Monday September 18 2017, Daily News Digest

United States

Independent Community Bankers of America Letter (ICBA), Rated: AAA

As you may be aware, ICBA recently filed a comment letter with the FDIC objecting to the deposit insurance application of SoFi Bank, an industrial loan corporation to be chartered by the state of Utah. In our letter, we urged FDIC, for safety and soundness reasons and to maintain the separation of banking and commerce, to not only deny SoFi Bank’s application but also impose a moratorium on ILC deposit insurance applications. Furthermore, we said that Congress should close the ILC loophole because it not only threatens the financial system but creates an uneven playing field for community banks.

The news that Square also intends to apply to the FDIC for deposit insurance as an industrial loan corporation has significantly increased our concerns and made it even more urgent that the FDIC immediately impose a moratorium on approving deposit insurance applications for ILCs. As we noted in our SoFi Bank letter, the ILC charter is nothing more than a loophole in the law to circumvent the legal prohibitions and restrictions under the Bank Holding Company Act.

SoFi Bank and Square are applying as ILCs and not as commercial banks because their parent companies and their affiliates do not want to be subject to the legal restrictions and supervision attendant to the BHCA. Square, for instance, already owns a point-of-sale hardware appliance business and a food delivery service and therefore could not own a commercial bank without divesting its commercial activities. For safety and soundness 2 reasons and to maintain the separation of banking and commerce, the FDIC should deny SoFi Bank’s application and impose a moratorium for at least two years on future ILC deposit insurance applications, including any application by Square. 

Read the entire letter here.

Did Lending Just Change for Good? (Crowdfund Insider), Rated: AAA

Bank lending regulations have rarely been thought of as dynamic or exciting but last night’s ruling by the Consumer Financial Protection Bureau (CFPB) to allow a lender to begin using alternative data in their underwriting could herald the beginning of a new era in lending and how banks work.

Why is this significant?

US banks have traditionally been guided by three key pieces of legislation, the Truth in Lending Act of 1968, the Equal Credit Opportunity Act of 1974 and the Community Reinvestment Act of 1977.  These three acts were created before the era of personal computers yet still guide bank lending today.  Since the rise of marketplace lending, which began in 2006, where borrowers go through a platform and investors fund those loans, it is becoming increasingly apparent that many of these regulations are in need of updating.

In an overly simplistic interpretation (and I am not an attorney), the regulator is giving an online consumer lender the right to underwrite loans using ‘alternative data’ which before was not in line with how the Equal Opportunity Act is interpreted by lenders.  It is not clear what data will be allowed but in a CNBC interview, Upstart co-founder Paul Gu suggested that SAT scores, college grades and even college majors are data points which are helpful in predicting loan defaults. 

So assuming the change stands, what is next?

As alternative lenders have more scope to use alternative data, machine learning complex data analysis is opening up an entirely new space for investors.  Gone are the days where banks only competed against each other with marketplace lenders now allowing investors to allocate capital in a similar way to banks, choosing loans to fund based on their own ideas and risk profile.   For now, this is mostly impacting consumer credit, but in the years to come, look for marketplace lending to impact all areas of lending as investors get more comfortable investing in this space regulations start to adapt.

Scandal costs Sofi chance to become a bank, says ex-SEC head (Financial Times), Rated: AAA

SoFi’s application to become a bank has almost no chance of approval in the wake of a sex scandal that forced out its chief executive, says a close adviser and former chairman of the Securities and Exchange Commission.

But last week’s departure of Mike Cagney, the co-founder, chairman and chief executive, has effectively killed the application, said Arthur Levitt, a former chairman of the SEC, who began advising the company two years ago.

“This departure of Mike makes that a very questionable attainment,” Mr Levitt said, referring to the charter.

He noted that the FDIC had turned down this type of application “many times” before.

Equity podcast: SoFi loses its CEO, big rounds for unicorns, and will this VC buy the iPhone X? (TechCrunch), Rated: A

We turned first to SoFi, a consumer-finance unicorn that has raised more than a billion in equity, and over $2 billion in total. The company is now down a CEO after allegations of misconduct brought censure upon its CEO, Michael Cagney, and the company’s culture.

Listen to the podcast here.

Fat cat frat boys ape the worst of banking and tech (Financial Times), Rated: A

The article also described employee concerns about lending practices and alleged that investors had been misled over a 2012 financing.

SoFi complained in a public blog about “inaccuracies” in the Times report, but focused on defending its lending practices.

If the allegations are true, SoFi and LendingClub have many of banking’s worst attributes with Silicon Valley’s warts layered on top.

Meanwhile, the allegations of doctored loans and conflicts of interest at LendingClub were reminiscent of some of the excesses of the bankers who fed the subprime mortgage market.

Goldman Sachs thinks fintech has as much potential as trading (Quartz), Rated: AAA

Goldman Sachs has been pilloried for lackluster results from its trading division (paywall), so this week the bank gave investors a peek into its plans (pdf) for making more money. Surprisingly, the Wall Street powerhouse thinks it can generate as much revenue from online consumer loans—a market targeted by many fintech startups—as from buying and selling securities.

Specifically, Goldman thinks it can make $1 billion in extra revenue from its consumer lending business over the next three years, as much as it expects for its trading operations. Combined with new lending for the wealthy and companies, the bank expects to bring in $2 billion in additional sales from loans. Goldman co-chief operating officer Harvey Schwartz said it’s one of the fastest-growing lending platforms ever launched, even though he says the bank is taking its time with the nascent business. The bank’s digital consumer-lending arm called Marcus is expected to have lent out $2 billion by the end of the year.

Meanwhile, big banks have access to cheaper funds than peer-to-peer lenders like Lending Club or Zopa. With consumer deposits and the billions of dollars they routinely borrow in credit markets, banks can undercut the loan rates offered by smaller companies.

That said, Schwartz acknowledged that consumer lending isn’t immune to economic downturns, and analysts cited by Bloomberg were skeptical about Goldman jumping into a market outside its core expertise.

The Bank of Google or Amazon? Don’t count on it (American Banker), Rated: AAA

It might seem like it is only a matter of time before the tech giants knock on banking’s door. In fact, a recent World Economic Forum report posited that big tech companies present a greater challenge to banks than fintech startups. The report notes that regulators will accept a more “oligopolistic distribution of financial services products by tech firms.” Already, the fintech providers Social Finance and Square have applied for FDIC-insured banking charters, just as the Office of the Comptroller of the Currency continues work to develop its limited-purpose fintech charter. Are the largest tech firms next in line?

Incumbents still hold the upper hand. The risk of an Amazon or Google or Apple dominating the traditional banking sector is nowhere near a slam dunk.

In every scenario, the tech giants would need to persuade regulators to grant them some kind of charter access in order to effectively compete and level the playing field on funding costs. This would involve easing traditional limits on commercial firms owning banks, and potentially navigating opposition from members of Congress.

But more fundamentally, tech giants have had mixed experiences in rolling out financial services such as Google Wallet and Apple Pay. And despite the reported consumer skepticism of legacy institutions, banks still continue to maintain a high volume of customer relationships.

SoFi CEO Resigns; Goldman & Mosaic Ink Deal; SoFi & Lending Club Deal Analysis (PeerIQ), Rated: AAA

In the fallout of the Equifax breach, the leading credit bureaus are dealing with an overwhelming volume of credit freeze requests from consumers. While it is still too early to tell, it seems that the genie is out of the bottle. The breach is sparking additional focus on FinTech innovation to protect consumers (e.g., digital identity verification, disposable card numbers, etc.).

Beyond the headlines, SoFi’s growth engine continues. In Q2 2017 alone, SoFi funded $3.1 Bn in loans with $134 Mn in revenue and $61.6 Mn in adjusted EBITDA. Revenue and adjusted EBITDA were up 67% and 60% year over year respectively.  The news of Cagney’s resignation coincided with SoFi marketing its latest personal loan deal which priced this Friday. Interest in SCLP 2017-5 was initially strong, however the bond priced somewhat wider than guidance.

SoFi’s Latest Consumer Lending Deal: SCLP 2017-5

After Mike Cagney’s resignation on Friday, the lead underwriter re-launched SCLP 2017-5. Since guidance was released before the critical NY Times article on Tuesday, we have a close (but imperfect) control to study the consequences of management upheaval on deal execution.

ABS investors reacted negatively to the news; the bonds priced 10 to 15 bps wider than guidance on Monday.

LendingClub’s Self-Sponsored Prime Consumer Deal: CLUB 2017-P1

This is the second self-sponsored deal from LendingClub, and it follows the success of CLUB 2017-NP1. LendingClub expects to alternate between prime and near-prime securitizations at least once a year going forward. Of the $363 Mn outstanding, approximately $100 Mn came from LendingClub’s balance sheet (a shift from prior management’s business practice); the remaining loans were contributed from investors.

The CLUB 2017-NP1 and CLUB 2017-P1 deals total to approximately $628 Mn in loans, yet LendingClub has facilitated almost $29 Bn in loans on its platform as of Q2 2017 making it a small part of LendingClub by dollars loaned but a meaningful portion of EBITDA.

The FinTech Investor Podcast Series: Interview With Ron Suber (SoundCloud), Rated: A

DiversyFund Sells Pre-IPO Shares in Accredited Offer (Crowdfund Insider), Rated: A

DiversyFund, a real estate crowdfunding marketplace, is selling pre-IPO shares in a Series A crowdfunding round through a Reg D 506(c) offering.

The Form D filed with the Securities and Exchange Commission (SEC) indicated that Diversyfund had sold $200,000 of a $6 million funding round as of August 31st. Minimum investments of $100,000 are being accepted from accredited investors only.

Misha Esipov of Nova Credit (Lend Academy), Rated: A

In this podcast you will learn:

• How talking with international students at Stanford led to the idea for Nova Credit.
• The big problem that Nova Credit is trying to solve.
• How they began their journey in trying to solve this problem.
• Details of their Credit Passport product, the international credit report.
• How they were able to convince international credit bureaus to share their data.
• Why the big three U.S. credit bureaus have not developed an international credit report.
• How Nova Credit is able to standardize data from very different countries.
• Nova Credit’s business model and their similarity to a traditional credit bureau.
• How they can report back credit data to international bureaus.
• The other vertical they focus on beyond lending.
• The kinds of lending platforms they are working with today.
• The progress they have made since LendIt USA 2017.
• When they first started making revenue.
• Who has been backing Nova Credit.
• What is on their road map for the next 6-12 months.
• How they view expanding into new markets to help immigrants other countries.

The SoFi Sex Scandal Highlights How Hard It Is For Women In Fintech (Fast Company), Rated: A

Fintech has become a major force over the decade since the financial crisis, with $12.8 billion in venture capital flowing into the sector in 2016 alone. But of the nearly 500 deals that took place in the U.S. last year, less than a dozen went to companies founded by women.

“It’s lonely to be a woman in fintech, especially as a CEO,” says Rachel Mayer, cofounder and CEO of Trigger, an automated tool for investing alerts.

At Anthemis, based in London, 56% of employees are women, a remarkably equitable gender breakdown that is consistent at every level.

Former banking executive Sallie Krawcheck is following a similar playbook with her female-focused investing service, Ellevest. Since founding the company three years ago she has raised over $50 million in venture funding.

A survey of U.K.-based fintech firms published last week revealed that women represented just 3 in 10 employees. Of fintech board directors globally, just 8% are women.

Good news for fintech seen in CFPB’s ‘no-action’ move (American Banker), Rated: A

In an interview Friday, Upstart co-founder and CEO Dave Girouard explained why the fintech applied for the letter and how it works.

Is it fair to think of a no-action letter as a stay-out-of-jail-free card?

DAVE GIROUARD: We’re careful about not trying to interpret it in any way that is different than what the CFPB says it is. The letter makes it clear that they have reviewed what we do and how we do what we do and that they don’t find issue with it.

How do you feel about the agreement?

We’re pleased that the CFPB recognized the consumer advantage of alternative data and machine learning, the fact that it could make affordable credit more broadly available to more people.

So it’s not just about Upstart for sure — it’s the acceptance of these more modern techniques because they can and will benefit consumers broadly over time.

Sharestates Appoints New Chief Operating Officer, Adds SOC 2 Type 2 Certification (Crowdfund Insider), Rated: A

Sharestates, an online real estate crowdfunding marketplace, has announced that Nicole Joseph has joined the executive team as the new Chief Operating Officer.

The new hire is accompanied by the completion of the company’s SOC 2 Type 2 Certification, which affirms that Sharestates now meets the security requirements and parameters for storing information on the cloud as laid out by The American Institute of CPAs (AICPA).

ReliaMax Announces New Whole Loan Portfolio Placement Service (BusinessWire), Rated: A

ReliaMax®, the complete private student lending solutions provider for banks, credit unions and alternative lenders, today announced at the 23^rd Annual ABS East 2017 Conference a new whole loan trading service, ReliaMax Portfolio Placement, as an extension of its existing capital markets and liquidity programs. The ReliaMax Portfolio Placement service will facilitate qualified existing private student whole loan portfolios for sellers and buyers.

The ReliaMax Portfolio Placement service provides unique value to the private student lending marketplace in multiple ways including insurance, default prevention, credit analysis, and servicing. Some benefits include:

• State-of-the-art servicing through ReliaMax helps buyers maximize the value of their portfolio, providing compliance and regulatory support and staffing to manage student loan-specific servicing requirements.
• Loan insurance through ReliaMax Surety Company covers 100% principal and interest and mitigates risks, reduces defaults, and provides better cash flow.
• Portfolio review and credit analysis provides guidance around the price at which the portfolio might transact.

ReliaMax has been involved in many third-party portfolio transactions. For example, in December 2106, MetaBank acquired a $151 million student loan portfolio which ReliaMax Surety Company now insures. The transaction also included the conversion of the portfolio servicing onto the ReliaMax Platform. Over the last three years, ReliaMax has provided insurance and/or servicing on 12 portfolio placement transactions.

The Top Small Business Funders By Revenue (deBanked), Rated: A

AON: ALTERNATIVE RISK PREMIA VIABLE FOR MANY (AllAboutAlpha), Rated: A

A new report from Aon discusses the contemporary market for alternative risk premia: where it is, how it got here; where it may be headed.

The authors, Matthew Towsey and Chris Walvoord, begin with some very basic considerations of what ‘risk premia’ are. They are, on the one hand, the payments one receives for taking on a risk that others do not wish to hold (providing insurance), or they are on the other the winnings one pockets on strategies that take advantage of market anomalies.

A Q&A With NerdWallet CEO Tim Chen: ‘We’re Making An Impact’ (Benzinga), Rated: B

How does NerdWallet create its content and recommendations? Do data and algorithms play a role in your platform? I’m curious about the company from a fintech perspective.

It’s actually a mixture of both — algorithms and incredibly smart, financially savvy humans power our recommendations, reviews and expert advice.

The company seems to simplify financial information for everyday consumers. Do you think NerdWallet has helped to democratize the space?

That’s the goal! I truly believe that a person that has spent no time at all thinking about personal finance and can’t afford a financial advisor, should be able to make the same quality of choice as the most financially savvy person in the country

SDIRA TV Offers New Strategies Amidst Massive Equifax Hack (PR Web), Rated: A

Experts deliver new alternative investment advice and resources for individuals being impacted by the giant 2017 Equifax data breach. This includes all new episodes of SDIRA TV with national finance experts and investment advisors, as well as a side by side comparison white paper on retirement investing options.

Deeper concerns have surfaced as it was discovered three Equifax executives sold off substantial amounts of personally held stock before making the breach known.

20 Places You Can Raise Funding for Your Business (TechBullion), Rated: B

14. Crowdfunding

There are several platforms where you can create your crowdfunding campaign. Examples include Kickstarter, Indiegogoand Go Get Funding.

15. Peer-to-Peer Lending

Peer-to-peer lending involves a group of people coming together to lend money to each other. You can look for an entrepreneur peer who is willing to fund ideas similar to yours.

18. Online Lending

There are several online lending service providers. Good examples are Kabbageand OnDeck.These online lenders will process your application within hours as opposed to traditional lenders.

My Take On Real Estate Crowdfunding (ValueWalk), Rated: B

Many of these platforms seem to market to investors, showcasing high dividend yields in the 8% – 10%/year range.

I read the following two articles in my research:

• Investing with RealtyShares – see how I’m doing with real estate crowdfunding by Joe Udo
• How To Invest In Real Estate Without Owning Real Estate by Mr 1500 Days.

In general, those are new untested platforms, which may or may not do well for you over time. These investments have not been time tested during a recession. In addition, I do not understand very well how investment assets are segregated in those platforms, and how things would work out if a project you invested in fails miserably.

As Financial Processes Go Digital, Detroit Looks To Siphon Talent From New York, Chicago (Benzinga), Rated: B

He’s talking about fintech, which has leveled the playing field for non-New Yorks to flourish in financial services. Inspired by emerging tech trends, Raznick and Benzinga are taking stakes in Michigan’s future by spearheading the new Detroit Fintech Association.

The nonprofit trade organization will enhance the community’s exposure, connect startups with national leaders and mentors, support talent recruitment and magnify the Detroit voice in U.S. regulatory discussions. The DFA also aims to improve financial literacy in the city through work with Detroit high schools and higher education institutions.

FHA Loan Originations Expected to Generate Servicing Portfolio Growth Leading to Servicers Taking on Greater Non-Performing Loans and REO (Marketwired), Rated: A

Altisource Portfolio Solutions S.A. (“Altisource”) (NASDAQ: ASPS), a provider of real estate, mortgage and technology services, today issued the results of its inaugural Default Servicing Survey, a survey of over 200 mortgage default servicing professionals. According to the study, nearly three-quarters (71 percent) of servicing professionals surveyed predicted FHA/VA loan volumes would increase within their organizations in the next 12 to 24 months; 41 percent believed FHA loans will offer their organizations the most portfolio growth over the same time period.

According to the U.S. Department for Housing and Urban Development, FHA loans accounted for over 17 percent of newly originated mortgages in 2016¹ and currently constitute 35 percent of all loans delinquent for 30 or more days². As the issuance of FHA loans grows, so does the potential increase in volume of default assets. Thus, it is not surprising that 93 percent of servicing professionals surveyed stated that foreclosure/trustee and Claims Without Conveyance of Title (CWCOT) capabilities are important factors to consider when evaluating a vendor to manage growing default portfolios.

Servicing Professionals Cite Challenges Stemming from Costs of FHA Conveyance and Managing CWCOT Programs

Servicing professionals (29 percent) cited remitting fees, costs and financial obligations associated with FHA conveyance as the greatest challenge for effective CWCOT programs. For servicing professionals working with third-party vendors to manage CWCOT portfolios, 15 percent said overall vendor management is a challenge associated with managing CWCOT programs while another 15 percent pointed to timeline delays and increased costs due to attorney oversight; 11 percent cited not having enough in-house personnel on staff to effectively manage the program.

Third-Party Expertise and Central Coordination are Critical to Successful CWCOT Program Administration

In order to overcome the financial, regulatory and oversight challenges associated with their vendors’ CWCOT programs, servicers must carefully evaluate their third-party vendor strategy to ensure vendors possess the right expertise and resources to execute the program. Most servicing professionals surveyed (97 percent) said they are exploring options including a single-vendor approach to help achieve their objectives; 91 percent identified FHA asset management experience as an important criterion for vendors. When specifically evaluating single vendors, 72 percent of servicing professionals surveyed said consistency and efficiency in managing REO properties is a very important consideration; 69 percent also pointed to compliance management.

United Kingdom

Equifax says as many as 400,000 UK consumers may be affected by data breach (Financial Times), Rated: AAA

Equifax, the US credit-reporting company at the heart of a cyber-security scandal, has admitted that as many as 400,000 UK consumers may have had their personal information stolen.

The company said that while its UK systems were not affected by the massive cyber raid that targeted information for as many as 143m Americans, UK customer data “may potentially have been accessed”, because it was stored on US systems between 2011 and 2016.

If Equifax’s forecast is borne out, the data breach will be the biggest in UK cyber history, bypassing that of payday lender Wonga, which affected more than 250,000 customers.

RateSetter launches consumer hire-purchase product (P2P Finance News), Rated: AAA

RATESETTER has launched a hire-purchase (HP) product for individuals looking to buy vehicles.

Consumers will be able to borrow up to £25,000, but the peer-to-peer lender expects the agreements typically to be around £6,000. The terms range between 12 and 60 months, with APRs going from 19.9 per cent to 49.9 per cent depending on the customer’s creditworthiness.

Assetz Capital Reports “Development Funding Boom” with 175% Increase (Crowdfund Insider), Rated: A

Peer to peer lender Assetz Capital is reporting it has seen a year-on-year increase of 175% in the number of property development projects funded around the UK. The online lender says this rise comes following sustained growth in the funding pool for property developments, as investors hunt for a piece of the development market.

There are two new types of Isa – should you switch to them? (The Telegraph), Rated: A

But as new types of Isa have emerged and new rules have been introduced, the situation has become more complicated.

And some Isa features – notably “flexibility”, which allows account holders to make withdrawals and then pay the money back in during the same tax year while keeping the tax benefits – have not been introduced by all providers, which has further muddied the waters.

A Help to Buy Isa, a type of cash Isa, is also an option. First-time buyers can deposit £1,200 in the first month and £200 a month thereafter to put towards a home purchase. The Government then tops up savers’ money by 25pc.

However, you can’t pay into a normal cash Isa and Help to Buy Isa in the same year, unless you choose a provider that allows you to split the cash. Nationwide and Aldermore both offer this option; they pay 2pc and 1.75pc respectively.

Lifetime Isas 

The Lifetime Isa is the newest addition to the Isa family.

Consumers between the ages of 18 and 40 can use the accounts to save towards their first home or retirement. Up to £4,000 can be put away each year into either a cash Lisa or a stocks and shares version. Eligible savers can continue to contribute until the age of 50.

Hargreaves Lansdown, Britain’s biggest fund shop, and rivals including AJ Bell, The Share Centre and Nutmeg, an online wealth manager, offer investment Lisas.

Innovative Finance Isas 

These Isas shield peer-to-peer investments, which allow consumers to offer unsecured loans to individuals and businesses through online platforms such as Zopa and Ratesetter, and certain “crowdfunding” investments, from tax.

Lending Works was the first to offer the new Isa, paying the same return as the firm’s existing accounts.

Zopa allows existing customers to sell their loans and buy them back within the Isa. They can also transfer their Isas with other providers to Zopa.

Networks are the new corporations (Inside Bitcoins), Rated: A

There are a lot more people in the world that can collectively lend micro loans on a regular basis than there are corporations that can regularly distribute loans above the value of a thousand dollars.

“A network of independent lenders committed to distributing micro loans could potentially rival long established financial organisations in terms of the combined value of peer to peer loans serviced to borrowers on a world wide scale” says Richard Ochieze, Managing Director at Ledgermark, LTD.

The case for Digital Collateral

The internet makes non repayment of loans a marvellously simple task for borrowers and as such; organisations like the Funding Circle, a peer to peer lending firm, are left wide open to have the profits of their retail investors depleted due to this lingering risk.

Traditional financial institutions have been able to maintain a fortress of checks and balances such as strict collateral requirements for both business and personal loans in order to provide themselves with a means of recourse should a borrower fail to repay his debt.

In this digital age in which peer to peer transactions are becoming the norm, this same form of protection must be made available to the average individual who wishes to loan his money out to borrowers in return for profit.

However, the question must be asked: how can a borrower pledge his house or farm as collateral via an online loans application?

Prior to the invention of the Blockchain such an asset did not exist and now that it does, the door has been opened to allow individuals based anywhere in the world to distribute and/or become the recipient of a secured micro-loan.

Can a robot help you invest for retirement? (AOL), Rated: A

Robo-adviser Wealth Wizards, for example, typically charges £65 for advice on investments of up to £30,000, and 0.30%, or £300, for guidance on what to do with a £100,000 retirement savings pot.

A typical financial adviser, meanwhile, charges about £580 for telling you how to invest a £200-a-month pension contribution, or between £1,000 and £2,000 for at-retirement advice on your £100,000 pot, according to figures from UK adviser network Unbiased.

JustGiving targeted by criminals for money laundering (BBC), Rated: B

Fundraising website JustGiving has said criminals are attempting to use its site to launder money.

The website told the BBC it had shut down nearly 100 of its appeal pages in the past 18 months because it believed they were fraudulent.

When discovered, no payments were processed, he said.

China

European Union

Order not going to “Pending” with Klarna (Drupal), Rated: A

International

Klarna partners with global technology company Wacom (Klarna), Rated: AAA

Today we are proud to announce a new partnership with global technology company Wacom® that further accelerates Klarna’s expansion in the U.S. Wacom is now bringing our simple retail financing solution to the world of creative interface technology and software.

Financing a purchase over time has historically been optimized for brick and mortar stores. But the online equivalent can often be an ordeal, with redirects, lengthy forms and unclear information. Our process only requires a few fields of information, and lets consumers know instantly if they qualify for the financing solution.

How Incumbents Can Take on FinTech Challengers (LendIt), Rated: A

Digital technology has changed financial services. It has facilitated innovation, increased competition and made the mobile customer experience the key differentiator.

This embodies a strategic threat with McKinsey estimating that legacy financial institutions will see profits decline by up to 60% by 2025 if they fail to evolve, a figure which should be motivating incumbents to look outside of traditional practices for growth and sustainability.

Millennials and digital natives have turned away from traditional banks in search of mobile alternatives. They are drawn to the best products and experience, and banks with the right level of service can win over this large market. Mobile-only banks like N26 are leading the way.

SME lending also offers a significant opportunity for growth. The European Commission’s SME Performance Review estimated just under 23 million small and medium enterprises generated €3.9 trillion in value add and employed 90 million people in 2016-2016, and McKinsey has identified a $350 billion untapped lending opportunity within this sector.

One path is acquisition, which banks like BBVA have followed by acquiring companies like Finland’s Holvi and neobank Simple. This is an expensive option complicated by having to find a company with the right fit for the business.

Given the technology available, a cleaner option would be to build a digital banking spinoff which can operate like a FinTech.

Meridian Proposes to Bring Peer to Peer Lending into the Age of the Blockchain (Crypto Insider), Rated: A

The far reaching nature of the internet has allowed the myriad of local economies that exist in the world to become merged into one, global, interwoven marketplace.

Despite this, it is still incredibly difficult for people to get a loan from an international organisation – without offering some form of collateral and/or proving credit worthiness.

The average size of deposit needed to get a mortgage is 62% of annual income, and in London, it’s 131%.

As a result, only 20% of 25-year-olds own their home today compared with 46% 20 years ago – less than half.

If you have a bad (or no) credit history, it is virtually impossible to borrow from a mainstream lender.

Banks and building societies advertise temptingly low rates, but they only need to apply to 51% of successful applicants, so almost half of all borrowers pay a different rate – probably higher.

Director of Ledgermark LTD, Richard Ochieze, explains:

An alternative should be offered to people who are being let down by the traditional banking system. We believe that the Meridian system can do a lot to alleviate some of the problems that exist in today’s online lending market.

The Meridian service offers users the opportunity to procure a loan of up to one Bitcoin at a time.

To qualify for a loan users must pledge a certain amount of Meridian tokens as collateral.

Meridian tokens can be purchased during the ICO on 12 October 2017 and will then become tradable on all alternative currency exchanges.

India

Google gets into digital payments fray in India (Banking Technology), Rated: AAA

Google is expected to launch a mobile payments app in India next week, according to several news reports. Google Tez, which means “fast” in Hindi is the anticipated name of the payments service, which Indian news outlet The Ken says is “largely fashioned on the company’s global product – Android Pay“.

As TechCrunch notes, “this is a big deal because Google hasn’t made a big push into payments outside of the US.”

ICICI plans payday-type loans in pact with e-tailers (India Times), Rated: AAA

In a first of its kind for India, ICICI Bank will partner with e-commercefirms to provide automated payday loan-type credit to customers at the bottom of the digital pyramid. Unlike other software-based loans, the digital credit planned by the bank will be available to non-customers and new-to-credit borrowers.

Speaking to TOI, Anup Bagchi, executive director, ICICI Bank, said that the bank would price these loans similar to credit card advances. In the West, payday loans are advances that fund the low-income individuals to make up for cash shortfalls until their salary. The difference in the ICICI Bank loan is that for the first month, the buyer will get free credit for up to 45 days. It is only if they do not pay on the due date that borrowers will be charged interest at close to credit card rates.

The bank will lend to new-to-credit customers based on their track record with the e-commerce provider.

Here’s why RBI wants to regulate online P2P lending (VC Circle), Rated: A

“The RBI is concerned that this can go big and get out of control,” says Harish.

Faircent—which is backed by financial institutions like JM Financial, venture fund Aarin Capital and Mohandas Pai-promoted 3one4 Capital—is seen as the largest online P2P lender in India. Other names include Lendbox, Rupaiya Exchange and LenDen Club.

There are typically three models through which such lenders operate, says Aditya Kumar, founder and chief executive officer at Qbera.com, an online lender that began operations in February this year and claims to have a Rs 10 crore loan book. “While there are at least 30-40 P2P players, who connect lenders to borrowers, 15-20 do marketplace lending (where money is raised from banks and other financial institutions) and then there are loan aggregators who have been around for longer,” says Kumar.

While Kumar says the total P2P lending market size would be around Rs 25 crore, Rajat Gandhi, founder and CEO at Faircent, puts the figure at Rs 50-70 crore on an annualised basis.

Figures available with Peer2Peer Finance Association (P2PFA) suggest that the global P2P lending market saw cumulative lending of £8.5 billion during the first quarter of 2017, against £5.8 billion three quarters before. In the same period, the number of lenders grew by a fifth from 1.5 lakh to just over 1.8 lakh.

How to boost your retirement income with P2P Lending (India Times), Rated: A

The discourse around P2P lending has always been centered around what it means for borrowers and the advantages they can derive. However, what gets missed is that P2P lending has the potential to be a great source of investment for the lenders contributing to their retirement fund.

P2P lending is an investment delivering multiple benefits when building a retirement plan:

1. Add Lending to your Portfolio Mix: The adage that talks of not putting all your eggs in one basket still holds true. An investor should not limit his portfolio to only a few asset class, but focus on investing across investment opportunities so that market fluctuations do not have a huge negative impact on their retirement funds.

2. Steady and high returns not Linked to Stock Markets: P2P lending adds to building such a diversified investment portfolio while delivering returns that are not merely comparable, but often preferable to returns from other investment instruments such as mutual funds, stocks, and SIPs.

Lenders on Faircent.com are earning gross returns to the tune of 18% to 24% per annum on an average by building a diversified loans portfolio.

3. Income Generation & Power of Compounding: Another reason that P2P investment does well is because investors can compound their earnings. Lenders are earning back part of their investment, both principal and return, every month.

Asia

Get Me My Wedding Present: How We Run a Micro-Lending Business in Cambodia (Cointelegraph), Rated: AAA

MicroMoney co-founder and CEO Anton Dzyatkovsky on attracting new customers, recruitment issues and risks in greenfield countries.

Now that we’ve opened new offices in Myanmar, Thailand and Sri-Lanka, our decision to start with Cambodia can be seen as a definitive step which enabled us to embrace the largest community of unbanked people in the region, bringing the advantages of Blockchain as the key technology for global financial inclusion.

Cambodia is all about banks

For us as Europeans, the first surprise was the population’s absolute trust in local banks.

The US dollar is as used in Cambodia as the local currency is, and the exchange rate has remained stable for over 20 years. State regulators do not exercise particular pressure on the financial industry, and by the time we stepped into the game, 50 organizations had been involved in the consumer loan industry, each with an average capital of $1.5 mln and an ARPU of $5,000.

30-day overdue loans in Cambodia account for only 0.9 percent of the total, so the PAR ratio (portfolio at risk) is quite profitable (according to the local Central Bank).

Our Cambodian lessons

• A growing share of the middle class due to the growth of GDP. For instance, Cambodian GDP grew six percent in 2016.
• A market capable of generating cheap leads. We discovered all Cambodians belonging to the target audience have at least one active Facebook account, and for them Facebook often equals Internet in general: every national mobile operator provides free access to Facebook.
• Dormant or non-existent competition. in Cambodia there were no paperless lending services without an escrow of land or real estate property.
• Eager audience in need of a product. when we were checking out the market, we found only five percent of the population had a credit record. According to McKinsey, the number of ‘unbanked’ people in Asian region overall ranges from 65 to 80 percent of the adult population.
• Collaboration at the local level. It helped us understand local customers and comply with local regulations (in this case you must be ready to assign 51 percent of your newly established company to a local partner).

Peer lending for small businesses (The Star), Rated: A

Funding Societies, which started in Singapore in 2015, is one of the first peer-to-peer (P2P) financing companies to open its doors here in Malaysia in February this year. It is also present in Indonesia.

Wong, who learned about alternative financing while studying at Harvard Business School, says P2P is well-suited for the Malaysian and South-East Asian markets where there is a big gap in SME financing. He estimates financing needs for small businesses in Malaysia to be at RM80bil.

According to Research and Markets, the global P2P lending market was valued at US$26bil in 2015 and is projected to reach US$460bil by 2022, growing at a compound annual growth rate of 51.5% from 2016 to 2022.

Funding Societies has made it to the Fintech 250 list, which is recognised and regulated by Securities Commission Malaysia, to provide financing to SMEs. The company also provides flexible investment opportunities with rigorous risk assessment and returns of up to 14% per year for investors, says Wong.

So far, the company has done more than 800 deals and disbursed more than RM180mil in financing to SMEs in Malaysia, Singapore and Indonesia.

Default rate in the region is low at about 2%.

Bank approves online accounts in foreign currencies (Taipei Times), Rated: A

Taiwanese could soon be able to open bank accounts denominated in foreign currencies on the Internet after the central bank on Thursday gave its go-ahead to the plan.

Local banks could seek approval for the new accounts by the end of this year, or 60 days after the introduction of the new regulations, the central bank said in a statement.

Taishin, the banking arm of Taishin Financial Holding Co (台新金控) and the nation’s largest online lender by the number of accounts, told reporters that it aims to be the first applicant when the notification period begins.

Africa

Outsurance buys CoreShares stake as it launches robo-adviser (BusinessDay), Rated: AAA

Outsurance is to acquire a 25% stake in passive investment manager CoreShares, as the insurance company’s robo-adviser, Outvest, goes live.

The acquisition complemented Outvest, an online, automated advice business, the companies said in a statement on Monday.

In SA, financial advisers, to more effectively service their clients, are predominantly using these platforms, although there are platforms available to retail investors.

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