- Today’s main news: Lending Club CTO resigns. Higher financing cost expected to be pushed to the borrower. Zopa lifts investment limits. Nigeria fintech startup Paystack raises $1.3M in seed money.
- Today’s main analysis: Novel underwriting criteria by SoFi in RMBS leads to a strong rating. Statistics of lending between friends and in families.
- Today’s thought-provoking articles: The rise of insurtech. Why lenders should embrace alternative credit scores.Aussies get personalized financial advice through mobile-first access.
- Higher financing cost expected to be pushed to the borrower and a novel underwriting criteria by SoFi in RMBS leads to a strong rating. GP:” Not many people I think understand why the SoFi mortgage securitization is so well rated. It has to do with the quality of the underwriting. Worth a read to understand how one can get low cost capital. And of course a discussion of the impact of the new rate hike on our space. I also believe given the effort towards profitability that most lenders will hike their rates in line with the FED.”
- Orchard weekly online lending shapshot. GP:” My analysis: all flat lines.”
- Why lenders should embrace alternative credit scores. GP:” This depends of course a lot on the quality of the borrowers.” AT: “I completely agree. Interesting stat: 64 million U.S. consumers do not have a FICO score .”
- The rise of insurtech in the age of algorithms. GP:” I also agree that insurtech is the next frontier for fintech.” AT: “This is probably understated. Insurtech will be the next big splash in FinTech and likely will go on to be bigger than mobile payments.”
- Fitch expected to rate SoFi RMBS. GP: “As we discussed above, this is expected to be rated very high.”
- Fidelity gives BlackRock a leg up in robo-advice brawl. AT: Expect robo-advice to also be huge. Millennials are eating this up, and the U.S. behind Europe, but I think we’ll catch up.”
- Lending Club CTO resigns. GP: “The CTO has decided to pursue another opportunity. Is he joining Renaud Laplanche’s new venture Credify? Would Laplanche has a non-sollicit clause in his contracts ? “
- Fast-cash loans are the wild west for small businesses. GP:” New CFPB rules are coming.”
- Bizfi joins LendingTree on grant contest.
- P2P lending market top vendors.
- Phill Rosen says consolidation in P2P is the future. GP:” I do expect competition to get tougher. But I continue to believe that M&A is unlikely as there are no good reasons for it.”
- How to earn interest on Bitcoin with P2P lending. GP:” Bitcoin price volatility will drawn any interest you own on Bitcoin. But if you have millions of USD in Bitcoin you may as well give yourself an edge.”
- Social impact investing hits crowdfunding. GP:” Social Impact investing and lending is always a great way to get visibility for free.”
- Zopa lifts investment limits. GP:” I didn’t expect this to last long. It did get Zopa some nice press. And I am glad it didnt’ last long. If it had lasted too long it would have been a bad sign.”AT: “That didn’t last long.”
- Growth Street’s Sherwin-Smith says 34M GBP has been originated to date.
- 25% fall out with friends over loans. GP:” Very interesting statistic : 1/4 or so of friends have a fall out over money. And 3/4 of UK people polled lent money in the last 12 months and 4% lent more then 5,000 GBP. Inside friends and family loans estimated to 2.9bil GBP per year.”
- First online super-advice product gives mobile-first access to personalized financial advice.
- Hayden assumes COO role of HashChing.
- Paystack raises $1.3M. GP:” We are pleased to cover the whole world and to see p2p lending and fintech growing everywhere.”
- United States
- PeerIQ Weekly Industry Update (PeerIQ Email), Rated: AAA
- Orchard Weekly Online Lending Snapshot (Orchard Platform), Rated: AAA
- Why Lenders Should Embrace Alternative Credit Scores (National Mortgage News), Rated: AAA
- THE RISE OF INSURTECH IN THE AGE OF ALGORITHMS (Data Economy), Rated: AAA
- Fitch Expects to Rate SoFi Inaugural Residential Mortgage Backed Securities (Crowdfund Insider), Rated: A
- Fidelity gives BlackRock an early leg up in robo advice brawl (Reuters), Rated: A
- Lending Club CTO Resigns (Crowdfund Insider), Rated: A
- Fast-cash loans are wild west for small business (App.com), Rated: A
- Bizfi Joins Forces With LendingTree For Small Business Grant Contest (Crowdfund Insider), Rated: A
- Peer-to-Peer Lending Market – Top Vendors (SAT PR News), Rated: A
- Even Financial’s Phill Rosen on P2P Lending Industry’s Future: I Think We Will See Some Consolidation in the Space (Crowdfund Insider), Rated: A
- How to earn interest on your Bitcoin – P2P Lending with Bitbond (Deep Dot Web), Rated: A
- Social impact investing is an alternative way to do good (MarketWatch), Rated: A
- United Kingdom
- Zopa’s investment limit lifts (altfi), Rated: AAA
- Growth Street’s James Sherwin-Smith: Over £34M Has Been Matched on Platform to Date (Crowdfund Insider), Rated: A
- Loan Danger: 25% Fall Out With Friends Over Money (Voice-Online), Rated: A
- European Union
- Popular Fintech Companies in France (TechBullion), Rated: B
- REST’s industry-first online super advice product gives members ‘mobile first’ access to personalised financial advice (Professional Planner), Rated: AAA
- Hayden steps into new COO role (Australian Broker), Rated: B
- Uberisation disrupts multiple sectors (Times of India), Rated: B
- Vietnam: P2P lending startup Tima gets funding from Singapore investor (Deal Street Asia), Rated: AAA
- Nigerian Fintech Startup Paystack Raises $1.3 Million (Forbes),Rated: A
- 6 Fintech Players Changing the Face of Global Payments (Business2Community), Rated: A
PeerIQ Weekly Industry Update (PeerIQ Email), Rated: AAA
In a widely expected move, FOMC officials increased the Fed Funds rate by 25 bps to a target range of between 50 and 75 bps. Higher financing costs on warehouse lines will reduce net interest margins for whole loan investors unless there is a commensurate rate increase for borrowers. Platforms are expected to pass on some or all of the increase in borrowing costs to consumers to demonstrate the resiliency of the business model to small changes in interest rates.
Much like the beginning of 2016, Fed officials expect several rate increases in the new year as the economy approaches full employment. However, we note that over the life of the current expansion officials have consistently over-estimated the pace of GDP growth and inflation and therefore the pace of rate increases has been slower than expectations.
We highlight two important benefits from issuer’s perspective for QM designation. Issuers are 1) insulated from claims and defenses by borrowers due to safe harbor, and 2) are not required to retain 5% of capital structure per the credit risk retention rule. Nevertheless, SoFi intends to retain risk in the transaction.
Collateral Quality of SFPMT 2016-1 is One of the Strongest in 2016
Unlike traditional RMBS underwriters, SoFi incorporates additional criteria such as Free Cash Flow (FCF) and Real Excess Cash Flow (REC) into its underwriting process. REC measures a minimum residual income after payment of housing expenses, taxes, debt obligations, and estimated discretionary and cost of living expenses based on the borrower’s location. SoFi assesses the borrowers’ liquidity position to ensure that they have consistent cash excess including their mortgage payments.
Besides this novel underwriting criteria, SFPMT 2016-1 also has a number of strong collateral characteristics that mitigates potential credit risk. For instance, its collateral pool has one of the lowest weighted average loan-to-value (LTV) and debt-to-income (DTI) ratios amongst recent prime jumbo deals.
Fed Fund Rate Hike led to Wider Pricing for SFPMT 2016-1
The Federal Reserve on Wednesday sent its key short-term interest rate up by a quarter of a percentage point. FNMA 30yr conventional loan pool with 3.0% coupon trades around at 3.3% yield today vs 2.6% yield a month ago. Due to the recent interest rate hike and other factors, SFPMT 2016-1 was priced wider than other recent comparable transactions. For instance, the Sequoia deal SEMT 2016-3 was priced over 100 basis points tighter over a month ago due to changes in the rate environment and other factors.
Orchard Weekly Online Lending Snapshot (Orchard Platform), Rated: AAA
Many banks were quick to announce an increase in their prime lending rates, and while we expect that some online lenders will follow suit, as of this writing we have not seen similar announcements. While 2016 has been a turbulent yearfor some online lenders, we expect the acceleration in positive deals and increased interest from traditional lenders looking to participate in the space will continue into 2017.
Why Lenders Should Embrace Alternative Credit Scores (National Mortgage News), Rated: AAA
It may take time and regulatory easing for depositories to emulate organizations like SoFi in transitioning to a “FICO-free” credit scoring model, but there is definite merit in leveraging alternative models to tap into a significantly underserved (yet creditworthy) segment of the population. Developing an alternative credit score or leveraging existing models enables a lender to penetrate this overlooked market and gain new consumers at a time of increased competition and reduced profit margins.
An Experian study estimated that 64 million consumers in the United States do not have a FICO credit score. Further, Vantagescore assessed 10 million of these so-called “unscoreable” consumers as prime or near-prime consumers, while another significant percentage have steady jobs and/or low liability levels. Clearly, there is a need to determine creditworthiness outside of the traditional models.
The traditional underwriting process can also be enhanced by leveraging nonconventional variables such as credit card transactions, social media presence and utility bills. This can potentially reduce credit risk through expanded risk modeling and monitoring. Lenders should consider back testing alternative scoring models as a challenger to compare against the FICO model in a champion-challenger sandbox environment.
Alternative credit scoring presents tremendous opportunities, but it is not without risks and challenges.
THE RISE OF INSURTECH IN THE AGE OF ALGORITHMS (Data Economy), Rated: AAA
As in banking, peer-to-peer is hot in insurance with older players like Friendsurance and also newcomers such as Lemonade, InsPeer, InSured, and Teambrella. Each promises insurance that is more transparent and social with shared costs – things that have wide appeal in today’s market where customization is king.
Another interesting area in insurtech is item-specific, event-specific, and on-demand coverage – “smart insurance.” Startups in this space collect data about a customer’s possessions and provide machine-learning enhanced risk pricing for single-item coverage of any duration. This model allows premium levels to scale down to pennies with durations down to the second for completely customized coverage.
Of course, even when insurance companies partner with IoT manufacturers, the question still remains: who owns the customer relationship? For complete control of the customer experience and customer proximity, it’s essential that today’s insurance companies embrace the age of algorithms and better leverage IoT technology and big data to drive innovation.
Insurance can’t continue to simply partner with IoT manufacturers for long – they have to lead the movement. This means appropriating the very tools giving their new competitors an advantage in both IoT and non-IoT spheres: big data and algorithms. By leveraging IoT technology to gather more data about customers’ homes, cars, and even the people themselves, insurance companies can then better use real-time data, predictive modeling, and machine learning to create new business models and new offerings for clients.
Current startups in the space are proving that the age of algorithms is a positive development for the insurance business itself and for its customers, who are looking for more options, flexibility, and transparency, all of which IoT and big data analysis can offer.
Fitch Expects to Rate SoFi Inaugural Residential Mortgage Backed Securities (Crowdfund Insider), Rated: A
Fitch shared last week its intent to rate SoFi’s RMBS transaction that included 270 loans with a total balance of approximately $168.79 million. The group of loans consists of prime fixed-rate mortgages originated on the SoFi online lending platform.
Fidelity gives BlackRock an early leg up in robo advice brawl (Reuters), Rated: A
Fidelity Investments unintentionally boosted BlackRock Inc’s prospects as a robo adviser with a small investment in a start-up company that BlackRock bought last year for an estimated $150 million.
BlackRock and Fidelity are only in the early stages of what is shaping up as a battle royale to become the go-to provider of cheap automated financial advice over the Internet.
Although rivals currently dominate the robo advising space, investment behemoths Fidelity and BlackRock are expected to grow quickly. BlackRock’s FutureAdvisor now has more than $1 billion in assets under management, while Boston-based Fidelity’s digital wealth manager, Fidelity Go, is still getting off the ground, with only a nominal amount of assets. Fidelity has yet to launch a full marketing campaign.
Still, Fidelity could overtake BlackRock next year because it has a built-in advantage that many rivals, including BlackRock, do not have: an online brokerage with 17.4 million retail accounts. Some 96 percent of those accounts don’t currently have any sort of management and Fidelity is ideally placed to woo them over to Fidelity Go.
Meanwhile, the U.S. robo industry’s early leader is Vanguard Group. Its robo business has 60-percent market share with $41 billion in assets. Charles Schwab Corp, which has 7 million fewer brokerage accounts than Fidelity, is No. 2 with $10.2 billion in assets after only 19 months since launching its robo product. Click here for a list of the top U.S. robo advisers: (tmsnrt.rs/2hy0z4S).
Lending Club CTO Resigns (Crowdfund Insider), Rated: A
Lending Club (NYSE:LC) filed an 8K yesterday indicating that Chief Technology Officer John MacIlwaine had submitted his resignation on December 15th. MacIlwaine decided to depart from Lending Club to pursue another opportunity. Lending Club stated that Richard Southwick, Senior Vice President for Technology, will oversee the Company’s technology development and operations while they conduct a search for a new Chief Technology Officer.
Fast-cash loans are wild west for small business (App.com), Rated: A
- High costs. Lenders commonly charge APRs (annual percentage rates) above 50 percent and can easily reach over 300 percent.
- Double dipping. Repeat borrowers incur additional fees each time they renew their loans.
- Hidden prepayment charges. Unlike traditional loans, many alternative lenders require payment of the full interest even when loans are repaid early.
- Misaligned broker incentives. Small-business loan brokers often recommend the most expensive loans because they earn the highest fees on those.
- Stacking. Multiple lenders provide loans to the same borrower, resulting in additional and hidden fees.
What the Harvard Business School Report recommends:
- Mandatory disclosure of APRs, fees, default rates and borrower satisfaction.
- A national regulation option – rather than state-by-state.
- Increased borrower protections for small-business owners.
- Rules/guidance on partnerships between banks and new lenders.
- Brokers/platforms to have a “fiduciary” duty toward borrowers, meaning they must act in the borrowers’ best interests and disclose conflicts of interest.
Bizfi Joins Forces With LendingTree For Small Business Grant Contest (Crowdfund Insider), Rated: A
Less than a week after LendingTree launched its $50,000 small business grant contest; Bizfi announced it has teamed up with the online lender for the contest. According to Bizfi, LendingTree is one of the 45 funding partners of its marketplace for small business finance.
Peer-to-Peer Lending Market – Top Vendors (SAT PR News), Rated: A
The research report published by Transparency Market Research states that the opportunity in the global P2P lending market was worth US$26.16 bn in 2015. Analysts predict that the market valuation will reach US$897.85 bn by 2024, as it expands at a significant CAGR of 48.2% from 2016 to 2024.
The reducing interest in conventional banking, increasing dependency on online platforms, and recent history of financial crisis in this region has prompted P2P lending market to take lead cater to the unmet financial demands of the population. Meanwhile, the P2P lending market is estimated to show rapid progress in Asia Pacific. The emerging economies of China, India, Japan, and Australia will make a significant contribution to the rise of this market in Asia Pacific. The primary growth driver for this region will also be small businesses that will seek financial alternatives to fund their projects.
Even Financial’s Phill Rosen on P2P Lending Industry’s Future: I Think We Will See Some Consolidation in the Space (Crowdfund Insider), Rated: A
Earlier this week, fintech firm Even Financial announced it increased loan originations by 205% quarter over quarter since the beginning of 2016 and surpassed $1.5 billion in loan requests. The company has experienced solid growth since it was founded in 2014.
Crowdfund Insider: What borrower categories are you seeing the most interest on EVEN?
Rosen: Aside from debt consolidation which is the top purpose across the industry, we see high demand in weddings, auto and home improvement
Crowdfund Insider: What is the average size loan requested?
Rosen: Across all purposes, $10,551.00
How to earn interest on your Bitcoin – P2P Lending with Bitbond (Deep Dot Web), Rated: A
Before we start, a few guidelines would be to stay away from any model that offers ridiculous interest rates like 1% per day or 10% per month. The same can be said for any model that is not transparent on how they get this interest or that simply state that profits comes from trading. Finally, do your research. A simple google search can make the difference.
Bibond is a peer-to-peer lending website that allows you to lend both Bitcoin and national currencies for an interest. The major difference between the two former websites (Poloniex and Magnr) and Bibond is that with Bibond you’ll be lending your funds directly to other users. There is no failsafe mechanism for stopping users from taking your money and leaving. Forever.
However, this isn’t the norm as users are required to reveal their personal information and to back it up with the ownership of social media accounts, ebay, and so on. The borrowers are ranked from A to F according to risk. The lower the risk, the lower the interest you’ll receive and vice-versa.
In the case of an unpaid loan, Bibond will provide you with all the necessary information to take legal action agains the borrower or Bibond will sell the claim for the loan to a debt collection agency. The latter is usually better for lenders but it requires the amount to be above a certain threshold which varies according to the location of the borrower (usually 1.0 BTC or more in the developed world and 0.5 BTC or more in emerging markets).
Social impact investing is an alternative way to do good (MarketWatch), Rated: A
In most cases, the investments are still limited to the wealthy or accredited investors, but that is changing, and crowdfunding is expected to alter the playing field even further. Calvert Investments, for example, offers a high social impact investments program in which investors can put as little as $20 into local projects.
For non-accredited investors looking for other options to invest for social impact, Hoyt mentions Kiva.org, which offers peer-to-peer lending through zero-interest notes and CuttingEdgeX, a clearinghouse listing direct public offerings for social enterprises needing to raise capital.
Zopa’s investment limit lifts (altfi), Rated: AAA
Zopa, the original peer-to-peer lending platform, has lifted its recently enforced platform limit. The firm is once again accepting new money transfers, with £4.2m in capacity.
Although the investment limit has been temporarily lifted, Zopa’s usual run-rate would suggest that the £4.2m of space will be filled within a few short days. Zopa has lent out £56.9m during the past four weeks.
Growth Street’s James Sherwin-Smith: Over £34M Has Been Matched on Platform to Date (Crowdfund Insider), Rated: A
Growth Street announced last week it would not accept individual retail investors on its peer to peer lending platform. They may do this now as they are an FCA registered Appointed Representative pursuant to a partnership with another firm.
Crowdfund Insider: What makes Growth Street stand out from other peer-to-peer lending platforms?
Sherwin-Smith: Growth Street is the only P2P platform offering revolving credit, which we provide in the form of secured business overdrafts. Borrowers share their performance data with Growth Street on an ongoing basis.
Loan Danger: 25% Fall Out With Friends Over Money (Voice-Online), Rated: A
ALMOST ONE in four of us have fallen out with friends over money issues and 42% have lent money to a friend only for it never to be returned, according to new research out today.
The study found that 74% of us have lent money over the past 12 months, with half of us lending up to £500 and nearly one in 20 (4%) having lent over £5,000.
The UK social lending industry – loans between friends & family – is estimated to be worth over £2.9 billion a year.
Most (95%) of us have never charged interest to anyone we know, but half would consider doing so and feel it is acceptable to charge interest to those that we personally know (47%).
Popular Fintech Companies in France (TechBullion), Rated: B
Younited Credit is one of the biggest fintech start-ups in France, operating peer-to-peer lending platform recognized by the French central bank.
Lendix is an online marketplace for business loans, allowing investors to advance money directly to SMEs.
Ulule is a leading crowdfunding site created by Thomas Boucherot and Alexander in 2010. Since its launch, the company has funded thousands of projects in many fields, from music creation to audiovisual.
Founded by Ombline Lasseur, Adrien Aumont and Vincent Ricordeau in 2009, Kisskissbankbank provides a crowdfunding platform for athletes, humanists, and creatives to raise funds for their projects.
Created in 2012, SmartAngels is a crowdfunding platform that allows retail investors and professionals to fund start-ups and SMEs.
Founded in 2007, MyMajorCompany allows music fans and internet users to invest in their preferred artists’ projects.
Ledger is a start-up that combines its strong expertise in smart card, cryptography, security, and embedded hardware. The launch of a hardware wallet, Ledger Nano, in over 80 countries established the company as a reference in the global bitcoin ecosystem.
Founded in 2011, Paymium is a European web-based exchange that allows all bitcoin transactions between traders and consumers.
Founded in 2012 by Camille Tyan and Antoine Grimaud, PayPlug is the first service in France to allow small merchants and professionals to accept credit card payments with simple tools, no monthly costs, and signup fee.
Fundovino is the first crowdfunding platform devoted to the world of wine.
Weeleo is a P2P platform that enables the exchange of cash currencies.
REST’s industry-first online super advice product gives members ‘mobile first’ access to personalised financial advice (Professional Planner), Rated: AAA
REST Industry Super today became the first Australian super fund to provide its 1.9 million members with ‘mobile first’ access to personalised financial advice with the launch of the REST Advice Online platform.
REST Advice Online is delivered on Midwinter’s next generation Advice Operating System (AdviceOS) and provides REST members with the ability to receive instant financial advice and make immediate changes to their super account from any mobile device.
The digital advice offering leverages Midwinter’s Digital Advice technology which means that regardless of which method REST members choose to receive advice (phone based, web chat or self-service), it is delivered, recorded and processed from the same integrated advice system.
Hayden steps into new COO role (Australian Broker), Rated: B
Digital home loan marketplace HashChing has appointed Siobhan Hayden, former CEO of the Mortgage & Finance Association of Australia (MFAA), as its new COO.
Uberisation disrupts multiple sectors (Times of India), Rated: B
The financial services industry is also undergoing transformation with digital. Crowdfunding startups like Ketto and Wishberry and peer-to-peer lending platforms like Faircent, Lendbox and i2ifunding are offering platforms to connect people who have a cause or a financial need with those who have excess funds to lend.
Vietnam: P2P lending startup Tima gets funding from Singapore investor (Deal Street Asia), Rated: AAA
Vietnamese P2P lending startup Tima has closed a US dollar 7-figure series A funding from a Singapore fund to accelerate service growth in the local market, a senior executive of the company told this portal.
Launched in 2015, the platform has seen cumulative money from its lender partners reach over VND2.5 trillion ($115.45 million).
About 80 per cent of loan seekers based in Vietnam do not have prompt access to financial services, says a World Bank report. P2P lending, still a fledging business in the country, is said to be a solution in addressing this gap.
In Vietnam, fintech has started to emerge as one of the most favourite verticals for startups and investors, fueled by the increasing mobility yet unbanked population in the country.
Nigerian Fintech Startup Paystack Raises .3 Million (Forbes),Rated: A
Paystack, one of Nigeria’s most hotly anticipated tech start-ups, has just secured $1.3M Seed investment from both international and homegrown investors. The company, founded by Shola Akinlade and Ezra Olubi, initially caught the eye of industry commentators as it was one the first Nigerian tech company to be accepted into the world-famous Y Combinator progam, based in Silicon Valley. Since then, having taken Paystack through Private beta, and securing $120,000 early-stage investment from Y Combinator, Akinlade [CEO] and Olubi [CTO] have quietly been building the company, working to secure this Seed investment round, whilst also building a network of partner merchants in Nigeria, over 1,500, who are now using the platform to accept online payments.
6 Fintech Players Changing the Face of Global Payments (Business2Community), Rated: A
A leading mobile payments company, iZettle offers small businesses portable point-of-sale solutions as well as free sales overview tools. This allows any individual or merchant to take card payments anywhere, anytime.
Another player in this space is Klarna, a Swedish e-commerce company that supplies payment services for online storefronts. The Klarna system eliminates the risks for buyers and sellers by taking over stores’ payment claims and by managing customer payments.
Consumer to business payment fintech is increasingly well established. But some fintech firms are looking to facilitate business to employee payment services.
Doreming, for instance, focuses on financial inclusion for workers, an emerging theme for fintech firms, with the World Bank estimating that 2.5 billion adults worldwide are excluded from traditional banking services.
Adyen is a multichannel payment company outsourcing financial transfer services to international merchants giving them a single solution to accept payments anywhere in the world.
Azimo is also an international money transfer service harbouring a large digital network that allows customers to send money to over 190 countries, from any internet-connected device.
Microfinance fintechs are riding a wave of popularity with their social media partners and increasingly facilitating the online sharing community. For example, Flattr, a fintech founded in 2010, enables users to ‘flattr’ creators for their digital content by clicking the Flattr-button next to their content. Each month, you add money to your account and at the end of the month your monthly budget is divided between all the things you flattered and sent to the creators.