- Today’s main news: CreditEase named “Best Non-Bank Private Wealth Product”.
- Today’s main analysis: FinTech no longer the new kid on the block.
- Today’s thought-provoking articles: The evolution of RECF. Alternative SME finance will survive 2017.
- The evolution of RECF. AT: “RECF has come a long way, but there’s still a way to go. This article provides a sampling of links from the past year, most, if not all, of which we’ve reported on. Nevertheless, these are must reading, so if you haven’t delved into them–happy reading.”
- Alternative SME finance poised to survive 2017. AT: “I fall on the side of positive optimism. Despite the rough year in 2016, I see the industry bouncing back. The election of Donald Trump as our next president may pose some challenges for alternative finance. Early indications show he’ll play more of a protectionist role, but he is unpredictable, so we’ll have to see what takes place in the coming year. If CFPB and SEC plans for regulatory control come to fruition, we could see some much needed stability. The interesting thing here is, there are still voices predicting consolidation in the market.”
- P2P lenders morph into traditional banking. AT: “Not much news here, but it’s important to point out the trend. P2P lenders are offering more traditional banking products even as traditional banks adopt the technology the P2P lenders pioneered.”
- BBVA acquires Openpay. AT: “With BBVA’s capital, Openpay could expand into international markets and offer other marketplace products to its target audience. Of course, the bank could be interested in Openpay for the technology.”
- CreditEase named “Best Non-Bank Private Wealth Product.” AT: Congratulations.
- United States
- The Evolution of Real Estate Crowdfunding — Some Links (JDSupra), Rated: AAA
- Alternative SME Finance Just Might Survive In 2017 (PYMNTS.com), Rated: AAA
- United Kingdom
- Peer-to-peer lenders morph into traditional banking (Financial Times), Rated: A
- European Union
- Spanish Banking Group BBVA Acquires Fintech Startup Openpay (Crowdfund Insider), Rated: A
- CreditEase Anointed “Best Non-Bank Private Wealth Product” (Crowdfund Insider), Rated: AAA
- Fintech: no more the new kid on the block (Livemint), Rated: AAA
- The dawn of P2P lending (Business Today), Rated: A
The Evolution of Real Estate Crowdfunding — Some Links (JDSupra), Rated: AAA
Below are some links to articles outlining the continuing evolution of the real estate crowdfunding industry in 2016:
- This article from Bloomberg — Inside the Real Estate Crowdfunding Land Rush — makes the point that not all crowdfunding platforms are created equally (with vast differences in transparency, fees, and deal volume), and consolidation in the industry should be expected.
- This post by the founder and CEO of crowdfunding platform RealtyShares — A Beginner’s Guide to Real Estate Crowdfunding — summarizes the industry offerings and differences between platforms.
- This article from The Real Estate Crowdfunding Review — Investors pile into Fundrise’s new “eREIT” — takes aim at a new eREIT structure offered by one crowdfunding platform that, while innovative, suffers from a lack of transparency, high expenses, and substantial investor dilution.
- Another article from Real Estate Crowdfunding Review — 7 limitations of real estate crowdfunding sites — reviews some of the current limitations facing most platforms, some of which can be overcome with effort or tools, but others needing industry maturation.
- This article (and podcast) from Wharton — Is the Real Estate Crowdfunding Market Getting Too Crowded? — features an interview with RealtyMogul’s CIO Timothy Li discussing the business model and industry challenges.
- This article — Real Estate Crowdfunding: Should You Invest? — recaps some of the unique risks involved with real estate crowdfunding.
- This article — iFunding Sued. Real Estate Crowdfunding Company Calls Lawsuit Baseless — reviews an early example of litigation in the real estate crowdfunding industry, centered on a dispute over broker fees after a crowdfunding platform allegedly failed to raise the targeted amount for various real estate projects.
- Finally, this article from Real Estate Crowdfunding Review — Top 100+ Real Estate Crowdfunding Sites: Rankings and Reviews — provides rankings to distinguish the top real estate crowdfunding platforms from the pretenders.
Alternative SME Finance Just Might Survive In 2017 (PYMNTS.com), Rated: AAA
Earlier this month, marketplace lending site Biz2Credit released the findings of its most recent small business lending index. The data revealed that SME loan approval rates at big banks were at an all-time high, hitting 23.7 percent in November. Small banks saw their loan approval rates tick up, too, to 48.8 percent. Meanwhile, approval rates among alternative lenders sunk down, a finding that Biz2Credit CEO Rohit Arora said could be a sign of negative times ahead.
This week, Financial Times reported a shift in the sector that sees alternative and P2P lenders turning more into traditional lenders, with companies like Zopa seeking out banking licenses in the U.K.
PYMNTS decided to speak with Biz2Credit’s Arora to gain more of his insight into the future of the alternative business lending landscape.
“I think there will be more consolidation in the market,” he said. “A lot of the alternative lenders were dependent on ISO affiliates and brokers to source deals, and customers are moving away from that trend.”
Banks, on the other hand, continue to invest in technologies that mean traditional institutions can offer borrowers the same online experience and speed that became alt-lending’s key proposition.
On a positive note for alternative lenders, though, regulation is unlikely to crack down on the sector.
Greater clarity and stability on incoming regulatory pressures for the industry mean the sector won’t likely go entirely defunct altogether. But market consolidation and greater competition from traditional lenders will quickly sort out the winners from the losers in alternative SME finance. According to Arora, that means 2017 will certainly be a challenging year for the space.
Peer-to-peer lenders morph into traditional banking (Financial Times), Rated: A
The arrival of peer-to-peer companies in the UK a decade ago was supposed to start a lending revolution.
As online sites that channel investors’ cash directly to borrowers, P2P groups trumpeted their ability to cut out the banks as middlemen. The online lenders said they could facilitate loans more efficiently than banks and offer a superior service, while giving investors attractive interest rates.
But 10 years on from the launch of Zopa, the world’s first P2P site, the nascent sector is muscling in on traditional banking — the very market it set out to disrupt.
Their moves into mainstream banking have raised questions over whether the peer-to-peer model is viable for the long term — or if it will ultimately mirror the industry it is trying to upend.
He said there would likely be more online lenders offering banking products, partly to attract cheaper, stickier funding over time. “P2P is going to become much more integrated into the existing financial ecosystem.”
The evolution of P2P and its shift towards banking is making it more complicated and arguably less transparent, according to industry analysts.
Spanish Banking Group BBVA Acquires Fintech Startup Openpay (Crowdfund Insider), Rated: A
Spanish banking group, BBVA, recently announced it has acquired, Openpay, a fintech startup and payment service provider (PSP) that facilitates e-commerce, including on mobile devices, for large businesses and SMEs.
According to BBVA, Openpay combines a cutting-edge, real-time platform that allows users to make card, cash and loyalty points payments and banks transfers in a single integration. It also uses advanced tools to prevent fraud. The company operates in Mexico through Paynet, its own global network that consists of more than 12,000 associated point-of-sale, which also allows cash payments for online purchases.
CreditEase Anointed “Best Non-Bank Private Wealth Product” (Crowdfund Insider), Rated: AAA
CreditEase has been recognized as the “Best Non-Bank Private Wealth Product” by The Asian Banker, a Singapore-based provider of strategic intelligence on the financial services industry.
CreditEase is a both a peer to peer lending platform and wealth management firm. While the platform started out as a Chinese peer to peer lender it has since morphed into a global financial operation. Yirendai (NYSE:YRD), traded on the NYSE, is a subsidiary of CreditEase and part of its strategy to expand operations vertically and horizontally. At the end of 2015, CreditEase had established a strong service network covering 244 cities (including Hong Kong) and 93 rural regions in China.
In recent years, CreditEase Wealth Management has globalized its business, with branches in more than 40 cities in Mainland China and overseas offices in Hong Kong, Singapore, New York and Tel Aviv.
Fintech: no more the new kid on the block (Livemint), Rated: AAA
Year 2016 was not as glamourous as 2015 was for fintech in terms of interest from investors. According to start-up data analytics provider Tracxn, investments in 2016 were $484.79 million, compared with $1.18 billion in 2015.
The number of companies founded was also lower—186 in 2016 as against 390 in 2015, according to Tracxn data.
Here’s a look at some of the major themes that played out in fintech and how they fared in 2016.
Though National Payments Corporation of India (NPCI) doesn’t allow e-wallets to use UPI, payments solutions and payment gateway companies look at it as an alternative means of making payments, which is likely to pick up pace in 2017.
Since formal lending systems in India are not far reaching, a number of platforms that connect lenders and borrowers saw interest from investors and large commercial banks. Since formal lending systems in India are not far reaching, a number of platforms that connect lenders and borrowers saw interest from investors and large commercial banks.
Besides payments and lending, there was interest in other fintech segments as well, such as cryptocurrency, forex, artificial intelligence and bill payments.
In 2016, the number of companies in the cryptocurrency vertical shot up to over 20. In India cryptocurrency businesses are built around exchanges, portfolio management, technology solutions, trading platforms and bitcoin mining.
Currently, there are over 10 online portals that offer forex or forex-related services. These are online marketplaces to buy or sell foreign currency and make international money transfers.
The dawn of P2P lending (Business Today), Rated: A
When Prime Minister Narendra Modi announced the decision to scrap Rs 500 and Rs 1,000 notes, one sector was suddenly thrust into the limelight. Indeed, companies operating in the fintech space are scrambling to take advantage of the new situation.
P2P unlocks the supply side by connecting individuals who have surplus money to lend with the ones seeking a loan. Add technology into the mix and you get a powerful tool that can negate the problems traditional banks face. At Faircent we are building the infrastructure for a technology and data-driven credit appraisal system. We have entered into alliances with best in class players like Transunion and Yodlee.
P2P is looked at differently in different parts of the world. For example, Canada and UK regulate P2P platforms as an intermediary, while France and Germany regard it similar to a bank. In the US, however, regulations vary from state to state. In India, the estimated nascent P2P lending is already worth Rs 20 crore, which is significant considering the sector did not exist about two years ago. We are growing at a fast pace and lending about Rs 1.25 crore per month. This has been possible because of the utility and value that P2P lending has been able to provide.
According to Tracxn, mobile payments ($212 million) and lending ($199 million) accounted for nearly 80 per cent of the total funding that went into the Indian Fintech space, year to date.