- Today’s most interesting piece of news are LendUp’s $47m raise; how the new fiduciary retirement rules will help the robo-advisor industry; how the Dodd Frank securitization risk-retention rules already affect Lending Club , Prosper and Web Bank; Financeit leveraging merchants for consumer loans; and last but not least how Australian banks are fighting an open-data APIs mandate.
- LendUp raises $47 mil equity round on a strong anti-bank and anti-establishment rhetoric. Put apart the rhetoric, this is a further sign of fintech alternative lending fund-raising thawing. Their main product is a credit card instead of a term loan. We reported on their credit card product back in February. I wonder how much of the P2P lending success in the past has been based on the anti-bank sentiment that drove borrowers and investors be willing to even pay more for their loans or investments. It seems that the relabeling from P2P lending to marketplace lending somehow coincided with a reduction in lending volumes which could have triggered the reduction in originations in Prosper and Lending Club as early as Feb or March 2016. Goodwill may be worth much more than most people believe.
- Robo-advisers may receive a bowl of fresh air with the new fiduciary rules for 401K and IRA accounts. I wonder what kind of similar rules could also benefit alternative lenders over banks.
- Dodd-Frank Act’s risk-retention rule are impacting the ABS securitization market by the end of 2016. “The obstacles appear largest for issuers of securities backed by auto loans, equipment cash-flows and personal loans.WebBank, which serves as the originator of record for Lending Club and Prosper loans, apparently has received inquiries about acting as a sponsor but has turned down any such proposals. “
- A very long scientific thesis on the sophistication level of crowds. Very interesting but quite hard to understand.
- Business Insider’s report on RegTech (regulation tech). Great timing given our Meetup in 2 days focused on RegTech.
- Financeit, who originated $1.5 bil in loans in Canada and the US since 2011, a direct to consumer tool enabling merchants to offer financing solutions to customers. Very interesting customer acquisition method.
- Misys, a bank tech company, eyes a £5.5bn IPO. I expect the IPO to do well. Most people agree on technology valuations.
- Just an interesting reminder to our origination readers in the UK : If Bank of England cuts rates in September again, that should be good news for the industry, again. Net-net perhaps Brexit helped the P2P UK market more than it hurt.
- The NASDAQ-listed China Lending Corporation reports positive results with 30% growth H1 2016 vs H1 2015.
- Banks resist the push for open data APIs, not unexpectedly. The UK is trying to mandate banks to implement open banking API by early 2018. Australia and the UK being fairly close it is not surprising the Australian banks are taking the initiative to try to prevent a similar move in Australia. What is most interesting is how UK banks seem to have less political clout than the UK fintechs. Forcing banks to open their data via API is a very interesting move that will probably be worth monitoring.
- United States
- LendUp fights big banks with $ 47 M for compassionate credit cards, (TechCrunch), Rated: AAA
- Technology’s rising role under DoL fiduciary, (Tradestreaming), Rated: A
- Issuers Flummoxed by Risk-Retention Rule, (Anonymous tip), Rated: AAA
- How Wise Are Crowd? A Comparative Study of Crowd and Institutions in Peer-to-Business Online Lending Markets, (Social Science Research Network), Rated: A
- THE REGTECH REPORT: Global regulatory requirements are creating a huge opportunity for regtech firms, (Business Insider), Rated: A
- Businesses and consumers win as Financeit launches Canada’s next-generation point-of-sale financing platform, (Email from Financeit), Rated: A
- United Kingdom
- Misys eyes £5.5bn IPO – Sunday Times, (Finextra), Rated: A
- Bank of England may cut rates again in September: BAML, (Markets), Rated: A
- China Lending Corporation Reports 2016 Six-Month Financial Results, (Business Wire), Rated: AAA
- Banks resist fintech push for open data regime, ( AFR), Rated: A
LendUp fights big banks with $ 47 M for compassionate credit cards, (TechCrunch), Rated: AAA
Banks win when the poor lose. Credit cards can trap people in debt and bleed them dry with late fees. But it’s this exploitative experience that makes banks vulnerable to fintech startups like LendUp that are willing to undercut them and make up margin with software efficiency.
It’s that strategy of building an enduring consumer banking brand on the principle of compassion that let LendUp raise a new $47.5 million round led by Y Combinator’s growth fund. This Series C values LendUp “substantially higher than the last time” it raised in January 2016, says CEO Sasha Orloff. That’s an impressive feat during a rough season for late-stage fundraising.
LendUp will apply the cash toward scaling out its L Card, a credit card with no hidden fees and a flexible payback schedule.
LendUp was founded in 2011, and first attacked the scammy payday-loan business. It stole customers from the cash-advance storefronts that blanket low-income neighborhoods, and retained them by providing financial education.
Credit cards are 100X larger market, though, so earlier this year it raised $100 million in debt to fund the lending, and $50 million in a Series B.
Even though it still had plenty of money left from that, LendUp chose to accelerate its plan with today’s $47.5 million led by Y Combinator Continuity and joined by Google Ventures, Thomvest Ventures, QED Investors, Data Collective, Susa Ventures, Radicle Impact, Bronze Investments, SV Angel and some angels.
Luckily, LendUp is doing one thing to make it more nimble than its competitors: It’s building its whole tech stack in-house. “Everyone else outsources their tech,” Orloff notes.
Technology’s rising role under DoL fiduciary, (Tradestreaming), Rated: A
In April 2017, retirement guidance over 401(k)s and IRAs will need to be given under a fiduciary responsibility. The DoL rule, meant to protect common investors, requires financial advice and retirement guidance over 401(k) and IRAs to be given under a fiduciary responsibility. This means advisors must put the interests of clients first, before the advisors’ own interests or those of the advisors’ firms.
About 50% of 401(k) rollovers to IRAs can be attributed to a decision by an advisor, a sum totaling about $320 billion each year, according to Yuval Zurel, CEO of FeeX, a company that uses big data to determine whether a 401(k) rollover is compliant with the new DoL fiduciary rule.
Large firms surveyed by Deloitte estimate their costs of becoming compliant to be over $38 million, with additional ongoing expenses to vendors and suppliers to manage the duplicate systems at $9.5 million.
One concern raised by opponents to the rule package is that smaller retirement accounts may be orphaned, as lower fees will make them unprofitable for brokers. Technology consultancy CGI recommends that firms handle smaller accounts through roboadvisors, which will lower the cost of managing those accounts.
Issuers Flummoxed by Risk-Retention Rule, (Anonymous tip), Rated: AAA
A swat of asset-backed bond issuers have fallen behind schedule in their preparations to comply with the Dodd-Frank Act’s risk-retention rule.
Securitization attorneys initially expected the process to be straightforward, with most sponsors keeping the required 5% stakes in their deals via either “horizontal” interest in a single class or “vertical” positions in each tranche. But a number of unforeseen complications have sent them back to the drawing board.
The obstacles appear largest for issuers of securities backed by auto loans, equipment cash-flows and personal loans.
WebBank, which serves as the originator of record for Lending Club and Prosper loans, apparently has received inquiries about acting as a sponsor but has turned down any such proposals. One option, at least for Lending Club, would be to create a new sponsor entity through a hedge fund that the company already uses to fund some of its loans.
How Wise Are Crowd? A Comparative Study of Crowd and Institutions in Peer-to-Business Online Lending Markets, (Social Science Research Network), Rated: A
This paper examines the performance of crowd to screen the creditworthiness of small and medium sized enterprises (SMEs) compared with institutions in the context of new online peer-to-business lending markets. Exploiting the randomized assignment of originated loans to institutions and the crowd, we find that crowd underperform institutions in screening SMEs, thereby failing to lend at interest rates that adjust for the likelihood of defaulting on a loan. Moreover, the underperformance gap of crowd compared with institutions widens with risky and small loans, suggesting that crowd lack the expertise to assess the risks or the incentive to expend resources to perform due diligence. Overall, our findings highlight when crowd face limitations in screening SMEs.
THE REGTECH REPORT: Global regulatory requirements are creating a huge opportunity for regtech firms, (Business Insider), Rated: A
Here are some of the key takeaways:
- Regtechs can help in many areas of compliance. This goes beyond automating legacy processes and can include interpreting legislation, designing new compliance processes, and managing and processing data.
- Large financial firms represent the biggest opportunity for regtechs, but they’re also well suited to help fintech startups.
- Regtechs face a number of hurdles to achieving significant scale and success. These include competition in the industry, the challenges of international growth, and building trust with customers.
- Implementation of regtech solutions will result in staff reduction. These technologies will augment compliance teams in the short term, but could lead to job losses among compliance professionals in the longer term.
In full, the report:
- Defines what regtech is and the problems regtechs are trying to solve.
- Highlights the advantages regtechs have over legacy compliance solutions.
- Provides regtech company case studies.
- Details the outlook for regtechs globally and the impact they will have on compliance teams.
Businesses and consumers win as Financeit launches Canada’s next-generation point-of-sale financing platform, (Email from Financeit), Rated: A
Financeit, Canada’s leading cloud-based point-of-sale financing platform, has launched Financeit Direct, a direct-to-consumer tool geared towards merchants looking to offer financing solutions to customers for big-ticket purchases, such as home renovations.
Financeit is a free-to-use platform that makes it easy for businesses to offer powerful financing options to their customers from any device. The company provides financing solutions through a safe and secure platform that traditionally were only available to big box retailers.
Since launching in 2011, Financeit has worked with over 6,000 retail, vehicle, home improvement and healthcare businesses to process more than $1.5 billion in loans in Canada and the United States. Financeit is a private company and has raised money from a variety of shareholders, including Goldman Sachs and FIS Global.
With Financeit Direct, service providers retain control of the sale but can invite their customers –by email or text– to participate in the application anytime, anywhere. For example, merchants may ask their customers to upload a picture of a void cheque or pay stub directly to Financeit via their mobiles phones, thereby avoiding awkward financial discussions and making the application process smoother and faster. Consumers get instant credit decisions, fair rates and full transparency during the financing process via their own devices, and are then able to work directly with Financeit throughout the loan period.
Misys eyes £5.5bn IPO – Sunday Times, (Finextra), Rated: A
Core banking supplier Misys has appointed advisors ahead of a possible £5.5 billion London initial public offering, according to the Sunday Times.
The float would prove a boon for Vista Equity Partners, which acquired Misys in 2012 for just £1.27 billion after merger talks between the core banking vendor and Swiss rival Temenos collapsed.
Vista is understood to have been looking for a buyer since late 2014, with Singapore’s state-owned investment fund Temasek Holdings and Canadian pension funds among those rumoured to have shown interest.
Bank of England may cut rates again in September: BAML, (Markets), Rated: A
The Old Lady of Threadneedle street could reduce rates even closer to zero if UK data prints don’t start improving, according to one American investment bank, and that may still not be enough to boost the ailing economy.
China Lending Corporation Reports 2016 Six-Month Financial Results, (Business Wire), Rated: AAA
China Lending Corporation (NASDAQ:CLDC; CLDCW) (“China Lending” or the “Company”), a leading non-bank direct lending corporation servicing micro, small and medium sized enterprises (MSME), currently underserved by commercial banks in China, today reported its financial results for the six-month period ending June 30, 2016.
Founded in 2009, China Lending is a non-bank direct lending corporation and provides services to micro, small and medium sized enterprises, farmers, and individuals, who are currently underserved by commercial banks in China. Headquartered in Urumqi, the capital of Xinjiang Autonomous Region, with a registered capital of $94.7 million as of June 30, 2016, China Lending is one of the largest direct lending companies in the region in terms of registered capital.
First Half 2016 vs. First Half 2015
Total interest and fee income (revenue) increased 30% to $17.8 million from $13.8 million;
Interest expense was $2.4 million compared to $1.6 million;
Net interest income increased 18% to $13.8 million, compared to $11.6 million; and
Net income increased 30% to $9.9 million, compared to $7.6 million.
As of June 30, 2016
Registered capital was $94.7 million
Total assets were $147.8 million
Total liabilities were $37.1 million
Jingping Li, Co-Founder & CEO of China Lending, stated, “The 30% increase in revenue and net income for the 2016 six-month period as compared to same period of last year is due to the sustained growth in funding demand in the region, higher interest lending rates supported by China’s government policies, and also revenue generated from our newly established consulting and credit risk analysis business segment, which we launched in August of 2015. This segment generated approximately 23% of total revenue for the first six months of 2016 as compared to zero in the same period of last year. Our average interest rate was 22.77% in the first six-months of 2016 vs. 21.24% in the same period of last year.
Currently, China Lending is one of the largest direct lending companies in Xinjiang, in terms of registered capital which reached $94.7 million at June 30, 2016.
Banks resist fintech push for open data regime, ( AFR), Rated: A
The issue of start-up access to data is a global one. The Competition and Markets Authority in the UK said last week that banks should be required to implement open banking by early 2018 and to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’, to take more control of their funds (for example to avoid overdraft charges and manage cashflow) and to compare products on the basis of their own requirements.
The Productivity Commission’s review into ‘Data availability and use’ is looking at whether a system of “open APIs” [application programming interfaces] could be created along the lines of a new regime in Britain to allow competitors to plug directly into data sets held by banks, such as transaction account activity.
Fintech Australia has asked the commission to recommend an “open banking API” regime be mandated within two years.
In its submission to the commission, the Australian Bankers’ Association acknowledges that increasing access to data could create more targeted and tailored products but said this should be allowed to occur organically.
But Fintech Australia, on behalf of 25 start-ups, data aggregators and venture capital investors, says an “open banking API” standard would increase productivity, reduce the cost, time and effort required to switch banks, and would “empower consumers to use their data to be able to make better financial decisions”.
Separate submissions by the ABA, Commonwealth Bank of Australia, ANZ Banking Group, Insurance Australia Group and the Australian Securities Exchange all urge the government to not regulate to mandate open-data sharing.
The ABA said building an open banking standard was “likely to be a very costly exercise for banks” and would provide competitors with access to a valuable commercial asset. “The banking industry notes that business and customer relationship data are a valuable commercial asset and are subject to extensive investment, privacy and other obligations,” the ABA said. “Changes should not be made that may affect the ability of businesses to manage their data in the interests of customers and owners.”