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Friday September 23rd 2016, Daily News Digest

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What happened to transparency for investors?, (Business Insider), Rated: AAA

HR 835 calls for the U.S. to “adopt a national policy for technology to promote consumers’ access to financial tools and online commerce to promote economic growth and consumer empowerment.”

Congress is celebrating its affirmation of House Resolution 835, which, in an almost unanimous vote, garnered 385 yeas and four nays. This kind of bipartisan support is rare these days.

In plain English, this resolution (not yet a law) demands our government develop a policy to create tools to help consumers understand and manage financial assets.

Congressional support for fintech is long overdue for the industry, which right now faces huge consumer demand amid growing pains.

Now, just eight years after this [marketplace lending] industry was created, we’re at an inflection point. Why? Because much of the alternative lending space is starting to rely on institutional investors, many of them from the same banks marketplace lenders were originally expecting to displace.

Online lending’s new reliance on capital markets means that the more investors are interested in backing the loans, the better the terms are for consumers. Conversely, it also means that if institutional investors pull back, loan availability shrinks while interest rates rise.

China’s Peer Lender Yirendai Bullish On Performance After Stock’s Nosedive, (Forbes), Rated: AAA

Before the nosedive Yirendai’s stock had nearly quadrupled since its IPO last December, with a 40% stake held by founder and chairman Ning Tang peaking at $880 million. Yirendai then saw its shares halved over the two weeks following the new Chinese regulation.

“Our only noncompliance [with the new measures] is the $30,000 cap, but that takes up a mere single-digit percentage in our loan accounts, almost negligible,” says Yirendai’s CFO, Yu Cong, at its Beijing headquarters. “A draft of the regulation was launched last December, and the new version only added the loan caps. We’ve been conforming ourselves [to the draft], so there’s hardly any impact on us this time.”

Company shares haven’t bounced back, though, putting its market capitalization at $1.3 billion a month after the rules came out.

Despite the official crackdown, the company expects to double its net revenue and income in 2016.

Connected devices find a home in trade finance, (Tradestreaming), Rated: A

Probably the most transformative application of IoT will not be in retail banking but in trade finance, where banks facilitate payments associated with complex global supply chains. “In the same way that shipping companies track raw materials and finished goods, banks could use the same sensors and GPS locators to determine more precisely when payments should be issued and received,” said David M. Wallace, global financial services marketing manager at SAS.

Insurance is probably the most mature financial service to implement IoT. However, customer acceptance of usage-based policies that collect data from IoT sensors has been lackluster.

United Kingdom.

Marshall Wace unit launches private equity version of loans fund, (Reuters), Rated: A

Hedge fund Marshall Wace’s subsidiary MW Eaglewood is raising money for a private equity version of its billion-dollar investment trust that invests in peer-to-peer and marketplace lending loans, a source told Reuters.

MW Eaglewood’s new private equity fund, targeting to raise $300 million by the end of 2016, replicates investment trust P2P Global Investments, the source said.

It will lock up investor capital for seven years.

P2P Global is a roughly 900 million pound ($1.2 billion) investment trust that acquires loans originated by peer-to-peer platforms like Zopa.

The new private equity fund will seek institutional investors and take leverage while P2P Global was open to both retail and institutional investors and was not leveraged.

Alternative lending drop is a ‘pause for breath’, (Bridging and Commercial), Rated: AAA

Last week, the National Association of Commercial Finance Brokers reported a 14.4% fall in alternative lending business compared with the same period last year.

Meanwhile, traditional sources of lending such as bridging finance and development finance rose by 74.6% and 49.8% respectively.

John Goodall, CEO and co-founder of P2P buy-to-let platform Landbay, explained that not every sector in the alternative finance market had been affected by the drop.

“Quality lending should always take precedence over purely seeking loan book growth.”

Zopa is fuelling growth with riskier loans, (Business Insider), Rated: A

Zopa is credited with inventing peer-to-peer lending.

Fitch’s rating [of Zopa’s 1st securitization announced in the past few days] included a detailed analysis of Zopa’s business that found “the proportion of riskier lending increased at the same time that Zopa’s volume was increasing dramatically.”

From 2013 onwards, Zopa lent money to more people with lower average credit scores, made loans with longer terms, and had a “higher share of debt consolidation loans,” traditionally its worst-performing category.

Zopa declined to comment on the Fitch report when contacted by Business Insider.

Zopa grew modestly in its early years, but began to be eclipsed by newer players in the space, such as Funding Circle, established in 2010, and RateSetter, set up in 2009.

In response, Zopa made a big push to boost loan volumes. Lending over the platform jumped markedly from 2013 onwards, as the below chart from Fitch shows:


Meanwhile, Zopa’s percentage of car loans, the safest type of lending according to Fitch, began to decline from 2013 onwards. They had been rising since 2008.

The length of Zopa’s loans also grew, with 60-month loans — 5 years — going from around 25% of the business to around 50%. Fitch says that longer loan terms are another indication of riskier loans.

Meanwhile, Zopa’s percentage of car loans, the safest type of lending according to Fitch, began to decline from 2013 onwards. They had been rising since 2008.


The length of Zopa’s loans also grew, with 60-month loans — 5 years — going from around 25% of the business to around 50%. Fitch says that longer loan terms are another indication of riskier loans.


Here’s Fitch:

“The lowest risk band was C until mid-2014, when Zopa expanded its underwriting to include riskier borrowers in risk bands D, who would previously not have been granted a loan. In 2015, Zopa further expanded to lower credit quality to begin originating risk band E loans. Since this point, the proportion of D and E loans has steadily increased, and represented 9.32% and 3.22%, respectively, of 2016 originations through August.”



Of course, there’s nothing inherently wrong with lending to riskier borrowers with lower credit ratings. Zopa has clearly made a conscious decision and Fitch says it “considers Zopa’s lending policies, including the underwriting verifications and policies, as well as the predictive power of its scorecard, to be comparable with established consumer lenders.”

However, Fitch says: “The rapid growth in Zopa’s origination volumes, together with the observed shift in the origination mix towards longer terms and increased lending for debt consolidation purposes, means that we cannot accurately predict how these loans will perform in a stressed environment.”

In fact, data on the performance of loans made last year suggests a worse performance than prior years:


Aside from the fascinating insight into Zopa’s loans, the Fitch report includes a few other nuggets about how the business runs.

Fitch says: “In 2014, institutional investors began funding newly originated loans; the share of institutional funding has been growing since, to 56% by August 2016.”

Roughly 50% of applications are automatically rejected for not complying with lending criteria such as being at least 20 years old, earning over £12,000 a year, and having been resident of the UK for at least 3 years. 25% of all applications are verified through credit bureau data and are automatically accepted. The rest either go for manual approval or require additional documentation.

RateSetter Reports: Investors Have Now Pocketed £50M in Interest, (Crowdfund Insider), Rated: A

RateSetter, one of the UK’s largest marketplace lenders, reported on Thursday that since its launch in 2010 investors have pocketed more than £50 million in interest, earning an average rate of 4.7%. 

RateSetter reported that it achieved the £50 million interest milestone without any individual investor losing any capital and interest.

The company also noted that it has seen an increase in investor numbers since the Bank of England made the decision to cut interest rates last month and noted that over 65% more active investors registering compared to the same two-month period in 2015. It currently has 45,000 individual investors registered.



China’s largest P2P lender Lufax taps four banks for Hong Kong IPO: sources, (Reuters), Rated: AAA

Lufax, China’s biggest peer-to-peer lending platform backed by Ping An Insurance, is in talks with four investment banks about taking leading roles in its planned Hong Kong IPO, people familiar with the matter told Reuters.

The initial public offering could raise $5 billion, Thomson Reuters publication IFR reported previously.

Lufax, valued at $18.5 billion in a January fundraising, would be the first peer-to-peer (P2P) platform to list in Hong Kong.

Lufax had over 23.3 million users at end-June, Ping An said in its first-half earnings report, more than double a year earlier. Trading volumes totalled 3.2 trillion yuan ($480 billion) over the same period, compared with 512 million yuan in the first half of 2015.


George Popescu
George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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