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  • @fintechna 7:46 pm on June 20, 2016 Permalink | Reply
    Tags: , Alternative, , , , , , , ,   

    Alternative lenders aren’t going away, they’re just misunderstood 

    humanlending What a difference a year makes. In 2015, Lending Club was a marketplace-lending leader with a $ 7 billion market cap, and the media was heralding the approaching tech-enabled lending revolution. Now, with Lending Club and OnDeck Capital&;s shares getting pummeled by public market investors, news outlets are asking if this is the end for . Read More

    fintech techcrunch

  • @fintechna 7:46 pm on June 20, 2016 Permalink | Reply
    Tags: , Alternative, , , , , , , ,   

    Alternative lenders aren’t going away, they’re just misunderstood 

    humanlending What a difference a year makes. In 2015, Lending Club was a marketplace-lending leader with a $ 7 billion market cap, and the media was heralding the approaching tech-enabled lending revolution. Now, with Lending Club and OnDeck Capital&;s shares getting pummeled by public market investors, news outlets are asking if this is the end for . Read More

    fintech techcrunch

  • @fintechna 8:56 pm on June 9, 2016 Permalink | Reply
    Tags: Alternative, , , , Licensing, , StateByState   

    US Blockchain Businesses Push for Alternative to State-By-State Licensing 

    Six and advocacy groups have submitted public comments to a report released by a US bank regulator earlier this year.
    fintech techcrunch

  • @fintechna 12:18 am on June 9, 2016 Permalink | Reply
    Tags: , Alternative, , , , , , , ,   

    Alternative Data In ‘Early Adoption Phase’ for Asset Managers, BofA Says 

    The use of for management has grown in popularity, but the industry is far from a complete , Bina Kalola head of global strategic direct investments for global banking and markets at Bank of America, said during the Future of Conference this morning. “Data is beingRead More
    Bank Innovation

  • @fintechna 10:54 pm on May 21, 2016 Permalink | Reply
    Tags: , , , , Alternative, , , , , , Lexicon, ,   

    The Alternative Fintech Lexicon 


    The Lexicon

    – Accelerators: Where startups go to learn. What they learn is anybody&;s guess. See Decelerators.

    – Alternative Lending: An alternative way to make the same mistakes in lending, over and over again. See Crowdfunding.

    – Anonymity: Required when discussing either financial services executives bonuses or the use of offshore centers when optimizing taxes and ownership structures. Not required when users interact with financial services firms. See Privacy.

    – AML (Anti Money Laundering): A set of procedures, laws and regulations financial services firms occasionally follow and regulators occasionally enforce. See KYC.

    &;  API (Application Programming Interface): A set of routines and protocols Wizards use to develop magical and frictionless interaction between software applications. Alternatively, an acronym Muggles use when pretending to be wizards.

    – API Call: A call muggles make to a private fintech investigator when trying to crack innovation, as in &;I think I I am going to make A Private Investigator Call now as this digital innovation thingie is very tricky.&;

    – Artificial Intelligence (AI): Neither Artificial nor Intelligent. A major vector for future unemployment in the financial services industry.

    – Augmented Reality (AR): Where the sex industry and the financial services industry will eventually meet.

    – Big Data: Applied to most data analytics projects to produce negative returns.

    : A Numismatist&8217;s worst nightmare.

    – Bitcoin : A group of digital prisoners, chained to one another, and bound to perform menial digital tasks recorded on a digital ledger in return for the promise of a better future life.

     &8211; Brick and Mortar: A Financial Services Incumbent&8217;s Alzheimer&8217;s moment.

    – Cards: Credit, Debit, Reloadable, Gift. The most profitable scam in the history of the financial services industry.

    – Card Not Present / Card Present (CNP/CP): Arcane revenue producing schemes for the payment industry.

    – Checking Account: Soon to be yesterday&8217;s money machine.

    – Conferences (Fintech): Gathering places where thought leaders pretend to educate, startups pretend to pitch, corporates pretend to care, venture investors pretend to scout for investments. Contrary to popular belief, pizza is not served freely at conferences. See Hackathons.

    – Consensus Ledgers: Free range Blockchains. Also, for the accountants in the audience, not a ledger. See Bitcoin Blockchain, Ethereum.

    – Consensus Machines: Free range Consensus Ledgers, bred with organic Turing corn.

    – Core Systems: The tools with which service providers keep , insurance companies, asset managers hostages.

    – Corporate Venture Capital (CVC): The art of pretending superior investing will occur when informed by corporate fiat. Alternatively, the science of Fin over Tech. See Venture Capital (VC).

    – Crowdfunding: Applies to either equity or lending. The art of pretending it takes a crowd to finance stuff. See Alternative Lending and Equity Crowdfunding.

    : A currency which adheres or belongs secretly to a party, sect, or other group.

    – Customers: The one thing most fintech startups are still looking for. See Traction.

    – Decelerators: Where startups go when they move too fast. See Accelerators.

    – Digital: Related to the storing of information as either a 0 or a 1. Example of a 0: &8220;Soon we will have zero brick and mortar branches&8221;. Example of a 1: &8220;Banking executives compensation is again approaching 100% increases.&8221;

    – Digital Banker/Insurer/Asset Manager: Tomorrow&8217;s endangered species.

    – Disintermediation: The act of creating another overlord as in &8220;My API will rule over your API.&8221; See API.

    – EMV (EuroPay, MasterCard, Visa): A technical standard built to promote online fraud.

    – Entrepreneur: Central protagonist in ancient Greek tragedies or comedies involving the critique of money. Alternatively, a post Marxist practitioner. See Startup.

    – Equity Crowdfunding: Platforms that may provide much work for litigation lawyers in the future.

    – Ethereum: A public blockchain platform which promises to free digital prisoners shackled to other public blockchains. See Bitcoin Blockchain.

    – Ethics: An extraordinary expense that appears below the EBITDA line both in GAAP and IFRS.

    – Financial Inclusion: An issue solved by according to blockchain enthusiasts. A profitability issue according to financial services incumbents. A game changer according to social impact investors.

    – Fintech: Neither &8220;Fin&8221; nor &8220;Tech&8221;. Modern day alchemical process.

    – Fraud: The act of defining loose operations control in order to elicit fraudulent activities which will eventually be billed at cost plus to the end user. In the payments industry, the tradeoff between convenience and privacy.

    – Free: A new &8220;source of revenue&8221; paradigm, e.g. free trading, free investing, free payments. To be noted, free fraud is not yet recognized as a new source of revenue.

    – Gateway: A purgatory software interface where payments transit before reaching heaven.

    – Governance (in Fintech): What often lies beyond the wall.

    – Hackathons: Events that bring fintech developers, designers, corporate executives and innovation managers together around pizza. Hackathons organized around the summer solstice are sought-after events, as it is believed pizza tastes better during that period of the year.

    – Hash: Non-edible but still intriguing recipe comprising mathematical algorithms that map data of arbitrary size to data of fixed size. Frequently used in the Insurance industry as exemplified by the old saying &8220;The actuary made a hash of the life expectancy of millennials.&8221;

    – Incubators: Where corporations are able to smother good fintech ideas to death.

    – Innovation: What VCs overpay for. What corporations are seldom capable of delivering. What only a few startups can deliver.

    – Insurtech: Ego booster term crafted for the Insurance industry. See Fintech.

    – Interchange Fee: Soon to become a land far far away, especially in the US.

    – Interest Rate(s): A conceptual think piece for most fintech startups. Baudrillard&8217;s famous tirade comes to mind when addressing the Sorbonne in 1968, &8220;If interest rates were so important we would have used the term FinInt or IntTech, not Fintech.&8221;

    – Jinn: Spirit capable of appearing in human or animal form and influencing VC investors, corporations and startups alike via consulting analysis, recommendations, white papers. See White Papers.

    – Joy: What fintech startups seldom experience. Referred to in the context of an Initial Public Offering (IPO).

    – Know Your Customer (KYC): The process whereby a business weighs the cost of verifying a client&8217;s identity against the profitability of said client. For a fintech startup, that which will be developed and financed when the sooner of a cease and desist letter from a regulator is received or a $ 100 million funding round is closed, maybe. See AML.

    – Lead Generation: A poor man&8217;s version of revenue building.

    – License(s): Put or Call Options that give a regulator the right but not the obligation to levy fines in the future based on real or perceived violations of the terms of the license granted.

    – Menagerie: Pack of Thought Leaders focused on cornering the market for social media power ranking and industry top lists via &8220;elaborate&8221; insider trading techniques. See Thought Leader.

    – Millenials: What fintech startups say they focus on and financial services incumbents know they have no clue about. See Customers.

    – Mobile Wallet: Darwinian evolution of a checking account. That which will generate revenue, but not necessarily to financial services incumbents.

    – Near Prime Credit: A set of customers who are sub prime but for marketing purposes are labelled near prime as copywriting and creativity is important in the lending industry. See Sub Prime.

    – Net Interest Rate Margin (NIM): The wet dream bankers and insurers dream every time they sleep.

    – Network effect(s): Often talked about, seldom witnessed in the financial services industry.

    – Non Performing Loans: According to alternative lenders, crowd lenders, p2p lenders, marketplace lenders, a mathematical impossibility.

    – Non Traditional Data Sets: Data sets you would not want your mother to know about, let alone look at.

    – Omnibus Account: A money-carrying vehicle, originally horse-drawn. Most bank-operated omnibus accounts are allegedly still operated manually and horse-drawn.

    – P2P: A business model that allows people or entities that have nothing in common to do business with one another. From the word &8220;peer&8221; which means &8220;complete stranger&8221;.

    – Payday Lending: The act of producing indentured servitude.

    – Paying Customer: The rarest of species, seldom observed in the wild by startups.

    – Payments: Payments come in two varieties. The &8220;slow&8221; variety which refers to the medical condition whereby financial services incumbents produce revenue via the sloth-like pace of provisioning of payments. The &8220;fast&8221; variety which refers to a simple technology feat which most financial services firms pretend is impossible to achieve.

    – Payment Network(s): Money printing machines.

    – Personal Financial Management (PFM): Movement originally triggered by the wealth transfer mechanism that occurred between Intuit shareholders (buyers) and Mint shareholders (sellers).

    – Platform(s): The shoes many incumbents want to wear.

    – Prime Credit: A set of customers lenders desperately would like to lend to but never do as these customers seldom need credit. See Near Prime.

    – Privacy: What is enforced after weighing the cost of breach and compliance against executives bonuses as in &8220;We only had to pay $ 10 million fine for the latest data breach&8221;. See Anonymity.

    – Proof of Work: An emerging contributor to global warming.

    – Quantum Computing: That which will render many things and many people redundant.

    – Rails (Payment): Train tracks over which steam locomotives shuffle back and forth wagons chock full of payments.

    – RegTech: Because regulators should have their tech too. Alternatively, because why not.

    – Regulator(s): Satan and his minions, unless they use technology. See RegTech, White Walkers.

    Advisors: Not a robot. Not a financial advisor. Fancy term for a digital channel.

    – Scaling: The ability to gain traction in unique ways in fintech, e.g. &8220;Startup bankruptcies tend to scale well.&8221;, &8220;NPLs scale with ease in a down credit cycle.&8221;

    – Smart Contract: Neither smart, nor a contract. For a blockchain developer, nirvana. For a lawyer, anathema. It is believed that through selected breeding a new specie of lawyer/developers will be created thereby enabling the wide adoption of smart contracts.

    – Spice: A highly addictive Melange which fintech celebrities &8211; VCs, entrepreneurs &8211; consume daily and heightens their awareness and prescient abilities. Repeated exposure to &8220;Up&8221; Spice mutates fintech celebrities bodies into virtual social media avatars. Repeated exposure to &8220;Down&8221; Spice is deadly.

    – Startup (Fintech): Ancient Greek play. Can either be a tragedy or a comedy. Focused on exploring and expanding upon a post Marxist critique of money. See Entrepreneur.

    – Sub Prime: A set of customers that even copywriting cannot disguise and that, with the help of advanced data analytics, will yield positive returns, up to a breaking point. See Big Data.

    – Token(s):  Reduces fraud, makes EMV obsolete, helps with authentication and authorization of transactions in the payments industry. In other words, a really cool and useful thing which explains why it is so darn difficult to adopt industry wide.

    – Traction: The startup science of demonstrating progress in the absence of Customers. See Customers.

    – Thought Leader: Rhetorician who occasionally attends conferences for the pizza, not realizing hackathons are where the dough is. See Menagerie, Conferences and Hackathons.

    – Uberization: An event that simultaneously holds the lowest probability of occurrence and the highest probability of utterance in fintech.

    – Underbanked: A universe of people and businesses that refuse to comply with traditional profitability measures as defined by financial services incumbents.

    – Unicorn: Animal hunted for its skin by rational investors. Alternatively, animal bred for its magical properties by irrational investors.

    – Valuation: A +/- rounding error. Also, one of the key ingredient of Spice. See Spice.

    – Venture Capital: The art of pretending superior investing will occur when informed by market fiat. Alternatively, the science of Tech over Fin. See Corporate Venture Capital (CVC).

    – Veteran: Old hand operator with minimum 30 years experience in the financial technology industry and minimum 4 credit or business cycles under his/her belt. There are few veterans in activity. The only credible actors to be equally efficient and effective at either of fintech investing, fintech startup building, fintech innovation. One can recognize a veteran based on his/her use of profane language and colorful views on his contemporaries.

    – Wallet: What any participant in the industry wants to &8220;share&8221;, as long as it is not theirs, as in &8220;Our share of the customer wallet is important for our future health.&8221;

    – White Papers: Exercise in casuistry.

    – White Walkers: Government officials who hold the power to resurrect dead banks but not yet the power to resurrect fintech startups to the dismay of VC investors.

    – Xanadu: An idyllic place otherwise known as the Silicon Valley. &8220;In Xanadu did the great VC Khan / A stately pleasure dome decree&8221; is a alternative copycat poem published in the 19th century describing fintech venture investing and venture eco systems.

    – Yield: See Interest Rate(s).

    – Zelig: Describes the act of mimicking the fintech activities of leaders, as in a &8220;me too&8221; fintech VC or a &8220;me too&8221; startup. For example &8220;This fintech venture fund is so zelig!&8221;


  • @fintechna 4:54 am on May 9, 2016 Permalink | Reply
    Tags: Alternative, , , ,   

    Dynamic Pricing in Alternative Lending & P2P Lending 


    in the market may be driven by the potential for relationship pricing in conjunction with traditional banking partnerships.

    As a follow-up to our article, “A Business Case for Dynamic Pricing in Banking,” there is a great deal of discussion regarding the role of dynamic pricing in lending and how it may be applied in the alternative lending market. Lending is steeped in risk and every nuance of a lending product is crafted to mitigate that risk. Is dynamic pricing even possible in the alt-lending market?

    With the obvious heavy hitters like Lending ClubKabbageProsper, and OnDeck garnering the lion’s share of attention, there are still approximately 1,300 companies in the US offering services to about 1% of the overall market – one projected to be upwards of USD$ 350 million by 2025. That leaves the 6,500+ traditional American bank providers fighting for the remaining 99%. Where’s the competition, you ask?

    In the ’ view, that 1% constitutes the “unbankable” or “undesirable” loans. But there is strong evidence that it’s not the retail consumer with bad or no credit history that the alt lenders are going after, but the small/medium enterprise (SME) business customer pool that is the primary, and most profitable, target.

    Be it consumer or SME, what makes alt lenders attractive to customers comes down to pricing.

    In the consumer market, peer-to-peer lenders like European based Zopa and Funding Circle offer investors (depositors) interest rates typically between 5-6%, attractive to those offered 2-3% traditional bank returns. Granted, borrowers face much higher interest rates (6-33%) than traditional unsecured loan rates from traditional banks (average cap of 16%).

    The market sets the price (as do the Central Banks). And no lender is in this for charity – they want a marginal return that covers operational costs, liquidity coverage requirements, and profit. How individual lenders, alt or not, manage their appetite for risk determines a portion of those margins. So, does risk lend itself to dynamic pricing?

    Can we Dynamically Price a Single Product?

    How elastic is single product price? We’ve asked this question in our previous post, and concluded that relationship pricing is difficult in singularity, but a competitive differentiator and a smart strategy when offerings are bundled. Questioning how the lending market may adapt to adopt dynamic pricing leads us to believe that alt-lenders will slowly start behaving more and more like traditional banks to take advantage of a pseudo-dynamic pricing strategy.

    Before we rationalize this assumption, let’s look at two pricing strategies that we predict will play a role in the lending market.

    Abandoning Strict Cohort Analysis Pricing: This method of pricing to market segmentation usually means lumping potential customers into a single risk assessment category based on FICO or credit scores. This is the primary factor that determines the price of unsecured risk. Including other factors like age, education, employment and salary history, geography, and potential lifetime earnings, as well as potential repeat lending business to assess risk is a nod to relationship pricing (and lifetime customer value to the lender) that paints a unique profile for each potential customer. With big data and behavioral analytics, the straight jacket of strict cohort pricing loosens up, and pricing inches closer to reflecting the lender/lendee relationship value.

    Alt-Lending/Bank Partnerships: While not a pricing option per se, a partnership is a risk mitigation strategy and customer service tactic by banks. It is also a way for banks to bolster their offerings, but the end result is more pricing flexibility. A recent partnership announcement between Regions Bank and alt lender Fundation underscore the advantage to banks:

    “This unique agreement….allows Regions Bank to expand loan-product offerings and method of delivery for small businesses while also cultivating long-term revenue and loan-growth opportunities.”

    RBS and Funding Circle have a similar program, something that Santander and Funding Circle did first, back in 2014.

    A referral requirement in the UK has pushed banks and alt lenders into partnership, but the US market could see a similar push towards alliances.

    Relationship pricing in this partnership context is possible when the customer’s portfolio from both the bank and the alt lender is taken into consideration when the risk pricing/rate is offered. This is especially true if a current bank customer is referred to an alt lender – because the bank doesn’t have appetite for that risk that customer poses – but has some assets at the bank the alt lender could consider collateral. We don’t see it now, but we could.

    If It Walks Like a Duck, and Talks Like a Duck …

    Let’s return to our assumption that alt-lenders will start to resemble traditional banks by offering non-lending products. While they may not accept deposits in the same way as a traditional banks, there is still a strong resemblance.

    SoFi, primarily known for its student loan refinancing, accepts cash “providers” and pays them a higher yield rate (up to 6.5% as opposed to the typical 0.03% banks pay out) for managing those loans to borrowers. It can be argued that “providers” are in fact depositors, just depositors who aren’t insured by the FDIC or subject to regulations imposed by the Federal Reserve or Office of the Comptroller of the Currency. They can call it one thing, but the subtext is “super risky deposit”.

    Zopa calls their product “savings”, but it’s the same principle. Deposit money that is in turn loaned out, and get paid a higher rate on those “savings”. It’s essentially a higher risk deposit not backed by the UK government’s Financial Services Compensation Scheme.

    Payments is a natural next step … isn’t a credit/debit type product issued by alt lenders just on the horizon? Alt lenders could easily provide a card or app that draws on those ‘savings’ or taps into the line of credit. This is because loans are not inherently sticky products, and “underbanked” and “undesirable” lending customers even less so. Because of the high risk, they’re not attractive to banks, so there’s no incentive to encourage loyalty, let alone cultivate customer lifetime value.

    But when an alt lender can provide savings and payments, as well as credit, the stickiness factor increases, and individual customer profitability margins can increase. Relationship pricing for even a small bundle of products is now viable. Nuanced pricing of loan rates could easily be tied to volume of payment product transactions, add in periodic reviews of the volume of payments and make the interest rate adjustable, dependent upon payment volume. The more the customer uses the payment product to dip into “savings”, the better the loan or savings rate.

    While this isn’t relationship pricing in strictest sense of the word, it can be dynamic.

    Of course once multiple product offerings become the de facto norm (or there’s even a whiff of it becoming a trend), regulatory scrutiny follows. What a new regulatory framework looks like is anyone’s guess, and we’re not exactly clairvoyant. But we do like to read the tea leaves.

    Alt-Lenders Expanding Their Reach

    Risk priced products are nearly impossible to price dynamically or in context of the customer relationship when offered as a stand-alone product. The current alt-lending market can’t adopt this pricing strategy. However, it can inch closer to dynamic pricing by approaching cohort analysis differently. And new bank/alt-lender partnerships crack open the door to more nuanced risk pricing.

    Our prediction is that alt lenders will start to offer new, non-lending products. If so, then the door to dynamic pricing swings ever wider and we will see bundled offerings that can be relationship priced.


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