Canton de Vaud - Switzerland
The MIG Corp´s FinTech Platform. The "Securitization" answer
The financial technology industry (“fintech”) has been disrupting banking, reshaping businesses and transforming the way consumers manage and use money.
Several factors have made the banks more vulnerable: new technologies and cheap data processing have lowered barriers to entry, and the financial crisis has left consumers more open to trying alternatives to incumbent banks they had to bail out. New entrants to the market and business models, changing customer expectations and fragmentation of traditional services are all contributing to a newly found “democratization” of banking at the hands of technology.
Since the aftermath of the 2008 financial crisis more than 4,000 fintech startups are now active, with an increasing share being valued at over $1 billion; across the fintech capitals of the world, New York, London, Silicon Valley, Hong Kong and Singapore to name a few - venture capital is pouring into financial technology attracting a whopping $12 billion in investments in 2014 alone. All told, financial-services firms in fields that fintech could potentially disrupt generate global revenues estimated at $4.7 trillion a year and profits of $470 billion, according to a recent Goldman Sachs report. With their combination of financing and technology, fintechs are able to set up and operate an electronic platform under which companies wishing to obtain a financing will be introduced to investors wishing to diversify their investments by investing their available cash in financial products.
In addition to transforming existing sectors, fintech has plunged into uncharted waters by creating entirely new types of products and services,
Through securitization, lending and borrowing do not have to be “one size fits all” anymore and technology can bring the necessary flexibility to meet needs while managing risks, providing Companies and Organizations with a critical source of financing. As part of this “securitization model”, Companies will utilize the technology platform offered by their fintech partner to offer for sale some of their trade receivables held against their clients; the fintech may then enter into a credit insurance agreement with an insurance company under which either such fintech or the relevant investor will be the insured party, ultimately being in charge of negotiating and monitoring the insurance policy.
The Mechanism of Securitization
In essence, the mechanism of such a securitization-based financing model is the following:
Companies post for sale some of their receivables on the platform (the "originators");
Fintechs, acting as the operator of the platform, will ensure that such proposed receivables comply with a list of eligibility criteria similar to those developed for factorings or securitizations;
Fintechs will ensure that the invoiced amount is due, and then "disclose" the offer of such receivables on the platform;
Fintechs will liaise with any investor wishing to acquire such receivables, taking all steps necessary to formalize any transfer deed purporting to transfer the property of such receivables to the relevant investor, transfer the purchase price to the originator and finally transfer the collections to such investor.
Fintechs can maximize the benefits of such a securitization model through the application of three key conditions, namely;
Mechanisms to ensure the security of the platform.
A proper risk/ return ratio that can take into account market volatility and fluctuations.
Reporting and information transparency.
Moreover, given some of the specific tasks that fintechs will be in charge of as part of this model - namely structuring and selecting the receivables, looking for investors and, last but not least, managing the payments in relation to the platform - there will be important legal and structuring requirements around local enforceability and taxation, some of which will be unique to the technology-based nature of this financing model.
On 22 May 2017, the Financial Stability Board (FSB) and the Committee on the Global Financial System (CGFS) released a report entitled “FinTech credit: Market Structure, Business Models and Financial Stability Implications” (the “Report”). The Report aims to provide an accurate picture of the extent and nature of Fintech credit activity by analysing the functioning of Fintech credit markets, including the size, growth, and nature of such activities, and the benefits and risks of Fintech credit platforms.
The MIG CORP´s Fintech Credit Technological Platform
The Report defines Fintech credit broadly as “all credit activity facilitated by electronic platforms whereby borrowers are matched directly with lenders”.
On the whole, although Fintech credit markets have expanded at a fast pace over recent years, they still remain small in size relative to credit extended by traditional intermediaries.
MIG CORPhas promoted a “taylor made” approach to Fintech Securization Servicies providing two types of technological & services models based onto a “Fintech Credit Platform”:
Guaranteed return model – The Fintech credit platform guarantees the investors’ principal and/or interest on the loans.
Balance sheet model – The Fintech credit platform originates and retains the loans on its own balance sheet, similar to traditional business models of a non-bank lender.
The securitization of MIG CORP´s Fintech credit obligations though its “state of art” technological platform provides the potential to make funding available to borrowers from different classes of institutional investors and allows Fintech investments to be actively traded. However, depending on its nature, the increased use of securitization as a funding source may lead to some financial stability risks distinct from other Fintech platform funding avenues.
In fact, the FSB´s report identifies three potential risks associated with the increased use of securitization as a funding source:
Interconnectedness – The securitization process increases interconnectedness between Fintech platforms, banks and capital markets. A continued expansion of the Fintech market could result in new transmissions channels where risks generated in the Fintech credit industry are spread to the wider financial system because of the interconnected nature of securitization and vice versa.
Misaligned Incentives – Without “skin in the game” retention requirements for securitizations of Fintech credit obligations, the Report indicates that the potential for misaligned incentives between originators and investors may be increased than if such Fintech credit obligations are not securitized. There may be additional incentives for originators to originate high-risk debt obligations when a Fintech credit platform charges higher fees to higher-risk borrowers or to investors upon loan collection.
Lack of transparency – The bundling and tranching of Fintech credit obligations may create increased issues with transparency in the overall market for both investors and regulators.
MIG CORP´s Fintech credit markets Platform have established a FINTECH uniqueness value proposition based onto its 20 years professional experience of its partners, affiliated and subsidiaries companies and is expanded at a very fast pace over recent years.
The long-term growth and evolution of MIG CORP Fintech credit activity is based on its key corporate alliances and partnerships with lenders and MIG CORP´s ability to attract and retain borrowers and investors in global hub location around the world.
 The FSB is an international body that monitors and makes recommendations about the global financial system. Its members include all G20 major economies.
 The CGFS is a central bank forum that monitors and examines broad issues relating to financial markets and systems. Its members include deputy governors and other senior officials of central banks.