Not all Fintech services are good for society

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. The consumer debt levels in the US remain high and Fintech has contributed to this substantially. Q2 2020 was the first quarter that household debt and credit dropped since 2014! However, 2019 closed with nearly $4.2 trillion in consumer debt (a record […]

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Time to check US Consumer debt, delinquencies, and refinancing applications

Bad-Credit-Student-Loan-Consolidation

It was only a month ago that economists were talking about interest payments on debt for individuals in the US (the top G7 indebted country on a personal basis) being low and manageable as the job market was strong.

Fast forward to today and the same numbers have to be interpreted differently. The global economy is taking a hit and both businesses and individuals are at risk. We need to look at the facts & figures and then see what can be done by banks or fintechs.

`Consumer debt was approaching $14-trillion after the second quarter of 2019, according to the New York Federal Reserve. It was the 20th consecutive quarter for an increase.`

Debt.org

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

You get 3 free articles on Daily Fintech. Get all our fresh content and our archives and participate in our forum, by becoming a member for just US$143 a year.

Americans love credit cards and even if we get rid of the physical cards, credit card debt isn’t close to being shaken out of the system.

NPR’s Chris Arnold and Lucia Dunn professor from Ohio State University reported that close to 10% of credit card debt is over 90-days delinquent. These are levels approaching those of the great recession and could be sounding an alarm in a weak economy.

These delinquencies are concentrated in the 18-29yr old age group, which, unfortunately, also the age group with significant amounts of student debt too.

Student debt has 20% of double 90-days delinquencies, double that of credit card debt.

In other words, young people are overloaded with debt and delinquency rates have been increasing to dangerous levels. These are numbers before COVID19 and its impact.

The FRED reports that credit card debt has grown to $1 trillion (from debt.org) and another $1.6 trillion of student debt loans.

Screen Shot 2020-03-16 at 11.35.00

Personal loans have also been growing faster than student and credit card debt. CNBC reported $300billion as of Q2 2019 which represented an 11% yoy increase.

The black hole of consumer debt (homes, auto, student, credit card, …) is getting bigger and bigger. Low and down trending rates helped support an entire Fintech Refinancing and consolidation subsector that served consumers in great ways. However, none of these non-bank lending fintechs has helped reduce the outstanding debt and this is a Big issue now that the `shit hit the fan` (pardon my French).

More facts to keep in mind as we navigate through these unchartered waters

 As the Fed stepping in with two emergency rate cuts already bringing rates down to zero, that does not mean that these have already trickled down to consumers. Everybody (including Fintechs) is not immediately lowering mortgage rates or other rates. Refinancing applications of all sorts are spiking.

Anthony Sherman, CEO and cofounder of Simplist, a fintech digital mortgage marketplace, reported facts and figures around the mortgage market and the current Refi potential.

`$10 trillion of mortgage backed securities debt are outstanding in the US market.

80% roughly is refinance-able`

Beware, lenders cannot handle this, simply because it will generate sudden accumulated losses and the origination capacity is no more than one third the demand.

Figure Technologies, the blockchain-powered lender that I covered last month, reported a 300% spike in applications for new mortgages and refinancing of HELOCs and student loans. And this was after the first Fed cut. HELOC holders are demanding more cash in hand, already.

Already homeowners have been taking out huge amounts from cash-out refinances. Black Knight reported that 600,000 homeowners withdrew about $41 billion in equity from their homes via cash-out refinances in Q4 2019. This was the largest quarterly volume since mid-2009.

Non-bank lenders are at great risk in these absurd market conditions and so are consumers.

These are also the conditions that alternative credit scoring will be stress tested.

Sources – NPR: U.S. Credit Card Debt Hits All-Time High, And Overdue Payments Rise For Young People Feb 13, 2020

Low mortgage rates driving cash-out refinance to 11-year high

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`Before me, everything was done manually` says the `Blockchain` Figure muppet

Screen Shot 2020-02-24 at 08.04.36Meet the new mascot “Blockchain,” a puppet that Figure Technologies has created for their video ads aiming at the masses who should consider the benefits of HELOCs on the Blockchain.

View the video ad campaign here.

Figure Technologies is a 2year old San Francisco-based startup that is well funded and focused on changing the entire life-cycle of Loans and beyond. From loan origination to servicing, and securitization. They started servicing the needs of homeowners who have most of their wealth locked in their homes with the so-called HELOCs (Home Equity Line Credit).

The technology they have built is slowly and methodically, being piloted and used in different use cases.

Figure Technologies is eating its own dogfood. Crunchbase reports an eye-popping total funding amount of $1.2billion. This includes a credit facility of $1billion from investment bank Jefferies and WSFS Financial Corporation, the parent of WSFS Bank. This financing facility (May 2019) is custodied and serviced on the in-house Blockchain that Figure Technologies has developed, called Provenance Blockchain.

In the summer of 2019, Figure Technologies launched its $20 million Reg D security token offering, the HASH token, also using the Provenance Blockchain.

Figure Technologies is cofounded by Mike Cagney, the founder, and ex-CEO of Sofi, with his wife June Ou (ex- CTO at Sofi). Undoubtedly, Figure Technologies is targeting the same market that Sofi targeted (refinancing debt). It can be seen as the Blockchain competitor or it can be seen as the technology company that will make it easy for Sofi to migrate to a blockchain infrastructure when the time is right.

Current product offering of Figure Technologies

Screen Shot 2020-02-24 at 10.31.05

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

You get 3 free articles on Daily Fintech. Get all our fresh content and our archives and participate in our forum, by becoming a member for just US$143 a year.

On the other hand, the target market is huge and maybe the two companies stay separate as Sofi grows its platform beyond refinancing loans and into wealth management.

Figure Technologies presents a huge global opportunity in private markets. They estimate savings via their Provenance blockchain (Provenance benefit figure) and revenues on the Provenance blockchain (Provenance Opportunity figure)

Screen Shot 2020-02-24 at 10.09.07

Provenance Blockchain

The in house blockchain is public but permissioned. The participants are: The members that transact on the Provenance blockchain (which include the HASH token holders), the Node hosts, the administrator, and the omnibus banks that take care of the fiat bridges to the Provenance blockchain.

The consensus model is from Hyperledger. More details in the Provenance white paper.

HASH token

A great example of a hybrid token that would not be possible in the current financial infrastructure. HASH has equity like attributes and voting rights.

HASH token holders receive directly (digitally) fees from the members that transact on the Provenance blockchain (are you salivating while looking at the Provenance Opportunity figures?).

They also vote for the administrator.

Also HASH has staking functionality for the nodes. Each node has to put up a stake of HASH on which they will earn the return for their services.

Details regarding the allocations and the economics are found the Provenance white paper.

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Digital Securitization as a Service, for the Capital Markets Union

In this post, I take a pulse from the securitization markets and highlight one scalable innovation in Europe – The partnership of Crosslend & SolarisBank. According to MSCI, the 2008 financial crisis was a Securitization crisis. I don`t disagree but this fact does not mean that it was the core cause of the crisis. I […]

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