Daily News Digest Featured News

June 22nd 2016, Daily News Digest

News Comments

US

  • US’s Financial Stability Oversight Council (FSOC) publishes annual report flagging marketplace lending by consumers may pose risk to US financial stability. Does this mean that MPL has reached a large enough size ? Could this be positive news ? Or could this lead to labelling MPL as Systematically Important Financial Institutoins and get access to FED bailouts ?
  • A good reminder of LendingClub’s strong fundamentals.
  • Gradifi, which offers student loan refinancing as an employer benefit, also turned credit card rewards into student loan credits in partnership with Mastercard.
  • Prosper unveils new retail investor experience to attract more retail capital. A great move.
  • As unsecured personal loan marketplace lenders are struggling with cost of customer acquisition and lending capital, secured business and real estate lenders see investor demand growing.
  • Kabbage does a similar deal with Scotia Bank as OnDeck did with JP Morgan.

UK

  • 4thway survey claims alternative investmetns are not always high risk. We would like to see more data to support the claim.
  • Singapore
  • New invoice financing MPL for institutions to institutions launches in Singapore with $60mil in pilot projects.

India

  • Great story on how to start a personal loan aggregator in India. Cashkumar has 1500 daily visitors with 13% conversion to leads. A lot of very interesting numbers.

Australia

  • Non-bank business lenders receive $1.1bil in loan application per year. eBroker founder Simon Isaacs: “I can’t believe the growth”. eBroker, a business loan aggregator has 47 platforms.
  • ThinCats Australia choses to use a 3rd party platform for underwriting, thus lifting the conflict of interest of self-pricing loans you find and you sell. A very interesting direction.

News Summary

 

United States

U.S. regulators keep eye out for risks from marketplace lending, (The Fiscal Times), Rated: AAA

Link to the FSOC report 

Hedge funds, banks and insurance companies have recently jumped into “marketplace lending,” drawing the attention of U.S. regulators, who said on Tuesday they are concerned that borrowing by consumers and small businesses through online platforms may pose risks to U.S. financial stability.

In its annual review of the U.S. financial system released on Tuesday, the Financial Stability Oversight Council (FSOC) consisting of all the country’s financial regulatory chiefs, also said it is watching events overseas, including this week’s “Brexit” vote and the turmoil in Venezuela. It also noted that China “is in the midst of long-term transitions in its economy,” which could have global implications.

Each year the council addresses an array of risks in cybersecurity in its review. But this year, it expanded its technology focus to include the rapid rise of marketplace lending, which only received a brief mention in last year’s report. It also looked at distributed ledgers, commonly called “blockchains.”

Their primary tool of underwriting by algorithm has never been tested in a downturn and there is a risk that investors “may prove to be less willing than other types of creditors to fund new lending during times of stress,” it said.

Firms that arrange loans for fees and do not have interest in the transactions could “evaluate and monitor loans less rigorously.”

The council, created in response to the 2007-09 financial crisis by the Dodd-Frank Wall Street reform act, had said in last year’s review that the precursor to marketplace lending – known as “peer-to-peer” financing – should be monitored.

LendingClub’s Potential Is Massive, (Seeking Alpha), Rated: AAA

  • LendingClub is the leading platform in an absolutely massive addressable market where size may bring advantages.
  • No balance sheet risk and healthy cash levels limit the downside,book value is likley just under $3.
  • The company has over-corrected for a serious but small offense, and this may be a big opportunity.

In keeping with my theme of “broken disruptors,” (I recently covered Chipotle), another rare opportunity seems to have emerged in LendingClub Corporation (NYSE:LC).

While still in the early innings, LendingClub’s cost of originations is roughly 2%, while that of traditional banks are 5-7% (Macquarie Research Report, May 2016). Because of the low costs, LendingClub is able to offer high-quality borrowers (FICO 600-720+) rates on unsecured loans at are seven hundred basis points lower than credit card companies, and likely much lower than banks would offer as well. A majority of LendingClub’s current borrower base (~69%) uses the loans for refinancing, mostly credit cards, while the other 30% of customers loans for other purposes, such as Home Improvement, Major Purchases, Medical (1%), Business loans (2%), and other purposes.

It is my thesis that LendingClub’s current problems are relatively minor and fixable, and that the share price has overshot to the downside. ShouldLendingClub reinstate loan buyer confidence in the coming months and continue its leadership and transparency as the leading P2P platform, the upside is massive, and the downside I believe to be limited thanks to a healthy balance sheet.

Gradifi partners with Radius Bank to offer MasterCard to ease student loan debt, (TechCrunch), Rated: AAA

Gradifi offers ” Attract and retain the best talent by offering our new SLP Plan™ (Student Loan Paydown) benefit to your employees.”

Gradifi founder Tim DeMello doesn’t have an outbound sales team. That’s how big the student loan problem is. When Boston-based Gradifi first launched its student loan paydown plan, 456 companies reached out wanting to sign up for the benefit. Gradifi has 20 companies registered and another 80 scheduled for on-boarding through Q4 2017. PricewaterhouseCoopers signed on to Gradifi in January. Nearly $150 million in student loans are registered on the Gradifi platform.

Today, Gradifi is launching a partnership with Radius Bank to allow MasterCard Debit Card users to earn 1 percent cash back for student loans. That doesn’t sound like a lot, but if someone spends $2,500 a month on their debit card they will earn back $25 a month. Over the life of a 120-month student loan, users will earn $3,000 to be paid toward student loan debt.

Gradifi is exclusively backed by angel investors and has expectations to be cash-flow positive by the end of 2017. The company signed a partnership with MasterCard for 1.1 percent cash back and uses the difference between the 1 percent offered to pay overhead and operational expenses.

The team has expanded from three to 30 employees over the last year.

Prosper Unveils New Retail Investor Experience, (Press Release), Rated: AAA

propers new retail customer experience

The release of the new experience comes at a time when investors are looking for attractive alternatives to the stock market. A recent Prosper survey revealed that over 80% of Prosper investors had returns that met or exceeded their expectations[1].

([1]Results are based on responses from 357 active investors to an e-mail survey sent to 2,600 randomly selected active retail investors conducted between 5/2/16- 5/19/16. Active Investors are defined as retail investors who have bought a Note within the last two months.)

When investors log onto the site for the first time, they’ll immediately notice changes to the visual design. The new features of the retail investor experience include:

  • Account Dashboard:The new at-a-glance account overview makes it easy to see how your portfolio is performing.
  • Auto Invest in Seconds: Once your investment criteria have been saved, Auto Invest will start investing on your behalf with as little as $25 per Note.
  • Portfolio Customization: Use the Auto Invest tool to build your desired portfolio. Pick a target investment mix according to your specified criteria or create your own custom mix.

Since its launch in 2006 as the first marketplace lender in the US, Prosper Marketplace has evolved into a personal finance company that offers products and services that go beyond access to personal loans to help people get on top of their finances.

 

Creating Demand for Investment in Secured Loans, (National Real Estate Investor), Rated: A

More recently, marketplace lenders have transitioned to offering investors opportunities to break into the secured debt space, specifically through commercial real estate debt.

Commercial real estate debt investments, which are offered by fewer platforms, can provide more certainty in return on investment for involved parties.

Despite many of the reports about the state of the marketplace lending industry, there remain great—and secure—opportunities via investment in commercial real estate loans.

Scotiabank teams up with ‘fintech’ startup Kabbage to provide business loans, ( The Star), Rated: AAA

The bank’s customers in Canada and Mexico will be able to apply for loans using the U.S.-based lender’s tech platform. The partnership will allow Scotiabank customers in Canada and Mexico to apply for small business loans of up to $100,000 using Kabbage’s technology platform. Scotiabank had previously invested in Kabbage, which has its headquarters in Atlanta.

Late last year CIBC announced a partnership in the small business online lending space with Montreal-based Thinking Capital.

FT Partners Hires 18+ Year Payments and FinTech Veteran Stephen Stout as Managing Director, (Press Release), Rated: A

FT Partners, now in our 15th year since launching the Firm with the goal of creating the preeminent investment banking firm focused exclusively on FinTech, is pleased to announce the further deepening of our senior team with the addition of 18+ year Payments and FinTech investment banking veteran, Stephen Stout, as Managing Director in our New York City office.

Mr. Stout was most recently the Global Head of Strategy at First Data where he was responsible for managing global strategy, business development projects and M&A. While at First Data, he also spearheaded the Company’s IPO, which was the largest equity offering in the U.S. in 2015. Prior to First Data, Mr. Stout spent eight years as a senior investment banker at J.P. Morgan building its FinTech and Payments practice. He was a lead advisor on many high profile FinTech deals including the IPOs of Visa, Cielo, Vantiv, Green Dot, FleetCor, Qiwi and Evertec. He also advised on numerous M&A deals, such as Visa’s acquisition of Cybersource, Vantiv’s acquisition of Litle & Co, the spin-off of TSYS from Synovus and the sales of Mercury Payments, Merchant e-Solutions, Comdata, MoneyGram, Travelex, NETS, Obopay and Point International, among others.

Venturize Empowers Black Business Owners with New Loan Comparison Tool, (Black Press USA), Rated: A

Sathe said that OFN, a national network of community development financial institutions, wanted to create a tool similar to the travel website Expedia.com, but for small business lending. Venturize.org features tutorials on borrowing, a loan application checklist and articles about establishing credit for your business, but the service does not lend money or recommend loans.

Minorities own about 8 million small businesses in the United States. The Wall Street Journal reported that, Black-owned businesses have received less than 2 percent of loan money furnished through the Small Business Administration, down nearly 6 percent (5.7 percent) since the recession.

Small business owners increasingly turn to online lenders to keep their businesses afloat.

The Sam’s Club Giving Program’s Small Business Economic Mobility initiative provided $3.6 million to fund Venturize.

In a press release about Venturize.org, Julie Gehrki, the senior director of the Walmart Foundation, which oversees the Sam’s Club Giving Program, said that the new loan comparison tool will be an important resource for small business owners as they navigate the borrowing process.

 

United Kingdom

Savers ready to take a risk by ditching cash for stocks and shares, (Express), Rated: A

Neil Faulkner, founder of 4thway.co.uk, a risk ratings agency for P2P lenders, says Zopa, RateSetter and Funding Circle have shown that alternative investments are not always high risk. “They have delivered impressive returns year after year to investors who have spread their money across hundreds or even thousands of prime, credit-checked borrowers.”

Your money is not protected by the government-backed Financial Services Compensation Scheme which covers up to £75,000 held in a savings account but Faulkner says: “Zopa, RateSetter, Landbay, Lending Works and others have impressive systems to defend investors against losses and have set aside large pots of money to cover defaults.”

 

Singapore

Invoice financing platform Capital Springboard launches in Singapore, (Deal Street Asia), Rated: A

With offices in Singapore, London,UK and Dublin, Ireland, the firm claims to have facilitated trades worth S$80 million ($60 milion) from its Singapore pilot project.

Capital Springboard – backed by London-based investment advisor Centurion Portfolio Managers – has announced the Singapore launch of its peer-to-peer (P2P) financing platform for accredited investors seeking high returns on short-term invoices.

Operating in the invoice financing space – with invoice financing a form of factoring – the Springboard Capital provides a platform for businesses to trade their outstanding invoice(s) or accounts receivable to investors at a discounted price to obtain cash immediately, rather than waiting for their vendor to pay on the due date. S

According to a 2015 white paper, commissioned by the Interface Financial Group (IFG), the total invoice finance market has been growing rapidly and reached over $3 trillion on a global basis.

Some players in the P2P Invoice finance sector are Market Invoice and Platform Black in the UK, as well as The Interface Financial Group, FastPay, C2FO and P2Bi in the US. Locally, Capital Springboard will be competing with the likes of InvoiceInterchange.

Through this platform, Capital Springboard claims to innovate the way small-to-medium enterprises (SMEs) fund their growth, via providing accessible capital upon three days of the invoice being successfully submitted. SMEs using the platform will incur a one-off origination fee of 2% of the amount advanced to them.

Accredited Investors can open a Capital Springboard trading account which is held by escrow agent, Vistra Trust (Singapore) Pte. Limited, regulated by the  Monetary Authority of Singapore (MAS). The minimum investment ticket is S$50,000 and investors can withdraw their undeployed funds at any time, according to the company.

India

[Bootstrap Heroes] How Cashkumar’s pivot led them to break even on a monthly basis, and disburse loans worth Rs 6 cr in just six months, (Your Story), Rated: AAA

Being a finance platform, Cashkumar is an aggregator of personal loans and personal credit lenders, comprising a network of eight consumer banks and non-banking financial companies (NBFC). It also has a pool of 100 credit sources for P2P loans.

The proprietary software assesses the risk appetite of the consumers, collecting 200 different data points of the individual (or borrower) applying for a loan. These include age, salary, company name, delay in payments (if any) etc., to establish a credit score of the borrower.

However, Dhiren says that the above mentioned data points is just to gauge the credit-worthiness of the individual for P2P lending. For banks and NBFCs, the eligibility for a loan is already outlined by the institutions and integrated at the backend.

Currently, the platform gets as many as 1,500 visitors on the platform daily, with 200 of them turning into active leads.

According to Dhiren, five percent of their active leads comes through referrals, with individuals receiving 0.5 percent in commission in case a transaction is closed on the platform.

The firm charges one to two percent of the total loan amount disbursed in commissions from banks or NBFCs. While for P2P lenders, it charges three to six percent of the total loan amount disbursed from the borrower of the loan.

The average ticket size of loans for the startup is Rs 1.5 lakh for a P2P loan and anywhere between Rs three and four lakhs for a NBFC or bank loan. As of now 95 per cent of its business comes from banks and NBFCs, while P2P lending constitutes about five percent per cent of its revenues.

By the end of this fiscal year, the firm plans to receive 30-40 percent of its business from P2P loans and rest via banks. On the traffic perspective, 75 percent of their users come from the eight major metropolitans while the rest comes from Tier II markets.

Bootstrapped since their inception in June 2014, the firm says that they have achieved this scale with zero marketing cost. They credit their search engine optimisation (SEO) strategy to achieve scale.

The platform is putting its bets on P2P loans and claims that 60 percent of its audiences don’t mind taking a P2P loan.

In the next one year, the firm is also planning to receive 20,000 daily visitors, expand its bank and NBFC partnerships from eight to 15, while expanding its P2P lender network to close to 2,000 entities.

Regulatory focus on lenders is critical for P2P lending’s success, (The Economic Times), Rated: A

Reduced regulatory and legal uncertainty in the nascent stage of an industry’s development allows firms to fine-tune their business models. Reduced legal risk reduces the likelihood of business disruption, which is a significant risk in unregulated sectors.

Ensuring “true” Intermediary status: In modern economies, P2P model is the closest thing to classic textbook definition of a ‘bank’. Conventionally, banks are defined as intermediaries that accept deposits from the public for lending and the deposits are repayable on demand or otherwise.

Thinking Beyond Equity Capital: The proposed minimum equity capital requirement of Rs 2 crore may weed out non-serious players, but given the P2P business model, is it sufficient to ensure ‘skin in the game’?

Australia

Loans flood in for fintechs, (The Australian Business Review), Rated: AAA

Non-bank business lenders are receiving more than $1.1 billion of loan applications every month as awareness of new fintech operators and other alternative providers accelerates, according to a new survey.

Providing insight into the level of demand for loans outside traditional banks, the survey by online business lending aggregator eBroker found non-banks were attracting at least 11,676 loan applications a month, worth $1.13bn.

“I can’t believe the growth,” said eBroker founder and chief Simon Isaacs, whose business has grown from 19 lenders less than a year ago to 47.

According to the survey, more than half of non-bank business lenders say greater than 50 per cent of small and medium enterprise loan applicants had previously been declined by a bank.

The average loan approval time by non-banks was 2.6 days, with funding disbursed in eight days. Average loan size was $95,104 while the typical term is for 20 months, with the most common purposes being to “purchase inventory”, “working capital” and “capital purchase”.

P2P lender streamlines credit assessment process, (Australian Broker), Rated :A

Peer-to-peer business lending platform, ThinCats Australia, has streamlined the assessment process with the launch of a new credit assessment tool.

Created by local company Othera, the credit assessment tool allows small companies to pre-qualify for loans on the ThinCats platform, as well as allowing its 300 peer-to-peer lenders make more informed business lending decisions.

“What makes Othera’s credit assessment tool unique and invaluable to lenders and borrowers is that the complex pre-qualification process has been automated with credit decisioning algorithms yet borrowers require no financial expertise to begin the online process.”

The CEO of ThinCats Australia, Sunil Aranha, said the P2P platform is targeting $20 million in loans to businesses this year and the tool should accelerate its growth through a better matching process.

ThinCats’ lenders will also benefit by being able to assess a borrower’s credit quality in a shorter time through Othera’s ability to directly access the potential borrower’s accounts, according to Pellew.

ThinCats has funded 24 loans worth more than $3.1 million to date, at interest rates ranging from 11.5% to 15%.

United Arab Emirates

Why SMEs still remain a good bet for investors, (MenaFN.com ), Rated: A

In November, the UAE Banks Federation announced that the level of unpaid debt by SMEs had reached Dh5 billion. The UAE”s banks astutely stepped in at the right time to agree a procedure to help small businesses.

Beehive, a UAE based p2p lender for SMEs,  brings SME owners and those who want to invest in them together using the power of the Internet to create an online marketplace for lending between individuals and SMEs. In two years, Beehive has originated more than Dh38 million ($10 million) in financing for successful SMEs in the UAE. Beehive has also registered more than 3,000 investors keen to invest from as little as Dh100 into multiple SMEs.

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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