- Today’s main news: ICBA letter opposing SoFi as a bank. Moody’s upgrades 7 Prosper ABS MPL tranches. UBS invests in iCapital Network. TenX processes Bitcoin with Visa transactions. BNI Europa reaches profitability.
- Today’s main analysis: SEC focus on capital formation, enforcement in direct lending.
- Today’s thought-provoking articles: Will U.S. banks dominate consumer lending again? China needs a bigger stick to crack down on shadow banking.
- ICBA publishes letter opposing SoFi becoming a bank. GP:”This is great marketing for SoFi. I see no reason different entities will follow different rules in front of the same regulation and I am entirely certain that SoFi’s bank will have the full capability to follow all the other bank’s rules.”AT: “It doesn’t matter how opposed bankers are to SoFi becoming a bank, it will likely happen. Interestingly, the letter states the association doesn’t think SoFi has done anything wrong. Their position is based on the possibility that SoFi could do something wrong.”
- SEC focus on capital formation, enforcement in direct lending.
- Moody’s upgrades Prosper MPL ABS tranches. GP:”Prosper’s efforts are paying off.”
- Will U.S. banks dominate consumer lending again? GP:”We have to look at what happened and is happening in the robo advisor space. And that Wells Fargo launched their own small business offering online which is doing well. Or perhaps at Goldman Sachs’ Marcus who also broke quite a few records. “AT: “Peter Renton points out that regional banks are ahead of the Big Four in offering personal lending options. What are they afraid of?”
- Betterment raises $70M in Series E. GP:”Many people assume that Betterment is struggling because of the success of the other robo advising products built in house by established financial advisors who are doing very well. This is proof that it is not the case and Betterment does have intrinsic value.”
- PayPal to partner with JPMorgan.
- Are payments on a pedestal?
- Quarterly insurtech briefing. AT: “An interesting report from CB Insights.”
- Interview with Global Debt Registry’s Michael Koenitzer.
- MPOWER Financing expands student loan program to 50 states.
- Older women flunk financial literacy quiz.
- Opendoor moves into Florida.
- How P2P lending stacks up against other investments. GP:”I personally really like how p2p is seen as just another investment. Which is what it should be seen as with different risk and rewards of course. P2P has its own unique place in the investment space.”
- investUP identifies opportunities for P2P lenders.
- China needs bigger stick to crack down on shadow banking.
- Cash loans platform 2345 realized $14.93M profit in first half of 2017.
- Tencent internet insurance layout.
- CITIC Bank offers first domestic blockchain letter of credit system.
- BNI Europa becomes profitable on 3rd anniversary. GP:”This is very impressive as profitability is very hard to reach.”
- Managing fraud risk of frictionless payments.
- UBS invests in iCapital.
- UK vs. US regulation of fintech.
- Fintech and RegTech: What’s next for Financial Crime’s International standard setter?
- The most significant fintech acquisitions this year.
- Open nominations for 2017 Fintech 100.
- TenX processes Bitcoin with Visa transactions in Singapore. GP:”How you can short circuit the entire financial system with Crypto. Very intersting.”
- Ant Financial invests in VFinance.
- United States
- Here is the Letter by the ICBA Slamming SoFi’s Effort to Become a Bank (Crowdfund Insider), Rated: AAA
- SEC Focus on Capital Formation & Enforcement, and What it Means for Direct Lending (PeerIQ), Rated: AAA
- Moody’s upgrades seven tranches from four Prosper marketplace lending ABS securitizations (Moody’s), Rated: AAA
- Will banks in the US dominate consumer lending once again? (AltFi), Rated: AAA
- Robo giant Betterment raises $70m in new funding round (AltFi), Rated: A
- PayPal to partner with JPMorgan (Reuters), Rated: A
- Fintech faithful put payments on a pedestal (Reuters), Rated: A
- Quarterly InsurTech Briefing Q2 2017 (CB Insights), Rated: A
- Catching Up with Michael Koenitzer of Global Debt Registry (Crowdfund Insider), Rated: A
- MPOWER Financing Extends Student Loan Program to All 50 States Through Partnership with Bank of Lake Mills (PR Newswire), Rated: A
- Older Women Flunk Financial Literacy Quiz (Forbes), Rated: A
- S.F. real estate fintech Opendoor to expand into Florida (Biz Journals), Rated: B
- United Kingdom
- How does P2P stack up against other investments? (P2P Finance News), Rated: A
- investUP Identifies Opportunities for P2P Lenders (Bob’s Guide), Rated: B
- China’s shadow banking crackdown needs a bigger stick (Enterprise Innovation), Rated: AAA
- Cash loans platform-2345, realized $ 14.93million profit during the first half year. (Xing Ping She), Rated: A
- Tencent Internet insurance layout (Wall Street China), Rated: A
- CITIC Bank on the line of the first domestic block chain letter of credit information transmission system (01caijing.com), Rated: A
- European Union
- BNI Europa reaches profitability on its 3rd year anniversary (BNI Europa Email), Rated: AAA
- Managing the fraud risk of frictionless payments (Finextra), Rated: A
- UBS Follows Credit Suisse Fintech Move (Finews), Rated: AAA
- UK vs. US: Liberalization of Fintech vs. More Regulation (Coin Telegraph), Rated: A
- FinTech and RegTech – What Next for Financial Crime’s International Standard Setter? (RUSI), Rated: A
- The most significant fintech acquisitions of 2017 so far (Bob’s Guide), Rated: A
- Time for fintechs to shine – nominations for 2017 Fintech 100 open (BizEDGE), Rated: B
- Singapore Startup Takes Bitcoin Into Real World With Visa (Bloomberg Technology, Rated: AAA
- Ant Financial invests in Shanghai-based fintech startup VFinance (e27), Rated: A
Here is the Letter by the ICBA Slamming SoFi’s Effort to Become a Bank (Crowdfund Insider), Rated: AAA
Last week, the Independent Community Bankers of America (ICBA) sent a letter to the attention of Kathy Moe, Regional Director of the FDIC in San Francisco. The subject of the letter was the ICBA’s vehement opposition to Fintech darling SoFi’s effort to become a licensed bank.
The ICBA asked that Congress close the alleged “ILC loophole” because it not only threatens the financial system but creates an uneven playing field for community banks.
Read the full letter here.
SEC Focus on Capital Formation & Enforcement, and What it Means for Direct Lending (PeerIQ), Rated: AAA
What might a focus on the SEC’s capital formation mandate mean for investors?
- Retail investors may have greater access to alternative investments typically reserved for accredited investors. For instance, Piwowar questioned the premise of a distinction between accredited vs. non-accredited investors.
- Small businesses may see a reduction in disclosure obligations to encourage small businesses to tap the public capital markets. SEC Chair Clayton identified the reduction of US IPOs (in the wake of SOX and post-Enron regulations) as a serious issue.
- ABS investors may have a reduction in the disclosure and liability requirements for publicly registered securitizations. ABS issuance has shifted to Rule 144A private placements – in fact 100% of deals in the marketplace lending market are privately placed – in part, due to the higher disclosure and attestation burdens for public deals.
SEC Enforcement Actions & Investor Protection
After the late-2008 Madoff scandal, the SEC dialed up enforcement activities with the goal of improving investor confidence and market integrity.
Not surprisingly, enforcement actions on direct lending strategies has increased substantially as the sector continues to grow. (We refer reader’s to Harvard Law School’s SEC Enforcement Actions Against Investment Advisors for more information.)
Direct Lending is Prone to Valuation Negligence
A pool of unsecured personal loans may contain thousands of loans with differing and constantly shifting loan and borrower attributes. Unlike, say, a CMBS transaction where a valuation agent can visit a property, speak to an owner, and evaluate a tenant – the sheer volume of hundreds of thousands of loans requires advanced analytics to value a portfolio.
Below we share below our principles for valuation:
- Transparency: A well-documented valuation methodology, with clear exposition of prepayment, default, credit spread, and other assumptions.
- Auditable: A repeatable and testable valuation framework.
- Fair value: Fair value based on a consistent modeling framework that factors in both unobservable and observable valuation inputs from similar assets or adjacent capital markets.
- Accounts for major risk factors: The pricing framework accounts for risk factors including default risk, prepayment risk, and credit spread risk.
- Forward looking: Loan valuations must be driven off of expected future cashflows, where cashflows are a function of the borrower’s current credit attributes, macro conditions, payment performance, and seasoning.
- Loan-level: The pricing framework operates on a loan-level to address granularity in credit risk of loan rather than coarse replines.
Moody’s upgrades seven tranches from four Prosper marketplace lending ABS securitizations (Moody’s), Rated: AAA
The complete rating actions are as follows:
- Issuer: Citi Held For Asset Issuance 2015-PM1
- Class B Notes, Upgraded to A1 (sf); previously on Aug 6, 2015 Definitive Rating Assigned Baa3 (sf)
- Class C Notes, Upgraded to Ba2 (sf); previously on Jul 14, 2016 Confirmed at Ba3 (sf)
- Issuer: Citi Held For Asset Issuance 2015-PM2
- Class B Notes, Upgraded to A1 (sf); previously on Oct 23, 2015 Definitive Rating Assigned Baa3 (sf)
- Class C Notes, Upgraded to Ba2 (sf); previously on Jul 14, 2016 Confirmed at Ba3 (sf)
- Issuer: Citi Held For Asset Issuance 2015-PM3
- Class B Notes, Upgraded to A1 (sf); previously on Dec 18, 2015 Definitive Rating Assigned Baa3 (sf)
- Class C Notes, Upgraded to Ba2 (sf); previously on Jul 14, 2016 Confirmed at Ba3 (sf)
- Issuer: Consumer Credit Origination Loan Trust 2015-1
- Class B Notes, Upgraded to A1 (sf); previously on Feb 11, 2016 Upgraded to Ba2 (sf)
Will banks in the US dominate consumer lending once again? (AltFi), Rated: AAA
SunTrust Bank is an interesting case in point. They are a large 125-year-old bank headquartered in Atlanta. They had total assets on their balance sheet of $204 billion as of December 31, 2016 which makes them a top 25 bank in the US.
From our perspective, what is most interesting about SunTrust is they have an online consumer lending platform. They actually acquired a small online lending platform called FirstAgain a few years ago and relaunched it as LightStream in 2013. They are starting to get some real traction, having done $1.5 billion in loans in 2015 and over $2.3 billion in 2016. Their average interest rate is lower than the marketplace lenders and their biggest categories are auto lending and home improvement.
Discover Bank is most well known in the US for their credit cards but they also have a robust personal loan business. In 2016 they originated $4 billion in new personal loans making them the second largest online lender in the category behind Lending Club. Unlike Lightstream, Discover’s personal loans are focused on debt consolidation so they are going directly after Lending Club and Prosper in this space. I find this a curious decision given that they have a $62 billion dollar credit card loan book (as of December 31, 2016).
The four biggest US banks are still mostly on the sidelines
JPMorgan Chase is the largest credit card issuer in the US with $142 billion in balances outstanding. Possibly because of their dominance in credit cards, they do not offer a personal loan product beyond student loans and a Home Equity Line of Credit.
Bank of America is very much like Chase in their offerings towards personal loans – they offer home equity loans and student loans. Nowhere on their website can you find an offering for personal loans.
Even though Citi is the second largest credit card issuer it does actually offer personal loans. You can apply on Citi’s website for a personal loan up to $30,000 (up to $50,000 if you apply by phone). Rates range from 7.99% to 17.99%.
Robo giant Betterment raises m in new funding round (AltFi), Rated: A
Robo-advice giant Betterment continues to grow. The platform raised a $70m (£54m) funding round, an extension of last year’s Series E.
The firm has raised nearly $300m in total since it was founded in 2008, as some question the business model of robo-advisers. The company was valued at $700m in 2016.
The funding round was led by Swedish investment company Kinnevik and included investments from Bassemer Venture Partners, Menlo Ventures and Francisco Partners.
Fintech faithful put payments on a pedestal (Reuters), Rated: A
Fintech’s faithful are putting payments on a pedestal. Square and PayPal shares are near all-time highs – as are those of venerable outfits like Visa, MasterCard and First Data. They’re each chasing what could be a $2.3 trillion revenue business by 2019, according to McKinsey. But they can’t all be winners.
Privately held Stripe kicked off the frenzy last November when it raised $150 million in its fourth funding round. That doubled to $9.2 billion the valuation of the seven-year-old company, which builds software to allow companies to quickly set up and track digital payments.
Quarterly InsurTech Briefing Q2 2017 (CB Insights), Rated: A
In this report we focus on one of the insurance industry value chain’s most underestimated modules – claims management. It is a $170 billion global industry currently controlled approximately 90% by incumbents. And it is booming with innovation.
Download the full report here.
Catching Up with Michael Koenitzer of Global Debt Registry (Crowdfund Insider), Rated: A
Erin: How is GDR optimising the demand for its loan level diligence solutions? How does the platform source partnerships?
Mike: Most online loans underwriting already undergoes some form of validation. Up until recently, however, most of the industry has relied on manual document validation — it’s taken awhile for the industry to wake up to digital data validation. That’s where we come in – we offer a more efficient and a trusted method of validation than what’s been used in the lending space in the past.
Erin: Leveraging blockchain technology is becoming integral in fintech. Please describe GDR’s new multi-party blockchain proof of concept (POC) that is designed specifically for the online lending industry. What initial issues did/do you face and how did/do you and your team resolve them?
Mike: We see blockchain as perfectly suited to the online lending space and more specifically, the set of solutions we offer our clients, because it offers a single source of data that enables clients to access an immutable audit trail. They can see the state of a given loan across its entire lifetime and that builds confidence and trust. The more certainty investors have, the more likely they are to invest capital in the online lending space.
Erin: Distributed ledger technology is another key fintech innovation. Why has GDR initiated partnerships with the Wall Street Blockchain Alliance and Structured Finance Industry Group (SFIG) Blockchain Task Force for its strategy development?
Mike: Both organizations are naturally aligned with our role in shaping the broader conversation around blockchain adoption and what this technology can do for the online lending sector specifically. Through the Wall Street Blockchain Alliance, we’re connecting with many of the banks we’ve been working with through our portfolio of loan validation tools, and with SFIG, we’re sharing and developing best practices around securitizing those loans, working with the underwriters.
Erin: How do you see marketplace lending evolving overall?
Mike: The space is going to continue growing, but it is also going to consolidate as any industry does during the process of maturation. I also think that there will also be a reality check on how well the online lending platforms underwrote the loans and what was missed if anything in the underwriting process. We have seen and I think we will continue to see a shift from rivalry to increased cooperation and joint ventures between traditional banks and online lenders.
MPOWER Financing Extends Student Loan Program to All 50 States Through Partnership with Bank of Lake Mills (PR Newswire), Rated: A
MPOWER Financing, an innovative fintech company and provider of educational loans to high-potential international students, has entered a new partnership with Wisconsin-based Bank of Lake Mills, which enables MPOWER Financing to offer its online lending program to students in all 50 U.S. states.
As a result, MPOWER Financing is now available to thousands more students looking to secure financing across an expanded roster of 223 universities across the nation.
MPOWER Financing is a public benefit corporation whose mission is to remove the financial barriers to higher education in the U.S. by providing the financial resources necessary for students to attend schools and complete their undergraduate or graduate studies. Founded in 2014, MPOWER Financing provides financial resources to domestic students, DACA students and international students who are often undervalued and do not fit traditional credit criteria.
Older Women Flunk Financial Literacy Quiz (Forbes), Rated: A
In a survey released today, the 2017 RICP Retirement Income Literacy Gender Differences Report, from The American College of Financial Services, only 18% of women age 60 to 75 passed. By contrast, 35% of men did (also pretty shabby, if you ask me).
Most of the women surveyed (55%) said they were extremely confident they would have enough money to live comfortably in retirement. Only a quarter of those women passed the financial literacy quiz, however.
Also, the women surveyed were less likely than the men to get financial advice and information from friends: only 27% of women consulted friends vs. 39% of men.
Some 55% of women with advisers said it is extremely important that their money pro educate them about the risks of running out of money in retirement; just 42% of men felt this way. And 60% of women said it’s important to receive education from an adviser about investment management, as opposed to only 47% of men.
S.F. real estate fintech Opendoor to expand into Florida (Biz Journals), Rated: B
The move reflects just how fast the so-called iBuyer market is expanding, as some homeowners opt for a quick sale to Opendoor or its rival OfferPad to forego the time and expense involved in a traditional home sale.
How does P2P stack up against other investments? (P2P Finance News), Rated: A
But as P2P enjoys its moment in the sun, it is worth looking at how the sector stacks up against investment and savings products.
- P2P vs Exchange Traded Funds (ETFs)
Over the past year, the FTSE 100 has broken a number of records, ending last month 12.43 per cent higher than 30 June 2016.
While the majority of P2P platforms have not been able to beat the unusually strong performance of the FTSE 100, a few have come very close. LandlordInvest and Lendy are both offering up to 12 per cent on a variety of property loans, and Ablrate has listed asset-backed loans on its site for 14 per cent.
- P2P vs cash ISAs
As a result, the returns offered by cash ISAs have reached historic lows. By December 2016, there was not a single cash ISA offering more than one per cent, and by May 2017, P2P platforms were noticing a surge of ISA transferswhich they credited in part to low-paying cash ISAs.
Funding Circle is offering a maximum return of 7.2 per cent on its SME loans, while Zopa is offering 6.1 per cent to Zopa Plus account holders, and RateSetter is offering five-year loans at a fixed rate of 4.6 per cent.
investUP Identifies Opportunities for P2P Lenders (Bob’s Guide), Rated: B
The peer-to-peer lending industry is maturing, with the market growing at over 30% per annum, and figures suggesting it will be worth over £5 billion by the end of 2017; as such, the sector is now regulated by the FCA.
investUP is a peer-to-peer lending aggregation platform with the ability to automatically place investments for time-conscious investors. Investors enable a lending robot, driven from criteria provided by the investor, to create a bespoke algorithm which works for them. investUP is authorised and regulated by the FCA.
China’s shadow banking crackdown needs a bigger stick (Enterprise Innovation), Rated: AAA
For non-bankers, shadow banking leaves this perception of illicit financial services that harms economies if not the financial services industry. The reality is that shadow banking, and the non-banks that offer the service, is a welcome source of diversification of the credit supply from the banking system, and provides healthy competition for banks. At least that is what is stated in the Global Shadow Banking Monitoring Report 2016 published by the Financial Stability Board, the Swiss-based international body that monitors and recommends on the global financial system.
Mid-tier banks bear the highest risk as WMPs now account for close to 50% of their deposits, increasing their liquidity vulnerability.
Cash loans platform-2345, realized $ 14.93million profit during the first half year. (Xing Ping She), Rated: A
Cash loans platforms-2345 revealed its semi annual report last night. The revenue of the company was $159million during the first half year, increased by 127.1%.
The company’s original businesses were soft and hard ware developement. The huge increse this time due to the popular of internet finance(cash loans).
Tencent Internet insurance layout (Wall Street China), Rated: A
July 18, Taiwan Fubon gold control vice chairman Cai Mingxing said the company is working with Tencent to set up a joint venture in Shenzhen, the future of Fubon products or other company’s policy, will be in Tencent’s WeChat and other platforms. At the same time, Fubon Financial Control has received the approval of the management of robot management services, and hope that as soon as possible in the domestic launch of no one branch. This cooperation with Tencent, headquartered in Xiamen, Fubon Insurance will be through the WeChat sales insurance business.
CITIC Bank on the line of the first domestic block chain letter of credit information transmission system (01caijing.com), Rated: A
Recently, CITIC Bank on the block chain based on the domestic credit information transmission system (BCC) (BCLC) (a), which is the first time the domestic banking sector block technology will be applied to the settlement of credit. As of July 21, CITIC Bank has used BCLC to carry out real domestic letter of credit business, trading volume of more than 100 million yuan.
BNI Europa reaches profitability on its 3rd year anniversary (BNI Europa Email), Rated: AAA
Banco BNI Europa (“BNI Europa”) grew its total assets 36,7% reaching almost 500M€ in June this year. Total revenue grew 146,2% reaching 6,6M€ and the net profit was 2,7M€ allowing the bank to recover losses from 2016.
One year and half after its opening and with a new management team, the bank decided to completely change its strategy and focus on innovative products. Due to its limited resources, it also decided to create several partnerships with Fintech’s to accelerate its growth and product offering.
BNI Europa has been known for its customer centric digital platform and its attractive terms deposits and remunerated accounts. This year it launched with great success “Cereja” the reverse mortgage product for the senior consumer segment and the digital consumer credit platform “Puzzle” focused on independent workers.
The bank has also specialised in the management of alternative lending. So far, BNI Europa established twelve partnerships with European Fintech’s providing funding and credit to Banco BNI Europa across several European countries. Those credit products include consumer loans, student lending, SME medium term lending, SME revolving credit, invoice discounting and bridge lending.
Managing the fraud risk of frictionless payments (Finextra), Rated: A
Andrew Davies, VP, Global Market Strategy, Financial Crime Risk Management, Fiserv, talks about how increased speed and convenience in payments increase fraud risk, how financial institutions can address financial crime threats through technology and processes, and how firms can derive further benefits from their investment in fraud prevention – including by leveraging customer transaction information to identify new opportunities.
Watch the video interview with Davies here.
UBS Follows Credit Suisse Fintech Move (Finews), Rated: AAA
Zurich-based UBS has invested in New York-based fintech iCapital Network, «Crowdfund Insider» reported, without disclosing financial details of the deal.
iCapital is a digital distribution platform which provides access to private equity and hedge funds for wealthy clients and their private bankers.
UK vs. US: Liberalization of Fintech vs. More Regulation (Coin Telegraph), Rated: A
Based on the policies involving cryptocurrencies and Blockchain technologies, UK moves to liberalization of cryptocurrencies while the US looks into more regulations.
Bitcoin Foundation warns that the US is moving backwards in terms of accepting cryptocurrencies and other peer to peer banking models, which could result in the US Banking system being left behind.
Meanwhile, Britain’s new system will give fintech corporations more freedom allowing them to compete on the world stage.
FinTech and RegTech – What Next for Financial Crime’s International Standard Setter? (RUSI), Rated: A
The Financial Action Task Force (FATF), the global standard-setter for anti-money laundering (AML) and counterterrorist finance (CTF), in May brought together more than 150 delegates for its most in-depth discussion to-date on FinTech and RegTech.
There are, however, potential vulnerabilities inherent in the sector. RUSI’s FinTech FinCrime Exchange (FFE), run in partnership with FINTRAIL, a financial crime risk management consultancy, presented on both the risks and opportunities observed during six months of industry engagement.
The most significant fintech acquisitions of 2017 so far (Bob’s Guide), Rated: A
According to KPMG’s Pulse of Fintech report, fintech VC activity in Europe has hit a historically high level for successive quarters. In Q1 2017, global investment in fintech companies hit $3.2bn across 260 deals. Q1 2017’s total capital invested soared to $610m, which was noted as the highest tally in years.
- Broadridge Financial Solutions acquires Message Automation: Amount undisclosed
- First Data acquires CardConnect for $750m
- AntFinancial buys MoneyGram for $1.2bn
- Paypal acquires TIO Networks for $233m
- D+H and Misys merge in $4.8bn acquisition and form Finastra
- Mastercard closes acquisition of Vocalink for $920m
- Worldpay agrees to $10bn acquisition by Vintav
- Klarna acquires Billpay for $75m
Time for fintechs to shine – nominations for 2017 Fintech 100 open (BizEDGE), Rated: B
Nominations are now open for the 2017 KPMG & H2 Ventures Fintech 100, the annual list designed to recognise leading fintech innovators.
Companies or any fintech that deserve to be considered for the 2017 Fintech 100 need to be nominated by Thursday, August 31.
Singapore Startup Takes Bitcoin Into Real World With Visa (Bloomberg Technology, Rated: AAA
TenX is pitching its debit card as an instant converter of multiple digital currencies into fiat money: the dollars, yen and euros that power most everyday commerce. The company said it takes a 2 percent cut from each transaction and has received orders for more than 10,000 cards. While transactions are capped at $2,000 a year, users can apply to increase the limit if they undergo identify verification procedures.
TenX currently processes about $100,000 of transactions a month. By the end of 2018, it’s targeting $100 million in monthly transactions and a million users.
Ant Financial invests in Shanghai-based fintech startup VFinance (e27), Rated: A
Ant Financial, the financial services affiliate of Alibaba, has made a strategic investment in VFinance (维金), a Shanghai-based startup providing digital financial infrastructure solutions to enterprises in China, according to VFinance’s announcement.