Backlash swelled this morning after Facebook’s aspirations in financial services were blown out of proportion by a Wall Street Journal report that neglected how the social network already works with banks. Facebook spokesperson Elisabeth Diana tells TechCrunch it’s not asking for credit card transaction data from banks and it’s not interested in building a dedicated […]
Backlash swelled this morning after Facebook’s aspirations in financial services were blown out of proportion by a Wall Street Journal report that neglected how the social network already works with banks. Facebook spokesperson Elisabeth Diana tells TechCrunch it’s not asking for credit card transaction data from banks and it’s not interested in building a dedicated banking feature where you could interact with your accounts. It also says its work with banks isn’t to gather data to power ad targeting, or even personalize content such as what Marketplace products you see based on what you buy elsewhere.
Instead, Facebook already lets Citibank customers in Singapore connect their accounts so they can ping their bank’s Messenger chatbot to check their balance, report fraud, or get customer service’s help if they’re locked out of their account without having to wait on hold on the phone. That chatbot integration, which has no humans on the other end to limit privacy risks, was announced last year and launched this March. Facebook works with PayPal in over 40 countries to let users get receipts via Messenger for their purchases.
Expansions of these partnerships to more financial services providers could boost usage of Messenger by increasing its convenience — and make it more of a centralized utility akin to China’s WeChat. But Facebook’s relationships with banks in the current form aren’t likely to produce a step change in ad targeting power that warrants significant heightening of its earning expectations. The reality of today’s news is out of step with the 3.5 percent share price climb triggered by the WSJ’s report.
“A recent Wall Street Journal story implies incorrectly that we are actively asking financial services companies for financial transaction data – this is not true. Like many online companies with commerce businesses, we partner with banks and credit card companies to offer services like customer chat or account management. Account linking enables people to receive real-time updates in Facebook Messenger where people can keep track of their transaction data like account balances, receipts, and shipping updates” Diana told TechCrunch. “The idea is that messaging with a bank can be better than waiting on hold over the phone – and it’s completely opt-in. We’re not using this information beyond enabling these types of experiences – not for advertising or anything else. A critical part of these partnerships is keeping people’s information safe and secure.”
Diana says banks and credit card companies have also approached it about potential partnerships, not just the other way around as the WSJ reports. She says any features that come from those talks with be opt-in, rather than happening behind users’ backs. The spokesperson stressed these integrations would only be built if they could be privacy safe. For example, signing up to use the Citibank Messenger chatbot requires two-factor authentication through your phone.
But renewed interest in Facebook’s dealings with banks comes at a time when many are pointing to its poor track record with privacy following the Cambridge Analytica scandal where people were duped into volunteering the personal info of them and their friends. Facebook hasn’t had a big traditional data breach where data was outright stolen, as has befallen LinkedIn, eBay, Yahoo [part of TechCrunch’s parent company], and others. But users are rightfully reluctant to see Facebook ingest any more of their sensitive data for fear it could leak or be misused.
Facebook has recently cracked down on the use of data brokers that suck in public and purchased data sets for ad targeting. It no longer lets data brokers upload Managed Custom Audience lists of user contact info or power Partner Categories for targeting ads based on interests. It also more admantly demands that advertisers have the consent of users whose email addresses or phone numbers they upload for Custom Audience targeting, though Facebook does little to verify that consent and advertisers could still buy data sets from brokers and upload them themselves.
Cambridge Analytica has brought on an overdue era of scrutiny regarding privacy and how internet giants use our data. Practices that were overlooked, accepted as industry standard, or seen as just the way business gets done are coming under fire. Interent users aren’t likely to escape ads, and some would rather have those they see be relevant thanks to deep targeting data. But the combination of our offline purchase behavior with our online identities seems to trigger uproar absent from sites using cookies to track our web browsing and buying.
Facebook’s probably better off backing away from anything that involves sensitive data like checking account balances until Cambridge Analytica blows over and its proven its newfound sense of responsibility translates into a safer social networking. But at least for now, it’s not slurping up our banking data wholesale.
Editor’s note: This post originally appeared on TechNode, an editorial partner of TechCrunch based in China. When Emily Zhang was interning with a peer-to-peer (P2P) lending firm in the Summer of 2016, her main task was to carry out research on other P2P lending firms. She found the rates of return tempting and some underlying […]
When Emily Zhang was interning with a peer-to-peer (P2P) lending firm in the Summer of 2016, her main task was to carry out research on other P2P lending firms. She found the rates of return tempting and some underlying assets reliable, so she decided to invest in the market herself. Until now, none of her investments have matured, but she worries about whether she can actually withdraw her profits, much less get back the principal.
Even so, Zhang considers herself lucky that the companies that sold her the assets are still in business while many other P2P companies have collapsed, leaving their investors in despair.
Some of those affected protested in front of police stations and chanted the Chinese national anthem, March of the Volunteers, in an effort to pressure authorities. Others organized online investor rights groups, making a collective effort to get the money back. Together, the protesters made headlines in domestic media and sparked intense online debates on who is responsible for the losses and where the industry is heading.
P2P lending, or online lending, is generally considered as a method of debt financing that directly connects borrowers, whether they are individuals or companies, with lenders. The world’s first online lending platform, Zopa, was founded in the UK in 2005. China’s online lending industry has seen rapid growth since 2007 without significant regulation.
Default rates have been soaring since June. In May, only 10 platforms were considered in trouble. But by June, that number had increased to 63. By the end of July, 163 platforms were on the concern list. The Home of Online Lending (网贷之家), a platform that compiles the data, defines “troubled” as companies that have difficulty paying off investors, have been investigated by national economic crime investigation department, or whose owners have run away with investors’ money.
One of the key factors contributing to the sudden surge is the national P2P rectification campaign that was supposed to have been finished by June. “The due date of rectification has passed, but many P2P platforms have not met the requirements. Strict regulations have propelled a break-out of the compliance issues,” Shen Wei, Dean and Professor of Law at Shangdong University Law School, told TechNode.
In late 2017, the platforms were asked to register with local authorities by June 2018, according to China Banking Regulatory Commission, which has now merged with China’s insurance regulator to become China Banking and Insurance Regulatory Commission.
Shen said the main purpose of the regulations is to restrict P2P lending platforms to be information intermediaries only, matching borrowers and investors. Under such regulations, the platforms are not allowed to pool funds from investors or grant loans to any client or provide any credit services, which most of the platforms were doing when they first started.
The rise of P2P lending in China
China’s first online lending platform, PPDAI Group (拍拍货), launched in 2007 and went public on the New York Stock Exchange in late 2017. The industry has gone through rapid growth since then. In January 2016, there were 3,383 platforms in business with combined monthly transactions reaching 130 billion RMB, according to Home of Online Lending.
In a recent research paper, Robin Hui Huang, professor of law at the Chinese University of Hong Kong, attributed the increase of P2P in China to three factors: a high 56 percent rate of internet penetration by 2018, a large supply of available funds from investors, and financial demands of small-to-medium-sized companies that cannot be satisfied by the existing banking system.
P2P lending is a tempting and easy investment option because the loans usually promise 8-12 percent interest rates, according to Home of Online Lending, of which many mature within a year, much higher than the 2.75 percent rate for three-year fixed deposits found at most banks.
P2P lending is also friendlier to smaller businesses since major banks in China generally prefer state-owned enterprises or large companies. Huang cited a joint 2016 report by the Development Bank of Singapore and Ernst & Young, that only 20-25 percent of bank loans went to small to medium-size enterprises, even though they accounted for 60 percent of China’s gross domestic product.
China’s financial system is still dominated by banks, especially the established “Big Four”— the Bank of China, China Construction Bank, the Agricultural Bank of China, and the Industrial and Commercial Bank of China. Ryan Roberts, a research analyst at MCM Partners, told TechNode that about 70 percent of the banks’ loans are commercial loans, with just 30 percent for individuals.
Before the government first signaled regulations in 2016, the P2P lending industry aggressively expanded. Compared with the current defaulting scandals, the situation back then wasn’t any better.
By the end of 2015, there were 1,031 total troubled platforms out of 3,448 platforms still in operation. So, on average, one out of four was problematic. Chinese media reported on a number of Ponzi scheme stories concerning dubious platforms that tempted would-be investors with fat bonuses for referring family and friends, too.
Despite the fact that there was no established regulatory framework, the government was watching. Since mid-2015, a series of announcements set the stage for China’s first regulatory instrument for online lending in August 2016. Called Interim Measures on Administration of Business Activities of Online Lending Information Intermediaries, violations of its articles can lead to administrative or even criminal penalties.
The interim measures set the business scope of the platforms to be mere information intermediaries. It also asked all platforms to set up custody accounts with commercial banks for investor and borrower funds held by the platforms in order to reduce the risks that platform owners abscond with funds. The measures require online lending platforms to register with their local financial regulatory authority.
Later, a specific timeline was set for the implementation. Provincial government agencies were told to complete general investigations into local P2P platforms by July 2016 and formulate regulatory policies based on regional conditions. Overall rectification and registration should have been completed by June 2018, the latest.
It’s August now and, obviously, the work still isn’t finished
Huang said the measures, in general, have covered all the factors of the industry that should be regulated, but when it came to implementation, all we really saw was a delay.
“It’s good that the measures are carried out locally, which means that local government can develop policies in line with local conditions,” Huang explained to us. However, in order to attract more capital locally, local authorities have engaged in a race to the bottom, competing with one and another to have the loosest regulations, and therefore, have been hesitant to finalize them.
Moreover, the general public has a different understanding of the registration process. “Registering with local authorities doesn’t mean that local governments have recognized or will guarantee the legitimacy and quality of platforms. However, in reality, the public seems to perceive registration as official assurance,” Huang said. This has lead to very cautious approaches from government agencies towards the whole registration project since they don’t intend to be held responsible for the fallout or future wrongdoings of the P2P firms.
The concern is quite reasonable. Huoq.com—a P2P lending platform launched in December 2016 and backed by state-owned enterprises—announced on July 11, 2018, that it went into liquidation. The platform is owned by Dingxi Zhuoyue Online Lending Information Intermediary. One-third of Dingxi is owned by Xinjiang Tianfu Lanyu Optoelectronics Technology while Tianfu Lanyu itself is partly owned by a state-owned company in Xinjiang. On July 10, however, owners of the platform disappeared. Neither the company nor investors were able to locate them.
Their still-functioning official site doesn’t show the slightest sign of liquidation, displaying various certificates and recognition from government agencies and industry associations. A banner at the bottom of their mobile app icon still says “Central enterprises are our majority shareholders.”
The unresolved regulations are also affecting P2P lending companies listed overseas. Shares of PPDAI plummeted to $4.77 as of July 30 from $13.08 when it was first traded in late 2017. The stock price of Yirendai (宜人贷), the first Chinese online lending company to go public overseas, dropped to $19.33 compared with $38.26 the same period last year.
That the shares of these companies don’t trade well indicates that investors are skeptical towards the business, said Roberts. With the ongoing regulations, it’s still possible that regulators can outlaw and ban their businesses, he explained. Some borrowers even take advantage of the unsettled regulation and stop paying back their loans, in the hopes that the platform they have borrowed from would fail, Roberts added.
In June 2018, 17.8 billion RMB worth of transactions took place on China’s P2P lending platforms and outstanding loan balance reached 1.3 trillion RMB. The number looks insignificant if compared with 1.8 trillion RMB in net new bank loans in June alone.
However, they have made quite a splash. Victims of the troubled online lending platforms gathered in Hangzhou in early July, filling two of the largest local sports stadiums, which the local government had set up as temporary complaint centers.
“One of the reasons why the current wave of defaults has drawn so much attention is that many troubled platforms were pretty big,” Huang said. Some of the platforms violated the rules, pooling funds illegally, and some were suffering from China’s slowing economic growth and the ongoing deleveraging campaigns.
P2P lending has helped fund small-to-medium-sized enterprises in some way, but in general, the role it plays in the financial system is limited, said Shen. Most of the P2P investors are speculative and they themselves should be responsible for their losses, he added.
“If the rate of return exceeds 6 percent, investors should be alert; if it is more than 8 percent, the investment is very risky, and if it’s more than 10 percent, investors should prepare themselves for losing all their capital,” said Guo Shuqing, chairmen of China Banking and Insurance Regulatory Commission at a finance forum in June in Shanghai, referring to financial scams that lure investors in with high returns.
Although P2P lending is only a relatively small piece in China’s financial industry, there are still concerns that the collapse of these platforms should trigger systematic risks, Shen said. This also implied that Chinese investors have very limited investment options.
Zhang said P2P lending needs regulations because many platforms are not innocent. “P2P platforms have high moral hazards and it’s really easy to fake borrowers’ information. However, I believe the government is supportive towards the industry and some platforms will survive till the end,” said Zhang. “I just wish I can be lucky enough to pick the right one.”
WeWork rivals are in the money this year. India’s biggest rival to the U.S. co-working giant, a Mumbai-headquartered startup called Awfis, announced that it has raised $20 million in new capital for expansion. The news comes just after Hong Kong-based Campfire pulled in $18 million. Awfis raised its new funds, which are a Series C […]
Awfis raised its new funds, which are a Series C round, from Sequoia India, Innoven Capital — the fund connected with Singapore sovereign fund Temasek — and TTS:IO, The Three Sisters, a family fund run by the three daughters of banking billionaire Rana Kapoor.
TTS:IO jointly incubated the project in 2015, while Sequoia India led its $20 Series B round last year.
CEO Amit Ramani stressed that his company is taking a different route to WeWork, which entered India last year and currently has eight locations. Awfis claims 55 centers which house 25,000 seats — it says it has a membership base of 15,000. The startup is aiming to scale to 90-100 centers and 40,000 seats over the next year.
“We had a big headstart and we have a massive lead right now,” Ramani told TechCrunch. “We’re really very different [to WeWork] from a commercial real estate perspective and we have built knowledge of micro-markets across India and are expanding beyond CBDs in our cities and into new locations.”
While WeWork shoots for a premium offering for startups, Ramani said Awfis is happy taking a more value-focused approach and also looking to the meat of the market, SMEs and corporates. Awfis has its halo-style locations, but the company is opening to turning any vacant real estate into co-working. Case in point, it has taken over unused retail space in malls and even one floor of a hotel while it offers traditional-style office rentals to some customers.
It also adopts a more collaborative approach with land-owners. While we work offers ‘Powered By We’ — a service that redesigns existing office space for companies — Awfis takes a pragmatic approach to selecting space.
“It’s more of a JV. We run the whole show but the space owner brings in the capex and there’s no minimum guarantee but they take a percentage of profits,” Ramani explained.
Right now, he said, around 55 percent of Awfis’ capacity is managed, but he intends to raise that figure to 60 percent.
Aside from that, he said also that Awfis reaches more enterprise and SME driven customers who he believes appreciate the focus on value. In some cases, he said, expansion into new cities is preempted by a request from an existing customer, while Awfis offers a service for SMEs that effectively gives them their own office within a designated “co-working space.”
“We can set up head offices and customize our product for them with personalized space and services,” Ramani explained.
As a capital intensive market, Ramani said fundraising will be “very regular,” with this next round likely to come in seven to eight months. WeWork has bought up competitors in Greater China (Naked Hub) and Southeast Asia (Spacemob) to grow its footprint in Asia, but so far it hasn’t been in touch with Awfis, its CEO said. He’s not expecting a call, however, as he believes there’s enough room for “four to five” companies operating at scale in India.
“The market is huge and there’s a place for multiple players to exist. [WeWork] are bit more premier range and we are more value driven, but we’re betting on that for a much larger market share.”
Because cryptocurrency prices are almost comically volatile owing to challenges involved in valuing them, it’s hard to know when or why to sell. Enter crypto-asset backed loans, around which a small but growing number of startups is beginning to spring up. The idea is to lend money to cryptocurrency holders who don’t want to offload […]
Because cryptocurrency prices are almost comically volatile owing to challenges involved in valuing them, it’s hard to know when or why to sell.
Enter crypto-asset backed loans, around which a small but growing number of startups is beginning to spring up. The idea is to lend money to cryptocurrency holders who don’t want to offload their holdings but also don’t necessarily want so much of their assets tied up in cryptocurrencies.
Among these is Lendingblock, a London-based startup that enables holders of crypto assets to lend them out and accrue interest on their holdings. Other outfits — and we aren’t vouching for these so much as letting you know they exist — include CoinLoan, a 1.5-year-old outfit in Estonia that is itself trying to raise money through an initial coin offering; Nexo, a Switzerland-based platform powered by a Bulgarian consumer finance company called Credissimo; and SALT Lending, a Denver-based outfit that started crypto lending earlier this year, and recently told American Banker that it has already made just shy of $40 million in loans and has had no losses. (AB notes that the company’s founder, Blake Cohen, refers to himself at “The Blockchain Cowboy.”)
Still, it’s already looking like if there is one to watch in this new world, it might be BlockFi, a year-old, 12-person, New York-based non-bank lender that had raised roughly $1.5 million in seed funding earlier this year from ConsenSys Ventures, SoFi, and Kenetic Capital and just today, quietly announced a massive infusion of capital — $52.5 million — led by Galaxy Digital Ventures, the digital currency and blockchain tech firm founded by famed investor Mike Novogratz.
Most of the capital — $50 million — will be used to loan to BlockFi’s customers. The rest — $2.5 million — is an equity investment in the company from Galaxy and earlier backers, including ConsenSys.
Founder Zac Prince comes from a background consumer lending, having worked recently as a senior vice president with the company Cognical (now operating as Zibby). He’d also logged time as a vice president at the broker dealer Orchard Platform (since acquired by the lending company Kabbage).
As he told us of BlockFi’s origins earlier today, Prince started personally investing in crypto in early 2016 and also started attending related events. It was there that he “watched the crowd shift from purely computer scientists and anarchists to [also] VCs and bankers.”
As it happens, he was in the process of getting a loan for an investment property around the same time. instead of using a traditional bank, he decided to list his crypto holdings to see what would happen, and the response was so overwhelming. It was, he says, a “lightbulb moment. I realized that there was no debt or credit outside of [person-to-person] margin lending on a few exchanges and I had the feeling that this was a big opportunity that I was well-suited to go after.”
Clearly, Novogratz agrees. So does former Bank of America managing director Rene van Kesteren, who ran a seven-person equity-structured financing business before joining BlockFi in May as its chief risk officer.
Currently, BlockFi allows investors to take out a loan as high as $10 million using either bitcoin or ethereum as collateral.
Prince wouldn’t say how much money the company has lended to its retail, corporate, and institutional clients. He did offer that the number is “seven figures,” adding half-kiddingly that it “may be eight” figures by later today.
ScaleFactor, the Techstars alumnus that’s selling accounting and payroll management software as a service, has raised $10 million in a new round of funding as it looks to scale up its sales and marketing efforts. Founded by longtime accountant, Kurt Rathmann, the Austin-based company has created a software service that collects and analyzes data from […]
ScaleFactor, the Techstars alumnus that’s selling accounting and payroll management software as a service, has raised $10 million in a new round of funding as it looks to scale up its sales and marketing efforts.
Founded by longtime accountant, Kurt Rathmann, the Austin-based company has created a software service that collects and analyzes data from point of sale systems, bank accounts, credit cards and billing systems, to automate recordkeeping and payroll functions.
Rathmann, a former KPMG employee, started ScaleFactor after seeing the lack of innovation in the backoffice functions that are really the engine of any small business.
“Around the tech stack, accounting and financials were lacking the most,” Rathmann says. So he left his job at KPMG and started ScaleFactor Consulting out of his garage in Austin in 2014.
After a few years of basically going door-to-door (a throwback to Rathmann’s first company as an 18-year-old selling outdoor lighting in suburban Dallas) to find out what small businesses needed from an accounting software solution, ScaleFactor developed the API toolkit and management software that would become the services it’s pitching today.
After graduating from TechStars’ Austin accelerator, the company was able to nab $2.5 million in a seed financing round that included TechStars Ventures, NextCoast Ventures, and two Kansas City-based investment firms — Firebrand Ventures and Flyover Capital.
While the initial services business holds a lot of value and has managed to attract scores of small businesses, both Rathmann and his new investors led by Canaan Partners and including Citi Ventures and Broadhaven Capital see bigger opportunities down the road for ScaleFactor.
With the window that the company has into the operations of small businesses around the country, ScaleFactor can serve as an unimpeachable source of information for small business lenders.
With insight of (and control over) payroll management, billpay, cash approvals, cash accounting, and an ability to project forward cash flows (along with invoicing and tax management for part time employees), ScaleFactor will be able to offer lending services to smooth bumps in a company’s progress.
“Bookkeeping and accounting is really the nucleus,” says Michael Gilroy, a principal with Canaan Partners.
While Square has moved into lending services (and now is on the hunt for a banking license) through its window into a company’s revenues through point-of-sale devices, a company like ScaleFactor has a more holistic view of the health of a business, says Gilroy.
Equipped with that information ScaleFactor software can do things — like prompt business owners of the revenue targets they need to hit each month or suggest lending options to cover shortfalls — that better equip business owners to handle disruptions.
“With our foundation established, a big part of our Series A is how do we power the business owner past bookkeeping & accounting? We see many opportunities to help further and our next steps will include things like lending, payments and many other activities that take a business owner/operators focus away from driving their business forward,” Rathmann wrote in an email.
In emerging market countries where economic volatility is a way of life, there aren’t a lot of relatively safe options for members of the burgeoning middle class to park their money. For instance, countries like Nigeria have experienced a tremendous growth in the number of citizens entering the middle class, which now accounts for about […]
In emerging market countries where economic volatility is a way of life, there aren’t a lot of relatively safe options for members of the burgeoning middle class to park their money.
For instance, countries like Nigeria have experienced a tremendous growth in the number of citizens entering the middle class, which now accounts for about 23 percent of the population (it’s around 50 percent in the U.S.), according to a recent article citing the African Development Bank.
While Nigeria now faces some significant headwinds from a weak domestic currency (the naira), high interest rates and a manufacturing recession, there are ways that local investment can both protect the wealth that’s been created and encourage investment domestically to potentially spur development.
At least, that’s the conclusion that college friends Razaq Ahmed and Edward Popoola came to while they were thinking about opportunities for new financial services options in their home country of Nigeria.
The two men, Ahmed with a background in finance and Popoola in computer science, are launching a company called CowryWise that gives Nigerian investors a way to save their money by investing in high-yield government bonds. The rates on those products are high enough to absorb the wild swings in value of the naira and still provide a healthy return for investors, according to Ahmed.
Set to present at this year’s demo day from Y Combinator, CowryWise is one of a number of startups that Y Combinator has backed coming from the African continent, and an example of the wellspring of entrepreneurial talent that is flourishing in sub-Saharan Africa.
Using CowryWise, a customer would just have to sign up with their email address and phone number and link their bank account up to the CowryWise platform.
There are already roughly 57 million savings accounts in Nigeria and 32 million unique bank users. By investing in the bonds, these savers gain access to interest rates that range between 10 percent and 17 percent, according to Ahmed.
“The bonds… are similar to the treasuries issued by the U.S. government, which is A-rated,” says Ahmed. Even if there were foreign currency risk from investing in the naira, the inflation rate is currently around 11 percent, according to Ahmed. Given that most of the bonds are yielding interest rates on the higher end, it’s just a better deal for consumers, he said.
“There’s more value in keeping the money in government treasury bills” than in the bank, says Ahmed.
For Ahmed and Popoola, the decision to launch CowryWise was a way to bring investment opportunities to a retail investor that hadn’t been able to access the best that the financial system in Nigeria had to offer.
To target these retail investors meant leveraging technology to scale quickly and cheaply across the country. The two men started developing their service in January and tested it in February and March with friends and family.
That company already has 53,000 registered users — who have saved in excess of $5 million since 2016, according to a release.
There are subtle differences between the two. Piggybank touts its ability to save through bonds, but it is primarily working with banks to get Nigerians saving money. CowryWise is using Meristem Financial (Ahmed’s old employer) as the asset manager for its investments into the bond market.
Another difference is the time customers’ funds are locked up. Piggybank has a three-month savings period required before investors can withdraw funds, while CowryWise will let its customers withdraw cash immediately, according to this teardown of the two services.
Ultimately, there’s a large enough market for multiple players, and a need for better financial services, according to Ahmed.
“We kept having interest from retail investors on why they want to do micro-savings and micro-investment, but they didn’t have the required capital,” Ahmed says. “That was the major reason for staring the company. Why not democratize the assets? And make them available in investments and savings in this traditional instrument?”