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Fasanara Fintech Weekly



Sinking P2P and Fintech Football

Happy Monday!

Today's News and Topics:

  • Institutional interest in P2P continues unabated in 2019

  • Neil Woodford sinks $12 million in struggling challenger Bank Atom

  • What Funding Circle tells us about fintech valuations

  • How Machine Learning will transform P2P lending

  • The use of cash-flow data in underwriting credit

  • The links between a former football chair and a failed P2P lender.


Institutional Interest in P2P Continues Unabated in 2019

A wide variety of institutions, including City firms, pension funds and family offices, have been highly active in the P2P lending space this year, in the form of both funding lines and equity investment.

Funding lines have helped P2P platforms boost their lending volumes, while equity funding has been used by P2P firms to expand their teams, improve their processes and grow their product ranges.

Such fundraising initiatives have brought almost £70m of institutional money into UK-based platforms since the start of the year. With so much deal activity in the P2P sector already this year, it seems likely that institutional interest will continue to grow over the rest of 2019.

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Neil Woodford Sinks $12 Million In Struggling Challenger Bank Atom

Atom Bank has received a lifeline from troubled fund manager Neil Woodford after the digital bank and mortgage lender lost $66 million (£53 million) in 2018.

The challenger bank was handed $12 million (£10 million) from Woodford as part of a fresh $62 million (£50 million) funding round.

Woodford himself has been facing criticism for making big, risky bets on unlisted companies, and his flagship fund, the $4.6 billion (£3.7 billion) Equity Income fund, has been suspended to redemptions since early June after nervous investors withdrew billions of pounds.

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What Funding Circle Tells Us About Fintech Valuations

Funding Circle achieved an IPO in September 2018, raising £300 million and valuing the company at £1.5 billion. Since then the share price has fallen by 72 percent (as of 22nd July 2019).

This weak share price performance could be any combination of company specific issues, problems with the business model of digital marketplace lenders, or an issue with fintech valuations more generally.

The case of Funding Circle suggests that there are different perceptions of valuation between private and public markets, and that high valuations are very fragile for unprofitable fintech companies with business models that have not been proven in the long term.

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How Machine Learning Will Transform P2P Lending

AI and machine learning are enabling the marketplace lending sector to automate a variety of processes, shrink operating costs, and make life easier for both lenders and borrowers.

For example, machine learning, with its predictive analysis, can help lenders identify early the borrowers who are highly likely to default later on. Early deduction of defaulters can significantly lessen the credit risks, which, in turn, reduces the total number of actual default cases.

Its ability to process mammoth workloads in shorter time periods also enhances the overall experience and quality of the lending process for borrowers, while reducing the overall costs and space for human error for lenders..

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The Use of Cash-Flow Data in Underwriting Credit

While using cash flow data in underwriting is becoming more common place these days, there has not been any independent research done its the benefits and pitfalls. Until now.

FinRegLab’s report provides a detailed summary of its research based on data from six fintechs that use cash-flow variables and scores in an effort to increase the provision of credit to consumers and small businesses who may have difficulty obtaining loans from traditional sources.

The report also analyses the extent to which the research participants are providing credit to traditionally underserved populations and whether the use of the cash-flow variables and scores introduces fair lending risk in credit eligibility determinations.

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The Links Between a Former Football Chair And a Failed P2P Lender

Troubled property development schemes spearheaded by Stewart Day, the former chairman of Bury Football Club, account for almost a fifth of the money owed to investors in collapsed P2P lending platform Lendy.

Since its launch in 2012, Lendy raised more than £400m from investors to extend to property developers who were considered high risk by high street banks. Lendy’s investors may not have realised they were funding Mr Day, who oversaw £8.3m of losses at Bury between 2014 and 2017, or understood the concentration risks of his projects in Lendy’s loan book.

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