Lend Academy

LendIt Fintech News: Daily Coverage of Fintech & Online Lending


Federal Stimulus Package Gets off to a Rocky Start as SMB’s Seek Capital Quickly

A recap of Friday's virtual panel on the Federal Stimulus Package and what it means for fintech

By Leave a Comment

Views: 143

Small businesses are becoming more anxious by the day with the crisis showing no signs of ending in the near term. The Federal government stepped into action and passed a $2tn stimulus package, including $350 billion to help small businesses in a program called the Paycheck Protection Program (PPP). We hosted a virtual panel on Friday with some of the key players in fintech as it relates to the bill.

Speakers included Brian Korn of Manatt, Stephen Denis of the Small Business Finance Association and Nat Hoopes of the Marketplace Lending Association. LendIt’s Peter Renton helped to guide the conversation which centered around the PPP and how fintech lenders can help deploy the capital.

As of this writing most banks have not even started to take applications and the approval process for fintech lenders is anything but clear. The economics of the deal and the fact that lenders need to deploy their own capital are two of the main reasons fintechs have yet to apply for approval in droves.

According to Nat Hoopes the lack of secondary market interest in acquiring the loans is also a difficult hurdle for fintechs. Borrowers do not have to make payments on loans for six months and if the proceeds are used for payroll the loan can be forgiven.

Brian Korn brought up that many fintech lenders rely on bank partnerships for AML and KYC processes which could make getting approved for the program complicated. New guidance could come out if the program continues to have issues. Banks might get their act together and fintech lenders could have to wait until the next phase of government stimulus.

Banks will begin lending to existing clients first to ensure they know who the small business is as there is a big worry about fraud with the program. Stephen Denis has also been focusing his time on educating members on the disaster loan from the SBA which has received almost three million applications as of Friday. The process for that loan has thus far been a lot smoother with the program already being in place.

Fintech lenders are also facing headwinds themselves as half have already stopped originating loans with capital drying up from investors. The affiliation rule related to ownership excludes most venture backed companies from receiving funding from the CARES Act. Not only are fintech lenders dealing with investor capital drying up but they are unable to receive capital from the stimulus to pay workers.

The virtual panel featured close to 50 questions from the audience who were engaged from the outset to better understand if their companies qualify and how fintech lenders can expedite the flow of capital.

If you’re interested in listening to the entire panel you can access the recording here.

More from LendIt Fintech

Our next virtual panel is called COVID-19 Planning for Fintech: 5 Ways to Maximize Efficiency with At-Home Agents on Thursday April 9th. As the effects of COVID-19 become more widespread and impactful, many fintech leaders are having some, or all of their contact center agents, work from home. Join Jennifer Kuechler of Strategic Link Consulting, Stephen Picciotto of ARB Call Facilities, and Jason Swift of Marlette Funding with moderator Jim Lynch of LiveVox.

LendingClub’s Update to Borrowers and Investors Amid COVID-19 Pandemic

Part of LendingClub's response includes a self service application for hardship plans and increased interest rates for new originations.

By 3 Comments

Views: 774

By now you’ve probably received many emails from financial institutions related to what they are doing for those impacted by COVID-19. Last week we reached out to several of the largest consumer lenders in the US to understand exactly what they were doing to help borrowers as well as to get insight into changes made to underwriting, impacts on loan demand and what they are telling investors. However perhaps the most transparency we are seeing today is with LendingClub, the largest personal loan provider in the US. While we can see what many are doing on the borrower side, the investor side of the equation isn’t always clear. Because LendingClub serves individual investors they continue to update investors regularly on the current environment.

On the borrower side LendingClub has waived late fees starting April 1st through May 31st according to a recent LendingClub blog post. They have also ramped up collections and servicing capabilities which includes tripling the number of people available to help customers over the phone.

They also introduced hardship plans to allow eligible borrowers the flexibility to make interest-only payments for a few months. Borrowers are able to apply for the hardship plan online, a feature which eases the burden on LendingClub support. LendingClub borrowers are able to share their current circumstances and provide the amount they believe they can reasonably pay during the hardship period.  LendingClub then processes the request and responds to the borrower within 7-10 days. While the situation remains fluid currently LendingClub reports that borrowers requesting hardship plans amounts to less than 2% of total loans outstanding. More information for borrowers is available on this LendingClub support page.

These changes will undoubtedly impact investors, though the proactive programs in place are likely to benefit investors in the long run as borrowers are given the opportunity to defer payments during challenging times. What is most interesting is looking at new issuance. LendingClub has reduced approval rates for certain higher-risk borrower populations, something they have been consistently doing for years. More and more LendingClub has become a platform serving prime and super prime consumers. Other changes include increased income and employment verification requirements which makes sense given current unemployment data. Interest rates are increasing between 2% and 4%, making borrowing significantly more expensive to borrowers. As a result, investors will see fewer C and D grade loans available and LendingClub noted that investors who focus on higher rate loans should consider the impacts of cash drag.

In my own portfolio I noticed several instances of hardship plans on loans that I own. Below is a look at the collection logs of two loans I currently have in my portfolio.

Conclusion

We’re still very much in the early days of fully understanding the true impact of COVID-19. Americans still have yet to receive stimulus funds and we still don’t know how long the country will need to practice social distancing. LendingClub has clearly taken quick action related to these events and it will be interesting to see what more the company shares in their next earnings call.

European COVID-19 Economic Stimulus Round Up

European governments have moved swiftly to address the economic impact caused by the novel coronavirus

By 1 Comment

Views: 189

Extraordinary times call for extraordinary measures. The EU announced last week that it would suspend the Growth and Stability Pact. The unprecedented move will untether member states from regulations designed to encourage sustainable fiscal policies and safeguard healthy competition and consumer rights in normal times. In addition, EU Commission President Ursula von der Leyen is set to announce further measures this week. These will be designed to help boost the EU economic recovery, including making changes to the Multiannual Financial Framework (MFF), the EU’s long term budget.

The news comes following announcements made earlier in the month by the ECB, aimed at appeasing initial fears over the impact the global pandemic will have on the EU economy and European markets. These include delaying stress testing banks while also easing certain capital rules that will allow the sector to lend an additional €1.8 trillion. The concessions will come at a cost however as banks have been instructed not to pay out dividends to shareholders this quarter. The ECB will also spend €750 Billion in bond purchases in a bid to address concerns over the sovereign debt market. It is unclear at this stage which, if any, loosening of restrictions will apply to the alternative lending market.

Individual countries have been equally quick to announce initial measures and stimulus packages of their own. These have primarily been aimed at supporting key sectors of their economies as well as maintaining and expanding social security programs while authorities impose severe restrictions on most activities, in a bid to contain the spread of the novel coronavirus. Below is a round up of the measures being taken by Europe’s largest economies, totalling over €1.5 trillion euros in financial commitments to date.

Germany

Europe’s largest economy has set aside over €750 Billion euros to address the crisis, taking on new debt for the first time since 2013. Measures include:

  • €500 billion bail out fund for larger companies at risk due to the outbreak
  • €50 billion for small businesses and the self employed facing bankruptcy
  • unlimited loans from the state owned development bank KfW  to companies facing liquidity problems (the state will guarantee 90% of each loan)
  • €10 billion to support the growing needs of nationwide Social Security programs

France

In a similar vein, France has promised unlimited support for businesses, setting aside an initial €45 billion for companies and employees affected by the pandemic. There will be flexibility shown on corporate tax and social security payments during the crisis.

In addition, the French government will:

  • Guarantee up to €300 billion of bank loans to support businesses
  • Take an option on €1 trillion of guarantees from European institutions
  • The government will also consider specific packages for companies that already have state holdings, such as the national carrier Air France.

Italy

Currently the world’s worst affected country, Italy’s initial stimulus package of €25 billion earmarks €1.5 billion for a health service already tragically buckling under the strain of the crisis. The same amount will be provided for the emergency services tasked with enforcing the strict quarantine measures that have been put in place to limit the spread of the virus.

The government will guarantee loans for businesses affected by the outbreak and Italy’s banking lobby has also confirmed that mortgage repayments will be suspended during the crisis with debt moratoriums in place for small businesses and households struggling with the consequences of the pandemic.

Spain

Spain has pledged a package amounting to €200 billion, which amounts to about 20% of its GDP. The package includes €100 billion in state loan guarantees aimed primarily at ensuring liquidity, with a specific focus on supporting SMEs through the crisis.

Extra measures also include a moratorium on mortgages and utility bills for vulnerable families as well as extra state support for workers who either lose their jobs or who are temporarily suspended from work during the crisis.

United Kingdom

By comparison to its European neighbours, the UK’s approach has been a bit more reactionary and erratic, with a series of ever larger packages announced over the last few weeks, each attempting to fill the gaps of the previous one. This has culminated in a new approach which will see top government officials meet on a regular basis to assess the needs of the economy as they emerge, including addressing omissions to aid packages, such as those aimed at the self employed (which amounts to about 3.8 million workers in the UK). That said a number of tangible measures have been announced and these include:

  • Unlimited package of loan guarantees for SMEs (the government will underwrite 80% of all loans)
  • Direct lending from the Bank of England for large companies
  • One year abolition of property tax for all affected sectors
  • Various rent and mortgage holidays
  • Grants to support small businesses
  • A worker retention scheme where government will pay 80% of wages for workers placed on furlough (aimed at companies facing reduced activity during the outbreak)

In addition, the Bank of England has slashed interest rates to 0.1% and further increased its bond buying program to £645 Billion.

Across the EU, governments are announcing similar measures to those detailed above, generally targeting their assistance to primarily support the SME market and social services through a mix of tax breaks, grants, increased liquidity from banks, loan guarantees and reallocated funds from the central EU budget.

Despite these ambitious measures however, a word of caution needs to be sounded. The predicted global recession is likely to be worse than that of 2009 and in all likelihood even more will need to be done to help the European economy recover from the impact of this pandemic. Across the EU, current stimulus packages are averaging about 2% GDP, and the ECB has warned this week that this will likely need to be doubled in order to have the desired effect. We will be tracking how these measures develop in the coming weeks, make sure to check back in for the latest updates as they become available.

New Action Plans from the Leading Consumer Lenders

We reached out to several leading online consumer lenders to see what actions they are taking to deal with the fallout from COVID-19

By 2 Comments

Views: 2,524

There is likely no one alive who has witnessed this level of economic disruption in this country in such a short time span. With potentially millions of people losing their jobs in the past two weeks this could have a dramatic impact on the consumer lenders.

We reached out on Monday of this week to several leading online consumer lenders, across a range of the credit spectrum, to get a sense as to how they were responding to the rapidly changing economic conditions. We asked four questions:

  1. What are you doing to help your existing borrowers?
  2. How are you changing their underwriting?
  3. How are you responding to increased loan demand?
  4. What is your message to investors?

We heard back from several of the leading companies although some wanted to talk on background only, preferring not to go on the record at this time. Suffice it to say that every single lender has reacted quickly to this looming crisis.

Below are their responses.

LendingClub 

LendingClub released this 8-K earlier this week that has a detailed explanation as to how they are responding. Here is a short summary: [Read more…]

Opportunity Fund and Accion US Network Join Forces

The two organizations are coming together to advance financial inclusion for small businesses in the US

By Leave a Comment

Views: 96

Opportunity Fund is a nonprofit small business lender and Accion US Network leads a nationwide network of community lenders. Opportunity Fund has the largest small business loan portfolio of any nonprofit Community Development Financial Institution (CDFI) in the nation. They also integrate with LendingClub, the largest provider of personal loans in the US, where they lend to small businesses. Opportunity Fund became significant partner of LendingClub in April 2019 when they ceased making small business loans themselves, instead offering a co-branded experience with Funding Circle and Opportunity Fund.

Opportunity Fund and Accion US Network now will become Accion Opportunity Fund. Their plan is to develop a national microlending strategy in order to better serve small businesses. Some of the plans according to the press release include developing new products, establishing new partnerships, promoting research and financial education, and leveraging digital technologies and data analytics to support mission-driven lending.

Access to capital for small businesses is massive problem. It is estimated that there is an $87 billion annual market gap for loans less than $100,000 for Main Street entrepreneurs. Loans that will be offered by the newly created Accion Opportunity Fund tackle this problem head on so these businesses can thrive.

Luz Urrutia, CEO of Opportunity Fund and the newly-formed Accion Opportunity Fund provided the statement below as part of the press release:

“Collaboration and partnership are key ingredients to better serving our customers…Opportunity Fund and Accion share a common vision for an inclusive, healthy financial system that supports the nation’s small business owners. By coming together, we can accomplish what may have seemed impossible to some. This is the first national effort that can transform the small business lending and advising sectors and, with it, the lives of families running small businesses across the country. We are thrilled that building the future of American small business credit and advising services brings our two organizations together.”

Here at LendIt Fintech we have been big supporters of both Opportunity Fund and Accion, and are eager to see the impact of the combined entity will have on small businesses in America. If you’re interesting in learning more about the organizations pre-merger we interviewed the CEO of Opportunity Fund, Luz Urrutia as well as Gina Harman, CEO of Accion U.S. Network.

Opportunity Fund will still be an independent Community Development Financial Institution (CDFI) where it works to expand lending and provides advisory services in US markets. The management team and board of directors will also be in charge of Accion Opportunity fund. Other changes as a result of the news include:

  • Gina Harman, CEO of the Accion U.S. Network, joined Opportunity Fund’s management team
  • Michael Schlein, President and CEO of Accion, and board member of the Accion U.S. Network; Esteban Altschul, COO of Accion; Mickey Konson, Co-Founder and President at StreetShares, and board member of the Accion U.S. Network; and Solana Cozzo, Senior Vice President, Global Debit Product Management at MasterCard, and board member of the Accion U.S. Network – joined Opportunity Fund’s board of directors.

Credit Sesame Adds to the Ever Growing List of Digital Bank Offerings in the US

Credit Sesame's new savings account pays no interest but rewards consumers if they increase their credit score.

By Leave a Comment

Views: 181

Credit Sesame launched eight years ago to give consumers insight into their credit scores and provide education around their credit factors. The company is now expanding their product set to include digital banking. They join what seems like a never ending list of digital banks in the US. Interestingly, their closest competitor, Credit Karma which is being acquired by Intuit announced Credit Karma Savings last year.

With Sesame Cash, Credit Sesame hopes to leverage data about a consumer’s credit score to help them with cash management. It is a problem that many face with 84% of Credit Sesame’s approximately 15 million registered users living paycheck to paycheck according to CEO Adrian Nazari who was interviewed by American Banker. Credit Sesame will look at a consumer’s cash balance and repayment ability to make recommendations to lower costs, such as a new credit card or a lower interest rate loan. Unlike most digital banks, Sesame Cash will not pay interest but will instead reward users as they improve their credit score. Users will receive $5 if their VantageScore credit score increases by 10 points in a month or $100 if their score increases by 100 points.

Sesame Cash officially launched today to existing customers and will eventually roll out to the general public. The account is paired with a debit card and has no minimum balances, no monthly fees, no overdraft fees and also allows users to access their paycheck early. More features are to be added soon such as a smart bill pay service and an auto-savings tool which will round up purchases.

Revolut Raises Massive $500 Million Round at $5.5 Billion Valuation

Revolut's last round in 2018 which totaled $250 million valued the company at $1.7 billion.

By Leave a Comment

Views: 133

By now we have become almost numb to the giant rounds raised by the challenger banks in the UK. It was a few weeks ago when we started to hear murmurs of a new round for Revolut. The $500 million Series D was led by TCV and values the company at $5.5 billion. Revolut has now raised an incredible $836 million. Interestingly, Revolut is deciding not to share names of existing investors who participated in the round. Absent from the release shared yesterday was whether the company had closed $1 billion in debt that was rumored to be led by JP Morgan.

Revolut now has over 10 million customers, centered mostly in Europe and the UK. They are also live in Singapore and are in beta in Australia. While Revolut has ambitions to expand to more countries they are focused on their launches in the US and Japan.

According to TechCrunch’s coverage of the round:

  • The total number of users has grown by 169% in 2019.
  • Daily active customers grew by 380% in 2019.
  • Revenue grew by 354% in 2018.
  • Revenue from premium subscription plans (Revolut Premium and Revolut Metal) have grown by 154% in 2019.

With the new funds the company plans to improve their existing product set and grow revenue. Revolut will announce new lending services for both consumers and businesses through Revolut for Business. Revolut currently offers services for customers in the UK which are not currently available in other markets.

Revolut CEO Nik Storonsky included the below comment in the press release:

“We’re on a mission to build a global financial platform — a single app where our customers can manage all of their daily finances, and this investment demonstrates investor confidence in our business model. Going forward, our focus is on rolling-out banking operations in Europe, increasing the number of people who use Revolut as their daily account, and striving towards profitability.”

It is hard to digest the amount of money that is pouring into digital banking startups in Europe. Monzo, N26, Revolut and Starling all seem to be in a race to raise as much money as possible in order to grow their customer base all while expanding to new regions and launching new products. It is safe to say that this is the most interesting area of fintech to watch over the coming years.

Call for Women Speakers at LendIt Fintech USA 2020

LendIt Fintech is seeking female fintech leaders, bank executives and investors as we aim to highlight more diversity at LendIt Fintech USA 2020

By 1 Comment

Views: 515

Nominate yourself or a Female Fintech Leader you admire at: https://www.lendit.com/usa/2020/speakers/signup

LendIt Fintech is now just three months away and our agenda and speaker roster is looking sharp, but like in past years, I find myself scratching my head and asking the same two questions:

  1. Why don’t more women fintech executives apply to speak?
  2. Why don’t more companies proactively choose to put the spotlight on their leading women?

Here at LendIt Fintech we are committed to supporting diversity in leadership, and one of the best ways to do this is to include the best and brightest women in fintech as speakers at our events. To smash our goal of 30% women speakers, we need your help!

Fintech Women (Fintech Execs, Bank Execs, Seasoned Investors)

Be proactive and put yourself in the center of the action by completing a speaker application. Your voice matters and we want to hear from you. Our content team probes the depths of LinkedIn, devours the news, studies your company’s ‘About Us’ pages, and constantly asks  for referrals… all just to find YOU! Please help the cause and complete a speaker application.

Members of the Board of Directors/ C-Suite/ Corporate Communications

Be the tipping point. Encourage the women at your business to speak. Send them the speaker application and let them know that you would love to see them on the big stage or submit an application on their behalf. Nominate a leading fintech woman to speak today.

What we are looking for:

Women Fintech Leaders, Bank Executives and Investors who are opinionated and have a story to tell on:

  • Credit and Underwriting for the Next Decade
  • Digital Banking – The Epicenter of Fintech Innovation
  • Applying Fintech to Financial Health
  • The Fintech Lending Triple Play – POS, Credit Cards, Loans
  • DeFi and Blockchain: The New Frontier
  • The Next Generation of Data, Design and Analytics

Apply or Nominate a Woman to Speak Now

Joy Schwartz is President of LendIt Fintech and Head of LendIt’s Global Women in Fintech Programs. She has been a member of LendIt’s leadership team since 2014 and is based in New York City.

A Short History of Accredited Investors and What Comes Next

The definition of an accredited investor is changing as the SEC seeks comment on its new proposal

By Leave a Comment

Views: 158

Things tend to move slowly in Washington. It was back in 1982 when the rules for accredited investors were first established as part of Regulation D. It set forth requirements for individuals who invest in securities not registered with the SEC.

To be an accredited investor you had to have annual income of $200,000 annually (or $300,000 for joint income) for the previous two years or have a net worth in excess of $1 million (excluding the primary residence). Now, keep in mind these levels were set in 1982, so if they had kept up with inflation the numbers would be $530,000 annually for the income requirement and $2.65 million for the net worth requirement. But the original numbers have remained constant since 1982 leading to more than 12 million accredited investor households as of 2016.

Now, I have a real problem with the entire concept of accredited investors. There are many people I know who do not qualify as an accredited investor but who would know more about investment products than most billionaires. And conversely, there are many wealthy people who are completely clueless about investing.

The SEC has recognized this problem. Back in 2014 the Investor Advisory Committee of the SEC met to discuss, among other things, updating the definition of an accredited investor. In late 2015 the SEC released this 118-page report reviewing the definition of accredited investors. But still nothing much changed.

In June of last year, the SEC sought public comment on ways to expand investment opportunities for individuals while maintaining investor protections. Then on December 18 they announced a proposal that would update the definition of accredited investors to increase access to a wide range of investments.

Here is a statement from SEC Chairman Jay Clayton on this updated definition:

The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only a person’s income or net worth. Modernization of this approach is long overdue. The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication.

You can read the full 153-page report here but here are the main highlights of what this new definition would entail:

  • Create new categories for people with professional certifications that demonstrate their understanding of investing.
  • A new category for “knowledgeable employees” of private funds.
  • The ability to pool assets with “spousal equivalents” for the purpose of qualifying as accredited investor.
  • A variety of different entities such as family offices, LLCs with more than $5 million in assets, those owning investments over $5 million, unless the entity was formed for the specific purpose of investing in the securities being offered.

While this is an improvement it still misses out on a huge group of people. Those with an active interest and knowledge of investing but who have no formal involvement in the field. I would be in favor of some kind of appropriateness test where investors can prove they are knowledgeable, and they understand the risks of the investment. While this would be challenging to administer, it is certainly possible, and something the UK and other countries do already.

The Deadline For Comments is March 15, 2020

The SEC opened a 60-day comment period on January 15 when they published the proposed rule in the Federal Register. Anyone is free to comment and I will be making my voice heard in this process. I encourage you to do the same.

It has always made no sense to me that anyone could put their entire net worth into a penny stock, or a roulette wheel and regulators did not have a problem with that. But legitimate unregistered investments were off the table. When the SEC finally adopts these new rules hopefully the pool of potential investors for unregistered investment products will expand significantly.

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.

Recent Editorials