March 28th 2016, Daily News Digest, Lending Times

  • A portion of Prosper bond offering priced at 5 percentage points higher than last one.
  • 4 questions to determine online lender fate in a downturn.
  • Well written OnDeck supportive thesis.
  • Renaud Laplanche wants to cap institutional money in Lending Club.
  • Squared, the payments platform, entering SME lending space.
  • Chinese Internet Finance Association, CIFA, trying to self-regulate, has 437 members.

Bond Offering Tied to Prosper Marketplace Loans Gets Chilly Reception,( Wall Street Journal), Rated: AAA

The yield on the $278 million offering, which was done by Citigroup Inc. and priced on Thursday, was as high as 12.5% for a portion of loans, according to PeerIQ, an online lending data tracker. That was more than 5 percentage points higher than the top 7.3% yield for a prior offering of Prosper loans by Citigroup late last year.

A spokeswoman for Prosper, which wasn’t directly involved in the sale, said: “While investors will determine security prices in the capital markets, we continue to see an underlying [loan] performance that delivers on investors’ expectations.” Citigroup declined to comment.

It was also above the highest yield for a similar securitization Citigroup handled of Marlette Funding LLC loans earlier this month, at 11%.

But delinquency rates on U.S. consumer debt overall fell 15% in February from a year ago, according to Equifax Inc. “More consumers are getting jobs and have a steady income,” said Amy Crews Cutts, Equifax chief economist.

For the new deal, Fitch Ratings expected defaults of 11%, which was its same forecast for the prior deal. Kroll Bond Rating Agency expected 9.5% to 11.5%. Moody’s didn’t rate the new deal.

The case, Madden v. Midland Funding LLC, was a “key credit consideration” that Kroll told investors to account for when considering whether to invest online loan securitizations. However, the loans in the new securitization deal were all below rates that could be barred by the court decision.


Answers to These Four Questions Will Determine Online Lenders’ Fate, (American Banker), Rated: AAA

We have all been watching the proliferation of new lending businesses and originators over the last few years and wondering how there’s consumer demand for so many new entrants.

Is the business generating a resilient book of business?
Can the business recruit the right investors who like the economics of the loan production?
Is the business able and willing to switch its cost structure when faced with slowing or shrinking growth in originations?
Is the company capitalized to weather a prolonged storm?

Khrom Capital 2015 Letter; Long OnDeck Thesis, (Value Walk), Rated: AAA

Comment: Very long well-written article in support of OnDeck. Worth a read!

OnDeck brings Moneyball to small business lending. OnDeck’s technology was developed by an impressive team, led by its CEO, Noah Breslow. Noah graduated from MIT with a BS in Computer Science and Engineering and received an MBA with Distinction from Harvard—an ideal educational background for the leader of a financial technology (fin-tech) company. More importantly, among the competitor CEOs whom we spoke with, Noah stands out as the most capable. We took the time to get to know Noah, and his qualities match what we look for in CEOs.

In addition to OnDeck’s strong management, the company itself has competitive advantages that should enable it to win a big portion of a very large market. As the largest online small business lender, it benefits from the positive feedback loop of its data gathering.

Moreover, having a wider lending spectrum than its competitors enables OnDeck to generate a relatively higher customer lifetime value.

With respect to continuously investing in R&D, OnDeck is able to develop innovations such as OnDeck-as-a-Service

Marketplace lenders worry about addiction to Wall St’s lucre, ( Financial Times), Rated: AAA

In recent years, though, loan demand has simply outpaced the ability of marketplace platforms to enrol enough retail lenders to finance it.  Renaud Laplanche, chief executive of Lending Club, says he wants to cap at its present level the firm’s dependence on institutional money (although he is only talking about a subset — hedge fund, bank and insurance company cash — that accounted for about 45 per cent of its funding last year). Mike Cagney, the boss of SoFi, a big online lender specialising in university graduates, plans to set up a captive fund to invest in the company’s own loans, as well as those of its competitors.

Jack Dorsey’s Bet on Online Lending Could Have a Huge Payoff, (Inc), Rated: AAA

Squared–known for a plastic attachment that can transform a merchant’s smartphone into the equivalent of a cash register capable of accepting credit cards–announced Thursday it would make loans available to its customers via a fast online application process.

It’s a risky bet for Square, which went public in November at well below its expected offering price, because the luster of online lending has worn off in recent months, at least for public companies in the sector.

In a blog post, Square said it was partnering with Celtic Bank, of Salt Lake City, Utah, to make the loans. The financing will be available for a fixed fee of between 10 percent and 16 percent of the amount borrowed, the company said. Borrowers pay back their loans through a 9 percent to 13 percent cut of their transactions, and must do so within 18 months.

Square reports extending $400 million of cash advances to 70,000 merchants as of year-end 2015 and has seen revenues from its cash advance products increase precipitously.

By comparison to LC and OnDeck stocks, Square’s stock is down about 15 percent from a high of $14.78 the day of its IPO. Its stock was up 2.7 percent to $12.93 by midday Friday.

Square Offers Loans in Natural Progression of Online Direct Lending, (Crowdfund Insider), Rated: A

Square transacted $10.2 billion in Q4 of 2015. This represents an incredible 47% year over year increase. During 2015, Square Capital already delivered $400 million in cash advances to their merchants.

So what does this mean for existing marketplace lending platforms? Probably not so much.  The debt markets are enormous.

Should Investors Value Lending Club as a Tech Company or a Bank? CEO Renaud Laplanche Shrugs, ( ReCode), Rated: AAA

Lending Club CEO Renaud Laplanche said many of the old labels and traditions of the financial world are blurring or disappearing.  Still, he cautioned that the baby shouldn’t go out with the bathwater — things like regulation are still important for Lending Club and its peers.

“We spent more time on downturn readiness in the past few quarters than we had before,” Laplanche said.

Real Estate Related Crowdfunding & P2P Lending Surge in China: Opportunity or Crisis?, (Crowdfund Insider), Rated: A

Four types of real estate crowdfunding.

Development & Purchase
Development & Investment
Marketing & Purchase
Marketing & Investment

There are at least 660 P2P lending platforms providing real estate lending services now. Shenzhen Municipal Financial Services Office took the first step, requiring investigation towards all P2P and micro-finance companies involved in real estate crowdfunding, down payment loan and other leveraged mortgages. Meanwhile, Beijing Municipal Bureau of Financial Work guided Beijing P2P Association to go through an investigation among the member platforms.

The new Innovative Finance Isa: How risky will it be?,(BBC), Rated: A

Most experts say it is not an investment suitable for everyone, and those who do decide to try it should start slowly.

“Hazel Muir, an astrophysicist, specialising in extragalactic matter, tends to have an eye for long-distance detail. Her own bank is offering just 0.5% interest on Cash Isas, while she expects to get 6% from an IF Isa.”I consider it to be medium risk,” says the science writer from Tunbridge Wells. “There could be some contagion if things go wrong. To me, it’s all about eggs and baskets, and most of my savings are low risk.” She is also furious with Lord Turner. “He didn’t distinguish between lending to businesses and individuals. That led me to believe he had an agenda.” elected to Executive Directorship of the Chinese Internet Finance Association, ( IT Business Net), Rated: AAA

Guo Yuhang, Founder and Co-CEO of, has offered comments on the newly-established ChinaInternet Finance Association (CIFA or “the association”).

There are 437 members of the association, with 142 companies putting forth candidates for executive directors. After a vote at the association’s inaugural meeting, 48 companies were elected to the role. Less than 10% of the elected executive directors are currently at or own a P2P platform. was the only P2P lendingcompanyelected to an executive directorship. Lufax, CreditEase, and Wangxin, categorized as comprehensive internet finance companies, were also elected.

Terror funding and money laundering targeted as China takes tough approach to internet finance,( South China Morning Post), Rated: A

China’s internet finance companies often lacked awareness in risk control, compliance and consumer rights protection, Pan Gongsheng, vice-governor of the People’s Bank of China, said at the official launch of the National Internet Finance Association of China. The establishment of the association, which was instructed by the central bank and other financial regulators, follows China’s clampdown on Ezubao.

The industry group has more than 400 members including major banks. Lufax, the mainland’s leading P2P lender under Ping An Insurance, and Bank of China are among the members.

Tailoring loan origination technology to online lending needs, ( Bankless Times), Rated: A

Internet-based lending certainly adds elements of efficiency and expediency to the lending process, but it comes at a price to lenders—the risk of not truly knowing if the applicant is indeed who they say they are, and if the supporting documentation is valid and real.

Some of the most advanced LOS platforms have integrated highly sophisticated authentication technologies that enable lenders to verify the veracity of each loan application.

These solutions rely on powerful analytics engines that collect data from a number of traditional and non-traditional sources, such as social media histories and mobile phone records, to paint a much more complete portrait of the applicants.

For an online lender, the lag time in responding to the market can be fatal. Lenders who must rely on outsourced IT staff or developers in order to quickly adjust their workflows and decision criteria are at a clear disadvantage. They need the ability to make changes as needed, while following security, privacy and other compliance mandates.

Online lenders have a unique set of needs compared to their traditional counterparts. As a result, the loan origination technology they use should be relevant to addressing their most pressing challenges, such as risk and authentication, along with delivering speed and efficiency.


Author: George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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