Daily News Digest Featured News

Friday February 17 2017, Daily News Digest

P2P Global Investments

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United States

United Kingdom

European Union

Asia

Africa

News Summary

United States

OnDeck Capital shares plunge on downbeat outlook (Reuters), Rated: AAA

OnDeck Capital Inc (ONDK.N) shares fell as much as 24 percent on Thursday after the online lender posted its fifth straight quarterly loss and set aside more money for future losses after determining its calculations were askew.

Like its digital lending peers, OnDeck has been struggling with investor’ concerns over the quality of its underwriting and ability to maintain a rapid pace of growth.

As a result, OnDeck’s provision for loan losses more than doubled during the fourth quarter, to $55.7 million.

Amid all the changes, OnDeck’s originations of $2.4 billion in 2016 were up 26 percent from the prior year, less than half the pace of growth it posted in 2015.

The company is taking several steps to slash costs by $20 million a year, including cutting 11 percent of its staff and reducing marketing and technology expenses, Breslow said.

SoFi Is in Talks for $ 500 Million Funding Led by Silver Lake (Bloomberg), Rated: AAA

Social Finance Inc. is close to raising about $500 million in a funding round expected to be led by private equity firm Silver Lake Partners to bolster the expansion of its online-lending businesses and personal financial services, according to people familiar with the matter.

The fundraising round values SoFi at $4.3 billion, higher than its previous valuation of $3.2 billion, one of the people said. The deal isn’t finalized and could still fall through, the people said.

Why Online Lenders Keep Disappointing (The Wall Street Journal), Rated: A

Online lenders LendingClub and On Deck Capital took some nasty tumbles in 2016. Now, just as it began to look like they had regained their footing, they are getting tripped up again.

LendingClub shares fell 4.7% on Wednesday after the company gave disappointing guidance for 2017. Then, on Thursday morning, On Deck shares tanked by around 15% on a fourth-quarter net loss that was much bigger than expected. LendingClub’s stock fell again by around 6%.

The company’s fourth-quarter results show progress on all these fronts, but also the costs. Banks, which had shied away from buying the company’s loans after last year’s revelations, have largely returned, funding 31% of loan originations in the fourth quarter, up from 13% the previous quarter.

But LendingClub still disappointed investors by forecasting a bigger-than-expected net loss in 2017. Higher expenses are one reason, with stock-based compensation rising by 35% last year to $69.2 million. This likely has to do with the need to retain and attract talent in the wake of last year’s turmoil, says KBW analyst Jefferson Harralson. The company’s loan originations also have been basically flat for three quarters in a row, making it harder to grow revenue enough to overcome the higher expenses.

ArborCrowd Announces $ 22.4 Million Commercial Real Estate Deal (Crowdfund Insider), Rated: A

ArborCrowd announced on Thursday the launch of its latest real estate investment opportunity that is open to accredited investors. According to the portal, the “Southern States Multifamily Portfolio” features three multifamily properties in both Alabama and Mississippi.

Since its debut, ArborCrowd has provided the public with exclusive multifamily investment properties in New York City.

According to ArborCrowd, the $24.4 million Southern States Multifamily Portfolio was acquired in November 2016 by Varden Capital Properties, LLC as a value-add repositioning. ArborCrowd investors have the opportunity to own a piece of a $2 million equity stake in the Portfolio with a targeted 17 percent to 20 percent Internal Rate of Return (IRR) and a targeted investment hold period of two to three years.

Fintech deal sizes are shrinking (Business Insider), Rated: A

Global VC-backed fintech funding reached $12.7 billion in 2016, down 13% year-over-year (YoY) from $14.6 billion in 2015. However, deal numbers held firm at 836, down just 1% YoY from 848 in 2015. That suggests the decline in funding was the result of smaller deal sizes, and that’s backed up by a couple of other key pieces of data.

  • Fewer mega-rounds. There were 38 mega-rounds ($50 million+) in 2016, down from 63 in 2015.
  • Two deals in China accounted for $2.2 billion. Lending platform LU.com raised $1.2 billion, while JD Finance, a subsidiary of e-commerce giant JD.com, raised $1.0 billion.

global fintech funding

OCC fintech charter: Something Ds and Rs can both love (American Banker), Rated: A

As the Office of the Comptroller of the Currency moves forward to grant national bank charters to fintech companies, unity of purpose could be achieved by stepping back to consider the broad policy goals that Democrats and Republicans typically seek in regulating and supervising financial services markets and businesses.

Both Democrats and Republicans want to address the financial needs of smaller Main Street businesses. Both parties understand that small and midsize businesses are the ones creating the jobs of the future. Both Republicans and Democrats prefer simplicity over complexity.

Concern for abuse of this charter by unscrupulous actors is legitimate and is best addressed by continuing to allow state regulators and attorneys general to enforce civil and criminal laws against fraud and unfair and deceptive practices, while consolidating supervision in a single strong agency at the federal level.

A charter is a perfect example of retaining significant state authority made possible by clear and simple federal rules. This federal-state partnership will produce strong governance and controls on a national scale through the supervisory process. It is the only way to achieve uniform requirements across all 50 states. Maintaining a costly, complex and time-consuming state licensing process while at the same time requiring companies to satisfy federal mandates will kill off a job-creating pro-consumer innovation.

US regulatory environment threatens the rise of fintech (TechCrunch), Rated: A

Fintech companies earned approximately ₤6.6 ($8.15) billion in revenue globally in 2015, according to a report commissioned by the Treasury of the U.K. government. Recent data on the sector from KPMG shows that while North America has fallen behind Asia in terms of regional investments in fintech, companies in North America still received $900 million of $2.4 billion, or more than 37.5 percent of funds, in the third quarter of 2016. KPMG notes that both the number of deals and total amount invested in American fintech companies has dropped significantly, while Asia continues to see growth in fintech investments.

The U.S. is producing many fintech startups attractive to investors — just not as attractive as the less numerous Asian startups. The third quarter of 2016 was the second of the year in which Asian fintech companies attracted more venture capital funding than North America, and pending fourth quarter results, total investment for the year by venture capital in Asian fintech outstrips that in North American fintech $4.7 billion to $4.5 billion. America remains a fintech leader, but its position is being challenged.

Not just the Treasury report, but investors themselves, as well as founders, have identified regulation as a main concern, and European regulators have responded by overhauling EU laws related to payment services to benefit fintech startups. In Asia, numerous countries have already adjusted regulations to promote fintech growth, including the largest consumer markets, China and India.

The problem with fintech regulation in the U.S. is not just what those regulations are, but persistent confusion about what those regulations are, and deep uncertainty about how they are evolving.

Marketplace Lending, The Crowdfunding Alternative? (GlobeSt.com), Rated: A

We sat down with Gary Bechtel, president of Money360, to talk about the growth in the market and the acceptance of marketplace lending platforms.

GlobeSt.com: What are the benefits of marketplace lending?

Bechtel: Speed, flexibility and creativity are huge competitive advantages, especially in the bridge lending arena, where the ability to react and close loans quickly is key. The ability to operate under reasonable regulatory oversight, and without the multiple layers of approvals and regulation that govern more traditional lenders, helps us speed up the process dramatically.

GlobeSt.com: What opportunities has this created for Money 360?  

Bechtel: We are seeing more and more transactions that otherwise would have gone to traditional lending sources because of our ability to react quickly and be more creative with deal structures. We have grown to accommodate larger transactions, filling a void left by banks, credit unions, life companies and CMBS lenders. We see this opportunity as an ongoing trend and are building our business accordingly.

The Whaley Report: Peer-to-peer pressure (Market Intelligence Center), Rated: A

I read an article last week, “How Investors Can Earn 7% Returns in a 2.5% World” and  I’m convinced it’s the beginning of the end for some unsuspecting investors.

The author, Stephen McBride, discusses the benefits of peer to peer lending as an asset class for investors who want to enhance the yield on their portfolios in light of the current low yield environment.

P2P lending may not wipe out wealth like a good old fashioned financial crisis but there are certainly less risky situations. Bungee jumping in Mexico or “investing” your paycheck in lottery scratchers comes to mind.

Size Matters

First, the average loan amount on various P2P platforms, like Lending Club, is $25. Let’s be conservative and say that you have decided to “invest” $20K of your hard-earned shekels in P2P lending to enhance your investment yield. Your $20K would be lent out to approximately 800 people, to fund everything from movie screenplays to food trucks specializing in cuisine from New Caledonia.

Fees

Just like any other investment opportunity, you pay to play. Lending club charges 1% on all monthly payments that you receive from your peers to whom you’ve lent money. They also take a healthy amount of fees for any collections process they go through for delinquent payments. On that basis alone, if your return starts out at 7%, like this article suggests, you are already down to a 6% net return before you ever transfer the money to your bank account.

Loan Shark Says What?

This is going to shock you but not all 800 of your peers are going to repay you the $25 you lent them to start their new Cat Tattoo Parlor. Based on data from Lending Club, the default risk of your peer group is not to be trifled with.

Similar to corporate bond ratings, people seeking to borrow money through a P2P platform are rated from “A” to “G.” An “A” rating is lower risk and a “G” is the guy who has 10 credit cards maxed out, no income but somehow manages to buy lottery scratchers every week.

No rational person is carving out a percentage of their portfolio for peer to peer lending. The risk-adjusted reward of this type of investing just doesn’t warrant it.

5 Common Misconceptions About Alternative Lending (Business2Community), Rated: B

Today, businesses have learned that alternative lending, which includes commercial business loans, factoring, peer-to-peer lending and crowdfunding, can solve many problems quickly and efficiently without a lot of the delay and paperwork associated with bank loans.

Only bank-rejects apply to alternative lenders:

While it’s true that many businesses find it easier to qualify for a loan from an alternative source than from a bank, many owners prefer dealing with alternative lenders, as they tend to be more flexible, less judgmental and faster to respond. Many alternative lenders do not require collateral, can process an application in a few hours, and fund a loan within a day or two.

You have to be desperate to seek an alternative loan:

Alternative lenders assess the risk of each loan and assign an interest rate that makes sense. Any good alternative lender wants to see its borrowers succeed, not fail, and will usually work with business owners to come up with solutions with the right fit.

You can hurt your credit score by borrowing from an alternative lender:

If you pay back your loan responsibly, your business’ credit score should increase.

You need high margins to make alternative loans work:

IOU Financial has only four funding requirements, and none have anything to do with margins. We require that you own and operate your own business, have been in business for at least a year, make 10 or more deposits per month and have average daily balance of $3,000 per month.

Alternative lending is unregulated:

The business model and cost structure of alternative lenders are much different from those of banks. Nonetheless, alternative lenders must adhere to federal and state lending regulations that require truthfulness and disclosure. There is also the whole area of contract law that governs alternative loans.

SoFi hires Condé Nast’s Danika Owsley for consumer comms (PR Week), Rated: B

Financial technology company SoFi has hired media specialist Danika Owsley as its first director of consumer comms.

Owsley will report to SoFi’s comms leader, VP of communications and policy Jim Prosser, when she starts in the role on February 28.

The San Francisco-based company hired Owsley to work in New York, home to most media outlets that are relevant to SoFi’s operations. SoFi bills itself as a “modern finance company” and many of its services are focused on millennials.

United Kingdom

P2P Lender Folk2Folk Joins Peer to Peer Finance Association (Crowdfund Insider), Rated: AAA

Peer to peer lender Folk2Folk has joined the UK Peer to Peer Finance Association (P2PFA).  The P2PFA is acknowledged as a stamp of quality operations as members are held to a high standard and required to follow certain transparency guidelines.

Founded in 2011 as a self-regulatory entity for the sector, the largest UK peer to peer lending platforms are members of the P2PFA and represent more than 75% of the UK P2P lending market. P2PFA members operate a diverse range of business models within this segment of finance and collectively lent almost £3 billion during 2016.

The alternative income source the top managers are buying (Trustnet), Rated: AAA

Industry powerhouses Invesco, Woodford, M&G, Aviva and AXA are among those turning to peer-to-peer lending for alternative streams of income, according to industry experts.

Indeed, over the past 18 months, UK gilts have performed particularly strongly, returning 8.59 per cent – though this has fallen back from highs in August 2016 where the index was up 17.23 per cent.

In fact, if not for a strong run for UK equities at the start of the year, gilts would still be outperforming the FTSE 100, which has returned 14.51 per cent over the period.

The industry brings a stable pool of capital to an industry that craves that stability of capital as knowing that the lender is there enables a much more attractive and reliable borrowing rhetoric, he adds.

His company runs the £682m P2P Global Investments PLC trust, which buys higher-quality loans (grade A, B and C) from the platform providers from across the market cap spectrum, though it currently focuses on the developed markets only.

Since its launch in 2014, the fund has grown its dividend in each year and currently pays out 5.48 per cent.

Over its lifetime, had an investors paid in £10,000 on the day of its launch, the trust would have paid £1,158, according to FE Analytics.

P2P Global Investments

However, Sachin Patel, chief capital officer at peer-to-peer platform provider Funding Circle says delinquency rates are currently at historic lows.

While the sector will likely be hit by a financial crisis – such as the one seen in 2008 – as borrowers will be more likely to default, he says they are not seeing any signs of stress among their borrowers.

Indeed, with delinquency rates so low, the platform released the SME Income fund at the end of 2015 with the aim of giving investors a passive option to the asset class.

UK FinTech Funding Bounces Back in Q4 2016 (Cryptocoins News), Rated: A

U.K. FinTech startups raised $173 million across 16 deals in Q4 2016, an increase of $95 million from Q3, according to a report from CB Insights.

Despite an increase in U.K. financial technology investment during Q4 2016, across the whole year the amount raised only amounted to $494 million compared to $962 million in 2015. During Q4 2015, U.K. FinTech funding reached $275 million.

CB Insights found that in 2016, European venture capital funding reached $1.2 billion across 179 deals, down from $1.6 billion during 2015.

Uber launching financial advice sessions and appeals panel for UK workers (Belfast Telegraph), Rated: A

Uber is offering English courses, financial advice and introducing an appeals panel for its UK workers after facing criticism over lack of support and rights for its drivers.

It is now launching earnings advice sessions on how to best take advantage of the app, flexible pay options that allow drivers to cash out their fares before the end of the week and discounted online investment advice for products like ISAs and pensions.

European Union

The CEO of startup bank Starling says EU law is ‘important and good’ for UK fintech (Business Insider), Rated: A

The founder and CEO of digital-only, startup bank Starling says EU law has been good for fostering Britain’s flourishing fintech — financial technology — sector and says she fears Brexit may set it back.

However, Boden is worried that Brexit will cause the UK to miss out on laws such as the Payment Service Directive Two (PSD2), which forces banks to open up their data to new entrants. This will allow third parties to help people manage their accounts and loosen banks’ stranglehold of customer relationships. PSD2 comes into force in 2018.

Boden, a former executive of Allied Irish Bank, told the FT it is “disappointing” that Starling will be unable to launch across Europe using passporting rules. Theresa May has made clear that her government plans to sacrifice EU passporting rules, which let financial firms sell services across the EU from London, in order to regain control over immigration.

Starling has yet to launch but has gained its banking licence.

REAL ESTATE LESS THAN 10.000 EUROS, IT IS POSSIBLE! (The Quebec Telegram), Rated: A

Note: it is possible to lodge the shares in a PEA, to erase taxation. “However, we advise against investing below 5,000 euros, because the tax savings will be absorbed by bank charges , ” says Cyril Benchimol, CEO of Immovesting.

Asia

Experian Partners With Lenddo to use its Solution in Financial Inclusion efforts (Benzinga), Rated: AAA

Experian, the leader in global information services, will partner with Lenddo, a leader in non-traditional data solutions, as part of Experian’s Consumer Financial Inclusion Indexing platform in Indonesia and Vietnam.Using Experian’s global expertise and knowledge, the introduction of Lenddo’s technology into Experian’s platform will provide financial firms with more information to offer appropriate financial services. Consumers who are unbanked or underserved by major financial institutions will gain access to a gamut of financial services including remittances, savings, credit and wealth management services.

Southeast Asia is poised to remain one of the fastest groups of economies in the world, with an unbanked population of about 438 million people. With the wealth of alternative data and innovative technology available, financial access for the unbanked has seen a rapid rise and many opportunities created to serve this new and underserved market.

Africa

Investment group buys into SA peer-to-peer lending firm RainFin (BusinessTech), Rated: AAA

RainFin and the LeBashe Investment Group have concluded a transaction for the latter to acquire a 30% stake in RainFin, for an undisclosed amount.

Barclays Africa (Absa) originally acquired a 49% stake in the peer-to-peer lending firm in 2014, however, in late 2016, the company’s founders and directors said that they would buy that stake back.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

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