- Today’s main news: CreditEase Fintech Investment Fund announces new global investments. Money360 loan portfolio exceeds $200M. Funding Circle launches C shares offer for the fund.
- Today’s main analysis: Signs of a turnaround in volumes?
- Today’s thought-provoking articles: Groundfloor launches tax-deferred real estate investing. China’s yield-strapped investors spark P2P explosion.
- CreditEase Fintech Investment Fund announces new investments in global growth-stage companies. GP:” Among the investments a P2P insurance network, WorldCover.”
- Money360 doubles loan portfolio exceeds $200M mark. GP:” Real estate commercial real estate loans is a large market. Way to go.”
- Signs of a turnaround? A closer look at Orchard’s 2016 Q4 report. GP:” Volume are growing again. We saw a similar patch in the UK with a lower volume while the industry was re-adjusting and learning and new record volumes only 6 months later. It seems to have taken a little longer in the US though.”
- Groundfloor launches tax-deferred RE investing. AT: “I expect great things from Groundfloor. LT readers should expect a featured analysis on this startup soon.”
- How whitepages turned their data into an ID verification tool for online lenders. GP:” The difficulty if finding interesting data, not processing it.”
- Machine learning is the future of MPL. GP:” Machine learning plays a role but I am not sure it will be enough to define MPL.” AT: “The interesting thing here is that LC is still using a manual process to price loans, but there is a convincing argument why they shouldn’t.”
- CFTC chief says commission should embrace Fintech. AT: “Ultimately, every U.S. agency will have to embrace Fintech.”
- Tech entrepreneur says he’s sick and tired of no one innovating. AT: “I don’t know what he’s talking about. There is plenty of innovation, but this anonymous entrepreneur’s thoughts on big banks are very insightful.”
- Limits on smart contracts.
- Fintech and digital wallets.
- Impact investing growing among alternative managers.
- United States
- CreditEase Fintech Investment Fund Announces New Investments in Global Growth-Stage Fintech Companies (PR Newswire), Rated: AAA
- Money360 Doubles Loan Portfolio, Exceeds $ 200 Million Mark (Yahoo! Finance), Rated: AAA
- Signs of a Turnaround? A Closer Look at Orchard’s 2016 Q4 Report (Orchard Platform), Rated: AAA
- GROUNDFLOOR Launches Tax Deferred Real-Estate Investing (Press Release Rocket), Rated: AAA
- How Whitepages Turned Their Data into an Identity Verification Tool for Online Lenders (deBanked), Rated: A
- Machine Learning is the Future of Marketplace Lending (Due), Rated: A
- Small Biz Lending Approval Rates Surge at Big Banks, Institutional Investors: Biz2Credit Small Business Lending Index (Biz2Credit), Rated: A
- CFTC Chief Pick Says Commission Should Embrace Fintech (WSJ), Rated: A
- ‘Sick and tired of no one innovating’: Confessions of a financial tech entrepreneur (Tradestreaming), Rated: A
- FinTech: Some Limits on Smart Contracts (The National Law Review), Rated: B
- Fintech And Digital Wallets: Innovative Approach vs. Security Concerns (ValueWalk), Rated: B
- Impact Investing Growing Among Alternative Managers (Private Wealth), Rated: B
- United Kingdom
- Funding Circle SME Income Fund launches C shares offer (AltFi), Rated: AAA
- Yirendai Appoints Chief Credit Officer (PR Newswire), Rated: AAA
- China’s yield-strapped investors spark peer-to-peer explosion (Nikkei Asian Review), Rated: AAA
- V Balakrishnan’s startup Billionloans looking to raise $1mn shortly (India Times), Rated: AAA
- Singapore P2P Lender Silver Bullion Hits 1000 Loan Milestone, Over S$27M Lent (Crowdfund Insider), Rated: AAA
- Crowdfunding the solution for SMEs? (Moneyweb), Rated: A
CreditEase Fintech Investment Fund Announces New Investments in Global Growth-Stage Fintech Companies (PR Newswire), Rated: AAA
CreditEase Fintech Investment Fund (“CEFIF”), a venture fund investing in growth-stage fintech companies in China and globally, announced at the 2017 LendIt USA Conference in New York that it recently participated in investment transactions in three new fintech companies. LendIt annual conferences are recognized as one of the largest global fintech industry events dedicated to connecting the global fintech and lending communities.
The three investment transactions include Series C financing round in Trumid, an electronic trading platform for the bond market, Series B financing round in WeConvene, an online corporate access management ERP provider for capital markets, and Seed Round financing round in WorldCover, an innovative peer-to-peer insurance network.
Money360 Doubles Loan Portfolio, Exceeds $ 200 Million Mark (Yahoo! Finance), Rated: AAA
Money360 has doubled its portfolio in record time, having surpassed the $200 million mark this month in closed commercial real estate loans, the company announced today.
It took Money360 more than a year and a half to hit the $100 million mark, but less than six months to increase to $200 million, and by year-end, it expects to exceed $500 million in transactions.
The $200 million milestone came on the heels of four recent loan closings totaling nearly $38 million. All of these loans represent a loan-to-value ratio of not more than 75 percent and include:
- A $16.2 million bridge loan for a single-tenant, 71,132-square-foot office property constructed in 2006 located in Rosemont, Illinois.
- A $12.3 million bridge loan for a single-tenant suburban office property in Auburn Hills, Michigan.
- A $7.5 million bridge loan for two industrial buildings in Irvine, California.
- A $1.9 million permanent loan for an unanchored, 100-percent-leased retail property in Smyrna, Georgia.
Signs of a Turnaround? A Closer Look at Orchard’s 2016 Q4 Report (Orchard Platform), Rated: AAA
Excerpted from Orchard Blog:
“Origination numbers fell consistently over the course of 2016, and we have been waiting to see whether that was going to continue or whether we would eventually see an uptick. In Q4, we finally saw an uptick.
Not a huge one. It’s about a 10% increase over Q3 numbers. And that’s still down significantly from the peak last year, about 46% from what we recorded in Q4, 2015.
Charge-off Rate Vintage Curves
Back in 2010, the size of the industry and the volume of loans originated were pretty small. There were also fewer lenders focused on subprime lending. Additionally, a larger percentage of 2010 loans had a term of 36-months. 60-month loans have grown more in later years. 36-month loans have shown a tendency to charge-off at slightly lower rates.
This introduction of new loan products for lower credit quality borrowers in later vintages—i.e. lower lending standards and longer duration loans—means that the 2010 vintage includes not only fewer loans, but the loans tended to be of a higher credit quality. Given those factors, charge-offs are bound to be lower in the 2010 vintage.
More recent years all stack together pretty tightly, within 1-2% of each other in cumulative charge-offs. However, 2014 and 2015 vintages seem to be charging off at a slightly faster rate, at least, as of this latest report.
Borrower Interest Rates
Since Q2 of 2016 we’ve seen borrower rates fall in both Q3, and Q4 by around 1.2%.
Subprime rates are significantly higher. They’re in the 25-40% range. Whereas the prime lenders are going to be in the 8% to maybe 15-20% range. We end up with a weighted average of ~16%.”
GROUNDFLOOR Launches Tax Deferred Real-Estate Investing (Press Release Rocket), Rated: AAA
GROUNDFLOOR, the first and only U. S. real estate lending platform open to non-accredited investors and IRA Services Trust Company, the leading innovator of hi-tech Self-Directed Individual Retirement Account (SDIRA) solutions, today announced an initiative to maximize the benefits of tax-deferred investing for retail investors. As a result of the collaborative effort, GROUNDFLOOR will immediately begin inviting investors on their platform to fund their accounts directly through their 401(k)s and IRAs.
GROUNDFLOOR offers real estate investments with different grades that have a range of risk/reward profiles, offering returns ranging from 5% to over 20% so investors can build a diversified portfolio. In 2016 GROUNDFLOOR delivered loans with an average annualized return of 14.16%.* Compared to 2015, in 2016 loan origination volume in dollars grew by 621%, and the dollar value of principal repaid grew by 588%. Only one of the 108 loans repaid to date has returned less than 100% of the principal due back to GROUNDFLOOR’S investors.
At a time when private markets continue to deliver superior returns compared to public markets, most Americans currently saving for retirement can no longer rely solely on traditional stocks, bonds, and mutual funds for growth and yield. At the same time, many investors have been hesitant to participate in SDIRAs because of the expense, burden, and paperwork traditionally associated with the self-directed investment of tax-deferred funds.
GROUNDFLOOR and IRA Services are working together to address these issues head on: IRA Services’ real-time, cloud-based, API-driven retirement investment solution for the P2P industry – the first of its kind – streamlines the once difficult process of investing tax-deferred funds in P2P marketplaces. Meanwhile, GROUNDFLOOR is the only P2P marketplace where both accredited and non-accredited investors can directly invest in private real estate projects on terms they control, rather than turning their money over to a fund.
How Whitepages Turned Their Data into an Identity Verification Tool for Online Lenders (deBanked), Rated: A
Whitepages might be a 20-year old company but the data they’ve amassed over time can add significant value to online lenders, the company claims. Whitepages Pro, which offers identify verification, allows lenders to gauge if an individual is real.
A simple query of an individual’s name, phone number, email, address or business name will return results not easily accessible elsewhere, like how long that person’s email address has been in their system or the likelihood that the email address was generated by a bot, not a real person. A match is good, no match might not be good, they say. Their system can also do things like identify the carrier the phone number belongs to and whether or not that carrier, if it’s VOIP or something, might have a higher propensity for fraud.
Machine Learning is the Future of Marketplace Lending (Due), Rated: A
At LendIt USA, CEO Scott Sanborn shared that his team at Lending Club uses a manual process to dynamically price loans. Unsurprisingly, some loans are more sought after than others, but matching the pricing with demand is a labor-intensive process. With AI and machine learning, Lending Club and other online lenders may be able to rapidly update loan pricing automatically to maximize investor yield and industry profits while ensuring virtually every loan gets funded.
Lending Club, the dominant player in the peer-to-peer lending industry, grades loans from A to G, corresponding to interest rates from 5.32% to 30.99%. While this model is widely accepted and similar systems are used for virtually all bank and private lending, there are flaws in the model.
Airlines use complex algorithms to determine seat prices, but machine learning, commonly called artificial intelligence or AI, to better understand how people are interacting and purchasing. Rather than just increasing prices as the flight date gets closer, a computer could look for purchase trends and dynamically adjust prices on its own rather than leaning on a pre-determined schedule based on a series of inputs.
If this same logic were applied to a lending marketplace like Lending Club, it could look at trends, loan availability across multiple platforms, risk factors, and current interest rates across multiple lending marketplaces to best price loans. This ensures the best results for lenders and borrowers, as every loan would be funded and yields would be optimally set.
Small Biz Lending Approval Rates Surge at Big Banks, Institutional Investors: Biz2Credit Small Business Lending Index (Biz2Credit), Rated: A
Loan approval rates at big banks ($10 billion+ in assets) improved to new post-recession highs in February 2017, according to the latest Biz2Credit Small Business Lending IndexTM, the monthly analysis of more than 1,000 small business loan applications on Biz2Credit.com.
Small business loan approval rates at big banks improved to 24.1% in February 2017, marking the seventh consecutive month of increases and the 11th time in a calendar year that approval percentages have increased. Further, loan approval rates at big banks in a year-to-year comparison are up more than one full percentage point, as they slowly creep towards the one-quarter mark.
For the first time in the last six months, loan approval rates at small banks dropped by one-tenth of a percent to 48.8% in February 2017 from 48.9% in January.
Institutional lenders’ loan approval rates improved to 63.5%, reaching a new Index high.
Loan approval rates dropped at alternative lenders in February, as they approved 58.4% of the loan requests they received, down one-tenth of a percent from 58.5% in January.
CFTC Chief Pick Says Commission Should Embrace Fintech (WSJ), Rated: A
J. Christopher Giancarlo, who Mr. Trump tapped Tuesday as the permanent head of the Commodity Futures Trading Commission, said in a speech here Wednesday he has instructed staff to examine the role the agency can play in promoting fintech in the multi-trillion-dollar derivatives markets it oversees.
Mr. Giancarlo has long argued the CFTC should do more to embrace financial technology, which he says has the potential to transform finance, in part by significantly boosting the quality of swaps data that regulators collect from the industry. He has tapped a top CFTC staffer, Jeffrey Bandman, to head the agency’s fintech efforts, according to people familiar with the matter.
‘Sick and tired of no one innovating’: Confessions of a financial tech entrepreneur (Tradestreaming), Rated: A
For the latest in our Confessions series, we spoke to a startup entrepreneur with considerable experience in the banking sector.
So banks are making more money off of high-income customers, and are pushing the startups to take the lower income ones they don’t want?
They would much rather get their tax breaks and give to charity and say they’re doing good for the country than get their hands dirty with a bunch of very subprime demographics. The fintech guys have to go to high risk. If you’re a bank, you can cherry-pick all the rich people and not have as many defaults in a downturn.
What about accelerators and incubator programs where the banks mentor startups. Doesn’t that show their goodwill?
They just steal your ideas. They’re not doing it for the good of their soul. They’re doing it to take a chunk and or steal the idea as you build it and do it themselves.
If it’s so hard to get your product to market, what’s the objective of a startup entrepreneur? Is it just to cash in when you’re acquired by a bank?
If you’re looking to make a little bit of money quick, it’s probably not a bad play, but if you’re actually looking for any kind of change in the world, and you believe in that, it’s not a good move. That’s the reason why people go into this, and I believe I’m one of them. I am bored and sick and tired of no one innovating in the space.
FinTech: Some Limits on Smart Contracts (The National Law Review), Rated: B
Milos Dunjic argues that the Capabilities of Smart Contracts are Overblown because most people misunderstand the fundamental properties of smart contracts and propose ideas that are not implementable on a practical level.
As for scalability, smart contract code must produce the identical outcome in every node that executes it. Dunjic questions whether a large number of distributed nodes all hitting a “funds transfer” API at the same time might look like a self-inflicted DDOS attack on the API. Would each call to the API receive exactly the same response from the API? Reliability must be absolute in a smart contract.
Fintech And Digital Wallets: Innovative Approach vs. Security Concerns (ValueWalk), Rated: B
In CES 2017, Samsung has declared that its Gear 2 will be outfitted with Samsung Pay, the digital wallet application of the organization. In the coming era, we can see more gadget producers integrate advanced wallet services.
Mobile payment procedures including bank transfers and cards are more secure now with the assurance of biometric validation. The unique mark scanner or face identification programming on a few handsets and platforms permit the users to enlist his biometric data with the gadget and from that point utilize them for any transaction when it needs confirmation. On account of biometric validation security vulnerabilities with mobile payment could be limited as it were. In future, we can expect the expansion of such computerized transactions with biometric confirmation constraining the security dangers and ruptures to a base.
Impact Investing Growing Among Alternative Managers (Private Wealth), Rated: B
Impact investing is growing in importance among the alternative investing community, according to a new survey by the Chartered Alternative Investment Analyst (CAIA) Association.
Assets under management in impact investments have grown 18 percent year-over-year for the past three years, according to the Global Impact Investing Network (GIIN). Total industry assets under management in traditional private equity impact investments are estimated to be around $80 billion.
Funding Circle SME Income Fund launches C shares offer (AltFi), Rated: AAA
THE FUNDING Circle SME Income Fund has launched its first conversion (C) share fundraising as part of plans to raise additional capital over the next 12 months.
The placing is open until 6 April at a price of 100p per C share and the new class will list on the London Stock Exchange on 11 April.
The London-listed investment trust, which invests in loans on the Funding Circle platform, issued a new prospectus in February as it looks to issue up to 500 million new shares over the next 12 months.
Yirendai Appoints Chief Credit Officer (PR Newswire), Rated: AAA
Yirendai Ltd. (NYSE: YRD) (“Yirendai” or the “Company”), a leading online consumer finance marketplace in China, today announced the appointment of Dr. Yichuan Pei as its Chief Credit Officer.
Dr. Pei will be responsible for the overall management of Yirendai’s Credit Department to ensure that the credit risk of loan portfolio on the Company’s platform is within the Company’s guidelines. He will also work closely with the Company’s Chief Risk Officer, Ms. Yiting Pan, to manage the Risk Management Department. Ms. Yiting Pan is expected to transit from her current position as Yirendai’s Chief Risk Officer into a new role with CreditEase and relocate to the U.S. in the middle of 2017 due to personal reasons. Dr. Pei will take over the full responsibilities of risk management and assume the Chief Risk Officer position at end of the transition period.
China’s yield-strapped investors spark peer-to-peer explosion (Nikkei Asian Review), Rated: AAA
Peer-to-peer lending is surging in China as conventional financial products lose their appeal — creating new opportunities and substantial risks for yield-hungry retail investors.
Outstanding peer-to-peer loans — funds lent by one individual to another through the internet — stood at 885.7 billion yuan ($128 billion) in China at the end of February. That is eight times the level of barely two years ago.
Companies are getting into the game, borrowing hundreds of thousands of yuan in operating capital. Lending services are now offering to choose investments for customers. For funding riskier borrowers, lenders can expect yields on the order of 8-12%. These loans turn over quickly in many cases, often in less than a year.
China’s peer-to-peer lending balance stood at just 103.6 billion yuan at the end of 2014, according Yingcanzixun.com, a site tracking the peer-to-peer industry run by Shanghai Ying Can Investment Management Consulting. Within a year, that surged to 406.1 billion yuan. Lending could top 1.3 trillion yuan by the end of 2017, an executive with Yingcanzixun predicted.
V Balakrishnan’s startup Billionloans looking to raise mn shortly (India Times), Rated: AAA
Billionloans, the online lending platform founded by former Infosys CFO V Balakrishnan, is looking at raising $1 million in funding within the next few weeks as it focuses on building a Rs 1000-crore loan book in two-three years.
Because the Billionloans platform functions as a marketplace, it does not take the risk of loan defaults itself. The lending is also done by institutional lenders who have the ability to make collections in case of defaults.
Balakrishnan’s platform will use a potential borrower’s social media behaviour, device information, banking transaction history and the results of a psychometric test to determine intention to repay to issue a score to gauge credit worthiness. The platform uses Micrograam’s underlying technology to issue the score, Balakrishnan said.
Singapore P2P Lender Silver Bullion Hits 1000 Loan Milestone, Over SM Lent (Crowdfund Insider), Rated: AAA
Launched only 19 months ago, Silver Bullion Pte Ltd‘s bullion has secured P2P loan platform has matched 1000 loans. While it took roughly 13 months to match its first500 loans, it took only another 6 months for Silver Bullion to reach 1000 loans.
Silver Bullion’s bullion secured P2P loan platform has now matched more than S$27M in loans. In Q1 2017, the U.S dollar denominated 12-month loans were matched with an average interest rate of 4.0% p.a while the Singapore dollar denominated 12-month loans had an average interest rate of 4.2% p.a.
Crowdfunding the solution for SMEs? (Moneyweb), Rated: A
Traditional financial institutions are generally reluctant to serve SMEs due to the high costs associated when assessing these businesses, their volatile balance sheets and the inherent high risks involved with start-up companies. This lack of financing for SMEs has exposed a gap in the South African lending and borrowing market, and has encouraged development in the sphere of social lending, also known as crowdfunding.
Online marketplace lending in South Africa is becoming an increasingly popular alternative to traditional financial institutions, which for years dominated the lending and borrowing market with high interest rates, rigorous red tape, excessive bank charges and inflexible attitudes. Social lending is revolutionising the manner in which SMEs and conventional corporate citizens access funding and it is disrupting traditional understanding of how money is lent and borrowed. Crowdfunding eliminates the need for traditional financial institutions in the context of SMEs and provides consumers with a convenient and flexible online funding platform that offers competitive interest rates, low fees and charges, and advantageous terms and conditions.
Launched in 2012 as the first online marketplace lending platform in South Africa, Rainfin Proprietary Limited (RainFin) has experienced rapid growth and popularity due to its ability to match borrowers directly with lenders.
However, despite the popularity and growth of these crowdfunding platforms in South Africa, they are not free of burdens and restrictions. The National Credit Act 34 of 2005 (NCA) previously allowed an individual to lend up to R500 000 to another individual without being registered as a credit provider.