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LendIt Fintech News: Daily Coverage of Fintech & Online Lending


Spring Labs is Building the Future of Anti-Fraud and Identity Verification

A new blockchain-based anti-fraud system is being built in cooperation with major online lenders

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Last week fintech startup Spring Labs announced they are developing the Spring Protocol, a blockchain based anti-fraud and ID verification system, with 16 consumer and small business lenders as launch partners. The 16 partners include SoFi, OnDeck Capital, Avant, GreenSky, Funding Circle, BlueVine, Fundation, Upgrade, Fundbox, and Better Mortgage. There are six other lenders who were not named in the release.

I have been following the development of Spring Labs with great interest since they announced their initial funding in March of last year. Most of the management team came out of Avant so they were familiar to me and I have spoken to them several times since their launch, most recently, just a few days ago. What they are looking to achieve, I think, is groundbreaking and sorely needed in the online lending space.

Much has been written about the Equifax breach and it is clear that keeping credit and identity data in a centralized database is not the best solution and probably not sustainable long term. Spring Labs provides a real alternative, one that takes advantage of blockchain technology. They have built a peer to peer network that allows any member company to query information that may be held at another member company.

It is easiest to understand with the use of an example. Let’s say someone applies for a loan at Avant. In order to do identity verification on this borrower Avant sends a request to the Spring Protocol to see if any member company can verify the address and phone number of this person. A one way encrypted hash of this information is sent to the protocol as an API request to determine if any other network participants can verify the information for this borrower. It just so happens that Upgrade has made a loan to the borrower nine months ago so the protocol sends a request back that the information has been verified. Avant has no idea who verified the information only that this borrower is within the network and their identity has been verified. There is no central store of this information, instead, the validation of the request is provided via the protocol without unencrypted or personally-identifying data leaving Upgrade’s servers.

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Payday Lending Reform and the Need to Reduce Demand

Colorado passes an initiative to restrict all lending to a maximum of 36% but is this the best way to attack the problem?

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Here in Colorado we had an initiative on the ballot last week to restrict payday loans to a 36% APR cap. It passed overwhelmingly because the general public does not want to support lenders who charge triple digit rates. The law goes into effect on February 1 and it likely means the end of the payday lending industry in Colorado.

This change comes on the heels of an opposite move at the federal level where the CFPB said it plans to propose revisions to existing rules that were designed to reign in payday lenders nationally. The CFPB had spent six years doing research and decided that one way to make payday lending more responsible was to require a check on a borrower’s ability to pay. It makes sense as this is what pretty much all other types of personal loans require.

But the payday loan industry has become successful in part because lenders did not have to take into account a borrower’s ability to repay. By not having to do this important step lenders could save money and expand their borrower base. But in doing so they have been serving many people for whom a payday loan is clearly a bad idea.

I have no problem with payday loans at all, they have a place in emergency funding for people who don’t have any savings. What I abhor, though, is predatory lending. This is when the payday loan becomes a debt spiral as the loan is continuously rolled over and a manageable $500 loan becomes a $2,000 or $3,000 nightmare that the consumer cannot pay back.

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Five Things That Excite Me About Fintech Today

There is more change happening in fintech today than ever before but here are five themes that are particularly exciting

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When I started LendIt with my fellow co-founders back in 2013 I was most excited about how online lending could disrupt the banking system. I felt that we were at the beginning of a paradigm shift in banking and that the online lenders would soon rule the world. While it hasn’t turned out exactly like that I am actually more excited today about where finance is heading than ever before.

Today, there are many things that excite me about fintech, here are five themes that I find particularly exciting.

1. Advances in Data Analytics

I have said before that data science is becoming the most important skill in fintech. There is more data generated today than at any time in human history and we need new ways of analyzing this data. Advances in artificial intelligence and machine learning have meant we can now make sense of this vast amount of data.

There are so many benefits to finance of these advances but the most important one I think is what it means to the underserved consumers around the globe. Advanced data analytics combined with the increased use of mobile phones in the developing world means for the first time everyone has the potential to be connected to the financial system. This is going to have huge ramifications globally over the next decade.

2. Blockchain and Distributed Ledger Technology

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Amazon and Their Push Into Fintech

A new report from CB Insights catalogs all the recent moves Amazon has made into financial services

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Last week CB Insights released this really interesting report titled, Everything You Need To Know About What Amazon Is Doing in Financial Services. While Amazon has already made some moves in fintech is a huge amount of speculation as to what they will do next. This report covers both what Amazon has done and also speculates as to where they might be going.

The report provides an in depth look at the moves Amazon has made in payments, lending, the new Amazon Cash program and also takes a look at how the company has been developing fintech programs internationally.

Amazon Cash For The Unbanked Consumer

While I was most interested in the lending section before I get to that I want to talk about Amazon Cash. I have paid little attention to this product since it launched in April 2017 but the more I think about it the more I see a product that could move the needle for the unbanked in this country and possibly around the world.

Simply put Amazon Cash bridges the offline and online worlds by allowing anyone to shop on Amazon with cash. The way they do this is through partners like Western Union, MoneyGram and Coinstar. Consumers can bring in cash and deposit it into an Amazon “account”. They can then shop on Amazon and use this balance on this account to pay for Amazon products.

It doesn’t take much imagination to see where Amazon could take this. By the simple addition of a debit card, Amazon could move the unbanked into a quasi bank account that could be used at places beyond Amazon. Many surveys have said how much the public trusts Amazon and they could really make a difference for financial inclusion by developing this product.

Amazon Lending: Lots of Potential But Not Much Activity So Far

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Now is the Time for Fintech to Focus on Financial Wellness

How we achieve financial wellness is changing and it is not about more or better education

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As much impact that fintech has had on financial services in the past decade people still continue to make poor financial decisions. While it is great that consumers can now refinance their credit card debt or student loans to a lower rate this is not making much of a dent in the overall financial health of consumers.

Credit card debt continues to rise to record levels of over $1 trillion in balances outstanding according to the Federal Reserve. Outstanding student loans are now close to $1.5 trillion continuing a staggering rise over the past decade. The national savings rate is now back down almost to its record low set in 2005. We are borrowing more and saving less. And we seem to be blissfully unaware of the challenges this may bring to our lives.

We Don’t Need No Education

I have many friends who are not the least bit interested in finance. They go about their lives in ignorance of the some of the most basic tenets of finance. A few years ago I had a highly educated friend try to convince me that there was no need to ever pay off credit cards and that I should think of it more like a utility bill with a fairly constant payment, the minimum monthly balance.

We don’t teach serious personal financial management in schools so young people are left to fend for themselves or (hopefully) learn from their parents. I was lucky. In my case we talked about finance and investing regularly at the dinner table when I was growing up and it was something that always interested me a great deal.

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A Look to the Future: Peer to Peer Lending in 2020

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What follows is a work of fiction. It paints a picture of a possible future for p2p lending in the year 2020.

It is September 2020. I am in San Francisco to give a speech at the fifth annual conference of the Direct Lending Association (DLA), the industry trade group. The name p2p lending all but disappeared with the founding of the DLA in 2015 as direct lending was considered a more accurate term.

I have just bought the new iHolo2, Apple’s latest holographic phone, at the Apple store using my new Lending Club Visa card.  Investors initially baulked at Lending Club providing banking services but the credit card division has proven to be one of Lending Club’s most profitable business units. Even though Lending Club has had a banking license since 2017 they have tried to stay true to their direct lending roots. Investors who choose to invest in Lending Club’s credit card business enjoy some of the highest returns available in direct lending.

In the taxi to my hotel I put on my new Google glasses so I can check the latest news as well as browse the new listings at my five favorite direct lenders. The script running on my wearable computer knows my search filters and only displays the loans that have met my criteria.

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Crowdfunding, Crowdinvesting and P2P Lending

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It seems that everyone is talking about crowdfunding these days. Some articles have suggested that p2p lending is evolving into crowdfunding and that is the way of the future. I have also started to see a new term emerge: crowdinvesting, which is a new kind of crowdfunding. So, I decided it was time to tease these concepts out to see how they relate and where they are heading.

What is Crowdfunding?

Let’s start with crowdfunding. Simply put crowdfunding is just the pooling of money by individuals to support the efforts of a person or organization. The leader in this industry is Kickstarter, which really began as a way for artists to fund film and music projects, but has morphed now into a platform for any business to raise money. My local coffee shop in Denver just raised $15,000 for improvements on Kickstarter and I know several other businesses doing a similar thing.

Typically on Kickstarter and other similar crowdfunding platforms businesses offer rewards to entice people to fund their project. There are many different levels, usually starting pretty low ($10 or even less) and at each level the reward gets better. The project is on the platform for 30 days and it doesn’t end when the project is funded, it keeps going until the 30 days are up. So, occasionally when an idea goes viral you end up with a company asking for $100,000 and receiving over $10 million in funding like this new watch company who completed a wildly successful Kickstarter campaign last month. [Read more…]

Will Banks Join the P2P Lending Party?

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There was an interesting article in the American Bankers Association (ABA) Banking Journal recently discussing p2p lending. I was very curious to see what the bankers take on the industry is now.

While it looks like banks are paying attention they see no threat whatsoever to their business from p2p lending judging by this quote:

The emergence of P2P lenders like Prosper, Lending Club, and Zopa was once thought of as a disruptive force in the financial services industry. However, although Lending Club’s loan volume has been steadily increasing month-over-month for the past year, the $20 million in loan volume it did in June 2011 is a drop in the ocean of overall consumer lending.

I completely agree with that statement – p2p lending has less than 0.1% of the consumer lending market in this country so banks need not worry for now. But if I were a banking executive I would be keeping a close eye on this industry. Why? Because it is growing at around 100% a year and if it maintains that growth rate it will become a large industry in a relatively short time.

The article goes on to validate the concept of p2p lending by encouraging banks to create their own p2p lending platform: [Read more…]

Peer to Peer Lending is Evolving

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There was a fascinating article today on American Banker that I feel compelled to share with everyone right away. It speaks to a change that is happening in peer to peer lending right now. A change that some may think gets at the very core of what peer to peer lending is all about.

Institution to Peer Lending

I am talking about an evolution away from a pure “peer to peer” space where money changes hands between individual investors and individual borrowers. It is slowly evolving to a space where a mix of individual investors and large institutional investors lend money to individual borrowers. Yes, institutional investors such as pension funds, hedge funds, and asset managers are investing large sums of money now in peer to peer lending.

Here are two quotes from the article that make it clear what the CEOs of Prosper and Lending Club think about this change. [Read more…]

Will Facebook Become a Peer to Peer Lender?

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I just saw this fascinating video that brought up a question I must admit I have never contemplated – will Facebook become a bank? Of course, Facebook will never become another Bank of America with thousands branches, but they could become a Bank 2.0 type bank. The heart of such a “bank” would likely be peer to peer lending.

Peer to peer lending is such a new industry we are still in the wild west days with few of the players anywhere in the world making money. Yet. I always thought that if Lending Club or Prosper really got going and started to eat away at traditional banking loan volume, then one of these banks would snap up these leading social lenders. [Read more…]

ABOUT LENDIT FINTECH NEWS

LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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