- Today’s main news: Zopa plans to start a digital-only bank. Renaud Laplanche kicks off a rival to Lending Club. Two Avant securitization break triggers.
- Today’s main analysis : Surge of online loan defaults.
- Today’s thought-provoking articles: Yirendai’s CFO Dennis Cong discusses P2P rules in China. Indonesian P2P companies seek regulatory clarity. Fundbox reveals volume of small business invoices left unpaid.
- Fired Lending Club CEO starts another online lending company. GP:” I strongly believe that Renaud didn’t do anything really wrong and that he demonstrated his unbelievable accumen in building Lending Club. I would back him any day of the week to build a new company in the space. Yes, he did round some corners, but who has never made any mistakes ? And I think one learnes from past experiences. I am very bullish on Credify ” AT: “Anyone who didn’t see this coming is blind. There was no non-compete in place. What else would a pioneer of an industry do?”
- A surge of online loan defaults rocks the industry. GP:” There are 2 extremes in the industry. On one side companies like SoFi who have outstanding performance and on the other side companies like Circle Back who demonstrated a track record of poor underwriting. Underwriting is the foundation of all online lenders and some understood it and some have not. I don’t think that online lending has any particular correlation with underwriting quality. However, because hundreds of new companies debuted in online lending, of course some of them will do a poor job at it.” AT: “Critics have been warning aboout a P2P bubble for quite a while now. Is this evidence of it? Or perhaps online lenders have simply taken too many risks and this is a self-correcting hurdle the industry must get through to move on to higher mountains. I favor the latter.”
- Fundbox analysis shows $ 825 billion in small business unpaid invoices. AT: “There have been an untold number of small businesses tank due to cash flow issues caused by big businesses paying invoices late, slowly, or not at all. While interesting, and not really news to small business owners, this PR looks like an attempt at free publicity.”
- U.S. consumers increasingly default on marketplace loans. GP: ” 2 Avant securitizations, done by Jefferies, and 1 done by Morgan Stanley, breached triggers. The 2 Jefferies ones did so this month. In addition, a CircleBack securitization done by Jefferies is expected to do so as well. The common points ? Loans made to sub-prime borrowers on average, and 3 out of 4 securitized by Jefferies.”
- Jefferies files for second LC ABS. GP:” Jefferies securitizations have a poor reputation in general in p2p lending. However, Lending Club has all interest for this second securitization to go well. We think Lending Club has the expertise and means to do a good evaluation of what they are selling. In all cases, we are curious to see how this package will sell.”
- Blockchain investment declines with few exceptions.
- Baltimore-based eOriginal raises $ 26.5 million.
- Zopa to launch a digital bank. AT: “I can’t help but wonder if the early success of Cross River Bank in the U.S. prompted this move. I’d say it was inevitable that online lenders use their success as leverage to open digital-only banks, but the fact that Zopa isn’t sure yet what that bank will look like tells me they are still early in the planning stage.”
- Funding Circle recounts the year’s growth in online lending. AT: “There seems to be a lot left out of this analysis as there were quite a few setbacks, as well. I guess they’re looking at a glass half full, and I see nothing wrong with that.”
- The most profitable areas for buy-to-let landlords in the UK.
- OFF3R launches index for AIM.
- Video: Yirendai chief talks about China’s P2P rules.
- P2P industry struggles to conform to new restrictions.
- United States
- Fired LendingClub CEO Sets Up Rival Lender Nearby (The Wall Street Journal), Rated: AAA
- Surge In Online Loan Defaults Sends Shockwaves Through The Industry (Zero Hedge), Rated: AAA
- Fundbox Reveals How $ 825B In Unpaid Invoices Stagnates U.S. Small Businesses (PR Newswire), Rated: A
- U.S. Consumers Are Increasingly Defaulting on Loans Made Online (Bloomberg), Rated: A
- Jefferies arranges second Lending Club ABS (Global Capital), Rated: A
- Blockchain Capital Dries Up as Big FinTech Deals Decline (CoinDesk), Rated: B
- Fintech company eOriginal raises $ 26.5 million (Technical.ly), Rated: B
- United Kingdom
- Peer-to-peer giant Zopa to launch digital bank (The Telegraph), Rated: AAA
- A year of growth for online lending. October industry news (Funding Circle), Rated: AAA
- Where is the most profitable area in the UK for buy-to-let landlords? (Home.co.uk), Rated: A
- OFF3R launches index for AIM (Every Investor), Rated: A
- Yirendai’s Cong: China’s P2P Rules a Great Step Forward (Bloomberg), Rated: AAA
- P2P Industry Struggles to Conform to New Restrictions (Caixin Online), Rated: A
- SRS Fin Tech launches alternative lending platform OxyLoans (Business Standard), Rated: AAA
- Indonesian P2P industry seeks regulatory clarity (Nikkei Asian Review), Rated: AAA
Fired LendingClub CEO Sets Up Rival Lender Nearby (The Wall Street Journal), Rated: AAA
A few blocks from the San Francisco headquarters of LendingClub Corp., its ousted chief executive is plotting a comeback to the industry he pioneered.
Renaud Laplanche has started a company called Credify Finance Corp. that will make loans via the internet just like LendingClub, according to corporate filings in several states.
Credify is still in the early stages of development. The company hopes to start extending credit to consumers in 2017, according to people familiar with the firm’s plans. It estimates it will generate $50 million in revenue next year, according to one state filing.
Credify was incorporated in Delaware on May 31, less than a month after Mr. Laplanche left LendingClub, according to state records. He didn’t sign a noncompete agreement with LendingClub that likely would have prevented him from starting a rival firm, according to people familiar with the matter.
Over the summer, Mr. Laplanche’s new company set up offices in a high-rise in San Francisco’s financial district and started the process of registering to do business in more than a dozen states, according to filings in those states.
Credify is being funded with Mr. Laplanche’s money and that of outside investors, people familiar with the matter said.
Surge In Online Loan Defaults Sends Shockwaves Through The Industry (Zero Hedge), Rated: AAA
Online lenders were supposed to revolutionize the consumer loan industry. Instead, they are rapidly becoming yet another “the next subprime.”
We first started writing about the P2P sector in early 2015 with cautionary pieces like and “Presenting The $77 Billion P2P Bubble” and “What Bubble? Wall Street To Turn P2P Loans Into CDOs.” Things accelerated in February of this yearwhen we first noted that substantial cracks were starting to show in the world of P2P lending, and more specifically, with LendingClub’s inability to assess credit risk of its borrowers that were causing the company to experience higher write-off rates than forecast.
Until today, that is, when we learned that – as expected – there has been a spike in online loan defaults by US consumers, sending a shockwave through the online lending industry: a group of online loans that were packaged into bonds is going bad faster than lenders and bond underwriters had expected even after the recent volatility in the P2P market, in what Bloomberg dubbed was “the latest sign that some startups that aimed to revolutionize the banking industry underestimated the risk they were taking.”
However, that was a linear deterioration which had no impact on mandatory cash covenants, at least not yet. With the breach of trigger points, online lenders have officially entered the world of binary outcomes, where the accumulation of enough bad loans will have implications on the underlying business and its use of cash.
And while P2P may be the “next” subrpime, there is always the “old” subprime to fall back on to get a sense of the true state of the US consumer :as Bloomberg adds, the percentage of subprime car loan borrowers that were past due reached a six-year high in August according to S&P Global Ratings’ analysis of debts bundled into bonds.
Fundbox Reveals How $ 825B In Unpaid Invoices Stagnates U.S. Small Businesses (PR Newswire), Rated: A
Fundbox, the leading cash flow optimization platform for small businesses (SMBs), today released findings from its customer data on invoice payments. The study, designed to better understand the overall financial health of SMBs, revealed the huge economic impact of unpaid invoices. Over the last 12 months, the total amount in unpaid invoices across all U.S. SMBs is approximately $825 billion.
Cash flow gaps from unpaid invoices are often cited as the most challenging hurdle for SMBs. Looking back at 12 months of data, Fundbox analysis found that 22 percent of invoices are unpaid at any given time. This equates to $84,000 per small business in unpaid invoices. In some cases they never receive payment.
U.S. Consumers Are Increasingly Defaulting on Loans Made Online (Bloomberg), Rated: A
Delinquencies and defaults are reaching key levels known as “triggers” for at least four different sets of bonds. Breaching those levels will force lenders or underwriters to start paying down the bonds early. Avant Inc. and its underwriters, for example, are going to have to begin to repay three of its asset-backed notes, according to a person with knowledge of the matter.
Online loans have shown other signs of weakening.
LendingClub’s founder, Renaud Laplanche, wanted to change banking as we know it, but many online lenders are now finding themselves in uncharted territory. Steve Eisman, a money manager who famously predicted the collapse of subprime mortgage securities, said some firms have been careless and that Silicon Valley is “clueless” about the work involved in making loans to consumers. Non-bank startups arranged more than $36 billion of loans in 2015, mainly for consumers, up from $11 billion the year before, according to a report from KPMG.
Lenders themselves are talking about the heavy competition for customers. Jay Levine, the chief executive officer of OneMain Holdings Inc., one of America’s largest subprime lenders, said last week that “the availability of unsecured credit is currently the greatest that has been in recent years,” although he said much of the most intense competition is coming from credit card lenders. OneMain, formerly part of Citigroup, is taking steps to curb potential losses by requiring the weakest borrowers to pledge collateral.
Jefferies arranges second Lending Club ABS (Global Capital), Rated: A
Jefferies filed deal documents with the US Securities and Exchange Commission (SEC) on Tuesday for Lending Club Issuance Trust Series 2016-NP2. The transacation will be backed by near-prime unsecured consumer loans from Lending Club. Jefferies previously debuted a $105m unrated private offering from the same shelf in August.
Blockchain Capital Dries Up as Big FinTech Deals Decline (CoinDesk), Rated: B
Cash is drying up for bitcoin and blockchain startups amid a broader decline in FinTech funding, according to new research from KPMG and CB Insights.
The report, published today, shows that for the third straight quarter, VC investment in startups using distributed ledgers declined.
While enthusiasm for the technology remains, the report said that companies shouldn’t expect additional funds until countless proofs-of-concept emerge on the market.
But while venture capital for blockchain innovation is on the decline, different regions tell different stories.
The US and Denmark are listed as the top countries participating in blockchain investment, while a particularly slow quarter for Europe is blamed in part on uncertainly following Britain’s decision to leave the European Union.
An “uptick” in Asian investment in blockchain and financial technology more generally speaking is credited with the region’s interest in its potential to help it expand beyond its traditional borders.
Fintech company eOriginal raises $ 26.5 million (Technical.ly), Rated: B
A Baltimore fintech company closed a $26.5 million transaction of its own this week.
The equity round for eOriginal was led by Philadelphia-based private equity firm LLR Partners. eOriginal was founded in 1996, and has offices in the Camden Yards warehouse.
With the new funding eOriginal is looking to expand its digital transaction management offerings, which help companies execute businesses transactions with electronic signatures and document verification. The tools are used for marketplace lending, as well as vehicle and equipment banking.
Peer-to-peer giant Zopa to launch digital bank (The Telegraph), Rated: AAA
Zopa, Britain’s biggest peer-to-peer website, has applied for a banking licence to launch a “next generation bank”, which will sit alongside its existing investments business.
When launched, the platform says it will offer term-deposit accounts for savers and revolving lines of credit for borrowers, although a spokesman admitted the company does not yet know “exactly what they will look like”.
By applying for a banking licence Zopa says its customers will receive protection through the Financial Services Compensation Scheme. However, it expects this will only apply to banking customers and not to its peer-to-peer customers.
It expects the licence approval to take up to two years.
A year of growth for online lending. October industry news (Funding Circle), Rated: AAA
Last month our team was the lead sponsor at LendIt, the largest conference dedicated to connecting the global online lending community. The conference, which took place over two days in London, had more than 900 attendees from across the world. Samir Desai, Funding Circle CEO and co-founder, delivered the keynote speech where he discussed the importance of being good at both the ‘fin’ and the ‘tech’. Watch the video to learn about the three ‘mega-trends’ that make online lending an unstoppable force and read this piece to hear why Samir believes our sector is about to enter a ‘golden age’.
Another way for investors to diversify their online lending portfolio is to look at the various investment trusts that are now in this space. These funds allow investors to diversify either across regions or platforms. Learn more about the opportunities and risks involved with these investments in This is Money. Remember, when you lend, your capital is at risk.
Where is the most profitable area in the UK for buy-to-let landlords? (Home.co.uk), Rated: A
According to Lendinvest’s latest buy-to-let index, Luton in Bedfordshire is currently the most profitable area in the UK for buy-to-let landlords, with rental prices increasing by almost 10%, the largest increase in the country.
On an annual basis landlords in Luton generated a 4.81% yield, while home prices rose by 13.63% and experienced rental price growth of 9.58%.
The top 10 buy-to-let postcodes
|Yield||Capital gains||Rental price growth||Transaction volume growth|
OFF3R launches index for AIM (Every Investor), Rated: A
OFF3R analysed major equity crowdfunding platforms including Seedrs, Crowdcube, Syndicate Room, Angels Den, Envestors and The House Crowd. The P2P lending platforms examined were Zopa, Landbay, RateSetter, ArchOver, Marketinvoice, Lending Works, Funding Circle and Thin Cats.
The Index shows that equity crowdfunding raised a combined total of £216.25m and P2P facilitated a combined lending of £2.6bn.
The Index shows that the average amount lent per month was £197m across the eight platforms. April 2016 showed a 7% drop due to a number of factors, such as Lord Turner’s negative comments about the P2P market and Lending Club’s loan book discrepancies.
Yirendai’s Cong: China’s P2P Rules a Great Step Forward (Bloomberg), Rated: AAA
P2P Industry Struggles to Conform to New Restrictions (Caixin Online), Rated: A
Three months after Beijing imposed strict rules on the peer-to-peer (P2P) lending industry, many firms have made little progress in meeting some of the key requirements.
One major problem they have is ensuring borrowers don’t exceed newly imposed credit limits, industry experts said. Another is that many P2P firms haven’t met the new requirement to find a bank to be the custodian of the funds they get from their client investors, who are essentially the lenders.
Among the many restrictions the policy introduced was a ceiling on how much a person can borrow through P2P platforms. The limit for each individual through one website was set at 200,000 yuan ($29,200). A person cannot borrow more than a combined 1 million yuan from P2P lenders regardless of how many platforms they use.
The policy gave all P2P firms until the end of August 2017 to ensure compliance.
Even with the grace period, however, about 90% of the existing platforms will likely have to shut down, primarily because of the loan-size requirement, said Xu Jianwen, founder and CEO of rrjc.com. Xu’s P2P lending website is ranked by industry data provider wdzj.com as among the country’s top 50 such sites.
SRS Fin Tech launches alternative lending platform OxyLoans (Business Standard), Rated: AAA
City-based financial technology startup SRS Fin Tech Labs today announced the launch of ‘OxyLoans’, an alternative lending platform, and said it aimed to disburse USD 1 billion by 2024.
Armed with proprietary algorithms showcasing credit score, underwriting and agreement preparation, OxyLoans enables investors and lenders to assess borrowers and offer them the option of accepting or rejecting an application, he said, adding that it also provides business as usual loans in partnership with banks.
Indonesian P2P industry seeks regulatory clarity (Nikkei Asian Review), Rated: AAA
Peer-to-peer (P2P) online lending is surging in Indonesia, prompting regulators to prioritize the establishment of a legal framework to protect the industry — a move that participants say is essential to fulfil its potential.
The market is growing rapidly, driven in part by the 65% of the population of 250 million that is excluded from the banking system. The value of online transactions will reach $14.8 billion in 2016 from $8 billion in 2013, according to Bank Indonesia, and is expected to grow to $130 billion by 2020.
The Financial Services Authority, known by its Indonesian initials OJK, has made financial technology regulation a priority, and is focusing on the payment services industry, which is seen as the sector with the highest growth potential.
The OJK has said that security and consumer protection are its main concerns, given Indonesia’s history of fraud in various business sectors. It has also taken heed of a large P2P scandal in China, in which Ezubao, one of China’s highest profile P2P lending sites, cheated more than 900,000 investors of $7.6 billion.
While the OJK’s move has been viewed positively by the market, there are still concerns that the regulator lacks sufficient financial technology knowledge to be able to establish an effective legal framework. Some P2P companies have described the agency as inexperienced in financial technology matters, urging it to involve the industry in discussions about regulations and laws.
Indonesia also lacks a secondary market in which P2P lenders and investors can offload risk to secondary buyers, which is regarded as crucial for P2P businesses in profitable but risky emerging markets.