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Monday October 17 2016, Daily News Digest

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United Kingdom

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News Summary

United States

The State of the Industry in the USA (LendIt.com), Rated: AAA

Matt Burton, CEO & Co-Founder of Orchard; Ram Ahluwalia, CEO of PeerIQ; Kathryn Petralia, CEO of Kabbage; Phin Upham, of Thiel Capital; and moderator Peter Renton, Chairman and Co-Founder of LendIt discuss the ‘The State of the Industry in the USA’ at LendIt Europe 2016 in London on 11 October 2016.

More Banks Working on APIs in 2016, But Bureaucracy Remains a Problem (Bank Innovation), Rated: A

APIs (application programming interfaces) are fast becoming integral to the banking world, but corporate culture has not yet caught up with the technology, according to data from a survey conducted by the Open Bank Project together with Bank Innovation.

In 2015, 62% of survey respondents indicated corporate culture and bureaucracy were the most significant hindrance to the development of an open API project. In 2016, despite an increase in the percentage of banks launching API initiatives, that number climbed to 69%.

According to data from the survey, 87% of the survey’s 174 respondents consider their banks’ inability to quickly create new digital products as a major challenge to API infrastructure. And 85% of those surveyed consider compliance a “very important” or “extremely important” challenge.

Only around a quarter of bankers (24%) saw compliance as a barrier towards implementing an API initiative, as opposed to 31% of bankers who were surveyed last year.

Data also shows a surge in the number of banks that have launched an open API initiative — 30% of respondents compared with last year’s 24%. Banks planning to launch an initiative in the next 12 months led all categories, with about 39% of all respondents. Only 9% of banks said they were not considering an API initiative.

banking apis

Fed paying close attention to ‘significant’ blockchain (Finextra), Rated: AAA

Distributed ledger technology may be the “most significant development in many years” for payments, clearing and settlement, according to a Federal Reserve governor who says that the central bank will publish its own blockchain paper later this year.

In a speech, Lael Brainard says the Fed is “paying close attention” to DLT, recognising its potential to transform the way financial market participants transfer, store, and maintain ownership records of digitised assets.

Money 2020 to Chart the Future Path for Payments Industry (NewsBTC), Rated: B

Money 2020, one of the leading financial and payments conference is preparing for its 2016 edition, scheduled for October 23-26. The event happening at the Venetian in Las Vegas focuses on blockchain technology, fintech, and related regulatory aspects.

Among the speakers are Brian Armstrong from Coinbase, John Beccia from Circle, Perianne Boring from the Chamber of Digital Commerce, Vitalik Buterin from Ethereum Foundation, Chris Church from Digital Asset holdings, Jacob Farber from R3CEV, Peter Kirby from Factom, Bobby Lee from BTCC, Jed McCaleb from Stellar and more.

As conventional banking and financial institutions continue to explore the use of blockchain technology in their operations, this event will bring both cryptocurrency and mainstream financial industries together. The main focus of this year’s Money 2020 event will be on regulations and innovation in fintech sector, which includes Bitcoin, blockchain technology, and cryptocurrency regulations.

Weekly Industry Update: October 16, 2016 (Peer IQ), Rated: A

The CFPB was ruled unconstitutional by the United States Court of Appeals for the District of Columbia Circuit in a landmark decision on October 11th, but rejected the idea of shutting down the agency. The appellate court focused on its unusual independence in the Executive Branch, and the use of retroactive enforcement action against PHH Corp, a New Jersey mortgage-service company (PHH Corp. v. Consumer Financial Protection Bureau, 15-1177, U.S. Court of Appeals).

The court’s decision in favor of PHH Corp. was considered a setback to the CFPB, who just last month was recognized for its role in determining Wells Fargo’s $185 million fine for opening deposit and credit card accounts without clients’ knowledge.

The second highlight was “The State of the Industry in the USA” panel. Convictions were riding high with polar opposite views on the Marcus platform. PeerIQ CEO Ram Ahluwalia found himself in the minority position making the case that a “well capitalized bank with a deep understanding of consumer credit risk” should not be underestimated.

Coincidentally, Marcus launched two days later and we recommend a Fast Company in-depth report for those following the story.

LendingClub released an 8-K providing a recap of credit and pricing changes, an update on credit performance and macro trends, a description of pricing changes, and revised loss-adjusted forecasts.

LendingClub interest rate revision

In our Q3 Securitization Tracker, we noted the increased delinquency rates for 2015 and 2016 vintages and anticipation of additional interest rate revisions. On October 14, 2016, LendingClub interest rates increased by a weighted average of 23 bps based (Exhibit 2). Rate increases are concentrated in ‘F’ and ‘G’ grade loans. A-grade loans will experience an interest rate reduction.

CommonBond is a student loan refinance online platform, targeting high credit quality undergraduate and graduate student loan borrowers. Since its inception in 2012, CommonBond has originated over $700 MM in loans through its lending partner The Bank of Lake Mills (BLM), a Wisconsin state-chartered and FDIC insured bank. BLM also back-stopped the reps and warranties CommonBond provided in the transaction.

Kabbage May Wait Out IPO Market For Continued Private Growth (Seeking Alpha), Rated: B

Atlanta, Georgia-based Kabbage was co-founded in 2009 by CEO Rob Frohwein, Marc Gorlin, and COO Kathryn Petralia. The company has raised $600 million in equity and debt financing from venture capital and strategic investors.

Kabbage raised its most recent financing of $135 million in October 2015 at a reported valuation of $1 billion. The company also increased its credit line to $900 million.

Only nine months later, the company announced the complete suspension of additional consumer loans, in the wake of increasing trouble in the sector from consumer lenders LendingClub (NYSE:LC) and Prosper Marketplace.

It detailed plans to create lending portals for two foreign banks in 2017 but has not provided any further information on that initiative.

Courting the Asian-American financial advice market (Investment News), Rated: A

By many measures, Asian-Americans are a financial adviser’s dream. They earn more than the general population, they have more financial assets and they are excellent savers.

Asian-Americans make up a fast-growing segment of the United States. In 2014, they represented 6.6% of the population, up from 4.5% in 2000, Census Bureau data show. During that time, their buying power grew 180% — faster than for any other ethnic segment in the country, according to a recent report from Prudential.

Median Asian-American household income is $87,000 versus $62,000 for the general population.

Average estimated household financial assets of Asian-Americans total $445,600, or 16% higher than the general population.

Sixty-two percent of the Asian-Americans surveyed were college-educated (including many with advanced degrees), versus 40% of non-Asians.

The report also indicated that the Asian-American market might be a ripe opportunity for advisers. Just 18% work with an adviser, compared with 26% of the general population. Despite this low proportion, 43% of Asian-Americans say they are willing to consider working with an adviser.

Asian-Americans, like the general population, rank retirement-related goals as their top financial priority.


Weekly Online Lending Snapshot – October 14, 2016 (Orchard Platform), Rated: A

It was another busy week in the online lending space. The week began for many of us in London with this year’s Lendit Europe conference kicking off on Sunday. Orchard attendees noted an increased presence this year of large U.S. institutional investors looking for opportunities in Europe. A staunch critic of online lending, former Chairman of the Financial Services Authority in the UK Lord Adair Turner, addressed the conference and seems to have softened his previous negative stance by indicating he now feels online lending could potentially add to the stability of the overall credit markets in times of crisis. Among the big news items for the week, Goldman Sachs announced the launch of Marcus, its online consumer lending platform, and the Wall Street Journal reported that Morgan Stanley is providing a $100 million credit line to San Francisco-based Affirm Inc., a provider of consumer loans at the point of sale.
weekly borrower interest rates
online consumer loan rates

CircleBack Lending Stops Making Loans, May Transfer Portfolio to Another Company (Crowdfund Insider), Rated: AAA

Simon, along with co-founder Todd Walters, are from the early days of online lending. The two entrepreneurs launched the 3rd peer to peer lending platform in the US back in 2008 – following in the footsteps of Lending Club and Prosper. Loanio started originating loans before the SEC required securities registration.  The registration requirement helped to force Loanio close up shop in 2011.  An interesting article byPeter Renton in 2011 also cited the high default rate of Loanio loans.

CircleBack Lending has stopped making loans. This is according to a report by Bloomberg. The online lender said that funding had vaporized as some borrowers failed to repay their loans.  CircleBack provides unsecured consumer credit for loans from $3000 to $35,000.

He also stated CircleBack would transfer existing loans to another company if they cannot find funding soon.

Bloomberg reported that CircleBack had higher losses than expected. Pointing to data from Morgan Stanley, cumulative losses for CircleBack loans in 2015 were pegged at 13.5%.  At one point in time, CircleBack appeared to have a promising future as itsigned a deal with Jeffries for sale and securitization of up to $500 million in loans. CircleBack had signed up Jeffries earlier this year to “explore strategic options.”

Lending Club tightens credit policies in fight to keep investor demand (Financial Times), Rated: AAA

Lending Club has tightened its credit policies for the second time in six months, as the platform battles to sustain investor demand for its loans amid spiralling losses.

The company’s business model — of arranging loans to consumers online, then selling them on to individual and institutional investors — has been under pressure in recent months, following revelations of a governance scandal that caused many big buyers to put programmes on hold.

Late on Friday the company announced that it would stop lending to certain classes of very risky customer and would put up rates for everyone else, after greater than expected losses across the board.

United Kingdom

Crowdfunding expected to replace buy-to-let (Mortgage Introducer), Rated: A

Property crowdfunding will go some way to replacing buy-to-let as the government’s tax changes stifle the market, Prime Central London property expert Jeremy McGivern has predicted.

McGivern, founder of search agency Mercury Homesearch, reckoned the growth of crowdfunding will represent the biggest change to the housing market in the next few years but warned it could have a ‘catastrophic’ outcome.

Lee Grandin of Lend2Landlord, a peer-to-peer lending platform linking landlords and developers to funders, felt McGivern may have a point if anyone is allowed to jump in and invest.

European Union

Overpopulation of unicorns is bad for the startup environment (BankNXT), Rated: AAA

The glorified unicorn hunt … it’s the latest trend on the street to be an entrepreneur. With an increasing supply (number of startups), number of VCs, corporate VCs, crowdfunding platforms et al (demand) is also increasing. Good old economics 101.

As the number of startups increases, so does the noise. As a result, the overall quality of startups has arguably gone down. It requires less capital and risk to start a business. Plus, it looks sexy on your CV.

Further fuel to the fire (in a positive way) is the shift in mindset of the large corporates towards startups. They’re much more willing to engage in a working relationship with an unknown company, or an early stage startup, often becoming that crucial first or second client. While the fee of anything under £10,000 is usually less than the cost of a coffee breakout session at its quarterly town hall, large corporations are still careful. You don’t want to bet on the wrong horse and let the winner run away with your competitors.

Lucky, the startup stack is changing to address this. Here’s how I imagine it.

startup stack

Zopa’s Jaidev Janardana at LendIt Europe: “We Were Profitable in September & We’ll Be Profitable Moving Forward” (Crowdfund Insider), Rated: AAA

Earlier this week, CEO of peer-to-peer lending platform Zopa Jaidev Janardana took to the stage of the marketplace lending conference, LendIt Europe, to share details about the industry’s growth and development over the past year. During his keynote speech, “2016: Growing Up,” Janardana noted despite the fact that this year has been an unpredictable year, Zopa’s performance has grown and become profitable.


Government set to unveil new body for financial advisers (Money Management), Rated: AAA

The new independent standards body aimed at governing the financial advice industry will be set up as a part of the professional standards legislation, which is expected to be introduced to the Parliament by the Government this year to mandate standards for financial advisers, Minister for Revenues and Financial Services, Kelly O’Dwyer, announced.

The cost of establishing the new body, as a Commonwealth company, would be covered by the large banks and AMP while the chairman and directors would be appointed by the minister.

The main responsibilities would include developing and setting the industry exam, developing the code of ethics, and determining the education and development requirements for both new and existing advisers.

ABA welcomes new independent standards body (Professional Planner), Rated: A

The Australian Bankers’ Association has today welcomed the Federal Government’s announcement that it will introduce new legislation into Parliament this year to create a new independent body to set higher professional standards for financial advisers.

The banking industry is also working on additional industry standards to ensure that banks can apply the Government’s professional standards framework in their competency and training programs, human resources policies, and compliance frameworks.

Wilsons, Bell Potter in market for hot fintech Afterpay (Australian Financial Review), Rated: A

Payments company Afterpay is seeking to raise $30 million in a placement through Bell Potter Securities and Wilsons on Monday.

Afterpay shares went into a trading halt on Monday morning as its brokers started drumming up interest from potential backers.

Afterpay is seeking the equity injection to fund growth, with the payments company experiencing a strong number of retail merchants seeking its online payments technology.

Bids were due at 4pm on Monday, according to terms sent to fund managers.

Morgan Stanley’s Jeffrey McMillan says collaboration is key in fintech (The Australian), Rated: A

It makes more sense for a global banking giant such as Morgan Stanley to collaborate with innovative fintech start-ups than to try to be innovative itself, according to the bank’s chief analytics and data officer, Jeffrey McMillan.

The second annual fintech conference hosted by The Economist was titled “Collaborate or Die?” in recognition of a growing trend for fintech start-ups to work in partnership with the large ­financial institutions they once talked about disrupting.

New fintech fund H2Ocean cancels IPO plans after failing to raise enough capital (Startup Smart), Rated: B

New Australian fintech venture capital fund has been forced to cancel its planned IPO after failing to raise the minimum subscription requirement.

H2Ocean was set to become one of Australia’s first publicly-listed VC funds, but founders Ben and Toby Heap have canned the IPO after being unable to raise the $27.5 million required beforehand.

Heap says that hitting this target would have enabled them to establish a diversified global portfolio of early-stage, high-growth fintech companies that would open up the asset class to retail investors on the ASX.

But they were unable to do so with insufficient interest from institutional investors.

Because of this, Heap says they have decided to proceed as a private fund.


China Publishes List of Restrictions for Peer to Peer Lenders (Crowdfund Insider), Rated: AAA

The evolving Chinese peer to peer lending sector took another twist in the regulatory path, as the government issued a special work plan this past week. According toECNS, the plan incorporated a list of restrictions for P2P lenders to help curb investor and borrower risk. The idea is to establish a more standardized industry.

Reportedly, the Chinese government banned platforms from setting up capital pools, extending loans, and “illegal fundraising”.

The government also addressed equity-based crowdfunding platforms stating they should not fabricate targets and carry out self-financing.

China is the home to the largest online industry in the world. Thousands of platforms operate in China. A recent report pegged the number of P2P lenders at 2595 at the end of 2015.  But there has been a proliferation of fraud and poor practices, with 1263 of these platforms experiencing operational problems.  More recent numbers fromWDZJ said there were 2,202 P2P websites were in operation at the end of September.

It is clear that Chinese policy makers are attempting to walk a fine line as economic growth slows. They need the online lending sector to provide credit to sectors of the economy that dearly need it but the lightly regulated sector comes with an obvious cost.


Digital Technologies And Fintechs to Drive Financial Inclusion in Asia (FinTech News), Rated: AAA

Wth an estimated 2 billion adults and 200 million micro, small and midsize businesses(MSMEs) worldwide considered as unbanked or underbanked, financial inclusion has emerged as a critical development challenge and an opportunity for fintechs.

Asia and Africa have the highest rates of unbanked population. These populations represent 21% of China’s total population, 47% in India and 64% in Indonesia.

In Southeast Asia, there are 642 million financial excluded adults and 39 million MSMEs that are underserved or unserved by credit services, according to McKinsey and Company.

Digital financial could boost annual GDP of all emerging economies by US$3.7 trillion by 2025 with nearly two-thirds of the increase coming from raised productivity of financial and non-financial businesses and governments as a result of digital payments.

digital finance mckinsey


J.P. Morgan Goes Virtual (Finews.Asia), Rated: AAA

Following the launch of J.P. Morgan’s virtual branch in India last December, the bank has now opened a virtual branch in Indonesia. 

The number of clients in India using the J.P. Morgan virtual branch service has been growing rapidly and the bank is expecting strong interest in Indonesia as well. Further virtual branches for the region are slated to come online, with expected launches in Thailand and China in the near term.

Offered via the J.P. Morgan ACCESS® OnlineSM, the virtual branch is a fully integrated platform that provides a comprehensive suite of banking services that can be securely accessed from desktops and mobile devices.



George Popescu
George Popescu
Allen Taylor
Allen Taylor


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