Category Archives: Marketplace Lending/P2P, Online Lending

Canadian small businesses are facing extinction amid lockdowns

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The Globe and Mail OpEd | Cato Pastoll | March 24, 2020

small business empty covid19 - Canadian small businesses are facing extinction amid lockdownsNo one planned for this. COVID-19 has brought the global economy to a standstill. With many provinces closing non-essential businesses, and consumption and consumer confidence decreasing, many Canadian small businesses are looking at extinction.

Businesses surveyed by Lending Loop, on average, have less than 30 days of cash on hand to weather this storm. This is not a new finding. In 2016, a JP Morgan study showed that the average restaurant, retailer and manufacturer had 16, 19 and 30 days of cash on hand, respectively. As revenue declines continue in the coming weeks and months, their futures look incredibly bleak.

By all accounts, the federal government knows small and medium-sized businesses constitute the backbone of our economy because they support at least 70 per cent of all jobs in Canada. Yet, the majority of our governments’ efforts are dedicated to supporting individuals and not businesses. While the enhanced Employment Insurance programs are helpful measures, the disappearance of our businesses would mean there would be no jobs to return to once the pandemic is over.

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

The importance of small and medium-sized businesses in Canada cannot be overstated. Canadian small businesses make up 41.7 per cent of our GDP. Businesses with fewer than 10 employees make up 73.5 per cent of the private-sector employers in Canada. From 2013 to 2018, 56.8 per cent of all new jobs were created by small businesses. To put these numbers into perspective, small businesses in Canada collectively employ six times more Canadians than large Canadian businesses. In Canada, they are the giants of our prosperity.

At Lending Loop, we have supported Canada’s small-business community with financing for five years. Over the past week, our team has collected data every day from Canada’s small-business community, and the picture these data paint is more concerning than anyone could have imagined: While the magnitude of the effects of COVID-19 do depend on the industry and size of business, almost every single small-business owner is staring at the possibility of closing their doors for good.

We know the federal government will step in for the banks, airlines and oil companies, but Canadians need our municipal, provincial and federal governments to step in and support the real engine of our economy: small businesses. Every small business in Canada is on a countdown clock to extinction. We would not recognize our country without them.

Small businesses in the food service, travel and tourism, retail and education industries are looking at March revenue declines of 70 per cent or more. Revenue declines of this magnitude will initially result in layoffs, delaying payment to vendors and suppliers (other small businesses), and eventual closure. As layoffs continue to grow, consumer demand will decline significantly, further compounding the economic challenges for our economy.

Governments around the world have understood the role of small and medium-sized businesses in the health of their national economies, and have begun to take swift action. Britain has announced that 80 per cent of payrolls for private companies will be paid by the government, in addition to offering an emergency loan program for businesses, which is expected to include a guarantee program utilizing fintech lenders that can deploy capital quickly. In Denmark, the government is covering 75 per cent of wages to avoid mass layoffs. The U.S. government is currently voting on a stimulus package that includes significant payroll support for small businesses.

See:  Survey finds Canadian small businesses seeing 50 percent revenue decline amid COVID-19

While Business Development Canada has been given more funds to lend, most Canadian small businesses are not eligible to access their loan programs and one Crown corporation cannot possibly deal with the magnitude of this issue alone. Solutions such as the 10-per-cent wage subsidy, and deferred tax and hydro bills barely scrape the surface of the problem. No current measure in Canada goes far enough to keep small businesses - your local restaurant, coffee shop, retailer, bookstore, hair stylist or wellness provider - alive or with any viable prospect of future return.

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NCFA Jan 2018 resize - Canadian small businesses are facing extinction amid lockdowns 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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European fintech lending industry to hit USD 9.6 billion in 2020

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LLB | Staff Reporter | March 3, 2020

Europe lending - Canadian small businesses are facing extinction amid lockdownsInnovative lending services, such as crowd and P2P marketplace loans, are becoming increasingly popular in many European countries. With the development of financial technology, recent years have witnessed a growing number of business customers and private borrowers using these digital financial services.

According to data gathered by Finanso.se, the European fintech, or the alternative loans industry, is expected to hit a $9.6bn transaction value this year, growing by 10% year-on-year.

Crowdlending generates nearly 70% of total market transaction value

After the financial crisis, many traditional banks became very restrictive in approving loans, especially in some European countries, leaving businesses and individual consumers with no access to much-needed cash. This created space for lending platforms, which connected borrowers directly to lenders, and removed the banks from the equation.

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

Lending platforms use sophisticated computer algorithms to make lending decisions, provide fast loans, and lower rates to borrowers. Investors, on the other hand, are given the ability to easily invest in loans outside of their countries at attractive returns.

In 2017, the European fintech lending market hit $6.3bn value, revealed the Statista Alternative Lending Market Outlook. By the end of 2018, the market value increased by 20% and reached $7.5bn worth. The rising trend continued in the next twelve months with the entire market reaching $8.7bn value. The statistics indicate the European fintech lending industry is expected to show an annual growth rate of 3.0% between 2020 and 2023, resulting in a $10.5bn transaction value in the next three years.

The market’s largest segment is crowdlending or peer-to-peer business lending. In 2017, European peer-to-peer loans in the business sector reached $3.6bn worth. Over the last three years, the market value of the crowdlending loans increased by more than 75% and hit $6.5bn transaction value in 2020. Statistics show this amount will grow to nearly $7.2bn in the next three years.

Consumer peer-to-peer loans are forecast to edge up to $3.1bn value in 2020, twice less than business lending.

Number of European FinTech loans to reach 1.3m by 2023

Although peer-to-peer business loans represent the leading market segment, the statistics indicate a much higher number of consumer peer-to-peer loans in Europe. In 2017, there were more than 911,000 successfully funded alternative loans in the consumer segment.

See:  Lock BTC, Get DAI: Lending Firm Bridges Bitcoin-DeFi Divide in Latin America

Business peer-to-peer loans reached over 63,000, or 14 times less compared to consumer loans. In the last three years, consumer and business alternative loans rose to 1m and 75,900, respectively. The average funding per loan in the crowdlending segment is expected to reach $86,185 this year. Statista survey indicates the total number of European fintech loans will amount to over 1.3m by 2023.

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NCFA Jan 2018 resize - Canadian small businesses are facing extinction amid lockdowns 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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Amazon, Walmart, the Secret Battle for FinTech Supremacy: Part II

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Highradius | Anuj Saxena | Flashback to June 2018

walmart pay - Canadian small businesses are facing extinction amid lockdowns

Digital to Physical, Physical to Digital and Customer Segments

As Walmart rushes to become Amazon before Amazon can become Walmart, the impressive way Walmart has addressed the problem reminds me of a quote from Jim Collins in his bestseller “Good to Great”:

“The good-to-great companies displayed two distinctive forms of disciplined thought. The first, and the topic of this chapter, is that they infused the entire process with the brutal facts of reality. The second, which we will discuss in the next chapter, is that they developed a simple, yet deeply insightful, frame of reference for all decisions.”

While just my conjecture as an outsider looking in, it feels to me that Walmart has done both:

  1. It has accepted the brutal fact that it is never going to beat Amazon in the online space in the U.S., but that e-commerce’s continued growth is absolutely inevitable and it needs to be a player (hence its $16-billion bet on Indian e-commerce), and
  2. Management’s frame of reference for digital decisions seems to come from looking to provide solutions that combine its areas of entrenched advantage, namely its low-affluence customer base and unmatched network of stores (it has one within 10 miles of 90% of American consumers). Examples of this are its curbside collection service for online customers and upcoming drive-up grocery pickup kiosks.

These two forms of “disciplined thought” have also driven Walmart’s FinTech strategy…

See:  What bankers need to know about the mobile generation

The FinTech Power Plays

Before outlining Walmart’s FinTech Power Plays, I want to let you in on a not-so-well-known “secret”: Walmart’s dabbles into the world of finance are not new. In fact, its record stretches back to 1999, when it attempted to purchase a small Oklahoma thrift, citing a desire to offer savings and checking accounts to its customers. That plan was ultimately thwarted by banking legislation which prohibited non-financial companies from owning banks regulated by the Fed. Three years later, though, it was back at it again, and yet again, it was stopped by powers in finance. Per the Institute for Local Self-Reliance’s reporting at the time:

“A coalition of consumer groups, unions, independent banks, credit unions, and realtors managed a legislative feat in California last month when they pushed through an 11th hour bill to block Walmart’s attempt to acquire a small bank.

Opponents of the move argued that it could lead to dangerous conflicts of interest. Not only might Walmart use its size and power to muscle out smaller banks and credit unions, it could also deny loans to retail competitors and their suppliers. Such distortions would undermine the soundness of the banking sector and lead to ‘a dangerous aggregation of economic power’.”

Walmart protested the “unfair targeting” based on its size, and since then has made few sustained attempts at similar approaches to enter banking. While the company is no longer going after banks (directly), it still realizes that by enmeshing itself into the lives of its low-affluence consumers via providing vital financial services, it can widen and deepen the moat they have around them. This has driven the formulation of FinTech plays which are working phenomenally for Walmart (so far)

See:  Banks have lost a quarter of the payments franchise to new players

1.  The Payments Play: Walmart Pay

In 2015, Walmart took a decisive step into the FinTech sphere – making headlines for eschewing external payment solutions like Apple Pay and Samsung Pay – for its own in-house solution, which was launched in 600 stores. Walmart Pay’s app enables shoppers to transact at the register via QR code. As they approach the register, a QR code pops up on the POS screen and customers scan it to activate the service. Once the code has been read, items can be scanned as normal and when checkout is complete, the payment card associated with the Walmart Pay account is charged and a receipt issued within the app.
How has it fared since launch? Well, in November last year, a Bloomberg piece updated that Walmart is “close to surpassing Apple Pay in usage for mobile payments in the U.S.” With 4,774 stores offering it and tens of thousands of new users signing up each day, its domination of the U.S. seems to be a fait accompli.
The US market for mobile payments is worth $550 billion but is set to skyrocket to $3 trillion in just two years, and Walmart is jockeying for position as the biggest player. I can’t help but think that with the widespread use of QR code technology in their business, a move to Bitcoin (or another cryptocurrency) could be the next step for Walmart. After all, it represents a much faster and secure mobile payment option…

2.  The Prepaid Card Play: Walmart MoneyCard

In 2015, Walmart signed a partnership with FDIC insured bank GreenDot – a branchless digital Challenger Bank from Southern California that issues plastic prepaid cards. GreenDot does not offer credit, so only basic ID checks are required for customers to be able to receive and pay money with ease (essentially creating a checking account). This deal yielded the re-loadable, prepaid Walmart MoneyCard, which opened the floodgates for many of Walmart’s un/underbanked consumers. With the MoneyCard, holders can:

  • Use it for purchases everywhere MasterCard or Visa debit cards are accepted in the U.S.
  • Deposit checks via their smartphone’s camera
  • Receive their wages by direct deposit from their employers
  • Write checks to pay rent and other bills requiring a paper check
  • Order personalized checks using the Walmart MoneyCard Mobile App
  • Pay bills for free with the online bill pay service
  • Send money for free to another participating card issued by Green Dot Bank (including the Walmart MoneyCard, of course)
  • There are no overdraft fees, at all and,
  • Cards are registered and protected against unauthorized transactions

All of which can be tracked around the clock in the Walmart MoneyCard App.

See:  Growth in Canadian FinTechs Having Impact on Canada’s Banking Landscape

3.  The Money Transfer Play(s): Walmart2Walmart

In April 2014 Walmart launched its groundbreaking, in-store money transfer service for customers – a joint venture with Ria Financial – making money transfer simpler and cheaper for customers. This was launched in 4000 stores, promising to make the process of money transfer cheaper and more transparent for its consumer-base, and boy has it! Since then, customers have saved approximately $700 million on fees, enabling them to keep more of their hard-earned cash in their pockets for important things (like buying groceries… at Walmart).
Customers can walk into any of the designated “money center” stores’ service desks (or start the process with the Walmart App and finalize in-store), complete a form with the transfer details (amount, recipient name, and state) and then can use cash or debit cards for payment. W2W then transfers the money to the intended recipient who can pick the cash up at any store in the specified state in a matter of minutes. No bank accounts needed at all and the service costs just $4 to send up to $50, $8 to spend between $51 and $1,000, and $16 to spend between $1,001 and $2,500.

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NCFA Jan 2018 resize - Canadian small businesses are facing extinction amid lockdowns 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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Big Data Promises Better Deals. But for Whom?

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Wired | | Feb 28, 2020

Intuit and credit karma merger - Canadian small businesses are facing extinction amid lockdownsAntitrust regulators say they’re interested in data-driven mergers. Intuit’s $7 billion deal to buy Credit Karma will show how serious they are.

The announcement earlier this week that Intuit, the financial software giant, would be buying the personal finance company Credit Karma for $7 billion was striking. The tech industry is under more antitrust scrutiny than ever; just a few weeks ago, the Federal Trade Commission announced a broad inquiry into the past decade of acquisitions by the five biggest tech giants, with a focus on mergers that kill off budding rivals. This deal certainly raises that prospect: Intuit and Credit Karma compete on various fronts, and Intuit’s most recent federal filings named Credit Karma’s free tax preparation software as a threat to its dominant offering, TurboTax. Intuit has said it will keep Credit Karma's service free, and probably needs to promise as much to regulators to get the deal approved.

See:  The future of fintech: lending + services

But antitrust enforcers, whose core responsibility is to keep markets competitive and protect consumers, are not just watching for mergers that kill off rivals. They’re also starting to look more closely at how tech companies acquire and use data. And that seems to be the main event here. The companies themselves have suggested that a driving force behind the merger is Intuit wanting to get its hands on Credit Karma’s stash of user data. Which raises an important question: Do consumers benefit from deals where the key asset being sold is their own personal information?

We’re talking about a lot of data here. Credit Karma, whose business is built around a free credit monitoring app, boasts more than a hundred million users. While those people don’t pay to use Credit Karma, they do turn over their financial information, as well as the kinds of behavioral and location data that other companies, like Facebook and Google, track. The platform’s algorithms then help lenders microtarget users with offers for credit cards, loans, and other financial products. Credit Karma gets a cut when users sign up.

“There’s no business person on the planet who doesn’t want to get access to consumer financial transaction details—that is a pot of gold,”

said Kristin Johnson, a professor at Tulane Law School and an expert on financial technology.

“The information regarding your purchases and sales, all credits and debits related to your account, really tell a full narrative about you and your life and the things you value and the things you have committed financial resources toward.”

According to Intuit CEO Sasan Goodarzi, the merger will benefit not just the companies, but also consumers. “What you’re now able to bring together with the two companies is the customers’ complete financial identity so they can get the best loan and insurance products for them,” he said in a conference call announcing the merger Monday, as reported by American Banker. By combining the two companies’ data sets, in other words, Intuit will be able to build more richly detailed dossiers of the financial backgrounds for millions of people. That, in turn, will allow lenders—and Intuit itself—to target offers even more efficiently. (When reached for comment, a spokesperson for Intuit pointed me to smartmoneydecisions.com, a website the companies created about their deal.)

See:  Banks, fintech startups clash over ‘the new oil’ — your data

Does this sound familiar? It should. It’s the entire value proposition behind the ad-supported internet. Facebook and Google, two of the most profitable companies in the world, make their billions by monitoring as much of our online (and, increasingly, offline) behavior as possible and selling ads against that data. They, and other websites and apps like them, justify the surveillance by arguing that consumers appreciate having ads that are more relevant to them. Read a privacy policy, and it will probably mention something about “sharing your data with advertising partners” in order to “present offers that might interest you.” It’s not about extracting more money out of us, the story goes; it’s about helping us find what we really want.

It’s true that companies can use data to microtarget users with better deals. If you’ve got great credit, for example, your financial history might indeed lead to you getting better offers: cards with more points, loans with lower interest rates, and so on. But financial data has also been used to benefit corporate bottom lines at the expense of the consumer. This week, the tech publication The Markup published an investigation showing that the insurance giant Allstate has been trying to get Maryland regulators to approve a pricing algorithm for auto insurance that, according to the article, would squeeze more money out of the biggest spenders, rather than pricing strictly according to risk. (Maryland ultimately rejected its proposal.) Intuit itself has been documented steering customers to paid products when they qualified for free ones.

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NCFA Jan 2018 resize - Canadian small businesses are facing extinction amid lockdowns 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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FCA Report (Feb 2020): Sector Views – Key Areas of Harm Identified

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UK FCA | Feb 21, 2020

UK Fintech sector views - Canadian small businesses are facing extinction amid lockdowns

This analysis also contributes to the decisions we make affecting consumers, market integrity and competition.

Drivers of change

The first chapter describes the common themes across sectors with a focus on those themes that are having the greatest impact on the sectors we regulate. And in the light of EU withdrawal and its impact on financial services markets, we give an overview of our position in the current international context.

The 7 sectors

The remaining chapters cover all the markets we regulate:

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Download the 86 page PDF Report - Sector Views (Key Areas of Harm Identified)

 


NCFA Jan 2018 resize - Canadian small businesses are facing extinction amid lockdowns 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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Growth in Canadian FinTechs Having Impact on Canada’s Banking Landscape

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TransUnion Canada | Release | Feb 24, 2020

transunion fintech report on lending trends - Canadian small businesses are facing extinction amid lockdownsNew TransUnion study considers common myths around the profile of FinTech borrowers in Canada

  • FinTechs are not just attracting younger Canadians: 46% of FinTech borrowers are over the age of 40
  • Short-term loans are not the primary focus for FinTechs: 88% of FinTech loan terms are between 13-60 months
  • FinTechs are not just catering to 'underbanked': 51% of FinTech consumers have 3 or more existing credit products

TORONTO, Feb. 24, 2020 /CNW/ - A new study from TransUnion explores the evolving trends around the FinTech lender landscape in Canada. The research study analyzed over 21 million non-mortgage credit products originated in Canada from Q1 2017 to Q2 2018. The study's findings reveal key insights that appear to debunk commonly held beliefs around the profile of FinTech borrowers in Canada, as well as the ways that FinTech lenders are employing and embracing different credit strategies compared to some of the more traditional lenders.

See:  Robocop vs. Terminator in Fintech; Comparing DeFi originations to Digital Lenders in the early years

The study defined FinTech lenders as those who rely on advanced computer algorithms or other technology as their primary platform to enable, support or improve banking and financial services, and do not have an established physical network of branches or stores. Typically, these are start-ups or emerging lenders that have an emphasis on an agile and sophisticated use of technology to deliver a fast and unique lending experience, or use analytics to penetrate typically underserved markets.

"The explosive growth of the FinTech industry has already had a significant disruptive impact on the traditional consumer lending landscape, and has fueled a race for digital capability amongst banks and FinTechs," observed Matt Fabian, director of financial services research and consulting for TransUnion Canada of Canada, Inc. "It is apparent that FinTechs attract Canadian consumers across different ages and levels of credit experience by providing a differentiated, seamless consumer experience. Looking to the future, this creates both competitive challenges and opportunities for increased partnerships between traditional banks and FinTech firms."

Key findings include:

FinTechs appeal to both older and younger generations.

  • Contrary to popular belief, FinTech borrowers are not exclusively younger, while many FinTech borrowers are more digitally savvy Millennials and Gen Z consumers, FinTech consumers have a diverse age demographic.
  • Specifically, nearly half (46%) of Canada's FinTech consumers are over the age of 40, compared to 53% for consumers with personal loans from traditional banks.
  • This suggests that Gen X and older consumers are almost equally attracted to what FinTechs offer, challenging the notion that older age groups are more likely to only engage in traditional lender relationships.

See:  The 5 Debates That Will Shape Fintech In The 2020s

FinTechs cater to all types of Canadian consumers – versus focused on the 'unbanked' or 'underbanked'.

  • While FinTech lenders are sometimes perceived to cater largely to the unbanked or underbanked, the study reveals that many FinTech consumers have multiple existing sources of credit elsewhere.
  • More than half (51%) of FinTech consumers have three or more existing credit products with traditional lenders at the time they originate a FinTech personal loan.
  • This mix of other products held includes credit cards, lines of credit, installment loans and home loans.

FinTech lending extends across the full spectrum of loan terms.

  • FinTechs are comfortable (and actively) lending across the full spectrum of personal loan terms; contrary to the common perception that they are primarily focused on offering short-term loans less than 12 months in duration.
    • Around 88% of FinTech-issued personal loans have a term longer than 12 months, versus 68% for personal loans issued by banks. In fact, banks issue a far higher percentage of personal loans with terms of 12 months or less (32%) compared to FinTechs (12%).

FinTechs are willing to embrace increased risk compared to traditional lenders – with associated higher delinquency rates

  • The study findings show that FinTech portfolios are generally comprised of riskier consumers than other installment loan lenders (those consumers with lower credit scores), with a significantly higher consumer base within the subprime space. This appears to be an intentional strategy, as these lenders seek to satisfy market demand among consumers who may not have access to traditional lending sources.
  • Over the course of the study period, 65% of FinTech installment loans were originated to consumers in the subprime segment (TransUnion CreditVision risk scores below 640). In contrast, traditional banks and lenders issue more than half of their personal loans to borrowers with prime and better risk scores (TransUnion CreditVision risk scores 720 and above).
  • FinTechs also have higher delinquency rates across all risk tiers, which they compensate for by charging generally higher interest rates for personal loans. In the subprime segment, FinTechs have delinquency rates that are on average between 100-500 basis points higher than traditional banks and traditional lenders, but price for that risk with interest rates ranging from 20% to 30% within this segment.

See:  Fintech’s next decade will look radically different

"The ability to be agile, potentially with lower overhead compared to more traditional lenders, may enable FinTechs to operate in higher-risk segments and carry higher delinquencies. But it is still critical to have a strong credit risk framework, and a detailed understanding of portfolio risk," said Fabian.

"FinTech consumer profiles span diverse demographics and loan terms. As the industry continues to evolve, there are some key factors that will contribute to FinTech growth, including technology advancement, access to capital – especially at a lower cost –  potential shifts in regulations, and an increasing percentage of Generation Z and Millennials in the population. But there is no doubt that we will likely continue to see growth and evolving competitive dynamics in the FinTech space in Canada."

While the industry is still relatively new, with 61% of FinTech start-ups founded between 2012-2017, FinTechs now represents over 25% of the PayTech market.

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NCFA Jan 2018 resize - Canadian small businesses are facing extinction amid lockdowns 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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Why LendingClub’s Acquisition Of Radius Bank Is A Smart Deal

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Forbes | Ron Shevlin | Feb 21, 2020

LendingClub banner  - Canadian small businesses are facing extinction amid lockdowns

LendingClub, one of the nation’s first peer-to-peer lenders (oops! I mean, “marketplace” lenders—real ”peer to peer” lending lasted all of about a month), announced it plans to acquire Radius Bank, a relatively small Boston-based bank, unknown to most people outside of the industry (and within, for that matter).

The press release announcing the pending deal contained the usual platitudes from the acquiring CEO:

“This is a transformational transaction that allows us to reimagine banking in a way that is free from legacy practices and systems. We will create a category-defining experience for our members that will dramatically enhance the resilience and earnings trajectory of our business.”

Despite the buzzword-laden proclamation, this acquisition makes a lot of sense for both parties for reasons that go beyond what many observers have reported on.

The Short-Term Benefits Aren’t About Radius Bank

Much of the discussion about the deal has focused on the obvious and shorter-term benefits of the acquisition, including a more stable source of funding and a $40 million reduction in bank fees and funding costs, both of which will help boost the spread Lending Club earns on the loans it keeps on its balance sheet.

If that was the only impetus for the acquisition, however, LendingClub could have acquired WebBank, the current issuer of loans through LendingClub’s platform.

Or it could have acquired any number of banks with a bank charter, no?

Radius Bank is a Strategic Acquisition

Lending Club went after Radius for a higher purpose: Its APIs and banking-as-a-service business.

See: 

Lending Club’s long-term vision is to become what it calls a “marketplace” bank. In my terminology, that means pursuing a platform strategy: attracting both buyers and sellers (borrowers/savers and lenders/investors) and providing transaction integration and processing capabilities.

Amazon is a great example of a successful platform strategy: It makes money by serving both buyers and sellers, and in fact, there doesn’t seem to be any limit to how much Amazon can make by increasing the services (e.g., AWS) it provides to the merchant side of the coin.

It’s the same with LendingClub.

Yes, LendingClub wants (needs) to expand beyond being just a monoline lending provider. It could have achieved that goal by acquiring any bank willing to sell itself to the company.

With Radius Bank’s APIs—and fintech relationships—LendingClub takes a big step forward towards becoming a multi-line platform, and not just a multi-line bank.

Many banks are falling over themselves trying to partner with fintech companies. In its latest survey, Cornerstone Advisors found that 70% of financial institutions consider fintech partnerships to be an important aspect of their 2020 strategies.

For better or worse, many are focusing their partnership efforts on digital account opening instead of product and service expansion.

LendingClub’s acquisition of Radius leap frogs a lot of those institutions.

See:  Citibank to Save $600 Million in 2020 Through Digital Investments

Through its banking-as-a-service offering, Radius brings relationships and integration with firms like Brex, MaxMyInterest, Aspiration, NerdWallet, Stackin’, FutureFuel, and NorthOne.

Any bank can provide a charter. Not any bank can provide those relationships. And not any bank can bring to the table the APIs that Radius has already developed. With the exception of the largest banks, most banks are playing catch up on the API front.

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