Daily News Digest Featured News

Friday May 19 2017, Daily News Digest

digital income/expense variability

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United States

United Kingdom

China

International

Australia

India

Asia

South Africa

News Summary

United States

To get ahead in fintech, you need to be in touch with everybody’s go-to guy: Ron Suber (Biz Journals), Rated: AAA

Ron Suber’s job title is president of Prosper Marketplace. It barely describes the role he’s assumed at the center of San Francisco’s flourishing fintech community. Suber spends much of his time inexhaustibly networking, investing in and advising fintechs. He’s invested in 16 of them, including high-profile players like DocuSign and SoFi, and serves as an official adviser to a half dozen of them, at last count.

“Ron’s become the mayor of fintech,” said Stephen Dash, founder and CEO of San Francisco-based Credible. Dash says the first thing on his agenda after arriving in San Francisco from his native Australia was to have coffee with Suber, who helped Dash raise an initial $10 million round at a $40 million valuation to start Credible, which works with millennials refinancing student loans.

“I have a lot of time. I’m married for 26 years with two grown children,” he said. “I don’t have a girlfriend on the side. I don’t gamble and I don’t play golf, so I find myself with a lot of extra time for these investments and advising, in addition to my full-time job at Prosper.”

But it’s not just the network. A track record of picking winners early makes a great calling card. DocuSign, for instance, has grown to more than 200 million users and 300,000 paying customers. The company has Visa as a major investor and was recently valued at about $3 billion.

Getting access to Suber’s experience, and his network, is no simple task. He said he sizes up more than 30 business plans for every investment check he writes.

In 2008, Suber joined the father-son team of Stephan and Aaron Vermut at Merlin Securities, which also served hedge funds. After its sale to Wells Fargo four years later, Suber began investing in the loans and equity of a San Francisco fintech started by one of his former Wells Fargo colleagues, Mike Cagney’s SoFi. Soon he was also investing in hedge funds that were buying loans from Lending Club and Prosper. That gave him insight into the burgeoning growth these early marketplace lenders were enjoying.

In January 2013, Suber and the Vermuts raised $20 million to take control of Prosper in a financing led by Sequoia Capital.

Monthly lending went from $9 million to $420 million a month when the Vermuts and Suber took over Prosper as BlackRock, hedge funds and other big investors came on board to finance loans made over the Prosper platform.

Prosper, which recently crossed $9 billion in total loans originated through its platform, saw first-quarter loan originations jump 29 percent over the fourth quarter of 2016.

Prosper’s payroll also tells the story, with 77 employees when the new management team arrived in 2013, jumping to a high of 650 last year and now at about 400 people, with 40 job openings to be filled.

FinTech Alternatives to Short-Term Small-Dollar Credit– Helping Low-Income Working Families Escape the High-Cost Lending Trap (Harvard), Rated: AAA

The paper proposes a number of concrete steps that private sector and government employers, employee benefit providers, FinTech companies, other financial companies and non-profits can take to accelerate the adoption of superior FinTech alternatives to STSDC by low-income working Americans:

  • Employers (private and public) should adopt and subsidize employee financial health benefit plans that include the highest Utility products from FinTech companies.
  • Employee benefits intermediaries should support adoption of financial health benefit plans.
  • FinTech companies should broaden their offerings to incorporate the product capabilities of other FinTech companies into their own product offering for lowincome working Americans.
  • Non-FinTech financial companies should adopt FinTech products to help improve their own customers’ financial health.
  • FinTechs and financial sector should resolve data governance Issues
  • The non-profit sector should advocate for FinTech benefits and data governance and consider subsidizing test cases.

The paper also sets forth public sector legislative/regulatory actions that could help accelerate adoption of FinTech alternatives to STSDC:

  • Congress should make employer contributions/subsidization with respect to Employee Financial Health Benefit Plans tax deductible.
  • State regulators should work collaboratively to reduce the burden of 50-state licensing and compliance on FinTech companies.
  • Federal and state banking regulators, with assistance from Congress as necessary, should make insured banking charters (national and state) available to FinTech companies with business models involving innovative digital deposit taking and other digital banking/lending activities that are (i) consistent with the purposes of banks generally but are (ii) inconsistent with the community banking format of locally-based customers and physical distribution coupled with a traditional mix of bank balance sheet and revenue components.
  • Regulatory and statutory uncertainty about permitted uses of “alternative data” should be resolved to avoid unnecessarily restricting the provision of high Utility FinTech products to low-income working families.

Read the full report here.

digital income/expense variabilityA Review of the Biggest Allocations to Consumer Lending Platforms (Lend Academy), Rated: AAA

Credigy, a U.S. subsidiary of National Bank of Canada struck a $1.3bn purchase program with Lending Club. Aegon, Dutch provider of life and annuity insurance products, will invest $1.7bn in loans issued by the German based Auxmoney platform. NewOak, New York-based asset management and institutional advisory firm, partnered with Canadian platform LendingArch to purchase up to $2bn in consumer loans.

Now, those three commitments represent the largest investment commitments to date coming from one firm but by far the largest commitment of all is the $5bn consortium deal for Prosper loans.

Since the financial crisis banks have pulled back on any products deemed outside their narrow credit box, though when examining the types of borrowers these firms target we are not talking about subprime borrowers.

These are carefully underwritten borrowers who for the most part fall on the prime end of the credit spectrum, though those with higher risk appetites can potentially get a considerable higher yield if they are willing to move into D, E and F grade loans.The more allocations we see of this nature will help more clients of wealth managers to begin seeing this as a high yielding, short duration and low volatile play. The fear of the unknown is really the biggest problem most platforms are facing today.

THE ALTERNATIVE LENDING REPORT (SmallBusinessLeding.io), Rated: A

A summary of content:

Attacking Loan Stacking: Alt-Lenders Fight Back
Alternative lenders in their struggle against loan stacking now face added competition from debt consolidators swooping in to poach their customers.

State of the Marketplace Lending Sector (Part 2)
There’s no shortage of buzz over conditions in the marketplace lending sector, much of it negative. Rampant layoffs, mini-scandals, and financial underperformance threaten to curb industry growth at best, and drive it to the outer fringes of the lending sector at worst.

MCA Funder Wins Latest Skirmish Against Long Island Attorney Amos Weinberg
Merchant Funding Services won its most recent MCA lawsuit against a defendant represented by Long Island attorney Amos Weinberg. Merchant and Weinberg are adversaries in half a dozen New York lawsuits involving MCA contracts.

Marketplace Lender Bizfi Reportedly Laying Off Staff and Facing Operating Issues
Several sources have informed The Alternative Lending Report that Bizfi, the New York-based marketplace lender, has terminated over a third of its approximately 150 employees, and is significantly reducing the number of loans it issues.

Yellowstone Capital Closes $75M Cash Infusion from South Korea
Yellowstone Capital closed a final round of $75 million in funding from Yesco Co. in South Korea. Yellowstone is using the funding to support the growth of its MCA business and to retire an existing debt facility, according to Pi Capital.

Addressing the Lack of Transparency in Small Company Lending
In this editorial, the publisher of The Alternative Lending Report talks about innovations in finance and technology, legal and regulatory dynamics, and strategies within the alternative lending segment.

New Technology & Product Launches
Coverage of all the relevant platform announcements, new software and services, and notable product releases.

Industry News
A recap of recent news of importance to lenders, brokers, and service providers operating in the small company loan sector.

Loan Tape
Small business lending data, recent litigation involving alternative lenders, equities with exposure to SME loans, SBA funding trends, macro-economic data, recession indicators, new investment tracking, and all the M&A and partnership deals in the sector.

THE BANK – FINTECH COGNITIVE DISSONANCE (Phoenix), Rated: A

The matter of fact is that banks already have a preexisting customer base which is an advantage in the short run. The disadvantage however is that this customer base is aging, changing and shifting to make way for the millennials.

The banking customers of tomorrow fall within this group of individuals – these are the living, breathing, multitasking clientele who are fluent in an array of different technologies and that – brings traditional banking at a disadvantage.

millennials fintech

When it comes to SMEs, millennials are more likely to cooperate with fin-techs as it is faster, simpler and (way) cheaper to attain a smaller loans through the push of a few buttons and the use of algorithms, rather than double checking credit scores and waiting anxiously for weeks for the desired approval.

U.S. CFTC establishes fintech initiative ‘LabCFTC’ in New York (EconoTimes), Rated: A

The United State Commodity Futures Trading Commission (CFTC) announced the launch of a fintech initiative ‘LabCFTC’ that is aimed in promoting fintech innovation in order to improve the quality, resiliency as well as competitiveness of the markets the CFTC oversees.

The fintech office is located in New York and will constantly work on to accelerate CFTC engagement with fintech and regtech solutions.

Are Dividend Yields Better Than Peer-To-Peer Yields for Income Investors? (Dividend.com), Rated: A

While individual loan results differ, the average return historically on most loans has ranged from 5-7%. In a few select cases with riskier loans, the returns have sometimes been as high as 13% as the graphic below shows.

First, P2P lending is short term in nature. Most loans are 36 months, while a few are 60 months. As a result, the loans do not offer the same kind of long-term investing income that dividend stocks do. Instead, investors will have to keep rolling over their investment into new loans.

Second, because of the tax treatment of loans, all income received will be taxed at ordinary income rates, while dividends can be taxed at reduced rates in many cases (depending on how long an investment in firm has been held).

Third, while dividends can feature rising payouts over time if companies become more successful, P2P loans are only made at fixed and unchanging rates. As a result, your income cannot grow in the same way that it can with dividends.

Fourth, while a diversified portfolio of loans to individuals may seem safe, it’s not as attractive as one might expect. In fact, a borrower’s ability to repay loans is likely to be related to the overall economy, and so if a recession occurs, many loans may default all at once. In contrast, companies are more creditworthy than individuals typically, and they may offer greater consistency in dividend payouts compared to P2P loan interest.

Fourth, while a diversified portfolio of loans to individuals may seem safe, it’s not as attractive as one might expect. In fact, a borrower’s ability to repay loans is likely to be related to the overall economy, and so if a recession occurs, many loans may default all at once. In contrast, companies are more creditworthy than individuals typically, and they may offer greater consistency in dividend payouts compared to P2P loan interest.

Lending Club grades the riskiness of its loans with “A” loans being safest and “G” loans being riskiest. In most areas of the investing world, riskier investments have higher returns – but in Lending Club’s case, the returns on G loans are 5.08% historically compared to 7.20% for safer D loans.

Lending Club investing

Fintech, pharma and Russian investigations see funding rounds fly (Silicon Republic), Rated: B

Elsewhere, US fintech start-up LevelUp raised $50m from the likes of JPMorgan Chase and US Boston Capital, with its total funding now at $85m.

Appear Here, a marketplace for the emerging and popular short-term retail space scene, raised $12m in the US this week.

The Series B round, led by Octopus Ventures, has boosted the start-up’s total funding to more than $21m.

Elsewhere, Capsule, a pharmacy delivery start-up, confirmed this week that it raised $20m from Thrive Capital. The company only operates in New York at the moment.

United Kingdom

Funding Circle passes Zopa in cumulative lending (AltFi), Rated: AAA

Funding Circle, the UK’s original marketplace lender for businesses, is now the UK’s largest marketplace lender by cumulative loan disbursals.

It might not mean much in the grand scheme of things, but it’s significant in that Zopa has been perched atop the peer-to-peer lending pile for more than a decade.

Funding Circle has now lent a cumulative total of £2.289bn, placing them approximately £1m ahead of Zopa’s £2.288bn total. The firm is running at a higher monthly lending rate than Zopa, and remains the only UK-based marketplace lender to have lent more than £100m in a month. Its record of £116m came in March.

funding circle zopa

 

Funding Circle founder steps back from P2P investment trust (P2P Finance News), Rated: A

FUNDING Circle’s Samir Desai (pictured) has stepped down from the platform’s investment trust to focus on the peer-to-peer lending side of the business.

Desai, who was a non-executive and non independent director of the Funding Circle SME Income Fund (FCIF), launched in November 2015, will now focus on his duties as chief executive of the Funding Circle Group, according to a stock market announcement.

Ranger Direct eschews possibility of property loan write-offs (P2P Finance News), Rated: A

US-FOCUSED peer-to-peer investment trust Ranger Direct Lending has brushed off any concerns over defaults in its portfolio.

The London-listed fund, which focuses on secured business lenders mainly in the US, revealed in its first-quarter portfolio update that $15.7m (£12.1m) out of its $500m loan investments are in default.

87 per cent of defaults were in real estate loans, equating to $13.6m, but the company revealed it has had no write-offs in this sector so far.

Golden opportunity? Precious metal-secured peer-to-peer lender gets authorised (AltFi), Rated: A

There’s a new business model among the ranks of the fully authorised peer-to-peer lenders. Lend & Borrow Trust Company (LBT) is a platform which allows users to borrow against their precious metals.

Lenders earn interest by investing in loans that are secured against “investment grade” gold and silver bars. LBT takes effective control of the pledged gold and silver on behalf of lenders, and will sell it off if a borrower defaults on a repayment.

The pledged precious metals are stored in specialised bullion vaults in England and Hong Kong, operated by cash-handling company Loomis. Pledged bars must meet the standards of the London Bullion Marketing Association.

The platform supports lending in five different currencies: GBP, EUR, USD, CAD and CHF. Its first loan was a £2m loan in GBP. Its second was a $5.25m deal in CAD.

Investors must invest a minimum of £5k to use the platform. The minimum loan size for business borrowers is £25,001, and £60,261 for individuals.

FINTECH FIRM DELIO TO EXPAND WORKFORCE WITH £200K SUPPORT (Business Cloud), Rated: A

Cardiff-based FinTech disrupter Delio will create an additional 30 jobs with £200,000 of Welsh Government support.

Delio, a platform which helps financial institutions connect high net worth clients with investment opportunities, will expand with the repayable business finance.

China

Chinese P2P Lender Dianrong Links with Maggie Ng to Launch Global Fintech Marketplace (Crowdfund Insider), Rated: AAA

Chinese P2P lender Dianrong announced a new technology agreement with Maggie Ng, a leading consumer banking executive in Asia Pacific, to launch a global fintech marketplace connecting Asian investors with high-quality, low-volatility and largely untapped asset classes, including U.S. consumer lending.

Ng and Dianrong engineers are currently completing beta testing for the new fintech platform that will provide Asian investors with an integrated solution to access U.S. marketplace lending assets.

According to the release, the new platform will utilize multiple U.S. marketplace lenders and a single onboarding and “know-your-customer” process. The platform will also offer advanced risk modeling capabilities, added credit enhancement and structuring features, and blockchain solutions to safeguard data integrity. Investors will also have access to real-time performance monitoring, U.S. tax-exemption filing capabilities and a secondary market for liquidity.

Zennon Kapron, China’s top fintech expert (AltFi), Rated: A

The People’s Bank of China (China’s central bank) launched a fintech committee last week. Will it make a difference?

One of the challenges that the industry faces is that the regulation around fintech is split. Some falls under the PBoC, but plenty doesn’t. A PBoC fintech committee should hopefully bring some clarity to regulation around fintech itself.

You’ve said in the past it is very difficult to be a bank in China these days. Why?

The rise of digital payments offered by the tech giants known as “the BAT” (Baidu, Tencent, Alibaba) have eaten away debit and credit cards. We calculated that lost fees cost banks about US$20 billion in 2015, which is a huge chunk. One of the directors at one of the banks we’ve spoken to said, “look, our payments business is gone.”

How damaging have these well-reported cases of fraud been to China’s P2P industry?

It’s difficult to say because not a lot has been reported. There is a lot that we don’t hear about. Anecdotally, someone I know lost a few thousand renminbi in a product that blew up on one of the P2P lending platforms and they got back some of it.

What in Chinese fintech excites you most?

Some of the lending in the SME space and consumer space has been quite exciting. To give an example, there is a simple fintech that provides the equivalent of US$100 credit to migrant workers in big cities to allow them to buy a mobile phone as soon as they arrive to the city. The interest rate is high on those loans, but for the migrants who go from making a few hundred renminbi in rural areas, to making a few thousand renminbi when working in Shanghai, that loan is very helpful especially when they first arrive to the city.

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

Blackmail Virus Spread to CNPC: over 20,000 Gas Stations Off-line
Recently, The widespread Blackmail Virus “WannaCry” has caused great panic in China and many gas stations were damaged. According to reports, On May 13th, gas stations of CNPC in several cities, including Beijing, Shanghai, Hangzhou, Chongqing, Chengdu and Nanjing, were suddenly off-line, The credit card and online payments doesn’t work.

Bitcoin Yearly Up 260%,Regulations to be Launched by PBOC in June.
Influenced by the event of Blackmail virus, the price of Bitcoin stopped growing trend. On May 12th, the price fell by 6.42% to $1,735, then rebounded to $1,805 on the morning of May 14, with yearly growth of 267%.Recently, problems of Bitcoin have drawn attention of People’s Bank of China(PBOC). PBOC has been boosting two regulations on Bitcoin: one is for trading platform, another is anti-money laundering. These regulations are going to be issued in June.

International

Customers Welcome Artificial Intelligence (Fintech News), Rated: AAA

Consumer Intelligence report by PwC revealed that most consumers believe artificial intelligence (AI) will help humankind.

More than half of the 2,500 individuals surveyed agree AI will help solve complex problems that plague modern societies (63 percent) and help people live more fulfilling lives (59 percent). On the other hand, less than half believe AI will harm people by taking away jobs (46 percent). When it comes to a blockbuster-movie-style doomsday, only 23 percent believe AI will have serious, negative implications.

But what do consumers think about AI’s impact on their immediate future? In the next five years, more than half can imagine AI assistants replacing humans as tutors (58 percent), travel agents (56 percent), tax preparers (54 percent), and office assistants (52 percent). However, consumers still have reservations about consciously adopting AI as home assistants, house cleaners, financial advisers, chauffeurs, health coaches, and doctors.

Over 40 percent of consumers also believe AI will expand access to financial, medical, legal, and transportation services to those with lower incomes.

AI consumers

In their own roles, business execs see huge potential for AI to alleviate repetitive, menial tasks such as paperwork (82 percent), scheduling (79 percent), and timesheets (78 percent). In fact, 78 percent agree it will free all employees from such tasks at all levels across their organisations. Already, 34 percent of business execs say that the extra time freed up from using digital assistants allows them to focus on deep thinking and creating.

AI for business

Fintech Needs More Than Tech to Serve Worldwide Unbanked (LinkedIn), Rated: A

With a current world population of over 7.5 billion, more than 2 billion people go without banking services.

In “Fintech Companies Could Give Billions of People More Banking Options,” Jake Kendall, Director of Digital Financial Services Innovation Lab, discusses the challenges that financial technology (fintech) companies face in the developing world.

From the examples Kendall cites, SERV’D is addressing these challenges most comprehensively. In India, SERV’D provides an app that “helps households and the informal workers they employ create simple formal work contracts and pay them online.” The data capture from this service – wages and other payments – could enable more than 400 million informal workers in India to demonstrate their financial history and lead them to financial inclusion in banking products and services.

Australia

Banks to pay $ 200m in advice compo (SBS), Rated: AAA

Australia’s major banks will pay more than $200 million in refunds to customers who were charged fees for financial advice they did not receive, new figures show.

AMP, ANZ, the Commonwealth Bank, NAB and Westpac will pay $204 million plus interest to customers affected by the banks’ failure to provide advice they had charged for.

The Australian Securities and Investments Commission on Friday released an update on its 2016 “fees for no service” compensation program report, which shows the five institutions have so far repaid $60.7 million to 45,000 customers affected.

Advice in danger of becoming irrelevant: Netwealth (ifa), Rated: B

In an era where consumers trust Facebook and Google to manage their money before a financial institution, the advice sector needs to start collaborating more effectively with technology companies or risk becoming “pretty irrelevant pretty quickly”, Netwealth’s Matt Heine has said.

If the advice industry is not able to build a market that addresses this issue and open up communication with innovative technology firms, “we’re going to become pretty irrelevant pretty quickly because that’s the new expectation of how a service is delivered”, Mr Heine said.

According to Mr Heine, the new frontier in financial advice is going to be a focus on artificial intelligence for driving higher returns, managing processes and engaging with clients.

India

Indian fintech company Paytm raises $ 1.4 billion from Japan’s SoftBank (Business Insider), Rated: AAA

India’s Paytm said on Thursday it has raised $1.4 billion (£1.07 billion) from Japan’s SoftBank Group in a deal that will help the digital payments startup expand its user base and maintain its lead in Asia’s third-largest economy.

SoftBank will also get a board seat in Paytm after the investment, which was made into Paytm parent One97 Communications, according to a statement from the Indian digital payments provider.

Fintech co. PaySense gets $ 5.3m in Series A (India Times), Rated: A

Fintech startup PaySense, which runs a digital credit platform, has raised $5.3 million in its Series-A round, led by Jungle Ventures with Naspers Group and Nexus Venture Partners.

PaySense offers individuals, such as working professionals, credit options ranging from Rs. 5,000 to Rs. 1 lakh, and does the credit scoring as well as the documentation processes by leveraging the India Stack.

Asia

OJK’s regulation on fintech-based lending services (Internatinonal Law Office), Rated: AAA

To support the development of a technology-based financial industry in Indonesia, in December 2016 the Financial Services Authority (OJK) issued Regulation 77/POJK01/2016 regarding technology-based fund-lending services.

The OJK’s fintech-based money lending services or fintech peer-to-peer (P2P) lending platforms are meant to facilitate the provision of cash funds on an expeditious, simple and efficient basis, particularly for small and medium-sized business operators to help boost their competitiveness.

Providers are restricted by the following rules:

  • A provider must be established as a legal entity in the form of a limited liability company as defined by Law 40/2007, or in the form of a cooperative as defined by Law 25/1992.
  • The maximum direct or indirect foreign share ownership in providers – in the form of a limited liability company established and owned by foreign citizens or legal entities – is 85% of the total issued capital.
  • Providers must have Rp1 billion in capital (ie, paid-up capital for a limited liability company and self-capital for a cooperative) at the time they apply for registration and Rp2.5 billion at the time they apply for the licence. Limited liability companies or cooperatives intending to engage in P2P lending services must register with and subsequently apply for a licence from the OJK.
  • Providers are prohibited from conducting other business outside P2P lending services, including:
    • acting as a lender or borrower;
    • providing security or guarantees for other parties’ debt; and
    • issuing bonds.
South Africa

‘Most robo-advisors will find it difficult to survive’ (Moneyweb), Rated: AAA

Most of the robo-advisors in the South African market will find it very difficult to survive, a newcomer has warned.

The low-cost investment product platform has just become the new kid on the block with the launch of its own independent robo-advisor, ItransactGO.

The number of robo-advisors in South Africa has grown quite considerably over the past two years, although some entrants effectively only offer a particular fund manager’s house view online. Yet, there have been suggestions that the rise of robo-advice could spell the end for conventional face-to-face financial advice in due course.

ItransactGO is primarily aimed at financial advisors, self-help investors and financially disadvantaged investors.

The robo-advisor doesn’t favour a particular asset manager or house view, will look across all asset classes including cash, bonds, property, domestic and offshore equities and automatically rebalances the investor portfolio.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

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