- Today’s main news: FastPay raises $15mil in equity; MoneyLion closes financing line with Macquarie; 2 fintechs, Financeit and Concentra, purchase TD Bank’s (a bank’s !) home improvement financing assets.
- Today’s main analysis: LendKey releases student loan cohort default data, strange data.
- Today’s main thought provokers: The future of Finance; UBS wealth manager tries AI; Lend Invest build “start your own house building business” 2-day school.
- We have talked repeatedly about APIs and the future of finance where financial platforms will be in large part an aggregation of many APIs. We have also covered yesterday the importance of data in finance through a new type of “data hunters” jobs. Today we report on PSD2 regulation which will mandate, in Europe, banks to have and to open their APIs, more or less. We have reported in the past that the UK and Australian banks and regulators are discussing the pros and cons of an open-API mandate. While this regulation will affect Europe, we feel this is of global interest and worth thinking about.
- Acquire Real Estate launches a secondary market for real estate. We believe that real estate crowdfunding has tremendous advantages through collateral and decent returns. Its only drawback, usually, is a lack of liquidity. Through a secondary market, the liquidity problem would be solved. We are excited to report on this secondary market opening its doors. We are however a little surprised to see the announcement of the secondary market being open while only 1 transaction between only 2 parties has taken place. We wish the press release contained words like a test, a pilot, initial stages, etc.
- LendKey releases a private student loans report. We applaud the initiative.
- Lending Times sought the student loans report mentioned just above. The meat of the report in our eyes is the Total Student Default curve we reproduced. We, however, find it strange that defaults are decreasing, and most importantly we find it very strange how fast the defaults are improving. I question the data in this report on this basis and we will seek further clarification.
- Fast Pay, a credit provider focused on digital media, secures $15m in equity funding.
- MoneyLion, personal credit and finance tools providers. To date Moneylion has access to $650m of debt capital from Macquarie and other institutional lenders. To date, MoneyLion has originated over 120,000 loans from its balance sheet.
- Orrick, the law firm, launches a portal for direct lending.
- Lending Club will pay their new CFO $4.5m in initial equity award to vest quarterly over the next four years, a $600,000 sign up bonus and a $425,000 salary +75% bonus. We hope he will add at least 10x that amount of value to the company.
- A pessimistic article about Lending Club from a fund who declares upfront not to invest in Fintech.
- And more interesting: UBS is doing trials on the usage of AI for wealth managers. Its usage ? Watching people’s facial expression to determine which questions to ask them during the very short meetings with UBS wealth managers. AI is an interesting business where it is very easy to over promise and under deliver. In fact the more you over promise, the more funds you raise, and the more spectacular is the fall. With AI the proof is in the pudding. We look forward to UBS wealth manager’s AI being better than humans at interpreting human emotions, psychology, and reactions. However, this makes a good PR stunt.
- Funding Circle SME fund to declare 1.63 GBP per share dividend, above the 1 GBP expected for a (quarterly?) yield of 1.59%.
- Bank of England sticks with rate-cut signal. We have reported a small amount of data showing that Brexit and the following rate cut has helped the P2P lending industry. This is good news for our industry.
- LendInvest set up “how to start a home building business” 2-day school. It is a great approach and initiative.
- Financeit, a modern point-of-sale real estate improvement financing platform, partnered with Concentra to acquire TD Bank’s home improvement financing assets. I would expect that the main asset of TD Bank’s home improvement financing asset was their brand which brought inbound leads for financing. The brand was of course not sold/licensed. On the other side, it is unusual for fintechs to purchase bank assets and the deal is very interesting in this way.
- Kuailu raised $2.1 bil from 260,000 investors promising 10% return. 10% return is very difficult but not impossible to return. However, 5 people were arrested no Tuesday, 6 months after Kuailu stopped honoring the required payouts. It certainly looks like another billion dollar p2p lender in China is collapsing or has already collapsed.
- United States
- The future of finance: Banking as a platform, (The Next Web), Rated: AAA
- Acquire Real Estate Creates Liquidity for Investors in Commercial Real Estate, Facilitates First Fully Automated Secondary Market Exchange, (Email), Rated: AAA
- LendKey Introduces Bellwether Report On Private Student Loans, (PR Newswire), Rated: A
- LendKey’s Key results from the report above, (See above), Rated: AAA
- FastPay Secures $ 15 M in Funding, (Business Wire), Rated: A
- Mobile Finance Platform MoneyLion Closes Portfolio Financing Line with Macquarie Group, (Email), Rated: A
- Orrick Launches Legal Portal for Direct Lending, (Fin Alternatives), Rated: A
- Lending Club will Pay New CFO Signing Bonus & $ 4.5 M Stock Grant, (Crowdfund Insider), Rated: A
- Why Lending Club Isn’t Worth Your Money…, (Seeking Alpha), Rated: A
- UBS trials artificial intelligence wealth managers, (V3), Rated: A
- United Kingdom
- Funding Circle SME Income Fund Ltd (FCIF) to Issue Dividend Increase – GBX 1.63 Per Share, (BBNS), Rated: A
- Bank of England sticks with rate cut signal despite Brexit bounce, (Reuters), Rated: AAA
- Property Development Academy: LendInvest to Help Small Developers Build More Homes, (Crowdfund Insider), Rated: AAA
- Financeit and Concentra acquire TD Bank Group’s indirect home improvement financing assets, (Email), Rated: A
- Shanghai P2P Lender Raided After Failing to Make Payments, (CaixinOnline), Rated: A
The future of finance: Banking as a platform, (The Next Web), Rated: AAA
A new law is going into effect in 2018 called the Revised Payment Services Directive in Europe, or PSD2 for short.
This law and the possibilities new technologies bring, means the role of banking is changing and emphasizes the trend towards ‘open banking’. Financial services and banks such as Dutch bank ABN AMRO see new technologies on the horizon and are working to find the trends in which they can gravitate toward and adapt to.
PSD2 works to provide a foundation for the creation of a single-wide market for payments. It allows consumers the ability to connect their bank accounts with third party services, allowing the services through an API to access data generated by their bank accounts.
In other words, with PSD2, banks will essentially become a platform for banking with providing APIs to access data.
Entrepreneurs can use the new law of PSD2 to drive innovation and creation of new services to offer to customers, and can now use bank APIs to do it. For example, an entrepreneur can create a way for one customer to have a central dashboard that has all of their financial data in one place, regardless of the bank or how many different financial institutions they do business with.
For instance, ABN AMRO works closely together with startups and scale-ups to bring customers simple and user-friendly apps. Recently, the financial institution worked with Swedish startup Tink to develop a new app allowing customers to easily overview their earnings and expenditures.
Acquire Real Estate Creates Liquidity for Investors in Commercial Real Estate, Facilitates First Fully Automated Secondary Market Exchange, (Email), Rated: AAA
Acquire Real Estate, a commercial real estate crowdfunding platform, has completed its first fully automated secondary market exchange between two of its real estate investors.
The investors relied on Acquire’s patent pending Investor Exchange,which facilitates a blind auction process that enables a seller to identify a buyer, establish a value and generate the required documentation and consents. The investors exchanged an interest in the DoubleTree by Hilton Dallas-Fort Worth, a 282-room, 8-story hotel located adjacent to the Dallas-Fort Worth Airport.
“We built the Investor Exchange with our investors’ need for liquidity in mind,” said Gerry Polucci, Co-Founder and CTO of Acquire Real Estate. “We also built the technology with an understanding that it had to be simple and modernize the process.”
Acquire’s technology allows the exchange process to unfold quickly without the inconveniences usually associated with such transfers. Investors can use the exchange to post all or part of an Acquire investment for exchange with any other member of the Acquire community. The seller then specifies the terms of the auction and provides up-to-date information concerning the investment. Acquire investors can then bid on the opportunity based on the terms proposed. If successful, the transaction takes place for an undisclosed amount, which could be higher or lower than the initial acquisition price.
LendKey Introduces Bellwether Report On Private Student Loans, (PR Newswire), Rated: A
LendKey, today released an inaugural industry-specific report entitled Positive Signal for Private Student Loans. This is the first in a series that aims to share summarized risk and other unique insights within data from LendKey’s 275 bank and credit union client-lenders nationwide.
To access the full report, please visit: http://business.lendkey.com/positive-signal/.
Highlights of the report include:
- Originations and portfolio balance
- Performance of the LendKey client-lender portfolio over time
- Cosigner statistics and geographical spread such as 90% of loans are originated with a cosigner and most are from northern states
- Over the last seven years, defaults and charge-off rates have significantly declined
- Statistics and growth in serial borrowing
Lenders and asset managers are partnering with LendKey to bring borrowers a powerful, white-labeled lending platform that has redefined Lending-as-a-Service—and gives financial institutions of all sizes the ability to attract new business, grow relationships, manage liquidity, and mitigate risk.
LendKey’s Key results from the report above, (See above), Rated: AAA
Improvement in default performance:
FastPay Secures $ 15 M in Funding, (Business Wire), Rated: A
FastPay is the market-leading provider of liquidity and financial workflow solutions to the global digital media industry. Through its proprietary technology platform, IGNITE, FastPay can dynamically assess the credit of digital media businesses and deploy payment workflow solutions for media businesses globally.
FastPay, has raised $15 million from Oak HC/FT to support FastPay’s continued growth, development of proprietary technology and acquisition of strategic new hires. The investment is the first FinTech investment from Oak HC/FT’s recently launched $500 million growth-equity fund.
Mobile Finance Platform MoneyLion Closes Portfolio Financing Line with Macquarie Group, (Email), Rated: A
Moneylion, to date, has access to $650m of debt capital from Macquarie and other institutional lenders.
To date, MoneyLion has originated over 120,000 loans from its balance sheet. Through its website and mobile app, available on Apple and Android devices, MoneyLion offers personal finance tools and a suite of credit products designed to foster better, more informed financial decision-making across the lifetime of its growing community of users.
MoneyLion, the mobile personal finance platform that offers free tools and smarter credit products, today announced the closing of a debt facility from Macquarie Group (“Macquarie”).
MoneyLion is headquartered in New York with offices in San Francisco and Kuala Lumpur, Malaysia.
Orrick Launches Legal Portal for Direct Lending, (Fin Alternatives), Rated: A
Global law firm Orrick has jumped into the rapidly-growing world of private credit with the creation of what it describes as the first legal portal for the corporate direct lending community.
The site breaks new ground by offering fast, simple solutions to a wide variety of common issues that arise in direct lending transactions, Orrick said in a statement.
Lending Club will Pay New CFO Signing Bonus & $ 4.5 M Stock Grant, (Crowdfund Insider), Rated: A
According to an 8-K filed with the SEC, Lending Club will pay Thomas Casey, their newly appointed CFO, a base salary of $425,000 with a 75% bonus target plus $4.5 million in an initial equity award to vest quarterly over the next four years. On top of this, Casey will also receive a one-time signing bonus of $600,000. Casey will receive half of this bonus immediately and the other half a year from his start date (later this month).
Simultaneously, Lending Club announced the creation of a Rabbi Trust – a non-qualified retirement vehicle to help compensate senior executives.
Why Lending Club Isn’t Worth Your Money…, (Seeking Alpha), Rated: A
Earnings expectations are now expected to be negative this year and Wall Street is looking for only $0.07 in earnings per share in 2017. At this stage in its life cycle and growth, one could argue a P/E is irrelevant. Even if there were not questions about Lending Club’s future growth, we would feel uncomfortable owning this company at a P/E approaching 80x.
Looking at Enterprise Value to EBITDA, we also are not attracted to a business at roughly 60x 2017 expectations. The problems of 2016 wipe out more than a full year of growth for this early-stage business, but they also highlight a going concern issue. With its large debt balance and lingering interest costs, Lending Club needs to generate significant cash flow just to stay afloat.
Earnings can be manipulated, so we tend to focus our attention on cash flow. The cash flow statement rarely lies. Before the surprising revelations in May, Lending Club averaged nearly $50 million of cash flow from operations for three quarters straight.
Cash flow went negative last quarter and will likely stay this way for a few quarters. Will investors look to purchase Lending Club loans? Will Lending Club only draw the most risky borrowers to its platform? These are troubling questions we struggle with.
At the 2002 Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) annual meeting, the legendary duo of Warren Buffett and Charlie Munger had some wonderful comments regarding investing in financials. After Munger discussed how he is often uncomfortable around most financial institutions’ lack of transparency, Buffett had this great financial quote:
“There is so much about a financial institution that you don’t know just by looking at the figures that if anything bothers you a little bit, we’re never sure whether it’s an iceberg situation”.
UBS trials artificial intelligence wealth managers, (V3), Rated: A
Wealth management firm and investment bank UBS is running artificial intelligence(AI) trials with some of its richest clients. AI applications being tested include tools designed to read facial expressions and uncover clients’ unconscious biases towards or against certain types of investment.
The aim is to help the company’s cash-rich, but time-poor, clientele to ask the right questions about their decisions, according to UBS.
RBS announced earlier this year that the bank may replace hundreds of face-to-face customer service staff with automated services, which it claimed will free its remaining human agents to be expert advisers.
Fraud detection is another area ripe for AI applications, and companies such as Ravelin have deployed machine learning capabilities to identify online payment fraud and other pattern-based behaviour.
IBM and Aldebaran Robotics (now majority owned by Japan’s SoftBank) have been testing a robotic concierge service using IBM’s Watson service in the cloud via industry-specific datasets provided by ‘cognitive travel agent’ WayBlazer.
UK government-backed startup PingGo announced last week that its mission is to automate PR, giving rise to the real possibility that press releases may soon be produced by robots for other robots to read and disseminate as machine-readable news.
Dr Anders Sandberg, James Martin Research Fellow at Oxford University’s Future of Humanity Institute, observed earlier this year that if you can describe your job it can and will be automated.
Funding Circle SME Income Fund Ltd (FCIF) to Issue Dividend Increase – GBX 1.63 Per Share, (BBNS), Rated: A
Funding Circle SME Income Fund Ltd (LON:FCIF) declared a dividend on Wednesday, September 14th. Investors of record on Thursday, September 29th will be paid a dividend of GBX 1.63 ($0.02) per share on Monday, October 31st. This represents a yield of 1.59%. The ex-dividend date is Thursday, September 29th. This is a boost from Funding Circle SME Income Fund’s previous dividend of $1.00. The official announcement can be seen at this link.
Separately, Jefferies Group started coverage on shares of Funding Circle SME Income Fund in a report on Wednesday. They issued a “hold” rating for the company.
Funding Circle SME Income Fund Limited is a United Kingdom-based closed-ended fund. The Fund’s investment objective is to provide shareholders with a level of dividend income, primarily by way of investment in credit assets, both directly through the marketplaces and indirectly. The Fund holds credit assets through maturity.
Bank of England sticks with rate cut signal despite Brexit bounce, (Reuters), Rated: AAA
The Bank of England said on Thursday it was still likely to cut interest rates to just above zero later this year, even though the initial Brexit hit to Britain’s economy was proving less severe than it expected only last month.
The Bank’s nine rate-setters voted unanimously to keep Bank Rate at its new record low of 0.25 percent, the lowest level in the BoE’s 322-year history.
They also voted 9-0 to keep the Bank’s bond-buying program target at 435 billion pounds and to continue with its new plan to buy up to 10 billion pounds’ worth of corporate bonds.
A Reuters poll of economists showed on Thursday that Britain is likely to narrowly avoid a recession.
Property Development Academy: LendInvest to Help Small Developers Build More Homes, (Crowdfund Insider), Rated: AAA
The UK government estimates the need for additional housing in England at between 232,000 to 300,000 new units per year, a level not reached since the late 1970s and two to three times current supply.
According to LendInvest, the Property Development Academy will be a two-day intensive programme that takes 20-25 individuals through hands-on, practical modules covering the full development project: from land valuation and acquisition, through to planning permission, supplier contracts, cost management and final sale. Sessions are led by experienced advisers. On top of education, the network of relevant contacts from their local area may become a vital resource for these aspiring developers to call upon in the future.
Financeit and Concentra acquire TD Bank Group’s indirect home improvement financing assets, (Email), Rated: A
Financeit, a cloud-based point-of-sale financing platform, and Concentra, a leading wholesale finance and trust solutions provider for Canada’s credit unions, today announced the acquisition of TD Bank Group’s indirect home improvement financing assets, with a book value of approximately $339 million.
As part of the agreement, approximately 45,000 TD loans were purchased by Concentra and over 800 merchant dealers were assigned to Financeit.
Financeit has a nationwide footprint in the home improvement industry and has increased its lending activity in this market by almost 200% since last year.
With the transaction now completed, current TD merchant partners can begin submitting loans on Financeit’s platform immediately and can take advantage of the company’s unique approach. This includes mobile-enabled technology, customer self-serve application options, paperless document signing, extended credit and 180-day approval windows. Loan origination on the TD platform will end in October 2016.
Since launching in 2011, Financeit has worked with over 6,000 home improvement, vehicle and retail 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 investors, including a division of Goldman Sachs and FIS Global.
Concentra is a provider of national wholesale banking and trust solutions to credit unions across Canada. Concentra is serving over 80 percent of Canada’s credit unions. The company has over $37 billion in assets under administration, including over $8 billion in consolidated assets
Shanghai P2P Lender Raided After Failing to Make Payments, (CaixinOnline), Rated: A
Police raided the Shanghai offices of a major peer-to-peer (P2P) lending platform operator on Tuesday and arrested five people on suspicion of illegal fundraising, nearly half a year after the company stopped paying returns to its investors.
Police said they will urge the company to meet its financial obligations, but didn’t say whether criminal charges will be filed.
Kuailu is a typical case, promising investors 10 percent annualized returns, far higher than they could get from traditional banking products. Founded in 2003, the company entered P2P lending in 2014. It found a niche in lending for film production in both China and Hollywood using connections of its then-chairman, Shi Jianxiang.
In the past two years alone, Kuailu raised about 14 billion yuan ($2.1 billion) from about 260,000 investors, and poured the money into such high-profile projects as the Hollywood film The Bombing starring Bruce Willis.
But the company ran into financial difficulties and stopped paying out returns about six months ago, around the same time that Shi resigned, citing health concerns.
In June, Kuailu promised at least 600 investors, most of them elderly and in urgent need of cash, that they would receive priority in getting back 5 to 20 percent of their principal, a pledge requiring up to 100 million yuan, according to a notice on its official account on the popular WeChat mobile instant messaging platform.