- I continue to believe that the P2P market is back in an uptrend : OnDeck, Yirendai and Lending Club stocks are up and there is a lot of demand for securitizations ( Avant, Lending Club, Ernest, etc.). The next battle is going to be regulatory : Madden vs Midland effects, regulators in Washington receiving pressure from different directions to make new rules for the sector on top of what already exists. For our readers here is a reminder of our previously published article “The Complete Guide to Regulation of Marketplace Lending“.
- It is also very interesting to compare BizFi, an 11-year-old private company that originates $570 mil in SME loans and is profitable vs OnDeck, a public company that is 8-year-old and originates $2bil per year in SME loans.
- And also very interesting today: RealtyMogul launching a very low fee REIT with $2500 min investment.
- And on the international side Chinese companies are targeting student loans to the 300,000 Chinese students in the US.
- Yirendai stock continues its up rampage. Our readers may have already read what I think of Yirendai’s valuation here.
- Lending Club and OnDeck shares are also moving up after their Q2 announcements. Everybody agrees that OnDeck had great results. And I also think that Lending Club’s results were great given the cards they were given in the shuffle.
- Avant securitizes $255mil and renews $392 mil warehouse with JP Morgan. Also great uplifting news. Given Avant’s borrowers are not as prime as Lending Club’s or Prosper’s this validates the Lending Club and Prosper market segments even more. In a recession, investors are mostly wary of the higher risk borrowers. Avant doing well means Lending Club, SoFi, Prosper etc. should have no issues finding lending capital.
- Quite a lot of politicians are being very active lately with letters and statements. Senators Sherrod Brown, Senator Jeff Merkley, Congressman Lacy Clay. The majority of the interest seems rather against p2p lending, with some supporting it. The regulators are getting their years full and we will certainly be watching their responses.
- Kabbage’s CEO is bullish on Balance Sheet lending, no surprise given Kabbage is a balance sheet lender. Proper’s president is bullish across the entire p2p lending segment, and pushes for the hybrid model, lightly.
- RealtyMogul launches 1st super-low-fee REIT offering investment as low as $2500 to retail investors. Way to go ! Congratulations !
- Lenny , a mobile app, is trying to use gamification to attract Millenials customers. I am not certain how well this strategy works. We look forward to evaluating this initiative when the time is right.
- BizFi originated $144m in SME loans in Q2 for a 2016 run-rate of $576mil. Compare this to OnDeck’s approx $2bil yearly origination run rate. Why the difference ? BizFi is profitable.
- An article supporting my point of view on Lending Club : the numbers are looking good, and the CFO’s departure is unfortunate but not a huge deal.
- And an article , as we don’t see many, showing how the VC business is being disrupted itself. The article may or may not be entirely right, but I like the irony how people investing in disruption get disrupted by their investments like AngelList.
- P2P research firm 4th Way attempts to rate UK p2p platforms. I am afraid it’s a little confusing. I would like to see a clear table of what the rating scale is, what they mean, and then access , for free, the ratings per company. I suggest as a business model that they can charge to get the full report showing the basis of the ratings and their analysis.
- With 150 fintech in Brazil and a relatively older and less modernized banking sector Brazilian banks may be affected more than in other geographies by the fintech boom.
- OnDeck Australia started offering free credit scores for small businesses in partnership with Veda credit score office. A great lead acquisition source indeed.
- Society One origination grows from $5mil in H1 2015 to $50mil in H1 2016. Nice growth !
- P2P platforms entering the US market to offer student loans to the 300,000 Chinese students in the US. Very smart.
- United States
- Shares in Yirendai Jump as Chinese P2P Lender Executes on Objectives, ( Crowdfund Insider), Rated: AAA
- Online lenders are ripping higher today — here’s why, (CNBC), Rated: A
- Avant Secures $ 255 Million Asset-Backed Securitization Led by J.P. Morgan, Credit Suisse and Morgan Stanley and Renews $392 Million Warehouse Facility, ( PR Newswire), Rated: AAA
- Regulators Renew Interest in Understanding FinTech, (Business2Community), Rated: A
- Two CEOs tell us where alternative lending is headed, (Business Insider), Rated: A
- RealtyMogul.com Launches Its First Crowdfunded Real Estate Investment Trust, (Realty Mogul), Rated: AAA
- Lenny gamifies credit education for millennials, (Lenny), Rated: A
- Bizfi originates $ 144M + in Financing to Small Businesses in Q2 2016, (BizFi), Rated: A
- Why Loan Funding And Credit Matter More Than CFO Exit For LendingClub, (Benzinga), Rated: A
- The VC business is finally being disrupted, (Daily Fintech), Rated: AAA
- United Kingdom
- P2P Lending Research Firm 4th Way Rates UK Platforms, (Crowdfund Insider), Rated: AAA
- Fitch: Brazil Banks to Rethink Digital Strategy as Fintechs Grow, (Yahoo Finance), Rated: A
- OnDeck Australia launches free credit score service for small business, (PR Wire), Rated: A
- SocietyOne chief Jason Yetton says lending jumps tenfold, (The Sydney Morning Herald), Rated: A
- P2P lending platforms tapping overseas markets, ( China Economic Net), Rated: A
Shares in Yirendai Jump as Chinese P2P Lender Executes on Objectives, ( Crowdfund Insider), Rated: AAA
Yirendai (NYSE:YRD), the publicly traded offshoot of huge P2P lender CreditEase, announced Q2 results last week and the markets liked what they heard. While Yirendai held their earnings call on Wednesday, August 10th, it has taken a few days for the news to sink in.
The shares in YRD were also boosted by a report from Needham & Company that bumped up the price target from $14 to $35.
Yirendai topped expectations by a good amount and delivered solid growth for the quarter as the online lender facilitated RMB 4.5 billion ($683 million) worth of loans, an increase of 118% year-over-year from Q2 2015. According to Dennis Cong, CFO of Yirendai, the quarter also accomplished another milestone by crossing the $3 billion mark in loan originations. Net revenue came in at $110 million – a 140% increase year over year. Guidance for the full year 2016 was also boosted. According to notes from the conference call;
On the conference call, Yihan Fang, Yirendai CEO, reviewed the “positive development of regulation”. Yirendai stated it has been “actively participating in regulation development” something they believe will enhance their leadership position.
Online lenders are ripping higher today — here’s why, (CNBC), Rated: A
Shares of both Lending Club and OnDeck Capital shot up in trading Monday, respectively adding more than 7 percent and more than 3 percent. The moves come on a day when the broader banking sector is edging only slightly higher.
Online lenders, their customers and investors in the companies know: It isn’t demand that counts here, its supply. And the lower-for-longer monetary policies adopted in the U.S. by central bankers play into online lenders’ hands.
There is still plenty more appetite for online lenders’ products, since they often provide capital to borrowers at a rate lower than what they would get from standard credit cards.
“They should be fine growing far into the future at a 25 percent rate,” the source said. “But there are a lot more borrowers than lending capital.”
Avant Secures $ 255 Million Asset-Backed Securitization Led by J.P. Morgan, Credit Suisse and Morgan Stanley and Renews 2 Million Warehouse Facility, ( PR Newswire), Rated: AAA
Online lending platform Avant announced today two closed transactions, including a$255 million 144A asset-backed securitization deal and the renewal of its $392 million warehouse facility held by J.P. Morgan and Credit Suisse.
The three tranche AVNT 2016-C securitization transaction includes Class A, B and C fixed-rate notes that were rated A-, BBB- and BB by Kroll Bond Rating Agency (KBRA). Credit Suisse served as the lead bookrunner with J.P. Morgan and Morgan Stanley serving as joint bookrunners. The ABS deal was strongly received by investors and was significantly oversubscribed. The transaction will provide debt financing for Avant’s core U.S. installment loan business.
To date, more than 500,000 customers have been served worldwide through the Avant platform.
Regulators Renew Interest in Understanding FinTech, (Business2Community), Rated: A
It’s been more than eight years since marketplace lender Lending Club shut down for six months in order to explain their process and platform to the Securities and Exchange Commission.
Part of the reason for the recent interest in FinTech is the mistaken belief that there are currently no laws in place to protect consumers from these new technologies. On the contrary, such firms are not only subject to government oversight but have also worked hard to self-regulate including the formation of the Marketplace Lending Association.
Notably Senators Sherrod Brown and Jeff Merkley recently sent a letter to Fed Chairperson Janet Yellen, Comptroller Thomas Curry, and others requesting more information on what regulators were doing in regards to FinTech. In it the senators said, “These [FinTech] companies are changing financial services, and it is vital that the regulators and Congress understand all the impacts and take actions as appropriate.” This was actually Brown’s third such letter regarding FinTech. Currently the Office of the Comptroller of the Currency (OCC) is in the process of reviewing FinTech regulations and how these companies fit into the current framework.
Congressman Lacy Clay recently alluded to these advantages but also added that the sector must work to do more, saying, “Marketplace lending and FinTech cannot ignore the capital needs of communities of color and women- and minority-owned businesses.”
Two CEOs tell us where alternative lending is headed, (Business Insider), Rated: A
Rob Frohwein, CEO at Kabbage. Kabbage is a US-based small business and consumer lender. The company doesn’t offer a P2P lending marketplace like Lending Club; it originates and holds loans on its books rather than serving as an intermediary between borrowers and investors. “Balance sheet lenders have a more stable source of capital because investors know the return they’re going to get.” Frohwein says that alt lenders can be successful in both good and challenging economies, but that it’s critical firms do not assume past market behavior is indicative of the future. Alt lenders need to have multiple liquidity options in place, even if that means making a trade-off on their balance sheets to achieve such flexibility.
Ron Suber, president at Prosper Marketplace. US-based Prosper offers a P2P marketplace for consumers and closely competes with Lending Club. Suber says that Prosper has no plans to pursue an on balance sheet model. Suber says that “there is no magic answer,” there are three models in the industry — on balance sheet only, marketplace only, and hybrid — and it’s not clear that one is better than the others. But Suber is confident in Prosper’s marketplace model. “We’ve found investors that have committed to us in the marketplace model and banks who love the ability to work with us in a non-balance sheet format to get the yield and the risk that they require.”
Suber is more optimistic than Frohwein and suspects that the recent slew of bad news is behind the industry. “The insatiable quest for yield around the world is getting even stronger. So more and more pensions, endowments, foundations, and smart money is starting to find the platforms that are institutional, that have enterprise risk solutions, that support securitization.” But while Suber expects profitability to increase for the top platforms, he also expects that the industry will thin out.
RealtyMogul.com Launches Its First Crowdfunded Real Estate Investment Trust, (Realty Mogul), Rated: AAA
MogulREIT I is one of the first such products to launch since the passage of Reg A+, which has opened up the real estate market to more investors than ever. MogulREIT is designed to offer investors distinct advantages:
- No sales commissions and fees capped at 3% (compared to traditional non-traded REITs, with average total expenses of up to 15%)
- Access to a diversified pool of curated, pre-vetted commercial investments in cash-flowing properties
- A minimum investment of $2,500, broadening access to real estate to more retail investors
The launch of the “REIT” marks a new wave of opportunity to invest in real estate. Until recently, private investment markets have been off-limits to the majority of retail investors. However, recent legislation like Regulation A+ and Title III of the JOBS Act has leveled the playing field by allowing non-accredited investors making less than $200,000 per year to access these investment opportunities through online crowdfunding. Through Reg A+, MogulREIT I gives nearly all investors a new entrance to curated and pre-vetted private real estate investing.
Lenny gamifies credit education for millennials, (Lenny), Rated: A
Lenny, the first [Comment: I did not verify this statement of being first, such a statement is always hard to verify.] iOS app to offer credit lines to Millennials, today launched Lenny Points (LPs), an in-app credit education game that offers incentives for users to learn responsible financial behaviors. Users can now accrue LPs to increase their credit line balances and unlock custom offers from bank and credit card partners. The new feature is the first rollout of Lenny’s patent-pending credit education system.
LP rewards users when they achieve specific credit goals on the app such as:
● Making monthly payments in full
● Making monthly payments on-time
● Maintaining a credit utilization ratio under 30% (Learn more)
● An increase in a user’s credit score
Bizfi originates $ 144M + in Financing to Small Businesses in Q2 2016, (BizFi), Rated: A
Today, Bizfi, the premier fintech company with a platform that combines aggregation, funding and a marketplace for small businesses, announced they have originated more than $144M for 3,580+ small businesses in the second quarter of 2016. This is an increase of 25% in year-over-year small business lending originations.
Bizfi’s platform uses APIs to leverage a wide variety of sources to quickly offer loans and other financial products to small businesses. Its technology is strengthened by strategic relationships with more than 45 funding partners, 15 of which are integrated within the platform, including OnDeck (NASDAQ:ONDK), Funding Circle, BHG, Bluevine, Dealstruck and Kabbage. Bizfi is also a direct lender on the platform providing financing to small businesses.
Small businesses are going to Bizfi.com to access financing directly from Bizfi or the dozens of partners that participate in its marketplace. Several companies that serve small businesses have white-labeled the Bizfi platform in order to provide these businesses with access to SMB financing. In March of this year, Bizfi announced a partnership with Western Independent Bankers (WIB), a trade association with community and regional banks across the Western United States. In July, Bizfi forged a partnership with the National Directory of Registered Tax Return Preparers & Professionals (PTIN). These partnerships provide hundreds of thousands of small business owners across the country with access to financing through the Bizfi platform.
Founded in 2005, Bizfi and its family of companies have provided in excess of $1.7 billion in financing to more than 31,000 small businesses in a wide variety of industries across the United States.
Why Loan Funding And Credit Matter More Than CFO Exit For LendingClub, (Benzinga), Rated: A
LendingClub’s loan origination in the quarter fell to $1.9 billion from $2.8 billion a year ago, but the fact that 15 of its top 20 investors (including Jefferies) returned to the platform may signify some stabilization in the business.
Harralson added that LendingClub’s other positive developments include:
- The company beginning to cut expenses.
- Additional spend in “saving” the funding base by performing due diligence requests.
- The creation of incentive plans for investors to accelerate their activity.
- An increase to the rate the platform charges borrows — a move that “shone through in the quarter.”
The VC business is finally being disrupted, (Daily Fintech), Rated: AAA
Two data points from that Ivey report will make investors pick up that Vanguard brochure selling low cost Index Funds:
•For two-thirds of the VC firms, the first fund is their last fund.
•Only 10% of the VC Firms Launch More Than Four Funds.
VC Has become part of the asset management business. The preferences that some VC load onto deals make it almost a debt instrument and create fundamental misalignment with entrepreneurs. Late stage deals are like investing in public companies. The 2 and 20 model is at risk across the whole private equity business. VC may simply be the canary in the coal mine.
From 2 and 20 to 0 and 40.
Investors are quite happy paying 20% as a profit share compensation (called “carry” in VC land). Heck, they will pay 30% or even 40% (particularly if it is 40% over some nominal risk free hurdle such as US Treasuries) if the GP will drop that 2% AUM fee.
If we stayed in the mode of gather assets then invest, the 2% fee will stay – it is the only game in town and it is a game that rewards skills in asset gathering more than skills in investing. However, the new crowdfunding services using syndicates such as Angel List and Syndicate Room change this dynamic to invest then gather assets. This post on Angel List describes how this works.
Many investors have studied that Ivey Report and simply decided to stay away from VC as an asset class. Instead they focus on companies that have already reached maturity. The problem is that if software really is eating the world, this “safe strategy” is increasingly risky because it is more of a zero sum game than the venture business likes to talk about. If AirBnB scales, it does so at the expense of the traditional Hotel business.
Many VC will follow Hedge Funds to become Family Offices
Masters of the Universe don’t die, they just fade from the headlines. VCs that already made $ billions don’t need AUM fees. They can simply invest their own money, without the hassle of managing somebody else’s money. Many Hedge Funds have already done this. The tax law in America that taxes carry as if it is risk capital (i.e at the lower capital gains tax rate) not fee income has a high likelihood of changing no matter who becomes President. These VC turned Family Office can then invest in Syndicates who invest first and then gather assets. This is where the confluence of technology, business drivers and tax law change creates the tipping point.
P2P Lending Research Firm 4th Way Rates UK Platforms, (Crowdfund Insider), Rated: AAA
4thWay, a research and rating firm that wants to be the “Morningstar” of peer to peer lending, has published a list of P2P lenders that have achieved their highest rating of 5/5 stars or “PLUSes”. The 6 plaforms are as follows: Funding Circle, Landbay, Lending Works, Proplend, RateSetter and Zopa.
Source: Crowdfund Insider
4thWay explained their system is based off of “rigorous stress tests carried out on all the platforms using international banking standards – Basel (1)”. Their ratings seek to indicate whether investors could expect to lose money during a very severe recession. As a risk-adjusted rating, they also take into account interest earned, so they show investors how long it might take to recover from those losses.
Landbay (2) and Proplend (3) received the lowest risk scores. A score of 2 means that stress tests indicate investors will not make any losses in a severe recession even before interest earned is added on. A score of 3 means that losses before interest are modelled at under 2.5%, which is easily recovered by interest earned.
Fitch: Brazil Banks to Rethink Digital Strategy as Fintechs Grow, (Yahoo Finance), Rated: A
Brazilian banks face the challenge of competing with companies that are different from their traditional and sometimes rigid business models.
Higher mobile Internet penetration is shifting consumer behavior toward Fintechs as customers move to a digital-only channel. An increasing number of more agile start-up companies (most notably in the peer-to-peer (P2P) lending and digital payment segments) are tapping clients often underserved by traditional banks.
In Brazil, there are around 150 Fintechs.
The Brazilian Central Bank already implemented a set of rules for nonbanking payment institutions and payment arrangers in 2013, but some rules are still not clear. Regulation for P2P lending is still lacking.
Fintechs will always have an advantage by being more agile and offering more customized and convenience alternatives.
OnDeck Australia launches free credit score service for small business, (PR Wire), Rated: A
The service, which is 100 percent online and free, will give small business owners access to a clearer picture of their financial situation and eligibility for a business loan.
The data for the Know Your Score website is provided by credit bureau Veda. To apply, small businesses simply enter their details and receive the free credit score as soon as the application has been submitted.
SocietyOne chief Jason Yetton says lending jumps tenfold, (The Sydney Morning Herald), Rated: A
Peer-to-peer lender SocietyOne says its new personal lending surged tenfold in the past year, as yield-hungry investors try to grab some of the high returns banks enjoy from consumer finance.
SocietyOne chief executive Jason Yetton, a former senior Westpac banker, said on Tuesday that since the beginning of this year, the business had arranged $50 million of personal loans on its online platform.
This was nearly double the $26 million of new lending in the December half of last year, and 10 times the $5 million from the corresponding period of 2015.
As a result of this growth, Mr Yetton said SocietyOne’s total portfolio of outstanding personal loans was almost $100 million. This is about 0.5 per cent of the $20 billion personal loan market.
P2P lenders such as SocietyOne and rival firm RateSetter operate by offering borrowers lower interest rates than banks, while also delivering high returns to investors, who take on the credit risk and fund the loans directly.
SocietyOne, which has investors including Westpac and companies owned by Kerry Stokes, Lachlan Murdoch and James Packer, only accepts money from institutional and sophisticated investors, and Mr Yetton said it had created a “community of funders” which included various customer-owned lenders.
While record low interest rates may be helping to attract investors to P2P lending platforms, some senior executives in banks have argued the P2P businesses may struggle if interest rates rise, or if more borrowers fail to repay loans.
Mr Yetton, who was hired in March, is aiming to distribute SocietyOne’s loans to a much wider range of borrowers – it has so far lent to around 5000 borrowers, with an average loan size of $20,000.
P2P lending platforms tapping overseas markets, ( China Economic Net), Rated: A
Domestic P2P lending platforms have started to tap overseas markets.
Dianrong.com announced the cooperation with Hanwha Group at the end of last year; Maizijf.com has set up the branch office in Boston, USA; and in April, mmtvip.com set up the subsidiary in Los Angeles, USA.
It is known that domestic P2P lending platforms basically choose to cooperate with overseas institutions during overseas market development, to expand overseas market in the form of Joint Venture Company.
It is noteworthy that among a few numbers of platforms expanding into the overseas markets, both Maizijf.com and mmtvip.com choose to penetrate into the overseas market with student loan as the entry point.
According to data, there were more than 300000 Chinese students in the USA in 2014, many of whom cannot enjoy American student loan financial services. Therefore, some domestic P2P lending platforms think highly of loan needs of overseas students.
Meanwhile, at present Maizijf.com and mmtvip.com set the highest credit limit of USD 100,000 to overseas Chinese students.
“Due to American requirements for online loan platform business license and relevant supervisions, it is difficult for domestic P2P lending platforms to develop American local capital and lending business targeting American students shall be limited in many legal aspects,” said Zhang Yexia.