- Today’s main news: OCC addresses risk management for bank-MPL relationships. IFISAs dogged by further delays. Radial integrates with Klarna. Bitbond raises $1.2 mil.
- Today’s main analysis: Marcus marks the end of traditional banking.
- Today’s thought-provoking articles: 3 upcoming changes to private student lending. The Pulse of FinTech infographics.
- OCC establishes risk management expectations for bank-MPL relationships. GP:” This is important for all lenders who partner with OCC regulated banks. This initiative also clears the field for a possible OCC fintech charter by organizing and clarifying existing relationships.”
- Marcus marks the end of traditional banking. AT: “I wish this were true. I’d welcome a radical change to the entire banking ecosystem. Unfortunately, this is one company, a great company doing something bold, but one company nonetheless. I’ll believe traditional banking is dead when ICBC, HSBC, and JPMorganChase open digital branches or follow Goldman Sachs online.”
- 3 upcoming changes to private student lending. AT: “I certainly think there’s room for more competition.”
- Ron Suber joins Unison as investor and strategic advisor.
- LendIt announces 2017 PitchIt finalists. AT: Congratulations to all these companies.”
- Kabbage preps small business loan deal. GP:” Kabbage is doing a $500mil securitization. Guggenheim took the lead.”
- Marketplace deals readied, with innovations.
- Kroll assigns preliminary ratings to Arcadia Receivables Credit Trust.
- Why big banks are helping FinTech startups. AT: “Accelerator programs are one way traditional banks can help FinTech startups.”
- 4 RECF trends to watch. AT: “Further specialization wasn’t mentioned, but it should have been.”
- PeerStreet talks RECF.
- Misys targets P2P lending offerings.
- Premium Title announces integration with LendingQB’s loan origination system.
- IFISAs dogged by further delays. AT: “We’re on the edge of our seats waiting for approval of the Big 3.”
- Plum partners with RateSetter.
- Zopa named best personal loan provider, best alt finance provider at British Bank Awards. AT: “Biggest, first, and best. Congratulations.”
- RateSetter borrowers have paid back 1B GBP, investors have earned 63M GBP.
- P2P awareness drops north of London.
- SME loan fund plans break with GLI in bid for scale.
- Most P2P trust board members have skin in the game.
- Radial integrates with Klarna. AT: “This is an awesome value-add for Klarna.”
- United States
- OCC’s Third-Party Risk Management Expectations for Bank Relationships with MPLs (Pepper Hamilton LLP), Rated: AAA
- Goldman Sachs’ Recent Move Marks The End Of Traditional Banking (Newsmax), Rated: AAA
- 3 Upcoming Changes in Private Student Lending (US News), Rated: AAA
- Prosper Marketplace President Ron Suber Joins Unison as an Investor and Strategic Advisor (PR Newswire), Rated: A
- LendIt Announces 2017 PitchIt Finalists (PR Newswire), Rated: A
- Kabbage preps small business loan deal (Global Capital), Rated: A
- Marketplace deals readied, with innovations (Structured Credit Investor), Rated: A
- Kroll Bond Rating Agency Assigns Preliminary Ratings to Arcadia Receivables Credit Trust 2017-1 (BusinessWire), Rated: A
- Why big banks are helping financial tech startups (Tradestreaming), Rated: A
- 4 Real Estate Crowdfunding Trends You Should Be Watching (Forbes), Rated: A
- PeerStreet’s CEO Brew Johnson Talks Real Estate Crowdfunding Market (Forbes), Rated: A
- Misys Targets Offerings for P2P Lending (Intralinks), Rated: B
- Altisource’s Premium Title Announces Integration with LendingQB’s Loan Origination System (Yahoo! Finance), Rated: B
- United Kingdom
- Innovative Finance Isas dogged by further delays (Financial Times), Rated: AAA
- Chatbot savings app Plum partners P2P lender Ratesetter (Finextra), Rated: AAA
- Zopa Named Best Personal Loan Provider & Best Alternative Finance Provider at the 2017 British Bank Awards (Crowdfund Insider), Rated: AAA
- RateSetter Borrowers Have Paid Back £1 Billion, Investors Have Earned £63 Million (Crowdfund Insider), Rated: A
- Awareness of P2P drops north of London (P2P Finance News), Rated: A
- SME Loan Fund plans break with GLI in bid for scale (Citywire), Rated: A
- Most board members of P2P trusts have skin in the game (P2P Finance News), Rated: A
- European Union
- Radial payments platform integrates with Klarna (Finextra), Rated: AAA
- Bitbond raises $ 1.2 million to grow SME lending platform (Finextra), Rated: AAA
- Infographics – The Pulse of Fintech – Q4 2016 (KPMG), Rated: AAA
- Australia weathers fintech slump (The Australian), Rated: A
OCC’s Third-Party Risk Management Expectations for Bank Relationships with MPLs (Pepper Hamilton LLP), Rated: AAA
On January 24, the Office of the Comptroller of the Currency (OCC) issued a new bulletin, OCC Bulletin 2017-07 (Supplemental Examination Procedures for Risk Management of Third-Party Relationships). The stated purpose of the bulletin is to assist bank examiners in evaluating the third-party risk management practices of national banks and federal savings associations (collectively, banks). For the most part, Bulletin 2017-7 reinforces existing OCC supervisory expectations. In several notable respects, however, the bulletin breaks new ground, including by addressing relationships with marketplace lenders.
In establishing risk management expectations for relationships between banks and marketplace lenders in its new bulletin, the OCC is following the lead of the Federal Deposit Insurance Corporation (FDIC), which issued its own supervisory expectations for these relationships in late 2015. As in the case of the FDIC’s guidance, the OCC bulletin broadly defines the term “marketplace lender” to include any “companies engaged in Internet-based lending businesses (other than payday lending).”2 Specific examples of marketplace lenders stated in the OCC Bulletin include online companies that make small business loans, consumer loans, student loans and real estate loans.3
If a bank plans to contract with a marketplace lender to “perform some, if not all operational functions, including processing, underwriting, closing, funding, delivering, and servicing of loans,” OCC Bulletin 2017-7 requires the bank to have sufficient support “systems, controls, and personnel [in place] to adequately support the volume of planned loan origination, servicing, or collection activities.”4 In addition, if the bank is considering contracting with a marketplace lender to originate or purchase loans, the bank must determine whether the lender’s underwriting methods are “new, nontraditional, or different from the bank’s underwriting standards.”5 Finally, if the bank will be investing directly or indirectly in, or will be providing warehouse lines or other credit facilities to, any third-party lender, including a marketplace lender, the bank must determine whether the third-party lender’s underwriting standards are consistent with the bank’s own underwriting standards.6
Goldman Sachs’ Recent Move Marks The End Of Traditional Banking (Newsmax), Rated: AAA
At the end of 2016, Goldman Sachs launched a new online lending platform called Marcus. The move into online lending by one of the most successful investment banks in the world is a telling move for two reasons.
First, it’s a good indicator of the post-financial crisis banking industry.
Second, rising compliance costs—combined with over seven years of zero-interest rate policy from the Fed—was a bad environment for bankers.
Peer-to-peer lending has grown from nothing a decade ago to be a $26 billion industry in 2015. However, it still only accounts for 2% of the market for unsecured consumer credit.
Goldman Sachs is using Finacle, a software program owned by Infosys, to run the Marcus lending platform. With this software, Marcus customers will be able to fully customize their loan parameters within guidelines set by the bank.
Gone are the days of negotiating with a banker on loan terms. The Finacle software is fully automated and will process the transactions in real time. It’s a fully operational “bank within a bank” that only relies on approximately 200 Goldman employees, according to Bloomberg.
Marcus is not a peer-to-peer lending platform. Instead, Goldman will be making loans against its own balance sheet. This will give the bank more flexibility with setting competitive loan terms and fees.
According to a Morgan Stanley report published in 2015, the effective annual interest on the peer-to-peer lending platforms analyzed was on average 6.8% lower than those offered by banks.
All the while, P2P lending platforms have historical net annualized returns between 5% and 10%. Compare that to investing in a 5-year US Treasury note that yields less than 2% today, below the reported rate of inflation, and can you see why Goldman Sachs got involved with online lending.
3 Upcoming Changes in Private Student Lending (US News), Rated: AAA
In fact, the day after Trump was elected to office, the stock price for Sallie Mae Corp., a large student loan lender, shot up nearly double from $7.10 per share on Election Day to $12.47 on Feb. 15.
For prospective private student loan borrowers, here are a few expectations that experts say consumers may see in the next year or two as a result of changes at the federal level.
1. More lenders entering the private student loan market: Matherson says easing of lending restrictions will lead to more lenders entering the marketplace over the next two years.
Experts say large commercial banks that left the private student lending market after the 2008 financial crises may also return.
2. Interest rate hikes for both variable and fixed-rate private loans:The Federal Reserve is signaling that it’s on course to raise the short-term interest rate this year.
Lending experts say they expect to see a 1 percent rise in interest rates for private student loans over the next two years. Those increases, they say, will affect both variable and fixed-term rates on private education loans.
3. A growing number of start-ups offering income-shared agreements: Under an income-shared agreement or ISA, students use funds from an investor to pay for college and in turn agree to make payments based on a percentage of their income for a set period of time after they graduate.
Casey Jennings, chief operating officer at nonprofit 13th Avenue Funding, which works with low-income students, says clarification of the legislation will make it much easier for financial and educational institutions to enter this space.
Prosper Marketplace President Ron Suber Joins Unison as an Investor and Strategic Advisor (PR Newswire), Rated: A
Unison Home Ownership Investors, the leading provider of home ownership investments, announced today that Ron Suber, president of Prosper Marketplace, has become an investor in the company and has taken on a significant advisory role as the company is experiencing a period of unparalleled growth, opportunity and availability.
A financial services industry veteran, Suber brings to Unison a wealth of experience across multiple disciplines. As an influencer in the financial technology space, Suber will look to grow the home ownership investment category through his relationships with marketplace lenders, mortgage companies, realtor groups and banks.
LendIt Announces 2017 PitchIt Finalists (PR Newswire), Rated: A
LendIt, the world’s largest show in lending and fintech, today announced eight finalists for its fifth PitchIt @ LendIt competition. In partnership for the first time with 500 Startups, the world’s leader in investing and mentoring, and sponsored by Marqeta, PitchIt is a leading global competition for fintech startups to earn mentorship, endorsement and exposure to institutions, investors and broad visibility.
This year’s finalists were chosen from nearly 300 high caliber applicants covering all areas of fintech including insurtech, blockchain, payments, online lending, credit and artificial intelligence.
The eight 2017 PitchIt finalists are:
- Nova Credit
- Aella Credit
- Real Atom
- Float Credit
- WeTrust Platform
The finalists will pitch their concepts at LendIt USA 2017 on March 7 to a panel of judges from the venture capital community including: David Teten, ff Venture Capital; Kareem Zaki, Thrive Capital; Ben Malka, F-Prime; and Joel Monegro, Union Square Ventures.
Kabbage preps small business loan deal (Global Capital), Rated: A
Online small business lender Kabbage is marketing a $500m securitization of loans to small and medium sized businesses which will be used to refinance an existing deal from 2014.
Guggenheim is the sole lead of the $500m deal, which is expected to officially begin marketing to investors in the week of March 6.
Kroll Bond Ratings has assigned an A rating to the $370.37m ‘A’ notes, and BBB to the $79.37m ‘B’ notes.
Marketplace deals readied, with innovations (Structured Credit Investor), Rated: A
Kabbage is marketing its first marketplace loan ABS of the year and its second since inception. Meanwhile, SoFi is in the market with its second consumer loan ABS – SoFi Consumer Loan Program 2017-2 – backed by US$343m of consumer loans and comprising several elements that differ from its previous securitisation.
Kroll Bond Rating Agency Assigns Preliminary Ratings to Arcadia Receivables Credit Trust 2017-1 (BusinessWire), Rated: A
Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to two classes of notes issued by Arcadia Receivables Credit Trust 2017-1 (“ARCT 2017-1”). This is a $213.137 million consumer loan ABS transaction that is expected to close March 6, 2017.
This transaction is the first rated securitization of prime unsecured consumer loans facilitated by LendingClub Corporation’s (“Lending Club” or the “Company”) proprietary technology platform supporting an online marketplace that connects borrowers and investors by offering a variety of loan products originated by issuing banks through the platform, www.lendingclub.com(the “Lending Club Platform” or the “Platform”).
Why big banks are helping financial tech startups (Tradestreaming), Rated: A
Finlab, short for Financial Solutions Lab, is an 8-month startup accelerator program funded by JPMorgan Chase and run by the Center for Financial Services Innovation. It just sent out its third call for applications from financial technology startups working on tools for underserved populations. It’s an example of how banks are now partnering rather than competing with startups — a trend that’s grown quickly over the past couple of years.
Finlab began two years ago, and winners get $250,000 of capital, one-on-one mentorship and networking opportunities. About eight or nine winners are picked each round. Winners participate in a series of workshops across the country on how to grow their businesses, including a session on regulation.
Big banks are likely to keep supporting these programs — not only for relationship building, but also because startups are working on areas major banks aren’t addressing, said Gilbert.
4 Real Estate Crowdfunding Trends You Should Be Watching (Forbes), Rated: A
Real estate is one of the fastest growing markets to take on the concept of crowdfunding and apply it in a new way.
Here are four emerging trends in real estate crowdfunding to watch this year.
- Regulation Brings Crowdfunding to Maturity. Today, crowdfunding has matured and investors are more intrigued than they are skeptical. This is due, in large part, to the JOBS Act and the enactment of Regulation A+. It legitimized the industry and it has been growing ever since.
- Foreign Investment in Real Estate Is Booming. According to The Guardian, a recent U.S. real estate study showed that Chinese investors have poured $110 billion dollars into the U.S. market in the last 5 years (both commercial and residential). This investment is set to double in the next 5 years. Because of foreign investment expansion in the U.S., it’s relatively safe to assume that a portion of those dollars will go into alternative funding options like real estate crowdfunding.
- Wealthy Millennials Are Investing Their Money Differently. However, with the influx of unicorn technology companies and the increase of millennial millionaires, the need to put their money somewhere is still very much on their minds. Real estate crowdfunding has the potential to help them share the wealth while staying true to their sensibilities.
- Crowdfunding for Retirement. Those considering real estate investing, especially through crowdfunding platforms, could potentially improve their rate of return with tax efficient strategies, more specifically IRA’s. Real estate crowdfunding platforms allow those saving for retirement to invest in real estate right from the golf course, with just a few clicks on their phone or tablet.
PeerStreet’s CEO Brew Johnson Talks Real Estate Crowdfunding Market (Forbes), Rated: A
The company was founded by former Google executive Brett Crosby and real estate attorney Brew Johnson. By the end of 2016, the company originated more than $200 million.
Johnson: The biggest differentiators between PeerStreet and other players are pretty simple: (i) our platform is very focused on one asset – first-lien debt. We think creating this focus at the outset is important in delivering value to users. And most importantly, (ii) we don’t originate loans directly to borrowers, but rather we aggregate loans from a distributed network of lenders, curate those loans, and then make it easy for investors to invest in them.
Johnson: We exceeded $200 million in origination volume by the end of 2016. Our KPIs are based on loan volume and quality.
Johnson: We maintain focused on our core asset: short-term, first position lien loans. Our data continue to show that this asset provides favorable risk-return profiles for investors, so 2017 is about growing our loan volume in order to serve even more investors.
Johnson: I think there are opportunities of various sizes across the industry. That said, a couple that I find particularly interesting are the potential implications for a more robust rating and credit scoring of alternative lending investments across platforms and those of creating a truly efficient secondary market or exchange that enables investors to seamlessly trade in and out of positions.
Misys Targets Offerings for P2P Lending (Intralinks), Rated: B
Traditionally focused on treasury and capital markets solutions, Misys revised its focus to include solutions that would allow banks to branch into peer-to-peer (P2P) lending, as well as an offering for machine learning that would detect anomalies in trading patterns.
Altisource’s Premium Title Announces Integration with LendingQB’s Loan Origination System (Yahoo! Finance), Rated: B
Premium Title, a national provider of title and escrow services, announced today its integration with LendingQB’s end-to-end, browser-based loan origination system (LOS). The integration can help provide customers with the ability to obtain title and settlement quotes faster, place orders with Premium Title and receive a title fee certificate guaranteeing fees for 30 days, all without leaving the LendingQB platform.
This integration, gives Premium Title clients the capability to experience a seamless and more efficient process within the LendingQB LOS platform. Lenders using LendingQB can receive an automated quote for title services and a title fee certificate guaranteeing title fees, which auto-populates into the LOS. LendingQB can also maintain the loan estimate and any adjustments in fees associated with the loan, assisting with TRID compliance and faster disclosure timelines.
Innovative Finance Isas dogged by further delays (Financial Times), Rated: AAA
The Innovative Finance Isa was officially launched by former chancellor George Osborne in July 2015, putting peer-to-peer lending platforms — where individual investors are matched with interest-paying borrowers — on a level playing field with traditional savings and investment products which can be held within an Isa wrapper.
A year on, the FCA has still yet to grant the bulk of peer-to-peer lenders, including the three largest — Zopa, Funding Circle and RateSetter — the authorisation they need to launch an Innovative Finance Isa in time for the new tax year in April.
These three peer-to-peer platforms account for more than 40 per cent of the UK’s market share by loan origination, according to AltFi data, having lent nearly £6bn combined.
Chatbot savings app Plum partners P2P lender Ratesetter (Finextra), Rated: AAA
British AI-powered savings Facebook Messenger chatbot Plum is to start steering users that are willing to take on risk in exchange for higher interest rates to P2P lender Ratesetter.
According to Moneyfacts, the average UK rate on easy-access accounts is 0.15%, while the average return earned by RateSetter investors to date is 4.7%.
The money goes into users’ Plum savings account but the Ratesetter deal means that people can also now choose to earn a better rate – if they are willing to take on the associated risk.
Zopa Named Best Personal Loan Provider & Best Alternative Finance Provider at the 2017 British Bank Awards (Crowdfund Insider), Rated: AAA
Zopa, the UK’s very first peer to peer lending platform, announced on Monday it was named Best Personal Loan Provider & Best Alternative Finance Provider at the 2017 British Bank Awards.
This news comes just a few weeks after Zopa was named Personal Loan Provider of the Year at the Consume MoneyFacts Awards for the fourth year in a row.
Zopa recently announced it topped £2 billion in lending. According to information provided by the online lending platform, as of today, the lender matched over 246,000 borrowers to 75,000 investors to provide access to capital in the form of loans.
RateSetter Borrowers Have Paid Back £1 Billion, Investors Have Earned £63 Million (Crowdfund Insider), Rated: A
Online lender RateSetter has said it has now collected £1 billion in capital repayments from borrowers since its first loan back in 2010. Overall, RateSetter has originated approximately £1.75 billion in loans while paying out £63 million in interest. The average interest rate ranged between 3.1% on the Rolling market and 6.0% for the 5 Year market. In 2016, total lending was pegged at £668 million.
Awareness of P2P drops north of London (P2P Finance News), Rated: A
AWARENESS of peer-to-peer finance products among small- and medium-sized enterprises (SMEs) is at its lowest in the Midlands and the north of England, the British Business Bank (BBB) has revealed.
The figures, revealed in its latest annual Small Business Finance Markets report, showed fewer than 40 per cent of firms in the Midlands were aware of P2P lending, compared with almost 60 per cent in London.
Around half of firms in the south of England were aware of P2P, while just 40 per cent of firms in the north had come across it.
Despite the varying levels of awareness, the report found annual lending through P2P platforms increased by 34 per cent to £3.9bn in 2016. Business lending made up £1.3bn of that amount.
SME Loan Fund plans break with GLI in bid for scale (Citywire), Rated: A
The SME Loan Fund (SMEF +), the small directing lending investment trust set up by GLI Finance, plans to break ties with its founder in a bid to gain scale.
The trust launched in 2015 amid a boom in peer-to-peer lending launches, yet was able to raise just £12.4 million capital. Assets currently stand at £53 million, mostly from an initial portfolio of loans transferred by GLI Finance (GLIF +) as part of the launch.
The SME Loan Fund said that GLI had agreed to sell its 48% stake in the trust through a placing. Should the placing prove successful, the SME trust will switch management from Amberton Asset Management, 50% owned by GLI. If it is not, the board will propose the wind-up of the trust.
GLI Finance, an investment trust in its own right, said it would use the money from a share sale to repay a £14.9 million loan to strengthen its balance sheet.
Most board members of P2P trusts have skin in the game (P2P Finance News), Rated: A
THE MAJORITY of board members of peer-to-peer investment trusts have “skin in the game”, research has revealed.
Canaccord Genuity research has assessed the pay and investments of board members of investment trusts. The analysis included funds focused on the P2P sector.
It showed that the highest annual pay packet among P2P investment trusts is £50,000, taken by the chairmen of the Funding Circle SME Income Fund and Victory Park Capital (VPC) Specialty Lending.
Samir Desai, co-founder of the Funding Circle platform, who sits on the investment trust’s board, has put £152,775 into the fund.
This is the highest among its board members, followed by £110,349 invested by non executive director Frederic Hervouet. The Funding Circle SME Income Fund board chairman Richard Boleat takes the highest annual fee on the board at £50,000 and has invested £5,157.
The trust’s board members Jonathan Bridel and Richard Burwood, both non-executive directors, have also invested £5,157 and their annual fee is £40,000 and £30,000 respectively.
Desai does not take a fee and Hervouet has an annual fee of £35,000.
Radial payments platform integrates with Klarna (Finextra), Rated: AAA
Klarna, one of Europe’s leading payments providers, and Radial, the leader in omnichannel commerce technology and operations, today announced a new partnership to further expand Radial’s payment options.
The integration of Klarna with Radial’s Payment platform enables clients and prospects to offer a financing option at checkout to give customers more choice and could give retailers a 58 percent higher order value.
Financing a purchase over time has historically been optimized for brick and mortar stores. The online equivalent, however, can often be an ordeal, with redirects, lengthy forms and unclear information. Klarna’s process only requires a few fields of information, and lets customers know instantly if they qualify for the financing solution.
Bitbond raises $ 1.2 million to grow SME lending platform (Finextra), Rated: AAA
Global SME lending platform Bitbond today announced the closing of an equity funding round of $1.2 million (€1.1 million).
This round brings Bitbond’s raised equity capital to a total of $2.3 million.
Led by mobilike founder Şekip Can Gökalp, a number of business angels contributed to the round. Among them were Fyber founders Janis Zech and Andreas Bodczek as well as Kreditech co-founder & CEO Alexander Graubner-Müller.
Bitbond will use the additional funds for further product development and to grow its user base in markets which are underserved by traditional lenders. Over 1,600 loans worth $1.2 million were originated on Bitbond since its launch. 76,000 users from 120 countries registered with the service to date.
Infographics – The Pulse of Fintech – Q4 2016 (KPMG), Rated: AAA
According to The Pulse of Fintech, after 2015’s record-setting $46.7 billion in global funding to fintech companies, 2016 brought reality back to the market with an almost 50 percent slide in fintech investment.
Australia weathers fintech slump (The Australian), Rated: A
Global investment in fintech companies almost halved last year as “froth” comes out of the burgeoning industry and investors wait to see if they can successfully disrupt incumbents such as banks and insurers, according to a new report.
Fintech investment funding declined to $US24.7 billion ($32.17bn) last year from a bumper $US46.7bn in 2015, driven by fewer merger and acquisitions, and private equity investments, KPMG found.
However, the less mature Australian fintech industry bucked the trend as investment soared to a record high of $626 million last year, up from $185m in 2015 and $461m in 2014.
In contrast, corporate venture capital arms — those owned by banks and other incumbents — played a bigger role in the market, expanding investment to $US8.5bn from $US4.9bn. Australia’s institutions, including National Australia Bank, are increasingly investing in fintech via internal VC arms.