April 27th 2016, Daily News Digest

  • CommonBond completes successful securitization for student loans.
  • Personal loan rates decreases by 0.1% q-o-q per Bankrate.
  • Very well researched and written article on marketplace lending, very long.
  • Fintech Bank of the future: another very well researched article about how banks will look in the future.
  • BlueVine raises series B.


CommonBond Completes $150m Securitization of Student Loans, ( AltFi News), Rated: AAA

The student-focused marketplace lending platform CommonBond has announced the completion of a $150m securitization of student loans. The deal involved Barclays and Goldman Sachs. The transaction received a rating of “A (high)” from the ratings agency DBRS. Purchasers of the assets were institutional investors, including the likes of insurance companies, banks, credit funds and asset managers.

This transaction is the second securitisation of student loans completed by the firm.

“The strong reception in the capital markets to our second securitization is a further testament to the quality of CommonBond’s portfolio, especially in today’s uncertain market environment. As investors increasingly look toward high-quality assets, CommonBond stands out for its diligent underwriting and the fact that we have no defaults among our borrower base.”


Personal loan rates fall to 2016 low, (Yahoo Finance), Rated: A

In Bankrate’s national survey of interest rates for April 13, 2016, the rate on personal loans declined to 11.27% from 11.37%. A year ago, it was 11.13%, so rates have remained relatively flat the last 52 weeks.


Manning targets super funds for P2P investor, (Financial Review), Rated: A

Comment: article covering the Australian market.

Former JANA asset consultant Joshua Manning’s vision is to focus exclusively on the burgeoning peer-to-peer lending sector. His new business is Manning Asset Management.


Growing pains of marketplace lenders, (Euromoney), Rated: AAA

Comment:  a very well researched and written article about the marketplace lending space overall. Very long.

Just before Christmas last year Moody’s issued a rating on the securitization of a pool of marketplace lending (MPL) loans from a Citi-run shelf. As the industry returned from the Christmas break in January, however, the analysts at the rating agency were clearly having second thoughts.

That is a remarkably short period of time for the dynamics of the pool to have changed so dramatically.

This is a market that was launched on the back of a simple idea: two peers lending to and borrowing from each other.  It has, however, developed into a complicated network of risk transfer, with the original loan application often travelling through many intermediaries until securitization.

Are concerns about this complexity an over reaction?

“Consumer-lending ABS has been going on since the 1990s.” So investors, issuers and rating agencies need to take a hard look at exactly what is different about MPL platforms to unpick exactly how risky this brave new world of consumer finance really is.

Marketplace lending accounts for only 0.08% of the $96 trillion global corporate and household debt outstanding.

“The barriers to entry for marketplace lenders appear to be very low and the presumption is that marketplace lenders don’t need a balance sheet,” says Richard Kelly, managing director at advisory firm New Oak Capital in New York. “New entrants can just buy a white label website for $15,000. However, many will find it that they need to raise significant capital to be able to invest in the loans that they source until they establish clear performance and show they are viable and have the right operational and capital regimen.”

In June 2014 one hedge fund, San Francisco-based Colchis Capital Management, had already invested $663 million in marketplace loans – 10% of the entire sector. The big institutional investors were already very active too: by mid 2014 BlackRock was buying 25% of all loans originated by Prosper. Faced with this kind of firepower, individual peers have been increasingly squeezed out.

Flow purchase agreements such as that between Jefferies and CircleBack are also popular; Citi has such a deal with Prosper allowing it to purchase a proportion of all loans originated on the platform (which are subsequently securitized through Chai). In the UK, Metro Bank set up an alliance with Zopa in March 2015 – the first UK bank to lend through a MPL platform and Santander UK has teamed up with Kabbage to provide SME loans.

“Fidelity and T Rowe Price are not required to retain a percent of every investment they make or recommend to their clients because there is an inherent alignment of interest,” grumbled founder and CEO of Lending Club Renaud LaPlanche in response to the Treasury’s RFI.

Funding Circle in the UK, is also critical of any move towards risk retention requirements. “The whole skin-in-the-game argument makes no sense,” he tells Euromoney. “Mortgage originators all went bankrupt even though they had sold whole loans. The problem was not market structure per se. We publish details of every loan on our website. There is real reporting. You can very quickly see what is going on. Our skin in the game is that we are totally transparent.”

The raison d’etre of marketplace lenders is that they have developed underwriting engines that are more efficient and superior to the banks’. Perhaps those algorithms will become less of a black box as online lending inexorably comes to dominate the consumer space.

“Bank credit officers have often been doing the same job for 20 years, whereas the underwriters at many marketplace lenders have been to MIT or Harvard and are highly incentivized,” he continues. “They are on Facebook and LinkedIn and using three or four different rating agencies to make their decisions. They are often lending to people that the banks would reject.”

“The downgrade rating watch on the Chai deals sounds like a breakdown in processes,” reckons Sinha. “There is obvious confusion about what the underwriting looks like. No one has acquitted themselves well over this and it has created a false narrative of credit deterioration.”

“Is the pool of borrowers an adversely selected subset of bank customers?” asks Sinha. “Two thirds of credit card users are convenience users which pay off their balance at the end of every month. If you compare the performance of the other one third of credit card users that do not, the MPL loans performance is about the same.”

“The rates credit card companies charge are reflective of the credit they are dealing with and they are profitable but not wildly. They lend to consumers at 19% and marketplace lenders reckon to do the same at 15%. However, this could be explained by marketplace lenders having no formal capital requirement as well as more efficient operation acquiring clients.”


The new FinTech Bank, (Chris Skinner blog), Rated: AAA

Comment: a great article on how the bank of the future will look like. Also very long.

Biggest fintech-startups started diversification of their product line.

Chris Skinner wrote: “I’ve talked for a while now about ‘banking as a service‘ (BaaS) – first blog entry almost seven years ago – and this forecast that anyone in the near future would be able to build their own bank through apps, APIs and analytics.

In December 2015 counted 63 insanely useful APIs from fintech-startups across 12 segments “to supercharge your product”.

The integration and delivery of financial services is changing as new channels, products and partnerships are being explored, andBanking as a Platform (BaaP) is one of the alternatives.

Neo- and challenger banks as front-end of aggregation movement. German Number26 plans to systematically “rebundle” and create tight-knit integrations with other startups that focus on one specific vertical.

Matthias Kroener, German Fidor’s chief executive, says it is more like a social network than a traditional bank, with online communities offering finance tips, peer-to-peer loans and financial market trading facilities.

“A true digital bank is built on the value proposition that most products and services are delivered digitally. Its customers expect to use digital channels for their day-to-day banking activities. The digital bank’s infrastructure is optimized for real-time digital interactions and its culture embraces the rapid change of digital technologies.”

There are several unique selling points offered by new banking players, and it presents many amazing opportunities: Mobile first; Cross-sell and up-sell; Virtual financial advisor; Data driven.

Banks worry about a super aggregator who takes away the customer, leaving them to compete on price while the value cream is taken up by the super aggregator.

“The second wave of fintech, to come in two to five years’ time, will be “marketplace banking” (or “fintech banks”). This will be a type of bank based on five simple elements”: 1, A core banking platform built from scratch; 2, An API layer to connect to third parties; 3, A compliance/KYC infrastructure and processes; 4, A banking license, to be independent from other banks and the ability to hold client funds without restrictions; 5, A customer base/CRM, meaning that the fintech bank will have the customers, and a customer support team.


Trends: Bank branches to shift focus towards advisory and consultation( The Edge Market), Rated: A

Bank branches will focus more on advisory and consultation services than on transactions in the future, according to the Citi Global Perspectives & Solutions report, released by Citigroup Global Markets Inc last month.

As banks capture the wealthier segments of the population, mobile payment can help the poor gain access to basic financial services.

The report also says the blockchain technology may be the next big thing to disrupt the banking industry. Even if it does not end up replacing the core financial infrastructure, the technology may be a catalyst for financial institutions to rethink and reengineer legacy systems to make them work more efficiently.


Millennium Trust Expands Access to Alternative Investments for Advisors and Individuals; Adds Five Online Investment Platforms to Growing Network, ( PR Newswire), Rated: A

In addition to Lending Club (NYSE: LC), announced earlier this month, EquityZen, iCapital Network, Prodigy Network, and R.J. Oasis are now available through MAIN.

EquityZen is a marketplace for pre-IPO investments. iCapital Network offers a curated selection of private equity, credit, real estate, venture capital and hedge funds. Lending Club (NYSE: LC) is the world’s largest online credit marketplace. Prodigy Network provides investors the opportunity to own select institutional quality real estate projects located in Manhattan. R.J. OASIS is a new generation of alternative investment services that satisfy the unique requirements of each client by offering customized value added solutions.

Millennium Trust Company provides innovative custody solutions for IRA rollovers, alternative assets, and private funds. With$18.1 billion in assets under custody and more than 440,000 accounts under administration (as of 3/31/2016), Millennium Trust Company is a leader in providing custody services for both alternative and traditional assets.


Marketplace lenders: The law of agency, (Euromoney), Rated: A

Comment : A list of banks involved in Marketplace Lending (MPL), WebBank of Salt Lake City, Utah; Cross River Bank of Teaneck, New Jersey; NBT Bank of Norwich, New York and Comenity Capital Bank of Columbus. And article describing how the MPL-Bank relationship works.


Marketplace lenders: Challengers target MPL connections, (Euro Money), Rated: A

Comment: an article using the Lending Circle securitization fresh news to revisit the May 2015 partnership between Metro Bank and Zopa.

In May 2015, UK upstart Metro Bank forged an alliance with marketplace lender Zopa. For a small bank like Metro, the tie up with Zopa makes obvious sense. Metro has more deposits than it can lend traditionally and Zopa can lend out more than it can raise from traditional peer-to-peer investors.

For banks, online lending is the key to future market share.  “The decision to partner with Zopa was more driven by the cost to us of building our own infrastructure to lend online nationally,” says Kernkraut, although Metro won’t be shuttering any of its 37 branches any time soon. “Different people want different things. We are attracting customers who want personal service in store, which you don’t get from online lenders. Others want a two-minute online process. There is room for both.”


Nice fintech startup you got there, it would be a shame if someone sued it, ( FT Alphaville), Rated: A

As bank settlements go, last week’s $2.5m payout from online lender SoFi is pretty small.

Shawn Heaton, the initial plaintiff in the class action lawsuit, claimed that SoFi had performed a “hard pull”, which shows up on a person’s credit report when applying for loans, when it had told him it would only be doing a “soft pull”, which doesn’t show up.

The SoFi case above is the 5-year-old company’s first and only court battle so far, according to a search on Pacer, the US court filings system, but for online lenders more generally the legal woes are stacking up.

As SoFi’s credit score war was coming to an end, a new conflict was beginning for publicly-listed rival Lending Club, which is accused of using “a sham pass through bank” to circumvent US state usury laws and make usurious loans. The class action lawsuit, filed earlier this month, also alleges Lending Club violated the “Racketeer Influenced and Corrupt Organizations Act”

It all goes to show that new, shiny and clean startups don’t stay that way very long, and you can’t avoid legal and regulatory headaches by calling your financial services business a tech company — something Lending Club investors have learned the hard way.


Citi Ventures Makes Strategic Investment in BlueVine, (Business Wire), Rated: A

BlueVine, an online provider of everyday financing to small businesses, today announced it has received a strategic investment from Citi Ventures. Financial terms of the investment were not disclosed.

“With a portfolio that includes Square, Betterment, DocuSign and Optimizely, Citi Ventures invests in segment leaders that are reinventing industries,” said Eyal Lifshitz, founder and CEO of BlueVine.

Other recent developments at BlueVine include the appointment of former Google Capital manager Ana Sirbu to vice president of finance and strategy and the launch of Flex Credit, a platform expansion beyond invoice factoring to offer small businesses a revolving line of credit. BlueVine is currently on track to fund more than $200 million in working capital in 2016.

BlueVine was the first factoring company to develop a fully online, cloud-based platform for invoice factoring, enabling rapid advances on outstanding invoices due in 7-90 days and bringing a 4,000-year-old industry into the digital age. BlueVine also offers Flex Credit — an on-demand, revolving line of credit — through the same online platform. With BlueVine, business owners can focus on growing their business instead of worrying about their bank account.


How banks in Asia can compete against the rise of alternative lenders, (Finextra), Rated: A

With their loan books growing at an estimated 175%per year, online lenders are changing the face of the global banking industry at an unprecedented pace. There is a common perception that Asian banks, which are typically performing more strongly than their peers in the West, are as a result much better protected against the threat of competition. But that is a short-sighted and overly-complacent view.

Some Asian banks have already began embracing technology to expand their offering. For example, DBS bank and Maybank, both headquartered in Singapore, have rolled out their own P2P services, one channelled through mobile phone numbers, the other through debit and credit cards.

All the above shows that despite the threat that online lenders pose, if banks rise to the challenge, capitalise on their historic advantages, embrace a savvier use of technology and collaborate with their online lending peers, the battle for supremacy in the small business market is far from over.


PRBC Empowers Consumers to Take Control of Their Credit, (PRBC blog), Rated: A

In the U.S., an estimated 110 million consumers are considered underbanked and underserved. In most cases, these individuals have either poor credit or no viable credit scores at all, making it incredibly expensive or even impossible to secure a loan.’s innovative platform provides nontraditional credit scoring that takes into account a diverse range of financial histories, such as utilities and rent payments. By telling the whole story, allows consumers to demonstrate their financial integrity in ways that traditional credit scores do not. Lenders can then use that information to gain a comprehensive view of their potential customers – including the 110 million underbanked Americans. This enables businesses to open their doors to individuals who would otherwise be excluded under the traditional credit model. Investors Help Finance Industrial Property in Chicago Metropolitan Area, (Business Wire) ,Rated: B, one of the leading online marketplaces for real estate investing, today announced that it closed a $1,000,000 equity investment in an industrial property in Glendale Heights, IL, within the Chicago metropolitan area.


Author: George Popescu

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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