Featured News

June 3rd 2016, Daily News Digest

Lending Club, the world?s largest online marketplace connecting borrowers and investors. (PRNewsFoto/Lending Club)

US

  • Lending Club originations grow by 156% week-to-week for a $3.4 bil annualized origination volume.
  • Elevate Credit sees no first-quarter origination slump. Continues to eye IPO.
  • CFPB proposal eyeing payday loans and auto title loans.

United Kingdom

  • P2PFA’s answer to the Chairman of UK Parliament Treasury Committee’s letter.
  • Advisers worried on liquidity issues for the IFISA.

Sweden

  • How did Stockholm become the #2 entrepreneurial place in the world behind just Silicon Valley ?

Australia

  • An overview of the Australian’s innovations : debt/equity hybrids, ETF on bonds, fixed income ETFS.

India

  • A dense article on the pros and cons of the RBI proposed regulation.

 

United States

LendingClub Corp Retail Funding Spike May Be a Positive Signal: Morgan Stanley, (Bidnessetc.com), Rated: AAA

In a research note today, Morgan Stanley stated that the Securities and Exchange Commission (SEC) filing for loans issued via LendingClub Corp.  shows a surge in the latest week, which may be a positive signal for the investors’ appetite.

Analyst James Faucette notes that data for the most recent week, ending May 31, reflects a surge in funded loans to $67 million, as opposed to $30 million each in the two weeks after CEO Renaud Laplanche’s resignation. While the increase in funded loans is a potential positive for demand from retail investors, the analyst believes that a spike of such a scale could also be described by other sources of funding, as all groups of investors—which include high-net-worth and institutional investors—can buy fractional loans from the platform.

Mr. Faucette did not rule out the possibility of LendingClub buying these notes itself in order to finance the partially-funded loans, as the company could start funding loans on its balance sheet as a temporary measure. He concluded: “As we are unaware of any substantial retail promotions in the last few weeks, […] we think under a more likely scenario some institutional investors may have opted to buy fractional loans, instead of buying whole loans that, perhaps, require a more extensive review or diligence process in light of recent events.”

Online Lender Elevate Credit Sees No First-Quarter Slump, (Wall Street Journal), Rated: AAA

Online lender Elevate Credit Inc., which delayed a planned January initial public offering, grew its lending by 80% in the first quarter from last year, according to the company.

New loans grew to $189 million in the three months through March, from $105 million a year before, said the company, which is focused on loans to people with spotty or limited credit histories.

Elevate said that revenue and profit were also rising. Revenue in the first quarter was $131 million, up from $90 million a year before. Net income was $6 million, up from $1 million in the same period last year.

Mr. Rees didn’t give a definitive timeline for the return of Elevate’s IPO, which remains filed with the Securities and Exchange Commission.

But that was down from $251 million in loans in the fourth quarter. Elevate Chief Executive Ken Rees attributed the quarterly decline to people getting tax refunds in the first quarter and using them to pay off debt.

Unlike those online lenders, Elevate uses its own capital to acquire loans rather than immediately selling them to investors. The company also expanded on its existing credit line from Chicago-based asset manager Victory Park Capital during the first quarter.

“We’re still on track for the year as expected,” said Mr. Rees. “We aren’t seeing any shortage in financing.”

Elevate bills its loans as alternatives for people who seek storefront payday loans, for which the Consumer Financial Protection Bureau on Thursday proposed a complex set of new requirements. Elevate’s loans are paid off in monthly installments rather than in one lump sum at the end of the term, as a payday loan is typically repaid.

Mr. Rees said that Elevate already followed many of the new CFPB practices, and welcomed the new rules.

Some of Elevate’s loans have annual percentage rates, known as APR, as high as 365%, according to public filings. Mr. Rees said that its average rates were dropping, which he said was a contrast to sites such as LendingClub and Prosper, which have been raising rates in part to entice investors.

He said Elevate’s average APR was 153% in the first quarter, down from 251% in 2013. “The issues that are impacting marketplace lenders are helping us out,” he said.

Still, firms like Elevate and LendUp may be impacted by moves to limit short-term lending. Both firms were critical of a recent move by Google to bar paid ads by payday lenders, arguing they would be affected even though they offered safer alternatives.

Mr. Rees didn’t give a definitive timeline for the return of Elevate’s IPO, which remains filed with the Securities and Exchange Commission.

“Unfortunately there have still been very few successful technology IPOs in 2016,” he said in an email. “We are continuing to monitor market conditions.”

CFPB Targets “Payday Debt Traps” in New Rules for Payday Lenders, (Crowdfund Insider), Rated: AAA

The Consumer Financial Protection Bureau (CFPB) has proposed rules targeting the Payday lending industry requiring lenders to assure consumers have the ability to repay the loans.  The CFPB described the proposal as “ending payday debt traps.”  The rules would impact not just Payday lenders but also other “high-cost loans” including auto titles. Simultaneously the CFPB is launching an inquiry into other products and practices that “may harm consumers facing cash shortfalls.”  The statement may be indicative of the CFPB intent to regulate further the broader industry of online or marketplace lending.

Comments on the proposal are due by September 14, 2016 before final regulations are issued.

The current proposal by the CFPB can be found here.

United Kingdom

UK Treasury Committee Expresses Concern on Risk of Peer to Peer Lending, (Crowdfund Insider), Rated: AAA

The Chairman of the UK Parliament Treasury Committee has written both Tracey McDermott, head of the FCA, and Andrew Bailey, Deputy Governor of the Bank of England for Prudential Regulation, to enquire if consumers may benefit from further regulation of the peer to peer lending industry.

The letter.

Christine Farnish, Chair of the UK Peer to Peer Finance Association (P2PFA), responded to Tyrie’s inquiry.

The reponse.

“Individual platforms should be responsible for ensuring that consumers are cognizant of the risks involved in their products. The Peer-to-Peer Finance Association requires member platforms, through our operating principles, to meet high standards, not least in terms of levels of transparency and consumer education. Platform websites are audited frequently, and we provide feedback. All members are required to publish in full the details of their loan books to ensure that investors are able to hold platforms to account on credit assessment.”

Farnish observed that Tyrie agreed that “greater regulation is not necessarily the answer.” She said over-regulation might cause the exclusion of smaller investors thus defeating one of the benefits of providing access and opportunity to all.

“Ultimately, platforms exist only because they create value to consumers on both sides of the platform: this addresses the issue of financial inclusion and competition in the banking sector,” affirmed Farnish. “Investors are able to earn stable, predictable returns that outperform other investment products, whilst borrowers can access fast and flexible finance.”

Innovative Finance Isa warning from advisers, (FT Adviser), Rated: AAA

Advisers are worried the new Innovative Finance Isa might encourage people to use peer to peer lending for their retirement income.

Tom Williams, a chartered financial planner for WH Ireland, commented the average saver might not immediately realise funds within an IFIsa will generally be ‘locked’ and inaccessible for an agreed term.

Sweden

Unveiling Stockholm’s Stealth Startup Breeding Ground, (Pymnts.com), Rated: A

On a per capita basis, the Scandinavian country is known for producing 6.3 billion-dollar companies per million people, coming in second only to Silicon Valley.

Long before Stockholm gained recognition as a global tech center and breeding ground for some of the world’s most recognizable brands, the Swedish government was trying to pick up the pieces after a financial crisis that took place in the 1990s.

In an effort to get the economy back on its feet, Siemiatkowski said there were many government initiatives — such as a drive for increased computer literacy and the early introduction of a high quality broadband infrastructure — that set the scene for the country to thrive.

The government recognized, Siemiatkowski added, that establishing this foundation was similar to building roads or laying down railroad tracks, in that “the earlier you support such infrastructures, that would then support economic growth in general.”

While today people are inspired and eager to set off to try to transform their ideas into successful business endeavors, Siemiatkowski said back in the ‘90s, to say you were being an entrepreneur was associated with simply being out of a job.

This was due to the government’s idea to combat unemployment by incentivizing people who were without work to set off and start their own companies, so back then “it was almost shameful to be an entrepreneur in social context,” Siemiatkowski explained.

“It’s a big enough market where you can make a real business just inside Sweden, but given that it’s only 9 million people, most of the entrepreneurs think globally much faster than their counterparts do,” Billingsley noted, giving an example of how the country’s small size can still work to the advantage of the startups within it.

His words of wisdom?

Be skeptical and tough when it comes to deciding who to receive mentorship and guidance from. After receiving a lot of poor advice early on, Siemiatkowski discovered the challenge in knowing what excellence really looked like.

But receiving the right advice from investors about five years after Klarna started helped to open up access to a totally different perspective.

“Connecting that talent to people who have really accomplished and built great big successes, that’s where there’s need.”

Australia

Turning debt into income is easier as new investment models multiply, (News.com.au), Rated: A

“Compared to other countries, Australian investors have a bias to equities and are relatively underweight in fixed income,” says Jon Howie, the head of iShares Australia.

Foggo says RateSetter is the only traditional peer-to-peer lending platform available to Australian retail investors. Other platforms such as SocietyOne and MoneyPlace source their money from wholesale investors such as super funds, banks and wealthy individuals.

“Lenders can earn over 9.7 per cent per annum in RateSetter’s five-year lending market, down to around 4 per cent in its one-month lending market.”

Listed company DirectMoney also promotes a marketplace lending model and investors access its loans through its DirectMoney Personal Loan Income Fund.

“The DirectMoney fund offers investors a pooled investment approach where returns and the risk of any one loan default are spread over the fund’s entire portfolio,” says DirectMoney founder David Doust.

The fund’s minimum investment amount is $10,000 and its first full year of performance delivered investors 7.76 per cent after fees and provisions.

Fund manager Vanguard last week launched a new exchange-traded fund that offers access to debt from about 260 investment-grade companies in Australia and overseas, while iShares offers half a dozen fixed income ETFs.

Doust warns that when interest rates start to rise, the holders of bonds will suffer capital losses.

Hybrid securities, a mix between debt and equity, are issued by many big companies including the banks and are popular with income investors.

“The latest hybrid to be issued, Westpac Capital Notes 4, is promising to pay investors a margin of around 5 per cent above the bank bill rate, which is a total franked yield of nearly 7 per cent,” Doust says.

“But hybrids have their own risks … Investors should take advice from an independent adviser regarding their appropriate diversification.”

China

China needs to regulate online P2P lending quickly to protect sector: P2P CEO, (The Fiscal Times), Rated: A

Chief Executive Cliff Zhang of online financing platform PPDAI told Reuter : “Non-bank lenders are increasingly able to skirt rules on indebtedness by expanding into the largely unregulated realm of financial technology (fintech)”.

PPDAI, for instance, was founded in 2007 and specializes in small loans to consumers looking to pay for gadgets and travel. The firm expects transaction volume to nearly quadruple in 2016 from 5.6 billion yuan ($850.87 million) last year, Zhang said.

India

Comments on the RBI’s Consultation Paper on Peer to Peer Lending, ( Center for Internet and Society), Rated: AAA

Comment: a dense article written in a fairly organized structure that is hard to summarize here without copying the entire article. 

P2P lending platforms can be considered to be brokers and thus there are other aspects that merit scrutiny such as antitrust issues, obligations of either party, company activities and the transactional system involved…

The consultation paper itself states that the balance sheet of the platform cannot indicate any borrowing / lending activity, which entails that the platform cannot itself provide finance or receive any funds for the provision of loans to others. Platforms are not allowed to determine the interest rates as they are not a party to the transaction. Neither would they be liable in cases of default by the borrower. These rules, standard for P2P platforms in other jurisdictions as well, confirm the assumption that the platform itself is not providing finance and thus, cannot be entrusted with any liability, obligation from the transaction.

Economic Times reporting that one of the biggest Indian P2P lending platform’s enterprise valuation (which can be taken as indicative of its net assets) is Rs 50 Crores [7], we may assume that most P2P lending platforms will have net assets worth less than 500 crore, at least in the near future; although there is a possibility for exponential growth with some companies.

Author:

George Popescu
George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

2 Comments

Click here to post a comment

Your email address will not be published. Required fields are marked *

  • Can you provide a little more color on this statement you made? Are you referring to direct mail, buying existing portfolios from lenders abandoning the space due to the CFPB, referral programs, collaborations with other businesses having similar but non-competitive products/services…

    LOVE your insights!!! Jer – Trihouse

    “And last but not least our readers have been very interested in different techniques for customer acquisition. I believe that small originators are doomed if they are planning to compete on Google, Facebook , Twitter or Linked In for customers head-to-head. There are plenty of ways to be creative that I am discovering regularly”

Testimonials

default image

"Your daily letter is great!" , Ram , Founder and CEO, PeerIQ

default image

"Hi George - just want to tell you that you are doing a great work with Lending Times;-) Brgds, Kasper" , Kasper, Partner and Co-founder at Dansk Faktura Børs A/S

default image

"I've been following your newsletter for some time now and have been very impressed with the content." Charlie,Co-Founder | Bolstr

default image

"Hey George, I must say I really enjoy your site. It has inspired me to do some changes at our platform and we are the biggest consumer lender in Sweden." , Ludwig, CEO @ Savelend Sweden AB

default image

"Your daily email is very useful. It gives quick update on what's going in the market. Thank you very much for all that info." Yann Murciano, Head of Base Metals Trading at Morgan Stanley

Our daily p2p news digest