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LendIt Fintech News: Daily Coverage of Fintech & Online Lending



New Report Covers Early Progress on Open Banking

A new report by LendIt Fintech looks at the current state of open banking and some early lessons learned.

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Open Banking has been one of the most talked about topics in fintech over the past couple of years. In a new LendIt Fintech report we wanted to explore where open banking stands today and what the key issues are for banks, fintechs and service providers.

The report covers seven key areas of open banking: drivers and benefits of open banking initiatives, regulatory frameworks around the globe, financial functions targeted by open APIs, leading open banking players and their initiatives, collaboration strategies, risks and challenges and defining the path to success.

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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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Global Debt Registry Launches Loan Ledger with Help of IBM Blockchain

The new platform will allow for greater transparency into the online lending ABS market and already includes lending platforms such as Avant

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We often hear about all of the applications of blockchain technology in financial services, but there are very few solutions which have reached a point where they are ready for prime time. Today we learned that Global Debt Registry was leveraging IBM Blockchain for their new decentralized ledger. Loan data serving the ABS market will now be available on the cloud-based IBM Blockchain Platform.

The ABS market relies on a variety of service providers throughout the supply chain which leads to inefficiencies in the process. Putting this information on the blockchain also allows for greater transparency for issuers, auditors and of course, investors.

What’s interesting about this announcement is the new GDR decentralized registry has already registered over 700,000 loans across multiple credit facilities. It’s no surprise that the focus has been on the digital or online lending market. Specifically, the press release noted that investment banks are currently leveraging the platform to manage their positions in Avant among others.

Kevin Friedrich, VP Finance & Treasury from Avant provided the below statement in the press release:

Avant is committed to serving its capital partners with innovative technical solutions to maximize transparency and ease of collateral management, as further demonstrated through our use of GDR’s blockchain based registry.

Conclusion

If we look back at the early days of p2p lending, access to loan level data was one of the aspects that made the next generation of lenders revolutionary. Leveraging blockchain technology is the next iteration of this, offering transparency to investors in a more seamless way. Given the benefits to numerous stakeholders and efficiency gains it is also one that could scale quickly.

Chris Larsen: From Marketplace Lending Pioneer to Creating the New Internet of Value

The co-founder and former CEO of Prosper is now trying to solve a massive multi trillion dollar challenge: enabling instant global payments

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Back in 2010 in my first month at Lend Academy one of the first people I reached out to was Chris Larsen, then CEO of Prosper. I was writing a story on some changes at Prosper back then and Chris was gracious enough to respond to this new and unknown blogger. Over the next couple of years I met Chris in person several times and got to know him reasonably well as I continued to cover Prosper and marketplace lending more broadly.

I was very disappointed when in 2012 Chris announced he was stepping down as CEO of Prosper. He was the founding CEO and at the time I wondered what could be more important than helping to drive Prosper forward. But Chris had an itch to start a new company, one that was based on this emerging blockchain technology.

Of course, this move proved to be prescient and his new company, which eventually became known at Ripple, has the potential to completely rewrite the rules of global commerce. In 2013 they introduced the XRP token as the vehicle to help them achieve this goal. XRP (as of this writing) is the third most valuable token with market cap of $32 billion. This is down considerably from its high in January when its market cap reached around $150 billion and briefly made Chris Larsen one of the wealthiest people in the world.

Chris had never spoken at LendIt before given that his time at Prosper was over before we launched our event. But he agreed to speak on our keynote stage last month and it was standing room only for this fintech pioneer. You can watch the video below or go to this link. It has become the most downloaded session out of all the keynote videos. [Read more…]

What will the financial services industry look like in five years?

Bo Brustkern, the CEO of LendIt Fintech and Co-Founder of NSR Invest shares his thoughts on the future of financial services.

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[Editor’s note: Bo Brustkern is Co-Founder and CEO of LendIt Fintech and Co-Founder of Lend Core, which operates NSR Invest and Lending Robot. He is a serial entrepreneur with a passion for building companies and he has spent the past six years focused on the fintech space.]

Attempting to predict the future is a fool’s errand particularly in the fintech arena, where change can be surprising, lightning quick and brutal. But I’ll play the fool and give it a go. This article briefly touches on many of the themes being explored at our LendIt Fintech USA 2018 conference, which is now just days away:

Audits Will Go the Way of the Dodo Bird

Stop me if you’ve heard this one before. No, seriously: the blockchain is for real. The protocol of trust is here to stay, and it’s going to disrupt everything. Just know, it is going to have a massive impact on the future of financial services. Here are some examples:

At our p2p robo-advisor, Lending Robot, we publish a record of all transactions executed by our Series Fund to the Ethereum blockchain. An immutable record of all transactions, making future audits far less complex and expensive. While the blockchain has not rendered audits unnecessary yet, I believe we’ll see it happen within the next five years.

Smart Contracts Are In, Long, Paper-Intensive Financial Processes Are Out

As I write this, Lending Robot is raising a private round of growth capital. The closing process, called “papering” for very obvious reasons, is just as onerous and Microsoft Word-oriented as I remember it back in the early 2000s when I was a young VC. Where are Ethereum-based smart contracts when we need them? Indeed, I believe we’ll see smart contracts proliferate broadly in the next five years.

Cross-Border Payments Become Seamless and Inexpensive

Our conference business, LendIt Fintech, is a multi-currency enterprise regularly dealing in USD, CNY, GBP and EUR, just for starters. Cross-border payments are costly and time-consuming. For good reason; cross-border transfers have the compounding challenges of anti-money laundering laws, know-your-client regulations, exchange rates and stacked bank fees. Again, I believe that the protocol of trust (blockchain) coupled with a universal, fungible currency (crypto) will disrupt cross-border payments in the next five years.

Say Goodbye to Expensive Transaction Fees

Several recent announcements from well-known crypto companies claimed to allow businesses to set up alt-coin enabled checkout systems. After several months of trial and failure, our conference business finally broke through with a success… BitPay to the rescue. I’m delighted to say that LendIt Fintech accepts Bitcoin as a payment method. And here’s the pleasant surprise: processing fees for crypto payments are materially lower than credit card processing fees. Compare roughly 3% (old skool) with 1% today. Imagine a future with sub-1% transaction fees… I believe it’s going to happen, and soon.

“Investing for Everyone” Takes Hold

Some of the most exciting innovations are occurring in wealth management. While Betterment and Wealthfront may have taken early headlines and a few billion AUM, it’s not robo-ETFs that I’m excited about. That stuff is… well, let’s say comparatively easy… and most of the innovation over the past decade is not impacting the non-accredited investor, which accounts for about 92% of us. What’s more exciting are the new Regulation A+ funds that are beginning to proliferate. Noteworthy are Fundrise, which offers real estate investments to retail investors, Street Shares, which specializes in small business lending, and SeedInvest, which is democratizing venture capital. Imagine a future where investment products proliferate not just for the already-rich, but for aspiring intelligent investors across the economic spectrum. This reality is already on the way.

Fintech is Everywhere

Fintechs are enhancing the customer experience along four axes: choice, price, convenience, and predictability. They are meeting the needs of educated, aware, demanding consumers and they are attacking traditional financial institutions at every angle. They are everywhere: personal loans, business credit, insurance, investing, wealth management, mortgage lending, student loans, financial education, visualization and interface, credit scoring, credit management and achievement, merchant services, payments, payroll, benefits. Did I get everything? I’m sure not.

Enabling this is the amelioration of regulatory requirements by governments across the globe. While Estonia is famous for its digital citizenship, called e-residency, the UK’s Financial Conduct Authority is arguably the most innovative regulatory body when it comes to promoting financial services innovation. Since 2016 the FCA has been building and promoting its regulatory sandbox built for UK fintechs to launch and test their products under proportionate regulation, which is essentially a scaled-down compliance requirement that scales up once it’s clear that a concept is commercially viable.

Not only has the UK government created a hospitable environment for fintechs at home, but it has begun exporting the blueprint for its regulatory sandbox to other nations. The idea is that fintechs that meet common regulatory standards will be able to offer their products around the world without burdensome regulatory requirements at home or abroad. It’s quite possible that we’ll see multiple governments around the world set up regulatory frameworks that scale in proportion to innovation, allowing fintechs access to a broadly compatible, cross-border regulatory system.

Summary: The Engine is Roaring & the Runway is Long

We are right now experiencing the confluence of massive change. Sovereign identity, deep learning, decentralized networks, trustless systems, and scalable regulations are conspiring to fundamentally change financial services. Indeed, the fabric of our economies is being rewoven right under our feet. I am delighted to participate in this time of massive change because I am optimistic about what will result: increased speed, safety, security, convenience, and privacy. Governments competing for innovators, and consumers benefiting across the board.

Do you agree? What do you think will be the lynchpin of change in financial services? Tell me in the comments section below.

What is Blockchain and Why Should the Real Estate Industry Care?

In this guest post Tobias Briegel explores the intersection of blockchain technology and real estate.

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[Editor’s note: This is a guest post from Tobias Briegel, a cryptocurrency and blockchain enthusiast and National Account Manager at Chetu Inc. As an experienced leader and communicator, Tobias offers commentary on the changing tides within the finance industry, offering predictions on how emerging technologies will rattle the pre-existing system.]

Blockchain, the decentralized ledger behind the cryptocurrency curtain, is a force to reckon with, offering a compelling alternative to traditional exchanges of all kinds. Rather than compiling transaction records in a central hub, blockchain technology fragments this information and keeps records across an immense network of hard drives and servers—keeping a transaction as public record, but keeping the exchange anonymous.

In its infancy, blockchain represented an anti-establishment movement, putting a microscope to the deficiencies of centralized banking systems and building bridges where those gaps exist. Blockchain operates with a less is more ideology, keeping risk low by reducing the parties involved and increasing transparency.

Transactions are encrypted and verified in one of two ways: Proof of Work (PoW) or Proof of Stake (PoS). Crypto miners verify transactions through a series of sophisticated computations before the transactions are added to the public ledger. The miners are then compensated with fractional ownership of recently mined cryptocurrency.

Blockchain and Smart Contracts Save Real Estate

In 1996, over a decade before Bitcoin came to market, digital currency pioneer and computer scientist extraordinaire, Nick Szabo, introduced a contractual protocol that was entirely self-executing. We call this protocol a “smart contract,” an encrypted and trackable agreement between consenting parties.

Since the dawn of organized property exchanges, real estate brokers and legal entities have existed in pairs. Sometimes they coexist productively, but more often than not, the cross-industry dialogue is a pain point. We need legal representatives to outline the terms and ensure these terms are met by all parties—land registry, mortgage providers, surveyors, the buyer, the seller, an agent. With a high-value exchange dependent on the compliance of such an immense web of people, the process frequently encounters long-term setbacks and unexpected tribulations.

Smart contracts eliminate the number of hands involved by cutting out extraneous third parties. Who remains? The buyer, the seller, and the agent. The conditions are established and then coded into blockchain technologies. Met conditions (dollar amount or date of execution) trigger a reaction automatically, and the contract self-executes.

The process remains relatively similar to traditional contracts: property selections through blockchain MLS, negotiation of letter of intent, smart contract pre-lease, smart contract lease agreement, automated payments and cash flow, plus real-time statuses. However, this all happens without any legal involvement. [Read more…]

My Thoughts on Bitcoin and Sharing my Cryptocurrency Portfolio

Bitcoin is the financial phenomenon of the year, here are my thoughts as well as a breakdown of my holdings

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Every quarter we get together with three other families for a dinner party. While all professionals no one is in the finance space except for me. But at our last gathering this past Sunday night the conversation turned to bitcoin. In the last month or two bitcoin has made the jump from esoteric financial instrument into a dinner party discussion subject.

We first covered bitcoin in a two part series on marketplace lending with bitcoin three years ago. It provides a good primer to what bitcoin is, the definition of a blockchain and how it works for lending.

Back in late 2014 bitcoin was nothing more than a curiousity – you could barely even call it part of finance – it was a strange hobby that a few tech people were engaged in. Today, bitcoin is making an appearance regularly on the front page of the Wall Street Journal as its meteoric rise has captured the imagination of the general public.

Depending on the day (or the hour) bitcoin has a market cap of around $300 billion which is close to the value of Bank of America, one of the top 10 largest companies in the United States. According to Coinbase, the largest bitcoin exchange in the world, the price of bitcoin is up over 2,000% in the last 12 months and that is why everybody is talking about.

We have read articles about someone buying two pizzas for 10,000 bitcoins back in 2010 (around $170 million in today’s value) or another person throwing away 7,500 bitcoins. There are now bitcoin billionaires and many other stories of people who have become insanely rich because they got into bitcoin early. This is what captures the imagination of the public. If only we had invested just a few hundred dollars back in 2011 or 2012.

The Rise of Cryptocurrencies

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The Differing Views on the Future of Cryptocurrencies

We share the wide variety of opinions on cryptocurrencies from big names in finance

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It is seemingly a daily ritual where we hear of the transformational potential of cryptocurrencies or the systemic risk they pose to the global financial system. The bigger question is does anyone really know where the market is headed in the long term?

The one aspect that many people can agree on is that the technology behind bitcoin and other digital currencies has huge potential. Blockchain technology can help to make transactions of all stripes more secure, transparent and verifiable. Industries currently testing use cases in blockchain technology include financial services, insurance, energy, supply chain, healthcare and even archaeology. It is seen as a way to make things more efficient for all participants in a transaction.

Cryptocurrencies on the other hand have not shown to have a whole lot of people in agreement on what they mean to the financial markets and how stable their pricing is.

Jamie Dimon, JP Morgan CEO, in a TV interview in New Delhi last month:

Right now these crypto things are kind of a novelty. People think they’re kind of neat. But the bigger they get, the more governments are going to close them down… It’s creating something out of nothing that to me is worth nothing. It will end badly.

Larry Fink, Blackrock Chairman & CEO, in a Bloomberg TV interview:

Most importantly, when I think about most of the cryptocurrencies, it just identifies how much money laundering is being done in the world. It’s much more of a speculative platform for Asia and it’s heavily used for money laundering… Related to cryptocurrencies, I’m a big believer in the potential of what a cryptocurrency can do.

Mike Novogratz, Galaxy Digital Assets Fund:

This is going to be the largest bubble of our lifetimes, you can make a whole lot of money on the way up, and we plan on it.

James Gorman, Morgan Stanley CEO:

Bitcoin is certainly something more than just a fad. I’ve talked to a lot of people who have. It’s obviously highly speculative, but it’s not something that’s inherently bad. It’s a natural consequence of the whole blockchain technology.

Axel Weber, UBS Chairman, at a conference organized by the Swiss Finance Institute:

I get often asked why I‘m so skeptical about bitcoin, it probably comes from my background as a central banker. The important function of a currency is, it’s a means of payment, it has to be generally accepted, it has to be a store of value and it’s a transaction currency. Bitcoin is only a transaction currency.

Christine Lagarde, Head of the International Monetary Fund:

Why might citizens hold virtual currencies rather than physical dollars, euros, or sterling? Because it may one day be easier and safer than obtaining paper bills, especially in remote regions. And because virtual currencies could actually become more stable. In many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.

Lloyd Blankfein, CEO and Chairman of Goldman Sachs, on Twitter:

The market has taken all this commentary and continued to grow at a substantial pace in 2017. As of this writing we have seen more than 55 crypto focused funds and over 175 initial coin offerings or ICOs. The market cap of digital currencies exceeds $140bn and according to CoinMarketCap there are well over one hundred tokens available for trade.

Recent regulatory guidance, from China banning ICOs and cryptocurrencies to the Securities and Exchange Commission issuing a report and filing charges at what they called a fraudulent offering, has only affected pricing in the short term.

I think the likes of Bitcoin, Ethereum, Ripple and other well established tokens have shown their staying power. The bigger long term question is will worldwide regulatory bodies begin to put more structure around the market or will these currencies still operate in the decentralized non-conforming manner in which they were originally created.

Wu Jihan: The Mysterious Man Behind Bitcoin Blockchain Split

Our China correspondent provides perspective on the recent Bitcoin split and the outsize role one Chinese man had in it

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Starting August 1 at about 8:20 am EST, the Bitcoin blockchain split and there was a new set of tokens – Bitcoin cash (BCC)  – on the new blockchain. Bitcoin price dropped over 10% from $2944 to $2632 in about forty minutes.

It was partially agreed in the Bitcoin community that this split was initiated by Wu Jihan, the co-founder and CEO of Bitmain. Founded in 2013, Bitmain builds computers using chips specially designed to do mining computations, and it has now become the world’s largest Bitcoin hardware mining producer.

Aggressive supporter for Bitcoin Unlimited

Bitcoin Unlimited is a solution to solve Bitcoin’s scalability issue. Under the current system known as Bitcoin Core, Bitcoin blocks have had a limited ‘storage’ capacity of 1MB since the beginning.

However, Bitcoin Unlimited argues that the size of these blocks should be increased, because as Bitcoin has grown more popular, the capacity limits have caused congestion and led to lengthy transaction delays.

Wu Jihan believes that Bitcoin will have to support very high frequent payments. He is an aggressive supporter for Bitcoin Unlimited. Wu explicitly told Bloomberg in March, “We will switch our entire pool to Bitcoin Unlimited…we can’t tell how the hard fork will play out. We will only know by the time we get there.”

Wu Jihan questioning the 1MB block size limit at a meet-up in Tokyo in March 2017.

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Recent SEC Report on Blockchain ICOs Helps to Provide Some Clarity but Questions Remain

We look at how regulators are beginning to send a signal to the blockchain market and what questions still remain for this new capital raising method.

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Last week the Securities and Exchange Commission (“SEC”) released a report on the Initial Coin Offering (“ICO”) of the Decentralized Autonomous Organization (the “DAO”), which raised almost $150mn from investors using this new capital raising method (before returning the money). The report explained that the SEC views this ICO as a sale of securities and that the DAO was in violation of securities laws, though no enforcement action was taken.

There has been an industry wide debate on whether or not Initial Coin Offerings constitute the sale of securities. An ICO is a means by which a company in the blockchain space can raise capital from investors using cryptocurrencies and investors receive compensation in return, whether that is a reward, membership, delivery of a product or service, or financial compensation tied to the underlying profits generated by the business.

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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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