Featured News

June 6th 2016, Daily News Digest

US

  • Very interesting analysis by PeerIQ on the impact of Lending Club news on the securitization market.
  • Continuous innovation: companies offering loans to employees via marketplace platforms.
  • Vouch Financial, relying on co-signers, shutting down.
  • Appollo funds co-founder: “Credit business is taking advantage of banks who are forced sellers”.
  • 24 companies among which Prosper, Funding Circle, Avant and Upstart received a NY financial regulator request for information.
  • Interesting SME financing and banking habits survey.

UK

  • UK May 2015 origination volume: the slowdown continues. Possible reasons explained.
  • wiseAlpha, marketplace lender, crowdfunds £594,950 for 9.79% in equity.

China

  • PitchIt China announced.

Israel

  • Psagot, with $50bil AUM, purchases 20% of BLender Israel.

Malaysia

  • A good overview of the regulatory regime and comparison to the UK one.

Singapore

  • Overview of the heating up p2p lending market in Singapore.
United States

How are ABS deals impacted by Lending Club news?, (Peer IQ email), Rated: AAA

Going into May, spreads on marketplace lending bonds tightened with broader credit markets leading up to the May 9th Lending Club event. MPL spreads, particularly unsecured consumer installment loans, have tended to act as a frontier market–risk premiums were first to widen and last to tighten. After the event, credit spreads continued to tighten in sharp contrast to the volatility observed in the stock price of Lending Club.

This week, we studied the credit investors’ response to the recent news through secondary market ABS, using the CHAI and SoFi shelves as market barometer. We choose to focus on these two shelves as they have the longest running history, deal size, popularity amongst investors and market-makers, and consistency across deals.

Note that the CHAI shelf, issued by Citi, has historically consisted principally of unsecured consumer installment loans issued by Prosper. The SoFi shelf below consists of student loans. (Student loans are non-dischargeable and have substantially different default, prepayment characteristics and loan terms as compared to consumer loans, so we should limit our conclusions accordingly.)

We show below the average quoted credit spread for the senior and sub pieces for CHAI and SoFi shelves. The vertical blue line indicates the Lending Club Q1 earnings event and disclosure on May 9th, 2016.

ABS market impact by lending club

We perform a similar analysis–this time looking at the average quoted spreads by tranche.

ABS market impact by lending club 2

Platforms can influence financing costs 
The visible, traded securitization market sets pricing for other distribution channels. Platforms are increasingly taking a hands-on approach to improving execution in their ABS market by promoting transparency, standardization, and liquidity. Securitization is an essential feature of the funding strategy for any mature platform–marketplace, balance sheet, or otherwise.
Platforms that successfully implement ABS programs see the knock-on benefits in terms of reduced funding costs for whole loan buyers.

 

Bosses Turn to Loans to Help Employees, (Wall Street Journal), Rated: AAA

Pam Dimitro, the controller at JNET Communications LLC, realized employees were often turning to payday lenders or high-interest credit cards in a financial pinch.

So the Warren, N.J., employer of call-center workers and cable installers began offering employees a new benefit: low-interest loans to help pay for things such as car repairs and health expenses.

“I can’t have an effective employee if they are stressed and thinking about waiting tables on the side to make ends meet,” said Erik Dochtermann, chief executive of New York creative media agency MODCo Media, which has 33 full-time workers.

Mr. Dochtermann has helped pay off several employees’ high-interest debts and sets repayment at a 5% interest rate, reducing pretax compensation by the loan amount.

Some 12 million Americans use payday loans each year, according to Alex Horowitz, senior research officer with the Pew Charitable Trusts’ small-dollar loans project.

As an alternative, employers are joining with firms such as Kashable LLC, Ziero Financial Inc. and Zebit Inc. to help fund and service loans. Some companies are offering those products in conjunction with employee-focused seminars about saving, budgeting and debt.

Only 6% of employers offer low or no-interest loans for nonemergency situations, a percentage which has stayed relatively steady in recent years, according to a 2015 survey of more than 450 employers from the Society for Human Resource Management.

The service is free to employers and employees; Zebit makes money through its retail business, said Michael Thiemann, Zebit’s CEO.

Mr. Kennedy recently began offering staffers access to no-interest loans from Ziero, which charges employers a fee of roughly 10% of the loan principal for handling the loans and providing the capital.

Online Lender Vouch Financial Shutting Down, (Wall Street Journal),Rated: AAA

The company’s decision to shut its doors is a further indication of pressure affecting online lenders. It also suggests that more activity may begin to gravitate toward larger players and even potentially banks that are now increasingly offering online loans of their own.

The San Francisco firm, started in 2013, makes personal loans. Vouch borrowers must ask a friend or family member to sponsor them and put up a slice of money that will be lost if the borrower doesn’t pay back, on the theory that would improve borrowers’ likelihood to repay the loan.

Vouch had raised $11 million in venture funding from investors including Greylock Partners, First Round Capital, and Data Collective, according to Dow Jones VentureSource.

Loan volume by Vouch never took off like larger peers. Through last August, Vouch said it had made $1 million in loans. By contrast, Prosper and LendingClub each lent several billion last year.

It wasn’t immediately clear how many people worked at Vouch, or their current status. The company’s LinkedIn profile said it had fewer than 50 employees, and 28 people were listed on the website.

APOLLO: ‘We are going to keep on filling the role of banks’, (Business Insider), Rated: A

Apollo cofounder Josh Harris said at a Deutsche Bank conference on Tuesday:

Most of the growth in the credit business today is just taking advantage of — in essence — forced sellers, banks that are depressing market prices, and creating an arbitrage for us and our investors. That is going to go on for a while. I do think we benefit from regulation, and we are going to keep on filling the role of banks to provide capital.

To be sure, even as they beef up their credit arms to help midsize companies fund deals, the alternative lenders are still a relatively tiny group, with just $500 billion in assets, compared with nearly $120 trillion in global banking assets.

But to Apollo, that’s just an opportunity to grow the business.

Prosper, Other Online Lenders Put Under NY State’s Microscope, ( Pymnts.com), Rated: AAA

New York’s financial regulator sent a letter to more than two dozen companies last week looking to garner more information about their activities, according to Reuters.

The agency, the New York Department of Financial Services, sent the letter to lenders that included Prosper, Funding Circle, Avant, Upstart and a host of others, according to an unnamed source.

According to the newswire, the New York department said in its letter that it wanted to see “immediate compliance” with the state requirements for debt collection and other lending activities. The lenders, who assert that they do not require licenses, must offer up details on products and services, “as well as cash flow charts,” according to the letter, which was sent out earlier last week.

Should P2P Lenders Be Concerned About Rising Rates?, (Forbes), Rated: A

When the Federal Reserve decided to raise interest rates by 0.25 percent in December, the biggest names in banking—Wells Fargo , JPMorgan Chase , Bank of America and Citi—all announced higher rates for borrowers within hours of the Fed’s decision.

The question is, will rising interest rates have a positive impact for borrowers and investors or will they scuttle this rapidly growing industry?

If P2P lenders are raising loan rates to remain competitive, borrowers may be less likely to view them as a lower cost alternative to traditional banks. Consequently, they may choose to take their business elsewhere, leaving P2P lenders in the lurch.

The argument is also being made that an increase in interest rates would correspond to higher default rates. When rates rise, so do the monthly minimum payments on a loan.

One week after the December 2015 federal funds rate hike was announced, Lending Club issued a statement saying that it would raise interest rates for most loans by 0.25 percent. Prosper, another leading P2P lending platform, followed suit in February by instituting rate increases across the board for all of its loan products.

In fact, marketplace lenders have a unique opportunity to continue offering savings to borrowers in a rising interest rate environment. The reason? P2P loans are simply not as rate sensitive as other forms of credit. Credit cards are a perfect example of how P2P lending is equipped to deliver a discount to borrowers that big banks can’t match.

When the federal funds rate goes up, the prime rate increases accordingly. Because credit cards are tied to the prime plus rate, a federal rate hike means a subsequently higher rate charged for credit cards. P2P loan rates, on the other hand, are not directly tied to the prime rate. And even if P2P lenders decide to increase their borrowing rates as a result of an increase in the federal funds rate as Lending Club and Prosper recently did, the savings spread for consumers as compared to credit cards remains the same.

Talk of additional rate hikes has quelled to a degree. While three to four such increases were originally predicted for 2016, the Fed has since scaled back that forecast.

A Wakeup Call For SME-Serving Banks, (PYMNTS), Rated:AAA

94% APRs are tacked onto alternative SME loans, concluded nonprofit company Opportunity Fund. The microfinance provider surveyed 104 businesses in California and found sky-high interest rates for small businesses turning to alternative marketplace lenders for financing. According to researchers, the 104 companies surveyed held a collective 150 loans. More than a quarter held loans from multiple lenders, according to reports. On average, these businesses paid 178 percent of their monthly income on loan repayments, leading researchers to declare that alternative lenders are enacting “predatory” practices on small business borrowers.

56% of SMEs expect to pay bills via online banking more frequently this year, a sign that small businesses’ digital banking and payments needs are evolving, according to Fiserv research

36% of self-employed entrepreneurs turn to payday loans to cover late payments, revealed new analysis from U.K. FinTech startup Ormsby Street.

28% of SMEs aren’t using bank resources to protect against late payments, found Intrum Justitia in its European Payment Report 2016.

25.2% of SMEs increased their payroll commitments last month, found the CBIZ Small Business Employment Index.

16% of SMEs in the U.K. are seeking alternative financing after being rejected by a traditional financial institution, said Amicus.

1.2% more corporations received bank financing this year compared to last, found the European Central Bank, which released new statistics on FIs’ lending practices to companies across the eurozone. Lending levels increased in April, research found, while corporate financing by banks saw a year-on-year increase in April, too.

 

United Kingdom

UK Origination Volumes – The Slowdown Continues, ( Altfi.com), Rated: AAA

Four UK platforms reported new record monthly origination figures in May:

Folk2Folk: £6.83m
SyndicateRoom: £6.1m
Lendable: £3.8m
MoneyThing: £2.3m

A month ago AltFi reported that there were signs of a slowdown in UK marketplace lending origination growth. May’s figures point to a continuation of this trend, only just beating April’s origination total. The industry is still originating new loans, it’s just that originations are not growing as quickly as they were.

Drilling down to a platform level helps to explain what is happening and why. The largest five platforms in the UK – Funding Circle, Zopa, RateSetter, MarketInvoice and LendInvest have been the driving force behind the sector’s growth. However, since the end of February these five platforms have begun to cede market share, dropping from 82% at its peak to 75% today.

The supply and demand scales have tipped – the growth limiting factor for the UK sector is now the availability of lending capital. Deals such as Funding Circle’s IPad giveaway and RateSetter’s £100 incentive for new investors putting in more than £1,000 underline this. Could this mean that we’ll see interest rates increase in order to attract more lenders? There have been hints of this happening in the US – such as Blue Elephant’s return to Prosper’s table that coincided with an increase in lending rates. We’ve not seen much evidence of this in the UK thus far, but we’ll be looking out for it, so watch this space!

wiseAlpha, a Marketplace for Secured Corporate Loans, Raises £594,000 on Crowdcube, (Crowdfund Insider), Rated: A

wiseAlpha, a marketplace where both small and large investors may access secured corporate loans, has closed its crowdfunding round on Crowdcube.  Over 400 investors came together to purchase £594,950 or a 9.79% equity stake in the startup. WiseAlpha will be using the new capital to grow the number of people investing in secured corporate loans in the UK and Europe. Given the fact they are the only marketplace in this sector, wiseAlpha expects to grow faster than established P2P lenders like Zopa and Funding Circle.

Investors that participated via the crowdfunding round, and have invested £1,000 or more on Crowdcube, will receive 0% Service Fees for life.  Otherwise, for members of the platform, wiseAlpha charges an annual Service fee of 1% on total monies invested and a 0.25% Sale Fee for investments sold via the wiseAlpha matched bargain based sale process.

In reflecting upon his decision to raise capital online, Ahmad called crowdfunding “one of the most important financial innovations in recent years.”

China

LendIt China 2016’s Lang Di Fintech Conference announces PitchIt @ Lang Di Fintech, (Press Release), Rated: A

LendIt, today officially opened applications for PitchIt @ Lang Di Fintech, the premier competition for rising Chinese fintech startups. Lang Di Fintech 2016 is LendIt’s inaugural Chinese conference, which is to take place in Shanghai on July 17-18, 2016. Earlier this month, LendIt announced a strong lineup for Lang Di Fintech 2016.

Applicants must be high-growth startups founded between 2014 and 2016 with less than $5 million in funding, at least two full-time founders and a working prototype with customer interaction.

Selected finalists will receive two free passes to Lang Di Fintech and a significant discount for additional members of their team. This year’s winner will receive a complimentary gold sponsorship package at Lang Di Fintech 2017.

The winner will also have the chance to deliver their presentation on the main stage at this year’s conference in front of some of the most powerful leaders in the global fintech industry.

Israel

Investment House Acquires 20% of P2P Lending Startup’s Business in Israel, (Finance Magnates), Rated: A

Israeli Investment House Psagot has announced an agreement to purchase 20% of multinational Peer to Peer (P2P) lending platform BLenders’ activity in Israel, pending regulatory approvals. No financial details from the deal have been revealed yet but it is known that Psagot will be adding its representative to the BLender Israel Board of Directors.

Psagot is the largest investment house in Israel and manages assets valued at $50 billion for a million individuals, corporations and institutions. It is owned by Apax Partners, a UK-based private equity and venture capital firm.

BLender was selected as one of the most promising fintech companies in 2015 by The British Chamber of Commerce and KPMG. One of its unique features is that it allows lenders to sell their loan portfolios in the secondary market, providing liquidity. BLender finalized its Series A round last year, which was led by Blumberg Capital, a Silicon Valley venture capital fund, to finance an expansion in Western Europe and Latin America.

Malaysia

Regulation of P2P Lending in Malaysia, (p2p-banking), Rated: A

As one of the first countries in Asia to publish a regulatory regime, Malaysia is opening up to entrepreneurs, institutions and global operators to facilitate the ease of business credit through P2P lending. Ranked 18th on the World Banks’ Ease of Doing Business league tables, Malaysia is positioning itself as the conduit for global players to setup in Kuala Lumpur as gateway for serving P2P lending markets across Asia. Malaysia has one of the highest levels of financial inclusion in the world at 92 per cent and the country has taken advantage of mobile phones and online banking to expand access.

The first noticeable difference in the platform operator rules is the requirements by the SC for a platform to have a minimum paid-up capital of RM5 million (approx. £80,000).

SC has decided to enforce a specific requirement on P2P operators to use ‘an efficient and transparent risk scoring system’ and to ‘carry out a risk assessment on issuers’.

SC has incorporated the need and responsibility of platforms to ensure that they carry out sufficient Anti Money Laundering (AML) and Financial Crime (FC) Prevention practices as part of their normal operating processes.

One of the most notable rules imposed by the SC is the cap on the rate of financing on platforms. This is probably a pre-emptive measure to prevent market abuse, which has occurred in other P2P territories.

The SC’s rules on client money / operation of a trust account are clearly intended on ensuring client money is safeguarded and segregated from a platforms own funds, but do not go so far as giving specific instruction on how platforms should go about the safeguarding. I believe that the SC will look to very quickly bolster these rules and offer more instruction to platforms once they have had an opportunity to understand the needs and ways in which platforms operate, as seen by the FCA’s approach.

Whether the SC intend to open up P2P to consumer finance is unknown, however their decision to initially limit it to business finance is arguably a wise decision whilst the market is in its infancy.

Singapore

Crowdfunding craze: Gold rush all over again?, (Straitstimes), Rated:A

In April, a $150,000 campaign for a lift installation and maintenance company on MoolahSense was fully funded in just two minutes, while firms on Funding Societies have managed to raise smaller sums like $20,000 within a mere 30 seconds.

The Sunday Times takes a closer look at why the crowdfunding scene is heating up so quickly and what this means for investors.

Crowdfunding is also being used for charity. For instance, a campaign to raise money for the families of two SMRT trainees who died after being struck by a train in March amassed about $47,000.

Where investors are concerned, it is lending-based crowdfunding, which offers interest on loans, that is most popular.

There are at least 14 companies with a presence here, including newcomers like EziFund, a real estate crowdfunding platform that made its debut on April 18.

Investors are clearly on the hunt for alternative yields as traditional assets such as equities continue to perform poorly.

One key benefit for those who invest through crowdfunding is that they can have access to potential good returns with smaller sums of money, says Mr Getty Goh, chief executive and co-founder of real estate crowdfunding platform CoAssets, which is also the first listed crowdfunding company in Asia.

In P2P lending, investors can usually start with amounts as little as $100, coupled with interest rates that are usually within the double-digit range and loan tenures as short as six months.

“Rise in competition is triggering a race to the bottom when loans are approved recklessly and interest rates are set artificially low compared to their risks,” he says. “As investor supply outweighs loan demand, investors are hurried to invest.”

Errata

Claim that LendInvest volume was down 80% in May.

Please note that contrary to the claim on p2p-banking.com, reported here, the claim that LendInvest volume is down 80% in May 2016 vs April 2016 doest not appear to be correct. We have received a note from Sam Griffiths at AltFi.com explaining :

“Hi George, I note that you repeated the claim that LendInvest volume was down 80% in May. That’s not accurate. It’s merely a quirk of how Claus collects his volume data. (He has 1.75 months in April and .25 in May). LendInvest May volume was roughly flat to that of April. There has, however been a slowdown in origination growth in the UK. Full story here: http://www.altfi.com/article/2007_uk_origination_volumes_the_slowdown_continues

 

 

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.

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