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Alt Lending: Zombie companies, Bank Interventions & conflicting priorities for Alt Lenders

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Here is our pick of the 3 most important Alt Lending news stories during the week:

  1. Zombies are a major drag on the uk economy

New analysis from KPMG UK finds the rising prominence of so-called ‘zombie firms’ is threatening to cause a significant drag-effect on the UK economy.

Why it matters: Referring to Zombie companies Alex Brazier executive director at the Bank of England for financial stability is mulling over the idea of changes the rules to make it easier for firms to sell equity. This is largely related to the amount of investment in open ended funds which provide liquidity for punters. While this has nothing to do with Alt Lenders Mr. Brazier’s thought process seems to be more focused in maintaining employment levels than anything else regardless of  the performance and future prospects of the underlying concerns. He points out that over leveraged concerns are less likely to invest in either assets or people as a result and throws up the fact that large concerns are having to take bets over very long periods. Also true but it smacks a bit of maintaining the status quo rather than taking an innovative approach to the financing. After all a highly leveraged organisation that can only survive because interest rates are artificially low will just become a lower leveraged organisation with a marginally improved ROE and a set of disgruntled shareholders that will have taken the dilution. This, to me is where the  alt finance should be taking the lead and sponsoring project based initiatives using the infrastructure of existing businesses but not taking on any of the existing financial and other baggage. There is more than one way to skin a cat. I think the problem is largely around the lack of liquidity in the medium sized project based area and a lack of proper banking expertise in structuring the projects.

2. British Business Bank “should increase influence” in corporate life

‘We’re seeing a different economic world where the role of government is going to be central in the way the economy works,’ said Ron Emerson

Why it matters: On a similar note BBB is a state owned bank and its former CEO Ron Emerson thinks that it has a bigger role to play in corporate life. Of course COVID is the underlying reason for this with Government taking a much more paternalistic role in the market. I am not sure that I agree with this. We have seen in spades what the dead hand of government does when it gets its sticky fingers on things. I actually know Ron of old and think he is a very sharp operator and a first rate political manipulator as well as being a very nice bloke. It was interesting to read however that he has now thrown in his lot with Manchester based alt lending outfit B North which are currently trying for a banking licence. I took a look at the B North website which seemed to be focusing its strategy on the huge SME market and its USP was speed of decision making and getting cash to clients ASAP. A new Bank in Manchester is not a bad idea given the UK governments levelling up and I would much rather see the private sector taking a much more supportive role.

3. Virgin tucks away £ 42 million for toxic loans

Virgin Money has put aside another £42m to cover for potentially toxic loans amid fears of a spike in unemployment and the impact that could have on mortgage loans. The top-up, which includes a 62pc rise in provisions for defaults on mortgages due to “more cautious assumptions in relation to the outlook for unemployment” and house prices, takes Virgin’s total pot for credit loss provisions to £584m. The UK’s sixth-largest lender said it had “not yet seen any significant credit losses

Why it matters: The vast majority of this weeks Alt finance news seems to be, as usual, firstly about the number of new firms that are raising VC in order to fund their new businesses and secondly about existing lenders making increased loan loss provisions. This is certainly true in Virgin’s case but what caught my eye was the fact that they are making a large increase in  their provisions against potential mortgage defaults? This is of course prudent and as Virgin is now the UK’s sixth largest lender we can learn something from the stance they are taking. Their CEO says that the company has not seen any specific credit losses ”yet”  but nevertheless believes that things will get more difficult. At the same time however we see quite a lot of new lenders doing everything they can to push loans out of the door. This comes as a spokesman for Investment Bank Jefferies has opined that single purpose Digital lenders might be peculiarly threatened by the established bank players in the personal market. Food for thought?

Howard Tolman is a well-known banker, technologist and entrepreneur in London,

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. 

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.




Source: https://dailyfintech.com/2020/07/31/alt-lending-state-aid-for-zombie-outfits-bank-interventions-conflicting-priorities-for-alt-lenders/

Blockchain

Baby Steps or Handcuffs? Crypto Pros Assess PayPal’s Bitcoin Play

Fintech giant PayPal confirmed its move into crypto Wednesday. Is its no-withdrawals bitcoin service too restrictive or mainstream-friendly?

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Call it Crypto Lite – for now.

Fintech giant PayPal confirmed its long-awaited move into digital assets Wednesday, offering its 346 million users the chance to buy, hold and sell bitcoin, bitcoin cash, ether and litecoin, with the blessing of New York state regulators. 

While the cryptosphere acknowledges the bullishness of a firm the size of PayPal making a move into the space, there was also concern that the new service does not allow bitcoin or other cryptocurrencies to be withdrawn or deposited. Once you buy the coins, they stay in your account until you sell.

“Currently, you can only hold the cryptocurrencies that you buy on PayPal in your account. Additionally, the crypto in your account cannot be transferred to other accounts on or off Paypal,” states the PayPal FAQ page published with Wednesday’s announcement.

Self-custody and moving your coins around is what crypto is all about though, right?

The view from some informed takes is that while PayPal did not need to impose such restrictions, it’s probably a case of taking things by degree; a “crawl before you can walk” approach. 

Read more: PayPal Embraces Crypto, Igniting Market as Mainstream Adoption Inches Closer

As such, the current setup is being compared to Robinhood – which also offers crypto but in a confined space – but hopefully moving in the direction of Square – which started the same, but now allows limited withdrawals to non-custodial wallets.

The lack of withdrawals to self-custody and inability to transfer between accounts constituted “the highlight of the PayPal news” for Jake Chervinsky, general counsel of DeFi platform Compound, who added that such restrictions aren’t required for regulatory compliance. (Chervinsky did not immediately respond to a request for further comment.)

However, it may well be the case that PayPal is simply setting out to cater to what it perceives to be the needs of the average user, pointed out Jerry Brito, executive director of Coin Center, a Washington, D.C.-based think tank.

“Simply allowing people the ability to buy and hold and sell back crypto I imagine is something they studied,” Brito said in an interview. “It may simply be that’s what most people want to do with cryptocurrency at the moment, and the demand to move it around and transact is not as high. And if that’s the case, it’s much easier from a regulatory perspective and from a user support perspective, to simply allow that option without having the ability to transact.”

Read more: Square Puts 1% of Total Assets in Bitcoin in Surprise $50M Investment

Providing the most obvious route for people to have exposure to the asset class without necessarily getting into the more complex issues of running private keys and understanding cryptography and digital signatures is possibly what PayPal is thinking, said Charles Hayter, CEO and co-founder of data site CryptoCompare.

“Yes, if you’re a pure libertarian, it’s not ideal. But being pragmatic about bitcoin’s trajectory and global adoption penetration rate, this certainly brings more options,” Hayter told CoinDesk.

PayPal plays it safe

Brito of Coin Center agreed that to be compliant with regulations, PayPal did not perhaps need to wall its garden in, but pointed to gray areas like the Financial Action Task Force’s Travel Rule and other areas of anti-money laundering (AML) enforcement, which come into play when transferring crypto in a regulated environment.

“It’s certainly the case that it’s a much bigger hurdle to allow for sending [crypto] than not,” Brito said. “So, sort of top of the list would be the Travel Rule. People are finally developing solutions to comply with that but they are not there yet. This will be a relatively small part of PayPal’s business so the easiest thing to do is not engage in transfer and take on that compliance risk.”

Read more: PayPal, Venmo to Roll Out Crypto Buying and Selling: Sources

Stephen Palley, a partner at the Anderson Kill law firm, said the functionality of the PayPal crypto announcement is not important compared to what it says about crypto, the asset class.

“They’re going to be cautious, and they’re going to roll it out slowly,” Palley told CoinDesk, adding: 

“My takeaway is that the importance is not the functionality. The importance is from the normalization of the asset class. If PayPal is saying you can somehow use this via our platform, however it works, that takes it one step away from the notion that this is just for criminals.”

PayPal did not return requests for comment.

Disclosure

Source: https://www.coindesk.com/baby-steps-or-handcuffs-crypto-pros-assess-paypals-bitcoin-play

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Zip unlocks everyday payments with Tap & Zip

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Zip Co today announces the official launch of Tap & Zip, a new product feature that reimagines buy now, pay later (BNPL) instore by enabling Zip Pay users to shop effortlessly anywhere that accepts Visa1.

Tap & Zip builds on Zip’s mission to be the first payment choice everywhere and every day. It will see Zip expand into more everyday spend categories and capitalise on the significant instore payments opportunity. Currently, just 13%2 of stores in Australia are able to accept buy now, pay later options. Tap & Zip addresses this significant and untapped customer need.

Today’s announcement underscores Zip’s obsession with providing merchants and customers the best possible payment experiences. For merchants, this initiative greatly increases access to new customers, bigger basket values and increased sales volumes. For customers, it means they can use Zip Pay to shop everywhere and pay later, always interest-free. Customers can also continue to check-out using Zip’s existing instore solutions, if that is what they prefer.

Tap & Zip follows a strategic product review of Zip’s instore payments experience, which to date has been based on barcode and QR technology, which requires complex point-of-sale integrations. Ever since contactless payments were introduced in Australia in 20063 Australians have universally accepted tapping as the preferred experience. With 24% of Zip transactions occurring in physical stores compared with the broader Australian retail data, which sees approximately 87% of payments instore – the opportunity to grow the BNPL share is significant.

Larry Diamond, Co-Founder and CEO, said, “BNPL has seen phenomenal growth over the last few years, as customers switched traditional forms of credit for flexible, digital alternatives. However, until now that growth has been restricted by a clunky instore checkout experience and limited acceptance.

“We continuously hear from Zip customers that they want to use their digital wallet to pay for everyday purchases like groceries and petrol, or to buy products and services from merchants that don’t accept BNPL. As a customer-obsessed organisation, we are excited to announce Tap & Zip, which completely changes the game, enabling Zip to compete with the credit card at every checkout in Australia. Everywhere Australians can pay with a Visa contactless card, they’ll now also be able to Tap & Zip, interest-free.

“This is a huge day for Zip and the Australian retail sector. Tap & Zip is a new way for customers to pay that will dramatically increase instore transactions and conversion rates for thousands of retailers and merchants around the country, many of whom have been significantly impacted over the past year.

“Tap & Zip marks the future of BNPL: flexible and transparent payment options that are accepted everywhere.”

Zip has been granted a Principal Issuer license with Visa, the world’s leading payments technology company, and will leverage Marqeta’s leading open-API card-issuing platform, which together enables users to create Zip-branded virtual cards in real-time. This virtual card allows users to shop at any instore or online retailer where Visa is accepted4, and can be added to selected digital wallets. As a principal member and partner of Visa, Zip will earn interchange revenue on transaction volume processed on its cards.

Julian Potter, Visa’s Group Country Manager for Australia, New Zealand and South Pacific said, “Tap & Zip customers can enjoy the choice and flexibility that Zip provides, and know their transactions are backed by Visa’s global acceptance and multiple layers of security. Visa is proud to bring its scale and capabilities to enable fintechs like Zip to develop new payment solutions and to reach their global potential.”


1 Anywhere that accepts Visa payments online and Visa contactless payments in-store.

2 Insight from Australian Merchant Acquiring Program research, conducted by RFI Research and commissioned by Zip Co.

3 “Credit card purchases will give way to tap and go”, The Australian newspaper, October 21, 2013.

Source: https://australianfintech.com.au/zip-unlocks-everyday-payments-with-tap-zip/

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This Week in Fintech ending 16 October 2020

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This week our experts brought you the following insights based on their experience as investors, entrepreneurs & executives.

To continue receiving This Week in Fintech, you can either become a paying Member for $143 per year (and receive all our content in addition to this weekly summary) by clicking here.  If you just want to receive This Week in Fintech for free, you will need to fill in this form

Your Editor is Bernard Lunn. He is also the CEO of Daily Fintech and author of The Blockchain Economy and occasional opinion columnist.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at Mercato Blockchain Corporation AG and Weekly Columnist at Daily Fintech) @iliashatzis wrote BigTech in Finance

Late last year, we heard that Google was looking to get deeper into the financial world by partnering directly with banks. In early August, Google announced its foray into the banking world with another six U.S. banks pledging to offer digital-only bank accounts through Google Pay. Google is already working with Citigroup, Stanford Credit Union, and added to its partnership roster, Bank Mobile, BBVA USA, BMO Harris, Coastal Community Bank, First Independence Bank, and SEFCU. The digital accounts will launch in 2021 in both checking and savings flavors and will be insured FDIC or NCUA. Google is looking to boost the usage of its digital payment services in North America by partnering with banking institutions. Google’s strategy is to let partnered banks and credit unions provide the underlying financial infrastructure and navigate regulation while it builds smarter interfaces and user experience. Lately, it would seem that every major tech firm has set its sights on banking. In 2019 Apple partnered with Goldman Sachs on the Apple Card, which currently has over three million customers in the U.S. In 2020, Samsung announced a competitive product to the Apple Card in the U.K, and now Google is cooking up its own option.

Editor note: the acceleration of disruption due to pandemic is making life very hard for incumbents

——————————————-

Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote Knock & iBuying in US Real Estate Fintech

The SPAC trend continues in the US and Chamath Palihapitiya is one of the leading investors with his IPOA, IPOB,… series. The latest Fintech deal was focused on a real estate disruptor in the US, OpenDoor.

With Zillow, being the blue-chip name and already public, I wanted to dig into how OpenDoor`s positioning differs. Technology with all the B2B Software as a Service offerings (Saas) makes it so challenging to create and sustain a moat.

The secret sauce of a fintech business in real estate is not evident because the US real estate market is on the one hand mature but also very fragmented. On top of that, there are several uncertainties and moving pieces of the puzzle due to the current macro-economic environment and the emerging new normal life-style trends.

Editor note: Real estate it is a big broken market, but houses need creative selling. If Fintech can coop rather than eliminate realtors, it will be huge, just by eliminating the administrivia.

Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote:Could the Sidetree decentralized identity protocol enable both privacy and personalization?

I am a bit of a privacy nut. I don’t like being tracked and I don’t like anybody else controlling my identity. Yet I know that being tracked can create personalized services that are useful to me. That is why I am a fan of decentralized identity on the blockchain. (see Part 3/Chapter 6 of The Blockchain Economy digital courseware for more on how decentralized identity on the blockchain will disrupt today’s media business).

Today we give up our privacy/identity to Big Tech/Media and that is a massive business for them. So, as a media entrepreneur in a niche domain (Fintech) I want to understand how one can make money if identity is decentralized and under user control. I think keeping advertising to contextual (avoiding all tracking technology) is part of the answer, but users want personalisation (and the networked community enabled by personalisation) and that requires access to identity.

This got me to  look at the Sidetree approach to decentralized identity to see if it could be win/win ie for both users and media owners.

Editor note: bleeding edge technology alert, but all big disruption starts this way.

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote Stablecoin News for the week ending Wednesday 14 October 2020.

This weekly snapshot is the news that matters in the Stablecoin market.

——————————————-

Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote: Taking Root, the Next Insurtech IPO. Clover Chooses SPAC.

After Lemonade and other successful IPOs including Snowflake and Palantir, Root Insurance has its sights set on the primary public market. In its S-1, Root minces no words about its intent to reinvent the $266 billion US auto insurance.

Five insurtech companies established after 2015 have each raised private capital in the region of $500 million. Lemonade has gone public, Root has announced plans and there are signs of more to come.

Root Insurance which focuses on automotive, claims to be the only P&C insurance carrier with a scaled proprietary telematics solution and largest proprietary dataset of miles driven, driving behavior and claims experience.

Editor note: Public market investors finally get a chance to ride the Insurtech wave – at rich valuations of course because of stimulus and investment bankers doing a good job.

Christian Dreyer @x3er, our Swiss based CFA who focusses on how XBRL changes our world wrote XBRL News:SupTech, future of reporting, taxonomy guidance

Editor note: This weekly snapshot is the news that matters in the XBRL market.

——————————————-

Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote: Alt Finance for week ended 16 October 2020

Editor note: This weekly snapshot is the news that matters in the Alt Lending market.

——————————————-

To continue receiving ‘This Week in Fintech’, the weekly recap of our articles, you will need to fill this form to give us consent to send this to you. Please note that Daily Fintech requires your organizational email address (e.g. corporate, educational or government) and your LinkedIn URL. This information is required for subscribers who want ‘This Week in Fintech’ for free. If you prefer to not provide this information, you can still receive all our content by becoming a paying member.

Source: https://dailyfintech.com/2020/10/16/this-week-in-fintech-ending-16-october-2020/

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