News

May 4th 2016, Daily News Digest

  • Prosper confirms layoffs in loan volumes 12% down from 4Q2015.
  • Prosper to focus on capital from banks and small investors and to launch next month platform  aimed at retail investors and retail funds.
  • Analysis of On Deck’s results and the company’s state.
  • Klarna’s long-term strategy to completely replace banks and the launching of a point-of-sale for offline stores financing solution.
  • Analysis of the Funding Circle securitization.
  • Analysis of the India p2p regulatory proposal and its problems.
  • State of p2p lending in the Arabic Gulf (GCC countries).
  • State of p2p lending in Singapore.

Prosper Marketplace to Cut Jobs and Shuffle Executives, (Wall Street Journal), Rated: AAA

Prosper Marketplace Inc. is cutting about 28% of its staff and shuffling executives as it aims to cope with a decline in loan volume.

The San Francisco company plans to close a Utah office dedicated to making loans for medical procedures, and it is eliminating 171 jobs overall, including about 14% of its combined San Francisco and Phoenix-based workforce.

The CEO will forgo a salary this year, the company said.

Prosper’s staff nearly tripled to 619 employees in 2015, and the company spent around $40 million to acquire medical-loan provider American Healthcare Lending LLC and personal-finance startup Billguard Inc.

Prosper was valued at $1.9 billion in a fundraising round last year, when it raised $165 million from funds at Credit Suisse Group AG,J.P. Morgan Chase & Co., SunTrust Banks Inc.,Neuberger Berman Group LLC, USAA Inc. and other firms.

The company hasn’t yet been profitable. Last year it more than doubled its total loan originations since 2006, from $2.4 billion to $6.1 billion through December. But its losses also grew, from $3 million in 2014 to $26 million last year, on revenue of $204 million in 2015.

Prosper’s loan volume shrunk to $973 million for the first quarter of 2016, down 12% from $1.1 billion in the last quarter of 2015, the company said. Prosper had been expecting loan volume to double this year from 2015, but now says that it won’t meet that target.

Following OnDeck’s report, shares of LendingClub Corp., the largest online consumer lender, dropped 10% on Tuesday. It is set to report earnings next week.

The staff reductions at Prosper will be focused on marketing, human resources, business development and some engineers. A new office space that was earmarked for expansion instead will be subleased, the company said.

The company also said it is hiring in its capital markets team, which helps to sell loans, as it shifts away from selling to hedge funds to focus on banks and small investors.

A new platform aimed at retail investors and retail funds will be rolled out next month.

You Still Want a Fintech Revolution? (Bloomberg), Rated: A

Remember the “fintech revolution” that was going to reshape the banking industry? Well, don’t go hoisting any new flags over the castle just yet.

Don’t even ask about LoanDepot, which saw the Lending Club and On Deck charts and canceled its IPO right before it was about to price in December.

t’s hard to say what the biggest problem here is — the scary new frontier of automating lending decisions with computer algorithms in a historically uncertain credit cycle; a modern distaste for tech companies going public without profits under their belts; or a tightly crowded competitive landscape (there are more than 160 companies in the online-lending space).

On Deck’s Problem Isn’t Credit, (Benzinga), Rated: A

On Deck reported its 1Q16 EPS at -$0.18, down from the year-ago figure of -$0.08. After adjusting for $0.05 per share in stock-based compensation expense, its EPS of -$0.13 was lower than the Sterne Agee CRT estimate of -$0.10 and consensus expectation of -$0.08.

“The primary weakness in the quarter was lower revenue tied to both a lower level of originations and lower gain on sale,” analyst Henry Coffey wrote.

“The problem is not credit, which has been improving, but a business whose combined operating and customer acquisition cost continues to outpace its growth in revenue,” the report added.

Why Shares of Fintech Lenders OnDeck and Lending Club Are Getting Crushed, (Fortune), Rated: AAA

OnDeck blew through $28 million in cash in the first quarter, though it still has $170 million in the bank. Lending has been going well. Loans rose by $100 million in the past year. Yet, in the first quarter the percentage of loans that OnDeck offloaded to investors fell to 26% from 40% a year ago.

The problem is that the fintech lenders are having more difficulty finding buyers for their loans.

Another fintech lender SoFi has started a hedge fund with its own money to invest in the loans it is making. Putting the loans in a hedge fund makes the loans effectively disappear from their books, even though Sofi still owns the risk. The arrangement has reminded some of the types of deals Bear Stearns and others set up in the run up to the financial crisis.

As long as the market and regulators treat OnDeck and its rivals as tech companies none of this might be a problem.

Bank of America’s P/B is 0.7. If OnDeck’s shares traded at that multiple, they would sink to $3.20. If OnDeck is going to be treated more like a bank, the problem is shares will likely trade like one too.

Swedish Online-Payment Pioneer Launches Service for Offline Stores, (The Wall Street Journal), Rated: AAA

The company said Wednesday that it will roll out its payment-processing services to “offline” merchants later this month.

Klarna offers a system by which it pays merchants immediately, and only later collects funds from customers, while taking on the entire credit and fraud risk on the retailer’s behalf. To assess credit risk, Klarna looks at more than 200 variables derived from data it aggregates on its customer, including time of purchase, the shopper’s address and shopping patterns. If a purchase is considered too risky, the shopper must pay immediately, perhaps by credit card.

“We expect the offline offering to potentially outgrow our online business,” Sebastian Siemiatkowski, Klarna’s co-founder and chief executive, said in an interview.

The payment-services industry, which had an estimated revenue of $1.7 trillion globally in 2014 according to the McKinsey & Company consultancy, is going through rapid changes with many tech companies challenging the grip banks have long had on noncash transactions.

A privately-held company, Klarna was founded in 2005 and was most recently valued at $2.25 billion. The firm offers online payment services to 65,000 e-commerce merchants in 18 countries, and had revenue of 2.8 billion Swedish kronor last year ($348 million)

Mr. Siemiatkowski said the company is also exploring other forms of communication such as apps or near-field communication, which offers a contactless way of paying and is used by Apple Pay, among others.

In a bid to respond to the financial tech companies, six Swedish banks have pooled resources to launch Swish, a mobile-phone solution to transfer money between private bank accounts.

In the long term, Klarna aims to completely squeeze out banks from the transaction loop by offering bank accounts and payment cards itself, Mr. Siemiatkowski said.

Funding Circle shouldn’t set the tone for deals that follow, (Global Capital), Rated: AAA

The bottom of the capital stack, the class D notes ended up placed 125bp wider than initial thoughts.

The average spread of the loans is 9.57%. Class D was 0.06 times done, Class B 0.24 done and class C 0.26 times.

On Tuesday Fitch followed its earlier industry-wide scepticism with a specific attack on Funding Circle’s deal, SBOLT 2016-1, saying that the pricing of the trade “highlights investors’ willingness to invest in emerging asset classes in search for yield, despite the limited performance data available on such loans”.

The lukewarm reception for the Funding Circle trade should cool the market’s ardor a little.

Regulating P2P lending startups: Missing the woods for the trees, (Your Story), Rated: AAA

P2P lending in India is not yet significant enough (there are around 30 P2P lenders) to pose systemic risks to the economy in the near future, but has the potential to disrupt the small-ticket lending space.

Unfortunately, the RBI governor seems to be a man in a hurry – perhaps with valid reasons. The recent collapse of leading Chinese P2P lender, Ezubao, in which investors lost around USD 7.6 billion should be enough to send the alarms ringing.

In this context, the two absurd ideas floated in the discussion paper by the RBI are: 1) proposal to cap the leverage ratio, and 2) minimum capital requirement of INR 20 million.

P2P lending platforms do not extend “loans” to their users by borrowing from the market. The loans extended never sit on their books. And that’s why the proposal to cap the leverage ratio doesn’t make any sense.

The proposal to allow direct transfer of funds between the borrower and the investor without ceding any control over the flow of funds to the platform will prove to be damaging, not only for the platforms, but also for its users.

PwC Report: Today’s Marketplace Lending is Very Different from P2P Days, (Crowdfund Insider), Rated: B

Global consulting firm PwC has published a report on the marketplace lending industry. What started as a fascinating concept of disintermediation of traditional finance is quickly emerging a technologically superior method of lending that, in many ways, mirrors what it is intended to supplant.

WHAT’S LENDINGTREE INC DOWNSIDE AFTER TODAY’S HUGE DECLINE?, (The Post), Rated: A

The stock of Lendingtree Inc (NASDAQ:TREE) was a huge mover yesterday! The stock decreased 7.80% or $7.21 during the last trading session, hitting $85.18.

Out of 10 analysts covering LendingTree (NASDAQ:TREE), 10 rate it a “Buy”, 0 “Sell”, while 0 “Hold”. This means 100% are positive.

From a slow start, innovative fintech could shake up finance in the GCC (The National Business), Rated: AAA

Comment: GCC stands for Cooperation Council for the Arab States of the Gulf and is composed of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Fintech has begun to bubble up across the region, in payment systems (CashU), peer-to-peer lending (Beehive), crowdfunding (Eureeca, Aflamnah and Durise), online/mobile banking and online trading.

Fintech’s penetration into Islamic finance is still in its infancy with very few participants, such as Beehive, a Dubai-based Sharia-compliant P2P lender.

Other areas where fintech is likely to have an impact, especially from a GCC standpoint, are remittances, insurance, investment advisory and online trading.

Crowdfunding buzz as banks, listed firms join the action, (Opinion), Rated: A

Comment: Article covering the Singaporean market.

DBS Bank inked cross-referral agreements with two home-grown peer-to-peer (P2P) lending platforms to expand funding available to small businesses. There are at least 13 companies with a presence here – from more recognised names such as MoolahSense, CapitalMatch and CoAssets, to newcomers like EziFund, a real estate crowdfunding platform which made its debut on April 18.

A $150,000 campaign for a lift installation and maintenance company on MoolahSense last month was fully funded in the span of just two minutes. Firms on Funding Societies have also managed to raise smaller sums in the likes of $20,000 within just 30 seconds.

This is not surprising, given how some crowdfunding campaigns here come with interest rates as high as 25 per cent.

Crowdfunding platforms such as MoolahSense and Funding Societies do not come under regulation, and are open to the wider public

DriverUp Appoints Match.com Veteran Anthony Fratiani As Chief Technology Officer, (PR Newswire), Rated:A

DriverUp, the first online marketplace for automotive financing, today announced that tech industry veteran Anthony Fratiani has joined its executive team as Chief Technology Officer.  In this newly created position, Fratiani will oversee the continued build out of DriverUp’s consumer-facing side of the business.

Prior, he spent most of his career at Match.com, in various key technology roles helping the company transition from an early stage growth story to a global online dating powerhouse.  As initial tasks at DriverUp, he will oversee the build of the company’s technology team, design and launch new product features, and expand DriverUp’s mobile functionality and adoption.

PTDL appoints three external advisers and announces new membership numbers, (Press Release), Rated: B

Ernst & Young (EY) will provide general consultancy around Blockchain and distributed ledger technology, Norton Rose Fulbright will advise on legal and regulatory issues affecting PTDL Group and Citigate Dewe Rogerson will assist with public relations activity.

37 financial institutions involved in the post-trade industry are now members of PTDL Group

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 ( 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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