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LendIt Fintech News: Daily Coverage of Fintech & Online Lending


The Opportunity For Fintech Has Never Been Bigger

If there were such a thing as a sure thing in business, today that thing would be fintech.

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[Editor’s note: This is a guest post from Douglas Lopes, the Chief Financial Officer of Airfox, a venture-backed fintech company based in Boston and São Paulo. Airfox is on a mission to accelerate financial inclusion for the underbanked within emerging economies. Airfox aims to create an entirely new financial services model for the underbanked that democratizes access to capital and financial services with a mobile-first solution.]

To produce the  EY Global FinTech Adoption Index 2019, EY researchers interviewed more than 27,000 consumers in 27 markets across the globe. They found that the FinTech “adoption rate is growing faster than anticipated. The actual global adoption rate of 64% in 2019 exceeds by 12 points the 52% future adoption rate” forecast just two years ago.

Fintech contenders frequently employ smartphones, cryptocurrency, and/or digital wallets to compete with traditional financial service delivery methods. A ready combination of technological advancement, shifting consumer habits, and enormous underserved markets — particularly in emerging economies — have fused to create the world’s greatest opportunity for disruption and a robust startup ecosystem.

Enabling technology

Greater global internet access and the widespread adoption of mobile technology couple with novel decentralized computational frameworks to underpin most fintech models (most notably in blockchain-powered projects). This comprehensive digitalization also generates mountains of data, which has, in turn, accelerated algorithmic advancement. New data-fed and rapidly evolving AI and machine learning capabilities are increasingly targeted toward speeding labor-intensive business processes and are particularly powerful in financial services applications.

According to Dresner’s 2019 Data Science and Machine Learning Market Study, Financial Services/Insurance respondents now rank data science, AI, and machine learning as critical to success in their industry at the highest rate amongst all market sectors surveyed.

AI and machine learning technologies can speedily process layer upon layer of vast and varied data while surfacing new patterns, reducing risk, and continuously improving function. As The Financial Brand recently reported, “AI changes the path to industry dominance in financial services. No longer will unfair strategic advantage be automatically granted to the bank or credit union with the most assets.” This presents an enormous fintech opportunity, since “scale of data will be increasingly important, with the ability to create unique, contextual experiences driving value and market share.”

Digital culture

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Expanding Access to Credit in the Land of New “Halves”

Guest post by the former CEO of LendUp on how we can expand access to credit for all consumers

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[Editor’s note: This is a guest post from Sasha Orloff. He co-founded LendUp and Mission Lane and previously was Senior Vice President at Citi Ventures and in Citi’s Consumer lending divisions.  Any views or opinions listed here are his own, or referenced in citations. They are not necessarily shared or endorsed by anyone else.]

Credit is one of the largest, most powerful, lucrative and important industries in the world. It also is one of the best tools for wealth creation – home ownership, small business ownership and growth, and, leveraged investing.  This is readily accessible for prime consumers with more options now than ever before. But for the other half of the country that is non-prime, options are still limited and in many cases non-existent.

I was recently asked about what would it take to expand access to credit in the United States.  I have thought a lot about this question from various points in my career, from one of the US’s largest banks, from the World Bank, from a non-profit bank focused on financial inclusion and most recently from a fintech company.  There are a lot of implications here, and it is hard not to think of academic questions like ‘when is credit a good thing or a bad thing?’ without the memories of the subprime mortgage crisis, or fundamental questions like ‘what is the right structure of a loan?’ and not get overwhelmed with the complexities of federal and state laws, price and duration differences among credit across prime vs subprime, secured vs. unsecured, closed vs. revolving, etc.

There are far more smart and experienced people who can better answer those questions, so I wanted to try and focus on a few tactical and a few high level questions that could lead to profound changes in financial inclusion within the lens of the US consumer credit segment.

How deep and reliable are the sources of capital available?

There have been meaningful changes in the capital markets over the last decade, with additional pools of global capital motivated to invest in this sector.  Early pioneers of securitizations like SoFi, the scaling of marketplace lending like Lending Club, Prosper and Best Egg, and new distribution models like Greensky and Affirm have contributed towards increasing comfort of these “new asset classes” that were mostly locked up in bank’s balance sheets.  I am not sure many would have guessed that we would see billions of dollars (of mostly prime assets) being originated monthly by non-banks.  And despite some hiccups over the last decade the markets seemed to recover quickly and even show an increasing demand across multiple asset classes, which is encouraging. [Read more…]

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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LendStreet and Its Unique Approach to the Debt Settlement Space

LendStreet recently closed a significant funding round as it looks to help struggling consumers get back on their feet

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The entrepreneurial life is not for the faint of heart. The journey is fraught with challenges and unforeseen obstacles are often encountered along the way. It can also take a lot longer than the entrepreneur anticipates to create a successful startup.

Such is the case with Jerry Nemorin, the CEO and Founder of LendStreet. I have known Jerry a long time, in fact I first wrote about his company on Lend Academy way back in 2011 when LendStreet was nothing more than an idea. We have kept in touch over the years and I was really pleased when I read last week that LendStreet had closed its Series A and secured a significant round of debt funding.

So, I reached out to Jerry to discuss this news and get an update on his company. First, we need to understand what LendStreet does because it is very different than most companies I profile. LendStreet is a lender that works with consumers who are experiencing financial difficulties. These are people who have taken on too much debt and find themselves in a hole, unable to pay it all back. But rather than declaring bankruptcy, these people want to work things out and reduce their debt through a debt settlement.

This is the point when the debt settlement companies come in. LendStreet lends only to customers whose debt is being or will be negotiated by a debt settlement company. Most of LendStreet’s customers are already enrolled with debt settlement companies before getting to LendStreet. Those who come directly to LendStreet are paired with a debt settlement company to negotiate down their debt, which will be funded by a LendStreet loan.

How the Process Works

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The Center for Financial Inclusion Digs Into the Global Findex 2017 Numbers

CFI has analyzed the Global Findex 2017 database, released by the World Bank in April, and finds a less than rosy picture

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A few weeks ago the World Bank released the triennial Global Findex Database for 2017. We covered the release on Lend Academy touting the progress the world has made towards more financial inclusion, particularly in developing countries. Now, the Center for Financial Inclusion, part of Accion, have released a follow up report digging into the Findex data and the picture is less rosy than what was highlighted in the World Bank’s initial report.

On the surface it looks like the world is making good progress towards financial inclusion with the Findex report showing that 68% of adults globally having some kind of bank account versus 61% in 2014 and 51% in 2011. That is rapid progress.

But CFI found a different story when just focusing on active accounts, those accounts that had some kind of transaction in the past 12 months. This takes the percentage down to 55% and what is worse the gap is widening between total accounts and active accounts indicating a growing number of people who open an account but never use it. This is true for both developing and high income countries but the gap is getting much wider in developing countries as shown in the graphic below.

For true financial inclusion to materialize we need to focus on account usage not just total accounts, that much is clear. But there are hundreds of millions of people now with inactive accounts. From the report: [Read more…]

World Bank Releases the Latest Global Findex Database

The Global Findex Database and accompanying report give a clear indication of how fintech is impacting access to financial services globally

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In 2011 the World Bank released the first ever Global Findex Database as “the world’s most comprehensive data set on how adults save, borrow, make payments, and manage risk”. A new database was release based on 2014 data and last week the 2017 edition was released. The full database (in Excel format) and the summary and detailed report are all available for download here.

This is important work because it is the only in depth research of its kind that reaches to all corners of the globe. Here is the methodology quoted from the report:

Compiled using nationally representative surveys of more than 150,000 adults age 15 and above in over 140 economies, the 2017 Global Findex database includes updated indicators on access to and use of formal and informal financial services. It has additional data on the use of financial technology (or fintech), including the use of mobile phones and the internet to conduct financial transactions.

The Most Important Findings

One of the most interesting findings is that an additional 515 million people have opened some kind of financial services account between 2014 and 2017. This means that 69% of adults globally (around 3.8 billion people) now have an account, up from 62% in 2014 and 51% in 2011. This is an astounding change and one, I believe, that speaks to the growth of fintech around the world. Over the last six years it has become much easier to open an account digitally with both banks and non-banks.

What is even more interesting is that of the 1.7 billion adults who remain unbanked around two-thirds own a mobile phone. Now, this would not be a smartphone in most circumstances but many financial services are available on text-only flip phones. In China 82% of those people who are non-banked have a mobile phone, in India and Mexico it is more than 50%. This does speak to the potential to continue to increase the numbers of people with some kind of bank account in the coming years. [Read more…]

MoneyLion Plus Takes An Innovative Approach to Encourage New Investors to Save

Fintech platform MoneyLion is on a mission to change consumers' behavior when it comes to saving

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It has been said many times that the majority of Americans don’t have enough in savings to cover a $500 unforeseen expense. As a nation we are chronically bad at saving and while the savings rate went up for a time after the financial crisis it is back down near 2005 levels now which was the all time low.

MoneyLion is trying to do something about this. They have a somewhat unique position in fintech in that they have an online lending business but their real focus is improving the financial health of consumers. When you go to their home page they feature their app which anyone can download for free to help manage their finances. You can link bank accounts and credit cards and it can give you a good sense of your overall financial health.

I interviewed CEO Dee Choubey on the Lend Academy Podcast just over a year ago but they have made some great strides since then. I caught up with him again recently to get an update. Today, over 2.2 million people have downloaded the MoneyLion app and 1.3 million people have connected their bank account. This gives the company tremendous insight into their customer base.

In our conversation Dee pointed out that overdraft fees are a major pain point for many consumers. I did a little research and found a 2017 report on bank fees that stated the average American who has at least one overdraft pays an average of $412 annually on these kinds of fees. Dee said the average MoneyLion customer pays even more than that. He is on a mission to change this. He wants to not only eliminate overdraft fees from people’s lives he wants to help them get in the habit of saving.

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Research on Financial Inclusion and Poverty Reduction in China

The newest member of the Lend Academy team highlights financial inclusion in China with three case studies.

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[Editor’s Note: This is a post from Sherry Zhang who is the latest member of the Lend Academy and LendIt teams. Sherry is based in China and previously covered the Chinese fintech market. She is helping us craft our LangDi Fintech agenda but you will also see her contribute here on Lend Academy to give us additional insight into the Chinese market.]

A brief history of financial inclusion in China

In June 2012, then Chairman Hu Jintao mentioned financial inclusion at G20 summit in Mexico. This was the first time a top Chinese leader mentioned “financial inclusion” in a public speech.

In Nov 2013, the Party’s central committee approved an important document entitled “Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform”. The document made it clear that China “will develop inclusive finance.”

In Jan 2015, CBRC established a financial inclusion department under the committee to oversee micro-finance, micro-loans, P2P lending, and issues of agriculture, farmer and rural area.

In Jan 2016, the State Council issued a circular and made a five-year plan (the Plan) to develop the country’s inclusive finance. The goal of the Plan is to set an inclusive finance system that is in coordination with the construction of a moderately prosperous society by 2020 and satisfies people’s need for financial services.

This research will focus on three case studies in the financial inclusion market: CFPA MicroFinance, Ant Financial, and CreditEase.

Case study 1: CFPA MicroFinance

CFPA Microfinance is one of China’s largest microfinance players:

  • As of Dec 2016, CFPA Microfinance currently has branches in 229 counties and 18 provinces throughout China, and 85% of the branches are located in areas designated by the Central or Local Governments as poverty stricken counties.
  • As of Nov 2016, CFPA Microfinance has disbursed loans valued at RMB CNY 18.4 billion ($2.7 billion) to 1.61 million clients, with average loan size of CNY 11,000 ($1,620). 62% of all loans have been deployed for the purpose of raising livestock, breeding fish and farming and etc.
  • Approximately 3 million low-income villagers have received microloans from CFPA Microfinance for improving their livelihood and raising local production.

CFPA Microfinance’s largest shareholder, China Foundation for Poverty Alleviation (CFPA), was established in 1989. CFPA was one of the first non-profit organizations in China. International Finance Corporation (IFC) became acquainted with the foundation in 2007, and suggested that it make its microfinance business an independent business.

In November 2008, CFPA Microfinance Co. was established. In 2010, Sequoia China Capital and IFC made equity investments in CFPA Microfinance. After the investments, the CFPA’s ownership in CPFA Microfinance was reduced from 100% to 61%.

In Dec 2016, Ant Financial, IFC and High Impact Capital Advisors announced another investment in CFPA Microfinance. After that, Ant became the second-largest shareholder after CFPA.

A report by IFC (2012) said that, IFC helped CFPA Microfinance in terms of corporate governance, IT systems, HR, risk management, so CFPA Microfinance has achieved both business performance and social development:

Business performance:

  • CFPA Microfinance now ranks among the top microfinance institutions in China in terms of profitability, asset quality, operating efficiency, and (low) average loan size.

Social development:

  • 91% of all CFPA Microfinance clients are women
  • At least 80% of CFPA Microfinance clients would not have been able to borrow from anywhere else, according to a survey by the China Agriculture University and China Academy of Social Sciences
  • 49 out of the 53 CFPA Microfinance operating outlets are in China’s Nationally Designated Poverty Countries, the poorest areas in the country.

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What Fintech Needs to Do to Make a Dent in the Universe

There are huge opportunities in fintech that few people are focusing on.

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The fintech industry has come a long way in a short period of time. While financial technology has been around for decades I think we can all agree that in the past few years it has really come of age. And since the coining of the term fintech we have seen an explosion in innovation. Things that were considered impossible a decade ago are now commonplace, almost expected today.

But we can and should do more. While most of the innovations happening today are making a real difference I would argue, to paraphrase Steve Jobs, they are not yet making a dent in the universe.

On the small business side more companies have access to more funding options than ever before and that is starting to really help. Companies like Kabbage, OnDeck and Funding Circle are providing new credit options that have never been available from traditional finance. On the consumer side companies like Lending Club, Prosper, SoFi and Marlette are also making a difference, saving the US consumer many millions of dollars annually. But this is just the tip of the iceberg.

We Need to Turn Our Attention to the Global Underserved

I was listening to the Breaking Banks podcast the other day where host Brett King was in Kenya. It was one of the most fascinating podcasts I have listened to in a long time. Kenya has this incredible payments system called M-Pesa that basically everyone in the country uses. It has completely changed people’s lives. People who were excluded from the financial system, with no bank account and no way of paying anyone except in cash, could now use their phone to pay any person or company in Kenya. And we are not talking iPhones or Samsung Galaxys here, this can be achieved by an old fashioned flip phone.

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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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