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Wednesday October 19 2016, Daily News Digest

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Wealth Migrate Launches Real Estate Investment Marketplace with Integrated Blockchain (Blockchain News), Rated: AAA

Wealth Migrate has became one of the first real estate online investment marketplaces to integrate Blockchain technology in a move that significantly enhances security and privacy protections for investors around the globe.

Wealth Migrate Chief Information Officer Jaco Maritz said that while many financial services providers are experimenting with the transformative power of Blockchain and distributed databases, few have successfully integrated the technology in a way that benefits global investors looking for enhanced security and assurance when investing across borders or locally.

Going beyond Blockchain’s offerings, the enhanced Wealth Migrate marketplace adds an additional level of security within its Blockchain as a “one-way hash code.” This is an extra, highly secure encryption applied to investment transactions in the Blockchain, providing an unprecedented level of privacy and cybersecurity protection.

Investors domiciled in developing and emerging markets will be especially advantaged by the software enhancements, as they are often exposed to greater risks when attempting cross-border transactions.

In addition to the Blockchain integration, the marketplace has a number of other cutting edge features coming, including automated investment advice and specialized investment products depending on investment goals.

United States

New regulation may impact millions of retirement plans (Jax Daily Record), Rated: A

The U.S. Department of Labor has enacted a set of regulations that will go into effect in April and likely impact retirement plans owned by millions of Americans.

The “Fiduciary Rule” was the subject of a panel discussion hosted Monday by the Rotary Club of Jacksonville.

The rule will require those who administer — or even give advice concerning — retirement plans to take only actions that are for the benefit of their clients and that do not create conflicts of interest that might cause financial gain for the adviser at the expense of the client.

About $7.3 trillion of the total is invested in Individual Retirement Accounts (IRAs), which are regulated by the U.S. Treasury through the IRS.

He said at least $95 million, and possibly as much as $159 million, is lost from retirement plans annually due to “conflicted” financial advice.

Don’t be afraid of robo advisers (Financial Planning), Rated: A

The number of Wall Street firms jumping on the automated advice bandwagon seems to be growing by the day. For instance, California-based SigFig Wealth Management partnered with UBS Group and other investors to develop new online management tools. BlackRock bought FutureAdvisor. Charles Schwab launched a robo adviser after Vanguard’s introduction of an online wealth management tool. In addition, Wells Fargo, JPMorgan Chase, Bank of America and Citigroup have all said they plan to offer low-cost, automated investment services either on their own or by joining with a private-label robo adviser.

Amazingly, the financial services research firm Cerulli Associates predicts assets managed by robo advisers will rise 2,500% by 2020, to $489 billion.

This growing focus on automation certainly has registered with individual investors. In a 2014 survey, State Street Center for Applied Research asked more than 1,600 investors: “In the future, do you think that technological advances in providing financial advice will better serve individuals with regard to value and cost than financial advisers?” More than three-fourths (76%) of millennials, 67% of Generation X and even a majority of baby boomers (54%) answered in the affirmative.

In the wake of the financial crisis and the Bernie Madoff scandal and with the DoL extending the fiduciary standard to all retirement plans, I believe that today’s investors want and deserve more from their financial advisers.

In fact, investors themselves seem to believe that embracing technology should not mean replacing human advisers. In a 2014 survey, 95% or more respondents listed these key characteristics of advisers they would like to work with: understanding their financial needs and goals, a high level of integrity, having their best interests at heart and welcoming open and honest communication. Obviously, these are the characteristics of a human adviser, not an algorithm.

For me, this calls into question the validity of the robos’ risk-tolerance questionnaires. As the authors conclude, “By attempting to lower near-term volatility, robo adviser portfolios sacrifice both long-term expected and downside performance for time horizons typically relevant to these clients.”

risks robo-advisors

InvestmentNews names the financial advice industry’s 2016 “Best Practices” (Investment News), Rated: B

InvestmentNews today named the winners of the 2016 Best Practices Awards, an important initiative that recognizes the top-performing and most innovative firms in the financial advice industry.

The 12 winners of the InvestmentNews Best Practices Awards were identified through their participation in the 2016 Financial Performance Study of Advisory Firms, and recognized today at The Best Practices Award and Workshop, hosted at the New York Athletic Club.

The 2016 Best Practices Award Winners are:

  • Balentine LLC
  • Berman Mcaleer LLC
  • Botsford Financial Group
  • Capital Advisors, Ltd.
  • Financial Development Systems, LLC
  • HTG Investment Advisors Inc.
  • LBMC Investment Advisors
  • Rinvelt & David, LLC
  • Sage Financial Group
  • Singer Xenos Wealth Management
  • Tolleson Wealth Management
  • WMS Partners, LLC

Regulator wants New York banks to launch online lending services (Reuters), Rated: A

Oct 18 New York’s brick-and-mortar banks should pursue business opportunities in online lending, an industry now dominated by many out-of-state startup companies, the head of the state’s financial regulator said on Tuesday.

The NYDFS, which oversees New York’s state-chartered banks, has held discussions with several banks that are considering online lending. The niche could help serve lower-income New Yorkers who have little or no access to banking, Vullo said.

Lending Club’s Tough Fall (PYMNTS.com), Rated: A

In early May, news broke that Lending Club had played fast and loose with its documents and disclosures, including the fact that then-CEO Renaud Laplanche had failed to disclose a personal stake in a firm Lending Club had an investment relationship with. The revelations were shocking. Within a week of the results of an independent audit, Laplanche was out, and the share price was in virtual freefall.

The glass-half-full interpretation of the news from last week was that Lending Club is working hard to get its investors better returns on the loan packages they buy. But the way it is doing it raised some eyebrows. Interest rates are going up, and credit standards will be getting tighter.

Translation: Riskier borrowers — particularly those carrying more debt — are defaulting at a higher-than-expected rate, which means borrowing on the platform is increasing.

Lending Club will charge a weighted average of 0.26 percentage points more to take out a loan, with the biggest increases going to borrowers who receive its lowest credit scores.

And some borrowers will not make the grade at all, as Lending Club has also announced that it will no longer extend loans to borrowers with high levels of revolving debt and multiple recent installment loans.

While the upping of standards — and the increased cost of borrowing — may please investors buying on the platform, Lending Club’s Wall Street investors, as of yesterday (Oct. 17), were clearly a bit disturbed by the revelation that defaults are on an upswing and that Lending Club’s borrower base could well be shrinking.

Lending Club is by no means alone in the difficulties it is facing. Marketplace lenders nearly across the board have faced mounting headwinds this year as investors have notably cooled in the public stock and private equity markets this year as marketplace lending has come to look rather risky as 2016 has worn on.

There is also the remaining unknown around the Federal Reserve and whether or not an increase in interest rates will be coming before the end of 2016, as many suspect. That changes the math on the profitability of lending to consumers and small businesses, which could make the competitive landscape more crowded as more traditional lenders consider moving more in the space.

3 Ways Fintech Has Improved the Customer Experience in Banking (Finance Magnates), Rated: B

Whether it’s applying for loans through traditional means via a bank or the U.S. Small Business Administration (SBA), setting up a bank account for your small business or even entering a bank to make deposits, poor technology (or an complete lack of) has damaged the customer experience.

Below are three ways in which fintech has helped to redefine the way the world conducts business:

  1. Responsive Design and Rich UX
  2. Drive-Thru Video Tellers
  3. Fast Funding

Chinese Peer-to-Peer Lender Ppdai.com Plans U.S. IPO (The Wall Street Journal), Rated: A

Shanghai Paipaidai Financial Information Service Co., known as Ppdai.com, is in discussions with bankers to launch an IPO in the U.S. as early as the second half of next year, according to people familiar with the matter.
The company, which was founded in 2007 and claims to be among the first online platforms in China to offer P2P unsecured loans, could hire banks to work on the offering by the end of this year, one of the people said.
Ppdai, whose venture-capital investors include Sequoia Capital China and Lightspeed China Partners, is considering a listing in the U.S. partly because of the logjam of more than 800 companies planning IPOs in mainland China, according to a person familiar with the matter. It is also hoping to capitalize on the strong stock performance of Beijing-based Yirendai Ltd., which listed in New York in December 2015. Yirendai became the first Chinese online P2P lender to list overseas. Its stock has more than tripled in value since.

In August, Chinese authorities imposed new rules on P2P lenders limiting the amount of credit available for borrowers and capping the number of products lenders can offer.

OnDeck’s Annual Seal Of Approval Contest Opens For Entries (PR Newswire), Rated: A

OnDeck® (NYSE: ONDK), the leader in online lending for small business, today announced that its annual Seal of Approval Contest is now open for entries. Small businesses in the United States can now submit entries in hopes of being one of three lucky winners to take home a$10,000 prize and a one-on-one personal coaching session with Shark Tank investor and real estate mogul Barbara Corcoran.

Fairway America’s online marketplace SBREfunds.com Lists First Ever Real Estate Syndications (PR Web), Rated: B

Fairway America, the market leader in the non-institutional Small Balance Real Estate (SBRE) space, has announced that it will periodically include real estate syndications on its site, SBREfunds.com.

According to Burk, he regularly encounters a broad spectrum of real estate fund managers, sponsors and syndicators around the United States seeking to improve the way they operate and capitalize their SBRE businesses and deals. Over the past two years, SBREfunds.com has listed a multitude of SBRE funds around the United States with various strategies totaling more than $2B in total offerings.

Burk will be in the San Francisco Bay Area this coming week talking with SBRE entrepreneurs and promoting SBREfunds.com.

The new market environment created by real estate crowdfunding and the availability of investment opportunities via the internet is very congested. When asked, Burk readily acknowledge the challenges posed for people trying to understand and participate in this new environment. “There is a huge variety of strategies, approaches and level of quality out there”, said Burk. “My experience is that it is very hard for many people to discern the differences from one to another and therefore it is a dangerous landscape. We offer a variety of tools intended to educate and inform both sponsors and investors about the space in a way that helps them meet their goals.”

Survey On Consumer Attitudes Toward Fintech Spells Trouble For Banks (Forbes), Rated: A

A new survey by Blumberg Capital, a San Francisco-based early-stage venture capital firm that has invested in a number of such companies including Able Lending,Addepar, Lendio, Fundbox, FeeX, EarnUp,CoverHound and more, shows that three in five Americans say banks are failing to keep up with their needs and that 57% believe that traditional financial institutions will cease to exist in their current state within their lifetime.

The survey further found that 75% of respondents say that fintech gives them more power over their finances, 65% say that fintech gives consumers access to services previously available only to the wealthy and 69% say that such tech will help everyone be better off financially.

Still, the Blumberg survey found three in ten are unsure of what to think about fintech, echoing a report by market research firm Mintel in March that found that significant percentages of consumers still lack awareness of some popular areas of fintech.
fintech survey results
Querying 2,000 adults age 18 and older who agreed to participate (which meant no sampling error could be calculated), it found that 62% of Americans feel they pay too much interest on debt, 72% say it would be helpful to have a customized, automated way to never miss a payment and minimize the total interest on their loans; and 76% of Americans believe that the financially underserved, such as those with low credit scores or bad employment histories, need access to loans and credit outside of the traditional banking system.
fintech consumers
Though two-thirds of those surveyed say fintech makes solutions previously only available to the wealthy accessible to everyone and three-quarters say it helps democratize financial services, the highest-income bracket in the survey, $75k+ was actually most likely (75%) to say that fintech helps more Americans be better off financially — by six to 12 percentage points compared to the other income groups.

In other evidence that fintech firms could do a better job of supporting lower-income households, those in the lowest bracket — less than $25k a year — were two to five times more likely to be unsure of how important it was to have access to the latest technology, and the least likely to believe that fintech could help democratize services.

As for a takeaway for banks, Blumberg says, “Banks need to adapt, adopt or hasta la vista, baby. Banks cannot continue to do what has made them successful for the last 50 or 100 years.”

Credit scoring with an eye to the future (Wain Street), Rated: A

Question: How do you choose between two borrowers both of whom have a 720 credit score? Answer: Can’t; need additional information.
How about, the first borrower is from an economically stagnant region and the second borrower from an area that is in the midst of an economic boom? Now we can choose. How? Broadly speaking, the first borrower’s future income prospects are not as bright as the second borrower’s. True, both borrowers have identical credit scores –an assessment of their credit risk based on past individual behavior. But again, broadly speaking, borrowers make good on their financial obligations from future income—a factor that is not easily controlled by the individual and not captured in credit scores. Final answer: The second borrower from the economically booming area presents a better credit risk.

Charge-off rates are an objective, quantifiable assessment of credit quality.

Local Economic Vitality is new information that is relevant to credit performance and complementary to what’s captured by traditional credit scores. Credit scores reflect past borrower behavior such as payment history, credit utilization, length of history, etc. that is predictive of future behavior. Local Economic Vitality is a subnational ranking derived from macroeconomic factors including labor market conditions, industrial production, sales, housing market conditions, and financial conditions. It summarizes the macroeconomic context of a borrower and is a gauge of the borrower’s future economic prospects.

There is a very weak association between credit score and Local Economic Vitality.

credit scoring

The association between debt to income (DTI) and Local Economic Vitality is intuitive. Indebtedness amongst borrowers from economically stronger locations is higher likely because of greater access to credit and higher homeownership.

There is measurable variation in charge-off rates by Local Economic Vitality. The pattern is intuitive— charge-off rates are lower (better) in areas where the economy is stronger. The “unexpectedly” larger value for charge-off rate in the economically strongest areas (labeled as “Booming” in the chart) is likely a reflection of “adverse selection” in the originator’s data.

Credit score accuracy can be improved by incorporating macroeconomic factors that are not used in score construction yet influence consumer credit performance. Derived from macroeconomic factors, WAIN Street’s Local Economic Vitality is a subnational ranking that provides new information about borrower economic well-being.


Portag3 Ventures Fintech Fund Aims to Reshape Canadian Fintech (Crowdfund Insider), Rated: B

Adam Felesky and Paul Desmarais III today announced the closing of a new fund, Portag3 Ventures (“Portag3”), focused on the fintech sector. Felesky, a co-founder and former CEO of Horizons ETFs, has been named President and will run day-to-day operations at the fund. Paul Desmarais III, a Vice President of Power Corporation of Canada and of Power Financial Corporation, will serve as Executive Chairman of Portag3 and will work closely with Felesky.

Portag3 aims to find creative entrepreneurs who will help reshape Canadian FinTech by making early stage investments in promising companies that have the potential for innovative change and global impact.

Portag3 is backed by a corporate partnership between Power Financial Corporation (PWF.TO), IGM Financial Inc. (IGM.TO) and Great-West Lifeco Inc. (GWO.TO). Members of the group have already invested in one or more platforms including Wealthsimple, Borrowell, Clearbanc, Koho and League.

United Kingdom

Marketplace Lending: The Challenge of Keeping It Simple And Transparent (Crowdfund Insider), Rated: AAA

LendIt Europe gathered over 900 attendees from 50 countries on the banks of the Thames river to network and hear about the latest trends in online direct lending. The tone of the conference was clearly set by the UK keynote speakers. The UK being 4 times bigger than the sum of all Continental European markets taken together, everybody was keen to hear these forerunners’ thoughts about where the market is going.

Samir Desai, co-founder and CEO ofFunding Circle, and Jaidev Janardana, CEO of Zopa, referred to the past twelve months as challenging. The Lending Club tarnish, issues such as fraud cases in China and Sweden, and, finally, the Brexit, have temporarily slowed down the growth of marketplace lending in the first half of 2016.

The UK financial services regulator, the Financial Conduct Authority (FCA) is preparing a review of the P2P sector’s performance under the current regulatory framework. That prospect probably influenced many speakers to spend time contrasting marketplaces with banks. Margaret Doyle, Partner at Deloitte and author of the report “Marketplace Lending, A Temporary Phenomenon?” was one of the few critics of the marketplace model on stage. She argued that lending marketplaces lack sustainable competitive advantages over banks as they, among others, do not have a lower cost of funding and use the same risk analysis tools as banks. Cormac Leech, Partner at Victory Park Capital, later retorted that marketplaces will gain these advantage as they grow and reach the economies of scale and experience curve – that banks currently have.

Transparency is hard work, but it seems to pay off, as seen from the success of the members of the UK P2PFA.
marketplace lending uk

Five reasons to consider peer-to-peer lending (Moneywise), Rated: A

In the low interest rate world we find ourselves in today, the interest rates on offer from savings accounts continue to disappoint.

In contrast, P2P lending can generate inflation-beating returns of between 5% and 9% – depending on the type of lending that is undertaken. It is a good idea to invest across a number of P2P platforms, so you have exposure to different types of loans and borrowers.

P2P also provides investors with an opportunity to diversify away from traditional asset classes, such as equities and bonds.

P2P sits somewhere between savings and shares in terms of the risks and rewards on offer, according to Andrew Lawson, chief product officer at P2P platform Zopa.

Between 2005 and the end of June 2016, 150,000 people had lent close to £5.8 billion via P2P platforms, according to the Peer-to-Peer Finance Association.

In an environment where banks have withdrawn funding for small businesses, property developers and entrepreneurs, P2P lenders play an important role.

European Union

European Fintech Alliance has first outing at Deutsche Bourse (Finextra), Rated: A

The European Fintech Alliance, established in Berlin early this summer, has been set up with the aim of represent the interests of startups in the political arena and to build bridges between policy-makers and regulators at European level.

Speaking at the kick-off event in Frankfurt, co-founder Marc Tenbücken says: “It is important to foster mutual understanding between decision-makers and the fintech sector by establishing a sustained dialogue and a regular exchange of information.”

Trading Insights on the Finbee Secondary Market (P2P-Banking), Rated: A

Finbee is a small p2p lending marketplace for consumer loans in Lithuania (see earlier coverage).
I mostly invest in ‘D’ loans (that is the most risky rating) with long loan durations (>36 months) and high interest rates. The average interest rate in my portfolio is 32%, the maximum 35%. My reasoning for this choice is that these loans allow high markups and still offer an attractive buyer yield (XIRR value).

I try to sell all my loans that are late or in arrears. Naturally I need to list them at a discount, to make them attractive for buyers. You’d assume that I make a loss selling at discount, but since even these overdue loans sell with all accrued interest that means I can sell even these loans at a profit.

Since at least one repayment is required before a loan can be put on sale, any loan that goes late on the very first repayment is cannot be sold. If that happens I might have to hold the loan to maturity unless it catches up and becomes current again and I sell it then(EDIT: Another investor informed me that it is not possible to sell loans, once they received at least one payment from the compensation fund – another useful information I did not know yet).

I succeeded in selling many parts at premium. The average premium achieved is about 6% (which roughly equals 2 month interest if I had alternately kept the loan), the maximum so far is 12.2%.

finbee lithuania

PwC study finds 4.3m Germans unjustly denied access to credit (altficredit), Rated: A

A new study from PwC has attempted to gauge the impact of alternative lenders in opening up access to credit in Germany. The study found that €66bn of credit applications do not get serviced by the banks each year, due to “supposedly” poor credit ratings. But according to auxmoney’s credit assessment model, 30 to 35 per cent (or €19-22bn) of this outstanding demand is unjustly rejected. Auxmoney says that this amounts to around 4.3m people in Germany.

But is this divergence in acceptance metrics the result of a superior underwriting model, or simply the product of a bigger risk appetite?

PwC expects to see an uptick in marketplace lending volumes due to increasingly restrictive traditional lending guidelines in mainland Europe. Similarly, the German Federal Bank anticipates continued growth from the marketplace lending sector, as it outlined in a paper in August.


Global network of accelerators look to cash in on India’s fintech goldrush (Economic Times), Rated: A

Accelerators and incubators specialising on financial technology startups are increasingly coming to India, with 2016 witnessing the launch of several of them, from Startupbootcamp’s local edition and a Swiss Re programme to Zone Startups and Rainmatter.

They expect to see global products emerging out of the Indian financial services and insurance industry.

Startupbootcamp, which has fintech accelerators in cities like New York and London, entered India after setting up its Singapore chapter.

It expects to short-list 10 fintech players for a three-month programme beginning in December. Companies and banks usually provide an annual fee to the accelerators for managing such programmes, while aiming to either acquire the participating startups at the end of the session or turn them into business partners.

Zone Startups India recently partnered with Barclays and Axis BankBSE 0.57 % to start accelerator programmes, and expects the ideas that come out to have a global market.

Rainmatter, a fintech incubator launched by Nithin Kamath, founder of discount brokerage firm Zerodha, is open to receiving applications 365 days a year, unlike traditional incubators. But it has a stringent admit policy. It has admitted just half adozen startups so far since starting operations in 2015.


Filipino FinTech startup First Circle raises record-breaking .2 million seed round (Geektime), Rated: A

First Circle, a Philippines-based company with Irish leadership, announced a strong $1.2 million seed investment Tuesday led by Dublin-and-London-based Key Capital with money also coming from 500 Startups and Singapore-based IMJ Investment Partners.

The Philippines is a small tech market, particularly in FinTech, though it hasn’t been completely unwatered in terms of seed funding this year.


George Popescu
George Popescu
Allen Taylor
Allen Taylor


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