Market statistics

McKinsey warns banks face wipeout in some financial services - Financial Times

  chart: Global banking revenues by activity, 2014


The digital revolution sweeping through the banking sector is set to wipe out almost two-thirds of earnings on some financial products as new technology companies drive down prices and erode lenders’ profit margins.

This is one of the main predictions by the consultancy McKinsey in its global banking annual review to be published on Wednesday, portraying banks as facing “a high-stakes struggle” to defend their business model against digital disruption.

McKinsey said technological competition would reduce profits from non-mortgage retail lending, such as credit cards and car loans, by 60 per cent and revenues by 40 per cent over the next decade.

It predicted a smaller, but still significant, chunk of profits and revenues would be lost from payments processing, small and medium-sized enterprise lending, wealth management and mortgages. These would decline between 35 and 10 per cent, McKinsey said.

Philipp Härle, co-author of the report, said: “The most significant impact we see is price erosion, as technology companies allow delivery of financial services at a fraction of the cost, and this will mostly be transferred to the customer in lower prices.”

He said most technology companies were focused on picking off the most lucrative parts of banks’ relationships with their customers, leaving them as “dumb” providers of balance sheet capacity.

“Most of the attackers do not want to become a bank,” said Mr Härle. “They want to squeeze themselves in between the customer and the bank and skim the cream off.”

McKinsey said banks last year made $1.75tn of revenues from origination and sales activities, on which they earned a 22 per cent return on equity, while they made $2.1tn of revenue from balance-sheet provision at a return on equity of only 6 per cent.

The consultancy said the industry had two choices. “Either banks fight for the customer relationship, or they learn to live without it and become a lean provider of white-labelled balance sheet capacity,” it said.

While predicting upheaval in the future, McKinsey said there was no evidence that digital disruption had started to eat into banks’ market share yet. Banks’ share of global credit provision has been constant over the past 15 years.

Mr Härle said one factor that could slow down the erosion of banks’ market share was if regulators decided to clamp down on the disrupters by imposing similar capital and compliance rules as those faced by banks.

McKinsey calculated that profits from all banks reached a record of $1tn last year, helped by rapid growth in Asia and particularly in China and as US lenders rebounded from the financial crisis. The average return on equity was stable at 9.5 per cent, as cost-cutting offset falling margins in the low interest rate climate.

Almost two-thirds of developed market banks and a third of those in emerging markets earned a return on equity below their cost of equity and were valued below their book value.

“Many in the industry are waiting for an interest rate rise or some other structural lift to profits, but even if rates rise, that will be insufficient to fundamentally improve economics,” McKinsey said. “We expect margins to continue to fall through 2020, and the rate of decline may even accelerate.”


Financial Times


MarketInvoice has the biggest number of successfully completed P2P business loans in the UK (and probably the world)

Digging into MarketInvoice’s Loanbook

By Sam Griffiths on 28th July 2015

As part of its ongoing commitment to transparency, MarketInvoice has today published its loanbook on the AltFi Data website. The loanbook will be updated on a monthly basis in a similar fashion to those of RateSetter and Zopa. You can find it here. Also Madelyn Puente, Head of Investor Development at MarketInvoice has written a blog post on the value of transparency, illuminating the reasons why MarketInvoice have made this commitment to transparency. You can read her article here.

We’ve been lucky enough to have a sneak preview of the loanbook and have put together a few highlights to help those readers who have better things to do than play with data all day!

One of the most exciting things about MarketInvoice’s loanbook is the number of transactions that it has completed and the size of this number compared to the total transactions carried out. This is due to the average term of its invoice trades being just under 42 days (seeFigure 4.), significantly shorter than non invoice finance lending platforms. Figure 1. below shows the number of loans originated and completed successfully for the UK’s top four platforms.

Figure 1 – Number of loans successfully completed by the top four platforms.

MarketInvoice has almost 4 times the number of completed transactions as Funding Circle. Indeed, we believe that MarketInvoice has the biggest number of successfully completed P2P business loans in the UK (and probably the world). There is a huge amount that can be learnt from the loanbook without the need for assumptions and any modeling of the future.

Most platforms are on the 2nd, 3rd or even 4th iteration of their credit model. Lending practices also evolve – for example Funding Circle’s introduction of a new risk band, RateSetter’s move into business lending and Zopa’s move to a more diverse borrower mix. It is hard to model these changes accurately to predict the future. For a platform that makes 3 year loans, 2 years may pass before the effectiveness of the credit process is fully understood. For MarketInvoice, the validation, or otherwise, of its credit decision takes a little under 42 days on average to materialise!

Figure 2. Invoices Traded and Advance amounts.

The loanbook enables us to observe not just the volume of invoices traded through MarketInvoice but also the amount lent against those invoices (the Advance Amount). We can see from Figure 2. that the average advance rate has remained fairly constant at around 80% recently, having come down from 85% in MarketInvoice’s first few years of operation. All things being equal, a lower advance rate is less risky for investors.

The amount of investor money deployed through MarketInvoice’s platform at any one time is surprisingly low at just under £28m when compared to MarketInvoice’s cumulative volume. Funding Circle currently has over half a billion pounds of principal outstanding. However, when one considers that MarketInvoice recycles investor’s capital around 8 times a year, this disparity in principal outstanding makes more sense.

Figure 3. Mean and median loan size for the UK’s four biggest platforms.

Figure 3 shows the mean loan size for MarketInvoice to be just over £51,000. The median, however, in a similar way to that of RateSetter, is much smaller. This difference indicates that the distribution of loan size is much larger for MarketInvoice than for Funding Circle or Zopa.

Figure 4. Distribution of loan term. Orange markers indicate monthly volume weighted mean.


The average loan term since the platform launched is just under 42 days, but as can be seen from figure 4, the term has increased over recent months, moving closer to 50 days. The length of some of the outlying trades is surprising with the shortest term being 1 day and the longest recorded as 382 days!

Figure 5. Distribution of gross loan yield. Orange markers indicate monthly volume weighted mean.

The gross yield for investors has trended downwards overtime. In the early days investors could expect 20+% on average but now 10% seems to be the norm as can be seen in figure 5. This could be a result of strong investor demand putting pressure on yields as the model matures and is better understood. But we are also told that MarketInvoice is now financing a broader spectrum of invoices including some that are much lower risk, large corporate-to-large corporate invoices. It is worth bearing in mind that investments with MarketInvoice are secured against the invoice.

Figure 6. Crystallised losses and Delinquent loans by origination quarter


Gross yield is only half the story when considering an investor return. What about loss rates? Figure 6 shows crystallised losses and delinquent (>45 days late) loans as a percentage of origination by quarter. Note that there are several quarters with no losses at all. The crystallised loss rate life to date is 0.11% and there is currently 2.87% of oustanding loans that MarketInvoice terms as being "In arrears", or delinquent. Due to the secured nature of MarketInvoice's product, historically the vast majority (95%+) of delinquencies have successful outcomes and do not go on to become crystallised losses. Pretty impressive.

However, there are two other things to factor in before getting to the net yield:

  • MarketInvoice's fees, on a percentage basis, are higher than most platforms (between 20 and 30% of investor profit), this is because of the high number of short duration trades, which each carry a fixed processing cost despite MarketInvoice’s heavily automated process.
  • Cash Drag. Again due to the short term nature of each trade, investors’ cash can, on a percentage basis, remain uninvested for a longer amount of time than on a platform where money is invested in, say 3 year loans. This means the overall gross interest rate on all money deposited with MarketInvoice is lower. We cannot get a feel for the magnitude of this effect from the loanbook but we are told that on average between 75% and 85% of money deposited on the platform is deployed at any one time.

The above yield analysis is a somewhat qualitative analysis backed by numbers. For a more thorough analysis, we are very pleased to say thatMarketInvoice’s introduction into the Liberum AltFi Returns Index is imminent.

P2P Platforms Blow Away Traditional Providers in Customer Satisfaction Survey

RateSetter has blown away the competition in a Which? customer satisfaction survey

By Ryan Weeks on 26th June 2015

The UK’s second largest P2P consumer lender has outperformed top-rated savings account providers in the field of customer satisfaction, according to a survey of 5,000 Which? members. RateSetter also ranked as the top peer-to-peer lender. The platform notched a customer satisfaction rating of 80%, scoring the maximum five stars for interest rates offered, and four out of five stars for adequately explaining risk (take note, Yorkshire Building Society), customer service, default rates and ease of use.

Customer service – in which RateSetter tallied four out of five stars – is a key component in overall customer satisfaction. It’s an area in which the casual observer might expect the online lenders to fall flat, owing to a perceived lack of accessibility. In practice, however, peer-to-peer lenders tend to rank extremely highly among investors in the matter of customer service. In short, lean, branch-free, online lending outfits do not appear to be coming off as impersonal.

Rhydian Lewis, CEO of RateSetter, commented on the Which? survey results:

“For the members of Which? to have given their vote of approval to peer to peer lending is a significant moment for our industry. I am thrilled that Which? members are so positive about RateSetter in particular, with a customer satisfaction score that exceeds their rating for any savings account provider.”

RateSetter’s triumphs aside, 91% of Which? members who had invested in the P2P space over two years ago continue to hold investments with the platforms – a fact that reflects the industry’s ability to make retail money stick.


SMEs Forcing Business Banking Rethink - East & Partners

(9 June 2015 – Australia) Small business owner’s bank relationship is changing, with important implications for the Big Four, according to research conducted by East & Partners (E&P). The report finds that close to half of all Small to Medium-sized Enterprises (SMEs) primarily engage with their business bank for transaction banking needs across Cash Management, Cross Border Payments or Payment Processing products.

Contrastingly in 2011, up to three quarters of all small businesses primarily considered their relationship with the bank to be lending based amid tighter credit conditions and shaky business confidence.

The findings are included as part of E&P’s SME Transaction Banking program, presenting analytics based on interviews with 1,491 SMEs with turnover of A$1 – 20 million per year.

Although the core transaction banking relationship is recognised as a key foundation for cross sell into associated treasury, business FX and risk management products, up to one in four SMEs intend to switch their primary transaction bank in the next six months.

When surveyed by E&P in 2010, only 10.4 percent of SMEs planned to change their primary business bank.

“Now entering the twentieth round, our research confirms that between eight to ten percent of small businesses with intent to switch will actually act upon it and respond to a competitor pitch, resulting in an annualised churn rate of fifteen percent" said E&P’s Head of Markets Analysis Martin Smith.

Mind share continues to be a proven leading indicator of market share growth. Small business owners predominantly switch to a competitor that is ‘front of mind’ once they have decided to churn, however before they reach that point the biggest driver of ‘churn intent’ is a distinct lack of customer support.

Although SMEs determine customer support to be an integral element of their relationship with their bank, an overall satisfaction rating of 2.17 is considerably lower than associated service factors (on a scale where 1 = satisfied and 5 = dissatisfied).

BOQ stands out in the SME segment, achieving market share growth of 31.0 percent since 2013 based on significant mind share gains and a 3.5 percent advance in customer support satisfaction.

“Delivering customer support that exceeds expectations is an inherently challenging prospect for commercial banks, but the research clearly shows that dissatisfaction with customer support firstly leads to lower wallet share, then greater intent to churn” said Smith.

“SMEs are also becoming more comfortable actually undertaking the process of switching providers. We currently see three separate value propositions for the SME wallet, offered by the Big Four, non-Big Four and new entrants”

“The Big Four may currently represent over three quarters of all SME lending relationships, but the shift in precedence to transaction banking product demand favours non-bank alternatives offering streamlined multi-channel products, for example solutions directed at cash flow based lending as opposed to traditional secured lending products.” he said.

Market Share and Customer Support Satisfaction Change % Change 2013 / 2015

Source: East & Partners SME Transaction Banking Program

About East & Partners SME Transaction Banking Program

East & Partners Small-to-Medium Enterprise (SME) Transaction Banking Markets program delivers quality market intelligence on the banking behaviour of businesses in the A$1 - 20 million annual turnover segment. The program comprises detailed trending analysis over twenty continuous rounds of reporting including account management, business development, service delivery and market strategy formulation.

Significant effort is being invested in building service propositions to this historically under-banked segment of the market at a time when small businesses are actively re-leveraging, driving many SMEs back to the large commercial banks. Conducting survey sweeps of 1,500 SME’s twice annually, detailed data analysis includes:

Transaction banking customer demographics and relationship positioning
Bank market share and competitive positioning
Service factor importance and customer satisfaction
Mind Share, Market drivers and futures


For more information or for further interview based insights from East & Partners, please contact:

Media Relations Nehad Kenanie t: 02 9004 7848 m: 0402 271 142 e: Client Services and Development Sian Dowling t: 02 9004 7848 m: 0420 583 553 e:

Business indicators slight GDP positive

From the ABS comes Business Indicators for the March quarter: MARCH KEY FIGURES

Dec Qtr 14 to Mar Qtr 15
Mar Qtr 14 to Mar Qtr 15

Sales of goods and services (Chain volume measures)
Seasonally Adjusted
Wholesale trade
Seasonally Adjusted
Inventories (Chain volume measures)
Seasonally Adjusted
Company gross operating profits
Seasonally Adjusted
Wages and salaries
Seasonally Adjusted

Weak wages and muted profits will weigh but inventories lifted 0.3 points above expectations lending a little support to Wednesday’s GDP number.



P2P Lending: Why You Need a New Uncorrelated Asset Class

by Simon Cunningham on  in Editorials



The goal of investing is to earn a return, and for most, this return is about saving for retirement. This means most Americans have a time frame for their investment that is decades long, but it also means they have very little freedom to lose much money.

As a result, the nation’s favorite investment is stocks, and for good reason: the stock market has returned investors an average of 9% per year for 87 years! Great returns and consistent performance. Obviously, the past is no guarantee for how things will happen again, but dramatic changes would need to occur in our nation for nine decades of consistency to upend.


As a result, I myself am solidly in the stocks-for-growth camp as well. When looking at the data, it’s hard to find a better investment to grow excess cash.

However, this is where things can often become too simple. Many people start to trust the broad stock market so much that they underdiversify their life savings into it. “Dump it in the S&P500,” people say. “Put it all in VTI (Vanguard’s Total Stock Market ETF) and forget about it.”

There’s some logic behind this truism. Funds like the S&P500 and VTI are a decent yardstick of the entire US economy, with both the nation and the total stock market growing by leaps and bounds over time. But if someone’s entire life savings is placed solely in this one asset, investors are not truly diversified and are actually taking on a lot of needless risk.

Were the 2000s Really a Lost Decade?

A great example of this is the performance of stocks in the 2000s. Many investors call the 2000s a lost decade because the 10-year return of the overall stock market was historically dismal. Even the 1930s were better. If you had placed $10K into the S&P500 on January 1, 2000, ten years later your investment would have been worth $7500, a loss of -25%.

But investors often do not realize that the 2000s were actually great years for all sorts of other types of investments. Here is the yearly return of the S&P500 (some of the largest companies in America) versus mid-cap stocks (smaller companies worth $2-10 billion) during those same ten years:


You can see the returns move together. They have strong correlation. If one moved up or down, typically the other did as well. However, they delivered quite different results over this 10 year span. That same $10K would have grown to $16,028 if placed in a mid-cap index like MDY.


See the green line? This is what you would have earned had you diversified your $10,000 across both (rebalancing at the end of every year). Yes, with 50% in large caps during the 2000s you would have softened the healthy return of mid caps. But you would have avoided an overall negative return.

Different classes of investments move in different ways.

The point here is not to say a mid cap index is a better investment than a large cap index like the S&P500 (which is obviously not true). Neither is it to suggest a 50/50 large/mid cap portfolio is a good investment. My point is to show how different classes of investments move in different ways. Since we cannot predict which one will perform better, it’s important to diversify across a variety of them so to make our overall investment more consistent (and less stress-inducing).

What is an Asset Class?

So you can see the benefit of diversifying across multiple asset classes, or types of investments that move with some degree of independence from one another. Stocks have a variety of subclasses like large, mid, and small caps. Bonds are another asset class, as is real estate. And each of these asset classes perform somewhat independently from one another. A good year for stocks doesn’t really mean a good or bad year for bonds. Largely, each of their respective performance is uncorrelated with the other.

Here is a chart I compiled of the performance of every major asset class:


Two things stick out to me from this chart:

  • The overall jumble of the picture. There is no fail-safe way to earn a short term return!
  • Over the long term (and even including the ugliness of 2008) stocks continue to outpace almost everything else.

In my view, stocks should continue to be the main way we grow our retirement accounts. These 9% yearly returns is hard to beat. However, most investors should probably spread their cash across more than just the S&P500. By diversifying across the small and mid cap sub-classes, stock investors are likely to avoid having more lost decades in the years to come.

The Problem with Stock-Only Investing

The problem is that large and mid cap stocks are highly correlated investments. The same goes for other stocks: small caps, international stocks, and emerging markets (Read: SeekingAlpha). If one goes up, the others typically go up as well. As a result, a retirement account purely held in stocks is not as diversified and stable as it could be.

Ideally, you would invest in places outside of stocks, like in real estate and bonds. These investments are great because they give us a place to put our cash to work that is far less correlated to stock performance. If stocks tank, bonds and REITs are less likely to be affected. But they also have somewhat meager returns overall. As seen above, real estate has rewarded investors with just 3% per year since 2007. Bonds are even worse, returning just 1.2% per year.

Why You Need Peer to Peer Lending in Your Portfolio

But peer to peer lending has returned 7% on average to investors each year, and it is highly uncorrelated with stocks:


The above graphic is from a paper recently published by the investor tool LendingRobot: “How much should you invest in Marketplace Lending?”. In it, they did the math to discover how well peer to peer lending correlates with other asset classes. See the area highlighted in yellow? That is peer to peer lending’s correlation with stocks.

Peer to peer lending and stocks have very low correlation.

A correlation value of 1.0 would be a perfect correlation while a value of 0.0 is no correlation at all. So when compared to stocks, peer to peer lending has an average correlation of between 0.13 and 0.19, a very low overall correlation! It should be noted that asset class correlation does change, so it would be great to see how this value changes year by year.

In contrast to p2p lending, the four stock indices have correlations of 0.8 and 0.96 between themselves. They are very tightly correlated, so an investment with one will give somewhat similar performance to the other three. Simply spreading your cash across stock indices is not a very diversified investment.

For Growth Investors, Stocks with P2P Remains a Great Combination

As we near retirement, we need places where our cash can be kept safe. There are many low-risk investments like bonds that can care for our accrued cash, earning enough return to outpace inflation and ensuring our retirement years are focused on relationships, not financial worry.

However, most investors are looking for places to entrust cash that makes it grow. For these people, they should avoid the overly simple truism of placing their entire retirement into the S&P500, or into a total market index like VTI. Instead, investors should diversify their cash across a variety of asset classes and subclasses, giving their portfolio consistency and peace-of-mind.


One great way to get that peace of mind is by placing 20% of our overall portfolio into peer to peer loans. Not only have they historically given investors a 5-9% return per year (depending how much risk is taken on), but their performance is also highly uncorrelated with stocks and bonds. By including peer to peer loans in their overall growth-investments, stock investors are more likely to experience consistent rewarding returns each decade, ensuring an eventual retirement that can solely focus on the people they love.



Australian bank profits are over 170% higher than in 2004 compared to GDP

The four largest banks now generate combined pre-tax profits in excess of 2.6% of gross domestic product, up from only 1.5% in 2004. Through utilising technology, P2P lenders and other FinTech companies are able to reduce the costs associated with financial services, and help ensure that transaction costs are not a barrier to economic activity.

Treasury Consultations, Financial System Inquiry

NAB and small businesses: many are waiting weeks, sometimes months, to get an answer

The fight NAB business banking has to have

National Australia Bank (NAB) has vowed to fight to fend off peers that threaten its status as Australia’s biggest business bank but insiders say the battle lies internally.

When new boss Andrew Thorburn announced another disappointing result for the last financial year on 30 October, he identified reviving business banking as a strategic priority. He knows as well as anyone that restoring business banking to its former might is critical to pulling itself up from the bottom of the banking ladder.

Thorburn said the bank would add 100 frontline bankers to its team of 4,048, as well as extra mobile bankers and product sales specialists. This is part of NAB’s focus on areas it believes it has a competitive advantage.

Along with home loans, these include lending to small and medium-sized businesses (SMEs) and specialist business lending, comprising agribusiness, health, government, education and community.

In 2013 ANZ pledged to lend small businesses $1 billion over the course of that year. It followed up in March by pledging to lend a further $2 billion to new small businesses in 2014.

Last Monday, NAB trumped this with the launch of its self-described “aggressive” new marketing campaign in which it committed to lend $1 billion every month to Australian businesses.

Neil Slonim, a former NAB executive who now runs his own banking advisory and advocacy practice, pointed to some revealing statistics in the results presentation pack that raise questions about NAB’s ability to deliver on that pledge.

Cutting staff, losing customers

Its market share with SMEs turning over less than $1 million per annum has fallen from around 25 per cent in September 2013 to around 20 per cent.

Market share of SMEs with revenue between $1 million and $5 million has fallen from approximately 27 per cent to 23 per cent and the share of business with SMEs turning over between $5 million and $50 million has fallen from around 33 per cent to about 28 per cent.

“That is 20 per cent market share losses in 12 months which is pretty significant,” said Slonim.

Another slide showed that NAB’s customer satisfaction levels among businesses turning over between $1 million and $5 million has fallen significantly in the last six months and is the lowest of the big four.

It also ranks last and second-last with businesses with annual revenue exceeding $50 million and between $5 million and $50 million, respectively. NAB’s net promoter score across nine of its key segments is -10, again putting it in third place.

The deterioration in market share and satisfaction levels coincided with a 20 per cent drop in business bankers from around 5,076 in FY12 to 4,048. As a result of the job cuts and restructuring, 200,000 business customers have had their relationship managers changed, according to Slonim, which explains the exodus from NAB.

It isn’t due to other banks offering a better proposition but because customers have had enough of NAB, said Slonim. “That is why the challenge is internal.”

“When you cut 20 per cent of your staff, lose 20 per cent of your customers and satisfaction is down you are doing something wrong and it can’t be blamed on competitors,” he said.

Cumbersome lending practices

In his opinion, NAB is paying the price for the heavy cost-cutting and under-investment in what was traditionally its engine room. The fact NAB is looking to recruit 100 new business bankers indicates it has cut too deeply.

However, good business bankers aren’t easy to come by and it will take time to induct young and inexperienced bankers into NAB’s processes and culture.

Feedback Slonim has received from SMEs indicates many are waiting weeks, sometimes months, to get an answer. That’s during a period of sluggish demand for credit.

Certainly when Thorburn talked about the need to address customers’ pain points, he conceded business lending practices are “cumbersome”.

Slonim said NAB’s lending practices and processes are going to have to be substantially improved if it is to execute on its $1 billion per month lending commitment.


Is 'P2P' Lending a thing of the past?


19th May 2015

Looking at the webpages of the three largest members of the P2PFA, an interesting observation can be made. Only two of the three platforms, Zopa and RateSetter now call themsleves peer to peer lenders. The third, Funding Circle, has opted for the moniker 'marketplace lending' to describe what it does. Is this as a result of increasing institutional volume? Can platforms that facilitate large amounts of institutional volume continue to call themselves 'P2P'? Opinion is split as to whether the increasing volume of institutional lending through Alternative Finance platforms in the UK is a good or a bad thing. P2P purists are concerned that institutional lenders may crowd out the retail investor and reduce returns. Others argue that the inclusion of institutions is a necessary step in the continued evolution of the industry into a new asset class, rapidly enabling the industry to scale in a way that retail investment could not do alone and also bringing a greater level of professionalism and scrutiny.

Here at AltFi Data we have been tracking institutional involvement at Funding Circle for some time in a series of updates. Now, with Zopa and RateSetter publishing their loanbooks, we are able to investigate institutional activity at these platforms also giving a better picture of what is happening in the overall industry.

Both the Zopa and RateSetter loanbooks indicate whether a loan is covered by the contingency fund or not. It is not currently possible to invest as a retail investor on these platforms and not be covered by the respective Safeguard or Provision funds. Therefore, if we assume that the lenders on loans not covered by these funds are institutional investors, we can look at the minimum involvement of institutions in the space (minimum because it is possible that some institutions will opt for provision fund coverage and therefore will not be picked up in this analysis).

Chart 1: Estimated aggregate institutional participation in Funding CircleZopa and RateSetter originated loans.

The picture of institutional involvement in these top three UK platforms (together representing a 55% market share) is, unsurprisingly, one of increased institutional involvement. As the aggregate chart above shows, at least 27% of the origination volume for the biggest three UK platforms last month came from institutions. Institutional involvement in the UK market is significantly lower that it is across the Pond. In the US, retail investors account for only 10-20% of volume originations with companies like Orchard seeking to facilitate ease of access and a depth of knowledge in this emerging asset class to match exploding institutional interest.

Since the listing of P2PGI in May 2014, a number of closed funds have launched in the UK (such as Victory Park Speciality Lending and Ranger) and significant amounts of institutional investor commitments have been announced. Might the amount of institutional involvement in the UK be headed a similar way to the US? Could these closed funds end up becoming the medium through which a retail investor accesses the asset class going forward?

Chart 2: Monthly Funding Circle whole loan origination.


Funding Circle’s percentage of whole loans originated has increased since they started providing them in May 2014. As can be seen from the chart above, recently the increase appears to have levelled off around 40% with a slight decrease in April, likely to be a one off ‘blip’ rather than a trend.

Chart 3: Monthly Zopa loan origination with and without Safeguard fund protection.


As can be seen from the above chart of Zopa’s Safeguarded vs non safeguarded loan origination, since June 2014 when Zopa started to once again issue loans that were not protected by their contingency fund, the proportion of non Safeguarded loans has steadily increased. The timing and scale of this increase is similar to that seen with Funding Circle’s whole loans and coincides with the listing of P2PGI earlier in May 2014.

Last month (April), Zopa set a new industry record for monthly origination volume. We can see that almost half (43.5%) of April’s origination volume was down to loans that were not protected by the Safeguard fund (ie institutionally funded).  Just today we learned of a partnership between Zopa and Metro Bank where Metro Bank will fund loans that Zopa originates, adding more fuel to the institutional engine.

Chart 4: Monthly RateSetter loan origination with and without Contingency fund protection.

RateSetter’s non-provision fund protected loan origination is in stark contrast to the trend we see emerging at Zopa. Perhaps institutions investing in RateSetter loans invest in loans covered by their provision fund. Or maybe RateSetter is a more retail lender focussed platform? From RateSetter’s Blog post last December, we can see that over 93% of lending was by individuals. This would confirm our latter theory: RateSetter is a more retail lender focussed platform.

We have seen that mounting institutional interest in the UK has been gradually translating into a greater proportion of monthly originations funded by institutional investors. The launch of several new funds and large institutional commitments in 2015 may mark the beginnings of a shift in the channels of institutional capital directed to marketplace lending platforms. It is worth noting that for all three platforms, volumes from individual lenders continue to grow, albeit not as quickly as those from institutional lenders on Funding Circle and Zopa. However there appears to be a difference of opinion between the UK's three leading platforms as to the best way to grow with Funding Circle and Zopa courting the institutional money and RateSetter seemingly concentrating its efforts on the retail investor’s money. We'll be interested to see how the picture develops over the coming months and, as ever, we'll keep our readers updated.

MORE jobs are available this year than last

Looks who’s hiring

Melanie Burgess reveals the roles which have the most vacancies

  • Herald Sun
DIVERSE FIELD: Newly qualified nurse Kate Raison.

MORE jobs are available this year than last in seven of the workforce’s eight occupational groups as the jobs market experiences growth of 8.2 per cent.

The latest Internet Vacancy Report, which measures online job listings, outlines 157,312 vacancies. It reveals all occupational groups bar the machinery operator and driver segment (down 2.4 per cent) have more job vacancies than 12 months earlier.

Randstad employment market analyst Steve Shepherd says job confidence is heading in the right direction.

“We’re seeing changes in jobseeker optimism,” he says. “The job market is definitely improving . . . not earth shattering but an improvement.”

ANZ research, meanwhile, reveals 144,559 newspaper and online job ads were listed each week in April, putting the seasonally adjusted figures at their highest level in 2 ½ years.

The Internet Vacancy Index reveals the top five occupation groups for employment prospects.


Representing more than a quarter of Australia’s job vacancies are the 40,715 professional jobs up for grabs – 9.2 per cent more than last year. ICT workers – such as database administrators, web developers and programmers – top the list with 9500 vacancies (up 14.6 per cent). Architects and transport and design professionals are enjoying the greatest increase, jumping 33.2 per cent to 2468 vacancies, followed by medical practitioners and nurses, up 25.8 per cent to 4569.


Corporate manager jobs account for almost half of the 20,432 management vacancies (9108), increasing by 4.1 per cent in the past year. Farmers and farm managers have the greatest growth, up 50.3 per cent.


There are 27,704 vacancies (up 10.2 per cent) in this group, led by general inquiry clerks, call centre operators and receptionists, which account for 45 per cent or 12,465 vacancies. Hays Quarterly Report for April to June 2015 highlights the demand for temporary roles.

“There is a huge need for professional temps with extensive reception experience, especially in the booming construction and property industries ,” it says.


Engineering, ICT and science technicians make up 4338 of the 19,877 vacancies within the technicians and trade worker occupational group.

This is the largest set of occupations and the result of a 7.7 per cent increase in the past year. Construction trades are showing the greatest vacancy growth at 27.7 per cent (2842 vacancies).


There are 15,749 vacancies for sales workers, including 9065 for sales assistants and salespersons alone.

Real wages resume falls

Real wages resume falls

By  in Australian EconomyFeatured Article


As noted earlier, figures released today by the ABS revealed that Australian wages growth fell to the slowest pace on record (1997) in the March quarter, clocking it at only 2.3% (seasonally-adjusted and trend) over the year:

ScreenHunter_142 May. 13 12.02

The news was also bad when adjusted for underlying inflation, with annual wages growth falling to -0.1% in the year to March in trend terms:

ScreenHunter_143 May. 13 12.05 ScreenHunter_144 May. 13 12.05

The unpleasant reality is that real wages will need to continue stagnating (or fall) for Australia to regain its competitiveness (although labour costs are by no means the only factor). Without such an adjustment, trade-exposed local firms could continue to shutter, slashing employment.

With commodity prices and the terms-of-trade likely to continue falling, and the epic unwind of mining investment and the shuttering of the local car industry still to come, the downward pressure on wages will very likely continue.

Basel banking rules demanding a 300 per cent risk weight be applied to small business, 15 times more than applied to a mortgage

Basel Committee on Banking Supervision is demanding a 300 per cent risk weight be applied to small business funding. Compared to residential mortgages that carry a weighting of less than 20 per cent, this would make it uneconomic for major banks in Australia to lend to small businesses. via Basel banking rules could lead to �2bn more SME funding.

UK Perspective – interesting developments for alternative business finance

The Bank referral legislation, part of the Small Business Act, could see up to £2 billion more funding being provided to SMEs, according to figures produced by the Alternative Business Funding Portal (ABF).

The ABF estimates state that, once implemented, the legislation would see more than 100,000 small businesses fast-tracked to alternative finance providers. This in turn could see up to £2 billion of funding enter the SME space within the first 12 months.

ABF has also identified that recommendations from the Basel Committee on Banking Supervision, demanding a 300 per cent risk weight be applied to small business, could see the initial 100,000 small business funding referrals from the banks to the alternative funding sector increase dramatically in the future.

Adam Tavener, chairman of and catalyst for the ABF, urged the next government to back the body’s mission in light of the new legislation.

“With a potential £2billion in alternative small business funding as a result of the banking referral regulation, it is vitally important that the party or coalition government elected in May drives the implementation phase through as quickly as possible,” he said.

He went on to say that, even though the organisation is not in favour of the new Basel rules, they could work in favour of the alternative lenders.

“If enforced, it will clearly increase the number of small businesses declined for finance by the banks and, as a result of the referral system, these will be re-directed to alternative funding providers,” he said.

The ABF is a group that aims to bring together the market-leaders for all forms of alternative funding: including invoice trading, peer-to-peer and pension-led funding. Some 12 new funders are set to join the umbrella organisation. Among them are UK Bond Network, Funding Knight and Venture Founders.

Paul Mildenstein, CEO of ABF portal funder Liberis, said the organisation’s impact on SME funding “should not be under-estimated”. “The ABF group has been a principal driver in shaking up the SME finance sector, providing a collaborative and accessible marketplace for borrowers and emerging lenders alike,” he added.

[bctt tweet="Basel banking rules demanding a 300 per cent risk weight be applied to small business, 15 times more than applied to a mortgage"]

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Business credit demand up: Veda

Australian Banking + Finance Aussie businesses are borrowing more to take advantage of low interest rates.

According to the Veda Quarterly Business Credit Demand Index, applications for business loans, trade credit and asset finance rose by 2.4 per cent in the March 2015 quarter.

Most of that growth can be attributed to a big rise in business loan applications and asset finance applications which jumped 7.8 per cent and 2.2 per cent respectively. This is the first lift in finance applications since the June 2013 quarter.

Veda’s general manager of commercial credit, Moses Samaha, said: “During the March quarter we saw signs of a pickup in business credit growth after a softer December quarter. Growth in business loan applications was the strongest it has been since the December 2013 quarter, and we saw positive asset finance application figures for the first time in seven quarters."

The growth came from non-mining states, where business credit demand was up 3.4 per cent, offsetting the softer demand from the mining states of Western Australia, Queensland and the Northern Territory.

The index reveals that the pace of growth in overall business credit applications accelerated in all states with the strongest growth in Victoria and New South Wales.

In contrast, mining states showed weaker business credit demand with Queensland and Western Australia growing more moderately.

Increased competition

Within business loans generally, growth was driven in large part by the increased growth rate of mortgage applications and credit cards.

“Recently we’ve seen an upswing in business loan pledges by banks and other lenders. The increased competition in this space has created an attractive lending market for SMEs and contributed to the growth of business loan applications,” Samaha said.

Asset finance applications picked up in the March quarter after experiencing sharp falls throughout much of 2014. Improvement was across the board: commercial rental, hire purchase, and personal loan categories. However, leasing applications dropped.

“One year post the mining boom, it appears we may now be seeing what could be the new norm in growth rates for asset finance. There also appears to be a small return to growth in auto finance and IT asset finance in the market,” Samaha said.

Trade credit did not perform well. Applications fell by 2.6 per cent. Significant drops in trade credit applications were recorded across all states except for the ACT and Western Australia.

“The fall in trade credit applications is in line with the long term trend of softening trade credit demand. Softer trade credit conditions could be an early sign of moderate business confidence amongst non-lending credit providers,” Samaha said.





Vedacreditbusiness banking


Elizabeth Fry,

Article Posted:

April 15, 2015


The drivers of SME confidence: availability of credit

Today we continue our analysis of the SME sector, using data from our recently completed SME survey. Yesterday we showed that overall SME’s are still in the doldrums, but the construction sector is definitely on the rebound, showing stronger confidence, and demand for finance, This is a direct consequence of the low rate environment, and increasing demand for housing. The rebound is strongest in NSW and VIC, which aligns with recent strong property prices. As we reported previously,we need 900,000 more dwellings to be built over the next three years to meet current and anticipated demand. Construction sector SME’s have an critical role to play, as they either provide sub-contracting services to larger building companies or fund their own speculative developments. We start our discussion looking at the drivers of SME confidence. Compared with last year, concerns about political instability have diminished, whereas availability of credit now has more weight.


If we look at the year on year changes in confidence, for the last two years, confidence does vary by industry. Specifically, we see a rise in confidence in the property and business services sector, and construction. In comparison, manufacturing confidence has dropped, as has confidence in the mining sector.


Next looking at what is driving funding needs, we find that the biggest, and growing need is for working capital.


We find that this need is driven by cash flow issues. Cash flow is being hit by long payment cycles, the need to pay taxes and GST, to pay wages and to buy materials. Business expansion was not identified by many SME’s as a reason to borrow more. This indicates that businesses are still operating in survival mode.


Looking specifically at debtor days we see a slight improvement this year, with the debts outstanding over 50 days falling for the first time in a couple of years.


Now we turn to the LVR (Loan to Value Ratio) for specific industries. The most significant observation is that SME’s in the construction sector have increased their borrowing, relative to their assets. This is a sign of increased momentum in the sector. Construction tends to have a higher LVR because of nature of their business, but we see a significant trend change this past year. This data relates only to those SME’s who borrow, not all do so.


Then if we look at losses, we see the banks are still experiencing elevated levels of loss, compared with the pre-GFC environment from the SME sector. There are some state variations, and we saw some divergence in 2011-2012. The latest data from our models indicates an adjustment towards more consistent state norms. These higher loss rates explain partly why the capital allocation and loan pricing for SME’s is higher than other classes of lending. We have highlighted the problem with these differences.


Finally, if we look at losses in the construction sector, they are still above the SME average, but are trending down, other than in WA which have been consistently lower than other states, but is now trending up now.


So putting all this together, the frail SME sector is patchy. Construction is waking up, with increased demand for finance, and bank losses falling. On the other hand, the resource sector is slipping off its highs. Other sectors, including retail and manufacturing are still languishing. The RBA’s wish to effect a transition from the resource sector to the construction sector is registering in the survey. Confidence in the construction sector is stronger, and momentum is picking up. The recovery is strongest in NSW and VIC, and slowing in WA. Fewer than 10% of all SME’s are linked with the construction sector, so others are not fairing as well, and continue to grind out a hand-to-mouth existence. We cannot put all our eggs in the construction basket!

Digital Finance Analytics, 29 April 2015

ING Direct knocks out competition and wins ‘Most Recommended’ banking brand 2014/15

By Chris Roberts, Engaged Marketing

man with boxing gloves

It seems bigger doesn’t necessarily mean better, ING Direct has taught us that. The relatively new contender has taken on the heavyweights in the Australian banking industry, including the  “Big Four” banks, and has emerged on top in terms of customer recommendation.

Despite its lacking infrastructure, the bank has honed its skills and provided an amazing experience whilst being almost entirely branchless. Research suggests Australians are becoming more and more comfortable banking via phone and online channels.

ING Direct, more than any other financial institution, has taken advantage of this shift and has been able to articulate a clear point of difference and value proposition.  ING Direct has tailored their experience to Australians who want a direct, largely branchless experience with lower fees, and for these Aussies it’s a perfect match.

This value proposition has been reinforced by the organisation’s ‘customer-obsessed’ culture, proving that banking over the phone and Internet can still be a personalised, efficient and rewarding experience for customers.

This is why, since starting in 1999, they’ve been able to enjoy continued and significant growth from a zero base.  Its simple approach and customer offering is part of the reason ING Direct now has more than 1.5 million customers with $30 billion in deposits and $38 billion in mortgages.

We have found throughout our studies that the secret of the various loyalty leaders is a simple one: a unique customer value proposition combined with great customer experiences. In case you’re doubtful, compare ING Direct’s NPS of 38% with the average category score of -6%, and then again to the category’s lowest scoring financial institution which recorded a score of -20%.

It is ING Direct’s very tailored, very planned, and very attentive experience that has them leading the industry in satisfaction. This small powerhouse has a lesson to teach all the banks, it’s one you may have already heard us preaching in previous blogs: differentiation is key. ING Direct is largely branchless, it is direct and it has lower fees. That’s all folks! Nothing else behind this curtain! It’s this sheer simplicity that has it leading the banking industry in satisfaction. It’s clear, succinct and deliverable, and that’s all you need.

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Lending commitments to businesses are down (ex-mortgages) The overall fall in finance commitments has been driven by commercial, where the value of commitments has fallen 9.4% since June 2014, despite rebounding in January:

ScreenHunter_6570 Mar. 13 12.13

It’s important to note that around one quarter of commercial loans are lending for property investment, which are growing fast (see my earlier post). This suggests that loans to other commercial enterprises –  the productive economy – have fallen fairly sharply.

Most of the other components of lending have also been weakening. Housing renovation activity has fallen for four consecutive months and is down 6.3% since June.







View from the US: marketplace lending is transforming credit

US P2P market

The $2.4B in loans issued in 2013 by Lending Club and Prosper alone is a big number, but it’s only the first straw to be placed on the proverbial camel’s back. The top five banks have a market capitalization of a trillion dollars; the next 30 banks together are worth another trillion. How big can marketplace lending get? According to our estimates, banks, credit cards and other lending institutions generate $870B+ each year in fees and interest from over $3.2T in lending activity.

That’s bigger than the automobile industry. It’s bigger than the airline industry. And it’s bigger than both of those industries combined. That’s how big marketplace lending can get.

We’ve seen consumers and fast-growing upstarts challenge entrenched industries before, either out of frustration with incumbents, or the convenience of the disruptor. Consumers tired of exorbitant and inflexible cable bills, for instance, cut their cords and turned to over-the-top services such as Netflix. Yelp offered context and convenience that the Yellow Pages never could. And after the financial crisis, credit card users exasperated by 15%-plus interest rates, depositors tired of interest rates of 0.36% on savings accounts, and investors tired of 0.12% Treasury bills started looking for alternatives – and discovered marketplace lending.

The future belongs to online marketplace platforms like Lending Club, Sofi, OnDeck, RateSetter and others that aren’t yet on the scene that will remake the industry by developing more efficient lending practices, making those products more convenient for borrowers in all verticals – from merchant cash advance to consumer. We believe marketplaces will redirect the $870B+ that retail banks charge borrowers towards better rates for borrowers and lenders while still making tidy margins for themselves.

Marketplace lending is not a radical concept – it’s a more efficient one. As new companies and marketplaces form, we expect that options for marketplace lending will develop for all manner of consumer and business loans, including consumer unsecured, real estate, education, purchase finance, business loans, and business working capital.

And this transformation is only beginning. Currently, less than 2% of lending revenue is being captured by marketplace lenders in all verticals.

Marketplace Lending’s potential doesn’t mean that retail banks will be pushed out of business. Instead, retail banks that choose to participate in the marketplace revolution will use their capital to fund loans on marketplace platforms – as banks such as Titan Bank and Congressional Bank have begun to do with Lending Club. (In South Africa, we’ve seen Barclays take a position in RainFin, in Australia, Westpac has bought into Society One, and in the UK Santander has partnered with Funding Circle.)

Instead of playing the role of intermediary, retail banks can become borrower lead generation sources and institutional investors. Other banks are starting to bring their own borrowers and capital to Funding Circle’s and Lending Club’s marketplaces to more profitably facilitate loans to their own customers.


In addition to Lending Club and Prosper, other marketplace lenders have also sprung up. These include SoFi and Common Bond for student loans and Kabbage, OnDeck, and Funding Circle for SMB loans. Even companies like PayPal and Square have started to offer direct loans to their customers. We expect more loan providers will follow, in these and other categories.

Foundation Capital