Featured News

June 7th 2016, Daily News Digest

US

  • Lend Academy’s suggested industry improvements.
  • Update on Lending Club. Tightens origination criteria.
  • Wells Fargo is moving to an API, in 2016, finally.
  • Lending Club (and Prosper, Avant, and Best Egg) reduce direct mailing.
  • OnDeck starts a captive fund in partnership with Intuit.
  • Details on Kabbage’s in-house legal and regulatory staffing and functions.
  • Kabbage, OnDeck’s and CAN Capital’s advocacy group launches 1st tools for SME borrowers ( SMARTBOX).

UK

  • AltFi Data Analytics service is launched with data from Funding Circle, Zopa, RateSetter, and MarketInvoice. Very interesting charts and data.
  • Invoice funding platforms Platform Black and Investly put skin in the game.
  • Folk2Folk reaches £100m milestone.

China

  • CreditEasy and DriveWealth partner to offer Robo-Advisory wealth management on US equities.
  • In May 2016 43% of Chinese p2p lenders have issues.

India

  • RBI setting committee on national fintech data gathering.

 

United States

The Opportunity in Difficult Times, (Lend Academy), Rated: AAA

This industry began with an ideal to bring more transparency to the financial system. We have moved away from this ideal somewhat in recent years. It needs to return in a big way.

It is not good enough for a platform to say that their data is trustworthy and clean. Companies like Orchard, PeerIQ, MonJa and dv01 should be encouraged to verify everything for investors. All platforms should be open to working with ecosystem providers like these.

For large investors to get comfortable again they are going to need to see disclosure beyond just the loan book. There needs to be operational and servicing data made available as well as financial information on the state of the business.

Having the flexibility to fund loans from your own balance sheet can make lending platforms more stable.

Lending Club postpones annual meeting as it tightens credit, boosts rates (San Francisco Business Times), Rated: AAA

Lending Club surprised many investors Tuesday when it postponed its annual meeting, saying it wasn’t ready to give shareholders an update on the fintech’s business.

“Given the developments of the last few weeks, the company is not yet in a position to provide its stockholders a complete report on the state of the company,” Lending Club said in a regulatory filing.

The company’s second-largest shareholder isn’t sticking around: Money manager Ballie Gifford & Co. said in a regulatory filing that it sold its 9 percent stake in Lending Club.

On Tuesday, Lending Club said it’s raising rates on borrowers — again — and tightening credit standards. The lender will now require borrowers to have debt-to-income ratios of 35 percent, down from 40 percent, excluding mortgage debt, according to the regulatory filing.

Lending Club expects its loan volume to fall 5 percent as it takes steps to make loans made over its platform more appealing to investors.

The news cast a chill among investors trading in Lending Club (NYSE: LC) shares,which closed in New York down 35 cents, or 7.4 percent, to $4.39.

Wells Fargo’s Bid to Vanquish Screen Scraping, (American Banker), Rated: AAA

On Tuesday, Wells was set to announce that it’s created an API, or application programming interface, so small businesses can have their bank account data poured directly into the accounting software provided by Xero. Previously the data could be transferred one of two ways: either the small business would have to type it in manually or the customer could give its banking credentials to a third-party aggregator, which would “scrape” the data off Wells Fargo’s site. The former practice is cumbersome, the latter insecure.

Wells Fargo is doing what Jamie Dimon, CEO of rival megabank JPMorgan Chase, said he hoped to do in a section of his annual shareholder letter that criticized data aggregators.

Screen scraping came under fire at the end of 2015, when banks were accused of stifling innovation by blocking personal finance app providers like Mint from accessing their customers’ account information. Banks including Wells Fargo, Bank of America and Citi countered that the screen-scraping process many of these providers were using was not very effective and prone to a number of security issues.

Banks like Wells Fargo, Capital One and Germany’s Fidor Bank and the data aggregator Yodlee worked with the Financial Services-Information Sharing and Analysis Center’s aggregation working group to reduce the risk of financial data aggregation, specifically by using OAuth, a token-based authentication technology.

Xero, which was founded in New Zealand but now has a U.S. headquarters in San Francisco, has more than 700,000 global customers, including banks in New Zealand, Australia and the U.K. and more than 20 U.S. banks.

Unsurprisingly given the regulatory scrutiny around vendor risk management and third-party vendor security risk, Wells Fargo and Xero put each other through a stringent vetting process to understand their respective operations, technologies, customer experience commitment, scalability and security, Pitts said. Know-your-customer and anti-money-laundering rules were also part of the due diligence.

When the integration is completed in the fourth quarter, small business customers that log into Wells Fargo online banking will be asked if they want to connect their accounts to Xero, and if so, which ones. The bank is building disclosures and explainers that will make plain to customers what they’re agreeing to, what information they’re agreeing to share, with whom and how it will be used.

Lending Club drastically reduces direct mailing, (Financial Times), Rated: A

Facing uncertain demand for its loans, Lending Club has had to cut back on supply. In May offers sent out in the mail could have dropped to as low as 10m from 41m in April, according to preliminary estimates from Mintel, a global market intelligence agency.

Other regular users of direct mail — such as Prosper, Avant and Best Egg — saw similar falls, according to Mintel’s estimates, as Lending Club’s troubles set off a broad crisis of confidence.

“It’s highly likely that these marketplace lenders are putting a hold on activity temporarily, to see where things shake out,” said Lily Harder, vice-president of research at Mintel.

Typically, letters are sent to preapproved candidates carrying lots of credit card debt or other high-interest loans. Once lenders have made such an offer, they are under an obligation to follow through with a loan if the target applies.

direct mail volume source Mintel

On Deck and Intuit run joint fund to back loans, (CNBC), Rated: AAA

On Deck Capital and Intuit jointly own a limited liability corporation called Lancelot QBFOD.

Lancelot is based in Delaware, according to documents filed with regulators. On Deck filings state that the company “acquired” a 67 percent interest in Lancelot in the third quarter of 2015. On Deck’s filings state that 33 percent of Lancelot QBFOD LLC is owned by Intuit. That matches the time frame of On Deck and Intuit’s partnership announcement, which came in mid-September last year.

On Deck and Intuit announced last year a partnership to launch a $100 million small business lending fund. At the time it was not publicized where the $100 million was coming from; On Deck’s reports do not specify the size of the Lancelot LLC and a representative for On Deck declined to say how large the Lancelot fund is.

The fund is another example of how fintech startups are diversifying the sources that invest in their loans.

Macaskill on markets: SoFi’s Cagney – The Donald Trump of fintech?( Euro Money), Rated: ??

Comment: A very bizarre article, that doesn’t seem warranted. A personal vendetta perhaps ?

“Cagney is certainly hyperbolic enough to inspire comparison with Trump. He repeatedly refers to himself in media interviews as the meteor that will kill off the dinosaurs of old-fashioned banking. This metaphor has obvious flaws if pursued too far. Is the goal the financial equivalent of fiery global cataclysm? How did the dinosaur disruption work out for the meteor? ”

Daniel S. Henson Joins OnDeck Board of Directors, (PR Newswire), Rated: A

OnDeck®  announced today that Daniel S. Henson was elected to its Board of Directors effective June 2, 2016. Mr. Henson brings nearly 30 years of experience from General Electric Company (GE), where he held a variety of senior positions at GE and General Electric Capital Corporation, Inc. (GE Capital), including Chief Marketing Officer of GE and CEO of a number of GE Capital’s commercial lending businesses in North America and overseas.

Mr. Henson most recently served as an officer of GE and Executive Vice President of GE Capital, where he led all commercial lending and leasing businesses in North America. He also provided oversight for the Enterprise Risk Committee of GE Capital’s North American lending and leasing units, oversaw capital markets activities and successfully managed GE Capital’s lending and leasing business through the 2008 financial crisis. He retired from GE and GE Capital in March 2016.
To date, the Company has deployed over $4billion to more than 50,000 customers in 700 different industries across the United States, Canada and Australia. OnDeck has an A+ rating with the Better Business Bureau and operates the educational small business financing website

How big data is helping small businesses get finance, (Wired), Rated: AAA

Kabbage offers up to $100,000 (£70,000) in credit to small businesses, with an average loan of $25,000 (£17,000) typically paid back over six months.

Kabbage takes the same kind of data used by banks to ascertain whether a small business is eligible for a loan, but uses automated systems to expedite the process. Customers give the company access to the sources that help them run their business – such as checking accounts and shipping data – but also data from e-commerce platforms and even social media. Kabbage then connects and analyses these data sources to provide a loan.

“These data sources – because they’re digital – aren’t just used at the point of origination,” explains Petralia, who will be speaking at WIRED Money 2016 in London on June 23. “We also stay connected throughout the relationship with the borrower, which allows us to provide a unique line of credit.” What this doesn’t mean, however, is that a bunch of Twitter followers can get you a loan – social data is just one part of a wider picture that the company takes into consideration.

Despite serving a different market, Petralia says Kabbage’s services aren’t so dissimilar to those offered by big banks. “We’re actually asking the same questions that the banks are asking,” she explains. “What we’re doing differently is connecting in real time to third party, verified data sources that give us a more holistic picture of that business.”

Kabbage licenses its technology to third parties to help incumbents deliver new services. Early customers include ING and Santander, which use Kabbage’s systems to make it easier for small businesses to get access to loans from more established money institutions. These partnerships also ensure that Kabbage is subject to the same regulatory standards as traditional banks.

“Fintech means a lot of things. But all banks are fintech companies. All financial institutions are using technology to run their businesses, and that’s going to continue.”

At Kabbage, Small Business Loans Are a Big Deal, (Bloomberg BNA), Rated: AAA

In February L. Scott Askins signed on as general counsel of Atlanta-based Kabbage.  Askins previously worked at Premiere Global Services, Inc., a leading web conferencing business, and WebMD, the online health information provider. Askins, who goes by “Scott,” spent more than 14 years at PGi, where she served in senior posts and oversaw all legal matters.

In May, Kabbage and two other small business loan platforms — OnDeck, and CAN Capital — created a new advocacy group, the Innovative Lending Platform Association (ILPA), which aims to advance an array of small-business lending priorities.

This month, ILPA will kick off its first project — a proposed model small-business lending disclosure called the Straightforward Metrics Around Rate and Total Cost Box (SMARTBOX), which is designed to give small-business borrowers a set of tools to more easily assess their lending options.

Kabbage is growing fast, ranking 36 on Inc. Magazine’s “Inc. 5000” list of the nation’s fastest-growing small companies for 2015 and posting a three-year growth rate of 6,722 percent.

Askins’ team includes a staffer responsible for compliance, a paralegal who helps with corporate governance, a regulatory attorney, and two additional attorneys who recently came on board.

According to Askins, Kabbage uses outside counsel but keeps an eye on costs. “What works best are alternative fee arrangements, whether it’s a fixed fee for a project or a fee arrangement up to a certain cap,” she said. “I’ve found those to be the best options because they allow you to budget on the front end.”

United Kingdom

AltFi Data Analytics Arrives – Brings Added Scrutiny to Sector, (Alt Fi ), Rated: AAA

AltFi Data Analytics launches today, bringing a set of institution grade analytical tools to the UK’s marketplace lending sector.

The new subscriber-only service is powered by loan-by-loan, cash-flow level data from Funding Circle, Zopa, RateSetter and MarketInvoice, together making up 70% of UK marketplace lending. AltFi Data is pitching the product as a means to effectively make use of the impressive level of disclosure exhibited by these platforms. The tools will allow users to explore, visualise and download the various data sets. The bait that’s been dangled by the analytics company is: “How is the marketplace sector generating 6%+ net returns for investors?”

The customisable tool is powered by AltFi Data’s proprietary calculation engine, providing an impressive level of granularity on over half a million loans incorporating over half a billion data points. Users will be able to hone in on lending volumes, aggregate gross lending rates, arrears, bad debts, net returns and term. Users can also perform analysis by cohort, by security and by risk band. The images below demonstrate the sorts of analyses that can be performed using the tool.

altfi data 1 altfi data 3 altfi data 2

James Meekings, UK MD and co-founder of Funding Circle, explained:

“It’s easy to talk about transparency but the key differentiator is how simple this information is to digest and understand. Platforms have a responsibility to ensure that data is accessible, but it’s also fantastic to have the support of AltFi Data in this area. They continue to push the boundaries with the information they provide to investors and analysts.”

Finally Rhydian Lewis, CEO of RateSetter, offered his thoughts:

“The UK’s marketplace lending sector is setting new standards for transparency in finance.  For many years investors have been unable to access clear data on returns from personal and business loans, and it’s great that AltFi Data are a force for positive change in this area.  AltFi Data Analytics will widen access to platforms’ data and make it easier to analyse than ever before.”

Invoice funding platforms change model and put skin in the game, (Alt Fi), Rated: AAA

Two UK based invoice funding platforms – Platform Black and Investly – have now decided to confront this criticism head on by deploying their own capital alongside investor’s cash. This move in effect puts the platform’s capital at risk in the event of a default by a lender.

Platform Black (PB) announced this week that they’ll underwrite the first 10% of every auction on the platform, thus taking the first 10% of any capital loss suffered by an investor. The change in structure was implemented on June 1st.  The platform quotes an example where a client defaults with a capital exposure of £500k, which forces PB to fund £50k to the investors’ capital loss on a % investment per investor.Platform Black concedes that this shift in strategy won’t entirely eliminate default risk but it argues that the investor can at least take some comfort that Platform Black will be considered in its approach to due diligence.

The announcement from Platform Black was echoed by news from one of its competitors Investly. According to Investly: “Our bids will be made with the username Investly so that they are visible and recognizable to all investors. Our bids will range from 5-33% of the invoice funding target.”

Investly emphasises that it will not be prefunding invoices. It says that it “will be making bids alongside investors. To ensure a good return for investors, we will not be adjusting our rate downwards if the auction rate falls.”

The Investly and Platform Black moves could be read as a sign of confidence in their credit risk models –  the former platform argues that the move reflects “the trust of our team and shareholders in our credit model”.

The $64 million question of course is whether this strategic move by PB and Investly is the start of a much bigger trend – will the big four marketplace lenders now be pushed into putting their own capital at risk? Does this mean that every alternative finance platform will end up moving away from marketplace lending and adopt the balance sheet lending approach?

P2P lender Folk2Folk reaches £100m milestone, (The Herald), Rated: A

Launceston-based Folk2Folk has passed the £100 million milestone of loans funded.

More than 70% of Folk2Folk investors are repeat lenders, demonstrating the strength of Folk2Folk’s product and the confidence lenders have in the company.

In addition to passing the £100 million milestone, Folk2Folk has launched a recruitment campaign to help with its long term growth strategy and national expansion.

Scott Mann, MP for North Cornwall, said: “Folk2Folk has a great business model of local secured lending, which benefits businesses in the community.

This fintech wants to help other young startups get off the ground, (Startup Smart), Rated: B

Peer-to-peer lending platform ThinCats is setting out to provide secured loans of up to $2 million to startups that may have limited assets but proven cash flow.

With ThinCats UK’s loans amounting to more than $300 million over the past five years, their default rate has been under 2%, and none of ThinCats Australia’s loans have defaulted yet.

Ex-Aldermore deputy CEO joins P2P lender, ( Bridging And Commercial), Rated: B

CrowdProperty.com has announced the appointment of the former deputy CEO of Aldermore as a non-executive director. CrowdProperty has recently broken through the £5m mark of funds raised from private investors, representing a 127% increase from last year.

China

DriveWealth Partners With CreditEase To Launch First Chinese Robo-Financial Management Tool, (Benzinga), Rated: AAA

DriveWealth, LLC (“DriveWealth”) is pleased to announce its partnership with CreditEase, the largest marketplace lender and wealth manager in China, to launch ToumiRA. ToumiRA is a new Robo-Advisory product available to Chinese Investors.

DriveWealth is the fastest growing B2B2C brokerage in China (based on B2B partner customer reach) that partners with innovative companies around the world to offer international investors unprecedented access to the US equities market. Through their current universe of partners, DriveWealth has access to hundreds of millions of potential investors and will act as the US broker partner for CreditEase’s ToumiRA product.

Through its partnership with DriveWealth, CreditEase is able to provide Chinese investors with globally diversified managed portfolios. ToumiRA incorporates US equities powered by DriveWealth into its streamlined global asset allocation strategy to make building a diversified global portfolio easy and hassle-free. ToumiRA’s trading algorithm utilizes the Modern Portfolio Theory along with individual investors’ objectives, risk tolerances, and goals to recommend the optimal portfolio.

P2P lending platforms in China: dusk before the dawn?, (Eji Insight), Rated: A

By the end of May, the number of ailing P2P platforms was about 43 percent of the total.

 

India

RBI to set up panel to study issues facing fintech players, (Money Control), Rated: A

“RBI is in the process of setting up a multi-disciplinary committee with representatives from all financial regulators, stakeholders and banks to conduct an exploratory study of what kind of fintech is happening in the country, what can be allowed and create the right ecosystem for it,” RBI Executive Director N S Vishwanathan said at an industry event.

Vishwanathan explained there were 23 crore new accounts opened under the government’s Jan Dhan scheme and they could see “more traction through fintech platforms”.

Among the fintech entities, peer-to-peer (p2p) lending is gaining prominence, and RBI recently initiated steps to regulate this nascent business. It proposed registering P2P lending platforms as non-banking financial companies, he added.

Australia
Europe

 

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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