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LendIt Fintech News: Daily Coverage of Fintech & Online Lending



Goldman Sachs Shares Their Vision for the Future of the Marcus Platform

At the recent Bernstein Strategic Decisions Conference Goldman Sachs President David Solomon provides some insight into the future direction of Marcus

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I write a lot here on Lend Academy about Marcus by Goldman Sachs. The reason I do so is because they are such a great example of what is possible when a well funded incumbent gets serious about fintech. Now, Goldman is an unusual case in that they have been around for about 150 years as an investment bank but they have only been a commercial bank since 2008. So, they have the big advantage of having a globally trusted brand but no legacy technology infrastructure or processes when it comes to consumer banking.

Anyway, last week at the Bernstein Strategic Decisions Conference we learned a little more about what Goldman has planned for Marcus. This is an annual event run by AllianceBernstein that goes back decades and it attracts CEOs from some of the largest companies in the world as they share plans for the company’s growth. David Solomon, the President of Goldman Sachs, and the handpicked future CEO to Lloyd Blankfein, gave the presentation.

You can listen to the full presentation here where you can also download the PDF of his slide deck. While the bulk of the presentation was on the many other Goldman Sachs initiatives towards the end he spent some time discussing Marcus. We learned that Goldman has contributed a significant amount of capital already to Marcus:

Since we started working on Marcus, we’re very pleased with our progress and have invested, through capital spend and operating losses, $600 million, including reserves. That’s up $100 million from $500 million, including reserves, at the end of 2017. It’s important to note that we’ve done this out of our operating earnings while, at the same point in 2017 and the first quarter of 2018, delivering strong returns to our shareholders.

In the slide deck there was just one slide on Marcus (slide 14) but it did reveal some interesting plans for the first time. I have reproduced the slide below (click to view it at full size):

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Is Personal Service in Fintech Getting Lost Amid the Digital Mindset?

Many consumers love the convenience of digital communication but still seek live human interaction

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[Editor’s note: This is a guest post from Mark Lusky of Mark Lusky Communications, a writing and marketing communications firm, operating since 1982. He specializes in ghostwriting expert advice articles, blogposts and other bylined content for clients, along with writing e-books, whitepapers, case studies, websites, opinion pieces and other communiques—incorporating marketing skills and perspectives acquired as a regional marketing director for Ringling Bros. and Barnum & Bailey Circus. He will be attending LendIt in San Francisco this April.]

Amid up-and-coming fintech company trends toward cost-saving models that depend heavily on automated digital systems, the human touch is getting lost in the shuffle. In some cases, this doesn’t pose a problem. Many millennials and other younger groups prefer transacting business without any human intervention. Make it online, quick and done—and they’re happy.

If they have a problem, communicating via email, checking out forums, or consulting a canned knowledgebase are acceptable because they lack the need or desire for personal contact.

However, there’s a substantial segment of the consumers that not only wants, but demands, human service—particularly when it comes to customer support. Many people want to consult a live human being for help versus being relegated to digital resources.

If you feel that your borrowers are okay with the digital-only ways, so be it. But, how do you know? If you’re surveying existing customers, it’s likely that most of them are somewhat satisfied, or they wouldn’t be customers. How about prospects? What are their expectations? You may be leaving a huge amount of money on the table—without any easy way to discover or remedy it.

Conflicting Reports, Views Abound

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NepFin Launches to Become a Force in Middle Market Business Lending

The new lender, run by former Funding Circle execs, will offer loans between $5 million and $60 million

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It was back in 2013 when I first met Albert Periu. He was a partner at a startup small business lender called Endurance Lending (we wrote about them here). That company was bought by Funding Circle later that year and became Funding Circle USA with Albert running capital markets. I have gotten to know him quite well over his years at Funding Circle and I was very curious when I heard at the end of 2016 that he had moved on from Funding Circle to start his own venture.

I reached out to him at the time and he was somewhat coy about his intentions. It was not until last month when I visited his office in San Francisco that I finally found out the full extent of what he was doing with his new venture called Neptune Financial or NepFin.

The Middle Market Needs Disrupting

Whereas Funding Circle focuses on small businesses needing loans of up to $500,000, NepFin will be covering a completely different segment of the business lending market, what is called the lower middle-market. Specifically those companies with revenue of $10 million to $100 million looking to borrow between $5 million and $60 million. I was surprised to learn that this was a somewhat underserved market.

I would have thought companies of such size would have plenty of options to borrow money. But because of Basil III (increased capital requirements), Dodd-Frank (additional compliance costs) and bank lending rules these medium-size companies are underserved. I thought banks would have provided a lot of the funding for these companies and that is true to some extent. But often they will not lend the full amount these businesses require.

Enter NepFin. They don’t have the same capital requirements as banks and they have a little more flexibility on their loan terms. And Albert can apply all the learnings from Funding Circle to this different but related market segment.

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Yahoo Finance Launches New Savings App

Yahoo Finance's new app called Tanda has a unique approach to helping consumers save money.

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There are plenty of financial apps on the market today spanning all aspects of personal financial management. There are apps focused on savings, spending, investing, net worth tracking and some of them provide a mixture of these functions. Last week our interest was piqued when Yahoo Finance announced an app called Tanda. Most people wouldn’t consider Yahoo a company on the leading edge of technology and as far as I know their only other businesses in consumer finance would be media through content on finance.yahoo.com.

Tanda is a much different concept than what we’ve seen as far as personal finance apps in the US. It allows users to create or join a group of five or nine to save money together. Each person puts money into a communal pot over time and then can choose when they withdraw the money. The first two people to withdraw money pay a small fee and the last person to withdraw the money receives a small bonus. It is a similar to what is called a ROSCA or a Rotating Credit and Savings Association. ROSCAs are most often used by immigrant groups in the developed world or developing economies.

This type of forced savings makes a lot of sense where people don’t have access to traditional banking. With Yahoo’s app there is an element of trust as Yahoo doesn’t hold any capital and is not a bank. Through the app they are simply an intermediary. Users build up trust scores that allow them to participate in larger pools of money. Yahoo will make money through fees and is hoping to build a large mobile community around the new product.

I decided to check out the app myself and was able to login using my Yahoo email account I created over 13 years ago. There were several open savings circles which I included below. Many savings circles provided a purpose for the pool, such as saving for electronics or travel. Others were for general saving, including one for an emergency fund. One pool had me saving $250 by contributing $62.50 every two weeks. If I was the first person to choose a payout, I’d receive 8% less. If I was the second person to I’d receive 7% less. This means I’d receive $230, or $20 less for being the first one out of the pool. The last person to receive a payout receives a 2% reward ($5).

 

Conclusion

It is hard to say whether Tanda will become the next viral app. ROSCAs have been a successful way for people to save money, but moving the concept to an app creates some challenges. Yahoo has created something unique and it is going to be interesting to see how users respond. At a time when many Americans struggle to save, I am in favor of any app that helps people save money.

6 Key Trends in Fintech to Watch in 2018

In this guest post Alexander Prokhorov from FinSight Ventures shares what trends his firm is focused on in 2018.

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[Editor’s note: This is a guest post from Alexander Prokhorov. He is a managing partner and co-founder of FinSight Ventures, which focuses on fintech and enterprise software and was an early investor in LendingClub, DianRong, FinanceIt, and Earnest. He has more than 16 years of experience in direct investments and financial services.]

Over the past three years, Finsight has invested in close to a dozen fintech companies around the world, and we recently celebrated our fifth exit. As I consider the best places to put fresh capital to work, the following trends deserve attention:

  1. Convergence of Software and Financial Products  One of the important lessons that Square taught the market is that bundles of software solutions (loyalty, POS, analytics, scheduling and many others) and lending are essential drivers in advancing growth of payment processing. Going forward, successful lending and payments solutions will need to be bundled with other software offerings. Finsight recently invested in DailyPay which integrates with payroll systems and is aiming to help more than 70 million hourly workers in the US get instant access to their wages. In 2018 in Europe, PSD2 regulation will drive banks to open access via APIs to consumer and business accounts to third party companies. For example, a consumer can direct a fintech company to pay utility bills directly from their bank account. This is a very important development, and one which shifts the power of bank data and management of funds back to consumers and businesses and will allow for further convergence of software and financial products.
  2. InsureTech  The transformation of the insurance industry will continue its pace from online distribution, which disrupts offline distribution channels such as brokers (like Limelight and others), to the development of new products (like MetroMile and Lemonade).
  • According to CB Insights, in 2019, more than 80% of insurance products for SMB in the US will continue to be distributed through offline channels

Technology is bringing greater overall efficiencies, lowering costs to back office, disrupting intermediaries, promoting mobile real-time engagement with customers, and sparking new insights to product and pricing.

  1. The Power of the Machines  Artificial intelligence and machine learning are transforming many industries, including financial services. Companies like LendingClub are using machines to discover new relationships and patterns to introduce more tailored financial offers to their customers. Finsight recently invested in SBDA Group, which analyzes transactional data found in consumer banks and helps to provide insights for more effective cross-selling of other products.

Elon Musk puts it this way: “The pace of progress in artificial intelligence (I’m not referring to narrow AI) is incredibly fast. Unless you have direct exposure to groups like Deepmind, you have no idea how fast – it is growing at a pace close to exponential.”

  1. Emerging Economies  Many growing companies in Africa, Asia, and Latin America are developing and adopting financial solutions, often faster and with more innovation than in developed economies.
  1. Wealth Management  Much has been said of standalone robo-advisors such as Wealthfront, Betterment and Nutmeg, but likely other leaders will emerge over time as technologies continue to empower and transform how financial advice is delivered. Currently, tools serving advisors are providing better access to different asset classes, decisioning, trading strategies, digital data.
  1. Rise of Crypto and Blockchain  2018 will be the year of accelerated adoption by retail investors globally and the arrival of institutional capital to the crypto assets, further validating the notion of crypto as the “store of value” for the millenium. At the same time, software companies, corporations and governments are increasing adoption of  applications powered by distributed ledgers.

These six key fintech trends are at the forefront of our investment planning strategy going into 2018.  I believe that based on what we’ve seen in 2017 and what is coming next, 2018 will be an exciting year to be investing and innovating in financial services.

Key Takeaways From LendIt Europe 2017

Some interesting themes emerged from LendIt Europe 2017, a two day event held in London this week

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Imran Gulanhuseinwala kicks off LendIt Europe with the opening keynote

The fourth annual LendIt Europe event was in London earlier this week with around 1,100 people in attendance. Here are my key takeaways, focusing mainly on the keynote sessions.

We kicked off the event with Imran Gulamhuseinwala, the Global Head of Fintech for EY and also the head of the UK’s Open Banking initiative. Open banking is mandated to arrive in January 2018 and Imran is in charge of making sure this process goes smoothly. He delivered an optimistic message saying that open banking is simply an idea whose time has come.

He made it clear that this is all for the consumer, that the consumer is at the center of open banking. He put forward the idea that making transaction level data available to innovative fintech platforms should bring more people into the financial system. There will be one API to cover all of open banking and enrolment in the open banking directory begins this Friday, October 13. He ended with a call to action. Open banking will not be a success unless the fintech platforms embrace it and seize on this new opportunity.

Next up was Jaidev Janardana, the CEO of Zopa, who put forward his vision for the future of banking. The theme for his discussion, which ended up being a theme repeated throughout the event, was that the customer needs to be the starting point for all banking products. He chided banks today for making banking a zero-sum game where the bank wins and the customer loses.

Zopa is trying to build a bank where incentives are aligned between the bank and the customer. Every bank product should be a win-win. The reality is that our bank knows so much about us but their service is not personal. It should be. Jaidev shared that Zopa intends to offer four bank products: unsecured personal loans (something they already offer in their P2P lending business), credit cards, savings accounts and auto loans.

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Leadership Changes at LendIt

LendIt continues to grow and evolve and along with it our leadership is evolving

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When LendIt was founded back in 2013 we had no idea it would get to the size and scale that it is today. My fellow co-founders and I just wanted to host our small but growing community so we could all learn, network and do business together.

As the industry has grown and matured LendIt has grown along with it. Since those early days focused on peer to peer lending we have repositioned ourselves recently to focus on any innovation in financial services. Obviously, lending is still a significant part of our events but at our next conferences – in London next week and San Francisco in April – you will also see a focus on blockchain, digital banking and other major innovations happening in finance.

LendIt events today look and feel very different from our early events. Along with that LendIt as an organization has grown and matured. Last month we made some internal changes that I want to share with you here.

When we first started we were just four co-founders: Jason Jones, Bo Brustkern, Dara Albright and myself. There was no CEO; we just all worked together as a collaborative partnership. At some point we decided that someone should be CEO and I took on that role initially. I am not really one for titles and I was a somewhat reluctant CEO to be honest.

My partner Jason Jones, who has been the driving force in the growth of our business, took over the CEO role some time ago as the business became more complex. Under his leadership, we scaled our team and back office infrastructure, expanded into China, grew and diversified our global audience base, expanded our business from lending to all of fintech, and emerged as one of the largest financial services events in the world.

As of early September, Jason has transitioned out of the CEO role and is now Co-Chairman along with me. This allows him to focus his entrepreneurial drive on areas of our business where he can make the most impact. He is turning his attention to become more client focused as major global financial services and technology companies become more involved in our business. He is also passionate about blockchain and will be running our new “conference within a conference” at LendIt USA 2018 on that topic. And he will continue to serve as Chairman of PitchIt, our global startup competition. As always, you can expect big things to come from Jason, so stay tuned.

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Online Lenders Featured in the Inc. 5000

Several companies from the online lending space made the Inc. 5000

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Every year Inc. pulls together a list of the top 5000 fastest growing private companies in the United States. This year there were around 250 companies that made it in the financial services category and there are several familiar names on the list. Inc. shares basic information on each company while also sharing 2016 revenue numbers, a metric that is often not publicly available. We congratulate all of the companies on making the list this year.

Below we’ve highlighted some of the big names:

Avant – #47

Avant is an unsecured consumer online lender that focuses on the near prime space. Over three years they’ve experienced 6,333% growth. The company did $437.9 million in revenue in 2016 and has 468 employees.

OppLoans – #219

OppLoans brands itself as an alternative to payday loans. The company has over 101 employees and did nearly $28 million in revenue last year. Growth over three years totals 1,970%.

Kabbage – #449

Kabbage is one of the leaders in small business lending. Last year the company brought in $171.8 million in revenue. Recently they raised $250 million from Softbank bringing their total equity raised to over $500 million.

loanDepot #1418

loanDepot has been somewhat of a quiet achiever but CEO Anthony Hsieh and his team have quickly built one of the largest non-bank lenders in the country. They brought in over a billion dollars in revenue last year and have over 5,000 employees, dwarfing every other company on this list. Earlier this year they crossed $100 billion in originations. Anthony Hsieh has a fascinating story and was on the Lend Academy podcast in 2016.

Other companies readers may recognize are Lighter Capital (634), Prime Meridian Capital Management (554), FastPay (1653), National Funding (2030), and ZestFinance (2202). You can view the full list which spans a wider range of financial services companies not covered here on the Inc. website.

New Report on Fintech from the World Economic Forum

A detailed report from the World Economic Forum questions the role that fintech firms will have in the future of financial services

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Back in April I attended a couple of roundtable discussions in New York organized by the World Economic Forum. Many leaders from the fintech industry were there as well as some leaders from traditional finance and consultancies. We had very productive discussions on the future of fintech and afterwards they said that out of these sessions would come a detailed white paper.

Today, the World Economic Forum released a report titled, Beyond Fintech: A Pragmatic Assessment Of Disruptive Potential In Financial Services, that was the result of those and many other discussions they had with leaders from around the world. The report aims to answer the question about whether fintech companies will really change the financial landscape. It builds on the last report in 2015 called The Future of Financial Services, sharing the impact of fintech firms and various outlooks for the future.

Here is a very short summary of the report released today:

Our findings suggest that fintechs have materially changed the basis of competition in financial services, but have not yet materially changed the competitive landscape. They play a critical role in defining the pace and direction of innovation across the sector but have struggled to overcome the scale advantages of large financial institutions.

Below are some of the key findings from the report:

  • Fintech start-ups have so far fallen short of their ambitions to upend the competitive landscape in finance, driving innovation but struggling to capture market share in mature markets.
  • What fintechs have done is define the direction and speed of innovation across most areas of financial services; they have also set new and higher bars for user experience.
  • Large technology firms like Amazon and Google may represent the largest competitive threat to financial institutions, as their AI and cloud computing services become more central to the sector, and customer data rises in importance.
  • Models of financial services innovation around the world are diverging, benefitting local firms and making it harder to co-ordinate a regulatory response.

It is a detailed report, some 196 pages, covering most of the major verticals in financial services: payments, insurance, digital banking, lending, investment management, equity crowdfunding and market infrastructure (including blockchain). If you want to get a sense for where financial services is heading this report is a must read.

Five Key Takeaways from the Interview with the CEO of ZhongAn Insurance

ZhongAn has more customers than any other insurance company on the planet and they are less than five years old

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A couple of weeks ago we published a podcast with the CEO of ZhongAn Insurance, Jeffrey Chen. I want to highlight some of the key takeaways today because I think they are a truly amazing company and some of these highlights might have been lost in translation.

Back in June, IFR, a Thomson Reuters publication, broke the news that ZhongAn had filed an IPO application to the Hong Kong stock exchange targeting a listing as early as the end of 2017, raising up to US$1.5 billion. If the deal goes through, ZhongAn will be the first insurtech company to be listed in Hong Kong. It will also likely become one of the most valuable fintech companies on the planet.

With that background here are the five key takeaways from my interview with Jeffrey Chen.

1. ZhongAn is Backed By Some of China’s Largest Companies

Ping An Insurance is ranked by Forbes as the #1 insurance company in the world. They are an early backer of ZhongAn. The other early backers were Alibaba and Tencent, the two most valuable companies in China as measured by market cap. This would be like a fintech startup in the US receiving initial funding from Apple, Amazon and Berkshire Hathaway. Truly impressive.

2. Their First Product Was a Simple Insurance Offering for Alibaba Merchants

ZhongAn’s first product was called Zhong Le Bao, a type of e-commerce returns insurance. It was launched on Alibaba’s Taobao platform and was aimed at covering merchant shipping losses when consumers were dissatisfied with product purchases. It also allowed merchants to bypass Alibaba’s deposit requirements. [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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