Daily News Digest Featured News

Monday November 21 2016, Daily News Digest

orchard weekly update

News Comments

United States

  • iovation predicts increase in holiday CNP fraud. AT: “The takeaway here is that we are well past due for credit card companies, online merchants, and, yes, online lenders to provide stronger security for digital currency transfers. The increase of mobile phones has created a huge challenge that needs to be solved.”
  • PeerIQ Weekly Update. GP: ” A must read summary of what is going on in Washington and how it will affect the online lending space. From SEC , to OCC to more..”. AT: “Very interesting read. Take a look at upcoming regulation and changes taking place at the SEC.”
  • Orchard’s weekly online lending snapshot. AT: “Mostly a rehash of last week’s news, but worth a refresher.” GP:” There were a lot of news last week. Important to keep up.”
  • Uplift brings online lending to travel market.

United Kingdom

Australia

China

India

Asia

United States

iovation Predicts New EMV Chip Cards Will Lead to Significant Increase in Online Holiday Fraud (Marketwired), Rated: AAA

iovation, a provider of device intelligence for authentication and fraud prevention, is predicting a significant increase in card-not-present fraud — fraudulent transactions where a credit card is not physically presented to a merchant — from Black Friday to Cyber Monday when compared to past years. iovation attributes the anticipated rise in fraud to the recent shift from consumers using traditional credit and debit cards with magnetic strips to EMV (Europay, MasterCard, and Visa) chipped cards.

This upward trajectory aligns with a report released earlier this year by iovation and research and advisory firm Aite Group — which found CNP fraud will cost retailers and financial institutions $7.2 billion in the United States by the end of 2020. Conversely, the report found that as more merchants become EMV-capable, counterfeit fraud will fall from a high of $4.5 billion to less than $1 billion in 2020.

New research from iovation finds that since October 2015 online credit card fraud increased 35 percent.1 October 2015 was when the U.S. liability shift began where U.S. merchants who didn’t accommodate chip cards faced a larger financial burden for fraudulent transactions.

iovation also predicts that 52 percent of retail online transactions from Black Friday to Cyber Monday will be conducted using mobile phones and tablets this year. This continues an ongoing mobile retail transaction increase over the holidays and year-to-year. Specifically, iovation data shows:

  • The annual growth in mobile retail transactions
    • 44 percent of all online transactions were made from a mobile device in 2015
    • 32 percent of all online transactions were made from a mobile device in 2014
    • 20 percent of all online transactions were made from a mobile device in 2013
  • Mobile retail transaction increases over Black Friday to Cyber Monday
    • 47 percent of all online transactions were made from a mobile device during the period in 2015
    • 37 percent of all online transactions were made from a mobile device during the period in 2014
    • 31 percent of all online transactions were made from a mobile device during the period in 2013

PeerIQ Weekly Update: November 20, 2016 (PeerIQ Email), Rated: AAA

In this “PeerIQ Goes to Washington” newsletter, we synthesize our findings from dozens of conversations with market regulators and industry participants. Specifically, we discuss the likely direction of SEC leadership, what to look for in the OCC charter, and legislation that may alter the financial regulatory landscape.

On the capital formation panel, in response to Sebastian Gomez’s (SEC Head of Office of Small Business Finance) opening question on what innovation is driving capital formation, PeerIQ CEO, Ram Ahluwalia, noted:
  • Banks, facing stringent capital and liquidity rules, have tightened access to credit.
  • Non-banks, using technology and customer experience innovation, are filling the lending gap. Remarkably over half of mortgages are now originated by non-banks, and non-bank lending continues to grow at a double digit pace across mortgages, auto, student, credit card, and installment loans.
  • Securitization serves as the link connecting non-banks to the capital markets, and consequently, securitization is the primary financial innovation driving capital formation.
  • Securitization is transforming illiquid credit to marketable securities that, in turn, enable a diverse, broad base of institutional investors to invest in the real economy. Indeed, of the $17 Tn in loans outstanding, approximately 50% are funded via securitization according to SIFMA.
  • However, as a transmission mechanism, securitization remains fragile when investors lose confidence as in 2008, or as recently as Q1 ‘16.
  • In a world where policy levers for growth are limited, policy makers and the public have a strong interest in encouraging an orderly securitization market to diversify sources of funding for the real economy.
  • PeerIQ is doing its part by working with industry leaders and self-regulatory bodies such as SFIG to encourage standardization, transparency, and liquidity to promote the smooth functioning of the ABS markets.

The SEC Makes a Bid for Regulating FinTech

SEC Commissioner Piwowar remarked that the “Commission should take the lead regulatory role in the FinTech space,” noting that the SEC is the sole agency that explicitly includes capital formation as a mandate (among other rationale).

Piwowar also argued that current regulatory structure hinders FinTech innovation.
OCC Charter
The OCC is expected to publish a paper on a possible FinTech charter later this year. We can only guess at the contents of the OCC charter. Here are the core terms to look far:

occ charter
Legislative Pendulum Swinging Back

The following pieces of legislation are attracting attention in the FinTech and banking community.

fintech regulation

Weekly Online Lending Snapshot – November 18, 2016 (Orchard Platform), Rated: AAA

Prosper Marketplace announced that CFO David Kimball had succeeded Aaron Vermut as CEO. They have not announced who will take over the vacated CFO position. It was also reported this week that former Lending Club CEO, Renaud Laplanche, is working on a new lending business called Credify Finance Corp. that hopes to begin originating loans in 2017, and the U.K.’s Zopa intends to launch a digital bank. Lastly, this week’s news about the uptick in delinquencies that have breached the triggers of a handful of securitizations of online consumer loans appears consistent with Orchard industry data showing an increase in charge-offs at originators across consumer credit grades—particularly from the riskier grades of older vintages.

orchard weekly update

UpLift brings marketplace lending to travel industry (Bankless Times), Rated: A

Through their flagship product Pay Monthly, UpLift allows customers to book vacations and make monthly payments at low interest rates, CEO Brian Barth said.

Enter UpLift, which is already integrated with more than 200 travel partners, Mr. Barth said.

Many travelers will spend more when they see, for example, that an ocean view room will only cost them $15 per month more, Mr. Barth added. Insurance purchase rates double when it costs three or for dollars more per month.

It is clear to see UpLift’s allure to travelers, but investors find it equally attractive, Mr. Barth said.

Smaller average loan sizes also make it easier for institutional and accredited investors to diversify, Mr. Barth said while adding UpLift does not tranch loans.

United Kingdom

Top tech stats: London crowned top tech startup city, global VC FinTech investment & more (Tech City News), Rated: AAA

Welcome to your round up of some of the past week’s most interesting surveys, statistics and reports relevant to those involved in the UK tech industry.

An index by alternative investments marketplace Off3r has outlined the month-on-month performances of equity crowdfunding and peer-to-peer lending platforms over the last year.

The report analysed major equity crowdfunding platforms including Seedrs, Crowdcube and Syndicate Room, showing the combined total raised was £216.25m.

Just 43% of FinTech employees believe gender diversity helps drive performance, according to a survey of staff working in London by Astbury Marsden.

With 69% of FinTech companies being made up of men only, this is perhaps unsurprising.

A recent survey of 800 executives, IT managers and project management professionals by Changepoint revealed that although 78% of employees want to use mobile time-tracking apps, only 11% currently do so.

Overall global investment in FinTech increased by 27% to $15.2bn up to Q3 2016, according to statistics compiled by Innovate Finance. This has already surpassed the 2015 total of $14.9bn.

However, despite the soar in global investment, UK VC investment for FinTech firms decreased by 26% in Q3 2016, with the year’s total investment standing at $532m. This is approximately half of the FinTech investment total for 2015.

London is the top city in Europe to start a tech business, according to the European Digital City Index, compiled by innovation foundation Nesta and the European Digital Forum.

Four City Contenders For London’s ‘Fintech Capital of Europe’ Crown (Forbes), Rated: A

Before the fateful day of June 23, 2016, London was the undisputed fintech startup and financial capital of Europe. Whether the vote to leave the EU will change that will depend on the post-Brexit landscape, but without access to the single market, and free movement of continental tech talent, London’s ability to retain its prestigious title is already being called into question.

Speculation is rife over London’s most likely successor.

No sooner had the Brexit result been announced than Berlin was claiming the European fintech throne. The German capital has a mature fintech community, with Spotcap and Lendico two of its biggest success stories, and it is home to plenty more nimble, crowd investment, peer-to-peer lending and online marketplaces that are successfully operating beyond Germany’s fintech ecosystem.

Famous for unicorns like Spotify, King, and Minecraft, Stockholm has also produced some great fintechs, such as crypto currency company KnCMiner, mobile payment firm iZettle, and Lendify, which have all enjoyed extraordinary success.

A worthy contender to the top fintech spot, The Netherlands has a solid reputation built on a buoyant financial services industry, a large capital assets base, and innovative banks, such as ING and Rabobank. Credited as the birthplace of the stock market, Amsterdam is a fast growing European fintech hotspot.

Not long ago the Portuguese capital would have been considered a rank outsider in the EU fintech rankings. Not so today, thanks to a flourishing funding ecosystem, boosted by government incentives and growing interest from VC firms like Caixa Capital, all of which has helped to make the city a major draw for tech entrepreneurs and an attractive base for an expanding fintech cluster.

Not long ago the Portuguese capital would have been considered a rank outsider in the EU fintech rankings. Not so today, thanks to a flourishing funding ecosystem, boosted by government incentives and growing interest from VC firms like Caixa Capital, all of which has helped to make the city a major draw for tech entrepreneurs and an attractive base for an expanding fintech cluster.

Landbay launches specialist buy-to-let range (Financial Reporter), Rated: A

Peer-to-peer lending platform Landbay has launched a new range aimed at professional landlords, including products for HMOs and expats.

The three products, available up to 75% LTV, include a standard term tracker at 3.88%, a HMO/MUFB term tracker at 3.98%, and an expat term tracker at 4.38%.

Australia

Southern Cross Financial to become peer-to-peer mortgage lender (Stuff), Rated: AAA

There’s a “perfect storm” putting wind into the sails of what will be New Zealand’s newest peer-to-peer lender.

Southern Cross Financial will “push the button” on December 1 transforming it from an old-style contributory mortgage broker to a peer-to-peer (P2P) lending business.

Going P2P would make Auckland-based Southern Cross Financial the country’s first “significant” P2P mortgage lender, chief executive Luke Jackson said.

Financial advice businesses that do not offer a digital advice service will be the “exception rather than the rule”, according to Ignition Wealth.

The robo-advice provider also noted that financial advice businesses will not have to refund fees due to non-service under digital advice.

Fordree added that digital financial advice could follow the trend of the ATM, which progressed from being a novelty service to one that had become an essential service of everyday life.

Fintech fund Reinventure seeking riskier investments (The Australian Business Review), Rated: A

Armed with a $50 million cheque from Westpac and many lessons from their first fund, Danny Gilligan and Simon Cant are dialling up the risk.

Not the type that raises eyebrows in banking, but rather trying to get more blockbuster returns out of the more mainstream fintech industry, even if that means failing often.

Cant, a lawyer who worked in the media before co-founding Reinventure, adds that making riskier investments with their new fund will partly be driven by a strategy to be more “non-consensus”, and bet on fintech start-ups that few others like.

China

Protect College Students from Online Lending Firms (Women of China), Rated: A

Despite strengthened control of online lending platforms that target students, college students continue to fall prey to online loan sharks, which points to the failure of regulatory authorities to combat such scams.

In March, a college student in Central China’s Henan Province committed suicide for failure to repay the money he had borrowed through a number of online lending platforms. The first amount he borrowed was not high, but given the high interest rate, commission charges and surcharges for delayed payment, he continued borrowing to repay his initial, unending debt.

According to media reports, many university students use their own nude photos as collateral to borrow money from online lenders, which shows that part of the online lending market remains unregulated. Therefore, regulatory forces should renew their efforts to cleanse the market.

Online lending companies should be more strictly regulated not only because they have covertly lent money to college students, but also because many of them have used irregular and illegal means to make profits. For example, some reports say many online lending companies charge interest rates that are many times the normal rate of banks. In other words, they have engaged in illegal financial operation, or usury, which is a crime.

Inda

Financial Inclusion: Threats dwarf opportunities (Deccan Herald), Rated: A

Over the last decade, three key enablers for technology-led financial inclusion have emerged. First, there has been a rapid expansion of mobile telephony. Secondly, the government has developed ‘Aadhaar’: a biometrically linked unique identity number. Finally, there has been increase in the number of basic bank accounts, for example through the government’s ‘Jan Dhan Yojana’, under which 25 crore bank accounts have been opened since 2014.

These enablers come together to form the JAM Trinity: ‘Jan Dhan Yojana’, ‘Aadhaar’ and Mobile,  which allow the government to better target subsidies to the poor and transfer money to bank accounts directly, cutting out the middle man and reducing leakages.

Financial technology can also be used for more complicated services like insurance and lending. For lending, banks have traditionally used loan officers and a deep paper trail to assess the creditworthiness of the borrower. The challenge is to replicate this at a lower cost using information technology.

We want to tap salaried middle class: Anuj Kacker (DNA), Rated: A

MoneyTap, an app for credit line to salaried customers, is the second entrepreneurial venture of Anuj Kacker.

It’s an app for credit line for salaried customers, not for businesses.

It is India’s first app-based credit line. The concept of a credit line or a personal line of credit exists in business but if somebody wants an Over Draft (OD) facility, a customer like you and me, we can’t get it.

Asia

Special Report: New shot at funding for creditworthy SMEs (The Edge Markets), Rated: AAA

Securities Commission chairman Tan Sri Ranjit Ajit Singh notes that Malaysian SMEs face a financing gap of a staggering RM80 billion.

This is based on the SC’s internal research and analysis which found that SMEs and micro-enterprises as a whole would need that amount of financing, but found it difficult, if not impossible, to get loans from conventional banks.

P2P lending has landed in Malaysia with the SC last Thursday announcing the registration of six approved platform operators.

The six operators are B2B FinPAL, Ethis Kapital, FundedByMe Malaysia, Managepay Services, Funding Societies Malaysia and Peoplender. (See sidebar for details.)

p2p malaysia

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

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