketplace lenders don’t resemble the risky lenders of the mortgage boom-and-bust period, as some commentators have suggested. The turmoil in marketplace lending is not necessarily the result of deteriorating quality in the underlying loans.

The culprit instead has been a misalignment of incentives. When a marketplace lender has more investors than borrowers, rates fall to entice more borrowers and investor returns suffer. Conversely, when a marketplace lender has too many borrowers and not enough investors, rates rise to attract more investors. This basic incentive to make a market has created yield uncertainty, something fixed-income investors inherently abhor.

Correcting this will require a realignment of the incentives between investors and lenders. High investor demand shouldn’t hurt returns enough to upend the market, nor should low demand upend the loan pricing structure. Capital moving into nonbank loans is going to have to do so in a way that ensures lenders have no incentive to make bad loans and less need to move interest rates based on the supply of investor capital.

There are two primary mechanisms that investors can use to achieve incentive alignment with lenders. The first is by including a service fee rebate provision in loan purchase agreements. When investors purchase loans from nonbank lenders, they typically pay servicing fees to the lender. Including a rebate provision in these agreements ensures that if a lender’s overall monthly return is below a set rate, the investor gets back some of this servicing fee. This would reduce the lender’s incentive to make bad loans or artificially set a lower interest rate.

The second mechanism involves the investors providing a loan facility, such as a single-purpose vehicle, in which the lender still owns the loans. In this model, the underlying assets serve as collateral and the investor has no direct equity interest in the loan. The investor lends to the SPV at a fixed rate of return, and the lender guarantees the facility with equity and a corporate guarantee. This means the investor earns a fixed coupon. But with the lender retaining some of the credit risk, and standing in a “first loss” position, it further aligns the incentives between the two parties. This is similar to how some marketplace lending was financed early on, and is the traditional structure that banks use in asset-backed lending.

Whichever mechanism investors choose in order to align incentives, marketplace lenders will increasingly have to have more skin in the game, while investors should hold firm and accept that the online lending industry is changing and adapting, like any maturing industry. No matter how they are funded, they will have to accept that over the long term they will need to act less like brokers, and more like lenders.

Choosing Loans with Monte Carlo, Diversification Part 2, (Lending Robot), Rated: AAA

In a previous article, we conducted a preliminary investigation of applying Modern Portfolio Theory to Lending Club. We assumed that each loan grade on Lending Club (AA through GG) corresponded to an asset class, calculated variances (σ2iσi2) and covariances (σ2i,jσi,j2) of each asset class , and constructed an efficient frontier for Lending Club portfolios. While this constituted a useful exercise in theory, the results were not applicable for an individual investor because combining all AA grade loans into a single AA grade asset class is only achievable if one owned all AA grade loans. Realistically, this is something no individual investor would be able to achieve. This time we aim to find variances and covariances at the individual loan level, which allows us to calculate the variance of a portfolio by treating each loan in the portfolio as an asset.

With the variance and covariance numbers, when faced with several potential new loans to invest in, we can add prospective loans to the portfolio, analyze how the standard deviation (σσ) and Expected Return (E(r)E(r)) change, and decide which loans to invest in based on a desired risk/return profile.

Assumptions

As in our first diversification article, we take our calculated Expected Return at each month as the return you could get for buying/selling your loan at that month on the secondary market.

Loans of the same grade and term are assumed to have the same Expected Return, and loans of the same grade, term, and age (or age difference) are assumed to have the same amount of expected variance (covariance).

Methods & Methodologies& Detailed returns

[The interested reader should read this part, but I do not think this is interesting to the majority of our readers.]

Conclusion

We’re near the end of this long read, but here’s why it matters: 1) A conservative portfolio is not necessarily made up of only conservative loan grades; as we saw above, adding an EE grade loan actually reduced the portfolio’s risk more than adding another AA grade loan. 2) When faced with the choice of which loans to invest in, this analysis can be done to choose the loans that best fit the desired risk/return profile of the portfolio.

The yield curve is set to light a fire in digital banking, (Financial Revolutionist), Rated:AAA

If our current world of ultra-low interest rates hasn’t already created lots of unusual effects, even lower rates — as predicted recently by Mohamed El-Erian and others — could make for even more unprecedented change. One we see likely is a boom in mobile-first banking.

That’s because as conventional banks find it increasingly difficult to earn a suitable spread on lending money, the costs of maintaining a network of physical branches become more untenable. (Attention city landlords and developers: Watch out too). That in turn will lead them to do the worst things possible for their longer term competitive positions, which is offering APYs significantly lower than online-only banks (the national savings APY now stands at a paltry 0.18%) and resurrecting ‘gotcha’ and overdraft fees.

Those fees, amazingly, are on the upswing even though nothing turns off younger consumers more than being nickel-and-dimed by a bank. We don’t believe we’re alone in our assessment that mobile-first platforms are ready for their moment. Look for large fintechs like SoFi and well-funded upstarts like Almond to soon join the ranks of digital banks.

Also, look for more financial heavyweights to get involved as our “inconceivable” interest rate environment tempts more consumers to pull the ripcord out from their brick and mortar banks. Because while some physical branches will continue to be necessary for certain activities, we think the time has come for a sea change. And retail banks sitting on millions of square feet of real estate can thank the yield curve for dramatically adding to their troubles.

For more on the interest rate environment, see Larry’s Summers’ recent op-ed.

House Financial Services Committee Schedules Hearing on Marketplace Lending, (Crowdfund Insider), Rated: AAA

The House Financial Services Committee, Subcommittee on Financial Institutions and Consumer Credit, has scheduled a hearing on the marketplace lending sector of online lending.  Entitled, Examing the Opportunities and Challenges with Financial Technology (Fintech): The Development of Online Marketplace Lending,” the meeting will take place on Capitol Hill on Tuesday, July 12th, commencing at 2PM. Typically these meetings are live streamed on the HFS website.

The hearing will see the participation of the following witnesses:

  • Parris Sanz, Chief Legal Officer, CAN Capital, on behalf of the Electronic Transactions
  • Sachin Adarkar, General Counsel, Prosper Marketplace
  • Rob Nichols, CEO, American Bankers Association
  • Bimal Patel, Partner, O’Melveny & Myer

The hearing notice states that within the Fintech industry, marketplace lenders us algorithms to provide affordable and broad access to credit.  During the past year, multiple regulatory agencies have expressed interest in the online lending sector “to better understand the opportunities it presents and examine the existing regulatory structure.”

The hearing is expected to help Committee members better understand this sector of Fintech.

Ex-LendingClub CEO Laplanche Is Selling Million of Stock, (Bloomberg), Rated: A

Laplanche disclosed a plan to execute options for 4.63 million shares of the San Francisco-based company in a filing dated June 29. Calls to Laplanche and LendingClub weren’t immediately returned.

U.S. venture capital firms raised USD .8 billion for 67 funds in Q2 2016, (Term Sheet), Rated: AAA

U.S. venture capital firms raised $8.8 billion for 67 funds in Q2 2016, according to a new report from Thomson Reuters and the NVCA. That’s a 37% dollar dip from the blockbuster first quarter of 2016 — when more money was raised than in any other single quarter since Q2 2006 — but still a pretty heady figure. The largest Q2 21016 fund came from Andreessen Horowitz ($1.5 billion), while Liberty Mutual Strategic Ventures raised the largest first-time fund ($150m).

Farewell, and Thank You, to Vouch, (Linked In), Rated: A

We announced to the Vouch team after failing to raise Series B that our last effort to sell the company to a strategic buyer had fallen through. Their “go/no go” decision timing was right on the heels of the Lending Club bombshells and the news from Prosper and Avant that “all was not sunshine and unicorns” in the online lending world. We had no time to try again or to find another partner. We were out of cash.

Vouch was born in late 2013. I felt grateful to be among the cofounders. I started Vouch to make a difference. To help people who were underserved. To try to find a way to sift out those borrowers who don’t get a fair shake in the credit world but who deserve one, by asking those who know them best – their friends and family – to Vouch for them.

Kabbage Case Study, (Envestnet Yodlee), Rated: B

Envestnet | Yodlee is the primary financial data source Kabbage uses to review and run financials, in order to evaluate and enable instant underwriting for a line of credit or a financial products customer. Kabbage started out using Yodlee Aggregation API and then added the Account Verification API. The results were dramatic. Real-time tracking, instant verification and end-to-end automation are part of the Kabbage success story.

 

United Kingdom

FCA to probe peer-to-peer lending sector, (Financial Times), Rated: AAA

The UK’s financial watchdog is probing the £2.7bn crowdfunding sector for the second time in two years, following widespread calls for tougher regulation of so-called “alternative finance” providers.

On Friday, the Financial Conduct Authority said it would scrutinise the burgeoning sector to find out if consumers who lend and invest money on peer-to-peer and similar crowdfunding platforms understood the risks they were taking — especially as the industry attracts more “retail investors who are less experienced or knowledgeable”.

According to the regulator, one of the systemic risks posed by P2P platforms is a “maturity mismatch”: between the three-to-five-year terms of the loans people make, and the promise to return their cash within 30 days if needed.

P2P lending and crowdfunding became subject to FCA regulation in 2014 and Friday’s announcement — of a post-implementation review of the rules — follows growing political pressure for more scrutiny.

P2P and crowdfunding platforms gave news of the FCA’s review a cautious welcome. Their trade body, the Peer-to-Peer Finance Association, said it created “an opportunity to ensure an appropriate balance of regulation protecting investors and borrowers, without stifling innovation and competition”.

However, the FCA views crowdfunding and P2P platforms as interchangeable, even though many in the industry argue differently, often claiming that P2P involves lending while crowdfunding is an equity investment. Instead, the regulator deems P2P “loan-based crowdfunding”, arguing that it increasingly involves pooled credit risk, where a number of investors lend to one borrower.

In its paper published on Friday, the FCA detailed a range of risks for UK investors using P2P or crowdfunding platforms. These included the “pooling of credit risk” whereby all investors become vulnerable to defaults by borrowers they did not wish to be exposed to.

Here is the FCA Document Regarding Review of Crowdfunding Regulations, (Crowdfund Insider), Rated:AAA

The FCA document can be found here.

The FCA expressed concern that P2P financial promotions have cropped up which are not compliant with their financial promotion rules across all types of media citing specifically statements that compare P2P to bank savings accounts.

The FCA document is a thoughtful presentation of questions that need to be answered by industry incumbents. The deadline for feedback is September 8, 2016.

FCA Questions on Crowdfunding
Q1: Do you consider that there is the potential for regulatory arbitrage with banking business? If so, what measures should be considered to address it?

Q2: Do you have any concerns about, or evidence of, differences in the treatment between retail and institutional investors?

Q3: Have you seen any initial evidence that the ISA wrapper has led to consumers not fully appreciating the risks involved in Innovative Finance ISA investments?

Q4: Are there differences in borrower protection between commercial and non-commercial agreements that would be best addressed by applying additional rules to P2P platforms, or are the existing rules adequate?

Q5: Do you agree with our analysis of the key developments in the loan-based crowdfunding sector over the last two years?

Q6: Are you aware of current or emerging risks that firms current infrastructure, systems, and controls might not be adequate to deal with?

Q7: Do you have any comments on our concerns over the development of new loan-based crowdfunding business models? Have there been other specific developments that are relevant to the high-level standards summarized above?

Q8: Do you have any comments on the standards of disclosure on loan-based crowdfunding platforms?

Q9: Are our current financial promotion rules for loan-based crowdfunding promotions proportionate? If not, can you please provide examples?

Q10: Is our approach to online and social media promotions proportionate? Do you have any suggestions as to how to improve our rules or approach on promotions?

Q11: Should we require loan-based crowdfunding platforms to assess investor knowledge or experience of the risks involved? What would a proportionate requirement look like?

Q12: What effect do you think loan-based crowdfunding has had on competition in lending and investment/savings markets?

Q13: Where do you think regulations could be amended
to increase confidence in loan-based crowdfunding markets, encourage the development of the markets in the interest of consumers or increase competition by removing uneven playing fields?

Q14: Do you have any comments on the resolution plans of firms operating loan-based crowdfunding platforms?

Q15: Are there any other matters we should take into account in the post-implementation review of loan-based crowdfunding?

Q16: What other market developments should we take into account in our review of the investment-based crowdfunding sector?

Q17: Do you have any comments on the management of conflicts of interest on investment-based crowdfunding platforms?

Q18: Do you have any comments on current due diligence standards for investment-based crowdfunding platforms?

Q19: What do you think of the current client assessment standards on investment-based crowdfunding platforms?

Q20: What do you think of the current standards of information disclosure on investment-based crowdfunding platforms?

Q21: Should we mandate the disclosure of risk warnings in relation to non-readily realizable securities held within Innovative Finance ISAs?

Q22: Are there any other matters we should take into account in the post-implementation review for investment-based crowdfunding?

Switzerland

Lendico and PostFinance Launch Joint Venture in Switzerland, (PR Newswire), Rated: A

Lendico, the online crowdlending marketplace which operates internationally, is moving into the corporate credit market in Switzerland. It is making this step in collaboration with the Swiss PostFinance, which will be a joint venture partner in Lendico Schweiz AG.

With a balance sheet total of more than 119 billion Swiss francs PostFinance is among the five largest Swiss banks and the market leader regarding payment transactions.
Together the partners would like to establish a new form of SME financing in Switzerland. The aim of the joint venture is to provide the numerous Swiss SMEs with a modern alternative to traditional bank financing. The two partners are contributing their complementary expertise in customer contact and the entire lending and repayment process to the joint venture.

About Lendico

As a marketplace for private and corporate credit which operates internationally, Lendico brings borrowers and investors into direct contact. The company, founded in 2013 by Rocket Internet in Berlin, operates in eight countries worldwide, including the newly-launched venture in Switzerland. It was originally established purely as a credit marketplace for private individuals, but in 2015 it expanded its services to include corporate credit. In the past few years, Lendico has increasingly developed into an established alternative to bank financing and has already been dubbed the best credit marketplace several times.

About PostFinance

PostFinance is one of Switzerland’s leading financial institutions and, as the market leader in payment transactions, ensures a seamless daily flow of liquidity. Whether dealing with payments, savings, investments, retirement planning or financing, PostFinance meets its customers on their level, speaks their language and offers them straightforward products with attractive conditions. This makes it the ideal partner for everyone who wants to manage their own finances as easily as possible. PostFinance employs around 4,000 staff throughout Switzerland.

European Union

Spain: CNMV authorizes MytripleA & Lendix as crowdlending platforms, (p2p-Banking), Rated: A

The Spanish Securities Exchange Commission (CNMV, Spain’s financial regulator) has authorized MytripleA as a Platform for Participatory Financing, the formal name for a p2p lending platform. This is one of the first actions to implement Law 5/2015 Promotion of Corporate Financing. MytripleA already benefits from a Payment Institution license (which can be passported within the EU) granted by the Bank of Spain, which authorizes MytripleA to make loan disbursements and receive loan instalments within the regulatory environment for banking payments. This is an additional regulatory requirement in Spain, which is not required by other European countries.

French Lendix announced that it received its formal CNMV accreditation to operate as a P2P lending platform in Spain. The Spanish entity will be the first Lendix international market to open. It will target financing of credits to SME, for amounts ranging from 30,000 to 2,000,000 Euro, duration of 18 to 60 months and at interestrates comprises between 5.5% et 12%. Companies presented on the platform will be selected and analyzed by Lendix credit analysis team and will need to generate a turnover of at least €400’000. Non accredited private investors* will be able to lend up to 3,000 Euro per project with a total maximum yearly amount of 10,000 Euro, while no limit will apply to accredited private investors nor institutional investors. The launch of Lendix’s spanish platform is scheduled for Q4 2016.

Singapore

Striking the right balance between regulation and space for fintech innovation in Singapore, (Singapore Business), Rated: AAA

Five recent moves to nurture fintech in Singapore

1. Regulatory sandbox
The regulatory sandbox allows local fintechs to experiment with their new and innovative solutions without the fear of punishment in the case of failure. The current regulations would not apply for a defined period and space for this innovation to be implemented.

2. Singapore FinTech Festival
Innovation is the fusion of different ideas and discipline. Nothing is better at nurturing innovation than to bring a large group of innovators together. The inaugural fintech Singapore festival would last from 14-18 November 2016.

3. Fintech office
The fintech office brings together multiple government agencies in Singapore. The fintech office will be led by MAS and the National Research Foundation. Other agencies would include the Economic Development Board, Infocomm Investments Pte Ltd, Info-communication Media Development Authority, and SPRING Singapore.

4. Lower requirements for securities crowdfunding
MAS had removed the need to issue prospectus for SMEs that are seeking to raise small amount of capital that is below $5 million within 12 months. Investors will still have to be informed of the risks involved and need to provide their written undertaking.

For securities crowdfunding platform, they do not have to provide a $100,000 deposit and their minimum base capital requirement will be reduced from $250,000 to $50,000. Besides these concessions, the Securities and Futures Act would apply. All these changes are meant to encourage the formation of more securities crowdfunding platform.

5. Australian collaboration
The mature equity market in Australia made it the ideal platform for fintech listing. For instance, home-grown property crowdfunding site CoAssets was listed on the National Stock Exchange of Australia last year. – See more at:

Author:

George Popescu

The future of Market Place Lending – Madden and beyond

The future of Market Place Lending – Madden and beyond

When ? Monday, August 15, 2016 5:30 PM to 8:30 PM Where ? Pepper Hamilton LLP at The New York Times Building 37th floor, 620 Eighth Avenue, New York, NY Details The supreme court decision not to hear Madden vs Midland: · National Bank Act (NBA) vs · What does this mean for securitization for […]

The future of Market Place Lending – Madden and beyond

When ?

Monday, August 15, 2016
5:30 PM to 8:30 PM

Where ?

Pepper Hamilton LLP at The New York Times Building
37th floor, 620 Eighth Avenue, New York, NY

Details

The supreme court decision not to hear Madden vs Midland:

· National Bank Act (NBA) vs

· What does this mean for securitization for Marketplace Lenders ?

· What does this mean for Marketplace Lenders ?

· What are the next steps expected in Madden vs Midland ?

· How does this affect regions outside of New York, Vermont and Connecticut ?

· Effect on borrowers in New York, Vermont and Connecticut ?

· What about Bethune v. LendingClub, WebBank et al. ? (true lender case and test of the platforms’ mandatory arbitration clauses contained in every consumer loan agreement)

More information

The future of Market Place Lending – Madden and beyond

Monday, Aug 15, 2016, 5:30 PM

Pepper Hamilton LLP at The New York Times Building
37th floor, 620 Eighth Avenue New York, NY

51 Executives Attending

PresentsMarketplace Lending after Madden vs Midland and related problems (true lender, mandatory arbitration,etc. )————–AgendaThe supreme court decision not to hear Madden vs Midland:· National Bank Act (NBA) vs· What does this mean for securitization for Marketplace Lenders ?· What does this mean for Marketplace Lenders ?· What ar…

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