- Today’s top news : Klarna is taking over the online retail (credit?) market; Point raised $15.4 mil ; Lending Club hired new CFO ; and Facebook is enabling payments in their 30,000 chat bots.
- Analysis : A great summary of the P2P market economics ; US SME’s optimism survey and retail credit card debt ;
- Though generating : what will happen when auto insurers lose 40% of their revenue ?
- While Facebook is doing everything possible not to become a credit agency, it is entering payments. A very interesting platform to build on top of for our readers, perhaps.
- US SMEs are borrowing more, investing, hiring. A bubbly market. Interesting survey.
- US individuals are also borrowing more. The study author calls is a dramatic increase in household indebtedness as they look at 2016 vs 1986. As I look at 2016 vs 2008 I would say the increase has slowed down and it hasn’t caught up yet with the 2008 level.
- Lending Club hires new CFO, ex from GE Capital, Washington Mutual, JPMorgan Chase and Citigroup.
- As Yirendai’s shorts are getting covered, perhaps the stock has now stabilized.
- Hero Funding ( financing home clean energy needs among other home improvements) is doing a Kroll rated securitization.
- Point, a company who allows home owners to sell partial equity from their homes, raised $15.4 from VCs like Andreessen Horowitz.
- Weekly Orchard updates on volume, borrower interest by FICO, and Online consumer loan rates vs T-Bonds. To note : very low volume and interests are within the usual noise range.
- And an interesting tech implication: self-driving cars are expected to reduce insurance premiums by 40%. What will the insurance companies do when 40% of their revenue will go away in the next 10 years ?
- A great article with very nice clean data about P2P lending : volumes, market shares, drivers , the cost of capital and business model economics. A must read. And an interesting conclusion worth thinking about “Neil Tomlinson, Deloitte UK head of banking, says that MPLs are unlikely to become a disruptive force in the long-term”. You may or may not agree , but worth reading at least.
- Study finds P2P interest increase since Brexit. We are starting to see this trend confirmed from different sources now.
- Klarna is also entering the UK online market through a partnership with Arcadia. There isn’t much P2P point-of-sale in the UK as far as I know. Perhaps worth a thought ? Klarna in the US has very recently ” launched a real-time consumer financing solution for the US commerce market. They are launching together with Shopify, BigCommerce, Magento, Cybersource, Demandware and OpenCart. Financing will be available via core integrations and plugins.”
- And another article pointing out a few examples of how banks are responding to the disruption and fintech innovation. A good quick summary with examples.
- LendInvest calls on the government to help grow their market. A unique biz dev approach that may in fact work.
- It is not uncommon for rogue Chinese companies to make fake claims. For example Uprosper Asset boasted of a “strategic cooperation” with EY. This lead to dozens of peer-to-peer online financing investors lodged an hours-long protest in front of Ernst & Young in Shanghai last Friday. Collateral damage. It is important that companies monitor who uses their names in which context in China, it shouldn’t be ignored.
- United States
- Facebook Messenger now allows payments in its 30,000 chat bots, (TechCrunch), Rated: AAA
- Optimism of America’s Small Businesses at Record High, (Business Wire), Rated: AAA
- Study Says US Credit Card Debt Jumped in Q2 as Average Household Indebtedness Moved Up, (Crowdfund Insider), Rated: AAA
- Lending Club Hires Former Chase, Citi Exec as CFO, (American Banker), Rated: A
- Yirendai Limited (NYSE:YRD) Sellers Covered 31.46% of Their Shorts, (Press Telegraph), Rated: A
- HERO Funding securitization, (Kroll Bond Rating Agency, Email), Rated: A
- Point Raises $ 15.4 Million In Total Funding, Led By Andreessen Horowitz, To Help Homeowners Unlock Home Equity Wealth Without Borrowing, (PR Newswire), Rated: A
- Weekly Orchard Lending Snapshot, (Orchard Platform), Rated: A
- Self-driving cars to cut U.S. insurance premiums 40%, Aon says, (Property Casualty), Rated: A
- United Kingdom
- Alternative finance lending market booming on the back of low rates, (Consultancy.uk), Rated: AAA
- Study identifies uptick in P2P interest since Brexit vote, (Professional Adviser), Rated: AAA
- Fintech unicorn Klarna just signed a big deal with Sir Philip Green’s Topshop and Miss Selfridge, (Business Insider), Rated: AAA
- Fintech start-ups put banks under pressure, (Financial Times), Rated: A
- LendInvest calls on Government to lift barriers on small-scale housebuilding, (Dash.com), Rated: A
- Protesters Wrongly Target Ernst & Young in Shanghai, (Caixin Online), Rated: A
Facebook Messenger now allows payments in its 30,000 chat bots, (TechCrunch), Rated: AAA
Messenger bots can accept payments natively without sending users to an external website, Facebook’s head of Messenger David Marcus announced today onstage at TechCrunch Disrupt SF 2016.
Finally, the credit card info people already have stored in Facebook or Messenger can be used to instantly make purchases in bots that are part of the new closed beta the developers can apply for. Marcus also revealed that 34,000 devs have joined the platform and built 30,000 bots in the April launch, up from over 10,000 devs in May and 11,000 bots in July.
To support payments in Messenger, Marcus says that the company is working with all the major players in the industry including Stripe, PayPal, Braintree, Visa, MasterCard and American Express — not just Stripe and PayPal which the Facebook developer blog post mentioned.
During the talk, Marcus discussed Messenger’s rise to 1 billion users thanks to a forced migration from Facebook’s main app, his relationship with Mark Zuckerberg, and the early stumbles with chatbots that have been used by millions of people across 200 countries.
Optimism of America’s Small Businesses at Record High, (Business Wire), Rated: AAA
The survey found that 87.5 percent of small business owners are investing more in their business in 2016 than 2015. Of those business owners who said they will be investing, the vast majority (91.4 percent) plan to borrow funds to do so. More than a third (38.3 percent) plan to borrow between $10,000 and $40,000, and 37.5 percent plan on borrowing more than $40,000.
When it comes to assessing growth or working capital, the majority (67.6 percent) of small business owners prefer alternative financing over other available options, including traditional bank loans. 20.7 percent plan to access short-term financing, less than a third (31.53 percent) plan to borrow funds from a local bank, and 27.9 percent plan to use a credit card or line of credit. In addition, 28.7 percent of respondents said they were affected by the Federal Reserve’s interest rate hike earlier this year, which impacted their willingness to spend and invest in their businesses.
More than half of respondents (61.7 percent) are borrowing funds for working capital, and of those 38.3 percent will use the money for marketing purposes. More than a third (38.3 percent) are borrowing to invest in inventory, and 30.9 percent are doing so to hire employees.
In total, 63.1 percent of all respondents are increasing their staff. Of those, 48.8 percent are hiring full-time employees and 32.5 percent are hiring a mix of full-time and part-time staff.
In addition, 42.9 percent of business owners plan to expand locations this year, and of those borrowing money, 22.3 percent are doing so to add locations.
The Small Business Growth Survey, which surveyed small businesses from around the country, was conducted by Bizfi, the platform that combines aggregation, funding and a marketplace for small businesses. Bizfi surveyed more than 100 small business owners in 33 states. The companies ranged from restaurants, retailers, healthcare providers and transportation to real estate. More than half of the businesses have four employees or less and 38% have between 5 and 50 employees. The revenue of the companies range widely from less than $100,000 to more than $5 million.
Bizfi surveyed more than 100 small business owners in 33 states. The companies ranged from restaurants, retailers, healthcare providers and transportation to real estate. More than half of the businesses have four employees or less and 38% have between 5 and 50 employees. The revenue of the companies range widely from less than $100,000 to more than $5 million.
Study Says US Credit Card Debt Jumped in Q2 as Average Household Indebtedness Moved Up, (Crowdfund Insider), Rated: AAA
WalletHub has published their Credit Card Debt Study that shows a dramatic increase in household indebtedness – specifically in credit card debt. According to the report, US consumers cranked up on credit during Q2 of 2016 generating $34.4 billion in debt. This is the largest Q2 accumulation since 1986, according to the report. Credit card debt is now on track to hurdle $1 trillion in outstanding balances by the end of 2016 with average debt balances moving up to $8500 per household. The authors called the situation “perilous” and stated;
“Q2 2016 also appears strikingly similar to Q2 2007, which ended less than six months prior to the start of the Great Recession.”
The report said “we are flirting with financial disaster” coming on the heels of last year’s record increase in credit card debt of $71 billion and last quarter’s record-low first-quarter pay down of $27.5 billion. Consumers may be reverting to bad habits.
Lending Club Hires Former Chase, Citi Exec as CFO, (American Banker), Rated: A
Lending Club, which has been rebuilding its executive ranks in the wake of a recent scandal, is hiring Thomas Casey as its chief financial officer.
Casey worked most recently as executive vice president and CFO at the medical device company Acelity. He previously spent more than two decades in senior leadership roles at GE Capital, Washington Mutual, JPMorgan Chase and Citigroup, Lending Club said in a press release.
In an interview, Sanborn said that Lending Club’s search for a new CFO began before Dolan’s resignation, since she had signaled her intent to leave the company.
Yirendai Limited (NYSE:YRD) Sellers Covered 31.46% of Their Shorts, (Press Telegraph), Rated: A
The stock of Yirendai Limited (NYSE:YRD) registered a decrease of 31.46% in short interest. YRD’s total short interest was 725,200 shares in September as published by FINRA. Its down 31.46% from 1.06M shares, reported previously. With 1.04 million shares average volume, it will take short sellers 1 days to cover their YRD’s short positions. The short interest to Yirendai Limited’s float is 8.53%. The stock decreased 3.48% or $0.74 on September 9, hitting $20.51. About 512,373 shares traded hands. Yirendai Ltd – ADR (NYSE:YRD) has risen 370.41% since February 5, 2016 and is uptrending. It has outperformed by 357.23% the S&P500.
HERO Funding securitization, (Kroll Bond Rating Agency, Email), Rated: A
Kroll Bond Rating Agency (KBRA) assigns a preliminary rating of AA(sf) to HERO Funding 2016-3 (“HERO 2016-3) Class A1 Notes and Class A2 Notes (together, the “Class A Notes”). The notes are newly issued asset-backed securities backed by a portfolio of Property Assessed Clean Energy (PACE) bonds.
The notes are secured by an Initial PACE Bond Portfolio and a Subsequent PACE Bond Portfolio (together, the “PACE Bond Portfolio”), each consisting of limited obligation improvement bonds (each, a “PACE Bond”) issued by the Western Riverside Council of Governments (“WRCOG”), San Bernardino Associated Governments (“SANBAG”) and the County of Los Angeles, California. The Initial PACE Bond Portfolio comprises 180 PACE Bonds with an aggregate principal balance of approximately $264.1 million and is secured by 12,394 PACE assessments levied against 12,394 residential properties (“PACE Assessments”) in 34 California counties. The average PACE Assessment is approximately $21,310 with an average annual payment of approximately $2,916. The Subsequent PACE Bond Portfolio is expected to consist of PACE Bonds with an aggregate principal balance of $66.0 million. The transaction benefits from credit enhancement in the form of excess spread, over collateralization, and a liquidity reserve.
Point Raises $ 15.4 Million In Total Funding, Led By Andreessen Horowitz, To Help Homeowners Unlock Home Equity Wealth Without Borrowing, (PR Newswire), Rated: A
Point, the first financial technology platform that allows homeowners to unlock their home equity wealth without taking on new debt, announced today that it has raised $8.4 million in Series A funding led by Andreessen Horowitz which also led the company’s seed round in 2015, bringing the total funding to $15.4 million (including venture debt financing). Alex Rampell, general partner at Andreessen Horowitz, has taken a board seat at Point. Andreessen Horowitz was joined by the company’s earlier backers Ribbit Capital and Bloomberg Beta. Individual angel investors include Orogen Group CEO Vikram S. Pandit, Airbnb CFO Laurence Tosi, LendingHome founder/CEO Matt Humphrey, and Invitation Home’s co-founder Brad Greiwe.
Point reached several key milestones including building a proprietary pricing engine that unifies property risk and homeowner risk, investing in over 50 properties across California, and bringing investor capital to its platform.
Point is the first financial technology platform that allows homeowners to unlock their home equity wealth without taking on new debt and gives investors access to a new asset class — owner-occupied residential real estate.
Weekly Orchard Lending Snapshot, (Orchard Platform), Rated: A
Self-driving cars to cut U.S. insurance premiums 40%, Aon says, (Property Casualty), Rated: A
Comment: Not really in our field , but I find interesting to talk about how financial sectors are being disrupted by technology.
(Bloomberg) — Premiums for U.S. auto insurers may drop more than 40 percent once the use of automated vehicles has been fully adopted by 2050 and driving becomes safer, according to insurance broker Aon Plc.
Alternative finance lending market booming on the back of low rates, (Consultancy.uk), Rated: AAA
The report also sought to identify what the main drivers for the use of MPLs are for borrowing money among consumers. Ease and quick turnaround are the most cited reasons by respondents, 81% say that one of the main drivers is an easy/quick application process, with 72% saying that it is the fast decision-making that makes the use of MPLs attractive. Additionally, MPL services offer competitive rates, and repayment flexibility – attracting a wide range of price conscious customers.
The consultancy firm further explores whether the MPL business model is really of sufficient improvement on that of the traditional banking proposition, to give rise to a ‘disruptive’ shakeup of the SME and consumer lending market. As it stands – within the current banking environment – the cost of an unsecured personal loan comes in at around 815 bps at banks, while at MPLs total costs stand at around 800 bps. For retail buy-to-let mortgages the bps for loans comes in at 460 for MPL and 500 for banks, while for SME loans, MPL can offer solutions at around 720 bps while banks offer loans at around 715 bps.
The current market conditions are, in many ways, abnormal. Interest rates remain at historic lows, while QE and other measures continue to operate across Europe. The researchers consider whether the current financial environment, rather than a disruptive new business model, is the main driver for the rise of MPL.
As part of the research the Big Four firm considers the total cost of attracting the required funds for the respective loans. For banks, a large portion of the loan is not sensitive to changes in rates, at around 270 bps, while for MPLs around 90 bps is not sensitive to changes in rates. This means that, as a proportion of the total bps of the loan, the credit environment disproportionately affects MPL loans – mainly in terms of return to lenders whose money is on the line. When, and if, the UK, European and US rates again begin to see relatively significant increases, the higher proportion of interest sensitive loan costs will disproportionately affect MPLs, seeing an unsecured loan increase from 470 bps to 530 bps for banks, while for MPLs the increase is from 635 bps to 795 bps.
Neil Tomlinson, Deloitte UK head of banking, says that MPLs are unlikely to become a disruptive force in the long-term, “More broadly, our research shows that total funding costs for banks are lower than for MPLs, and the interest rate-sensitive component of an MPL’s funding profile is higher than that of banks. On that basis, MPLs’ costs could rise by more than banks as the credit environment normalises and interest rates increase. 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.”
Study identifies uptick in P2P interest since Brexit vote, (Professional Adviser), Rated: AAA
Among the findings of the study by P2P lender ThinCats was that almost a third (30%) of those surveyed said they had been put off investing in more traditional asset classes following the EU referendum.
ThinCats Caley concluded: “In the last two months alone, our research tells us, thousands of investors have started looking at P2P lending as a way of earning meaningful returns while avoiding the rollercoaster ride of volatile markets.”
According to Caley, “a major attraction of P2P lending is it sits apart from market volatility, providing high and predictable returns, whichever way the market winds are blowing” although he also recognised continuing misgivings from the wider financial services sector.
“Another obstacle preventing advisers from suggesting P2P to their clients is the FCA classification of it as a ‘non-standard’ investment’. Change is in the air, however, with the Innovative Finance ISA in the pipeline. When it arrives, this will allow people to invest their full ISA allowance in P2P without paying tax on the interest they earn.”
Fintech unicorn Klarna just signed a big deal with Sir Philip Green’s Topshop and Miss Selfridge, (Business Insider), Rated: AAA
Comment: Klarna in the US has very recently ” launched a real-time consumer financing solution for the US commerce market. They are launching together with Shopify, BigCommerce, Magento, Cybersource, Demandware and OpenCart. Financing will be available via core integrations and plugins.”
To separate buying a product from paying for it online, Klarna effectively offers credit to buyers although they do not go through lengthy application processes. Credit is a highly regulated space.
Swedish fintech unicorn Klarna has signed a deal with Sir Philip Green’s huge retail conglomerate Arcadia, marking the first major partnership for the online consumer credit company in the UK.
The deal will see Klarna launch its “Buy now pay later” online payment option on the websites of Topshop and Miss Selfridge, two of Arcadia’s biggest brands. It will then be rolled out to Arcadia’s other five brands, which include Burton and Dorothy Perkins.
While Arcadia does not breakout online sales numbers, the conglomerate had revenues of just over £2 billion last year and digital sales surged 24%.
Siemiatkowski says Klarna has been working on the Arcadia deal for almost a year.
Klarna uses non-traditional credit measures to assess whether to approve buyers, but Siemiatkowski stresses that the company looks at a range of different factors rather than simply eye-catching examples such as browsing habits.
Sir Philip Green, the retail tycoon behind Arcadia, has been in the headlines for all the wrong reasons lately, caught up in the row over the collapse of BHS and its pensions black hole. Siemiatkowski didn’t express an opinion on the furore, saying he has not met Sir Philip and Klarna dealt with Arcadia’s e-commerce team.
Fintech start-ups put banks under pressure, (Financial Times), Rated: A
Some established companies have drawn inspiration and are creating their own fintech projects. Clydesdale and Yorkshire Bank, for example, recently launched a mobile banking app called ‘B’. Similar to the new mobile banks, B aims to help customers manage their money, for example by sending prompts when customers fall into an overdraft.
Other traditional companies have dedicated funds that invest in external fintech firms
Santander UK recently teamed up with Kabbage, a US company in which it invests, to allow it to provide small businesses with funding in a matter of hours. [Comment: old news for our readers.]
For financial services companies, often weighed down by old IT systems, partnerships with fintech firms can be a more efficient way of plugging gaps in their business models.
Royal Bank of Scotland, for example, has joined forces with a number of online lenders to small business, including Iwoca.
Warren Mead, global co-head of fintech at KPMG, said: “Getting access to customers is very hard and expensive, so more fintech companies are turning to banks to have partnerships. I don’t see them dominating the space in banking; I think they’ll end up being acquired. One or two could merge.
Some incumbents have already taken large stakes in a number of fintech firms. Spanish Bank BBVA, for example, acquired a 30 per cent stake in Atom Bank last year.
LendInvest calls on Government to lift barriers on small-scale housebuilding, (Dash.com), Rated: A
Recent decades have seen the numbers of SME housebuilders plummet. In 1988, the number of small builders – defined as those building 100 units or fewer – stood at 12,200 in the UK.
This fell to 5,700 by 2006 and then 2,400 by 2014.
- The Government should take action to ensure that land is not unnecessarily banked and that larger developers who do not develop land in their stock sell it on to SMEs who will develop the land swiftly.
- Place increased scrutiny on the land market, including requiring the publication of data on land pricing, option agreements and ownership.
- Prioritise SMEs over major housebuilders in bids to develop land released from public ownership.
- The Government should explore state-backed funding schemes to provide businesses like LendInvest with more capital to lend to SMEs.
- Put SME property development at the heart of the industrial strategy. Commit to and act upon the funding understood by industry to have been earmarked by government for SME development projects.
- Build on the Government’s support for alternative finance as a route for SME growth by promoting cross-fertilisation between small scale developers and alternative finance companies.
- The Government should support industry initiatives to develop skills for property developers.
- The Industrial Strategy should go further in incentivising development activity to position property development as an attractive entrepreneurial opportunity.
- Government at all levels must work with SME developers to make it easy to plan and develop property.
Protesters Wrongly Target Ernst & Young in Shanghai, (Caixin Online), Rated: A
Dozens of peer-to-peer online financing investors lodged an hours-long protest in front of Ernst & Young in Shanghai last Friday — only to learn they had targeted the wrong business.
At about noon, dozens of P2P investors gathered in front of the EY office in the bustling financial district of Lujiazui in Shanghai. They complained they lost money after investing in Uprosper Asset, an online lender that boasted of a “strategic cooperation” with EY, one of the “big four” audit firms. Some protestors refused to leave until 6 p.m.
However, the London-based EY dismissed any strategic cooperation with the P2P lender and told Caixin it has never audited or commented on that company’s financial reports.
EY demanded the online lending company remove all “relevant falsified information.” Since then, the names of all companies with whom the P2P site claimed to have a partnership have been deleted.
In June, Usprosper Asset owner Wang Mian disappeared, causing investor panic and a cash crunch at the P2P platform. Since then, 2,216 investors have been unable to get back a combined estimated 436 million yuan ($65.2 million).