Paul Schulte, Advisor, Banking and Financial Services
August 22nd, 2019
Paul Schulte is the Founder and Managing Editor of Shulte Research based in Singapore. Paul's roles[...]
Category Archives: Marketplace Lending/P2P, Online Lending
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Alternative Lenders Continue to Steal Business From Banks
The Financial Brand | Jim Marous
The banking industry has enabled alternative providers to impact the competitive balance for payments, investments and deposits. By not developing customer-centric digital lending platforms, traditional lenders have now also allowed digital players to steal significant loan customers.
Most traditional financial institutions associate PayPal with being a significant player in the competition for consumer payments. Their growth, along with the growth of Venmo, Square and other digital payment alternatives, is well documented. What is less well known is the rapid growth of PayPal as a digital lending alternative. It may be time for banks and credit unions to wake up, however, as the company announced that they had crossed $10 billion in small business lending in only 5 years.
“It took PayPal twenty-three months to get to the first $1 billion in lending,” said Darrell Esch, Vice President of global credit at PayPal. “Demand has never been in shortage.” According to research from deBanked, it took PayPal only five years to reach the $10 billion milestone.
The loan originations were spread out across 225,000 small businesses globally according to PayPal, including the US, UK, Australia, and Germany as well as Mexico through a partnership with another online lending platform. Currently, however, PayPal is originating $1 billion per quarter … making this digital player a very formidable competitor.
Amazon Joins PayPal as Top 5 Small Business Digital Lender
While the growth of PayPal as a digital loan alternative is impressive, they are far from the only digital lender impacting the lucrative small business lending marketplace. Amazon has joined PayPal, OnDeck, Kabbage, and Square as a top 5 digital small business lender. In fact, Amazon revealed that it had made more than $1 billion in small business loans to US-based merchants in 2018.
See: Lending Loop Surpasses $50 million Milestone and helps thousands of Canadian Businesses and Investors
In total, there are more than 1.9 million businesses, content creators, and developers in the U.S. using Amazon to deliver their products and services. According to Amazon, small and medium sized businesses now account for 58% of Amazon sales – up from 30% ten years ago.
The peer-to-peer business lender, Funding Circle, also revealed its first-quarter trading update, showing that loans under management rose by 44% compared to the first quarter of 2018, while originations grew by 23% (they have originated $9.5 billion in loans). This indicates that there is greater competition between alternative and traditional lenders, as well as increased competition within the alternative lending marketplace.
Digital Lenders Leverage Data for Improved Experiences
As with most digital banking alternatives, the top small business digital lenders use vast customer insights and competitive terms to deliver personalized offers and experiences to small businesses. Most of this is done in conjunction with small businesses still having banking relationships for holding funds and making disbursements at traditional banks and credit unions.
Alternative digital lending firms often provide small businesses more favorable terms on loans than can be received from traditional financial institutions. They also provide more financing options and faster approval than traditional banks. Alternative lenders like PayPal also approve small business loans at higher rates — 56% compared to 26% approval rates by big banks, according to data from Biz2Credit.
Because PayPal, Amazon, Square and other alternative lenders have access to transaction history of sellers on their platform – and often use that merchant’s sales data instead of a credit score – they can quickly determine the credit worthiness of a small business borrower. Comparably, banks and credit unions usually only have access to a small business’s deposits and bank accounts, unable to see the entire picture of a company’s sales.
“PayPal business financing programs can provide funding from $1,000 – $500,000 for small businesses looking for both quick decision-making and immediate usage as an application decision that usually occurs within minutes or hours, if approved, allows the business to start using the funds almost immediately,” said Esch.
This availability of funds comes at a time when many traditional organizations have pulled back from offering small business credit. According to the Federal Reserve’s Small Business Credit Survey, as many as 70% of merchants didn’t receive the funding they wanted in 2018.
See:
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The future of fintech: lending + services
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Lock BTC, Get DAI: Lending Firm Bridges Bitcoin-DeFi Divide in Latin America
“If you look at the great recession what you’ve seen is a bounce back of commercial lending, but lending to small businesses really hasn’t come back,” states Esch. A lot of the hesitancy is attributed to the cost of underwriting. Banks are usually not in a position to lend small amounts of money on a frequent basis. Digital alternative lenders are built for this type of lending.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China’s digital currency
Reuters | Sharon Lam | Nov 8, 2019
Recession gatecrashes Hong Kong’s fintech party
HONG KONG (Reuters Breakingviews) - Hong Kong’s economic travails are an unwelcome guest in the city’s fintech party. Enthusiasm for online-only banks was palpable at the Fintech Week conference. Yet months of political unrest have hit small businesses, and the added risks may delay local launches by the likes of Standard Chartered and Tencent.
Attendees this week descended on Hong Kong’s Lantau Island for the financial hub’s fourth annual gathering. With appearances from top officials like Financial Secretary Paul Chan to executives at Singapore’s $14 billion Grab and other rising stars, there was plenty of buzz. Hot topics included central bank digital currencies and cross-border payments.
See: News on China cryptocurrency and more reforms
Virtual banks, as these branchless outfits are known in Hong Kong, took centre stage. Earlier this year, Hong Kong authorities granted eight licenses for such firms to offer payments, deposits and other services, in a long overdue shakeup. HSBC, Bank of China Hong Kong, Hang Seng Bank and Standard Chartered account for some three-quarters of the city’s mortgages and two-thirds of retail loans. Online challengers, including a joint venture between Chinese handset maker Xiaomi and AMTD, as well as insurance giant Ping An, are ready to muscle in. About 30% of total banking revenue, or $15 billion, is up for grabs, analysts at Goldman Sachs reckon.
Yet just 40 kilometres away from sunny Lantau, Hong Kong’s central business districts and elsewhere are reeling from broader malaise. The financial centre’s economy shrank by 3.2% in the third quarter, plunging it into recession for the first time in a decade, as increasingly violent anti-government protests took hold. Lenders now face lower profitability as risks of loan losses and higher credit costs rise, Morgan Stanley analysts warned in a recent note. The protest-battered city’s 340,000 small and medium-sized businesses, prime customers for online-only banks, have been hit the hardest. Virtual banks say they remain fully committed to Hong Kong.
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Latham and Watkins LLP | Simon Hawkins and Kenneth Y.F. Hui
SFC outlines new regulatory framework for virtual asset trading platforms, HKMA highlights recent FinTech initiatives, and PBOC discusses China’s forthcoming central bank digital currency.
The fourth annual Hong Kong FinTech Week conference kicked off with a major announcement from Mr. Ashley Alder, Chief Executive Officer of the Securities and Futures Commission (SFC), who introduced a new, formalized regulatory framework for virtual asset trading platforms (VATPs). A panel of central bankers also discussed stablecoins and central bank digital currencies, including the People’s Bank of China’s (PBoC) forthcoming central bank digital currency, referred to as the digital currency / electronic payment (DCEP) coin.
VATP Regulation
Last year, the SFC published its conceptual framework for the potential regulation of VATPs and, since then, the SFC has worked behind the scenes with some of Hong Kong’s existing VATPs to better understand their operations, and to explain the SFC’s regulatory expectations, while also assessing VATPs capability to comply with the SFC’s expected requirements.
Importantly, under Hong Kong’s securities laws, the SFC only has power to regulate a VATP that trades virtual assets or tokens that are legally “securities” or “futures contracts.” Bitcoin and other, more familiar, cryptoassets are not securities, and nothing in the SFC’s new framework alters this position. The new framework therefore only applies to VATPs, which include at least one security virtual asset or token for trading. Thereafter, the SFC’s new rules will apply to all of a VATP’s operations, even if the vast majority of other virtual assets or tokens traded on the platform are not securities.
See: Hong Kong being pulled into the 21st Century — digital banking licenses finally arrive
Essentially, the new regulatory framework allows a VATP to “opt in” to SFC regulation by electing to trade at least one security virtual asset. The SFC’s view is that the principal benefit of being regulated is that the VATP would be able to represent itself to clients as a supervised business. Once licenses are granted to the VATPs that choose to opt in, investors will then be able to distinguish easily between regulated platforms and platforms that are not regulated.
VATPs that wish to opt in under the new framework may apply to the SFC to be licensed for Type 1 (dealing in securities) and Type 7 (providing automated trading services) regulated activities. The SFC will only accept license applications from centralized VATPs that are based in Hong Kong, so decentralized and peer-to-peer VATPs will not be able to obtain licenses (for the time being, at least).
License applicants must demonstrate that they are willing and able to comply with the expected standards under the regulatory framework published by the SFC. Under the key licensing conditions that will be imposed on licensees, a VATP operator must:
- Only offer its services to “professional investors” (i.e., the general public will not be able to trade on SFC-licensed VATPs)
- Have stringent criteria for the inclusion of virtual assets to be traded on its platform
- Obtain the SFC’s prior written approval for any plan or proposal to add any product to its trading platform
- Submit monthly reports to the SFC on its business activities
- Engage an independent professional firm acceptable to the SFC to conduct an annual review of its activities and operations and prepare a report confirming that it has complied with the licensing conditions and all relevant legal and regulatory requirements
- Only provide services to clients who have sufficient knowledge of virtual assets
- Not conduct any offering, trading, or dealing activities of virtual asset futures contracts or related derivatives
- Adopt a reputable external market surveillance system to supplement its own market surveillance policies and controls
- Ensure that an insurance policy covering the risks associated with custody of virtual assets is in effect at all times
Notably, SFC-licensed VATPs should only include security virtual assets that are (i) asset-backed; (ii) approved or qualified by, or registered with, regulators in comparable jurisdictions; and (iii) with a post-issuance track record of 12 months.
VATPs
In light of the intensive assessment process and to meet the expected regulatory standards, the time required for processing a licensing application from a VATP may be longer than the 16-week period that is typically expected for a standard securities licensing application.
If a platform operator is licensed, its infrastructure, core fitness and properness, and conduct of virtual asset trading activities should be viewed as a whole. Although trading activities in non-security virtual assets or tokens are not “regulated activities,” the SFC’s regulatory remit over all of these aspects of platform operations will be engaged once a platform involves trading activities in security virtual assets or tokens, even if these activities are a small part of its business.
The SFC has stated that it will continue to monitor the evolution of cryptoassets and work with the Hong Kong government to explore the need for legislative changes in the longer term.
See: The future of Asia: Asian flows and networks are defining the next phase of globalization
Other FinTech Initiatives in Hong Kong
Mr. Eddie Yue, Chief Executive of the HKMA, highlighted a series of recent initiatives aimed to foster the FinTech ecosystem in Hong Kong:
- The subsidiaries of Hong Kong Interbank Clearing Limited and Institute of Digital Currency of the PBoC have signed a memorandum of understanding to connect the digital trade finance platforms of Hong Kong and the PRC.
- The HKMA and the Bank of Thailand are conducting a joint research project to study the application of central bank digital currency to cross-border payments, with a view to facilitating HKD-THB payment-versus-payment among banks in Hong Kong and Thailand. A joint report is scheduled for release in the first quarter of 2020.
- The first-ever innovation hub of the Bank of International Settlements (BIS) commenced operations in Hong Kong in November 2019. The mandate of the BIS innovation hub is to identify and develop in-depth insights into critical trends in financial technology of relevance to central banks, to explore the development of public goods to enhance the functioning of the global financial system, and to serve as a focal point for a network of central bank experts on innovation.
- The HKMA is conducting a study on the application of artificial intelligence (AI) technology in the banking industry and will release a series of publications on this topic in the coming months. This announcement follows a circular issued by the HKMA earlier in November 2019, setting out high-level principles that banks should take into account when designing and adopting AI and big data analytics applications.
- The HKMA has jointly launched the Fin+Tech Collaboration Platform with the Hong Kong Science and Technology Parks to support FinTech development. Industry players can use the platform to organize FinTech-related activities, such as hackathons.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Uber announces deeper push into financial services with Uber Money and Understanding its threat to the financial industry
CNBC | Hugh Son | Oct 28, 2019
Key Points
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The ride company announces a new division called Uber Money, which includes a digital wallet and upgraded debit and credit cards.
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The emphasis, at first, will be expanding Uber’s efforts to give its 4 million-plus drivers and couriers around the world access to a mobile bank account so they can get paid after each ride.
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Uber could one day offer a bank account to consumers on its platform, according to Uber Money head Peter Hazlehurst.
Ride-hailing giant Uber is making a deeper push into financial services.
The company announced on Monday the formation of a new division called Uber Money to house its efforts, which include a digital wallet and upgraded debit and credit cards. The emphasis, at first, will be expanding Uber’s efforts to give its 4 million-plus drivers and couriers around the world access to a mobile bank account so they can get paid after each ride, according to Peter Hazlehurst, who will head the new division.
“We wanted to help everybody understand that there’s a new part of Uber that’s focused on financial services and that has a mission of giving people access to the type of financial services they were excluded from,” Hazlehurst said in a phone interview.
Under pressure to turn a profit amid competition from new ride-sharing entrants around the world, Uber is betting that by building out its financial ecosystem, it can keep drivers and riders loyal to its platform. The company topped 100 million monthly active users this year. Many of them use credit cards to pay for rides and food orders. Future products could remove costs related to financial middlemen or generate new revenue streams.
See: Uber is making a fintech push with a New York hiring spree
In June, CNBC was first to report that Uber was ramping up the creation of financial products by hiring engineers for a fintech outpost in New York.
Uber is rolling out globally a debit card with an enhanced “instant pay” service it has been testing in the U.S. and a few other markets. The feature has taken off in the U.S, with more than 70% of driver payments made using instant pay, according to Hazlehurst. It is essentially a no-fee banking account, with the debit card in the U.S. linked to an account provided by Green Dot.
“Not only do you get access to your earnings in real time, it doesn’t cost you anything to keep the money there and you can spend it whenever you want to,” Hazlehurst said.
Cash-strapped drivers
These payment innovations highlight the reality that many in the gig economy are struggling to make ends meet. Another popular feature, no-cost $100 overdrafts, helps cash-strapped drivers pay for gas to kick off a working day. It is, however, a better alternative than high-interest payday loans.
Uber’s ambitions could bring drivers into the realm of digital finance in parts of the world where cash is still king, like Pakistan and Bangladesh. About 40% of all Uber trips globally are paid using paper currency, Hazlehurst said, and Uber is eager to bring that figure down.
See: Uber Banking: Fintech Aims to Revolutionize Financial Services in Canada
After equipping drivers with electronic bank accounts — echoing the model of so-called challenger banks like Chime and Varo — would Uber one day look to provide its many millions of riders with an account, too?
“I think so,” Hazlehurst said. “The reality is that the needs of our partners in the U.S. and in Brazil and in Australia and in India mirror in many ways the needs of consumers as well, particularly in the cash-heavy economies. And the opportunity that we have is to expand to help all of those people have access to financial services.”
One advantage Uber has over other new entrants into banking is its massive scale, which allows the company to negotiate better deals with vendors, he said. “We don’t have to take the traditional fee income model to operate these services,” Hazlehurst said.
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Understanding Uber Money its threat to the financial industry
Future of Finance | Lex Sakolin | Nov 4, 2019
Uber has entered finance! The end is nigh! The boogeyman is here!
Oh. So what's involved? There's a debit card and a "debit account" powered by Green Dot, the same bank that's behind Apple Pay's person to person service. That means that Uber isn't a bank, but is renting shelf space on one. There's a wallet that will be integrated into the Uber app, within the driver's experience. So tracking your earnings and spending will be a feature that is part of the app -- not unlike what Amazon has had for years for merchants. There is a credit component, letting drivers withdraw money against their payckeck. And there's a Barclays credit card, private labeled for Uber, riding on the VISA rails.
Hear ye, hear ye, beware the disruption and tremble under its glory!
So maybe you can tell I am not terrified of this offering, as it relates to the position of banks in the world. But it would be a mistake to underestimate it, and in particular, to miss the various trends that are pulling this together. One lens to understand these developments is the Gig Economy theme. The 2008 Great Recession created high levels of unemployment across the world, and the technology sector was ready with solutions. It is expensive to have employees – they have all sorts or rights, like the ability to organize and the expectation of health and pension benefits. On the other hand, contractors have no such expectations and can be hired and fired at will. To that end, contracting gig websites – from home repairs, to deliveries, to driving pseudo taxis – sprouted like flowers after a fresh rain.
See: Omer Ismail — Head of Marcus U.S. (Goldman Sachs’ Consumer Business)
The issue with lots of part-time work, other than being a psychological nightmare for people that want full-time work, is that you lack the benefits and stability employers provide. In the nonsense world of the United States, employers are responsible for worker healthcare and retirement, and compete to provide such benefits. One could reasonably expect that such social benefits should come from society, but that’s a topic for another day. So when you take away employers, and replace them with venture blitz-scaling start-ups like Uber, the end result is a lot of people who have earnings volatility, a lack of access to traditional financial services, an inability to buy a home under a mortgage, a lack of affordable health care, and a variety of other monsters.
No good pain point is left unserved, however. A number of neobanks have been formed to help with exactly these problems, across categories. The examples below, including Oxygen and Joust, offer a full financial solution for contractors. This includes accounts and consumption smoothing through credit, but it also includes things like merchant gateways and other enabling small business and freelancer technology. Uber's entry point into finance is first and foremost competing with companies like this -- the teams trying to build good financial offerings for those with a contractor's set of problems. And these are more fully featured apps, though they are less tightly coupled and not integrated directly into Uber's experience.
If these targeted gig-banks are too niche from your point of view, we can then just highlight the US neobanks that focus on the same income/wealth demographic. The killer feature for those is credit, not information or aggregation. See Chime or MoneyLion below, with millions of customers each. Who doesn't want to get free money every week? The pro-Uber argument you could make is that Uber has advanced data on its drivers, like Amazon for its merchants. Amazon can better underwrite merchants, because it knows the web traffic to their pages on its own marketplace, and the conversion rates into purchasing a product. Similarly, Uber can project out the trips an individual driver will likely experience in their location based on the massive data set, and use that to adjust the underwriting model. But still, there is real competition.
See:
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Incumbents, consumer complacency barriers to innovation in Canadian banking
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Unlocking the Potential of Frontier Finance
Another lens you can take to analyze the offering is by looking at personal financial management companies that focus on the employer. Two examples come to mind, though there are countless available. Hello Wallet was a fintech start-up focused on helping employers provide a Mint.com-like benefit to employees, with the concept that financially healthy employees are better at their work. You can see the screenshots below. The company was sold to Morningstar for about $50 million, and then sold off again to KeyBank. The largest analytics company was not able to sufficiently commercialize the data/analytics play, and divested to a bank, for whom PFMs are more core and strategic. Times change certainly (e.g., Plaid vs. Envestnet), but this commercialization challenge remains real. Further, Uber is just a single employer, albeit with 3 million drivers, while these PFMs had targeted a broader market.
Think also about Financial Engines. One of the original digital wealth management companies, FNGN was started in the early 2000s (way before you, Wealthfront) to target corporate workplace programs and sit on top of 401(k) retirement providers. It helped employees make better investment decisions, and focused on the place most of us actually make that investment decision. FNGN was eventually combined with the Mutual Fund Store (a store! of mutual funds!) and Edelman Financial to create a $200B+ assets under management player. Could Uber roll out a meaningful competitor? Can it offer a digital financial advisor that moderates between investments, banking, and credit to Uber drivers? Yes, but remember that for most of the drivers, the key issue is to have enough money for rent during the middle of the week.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Chinese Regulators Move To Shutter P2P Lenders
Paymnts | Oct 31, 2019
Shanghai regulators are ordering more than 40 peer-to-peer (P2P) lenders to get ready to close shop, the Financial Times (FT) reported on Thursday (Oct. 31).
Authorities are giving P2P companies time to wrap up their business affairs, but “the ultimate goal is zero on the balance sheet,” a source told FT.
See: President Xi Says China Should ‘Seize Opportunity’ to Adopt Blockchain
Some of the nation’s biggest platforms – Lufax, Dianrong and Madai Finance – have been told in recent meetings with Shanghai’s financial services bureau to stop issuing new products, the source said.
China’s P2P sector emerged during a wave of deregulation and has operated with little oversight. It was intended to provide loans to smaller borrowers and to give savers access to double-digit yields.
P2P lending fell under scrutiny when President Xi Jinping starting cracking down on financial risk. The sector was plagued by fraud and defaults after having topped $150 billion in outstanding loans.
“An attempt to shut down the industry in China’s largest financial hub represents one of the harshest government measures to date,” the article said.
Some investors who lost money in the sector complained to regulators, and P2P lending started to be seen as a “threat to social stability.”
See: FCA confirms new rules for P2P platforms
Scandals also turned a negative spotlight on the P2P sector. Billionaire Dai Zhikang turned himself into Shanghai police last month in connection with illegal fundraising, and he closed his P2P lending unit Laocaibao.
In July, it was rumored that Lufax, which is backed by Ping An Insurance, was planning to exit P2P due to tougher regulatory issues in China. Sources told Reuters at the time that the company had already started the process of applying for a license in consumer finance. In addition, it was reported that the P2P division’s employees would move to the consumer finance business.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Interested in a High Interest Bitcoin Saving’s Account? Interview with Ledn CEO, Adam Reeds
NCFA | Craig Asano | Nov 1, 2019
NCFA recently sat down with Toronto-based Ledn's CEO and Co-Founder Adam Reeds (LinkedIn) to learn more about the rise of Decentralized Finance (DeFi) and the company's tremendous growth in Latin America.
There are a number of growing DeFi use cases based around blockchain technologies and decentralized networks from the issuance of stablecoins as a means to create monetary banking type services, peer to peer or aggregate lending and borrowing products as well as tokenized platforms all of which are providing underserviced markets with alternative solutions to traditional financial services with fewer intermediaries, lower costs and arguably improved security.
Q1. What’s the story behind the launch and ultimate vision of Ledn?
Adam Reeds: Ledn was conceptualized in 2016 after we, as founders, experienced a gap in the market for accessing financing for our bitcoin assets. Bitcoin has several fundamentals that make it very attractive for financing. Bitcoin is non-jurisdictional (it is the same everywhere, globally), has
established market value and trades 24/7, has strong liquidity and is divisible. Yet despite these strong attributes, at the time of conceptualizing Ledn, as still today, there are limited options for financing bitcoin.
Listen: Bitcoin Backed Loans and 2x Credit – Putting Your Crypto to Work
From inception, we wanted to be sure that Ledn was accessible to everyone globally. To do so we knew that we had to build a platform that was simple and secure with a strong focus on compliance. We assembled an experienced team of technology, finance, legal and regulatory professionals and set out to build an online platform where individuals and businesses can access financial services for bitcoin.
Ledn’s mission is to help more people save in bitcoin, while standardizing rates and service for financial products globally.
Q2. We see that Ledn has a growing list of products, can you give us a brief run-down and talk about the markets and traction to date?
Adam Reeds: Launching from Canada, Ledn now active in 51 countries and has launched 3 products to date.
Its first product is Borrow - a bitcoin-backed loan which allows people to borrow dollars without selling their bitcoin. The second product is Save - a interest-bearing savings account that pays interest on bitcoin, in bitcoin. Its most recent product is B2X - a product that allows customers to instantly double their bitcoin holding by tying the purchase of bitcoin together with a dollar loan.
Given the need for improved financial products in the region, and the background of Ledn’s team, Ledn’s focus market (outside of Canada) has been Latin America and is seeing very strong traction of its products in the region to date. Over 51% of Ledn’s customers are now from Latin America.
Q3. Are all borrowers/loans considered equal or are there restrictions on who can borrow, use of funds, liquidity?
Adam Reeds: The great thing about dealing only in bitcoin is that we can treat all of the assets of our customers equally. Given our loans are asset-backed, we do not consider the credit quality of our borrowers in our underwriting. Our qualification in considering who we interact with is completely tied to ensuring we follow Canadian and local laws.
The great thing about dealing only in bitcoin is that we can treat all of the assets of our customers equally.
We abide by the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) regulations with respect to know your customer (“KYC”) and anti-money laundering procedures. We require all of our customers to complete KYC documentation regardless of the amounts we deal with, and consider strong compliance a key factor of our success to date.
See: Living on Defi: How I Survive Argentina’s 50% Inflation
Q4. A high interest bitcoin savings account is interesting given the low rate that consumers and businesses generally earn in traditional savings accounts. How does this work and has there been a lot of interest to date in the service?
Adam Reeds: The economics of the savings account relies on a market demand for borrowing bitcoin. Typically, there are three main use cases for borrowing bitcoin; (1) providing working capital for an exchange that needs to keep a float of bitcoin to facilitate buy-orders, but does want to take bitcoin price risk, (2) facilitating short positions, for proprietary trading firms to bet a price decline in bitcoin or (3) facilitating trading arbitrage opportunities such as differences that exist in the price of bitcoin on various futures markets or exchanges.
The interest rate that Ledn is able to pay on its Savings account is dependent on the demand for the various activities above.
Ledn has had strong uptake in its savings account as it is a complementary product to the loan portfolio - providing a way for users to earn more bitcoin with their bitcoin.
Q5. What kind of Canadian regulations govern the Ledn platform and services?
Adam Reeds: Canada’s FINTRAC rules related to AML and KYC were recently updated to include dealers in virtual currency. However, FINTRAC has not yet opened up registration for this activity, as the requirement to register as a Money Service Business (“MSB”) will not come in place until June 1, 2020. Despite the registration not yet being available, we have taken a proactive approach and have built KYC requirements into our technology platform from day one. All of our customers are required to complete KYC documentation to access any of our products.
We also follow and abide by regulations related to consumer protection and private lending activities both in Canada, as well as the local laws for which its customers are resident. On top of it all, we abide by a simple concept - there’s what you have to do, and what you should do - we do what we should do and have enforced strong compliance in all of our technology and processes. We treat our customers fairly, and focus on keeping our products simple and transparent.
Q6. Tell us what inspires you the most these days?
Adam Reeds: Most of the world does not have the savings tools that Canadians benefit from. In Canada, we have the luxury of stable real estate and capital markets, and have many options for investing and storing our wealth. For those that lack these savings tools, bitcoin is proving to be an incredible alternative. Ledn is excited by the potential to work with an asset that can unify standards for financial products, and deliver a better experience to people around the globe.
Most of the world does not have the savings tools that Canadians benefit from.
Q7. Do you have any insights or lessons that you’d like to offer the community on founding a fintech startup in Canada?
Adam Reeds: The most important thing in a start-up is to start. Great ideas are 10%, execution is 90%. Surround yourself with people that bring diverse skill sets and motivate each other. Each person you add to the team at the beginning of the company will make or break your success. Choose wisely, and for those that agree to join you on the journey, treat them well and align them with what you want to build - as a team.
See: Lock BTC, Get DAI: Lending Firm Bridges Bitcoin-DeFi Divide in Latin America
Along the way, make sure tasks are solved in this order.
- What do we want to do
- Why are we doing it
- How do we do it
Most people forget about the why - it is the most important part.
Canada’s diversity is definitely its strength. Albeit all Canadian citizens, Ledn’s team consists of only one born and raised Canadian, with the rest of our full team originally from Venezuela, Panama, Cuba, Croatia, Egypt and Hong Kong. We are proud to have built Ledn in Canada and to bring our company to the world stage.
Thanks Adam - wishing you and the entire Ledn team all the success at scaling Ledn's model globally!
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Lock BTC, Get DAI: Lending Firm Bridges Bitcoin-DeFi Divide in Latin America
Coindesk | Leigh Cuen | Oct 29, 2019
Canadian startup Ledn, which offers bitcoin-backed fiat loans, now also offers dollar-pegged DAI loans, connecting bitcoin users with ethereum’s decentralized finance (DeFi) ecosystem.
Ledn co-founder Mauricio Di Bartolomeo, a Venezuelan expat, told CoinDesk this new partnership with stablecoin promoter MakerDAO was driven by customer demand.
Out of “thousands” of users, more than half of Ledn’s users are in Latin America, Di Bartolomeo said, where ethereum-backed DAI is increasingly seen as an alternative to strictly regulated dollar transfers. In fact, this past weekend the central bank of Argentina restricted civilians to buying only $200 in USD per month, down from the previous $10,000.
“In Argentina, if you receive a bank transference in USD they convert it immediately to ARS (Argentinian Nuevo peso), and you lose money,” Nadia Alvarez, MakerDAO’s head of business development in Latin America, told CoinDesk. “We know BTC hodlers don’t want to sell their BTC, but they need liquidity, for their daily expenses. That is why we think this is relevant for Latin America.”
Ledn isn’t the first company to notice that bitcoiners are eager for access to the ethereum community’s experimental loan products. Silicon Valley startups in the Cross-Chain Working Group are also working on a different solution to allow wrapped bitcoin tokens directly on the ethereum blockchain.
Plus, later this month Maker token holders, who govern the stablecoin ecosystem, will vote on whether to include bitcoin among the upcoming multi-collateral version of DAI. (Currently, DAI tokens are only made by locking up ether tokens in smart contracts that monitor ether prices and automatically liquidate the ether collateral if the price plummets.)
See:
In the meantime, Ledn will buy ethereum-backed DAI from over-the-counter traders and manage bitcoin custody for loan clients. Di Bartolomeo said clients across Latin American have reported banking issues comparable to Argentina, although unique for each context, which is why they are turning to DAI. He added Colombians make up 16 percent of Ledn’s user base, the largest demographic in Latin America, followed by Venezuelans at 12 percent.
“Several users have expressed that they would like to use stablecoins like DAI to purchase additional digital assets and others to access more financial services,” he said.
DeFi boom
Ledn users will soon be able to lock up their bitcoin and spend DAI at 750 merchants across Colombia, Venezuela, Argentina and Brazil, according to MakerDAO’s Alvarez.
Separate from the loan startup, MakerDAO is partnering with product-provider Pundi X, and planning to install point-of-sale devices across Latin America so that DAI users can spend crypto directly on goods and services. In addition, brick-and-mortar locations will enable a user in Argentina to send fiat or DAI to Venezuela, for example, with Pundi X’s debit card–esque Xcard.
“The [Ledn] DAI loan gives bitcoiners the opportunity to enter into the DeFi world, and all the projects inside the ecosystem,” Alvarez said.
Di Bartolomeo told CoinDesk he’s excited to work with MakerDAO precisely because they have “boots on the ground” where his customer base lives. Dozens of people have attended DAI meetups in Mexico City, Bogota and Buenos Aires over the past year. Globally, MakerDAO records currently show more than 60,000 DAI wallet addresses in October 2019.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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