- Today’s main news: Online lenders attempt to self-regulate before Uncle Sam does it for them.
- Today’s main analysis : The autocorrelation between unemployment and credit card charge off rates. Why are Asian corporations investing more in global payments?
- Today’s thought-provoking articles: What aspects of FinTech will bring the most change to financial services? How Millennials are changing financial management. How to stay competitive. Moody’s thinks the U.S. online lending market is inherently weak business model. Is FinTech the answer to Asia’s woes?
- Online lenders seek to regulate themselves before the feds do it for them. AT: “Self-regulation is the best protection against over-regulation. Critics will say there should be government oversight, but the reason consumers are driving demand for online lending in the first place is government interference in the financial sector, which has led to lack of trust in both traditional financial institutions and the government.”
- Lawfirm representing shareholds against Yirendai warn of deadline for joining as lead plaintiff in class action lawsuit. AT: “This is both a boon and a bane to the industry. It signifies on the one hand that marketplace lending has indeed gone mainstream vis-à-vis traditional securities laws being applied to the industry. On the other hand, it also means marketplace lenders are on pins and needles where regulation is concerned. It’s time to watch your step.” GP: ” This is just another class action lawsuit from the pile that came up after China applied regulation to the p2p sector which lead to the Yirendai stock dropping about 30%. Just an automatic class action law suit from what I would think are stock ambulance chasers. “
- The link between unemployment and credit card charge offs. AT: “I’d encourage you to check out the source documents mentioned in the article. This is TechCrunch’s take, albeit there is some interesting analysis going on here.” GP ” The author says ‘best proxy for P2P loan defaults is the credit card default rate’. I agree it is a good proxy. However, experience shows that when faced with a choice people pay their credit cards 1st , before they pay their personal loans. Why ? Because the credit card is also a mean of payment that allows them to buy gas, groceries… Whereas if you don’t pay your personal loan, well, your reputation is affected and your future cost of capital will go up, but there is no short term effect.”
- Millennials are changing how financial management is done. AT: “Some of this is a rehash of similar articles in the past, but there is some new analysis here, as well. Millennials have become a strong power just by their very presence. You can’t ignore them and stay alive in the current market.”
- Thoughts on staying competitive with the proliferation of digital technology. AT: “This article complements the one on Millennials above. Together, they provide a useful analysis of the current direction of financial management.”
- A partnership between Lantern Credit and Plaid, makes them both stronger. GP “The article is very vague and we can’t really figure out what this partnership really does. Without knowing more it feels like a smoke and mirror show. Most online lenders are integrated with some sort of bank API data provider like Plaid. Nothing really new here most likely. “
- When you should choose a financial advisor, and when you shouldn’t. AT: “Written for the consumer with some takeaways for the advisor.” GP ” The main strenght I see in robo-advisors is verifiable, by reading the code, robot objectivity. Yes, robots can be written to give preferance to a particular product who wine and dines the programmer. But in the future lawsuit the robot software code will be evidence #1! “
- Moody’s says U.S. online lending is an inherently weak business model. AT: “If so, then why is it doing so well?”
- What FinTech features will lead to the most change in the finance sector? GP ” A very interesting analysis. I think it’s a very complex and deep subject a further analysis is needed here. I am not sure with the conclusion and the process of getting to the conclusion. “
- RealtyMogul hits a new milestone.
- LendingHome offers jumbo loans to U.S. property investors.
- LendInvest launches property development academy.
- Canadian company Katipult launched it’s UK P2P lender. GP ” An interesting choice, when Canada could use more P2P lenders and the UK is quite saturated already. There are also other Commonwealth countries who could use more P2P lenders.”
- Can FinTech fill the gap for Asia’s SME lending shortcomings? AT: “Asia is on the rise in almost every conceivable way. FinTech could very well shift the balance of economic power toward Asian countries in the 21st century.”
- What is at the heart of global payments rise? AT: “Don’t underestimate the importance of regulatory compliance requirements. In the U.S., those are few. Almost every other country relies more on regulation than the U.S. But another factor could also be that the U.S. already has strong strong security in place and therefore doesn’t require as much investment on that front.”
- 5 African companies are recognized among the FinTech 100. AT: “Interesting to me are the winners of the Blockchain & Bitcoin and the Lending & Finance categories. The Sun Exchange is an American company that uses a crowdfunding model to sell solar energy assets in South Africa. Ovamba provides funding for micro-, small-, and mid-sized businesses in Africa but is funded by investors from the rich Western nations.”
- United States
- Online Lenders Seek to Shape Industry Before Regulators Do (New York Times), Rated: AAA
- Brower Piven Notifies Shareholders of Deadline In Class Action Lawsuit with Yirendai Ltd. To Contact The Firm (EIN News), Rated: AAA
- Enjoy the return and watch for unemployment (TechCrunch), Rated: AAA
- How millennials are changing the face of finances (Seattle Times), Rated: A
- How to Stay Competitive in Todays Digital World (WealthManagement.com), Rated: A
- Lantern Credit Partners with Plaid, Leveraging Fintech Data Solutions (Finance Magnates), Rated: A
- Are Financial Advisers Still Relevant in Today’s High-Tech World? (Equities.com), Rated: A
- US Online Lending Market Inherently Weak Business Model (Crowdfund Insider), Rated: AAA
- The Fintech Effect: What Will Bring the Most Change? (CFA Institute), Rated: A
- RealtyMogul.com Hits $ 50 Million in Funds Returned to Investors (Email), Rated: B
- LendingHome Offers US Property Investors New Jumbo Loans and Higher Leverage at Lower Rates as Home Flipping Hits Six-Year High (Marketwired), Rated: B
- United Kingdom
- Free academy launched for UK developers (OPP.Today), Rated: AAA
- New P2P lender launches in UK (Financial Reporter), Rated: A
- Can Fintech Fill Asia’s SME Lending Gap? (Federal Reserve Bank of San Francisco), Rated: AAA
- What’s driving investment in global payments? (The Asset), Rated: A
- Fintech 100 Recognizes 5 African Companies (Face2Face Africa), Rated: B
Online Lenders Seek to Shape Industry Before Regulators Do (New York Times), Rated: AAA
Online lenders are drawing from a familiar playbook in Washington as scrutiny of the business heats up.
A central plank of their strategy is to prove that the industry can tame itself without the need for additional government intervention. By distancing themselves from payday lenders and other businesses whose predatory tactics have drawn regulatory fire, online lenders hope to avoid a similar crackdown.
Consumer advocates have increased warnings that a lack of federal oversight of the lenders could leave some borrowers with unduly high fees or shut out of the market altogether.
Last year, a group of firms and small-business experts called the Responsible Business Lending Coalition published a “bill of rights” for borrowers of small-business loans and other credit products. Dozens of lenders representing community development financial institutions and online companies have signed on to the agreement, which calls for clear disclosures, no hidden penalty fees and high confidence that a borrower will be able to repay the loan, among other provisions.
Now, two trade groups established this spring are preparing their own initiatives. Lending Club, Prosper and Funding Circle organized theMarketplace Lending Association in April and brought in Nat Hoopes as executive director last month.
The aim is “to create an association in Washington that represents online lenders that are consumer-friendly and that adhere to the highest possible standards of disclosure, transparency and fair pricing,” Mr. Hoopes said.
Brower Piven Notifies Shareholders of Deadline In Class Action Lawsuit with Yirendai Ltd. To Contact The Firm (EIN News), Rated: AAA
The securities litigation law firm of Brower Piven, A Professional Corporation, announces that a class action lawsuit has been commenced in the United States District Court for the Central District of California on behalf of purchasers of Yirendai Ltd. (NYSE:YRD) (“Yirendai” or the “Company”) securities during the period between May 11, 2016 and August 24, 2016, inclusive (the “Class Period”). Investors who wish to become proactively involved in the litigation have until October 25, 2016 to seek appointment as lead plaintiff.
If you wish to choose counsel to represent you and the Class, you must apply to be appointed lead plaintiff and be selected by the Court. Members of the Class will be represented by the lead plaintiff and counsel chosen by the lead plaintiff.
The complaint accuses the defendants of violations of the Securities Exchange Act of 1934 by virtue of the defendants’ failure to disclose during the Class Period that the Company was experiencing an increasing amount of fraud related customer applications for its loan products and that the implementation of new anti-fraud regulations by the Chinese government, in response to increasing fraud in the industry, could have a negative impact on the Company’s performance.
If you have suffered a loss in excess of $100,000 from investment in Yirendai securities purchased on or after May 11, 2016 and held through the revelation of negative information during and/or at the end of the Class Period and would like to learn more about this lawsuit and your ability to participate as a lead plaintiff, without cost or obligation to you, please visit our website at http://www.browerpiven.com/currentsecuritiescases.html.
Enjoy the return and watch for unemployment (TechCrunch), Rated: AAA
Those of us interested in marketplace lending have recently observed many pejorative headlines about P2P lending platforms. These headlines mostly reported on Lending Club’srecent difficulties, but also criticized other platforms and the P2P lending model more broadly. Very few people anticipated this kind of a problem less than a year ago as investors were competing for allocations on platforms.
Even the biggest skeptics of the marketplace lending sector would not have imagined the extent to which the situation would change in 2016. In Q1 2016, leading platforms significantly decreased originations (Prosper, 12 percent; Avant, 27 percent) — and this was only the beginning.
I personally believe there is one thing that is crucial for the success of the marketplace lending industry in the long run, and it is loan performance. Should investors get what they have anticipated, sooner or later money will flow into the industry. One can argue that in the long run we are all dead, and it is important that investors continue purchasing loans sooner rather than later for marketplace lenders to be sustainable.
In my opinion, the best proxy for P2P loan defaults is the credit card default rate. This is because a significant portion of loans originated by P2P platforms are used by borrowers to refinance credit card loans, with P2P platforms typically offering lower interest rates. While there is limited data available on the performance of P2P loans during recessions (though that data is positive for the marketplace lending industry), credit card default rates are available since 1985.
An article by Stephen Cecchetti and Kermit Schoenholtz analyzes the relationship between credit card default rates and unemployment rates. As expected, the article suggests a strong dependency — default rates are expected to increase by 0.55 percent for each 1 percent growth in unemployment. However, the regression described in the article also exhibits a strong autocorrelation, which can lead to incorrect conclusions.
This result indicated that 1 percent increase in unemployment is likely to lead to a 1 percent increase in default rates (not 0.55 percent as the article cited above states).
From these observations we can estimate that the default rate will likely increase 2-3x depending on the severity of the recession. Orchard Platform published a very good white paper that discusses potential consequences of such increases in defaults. Page 11 of the white paper states “In fact, realized defaults would have to be 2.2 times projected rates in order for a loss to be realized.” This gives a good representation of what to expect, and I strongly encourage those of you who are interested in understanding this topic in detail to go through that white paper thoroughly.
How millennials are changing the face of finances (Seattle Times), Rated: A
Picture the financial world: If you still see a bunch of old guys in suits hunched over stacks of documents, you might want to upgrade your mental image. After all, the way we deal with money today is totally different than it was even ten years ago.
Like many of us these days, millennials expect to be able to conveniently access pretty much everything via their smartphones, including their banking, which is why they’re the ones behind the latest mobile apps that offer banking services and financial advice.
A recent survey by PricewaterhouseCoopers showed that millennials are the group most troubled by financial stress. But some members of this generation are taking that stress and channeling it into building new tools and services that make financial literacy more straightforward and transparent.
When it comes to the financial industry, Fuentes says, there are lots of reasons millennials may have a less than favorable view, from high student-loan debt burdens to watching Wall Street crash in 2008. To make the banking experience one millennials can trust, he’s focused on changing the way the industry discusses money with clients, being more open about fees and what they can expect from products, and also emphasizing that financial institutions really want to help empower how their clients feel about money through personal connections.
But the millennials working in finance also realize that it’s not just the latest tech or the method for dispensing financial advice that needs to change to service this new generation; the advice itself needs to shift.
Most millennials are facing a completely different financial picture than their parents or grandparents did. Many of them are carrying much bigger debt burdens from student loans and they’re less likely to be at the same salaried job for their entire careers. So the old financial advice or tools aren’t always the best fit. That’s why Stefanie O’Connell, author of “The Broke and Beautiful Life,” has focused on passing on new applicable advice to her millennial audience. “My mom and dad’s dream isn’t my dream and that’s OK. The dream for millennials is more diverse than ever. If I had to sum it up, it would be living and working on our own terms,” O’Connell says.
These changes might seem major, but Fuentes says they’re exciting for everyone. Millennials prioritize purpose and community over numbers. Banks are responding with new apps and programs tailored to those priorities. Capital One, for example, is reimagining the banking experience by bringing banking and living together through their Capital One Cafés – a space where individuals can recharge their bank accounts, devices and lives while learning new ways to manage their finances, try out innovative digital and financial tools and grab a cup of coffee.
How to Stay Competitive in Todays Digital World (WealthManagement.com), Rated: A
We now live in a world where anyone with a bank account can be an investor. Gone are the days when thousands of dollars are required to obtain the best possible managed financial services advice. Thanks to the rise in low-cost, easy-access, self-service digital solutions, the entry point for professional financial advice is now next to nothing. This paradigm shift is particularly appealing to the next wave of investors, millennials, and soon Gen Zs (those born after 2000). A new demographic has emerged, which we refer to as “anyone with discretionary income.” And, this new wave of investors is creating new challenges for wealth management firms, forcing them to rethink their business models and digital strategies.
Many millennials admit that they are more comfortable using automated apps to handle their finances and obtain advice, according to Nielsen. Offering anytime, anywhere, any device access, robo advisors are not only convenient (no driving to an office or waiting for an appointment), but are also available at little to no cost.
If financial advisors want to remain competitive, they must embrace the millennial demographic and capture these potential investors now. After all, it is expected that $30 trillion will be transferred to this generation over the next few decades.
The Internet of Things (IoT) provides a fast route to attracting digitally native millennials. By offering low-cost, anytime, anywhere, digital self-service platforms, financial services organizations can get their foot in the door and begin building a rapport with the new customer base.
Embracing digital innovation is certainly a key differentiator and will be crucial for wealth management firms who want to retain tomorrow’s investors. However, the real competitive advantage will come from the ability of advisors to create a hybrid advice service model. Automated apps are essential for attracting new, tech-savvy clients, but tiered offerings will allow advisors to retain those clients. Hybrid advice models will also help firms better serve existing clients as they become more digitally proficient and begin taking on many of the same characteristics as millennials. Ideally, a hybrid offering should encompass the IoT, collaboration platforms and anytime, anywhere access, in addition to personalized, human service and support.
The firms who become the true market leaders will be those who establish an optimal balance between technology and people in their service offerings.
Lantern Credit Partners with Plaid, Leveraging Fintech Data Solutions (Finance Magnates), Rated: A
Lantern Credit, LLC, a financial technology venue, has launched a strategic partnership with Plaid, a financial infrastructure company, helping improve and support the accessibility of data for market participants and consumers, per a Lantern statement.
Per the new partnership, Lantern’s applications will also team up with Plaid’s technological solutions to help empower and promote benefits to consumers in the form of robust financial data.
As such, Lantern Credit’s platform will assimilate a number of integral components of the consumer credit ecosystem thereby removing several inefficiencies that have provided a hindrance to financial institutions and consumers. By extension, Plaid’s technology platform will also help facilitate applications like Lantern Credit to more effectively engineer a wider suite of products for a growing consumer base.
Are Financial Advisers Still Relevant in Today’s High-Tech World? (Equities.com), Rated: A
With new technologies come new challenges. In the financial realm, one of those challenges—for investors, at least—is whether or not to consult a financial adviser when there are so many do-it-yourself tools available. Robo-advisors allow investors to monitor their own investments through algorithmic planners based on pre-selected criteria. If an investor can tell the robot to adjust his portfolio based on certain conditions, then why have a human adviser at all?
Not everyone has the same risk sensibilities. Some reasons you may prefer robots to humans include:
- Your portfolio isn’t large enough
- You want to avoid exorbitant fees
- You’re okay with the robot handling your money
Marketplace lending, even real estate marketplace lending, and robo-advisers are not replacing traditional investment managers entirely. They’re simply opening up new doors of opportunities for investors in all walks of life.
US Online Lending Market Inherently Weak Business Model (Crowdfund Insider), Rated: AAA
US online lenders have quickly seized opportunities to meet demand for more targeted, easy-to-access digital financial services; however, inherent weakness in the online lender business model will likely limit it to a small segment of the market, Moody’s Investors Service says in a report only available to Moody’s subscribers, “Fintech – US Online Lenders: Competitive Advantages in Underserved Niche Market Rest on Unsteady Foundation.”
The report says online lenders are most active in unsecured consumer loans, student loans and small business loans in the US. Despite the marked increase in aggregate loan origination volumes to more than $20 billion in 2015 compared to less than $1 billion in 2011, the estimated market share in 2015 was very small.
The report notes that online lenders leverage technology and user-friendly internet platforms to provide borrowers with simple application processes and short approval times and in some cases lower borrowing rates, but Moody’s believes the model for the online lending business’ competitive advantages is positioned on an unsteady foundation of confidence-sensitive funding, low recurring revenue and high marketing budgets.
The Fintech Effect: What Will Bring the Most Change? (CFA Institute), Rated: A
Finance professionals have two basic questions about fintech and what it means for them:
- How will fintech positively affect their careers? The thought is that fintech will bring about efficiency gains that benefit those who embrace the innovations first — the early adopters. What aspects of fintech will drive much of these improvements? The consensus is that big data and cyber security will be among the major catalysts.
- How will fintech negatively affect their careers? For example, will peer-to-peer (P2P) lenders replace banks as the preferred platform or intermediary for borrowing and lending? If the answer is yes, then bank loan officers and credit risk analysts should start looking for alternative careers. The particular areas of fintech that evoke this sort of existential concern include blockchain, mobile payment, P2P lending, and robo-advisers.
RealtyMogul.com Hits $ 50 Million in Funds Returned to Investors (Email), Rated: B
RealtyMogul.com announced today they have distributed $50 million in funds to investors of realized returns and principal from debt and equity investments, representing a significant milestone for the company and the category. Investors have had zero principal loss since the company’s inception.
LendingHome Offers US Property Investors New Jumbo Loans and Higher Leverage at Lower Rates as Home Flipping Hits Six-Year High (Marketwired), Rated: B
LendingHome, the largest mortgage marketplace lender, announced a new jumbo loan product and more competitive rates on high leverage loans to experienced real estate investors who buy and refurbish ageing residential homes across the U.S.
As home flipping hits a six-year high, LendingHome now offers jumbo loans from $1 to $2 million to property investors looking to purchase and rehab homes in lucrative real estate markets. These include housing markets with a large number of million dollar homes such as San Jose, San Francisco, Oakland and Los Angeles. At the same time, LendingHome gives experienced property investors additional flexibility and confidence to complete more projects by reducing interest rates for projects requiring higher loan-to-values.
Free academy launched for UK developers (OPP.Today), Rated: AAA
Leading UK mortgage provider, LendInvest, is taking practical steps to get more houses built – by opening the first Property Development Academy.
The new LendInvest Property Development Academy, launched in conjunction with Reading University, is designed to teach aspiring small-scale developers the skills they need to build more homes. It is free for accepted students.
The first Academy Course takes place in central London on 11 & 12 November 2016.Applications to join the first academy course close on Monday 24 October 2016. Future courses will be hosted nationwide.
Too few new homes are built in the UK every year and the country is in the grip of a major housing shortage. The House of Lords says we need 300,000 new homes every year to meet demand, but only half this number (170,000) were completed in 2015.
New P2P lender launches in UK (Financial Reporter), Rated: A
Canadian company Katipult has launched its peer-to-peer lending software in the UK.
Katipult has partnered with payments company Mangopay to create P2P lending software which facilitates the entire investment process from marketing and distribution through to investor tax reporting.
Can Fintech Fill Asia’s SME Lending Gap? (Federal Reserve Bank of San Francisco), Rated: AAA
Perhaps no sector has more to gain from innovations in financial technology than small- and medium-sized enterprise (SME) finance, especially in Asia. SMEs accounted for 42 percent of Asia’s GDP in 2014 yet received only 18.7 percent of bank lending according to the Asian Development Bank. Fintech can particularly leverage the rapid growth of Asia’s e-commerce and regional trade, trends that complement SME development.
SME lending gaps persist around the world in both developed and developing economies. Among the many factors limiting lending to the SME sector are limited availability of credit ratings of smaller firms, lack of tangible assets for collateral, and the high costs of making small loans for lenders.
A typical constraint for small business financing is the lack of traditional indicators used to inform a credit score, or in some cases, the absence of comprehensive national databases with sufficient history to measure credit risk accurately. A small business simply may not have any prior history of borrowing and repaying a loan. Fintech-facilitated lending may have greater potential for small businesses in Asia because data sources captured by non-financial firms can support credit risk analysis even when national credit bureaus are still limited, as in countries like China and India.
There are a number of regulatory and legal concerns with the use of alternative data sources by lenders. Among the most important considerations are customer protection and privacy: laws, regulations, and supervision must ensure that data are used with the consent of customers and, equally important, that they does not promote discriminatory treatment in financing decisions. Even a well-intentioned fintech lender may use alternative data in ways that have disparate, negative impacts on certain populations like low income households.
Trade is hugely important to the growth of small businesses in Asia, where substantial regional trade combined with the digitization of commerce dramatically expands their potential market. The Bank for International Settlements estimates that roughly one-third of global trade—$6 trillion—is supported by trade finance. Particularly in Asia, this activity is dominated by banks, which tend to serve larger corporate customers given the cost and complexity of existing processes for granting international letters of credit, providing foreign currency liquidity, and verifying that a transaction has been completed according to contract.
Instead of merely digitizing old processes, the use of blockchain technology, for example, could dramatically streamline trade finance, eliminating intermediaries that previously verified a shipment was delivered to a given destination. Instead, the shipment’s arrival could be verified with geolocation data, which would automatically execute a smart blockchain contract, transmitting payment to the seller. The whole process could take place in a fraction of the time now required.
In the long run, improvements to SME finance may even transform regulators’ views of the sector’s riskiness. Regulations can affect SME lending both in terms of accessibility and cost. If fintech can increase the sophistication of SME credit analysis and thereby reduce the expected risk of related loans, regulators may feel more comfortable easing rules related to SME finance, amplifying the benefits of innovation.
What’s driving investment in global payments? (The Asset), Rated: A
Asian corporates are increasing spending in payments more than their Western counterparts to boost infrastructure and security.
In a recent survey, four in five corporates in Asia (about 80%) are focussing on security and payment infrastructure improvements. That is higher compared those in the Americas with 67% and Europe, 65%, a global payments report by Ovum revealed.
Earlier this year, Bangladesh’s central bank was attacked by hackers who were able to successfully transfer around US$101 million from the bank’s account. Financial regulators within the Asia-Pacific region have started to put in place safeguards against these threats. Hong Kong’s financial regulator the HKMA (Hong Kong Monetary Authority) announced that local bankers would be trained and certified to deal with cyber-security issues starting this December.
Moreover, Singapore’s Prime Minister Lee Hsien Loong recently stated that the government was looking to strengthen its financial systems. According to the Singaporean government, around 8% of the country’s Infocomm technology budget will be redirected for cyber-security spending. In 2014, Singapore reported spending US$408.6 million on cyber-security.
Fintech 100 Recognizes 5 African Companies (Face2Face Africa), Rated: B
The full list of FinTech winners include Cellulant — Category: Payments & Transfers; The Sun Exchange — Category: Blockchain & Bitcoin; Ovamba — Category: Lending & Financing; EasyEquities – SatrixNow (Overall Winner, Category: InvestTec); Baobab by Microcred — Category: Retail Banking; FNB — Category: Incumbent Bank.