Daily News Digest Featured News

Thursday May 11 2017, Daily News Digest

ondeck loan origination

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News Summary

United States

SoFi plans to apply for a bank charter in the next month (TechCrunch), Rated: AAA

With an eye on providing banking services later this year, online lending startup SoFi is planning to apply for an industrial bank charter in the next month, according to CEO Mike Cagney. If approved, it would become the first company to receive a new industrial loan company (ILC) charter in a decade.

Industrial bank charters, or ILCs, provide a way for companies that aren’t banks to provide banking-like services to customers. And while ILCs have been around for more than 100 years, they’ve fallen out of vogue in the last decade due to increased regulation against them.

According to Cagney, that’s because companies like John Deere and Harley-Davidson used ILCs as a way to take advantage of FDIC-insured deposits to fund the financing arms of their businesses.

By combining a banking option with its lending products, Cagney said SoFi could offer discounted rates to members who set up auto-pay between their accounts. And with a SoFi-issued credit card, he said the company could potentially use its reward program as a way to help users pay down student loans.

As a result, the company is working on other ways that it could begin offering a SoFi-branded banking product later this year. Even if the company is not able to get approval for an industrial bank charter, it would still be able to offer checking, deposit and credit card services through a regional banking partner.

Funding Circle Error Exposes 6,000 SSNs Of American Clients (Forbes), Rated: AAA

An upcoming London-based business loans provider, Funding Circle, left a database containing 6,000 social security numbers of American clients exposed to anyone on the internet, it emerged Wednesday.

The company, which has helped companies bypass banks to borrow more than $3.5 billion from its peer-to-peer investor network since its founding in 2010, also admitted a misconfigured Amazon Web Services database exposed more than 13 million marketing email addresses for individuals, businesses and government organizations in the U.S., as well as more than 45,000 notes summarizing conversations with customers and partners.

According to the firm that uncovered the unsecured database, Kromtech Security, credit scores and business loan histories of clients were also available to anyone who knew the eight IP addresses of Funding Circle’s American branch.

Additionally, private data sets Funding Circle had purchased from third parties and credit agencies including Dun & Bradstreet, Experian and Powerlytics were left open.

OnDeck’s recovery plan is paying off (Business Insider), Rated: AAA

US online lender OnDeck had a tough Q4 2016, but it acknowledged its problems and introduced several measures to get itself back on track, including a “cost rationalization” plan that called for tighter credit management and job cuts.

Net losses, at $11.6 million, narrowed by an impressive 68% from $36.5 million in Q4, partly down to provisions for loan losses decreasing by 17% from $55.7 million to $46.2 million. Moreover, although the company previously said it planned to become profitable by 2018, it has now brought this forward to the second half of 2017, suggesting that its performance is exceeding its earlier expectations.

Here is how OnDeck will go about reaching profitability:

  • Further headcount reduction.
  • Increased credit performance improvement.
  • Moving away from a marketplace lending model.

ondeck loan origination

Alipay Launches in US (Crowdfund Insider), Rated: AAA

Alipay, part of internet conglomerate Alibaba (NYSE:BABA), has launched its payments platform in the US thus challenging other established players in the space such as Apple Pay. Alipay is partnering with First Data (NYSE:FDC) on the US expansion.

Alipay is currently used by more than 450 million people globally and 200 financial institution partners. . Well established in Asia, Alipay is now crossing the Atlantic following the recent announcement by competitor WeChat Pay, owned by Tencent, that is expanding into the US as well.

OnDeck Capital’s Chairman survives challenge from activist shareholder (American Banker), Rated: A

Fending off a challenge from dissatisfied hedge fund investors, OnDeck Capital Chairman and CEO Noah Breslow was re-elected to the company’s board Tuesday by an 84% to 16% margin.

SoFi looks to deepen buyer base with S&P stamp on latest ABS (Global Capital), Rated: A

A $530m consumer loan offering from online lender SoFi is expected to garner interest from a bigger group of investors, with S&P Global Ratings tapped to rate an offering from the issuer’s consumer loan shelf for the first time.

More Than a Quarter of Upstart’s Loans Are Now Fully Automated (Bank Innovation), Rated: A

Upstart — a five-year-old online lender — bets you can (and you must).

In fact, more than 25% of Upstart’s current loans are fully automated, Bank Innovation has learned.

The lender utilizes AI and machine learning algorithms to analyze consumer data points, including education history, employment history, social media, and even web behavior (during the online application process), in order to make underwriting decisions. The company has originated almost $700 million to date, from about 60,000 loans.

How Credit Karma CEO Kenneth Lin Built A Billion-Dollar Brand (Fast Company), Rated: A

Lin founded the company in 2007, with the goal of creating a customer-friendly alternative to trickster credit score services. He has since raised $386 million, vaulting Credit Karma into the ranks of Silicon Valley’s startup unicorns, and figured out how to turn a profit while helping nearly 70 million Americans discover financial services products that meet their needs.

Create a Credit Karma account, and you can monitor your credit score for free. Based on your credit history, the company then generates targeted offers for financial services including credit cards, student loans, and auto loans. If you opt in to one of those offers, Credit Karma gets paid by a referral fee by the bank or lender—a new credit card customer, for example, could be worth as much as $700. In 2015, the company made around $350 million.

Now Lin is embarking on mortgage refinancing recommendations, Credit Karma’s second major launch in less than six months (a free tax service launched in January, in time for April 15 filing).

The company is operating the service in 26 states, with plans to expand nationwide in the coming months. By Lin’s reckoning, 20% of U.S. mortgage debt is represented on the Credit Karma platform, and roughly one-third of homeowners would benefit from refinancing—a major opportunity.

The bank of the future: A (digital) financial mall (American Banker), Rated: A

Assume for a moment that most of the services legacy financial companies provide today could get competed away as innovators extend reach and scale across the landscape of financial products. If so, big financial institutions will look to re-establish a foothold. Their only sure competitive advantage seems to be the regulatory compliance (i.e. anti-money-laundering and know-your-customer capabilities) that the government has forced them to develop.

Bain & Co. estimates “governance, risk and compliance (GRC) costs account for 15% to 20% of the total ‘run the bank’ cost base of most major banks.” That, combined with the long and difficult process to establish and validate credibility with regulators, makes the challenge to potential competitors even more imposing.

That’s right, instead of making money from lending out deposits, or investment banking or capital markets … people will pay banks to simply hold their money and validate their identities and sources of funds.

Application programming interfaces will put a twist on this tried-and-true model. Banks will look to compete. When they do, as always, winning will come down to pricing and service. To do so, they’ll set up “financial malls.”

Conversely, in the financial mall ecosystem, fintech partners (providers with requisite core competency and scale) will open up shop and link with the banks via robust APIs. How this relationship manifests will vary as established players ponder the decision to build, buy or partner. Regardless, front-facing service providers — the fintechs — will operate in the most efficient manner and will lead the charge.

Earnest Operations LLC (SEC), Rated: A

For purposes of our procedures and at your instruction:
·
with respect to our comparison of Characteristics 9. and 13., for any first payment date or original maturity date falling on the 29th, 30th or 31st day of the month (as set forth on or derived from the Servicing System), we were instructed to assume the first payment date or original maturity date, as applicable, as the 1st day of the succeeding month;
·
with respect to our comparison of Characteristic 11., differences of $1.00 or less are deemed to be “in agreement;” and
·
with respect to our comparison of Characteristic 19., for those Sample Loans with a “borrower income” amount, derived from the Transactions Summary, (i) less than $80,000 (as determined above), differences of 10.0% or less of the “borrower income” indicated on the Statistical Loan File are deemed to be “in agreement” or (ii) greater than or equal to $80,000 (as determine above), differences of 20.0% or less of the “borrower income” indicated on the Statistical Loan File are deemed to be “in agreement.”  Further, for those Sample Loans with a “borrower income” amount, derived from Income Verification Documentation, differences of 2.5% or less of the “borrower income” indicated on the Statistical Loan File are deemed to be “in agreement.”

From the company’s filed EX-99.1 Charter, which can be read at Edgar.

Kathryn Petralia – Kabbage (Cheddar), Rated: A

Kathryn joins Cheddar to speak about Kabbage and how they’re assisting small businesses.

Watch the interview here.

Ripple vs Stellar (The Merkle), Rated: A

Stellar uses a consensus mechanism known as Stellar Consensus Protocol. This particular feature is outlined in the project whitepaper, for those who want to know more technical aspects about the mechanism.

Furthermore, Stellar’s native currency is known as Lumens – which we discussed here – whereas Ripple uses XRP. Stellar is mainly designed to target individuals and focuses strongly on technology, rather than making a name for themselves among financial institutions.

Ripple is a project designed to target financial institutions and provide a distributed ledger-based solution to facilitate cross-border payments.

It is also worth noting Ripple has a deflationary currency model. The number of XRP tokens in circulation will gradually decrease as it is used more often to facilitate cross-border currency transactions. Additionally, Ripple has formed several partnerships with banks and other financial institutions all over the world.

Online lending startup EarlySalary raises $ 4 mn from IDG, Dewan Housing (VC Circle), Rated: A

Social Worth Technologies Pvt. Ltd, which runs online lending platform EarlySalary, has raised $4 million (Rs 26 crore) in its Series A funding from IDG Ventures India and mortgage lender Dewan Housing Finance Corp.

The startup, which offers salary advances and loans to young working professionals, will use the capital to build products and increase its lending book, it said in a statement.

It will also use the money to expand team, specifically in skill sets of machine learning, as well as to grow customer base and provide 200,000 loans in this financial year.

Fintech company launches monopolisation lawsuit (Global Competition Review), Rated: B

TrueEX sued its rival and interest rate swap trading provider MarkitSERV on Monday, accusing it of using its monopoly in the trade processing services industry to crush the financial technology company by refusing to provide a critical service.

United Kingdom

CFA finance exams to grill hopefuls on AI, big data and robo-advice (Financial Times), Rated: AAA

The CFA Institute, the organisation that hands out the coveted designation of “Chartered Financial Analyst” to people who make it through three rounds of exams, more than 300 hours of study and four years of work experience, is to revamp its tests to include questions on artificial intelligence, big data and robo-advice.

The new curriculum will appear in exam papers from 2019, as the global association of investment professionals tries to reshape its course to meet demand from employers for practical fintech skills.

But big data analysis, machine learning, robo-advice and blockchain have shaken up the investment industry in recent years, as investors compete against low-cost passive fund trackers to deliver market-beating returns after fees.

Exam entrants will need to know how to back-test investment algorithms, work out the limits of big data analysis and appreciate the impact of wider trends on the industry, such as how blockchain technology affects trading and how robo-advisers may shape the way financial advice is given.

92% of financial professionals not confident advising on P2P products (Bridging&Commercial), Rated: AAA

Peer-to-peer (P2P) finance is in the ascendancy, yet many brokers still appear to be in the dark about the range of products on offer from this new wave of lenders.

Last month, members of the Peer-to-Peer Finance Association exceeded £8bn of cumulative lending following a strong first quarter of 2017.

However, a recent poll conducted by Bridging & Commercial found that 92% of financial professional respondents do not feel confident advising their clients on P2P products at the time of writing.

“I don’t know why it is, but in all my years, I’ve only had one approach from a P2P lender,” explained Stephen Burns of specialist finance brokerage Adapt.

This sentiment was echoed by Liam Brooke, co-founder of P2P platform Lendy, which has recently invested heavily in boosting marketing and communications efforts to improve the understanding of the sector.

“It is the P2P companies themselves that need to take responsibility for improving the public’s understanding of their products.

“This can be achieved in a number of ways, including building more one-to-one relationships with brokers and reaching them through different media.”

LendInvest shifts focus to sophisticated investors, nears £1bn in lending (AltFi), Rated: AAA

LendInvest, the UK’s largest property-focused online lender, is refocusing and restructuring its investment platform. The firm is shutting out retail investors with the introduction of a qualification test, which investors will have to pass in order to lend through the platform.

The average balance for individual investors on the LendInvest platform is roughly £30k.

LendInvest is right on the cusp of crossing the £1 billion mark in cumulative loan originations – a feat that has been accomplished by just four UK-based marketplace/online lenders to date.

Peer-to-peer savings warning: easy access accounts at risk (The Telegraph), Rated: A

Investors in “peer-to-peer” loans are in danger of sleepwalking into accounts that are sold as “easy access” but have no guarantee money will be returned quickly.

A report from 4thWay, an analyst of the sector, warned “easy access” accounts offered by providers could not guarantee the quick return of cash.

Landbay, a property specialist, calls this its “tracker fund”, Assetz Capital has a “quick access” account while Ratesetter offers a “rolling market” option as part of its “everyday account”.

It added in some cases, perversely, it was less risky for investors to tie their money up for longer in a fixed-term deal offering higher interest rates.

The average interest rate offered by early access accounts is 3.2pc, compared to an average of 4.9pc on other types of accounts, according to 4thWay.

Commenting on the firm’s “rolling market” account, a spokesman for Ratesetter, one of the largest peer-to-peer providers, said: “When we launched our account in 2016 40pc of our investors had cited access to their money as a key priority when making investment decisions, and since then, it has become one of our most popular products.”

He added that of the 15,000 requests for customers to withdraw their money Ratesetter has received so far, 99.6pc completed within one working day.

Innovate Finance Publishes Industry Fintech Sandbox Consultation Report (Crowdfund Insider), Rated: A

Innovate Finance has published a report today on industry sandboxes in the Fintech startup community.

According to the authorKey findings of the report include:

  • Addressing Cost and Inefficiency in Validating Innovative Solutions: Responses indicated that there is significant friction, both in terms of resources required and length of process, for startups and institutions in developing multiple Proof’s of Concept or “POCs” bilaterally.
  • Addressing Cost and Inefficiency in Developing Collaborations: Industry feedback has been that an Industry Sandbox could be helpful in bringing participants together in the resolution of shared challenges.
  • Supporting Efficiency in Compliance and Regulatory Engagement: The process revealed that within the startup community, understanding of the need for authorisation and compliance requirements in local and foreign markets could benefit from being accelerated.

fintech sandboxes

 

Fintech: The second wave of challenger banks (Euromoney), Rated: A

In the third quarter of this year, if all goes to plan, ClearBank will go into business as the first new UK clearing bank to open its doors to customers for 250 years.

What distinguishes ClearBank from the mass of fintech newcomers and challenger banks is that its customers won’t be small or medium-sized enterprises (SMEs) that the big banks refuse to lend to at other than punitive rates; they won’t be looking for working capital finance advanced against invoices to be paid by bigger corporations, neither will they be retail investors looking for a better return on their cash than zero-rate bank savings accounts, or wealthier individuals looking for a low-fee allocation to a mainstream asset class.

LendInvest makes largest development loan (PropertyWeek.com), Rated: A

LendInvest has completed its largest-ever development finance package, worth £21m.

41% of SMEs expected to vote Conservative (Bridging&Commercial), Rated: B

Some 41% of small businesses surveyed said they would vote Conservative in the general election, followed by Labour with 13%, Liberal Democrats on 9% and UKIP on 3%.

The survey found that 40% of small businesses believed that tax was the most important policy area, followed by Brexit (26%).

Funding Circle’s research also found that most small businesses are optimistic about their future turnover prospects despite the current uncertainty, with nearly 70% saying they expected it to increase within the next 12 months.

China

P2P Industry News (Xing Ping She), Rated: A

SAC Recommended Fintech as one of the research direction of next year
On May 8th, Securities Association of China (SAC) issued the notice about next year’s research project application, and announced the research theme “Opportunities and Challenges of stable development of Securities Industry”. Fintech is among one of the 8 topics specified by the Notice.

Sharing economy is sweeping China! Public charge pal company Raised 300M RMB within 10 Days.
JUMEI invested 300M RMB in charge pal sharing
On May 4th, JUMEI announced an investment of 300m RMB in a Mobile power leasing company——Shenzhen Street Electrical technology co., LTD(Anker Box). After the financing, JUMEI will hold 60% shares of Anker Box. The money will be used for the upgrade of production lines of charge pal sharing and cabinet etc., as well as the R&D of new series of product. It was also revealed that Leo Chen, the CEO of JUMEI, would become the chairman of Anker Box after this round of strategic investment, and JUMEI would continue to increase its investment amount.

Attitudes on Charge Pal: “National Husband” vs “Headstrong CEO” 
Charge Pal sharing becomes the second popular sharing product after Bicycle-sharing. Sicong Wang, the son of Wanda Group’s chairman Wang Jianlin(China’s Richest man), and Leo Chen, the CEO of JUMEI, holding different views on it.
Sicong Wang takes a negative attitude on the future of charge pal sharing, while Leo Chen think small probability is the feature of venture investment, the sharing project of Street Electricity could be a public welfare even it failed. He also showed his appreciation for Sicong Wang but warned him that personal preference should not be the factor of decision making.

European Union

PayU Invests EUR 110M Into Kreditech (Let’s Talk Payments), Rated: AAA

Kreditech, the leading technology group for digital consumer credit using machine-learning based underwriting, has closed EUR 110 million in investment from global online payment service provider PayU.

The landmark investment is the largest ever equity investment in a German FinTech company and builds on a successful 12-month pilot program in Poland.

The announcement follows a successful pilot program managed by Kreditech and PayU, offering Polish consumers improved access to credit in a real-time online process. The pilot program issued more than EUR 10 million in credit.

Through this major growth financing, PayU has acquired a significant minority stake in Kreditech, joining existing prominent FinTech investors including JC Flowers, Varde, Blumberg Capital, HPE, Peter Thiel, Rakuten and the World Bank’s IFC.

Alexandra Strömberg |Female Leader of the Future (Life at Klarna), Rated: A

This week we saw one of our own, Alexandra Strömberg, recognized as one of Sweden’s top 75 future female leaders (28th actually!).

Can you give me a little timeline on your life at Klarna?

I started at Klarna 4 years ago building up a new function and team named Customer Relations. Today we have an average customer satisfaction of 88% – that is better than best practice!

In recent years I’ve also been part of other Klarna projects. For instance I’m part of the Klarna Executive X network.

It’s been 4 years since you joined Klarna, a lot has changed. Where do you see yourself and Klarna in a further 4 years?

In 4 years I think Klarna will be a global player that not only fosters more and more talents, but also makes life a little bit easier for consumers and merchants by offering an even better and more innovative service. We will continue to disrupt and change. If I am at Klarna in 4 years, it’s because I still bring value to the company and that Klarna does the same for me I enjoy going to work knowing that I am part of this journey.

International

7 Things to Consider Before Launching a Fintech Startup (Entrepreneur), Rated: AAA

1. Regulations

However, fintech has ushered in new ways of viewing and handling money and has become a gray area for regulation. This is something that has been drawing the attention of lawmakers, especially in fintech companies’ charter applications to be “special purpose national banks.” This isn’t as straightforward as it seems since some fintech services such as peer-to-peer lending operate using new models.

In addition, these regulations may vary per market depending on the state, country or region in which you seek to operate. In Europe, there’s the impending implementation of the Revised Payment Services Directive (PSD2).

2. Competition from institutions

While banks have acknowledged the disruption fintech has created, this doesn’t mean that they will just accept defeat and step aside for the new guys. It isn’t exactly banks as institutions that are under threat as much as it’s the way we do banking.

3. Customer trust

Data breaches and cyberattacks are still rampant. With the nature of the information fintech companies handle, they are becoming an optimal target for cybercriminals.

4. The need for a strong team

This might seem obvious, but fintech isn’t exactly an area where there are turnkey tools and free scripts one can use to come up with an app or service. This isn’t like some other tech ventures where barriers to entry are relatively low. Financial, technological and business expertise are all required to develop fintech.

5. Unique and valuable service

The fintech industry is starting to get crowded now that many pioneers have done enough for new ventures to follow. Still, a key entrepreneurial question to ask is if your venture will be able to offer something unique and high value.

6. Technology choices

As a startup, you may have to bet on technologies that would power the service. On the plus side, technologies such as machine learning and analytics engines are now being offered as a service by cloud platform providers like Microsoft Azure and Google Cloud Platform, which lowers the barrier for development. However, these technologies have yet to fully mature. You should be prepared for growing pains and hiccups when using them.

7. Funding

Global venture capital investment was $17.4 billion in 2016. However, this excitement only means that competition for funding is also increasing. VCs are getting more selective, seeking out companies with truly game changing offerings, thus making your value proposition all the more important.

WorldFirst launches international payment platform (AltFi), Rated: A

The fintech firm yesterday announced the launch of its World Account – an international payments platform for small businesses and online sellers. The firm says that the new account delivers “international banking functionality”, stripping administrative burden and cost out of operating cross-border.

The opportunity for WorldFirst could be significant. Its own research shows that over 1.5 million UK SMEs are trading £76bn globally every month (see infographic below).

WorldFirst international payments

Australia/New Zealand

Financial “robo advice” to be cleared for first time in New Zealand (Voxy), Rated: AAA

The way will be cleared for robo advice to be given on financial investments and services in NZ for the first time, when the reforms of the Financial Advisers Act (2008) are complete. MBIE’s consultation on a draft bill paving the way for robo advice closed on 31 March.

‘Under the current timeline, the law won’t be changed until at least 2019. While MBIE and NZ’s Financial Markets Authority will be scratching their heads for ways to expedite the reforms, the FinTech industry is fast moving and there is a real risk that New Zealand firms looking to operate in the robo-advice area will be left behind by their overseas competitors if the reforms don’t happen sooner,’ he says.

Mr Ward-Marshall says that once robo advice is fully implemented in law and regulation in NZ, it is likely existing financial advisers will team up with clever technology companies to provide it.

India

MobiKwik Reaches for Unicorn Status, Set to Raise Funding from BlackRock (Crowdfund Insider), Rated: AAA

MobiKwik is set to raise funds from investors including BlackRock Inc. which will value the innovative Indian Fintech company at about $1 billion, according to Bloomberg.

The company with over 55 million users has been in talks these last months to raise funding that would give the startup this $1 billion valuation, and has forged new ties with banks and offering new financial services on its growing platform, Currently MobiKwik  investors include Sequoia Capital, Taiwan’s MediaTek, Japan’s GMO Venture Partners and hedge fund Tree Line Asia.

Country’s First Loan Marketplace for Used Automobiles Launched by Droom (Legman News), Rated: A

Droom—an online marketplace for used vehicles has launched India’s only loan marketplace for used vehicles, named as Droom Credit. The company has partnered with many non-banking financial companies and finance firms. It has also tied up with various lenders such as HDFC Bank, Kotak Prime, Faircent, and Tata Capital.

The creditworthiness of the applicants will be analyzed by Droom Technology Pvt. Ltd. through its credit risk engine. The loan approval procedure will be processed within 30 seconds based on the credit score validation, Aadhar details, PAN verification, and other credit evaluation platforms.

Aggarwal also revealed about its revenue generation models, which will be bifurcated in multiple ways.

First
The applicant will have to select the take rates that will be dependent on the lenders, borrower profile, and commission structures.

Second
The company will charge Rs 999 from borrowers that include Rs 299 as Cibil score checking fees and rest of the amount will be charged if the borrower makes his or her move toward next step with his loan approval.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

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