- Today’s main news: Credit Card ABS vs installment loans ABS comparison. Assetz Capital hits 240M GBP in four years. Octopus Choice close to 50M GBP in first year. Lendix expands to Italy.
- Today’s main analysis: 90+ wealthtech companies.
- Today’s thought-provoking articles: 88% of global banks sweat losing revenue to fintechs. 17 fintechs that may become unicorns. China SME lending spikes, US banks reboot. P2P lending could play key role in financial inclusion. African fintech impacts growth.
- Credit Card ABS vs installment loans ABS comparison. GP:” People often try to use credit cards data, which there is plenty of, and goes back very far, to predict installment loans behavior. However, Americans have a priority in defaults which is proportional to the pain point if the product stops working. We believe unsecured personal loans are very low on the totem pole of default priorities. PeerIQ here analyzed the difference quantitatively and concluded very interestingly: ‘Peak delinquencies in credit card ABS are ~8% in a stress scenario. By contrast, three-year unsecured personal loans (such as loans in the seminal CHAI shelf) are typically associated with a ~12% cumulative loss estimate (under a benign base case).’ “
- 90+ companies transforming investment, wealth management. GP:” We saw Wealthfron enter lending last week. Perhaps we should look at a few other companies for partnerships.” AT: “WealthTech as a sub-niche seems to have come out of nowhere. Yet, many of these companies are important to the overall fintech ecosystem, and I see WealthTech growing by leaps and bounds worldwide in the foreseeable future.”
- Why having a trust strategy is key to fintech’s future. AT: “Building trust is the single most important thing for any financial services company.”
- Allianz invests in Lemonade. GP:”Insuretech is coming? Is Lemonade the Lending Club of insurance?”
- NASDAQ announces venture investment program for fintechs. AT: “This is interesting. I like reading the NASDAQ analyses on the industry on NASDAQ’s blog. I’d be interested in seeing how their investments perform, and how they choose which companies to invest in.”
- North American Financial Institutions go social. GP:” Our readers are already aware of this trend I believe. Nothing really new.”
- Fintech puts payday lending in old wine in new bottles. GP:” It is very hard to point exactly when innovation happens. Before 1990 there was no online payday lending, because there was no internet. Today it exists. Something did change. Everything we build is built on top of online lending. Perhaps lending was invented when the first money was invented and searching who invented something, for the glory, is not very useful in this case. We are losing time with the history of lending or with the exact meaning of certain words. I would rather look who is making the money, Elevate Credit or brick and mortar stores? Who’s revenue is growing?”
- Fintech lures MBAs away from banking and consulting. GP:”Fintechs even lures executives and CEOs of Wall Street banks, no wonder MBAs are also following. “AT: “We’re also starting to see banks and traditional financial institutions poach talent from the fintech companies.”
- Biz2Credit to expand to Puerto Rico. GP:” Puerto Rico doesn’t often make the lending news. I wonder if it is underserved.”
- Inside Online gives off good vibes with digital branded magazine. AT: “I applaud Elevate Credit starting an online brand magazine. This is one of the most underrated and most effective online marketing strategies to implement, and I’m glad to see at least two companies in this space pursuing this channel.”
- Elevate appoints Tony Leopold as GM.
- BMO Harris Bank launches fintech partnership program with 1871.
- Assetz Capital hits 240M GBP in four years. GP:”Congratulations !”
- Octopus Choice close to 50M loan target in first year. GP:”The lender offers average returns of 4.2 per cent. In other words, at least in the UK, high interest returns are not necessarily proportional to the origination size entirely.”
- What Brexit means for London’s first fintech unicorn.
- Moneysupermarket pioneer sets up new financial advice biz.
- My Moneything experience.
- Why choose a robo-advisor?
- Prime Trust appoints Whitney White as CTO, COO.
- Lendix offers Italian SMEs loans. GP:”More and more companies entering Italy and Spain. Their economies are not negligible. “
- Global banks sweat losing revenue to fintechs. GP:”I think they are right to be concerned in a world with Uber, AirBnB, mobile phones, and in a market where there is no need for hardware or physical assets to be competitive and scale fast.”
- 17 fintech businesses that may become unicorns. GP:”I also agree with the list, well chosen.”AT: “I can see most of these hitting that $1B mark.”
- SME lending activity: China spikes, US reboots.
- P2P lending can play pivotal role in financial inclusion.
- Financial institutions feeling fintech heat.
- Can e-KYC service providers like Finahub ride the Aadhaar wave?
- Indonesia’s fintech landscape. GP:” The Indonesian market is particularly closed to international ownership, investment, etc. However, they are the 4th most populous country in the world and their financial sector is far from being mature. Which leaves a lot of opportunity if people are willing to approach the Indonesian market properly, perhaps in partnership with local entrepreneurs and by structuring firms through local law firms .”
- ASIC signs agreement with Indonesia.
- How Africa’s fintech industry is impacting growth, development. AT: “I’m seeing more going in Africa every day.”
- United States
- Credit Trend Through Delinquency Rates (PeerIQ), Rated: AAA
- 90+ Companies Transforming Investment And Wealth Management (CB Insights), Rated: AAA
- Why Having A Trust Strategy Is Key To The Future Of FinTech (Forbes), Rated: A
- Allianz Invests in Lemonade (PR Newswire), Rated: A
- Nasdaq Announces Venture Investment Program For Fintech Companies (Crowdfund Insider), Rated: A
- Innovation spotlight: North American FIs going social (Banking Tech), Rated: B
- Fintech Puts Payday Lending Old Wine in New Bottles (Naked Capitalism), Rated: A
- Fintech lures MBAs away from banking and consulting (Financial Times), Rated: A
- Biz2Credit to Expand Online Access for Small Business Financing in Puerto Rico (Crowdfund Insider), Rated: A
- Inside Online gives off Good Vibes with “digital branded magazine” (Prolific North), Rated: A
- Elevate Appoints Tony Leopold as General Manager, Rise (BusinessWire), Rated: B
- BMO Harris Bank Launches FinTech Partnership Program with 1871 (Yahoo! Finance), Rated: B
- United Kingdom
- Assetz Capital hits £240m of lending in four years (P2P Finance News), Rated: AAA
- Octopus Choice close to £50m loan target ahead of first anniversary (P2P Finance News), Rated: AAA
- What Brexit Means for London’s First FinTech Unicorn TransferWise (Coin Telegraph), Rated: A
- Moneysupermarket pioneer sets up new financial advice business eVestor (The Telegraph), Rated: A
- My Moneything Investment Experience after 13 Months (P2P-Banking), Rated: A
- Why choose a robo-adviser? (IG.com), Rated: B
- Fintech Startup Prime Trust Appoints Former Hambrecht Partner Whitney White As New CTO & COO (Crowdfund Insider), Rated: B
- European Union
- Lendix Now Offering Loans to Italian SMEs (Crowdfund Insider), Rated: AAA
- 88% of Global Banks Sweat over Losing Revenue to FinTech Firms (Cryptocoins News), Rated: AAA
- 17 fintech businesses that could one day be worth over $1 billion (Business Insider), Rated: AAA
- SME Lending Activity: China Spikes, US Banks Reboot (PYMNTS.com), Rated: AAA
- The fake offset accounts that could make your savings vanish (The Sydney Morning Herald), Rated: A
- WeiyangX Fintech Review (Crowdfund Insider), Rated: A
- P2P lending can play a pivotal role in financial inclusion (India Times), Rated: AAA
- Financial institutions feeling fintech heat, says PwC study (India Times), Rated: AAA
- Can e-KYC Service Providers Like Finahub Ride The Aadhaar Wave? (Bloomberg Quint), Rated: A
- Understanding Indonesia’s Burgeoning Fintech Landscape (Global Indonesian Voices), Rated: A
- ASIC signs fintech agreement with Indonesia (InvestorDaily), Rated: A
- How Africa’s FinTech Industry Is Impacting Its Growth And Development (The Marketing Mogul), Rated: AAA
Credit Trend Through Delinquency Rates (PeerIQ), Rated: AAA
Banks earnings season continued this week following strong Q1 results from JP Morgan and Citi last week. Morgan Stanley beat expectations on each line of business increasing year-over-year profits by 82%. The investment bank also generated 122% YOY revenue growth in the fixed income currency and commodities business. Bank of America exceeded expectations and benefitted from the greater net interest income due to a rise in long-term rates.
For the first time since 2015, GS surprised analysts by missing expectations on top and bottom line performance. Fixed income revenues were flat year-over-year trailing double-digit business unit gains across peers including JPM, C, MS, and BAC.
Bloomberg reports that, Navient, the largest servicer of student loans, reached an agreement to purchase JPMorgan’s approximately $6.9 Bn FFELP education loan portfolio.
In the ABS space, Yirendai reported its progress in funding consumer loan products via ABS. Another Chinese online lender, China Rapid Finance, announced that it plans to list on the NYSE, making it the second Chinese online lender to go public in the US.
We are often asked by investors whether credit card receivables are a proxy for installment loan performance. This week, we dig into credit performance of credit card securitizations representing over $100 Bn+ in consumer credit ABS deals. We include the following issuers in our analysis: American Express, Bank of America, Discover, Capital One, JP Morgan Chase, and Citi.
We compare delinquency and loss levels of credit card ABS to installment loans and conclude that credit card ABS performance is a poor proxy for installment loans, and that installment loan delinquencies are arguably a leading indicator of credit risk.
Credit Card ABS – A Strong History of Credit Performance
The credit card ABS market has historically been the benchmark sector in consumer ABS due to its liquidity, transparency, and strong performance including through the Great Recession.
The Credit Card ABS market is not an originate to distribute risk-transfer market, but rather a critical channel for funding and liquidity. Issuer incentives are strongly aligned with investors due to their dependence on debt capital markets for funding. Credit Card ABS provides over 50% of funding for card issuers (followed by deposits). New Credit Card ABS issuance is expected to grow in the wake of higher rates and funding costs from deposits.
Post-2008, new ABS issuance contracted significantly, including in the credit card markets. Consumers entered a de-leveraging phase reducing demand for loans. Large banks, in response to the new capital and liquidity regime, shifted to borrowers with higher credit scores and focused on existing relationships. Wider spreads and higher capital charges also reduced available sources of funding for consumer credit.
Post-crisis, non-bank lenders emerged to fill the lending gap by offering installment loan products to expand access to credit. Since installment loans sometime re-finance higher rate credit card debt, some investors have drawn analogies between credit card performance to installment loan debt.
Credit Card ABS Delinquencies are Near Multi-Decade Lows
In our March 2016 newsletter, we discussed credit card master trust performance, noting that delinquencies from 2011 through 2015 followed a downward trend for major credit card issuers.
We continue our analysis below, observing delinquencies continuing the downward trend in 2016, reaching historic lows in early 2016.
While the Composite index shows this trend, there is variability among the individual trusts. Discover and Capital One, with a mass-market tilt in customer base, experienced larger rises in delinquencies, compared to Amex and Chase which have a mass affluent footprint.
Installment Loans Lead Credit Card Losses
There are limitations in comparing delinquency rates on credit card ABS to installment loans. For instance, unlike MPL ABS deals which consist of static pools, credit card trusts are revolving securitizations that re-invest principal and interest over time. Also, we do not have access to the credit score distributions for credit card issuers to compare risk on an apples-to-apples basis.
Nevertheless, when comparing credit card ABS performance to the PeerIQ loan performance monitor we can draw some conclusions:
Delinquencies on credit cards reached multi-decade all-time lows in early 2016.
Credit card delinquencies are in early stages of reverting to historical levels, whereas the Loan Performance Monitor indicates that the unsecured personal installment loans have started a pattern of higher losses in successive vintages starting in 2015.
Through-the-cycle losses on credit card products are lower than losses on installment lending products.
Peak delinquencies in credit card ABS are ~8% in a stress scenario. By contrast, three-year unsecured personal loans (such as loans in the seminal CHAI shelf) are typically associated with a ~12% cumulative loss estimate (under a benign base case).
Note: We should expect higher losses on installment loans as non-banks offer access to credit to borrower segments outside of a traditional bank’s higher credit score underwriting box.
Historical credit card performance data is a poor proxy for measuring installment loan performance.
We can also offer the following tentative hypotheses which we look forward to testing with our TransUnion partnership:
Installment loans are lower in the consumer payment priority stack.
Installment loan losses lead performance in other asset classes such as credit card.
Credit card account management strategies (e.g., re-pricing of delinquent loans, credit line decrease tactics, etc.) are powerful levers for managing risk as compared to installment loans where issuers can only set terms at time of approval.
Deeper borrower relationship engagement (as measured by breadth of product penetration) reduces borrower’s credit risk all things being equal.
90+ Companies Transforming Investment And Wealth Management (CB Insights), Rated: AAA
Wealth tech investments reached a record of 74 deals in 2016.
We identified over 90 companies in the wealth tech space and organized them into 7 main categories based on the services and software they offer, then sub-categorized them by the client group they serve, whether business-to-consumer (B2C), business-to-business (B2B) or both.
Wealthfront has raised approximately $129.5M from investors, including Social Capital, Spark Capital, Greylock Partners, and Index Ventures.
This includes AdvisorEngine which raised a $20M Series A investment from WisdomTree Investments.
Stash, for example, is a goal-based digital investment platform that lets investors contribute as little as $5. Another company, Acorns, rounds up credit and debit card purchases to the nearest dollar then automatically collects and invests that spare change.
This category is exclusively B2B focused and includes Plaid Technologies, a software intermediary that securely connects financial application users with their respective bank accounts.
Click here to see a full list of WealthTech startups.
Why Having A Trust Strategy Is Key To The Future Of FinTech (Forbes), Rated: A
FinTech continues to see massive investment across the board and according to the annual FinTech Report, global cumulative investment will exceed $150 billion in 2017 alone. At least 80% of financial institutions PwC recently surveyed believe that they are at risk to innovators whether that be mobile banks like Monzo and N26 or more hardcore technological innovations like Lemonade and Algodynamix who want to change FinTech from the inside out with AI and other technologies like Blockchain. Trust is central to all of these emerging propositions whether it is from an emotional perspective because of previous traditional banking issues or a technological one like Blockchain.
Tom Blomfield, CEO, Monzo wants the youth market to come through word of mouth; “We’re focused on people who live their lives on their smartphones. Generally (but certainly not exclusively), these people tend to be younger and more willing to try out new products and services. For these customers, ‘trust’ is earned by making a product or service that demonstrably works well. It’s less about expensive advertising campaigns or branches on the high street… For us, it’s centred around transparency and community. We have a very active community forum.”
Ajay Bhalla, President, Global Enterprise and Security, Mastercard wants to increase trust by removing friction from the tedium of security.
Allianz Invests in Lemonade (PR Newswire), Rated: A
Lemonade, the insurance company powered by artificial intelligence and behavioral economics, today announced a strategic investment by Allianz, the world’s largest insurance company.
Nasdaq Announces Venture Investment Program For Fintech Companies (Crowdfund Insider), Rated: A
U.S. stock exchange group Nasdaq (Nasdaq: NDAQ), announced on Wednesday the launch of its venture investment program, Nasdaq Ventures, which is dedicated to discovering, investing in and partnering with unique fintech companies worldwide. According to the group, this program’s main objective is to identify and collaborate on new technologies and groundbreaking services and solutions which align with its clients’ needs an d the company’s long-term objectives in the global capital markets.
Innovation spotlight: North American FIs going social (Banking Tech), Rated: B
As banking continues to go digital, online innovators and niche players in North America are getting personal by adding social activities to their customer services.
SoFi, short for Social Financial, combines better rates on student loan refinancing with parties for its members (aka borrowers), around the country. It even offers career and financial counselling.
CommonBond offers an online student loan evaluation tool to help prospects determine the best ways to manage their debt. It estimates that members save an average of $14,581 as they repay their student loans, and even more for people like doctors and dentists with advanced degrees and higher debts.
Fintech Puts Payday Lending Old Wine in New Bottles (Naked Capitalism), Rated: A
And before you conclude that I am being a reflexive skeptic, Georgetown law professor Adam Levitin weighed in via e-mail:
First, Fintech is a meaningless term. The consumer-facing stuff is mainly (1) gussied up payday lenders (see, e.g., Think Financial and their tribal lending alliances), (2) money transmitters, and (3) BitCoin Bros. The money transmitters are probably harmless enough, but the first group are just trying to escape state usury laws and rollover restrictions, while the third group are grab bag of fools and con artists who think they are much more clever than they actually are. People on the Hill go ga-ga for Fintech without having any real knowledge of what they are and assuming that a digital platform represents a material (and better) transformation of a product.
The Lyric Financial website is remarkably content-free, particularly for specific product features and details of terms and conditions. Apart from the cloying trendiness which it is far too early in the morning to stomach, it’s very hard to find out what the deal really is.
You’re subjected to mandatory binding arbitration, which for a sophisticated product aimed at financially unsophisticated customers is a very bad sign.
It gets worse. In the bowels of their T’s and C’s I found this:
These Terms & Conditions, as well as any claims arising from or related thereto, whether in tort, contract or otherwise, are governed by, and are to be interpreted and enforced in accordance with, the laws of the State of Tennessee, without regard to New York’s conflicts of laws principles.
Which sounds suspect – my take is that they are under Tennessee’s statutes (don’t know if that signifies anything noteworthy, either good or bad) but they don’t want to be liable under an aspect of NY law (which I’m guessing is much better settled and consumer-friendly than TN’s).
Fintech lures MBAs away from banking and consulting (Financial Times), Rated: A
Many fintech founders went to business school. Insead’s MBA alumni include Giles Andrews, British founder of peer-to-peer lending platform Zopa, and Taavet Hinrikus, the Estonian-born chief executive of online foreign exchange marketplace TransferWise. Jeff Lynn and Carlos Silva jointly developed the business plan for equity crowdfunding business Seedrs as part of their MBA course at Oxford’s Saïd Business School.
Now, as fintech founders grow their businesses, they are heading back to business schools to find well-qualified staff. About a fifth of hires from the international MBA class at Madrid’s IE Business School last year were made by financial services companies. Fintechs made 5 per cent of those hires, up from none last year.
Eight of Nutmeg’s 78 staff are MBA graduates, including two product managers, its chief marketing officer, chief architect and head engineer.
MBA graduates are unlikely to join fintech companies in the expectation of high salaries. Many,particularly those who have worked in private equity, understand start-ups operate differently, Nutmeg’s Mr Hungerford says.
Biz2Credit to Expand Online Access for Small Business Financing in Puerto Rico (Crowdfund Insider), Rated: A
Biz2Credit announce on Thursday it has formed a partnership with Puerto Rico’s Oriental Bank to help develop a digital lending platform for the bank’s commercial clients. According to the Biz2Credit, Oriental Bank will be considered the first bank in Puerto Rico to engage commercial clients through a digital platform that supports applications for business credit cards, as well as lines of credit, term loans, real estate loans, equipment purchase, and SBA loans.
Inside Online gives off Good Vibes with “digital branded magazine” (Prolific North), Rated: A
Inside Online has launched an online magazine as part of a digital marketing campaign for an online lending company.
Good Vibes aims to build a greater owned audience for Elevate Credit brand, Sunny.
Good Vibes will include in-house editorial, an external newsroom and illustrated graphics.
Elevate Appoints Tony Leopold as General Manager, Rise (BusinessWire), Rated: B
Elevate Credit, Inc. (“Elevate”), a leading provider of innovative online credit solutions for nonprime consumers, today announced the appointment of Tony Leopold as the General Manager of its Rise product, effective immediately.
BMO Harris Bank Launches FinTech Partnership Program with 1871 (Yahoo! Finance), Rated: B
BMO Harris Bank today announced a partnership with 1871 – a leading technology and entrepreneurship ecosystem which is currently home to nearly 500 high-growth digital startups in the Merchandise Mart – that will provide a select group of FinTech startups the opportunity to participate in a three-month mentorship program.
Assetz Capital hits £240m of lending in four years (P2P Finance News), Rated: AAA
ASSETZ Capital hit its fourth anniversary with £240m lent to date and a plan to double that figure over the next 12 months.
The peer-to-peer lending platform, which channels funds to small- and medium-sized enterprises (SMEs) and small property developers, confirmed on Friday that it has returned over £20m of interest to investors since inception, yielding rates ranging between 3.75 and 18 per cent to investors.
Thanks to a recent surge in borrower demand, it also launched a temporary rate hike offer on its 30-day account last week to 4.75 per cent for a 90-day window.
Octopus Choice close to £50m loan target ahead of first anniversary (P2P Finance News), Rated: AAA
OCTOPUS Choice is set to have raised £50m within its first year of operation.
The lender offers average returns of 4.2 per cent based on conservative loans-to-value of up to 70 per cent and currently has 20 loans open for investment.
It pre-funds the loans, which a spokesman said has been given the green light by the Financial Conduct Authority (FCA) – despite several other P2P lenders having to stop the practice in order to gain approval from the City watchdog.
The platform’s loan book shows it has funded loans of as little as £95,000 to more than £5m, secured on properties valued between £175,000 and £8m.
What Brexit Means for London’s First FinTech Unicorn TransferWise (Coin Telegraph), Rated: A
According to a report published by GP Bullhound, TransferWise is one of Europe’s fastest growing unicorns. Also, according to the same report, the UK has the largest number of fastest growing unicorns, which are fast-growth, profitable businesses at 18 with a cumulative value of $39.6 bln.
Despite the clouds of Brexit looming, British tech deals hit a high in 2016 according to GP Bullhound. Whether the growth in the tech sector can be maintained post-Brexit is an interesting question.
Moneysupermarket pioneer sets up new financial advice business eVestor (The Telegraph), Rated: A
Duncan Cameron’s jointly-owned eVestor service aims to cut the cost of full-service financial advice by 80pc. He says it will deliver sophisticated advice to investors “whether they have £1 or £1m”.
He says eVestor will use complex digital “decision trees” to replicate the role of human advisers at a fraction of the cost and “provide more consistent outcomes”.
My Moneything Investment Experience after 13 Months (P2P-Banking), Rated: A
Last year I started investing on British p2p lending marketplace Moneything. Read my past article about opening a Moneything account. Moneything mostly offers property backed loans, with a few different asset-backed deals in between. I used Transferwise and Currencyfair to deposit money from my Euro account. Recently I also used the Revolut App to transfer money from another UK p2p lending marketplace to Moneything.
I am invested in 31 loans right now, mostly at 12% interest rate with small amounts also at 10.5%, 11% and 13% invested. I have had no defaults and there are no fees for investors.
Why choose a robo-adviser? (IG.com), Rated: B
Anyone can use robo-advice to manage their finances, whether that involves a £500 initial investment in a Stocks and Shares ISA, or a £100,000 Self Invested Personal Pension (SIPP).
Just last year, the Financial Conduct Authority (FCA) warned that 16 million UK consumers could be trapped in a ‘financial advice gap’ where they need professional investment advice but simply can’t afford it.
There is a £310 billion shortfall in the UK’s pension savings, according to Aviva’s calculations, while Zurich Insurance recently found that 41% of women and 30% of men aged 25 to 39 have nothing saved in their pension fund.
According to a MetLife survey, 45% of retirement savers are so concerned about their dwindling returns that they feel forced to take on more risk – a decision which could have disastrous consequences in the absence of professional financial guidance.
Fintech Startup Prime Trust Appoints Former Hambrecht Partner Whitney White As New CTO & COO (Crowdfund Insider), Rated: B
Nevada-based Fintech startup Prime Trust announced on Friday it has appointed former Hambrecht Partner and CTO, Whitney White as its new COO and CTO.
Lendix Now Offering Loans to Italian SMEs (Crowdfund Insider), Rated: AAA
European marketplace lending platform Lendix has opened its platform to Italian SMEs. As of today, Italian businesses may borrow from €30,000 to €2 million directly financed by international investors. Lendix called the operation “a new step towards a true European credit market.”
88% of Global Banks Sweat over Losing Revenue to FinTech Firms (Cryptocoins News), Rated: AAA
The report, Global Fintech Report 2017 [PDF], found that 88 percent of global banks are increasingly concerned that they will lose revenue to fintech businesses. The areas major banks feel they will lose out on include payments, fund transfers and personal finance sectors. In response, 82 percent claim that they intend to increase partnerships with financial technology services over the next three to five years.
The survey found that difference in management and culture in addition to regulatory uncertainty and legacy technology limitations, are identified as being significant challenges for financial technology companies and banks. Not only that, but banks are restricted to a system of checks and balances that can hinder the innovation process while fintechs are able to adapt easily due to a lack of bureaucracy.
The technology is moving from hype to reality and as it does so funding in the sector increased 79 percent year-over-year in 2016 to $450 million.
17 fintech businesses that could one day be worth over billion (Business Insider), Rated: AAA
GP Bullhound, a boutique investment bank focused on tech, on Thursday published an in-depth report looking at the global fintech industry.
The report found 39 fintech companies around the world already valued at $1 billion or over, and found that global venture capital investment into the sector has risen almost fivefold in the past three years to reach $13.6 billion in 2016.
GP Bullhound identified promising businesses in the alternative lending space, data analytics, digital banking, insurance, and asset management. Here are the 17 businesses that made the cut and, in GP Bullhound’s view, could be the next fintech unicorns:
- LendInvest — Online mortgage platform
- Prodigy Finance — Peer-to-peer university loans for overseas students
- ID Finance — Online lending in Russia
- Ebury — Financing for small businesses trading overseas
- iZettle — Mobile phone linked card readers
- WorldRemit — International money transfer on your smartphone
- Cardlytics — Analytics of card spending
- Kreditech — Digital credit scoring and lending
- Taulia — Supply chain finance
- PolicyBazaar — Indian insurance marketplace
- Collective Health — Tools for employers to manage company health insurance
- Atom — Digital-only challenger bank
- OakNorth — Digital challenger bank pitched at entrepreneurs
- N26 — App-only bank that is hugely popular across Europe
- Betterment — Online investment advisor
- Wealthfront — Online investment manager targeting millennials
- Nutmeg — Online investment managet
SME Lending Activity: China Spikes, US Banks Reboot (PYMNTS.com), Rated: AAA
Small business lending activity across the globe is in flux. China saw a whopping 17 percent increase in small business lending in Q1, while U.S. banks are rebooting their efforts to capture SMEs from their alternative rivals. The U.K. and Canada, meanwhile, see their small businesses struggling to find financing.
$3.2 trillion worth of outstanding SME loans in China means lending activity to small businesses in the community has inched up in Q1 2017. New data from the People’s Bank of China released the statistic, which signals a 17 percent increase from a year ago, reports said.
Three out of five London SMEs have been turned away from lenders, according to data released by SME finance LDF. Its research revealed that more than half of London’s SMEs say the jargon associated with financing has turned them off from accessing a loan, and 57.6 percent said they have been turned down from a loan outright.
Fewer than 15 percent of Canada’s small businesses are run by entrepreneurs aged 25 to 39, said CIBC Capital Markets in a new report.
Three minutes could be all it takes for a small business to get financed from NatWest. The bank said last week that it has rolled out a new platform for its SME customers that have been pre-assessed for financing.
A dip of 1.1 in the PayNet Small Business Lending Index may appear to be bad news — signaling a slight decline in Canadian small business lending in February compared to January. But according to PayNet data, medium-sized business lending increased nearly two points in the index, marking the highest level since January 2016 and reflecting separate data from CIBC Capital Markets that signals strong growth among Canada’s SME community.
The fake offset accounts that could make your savings vanish (The Sydney Morning Herald), Rated: A
You recently answered a question regarding the safety of a home loan with an online lender (the debt would be on-sold to another provider and the loan would continue). My question relates to the security of money in an associated offset account. How secure would the money in the offset account be? If the lender goes bust would they be able to take all of our savings in the offset account and then on-sell the full value of the loan?
There was a time when a compelling reason not to go with a cheaper online lender was that, not being authorised deposit-taking institutions, they could not offer offset accounts. Some have since begun splitting out certain repayments in a quasi offset – on occasion, simply like a displayed redraw facility.
But there is a downside: offset accounts set up in this way are not subject to the Financial Claims Scheme or the scheme protecting deposits of up to $250,000 in the event the provider goes bust … only truly separate deposit accounts of locally incorporated authorised deposit-taking institutions (ADIs) are, whether they are offset or not.
Note APRA regulates ADIs (mainly banks, building societies and credit unions); online and other non-bank lenders are subject to the Consumer Credit Code and can be ruled on by the Credit and Investments Ombudsman.
Gerard Brody, chief executive of Consumer Action, says: “Non-bank lenders that offer these products should be warning customers clearly that if they go under, the money in the account won’t be protected by the government guarantee.”
WeiyangX Fintech Review (Crowdfund Insider), Rated: A
On April 11, Xiaomi Corp., China’s leading mobile phone maker, launched the mobile application Xiaomi Lending in Android market, signaling a strong ambition to expand in the country’s booming Internet Finance sector.
On March 20, Dianrong.com announced to enter into a strategic partnership with Quark Finance, with an aim to launch a new online microcredit platform.
On April 12, Chinese online peer-to-peer lending service Renrendai.com announced that its P2P business would be operated as an independent platform.
National Internet Finance Association of China has announced the first major report to its members regarding the legal and regulatory status of consumer finance. The document, which is echoing to the P2P Finance Association established by the organization in March, is the first to officially classify consumer finance in the eyes of the Chinese government.
On April 8, the first Committee of Internet Finance Law was established in Beijing. The committee held symposiums about the technology innovation and legal protection in Fintech industry, which attracted several representatives of governmental organizations and university professors.
P2P lending can play a pivotal role in financial inclusion (India Times), Rated: AAA
However, what is noteworthy is that P2P as a product does have the ability to make a real difference in the financial inclusion space.
According to “Accenture’s Digital Disruption: The Growth Multiplier” report, digital tech could power $2 trillion of global economic output by 2020. The survey states that the US is leading the race with digital revenue making up a third (33%) of output. In terms of industry sector, Financial Services is the largest contributor in terms of their digital contribution to national and global GDP. In fact the same is true for every country across the world.
P2P lending and borrowing ticks all the boxes in terms of being simple, rates that appeal to both borrowers and lenders and is available to individuals often neglected by banks. As a result, it is finding traction regardless of social strata, age or education.
Our lenders are young with 51% belonging to the age bracket of 30-39 years. About 36 % of the lenders are over 40 and 13 % are below the age of 30.
It is well known in India that it is very difficult to get a loan from a bank if you are an SME. When we talk of financial inclusion, it should not be merely limited to an individual, but also ensuring access to finance for companies of all sizes. P2P has done a great job in lending to SMEs and this is largely possible because of wide range of data sets used to arrive at a lending decision.
Financial institutions feeling fintech heat, says PwC study (India Times), Rated: AAA
Financial institutions are increasingly at risk of losing business to fintech innovators, with 67 per cent already feeling the heat, says a PwC study.
According to PwC’s Global FinTech Report, 67 per cent believe their business is at risk from financial technology (fintech) firms and as many as 95 per cent of incumbents seek to explore fintech partnerships to boost innovations.
In India, 67 per cent financial institutions acknowledge that non-traditional fintech poses a threat to their businesses, lower than the global average of 80 per cent, indicating that the market in India is not yet as matured as it is globally.
Can e-KYC Service Providers Like Finahub Ride The Aadhaar Wave? (Bloomberg Quint), Rated: A
Finahub Technology Solutions, a Kerala-based software technology solutions company, is riding a building wave in financial services–the increasing use of Aadhaar-enabled e-KYC (know your customer) by banks and non-banking financial services (NBFC).
The bank or the financial institution is a KYC User Agency, and must first register with the UIDAI. The intermediary, called a KYC Service Agency, transfers the confidential Aadhaar information in an encoded form from the user to the UIDAI, and then back to the bank’s server.
The software solutions provider, in this case Finahub, provides software that connects all the points in the chain.
The software solutions provider, in this case Finahub, provides software that connects all the points in the chain.
The company also offers an Aadhaar e-sign facility as an add-on service. If this option is chosen, once the e-KYC process is complete, the bank’s representative asks the customer to scan his fingerprint a second time.
Understanding Indonesia’s Burgeoning Fintech Landscape (Global Indonesian Voices), Rated: A
From 2008 until 2013, the investment value in fintech had increased threefold.
As reported by Tech In Asia, in Indonesia fintech is the business sector with the second largest investment in 2016, after e-commerce. According to Bank Indonesia, there are around 142 local fintech companies in Indonesia. They are categorized into four types: Market Provisioning, which includes CekAja and Cermati; Deposit, Lending, and Capital Raising, which includes UangTeman and Investree; Investment and Risk Management, which includes Bareksa and Stockbit; and Payment, Clearing, and Settlement, which includes Midtrans and Doku. This last category is the one with the most players, comprising around 80 companies.
There are at least 11 fintech startups that received funding from investors during 2016.
ASIC signs fintech agreement with Indonesia (InvestorDaily), Rated: A
The agreement, signed on Friday, provides a framework for the two regulators to share information on market trends and regulatory issues that develop from innovation within their respective markets.
The regulator said increased co-operation between the two regulators will support them to promote innovative practice, and described the agreement as “positive confirmation” of the relationship between ASIC and the OJK.
How Africa’s FinTech Industry Is Impacting Its Growth And Development (The Marketing Mogul), Rated: AAA
The emergence of Africa’s FinTech industry, through its software and platforms, has made financial products and services more accessible to consumers in developing countries with low standards of living. It has also made these products and services more affordable by reducing the cost of doing business for financial institutions and other intermediaries.
Africa’s largest economy, Nigeria has experienced 27% growth in mobile money usage between the years of 2011 and 2016. The country’s FinTech industry currently comprises of over 50 companies with investments exceeding $200m in the last two years. Nigeria, according to Irrational Innovations, has developed effective payment and lending platforms, with 37% of FinTech start-ups focused on offering payment and remittances services (such as Paga and Remitta) while 32% offer lending and financing services (like Renmoney and Onefi). The remaining 31% are divided amongst insurance, banking, trading, data, bitcoin and business solutions.
Kenya has also exhibited very promising potential and growth in the mobile money lending operations. In March 2015, financial times reported that $150m worth of loans had been issued to borrowers, following the collaboration between Kenya Commercial Bank and M-Pesa (a mobile money platform). The vast majority of these borrowers are low income earners previously regarded as un-bankable due to their lack of credit history and access to financial services (financial exclusion).
Ghana has also been on the rise in regards to Africa’s FinTech space. As of 2009, about 70% of Ghana’s population were un-banked, and the country had a GDP growth rate of 4%. But between 2011 and 2015, largely due to the utilisation of mobile money, the country recorded a 41% increase in the population’s access to formal financial services, as well as a compounded GDP growth rate of 7.7% between the same periods.
The use of mobile money in Sub-Saharan Africa has increased over the years, with approximately 70% of adults in Kenya, for example, utilising mobile phones for money transactions. African small- to medium-sized businesses (SMEs) account for over 45% and 33% of the continent’s employment and GDP rates respectively.