- Today’s most interesting news: Lufax is eyeing a 2017 IPO. Interesting numbers: Lufax Holding’s transaction volume is about 120x larger than Lending Club’s. Even with Lending Club’s valuation at $2bil, Lufax’s valuation could be $140 bil, 7x the $18.5bil valuation received in the last round. The math is intriguing anyway you put it.
- Errata: Lufax did not lend $482B in loans in the first half of 2016. The WSJ’s number of $482B in transactions, not loans is for Lufax Holdings. Lufax Holdings has four divisions and only one of these divisions does p2p loans. Lufax’s cumulative loan origination volume since inception per the Ping An release is RMB 159.5 billion (USD 24 billion) to 2 million borrowers. This cumulative volume is pretty similar to Lending Club’s USD 21 billion. The other companies do all kinds of things from wealth management, advisory, structured products and other things.
- The Ping An release is attached and the disclosure is on page 6.
- Other news in focus : Yirendai’s stock takes a plunge; and food for thought as while 53% of UK consumers are aware of the market only 4% borrowed and 5% lent in marketplace lending.
- SoFi’s business is running strong. “In fact, they had just had one of their best days ever.” I do recommend not underestimating anybody, including Wall Street. Wall Street has been around for about 140 years or more and it has been through a few revolutions. They must have something of value after all.
- FICO fights back. We have seen many fintech lenders discarding FICO and claiming to use a better solution. Here is FICO’s take on that.
- Yirendai’s stock drops 18% on the announcement that China will impose limits on p2p platforms. I expect it will recover back soon as the limits will probably not impact it’s fundamentals much.
- And on the tail of the 18% stock drop in Yirendai, the 1st announced class action lawsuit attempt. Business as usual.
- Another interesting answer to the American Banker click bait article we also covered on August 24th. The most interesting part: “There will continue to be people who have never operated businesses who will continue to write stories for click bait that will be proven wrong over the quality and performance of MPL over time.”
- Wall Street Lobbyist Nat Hoopes to head Marketplace Lending Association. An initiative that must be taken. The results, however, are not guaranteed.
- SME Lender incorporates as B-corp which leads to “We’ve made a concerted effort to disclose our finances with our employees”. In my personal experience transparency is good. Too much transparency, however, is bad. When the company has a good month or quarter all employees will ask for a raise. When it has a bad quarter, nobody will ask for salaries to be reduced. This company will never make a profit.
- A great article in Tradestreaming with very interesting charts showing the number of banking institutions, the change in number, and speculating on the reasons ( the fixed costs of compliance) and the solutions.
- Alpha Flow, an aggregator for real-estate crowdfunding originators, raises a 3rd fund and discloses info on the 1st fund. An interesting read.
- A key issue : 53% of UK consumers are aware of marketplace lending, but only 4% have borrowed and only 5% have lent. Why is this ? This seems to me as the biggest issue that needs solving for the industry to succeed. Perhaps some bottom-up research is needed.
- Lending Works on Brexit 2 months later: “borrowing getting cheaper […] [and a] majority of investors intend on maintaining or increasing their P2P investments.”
- An interesting summary table from Moneywise on the UK p2p lending industry with key numbers per company. Very useful.
- And a 2nd list of the main UK P2P companies according to SMN Weekly. Have you heard of Buzzbnk ? ReBuilding Society ? Money&CO ?
- HashChing focused on SME loans backed by real estate for entrepreneurs and startups. I am not sure how big this market is.
- A good article on the 5 things needed to build p2p in India. A few obvious things ( anonymity of borrowers and investors, regulation, coming together as p2p industry). One wishful thinking: better tax treatment and tax incentives. I am not sure why would India favor one financial market over other ones. And a really good suggestion: mandatory report of all loans to Credit Bureaus. That will lower the barriers of entry and will create more innovation as established companies will have a smaller underwriting edge over new entrants.
- Lufax goes on the record regarding a 2017 IPO. Reminder: Lufax was valued at $18.5 billion in its latest funding round. Lufax H1 origination volume is $482 billion. Compare that to Lending Club’s rounded up $4bil in H1 2016. Lufax is about 120 times larger. LendingClub valuation is $2bil , Lufax’s should be $140 bil ?
- United States
- Online Lender SoFi: We are Not Too Worried about Wall Street Competition (Video), (Crowdfund Insider), Rated: A
- FICO: Poorly Conceived FinTech Lending Models Could Have Unintended Consequences, (PR Newswire), Rated: AAA
- Yirendai Drops 18% After China Imposes Limits on Lending by Peer-to-Peer Platform (NYSE:YRD), (Consumer Eagle), Rated: A
- Lundin Law PC Announces an Investigation of Yirendai Ltd. and Advises Investors with Losses to Contact the Firm, (Business Wire), Rated: A
- Clickbait: American Banker Article Declares Marketplace Lending Unsustainable, (Crowdfund Insider), Rated: A
- Wall Street Lobbyist to Head Online Lending Trade Group, (Bloomberg Technology), Rated: A
- One SME Lender’s Take On Regulation And Transparency, (Pymnts.com), Rated: A
- If compliance kills, will AI come to the rescue?, (Tradestreaming), Rated: AAA
- AlphaFlow Diversification Fund 3 is Now Live for Investment, (Email), Rated: AAA
- United Kingdom
- Awareness of marketplace lenders high with consumers and SMEs, but take-up remains low, (Deloitte), Rated: AAA
- Lending Works Reflects on the Brexit Economy Two Months Later, (Crowdfund Insider), Rated: AAA
- Peer-to-peer lending: the risks and rewards, (Moneywise), Rated: A
- Largest UK P2P lending websites by funds raised, (SMN Weekly), Rated: AAA
- Online loan marketplace HashChing has a new product designed just for start-ups, (Australian Anthill), Rated: A
- 5 imperatives for India P2P Lending Marketplace adoption, (Monexo), Rated: A
- Chinese Online Lender Lufax Eyes Hong Kong IPO, (Wall Street Journal), Rated: A
Online Lender SoFi: We are Not Too Worried about Wall Street Competition (Video), (Crowdfund Insider), Rated: A
Bradford said they were not really that worried. The market is huge. SoFi is more focused on marketing execution and providing high-value services to their customers. What was cut from the video clip (embedded below) was that Bradford stated they were doing just fine regarding loans. In fact, they had just had one of their best days ever.
FICO: Poorly Conceived FinTech Lending Models Could Have Unintended Consequences, (PR Newswire), Rated: AAA
Recent trouble at marketplace lenders such as Lending Club has led many in the industry to say the fintech bubble is bursting. Whether or not this proves to be true, it is important to explore the unintended dangers posed by some of the new ways fintech companies are attempting to assess risk, as Dr. Andrew Jennings, senior vice president for Scores, posted on the FICO Blog.
“For example, should regulators (or the lenders themselves) today take a closer look at risk models in China where delinquency rates are near 25 percent in the P2P lending market? By comparison, delinquencies on credit cards in China are in the 3-5 percent range. At the very least, this indicates a possible need for new risk tools to guide underwriting policies in P2P lending.”
For example, transparency is important in credit markets because it helps ensure greater fairness and accessibility. If a consumer receives a low FICO® Score, a reason code like “balances too high” is clear and actionable. “But if, for example, a score uses data on a person’s educational background, what can be done when the score is low?” Jennings wrote. “Tell that person that should have attended a better college or read a different subject or attained a higher grade?”
“Such data is often predictive but would be problematic on many of the key requirements of a best-in-class risk model. Designers of alternative credit-risk scores may not intend to illegally harm anyone, but the unintended dangers of their models may result in unreliable lending decisions and/or widespread bias against certain groups of people.”
Founded in 1956 and based in Silicon Valley, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 165 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 100 countries do everything from protecting 2.6 billion payment cards from fraud, to helping people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right time.
Yirendai Drops 18% After China Imposes Limits on Lending by Peer-to-Peer Platform (NYSE:YRD), (Consumer Eagle), Rated: A
ADRs of Yirendai (NYSE:YRD), which is engaged in online consumer finance marketplace business in China, plummeted 18% in heavy volume after a Bloomberg report said the Asian nation imposed limits on lending by peer-to-peer platforms to individuals and companies.
An individual can borrow as much as 1 million yuan ($150,000) from P2P sites, including a maximum of 200,000 yuan from any one site, the China Banking Regulatory Commission was cited as saying in Beijing on Wednesday.
Corporate borrowers are capped at five times those levels, according to the report. Meanwhile, an affiliated person Zhenao Asset Management (Shanghai) Ltd said late Tuesday it filed Form 144 with the Securities and Exchange Commission to sell 17.8 million shares of the company. The volume of intraday trading stood at about 4.5 million shares compared with the stock’s three-month daily average of almost 944,000.
Lundin Law PC Announces an Investigation of Yirendai Ltd. and Advises Investors with Losses to Contact the Firm, (Business Wire), Rated: A
Lundin Law PC (http://lundinlawpc.com/) announces that it is investigating claims against Yirendai Ltd. (“Yirendai” or the “Company”) (NYSE: YRD) concerning possible violations of federal securities laws.
On August 24, 2016, Bloomberg reported that China imposed limits on peer-to-peer lending and placed a new regulations cap on individual borrowing at 1 million yuan. When this news was announced, shares of Yirendai fell in value.
Clickbait: American Banker Article Declares Marketplace Lending Unsustainable, (Crowdfund Insider), Rated: A
Baker states, “it should be obvious now that marketplace lending is unsustainable.” A pretty strong statement for a sector of alternative finance that has, until recently, experienced dramatic growth.
If you look at Lending Club, their origination fee is between 1% to 6%. In Q2 the average per loan stood at 5.13%. If you would like to learn more, Lending Club explains it all here. But this is not sufficient to support Lending Club and its brethren, according to Baker, and thus marketplace lending is doomed. Even while online lending is booming around the globe apparently there is no hope for these Fintech firms.
A senior marketplace lending industry executive shared their perspective with Crowdfund Insider;
“There will continue to be people who have never operated businesses who will continue to write stories for click bate that will be proven wrong over the quality and performance of MPL over time. The search for yield continues around the world and the investors coming to MPL today are never stronger given our ability to meet their requirements for performance, risk and sustainability going forward.”
During the past year, Baker has been a regular contributor to American Banker. His topic of choice? Why alternative lending is not going to work out and why banks are superior.
He is a self-described as an “old, stodgy banker”. Baker is Managing Principal of Broadmoor Consulting. He is also a Senior Fellow at Harvard’s John F. Kennedy School of Government. Before Broadmoor, Baker spent many years working for traditional finance firms like Union Bank and TD Bank. At Broadmore he consults for, you guessed it, really big banks. Baker advises marketplace lenders to shift to something more sustainable – like becoming a bank or a balance sheet lender. Let’s revisit this one in a few quarters.
Wall Street Lobbyist to Head Online Lending Trade Group, (Bloomberg Technology), Rated: A
Nat Hoopes, executive director of the trade group comprising the biggest Wall Street banks’ chief executive officers, is making the jump to fintech.
Hoopes will lead the Marketplace Lending Association, whose founding members include online lenders LendingClub Corp., Prosper Marketplace Inc. and Funding Circle Ltd, starting next month.
One SME Lender’s Take On Regulation And Transparency, (Pymnts.com), Rated: A
One of these lenders, Clearinghouse Community Development Financial Institution, better known as Clearinghouse CDFI, offers an interesting view into the state of SME finance.
Clearinghouse CDFI’s status as a B Corp means the company has a higher level of transparency in its operations than some other players. “We’ve made a concerted effort to disclose our finances with our employees,” he said. “We share our revenue numbers, spending decisions and where we anticipate our finances will be in the next three years.”
But Clearinghouse CDFI is a part of a program by the U.S. Treasury Department that certifies CDFIs to serve underserved parts of the community.
That lack of transparency, he added, “needs to change.”
Focusing on the western states of California, Nevada, Arizona and New Mexico, Clearinghouse CDFI’s Bystry says small businesses in this region have a particular agenda when it comes to their working capital needs.
“We’ve seen a higher level of interest expressed for real estate and construction loans,” he said of the trends he’s witnessed among SME borrowers in the western U.S. “Because real estate in California tends to be expensive and cost-prohibitive, many small businesses do not own real estate. So, there is a real need, and we see this trend line growing.”
If compliance kills, will AI come to the rescue?, (Tradestreaming), Rated: AAA
Over 400 new rules were created as part of DFA, including the creation of a new regulator, the Consumer Financial Protection Bureau.
Dale Wilson, CEO of First State Bank in San Diego, Texas, explained this vividly in his testimony to the Financial Services Committee on Dodd-Frank. “During the last decade, the regulatory burden for community banks has multiplied tenfold,” he said. “Since the passage of Dodd-Frank there are 80 fewer Texas banks. These banks didn’t fail…. [they] could not maintain profitability with regulatory cost increasing between 50-200 percent.”
Major ongoing regulatory concerns for banks include Anti-Money Laundering investigations, or Know Your Customer rules, which require banks to gather and infer more information about customers, to determine the risk in onboarding new clients. Banks are also subject to regular compliance reporting and periodic stress tests that check their ability to sustain a crisis.
By automating the process, banks can achieve an order of magnitude change in spending, said Michael Henry, general manager for KPMG’s global automated platform business for compliance and regulatory reporting.
Though it might be too late for some smaller banks that were forced to shut down by the burden of compliance costs, big banks with shrinking margins will certainly benefit from new technology.
AlphaFlow Diversification Fund 3 is Now Live for Investment, (Email), Rated: AAA
AlphaFlow Fund 1 (See here) ultimately invested across five real estate crowdfunding platforms after reviewing potential investments across eight different platforms. AlphaFlow may choose to work with additional platforms in the future, but at this point we found these five platforms to have the combination of underwriting processes, risk-adjusted returns, and procedures / performance in handling delinquencies / defaults that best fits our desired investment profile.
Platforms in AlphaFlow Fund 1:
Fund That Flip
Patch of Land
We are pleased to let you know that AlphaFlow Fund 1, LP ( “Fund 1”) is now fully invested and earning returns. The Fund 1 portfolio now contains 77 loans with a weighted average return of
10.0% (net of AlphaFlow’s 1% AUM fee) and a weighted average LTV of 68.6%, with all loans secured by first liens on the underlying properties. The Fund 1 portfolio is invested across 5 different platforms, with investments in 20 states across the country. As such, the Fund 1 portfolio is currently more diversified than 98.5% of AlphaFlow portfolios of users invested in the real estate crowdfunding industry.
Given the proliferation of platforms in the space, it’s not surprising that better borrowers who last year may have paid 11% or 12% interest for their loans are now paying 8% or 9%.
Awareness of marketplace lenders high with consumers and SMEs, but take-up remains low, (Deloitte), Rated: AAA
Despite 53% of UK* consumers being aware of marketplace lenders (MPLs), just 4% of this group have borrowed from one and only 5% have lent, according to Deloitte’s UK research,Marketplace lending: A temporary phenomenon.
Tomlinson continued: “Despite the challenges, MPLs do have an opportunity to carve out a niche market and can do so by exploiting their market-leading user experience and boosting word-of-mouth recommendations. These benefits could decrease customer acquisition costs, making MPLs a more viable option. As more MPLs become fully authorised by the FCA, issues surrounding trust and security could lessen. In turn, we may well see banks become more open to partnering with them to enhance their overall customer proposition.”
Lending Works Reflects on the Brexit Economy Two Months Later, (Crowdfund Insider), Rated: AAA
Lending Works noted the Brexit’s positives included borrowing getting cheaper (thanks to Bank of England’s rates being cut), the stock market is continuing to hold, UK consumer spending also increased last month and the property market has yet to experience a significant change.
Last month, Lending Works an internal poll of 1600 investors and the results indicate that a majority of investors intend on maintaining or increasing their P2P investments.
The numbers were:
- 62% plan to maintain current investment levels in P2P in the short-term, while one in five plan to increase them as a direct result of Brexit
- 7% plan to reduce their P2P investments
- 12% are not yet certain
Peer-to-peer lending: the risks and rewards, (Moneywise), Rated: A
To date, there have been no high-profile P2P failures in the UK, but a few hundred investors were burned by niche lender Quakle in 2012, caused by the company lending too much to poor quality borrowers.
Further afield, Swedish P2P lender TrustBuddy collapsed in October 2015. TrustBuddy sat at the riskier end of the market, offering 12% interest via high-risk unsecured personal loans. It emerged the company had adopted Ponzi-style practices, using money from new investors to service existing bad debts, according to the firm’s statement “in violation of [lenders’] instructions or without their permission”.
Investors in TrustBuddy faced losing at least 25% of the money recovered in liquidation, to say nothing of the millions that weren’t recovered.This story reminds everyone of the golden rule of investment: if something sounds too good to be true, it probably is.
Largest UK P2P lending websites by funds raised, (SMN Weekly), Rated: AAA
- Zopa, Since 2005 when the website was launched, about 150,000 people have received £1.62 billion in personal loans. The website uses a peer-to-peer (P2P) lending model. The average loan size is £7,300,but loans could be as low as £10 or as high as £1 million.
- Funding Circle : Funding Circle is a loan-based crowdfunding website. It has helped businesses borrow from lenders about £1.5 billion in total. Loans range from £5,000 to £1.0 million. The website has 51,495 registered lenders and 15,000 businesses that borrow.
- RateSetter : ateSetter is a brand operated by Retail Money Market Ltd. Since its launch in September 2010, some £1.4 billion has been raised through the platform. Both personal and business loans can be obtained through RateSetter. Investors can earn a return of up to 4.8% and borrowers can borrow at 7.6% representative annual percentage rate. The platform offers prospective clients to invest a combined minimum £1,000 for a period of one year and get a £100 bonus in the rolling market.
- ThinCats: ThinCats is an online peer to peer lending platform for secured business loans. It is a brand of Business Loan Network Ltd. The platform claims to ensure an average of 9% interest rate. Investors make bids with a minimum amount of £1,000. More than £188.5 million have changed hands within the ThinCats community.
- BridgeCrowd: This is a platform created for the purpose of directly connecting businesses that want to borrow and lend money between each other without the assistance of banks. The only requirement is that borrowers need to mortgage a property they own (the maximum loan to value is 70% of the property’s value). Borrowers pay a monthly interest of up to 1.5% on the loan they receive, most of which goes to the lenders and a small portion of it goes to the platform developer. BridgeCrowd has facilitated the lending and borrowing of more than £68.5 million in total.
- LandBay: LandBay provides P2P lending on buy‐to‐let mortgages. It is among UK’s fastest growing P2P lending platforms. LandBay has facilitating the lending of nearly £43 million so far. Retail and institutional investors can build a portfolio and start with as little as £100 and earn up to 3.99%.
- LendingCrowd: Launched in late 2014, the platform has more than 1,700 investor signed up. By January 2016, there were more than £4.5 million loaned through the platform.
- Buzzbnk : Buzzbnk presents itself as the UK’s first crowdfunding and peer-to-peer lending platform for social enterprises and charities. Buzzbnk merged with Trillion Fund Ltd November 1, 2014. Buzzbnk.org continues after the merger on its mission to help social enterprises and charities raise the funding and support they need. More than 141 projects have received funding through Buzzbnk of a combined nearly £1.1 million.
- ReBuilding Society: Although launched in September 2012, the platform funded its first deal in January 2013. Some £10.4 million in loans have been secured through the platform out of £28 million pledged. Loans have a default rate of 9.6% and an average gross yield of 16.9%. Loan range in sizes from £25,000 to £2 million.
- Money&Co. : This is a lending website for businesses that offers crowdfunding, business loans, P2B and P2P lending. Businesses can finance growth with flexible loans of up to £3 million and lenders earn typical annual returns of between 6%-10%. The platform is operated by Denmark Square Ltd.
Online loan marketplace HashChing has a new product designed just for start-ups, (Australian Anthill), Rated: A
The terms and conditions include;
- Available to start-up business owners with no credit scoring
- Self employed (min 3 month ABN) or PAYG
- 24 per cent interest (fixed) / 6.69 per cent comparison
- 54 per cent interest (variable) / 6.77 per cent comparison
- Loan to value ratio – maximum 80 per cent
“As start-up founders ourselves, we know first hand how hard it is to secure finance,” said Mandeep Sodhi, CEO of HashChing.
Since launching, more than 1200 mortgage brokers across the country have signed up to the platform providing great deals to customers.
5 imperatives for India P2P Lending Marketplace adoption, (Monexo), Rated: A
India has a lot of informal lending within families, friends, businesses as well as semi-organized in the form of “Chit-Funds”. Peer-to-Peer lending done online to complete strangers is at the same stage as e-commerce was in year 2000.
1. From Consultation to Guidelines: Mr. Rajan, ex-Governor of RBI and his team must be applauded for their pro-active approach to craft a consultation paper with clear articulation upcoming guidelines.
2. Anonymity of Borrowers and Lenders: Lenders make their decision based on key parameters of borrowers without knowing the borrower’s name.
3. Making Peer-to-Peer Lending interest earning – Income Tax free: Recently, the government has published that MSMEs have a credit gap of Rs. 15 lakh crores . With the GOI initiative for “Make in India” – these gaps will increase as traditional lenders (banks, NBFCs) have stayed away from lending to MSMEs without collateral. This will require an incentive – similar to what we have seen in the past for insurance, mutual fund investments as well as donations. Today, all interest income is taxed in the hands of the individuals. It will be a great incentive and allow for rapid adoption if along with the RBI guidelines, we can have Income Tax Department looking at making income from P2P lending tax free in the hands of the individuals.
TDS deduction by non-individual on interest payment: Currently businesses are required to deduct Tax at Source for interest payment to allow them to claim the interest paid as an expense for tax calculations.
4. Mandatory to report loans to all the Credit Bureaus
5. Coming together of Peer-to-Peer Lending platforms for minimum standards beyond guideline
Chinese Online Lender Lufax Eyes Hong Kong IPO, (Wall Street Journal), Rated: A
Chinese online lender Lufax is gearing up for an initial public offering in Hong Kong potentially before the end of 2017, its chief financial officer said, in a major test of investor appetite for China’s burgeoning fintech industry. Lufax recorded 3.2 trillion yuan ($482 billion) in total transactions in the first half of this year, with more than 23 million registered users, its parent Ping An Group said in its interim earnings report last week.
Lufax—valued at $18.5 billion in its latest funding round—was earlier considering a listing on a proposed new technology-focused board in Shanghai, but a plan to set up the so-called Strategic Emerging Industries Board wasn’t included in a five-year plan issued by China’s cabinet in March.
Lufax isn’t planning to have another funding round before the IPO, he added.
Ant Financial Services Group, valued at $60 billion after an April funding round, has said it plans to go public eventually, but doesn’t have a timetable for the listing.
Lufax and other Chinese online lenders have modeled themselves after U.S. peer-to-peer lenders such as LendingClub Inc. LendingClub has a market capitalization of only $2 billion, less than half of its $5.4 billion valuation at its IPO. The share price of smaller Chinese online lender Yirendai Ltd., however, has tripled since the company went public on the New York Stock Exchange in December.