- Errata : The new SME regulation applies to Australian borrowers, not US. (Thank you to our reader Lisa for pointing it out).
- Today’s key news in an exhaustingly long news list : AussieU SME borrowers will receive increased regulatory protection starting Nov 12th; Well Fargo and Amazon were called by the CFPB after being contacted by Sen. Brown’s office, and the deal fell apart after 1 month; large European corporate bonds are also at negative yields now;
- And in France Unilend raised 2.5m EUR.
- And today’s interesting analysis : forces squeezing out mid-sized banks; and Funding Circle explained why they voluntarily halved their US volumes, a well taken difficult decision;
- (Errata : For Australia in fact).From November 12th, 2016 unfair contract terms for SME borrowers will become prohibited. What is unfair contract terms ? Of course, the definition is vague but the author explained 3 tests.
- Orchard Platforms launches a program to publish data to originators who contribute with data in exchange of industry indexes. A good idea and great move.
- We finally found out why the Amazon – Wells Fargo fell apart: non-profit Ticas called senators Elizabeth Warren, Sherrod Brown, Dick Durbin andPatty Murray and other colleagues, who called the CFPB. In early August, Sen. Brown’s office contacted the Consumer Financial Protection Bureau.
- Large European corporates now also emit negative yield bonds. I would like to understand who is buying them and why.
- Funding Circle explained why they reduced volumes in the US and their future plans. I believe such transparency is extremely healthy, realistic, and should make all investors very comfortable with the company’s management, skills, and decisions.
- Moody’s expects to see residential mortgage-backed securities from marketplace lenders. In other words: Moody’s is inviting online lenders to not be shy despite the 2008 crisis and collaborate with them on mortgage back securities.
- Interesting analysis about forces squeezing out mid-sized banks and credit unions. Thoughtful and worth a read.
- Mobile banking is gaining more and more traction with consumers. I wish the article published more data.
- Blackmoon is turning balance sheet lenders into marketplace lenders while in the meantime offering investors >15% returns. Our familiar are probably already aware with Blackmoon. Interesting to get an update on the company.
- CreditEase , the owner of Yirendai, is now the subject of a Harvard Business School case study. What does it mean ? That their business is unique. Is that a good thing? If they are successful, it is.
- Take away from Finovate: rise of Regtech, SME lending is impacting the way banks think, and apparently it’s time to “ditch the humans” in underwriting. I completely disagree: humans have turned the art of gaming computer systems into a science. A very large portion of the population has a hobby computer-algo-beating in computer games. Unless a human watches, all computer systems will end up being tricked with enough incentives.
- Dara Albright: crowdfunding tech has enabled small firms to have large numbers of shareholders for practically free. Impact ? Stability and freedom as they do not depend on the whims of 1 or 2 large investors anymore.
- And to finish this exhaustingly long US section: a long infogram on the 27 fintech unicorns. A fun read.
- ex-Lloyds CEO joins the board of Funding Circle. A great move for the p2p lender who continues to bring in outstanding board talent.
- Hargreaves Lansdown delays P2P launch until 2017
- Talk given by the Chief Cashier of Bank of England in support of fintechs.
- United States
- Movement in marketplace lending regulation for small business loans, (Lexology), Rated: A
- Orchard Platform Launches Data Partner Program for Loan Originators, (Email), Rated: AAA
- Amazon-Wells Fargo Student-Loan Plan Ran Into Political Obstacles, (Wall Street Journal), Rated: AAA
- Now Companies Are Getting Paid to Borrow, (The Wall Street Journal), Rated: A
- Funding Circle ‘basically halved’ US lending volumes at the start of the year, (Business Insider), Rated: A
- Moody’s Expects Residential Mortgage Backed Securities from Marketplace Lenders, (Crowdfunding Insider), Rated: A
- Escaping The Squeeze: 3 Forces Challenging Mid-Sized Banks And Credit Unions, (The Financial Brand), Rated: A
- Mobile banking now only trails online banking as consumers’ preferred method, (Mobile Payments Today), Rated: A
- Blackmoon: Marketplace Lending Platform of the Future, (Tech.co), Rated: A
- CreditEase’s Online Inclusive Finance Becomes Harvard Business School Case Study, (PR Newswire), Rated: A
- Takeaway from Finovate and Next Money: Ditch the Humans, (American Banker), Rated: A
- The Impact of Micro-Investing Technology that No One is Talking About, (Dara Albright), Rated: A
- Where the 27 Fintech Unicorns Got Their Start, (Equities), Rated: A
- United Kingdom
- Ex-Lloyds CEO Joins Board of P2P Lender, (Bloomberg), Rated: A
- Hargreaves Lansdown delays P2P launch until 2017, (Bridging and Commercial), Rated: A
- Fintech: Opportunities For All? – Remarks Given By Victoria Cleland, Chief Cashier, Bank Of England – Given At The 2nd International Workshop P2P Financial Systems 2016, (MondoVisione), Rated:AAA
- European Union
- French Crowdlending Platform Unilend Receives a €2.5 million Investment from NewAlpha’s FinTech fund, (Crowdfund Insider), Rated: A
- Bondora reaches new record-high loan origination of €2.8 mln in Aug 2016, (SMN Weekly), Rated:A
- Kroll Bond Rating Agency (KBRA) is pleased to announce that Ira Powell has been appointed as Chief of Staff and that Mauricio Noé has been hired to build our presence in the European markets, (Email , Kroll Bond Rating Agency), Rated: A
Movement in marketplace lending regulation for small business loans, (Lexology), Rated: A
From 12 November 2016, some businesses will receive the same protection currently available to consumers as unfair contract terms in small business contracts will become prohibited.
Under the new law, a contract term will be unfair if:
- it would cause a significant imbalance in the parties’ rights and obligations;
- it is not reasonably necessary to protect the interests of the party who would be advantaged by the term; and
- it would cause detriment to a party if the term is relied on.
The Government is also considering further protections for small businesses. Earlier this year, the Parliamentary Joint Committee on Corporations and Financial Services conducted an inquiry into the impairment of customer loans. One of the recommendations made as a result of the inquiry was to extend responsible lending obligations and ASIC’s monitoring ability under the National Consumer Credit Protection Act to small business loans. In response to the recommendations, in August the Government directed the Australian Small Business and Family Enterprise Ombudsman to undertake an inquiry into small business lending practices and identify if further reforms are required. The Government is due to receive the final report in November.
Orchard Platform Launches Data Partner Program for Loan Originators, (Email), Rated: AAA
Orchard Platform, today announced the launch of the Orchard Data Partner Program, which includes loan data from a range of leading online lenders. The Orchard Data Partner Program is part of the Orchard for Originators product suite. The suite provides unbiased third-party validation of the internal consistency and quality of an originator’s data. Through the Orchard Data Partner Program, qualifying originators will gain the ability to analyze and compare their loan performance to that of their peers (on an aggregated and anonymized basis), and share their data in a consistent and transparent manner with new and existing capital providers.
The Orchard Data Partner Program establishes a framework for loan originators to share their origination and performance data within the Orchard ecosystem in exchange for detailed asset class analytics. By securely submitting loan and payment data to Orchard — and having Orchard standardize the data — originators have access to a number of unique product offerings, including Education & Insights, Data Integrity, and Reporting & Analytics. Originators also have access to a centralized data storage facility, which can be opened to current and prospective whole loan buyers and other parties during the due diligence process. Institutional investors seeking to take a growing position in this market have a desire to utilize this information in a transparent and user-friendly way, and the Orchard Data Partner Program provides originators with a scalable solution that helps investors assess such opportunities.
The Orchard Data Partner Program currently tracks over $33B in loan originations.
Amazon-Wells Fargo Student-Loan Plan Ran Into Political Obstacles, (Wall Street Journal), Rated: AAA
The Wells Fargo-Amazon partnership was meant to offer interest-rate discounts on private student loans to qualified members of Amazon’s “Prime Student” service.
Ticas called the partnership “a cynical attempt to dupe current students who are eligible for federal student loans with a record low 3.76% fixed interest rate into taking out costly private loans with interest rates currently as high as 13.74%.”
After publicly slamming the Amazon-Wells Fargo Deal, Ticas took its complaints to Capitol Hill, contacting senators such as Elizabeth Warren, Sherrod Brown, Dick Durbin andPatty Murray, who is from Amazon’s home state of Washington, according to a person familiar with the matter.
In early August, Sen. Brown’s office contacted the Consumer Financial Protection Bureau, which has been critical of private student lending, and bank regulator the Office of the Comptroller of the Currency. The senator’s office raised concerns pertaining to potentially deceptive marketing practices in the deal, according to a spokeswoman for the Ohio Democrat.
In particular, the senator’s office questioned marketing of the rate discount, expressing concerns about whether it disclosed that the underlying rate may be much higher than the cost of loans under federal programs, or that the discount was subject to change or cancellation, said the spokeswoman.
By the end of the month, Amazon and Wells Fargo scrapped their arrangement, which had been more than a year in the making.
A spokesman for the CFPB declined to comment on whether the agency contacted the companies after receiving Sen. Brown’s concerns.
The CFPB has been a vocal critic of private student loans since it launched in 2011 for what it has described as the industry’s high default rates.
Wells Fargo is the second-largest private student lender after Sallie Mae and is one of the few large banks that has remained a big player in the sector. It has about $12.5 billion in outstanding private student loan balances.
Now Companies Are Getting Paid to Borrow, (The Wall Street Journal), Rated: A
German consumer-products company Henkel AG and French drugmaker Sanofi SA each sold no-interest bonds at a premium to their face value Tuesday. That means investors are paying more for the bonds than they will get back when the bonds mature in the next few years.
“We’re trying to get our heads around it,” Edward Farley, head of European corporate bonds at PGIM Fixed Income, said of Tuesday’s deals. “It seems pretty bizarre to ask a corporate to look after your money and give you back less in two to three years’ time.”
Roughly €706 billion of eurozone investment-grade corporate bonds traded at negative yields as of Sept. 5, or over 30% of the entire market, according to trading platform Tradeweb, up from roughly 5% of the market in early January.
Tuesday’s deals, however, are among just a handful of corporate offerings that have actually been sold at negative yields. They include offerings of euro-denominated bonds earlier this year by units of British oil giant BPPLC and German auto maker BMW AG, according to Dealogic. Germany’s state rail operator, Deutsche Bahn AG, also has issued euro-denominated bonds at negative yields.
Funding Circle ‘basically halved’ US lending volumes at the start of the year, (Business Insider), Rated: A
Marketplace lender Funding Circle halved its lending volume in the US at this start of the year after spotting underperforming loans in an earlier batch of loans, according to the fintech company’s chief risk officer.
Since publication, Funding Circle has provided the following quote from Sam Hodges, cofounder and US Managing Director of Funding Circle US: “The Q1 2015 portfolio represents approximately 10% of total lending in 2015. The overall portfolio for 2015 has delivered 8% per annum for the whole loan marketplace.”
Jerome Le Luel, who joined the company from Barclays last October, made the disclosure during a press conference at Funding Circle’s London headquarters on Thursday, citing it as an example of the company’s pro-active approach to managing risk and making sure investors who lend money on the platform are properly protected.
Le Luel told journalists: “Last year, when I came in, we looked at the vintages we’d just created and although 2014 was looking fine, the first quarter 2015 vintage for some reason was going off track. Significantly off track. 50%. It was earlier on, 6 months along.”
Le Luel said lending volumes in the UK, by far Funding Circle’s biggest market, have been unaffected and the company is still growing at around 100% year-on-year.
UK-listed VPC Specialty Lending Investments, which invests in peer-to-peer loans, said in a letter to investors last month that it stopped purchasing Funding Circle US loans late in 2015 after its portfolio “continued to substantially underperform our expectations.”
Funding Circle has lent over $2.6 billion globally over its platform. The company has operations in Germany, Spain, and the Netherlands, as well as the UK and US. The company has raised over $270 million from investors including BlackRock, Singapore investment giant Temasek, Scottish investment company Baille Gifford, and a fund owned by billionaire Russian internet entrepreneur Yuri Milner.
Moody’s Expects Residential Mortgage Backed Securities from Marketplace Lenders, (Crowdfunding Insider), Rated: A
Foreshadowing the inevitability for all forms of finance moving online, Moody’s has published a report stating the Residential Mortgage-Backed Securities (RMBS) will soon be issued by marketplace lending platforms. They also believe that current regulatory and securitization frameworks will reduce additional risk with RMBS issued by marketplace lending platform.
Balancing out this opinion, Moody’s says there is a difference between consumer lending and mortgage loans. The existing laws will demand a higher degree of compliance compelling new online entrants to “make significant capital and knowledge investment.” These standards will help maintain online lending quality in the RMBS space.
The Moody’s report is available here.
Escaping The Squeeze: 3 Forces Challenging Mid-Sized Banks And Credit Unions, (The Financial Brand), Rated: A
Squeeze #1: Fintech Startups Carving Out the Convenience Position
Fintech startups are establishing the bar for convenience. Pundits like to say that firms like Uber and Amazon are the ones setting expectations, but I really believe that consumers’ points of references are those within an industry, not across industry lines.
Are these startups making bad lending decisions? Consumers don’t care. All they see is that the process takes a tenth of the time and effort that it does with traditional financial institutions.
Squeeze #2: Merchants are Attacking Traditional Payments Deposits
What’s important, here, is that this represents the new behavior in how consumers manage their money. Paychecks get deposited in a bank account, then some portion of it quickly gets moved to loyalty and closed loop prepaid cards.
Squeeze #3: Megabanks are Winning the Millennial Market
Escaping the Squeeze
Reinvent marketing. A good rule of thumb in banking is that financial institutions spend about one-tenth of one percent of assets on marketing. That means the typical megabank has a marketing budget of $1.3 billion. Do you really think you can out-market that kind of spending? You can’t. You have to use other tactics.
Own the financial health position. Millenials will be moving to the life stage that puts a premium on convenience and into a stage where advice and guidance become more important.
Mobile banking now only trails online banking as consumers’ preferred method, (Mobile Payments Today), Rated: A
This year’s results show a marked increase in mobile banking popularity compared with the association’s 2014 findings, which showed mobile in fourth place. Branch banking and ATMs rounded out the top four spots.
However, when considering the latest results, it is important to note that the new survey was conducted online, while previous years’ surveys were conducted over the phone. This makes a reliable comparison impossible, according to an ABA press release.
Blackmoon: Marketplace Lending Platform of the Future, (Tech.co), Rated: A
Valued at more than $850 billion, this market is still not being fully explored by European alternative finance, which is lagging way behind the United States and the United Kingdom.
Wanting to swim against these tides is Blackmoon, a technological platform that enables institutional investors to directly invest in newly-originated loans issued by balance sheet lenders in a marketplace fashion. This MPLaaS (Marketplace Lending as a Service) has offices in Russia and Cyprus, having recently launched their newest office in the United States.
Investors have been quite successful when using this platform: in the last year, they averaged returns were bigger than 15 percent, and the cumulative turnaround exceeded $13 million. Blackmoon wants to reach $1 billion in cumulative turnaround until the end of 2017, to which the company’s US expansion shall provide a decisive contribute.
CreditEase’s Online Inclusive Finance Becomes Harvard Business School Case Study, (PR Newswire), Rated: A
This is the second time a CreditEase story has been published in Harvard’s case databank since 2014. This makes CreditEase the first ever ChineseFinTech firm to be published twice.
In 2014, Lena G. Goldberg, a professor at HBS, put together CreditEase’s seven-year journey from 2006-2013 into a business case. Subsequently, Tang Ning, the Founder, and CEO of CreditEase, was invited a number of times to Harvard to share his stories in financial innovation.
In January 2016, Professor Michael Chu visited Beijing for field research and conducted in-depth interviews with Tang and his management team.
CreditEase is a leading FinTech company in China. Its majority-owned subsidiary Yirendai (NYSE: YRD), an online consumer finance marketplace, is listed on the New York Stock Exchange.
Takeaway from Finovate and Next Money: Ditch the Humans, (American Banker), Rated: A
The Rise of ‘Regtech’
Technology intended to help companies stay compliant is having its moment.
Marketplace lending might still be trying to figure out its future as an industry, but it succeeded in pushing banks to reconsider how they approach lending.
That’s particularly true in small-business lending, an area that remains one of the more manual (and paper-intensive) areas of the industry.
“If we add a human into banking, we don’t just slow it down to human speed, humans create friction,” King said. “Humans only ever add friction.”
The Impact of Micro-Investing Technology that No One is Talking About, (Dara Albright), Rated: A
Micro-investing technology, coupled with new crowd financing structures made possible by the JOBS Act, enables a small business to cost-effectively and compliantly build a large, impassioned and well-diversified investor base.
Despite the SEC’s implementation of all key components of the JOBS Act, there are many issuers still reluctant to employ these “crowd finance” exemptions. Some express concern that an expansive cap table is too difficult to manage. Others fear that too many small retail investors on the cap table will be an obstacle to obtaining future venture capital financing. Other issuers mistakenly believe that it is easier and less cumbersome to raise capital from a small band of large investors than it is to pool tiny increments from a massive crowd.
Due to advancements in micro-investing technology, many of these apprehensions are unfounded.
Where the 27 Fintech Unicorns Got Their Start, (Equities), Rated: A
Ex-Lloyds CEO Joins Board of P2P Lender, (Bloomberg), Rated: A
Eric Daniels, the former chief executive officer of Lloyds Banking Group Plc during the 2008 global financial crash, has joined the board of British peer-to-peer lender, Funding Circle Ltd.
The six-year-old lender catering to small businesses is increasingly turning to traditional bankers as it expands into the U.S., Germany, Spain, and the Netherlands. The company, which has arranged $2.5 billion in loans, is also girding for the economic impact of the U.K.’s decision to quit the European Union.
In July, Funding Circle hired Jeremy Bennett, the architect of the U.K.’s toxic-asset insurance program following the crash and a former chief of Nomura Holdings Inc.’s European division, as its chief financial officer. Jerome Le Luel, the onetime chief risk officer at Barclays Plc’s credit-card unit, joined the London-based startup last October to oversee risk management.
He said he will serve on Funding Circle’s risk and audit committees. Daniels will work closely with another one-time bank chief who’s jumped into online lending: Bob Steel, the former CEO of Wachovia Corp. who sold that bank to Wells Fargo & Co. during the crisis. Steel joined Funding Circle’s board in 2014.
Hargreaves Lansdown delays P2P launch until 2017, (Bridging and Commercial), Rated: A
Hargreaves Lansdown has revealed that it expects to launch its peer-to-peer lending operation in 2017.
Hargreaves Lansdown also reported that it had capitalized £1.1m of staff costs relating to the development of the cash deposit and peer-to-peer platforms.
The firm has been helping clients choose and manage investments since 1981 and its latest results showed that profit before tax had increased by 10% on last year.
Fintech: Opportunities For All? – Remarks Given By Victoria Cleland, Chief Cashier, Bank Of England – Given At The 2nd International Workshop P2P Financial Systems 2016, (MondoVisione), Rated:AAA
Since 2010, more than $50bn has been invested in almost 2,500 FinTech companies. In 2015 alone, the UK alternative finance sector grew by 84%. 5 Over 24 countries are currently investing in DLT with $1.4bn in investments over the past three years. Over 90 central banks are engaged in DLT discussions worldwide and more than 90 corporations have joined blockchain consortia. 80% of banks are predicted to initiate DLT projects by 2017.6
In his recent speech “Enabling the FinTech transformation: Revolution, Restoration, or Reformation?” 7 the Bank of England Governor Mark Carney, set out the ways the Bank is enabling the FinTech transformation:
widening access to central bank money to non-bank Payment Services Providers;
being open to providing access to central bank money to new forms of wholesale securities settlement;
exploring the use of DLT in our core activities;
partnering with FinTech companies on projects of relevance to our mission;
calibrating our regulatory approach to FinTech developments.
French Crowdlending Platform Unilend Receives a €2.5 million Investment from NewAlpha’s FinTech fund, (Crowdfund Insider), Rated: A
Unilend, a pioneer in SME crowdlending in France, announced on September 7 that it has received a €2,5 million investment from NewAlpha Asset Management (NewAlpha).
This is the third investment coming from the venture capital fund dedicated to FinTech and Assurtech that NewAlpha launched in November 2015. Investors in the fund, such as Crédit Mutuel Nord Europe, find in NewAlpha a leading innovation scout and incubator who proactively monitors usage innovation and technology change in areas of finance including banking, insurance, and asset management. NewAlpha has concluded more than 60 strategic partnerships and invested over one billion euros in French and international FinTech and Assurtech firms.
Founded in 2013, Unilend leads retail crowdlending in France with a strong community of 10,600 lenders. It was the first French crowdlender to pass the €20 million mark of funds raised in July this year. The platform is now looking to conquering a larger share of the €90 billion of French SMEs’ financing needs.
Bondora reaches new record-high loan origination of €2.8 mln in Aug 2016, (SMN Weekly), Rated:A
In August, grade C-E loan originations in Estonia took the highest share of 32%. In Finland, 13% of all loans were grade D-F, and in Spain, new originations were primarily in the higher interest grades of E, F, and HR. Overall, interest rates were highest in Spain, followed by Estonia and Finland.
Bondora is a leading Estonia-based P2P lending platform. The platform has facilitated the disburse of more than €66 million. The average Bondora loan is €2,370, but loans range from €500 to €10,000. Bondora also operates a secondary market for P2P loans where investors can buy and sell their existing investments.
Bondora is authorized by the Securities and Exchange Commission (SEC) in the US, the Financial Supervision Authority (FSA) in Estonia, and the Regional State Administrative Agency (RSAA) in Finland.
Kroll Bond Rating Agency (KBRA) is pleased to announce that Ira Powell has been appointed as Chief of Staff and that Mauricio Noé has been hired to build our presence in the European markets, (Email , Kroll Bond Rating Agency), Rated: A
Kroll Bond Rating Agency (KBRA) is pleased to announce that Ira Powell has been appointed as Chief of Staff and that Mauricio Noé has been hired to build our presence in the European markets. In Ira’s new position, he will be taking on a broader management and operating role and will continue to report to Jim Nadler, President and Chief Operating Officer at KBRA. Powell joined KBRA as Chief Credit Officer in early 2015 and has been an integral part of KBRA’s recent success and growth. After receiving his J.D. from Harvard Law School, Ira worked in various positions across Structured Finance before most recently spending 15 years in Goldman Sachs’ investment banking division.
In addition, KBRA has hired 20-year ex- Freshfields, ABN AMRO, and Deutsche Bank veteran Noé to lead its European business. KBRA is in the process of establishing a presence in Europe and expects to be a full service and locally staffed regulated rating agency in the near future. We have been certified by ESMA since March 2013 in accordance with Regulation (EC) No 1060/2009 and are currently establishing a regulated European subsidiary. In the meantime, we continue to conduct a significant amount of business in Europe, predominantly for European clients issuing securities into the US market notably in the Private Placement, Project Finance, and Aircraft space.