Daily News Digest Featured News

Tuesday January 3 2017, Daily News Digest

Cross River Bank

News Comments

United States

United Kingdom

European Union

Australia

China

India

Canada

MENA

International

News Summary

United States

Online Lending Enters Annual SEC Report on Rating Organizations for First Time (Crowdfund Insider), Rated: AAA

The Securities and Exchange Commission publishes an annual report on “nationally recognized statistical rating organizations (NSROs).”  These are the agencies that publish credit ratings on certain securities and institutions.  The mandated report has recognized the emergence of online lending for the very first time.

The SEC also noted that several larger NRSOs published commentaries on the emerging online lending sector.

What Do The Hiccups Of 2016 Mean For Alternative Lending In The New Year? (Forbes), Rated: AAA

“Alternative lending is dead,” said Rob Frohwein, co-founder and CEO of Kabbage, “but not because of the hiccups that have occurred in the industry.”

During the year, Lending Club had one piece after another of negative news come out.

Then, in mid-November, it wasreported that Dealstruck, an alternative lender of short- and medium-term small business loans, stopped lending operations altogether.

But while some alternative lenders have run into problems, others remain confident that their model remains the future of lending. And many see the OCC’s proposed FinTech bank charter (the culmination of a review that began in August, 2015) as a sign the industry is both here to stay, and ready to grow up.

Another alternative lender for small businesses that has maintained investor confidence and has continues to grow its lending operations and expand its product offering is BlueVine. The company, which was launched as a modernized option for invoice factoring, recently began offering a line of credit product which now accounts for a sizable part of their business. After funding over $200MM in working capital for small businesses in 2016, they successfully raised $50M in additional funding to expand their efforts.

Through tighter internal controls, self regulation, and closer partnerships with traditional lending institutions, it appears that alternative lending will continue to expand its role in 2017.

N.J. bank keeps turning out new approaches (Banking Exchange), Rated: AAA

After enabling a shake-up of the lending landscape, a small bank in New Jersey has set its sights on payments.

Cross River Bank has about $543 million in assets and just one branch, a small storefront in Teaneck, N.J., that shares a retail center with a mom-and-pop clothing store.

Cross River is essentially a business-to-business bank. It handles the messy, boring parts of banking so its fintech partners can improve customer experience with easy-to-use platforms.

The use of issuing bank partnerships is nearly ubiquitous in digital lending. WebBank is arguably the biggest player by virtue of servicing the largest marketplace lenders: LendingClub Corp., Prosper Marketplace Inc. and Avant. But Cross River is not far behind, acting as the issuing bank for Marlette Funding’s Best Egg platform, Upstart and Affirm. The bank also won the right to issue consumer loans for mortgage giants Quicken and loanDepot.com LLC. Utah-based Celtic Bank is big in the small business space as the issuing bank for On Deck Capital Inc., Kabbage, and Square Capital.

So far, issuing bank partnerships have been extremely profitable. Cross River’s return on average equity exceeds 20%, less than that of its issuing bank competitors but well above the sub-10% ROAE for banks with less than $1 billion in assets.

Cross River Bank

Gade believes Cross River’s payments activity could double next year, and the bank already has relationships with Stripe and Google Wallet to provide access to the Mastercard Send product.

Cross River currently handles roughly 2 million transactions per month, and there are “a lot of market shares for the taking,” Gade said. He highlighted insurance companies paying out claims, commercial landlords looking to accept payments from tenants and auto companies collecting lease and loan payments as examples.

Issuing bank partnerships currently account for roughly 40% of the bank’s business. Traditional community banking activities, such as commercial real estate and small business lending, account for 40% to 50% of its activity, and the remainder is related to payments. Gade said payments activity could stabilize at roughly 30% of activity, with issuing bank partnerships staying around 40%. The traditional community banking share will shrink but still constitute 20% to 30% of business.

Consumer alleges Funding Circle USA called him for solicitation purposes (Northern California Record), Rated: A

David Vaccaro filed a complaint on behalf of all others similarly situated on Dec. 19 in the U.S. District Court for the Central District of California against Funding Circle USA Inc. and Does 1 through 10 citing the Telephone Consumer Protection Act.

According to the complaint, the plaintiff alleges that beginning in July 2016, the defendant called his home phone to solicit its services. The plaintiff holds Funding Circle USA Inc. and Does 1 through 10 responsible because the defendants allegedly used an automatic telephone dialing system to call the plaintiff without his consent. The plaintiff also alleges his number is registered on the National Do-Not-Call Registry.

Will 2017 Be the Year We See the First RECF-Bank Partnership? (Equities.com), Rated: A

Lend Academy claims 2017 will be huge year for bank-marketplace lending platform partnerships. If they made this claim last month after a year of such partnerships being announced, that tells me they’re expecting next year to produce even more such partnerships. It’s not a far-fetched notion. There are plenty of benefits to these partnerships, both for the banks and for the MPL platforms.

If Lend Academy is correct and 2017 will see a surge in bank-marketplace lending platform partnerships, it’s quite possible that at least one of these—perhaps a few—will be with real estate crowdfunding platforms. The only question is, what structure will those partnerships take?

The following three structures promise the most benefits to both parties:

  1. Bank-as-Originator – In this scenario, the bank acquires the customer and originates the real estate loan while the RECF platform underwrites it. Retail stores, industrial expansions, or apartment complexes are three potential uses for this type of partnership.
  2. Banker-as-Capital – If the RECF platform acquires the customer and simply needs capital funding from the bank, this is another scenario that could benefit both parties.
  3. White Labeling – In this case, the bank white labels the RECF’s technology to originate and underwrite the real estate loan. A variation of this is to co-brand both the technology and the service to expand the brands of both the bank and the RECF platform.

Financial technology rules are set to change in the Trump era (The Hill), Rated: A

President-elect Donald Trump plans to shake up Washington. The full scope of his proposed changes remains to be seen, but they will certainly affect the financial services industry, especially financial technology.

In 2015, Treasury released a request for information regarding online marketplace lending. In May, the department published a white paperoutlining the responses it received and made certain recommendations for best practices in order to encourage growth and expanded access to credit through online marketplace lending.
The most potentially burdensome requirements are those related to financial inclusion. The CRA is only applicable to institutions insured by the Federal Deposit Insurance Corporation, so most OCC-chartered financial technology companies would not be covered. This places partnerships between banks and online marketplace lenders, which are popular with banks to supplement their CRA portfolio, at risk.
Project Catalyst is the CFPB’s effort to encourage innovation in a way that benefits consumers and businesses. Recently, the CFPB announced a policy that will provide financial technology companies with the opportunity to have the CFPB review their products and services, as well as their compliance program. After review, the CFPB can provide a letter indicating the agency’s belief that the company is compliant with the relevant laws and regulations. It also states that the CFPB will not pursue any enforcement actions if the company does not make material changes.
While the policy is considered friendly to the industry, the recently released prepaid card rule is not. Its broad definition of “prepaid cards” captures digital wallets that can store money and may deter startups in that space due to the high compliance burden.
The SEC’s crowdfunding rules allow for equity crowdfunding through the internet. Marketplace lenders are securitizing debt, which implicates the SEC. So-called robo-advisers are increasingly common and projected to have $2.2 trillion under management by 2020.

One US agency is under investigation – and it could spell trouble for US fintech (Business Insider), Rated: A

The agency has been hit hard by critics of late, and President-elect Trump’s transition team is investigating the CFPB’s recent performance, according to the Wall Street Journal. At the same time, it remains embroiled in a legal battle over whether its organizational structure is constitutional. If the CFPB is unable to untangle itself from these issues, it could negatively impact its fintech initiatives — and the US fintech industry more broadly. 

fintech CFPB

 

Finding the Right Ecosystem (Invesment News), Rated: A

The rise of companies utilizing financial technology (fintech) over the past five years can no longer be ignored by traditional wealth managers and established financial services firms.

More and more, boards of directors are demanding that their executives have a comprehensive understanding of the fintech landscape and how these companies could disrupt their business model—and to do this without losing sight of their core competencies.

To tackle this challenge, we recommend:

  1. Zeroing in on a large and robust ecosystem that is still flexible and can encompass the majority of use cases
  2. Prioritizing the capabilities your firm will require in order to compete in the 21st century, understanding how those capabilities can be incorporated into your existing business and whether you need to buy or build those capabilities
  3. Finding the right partner who can help you figure out where to begin
  4. Considering platforms that incorporate fintech technologies that support high touch relationship management – everything from precision advice (the right advice at the right time) to automated approaches to portfolio management

Fintech Advocacy Group Reaches Out To Trump (JD Supra), Rated: B

A financial technology advocacy group has reached out to President-elect Donald J. Trump, encouraging him to create a new position at the Treasury Department to support fintech.

In a letter to President-elect Donald J. Trump, Financial Innovation Now (FIN) suggested the creation of an Undersecretary for Technology position in the Department of the Treasury to “ensure the growth of financial technology jobs in the U.S.” as well as “foster competition and innovation in financial services to better serve consumers and the economy.”

 United Kingdom

‘Expect more big agency firms to back online projects in 2017’ – claim (EstateAgentToday), Rated: A

The head of a new ‘disruptive’ online mortgage service says 2017 will see more major estate agency and other property businesses backing online models, of the kind seen this year with the investment by high-end firm Savills into budget internet agency YOPA.

Back in June Savills revealed it had made an undisclosed investment in YOPA in a bid to buy a stake in digital technology and gain exposure to a wider range of sales and rental sectors than its traditional high-end involvement.

Now Ishaan Malhi, founder and chief executive of online mortgage firm Trussle, says there will be more of the same in the next 12 months. He believes the need for more digital innovation applies across the property industry, not just with estate agency.

What to watch out for in alternative finance in 2017 (altfi), Rated: A

The UK watchdog has promised changes to its much-vaunted crowdfunding regime – changes that are set to arrive in the early stages of 2017. Some of the more unexpected points to be raised – and to keep an eye out for action on in 2017 – include the strengthening of rules surrounding wind-down plans, extending mortgage-lending standards to platforms, the enforcing of additional “requirements or restrictions” on cross-platform investment, and the potential for investment limits in peer-to-peer lending.

Funding Circle, RateSetter and Zopa, each of which has lent over £1.5bn to date, continue to languish under interim permissions. You have to believe that this will change in the first quarter, or at least first half of the year ahead.

2017 should signal the end of referral scheme prognostication, as we should finally be able to gauge the impact of the initiative in practical terms – i.e. how many businesses rejected by the banks for credit will ultimately be funded via the referral scheme in year one?

Brexit and broader economic uncertainty will unquestionably cause tension in certain areas.

Finally, keep an eye out for certain platforms choosing to branch away from retail investment in 2017.

Personal savings top fallback option for UK’s entrepreneurs (BMM Magazine), Rated: B

Research by crowdfunding network Crowdfinders has found that 35% of respondents said they would turn to personal savings to fund their business, closely followed by banks and institutions and friends and family.

However, only 8 per cent of the respondents said they would turn to crowdfunding and just 5 per cent said they would opt for P2P lending.

European Union

Galway companies flourish with financial aid from fellow small businesses (Connacht Tribune), Rated: A

A company specialising in the growing business phenomenon of peer-to-peer lending has revealed that it has raised €688,560 for Galway businesses.

Linked Finance raised 31 loans for 23 Galway-based businesses through Linked Finance’s online lending platform, including Schoolbooks.ie, Sleepzone and Turas Bikes to facilitate business expansion.

Australia

“Two to three” fintechs will remain in future (Broker News), Rated: A

As the number of fintech firms continues to grow, companies will have to reduce costs and become profitable or be forced to consolidate.

Due to these “really high” costs, Poolman expected that the overall fintech market would be whittled down to “two or three” players eventually.

In its most recent accounts filed for January to December 2015, OnDeck showed a $2.9 million loss on $463,000 worth of loans. However, the company was not lending the entire time during this period.

China

China’s tighter P2P rules may trigger unexpected run on deposits (South China Morning Post), Rated: AAA

Tighter regulations on China’s peer-to-peer (P2P) lending sector are potentially putting depositors’ money at risk and could even trigger an anticipated run on deposits in March, with many of the lending platforms facing the very real prospect of liquidation, according to market watchers.

Authorities in Beijing are determined to examine the credentials of some 3,000 P2P lending operators and expel any questionable players by March, following a raft of scandals involving at least 100 billion yuan worth of deposits from millions of residents.

It is estimated that only 200 P2P companies will pass the review process undertaken by authorities, with the remaining players forced to close their operations and repay money to depositors.

Under the new rules, a P2P company has to appoint a commercial bank as its custodian while fully publishing how investors’ money is being used.

Banks, battered by worries about the risks after P2P was hit hard by a series of fraud cases, have shown lukewarm response to the custodian business.

Ezubao, one of the mainland’s largest P2P platforms, was found to have defraud more than 1 million investors of about 100 billion yuan last year.

Under the tighter regulations, authorities will also conduct on-site checks on risk management, scale of businesses, IT infrastructure, investment sources and shareholders’ credibility before granting P2P lenders the go-ahead to continue doing their business.

FinTech Boom: China Going Cashless, Consumers Ditching Banks (Coin Telegraph), Rated: A

China, the largest fintech sector according to the International Trade Administration (ITA), is going cashless. Consumers are moving away from traditional banking systems to more efficient and user-friendly financial technologies.

KPMG, one of the Big Four auditors with over $25 bln in annual revenue, recently released its Fintech 100 list which represents the largest and most profitable companies within the global fintech market across all categories.

China’s Ant Financial and Qudian topped the list, claiming the first and second in rankings respectively. Lufax, ZhongAn and JD Finance also made it to the top 10 list, as Chinese companies accounted for 50 percent of the top 10 Fintech 100 companies.

India

Will the surge in digital payments sustain? (India Times), Rated: AAA

Following Prime Minister Narendra Modi’s announcement that Rs 1,000 and Rs 500 notes would no longer be legal tender from the midnight of November 8, fintech startups, particularly wallets and payment gateways, have seen business surge. Sequoia-backed MobiKwik, for instance, has seen a 200 per cent surge in app downloads and a 20-fold increase in peer-to-peer transfers.

Market leader Paytm, backed by Alibaba, says it is currently processing 5 million transactions a day and added over 14 million users in November. Payment gateway PayU, which acquired Citrus Pay earlier this year, saw daily transaction volume skyrocket 80 per cent, which has settled to 25 per cent compared with pre-demonetisation. Tiger Global-backed Razorpay says volumes are now up 50-70 per cent over pre-demonetisation levels, after seeing an initial spike of 150 per cent.

Snapdeal-backed wallet FreeCharge reported that 1,00,000 Snapdeal deliveries in mid-November were through the wallet, while Flipkart is aggressively marketing its wallet, PhonePe.

With cash still scarce, wallet and other digital payment-enablers continue to see rapid doubledigit growth. But the billion-dollar question is whether this will sustain, once the cash crunch eases, as it inevitably will this year.

Founders are confident it will, primarily because of the unprecedented support from the government.

India FinTech

 

Wallet-led startups say their product is low-cost, does not involve any hardware and can be scaled up rapidly. Of 15 million businesses in the country, only 1 million have PoS machines, making the other 14 million fair game for adoption, apart from other avenues. Payment gateway startups, understandably, beg to differ. “I personally think the concept of prepaid wallets has failed.

A recent RBI report on digital payments mentioned that even in November, only 3 per cent of transactions were through wallets, the rest were through cards. If wallet payment had taken off, it should have been 40:60,” says PayU’s Rau. He argues that it is easier to get customers to use debit or credit cards as they are comfortable with it, than payments using ewallets and mobiles.

Hurdles apart, the sector is likely to see big rounds of fund-raising in 2017, with all the buzz around a cashless economy.

P2P Lending Platform Rupaiya Exchange Secures $ 200,000 in Angel Funding (Crowdfund Insider), Rated: A

Earlier this month, Delhi-based peer-to-peer lending platform, Rupaiya Exchange, announced it secured $200,000 in angel funding from HNIs and investors. Launched in November 2015 by founder Rohan Hazrati, the company stated it aims to connect borrowers and lenders to facilitate peer-to-peer lending in India.

Note ban-hit investors ditch real estate & gold to fund alternative lending cos (India Times), Rated: A

Alternative lending startups have witnessed a spike in lender registrations after the currency ban as people are now looking to park their investments on their platforms rather than in real estate, gold or the stock market.

Sequoia-backed invoice discounting marketplace KredX has noticed a 4-5x increase in lender registrations on their platform since November 8, including from high net-worth individuals (HNIs) and institutional lenders like banks and non-banking finance companies (NBFCs).

Similarly, peer-to-peer lending companies like Faircent, i-lend and AnyTimeLoan.in (ATL) have noticed an approximately 3x increase in lender registrations as other investment channels seem unstable or inaccessible following the cash crunch.

17 startups to watch in 2017 (India Times), Rated: B

Government policy has done a lot to boost the fortunes of peer-to-peer lending platform FairCent in 2016. From RBI’s draft paper with guidelines for the industry to Digital India, FairCent benefited last year and looks to grow further in 2017. “From disbursing Rs 15-20 lakh loans a month, we are now disbursing Rs 1.5 crore a month. India’s shift to digital payments has put us in a sweet spot,” says Rajat Gandhi, founder, FairCent. The company, which began operations in 2014, helps customers get cheaper loans based on their creditworthiness and helps lenders earn high returns from their peers or community.

Bengaluru-headquartered Capital Float considers 2016 a remarkable year for fintech startups. “The sector attracted $150 million in funding. Digital India and demonetisation will only give further impetus to the sector,” says Gaurav Hinduja, co-founder, Capital Float. The company, which started in 2013 with loans to SMEs, has come up with innovative products such as ‘Pay Later’, which gives loans to retailers against data on PoS machines. Capital Float, which primarily handles e-commerce finance, has seen 8x growth in 2016, its biggest so far. From Rs 150 crore loans disbursed in 2015, it disbursed Rs 1,000 crore in 2016. Capital Float tied up with 45 new players, including Amazon, Yatra and Ola.

Payment provider Pine Labs says the volume of online transactions trebled in 2016, even before the grand finale of demonetisation. “From handling about 10% of card payment transactions in India, we have grown to 20%,” says Lokvir Kapoor, CEO, Pine Labs. In terms of volume, it has seen a growth to Rs 10,000 crore a month from Rs4,000 crore in January 2016. With clients that include Armani, Jimmy Choo and Pizza Hut, the company feels there more opportunities to grab in the year ahead. “We have more than 60,000 retailers in India and will be heading overseas. We will be setting shop in Singapore with a partner bank,” says Kapoor.

Indian Demonetization & Rupee Reform: The Uber Moment Fintech Needed? (Crowdfund Insider), Rated: B

Citizens and observers said that it was a “chaotic” decision, a major “disruption” that required citizens to exchange notes or deposit them within about a month and a half, or else lose the cash value.  However, the seemingly radical monetary move may be just what fintech — and a global economy seeing increasing digitalization — needs.  Founder and CEO of Faircent.com Rajat Gandhi claims that it is the “Uber moment of fintech”.

As huge amounts of cash were taken off of the market over the past weeks and individuals were forced to deposit them into banks and ATMs, there will be an increase of reliance on digital wealth management.  With 86 percent of the currency in circulation theoretically out of sight, we should see a shift from “cash is king” to increased digital banking.

Canada

Looking at 2017 from a Fintech Leader’s Perspective (TechVibes), Rated: A

Financial technology overall enjoyed a robust year in 2016 in Canada, highlighted by the creation of several bank partnerships and expansion in the robo-advisor space.

It’s likely that we will see a major fintech exit the Canadian market in 2017 as some of the newly created credit deteriorates in quality due to saturation of the market: both on the consumer and business fronts.

In 2017, investment capital is likely to continue to flow into the fintech space, particularly into lending, as investors clamour over some of the attractive yields available in alternative lending in today’s otherwise low interest rate environment.

We are going to see an increase in collaboration in this space. Between the Canadian Payday Lending Association and the banking associations, we need representation for the alternative lenders operating in the spaces in between – and this is starting to happen.

Is fintech a disruptor or enabler for Canada’s big banks? (The Globe and Mail), Rated: A

According to the search tool Factiva, the term “fintech” appeared close to 90,000 times in the global print media this year versus fewer than 300 in 2007, with many more references on social media. Its usage has actually declined since 2014, suggesting the fintech hype may have peaked.

An influential study by Citigroup reported that fintech investments topped $19-billion (U.S.) in 2015, a tenfold increase from 2010. The consultancy McKinsey & Co. is reportedly tracking more than 2,000 fintech startups, with the global estimate around 12,000.

The early view appeared to be that fintech startups would disrupt incumbent banks and steal their customers, similar to Airbnb and Uber. But the emerging consensus is that banks and fintech startups will inevitably collaborate, combining their respective strengths to deliver a superior customer experience. Not everyone agrees, of course, but the tide of opinion has clearly changed.

MENA

Iran Banking Roadmap: Efficient, Innovative (Financial Tribune), Rated: A

Addressing the Sixth Conference on E-Banking and Payment Systems held in Tehran on Monday, Ali Kermanshah added that the blueprint is set to define an appropriate role for fintech companies in the Iranian banking system.

According to the CBI official, the roadmap requires the development of 12 new platforms for conducting banking operations and covering system support, six platforms for implementing monetary policies and eight platforms for promoting supervision.

International

Crowdfunding & Fintech Predictions for 2017 (Crowdfund Insider), Rated: A

  • Global Online Lending will See More Platform Consolidation including a Major Lender
  • Several Reg CF / Title III Crowdfunding Portals Shutter or Pivot
  • A Prominent Real Estate Crowdfunding Platform will Cease Operations
  • The FCA Review of Crowdfunding Brings More Regulations
  • The UK remains one of the leading economies in the world and the European divorce questioned the entire validity of the EU. But Europe needs Britain and Britain dearly needs Europe. Working things out to mutual benefit is good for all countries.  Politicians that want to punish the Brits for their political intransigence will be over-ruled by those with more foresight.
  • US SMEs Receive a Boost from the Incoming Administration
  • The UK and Singapore will Remain Dominant Fintech Innovation Centers
  • More Later Stage Companies Use Crowdfunding Platforms
  • InsurTech will Gain Momentum
  • Marcus launched small but expect a growing number of credit options and digital banking services to be provided by the emerging challenger bank. SoFi – look out.

Capgemini: Fintech Disrupts Testing and Quality Assurance (Crowdfund Insider), Rated: A

Renu Rajani, Vice President of Capgemini, opined earlier this week that Fintech’s revolution this past year has disrupted trends in testing and quality assurance (QA).

world fintech report 2017

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

Testimonials

default image

"Your daily letter is great!" , Ram , Founder and CEO, PeerIQ

default image

"Hi George - just want to tell you that you are doing a great work with Lending Times;-) Brgds, Kasper" , Kasper, Partner and Co-founder at Dansk Faktura Børs A/S

default image

"I've been following your newsletter for some time now and have been very impressed with the content." Charlie,Co-Founder | Bolstr

default image

"Hey George, I must say I really enjoy your site. It has inspired me to do some changes at our platform and we are the biggest consumer lender in Sweden." , Ludwig, CEO @ Savelend Sweden AB

default image

"Your daily email is very useful. It gives quick update on what's going in the market. Thank you very much for all that info." Yann Murciano, Head of Base Metals Trading at Morgan Stanley

Our daily p2p news digest

Daily News Summary Digest Sent Daily To Your Inbox