News

March 31st 2016, Daily News Digest, Lending Times

  • Philosophical analysis of what will happen in p2p in a downturn.
  • Lending Club signs MAIN, eCustodian with 432,000 accounts as an investment partner.
  • Good tax relief for p2p in the UK.
  • Prime Meridian launching Real Estate Marketplace Fund.
  • Fidelity releases privately-held startup valuation change.

Peer-to-peer lending: What will happen in a downturn?, ( City A.M.), Rated: AAA

The key issue, says Robert Wardrop, executive director of the Cambridge Centre for Alternative Finance at Judge Business School, is that there is a growing temptation to look at P2P loans as an asset class. “There is a generalisation going on, and what will emerge in a downturn is that the loans originated by different platforms may behave differently. People are going to become more discriminatory because of that.”

In a worsening economic environment, to continue to meet demand, some platforms may be more willing to accept lower-quality borrowers. “Loss rates are unlikely to be the same across different platforms – some borrowers will move towards those that have lower security and guarantees,” says Andy Sweeney, head of fixed income products at Ablrate.

If the UK economy begins to sink and the Bank of England follows the Eurozone’s lead and cuts interest rates, what will it do to P2P? According to Sweeney, not much.

o what extent would a downturn be an opportunity for P2P lenders, if banks restrict their lending? “Banks are much nimbler and more defensive now than in 2007 and 2008. This means that, as they become more concerned, they can cut lending more quickly,”

But many firms using P2P platforms to borrow have existing bank loans. And the question all investors should be asking themselves, says Wardrop, is “what sectors will banks pull back from? They’re not going to universally pull back, so where will they pick and why? Are they avoiding companies that they think are more vulnerable in a downturn? Probably. And if they’re reducing exposure to those that’ll suffer most, are their risk models correct?”

You “need to understand why the company is borrowing, how they are going to repay and what happens if other lending or overdrafts get withdrawn from existing providers”

When it comes to the capabilities of platforms, James Codling of VentureFounders points out that a downturn would mean P2P lenders have to get to grips with debt restructuring.

Wardrop, says that in a way “Turner served a very useful purpose – because he forced platforms to think hard”.

Lending Club Joins the Millennium Alternative Investment Network™ (MAIN™), (PR Newswire), Rated: AAA

MAIN is a centralized online service that simplifies the custody of alternative investments for individual investors and advisors and provides access to an expanding network of online investment platforms offering a range of alternative investment options. Millennium Trust Company provides innovative custody solutions for IRA rollovers, alternative assets, and private funds. With$17.4 billion in assets under custody and more than 432,000 accounts under administration (as of 12/31/2015).

“MAIN gives Lending Club new access to individual investors and financial advisors.”

Millennium Trust developed MAIN to accomplish three primary goals:

  • Provide an efficient, end-to-end solution for advisors and individuals looking to hold alternatives in their IRAs or taxable custody accounts
  • Provide investors with a centralized location with educational information about, and access to, a growing mix of alternative assets
  • Modernize what historically has been a complicated, paper-based process by enabling investors to open and fund an account, and direct their investments, entirely online

HMRC issues tax relief guidance on irrecoverable peer-to-peer loans, (CCH Daily), Rated: AAA

The 19-page guidance sets out the rules on how to apply income tax relief for irrecoverable loans that occur on P2P investments under Chapter 1A of Part 8 Income Tax Act 2007.

This tax relief allows P2P loans that become irrecoverable to be relieved by the lender against interest that they receive from other P2P loans.

This will create a level playing field for the taxation of income from P2P lending when compared to the taxation of traditional forms of retail investment and bring the tax position of the P2P sector in line with other forms of investment products available for individuals to purchase, such as collective investment schemes.

Prime Meridian Capital Management Launches New Real Estate Marketplace Lending Fund, (Benzinga), Rated: A

Prime Meridian Real Estate Lending Fund, a first-of-its-kind, open-ended, multi-platform marketplace real estate lending fund. It offers investors a diversified, short duration, first lien real estate loan portfolio, and no hard lock-up.

The company’s flagship Income Fund, which gives investors the ability to participate in the consumer credit market through Prosper and Lending Club, was one of the first P2P lending funds in the U.S. and is now in its fifth calendar year of profitability without a monthly drawdown. Since then, Prime Meridian has launched the Small Business Lending Fund, and the Poise Lending Fund (levered prime consumer)

P2P Lender Mintos & Aforti Finance Form Partnership in Poland, (Crowdfund Insider), Rated: A

Mintos currently offers loans from 9 non-bank lenders from Poland, Lithuania, Czech Republic, Estonia, Georgia and Latvia.

The average loan size that Aforti Finance will place on the Mintos site will range from €1200 to €12,000. Terms will be repayment within 3 to 12 months with an average annual yield of between 9% to 11.5%.

Aforti Finance is part of Aforti Holding, which is listed on the Warsaw Stock Exchange. In 2015, Aforti Holding reported revenues of €10.2 million with a profit of €136,000. Their total assets were stated at €4.5 million as of 31 December 2015.

January of 2015, Mintos now claims over 5000 investors from 40 different countries having financed over € 20 million.

P2P technology provider launches with lenders to offer IFISA, ( Financial Reporter), Rated: A

Goji, which enables P2P platforms to gain access to new investment products and markets, has officially launched today with initial clients including Landbay, ArchOver and Assetz Capital.

Goji hopes to be among the first to offer the IFISA to investors by managing the “administrative complexity” for P2P platforms.

The platform has launched with a £400,000 investment from fintech investors. While its initial focus is on the IFISA, its future propositions aim to enable P2P lending platforms to access new investor markets, including pensions and advised markets.

FCA warns of bottleneck in P2P platform approvals, (Reuters), Rated: A

The FCA said it had fully authorised eight firms to operate P2P platforms which enable people to lend small amounts of money to other individuals or firms, such as tiny start-ups developing new Apps, offering an alternative to banks.

A further 86 firms are waiting for approval, with 44 of them given interim permission.

The FCA said it can take up to 12 months to reach a final decision on whether to authorise a new platform.

The non-bank lending sector needs to be regulated – and marketplace lenders should lead the way, ( Smart company), Rated: A

An unfortunate consequence of the explosion in the number of non-bank SME lenders is the emergence of some less scrupulous operators, which have been described as “payday lenders to SMEs”.

So what is the solution?

  1. Ensures SMEs understand the true cost of borrowing and are able to make accurate comparisons with other offerings;
  2. Exposes the less scrupulous operators that threaten to tarnish the non-bank lending sector, which offers a legitimate and much-needed alternative to the banks; and
  3. Increases the level of genuine competition because lenders are competing on a more even playing field.

It is difficult to envisage the broad non-bank SME lending sector coming together to self-regulate.

If non-bank SME lenders don’t self-regulate, sooner or later the government will.

Comment: I personally reached out to suggest self-regulation to one SME lender aggregator. I was told “NO WAY”.

Patch of Land Reaches Three Milestones in Q1 2016, (Alt Fi), Rated: A

Patch of Land announced the passing of three important milestones in the first quarter of the year. First and foremost, the company has now originated over $100 million in short-term loans for real estate professionals, who purchase, rehabilitate and refinance undervalued residential and commercial properties. In addition, the platform revealed that it has returned over $25m in principal and interest to its investors and it has launched a 24-36 month ‘mid-term’ product, which fulfils a growing need for medium-term lending options.

These updates follow on from the recent closure of a $250m agreement with an East Coast credit fund in February. The fund is reportedly purchasing loans in a forward flow arrangement, enabling the platform to fill loans on a programmatic basis.

NBFCs tie up with P2P lending firms to source customers, ( Business Standard), Rated: A

Comment: Article focused on the Indian market.

Non-Banking Financial (NBFCs) have now begun to tie up with players in the space in order to scout for potential customers.

“If you are a small NBFC then the cost of loan origination can be prohibitive. Typically, if you process ten loan applications then you end up giving loan only to one customer and as a result, the cost of credit verification is very high. However, on our platform, they are getting verified data and so it brings down their cost”.

With 170 lenders on board, i2iFunding wants to make P2P lending mainstream,( Your Story), Rated: A

Comment: Article focused on the Indian market.

Apart from NBFCs (non-banking financial companies), and other loan disbursement fintech platforms like Rubique,Finomena, Capital Float and several others, the P2P (peer-to-peer) lending space is gaining traction.

The recent years have witnessed the emergence of pioneering technology-enabled P2P lending platforms such as Kiva, Rangde, Milaap, Nobroker and Faircent. While the latter two work on the Bottom of the Pyramid sectors, Faircent caters to the increasing and substantial urban middle-class, both as a source of cheap credit and a lucrative investment option. In the last eight months, Faircent’s market place has had over 1,500 lenders committing nearly $2 million and some 6,500 borrowers seeking over $3 million. The platform has also raised an undisclosed round of funding from Mohandas Pai’s Aarin Capital Partners.

Australian fund buying US peer-to-peer loans, (Sydney Morning Herald), Rated: A

Global Credit Investments appears to be the first Australian fund to invest in peer-to-peer loans, set up by former Goldman Sachs banker Steven Sher and former Bain & Co consultant Gavin Solsky. GCI has been buying loans from giant US “marketplace” lenders Lending Club and Prosper for about a year and has built a portfolio approaching $10 million, with about 20 investors.

“We have come up with our own algorithm, which says ‘Yes, we think the underwriting processes of these platforms is robust because they have been going for a long time, but we think we can cherry pick what we think are the best loans’.”

GCI expects to buy loans from other platforms, including Australian ones in future, but the local ones will need a lot longer track record before they do.

Fidelity has once again published carrying values for its privately-held stocks, (Dan Primack’s Termsheet), Rated: A

1) Fidelity only publishes dollar amounts in its monthly mutual fund reports, so we do not know if shares were bought, sold or swapped between funds during the month. It’s unusual but possible (and, if so, would render the following data moot).

(2) In cases where Fidelity holds multiple classes of the same stock, the valuation change sometimes differs a percentage point or two.

No change: Pinterest, Jet.com, Uber, Pax Labs, Moderna Therapeutics, Bracket Computing, Intellia Therapeutics and WeWork.

Up: Blue Apron (13.47%), Pronutria Biosciences (98%), SpaceX (8.23%), Airbnb (17.85%), Honest Co. (13.84%) and Snapchat (62.3%).

Down: Dropbox (-19.94%), Intarcia Therapeutics (-20.45%), Blue Bottle (-5.21%), Nutanix (-10.52%), Taboola (-9.88%), Turn (-15.29%), MongoDB (-17.66%), Domo (-29.17%), Dataminr (-6.36%), Appirio (-18.08%), Zenefits (-24.69%), (-9.18%), 23andMe (-6.37%), Delphix (-11.66%), Handy Technologies (-20.74%), CloudFlare (-9.74%), Cloudera (-37.54%), Twilio (-12.56%)

Some kind of strange stuff this time around, including a markdown for Domo (even though it raised an up round) and a flat mark for Oscar Health (first full month of Fidelity’s holding, and it invested at a crazy high valuation vis-a-vis public comps). I haven’t yet done a post on all of this, so instead I’m just including the month-to-month valuation changes below.

One Trade to Profit from P2P Lending’s Latest Headwind, ( Money Morning), Rated: A

Comments: Despite the title the article is about Madden vs Midland and a summary of why that case if important. 

Back in 1978, the Supreme Court ruled in Marquette National Bank of Minneapolis v. First of Omaha Service Corp. (a subsidiary of the First National Bank of Omaha) that the Omaha bank, being a nationally chartered bank, could “export” the interest rates allowed in its state to customers in Minnesota and throughout the country.

Fast forward to May of last year, when the Second Circuit Court of Appeals ruled in Madden v. Midland Funding (a Bank of America subsidiary) that Midland, which sold charged-off credit card debt (including the debt Madden owed), had no legal authority to transfer its ability to charge in excess of state interest rate caps to buyers of its charged-off debts.

While the Second Circuit Court’s ruling is only binding in New York, Vermont, and Connecticut, if it’s upheld by the Supreme Court, it would apply to all 50 states.

So the odds are good that Madden v. Midland will make it to the high court.

Making Online And Mobile Payments Hassle-Free,( Point of Sales News), Rated: B

According to Swedish e-commerce company Klarna, 66 percent of laptop shoppers and 82 percent of those on smartphones leave without checking out.

As online customer experiences get simpler, friction-free checkout gives customers the best possible experience and, in turn, helps merchants reduce shopping cart abandonment.

By simplifying the buying process for both consumers and merchants, innovations in risk technology can break down barriers to online purchasing. Those retailers who take advantage of this will benefit from an online experience that meets today’s challenges and enables them to compete.

Tybourne Capital Management Hk Ltd buys $45.7 Million stake in On Deck Capital Inc, (Everything Hudson), Rated: A

Tybourne Capital Management Hk Ltd scooped up 287,796 additional shares in On Deck Capital Inc during the Q4 period, according to a recent disclosure to the SEC. The investment management firm now holds a total of 6,183,299 shares of On Deck Capital Inc which is valued at $45.7 Million.

The company has a market cap of $538 M.

Blue Ridge Capital Llc Decreased Stake in Lendingclub Corp (NYSE:LC) by $37.36 Million as Shares Declined , (Riverside Gazette), Rated: B

John Griffin decreased its stake in Lendingclub Corp (NYSE:LC) by 80.87% based on its latest Q4 2015 regulatory filing with the SEC. Blue Ridge Capital Llc sold 3.40M shares as the company’s stock declined 16.03% while stock markets rallied. The hedge fund run by John Griffin held 803,375 shares of the consumer services company at the end of Q4, valued at $8.88M, down from 4.20 million at the end of the previously reported quarter.

Where you live impacts personal loans, ( Bankrate), Rated: B

State banking commissions have a big say over the ability of peer-to-peer lenders (P2P) and others to operate in their states, and state securities commissioners can regulate whether investors can invest in P2P loans in their states.

A p2p vocabulary explanation.

 

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 ( www.currencymountain.com ), 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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