Daily News Digest Featured News

Wednesday December 21 2016, Daily News Digest

News Comments

United States

  • Klarna takes aim at PayPal in U.S. GP: “I continue to see Klarna as a point of sale financing company that is a serious challenger for the top position.” AT: “This shouldn’t come as any surprise. We now live in a global village. Competition has taken on a brand new face with the rise of technology and second- and third-world countries gaining greater access to consumers, technology, and capital. Klarna actually has the clout to compete with PayPal and could very well become a major player in the U.S.”
  • MPL ABS compares well in 2016. GP: ” ABS sets the tone for the cost of capital for the entire industry. This is great news.”
  • SoFi targets HENRYs. AT: “This isn’t really news, but it bears reminding that MPL essentially thrives because of this market.”
  • Earning interest on Bitcoin with BTCjam. AT: This is a part of a four-part series on P2P lending with Bitcoin.”
  • 7 ways to invest $1,000. AT: “Increasingly, I’m seeing more popular publications recommending P2P lending as an option for everyday investors. Lending Club is a popular option, but I wonder how many of these pundits recommend LC because that’s what they’re familiar with. Do they try out other platforms?”
  • 7 ways to finance your first real estate investment. AT: “Again, two of the solutions are alternative lending platforms. This is getting trendy–in a good way.”
  • The worst CEO screw-ups of 2016. AT: “LC made the list, as did Zenefits.”
  • Why Trump could be good for Silicon Valley. AT: “Could be. But put me in the skeptical camp.”

United Kingdom

European Union

China

India

United States

Buy now, pay later: Klarna promises to be an alternative to your credit card (Forbes India), Rated: AAA

A faint smile lights up Sebastian Siemiatkowski’s face as he recounts how his humble online-payments startup bagged the Warren Buffett of venture capitalists (VCs) as a board member.

Today Klarna’s ambitions go beyond cocky. It’s gunning for the $93 billion US market for credit card issuing, an industry that’s dominated by giants such as American Express and Capital One, with PayPal and ambitious startups in close pursuit. Like PayPal, Klarna is an online-payments platform with an emphasis on “buy-now-pay-later” financing. “We’re a bank,” Siemiatkowski says from a stark conference room in Klarna’s head office.

Klarna’s main competition: PayPal, whose financing business, PayPal Credit, formerly known as Bill Me Later, has been steadily growing since 2008, albeit with an embarrassing blip. Last year, the Consumer Finance Protection Bureau forced PayPal to pay a $25 million fine for sneakily signing people up for credit. Yet today “it’s one of our fastest-growing businesses,” PayPal spokesman Josh Criscoe says, increasing at a 27 percent annual clip.

Even more similar to Klarna is Affirm, a San Francisco startup launched by Max Levchin, a PayPal co-founder. Affirm is also racing to partner with merchants (it has 800 so far) to offer payment options, including financing, as an alternative to credit cards.

Klarna processes 40 percent of all Swedish online payments.

Once you check out, Klarna pays your bill and emails you an invoice. The startup’s foray into financing—and beyond plain-vanilla payments processing—is what got investors like Sequoia so excited. Its latest investment round, in December 2015, brought its valuation to $2.3 billion.

Perhaps Klarna’s boldest innovation is its email-and-address method of establishing the creditworthiness of its customers. No other online-payments company takes such risk on both the consumer and the merchant, the company claims.

Remarkably, Klarna’s bold bet on people’s honesty and solvency has worked. Its default rates are under 1 percent. Credit card default rates in the US have averaged 2.2 percent for 2016.

Klarna’s geography is relevant for another reason: Scandinavians are bored of cash, and Sweden is on track to become one of the first countries that is truly cashless. Homeless magazine peddlers carry card readers, and churches take their tithes through SMS. Half the branches of Sweden’s biggest banks don’t even have cash on hand or take cash deposits. Americans aren’t ditching cash as quickly, but to Klarna’s benefit right now, they’re bigger on digital payments.

MPL ABS ‘compares well’ in 2016 (Structured Credit Investor), Rated: A

Despite significant turbulence earlier in the year, marketplace lending ABS has maintained steady growth and better or similar performance than other areas of the consumer loan ABS sector, according to JPMorgan ABS analysts. They add that the marketplace lending ABS sector has also been one of the fastest growing in ABS, starting with US$3.3bn in 2013 from three programmes to US$9bn across 15 different shelves in 2016, with this year’s total including US$3.4bn from eight marketplace lending ABS programmes.

Furthermore, recent performance data in 2015 and 2016 show MPL ABS has better or similar performance than branch consumer loans and non-prime auto loans on most metrics.

Online banking platform SoFi targets “high earners, not rich yet” (Marketplace.org), Rated: A

Social Finance, or SoFi, is the largest online lender in the country, originating approximately a billion dollars in credit a month across personal loans, student loan refinancing and mortgages. Mike Cagney is the CEO, and he said what’s unique about the company is their focus on HENRYs — the acronym stands for high earners, not rich yet.

“It’s a customer segment the banking industry has struggled to deliver value to, primarily because there’s a lot of misconceptions around millennial customers — the idea that they’re fickle, they’re not loyal…we’ve found that really not to be the case.”

How to earn interest on your Bitcoin – P2P Lending with BTCJam (Deep Dot Web), Rated: A

This is a four part guide on how to earn interest on your Bitcoin from reliable sources. The first part was on how to lend cryptocurrencies using Magnr. Last time we introduced our users to P2P lending, more specifically on Bibond. This time, we’re going to talk about another P2P lending website, BTCJam.

BTCjam was founded in late 2012 and by the end of 2014, BTCjam had facilitated bitcoin loans in excess of $10 million dollars in value with more than 100,000 users in over 200 countries. BTCjam also has an “Autoinvest” feature, which allows you to keep a diversified portfolio without having to monitor the loan offers. This feature will take your designated parameters into account and find suitable investment opportunities.

The 7 best ways to invest $ 1,000 (Business Insider), Rated: B

If you want to invest into the lives of others and earn some interest, there’s a new craze that’s both exciting and reasonable: peer-to-peer lending.

Lending Club is one such peer-to-peer lending service I tried out, and I found it to be very easy to use and reliable (see my Comprehensive Lending Club review).

One of the best features of Lending Club is that you can make investments as small as $25. This means you can diversify greatly between different risk levels in your lending. So whether you are wondering what to do with $100 , how to invest $10000, where to invest $100k or where to invest 500000, Lending Club can offer you many options.

If you’re not very skilled at investing on your own and you’re hesitant to loan money out to particular people online, you might consider hiring a robo-advisor.

7 Ways to Finance Your First Real Estate Investment (if Your Father’s Not Fred Trump) (TheStreet), Rated: B

With difficulties qualifying for mortgages, a string of nonbank lenders, such as SoFi and LendingHome, are taking market share from traditional banks. According to PwC, their market share could grow to $150 billion by 2025, a 33% annual growth rate. As of April of this year, nonbank lenders originated 48% of all mortgages, up by 400 basis points from their 2015 market share.

Unlike big banks, which take a long time to look at income, FICO score, tax returns and more, online lenders process the application online in 20 minutes, according to LendingHome’s website. They close the deal in two weeks — vs. 45-60 days with banks — sometimes funding up to 100% of the purchase.

If hard money and non-banks aren’t your thing, there are other ways to get a deal, like asset-based mortgages. “Buy 2 Rent,” a mortgage product from Blackstone-owned B2R Finance, mainly looks on the rental income the property will produce.

And unlike traditional banks, it doesn’t look at personal income, which is a huge plus if you don’t have stable income (although a 660 FICO score and other underwriting criteria are required).

The Worst CEO Screw-Ups Of 2016 (Forbes), Rated: B

This past February, a BuzzFeed article reported that Zenefits was employing insurance salespeople who didn’t have legitimate state licenses. A few days later, Zenefits COO David Sacks sent an internal email that read, “the fact is that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker (Conrad) has resigned.”

Online lending platform Lending Club was once a bright spot in the fintech industry. But its CEO’s problems cast a shadow on the company this year. In the spring Lending Club’s board discovered that Laplanche had a personal investment in Cirrix Capital, but he failed to disclose it before he urged Lending Club to invest $10 million in the company. An investigation also revealed that a Lending Club engineer had falsified information to make some loans look like they had met a loan buyer’s requirements when, in fact, they hadn’t.

Why Trump Could (Cringe) Be Good For Silicon (Fortune), Rated: B

Trump may also benefit startups. A Republican-controlled Congress could end gridlock, creating opportunities to reform laws that are slowing down startups, says Bradley Tusk, CEO of Tusk Holdings, a political consultancy and venture firm known for advising Uber. Areas of interest include contract-worker rights, peer-to-peer lending laws, online gambling restrictions, and scrutiny toward for-profit education.

United Kingdom

Online Property Lender LendInvest to Launch Auction Finance Product (Crowdfund Insider), Rated: AAA

Online lender for short-term property finance LendInvest, will launch a new auction finance product to help brokers and borrowers prepare for the forthcoming 2017 auctions. The auction finance product is designed for borrowers that need their deals to be fast-tracked by their lender.

LendInvest bulleted out some of the features of auction finance product:

  • 50% discount on valuation fees
  • No exit fees
  • Available on loans ranging between £75,000 to £7.5 million
  • Available on terms from 1 to 12 months
  • Available on loans with a maximum 75% LTV

Cure for issues facing Peer to Peer lending isn’t regulation (The London Economic), Rated: A

Last week, the Financial Conduct Authority released their interim feedback of their review of their crowdfunding and peer to peer lending rules. And it didn’t sound good.

Andrew Bailey, CEO of the Financial Conduct Authority (FCA), stated that “fast-moving, evolving” peer-to-peer (P2P) lending industry poses “some quite big challenges in terms of transparency and fairness.”

In a new market that is disrupting traditional finance, there is no point advertising to consumers who are uninformed.

Instead of throwing money into glossy adverts, I believe the best foundations are built by going back to the old days of lending when your bank manager knew you, your family, your business and your friends.  They would never lend to someone unless they met them and got to know them personally.

Entrepreneurs more likely to plunder their savings than borrow from the bank to start-up a business (This Is Money), Rated: A

Research from investment platform Crowdfinders claims just 28 per cent of people would turn to banks or professional institutions for funding, compared to the 35 per cent who would resort to personal savings.

Meanwhile, just 15 per cent said they would turn to friends and family for the cash, probably because two thirds confessed their loved ones don’t have the financial means to support them.

After these funding options, the next most popular avenues were fundraising through the sale of personal items such as cars or luxury items, or looking to a current business or professional network, both of which were cited by 11 per cent of people.

Just one in 20 said they would use peer-to-peer lending platforms or venture capital, and only 6 per cent would apply for a bridging loan or specialist finance.

Major Players in UK Equity Crowdfunding Market (TechBullion), Rated: A

Currently, equity-based crowdfunding is the second most active funding source in the UK, far ahead of private investment and angel network vehicles.

Established in 2011 by Luke Lang and Darren Westlake, Crowdcube is the world’s leading investment crowdfunding platform.
Launched in 2012, Seedrs is the world’s leading equity crowdfunding platform for investing in businesses. It was the first equity crowdfunding platform to get regulatory approval from the Financial Conduct Authority in the UK.

Founded in 2012 by Tom Britton, Goncalo de Vasconcelos and Gonçalo Vasconcelos,   SyndicateRoom is the platform where investors make smarter and more exciting investments.

Founded by Dawn Bebe in 2010 and headquartered in Cornwell, Crowdfunder is the leading UK crowdfunding platform, connecting projects with people to make great ideas happen.

Founded in 2013, CrowdShed operates and offers online funding platforms, helping people, businesses, charities and art projects to get fund.

Venture Founders is an equity investment platform that is designed to make capital more accessible for a range of early-stage and growth businesses.  It offers investors a range of curated, structured, and good investment opportunities.

Angels Den is an investment platform that connects angel investors with businesses.

Founded in 2013 by Ayan Mitra, Code Investing is a digital investment platform that offers investment opportunities in high growth, small to medium companies.

Spacehive is the only UK-based crowdfunding platform exclusively for projects aimed at improving local civic and community spaces. It is also the world’s first funding platform for civic projects.

Crowdfunding site Zopa provides 2 to 5-year low rate loans to borrowers with good credit, and 5 percent interest rates to P2P lending contributors. Zopa is the Europe’s largest P2P lending service having now lent more than £1.8 billion.

Robo-advice ‘failing consumers’ says UK study (IFA), Rated: A

The research – which was conducted by financial information company Boring Money on behalf of the Financial Services Consumer Panel, a statutory body that advises the UK financial regulator – found that robo-advice providers are currently providing insufficiently pro-consumer services on a number of fronts.

It concludes that “many online investment firms” failed to clearly communicate whether the advice provided was regulated or not, to disclose relevant costs and charges and to use language that consumers might reasonably understand.

The consumer body calls on the Financial Conduct Authority (FCA) to enforce existing regulations governing online investment tools as well as to develop a framework for product providers to adopt language that is less reliant on complex industry jargon.

Robo-advisers and the future of financial advice (Capgemini), Rated: A

 

Gomes, Kotlikoff and Viceira developed a lifecycle model in 2008 which includes flexible consumption, investment and labor supply. They optimize a utility function using simulation, recursive Bellman equations and backward induction to derive optimal lifecycle behaviour. Parameter values are estimated using empirical data.ramework to create a portfolio of assets such that the expected return is maximized for a given level of risk. Financial market data is used to estimate expected return, standard deviation and correlation for every asset class.

New technologies can significantly improve the input for these models and increase the quality of the advice. By replacing a questionnaire by more sophisticated data sources and machine learning models, a significant increase in accuracy of risk tolerance, income and consumption estimates can be expected.

More complex is to estimate personal preferences. Since one cannot directly measure emotions, approximating utility and risk tolerance requires creative approaches. Expectations are high for artificial intelligence applications for decision making.

Using powerful machine intelligence, merging more data sources and leveraging scientific results to better understand the client’s situation would lead to a next generation of automated advisers.

robo-advisors

European Union

KPMG Report: Online Lending in Continental Europe Q1 through Q3 2016 (Crowdfund Insider), Rated: A

KPMG, along with AltFi data, has published a new report on alternative lending in Europe. KPMG also sourced data from the most recent Cambridge Centre for Alternative Finance report. The document, entitled Alternative Lending Market Trends in Continental Europe 2016, provides an interesting snapshot of online lending beyond the UK.

Following the UK, the top two European countries for online lending include France and Germany. The authors point out that Latvia is breaking away from the pack with the third highest volume of funded loans in 2016 through Q3.

Peer to peer consumer lending is the largest segment of online lending.  Through Q3 of 2016, consumer P2P generated 72% of total lending.

Regarding the largest continental European platforms, Younited Credit in France and Auxmoney in German come in at first and second place respectively.  Mintos and Twino, both operating out of Latvia, are in 3rd and 4th place – punching above their weight class.

KPMG report

China

The Biggest Tech Trends From China To Watch Out For In 2017 (Forbes), Rated: A

Credit cards have never taken hold, with most customers opting instead to use their phones and payment apps such as Alibaba’s payment system, Alipay, and WeChat. An Ernst & Young report found that 40 percent of consumers in China now use new payment methods.

Further underpinning growth in the country’s fintech segment is a new social credit system that the government expects to fully implement by 2020. The system assigns each citizen and business a credit score based on their social behavior, previous purchases and other financial data. The score would then be used to determine a person’s eligibility for everything from loans and government jobs to where they can travel.

In the meantime, China’s peer-to-peer lending segment is expected to continue to grow over the next year to fill the space left by more traditional banking. China Rapid Finance, one of the country’s largest consumer lending platforms, facilitates in providing loans to online consumers and the middle class, who by and large do not have access to credit scores. The company currently has more than 1 million borrowers, and analysts anticipate that number will rise.

India

P2P lending companies can’t bank on RBI rules this year (India Times), Rated: A

Post demonetisation, peer-to-peer startups expect to see a delay in the final RBI guidelines which were expected to come by October 2016, but which they now believe will be out by March 2017.

As per the consultation paper that came out earlier this year, several players including iLend, Faircent, Venture Catalysts-backed LenDenClub, among others have either begun or are in the process of using escrow or nodal accounts in partnership with banks like IDFC. Demonetisation has also resulted in over 20% increase in lenders seen on the platforms, as well as bigger ticket sizes for some players.

This is a temporary account as it operates until the completion of a transaction process. According to fintech industry experts, this is a natural progression for P2P players. More transparency and security is expected through this process, since transactions will be better recorded and the auditing process will be simpler.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

About the author

Allen Taylor

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