Daily News Digest Featured News

Thursday January 26 2017, Daily News Digest

Fundrise

News Comments

United States

  • Fundrise is crowdfunding itself under Reg A+. AT: “Other RECF platforms like Sharestates and P2P platforms like Wellesley seek growth capital through 3rd party crowdfunding platforms. Instead, Fundrise is going to sponsor its own capital-raising push. Very interesting, and they have the chops to pull it off.” GP:” This is another flavor of p2p, it’s p2-to-equity-to-build-a- marketplace-lender-to-p. “
  • Lending Club charge-ff rates increase from 4.2% to 6.2% from 09/15 to 09/16 GP: “To me this is huge jump. I am glad they appear to have tightened their credit policies. I am surprised this is not picked up by more outlets. A must read article.”
  • Average student loan debt statistics. AT: “Interesting analysis of the highest and lowest student loan debt by state.”

United Kingdom

European Union

India

International

United States

Fundrise is Crowdfunding Itself Under Reg A+ (Crowdfund Insider), Rated: AAA

Fundrise first filed a preliminary Form 1-A with the SEC at the end of December 2016. The filing was done under “Rise Companies Corp.” so it fell under the radar of many people.  The most recent version offering circular indicates that Fundrise wants to sell up to 1 million shares of their Class B non-voting Common stock.  The price per share is not yet available. Initially, Fundrise will limit the offer and sale of the shares to investors who have purchased investments sponsored on their platform.

Since Fundrise’s launch, they have originated approximately $210 million in both equity and debt investments deployed across more than approximately $1.19 billion of real estate property. This amount alone makes it part of a select group of the largest online real estate marketplaces in the US. Their first five sponsored “eREITs” have collectively generated $119 million in investment as of the beginning of this year.

Fundrise claims a compound annual growth rate of 780% – going from $0.9 to $70.9 million for a three-year period from January 2013 to December 2015.  For the 9 month period ending September 2016, Fundrise had year over year growth of 129% going from $45.1 million to $103 million. For the six months ended June 30, 2016, net revenue stood at $3.5 million.

The average size of the real estate assets originated by Fundrise during the nine months ended September 2016 was about $5.7 million.

Fundrise

 

What Investors Need to Know About Peer-to-Peer Lending (Yahoo! News), Rated: AAA

“Investor performance is coming down for peer-to-peer loans because there’s a growing number of charge-offs where a bank or a lender can’t collect on the loan and then the loan is deemed worthless,” says Colin Plunkett, equity research analyst at Morningstar in Chicago.

Plunkett cites Lending Club Corp. (ticker: LC), whose annualized charge-off rates increased from 4.2 percent to 6.2 percent in the personal loans-standard program and 5.9 percent to 11 percent for the personal loans-custom loans program from September 2015 to September 2016.

Sid Jajodia, chief investment officer at Lending Club in San Francisco, says the lender updated its credit policy to tighten its thresholds to stabilize delinquency rates by not lending to as many borrowers who had high debt-to-income ratios and other risk factors. The standard loan program that includes borrowers with a FICO score of 660 and above is open to institutional and retail investors, but the custom loan program, which includes a riskier pool of borrowers with a FICO score of 600-659, is open only to institutional investors, Jajodia says.

Investors need to decide if the borrowers have the long-term credit ability and a willingness to repay versus what was projected when the security was initially priced, says Burke Dempsey, managing director of investment banking at Wedbush Securities in New York. They also need to examine the trustworthiness of the loan originator and if that lending company has “the integrity and commitment to deliver a transparent and quality product to all parties, especially under pressure of high growth or a turn in the economy,” he says.

Plunkett says it’s also important for investors to consider how a company makes its money. A key difference between Social Finance and Lending Club is how the companies maintain their balance sheets, he says.

Andrew Crosby, a senior at the University of Puget Sound and president of Four Horsemen, says the nonprofit switched from using Prosper, after experiencing a 12.21 percent default rate, to Lending Club, which has netted an 8.38 percent default rate.

Both Crosby and Livingston say they’ve also seen the industry migrate from offering loans for weddings, home improvement and college tuition to narrowly focusing on debt consolidation.

Average Student Loan Debt Statistics (Money Saving Pro), Rated: A

According to the Economist, current U.S. student loan debt exceeds $1.2 trillion, a staggering increase of over 300% for the past decade.

Seven out of 10 graduating seniors at public and non-profit colleges had student loans in 2014, with an average debt of $28,950. This represents an increase of 2% over the Class of 2013.

One driver of student debt is the skyrocketing costs of attending college. The average cost of a non-profit private four-year college for 2014-15 was $42,419, up from $30,664 from 2000-2001. Public four-year college costs expanded over the same period from $11,635 to $18,943, according to CNBC.

Graduates of the class of 2014 in Delaware had the dubious honor of carrying the highest student debt load, averaging $33,808. New Hampshire, Pennsylvania, Rhode Island and Minnesota round out the five worst states for student debt, with an average indebtedness of over $31,000. These states tend to have a higher percentage of students carrying debt, for example, New Hampshire had a whopping 76% of students shouldering debt upon graduation.

The best states for low student debt are led by Utah with an average of $18,921 for the class of 2014, with a relatively low 54% carrying some student debt. It appears that there is a little overlap with averages and the amount of students with debt. While states like States Utah, have lower percentages of students in debt, higher debt averages tend to have higher amounts of students with debt. The other states in the top five are New Mexico, Nevada, California and Arizona, with an average of $20,418 owed. These best states for student debt have an average of 52% of graduates saddled with student debt.

United Kingdom

P2P platform offers first property-backed IFISA (Professional Advisor), Rated: AAA

Peer-to-peer (P2P) platform LandlordInvest has become the first provider to offer a property-backed Innovative Finance ISA (IFISA) after receiving HM Revenue & Customs approval as an ISA manager.

The property-backed IFISA will allow savers to invest up to £15,240 in the current tax year – rising to £20,000 next year -in P2P loans secured by residential property. According to LandlordInvest, savers could earn between 5% and 12% tax-free returns a year.

P2P investors face another Zopa rate cut (P2P Finance News), Rated: AAA

ZOPA has lowered its lender rates by 0.2 per cent across all accounts, just four months since its last reduction, citing competition in the personal loans market.

Access account lenders will see interest rates cut from 3.1 per cent to 2.9 per cent, Classic investors will see a drop from 3.9 per cent to 3.7 per cent, while Plus account holders will see targeted returns fall from 6.3 per cent to 6.1 per cent.

Lender rates were last reduced in September, a month after the Bank of England cut interest rates.

Funding Circle is Changing How it Prices Property Loans (Crowdfund Insider), Rated: AAA

On Wednesday, marketplace lending platform Funding Circle announced changes as to how it prices property loans. The lender revealed that following a recent review of its property loan offering, it is increasing the interest rate on certain property loans and will begin to list some loans at a higher risk band than A+ or A.

Explaining why it is making the changes, Funding Circle stated:

Over the past three years, you have lent over £300 million to experienced property professionals, earning over £16 million in interest after fees and bad debt. This has provided us with an ever-growing source of property credit performance data, which we use to regularly review our credit assessment models and help us make even more accurate pricing and risk banding decisions.”

Savers would choose better returns over extra FSCS protection (Financial Reporter), Rated: AAA

Savers would rather get a better interest rate on their money than benefit from more FSCS protection, according to research from peer-to-peer lending platform RateSetter.

According to RateSetter’s research, only 4% of people in the UK have more than £75,000 in savings and therefore stand to benefit from the increase in protection. More than two-thirds of people (67%) have £10,000 or less in savings.

The FSCS limit was reduced from £85,000 to £75,000 in January 2016 following changes in the pound/euro exchange rate, but RateSetter research carried out at that time found that just a quarter of savers were aware of it.

Asked whether they would rather have a more protection for their savings or earn a higher rate of return, the vast majority of savers favoured the latter, with 69% saying they would rather earn 1 percentage point more in interest than have an extra £10,000 of FSCS protection.

Fintechs warned to expect tougher regulation (Financial Times), Rated: A

The governor of the Bank of England has put banks and fintech companies on notice to expect tougher, more intrusive regulation as the use of disruptive technology in financial services becomes more sophisticated and widespread.

Mark Carney, who is also chairman of the Financial Stability Board that makes recommendations to G20 nations, said on Wednesday that fintech could signal an end to the traditional universal bank model. He added that it could also increase “herding” risks and make the system more interconnected and complex.

Mr Carney said on Wednesday that the burgeoning peer-to-peer lending sector, which in the UK now represents about 14 per cent of new lending to small businesses, “does not, for now, appear to pose material systemic risks”.

Earlier on Wednesday, Bundesbank president Jens Weidmann, who is also involved in the FSB, echoed the views of his Bank of England counterpart, saying that while enhancements in financial technology could bring banking services to more people, they could also “exacerbate financial volatility”.

Both Mr Carney and the Bundesbank president warned that there were risks emanating from the use of so-called robo-advice, where algorithms are used to manage risk.

 

Peer to peer strikes a chord with younger generation (smallbusiness.co.uk), Rated: A

The millennial generation are four times more likely to have money invested in peer to peer than people aged 55 and over, according to research from ThinCats.

Hamstrung by rock-bottom interest rates for most of their adult lives, 4 per cent of 18-34-year-olds currently have money in the emergent peer to peer sector, compared to 1 per cent over-55s.

A third (29 per cent) of the millennial generation cite the ability to cut out banks as the sector’s biggest attraction, while 28 per cent like that they can lend directly to businesses. A quarter (23 per cent) have had peer to peer recommended to them by a friend.

One of the key reasons for the peer to peer demographic split could be appetite for risk adjusted rate of return. Younger investors place much greater emphasis in earning high returns in exchange for greater risk, with one in five (19 per cent) citing this as their primary motivation when investing, compared to only one in ten (9 per cent) over-55s.

European Union

Klarna CEO says Trump, Brexit could be good for business (Business Insider), Rated: A

Despite his personal disappointment at Britain’s plans to leave the European Union, Siemiatkowski believes Brexit, along with President Trump’s protectionist rhetoric in the US, could actually be good for his business.

“Isn’t it so sad that you’ve got the younger generation that has been brought up with the amazing promise of Europe. All of us have lived and travelled and worked where we want. Then the older generation decides, end of party — you’re going back to the old ways.”

Securities lending market opening up to new structures (Global Investor Magazine), Rated: A

The majority of market participants at Deutsche Borse’s Funding and Financing Summit are looking at alternative securities lending structures.

Over 60% of the audience at the Luxembourg event this week claimed to be exploring new models as part of their financing efforts in the current low yielding environment accompanied by strict regulatory requirements.

Centrally cleared stock loan trades (40% of the audience), principal lending, peer-to-peer trades and pledge structures (17%) are among the new routes being looked at as extensions or complete replacements of the traditional agent lender model.

India

Digital revolution spurs new ways for banks to assess risks (Money Control), Rated: A

Increased regulations, demonetisation and the push towards Digital India have brought the country’s banking system and financial services sector into the limelight.

With rapid advancements and huge inflow of data, having analytics and Big Data tools/services is now critical for any financial institution to be able to understand and analyse credit risk, fraud risk or to make more efficient, fast and profitable decisions.

This is great news for FICO whose credit rating services would come in handy for institutions in the lending business.

A growing consumption and shift to digital or disruptive modes of financial transactions like P2P lending, brings along risks like fraud, data theft and cyber crime.

In a recent study by Kroll, global provider of risk solutions, when survey participants were asked what dissuaded them from operating in a particular country. About 19 percent of respondents stated they were dissuaded from operating in India because of digital fraud concerns, the second most after China (25 percent).

Financial institutions can further increase revenues by deploying analytics frameworks to improve customer cross-sell, enhance acquisition effectiveness, increase wealth management, penetration in high net worth customers and staying more cautious of ‘riskier’ customers.

International

Onfido Offers 2 Billion Unbanked Individuals Worldwide Machine Learning-Based Solution (Crowdfund Insider), Rated: A

Onfido, a global identity verification company, announced this week it is helping to bring financial services to the 2 billion unbanked individuals worldwide with its Machine Learning-based solution. The company stated it plans to use its proprietary technology to verify people’s identification by comparing an identity document to a selfie and is helping convert the previously unbanked for some fintech companies.

Onfido, a global identity verification company, announced this week it is helping to bring financial services to the 2 billion unbanked individuals worldwide with its Machine Learning-based solution. The company stated it plans to use its proprietary technology to verify people’s identification by comparing an identity document to a selfie and is helping convert the previously unbanked for some fintech companies.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

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