- Today’s main news: Further comments on Elevate’s IPO. Aspire announces new ALD Data and Analytics Module. Funding Circle to stop property development lending. Morningstar assigns MOR RV1 Residential Vendor Ranking to First Associates as Consumer Finance Servicer.
- Today’s main analysis: Texas real estate market great for RECF.
- Today’s thought-provoking articles: UK VC investment up, European funding down. China’s banking regulator clamps down on illegal P2P lending. RECF is riskier than you think.
- Further comments on Elevate’s IPO. GP:”Some people’s IPO strategy is to pump the IPO prices as much as possible to show how great the company is. Others is to underprice it to get more buyers and for the stock to go up after the IPO. If you compare this with selling a house, would you rather see yourself in a competitive bidding situation by underpricing it at 1st or would you rather overprice and wait for people to make low offers? Both strategies can backfire and fail. Time will tell how Lending Club’s strategy vs Elevate’s compare. ” AT: “Elevate’s stock price was way below what industry experts thought it would be. As a resulty, they sold more than 14 million shares.”
- Texas real estate is active for RECF. GP:” I saw first hand tens of houses being flipped in Austin TX.” AT: “This is one platform, but Texas has historically been a great market for real estate, even before RECF. I’d expect it to be a great RECF market, too.”
- Aspire Financial Technologies announces new ALD Data and Analytics Module. AT: “Significant here is the module provides free access to market participants looking to analyze performance data for asset pools of U.S. public securitizations.”
- Morningstar Credit Ratings assigns MOR RV1 Residential Vendor Ranking to First Associates. GP:” A good 3rd party validation.”
- RECF is riskier than you think. GP:” I hope people remember that real estate is not risk free.” AT: “RECF is risky, to be sure, but REITs are no less so. There are pros and cons to any type of investment. Read this with a grain of salt.”
- NCSS partners with Kabbage.
- FinTech’s shifting landscape. AT: “I expect to see some awesome tech innovations in the mortgage sector in the near future.”
- Kabbage co-founder on power lending, and more.
- US FinTech regulation is divided.
- Over 50? Welcome to the new frontier of FinTech.
- Regions Bank recruits CIO from Kabbage. GP: ” Fintech hire executives from banks, banks hire tech people from fintech. Seems fair.”
- Top banks are better conversing offline than online. AT: “This is a feeble attempt to bolster the importance of banks. The real story is that millennials don’t trust banks. As older generations die off, younger generations will continue to rely on emerging technologies for everything, including financial services.”
- Funding Circle to stop property development lending. GP:” Those loans are probably not performing well or their cost of customer acquisition is too high given the competition from companies dedicated to that market.” AT: “Business models shift. I wouldn’t read too much into this.”
- Advisers urged to be cautious on ‘esoteric’ P2P investments.
- FCA prepares for the march of robo-advisers.
- AltFi Data brings transparency to the industry. GP: ” Transparency can only help. The more the better. There usually is a short term cost in transparency which in my eyes is usually justfied with great returns long term.”
- Fleximize closes 16.3M GBP financing facility.
- FCA is worried about ‘wild west’ FinTech in other parts of the world.
- FinTech now worth 7B GBP to Britain’s economy.
- Growth Street announces two senior hires.
- UK VC investment up in Q1 2017, funding in Europe down. AT: “What about Brexit now?”
- Lend closes CHF3.5M in Series A funding. GP: ” Congratulations. Due to regulation it is hard for Swiss fintechs to serve the rest of europe, unlike in Banking for example. “
- China clamps down on illegal P2P lending. GP: ” Continues clamping down…”
- United States
- Elevate Announces Closing of Initial Public Offering (BusinessWire), Rated: AAA
- Texas Real Estate Market Active for Real Estate Crowdfunding (Yahoo! Finance), Rated: AAA
- Aspire Financial Technologies Announces New Asset-Level Disclosure (ALD) Data and Analytics Module (Aspire Email), Rated: AAA
- Morningstar Credit Ratings Assigns MOR RV1 Residential Vendor Ranking to First Associates Loan Servicing as a Consumer Finance Servicer (PR Newswire), Rated: AAA
- Real Estate Crowdfunding Is Riskier Than You Think (Seeking Alpha), Rated: A
- NCSS Partners with Kabbage, Inc. to Help Small Businesses (PR Newswire), Rated: A
- Mortgage Lenders Maintain Positive Sentiment for 2017 (Marketwired), Rated: A
- FinTech’s Shifting Landscape (The M Report), Rated: A
- Kabbage Co-Founder & Head Fintecher Kathryn Petralia: Power Lending, Predictions & Progress (Crowdfund Insider), Rated: A
- US fintech regulation: a divided picture at the federal level (Banking Tech), Rated: A
- Over 50? Welcome to the New Frontier of Fintech! (Finovate), Rated: A
- Regions recruits CIO from marketplace lender Kabbage (American Banker), Rated: B
- Fidelity Investments, American Express and Bank of America Are the Top Scoring TotalSocial(TM) Brands (Yahoo! Finance), Rated: B
- United Kingdom
- Funding Circle to stop property development lending (Bridging and Commercial), Rated: AAA
- Advisers urged to be cautious on ‘esoteric’ P2P investments (New Model Adviser), Rated: A
- FCA prepares for the march of ‘robo advisers’ (Financial Times), Rated: A
- AltFi Data brings needed industry transparency (Bankless Times), Rated: A
- Revenue-Based Finance Provider Fleximize Closes £16.3M Financing Facility (Finsmes), Rated: A
- Britain’s finance watchdog is worried about ‘wild west’ fintech in some parts of the world (Business Insider), Rated: A
- Fintech is now worth £7 billion to Britain’s economy and employs 60,000 people (Business Insider), Rated: B
- Growth Street announces two senior hires (P2P Finance News), Rated: B
- European Union
- UK VC investment up in Q1 2017, but funding across Europe is down (Real Business), Rated: AAA
- Lend Closes CHF3.5M Series A Funding (Finsemes), Rated: A
- China’s Banking Regulator Clamps Down on Illegal P2P Lending (YiCai Global), Rate: AAA
NCSS Partners with Kabbage, Inc. to Help Small Businesses (PR Newswire), Rated: A
Today, the National Cybersecurity Society (NCSS) entered into a strategic partnership with Kabbage Inc., an online financial technology company that provides funding directly to small businesses through its automated lending platform.
A recent study by FireEye revealed that 77 percent of global cybercrime affects small and medium sized businesses. NCSS is a non-profit organization created to educate and advise small business owners on the complex and changing world of cybersecurity.
NCSS works with victims of cybercrime, government and businesses of all sizes to help fortify cybersecurity on a continual basis to help thwart evolving cyber threats and to mitigate the effects of cyber incidents when they occur.
Mortgage Lenders Maintain Positive Sentiment for 2017 (Marketwired), Rated: A
The Lenders One® Cooperative, a national alliance of independent mortgage bankers, correspondent lenders and suppliers of mortgage products, has issued the results of the second annual Lenders One Mortgage Barometer, a survey of 200 mortgage lending professionals. According to the 2017 Lenders One Mortgage Barometer, a large majority of lenders (94 percent, up from 62 percent last year) expect an increase in mortgage purchase production.
Continued economic improvement should give first-time home buyers the boost they need to enter the market. In fact, about three in five lenders (59 percent) say it is very likely that there will be an increase in first-time home buyers in 2017. The optimism around first-time home buyers aligns with the recent report from the National Association of Realtors® that showed the share of sales to first-time home buyers grew from 2015 to 2016 and was the highest it’s been since 2013. However, many lenders are predicting some challenges to mortgage industry growth with respondents seeing consumer debt as the highest risk factor this year (41 percent).
Lenders Analyze Growth Opportunities
The populations that are most frequently cited as offering robust opportunity in 2017 include Generation X (86 percent) and millennials (85 percent, up from 79 percent last year). Following closely are nontraditional buyers, those who are in the rental and vacation home markets (84 percent, up from 70 percent last year); boomerang buyers, those people who can now qualify for a mortgage after undergoing a short sale, foreclosure or bankruptcy (83 percent, up from 68 percent last year) and baby boomers (82 percent).
Lenders Identify Strong Jumbo Loan Activity
A large majority of lenders (93 percent) report that they already originate non-qualifying mortgage (non-QM) loans. Bolstering one part of the non-QM market is continued home appreciation, especially in higher end markets, which has created demand for jumbo loans. Indeed, 91 percent of lenders project a significant increase in jumbo loan origination volume in 2017 for their organization.
Lenders’ Take on Emerging Trends
Given the growth of the sharing economy and services such as Airbnb, 82 percent of mortgage lending professionals anticipate an increase in people looking to finance larger homes to take advantage of rental incomes.
FinTech’s Shifting Landscape (The M Report), Rated: A
The ever-shifting landscape of technology has leaked into mortgage originations.
mello™ is loanDepot’s new digital mortgage platform including the customer facing platform. It serves borrowers, sales, operations, and the entire ecosystem of realtors, builders and the title industry on a single platform that allows us to continuously improve and iterate the experience.
What other kind of technologies aren’t being implemented in the mortgage industry that can be brought in? What do think can be implemented to streamline the mortgage application process?
There are numerous foundational technologies that have existed in the mortgage industry and other related industries for a long time that have limited implementation. In the early 2000s, we saw the first digital mortgage. Since then there has been incremental improvements but limited adoption. E-Sign is another example of technology that has existed for the last fifteen years, also with limited adoption. With the regulatory changes brought on by TRID, they are becoming a little bit more main stream. Technical change requires business drivers, effective change management and a platform to enable adoption.
Kabbage Co-Founder & Head Fintecher Kathryn Petralia: Power Lending, Predictions & Progress (Crowdfund Insider), Rated: A
Since launching in November 2008, team Kabbage has grown its global advanced lending infrastructure to enable small businesses to borrow necessary funds through its direct SMB lending product which has been adopted by banks and non-banks worldwide. The FinTech innovator has provided over $3B since its founding and has raised $236M in equity since its formation as well as more than $1 billion of debt.
Kathryn: The Office of the Comptroller’s “FinTech charter” is an exciting proposition for Kabbage. While the details are still being discussed, there is no denying that Fintech is here to stay when the “Big Bank” regulator is talking about bringing our platform into the mainstream of the U.S. financial system. Folks in Washington should think about what the technology actually does instead of how to box it into a rule or regulation.
Kathryn: Every executive hates uncertainty. We currently interact in one way or another with the FDIC, FTC, SEC, CFPB, SBA, Federal Reserve, OCC and other parts of the Treasury and state agencies. I don’t see that as a very efficient or navigable system, and I think the agencies agree because they are always vying with one another for authority. Washington is in a state of (uncertain) transition, and we hope to make our little slice of D.C. a lot more efficient and work to protect customers’ rights instead of checking boxes.
Europe is a different animal altogether. There is plenty of uncertainty in the EU, but I am not planning on a “Frexit” or a “Beljump” this year. We are chugging along with our European partner banks and preparing for GDPR, the EU’s solution to unified data protection for European citizens. Europeans are pragmatic people. They want to share their data with third parties but also know that the process is safe. Safe and open data is squarely with our culture and goals at Kabbage.
Kathryn: I haven’t been shy about my view on brokers—I generally don’t like them. Kabbage avoids the broker model because we want to interact directly with our customers.
As I mentioned, this is the year of the platform model. I expect to see large and medium banks beginning to integrate with third-party Fintech platforms to better serve their customers and expand their product offerings. It makes economic sense—do what you’re good at (working with customers and managing cheap capital) and partner with other specialized firms for technology and innovation. The U.S. market is amazingly under-tapped from both mega-banks to local institutions and we hope to continue to expand here, Europe and elsewhere.
Kathryn: Our strategic, referral and white label partnerships are vital to driving new customers to Kabbage.
US fintech regulation: a divided picture at the federal level (Banking Tech), Rated: A
Marketplace lending has been a topic of regulatory and industry conversation for the last several years.
Currently, marketplace lending is attempting to fill gaps still left in credit availability after the financial crisis, especially in small dollar small business loans. In this case, small dollar means $250,000 or less. Community banks have generally provided the lion’s share of small business and agriculture loans in the US, but the financial crisis and the response to it both eliminated many community banks and created a credit crunch. Marketplace lenders have stepped up to fill in the resulting gaps for both small business and personal loans. While the first generation of marketplace lenders tended to be distinct, separate entities, many are now partnering with banks. Marketplace lenders are not the only ones: money transmitters are exploring bank partnerships in order to avoid costly and time consuming fifty state licensing solutions.
Treasury received about 100 responses to its RFI and the white paper is generally positive about the potential for online marketplace lending to expand access to credit. Treasury offers its view of the RFI responses and provides some advice and recommendations for moving forward in this space. It found that online marketplace lending has expanded access to credit, especially small businesses, though the majority of the loans originated were for consolidating debt. The expansion of data used for underwriting was one of the more exciting innovations by online lenders and is being adopted by a larger segment of the financial services industry. However, these “data-driven algorithms” do not provide the borrower the opportunity to correct information and they may result in fair lending violations and disparate impacts. It’s really too early to determine the impact, but the expansion of data and modeling are an area on which Treasury will continue to focus. In addition, online marketplace lending has emerged in the low cost of credit environment during the Obama years; these lenders have not been properly tested during a higher cost of capital environment.
The SEC is also getting into the game on fintech. It has established a Distributed Ledger Technology (DLT) Working Group to investigate the new technology and its potential uses and abuses. Further, the SEC is looking at the growing field of crowdfunding, both its Regulation Crowdfunding equity crowdfunding model and others, including debt crowdfunding. In addition, the marketplace lending market, especially securitisation of loans, is of particular interest to the SEC.
In the US, Cook County, Illinois, is currently running a pilot program to use blockchain to transfer and track property titles and other public records. The Cook County Recorder’s Office is the second largest in the US, so the adoption and success of a DLT system there would likely encourage other states and counties to use the technology.
On top of DLT, the advent of “smart contracts” has the ability to change payments drastically.
While the CFPB’s policy is quite friendly, its no-action letters are not binding on other agencies, so that leaves a fintech company vulnerable to the determination, by another regulator, that it is not in compliance with all relevant laws and regulations. This is obviously true of any agency’s no-action letter, but considering most of the federal financial regulators are having trouble deciding what to do with fintech, many companies may decide not to take the chance of relying on the CFPB’s say-so. Again though, regulating by No-Action Letter is much less desirable than actually going through the Administrative Procedure Act-mandated rulemaking process.
The CFPB is likely the most vulnerable agency in a Trump government. Its broad mandate and limited congressional oversight has made it a target of Trump and Congressional Republicans. While it is incredibly unlikely the CFPB would actually be dismantled, its structure and leadership will almost certainly change, likely relatively early in President Trump’s term. The Court of Appeals for the D.C. Circuit’s recent decision in PHH Corporation, et al. v. Consumer Financial Protection Bureau found the current structure of the CFPB is unconstitutional.
States are also involved in regulating fintech and their role may grow if President Trump follows through on his early moves to cut down on federal regulation.
Over 50? Welcome to the New Frontier of Fintech! (Finovate), Rated: A
Meet the most financially challenged generation in American history. There are over 111 million Americans aged 50 and older, confronting a financial future with high anxiety, great struggle, and kitchen table economics that are more complex than any generation has ever faced. Financial decisions are numerous and amplified in importance with longevity. Much is at stake.
Although the 50-plus community represents only 35% of the entire U.S. population, they account for $116.8 billion in revenue in 2017 for the traditional banking industry. They are avid users of digital tools, services, and products, and they are increasingly finding that their needs are not met by the bank offerings alone. As a result, they are turning to alternative financial services and products. For 2017, AARP forecasts the 50-plus consumers will spend $15.3 billion in the fast-emerging alternative financial services sector.
To win over this market, innovators need to:
- Remove friction from the user experience
- Improve customer service
- Proactively deliver personalized insight and advice
- Transform consumer financial anxiety into digital empowerment
- Influence regulatory change and financial policy to encourage healthy digital disruption
Regions recruits CIO from marketplace lender Kabbage (American Banker), Rated: B
Regions Bank in Birmingham, Ala., has plucked its new chief information officer from the fintech world.
Amala Duggirala, formerly the chief technology officer at the small-business lender Kabbage, is set to become CIO on April 17.
At Kabbage, Duggirala led the technology team’s efforts in advancing the scalability of the lending platform. Her tenure at Kabbage was brief — she joined the firm in November 2016.
Fidelity Investments, American Express and Bank of America Are the Top Scoring TotalSocial(TM) Brands (Yahoo! Finance), Rated: B
In a new, first of its kind analysis of combined online and offline consumer conversations, Engagement Labs released its TotalSocial rankings on the top performing financial services brands (banks, investment companies and credit card companies) in the U.S.
The analysis finds that, of the conversations taking place about financial services brands, the majority of them are happening offline (face-to-face) as opposed online (social media).
One financial institution that stuck out in particular is Citibank. The financial institution has the biggest discrepancy between its online and offline scores. The bank scores significantly better offline than online through all components measured — volume, sentiment, brand sharing and influence. This is what Engagement Labs calls a Social Misfit, brands that perform strongly offline but not online, or vice versa.
Another brand that stands out in the analysis is American Express. This is a brand propelled by particularly strong offline brand sharing, meaning people are talking about their marketing or advertising efforts.
Funding Circle to stop property development lending (Bridging and Commercial), Rated: AAA
Advisers urged to be cautious on ‘esoteric’ P2P investments (New Model Adviser), Rated: A
Peer-to-peer (P2P) lending company Goji is launching the UK’s first diversified P2P lending bonds.
The Goji Diversified P2P Lending Bond is a fixed-term product that spreads risk by investing across a range of P2P lending platforms. It is eligible for inclusion in an Innovative Finance ISA. The one-year fixed-term bond has already launched, while the three-year bond is set to launch in April or May, with the five-year bond following soon after.
He said the current fund contains around 600 companies, ‘so there’s loan diversification’. Goji targets a 5% annual yield, and said the current yield after fees (after three months for the one-year bond) is 6.8%.
Phil Young, managing director of support services provider Threesixty, has concerns. ‘Advisers should steer clear of these products,’ he said. ‘It has an impact on PI [professional indemnity] insurance, as these insurers are sceptical of P2P lending.
Numerous advisers have also voiced concerns. ‘I don’t think the market is mature enough,’ said David Bashforth, partner at Derbyshire-based Belmayne Independent. ‘It’s untested in a downturn,’ said Mark Begg, director at London-based Mark Begg Asset Management. ‘We would need at least a three-year track record,’ said Andrew Brady, director of East Sussex-based Prosperity IFA.
FCA prepares for the march of ‘robo advisers’ (Financial Times), Rated: A
New rules aimed at “robo advisers” have been set out by the Treasury and the City watchdog as part of their efforts to make financial advice more widely available.
The guidelines are intended to free online providers from the heavier regulation associated with traditional financial advice, making it easier for them to offer low-cost help for less wealthy investors.
The regulator said it wanted to encourage the growth of “robo-advisers” — websites that suggest investment portfolios to investors based on online questionnaires — as a way to offer investment help to a greater number of people.
AltFi Data brings needed industry transparency (Bankless Times), Rated: A
An originator participating in independent verification of their data is motivated to continue to source good and well-priced assets, because the track record is there, in a clear and concise format, for all to see.
But there’s little transparent about dumping megabytes of data on investors and thinking you can go to sleep at night with a clear conscience, not in the era with the data aggregation and interpretation capabilities of ours.
This added transparency is especially necessary now that marketplace lending is out of the novelty stage and beginning to scale, Mr. Taylor said. It is no longer enough for platforms to originate assets which were previously hard to access. Investors need to be able to definitively understand what return the assets have delivered historically and to identify originators that have an ongoing motivation to keep originating assets based on quality not quantity.
Equally interesting is that Funding Circle, Zopa, MarketInvoice and RateSetter, the UK platforms that provide this enhanced disclosure, have gained market share relative to the rest of the market. Having represented 65% of UK market origination when they began to offer this disclosure, they now represent 75%.
Revenue-Based Finance Provider Fleximize Closes £16.3M Financing Facility (Finsmes), Rated: A
Fleximize, a London, UK-based revenue-based finance provider, closed a £16.3m financing facility.
Hadrian‘s Wall Secured Investments Limited, a specialised investment fund, provided the financial resources.
The company intends to use the funds to increase its lending capacity, towards its goal of lending over £100m to SMEs by 2019, to further develop and diversify its product offering, and continue to advance its proprietary technology platform with the introduction of dedicated areas for brokers and direct clients.
Britain’s finance watchdog is worried about ‘wild west’ fintech in some parts of the world (Business Insider), Rated: A
Christopher Woolard, the FCA’s director of strategy and competition, said in a speech earlier this week that that some regulators are using “sandboxes” to let fintech companies operate with little or no supervision.
Woolard said in a speech at the Innovate Finance Global Summit in London on Monday:
“But in a world where many governments and regulators have begun to show an interest in innovation there are challenges.
“As different jurisdictions begin to set up their own sandboxes, with different models and standards, some believe a ‘Wild West’ version could emerge.”
Fintech is now worth £7 billion to Britain’s economy and employs 60,000 people (Business Insider), Rated: B
The Treasury said ahead of the event that the UK’s fintech sector — which includes everything from online lending to applying blockchain to capital markets — is now worth £7 billion to the UK economy and employs 60,000 people.
Growth Street announces two senior hires (P2P Finance News), Rated: B
GROWTH Street has unveiled two new senior appointments that it hopes will aid the peer-to-peer lender’s expansion plans this year.
The platform, which was purely a business-to-business lender until it receivedregulatory permission to accept retail investors last December, has hired April Nardulli (pictured) as general counsel and Chris Weller as commercial director.
UK VC investment up in Q1 2017, but funding across Europe is down (Real Business), Rated: AAA
While UK VC investment may be up, European funding has fallen however. The KPMG Venture Pulse Q1 2017 revealed UK VC investment over the quarter reached $1.02bn, having dropped to under $1bn in Q4.
That was achieved despite a lower number of completed deals, with 196 secured versus 219 the previous quarter. KPMG suggested the “robust levels” of UK VC investment signals optimism and confidence for British business this year despite Brexit.
Imbach pointed to financial services, life sciences and biotech as key sectors where startups are securing UK VC investment and highlighted firms such as Currency Cloud, Funding Circle and Atlas Genetics.
While UK VC investment rose in Q1, there was a fall in VC investment across Europe overall, reaching $3.4bn, which was attributed to fewer angel and seed rounds. Meanwhile, deal volume was at its lowest for five quarters.
Lend Closes CHF3.5M Series A Funding (Finsemes), Rated: A
Lend, a Zürich, Switzerland-based fintech startup, closed a CHF3.5m Series A funding.
Backers included angel investors and Polytech Ecosystem Ventures.
The company will use the funds to further develop its platform and market its brands, LEND and splendit, enhancing automation, customer usability and increasing marketing efforts within Switzerland.
China’s Banking Regulator Clamps Down on Illegal P2P Lending (YiCai Global), Rate: AAA
China’s Banking Regulatory Commission (CBRC) issued its Guiding Opinions on Risk Prevention and Control in the Banking Sector yesterday, requiring banking institutions to step up risk prevention efforts related to internet finance businesses, focusing on ten types of high-priority risks. The P2P lending risk rectification program will be pushed forward, alongside the clean-up of student and microcredit businesses.
The regulator called for an effective clampdown on illegal student loan operators. Online lending agencies are prohibited from offering loans to people failing to meet the minimum income requirement, or to students aged under 18. They are also banned from engaging in misleading marketing or sales activities, or extending usurious loans.
With microloans, online lending agencies must ensure the legitimacy of funds provided by lenders in compliance with the law, and fraudulent marketing is prohibited. Provisions laid down by the supreme court regarding interest rates on private loans must be rigorously observed to prevent usury and the use of violence in debt collection.
To ward off risks associated with illegal fund-raising schemes, the CBRC required regulators at all levels to ramp up investigation into illegally-established banking organizations, and suppress illegal absorption of public funds and illicit lending businesses carried out under the guise of banking services.