April 20st 2016, Daily News Digest

  • UK p2p originated £715 million in Q1 of 2016, growth is expected to accelerate.
  • Borrower class action lawsuit again Lending Club for breaking New York’s usury rate.
  • ABS market expected to continue growing and focus on a secondary market.
  • Lendix buys Finsquare (in France).
  • Renaud Laplanche focusing more on collections.


UK P2PFA Reports £715 Million in New Lending During Q1 2016, (Crowdfund Insider), Rated: AAA

The UK Peer to Peer Funding Association has released its most recent quarterly numbers for the P2P lending industry. According to their tally, member platforms generated £715 million in Q1 of 2016 with quarter on quarter growth continuing its upward march. In the same quarter of 2015, member platforms claimed new lending of £660 million. The P2PFA qualified their numbers as indicative of the “mainstreaming of peer to peer lending.”

“We expect this growth to snowball,  as more platforms receive FCA approval for the innovative finance ISA.”

P2PFA members have now lent £5.1 billion in cumulative lending since 2010. ( All numbers and figures are from Crowdfund Insider)

p2p volume UK Q1 2016




A New Class Action Suit Wants to Treat Marketplace Lenders Like Mobsters, (Bloomberg), Rated: AAA

Comment: a new challenge to the WebBank- Lending Club model in New York. Similar to Madden vs Midland.

A proposed class action lawsuit against LendingClub filed in New York earlier this month by a borrower on the platform, alleging violations of the state’s consumer usury laws, could add to the company’s legal woes on this front.

Ronald Bethune of Yonkers, N.Y., claims LendingClub charged him a 29.97 percent interest rate on a $33,250 loan, nearly double New York’s 16 percent limit for individual lending and high enough, he argued, to trigger a criminal usury violation, according to the complaint. More than 100 other borrowers are also suing the company, many from other states, according to the complaint.

The lawsuit also cites civil provisions under the Racketeer Influenced and Corrupt Organizations Act (RICO), most famously deployed in a criminal context by former New York Mayor Rudy Giuliani to put away mobsters.

A spokesman for LendingClub said the company does not comment on pending litigation.

To issue loans, LendingClub and some of its competitors rely on WebBank, a Utah-based financial services firm. LendingClub then buys the loan a few days later and parcels it out to investors who pledge to fund it. The arrangement was modified earlier this year in response to a decision in the lawsuit known as Madden v. Midland Funding LLC so that WebBank maintains a relationship with borrowers and has an ongoing economic interest in the loans.

“If you’re a management team in this business right now, and you’re not considering slowing, you should exit,” said David Klein, chief executive officer of student lender CommonBond. “Throttling growth is a tried-and-true” method to prove to the market that you have discipline, he said.

Chasing ubiquity, (Structured Credit Investor), Rated: AAA

Prosper Marketplace, MountainView Capital and Credit Suisse recently discussed the growth of marketplace lending during a live webinar hosted by SCI

Effect of rate increase ? Some platforms have increased their rates in response to the Fed’s move, while others have stayed steady for now because they have actually been increasing rates already over the last three, four or five months. These marketplaces can be canaries in the coal mine and see changes in unemployment and delinquencies and the economy well in advance of traditional lenders. Historically the demand from borrowers has risen alongside rates, so I do not think that will be a major headwind for the majority of the marketplaces.

How do marketplace lending securitisations compare to other ABS?
The collateral is actually quite simple to understand. If you look at the unsecured consumer loans, they are instalment loans, and so very similar to auto loans in structure. What sets this space apart – as Ron touched on earlier – is lack of historical performance data. That is developing, though, and the gap is growing smaller.

This is a huge opportunity for investors to help to create a secondary market.

We certainly expect the securitisation market to continue to grow.

This market is in the hyper-growth stage and, as more investors get engaged, it will change the way these assets are valued. There is going to be a need for increasing the quality of the valuations and the level of transparency that you provide to your investors.

Finsquare Acquired by SME Marketplace Lender Lendix, (Crowdfund Insider), Rated: A

Comment: article covering the French market.

Marketplace lender Lendix has acquired short term loan specialist Finsquare. Lendix, the largest marketplace lending platform in France, said that Finsquare’s product addressed a “real demand for lenders and borrowers alike.”

Olivier Goy, CEO “[Finsquare] fits perfectly with our current offering, which is focused on longer term loans and financial leases . It’s a logical expansion of our range of financing solutions for SMEs.”

Finsquare was launched in 2014 by Adrien Wiart and Polexandre Joly.  The short term lending platform is said to have 3,500 active lenders. Finsquare has originated over € 4 million to date.

Finssquare has incorporated a “lender protection insurance” program which will remain in place for already committed loans. Going forward the insurance will not cover new credit facilities.

Lendix recently passed the € 15 million in lending milestone as growth accelerates. Goy stated earlier this month;

Innovative Finance Isa: Some advisers ‘struggling’ to get heads around changes, (Bridging and commercial), Rated: A

The Financial Conduct Authority (FCA) revealed that as of 30th March, eight firms have been fully authorised to operate P2P platforms, with a further 86 awaiting a decision.  Those 86 include major P2P firms, Landbay, Funding Circle and Zopa who are all awaiting the final sign-off before being able to roll out their own Innovative Finance Isas.

Chris Hancock, Chief Executive Officer and Founder of Crowd2Fund, questioned whether advisers and brokers were ready to start recommending the Isa. “With more IFISA products coming online as firms obtain FCA authorisation, it is important that advisers understand the different levels of risk across different platforms and underlying assets and are able to articulate this to their clients.”

Julian also revealed that a report by NESTA and the University of Cambridge predicts 2016 will see a 51.9% growth in P2P lending on secured real estate.
“The tax efficiency of the Isa for consumer returns is clearly the largest driver in these predictions.
Chris concluded: “The IFISA is a phenomenal step for the P2P industry and offers a huge boost to the economy, with potentially £400bn of Isa investment funds being made available for UK SMEs.

Marketplace Lending Leader Says His Market Should Embrace Sophisticated Collectors, (Inside ARM), Rated: A

Laplanche devoted a section of his conference keynote to collections and, specifically, what he and Lending Club have done with the company’s collections function in order to make the company a little less susceptible to delinquency risk.

Lending Club has a small in-house collections team and a much larger staff devoted to customer care. The company has started to cross-train customer care staff with the in-house collections team in order to make sure that the larger, care-devoted staff can shift into collections mode if delinquencies start rising fast.

Could Laplanche’s advice apply to collections firms, too? Absolutely. The line between customer care and collections has been blurred.  Consumer friendly customer engagement really is and how it works.

Unfortunately, stories about non-compliant behavior make for more salacious news than a story about compliant, consumer-friendly activities.

Additionally, stories like last week’s account of the FTC action against Commercial Recovery Systems remind us that not every ARM firm has embraced the consumer friendly approach discussed above. As an industry we need to applaud the right behavior and condemn the bad behavior.

Canaan Partners on Marketplace Lending: Capital Diversification is the Answer, (Crowdfund Insider), Rated: A

Canaan portfolio companies include Orchard, RealtyMogul, Lending Club, CircleUp and more.

  • As most people understand, marketplace lending is now largely institutional hedge fund based
  • While there are over 500 originators taking institutional money, less than 10 accept retail   money
  • Depending on a single source of capital is not a good idea. In fact, it is “foolhardy”
  • Time to scale retail capital is far longer than scaling institutional money
  • But institutional capital is “fickle”, quick to enter and quick to leave
  • Retail capital is “sticky” and it is enormous
  • Capital diversification is the key to mitigating cost and volatility

A secondary market is “key to every mature market”. Regarding the forthcoming secondary market, it should come as no surprise that ORCHARD, one of Canaan’s portfolio companies recently stated they expect to launch a secondary platform in the very near future.

The Big Flaw Few are Talking About in Fintech, (Fortune), Rated: A

Comment: a not very well informed and pessimistic article. The defaults in p2p lending change by risk grade. p2p can also show better then banks defaults if you lend to A grades only. And LC doesn’t trade based on earnings, it is a growth company, like Tesla for example. The source of capital volatility is a problem which is being addressed.

The problem, according to Fitch, is that online lenders are taking on riskier borrowers than they originally suggested they would.

Loans issued in 2008 had a charge off rate of more than 14% after three years. Those issued in 2012 had charge-offs of around 7% after three years, less, but still much higher than banks. For reference, Citigroup’s loan losses are around 2%.

The “lack of alignment of interest due to the separation of lenders and originators . . . present additional challenges,” according to Fitch. The trouble is that if the quality is bad, the actual lenders, that is the hedge funds and others that fund the loans are going to stop coming back for more.

Yet shares of Lending Club, at a recent $7.40, trade at 36 times 2017 earnings, while JPMorgan Chase trades at a quarter of that multiple.

LendingClub Corp Increases Again; Strong Momentum for Buyers, (Franklin Independent), Rated: A

The stock of LendingClub Corp (NYSE:LC) is a huge mover. The stock increased 6.44% or $0.49 during the last trading session, hitting $8.02. About 9.53M shares traded hands or 88.34% up from the average.

Employees 1,382
Revenue $980 million
Net Income -$5 million
Market Cap $2.87 billion

Alipay to Stop Services for PPDai, (AltFi News), Rated: B

Chinese online financing platform PPDai is reportedly the last peer-to-peer partner of Alipay – an online payment platform in China. Before 2013, Alipay was servicing a wide array of online alternative lenders. From 2013 onwards, the company began to reduce its exposure to the marketplace lending space and PPDai is the only survivor of the culling. However, we learn that the payment firm is considering a divorce even from PPDai, completely ceasing all collaborations with local peer-to-peer lenders.

Alipay is run by Ant Financial Services Group, an affiliate of the e-commerce giant Alibaba Group Holdings Ltd. The company provides its 400 million users with secure online payment services.

Ratesetter appoints Target for standby servicing, (Financial Reporter), Rated: B

Comment: article covering the UK market.

Target Group, the financial services outsourcing and software business, has been appointed to provide standby servicing to peer-to-peer lending platform Ratesetter.

LendingTree, Inc. to Report First Quarter 2016 Earnings on May 4, 2016, (Broadway World), Rated: B

Comment: Based on pull back in marketing dollars from Prosper, Avant and Marlette this will be an interesting report.

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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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