Daily News Digest Featured News

Friday February 10 2017, Daily News Digest

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United States

Will US Rate Rise Hit Peer-to-Peer Lending Sector? (Morningstar), Rated: AAA

Rising interest rates in the US could hit this sector – but Simon Champ, manager of P2P Global Investments (P2P) told journalists in London on Wednesday that he is not unduly concerned about the effect this will have on returns.

“As the average life of the loans we own is very short – that is about one to three years –  we are able to steer the book even if economic policy changes. We can get back 3-4% of loans in a month, coming back in cash and reapplying that to other loans. So we are not worrying about what is happening in the US as we have the ability to move the trust weighting to different areas as a fiduciary,” he added.

Champ admitted that the current economic climate has helped to grow peer-to-peer lending services.

Champ also stressed the “amazing transparency” peer-to-peer lenders vehicles have, when compared to the banking sector. However, he believes in the long term, banks and peer-to-peer lending platforms will coexist comfortably within the same market.

Sachin Patel, global co-head at Funding Circle SME Income Fund (FCIF) echoes Champ’s views, saying that peer-to-peer lending provides another channel for small businesses to access finance.

Apple Users Have Higher Credit Scores, Loan Amounts and Better Rates than Android, Windows (PR Newswire), Rated: AAA

LendingTree® (NASDAQ: TREE), the nation’s leading online loan marketplace, analyzed over 2 million purchase mortgage and personal loan requests to better understand how Americans are shopping for their loans. The findings show that 41 percent of purchase mortgage shoppers and almost half (48.53%) of personal loan shoppers use a mobile device to shop and compare loan offers from different lenders. Additionally, the analysis suggests a correlation between a user’s device, credit score, and loan amount.

Overall, potential borrowers using a Mac computer have the highest average credit score in both the mortgage (FICO average 722) and personal loan (FICO average 683) categories, along with the highest average loan amount in each. In 2016, the average loan amount for Mac users was $274,412 for a mortgage and $14,650 for a personal loan, much higher than the national average of $226,554 and $11,921, respectively. The average down payment amount for borrowers using a Mac in 2016 was $66,865 while the national average came in at approximately $45,830.

Because Mac users averaged higher credit scores, they also received a lower interest rate offer on a 30-year fixed rate mortgage loan. Although interest rates increased in the last few weeks of 2016, the national average 30-year fixed interest rate for 2016 was roughly 4.04% when Mac users, with a higher average credit score, where offered an average rate of 3.93%.

Following closely behind Mac users are Apple iPad users, averaging the second-highest credit score and second-highest loan amount in both mortgage and personal loan categories, despite being one of the least-common devices used to submit loan requests. Naturally, iPad users received the second-lowest interest rate offer for a 30-year fixed rate mortgage loan, 3.95% in 2016.

On the other side of the spectrum, Android users averaged the lowest credit scores and lowest loan amounts in both the mortgage and personal loan categories. Unfortunately, this also means average interest rates offered to Android users were higher than the national average.

Data was analyzed from over 2 million loan requests and funded loans facilitated by LendingTree and through My LendingTree between January 1 and December 31, 2016.

loan amounts for mobile device usersPeer lenders are packaging loans and selling them to Wall Street (CNBC), Rated: AAA

But as the industry is growing, so are its funding needs. That’s where big Wall Street banks are stepping in.

P2P platforms increasingly are bundling loans together and selling them off to institutional investors as “asset-backed securities.”

Total ABS issuance for 2016 in peer lending came to $7.62 billion, according to S&P Global Market Intelligence analyst Eric Turner.

However, the practice of ABS issuance in the marketplace lending arena began only around 2013, when the total was a meager $257.1 million. That means issuance is about 30 times what it was just four years ago. The 2016 total also represented a 72.4 percent increase over the previous year.

Among platforms, SoFi leads the way in ABS offerings, with the firm accounting for 58.4 percent of the 2016 total. Avant and Earnest were other big issuers during the year, while Lending Club was fourth.

How One Female Fintech Founder Beat The Odds—And Raised Millions For Child Support App (Fast Company), Rated: A

When former Silicon Valley exec Sheri Atwood landed $4 million in crucial Series A venture capital funding for SupportPay, an app designed to streamline child care payments, a lot of attention was focused on her personal story. She was a divorced mom and child of a painful broken marriage—so the show-me-the-money skirmishes were familiar territory.

Last year in the U.S. just a handful of fintech companies founded by women raised Series A or Series B funding. In New York, there were two investment platforms—Sallie Krawcheck’s Ellevest ($9 million) and Wise Banyan ($3.5 million), and insurance broker PolicyGenius ($15 million). And in California there was online lender ApplePie Capital ($16.5 million), along with SupportPay ($4.1 million). Overall, billions poured into the sector.

What did they see that you think other investors missed?

They saw the need and also the social benefit it was providing. Especially here in the Valley, investors are more than willing to fund the 22-year-old white male problems. But all these problems facing the typical American over the age of the 30: No one is willing to do it. Unfortunately everybody is looking for a Mark Zuckerberg. When I say that I code, I’ve been tested in meetings. I wonder, have you ever asked a guy this? I passed their test.

What did it take to pull of your Series A?

We closed $4.1 million in December, led by Fenway Summer Ventures. It was incredibly difficult, compounded by the fact that the world changed. When we raised our seed capital, the consensus was to focus on user growth. Just get users on board, get them active and using the product. We weren’t focused on revenue. Then around March of last year, revenue became investors’ only focus. It required a huge shift in product, in strategy, in development. The whole rules of the game changed. At the time we were giving the product away for free, with the idea that eventually the it would be a monthly subscription. Our focus had to become getting users to convert to paid. We turned on revenue in June and started collecting revenue in July. That’s when we could start having conversations.

P2P lending to benefit from rising growth and inflation? (ValueWalk), Rated: A

Since the election, financials have gained about 18% and industrials are up 11.5%. Contrast this to the 1% rise in consumer staples and utilities.

Since the election, the S&P Small-Cap 600 is up 16%, with the S&P 500 up 7%. If Trump delivers on his trade threats, firms that earn a large share of their revenues from US sales will outperform multinationals.

P2P lending is a great source of fixed income. Its investors are currently averaging 7% returns on 36-month loans and 9% on 60-month loans.

P2P lending will also benefit from rising growth and inflation. If the economy improves, more borrowers will apply for loans. As investor appetite for risk increases, they will seek higher returns, which MPL offers.

How Fintech Can Take Off Without Getting Hampered By Regulations (Fortune), Rated: A

However, today’s rules regulating various licenses and charters are incredibly outdated and not well-suited to the Fintech world. For example, the way banking licenses are issued by state was established years ago when bric-and-mortar stores did not compete with online retailers.

If the OCC is going to start granting charters to fintechs, it will have to step out of its comfort zone and accept a certain amount of failure. For a fintech charter to deliver on its promise of making financial services more inclusive, efficient, and capable, it should be made available to a wide variety of firms. Many of these firms will ultimately not make it. Not only is that ok, it is necessary.

If the OCC sets a zero failure rate goal, and achieves it, something went wrong. If none of the firms chartered by the OCC fail, then either the OCC simply chose firms that were so entrenched that failure was not an option, or the OCC created a chartering regime that was so cumbersome and difficult that only firms that had already made it would apply. Either outcome is undesirable.

The OCC should instead focus on making certain these firms have a credible plan for protecting their customers in the event of failure. For example, a lending platform should have a plan to allow the borrowers to continue to make payments on the loan and the lender to receive those payments, even if the platform goes bust. If the customers are protected, the success or failure of any given fintech firm should not be a regulator’s concern.

Merrill Lynch Rolls Out Robo-Advisor (Financial Advisor), Rated: B

Merrill Lynch has launched its robo-advisor, paving the way for the wirehouse to capture clients for whom traditional financial advice is too expensive, the Wall Street Journal writes.

Merrill Lynch is the first among big brokerages to unveil a robo-advisor, the Journal writes. Wells Fargo plans to start piloting a digital service this year and UBS has also announced plans to release a robo platform.

United Kingdom

Funding Circle’s Patel: US deregulation is no threat to P2P (P2P Finance News), Rated: AAA

US PRESIDENT Donald Trump’s plans to deregulate financial services are no threat to peer-to-peer lenders, Funding Circle’s global co-head of capital markets has said.

“Trump has been quite open about his plans for deregulation, but I think that’s more with regard to investment banks,” said Sachin Patel (pictured) at a media roundtable held by the Association of Investment Companies.

“However, if he does deregulate retail financial services, that’s not the only way we compete with banks. It’s not just regulatory capital considerations, we can offer other advantages such as speed of transactions.”

UK footwear giant schuh partners with leading online payments provider Klarna (Retail Times), Rated: A

European payments provider Klarna has announced a partnership with schuh, one the UK’s biggest footwear retailers. More than half of schuh shoppers will now be able to use Klarna’s checkout solution to easily purchase products from their website.

Customers will have the option to use Klarna’s pay after delivery solution to pay for their products after they have been delivered, and they can then go back and enter their payment details when convenient.

What is the real potential of crowdlending? (Misys), Rated: A

Unbiased removes Innovative ISA tweet after criticism (Citywire), Rated: B

Last week, Unbiased posted a link on Twitter to an article with information about innovative finance ISAs. The article listed the benefits and risks of using the savings vehicle.

However following the tweet, many were quick to criticise Unbiased.

In response to this backlash, Unbiased contacted Phil Young, director of director of Threesixty support services, on Twitter to say it was ‘an internally written piece, for information only’, and that it took the post down ‘until we can review the facts’.

European Union

Austrian fintech startup Finnest raises €1 million, opening Slovakia office (Tech.eu), Rated: AAA

Austria fintech startup Finnest has announced a funding round of €1 million led by Maxfield Capital along with existing investors Speedinvest and a number of angels.

Vienna-based Finnest is a loan platform for SMEs and is currently active in the DACH region with plans to launch in its first non-Germany speaking market in the coming months. It will open an office in Slovakia later in February.

Finnest is addressing a segment that has been underserved so far, according to Maxfield Capital general partner Alexander Turkot: SMEs with annual turnover of at least €10 million that are trying to attract additional investment.

Interview with Ivalyo Ivanov, CEO of Iuvo Group (P2P-Banking), Rated: A

Iuvo is the first South-East European P2P platform that allows its users to buy parts of loans. All loans listed on the platform are issued by originators (registered non-banking financial institutions). We give our users the opportunity to generate an annual return up to 12% on their investments while simultaneously provide our originators with the chance to develop their businesses.

What ROI can investors expect?

The expected annual return depends heavily on the choices our investors make, but the return a well-balanced portfolio should make is on average between 7 and 12%.

How reliable is the credit rating / credit history data available for the Bulgarian loans?

Bulgaria has a very well developed non-banking financial sector and a great deal of experience with consumer loans. The quality of the scoring process is without a doubt on a very high level and there are no reasons to think that would change any time soon. Of course, as I’ve already said, thorough audits are made before we consider any originator joining us.

How is the company financed? Why did you select to start the company in Estonia?

Iuvo is financed through business angels. We chose Estonia as it has been the cradle of P2P lending in the past years and we believe the best way for us to grow and develop is to be where the best platforms are.

Is Iuvo Group open to international investors?

In order to open an account with us individual investors must be at least 18 years old, have a bank account in the European Union (or third countries that are currently considered as having equivalent AML/CFT systems to the EU), and have their identity successfully verified by Iuvo’s back office team.

Australia

Australian Marketplace Lending Update (The National Law Review), Rated: AAA

In a recent report on licensing applications the Australian Securities and Investment Commission (ASIC) revealed that it has granted 7 Australian financial services licences (AFSL) and 3 Australian credit licences to marketplace lenders between January and June 2016. A further 3 AFSL applications are currently being considered. Previously, 6 licenses were granted between 1 July 2015 and 31 December 2015. This indicates that the number of entrants to the Australian market continues to grow.

Unlike other jurisdictions such as New Zealand, Australia does not have specific marketplace lending legislation. Marketplace lenders have had to adapt to fit within the existing financial services framework.

Australian crowdfunder, DomaCom has signed an exclusive distribution deal with a New York-based real estate crowdfunding platform, Prodigy Network.

The deal aimed to expand investment opportunities for Australian investors wanting to invest in US real estate assets.
India

P2P lending marketplace Rupaiya Exchange aims to increase financial inclusion (The Tech Portal), Rated: B

Rupaiya Exchange intends to increase financial inclusion by enabling common man an access to credit. It enables borrowers to take personal as well as business loan through this virtual marketplace.

With the use of multiple data extraction, analysis techniques, and proprietary scoring mechanism, they score every individual and not rely only on the traditional credit checks. Through the use of technology, they want to provide credit to credible borrowers and bring down their cost of borrowing.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

About the author

Allen Taylor

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