Blockchain technology is continuously being compared to internet-technology. Facebook, a company with about 2.3 billion users launches its own blockchain-based currency called Libra. This is a fairly bold move and a lot of thoughts come to mind. When the internet was launched to the public in the 1990s no single company had this many clients or users. In fact, in the history of humanity nobody, not even the largest countries, had this many users for a new currency. This is a unique move in the history of humanity.
Here are a few thoughts about this bold move.
What would you rather buy: tokens in a $25mil ICO or a liquid token with a $5mil market cap?
The ICO still must prove itself. The liquid token is already trading on multiple exchanges. The liquid token’s team already hit a few milestones and either has a working ecosystem or is just months from releasing it.
Junk bond market
Around the mid-1980s the junk bond market appeared by leveraging that humans tend to be overly pessimistic. For example, certain bonds that pay 20% interest may have a lower probability of default then the interest would make you think. By picking those bonds certain hedge funds have made very impressive returns in the past.
Alternative lenders use all sorts of complicated models based on sophisticated algorithms and machine learning in extrapolating data that is never certain or reliable. Cosigning is simple. It relies on a real person with a prime credit score. The equation is reduced to a number and a heartbeat.
To deliver above average returns to investors, online lending startups have been grabbing alternative data from a potential borrower’s email, social media, and even mobile accounts. They are determining risk based on a borrower’s likes, shares, and phone usage. There is a better option to capitalize on the $3.5 trillion consumer loan market: Cosigning.
Here are 5 reasons why online lenders like Backed, Inc., which relies on cosigning, yield superior overall returns than those lenders who rely on algorithms that are overloaded with over 10,000 data points:
Artificial intelligence has been immensely advantageous to the financial sector. The lengthy tedious work which took hours for humans to perform was reduced to seconds by computer software. The use of papers, pens, and abacuses for conventional accounting systems have been transformed into the computerized system of accounting and auditing. Innovation in this field is so powerful that it has elevated the financial auditing process to a higher plane.
Ocrolus is a financial service provider with two powerful AI products: “PerfectAudit” and “MedicaidGenius.” These products eliminate the need to audit bank and credit card statements manually.
The company was founded in 2014 and is headquartered on Wall Street in New York. After testing and polishing, Ocrolus launched officially in January 2016. Its team consists of four executive members–Sam Bobley, Victoria Meakin, Vikas Dua, and Zoheb Sait. There are an additional 15 employees working on the technology and operations side of the business.
Victoria Meakin serves as president of the company. She was also the co-founder and president of PhoneCharge, an electronic payment processing company that sold to CheckFree for around $100 million. CEO Sam Bobley is a young technology entrepreneur who graduated from the University of South Carolina-Columbia. COO Vikas Dua was previously associated with on-demand Series-C startup Handy.
Nigel Morris is a co-founder of Capital One and has led it to emerge as a multi-billion dollar behemoth. During his time at Capital One, he noticed there is a gap between banks and the fintech industry. To bridge this void, his team rolled out QED Investors in 2007 and was able to bring on board some ex-colleagues from Capital One to build QED; this helped him to ensure the team hit the ground running. QED has invested in multiple startups that have not only become unicorns, but have changed the entire landscape of the financial ecosystem in which they operate. Most notable are Credit Karma, SoFi, Prosper, GreenSky, BrainTree, and ApplePie.
Fintech Opportunities and Hindrances
Morris has seen the best and worst of big banking and fintech startups. He has seen that banks have some really important assets that fintech companies lack: low-cost deposits, regulatory access, top-notch compliance, huge customer base, and high profitability. But they are trying to be everything to everyone and this is where fintech companies are gaining ground. Fintech companies, rather than offering everything, offer a specific product or service that banks haven’t developed or cannot develop because that is just not part of their DNA.
Over the past four months, we’ve had extensive conversations with ABS market participants to discuss the new Asset Level Disclosure (ALD) requirements for public US securitizations. We discovered that many market participants have been overwhelmed with the volume of loan-level data and are at a loss on how they can readily derive value from it. In the following research piece, we answer commonly asked questions and provide guidance for incorporating ALD data into the investment process.
Specifically, we highlight the need for participants to (1) access standardized ALD data on-demand in an easily digestible and consistent manner, (2) unlock complex relationships and insights within and across securitization trusts, and (3) develop benchmarks for performance.
What is the scale of the data and how does one access it? By December 2017, we project there will be ~100 securitization trusts with over 34GB of data for just the auto-loan, auto-lease, and CMBS verticals. Given the data size and update frequency, we believe the market needs a centralized hub so users can access it easily in a consistent, clean format that has cash flow-specific fields.
Before online lending, long before Credit Karma, and way before machine learning powered by cloud-based applications, if a person or business needed to clean up their credit in order to apply for and be approved for a loan, perhaps even getting a loan on better terms, they had to write letters to each credit bureau where bad actions were recorded and ask to have those actions removed. That may have also entailed working out a payment plan with creditors who reported those actions in order to get in their good graces. Levi King understands that process well.
He also understands the challenges of being a small business owner. Having owned a hotel, a management company, a retail financial services company, and several franchises–all before co-founding Lendio and Nav–he’s seen countless small business owners with low credit problems.
“I’ve applied for financing about 30 different times,” he said, “and learned the hard way how it all works.”
Your firm is in the market to raise capital. You selected an investment banker to represent you in the process. The firm’s vision, financial goals, strategy and performance have been documented for the investors to review. An information library, stocked with materials such as a flip book, financial statements, standard forms and contracts, company policies and procedures, and a financial model is available to potential capital providers upon signing an NDA. The preparation of these materials took weeks or perhaps months. Your banker sorted through his/her contact list of investors making dozens even hundreds of preliminary investor calls. This resulted in a short-list of potentials that want to setup a conference call with your company’s top management.
Initial investor call
At this point, the many weeks and months of work are finally paying off. Surely, the investor will recognize the opportunity of marketplace lending/fintech and want to invest, right? Maybe, but remember the process is only getting started. Often company managers become hasty thinking all the preliminary work means a deal is close to consummation. For this reason, I always remind the client that the initial investor call is not to discuss the terms a deal. One should introduce themselves and the company, provide substance to certain key metrics and outline the firm’s overall strategy. Yet, I continually witness clients outline terms or discuss valuation too early in the conversation. This may make an investor feel pressured, suggest price shopping or even worse make your company appear desperate during the call. For an investor’s point-of-view, this suddenly appears like a low-probability transaction. That pushes them away from your opportunity in favor of others.
A panel of bankers met at LendIt to discuss the future of digital banking. The following discussion offers an interesting snapshot of what it might look like. I say, count me in.
Jeremy Balkin, head of innovation at HSBC USA, started the conversation with this observation: “We live during the ‘millennialization’ of everything. We value freedom and mobility. In banking, it’s no different.” Balkin went on to say that banks must cater to all types of customers, from Millennials to Builders, who aren’t likely to adopt emerging technologies. “The challenge is the adaptation of customer data.”
Millennial Banking, From the U.S. to China
Millennials have an average of 14 different financial services apps on their phones, Balkin said. In that regard, they are primed for mobile banking. Mitch Siegel, KPMG’s national FS strategy and transformation leader, agreed with that.
“I would say mobile first, not only,” he said.
While the average millennial is engaging with financial services companies on their phones, they are mostly performing simpler tasks, he said. Meanwhile, they’re putting off mortgages, kids, car loans, marriage, etc.
The PitchIt startup awards is one of the best and most exciting parts of the LendIt — a lending conference. This year, there were eight finalist competitors who met in front of hundreds of investors to pitch. Four judges picked the ultimate winner, Nova. Below are the profiles of Nova and the seven other PitchIt finalists.
Nova — Credit History for Immigrants
Nova is the world’s first cross-border credit agency. Many immigrants come to the United States with no credit history. They may come from a place where credit is not an option. In many countries of the world, banks do not issue credit cards. There may not even be many, if any at all, banks. Merchants do not offer purchases on credit, so when these immigrants land on U.S. soil, their ability to interact with the economy is limited by the options they had in their native countries. Nova solves that problem.
It started as a research project at Stanford University. U.S. property managers run credit and background checks on applicants to screen for potential risks when leasing or renting housing units. Those checks typically do not include overseas credit checks. With Nova, property managers have that ability. Not only can U.S. landlords check overseas credit, but they can also report negative actions so that the credit report is affected in the applicant’s home country.