A recent report by Startupbootcamp and PwC points out that startup trends in 2016 moved towards artificial intelligence (AI) and machine learning companies compared to blockchain; the data shows that 16% of applications to Startupbootcamp are from artificial intelligence and machine learning companies, whereas blockchain applications account for only 6%; blockchain was certainly a bigger buzzword in 2016 but one reason that AI and machine learning has more startups is because companies like Google, Facebook and Amazon have made significant investments in the technology; additionally, the report points out that as blockchain becomes more industrialized more startups will use the technology instead of being a blockchain startup. Source
SoFi is becoming one of the US's largest and most comprehensive marketplace lenders. Since launching in 2011 they have originated over $15 billion in loans. They market themselves as a new kind of finance company and recently acquired Zenbanx, expanding their products to deposit accounts. SoFi also offers student loan refinancing, mortgage loans, personal loans, wealth management and life insurance.
In Lend Academy's recent podcast with SoFi, CEO Mike Cagney provides some insight on how the company might be valued on a per customer basis. Mike Cagney says larger banks are valued at approximately $10,000 to $100,000 per customer. SoFi currently expects to have 500,000 customers by the end of 2017 and 2 million customers in the next two to three years; at a value of $50,000 per SoFi customer, this would imply a $100 billion valuation. Source
The Consumer Financial Protection Bureau (CFPB) has opened a comment period for information on alternative credit data. The CFPB issued the request for information (RFI) on February 16 and the comment period is open until May 19. Responses to the RFI can be found here.
The CFPB, established by the Dodd-Frank Wall Street Reform Act and led by Director Richard Cordray, is interested in obtaining information on the currently available sources of alternative credit data in the market and alternative credit data underwriting models being used by fintech innovators.
The CFPB's RFI follows an increasingly emerging financial inclusion trend in fintech. The market has seen a number of new companies seeking to make credit more accessible for thin file borrowers. Meanwhile, innovation around alternative credit data is also surfacing. The CFPB seems to be taking an active role in this emerging trend and will likely publish a comprehensive report on its findings and perspective following the comment period. Source
Mobile-focused digital banking provider Varo Money has applied for a banking charter with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), as chartering options continue to be debated for US fintech companies. Varo Money is the second fintech company to apply for bank chartering following SoFi who currently has an application pending with the FDIC.
Varo Money has applied for two approvals, one a national banking charter with the OCC and the second an application for deposit insurance with the FDIC. According to the Wall Street Journal, approvals would allow the company to take deposits, pay interest, make loans in any state and issue cards, all independently.
Details of the firm's applications have not been released publicly and it's likely to be a slow process for approval with the OCC who is currently being sued over offering a national banking charter for fintechs. The FDIC process also includes an open comment period which has been challenging for SoFi. Varo Money does have a significant investment from Warburg Pincus which also includes support from former US Treasury Secretary Timothy Geithner, who is the firm's president.
Scott Sanborn took over as chief executive officer at Lending Club, facing the challenge of rebuilding confidence in an innovative business model that helped to introduce the concept of P2P lending to the US in 2006; bringing unique experiences from a career that began in advertising, Sanborn has been with Lending Club since 2010, beginning in a role as chief marketing officer for the firm; in the Q&A he provides details about the firm's strategy for evolving through challenging times and what the firm is doing to meet new goals for the future. Source
SoFi has announced a new fund following a theme discussed at LendIt USA 2017; SoFi's new fund, the SoFi Prime Income Fund, will target family offices; it has raised $105 million from 33 investors each contributing a minimum of $500,000 and will include SoFi's unsecured student and personal loans; it adds to a Credit Opportunities Fund introduced last year; at LendIt USA 2017 panelists discussed new fund creation by platforms; the industry has begun to favor platform fund development over retail fund development; the complexity of marketplace loans and specifically their liquidity risks have kept them from widespread expansion in the retail fund management industry; challenges such as managing international currencies and using alternative leverage strategies are just a few of the retail fund risks for investment managers. Source
The Federal Reserve released a report on its initiative to provide real time payments by 2020; the report was created by a task force of over 300 industry contributors; the report, titled, "The U.S. Path to Faster Payments: A Call to Action" outlines payment processing proposals, the task force's vision and goals for the initiative; details on the payments initiative can also be found at FasterPaymentsTaskForce.org. Source
The industry wide thinking is that most people who use check cashing or pre-paid cards were making a big mistake; banking executives believe check cashing and pre-paid cards are a lot more expensive than bank accounts, but the reality shows a different picture altogether; University of Pennsylvania Professor Lisa Servon wanted to understand why the check cashing industry was such big business and why people were using these services instead of banks; what she found was, if you factor in account fees and overdraft charges, banking was more expensive for people living paycheck to paycheck; these individuals were consciously making the choice to not use banks and she found that there were three main reasons for this trend: cost, transparency and service. Source
Vista Equity Partners has announced the intended acquisition of DH Corporation which it will subsequently merge with Misys to create one of the world's largest global fintech leaders. Under terms of the proposed acquisition, Vista will acquire all of the firm's outstanding debt and the equity shares of DH Corporation which trade on the Toronto stock exchange. Vista will pay C$25.50 (USD$19.15) per share for a total value of approximately C$4.8 billion (USD$3.6 billion).
The influence of DH Corporation and Misys is likely to be substantial. This week DH Corporation launched Total Lending™ Small Business a digital solution for financial institutions that is intended to improve the online bank lending process and customer experience for small businesses. In January Misys also announced a crowdlending technology solution that provides financial institutions with a platform for offering P2P lending.
These developments combined with a greater interest in fintech partnerships by banks overall and the potential regulatory implications for increased US bank lending in general are likely to influence the market landscape. This week Marlette Funding announced a workforce reduction and OnDeck has also significantly reduced its workforce following its recent earnings announcement. While exponential growth opportunities still exist for fintech companies, cost efficiencies continue to remain a central driver of demand. As broader solutions develop across the industry, it's likely that cost structures and a focus on tighter profitability forecasts will become increasingly important in order to navigate the changes ahead. Source