Category Archives: Marketplace Lending/P2P, Online Lending

The future of fintech: lending + services

Andreessen Horowitz |

fintech lenders in disguise - The future of fintech: lending + servicesIn 2006, LendingClub introduced a then-novel business model: the ability to offer online personal loans to millions of underserved customers. The peer-to-peer lender was a media and investor darling, hailed as a tech-enabled alternative to traditional banks. When LendingClub went public in 2014, it was valued at $8.5 billion, the year’s single largest US tech IPO. Now, five years later, that fintech pioneer has lost 85 percent of its market value.

Meanwhile, mobile upstart MoneyLion launched in 2013, also providing online personal loans—a direct competitor to LendingClub. Today, MoneyLion claims more than 5 million users and is valued at nearly $1 billion.

See:  Peer to Peer Lending: The Future of Fintech is Now

LendingClub had significant competitive advantages, from low customer acquisition costs—back then, personal loans keywords weren’t nearly as competitive on Google and Facebook was actively promoting LendingClub as an early F8 partner—to improved underwriting (the company provided lenders with access to customers’ credit score, total debt, income, monthly cash flow, and social data). So why is LendingClub experiencing growing pains while MoneyLion sees significant growth? Though the latter started out solely as an online lender, it quickly morphed into an all-in-one lending, savings, and investment advice app.

A new wave of fintech startups understand that regularity and rhythm are the basis of any good relationship. Take Tally, for example, which is building a large-scale lending business via automating credit card payments. Or Earnin, which provides ongoing value by granting customers access to an earned wage advance, say, every two weeks. Credit Karma hooks users by offering regular updates on your credit score. The services these companies provide to users—conveniently packaged in app form—go beyond loans. And by driving continued engagement, these companies don’t have to pay to reacquire customers.

In addition, the business (in this case, providing or facilitating loans) actually improves the customer experience and the overall product. Credit cards are a classic example. By using them to make payments, the consumer earns rewards—improving the experience and the product—while the credit card company makes money via the interchange. Likewise, for Credit Karma members, taking a personal loan can reduce credit card debt, thereby improving their credit score. Another example outside fintech is Google Ads (formerly Google AdWords). When useful results are returned, it actually improves the utility of Google Search, giving consumers a reason to re-engage with the broader product. Thus, a flywheel is created between customer retention and monetization.

See:  Lending Loop Surpasses $50 million Milestone and helps thousands of Canadian Businesses and Investors

In the coming years, fintech companies will continue to duke it out for dominance in various core verticals, whether that’s financing a home, paying off student loans, or managing credit card debt. But the real test of who will own the money button on your phone will be in who can build enduring customer relationships. By being holistic, fintech companies can earn a place in users’ regular app rotation—then cross-sell into new product areas. Even as businesses like LendingClub and Prosper are losing ground, peer-to-peer lending remains a $138 billion market. The next wave of lenders, though? They’re pocket-sized financial assistants.

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NCFA Jan 2018 resize - The future of fintech: lending + services 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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Sep 22, 2019: NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market

NCFA Canada | Sep 22, 2019

ASC  - The future of fintech: lending + services

NCFA is pleased that the Alberta government is undertaking this important initiative to the  benefit of all Albertans.  We acknowledge the substantial background information provided by 11-701.  This submission responds to the brainstorming headings pp. 24 – 31 and seeks to fill knowledge gaps with recent consultation data (mainly obtained in Edmonton) and pays specific attention to equity (investment) crowdfunding and peer lending in Alberta.

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Key Takeaways

The NCFA recommends that the ASC undertake the following:

  • Review and publish a report that evaluates the effectiveness of Alberta’s investment crowdfunding and peer lending requirements compared to other jurisdictions in Canada and international competitors such as the UK, US and Australia, including a comparison of the relative cost of capital to other available financing options;
  • ASC to take a more active role as a resource for both early stage companies and investors including data collection, market analysis, and information sharing to ensure more fair and efficient capital market formation in Alberta;
  • Engage Innovate Edmonton and Platform Calgary following the detailed third-party study by Startup Genome to obtain detailed ecosystem benchmarking data for follow-on analysis of Alberta’s funding gaps;
  • Support the development of a tax relief program for investors to increase the volume of start-up risk capital allocated to non-traditional sectors (eg. financial technology) similar to the effective programs in the UK: SEIS[1] and EIS[2];
  • Work with other jurisdictions to harmonize the crowdfunding regime across Canada (CSA Staff Notice 45-324) with the goal of eliminating unjustified regulatory burden at the same time. We favour BC’s regime;
  • Modify existing requirements so that they are principles based and outcomes focused to enable businesses to comply in the way that best suits their operations – detailed or prescriptive controls should only be imposed when clearly justified;
  • Implement burden reduction amendments for crowdfunding (45-108):
    • Increase the 12 month issuer cap to $5 million or higher;
    • Increase the 12 month investor caps to $10k and allow accredited investors to fully participate;
  • Allow advertising and general solicitation on social media for all crowdfunding;
  • Allow fintech solutions to streamline KYC and suitability tests;
  • Startup crowdfunding business exemption (45-109) – remove lifetime cap of $1 million; or increase lifetime cap to minimum $5 million.

See:  [Survey Deadline Sep 20, 2019]: ASC consults on Energizing Alberta’s Capital Market

Benefits to Alberta will include:

  • Increased capital investment in the province and increased economic growth;
  • Increased investment options for investors that support small businesses across Alberta;
  • Reduced pressure on Albertan startups to raise capital from outside Alberta and Canada;
  • Crowdfunding sources remain in Canada;
  • More capital and improved access to capital specifically for small businesses, rural businesses, economically challenged sectors, and under-served groups (eg. women and Indigenous business owners);
  • More liquidity and transparency in the markets;
  • Improved probability of retaining high growth companies in Alberta; and
  • Accelerated commercialization of new products and services.

Crowdfunding helps to drive innovation, economic activity and job growth. It fills a critical early stage funding gap (‘valley of death’), enables more productive investment in venture markets, and strengthens early stage capital markets. Crowdlending also provides support to more mature companies looking to access capital that may fall outside the parameters of bank lending. And last, but not least, it helps to democratize investment by giving smaller investors direct access to the capital markets.

“Regulation may be the largest constraint to capital markets Fintech development in Canada, as we have not set out many of the same principles as in the U.S. and U.K.”[3]

This is not the time for Alberta to hold back.

Thank you for the opportunity to contribute comments.  NCFA would be happy to expand on any of the points raised in this submission.  We look forward to future developments.

See:  ‘We don’t have enough money’: Tech leaders debate constraints at Vancouver Startup Week

1.    Background and Context

Contrary to the intent of the crowdfunding exemption, Alberta’s crowdfunding requirements hinder access to capital for SMEs across many sectors. These requirements have restricted innovative opportunities for retail investors and our members feel the impact of this directly. The potential of opening up regulation is to significantly increase job creation and economic development, as experience in other jurisdictions shows. Alberta’s 417,000 small businesses would also benefit from the increased access to capital that crowdlending offers.  Canada has fallen behind international competitors like the UK and the US. Crowdfunding now provides the largest investment at the seed stage in the UK and peer-to-peer platforms now provide 15% of all new bank lending to small businesses.

2. Fintech and Crowdfunding are Being Held Back in Canada

Canada’s crowdfunding and fintech “ecosystem” should be competitive, be in line with global trends, and enable early stage entrepreneurs to access smaller amounts of capital at a reasonable cost. Unfortunately, it is not and does not. There is a ‘funding gap’ as smaller companies find it very challenging to raise debt or equity financing in Canada.

There is a 'valley of death' for start-ups at around the $250,000 level. Venture capital funding has increased, but VC dollars are mostly going to expanding firms. Angels are a lot less active than in the US and their investment amounts are lower. Banks generally steer clear of start-ups. This means fewer innovative start-ups, fewer opportunities for investors, lower economic growth and productivity and fewer jobs.

“Regulation may be the largest constraint to Fintech development in Canada, as we have not set out many of the same principles as in the U.S. and U.K.”[5]  The NCFA has conducted numerous stakeholder consultations which overwhelmingly tell us that regulatory requirements are overly prescriptive, complex and burdensome, disproportionately raising the costs of doing business for start-ups. Entrepreneurs are reluctant to start up in Canada due to high costs (relative to a small financing), along with concerns about ongoing regulatory burdens such as over-reaching and complex reporting requirements and compliance reviews.

Investors are inhibited by restrictions like caps on investment. Many talented entrepreneurs and investors move to (or invest in) overseas jurisdictions that better understand (and support) innovation and the economic potential of start-ups and SMEs.  If the NCFA recommendations were to be implemented, the experience of other jurisdictions makes clear that more capital would be raised, especially for under-serviced sectors (e.g. women and minority groups, including First Nations, and rural communities). Investors would have increased confidence and more freedom to invest as they choose – any increase in investor downside risks are anticipated to be low.

3. Alberta

The call for comments by the ASC is a leap towards positive change in the Albertan capital markets and crowdfunding landscape. While the in-depth background material supplied by the ASC in 11-701 clearly lays out the challenges for Albertan companies, there are updated consultative engagements with the entrepreneur communities in Edmonton and Calgary. These updated reports will be a useful addition to the ASC’s decision-making processes. They also provide excellent contacts for ASC’s engagement with Alberta’s major centers.

See:  ASC advances new capital-raising initiatives for start-up businesses

(a) Startup Genome Reports

In Edmonton, starting in May 2018, community meetings under the banner of the “Edmonton Innovation Ecosystem Community” engaged members of the innovation community.[6] To date, there have been 11 community consultations with key innovators on a near-monthly basis. The impetus for the first gatherings followed consultation with 50 entrepreneurs in Edmonton to gather their feedback on ecosystem performance. The EEDC engaged Startup Genome to begin measurement of the ecosystem performance. The Edmonton Report brought two key measurement instruments to the ecosystem, Global Market Reach (GMR) and Global Connectedness (GC).

startup genome edmonton report - The future of fintech: lending + services

Startup Genome Edmonton Ecosystem Assessment, May 2018

We ask that the ASC review the results of EEDC’s more detailed analysis of the ecosystem as part of their assessment of 11-701 responses. Notably, Edmonton lags behind its Canadian peers in attracting resources from within the country.  In addition, Edmonton ranked below what the report calls the Globalization Phase Average in Early Stage Funding per Startup, based on data from Crunchbase and Deal Room. The key actionable insights from this early analysis are that Edmonton should focus on increasing early stage funding by (1) widening the funnel and increasing startups with seed funding; (2) supporting the formation of more sources of capital (ie. Angel groups); and increasing access to Series A capital.  Calgary has also engaged Startup Genome for ecosystem benchmarking[7].

(b) Innovation Compass

Another work product from the EIEC meetings in Edmonton was the Innovation Compass report[8]. Due to perceived low numbers of early entrepreneur engagement, EEDC engaged ZGM Marketing to complete a third-party interview process with Edmonton Entrepreneurs to make recommendations that reflect the voice of Edmonton entrepreneurs. Engagement began in December 2018 and the final report was published June 20, 2019. The report provided community validated recommendations and directions for supporting the city’s tech innovation ecosystem. Among 14 recommendations and directions, the top recommendation was:

“Encourage pools of private investors from all sectors to move off the sidelines and start investing in local tech entrepreneurs.”

innovation compass edmonto recommendations - The future of fintech: lending + services

Highest priority recommendation from Edmonton innovation ecosystem community members in the YEG Innovation Compass Report.

(c) Edmonton Advisory Council on Startups (EACOS)

During the early meetings of the EIEC, it was recognized that a body completely separate from EEDC that reflected the voice of Edmonton entrepreneurs was needed. The Edmonton Advisory Council on Startups was formed with members representing all stages of entrepreneurship to ensure diversity. EACOS is comprised of 13 individuals representing students, seed, startups and scale-up stage companies, and investors. EACOS has published three position papers[9] aimed at increasing the size, throughput, energy, and success of the Edmonton startup community.   EACOS has identified a number of community priorities and access to capital is top of mind. EACOS has recommended:

“Intensified efforts to engage local investors into investing into local technology companies. Investors who have built capital through traditional means, like real estate and energy, need to be effectively engaged, educated, and presented with the portfolio opportunities of technology investments.”

4. Comparison: British Columbia

BC and some other jurisdictions have less burdensome crowdfunding requirements[10] that allow small firms to raise up to $250,000 per offering (twice a year), with participation from other provinces. While still not ideal, these less burdensome exemptions have proven to be much more effective than MI 45-108 in Ontario.

For background on exemptions in Canada see: https://www.bcsc.bc.ca/Securities_Law/Policies/PolicyBCN/PDF/BCN_2018-01__February_14__2018/. (This BCSC Notice expresses well many of the points we raise in this submission)

5. Canada’s Uncompetitive Position

Canada has fallen behind international comparators such as the UK. In the UK,  crowdfunding platforms were involved in 24% of all equity deals in 2017, but with 30% of seed stage deals in 2017.[11]

To see the advantages of a uniform, cross-border, and flexible crowdfunding regime, one need look no further than Regulation D in the US. The following are quotes from the recent Crowdfunding Capital Advisers Report.[12]

“2018 saw triple digit growth in unique offerings, proceeds and investors. More importantly, start-ups are successfully using Regulation Crowdfunding to raise meaningful capital in a relatively short period of time and at costs that are less than a typical Regulation D offering.

“Unlike venture capital, where less than 6.5 percent of start-ups successfully raise funds, the success rate in Regulation Crowdfunding hovers around an impressive 60 percent. A key data point for industry followers is that the average raise ($270,996) helps start-ups hurdle the “valley of death” they often face after expending their internal or personal capital.

“Regulation Crowdfunding is proving to be a jobs engine (creating on average 2.9 jobs per issuer), economic generator (pumping over $289 million of revenues into local economies)... There is still a lot of room for growth with Regulation Crowdfunding offerings as they equate to only 1.2 percent of all Regulation D offerings and only 4 percent of all capital raised under Reg D.

“The fact that the velocity of capital into funded offerings continues to be steady without signs of abnormal activity or irrational investor behaviour is a healthy indicator. Meanwhile, the rapid increase in the number of offerings and investors proves there is continued appetite for Regulation Crowdfunding from both issuers seeking capital as well as investors looking to diversify. This is true across the [US].

“Regulation Crowdfunding is also proving efficient. If we compare the average days to close (113) in 2018 and average raise ($250,635) of a successful Regulation Crowdfunding campaign to a traditional Regulation D offering, Regulation Crowdfunding most likely represents the most efficient, cost effective way to raise capital for start-ups and SMEs.”

The type of (published) data collection and analysis provided by the above report is rare in Canada, which is another serious impediment to decision making in this area. To back its recommendations, NCFA (and others) must rely largely on anecdotal evidence from its members.

6. Canada’s Competition Bureau

As the Competition Bureau has pointed out[13], a more flexible approach to regulation and better government support would provide significant economic benefits by freeing entrepreneurship. It would also help to keep our entrepreneurs in Canada (along with the related jobs), boost GDP (especially by improving productivity), and encourage the commercialization of new products and services generally.  It is well-documented that overly complex, prescriptive regulation is a much higher burden for smaller firms and so is inherently anti-competitive.  For a disappointing progress report on the Bureau’s recommendations of Dec 2017.  See: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04392.html

7. ASC Brainstorming Ideas and Comments

(a) Information resource for Alberta start-ups and early stage businesses on capital raising options

  • Raising capital shouldn’t be a ‘black box’. Companies and investors would benefit if the ASC could:
    • provide a roadmap to the various financing options including use of exemptions, what typical companies (and investors) that qualify look like, average time to market, related costs and effort, and capital flows;
    • publish sample templates of the expected quality of good offering documents;
    • work with industry to develop a transparent resource database that is widely available.
  • Dovetailing with EACOS recommendations on entrepreneur preparedness, more information on successive financings would benefit the Alberta tech ecosystem. The ASC could consider hosting this data in an anonymized format so that Alberta startups could learn about their local comparables.

(b) Information resource for investors in Alberta

Some market participants have suggested there might be a role for the ASC in increasing investor understanding respecting the exempt market and considerations when investing in start-up and early stage businesses

  • The ASC assuming an educational role could only be beneficial to Albertan investors, especially those that are seeking to diversify outside of real estate or oil and gas. An equity crowdfunding or peer lending platform operating in Alberta could then easily point to this resource as a third party unbiased educational resource for investors.
  • In addition to local investors, ASC could work with economic development agencies to provide education on exempt market trends and developments to international investors and funds with a new focus on emerging technology as a means to diversify the Alberta economy.
  • Highlighting a range of companies by sector and capital raised in private markets would help investors understand high growth SME opportunities.

(c) Expanding the accredited investor exemption to include educated, experienced investors

What are the right combinations of education and experience? For the educational component, should we consider courses such as those offered through the CVCA Canadian Private Capital Investment School or the NACO Academy for those investing in private markets?

  • The accredited investor exemption if expanded to include educated and experienced investors would unlock latent capital in Alberta while increasing opportunities for qualifying investors and allow for greater portfolio diversification.
  • Any expansion of the accredited investor definition should aim to ensure that investors understand the risks involved with investing in private market securities such as reduced disclosure and lack of liquidity and provide education on the evolving trends of online financing such as peer lending, investment crowdfunding, and digital assets.
  • Education should be tendered and open to all private capital market training bodies, associations, licensed exempt market dealers, and investor-orientated groups and structured to be flexible and allow a wide range of participation to enable:
    • the right balance of training expertise and collaboration;
    • wide program accessibility;
    • current and relevant training content updated on an annual or periodic basis;
    • range of “textbook” and experiential training delivery;
    • certification and listing for public verification on an ASC database; and
    • capture of investor risk acknowledgement such as ability to withstand loss
  • The certificate of training could then be used by equity crowdfunding and lending exempt market dealers and portals to validate investor training in a streamlined manner (rather than have investors go through the same process with various dealers and portals time and time again).

Given that the policy rationale for the accredited investor exemption is ‘ability to withstand loss’, would it be appropriate to impose some limit on the amount that can be invested by an educated/experienced investor that is not otherwise an accredited investor e.g., the greater of $30,000 and 5% of their investment portfolio?

  • Accredited investor and qualifying experienced-educated investors should be allowed to fully participate without caps in investment crowdfunding and peer lending offerings.
  • Accredited investors should be encouraged to invest in or along-side a Start-up Business Exemption campaign. The participation of accredited investors at higher levels will provide non-accredited investors with added value as the investment group will perform greater due diligence than investors only investing the minimum threshold amount in a Start-Up Business Exemption offering.

(d) Addressing the compliance challenges associated with confirming accredited investor status

The central party could then confirm, through a unique investor identifier, to any business or dealer to whom the investor provided the unique identifier, that based on the information provided, the investor qualifies as an accredited investor, without the need for the investor to reveal all of their personal information.

  • This is a logical and reasonable solution that mirrors recreational licensing and even academic author identification systems (see Orcid ID).
  • Unique IDs could be used as part of a background check which will help reduce the number of days required to verify ID prior to being permitted to participate on equity crowdfunding or peer lending platforms.
  • There are numerous ‘regtech’ solutions now in the market that can be assessed by the ASC for potential use and deployment.
  • Any investor verification system should be neutral to avoid a single group monopolizing a provincial (or national)system.

(e) Registration exemption for finders

We are interested in feedback on a dealer registration exemption for sales to investors that are accredited investors who also meet certain education and/or experience criteria. We are interested in how such an exemption could be tailored to adequately protect investors but help address the issues associated with smaller financings that are not being serviced by registered dealers.

  • We agree that a registration exemption for qualified ‘finders’ would help expand the pool of investors and supply more capital to early stage companies.
  • Finders should be required to notify the ASC of their identity or could be required to associate with registered dealers or engaged by investment platforms.
  • Finders not associated with registered dealers could be required to report periodically on their investor prospecting activity using technology to streamline communications. This would not only provide employment opportunities for finders but also minimize unreported finder type activity that occurs anyway while increasing the transparency in the exempt market for smaller financings.

(f) Reducing compliance costs for registered dealers when dealing with accredited investors

This applies across the piece in the crowdfunding sector. Each requirement should be cost justified by regulators.

(g) Addressing other registered dealer compliance burdens

For crowdfunding related burden reduction examples we encourage the ASC to review NCFAs submission to the Ontario Securities Commission of March 1, 2019 – burden reduction.[14]

(h) Facilitating angel investment funds

Should we consider adviser registration exemptions where accredited investors have a limited amount of capital at risk?

  • Yes, especially if accredited investor status is expanded to include well educated and experienced investors. In this scenario, with small amounts of capital deployed and a demonstrated ability to withstand a specified loss, barriers to obtaining capital from multiple crowd sources would be reduced.

(i) Facilitating the development of a retail, publicly-traded fund focused on innovative businesses

  • We feel this is best answered by VCs and institutions.

(k) Facilitating a semi-public market that allows secondary retail trading by non-public companies

  • The illiquid nature of exempt market securities is often cited as a major concern of prospective investors so anything that assists secondary trading is welcomed.
  • A secondary market for exempt securities would also benefit early employees of start-up companies by allowing them to liquidate holdings pre-IPO and thus help early stage companies to offer creative compensation packages and attract a wider range of employees to help them grow.[15]
  • A semi-public market should be open to all types of exempt securities from crowdfunding to security tokens to allow fair and efficient markets to form.

(m) Fostering crowdlending and peer-to-peer lending

  • Peer-to-peer (P2P) lending is providing SMEs with financing in many jurisdictions, including the US, the UK, New Zealand and Australia, at rates which are considerably lower than those offered by competitors.
  • The popularity of P2P lending in the UK has increased exponentially in recent years, with nearly £10 billion being transferred through such platforms in the past ten years and approximately £1.2bn having been transferred through P2P platforms in the second quarter of 2019 alone.
  • The current securities regulatory regime in Canada imposes costs and burdens that create significant impediments to the success of any P2P platform and by extension the availability of financing to Canadian SMEs.
  • The current regime in Canada is not suited to allowing companies to raise debt financing as it treats them as issuers. The regulatory requirements for becoming an issuer are simply too burdensome for small loan sizes (for example a $50,000 loan).
  • The sheer magnitude of P2P lending and its positive impact on the economies of  advanced jurisdictions elsewhere suggests that it would be beneficial for Canadian SMEs if the regulators in Canada were to adopt a regime specific to P2P lending. A regime modeled on those successfully implemented in jurisdictions, like the UK, where P2P lending has been proven to provide much needed funding to SMEs while ensuring an appropriate level of protection for investors.

About the NCFA

The National Crowdfunding and Fintech Association of Canada (the Association) represents over 2,000 fintech SMEs and individual members that support financial and capital market innovation, small businesses and technology. We are pleased that the Alberta government is undertaking this important initiative to the benefit of all Albertans.  Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

 

Download the Submission in PDF format --> Now


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Lending Loop Surpasses $50 million Milestone and helps thousands of Canadian Businesses and Investors

NCFA Canada on behalf of our partner's Lending Loop | Sep 11, 2019

Lending Loop passes 50 million - The future of fintech: lending + services

HAVE YOU EVER SEEN A CHESHIRE CAT SMILE?

Well they deserve it.

Back in October 2015, NCFA made this introductory video with Cato Pastoll, CEO and Co-Founder of Lending Loop, about a peer to peer lending marketplace for small businesses model that was new to Canada but was achieving significant growth internationally.

The question and opportunity was back then:  why not here in Canada?

A question that many of us ask ourselves, ask the community and point fingers at strict regulations and high operating costs.  Well fast forward several years and growth obstacles later, and the Lending Loop story continues to impress with their latest milestone of lending over $50 million to deserving small businesses to help them grow and expand operations while providing retail and accredited investors direct access to a wide range of lending and investment options, a robust community and the chance to strengthen Canadian small business - here here!

The early vision...

 

Brandon Vlaar, Co-founder and CTO of Lending Loop sharing their good news!

CONGRATS to the entire Lending Loop Team for achieving this latest milestone.  We've 'got your back' and look forward to future growth and digital finance success - the best is yet to come!  Craig Asano, CEO, NCFA

 

See:  more coverage on Crowdfund Insider here

 


NCFA Jan 2018 resize - The future of fintech: lending + services 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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Stripe, the world’s most valuable private fintech company, is getting into lending

CNBC | Kate Rooney | Sep 5, 2019

stripe capital lending business - The future of fintech: lending + servicesKey Points
  • The $22.5 billion payments company announced the launch Stripe Capital, which will offer loans to online companies in an effort to help grow their businesses.
  • Stripe, whose rivals including Jack Dorsey’s Square and Netherlands-based Adyen, makes software that allows businesses to accept payments over the internet. Growth in companies using their platform could eventually help Stripe’s bottom line.
  • The start-up has benefited from growth in online payments, attracting investments from Elon Musk, Peter Thiel, and Google’s late-stage venture arm Capital G, among others.

The world’s most valuable private fintech company is moving into a new area of banking: loans.

Stripe, valued at $22.5 billion after its last funding round, announced the launch of a lending arm called Stripe Capital on Thursday. The new venture is meant to help online companies borrow money to grow their businesses — which in turn, helps Stripe’s business.

“Stripe Capital makes it easy for internet businesses to get the funds they need, when they need them,” Stripe’s Chief Product Officer Will Gaybrick said in a statement. Gaybrick said small businesses are the “engines for job creation in our economy” and it should be “trivially simple and lightning fast” for them to access the capital and invest in their own growth.

Stripe, whose rivals including Jack Dorsey’s Square and Netherlands-based Adyen, makes software that allows businesses to accept payments over the internet. Growth in companies using their platform could eventually help Stripe’s bottom line.

See:  The Solution To The Fintech IPO Shortage

The San Francisco-based company joins a list of other technology companies competing with banks to offer loans to small businesses. PayPal and Square, fintech rivals in the payments business, both reported significant growth in their loan portfolios in the second quarter. E-commerce giant Amazon offers similar products to merchants on its payments network through “Amazon Lending,” an invitation-only program with loans as low as $1,000.

In many cases, those loans are well below the average amount a bank would facilitate. In the case of Square, the average loan is between $6,000 and $7,000 and could be as low as $500.

Saying goodbye to the FICO score

One advantage over banks, if you ask the tech companies, is data. Stripe and others are shunning a FICO score, the traditional way of assessing credit-worthiness. Instead, they use payment history from their own platforms. Stripe, for example, will draw data from “advanced algorithms” to trends like payment volume, percentage of repeat customers, and payment frequency.

Stripe said the reliance on tech allows them to issue loans quickly. According to the company, there’s no “lengthy application, eligibility is determined quickly, funds hit a user’s Stripe account the next day, and businesses can repay as they earn.”

These tech companies collect the loan repayments as sales come through, instead of setting payment dates on the 15th of the month or another arbitrary day, which they say alleviates a burden for companies.

Still, some have flagged inherent risks in lending to small start-ups. Karen Mills, a senior fellow at Harvard Business School and former head of the U.S. Small Business Administration during the Obama years, told CNBC earlier this year that an inevitable downturn in the economy could hit these companies the hardest.

See:  Peer to Peer Lending: The Future of Fintech is Now

“Having run small businesses through three different economic cycles, I would say we should expect another cycle and one has to factor that in,” Mills said. “Small businesses get hurt very hard in cycles particularly those who are dependent on Main Street sales.”

Stripe, which ranked No. 13 on the 2019 CNBC Disruptor 50 list, was founded in 2010 by Irish brothers Patrick and John Collison. CEO Patrick Collison announced on Twitter earlier this year that former Google Cloud CEO Diane Greene was being added to the board.

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NCFA Jan 2018 resize - The future of fintech: lending + services 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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The Rise of Vietnam – the new Asian Innovation hub

Daily Fintech | Arunkumar Krishnakumar | Sep 6, 2019

Fintech in Vietnam - The future of fintech: lending + servicesPoor existing banking infrastructure? No major Unicorns from the local ecosystem? – No problem.

The rise of Vietnam as an innovation/Fintech hotbed is a fascinating trend. A tech savvy population, supportive government regulations, and high smartphone penetration – a great combo that has done wonders to several countries across the world.

Vietnam ranks third in South East Asia for the most populated country. It has been growing phenomenally over the past few years. In 2018, it saw GDP grow by 7.08%. The growth in the country has been praised by the president of the World Economic Forum Borge Brende. Vietnam’s economic reforms have helped reduce debt and lay a strong foundation for public finance.

So why are they special and what has triggered this new boom in the economy and investments going in for innovation? These statistics will shed light on the opportunity and growth.

  • 100 Million population
  • 84% Smartphone Adoption in Tier 1 cities, and 71% in Tier 2 cities
  • 40% Unbanked, and set to go down to 30% by 2020
  • Second Fastest growing Data analytics market in the world (CAGR 19.4%)
  • 161% growth in digital wallets in 2018
  • $70 Billion Mobile Payments by 2025 expected
  • Reforms to reduce cash transactions to 10%
  • 30% to shop online by 2020
  • 2019 startup investment to top $800 Million vs 2018 number of $444 Million
  • 3000 startups in the country – from 400 in 2012.

Amongst South East Asian innovation hubs, Vietnam has attracted about 17% of the startup investments. It ranks third behind Indonesia at 48% and Singapore at 25%.

See:  Singapore topples United States as world’s most competitive economy

Just to compare Vietnam to hubs like Singapore feels unfair to me. Singapore is arguably the most matured Fintech hub in Asia. To get anywhere close to Singapore in terms of investments is an amazing achievement for any Asian country.

The Vietnamese government have been very supportive of innovation in the country. As a result there are several startups in Fintech, Blockchain, Sharing Economy and other themes. A map of Vietnam’s Fintech startups should show the breadth of coverage across different clusters within Fintech.

The government have been smart with their regulatory stance. They haven’t banned crypto currencies yet. Investors in Vietnam lost close to $650 Million in the ICO scam. The Government has since then stopped with warning investors about the risks of cryptos, but largely taken a neutral stand and not banned exchanges and crypto businesses. With a clampdown on cryptos in other Asian economies, this is viewed as an opportunistic stance by the government.

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NCFA Jan 2018 resize - The future of fintech: lending + services 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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One size doesn’t fit all: Strict regulations meant for big banks holding back fintech in Canada

Financial Post | Darren Gill | Aug 26, 2019

financial district toronto - The future of fintech: lending + servicesOpinion: Governments need to modernize our financial regulations to better encourage innovation in the Canadian marketplace

Imagine the owner of a small but successful café in Prince George. She is seeking capital to finance a second location but is unable to access a loan from a bank. She is not sufficiently well-connected to seek out her own investors and doesn’t have a wealthy family to lend her the money. How can she access the capital she needs to open that second location?

Now imagine there was a safe online service for finding would-be capital investors. Our café owner could connect with a private individual who holds investable capital. The two parties could enter into a contract on their own terms, mediated by the service provider. This peer-to-peer (P2P) approach to lending would match ventures with investors who might not meet each other but for the online platform.  This is the emerging future of financial services delivered through financial technology (fintech). Sadly for our theoretical café owner, the current regulatory environment does not allow for this sort of open exchange.

Given current regulations, P2P loans qualify as securities and therefore require regulators’ approval of detailed informational prospectuses. This means the small café owner must hire lawyers and specialists to draft documents and disclosures even when simply seeking a loan — something she wouldn’t have to do had she gone to one of the banks. But if the banks won’t take her, what is she supposed to do?

Hurdles like this that lock small players out of capital markets are entirely unnecessary. The fintech service provider to our industrious Prince George café owner and her investor would manage risk on its platform to ensure that neither party ends up being short-changed.

See:  Peer to Peer Lending: The Future of Fintech is Now

P2P lending is just one example among many of strict regulation holding back the creative disruption of financial services. Fintech companies are subjected to the same strict regulations that apply to traditional financial service providers. They must also adhere to comprehensive regulations covering consumer protection, privacy, anti-money laundering, data security, and more. Financial regulations are clearly in the public interest, including with fintech. But governments need to modernize our financial regulations to better encourage innovation in the Canadian marketplace.

Government initiatives such as the 2019 modernization attempts to the Bank Act and Canadian Payments Act have been widely applauded by industry but these initiatives largely aim to increase the flexibility of established financial institutions. One size — the quadruple XL that suits our biggest financial institutions — doesn’t fit all. There is considerable room for innovative policy reforms for fintech, such as employing opportunity zones or creating regulatory exemptions for P2P lending involving small businesses, like our café owner in Prince George.

With artificial intelligence, new forms of competition, and greater efficiency, fintech could revolutionize how financial services are delivered, especially for Canadians under-serviced by the traditional financial services industry.

Take Toronto-based WealthSimple, for example. It already provides high-quality investment advice and robo-advising via an online platform. Such services, traditionally available only to the economically privileged, are now being offered to the masses and at a fraction of the cost. Fintech also holds the promise of giving rural, remote, northern and Indigenous communities banking services similar to those of urban Canadians, and at reduced costs.

See: 

Less burdened by regulation, P2P lenders in the U.S. have been facilitating loans between investors and entrepreneurs since 2005. Capital-seekers can now look beyond the big banks for more competitive rates and more convenient procedures for getting a loan.

Payments, money transfers, insurance, and other types of financial services are ripe for modernization and disruption. Even amongst the big banks, there is a push towards digitizing services and incorporating new technologies. The fintech revolution benefits players of all sizes.

While Canada’s fintech environment has been recognized as a leading global hub, fintech adoption rates lag behind much of the world. According to the EY Fintech Adoption Index 2019, Canada’s adoption rate is at 50 per cent, versus 64 per cent globally. Part of the reason has to be restrictive regulation.

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NCFA Jan 2018 resize - The future of fintech: lending + services 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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Will Novel Fintech Models Thrive in Canada?

Fortunly | Biljana Nikolovski | Aug 23, 2019

demand for Altfi models surges - The future of fintech: lending + servicesThe figure of home-ownership in Canada is one of the highest in the world, even though the number of people who own residential property in the country slightly dipped from 69% in 2011 to 67.8% in 2016.

But, the portion of the Great White North’s population with debt repayment woes has been increasing at an alarming rate. In fact, a 2018 report revealed that 19% of seniors still have an unpaid mortgage. As a result, 20% of Canadians continue to work well into their golden years.

Certainly, a basket of solutions is necessary to help ensure that mortgages in Canada run their course, allowing homeowners to be free and clear come retirement. Fortunately, fintech solutions are here to the rescue.

According to Fortunly, peer-to-peer (P2P) lending and decentralized finance (DeFi) are some of the newest innovative models with great potential to help more Canadians, including seniors, reduce their overall cost of borrowing and to better manage debt repayment.

P2P lending enables an individual to borrow money from another individual and it allows both parties to seamlessly interact with one another through a digital platform. This is beginning to invade the mortgage space after proving its feasibility and viability in the unsecured loan territory for many years.

See:  Peer to Peer Lending: The Future of Fintech is Now

DeFi, on the other hand, is a financial system free from central-party intervention that promotes censorship resistance, and puts a premium on transparency. The ubiquity of the Internet, proliferation of smartphone sales, mass adoption of online banking, and the emergence of blockchain technology have collectively paved the way for the conception of DeFi.

Both novel concepts have the ability to break down barriers since they can eliminate geographical constraints to make the world of lending borderless. However, groundbreaking fintech models do not evolve and expand in Canada as fast as they do in the United States.

Here are a few reasons why.

 

Variety Meets Specialty

Furthermore, many P2P mortgage lending players in the United States intend to increase the size of their slices instead of consuming the entire pie. For instance, National Family Mortgage has successfully separated itself from the rest by being the go-to marketplace for P2P home loan and refinance programs among relatives.Americans enjoy the luxury of choice. Borrowers in the United States do not have to settle for any company due to a lack of selection.Peer to peer mortgages - The future of fintech: lending + services

On the contrary, the population of P2P mortgage lenders in Canada does not scare the incumbent companies—not yet. The few P2P players in the industry are encumbered by liquidity options and inferior brand trust, which have been stunting their growth and popularity.

Nevertheless, Canadians are expected to adopt fintech solutions at a faster rate in 2019, so the local P2P lending ecosystem may mature more rapidly. Improving lending algorithms, unlocking more value, ensuring consumer data control, and enriching overall experience are the keys to helping P2P lenders and platforms in the country gain stronger momentum.

Unicorns Left and Right

Make no mistake about it, venture capitalists do not shun companies from other countries. However, the tech startups in the United States have always received the lion’s share of VC investments across the globe.

The liquid fintech landscape in America has set the stage for the creation of numerous unicorns. Leading the pack is SoFi (Social Finance), which recently managed to raise another $500 million through another round of funding.

See:  Investors, ‘starved for returns,’ flood private markets in search of high-growth opportunities

A private company with a valuation of over $1 billion does not indicate profitability, but a fintech company’s unicorn status usually signifies financial freedom. The abundance of funds at a unicorn’s disposal makes it easier to experiment and roll out fresh solutions as well as to create and test new streams of revenue.

CB Insights reveals that Canada has only one unicorn (Kik Interactive) as of January 2019, and it is not a fintech company.

The scarcity of startups generously backed by VCs in the financial services industry may dampen the entrepreneurial spirit of up-and-coming fintech founders. Unless investors begin to inject more cash into the bloodstream of potentially game-changing Canadian fintech companies soon, the expansion of P2P mortgage lending in the country might be compromised.

Regulation, Innovation, and Competition

Enacting open-banking regulations can help fuel the fintech boom in Canada. Open banking will change the rules of the game, encouraging greater competition among incumbent banks and new entrants.

It eliminates the core advantage of large financial institutions: the monopoly over the financial information of consumers. This practice calls for the sharing of such vital information in an electronic and secure manner among business rivals under the conditions satisfactory to data owners.

With more readily accessible big data, emerging fintech companies have more ammunition to compete with their bigger and richer counterparts. They will have more latitude in being resourceful and innovative. This will help consumers develop solutions they need to explore more affordable loan products and make better financial decisions.

Under optimum regulatory conditions, fintech disruptors could expose the inadequacies of the traditional players in the industry. These paradigm-shifters could put themselves in a position to grow into Canada’s next unicorns. Ultimately, the consumers would win.

See:  Open banking in Canada – time to prepare for change

The United States has yet to replicate the United Kingdom’s move requiring the adoption of open banking across the board, but many bankers in America are already voluntarily making their databases available for third-party consumption.

Building a sustainable business environment benefits all parties and does not curb innovation. Canada’s fintech sector is ready to explode, and it is only a matter of time before the stars become aligned.

Author:  Biljana Nikolovski is a tech blogger and contributor for Fortunly.com. She spends most of her time reading the newest trends in the tech and marketing world, while traveling the world.

 


NCFA Jan 2018 resize - The future of fintech: lending + services 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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