- Today’s main news: OCC plans special charter for FinTechs.
- Today’s main analysis: Zopa cuts savers off. PeerIQ’s analysis of the OCC charter.
- Today’s thought-provoking articles: P2P lenders blur into mainstream banks. International P2P lending volumes. Harmoney fined for misleading consumers.
- OCC’s special-purpose FinTech charter. AT: “Lend360 offers a breakdown of the OCC charter with awesome analysis. This information is straight from the OCC’s white paper on the topic. This charter is making a lot of industry insiders very happy.”
- PeerIQ Weekly update focused on the OCC charter (and LC’s latest securitization review). AT: “Get a bird’s eye view of the baseline standards from the OCC white paper in PeerIQ’s nifty chart. Plus, a terrific analysis of LendingClub’s near-prime securitizations for the year.”
- OCC white paper on national bank charter for FinTech companies. “Get it straight from the horse’s mouth. This white paper explains why FinTech regulation is necessary and why the OCC is the proper authority for that regulation.”
- OCC charter unlikely to kill bank partnerships. GP: ” It’s unclear how onerous the application process and the ongoing regulatory framework will be. Once we see a few companies going through the process we will know if working with a bank, which has its own costs, is worth it or not. ” AT: “I agree. I think we’ll see many more partnerships in 2017.”
- RealtyMogul lowers minimum investment for REIT. GP: ” RealtyMogul went the whole p2p way. I applaud. I think they will see a tremendous amount of free PR and marketing with this. Way to go ! ” AT: “Last week, LendInvest reduced the minimum size of its loans. This could be the beginning of a new wave of competition among crowdfunding, crowdlending, and crowd investing platforms where the players chase new business by offering better incentives and lower standards for approval. In the case of marketplace lenders, that could be a negative as we are already seeing a wave of defaults, which could increase if I’m right. Or, maybe this competition will stay between investment platforms.”
- Sharestates lists on SeedInvest.
- Baby Boomers benefit from rising interest rates, including P2P lending.
- Zopa tells savers to keep their money. GP:” Keeping the number of borrowers and lenders equal is impossible. Some companies would have compromised on the borrower quality. Instead Zopa did the right thing. Well done.” AT: “This is a smart business move, however, we hope it’s a short-term solution. If there is decline in borrowers, there must be a subsequent decline in lenders, or at least funds used to make loans.”
- P2P lenders blur into mainstream banks. AT: “There are some good points here. However, it must be noted that businesses, and even entire sectors, do change from time to time. It’s the nature of business–transform or die.”
- Too much investor demand curtails retail access to P2P loans.
- Flender getting close to funding target on Seedrs.
- ThinCats urges firms to grasp opportunity.
- P2P lending great solution for traders.
- International P2P lending volumes for November 2016.
- All eyes on consolidation, funding diversification.
- Harmoney fined for misleading consumers.
- SocietyOne close to breaking even.
- Personalized investment portfolios.
- The FinTech revolution.
- United States
- OCC Announces Special-Purpose FinTech Charter (Lend360 Email), Rated: AAA
- PeerIQ Weekly Update: December 4, 2016 (PeerIQ Email), Rated: AAA
- Exploring Special Purpose National Bank Charters for Fintech Companies (OCC), Rated: AAA
- OCC’s fintech charter unlikely to kill bank partnerships (SNL), Rated: A
- RealtyMogul.com MogulREIT Lowers Minimum Investment to $1000 (Crowdfund Insider), Rated: A
- Invest in Sharestates (SeedInvest), Rated: A
- 4 Ways For Baby Boomers To Benefit From Rising Interest Rates (Forbes), Rated: B
- United Kingdom
- We can’t accept any more of your money, Zopa tells savers (Telegraph), Rated: AAA
- Peer-to-peer lenders are blurring into mainstream banks (Financial Times), Rated: A
- Too Much Investor Demand Curtails Retail Access to P2P Loans (Crowdfund Insider), Rated: A
- P2P Lending Platform Flender Nears £500,000 Funding Target on Seedrs (Crowdfund Insider), Rated: A
- THINCATS BOSS URGES FIRMS TO GRASP ‘OPPORTUNITY FROM UNCERTAINTY’ (Insider Media), Rated: A
- Peer-to-peer lending and robo-advice can be great solutions for traders, but your research should always be thorough (Finance Magnates), Rated: A
- European Union
- International P2P Lending Volumes November 2016 (P2P Banking), Rated: AAA
- All eyes on consolidation, funding diversification at MPL confab (GlobalCapital), Rated: A
- Harmoney fined $292k for misleading consumers (NZ Herald), Rated: AAA
- Media mogul-backed bank challenger close to breaking even (The Age), Rated: A
- Personalised Investment Portfolios: The Customer Takes Centre Stage (The Market Mogul), Rated: A
- The ‘Fintech’ revolution (Sky News), Rated: B
- Five on Trial for Gold Smuggling, Chinese P2P Lending Ponzi Scheme (Crowdfund Insider), Rated: A
- SA crowd-funding site launches R100 million loan facility for corporates (BusinessTech), Rated: AAA
OCC Announces Special-Purpose FinTech Charter (Lend360 Email), Rated: AAA
This morning (Dec. 2), the OCC announced that it is going ahead with its plan to issue special-purpose charters to Fintech companies, published a Whitepaper on the topic, and requested comment on the granting of special-purpose national bank charters to Fintech companies. Comments are due by January 15, 2017.
The OCC plans to grant charters for special-purpose national banks. Companies
- would be required to conduct at least one of the following three core banking functions – receiving deposits, paychecks, or lending money;
- would be subject to the corporate organization and structure provisions of the National Bank Act;
- may only engage in activities that are permissible for national banks;
- would be subject to the receivership provisions in the National Bank Act (in September 2016, in anticipation of today’s announcement
- would be required to be a member of the Federal Reserve System; and
- would be subject to the same laws, rules, examination and reporting requirements as national banks, including legal lending limits and limits on real estate holdings.
To the extent that an applicant for a special-purpose charter proposes to accept deposits other than trust funds, it would be required to apply to, and receive approval from, the FDIC for deposit insurance. As an insured depository institution, the special-purpose national Bank would be subject to the Community Reinvestment Act. In addition, the Dodd Frank Act includes specific provisions exempting from CFPB enforcement and supervisory jurisdiction insured depository institutions with less than $10 billion in assets. (Said another way, a non-depository special-purpose national bank would be fully subject to CFPB supervision and enforcement, based on its business activities.)
The OCC would expect any applicant for a special-purpose national charter to fulfill all of the requirements of a full-service national bank, including:
- a detailed business plan covering a minimum of three years, and clearly articulating why the applicant is seeking a national bank charter;
- a strong governance structure and risk management system to identify, monitor, manage, and control risk;
- minimum and ongoing capital levels commensurate with the risk and complexity of the proposed activities of the applicant, including a proposed minimum level of capital that the applicant would meet or exceed at all times;
- adequate liquidity to readily and efficiently meet expected and unexpected cash flows and collateral needs at a reasonable cost;
- alternative business and recovery strategies that address various best-case and worst-case scenarios;
- a culture of compliance that includes a top-down, enterprise-wide commitment to understanding in adhering to applicable laws and rules; and
- a demonstrated commitment to financial inclusion “that supports fair access to financial services and fair treatment of customers,” including a business plan that demonstrates how the proposed bank plans to respond to the needs of the community.
PeerIQ Weekly Update: December 4, 2016 (PeerIQ Email), Rated: AAA
(See article above on OCC special charter please 1st).
PeerIQ summarizes below the baseline supervisory standards from the OCC’s “Exploring Special Purpose National Bank Charters for FinTech Companies”:
This week marks the first rated securitization of LendingClub near-prime unsecured consumer loans. The transaction is notable in that it is the first rated deal consisting of Madden & Midland loans (~10% of loans from NY, CT, and VT) – a positive sign for market acceptance. The enforceability of these loans will be subject to subsequent court decisions in the second court regarding exportation of usury limits.
LCIT 2016-NP2 was priced at 3.0% yield and 6.0% yield for A and B tranches, respectively. The pricing for LCIT 2016-NP2 A was 120 basis points tighter than MHMT 2016-LC1 A with the same credit support, yet, longer WAL; it is also 75 basis points tighter than LCIT 2016-NP1 A. Given the collateral pool of the LCIT deals are similar and tranches have the identical credit enhancement, the expected loss of each tranche should also be comparable. Exhibit 3 displays the pricing of A and B tranches against tranche weighted-average life. The arrows point to LCIT 2016-NP2 deal pricing. As the weighted-average life of the bonds increase, the credit risk premium increases, as indicated by the dotted trend line. The tighter pricing of LCIT 2016-NP2 cannot be explained by tranche average-life.
Could the improved credit market condition explain the favorable pricing in LCIT 2016-NP2? SoFi recently priced SCLP 2016-3 A tranche at 200 basis points over benchmark rates on October 6th; and the SCLP 2016-2 A tranche was priced around 215 basis points over benchmark rates on July 26th, only 15 basis points wider. The dramatic improvement in LCIT 2016-NP2 pricing cannot be rationalized by the marginal spread tightening in the credit market since end of July to December.
Due to the tightening pricing of A and B tranches, LCIT 2016-NP2 excess spread is 22.15%, a 55 basis points improvement than that of LCIT 2016-NP1, and about 270 basis points better than that of MHMT 2016-LC1 (Exhibit 3). The LCIT 2016-NP2 residual holders sit in first-loss position with economics that tie directly to uncertain prepay and default expectations. They benefit from significantly higher yield in return for bearing this risk.
The emergence of rated securities from LCIT shelf supports our belief that the rating agencies are more comfortable in rating this nascent industry with more historical performance data and issuers are more inclined to get their deals rated to expand their investor base.
Exploring Special Purpose National Bank Charters for Fintech Companies (OCC), Rated: AAA
When President Abraham Lincoln signed the law creating the national banking system and the Office of the Comptroller of the Currency (OCC), the very notion of establishing a national bank charter was itself innovative. Our country’s leaders provided the Comptroller with the authority to grant a national charter because they recognized the public value of a robust, unified, and nationwide system of banks.
The national banking system became a source of strength for the nation and our economy. National banks and, later, federal savings associations became anchors of their communities and the predominant providers of financial services for consumers and businesses. The system flourished because it enabled and encouraged national banks and federal savings associations to adapt to the changing needs of their customers and the market.
More than 150 years later, we have a diversified and evolving financial services industry. New technology makes financial products and services more accessible, easier to use, and much more tailored to individual consumer needs. At the same time, consumer preferences and demands are evolving, driven by important demographic changes: for example, the entry of 85 million millennials into the financial marketplace in the United States. Responding to those market forces are thousands of technology-driven nonbank companies offering a new approach to products and services. Five years ago these services either were available only from traditional banks or not available at all. Initially, many of these nonbank providers of financial services viewed themselves as competitors of banks. Now, some financial technology—or fintech— companies are considering whether to become banks.
OCC’s fintech charter unlikely to kill bank partnerships (SNL), Rated: A
The OCC on Dec. 2 released its long-awaited framework for a limited charter available to financial technology companies, but some consultants expect many fintech companies to continue relying on bank partnerships.
So far, the nascent fintech industry has largely relied on bank partnerships to issue loans. If a corporation wants to lend in a state, it needs to be licensed in that state and abide by usury limits that cap maximum interest rates on certain loans. For lenders looking to tap the national market, those requirements are burdensome, requiring a licensed loan officer in each of the 50 states. Instead, fintech lenders have partnered with banks to issue the loan, relying on the bank’s preemption from such state laws pursuant to the National Bank Act. For example, WebBankissues loans for LendingClub Corp. Banks like Cross River Bank and Celtic Bank also focus on this type of business, although the business model has become increasingly uncertain due to various court rulings.
The OCC’s Dec. 2 framework could negate the need for those partnerships. Fintech companies can now apply for a national charter that grants those preemption benefits without a bank partnership. But it remains an open question whether they will ditch banks in favor of the charters, especially considering OCC Comptroller Thomas Curry’s insistence that fintech companies will be subject to the same scrutiny the regulator applies to banks.
RealtyMogul.com MogulREIT Lowers Minimum Investment to 00 (Crowdfund Insider), Rated: A
RealtyMogul.com has lowered the minimum necessary to invest in their first REIT or MogulREIT I to $1,000. Previously, the minimum investment was $2,500. RealtyMogul.com CEO Jilliene Helman said their goal was to give more investors the opportunity to invest in unique real estate investments on their platform.
Last month, MogulREIT I declared its first dividend that is on track for an 8% annualized return.
Invest in Sharestates (SeedInvest), Rated: A
Sharestates is accepting investments for an Offering under Regulation D.
Because Sharestates is offering its securities under Regulation D, select materials are publicly viewable. However, investors must sign up or log in to SeedInvest and confirm status as an Accredited Investor prior to making an investment and accessing the complete profile and offering materials.
Once a loan application is filled out by the potential borrower, the first steps of underwriting begin. A quick review discovers whether the loan is a quick one based on some key details including credit score, bankruptcy history, sponsor’s track record, etc. If the initial details fall into our acceptable requirements, the full underwriting process begins: Credit Report, Partial Track Record Report, Title Search, etc. If the loan passes that level of underwriting, then the loan is approved to be funded.
Sharestates funds deals in two different ways. One way is by funding whole loans with its institutional capital partners (hedge funds, private equity funds, etc.). The second way is by funding a loan with both institutional capital and Sharestates’ balance sheet capital. Once the loan is funded and the borrower receives the capital, Sharestates then sells its position online to their registered individual accredited investors. This allows for two key user benefits: 1) The borrower receives their funding quickly, and does not have to wait for Sharestates to raise capital, and 2) Individual accredited investors start earning interest immediately (after funds arrive in Sharestates’ account).
4 Ways For Baby Boomers To Benefit From Rising Interest Rates (Forbes), Rated: B
Make sure you have the appropriate exposure to fixed income. Platforms likeBetterment do this automatically based on your age and risk appetite. Atarget date fund also does this automatically, but watch out for high fees with some of the funds.
Be a lender. Peer-to-peer lending companies source and screen applications for credit and then offer you the ability to invest in a diversified portfolio of those loans.
Get your latest retirement income number. The simplest tool I’ve seen is Blackrock’s CoRI index retirement income planner.
In general, rising rates are a good thing for retirees. But there are a number of reasons to proceed with caution.
We can’t accept any more of your money, Zopa tells savers (Telegraph), Rated: AAA
Britain’s biggest peer-to-peer lender is to limit the amount that savers can invest via the platform because of a shortage of creditworthy borrowers.
In an email to customers yesterday, it said: “We always aim to lend your money out in a reasonable time. However, with current volumes of new money transfers combined with demands for loans seasonally declining in December, we don’t expect this to be achievable this month.
Peer-to-peer lenders are blurring into mainstream banks (Financial Times), Rated: A
The idea of so-called “peer-to-peer” lending was to bypass the mainstream, not become part of it. There was a strong emphasis on community, with loan investors posting personal messages to borrowers.
Last month, perhaps the most significant bridge yet was crossed when the pioneer of P2P lending, the UK platform Zopa, announced that it would establish its own bank. True, the change doesn’t mean the lender is abandoning its roots entirely. About 70 per cent of its business comes from consumers lending directly, and it will continue to connect them to borrowers. But the move is — over time — likely to transform Zopa’s business as it allows the platform to get round the biggest barrier to success in the marketplace model: its critical dependence on new transactions for the income platforms earn.
As should be clear from the marketplace name, online lenders such as Zopa don’t own the loans they originate. Most operate as platforms for investors, which means that new business flow is essential for generating revenue.
That wouldn’t matter so much if the marketplace movement’s goals were modest. Retail lenders tend to be sticky and might live with fluctuations in activity. But the sector has been backed by impatient venture capital investors, drawn in by the possibility of rapid expansion followed by a suitably lucrative exit. And their vision depends on platforms seizing a big share of total lending pretty fast.
What has become clear is that there are simply not enough consumer lenders to deliver the objective. Just to reach the $26bn the sector lent last year in the UK and the US, platforms have already leaned heavily on institutional money. And that has turned them into something more like old-fashioned finance companies — increasingly dependent on market access for funding.
Climbing off the wheel is sensible. Ownership of the loans they originate through a bank structure allows platforms to build up the income they need. Growth may be slower, but their innovative technology and low cost should help platforms carve out a defensible position. Meanwhile profits should be bigger, helping venture capital owners to find an exit — albeit at less elevated multiples.
Too Much Investor Demand Curtails Retail Access to P2P Loans (Crowdfund Insider), Rated: A
The FT is reporting that Zopa has put a halt to retail investors lending money on their peer to peer lending platform. Allegedly, yield hungry investors are “flooding” the market hunting for better returns in this historically low interest rate environment.
While the FT called it “the latest sign of trouble” for P2P lending, but that is really hard to discern. Zopa apparently did say that it was a case of investor demand outstripping supply but did not indicate that demand for credit was waning beyond historical norms.
One way of interpreting this phenomena is that there is a growing awareness of the superior risk adjusted returns being made available by Zopa – and frankly many other peer to peer lending platforms in the UK.
P2P Lending Platform Flender Nears £500,000 Funding Target on Seedrs (Crowdfund Insider), Rated: A
Funds from the equity crowdfunding campaign will be used for the following:
- Key hires, including a direct sales team and in-house software developers.
- Marketing, including online targeting and above-the-line advertising.
- Product development, specifically native iOS and Android versions plus roadmap features for all channels.
THINCATS BOSS URGES FIRMS TO GRASP ‘OPPORTUNITY FROM UNCERTAINTY’ (Insider Media), Rated: A
The founder of Leicestershire-based peer-to-peer lending platform ThinCats has told Insider that the uncertainty sparked by the outcome of June’s EU referendum could provide opportunities for budding entrepreneurs.
Kevin Caley established ThinCats with Peter Brown and Paul Meier in 2011, partly in response to the financial crash of 2008.
Caley also revealed that ThinCats has overhauled its loan grading system to identify different levels of security and ability to repay.
Peer-to-peer lending and robo-advice can be great solutions for traders, but your research should always be thorough (Finance Magnates), Rated: A
Brexit, interest rate cuts and global economic turbulence have left a volatile and low-yield environment. Some glimmers of hope shine however, in the form of peer-to-peer lending (P2P) and robo-advice.
Peer-to-peer lending has an established investor-base. Namely, retail investors. The average deposit across a platform is around the £5,000 mark, however, with minimum investments of £10 in several cases, you could be lending capital and earning rates in the region 5% p.a plus in no time.
With a peer-to-peer investment you can expect returns significantly higher than those on offer from a high-street bank. With a record-low base saving rate of 0.25%, it is little wonder people are searching for an alternative. And with interest rates ranging 3-19% p.a, P2P lending could be that alternative.
The major P2P lending platforms, such as Zopa, RateSetter and Funding Circle (£1 billion+ lent by each), tend to return 3-7% p.a, depending on the platform and product.
Peer-to-peer lending platforms Zopa and RateSetter spread your capital between dozens of borrowers, in some cases up to 100.
One of the big perks in the industry that grabbed major headlines was the launch of the Innovative Finance ISA in April 2016. The government has put its cards on the table, giving peer-to-peer lending the stamp of approval.
International P2P Lending Volumes November 2016 (P2P Banking), Rated: AAA
The total volume for the reported marketplaces adds up to 438 million Euro.
All eyes on consolidation, funding diversification at MPL confab (GlobalCapital), Rated: A
Industry players speaking with GlobalCapital on the sidelines of the event noted the absence of several unsecured consumer lending players at this year’s conference – namely CircleBack Lending and Peerform – pointing to a wave of consolidation as the online lending market matures.
Harmoney fined 2k for misleading consumers (NZ Herald), Rated: AAA
Peer-to-peer lender Harmoney has been fined $292,5000 for misleading consumers into thinking they had been pre-approved for a personal loan.
The Commerce Commission filed six charges against Harmoney under the Fair Trading Act relating to 27 versions of a pre-approval letter.
The letter was sent to over half a million Kiwis between October 2014 and April 2015 inviting people to visit the Harmoney website to find out how much money they had been approved to borrow.
But in reality they still had to go through an approval process.
Media mogul-backed bank challenger close to breaking even (The Age), Rated: A
SocietyOne, a peer-to-peer lender that is partly owned by Rupert Murdoch, Kerry Stokes and James Packer’s companies, expects to start making profits within the next 12 to 18 months.
After a year of rapid loan growth, chief executive Jason Yetton said the lender now faced the prospect of breaking even, though this would depend on how much it invested.
While SocietyOne is currently loss-making, its progress is a sign of peer-to-peer lending gradually becoming more established in Australia, as it is in the US and Britain.
Personalised Investment Portfolios: The Customer Takes Centre Stage (The Market Mogul), Rated: A
From insurance to wealth management, from peer-to-peer lending to payments, Fintech startups are transforming the financial system. They attracted $5.2bn in the first quarter of 2016 alone. Customers have many reasons to flock towards Fintech offers: low-cost, user-friendly interface, accessibility, transparency and exciting customer journeys.
The ‘Fintech’ revolution (Sky News), Rated: B
Peer-to-peer lending now offers to perform the same functions using the internet to match savers and investors directly, bypassing the banks.
Banks will need to figure out how to respond.
One option we are starting to see is banks providing funding to the peer-to-peer lenders, so they just operate on one side of the market – that of accumulating funds for investment.
Five on Trial for Gold Smuggling, Chinese P2P Lending Ponzi Scheme (Crowdfund Insider), Rated: A
In a follow-up to the Ezubao (Ezubo) shutdown, five people affiliated with the Chinese P2P lending platform that is accused of a Ponzi scheme are on trial for gold smuggling. This is the first court case that is a part of a scandal that robbed investors of between 50-58 billion yuan (approximately $7.6-8.4 billion) and shook the Chinese crowdfunding world earlier this year.
According to a Chinese news outlet, the five Ezubao affiliates smuggled over a thousand gold bars (worth approximately $4.8 million) out of China’s Yunnan province and illegally crossed over Myanmar’s border multiple times last year.
As a result of the fraudulent P2P lending platform fallout, 900,000 investors across China lost their savings; authorities froze more than 10 billion yuan in funds and seized about 300 million yuan worth of cash and assets; and 26 people — including Ding and President of Yucheng Zhang Min — face charges of fraud and illegal fundraising.
SA crowd-funding site launches R100 million loan facility for corporates (BusinessTech), Rated: AAA
Peer-to-peer lending firm RainFin has launched a R100 million business-to-retail product directed at corporates and established businesses to participate in the crowd-funding space.
Barclays Africa (Absa) originally acquired a 49% stake in RainFin in 2014, however, last month, the company’s founders and directors said that they would buy that stake back.
Prior to this launch, RainFin said that the credit marketplace has been primarily used by small businesses seeking small (less the R750,000) loans for working capital.