- From our readers regarding yesterday’s comment of why verified-income borrowers perform less well than verified one.
- Rich said “Hi George – on the question about why non-verified incomes perform better: could be because the rules they apply to determine whether to verify are more powerful than the lift from verification. Example: only verify if Fico < 650. This could cause the effect. I have no info on how LC underwrites – all speculation”
- I assumed that a random sample was picked to verify income for. If the sample was not random, the source of our mystery is certainly most likely there, indeed.
- Today’s interesting news I think cover Behalf’s raising $27 mil round C; Orchard’s Q2 report; Square’s quarterly results take away ; and from Australia 2 articles , one on the XBRL standard and on the regulators’ approach to innovation.
- Reader’s column : Please feel free to write to us with questions or comment and we will publish them in our daily newsletter.
- Behalf, a fast growing SME credit provider, raises $27mil in C round. Investments continue to pour in the sector !
- The quarterly Orchard unsecured consumer p2p report. 2014 charge offs look like 2011 and 2012. Q2 origination down about 34%. Borrower rate rose 96bps in Q2 mostly due to small loans.
- Square latest earnings : This quarter Square signed up 5 new investors to invest in lending capital. Big change from last quarter when they said “Last quarter, Square said it was experiencing “challenging credit market conditions””.
- A quick article about the advantages of partnerships between alternative credit providers and banks. Just a reminder of what our readers have been reading for a while.
- And another quick article about the pros of balancing balance sheet and marketplace lending in a hybrid model. Another reminder of what our readers have also been reading for a while.
- Credible Friends, who lets anyone play bank, raised $100k in Bitcoin. I am skeptical of the underwriting if one uses the word “play”. This is serious business. And offering APRs of 25% does not make a company look customer friendly to Millenials in my eyes.
- A long article about the recent changes in the online lenders’ business. A nice overview and summary, without anything new.
- P2P Banking advertises EstateGuru. Useful information if you would like to know how a crowdfunding real estate lender looks like in Estonia/Europe.
- Companies announce deals at a trade show. Interesting deals, unique way to announce them: on stage at a trade show and sign it there. I hope they will not have to break these deals as it will look quite poorly after you signed it on stage at the trade show.
- A very interesting article about a standard accounting communication language, XBRL. I had not heard about it. It already has real traction and of course, all the advantages of standardization. Worth a read.
- And a very interesting article about the Australian’s approach to regulation with a Sandbox, an Innovation Hub and more. Great read.
- Following up on yesterday’s article about Harmoney’s tough love relationship with the NZ regulator, a more in-depth discussion today. Worth a read to also understand regulatory risks.
- United States
- Behalf Raises $ 27 Million, (Finovate), Rated: AAA
- Consumer Unsecured Q2 2016, (Orchard Platform), Rated: AAA
- Three Takeaways From Square’s Latest Earnings, (Fortune), Rated: AAA
- Is The Future Of Alt-Lending Playing Well With Others?, ( Pymnts), Rated: A
- The Composite Model: A Viable Future for Online Lending, (Crowdfund Insider), Rated: A
- CredibleFriends launches P2P bitcoin credit line mobile app, plans credit card, (SMN Weekly), Rated: A
- United Kingdom
- Have online lenders changed their spots, (Alt Fi), Rated: A
- European Union
- Two Years of Investing in Property Development Loans at Estateguru, (P2P-Banking), Rated: B
- Check out the new fintech industry partnerships announced during the IFFC 2016, (e27), Rated: A
- XBRL to flatten information asymmetries in the small business lending market, (DailyFintech), Rated: AAA
- ASIC Talks Regulating Fintech Insurgents, (Which 50), Rated: AAA
- New Zealand
- LendMe sympathizes with Harmoney but says not in the same boat, (Stuff), Rated: B
Behalf Raises $ 27 Million, (Finovate), Rated: AAA
Behalf pays vendors directly on their small client’s behalf – hence the name.
Behalf was founded in 2011 and is headquartered in New York City. he company has doubled revenues every six months since inception, and recently added Jorgen Bocklage, founder of 118 118 Money and former VP of Finance at fellow Finovate alum Dashlane as its new CFO.
Consumer Unsecured Q2 2016, (Orchard Platform), Rated: AAA
2014 vintage charge-offs have increased more steeply than in recent years, aligning closely with rates we saw in 2011 and 2012. While some of this trend can be attributed to deteriorating loan performance, most of it is due to the continued growth of subprime loan origination platforms. These platforms charge off at higher rates but offer investors increased interest rates as compensation for this additional risk. There’s not enough 2015 vintage performance data to draw any conclusions yet but we will be closely monitoring how that vintage performs in the coming quarters.
Across the industry, Q2 origination volume was down approximately 34% from Q1 origination volume, and down approximately 16% from Q2 2015 origination volume. Following years of consistent quarter-over-quarter increases in originations, we continue to see declines so far in 2016. Recent news and volatility at several of the largest originators have led to softening origination volumes, but we’re not ruling out an uptick in growth later this year as confidence and capital returns to these platforms.
Borrower rates rose 96bps in Q2 as a result of increases made by several originators to borrower interest rates in an effort to reignite investor demand in loan purchases.
Source : Orchard Platform
Source : Orchard Platform
Source : Orchard Platform
Three Takeaways From Square’s Latest Earnings, (Fortune), Rated: AAA
Online lending is still massive and growing: Square’s lending arm, Square Capital continues to be one of the bright stars in the company’s suite of services outside of payments. In the second quarter, Square extended nearly 34,000 business loans totaling $189 million, an increase of 123% year over year and 23% from the previous quarter in 2016.
Square originally launched the lending arm in 2014 to provide cash advances to merchants using Square’s point of sale service. Square recently announced that it would be expanding into traditional online loans, with fees between 10% to 16% of the amount borrowed.
Last quarter, Square said it was experiencing “challenging credit market conditions” and also reported delays in signing new investors to back its fledgling lending business.
Square sells the majority of its loans to third parties for an upfront fee and a small ongoing servicing fee. This quarter, Square said that it added five new investors to invest lending capital.
Is The Future Of Alt-Lending Playing Well With Others?, ( Pymnts), Rated: A
The biggest and most surprising change of direction on the “beating” vs “joining” question doubtlessly comes from the rapidly evolving world of online lending.
The banks, for a variety of reasons, aren’t going anywhere, which means a lot of lenders like Fundation are looking more into joining — and to connecting their lending platform to those banks customers.
Online lending, particularly its marketplace variant, solved a lot of problems at once and quickly attracted interest from all corners. By 2015 it seemed certain to many sober judges that lending was a business that technologists were going to slowly devour out from under the banks.
But a year can make a big difference, and the summer of 2016 is a very different place than the summer of 2015.
Today, investors have more options — less risky ones (more on that in a second) — and that has resulted in fewer marketplace loans getting bought.
Borrowers also have more options as credit has thawed for even sub-prime buyers.
“It’s saturated. Hundreds of platforms are going after the same pool of customers.”
Graziano describes Fundation as a “credit solutions provider” more than a lender — noting that the power of its offering is in the tools it offers around online applications and data-intensive credit algorithms to partners.
The Composite Model: A Viable Future for Online Lending, (Crowdfund Insider), Rated: A
Composite lending combines two models – balance sheet lending and marketplace lending – to deliver best of both worlds: all the benefits of marketplace lending, combined with the reliability and resiliency of balance sheet lenders.
Marketplace lenders shot into the spotlight just a few years ago, promising faster, easier access to credit than ever before, for those wanting or needing it.
If a recession or downturn causes loan requests to dry up or investors to pull back, marketplace lenders have no other reliable source of capital generation – making going out of business a probable fate.
As the saying goes, “you need to have money to make money” – and a comparison of marketplace lenders to balance sheet lenders proves this.
In many instances, marketplace lenders’ biggest problem is their borrowers, many of which are subprime. In addition, analyses have shown that these borrowers often borrow money to pay off debt, but then just end up accruing more debt.
In an effort to grow capital, marketplace lenders may assume even more perilous risk positions, which just leads to more delinquencies and defaults and can quickly accelerate the downward spiral.
As we have noted, the advantages of the marketplace lending model are very real.
CredibleFriends launches P2P bitcoin credit line mobile app, plans credit card, (SMN Weekly), Rated: A
Only recently CredibleFriends raised $100 006 of its $250 000 fundraising goal on the cryptocurrency crowdfunding site BnkToTheFuture from 87 backers, surpassing the $100 000 needed by July 15 to ensure the funds pledged will be deposited.
“The mission at Credible Friends is to get digital currency into everyone’s pocket by making it insanely easy to extend credit to the people you know and trust already,” Zach Doty, CEO Credible Friends told Bravenewcoin.com.
The platform locks in a 15% return, depending on defaults. A loan of $575, or 1 Bitcoin today, will be worth $661.2 in a year, regardless of the price of Bitcoin at that time. While this may work for or against the lender, it removes volatility.
Borrowers are charged 25% APR interest using the average daily balance method and the interest is charged monthly.
Have online lenders changed their spots, (Alt Fi), Rated: A
Is it all just buttressing lending capital and trimming down costs? Has nothing else changed?
Transparency has long been pitched as the panacea to the industry’s so-called incentivisation problem.
However, as we at AltFi have repeatedly pointed out, standards of disclosure vary immensely across the industry. There are limits to the alignment that static loanbook disclosure can effect. There are also limits to what sense can be made of static loanbook disclosure, and to what extent investment decisions can be based upon this granularity of information.
It’s “real-time” because the product is powered by loan-by-loan, cash-flow level data. But more important, perhaps, is the fact that the data has been packaged up into a series of tools which allow for seamless segmentation and intuitive analysis.
Finally, in questioning whether or not the online lending sector is changing shape, it would be remiss of me not to mention the imminent arrival of a brand new cadre of formidable-looking sector entrants.
Goldman Sachs is set to launch Marcus, an online lending outfit that will target both consumers and business, in October. Rumour has itthat Marcus loans will be funded by Goldman’s New York State-chartered banking subsidiary.
American Express, the $55.13bn market cap credit card giant, has also launched a platform – a short-term lender for small business owners in the US named Working Capital Terms.
And, of course, there’s the JPMorgan Chase initiative, made possible through a collaboration with OnDeck.
Two Years of Investing in Property Development Loans at Estateguru, (P2P-Banking), Rated: B
Estateguru is a p2p lending marketplace in Estonia focussed on bridge loans to property developers in Estonia. Since the launch in 2014 Estateguru has facilitated a loan volume of more than 10 million Euro in a total of 65 loans. Typical interest rates range from about 9% to about 12%.
Many investors keep some cash in the Estateguru account in order not to miss out, when new loans appear. Tiny loans (< 40,000 EUR) are sometimes 100% funded by the time the email arrives.
Investree – Bank Danamon
P2P lending platform Investree announced their partnership with Bank Danamon on the first day of IFFC 2016. Bank Danamon will be handling cash management for lending activities facilitated by the Investree platform, which connects lenders to SMEs. The startup has been working with Bank Danamon since its launch in October 2015.
Dimo – Sinarmas Bank
Mobile payment startup Dimo and Sinarmas Bank were one of the businesses who had the opportunity to sign their MOU in the presence of President Joko Widodo.
AMVESINDO – SVCA
On the venture capital firms side, Venture Capital Association for Indonesian Startups (AMVESINDO) and the Singapore Venture Capital and Private Equity Association (SVCA) announced the formation of the ASEAN Venture Council.
XBRL to flatten information asymmetries in the small business lending market, (DailyFintech), Rated: AAA
Like English is to business, so too in many ways is XBRL to data.
It is the common language many governments and startups now hope will become the standard by which organizations share and translate information between each other. Today, without broad take-up of XBRL, many governments, investors and businesses are currently in the dark when it comes to analyzing the mountains of unstructured data thrown at them by financial entities.
For small business finance and banking, XBRL has the potential to not only reduce the need for multiple data entry, but to also allow for greater comparability and portability of financial information. This opens the door to significant productivity savings and reduced financing costs to boot.
In 2010 Australia made inroads into encouraging adoption of XBRL through the launch of its Standard Business Reporting (SBR) initiative. Using SBR enabled software, businesses across Australia can now lodge key government forms (tax returns etc) straight from their accounting software to relevant government agencies. According to a report from the Australian Business Register, at the end of June 2014, over 568,000 reports had been lodged using SBR since its implementation in mid-2010.
Unsurprisingly, there is evidence that suggests XBRL can play a role in lowering the cost of lending. After being spearheaded by the National Bank of Belgium back in 2005, today more than 95% of Belgian private firms’ annual accounts are voluntarily filed in XBRL.
Research published in the Journal of Accounting and Public Policy in April 2016 has also indicated a correlation between XBRL adopters and lower interest rate spreads.
There is nothing more satisfying than being understood. Yet for many small business owners seeking credit, this is still far more difficult than it should be. XBRL has the potential to help both sides of the lending equation communicate with each other better, faster and more fluently.
ASIC Talks Regulating Fintech Insurgents, (Which 50), Rated: AAA
The corporate watchdog has its eye on new business models in financial services such as marketplace lending. ASIC established its Innovation Hub in April 2015 in order to proactively engage with the fintech sector and help start-ups navigate ASIC’s regulatory system.
“We are making senior ASIC staff available at places like Stone and Chalk from time to time to answer questions,” said Tanzer.
In the first twelve months of operation, ASIC’s Innovation Hub worked with 93 entities, with 66 receiving informal assistance. As a result, 15 previously unlicensed innovative businesses have received a new financial services or credit licence since March 2015. The Innovation Hub has established relationships with international regulators in Europe, North America and Asia to discuss innovation developments and policy proposals.
An Innovation Hub Taskforce has also been formed, which includes senior executive leaders from many teams in ASIC and commissioner John Price.
The regulator has also have established the Digital Finance Advisory Committee, or DFAC for short, which is made up of industry, consumer and academic representatives.
LendMe sympathizes with Harmoney but says not in the same boat, (Stuff), Rated: B
Peer-to-peer lending service LendMe says it sympathises with Harmoney over a lawsuit filed by the Commerce Commission though it doesn’t believe the whole industry is under threat.
Harmoney, which is part-owned by Trade Me and Heartland Bank, has syndicated $300m of unsecured loans through its website which acts as matchmaker between borrowers and lenders.
Harmoney chief executive Neil Roberts said on Monday that an unfavourable ruling could “spell the end of the industry in its current form”.
A commission spokesman noted Harmoney would continue to be able to earn a margin from lenders who advanced money through its website, which those lenders could recuperate through interest payments.
LendMe chief executive Marcus Morrison said it was in a different position to Harmoney as all but one of the $3m of loans it had facilitated were to trusts and small businesses, to which the CCCFA did not apply.
Morrison said he sympathised with Harmoney, however. “They are providing a service and they feel they should be able to earn something for that. Harmoney has obviously fulfilled a strong need otherwise they wouldn’t have been able to do this level of lending.
Another disagreement between Harmoney and competition watchdog opened up after the commission denied a claim by Harmoney that the company had circulated copies of its proposed fee structure to the commission prior to it being granted a P2P lending licence by the Financial Markets Authority (FMA) in 2014.
Though Harmoney would have disclosed that information to the FMA, that authority “didn’t have any involvement with the CCCFA”, he said.
Some people who have lent money through Harmoney complained on Stuff that it had had virtually no loans awaiting fulfillment in recent days, meaning they had funds sitting idle on call that they were unable to invest. Harmoney responded through a spokesman that investors’ appetite to lend money through Harmoney had grown at a faster pace than borrowers’ willingness to take out loans, even though the latter had doubled.