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July 22nd 2016, Daily News Digest

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United States

European Union

  • A must read ! N26, a fintech company in Germany, got a banking license. N26 said the license will let it offer savings, investment, credit and insurance products from partners. N26 said it plans to offer new services, including the ability for consumers to split expenses like restaurant bills directly from their phones, and that it plans to generate more revenue from credit card transactions and commissions from partners.

United Kingdom

Hong Kong



United States

Banks push the envelope of innovation, but not alone, (Tradestreaming), Rated: AAA

Looking at bank CVCs only provides part of the picture on future trends, as banks can swallow and incorporate innovative private companies through private equity arms or through mergers and acquisitions.

bank VC investment by category

h.Ds will be written about millennials and generations to come: Their mobility — geographic, in the job market, in the way they communicate, purchase and do business — is already established as one of their pivotal traits.

Banks are capitalizing on this mobility and reacting to it.

Banks can’t innovate alone. Saddled with legacy systems, heavy regulations and cumbersome workflows, banks just can’t move as fast as startups. But startups, in turn, need the banks…The future is about partnerships.

BBVA, for example, launched Innova Challenge, an initiative that promotes open and collaborative culture between the bank and developers, with the aim of including a larger community in creative and technological development. BBVA opened its platform to the developer community through an API. Citi also opened up its APIs to developers through its Citi Mobile Challenge.

“Many fintechs have succeeded but today they are still operating only at the edges of banking,” explains the Santander Group in a recently published white paper about the future of fintech, titled Fintech 2.0. “To help engineer more fundamental improvements to the banking industry, they must now be invited inside, to contribute to reinventing our industry’s core infrastructure and processes. That can succeed only as a collaborative endeavor, with banks and fintechs working together as partners.”

Funny enough, Deutsche Bank also recently published a white paper under the same title and a similar theme though focused on payments.

If you can’t beat ’em join ’em: Fintech and banks collaborate in online lending, (TradeStreaming), Rated: AAA

One company trying to fit into the circle around banks is Spotcap. Founded in 2014 by Toby Trebel and Jens Woloszczak, Spotcap provides lines of credit to SMBs in Spain, Australia, and the Netherlands. Incubated and backed by Rocket Internet, the Berlin-based online lender uses both technology and experience to determine an SMB’s creditworthiness; Internally-developed algorithms and smart contracts combined with a human review board determine if an SMB qualifies for a credit line.

Spotcap has only been in the Netherlands for 15 months and is still small, only underwriting $50m in the first half of 2016. Although it’s a drop in the bucket of the regional lending market, Spotcap has grown 500% year over year and has less that a 1% default rate since it started lending in the Netherlands.

What makes Spotcap different from other online lenders is its approach to incumbent financial institutions. Currently, 25% of Spotcap’s loan book is in piggyback loans with banks — where two or more lenders underwrite a loan together. For example, an SMB needs a $1 million loan, but a bank feels the maximum secured loan they can offer is $750k. The bank then contacts an unsecured lender like Spotcap, which evaluates if the SMB qualifies for the remaining $250k. If so, the bank packages the two separate loans, and the SMB pays both the bank and the unsecured lender. Banks win with piggybacked loans since they gain a new customer while staying in their lending comfort zone, and also make more money.

Unless the Armageddon or zombie apocalypse happens anytime soon, banks will likely remain the backbone of finance. Spotcap, and other innovators like it, have an opportunity to work closely with bank partners.

 Amazon Tiptoes Into Banking Business Through Student Loans, (Wall Street Journal), Rated: AAA

The online retailer has entered into a partnership with San Francisco lender Wells Fargo& Co. in which the bank’s student-lending arm will offer interest-rate discounts to select Amazon shoppers.  The discount will be offered both to students who want loans to attend college and those who want to refinance existing loans.  The offer also represents the latest effort among private student lenders to stand out by discounting in an increasingly competitive market. Many offer discounts to customers who set up recurring payments to pay back their loans automatically or for loan refinancings by graduates who are members of professional associations.

Wells Fargo, the largest U.S. bank by market value and the second-largest private student lender by origination volume, will shave a half a percentage point off the interest rate on student loans it extends to applicants who are members of Amazon’s Prime Student. The subscription-based service charges $49 a year, half the cost of Amazon Prime, and offers free two-day shipping and unlimited instant streaming of movies, among other perks.

Wells Fargo and Amazon have been in discussions for more than a year about the partnership, which is set to be announced and made available Thursday.

The companies aren’t compensating each other for what Wells Fargo describes as a multiyear agreement that will reach millions of potential borrowers.

Private student lending, which plummeted during the recession, is rising again. Five of the largest private student lenders, including SLM Corp., better known as Sallie Mae, Wells Fargo and Discover Financial Services Inc., distributed $6.46 billion in loans between July 2015 and March 2016, up 7% from the same period a year earlier–and the fifth consecutive year of increases, according to data released this month by MeasureOne, a San Francisco firm that tracks the market.

The discount could give Wells Fargo a competitive advantage to other lenders. Its interest rates are close to the interest-rate ranges Discover and Citizens Financial Group, which has been rapidly expanding into student loans over the last couple of years, charge. A half-percentage-point discount could make its loans more affordable than competitors for some borrowers.

Blackstone’s assets under management hit record high of 6bn, (Financial Times), Rated: A

Blackstone, the world’s biggest alternative investment manager, expanded its empire to record size in the second quarter as assets under its management surpassed $350bn for the first time.

Blackstone’s economic net income — a measure of earnings which includes unrealized gains on investments such as buyouts and real estate — was $520m in the three months ended in June, increasing only 2 per cent on the same period last year, the group said in results on Thursday.

But its total assets under management rose to $356bn, a 7 percent increase on the year and a new record for the group, which broke the $300bn barrier in April last year. Assets on which Blackstone earns fees for managing them rose to $266bn.

Blackstone funds have received over $130bn of net inflows since the beginning of 2015.

Blackstone’s buyout unit reported a 2.5 percent increase in the value of its stakes in private and public companies during the quarter, suggesting that the big private equity groups have begun to recover from the volatility of the year’s first half.

Blackstone’s credit investing arm posted gross returns of 9.7 per cent as its funds benefited from a rebound in debt markets in recent months, especially in loans tied to energy companies, as oil prices have increased.

Mr Schwarzman and chief operating officer Tony James both emphasized repeatedly that they “only need” to buy a few assets every year, insulating their performance, they say, from economic trends and market volatility.

European Union

Fintech Startup N26 Is Awarded Full German Banking License, (Bloomberg), Rated: AAA

N26, a Berlin startup that offers financial services directly to consumers, said Thursday it’s received a German banking license that will let it offer a fuller range of products across Europe.
The company, whose mobile app lets European consumers maintain an account, transfer money and pay by MasterCard from their smartphones, said in a statement it’s now licensed as a bank by the European Central Bank and Germany’s BaFin financial supervisory authority. The startup, which changed its name from Number26, said the license will let it offer savings, investment, credit and insurance products from partners.

N26 said it plans to offer new services, including the ability for consumers to split expenses like restaurant bills directly from their phones, and that it plans to generate more revenue from credit card transactions and commissions from partners.

The Berlin startup counts the Silicon Valley billionaire Peter Thiel among its investors, and in June landed a $40 million investment round led by Hong Kong billionaire Li Ka-Shing’s Horizon Ventures. The U.K.’s TransferWise Ltd., which offers a digital service for money wiring, also counts Thiel and billionaire Richard Branson as investors. And so-called robo-advisor Betterment LLC secured $100 million in funding this year, led by Sweden’s Investment AB Kinnevik.

United Kingdom

New FCA boss “pretty worried” about P2P, ( Alt Fi News), Rated: AAA

Under questioning from Chris Philp (MP for Croydon South), Bailey confessed that he is “pretty worried” about certain aspects of the UK’s P2P market. Bailey says that peer-to-peer lending investments are at the asset management end of the investment spectrum, the opposite end to bank deposits. But Bailey believes that the platforms’ marketing efforts do not always reflect that positioning. “I am pretty worried about some of the things that are said about these funds when they’re sold to people,” he said. “Some of the things that you read is that they get very near, but not quite there, to promising capital certainty”.

At yesterday’s meeting, Philp said that peer-to-peer lenders have an incentivisation mismatch, in that their fees are tied to transactional volume, but without taking any balance sheet risk. Philp said that this is exactly what happened with the “origination and syndication of sub-prime loans in the US in the run up to 2008”. Philp later put a question to Bailey: “Why not require the platforms to co-invest let’s say 10% of the loan value on their own balance sheet, either pari-passu or even the first loss piece? If their own money was on the line, alongside that of consumers’, that would concentrate their minds when it came to making good credit decisions”.

Footage from the treasury select committee meeting is available here. Philp’s questioning about crowdfunding begins at around 15:27:00.

Re-setting Ratesetter’s provision fund, (FT Alphaville), Rated: AAA

Is 22 per cent a big number?

That’s how much Ratesetter increased its expected future losses on Thursday, “partly to reflect greater economic uncertainty due to external events”. The online lender, which is one of the UK’s top three, added £3m to the £13.9m of expected claims on its provision fund, which serves as protection against defaults for its retail investors.

Those “external events” are presumably a reference to Brexit, but skeptical readers might also remember the higher than expected defaults on its 2014 cohort of loans. At the start of that year, Ratesetter had expected a 2.07 per cent default rate. So far, defaults on the 2014 cohort of loans have reached 2.915 per cent. It’s also worth noting that last month Ratesetter brought on board a new chief risk officer, Cyrille Sallé de Chou, who joined from Lloyd’s.

The provision fund is paid for in part by an upfront borrower payment and in part by payments spread over the lifetime of the loan. Until now those future payments were not included in the calculation of the current value of the fund, now it is.

“The value of this contractual future income is over £6 million. We have reduced this to £4 million to take into account the fact that some of this income will not be received due to borrowers paying back loans early or defaulting,” said Ratesetter in a blogpost. (Data from Ratesetter’s website suggests a higher number of £4.9m in future fees.)

Without that extra money, it appears that Ratesetter’s expected losses would have been bigger than the provisions in the fund. With the extra money, Ratesetter has around £22m to protect against £17.3m in forecast losses from £612m lent out. The company expects a 2.8 per cent default rate, up from 2.3 per cent.

If at any time, in the opinion of RateSetter, the Provision Fund does not have sufficient funds to cover current or expected borrower default (a “Negative Position”), and RateSetter reasonably believes the Negative Position is not capable of being rectified through the ordinary course of business, RateSetter may declare a “Resolution Event”. If a Resolution Event is declared, we will notify you, along with any other RateSetter Customers entitled to protection from the Provision Fund (the “Eligible Lenders”).

Star fund of funds manager Craig: Why I am buying alternative credit funds but avoiding P2P, ( Alt Fi ), Rated: AAA

The likes of the £100m Hadrian’s Wall and £150m Honey Comb investment trust are preferable as fixed income alternatives over P2P focused trusts, according to Old Mutual Global Investors’ Paul Craig.

Craig, who runs Old Mutual’s Cirilium range of multi-asset fund of funds which total about £3bn of assets under management, is a fan of the sector. The Cirilium range includes the Old Mutual Cirilium Balanced, Old Mutual Cirilium Dynamic, Old Mutual Cirilium Moderate Old Mutual Cirilium Strategic Income and Old Mutual Cirilium Conservative funds.

The manager has one of the best records of any fund of funds managers since the aftermath of the financial crisis within the Investment Association’s various multi-asset sectors. Craig launched the range back in 2008 and they were originally called the Henderson Cirilium funds having been subsequently sold to Old Mutual Global Investors in 2014 by Henderson.

He owns stakes in three alternative credit funds across the Cirilium range. They are all closed-ended trusts listed on the London Stock Exchange. These are SQN Asset Finance, Honey Comb, and most recently, Hadrian’s Wall – which is the only new investment trust to have floated this year.

Hadrian’s Wall is targeting a yield of 6 per cent and a total return of 7-8 per cent by offering exposure to loans to UK SMEs secured by underlying assets and collateral. Loans target mid-market sized firms with annual revenue between £1m-25m.

“Hadrian’s wall is a prime example. For us as multi-managers we can look at all the new issues that come to market and we don’t need to pigeonhole as to whether it is P2P or direct lending or whatever.We buy on the merits.”

“We have been somewhat absent from the P2P space not because we think it is a bad investment class but more that it is such a new class that it is not tried and tested and we just do not know how the rating will react in less certain times. The beauty of the likes of  Hadrian’s Wall versus P2P is that there is a bit more granularity and because we are running diversified portfolios we are quite happy to take that concentration of credit risk within the portfolio because we don’t need the additional diversification within the portfolio.”

“The granularity of these portfolios makes it easier to calculate the net asset value (NAV)  of these portfolios, Craig says, which he thinks will equal less discount sensitivity than from the likes of Hadrian’s Wall compared to P2P-focused trusts. Also, while it is hard to know what will happen with interest rates, as long as Hadrian’s Wall are able to make loans to good quality businesses, and that they are able to repay, then we can expect a return of close to 10 per cent per annum. For us that is very attractive because it is providing us with a return that is not dissimilar to equity but with far less risk than equity and very little in the way of interest rate risk.”

Stuart Lunn: The developing market for SME finance, ( Scotsman), Rated: A

Since launching in 2014, Lending Crowd has facilitated loans totalling £6 million to scores of borrowers and have over 2,000 investors signed up to our platform. Deals range in size from £20,000 right up to over £1m – last year we teamed up with Diet Chef to complete one of the biggest ever peer-to-business deals seen in the UK in a £1.5m debt finance transaction.

Hong Kong

Development and Regulation of P2P Lending and Equity-based Crowdfunding in Hongkong, (P2p Banking), Rated: A

1. The recent development of online alternative finance

In order to maintain the role of international financial center, the financial authority of Hong Kong has been aware of issues relating to Fintech industry[1]. On November 13th, 2015, Stored Value Facilities Payment Systems, such as online stored payment business as PayPal, is allowed to operate by non-bank[2]. This is a milestone for Hong Kong including non-bank of operating business highly relevant to conventional bank.

2. Relevant industry background

On one hand, from viewpoints of investors, the deposit rates of savings are from 0%~0.001%[4]. Even the deposit rates of fixed deposit of 12 months are from 0.15%~0.2%[5]. Additionally, inflation rates are around 4% continuously in 2013 and 2014[6], which means the real interest rate may be negative in Hong Kong. Accordingly, there are strong incentives for investors to vitalize their capital.

On the other hand, from viewpoints of borrowers, there are two fundraising channels for loans, including banks (Licensed Banks, Restricted License Banks, Deposit-taking Companies) and Money Lenders. Since the financial authority restricted the mortgage market of banks to prevent a real-estate bubble, it is difficult for borrowers to get the loan amount they need from banks by mortgage. As a result, they turn to Money Lenders as an alternative opportunity. Although the interest rates of Money Lender are generally higher than banks, compared with banks which normally take 1-6 weeks for examining procedure, the process of Money Lender is more simplified[7].

The market scale of Money Lenders in Hong Kong is approximately 30.5 billion HKD (3.9 billion USD) and 6.6 billion HKD (852 million USD) in mortgage market in 2013[8]. And the top 10 Money Lenders share 53.9% of this market[9]. Though peer-to-peer platforms in Hong Kong are still at an initial stage, with strength of technology, they can provide relatively lower interest rates and attract more investors by Internet.

On May 7th, 2014, the financial authority[10], has issued a notice[11] regarding risks and legal compliance of crowdfunding since crowdfunding has become a widespread idea and business model in Hong Kong. The Chief Executive Officer, Securities and Futures Commission has also indicated “Parties seeking to engage in crowd-funding activities should be aware that a breach of the relevant laws could lead to serious consequences including criminal liability[12].”

Accordingly, a company operating or advertising as a lending business, such as peer-to-peer lending, may need a license in Hong Kong.


How fast should P2P lending grow?, ( The Economic Times), Rated: AAA

Is P2P lending in India is growing fast enough or can we grow faster? Or should we grow at breakneck speeds seen in sectors like transportation that propelled the likes of Ola and Uber into stratosphere?

The Indian P2P space, in fact continues to grow steadily and see good traction. While there are no official figures, if one has to extrapolate our figures, we have grown eight times in the last six months in our loan disbursals. In fact, this is true for the entire Fintech space. In 2015 the space exploded, but it has not shown signs of weakening. According to a Tracxn and Blume Ventures report about $103 million was raised across 22 rounds in 2015 in the Fintech space. About halfway through the year, 2016 has seen $68million being raised and if this trend continues, this year would be better than last year. Compared to 2013 when only $4 million was raised and 2014 when $18 million was raised, the sector has grown leaps and bounds. The report states that the big boys of the investing world, including the likes of Sequoia Capital, Accion, Apsada Investments, SAIF Partners, and Walden International are the most active investors in Alternative Lending in India.

P2P sector in India is still at a very early stage when compared to a country like the US and the UK.

An Economic Times report points out that for the first time since March 2011, the country’s consumer durables sector witnessed three months of consecutive double-digit growth during the festival season last year. Banks grew their personal loan portfolio by 17.3% year-on-year in August 2015 compared with 12.8% a year ago.

Another aspect of P2P loan is the borrowings made to start a business. The government’s key focus around Make in India and Startup India has meant people’s entrepreneurial ambitions have been spurred and most now dream of having their own business.

In India things are very different and I see very little chance of [cases like Lending Club or Lufax] happening. [Comment: I strongly disagree. India is a large country, not extremely centralized, where it is very hard to enforce regulation and with $1bil people, a large majority of whom are not sophisticated in finance.  I expect that India will be 2nd only behind China in the amount of fraud expected in the p2p lending sector. ]

The burgeoning equity crowdfunding and P2P lending space in India, (Your Story), Rated: A

The crowdfunding industry has witnessed a massive growth globally.

total funding volume in crowdfunding

According to the discussion paper published by RBI the proposed regulation includes:

Permitted activity

  • The role of the platform would be limited to bringing the borrower and lender together without the lending and borrowing getting reflected on its balance sheet.
  • The platforms will be prohibited from giving any assured return either directly or indirectly.
  • It will also be mandated that funds will have to necessarily move directly from the lender’s bank account to the borrower’s bank account to obviate the threat of money laundering.
  • The guidelines would also prohibit the platforms being used for any cross-border transaction in view of FEMA provisions relating to transactions between residents and non-residents.

Prudent requirements:

  • The companies must have a minimum capital of Rs 2 crore.
  • The platforms may have to adhere to a leverage ratio so that they do not expand indiscriminately.
  • Considering lenders may include uninformed individuals, prudential limits on maximum contribution by a lender to a borrower/segment of activity could also be specified.

Governance requirements

  • A reasonable proportion of board members having financial sector background could be suggested.
  • The guidelines may also require the P2P lender to have a brick-and-mortar place of business in India.

Customer interface

  • The current regulations applicable to other NBFCs will be made applicable to the P2P platforms in regard to loan recovery practice.
  • The platforms will have to guarantee confidentiality of customer data.


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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