- Today’s main news: dv01 creates new securitization portal. China requires P2P lenders to keep money in banks.
- Today’s main analysis: France’s online alt finance doubles in size.
- Today’s thought-provoking articles: Robo-advice to go mainstream in 2017. China Rapid Finance to target U.S. IPO as early as 2017. Is ‘peer’ being muscled out of P2P investment?
- dv01 announces new securitization portal. GP:” PeerIQ is often seen as the main ABS data source. It’s healthy for us and for everybody to have alternatives and to encourage competition.” AT: “This is an excellent move and could be what the industry needs to advance the securitization market.”
- Orchard CEO discusses MPL. GP:” Key number: Orchard handled $40bil in volume on 20 platforms to date.” AT: “Interesting insights into the secondary market and banks getting into online lending.”
- 4 trends transforming online business lending. GP: “A good summary.”
- VeriComply appoints former LC executive as president. GP:” VeriComply is also not very well known in our space. An interesting company we will look more into.”
- Texas panhandle students owe more, default less.
- 2017 will be the year robo-advice goes mainstream. GP:” Given how many large firms launch their own RoboAdvisors I wouldn’t be surprised if the growth in 2017 in AUM for Roboadvisors jumps.” AT: “Bold prediction, and I don’t think it’s off-base. Interest will largely build due to growth in understanding and awareness of artificial intelligence technology.”
- The ‘peer’ is P2P investment is being muscled out. GP:” Unfortunately yes, it is going from p2p to marketplace with institutional money. But I think there is a place for true p2p at a certain size and in certain markets.”
- Wrexham Glyndwr University offers new FinTech degree. AT: “This should lead to an increase in jobs in the FinTech sector and serve to grow the industry even more.”
- Has the P2P halo slipped?
- Robo’s opportunities and risks for advisers.
- Romford climbs to top spot for buy-to-let returns.
- P2P lenders required to keep funds in banks. GP:” What is important to know here is that it is very hard for a p2p lender to find a bank who will accept to bank for them, so this is in fact a way to shut them down more or less. Which is unfortunate because this in desperation people take desperate measures. And wewould all be better off if the p2p lenders did hold all their money in a bank, if banks would accept them. ” AT: “Considering the business climate in China, I think this is the right move.”
- China Rapid Finance to target U.S. IPO, maybe in 2017. AT: “Interestingly, the source for this story is saying the IPO will be used to raise money for expansion in China. Rumor, or fact?”
- United States
- Leading FinTech Analytics Platform dv01 Announces New Portal Dedicated to Securitizations (Yahoo! Finance), Rated: AAA
- Orchard’s CEO Matt Burton Talks Marketplace Lending (Forbes), Rated: A
- 4 Trends Transforming Online Business Lending (Entrepreneur), Rated: AAA
- VeriComply Appoints Former LendingClub Executive Roger Dickerson President, Prepares to Expand Into MPL (Crowdfund Insider), Rated: A
- Panhandle students owe slightly more, but default less (Amarillo.com), Rated: B
- United Kingdom
- 2017 will be the year that robo-advice enters the mainstream (FT Advisor), Rated: AAA
- The ‘peer’ is being muscled out of peer-to-peer investment (BusinessZone), Rated: AAA
- New fintech degree course aims to churn out next generation of entrepreneurs (Finextra), Rated: AAA
- Has the P2P halo slipped? (City A.M.), Rated: A
- Robo’s opportunities and risks for advisers – Keith Richards (Professional Adviser), Rated: A
- Romford climbs to top spot for buy-to-let investor returns (Mortgage Solutions), Rated: A
- European Union
- France’s Online Alternative Finance Doubles in Size – Crowdfunding Grows 40% (Crowdfund Insider), Rated: AAA
- Marketlend Appoints Brad Pattelli as Non-Executive Director (Yahoo! Finance), Rated: A
- P2P lenders to keep funds at banks (Shanghai Daily), Rated: AAA
- China Rapid Finance Said to Target U.S. IPO as Soon as 2017 (Bloomberg), Rated: AAA
- Jean-Sébastien Drolet, RealStarter on Making Real Estate Investments Accessible (Crowdfund Insider), Rated: AAA
Leading FinTech Analytics Platform dv01 Announces New Portal Dedicated to Securitizations (Yahoo! Finance), Rated: AAA
dv01, the reporting and analytics platform that brings transparency to lending markets, today announced the launch of Securitization Explorer, a new web portal dedicated to providing investors with increased insights into securitizations of consumer loans.
Institutional investors have long used dv01’s cloud-hosted web application to gain real-time insight into consumer loans, analyzing over $50 billion of loans to date. With the launch of Securitization Explorer, dv01 leverages superior data, analytical, and visualization tools to deliver a comprehensive application dedicated to the needs of investors in consumer loan securitizations. The new application is fully integrated into the dv01 environment and allows seamless transition from whole loan pool analysis to securitization analysis.
dv01 is the Loan Data Agent on numerous securitizations, overseeing an aggregate securitized collateral balance in excess of $1 billion. The company has aggregated performance data from marketplace lenders including SoFi, Lending Club, Prosper, Marlette Funding, Avant, and CommonBond. By normalizing data across lenders, dv01 simplifies comparison and analysis, enabling institutional investors to study both pool and individual loan performance, as well as quickly detect issues within portfolios.
Orchard’s CEO Matt Burton Talks Marketplace Lending (Forbes), Rated: A
Matt Burton: Like many startups, Orchard began as a small circle of friends with unique perspectives and complementary skill sets. In 2013, we created a Meetup in NYC for people interested in the emerging online lending industry. I met with a number of institutional investors who were investing in online loans and what I discovered was that most of them needed a system capable of purchasing and tracking large portfolios of small loans from multiple lending platforms. Since one didn’t exist, they were trying to cobble something together on their own, and most were struggling with it. Rather than becoming an investor or launching another lending platform, it occurred to me that someone should build the infrastructure to connect these two sides of the market at scale. On the flight home, I decided to launch Orchard and had just the right team of co-founders in mind to do it.
To date, we’ve on-boarded over $40 billion of loans to our platform across 20+ lenders, covering a diverse range of consumer and small business credit products.
We believe that an efficient, diversified method of selling and reselling whole loans and loan portfolios is critical to the industry’s growth and longevity over multiple credit cycles.
We are excited about the possibilities that come with more and more traditional lenders adopting a ‘fintech’ approach to providing services and how that may help underserved segments of the market access the credit they need. The opportunity will likely be even more pronounced in other regions of the world where these underserved segments of the market have almost no access to traditional banking services but wide access to smartphones and mobile-only services.
Let’s not forget that lending is still the primary business activity of banks, credit unions, and specialty finance companies. Most of them are in the process of converting their lending operations to the online model—or quickly evaluating whether to build their own platform or partner with an existing lender or technology provider.
The broader convergence of banking and financial technology feels inevitable at this point.
4 Trends Transforming Online Business Lending (Entrepreneur), Rated: AAA
Alternative lending swooped in to fulfill the needs of consumers and small business owners during the credit pinch after 2008, and every sign points to the industry scaling up. By 2020, some estimate that 1 in 5 small business loans will be made by an alternative lender. That share of the pie will be $52 billion, compared to $5 billion today.
1. Multi-product offerings.
Our nation’s largest financial institutions are full-service banks, offering credit cards, personal loans, student loans, mortgages and small business loans, among other financial products. But to date, most online lenders have stuck to one side of the market, with some notable exceptions like Lending Club, which operates both in the personal loan and small business loan sectors. Over the next few years, we’ll probably see more online lenders offering multiple kinds of loans themselves.
2. Bank partnerships.
Banks have large customer bases, low cost of capital, and scale on their side. Alternative lenders have speed, better user experiences, and a regulatory vacuum to operate in.
While they’re natural competitors, they don’t have to be. Indeed, a number of partnerships are beginning to form between banks and online lenders that will define how the credit needs of small businesses are met in the future.
3. Pushes towards self-policing
But over the past few years, we’ve seen the rise of different self-policing initiatives, from trade associations to industry announcements. The Innovative Lenders Platform Association, the Marketplace Lenders Association, the Responsible Business Lending Coalition, the Small Business Borrower Bill of Rights: they’re all attempts at self-regulation.
4. Increased government regulation.
Regulators aren’t blind to the potential that alternative lenders have to innovate—and to the possibility that misregulation could quickly lead to the death of an important new industry. But, online lending is brand new, and it’s disrupting what’s traditionally been a highly regulated industry. So, expect more news coming out of Washington as regulators look to get up to speed on the innovation that’s happening in online lending, and seek to build first principles on what an appropriate regulatory framework should look like.
VeriComply Appoints Former LendingClub Executive Roger Dickerson President, Prepares to Expand Into MPL (Crowdfund Insider), Rated: A
VeriComply, a company that automates the verification of marketplace loans for the secondary market, announced on Thursday it appointed former LendingClub executive, Roger Dickerson as its new president as it prepares to expand into the marketplace lending industry.
According to VeriComply, Dickerson served as Vice President of Finance Operations at LendingClub where he oversaw investor operations.
Panhandle students owe slightly more, but default less (Amarillo.com), Rated: B
Students in the U.S. congressional district that encompasses the Texas Panhandle hold, on average, more loan debt than the state average. But on the other hand they also default on student loans at a lower rate.
The average student debt per borrower in the district is $29,122, according to a student debt analysis released Thursday by LendEDU, a student loan marketplace.
That amount is about $2,100 more than the state average.
The loan default rate in the congressional district is 7.27 percent, the study found. Statewide, the rate is 7.39 percent.
Texas’ colleges and universities
Average student debt per borrower: $27,048
Debt per borrower rank: 22/50
Proportion of grads with student debt: 58%
Student loan default rate: 7.39%
Total college cnrollment: 748,866
District 13’s colleges and universities
Average student debt per borrower: $29,122
Proportion of grads with student debt: 59%
Student loan default rate: 7.27%
Total college enrollment: 76,084
2017 will be the year that robo-advice enters the mainstream (FT Advisor), Rated: AAA
It is anticipated that by the mid-point of this year there will be between 50 and 70 players offering an automated advice solution in the UK, including several major providers.
A human element is crucial to the approach of these more complex online financial advisers. Many are also routing online customers to a human if it is apparent that the need is complex or the customer may not have properly understood the questions asked during the process.
But a human element is only part of the solution; additional safeguards will also be required. We would not allow a human adviser, however well trained, to operate without a system of checks, balances and oversight, and the same is true of an automated model.
Once safeguards are in place, EY believes that a robo-adviser would be expected to have fewer biases and a better audit trail than any human.
The ‘peer’ is being muscled out of peer-to-peer investment (BusinessZone), Rated: AAA
The peer-to-peer business lending market has reached over £4bn. Nearly a quarter of all equity investments last year were made through Seedrs and Crowdcube, the two largest crowdfunding platforms.
Yet in both cases, the future depends not on the retail investors – Joe Public – that made their name but on market-shaping institutional investors.
“Around 10% of all businesses funded on our platform have some form of VC, institutional or corporate investment involved at some point in their history, and that rises to 50% when it comes to growth-stage business,” he said.
Seedrs echoes the sentiment. Rich Mason, its business development director, says they’ve seen a “surge” in co-investment with institutions and later stage investors.
At the other end of the spectrum, 25% of Funding Circle’s investment is from institutions (including the securitisation of loans).
ThinCats’ Caley says changes to its lending criteria due to the demands of institutional investors, cut 20-25% of loans last year.
Whether this is a good thing or not seems split between the two leading forces of alternative finance. On one hand, everyday investors now have access to big funding rounds like Monzo, something that would have been impossible in the past.
On the other, the future of peer-to-peer lending is less clear. Very few of these platforms make money and several have already struggled after key institutional investors pulled the plug.
New fintech degree course aims to churn out next generation of entrepreneurs (Finextra), Rated: AAA
Budding entrepreneurs looking for a career in the fast-growing financial technology industry can now sign up to the UK’s first fintech undergraduate degree course at Wrexham Glyndwr University.
The new BSc (Hons) Financial Technology Management course has been designed with the input of fintech startups and support from North American investment firms Franklin Templeton and State Street.
Course leader Anna Sung, lecturer at Wrexham Glyndwr University, says: “Rather than teaching students the technologies behind the rise of fintech, the course will teach them how to generate new business ideas and create their own startup using the technologies available to them.”
Global investment in fintech ventures in the first quarter of 2016 was £4.1 billion and it’s estimated that 100,000 new jobs in the sector will be created in the UK by 2020.
Has the P2P halo slipped? (City A.M.), Rated: A
A look at some headline numbers from Funding Circle, the most well known in the SME lending P2P space, is telling. It operates a pooling system where a retail investor lends to a portfolio of, typically, 100 businesses, with no more than 1 per cent exposure to any one loan. Given average SME default rates, this is a significant risk mitigation tool. And when you overlay this with risk banding, quality underwriting and proactive arrears management and collection, it becomes a pretty tightly controlled environment. The upshot is that investors have received a 7.1 per cent return after fees and bad debts.
Nevertheless, the head of the Financial Conduct Authority (FCA) Andrew Bailey has said that he’s “pretty worried” about some aspects of the P2P market. Speaking to the Treasury select Committee, he was referring to attempts by some platforms to draw direct comparisons between their offerings and the returns from bank deposit accounts – implying that the two products are comparable, when they are not.
Bailey’s caution should be taken as a warning. While the concept and principles of P2P have political and regulatory recognition, behaviours that are seen to be misleading investors will not be tolerated. Absolute transparency about risk, return and redress are essential if the sector wishes to avoid damaging itself. Moreover, while banks exist under increasing levels of scrutiny, platforms can currently operate under lighter regulation.
So is there really a problem with P2P? I think there is, but not in the investor protection/regulatory space, or in its customer outcomes (which are largely excellent). The problem lies with the business model itself.
Robo’s opportunities and risks for advisers – Keith Richards (Professional Adviser), Rated: A
Robo-advice still has its limits, Richards cautioned, however, and advisers should be careful not see it as a ‘one size fits all’ solution.
“Mis-selling scandals of the past have generally been based on formulaic sales processes so it is important not to repeat history. The individual review and tailored recommendation process of financial advisers protects the market from systemic failure.”
Romford climbs to top spot for buy-to-let investor returns (Mortgage Solutions), Rated: A
Romford has replaced Luton as the postcode offering the greatest return for buy-to-let investors, after seeing rental prices grow 8% in the year to November.
The city climbed six places to knock Luton off the top spot, after it posted a capital gains growth of 17% and a buy-to-let yield of 5%.
Luton still remains a desirable market for investors, however, where continued growth in the rental market has offset the shrinking of yields, LendInvest said. The city posted a respectable 5% yield and a capital gains rate of 15% on rental price growth of 8%.
Last in the latest ranking of top 10 postcodes was Stevenage, where, despite 10% rental growth – the highest of all – capital gains were comparatively low at 9% on yields of 4%. Overall, Northampton remained the only postcode in top 10 to be located outside the South East.
France’s Online Alternative Finance Doubles in Size – Crowdfunding Grows 40% (Crowdfund Insider), Rated: AAA
The French Crowdfunding Association (Financement Participatif France) released today the 3rd edition of its annual industry Barometer. For the first time, the data was compiled by auditing and consulting firm KPMG, which lends to the Barometer additional weight.
As it stands, the 2016 Alternative Finance Barometer reports that:
- French alternative finance overall raised €668 million, a 112% increase from 2015.
- French crowdfunding raised €234 million, a 40% increase from 2015.
I draw two conclusions from these numbers:
- The rapid growth of alternative finance comes from models fueled by institutional investors.
- The French alternative finance market is catching up, but is still dwarfed by the UK’s.
The Barometer focuses in more detail on the narrowly defined category of crowdfunding that remains closer to the original roots of “funding by the crowd”. The three segments of this category show:
- Donation and rewards-based crowdfunding show a sustained 37% growth to €69 million.
- Debt financing and crowdlending grew by +46% to €97 million. The strong 125% growth stated in the 2015 barometer is not directly comparable to the 46% growth rate stated for 2016. The latter is based on comparable data, retro-fitted to a smaller parameter of SME, real estate and green debt funding and crowdlending.
- Equity crowdfunding decelerates to +36% to €69 million.
In conclusion, while 40% is a very healthy growth number by common standards, it is not enough to sustain some 100 startups in the crowdfunding category. Many will jump ship or consolidate. The winners will most likely go for more hybrid models to get a nudge of acceleration from institutional investors.
Marketlend Appoints Brad Pattelli as Non-Executive Director (Yahoo! Finance), Rated: A
Marketlend, Australia’s leading peer-to-peer trade credit platform, today announced that it has appointed Brad Pattelli as a non-executive member of its board of directors. Pattelli brings decades of experience as an investor in a broad range of businesses, multiple prior public and private board roles, and significant expertise in the P2P arena as the former President of LC Advisors, a subsidiary of LendingClub, the award-winning online platform.
Founded in 2014, Marketlend provides investors with a unique opportunity to invest in supply chain or debtor lending facilities secured by short-term receivables, primarily from small to medium sized Australian businesses. An A+ rated global insurance company protects Marketlend investors against insolvency of the borrower and its debtors, enabling uninterrupted principal repayment on the majority of Marketlend’s lending facilities, providing investors with significant credit enhancement whilst enabling borrowers to receive better interest rates. Marketlend has recently secured a mandate from an undisclosed institutional investor to invest on its platform.
P2P lenders to keep funds at banks (Shanghai Daily), Rated: AAA
CHINA’S banking regulator yesterday issued a new rule requiring peer-to-peer lending platforms to use third-party banks for custody of funds as it enhanced a national campaign to curb financial fraud.
The bank requirement seeks to strengthen fund security and prevent capital embezzlement, the China Banking Regulatory Commission said in a statement yesterday.
A P2P lending platform should sign an agreement with only one commercial bank to safeguard the funds, and all P2P lenders should meet the custody requirement in six months, the regulator said.
As of yesterday, 209 operating online P2P platforms have signed such agreements with commercial banks, accounting for 8.8 percent of all P2P lenders, according to data compiled by Online Lending House, a portal that tracks the sector.
China Rapid Finance Said to Target U.S. IPO as Soon as 2017 (Bloomberg), Rated: AAA
China Rapid Finance, a Shanghai-based peer-to-peer lender, is planning to raise at least $100 million in an initial public offering in the U.S., people familiar with the matter said.
The company, which raised $20 million at a pre-money valuation of $1 billion in November, could hold the IPO as soon as this year, the people said, asking not to be identified because the information is private. The money will be used to fund expansion in China, one of the people said. The company declined to comment in an e-mailed statement.
Jean-Sébastien Drolet, RealStarter on Making Real Estate Investments Accessible (Crowdfund Insider), Rated: AAA
Crowdfund Insider had the opportunity to interview the co-founder of Canadian real estate crowdfunding platform, RealStarter.
Jean-Sébastien Drolet: RealStarter stands for a reachable start in the real estate investment. As you might know, buying property is not accessible to everyone because one encounters many costs and fees. Also, real estate investment can be challenging if you don’t have enough knowledge regarding the market and market trends.
JSD: I would say our main challenge in 2017 will be to build trust with our users. I say that for two reasons that go hand in hand with each other: real estate crowdfunding is not very well known in Canada, especially in Quebec, and people are distrustful about investing money in real estate through a web platform. (It was only legalized in 2015 in Canada.)
JSD: I don’t think so — things are moving quite slowly in terms of regulations but they are still moving forward. In 2017, the Canadian regulators across Canada will be looking at what is going on in other jurisdictions to amend the regulatory regime actually in place in order to make it more efficient with the new emerging fintech business models. For example, the AMF (Quebec regulator) recently announced the creation of a technological Innovation Advisory Committee on which RealStarter will be. Its primary mandate will be to analyze technological innovations in the financial sector and anticipate regulatory, market efficiency and consumer protection issues.
JSD: Yes, it takes time to build a real estate crowdfunding market. After reading a few market studies about the US and the UK market, we can see it took about three years to achieve good growth in terms of investment volume made through crowdfunding platforms. We predict it is going to take less time in Canada since we now have positive results from these jurisdictions. Also, we like the E-Reit model adopted by certain US crowdfunding platforms, such as Fundrise. We are currently working toward doing something similar available if the regulation is flexible enough.