Featured News

June 16th 2016, Daily News Digest

US

  • Great interview with Avant’s CEO Al Goldstein.
  • SoFi testing the securitization market with $380m of unsecured personal loans.
  • Some interesting charts in Robo-advisor space that could be a lesson for alt lending as well.
  • OnDeck opens Denver office for up to 550 workers, probably eyeing expense control and profitability.
  • A useful listing of products competing with p2p lending for retail investors.
  • Mambu, a banking platform provider, partnered with fintech accelerators to bring startups to market faster.
  • PeerStreet, a real-estate investment marketplace, launches automatic investing, immediate fund deployment, and other platform features.

UK

  • P2P lending volumes slow down. A very interesting chart.
  • A good discussion with the European ABS market investors.
  • Brexit: the polls versus the bookies.
  • Invoice Cycle raises $4 mil from German and Israeli investors.

Europe

  • German 10-Year Bund yield goes negative, joining Austria, Sweden, Netherlands, France, Denmark , Belgium and Finland.
United States

Why Avant’s Al Goldstein is excited about partnering with big banks, (City A.M.), Rated: AAA

Avant isn’t a P2P lender – it uses a hybrid business model, holding half of its loans on its own balance sheet, and selling the other half to investors. It also doesn’t sell direct to individuals, but to institutions. While that may make some in the industry (and outside it) blanch, chief executive Al Goldstein believes his model is the way forward.

What happened at Lending Club could have happened at any company. I don’t have any inside information, but that sort of thing could’ve happened at a bank, an insurance company.

A consequence for the space, however, is a more challenging funding environment.

It is hard to accept the fact that you’re not a P2P marketplace. But I think it’s the right way to go.

We view ourselves as the first of what I’ll call the credit 2.0 companies, and I use the analogy of the first internet companies that never really succeeded. So beforeFacebook there was Myspace, before Google there was AltaVista. You can capture the market early and move fast, but you’ll miss specific things and have flaws that newer players can capitalise on.

Unfortunately, some marketplace lenders missed some of the opportunity. Another good example is Ebay versus Amazon. Ebay was the darling company early on. They were the pure marketplace, but Amazon has won by a factor of fifty.

With hybrid lending, the first benefit is that you actually have a balance sheet and skin in the game. If you have an originate to distribute model, your incentives are misaligned with long-term sustainability. You’re never going to be the lender that pulls back when you should be pulling back. And if the capital markets are shaky, as they have been for the last six months or so, you don’t have sustainability and that balance sheet to lean on.

Second, in the old model, you also have no recurring revenue – it’s all fee based. You originate a loan; you charge a fee. In the credit 2.0 model, you actually have a substantial amount of recurring revenue, so if you slow down origination growth, it’s okay – you can sustain yourself.

Finally, instead of some basic underwriting that you mask as something quite novel, you actually have to be able to enterprise risk management, which was obviously what was missing at Lending Club. What’s needed is an institutional-level compliance culture, controls, and risk assessment through your whole organisation.

What we’re providing is the front-end technology, functional capability and analytic capability, so the customer gets that seamless experience. Banks are going to be relevant players in this market. But what they’re going to do is provide credit to the safest consumers. Together, though, we can provide credit to the full spectrum of people.

Testing the Market for Online Loans in LendingClub’s Wake, (Wall Street Journal), Rated: AAA

Online lender Social Finance Inc., or SoFi, is pitching potential investors to buy $380 million of securities that are backed by its unsecured consumer loans. The securitization will be an important test of bond investors’ appetite for unsecured consumer loans since rival LendingClub ousted Chief Executive Renaud Laplanche in early May.

Meanwhile, SoFi made $661 million in unsecured consumer loans in the first quarter, or 26% less than in the previous period, according to a presale report on the securitization from Kroll Bond Rating Agency.

In general, SoFi makes unsecured personal loans to more creditworthy borrowers than its competitors. Borrowers in the SoFi loan pool that will back the bonds being sold to investors have an average credit score of 736 and an average income of over $140,000.

In contrast, a March securitization of loans from Prosper featured an average borrower credit score of 704 and an average income of around $84,000. SoFi’s loans also tend to come in larger sizes and carry lower rates. The average loan balance on the SoFi loans in the pool is around $37,000, around three times what it was in the March securitization of Prosper loans, and SoFi’s average coupon was 8.39%, compared with Prosper’s 13.57%.

Kroll gave the securitization, called SoFi Consumer Loan Program 2016-1, a rating of “A.” It expects cumulative net losses on the loans to be between 7.5% and 9.5%.

Boom, bubble or bust for fintech?, (Tech Crunch), Rated: AAA

chart-1-google-fintech-chart

chart-3-roboadvisor-chart

The robo adviser industry is also starting to have some challenges because customer acquisition costs keep increasing while margins keep decreasing. For the last couple of years, startups like Wealthfront and Betterment found success with the “set and forget” model of asset management.

 However, this success has caught the attention of financial giants like Schwab and Vanguard, which have launched competing products that pushed down fees and commoditized this new business. Now with growth flattening out, these robo advisor startups will look to add new products to try to justify their high valuations.

OnDeck doubles down on Denver, ( Denverpost), Rated:AAA

Comment: this move by OnDeck shows a real concern with expenses and profitability.

OnDeck Capital, a rapidly growing online small business lender, tested the waters in metro Denver in February 2013, starting out with 16 workers and plans to employ 200.

On Wednesday, the company cut the ribbon on new office space large enough to accommodate 550 workers on the ninth and 10th floors of 101 W. Colfax Ave., also home to The Denver Post.

7 High Return, Low Risk Investments for Retirees, (US News), Rated: AAA

Comment: interesting article because it points out the different products p2p lending is competing with. It would be interesting to compare the numbers on these products.

  1. Real estate investment trusts.
  2. Dividend-paying stocks.
  3. Peer-to-peer lending.
  4. Municipal bonds.
  5. Annuities.
  6. U.S. Treasury notes and bonds.
  7. Treasury inflation-protected securities.

Mambu partners with accelerators and incubators to launch FinTech Startup Program, (Press Release), Rated: AAA

Mambu, the SaaS banking platform provider, today announced the launch of its FinTech Startup Program, allowing companies to bring their innovative vision to market faster by leveraging the Mambu platform.

Working with Mambu has allowed Kueski to build a service that has enabled them to reach over 20% month-to-month growth rate in loans disbursed since its launch, attracting $35M in growth financing from investors.

Along with 500 Startups, Startubootcamp FinTech and Ynext Incubator by Envestnet | Yodlee, other partners on the program include Techstars and Citi Accelerator, with plans to sign more partners in the coming months. Startups as part of these programs can get discounted pricing on the platform along with support and services to help them build, integrate and launch their offerings into the market rapidly. Depending on the type of company, there are two tiers of admission criteria to join the program. Interested parties can sign up to the program here: https://www.mambu.com/en/site/contact.

MBA Students Are Flocking To Peer-To-Peer Lenders For Funding — Here’s Why, (Business Because), Rated: A

Cost continues to be the biggest bugbear for business school applicants — and they’re turning to new forms of financing to fund their expensive post-grad degrees.

Nearly a quarter of 2016 MBA hopefuls changed their list of target schools based on cost and financial aid, according to a survey of 3,500 published Wednesday by the Association of Independent Graduate Admissions Consultants. And more than 40% said their initial choice was influenced by affordability.

Banks have cut back on lending, starving business school students of a vital credit line.

Fintech players that offer crowdfunding to MBA students have become more popular. Prodigy Finance works with programs including at Yale, IE Business School and London Business School. Other fintech start-ups, such as CommonBond — founded by Wharton MBAs — and SoFi — set-up by Stanford GSB grads — have also made inroads.

PeerStreet Announces New Features to Further Improve Investing Experience, (Press Release), Rated: AAA

PeerStreet, a marketplace for investing in real estate backed loans, today announced the launch of multiple product enhancements. Today’s announcements include updates to the company’s Automated Investing tool, new instant account funding capabilities, a new notifications center and payment schedule, and a more streamlined retirement investing program.

PeerStreet’s Automated Investing product helps match investors with loans that meet their specific investment criteria.

The second major update helps investors put funds to work immediately after initiating a bank transfer. Instead of waiting three business days for a bank transfer to clear, PeerStreet investors will now be able to instantly use funds after initiating a transfer.

PeerStreet also launched a more robust notifications center on its investment dashboard to give investors more transparency into the status of specific loans and payments.

The company has seen significant new interest from investors seeking to migrate retirement funds to PeerStreet due to the associated tax benefits. So PeerStreet has made the process of investing through a self-directed IRA (SD IRA) much faster and easier.

United Kingdom

The great P2P lending slowdown, (FT Alphaville), Rated: AAA

UK_online_lending_volumes-line_chart-ft-web-themelarge-2048x1152-copy-590x346

That sound, and the chart above*, is the growth of UK online lending pretty much grinding to a halt. The big five platforms have, in aggregate, not grown much since about September 2015; the smaller players are about where they were 18 months ago.

Already we have seen one startup shut down, another put itself up for sale, and the biggest US online lenders lay off employees in an effort to cut costs.

Competition for borrowers has been one reason, according to Zopa CEO Jaidev Janardana, who said the company hasn’t been able to extend as many loans as its institutional and retail investors would like. A new institutional buyer came online in May, and another will start buying loans in July, he said, but declined to name either.

The explanation from Funding Circle is that it’s just a seasonal effect, while Ratesetter CEO Rhydian Lewis said in an emailed statement that growth has been “de-emphasized” in favour of focussing on getting fully regulated by the Financial Conduct Authority. “Also, we have taken the strategic decision in 2016 to focus more on investing in people and infrastructure as opposed to growth,” he added, but said the company’s loans under management is up 20 per cent this year.

The survivors may emerge stronger, gaining credibility from investors. But they may also be forced to abandon peer-to-peer/marketplace idealism along the way and find that while they’ve been taking a breather, the banks have been chipping away at their technological competitive advantage.

Issuer universe expands as new lenders flock to ABS markets, (Alt Fi), Rated: AAA

A number marketplace lending platforms have made the trip to Barcelona for Global ABS 2016.

Parkhouse spoke with a number of investors who elected not to buy into Funding Circle’s debut securitisation. The deal’s split rating stood out as a key concern, with investors worrying that ratings agencies are yet to come up with an established methodology for dealing with marketplace loans. Simon Wooltorton of Deloitte said: “It’s not helpful that the rating agencies themselves can’t agree on how to rate that transaction”. Risk retention was another talking point. Funding Circle’s fairly limited track record was also cited, as was the fact that there was one very large buyer in the senior note, meaning limited liquidity.

Marketplace lending platforms are famously transparent at the loan book level, but is this kind of disclosure useful in structuring securitisations? Speaker sentiment on this issue was somewhat split. One speaker said: “Transparency is always good, but who is it aimed at? Does your average Joe Public really understand how to analyse a cohort? The key questions are who is it aimed at and is it detailed enough?”Another speaker, from a major ratings agency, argued that transparency – not just in terms of loan book disclosure but also at the corporate level – is an important part of building trust in the capital markets.

Brexit: The polls versus the bookies, (Bretbart), Rated: A

There was a global selloff of stocks on Tuesday. This is consistent with the falling yields (interest rates) on bonds. When people sell stocks and put the money into bonds, then by the law of supply and demand, the price of the bonds goes up, which means that the yields go down.

Tuesday’s actions a “rush for safety.”

However, many people believe that the polls are wrong. Many people are reluctant to admit to pollsters that they’re going to vote for a “politically incorrect” choice, so they tell pollsters one thing and then vote the other way in the privacy of the voting booth.

However, only a month ago, bookies were placing an 80% probability on “remain.” So although the bookies still favor “remain,” the probability has been falling, and may go below 50% by referendum day. Bloomberg and Reuters and Bloomberg and ZeroHedge

Invoice Cycle Raises $4 Million Led by German Yellow Pages Group to Help SMBs Get Paid Faster, (Press Release), Rated: AAA

Invoice Cycle, a UK instant financing platform, announced today that it has closed a $4M seed round, led by Mueller Medien group of companies, Germany’s leading directory publisher (Yellow Pages and White Pages). The round also includes participation of existing investors and prominent international angel group SeedIL.

Invoice Cycle helps small and medium-sized businesses (SMBs) ease cash flow concerns by providing them advance payments for outstanding invoices, so they don’t have to wait 30-90 days for payment from their customers.

Co-Founded by Gideon Shaw and Jeremy Esekow, Invoice Cycle is a UK-based instant financing platform, providing small and medium sized businesses with advanced payments for outstanding invoices.

Europe

German 10-Year Bund Yield Goes Negative, as Deflationary Spiral Continues, (Breitbart), Rated: AAA

The interest rate paid by Germany’s Bundesbank (central bank) if you deposit money with them for ten years has gone negative. That means that if you deposit money with them, then you will get less money back, instead of more money, as would happen in “normal” times.

That is the meaning of the announcement that the yield (interest rate) on Germany’s 10-year bund (bond) fell briefly on Tuesday to -0.033%, before closing at the end of the day at -0.028%. It also means that if the Bundesbank lends money to someone, then they’ will pay you to take their money, rather than charge you.

Of course, ordinary citizens cannot borrow money from the central bank, but regional banks can.

Germany is just the most recent country whose central bank has adopted negative interest rates on 10 year bonds. The Bank of Japan (BOJ) and the Swiss National Bank (SNB) have done the same.

Austria, Sweden, Netherlands, France, Denmark and Belgium have negative interest rates on 4 or 5 year bonds, while Finland has negative interest rates on 3 year bonds.

 

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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