News

April 19th 2016, Daily News Digest

  • The funding needed in p2p in the US seats in self-directed IRA accessible via API.
  • In the UK, the self-invested personal pension is just starting to be used in p2p as well.
  • Basic rules of lending businesses by Frank Rotman.
  • RealtyMogul financed nearly $200m to date and interview.
  • Morgage loans between relatives facilitated by Boston firm reached $400m in comparison.
  • RealtyShare’s CEO thoughts, experience and advice on present VC state.
  • News on the Singapore, Indonesian,German, Indian and the unique Chinese advertisement market.

 

LendIt – Once Again Helping Predict the Future of P2P and Online Lending, (Dara Albright), Rated: AAA

For the past few years I have been using the flagship LendIt conference as the chief barometer to gauge the strength and direction of P2P investing and crowdfinance (see: “Are We in a Peer-2-Peer Bubble?” and “Inspiration and Insights from LendIt 2014“). As the definitive global conference for online lending, LendIt has been a consistently dependable industry bellwether.

LendIt 2016 was very telling indeed. Based on my observations and conversations at last week’s convention, I predict that the industry is headed towards its most significant transformation to date – one that will alter the industry’s entire investor demographic and allow it to scale to unforeseen new heights.

LendIt 2016 exuded a more down-to-earth aura.

When lobster was served for lunch at LendIt 2015, I started feeling the slightest twinge of a bubble.

According to Ron, “P2P is only in the 4th inning and it looks like we’ll probably be going into overtime.”

Everybody I spoke with at LendIt 2016 seemed to be on a hunt for new investors. Not just any investor. They were seeking long-term investors.

The vast majority of retail investors are only able to invest in P2P through their 401(k)s and IRAs. Since traditional 401(k)s and IRAs cannot hold P2P notes, retail investors must use what is called a Self-Directed IRA (SDIRA). Until just recently, the low-tech SDIRA industry did not possess the technological wherewithal to seamlessly integrate with hi-tech P2P platforms.

Crowdfinance SDIRA Expert, James A. Jones, referred to the ISCP™ as “an industry game-changer and the first step toward resolving what is becoming a mounting industry-wide distribution problem.”

This modern SDIRA can do for P2P today what the IRA and 401k had done for mutual funds 30+ years ago – allow a nascent asset class balloon into a multi-trillion dollar industry.

Peer to peer lending ‘potentially attractive’ to SIPP investors with government support, experts say, (Out-Law), Rated: AAA

Comment: article covering the UK market.

Lifting restrictions preventing private pension holders from investing in peer-to-peer lending could open up a “potentially attractive” new market for savers, according to pension law experts at Pinsent Masons.

Last week, Money Marketing reported that the UK Treasury had asked “senior industry figures” to make the case for peer to peer lending using funds from a self-invested personal pension (SIPP).

At least one SIPP provider now allows its customers to invest in peer-to-peer lending, following the loosening of regulatory rules which required pension providers to hold higher levels of capital against non-traditional investments.

“Current HMRC [HM Revenue and Customs] rules do not prohibit SIPPs from entering into peer to peer lending, but they do present significant hurdles,” said pensions expert Simon Laight of Pinsent Masons. “It is difficult to structure a P2P proposition in a manner that will not fall foul of HMRC’s current restrictions on connected party transactions, and direct and indirect investment in residential property.”

“In theory, it ought to be possible to overcome these hurdles through a carefully structured and controlled lending process for SIPPs. However, the extra controls and processes that would have to be built in to the system to navigate the restrictions mean that a significant market in this area has not yet developed,” he said.

I Once Was Lost…, (Fintech Junkie), Rated: AAA

Comment: Frank Rotman’s summary about Lendit 2016.

The mood [at Lendit] was much more somber than in years’ past and for all the right reasons. It was a conference focused on whether or not the next generation lending companies could adapt their models to today’s funding environment.

All lending businesses are capital intensive with no exceptions.

If structured correctly, the annuities generated by loans are attractive to non-bank institutions and many of these institutions have very deep pockets and are looking for additional investment opportunities.

The job of a non-Bank lender:

1) Marketing: Efficiently find customers who want to borrow
2) Structuring/Underwriting: Manage approve, decline, credit availability, collateral requirements and pricing decisions to create a stream of future cash flows
3) Projection: Forecast cash flows under a variety of future scenarios
4) Monitoring: Report on results and make appropriate adjustments for future loans
5) Servicing: Ensure customer satisfaction and collection of payments

And finally…..

6) Capital Markets: Find deep sources of capital that want the output of jobs 1-5

Is the Real Estate Crowdfunding Market Getting Too Crowded?, ( Wharton, U Penn), Rated: AAA

Comment: Timothy Li has informed Lending Times that RealtyMogul has financed nearly $200m to date.

The real estate crowdfunding appeal lies in its ability to provide individual investors access to commercial and residential properties through an online platform, even if they only have modest amounts to invest. This market was made possible by the JOBS Act.

One of the largest real estate crowdfunding companies around is RealtyMogul. Knowledge@Wharton recently sat down with Timothy Li, its chief information officer.

“We do a full stack of financing. What that really means is that we will raise the equity portion of the commercial deal on … the property owner’s behalf. And we will also give you access to debt. So you come to us with a small percentage of the equity, maybe 2%. And we will raise the additional 98%. Part of that is equity that we will raise from the crowd, and the other part is debt — we will hook you up with an institutional buyer. So, you get the whole service in one stop.

A REIT is more of a blind pool of funds. RealtyMogul.com offers full transparency.

I really don’t see a shakeout coming. In many ways, this industry is brand new. There’s a new piece of legislation [coming that] will allow non-accredited investors to start investing in these crowdfunding platforms

We closed our Series B funding in July of 2015 of $35 million. In total, we raised close to $42 million in the past two years. We have over 70 employees nationwide. So far, there are 73,000 members at RealtyMogul.com constantly looking for deals and making investments. ”

National family mortgage clears $400m in peer-to-peer mortgage loans, (EIN News), Rated: AAA

National Family Mortgage (http://www.nationalfamilymortgage.com), the leading U.S. peer-to-peer mortgage lending service, today announced that it has facilitated over $400 million in mortgage loans between relatives while maintaining a default rate of under 1%.

Common National Family Mortgage Client Scenarios:

1. 80/10/10 Loans — Family funded, 2nd position, piggyback loans
2. Family funded reverse mortgages
3. 100% Family funded purchase financing
4. Family funded refinancing of existing bank loans
5. Family funded home improvement loans
6. Family funded home equity loans
7. Seller financing to a relative

The investor psychology and why VCs aren’t immune, (Tech Crunch), Rated: AAA

Comment: Nav Athwal, RealtyShares CEO, talks about VC psychology, his experience in raising funds in today’s environment and long term thoughts.

Venture capital funding declined in 2013, but just a year later it bounced back in a big way. According to a market analysis from TrueBridge Capital Partners, venture capital funding increased by 65 percent in 2014. In terms of late-stage funding, 2014 set a new record, with $33.2 billion in capital being poured into these investments.

Deals were being funded left and right in the first half of 2015, but over the last few months, we’ve seen a virtual 180º shift, largely driven by rumblings of a correction in the tech industry.

In October of last year, we began to pursue a $30 million Series B funding round.

To counter those fears, we decided to regroup and adjust the amount of funding we were going after. The result was a successful bid for a $20 million Series B round; if we had stuck to our initial $30 million goals, it’s entirely possible that we wouldn’t have been able to secure funding at all.

As VC firms continue to move away from that “fear of missing out” mentality and view the market through a less bullish lens, the byproduct is a closing of the capital floodgates.

For the short term, that’s not exactly great news, but a correction lays the groundwork for investors to find some real opportunities for backing quality companies.

Bottom line, unless investors are able to rein in their irrational fears, it’s the startups and entrepreneurs behind them who are going to suffer the most as long as a lockdown on funding remains the status quo.

Fintech Report on GAO Docket, (Credit Union Times), Rated: A

In a letter to the Government Accountability Office, three senators called upon the agency for an updated report on the rapidly expanding financial technology marketplace.

Sens. Sherrod Brown (D-Ohio), Jeff Merkley (D-Ore.) and Jeanne Shaheen (D-N.H.) asked Comptroller Gene Dodaro for the update because the last study was completed in 2011.

See article for a complete list of questions asked by the senators.

“We Must Adapt”. HSBC Commits £10 Billion in Lending to SMEs, (Crowdfund Insider), Rated: A

According to multiple reports, HSBC is committing £10 billion in lending to UK SMEs.   This announcement comes on the heels of a notice that HSBC has introduced its virtual platform that cuts business loan application and approval times – in half.

Kevin Caley, ThinCats founder: “If anything, the proposed funding program highlights just how big the market for business lending is, and how much room for growth there still is for the alternative finance sector. This is particularly the case for the burgeoning peer-to-peer platforms that enable investors to lend directly to businesses. HSBC’s injection of capital into this end of the market may well lead to a slight dip in interest rates on some P2P platforms targeting SMEs, but high as they are at the moment, this wouldn’t necessarily be a bad thing.”

DBS teams up with two peer-to-peer lending sites to widen funding options for SMEs, (Yahoo Finance), Rated: A

Comment: article covering the Singaporean market.

Singapore’s largest bank has inked with peer-to-peer (p2p) lending platforms Funding Societies and MoolahSense to expand funding sources available to small businesses.

Under the partnership, DBS can refer some of the smaller businesses that the bank is unable to lend to, to Funding Societies and MoolahSense.

In exchange, both platforms will refer borrowers who have completed two successful rounds of fund raising to DBS for larger commercial loans and other financial solutions such as cash management.

Acqui-hires Accelerate Growth for Marketplace Lending Platform Avant, (Yahoo), Rated: A

Online lending platform Avant announced today it has recruited the key technical teams of two local technology startups, StudyCloud and TempoIQ, to support the company’s next phase of growth.

Avant recently surpassed $3 billion in loan originations and as growth continues for 2016, acqui-hires have become a strategic recruitment tool for locating specialized talent with skills such as data science and data engineering to scale Avant’s technology team.

Avant has office locations in Chicago, Los Angeles and London and employs nearly 1,000 people. In less than a year, the Los Angeles team has grown from five to 50 employees while the global headquarters in Chicago recently moved into an 80,000 square foot space downtown.

To date, Avant has secured more than $1.7 billion in funding and another $1.8 billion through its institutional marketplace. More than 500,000 loans have been issued worldwide through the Avant website, totaling more than $3 billion

ArchOver Points to Independent Report Labeling their P2P Platform as Industry Best Practice, (Crowdfund Insider), Rated: A

The report records that ArchOver has arranged 81 loans collectively worth £15.2 million without any late payments to date. In terms of credit quality, the analyst believes that ArchOver’s loans lie broadly in the band between S&P’s lower investment grade (BBB) and upper high yield (BB-) ratings.

The report concludes that the peer to peer lending industry holds an attractive future.  The author is of the opinion that ArhcOver’s “secured and insured” process is a “powerful differentiator.”

ArchOver are currently the fastest growing UK SME crowdlender in the UK (Altfi.com) having pioneered Secured & Insured lending.

ArchOver is supported by the Hampden Group. Hampden is a leading provider of financial and business support services. Hampden manages insurance assets and underwriting capacity in excess of £4bn. Hampden is both an investor in ArchOver the company and an active lender over the ArchOver platform.

Indonesia P2P lending platform Modalku raises $1.2m from Alpha JWC, others, (Deal Street Asia), Rated: A

Comment: Article covering the Indonesian market.

Peer-to-peer lending and funding platforms Modalku, a member of PT Mitrausaha Indonesia Group, has raised $1.2 million from Alpha JWC Ventures and a number of undisclosed foreign venture capital investors. The company has also secured a partnership with PT Bank Sinarmas, which has now become the escrow agent of the P2P lending platform.

Modalku is a marketplace lender for SMEs.

Modalku has helped fund 13 SMEs operating in various sectors with a total disbursement of Rp 3.4 billion. Loans offered vary from Rp 50 million to Rp 500 million with a tenor of three, six, and 12 months.

Southeast Asia’s largest market Indonesia has been witnessing an emergence of a number of fintech companies such as mobile recharge platform Sepulsa, e-commerce financing company Kredivo, online micro-lending company UangTeman and many others.

Rules Covering Internet Finance Ads Tightened amid Rising Fraud, (CaixinOnline), Rated: A

Comment: article covering the Chinese market.

The central government said in a document sent to various officials on April 13 that it is banning nine types of content in Internet finance companies’ ads, a person with knowledge of the matter told Caixin.

“We must check whether financial institutions that advertise are operating their businesses with legal financial licenses and what specific financial services they provide,” said a government employee who asked not be named.

Yucheng International Holdings Group Ltd., a financial company that ran Ezubo, spent more than 100 million yuan marketing an executive named Zhang Min as “the most beautiful female president in the Internet finance industry,” the official Xinhua News Agency reported in January after the government started probing the lender.

The new guidelines also aim to ban ads featuring celebrities and influential people. In December 2015, an author named Song Hongbing was attacked by a mob angry about his backing of Fanya Metal Exchange, a nonferrous metals bourse.

Interview with Robin Buschmann, CEO of Giromatch, (P2P Banking), Rated: B

Comment: article covering the German market.

Giromatch is a consumer Direct Lending platform in Germany. Investors returns are in the 3.6%-4% range.

The Schufa statistics of recent years shows that more than 97% of Germans repay their loans properly.

eOriginal Works to Standardize the Marketplace Lending Industry, (Benzinga), Rated: B

eOriginal, Inc., the experts in digital transactions, announced today that it has become a member of the California FinTech Network (CFN), an emerging trade organization collaborating on the rise and impact of financial technology, commonly known as FinTech.

As part of its membership with CFN, eOriginal’s director of FinTech Strategies has been selected to serve the network’s FinTech Standards Board for Online Lending. The working group focuses on the due diligence standards for marketplace lending, with the goal to produce guidelines for investor access to marketplace assets.

California Fintech Network is a non-profit trade organization for professionals, founders, executives, and investors that work in financial technology.

Peer-to-peer lending: Making a mark in the fintech market, (The Financial Express), Rated: B

Comment: Article covering the history and basics of P2P focused on India. One interesting fragment, though:

Market depth, or the lack of it, could derail the progress of these disruptors and the business model, taking us back to the status quo. Consolidation is one option. But if that is to be, what would market expansion look like? Will regional players become global ones—through direct footprint or partnerships, perhaps?

Many of the Indian players have just entered the market and are looking to expand and develop their footprint.

 

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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