Fintech: Trouble in Pantheon - Part 2

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The new titans

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In the Part 1 of this series (Zeus’ wrath – the arrival of Fintech) we looked in general terms at what fintech is and what it aims to do. However, who are these newcomers that promise a new world, a better world?

Orchard: One of the most popular investments in 2014-2015 was Orchard, a technology company founded in New York in 2013 that builds systems and infrastructures that enable Marketplace Lending (Peer-to-Peer lending). Their vision is to scale Marketplace Lending into a major financial market.

Recently, the company has been backed by financial titans such as Vikram Pandit, former Citigroup CEO and John Mack, former Morgan Stanley CEO. The Company offers a wide range of products and services which includes: Automated trading, Credit Modeling (a system which allows investment managers to back-test and deploy proprietary credit models to select loans that meet their risk and return profile), Real time analytics and the Originator Database (a first-of-its-kind source for aggregated information on a large and growing number of leading loan originators across a diverse range of global asset classes that was designed specifically for institutional investors).

One of the concerns with Orchard, as with the majority of the fintech companies, is the impact new regulation will have on them. As Fiona Grandi, partner at KPMG’s Marketplace Lending practice and member of KPMG’s Fintech Innovation Council, suggested in a recent report by KPMG, ‘more oversight of the marketplace lending industry appears to be a virtual certainty.’

Access the Company’s website here: https://orchardplatform.com/

Lending Club: Another ‘unicorn’ backed by Wall Street heavy weights, Joe Saunders, former Visa CEO and Hans Morris, former Citigroup banker and ex-Visa president, is Lending Club. As Orchard, Lending Club operates within the Peer-to-Peer lending market and it allows borrowers and investors to engage in transactions relating to standard or custom program loans. The standard program loans are 3-5 years unsecured personal loans.

Interestingly enough, with all the excitement around these new companies and the litany of growing marketlending practices, Lending Club, a major player in this emerging financial sector, has not recorded a net profit yet. In fact it has been posting losses for the past 5 years. A reason could be the highly risky business of providing unsecured loans. However, despite the negative number for net income, the company does exceptionally well in terms of free cash flow. This can suggest that the default rate on the loans is not that high as some might think.

Access the Company’s website here: https://www.lendingclub.com/

R3 CEV: This enterprise is a bit more interesting. It tackles the blockchain technology. Blockchain is a digital ledge of all Bitcoin transactions. The database is shared to all participants.

According to the Financial Times, more than 30 global banks have joined the blockchain development project known as R3 CEV. The reason banks have decided to work together on this is that they gain an information advantage that will help them overcome future challenges resulted from cryptocurrency transactions.

Access the Company’s website here: http://r3cev.com/

I can fill another 20 pages with Fintech companies but you get the point: the traditional financial industry has competition from the technology sector – big time. However, what can this mean for investors and what political and social implication can this have?

I will answer this question in the next and final part of the series, The Final Frontier.

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