News

April 12th 2016, Daily News Digest

  • Securitization price drop explained by the lack of diversity in capital sources forcing loan buyers to sell no matter if the market is ready or not.
  • Very complete and useful University of Cambridge report on alt lending market in North America.
  • Pave, ShareEstates raise working and lending capital.
  • Is Funding Circle leading the online SMB lending space ?
  • Klarna CEO wouldn’t even go to China due to the dominance of Alipay and Tencent.
  • Biz2Credit partnership with Tata Capital in India.
  • Regulation unlikely in marketplace lending until 2018.

 

Fintech Fix: Prosper Outlines Response to Slowdown Concerns, (Wall Street Journal), Rated: AAA

“When we don’t have alignment” with buyers of our loans there can be issues, noted Mr. Suber. Buyers “sell our loans in the market, whether the market is ready or not.”

Mr. Suber said that the company was taking steps to shore up investor demand for the loans it sells, including holding discussions with banks, pension funds and potential international buyers, and watching the development of new publicly listed funds. It also plans to launch a passively managed fund for investors that want to invest in baskets of its loans. The fund is expected to launch in the second quarter.

“We have to control our story,” said Mr. Suber, who is also an investor in other lending platforms. He added: “We need to re-create ourselves as an industry to bring on more permanent capital, more long-term capital.”

Breaking New Ground_Final Web ( University of Cambridge, Polsky Center), Rated: AAA

An outstanding and extremely interesting report on marketplace and p2p lending industry. We can not reproduce the entire report here, however it certainly deserves it.

The survey collected data from 257 platforms between Nov 2015 and Jan 2016 on both transaction and model-specific volumes based upon survey information provided by individual platforms across North America, Latin America and the Caribbean.

Market size by funding types:

market data

Number of new platforms entering the market going down :

number of new platforms going down

Pave Raises $8 Million in Series A Funding, (Press release), Rated: A

Pave, the online lending platform that is re-inventing borrowing for the Millennial generation, today announced it has completed an $8 million Series A round of equity investment. The round was led by Maxfield Capital with participation from existing investors and will enable Pave to expand its innovative financing program to help more, and often underserved, individuals achieve their financial and personal goals affordably.

Pave secured a large financing of $300 million to fund the origination of loans on its platform in December 2015.

Founded in 2012 and based in New York City, Pave operates an online lending platform for loans made by Cross River Bank, focused on lending to Millennials across most of the United States. Borrowers on Pave.com receive loans from $3,000 up to $25,000 with annual percentage rates starting at 6.0 percent, payable over two or three year terms.

Online Lending Platform LenDen Club Grabs Seed Round Through VentureCatalyst, ( The Tech Portal), Rated: A

Comment: article covering the Indian market. 

LenDen Club, an online peer-to-peer lending platform, has raised an undisclosed amount of investment in its seed round through Venture Catalyst, an online portal for seed investment.

Founded in 2014 by Bhavin Patel and Dipesh Karki, LenDen club has a rather different approach towards peer-to-peer lending.

At LenDen Club, the bank depositor directly becomes lender to borrowers. The transaction takes place without any bank interventions. Removing large institutions like bank, saves huge money for the borrower and increases earnings for the lender. The platform currently has 725 lenders and 1,120 borrowers.

Sharestates Surpasses $300 Million In Funds Committed For Real Estate Loan Purchases, (Press release), Rated: A

Sharestates announced today that it has surpassed $300 million in total funds set aside for the purchase of loans made on its marketplace lending platform. This latest milestone results from partnerships signed during the past few weeks with investment firms Colony American Finance and Prime Meridian Capital Management.

With an average net annual yield of 10.4 percent, Sharestates has originated more than $102 million in loans and returned more than $23 million to its investors (against zero loss of principal) since it launched in early 2015.

Since Sharestates.com launched in 2015, it has closed more than $102 million in origination, across dozens of loans, with zero loss of principal and net annualized returns ranging from 10 to 20 percent

RealtyShares Launches Equity Fund Focused on Larger Investors, (Press Release), Rated: A

RealtyShares announced today that it was launching a diversified marketplace equity fund aimed at institutions, single-family offices and high net worth individuals as a way for them to gain increased exposure to the potential alpha-generating strategies unique to small-balance commercial real estate projects.

“Our Diversified Marketplace Equity Fund is meant to be a low-fee alternative to public and private REITs,”

The prices of larger properties have raced ahead, but we believe that significant value remains in smaller commercial assets located in attractive, but perhaps overlooked secondary markets (including 18-hour cities).

Half of Investors Allocate Capital to Marketplace Lending, Survey Shows, (Bank Innovation), Rated: A

In a survey released today by Richards Kibbe & Orbe LLP (RKO) and Wharton Fintech show that half of investors surveyed have capital allocated for marketplace lending. More than 300 institutional investors were polled in the survey. More than 80% of investors surveyed expressed high or medium levels of optimism for the continued growth of marketplace lending. Last year the figure was 71%.

After watching closely for ten years, I remain convinced that the leaders of Alt Lending 1.0 (specifically Lending Club, SoFi and OnDeck), if they can avoid getting acquired due to depressed stock prices, will build enduring platforms. I am most worried about the wave of “me, too” players that came next, Alt Lending 2.0. Most of them built their business plans on the now shifting sands of temporarily high valuations and cheap capital, and have insufficient differentiation to carve out a durable niche. I am most excited about the Alt Lending 3.0 players, who have had the ability to learn the appropriate lessons of the past decade and can both pick their spots and choose a more capital efficient path.

The State of Online Small Business Lending — Q1 2016, (Fundera.com), Rated: A

TAKEAWAYS:

Millennials are more technology-forward in the ways they apply for online loans, relying more on mobile and organic search than non-millennials.
As expected, millennials match with more short-term loan options than non-millennials through Fundera. Interestingly, they seem to prefer lines of credit and equipment loans, especially leaning more towards lenders with greater automation.
Millennials accurately predict their credit scores more often than non-millennials, albeit by a small amount. This trend holds true even in the “Excellent” (700+) credit score bucket.
By contrast, millennials tend to ask for larger loan amounts than they receive compared to non-millennials, perhaps indicating more optimism or naivety.
DATA FINDINGS:

Fundera has helped to fund a greater dollar volume of medium-term loans and medium-term lines of credit this quarter compared to last (up 2% and 6%), and less of short-term loans and short-term lines of credit (down 3% and 1%).
The Fundera network saw an increase in weighted APR this quarter by 1.9%, likely due to an increase in the APRs of short-term loans.
Millennials applied to online loans through Fundera on mobile more than non-millennials by 8%.
A greater proportion of millennial business owners had “Excellent” (700+) credit scores than non-millennials: 27% to 24%.

 

Funding Circle Emerging As A Leading Small Business Marketplace Lender, (Forbes), Rated: A

Venture capital funding is declining, interest rates are increasing, an economic downturn is looming and the regulators are looking more closely at the marketplace lending business model. 2016 will be an important year for the sector: there is a general view that only the strongest platforms will survive and many smaller businesses and platforms will fail this year.

In the consumer lending space, Lending Club, Prosper, SoFi and Avant are creating clear blue water between their businesses and the competition. In the small business sector, Funding Circle is rapidly emerging as a strong player with global ambitions.

Funding Circle is currently in five countries, and the business will look to expand its footprint over time.

Why ‘Peer-to-Peer’ Startups Haven’t Revolutionized Lending, (Time), Rated: A

The truth lies somewhere between the bulls and the bears. While the long-term potential of marketplace lending remains, it’s going to take longer than many hoped to reach that future.The nascent market is starting to encounter more of the regulations that traditional lenders face just as a cooling economy threatens to push up interest rates. Both will test the durability of the innovations P2P lenders have long promised.

 

Beware of fintech’s pivot east, (CNBC), Rated: A

The co-founder and CEO of Swedish payments firm Klarna was the most outspoken on the matter, waving a white flag when it came to entering China. “I wouldn’t even go there due to the dominance of Alipay, Tencent and their affiliates,” But Klarna sees more opportunity tackling Silicon Valley giants such as PayPal, having launched in the US last year.

Even the banking incumbents appeared hesitant to take on China’s big three tech firms in mobile payments and peer-to-peer lending. HSBC chief operating officer Andy Maguire, appearing in a separate panel at Money2020, suggested the bank was better off seeking FinTech opportunities in other emerging markets “where they could still set the standard.”

If Google, Amazon and Apple were investing even close to the level of China’s big three, the US and Europe would be miles ahead of where they are now, he told me.

Three Ways Entrepreneurs Can Benefit from FinTech’s U.S. and Global Boom, (Forbes), Rated: A

Today, Biz2Credit announced a partnership with Tata Capital in India, where the small business lending market is booming.

 

Is Regulation Coming to Online and Marketplace Lending?, (Forbes), Rated: A

After speaking to key players in the online lending space, it’s pretty clear that the industry will escape regulation for at least another year. Cities and states might attempt regulation, but federal efforts will probably take longer.

After speaking to key players in the online lending space, it’s pretty clear that the industry will escape regulation for at least another year. Cities and states might attempt regulation, but federal efforts will probably take longer.

Dodd-Frank gave the Treasury Department authority to regulate nonbank financial companies if they pose systemic risk. However, shortly after the comments period closed, a Treasury Department spokesperson said, “Just because we put an RFI out doesn’t mean we’ll end up with a rule.”

What We Will See More of in the Next Year: Self-Regulation

A Lendio survey found that borrowers also care most about the out-of-pocket cost of a loan, not the APR. 66% of business owners said they prefer to know the total dollar cost of a loan, and only 17% said they prefer to know the APR

While interest rates and underwriting models are the two main issues, there are smaller issues that regulators could chew over. For example, how should online lenders ensure fair collection practices when they often debit borrower bank accounts on a daily basis? Should alternative lenders be required to report to credit bureaus to help borrowers build up credit history and “graduate” to lower rate products?

“Easy Money Is No Longer Here:” Marketplace Lenders Facing Four Headwinds, (Forbes), Rated: A

Laplanche made it clear that we are in the eighth year of this economic cycle, which tends be the average. In other words, a near-term economic slowdown is likely.

But one thing is clear: the lower costs, simpler products and better digital experience ushered in by marketplace lenders is here to stay. Increasingly, banks are partnering with these lenders. Just this year, Regions Bank announced a partnership with Avant. More partnerships are expected, as banks with low-cost deposits look to partner with the low-cost marketplace lenders.

How cloud and marketplace lending have disrupted the world of finance , (Information Age), Rated: A

Cloud infrastructure and modern lending services are thus interlinked to each other, supporting each other with the pace of innovation required by rapidly changing customer behaviour.

With the scale of marketplace lending increasing fast and the cost of borrowing rapidly decreasing, the loan origination volumes are expected to continue to grow at a steady rate.

 

China’s P2P lending industry is in serious trouble as new Ponzi scheme allegations emerge, (Tech in Asia), Rated: A

Now, reports are swirling that another Chinese P2P startup – the perhaps unfortunately-named Easy Richness – is under investigation for being a Ponzi scheme. Easy Richness has denied those allegations. Via WeChat, the company confirmed that authorities did inspect one of its branches, but it says that inspection was routine.

According to the China Daily, just four new P2P lending startups were founded last month, down from 12 the previous month. That number has been shrinking for four consecutive months now, and with yields for customers also dropping, an upswing seems unlikely.

Emerald Asset Management and Lend Academy Investments Announce Strategic Partnership, (Business Wire), Rated: A

Emerald Asset Management, Inc. and Lend Academy Investments LLC have announced a strategic partnership to develop an investment management business to be focused on opportunities in the marketplace lending industry.

The new business will be guided by Emerald subsidiary Emerald Direct Lending Advisers, LLC and NSR Invest. Emerald Direct Lending Advisers manages four funds focusing on marketplace lending investing, including its flagship fund that launched in July of 2012 and one of the industry’s first collective investment funds, offered to public and corporate pension plans. Emerald affiliated advisory companies managed over $4 billion for individual and institutional investors as of March 31, 2016. NSR Invest provides its cutting-edge technology platform to facilitate marketplace lending investments, and markets a private fund and individually managed accounts. NSR Invest is an affiliate of Lend Academy Media, a leading information source for the marketplace lending industry since 2010, and LendIt, the leading industry conference.

 

Author: George Popescu

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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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