Articles by deBanked Staff
Google Ditches Debit Card for P2P Transfer
April 1, 2016
Google will kill its prepaid debit card this June to re purpose it as a P2P payments app.
Wallet Card, which was launched in November 2013 lets users make payments at ATMs, banks and any business that accepts MasterCard Debit.
The project faced multiple roadblocks from the start when it was leaked way back in November 2012, shelved plans in May 2013 before its subsequent launch later that year.
As Android Pay is becoming Google’s mainstay for in-app purchases and third party payments, it makes little sense to continue two similar products. The company is referring Wallet users to American Express and online bank Simple by offering a sign up bonus.
“After careful consideration, we’ve decided that we’ll no longer support the Wallet Card as of June 30. Moving forward, we want to focus on making it easier than ever to send and receive money with the Google Wallet app”
Last month (February 23) Google shut down its financial products comparison tool, Compare.
Online Lender Avant Hires Ex-FDIC Chief to Board
April 1, 2016
Soon, non banking lending will be made up of ex bankers.
The latest announcement comes from Chicago-based online lender Avant which hired the former head of Federal Deposit Insurance Corporation Sheila Bair to its board. Avant sells unsecured personal loans from $1,000 to $35,000 and has issued loans worth $3 billion.
Bair joins Avant after months of due diligence and said she was impressed Avant’s lending standards are similar to big banks where it retains half the loans on its balance sheet. At the FDIC where she spent five years between 2006 to 2011, she pushed for stricter lending standards with capital and risk. In 2014, she joined the board of Spanish bank Santander for a brief stint.
In the recent months, the new crop of fintech upstarts, backed by venture dollars and fiery ambition have clocked fast growth to justify the impressive hires. Stealth P2P insurance startup Lemonade brought on famous behavioral economist Dan Ariely to design risk models. Student lender SoFi hired Deustche Bank chief Anshu Jain to its board, Funding Circle appointed ex ECB chief Jorg Asmussen and last year Prosper hired former CFPB chief Raj Date.
The alternative lending space is garnering a lot of regulatory attention. SEC Chairwoman Mary Jo White called for more disclosure to investors as well as proprietary risk and lending models adopted by companies. The Small Business Finance Association is working on building a guide for industry best practices.
This Startup Can Turn Your Phone into a Credit Report
March 31, 2016
Want your phone to generate your credit report and get you a loan? Don’t worry, Branch is working on it.
This San Francisco-based startup Branch raised $9.2 million from Andreesen Horowitz. Led by the co-founder of non-profit lender Kiva, Branch uses an algorithm to crawl through contact lists, social network data, GPS data and SMS logs on a phone to generate a credit profile for unbanked consumers.
The startup’s primary market is Kenya and after this funding, Tanzania. Branch controls the entire lending supply chain in Africa, right from assessing a person’s creditworthiness to selling loans to collecting debt.
As new lenders emerge in the market, they create a new breed of borrowers. Startups are spending tons to hire top class talent to create new credit models that are, as some would say fairly accommodating of riskier borrowers.
Last month (February 24th), P2P insurance startup Lemonade hired behavioral economist Dan Ariely to design systems to assess risk. Data Analytics startups like PeerIQ and Dataminr perform similar functions for investors.
As for Branch, focusing on the lending market in Africa might be a good strategy after all.
Watch out Bank Tellers, Robots are Coming for your Job
March 31, 2016
Watch out bank tellers, robots are coming for your job.
Investment in private fintech companies and upstarts has grown ten fold from $1.8 billion in 2010 to $19 billion in 2015 and in the same time, bank staff has been slimming down as investors bet on automated finance to eventually overthrow banking. Already, 46 percent of private funding has gone to lending companies selling cheaper loans easily.
The ambition to oust bank behemoths however will need continuous fueling. As things stand now, these lenders are nowhere close to managing that coup. Revenue impact from the digital banking upstarts cause a one percent dent in the $850 billion global banking revenue.
It may be negligible but not to be neglected, investors might say. In the US, online lenders like Lending Club and Prosper Loans sold loans worth $8 billion last year and are looking at a target market of $254 billion, 8 percent of the total consumer credit market.
In its report, Citigroup predicts that US and European banks will shed 1.7 million jobs by 2025 as the banking sector undergoes its own “Uber moment,” forcing banks to automate some lines of business. Anthony Jenkins, former Barclays CEO translates this to halving the number of branches and people over the next few years. If this is an eventuality, different markets will take different paths to get there.
While Nordic and Dutch banks have cut total branch levels by around 50 percent from recent peak levels, branch openings in the top US cities including Seattle, Denver and Dallas have increased between 2-17 percent in the last five years. Part of the reason is because customers still have to visit a branch for identity verification but mostly the benefits (easy access, brand recall) of having a bank branch in wealthy states outweighs the costs involved. “With wealth concentrated in the top cities in the US, a strong branch presence in these cities allows banks to capture wealth,” the report said.
Though the transition of the branch’s role from transactions to advisory/consultancy is imminent, the pace has been gradual, about 11-13 percent since peak pre-crisis. That number could reach 30 percent by 2025. As for the US, there are 15 percent less tellers than there were in 2007.
But the banks want in and are willing to pay. Citigroup and Goldman Sachs have been active in seeding fintech rivals. In the last five years, Citigroup has invested in 13 companies including Square.
Is it time to make another David and Goliath reference?
Square Baits New Merchants with Payments
March 30, 2016
Jack Dorsey wants Square to be a one stop shop and is baiting merchants with its new payment integration tool.
Square launched new API tools on Wednesday (March 30) for online and retail stores who “with few lines of codes can seamlessly integrate Square into the checkout process.” The company is going after payment giants like PayPal, Braintree and Stripe alluring merchants with an easier-to-use payment tool and is priced similarly at 2.9 percent and 30 cents per transaction.
For its erstwhile customers, picking Square over rivals makes sense given the integration between online and offline sales and for the businesses that do not use Square, the company wants to handcuff them.
At the time of founding, Square’s primary business model was a merchant-first approach. It went after 27 million micro merchants who hitherto were invisible to incumbent players in the space. It took in these small heterogenous group of merchants and equipped and trained them with a dongle to accept card payments for a flat fee.
And now its plan to consolidate a fragmented customer base seems to be working thus far. It recently swapped out its merchant cash advances for bank loans again, similar to PayPal’s loan products.
But why launch a payment tool now? Almost 46 percent of shopping cart abandonment happens at the payment stage frustrating buyers with a lengthy checkout form. And this new API allows online stores to integrate a simple checkout form for card details unlike Stripe which requires an e-wallet sign up. It also launched an API for inventory, payroll management and for registers which can integrate Square’s payment tool with custom point of sale software.
Square is hoping that merchants come for payments and stay for more. “Sellers, even if they don’t have an offline presence today, will have ambitions for where their business wants to go and will choose a provider that, regardless of how their business grows, will be there with them,” Square’s head of engineering Alyssa Henry told Forbes.
What’s next for Square’s gung ho growth?
SoFi Funds $1B in Student Loans, is Lobbying Working?
March 29, 2016
Student lender SoFi crossed $1 billion in student loan refinancing through its corporate partnerships which lets employers like Microsoft pay for student loans.
The announcement is rightly timed as lawmakers push for bills that give tax benefits on employer-paid student loan repayment programs.
Companies can contribute as little as $100 a month to refinance employee student loans or offer to refer them to SoFi as part of the bonus package. All roads thus leading to SoFi.
What SoFi likes to boast as the “hottest employee benefit,” over a 401k plan, is being advocated for by Congressman Rodney Davis, who is pushing the Employer Participation in Student Loan Assistance Act, which gives employees a tax-exempt benefit of up to $5,250 per year to pay on their already incurred student loan debt and allows employers to deduct the subsidy provided to employees.
“The Employer Participation in Student Loan Assistance Act encourages employers to be part of the solution by allowing them to offer an employee benefit that will help graduates pay down their student debt. With outstanding student loan debt totaling more than $1 trillion, we must find ways to engage the private sector and help graduates manage their debt,” according to Davis’ website.
And he did find ways to engage with the private sector. Records show that SoFi spent close to $130,000 in the last two years, lobbying to get the bills enacted into law. The act which ostensibly helps employers attract and retain young talent creates a bigger market for SoFi loans.
And with $1 billion in originations, it seems to have gotten itself a great deal. And in its own words, “with programs like these, everybody wins.”
US Economy: Spending Slows, Savings Increase and Home Sales Rise
March 28, 2016
It’s finally happening. Americans saved more than they spent over the last quarter.
Consumer spending on goods and services inched up 0.1 percent in February for the third straight month. Incomes rose by 0.2 percent in February pushing the saving rate from 5.3 in January to 5.4 percent in February.
The Federal Reserve kept the benchmark federal funds rate at 0.25-0.5 percent on March 16 after raising it for the first time in a decade in December last year. But, as demand for labor increases, the central bank can go easy on scaled back forecasts of higher interest rates noting that the economy is exposed to the uncertain global economy.
Personal consumption expenditures (PCE) on goods and services which is the Fed’s preferred inflation metric also increased by a percent, while still staying below the targeted 2 percent.
The lackluster consumer spending however does pose a risk to the first quarter GDP figures estimated at 1.5 percent annually.
Separately, pending home sales also rose 3.5 percent in February to their highest level in seven months according to the National Association of Realtors. Low mortgage rates combined with increased incomes and savings has prodded buyers to sign contracts on new homes.
Numbers at a glance:
- February consumer spending saw 0.7 percent drop in purchases of goods while expenditure on services rose 0.4 percent.
- Forecast for existing-homes sales this year are around 5.38 million, an increase of 2.4 percent from 2015, while the national median existing-home price for all of this year is expected to increase between 4 and 5 percent.
- The average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.66 percent in February – the lowest since April 2015 at 3.67 percent.
Real Estate Crowdfunder Patch of Land Returns $25 mn to Investors
March 24, 2016Patch of Land has returned $25 million to investors this year, a quarter of its originations at $100 million.
The LA-based online lender for real estate loans also expanded its business to Hawaii, marking its presence in 36 states. The company uses a data-driven underwriting model and promises investors a risk adjusted return with extensive available data to support the underlying credit decision on each loan.
Earlier this month, Patch of Land started selling mid-term loan option for 2-5 years starting at 6 percent, extending its typical short-term loans starting at 10 percent for up to two years. It sells ‘bridge loans’ ranging from $100,000 to $5 million to cover the borrower until they can secure permanent capital or those who may not immediately qualify for long-term financing on properties that they rehabilitate and then hold as rentals. As far as demands for these loans go, the company’s CEO Jason Fritton said bridge loans generated $40 million in loan interest in less than two weeks since.
The three year old startup signed a $250 million agreement with an east coast based credit fund to purchase its loans in a forward flow arrangement. Last year, it raised a million in seed funding and $125,000 in debt in 2014, followed by $23 million in Series A funding last year when it funded more than 200 projects, with an average blended rate of return to investors of 12 percent.
CEO of RealtyShares, a real estate crowdfunding platform Nav Atwal in a Forbes post said enlisted reasons why commercial real estate is investor friendly — 12 percent annual returns, tax benefits, hedge against stock market and inflation being some of them. But for larger context, the commercial real estate environment is of caution among lenders towards big projects. Real estate firm CBRE said that it “conservatively” estimates that 18 percent of loans this year and 29 percent of loans next year to have refinancing problems as investors move away from commercial real estate bonds. CBRE estimates $43 billion to be in “troubled loans” over the next two years.
