- Today’s main news: Defaults Slash Returns for Online Loan Investors Colchis and P2P GI. Banks warm to alt finance providers. Anaxago opens up French RECF to institutional investors. Alibaba to invest $200mil in Korea’s Kakao Pay.
- Today’s main analysis: OFF3R Index: Strong P2P lending growth continues.
- Today’s thought-provoking articles: Midsized companies turn to MPL. Consumer confidence at 10-year high. P2P lending in the construction sector.
- Defaults Slash Returns for Online Loan Investors GP:”Very interesting data from Colchis and P2P GI. A must read. Defaults are a real problem that has to be taken seriously.”
- PeerIQ’s weekly industry update. GP: “Lending Club is showing stronger interest in balance-sheet risk throught building securitization shelf in-house. Other platforms may want to take note. And a very interesting reminder that all debt indicators are in the green.” AT: “With consumer confidence high, wage growth strong, and other economic indicators improving, we should see a rise in consumer loans. The outlook for MPL has never been better.”
- High rate of defaults hit P2P lending sector. GP:” Finextra is mentioning this article. AT: “This is truly one of the biggest problems the industry faces. On the flip side, defaults are bound to happen. They are a critical part of the lending business.”
- Midsized companies turn to MPL at Lendix, Creditshelf. AT: “Excellent double-interview with some deep insight into big-ticket borrowing in the midsize market.”
- OFF3R Index: Strong P2P lending growth continues. AT: “While equity crowdfunding declined, P2P lending in general has increased.”
- Banks warm to alternative finance providers.
- P2P lending discovers new pitfalls in the construction sector.
- BondMason CEO comments on RBS move into online lending.
- Anaxago opens up French RECF to institutional investors.
- Creamfinance makes money instantly available anywhere in the world.
- United States
- Defaults Slash Returns for Online Loan Investors, (WSJ), Rated: AAA
- Weekly Industry Update: February 20, 2017 (PeerIQ), Rated: AAA
- High rate of defaults hit P2P lending sector (Finextra), Rated: AAA
- United Kingdom
- Midsized Companies Turn to Marketplace Lending at Lendix & Creditshelf (Crowdfund Insider), Rated: AAA
- OFF3R Index: Strong P2P Lending Growth Continues (Crowdfund Insider), Rated: AAA
- Banks warm to alternative finance providers (Bridging&Commercial), Rated: AAA
- P2P lending discovers new pitfalls in the construction sector (Financial Times), Rated: AAA
- BondMason CEO Stephen Findlay Comments on RBS Move into Online Lending via NatWest (Crowdfund Insider), Rated: A
- European Union
- Anaxago Opens Up French Real Estate Crowdfunding to Institutional Investors (Crowdfund Insider), Rated: AAA
- This FinTech CEO Is Making Money Instantly Available Anywhere In The World (Forbes), Rated: A
- Digital advice: from robo revolution to enterprise evolution (Super Review), Rated: A
- Alibaba Unit to Invest $ 200 Million in Korea’s Kakao Pay (Cryptocoins News), Rated: AAA
- New platform revolutionizes the way Cambodian businesses borrow money (Southeast Asia Globe), Rated: A
- RBI asks banks to collaborate with fintech cos (India Times), Rated: A
- South America
- Interview with the CEO of Brazil Fintech Company, IOUU (TechBullion), Rated: A
Defaults Slash Returns for Online Loan Investors, (WSJ), Rated: AAA
LendingClub unit, Colchis Capital record lowest returns in their main funds since each launched in 2011.
At LC Advisors, the Broad Based Consumer Credit (Q) Fund returned 1.83% in 2016, down from 5.76% in 2015 and 8.02% in 2014, according to the investor documents. That was worse than the 2.65% return of the Bloomberg Barclays U.S. Aggregate Index, a broad measure of performance of various fixed-income securities that LC Advisors uses as a benchmark.
LendingClub said in a securities filing in January that it was seeing signs of a stabilization in delinquencies after it raised rates on borrowers by a weighted average of 1.18 percentage points over the course of several months. And the Broad Based Consumer Credit (Q) Fund has outperformed its benchmark by more than 2 percentage points over the past three years. “The holistic performance of the Fund tells an important story,” LC Advisors said in a letter to investors.
Colchis’s P2P Income Funds, which have $1.3 billion in assets under management, posted a 2016 return of 6.2%, according to investor documents.
Colchis’s returns exceeded 9% in each of the preceding four years but were weighed down in 2016 in part because of weak debt-collection efforts at LendingClub and Prosper and a new accounting regime introduced earlier in the year, according to the documents.
Meanwhile, P2P Global Investments, which is managed by a unit of U.K. hedge-fund firm Marshall Wace LLP and listed on the London Stock Exchange, returned 4.1% in 2016, down from 6.6% the year prior.
At the end of the year, the fund’s shares traded at a roughly 20% discount to its net asset value.
Weekly Industry Update: February 20, 2017 (PeerIQ), Rated: AAA
In a major shift, Lending Club unveiled in their earnings announcement its plans to sponsor its own securitization program with up to $100 Mn in quarterly issuance. Although the size of issuance is relatively small to Lending Club’s overall origination volume, the shift reflects Lending Club’s new management team’s willingness to take balance-sheet risk.
OnDeck reported fourth quarter and full year 2016 financial results on Thursday. Despite record revenue and origination, investors reacted negatively due to a build-up of loan loss provisions (up 3x to $55Mn) and wider realized losses for the quarter (~$36.5 Mn in Q4 ’16 losses vs. a loss of $5.1 Mn in the prior year period).
The Consumer Confidence Index is at a 10+ year high, wage growth is strong (91-month high), and other economic data (housing starts, asset prices, home values) are near or have exceeded their peak levels.
Under the buoyant backdrop, the Fed’s Center for Microeconomic Data also released its latest Quarterly Report on Household Debt and Credit. The report revealed that total consumer debt outstanding increased $226 Bn to $12.6 Tn (1.8% growth) in Q4.
This increase was driven by increases across all debt products with significant growth in non-mortgage products (particularly, student, auto, and credit card). Mortgage origination volume, including refinancing activities, stands at $617 Bn – the highest level since the 2008 Great Recession. Consumer debt balances are at the highest level since 2007 Q3.
High rate of defaults hit P2P lending sector (Finextra), Rated: AAA
Investors in the peer to peer (P2P) lending sector have seen their returns suffer due to a high rate of borrower defaults among start-ups, reports the Wall Street Journal (WSJ).
Shares in a number of P2P lending platforms have dropped as high profile players like US-based LendingClub and On Deck Capital have faced numerous difficulties. Investors previously attracted to the sector are now rethinking their approach, reports the WSJ.
The lending platforms are finding it difficult to bring down the default rates of their borrowers – insisting on more stringent credit standards and a more thorough application process would make the challenger lenders less attractive in comparison to the incumbent, traditinal lenders.
Midsized Companies Turn to Marketplace Lending at Lendix & Creditshelf (Crowdfund Insider), Rated: AAA
At the onset of the marketplace lending market, lending to businesses was equated with lending to small and very small businesses: businesses at the low end of the small and medium-size enterprise (SME) market who were borrowing on average under €100,000. However, as the alternative lending market matures, it seems to attract larger SMEs borrowing bigger tickets, north of €400,000.
Olivier Goy is the founder and CEO of Lendix, an international business lending marketplace launched 2 years ago in France which has since then expanded into Spain and Italy. Tim Thabe is the co-founder and Managing Director of creditshelf, a German B2B lending marketplace for SME corporate borrowers and professional investors which launched in 2015.
Olivier Goy: At the onset, we did not plan to serve bigger tickets.
To give you an idea: the average loan size projected in our business plan was €50,000. The actual loan size in our first year of operation was €200,000. Now it is €400,000.
Of course, our funding mix, the fact that 80% of our funding comes from institutional investors was key to achieving this.
Tim Thabe: Indeed, we have deliberately targeted larger tickets. Our motivation was twofold. Firstly, we believed that we needed larger tickets to justify the expense of in-depth credit risk analysis. Secondly, the larger SMEs have more history and substance, and therefore more material to which we can apply this risk analysis in a meaningful way.
Currently, our average loan size is between €500,000 and €600,000. We expect it to grow towards between €800,000 and €1 million.
Olivier Goy: Bigger tickets are less expensive to recruit than small SME borrowers. However, the structure of larger SMEs is more complex, therefore is takes more time to analyze them and assess their credit risk. So far, we have not noticed a major difference in default rate, even though we know for a fact that there is a negative correlation between company size and credit default rate.
Olivier Goy: European alternative investment funds (ELTIFs) now make it easier to invest in larger tickets. We are voluntarily limiting ourselves to €2.5 – €3 million because don’t want to be exposed to a few big tickets.
Tim Thabe: At creditshelf, we don’t have a regulatory loan size limit because we use a fronting bank and because we raise funds for each project from a small number of accredited investors; 20 or fewer.
The main issue with regulation is that it is not consistent throughout Europe.
Tim Thabe: We believe that there is a gap in the private debt market reaching from very small tickets all the way up to ticket sizes of €10 million or €15 million where private debt funds are starting to operate and traditional private placements can be arranged economically.
OFF3R Index: Strong P2P Lending Growth Continues (Crowdfund Insider), Rated: AAA
OFF3R, an online marketplace for alternative investments, published a report on P2P lending and crowdfunding last week. OFF3R said that while equity crowdfunding sagged in January – dropping 65% from December – P2P lending remained strong.
Regarding P2P lending, OFF3R covers nine UK platforms in their Index. According to their numbers, these nine platforms lent a total of £294 million in January 2017, an increase of 6% versus December 2016.
OFF3R stated that historically low-interest rates are helping to drive investor interest in P2P lending assets as their risk-adjusted returns are appealing. OFF3R said this is highlighted by the fact that the Index platforms lent 50% more money in January 2017 compared to the same month in 2016.
Banks warm to alternative finance providers (Bridging&Commercial), Rated: AAA
Speaking at Fintech Fortnight on 16th February, Angus Dent, CEO of P2P business lender ArchOver, revealed that some banks were now directing borrowers they cannot serve to alternative finance providers rather than rejecting them outright.
Angus suggested that by recommending borrowers to platforms such as ArchOver or RateSetter, banks could maintain a relationship with the client rather than risk losing them to a competitor in future.