Daily News Digest Featured News

August 4rd 2016, Daily News Digest

News Comments

  • Today the Bloomberg article on the state of online lending stands out as a must-read to me.
  • In the international section I particularly like the article showing how FinTech in Africa us not disrupting, it’s actually building in the present relative vacuum.
  • And of course the good news : after only 1 year of operations, Funding Societies in Singapore raises A$10m from none less than Sequoia India.

United States

Singapore

Africa

  • The title says it all : “Fintech isn’t disrupting African’s financial industry – it’s building it” . Perhaps we will see faster adoption, growth and bigger online fintech in Africa than in the rest of the world. Think how China took the lead in p2p lending volume and dwarfs everything else because they had established , entrenched and dominating credit card market to compete with. However, Africa’s aggregate GDP is $312  billion vs China’s  $ 9,240 billion . China is 30 times larger than all of Africa.

 

United States

Get a 2nd personal loan?, (Bankrate), Rated: AAA

Shortly after the author paid off his personal loan, an email popped into his inbox. We want you back, it read.

The 4-sentence note:

  • Thanked the author for paying off the loan. (As it was an experiment, I paid it off within days of receiving the cash.)
  • Let the author know I’m eligible to apply for another loan. (So fast?)
  • Told him there would be “no impact” to his credit score. (Wait. What?)

Lending Club sent this email to the author a month ago, and it’s left him figuratively scratching his head ever since. Is this all true?

I’ve asked the online lender repeatedly for comment on its email, but have received no response. That being said, lenders appear to have varying policies when it comes to repeat customers, but pretty similar ones when it comes to credit checks.

A number of the big online lenders have explicit policies about borrowers opening multiple loans.

Lending Club, for example, says borrowers can have 2 “active” loans at the same time, according to the lender’s website. To qualify for a 2nd loan — whether or not a borrower has an open loan at the time — the borrower has to have made a year of on-time payments on the first loan.

Prosper borrowers must wait a minimum of 6 months after they receive their 1st loan before applying for another loan. The online lender also demands no late payments within the last 60 days on existing loans and 2 or fewer returned loan payments within the last 3 years.

Meanwhile, online lender Upstart says you can apply for a 2nd personal loan only if you have made your last 6 consecutive payments on time and owe no more than $50,000 on the existing loan. When applying for another loan after paying off an existing Upstart loan, the lender requires a 60-day “cooling-off period.”

“Those who repeatedly ‘go back to the well’ for these products do so, it would appear, due to constrained finances,” TransUnion researchers wrote. “We suggest that lenders be aware of repeated use of these loans, which may indicate consumers are trapped in a debt cycle, and consider alternative approaches to helping those consumers.”

Customers in the spotlight: How FinTech is reshaping banking, (PwC), Rated: AAA

Comment: long interesting report on FinTech. I extracted the main figures as I find them particularly interesting.

FinTech continues to disrupt the world of consumer banking. Consumers are redefining their expectations, and with it, creating a need for a more targeted customer service strategy, collaboration between competitors and smarter solutions. Our annual Canadian Banks report took a close look at the FinTech ecosystem within Canada. In our latest global report, Customers in the Spotlight, we examine how FinTech is reshaping banking across the world.

pwc 4

pwc 1 pwc 3 pwc 2

Conclusion: Customer experience is moving into the spotlight.

The Online Lending Obstacle Course, (Bloomberg Gadfly), Rated: A

In the first half of 2016, equity investments and online lending shrank by both deal frequency and volume.
bloomberg 1

bloomberg 2Enter the securitization market.  A large part of these lenders’ success hinges on their ability to tap this market. This year, these lenders are on track to issue a record amount of such deals, with about $4.3 billion of such transactions in the U.S. so far, according to data compiled by PeerIQ.

Issuance of bonds backed by online loans is about half the total volume of nonagency mortgage-backed securities so far this year, according to data from PeerIQ and Asset Backed Alert.

bloomberg 3

More online loans are being securitized even as the market for residential mortgage-backed bonds struggle to revive.

bloomberg 4

Meanwhile, online lenders are struggling to find a balance between attracting creditworthy borrowers and charging high enough interest rates to be more profitable.

Theoretically, this is a perfect time for new lenders to evolve.

But this is a different time than the go-go days that led up to the financial crisis, when mortgage-debt bankers could operate with little regulatory scrutiny. Online marketplaces will most likely continue to expand, but they face headwinds that limit their potential growth.

KBRA Releases ABS Pre-Sale Report: Avant Loans Funding Trust 2016-C, (Kroll Bond Rating Agency), Rated: A

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Avant Loans Funding Trust 2016-C (“AVNT 2016-C”). This is a $200 million consumer loan ABS transaction that is expected to close on August 11, 2016.

This transaction represents Avant, Inc.’s (“Avant” or the “Company”) third rated securitization collateralized by a trust certificate backed by unsecured consumer loans originated under its online marketplace lending platform (“Avant Platform”). There have been four prior unrated securitizations, in which Avant or Avant’s institutional investors were the sponsors and the collateral was unsecured consumer loans originated under the Avant Platform.

Marlette Funding Closes $ 205 Million Securitization Transaction, (Business Wire), Rated: A

Marlette Funding, a leading marketplace platform, announced today it closed its first proprietary “MFT” securitization. Approximately $205 million of Best Egg collateral was financed via three classes of Notes and one class of Certificates with the loan sellers retaining a portion of Notes and Certificates.

The Class A, B and C fixed-rate Notes were rated Single-A, Triple-B and Double-B by Kroll Bond Rating Agency (KBRA).

The Marlette Funding “MFT” securitization is a significant milestone for the company, and a cornerstone of the company’s long-term capital strategy. “Accessing the securitization markets represents the third major component of a diversified funding plan, which also includes building strong relationships with institutional investors and developing on-balance sheet asset backed credit facilities,” said Paul Ricci, CFO of Marlette Funding.

The securitization, placed through Goldman Sachs, furthers Marlette Funding’s access to the broader ABS capital markets and sets a strong precedent for future transactions. The broadening of the investor base into institutional CUSIP-only buyers is a first step in building recognition in the brand, capital markets access and liquidity in the bonds. This transaction represents the second securitization collateralized by unsecured consumer loans originated by Cross River Bank using Marlette Funding’s Best EggPlatform. The first securitization, Citi Held for Asset Issuance 2016-MF1 closed on March 4, 2016.

Since launching in 2014, Marlette has provided services to help its bank partner originate over $2 Billion in loans and has connected over 125,000 personal loan customers with investors through the Best Egg platform. For more corporate information, visit MarletteFunding.com.

 eOriginal Delivers eAsset® Management Solution for eVaulting and Securitization to Lending Club, (Press Release), Rated: A

eOriginal, Inc. announced today that it has added Lending Club (NYSE: LC) to its roster of companies integrating eOriginal’s eAsset® Management solution to provide digital capabilities. The fully digital financial transaction management environment provides the greatest level of certainty and confidence throughout the entire lifecycle of the asset, from vaulting to securitization or collateralization.

Founded in 1996, eOriginal is the trusted expert in digital transaction management solutions, specializing in the post-execution management of financial asset documentation. eOriginal SmartSign® and eAsset® Management Services enable an end-to-end solution for fully electronic transactions that must be managed with the highest levels of security and compliance throughout their lifecycle. By treating every transaction as having assets that must be verifiably secure, legally compliant and enforceable, eOriginal provides its customers and partners with eCertainty®.

Closer look at marketplace lending, (Imperial Valley News), Rated: A

Comment: This article covers ” consumer protection issues that have been flagged, the laws that already apply, and even a few cases the FTC has brought to address these issues”. Our readers are already aware of these issues but a reminder can’t hurt most likely.

Market participants are subject to a number of laws and regulations that govern how they deal with consumers. These include the FTC Act, the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), the Fair Credit Reporting Act (FCRA), the Gramm-Leach-Bliley (GLB) Act, the Equal Credit Opportunity Act (ECOA), and the Fair Debt Collection Practices Act (FDCPA).

Lending Disclosures and Advertising
All lenders, including marketplace lenders, are required to make sure their disclosures – whether on websites, in ads, in loan documents, or anywhere else – are non-deceptive.

Use of online data
Marketplace lenders often use consumer data outside traditional measures like FICO scores to make credit decisions. In other contexts, the FTC has seen issues with sensitive consumer information being exposed in the marketplace, and marketplace lending participants should keep in mind the existing legal constraints on transfer and disclosure of sensitive information.

Marketplace lenders must also ensure that their practices don’t run afoul of fair lending and credit reporting laws.

Preauthorized electronic payments
Preauthorized electronic withdrawals from bank accounts are one way to pay loans, but lenders must abide by consumer protections in this area as well.

Servicing and debt collection
What happens when a consumer has difficulties paying off a loan or defaults altogether? We heard at the FinTech Forum that marketplace lenders appear to have different models in this regard. Some service loans in-house, while others don’t keep the loans on their balance sheets and rely on third parties for servicing and, if necessary, debt collection. All lenders (including marketplace lenders) and servicers that collect on debts must comply with Section 5, and, in some instances, the FDCPA. The FTC has brought enforcement actions under Section 5 against lenders and servicers that engaged in conduct such as misrepresenting the amount owed (Consumer Portfolio Services), calling repeatedly and continuously with the intent to annoy, harass, or abuse (Green Tree), and unfairly disclosing debts to consumers’ coworkers and employers (Cash Today). Observers have noted that marketplace lenders have yet to be tested through a down credit cycle. When that happens, consumer protections in areas like debt collection will be all the more important.

NSR Invest Launches New Features Including Secondary Market for P2P Loans, (Crowdfund Insider), Rated: A

In platform release notes from last week, NSR Invest stated that clients now have the ability to buy and sell Lending Club loans from the FolioFN Secondary Market.

During the end of June, NSR Invest analyzed the Folio Secondary Market and the available loans.  They posted the averages at that time:

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

The average within this sample compared nicely to the overall Lending Club average of 13.15%, according to NSR, so sellers are typically listing loans associated with lower credit scores and thus higher risk.  Granted this is a small sample.

 Singapore

Sequoia India Leads S Million Series A for Funding Societies, (Crowdfund Insider), Rated: AAA

Funding Societies, a Singapore-based “peer to business” lending marketplace, has raised a respectable S$ 10 million in a Series A funding round. The investment was led by Sequoia India, part of the Kelvin Teolegendary Sequoia VC group. Funding Societies believes this is the largest investment in a Southeast Asian peer to peer lender – ever. The funding also included the participation of Harvard University experts and existing investors Alpha JWC Ventures.

The new financing will be used to “strengthen the customer experience” and complying with the myriad of regulatory variations in Singapore, Malaysia and Indonesia.

Funding Societies is still quite small having only launched a year ago (June 2015).  To date, the platform has provided approximately S$8.5 million in loans to SMEs in Singapore.  Funding Societies is also up and running in Indonesia with its sister platform “Modalku” (My Capital in Bahasa).

Africa

Fintech isn’t disrupting Africa’s financial industry—it’s building it, (QZ), Rated: A

African fintech is not disrupting the existing financial service providers. This is because, in many areas of the continent, there is nothing to disrupt, with large swathes of the low and lower middle-income segments unserved or under-served when it comes to formal financial services.

One such example of groundbreaking, innovative fintech is MFS Africa, which has connected 80 million mobile wallets in Africa, enabling cross-currency, cross-border, cross-network payments through entirely new infrastructure. Another example is Nomanini, which is rolling out a payments platform for informal merchants across the continent. This is the exciting thing about the fintech revolution in Africa. It is building an industry from scratch, and doing things traditional banks could never do themselves.

The reason this is important is that, unlike elsewhere in the world, in Africa the biggest market is an under-served market. With around 330 million adult Africans—approximately 80 per cent of the continent’s adult population—lacking access to formal financial services, the vast majority of potential customers are, as yet, unclaimed.

Yet where such a large, under-served market exists, there are dangers. Providing financial services to lower income groups must be done carefully.

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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